26870 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 412 and 413 

[CMS–1529–F] 

RIN 0938–AO30 

Medicare Program; Prospective 

Payment System for Long-Term Care 

Hospitals RY 2008: Annual Payment 

Rate Updates, and Policy Changes; 

and Hospital Direct and Indirect 

Graduate Medical Education Policy 

Changes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final Rule. 

SUMMARY: This final rule updates the 

annual payment rates for the Medicare 

prospective payment system (PPS) for 

inpatient hospital services provided by 

long-term care hospitals (LTCHs). The 

final payment amounts and factors used 

to determine the updated Federal rates 

that are described in this final rule were 

determined based on the LTCH PPS rate 

year July 1, 2007 through June 30, 2008. 

The annual update of the long-term care 

diagnosis-related group (LTC–DRG) 

classifications and relative weights 

remains linked to the annual 

adjustments of the acute care hospital 

inpatient diagnosis-related group 

system, and continue to be effective 

each October 1. The final outlier 

threshold for July 1, 2007, through June 

30, 2008, is derived from the LTCH PPS 

rate year calculations. We are also 

finalizing policy changes which include 

revisions to the GME and IME policies. 

In addition, we are adding a technical 

amendment correcting the regulations 

text at § 412.22. 

EFFECTIVE DATE: These regulations are 

effective on July 1, 2007. 

FOR FURTHER INFORMATION CONTACT: 

Tzvi Hefter, (410) 786–4487 (General 

information). 

Judy Richter, (410) 786–2590 (General 

information, payment adjustments for 

special cases, and onsite discharges 

and readmissions, interrupted stays, 

co-located providers, and short-stay 

outliers). 

Michele Hudson, (410) 786–5490 

(Calculation of the payment rates, 

LTC–DRGs, relative weights and casemix index, market basket, wage index, 

budget neutrality, and other payment 

adjustments). 

Ann Fagan, (410) 786–5662 (Patient 

classification system). 

Miechal Lefkowitz, (410) 786–5316 

(Graduate Medical Education 

payments). 

Linda McKenna, (410) 786–4537 

(Payment adjustments, interrupted 

stay, and transition period). 

Renate Rockwell, (410) 786–4645 

(Graduate Medical Education 

payments). 

Elizabeth Truong, (410) 786–6005 

(Federal rate update, budget 

neutrality, other adjustments, and 

calculation of the payment rates). 

Michael Treitel, (410) 786–4552 (High 

cost outliers and cost-to-charge 

ratios). 

Table of Contents 

I. Background 

A. Legislative and Regulatory Authority 

B. Criteria for Classification as a LTCH 

1. Classification as a LTCH 

2. Hospitals Excluded from the LTCH PPS 

C. Transition Period for Implementation of 

the LTCH PPS 

D. Limitation on Charges to Beneficiaries 

E. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and Accountability 

Act (HIPAA) Compliance 

II. Summary of the Provisions of the Final 

Rule 

A. Summary of Major Contents of this 

Final Rule 

B. Responses to Comments 

III. Long-Term Care Diagnosis-Related Group 

(LTC–DRG) Classifications and Relative 

Weights 

A. Background 

B. Patient Classifications into DRGs 

C. Organization of DRGs 

D. Update of LTC–DRGs 

1. Background 

2. Method for Updating the LTC–DRG 

Relative Weights 

3. Budget Neutrality (BN) Requirement for 

the Annual LTC–DRG Update 

E. ICD–9–CM Coding System 

1. Uniform Hospital Discharge Data Set 

(UHDDS) Definitions 

2. Maintenance of the ICD–9–CM Coding 

System 

3. Coding Rules and Use of ICD–9–CM 

Codes in LTCHs 

IV. Changes to the LTCH PPS Payment Rates 

for the 2008 LTCH PPS Rate Year 

A. Overview of the Development of the 

Payment Rates 

B. LTCH PPS Market Basket 

1. Overview of the RPL Market Basket 

2. Market Basket Estimate for the 2008 

LTCH PPS Rate Year 

C. Standard Federal Rate for the 2008 

LTCH PPS Rate Year 

1. Background 

2. Update to the Standard Federal Rate for 

the 2008 LTCH PPS Rate Year 

3. Standard Federal Rate for the 2008 

LTCH PPS Rate Year 

D. Calculation of LTCH Prospective 

Payments for the 2008 LTCH PPS Rate 

Year 

1. Adjustment for Area Wage Levels 

a. Background 

b. Geographic Classifications/Labor Market 

Area Definitions 

c. Labor-Related Share 

d. Wage Index Data 

2. Adjustment for Cost-of-Living in Alaska 

and Hawaii 

3. Adjustment for High-Cost Outliers 

(HCOs) 

a. Background 

b. Cost-to-charge ratios (CCRs) 

c. Establishment of the Fixed-Loss Amount 

d. Reconciliation of Outlier Payments 

Upon Cost Report Settlement 

e. Application of Outlier Policy to ShortStay Outlier (SSO) Cases 

4. Other Payment Adjustments 

5. Budget Neutrality (BN) Offset to Account 

for the Transition Methodology 

6. One-time Prospective Adjustment to the 

Standard Federal Rate 

V. Other Policy Changes for the 2008 LTCH 

PPS Rate Year 

A. Short-Stay Outlier (SSO) Cases 

1. Background 

2. Additional Discussion of the SSO 

Payment Formula (Includes Technical 

Correction) 

3. Determination of Cost-to-Charge Ratios 

(CCRs) 

4. Reconciliation of SSO Cases 

B. Expansion of Special Payment 

Provisions for LTCH Hospitals within 

Hospitals (HwHs) and LTCH Satellites: 

Expansion of the 25 Percent Rule to 

Certain Situations Not Currently Covered 

Under Existing § 412.534 

VI. Computing the Adjusted Federal 

Prospective Payments for the 2008 LTCH 

PPS Rate Year 

VII. Transition Period 

VIII. Payments to New LTCHs 

IX. Method of Payment 

X. Monitoring 

XI. MedPAC Recommendations: The RTI 

Contract 

XII. Graduate Medical Education (GME) 

A. GME Background 

B. Resident Training in Nonhospital 

Settings 

1. Background 

2. Moratorium on Disallowances of 

Allopathic or Osteopathic Family 

Practice Residents Training Time in 

Nonhospital Settings, and Questions and 

Answers (Qs&As) on CMS Web site 

(Section 713 of the MMA and § 413.78) 

3. Requirements for Written Agreements 

for Residency Training in Nonhospital 

Settings (§ 413.78(e)) 

4. Modification of the Definition of ‘‘All or 

Substantially All of the Costs for the 

Training Program in the Nonhospital 

Setting’’ 

5. Implementation of a 90 Percent Cost 

Threshold 

C. Other Issues to be Considered 

D. Summary of Final Provisions 

XIII. Technical Amendment 

XIV. Collection of Information Requirements 

XV. Regulatory Impact Analysis 

A. Introduction 

1. Executive Order 12866 

2. Regulatory Flexibility Act (RFA) 

3. Impact on Rural Hospitals 

4. Unfunded Mandates 

5. Federalism 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26871 

6. Alternatives Considered 

B. Anticipated Effects of Payment Rate 

Changes 

1. Budgetary Impact 

2. Impact on Providers 

3. Calculation of Prospective Payments 

4. Results 

5. Effects on the Medicare Program 

C. Impact of Other Policy Changes 

1. Effects of Policy Expansion of the 

Special Payment Provisions for LTCH 

HwHs and LTCH Satellites to Certain 

Situations Not Presently Covered by 

Existing § 412.534 for Subclause (I) 

LTCHs 

2. Effects of Policy Change Relating to 

Payment for Direct Graduate Medical 

Education (GME) 

D. Accounting Statement 

Addendum: Tables 

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: 

AAMC Association of American 

Medical Colleges 

AFMAA Academic Family Medicine 

Advocacy Alliance 

AHA American Hospital Association 

AHIMA American Health Information 

Management Association 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital 

Association 

AMGA American Medical Group 

Association 

AMPRA American Medical Peer 

Review Association 

AOA American Osteopathic 

Association 

APR All patient refined 

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) 

BN Budget neutrality 

CBSA Core-based statistical area 

CCR Cost-to-charge ratio 

C&M Coordination and maintenance 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

COLA Cost of living adjustment 

CS Consolidated severity-adjusted 

CY Calendar year 

DSH Disproportionate share of lowincome patients 

DRGs Diagnosis-related groups 

FI Fiscal intermediary 

FMC Family Medicine Center 

FTE Full-time equivalent 

FY Federal fiscal year 

GME Graduate medical education 

HCO High-cost outlier 

HCRIS Hospital cost report 

information system 

HHA Home health agency 

HHS (Department of) Health and 

Human Services 

HIPAA Health Insurance Portability 

and Accountability Act (Pub. L. 104–

191) 

HIPC Health Information Policy 

Council 

HwHs Hospitals within hospitals 

ICD–9–CM International Classification 

of Diseases, Ninth Revision, Clinical 

Modification (codes) 

IME Indirect medical education 

I–O Input-Output 

IPF Inpatient psychiatric facility 

IPPS [Acute Care Hospital] Inpatient 

Prospective Payment System 

IRF Inpatient rehabilitation facility 

LOS Length of stay 

LTC–DRG Long-term care diagnosisrelated group 

LTCH Long-term care hospital 

MCE Medicare code editor 

MDC Major diagnostic categories 

MedPAC Medicare Payment Advisory 

Commission 

MedPAR Medicare provider analysis 

and review 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act 

of 2003 (Pub. L. 108–173) 

MSA Metropolitan statistical area 

NAICS North American Industrial 

Classification System 

NALTH National Association of Long 

Term Hospitals 

NCHS National Center for Health 

Statistics 

OACT [CMS’] Office of the Actuary 

OBRA 86 Omnibus Budget 

Reconciliation Act of 1986 (Pub. L. 

99–509) 

OMB Office of Management and 

Budget 

OPM U.S. Office of Personnel 

Management 

O.R. Operating room 

OSCAR Online Survey Certification 

and Reporting (System) 

OTN One-Time Notification 

PIP Periodic interim payment 

PLI Professional liability insurance 

PMSA Primary metropolitan statistical 

area 

PPI Producer Price Indexes 

PPS Prospective payment system 

PRA Per resident amount 

PSF Provider specific file 

QIO Quality Improvement 

Organization (formerly Peer Review 

organization (PRO)) 

RIA Regulatory impact analysis 

RPL Rehabilitation psychiatric longterm care (hospital) 

RTI Research Triangle Institute, 

International 

RY Rate year (begins July 1 and ends 

June 30) 

SIC Standard industrial code 

SNF Skilled nursing facility 

SSO Short-stay outlier 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982 (Pub. L. 

97–248) 

TEP Technical expert panel 

UHDDS Uniform hospital discharge 

data set 

I. Background 

A. Legislative and Regulatory Authority 

Section 123 of the Medicare, 

Medicaid, and SCHIP [State Children’s 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106–113) as amended by 

section 307(b) of the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554) provides 

for payment for both the operating and 

capital-related costs of hospital 

inpatient stays in long-term care 

hospitals (LTCHs) under Medicare Part 

A based on prospectively set rates. The 

Medicare prospective payment system 

(PPS) for LTCHs applies to hospitals 

described in section 1886(d)(1)(B)(iv) of 

the Social Security Act (the Act), 

effective for cost reporting periods 

beginning on or after October 1, 2002. 

Section 1886(d)(1)(B)(iv)(I) of the Act 

defines a LTCH as ‘‘a hospital which has 

an average inpatient length of stay (as 

determined by the Secretary) of greater 

than 25 days.’’ Section 

1886(d)(1)(B)(iv)(II) of the Act also 

provides an alternative definition of 

LTCHs: Specifically, a hospital that first 

received payment under section 1886(d) 

of the Act in 1986 and has an average 

inpatient length of stay (LOS) (as 

determined by the Secretary of Health 

and Human Services (the Secretary)) of 

greater than 20 days and has 80 percent 

or more of its annual Medicare inpatient 

discharges with a principal diagnosis 

that reflects a finding of neoplastic 

disease in the 12-month cost reporting 

period ending in fiscal year (FY) 1997. 

Section 123 of the BBRA requires the 

PPS for LTCHs to be a ‘‘per discharge’’

system with a diagnosis-related group 

(DRG) based patient classification 

system that reflects the differences in 

patient resources and costs in LTCHs. It 

also requires that the ‘‘per discharge’’

system maintain budget neutrality (BN). 

We believe the statutory mandate for BN 

applies only to the first year of the 


ycherry on PROD1PC64 with RULES2
26872 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

implementation of the LTCH PPS such 

that estimated payments in the first year 

of the PPS were projected to equal 

payments that would have been paid for 

operating and capital-related costs of 

LTCHs had this new payment system 

not been enacted. 

Section 307(b)(1) of the BIPA, among 

other things, mandates that the 

Secretary shall examine, and may 

provide for, adjustments to payments 

under the LTCH PPS, including 

adjustments to DRG weights, area wage 

adjustments, geographic reclassification, 

outliers, updates, and a disproportionate 

share adjustment. 

In the August 30, 2002 Federal 

Register, we issued a final rule that 

implemented the LTCH PPS authorized 

under BBRA and BIPA (67 FR 55954). 

This system uses information from 

LTCH patient records to classify 

patients into distinct long-term care 

diagnosis-related groups (LTC–DRGs) 

based on clinical characteristics and 

expected resource needs. Payments are 

calculated for each LTC–DRG and 

provisions are made for appropriate 

payment adjustments. Payment rates 

under the LTCH PPS are updated 

annually and published in the Federal 

Register. 

The LTCH PPS replaced the 

reasonable cost-based payment system 

under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

(Pub. L. 97–248) for payments for 

inpatient services provided by a LTCH 

with a cost reporting period beginning 

on or after October 1, 2002. (The 

regulations implementing the TEFRA 

reasonable cost-based payment 

provisions are located at 42 CFR part 

413.) With the implementation of the 

PPS for acute care hospitals authorized 

by the Social Security Amendments of 

1983 (Pub. L. 98–21), which added 

section 1886(d) to the Act, certain 

hospitals, including LTCHs, were 

excluded from the PPS for acute care 

hospitals and were paid their reasonable 

costs for inpatient services subject to a 

per discharge limitation or target 

amount under the TEFRA system. For 

each cost reporting period, a hospitalspecific ceiling on payments was 

determined by multiplying the 

hospital’s updated target amount by the 

number of total current year Medicare 

discharges. (Generally, in this document 

when we refer to discharges, the intent 

is to describe Medicare discharges.) The 

August 30, 2002 final rule further 

details the payment policy under the 

TEFRA system (67 FR 55954). 

In the August 30, 2002 final rule, we 

also presented an in-depth discussion of 

the LTCH PPS, including the patient 

classification system, relative weights, 

payment rates, additional payments, 

and the BN requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR part 412, 

subpart O, also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

In the June 6, 2003 Federal Register, 

we published a final rule that set forth 

the FY 2004 annual update of the 

payment rates for the Medicare PPS for 

inpatient hospital services furnished by 

LTCHs (68 FR 34122). It also changed 

the annual period for which the 

payment rates are effective. The annual 

updated rates are now effective from 

July 1 through June 30 instead of from 

October 1 through September 30. We 

refer to the July through June time 

period as a ‘‘long-term care hospital rate 

year’’ (LTCH PPS rate year). In addition, 

we changed the publication schedule for 

the annual update to allow for an 

effective date of July 1. The payment 

amounts and factors used to determine 

the annual update of the LTCH PPS 

Federal rate is based on a LTCH PPS 

rate year. While the LTCH payment rate 

update is effective July 1, the annual 

update of the LTC–DRG classifications 

and relative weights are linked to the 

annual adjustments of the acute care 

hospital inpatient DRGs and are 

effective each October 1. 

In the Prospective Payment System 

for Long-Term Care Hospitals RY 2007: 

Annual Payment Rate Updates, Policy 

Changes, and Clarifications final rule 

(71 FR 27798) (hereinafter referred to as 

the RY 2007 LTCH PPS final rule), we 

set forth the 2007 LTCH PPS rate year 

annual update of the payment rates for 

the Medicare PPS for inpatient hospital 

services provided by LTCHs. We also 

adopted the ‘‘Rehabilitation, 

Psychiatric, Long-Term Care (RPL)’’

market basket under the LTCH PPS in 

place of the excluded hospital with 

capital market basket. In addition, we 

implemented a zero percent update to 

the LTCH PPS Federal rate for RY 2007. 

We also revised the existing payment 

adjustment for short stay outlier (SSO) 

cases by reducing part of the current 

payment formula and adding a fourth 

component to that payment formula. In 

addition, we sunsetted the surgical DRG 

exception to the payment policy 

established under the 3-day or less 

interruption of stay policy. Finally, we 

clarified the policy at § 412.534(c) for 

adjusting the LTCH PPS payment so that 

the LTCH PPS payment is equivalent to 

what would otherwise be payable under 

§ 412.1(a). 

B. Criteria for Classification as a LTCH 

1. Classification as a LTCH 

Under the existing regulations at 

§ 412.23(e)(1) and (e)(2)(i), which 

implement section 1886(d)(1)(B)(iv)(I) of 

the Act, to qualify to be paid under the 

LTCH PPS, a hospital must have a 

provider agreement with Medicare and 

must have an average Medicare 

inpatient LOS of greater than 25 days. 

Alternatively, § 412.23(e)(2)(ii) states 

that for cost reporting periods beginning 

on or after August 5, 1997, a hospital 

that was first excluded from the PPS in 

1986 and can demonstrate that at least 

80 percent of its annual Medicare 

inpatient discharges in the 12-month 

cost reporting period ending in FY 1997 

have a principal diagnosis that reflects 

a finding of neoplastic disease must 

have an average inpatient LOS for all 

patients, including both Medicare and 

non-Medicare inpatients, of greater than 

20 days. 

Section 412.23(e)(3) provides that, 

subject to the provisions of paragraphs 

(e)(3)(ii) through (e)(3)(iv) of this 

section, the average Medicare inpatient 

LOS, specified under § 412.23(e)(2)(i) is 

calculated by dividing the total number 

of covered and noncovered days of stay 

for Medicare inpatients (less leave or 

pass days) by the number of total 

Medicare discharges for the hospital’s 

most recent complete cost reporting 

period. Section 412.23 also provides 

that subject to the provisions of 

paragraphs (e)(3)(ii) through (e)(3)(iv) of 

this section, the average inpatient LOS 

specified under § 412.23(e)(2)(ii) is 

calculated by dividing the total number 

of days for all patients, including both 

Medicare and non-Medicare inpatients 

(less leave or pass days) by the number 

of total discharges for the hospital’s 

most recent complete cost reporting 

period. 

In the RY 2005 LTCH PPS final rule 

(69 FR 25674), we specified the 

procedure for calculating a hospital’s 

inpatient average length of stay (ALOS) 

for purposes of classification as a LTCH. 

That is, if a patient’s stay includes days 

of care furnished during two or more 

separate consecutive cost reporting 

periods, the total days of a patient’s stay 

would be reported in the cost reporting 

period during which the patient is 

discharged (69 FR 25705). Therefore, we 

revised § 412.23(e)(3)(ii) to specify that, 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26873 

effective for cost reporting periods 

beginning on or after July 1, 2004, in 

calculating a hospital’s ALOS, if the 

days of an inpatient stay involve days of 

care furnished during two or more 

separate consecutive cost reporting 

periods, the total number of days of the 

stay are considered to have occurred in 

the cost reporting period during which 

the inpatient was discharged. 

Fiscal intermediaries (FIs) verify that 

LTCHs meet the ALOS requirements. 

We note that the inpatient days of a 

patient who is admitted to a LTCH 

without any remaining Medicare days of 

coverage, regardless of the fact that the 

patient is a Medicare beneficiary, will 

not be included in the above 

calculation. Because Medicare would 

not be paying for any of the patient’s 

treatment, data on the patient’s stay 

would not be included in the Medicare 

claims processing systems. As described 

in § 409.61, in order for both covered 

and noncovered days of a LTCH 

hospitalization to be included, a patient 

admitted to the LTCH must have at least 

one remaining benefit day (68 FR 

34123). 

The FI’s determination of whether or 

not a hospital qualifies as an LTCH is 

based on the hospital’s discharge data 

from the hospital’s most recent 

complete cost reporting period as 

specified in § 412.23(e)(3) and is 

effective at the start of the hospital’s 

next cost reporting period as specified 

in § 412.22(d). However, if the hospital 

does not meet the ALOS requirement as 

specified in § 412.23(e)(2)(i) and (ii), the 

hospital may provide the FI with data 

indicating a change in the ALOS by the 

same method for the period of at least 

5 months of the immediately preceding 

6-month period (69 FR 25676). Our 

interpretation of § 412.23(e)(3) was to 

allow hospitals to submit data using a 

period of at least 5 months of the most 

recent data from the immediately 

preceding 6-month period. 

As we stated in the FY 2004 Inpatient 

Prospective Payment System (IPPS) 

final rule, published in the August 1, 

2003 Federal Register, prior to the 

implementation of the LTCH PPS, we 

did rely on data from the most recently 

submitted cost report for purposes of 

calculating the ALOS (68 FR 45464). 

The calculation to determine whether 

an acute care hospital qualifies for 

LTCH status was based on total days 

and discharges for LTCH inpatients. 

However, with the implementation of 

the LTCH PPS, for the ALOS specified 

under § 412.23(e)(2)(i), we revised 

§ 412.23(e)(3)(i) to only count total days 

and discharges for Medicare inpatients 

(67 FR 55970 through 55974). In 

addition, the ALOS specified under 

§ 412.23(e)(2)(ii) is calculated by 

dividing the total number of days for all 

patients, including both Medicare and 

non-Medicare inpatients (less leave or 

pass days) by the number of total 

discharges for the hospital’s most recent 

complete cost reporting period. As we 

discussed in the FY 2004 IPPS final 

rule, we are unable to capture the 

necessary data from our present cost 

reporting forms (68 FR 45464). 

Therefore, we have notified FIs and 

LTCHs that until the cost reporting 

forms are revised, for purposes of 

calculating the ALOS, we will be relying 

upon census data extracted from 

Medicare Provider Analysis and Review 

(MedPAR) files that reflect each LTCH’s 

cost reporting period (68 FR 45464). 

Requirements for hospitals seeking 

classification as LTCHs that have 

undergone a change in ownership, as 

described in § 489.18, are set forth in 

§ 412.23(e)(3)(iv). 

2. Hospitals Excluded From the LTCH 

PPS 

The following hospitals are paid 

under special payment provisions, as 

described in § 412.22(c) and, therefore, 

are not subject to the LTCH PPS rules: 

• Veterans Administration hospitals. 

• Hospitals that are reimbursed under 

State cost control systems approved 

under 42 CFR part 403. 

• Hospitals that are reimbursed in 

accordance with demonstration projects 

authorized under section 402(a) of the 

Social Security Amendments of 1967 

(Pub. L. 90–248) (42 U.S.C. 1395b–1) or 

section 222(a) of the Social Security 

Amendments of 1972 (Pub. L. 92–603) 

(42 U.S.C. 1395b–1 (note)) (Statewide 

all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the 

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

C. Transition Period for Implementation 

of the LTCH PPS 

In the August 30, 2002 final rule (67 

FR 55954), we provided for a 5-year 

transition period. During this 5-year 

transition period, a LTCH’s total 

payment under the PPS was based on an 

increasing percentage of the Federal rate 

with a corresponding decrease in the 

percentage of the LTCH PPS payment 

that is based on reasonable cost 

concepts. However, effective for cost 

reporting periods beginning on or after 

October 1, 2006, total LTCH PPS 

payments are based on 100 percent of 

the Federal rate. 

D. Limitation on Charges to 

Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 412.507, if the Medicare payment to 

the LTCH is the full LTC–DRG payment 

amount, as consistent with other 

established hospital prospective 

payment systems, a LTCH may not bill 

a Medicare beneficiary for more than the 

deductible and coinsurance amounts as 

specified under § 409.82, § 409.83, and 

§ 409.87 and for items and services as 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the SSO 

threshold is exceeded. (See section 

V.A.1.a. of this preamble.) Therefore, if 

the Medicare payment was for a SSO 

case (§ 412.529) that was less than the 

full LTC–DRG payment amount because 

the beneficiary had insufficient 

remaining Medicare days, the LTCH 

could also charge the beneficiary for 

services delivered on those uncovered 

days (§ 412.507). 

E. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and Health Insurance 

Portability and Accountability Act 

(HIPAA) (Pub. L. 104–191). Section 3 of 

the ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’

Section 1862(h) of the Act (as added by 

section 3(a) of the ASCA) provides that 

the Secretary shall waive such denial in 

two specific types of cases and may also 

waive such denial ‘‘in such unusual 

cases as the Secretary finds appropriate’’

(68 FR 48805). Section 3 of the ASCA 

operates in the context of the ASCA 

provisions of HIPAA, which include, 

among other provisions, the transactions 

and code sets standards requirements 

codified as 45 CFR parts 160 and 162, 

subparts A and I through R (generally 

known as the Transactions Rule). The 

Transactions Rule requires covered 

entities, including covered health care 


ycherry on PROD1PC64 with RULES2
26874 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

providers, to conduct the covered 

electronic transactions according to the 

applicable transactions and code sets 

standards. 

II. Summary of the Provisions of the 

Final Rule 

A. Major Contents of This Final Rule 

In this final rule, we are setting forth 

the annual update to the payment rates 

for the Medicare LTCH PPS, as well as, 

other policy changes. The following is a 

summary of the major areas that we 

have addressed in this final rule. 

In section III. of this preamble, we 

discuss the LTCH PPS patient 

classification and the relative weights 

which remain linked to the annual 

adjustments of the acute care hospital 

inpatient DRG system, and are based on 

the annual revisions to the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9–

CM) codes effective each October 1. 

Also, in section III. of this preamble, 

we have established a BN requirement 

for the annual update of the LTC–DRG 

classifications and relative weights to 

reflect changes in relative LTCH 

resource use. This requirement ensures 

that estimated aggregate LTCH PPS 

payments will not decrease or increase 

as a result of the annual update to the 

LTC–DRG classifications and relative 

weights based on the most recent 

available data. In this section, we also 

summarize the proposed severity 

adjusted MS–LTC–DRGs and the 

development of the proposed relative 

weights for FY 2008 presented in the FY 

2008 IPPS proposed rule. 

As discussed in section IV.C. of this 

preamble, we are implementing a 0.71 

percent update to the LTCH PPS Federal 

rate for the 2008 LTCH PPS rate year 

based on an adjustment to account for 

changes in coding practices. Also in 

section IV. of this preamble, we discuss 

the prospective payment rate for RY 

2008, and in section VI., we discuss the 

applicable adjustments to the payment 

rates, including the revisions to the 

wage index, the labor-related share, the 

cost-of-living adjustment (COLA) 

factors, and the outlier threshold, for the 

2008 LTCH PPS rate year. 

In section V.A. of this preamble, we 

discuss our change to the current 

payment formula for certain SSO cases. 

That is, those cases with a LOS that is 

less than or equal to one standard 

deviation of the ALOS of an IPPS 

discharge that was grouped into the 

same DRG. However, in situations 

where the SSO cases would exceed the 

IPPS discharge that was grouped in the 

same DRG, payment would continue to 

be paid under the existing formula. 

In section V.B. of this preamble, we 

discuss the expansion of the present 25 

percent admission policy at § 412.534(c) 

to those certain situations not already 

affected by the existing policy. 

Previously, this policy only applied to 

co-located LTCHs and LTCH satellites 

whose percentage of discharges 

exceeded the 25 percent threshold (or 

the applicable percentage). This is 

extended to include an adjusted 

payment to LTCH discharges that were 

admitted from referring hospitals not colocated with the LTCH or the satellite of 

a LTCH where those discharges exceed 

the 25 percent (or applicable 

percentage) threshold. The final policy 

also applies to grandfathered LTCHs 

and satellite facilities of LTCHs that 

have Medicare discharges that were 

admitted from a hospital co-located 

with the LTCH or satellite facility of the 

grandfathered LTCH. 

In section X. of this preamble, we will 

discuss our on-going monitoring 

protocols under the LTCH PPS. 

In section XI. of this preamble, we 

discuss the recommendations made by 

the Research Triangle Institute, 

International’s (RTI) evaluation of the 

feasibility of adopting recommendations 

made in the June 2004 Medicare 

Payment Advisory Commission 

(MedPAC) Report. 

In section XII. of this preamble, we 

discuss our revisions to redefine the 

statutory term ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting.’’ The statute 

requires that hospitals must pay ‘‘all or 

substantially all’’ of the costs for a 

training program in a nonhospital 

setting in order to count FTE residents 

training in the nonhospital setting for 

Medicare graduate medical education 

(GME) payment purposes. We are 

revising § 413.75(b) to introduce a new 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ to mean, at least 90 

percent of the total of the costs of the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) and the portion of the cost 

of teaching physicians’ salaries 

attributable to nonpatient care direct 

GME activities. In addition, we are 

revising § 412.105(f)(1)(ii)(C) for IME 

and § 413.78 to reflect this new 

definition of ‘‘all or substantially all’’ of 

the GME costs in a nonhospital setting, 

effective for cost reporting periods 

beginning on or after July 1, 2007. 

In section XV. of this preamble, we 

analyze the impact of the changes 

presented in this final rule on Medicare 

expenditures, Medicare-participating 

LTCHs, and Medicare beneficiaries. 

B. Responses to Comments 

We received 270 comments on the RY 

2007 LTCH PPS proposed rule. 

Comments and responses follow the 

appropriate policy section in this rule. 

The following is a comment we received 

regarding the schedule of the LTCH PPS 

update. 

Comment: One commenter urged 

CMS to consolidate the July 1 update of 

the LTCH PPS rates and the October 1 

development of the LTC–DRG weights 

into one publication cycle, a step which 

the commenter states would be very 

beneficial for the LTCH industry. 

Response: We appreciate the 

commenter’s suggestion and we will 

evaluate whether such a consolidation 

is a workable alternative to our present 

schedule. 

III. Long-Term Care Diagnosis-Related 

Group (LTC–DRG) Classifications and 

Relative Weights 

A. Background 

Section 123 of the BBRA requires that 

the Secretary implement a PPS for 

LTCHs (that is, a per discharge system 

with a DRG-based patient classification 

system reflecting the differences in 

patient resource use and costs). Section 

307(b)(1) of the BIPA modified the 

requirements of section 123 of the BBRA 

by requiring that the Secretary examine 

‘‘the feasibility and the impact of basing 

payment under such a system [the 

LTCH PPS] on the use of existing (or 

refined) hospital DRGs that have been 

modified to account for different 

resource use of LTCH patients, as well 

as the use of the most recently available 

hospital discharge data.’’

In accordance with section 123 of the 

BBRA as amended by section 307(b)(1) 

of the BIPA and § 412.515, we use 

information derived from LTCH PPS 

patient records to classify these cases 

into distinct LTC–DRGs based on 

clinical characteristics and estimated 

resource needs. The LTC–DRGs used as 

the patient classification component of 

the LTCH PPS correspond to the 

hospital inpatient DRGs in the IPPS. (As 

discussed in greater detail below in this 

section, in the FY 2008 IPPS proposed 

rule, we have proposed to adopt the 

severity-weighted patient classification 

system, the proposed MS–LTC–DRGs, 

for the LTCH PPS beginning in FY 2008, 

which is the same patient classification 

system proposed for use under the IPPS 

for FY 2008.) We assign an appropriate 

weight to the LTC–DRGs to account for 

the difference in resource use by 

patients exhibiting the case complexity 

and multiple medical problems 

characteristic of LTCHs. 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26875 

In a departure from the IPPS, we use 

low volume LTC–DRGs (less than 25 

LTCH cases) in determining the LTC–

DRG weights, since LTCHs do not 

typically treat the full range of 

diagnoses as do acute care hospitals. To 

manage the large number of low volume 

DRGs (all DRGs with fewer than 25 

cases), we group low volume DRGs into 

5 quintiles based on average charge per 

discharge. (A listing of the current 

composition of low volume quintiles 

used in determining the FY 2007 LTC–

DRG relative weights appears in the FY 

2007 IPPS final rule (71 FR 47974 

through 47978). A listing of the 

proposed composition of low volume 

quintiles used in determining the 

proposed FY 2008 MS–LTC–DRG 

relative weights appears in the FY 2008 

IPPS proposed rule.) We also account 

for adjustments to payments for cases in 

which the stay at the LTCH is less than 

or equal to five-sixths of the geometric 

ALOS and classify these cases as SSO 

cases. (A detailed discussion of the 

application of the Lewin Group model 

that was used to develop the LTC–DRGs 

appears in the August 30, 2002 LTCH 

PPS final rule (67 FR 55978).) 

B. Patient Classifications Into DRGs 

Generally, under the LTCH PPS, a 

Medicare payment is made at a 

predetermined specific rate for each 

discharge; that payment varies by the 

LTC–DRG to which a beneficiary’s stay 

is assigned. Consistent with our 

historical practice of having LTC–DRGs 

correspond to the DRGs applicable 

under the IPPS, we will continue to 

model the LTCH–DRGs after their 

predecessor CMS DRGs. In addition, we 

are proposing to use the FY 2008 

GROUPER Version 25.0 to be effective 

for discharges occurring on or after 

October 1, 2007 through September 30, 

2008. 

Cases are classified into LTC–DRGs 

for payment based on the following six 

data elements: 

(1) Principal diagnosis. 

(2) Up to eight additional diagnoses. 

(3) Up to six procedures performed. 

(4) Age. 

(5) Sex. 

(6) Discharge status of the patient. 

As indicated in the August 30, 2002 

LTCH PPS final rule, upon the discharge 

of the patient from a LTCH, the LTCH 

must assign appropriate diagnosis and 

procedure codes from the most current 

version of the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9–

CM). HIPAA Transactions and Code 

Sets Standards regulations at 45 CFR 

parts 160 and 162 require that no later 

than October 16, 2003, all covered 

entities must comply with the 

applicable requirements of subparts A 

and I through R of part 162. Among 

other requirements, those provisions 

direct covered entities to use the ASC 

X12N 837 Health Care Claim: 

Institutional, Volumes 1 and 2, version 

4010, and the applicable standard 

medical data code sets for the 

institutional health care claim or 

equivalent encounter information 

transaction (see 45 CFR 162.1002 and 45 

CFR 162.1102). 

Medicare FIs/MACs enter the clinical 

and demographic information into their 

claims processing systems and subject 

this information to a series of automated 

screening processes called the Medicare 

Code Editor (MCE). These screens are 

designed to identify cases that require 

further review before assignment into a 

DRG can be made. During this process, 

the following types of cases, among 

others, are selected for further 

development: 

• Cases that are improperly coded. 

(For example, diagnoses are shown that 

are inappropriate, given the sex of the 

patient. Code 68.6, Radical abdominal 

hysterectomy, would be an 

inappropriate code for a male.) 

• Cases including surgical procedures 

not covered under Medicare. (For 

example, organ transplant in a nonapproved transplant center.) 

• Cases requiring more information. 

(For example, ICD–9–CM codes are 

required to be entered at their highest 

level of specificity. There are valid 3- 

digit, 4-digit, and 5-digit codes. That is, 

code 262, Other severe protein-calorie 

malnutrition, contains all appropriate 

digits, but if it is reported with either 

fewer or more than 3 digits, the claim 

will be rejected by the MCE as invalid.) 

After screening through the MCE, 

each claim will be classified into the 

appropriate LTC–DRG by the Medicare 

LTCH GROUPER software. As indicated 

in the August 30, 2002 LTCH PPS final 

rule, the Medicare GROUPER software, 

which is used under the LTCH PPS, is 

specialized computer software, and is 

the same GROUPER software program 

used under the IPPS. The GROUPER 

software was developed as a means of 

classifying each case into a DRG on the 

basis of diagnosis and procedure codes 

and other demographic information 

(age, sex, and discharge status). 

Following the LTC–DRG assignment, 

the Medicare FI/MAC determines the 

prospective payment by using the 

Medicare PRICER program, which 

accounts for hospital-specific 

adjustments. Under the LTCH PPS, we 

provide an opportunity for the LTCH to 

review the LTC–DRG assignments made 

by the FI and to submit additional 

information within a specified 

timeframe as specified in § 412.513(c). 

The GROUPER software is used both 

to classify past cases to measure relative 

hospital resource consumption to 

establish the DRG weights and to 

classify current cases for purposes of 

determining payment. The records for 

all Medicare hospital inpatient 

discharges are maintained in the 

MedPAR file. The data in this file are 

used to evaluate possible DRG 

classification changes and to recalibrate 

the DRG weights during our annual 

update under both the IPPS (§ 412.60(e)) 

and the LTCH PPS (§ 412.517). As 

discussed in greater detail in sections 

III.D. and E. of this preamble, with the 

implementation of section 503(a) of the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173), there is 

the possibility that one feature of the 

GROUPER software program may be 

updated twice during a Federal FY 

(October 1 and April 1) as required by 

the statute for the IPPS (69 FR 48954 

through 48957). Specifically, as we 

discussed in the FY 2007 IPPS final 

rule, diagnosis and procedure codes for 

new medical technology may be created 

and added to existing CMS DRGs in the 

middle of the Federal FY on April 1 (71 

FR 47959 and 47971). However, this 

policy change will have no effect on the 

LTC–DRG relative weights during the 

FY, which will continue to be updated 

only once a year on October 1, nor will 

there be any impact on Medicare 

payments under the LTCH PPS during 

the FY as a result of this policy. The use 

of the ICD–9–CM code set is also 

compliant with the current 

requirements of the Transactions and 

Code Sets Standards regulations at 45 

CFR parts 160 and 162, published in 

accordance with HIPAA. 

In the IPPS proposed rule, we 

proposed to create and implement MS–

DRGs for FY 2008; that is, the proposed 

MS–DRGs would be effective beginning 

with discharges on or after October 1, 

2007 through September 30, 2008. The 

proposed MS–DRGs are a severity-based 

system of DRGs in which all existing 

CMS DRGs were refined to better 

recognize severity of illness among 

patients. The details of this proposal can 

be reviewed online at http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

downloads/CMS-1533-P.pdf. 

Under the broad authority of section 

123(a) of the BBRA as modified by 

section 307(b) of the BIPA, we intend to 

model the proposed MS–LTC–DRGs on 

the corresponding CMS DRGs as 

described in the FY 2008 IPPS proposed 

rule if this DRG system is implemented 

for the IPPS in FY 2008. In addition, as 


ycherry on PROD1PC64 with RULES2
26876 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

stated above in this section, we intend 

to use the FY 2008 GROUPER Version 

25.0, effective for discharges occurring 

on or after October 1, 2007 through 

September 30, 2008 for the LTCH PPS 

if the IPPS system is implemented for 

FY 2008. 

To elaborate, if the proposed MS–

DRGs are adopted for use by the IPPS, 

the LTC–DRGs will use the same 

structure as the proposed MS–DRGs, 

and will be referred to as the MS–LTC–

DRGs. Cases will continue to be 

classified into MS–LTC–DRGs using the 

six data elements listed above, and will 

be subject to review by the MCE as they 

have in the past. After screening 

through the MCE, claims will be 

classified into the appropriate MS–LTC–

DRG by the LTCH PPS GROUPER 

software. Following the MS–LTC–DRG 

assignment, the Medicare FI/MAC 

determines the appropriate payment 

using the Medicare PRICER program. 

C. Organization of DRGs 

The DRGs are organized into 25 major 

diagnostic categories (MDCs), most of 

which are based on a particular organ 

system of the body; the remainder 

involve multiple organ systems (such as 

MDC 22, Burns). Accordingly, the 

principal diagnosis determines MDC 

assignment. Within most MDCs, cases 

are then divided into surgical DRGs and 

medical DRGs. Surgical DRGs are 

assigned based on a surgical hierarchy 

that orders operating room (O.R.) 

procedures or groups of O.R. procedures 

by resource intensity. The GROUPER 

software program does not recognize all 

ICD–9–CM procedure codes as 

procedures that affect DRG assignment, 

that is, procedures which are not 

surgical (for example, EKG), or minor 

surgical procedures (for example, 86.11, 

Biopsy of skin and subcutaneous tissue). 

The medical DRGs are generally 

differentiated on the basis of diagnosis. 

Both medical and surgical DRGs may be 

further differentiated based on age, sex, 

discharge status, and presence or 

absence of complications or 

comorbidities (CC). The proposed MS–

DRGs, as defined in the FY 2008 IPPS 

proposed rule, and the MS–LTC–DRGs 

contain base DRGs that have been 

subdivided into one, two, or three 

severity levels. The most severe level 

has at least one code that is a major CC, 

referred to as ‘‘with MCC’’. The next 

lower severity level contains cases with 

at least one CC, referred to as ‘‘with 

CC’’. Those DRGs without an MCC or a 

CC are referred to as ‘‘without CC/ 

MCC’’. When data did not support the 

creation of three severity levels, the base 

DRG was divided into either two levels 

or the base was not subdivided. The 

proposed two-level subdivisions consist 

of one of the following subdivisions: 

• With CC/MCC. 

• Without CC/MCC. 

In this type of subdivision, cases with 

at least one code that is on the CC or 

MCC list are assigned to the ‘‘with CC/ 

MCC’’ DRG. Cases without a CC or an 

MCC are assigned to the ‘‘without CC/ 

MCC’’ DRG. 

The other type of proposed two-level 

subdivision is as follows: 

• With MCC. 

• Without MCC. 

In this type of subdivision, cases with 

at least one code that is on the MCC list 

are assigned to the ‘‘with MCC’’ DRG. 

Cases that do not have an MCC are 

assigned to the ‘‘without MCC’’ DRG. 

This type of subdivision could include 

cases with a CC code, but no MCC. 

We note that CCs are defined by 

certain secondary diagnoses not related 

to, or not inherently a part of, the 

disease process identified by the 

principal diagnosis. (For example, the 

GROUPER software would not recognize 

a code from the 800.0x series, Skull 

fracture, as a CC when combined with 

principal diagnosis 850.4, Concussion 

with prolonged loss of consciousness, 

without return to preexisting conscious 

level.) In addition, we note that the 

presence of additional diagnoses does 

not automatically generate a CC, as not 

all MS–DRGs or MS–LTC–DRGs 

recognize comorbid or complicating 

conditions in their definition. (For 

example, proposed MS–DRG 069, 

Transient Ischemia (formerly CMS DRG 

524, Transient Ischemia), is based solely 

on the principal diagnosis, without 

consideration of additional diagnoses 

for DRG determination.) 

As discussed in greater detail in the 

FY 2007 IPPS final rule (71 FR 47898 

through 47912 and 47973), in its March 

2005 Report to Congress, ‘‘PhysicianOwned Specialty Hospitals,’’ MedPAC 

recommended that the Secretary 

improve payment accuracy in the 

hospital IPPS by, among other things, 

‘‘refining the current DRGs to more fully 

capture differences in severity of illness 

among patients.’’ (Recommendation 1, 

p. 93.) As we discussed in that same 

final rule (71 FR 47973), we did not 

adopt a new severity-adjusted patient 

classification system under the IPPS, for 

FY 2007, but we did refine the CMS 

DRG patient classification system for 

Version 24.0 of the GROUPER software 

to improve the CMS DRG system’s 

recognition of severity of illness for FY 

2007. The updates to the CMS DRG 

patient classification system used under 

the IPPS for FY 2007 (GROUPER 

Version 24.0), were also applied to the 

LTC–DRGs used under the LTCH PPS 

for FY 2007. 

In the FY 2008 IPPS proposed rule, 

we presented the changes to the 

proposed MS–DRG patient classification 

system for FY 2008. In that rule, we 

proposed the IPPS GROUPER Version 

25.0 for FY 2008 to process LTCH PPS 

claims for LTCH discharges occurring 

from October 1, 2007 through 

September 30, 2008. As noted above in 

this section and as we also discussed in 

the FY 2007 IPPS final rule, in its March 

1, 2005 Report to Congress on Medicare 

Payment Policy (page 64) and in 

Recommendation 1 of the 2005 Report 

to Congress on Physician-Owned 

Specialty Hospitals, MedPAC 

recommended that CMS, among other 

things, refine the current DRGs under 

the IPPS to more fully capture 

differences in severity of illness among 

patients. 

D. Update of LTC–DRGs 

1. Background 

We propose to modify the existing 

LTC–DRGs so that they reflect the 

changes made to the CMS DRGs under 

the proposed IPPS notice. As discussed 

in greater detail in the FY 2008 IPPS 

proposed rule, under the LTCH PPS, 

relative weights for each proposed MS–

LTC–DRG are a primary element used to 

account for the variations in cost per 

discharge and resource utilization 

among the payment groups (that is, 

proposed MS–LTC–DRGs). To ensure 

that Medicare patients classified to each 

proposed MS–LTC–DRG have access to 

an appropriate level of services and to 

encourage efficiency, each year based on 

the best available data, we calculate a 

relative weight for each proposed MS–

LTC–DRG that represents the resources 

needed by an average inpatient LTCH 

case in that proposed MS–LTC–DRG. 

For example, cases in a proposed MS–

LTC–DRG with a relative weight of 2 

will, on average, cost twice as much as 

cases in a proposed MS–LTC–DRG with 

a relative weight of 1. Under § 412.517, 

the proposed MS–LTC–DRG 

classifications and weighting factors 

(that is, relative weights) are adjusted 

annually to reflect changes in factors 

affecting the relative use of LTCH 

resources, including treatment patterns, 

technology and number of discharges. 

For FY 2008, the proposed MS–LTC–

DRG classifications and relative weights 

were updated based on LTCH data from 

the FY 2005 MedPAR file, which 

contained hospital bills data from the 

December 2006 update. The proposed 

MS–LTC–DRG patient classification 

system is based upon 745 MS–DRGs 

that formed the structure of the FY 2008 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26877 

LTCH PPS GROUPER program. The FY 

2008 proposed MS–LTC–DRGs 

continues to include two ‘‘error DRGs.’’

As in the IPPS, we included two error 

DRGs in which cases that cannot be 

assigned to valid DRGs will be grouped. 

These two proposed error MS–LTC–

DRGs are MS–LTC–DRG 999 (Principal 

Diagnosis Invalid as a Discharge 

Diagnosis) and MS–LTC–DRG 998 

(Ungroupable). The other 743 proposed 

MS–LTC–DRGs are the same MS–DRGs 

used in the IPPS GROUPER program for 

FY 2008 (Version 25.0). 

For FY 2008, as discussed in greater 

detail in the FY 2008 IPPS proposed 

rule, we proposed to adopt the MS–

LTC–DRGs for the LTCH PPS for RY 

2008. (Additional information on the 

proposed MS–LTC–DRG classifications 

and proposed MS–LTC–DRG relative 

weights can be found in the FY 2008 

IPPS proposed rule.) 

In the past, the annual update to the 

CMS DRGs was based on the annual 

revisions to the ICD–9–CM codes and 

was effective each October 1. The ICD–

9–CM coding update process was 

revised as discussed in greater detail in 

the FY 2005 IPPS final rule (69 FR 

48953 through 48957). Specifically, 

section 503(a) of the MMA includes a 

requirement for updating diagnosis and 

procedure codes twice a year instead of 

the current process of annual updates 

on October 1 of each year. This 

requirement is included as part of the 

amendments to the Act relating to 

recognition of new medical technology 

under the IPPS. (For additional 

information on this provision, including 

its implementation and its impact on 

the LTCH PPS, refer to the FY 2005 IPPS 

final rule (69 FR 48953 through 48957), 

the RY 2006 LTCH PPS final rule (70 FR 

24172 through 24177), and the RY 2008 

LTCH PPS proposed rule (72 FR 4783 

through 4784).) 

As discussed in the RY 2008 proposed 

rule (72 FR 4784), in implementing 

section 503(a) of the MMA, there will 

only be an April 1 update if diagnosis 

and procedure codes are requested and 

approved. We note that any new codes 

created for April 1 implementation will 

be limited to those diagnosis and 

procedure code revisions primarily 

needed to describe new technologies 

and medical services. However, we 

reiterate that the process of discussing 

updates to the ICD–9–CM has been an 

open process through the ICD–9–CM 

Coordination and Maintenance (C&M) 

Committee since 1995. Requestors will 

be given the opportunity to present the 

merits for a new code and make a clear 

and convincing case for the need to 

update ICD–9–CM codes through an 

April 1 update. 

At the September 2006 ICD–9–CM 

C&M Committee meeting, there were no 

requests for an April 1, 2007 

implementation of ICD–9–CM codes, 

and therefore, the next update to the 

ICD–9–CM coding system will not occur 

until October 1, 2007 (FY 2008). 

Presently, as there were no coding 

changes suggested for an April 1, 2007 

update, the ICD–9–CM coding set 

implemented on October 1, 2006, will 

continue through September 30, 2007 

(FY 2007). As discussed above in this 

section, the next update to the proposed 

MS–LTC–DRGs and relative weights for 

proposed FY 2008 will be presented in 

the FY 2008 IPPS proposed rule. 

Furthermore, we will notify LTCHs of 

any revisions to the GROUPER software 

used under the IPPS and LTCH PPS that 

would be implemented April 1, 2008. 

As noted previously in this section, in 

the FY 2007 IPPS final rule (71 FR 

47973), we established the use of 

Version 24.0 of the CMS GROUPER, 

which is used under the IPPS for FY 

2007, to classify cases for LTCH PPS 

discharges that would occur on or after 

October 1, 2006 and on or before 

September 30, 2007. 

2. Method for Updating the LTC–DRG 

Relative Weights 

As discussed in the August 30, 2002 

LTCH PPS final rule that implemented 

the LTCH PPS, under the LTCH PPS, 

each LTCH will receive a payment that 

represents an appropriate amount for 

the efficient delivery of care to Medicare 

patients (67 FR 55984). The system must 

be able to account adequately for each 

LTCH’s case-mix to ensure both a fair 

distribution of Medicare payments and 

access to care for those Medicare 

patients whose care is more costly. 

Therefore, in § 412.523(c), we adjust the 

standard Federal PPS rate by the LTC–

DRG relative weights in determining 

payment to LTCHs for each case. As we 

have noted above, we are proposing to 

adopt the MS–LTC–DRGs for the LTCH 

PPS for FY 2008. However, as discussed 

in the FY 2008 IPPS proposed rule, this 

proposed change in the patient 

classification system does not affect the 

basic principles of the development of 

relative weights under a DRG-based 

PPS. For purposes of clarity, in the 

general discussion below in which we 

describe the basic methodology of the 

patient classification system in use 

since the start of the LTCH PPS, we use 

the acronym ‘‘MS–LTC–DRG’’ to specify 

the proposed DRG patient classification 

system to be used by the LTCH PPS in 

FY 2008. Although the proposed 

adoption of the MS–LTC–DRGs would 

result in some modifications of existing 

procedures for assigning weights (for 

example, in cases of zero volume and/ 

or nonmonotonicity, as discussed 

below), the basic methodology for 

developing the proposed FY 2008 MS–

LTC–DRG relative weights presented in 

the FY 2008 IPPS proposed rule 

continued to be determined in 

accordance with the general 

methodology established in the August 

30, 2002 LTCH PPS final rule (67 FR 

55989 through 55991), which is 

discussed below. Therefore, in the 

discussion below, the term ‘‘LTC–

DRGs’’ will be used in descriptions of 

the basic methodology established at the 

beginning of the LTCH PPS that will 

remain unchanged if we adopt the 

proposed MS–LTC–DRGs. The use of 

the term ‘‘MS–LTC–DRGs’’ in the 

following discussion will indicate a 

discussion of specifics aspects of our 

proposed adoption of the severityweighted patient classification system 

for FY 2008 as presented in the FY 2008 

IPPS proposed rule.) 

Under the LTCH PPS, relative weights 

for each LTC–DRG are a primary 

element used to account for the 

variations in cost per discharge and 

resource utilization among the payment 

groups as described in § 412.515. To 

ensure that Medicare patients who are 

classified to each LTC–DRG have access 

to services and to encourage efficiency, 

we calculate a relative weight for each 

LTC–DRG that represents the resources 

needed by an average inpatient LTCH 

case in that LTC–DRG. For example, 

cases in a LTC–DRG with a relative 

weight of 2 will, on average, cost twice 

as much as cases in a LTC–DRG with a 

weight of 1. 

As we discussed in the FY 2007 IPPS 

final rule, the LTC–DRG relative weights 

effective under the LTCH PPS for FY 

2007 were calculated using the March 

2006 update of FY 2005 MedPAR data 

and Version 24.0 of the GROUPER 

software (71 FR 47973). We use total 

days and total charges in the calculation 

of the LTC–DRG relative weights. 

LTCHs often specialize in certain 

areas, such as ventilator-dependent 

patients and rehabilitation or wound 

care. Some case types (DRGs) may be 

treated, to a large extent, in hospitals 

that have (from a perspective of charges) 

relatively high (or low) charges. 

Distribution of cases with relatively 

high (or low) charges in specific LTC–

DRGs has the potential to 

inappropriately distort the measure of 

average charges. To account for the fact 

that cases may not be randomly 

distributed across LTCHs, we use a 

hospital-specific relative value method 

to calculate relative weights. We believe 

this method removes this hospitalspecific source of bias in measuring 


ycherry on PROD1PC64 with RULES2
26878 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

average charges. Specifically, we reduce 

the impact of the variation in charges 

across providers on any particular LTC–

DRG relative weight by converting each 

LTCH’s charge for a case to a relative 

value based on that LTCH’s average 

charge. (See the FY 2007 IPPS final rule 

for further information on the 

application of the hospital-specific 

relative value methodology under the 

LTCH PPS (71 FR 47974 through 

47975).) 

To account for LTC–DRGs with low 

volume (that is, with fewer than 25 

LTCH cases), we grouped those low 

volume LTC–DRGs into 1 of 5 categories 

(quintiles) based on average charges, for 

the purposes of determining relative 

weights. For FY 2007 based on the FY 

2005 MedPAR data, we identified 180 

LTC–DRGs that contained between 1 

and 24 cases. This list of low volume 

LTC–DRGs was then divided into 1 of 

the 5 low volume quintiles, each 

containing 36 LTC–DRGs (180/5 = 36). 

Each of the low volume LTC–DRGs 

grouped to a specific quintile received 

the same relative weight and ALOS 

using the formula applied to the regular 

LTC–DRGs (25 or more cases). (See the 

FY 2007 IPPS final rule for further 

explanation of the development and 

composition of each of the 5 low 

volume quintiles for FY 2007 and their 

composition (71 FR 47975 through 

47978).) 

After grouping the cases in the 

appropriate LTC–DRG, we calculated 

the relative weights by first removing 

statistical outliers and cases with a LOS 

of 7 days or less. Next, we adjusted the 

number of cases remaining in each 

LTC–DRG for the effect of SSO cases 

under § 412.529. The short-stay adjusted 

discharges and corresponding charges 

were used to calculate ‘‘relative adjusted 

weights’’ in each LTC–DRG using the 

hospital-specific relative value method. 

We also adjusted the LTC–DRG relative 

weights to account for 

nonmonotonically increasing relative 

weights. That is, we made an 

adjustment if cases classified to the 

LTC–DRG ‘‘with CCs’’ of a ‘‘with CC’’/ 

‘‘without CC’’ pair had a lower average 

charge than the corresponding LTC–

DRG ‘‘without CCs’’ by assigning the 

same weight to both LTC–DRGs in the 

‘‘with CC’’/‘‘without CC’’ pair. (See the 

FY 2007 IPPS final rule for further 

details on the steps for calculating the 

LTC–DRG relative weights (71 FR 47978 

through 47984).) 

In addition, of the 538 LTC–DRGs in 

the LTCH PPS for FY 2007, based on 

LTCH cases in the FY 2005 MedPAR 

files, we identified 183 LTC–DRGs for 

which there were no LTCH cases in the 

database. That is, no patients who 

would have been classified to those 

DRGs were treated in LTCHs during FY 

2005, and therefore, no charge data were 

reported for those DRGs. Thus, in the 

process of determining the relative 

weights of LTC–DRGs, we were unable 

to determine weights for these 183 LTC–

DRGs using the method described in 

this section of the preamble. However, 

since patients with a number of the 

diagnoses under these LTC–DRGs may 

be treated at LTCHs beginning in FY 

2007, we assigned relative weights to 

each of the 183 ‘‘no volume’’ LTC–DRGs 

based on clinical similarity and relative 

costliness to one of the remaining 355 

(538–183 = 355) LTC–DRGs for which 

we were able to determine relative 

weights, based on the FY 2005 claims 

data. (A list of the current no-volume 

LTC–DRGs and further explanation of 

their FY 2007 relative weight 

assignment can be found in the FY 2007 

IPPS final rule (71 FR 47980 through 

47984).) 

Furthermore, for FY 2007, we 

established LTC–DRG relative weights 

of 0.0000 for heart, kidney, liver/ 

intestinal, lung, simultaneous pancreas/ 

kidney, and pancreas transplants (LTC–

DRGs 103, 302, 480, 495, 512 and 513, 

respectively) because presently no 

LTCH meets the applicable 

requirements to perform Medicare 

covered transplant procedures. 

However, if in the future, a LTCH seeks 

to meet such requirements as a 

Medicare-approved transplant center to 

perform Medicare-covered transplant 

procedures, we believe that the 

application and approval procedure 

would allow sufficient time for us to 

propose appropriate weights for the 

LTC–DRGs affected. At the present time, 

we included these 6 transplant LTC–

DRGs in the GROUPER software 

program for administrative purposes. As 

the LTCH PPS uses the same GROUPER 

software program for LTCHs as is used 

under the IPPS, removing these DRGs 

would be administratively burdensome. 

As we noted previously in this 

section, there were no new ICD–9–CM 

code requests for an April 1, 2007 

update. Therefore, Version 24.0 of the 

DRG GROUPER software established in 

the FY 2007 IPPS final rule will 

continue to be effective until October 1, 

2007. Moreover, the LTC–DRGs and 

relative weights for FY 2007 established 

in Table 11 of that same IPPS final rule 

(71 FR 48321 through 48331) will 

continue to be effective until October 1, 

2007, (just as they would have been 

even if there had been any new ICD–9–

CM code requests for an April 1, 2007 

update). Accordingly, Table 3 in the 

Addendum to this final rule lists the 

LTC–DRGs and their respective relative 

weights, geometric ALOS, and fivesixths of the geometric ALOS that we 

will continue to use for the period of 

July 1, 2007 through September 30, 

2007. (This table is the same as Table 11 

of the Addendum to the FY 2007 IPPS 

final rule.) The next update to the ICD–

9–CM coding system will be presented 

in the FY 2008 IPPS proposed rule 

(since there will be no April 1, 2007 

updates to the ICD–9–CM coding 

system). 

In addition, the proposed DRGs and 

GROUPER for FY 2008 that would be 

effective October 1, 2007, will be 

presented in the IPPS FY 2008 proposed 

rule. Below we provide a summary of 

the development of the proposed LTC–

DRG relative weights for FY 2008 

presented in that same proposed rule. 

To calculate the proposed MS–LTC–

DRG relative weights for FY 2008 in the 

FY 2008 IPPS proposed rule, we 

obtained total Medicare allowable 

charges from FY 2006 Medicare LTCH 

bill data from the December 2006 

update of the MedPAR file, which are 

the best available data at this time, and 

we used the proposed Version 25.0 of 

the CMS GROUPER used under the IPPS 

(as discussed in section II.B. of the 

preamble of that proposed rule) to 

classify cases. To calculate the final 

MS–LTC–DRG relative weights for FY 

2008, we proposed that, if more recent 

data are available (for example, data 

from the March 2007 update of the 

MedPAR file), we would use those data 

and the finalized Version 25.0 of the 

CMS GROUPER used under the IPPS. 

We continued to use total days and total 

charges in the calculation of the 

proposed MS–LTC–DRG relative 

weights. We also continued to use the 

hospital-specific relative value 

methodology, described above, for 

determining the proposed MS–LTC–

DRG relative weights for FY 2008. 

As noted above in this section, 

although the proposed adoption of the 

MS–LTC–DRGs would result in some 

modifications of existing procedures 

discussed above for assigning relative 

weights under the current system (as 

discussed in detail below), the basic 

methodology for developing the 

proposed FY 2008 MS–LTC–DRG 

relative weights in the FY 2008 IPPS 

proposed rule continue to be 

determined in accordance with the 

general methodology established in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 55989 through 55991) 

summarized above. With the 

implementation of the LTCH PPS for FY 

2003, we established a procedure to 

address setting relative weights for 

LTC–DRG ‘‘pairs’’ that were 

differentiated on the presence or 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26879 

absence of CCs (71 FR 47979). As 

discussed in the FY 2008 IPPS proposed 

rule, our proposal to adopt a severitybased patient classification system for 

the LTCH PPS, the MS–LTC–DRGs 

described above, required us to adapt 

our existing approach for setting relative 

weights for the severity levels within a 

specific base DRG. We are also proposed 

to modify our existing methodology for 

maintaining monotonicity when setting 

relative weights for the proposed MS–

LTC–DRGs. 

As under the existing procedure, 

under the proposed MS–LTC–DRGs, for 

purposes of the annual setting of the 

relative weights, there continue to be 

three different categories of DRGs based 

on volume of cases within specific LTC–

DRGs. LTC–DRGs with at least 25 cases 

are each assigned a relative weight; lowvolume proposed MS–LTC–DRGs (that 

is, proposed MS–LTC–DRGs that 

contain between 1 and 24 cases 

annually) are grouped into quintiles 

(described below) and assigned the 

weight of the quintile. Cases with novolume proposed MS–LTC–DRGs (that 

is, no cases in the database were 

assigned to those proposed MS–LTC–

DRGs) are cross-walked to other 

proposed MS–LTC–DRGs based on the 

clinical similarities and assigned the 

weight of the quintile that is closest to 

the relative weight of the cross-walked 

proposed MS–LTC–DRG. (For in-depth 

discussions of our proposals regarding 

proposed relative weight setting for lowvolume MS–LTC–DRGs and for novolume MS–LTC–DRGs, see the FY 

2008 IPPS proposed rule.) 

As noted above, for FY 2008, we are 

proposing to adopt the MS–DRGs for 

use in both the LTCH PPS and the IPPS. 

While the LTCH PPS and the IPPS use 

the same patient classification system, 

the methodology that is used to set the 

DRG weights for use in each payment 

system differs because the overall 

volume of cases in the LTCH PPS is 

much less than in the IPPS. As a general 

rule, as described in the FY 2008 IPPS 

proposed rule, we are proposing to set 

the weights for the proposed MS–LTC–

DRGs using the following steps: (1) If an 

MS–LTC–DRG has at least 25 cases, it is 

assigned its own relative weight; (2) if 

an MS–LTC–DRGs has between 1 and 

24 cases, it is assigned to a quintile to 

which we will assign a relative weight; 

and (3) if an MS–LTC–DRG has no 

cases, it is cross-walked to another DRG 

based upon clinical similarities and 

assigned the appropriate relative weight. 

Theoretically, as with the existing LTC–

DRG system, cases under the proposed 

MS–LTC–DRG system that are more 

severe require greater expenditure of 

medical care resources and will result in 

higher average charges. Therefore, in the 

three severity levels of the base MS–

LTC–DRG, relative weights should 

increase with severity, from lowest to 

highest. If the relative weights do not 

increase (that is, if based on the relative 

weight calculation using the most recent 

LTCH claims data, a proposed MS–

LTC–DRG with MCC would have a 

lower relative weight than one with CC, 

or the DRG without CC/MCC would 

have a higher relative weight than either 

of the others), there is a problem with 

monotonicity. 

As discussed above in this section, to 

account for LTC–DRGs with low volume 

(that is, with fewer than 25 LTCH cases), 

we group those ‘‘low-volume LTC–

DRGs’’ (that is, DRGs that contained 

between 1 and 24 cases annually) into 

one of five categories (quintiles) based 

on average charges, for the purposes of 

determining relative weights. As 

discussed in the FY 2008 IPPS proposed 

rule, we proposed to continue to employ 

this treatment of low-volume proposed 

MS–LTC–DRGs with a modification to 

combine proposed MS–LTC–DRGs for 

the purpose of computing a relative 

weight in cases where necessary to 

maintain monotonicity in determining 

the proposed FY 2008 MS–LTC–DRG 

relative weights using the best available 

LTCH data. In that proposed rule, using 

LTCH cases from the December 2006 

update of the FY 2006 MedPAR file, we 

identified 307 proposed MS–LTC–DRGs 

that contained between 1 and 24 cases. 

This list of proposed MS–LTC–DRGs 

was then divided into one of the 5 lowvolume quintiles, each containing a 

minimum of 61 proposed MS–LTC–

DRGs (307/5 = 61, with a remainder of 

2 proposed MS–LTC–DRGs). Consistent 

with our current methodology, we are 

proposing to make an assignment to a 

specific low-volume quintile by sorting 

the low-volume proposed MS–LTC–

DRGs in ascending order by average 

charge. (See the FY 2008 IPPS proposed 

rule for further explanation of the 

development and composition of each 

of the 5 low volume quintiles for FY 

2007 and their proposed composition.) 

As we noted previously, although the 

proposed adoption of the MS–LTC–

DRGs would result in some 

modifications of existing procedures for 

assigning relative weights, the proposed 

FY 2008 MS–LTC–DRG relative weights 

presented in Table 11 of the FY 2008 

IPPS proposed rule are based on the 

methodology established in the August 

30, 2002 LTCH PPS final rule (67 FR 

55989 through 55991). In summary, as 

described in greater detail in that same 

proposed rule, LTCH cases would be 

grouped to the appropriate proposed 

MS–LTC–DRG, while taking into 

account the low-volume proposed MS–

LTC–DRGs as described above, before 

the proposed FY 2008 MS–LTC–DRG 

relative weights can be determined. 

After grouping the cases to the 

appropriate proposed MS–LTC–DRG, 

we proposed to calculate the proposed 

relative weights for FY 2008 by first 

removing statistical outliers and cases 

with a LOS of 7 days or less and to 

adjust the number of cases in each 

proposed MS–LTC–DRG for the effect of 

SSO cases under § 412.529. The shortstay adjusted discharges and 

corresponding charges are used to 

calculate ‘‘relative adjusted weights’’ in 

each proposed MS–LTC–DRG using the 

HSRV method described above. 

Next we proposed to determine 

relative weights for the no-volume 

proposed MS–LTC–DRGs. As discussed 

in the FY 2008 IPPS proposed rule, of 

the 745 proposed MS–LTC–DRGs for FY 

2008, we identified 124 proposed MS–

LTC–DRGs for which there were no 

LTCH cases in the database. That is, no 

patients who would have been classified 

to those proposed MS–LTC–DRGs were 

treated in LTCHs during FY 2006, and 

therefore, no charge data were reported 

for those proposed MS–LTC–DRGs. 

Thus, in the process of determining the 

proposed MS–LTC–DRG relative 

weights, we are unable to determine 

weights for these 124 proposed MS–

LTC–DRGs using the methodology 

described above. However, because 

patients with a number of the diagnoses 

under these proposed MS–LTC–DRGs 

may be treated at LTCHs beginning in 

FY 2008, we are proposing to assign 

relative weights to each of the 124 novolume proposed MS–LTC–DRGs based 

on clinical similarity and relative 

costliness to one of the remaining 621 

(745–124 = 621) proposed MS–LTC–

DRGs for which we are able to 

determine proposed relative weights, 

based on FY 2006 LTCH claims data. In 

general, we determined proposed 

relative weights for the 124 proposed 

MS–LTC–DRGs with no LTCH cases in 

the FY 2006 MedPAR file used in this 

proposed rule by cross-walking these 

proposed MS–LTC–DRGs to other 

proposed MS–LTC–DRGs and then 

grouping them to the appropriate 

proposed low-volume quintile. (A list of 

the proposed no-volume MS–LTC–DRGs 

and further explanation of their 

proposed FY 2008 relative weight 

assignment can be found in the FY 2008 

IPPS proposed rule.) We also adjusted 

the proposed MS–LTC–DRG relative 

weights to account for 

nonmonotonically increasing relative 

weights, including any no volume 


ycherry on PROD1PC64 with RULES2
26880 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

proposed MS–LTC–DRGs, where 

applicable, as described above. 

Furthermore, for FY 2008 we 

proposed to establish proposed MS–

LTC–DRG relative weights of 0.0000 for 

the following transplant proposed MS–

LTC–DRGs: Heart transplant or implant 

of heart assist system w MCC (proposed 

MS–LTC–DRG 1); Heart transplant or 

implant of heart assist system w/o MCC 

(proposed MS–LTC–DRG 2); Liver 

transplant w MCC or intestinal 

transplant (proposed MS–LTC–DRG 5); 

Liver transplant w/o MCC (proposed 

MS–LTC–DRG 6); Lung transplant 

(proposed MS–LTC–DRG 7); 

Simultaneous pancreas/kidney 

transplant (proposed MS–LTC–DRG 8); 

and Pancreas transplant (proposed MS–

LTC–DRG 10). As explained in the FY 

2008 IPPS proposed rule, this is because 

Medicare will only cover these 

procedures if they are performed at a 

hospital that has been certified for the 

specific procedures by Medicare and 

presently no LTCH has been so certified. 

If in the future a LTCH applies for 

certification as a Medicare-approved 

transplant center, we believe that the 

application and approval procedure 

would allow sufficient time for us to 

determine appropriate weights for the 

proposed MS–LTC–DRGs affected. At 

the present time, we would only include 

these seven proposed transplant MS–

LTC–DRGs in the GROUPER program 

for administrative purposes only. 

Because we use the same GROUPER 

program for LTCHs as is used under the 

IPPS, removing these proposed MS–

LTC–DRGs would be administratively 

burdensome. (See the FY 2008 IPPS 

proposed rule for further details on the 

steps for calculating the proposed MS–

LTC–DRG relative weights for FY 2008.) 

3. Budget Neutrality (BN) Requirement 

for the Annual LTC–DRG Update 

As noted above in this section, 

currently under § 412.517, the LTC–

DRG classifications and relative weights 

are adjusted annually to reflect changes 

in factors affecting the relative use of 

LTCH resources, such as treatment 

patterns, technology and number of 

discharges. Currently, there are no 

statutory or regulatory requirements that 

the annual update to the LTC–DRG 

classifications and relative weights be 

done in a budget neutral manner. 

Historically, since the initial 

implementation of the LTCH PPS in FY 

2003, we have updated the LTC–DRG 

relative weights each year without a BN 

adjustment based on the most recent 

available LTCH claims data, which 

reflect current LTCH patient mix and 

coding practices, and appropriately 

reflected more or less resource use than 

the previous year’s LTC–DRG relative 

weights (71 FR 47991). When we 

proposed changes to the LTC–DRGs for 

FY 2007 in the FY 2007 IPPS proposed 

rule, we estimated that those proposed 

changes to the LTC–DRG classifications 

and relative weights would result in 

about an estimated 1.4 percent decrease 

in estimated aggregate LTCH PPS 

payments (71 FR 24413). As we 

discussed in the FY 2007 IPPS final rule 

(71 FR 47991), several commenters, 

including MedPAC, urged us to 

establish a BN requirement for the 

annual reclassification and recalibration 

of the LTC–DRGs so that, in future 

years, the LTCH PPS could avoid an 

estimated decrease in estimated 

aggregate payments, such as the 

estimated 1.4 percent decrease that 

resulted from the proposed update to 

the LTC–DRGs and relative weights for 

FY 2007. In response to previous 

proposed annual updates to the LTC–

DRG relative weights, we also received 

comments recommending that a BN 

adjustment be applied in determining 

the LTC–DRG relative weights to 

mitigate LTCH PPS payment 

fluctuations. (See the FY 2005 IPPS final 

rule (69 FR 48999 through 49000), and 

the FY 2006 IPPS final rule (70 FR 

47333 through 47334).) 

In response to those comments, we 

explained that we understood the 

commenters’ concern with the estimated 

decrease in payments under LTCH PPS 

based upon the changes in the LTC–

DRGs and relative weights proposed for 

FY 2007. However, as we discussed in 

the FY 2007 IPPS final rule, we did not 

postpone the proposed FY 2007 

reclassification and recalibration of the 

LTC–DRGs, nor did we implement those 

changes in a budget neutral manner. We 

noted several reasons for the annual 

fluctuations in LTC–DRG relative 

weights that have resulted in both 

estimated increases and decreases in 

estimated aggregate LTCH PPS 

payments in the 4 years since the 

implementation of the LTCH PPS in FY 

2003. Specifically, we reiterated our 

belief that several factors have affected 

the changes to the LTC–DRG relative 

weights over the past 4 years, including 

actual improvements in coding so that 

cases are appropriately assigned to 

LTC–DRGs. We also explained that 

historically we recalibrated the LTC–

DRG relative weights each year based on 

the most recent available LTCH claims 

data, which reflect current LTCH patient 

mix and coding practices, and 

appropriately reflects more or less 

resource use than the previous year’s 

LTC–DRG relative weights. The 

intended purpose of the annual 

recalibration of the LTC–DRG relative 

weights is to reflect any variation in 

coding practices and charges from the 

previous year and to help ensure that 

the LTC–DRG relative weights in the 

upcoming fiscal year will result in 

appropriate and accurate payments to 

LTCHs for the resources they expend to 

treat their Medicare patients. (71 FR 

47984 through 47989) 

We also reminded the commenters 

that under the IPPS, there is a statutory 

requirement that the annual DRG 

reclassification and recalibration 

changes be made in a manner that 

assures that the estimated aggregate 

payments are neither greater than nor 

less than the estimated aggregate 

payments that would have been made 

without the changes, but there is no 

corresponding statutory requirement 

under the LTCH PPS. However, we 

noted that, given the considerable 

discretion granted to the Secretary 

under section 123 of the BBRA and 

section 307(b) of the BIPA of 2000 to 

develop the LTCH PPS, it is possible 

that, at some point, the Secretary would 

consider using this broad authority to 

establish a BN policy for the annual 

update of the LTC–DRG classifications 

and relative weights. We further stated 

that if we find that it would be 

appropriate to propose making the 

updates to the LTC–DRGs and relative 

weights in a budget neutral manner, the 

public would have the opportunity to 

submit comments on any proposed 

change during the rulemaking process. 

As we discussed in the RY 2007 

LTCH PPS proposed rule (72 FR 4784 

through 4786), a LTCH’s case-mix index 

(CMI) is defined as its case weighted 

average LTC–DRG relative weight for all 

its discharges in a given period. Changes 

in CMI consist of two components: 

‘‘real’’ CMI changes and ‘‘apparent’’ CMI 

changes. Real CMI increase is defined as 

the increase in the average LTC–DRG 

relative weights resulting from the 

hospital’s treatment of more resource 

intensive patients. Apparent CMI 

increase is defined as the increase in 

CMI due to changes in coding practices. 

The computed (or observed) CMI 

increase is defined as real CMI increase 

(due to an increase in patient severity) 

plus the increase due to changes in 

coding practices (including better 

documentation of the medical record by 

physicians and more complete coding of 

the medical record by coders). If LTCH 

patients have more costly impairments, 

lower functional status, or increased 

comorbidities, and thus require more 

resources in the LTCH, we consider this 

a real change in case-mix. Conversely, if 

LTCH patients have the same 

impairments, functional status, and 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26881 

comorbidities but are coded differently 

resulting in higher payment, we 

consider this an apparent change in 

case-mix. We believe that changes in 

payment rates, including the LTC–DRG 

relative weights, should accurately 

reflect changes in LTCHs’ true cost of 

treating patients (real CMI increase), and 

should not be influenced by changes in 

coding practices (apparent CMI 

increase). 

As stated above in this section, 

apparent CMI increase results from 

cases being grouped to a LTC–DRG with 

a higher weight than it would be 

without such changes in coding 

practices. As we discussed in the FY 

2007 IPPS final rule (71 FR 48343 

through 48344), in discussing the 

impact of the changes to the LTC–DRG 

classifications and relative weights 

established for FY 2007 that were 

estimated to result in an aggregate 

decrease in LTCH PPS payments of 

approximately 1.3 percent, we 

explained that changes in coding 

practices (rather than patient severity) 

primarily resulted in fluctuations in the 

LTC–DRG relative weights in the past. 

Specifically, based on an analysis of FY 

2005 LTCH claims data, we continued 

to observe that the average LTC–DRG 

relative weight decreases due to an 

increase of relatively lower charge cases 

being assigned to LTC–DRGs with 

higher relative weights in the prior year. 

Contributing to this increase in these 

relatively lower charge cases being 

assigned to LTC–DRGs with higher 

relative weights in the prior year are 

improvements in coding practices, 

which are typical when moving from a 

reasonable cost-based payment system 

to a PPS. The impact of including cases 

with relatively lower charges into LTC–

DRGs that had a relatively higher 

relative weight in the previous version 

of the GROUPER software is a decrease 

in the average relative weight for those 

LTC–DRGs in the updated version of the 

GROUPER software. 

We noted in the RY 2008 LTCH PPS 

proposed rule (72 FR 4785) that this 

same phenomenon of relatively lower 

charge cases being assigned to LTC–

DRGs with higher relative weights in the 

prior year was also observed when we 

analyzed the LTCH claims data from FY 

2003 and FY 2004 to update the LTC–

DRG relative weights for FY 2005 and 

FY 2006, respectively (see the FY 2005 

IPPS final rule (69 FR 48999) and the FY 

2006 IPPS final rule (70 FR 47701 

through 47702).) However, this 

phenomenon was more notable based 

on the FY 2004 LTCH claims data that 

were used to update the LTC–DRG 

relative weights for FY 2006, where the 

changes to the LTC–DRG weights 

established were estimated to result in 

a decrease in aggregate LTCH PPS 

payments of 4.2 percent (as compared to 

the estimated 1.3 percent decrease in 

aggregate LTCH PPS payments based on 

the FY 2005 LTCH claims data used to 

determine the FY 2007 LTC–DRG 

relative weights). Because the estimated 

decrease in aggregate LTCH PPS 

payments due to the update to the LTC–

DRG relative weights based on more 

recent (FY 2005) LTCH claims data was 

significantly lower (1.3 percent 

estimated based on the LTC–DRG 

changes for FY 2007) than it was based 

on FY 2004 LTCH claims data (4.2 

percent estimated based on the LTC–

DRG changes for FY 2006), we believe 

that, as LTCHs have become more 

familiar with the ICD–9–CM coding 

principles and guidelines used under a 

DRG-based system, annual changes in 

LTCH CMI are approaching the point 

where the observed CMI increase is 

primarily due to changes in real CMI 

(that is, increased patient severity) 

rather than apparent CMI (that is, 

changes in coding practices). In other 

words, because we have observed that, 

over time as LTCHs have gained more 

experience with ICD–9–CM coding, 

estimated changes in LTCH PPS 

payments due to recalibration of the 

LTC–DRG relative weights based on 

more recent claims data (for example, 

the FY 2007 LTC–DRG relative weights 

calculated from FY 2005 LTCH claims 

data as compared to the FY 2006 LTC–

DRG relative weights calculated from 

FY 2004 LTCH claims data) have 

diminished over time. That is, we have 

estimated smaller fluctuations in 

aggregate LTCH PPS payments as a 

result of the annual recalibration of the 

LTC–DRG relative weights based on 

more recent LTCH claims data generated 

after the implementation of the LTCH 

PPS (for example, the 1.3 percent 

estimated decrease in aggregate LTCH 

PPS payments for FY 2007 based on FY 

2004 LTCH claims data as compared to 

the 4.2 percent estimated decrease in 

aggregate LTCH PPS payments for FY 

2007 based on FY 2005 LTCH claims 

data). 

For these reasons, as discussed in the 

RY 2008 LTCH PPS proposed rule (72 

FR 4785), we believe that LTCH coding 

practices have stabilized such that the 

most recent available LTCH claims data 

now primarily reflect changes in the 

resources used by the average LTCH 

patient in a particular LTC–DRG (and 

not changes in coding practices). Thus, 

we believe that the most recent available 

data (as described below in this section) 

mainly reflect the true costs of treating 

LTCH patients, and we believe changes 

in payment rates, including the LTC–

DRGs, should reflect such costs. 

Furthermore, in that same proposed 

rule, we explained that a LTCH CMI 

analysis based on the most recent 

available LTCH claims data, which is 

discussed in section IV.C. of this 

preamble, also supports our belief that 

observed CMI increase is primarily due 

to changes in real CMI (that is, increased 

patient severity) rather than apparent 

CMI (that is, changes in coding 

practices). Specifically, this CMI 

analysis indicates that changes in LTCH 

coding practices, which resulted in 

fluctuations in the LTC–DRG relative 

weights in the past, appear to be 

stabilizing as LTCHs have become more 

familiar with a DRG-based system. 

Specifically, this LTCH CMI analysis 

shows that the overall observed change 

in LTCH CMI from FY 2003 compared 

to FY 2004 was an increase of 

approximately 6.75 percent while the 

overall observed change in LTCH CMI 

from FY 2004 compared to FY 2005 was 

an increase of approximately 3.49 

percent, which is only about half of the 

LTCH CMI growth measured from the 

prior period (that is, the 6.75 percent 

from FY 2003 to FY 2004). Furthermore, 

preliminary analysis of FY 2006 LTCH 

claims data, which reflects over 3 full 

years of experience under the LTCH PPS 

for most LTCHs, showed an even 

smaller overall observed CMI increase of 

about 1.9 percent from FY 2005 

compared to FY 2006. Again, the 

observed CMI increase from FY 2005 to 

FY 2006 is only about half of the LTCH 

CMI growth measured from the prior 

period (that is, the 3.49 percent from FY 

2004 to FY 2005). Because this LTCH 

CMI analysis shows that observed CMI 

is declining, we believe that LTCH 

coding practices have stabilized such 

that changes in LTCH CMI are now 

primarily due to changes in real CMI 

(that is, increased patient severity) 

rather than apparent CMI (that is, 

changes in coding practices). In other 

words, because we believe that the 

observed annual CMI increase is 

primarily ‘‘real’’ and not ‘‘apparent,’’ it 

is no longer necessary to update the 

LTC–DRGs in a non-budget neutral 

manner (as discussed in greater detail 

below in this section). As stated above 

in this section, we believe that changes 

in payment rates, including the LTC–

DRG relative weights, should accurately 

reflect changes in LTCHs’ true cost of 

treating patients (real CMI increase) and 

should not be influenced by changes in 

coding practices (apparent CMI 

increase). 

In light of these facts, in order to 

mitigate estimated fluctuations in 

estimated aggregate LTCH PPS 


ycherry on PROD1PC64 with RULES2
26882 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

payments, as urged by past commenters, 

we stated in the RY 2008 proposed rule 

(72 FR 4785) that we had given further 

consideration to the issue of 

establishing a BN requirement for 

annual LTC–DRG reclassification and 

recalibration. Therefore, in that 

proposed rule, under the broad 

authority conferred upon the Secretary 

under section 123 of the BBRA as 

amended by section 307(b) of the BIPA 

to develop the LTCH PPS, we proposed 

that, beginning with the LTC–DRG 

update for FY 2008, the annual update 

to the LTC–DRG classifications and 

relative weights would be done in a 

budget neutral manner such that 

estimated aggregate LTCH PPS 

payments would be unaffected, that is, 

would be neither greater than nor less 

than the estimated aggregate LTCH PPS 

payments that would have been made 

without the LTC–DRG classification and 

relative weight changes. Accordingly, 

we proposed to revise § 412.517 to 

specify that annual changes to the LTC–

DRG classifications and the 

recalibration of the LTC–DRG relative 

weights would be made in a budget 

neutral manner such that estimated 

aggregate LTCH PPS payments are not 

affected. 

Comment: Numerous commenters, 

including MedPAC, supported our 

proposal to recalibrate the LTC–DRGs 

annually in a budget neutral manner. 

Some commenters also recommended 

that we should monitor the recalibration 

so that any reweighting of the LTC–

DRGs is conducted in a manner that 

does not result in a redistribution of 

payments from high acuity DRGs to 

lower acuity DRGs, pending 

implementation of revised certification 

criteria designed to screen out LTCH 

inappropriate patients. 

Response: We appreciate the 

commenters’ support of our proposed 

BN requirement for the annual LTC–

DRG update. As discussed in the RY 

2008 LTCH PPS proposed rule (72 FR 

4785 through 4786), we explained that 

we believe that it would be appropriate 

to update the LTC–DRG classifications 

and relative weights in a budget neutral 

manner at this time for the reasons 

discussed below. As noted above in this 

section, the relative weight for each 

LTC–DRG represents the resources 

needed by an average inpatient LTCH 

case in that LTC–DRG, such that LTCH 

cases in a LTC–DRG with a relative 

weight of 2 will, on average, cost twice 

as much as cases in a LTC–DRG with a 

relative weight of 1. 

In the past when we recalibrated the 

LTC–DRG relative weights each year 

without a BN adjustment based on the 

most recent available LTCH claims data, 

we believe that the resulting LTC–DRG 

relative weights appropriately reflected 

more or less resource use than the 

previous year’s LTC–DRG relative 

weights, and that the estimated 

aggregate payment changes were 

appropriate given that the LTCH claims 

data used to determine those LTC–DRG 

relative weights reflected changes in 

coding practices, as well as changes in 

actual resource use. Historically, we 

have not updated the LTC–DRGs in a 

budget neutral manner because we 

believed that past fluctuations in the 

LTC–DRG relative weights were 

primarily due to changes in LTCH 

coding practices, which included both 

‘‘real’’ and ‘‘apparent’’ changes in 

LTCHs’ case-mix (as discussed above in 

this section). We believe that changes in 

the LTCH PPS payment rates, including 

the LTC–DRG relative weights, should 

accurately reflect changes in LTCHs’

true cost of treating patients (real CMI 

increase), and should not be influenced 

by changes in coding practices 

(apparent CMI increase). Therefore, in 

the past we did not update the LTC–

DRGs in a budget neutral manner so that 

‘‘apparent’’ CMI changes were not 

permanently built into the LTCH PPS 

payment rates. 

Because LTCH 2006 claims data does 

not appear to significantly reflect 

changes in LTCH coding practices in 

response to the implementation of the 

LTCH PPS (as explained above in this 

section), we believe that it may be 

appropriate to update the LTC–DRGs so 

that estimated aggregate LTCH PPS 

payments would neither increase or 

decrease since we believe that changes 

in the LTC–DRG classifications and 

relative weights should accurately 

reflect changes in LTCHs’ resource use 

(that is, true cost of treating patients) 

and should not be influenced by 

changes in coding practices, and that 

the most recent such LTCH claims data 

primarily reflects changes in the 

resources needed by an average LTCH 

case in a particular LTC–DRG (and not 

changes in coding practices). 

Thus, we now believe it would be 

reasonable and appropriate to update 

the LTC–DRGs in a budget neutral 

manner, beginning in FY 2008, so that 

estimated aggregate payments under the 

LTCH PPS would be unaffected (that is, 

estimated aggregate LTCH PPS 

payments would not be greater than or 

less than they would have been without 

the proposed LTC–DRG classification 

and relative weight changes) by any 

changes resulting from the annual 

reclassification and recalibration of the 

LTC–DRGs. Updating the LTC–DRGs in 

a budget neutral manner would result in 

an annual update to the individual 

LTC–DRG classifications and relative 

weights based on the most recent 

available data to reflect changes in 

relative LTCH resource use; however, 

the LTC–DRG relative weights would be 

uniformly adjusted to ensure that 

estimated aggregate payments under the 

LTCH PPS would not be affected (that 

is, decreased or increased). 

In this final rule, under the broad 

authority conferred upon the Secretary 

under section 123 of the BBRA as 

amended by section 307(b) of the BIPA 

to develop the LTCH PPS, beginning 

with the LTC–DRG update for FY 2008 

(discussed in greater detail below), the 

annual update to the LTC–DRG 

classifications and relative weights will 

be done in a budget neutral manner 

such that estimated aggregate LTCH PPS 

payments will be unaffected, that is, 

will be neither greater than nor less than 

the estimated aggregate LTCH PPS 

payments that would have been made 

without the LTC–DRG classification and 

relative weight changes. Accordingly, 

we are revising § 412.517 to specify that 

annual changes to the LTC–DRG 

classifications and the recalibration of 

the LTC–DRG relative weights are made 

in a budget neutral manner such that 

estimated aggregate LTCH PPS 

payments are not affected. 

As discussed above, we believe that 

the most recent available LTCH claims 

data reflects the intensity of resource 

use of the treatment of Medicare 

patients based on current LTCH coding 

and treatment practices. Accordingly, 

we believe that annually updating the 

LTC–DRG relative weights using the 

most recent available LTCH claims data 

reflects more or less resource use than 

the previous year’s LTC–DRG relative 

weights based on the current LTCH 

practices. Therefore, we believe that any 

redistribution in payments as a result of 

the annual recalibration of the LTC–

DRG relative weights based on this 

updated LTCH claims data 

appropriately reflects LTCH resource 

use in the treatment of their Medicare 

patients. While we will continue to 

monitor LTCH data, including any 

redistribution of payments upon the 

annual update of the LTC DRGs, for the 

reasons discussed above, we are not 

adopting the commenters’ suggestion to 

establish a requirement that the annual 

recalibration of the relative weights be 

done in a manner that would adjust for 

redistribution of payments from high 

acuity LTC–DRGs to lower acuity LTC–

DRGs. 

As we explained in the RY 2008 

LTCH PPS proposed rule (72 FR 4786), 

we intend to update the LTC–DRG 

classifications and relative weights for 

FY 2008 based on the best available data 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26883 

at the time to allow for changes in 

factors affecting hospital resource use, 

including but not limited to, practice 

patterns and new technology. This will 

be done in a budget neutral manner, 

such that estimated aggregate payments 

under the LTCH PPS would neither 

decrease or increase as a result of the 

changes due to the annual 

reclassification and recalibration of the 

LTC–DRGs. Because we will continue to 

use the most recent available LTCH 

data, the updated LTC–DRG relative 

weights will continue to reflect changes 

in LTCH resource use (as is the case 

under the current (non-budget neutral) 

LTC–DRG update methodology). Thus, 

for example, if the most recent LTCH 

claims data showed that the resource 

use for hypothetical LTC–DRG ‘‘ABC’’ is 

double the resource use for hypothetical 

LTC–DRG ‘‘XYZ,’’ then the value of the 

relative weight for LTC–DRG ‘‘ABC’’

would be about twice the value of 

relative weight for LTC–DRG ‘‘XYZ.’’

In addition to accounting for changes 

in relative resource use, to include a BN 

requirement for the annual update to the 

LTC–DRGs, the updated LTC–DRG 

relative weights will need to be 

uniformly adjusted to ensure that 

estimated aggregate LTCH PPS 

payments will not be affected. That is, 

a BN factor will need to be computed to 

ensure that the LTC–DRG 

reclassification and recalibration 

process, by itself, neither increases nor 

decreases estimated aggregate LTCH 

PPS payments. 

As discussed in the FY 2008 IPPS 

proposed rule, to accomplish BN when 

annually updating the LTC–DRG 

classifications and relative weights 

under revised § 412.517, we proposed to 

use a method that is similar to the 

methodology used under the IPPS. 

(Information on the IPPS DRG BN 

adjustment can be found in the FY 2007 

IPPS final rule (71 FR 47970).) As noted 

above, we proposed to adopt the MS–

LTC–DRGs for the LTCH PPS for FY 

2008. Therefore, in the discussion that 

follows, we will refer to the 

development of the proposed budget 

neutrality factor in terms of the 

proposed MS–LTC–DRG severityweighted patient classification system. 

Specifically, after recalibrating the 

proposed MS–LTC–DRG relative 

weights, as we do under our existing 

methodology (as described in detail in 

the FY 2007 IPPS final rule (71 FR 

47978 through 47981)), as described in 

greater detail in the FY 2008 IPPS 

proposed rule, we would calculate and 

apply a normalization factor (which will 

be published annually in the IPPS 

proposed and final rules when we 

update the LTC–DRGs and relative 

weights) to the proposed MS–LTC–DRG 

relative weights to ensure that estimated 

aggregate LTCH PPS payments are not 

influenced by changes in the 

composition of case types or changes 

made to the classification system. That 

is, the normalization adjustment is 

intended to ensure that the recalibration 

of the proposed MS–LTC–DRG relative 

weights (that is, the process itself) 

neither increases nor decreases total 

estimated payments. To calculate the 

normalization factor, we proposed to 

use the most recent available claims 

data (FY 2006) and apply the proposed 

GROUPER (Version 25.0) to calculate 

the proposed MS–LTC–DRG relative 

weights. (We also proposed to use the 

most recent available claims data in the 

analysis for this final rule.) These 

weights were determined such that the 

average CMI value is 1.0. Then, we 

proposed to group the same claims data 

(FY 2006) using the current GROUPER 

(Version 24.0) and current LTC–DRG 

relative weights. The average CMI was 

calculated for the claims data using the 

current GROUPER and relative weights. 

Finally, the ratio of the average CMI of 

the claims data set under the current 

GROUPER and the proposed GROUPER 

was calculated as the proposed 

normalization factor. 

For FY 2008, based on the latest 

available data, the proposed 

normalization factor is estimated as 

1.020302, which was applied to each 

proposed MS–LTC–DRG relative weight. 

(We also stated that if more current data 

become available prior to publication of 

the final rule, we will use those data to 

determine the normalization factor.) 

That is, each proposed MS–LTC–DRG 

relative weight was multiplied by 

1.020302 in the first step of the BN 

process. 

We are also proposed to ensure that 

estimated aggregate LTCH PPS 

payments (based on the most recent 

available LTCH claims data) after 

recalibration (the proposed relative 

weights) would be equal to estimated 

aggregate LTCH PPS payments (for the 

same most recent available LTCH claims 

data) before recalibration (the existing 

relative weights). Therefore, we 

proposed to calculate the BN adjustment 

factor by simulating estimated payments 

under both sets of GROUPERs and 

relative weights. We proposed to 

simulate total estimated payments 

under the current payment policies (RY 

2007) using the most recent available 

claims data (FY 2006) and using the 

proposed GROUPER (Version 25.0), and 

normalized relative weights. Then, we 

proposed to simulate estimated 

payments using the most recent 

available claims data (FY 2006) and 

apply the proposed GROUPER (Version 

25.0). We next calculated payments 

using the same claims data (FY 2006) 

with the current GROUPER (Version 

24.0). The ratio of the estimated average 

payment under the current GROUPER 

and the proposed GROUPER was 

calculated as the proposed BN factor. 

Then each of the proposed normalized 

relative weights was multiplied by the 

proposed BN factor to determine the 

proposed budget neutral relative weight 

for each proposed MS–LTC–DRG. 

Accordingly, based on the most recent 

available data, we proposed to apply a 

BN factor of 1.003924 to the relative 

weights after normalizing. To calculate 

the proposed MS–LTC–DRG relative 

weights for FY 2008, we obtained total 

Medicare allowable charges from FY 

2006 Medicare LTCH bill data from the 

December 2006 update of the MedPAR 

file, which are the best available data at 

that time. We also proposed that if more 

current data become available prior to 

publication of the final rule, we will use 

those data to determine the budget 

neutrality factor. The proposed FY 2008 

MS–LTC–DRG relative weights are 

presented in Table 11 in the Addendum 

of the FY 2008 IPPS proposed rule, 

which reflect the budget neutral 

adjustment described above. 

In the recently issued FY 2008 IPPS 

proposed rule, we proposed significant 

refinements to the DRGs used under 

both the IPPS and LTCH PPS to better 

recognize severity of illness among 

patients. The proposed refinements 

would be effective October 1, 2007. The 

proposed new MS–DRG and MS–LTC–

DRG systems present opportunities to 

acute care hospitals and LTCHs, 

respectively, to improve documentation 

and coding to receive higher payments 

without a real increase in patient 

severity of illness. The Office of the 

Actuary estimates an adjustment of 

¥2.4 percent to the IPPS rates for each 

of FY 2008 and FY 2009 will be 

necessary to account for the anticipated 

improvements in coding and 

documentation. In the FY 2008 IPPS 

proposed rule, we proposed to apply 

this ¥2.4 percent adjustment for case 

mix increase in FY 2008 and in FY 2009 

in both the IPPS and LTCH PPS systems 

to address the proposed change to the 

refined severity DRGs. It should be 

noted that this adjustment is not related 

to the finalized budget neutrality 

adjustment included in this LTCH final 

rule and discussed above. The budget 

neutrality adjustment in this rule is an 

annual requirement that is needed to 

assure that annual recalibration of the 

DRG weights based on the most recent 

available claims data, results in no 


ycherry on PROD1PC64 with RULES2
26884 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

changes (increase or decrease) in 

estimated payments that stem from 

updating the DRG weights, while the 

proposed ¥2.4 percent adjustment for 

FYs 2008 and 2009 is tied solely to the 

proposed change to the MS–LTC–DRGs. 

Accordingly, each of the proposed MS–

LTC–DRG relative weights in Table 11 

of the Addendum to the FY 2008 IPPS 

proposed rule reflects this proposed 

adjustment. That is, each proposed MS–

LTC–DRG relative weight was 

multiplied by a factor of 0.976 to 

account for changes in coding or 

classification of discharges resulting 

from the proposed adoption of the new 

patient classification system. This 

proposed adjustment is consistent with 

the proposed adjustment applied to the 

proposed IPPS rates for FYs 2008 and 

2009 to eliminate the effect of changes 

in coding or classification of discharges 

that do not reflect real change in casemix because we believe that adoption of 

the proposed MS–LTC–DRGs would 

create a risk of increased aggregate 

levels of payment as a result of 

increased documentation and coding. 

E. ICD–9–CM Coding System 

1. Uniform Hospital Discharge Data Set 

(UHDDS) Definitions 

Because the assignment of a case to a 

particular LTC-DRG or the proposed 

MS–LTC–DRG will help determine the 

amount that will be paid for the case, it 

is important that the coding is accurate. 

Classifications and terminology used in 

the LTCH PPS are consistent with the 

ICD–9–CM coding scheme and the 

UHDDS, as recommended to the 

Secretary by the National Committee on 

Vital and Health Statistics (‘‘Uniform 

Hospital Discharge Data: Minimum Data 

Set, National Center for Health Statistics 

(NCHS), April 1980’’) and as revised in 

1984 by the Health Information Policy 

Council (HIPC) of the Department of 

Health and Human Services (HHS). 

We note that the ICD–9–CM coding 

terminology and the definitions of 

principal and other diagnoses of the 

UHDDS are consistent with the 

requirements of the HIPAA 

Administrative Simplification Act of 

1996 (45 CFR part 162). Furthermore, 

the UHDDS was used as a standard for 

the development of policies and 

programs related to hospital discharge 

statistics by both governmental and 

nongovernmental sectors for over 30 

years. In addition, the following 

definitions (as described in the 1984 

Revision of the UHDDS, approved by 

the Secretary for use starting January 

1986) are requirements of the ICD–9–

CM coding system, and have been used 

as a standard for the development of the 

CMS–DRGs: 

• Diagnoses are defined to include all 

diagnoses that affect the current hospital 

stay. 

• Principal diagnosis is defined as the 

condition established after study to be 

chiefly responsible for occasioning the 

admission of the patient to the hospital 

for care. 

• Other diagnoses (also called 

secondary diagnoses or additional 

diagnoses) are defined as all conditions 

that coexist at the time of admission, 

that develop subsequently, or that affect 

the treatment received or the LOS or 

both. Diagnoses that relate to an earlier 

episode of care that have no bearing on 

the current hospital stay are excluded. 

• All procedures performed will be 

reported. This includes those that are 

surgical in nature, carry a procedural 

risk, carry an anesthetic risk, or require 

specialized training. 

We provide LTCHs with a 60-day 

window after the date of the notice of 

the initial LTC–DRG or proposed MS–

LTC–DRG assignment to request review 

of that assignment of the discharge to an 

LTC–DRG or MS–LTC–DRG. Additional 

information may be provided by the 

LTCH to the FI as part of that review. 

2. Maintenance of the ICD–9–CM 

Coding System 

The ICD–9–CM C&M Committee is a 

Federal interdepartmental committee, 

co-chaired by the National Center for 

Health Statistics (NCHS) and CMS, 

which is charged with maintaining and 

updating the ICD–9–CM system. The 

C&M Committee is jointly responsible 

for approving coding changes, and 

developing errata, addenda, and other 

modifications to the ICD–9–CM to 

reflect newly developed procedures and 

technologies and newly identified 

diseases. The C&M Committee is also 

responsible for promoting the use of 

Federal and non-Federal educational 

programs and other communication 

techniques with a view toward 

standardizing coding applications and 

upgrading the quality of the 

classification system. 

The NCHS has lead responsibility for 

the ICD–9–CM diagnosis codes included 

in the Tabular List and Alphabetic 

Index for Diseases, while CMS has the 

lead responsibility for the ICD–9–CM 

procedure codes included in the 

Tabular List and Alphabetic Index for 

Procedures. The C&M Committee 

encourages participation by healthrelated organizations in this process and 

holds public meetings for discussion of 

educational issues and proposed coding 

changes twice a year at the CMS Central 

Office located in Baltimore, Maryland. 

The agenda and dates of the meetings 

can be accessed on our Web site at 

http://www.cms.hhs.gov/ICD9Provider

DiagnosticCodes. 

As discussed previously in this 

section, for the IPPS, section 503(a) of 

the MMA includes a requirement for 

updating diagnosis and procedure codes 

twice a year instead of annual updates 

on October 1 of each year. This 

requirement will improve the 

recognition of new technologies under 

the IPPS by accounting for them in the 

GROUPER software at an earlier date. 

Because this statutory requirement 

could have a significant impact on 

health care providers, coding staff, 

publishers, system maintainers, and 

software systems, among others, we 

solicited comments on our proposed 

provisions to implement this 

requirement as part of the FY 2005 IPPS 

proposed rule (69 FR 28220 through 

28221). We responded to comments and 

published our new policy regarding the 

updating of diagnosis and procedure 

codes (currently the ICD–9–CM) in the 

FY 2005 IPPS final rule (69 FR 48953 

through 48957). In addition, we 

established a policy for the possibility of 

an April 1 ICD–9–CM diagnosis and 

procedure code update in the RY 2006 

LTCH PPS final rule (70 FR 24176) since 

LTCH systems would be expected to 

recognize and report those new codes 

through the channels described in this 

section even though no DRG additions 

or deletions or changes to relative 

weights will occur prior to the usual 

October 1 update. (For more detailed 

information on the affect of the statutory 

mandates directed at the IPPS as 

amended by section 503(a) of the MMA, 

refer to the FY 2005 IPPS final rule (69 

FR 48954 through 48957) and the RY 

2007 LTCH PPS final rule (71 FR 27806 

through 27808)). 

Current addendum and code title 

information is published on the CMS 

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

ICD9ProviderDiagnosticCodes/ 

04_addendum.asp. Summary tables 

showing new, revised, and deleted code 

titles are also posted on the CMS Web 

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

ICD9ProviderDiagnosticCodes/ 

07_summarytables.asp. Information on 

ICD–9–CM diagnosis codes can be 

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

ICD9ProviderDiagnosticCodes/. 

Information on new, revised, and 

deleted ICD–9–CM codes is also 

available in the American Hospital 

Association (AHA) publication, the 

Coding Clinic for ICD–9–CM. AHA also 

distributes information to publishers 

and software vendors. We also send 

copies of all ICD–9–CM coding changes 

to our contractors for use in updating 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26885 

their systems and providing education 

to providers. In addition, of particular 

note to LTCHs are the invalid diagnosis 

codes (Table 6C) and the invalid 

procedure codes (Table 6D) located in 

the annual proposed and final rules for 

the IPPS. Claims with invalid codes are 

not processed by the Medicare claims 

processing system. 

3. Coding Rules and Use of ICD–9–CM 

Codes in LTCHs 

We continue to urge LTCHs to focus 

on improved coding practices. 

Inappropriate coding of cases can 

adversely affect the uniformity of cases 

in each LTC–DRG or proposed MS–

LTC–DRG and produce inappropriate 

weighting factors at the annual 

recalibration. Because of concerns 

raised by LTCHs concerning correct 

coding, we have asked the AHA to 

provide additional clarification and 

instruction on proper coding in the 

LTCH setting. The AHA will provide 

this instruction via their established 

process of addressing questions through 

their publication, the Coding Clinic for 

ICD–9–CM. Written questions or 

requests for clarification may be 

addressed to the Central Office on ICD–

9–CM, American Hospital Association, 

One North Franklin, Chicago, IL 60606. 

A form for question(s) is available for 

download and can be mailed on AHA’s 

Web site at: www.ahacentraloffice.org. 

In addition, current coding guidelines 

are available at the NCHS Web site: 

http://www.cdc.gov/nchs/datawh/ 

ftpserv/ftpicd9/ftpicd9.htm#conv. 

In conjunction with the cooperating 

parties (AHA, the American Health 

Information Management Association 

(AHIMA), and NCHS), we reviewed 

actual medical records and continue to 

emphasize the importance of the quality 

of the documentation under the LTCH 

PPS. Based on the LTCH claims data 

analysis described above in section 

III.D.2. of this preamble, we fully 

believe that with some experience under 

a PPS, the quality of the documentation 

and coding of LTCHs has improved, as 

it did for the IPPS. However, because of 

the need for proper coding by LTCHs, 

the cooperating parties will assist their 

members with continued improvement 

in documentation and coding issues for 

the LTCHs through specific questions 

and coding guidelines. The importance 

of consistent and complete 

documentation is emphasized in the 

revised ICD–9–CM Official Guidelines 

for Coding and Reporting: ‘‘A joint effort 

between the attending physician and 

coder is essential to achieve complete 

and accurate documentation, code 

assignment, and reporting of diagnoses 

and procedures. The importance of 

consistent, complete documentation in 

the medical record cannot be 

overemphasized. Without this 

documentation, the application of all 

coding guidelines is a difficult, if not 

impossible task’’ (Coding Clinic for ICD–

9–CM, Fourth Quarter 2002, page 115). 

To improve medical record 

documentation, LTCHs should be aware 

that if the patient is being admitted for 

continuation of treatment of an acute or 

chronic condition, guidelines at Section 

I.B.10 of the Coding Clinic for ICD–9–

CM, Fourth Quarter 2002 (page 129) are 

applicable for the selection of principal 

diagnosis. To clarify coding advice 

issued in the August 30, 2002 LTCH 

PPS final rule (67 FR 55979), at 

Guideline I.B.12, Late Effects, we state 

that a late effect is considered to be the 

residual effect (condition produced) 

after the acute phase of an illness or 

injury has terminated (Coding Clinic for 

ICD–9–CM, Fourth Quarter 2002, page 

129). Regarding whether a LTCH should 

report the ICD–9–CM code(s) for an 

unresolved acute condition instead of 

the code(s) for late effects of 

rehabilitation, we emphasize that each 

case must be evaluated on its unique 

circumstances and coded appropriately. 

Depending on the documentation in the 

medical record, either a code reflecting 

the acute condition or rehabilitation 

could be appropriate in a LTCH. 

Since implementation of the LTCH 

PPS, our Medicare FIs have conducted 

training and provided assistance to 

LTCHs in correct coding. We have also 

issued manuals containing procedures, 

as well as coding instructions to LTCHs 

and FIs. We will continue to conduct 

training and provide guidance on an ‘‘as 

needed’’ basis. We also refer readers to 

the detailed discussion on correct 

coding practices in the August 30, 2002 

LTCH PPS final rule (67 FR 55981 

through 55983). Additional coding 

instructions and examples will be 

published in the Coding Clinic for ICD–

9–CM. 

IV. Changes to the LTCH PPS Payment 

Rates for the 2008 LTCH PPS Rate Year 

A. Overview of the Development of the 

Payment Rates 

The LTCH PPS was effective 

beginning with a LTCH’s first cost 

reporting period beginning on or after 

October 1, 2002. Effective with that cost 

reporting period, LTCHs are paid, 

during a 5-year transition period, a total 

LTCH prospective payment that is 

comprised of an increasing proportion 

of the LTCH PPS Federal rate and a 

decreasing proportion based on 

reasonable cost-based principles, unless 

the hospital makes a one-time election 

to receive payment based on 100 

percent of the Federal rate, as specified 

in § 412.533. New LTCHs (as defined at 

§ 412.23(e)(4)) are paid based on 100 

percent of the Federal rate, with no 

phase-in transition payments. 

The basic methodology for 

determining LTCH PPS Federal 

prospective payment rates is set forth at 

§ 412.515 through § 412.532. In this 

section, we discuss the factors that will 

be used to update the LTCH PPS 

standard Federal rate for the 2008 LTCH 

PPS rate year that will be effective for 

LTCH discharges occurring on or after 

July 1, 2007 through June 30, 2008. 

When we implemented the LTCH PPS 

in the August 30, 2002 LTCH PPS final 

rule (67 FR 56029 through 56031), we 

computed the LTCH PPS standard 

Federal payment rate for FY 2003 by 

updating the latest available (FY 1998 or 

FY 1999) Medicare inpatient operating 

and capital cost data, using the 

excluded hospital market basket. 

Section 123(a)(1) of the BBRA 

requires that the PPS developed for 

LTCHs be budget neutral for the initial 

year of implementation. Therefore, in 

calculating the standard Federal rate 

under § 412.523(d)(2), we set total 

estimated LTCH PPS payments equal to 

estimated payments that would have 

been made under the reasonable costbased payment methodology had the 

PPS for LTCHs not been implemented. 

Section 307(a) of the BIPA specified that 

the increases to the hospital-specific 

target amounts and the cap on the target 

amounts for LTCHs for FY 2002 

provided for by section 307(a)(1) of the 

BIPA shall not be considered in the 

development and implementation of the 

LTCH PPS. 

Furthermore, as specified at 

§ 412.523(d)(1), the standard Federal 

rate is reduced by an adjustment factor 

to account for the estimated proportion 

of outlier payments under the LTCH 

PPS to total estimated LTCH PPS 

payments (8 percent). For further details 

on the development of the FY 2003 

standard Federal rate, see the August 30, 

2002 LTCH PPS final rule (67 FR 56027 

through 56037), and for subsequent 

updates to the LTCH PPS Federal rate, 

refer to the following final rules: RY 

2004 LTCH PPS final rule (68 FR 34134 

through 34140), RY 2005 LTCH PPS 

final rule (69 FR 25682 through 25684), 

RY 2006 LTCH PPS final rule (70 FR 

24179 through 24180), and RY 2007 

LTCH PPS final rule (71 FR 27819 

through 27827). 


ycherry on PROD1PC64 with RULES2
26886 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

B. LTCH PPS Market Basket 

1. Overview of the RPL Market Basket 

Historically, the Medicare program 

has used a market basket to account for 

price increases of the services furnished 

by providers. The market basket used 

for the LTCH PPS includes both 

operating and capital-related costs of 

LTCHs because the LTCH PPS uses a 

single payment rate for both operating 

and capital-related costs. The 

development of the LTCH PPS standard 

Federal rate, using the excluded 

hospital with capital market basket, is 

discussed in further detail in the August 

30, 2002 LTCH PPS final rule (67 FR 

56027 through 56033). 

In the August 30, 2002 final rule (67 

FR 56016 through 56017 and 56030), 

which implemented the LTCH PPS, we 

established the use of the excluded 

hospital with capital market basket as 

the LTCH PPS market basket. The 

excluded hospital with capital market 

basket was also used to update the 

limits on LTCHs’ operating costs for 

inflation under the TEFRA reasonable 

cost-based payment system. We 

explained that we believe the use of the 

excluded hospital with capital market 

basket to update LTCHs’ costs for 

inflation was appropriate because the 

excluded hospital market basket (with a 

capital component) measures price 

increases of the services furnished by 

excluded hospitals, including LTCHs. 

For further details on the development 

of the excluded hospital with capital 

market basket, see the RY 2004 LTCH 

PPS final rule (68 FR 34134 through 

34137). 

In the RY 2007 LTCH PPS final rule 

(71 FR 27810), we noted that based on 

our research, we did not develop a 

market basket specific to LTCH services. 

We are still unable to create a separate 

market basket specifically for LTCHs 

due to the small number of facilities and 

the limited amount of data that is 

reported (for instance, only 

approximately 15 percent of LTCHs 

reported contract labor cost data for 

2002). In that same final rule, under the 

broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

we adopted the ‘‘Rehabilitation, 

Psychiatric and Long-Term Care (RPL) 

market basket’’ as the appropriate 

market basket of goods and services 

under the LTCH PPS for discharges 

occurring on or after July 1, 2006. 

Specifically, beginning with the 2007 

LTCH PPS rate year, for the LTCH PPS, 

we adopted the use of the RPL market 

basket based on FY 2002 cost report 

data as it was the best available data. We 

choose to use the FY 2002 Medicare cost 

reports because these are the most 

recent, relatively complete cost data for 

inpatient rehabilitation facilities (IRFs), 

inpatient psychiatric facilities (IPF), and 

LTCHs. 

The RPL market basket is determined 

based on the operating and capital costs 

of IRFs, IPFs and LTCHs. Since all IRFs 

are now paid under the IRF PPS Federal 

payment rate, nearly all LTCHs are paid 

100 percent of the Federal rate under 

the LTCH PPS, and most IPFs are 

transitioning to payment based on 100 

percent of the Federal per diem 

payment amount under the IPF PPS 

(payments to IPFs will be based 

exclusively on 100 percent of the 

Federal rate for cost reporting periods 

beginning on or after January 1, 2008), 

the RPL market basket reflects changes 

in the operating and capital costs for 

these hospitals. As we explained in that 

same final rule, we believe a market 

basket based on the data of IRFs, IPFs 

and LTCHs is appropriate to use under 

the LTCH PPS since it is the best 

available data that reflects the cost 

structures of LTCHs. 

For further details on the 

development of the RPL market basket, 

including the methodology for 

determining the operating and capital 

portions of the RPL market basket, see 

the RY 2007 LTCH PPS final rule (71 FR 

27810 through 27817). 

2. Market Basket Estimate for the 2008 

LTCH PPS Rate Year 

Consistent with our historical 

practice, we estimate market basket 

increase based on Global Insight’s 

forecast using the most recent available 

data. The most recent estimate of the 

RPL market basket for July 1, 2007 

through June 30, 2008 (the 2008 LTCH 

PPS rate year), based on Global Insight’s 

1st quarter 2007 forecast with history 

through the 4th quarter of 2006, is 3.2 

percent. Global Insight, Inc. is a 

nationally recognized economic and 

financial forecasting firm that contracts 

with CMS to forecast changes in the 

components of the market baskets. 

Consistent with our historical practice 

of using market basket estimates based 

on the most recent available data, we are 

finalizing 3.2 percent as the estimate of 

the RPL market basket for the 2008 

LTCH PPS rate year. 

As discussed in greater detail in this 

section, for the 2008 LTCH PPS rate 

year, we are updating the standard 

Federal rate by 0.71 percent. The update 

reflects an adjustment based on the most 

recent market basket estimate (currently 

3.2 percent) and an adjustment to 

account for the increase in case-mix in 

the prior period (FY 2005) that resulted 

from changes in coding practices rather 

than an increase in patient severity. 

C. Standard Federal Rate for the 2008 

LTCH PPS Rate Year 

1. Background 

At § 412.523(c)(3)(ii), for LTCH PPS 

rate years beginning RY 2004 through 

RY 2006, we updated the standard 

Federal rate to adjust for the most recent 

estimate of the projected increases in 

prices for LTCH inpatient hospital 

services. We established the policy of 

annually updating the standard Federal 

rate by the increase factor described in 

the RY 2004 LTCH PPS final rule (68 FR 

34138) because at that time we believed 

that was the most appropriate method 

for updating the LTCH PPS standard 

Federal rate annually for years after FY 

2003. When we moved the date of the 

annual update of the LTCH PPS from 

October 1 to July 1 in the RY 2004 LTCH 

PPS final rule (68 FR 34138), we revised 

§ 412.523(c)(3) to specify that for LTCH 

PPS rate years beginning on or after July 

1, 2003, the annual update to the 

standard Federal rate for the LTCH PPS 

would be equal to the previous rate 

year’s Federal rate updated by the most 

recent estimate of increases in the 

appropriate market basket of goods and 

services included in covered inpatient 

LTCH services. We believed that was 

the most appropriate method for 

updating the LTCH PPS standard 

Federal rate annually for years after RY 

2004. In the RY 2007 LTCH PPS final 

rule (71 FR 27818), we established at 

§ 412.523(c)(3)(iii) that the update to the 

standard Federal rate for the 2007 LTCH 

PPS rate year is zero percent. As 

discussed in that same final rule, we 

explained that rather than solely using 

the most recent estimate of the LTCH 

PPS market basket as the basis of the 

update factor for the Federal rate for RY 

2007, we believed it was appropriate to 

adjust the rate to account for the 

changes in coding practices (rather than 

patient severity) as indicated by our 

ongoing monitoring activities. 

Accordingly, we established the 

LTCH PPS standard Federal rate, 

effective from July 1, 2006 through June 

30, 2007 (the 2007 LTCH PPS rate year), 

at $38,086.04 (71 FR 27818). 

Additionally, in the RY 2007 LTCH PPS 

proposed rule (71 FR 4742 through 

4747), we provided a description of a 

preliminary model of an update 

framework under the LTCH PPS. We 

received few comments on that update 

framework preliminary model. As 

discussed in the RY 2007 LTCH PPS 

final rule (71 FR 27818 through 27819 

and 27902 through 27906), although we 

did not propose to adopt an analytical 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26887 

update framework, we continued to 

solicit comments on the framework 

based on the preliminary model, using 

the best available data and concepts, 

and we may propose to adopt a 

framework at some time in the future. 

While we did not receive any comments 

regarding the update framework during 

the public comment period for the RY 

2008 LTCH PPS proposed rule, we 

continue to be interested in comments 

and suggestions on the preliminary 

model of an update framework under 

the LTCH PPS that was present in 

Appendix A of the RY 2007 LTCH PPS 

final rule (71 FR 27902 through 27906). 

In the discussion that follows, we 

explain how we developed the standard 

Federal rate for the 2008 LTCH PPS rate 

year. Specifically, we explain our 

rationale, which is based on our ongoing 

monitoring activities, for implementing 

an annual update to the standard 

Federal rate for RY 2008 that reflects an 

adjustment for the most recent market 

basket estimate and an adjustment to 

account for the increase in case-mix in 

a prior period (FY 2005) that resulted 

from changes in coding practices rather 

than an increase in patient severity. 

2. Update to the Standard Federal Rate 

for the 2008 LTCH PPS Rate Year 

Under § 412.523(c)(3)(ii), for RY 2004 

through RY 2006, the annual update to 

the LTCH PPS standard Federal rate was 

equal to the most recent estimate of 

increases in the prices of an appropriate 

market basket of goods and services 

included in covered inpatient LTCH 

services. As noted above in this section, 

in the RY 2007 LTCH PPS final rule, 

under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

BIPA to include appropriate 

adjustments in the establishment of the 

LTCH PPS, for discharges occurring on 

or after July 1, 2006 and on or before 

June 30, 2007 (RY 2007), we specified 

at § 412.523(c)(3)(iii) that the standard 

Federal rate from the previous year 

would be updated by a factor of zero 

percent. That is, the standard Federal 

rate for the 2007 LTCH PPS rate year 

remained the same as the standard 

Federal rate in effect during the 2006 

LTCH PPS rate year (July 1, 2005 

through June 30, 2006) (that is, 

$38,086.04). 

As discussed in greater detail in the 

RY 2007 LTCH PPS final rule (71 FR 

27819 through 27827), the update to the 

standard Federal rate for RY 2007 was 

determined based on the estimate of the 

LTCH PPS market basket and an 

analysis of LTCH case-mix, in 

conjunction with a review of LTCHs’

margins and our ongoing LTCH 

monitoring activities. Specifically, from 

our CMI analysis, we calculated the 

observed CMI increase between FY 2003 

and FY 2004 (6.75 percent) and 

determined that a significant portion of 

the 6.75 percent increase in CMI 

between FY 2003 and FY 2004 is due to 

changes in coding practices, which we 

define as ‘‘apparent’’ increase in casemix, rather than the treatment of more 

resource intensive patients. We also 

noted that the large observed increase in 

LTCH case-mix was not accompanied by 

a corresponding increase in Medicare 

costs. Finally, we noted in the RY 2007 

LTCH PPS final rule (71 FR 27826 

through 27827) that although the most 

recent update of the market basket 

discussed in that final rule is 0.2 

percent lower than the estimate of the 

market basket discussed in the RY 2007 

LTCH PPS proposed rule, we believed 

that finalizing a zero percent update to 

the Federal rate for RY 2007 was 

appropriate for several reasons. 

First, we did not believe that there 

was a significant difference between the 

most recent estimates of the market 

basket for RY 2007 (3.4 percent) and the 

estimate used in the RY 2007 LTCH PPS 

proposed rule (3.6 percent). 

Furthermore, there could be some 

minimal variation in how much of the 

observed case-mix increase represents 

real case-mix changes. Finally, because 

the proposed update for RY 2007 at 

§ 412.523(c)(3)(iii) explicitly specified 

that the RY 2007 standard Federal rate 

would be the previous LTCH PPS rate 

year updated by an update factor of zero 

percent, we believe some commenters 

may not have been aware that the final 

update for RY 2007 could have been 

different than (that is, greater than or 

less than) zero percent. Thus, we 

believed that the best approach was to 

adopt an update factor of zero percent 

in the final rule for RY 2007, which 

reflected both the market basket 

estimate and an adjustment to account 

for the increase in case-mix in a prior 

period (FY 2004) that resulted from 

changes in coding practices rather than 

an increase in patient severity. In that 

same final rule (71 FR 27821), we stated 

that the revision to § 412.523(c)(3) only 

addressed an update to the LTCH PPS 

Federal rate for the 2007 LTCH PPS rate 

year (§ 412.523(c)(3)(iii)), and that we 

would propose future revisions to 

§ 412.523(c)(3) to address future 

proposed updates to the LTCH PPS 

Federal rates in future rate years based 

on an analysis of the most recent 

available LTCH data. 

In determining the update to the 

standard Federal rate for the 2008 LTCH 

PPS rate year, we again performed a 

CMI analysis using the most recent 

available LTCH claims data and found 

the observed CMI increase between FY 

2004 and FY 2005 to be 3.49 percent. 

We believe that there is still some 

component of apparent CMI increase 

within the observed CMI increase of 

3.49 percent that is due to coding 

practices rather than the treatment of 

more resource intensive patients (real 

CMI increase). Therefore, we believe it 

is appropriate to apply an adjustment to 

the market basket update for RY 2008 to 

account for the apparent CMI increase 

for a subsequent prior period (that is, 

CMI increase due to changes in coding 

practices during FY 2005). 

Comment: Many commenters urged 

us to provide the full market basket 

update rather than finalize the proposed 

update factor of 0.71 percent. Several 

commenters maintained that market 

basket is a measure of the expected 

increase in price inputs for the 

upcoming year that raise the cost of 

resources used in providing care to 

Medicare patients. Furthermore, some 

commenters believed that an increase of 

less than the market basket would not 

account for the costs of goods and 

services required to deliver LTCH 

services and will result in rates below 

the cost of care. 

Response: As we have discussed 

previously in the RY 2007 final rule (71 

FR 27798), as well as throughout this 

section of the preamble of this final rule, 

while we continue to believe that an 

update to the 2008 LTCH PPS rate year 

should be based on the most recent 

estimate of the LTCH PPS market 

basket, we also believe it appropriate 

that the rate be adjusted by an 

adjustment to account for changes in 

coding practices. In essence, we 

updated the standard Federal rate for 

the 2008 LTCH PPS rate year by a factor 

(+3.2 percent) for the full market basket 

in addition to applying a factor (¥2.49 

percent) to eliminate the effect of coding 

or classification changes that do not 

reflect real changes in LTCHs’ case-mix 

during FY 2005. This adjustment is 

necessary in order to account for 

payments that were made based on 

improved coding (rather than increased 

patient severity) in a prior year. 

We note that MedPAC had 

recommended a zero percent update for 

RY 2008 (March 2007 MedPAC Report 

to Congress, MedPAC Payment Policy, 

Recommendation 3D, p. 221) and that 

the proposed update factor of 0.71 

percent is higher than what MedPAC 

had believed appropriate at the time. 

Therefore, we disagree with the 

comment that an increase of less than 

the market basket would not account for 

the costs of goods and services required 


ycherry on PROD1PC64 with RULES2
26888 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

to deliver LTCH services and will result 

in rates below the cost of care. 

Comment: Several commenters noted 

that in addition to case mix, other 

elements that would affect the price of 

inputs include wages, drugs, products, 

and supplies; therefore, the commenters 

question our use of ‘‘case-mix as 

determinative of an appropriate market 

basket increase.’’ A commenter also 

noted that ‘‘the market basket update is 

a prospective measure of price inflation, 

and CMS provides no data suggesting 

that prices will not increase by 3.2 

percent over RY 2008. CMS also does 

not provide any data showing that 

prices from 2004 to 2005 and from 2005 

to 2006 (years included in the agency’s 

case-mix analysis) increased less than 

the market basket update amount for 

those years.’’ Consequently, the 

commenter believed that we have not 

explained adequately how case mix 

changes are related to the market basket 

to warrant a reduction in the full market 

basket. 

Response: We believe these 

commenters misunderstood our 

approach in applying the findings from 

our case mix analysis. First, we do not 

disagree that the estimated market 

basket is a prediction of the increase in 

the costs of goods and services in the 

coming year. Accordingly, we have 

based the update to the standard Federal 

rate each year since RY 2004 on the 

most recent estimate of the market 

basket. For RY 2004 through RY 2006, 

the annual update to the LTCH PPS 

standard Federal rate was equal to the 

most recent estimate of the market 

basket. Beginning in RY 2007, our 

monitoring activities and CMI analysis 

determined that a significant portion of 

the observed increase in CMI between 

FY 2003 and FY 2004 is due to changes 

in coding practices, rather than the 

treatment of more resource intensive 

patients. Accordingly, we updated the 

standard Federal rate for RY 2007 based 

both on the full estimate of market 

basket and an adjustment to account for 

the excessive payments that were made 

based on improved coding (rather than 

increased patient severity) in a prior 

period (between FY 2003 and FY 2004) 

which consequently resulted in a zero 

percent update. This approach was 

replicated for RY 2008 which resulted 

in a net update to the rate for RY 2008 

of 0.71 percent. 

Comment: Some commenters believed 

there is no regulatory basis for CMS to 

adjust the market basket update to 

account for apparent case-mix increase 

in a previous year. Specifically, a 

commenter wrote, ‘‘Other than the 

availability of data, CMS provides no 

logical explanation as to why an 

estimation of the ‘‘apparent’’ increase in 

case-mix derived from FY 2004 and FY 

2005 claims should be applied to the 

market basket increase in RY 2008.’’

Furthermore, some commenters 

believed the proposed update factor of 

0.71 percent is not based on verifiable 

or relevant data. 

Response: Section 123 of the BBRA as 

amended by section 307(b) of the BIPA 

conferred upon the Secretary broad 

discretion to determine the standard 

rate and make appropriate adjustments 

to the system. We note that while 

§ 412.523(c)(3) specifies the update to 

the standard rate for each year since FY 

2003, the regulations do not specifically 

require that the Secretary automatically 

apply a market basket increase to 

prospective years. On the contrary, the 

regulations are to be updated each year 

to reflect any update to the standard rate 

as a result of rulemaking. Furthermore, 

we consistently use the most recent 

available data to determine the 

appropriate update factor. Accordingly, 

for this final rule we used the most 

recent available data, including the most 

recent estimate of the RPL market basket 

for July 1, 2007 through June 30, 2008, 

based on Global Insight’s 1st quarter 

2007 forecast with history through the 

4th quarter of 2006, and the case-mix 

data from FY 2004 compared to FY 

2005, to establish the 0.71 percent 

update factor. 

As discussed in detail in the RY 2007 

LTCH PPS final rule (71 FR 27819 

through 27827), in determining the 

update to the LTCH PPS Federal rate for 

RY 2007, we used 2.75 percent as the 

proxy for ‘‘real’’ CMI change during RY 

2004. We noted in that same final rule 

(71 FR 27822) that we were aware of a 

well-established RAND Corporation 

(RAND) study [‘‘Has DRG Creep Crept 

Up? Decomposing the Case-Mix Index 

Change Between 1987 and 1988’’ by G. 

M. Carter, J. P. Newhouse, and D. A. 

Relles, R–4098–HCFA/ProPAC (1991)]. 

Based upon such study, we determined 

that real case-mix change for IPPS 

hospitals was a fairly steady 1.0 and 1.4 

percent per year. We also noted that in 

updating IPPS rates, we have 

consistently assumed that real case-mix 

change was between 1.0 to 1.4 percent 

per year, which is a more conservative 

estimate of real case-mix increase than 

the 2.75 percent used in determining the 

update to the Federal rate for RY 2007 

(71 FR 27822). For further information 

on the update to the Federal rate for RY 

2007, see the RY 2007 final rule (71 FR 

27819 through 27827). 

For this final rule, the CMI analysis 

performed in determining the Federal 

rate update for RY 2008 is based on the 

observed CMI increase from FY 2004 to 

FY 2005 (the first and second full years 

of the LTCH PPS, respectively). We 

believe that as the LTCH PPS matured 

and LTCHs have become more familiar 

with the DRG-based payment system, it 

is more appropriate to utilize the 

estimate of real case-mix increase (1.0 

percent to 1.4 percent) based on the 

RAND study that is typically found in 

acute care hospitals under the IPPS. 

Furthermore, an analysis of the most 

recent available LTCH claims data (FY 

2005 LTCH claims data from the March 

2006 update of the MedPAR files) show 

a steady decrease in the observed CMI 

from year to year since FY 2003 (the 

observed CMI change between FY 2003 

and FY 2004 is 6.75 percent, between 

FY 2004 and FY 2005 is 3.49 percent, 

and between FY 2005 and FY 2006 is 

estimated to be 1.9 percent), which 

suggests that both apparent and real 

components of CMI are decreasing as 

the LTCH PPS matures. Given the 

estimated 1.9 percent observed CMI 

increase for FY 2006, it appears that it 

is inappropriate to assume a constant 

annual real case mix of 2.75 percent. 

Therefore, for periods beyond the first 

full year of the LTCH PPS, we believe 

it is no longer appropriate to use such 

a generous estimate of real CMI. (Many 

LTCHs have cost reporting periods 

beginning in August and thus were not 

paid under the LTCH PPS until August 

2003. For those hospitals, the first full 

year of the LTCH PPS was during FY 

2004.) While the well-established ‘‘real’’

case-mix parameters based on the RAND 

study are based on IPPS data, we believe 

they are appropriate to apply under the 

LTCH PPS for the reasons explained 

below in this section. In the RY 2008 

LTCH PPS proposed rule, we solicited 

comments on other data sources that 

could be used to determine a proxy for 

real LTCH PPS case-mix change other 

than the 1.0 to 1.4 percent per year casemix parameters based on the RAND 

study. Although we did not receive any 

comments suggesting alternative data 

sources that could be used to determine 

a proxy for real LTCH PPS case-mix 

change, we did receive comments 

pertaining to using 1.0 as the proxy for 

real case mix. 

As we have discussed numerous 

times in previous LTCH PPS proposed 

and final rules, acute care hospitals paid 

under the IPPS and LTCHs paid under 

the LTCH PPS have much in common. 

Hospitals paid under both systems are 

required to meet the same certification 

criteria set forth in section 1861(e) of the 

Act to participate as a hospital in the 

Medicare program. LTCHs are certified 

as acute care hospitals but are classified 

as LTCHs for payment purposes solely 

because such hospitals generally have 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26889 

an inpatient ALOS of greater than 25 

days (as set forth in section 

1886(d)(1)(B)(iv)(I) of the Act). 

Furthermore, the LTCH PPS uses the 

same patient classification system that 

is used under the IPPS, and several 

LTCH PPS payment policies, such as the 

area wage adjustment (§ 412.525(c)), 

COLA for Alaska and Hawaii 

(§ 412.525(b)), and high cost outlier 

(HCO) policy (§ 412.525(a)) are modeled 

after the similar IPPS policies. 

Therefore, we believe it is appropriate 

to utilize the estimate of real CMI 

increase based on the RAND study of 

1.0 percent as the proxy for the portion 

of the observed 3.49 percent CMI 

increase from FY 2004 to FY 2005 that 

represents real CMI changes for use in 

determining the proposed RY 2008 

Federal rate update. We are using the 

more conservative 1.0 percent (rather 

than the 1.4 percent) as a proxy for real 

CMI increase because it is consistent 

with what is used under the IPPS and 

we believe the similarities between 

LTCHs and acute care hospitals are 

significant as we explained previously. 

(For a more detailed discussion on the 

1.0 percent for real CMI increase 

utilized in the IPPS, see the FY 2007 

IPPS final rule (71 FR 48156 through 

48158), and the FY 1994 IPPS proposed 

rule (58 FR 30444).) Accordingly, since 

the observed CMI change for FY 2005 is 

estimated at 3.49 percent (based on the 

most recent available LTCH case-mix 

data from FY 2004 compared to FY 

2005), accounting for the real CMI 

change of 1.0 percent, we believe that 

2.49 percent (3.49–1.0 = 2.49) of that 

increase reflects CMI increase that is 

due to changes in coding practices 

(rather than patient severity). 

Comment: Some commenters 

disagreed with our estimate of real case 

mix increase which is based on a study 

of acute care hospitals conducted by 

RAND using claims data from 1987 to 

1988. The commenters did not believe 

the old data from acute care hospitals is 

relevant to LTCHs. 

Response: As we have discussed 

numerous times in previous LTCH PPS 

proposed and final rules, as well as in 

the previous section of this preamble, 

we continue to believe that acute care 

hospitals paid under the IPPS and 

LTCHs paid under the LTCH PPS have 

much in common. Hospitals paid under 

both systems are required to meet the 

same certification criteria set forth in 

section 1861(e) of the Act to participate 

as a hospital in the Medicare program. 

The commenters did not provide any 

alternative data sources to determine 

real case mix for LTCHs. Accordingly, 

we continue to believe that it is 

appropriate to utilize the same 1.0 

percent factor to project real case mix 

for both, the IPPS and the LTCH PPS. 

Comment: Some commenters believed 

we proposed to use the more 

conservative estimate of real case-mix 

increase (1.0 percent) rather than the 

upper bound based on the RAND study 

(1.4 percent) without sufficient 

justification. However, commenters 

agreed that we requested comments on 

other data sources that could be used to 

determine a proxy for real LTCH PPS 

case-mix changes. While we did not 

receive any comments providing 

alternative data sources to determine 

real case-mix increase, several 

commenters suggested that the best 

proxy for real case-mix increase is the 

observed case-mix increase adjusted to 

eliminate any provider with atypical 

case mix changes. 

Response: We continue to believe that 

using the more conservative 1.0 percent 

(rather than the 1.4 percent) as a proxy 

for real CMI increase is appropriate 

because it is consistent with what is 

used under the IPPS and we believe the 

similarities between LTCHs and acute 

care hospitals are significant as we 

explained previously. 

As we discussed in greater detail in 

the RY 2007 LTCH PPS final rule (71 FR 

27819 through 27827), while we 

continue to believe that an update to the 

LTCH PPS Federal rate year should be 

based on the most recent estimate of the 

LTCH PPS market basket, we believe it 

appropriate that the rate be offset by an 

adjustment to account for changes in 

coding practices that do not reflect 

increased patient severity. Such an 

adjustment protects the integrity of the 

Medicare Trust Funds by ensuring that 

the LTCH PPS payment rates better 

reflect the true costs of treating LTCH 

patients (71 FR 27798 through 27820). 

Therefore, in determining the RY 2008 

update to the LTCH PPS Federal rate, 

we believe it is appropriate to apply an 

adjustment to eliminate the effect of 

coding or classification changes in a 

prior period (FY 2005) that do not 

reflect real changes in LTCHs’ case-mix. 

Specifically, the case-mix adjustment in 

determining the RY 2008 Federal rate is 

meant to reduce current payments to 

account for the increase in payments in 

FY 2005 that resulted from the CMI 

increase that was attributable to the 

apparent case-mix increase in that year. 

As was the case when we determined 

the RY 2007 update factor, this 

adjustment would be necessary to 

account for payments that were made 

based on improved coding (rather than 

increased patient severity) in prior 

years. Therefore, in this final rule, under 

the broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA 

to include appropriate adjustments, 

including updates, in the establishment 

of the LTCH PPS, we are revising 

§ 412.523(c)(3), to specify that, for 

discharges occurring on or after July 1, 

2007 and on or before June 30, 2008, the 

standard Federal rate from the previous 

year will be updated by 0.71 percent, 

which is based on the most recent 

market basket estimate (3.2 percent) 

adjusted by the apparent CMI (2.49 

percent) due to changes in coding 

practice rather than an increase in 

patient severity. As explained above in 

this section, the update factor for RY 

2008 is based on the most recent 

estimate of the LTCH PPS market basket 

offset by an adjustment to account for 

changes in case-mix in prior periods 

due to changes in coding practices 

rather than increased patient severity. 

We note that the update factor of 0.71 

percent is higher than the zero percent 

update recommended by the MedPAC 

for RY 2008 (MedPAC Public Meeting, 

January 9, 2007, Meeting Transcript pp. 

225–226). In the RY 2008 LTCH PPS 

proposed rule, we solicited comments 

on a possible zero percent update to the 

standard Federal rate for RY 2008. 

While most commenters recommended 

a full market basket update, we did 

receive some comments noting that in 

light of MedPAC’s recommendation of a 

zero percent update, the commenters 

were pleased that we did not propose to 

implement a zero percent update and 

the commenters supported our proposal 

of a 0.71 percent update. 

Furthermore, since we are using the 

most recent estimates of the market 

basket and CMI increase in the prior 

period (FY 2005) for calculating the 

update factor to the LTCH PPS Federal 

rate, we noted in the proposed rule that 

at the time the analysis must be 

performed for the final rule, we would 

consider comments received on this 

proposed rule and would also use the 

most recent estimates available at that 

time, if appropriate, which may be 

different from the data used in the 

proposed rule. Therefore, we explained 

that the proposed update factor applied 

to the standard Federal rate may change 

in the final rule. 

At this time, the most recent estimate 

of the LTCH PPS market basket remains 

at 3.2 percent, and based on FY 2005 

LTCH claims data from the March 2006 

update of the MedPAR files, the most 

recent estimate of apparent CMI 

increase in the prior period (FY 2005), 

that is, case-mix increase due to changes 

in coding practices, also remains at 2.49 

percent. Additionally, since we did not 

receive any comments suggesting 

alternative data sources to use in 


ycherry on PROD1PC64 with RULES2
26890 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

determining a proxy for real case mix 

and for the reasons stated previously, 

we are continuing to use 1.0 percent as 

the proxy for the real case mix. 

Therefore, the RY 2008 update factor to 

the LTCH PPS Federal rate will be 0.71 

percent (3.2¥2.49 = 0.71), which 

reflects the adjustment to the most 

recent market basket estimate and 

accounts for the increase in case-mix in 

the prior period that resulted from 

changes in coding practices rather than 

an increase in patient severity. 

Accordingly, under the same broad 

authority conferred upon the Secretary 

under the BBRA and the BIPA 

referenced above in this section, we are 

specifying under § 412.523(c)(3)(iv), 

that, for discharges occurring on or after 

July 1, 2007 and on or before June 30, 

2008, the standard Federal rate from the 

previous year would be updated by 0.71 

percent, determined based on an 

adjustment to the most recent estimate 

of the market basket to account for casemix increase in the prior period (FY 

2005) that is due to changes in coding 

practices rather than patient severity. 

Comment: Numerous commenters 

stated that we have made changes to the 

LTCH PPS in the last several years that 

have slowed the growth in the number 

of new LTCHs and has controlled 

margins. The commenters believe that 

the cumulative effect of these payment 

changes, including the reweighting of 

the DRGs in October 2005 and October 

2006, the adoption of the original 25 

percent rule, the adjustments to the SSO 

policy, and a zero percent update for RY 

2007, has been to bring LTCH margins 

close to zero. With the addition of the 

proposed payment changes for RY 2008, 

the commenters believe that payment to 

LTCHs will be inadequate. Using our 

impact analysis table from the proposed 

rule and MedPAC’s estimated margins 

for FY 2007 as a base for comparison, 

two commenters attempted to estimate 

LTCHs’ margins for RY 2008. The 

commenters asserted that, according to 

their analyses, estimated margins for RY 

2008 could be as low as ¥3.7 percent 

to ¥5.7 percent. Numerous commenters 

expressed concern that the combined 

effect of changes to the LTCH PPS (from 

the last 2 years, as well as the proposed 

changes for RY 2008) would reduce 

reimbursement below the estimates of 

costs. Furthermore, one commenter 

wrote, ‘‘A fundamental premise of the 

Medicare program and its payment 

systems is that Medicare should not 

knowingly reimburse providers and 

suppliers below the cost of care.’’

Response: We acknowledge that the 

changes to the payment system 

implemented in the last several years 

have affected the LTCH industry. In fact, 

we have observed that LTCHs adapt to 

our regulatory changes by modifying 

their business model to maximize 

profitability while operating under the 

new changes. For example, when we 

implemented the 25 percent (or 

applicable percentage) threshold 

payment adjustment in FY 2005 for colocated LTCHs and satellites, we are 

aware that LTCHs shifted emphasis 

from developing co-located facilities to 

developing freestanding LTCHs. With 

the proposed expansion of the 25 

percent (or applicable percentage) 

threshold payment adjustment to apply 

to LTCH or satellite patients that were 

admitted from referring hospitals not colocated with the LTCH or the satellite of 

a LTCH, we anticipate that LTCHs could 

adapt by increasing the number of 

admissions of patients that are HCOs 

from referring hospitals (exempt from 

the 25 percent rule). In addition, since 

LTCHs on average get 20 percent of their 

discharges from sources other than 

acute care hospitals, it will be possible 

for LTCHs to adapt by admitting more 

of those types of patients, thus making 

it easier for a LTCH to stay within the 

applicable threshold. We have also been 

informed by members of the LTCH 

industry that in places where there are 

multiple acute care hospitals, the 

LTCHs will be able to plan their 

discharges to assure that they do not 

exceed the threshold. 

Consequently, while the commenters 

have conducted margins analyses based 

on current LTCH behaviors and assert 

that our changes may result in negative 

margins, we do not believe this will 

prove to be the case. Indeed, 

commenters made similar allegations in 

their objection to the changes for RY 

2007, and predicted that we would see 

many LTCHs put out of business due to 

our drastically-changed policies. In 

actuality, we did not see a drastic 

reduction in either the number of 

LTCHs or the overall number of LTCH 

cases. Furthermore, reports in trade 

journals suggest that certain members of 

the LTCH industry believe they are well 

situated to expand in the future. 

Similarly, we believe LTCHs have the 

ability to screen patients coming to a 

LTCH to assure that they are truly LTC 

patients. However, in the case of the 

revised SSO policy, we believe that a 

payment, for those patients that have a 

LOS comparable to an IPPS patient for 

that DRG (that is, the IPPS comparable 

threshold) at a level comparable to the 

IPPS payment, is an appropriate 

payment. 

3. Standard Federal Rate for the 2008 

LTCH PPS Rate Year 

In the RY 2007 LTCH PPS final rule 

(71 FR 27827), we established a 

standard Federal rate of $38,086.04 for 

the 2007 LTCH PPS rate year that was 

based on the best available data and 

policies established in that final rule. In 

this final rule, under the broad authority 

conferred upon the Secretary by section 

123 of the BBRA as amended by section 

307(b) of the BIPA, consistent with the 

proposed rule, we are applying an 

annual update to the standard Federal 

rate for RY 2008 that reflects an 

adjustment for the most recent market 

basket estimate and an adjustment to 

account for the increase in case-mix in 

a prior period (FY 2005) that resulted 

from changes in coding practices rather 

than an increase in patient severity. 

Therefore, based on the update factor for 

RY 2008 of 0.71 percent, the standard 

Federal rate for RY 2008 will be 

$38,356.45. Since the standard Federal 

rate for the 2008 LTCH PPS rate year has 

already been adjusted for differences in 

case-mix, wages, COLAs, and HCO 

payments, we are not making any 

additional adjustments in the standard 

Federal rate for these factors. 

D. Calculation of LTCH Prospective 

Payments for the 2008 LTCH PPS Rate 

Year 

The basic methodology for 

determining prospective payment rates 

for LTCH inpatient operating and 

capital-related costs is set forth in 

§ 412.515 through § 412.532. In 

accordance with § 412.515, we assign 

appropriate weighting factors to each 

LTC–DRG to reflect the estimated 

relative cost of hospital resources used 

for discharges within that group as 

compared to discharges classified 

within other groups. The amount of the 

prospective payment is based on the 

standard Federal rate, established under 

§ 412.523, and adjusted for the LTC–

DRG relative weights, differences in area 

wage levels, COLA in Alaska and 

Hawaii, HCOs, and other special 

payment provisions (SSOs under 

§ 412.529 and interrupted stays under 

§ 412.531). 

In accordance with § 412.533, during 

the 5-year transition period, which is 

currently in its final year for LTCH cost 

reporting periods beginning on or after 

October 1, 2006 (FY 2007), a total LTCH 

PPS payment was based on the 

applicable transition blend percentage 

of the adjusted Federal rate and a 

percentage based on reasonable cost 

principles, unless the LTCH made a 

one-time election to receive payment 

based on 100 percent of the Federal rate. 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26891 

In the final year of the 5-year transition 

period, which began with LTCH cost 

reporting periods beginning on or after 

October 1, 2006, as specified at 

§ 412.533, a total LTCH PPS payment is 

based on 100 percent of the Federal rate. 

An LTCH defined as ‘‘new’’ under 

§ 412.23(e)(4) is paid based on 100 

percent of the Federal rate with no 

blended transition payments as 

specified in § 412.533(d). As discussed 

in the August 30, 2002 LTCH PPS final 

rule (67 FR 56038), the applicable 

transition blends are set forth in 

§ 412.533(a). 

Accordingly, for cost reporting 

periods that began during FY 2006 (that 

is, on or after October 1, 2005 and on 

or before September 30, 2006), blended 

payments under the transition 

methodology were based on 20 percent 

of the LTCH’s rate based on reasonable 

cost principles and 80 percent of the 

adjusted LTCH PPS Federal rate. For 

cost reporting periods beginning on or 

after October 1, 2006 (FY 2007), 

Medicare payment to LTCHs are 

determined entirely (100 percent) under 

the LTCH PPS Federal rate. 

1. Adjustment for Area Wage Levels 

a. Background 

Under the authority of section 123 of 

the BBRA as amended by section 307(b) 

of the BIPA, we established an 

adjustment to the LTCH PPS Federal 

rate to account for differences in LTCH 

area wage levels at § 412.525(c). The 

labor-related share of the LTCH PPS 

Federal rate, currently estimated by the 

FY 2002-based RPL market basket (as 

discussed in greater detail in section 

IV.D.1.c. of this preamble), is adjusted to 

account for geographic differences in 

area wage levels by applying the 

applicable LTCH PPS wage index. The 

applicable LTCH PPS wage index is 

computed using wage data from 

inpatient acute care hospitals without 

regard to reclassification under sections 

1886(d)(8) or 1886(d)(10) of the Act. 

Furthermore, as we discussed in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56015), we established a 5-year 

transition to the full wage adjustment. 

The applicable wage index phase-in 

percentages are based on the start of an 

LTCH’s cost reporting period as shown 

in Table 1. 

TABLE 1 

Cost reporting periods 

beginning on or after 

Phase-in percentage 

of the full wage index 

October 1, 2002 ........ 1/5th (20 percent). 

October 1, 2003 ........ 2/5ths (40 percent). 

October 1, 2004 ........ 3/5ths (60 percent). 

October 1, 2005 ........ 4/5ths (80 percent). 

TABLE 1—Continued 

Cost reporting periods 

beginning on or after 

Phase-in percentage 

of the full wage index 

October 1, 2006 ........ 5/5ths (100 percent). 

For example, for cost reporting 

periods beginning on or after October 1, 

2005 and on or before September 30, 

2006 (FY 2006), the applicable LTCH 

wage index value is four-fifths of the 

applicable full LTCH PPS wage index 

value. The wage index adjustment will 

be completely phased-in beginning with 

cost reporting periods beginning in FY 

2007, that is, for cost reporting periods 

beginning on or after October 1, 2006, 

the applicable LTCH wage index value 

will be the full (five-fifths) LTCH PPS 

wage index value. Therefore, the 

majority of LTCHs are currently 

receiving either the four-fifths or full 

(five-fifths) LTCH PPS wage index 

value. As we established in the August 

30, 2002 LTCH PPS final rule (67 FR 

56018), the applicable full LTCH PPS 

wage index value is calculated from 

acute-care hospital inpatient wage index 

data without taking into account 

geographic reclassification under 

sections 1886(d)(8) and (d)(10) of the 

Act. 

b. Geographic Classifications/Labor 

Market Area Definitions 

As discussed in the August 30, 2002 

LTCH PPS final rule, which 

implemented the LTCH PPS (67 FR 

56015 through 56019), in establishing 

an adjustment for area wage levels 

under § 412.525(c), the labor-related 

portion of a LTCH’s Federal prospective 

payment is adjusted by using an 

appropriate wage index based on the 

labor market area in which the LTCH is 

located. In the 2006 LTCH PPS rate year 

final rule (70 FR 24184 through 24185), 

in § 412.525(c), we revised the labor 

market area definitions used under the 

LTCH PPS effective for discharges 

occurring on or after July 1, 2005 based 

on the Office of Management and 

Budget’s (OMB’s) Core Based Statistical 

Area (CBSA) designations based on 

2000 Census data because we believe 

that those new labor market area 

definitions will ensure that the LTCH 

PPS wage index adjustment most 

appropriately accounts for and reflects 

the relative hospital wage levels in the 

geographic area of the hospital as 

compared to the national average 

hospital wage level. As set forth in 

§ 412.525(c)(2), a LTCH’s wage index is 

determined based on the location of the 

LTCH in an urban or rural area as 

defined in § 412.64(b)(1)(ii)(A) through 

(C). An urban area under the LTCH PPS 

is defined at § 412.64(b)(1)(ii)(A) and 

(B). In general, an urban area is defined 

as a Metropolitan Statistical Area (MSA) 

as defined by the OMB. (In addition, a 

few counties located outside of MSAs 

are considered urban as specified at 

§ 412.64(b)(1)(ii)(B).) Under 

§ 412.64(b)(1)(ii)(C), a rural area is 

defined as any area outside of an urban 

area. 

We note that these are the same 

CBSA-based designations implemented 

for acute care inpatient hospitals under 

the IPPS at § 412.64(b) effective October 

1, 2004 (69 FR 49026 through 49034). 

For further discussion of the labor 

market area (geographic classification) 

definitions used under the LTCH PPS, 

see the 2006 LTCH PPS rate year final 

rule (70 FR 24182 through 24191). 

c. Labor-Related Share 

In the August 30, 2002 LTCH PPS 

final rule (67 FR 56016), we established 

a labor-related share of 72.885 percent 

based on the relative importance of the 

labor-related share of operating costs 

(wages and salaries, employee benefits, 

professional fees, postal services, and all 

other labor-intensive services) and 

capital costs of the excluded hospital 

with capital market basket based on FY 

1992 data. 

As we discussed in LTCH PPS final 

rules subsequent to the FY 2003 LTCH 

PPS final rule in which we established 

the original LTCH PPS labor-related 

share (68 FR 34142, 69 FR 25685 

through 25686, and 70 FR 24182), once 

our research into the labor-related share 

methodology was complete, we would 

update the IPPS and excluded hospital 

labor-related shares based on that 

research and the best available data if 

necessary. Accordingly, we conducted 

analysis of our labor share methodology, 

which was completed prior to the 

development of the RY 2007 LTCH PPS 

proposed and final rules. In the RY 2007 

LTCH PPS final rule (71 FR 27829), we 

updated the LTCH PPS labor-related 

share based on the FY 2002-based RPL 

market basket (discussed in section 

IV.B. of this preamble) because we 

believe that this market basket was 

developed based on the best available 

data that reflect the cost structures of 

LTCHs. 

Consistent with our historical 

practice, the labor-related share 

currently used under the LTCH PPS is 

determined by identifying the national 

average proportion of operating costs 

and capital costs that are related to, 

influenced by, or vary with the local 

labor market. Specifically, in the RY 

2007 LTCH PPS final rule (71 FR 27829 

through 27832), we revised the LTCH 

PPS labor-related share from 72.885 


ycherry on PROD1PC64 with RULES2
26892 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

percent (as established in the August 30, 

2002 final rule (67 FR 56016) based on 

the FY 1997-based excluded hospital 

with capital market basket) to 75.665 

percent based on the relative 

importance of the labor-related share of 

operating costs (wages and salaries, 

employee benefits, professional fees, 

and all other labor-intensive services) 

and capital costs of the proposed RPL 

market basket based on FY 2002 data 

from the first quarter of 2006. 

In the RY 2008 LTCH PPS proposed 

rule (72 FR 4794), under the broad 

authority conferred upon the Secretary 

by section 123 of the BBRA as amended 

by section 307(b) of the BIPA, consistent 

with our historical practice of 

determining the labor-related share by 

identifying the national average 

proportion of operating costs and capital 

costs that are related to, influenced by, 

or varies with the local labor market, 

and consistent with our historical 

practice of using the best data available, 

we proposed to update the LTCH PPS 

labor-related share from 75.665 percent 

to 75.511 percent based on the relative 

importance of the labor-related share of 

operating costs (wages and salaries, 

employee benefits, professional fees, 

and all other labor-intensive services) 

and capital costs of the FY 2002-based 

RPL market basket from the 3rd quarter 

of 2006. The labor-related share is the 

sum of the relative importance of wages 

and salaries, fringe benefits, 

professional fees, labor-intensive 

services, and a portion of the capital 

share from an appropriate market 

basket. We received no comments on 

our proposal to update the LTCH PPS 

labor-related share. 

Consistent with our historical practice 

of using the best data available, we also 

proposed that if more recent data were 

available to determine the labor-related 

share of the RPL market basket (used 

under the LTCH PPS), we would use 

such data for determining the laborrelated share for the 2008 LTCH PPS 

rate year in the final rule. As discussed 

above in section IV.B.2. of this 

preamble, we now have data from the 

1st quarter of 2007 (with history through 

the 4th quarter of 2006). Therefore, in 

this final rule, for RY 2008, we are using 

the FY 2002-based RPL market basket 

costs based on data from the 1st quarter 

of 2007 to determine the labor-related 

share for the LTCH PPS effective for 

discharges occurring on or after July 1, 

2007, as this is the most recent available 

data. The labor-related share for the 

2008 LTCH PPS rate year will continue 

to be the sum of the relative importance 

of each labor-related cost category, and 

will reflect the different rates of price 

change for these cost categories between 

the base year (FY 2002) and the 2008 

LTCH PPS rate year. Accordingly, under 

the broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

consistent with our historical practice of 

determining the labor-related share by 

identifying the national average 

proportion of operating costs and capital 

costs that are related to, influenced by, 

or varies with the local labor market, we 

are revising the LTCH PPS labor-related 

share from 75.665 percent to 75.788 

percent based on the relative 

importance of the labor-related share of 

operating costs (wages and salaries, 

employee benefits, professional fees, 

and all other labor-intensive services) 

and capital costs of the FY 2002-based 

RPL market basket from the 1st quarter 

of 2007, as discussed below and shown 

below in Table 2. 

Based on the most recent available 

data, the sum of the relative importance 

for 2008 LTCH PPS rate year for 

operating costs (wages and salaries, 

employee benefits, professional fees, 

and labor-intensive services) is 71.767, 

as shown in Table 2. The portion of 

capital that is influenced by the local 

labor market is still estimated to be 46 

percent, which is the same percentage 

used when we established the current 

labor-related share in the RY 2007 LTCH 

PPS final rule. Since, based on the most 

recent available data, the relative 

importance for capital is 8.742 percent 

of the FY 2002-based RPL market basket 

for the 2008 LTCH PPS rate year, we are 

multiplying the estimated portion of 

capital influenced by the local labor 

market (46 percent) by the relative 

importance for capital (8.742 percent) to 

determine the labor-related share of 

capital for the 2008 LTCH PPS rate year. 

The result is 4.021 percent (0.46 × 8.742 

percent), which we add to the 71.767 

percent for the operating cost amount to 

determine the total labor-related share 

for the 2008 LTCH PPS rate year. Thus, 

based on the latest available data, we are 

establishing a labor-related share of 

75.788 percent (71.767 percent + 4.021 

percent) under the LTCH PPS for the 

2008 LTCH PPS rate year. As noted 

above in this section, this labor-related 

share is determined using the same 

methodology as employed in calculating 

the current LTCH labor-related share (71 

FR 27830) and the labor-related shares 

used under the IRF PPS and IPF PPS, 

which also use the RPL market basket. 

Table 2 shows the 2007 LTCH PPS 

rate year relative importance laborrelated share of the FY 2002-based RPL 

market basket (established in the RY 

2007 LTCH PPS final rule) and the 2008 

LTCH PPS rate year relative importance 

labor-related share of the FY 2002-based 

RPL market basket. 

TABLE 2.—RY 2007 LABOR-RELATED SHARE RELATIVE IMPORTANCE AND RY 2008 LABOR-RELATED SHARE RELATIVE

IMPORTANCE OF THE FY 2002-BASED RPL MARKET BASKET

Cost category 

RY 2007 

relative 

importance* 

RY 2008 

relative 

importance 

Wages and Salaries ................................................................................................................................................ 52.506 52.588 

Employee Benefits ................................................................................................................................................... 14.042 14.127 

Professional fees ..................................................................................................................................................... 2.886 2.907 

All other labor intensive services ............................................................................................................................. 2.152 2.145 

Subtotal ............................................................................................................................................................. 71.586 71.767 

Labor share of capital costs .................................................................................................................................... 4.079 4.021 

Total Labor-related share ................................................................................................................................. 75.665 75.788 

* As established in the RY 2007 LTCH PPS final rule (71 FR 27830). 

** Other labor intensive services includes landscaping services, services to buildings, detective and protective services, repair services, laundry 

services, advertising, auto parking and repairs, physical fitness facilities, and other government enterprises. 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26893 

d. Wage Index Data 

In the RY 2007 LTCH PPS final rule 

(71 FR 27830 through 27831), we 

established LTCH PPS wage index 

values for the 2007 LTCH PPS rate year 

calculated from the same data 

(generated in cost reporting periods 

beginning during FY 2002) used to 

compute the FY 2006 acute care 

hospital inpatient wage index data 

without taking into account geographic 

reclassification under sections 

1886(d)(8) and (d)(10) of the Act 

because that was the best available data 

at that time. The LTCH wage index 

values applicable for discharges 

occurring on or after July 1, 2006 

through June 30, 2007 are shown in 

Table 1 (for urban areas) and Table 2 

(for rural areas) in the Addendum to the 

RY 2007 LTCH PPS final rule (71 FR 

27906 through 27930). Acute care 

hospital inpatient wage index data are 

also used to establish the wage index 

adjustment used in the IRF PPS, HHA 

PPS, and SNF PPS. As we discussed in 

the August 30, 2002 LTCH PPS final 

rule (67 FR 56019), since hospitals that 

are excluded from the IPPS are not 

required to provide wage-related 

information on the Medicare cost report 

and because we would need to establish 

instructions for the collection of this 

LTCH data to establish a geographic 

reclassification adjustment under the 

LTCH PPS, the wage adjustment 

established under the LTCH PPS is 

based on a LTCH’s actual location 

without regard to the urban or rural 

designation of any related or affiliated 

provider. 

In the RY 2008 proposed rule (72 FR 

4795–4796), under the broad authority 

conferred upon the Secretary by section 

123 of the BBRA as amended by section 

307(b) of BIPA to determine appropriate 

adjustments under the LTCH PPS, for 

the 2008 LTCH PPS rate year, we 

proposed to use the same data 

(generated in cost reporting periods 

beginning during FY 2003) used to 

compute the FY 2007 acute care 

hospital inpatient wage index data 

without taking into account geographic 

reclassification under sections 

1886(d)(8) and (d)(10) of the Act to 

determine the applicable wage index 

values under the LTCH PPS because 

these data (FY 2003) are the most recent 

complete data. We proposed to continue 

to use IPPS wage data as a proxy to 

determine the LTCH wage index values 

for the 2008 LTCH PPS rate year 

because both LTCHs and acute-care 

hospitals are required to meet the same 

certification criteria set forth in section 

1861(e) of the Act to participate as a 

hospital in the Medicare program and 

they both compete in the same labor 

markets, and, therefore, experience 

similar wage-related costs. These data 

are the same FY 2003 acute care 

hospital inpatient wage data that were 

used to compute the FY 2007 wage 

indices currently used under the IPPS, 

skilled nursing facility (SNF) PPS and 

home health agency (HHA) PPS. The 

LTCH wage index values that would be 

applicable for discharges occurring on 

or after July 1, 2007 through June 30, 

2008, are shown in Table 1 (for urban 

areas) and Table 2 (for rural areas) in 

Addendum A to the RY 2008 proposed 

rule (72 FR 4849 through 4872). 

We received no comments on the 

proposed LTCH wage index values that 

would be applicable for discharges 

occurring on or after July 1, 2007 

through June 30, 2008. Therefore, in this 

final rule, under the broad authority 

conferred upon the Secretary by section 

123 of the BBRA as amended by section 

307(b) of BIPA to determine appropriate 

adjustments under the LTCH PPS, for 

the 2008 LTCH PPS rate year, we are 

using the same data (generated in cost 

reporting periods beginning during FY 

2003) used to compute the FY 2007 

acute care hospital inpatient wage index 

data without taking into account 

geographic reclassification under 

sections 1886(d)(8) and (d)(10) of the 

Act to determine the applicable wage 

index values under the LTCH PPS 

because these data (FY 2003) are the 

most recent complete data. We are 

continuing to use IPPS wage data as a 

proxy to determine the LTCH wage 

index values for the 2008 LTCH PPS 

rate year for the reasons stated in the RY 

2008 proposed rule (as noted above). 

The LTCH wage index values that will 

be applicable for discharges occurring 

on or after July 1, 2007 through June 30, 

2008, are shown in Table 1 (for urban 

areas) and Table 2 (for rural areas) in the 

Addendum to this final rule. 

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

this preamble, the applicable wage 

index phase-in percentages are based on 

the start of a LTCH’s cost reporting 

period beginning on or after October 1st 

of each year during the 5-year transition 

period. Thus, cost reporting periods 

beginning on or after October 1, 2005 

and before October 1, 2006 (FY 2006), 

the labor-related portion of the standard 

Federal rate is adjusted by four-fifths of 

the applicable LTCH wage index value. 

The wage index adjustment will be 

completely phased-in beginning with 

cost reporting periods beginning in FY 

2007. That is, for cost reporting periods 

beginning on or after October 1, 2006, 

the labor-related portion of the standard 

Federal rate is adjusted by the full (fivefifths) applicable LTCH wage index 

value. 

Because the phase-in of the wage 

index does not coincide with the LTCH 

PPS rate year (July 1st through June 

30th), most LTCHs will experience a 

change in the wage index phase-in 

percentages during the LTCH PPS rate 

year. For example, during the 2008 

LTCH PPS rate year, for a LTCH with a 

September 1st fiscal year, the four-fifths 

wage index will be applicable for the 

first 2 months of the 2007 LTCH PPS 

rate year (July 1, 2007 through August 

31, 2007) and the full (five-fifths) wage 

index will be applicable for the next 10 

months of the 2008 LTCH PPS rate year 

(September 1, 2007 through June 30, 

2008). For the remainder of such a 

LTCH’s FY 2006 cost reporting periods, 

which coincides with the first 2 months 

of RY 2008, the applicable wage index 

value would be four-fifths of the full FY 

2007 acute-care hospital inpatient wage 

index data, without taking into account 

geographic reclassification under 

sections 1886(d)(8) and (d)(10) of the 

Act (as shown in Tables 1 and 2 in the 

Addendum to this final rule). Beginning 

with this LTCH’s FY 2007 cost reporting 

period that will begin during RY 2008, 

the applicable wage index value would 

be the full (five-fifths) FY 2007 acute 

care hospital inpatient wage index data, 

without taking into account geographic 

reclassification under sections 

1886(d)(8) and (d)(10) of the Act (as 

shown in Tables 1 and 2 in the 

Addendum to this final rule). We note 

that since there are no longer any 

LTCHs in their cost reporting periods 

that began during FY 2003 through FY 

2005 (the first three years of the 5–year 

wage index phase-in), we are no longer 

showing the 1⁄5th, 2⁄5ths and 3⁄5ths wage 

index values in Tables 1 and 2 in the 

Addendum to this final rule. 

2. Adjustment for Cost-of-Living in 

Alaska and Hawaii 

In the August 30, 2002 final rule (67 

FR 56022), we established, under 

§ 412.525(b), a COLA for LTCHs located 

in Alaska and Hawaii to account for the 

higher costs incurred in those States. In 

the RY 2007 LTCH PPS final rule (71 FR 

27832), for the 2007 LTCH PPS rate 

year, we established a COLA to 

payments for LTCHs located in Alaska 

and Hawaii by multiplying the standard 

Federal payment rate by the appropriate 

factor listed in Table 8 of that same final 

rule. 

Similarly, in the RY 2008 proposed 

rule (72 FR 4796), under the broad 

authority conferred upon the Secretary 

by section 123 of the BBRA as amended 

by section 307(b) of BIPA to determine 

appropriate adjustments under the 


ycherry on PROD1PC64 with RULES2
26894 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

LTCH PPS, for the 2008 LTCH PPS rate 

year we proposed to apply a COLA to 

payments to LTCHs located in Alaska 

and Hawaii by multiplying the proposed 

standard Federal payment rate by the 

factors listed in Table 3 of that proposed 

rule because those were the most recent 

available data at that time. Those factors 

were obtained from the U.S. Office of 

Personnel Management (OPM) and are 

currently used under the IPPS. In 

addition, we proposed that if OPM 

released revised COLA factors before 

March 1, 2007, we would use them for 

the development of the payments for the 

2008 LTCH rate year and publish them 

in the LTCH PPS final rule. 

We received no comments on our 

proposed COLA factors for LTCHs 

located in Alaska and Hawaii for RY 

2008. However, we note that OPM 

released revised COLA factors for 

certain areas in Alaska prior to March 1, 

2007. Specifically, OPM released 

revised COLA factors for the city of 

Anchorage and 80-kilometer (50-mile) 

radius by road, the city of Fairbanks and 

80-kilometer (50-mile) radius by road, 

and the city of Juneau and 80-kilometer 

(50-mile) radius by road. The COLA 

factors for all other areas of Alaska were 

not revised from their current values. 

(We note that currently there are no 

LTCHs located in Alaska.) 

Therefore, in this final rule were are 

adopting the revised COLA factors for 

those areas in Alaska, along with the 

proposed COLA factors for the other 

areas of Alaska and Hawaii, for use 

under the LTCH PPS in RY 2008. We 

note that the revised COLA factors for 

certain areas of Alaska have been 

proposed for use under the IPPS for FY 

2008, as discussed in the FY 2008 IPPS 

proposed rule. 

In this final rule, under the broad 

authority conferred upon the Secretary 

by section 123 of the BBRA as amended 

by section 307(b) of BIPA to determine 

appropriate adjustments under the 

LTCH PPS, for the 2008 LTCH PPS rate 

year we are applying a COLA to 

payments to LTCHs located in Alaska 

and Hawaii by multiplying the standard 

Federal payment rate by the factors 

listed below in Table 3 because these 

are currently the most recent available 

data from OPM (as noted above). 

TABLE 3.—COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND

HAWAII HOSPITALS FOR THE 2008 

LTCH PPS RATE YEAR

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by 

road .................................... 1 .24 

TABLE 3.—COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND

HAWAII HOSPITALS FOR THE 2008 

LTCH PPS RATE YEAR—Continued 

City of Fairbanks and 80-kilometer (50-mile) radius by 

road .................................... 1 .24 

City of Juneau and 80-kilometer (50-mile) radius by 

road .................................... 1 .24 

All other areas of Alaska ....... 1 .25 

Hawaii: 

Honolulu County .................... 1 .25 

Hawaii County ....................... 1 .165 

Kauai County ......................... 1 .2325 

Maui County .......................... 1 .2375 

Kalawao County .................... 1 .2375 

3. Adjustment for High-Cost Outliers 

(HCOs) 

a. Background 

Under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

BIPA, in the regulations at § 412.525(a), 

we established an adjustment for 

additional payments for outlier cases 

that have extraordinarily high costs 

relative to the costs of most discharges. 

Providing additional payments for 

outliers strongly improves the accuracy 

of the LTCH PPS in determining 

resource costs at the patient and 

hospital level. These additional 

payments reduce the financial losses 

that would otherwise be incurred when 

treating patients who require more 

costly care and, therefore, reduce the 

incentives to underserve these patients. 

We set the outlier threshold before the 

beginning of the applicable rate year so 

that total estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. Outlier payments under the LTCH 

PPS are determined consistent with the 

IPPS outlier policy. 

Under § 412.525(a), we make outlier 

payments for any discharges if the 

estimated cost of a case exceeds the 

adjusted LTCH PPS payment for the 

LTC–DRG plus a fixed-loss amount. The 

fixed-loss amount is the amount used to 

limit the loss that a hospital will incur 

under the outlier policy for a case with 

unusually high costs. This results in 

Medicare and the LTCH sharing 

financial risk in the treatment of 

extraordinarily costly cases. Under the 

LTCH PPS HCO policy, the LTCH’s loss 

is limited to the fixed-loss amount and 

a fixed percentage of costs above the 

outlier threshold (LTCH DRG payment 

plus the fixed-loss amount) determined 

by the marginal cost factor. We calculate 

the estimated cost of a case by 

multiplying the overall hospital cost-tocharge ratio (CCR) by the Medicare 

allowable covered charge. In accordance 

with § 412.525(a)(3), we pay outlier 

cases 80 percent of the difference 

between the estimated cost of the 

patient case and the outlier threshold 

(the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount). 

Under the LTCH PPS, we determine a 

fixed-loss amount, that is, the maximum 

loss that a LTCH can incur under the 

LTCH PPS for a case with unusually 

high costs before the LTCH will receive 

any additional payments. We calculate 

the fixed-loss amount by estimating 

aggregate payments with and without an 

outlier policy. The fixed-loss amount 

will result in estimated total outlier 

payments being projected to be equal to 

8 percent of projected total LTCH PPS 

payments. Currently, MedPAR claims 

data and CCRs based on data from the 

most recent provider specific file (PSF) 

(or to the applicable Statewide average 

CCR if a LTCH’s CCR data are faulty or 

unavailable) are used to establish a 

fixed-loss threshold amount under the 

LTCH PPS. 

b. Cost-to-Charge Ratios (CCRs) 

In determining outlier payments, we 

calculate the estimated cost of the case 

by multiplying the LTCH’s overall CCR 

by the Medicare allowable charges for 

the case. As we discussed in greater 

detail in the June 9, 2003 IPPS HCO 

final rule (68 FR 34506 through 34516), 

because the LTCH PPS HCO policy at 

§ 412.525 is modeled after the IPPS 

outlier policy, we believed that it and 

the SSO policy at § 412.529 are 

susceptible to the same payment 

vulnerabilities that became evident 

under the IPPS and, therefore, merited 

revision. Thus, we revised the HCO 

policy at § 412.525(a) and the SSO 

policy at § 412.529 in that same final 

rule for the determination of LTCHs’

CCRs and the reconciliation of outlier 

payments. 

Under the LTCH PPS, a single 

prospective payment per discharge is 

made for both inpatient operating and 

capital-related costs, and, therefore, we 

compute a single ‘‘overall’’ or ‘‘total’’

CCR for LTCHs based on the sum of 

their operating and capital costs (as 

described in Chapter 3, section 150.24, 

of the Medicare Claims Processing 

Manual (CMS Pub. 100–4)) as compared 

to total charges. Specifically, a LTCH’s 

CCR is calculated by dividing a LTCH’s 

total Medicare costs (that is, the sum of 

its operating and capital inpatient 

routine and ancillary costs) by its total 

Medicare charges (that is, the sum of its 

operating and capital inpatient routine 

and ancillary charges). (Instructions 

regarding the changes established in the 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26895 

June 9, 2003 IPPS HCO final rule for 

both LTCHs and IPPS hospitals can be 

found in Transmittal A–03–058 (Change 

Request 2785; July 3, 2003).) 

As a result of the changes established 

in the June 9, 2003 IPPS HCO final rule, 

as we discussed in the RY 2007 LTCH 

PPS final rule (71 FR 27832 through 

27833) and the FY 2007 IPPS final rule 

(71 FR 48119 through 48121), a LTCH 

is assigned the applicable Statewide 

average CCR if, among other things, a 

LTCH’s CCR is found to be in excess of 

the applicable maximum CCR threshold 

(that is, the LTCH CCR ceiling). As we 

explained in the FY 2007 IPPS final rule 

(71 FR 48117), CCRs above this 

threshold are most likely due to faulty 

data reporting or entry, and, therefore, 

these CCRs should not be used to 

identify and make payments for outlier 

cases. Such data are clearly errors and 

should not be relied upon. Thus, under 

our established policy, if a LTCH’s CCR 

is above the applicable ceiling, the 

applicable LTCH PPS Statewide average 

CCR is assigned to the LTCH instead of 

the CCR computed from its most recent 

(settled or tentatively settled) cost report 

data. 

Under § 412.525(a)(4)(ii), for 

discharges occurring on or after August 

8, 2003, and before October 1, 2006, we 

determined the applicable LTCH PPS 

Statewide average CCRs using the 

‘‘combined’’ IPPS operating and capital 

Statewide average CCRs (that is, adding 

the separate IPPS operating and capital 

CCRs together to determine the LTCH 

PPS Statewide average CCRs). Also, 

under § 412.525(a)(4)(ii), for discharges 

occurring on or after August 8, 2003, 

and before October 1, 2006, if a LTCH’s 

CCR is above the applicable 

‘‘combined’’ IPPS operating and capital 

ceiling (that is, adding the separate IPPS 

operating and capital CCR ceiling 

together), the applicable Statewide 

average CCR may be assigned to the 

LTCH. 

As we explained in the FY 2007 IPPS 

final rule (71 FR 48117 through 48121), 

we revised our methodology for 

determining the annual CCR ceiling and 

Statewide average CCRs under the 

LTCH PPS because we believe that those 

changes are consistent with the LTCH 

PPS single payment rate for inpatient 

operating and capital costs. Therefore, 

under the broad authority of section 123 

of the BBRA and section 307(b)(1) of 

BIPA, in that same final rule, we revised 

our methodology used to determine the 

LTCH CCR ceiling. For discharges 

occurring on or after October 1, 2006, 

we established that the LTCH CCR 

ceiling specified under 

§ 412.525(a)(4)(iv)(C)(2) is calculated as 

three standard deviations above the 

corresponding national geometric mean 

total CCR (established and published 

annually by CMS). (The fiscal 

intermediary (FI) may use a Statewide 

average CCR if, among other things, a 

LTCH’s CCR is in excess of the LTCH 

CCR ceiling.) The LTCH total CCR 

ceiling is determined based on IPPS 

CCR data, by first calculating the ‘‘total’’

(that is, operating and capital) IPPS CCR 

for each hospital and then determining 

the average ‘‘total’’ IPPS CCR for all 

IPPS hospitals. (Our rationale for using 

IPPS hospital data is discussed in the 

FY 2007 IPPS final rule (71 FR 48117) 

and reiterated below in this section.) 

The LTCH CCR ceiling is then 

established at 3 standard deviations 

from the corresponding national 

geometric mean total CCR. (For further 

detail on our methodology for annually 

determining the LTCH CCR ceiling, refer 

to the FY 2007 IPPS final rule (71 FR 

48117 through 48119).) We also 

established that the LTCH ‘‘total’’ CCR 

ceiling used under the LTCH PPS will 

continue to be published annually in 

the IPPS proposed and final rules, and 

the public should continue to consult 

the annual IPPS proposed and final 

rules for changes to the LTCH total CCR 

ceiling that would be effective for 

discharges occurring on or after October 

1 each year. Accordingly, in the FY 

2007 IPPS final rule (71 FR 48119), we 

established a FY 2007 LTCH PPS total 

CCR ceiling of 1.321, effective for 

discharges occurring on or after October 

1, 2006. (We note that the proposed FY 

2008 LTCH PPS total CCR ceiling, that 

would be effective for discharges 

occurring on or after October 1, 2007, 

was presented in the FY 2008 IPPS 

proposed rule.) 

In addition, under the broad authority 

of section 123 of the BBRA and section 

307(b)(1) of BIPA, we revised our 

methodology to determine the Statewide 

average CCRs under 

§ 412.525(a)(4)(iv)(C) for use under the 

LTCH PPS in a manner similar to the 

way we compute the ‘‘total’’ CCR ceiling 

using IPPS CCR data (71 FR 48120). 

Specifically, under this revised 

methodology we first calculate the total 

(that is, operating and capital) CCR for 

each IPPS hospital. We then calculate 

the weighted average ‘‘total’’ CCR for all 

IPPS hospitals in the rural areas of the 

State and the weighted average ‘‘total’’

CCR for all IPPS hospitals in the urban 

areas of the State. (For further detail on 

our methodology for annually 

determining the LTCH urban and rural 

Statewide average CCRs, refer to the FY 

2007 IPPS final rule (71 FR 48119 

through 48121).) We also established 

that the applicable Statewide average 

‘‘total’’ (operating and capital) CCRs 

used under the LTCH PPS will continue 

to be published annually in the IPPS 

proposed and final rules, and the public 

should continue to consult the annual 

IPPS proposed and final rules for 

changes to the applicable Statewide 

average total CCRs that would be 

effective for discharges occurring on or 

after October 1 each year. Accordingly, 

in the FY 2007 IPPS final rule (71 FR 

48122), the FY 2007 LTCH PPS 

Statewide average total CCRs for urban 

and rural hospitals, effective for 

discharges occurring on or after October 

1, 2006, were presented in Table 8C of 

the Addendum of that final rule (71 FR 

48303.) (We note that the proposed FY 

2007 LTCH PPS Statewide average total 

CCRs for urban and rural hospitals, that 

would be effective for discharges 

occurring on or after October 1, 2007, 

were presented in Table 8C of the FY 

2008 IPPS proposed rule.) 

As we explained in the FY 2007 IPPS 

final rule (71 FR 48117), we continue to 

believe it is appropriate to use IPPS 

operating and capital CCRs to compute 

the LTCH total CCR ceiling and the 

Statewide average CCRs because LTCHs’

cost and charge structures are similar to 

that of IPPS acute-care hospitals. For 

instance, LTCHs are certified as acute 

care hospitals, as set forth in section 

1861(e) of the Act to participate as a 

hospital in the Medicare program, and 

these hospitals, in general, are paid as 

LTCHs only because their Medicare 

ALOS is greater than 25 days as 

specified in § 412.23(e). Furthermore, 

prior to qualifying as a LTCH under 

§ 412.23(e)(2)(i), a hospital generally is 

paid as an acute-care hospital under the 

IPPS during the period in which it 

demonstrates that it has an ALOS of 

greater than 25 days. In addition, since 

there are less than 400 LTCHs, which 

are unevenly geographically distributed 

throughout the United States, there may 

not be sufficient LTCH CCR data to 

determine an appropriate LTCH PPS 

CCR ceiling using LTCH data. 

In the FY 2007 IPPS final rule, in 

addition to revising our methodology for 

determining the annual CCR ceiling and 

Statewide average CCRs under the 

LTCH PPS for discharges occurring on 

or after October 1, 2006, under the broad 

authority of section 123 of the BBRA 

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

revised § 412.525(a)(4)(iv) for discharges 

occurring on or after October 1, 2006, to 

codify in 42 CFR part 412, subpart O the 

remaining LTCH PPS outlier policy 

changes that were established in the 

June 9, 2003 IPPS HCO final rule (68 FR 

34506 through 34513), including 

modifications and editorial 

clarifications to those existing policies 


ycherry on PROD1PC64 with RULES2
26896 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

established in that final rule. We made 

these revisions because we believe that 

they more precisely describe the 

application of those policies as they 

relate to the determination of LTCH 

CCRs because these changes are 

consistent with the changes to the 

calculation of the LTCH CCR ceiling. 

Specifically, in the FY 2007 IPPS final 

rule (71 FR 48119), under the broad 

authority of section 123 of the BBRA 

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

established under the LTCH PPS HCO 

policy at § 412.525(a)(4)(iv)(C) that the 

FI may use a Statewide average CCR, 

which is established annually by CMS, 

if it is unable to determine an accurate 

CCR for a LTCH in one of the following 

three circumstances: (1) New LTCHs 

that have not yet submitted their first 

Medicare cost report (for this purpose, 

consistent with current policy, a new 

LTCH would be defined as an entity that 

has not accepted assignment of an 

existing hospital’s provider agreement 

in accordance with § 489.18); (2) LTCHs 

whose CCR is in excess of the LTCH 

CCR ceiling; and (3) other LTCHs for 

whom data with which to calculate a 

CCR are not available (for example, 

missing or faulty data). (Other sources of 

data that the FI may consider in 

determining a LTCH’s CCR included 

data from a different cost reporting 

period for the LTCH, data from the cost 

reporting period preceding the period in 

which the hospital began to be paid as 

a LTCH (that is, the period of at least 6 

months that it was paid as a short-term 

acute care hospital), or data from other 

comparable LTCHs, such as LTCHs in 

the same chain or in the same region.) 

Additionally, in the FY 2007 IPPS 

final rule (71 FR 48121), we established 

under § 412.525(a)(4)(iv)(B) and 

§ 412.529(c)(3)(iv)(B) that, for discharges 

occurring on or after October 1, 2006, 

the CCR applied at the time a claim is 

processed will be based on either the 

most recently settled cost report or the 

most recent tentatively settled cost 

report, whichever is from the latest cost 

reporting period. Under the broad 

authority of section 123 of the BBRA 

and section 307(b)(1) of BIPA, in that 

same final rule, we also established at 

§ 412.525(a)(4)(iv)(A) that, for 

discharges occurring on or after October 

1, 2006, we may specify an alternative 

to the CCR computed under 

§ 412.525(a)(4)(iv)(B) (that is, computed 

from the most recently settled cost 

report or the most recent tentatively 

settled cost report, whichever is later), 

or a hospital may also request that the 

FI use a different (higher or lower) CCR 

based on substantial evidence presented 

by the hospital. In addition, under the 

broad authority of section 123 of the 

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

revised § 412.525(a)(3) to change the 

plural reference from cost-to-charge 

‘‘ratios’’ to the singular reference to a 

cost-to-charge ‘‘ratio’’ in that final rule. 

For a complete discussion on all these 

revisions to our methodology for 

determining a LTCH’s CCR, refer to the 

FY 2007 IPPS final rule (71 FR 48119 

through 48121). We note that in that 

same FY 2007 IPPS final rule, we made 

similar revisions to the SSO policy at 

§ 412.529(c)(3), as discussed in V.A.1.b. 

of the preamble of this proposed rule. 

Comment: A commenter asked that 

we consider making an exception to the 

outlier payment reconciliation 

requirements for the affected hospitals 

by Hurricane Katrina because they 

would have experienced an aberrant 

change in their CCR during the first and 

second cost reporting periods that began 

on or after August 29, 2005. 

Response: In order for a hospital to 

meet the requirements of outlier 

reconciliation, a 10 percentage point 

change in a LTCHs CCRs from the time 

of payment to the time of cost report 

settlement is required in addition to 

SSO and HCO payment being greater 

then $500,000 for the cost reporting 

period being settled. Without further 

explanation from the commenter, it is 

not clear what type of aberrant changes 

to the CCR the commenter is referring. 

Changes to costs or charges can either 

result in reducing or increasing a CCR 

in any given cost reporting period. 

Based on the events of Katrina, we 

would anticipate an increase in costs 

and a reduction in total charges as 

effected hospitals probably experienced 

fewer discharges in the period after 

Katrina. These types of changes would 

increase a hospital’s CCR, and therefore, 

a hospital would not owe CMS 

additional funds if a hospital met the 

criteria for reconciliation. We also note 

that even if a unique circumstance arose 

as a result of Hurricane Katrina and 

resulted in a situation where a hospital 

would be required to pay CMS as a 

result of a reconciliation, we believe the 

existing regulation may allow us to 

consider the unique needs of this 

hospital, and no changes to the existing 

regulations at § 412.525(a)(4)(ii), 

§ 412.525(a)(4)(iv)(D), § 412.529(c)(3)(ii), 

or § 412.529(c)(3)(iv)(E). 

c. Establishment of the Fixed-Loss 

Amount 

When we implemented the LTCH 

PPS, as discussed in the August 30, 

2002 LTCH PPS final rule (67 FR 56022 

through 56026), under the broad 

authority of section 123 of the BBRA as 

amended by section 307(b) of BIPA, we 

established a fixed-loss amount so that 

total estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. To determine the fixed-loss 

amount, we estimate outlier payments 

and total LTCH PPS payments for each 

case using claims data from the 

MedPAR files. Specifically, to 

determine the outlier payment for each 

case, we estimate the cost of the case by 

multiplying the Medicare covered 

charges from the claim by the LTCH’s 

hospital specific CCR. Under 

§ 412.525(a)(3), if the estimated cost of 

the case exceeds the outlier threshold 

(the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount), we pay an 

outlier payment equal to 80 percent of 

the difference between the estimated 

cost of the case and the outlier threshold 

(the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount). 

In the RY 2007 LTCH PPS final rule 

(71 FR 27838), in calculating the fixedloss amount that would result in 

estimated outlier payments projected to 

be equal to 8 percent of total estimated 

payments for the 2007 LTCH PPS rate 

year, we used claims data from the 

December 2005 update of the FY 2005 

MedPAR files and CCRs from the 

December 2005 update of the PSF, as 

that was the best available data at that 

time. We believe that CCRs from the 

PSF are the best available CCR data for 

determining estimated LTCH PPS 

payments for a given LTCH PPS rate 

year because they are the most recently 

available CCRs actually used to make 

LTCH PPS payments. 

As we also discussed in the RY 2007 

LTCH PPS rate year final rule (71 FR 

27838), we calculated a single fixed-loss 

amount for the 2007 LTCH PPS rate year 

based on the version 23.0 of the 

GROUPER, which was the version in 

effect as of the beginning of the LTCH 

PPS rate year (that is, July 1, 2006 for 

the 2007 LTCH PPS rate year). In 

addition, we applied the outlier policy 

under § 412.525(a) in determining the 

fixed-loss amount for the 2007 LTCH 

PPS rate year; that is, we assigned the 

applicable Statewide average CCR only 

to LTCHs whose CCRs exceeded the 

ceiling (and not when they fell below 

the floor). Accordingly, we used the FY 

2006 LTCH PPS CCR ceiling of 1.423 (71 

FR 27838). As noted in that same final 

rule, in determining the fixed-loss 

amount for the 2007 LTCH PPS rate year 

using the CCRs from the PSF, there were 

no LTCHs with missing CCRs or with 

CCRs in excess of the current ceiling 

and, therefore, there was no need for us 

to independently assign the applicable 

Statewide average CCR to any LTCHs in 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26897 

determining the fixed-loss amount for 

the 2007 LTCH PPS rate year (as this 

may have already been done by the FI 

in the PSF in accordance with the 

established policy). 

Accordingly, in 2007 LTCH PPS rate 

year final rule (71 FR 27838), we 

established a fixed-loss amount of 

$14,887 for the 2007 LTCH PPS rate 

year. Thus, we pay an outlier case 80 

percent of the difference between the 

estimated cost of the case and the 

outlier threshold (the sum of the 

adjusted Federal LTCH PPS payment for 

the LTC–DRG and the fixed-loss amount 

of $14,887). 

In the RY 2008 LTCH PPS proposed 

rule (72 FR 4798 through 4799), for the 

2008 LTCH PPS rate year, we used the 

March 2006 update of the FY 2005 

MedPAR claims data to determine a 

fixed-loss amount that would result in 

estimated outlier payments projected to 

be equal to 8 percent of total estimated 

payments, based on the policies 

described in that proposed rule, because 

those data are the most recent complete 

LTCH data available. Consistent with 

our historical practice of using the best 

data available, we also proposed that if 

more recent LTCH claims data become 

available, we would to use it for 

determining the fixed-loss amount for 

the 2008 LTCH PPS rate year in the final 

rule. In addition, we determined the 

proposed fixed-loss amount based on 

the version of the GROUPER that would 

be in effect as of the beginning of the 

2008 LTCH PPS rate year (July 1, 2007), 

that is, Version 24.0 of the GROUPER 

(as established in the FY 2007 IPPS final 

rule (71 FR 47973)). 

In the RY 2008 LTCH PPS proposed 

rule (72 FR 4799), we proposed to use 

CCRs from the June 2006 update of the 

PSF for determining the proposed fixedloss amount for the 2008 LTCH PPS rate 

year as they are currently the most 

recent complete available data. 

Consistent with our historical practice 

of using the best data available, we also 

proposed that if more recent CCR data 

are available, we would use it for 

determining the fixed-loss amount for 

the 2008 LTCH PPS rate year in the final 

rule. As we discussed in that same 

proposed rule, in determining the 

proposed fixed-loss amount for the 2008 

LTCH PPS rate year, we used the 

current FY 2007 applicable LTCH 

‘‘total’’ CCR ceiling of 1.321 and LTCH 

Statewide average ‘‘total’’ CCRs 

established under our revised 

methodology in the FY 2007 IPPS final 

rule (71 FR 48118 and 48121) such that 

the current applicable Statewide average 

CCR would be assigned if, among other 

things, a LTCH’s CCR exceeded the 

current ceiling (1.321). We noted that in 

determining the proposed fixed-loss 

amount for the 2008 LTCH PPS rate year 

using the CCRs from the June 2006 

update of the PSF, there was no need for 

us to independently assign the 

applicable Statewide average CCR to 

any LTCHs (as this may have already 

been done by the FI in the PSF in 

accordance with our established policy). 

Accordingly, based on the data and 

policies described in the RY 2008 LTCH 

PPS proposed rule, we proposed to 

apply a fixed-loss amount of $18,774 for 

the 2008 LTCH PPS rate year. Thus, we 

proposed to pay an outlier case 80 

percent of the difference between the 

estimated cost of the case and the 

proposed outlier threshold (the sum of 

the adjusted proposed Federal LTCH 

payment for the LTC–DRG and the 

proposed fixed-loss amount of $18,774). 

In the RY 2008 LTCH PPS proposed 

rule (72 FR 4799 through 4800), we 

noted that the fixed-loss amount for the 

2008 LTCH PPS rate year is higher than 

the current fixed-loss amount of 

$14,887. We also discussed that we 

were not proposing to adjust the 

existing 8 percent outlier target or 80 

percent marginal cost factor under the 

current LTCH PPS HCO policy at that 

time. However, we explained that we 

continue to be interested in any 

comments that would support revisiting 

the analysis that was used to establish 

the existing 8 percent outlier target and 

the existing 80 percent marginal cost 

factor, using the most recent available 

data to evaluate whether any changes to 

the current HCO policy should be made, 

and therefore, may result in less of an 

increase in the fixed-loss amount for RY 

2008. 

Comment: While we received no 

comments in support of revisiting the 

analysis that was used to establish the 

existing 8 percent outlier target and the 

existing 80 percent marginal cost factor, 

using the most recent available data, to 

evaluate whether any changes to the 

current HCO policy should be made, 

some commenters expressed concern 

over the impact of raising the fixed-loss 

threshold for HCOs to $18,774, an 

increase of $3,887 over the RY 2007 

threshold. According to one 

commenter’s analysis, the proposed 

fixed-loss threshold would mean that 26 

percent of cases would no longer meet 

the HCO threshold for receiving 

additional payments. Specifically, a 

commenter wrote, ‘‘reducing access to 

HCO payments for this many cases is 

not warranted.’’

Response: As we explained in the RY 

2008 LTCH PPS proposed rule (72 FR 

4799), in addition to being based on the 

most recent available LTCH data to 

estimate the cost of each LTCH case, the 

proposed change in the fixed-loss 

amount is primarily due to the projected 

decrease in estimated aggregate LTCH 

PPS payments that is expected to result 

from the approach discussed for the 

SSO policy under § 412.529, in 

conjunction with the proposed changes 

to the area wage adjustment and the 

proposed changes to the LTC–DRG 

relative weights for FY 2007. In that 

same proposed rule, we also explained 

that we believe that an increase in the 

fixed-loss amount is appropriate and 

necessary to maintain the requirement 

that estimated outlier payments would 

be projected to be equal to 8 percent of 

estimated total LTCH PPS payments, as 

required under § 412.525(a), because of 

the estimated decrease in aggregate 

LTCH PPS payments for the 2008 LTCH 

PPS rate year. Based on the regression 

analysis that was performed when we 

implemented the LTCH PPS, we 

established the outlier target at 8 

percent of estimated total LTCH PPS 

payments to allow us to achieve a 

balance between the ‘‘conflicting 

considerations of the need to protect 

hospitals with costly cases, while 

maintaining incentives to improve 

overall efficiency’’ (67 FR 56024). That 

regression analysis also showed that 

additional increments of outlier 

payments over 8 percent (that is, raising 

the outlier target to a larger percentage 

than 8 percent) would reduce financial 

risk, but by successively smaller 

amounts. Outlier payments are budget 

neutral, and therefore, outlier payments 

are funded by prospectively reducing 

the non-outlier PPS payment rates by 

projected total outlier payments. The 

higher the outlier target, the greater the 

(prospective) reduction to the base 

payment would need to be applied to 

the Federal rate to maintain budget 

neutrality. 

Maintaining the fixed-loss amount at 

the current level would result in HCO 

payments that exceed the current 

regulatory requirement that estimated 

outlier payments would be projected to 

equal 8 percent of estimated total LTCH 

PPS payments. In fact, our analysis 

shows that if we were to keep the fixedloss amount at the current amount of 

$14,887, we project that estimated 

outlier payments would be over 10 

percent of total estimated LTCH PPS 

payments in RY 2008. As noted above, 

the results of our regression analysis 

concluded that an outlier target in 

excess of 8 percent would not allow us 

to achieve our stated goal of the HCO 

policy of balancing the need to protect 

hospitals with costly cases, while 

providing an incentive for hospitals to 

operate efficiently. 


ycherry on PROD1PC64 with RULES2
26898 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

We also note that we received no 

comments in support of revisiting the 

regression analysis to evaluate whether 

current LTCH data would support a 

change in the current HCO policy, such 

as increasing (or decreasing) the outlier 

target. While we understand the 

commenter’s concern that raising the 

fixed-loss threshold would mean that 

fewer cases would qualify to receive 

additional payments for extraordinarily 

high cost, as discussed above, we would 

have to reduce the standard Federal rate 

to account for the additional estimated 

outlier payments that exceed the current 

8 percent outlier target since outlier 

payments are budget neutral. This 

would reduce payments to all LTCH 

cases, not just those that would receive 

a HCO payment based on the amount of 

the current fixed-loss threshold, which 

could result in inappropriately low 

payment amounts for typical LTCH 

cases (as shown by our analysis of 

payment-to-cost ratios when we 

developed the existing HCO policy 

when we implemented the LTCH PPS 

(67 FR 56022 through 56027)). 

In the RY 2008 LTCH PPS proposed 

rule (72 FR 4799 through 4800) as an 

alternative to the proposal to raise the 

fixed-loss amount, we discussed 

adjusting the marginal cost factor (that 

is, the percentage that Medicare will pay 

of the estimated cost of a case that 

exceeds the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount for LTCH PPS 

outlier cases as specified in 

§ 412.525(a)(3)), which is currently 

equal to 80 percent, as a means of 

ensuring that estimated outlier 

payments would be projected to equal 8 

percent of estimated total LTCH PPS 

payments. We explained that when we 

initially established the 80 percent 

marginal cost factor, our analysis of 

payment-to-cost ratios for HCO cases 

showed that a marginal cost factor of 80 

percent appropriately addresses outlier 

cases that are significantly more 

expensive than nonoutlier cases, while 

simultaneously maintaining the 

integrity of the LTCH PPS (67 FR 56022 

through 56027). 

In that same proposed rule, we also 

discussed that although proposing to 

raise the fixed-loss amount from 

$14,887 to $18,774 would increase the 

amount of the ‘‘loss’’ that a LTCH must 

incur under the LTCH PPS for a case 

with unusually high costs before the 

LTCH would receive any additional 

Medicare payments, we continue to 

believe that the existing 8 percent 

outlier target and 80 percent marginal 

cost factor continue to adequately 

maintain the LTCHs’ share of the 

financial risk in treating the most costly 

patients and ensure the efficient 

delivery of services. Accordingly, we 

did not propose to adjust the existing 8 

percent outlier target or 80 percent 

marginal cost factor under the LTCH 

PPS HCO policy at this time. We also 

noted that the proposed fixed-loss 

amount of $18,774 is lower than the FY 

2003 fixed-loss amount of $24,450 (67 

FR 56023) and the 2004 LTCH PPS rate 

year fixed-loss amount of $19,590 (68 

FR 34144), and only slightly higher than 

the 2005 LTCH PPS rate year fixed-loss 

amount of $17,864 (69 FR 25688), all of 

which were in effect during the time 

period that we estimate positive 

Medicare margins (as discussed in the 

RY 2007 LTCH PPS final rule (71 FR 

27820 through 27825)). 

In conclusion, for the reasons 

discussed above in this section, we 

continue to believe a marginal cost 

factor of 80 percent and an outlier target 

of 8 percent best identifies LTCH 

patients that are truly unusually costly 

cases. Furthermore, we still believe that 

such a policy appropriately addresses 

LTCH HCO cases that are significantly 

more expensive than non-outlier cases, 

which is consistent with our intent of 

the LTCH HCO policy as stated when 

we implemented the LTCH PPS. 

Therefore, we are not making any 

changes to the marginal cost factor or 

outlier target in that final rule. 

Consequently, in order to maintain that 

estimated outlier payments are 

projected to be equal to 8 percent of 

estimated total LTCH PPS payments, as 

required under § 412.525(a), under the 

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

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

we are establishing a fixed-loss amount 

of $22,954 based on the best available 

LTCH data and the policies presented in 

this final rule (as described in greater 

detail below). For the reasons discussed 

above, we believe a fixed-loss amount of 

$22,954 would appropriately identify 

unusually costly LTCH cases while 

maintaining the integrity of the LTCH 

PPS. We note that, as discussed in the 

RY 2008 proposed rule (72 FR 4800), we 

intend to revisit a budget neutral policy 

change in the outlier policy (among 

other things), which would affect future 

LTCH PPS payment rates, after the 

conclusion of the 5-year transition 

period when we expect to have several 

years of data generated after the 

implementation of the LTCH PPS. 

In this final rule, as we proposed and 

consistent with our historical practice of 

using the best data available (as noted 

above), for the 2008 LTCH PPS rate year, 

we used the December 2006 update of 

the FY 2006 MedPAR claims data to 

determine a fixed-loss amount that 

would result in estimated outlier 

payments projected to be equal to 8 

percent of total estimated payments, 

based on the policies described in this 

final rule, because these data are the 

most recent complete LTCH data 

available. Furthermore, as noted 

previously, we determined the fixedloss amount based on the version of the 

GROUPER that would be in effect as of 

the beginning of the 2008 LTCH PPS 

rate year (July 1, 2007), that is, Version 

24.0 of the GROUPER (as established in 

the FY 2007 IPPS final rule (71 FR 

47973)). 

In addition, as we proposed and 

consistent with our historical practice of 

using the best data available (as noted 

above), we used CCRs from the 

December 2006 update of the PSF for 

determining the fixed-loss amount for 

the 2008 LTCH PPS rate year as they are 

currently the most recent complete 

available data. As we discussed above in 

this section, we revised our 

methodology for our annual 

determination of the applicable LTCH 

CCR ceiling and applicable Statewide 

average CCRs in determining a LTCH’s 

CCR effective for discharges occurring 

on or after October 1, 2006 in the FY 

2007 IPPS final rule (71 FR 48117 

through 48122). Accordingly, as 

proposed, in determining the fixed-loss 

amount for the 2008 LTCH PPS rate 

year, we used the current FY 2007 

applicable LTCH ‘‘total’’ CCR ceiling of 

1.321 and LTCH Statewide average 

‘‘total’’ CCRs established under our 

revised methodology in the FY 2007 

IPPS final rule (71 FR 48118 and 48121) 

such that the current applicable 

Statewide average CCR would be 

assigned if, among other things, a 

LTCH’s CCR exceeded the current 

ceiling (1.321). We note that in 

determining the fixed-loss amount for 

the 2008 LTCH PPS rate year using the 

CCRs from the December 2006 update of 

the PSF, there was no need for us to 

independently assign the applicable 

Statewide average CCR to any LTCHs (as 

this may have already been done by the 

FI in the PSF in accordance with our 

established policy). (Currently, the 

applicable FY 2007 LTCH Statewide 

average CCRs can be found in Table 8C 

of the FY 2007 IPPS final rule (71 FR 

48303).) 

Accordingly, based on the data and 

policies described in this final rule, we 

are applying a fixed-loss amount of 

$22,954 for the 2008 LTCH PPS rate 

year. Thus, we will pay an outlier case 

80 percent of the difference between the 

estimated cost of the case and the 

outlier threshold (the sum of the 

adjusted Federal LTCH payment for the 

LTC–DRG and the fixed-loss amount of 

$22,954). As discussed above, the fixedVerDate Aug<31>2005 17:43 May 10, 2007 Jkt 211001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 E:\FR\FM\11MYR2.SGM 11MYR2

ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26899 

loss amount for the 2008 LTCH PPS rate 

year is higher than the current fixed-loss 

amount of $14,887. In addition to being 

based on the most recent available 

LTCH data to estimate the cost of each 

LTCH case (as discussed in detail below 

in this section), this change in the fixedloss amount is due to the projected 

decrease in estimated aggregate LTCH 

PPS payments that is expected to result 

from the revision to the SSO policy 

under § 412.529 (discussed in greater 

detail in section V.A.2. of this 

preamble), in conjunction with the 

changes to the area wage adjustment 

(discussed in greater detail in section 

IV.D.1. of this preamble) and the 

changes to the LTC–DRG relative 

weights for FY 2007 (as discussed in the 

FY 2007 IPPS final rule (71 FR 47971 

through 47994)). Specifically, as 

discussed in greater detail in the impact 

analysis presented in section XV.B.4. of 

this final rule, we are projecting that the 

changes presented in this final rule will 

result in an estimated 3.8 percent 

decrease in estimated payments per 

discharge in RY 2008 as compared to RY 

2007, on average, for all LTCHs. While 

we are projecting that the 0.71 percent 

update to the Federal rate (discussed in 

section IV.C. of this preamble) will 

result in an increase in estimated 

payments per discharge in RY 2008 as 

compared to RY 2007, this increase will 

be offset by the projected decrease in 

estimated payments per discharge from 

RY 2007 to RY 2008 of 0.9 percent due 

to the revision to the SSO policy and a 

projected decrease in estimated 

payments per discharge from RY 2007 to 

RY 2008 of 1.0 percent due to the 

changes to the area wage adjustment 

(including the progression of the 

established phase-in of that adjustment). 

We also project an estimated 2.5 percent 

decrease in estimated payments per 

discharge from RY 2007 to RY 2008 due 

to the changes in the fixed-loss amount 

resulting from the use of more recent 

LTCH data to estimate the cost of each 

LTCH case. 

We also note that the final fixed-loss 

amount for RY 2008 of $22,954 is higher 

than the proposed fixed-loss amount for 

RY 2008 of $18,778. This change in the 

fixed-loss amount is primarily due to 

the updated LTCH data (that is, LTCH 

claims data and CCR data) used in 

determining the fixed-loss amount. That 

is, to determine the proposed fixed-loss 

amount for RY 2008, we used claims 

data from the March 2006 update of the 

FY 2005 MedPAR file and CCRs from 

the July 2006 update of the PSF, as that 

was the best available data at that time. 

However, to determine the fixed-loss 

amount for RY 2008 in this final rule, 

the most recent available data are the 

December 2006 update of the FY 2006 

MedPAR claims data and the CCRs from 

the December 2006 update of the PSF. 

Our analysis of the data showed that, in 

general, the average cost per case has 

increased in the FY 2006 claim data as 

compared to the FY 2005 claims data, 

which if we had kept the fixed-loss 

amount at $18,778 would have caused 

the HCO target to exceed 8 percent. In 

fact, our analysis shows that if we were 

to keep the proposed fixed-loss amount 

of $18,774, we project that estimated 

outlier payments would be over 10 

percent of total estimated LTCH PPS 

payments in RY 2008. As discussed at 

length above, when we implemented the 

LTCH PPS, under the HCO policy we 

established the outlier target at 8 

percent of estimated total LTCH PPS 

payments to allow us to achieve a 

balance between the need to protect 

hospitals with costly cases, while 

providing an incentive for hospitals to 

operate efficiently, and an outlier target 

in excess of 8 percent would not allow 

us to achieve this goal. In fact, our 

analysis shows that if we were to keep 

the proposed fixed-loss amount of 

$18,774, we project that estimated 

outlier payments would be over 10 

percent of total estimated LTCH PPS 

payments in RY 2008. As discussed at 

length above in this section, when we 

implemented the LTCH PPS, under the 

HCO policy we established the outlier 

target at 8 percent of estimated total 

LTCH PPS payments to allow us to 

achieve a balance between the need to 

protect hospitals with costly cases, 

while providing an incentive for 

hospitals to operate efficiently, and an 

outlier target in excess of 8 percent 

would not allow us to achieve this goal. 

Consequently, the fixed-loss amount is 

increased to maintain the HCO target at 

8 percent. Furthermore, although in the 

past we have found LTCHs’ CCRs have 

been relatively stable, in establishing 

the fixed-loss amount for RY 2008, we 

noticed that the CCRs used to estimate 

cost per case are more volatile in recent 

years. This causes us concern, and 

therefore, we intend to monitor LTCHs’

CCRs in the future. As specified at 

§ 412.525(a)(4)(iv)(D), HCO payments 

are subject to the outlier reconciliation 

process described below in this section. 

d. Reconciliation of Outlier Payments 

Upon Cost Report Settlement 

In the June 9, 2003 HCO final rule (68 

FR 34508 through 34512), we 

established our policy for LTCHs that 

provided that effective for LTCH PPS 

discharges occurring on or after August 

8, 2003, any reconciliation of outlier 

payments will be based upon the actual 

CCR computed from the costs and 

charges incurred in the period during 

which the discharge occurs. In that 

same final rule, we also established that, 

for discharges occurring on or after 

August 8, 2003, at the time of any 

reconciliation, outlier payments may be 

adjusted to account for the time value of 

any underpayments or overpayments 

based upon a widely available index to 

be established in advance by the 

Secretary and will be applied from the 

midpoint of the cost reporting period to 

the date of reconciliation. (Additional 

information on the administration of the 

reconciliation process under the IPPS is 

provided in CMS Program Transmittal 

707 (October 12, 2005; Change Request 

3966). We note that we are currently 

developing additional instructions on 

the administration of the reconciliation 

process under the LTCH PPS that would 

be similar to the IPPS reconciliation 

process.) 

In the FY 2007 IPPS final rule (71 FR 

48121 through 48122), for discharges 

occurring on or after October 1, 2006, 

we codified into the LTCH PPS section 

of the regulations (42 CFR part 412, 

subpart O) the provisions governing the 

determination of LTCHs’ CCRs, 

including modifications and editorial 

clarifications to our existing 

methodology for determining the annual 

LTCH CCR ceiling and applicable 

Statewide average CCRs under the 

LTCH PPS. (We note that we also made 

the same changes under the SSO policy 

at § 412.529(c)(3), as discussed in 

section V.A.1.c. of this preamble). 

In the FY 2007 IPPS final rule (71 FR 

48122), under the broad authority of 

section 123 of the BBRA and section 

307(b)(1) of BIPA, we revised 

§ 412.525(a)(4)(iv)(D) through (E), for 

discharges occurring on or after October 

1, 2006, to codify in subpart O of 42 

CFR part 412 the provisions discussed 

concerning the reconciliation of LTCH 

PPS outlier payments, including 

editorial clarifications discussed in 

greater detail in this section, that would 

more precisely describe the application 

of those policies. Specifically, at 

§ 412.525(a)(4)(iv)(D), we specified that 

for discharges occurring on or after 

October 1, 2006, any reconciliation of 

outlier payments will be based on the 

CCR calculated based on a ratio of coststo-charges computed from the relevant 

cost report and charge data determined 

at the time the cost report coinciding 

with the discharge is settled. In 

addition, at § 412.525(a)(4)(iv)(E), we 

specified that for discharges occurring 

on or after October 1, 2006, at the time 

of any reconciliation, outlier payments 

may be adjusted to account for the time 

value of any underpayments or 

overpayments. We also specified that 


ycherry on PROD1PC64 with RULES2
26900 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

such an adjustment will be based upon 

a widely available index to be 

established in advance by the Secretary 

and will be applied from the midpoint 

of the cost reporting period to the date 

of reconciliation. We made these 

additional revisions to § 412.525(a)(4) 

because we believe that these changes 

are more consistent with the LTCH PPS 

single payment rate for inpatient 

operating and capital costs (as discussed 

in greater detail previously), and 

because we believe it is more 

appropriate and administratively 

simpler to include all of the regulatory 

provisions concerning the 

determination of LTCH PPS outlier 

payments applicable under the LTCH 

PPS regulations in subpart O of 42 CFR 

part 412 of the CFR. 

Comment: One commenter requested 

that we clarify how we interpret the 10 

percentage point criterion of the SSO 

and HCO reconciliation policy. 

Response: We did not propose any 

changes to the current reconciliation 

policy. Therefore, we do not believe this 

final rule is the appropriate vehicle to 

address this comment. As we have 

stated, we intend to issue subregulatory 

guidance on LTCH reconciliation that 

would be similar to the IPPS 

reconciliation process and would 

address the commenters question at that 

time. 

e. Application of Outlier Policy to 

Short-Stay Outlier (SSO) Cases 

As we discussed in the August 30, 

2002 final rule (67 FR 56026), under 

some rare circumstances, a LTCH 

discharge could qualify as a SSO case 

(as defined under § 412.529 and 

discussed in section V.A.1.a. of this 

preamble) and also as a HCO case. In 

this scenario, a patient could be 

hospitalized for less than five-sixths of 

the geometric ALOS for the specific 

LTC–DRG, and yet incur extraordinarily 

high treatment costs. If the costs 

exceeded the outlier threshold (that is, 

the SSO payment plus the fixed-loss 

amount), the discharge would be 

eligible for payment as a HCO. Thus, for 

a SSO case in the 2008 LTCH PPS rate 

year, the HCO payment will be 80 

percent of the difference between the 

estimated cost of the case and the 

outlier threshold (the sum of the fixedloss amount of $22,954 and the amount 

paid under the SSO policy). 

4. Other Payment Adjustments 

As indicated earlier, we have broad 

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

BBRA as amended by section 307(b) of 

BIPA to determine appropriate 

adjustments under the LTCH PPS, 

including whether (and how) to provide 

for adjustments to reflect variations in 

the necessary costs of treatment among 

LTCHs. Thus, in the August 30, 2002 

LTCH PPS final rule (67 FR 56014 

through 56027), we discussed our 

extensive data analysis and rationale for 

not implementing an adjustment for 

geographic reclassification, rural 

location, treating a disproportionate 

share of low-income patients (DSH), or 

indirect medical education (IME) costs. 

In that same final rule, we stated that we 

would collect data and reevaluate the 

appropriateness of these adjustments in 

the future once more LTCH data become 

available after the LTCH PPS is 

implemented. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27839), we 

now believe that after the completion of 

the 5-year transition, sufficient new data 

that will have been generated while 

LTCHs are subject to the LTCH PPS may 

be available for a comprehensive 

reevaluation of payment adjustments 

such as geographic reclassification, rural 

location, DSH, and IME. The end of the 

5-year transition occurs with cost 

reporting periods beginning on or after 

October 1, 2007. Therefore, in the RY 

2008 LTCH PPPS proposed rule (72 FR 

4801), we did not propose to make any 

adjustments for geographic 

reclassification, rural location, DSH, or 

IME. However, we noted that we will 

continue to collect and interpret new 

data as they become available in the 

future to determine if these data support 

proposing any additional payment 

adjustments. We also reiterated our 

belief that it is appropriate to wait for 

the conclusion of the 5-year transition to 

100 percent of the Federal rate under 

the LTCH PPS, to maximize the 

availability of data that are reflective of 

LTCH behavior in response to the 

implementation of the LTCH PPS to be 

used to conduct a comprehensive 

evaluation of the potential payment 

adjustment policies (such as rural 

location, DSH and IME) in conjunction 

with our evaluation of the possibility of 

making a one-time prospective 

adjustment to the LTCH PPS rates 

provided for at § 412.523(d)(3). 

Therefore, in this final rule, we are 

not making any adjustments for 

geographic reclassification, rural 

location, DSH, or IME under the LTCH 

PPS for RY 2008. As noted above, we 

will continue to collect and interpret 

new data as they become available in 

the future to determine if these data 

support proposing any additional 

payment adjustments. We plan to 

conduct a comprehensive evaluation of 

the potential payment adjustment 

policies (such as rural location, DSH 

and IME) in conjunction with our 

evaluation of the possibility of making 

a one-time prospective adjustment to 

the LTCH PPS rates provided for at 

§ 412.523(d)(3) after the conclusion of 

the 5-year transition to 100 percent of 

the Federal rate under the LTCH PPS. 

5. Budget Neutrality (BN) Offset To 

Account for the Transition Methodology 

Under § 412.533, we implemented a 

5-year transition, during which a LTCH 

is paid a total LTCH PPS payment that 

is comprised of an increasing percentage 

of the LTCH PPS Federal prospective 

payment rate and a decreasing 

percentage of its payments based on the 

reasonable cost-based payment 

principles for each discharge. 

Furthermore, we allow a LTCH (other 

than those defined as ‘‘new’’ under 

§ 412.23(e)(4)) to elect to be paid based 

on 100 percent of the standard Federal 

rate in lieu of the blended methodology. 

The standard Federal rate was 

determined as if all LTCHs will be paid 

based on 100 percent of the standard 

Federal rate. As stated earlier, we 

provided for a 5-year transition period 

that allows LTCHs to receive LTCH PPS 

payments in which a component 

incorporates reasonable cost principles. 

To maintain BN for FY 2003 as required 

by section 123(a)(1) of the BBRA during 

the 5-year transition period, we reduce 

all LTCH Medicare payments (whether 

a LTCH elects payment based on 100 

percent of the Federal rate or whether a 

LTCH is being paid under the transition 

blend methodology) to account for the 

cost of the applicable transition period 

methodology in a given LTCH PPS rate 

year. 

Specifically, during the LTCH PPS 

rate years governed under the 5-year 

transition policy at § 412.533(a), we 

reduce all LTCH Medicare payments 

during the 5-year transition by a factor 

that is equal to 1 minus the ratio of the 

estimated TEFRA reasonable cost-based 

payments that would be made if the 

LTCH PPS was not implemented, to the 

projected total Medicare program PPS 

payments (that is, payments made under 

the transition methodology and the 

option to elect payment based on 100 

percent of the Federal rate). 

In the RY 2007 LTCH PPS final rule 

(71 FR 27841), based on the best 

available data at that time, we projected 

that approximately 98 percent of LTCHs 

will be paid based on 100 percent of the 

standard Federal rate rather than receive 

payment under the transition blend 

methodology for the 2006 LTCH PPS 

rate year. Using the same methodology 

described in the August 30, 2002 LTCH 

PPS final rule (67 FR 56034), this 

projection, which used updated data 

and inflation factors, was based on our 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26901 

estimate that either: (1) A LTCH has 

already elected payment based on 100 

percent of the Federal rate prior to the 

start of the 2007 LTCH PPS rate year 

(July 1, 2006); or (2) a LTCH would 

receive higher payments based on 100 

percent of the 2007 LTCH PPS rate year 

standard Federal rate compared to the 

payments it would receive under the 

transition blend methodology. 

Similarly, we projected that the 

remaining 2 percent of LTCHs would 

choose to be paid based on the 

applicable transition blend methodology 

(as set forth under § 412.533(a)) because 

they would receive higher payments 

than if they were paid based on 100 

percent of the 2007 LTCH PPS rate year 

standard Federal rate. 

Also in the RY 2007 LTCH PPS final 

rule (71 FR 24202), based on the best 

available data at that time and policy 

revisions described in that same rule, 

we projected that in absence of a 

transition BN offset, the full effect of the 

final full year of the transition period 

(including the election option) as 

compared to payments as if all LTCHs 

would be paid based on 100 percent of 

the Federal rate would result in a 

negligible cost to the Medicare program 

(that is, less than $1 million in RY 

2007). Because the $1 million in 

estimated costs to the Medicare program 

was such a small percentage of the 

estimated total LTCH payments for RY 

2007 (over $5 billion), the formula that 

we use to establish the BN offset 

resulted in a factor, which we reduce all 

Medicare payments by to account for 

the additional costs of the transition 

methodology of zero (due to rounding). 

Therefore, we established a zero percent 

transition period BN offset to all LTCH 

PPS payments for discharge occurring 

on or after July 1, 2006 through June 30, 

2007, to account for the estimated cost 

of the transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal rate) 

in RY 2007. Furthermore, in that same 

final rule (71 FR 27841), we explained 

that we are no longer projecting a small 

cost for the 2008 LTCH PPS rate year 

(July 1, 2007 through June 30, 2008) 

even though some LTCHs will have a 

cost reporting period for the 5th year of 

the transition period which will be 

concluding in the first 3 months of the 

2008 LTCH PPS rate year. This is 

because, based on the most available 

data, we are projecting that the vast 

majority of LTCHs would have made the 

election to be paid based on 100 percent 

of the Federal rate rather than the 

transition blend which would result in 

a negligible cost to the Medicare 

program. In fact, as discussed in the RY 

2008 LTCH PPS proposed rule (72 FR 

4802), based on the most recent 

available data at that time from the July 

2006 update of the PSF, we continue to 

estimate that nearly all (over 98 percent) 

LTCHs are currently being paid based 

on 100 percent of the Federal rate 

(rather than the transition blend 

methodology). Even for those few 

remaining LTCHs paid under the 

transition blend methodology set forth 

at § 412.533(a), the majority of their 

LTCH PPS payments are now based on 

at least 80 percent of the Federal rate 

and 20 percent of the reasonable cost 

amount (for cost reporting periods 

beginning during FY 2006) since there 

are no longer any LTCHs in their cost 

reporting periods that began during FY 

2003 through FY 2005 (the first three 

years of the 5-year transition period). 

Therefore, in that same proposed rule, 

we explained that we continue to 

believe that there would be no 

measurable estimated cost to the 

Medicare program due to the transition 

period methodology (including the 

option to elect payment based on 100 

percent of the Federal rate) in RY 2008. 

Accordingly, we did not propose a 

transition BN offset to all LTCH PPS 

payments for discharges occurring on or 

after July 1, 2007 through June 30, 2008, 

to account for the estimated cost of the 

transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal rate, 

since some LTCHs may still be paid 

under the 4th year of the transition 

blend methodology, specified at 

§ 412.533, for the first 3 months of RY 

2008) in RY 2008. 

We received no comments on this 

proposal, and based on the most recent 

available data from the December 2006 

update of the PSF, we continue to 

estimate that nearly all (over 98 percent) 

LTCHs are currently being paid based 

on 100 percent of the Federal rate 

(rather than the transition blend 

methodology). Therefore, we continue 

to believe that there would be no 

measurable estimated cost to the 

Medicare program due to the transition 

period methodology (including the 

option to elect payment based on 100 

percent of the Federal rate) in RY 2008. 

Accordingly, in this final rule, based on 

updated data and using the same 

methodology established in the August 

30, 2002 final rule (67 FR 56034), we are 

not implementing a transition BN offset 

to all LTCH PPS payments for 

discharges occurring on or after July 1, 

2007 through June 30, 2008, to account 

for the estimated cost of the transition 

period methodology (including the 

option to elect payment based on 100 

percent of the Federal rate, since some 

LTCHs may still be paid under the 4th 

year of the transition blend 

methodology, specified at § 412.533, for 

the first 3 months of RY 2008) in RY 

2008. 

6. One-Time Prospective Adjustment to 

the Standard Federal Rate. 

As we discussed in the August 30, 

2002 LTCH PPS final rule (67 FR 

56036), consistent with the statutory 

requirement for BN in section 123(a)(1) 

of the BBRA, we estimated aggregate 

payments under the LTCH PPS for FY 

2003 to be equal to the estimated 

aggregate payments that would be made 

if the LTCH PPS were not implemented. 

Our methodology for estimating 

payments for purposes of the BN 

calculations used the best available data 

at the time and necessarily reflected 

assumptions. As the LTCH PPS 

progresses, we are monitoring payment 

data and will evaluate the ultimate 

accuracy of the assumptions used in the 

BN calculations (for example, inflation 

factors, intensity of services provided, 

or behavioral response to the 

implementation of the LTCH PPS) 

described in the August 30, 2002 LTCH 

PPS final rule (67 FR 56027 through 

56037). To the extent these assumptions 

significantly differ from actual 

experience, the aggregate amount of 

actual payments may turn out to be 

significantly higher or lower than the 

estimates on which the BN calculations 

were based. 

Section 123(a)(1) of the BBRA as 

amended by section 307(b) of BIPA 

provides broad authority to the 

Secretary in developing the LTCH PPS, 

including the authority for establishing 

appropriate adjustments. Under this 

broad authority to make appropriate 

adjustments, as implemented in the 

existing § 412.523(d)(3) (as revised in 

the RY 2007 LTCH PPS final rule), we 

have provided for the possibility of 

making a one-time prospective 

adjustment to the LTCH PPS rates by 

July 1, 2008, so that the effect of any 

significant difference between actual 

payments and estimated payments for 

the first year of the LTCH PPS would 

not be perpetuated in the LTCH PPS 

rates for future years. 

In the RY 2007 LTCH PPS final rule 

(71 FR 27842), based on the best 

available data at that time, we estimated 

that total Medicare program payments 

for LTCH services over the next 5 LTCH 

PPS rate years would be $5.27 billion 

for the 2007 LTCH PPS rate year; $5.43 

billion for the 2008 LTCH PPS rate year; 

$5.63 billion for the 2009 LTCH PPS 

rate year; $5.86 billion for the 2010 

LTCH PPS rate year; and $6.13 billion 


ycherry on PROD1PC64 with RULES2
26902 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

for the 2011 LTCH PPS rate year. In the 

RY 2008 LTCH PPS proposed rule (72 

FR 4802 through 4803), based on the 

best available data at that time, we 

estimated that total Medicare program 

payments for LTCH services over the 

next 5 LTCH PPS rate years would be 

$4.65 billion for the 2008 LTCH PPS 

rate year; $4.84 billion for the 2009 

LTCH PPS rate year; $5.02 billion for 

the 2010 LTCH PPS rate year; $5.24 

billion for the 2011 LTCH PPS rate year; 

and $5.48 billion for the 2012 LTCH 

PPS rate year. 

In this final rule, consistent with the 

methodology established in the August 

30, 2002 final rule (67 FR 56036), based 

on the most recent available data, we 

estimate that total Medicare program 

payments for LTCH services for the next 

5 LTCH PPS rate years would be as 

shown in Table 4. 

TABLE 4 

LTCH PPS rate year Estimated payments 

($ in billions) 

2008 .......................... $4.65 

2009 .......................... 4.85 

2010 .......................... 5.04 

2011 .......................... 5.25 

2012 .......................... 5.50 

In accordance with the methodology 

established in the August 30, 2002 

LTCH PPS final rule (67 FR 56037), 

these estimates are based on the most 

recent available data, including the 

projection that nearly all LTCHs will be 

paid based on 100 percent of the LTCH 

PPS standard Federal rate during the 

majority of RY 2008 (in accordance with 

the transition blend percentages set 

forth at § 412.533(a)). These estimates 

are also based on our estimate of LTCH 

PPS rate year payments to LTCHs using 

CMS’s Office of the Actuary’s (OACT) 

most recent estimate of the RPL market 

basket of 3.2 percent for the 2008 LTCH 

PPS rate year, 3.2 percent for the 2009 

LTCH PPS rate year, 2.8 percent for the 

2010 LTCH PPS rate year, 3.1 percent 

for the 2011 LTCH PPS rate year, and 

3.2 percent for the 2012 LTCH PPS rate 

year. (We note that OACT develops its 

spending projections based on existing 

policy. Therefore, changes that have not 

yet been implemented are not reflected 

in the spending projections shown in 

this section.) We also considered 

OACT’s most recent projections of 

changes in Medicare beneficiary 

enrollment that estimate a change in 

Medicare fee-for-service beneficiary 

enrollment of ¥0.1 percent in the 2008 

LTCH PPS rate year, 0.7 percent in the 

2009 LTCH PPS rate year, 0.3 percent in 

the 2010 LTCH PPS rate year, 0.6 

percent in the 2011 LTCH PPS rate year, 

and 1.1 percent in the 2012 LTCH PPS 

rate year. 

In the August 30, 2002 LTCH PPS 

final rule implementing the LTCH PPS 

(67 FR 55954), we set forth the 

implementing regulations, based upon 

the broad authority granted to the 

Secretary, under section 123 of the 

BBRA as amended by section 307(b) of 

the BIPA. Section 123(a)(1) of the BBRA 

required that the system ‘‘maintain 

budget neutrality’’ for FY 2003, that is, 

that estimated aggregate payments 

under the LTCH PPS would be projected 

to be equal to the estimated aggregate 

payments that would be made if the 

LTCH PPS would not be implemented 

for FY 2003. The methodology for 

determining the LTCH PPS standard 

Federal rate for FY 2003 that would 

‘‘maintain budget neutrality’’ is 

described in considerable detail in the 

August 30, 2002 final rule (67 FR 56027 

through 56037). As we discussed in that 

same final rule, our methodology for 

estimating payments for the purposes of 

BN calculations used the best available 

data and necessarily reflects 

assumptions in estimating aggregate 

payments that would be made if the 

LTCH PPS was not implemented. We 

also stated our intentions to monitor 

LTCH PPS payment data to evaluate the 

ultimate accuracy of the assumptions 

used in the BN calculations (for 

example, inflation factors, intensity of 

services provided, or behavioral 

response to the implementation of the 

LTCH PPS). To the extent that those 

assumptions significantly differ from 

actual experience, the estimated 

aggregate amount of actual payments 

during FY 2003 may result in 

significantly higher or lower estimated 

payments than the estimates upon 

which the BN calculations were based. 

In that same final rule, the Secretary 

exercised his broad authority in 

establishing the LTCH PPS and 

provided for the possibility of a onetime prospective adjustment to the 

LTCH PPS rates by October 1, 2006, in 

§ 412.523(d)(3) (this deadline was 

revised to July 1, 2008, in the RY 2007 

LTCH PPS final rule). The purpose of 

that provision was to prevent any 

significant difference between actual 

payments and estimated payments for 

the 1st year of the LTCH PPS, when we 

established the budget neutral Federal 

rate as required by the statute (discussed 

previously), from being perpetuated in 

the PPS rates for future years. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27842 

through 27844), because the LTCH PPS 

was only recently implemented, 

sufficient new data had not been 

generated that would enable us to 

conduct a comprehensive reevaluation 

of our BN calculations. Therefore, in 

that same final rule, we did not 

implement a one-time adjustment under 

§ 412.523(d)(3) so that the effect of any 

significant difference between actual 

payments and estimated payments for 

the 1st year of the LTCH PPS would not 

be perpetuated in the PPS rates for 

future years. However, we stated that we 

will continue to collect and interpret 

new data as it becomes available in the 

future to determine if this adjustment 

should be proposed. Therefore, in the 

RY 2007 LTCH PPS final rule (71 FR 

27842), we revised § 412.523(d)(3) by 

changing the original October 1, 2006 

deadline (established in the August 30, 

2002 final rule that implemented the 

LTCH PPS) to July 1, 2008, to postpone 

the requirement due to the time lag in 

the availability of Medicare data upon 

which this adjustment would be based. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27843 

through 27844), we now believe that 

after the conclusion of the 5-year 

transition period, sufficient new data 

will be generated by the LTCH PPS for 

a comprehensive reevaluation of our FY 

2003 BN calculations. Specifically, we 

explained that the final year of the 5- 

year transition to LTCH PPS payments 

based on 100 percent of the Federal rate 

for all LTCHs will begin for cost 

reporting periods beginning on or after 

October 1, 2006 (FY 2007), and end with 

cost reporting periods beginning before 

October 1, 2007 (FY 2008). After the 

conclusion of the 5-year transition 

period (October 1, 2007), we expect to 

have between 3 and 4 years (FY 2003 

through FY 2006) of LTCH data 

generated since the implementation of 

the LTCH PPS. We note that there is a 

lag time between the submission of 

claims data and cost report data, and the 

availability of that data in the MedPAR 

files and HCRIS, respectively. Based on 

a comprehensive analysis of that data, 

we may then propose to make a onetime prospective adjustment to the 

LTCH PPS rates as provided for in 

§ 412.523(d)(3). As also explained in 

that same final rule, we believe that 

postponing the deadline of the possible 

one-time prospective adjustment to the 

LTCH PPS rates provided for in 

§ 412.523(d)(3) to July 1, 2008, would 

result in the availability of additional 

data generated under the LTCH PPS 

and, therefore, our decisions regarding a 

possible adjustment would be based on 

more complete and up-to-date data. This 

data would be reflective of LTCH 

behavior in response to the 

implementation of the LTCH PPS. 

Evaluating the appropriateness of the 

possible one-time prospective 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26903 

adjustment will entail a thorough 

review of the actual Medicare costs 

incurred by LTCHs during the first year 

of the LTCH PPS, that is, for LTCH cost 

reporting periods beginning on or after 

October 1, 2002 through September 30, 

2003. When we established the FY 2003 

standard Federal rate to be budget 

neutral, we used the most recent LTCH 

cost data available at that time, and 

trended that data forward to estimate 

what Medicare would have paid to 

LTCHs under the TEFRA payment 

system if the PPS were not implemented 

(67 FR 56033). Our methodology for 

estimating payments for the purposes of 

BN calculations, utilized the best 

available data and necessarily reflected 

assumptions in estimating aggregate 

payments that would have been made 

had the LTCH PPS not been 

implemented. (The methodology for 

determining the LTCH PPS standard 

Federal rate for FY 2003 that would 

‘‘maintain budget neutrality’’ is 

described in considerable detail in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56027 through 56037).) In that 

same final rule (67 FR 56036), we also 

stated our intentions to monitor LTCH 

PPS data to evaluate the ultimate 

accuracy of the assumptions used in the 

BN calculations (for example, inflation 

factors, intensity of services provided, 

or behavioral response to the 

implementation of the LTCH PPS). To 

the extent that those assumptions 

significantly differed from actual 

experience, the aggregate amount of 

actual payments during FY 2003 could 

be significantly higher or lower than the 

estimates upon which the BN 

calculations were based. 

At the outset of the LTCH PPS, we 

provided for the possibility of a onetime prospective adjustment at 

§ 412.523(d)(3). Among other things, we 

wanted the opportunity to adjust the 

LTCH PPS Federal payment rate once 

data were available that reflected the 

actual cost-based payments that would 

have been made under the Medicare 

program during FY 2003 if the LTCH 

PPS had not been implemented, rather 

than perpetuate any significant 

difference between actual payments and 

estimated payments in the 1st year of 

the LTCH PPS used in determining the 

Federal rate into future years. Therefore, 

in the RY 2007 LTCH PPS final rule, we 

revised § 412.523(d)(3) to postpone the 

adjustment until July 1, 2008, because 

by that time, given the lag time typically 

involved in the entire cost report 

settlement procedure, we believe we 

will be able to utilize the most accurate 

data reflecting the actual costs incurred 

by LTCHs for cost reporting periods 

beginning during FY 2003. 

As we discussed in the RY 2008 

LTCH PPS proposed rule (72 FR 4804), 

we continue to believe that collecting 

and evaluating new data as it becomes 

available will allow us to have the best 

data from the first year of the LTCH PPS 

upon which to base an adjustment such 

as this. As we explained in the RY 2007 

LTCH PPS final rule (71 FR 27844), 

there are many LTCHs with cost 

reporting periods from September 1 

through August 30 which first became 

subject to the LTCH PPS on September 

1, 2003. Given the lag time required for 

typical cost report settlement involving 

submission, desk review, and in some 

cases an audit, which can take 

approximately 2 additional years to 

complete (and we expect to audit a 

number of LTCH cost reports for the 

purpose of this analysis), we explained 

that the October 1, 2006 deadline 

established § 412.523(d)(3) was no 

longer reasonable or realistic. In fact, we 

believe that for cost reports for 

providers on August 2004 fiscal year 

ending date, we would be in possession 

of the most reliable cost report data, 

indicating the actual costs of the 

Medicare program of the LTCH PPS 

during the year in which we established 

the Federal payment rate by July 2007. 

Any proposed adjustment under 

§ 412.523(d)(3), if finalized could then 

be implemented on July 1, 2008. 

Therefore, in the RY 2008 LTCH PPS 

proposed rule, we did not propose to 

make a one-time adjustment under 

§ 412.523(d)(3) since we believe that we 

still do not have sufficient new data to 

enable us to conduct a comprehensive 

reevaluation of our FY 2003 BN 

calculations (as discussed in greater 

detail above in this section). 

Comment: We received a few 

comments in support of waiting another 

year (that is, until RY 2009) to make the 

one-time BN adjustment to benefit from 

the availability of better data. However, 

some other commenters noted that 

considering all of the payment 

adjustments we have made to the LTCH 

PPS since it was implemented on 

October 1, 2002, there is no need for a 

one-time BN adjustment to ensure that 

aggregate payments under the LTCH 

PPS would equal approximately the 

amount that would have been paid to 

LTCHs under TEFRA had the LTCH PPS 

not been implemented. 

Response: We agree with the 

commenters that any one-time 

adjustment under § 412.523(d)(3) should 

be based on the most complete and upto-date data available for a 

comprehensive analysis of the actual 

Medicare costs incurred by LTCHs 

during the first year of the LTCH PPS. 

As discussed in greater detail above, 

given the lag time required for typical 

cost report settlement and the lag time 

in data availability, after the conclusion 

of the 5-year transition period (October 

1, 2007), we expect to have between 3 

and 4 years (FY 2003 through FY 2006) 

of LTCH data generated since the 

implementation of the LTCH PPS. 

Specifically, we expect that we will be 

in possession of the most reliable cost 

report data, indicating the actual costs 

of the Medicare program of the LTCH 

PPS during the year in which we 

established the standard Federal base 

payment rate by July 2007, and any 

proposed adjustment under 

§ 412.523(d)(3), if finalized could then 

be implemented on July 1, 2008. 

We recognize that there have been 

many changes to the payment rates and 

policies under the LTCH PPS since its 

implementation over 5 years ago. Many 

of these changes have been 

implemented as a result of our on-going 

monitoring of LTCH data and changes in 

LTCHs’ behavior in response to the 

implementation of the LTCH PPS. As 

discussed above, the purpose of the onetime adjustment under § 412.523(d)(3) is 

to prevent any significant difference 

between actual payments and estimated 

payments from the first year of the 

LTCH PPS, when we established the 

budget neutral Federal rate as required 

by the statute, from being perpetuated in 

the PPS rates for future years. As 

discussed above, our methodology for 

estimating payments for the purposes of 

BN calculations when the LTCH PPS 

was implemented used the best 

available data and necessarily reflects 

assumptions in estimating aggregate 

payments that would be made if the 

LTCH PPS was not implemented. To the 

extent that those assumptions 

significantly differ from actual 

experience, the aggregate amount of 

actual payments may result in 

significantly higher or lower payments 

than the estimates upon which the BN 

calculations were based. Therefore, we 

established in regulations at 

§ 412.523(d)(3) the possibility of a onetime prospective adjustment to the 

LTCH PPS rates to prevent any 

significant difference between actual 

payments and estimated payments from 

being perpetuated in the LTCH PPS 

rates for future years (as described in 

greater detail above in this section). 

Among the changes that have been 

made to the LTCH PPS since its 

implementation include updates to the 

standard Federal rate as set forth under 

§ 412.523(c)(3). We note that we will 

take into consideration such changes 


ycherry on PROD1PC64 with RULES2
26904 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

when we evaluate the most recent 

complete available data for the purposes 

of determining whether to propose a 

one-time prospective adjustment to the 

LTCH PPS rates under § 412.523(d)(3) in 

the RY 2009 proposed rule. 

For the reasons discussed in this 

section, we believe that we still do not 

have sufficient new data to enable us to 

conduct a comprehensive reevaluation 

of our FY 2003 BN calculations. 

Accordingly, in this final rule, we are 

not making a one-time adjustment under 

§ 412.523(d)(3) at this time. 

V. Other Policy Changes for the 2008 

LTCH PPS Rate Year 

A. Short Stay Outlier (SSO) Cases 

1. Background 

In the Prospective Payment System 

for LTCHs: Implementation and FY 

2003 Rates final rule (67 FR 55954, 

August 30, 2002) (hereinafter referred to 

as the FY 2003 LTCH PPS final rule), 

under § 412.529, we established a 

special payment policy for SSO cases, 

that is cases with a covered LOS that is 

less than or equal to five-sixths of the 

geometric average LOS for each LTC–

DRG. When we established the SSO 

policy, we explained in the FY 2003 

LTCH PPS final rule that ‘‘[a] short-stay 

outlier case may occur when a 

beneficiary receives less than the full 

course of treatment at the LTCH before 

being discharged.’’ (67 FR 55995) Also 

in the FY 2003 LTCH PPS final rule, we 

stated that when we first described the 

policy, in the Prospective Payment 

System for LTCHs: Implementation and 

FY 2003 Rates proposed rule (67 FR 

55995, March 27, 2002), ‘‘* * * we 

based the proposed policy on the belief 

that many of these patients could have 

been treated more appropriately in an 

acute hospital subject to the acute care 

hospital inpatient prospective payment 

system’’. Therefore, under the LTCH 

PPS, we implemented a special payment 

adjustment for SSO cases. Under the 

original SSO policy, for LTCH PPS 

discharges with a covered LOS of up to 

and including five-sixths the geometric 

average LOS for the LTC–DRG, we 

adjusted the per discharge payment 

under the LTCH PPS by the least of 120 

percent of the estimated cost of the case, 

120 percent of the LTC–DRG specific 

per diem amount multiplied by the 

covered LOS of that discharge, or the 

full LTC–DRG payment 67 FR 55995 

through 56000). 

As noted previously, generally LTCHs 

are defined by statute as having an 

ALOS of greater than 25 days. We stated 

that we believed that the SSO payment 

adjustment results in more appropriate 

payments, since these cases most likely 

did not receive a full course of a LTCHlevel of treatment in such a short period 

of time and the full LTC–DRG payment 

would generally not be appropriate. 

Payment-to-cost ratio analyses indicated 

that if LTCHs received a full LTC–DRG 

payment for those cases, they would 

have been significantly ‘‘overpaid’’ for 

the resources they have actually 

expended in treating those patients (67 

FR 55995 through 56000). 

Furthermore, in establishing the SSO 

policy, we stated that we believed that 

providing a reduced payment for SSO 

cases would discourage hospitals from 

admitting these patients. We also 

believed that the policy did not severely 

penalize providers that, in good faith, 

had admitted a patient and provided 

some services before realizing that the 

beneficiary could receive more 

appropriate treatment at another site of 

care. As we explained in the FY 2003 

LTCH PPS final rule, establishing a SSO 

payment for these types of cases 

addresses the incentives inherent in a 

discharge-based PPS for LTCHs for 

treating patients with a short LOS (67 

FR 55995 through 56000). 

2. Additional Discussion of the SSO 

Payment Formula 

In the FY 2003 LTCH PPS final rule, 

when we first presented our rationale 

for establishing the SSO policy, we had 

proposed an adjustment to ensure 

appropriate payment for cases that we 

believed may have been transferred 

from an acute hospital prematurely. 

Even if a patient was an appropriate 

admission to the LTCH, we also 

believed that a short stay case at a LTCH 

most likely did not receive a full course 

of medical treatment during the short 

stay and that a full LTC–DRG payment 

would therefore, be inappropriate (67 

FR 55995 through 56000). 

In keeping with these concerns, and 

based on an evaluation of data from 

more than 3 years of the LTCH PPS, 

which revealed that a large percentage 

of SSOs had a covered LOS of 14 days 

or less, we revised our payment policy 

for SSO cases in the RY 2007 LTCH PPS 

final rule for subclause (I) LTCHs (71 FR 

27845 through 27870). 

Consistent with the Secretary’s broad 

authority ‘‘to provide for appropriate 

adjustments to the long-term hospital 

payment system * * *’’ established 

under section 123 of the BBRA as 

amended by section 307(b)(1) of BIPA, 

for RY 2007, we reduced the cost-based 

option of the SSO policy adjustment to 

100 percent of the estimated costs of the 

case for discharges occurring on or after 

July 1, 2006. We believed that by 

reducing the Medicare payment to a 

LTCH for a specific SSO case so that it 

would not exceed the estimated costs 

incurred for that case, we would be 

removing what we believed could be a 

financial incentive to admit and treat 

SSO cases that the then existing policy 

had established for LTCHs. We did not 

change the payment option of 120 

percent of the per diem for a specific 

LTC–DRG multiplied by the covered 

LOS for that case because as described 

in detail in the FY 2003 final rule LTCH 

PPS, when we first established the SSO 

policy, we found that by adjusting the 

per discharge payment by paying at 120 

percent of the per diem LTC–DRG 

payment, once a stay reaches five-sixths 

of the geometric average LOS for the 

LTC–DRG, the full LTC–DRG payment 

will have been made (67 FR 55999). We 

continue to believe that this specific 

methodology, which results in a gradual 

increase in payment as the LOS 

increases without producing a 

significant payment ‘‘cliff’’ at any one 

point, provides a reasonable payment 

option under the SSO policy. 

However, an analysis of the FY 2004 

MedPAR data indicated that even under 

the existing SSO policy, LTCHs were 

admitting short stay patients that we 

believe could have continued treatment 

at the acute care hospitals (paid for 

under the IPPS) but could have been 

actually being prematurely discharged 

to LTCHs. Therefore, in the RY 2007 

LTCH PPS final rule, we added a fourth 

payment option. This fourth payment 

alternative, a blend of an LTCH PPS 

amount that is comparable to the IPPS 

per diem payment amount, and 120 

percent of the LTC–DRG per diem 

payment amount, as described below in 

this section, reflects our belief that as 

the length of a SSO stay increases, the 

case begins to resemble a more ‘‘typical’’

LTCH stay and, therefore, it is 

appropriate that incrementally, payment 

should be based more on what would 

otherwise be payable under the LTCH 

PPS and less on the IPPS-comparable 

amount. (Specifics of calculating the 

IPPS-comparable amount are set forth in 

considerable detail in the RY 2007 

LTCH PPS final rule (71 FR 27852 

through 27853). 

We noted at the outset of the LTCH 

PPS for FY 2003, that the LTCH 

standard rate was calibrated based on 

LTCH resources expended in treating a 

patient population requiring long stays. 

Therefore, in establishing the SSO 

policy at the beginning of the LTCH 

PPS, we determined that it was 

appropriate that we not pay a full LTC–

DRG payment for a patient stay not 

requiring those resources (67 FR 55995 

through 56000). Our revision of the 

payment formula for SSOs for RY 2007 

reflected our belief that where a case 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26905 

met our definition of a SSO at 

§ 412.529(a), as the covered LOS 

increased, the case began to more 

closely resemble a characteristic LTCH 

case (and less like a short term acute 

care hospital case). Therefore, it was 

appropriate to base an increasing 

percentage of payment for SSOs on the 

LTC–DRG payment amount and a 

decreasing percentage of the LTCH PPS 

payment amount based upon the IPPScomparable amount. 

We continue to believe that in 

defining a LTCH as a hospital with an 

inpatient ALOS of greater than 25 days 

in section 1886(d)(1)(B)(iv)(I) of the Act, 

that the Congress was focusing on LOS 

as the essential characteristic of this 

provider category. Furthermore, we 

believe that the statutory change 

requiring the establishment of the LTCH 

PPS emphasized that the payment 

system should reflect the different 

resource use related to inpatient 

hospital services provided by hospitals 

specified by section 1886(d)(1)(B)(iv) of 

the Act, that is, by LTCHs (71 FR 

27865). Specifically, we believe that the 

language of the statute indicates that the 

Congress believed that LTCHs treat or 

should be treating patients with 

different medical needs which results in 

those patients having a significantly 

longer LOS than those acute care 

hospital patients that we pay for under 

the IPPS. 

In section 4422 of the BBA of 1997, 

which required that the Secretary 

develop a legislative proposal for the 

establishment of a PPS for LTCHs, the 

Congress specified that the system 

‘‘shall include an adequate patient 

classification system that reflects the 

differences in patient resource use and 

costs among such hospitals.’’ Section 

123 of the BBRA of 1999, which 

required implementation of a PPS for 

LTCHs for cost reporting periods 

beginning on or after October 1, 2002, 

specified, among other things, that the 

system be a per discharge payment 

system, based on diagnosis-related 

groups (DRGs), and ‘‘reflects the 

differences in patient resource use and 

costs’’ of LTCH patients. Section 307(b) 

of the BIPA of 2000 required the 

Secretary ‘‘to examine the feasibility 

and the impact of basing payment under 

such a system on the use of existing (or 

refined) hospital DRGs that have been 

modified to account for different 

resource use of LTCH patients.’’

When we developed the LTCH PPS 

for FY 2003, the most recently available 

MedPAR data (generally, for FYs 1998 

and 1999) revealed that 52 percent of 

the Medicare patients at LTCHs 

nationwide had a LOS of less than twothirds of the ALOS for the LTC–DRG to 

which they were grouped. Of these 

cases, 20 percent had stays of less than 

8 days. Since payments under the LTCH 

PPS were based on the resources 

necessary for treatment requiring long 

term hospital-level stays, beginning 

with the start of the LTCH PPS, we 

established the SSO policy, to provide 

appropriate payment for stays that were 

significantly shorter than the ALOS for 

each specific LTC–DRG. 

The original SSO policy focused on 

our concerns that a SSO patient would 

generally receive less than the full 

course of treatment at the LTCH before 

being discharged and a full LTC–DRG 

payment would not be appropriate (67 

FR 55943, 55995 through 55996). As we 

noted in the RY 2007 LTCH PPS final 

rule, when we revised the SSO policy 

based on our analysis of the nearly 3 

years of data since we designed the 

LTCH PPS, we believed that our SSO 

policy should reflect our conviction that 

many SSO patients could otherwise 

have continued to receive appropriate 

care in the acute care hospital from 

which they were admitted. Had these 

patients not been discharged from the 

acute care hospital, the additional days 

of treatment would have continued to 

have been paid for under the IPPS (71 

FR 27845 through 27865). 

Section 123 of the BBRA, as amended 

by section 307(b) of the BIPA, confers 

broad authority on the Secretary to 

implement a PPS for LTCHs, including 

provisions for appropriate adjustments 

to the payment system. This broad 

authority gives the Secretary flexibility 

to fashion a LTCH PPS based on both 

original policies, as well as concepts 

borrowed from other payment systems 

that are adapted, where appropriate to 

the LTCH context. In the RY 2007 LTCH 

PPS final rule, we formulated a payment 

adjustment under the LTCH PPS that we 

believed would result in an appropriate 

payment adjustment for those inpatient 

stays that we believe are not 

characteristic of LTCHs but could more 

appropriately be treated in another 

setting. 

Subsequent to the RY 2007 LTCH PPS 

final rule, we have performed additional 

analysis of more recent data FY 2005 

MedPAR data, and have determined that 

42 percent of LTCH SSO discharges, or 

approximately 19,750 cases, had lengths 

of stay that were less than or equal to 

the average LOS plus one standard 

deviation of an IPPS discharge that is 

the same DRG as the LTC–DRG to which 

the case was assigned. (One standard 

deviation is a statistical test which 

measures the certainty of the average of 

a set of measurements for the purpose 

of data analysis. The standard deviation 

is the quantity commonly used by 

statisticians to measure the variation in 

a data set.) We believe that it is 

appropriate to compare the covered LOS 

of a LTCH case grouped to a particular 

LTC–DRG to the ALOS plus one 

standard deviation for the 

corresponding DRG under the IPPS. At 

one standard deviation, we have 

identified approximately 68 percent of 

the IPPS cases within that DRG that 

were discharged from acute care 

hospitals and paid for under the IPPS. 

Using the statistical test of one standard 

deviation of the ALOS for each DRG 

under the IPPS, identifies the majority 

of IPPS discharges in any DRG. 

We believe that the 42 percent of 

LTCH SSO cases in the RY 2005 

MedPAR files with lengths of stay that 

are equal to or less than the IPPS ALOS 

plus one standard deviation for the 

same DRGs under the IPPS appear to be 

comparable to typical stays at acute care 

hospitals. 

Although LTCHs are certified by 

Medicare as acute care hospitals, we 

believe that the Congress intended for 

the higher LTCH PPS payments to be 

made to LTCHs that treat patients 

requiring prolonged hospital-level care. 

Payments under the LTCH PPS, in 

compliance with the statutory 

mandates, have been calibrated based 

on ‘‘the different resource use’’ of 

LTCHs. We believe that we are 

‘‘overpaying,’’ under the LTCH PPS, for 

those SSO cases in LTCHs with covered 

lengths of stay that are equal to or less 

than the typical IPPS ALOS (that is, a 

LOS that is less than or equal to the 

average IPPS LOS plus one standard 

deviation for the same DRG under the 

IPPS). 

We further believe that in excluding 

LTCHs from being paid under the IPPS, 

the Congress also recognized several 

types of hospital-level providers that 

offered a different type of treatment than 

could reasonably be paid for under the 

IPPS. Specifically, in the FY 2002 LTCH 

PPS final rule, we reviewed the history 

of LTCHs as hospitals excluded from the 

IPPS. At that time we quoted the 

legislative history of the 1983 Social 

Security Amendments which stated, 

with regard to LTCHs, that the ‘‘DRG 

system was developed for short-term 

acute care general hospitals and as 

currently constructed does not 

adequately account for special 

circumstances of diagnoses requiring 

long stays’’ (Report of the Committee on 

Ways and Means, U.S. House of 

Representatives, to Accompany HR 

1900, H.R. Rept. No. 98025, at 141 

(1983) (67 FR 55957)). Therefore, from 

the very outset of the IPPS, the Congress 

distinguished LTCHs from short term 

acute care hospitals by patients’ lengths 


ycherry on PROD1PC64 with RULES2
26906 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

of stay. The PPS for LTCHs that we 

implemented in FY 2003, complied 

with the statutory mandate, cited above 

in this section, that payments under the 

LTCH PPS be calibrated based on ‘‘the 

different resource use’’ of these longstay LTCH patients. Consequently, as 

we stated in the RY 2007 LTCH PPS 

final rule, we believe that ‘‘LTCHs that 

admit SSO patients with lengths of stay 

more typical of an acute care hospital 

may be, in fact, behaving like acute care 

hospitals’’ (71 FR 27847), and we also 

believe that it is reasonable for 

payments under the LTCH PPS for such 

cases to reflect this behavior. 

MedPAR data indicate that for the 

approximately 350 LTCHs in existence 

during FY 2005 that discharged 

approximately 130,000 cases, 46,600 

discharges were SSO patients. During 

that same period, the approximately 

3,600 acute care hospitals throughout 

the United States discharged 

approximately 12.7 million Medicare 

beneficiaries. At the approximately 

3,600 acute care hospitals, treatment for 

Medicare patients is paid for under the 

IPPS, including those cases with a LOS 

that is the same as the LOS for SSO 

treated at a LTCH. However at a LTCH, 

even under the blend payment option of 

the SSO policy that we established for 

RY 2007, a percentage of the payment 

for those short stay patients at LTCHs 

may be based on a payment rate that 

was calculated to reflect the ‘‘different 

resource use’’ at LTCHs as compared to 

payment based on DRGs at acute care 

hospitals paid for under the IPPS. We 

believe that based on this analysis under 

the existing SSO policy for short stay 

patients where the patient’s LOS is less 

than or equal to the average LOS plus 

one standard deviation for the same 

DRG at an acute care hospital, paid for 

under the IPPS, our blended payment 

methodology could result in an 

excessive payment. 

Our data further indicates that 

typically LTCHs admit approximately 

80 percent of their patients from acute 

care hospitals where their urgent 

conditions have been diagnosed, 

treated, and stabilized. We believe that 

when these patients are admitted to a 

LTCH for an extremely short stay, the 

LTCH appears to be serving as a stepdown unit of the acute care hospital (71 

FR 27857 through 27858). (Section 

1886(d)(1)(B) of the Act, provides for the 

establishment of rehabilitation and 

psychiatric units of section 1886(d) 

hospitals (that is, acute care hospitals 

paid for under the IPPS) but not LTCH 

units.) 

As we stated in the RY 2007 LTCH 

PPS final rule, ‘‘* * * an analysis of the 

CY 2004 MedPAR files revealed that for 

specified DRGs for acute care cases 

following ICU/CCU days, there were 

significantly fewer ‘recuperative’ days 

(nearly 50 percent) for acute care outlier 

patients that were discharged from the 

acute care hospital and then admitted to 

a LTCH than for those patients that were 

discharged from the acute care hospital 

and not subsequently admitted to a 

LTCH. For example, under the IPPS for 

DRG 475 (Respiratory system diagnosis 

with ventilator support) and DRG 483 

(Trach with mechanical vent 96+ hours 

or PDX except face, mouth and neck 

diagnosis), the number of ‘recuperative’

days were considerably shorter at the 

acute care hospital if there was a 

discharge at the acute care hospital 

followed by an admission to a LTCH.’’

(71 FR 27857) The data in Table 5 is 

consistent with our belief that many 

LTCHs appear to be admitting some 

SSO patients that could have received 

the care at the acute care hospital. 

TABLE 5.—HCO LOS, ICU/CCU LOS, AND POST-ICU/CCU LOS FOR SELECTED INPATIENT DRGS BY POST-DISCHARGE

STATUS

[Live discharges only] 

DRG Cases LOS 

Outlier 

ICU/CCU 

days 

Post ICU/ 

CCU days 

475 (no LTCH) ............................................................................................................................. 3,887 32.5 20 .5 12 

475 (with LTCH) .......................................................................................................................... 515 29.6 22 .6 7 

483 (no LTCH) ............................................................................................................................. 3,257 73.6 53 .6 20 

483 (with LTCH) .......................................................................................................................... 2,353 45.7 41 4 .7 

In our analysis of what we believe are 

excessive payments under the existing 

LTCH PPS for the shortest SSOs, we 

focused on those SSO cases where a 

LTCH patient’s covered LOS at the 

LTCH is less than or equal to the ALOS 

plus one standard deviation for the 

same DRG at acute care hospitals (the 

‘‘IPPS comparable threshold’’) and 

distinguishing between those SSO cases 

with lengths of stay that are less than or 

equal to the ‘‘IPPS comparable 

threshold’’ from those that exceed that 

threshold. 

For the purposes of this discussion, 

whether the LTCH SSO case is within 

the ‘‘IPPS comparable threshold’’ is 

determined by comparing the covered 

LOS of that SSO case which has been 

assigned to a particular LTC–DRG to the 

ALOS for the same DRG under the IPPS. 

For example, if the covered LOS of the 

LTCH SSO case is equal to or less than 

the average LOS plus one standard 

deviation for the same DRG under the 

IPPS, the LTCH SSO case would be 

within the ‘‘IPPS comparable 

threshold.’’ In the RY 2008 LTCH PPS 

proposed rule, we stated that an 

alternative payment option would be 

appropriate for such a case. We 

indicated that we were considering the 

following approach: in cases where the 

covered LOS was equal to or less than 

the ‘‘IPPS comparable threshold’’

(defined above in this section) of the 

same DRG under the IPPS, the SSO 

payment methodology could be revised 

so that payment would be based upon 

the least of 100 percent of estimated 

costs of the case as determined under 

§ 412.529(d)(2); 120 percent of the LTC–

DRG per diem multiplied by the covered 

LOS of the case as determined under 

§ 412.529(d)(1); the Federal prospective 

payment for the LTC–DRG as 

determined under § 412.529(d)(3); or an 

LTCH PPS amount comparable to the 

IPPS per diem amount as defined at 

§ 412.529(d)(4), not to exceed the full 

IPPS comparable amount. 

We noted that the RTI Report 

discussed in Section XI. of the RY 2008 

LTCH PPS proposed rule (72 FR 4818) 

included an RTI recommendation that 

‘‘* * * for LTCH cases whose LOS is 

within 1 standard deviation of the IPPS 

average LOS, LTCHs should be paid the 

IPPS rate. When this occurs, it suggests 

that LTCH is providing general acute 

care for these patients. This will allow 

LTCHs to treat these cases but be paid 

on an equitable basis with other acute 

hospitals since the shorter length stay 

would suggest general acute treatment is 

being provided.’’ (Recommendation 11, 

p. 139) (We also included the Executive 

Summary of the RTI Report as 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26907 

Addendum B in the RY 2008 LTCH PPS 

proposed rule (72 FR 4884).) 

Under the approach that we discussed 

in the RY 2008 LTCH PPS proposed 

rule, SSO cases with covered lengths of 

stay exceeding the ‘‘IPPS comparable 

threshold’’ would continue to be paid 

under the existing SSO payment policy 

at § 412.529(c)(2) which is the least of: 

100 percent of the estimate cost of the 

case as determined under § 412.529 

(d)(2); 120 percent of the per diem of the 

LTC–DRG multiplied by the covered 

LOS of the case as determined under 

§ 412.529(d)(1); the Federal prospective 

payment for the LTC–DRG as 

determined under § 412.529(d)(3); or a 

blend of the 120 percent of the LTC–

DRG specific per diem amount and an 

amount comparable to the IPPS per 

diem amount as set forth in § 412.529 

(c)(2)(iv). (The methodology for the 

calculation of these amounts is specified 

at § 412.529(d).) 

However, for the shortest SSO cases 

(that is, if the LTCH patient’s covered 

LOS is less than or equal to the ‘‘IPPScomparable threshold’’), the IPPS 

comparable per diem amount, capped at 

the full IPPS comparable amount that is 

used under the blend option of the 

current SSO policy, could be the fourth 

payment option in the SSO payment 

formula, replacing the blend option in 

the adjusted LTCH PPS payment 

formula at existing § 412.529(c)(2)(iv). 

We indicated that we believed this 

approach to be appropriate because it 

would continue to ensure that the LTCH 

PPS payments are appropriate for all 

cases; including those with a LOS that 

resemble cases typically treated at acute 

care hospitals. 

However, we also indicated that, in 

considering this policy direction, we 

did not believe that this approach for 

SSOs would be appropriate for the 

specific situation of a subsection (II) 

LTCH (that is, a LTCH meeting the 

definition specified in section 

1886(d)(1)(B)(iv)(II) of the Act). We have 

addressed the uniqueness of this type of 

LTCH in several notices ((62 FR 45966, 

46016, and 46026), (67 FR 55954 and 

55974), (68 FR 34147 through 34148) 

(71 FR 27863)). We believe that 

subclause (II) LTCHs operate under a 

unique Congressional mandate which, 

as set forth in section 

1886(d)(1)(B)(iv)(II) of the Act, 

circumscribes such a LTCHs’ admission 

policies to the extent that it is being 

identified as a LTCH in order to provide 

a particular type of service (for which 

the ALOS is greater than 20 days) to a 

particular population (at least 80 

percent have a principal diagnosis of 

neoplastic disease) (68 FR 34147). 

Therefore, in the RY 2008 LTCH PPS 

proposed rule (72 FR 4807), we 

indicated that exempting subsection (II) 

LTCHs under this approach is 

consistent with positions regarding the 

application of SSO policies to subclause 

(II) LTCHs. For example, in RY 2004, we 

provided a distinctive phase-in formula 

for subclause (II) LTCHs (§ 412.529(e)), 

and in the RY 2007 LTCH PPS final 

rule, we did not apply SSO policy 

revisions for subclause (I) LTCHs 

(§ 412.529(c)(2)) to subclause (II) LTCHs 

((68 FR 34122, 34147 through 34148) 

(71 FR 27798, 27863)). 

To encourage a thorough and accurate 

evaluation of this approach, we 

included a column in Table 3 of 

Addendum A of the RY 2008 LTCH PPS 

proposed rule (72 FR 4872 through 

4884), which set forth the IPPScomparable threshold for each LTC–

DRG. We noted that to determine the 

‘‘IPPS Comparable Threshold’’ for some 

DRGs it was sometimes necessary to 

supplement IPPS hospital statistical 

data due to a low volume of IPPS cases 

grouped to those DRGs. In addition, 

although IPPS hospital statistical data 

for the six transplant DRGs (103, 302, 

480, 495, 512 and 513) and two error 

DRGs (469 and 470) may be available, 

we noted that we could assign a value 

of zero for the ‘‘IPPS Comparable 

Threshold’’ for these LTC–DRGs. This 

approach was consistent with our ongoing policy under the LTCH PPS to 

assign a value of 0.0000 to the relative 

weights for these LTC–DRGs, as 

discussed in section III.D of this final 

rule. 

As we detailed in this discussion, we 

are concerned as to whether it is 

appropriate to pay cases that have a 

covered LOS in the LTCH that is less 

than or equal to the IPPS ALOS plus one 

standard deviation for the same DRG 

more than would be paid under the 

IPPS for a similar case. In the RY 2008 

LTCH PPS proposed rule, we solicited 

comments on the approach described 

above, as well as suggestions as to 

alternative ways in which to address our 

concerns. 

We received many comments on the 

possible revision to the SSO policy that 

we discussed in the proposed rule. The 

commenters expressed the views of 

trade associations representing LTCHs, 

both for-profit and not-for-profit LTCH 

groups, medical corporations that 

include LTCHs, State medical societies, 

a Chamber of Commerce, legislators, 

physicians and other hospital staff, and 

several interested citizens. In general, 

commenters did not support the policy 

approach that we discussed and the 

payment effects that would result for 

LTCHs if the policy were adopted. 

Comment: A number of commenters 

stated that the IPPS-comparable option 

that we discussed for payment under 

the SSO policy would be a violation of 

the express will of the Congress in 

establishing the category of hospitals 

that were excluded from the IPPS under 

section 1886(d)(1)(B) of the Act. In 

addition, these commenters stated that 

under that provision the Congress 

acknowledged that these excluded 

hospitals (that is, LTCHs, IRFs, IPFs, 

childrens hospitals, and cancer 

hospitals) could not reasonably be paid 

under a PPS system that had been 

designed to pay for treatment in acute 

care hospitals. Further, these 

commenters stated that the approach we 

discussed would violate the intent of 

the Congress (that is, as expressed in the 

BBRA of 1999 and the BIPA of 2000) to 

establish a unique PPS that is specific 

to LTCHs. 

Some of these commenters claimed 

that the proposed IPPS-comparable 

option to the SSO payment policy 

would be forbidden under the statute 

because such a payment option would 

ignore the ‘‘differences in patient 

resource use and cost’’ at LTCHs. Some 

commenters criticized our use of the 

phrase ‘‘a payment otherwise 

comparable to what would have been 

paid under the IPPS’’ as a disingenuous 

attempt to ‘‘side-step’’ the Congressional 

mandate that the LTCHs not be paid 

based on the acute care IPPS. Generally, 

commenters expressed the view that, if 

we adopted the approach described in 

the RY 2008 LTCH PPS proposed rule, 

we would be violating the statutory 

intent that LTCHs be excluded from the 

IPPS in adopting the proposed IPPScomparable payment adjustment under 

the revised SSO policy. 

Some commenters specifically cited 

the Court’s two-prong test for validity of 

a regulation established under Chevron 

U.S.A., Inc. v. Natural Resources 

Defense Counsel, Inc. 467 U.S. 837, 

842–843 (1984), and asserted that the 

policy we discussed would fail to pass 

that test. Under the ruling, the Court 

asks whether the Congress addressed, in 

clear language, the issue in question 

and, if the answer is affirmative, the 

effect is given to the ‘‘unambiguously 

expressed intent of the Congress.’’ If the 

‘‘statute is silent or ambiguous with 

respect to the specific issue,’’ the 

Agency’s interpretation is allowed to 

stand as long as it is based on a 

permissible construction of the statute.’’

Id. at 843. Deference to the Agency’s 

interpretation is ‘‘only appropriate 

when the agency has exercised its own 

judgment’’ and is not based upon an 

erroneous view of the statute. 

Commenters asserted that the adoption 


ycherry on PROD1PC64 with RULES2
26908 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

of the revised SSO policy that we 

discussed would clearly violate the 

statutory requirement to pay LTCHs 

under a PPS separate and distinct from 

the IPPS. 

Response: We disagree with 

commenters’ contention that the LTCH 

PPS SSO policy that we described in the 

RY 2008 LTCH PPS proposed rule, 

based on an IPPS comparable payment 

amount, constitutes payment under the 

IPPS. Rather, the policy that we 

discussed adapts methodologies and 

approximate payment amounts from the 

IPPS to specific cases under the LTCH 

PPS. We have adapted many different 

features originally developed under the 

IPPS for use in the LTCH PPS, including 

the DRG structure, wage index 

adjustments (and wage index values), 

outlier payments, and many others. We 

believe that none of these adaptations 

constitute establishment of payment 

under the IPPS for LTCH hospitals. 

In addition, section 123 of the BBRA, 

as amended by section 307(b)(1) of the 

BIPA, confers broad discretionary 

authority on the Secretary to develop 

and implement a PPS for LTCHs, 

specifically mandating a few specific 

features of the new system including ‘‘a 

per discharge prospective payment 

system’’ that includes an ‘‘adequate 

payment classification system’’ based on 

diagnosis-related groups (DRGS) that 

reflects the differences in patient 

resource use and costs, and shall 

maintain budget neutrality.’’ Section 

307(b)(1) of the BIPA further provides 

that the Secretary ‘‘may provide for 

appropriate adjustments to the longterm hospital payment system, 

including * * * outliers * * * ’’ We 

believe that these statutory provisions 

provide broad authority and allow the 

Secretary great flexibility to fashion a 

LTCH PPS based on both original 

policies, as well as concepts borrowed 

from other payment systems that are 

adapted, where appropriate, to the 

LTCH context. In the instant case, the 

SSO policy that we discussed in the RY 

2008 LTCH PPS proposed rule utilizes 

principles from the IPPS payment 

methodology and builds upon those 

concepts to create a LTCH PPS payment 

adjustment that results in an 

appropriate payment for those inpatient 

stays that we believe do not necessarily 

belong in LTCHs but could be treated in 

another setting. In this final rule, we are 

adopting the approach we discussed to 

supplement our existing SSO policy. 

Therefore, we disagree with commenters 

that the Secretary is acting in 

contradiction of the statute and 

inconsistently with the Chevron 

doctrine. On the contrary, we believe 

that this policy is consistent with the 

direction given to the Secretary by the 

Congress in the BBRA. The Congress 

specifically provided for the adoption of 

appropriate adjustments to the LTCH 

PPS. 

Comment: Several commenters 

similarly objected that adopting the 

policy we discussed in the proposed 

rule would constitute a violation of the 

Administrative Procedures Act (APA). 

Specifically, these commenters objected 

that our discussion of the policy failed 

to satisfy the APA’s requirement that a 

notice of proposed rulemaking include 

‘‘the terms or substance of the proposed 

rule’’ because we did not provide 

‘‘specific regulatory language to 

implement’’ the policy. Commenters 

contended that, in the absence of this 

specific regulatory language, interested 

parties are ‘‘improperly limited in the 

degree to which they are able to 

participate in the rulemaking process,’’

even if CMS receives comments on the 

policy discussed. 

Response: We do not agree that 

adopting the policy approach discussed 

in the proposed rule, in this final rule, 

would constitute a violation of the APA. 

Specifically, we believe that we have 

complied with all the applicable 

requirements in 5 U.S.C. 553. Among 

the requirements of section 553, the 

notice shall include the terms or 

substance of the proposed rule, or a 

description of the subjects or issues 

involved. Our comprehensive 

discussion in the proposed rule set forth 

the substance of the final SSO policy we 

are adopting in this final rule and 

provided a complete description of the 

subject and issues involved. Therefore, 

we believe we satisfied this and all 

other applicable APA requirements. Our 

discussion of the policy in the RY 2008 

LTCH PPS proposed rule that we are 

adopting in this final rule was detailed 

and specific, and even detailed the 

impact the change would have on 

payments to LTCHs, despite the absence 

of regulatory language. We received 270 

comments on the RY 2008 LTCH PPS 

proposed rule. As is evident in our 

detailed discussion of these comments, 

commenters were able to provide 

complex, specific, and pertinent 

discussion of ‘‘the terms or substance’’

and ‘‘description of the subjects and 

issues involved’’ of the policy that we 

discussed. 

It may be worth noting that, despite 

the absence of proposed, formal 

regulatory text, a number of commenters 

(including some who raised this 

objection) referred to the revised SSO 

policy that we discussed in the 

proposed rule with terms such as 

‘‘proposal,’’ ‘‘proposed change,’’

‘‘proposed SSO payment methodology,’’

and ‘‘proposed policy.’’ We believe that 

commenters clearly understood both the 

substance of the possible revised policy, 

and the fact that we might adopt the 

revised policy in the final rule after 

review of the comments. 

Comment: Several commenters stated 

that adopting the policy discussed in 

the RY 2008 LTCH PPS proposed rule 

would be premature, since the existing 

SSO policy only became fully effective 

on October 1, 2006. Specifically, the 

commenters believe that there has not 

been sufficient time to evaluate the 

impact and effectiveness of the policy 

change adopted last year to provide for 

a blend of unadjusted LTCH payment 

rates and IPPS-comparable LTCH PPS 

payment rates as one of the formulas for 

determining payment of SSOs. Some 

commenters stated that, as a result of 

last year’s change, LTCHs no longer 

have an incentive to knowingly admit 

these kinds of patients. 

Response: While we understand the 

concerns of the commenters, we believe 

that it is not premature to implement 

this revision to the SSO policy. We have 

been studying these cases intensively 

since the implementation of the LTCH 

PPS (which was fully effective for cost 

reporting periods on or after October 1, 

2002, contrary to the implications of 

some commenters) and remain 

concerned that, in a considerable 

number of cases, LTCHs may be 

receiving higher payment than is 

warranted for cases that are also treated 

with similar lengths of stay at IPPS 

hospitals. We have a responsibility to 

ensure that Medicare trust fund is 

appropriately spent, and therefore, we 

do not believe that we should delay 

adoption of a provision to preserve the 

program’s resources. However, if the 

commenters are indeed correct that last 

year’s policy change removed any 

incentive to admit these kinds of SSO 

patients, the actual effect of the policy 

that we are now adopting may be 

relatively small and we believe that it is 

the CMS’s responsibility to conserve the 

Medicare program’s resources to the 

maximum extent that is appropriate. 

Therefore, we are finalizing the policy 

in this final rule. 

Comment: Several commenters 

supported our goal of analyzing the role 

of LTCHs as one of several treatment 

settings among post-acute providers for 

Medicare beneficiaries. However, they 

urged us not to finalize the SSO policy 

that we discussed in the proposed rule 

that would include the alternative 

payment option for an SSO payment 

comparable to the IPPS payment 

amount. These commenters believe that 

finalizing this policy would result in 

drastic payment reductions and 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26909 

consequential losses to the LTCHs. 

These commenters noted that our 

discussion related to serious issues 

about the proper place for LTCHs along 

the continuum of care for Medicare 

beneficiaries. The commenters urged us 

not to address these issues through 

payment mechanisms, but to arrive at 

‘‘clinically-based’’ answers to these 

issues. Commenters also recommended 

that we wait until Research Triangle 

Institute (RTI) completes the next phase 

of its work, which includes a review of 

proposed and existing criteria to restrict 

admission to LTCHs to medically 

complex cases. 

Response: The commenters are correct 

that the issue involves the role of LTCHs 

in the continuum of beneficiary care. As 

a provider category, LTCHs were created 

by section 1886(d)(1)(B)(iv)(I) of the Act 

and defined by the statute as ‘‘a hospital 

which has an average inpatient length of 

stay (as determined by the Secretary) of 

greater than 25 days.’’ (Subclause (II) 

LTCHs, discussed below in these 

responses, which were established 

under the BBA of 1997, qualify as 

LTCHs under highly specific 

requirements.) As a ‘‘prudent purchaser 

of care,’’ we believe that we have the 

mandate to pay appropriately for the 

hospital-level services provided to 

Medicare beneficiaries. The RTI study, 

as discussed in section XI. of the 

preamble to this final rule, represents a 

highly significant step in evaluating the 

clinical role for LTCHs. In addition to 

the RTI study, there is considerable 

attention being focused by CMS on 

issues of substitution of services among 

provider types, and the potential for the 

development of a uniform assessment 

tool across post-acute providers. As RTI 

evaluates the feasibility of identifying 

clinically-based criteria for LTCH 

patients, we are concerned that patients 

with the same general medical profile as 

the same types of patients that 

constitute some SSO cases in the LTCH 

setting are also being treated at acute 

care hospitals, often as HCO cases. 

Therefore, we are finalizing this specific 

revision to the SSO policy, as discussed 

in the RY 2008 LTCH PPS proposed 

rule, because we are concerned about 

the significant number of very short stay 

patients currently receiving treatment at 

LTCHs. These are patients with a LOS 

that is comparable to the LOS for many 

patients (under the same DRG) treated 

in acute care hospitals and paid under 

the IPPS. LTCHs in actuality are also 

acute care hospitals, they are a provider 

type that is distinguished solely by its 

focus on long-stay hospital-level care as 

compared to patients paid under the 

IPPS. 

Comment: We received numerous 

comments that praised the quality care 

given to Medicare beneficiaries by the 

LTCHs in their areas and commenters 

urged us not to make significant cuts in 

Medicare payments which they fear 

would result in reduced services. The 

commenters asserted that the revision of 

the payment adjustment for SSO 

patients as discussed in the RY 2008 

LTCH PPS proposed rule will be 

detrimental to the industry as costs of 

providing care will exceed payment. 

Further, the commenters stated that 

underpayment to LTCHs will cause 

patients with complex medical 

conditions to lose access to appropriate 

care and increase costs to acute care 

hospitals which will be forced to 

continue caring for these sicker patients. 

The commenters believed that the 

proposed revisions to the SSO payment 

policy would have a profound impact 

on the entire health care system of their 

communities since their LTCHs are a 

critical component of the State health 

care delivery system. They stated that 

since LTCHs offer specialized services 

not available elsewhere, severe cutbacks 

for LTCHs could resonate throughout 

the entire health care system. 

One commenter noted that CMS made 

a statement that it does not expect any 

changes in quality of care or access to 

services for Medicare beneficiaries 

under the LTCH PPS based on proposed 

rule policies. However, one of the 

commenters stated that a decrease in 

payments will have pervasive effects on 

LTCHs. Moreover, the commenter stated 

that the impact of changes in our 

payments to LTCHs because of the 

proposed SSO policy revisions will not 

only affect services offered to ‘‘the most 

vulnerable patients,’’ but also will have 

an impact on the staff of the LTCHs. 

Several of the commenters specified that 

they envision that acute care hospitals 

will be overtaxed and incur additional 

costs without being able to provide ICU 

beds for patients requiring short-term 

acute care services. They also stated that 

the acute care hospitals in their 

communities may not be able to meet 

patient needs for those needing LTCH 

services. 

One commenter cited the experience 

of a local faith-based, not-for-profit 

LTCH system that admits only very high 

acuity, long-term patients and realizes 

exceptional quality, outcomes, and cost 

effectiveness. But other LTCHs within 

the industry admit low acuity patients. 

The commenter stated, ‘‘* * * many 

LTCH providers seek to admit 

chronically ill ‘slow-recovery’ patients 

as a primary target population. These 

patients have little difficulty meeting 

the 25-day LTCH ALOS criteria, and 

while these patients may meet 

continued stay criteria, we believe many 

could be cared for in a less acute 

setting.’’

Response: We understand the serious 

concerns expressed by the commenters 

and, although we are finalizing the SSO 

policy revisions as were discussed in 

the RY 2008 LTCH PPS proposed rule, 

we want to assure the commenters that 

we are aware of their concerns. We 

agree that if a Medicare beneficiary is 

appropriately referred, and admitted, to 

one of the approximately 400 LTCHs in 

the United States for a complex medical 

condition, the beneficiary could receive 

excellent medical care from a highlytrained and committed professional 

staff. However, we do not believe that 

the revisions to the SSO policy that we 

are finalizing will result in LTCHs going 

out of business or that significant 

services would have to be curtailed with 

dire consequences for beneficiaries, staff 

or the local medical care system. As 

noted elsewhere, our data indicates the 

aggregate margins for LTCHs were 7.8 

percent for FY 2003 and 12.7 percent for 

2004. When we proposed the RY 2007 

change to the SSO policy, commenters 

also warned that the policy would result 

in the closure of LTCHs with disastrous 

effects on the health care delivery 

system in those areas of the country. 

However, after implementing the 

proposed changes, we have not 

observed any significant reduction in 

the number of available LTCH beds in 

the country. On the contrary, we 

continue to observe that LTCHs are 

opening new LTCHs. Therefore, we 

believe that even with decreased 

Medicare payments for SSO patients, 

such as we are envisioning based on this 

finalized payment policy and detailed 

in the Impact (see section XV. to this 

final rule), we believe that LTCHs will 

generally be able to continue delivering 

high quality medical care to their 

patients. However, we continue to 

believe that acute care hospitals should 

not be discharging patients to LTCHs 

without having provided a full episode 

of care and we also continue to have 

concerns about LTCHs admitting those 

relatively short stay patients who could 

otherwise be treated in acute care 

hospitals. 

Comment: Many commenters stated 

that our proposed IPPS-comparable 

payment option under the SSO policy 

could discourage physicians from 

discharging patients from acute care 

hospitals and admitting them to LTCHs. 

Thus, they charged that we were 

establishing a system in which clinical 

judgment is trumped by determinations 

based solely on payment. The 

commenters further stated that since 


ycherry on PROD1PC64 with RULES2
26910 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

physicians discharge patients to LTCHs 

because it is in the patients’ best 

interests, we would be substituting our 

judgment for a physician, setting a very 

dangerous precedent. The commenters 

also noted that there is available data 

supporting the medical determination 

that physicians are discharging patients 

to the LTCH setting because the 

patient’s needs are better served in the 

LTCH setting than in an acute care 

hospital setting. 

Response: Our objective for the 

revised SSO policy discussed in the RY 

2008 LTCH PPS proposed is to preclude 

LTCHs and physicians from taking 

advantage of a system that significantly 

‘‘overpays’’ (that is, relative to what 

would be paid for the same DRG under 

the IPPS) for patients that do not require 

the extensive resources that such high 

payments are intended to support. As 

discussed subsequently in this final 

rule, we recognize that some SSO cases 

are unavoidable due to death or an 

unexpected clinical improvement and 

early discharge. However, we have 

noted that in a community where both 

acute care and LTCH beds are available, 

patients are routinely transferred from 

the acute care hospital to the LTCH for 

the remainder of care because the LTCH 

resource is available. 

As we discuss below in this section, 

we further compared MedPAR data on 

acute care hospitals regarding their LOS 

during CY 2003 to their LOS during CY 

2005 in markets where LTCHs opened 

in CY 2004. We compared 304,650 acute 

care cases in CY 2004 to 316,816 cases 

in CY 2005. In CY 2003, there were 

7,586 outliers, and in CY 2005, there 

were 5,858. The percentage of outliers 

in the acute care hospitals decreased 

from 2.5 percent to 1.8 percent and the 

numbers of patients that were admitted 

to LTCHs in those communities 

increased from 2,128 in CY 2003 to 

6,597 in CY 2005. Furthermore, the 

percentage of acute care hospital 

discharges to LTCHs increased from 0.7 

percent in CY 2003 to 2.1 percent in CY 

2005. The percentage decline in total 

outliers between the CY 2003 and CY 

2005 was ¥25.7 percent. The increase 

in LTCH discharges from CY 2003 to CY 

2005 was 198.1 percent. 

We are concerned that this trend has 

increased exponentially because it 

provides an acceptable disposition of 

the patient for the physician, and 

because it is an expeditious means of 

lowering the acute hospital’s LOS and 

costs. We understand that the 

multidisciplinary approach for certain 

complex patients (for example, 

ventilator weaning) is appropriate. 

However, we are very concerned that 

the LTCH is assuming the role of the 

acute care hospital for many patients, at 

a far higher cost, which it is possible to 

do as long as the LTCH continues to 

maintain an ALOS of 25 days for 

purposes of qualifying for payments 

under the LTCH. Moreover, we do not 

believe that the payment policy option 

that we are finalizing for SSO discharges 

will deter physicians from delivering 

appropriate care to beneficiaries or from 

making appropriate referrals in the 

interests of their patients to LTCHs. 

Furthermore, LTCHs remain free to 

accept these patients. In finalizing this 

payment policy, we are seeking to 

remove any financial incentive that 

could encourage a LTCH to admit a 

patient from an acute care hospital prior 

to that patient having received a full 

episode of care at the acute care 

hospital. 

Comment: Several commenters cited a 

study centered at Barlow Respiratory 

Hospital that charted the course of 

ventilator weaning treatment for 1419 

medically unstable patients at 23 LTCHs 

from March 2002 through February 

2003. The study reported that more than 

50 percent of this group of patients were 

weaned from the ventilators and 

showed improvement, both 

neurologically and functionally. The 

commenters asserted that this study 

exemplifies the excellent level of care 

for such patients at LTCHs. 

Response: We agree with the 

commenters that the results of the 

‘‘Barlow’’ study indicate a significant 

rate of very positive outcomes for the 

very sick LTCH patients who were 

included in the study. In the late 1990s, 

we sponsored a ventilator 

demonstration study which included, 

among other acute care settings the 

Mayo Clinic and Temple University 

Hospital that also reported impressive 

results. Furthermore, we understand 

that the results of the Barlow study were 

used for the establishment of national 

ventilator-weaning protocols issued by 

the National Institutes of Health (NIH) 

and utilized by all acute care hospitals. 

We also understand that input from the 

Temple University program continues to 

be critical in formulating national 

standards. We believe that these 

programs established a level of 

excellence that should be emulated by 

all hospital-level facilities that treat 

ventilator-dependent patients, including 

acute care hospitals, LTCHs, and IRFs. 

Accordingly, we believe it is not simply 

the fact that the patient is treated at a 

LTCH that is critical to predicting 

positive results. Rather, it is the type of 

clinical intervention that is furnished to 

the patient at the hospital. In many 

cases that intervention is currently 

exemplified at acute care IPPS hospitals, 

as well as at LTCHs. 

Comment: Several commenters 

claimed that even for what we would 

term ‘‘appropriate’’ admissions, our 

proposed payment option under the 

SSO policy that could generate an IPPScomparable payment will erect barriers 

to the use of LTCHs. One commenter 

asserted that typical LTCH patients 

(described by the commenter as elderly 

patients with persistent multiple-system 

failures who are de-conditioned and 

protocol-resistant) respond impressively 

to the aggressive blending of therapeutic 

interventions, interdisciplinary teams, 

and medical intervention that is not 

otherwise available in the community or 

tertiary hospital setting. The commenter 

stated that from ‘‘a case rate 

reimbursement perspective,’’ grouping 

such a ‘‘treatment-resistant’’ population 

with the rest of the general acute care 

population is highly inappropriate. 

Some commenters asserted that even 

when adjusted for HCOs, acute care 

hospitals are not designed or intended 

to provide service to long-term care-type 

patients. The commenters emphasized 

that acute care hospitals are not 

designed to provide extended care 

services, unlike LTCHs, with their 

specially-trained expert staff and 

clinicians and multi-disciplinary 

approaches. One commenter noted that 

LTCHs are like acute care hospitals but 

must sustain a high level of care for 

longer periods. 

Response: We disagree with the 

contention that acute care hospitals are 

not capable of providing extended 

hospital level care services such as the 

care provided in LTCHs. Although there 

may be communities with LTCHs where 

the acute care hospitals may have 

functionally ‘‘restricted’’ their services 

because of the presence of these LTCHs, 

as well as because of the financial 

advantages and clinical niche that they 

have sought to fill, acute care hospitals 

are equipped to provide services to the 

same population, and the IPPS under 

which they are paid, is calibrated based 

on the resources needed to treat those 

patients. Moreover, because there are 

over 3,500 acute care hospitals and 

approximately only 400 LTCHs, which 

are not distributed uniformly 

throughout the U.S. (for example, few 

are located in California), currently 

many acute care hospitals are providing 

care for the vast majority of Medicare 

beneficiaries requiring the type of care 

described by the these commenters. Our 

FY 2005 MedPAR files indicate that 20 

percent of cases treated at acute care 

hospitals nationwide have lengths of 

stay between 7 and 14 days (that is, 

2,386,057 out of a total of 11,855,205 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26911 

cases). Additionally, 5.2 percent of 

acute care hospital cases (617,219) or 

have LOS greater than 14 days. In those 

acute care hospitals, we believe that 

during these longer periods those 

patients are receiving the same high 

level of care in an acute care hospital 

paid under the IPPS as they would 

receive as patients at a LTCH. 

Comment: Several commenters 

claimed that we based our proposed 

revision of the SSO policy that could 

have resulted in an IPPS-comparable 

payment for a particular SSO case, on 

the incorrect assumption that ‘‘short 

stay’’ LTCH patients are clinically 

similar to short term acute care hospital 

patients. They stated that the SSO 

thresholds (5⁄6 of the geometric ALOS for 

each LTC–DRG) were never intended to 

be a measure of the appropriateness of 

a LTCH admission, but rather, were 

mathematically-derived from the per 

diem payment amounts, which were 

based on a methodology that would 

produce a payment-to-cost ratio for SSO 

cases close to one. Furthermore, a 

commenter stated the presence of a SSO 

patient does not indicate a premature 

discharge from an acute care hospital, 

and cited that 11 percent of the patients 

had previously qualified as HCOs at the 

referring acute care hospital. 

Additionally, the commenters 

asserted that we are mistaken in our 

claim that LTCHs can foresee the LOS 

for patients admitted to LTCHs or 

predict likely deaths, where in actuality, 

upon admission, there is generally no 

substantial clinical difference between 

long stay and ‘‘short stay’’ patients. 

Commenters found it to be incongruous 

that a patient in LTC–DRG 475 

(Respiratory System Diagnosis with 

Ventilator Support) would still be an 

SSO patient (for example, 28 days for 

LTC–DRG 475) and could be 

hospitalized in a LTCH for greater than 

25 days (the definition of a LTCH). A 

case such as this could be appropriately 

treated in a LTCH. The commenters 

noted that physicians cannot and 

should not be asked to predict the LOS 

or the likely death of severely ill 

patients. 

Commenters further asserted that we 

have made an erroneous assumption 

that LOS equates to ‘‘severity of illness’’

(SOI) and is a proxy for the 

appropriateness of an admission. 

However, the commenters assert that 

this is not the case. They outlined 

another incorrect belief in the proposed 

rule that LTCHs function like acute care 

hospitals when they have patients for 

the same LOS. On the contrary, the 

commenters asserted that SSO patients 

are being admitted because they look 

just like ‘‘inliers,’’ and we have 

proposed that LTCHs absorb payment 

rates that bear no relationship to the 

costs of furnishing patient care at the 

LTCH level. 

Furthermore, based on claims 

analysis, using the APR–DRGs, the 

medical complexity and mortality rates 

of SSO patients, as measured by the SOI 

and ‘‘risk of mortality’’ (ROM) standards 

are very similar to that of the LTCH 

‘‘inlier’’ patient population. The 

commenters further presented 

comparisons between these measures 

for SSO patients and for patients with 

the same DRGs in acute care hospitals, 

indicating that 52 percent of all patients 

admitted to LTCHs were in the highest 

APR–DRG ROM categories, whereas 

only 24 percent of acute care patients 

are in those same categories, resulting in 

a total percentage of APR–DRGs 3 and 

4 at LTCHs among the SSO population 

that is approximately double that of 

acute care hospitals. The commenters 

noted that higher patient acuity 

correlates to higher utilization of facility 

resources, and hence, higher costs, 

which argues against our proposed 

policy that would significantly lower 

reimbursements for SSO cases. Several 

commenters also provided a comparison 

of case mix indices (CMI) for LTCH SSO 

cases and cases at acute care hospitals. 

The commenters asserted that SSOs at 

LTCHs have a relative CMI that parallels 

the CMI of LTCH ‘‘inlier’’ cases at 

LTCHs and which is 72 percent higher 

than the comparable CMI at acute care 

hospitals. 

Response: We understand that not 

every SSO patient can be so identified 

at the time of admission to a LTCH. 

Further, we recognize that many 

patients who will eventually be defined 

as SSO patients because their LTCH stay 

is equal to or less than 5⁄6 of the 

geometric ALOS for their particular 

LTC–DRG, may, upon admission, 

present the same severity of illness and 

risk of mortality as ‘‘inlier’’ LTCH 

patients. As we discuss subsequently in 

this final rule, we selected the threshold 

of one standard deviation above the 

average LOS of an IPPS discharge as an 

appropriate measure to select the subset 

of SSO cases that are typically treated in 

acute care hospitals. We agree that the 

general SSO threshold (5⁄6 of the 

geometric ALOS for each LTC–DRG) 

was never meant to be a measure of the 

appropriateness of a LTCH admission, 

but rather, was mathematically-derived 

from the per diem payment amounts. 

We believe this enabled us to arrive at 

a reasonable payment policy at the 

outset of the LTCH PPS for cases that 

had lengths of stay significantly shorter 

than those patients fitting the typical 

profile of those who are treated at 

LTCHs. We recognize that a LTCH 

admission could be a medicallycomplex admission (an appropriate 

LTCH admission) with a relatively long 

LOS and still be considered an SSO 

case. We also acknowledge that, in some 

cases, LTCH admissions could also have 

qualified as HCOs at the referring acute 

care hospital. However, we still have 

concerns that patients in LTC–DRGs 

with significantly shorter stays than the 

ALOS for that particular DRG might 

have been unnecessarily admitted to the 

LTCH rather than receiving their care at 

an acute care hospital. In addition, we 

are adjusting the LTCH PPS to 

appropriately pay for those SSO stays 

that have a LOS that is comparable to 

the LOS for that DRG under the IPPS 

and consume far less than a full array 

of services in the LTCH for the 

particular LTC–DRG. 

We believe this policy is appropriate 

since our data indicates a correlation 

between the LOS at an acute care 

hospital for a patient following 

treatment at the highest level of 

intensity (ICU or CCU), that is, the 

number of ‘‘recuperative’’ days, and 

whether or not the patient was admitted 

to a LTCH upon discharge from the 

acute care hospital. An analysis of the 

CY 2004 MedPAR files revealed that for 

the specified DRGs for acute care cases 

following ICU/CCU days, there were 

significantly fewer ‘‘recuperative’’ days 

for acute care HCO patients that were 

discharged and admitted to a LTCH than 

for those patients that were discharged 

directly from the acute care hospital. 

For example, for acute care cases in 

DRGs 475 (Respiratory system diagnosis 

with ventilator support) and DRG 483 

(Trach with mechanical vent 96+ hours 

or PDX except face, mouth and neck 

diagnosis), the number of 

‘‘recuperative’’ days were considerably 

shorter at the acute care hospital if there 

was a discharge followed by an 

admission to a LTCH. We believe that 

this data confirms MedPAC’s assertion 

in the June 2004 Report to Congress that 

‘‘patients who use LTCHs have shorter 

acute hospital lengths of stay than 

similar patients’’ (p. 125). 

Furthermore, we agree that some SSO 

patients become so by virtue of death or 

a faster than expected recovery and 

early discharge, and that in certain 

LTC–DRGs, the SSO threshold still 

requires a relatively long hospital stay 

(for example, DRG 475, Respiratory 

System Diagnosis with Ventilator 

Support). However, in the absence of 

better admission criteria, we are 

concerned that LTCHs are admitting 

some SSO patients that could have 

received their full care at the acute care 

hospital or SNF-level facility. 


ycherry on PROD1PC64 with RULES2
26912 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

We disagree with comparisons made 

by some commenters concerning the 

SOI and ROM of LTCH SSO patients to 

those of acute care patients based on 

similar lengths of stay and case-mix 

indices. Generally, LTCH patients that 

had been previously hospitalized in an 

acute care hospital received the 

diagnostic work up and major 

interventional treatment during that 

initial stay. Assuming that the patient 

continued to need hospital-level care 

after being somewhat stabilized and was 

discharged to a LTCH, the discharge to 

a LTCH could have been determined as 

clinically appropriate. The clinical 

status of this patient at this point cannot 

be reasonably compared to a typical 

patient who is treated in the acute care 

hospital and who is grouped to the same 

DRG. This is the case because the 

original patient has already been treated 

at that initial level and has required 

additional hospital-level care either by 

remaining at the acute care hospital, 

which would be paid for under the IPPS 

(perhaps as a HCO), or by being 

admitted to a LTCH where the stay 

could either be a SSO or an ‘‘inlier.’’

The only valid comparison of the SOIs 

and ROMs of two such patients in the 

context of the commenter’s concerns 

would be to contrast the SOI and ROMs 

of the patient at the LTCH with the 

patient who, following the same initial 

intervention at the acute care hospital, 

continued treatment at the acute care 

hospital. In addition, it is not 

appropriate to compare the average CMI 

at acute care hospitals to the average 

CMI at LTCHs. The acute care hospital 

CMI is affected by a broad range of 

cases, so that the only appropriate 

comparison is between DRGs in acute 

care settings and DRGs in LTCHs, which 

is the approach we have adopted in the 

revised SSO policy we are finalizing in 

this final rule. In regions of the country 

where LTCHs are scarce, acute care 

hospitals treat the same cases that are 

treated in LTCHs where those facilities 

are available. In those areas, acute care 

hospitals do indeed treat the most 

severe cases, and the calibration of the 

DRG weights takes into account the 

resource requirements for such cases. In 

the light of this fact, we do not believe 

that it is necessary or appropriate to pay 

LTCHs more for cases that can be 

successfully treated in acute care 

hospitals. We understand that the 

option that we are finalizing, paying for 

some SSO stays based on the IPPScomparable amount, will result in 

significant payment reductions to 

LTCHs for some SSO cases. However, 

we still believe that this modification to 

the SSO policy is appropriate since it 

ensures that payments to the LTCH are 

not greater than the program would pay 

in a different setting of care, where these 

patients can also be successfully treated. 

At the outset of the LTCH PPS, we 

established the SSO payment 

adjustment to address this distinction 

which we continue to believe is a valid 

and reasonable consideration for 

Medicare payments to LTCHs (67 FR 

55995, August 30, 2002). 

Comment: Many commenters asked 

that we not finalize the proposed SSO 

policy revisions, stating that the SSO 

payment option that could pay the 

LTCH based on an amount comparable 

to what would otherwise have been paid 

under the IPPS was not based on solid 

data analysis and supportable 

conclusions. In fact, a number of 

commenters asserted that the proposed 

policy was not based on data but rather 

on ‘‘erroneous and unsubstantiated 

assumptions’’ that all SSO patients are 

inappropriately admitted to LTCHs and 

inappropriately discharged from acute 

care hospitals. The commenters noted 

that, because of the way in which the 

policy was formulated, the percentage of 

LTCH cases that are paid under the SSO 

payment policy was a function of the 

SSO threshold and the dispersion of 

cases above and below the ALOS for the 

LTC–DRGs. That is, statistically, the 

SSO definition at 5⁄6 of the geometric 

ALOS would necessarily produce 

approximately 37 percent of cases as 

SSOs. Therefore, under the commenters 

belief that given the regulatory 5⁄6

definition of SSOs, which we had not 

proposed to change, the percentage of 

SSO cases was not amenable to change 

just based upon LTCHs admission 

policies. One commenter noted that for 

a significant number of patients to fall 

below 5⁄6 ALOS for a LTC–DRG is 

expected in a LTCH. Additionally, 

commenters noted that a case may 

qualify as a SSO because the patient has 

run out of covered days, regardless of 

the actual LOS in the LTCH and that in 

establishing our policy for qualifying as 

a LTCH (that is, meeting the average 

greater than 25-day LOS for a particular 

cost reporting period), we have 

recognized the ‘‘appropriateness’’ of 

including ‘‘total’’ rather than just 

‘‘covered’’ days of a stay, since 

regardless of the payer, if the patient is 

still receiving hospital-level care, the 

facility is functioning like a LTCH. For 

this reason, these commenters urged us 

to remove such cases from the 

calculations we used to develop a SSO 

payment policy. Some commenters 

expressed concerns about the reliability 

of the data that underlay our policy 

proposals and asserted that our 

proposals are based on faulty 

assumptions, insufficient data, and a 

fundamental lack of understanding of 

the valuable care LTCHs provide. 

Moreover, the commenters asserted that 

LTCH patients are just not the same type 

of patients as acute patients; they 

believe that our proposed policies 

indicate that we are unaware of the 

distinction between acute care patients 

and patients at LTCHs. They further 

stated that they did not believe that the 

public was able to submit meaningful 

comments to our proposed policies 

because of our data flaws, our biases, 

and the resulting policies that we 

proposed. 

Response: As we have stated 

previously, we are aware that the vast 

majority of LTCH patients are admitted 

following treatment at acute care 

hospitals. The patient’s stay at the acute 

care hospital generated a Medicare 

payment under the IPPS, and the 

subsequent admission to a LTCH, an 

acute care hospital with an ALOS of 

greater than 25 days, will generate an 

additional Medicare payment. To 

protect the Medicare Trust Fund from 

what may be inappropriate and 

unnecessary payments, and to ensure 

that the program is not paying twice for 

the same episode of care, we believe it 

is essential that we evaluate those cases 

that are admitted for an unusually short 

stay following an initial treatment at 

another acute care hospital to acute care 

hospitals that specialize in long-stay 

care, since that second stay will 

generate another Medicare payment. In 

MedPAC’s June 2004 Report to the 

Congress, the Commission stated that, 

‘‘* * * Living near a LTCH increases a 

beneficiary’s probability of using such a 

facility. For example, living in a market 

area with a LTCH quadruples the 

probability of LTCH use. Being 

hospitalized in an acute hospital with a 

LTCH located within the hospital also 

quadruples the probability that a 

beneficiary will use a long-term care 

hospital’’ (page 125). 

Although we acknowledge that our 

establishment of the 5⁄6th of the 

geometric ALOS threshold, from a 

statistical standpoint, will result in 

approximately 37 percent of LTCH cases 

being defined as SSOs, we are extremely 

concerned with the number of cases that 

are being treated in LTCHs that fall 

considerably below the geometric ALOS 

for any given LTC–DRG. In fact, as 

stated previously, in the commenters’

specific suggestions for how to 

reasonably and fairly pay SSOs, the 

commenters themselves drew a 

distinction between those cases that fall 

within the definition of a SSO but are 

more in keeping with the LOS generally 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26913 

associated with a LTCH (for example, a 

case assigned to LTC–DRG 482 with 

SSO threshold of 32.1 days, would still 

be paid as a SSO if the patient was 

treated in the LTCH for 25 days) and 

those cases that many commenters 

referred to as ‘‘very short stay outliers 

(VSSO)’’ or ‘‘very short stay discharges 

(VSSD).’’ In our revised SSO policy, the 

payment formula particularly takes into 

account our very strong belief that 

LTCHs are acute care hospitals that 

specialize in treating patients requiring 

‘‘long-stay’’ hospital-level care. 

The LTCH PPS has been designed and 

calibrated to pay specifically for that 

type of care. Since the inception of the 

LTCH PPS, when we established the 

SSO adjustment (67 FR 5594 through 

55995, August 30, 2002) at § 412.529, 

we have provided that if a LTCH treats 

patients not requiring a long stay for 

that DRG, Medicare pays the LTCH 

based on the applicable payment 

adjustment option. Furthermore, as we 

revise the payment options in this final 

rule for the SSO policy, we continue to 

believe that such a payment adjustment 

is reasonable for all short stay patients, 

including those that die shortly after 

their admission to the LTCH. The FY 

2004 MedPAR data indicates that 43 

percent of all patients that die in LTCHs 

are deaths that occur within the first 14 

days of the stay, with 35 percent of SSO 

deaths occurring within the first 7 days 

following admission. As we have since 

the inception of the LTCH PPS, we 

continue to believe that Medicare 

payments for those death cases 

occurring within the SSO threshold 

should be determined under the SSO 

policy since the length of the patient’s 

treatment in the LTCH did not utilize 

the full measure of hospital resources 

for which the full LTC–DRG payment 

was calibrated. 

Conversely, MedPAR data indicate 

that of all SSO cases, approximately 60 

percent of the discharges are 14 days or 

less and also that acute care hospitals 

treat a significant percentage of patients 

for longer than the 5-day ALOS. (In 

acute care hospitals, paid under the 

IPPS, over 20 percent, in the aggregate, 

of patients that are treated have a LOS 

of between 14 and 7 days.) Therefore, as 

described below, we believe that the 

SSO policy that we are finalizing under 

the LTCH PPS provides a fair and 

reasonable payment, in light of our 

stated concerns that the short-term 

hospital-level care that LTCHs provide 

for many SSO cases may be substituting 

for care that could otherwise be 

delivered at acute care hospitals and for 

which at best, Medicare would 

otherwise pay under the IPPS. 

Under § 412.507(b), Medicare will pay 

for inpatient care delivered only on 

those days that the beneficiary has 

coverage until the LOS exceeds the SSO 

threshold and becomes an inlier stay. 

Therefore, since the inception of the 

LTCH PPS, we established the 

distinction between ‘‘covered days’’ and 

‘‘total days’’ of a LTCH stay. At the 

point when a patient’s benefits exhaust, 

the patient is ‘‘discharged for payment 

purposes’’ and even though the patient 

may continue to be hospitalized at the 

LTCH, Medicare will pay only for the 

covered days, with the patient (or the 

patient’s secondary insurance) being 

responsible for the remaining days’

LTCH costs. For example, even though 

a patient could have been treated in an 

LTCH for 40 days, if upon admission, 

the patient only had 20 covered days 

remaining, for Medicare payment 

purposes, the stay could qualify as a 

SSO, unless the 20 covered days 

exceeded the 5⁄6th threshold for the 

LTC–DRG to which the case was 

grouped, at which point, the stay would 

become an inlier stay and a full LTC–

DRG payment would be generated. 

Several commenters urged us to remove 

SSO cases occurring as a result of such 

lapses of Medicare coverage from our 

revised SSO policy but based on our 

data analysis, we will not be excluding 

benefit exhausted cases from the policy. 

According to FY 2005 MedPAR data, 

these cases constitute only 3.31 percent 

of SSO cases. It has been our policy 

since the beginning of the LTCH PPS to 

count those stays during which benefits 

are exhausted as SSOs if the covered 

portion of the stay is less than 5⁄6th of 

the geometric ALOS for the DRG. In this 

way, we appropriately determine 

payment based on the part A-covered 

stay. At the same time, we continue 

counting the total days of the stay for 

purposes of qualification as a LTCH, 

because that calculation is intended to 

reflect the length of care provided to 

Medicare beneficiaries. However, our 

policy of including total days for 

Medicare patients to identify hospitals 

qualifying (or continuing to qualify) as 

LTCHs indicates our recognition that 

conceivably, a beneficiary may be 

appropriately treated in a LTCH for 

example, for 40 days; and yet because 

the beneficiary had only 5 remaining 

benefit days, would be reported in our 

claims data as a 5-day SSO case. We 

may revisit this issue in the future and, 

at that time, would solicit comments to 

that end. However, at present, since a 

very small percentage of SSO cases are 

caused by beneficiaries exhausting 

benefits, the ‘‘short’’ SSO cases 

discussed above in this section, will 

continue to be governed by the SSO 

policy finalized in this rule. 

Comment: One commenter expressed 

concern that the SSO policy would 

penalize LTCH providers in a situation 

where a patient developed a new or 

unexpected complication during his or 

her LTCH stay and required treatment 

that can only be provided by the 

referring acute care hospital. 

Response: The situation to which the 

commenter is referring is possible and 

may result in a sudden discharge from 

a LTCH and a readmission to the acute 

care hospital. In such a case, if the total 

covered length of stay at the LTCH is 

less than 5⁄6 of the LOS for the LTC–DRG 

to which the case is assigned, payment 

would be made under the SSO policy. 

Consequentially, the additional 

payment option that we are finalizing 

could also be applicable if the covered 

LOS at the LTCH fell within the IPPScomparable threshold prior to discharge. 

Such payment would be appropriate 

because the patient would have received 

less than a full episode of care at the 

LTCH prior to being discharged back to 

the acute care hospital. We note that 

should the patient subsequently be 

discharged from the acute and 

readmitted to the LTCH to continue 

treatment begun before the acute 

episode, Medicare payment to the LTCH 

would be governed under our 

interrupted stay policy at § 412.531. We 

would also note that this stay could also 

be subject to adjustment under the SSO 

policy (including the payment option 

that we are finalizing) depending upon 

the total covered length of stay (both 

prior to and following the acute 

episode). 

Comment: Many commenters stated 

that their objections to the policy 

discussed in the proposed rule extended 

to the existing SSO payment policy with 

which they have expressed 

disagreement in the past. Several of 

these commenters asserted that the 

current SSO threshold (5⁄6 of the 

geometric ALOS for each LTC–DRG) is 

not statistically justifiable. These 

commenters recommended that, if we 

are going to employ LOS as the only 

criterion for determining SSOs, we 

should logically select a threshold that 

better identifies cases that are dissimilar 

to the median or average, such as the 

5th percentile through 10th percentile. 

Response: We believe that the policy 

we are adopting in this final rule is a 

consistent extension of the principles 

that we have employed in developing 

the SSO payment policy. In this 

rulemaking cycle, we have not 

introduced any discussion or proposals 

concerning the existing SSO threshold, 

and therefore, we are not implementing 


ycherry on PROD1PC64 with RULES2
26914 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

the commenters’ recommendation that 

we establish a dramatically-revised 

threshold level. However, we did 

provide an exhaustive discussion of the 

reasons for adopting this threshold in 

the FY 2003 LTCH PPS final rule (67 FR 

55995), which included statistical 

analysis, various simulations, 

regressions, and consideration of 

various options. 

Comment: Several commenters stated 

that the objective of the SSO policy that 

we discussed in the RY 2008 LTCH PPS 

proposed rule is to establish a de facto 

exclusionary policy, prohibiting the 

admission of these patients to LTCHs by 

means of a payment mechanism rather 

than careful clinical review. 

Response: We disagree that we are 

establishing an exclusionary policy. On 

the basis of analysis that we presented 

in the RY 2008 LTCH PPS proposed rule 

and previously in this final rule, we 

believe that many of these cases may 

represent ‘‘premature and inappropriate 

discharge from the acute care hospital 

and inappropriate admission to the 

LTCH’’ (72 FR 4840). The intent of this 

policy is to establish an appropriate 

payment level for this class of cases. 

Hospitals remain free to accept these 

patients. As we stated in the RY 2008 

LTCH PPS proposed rule, * * * a short 

stay case at a LTCH most likely did not 

receive a full course of medical 

treatment during the short stay 

and* * * a full LTC–DRG payment 

would therefore, be inappropriate’’ (72 

FR 4804). 

Comment: Several commenters 

objected that the policy we discussed 

could apply to cases whose length of 

stay exceeds 25 days, the ALOS 

required for a hospital to qualify as an 

LTCH. Commenters indicated that at 

least 9 IPPS DRGs have an ALOS plus 

one standard deviation that is greater 

than 25 days, and at least 26 other IPPS 

DRGs have an ALOS plus one standard 

deviation that exceed 20 days. 

Commenters contended that cases 

exceeding the 25-day threshold for 

qualifying as an LTCH should not be 

considered short stay cases. 

Response: We do not believe that it is 

inappropriate for individual cases that 

exceed the ALOS threshold for LTCH 

status to be considered SSOs. In fact, we 

have treated some such cases as SSOs 

since the establishment of the SSO 

policy. For a number of LTC–DRGs, the 

SSO threshold, 5⁄6 of the geometric 

ALOS, significantly exceeds 25 days. 

These include DRGs 498, 499, 520, and 

others. Similarly, a number of IPPS 

DRGs have an ALOS plus one standard 

deviation that is greater than 25 days. 

As a result, many cases with lengths of 

stay shorter than 25 days receive 

payment under the SSO methodology, 

and a subset of those cases will be paid 

specifically under the formula that we 

are adopting in this final rule for certain 

cases: For SSO cases with a length of 

stay less than ALOS plus one standard 

deviation of the IPPS DRG, payment 

will be no greater than the IPPS 

comparable amount that we have 

defined. These results are appropriate 

because the respective thresholds serve 

different purposes. The 25-day 

threshold defines an ALOS established 

by the statute to define a LTCH. The 

respective outlier thresholds (the basic 

SSO threshold of 5⁄6 of the geometric 

LTC–DRG ALOS, and the threshold that 

we are now adopting to identify every 

SSOs) serve to identify subsets of LTCH 

cases for appropriate payment 

treatment, based on comparisons to 

relevantly similar cases. We have 

explained the basis for adopting the 

SSO threshold in the FY 2003 LTCH 

PPS final rule (67 FR 55995). The 

threshold that we are adopting in this 

final rule, the geometric ALOS plus one 

standard deviation of the IPPS DRG, 

selects a subset of SSOs that are similar 

to cases successfully treated in shortstay acute care hospitals. Since these 

cases have received a course of 

treatment similar to the typical course of 

treatment in an IPPS hospital, we are 

limiting payment for them to an amount 

no greater than the comparable payment 

under the IPPS. 

Comment: Several commenters stated 

that we had not presented any 

conclusive financial or clinical evidence 

to support the policy discussed in the 

RY 2008 LTCH PPS proposed rule, but 

that we instead rely merely on 

statements such as: ‘‘many LTCHs 

appear to be admitting some SSO 

patients that could have received the 

care at the acute care hospital.’’ (72 FR 

4806) (Emphasis supplied by 

commenter.) Furthermore, a commenter 

stated that our own expert consultant, 

RTI, had failed to find evidence 

conclusively illustrating that the typical 

LTCH SSO patient could be treated as 

effectively in an acute care hospital. 

Some of these commenters also 

maintained that, contrary to our 

suggestions, the care received by 

patients at LTCHs is often unique and 

not available at acute care hospitals. 

Commenters cited physicians who were 

consulted on the clinical aspects of 

transfer from an acute care hospital to 

a LTCH. These physicians provided 

numerous explanations and scenarios 

detailing how LTCHs provide different 

kinds of services even if the DRG for a 

case is nominally the same. 

Response: As we have discussed 

elsewhere in this final rule, LTCHs are 

certified as acute care hospitals and 

acute care hospitals paid under the IPPS 

are throughout the country treating 

beneficiaries requiring hospital-level 

care lengths of stay comparable to those 

that are typical of LTCHs. We disagree 

with commenters who imply that there 

is a clear distinction between the 

patients that are appropriate for 

successful treatment at LTCHs and 

patients that are appropriately and 

successfully treated at acute care 

hospitals. Across the United States, the 

nearly 3,600 acute care hospitals that 

discharge approximately 12.7 million 

Medicare beneficiaries treat the full 

range of medical issues that the 

commenters identify as LTCH cases. We 

do not question that many LTCHs have 

highly regarded reputations for their 

success in treating respiratory and 

ventilator cases (MS–LTC–DRGs 207 

and 208). However, as detailed in the 

RTI report, the 2004 MedPAR files 

indicate that where LTCHs treated 

13,394 cases assigned to DRG 475 in 

2004, acute care hospitals treated 18,727 

Medicare patients with an additional 

7,072 HCOs in DRG 475. For DRG 88, 

Chronic obstructive pulmonary disease 

(COPD), LTCHs treated 4,894 cases 

where acute care hospitals treated 

37,523 cases. Data on other common 

DRGs treated in LTCHs as compared to 

the same DRGs treated in acute care 

hospitals reflect a similar pattern, 

particularly among the DRGs that could 

fall into the broad category of 

‘‘medically complex’’ patients, which 

are the majority of LTCH patients (Table 

3–2, RTI report, p. 35. We understand 

that MedPAC and RTI have noted that 

many LTCHs deliver a high level of care 

to very sick Medicare beneficiaries, with 

fine doctors, exemplary nursing care, 

and top-notch rehabilitation therapists, 

but we also know that many acute care 

hospitals throughout the nation are 

treating the same patients and similarly 

delivering excellent care, especially 

where there are few LTCHs. We also 

know that some LTCHs specialize in a 

particular subset of patients and achieve 

a noteworthy success in their treatment 

(for example, of patients requiring 

ventilator weaning or wound care). 

However, similar patients are also 

receiving care in acute care hospitals. 

Therefore, we cannot agree with 

commenters implying that acute care 

hospitals are incapable of competently 

treating Medicare beneficiaries that 

happen to fall within the DRGs that 

LTCH identify as their specialties and 

that any patients falling into such 

categories would receive ‘‘substandard’’

care at an acute care hospital. 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26915 

Comment: Several commenters stated 

that our proposed policy should not 

apply to cases that were HCOs at an 

acute care hospital prior to transfer to a 

LTCH. Since such cases received the 

full complement of services at the acute 

care hospital, and the acute care 

hospital actually incurred significant 

losses before receiving an outlier 

payment from the Medicare program, it 

cannot be stated that any discharge and 

transfer to a LTCH was premature and 

inappropriate. 

Response: We agree that, in such 

cases, the transfer to a LTCH is unlikely 

to be premature and inappropriate. In 

fact, typically, HCO cases in the acute 

care setting represent a full course of 

treatment in that setting. However, as 

our discussion in the RY 2008 LTCH 

PPS proposed rule indicates, this is not 

the only, or even the primary, factor that 

deserves consideration in determining 

an appropriate SSO payment level. 

Regardless of whether a case had 

reached outlier status in an acute care 

hospital prior to transfer to a LTCH, the 

course of treatment at the LTCH could 

more closely resemble the normal 

course of treatment at an acute care 

hospital than the normal course of 

treatment for cases at a LTCH. We stated 

in the RY 2008 LTCH PPS proposed rule 

that cases ‘‘with lengths of stay that are 

equal to or less than the IPPS ALOS 

plus one standard deviation for the 

same DRGs under the IPPS appear to be 

comparable to typical stays at acute care 

hospitals’’ and ‘‘LTCHs that admit SSO 

patients with lengths of stay more 

typical of an acute care hospital may be, 

in fact, behaving like acute care 

hospitals’’ (72 FR 4806 citing 71 FR 

27847). For purposes of the SSO policy 

discussed in the RY 2008 LTCH PPS 

proposed rule, the issue is primarily the 

course of treatment actually received at 

the LTCH, rather than the course of 

treatment at the acute care hospital prior 

to transfer to a LTCH. Of course, one 

reason the course of treatment at a 

LTCH may resemble the normal course 

of treatment at an acute care hospital 

may be that an acute care hospital has 

prematurely and inappropriately 

transferred a patient to a LTCH. 

However, in cases where a patient has 

received a high level of treatment at an 

acute care hospital, including levels of 

treatment that qualify for outlier 

payments, a subsequent stay in an LTCH 

may still ‘‘be comparable to typical stays 

at acute care hospitals.’’ (72 FR 4806) In 

these cases, since we believe the 

Congress excluded LTCHs from the IPPS 

because cases with longer lengths of 

stay (as compared to acute care 

hospitals paid under the IPPS) tend to 

be costlier than cases with shorter stays, 

we do not believe that it would be 

appropriate for the program to pay an 

LTCH an unadjusted LTCH PPS 

payment for case with such an 

abbreviated stay that it did not receive 

the full course of treatment particularly 

when we would pay a much lower 

amount in to an acute care hospital for 

a similar course of treatment. 

Comment: Several commenters urged 

us not to apply the policy we discussed 

to cases in which patients die in the 

hospital. These commenters noted that 

physicians and hospitals are not able to 

predict which patients will die 

subsequent to admission to an LTCH. In 

addition, many of these patients are 

high cost, requiring significant medical 

resources in the last days of life. One 

LTCH commenter determined that about 

50 percent of its extreme SSOs were 

discharged due to death. The 

commenter notes that it may not be 

appropriate for these cases to receive a 

full LTCH payment, but that it is equally 

unfair for CMS to assume ‘‘sinister 

intent’’ and to financially penalize 

LTCHs operating in good faith. Some 

commenters emphasized generally that 

adoption of the revised SSO policy that 

we discussed would be unfair to LTCHs 

because they cannot predict in advance 

who will become SSO cases. There are 

several reasons why a patient could 

become an SSO including the patient 

dying or leaving against medical advice. 

Many of these commenters noted that if 

this policy is adopted, LTCHs will only 

receive, at best, costs for SSO cases. 

Other commenters recommended that, if 

we adopt this policy, it should 

incorporate outlier payments when 

determining an equivalent IPPS 

payment amount in the SSO payment 

methodology. 

Response: We certainly acknowledge 

that hospitals and physicians are not 

able to predict with certainty at 

admission which patients will die 

during an inpatient stay in a LTCH, or 

whether a patient will leave against 

medical advice. However, the issue with 

regard to these cases, as with the cases 

discussed in the previous comment, is 

that ‘‘lengths of stay that are equal to or 

less than the IPPS ALOS plus one 

standard deviation for the same DRGs 

under the IPPS appear to be comparable 

to typical stays at acute care hospitals.’’

The point is not to penalize LTCHs, but 

rather, to pay appropriately for cases 

that receive less than the full course of 

treatment at a LTCH. Even when a 

patient dies in a LTCH, whether 

unexpectedly or not, cases with lengths 

of stay more typical of an acute care 

hospital are not receiving the full course 

of treatment in a LTCH, and resemble 

more the course of treatment in acute 

care hospitals. It is therefore appropriate 

to limit the payment for such cases 

accordingly. We would also like to note 

that where a LTCH is finding that nearly 

half of its patients are discharged due to 

death, if in fact many of these patients 

are SSO cases, the LTCH may need to 

consider whether those patients were 

too fragile to be transferred from the 

acute care hospital to the LTCH. 

Transfer trauma is a serious issue that 

must be considered whenever a hospital 

considers transferring a patient to 

another facility. 

With respect to the recommendation 

that we take outlier payments into 

account when determining the 

equivalent IPPS payment amount in the 

SSO payment methodology, under 

existing LTCH PPS policy, a SSO case 

that meets the criteria for a LTCH PPS 

HCO payment at § 412.525(a)(1) (that is, 

if the estimated costs of the case exceed 

the adjusted LTC–DRG SSO payment 

plus the fixed loss amount) would 

receive an additional payment under the 

LTCH PPS HCO policy at § 412.525(a) 

(67 FR 56026, August 30, 2002). For 

purposes of HCOs under the proposed 

SSO policy, we would continue to use 

a fixed-loss amount calculated under 

§ 412.525(a), and not a fixed-loss 

amount based on § 412.80(a). Medicare 

would pay the LTCH 80 percent of the 

costs of the case that exceed the sum of 

the applicable option of the least of the 

four proposed payment options, 

described above, and the fixed-loss 

amount determined under § 412.525(a). 

Comment: Several commenters stated 

that the payment reductions associated 

with the very short SSO policy 

discussed in the RY 2008 LTCH PPS 

proposed rule violate the principles of 

a PPS in which some cases are expected 

to cost less than others. 

Response: We disagree that these 

policies violate the principles of 

averaging found in a PPS. As we stated 

in the RY 2007 LTCH PPS final rule, 

‘‘* * *we believe it is very important to 

evaluate the adjustment in light of the 

fact that in a PPS there are numerous 

principles that we try to balance 

simultaneously when making policy 

decisions. Among these principles are 

appropriate payment, predictability, 

averaging, beneficiary access to 

appropriate care, and equity so that 

while the averaging principle is an 

important one in PPSs, it is not the only 

principle that guides our policy 

decisions. For example, in the case of 

SSOs and HCOs, we must determine 

how to appropriately to pay for aberrant 

cases that are much shorter (that is, 

SSOs) and much costlier (that is, HCOs) 

when compared to typical cases in the 


ycherry on PROD1PC64 with RULES2
26916 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

relevant LTC–DRG. In the case of short 

stays, if we failed to adjust the payment 

to reflect that the case did not receive 

the full resources of a typical LTCH stay 

for the particular DRG, the PPS would 

be greatly ‘‘overpaying’’ for the stay, 

could serve as an incentive to game the 

system, and would also waste valuable 

Medicare Trust Fund dollars. Similarly, 

in the case of HCOs, if we did not adjust 

the payment to reflect the extraordinary 

high costs that LTCH was incurring for 

treating a particular patient when 

compared to a typical case in the 

respective LTC–DRG, we would be 

‘‘underpaying’’ significantly for the 

case. We have stated that providing 

additional money for HCOs strongly 

improves the accuracy of the payment 

system as well as reduces the incentive 

to under serve these patients. Since we 

do not pay SSOs or HCOs an amount 

paid to ‘‘inliers’/cases that have length 

of stays or costs commensurate with 

other cases in the respective but instead 

make payment adjustments to reflect the 

unique circumstances of these cases, the 

averaging principle is less heavily 

emphasized under these circumstances 

to achieve equity, appropriate payments 

that accurately reflect resource costs at 

the patient and hospital level, and 

beneficiary access to medical care.’’

We believe that, given that LTCHs are 

defined as acute care hospitals that have 

an average inpatient LOS of greater than 

25 days, the payment policies under the 

LTCH PPS appropriately reflect the 

averaging principle. That is, where some 

cases, within the ‘‘inlier’’ range will 

have generated relatively lower costs, 

other cases will generate higher costs 

and Medicare will pay a LTCH the same 

for both less and more costly cases. The 

SSO policy, along with the HCO policy 

addresses payments for cases that fall 

outside of the normal types of averaging 

in the inlier range in the PPS and 

ensures that payment for SSO cases is 

not greatly in excess of the resources 

required to treat those cases. (71 FR 

27866 through 27867) 

Comment: Some commenters asked 

that we comment on why the IPPS postacute transfer policy does not 

appropriately adjust for payment when 

transferred cases ultimately become 

SSO discharges in the LTCH setting. 

Another commenter suggested that, we 

provide policies under the acute IPPS 

side to address inappropriate, or early 

discharges and asked that post-acute 

transfer rules, readmission rules and 

DRGs for acute care hospitals should be 

used to minimize the issue instead of 

penalizing LTCHs. 

Response: We note that we addressed 

the effect of the post-acute transfer 

policy on SSOs previously in the RY 

2003 LTCH PPS final rule, but will 

reiterate that the IPPS post-acute 

transfer provision was created to 

address cases in which the transferring 

acute hospital provides less than the full 

spectrum of care for the qualified DRG 

and to avoid providing an incentive for 

a hospital to transfer a patient to another 

hospital early in the patient’s stay to 

minimize costs while still receiving the 

full DRG payment. The post-acute 

transfer policy only addresses the 

appropriate level of payments for the 

course of treatment received in an acute 

care hospital. It does not address the 

appropriate level of payments at the 

facility to which the patients are then 

transferred. 

We note that the post-acute care 

transfer policy only affects DRGs that 

meet the criteria at § 412.4. Although we 

expect the post-acute transfer policy to 

have some impact on the discharge 

behavior of acute care hospitals because 

of the reduced payments that they will 

receive for qualified discharges, the 

post-acute transfer policy does not 

necessarily affect the issues being 

addressed by the SSO policy change. 

Both the IPPS post-acute transfer policy 

and the revised SSO policy being 

finalized in this rule are designed to 

ensure that Medicare payments are 

appropriate given the types of treatment 

provided in each setting; we note that in 

the instance of an acute transfer (that is 

subject to the post-acute transfer policy) 

to an LTCH that discharges the patient 

as an SSO, neither the acute nor the 

LTCH facility provided the full episode 

of care to the patient and it would not 

be appropriate to pay either facility a 

full DRG payment. We believe that the 

revised payment formula for SSO 

patients that we are finalizing will 

appropriately pay LTCHs for delivering 

services to patients who do not 

otherwise require the lengths of stay 

that are characteristic of LTCHs. The 

SSO policy will address payments to 

LTCHs for patients discharged from the 

acute care hospital even after the IPPS 

geometric ALOS, who are subsequently 

discharged from the LTCH as a short 

SSO. 

Comment: Two commenters suggested 

that rather than challenging the cases 

that are admitted from acute care 

hospitals, we should be more concerned 

about inappropriate admittances from 

nonhospital settings such as SNFs or 

elsewhere. 

Response: After analyzing recent data, 

we note that approximately 80 percent 

of the patients admitted to the LTCHs 

come from the short term acute care 

hospitals and only 20 percent are 

admitted from other nonhospital 

settings. Since SNFs do not offer 

hospital-level care but are still serving 

patients with compromised health, we 

believe that a decision to transport a 

SNF patient to a hospital would 

generally be made because the patient 

appears to the medical professionals at 

the SNF to be in need of a higher level 

of medical treatment or care than is 

available at the SNF. (In fact, such 

patients would typically be admitted to 

the acute care hospital rather than to a 

LTCH.) However, both an acute care 

hospital and a LTCH offer acute 

hospital-level care. As discussed 

previously in this final rule, we are very 

concerned about the treatment of a 

short-stay patient who could reasonably 

and effectively continue to be treated in 

an acute care hospital and paid for 

under the IPPS, being admitted 

unnecessarily to a LTCH, which 

specializes in treating patients requiring 

long-term hospital-level care and paid 

for under a PPS which has been 

calibrated based upon the high resource 

use associated with long patient stays. 

Furthermore, admission of such a 

patient could also result in an 

unnecessary and inappropriate LTCH 

hospitalization, which would also result 

in a second Medicare payment under 

the LTCH PPS for what was essentially, 

one episode of care. 

Comment: Several commenters 

believe that we are incorrect that LTCHs 

could be admitting patients not 

requiring long stays, noting that LTCHs 

actually have a disincentive to admit 

short stay patients because LTCH 

certification status can be at risk if the 

hospital does not maintain an ALOS of 

more than 25 days. 

Response: Under the TEFRA system, 

all inpatient days (whether covered by 

Medicare or not) were included in the 

LOS computation, and the mathematical 

determination was based upon the 

number of patient days, during the cost 

reporting period when they occurred, 

divided by discharges occurring during 

that same period of time (67 FR 55954, 

55971). With the establishment of the 

per discharge LTCH PPS, we restricted 

the patient count for purposes of 

qualifying as a LTCH solely to Medicare 

patients (67 FR 55971), and we 

implemented the policy of ‘days 

following the discharges,’ under which, 

if a patient’s stay crosses two cost 

reporting periods, the total days of that 

stay (both covered and non-covered 

days) would be included in the 

computation during the cost-reporting 

period that the discharge occurred (69 

FR 25706). 

LTCH cost report data reveal that the 

general ALOS of most LTCHs varies 

only slightly. Generally, LTCHs 

maintain an ALOS that is just over 25 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26917 

days, meeting the statutory definition of 

a LTCH, that is, having an ALOS of 

greater than 25 days. Furthermore, we 

understand that LTCHs closely monitor 

their yearly ALOS and that one 

extremely long-stay case can 

mathematically offset for a number of 

short-stay cases. After studying the 

hospital-specific data, we believe that 

this is indeed the case for many LTCHs. 

We also believe that the payment policy 

that has been utilized since the start of 

the LTCH PPS for FY 2003 has not 

operated as a financial disincentive for 

the admission of patients who will not 

ultimately require long-stay hospitallevel care. In fact, we note that MedPAR 

data show approximately 27,000 SSO 

cases with a LOS of 14 days or less. This 

indicates that even with over 20 percent 

of their discharges having such a short 

ALOS, LTCHs have maintained their 

greater than 25-day statutory ALOS. 

Therefore, we believe that it is both 

possible for a LTCH to maintain its 

designation and also admit many very 

short stay cases. 

Comment: Several commenters 

maintained that the SSO policy we 

discussed would have unintended effect 

of lengthening patients stay. Some of 

these commenters specifically noted 

that this effect could be the result of a 

payment ‘‘cliff’’ where payments rise 

abruptly once the threshold for the 

application of this policy (the ALOS of 

the IPPS DRG plus one standard 

deviation) is reached. The commenters 

believe that the proposed rule 

introduced ‘‘backwards’’ incentives 

associated with the old ‘‘cost-based’’

system. Policies will result in 

encouraging a profit for longer stays, 

which could raise costs to the Medicare 

program. 

Response: We acknowledge that there 

could be such a cliff effect in some cases 

as a result of the policy that we are 

adopting. However, we believe that the 

merits of adopting this limitation on 

outlier payments in certain cases 

outweighs the risks of some possible, 

unintended consequences. We will 

monitor experience under the new 

policy to detect whether there is an 

inappropriate increase in lengths of stay 

that are slightly greater than the ALOS 

plus one standard deviation of the 

comparable IPPS DRGs. As part of our 

program integrity responsibilities, we 

may ask the FIs to review the medical 

necessity of the last few days of a LTCH 

stay that just exceeds the threshold, and 

if some days are determined not to be 

‘‘medically necessary,’’ then if the 

remaining days result in a LOS lower 

than the threshold, the stay may be paid 

at the IPPS comparable rate. 

Comment: Some commenters 

contended that the concerns behind the 

possible revision to the SSO policy 

could be more appropriately addressed 

by establishing patient criteria and QIO 

review of medical necessity for 

admissions, as has been recommended 

by MedPAC and RTI. 

Response: Under our QIO program, 

QIOs review services to determine 

whether services are reasonable and 

medically-necessary, whether the 

quality of services meets professionallyrecognized standards, and whether 

services in an inpatient hospital or other 

inpatient health care facility could, 

consistent with the provision of 

appropriate medical care, be effectively 

provided more economically on an 

outpatient basis or in an inpatient 

facility of a different type. We have not 

historically interpreted any of these 

areas of review to involve 

determinations of which kind of acute 

care facility would be appropriate, and 

QIOs do not regard short term acute care 

hospitals and LTCHs as facilities ‘‘of a 

different type.’’ A QIO uses criteria, 

based on typical patterns of practice. 

The QIOs also consult with (a) 

physician(s) and practitioner(s) actively 

engaged in practice in that State and to 

the extent possible, in the same 

specialty, when making the 

determination that care was or was not 

medically-necessary. Although a QIO 

review can detect whether or not the 

patient requires an acute level of care or 

whether care in a SNF would have been 

appropriate, since both acute care 

hospitals and LTCHs are certified as 

acute care hospitals, QIOs do not make 

the distinction between whether a 

patient should be hospitalized at an 

acute care hospital or at a LTCH, so long 

as the patient requires an acute level of 

care. 

QIOs are authorized by statute to 

determine whether, in case such 

services and items are proposed to be 

provided in a hospital or other health 

care facility on an inpatient basis, such 

services and items could, consistent 

with the provision of appropriate 

medical care, be effectively provided 

more economically on an outpatient 

basis or in an inpatient health care 

facility of a different type as specified in 

section 1154(a)(1)(C) of the Act. 

Therefore, QIOs have authority to 

determine the appropriate hospital-level 

setting in the face of objective criteria. 

But there is no objective criteria 

distinguishing between settings where 

acute care is delivered. Since the statute 

states ‘‘a facility of a different type,’’ and 

because short term acute care hospitals 

and LTCHs are very similar and provide 

the same level of care, we have at no 

time interpreted ‘‘a facility of a different 

type’’ in section 1154(a)(1)(C) of the Act 

to mean that QIOs must distinguish 

between them. 

In a memorandum issued to the 

Regional Offices, Chief Executive 

Officers, and all QIOs, from the Director 

of the Quality Improvement Group of 

the CMS Office of Clinical Standards on 

October 28, 2004, among other matters, 

the following policy was further 

clarified: 

Note: there are different provider types that 

may offer the same level of intensity of 

inpatient care. QIOs do not specify which 

provider type should be used when the level 

of intensity is the same. For example, a 

patient requires an acute level of care that 

could be delivered in a short—term acute 

care PPS hospital, a long-term care hospital 

or an acute rehabilitation hospital. The QIO 

determines what intensity of care is 

appropriate (that is, the patient requires an 

acute level of care) but would not specify as 

a matter of admission necessity which 

provider type the patient should be admitted 

to. If the QIO determines that there is a 

quality of care concern implicated, that issue 

should be addressed through the quality 

review process. 

Under current contracts, QIOs review 

LTCH cases under the following 

circumstances: When a claim is selected 

for purposes of determining or lowering 

the payment error rate; if there is a QIOidentified need to perform additional 

review based on their contractual 

responsibilities; if there is an immediate 

appeal of certain beneficiary notices; as 

a result of the referral of a case or cases; 

or when there is a beneficiary complaint 

or other quality of care concern. 

Since one of the recommendations 

made by MedPAC in their June 2004 

Report to Congress was for an increased 

role for the QIOs in monitoring criteria 

to assure that LTCHs are treating 

appropriate patients, researchers from 

RTI have been in contact with several 

QIOs nationwide in order to evaluate 

their role. However, involving QIOs in 

the on-going determination of the 

appropriateness of admissions, 

continuing stay or discharge for a 

significant proportion of LTCH patients 

was never envisioned when the QIO 

program was established. There will not 

be a reassignment of Medicare funds to 

QIOs from the LTCH PPS. However, we 

are currently developing the next 

Quality Improvement Organization 

Scope of Work. These comments will be 

considered in that process. 

After consideration of the numerous 

comments submitted on this issue, we 

are finalizing the policy that we 

discussed in the proposed rule. That is, 

in SSO cases where the covered LOS is 

equal to or less than the ‘‘IPPS 


ycherry on PROD1PC64 with RULES2
26918 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

comparable threshold’’ (defined above 

in this section) of the same DRG under 

the IPPS, the SSO payment 

methodology will be based upon the 

least of the following: 100 Percent of 

estimated costs of the case as 

determined under § 412.529(d)(2); 120 

percent of the LTC–DRG per diem 

multiplied by the covered LOS of the 

case as determined under 

§ 412.529(d)(1); the Federal prospective 

payment for the LTC–DRG as 

determined under § 412.529(d)(3); or an 

LTCH PPS amount comparable to the 

IPPS per diem. 

Technical Correction 

We are making a technical correction 

to existing § 412.529(a) which would 

add the term ‘‘covered’’ immediately 

before the phrase ‘‘length of stay’’ in the 

initial definition of a SSO case. This 

technical correction is not a substantive 

policy change but rather corrects the 

regulatory definition of a SSO case so 

that it is consistent with policy 

determinations that we have made since 

the FY 2003 implementation of the 

LTCH PPS. We would note that utilizing 

only Medicare covered days for 

payment purposes has been our policy 

from the outset of the LTCH PPS, as is 

specified at § 412.503 where we defined 

‘‘discharge’’ for purposes of payment, as 

‘‘* * * when the patient stops receiving 

Medicare-covered long-term care 

services * * *.’’ Furthermore, in 

subsequent revisions of our SSO policy, 

we included the term ‘‘covered’’ at 

§ 412.529(c)(2)(iv)(A), § 412.529(d)(1) 

and § 412.529(d)(4)(i)(B). We are making 

this technical correction to conform all 

references at § 412.529 to our existing 

policy regarding a SSO discharge which 

is determined based on the number of 

‘‘covered’’ days in the patient stay. 

3. Determination of Cost-to-Charge 

Ratios (CCRs) 

In the FY 2007 IPPS final rule (71 FR 

48117 through 48121), similar to the 

revisions to the HCO policy as 

discussed in IV.D.3.d. of the preamble of 

this final rule, we revised our 

methodology for determining the annual 

CCR ceiling and Statewide average CCRs 

under the LTCH PPS because we believe 

that those changes are more consistent 

with the LTCH PPS single payment rate 

for inpatient operating and capital costs. 

Under the broad authority of section 123 

of the BBRA and section 307(b)(1) of 

BIPA, for discharges occurring on or 

after October 1, 2006, the LTCH CCR 

ceiling specified under 

§ 412.529(c)(3)(iv)(C)(2) is calculated as 

three standard deviations above the 

corresponding national geometric mean 

total CCR (established and published 

annually by CMS). (As discussed in 

greater detail in this section, the fiscal 

intermediary (FI) may use a Statewide 

average CCR if, among other things, a 

LTCH’s CCR is in excess of the LTCH 

CCR ceiling.) The LTCH total CCR 

ceiling is determined based on IPPS 

CCR data, by first calculating the ‘‘total’’

(that is, operating and capital) IPPS CCR 

for each IPPS hospital and then 

determining the average ‘‘total’’ IPPS 

CCR for all hospitals. The LTCH CCR 

ceiling is then established at 3 standard 

deviations from the corresponding 

national geometric mean total CCR. (For 

further detail on our methodology for 

annually determining the LTCH CCR 

ceiling, refer to the FY 2007 IPPS final 

rule (71 FR 48117 through 48119).) We 

also established that the LTCH ‘‘total’’

CCR ceiling used under the LTCH PPS 

will continue to be published annually 

in the IPPS proposed and final rules, 

and the public should continue to 

consult the annual IPPS proposed and 

final rules for changes to the LTCH total 

CCR ceiling that would be effective for 

discharges occurring on or after October 

1 each year. Accordingly, in the FY 

2007 IPPS final rule (71 FR 48119), we 

established a FY 2007 LTCH total CCR 

ceiling of 1.321, effective for discharges 

occurring on or after October 1, 2006. 

In addition, under the broad authority 

of section 123 of the BBRA and section 

307(b)(1) of BIPA, for discharges on or 

after October 1, 2006, we revised our 

methodology to determine the Statewide 

average CCRs under 

§ 412.529(c)(3)(iv)(C) for use under the 

LTCH PPS in a manner similar to the 

way we compute the ‘‘total’’ LTCH CCR 

ceiling using IPPS CCR data (71 FR 

48120). Specifically, under this revised 

methodology, we first calculate the total 

(that is, operating and capital) CCR for 

each IPPS hospital. We would then 

calculate a weighted average ‘‘total’’

CCR for all IPPS hospitals in the rural 

areas of the State and weighted average 

‘‘total’’ CCR for all IPPS hospitals in the 

urban areas of the State. (For further 

detail on our methodology for annually 

determining the LTCH urban and rural 

Statewide average CCRs, refer to the FY 

2007 IPPS final rule (71 FR 48119 

through 48121).) We also established 

that the applicable Statewide average 

‘‘total’’ (operating and capital) CCRs 

used under the LTCH PPS will continue 

to be published annually in the IPPS 

proposed and final rules, and the public 

should continue to consult the annual 

IPPS proposed and final rules for 

changes to the applicable Statewide 

average total CCRs that would be 

effective for discharges occurring on or 

after October 1 each year. Accordingly, 

in the FY 2007 IPPS final rule (71 FR 

48122), the FY 2007 LTCH PPS 

Statewide average total CCRs for urban 

and rural hospitals, effective for 

discharges occurring on or after October 

1, 2006, were presented in Table 8C of 

the Addendum of that final rule (71 FR 

48303). 

Additionally, in the FY 2007 IPPS 

final rule (71 FR 48119), under the 

broad authority of section 123 of the 

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

established under the LTCH PPS SSO 

policy at § 412.529(c)(3)(iv)(C) that the 

FI may use a Statewide average CCR, 

which is established annually by CMS, 

if it is unable to determine an accurate 

CCR for a LTCH in one of the following 

three circumstances: (1) New LTCHs 

that have not yet submitted their first 

Medicare cost report (for this purpose, 

a new LTCH would be defined as an 

entity that has not accepted assignment 

of an existing hospital’s provider 

agreement in accordance with § 489.18); 

(2) LTCHs whose CCR is in excess of the 

LTCH CCR ceiling; and (3) other LTCHs 

for whom data with which to calculate 

a CCR are not available (for example, 

missing or faulty data). Other sources of 

data that the FI may consider in 

determining a LTCH’s CCR included 

data from a different cost reporting 

period for the LTCH, data from the cost 

reporting period preceding the period in 

which the hospital began to be paid as 

a LTCH (that is, the period of at least 6 

months that it was paid as a short-term 

acute care hospital), or data from other 

comparable LTCHs, such as LTCHs in 

the same chain or in the same region. 

Furthermore, in the FY 2007 IPPS 

final rule (71 FR 48121), we established 

under § 412.529(c)(3)(iv)(B) that, for 

discharges occurring on or after October 

1, 2006, the CCR applied at the time a 

claim is processed will be based on 

either the most recently settled cost 

report or the most recent tentatively 

settled cost report, whichever is from 

the latest cost reporting period. Under 

the broad authority of section 123 of the 

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

that same final rule, we also established 

at § 412.529(c)(3)(iv)(A) that, for 

discharges occurring on or after October 

1, 2006, we may specify an alternative 

to the CCR computed under 

§ 412.529(c)(3)(iv)(B) (that is, computed 

from the most recently settled cost 

report or the most recent tentatively 

settled cost report, whichever is later), 

or a hospital may also request that the 

FI use a different (higher or lower) CCR 

based on substantial evidence presented 

by the hospital. A complete discussion 

of these revisions to our methodology 

for determining a LTCH’s CCR is 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26919 

discussed in the FY 2007 IPPS final rule 

(71 FR 48119 through 48121). 

4. Reconciliation of SSO Cases 

In the FY 2007 IPPS final rule (71 FR 

48121 through 48122), under the broad 

authority of section 123 of the BBRA 

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

revised § 412.529(c)(3)(iv) (D) through 

(E), for discharges occurring on or after 

October 1, 2006, to codify in subpart O 

of 42 CFR part 412 the provisions 

concerning the reconciliation of LTCH 

PPS outlier payments, including 

editorial clarifications discussed in 

greater detail below in this section, that 

would more precisely describe the 

application of those policies. 

Specifically, at § 412.529(c)(3)(iv)(D), 

similar to our current policy, we 

specified that for discharges occurring 

on or after October 1, 2006, any 

reconciliation of outlier payments will 

be based on the CCR calculated based 

on a ratio of costs to charges computed 

from the relevant cost report and charge 

data determined at the time the cost 

report coinciding with the discharge is 

settled. In addition, at 

§ 412.529(c)(3)(iv)(E), we specified that 

for discharges occurring on or after 

October 1, 2006, at the time of any 

reconciliation, outlier payments may be 

adjusted to account for the time value of 

any underpayments or overpayments. 

Such an adjustment will be based upon 

a widely available index to be 

established in advance by the Secretary 

and will be applied from the midpoint 

of the cost reporting period to the date 

of reconciliation. We made these 

additional revisions to § 412.529(c)(3) 

because we believe that these changes 

would be more consistent with the 

LTCH PPS single payment rate, and 

because we believe it would be more 

appropriate and administratively 

simpler to include all of the regulatory 

provisions concerning the 

determination of LTCH PPS outlier 

payments applicable under the LTCH 

PPS regulations at subpart O of 42 CFR 

part 412. (For a complete discussion on 

the revisions made to the SSO 

reconciliation policy, refer to the FY 

2007 IPPS final rule (71 FR 48121 

through 48122).) 

Comment: One commenter requested 

that we clarify how we interpret the 10 

percentage point criterion of the SSO 

and HCO reconciliation policy. 

Response: We did not propose any 

changes to the current reconciliation 

policy. Therefore, we do not believe this 

final rule is the appropriate vehicle to 

address this comment. As we have 

stated, we intend to issue subregulatory 

guidance on LTCH reconciliation that 

would be similar to the IPPS 

reconciliation process and would 

address the commenter’s question. 

B. Expansion of Special Payment 

Provisions for LTCH Hospitals Within 

Hospitals (HwHs) and LTCH Satellites: 

Expansion of the 25 Percent Rule to 

Certain Situations Not Currently 

Covered Under Existing § 412.534 

In the FY 2005 IPPS final rule, we 

established the special payment 

provisions at § 412.534 for LTCHs that 

are HwHs and for satellites of LTCHs 

that are co-located with host hospitals. 

In developing that policy, we were 

particularly concerned with patient 

shifting between the host acute care 

hospitals and the co-located LTCH HwH 

or satellite for financial rather than for 

medical reasons, a scenario that we 

believed was encouraged by physical 

proximity, and that resulted in 

inappropriate increased cost to the 

Medicare program (69 FR 49191). We 

specified that the payment adjustment 

for co-located LTCHs at § 412.534 was 

also applicable to host hospitals other 

than acute care hospitals that served as 

hosts to LTCH HwHs or satellites of 

LTCHs since we had similar concerns to 

those stated above regarding patient 

shifting between such hosts and their 

co-located LTCHs. However, the vast 

majority of host hospitals continue to be 

acute care hospitals (69 FR 49198). 

In the FY 2005 IPPS final rule, we 

quoted the FY 1995 IPPS final rule 

where we first discussed our concern 

that LTCH HwHs were, in effect, 

operating as step-down units of acute 

care hospitals. We explained that this 

was inconsistent with the statutory 

framework and that such a configuration 

could lead to Medicare making one 

payment to the acute care hospital and 

another under LTCH PPS for what was 

essentially one episode of care (69 FR 

49191 through 49192, and 59 FR 45389). 

When we first established the 

separateness and control criteria for 

LTCH HwHs at § 412.22(e) in the FY 

1995 IPPS final rule, our main objective 

was to address the shifting of costly, 

long-stay patients from the host to the 

on-site LTCH, resulting in two hospital 

stays which would result in a financial 

windfall for both providers. We sought 

to protect the integrity of the IPPS by 

ensuring that those costly, long-stay 

patients who could reasonably continue 

treatment in an acute care hospital 

would not be unnecessarily discharged 

to an onsite LTCH, a behavior that 

would undermine the Medicare IPPS 

DRG payment system for acute care 

hospitals. We explained that the Federal 

standardized payment amount for the 

IPPS was based on the average cost of 

an acute care patient across all acute 

care hospitals for the base year. This is 

premised on the assumption that, on 

average, both high-cost and low-cost 

patients are treated at hospitals. 

Although Medicare may pay a hospital 

less than was expended by the hospital 

for a particular costly case, the hospital 

could also receive more than it 

expended for other, less costly cases. 

However, an acute care hospital that 

consistently discharges higher cost 

patients to a post-acute care setting for 

the purpose of lowering its costs, 

undercuts the foundation of the IPPS 

DRG payment system which is based on 

averages, as noted above. Because the 

course of acute treatment had not been 

completed, the hospital inappropriately 

would have incurred lower costs under 

the IPPS. It did not incur additional 

costs for what would have been the 

remainder of the patient’s stay at the 

IPPS acute care hospital. We were 

concerned that once that patient was 

discharged from the IPPS acute care 

hospital, the patient, still under active 

treatment for the same condition, would 

be admitted to a LTCH, thereby 

generating a second admission and 

Medicare payment that often would not 

have taken place but for the availability 

of the LTCH (59 FR 45389 through 

45393). 

With the growth of satellites of 

excluded hospitals, another category of 

co-located facilities, we established 

‘‘separateness and control’’ policies 

applicable to satellites, which we 

defined at § 412.22(h) as ‘‘a part of a 

hospital that provides inpatient services 

in a building also used by another 

hospital or in one or more entire 

buildings located on the same campus 

as buildings used by another hospital.’’

In the FY 2003 IPPS final rule at 

§ 412.22(h), we finalized additional 

regulations governing the satellites of 

hospitals (64 FR 41532 through 41535 

and 67 FR 50105 through 50106). 

As detailed in the FY 2005 proposed 

and final rules for the IPPS (69 FR 

28323 through 28327, 69 FR 49191 

through 49214), with the explosive 

growth in the number of LTCH HwHs 

and concomitant cost to the Medicare 

program, we reevaluated the 

effectiveness of existing policies 

regarding HwHs. (OSCAR data showed 

that there were 105 LTCHs in 1993 of 

which 10 were HwHs. By October 2005, 

there were 373 LTCHs of the majority 

which were HwHs.) We considered 

whether our regulations sufficiently 

protected the Medicare program from 

the problems that we envisioned in the 

FY 1995 IPPS final rule. We also 

questioned the effectiveness of the 

‘‘performance of basic hospital 

functions’’ aspect of the ‘‘separateness 


ycherry on PROD1PC64 with RULES2
26920 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

and control’’ requirements alone 

because we were aware that some colocated providers had been establishing 

complex arrangements among corporate 

affiliates, and had obtained services 

from those affiliates, masking true 

corporate identities, and therein, 

diluting or impairing the effectiveness 

of the separateness criteria in 

determining whether both hospitals 

were interrelated. While technically 

remaining within the parameters of the 

rule, these arrangements intermingled 

corporate interests so that the corporate 

distinctness was lost, thus side-stepping 

the intent of our regulations. (Although 

we have had similar concerns regarding 

patient movement between host 

hospitals and their satellites, there had 

never been any ‘‘performance of basic 

hospital functions’’ criteria established 

in § 412.22(h) because satellites are part 

of another hospital, and therefore, share 

a Medicare provider number with ‘‘the 

hospital of which they are a part’’ thus 

making it administratively burdensome 

to distinguish between the inpatient 

operating costs of the main hospital and 

its satellite(s).) 

In the FY 2005 IPPS final rule, 

following serious consideration of the 

public comments that we received on 

our proposed policy revisions for LTCH 

HwHs and satellites (69 FR 28323 

through 28327) and further evaluation 

of the issues, regulatory changes were 

finalized for HwH separateness and 

control policies at § 412.22(e) and a new 

payment adjustment was established for 

LTCH HwHs and satellites of LTCHs, at 

§ 412.534. (We wish to note that the 

term ‘‘satellite facility’’ in this section 

refers to satellites of excluded hospitals, 

in particular, LTCHs, and does not 

include satellites of excluded units at 

§ 412.25.) 

Specifically, in the FY 2005 IPPS final 

rule (69 FR 49091 through 49214), 

effective for cost reporting periods 

beginning on or after October 1, 2004, 

for LTCHs we eliminated the 

performance of basic hospital functions 

test under § 412.22(e)(5)(i), the 15 

percent test under existing 

§ 412.22(e)(5)(ii), and the 75 percent of 

admissions from other than the host 

criteria at § 412.22(e)(5)(iii). A LTCH 

that met administrative separateness 

and control requirements at 

§ 412.22(e)(1)(i) through (e)(1)(iv), under 

our finalized policy, satisfied the LTCH 

HwH requirements. (As noted above in 

this section, the performance of basic 

hospital functions test does not exist for 

satellites; therefore, we did not similarly 

revise § 412.22(h).) However, we 

established a new payment adjustment 

at § 412.534 based upon annual 

threshold criteria for LTCH HwHs or 

LTCH satellites of 25 percent (or an 

applicable percentage) for LTCH 

discharges who were admitted from 

their host hospitals. 

Section 412.534, Special payment 

provisions for long-term care hospitals 

within hospitals and satellites of longterm care hospitals, provides that if a 

LTCH HwH or LTCH satellite’s 

discharges that were admitted from its 

host hospital exceed 25 percent (or the 

applicable percentage) of its total 

Medicare discharges for the LTCH HwH 

or LTCH satellite’s cost reporting 

period, an adjusted payment would be 

made at the lesser of the otherwise 

payable amount under the LTCH PPS or 

the amount payable under the LTCH 

PPS that would be equivalent to what 

Medicare would otherwise pay under 

the IPPS. In determining whether a 

hospital met the 25 percent (or 

applicable percentage) criterion, 

patients transferred from the host 

hospital that had already qualified for 

outlier payments at the host would not 

count as a discharge that had been 

admitted from the host. (We commonly 

refer to this throughout the preamble 

and regulations text as the discharge not 

being counted towards the applicable 

threshold.) 

It is important to note that if the 

hospital exceeds its threshold, LTCH 

discharges admitted from the host 

before the LTCH exceeds the 25 percent 

threshold would be paid an otherwise 

unadjusted payment under the LTCH 

PPS. 

We also finalized additional 

adjustments to the 25 percent policy for 

specific circumstances. For an LTCH 

HwH or LTCH satellite located in a rural 

area, there is no payment adjustment 

applied under § 412.534 if no more than 

50 percent, rather than 25 percent, of 

the Medicare patients discharged from 

the LTCH or satellite were admitted 

from the host. In addition, in 

determining the percentage of patients 

admitted from the host, any patients 

that had been Medicare outliers at the 

host and then discharged to the rural 

LTCH HwH or LTCH satellite would be 

considered as if they were admitted to 

the LTCH or satellite from a non-host 

hospital. In addition, in the case of a 

LTCH or LTCH satellite facility that was 

co-located with the only other hospital 

in the MSA or with an MSA-dominant 

hospital, as defined at § 412.534(e)(4), a 

payment threshold was established that 

we believed responded to ‘‘the unique 

needs of these communities’’ (69 FR 

49207). Under § 412.534(e)(2), we do not 

adjust payments to those LTCH HwHs 

or LTCH satellite facilities as long as the 

percentage of Medicare patients 

discharged from the LTCH HwH or 

LTCH satellite that were admitted from 

the urban single or MSA dominant host 

hospital, did not exceed the percentage 

of the total Medicare discharges in the 

MSA in which the hospital is located 

that were discharged from the host 

hospital, for the cost reporting period 

for which the adjustment would be 

made, but in no case is the percentage 

less than 25 percent or more than 50 

percent. In addition, in determining the 

percentage of patients admitted to the 

LTCH from the urban single or MSA 

dominant host hospital, any patients 

that had been Medicare outliers at the 

host and then transferred to the LTCH 

HwH or LTCH satellite would be 

considered as if they were admitted to 

the LTCH from a non-host hospital. 

(When we refer to ‘‘the 25 percent (or 

applicable percentage)’’ patient 

threshold throughout this final rule, the 

‘‘applicable percentage’’ refers to these 

special adjustments that we have 

provided for the special circumstances 

of rural, urban-single, or MSA-dominant 

LTCHs or to the percentage associated 

with the transition policy, discussed 

below in this section.) 

When implementing this policy, we 

also provided for a 4-year transition for 

existing LTCH HwHs or LTCH satellites 

that met the applicable criteria outlined 

in the regulations to allow these LTCHs 

a reasonable period during which hosts 

and co-located LTCH HwH or LTCH 

satellites and specific ‘‘LTCHs under 

formation’’ would be able to adapt to the 

requirements of the new policy. For cost 

reporting periods beginning on or after 

October 1, 2004, through September 30, 

2005, these transitioned hospitals were 

to be grandfathered, with the first year 

as a ‘‘hold harmless’’ year. However, 

even for facilities that were being 

phased-in to the full payment 

adjustment, in the first cost reporting 

period, the hold harmless year, the 

percentage of discharges admitted from 

the host hospital to the LTCH could not 

exceed the percentage of discharges 

admitted from the host hospital to the 

LTCH HwH or LTCH satellite in its FY 

2004 cost reporting period. (For the 

purposes of § 412.534, the hospital’s 

cost reporting period during FY 2004, 

the last cost reporting period prior to the 

implementation of § 412.534, is the 

‘‘base period’’ for purposes of 

establishing the gradual phase-in of the 

full payment threshold adjustment (69 

FR 49196).) 

After the first grandfathered cost 

reporting period, these LTCH HwHs and 

LTCH satellite facilities were required to 

meet a percentage transition over the 3- 

year period beginning in FY 2006. For 

cost reporting periods beginning on or 

after October 1, 2005, but before October 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26921 

1, 2006, the percentage of Medicare 

discharges that may be admitted from 

the host with no adjustment may not 

exceed the lesser of the percentage of 

their discharges admitted from their 

host during its FY 2004 cost reporting 

period or 75 percent. For cost reporting 

periods beginning on or after October 1, 

2006 but before October 1, 2007, the 

percentage of Medicare discharges that 

may be admitted from the host with no 

adjustment may not exceed the lesser of 

the percentage of its Medicare 

discharges admitted from its host during 

its FY 2004 cost reporting period or 50 

percent, and finally, 25 percent (or other 

applicable percentage) beginning with 

cost reporting periods beginning on or 

after October 1, 2007. Additionally, the 

25 percent policy for co-located LTCHs 

is currently implemented in a locationspecific manner. That is, the 

computation of the percentage of LTCH 

HwH or LTCH satellite discharges 

admitted from a host is based solely on 

the admissions from the physically colocated host and not from other 

campuses or remote locations which 

may share a common Medicare provider 

number with the host. 

Although the payment adjustment at 

§ 412.534 focused on LTCH HwHs and 

satellites of LTCHs and its host 

hospitals, the relationship between a 

receiving provider and any referring 

hospital has been an issue of concern for 

the Medicare program, even in the 

absence of co-location. Under section 

1886(d)(5)(J) of the Act, added by 

section 4407 of the BBA of 1997, the 

Congress provided for a post-acute 

transfer policy which addressed certain 

patient discharges from acute care 

hospitals that subsequently received 

additional treatment delivered by a 

second Medicare provider. We believe 

that the Congress enacted this 

legislation to discourage acute care 

hospitals from prematurely discharging 

patients to another treatment setting in 

order to increase Medicare payment. 

The Congress’ enactment of the 

legislation authorizing the post-acute 

transfer policy is indicative of its 

serious concerns about patient shifting 

between acute and post-acute providers. 

In the case of the post-acute transfer 

policy, described above in this section, 

we focused on overpayment, under the 

IPPS, to the transferring hospital when 

a patient is prematurely discharged to 

another provider during the same 

episode of illness. 

The payment adjustment for colocated LTCHs at § 412.534 was based 

on concerns similar to those underlying 

the post-acute transfer policy at § 412.4, 

that is, an inappropriately truncated 

hospitalization at a host facility and an 

admission to another provider, 

specifically a LTCH, for which an 

additional Medicare payment would be 

generated. However, the payment 

adjustment at § 412.534 is not applied to 

the transferring hospital but rather, to 

discharges from the co-located LTCH to 

which the presumably prematurely 

discharged patient has been admitted. 

Moreover, although the referring 

hospital under the post-acute transfer 

policy must be an acute care hospital, 

for the purposes of the payment 

adjustment at § 412.534, any hospital is 

a potential host if it is co-located with 

a LTCH HwH or LTCH satellite. 

When we proposed the 25 percent (or 

applicable percentage) payment 

adjustment for co-located LTCHs in the 

FY 2005 IPPS proposed rule, MedPAC 

expressed concern that the 25 percent 

patient threshold policy would have a 

significant impact and could possibly 

lead to an inequitable situation for colocated LTCHs, as compared to 

freestanding LTCHs. Among their 

concerns were the following: 

Freestanding LTCHs also have strong 

relationships with acute care hospitals, 

and that where on average LTCH HwHs 

receive 61 percent of their patients from 

their hosts, on average freestanding 

LTCHs receive 42 percent of their 

patients from their primary referring 

hospital; a 25 percent rule that only 

applied to LTCH HwHs and not to 

freestanding LTCHs could be 

inequitable; and if this policy approach 

applied the adjustment only to HwHs 

and satellites it could be circumvented 

by an increase in the number of 

freestanding LTCHs instead of LTCH 

HwHs (69 FR 49211). 

In the RY 2007 LTCH PPS final rule, 

we also stated that according to a 

commenter, the data indicated ‘‘* * * 

that it is common practice for LTCHs 

* * * to admit patients from a singlesource acute care hospitals’’ and that 

71.2 percent of freestanding LTCHs 

admit more than 25 percent of their 

patients from a single source acute-care 

hospital (71 FR 27878). 

Additionally, in comments received 

on the FY 2005 IPPS proposed rule to 

preclude common ownership of a host 

and a HwH (which was not finalized), 

two commenters asserted that the 

financial incentive to accept 

inappropriate patients from an acute 

care hospital could exist only when the 

acute care hospital and the LTCH were 

commonly owned and when there was 

common governance, a situation that 

‘‘can exist even without co-location, that 

is, a freestanding LTCH, exempt from 

the requirements of § 412.22(e) could be 

owned and governed by the hospital 

from which it receives the majority of its 

referrals’ (69 FR 49202). Despite the 

commenters’ assertions, we do not 

believe that either common ownership 

or co-location are the only 

circumstances under which financial 

incentives exist for acute care hospitals 

to prematurely discharge Medicare 

patients to LTCHs for additional 

treatment during the same episode of 

patient care. In fact, we are aware of the 

existence of ‘‘arrangements’’ between 

Medicare acute and post-acute hospitallevel providers that may not have any 

ties of ownership or governance relating 

to patient shifting that appear to be 

based on mutual financial gain rather 

than on significant medical benefits for 

the patient. This could be the case if an 

acute care hospital discharges a 

Medicare beneficiary who continues to 

require hospital-level care primarily to 

preclude that patient’s case from 

reaching outlier status at the acute care 

hospital, to an LTCH for additional 

treatment. Under this scenario, 

Medicare would pay the acute care 

hospital under the IPPS for the 

beneficiary’s care but the hospital 

would be able to avoid both losing the 

‘‘fixed loss’’ amount and absorbing 20 

percent of the remaining costs for the 

outlier patient’s care, as established 

under the IPPS outlier policy at subpart 

F of part 412. Medicare would also be 

responsible for a payment, to the LTCH, 

under the LTCH PPS upon the patient’s 

discharge from the LTCH. Accordingly, 

we believe that additional regulation in 

this area is both necessary and 

appropriate to protect the Medicare 

Trust Fund when generating two 

payments under two different payment 

systems for what was essentially one 

episode of beneficiary care. 

When we finalized the payment 

adjustment at § 412.534, which focused 

solely on co-located LTCHs, that is, 

LTCH HwHs and satellites of LTCHs, 

and as we subsequently noted in the RY 

2007 LTCH PPS final rule, we took 

considerable note of these comments 

and we have continued since that time 

to monitor the relationships between 

referring hospitals and LTCHs (71 FR 

27878). Specifically, at that time we also 

analyzed patient claims data from the 

FY 2004 MedPAR files for acute care 

patients who are admitted to 

freestanding LTCHs. We have analyzed 

the discharge and LOS information from 

this data to evaluate whether there was 

a significant difference in patient 

shifting behavior between co-located 

LTCHs and their host acute care 

hospitals and those freestanding LTCHs 

that admit a majority of their patients 

from particular referring acute care 

hospitals. (As stated previously, for the 


ycherry on PROD1PC64 with RULES2
26922 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

purposes of the payment adjustment at 

existing § 412.534, any inpatient 

hospital-level provider is a potential 

host if it is co-located with a LTCH 

HwH or LTCH satellite (69 FR 49198). 

Similarly, freestanding LTCHs also 

admit patients from sources other than 

acute care hospitals. However, our data 

reveals that approximately 80 percent of 

all LTCH admissions are from acute care 

hospitals. Therefore, our data analysis 

discussed below in this section, focuses 

on the relationship between a referring 

acute care hospitals and LTCHs.) 

We also analyzed more recent data on 

relationships between LTCHs and acute 

care hospitals from which they received 

a significant percentage of referrals. The 

RY 2005 MedPAR files indicate that 

only 73 of the then 200 freestanding 

LTCHs admitted 25 percent or less of 

their Medicare discharges from an 

individual acute care hospital; for 82 of 

those freestanding LTCHs, the 

percentage was between 25 and 50 

percent; for 33 it was between 50 and 75 

percent, and for 6 percent of those 

freestanding LTCHs it was between 75 

and 100 percent of their Medicare 

discharges that were admitted from one 

acute care hospital. Thus, the data 

indicates that for over 60 percent of all 

freestanding LTCHs, over 25 percent of 

their discharges were for patients 

admitted from an individual acute care 

hospital. 

Generally, the data reveals minimal 

differences for cases grouped to the 

same DRG between the ALOS at the 

acute care hospital prior to an 

admission to a co-located LTCH and the 

ALOS at a referring acute hospital prior 

to admission to a freestanding LTCH. 

For example, when we finalized the 25 

percent threshold payment adjustment 

for co-located LTCHs at § 412.534, we 

evaluated data from CY 2004 MedPAR 

files regarding LTC–DRG 475, 

Respiratory System Diagnosis with 

Ventilator Support, for both LTCH 

HwHs with more than 25 percent of 

their discharges admitted from their 

host hospital and freestanding LTCHs 

with more than 25 percent of their 

discharges admitted from an individual 

referring hospital. The ALOS for 

patients stays that have not reached 

outlier status at the host prior to being 

discharged to the co-located LTCH was 

12.7 days and for freestanding LTCHs, 

the average LOS at their individual 

referring hospital was 12.9 days. 

Similarly, for LTC–DRG 416, 

Septicemia, the ALOS at the host acute 

care hospital was 9.8 days prior to 

admission to the co-located LTCH and 

the prior ALOS at the individual 

referring acute care hospital was 9.6 

days prior to admission to the 

freestanding LTCH. Even though we 

finalized the percentage threshold 

payment adjustment only for co-located 

LTCH HwHs and satellites at that time, 

we believed that this data indicates 

considerable similarity between the 

patient-shifting behavior at acute care 

hospitals with co-located LTCHs and 

acute care hospitals with LTCHs with 

which they are not co-located. We 

would have expected the LOS at the 

acute care hospital that discharged 

patients to non-co-located LTCHs to be 

longer. 

Furthermore, as noted above in this 

section, we have concentrated on the 

relationships between acute care 

hospitals and non-co-located LTCHs in 

this discussion, because approximately 

80 percent of Medicare patients in 

LTCHs are admitted from acute care 

hospitals. However, we believe that the 

same concerns, articulated above, would 

also exist when the patient source is not 

an acute care hospital. There could still 

be a financial incentive on the part of 

the referring hospital (for example, an 

IRF, to prematurely discharge a 

beneficiary to a LTCH for additional 

post-acute treatment in order to avoid 

absorbing high treatment costs under 

the IRF outlier policy at § 412.624(e)(5)) 

that would result in two Medicare 

payments, one to the initial provider 

and the other under the LTCH PPS for, 

what is actually, a single episode of 

beneficiary care. (We recognize that a 

patient could experience a medical 

crisis while an inpatient at an IRF, but 

typically, the most appropriate setting 

for such urgent care would be a general 

acute care hospital, rather than a LTCH.) 

We believe that this data gives further 

credence to concerns articulated by 

MedPAC and the assertions made by the 

Lewin Group in their comments on our 

FY 2005 IPPS proposed rule regarding 

the ‘‘strong relationships’’ for referral 

purposes that exist between many acute 

care hospitals and freestanding LTCHs. 

Although, our decade-old concerns, 

about LTCHs functioning as long-stay or 

step-down ‘‘units’’ of acute care 

hospitals, focused on co-located LTCHs 

(HwHs and LTCH satellites), we believe 

that this data indicates that many 

freestanding LTCHs may also be serving 

the same purpose as those that are colocated, that is, as functional step-down 

units of their primary referring acute 

care hospital. 

We are also concerned about other 

attempts to evade our regulations at 

§ 412.534. In implementing the HwH 

regulations at § 412.22(e) and the 

satellite regulations at § 412.22(h), we 

have consistently utilized the definition 

of ‘‘campus’’ that was established in the 

provider-based regulations at 

§ 413.65(a)(2) which specifies that a 

campus is ‘‘the physical area 

immediately adjacent to the provider’s 

main buildings, other areas and 

structures that are not strictly 

contiguous to the main buildings but are 

located within 250 yards of the main 

buildings, and any other areas 

determined on an individual basis, by 

the CMS regional office, to be part of the 

provider’s campus.’’ We have become 

aware of certain LTCH companies that 

have both established new LTCHs and 

are considering relocating existing 

HwHs or LTCH satellites so that they are 

at least 300 yards from the acute care 

hospital, thus side-stepping the intent of 

existing § 412.534. We believe that 

extending the existing payment policy 

will also address the type of ‘‘gaming,’’

described above in this section. 

We first noted in the RY 2006 LTCH 

PPS final rule (71 FR 27878) our 

concern that in many cases that the line 

of ‘‘functional separateness’’ between 

freestanding LTCHs and their major 

referral sources appears to have been 

erased. We believe that our analysis of 

patient movement between these 

facilities supports these concerns. 

Therefore, under the broad authority 

conferred on the Secretary by section 

123 of the BBRA, as amended by section 

307(b) of the BIPA to implement a 

prospective payment system for LTCHs, 

including authority to provide for 

appropriate adjustments to the payment 

system, we proposed the extension of 

the payment adjustment at § 412.534, 

presently applicable to co-located 

subclause (I) LTCHs, to all subclause (I) 

LTCHs (section 1886(d)(1)(B)(iv)(I) of 

the Act), as explained below in this 

section. (For the purposes of the 

discussion of this policy, a ‘‘subclause 

(I) LTCH’’ is also intended to include 

satellites of these LTCHs. Our proposal 

regarding subclause (II) LTCHs, that is 

those LTCHs that meet the definition at 

section 1886(d)(1)(B)(iv)(II) of the Act, is 

discussed below in this section.) 

Specifically, at § 412.536, we proposed 

regulations that govern payments under 

the LTCH PPS for LTCH and LTCH 

satellite Medicare discharges admitted 

from referring hospitals not co-located 

with the LTCH or the satellite of a 

LTCH. 

The proposed policy provisions of the 

25 percent (or applicable percentage) 

payment adjustment apply to any 

subclause (I) LTCH or LTCH satellite 

regardless of the physical proximity to 

the hospital from which it is accepting 

admissions. In order to apply this policy 

at all subclause (I) LTCHs and LTCH 

satellites, we proposed to additionally 

revise existing § 412.534 to include a 

new provision at § 412.534(h) that 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26923 

would extend the 25 percent (or 

applicable percentage) payment 

threshold to those grandfathered colocated subclause (I) LTCH HwHs and 

LTCH satellites at § 412.22(f) and 

§ 412.22(h)(3)(i), respectively, for 

Medicare discharges that had been 

admitted from the grandfathered LTCH 

or LTCH satellite facility’s host for cost 

reporting periods beginning on or after 

July 1, 2007. (We address the issue of 

satellites of subclause (II) LTCHs below 

in this section.) We proposed adding 

§ 412.536 that applies a comparable 

payment adjustment governing 

Medicare discharges from subclause (I) 

LTCHs and LTCH satellites that were 

admitted from referring hospitals not colocated with the LTCH or the satellite of 

a LTCH. 

The proposed payment adjustment at 

§ 412.536 applies to those Medicare 

discharges from co-located subclause (I) 

LTCHs (HwHs and LTCH satellite 

facilities) that have been admitted from 

hospitals other than those with which 

they are co-located. We believe that this 

policy addresses our concerns with 

LTCHs and LTCH satellites that in many 

cases appear to be functioning like stepdown units of acute care hospitals. 

Furthermore, we believe it is 

appropriate that the same analytical 

standards and payment policies be 

applied by Medicare to all subclause (I) 

LTCHs. Therefore, we proposed 

amending existing § 412.534 to include 

subclause (I) grandfathered LTCH HwHs 

and LTCH satellite facilities, as well as 

using the same thresholds applicable to 

co-located LTCH HwHs and LTCH 

satellite facilities for subclause (I) 

LTCHs and LTCH satellite facilities that 

admit Medicare patients from referring 

hospitals not co-located with the LTCH 

or the satellite of a LTCH, under 

§ 412.536. 

Specifically under the proposed 

policy, for cost reporting periods 

beginning on or after July 1, 2007, as we 

specified in revised § 412.534(h), this 

proposed payment adjustment would 

have included those subclause (I) LTCH 

HwHs and satellites that had been 

‘‘grandfathered’’ under § 412.22(f) and 

§ 412.22(h)(3)(i), respectively, and that 

are presently exempted from the 

existing payment adjustment for colocated LTCHs. As noted previously, 

both grandfathered HwHs at § 412.22(f) 

and satellite facilities at § 412.22(h)(3)(i) 

would be permitted to retain their 

exclusions from the IPPS despite not 

meeting ‘‘separateness and control’’

policies with regard to their 

relationships with their host hospitals, 

as long as they continued to comply 

with applicable Medicare requirements. 

This inclusion of grandfathered LTCH 

HwHs and LTCH satellites in the 

proposed 25 percent (or applicable 

percentage) threshold policy would not 

effect their ability to continue to be 

‘‘grandfathered’’ and excluded from the 

IPPS. Moreover, as noted above, the 25 

percent (or the applicable percentage) 

threshold policy governing discharges 

from subclause (I) LTCHs that had been 

admitted from any individual referring 

hospital not co-located with the LTCH 

or the satellite of a LTCH, at § 412.536, 

would also apply in determining 

payments under the LTCH PPS for 

Medicare discharges from LTCH HwHs 

and LTCH satellites, including 

grandfathered HwHs and LTCH 

satellites, that had been admitted from 

referring hospitals not co-located with 

the LTCH or the satellite of a LTCH (that 

is, referring hospitals other than their 

hosts). 

Under the policies applicable to 

grandfathered subclause (I) LTCH HwHs 

and LTCH satellites, we proposed to pay 

an adjusted amount for those discharged 

Medicare patients that were admitted 

from their co-located host, under 

§ 412.534(h) or from any other referring 

hospital under § 412.536, in excess of 

the applicable percentage threshold. 

The grandfathered LTCHs and LTCH 

satellite facility’s Medicare discharges 

that reached outlier status at the host, at 

§ 412.534(h), or at the referring hospital 

not co-located with the LTCH or the 

satellite of a LTCH, at § 412.536, would 

not count towards the applicable 

threshold. 

We believed that since we proposed 

expanding the 25 percent policy to all 

subclause (I) LTCHs and LTCH satellite 

facilities it was appropriate to include 

LTCH HwHs and LTCH satellites 

grandfathered respectively under 

§ 412.22(f) and § 412.22(h)(3)(i). We 

proposed that the provisions at 

§ 412.534(h) would apply for Medicare 

discharges from grandfathered LTCH 

and LTCH satellite facilities admitted 

from co-located hospitals and the 

provisions at § 412.536 would apply for 

discharges admitted from the referring 

hospital not co-located with the LTCH 

or the satellite of a LTCH. As we noted 

in our RY 2007 LTCH PPS final rule 

regarding grandfathered HwHs, ‘‘[W]e 

do not believe that it is reasonable to 

assume that by creating a limited 

exception for these hospitals, the 

Congress was immunizing these 

facilities from any further regulation by 

the Secretary as to their growth and 

financial impact on the Medicare 

program. We do not believe the 

Congress was establishing a separate 

class of providers’’ (71 FR 48109). 

As noted in the proposed rule, when 

we implemented the existing 25 percent 

(or applicable percentage) for cost 

reporting periods beginning on or after 

October 1, 2004, we opted to implement 

on a ‘‘location-specific’’ basis rather 

than based on Medicare provider 

numbers. That is, we applied the 

percentage threshold payment 

adjustment only to discharges from a 

specific location of a LTCH HwH or 

LTCH satellite that was admitted from 

the host hospital with which they share 

a building or campus. However, since 

implementing this policy, we have been 

contacted by numerous representatives 

of LTCH chains whose questions appear 

to indicate that the site-specific 

implementation of the threshold 

percentage had resulted in patientshifting between hospital locations that 

shared a Medicare provider number and 

even between separately owned LTCHs 

(for their mutual advantage) that sidestepped the intent of our policy. 

Specifically, we offer the following 

example of a situation that was 

occurring: a host hospital at Location A 

was discharging patients to a LTCH 

HwH or satellite at Location B while the 

host hospital at Location B discharged 

patients to the LTCH HwH or satellite at 

Location A. 

We also proposed that for those colocated LTCHs already subject to the 25 

percent (or applicable percentage) 

payment adjustment at existing 

§ 412.534, the policy expansion at 

§ 412.536 would apply to payments 

under the LTCH PPS for patients 

discharged from co-located LTCHs 

(HwHs and satellites) that were 

admitted from referral sources other 

than their host hospital(s). 

Therefore, under the proposed policy, 

for cost reporting periods beginning on 

or after July 1, 2007, a subclause (I) 

LTCH or LTCH satellite that discharges 

more than 25 percent (or applicable 

percentage) of Medicare patients 

admitted from any individual referring 

hospital not co-located with the LTCH 

or the satellite of a LTCH. (that had not 

already reached outlier status, as 

discussed above) would be subject to 

the payment adjustment at § 412.536 for 

Medicare discharges from that hospital 

in excess of the applicable threshold. 

Furthermore, we believe that with the 

application of our proposed policy at 

§ 412.536 to Medicare discharges from 

subclause (I) LTCH HwHs and LTCH 

satellites that were admitted from any 

individual referring hospital not colocated with the LTCH or the satellite of 

a LTCH., we are closing the ‘‘locationspecific loophole’’ established by the 

implementation of § 412.534. The 

change would affect all LTCHs or LTCH 

satellite Medicare discharges that were 


ycherry on PROD1PC64 with RULES2
26924 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

admitted from hospitals that are located 

on a different campus. 

We proposed that the payment 

adjustment at § 412.534(h) for 

grandfathered LTCH HwHs and LTCH 

satellite facilities, discussed above in 

this section, would track the applicable 

provisions of the existing payment 

adjustment at § 412.534. Therefore, we 

proposed, at § 412.534(h), for cost 

reporting periods beginning on or after 

July 1, 2007, the provisions of § 412.534 

will also apply to grandfathered 

subclause (I) LTCH HwHs and LTCH 

satellite facilities. Accordingly, under 

revised § 412.534, if the percentage of 

the grandfathered LTCH or LTCH 

satellite’s discharged Medicare inpatient 

population that were admitted from its 

co-located host exceeds the applicable 

percentage of the LTCH’s Medicare 

discharges for that cost reporting period, 

an adjusted payment will be made for 

those discharges that were admitted 

from that hospital beyond the applicable 

percent threshold, at the lesser of the 

otherwise payable amount under 42 

CFR part 412, subpart O or the amount 

payable under subpart O that would be 

equivalent to what Medicare would 

otherwise pay under the rules at subpart 

A, § 412.1(a). (The specifics of this 

payment formula are explained in 

considerable detail in the RY 2007 

LTCH PPS final rule (71 FR 27879).) 

Furthermore, as with our initial 

payment adjustment at § 412.534, we 

proposed additional adjustments for 

LTCHs and LTCH satellites that would 

be affected by the new regulations and 

that are located in rural areas, or that 

admit Medicare patients from urban 

single or MSA-dominant referring 

hospitals (discussed below). 

We did not propose extending the 

payment adjustment in § 412.534(h) and 

§ 412.536 to those LTCHs and LTCH 

satellite facilities that we refer to as 

subclause (II) LTCHs and LTCH 

satellites, established by section 

1886(d)(1)(B)(iv)(II) of the Act. The 

policy for subclause (I) LTCHs and 

LTCH satellites would be based on a 

calculation of the percentage of 

Medicare discharges that a LTCH admits 

from an individual hospital during a 

cost reporting period as compared to the 

LTCH’s total Medicare discharges 

during that cost reporting period. 

Because of a significant policy 

distinction that we made at the start of 

the LTCH PPS for FY 2003, at this time 

we do not believe that this policy 

should be applied to subclause (II) 

LTCHs and LTCH satellite facilities. 

With the implementation of the LTCH 

PPS, we revised the § 412.23(e)(2)(i) and 

(e)(3)(i) to calculate the ALOS based 

solely on Medicare patients who 

required long-stay hospitalizations at 

subclause (I) LTCHs defined by section 

1886(d)(1)(B)(iv)(I) of the Act; however, 

we did not change the formula for 

calculating the ALOS for a LTCH 

governed by section 1886(d)(1)(B)(iv)(II) 

of the Act, implemented at 

§ 412.23(e)(2)(ii), for a ‘‘subclause (II)’’

LTCH. We believed that in establishing 

a ‘‘subclause (II)’’ LTCH, the Congress 

provided an exception to the general 

definition of LTCHs under subclause (I). 

We had no reason to believe that the 

change in methodology for determining 

the average inpatient LOS would better 

identify the hospitals that the Congress 

intended to exclude under subclause (II) 

(67 FR 55974). Similarly, when we 

established the existing 25 percent or 

applicable percentage payment 

adjustment at § 412.534, we determined 

that its application to subclause (II) 

LTCHs was inappropriate because the 

designation of a subclause (II) LTCH 

was not solely dependent upon 

Medicare discharges (69 FR 49205). 

Therefore, we are not applying the 

expansion of the 25 percent policy at 

§ 412.536 and amended § 412.534 to 

LTCHs and LTCH satellite facilities 

defined under section 

1886(d)(1)(B)(iv)(II) of the Act. The 

existing and amended payment 

threshold adjustments at § 412.534 and 

at § 412.536 for subclause (I) LTCHs and 

LTCH satellites are based solely on 

percentages of LTCH Medicare 

discharges. As stated above in this 

section, we continue to believe that 

since we include both Medicare and 

non-Medicare discharges in our 

calculations for defining a subclause (II) 

LTCH at § 412.23(e)(2)(ii) that applying 

a payment adjustment that is based 

solely on Medicare discharges may not 

be appropriate. Furthermore, consistent 

with our policy not to include satellites 

of subclause (II) LTCHs which were 

specifically grandfathered at 

§ 412.22(h)(3)(ii) in § 412.536, we have 

excluded subclause (II) LTCH satellites 

in the application of the 25 percent 

payment adjustment for co-located 

grandfathered LTCHs at § 412.534(h). 

We received 270 comments on the RY 

2008 LTCH PPS proposed rule. Several 

of these comments pertained to the 

extension of the expansion of the 25 

percent rule to certain situations not 

currently covered under existing 

§ 412.534. The following is a summary 

of these comments and our responses. 

Comment: One commenter expressed 

concern about the President’s budget 

that has submitted to the Congress the 

savings to be affected by this proposed 

rule are already ‘‘scored’’ and claimed 

as savings. In light of this, the 

commenter questioned the legitimacy of 

the comment process. 

Response: We disagree with the 

commenter that the inclusion of 

anticipated savings from the LTCH PPS 

in the President’s Budget invalidates the 

legitimacy of notice and comment 

rulemaking. Projections for 

expenditures and savings are a 

necessary and expected step in the 

budgetary process for the Federal 

Government. The budget only 

represents the President’s expectations 

or projections of what may happen in 

the future. It may make assumptions as 

to policies that have been proposed (or 

are being evaluated for this purpose) as 

a representation of will happen. But at 

most, the Budget should not be viewed 

as a final blueprint because the 

Administration cannot anticipate policy 

modifications in response to public 

comments. We fully consider all 

comments received during the comment 

period and modify proposed policies in 

response to public comment. 

Furthermore, we would urge the 

commenter to review the last several 

years of LTCH PPS and IPPS proposed 

and final rules and focus on the 

differences between the policies that we 

proposed and those that we finalized 

(for example, the interrupted stay policy 

(67 FR 13416, 13455 through 13462, and 

67 FR 55954, 56003 through 56006); 

qualifications for LTCH HwH status (69 

FR 23306, 28323 through 28327, and 69 

FR 48916, 49191 through 49214); and 

revisions in the grandfathering of HwHs 

and satellites (71 FR 23996, 24124 

through 24126 and 71 FR 47870, 48106 

through 48117)) in order to more clearly 

appreciate the impact that comments 

have on the development of our final 

policies. 

Comment: Several commenters 

questioned our authority in proposing a 

payment adjustment for LTCHs that is 

based on an IPPS payment. These 

commenters assert that the Congress 

excluded LTCHs from the IPPS in 1983 

and enacted legislation that mandated a 

separate PPS for LTCHs that specifically 

required that payments to LTCHs 

should reflect the resource use and costs 

of treating LTCH patients. The 

commenters believe we are violating the 

statutory requirement that payments to 

LTCHs be on a per discharge basis ‘‘that 

reflects the reasonable and necessary 

cost of providing services in a hospital 

having an average LOS of greater than 

25 days.’’ The commenters assert that a 

payment ‘‘equivalent to’’ or 

‘‘comparable to’’ payments under the 

IPPS are actually payments under the 

IPPS, violating Congressional intent. 

Several commenters acknowledge our 

belief that the IPPS-equivalent is not a 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26925 

payment under the IPPS but the ‘‘thrust 

of the rationale’’ for imposing the rule 

is that these cases still belong in the 

acute care hospital and payment should 

mirror payment under the IPPS. One 

commenter stated that the Congress 

‘‘established LTCHs as a distinct and 

separate level of care.’’

Several commenters believe we are 

violating section 1801 of the Act 

(‘‘Nothing in this title shall be construed 

to authorize any Federal Officer or 

employee to exercise supervision or 

control over the practice of medicine or 

the manner in which medical services 

are provided’’) and section 1802(a) of 

the Act (‘‘Any individual entitled to 

insurance benefits under [Medicare] 

* * * may obtain health services from 

any institution, agency, or person 

qualified to participate * * * [in the 

Medicare program] if such institution, 

agency, or person undertakes to provide 

him such services’’). These commenters 

stated that we have no authority to pay 

for services provided at a LTCH under 

the IPPS. Statutory authority for the 

establishment of the LTCH PPS 

indicates the Congress believed that 

LTCH care is more costly than acute 

because it requires the Secretary ‘‘to 

account for different resource use of 

LTCH patients.’’ The commenters 

believe that the policies in the RY 2008 

LTCH PPS proposed rule would strip 

away the special status given by the 

Congress to LTCHs, thus undermining 

the purpose of the LTCH PPS because a 

significant portion of payments would 

be reimbursed under the IPPS. 

Response: Following further data and 

policy analysis, we believe that the 

policies that we are finalizing in this 

rule fairly address circumstances that 

we have become aware of as the LTCH 

PPS matures. We do not believe that we 

violated Congressional intent in either 

the BBRA of 1999 or the BIPA of 2000 

in establishing a payment adjustment 

under the LTCH PPS that addresses our 

concerns about paying for a substantial 

number of short stay patients, 

particularly those with extremely short 

stays, under a payment system designed 

to treat long stay patients. 

As indicated previously, section 123 

of the BBRA, as amended by section 

307(b)(1) of the BIPA, confers broad 

discretionary authority on the Secretary 

to implement a PPS for LTCHs, 

including providing for appropriate 

adjustments to the payment system. 

This broad authority gives the Secretary 

great flexibility to fashion a LTCH PPS 

based on both original policies, as well 

as concepts borrowed from other 

payment systems that are adapted, 

where appropriate, to the LTCH context. 

In the instant case, our finalized policy 

utilizes, in large part, principles from 

the IPPS payment methodology and 

builds upon those concepts to create a 

LTCH PPS payment adjustment that 

results in an appropriate payment under 

the LTCH PPS for those inpatient stays 

that we believe could be more 

appropriately treated in another setting. 

We disagree with commenters that 

our proposed expansion of the 25 

percent policy that provides for a 

payment based on an ‘‘IPPS comparable 

payment amount’’ is a payment under 

the IPPS. We want to emphasize that 

such a payment is not an IPPS payment, 

but rather, given the fact that these 

patients are comparable to patients 

treated in acute care hospitals and that 

the statute precludes the existence of 

LTCH units, it is an appropriate 

payment adjustment under the LTCH 

PPS that is equivalent to a payment that 

would be derived from the IPPS 

payment methodology. Moreover, the 

authority extended to the Secretary by 

the BIPA included the discretion to 

‘‘provide for appropriate adjustments to 

the long-term hospital payment 

system.’’ Our final policy is one such 

adjustment made within the authority 

conferred under the statute. From the 

inception of the LTCH PPS for FY 2003, 

we have interpreted the above cited 

statutory provision to authorize the 

establishment of payment adjustment 

policies including short stay outliers 

(§ 412.529), interrupted stays 

(§ 412.531), and discharges from LTCHs. 

We also believe that the authority 

extended to the Secretary by the BIPA 

includes the discretion to develop a 

payment adjustment based upon 

establishing a percentage threshold for 

LTCH discharges that we believe are 

comparable to discharges from acute 

care hospitals under circumstances 

where we believe that a full episode of 

care has not been delivered at the 

referring hospital and that the LTCH is 

functioning like a step-down unit of the 

referring hospital. 

We believe that further refining the 25 

percent policy actually captures 

Congressional intent since it addresses 

the situation of a LTCH which by all 

appearances is serving as a unit of 

another hospital. 

Comment: Some commenters 

maintain that we have no authority to 

restrict admissions through payment 

reductions to LTCHs that have no 

relationship to the referring acute care 

hospitals. One commenter stated that in 

proposing the extension of the 25 

percent policy to non-co-located LTCHs, 

we have violated the Court’s two-prong 

test for validity of a regulation 

established under Chevron U.S.A., Inc. 

v. Natural Resources Defense Counsel, 

Inc., 467 U.S. 837, 842–843 (1984). 

Under the ruling, the Court asks 

whether the Congress addressed, in 

clear language, the issue in question 

and, if the answer is affirmative, the 

effect is given to the ‘‘unambiguously 

expressed intent of Congress.’’ If the 

‘‘statute is silent or ambiguous with 

respect to the specific issue,’’ ‘‘the 

Agency’s interpretation is allowed to 

stand as long as it is based on a 

permissible construction of the statute.’’

Id. at 843. Deference to the Agency’s 

interpretation is ‘‘only appropriate 

when the agency has exercised its own 

judgment’’ and is not based upon an 

erroneous view of the law. Id. 

Response: We disagree that we have 

imposed criteria that would restrict 

admissions through payment reductions 

to LTCHs that have no relationship to 

the referring acute care hospitals. The 

payment adjustment we are 

implementing is not the equivalent to 

setting ‘‘admissions criteria’’ for 

treatment at a LTCH. An LTCH may 

admit as many hospital-level patients as 

it can safely treat and from whatever 

source(s) it chooses. However, we 

believe that LTCHs that discharge 

greater than the applicable percentage of 

patients admitted from a particular 

source that had not reached high cost 

outlier status, may be understood to be 

functioning similarly to a co-located 

LTCH (HwH or satellite), and therefore, 

more like a step-down unit of the acute 

care hospital. Under such a 

circumstance, we believe that the 

Medicare program would be generating 

a second payment under the LTCH PPS 

for a single episode of care for patient 

who, had not completed his or her 

episode of care and, is discharged to a 

LTCH for the remaining portion of the 

original episode of care. Thus, we 

believe that it is appropriate to adjust 

the payment to be made to the LTCH 

under the LTCH PPS. 

Section 123 of the BBRA, as amended 

by section 307 (b) of the BIPA, confers 

upon the Secretary tremendous 

discretion in creating the LTCH PPS. We 

believe that the expansion of the 25 

percent policy is in accordance with the 

authority granted to the Secretary under 

123 of the BBRA as amended by section 

307 of the BIPA to make adjustments 

under the LTCH PPS and is consistent 

with the statute which precludes the 

establishment of LTCH units at section 

1886(d)(1)(B) of the Act and is also 

consistent with the Secretary’s authority 

under sections 1102 and 1871 of the 

Act. Therefore, we disagree with 

commenters that the Secretary is acting 

in contradiction of the statute and 

inconsistently with the Chevron 

doctrine. 


ycherry on PROD1PC64 with RULES2
26926 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

As a result of our monitoring efforts, 

we have become increasingly aware that 

the intent of our existing payment 

adjustment policy at § 412.534 aimed at 

combating LTCHs functioning as longstay ‘‘units’’ of the referring hospitals is 

being circumvented by creative patientshifting and admission practices, in 

addition to, a spiked increase in the 

number of freestanding LTCHs. We have 

been monitoring the patient shifting 

patterns of LTCHs and referring 

hospitals that are not co-located with 

one another and have detected behavior 

that is not significantly different from 

that of co-located LTCHs and their host 

hospitals. Therefore, we do not believe 

that co-location is a prerequisite to 

inappropriate patient-shifting between 

an acute care hospital and a LTCH. 

We believe that the danger of LTCHs 

functioning as ‘‘units’’ appears to be 

occurring not only in LTCH HwHs and 

LTCH satellites, but also with 

freestanding LTCHs, and that in many 

cases, these non-co-located LTCHs and 

their referral sources may be functioning 

in ways that appear to have erased the 

line of ‘‘functional separateness’’

between these LTCHs and their referring 

acute care hospitals. If patient-shifting 

between the referring hospital and a 

LTCH exceeds a specific threshold prior 

to the patient reaching outlier status at 

the referring hospital (that is, prior to 

receiving a full episode of care) the 

LTCH appears to be functioning as a de 

facto step down unit of the acute care 

hospital, a configuration not permitted 

by section 1886(d)(1)(B) of the Act, 

which authorizes rehabilitation and 

psychiatric units but not LTCH units of 

acute care hospitals. We believe that if 

the patient is in effect, being treated in 

a ‘‘unit’’ of the acute care hospital, it is 

reasonable to revise the payment 

methodology and take this into account. 

Comment: We received several 

comments supporting our inclusion of 

grandfathered LTCH HwHs in the 25 

percent threshold payment adjustment. 

These commenters stated that such 

inclusion would ‘‘level the playing 

field’’ among LTCHs. A number of 

commenters disagreed with applying 

the 25 percent threshold payment 

adjustment for co-located LTCH HwHs 

and satellites. Other commenters urged 

us to ‘‘continue the grandfathering 

exemption.’’ Several commenters stated 

that including grandfathered LTCH 

HwHs with other LTCHs ‘‘evades the 

Congressional mandate for 

grandfathering’’ and also contradicts 

regulatory statements that we have 

made since the start of the LTCH PPS. 

One commenter stated that 

grandfathered LTCHs HwHs have 

‘‘operated in reasonable reliance on 

CMS statements that it [would] not 

apply the HwH requirements to 

[grandfathered LTCHs]’’ and requested 

that we continue to exempt 

grandfathered LTCHs from the proposed 

25 percent rule. The commenter noted 

that since grandfathered LTCH HwHs 

were exempt from the original 25 

percent policy that had been codified at 

§ 412.22(e)(5)(iii) and since § 412.534 is 

based on that requirement, we should 

continue to exempt grandfathered LTCH 

HwHs from this policy. One commenter 

noted that grandfathered LTCH HwHs 

were protected against being paid under 

the IPPS even though they did not 

comply with the ‘‘separateness and 

control’’ regulations but if they are 

required to comply with the 25 percent 

threshold payment adjustment, the 

‘‘result will be the same’’ because the 

grandfathered LTCH HwH would be 

paid under the IPPS. Another 

commenter cited that LTCH HwHs are 

precluded from growing under our 

regulations, and therefore, they should 

be exempted from the 25 percent policy. 

One commenter agreed that HwH, 

freestanding, and grandfathered LTCHs 

should be subject to the extension of the 

25 percent threshold rule, but believes 

that the threshold should be 35 percent 

for this group of LTCHs instead of 25 

percent because it would still allow 

CMS to achieve its stated goal and 

would also be more realistic for LTCH 

providers that operate in small urban 

markets which are very similar to rural 

areas. 

Response: We appreciate those 

commenters who endorsed our 

inclusion of grandfathered LTCH HwHs 

in the 25 percent threshold payment 

adjustment. (We would also note that 

satellites of LTCHs at § 412.22(h)(4) will 

also be affected by the policy change.) 

The payment adjustment that we are 

finalizing, will affect all subpart (I) 

LTCHs, including those LTCHs and 

LTCH HwHs and satellites that were 

already regulated under § 412.534 for 

discharges that had been admitted from 

their co-located hosts. It addresses our 

concern regarding Medicare patients 

who are discharged from referring 

hospitals prior to the delivery of a full 

episode of care, to LTCHs. In keeping 

with our fiduciary responsibility to 

protect the Medicare program against 

duplicative and inappropriate 

payments, we are finalizing the 

proposed policy at § 412.534(h) under 

which all subclause (I) LTCHs, 

including grandfathered LTCH HwHs 

and satellites, will be subject to the 25 

percent (or applicable percentage) 

threshold payment adjustment with 

regard to Medicare discharges that they 

admit from their co-located host. (We 

are also providing for conforming 

changes to § 412.534(a), (c)(1), (c)(2), 

(d)(1), and (e)(1) to include 

grandfathered HwHs and satellites, in 

existing provisions.) Furthermore, under 

new § 412.536, Medicare discharges 

from grandfathered LTCH HwHs and 

satellites that were admitted from 

referring hospitals not co-located with 

the LTCH or the satellite of a LTCH that 

exceed the applicable threshold, will be 

subject to the payment adjustment 

described in detail above in this section. 

(Elsewhere in these responses, we 

discuss the 3-year transition period to 

the full threshold adjustment that we 

are also providing for all LTCHs and 

LTCH satellites including grandfathered 

LTCHs and satellites affected under 

§ 412.536.) 

We disagree with commenters who 

stated that we are ‘‘evading Congress’

mandate, and contradicting regulatory 

statements that we have formerly 

made.’’ Section 4417(a) of the BBA of 

1997 amended 1886(d)(1)(B) of the Act 

to provide that ‘‘[a] hospital that was 

classified by the Secretary on or before 

September 30, 1995 as a hospital 

described in clause (iv) [a LTCH] shall 

continue to be so classified 

notwithstanding that it is located in the 

same building as or on the same campus 

as another hospital.’’ We believe this 

provision was intended to prevent 

grandfathered LTCHs that were unable 

to satisfy our HwH regulations from 

losing their LTCH status. By finalizing 

the 25 percent (or applicable 

percentage) payment threshold policy to 

include grandfathered LTCHs HwHs, in 

no way are we countermanding their 

exemption from the separateness and 

control regulations at § 412.22(e). 

LTCHs that exceed the applicable 

threshold do not lose their LTCH status. 

Rather, the new policy only affects the 

payment level for all LTCHs that exceed 

the threshold. We further believe that 

including grandfathered LTCH HwHs 

(and satellites) within the scope of the 

percentage payment threshold that we 

have established to ensure that 

Medicare is not generating two full 

payments one under the IPPS and 

another under the LTCH PPS for one 

episode of care, is well within the 

authority of section 123 of the BBRA, as 

amended by section 307(b)(1) of the 

BIPA, which confers broad discretionary 

authority on the Secretary to develop 

and implement a PPS for LTCHs and 

further provides that the Secretary ‘‘may 

provide for appropriate adjustments to 

the long-term hospital payment 

system.’’

We do not believe that it is reasonable 

to assume that by creating a limited 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26927 

exception for these hospitals that the 

Congress intended to immunize these 

facilities from any further regulation by 

the Secretary as to their growth and 

financial impact on the Medicare 

program. ‘‘We do not believe Congress 

was establishing a separate class of 

providers’’ (71 FR 48109). 

Grandfathered LTCHs and LTCH 

satellite facilities are paid under the 

LTCH PPS and the revised payment 

adjustment under § 412.534 and new 

§ 412.536 is merely another feature of 

the LTCH PPS. 

One commenter believes we 

contradicted our own statements by 

including a partial quote from the FY 

2007 IPPS final rule about grandfathered 

LTCH HwHs’ ‘‘reasonable reliance’’ on 

the fact that we would not apply the 

HwH requirements. In that final rule, we 

explained that ‘‘[t]he purposes of our 

grandfathering certain existing HwHs 

and satellites was to reflect reliance 

interests and settled expectations that 

existed on the part of these facilities at 

the time the separateness and control 

requirements were created’’ (71 FR 

48107). We believe this statement is 

consistent with our belief that including 

grandfathered HwHs in the extension of 

the 25 percent (or applicable 

percentage) payment threshold policy 

does not violate the Congress’ intent. 

The expansion of the 25 percent policy 

will not affect the ‘‘reliance interests 

and settled expectations’’ of 

grandfathered HwHs (and also on LTCH 

satellites) since they will continue to be 

exempt from meeting the separateness 

and control requirements that are 

required by non-grandfathered colocated LTCHs. Moreover, the concerns 

that we hold regarding premature 

patient shifting from host hospitals or 

referring hospitals to LTCHs and the 

consequences of such patterns for 

Medicare payment purpose, may even 

be more relevant with regards to 

grandfathered LTCH HwHs because 

since they are exempted from the 

separateness and control policies they 

may even more closely resemble stepdown units of their host hospitals. 

Several commenters noted that the 25 

percent threshold payment adjustment 

originated as one of the three options 

(the 75/25 test) with which HwHs could 

comply to meet the separateness and 

control requirements at (then) 

§ 412.22(e)(v)(C). They stated that since 

grandfathered LTCH HwHs were 

exempted from this requirement when it 

was a ‘‘certification issue,’’ or ‘‘control 

requirement,’’ these facilities should 

similarly be exempted from the policy 

when it is a payment adjustment. We 

note that even though the percentages in 

these policies are the same, there is a 

critical difference between them. 

Because the effect of section 

1886(d)(1)(B) is that grandfathered 

LTCH HwHs may continue to be 

classified as LTCHs even if they fail to 

meet with the ‘‘separateness and 

control’’ requirements that we had 

established at § 412.22(e), among which 

was the 75/25 test as one of the three 

options for indicating independent 

‘‘performance of basic hospital 

functions’’ between the host and the 

LTCH HwHs, grandfathered HwHs 

continued to be excluded from the IPPS 

despite their unquestioned 

organizational and functional linkage to 

their host hospitals. A nongrandfathered LTCH HwH that was not 

in compliance with the separateness 

and control requirements would have 

lost its IPPS exclusion. Therefore, since 

loss of IPPS-excluded status is not a 

feature of the payment adjustments that 

we are finalizing at revised § 412.534 

and § 412.536, we would disagree with 

the commenter that the ‘‘result will be 

the same because the grandfathered 

LTCH HwH would be paid under the 

IPPS.’’ Under § 412.534(h), which makes 

grandfathered LTCH HwHs (and LTCH 

satellites) subject to revised § 412.534(h) 

and to § 412.536, for cost reporting 

periods beginning on or after July 1, 

2007, there is no risk of losing IPPSexcluded status. Grandfathered LTCHs 

would continue to be paid under the 

LTCH PPS, albeit, an adjusted payment 

amount, even if they exceed the 

applicable percentage threshold under 

our finalized policy. 

As with all other subclause (I) LTCHs, 

Medicare payments to grandfathered 

LTCH HwHs (and satellites) for 

discharges in excess of the applicable 

threshold that were admitted from an 

individual referring hospital will be 

based on a payment under the LTCH 

PPS at the lesser of the otherwise 

unadjusted amount under the LTCH 

PPS or a payment equivalent to what 

would otherwise have been paid under 

the IPPS. As with all LTCHs and LTCH 

satellites that are subject to this 

payment policy, discharges that exceed 

the applicable threshold that had 

reached outlier status at the referring (or 

host) hospital, will not be subject to the 

payment adjustment and will therefore 

be eligible for otherwise unadjusted 

payment under subpart O. 

Since we are applying the 25 percent 

policy even to freestanding LTCHs, it 

would be inconceivable to treat 

grandfathered HwHs as being in a 

unique class that exempts them from the 

policy while applying the policy to 

LTCHs that are totally separate from the 

referring hospital. We believe that the 

Congress intended to allow 

grandfathered HwHs to maintain their 

LTCH status but in no way intended for 

this group of LTCHs to receive an 

exclusion from payment policies 

applicable to freestanding LTCHs. 

We further disagree with the 

commenters that since grandfathered 

LTCH HwHs (and satellites) are 

precluded from ‘‘growth’’ under our 

existing regulations, that they should 

not be subject to the 25 percent (or 

applicable percentage) payment 

adjustment. We have allowed 

grandfathered LTCH HwHs and 

satellites to modernize their facilities as 

necessary and appropriate even if 

modernization required an increase in 

square footage. Specifically, in the FY 

2007 IPPS final rule, we revisited 

previous policies that limited 

grandfathered LTCH HwHs (and 

satellite facilities, including satellite 

units) from changing the ‘‘terms and 

conditions’’ under which they operated 

at the time of their grandfathering and 

we revised § 412.22((f)(3) (and 

§ 412.22(h)(4) for satellites), and 

finalized a policy which would allow 

them to increase or decrease their 

square footage or decrease their number 

of beds without risking their 

grandfathered status. In that same final 

rule, we revised this policy for all 

HwHs, satellites, and satellite units of 

all excluded hospitals, not only LTCHs, 

because we were persuaded by 

comments received on our FY 2007 

IPPS proposed rule (71 FR 23996) that 

these facilities needed to be able to 

expand in order to modernize (for 

example, to accommodate new medical 

equipment, record requirements, and 

new Federal, State, and local safety 

requirements). However, we did not 

allow grandfathered facilities to increase 

their number of beds because we 

believed that all grandfathered colocated facilities already held a 

significant advantage over such facilities 

that were not grandfathered, because 

they were not required to comply with 

separateness and control rules. 

Therefore, we believed that not only 

would allowing them to increase their 

bed count convey an additional unfair 

advantage to these facilities, but also 

that such an increase would lead to 

additional costs for the Medicare 

program (71 FR 48106 through 48115). 

We similarly believe that continued 

exemption of grandfathered LTCH 

HwHs and satellites from the payment 

threshold adjustment to which all other 

subclause (I) LTCHs are subject is both 

fair and appropriate, and in the words 

of our commenter, helps to ‘‘level the 

playing field’’ among LTCHs. 

Regarding the commenter’s suggestion 

that even as we extend the 25 percent 


ycherry on PROD1PC64 with RULES2
26928 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

threshold payment adjustment to all 

LTCHs including grandfathered HwHs, 

we should raise the threshold to 35 

percent as a more reasonable goal, 

particularly for small urban and rural 

areas, we would call the commenter’s 

attention to the 3-year transition to the 

full threshold adjustment that we are 

providing (described in greater detail in 

the next response) which establishes a 

75 percent threshold but not to exceed 

the percentage in the base year at 

§ 412.536(f)(1) for all impacted LTCHs 

and LTCH satellites for cost reporting 

periods beginning on or after July 1, 

2007, through June 30, 2008 and a 50 

percent but not to exceed the percentage 

in the base year threshold for all 

impacted LTCHs and LTCH satellites for 

cost reporting periods beginning on or 

after July 1, 2008, through June 30, 

2009. For cost reporting periods 

beginning on or after July 1, 2009, the 

threshold will be 25 percent (or the 

applicable percentage.) We have 

responded to comments regarding single 

urban and rural LTCHs elsewhere in 

these responses. We believe that 

establishing this policy will result in 

hospitalized patients who continue to 

need acute care hospital treatment to 

not be shifted to another acute care 

hospital setting before the end of a full 

episode of care, but rather to complete 

appropriate treatment at the referring 

hospital. 

Comment: Several commenters 

contend that the relationship between a 

referring hospital and a freestanding 

LTCH should not be subject to the same 

regulatory standards as should a colocated LTCH and its host hospital. 

Furthermore, the commenters assert that 

when we finalized the 25 percent 

payment threshold for co-located 

hospitals, we provided a 4–year phasein to the full 25 percent (or applicable 

percentage) threshold but in our 

proposed rule, we have not proposed 

any such phase-in for those LTCHs who 

would be affected under the proposed 

policy at proposed § 412.536. The 

commenters request that if we finalized 

the proposed extension of the 25 

percent payment adjustment to non-colocated LTCHs and LTCH satellites, that 

we provide a similar transition period to 

allow LTCHs the opportunity to adapt to 

the full impact of the policy. In 

addition, commenters requested that we 

also provide for implementation on a 

site-specific basis, as we had under the 

existing § 412.534 provision rather than 

based on admissions to the provider in 

its entirety. One commenter stated that 

for purposes of implementation, using a 

provider number definition on the 

LTCH side would be simpler to track 

and control and would be less subject to 

manipulation. 

Response: We have expressed our 

concerns regarding patient-shifting 

between host hospitals and co-located 

LTCHs (HwHs and satellites) since we 

originally established the separateness 

and control requirements at § 412.22(e) 

for FY 2005 (59 FR 45389 through 

45393). Upon finalizing the 25 percent 

(or applicable percentage) threshold 

policy for co-located LTCHs for FY 

2005, we received comments indicating 

that we should be aware of similar 

patient shifting patterns between nonco-located LTCHs and their primary 

referring hospitals (69 FR 49211). 

Specifically, MedPAC noted that 

‘‘freestanding LTCHs also have strong 

relationships with acute care hospitals, 

and that where on average LTCH HwHs 

receive 61 percent of their patients from 

their hosts, freestanding LTCHs receive 

42 percent from their a primary referring 

hospital * * * [that] there are some 

risks in our proposed 25 percent policy; 

(a) the 25 percent rule that only applies 

to LTCH HwHs and not to freestanding 

LTCHs and may therefore be 

inequitable; (b) it does not ensure that 

patients go to the most appropriate postacute setting; (c) this approach may be 

circumvented by an increase in the 

number of freestanding LTCHs instead 

of LTCH HwH.’’ As we stated in the FY 

2005 IPPS final rule, we believe that 

‘‘MedPAC shares our concern that the 

LTCH payment system creates an 

incentive for unbundling of the IPPS in 

addition to overpayment for the care 

provided by LTCHs and that this 

concern is great, particularly, in the case 

of a LTCH HwH * * * ’’ (69 FR 49211). 

We also provided an in-depth 

discussion of our growing concerns in 

the RY 2007 LTCH PPS final rule (71 FR 

27874 through 27881). As we have 

stated, when we evaluate patient 

discharges from a host or a referring 

hospital (typically, an acute care 

hospital) and admission to a LTCH, we 

are particularly concerned that the acute 

care hospital has not provided a full 

episode of care for a patient who 

continues to need hospitalization, but 

instead, is discharging this patient to 

another acute care hospital, one that is 

paid under the LTCH PPS. 

Consequently, two Medicare claims are 

submitted; one from the acute care 

hospital and the other for payment 

under the LTCH PPS for what was 

essentially one episode of care. 

In this final rule, while we continue 

to believe that the expansion of the 25 

percent payment threshold policy for at 

§ 412.536 and revised § 412.534 are 

appropriate, in response to the 

commenters, we have revisited our 

original proposal and will provide for a 

3-year phase-in of the final payment 

threshold adjustment at § 412.536 and 

revised § 412.534. Specifically, in this 

final rule, we have established a 3-year 

transition period under § 412.536 for 

LTCHs that will be governed by the 

expansion of the 25 percent threshold 

policy for LTCH discharges admitted 

from referring hospitals not co-located 

with the LTCH or the satellite of a LTCH 

and also for those grandfathered colocated LTCHs that we included under 

this policy at revised § 412.534(h). 

Under the policy that we are 

finalizing for cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2008, the threshold will be 

no less than the lesser of 75 percent or 

the percentage that the LTCH or LTCH 

satellite discharged from the referring 

hospital during its RY 2005 cost 

reporting period. For cost reporting 

periods on or after July 1, 2008 and 

before July 1, 2009, the threshold will be 

no less than the lesser of 50 percent or 

the percentage that the LTCH or LTCH 

satellite discharged from the referring 

hospital, during its RY 2005 cost 

reporting period. For cost reporting 

periods beginning on or after July 1, 

2009, all LTCHs and LTCH satellites 

under § 412.536 and grandfathered 

LTCHs and LTCH satellites under 

§ 412.534 will be subject to the 

applicable percentage threshold. (We 

note that for cost reporting periods 

beginning on or after October 1, 2007, 

non-grandfathered co-located subclause 

(I) LTCHs, under § 412.534, are fully 

phased-in to the full 25 percent (or 

applicable percentage threshold) for 

discharges admitted from their colocated hosts. However, payments for 

LTCH discharges admitted from 

referring hospitals not co-located with 

the LTCH or the satellite of a LTCH, are 

governed under § 412.536.) 

Furthermore, under our finalized 

policy, grandfathered LTCH HwHs and 

satellites, under § 412.534(h) and 

§ 412.536 will now be subject to the 3- 

year transition that we are finalizing 

under this new policy for all their 

discharges, both admitted from their colocated host and from referring hospitals 

not co-located with the LTCH or the 

satellite of a LTCH hospital. 

We believe that a 3-year transition is 

sufficient time for those affected LTCHs 

to adapt to this payment adjustment. 

Since the implementation of the existing 

payment adjustment for co-located 

LTCHs at § 412.534 for FY 2005, we 

have clearly articulated our continuing 

concerns about patient-shifting between 

non-co-located LTCHs and referring 

hospitals (69 FR 49213, 71 FR 27878 

through 27879). Therefore, we believe 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26929 

that we have provided ample notice to 

the LTCH industry of potential 

impending regulation in this area and 

that therefore we believe that the 

industry had time to adjust its behavior. 

We have also seen articles in trade 

association newsletters over the past 

several years indicating that the LTCH 

industry was well aware of our focus on 

this issue. However, in response to 

comments, we have adopted a 3-year 

transition policy that we believe will 

provide additional time for LTCHs to 

adjust to the new regulations. 

However, we also want to reiterate, 

that just as we provided under 

§ 412.534, the payment adjustment 

specified at § 412.536 will not be 

applied to discharges (admitted to 

LTCHs or LTCH satellites from referring 

hospitals not co-located with the LTCH 

or the satellite of a LTCH) that reached 

HCO status at the referring hospital 

prior to admission to the LTCH or LTCH 

satellite. 

Regarding implementation of the new 

payment adjustments, we will be 

implementing the percentage threshold 

at § 412.536 on the provider as a whole 

for multi-campus referring sources and 

also for multi-campus LTCHs or LTCH 

satellites in contrast to our locationspecific implementation of the 25 

percent payment adjustment for colocated LTCHs under § 412.534. We 

agree with the commenter that locationspecific implementation was consistent 

with our policy goals in addressing 

patient movement between co-located 

LTCHs and LTCH satellites and their 

hosts. However, we believe that our 

goals regarding LTCH discharges 

admitted from referring hospitals not colocated with the LTCH or the satellite of 

a LTCH are more logically served by 

basing implementation on the provider 

as a whole (that is, based on discharge 

data for the entire provider under its 

provider number). Discharges from a colocated LTCH or LTCH satellite that 

were admitted from remote locations of 

the host hospital not co-located with the 

LTCH or the satellite of a LTCH would 

also be held to the expanded 25 percent 

policy by aggregating the discharges 

from those locations and determining if 

they exceeded the applicable threshold. 

Patients that are admitted from the 

hospital that is co-located with the 

LTCH or LTCH satellite facility will 

continue to be governed by the locationspecific implementation of § 412.534. 

We have revised our proposed policy 

regarding transitioning to the full 25 

percent threshold adjustment and under 

our finalized policy, for all subclause (I) 

co-located HwHs and satellites, 

including grandfathered subclause (I) 

LTCH HwHs and LTCH satellites under 

the extension of the 25 percent (or the 

applicable percentage) threshold policy 

that we are finalizing, at revised 

§ 412.534(h) and § 412.536, and we are 

providing for a 3-year transition period. 

Accordingly, for cost reporting periods 

beginning on or after July 1, 2007, and 

before July 1, 2008, the percentage 

threshold applied would be no less than 

the lesser of 75 percent of the total 

number of Medicare discharges that 

were admitted from all referring 

hospitals not co-located with the LTCH 

or the satellite of a LTCH during that 

cost reporting period or the percentage 

of Medicare discharges that had been 

admitted to the LTCH or LTCH satellite 

from that referring hospital during the 

long-term care hospital’s or satellite’s 

RY 2005 cost reporting period. Although 

we proposed to use FY 2005 as the base 

year for this group of LTCHs in the RY 

2008 LTCH PPS proposed rule (72 FR 

4815), we will use RY 2005 rather than 

FY 2005 as the base year since we have 

revised the transition period under 

§ 412.536 to be effective and applicable 

for cost reporting periods on a rate year 

cycle (That is, beginning on or after July 

1. We originally chose 2005 because 

when we published our proposed rule, 

FY 2005 was our most recent full year 

of MedPAR data. For cost reporting 

periods beginning on or after July 1, 

2008 and before July 1, 2009, the 

percentage threshold applied would be 

no less than the lesser of 50 percent of 

the total number of Medicare discharges 

that were admitted from all referring 

hospitals not co-located with the LTCH 

or the satellite of a LTCH during that 

cost reporting period or the percentage 

of Medicare discharges that had been 

admitted to the LTCH or LTCH satellite 

from that referring hospital during the 

long-term care hospital’s or satellite’s 

RY 2005 cost reporting period. For cost 

reporting periods beginning on or after 

July 1, 2009, the threshold will be 25 

percent (or the applicable percentage.) A 

3-year transition period is applicable for 

all subclause (I) LTCHs and LTCH 

satellites governed under § 412.536 and 

to grandfathered LTCHs and LTCH 

satellites now subject to the threshold 

under § 412.534. For co-located LTCHs 

(that is, LTCH HwHs and LTCH 

satellites) it is important to note that 

under existing § 412.534(g)(4), for cost 

reporting periods beginning on or after 

October 1, 2007, LTCH HwHs and LTCH 

satellites being phased-in to the full 

adjustment would enter year 4 and be 

would be required to meet the 25 

percent (or applicable percentage) 

threshold regarding their percentage of 

discharges from their co-located hosts. 

However, these LTCH HwHs or LTCH 

satellites are governed by § 412.536 

regarding discharges that they admitted 

from any other referral source (that is, 

other than its co-located host hospital) 

and would be subject to the 3-year 

transition beginning with cost reporting 

periods beginning on or after July 1, 

2007. 

We also believe that it is important 

that we note that the 3-year transition to 

the full 25 percent threshold payment 

adjustment will coincide with our 

continuing work on the MedPAC 

recommendations to attempt to develop 

facility and patient level criteria for 

LTCHs. We hope that the LTCH 

industry will work closely with CMS to 

pursue this endeavor during the 

transition period. 

Comment: Several commenters 

maintained that we did not present 

convincing data-based evidence in the 

RY 2008 LTCH PPS proposed rule and 

that in the absence of meaningful data 

no meaningful comments can be made. 

Several commenters questioned why we 

are seeking to expand the 25 percent 

threshold policy to non-co-located 

LTCHs when we have not yet evaluated 

data from the FY 2005 implementation 

of the same payment adjustment for colocated LTCHs and LTCH satellites. 

Some commenters included data 

analyses that they believe refutes the 

policies that we proposed in the RY 

2008 LTCH PPS proposed rule. The 

commenters urged CMS to review the 

most current hard data from LTCHs and 

to base all policy formulations on the 

conclusions that can reasonably be 

drawn from such data. Several 

commenters contended that we 

proposed policy based on anecdotes 

rather than on hard data and that we 

have accused the LTCH industry based 

on this anecdotal evidence. The 

commenters requested that we provide 

data, rather than anecdotal evidence of 

the purported ‘‘gaming’’ that we believe 

is occurring between the acute hospitals 

and LTCHs. The commenters further 

contended that the research produced 

by RTI should be the foundation of 

future CMS rulemaking. 

Commenters also maintained that 

rather than continuing to increase, the 

absolute number of LTCHs has 

decreased by one during 2006, and 

therefore, we should not continue to be 

concerned about industry growth. 

Response: We disagree with the 

commenters’ assertions regarding both 

our analyses and provision of the best 

available data evidence for the policies 

that we proposed and that this lack 

resulted in LTCH stakeholders being 

unable to submit ‘‘meaningful 

comments.’’ In fact, we received 270 

comments in response to the RY 2008 


ycherry on PROD1PC64 with RULES2
26930 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

LTCH PPS proposed rule (some of 

which were very lengthy). We believe 

that the concerns expressed in these 

comments, which we present in 

appropriate sections of this final rule by 

topic, are indicative that meaningful 

comments were made. In determining 

our final policy, we are fully aware of 

the serious attention that our 

commenters invested in their policy 

recommendations, as well as in the 

challenges that they have articulated 

presented. Moreover, regarding 

assertions that we have not provided 

data that indicates our policy rationale, 

we note that in December 2006 we 

posted the RTI report in its entirety on 

the CMS Web site at http:// 

www.cms.hhs.gov/ 

LongTermCareHospitalPPS/ 

02a_RTIReports.asp#TopOfPage. This 

report contains detailed data analyses 

which were the bases of RTI’s findings 

and significantly impacted our 

decisions to propose specific policies. 

With regard to the data analyses that 

some commenters submitted 

challenging the correlation that we 

proffered, between the discharges to 

LTCHs and fewer high cost outlier cases 

at referring acute care hospitals we 

would assert that our data analyses 

(described below) support this theory. 

An analysis of our MedPAR data from 

acute care hospitals regarding their LOS 

during CY 2003 to their LOS during CY 

2005 in markets where LTCHs opened 

in CY 2004. Our data analysis focused 

on acute care hospitals that had been 

the source of at least 25 percent of the 

LTCH discharges. (Our data indicated 

that these communities already had 

some LTCHs at the time when these 

additional LTCHs opened.) We 

compared 304,650 acute care cases in 

CY 2004 to 316,816 cases in CY 2005. 

In CY 2003, there were 7,586 outliers 

and in CY 2005, there were 5,858. The 

percentage of outliers in the acute care 

hospitals decreased from 2.5 percent to 

1.8 percent and the numbers of patients 

that were admitted to LTCHs in those 

communities increased from 2,128 in 

CY 2003 to 6,597 in CY 2005. 

Furthermore, the percentage of acute 

care hospital discharges to LTCHs 

increased from 0.7 percent in CY 2003 

to 2.1 percent in CY 2005. The 

percentage decline in total outliers 

between the CY 2003 and CY 2005 was 

¥25.7 percent. The increase in LTCH 

discharges from CY 2003 to CY 2005 

was 198.1 percent. 

We would also quote section 3.3 ‘‘the 

RTI report which summarizes its 

detailed data analyses (which are 

included in the Report) by noting that 

LTCH admissions were less likely to 

have had an outlier payment during the 

prior acute stay (8 percent compared to 

12 percent for non-LTCH admissions). 

The ALOS in the acute hospital [prior 

to discharge to the LTCH] tended to be 

longer for the LTCH admissions, 

averaging 13.5 days compared to only 

11 days for the other acute admissions.’’

(p. 51) This statement indicates that 

those patients that were admitted to the 

LTCH before achieving outlier status at 

the acute care hospital were ‘‘sicker’’

than other patients in those DRGs, 

which is logical since they continued to 

need acute hospital-level treatment. 

(Elsewhere in these responses, we 

respond, in greater detail, to comments 

that we received that challenge our 

benchmark assumption that reaching 

outlier status signifies the delivery of a 

full episode of care. To briefly 

summarize, it is our belief that a patient 

at an acute care hospital who still is in 

need of acute hospital-level care upon 

discharge from that setting, may not 

have completed the treatment for which 

the Medicare is paying) and is using the 

LTCH as a unit to treat those patients. 

In particular, we suggest that 

commenters revisit Table 3–7 in the RTI 

Report which indicates that while most 

patients constituting LTCH admissions 

were previously hospitalized, only a 

small proportion of those in the acute 

hospital generated an outlier payment 

(less than 20 percent) except for the 

DRG 452: Complications of Treatment 

with CC (21.3 percent) and DRG 204: 

Disorders of the Pancreas Except 

Malignancy (26.2 percent). About onefourth of the top 50 LTCH conditions 

had 15 to 20 percent of their admissions 

qualifying for an acute outlier payment 

before being admitted to the LTCH. 

These included many of the medically 

complex conditions such as: DRG 475: 

Ventilator Support 16.9 percent); DRG 

316: Renal Failure (19.3 percent); DRG 

076: Other Respiratory System OR 

Procedures with CC (19.2 percent); DRG 

188: Other Digestive System (19.5 

percent); DRG 483: Tracheostomy (17.8 

percent); DRG 461: OR Procedures (17.8 

percent); DRG 331: Other Kidney and 

Urinary Tract Diagnoses with CC (17.1 

percent); and DRG 440: Wound 

Debridements for Injuries (19.4 percent). 

Still, the majority of LTCH admissions 

were admitted before reaching outlier 

status in the acute hospital’’ (p. 48). 

We believe that the above data 

supports our extension of the 25 percent 

threshold payment adjustment which 

distinguishes between patients in need 

of further acute level care who were 

admitted to a LTCH or satellite after 

receiving a full episode of care at the 

referring acute (that is, they reached 

outlier status at that hospital) and those 

needing further acute treatment that 

were admitted to the LTCH following 

what appears to be a truncated stay at 

the acute care hospital. 

In response to the comments that 

suggested that our extension of the 25 

percent payment threshold policy was 

premature since as yet, we had no data 

on the impact of the 25 percent policy 

on co-located LTCHs, because the policy 

is not yet fully phased-in, we reiterate 

that regulating inappropriate patient 

shifting to LTCH HwHs and satellites 

from their co-located hosts does not 

negate the need to address the same 

issue between LTCHs and referring 

hospitals with which they are not colocated. We remain concerned about 

LTCHs with a pattern of patients who 

need acute hospital-level care after 

having received treatment for which 

Medicare has paid under the IPPS that 

are immediately admitted for additional 

hospital-level treatment to other acute 

care hospitals (LTCHs) for another 

Medicare payment under the LTCH PPS. 

In response to commenters who found 

fault with our attention to anecdotal 

information regarding the behavior of 

some LTCHs, we note that 

determinations are based on our policy 

on a variety of factors, including 

information from our FIs, questions and 

comments from LTCH consultants and 

attorneys, LTCH advertisements in both 

print media and the internet that 

provided us with irrefutable information 

about LTCH behavior. We believe that it 

is our fiduciary responsibility to guard 

the Medicare Trust Fund from 

inappropriate and unnecessary 

expenditures. Therefore, we believe that 

any and all information regarding the 

LTCH industry is pertinent to our 

responsibility to be proactive in the 

regulatory process. For example, we are 

aware of a growing trend by some 

LTCHs to establish ‘‘units dedicated to 

mental health,’’ identified as a ‘‘Mental 

Health Unit’’ or ‘‘Medical-Behavioral 

Unit.’’ Assuming that the LTCH 

organization is cognizant of the 

preclusion against the establishment of 

excluded units (for example, psychiatric 

or rehabilitation) in a hospital that is 

excluded from the IPPS (see 

§ 412.25((a)(1)(ii)) establishment of such 

titular ‘‘units’’ would be reimbursed by 

Medicare under the LTCH PPS. Clearly 

patients in any acute care hospital 

setting (and LTCHs are acute care 

hospitals) may need psychiatric 

intervention, but given our regulations 

governing excluded psychiatric units at 

§ 412.27 and the specific COPs for 

psychiatric facilities at § 482.62, we are 

very interested in LTCHs that are 

advertising mental health care as a 

primary patient service. 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26931 

Regarding the comments that note an 

absolute decrease in the number of 

LTCHs that were established in FY 

2006, we note that we are well aware of 

continuing growth in the LTCH 

industry, which in some part, takes the 

form of large LTCH companies 

purchasing existing LTCHs and 

expanding the facilities, as well as the 

shifting landscape of the LTCH industry 

brought about by continuing corporate 

mergers. (Our information in this regard 

comes to us from FIs, corporate press 

releases from LTCHs, newsletters from 

LTCH trade associations, corporate Web 

sites, and investment newsletters. For 

example, one Web newsletter 

announced, ‘‘Private Equity Firms 

Target Long-Term Acute Care 

Hospitals.’’ The article continued, ‘‘Two 

operators of long-term acute care 

hospitals, or LTACS, agreed to be 

bought by private equity firms, but for 

very different reasons. Two notable 

deals were announced this month 

targeting companies that manage longterm acute care hospitals, or LTACs. In 

both cases, leveraged buyout firms 

initiated transactions to buy out 

operators of multiple LTACs. The 

rationale for each, however, is different, 

reflecting different business plans and 

different stages in the growth cycles of 

the two companies.’’

With respect to the commenter’s 

suggestion that we have alluded to 

gaming of the Medicare program by the 

LTCH industry and that we have 

provided no substantiation for these 

beliefs, we would note that we have 

participated in meetings, conference 

calls, correspondence, evaluated 

currently-used patient criteria, arranged 

site visits with LTCHs (and other 

providers that treat ‘‘long-term care 

hospital-type’’ patients), and 

participated in the Technical Expert 

Panel (TEP) that was held in January 

2007. While we have met and worked 

with highly skilled physicians and 

administrators of a number of LTCHs 

and we are aware that many LTCHs 

provide high quality services to their 

patients, we are contemporaneously 

aware of activity by the LTCHs that 

appear to be directed towards both 

evading the intent of Medicare policy 

and also maximizing Medicare 

payments. 

We are also aware that the dynamic of 

patient shifting from acute care 

hospitals to LTCHs are well understood 

throughout the health care industry. In 

the February 28, 2000 issue of Critical 

Care Medicine, an abstract of an article 

entitled, ‘‘The impact of long-term 

acute-care facilities on the outcome and 

cost of care for patients undergoing 

prolonged mechanical ventilation’’

concluded that ‘‘Patients undergoing 

prolonged ventilation have high 

hospital and 6-month mortality rates, 

and 6-month outcomes are not 

significantly different for those 

transferred to long-term acute care 

facilities * * *. Acute care hospitals 

can reduce the amount of 

uncompensated care by earlier transfer 

of appropriate patients to a long-term 

acute care facility.’’ (Seneff MG, Wagner 

D, Thompson D, Honeycutt, C, Silver 

MR, Department of Anesthesiology and 

Critical Care Medicine, The George 

Washington University Medical Center). 

Lastly, we note that we believe that 

the policies that we are finalizing in this 

final rule are built on solid data 

analysis, reasonable interpretation of 

information that has come to our 

attention from the TEPs and the LTCH 

industry, and our obligation to propose 

proactive policy initiatives for the longterm benefit of the Medicare program. 

Comment: Several commenters 

offered data indicating that patients 

admitted to LTCHs following an acute 

care hospital stay are generally grouped 

into a different DRG at the LTCH from 

the one to which they were grouped in 

the acute care hospital. The commenter 

used the example of ventilator 

dependent patients, who typically fall 

into a tracheostomy DRG (561/562) 

upon discharge from the acute care 

hospital but fall under the respiratory 

failure DRG (475) upon discharge from 

the LTCH, suggesting that therefore the 

two episodes of care are distinct and 

separate. The commenters also claimed 

that even those patients with the same 

DRG in each setting do not constitute a 

single episode of care because of the 

nature of the institutions and the 

differences between them. Therefore, 

the commenters asserted, there can be 

no actual claim that there is double 

payment for the same services for LTCH 

patients coming from IPPS hospitals. In 

focusing on the appropriate lengths of 

stay at acute care hospitals preceding a 

LTCH admission, many commenters 

quoted the RTI study that notes that, 

‘‘Understanding whether acute hospitals 

are already paid for these services or 

whether LTCHs are providing 

specialized services not available in the 

acute hospitals is poorly understood’’

(p. 55). The commenters believe that a 

CMS contractor has contradicted 

statements that we made. Therefore, the 

commenters state that the extension of 

the 25 percent threshold payment 

adjustment to discharges of patients 

admitted from referring hospital not colocated with the LTCH or the satellite of 

a LTCH should not be finalized. Several 

commenters suggested that if we did 

finalize this payment adjustment, it 

should be limited only to those 

situations where the same DRGs were 

assigned to both the acute care stay and 

the LTCH stay. 

Response: Our data analysis of the 

2005 MedPAR files indicates that, 

generally, when a patient is admitted to 

a LTCH immediately upon discharge 

from an acute care hospital, Medicare is 

paying for treatment under different 

DRGs for each submitted claim. 

However, we disagree with the 

commenters’ assertions that there are 

clear distinctions between ‘‘episodes of 

care’’ for a patient who is originally 

treated at an acute care hospital and 

eventually admitted to a LTCH, whether 

or not the same DRG is assigned to each 

stay. Patients being cared for in both the 

acute care hospital and LTCH settings 

are very ill, complicated patients with 

multiple comorbidities, and typically 

there is not one clear or distinctive 

principle diagnosis that is the cause of 

the patient’s failure to get well, but 

rather a constellation of problems that 

necessitate further treatment. Nor will 

one ‘‘magic’’ intervention or procedure 

necessarily cure the patient’s problems. 

DRG assignment is based on software 

that attempts to group patients 

according to individual principal 

diagnoses and surgical procedures, but 

the clinical reality is that, especially in 

the case of complex patients with 

multiple medical problems, DRG 

assignment can be a limited way of 

defining or characterizing the nature of 

a particular episode of care for a given 

patient. 

The example of respiratory failure 

that the commenter provides is 

especially illustrative of this point. A 

patient who suffers from respiratory 

failure in the acute care hospital, if it 

does not resolve, will eventually require 

a tracheostomy, which will then group 

the patient to the tracheostomy DRG. 

The tracheostomy itself is a procedure 

that is usually done on a semi-elective 

basis when it becomes apparent that the 

patient will require prolonged 

mechanical ventilation. If that patient 

subsequently is admitted to an LTCH, 

that discharge will necessarily group to 

the respiratory failure DRG, because the 

tracheostomy has already been 

performed during the acute care 

hospitalization. However, the clinical 

characteristics of the patient and the 

type of care that is required, have not 

materially changed, and the LTCH stay 

can hardly be viewed as a separate or 

unique clinical episode from the 

immediately preceding acute care 

hospital stay. From a clinical 

perspective, in the absence of a sharp 

line of distinction, or a consistent 

characterization, of exactly which 


ycherry on PROD1PC64 with RULES2
26932 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

patient is appropriate for admission to 

the LTCH, as well as when that patient 

should be transferred from the acute 

care hospital setting to the LTCH 

setting, we have difficulty 

understanding when, for example, the 

patient with respiratory failure stops 

being appropriately cared for in the 

acute care hospital and paid for under 

the IPPS and begins to require care in 

the LTCH. Recognizing that both 

settings provide acute hospital level 

care, and also noting that in areas where 

LTCHs are not available this level of 

care is provided exclusively in the acute 

care hospital until the time of discharge 

to a nonacute setting, it is therefore 

appropriate to expand the 25 percent 

policy to all instances in which a 

referring hospital is discharging so 

many patients to the LTCH or satellite 

that it appears to have created a virtual 

unit of the referring hospital at the 

LTCH or LTCH satellite. 

To those commenters who quoted a 

sentence (out of context) from the RTI 

report, we note that a thorough reading 

of that page indicates that RTI’s purpose 

does not contradict, but rather 

reinforces the above stated concerns. 

RTI’s full intent may be best understood 

from the following paragraphs, which 

includes the quoted sentence: 

‘‘Examining the acute length of stay 

differences was also useful for understanding 

the relative role of general acute and LTCHs 

in treating these severely ill populations. The 

multivariate work showed that LTCH users 

have a shorter acute inpatient length of stay. 

Understanding whether acute hospitals are 

already paid for these services or whether 

LTCHs are providing specialized services not 

available in the acute hospital is poorly 

understood. 

Better measures of acuity are needed to 

gauge the differences in medical or 

functional impairments between patients 

using LTCHs and those using other settings. 

Additional work in Phase 3 of this project 

will examine the discharge transitions for 

acute hospital discharges in areas that lack 

LTCHs. Using propensity score methods to 

match patients on diagnosis, severity, and 

additional factors, as well as control for 

differences in the availability of services will 

be important for understanding the potential 

overlap between acute and LTCH 

admissions.’’ (p. 55) 

Therefore, we continue to believe that 

clinical insight offers a significant 

challenge to the commenters’ assertions 

regarding the alleged existence of some 

‘‘bright line’’ which clearly indicates 

when it is no longer appropriate for a 

patient to continue treatment in an 

acute care hospital. Particularly in the 

case of patients whose conditions fall 

into the broad category of ‘‘medically 

complex,’’ clinicians from different 

provider settings from throughout the 

country have evaluated existing 

instruments (that is, Interqual, or 

MassPRO) and although there appears to 

be no difficulty in defining a ‘‘hospitallevel long-term care type patient’’ there 

has been considerable difficulty in 

determining the assignment of such 

patients to particular provider settings 

(acute versus LTCH) for purposes of 

Medicare payment policy. 

Accordingly, we are finalizing the 

extension of the 25 percent (or 

applicable percentage) threshold policy 

so that the payment adjustment applies 

to all subclause (I) LTCHs. We believe 

it is our responsibility to protect the 

Medicare Trust Fund from making 

excessive payments for a single episode 

of care. 

Comment: Many commenters 

suggested alternatives to specific aspects 

of the proposed expansion of the 

proposed 25 percent threshold payment 

adjustment in the event that we decided 

to finalize it. A number of commenters 

suggested that we grandfather existing 

‘‘freestanding’’ LTCHs from compliance 

with the policy because of the 

significant shift in operation that our 

policy would mean to their on-going 

operations. Similarly, these commenters 

also suggested grandfathering those 

LTCHs that were already under 

development (that is, hospitals that 

were in their 5 of 6 month qualification 

period for LTCH designation as set forth 

in § 412.23(e)(3)). Several commenters 

further suggested that we set a 50 

percent threshold for all existing LTCHs 

and those under development and apply 

a 25 percent threshold for new LTCHs 

beginning on July 1, 2007. Other 

commenters asked us to set the 

percentage threshold permanently at 50 

percent for non-co-located LTCHs in 

light of our ‘‘lesser policy concerns’’

than we have with LTCH HwHs and 

satellites. Several commenters urged us 

to set the threshold for LTCHs in 

‘‘underserved areas’’ at 75 percent 

because of the disparate impact that 

could be anticipated from implementing 

this policy. Commenters suggested that 

we establish a 50 percent threshold for 

urban LTCHs and a 75 threshold for 

rural or market dominant LTCHs. We 

also were requested to apply 

‘‘temporary, limited’’ expansion of the 

threshold while patient and facility 

level characteristics are being developed 

and implemented for LTCHs over a 3- 

year period with the following 

percentage thresholds: year 1–75 

percent; year 2–62.5 percent; year 3–50 

percent. According to the commenter, 

this policy would sunset after year 3 

and be replaced by facility and patient 

criteria. 

Response: We appreciate each of the 

recommendations made by the 

commenters as to alternatives to 

extending the 25 percent threshold 

payment adjustment policy to all 

subclause (I) LTCHs effective July 1, 

2007. We have considered the 

commenters concerns as we noted 

earlier, we are finalizing the payment 

adjustment policy but (as describe 

elsewhere in these responses), we have 

provided for a 3-year transition period 

for all LTCHs and LTCH satellites that 

will be affected by these changes. 

Commenters suggested that we exempt 

currently existing and ‘‘under 

development’’ LTCHs from the policy 

because it would require a substantial 

change in the way that these facilities 

currently operate. In response to the 

commenter’s question regarding ‘‘under 

development’’ LTCHs, we are applying 

the transition to these hospitals as 

applicable, once they become LTCHs 

(for example, if a hospital has its first 

cost reporting period as a LTCH 

beginning on July 1, 2008, it will be 

subject to the 50 percent threshold.) We 

are aware that these new regulations 

will impact on admission policies at 

LTCHs (as well as discharge practices at 

acute care hospitals for patients that 

continue to need hospital-level care) but 

such changes are our stated purpose in 

establishing the original 25 percent 

threshold payment adjustment policy 

for co-located LTCHs at § 412.534 and it 

continues to be our goal for all LTCHs 

and satellites as we finalize § 412.536. 

We believe that it is essential that 

LTCHs reevaluate their existing 

practices for admittances from referring 

hospitals. As specified elsewhere in 

these responses, our data indicates that 

referring hospitals, primarily acute care 

hospitals, are discharging patients to 

LTCHs for continued acute level care 

when many of these patients could 

continue to be treated in the acute care 

hospital. This is particularly true in 

cases where patient care falls into the 

broad category of ‘‘medically complex.’’

We believe that Medicare should not be 

generating two full payments, one under 

the IPPS and one under the LTCH PPS 

for what is essentially one episode of 

care. Although we have had historic 

concerns with patient-shifting between 

co-located hospitals, we also believe 

that it is appropriate to apply the 25 

percent (or applicable percentage) 

threshold payment adjustment to those 

LTCHs and LTCH satellites that had 

previously been unaffected by 

§ 412.534, but have similar behavior 

patterns as co-located HwHs and 

satellites. (We have responded to 

concerns about rural, single urban, and 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26933 

MSA dominant LTCHs elsewhere in 

these responses.) We would once again 

remind commenters that the payment 

adjustment is only applicable for 

Medicare discharges in excess of the 

applicable threshold from an individual 

referring hospital for cases that have not 

reached outlier status at the referring 

hospital. We believe that an appropriate 

and judicious admission policy, on the 

part each LTCH, could still enable it to 

admit a specific subset of patients from 

a referring hospital, prior to the patients’

reaching outlier status, and prior to 

exceeding the applicable threshold. 

Therefore, even though we continue our 

work with RTI in Phase 3 of their 

project to see if we can identify 

appropriate patient and facility-level 

criteria for LTCHs, we do not see the 

development of those criteria and the 

development of those regulations as 

contradictory aspects of our fiduciary 

responsibility for the Medicare program. 

We further believe that it may be 

appropriate to establish policies under 

the LTCH PPS that guard the Medicare 

Trust Fund from duplicative payments 

for one episode of patient care even if 

we are able to develop criteria that 

identify LTCHs and LTCH-appropriate 

patients. 

Comment: Several commenters 

expressed concern that the proposed 

expansion of the 25 percent policy 

would have a negative impact on 

Medicare beneficiary access to care, 

physician choice and authority, and on 

families of patients who would benefit 

from LTCH care. Specifically, the 

commenters noted that LTCHs would be 

‘‘forced to use a flat 25 percent for each 

referring hospital, thereby limiting 

access for Medicare beneficiaries to the 

level of care deemed most appropriate 

by their physician.’’ Another commenter 

stated that the implementation of the 25 

percent rule would force acute care 

hospitals to keep patients beyond the 

period for which is medicallyappropriate because LTCHs would not 

be able to accept patients once they met 

the 25 percent threshold and that 

overcrowding of acute hospital beds 

would be the result of the 25 percent 

policy. Another commenter stated that 

this policy may result in some patients 

being transferred to skilled nursing 

facilities (SNFs) instead of LTCHs, even 

in cases in which LTCH care would be 

more appropriate. 

Response: We do not believe that the 

25 percent policy is unnecessarily 

‘‘burdensome’’ or ‘‘onerous’’ to LTCHs 

for several reasons. The 25 percent 

policy does not preclude the transfer of 

any patients from short term acute care 

hospitals to LTCHs when such transfer 

is deemed medically necessary and 

appropriate by the treating physician; 

rather, it adjusts the payment 

methodology that is applied to the 

LTCH for discharges that exceed the 

applicable threshold. Also, as we noted 

in the RY 2007 LTCH PPS proposed 

rule, the payment policy linked to the 

25 percent rule helps to remove the 

perverse incentive that may exist 

between acute care hospital and LTCH 

facilities to evade § 412.534 and to 

prevent both the acute and LTCH from 

receiving two full Medicare payments 

for what is essentially one episode of 

care. Furthermore, this policy also helps 

to ensure that appropriate transfers from 

acute to LTCH facilities are occurring 

based on medical considerations, rather 

than on the basis of maximizing 

Medicare payments. We believe that the 

preexisting relationship between LTCHs 

and their referring hospitals can be 

utilized to maximize quality patient care 

while also making it feasible for LTCHs 

to comply with the 25 percent policy. 

With respect to the commenter’s 

concern that the 25 percent policy 

would result in transfers to SNFs when 

LTCH care would be more appropriate, 

we note that since we are only dealing 

with patients who require hospital level 

of care, it would not be appropriate for 

physicians to transfer these patients to 

a SNF. However, we do note that it may 

be appropriate for a subset of LTCH 

patients, after their condition has 

stabilized to be transferred to a lower 

level of care, such as a SNF. 

Comment: One commenter noted that 

Michigan is a ‘‘certificate of need’’ State 

and that the number of LTCH beds is 

determined and approved by the State. 

The commenter further noted that 

Michigan FIs require that Michigan 

LTCHs use InterQual admissions 

standards and recommends that we 

exempt States who have programs 

similar to the ‘‘certificate of need’’

because they already adhere to 

InterQual admissions standards, and 

therefore, are only treating appropriate 

‘‘LTCH’’ patients. 

Response: With respect to some 

LTCHs using InterQual criteria as the 

standard for admitting a patient, we 

note that as we stated in the RY 2007 

LTCH PPS final rule, InterQual 

standards focus on the distinction 

between acute care and sub-acute care, 

that is, SNF-level of care, and 

determinations of ‘‘medical necessity’’

or ‘‘inappropriate admission’’ are based 

only on whether the patient should be 

hospitalized, rather than on whether the 

hospitalization should occur at an LTCH 

or at a general acute care hospital’’ (71 

FR 27869). Furthermore, we recognize 

and assume that all LTCHs should be 

using some form of clinical assessment 

or screening tool to identify appropriate 

admission candidates; the InterQual is 

just one model of such a tool that 

LTCHs may choose to use if they 

determine that those standards 

sufficiently identify appropriate patients 

for their facility. However, we note that 

the choice of which screening tool an 

LTCH chooses to use should have no 

bearing on the percentage of patients 

being admitted from a particular 

referring hospital because even under 

the expansion of the 25 percent policy, 

it is assumed that all LTCH admissions 

are hospital-level patients. As explained 

previously in this section, the expansion 

of the 25 percent policy is intended to 

address the situation of an LTCH or 

satellite that is treating hospital-level 

patients since it has exceeded the 

applicable threshold for discharging 

patients that were admitted from any 

individual referring hospital and is 

serving as a unit of the referring 

hospital. Therefore, we are not 

exempting LTCHs in ‘‘certificate of 

need’’ States from the 25 percent policy, 

but again note that they, along with all 

other affected LTCH and LTCH satellites 

will be given a 3-year transition period 

with respect to implementation of this 

policy. 

Comment: One commenter supported 

the proposed 25 percent rule and 

believes that the SSO provision should 

not apply to subclause II and satellite 

LTCHs. 

Response: We are finalizing our 

proposal to exempt subclause II and 

satellite LTCHs from both the 25 percent 

rule expansion and the SSO policy that 

we are finalizing in this rule. 

Comment: One commenter stated that 

implementation of the 25 percent rule 

would result in the following: (1) The 

loss of local LTCH services in all areas 

except large metropolitan areas; (2) 

Patients having to endure long 

ambulance rides to access LTCH care 

and possibly being driven past LTCHs 

with available beds; (3) Families having 

to drive longer distances to visit their 

loved ones who may be in LTCHs for 

extended periods of time; and (4) Some 

companies, who have already invested 

in building new LTCHs, possibly being 

faced with bankruptcy because of the 

reduced payment associated with the 25 

percent rule. 

Response: We disagree with the 

commenter and we do not expect that 

the 25 percent policy will result in a 

loss of local LTCH services (in all but 

large metropolitan areas). Instead, we 

expect that clinical appropriateness will 

continue to be used as the standard for 

LTCH admissions. Since we do not 

believe that access to LTCH services 

will be negatively affected by this rule, 


ycherry on PROD1PC64 with RULES2
26934 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

we do not believe that beneficiaries will 

need to endure long ambulance rides to 

reach an LTCH, nor will families of 

Medicare beneficiaries have to drive 

long distances to visit their loved ones. 

We also remind the commenter that 

LTCHs will continue to be paid full 

LTC-DRG payments as long as the 25 

percent threshold is not exceeded by 

any one referral source. In addition, any 

patients that reach HCO status prior to 

being transferred to the LTCH would not 

count towards the 25 percent policy. 

With regard to the commenter’s concern 

about companies being faced with a 

financial loss in light of the 25 percent 

policy expansion, we note that we 

continue to believe that the LTCH 

industry can adapt their admission 

practices to assure that payments will 

not be reduced, except in rare 

circumstances. The LTCHs would do 

this by targeting those patients at 

referring hospitals that had reached 

outlier status. 

Comment: Some commenters 

expressed concern that the proposed 25 

percent rule would override physician 

authority and limit physician choice in 

deciding the most appropriate level of 

care for his or her patients. 

Response: We disagree that this policy 

overrides physician authority and 

choice. Rather we believe that this 

policy appropriately adjusts payments 

to LTCHs so that the payments reflect 

the amount of care that is actually 

provided in the LTCH setting. 

Furthermore, this policy does not 

require a change in physician clinical 

decision-making; rather, it simply seeks 

to remove any financial incentive that 

could encourage an LTCH to admit a 

patient from an acute care hospital prior 

to that patient receiving a full episode 

of care at the acute care hospital. 

Additionally, we would expect that 

physicians would continue to use their 

clinical expertise in assessing the level 

and type of care that is most appropriate 

for their patients and that the 

physicians’ clinical standards would not 

be affected by hospital payment 

policies. 

We do not expect that the payment 

policies implemented in this final rule 

will deter physicians from making 

referrals to LTCHs when it is clinically 

appropriate to do so. We also believe 

that appropriate clinical care, not 

payment, should drive physicians’

decisions with respect to patients’

length of stay and level of care. 

Additionally, we note that physicians’

clinical decisions do not negate the fact 

that payments should be aligned with 

the care and resource utilization given 

in each provider setting. 

Comment: Several commenters stated 

that the payment reductions associated 

with the proposed 25 percent rule 

expansion and the proposed ‘‘very SSO’’

policy violate the principles of a PPS in 

which some cases are expected to cost 

less than others. 

Response: We disagree that these 

policies violate the principles of 

averaging found in a PPS. We note that 

a fundamental premise of the PPS 

system is that where the costs of some 

cases may exceed their payment, the 

opposite is also likely to happen (that is 

that the costs of some cases will be 

lower than their payment). As we stated 

in last year’s LTCH PPS final rule, 

‘‘* * * while some types of cases are 

always expensive for a hospital to treat, 

others are, in general, less costly, so it 

is assumed that hospitals under a DRGbased system, therefore, can typically 

exercise some influence over their casemix and their services to achieve fiscal 

stability’’ (71 FR 27863). The principles 

of a PPS begin to break down when 

there are extreme outliers that are not 

consistent with the averages calculated, 

especially when the extreme outliers 

constitute a disproportionate amount of 

cases. Additionally, we are attempting 

to maintain appropriate payment 

weights for the DRGs by adjusting the 

LTC–DRG weights for SSO cases. (For a 

full description of this process, see 71 

FR 47978 through 47985). We note that 

the effect of this adjustment allows the 

LTC–DRGs to be recalibrated at a weight 

that is truly representative of average 

cases instead of at a weight that is 

skewed towards shorter than average 

(and presumably, less costly) cases. We 

also believe that applying the 25 percent 

(or applicable percentage) threshold 

payment adjustment to discharges from 

LTCHs that were admitted from any 

referring hospital is not a contradiction 

of the averaging principle intrinsic to 

PPSs. In fact, one of our rationales for 

establishing the percentage threshold 

payment adjustment is to preserve the 

integrity of the averaging principle 

under the IPPS because of our concern 

regarding premature discharges of 

patients still requiring acute hospitallevel care to another acute care provider 

(and generating another Medicare 

payment) prior to that case reaching 

outlier status. Moreover, if LTCHs adjust 

their procedures so that patients beyond 

the applicable threshold that are 

discharged from referring acute care 

hospitals prior to their LTCH admission 

have received a full episode of care at 

the discharging acute (that is, they reach 

outlier status), Medicare payment for 

LTCH discharges will be based on the 

otherwise unadjusted LTCH PPS 

payment, which has been developed 

based upon averaging principles. 

Comment: Some commenters said that 

the proposed 25 percent rule would be 

duplicative of the payment adjustment 

made under the IPPS post-acute transfer 

policy. One commenter noted that 

‘‘* * * 85 percent of DRGs applicable to 

short-term acute care hospital 

discharges to LTCHs are subject to [the 

post-acute transfer] policy.’’ Another 

commenter asked CMS to comment on 

why the IPPS post-acute transfer policy 

does not appropriately adjust for 

payment when cases transferred from 

the acute care hospital ultimately 

become SSO discharges in the LTCH 

setting. 

Another commenter suggested that we 

provide policies under the acute IPPS to 

address inappropriate or early 

discharges and requested that we use 

post-acute transfer rules, re-admission 

rules, and DRGs for acute care hospitals 

to address the issue of inappropriate 

transfers instead of penalizing LTCHs. 

Response: As we have discussed in 

the previous LTCH final rules, the IPPS 

post-acute transfer lessens the incentive 

for an IPPS hospital to transfer a patient 

to another hospital early in the patient’s 

stay to minimize its costs while still 

receiving the full DRG payment from 

Medicare. Although the post-acute care 

transfer policy only affects DRGs that 

meet the criteria specified under 

§ 412.4, we continue to monitor trends 

in post-acute transfers. In addition, we 

may make additional DRGs subject to 

the IPPS post-acute transfer policy if the 

data demonstrate that it is appropriate 

to do so. Although we expect the postacute transfer policy to have an impact 

on the discharge behavior of acute care 

hospitals because of the reduced 

payments that they will receive for 

qualified discharges, the post-acute 

transfer policy does not necessarily 

affect the issues being addressed by the 

SSO policy change. Both, the IPPS postacute transfer policy and the proposed 

RY 2008 SSO policy, help to ensure that 

Medicare payments are appropriate 

given the types of treatment provided in 

each setting. 

We believe that the revised payment 

formula for SSO patients that we are 

finalizing will appropriately pay LTCHs 

for delivering services to patients who 

do not otherwise require the lengths of 

stay that are characteristic of LTCHs. 

The SSO policy will address payments 

to LTCHs for patients discharged from 

the acute care hospital even after the 

geometric ALOS. 

With respect to the comment about 

the 25 percent policy being duplicative 

of the IPPS post-acute transfer 

provision, we would note that the post 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26935 

acute transfer policy focuses on a 

truncated length of stay at an acute care 

hospital that will be paid for under the 

IPPS, prior to the case reaching the 

geometric mean LOS for that DRG as 

specified in § 412.4(c) and (f). The 

policy that we are finalizing focuses on 

determining the appropriate payment to 

the LTCH, where the patient who has 

already been treated at the acute care 

hospital (up to the geometric mean LOS) 

has been ‘‘transferred’’ to the LTCH care 

prior to receiving full treatment at the 

‘‘transferring’’ hospital. We believe such 

a stay is a continuation of the patient’s 

original stay at the first hospital, and 

therefore, that Medicare should pay for 

such care based on a LTCH PPS 

payment adjusted to what would 

otherwise be equivalent to what would 

have been paid under the IPPS. 

Comment: Some commenters wrote in 

support of extending the comment 

period from 60 days to 6 months to 

allow commenters additional time to 

collaborate for the good of the industry. 

Response: We do not believe that a 6- 

month comment period is warranted or 

necessary. Consistent with section 1871 

of the Act, we provide for a 60-day 

comment period. This deadline is 

necessary in order to implement and 

establish policy changes and payment 

updates under the LTCH PPS for an 

effective date of July 1. 

We received 270 comments during the 

comment period and we believe that 

both the number and the nature of the 

comments received demonstrate that the 

comment period was sufficient for 

commenters to submit relevant and 

meaningful comments. 

Comment: We received many 

comments that challenged the IPPSequivalent payment adjustment that we 

proposed to extend to LTCHs and LTCH 

satellites for Medicare discharges in 

excess of the 25 percent (or applicable 

percentage) threshold that had been 

admitted from referring hospital not colocated with the LTCH or the satellite of 

a LTCH. 

One commenter maintained that we 

have determined a payment penalty for 

freestanding LTCHs for every patient 

over a 25 percent threshold requiring 

long term care who is admitted from any 

single acute care hospital referral 

source. Another commenter stated that 

an LTCH could not have more than 25 

percent of its patients referred from any 

one general hospital. Many commenters 

claimed that our proposal to pay ‘‘under 

the IPPS’’ for LTCH cases ignores data 

indicating that LTCHs sustain higher 

costs than IPPS hospitals in treating 

Medicare inpatients that are grouped to 

the same DRG. The commenters stated 

that costs are higher than they are at 

acute care hospitals because patients are 

much sicker than at acute care hospitals. 

Several commenters included data that 

indicated that they would sustain 

substantial financial losses under this 

policy. 

Response: We disagree with the 

commenters who asserted that under 

§ 412.536 and also the revised § 412.534 

we have proposed to pay all LTCHs 

‘‘under the IPPS’’ for discharges in 

excess of 25 percent or the applicable 

percentage) from an individual referring 

hospital. As we have noted elsewhere in 

these responses, if a Medicare 

beneficiary is treated at an acute care 

hospital and continues to need further 

acute hospital-level care, the patient 

could remain at the acute care hospital. 

A discharge from the acute care hospital 

and admission to a LTCH (which is also 

certified as an acute care hospital) could 

be appropriately seen as an extension of 

the stay at the discharging acute care 

hospital and as such, should not require 

Medicare to pay for ‘‘different resource 

use’’. We further disagree with the 

commenters who call the extension of 

the 25 percent threshold a ‘‘payment 

penalty for freestanding LTCHs for 

every patient over a 25 percent 

threshold who comes from any single 

acute care hospital’’ and the commenter 

that stated that ‘‘an LTCH could not 

have more than 25 percent of its 

patients referred from any one general 

hospital.’’ As we have noted elsewhere 

in these responses, the 25 percent 

threshold is not a patient quota system. 

By virtue of the fact that more than 25 

percent of the LTCH’s discharges had 

been admitted from an individual 

referring hospital, it is apparent that the 

LTCH has an ongoing, working 

relationship with the referring hospital. 

This policy should lead LTCHs to 

carefully determine which patients 

should be admitted from the referring 

hospital. A patient who is hospitalized 

in an acute care hospital continues to 

require acute hospital-level care, 

generally should not be discharged 

before the referring hospital has 

provided the patient with a full episode 

of care. As discussed elsewhere in these 

responses, we believe that a patient stay 

that reaches the HCO threshold at an 

acute care hospital would be considered 

to have received a complete episode of 

care and for such a patient who has 

received a full episode of care at an 

acute care hospital, should that patient 

require further acute level care at a 

LTCH, Medicare will make an 

unadjusted additional payment to the 

LTCH. 

Our concern is that many patients that 

are admitted to LTCHs could have 

completed this care at the referring 

hospital to which they were originally 

admitted. As we have detailed 

previously in this preamble, in the FY 

2005 IPPS final rule (69 FR 48916) we 

finalized a payment adjustment for colocated LTCHs (that is, HwHs and 

satellites at § 412.534), which provides 

that if a LTCH’s or satellite’s discharges 

admitted from its host hospital exceed 

25 percent (or the applicable 

percentage) of its discharges for the 

LTCH HwHs or satellite’s cost reporting 

period, an adjusted payment will be 

made at the lesser of the otherwise full 

payment under the LTCH PPS and an 

adjusted amount under the LTCH PPS 

that would be equivalent to what 

Medicare would otherwise pay under 

the IPPS. In determining whether a 

hospital meets this percent test, patients 

transferred from the host hospital that 

have already qualified for outlier 

payments at the host would not count 

as part of the host 25 percent (or the 

applicable percentage) and the payment 

for those patients would also not be 

subject to the adjustment. Those 

patients would be eligible for an 

unadjusted payment under the LTCH 

PPS. (Discharges admitted from the host 

before the LTCH crosses the 25 percent 

(or the applicable percentage) threshold 

would also be paid without the 

adjustment under the LTCH PPS (69 FR 

49213). MedPAC submitted a comment 

that addressed its concerns with the 25 

percent threshold policy for co-located 

LTCHs in the FY 2005 IPPS final rule. 

Specifically, the Commission noted 

that ‘‘freestanding LTCHs also have 

strong relationships with acute care 

hospitals, and that where on average 

LTCH HwHs receive 61 percent of their 

patients from their hosts, freestanding 

LTCHs receive 42 percent from their 

primary referring hospital * * * [that] 

there are some risks in our proposed 25 

percent policy; (a) the 25 percent rule 

that only applies to LTCH HwHs and 

not to freestanding LTCHs and may 

therefore be inequitable; (b) it does not 

ensure that patients go to the most 

appropriate post-acute setting; (c) this 

approach may be circumvented by an 

increase in the number of freestanding 

LTCHs instead of LTCH HwH.’’ As we 

stated in the FY 2005 IPPS final rule, 

‘‘MedPAC shares our concern that the 

LTCH payment system creates an 

incentive for unbundling of the IPPS in 

addition to overpayment for the care 

provided by LTCHs and that this 

concern is great, particularly, in the case 

of a LTCH HwH * * *’’ (69 FR 49211). 

In establishing the concept of 

‘‘functional separateness,’’ in the FY 

1995 IPPS final rule, we were 

identifying a broader phenomenon than 

just the relationship between a host 


ycherry on PROD1PC64 with RULES2
26936 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

acute care hospital and a LTCH HwH or 

satellite of a LTCH. We also reviewed 

MedPAC’s comment (discussed 

previously in this section) on non-colocated LTCH referral patterns and 

noted that despite the fact that we 

limited the payment adjustment 

established in FY 2005 to LTCH HwHs 

and satellites, ‘‘* * * [w]e took 

considerable note of these comments 

and the specific information that they 

included’’ (59 FR 45391). 

We further stated that ‘‘* * * [s]ince 

the October 1, 2004 implementation of 

the payment adjustment for LTCH 

HwHs and satellites of LTCHs at 

§ 412.534, through our LTCH PPS 

monitoring initiative (see section X. of 

this preamble), we have become aware 

that the growth in the LTCH universe is 

now occurring through the development 

of freestanding LTCHs’’ and that 

[r]eviews of public documents posted at 

the corporate Web site and analysis of 

the expected consequences of the policy 

at other investor-oriented sites describe 

a focus on building freestanding LTCHs, 

which we believe may imply a response 

to the payment adjustment for colocated LTCHs established under 

§ 412.534.’’ At that time, we noted data 

analyses from FY 2004 and FY 2005 

MedPAR files of sole-source (for 

example, one hospital referring to one 

LTCH) relationships between acute care 

hospitals and non-co-located LTCHs 

and we stated that we believed that the 

danger of LTCHs functioning as ‘‘units’’

appears to be occurring not only in 

LTCH HwHs and LTCH satellites but 

also with freestanding LTCHs (71 FR 

27877 through 27879). 

We stated that, in many cases, these 

non-co-located LTCHs and their sole 

referral source may be functioning in 

ways that appear to have erased the line 

of ‘‘functional separateness’’ between 

these LTCHs and their referring acute 

care hospitals ((71 FR 27877 through 

27879, 59 FR 45391). 

Many commenters noted that they 

would experience considerable financial 

losses if we implemented the extension 

of the 25 percent threshold policy. We 

believe that our finalized policy will 

result in a behavioral change for LTCHs, 

and LTCHs will take steps to assure that 

no more than 25 percent (or the 

applicable percentage) of the hospital’s 

discharges are patients that had not 

already reached outlier status at the 

referring hospital, to assure that all 

Medicare payments to LTCHs will be 

made, without adjustment under this 

policy. 

In response to the commenters that 

asserted LTCH patients are much sicker 

than acute care patients, we note that it 

is our understanding from our own data 

analyses, as well as work done by RTI 

that costs at LTCHs on a per diem basis 

are lower than costs for the same DRG 

at acute care hospitals. For example, RTI 

performed an analysis of the 2005 

MedPAR files and determined the per 

diem payment for the 20 most common 

LTC–DRGs treated in LTCHs as outlined 

in Table 6. 

TABLE 6.—AVERAGE PAYMENT PER DAY FOR THE TOP 20 DRGS ON LTCH ADMISSIONS, LTCH VERSUS ACUTE, 2005 

MEDPAR 

Top 20 LTCH DRGs 

LTCH Acute 

Average 

payment 

Average 

length of 

stay 

Average 

payment 

per day 

Average 

payment 

Average 

length of 

stay 

Average 

payment 

per day 

475: Respiratory System Diagnosis With Ventilator Support .................. $58,828 37.6 $1,815 $21,696 10.4 $4,187 

271: Skin Ulcers ....................................................................................... 26,652 28.8 1,009 5,525 6.6 1,298 

087: Pulmonary Edema & Respiratory Failure ........................................ 36,552 26.6 1,498 7,211 6.3 1,893 

079: Respiratory Infections & Inflammations Age >17 w CC .................. 26,545 23.7 1,235 8,654 8.0 1,690 

088: Chronic Obstructive Pulmonary Disease ......................................... 20,822 19.4 1,156 4,441 4.8 1,369 

089: Simple Pneumonia & Pleurisy Age >17 w CC ................................ 22,356 20.8 1,167 5,189 5.5 1,355 

249: Aftercare, Musculoskeletal System & Connective Tissue ............... 21,601 25.2 914 3,816 3.9 1,701 

416: Septicemia Age >17 ........................................................................ 25,962 23.5 1,189 9,309 7.4 2,192 

466: Aftercare w/o History of Malignancy as Secondary Diagnosis ....... 20,962 22.3 1,018 4,637 4.7 1,919 

012: Degenerative Nervous System Disorders ....................................... 23,804 27.3 976 4,651 5.3 1,298 

462: Rehabilitation ................................................................................... 19,149 22.6 903 9,621 9.3 1,125 

263: Skin Graft &/or Debrid for Skin Ulcer or Cellulitis w CC ................. 41,006 42.0 1,054 11,929 10.3 1,930 

127: Heart Failure & Shock ..................................................................... 21,252 20.8 1,088 5,425 5.0 1,641 

316: Renal Failure ................................................................................... 25,420 23.3 1,190 7,114 6.1 1,936 

418: Postoperative & Post-Traumatic Infections ..................................... 25,766 25.6 1,090 6,348 6.0 1,633 

430: Psychoses ........................................................................................ 15,019 27.0 651 3,955 7.6 869 

238: Osteomyelitis ................................................................................... 27,639 30.4 973 7,934 7.7 1,584 

277: Cellulitis Age >17 w CC .................................................................. 20,005 21.7 980 4,464 5.3 1,182 

144: Other Circulatory System Diagnoses w CC .................................... 22,990 22.3 1,112 7,282 5.7 2,290 

320: Kidney & Urinary Tract Infections Age >17 w CC .......................... 21,491 22.5 1,027 4,369 4.9 1,266 

Source: \\rtimas04\hser\Project\08686\006 IPPS\001 LTCH\common\jpotelle\programs\gage030.log. 

Furthermore, LTCHs utilize such 

information regarding their lower costs 

for treating patients in their advertising. 

We refer commenters to the following 

question and answer from the Internet 

site of a large LTCH chain: The 

question: ‘‘How can a long term acute 

care hospital be less expensive than a 

short term acute care hospital?’’ The 

answer: ‘‘Patients transferred to a long 

term acute care hospital are medically 

stable and do not require the critical 

care resources found in short term acute 

care hospitals, which are typically the 

most costly to a patient.’’

Comment: Many commenters 

challenged the basis of the proposed 

payment adjustment that would result if 

we finalized our proposed expansion of 

the 25 percent (or applicable 

percentage) payment threshold to LTCH 

and LTCH satellite discharges that were 

admitted from referring hospitals not colocated with the LTCH or the satellite of 

a LTCH. According to these 

commenters, in section 123(a)(1) of the 

BBRA, the Congress specified that the 

payment policies under the LTCH PPS 

should ‘‘reflect differences in patient 

resource use and cost.’’ These 

commenters asserted that payment 

adjustments under the LTCH PPS 

should not be based upon referral 

sources but rather on the ‘‘costs of 

treatment’’ and ‘‘costs of care’’ at 

LTCHs. 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26937 

Response: There is considerable 

precedent regarding our concerns with 

the financial implications to the 

Medicare Trust Fund from patientshifting between acute and post acute 

settings that could result in two 

Medicare payments, one to the acute 

care hospital and another under the 

LTCH PPS for one episode of care. As 

noted elsewhere in these responses, this 

concern was first addressed by the 

Congress in establishing the post-acute 

transfer policy at section 1886(d)(5)(J) of 

the Act, which we subsequently 

implemented at § 412.4. Furthermore, in 

the FY 1995 IPPS final rule, we 

addressed the financial consequences to 

the Medicare program of the patientshifting that was occurring between 

acute care hospitals and co-located 

LTCHs. At that time, we noted that the 

‘‘effect of this process is to extend the 

[LTCH] exclusion to what is for all 

practical purposes a [LTCH] unit’’ (59 

FR 45389). 

We further stated that paying the colocated LTCH as a hospital excluded 

from the IPPS ‘‘may not be appropriate’’

under these circumstances because 

‘‘[e]xclusion of long-term care units 

could inadvertently encourage hospitals 

to try to abuse the prospective payment 

systems, by diverting all long-stay cases 

to the excluded unit, leaving only the 

shorter, less costly cases to be paid for 

under the prospective payment systems’

(59 FR 45389). Therefore, in accordance 

with sections 1102 and 1871 of the Act 

which ‘‘confer authority on the 

Secretary to establish rules and 

regulations as may be necessary to 

administer the Medicare program’’ (59 

FR 45390), we established separateness 

and control criteria at then 

§ 412.23(e)(3)(i) which a co-located 

LTCH would have to meet to be paid as 

a hospital excluded from the IPPS. We 

believed at that time that ‘‘the extent to 

which a facility accepts patients from 

outside sources can be an important 

indicator of its status as a separate 

facility’’ (59 FR 45392). Therefore, at 

that time, among other indications of 

separateness, we adopted a ‘‘75 percent 

referral standard’’ which required that 

no more than 25 percent of the LTCHs 

discharges be admitted from its host to 

be paid as a hospital excluded from the 

IPPS. Accordingly, the source of an 

LTCH’s patients as one potential 

variable since FY 2005 as to whether or 

not a LTCH receives Medicare payment 

under the payment system for hospitals 

excluded from the IPPS, has been a 

basis for determining whether or not a 

LTCH was an independent hospital or 

functioning as a unit of an acute care 

hospital. 

In response to the commenters who 

maintained that the BBRA mandates 

that payment under the LTCH PPS is to 

reflect the ‘‘differences in patient 

resource use and costs’’ at LTCHs, we 

note that in general, with respect to the 

development of the LTCH PPS, section 

123(a)(1) of the BBRA requires, among 

other things, that the Secretary shall 

develop a PPS and that this PPS shall 

include an adequate classification 

system that reflects the difference in 

resource use and costs. Section 307(b)(1) 

of the BIPA provides a modification of 

requirements with respect to the 

implementation of the PPS. It provides 

that the Secretary * * * shall examine 

the feasibility and the impact of basing 

payments under such a system on the 

sue of existing (or refined) hospital 

diagnosis-related groups (DRGs) that 

have been modified to account for 

different resource use of long term care 

hospital patients. The Secretary shall 

examine and may provide for 

appropriate adjustments to the longterm care hospital payment system, 

including adjustments to DRG weights, 

area wage adjustments, geographic 

reclassification, outliers, update, and a 

disproportionate share adjustment 

* * *. We believe that our payment 

system fully satisfies these 

requirements. 

If a patient needing additional 

hospital-level acute care is discharged to 

another acute care hospital prior to 

completing a full episode of care at the 

first hospital, we believe that there is a 

strong presumption that the second 

hospital (the LTCH) is behaving like a 

step-down unit of the first acute care 

hospital and Medicare will be 

generating two payments, one under the 

IPPS and another under the LTCH PPS 

for one episode of care. 

Therefore, we are finalizing our 

extension of the 25 percent (or 

applicable percentage) threshold 

payment adjustment (after the 3-year 

transition period described elsewhere in 

this section) for discharges admitted 

from referring hospital not co-located 

with the LTCH or the satellite of a LTCH 

at § 412.536 and grandfathered LTCHs 

and satellites at § 412.534(h) under the 

authority of sections 123(a) of the BBRA 

of 1999 as amended by section 307(b) of 

the BIPA of 2000 which authorize the 

Secretary to make adjustments under 

the LTCH PPS to LTCH hospitals. 

In addition, section 123 of the BBRA, 

as amended by section 307(b)(1) of the 

BIPA, confers broad discretionary 

authority on the Secretary to develop 

and implement a PPS for LTCHs, 

specifically mandating only ‘‘a per 

discharge prospective payment system’’

that includes an ‘‘adequate payment 

classification system * * * based on 

diagnosis-related groups (DRGS) that 

reflects the differences in patient 

resource use and costs, and shall 

maintain budget neutrality.’’ Section 

307 of the BIPA further provides that 

the Secretary ‘‘may provide for 

appropriate adjustments to the longterm hospital payment system* * *’’

As discussed previously, we are 

finalizing the expansion of the 25 

percent (or applicable percentage) 

payment adjustment (after the 3-year 

transition period described elsewhere in 

this section) originally established for 

co-located LTCHs and satellites with 

regards to patients admitted to the 

LTCH from a co-located hospital at 

§ 412.534 to govern the relationship 

between any referring hospital and an 

LTCH or LTCH satellite not co-located 

with that referring hospital. We believe 

that even in the absence of co-location, 

the same level of scrutiny must be 

applied to patient-shifting between 

acute care hospitals paid for under the 

IPPS and LTCHs to assure that Medicare 

is not paying under the IPPS and then 

generating another unadjusted payment 

under the LTCH PPS for one episode of 

care. As discussed elsewhere in these 

responses, an LTCH is certified as an 

acute care hospital and we believe that 

appropriate and responsible payment 

policy under the Medicare program 

dictates that if a patient at an acute care 

hospital paid under the IPPS continues 

to need treatment at an acute care 

hospital-level, that patient should 

remain where he or she is presently 

being treated until a full episode of care 

has been delivered prior to being 

discharged to a LTCH for a different 

episode of care. We continue to believe 

that our formulating a payment 

adjustment for treatment at a second 

acute care hospital (which is in fact just 

paid as a LTCH) is both appropriate and 

necessary for Medicare to be a prudent 

purchaser of medical care for its 

beneficiaries. As described above, under 

this payment adjustment, which we are 

finalizing at § 412.536 and at revised 

§ 412.534, during a cost reporting 

period, if an LTCH exceeds the 25 

percent threshold of Medicare 

discharges from any referring hospital 

(or the applicable adjustment if the 

referral source is rural, MSA-dominant, 

or single urban) and the patient did not 

achieve outlier status at the referring 

hospital prior to being discharged to the 

LTCH, Medicare will make a payment 

adjustment for those discharges under 

Subpart O for cases beyond the 

threshold, based upon the lesser of the 

otherwise unadjusted payment or an 

adjusted LTCH PPS payment that is 


ycherry on PROD1PC64 with RULES2
26938 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

equivalent to the amount that would 

otherwise be paid under the IPPS. 

Comment: Many commenters claimed 

that the proposed extension of the 25 

percent payment threshold is a 

consequence of our ‘‘incorrect 

assertion’’ that admission to an LTCH is 

only legitimate if the patient reaches 

HCO status at an acute care hospital 

prior to being discharged for admittance 

to a LTCH for additional treatment. The 

commenters believe that under this 

policy the only way that a patient can 

receive a full episode of care at an acute 

is by reaching HCO status. Several 

commenters quoted data which stated 

that the percentage of discharges from 

acute care hospitals which received full 

Medicare payment is generally close to 

the percentage of discharges that were 

admitted to LTCHs that also received a 

full payment at the acute. The 

commenters believe that this suggests 

that a full episode of care is being 

provided to all of these patients. 

Another commenter stated that it is 

‘‘grossly inappropriate’’ for CMS to use 

outlier status as a statistical standard for 

whether a hospital has furnished a ‘‘full 

‘‘episode of care in a case. Several 

commenters requested that if we object 

to two payments for a LTCH patient 

(that is, one to the referring IPPS 

hospital and another for payment under 

the LTCH PPS) we should address the 

fact that two payments would be 

generated if the patient was admitted to 

any post-acute provider such as an IRF 

or a SNF. 

Response: The ultimate goal of our 

development of payment policy under 

the LTCH PPS is to assure appropriate 

and cost-effective payments under the 

Medicare program for services provided 

by LTCHs. We have informed the LTCH 

community in several forums, including 

notices, that although we were not 

challenging the high level of care 

delivered at many LTCHs, it was 

manifestly unclear how we could 

identify the point during an acute care 

hospitalization when a patient would 

cease to be appropriately placed in that 

setting such that admission to and 

further treatment in a LTCH would 

constitute a reasonable and fiscally 

responsible standard of care. Our data 

reveals that approximately 80 percent of 

LTCH patients are admitted following 

care at an acute care hospital, where 

Medicare would have would have paid 

for their care under the IPPS. We 

maintain that if a hospitalized patient 

continues to need acute-level care that 

such a patient could remain in the acute 

care hospital for the purpose of 

receiving this care and not be 

discharged to another acute care level 

hospital, like a LTCH until the full 

episode of treatment has been delivered. 

Accordingly, where an LTCH has 

exceeded the applicable threshold and 

has thus demonstrated that it is in 

essence serving as a unit of the referring 

hospital, it is appropriate to adjust the 

otherwise payable LTCH PPS payment. 

We understand that some LTCHs 

specialize in areas such as ventilator 

care and weaning or wound care and 

that some of these facilities are highly 

respected across all provider settings. 

However, these same types of patients 

are being treated by acute care hospitals 

nationally with similar results. 

Furthermore, the largest percentage of 

LTCH patients nationwide would 

typically fall into the general category of 

‘‘medically complex.’’ Nationwide, 

‘‘medically complex’’ patients are 

certainly being successfully treated by 

acute care hospitals. We have thus far 

been unable to discover or establish a 

‘‘bright line’’ for purposes of 

demarcating an appropriate discharge 

from the referring hospital and then 

admission for appropriate and necessary 

treatment at an LTCH, paid for under 

the LTCH PPS. However, since patients 

who fit the ‘‘LTCH profile’’ are often 

HCO patients at acute care hospitals 

(particularly in areas where there is not 

high LTCH penetration), to determine if 

a hospital has exceeded its threshold we 

believe that it is both functional and 

reasonable to use reaching outlier status 

at an acute care hospital to determine 

the delivery of a full episode of care. 

(RTI report, p. 32–48) 

In response to the commenters who 

noted the comparability of the 

percentage of all discharges from an 

acute care hospital that had either 

reached or not reached outlier status (78 

percent) with the percentage of acute 

care hospital patients who were 

subsequently admitted to LTCHs 

following their discharge from the acute 

care hospital who had either reached or 

not reached outlier status (also 78 

percent), stating that this proved that 

both had received a ‘‘full episode of 

care,’’ we do not agree with this 

conclusion. Furthermore, the 

commenters data is based on a universe 

of total discharges from acute care 

hospitals which is approximately 13 

million discharges. The universe of 

discharges from acute care hospitals to 

LTCHs is less than 1 percent of those 

discharges (approximately 112,000). 

Since the LTCHs are admitting such a 

small percentage of acute care hospitals’

total cases, it is likely that LTCHs are 

targeting a specific subset of these 

patients that would have reached outlier 

status, if not for the presence of the 

LTCH. 

With regard to the comments on 

patients discharged from acute care 

hospitals that are admitted to other postacute providers such as an IRF or a SNF, 

we would note that there is a distinction 

in the type of care provided at these 

settings and at an LTCH. An IRF 

provides a specialized post-acute 

service, that is, rehabilitation, for 

specific medical conditions. A SNF does 

not even provide hospital-level care. 

Since an LTCH is certified as an acute 

care hospital and in fact can provide the 

same type of care as an acute care 

hospital that is paid under the IPPS, it 

is necessary to address the possibility of 

an LTCH acting as an a unit of an acute 

care hospital and to differentiate 

between acute care patients being 

treated at an (short-term) acute care 

hospital and those being treated at a 

LTCH. 

We see no correlation between the 

fact that the commenter has identified a 

common percentage number and their 

conclusion that this proves that LTCH 

patients had received a full episode of 

care. The fact that nearly 90 percent of 

LTCH patients had come to the LTCH 

without achieving outlier status at the 

acute hospital, which had certainly been 

providing acute level care to the patient 

prior to their admission to the LTCH, 

indicates that for these ‘‘medically 

complex’’ cases, the acute care hospital 

may be routinely looking to discharge 

those patients to the LTCH, prior to 

their reaching outlier status and thus 

not receiving a full episode of care at the 

acute care hospital. 

Comment: Several commenters 

questioned whether the extension of the 

25 percent payment threshold would 

apply to those patients who had been 

admitted to an LTCH from some other 

provider setting than an acute care 

hospital, such as a IRF or a SNF? 

Response: The extension of the 25 

percent threshold policy to discharges 

admitted from referring hospitals not colocated with the LTCH or the satellite of 

a LTCH at § 412.536 is based on the 

policy that we finalized for co-located 

LTCHs at § 412.534 for FY 2005 in the 

IPPS final rule (69 FR 48916). As we 

have stated above, we believe that many 

of the concerns that we expressed in our 

analysis of co-located LTCHs, regarding 

the financially-advantageous but 

clinically unnecessary shifting of 

patients from acute care hospitals to 

LTCHs, is also an issue when the LTCH 

is not co-located with the referring 

hospital. Therefore, although the vast 

majority of host/LTCH HwH or LTCH 

satellite arrangements are between acute 

care hospitals and LTCHs, we specified 

in the FY 2005 final IPPS rule that 

under § 412.22(e), any inpatient 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26939 

hospital-level provider could serve as a 

host to an excluded hospital. Therefore, 

the policy adjustment that we were 

finalizing based upon the percentage of 

patients from one hospital that upon 

discharge became inpatients at a colocated LTCH, at § 412.534, was also 

applicable when the host hospital was 

not an acute care hospital (69 FR 

49198). 

Furthermore, we stated that applying 

the option of a discharge payment based 

upon the lesser of the otherwise 

unadjusted payment amount under 

Subpart O or payment under the LTCH 

PPS based upon an IPPS-equivalent 

amount was appropriate when the host 

hospital was an IRF, because ‘‘[w]e 

believe that it is appropriate to pay the 

LTCH HwH or LTCH satellite that is colocated with an IRF or IPF and exceeds 

the applicable threshold at the IPPS 

equivalent rate and not a LTCH PPS rate 

that would be equivalent to the amount 

otherwise paid under the IRF or IPF PPS 

rate, since the HwH and the satellite 

LTCH are, as we explained earlier in 

this section, facilities that in many ways 

are comparable to an acute care 

hospital’’ (72 FR 4811; 71 FR 4704 

through 4719). 

We are finalizing the extension of the 

25 percent threshold payment 

adjustment to discharges from referring 

hospitals not co-located with the LTCH 

or the satellite of a LTCH because we 

believe that our concerns that patient 

stays are being inappropriately 

truncated at host hospitals resulting in 

admissions to LTCH HwHs or satellites 

also occur between LTCHs and LTCH 

satellites receiving patients from 

referring hospitals not on the same 

campus. As noted elsewhere in this 

section, we have concentrated on the 

relationships between referring acute 

care hospitals and non-co-located 

LTCHs in this discussion, because 

approximately 80 percent of Medicare 

patients in LTCHs are admitted from 

acute care hospitals. However, we 

believe that the same concerns, 

articulated above, would also exist 

when the patient source is not an acute 

care hospital. As we noted in the RY 

2008 LTCH PPS proposed rule, ‘‘[t]here 

could still be a financial incentive on 

the part of the referring hospital (for 

example, an IRF, to prematurely 

discharge a beneficiary to a LTCH for 

additional post-acute treatment in order 

to avoid absorbing high treatment costs 

under the IRF outlier policy at 

§ 412.624(e)(5)) that would result in two 

Medicare payments, one to the initial 

provider and the other for payment 

under the LTCH PPS for a single 

episode of beneficiary care’’ (72 FR 

4812). Although we recognize that a 

patient could experience a medical 

crisis while an inpatient at an IRF, we 

would reiterate that typically, the most 

appropriate setting for such urgent care 

would be a general acute care hospital, 

rather than a LTCH. The policy that we 

are finalizing would not be applicable to 

a patient admitted to a LTCH from a 

SNF since a SNF does not deliver 

hospital-level care and therefore 

duplication or substitution of services 

by a LTCH is not a relevant issue. 

Comment: One commenter believes 

that the extension of the 25 percent 

threshold payment adjustment deprives 

Medicare beneficiaries of their right to 

receive medically-necessary services in 

a LTCH. Therefore, if we finalize the 

extension of the 25 percent threshold 

policy, we are violating beneficiary 

rights and we should provide a notice 

of non-coverage to beneficiaries 

regarding this issue. Furthermore, the 

commenter reminded us that 

beneficiaries would also be entitled to 

appeal such a notification to the QIO 

operating in their State. The commenter 

stated that the patient whose case would 

cause the LTCH to exceed the 25 

percent threshold referred from a 

particular referring hospital (that is, the 

patient who would represent 26 

percent) and all those that follow, are 

entitled to such a notice. The 

commenter also provides a lengthy 

discussion of the statutes, regulations, 

and case law that underlay beneficiary 

appeal rights. 

Response: We would emphasize that 

we are finalizing a policy in this 

regulation regarding the payment 

threshold that Medicare is establishing 

to avoid generating two payments, one 

to the initial referring hospital and 

another under the LTCH PPS, for a 

single episode of care delivered to a 

beneficiary. We are not depriving 

Medicare beneficiaries of their rights to 

receive treatment at a LTCH, but rather, 

we have established a payment 

adjustment for such treatment under 

particular conditions. 

Since the inception of the Medicare 

program in 1966, policies have been 

established to determine what the 

Federal government believes is 

appropriate payment to hospitals for the 

delivery of medical services to 

beneficiaries. Hospitals that elect to 

participate in the Medicare program are 

required to comply with the policies 

established by the program, including 

the establishment of payment rates and 

payment adjustments. Therefore, we do 

not believe that issuing an adjustment 

that could impact on a hospital’s 

Medicare payments is a radical or 

unique act. The establishment of a 

payment policy that may result in 

payment adjustments for certain 

admissions is well within the existing 

regulatory framework. Furthermore, the 

basis for the policy that we are 

finalizing at this time, is an extension of 

a policy that has been in effect since FY 

2005, when we established the 25 

percent (or applicable percentage) 

payment threshold policy for co-located 

LTCHs at § 412.534. At that time, we 

stated that we were ‘‘* * * providing an 

adjustment to the payment under the 

LTCH PPS in accordance with the broad 

authority conferred on the Secretary by 

the Congress in section 123(a) of the 

BBRA of 2000 amended by section 

307(b) of the BIPA of 2001 to include 

‘‘appropriate adjustments’’ in the 

establishment of a PPS for LTCHs’ (69 

FR 49204). We continue to believe that 

there is a clear distinction between 

medical decision-making and payment 

policy, particularly * * * when the 

patient is a Medicare beneficiary and 

the medically necessary services are 

covered by Medicare’’ (69 FR 49204). 

LTCHs, for example, are required to 

meet the greater than 25-day ALOS 

requirement to retain designation as a 

LTCH; therefore, LTCHs will factor in 

that on-going requirement when making 

specific patient admission decisions 

during a cost reporting period. The need 

to comply with various compliance 

percentage requirements for treating 

certain conditions in order to qualify for 

IRF designation, under § 412.23(b), also 

impacts which patients are admitted to 

IRFs during a cost reporting period. In 

these two examples, hospitals currently 

evaluate admissions during a cost 

reporting period because a hospital’s 

noncompliance with Medicare 

requirements regarding LOS and 

percentage of patients meeting the 

requirements at § 412.23(b)(2), 

respectively, could risk its designation 

as a hospital that is excluded from the 

IPPS. Therefore, we believe that the 

circumstance of a LTCH determining 

which, and under what circumstances, 

patients should be admitted is an 

already established feature in the LTCH 

admission process and should be based 

on medical criteria and not based on the 

profitability of treating a specific 

patient. 

Furthermore, the issuance of a 

Hospital-Issued Notices of Noncoverage 

(HINNs) by the Medicare program is not 

applicable to the above described 

circumstance. Specifically, a LTCH’s 

decision not to admit a specific patient 

is not a decision by the Medicare 

program to not cover the service. Rather, 

it is a determination by the LTCH of the 

type of service or patient that the facility 

has a level of expertise in treating. (We 

specify the conditions under which the 


ycherry on PROD1PC64 with RULES2
26940 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

Medicare program is required to issue a 

HINN on the CMS Web site at http:// 

www.cms.hhs.gov/BNI/ 

05_HINNs.asp#TopOfPage.) 

In response to the commenter’s belief 

that a beneficiary who is not admitted 

to a LTCH because of the payment 

policy that we are finalizing should 

appeal the determination to the QIO 

operating in his or her State, we would 

state that the decision to admit a patient 

is made by the hospital. Specifically, 

section 1802(a) of the Act stipulates that 

‘‘Any individual entitled to insurance 

benefits under this title may obtain 

health services from any institution, 

agency, or person qualified to 

participate under this title, if such 

institution, agency or person undertakes 

to provide him such services (emphasis 

added). We emphatically reiterate that 

we are not preventing the admission of 

patients to a LTCH; rather, we are 

establishing a methodology for 

determining what are fair and 

reasonable payments based on the type 

of patient treated by the LTCH. 

Moreover, it is our expectation that 

extending the 25 percent (or applicable 

percentage) payment threshold policy to 

discharges from referring hospitals not 

co-located with the LTCH or the satellite 

of a LTCH will result in LTCHs focusing 

their mission with respect to referrals 

from acute care hospitals, and on 

treating patients that had a complete 

episode of care at the referring hospital, 

before being admitted to the LTCH. 

Comment: Many commenters stated 

that there were major differences 

between the patients treated at LTCHs 

and at those referred to as ‘‘short-term’’

acute care hospitals. They also listed the 

significant distinctions between the 

levels of care delivered by these two 

types of hospitals. These commenters 

asserted that acute care hospitals paid 

under the IPPS are ‘‘just not capable’’ of 

delivering the level of care required by 

typical LTCH patients. The commenters 

noted that MedPAC, RTI, and even CMS 

have stated that LTCHs effectively treat 

very sick patients. One commenter 

stated that there was ‘‘evidence that 

patients who would become subject to 

the 25 percent rule are different from 

patients in short term acute care 

hospitals, and therefore, there is no 

empirical basis whatsoever for CMS’

assumption that LTCHs systematically 

engage in substitution of service.’’

According to commenters, LTCHs have 

specialized care that is not available in 

acute care hospitals since the treatment 

model is entirely different. The 

commenters maintained that acute care 

hospitals ‘‘* * * are diagnosis based 

where LTCHs provide specialized 

programs of whole-patients recovery’’

for patients who require an entire 

multidisciplinary team. The 

commenters emphasized that LTCHs 

use a ‘‘* * * team approach towards 

healing the patient versus stabilizing an 

acute episode.’’ They also asserted that 

LTCHs and acute care hospitals do not 

treat identical conditions and patients 

who are forced to remain in an acute 

care setting could receive ‘‘sub-standard 

care’’ with the result being poorer health 

outcomes, longer stays, and even higher 

costs. The commenter believes that 

patients who are medically unstable, not 

progressing, or have failed ventilatorweaning can often benefit from a 

multidisciplinary program that LTCHs 

specialize in. In fact, some commenters 

point to a level of care that is found 

nowhere else in the medical care 

continuum but by staff with expertise 

and experience unique to LTCHs. 

Response: In response to the 

commenters, we would first state the 

following axiom of hospital policy in 

the Medicare program: LTCHs, while 

being unique based on maintaining an 

average LOS in excess of 25 days, are 

certified as acute care hospitals and 

provide hospital-level services to 

patients. Acute care hospitals paid 

under the IPPS are throughout the 

country treating patients requiring 

hospital-level care often with lengths of 

stay comparable to those that are typical 

of LTCHs. We believe the commenters 

are attempting to establish a clear 

distinction between the patients that are 

appropriate for treatment at LTCHs and 

patients that are appropriately treated at 

acute care hospitals. Across the United 

States, the over 3,700 acute care 

hospitals that discharge approximately 

13 million Medicare beneficiaries treat 

the full range of medical issues 

including those that the commenters 

identify as LTCH cases. We do not 

question that many LTCHs have highly 

regarded reputations for their success in 

treating respiratory and ventilator cases 

(DRG 475), but, as detailed in the RTI 

report, the 2004 MedPAR files indicate 

that where LTCHs treated 13,394 cases 

assigned to DRG 475, acute care 

hospitals treated 18,727 Medicare 

patients with an additional 7,072 HCOs, 

in DRG 475. For DRG 88, chronic 

obstructive pulmonary disease (COPD), 

LTCHs treated 4,894 cases where acute 

care hospitals treated 37,523 cases. Data 

on other common DRGs treated in 

LTCHs as compared to the same DRG 

treated in acute care hospitals reflect a 

similar pattern, particularly among the 

DRGs that could fall into the broad 

category of ‘‘medically complex’’

patients. (Table 3–2, RTI report, p. 35) 

We understand that MedPAC and RTI 

noted that many LTCHs deliver a high 

level of care to very sick Medicare 

beneficiaries, with fine doctors, 

exemplary nursing care, and top-notch 

rehabilitation therapists, but we also 

know that many acute care hospitals 

throughout the nation are treating the 

same types of patients and similarly 

delivering excellent care. In addition, 

we are aware that some LTCHs 

specialize in a particular subset of 

patients and achieve noteworthy 

success in their treatment of, for 

example, ventilator-weaning or wound 

care; however, similar patients are also 

receiving care in acute care hospitals 

with similar results. Therefore, we 

disagree that acute care hospitals are 

incapable of competently treating 

Medicare beneficiaries that happen to 

fall within the DRGs that LTCHs 

identify as their specialties and that any 

patients falling into such categories 

would receive ‘‘substandard’’ care at an 

acute care hospital. 

Commenters also stated that the 

Congress established the distinction 

between acute care hospitals and LTCHs 

by excluding LTCHs from the IPPS in 

1983. In the FY 2003 LTCH PPS final 

rule (67 FR 55954), which presented the 

initial payment policies that we 

established for the LTCH PPS, we 

briefly reviewed the history of the 

development of the distinction between 

hospitals that were to be paid under the 

IPPS and those that would be excluded, 

among which were a small group of 

hospitals that were called LTCHs. In 

that rule, we stated that ‘‘[t]he Congress 

excluded these hospitals from the acute 

care hospital inpatient prospective 

payment system because they typically 

treated cases that involved stays that 

were, on average, longer or more costly 

than would be predicted by the DRG 

system.’’ The legislative history of the 

1983 Social Security Amendments 

stated that, ‘‘the DRG system was 

developed for short-term acute care 

general hospitals and as currently 

constructed does not adequately take 

into account special circumstances of 

diagnoses requiring long stays. (Report 

of the Committee on Ways and Means, 

U.S. House of Representatives, to 

Accompany HR 1900, H.R. Rept. No. 

98–25, at 141 (1983)) Therefore, these 

hospitals could be systemically 

underpaid if the same DRG system were 

applied to them (67 FR 55957). 

Following enactment of the Social 

Security Amendments of 1983, we 

implemented the acute care hospital 

inpatient prospective payment system 

on October 1, 1983, including the initial 

publication in the Federal Register of 

the rules and regulations for the hospital 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26941 

inpatient prospective payment system—

the September 1, 1983 interim final 

rule’’ (48 FR 39752, 67 FR 55957). 

The 33 LTCHs in existence at the start 

of the IPPS in 1983 (that were included 

on the HCFA exclusion list) were 

described in 1987, in a presentation 

letter to President George H.W. Bush 

from then-Secretary Otis R. Bowen, 

M.D., that preceded a Report to 

Congress produced by Health 

Economics Research, Inc. on the 

‘‘Developing a Prospective Payment 

System for Excluded Hospitals,’’

(Department of Health and Human 

Services, Health Care Financing 

Administration, Office of Research and 

Demonstration, HCFA Pub. No. 03262), 

the Secretary notes that ‘‘Long-term 

Hospitals are a heterogeneous set of 

institutions located on the Eastern 

Seaboard, whose mission is the 

treatment of patients who are seriously 

or terminally ill with multiple diseases. 

In other regions of the country, these 

same patients would be treated in 

hospitals or skilled nursing facilities 

***’’

As discussed in the 1984 Report to 

Congress, CMS (formerly HCFA) listed 

61 hospitals on the ‘‘HCFA exclusion 

list’’ throughout the United States. 

(Medicare OSCAR files reveal that 31 of 

these original facilities are still in 

existence in 2007.) The Report states 

that ‘‘[t]here were 33 hospitals that both 

identified themselves as chronic care 

hospitals * * * [that] are most 

representative of those primarily 

providing chronic-disease hospital 

services. Perhaps of most interest is the 

very long average LOS of patients in 

these institutions. With one exception, 

all average length of stays are over 60 

days and, with three exceptions, all are 

over 100 days. There is probably no 

clear differentiation between certain 

types of rehabilitative facilities and 

LTCHs. The differentiation does seem 

clearer in the case of psychiatric and 

children’s hospitals, though because 

these eight psychiatric and three 

children’s hospitals had average lengths 

of stay greater than 25 days, they were 

placed under the long-term category of 

exclusions. The 28 remaining hospitals 

on the HCFA exclusion list are 

characterized by a mixture of bed types. 

Many have a large percentage of 

psychiatric beds and some a large 

percentage of rehabilitation beds. Some 

of those hospitals are institutions with 

a large number of nursing home beds. 

For example, one hospital examined 

houses a small number of acute care 

beds available for patients routinely 

cared for in SNF and intermediate care 

facility (ICF)-level beds. The acute care 

beds are exempted under PPS. The State 

licenses beds in this facility as chronic 

disease hospital beds, though the 

administrator conceded that these beds 

are virtually indistinguishable from the 

SNF and ICF level Medicaid beds 

***’’ (p. 3–56). The Report identified 

an additional 25 hospitals that fit the 

profile of LTCHs, most of which were 

included in a 1983 AHA Annual 

Survey. ‘‘Lastly, there were 25 hospitals 

that were not on the exclusion list, but 

have either self-identified to the HA as 

chronic care hospitals or have chronic 

care beds. Seven of these had mostly 

acute care beds and a short average LOS, 

such that they would not qualify for the 

HCFA exclusion. The remaining 18 all 

had average length of stays greater than 

60 days and 11 had average length of 

stays greater than 100 days. Though 

several of these were institutions with 

just chronic care beds, most also had a 

disproportionate number of nursing 

home beds. Possibly, those 18 hospitals 

could qualify for an exclusion at some 

future point’’ (p. 3–57). ‘‘These hospitals 

are themselves a diverse, rather 

anomalous class. As suspected, they 

have grown up in the interstices of 

acute, rehabilitation, and nursing home 

care. Their diversity results from the 

fact that the role they fill varies with 

individual State regulatory and 

financing policies, as well as the 

surrounding configuration of acute, 

rehabilitation, and nursing home beds’’

(p. 3–59). 

We quote this report because we 

believe that it is vital to understand 

what the Congress was describing when 

it excluded 33 LTCHs (in the HCFA list) 

from the IPPS, ‘‘* * * because the DRG 

system was developed for short-term 

acute care general hospitals and as 

currently constructed does not 

adequately take into account special 

circumstances of diagnoses requiring 

long stays’’ and therefore, these 

hospitals could be systemically 

underpaid if the same DRG system were 

applied to them (67 FR 55957). We do 

not believe that the Congress was 

identifying the LTCHs in existence in 

1983, described above, as facilities 

expected to deliver care at a level of 

medical sophistication equivalent to or 

even surpassing that of a typical acute 

care hospital. 

In 1983, there were 33 LTCHs (plus 

another 25 from the AHA list); in 1993, 

there were 105; in 2003, there were 318; 

and in 2007, there are nearly 400 

LTCHs. We do not doubt that the nature 

and level of the care delivered by most 

LTCHs has changed markedly since 

1983 but we believe that it is both 

highly inaccurate and misleading to 

state, as some of our commenters have, 

that ‘‘ ‘short term’ acute care hospitals 

are ‘‘just not capable’’ of delivering the 

level of care required by typical LTCH 

patients; that acute care hospitals ‘‘are 

diagnosis based where LTCHs provide 

specialized programs of whole-patients 

recovery;’’ that acute care hospitals do 

not treat identical conditions and that 

patients who are forced to remain in an 

acute care setting could receive ‘‘substandard care with the result being 

poorer health outcomes, longer stays, 

and even higher costs.’’ We do not 

believe that the evidence detailed above 

indicates that in excluding LTCHs from 

the IPPS and explaining this act by the 

above-quoted rationale in 1983, that it 

was the Congress’ intention to declare 

that henceforth, certain patients could 

only reasonably be treated in LTCHs 

and that treatment at an acute care 

hospitals for such patients would be 

‘‘sub-standard.’’ Rather, we believe that 

the Congress was attempting to describe 

the provider landscape as it existed at 

that time and that in so doing, there was 

a small group of facilities that did not 

‘‘cleanly’’ fit into any other category, 

having ‘‘grown up in the interstices of 

acute, rehabilitation, and nursing home 

care.’’ Report to Congress on the 

‘‘Developing a Prospective Payment 

System for Excluded Hospitals,’’ HCFA 

Pub. No. 03262) (p. 3–59). 

Since that time, there have been 

changes in the LTCH universe, with 

over 58 percent of the nearly 400 LTCHs 

being run for-profit (the majority by 

several large chains); approximately 33 

percent run not for profit, and only 8.3 

percent now run by a government 

instrumentality. Accordingly, we 

believe that the policy we proposed is 

appropriate to deal with present 

payment issues that the Medicare 

program is facing under the LTCH PPS. 

Commenters further asserted that 

acute care hospitals do not and even can 

not deal with the medical conditions in 

which LTCH specialize. Even though 

the LTCH universe has grown to nearly 

400, they continue to not be evenly 

geographically dispersed and therefore, 

by far, most very sick Medicare 

inpatients nationwide are treated in 

acute care hospitals. In FY 2005, there 

were 130,000 LTCH discharges and 12.7 

million discharges from acute care 

hospitals. A brief review of several 

major LTCH Web sites contained the 

following list of conditions in which 

they specialize: 

• Chronic cardiac disorders; 

• Neuuromuscular/neurovascular 

diseases 

• Methicillin-resistant staph aureus 

(MRSA) 

• Complex orthopedic conditions 

• Wound care complications 

• Multi-system organ failure 


ycherry on PROD1PC64 with RULES2
26942 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

• Immuno-suppressed conditions 

• Respiratory failure 

• Dysphagia management 

• Post-operative complications 

• Multiple intravenous therapies 

• Chemotherapy 

• Pre- and post-operative organ 

transplant care 

• Chronic nutritional problems 

• Total parenteral nutrition (TPN) 

issues’

• Intensive hemodynamic monitoring 

• Renal dialysis 

• Telemetry 

• EKG testing 

• Diagnostic bronchoscopy and 

endoscopy 

• Speech-language pathology 

• Surgery support 

• Nutritional therapy 

• Radiology services 

• Laboratory services 

• Respiratory therapy 

• Physical therapy 

• Occupational therapy 

• Pharmacy 

• Social services 

Furthermore, the list of services noted 

above, are also hardly unique to the 

LTCH setting. 

Comment: One commenter cited 

several provisions of Federal and State 

statutes that generally refer to patient 

transfers, services furnished to a 

hospital’s patients by others under 

arrangements made by the hospital with 

them, or a hospital’s responsibility to 

have services available to meet the 

needs of patients it accepts for 

treatment. For example, the commenter 

cites the provision of the Emergency 

Medical Treatment and Active Labor 

Act (EMTALA) (specifically, section 

1867(g) of the Act) that requires 

hospitals with specialized capabilities 

to accept appropriate transfers of 

unstabilized individuals protected by 

EMTALA. The commenter also referred 

to Florida, Texas, and Illinois legislation 

authorizing arranged-for services and 

referral and transfer agreements, and 

The Joint Commission (formerly 

JCAHO) guidance directing their 

surveyors to look closely at transfers. 

However, no specific comment was 

made. 

Response: We do not believe this 

discussion in any way calls into 

question the need for the provisions 

relating to the policies we have 

proposed. Though the provisions cited 

do include references to transfers, they 

do not spell out conditions under which 

they are acceptable or otherwise 

establish specific standards to ensure 

that transfers and services under 

arrangements do not jeopardize patient 

health and safety. More importantly, 

they do not address the key issue of 

transfers that may not create clear risks 

for patients, but nevertheless, increase 

costs in the health care system because 

they are undertaken for financial rather 

than medical reasons. Therefore, even 

though we reviewed this discussion 

carefully, we made no changes to our 

proposals based on it. 

Comment: Some commenters 

highlighted the current medical care 

situation in New Orleans noting that the 

city is still trying to recover from 

Hurricane Katrina. The commenters 

believed that the proposed changes 

would result in the closure of LTCHs 

and this would cause hardships on the 

limited number of physicians practicing 

in the area. The commenters requested 

that affected hospitals should be granted 

a time limited exemption from these 

rules for up to 5 years. 

Response: We are certainly aware of 

the current state of medical care in 

Louisiana in general, and specifically in 

the New Orleans area. We have worked 

and continue to work closely with State 

officials and the hospitals in Louisiana 

to address issues that are important to 

helping the State rebuild its medical 

care infrastructure. As stated previously 

in response to commenters who claimed 

that these revisions would cause LTCHs 

to close, we believe that these changes 

are necessary to assure that the 

Medicare program is making 

appropriate payments to these hospitals 

in the specific situations addressed by 

these policies. In the case of the 

expansion of the 25 percent policy to 

apply to LTCHs and satellites that 

exceed the threshold on discharges that 

were admitted from a referring hospital 

not co-located with the LTCH or LTCH 

satellite, since a LTCH is certified as an 

acute care hospital, we believe it is 

appropriate to pay the LTCH under the 

LTCH PPS a rate that is comparable to 

the rate paid under the IPPS, where it 

is demonstrating behavior that indicates 

that it is serving as a ‘‘unit’’ of the 

referring hospital. Similarly, the revised 

SSO policy also provides for payments 

to the LTCH for those SSO cases that 

have a LOS that is comparable to the 

LOS of a typical IPPS patient in the 

same DRG, under the LTCH PPS at an 

adjusted rate that is comparable to the 

IPPS rate. We do not believe these 

policies will cause widespread closure 

of LTCHs nationally or in Louisiana. 

We also note that while in general the 

threshold under the expansion of the 25 

percent policy as finalized in this rule 

will ultimately be 25 percent, in 

response to comments requesting that 

we transition the implementation of this 

policy, as discussed earlier we are 

providing for a 3-year transition to allow 

hospitals additional time to comply 

with the 25 percent threshold. 

Therefore, we are establishing a 75 

percent threshold for RY 2008 and a 50 

percent threshold for RY 2009. The 

threshold will be reduced to 25 percent 

beginning with RY 2010. Furthermore, 

for hospitals in rural areas or those 

admitting patients from a single hospital 

MSA effective with RY 2008, the 

threshold will be 75 percent for RY 2008 

and will remain at 50 percent for 

subsequent rate years. In addition, for 

LTCHs admitting patients from MSAdominant hospitals, effective with RY 

2009 the threshold will be adjusted 

based on the referring hospital’s 

percentage of Medicare patients 

discharged in the MSA, and will be not 

less than 25 percent and not more than 

50 percent. 

Comment: Many commenters 

requested that we clarify how they 

would be able to comply with the 

requirements of the 25 percent 

threshold payment adjustment policy if 

it was finalized. In the particular 

situation of a MSA-dominant or urban 

single hospital, where the threshold 

depends upon the percentage of 

referring hospital discharges in that 

MSA, it was requested that we clarify 

which year of data would applicable. 

Response: In establishing this 

payment provision, originally for colocated LTCHs for FY 2005, we 

consulted with Medicare’s FIs and we 

were assured that LTCHs will be able to 

obtain the information that they need in 

order to comply with this policy from 

the referring hospital from which they 

would be admitting patients. 

Further, we understand that typically, 

acute care hospitals have the GROUPER 

software which enables them to 

determine the most likely DRG 

assignment for their patients and 

additionally, programs that track the 

costs being incurred by their patients on 

a daily basis. Therefore, they are with a 

high degree of accuracy, able to predict 

when a particular case crosses the 

outlier threshold. To facilitate such 

practices by hospitals, we have 

provided PRICER software for Medicare 

PPSs available for download on the 

CMS Web site. We understand that 

hospitals, including LTCHs, generally 

also purchase GROUPER software to 

track DRG assignments. 

Therefore, it is our expectation that 

LTCHs and their referring hospitals will 

build on their existing working 

relationship (since this policy applies to 

situations where over 25 percent of a 

LTCH’s patients were admitted from an 

individual hospital) and will find it in 

their mutual interests to share necessary 

information. We would also expect 

LTCHs to monitor their admissions and 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26943 

discharges from their referring hospitals, 

a process in which they would typically 

engage as a component of sound 

business practice. 

In response to the comment 

questioning the determination of the 

applicable MSA-dominant or urbansingle percentage for purposes of LTCH 

calculations, we agree that it would be 

inappropriate for this percentage to be 

based on data occurring during a cost 

reporting period. Therefore, we would 

note that our policy is to base the 

percentage on the latest available 

discharge data that is available prior to 

the beginning of the LTCH’s current 

fiscal year. We are revising proposed 

§ 412.536(d)(2) to reflect this policy. 

Furthermore, in response to this 

comment, at this time, we are also 

revising the regulation text as it applies 

to co-located LTCHs. Specifically, at 

§ 412.534(e)(2) where we describe the 

determination of the percentage 

threshold for MSA-dominant hosts for 

LTCH HwHs and LTCH satellites, we 

deleting the phrase, ‘‘for the cost 

reporting period for which the 

adjustment was made’’. 

Comment: One commenter stated that 

implementing the 25 percent threshold 

payment adjustment policy, under 

which Medicare payments would be 

reconciled, would ‘‘violate a 

fundamental rule of PPSs that payments 

will be prospectively set and known in 

advance by the providers.’’ This 

commenter also stated that the 

finalizing this regulation would ‘‘in a 

very real sense, would convert the 

LTCH PPS into a retroactive system of 

recovery and settlement with related 

disputes where CMS would be called 

upon to produce patient records from 

hospitals that refer cases to LTCHs as 

well as individual patient coding and 

referral hospital financial information to 

support recovery claims.’’

Response: In response to these 

concerns, we would note that the cost 

report settlement process (governed by 

Subpart B of Part 413) is a standard 

feature of all Medicare PPSs. For 

example, under the IPPS, a hospital 

DRG payment may be subject to the 

DSH or IME adjustments. The DSH 

adjustment is based on the percentage of 

Medicaid patients discharged by the 

hospital during the fiscal year, while the 

IME adjustment is based on the number 

of residents trained by the hospital 

during the fiscal year. Both factors are 

subject to change based on final 

settlement of the hospital’s cost report. 

The procedures that we have 

established for this process envision a 

reconciliation between hospitals and the 

Medicare program based on claims 

submission, special interim payments or 

periodic interim payments and the final 

amounts due, as determined by the FI. 

Such reconciliations are both necessary 

and expected. There are numerous 

provisions affecting LTCHs that could 

result in subsequent redetermination of 

the payment amounts. For example, 

involvement of a QIO review of a DRG 

assignment which may result in a 

change in DRGs as specified in 

§ 412.513(c), as well as any of the 

reconsiderations and appeals provided 

for under subparts G, I, J, or R of Part 

405. Moreover, since the start of the 

LTCH PPS, our regulations on special 

payment provisions for patients who are 

transferred to onsite providers and 

readmitted to a LTCH at § 412.532, 

specified a 5 percent threshold for 

LTCH readmittances of patients that had 

been discharged to an onsite acute care 

hospital. Payments under this policy 

would be reconciled following cost 

report settlement. Finally, the 25 

percent threshold for co-located LTCHs, 

which could result in a redetermination 

of the payment amount if the threshold 

is exceeded, has been in effect since FY 

2005. 

Therefore, we do not believe that the 

principle of PPS issued by the Medicare 

program is inconsistent with the 

extension of the 25 percent payment 

adjustment threshold under the LTCH 

PPS. 

Comment: Several commenters stated 

that both of our policy proposals, the 

extension of the 25 percent threshold 

policy adjustment and the revision of 

the SSO policy, are effectively 

establishing ‘‘admission criteria’’ which 

usurp the exclusive role of QIOs in the 

Medicare program. 

Response: We reiterate that with the 

finalization of the extension of the 25 

percent threshold policy adjustment and 

the SSO policy, we have not established 

‘‘admissions criteria’’ for LTCHs. Rather, 

in keeping with our fiduciary 

responsibility to oversee Medicare 

expenditures, we have established 

payment policies that provide for 

appropriate Medicare payments for 

beneficiary care. We describe each of 

the policies in detail in this preamble. 

They are distinct policies but they both 

focus on our goal of determining 

payment for Medicare services delivered 

in LTCHs, under particular 

circumstances that we believe should 

not significantly exceed payment for 

similar services otherwise delivered in 

acute care hospitals. 

Because the comments that we 

received regarding the QIO’s role and 

the implementation of the expansion of 

the 25 percent threshold policy were 

fundamentally the same comments 

submitted regarding the QIOs role and 

the SSO policy revision, we responded 

to comments in the SSOs section of this 

final rule. 

In summary, we are finalizing a new 

provision at § 412.534(h) that effective 

with discharges occurring during cost 

reporting periods beginning on or after 

July 1, 2007, would apply the policies 

established under existing § 412.534 to 

grandfathered subclause (I) LTCH HwHs 

and LTCH satellites for Medicare 

discharges that were admitted from their 

co-located host hospitals. We are also 

applying those policies for Medicare 

discharges admitted from referring 

hospitals not co-located with the LTCH 

or the satellite of a LTCH to all 

subclause (I) LTCHs and LTCH satellites 

at § 412.536, generally tracking 

§ 412.534, where applicable. For 

example, in determining whether a 

hospital meets the 25 percent criterion, 

Medicare discharges that have already 

qualified for outlier payments at the 

referring hospital would not be included 

in the count of Medicare discharges 

admitted from the referring hospital. 

(We are entitling § 412.536, Special 

Payment Provisions for LTCHs and 

Satellites of LTCHs that Discharged 

Medicare Patients Admitted From a 

Hospital Not Located in the Same 

Building or on the Same Campus as the 

LTCH or Satellite of the LTCH.) 

We are also finalizing adjustments to 

the 25 percent policy at § 412.536 for 

specific circumstances consistent with 

the policy for co-located hospitals under 

§ 412.534. At § 412.536(c) for Medicare 

discharges from subclause (I) LTCHs or 

LTCH satellites located in rural areas, 

Medicare discharges in excess of 50 

percent, rather that 25 percent of the 

LTCH’s total Medicare discharges for a 

cost reporting period from an individual 

referring hospital not co-located with 

the LTCH or the satellite of the LTCH 

would be subject to the payment 

adjustment specified at § 412.536(c). In 

addition, in the case of a rural subclause 

(I) LTCH or LTCH satellite facility, in 

determining the percentage of Medicare 

discharges admitted from the referring 

hospital, any patients that had been 

Medicare outliers at the referring 

hospital and then discharged to the 

LTCH or LTCH satellite are not counted 

towards the threshold percentage (as 

described above). 

In § 412.536, we are also providing 

that if the referring hospital not colocated with the LTCH or satellite of the 

LTCH is the only other hospital in the 

MSA or is an MSA-dominant hospital as 

defined at § 412.536(e)(4), we are 

allowing the subclause (I) LTCH or 

LTCH satellite facility a threshold 

percentage equal to the non-co-located 

referring hospital’s percentage of total 


ycherry on PROD1PC64 with RULES2
26944 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

Medicare discharges for hospitals in the 

MSA. Consistent with our policy at 

existing § 412.534(e), we are applying a 

floor of 25 percent and a ceiling of 50 

percent to this threshold for these 

hospitals. As with the existing policy for 

co-located LTCHs, we believe that this 

adjusted payment threshold responds to 

‘‘the unique needs of these 

communities’’ (69 FR 49207). Similar to 

the existing provisions at § 412.534, in 

determining the percentage of Medicare 

discharges admitted to the LTCH or 

LTCH satellite facility from the urban 

single or MSA dominant hospital, any 

patients that had been Medicare outliers 

at the referring hospital before being 

admitted to the LTCH or LTCH satellite 

would not count towards the applicable 

threshold, as discussed above. 

The payment adjustment at § 412.536 

will be phased-in over 3 years for all 

LTCH discharges affected by the 

policies that we are finalizing beginning 

for cost reporting periods beginning on 

or after July 1, 2007. Under the phase in, 

the percentage threshold will be the 

greater of the applicable threshold as 

specified at 412.536(b),(c), and (d) or the 

following percentages: For cost 

reporting periods beginning on or after 

July 1, 2007 and before July 1, 2008, 

under the policy that we are finalizing 

at § 412.536, the percentage of Medicare 

discharges that may be admitted from a 

referring hospital not co-located with 

the LTCH or the satellite of a LTCH with 

no payment adjustment is the lesser of 

the percentage of Medicare discharges 

admitted from the referring hospital 

during its RY 2005 cost reporting period 

or 75 percent. For cost reporting periods 

beginning on or after July 1, 2008 and 

before July 1, 2009, under the policy 

that we are finalizing at § 412.536, the 

percentage of Medicare discharges that 

may be admitted from the referring 

hospital not co-located with the LTCH 

or the satellite of a LTCH, with no 

payment adjustment, is the lesser of the 

percentage of Medicare discharges 

admitted from the referring hospital 

during its RY 2005 cost reporting period 

or 50 percent. For cost reporting periods 

beginning on or after July 1, 2009 (RY 

2010), all subclause (I) LTCHs and 

LTCH satellites will be subject to the 25 

percent (or applicable percentage) 

threshold payment adjustment for 

discharges during a cost reporting 

period that were admitted from any 

referring hospital. In determining the 

percentage of Medicare discharges 

admitted from the referring hospital, 

patients who reached HCO status at the 

referring hospital before being admitted 

to the LTCH or LTCH satellite will not 

count towards the applicable threshold, 

as discussed above. A similar phase is 

provided for the expansion at § 412.534 

to grandfathered subclause (I) LTCH 

HwHs and LTCH satellites. 

Finally, we believe that these 

payment adjustments address policy 

concerns that are consistent with those 

that we originally expressed when we 

implemented the payment adjustment 

for LTCHs discharging patients that 

were admitted from co-located 

hospitals. 

We also believe that it is important, 

once again, to note that the 3-year 

transition to the full 25 percent 

threshold payment adjustment will 

coincide with our continuing work on 

the MedPAC recommendations to 

attempt to develop facility and patient 

level criteria for LTCHs. We hope that 

the LTCH industry will work closely 

with CMS to pursue this endeavor 

during the transition period. 

VI. Computing the Adjusted Federal 

Prospective Payments for the 2008 

LTCH PPS Rate Year 

In accordance with § 412.525 and as 

discussed in section IV.C. of this final 

rule, the standard Federal rate is 

adjusted to account for differences in 

area wages by multiplying the laborrelated share of the standard Federal 

rate by the appropriate LTCH PPS wage 

index (as shown in Tables 1 and 2 of the 

Addendum to this final rule). The 

standard Federal rate is also adjusted to 

account for the higher costs of hospitals 

in Alaska and Hawaii by multiplying 

the nonlabor-related share of the 

standard Federal rate by the appropriate 

cost-of-living factor (shown in Table 3 

in section IV.D.2 of this preamble). In 

the RY 2007 LTCH PPS final rule (71 FR 

27827), we established a standard 

Federal rate of $38,086.04 for the 2007 

LTCH PPS rate year. In this final rule, 

as was proposed, based on the best 

available data and the policies described 

in this final rule, the standard Federal 

rate for the 2008 LTCH PPS rate year 

will be $38,356.45 as discussed in 

section IV.C.3. of this preamble. We 

illustrate the methodology that will be 

used to adjust the Federal prospective 

payments for the 2008 LTCH PPS rate 

year in the following examples: 

Example 

During the 2008 LTCH PPS rate year, 

a Medicare patient is in a LTCH located 

in Chicago, Illinois (CBSA 16974). This 

LTCH is in the final year of the wage 

index phase-in, thus, the full (that is, 

five-fifths) wage index values are 

applicable. The full LTCH PPS wage 

index value for CBSA 16974 is 1.0751 

(see Table 1 in the Addendum to this 

final rule). The Medicare patient is 

classified into LTC–DRG 9 (Spinal 

Disorders and Injuries), which has a 

current relative weight of 1.0424 (see 

Table 3 of the Addendum to this final 

rule). 

To calculate the LTCH’s total adjusted 

Federal prospective payment for this 

Medicare patient, we compute the wageadjusted Federal prospective payment 

amount by multiplying the unadjusted 

standard Federal rate ($38,356.45) by 

the labor-related share (75.788 percent) 

and the wage index value (1.0751). This 

wage-adjusted amount is then added to 

the nonlabor-related portion of the 

unadjusted standard Federal rate 

(24.212 percent; adjusted for cost of 

living, if applicable) to determine the 

adjusted Federal rate, which is then 

multiplied by the LTC–DRG relative 

weight (1.0424) to calculate the total 

adjusted Federal prospective payment 

for the 2008 LTCH PPS rate year 

($42,258.45). (As discussed in section 

IV.C.5. of this preamble, for the 2008 

LTCH PPS rate year, we are no longer 

applying a transition period BN offset 

(to account for the costs of the transition 

methodology) in determining the total 

adjusted Federal prospective payment.) 

Table 7 illustrates the components of 

the calculations in this example. 

TABLE 7 

Unadjusted Standard Federal Prospective Payment Rate ............................................................................................................... $38,356.45 

Labor-Related Share ......................................................................................................................................................................... × 0.75788 

Labor-Related Portion of the Federal Rate ....................................................................................................................................... = $29,069.59 

Full Wage Index (CBSA 16974) ........................................................................................................................................................ × 1.0751 

Wage-Adjusted Labor Share of Federal Rate ................................................................................................................................... = $31,252.71 

Nonlabor-Related Portion of the Federal Rate ($38,356.45 × 0.24212) ........................................................................................... + $ 9,286.86 

Adjusted Federal Rate Amount ......................................................................................................................................................... = $40,539.57 

LTC–DRG 9 Relative Weight ............................................................................................................................................................ × 1.0424 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26945 

TABLE 7—Continued 

Total Adjusted Federal Prospective Payment * ................................................................................................................................. = $42,258.45 

* We are no longer applying a transition period BN offset to account for the costs of the transition methodology in determining the total adjusted Federal prospective payment for RY 2008.) 

VII. Transition Period 

To provide a stable fiscal base for 

LTCHs, under § 412.533, we 

implemented a 5-year transition period 

whereby a LTCH (except those defined 

as ‘‘new’’ under § 412.23(e)(4)) received 

a LTCH PPS payment consisting of a 

portion based on reasonable cost-based 

reimbursement principles under the 

TEFRA system and a portion based on 

the Federal prospective payment rate 

(unless the LTCH elected payment 

based on 100 percent of the Federal 

rate). As discussed in the August 30, 

2002 final rule (67 FR 56038), we 

believed that a 5-year phase-in provided 

LTCHs time to adjust their operations 

and capital financing to the LTCH PPS, 

which is based on prospectively 

determined Federal payment rates. 

Furthermore, we believed that the 5- 

year phase-in under the LTCH PPS also 

allowed LTCH personnel to develop 

proficiency with the LTC–DRG coding 

system, which will result in 

improvement in the quality of the data 

used for generating our annual 

determination of relative weights and 

payment rates. 

Under § 412.533, the 5-year transition 

period for all hospitals subject to the 

LTCH PPS began with the hospital’s 

first cost reporting period beginning on 

or after October 1, 2002 and extends 

through the hospital’s last cost reporting 

period beginning before October 1, 

2007. During the 5-year transition 

period, a LTCH’s total PPS payment 

under the LTCH PPS was based on two 

payment percentages—one based on 

reasonable cost-based principles and the 

other based on the standard Federal 

prospective payment rate. The 

percentage of the LTCH PPS payment 

based on the LTCH PPS Federal rate 

increased by 20 percentage points each 

year, while the reasonable portion of the 

LTCH PPS payment based on cost-based 

principles decreased by 20 percentage 

points each year, for the next 4 fiscal 

years. For cost reporting periods 

beginning on or after October 1, 2006, 

Medicare payment to LTCHs will be 

determined entirely under the Federal 

rate. 

In implementing the LTCH PPS, one 

of our goals was to transition hospitals 

to prospective payments based on 100 

percent of the adjusted Federal 

prospective payment rate as soon as 

appropriate. Therefore, under 

§ 412.533(c), we allowed a LTCH (other 

than new LTCHs defined at 

§ 412.23(e)(4)), which was subject to a 

blended rate, to elect payment based on 

100 percent of the Federal rate at the 

start of any of its cost reporting periods 

during the 5-year transition period. 

Once a LTCH elected to be paid based 

on 100 percent of the Federal rate, it 

could not revert back to the transition 

blend. 

VIII. Payments to New LTCHs 

Under § 412.23(e)(4), for purposes of 

Medicare payment under the LTCH PPS, 

we define a new LTCH as a provider of 

inpatient hospital services that meets 

the qualifying criteria for LTCHs, set 

forth in § 412.23(e)(1) and (e)(2), and 

under present or previous ownership (or 

both), has its first cost reporting period 

as a LTCH beginning on or after October 

1, 2002. As we discussed in the August 

30, 2002 final rule (67 FR 56040), this 

definition of new LTCHs should not be 

confused with those LTCHs first paid 

under the TEFRA payment system for 

discharges occurring on or after October 

1, 1997, described in section 

1886(b)(7)(A) of the Act, as added by 

section 4416 of the Balanced Budget Act 

of 1997 (BBA) (Pub. L. 105–33). 

Under § 412.533(d), new LTCHs, as 

defined in § 412.23(e)(4), will be paid 

based on 100 percent of the standard 

Federal rate. As we discussed in the 

August 30, 2002 final rule (67 FR 

56040), the transition period was 

intended to provide existing LTCHs 

time to adjust to payment under the new 

system. Since these new LTCHs with 

their first cost reporting periods as 

LTCHs beginning on or after October 1, 

2002, would not have received payment 

under reasonable cost-based 

reimbursement for the delivery of LTCH 

services prior to the effective date of the 

LTCH PPS, we did not believe that those 

new LTCHs required a transition period 

in order to make adjustments to their 

operations and capital financing, as will 

LTCHs that have been paid under the 

reasonable cost-based methodology. 

IX. Method of Payment 

Under § 412.513, a Medicare LTCH 

patient is classified into a LTC–DRG 

based on the principal diagnosis, up to 

eight additional (secondary) diagnoses, 

and up to six procedures performed 

during the stay, as well as age, sex, and 

discharge status of the patient. The 

LTC–DRG is used to determine the 

Federal prospective payment that the 

LTCH will receive for the Medicarecovered Part A services the LTCH 

furnished during the Medicare patient’s 

stay. Under § 412.541(a), the payment is 

based on the submission of the 

discharge bill. The discharge bill also 

provides data to allow for reclassifying 

the stay from payment at the full LTC–

DRG rate to payment for a case as a SSO 

(under § 412.529) or as an interrupted 

stay (under § 412.531), or to determine 

if the case will qualify for a HCO 

payment (under § 412.525(a)). 

Accordingly, the ICD–9–CM codes 

and other information used to determine 

if an adjustment to the full LTC–DRG 

payment is necessary (for example, LOS 

or interrupted stay status) are recorded 

by the LTCH on the Medicare patient’s 

discharge bill and submitted to the 

Medicare FI for processing. The 

payment represents payment in full, 

under § 412.521(b), for inpatient 

operating and capital-related costs, but 

not for the costs of an approved medical 

education program, bad debts, blood 

clotting factors, anesthesia services by 

hospital-employed nonphysician 

anesthetists or the costs of photocopying 

and mailing medical records requested 

by a Quality Improvement Organization 

(QIO), which are costs paid outside the 

LTCH PPS. 

As under the previous reasonable 

cost-based payment system, under 

§ 412.541(b), a LTCH may elect to be 

paid using the periodic interim payment 

(PIP) method described in § 413.64(h) 

and may be eligible to receive 

accelerated payments as described in 

§ 413.64(g). 

For those LTCHs that are being paid 

under the transition methodology set 

forth at § 412.533, for cost reporting 

periods that began on or after October 1, 

2002, and before October 1, 2006, the 

PIP amount is based on the transition 

blend. For those LTCHs that are paid 

based on 100 percent of the standard 

Federal rate, the PIP amount is based on 

the estimated prospective payment for 

the year rather than on the estimated 

reasonable cost-based reimbursement. 

We exclude HCO payments that are paid 

upon submission of a discharge bill 

from the PIP amounts. In addition, Part 

A costs that are not paid for under the 

LTCH PPS, including Medicare costs of 

an approved medical education 

program, bad debts, blood clotting 


ycherry on PROD1PC64 with RULES2
26946 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

factors, anesthesia services by hospitalemployed nonphysician anesthetists 

and the costs of photocopying and 

mailing medical records requested by a 

QIO, are subject to the interim payment 

provisions as specified in § 412.541(c). 

Under § 412.541(d), LTCHs with 

unusually long lengths of stay that are 

not receiving payment under the PIP 

method may bill on an interim basis (60 

days after an admission and at intervals 

of at least 60 days after the date of the 

first interim bill) and this should 

include any HCO payment determined 

as of the last day for which the services 

have been billed. 

X. Monitoring 

In the August 30, 2002 final rule (67 

FR 56014), we described an on-going 

monitoring component to the new LTCH 

PPS. Specifically, we discussed ongoing analysis of the various policies 

that we believe would provide equitable 

payment for stays that reflect less than 

the full course of treatment and reduce 

the incentives for inappropriate 

admissions, transfers, or premature 

discharges of patients that are present in 

a discharge-based PPS. As a result of our 

data analysis, we have revisited a 

number of our original and even preLTCH PPS policies in order to address 

what we believe are behaviors by certain 

LTCHs that lead to inappropriate 

Medicare payments. In recent Federal 

Register publications, we have proposed 

and subsequently finalized revisions to 

the interruption of stay policy in the RY 

2005 LTCH PPS final rule (69 FR 

25692), and we established a payment 

adjustment for LTCH HwHs and 

satellites in the FY 2005 IPPS final rule 

(69 FR 49191 through 49214). In section 

V.A.2., we revisited the payment 

adjustment methodology established for 

SSOs (71 FR 27845) as a consequence of 

recent data analysis and are finalizing a 

policy which revises one of the existing 

four alternatives under the existing SSO 

payment methodology for certain SSO 

cases to an amount under the LTCH PPS 

that is comparable to an amount that 

would otherwise be paid under the 

IPPS. 

As we discuss in section X. of this 

final rule, our monitoring of discharges 

between acute care hospitals and LTCHs 

reveals that a significant number of 

LTCHs that are ‘‘freestanding’’, that is, 

not co-located with other hospital-level 

providers (as defined in § 412.22(e) and 

§ 412.22(h)), admit their patients from 

one specific acute care hospital. When 

we established the payment adjustment 

for LTCH HwHs and satellites of LTCHs 

at § 412.534, we stated our concern that 

these on-site LTCHs could be 

functioning as units of their host 

(generally, an acute care hospital), a 

configuration that is not permitted in 

section 1886(d)(1)(B) of the Act. (The 

statute specifically allows only for IRF 

and IPF units in acute care hospitals, 

but not for LTCH units.) As a result of 

our data monitoring and analysis, which 

is detailed in section V.B. of this final 

rule, we are expanding the existing 

payment adjustment at § 412.534 and 

we developed new § 412.536 to apply to 

certain situations not currently covered 

by the existing policy for LTCHs colocated with other hospitals. 

As we discussed in the RY 2004 

LTCH PPS final rule (68 FR 34157), the 

Medicare Payment Advisory 

Commission (MedPAC) endorsed our 

monitoring activity as a primary aspect 

of the design of the LTCH PPS. 

Furthermore, the Commission pursued 

an independent research initiative that 

led to a section in MedPAC’s June 2004 

Report to Congress entitled ‘‘Defining 

long-term care hospitals’’. This study 

included recommendations that we 

develop facility and patient criteria for 

LTCH admission and treatment and that 

we require a review by QIOs to evaluate 

whether LTCH admissions meet criteria 

for medical necessity once the 

recommended facility and patient 

criteria are established (70 FR 24209). In 

response to the recommendation in 

MedPAC’s June 2004 Report, we 

awarded a contract to Research Triangle 

Institute, International (RTI), on 

September 27, 2004, to conduct a 

thorough examination of the feasibility 

of implementing MedPAC’s 

recommendations. 

RTI has completed its examination of 

the feasibility of implementing 

MedPAC’s recommendations in the June 

2004 Report to Congress, and as 

discussed in section XI. of the preamble 

to this final rule. Both Phases I and II 

are posted on the CMS Web site (as 

noted below). We also reproduced the 

Executive Summary of the report in 

Addendum B of the RY 2008 LTCH PPS 

proposed rule (72 FR 4884 through 

4886). At that time, we noted, ‘‘[t]his 

material is being reproduced as received 

from the contractors and does not 

represent out position or policy’’ (72 FR 

48181). 

We are continuing to pursue our ongoing program, existing QIO monitoring 

and studies described in the RY 2006 

LTCH PPS final rule (70 FR 24211), and 

our considerations of expanding the 

QIO role in the LTCH PPS. 

Comment: We received several letters 

from various Congressional delegations 

that were critical of the proposed 

revision to the SSO policy and the 

extension of the 25 percent threshold 

payment adjustments. The commenters 

stated that these policies do not achieve 

CMS’ goal of identifying inappropriate 

LTCH admissions. 

The commenters urged us to establish 

patient and facility-level criteria for 

LTCHs to better define the appropriate 

patient setting and medical conditions 

required for admission. A number of the 

commenters further stated that LTCHs 

admit patients only after applying an 

objective and rigorous set of admissions 

screening criteria and Medicare QIOs 

conduct post-admission reviews of 

LTCH patients to ensure that admissions 

are medically-necessary. These 

commenters further stated that at our 

direction, QIOs have been reviewing a 

sample of LTCH cases for admission 

appropriateness and that these reviews 

‘‘clearly’’ show an immaterial number of 

LTCH claims denied as the result of QIO 

reviews. Therefore, the commenters 

maintained that QIO review data does 

not support our assumption that cases 

were inappropriately admitted to 

LTCHs, but rather, QIOs are 

overwhelmingly finding that LTCH 

patients have appropriately been 

admitted and treated in LTCHs. 

Response: We reiterate that QIO 

review of Medicare cases, either based 

upon the national sample or resulting 

from specific appeals, presently 

determine, among other things, whether 

a patient required hospital-level care. 

The QIO reviews presently do not 

distinguish between acute care settings, 

such as acute care hospitals paid under 

the IPPS or acute care hospitals paid 

under the LTCH PPS. Therefore, 

although the QIO review process, as 

presently constituted, is a vital 

component of the Medicare program, 

the role played by the QIOs does not, at 

this time, provide a medium through 

which we can determine appropriate 

payment policy for acute care hospital 

patients who are admitted to an LTCH. 

However, regarding the commenters’

statement that the proposed rule did not 

target cases that are likely the result of 

inappropriate admission and that data 

available to CMS clearly showed an 

immaterial number of LTCH claims 

denied as the result of QIO review of a 

sample of LTCH cases, we would share 

the results of an LTCH review from FY 

2005. In that review, QIOs reviewed a 

statistically valid, representative 

national sample of 1,392 LTCH claims 

annually for the past few years. These 

samples were utilized for calculation of 

national payment error rates and the 

sampling method has been determined 

to be statistically sound by external 

audit. While the overall numbers of 

admission denials is low due to the 

sample size, statistically-based 

projections have revealed issues relative 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26947 

to inappropriate admissions, especially 

admissions with short length of stays. 

For discharges occurring during FY 

2005, 7.9 percent of the admissions 

were found to be inappropriate 

accounting for a projected overpayment 

of $215,073,309 annually; this 

admission denial rate is higher than the 

4.7 percent found for acute care 

hospitals paid under the IPPS during 

the same time period. Of note, 72.7 

percent of admission denials for LTCH 

discharges occurred in claims with a 

LOS of 25 days or less. 

The commenters further asserted that 

QIO data does not support our 

assumption that cases were 

inappropriately admitted to LTCHs as a 

result of LTCHs acting as extension sites 

or units of other acute care hospitals or 

patients receiving less than a full 

episode of care at the acute care 

hospital. However, an internal analysis 

of LOS for FY 2005 LTCH discharges 

has revealed that over 50 percent of 

stays were 25 days or less in length and 

many of those have an LOS comparable 

to an IPPS LOS for that DRG. 

XI. MedPAC Recommendations: The 

RTI Contract 

With the recommendations of 

MedPAC’s June 2004 Report to Congress 

as a point of departure, RTI evaluated 

the feasibility of developing patient and 

facility level characteristics for LTCHs 

to identify and distinguish the role of 

these hospitals as a Medicare provider. 

RTI completed this project in two 

phases. In Phase I, RTI prepared a 

background report summarizing existing 

information regarding LTCHs’ current 

role in the Medicare system: their 

history as Medicare participating 

providers; the types of patients they 

treat; the criteria QIOs currently use to 

review appropriateness of care in these 

settings; and the types of regulations 

they face as Medicare participating 

providers. This work reviewed prior 

analyses of these issues and included 

discussions with MedPAC, other 

researchers, CMS, the QIOs, and the 

hospital associations. 

In Phase II, RTI collected additional 

information on tools currently used by 

the QIOs and the industry to assess 

patient appropriateness for admission; 

analyzed claims to understand 

differences between hospital patients 

with outlier stays in non-LTCHs and 

those treated in LTCHs; and visited 

different types of hospitals to observe 

first-hand how LTCH patients differ 

from those in other settings and how 

this pattern varies in different parts of 

the country. RTI worked with different 

associations, including the National 

Association of Long Term Hospitals 

(NALTH), the Acute Long Term 

Hospital Association (ALTHA), the 

AHA, and the American Medical Peer 

Review Association (AMPRA), as well 

as several of the larger LTCH chains. 

The final report submitted by RTI 

summarizes these efforts and makes 

numerous recommendations to CMS 

regarding LTCHs. 

As noted above, the reports on both 

Phase I and Phase II of RTI’s research 

have been posted on our Web site at 

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

LongTermCareHospitalPPS/ 

02a_RTIReports.asp#TopOfPage. Please 

note that this report does not represent 

our position or policy. We are currently 

evaluating RTI’s recommendations 

regarding the feasibility of developing 

patient and facility level criteria from 

several standpoints. Most significantly, 

we have been concerned that several of 

RTI’s recommendations may require 

statutory changes. Furthermore, even 

among those recommendations for 

action that would be accomplished on a 

regulatory level, there are many 

significant issues that require further 

analysis. RTI is proceeding with Phase 

III of their project and as during Phases 

I and II, we have consistently 

encouraged meaningful contact between 

RTI and industry stakeholders 

throughout this research phase of the 

contract. 

Comment: We received a comment 

from MedPAC that urged us to continue 

working towards the development of 

patient and facility criteria as the best 

way to determine appropriate LTCH 

patients particularly in light of the RTI 

report which included 

recommendations similar to those 

originally suggested by MedPAC in its 

June 1994 Report to Congress. The 

Commission noted that approaches 

other than criteria, such as the 25 

percent rule, ‘‘may be administratively 

less complex but are more arbitrary and 

increase the risk for unintended 

consequences.’’ The Commission further 

suggested that we evaluate patient 

criteria currently in use by LTCHs and 

continue to work with LTCH 

associations that have developed 

criteria. The commenter also reiterated 

the Commission’s support for severityrated DRGs for use in the IPPS hospitals 

and noted that their adoption could 

reduce necessity for referrals to LTCHs. 

The Commission also endorsed a larger 

role for QIOs in the oversight of 

determinations of medical necessity, as 

well as in monitoring compliance with 

patient and facility level criteria. 

Response: We thank the Commission 

for its thoughtful response to our 

proposed rule. We are mindful of the 

importance of identifying patient and 

facility-level criteria for LTCHs and 

believe that we have contracted with 

RTI to continue moving in that direction 

as they begin Phase 3 of their project. 

The reports on Phase I and Phase II of 

RTI’s work are posted on the CMS Web 

site. We believe that their analyses of 

LTCHs and other provider categories 

that treat LTCH-type patients provide 

the foundation for any future 

development of patient level criteria. 

We understand MedPAC’s preference 

for patient criteria as opposed to 

payment adjustments for the purpose of 

determining appropriate patients for 

treatment at a LTCH. However, we 

would note that even with the 

development of patient criteria, it 

continues to be our statutory 

responsibility, under the BBA and 

BBRA to provide for appropriate 

adjustments and to establish regulations 

as may be necessary to effectively 

administer the Medicare program by 

way of implementing appropriate 

payment policies and payment 

adjustments. Therefore, even though we 

continue our work with RTI in Phase 3 

of their project to see if we can identify 

appropriate patient and facility-level 

criteria for LTCHs, we do not see the 

development of those criteria as 

contradictory aspects to efforts we have 

undertaken while performing our 

fiduciary responsibility for the Medicare 

program. We further believe that it may 

be appropriate to continue to maintain 

such policies under the LTCH PPS that 

guard the Medicare Trust Fund from 

duplicative payments for what is one 

episode of patient care, even if we are 

able to develop and adopt facility and 

patient criteria for LTCHs and LTCH 

patients. 

In the following comment and 

response, we discuss our evaluation of 

existing patient criteria currently in use 

by LTCHs, including one that was 

developed by one of the LTCH 

associations. 

The Commission’s support for the 

adoption of severity-rated DRGs for use 

in acute care hospitals paid for under 

the IPPS is discussed in the FY 2008 

IPPS proposed rule. As discussed in that 

proposed rule, we have also proposed 

adopting the same severity-based DRGs 

for the LTCH PPS. 

Finally, regarding an increasing role 

for QIOs in the LTCH PPS, we are 

currently developing the next Quality 

Improvement Organization Scope of 

Work. These comments will be 

considered in that process. 

Comment: Many commenters took 

issue with the payment adjustments that 

we proposed in the RY 2007 LTCH PPS 

proposed rule that would revise the 

existing SSO policy and extend the 


ycherry on PROD1PC64 with RULES2
26948 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

scope of the 25 percent threshold 

payment adjustment. The commenters 

suggested that rather than issuing 

further regulations that do not 

reasonably address our most significant 

concerns with LTCHs, that we should 

instead focus on developing LTCH 

patient criteria as was suggested by 

MedPAC in 2004 and discussed in the 

RTI report. Several commenters further 

contended that we have been ‘‘ignoring 

MedPAC and RTI recommendations.’’

One commenter stated, ‘‘In 3 years, CMS 

has not implemented MedPAC 

recommendations.’’ Many commenters 

questioned why we have not adopted 

existing patient criteria instruments that 

are currently used by LTCHs, such as 

Interqual or the system developed by 

MassPRO and the National Association 

of Long Term Hospitals (NALTH). 

Response: In responses to comments 

in the sections of this final rule that 

address the SSO policy and the 

extension of the 25 percent (or 

applicable percentage) threshold 

payment adjustment to LTCH and 

satellite discharges that were admitted 

from non-co-located hospitals, we 

specifically address our rationale for 

issuing both of these provisions. 

However, aside from objections to our 

policies, it also appears as if the 

commenters are combining the 

production of patient and facility level 

criteria by RTI with the end of further 

payment adjustments under the LTCH 

PPS by CMS. Notwithstanding the 

future development of appropriate 

patient and facility level criteria for 

LTCHs, it will continue to be our 

statutory responsibility under sections 

1102 and 1871 of the Act to establish 

regulations as may be necessary to 

adjust LTCH payments appropriately 

and to effectively administer the 

Medicare program. 

Furthermore, we strongly disagree 

with statements by the above 

commenters that we have ‘‘ignored’’ the 

MedPAC recommendations, as well as 

those recently resulting from RTI’s final 

report. In awarding contracts, as a 

Federal Agency, we are required to 

follow the protocols of the Federal 

contracting process that are governed by 

the Office of Federal Procurement 

Policy (OFPP) and Health and Human 

Services Acquisition Regulation 

(HHSAR) (5 U.S.C. 301 and section 

205(c) of the Federal Property and 

Administrative Services Act of 1949 as 

amended (40 U.S.C. 486(c)) and 

regulations as follows: The Federal 

Acquisition Regulation (48 CFR Ch. 1); 

FAR Supplements (48 CRFR Chs. 2–53); 

Labor (29 CFR, 41 CFR Ch. 50, Small 

Business Administration (SBA) 13 CFR, 

and OMB Circular No. A–130. Even 

after meeting all of the above 

requirements, however, we would note 

that while the MedPAC 

recommendations were originally 

published in June 2004, we were able to 

award the contract to RTI to evaluate 

MedPAC’s recommendations by the 

start of FY 2005 (October 2004). 

We have included an update of RTI’s 

progress in each notice since that time, 

and we believe that an objective 

evaluation of the Phase I and II reports 

presently on the CMS Web site at 

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

LongTermCareHospitalPPS/02a_

RTIReports.asp#TopOfPage indicates 

steady progress but also demonstrates 

the thoughtful analysis resulting from 

RTI’s high level of professionalism in 

pursuit of our goal. 

RTI’s work over the past 2.5 years has 

resulted in an extensive and careful 

analysis of the Medicare populations 

served by LTCHs, a comparison of these 

populations with those treated in other 

acute settings, including IPPS, IRFs, and 

Inpatient Psychiatric populations, as 

well as those treated in less intensive 

settings such as SNFs. This work 

included analysis of Medicare data to 

compare patient characteristics and 

provider costs for certain types of 

patients; regulatory requirements 

governing program conditions of 

participation for these different types of 

facilities; interviews with private sector 

developers of level of care 

determinations; and site visits and 

interviews with physicians and 

hospitals treating these typical and 

frequently overlapping populations. 

The results suggested that, while there 

are distinctive populations with very 

long acute care needs, there are also 

many patients whose LOS at the LTCH 

may trigger a short stay outlier payment, 

suggesting their LOS was not consistent 

with an LTCH level of care need as 

defined by longer term acute level 

hospital care. While existing patient 

criteria such as Interqual are useful for 

distinguishing between the need for 

hospital-level treatment and a less 

intensive level, such as SNF care, RTI’s 

analysis has determined that, in fact, the 

private sector criteria failed to 

distinguish between patients at LTCHs 

and patients at acute care hospitals. The 

criteria proposed by the National 

Association for Long Term Hospitals 

(NALTH) also had this shortcoming. 

While they identified the intensive 

acute care patient, they failed to identify 

differences between their admissions’

clinical characteristics and those treated 

in a general acute care hospital stepdown unit. 

At a recent Technical Expert Panel 

(TEP) comprised of physicians, nurses, 

and hospital administrators 

representing, in addition to LTCHs, 

acute care hospitals, IRFs, and SNFs, 

convened by RTI, all participants agreed 

that LTCHs specialize in treating the 

types of patients they admit, noting that 

having a high volume of these patients 

is one of the reasons for their successful 

outcomes. However, it was also noted 

that these services are also provided in 

general acute care hospitals, particularly 

in ICU step-down units. So, while 

LTCHs may specialize in a select group 

of patients (the more intensively ill), 

they are not the only providers to 

successfully provide these treatments. 

The TEP reached consensus that volume 

was important for successful treatment 

of the complicated cases, regardless of 

site of care. TEP participants continue to 

be involved in providing feedback to 

RTI and another TEP is being planned 

based upon the earlier meeting and 

participant responses. 

We continue to contract with RTI to 

work on these issues and RTI is 

presently involved into the next phase 

(phase III) of their project which will 

include the refinement of patient 

specific comparisons of total episode 

treatment in areas with and without 

LTCHs. Furthermore, RTI is also 

participating in the CMS-wide effort to 

better identify patient-level differences 

across the various levels of care. 

XII. Payment for Direct Graduate 

Medical Education (GME) 

A. GME Background 

Section 1886(h) of the Act, as added 

by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act 

(COBRA) of 1985 (Pub. L. 99–272) and 

implemented in regulations at existing 

§ 413.75 through § 413.83, establishes a 

methodology for determining payments 

to hospitals for the direct costs of 

approved graduate medical education 

(GME) programs. Section 1886(h)(2) of 

the Act, as added by COBRA, sets forth 

a payment methodology for direct GME 

costs involving the determination of a 

hospital-specific, base-period per 

resident amount (PRA) that is calculated 

by dividing a hospital’s allowable costs 

of GME for a base period by its number 

of residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, the period 

beginning October 1, 1983, through 

September 30, 1984). Generally, for cost 

reporting periods beginning on or after 

July 1, 1985, Medicare direct GME 

payments are calculated by multiplying 

the hospital’s PRA by the weighted 

number of full-time equivalent (FTE) 

residents working in all areas of the 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26949 

hospital (and nonhospital sites, when 

applicable), and by the hospital’s 

Medicare percentage of total inpatient 

days. In addition, as specified in section 

1886(h)(2)(D)(ii) of the Act, for cost 

reporting periods beginning between 

October 1, 1993, through September 30, 

1995, each hospital-specific PRA for the 

previous cost reporting period is not 

updated for inflation for any FTE 

residents who are not either a primary 

care or an obstetrics and gynecology 

resident. As a result, hospitals that 

trained primary care, and obstetrics and 

gynecology residents, as well as 

nonprimary care residents in FY 1994 or 

FY 1995 have two separate PRAs: one 

for primary care, and obstetrics and 

gynecology residents; and one for 

nonprimary care residents. 

The Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999 (Pub. L. 106–113) (BBRA) 

amended section 1886(h)(2) of the Act 

to establish a methodology for the use 

of a national average PRA in computing 

direct GME payments for cost reporting 

periods beginning on or after October 1, 

2000, and on or before September 30, 

2005. The BBRA established a ‘‘floor’’

for hospital-specific PRAs that is equal 

to 70 percent of the locality-adjusted 

national average PRA. In addition, the 

BBRA established a ‘‘ceiling’’ that 

limited the annual inflation update to a 

hospital-specific PRA if the hospital’s 

PRA exceeded 140 percent of the 

locality-adjusted national average PRA. 

Section 511 of the Benefits 

Improvement and Protection Act of 

2000 (Pub. L. 106–554) (BIPA) increased 

the floor established by the BBRA to 

equal 85 percent of the locality-adjusted 

national average PRA. For purposes of 

calculating direct GME payments, each 

hospital-specific PRA is compared to 

the floor and the ceiling to determine 

whether a hospital-specific PRA should 

be revised. 

Section 1886(h)(4)(F) of the Act 

established limits on the number of 

allopathic and osteopathic residents that 

a hospital may count for purposes of 

calculating direct GME payments. For 

most hospitals, the limits are the 

number of allopathic and osteopathic 

FTE residents training in the hospital’s 

most recent cost reporting period ending 

on or before December 31, 1996. 

B. Residents Training in Nonhospital 

Settings 

1. Background 

For purposes of direct GME payments, 

since July 1, 1987, the statute allows 

hospitals to count the time residents 

spend training in sites that are not part 

of the hospital (referred to as 

‘‘nonprovider’’ or ‘‘nonhospital sites’’) 

under certain conditions. Section 

1886(h)(4)(E) of the Act requires that the 

Secretary’s rules concerning 

computation of FTE residents for 

purposes of direct GME payments 

‘‘provide that only time spent in 

activities relating to patient care shall be 

counted and that all the time so spent 

by a resident under an approved 

medical residency training program 

shall be counted towards the 

determination of full-time equivalency, 

without regard to the setting in which 

the activities are performed, if the 

hospital incurs all, or substantially all, 

of the costs for the training program in 

that setting.’’ (Section 1886(h)(4)(E) of 

the Act, as added by section 9314 of the 

Omnibus Budget Reconciliation Act of 

1986 (Pub. L. 99–509) (OBRA 86).) 

Regulations regarding the treatment of 

time spent by residents training in 

nonhospital sites for purposes of direct 

GME payments were first implemented 

in the September 29, 1989 final rule (54 

FR 40286). In regulations adopted in 

that same rule at § 413.86(f)(3) (now 

§ 413.78(c)), we stated that a hospital 

may count the time residents spend in 

nonprovider settings for purposes of 

direct GME payment if the residents 

spend their time in patient care 

activities and there is a written 

agreement between the hospital and the 

nonprovider entity stating that the 

hospital will incur all or substantially 

all of the costs of the program. The 

regulations at that time defined ‘‘all or 

substantially all’’ of the costs to include 

the residents’ compensation for the time 

spent at the nonprovider setting. Before 

October 1, 1997, for IME payment 

purposes, hospitals were not permitted 

to count the time residents spent 

training in nonhospital settings. Section 

4621(b)(2) of the BBA revised section 

1886(d)(5)(B) of the Act to allow 

providers to count time residents spend 

training in nonprovider sites for IME 

purposes, effective for discharges 

occurring on or after October 1, 1997. 

Specifically, section 1886(d)(5)(B)(iv) of 

the Act was amended to provide that 

‘‘all the time spent by an intern or 

resident in patient care activities under 

an approved medical residency program 

at an entity in a nonhospital setting 

shall be counted towards the 

determination of full-time equivalency 

if the hospital incurs all, or substantially 

all, of the costs for the training program 

in that setting.’’ In the July 31, 1998 

final rule (63 FR 41004 through 41005) 

at § 412.105(f)(1)(ii)(C) and § 413.78(d) 

(formerly designated § 413.86(f)(4)), we 

specified the requirements a hospital 

must meet to include the time spent by 

residents training in a nonhospital site 

in its FTE count for portions of cost 

reporting periods occurring on or after 

January 1, 1999 for purposes of both 

direct GME and IME payments. Section 

413.75(b) redefined ‘‘all or substantially 

all of the costs for the training program 

in the nonhospital setting’’ as the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable), and the portion of the cost 

of teaching physicians’ salaries and 

fringe benefits attributable to direct 

GME. Section 413.78(e) provides that, in 

order for a hospital to be permitted to 

count FTE residents training in a 

nonhospital setting, a written agreement 

must be in place between the hospital 

and the nonhospital site providing that 

the hospital will incur the costs of the 

resident’s salary and fringe benefits 

while the resident is training in the 

nonhospital site. The hospital must also 

provide reasonable compensation to the 

nonhospital site for supervisory 

teaching activities, and the written 

agreement must specify that 

compensation amount. 

2. Moratorium on Disallowances of 

Allopathic or Osteopathic Family 

Practice Residents Training Time in 

Nonhospital Settings, and Questions 

and Answers (Qs&As) on CMS Web Site 

(Section 713 of the MMA and § 413.78) 

In order for the hospital to incur ‘‘all 

or substantially all’’ of the costs in 

accordance with the regulations, the 

actual cost of the time spent by teaching 

physicians in supervising residents in 

the nonhospital setting must be 

compensated by the hospital. The 

amount of supervisory GME costs is 

dependent upon the teaching 

physician’s salary and the percentage of 

time that he or she devotes to activities 

related to the residency program at the 

nonhospital site. (We note that the 

teaching physician’s involvement in the 

provision of patient care is not 

considered attributable to direct GME.) 

As long as there are supervisory GME 

costs associated with the nonhospital 

training, the hospital must reimburse 

the nonhospital setting for those costs to 

count FTE resident time spent in the 

nonhospital site for purposes of IME 

and direct GME payments. 

Many hospitals have entered into 

written agreements with nonhospital 

sites that state that the teaching 

physician is ‘‘volunteering’’ his or her 

time in the nonhospital site, and, 

therefore, the hospital is not providing 

any compensation to the teaching 

physician. Other hospitals have paid 

only a nominal amount of compensation 

for the supervisory teaching physicians’


ycherry on PROD1PC64 with RULES2
26950 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

time in the nonhospital setting. Because 

§ 413.78(d) requires that the hospital 

must incur ‘‘all or substantially all’’ of 

the direct GME costs, including those 

costs associated with the teaching 

physician, regardless of whether the 

written agreement states that the 

teaching physician is ‘‘volunteering,’’

we have required that the hospital pay 

these costs to count FTE residents 

training in the nonhospital site, as long 

as these teaching physician costs exist. 

Section 713 of the MMA imposed a 1- 

year moratorium relating to certain 

nonhospital site teaching physician 

costs for the period from January 1, 

2004, through December 31, 2004. 

During this 1-year period, we were 

required to allow hospitals to count FTE 

allopathic or osteopathic family practice 

residents training in nonhospital 

settings for IME and direct GME 

payment purposes without regard to the 

financial arrangement between the 

hospital and the teaching physician 

practicing in the nonhospital setting to 

which the resident was assigned. 

We instructed our contractors 

(formerly called ‘‘fiscal intermediaries’’

or ‘‘FIs’’) regarding the effect of section 

713 of the MMA in the One-Time 

Notification (OTN), ‘‘Changes to the FY 

2004 Graduate Medical Education 

(GME) Payments as Required by the 

Medicare Modernization Act of 2003 

(MMA)’’ (CR 3071, Transmittal 61, 

issued on March 12, 2004). Generally, 

we stated in the OTN that, when settling 

prior year cost reports during this 1-year 

period, or for family practice residents 

actually training in nonhospital settings 

during this 1-year period, contractors 

should allow hospitals to count 

allopathic and osteopathic family 

practice residents training in a 

nonhospital setting for direct GME and 

IME payment purposes without regard 

to the financial arrangement between 

the hospital and the nonhospital site 

pertaining to the teaching physicians’

costs associated with the residency 

program. For further information on this 

provision and for a summary of 

comments and responses related to this 

provision, please refer to the FY 2005 

IPPS final rule (69 FR 49176). 

Furthermore, in response to questions 

and concerns raised by the industry and 

Medicare contractors as to how to 

determine the costs associated with 

residency training at the nonhospital 

setting, as well as how and when to pay 

the nonhospital setting for these costs, 

we posted Qs&As on the CMS Web site 

on April 8, 2005 at http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

Downloads/nonhospQA.pdf. In the 

Qs&As, in response to the question of 

whether there are situations where it is 

acceptable for the teaching physician to 

‘‘volunteer’’ his or her time supervising 

residents at the nonhospital site, we 

stated that ‘‘***’the relevant question 

is not whether volunteerism is 

permissible, but whether there is a cost 

to the nonhospital site for supervising 

the resident training. If there is a cost, 

the hospital must reimburse the 

nonhospital site for those costs.’’ We 

further stated that we believe in 

situations where the teaching physician 

receives a predetermined compensation 

amount for his or her time at the 

nonhospital site that does not vary with 

the number of patients he or she treats, 

there is a cost for the teaching physician 

time spent in nonpatient care direct 

GME activities. In contrast, if the 

physician’s compensation at the 

nonhospital site is based solely on his 

or her billings, there is no cost for 

teaching physician time spent in 

nonpatient care direct GME activities. 

Accordingly, the statute continues to 

require that a hospital must pay ‘‘all or 

substantially all’’ the costs of training 

residents at the nonhospital site to 

count FTE residents training at that site, 

including teaching physician costs, as 

long as those costs exist. 

3. Requirements for Written Agreements 

for Residency Training in Nonhospital 

Settings (§ 413.78(e)) 

In implementing section 1886(h)(4)(E) 

of the Act, to assist contractors in 

determining whether a hospital incurred 

‘‘all or substantially all’’ of the costs of 

the program in the nonhospital setting, 

we required in § 413.78(c) and (d) 

(formerly § 413.86(f)(3) and (4)) that 

there must be a written agreement 

between the hospital and the 

nonhospital site stating that the hospital 

will incur ‘‘all or substantially all’’ of 

the costs of training in the nonhospital 

setting. We later specified at 

§ 413.78(d)(2) that the written agreement 

must indicate the amount of 

compensation provided by the hospital 

to the nonhospital site for supervisory 

teaching activities. 

In an effort to respond to concerns 

expressed by hospitals about the 

administrative burden associated with 

meeting the written agreement 

requirements, in the FY 2005 IPPS final 

rule (69 FR 49179), at § 413.78(e), we 

revised our regulations to allow 

hospitals to choose to either enter into 

a written agreement with the 

nonhospital site before the hospital may 

begin to count residents training at the 

nonhospital site, or to pay concurrently 

for the cost of training at the 

nonhospital setting. That is, in the 

absence of a written agreement, 

hospitals are required to pay ‘‘all or 

substantially all’’ of the costs of the 

training program in the nonhospital 

setting by the end of the third month 

following the month in which the 

training occurs. 

4. Modification of the Definition of ‘‘All 

or Substantially All of the Costs for the 

Training Program in the Nonhospital 

Setting’’

We have met numerous times with 

industry representatives with the goal of 

developing a proposal which would 

respond to the concerns expressed by 

the teaching hospital community about 

the administrative burden associated 

with determining and documenting that 

hospitals are paying for ‘‘all or 

substantially all’’ of the costs for the 

training in the nonhospital setting. 

Some industry representatives recently 

suggested that we could ease 

administrative burdens by modifying 

the requirements hospitals must satisfy 

to meet the statutory requirement to 

incur ‘‘all or substantially all’’ of the 

costs by allowing a teaching physician 

to attest that at least 90 percent of the 

teaching physician’s GME time is spent 

in patient care activities. However, we 

explained in response that the statutory 

test is tied to whether the hospital has 

incurred ‘‘all or substantially all’’ of the 

costs of the training at that site, not to 

how the teaching physician’s GME time 

is spent. Therefore, we do not believe 

the attestation proposed by the industry 

adequately addresses the statutory 

requirement that the hospital incur ‘‘all 

or substantially all’’ of the costs of the 

training program at that site. We 

continue to believe that any Medicare 

policy approach to allowing hospitals to 

count FTE residents training in 

nonhospital settings for IME and direct 

GME payment purposes must be 

consistent with the statutory 

requirement that hospitals incur ‘‘all, or 

substantially all’’ of the costs of a 

training program in a nonhospital 

setting. The statute is clearly concerned 

about the cost to the nonhospital site, 

and we believe the statute has set a 

priority to move resources, in terms of 

both residents and funding, out into 

community settings. Therefore, where 

there is a cost to the nonhospital setting 

for training residents, we believe that 

the Medicare program is obligated to 

ensure that the nonhospital settings 

receive the funding they are entitled to 

receive from hospitals under the statute. 

Accordingly, we continue to believe 

that our current definition of ‘‘all or 

substantially all’’ of the costs, which is 

based on the costs of the training 

program at the nonhospital site, is true 

to the intent of the statute. However, to 

address the industry’s concerns related 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26951 

to burdensome documentation 

requirements, we are establishing an 

alternative methodology that hospitals 

may choose to use in determining and 

paying for the teaching physician costs 

attributable to direct GME in the 

nonhospital sites. As we explain below 

in this section, we are revising the 

current definition of ‘‘all or 

substantially all’’ of the costs to require 

hospitals to incur a percentage of the 

costs of the training program at the 

nonhospital site. This revision also 

generally incorporates the industry 

representatives’ concept of a 90 percent 

threshold, but does not specifically 

relate it to the percentage of time spent 

by the teaching physician on nonpatient 

care direct GME activities, as suggested 

by industry representatives. 

Furthermore, as explained in more 

detail below in this section, in 

determining whether a hospital has met 

the 90 percent cost threshold, we are 

allowing hospitals to use certain 

shortcuts or proxies in the place of 

actual cost data specific to each teaching 

physician at each nonhospital site. 

However, hospitals would always still 

have the option of calculating the actual 

teaching physician costs and the 90 

percent threshold using actual cost data 

specific to all, or some of their 

applicable teaching physicians. That is, 

even if a hospital chooses to calculate 

the direct GME costs of a program using 

actual teaching physician time and cost 

data (as under existing regulations) 

rather than using the proxies, under this 

revision, a hospital will only be 

required to pay at least 90 percent of the 

total of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

teaching physicians’ costs attributable to 

direct GME for a program at the 

nonhospital site. That is, a hospital 

would no longer be required to pay 100 

percent of the residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable), plus the 

portion of the teaching physicians’ costs 

attributable to direct GME at the 

nonhospital site. Instead, a hospital will 

be required to pay for 90 percent of the 

GME costs of a training program in a 

nonhospital site, and will have a choice 

between two approaches for calculating 

teaching physician’s costs. 

Currently, ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ is defined at 

§ 413.75(b) as the residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) and the 

portion of the cost of teaching 

physicians’ salaries and fringe benefits 

attributable to direct GME. We are 

defining ‘‘all or substantially all of the 

costs for the training program in the 

nonhospital setting’’ under § 413.75(b) 

(prospectively for cost reporting periods 

beginning on or after July 1, 2007) to 

mean at least 90 percent of the total of 

the costs of the residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) and the 

portion of the cost of teaching 

physicians’ salaries attributable to direct 

GME. We believe this standard is 

consistent with the statute, in that 

hospitals would still be required to 

incur ‘‘all or substantially all’’ of the 

costs of training programs in 

nonhospital settings, and we would 

expect this standard to further 

encourage hospitals to shift training to 

nonhospital settings as intended by the 

statute. Under this revised definition of 

‘‘all or substantially all’’ of the costs for 

the training program in the nonhospital 

setting, we will create a 90 percent 

threshold that hospitals must meet to 

count FTE resident time spent training 

at the nonhospital setting for IME and 

direct GME payment purposes. 

Additionally, under the new definition, 

hospitals will only have to incur a 

minimum of 90 percent of the costs of 

the program at a nonhospital site to 

count FTE resident time spent training 

at the site. Furthermore, as is the case 

with the current definition of ‘‘all or 

substantially all,’’ the new definition 

will not include overhead costs. 

We solicited comments on our 

proposed effective date for purposes of 

both direct GME and IME as to whether 

our proposal should be effective 

immediately for portions of cost 

reporting periods occurring on or after 

July 1, 2007, or alternatively, for cost 

reporting periods beginning on or after 

July 1, 2007. Although an effective date 

of ‘‘portions of cost reporting periods 

occurring on or after July 1, 2007,’’

provides a more immediate response to 

concerns raised by teaching hospitals, 

we had concerns that establishing new 

policies in the middle of hospitals’ cost 

reporting periods may present some 

logistical challenges, both from an 

implementation and an audit 

perspective. Therefore, we proposed 

that the new definition of ‘‘all or 

substantially all’’ of the costs would be 

effective for both direct GME and IME 

for cost reporting periods beginning on 

or after July 1, 2007. 

As we explained, rather than adopt 

the industry’s suggested standard of 90 

percent of the teaching physicians’ time 

spent in patient care activities, which 

we do not believe would be sufficiently 

true to the requirements of the statute, 

as a compromise, we would accept that 

hospitals have incurred ‘‘all or 

substantially all’’ of the costs of the 

program at the nonhospital site (and are 

therefore permitted to count the FTE 

residents training at the nonhospital site 

for IME and direct GME Medicare 

payment purposes) if the hospital incurs 

at least 90 percent of the costs of 

training at that site. Under this revised 

policy, a hospital would not have to 

demonstrate that it has incurred the 

costs of the teaching physician’s time if 

it has otherwise incurred at least 90 

percent of the nonhospital site training 

costs by paying the residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable) during the 

time spent training at the site. However, 

if the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) account for less than 

90 percent of the costs of training at the 

nonhospital site, the hospital would 

have to compensate the nonhospital site 

for its teaching physician costs so that 

the hospital is incurring at least 90 

percent of the training program costs at 

the nonhospital site. If the hospital does 

not meet the 90 percent threshold by 

only paying for the cost of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable), 

the hospital would have to meet the 

threshold by incurring some portion of 

the teaching physicians’ salaries that is 

attributable to direct GME. 

As previously stated in the Qs&As on 

the CMS Web site on April 8, 2005 at 

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

InpatientPPS/Downloads/ 

nonhospQA.pdf (Answer #4), we 

believe there are typically no costs for 

teaching physician time if the 

physician’s compensation at the 

nonhospital site is based solely and 

directly on the number of patients 

treated and for which he or she bills, 

which is the case with a solo 

practitioner. When the solo practitioner 

is not treating patients, he or she is not 

receiving payment for any other duties 

at the nonhospital site. Therefore, in 

this instance, there is no cost to the 

nonhospital site for the teaching 

physician’s time. Thus the hospital has 

to incur only 90 percent of intern and 

resident salaries to meet the new 

regulatory requirements. However, in 

the case of a group practice or clinic 

setting, the physician often receives a 

predetermined payment amount, such 

as a salary, for his or her work at the 

nonhospital site. This predetermined 

payment amount reflects all of his or her 

responsibilities at the nonhospital site, 

including treating patients, training 

residents, and other administrative 

activities (as applicable), and he or she 

may receive that predetermined 


ycherry on PROD1PC64 with RULES2
26952 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

payment from the nonhospital site 

regardless of how many patients he or 

she actually treats. The predetermined 

amount implicitly also compensates the 

physician for supervising residents. A 

portion of this implicit compensation is 

the cost attributable to teaching 

activities. Under current regulations, in 

order to count the residents training at 

that site, the hospital must pay the 

nonhospital site this amount. However, 

there may be instances in a group 

practice, where a teaching physician is 

not receiving a form of predetermined 

compensation for his or her work at the 

nonhospital site. For example, several 

physicians may work in the same office 

and share overhead expenses such as 

electricity and rent, but there is no 

sharing of revenues from patient care 

activities. Rather, the physicians operate 

as solo practitioners and are not 

compensated according to some 

predetermined arrangement. In cases 

such as these, we assume that the 

teaching physician is functioning as a 

solo practitioner and that teaching 

physician costs for GME training at the 

nonhospital site are zero. Accordingly, 

the revised policy being adopted in this 

final rule would more likely be 

applicable to members of group 

practices (or physicians in other 

arrangements) where the teaching 

physician receives a salary or other form 

of predetermined compensation for his 

or her work at the nonhospital site. 

However, we note that under the revised 

policy, in the case of solo practitioners, 

hospitals must continue to pay for at 

least 90 percent of the total cost of the 

residents’ salaries and fringe benefits, 

including travel and lodging where 

applicable. 

Comment: We received several 

comments noting the commenters’

appreciation of the efforts CMS has 

devoted towards the issue of residency 

training at nonhospital sites and the 

belief that the proposed rule is a good 

first step in further improving the 

regulations regarding residency training 

at nonhospital sites. The commenters 

believe that by not requiring hospitals to 

pay for 100 percent of the costs of 

training at the nonhospital site and by 

allowing the use of proxies, the 

proposed rule may provide for 

considerable administrative relief. 

Response: We appreciate the 

commenters’ support of the proposed 

rule. We agree with the commenters and 

believe that the final rule will provide 

significant administrative relief and 

support the training of residents at 

nonhospital sites. 

Comment: Several commenters 

maintained that the FY 1998 IPPS final 

rule (63 FR 40986 July 31, 1998), as well 

as a program transmittal A–98–44 from 

December 1998 stated that whatever 

reasonable amount was agreed upon by 

the nonhospital site and the hospital, 

that amount would be accepted as 

reflecting the costs of the nonhospital 

site. 

Response: Although some may have 

read our previous guidance to suggest 

that the amount of payment for teaching 

physician costs in the nonhospital 

setting could be decided based solely 

upon negotiations between the hospital 

and nonhospital site that has not been 

our policy. As we indicated in the 

Qs&As posted on the CMS Web 

site on April 8, 2005 at http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

Downloads/nonhospQA.pdf, to the 

extent that there is a cost associated 

with teaching physicians for the 

residency training program at the 

nonhospital site, according to statute 

and regulations, the hospital must pay 

‘‘all or substantially all’’ of the cost. 

Comment: Several commenters 

requested a return to the definition of 

‘‘all or substantially all’’ that was in 

place prior to 1999, which did not 

include costs associated with teaching 

physicians in the nonhospital site. One 

commenter specifically stated that 

reversing the unintended consequences 

of the previous definition change was 

difficult and, likewise, ‘‘Once in place, 

the costs of reversing this new rule and 

definition would be similarly difficult.’’

Response: As explained earlier, we 

believe that our current definition of 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting,’’ which includes the GME 

portion of the teaching physicians’

salary, is most consistent with the 

statutory language and legislative intent. 

Therefore, we are not returning to the 

pre-1999 definition of that term. 

Comment: We received many 

comments regarding the effective date 

for our proposed policy revision. Some 

commenters believe that the policy 

revision should be effective for portions 

of cost reporting periods occurring on or 

after July 1, 2007 while others believe 

that the policy revision should be 

effective for cost reporting periods 

beginning on or after July 1, 2007. One 

commenter asked that hospitals be able 

to apply the new method to any years 

where residents were disallowed. Other 

commenters requested that the proposed 

policy revision be effective retroactively 

to previous cost reporting periods. 

Response: We solicited comments 

concerning the effective date of the 

proposed policy revisions. After 

carefully considering these comments, 

we have decided to finalize this policy 

revision to be effective for cost reporting 

periods beginning on or after July 1, 

2007. As we stated in the proposed rule, 

we are concerned that establishing new 

policies in the middle of hospitals’ cost 

reporting periods would present 

burdensome technical and 

administrative difficulties, both from an 

implementation and an audit 

perspective. In addition, we do not 

believe that we have the authority to 

follow the commenters’ suggestions to 

implement this provision retroactively. 

Section 1871(e)(1)(A) of the Act 

generally prohibits the Secretary from 

making retroactive substantive changes 

in policy unless retroactive application 

of the change is necessary to comply 

with statutory requirements, or failure 

to apply the change retroactively would 

be contrary to the public interest. Only 

in very rare cases do we apply a rule 

retroactively (for example, in the wake 

of Hurricanes Katrina and Rita in 2005 

where a retroactive change was clearly 

in the public interest). In those 

instances, we believed that the failure to 

apply regulatory changes retroactively 

would be contrary to the public interest 

because hospitals affected by the 

hurricanes could otherwise face 

dramatic financial hardship, which 

would threaten the stability of GME 

programs in the emergency area. In 

contrast, we do not believe that there is 

a compelling argument that 

demonstrates a degree of public interest 

that would justify applying this 

proposed policy revision retroactively. 

Comment: Several commenters stated 

that they do not believe the proposed 

policy revision actually addresses the 

real concern that the hospital industry 

has with our current policy. These 

commenters believe the central issue is 

supervisory physician volunteerism in 

nonhospital settings. The commenters 

stated that volunteerism is historically 

endemic to physician education, and 

therefore, hospitals should not need to 

pay the costs of the supervisory 

physician when a physician is willing to 

volunteer as a supervisor. One 

commenter stated, ‘‘We urge CMS in the 

final rule to issue a clear policy 

statement that volunteer status of 

faculty will be determined by the 

hospital and nonhospital site and that 

even physicians in group practices who 

are compensated a predetermined 

amount not based on patient billings 

may still be volunteering their teaching 

services.’’ The commenter further stated 

that there is no cost for supervising 

residents in group practices since the 

physicians are making the same amount 

per year regardless of whether or not the 

teaching physicians are supervising 

residents. Some commenters believe 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26953 

that since physicians are ‘‘exempt’’ from 

wage and hourly rules under labor law, 

there is no reason why the physician 

and the physician’s employer could not 

agree that the physician’s teaching 

responsibilities are undertaken 

voluntarily by the physician, do not 

lessen the physician’s duties to the 

employer, and involve time besides the 

time that is necessary for the physician 

to meet fully his or her responsibilities 

to the employer. The commenters noted 

that the rules applicable to Federal 

government employers recognize that 

volunteer time, even in the course of 

usual business hours, is not 

compensated by the Federal government 

(http://www.opm.gov/oca/leave/html/ 

volunteer2.asp). 

Response: According to the statute, a 

hospital is required to incur ‘‘all or 

substantially all’’ of the costs for a 

training program at the nonhospital 

setting in order to count the FTE 

residents training in the nonhospital 

setting for GME payment. There is no 

reference in statute to other labor laws 

that might apply to physicians. 

Accordingly, our proposal only 

addresses the issue of determining costs 

of training programs in nonhospital 

settings. With regards to supervisory 

physician time, we address the issue of 

the costs to the nonhospital site for 

supervising the resident training. Our 

policy has been that if there is a cost, 

the hospital must reimburse the 

nonhospital site for those costs. If there 

are no costs, then no payment for 

supervisory physician time is required. 

Typically, there is a cost for teaching 

physician time. For example, there is a 

cost to the nonhospital site when the 

physician receives a predetermined 

compensation amount for his or her 

time at the nonhospital site that does 

not vary with the number of patients he 

or she treats. In contrast, there is 

typically no cost for teaching physician 

time if the physician’s compensation at 

the nonhospital site is based solely and 

directly on the number of patients 

treated and for which he or she bills. 

The most obvious example of this 

situation would be a solo practitioner 

that serves at a nonhospital site. We 

note that the hospital is required to 

compensate the nonhospital site for the 

costs of the teaching physicians’ time 

spent in activities in connection with an 

approved residency training program 

other than the supervision of residents 

while furnishing billable patient care 

services. That is, only the costs 

associated with teaching time spent in 

activities within the scope of the GME 

program, but not in billable patient care 

activities, would be considered direct 

GME costs that would need to be 

incurred by the hospital. 

Comment: Generally, commenters 

were pleased that CMS is moving away 

from the requirement that hospitals 

need to pay 100 percent of the costs of 

training at nonhospital sites in order to 

comply with the statutory mandate of 

incurring ‘‘all or substantially all’’ of the 

costs. However, many commenters feel 

that the threshold for ‘‘all or 

substantially all’’ should be further 

reduced beyond 90 percent. 

Commenters stated that the threshold 

should be reduced to 75 percent in 

accordance with our interpretation of 

‘‘substantially all’’ under the ‘‘Stark’’

provisions. One commenter stated that 

in addressing the ‘‘Stark’’ provisions, 

‘‘CMS requires ‘substantially all of the 

patient care services of the physicians 

who are members of a group (that is, at 

least 75 percent of the total patient care 

services of the group practice members) 

must be furnished through the group 

***’ ’’ In reference to whether these 

provisions conflict with the 

requirements under Stark, one 

commenter asked CMS to ‘‘Please 

confirm in your commentary that a 

reasonable attempt to comply with the 

requirements to pay for the costs at 

nonhospital sites, whether it be under 

the written agreement standard or under 

the concurrent payment standard, using 

proxies or real costs, is considered by 

CMS to be in compliance with Stark 

law.’’ The commenter further stated that 

if the action taken in the 

aforementioned sentence is not in full 

compliance with Stark law, CMS should 

make an exception under Stark for 

payments to nonhospital sites where the 

payments are made to referring 

physicians. Another commenter stated 

that ‘‘* * * none of the key 

organizations involved in this issue 

have recommended such a [90 percent] 

standard. To be fair, the community did 

raise the question of preceptors attesting 

to 90 percent of their time being spent 

with residents in patient care * * * but 

we are unaware of any stakeholder 

group that has recommended 

‘substantially all’ be defined as 90 

percent of costs in the nonhospital 

setting.’’ Other commenters requested 

that the threshold should be reduced to 

75 percent because, as one commenter 

stated, ‘‘Courts have also defined 

‘substantially all’ as being 75 percent or 

greater in the context of corporate and 

securities law.’’ Another commenter 

requested that the threshold be reduced 

to 60 or 70 percent because such a 

number would provide for increased 

flexibility at the local level, while 

another commenter believed that a 

threshold of 70 percent was more 

appropriate because it was more 

reflective of the reimbursement amounts 

hospitals receive from the government. 

A request was also made that the 

threshold be reduced to 80 or 85 

percent. 

Response: The statute requires 

hospitals to pay for ‘‘all or substantially 

all,’’ not just ‘‘substantially all,’’ of the 

cost of the training program in the 

nonhospital setting. We believe that in 

using the term ‘‘all or substantially all,’’

Congress’ intention was that hospitals 

pay close to 100 percent of the 

nonhospital site GME training program 

costs (otherwise the ‘‘all’’ would add no 

meaning). As we described in the 

proposed rule, prior to proposing to 

revise the definition of ‘‘all or 

substantially all’’ to mean at least 90 

percent of the total of the costs of the 

residents’ salaries and fringe benefits 

(and travel and lodging if applicable) 

and supervisory teaching costs 

associated with direct GME, we had 

received a suggestion from industry 

representatives that hospitals should be 

considered by CMS to meet the statutory 

mandate to pay ‘‘all or substantially all’’

of the costs if the teaching physician can 

attest that he or she is spending at least 

90 percent of his or her GME time in 

nonpatient care direct GME activities at 

the nonhospital site. Since the issue is 

the cost associated with that teaching 

time, we did not agree with this 

suggestion. However, we continue to 

believe that a standard of 90 percent of 

the total costs is an appropriate 

interpretation of ‘‘all or substantially 

all.’’ In response to whether a 

reasonable attempt to comply with the 

regulations for residency training at 

nonhospital sites is considered to be in 

compliance with the Stark law, we 

believe that provided that the rate paid 

to the supervising physician is fair 

market value for the supervisory duties, 

the arrangement should not be 

inconsistent with the Stark law. Since 

both the use of proxies and actual data 

would be consistent with fair market 

value, we believe that this final policy 

conforms with the Stark law. 

Comment: One commenter believes 

that we clearly stated in the proposed 

regulations at § 413.75(b)(2), 

§ 413.78(f)(2) and § 413.78(f)(3)(ii) that a 

hospital only has to incur 90 percent of 

teaching costs. The commenter also 

believes that, although not restated in 

proposed regulations, the 90 percent 

threshold also applies to the 

requirements in § 413.78(f)(3)(i). 

Response: We agree with the 

commenter that the 90 percent 

threshold also applies to 

§ 413.78(f)(3)(i). 


ycherry on PROD1PC64 with RULES2
26954 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

Comment: Many commenters stated 

that members of a group practice should 

be able to attest that they are 

volunteering and be viewed in the same 

manner as CMS views solo 

practitioners. Commenters also stated 

that it is more common for residents to 

train in group practice settings than 

with solo practitioners. One commenter 

stated business agreements vary among 

group practices and that, 

‘‘Compensation is based on patient 

volume and, in effect, each physician is 

a solo practitioner.’’ Another commenter 

stated that for its specific nonhospital 

site, there is no additional payment 

made to a physician who teaches, nor is 

salary removed from a physician who 

does not teach. One commenter stated 

that although the commenter believes 

the proposed rule should not apply to 

solo practitioners, the commenter also 

believes that our logic is incorrect in 

determining why there are typically no 

teaching physician costs associated with 

solo practitioners and group 

practitioners that function as solo 

practitioners. The commenter stated, 

‘‘The fact that the physicians’

compensation is derived solely from 

patient care revenues is not definitive in 

and of itself. Rather it demonstrates that 

the physician received no compensation 

for supervisory activities.’’ The 

commenter further noted that, ‘‘At a 

minimum, group practices should be 

permitted to rebut the ‘implicit’

compensation presumption by 

demonstrating that no portion of 

physicians’ salaries is linked to resident 

supervision.’’ Another commenter 

stated that teaching hospitals and 

nonhospital sites are in the best position 

to determine if there are any costs for 

training residents at the nonhospital 

site, and if so, how the costs should be 

compensated. The commenter stated 

that residents gain clinical experience 

while training at nonhospital sites. 

Therefore, the costs associated with 

their training are de minimus and if the 

group practice decides collectively that 

it is volunteering as a practice, it should 

be able to do so. 

Response: As we have previously 

stated in the April 8, 2005 Qs&As and 

in the RY 2008 LTCH PPS proposed rule 

‘‘* * * the relevant question is not 

whether volunteerism is permissible, 

but whether there is a cost to the 

nonhospital site for supervising the 

resident training. If there is a cost, the 

hospital must reimburse the nonhospital 

site for those costs.’’ Therefore, if a 

teaching physician in a group practice is 

receiving a predetermined salary for his 

or her activities, and included in his or 

her activities are supervisory GME 

activities at a nonhospital site, then 

there is a cost associated with those 

activities. If teaching physicians that are 

members of a group practice can 

document that their circumstances are 

similar to solo practitioners in that they 

receive no predetermined salary and 

receive income solely from the patients 

they treat and the services for which 

they bill, the hospital may supply this 

documentation to the Medicare 

contractor during audit. 

5. Implementation of a 90 Percent Cost 

Threshold 

In revising the definition of ‘‘all or 

substantially all’’ of the costs of the 

program at a nonhospital site, and in 

establishing a 90 percent threshold, 

there are several variables that are 

important in the methodology for 

determining the minimum amount of 

training program costs that a hospital 

must pay in order to count FTE 

residents training in a nonhospital site. 

These variables are: teaching 

physicians’ salaries, residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable), the number 

of hours per week that the teaching 

physician spends in direct GME (not 

billable patient care) activities in the 

nonhospital site, and the number of 

hours that a nonhospital site is open 

each week. To provide the reader with 

a context for the new methodology, we 

will first explain the methodology 

briefly, provide two examples, and then 

proceed to an in-depth discussion of 

each variable (see section XII.B.5.b. of 

the preamble of this final rule). 

a. Methodology 

One of the primary complaints voiced 

by the hospital industry over the past 

several years is that our policy requiring 

hospitals to determine the portion of the 

teaching physician cost attributable to 

direct GME in the nonhospital site 

results in an untenable documentation 

burden since many physicians are 

reluctant to disclose their salary 

information to the hospitals. One 

solution to this problem suggested by 

the hospital industry is to use national 

average physician salary information as 

a proxy for teaching physician-specific 

salaries in the determination of the total 

cost of the program at a nonhospital site. 

In addition, since the cost of the 

teaching physician time that the 

hospital must incur is based on the 

amount of time the teaching physician 

spends in nonpatient care direct GME 

activities, the hospital industry has been 

concerned that determining this GME 

time could require burdensome time 

studies. Therefore, we are adopting an 

alternative methodology that hospitals 

may choose to use, instead of actual 

costs, to calculate teaching physician 

costs in nonhospital sites. Using this 

alternative methodology, to facilitate a 

less burdensome way for a hospital to 

calculate the teaching physician costs 

associated with GME training at the 

nonhospital site, we are allowing 

hospitals to use 3 hours per week as a 

presumptive standard number of hours 

that a teaching physician spends in 

nonpatient care direct GME activities at 

a particular nonhospital site. To 

determine the percentage of the average 

salary associated with the 3 hours the 

teaching physician is presumed to 

spend in nonpatient care direct GME 

activities, a hospital would divide 3 

hours by the number of hours the 

nonhospital site is open each week. 

Next, the hospital would multiply this 

percentage of time spent in nonpatient 

care direct GME activities by the 

national average salary of that teaching 

physician’s specialty to calculate the 

cost of the teaching physician’s direct 

GME time. The cost of the teaching 

physician’s direct GME time would then 

be added to the costs of the salaries and 

fringe benefits (including travel and 

lodging expenses, where applicable) of 

the FTE resident(s) rotating in that 

program to that nonhospital site to 

determine the GME costs for that 

program at that site. (If FTE resident(s) 

are not rotating to a particular 

nonhospital site throughout a whole 

year, then the national average salary of 

the teaching physician would be 

prorated accordingly. The cost of the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) would already be reflective 

of an FTE count). The hospital must pay 

at least 90 percent of these total GME 

costs for the program at that nonhospital 

site to count the resident(s) training 

there for direct GME and IME purposes. 

If the hospital is already paying all, or 

even a portion of the residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable), and if the 

amount that the hospital is paying for 

the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) is equal to at least 90 

percent of the GME costs at the 

nonhospital site (that is, the 90 percent 

threshold), then the hospital would be 

considered to be incurring ‘‘all or 

substantially all’’ of the costs, and need 

not incur an additional amount for 

teaching physician compensation to be 

permitted to include the FTE residents 

training in the nonhospital site in its 

FTE count for purposes of direct GME 

and IME payments. However, if the 

costs of the residents’ salaries and fringe 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26955 

benefits (including travel and lodging 

where applicable) does not equal at least 

90 percent of the GME costs of the 

training program at the nonhospital site, 

then the hospital must incur an 

additional amount for teaching 

physician costs based on the national 

average salary information until it is 

incurring at least 90 percent of the GME 

costs for that nonhospital site program. 

That is, under the alternative definition 

of ‘‘all or substantially all’’ of the costs, 

a hospital is required to incur at least 90 

percent of the total GME costs for a 

particular program at a particular 

nonhospital site. The GME costs of a 

particular program at a particular 

nonhospital site consist of FTE 

residents’ salaries and fringe benefits 

(including travel and lodging costs 

where applicable), and the portion of 

teaching physician compensation 

(which may be based on national 

average survey data) attributable to 

direct GME. As will be explained in 

more detail below in this section, the 

hospital always has the option of 

documenting the actual teaching 

physician’s cost using actual time or 

salary information to pay at least 90 

percent of the total of the costs of the 

program at the nonhospital site. In 

summary, the formula for determining 

the 90 percent threshold, or the 

minimum amount that a hospital must 

pay for the GME costs of a particular 

program at a particular nonhospital 

site is: 

0.90 × [(sum of each FTE resident’s 

salary + fringe benefits (including travel 

and lodging where applicable)) plus the 

portion of the teaching physician’s 

compensation attributable to nonpatient 

care direct GME activities.] 

The portion of the teaching 

physician’s compensation attributable to 

nonpatient care direct GME activities 

may be calculated as follows: 

(3/number of hours nonhospital site is 

open per week) × (national average 

salary for each teaching physician*) 

* The number of teaching physicians 

included in this formula is subject to a 1:1 

resident to teaching physician limit, as 

explained below in this section. 

The following are two examples of the 

alternative methodology: 

Example 1: Assume one teaching physician 

is supervising one FTE resident in a 

nonhospital site for one residency year. The 

national average published salary amount for 

that teaching physician’s specialty is 

$120,000, and he works in a clinic that is 

open 60 hours per week. Using the standard 

of 3 hours spent in nonpatient care direct 

GME activities per week, the teaching 

physician spends 5 percent of his time in 

GME activities (that is, 3/60 = 0.05 or 5 

percent). To determine the cost of the 

teaching physician’s time, the hospital may 

make the following calculation: $120,000 × 

0.05 = $6,000. This teaching physician’s cost 

is added to the resident’s salary and fringe 

benefits to calculate the cost of the training 

at the nonhospital site in the following 

manner: $6,000 [cost of one teaching 

physician] + $60,000 [actual cost of the FTE 

residents’ salary & fringe benefits] = $66,000. 

To meet the new definition of ‘‘all or 

substantially all,’’ the hospital would be 

required to pay at least 90 percent of the 

costs of the training program at the 

nonhospital site, which in this example 

equals $59,400 (that is, 0.90 × $66,000). Since 

in this case the cost of one FTE resident’s 

salary and fringe benefits is $60,000, the 

hospital could reach the 90 percent cost 

threshold by simply incurring the resident’s 

salary and fringe benefits during training at 

the nonhospital site. 

Example 2: Assume one teaching physician 

is supervising one FTE resident in a 

nonhospital site for an entire residency year. 

The national average published salary 

amount for that teaching physician’s 

specialty is $200,000, and she works in a 

clinic that is open 40 hours per week. Using 

the standard of 3 hours spent in nonpatient 

care direct GME activities per week, the 

teaching physician spends 7.5 percent of her 

time in GME activities (that is, 3/40 = 0.075 

or 7.5 percent). To determine the cost of the 

teaching physician’s time, the hospital may 

make the following calculation: $200,000 × 

0.075 = $15,000. This teaching physician’s 

cost is added to the resident’s salary and 

fringe benefits to calculate the cost of the 

training at the nonhospital site in the 

following manner: $15,000 [cost of one 

teaching physician] + $60,000 [actual cost of 

the FTE residents’ salary and fringe benefits] 

= $75,000. To meet the new definition of ‘‘all 

or substantially all,’’ the hospital would be 

required to incur at least 90 percent of the 

costs of the training at the nonhospital site, 

which in this example equals $67,500 (that 

is, 0.90 × $75,000). Since in this case the cost 

of one FTE resident’s salary and fringe 

benefits is $60,000, the hospital has not met 

the 90 percent threshold by only incurring 

the resident’s salary and fringe benefits. The 

hospital would have to incur at least an 

additional $7,500 of the cost (that is, $67,500 

¥ $60,000) to reach the 90 percent threshold 

to be permitted to count the FTE resident for 

IME and direct GME purposes. Alternatively, 

the hospital could document the actual 

teaching physician cost using time or salary 

information specific to that teaching 

physician at that site, and use that amount 

to calculate 90 percent of the actual training 

program costs. 

b. Explanation of Variables 

In the following section, we discuss 

each variable in the methodology for 

determining the cost that a hospital 

must incur to count FTE residents 

training in nonhospital sites, and 

explain our rationale for employing 

each of these variables. As stated 

previously, the variables are: teaching 

physicians’ salaries; residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable); the number 

of hours per week that the teaching 

physician spends in nonpatient care 

GME activities in a nonhospital site; and 

the number of hours that a nonhospital 

site is open each week. 

(1) National Average Physician Salary 

Data by Specialty 

One of the foremost objections voiced 

by the hospital industry to our current 

policy is the documentation burden 

associated with requesting salary 

information from individual teaching 

physicians in nonhospital sites. 

Hospitals believe that many teaching 

physicians in nonhospital sites are 

reluctant to disclose their personal 

salary information, yet this disclosure is 

necessary to enable the hospital to 

determine and pay the nonhospital site 

for the actual costs of the GME program 

in accordance with our current 

regulations. One suggestion mentioned 

by the hospital industry as an 

alternative to obtaining individual 

teaching physician-specific salary 

information is to allow hospitals to use 

national average salary survey data by 

specialty. We understand that there are 

a number of organizations that conduct 

annual national surveys on physician 

compensation. We proposed to allow 

hospitals to use physician compensation 

survey data as a proxy to determine the 

teaching physician costs associated with 

GME in a program at a particular 

nonhospital site. For example, one such 

national organization that collects data 

on physician compensation that we are 

considering using is the American 

Medical Group Association (AMGA). 

AMGA’s 2006 Medical Group 

Compensation and Financial Survey 

was performed under contract by RSM 

McGladrey. Founded in 1950, AMGA 

(formerly the American Association of 

Medical Clinics) is a trade association 

which dedicates itself to making the 

‘‘* * * multi-specialty medical group 

model the preferred delivery system for 

patient-centered, affordable, quality 

medical care in America,’’ and 

represents 283 medical groups that 

include an average of 272 physicians. 

AMGA’s use of the term ‘‘medical 

group’’ is based on the American 

Medical Association’s definition of 

‘‘group practice,’’ which is defined as a 

group that ‘‘includes the provision of 

health care services by three or more 

physicians who are formally organized 

as a legal entity governed by physicians 

in which business, clinical, and 

administrative facilities, records and 

personnel are shared and the practice 

goals, objectives, and values are 

commonly defined. Income from 

medical services provided by the group 


ycherry on PROD1PC64 with RULES2
26956 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

is treated as receipts of the group and is 

distributed according to some 

prearranged plan.’’ AMGA has been 

performing surveys like the 2006 

Medical Group Compensation and 

Financial Survey since 1986. The 2006 

survey was sent to over 2,600 medical 

groups, including medical groups that 

are not members of AMGA. To give 

readers an idea of the average 

compensation amounts in the survey, 

we have randomly selected 10 

specialties included in the 2006 survey 

and listed their compensation 

information in Table 8. If we adopt the 

AMGA survey for use to determine the 

cost of teaching physicians’ time 

attributable to GME, we would make the 

salary information for all specialties 

accessible to hospitals on our Web site 

and would provide it in a manner 

similar to Table 8. 

TABLE 8.—PHYSICIAN SALARY INFORMATION

*Specialty Mean salary 

(in dollars) 

Median salary 

(in dollars) 

Cardiology ................................................................................................................................................................ 411,916 363,081 

Dermatology ............................................................................................................................................................. 336,531 306,935 

Family Medicine ....................................................................................................................................................... 187,891 178,366 

Gynecology and Obstetrics ..................................................................................................................................... 286,418 271,273 

Internal Medicine ..................................................................................................................................................... 192,264 183,840 

Ophthalmology ......................................................................................................................................................... 307,044 281,112 

Pediatrics & Adolescent: General ............................................................................................................................ 191,122 182,186 

Physical Medicine and Rehabilitation ...................................................................................................................... 208,442 207,004 

Diagnostic Radiology: Non-Interventional ............................................................................................................... 415,521 400,000 

General Surgery ...................................................................................................................................................... 331,970 310,736 

* This information was obtained from the 2006 Medical Group Compensation and Financial Survey published by the American Medical Group 

Association (AMGA). For further information, visit AMGA’s Web site at http://www.amga.org/. 

We solicited comments as to whether 

we should use the mean or median 

compensation amounts for purposes of 

determining the teaching physicians’

cost. In addition, although we recognize 

that there are generally geographic 

variations in salary amounts within 

each specialty (and, although not 

included in Table 8, AMGA does 

provide some detail of salaries by 

geographic area), we proposed to use the 

single national average or median salary 

amount for each specialty, rather than 

consider geographic variations, because 

we want to simplify and streamline the 

methodology for determining the GME 

costs in nonhospital sites as much as 

possible. We also solicited comments 

about whether AMGA’s salary 

information should be used, and if not, 

which other physician compensation 

survey (or possible mix of surveys) 

would be more appropriate for this 

purpose, and whether we should 

consider additional factors such as 

geographic variation in physician 

salaries within each specialty. We noted 

that we believe it is important for the 

organization providing specialtyspecific physician compensation 

information for this purpose to be one 

that is nationally recognized as an 

authoritative source. Additionally, we 

believe the data should contain 

compensation amounts for the fullest 

range possible of specialties and 

subspecialties, and should be issued 

annually so that hospitals will always 

have the most current data to use in 

determining the teaching physician 

costs in nonhospital sites. In addition, 

we would prefer a survey that is 

available to the public at no cost. (We 

understand that a number of these 

surveys are proprietary.) In addition, we 

solicited comments as to how to make 

the survey data available in the most 

efficient possible manner. 

Regardless of the survey source that 

we ultimately use, we proposed that 

hospitals would use the most recent 

survey data available as of the beginning 

of the hospital’s particular cost 

reporting year. For example—

• If residents are rotating to a 

particular nonhospital site to receive 

training in family practice in a 

hospital’s cost reporting year beginning 

January 1, 2008, then the hospital would 

use the family practice average salary 

from the most recently issued survey (in 

the case of AMGA, 2007) as the salary 

cost of that teaching physician, even 

though that teaching physician may in 

fact earn more or less than that national 

average salary amount. 

• If the teaching physician is a 

neurologist providing residents with 

neurology training in a nonhospital site 

in a hospital’s cost reporting year 

beginning July 1, 2007, then the hospital 

would use the neurology average salary 

from the most recently issued survey (in 

the case of AMGA, 2006, since AMGA’s 

surveys are typically released in August) 

as the salary cost of that teaching 

physician. 

Comment: Numerous commenters 

suggested that in determining the proxy 

amount for teaching physician 

supervisory costs, hospitals should be 

able to use CMS’s reasonable 

compensation equivalents (RCEs). One 

commenter, specifically stated ‘‘The 

RCEs have been relied upon by CMS 

and its predecessor, the Health Care 

Financing Administration, for nearly 24 

years as its measure of the 

reasonableness of physician 

compensation and, thus, those amounts 

should be used in this regulation as 

well.’’ Furthermore, many commenters 

stated that if we choose to use AMGA 

data as its teaching physician salary 

proxy source, we would be requiring the 

use of data with values that 

‘‘substantially exceed’’ what it considers 

to be reasonable under the RCEs. Some 

commenters view use of AMGA data, 

which produces physician salary 

amounts which are higher than RCEs as 

being ‘‘arbitrary and capricious.’’

Several commenters stated that if we 

choose not to use RCEs, we should use 

data from the AAMC’s Faculty Salary 

Survey, which has an excellent response 

rate, can be made accessible to the 

public, and includes a ‘‘broad range of 

specialties’’ and as reported by one 

commenter, the AAMC’s 2005–2006 

survey report ‘‘* * * includes data 

provided by all 125 accredited 

allopathic medical schools in the United 

States.’’

In addressing whether hospitals 

should be able to use mean or median 

physician salary amounts in 

determining the proxy for teaching 

physician supervisory costs, several 

commenters requested that median 

salaries be used since medians are not 

affected by outlier data. Another 

commenter stated that since the salary 

amounts in AMGA’s survey are not 

adjusted by the geographic area wage 

index, median physician salary amounts 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26957 

should be used. One commenter stated 

that mean salary amounts should be 

used because using the mean salary 

would account for both range and 

frequency, while using the median 

would only account for frequency. 

Another commenter stated that for 

situations in which there is no salary 

information available for a certain 

subspecialty, we should consult with 

the AMA or AOA and encourage 

national data survey groups to start 

tracking data for these subspecialties. 

Some commenters suggested that 

when available, hospitals should be able 

to use physician salary data that 

accounts for geographic variations 

including variations between rural and 

urban areas, while other commenters 

were opposed to using data that 

accounted for geographic adjustments 

because of the potential for added 

complexity. One commenter stated that 

hospitals should be allowed ‘‘* * * to 

use a comprehensive source of locality 

adjusted physician compensation 

information as a proxy for actual 

compensation in determining nonhospital training costs.’’ Another 

commenter stated that if we do not 

allow hospitals to account for 

geographic variations, we would be 

requiring that hospitals rely on national 

salary data which is inaccurate and 

make it necessary for hospitals to collect 

their own hospital-specific data. One 

commenter stated that since the goal of 

proxies was to simplify the process, 

there should not be more than one 

national salary amount for each 

specialty. Another commenter stated, 

that within specialties, the commenter 

‘‘* * * has not identified significant 

regional variations, and any large 

variation that might exist would be 

accounted for by simply using the 

median.’’ Lastly, a commenter stated 

that in states such as Utah, using a 

national salary proxy amount would not 

account for the fact that physicians’

wages are lower than in other parts of 

the country and, therefore, if Utah used 

the national salary proxy it would be 

paying more than 90 percent of the total 

costs of training residents at the 

nonhospital site. 

Response: In the RY 2008 LTCH PPS 

proposed rule, we solicited comments 

on what specific survey should be used 

as a proxy source in determining 

supervisory teaching physician costs. 

We also requested comments on 

whether we should consider geographic 

adjustments and whether we should use 

a mean or median salary amount. We 

appreciate the commenters’ suggestions 

regarding what survey data should be 

used and whether we should use data 

adjusted for geographic variations, or 

use the mean or median salary point as 

the proxy for physician salary amounts. 

In response to the commenters’

suggestions that the proxy not be based 

on the AMGA data but rather be based 

on salary data used to establish 

Medicare’s reasonable compensation 

equivalent (RCE) limits, we disagree 

with the commenters that the RCE limits 

would be an appropriate measure in the 

context of nonhospital site GME training 

programs. Although RCEs are 

appropriate as they are currently used in 

conjunction with other Medicare 

payment policies, we do not believe 

they are appropriate for use in 

determining a proxy for supervisory 

teaching physician costs in nonhospital 

sites. Currently, RCEs are only applied 

in the determination of reasonable costs 

of physician compensation in the few 

remaining types of facilities paid on a 

reasonable cost basis, the vast majority 

of which are not teaching hospitals. 

RCEs are not applied to the costs of any 

physician compensation in teaching 

hospitals that are paid under the IPPS. 

Thus, we do not believe RCE limits 

would represent an appropriate proxy to 

account for supervisory GME teaching 

physician costs in nonhospital settings. 

In addition, we note that under the RCE 

limits, exceptions are made for 

providers, such as small or rural 

hospitals, that may have difficulty 

recruiting or retaining physicians at the 

prescribed RCE level. As stated in the 

August 1, 2003 Federal Register (68 FR 

45459) ‘‘* * * if a provider is able to 

demonstrate to the intermediary its 

inability to recruit or maintain 

physicians at a compensation level 

allowable under the RCE limits * * * 

the intermediary may grant an exception 

to the RCE limits established under 

these rules.’’ Since it may be difficult to 

recruit and retain physicians in rural 

nonhospital sites, we believe the use of 

RCEs as a proxy for the cost of teaching 

physician time in rural nonhospital sites 

could underestimate those costs since 

they are generally lower than market 

levels, or the AMGA salary amounts. 

The updated RCEs published in the 

August 1, 2003 Federal Register (68 FR 

45459), only include nine specialties. 

We do not believe the RCEs would 

provide the best representation of 

specialties for purposes of establishing 

proxies for supervisory teaching 

physician costs in nonhospital settings. 

In the August 1, 2003 Federal Register, 

we also stated, ‘‘If no specialty category 

is appropriate (for example, in 

determining the reasonable cost for an 

emergency room physician), the 

intermediary will use the reasonable 

compensation equivalent level for the 

‘Total’ category, which is based on 

income data for all physicians’’ (68 FR 

45459). The goal in using the physician 

salary proxy to determine supervisory 

teaching physician costs, for purposes of 

determining whether a hospital has met 

the statutory requirement to pay ‘‘all or 

substantially all’’ of the costs of the 

training at the nonhospital site, is to 

allow the hospital to use a figure that 

reflects the physician’s actual salary 

without having the administrative 

burden of determining the physician’s 

actual salary. Since the RCEs only exist 

for nine physician specialties, it would 

be frequently necessary to use the 

‘‘Total’’ category when salary 

information for a specific specialty is 

not available. This would be contrary to 

our goal of using a proxy which reflects 

the actual amount. For the reasons cited 

above in this section, we do not believe 

RCEs are the most appropriate source of 

physician salary data to use in the 

context of policies regarding 

supervisory teaching physician salaries 

in nonhospital settings; and therefore, 

we will not use them as proxies for 

supervisory teaching physician costs. 

In response to the request that we use 

the AAMC’s Faculty Salary Survey to 

establish proxies for supervisory 

teaching physician costs, we question 

the appropriateness of using the 

AAMC’s data in the determination of a 

proxy since we note that several salary 

amounts in the AAMC data are close in 

value to that of the RCE amounts which, 

as we explained earlier, may not fully 

reflect total physician compensation 

amounts. As we explained above, we 

believe AMGA’s survey data are 

extremely comprehensive and by 

making the necessary information 

available on our Web site, AMGA data 

would be easily accessible to the public. 

Therefore, we are finalizing our policy 

to use survey data published by AMGA 

as a proxy for physician compensation 

in nonhospital settings, and thus, in 

determining supervisory teaching 

physician costs. However, we will 

continue to monitor the various survey 

options and consider whether other data 

sources are appropriate for this purpose. 

Since some members of the teaching 

hospital community have claimed that 

collection of actual data is burdensome, 

we are seeking, through the use of 

proxies, to make the calculation of 

supervisory teaching physician costs for 

GME training at the nonhospital site as 

straightforward as possible. Therefore, 

we believe that for each available 

specialty, only one national physician 

salary amount should be used. Further, 

we agree with many commenters that 

this physician salary amount should not 

be adjusted for geographic variation 

because doing so would add an 


ycherry on PROD1PC64 with RULES2
26958 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

additional layer of complexity. In cases 

where no subspecialty salary amount is 

available in the AMGA data, hospitals 

should use the physician salary amount 

for the closest less-specialized form of 

that specialty. For example, as we 

proposed in the RY 2008 LTCH PPS 

proposed rule (72 FR 4824), ‘‘* * * if 

residents are receiving training from a 

forensic pathologist, and the national 

average salary for the subspecialty of 

forensic pathology is not included in the 

physician compensation survey, then 

the hospital should instead use the 

national average salary for the specialty 

of pathology to determine the cost of 

that teaching physician.’’ We also agree 

with the commenters’ suggestion that 

median salary amounts should be used 

as the proxy physician salary amount 

since median salary amounts would not 

be influenced by outlier data. Therefore, 

we are finalizing the policy to require 

hospitals that choose to use the proxy 

method to calculate supervisory 

teaching physician costs to use AMGA’s 

median physician salary amount for the 

required specialty. 

Comment: One commenter stated that 

CMS should use average compensation 

figures for dental faculty based on 

specialty and regional variation. The 

commenter stated that the commenter 

would be happy to work with CMS to 

develop compensation figures for dental 

programs. 

Response: While we appreciate the 

point raised by the commenter that the 

AMGA data does not apply to dental 

faculty, at this point we are unaware of 

a comparable data source for dental 

faculty salaries. We will work with the 

commenter to determine whether we 

can develop proxy salary amounts for 

supervisory dentists. 

Comment: One commenter suggested 

that for added administrative simplicity 

in determining proxies, hospitals should 

be able to use ‘‘* * * two ‘blended’

supervising physician salary amounts—

‘one for primary care and one for nonprimary care * * *.’’ These ‘‘blended’’

salary amounts would be determined 

using the published data source. The 

commenter stated that to determine 

which salaries should be included in 

the blends, a periodic survey could be 

taken to determine the composition of 

teaching physicians at each nonhospital 

site. Another commenter stated, ‘‘We 

would also like to recommend that the 

CMS maintain as part of the final rule, 

the provision that allows providers to 

use actual teaching physician salaries 

for the calculation of the recommended 

cost threshold instead of the national 

average physician salary data by 

specialty.’’

Response: We appreciate the 

commenter’s innovative suggestion to 

use ‘‘blended’’ salary amounts in 

determining a proxy for supervisory 

teaching physician costs. However, in 

choosing a proxy for national physician 

salaries, in order to determine the 

teaching physician cost at the 

nonhospital site, we believe the proxy 

should be as close to the actual salary 

amount as possible. Therefore, we 

believe it is most appropriate for 

hospitals to use the published AMGA 

specialty salary amounts in determining 

the supervisory teaching physician costs 

at the nonhospital site. In response to 

the commenter’s request that we 

maintain the option for hospitals to use 

actual physician salary information, we 

note that the proposal was to add a 

proxy calculation as an alternative to 

hospitals documenting that they have 

paid the actual teaching physician costs 

at the nonhospital site. Hospitals always 

have the option of using actual data 

instead of any of the proxies. We also 

note that under our revised policy, 

hospitals that use actual data are 

required to only pay 90 percent of the 

total of the costs of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable) 

and the portion of the cost of the 

teaching physicians’ salaries attributable 

to nonpatient care direct GME activities. 

Comment: Several commenters 

questioned the potential availability of 

AMGA’s survey data and requested that 

it be made available on our Web site. 

One commenter stated that AMGA 

charges a fee to access its data and if we 

are requiring hospitals to use AMGA 

data, the data, as well as information on 

AMGA’s methodology should be made 

available without cost to the public on 

CMS’ Web site. The commenter stated 

‘‘* * * because the AMGA survey and 

its methods are not freely available, 

providers may not easily be able to 

analyze and concur with AMGA’s 

methodology or the amounts set forth in 

Table 8 * * *’’ One commenter noted 

that since there is a fee to access AMGA 

data, using that data or other similar 

data (which requires a fee) would be 

inappropriate because we would be 

imposing additional costs on GME. The 

commenter further noted (referring to 

AMGA’s data), ‘‘It is not clear how 

representative of all practicing 

physicians these respondents are.’’

Response: We will make available any 

physician specialty salary survey data 

that is needed to compute teaching 

physician supervisory costs available 

free of charge on our Web site. 

Additionally, we will consider posting 

information on the AMGA’s survey 

methodology. By posting the AMGA 

data on our Web site, we are not 

imposing any additional cost on GME 

training that occurs at nonhospital sites. 

Since AMGA’s survey data will be 

posted free of charge, we do not believe 

there will be any costs associated with 

accessing the necessary data. 

We disagree with the commenter 

regarding the level of physician salary 

representation in AMGA’s survey. 

AMGA’s survey includes a range of 

physician specialty salaries. In fact, 

because of the broad range of specialties 

included in the survey we believe 

AMGA’s survey data are particularly 

appropriate for use to establish a proxy 

for teaching physician salaries and wellsuited to meet our goal to use salary 

information that reflects physicians’

actual salaries. 

Comment: One commenter asked 

whether a provider could use an 

alternative survey similar to AMGA if it 

can demonstrate that the survey was 

compiled in a similar manner. Another 

commenter stated that in determining 

the proxy salary amounts to be used, we 

should ‘‘* * * consider the approach 

used by the Department of Veterans 

Affairs in setting salaries for its 

physicians, notably by employing 

multiple surveys of physician 

compensation.’’

Response: In response to the 

commenters’ question of whether a 

survey similar to AMGA’s could be used 

as a proxy source or a combination of 

surveys, in establishing the proxy, we 

are allowing a hospital to base its 

determination on either AMGA survey 

data or actual physician salary amounts. 

However, as previously mentioned, we 

will continue to consider the 

appropriateness of using other options 

for sources of physician salary data. 

Determining Teaching Physicians’ Cost 

In determining the teaching 

physicians’ cost, the specialty of the 

teaching physician is the relevant 

criterion, not the specialty of the 

residents that the teaching physician is 

training in the nonhospital site. 

Generally, we believe the specialty of 

the teaching physician will be selfevident, and the hospital can easily 

locate the national average salary 

information for that teaching 

physician’s specialty on the survey (for 

example, if family practice residents are 

rotating to a dermatology practice to 

receive training in dermatology, then 

the national average salary for 

dermatologists would be used from the 

survey). However, it is possible that the 

teaching physician is highly specialized 

and the average compensation for his or 

her subspecialty is not listed in the 

survey we decide to use. In such a case, 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26959 

we proposed that the hospital should 

use the immediately less-specialized 

form of that specialty applicable to that 

teaching physician (or the hospital may 

use the physician’s actual salary 

information). For example, if residents 

are receiving training from a forensic 

pathologist, and the national average 

salary for the subspecialty of forensic 

pathology is not included in the 

physician compensation survey, then 

we proposed that the hospital should 

instead use the national average salary 

for the specialty of pathology to 

determine the cost of that teaching 

physician. We believe this is the 

simplest method of assigning a national 

average physician compensation 

amount in the instance where the 

teaching physician’s actual subspecialty 

is not included in the survey. However, 

we solicited comments as to whether it 

is possible or appropriate to use survey 

data from other sources in the event that 

data is not available from the particular 

survey source. 

In addition, although it may not be a 

common occurrence, it is possible that 

residents could be receiving training in 

a nonhospital site from a teaching 

physician that is board certified in more 

than one specialty, but the residents are 

only receiving training in one of the 

specialties in which the physician is 

board certified. In this case, we 

proposed that the national average 

salary that should be used to determine 

the teaching physician’s cost should be 

the one for the specialty in which the 

teaching physician is training the 

residents. For example, if residents are 

being supervised by a cardiologist who 

is board certified in internal medicine 

and cardiology, but the residents are 

training with him or her specifically to 

learn internal medicine, then we 

proposed that the hospital should use 

the national average salary for internal 

medicine, and not cardiology, to 

determine the teaching cost of that 

physician. That is, in instances where 

the residents are receiving training at a 

nonhospital site from a teaching 

physician that is board certified in more 

than one specialty, and it is unclear 

which specialty to use for purposes of 

assigning a national average salary to 

that physician, we proposed that the 

question for the hospital to ask is, why 

are the residents training with that 

physician? If the answer is, ‘‘to receive 

training in Specialty X,’’ then the 

national average salary amount for 

Specialty X should be used to determine 

the teaching physician’s cost. If the 

answer is, ‘‘to receive training in 

Specialty Y,’’ then the national average 

salary amount for Specialty Y should be 

used to determine the teaching 

physician’s cost, regardless of the 

specific board certification that the 

teaching physician has actually 

received. In general, the hospital, with 

assistance from the GME Program 

Director as necessary, should be able to 

document for the Medicare contractor 

the specialty in which the residents are 

receiving training at the nonhospital 

site, and the national average physician 

compensation amount for that specialty 

used in paying ‘‘all or substantially all’’

of the costs, as defined in this final rule. 

Comment: A commenter stated that 

the specialty of the resident and not of 

the teaching physician should be used 

in determining the specific salary proxy. 

The commenter provided the example 

that a cardiologist will teach an internal 

medicine resident what he or she is 

required to know regarding heart 

disease and the cardiovascular system 

as an internist and not a cardiologist. 

The commenter further requested that 

we ‘‘* * * clearly state that proxy 

salaries for subspecialty physicians 

originally trained in the specialty of the 

residents they are teaching be set to the 

salary of specialists in the residents’

field regardless of the certification status 

of the faculty person.’’

Response: In response to the 

commenter’s request that the specialty 

of the resident be used in determining 

the supervisory teaching physician cost, 

we stated in the proposed rule * * * 

that the national average salary that 

should be used to determine the 

teaching physician’s cost should be the 

one for the specialty in which the 

teaching physician is training the 

residents.’’ For example, if a resident 

happens to be supervised by a physician 

who is board certified in internal 

medicine and cardiology, but the 

resident is training with him or her 

specifically to learn general internal 

medicine, then we proposed that the 

hospital should use the national average 

salary for internal medicine, and not 

cardiology, to determine the teaching 

cost of that physician. However, if the 

internal medicine resident is at the 

nonhospital site to receive cardiology 

training as part of his or her 3-year 

internal medicine program, the salary 

for cardiologists should be used. In 

instances where the residents are 

receiving training at a nonhospital site 

from a teaching physician that is board 

certified in more than one specialty, and 

it is unclear which specialty to use for 

purposes of assigning a national average 

salary to that physician, we proposed 

that the question for the hospital to ask 

is, why are the residents training with 

that physician? If the answer is, ‘‘to 

receive training in X,’’ then the national 

average salary amount for Specialty X 

should be used to determine the 

teaching physician’s cost. If the answer 

is, ‘‘to receive training in Y,’’ then the 

national average salary amount for 

Specialty Y should be used to determine 

the teaching physician’s cost, regardless 

of the specific board certification that 

the teaching physician has actually 

received. We believe the teaching 

physician supervisory cost should 

reflect the value of the training received 

as it relates to the training the resident 

is receiving. Therefore, we are not 

adopting the commenter’s suggestion to 

use the physician salary of the specialty 

program of the resident regardless of the 

specifics of the training received. 

Multiple Teaching Physicians and 

Residents: 1:1 Resident to Teaching 

Physician Ratio 

We understand that it is not unusual 

for several residents in the same 

program to rotate to a particular 

nonhospital site at the same time, and 

be supervised by one teaching 

physician, or for residents to be 

supervised by several teaching 

physicians during their time at that 

nonhospital site. In determining the 

total costs of the training program at the 

nonhospital site, it is necessary to 

consider all of the residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable), and the 

teaching physicians’ national average 

salaries. However, to maintain 

administrative simplicity, we are 

allowing hospitals to apply a maximum 

of a 1:1 resident-to-teaching physician 

ratio ‘‘limit’’ in determining the total 

GME costs applicable to a program at a 

nonhospital site. For example, if at the 

nonhospital site there are two teaching 

physicians and one FTE resident, the 

hospital may determine 90 percent of 

the total costs of the program using a 1:1 

resident-to-teaching physician ratio, not 

a 1:2 resident-to-teaching physician 

ratio. The 90 percent threshold would 

be based on the total cost of the one FTE 

resident (salary and fringe benefits, and 

travel and lodging where applicable) 

and one teaching physician (national 

average salary for the specialty 

multiplied by the percentage of time 

spent in nonpatient care direct GME 

activities). Similarly, if a hospital 

rotated 3 FTE residents in the same 

program to a particular nonhospital site 

with 7 physicians, unless the hospital 

documents otherwise, we would assume 

that all 7 physicians supervise the 

residents at some point during the 

training, but, for purposes of 

determining the 90 percent threshold, 

we assume that there are only 3 FTE 

residents being supervised by 3 teaching 


ycherry on PROD1PC64 with RULES2
26960 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

physicians. Accordingly, the 90 percent 

threshold would be based on the total 

cost of the 3 FTE residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) and 3 

teaching physicians (national average 

salaries for the specialties multiplied by 

the percentage of time spent in 

nonpatient care direct GME activities). 

(In addition, we note that the 1:1 limit 

may be applied to FTE fractions, as 

well. That is, if in the preceding 

example, 3.5 FTE residents were being 

supervised by 7 physicians, the 90 

percent threshold would be determined 

based on the costs associated with a 

resident-to-teaching physician ratio of 

3.5:3.5.) 

In the case of multiple teaching 

physicians, we must also consider that 

a particular nonhospital site may be 

staffed by physicians in different 

specialties. For example, an orthopedics 

practice may include orthopedists and 

radiologists. In this case, we would still 

maintain the 1:1 resident-to-teaching 

physician limit, even if the teaching 

physicians are in different specialties, 

unless the hospital can document that 

the number of physicians actually 

teaching the residents is less than the 

number of FTE residents training at that 

nonhospital site. Once the number of 

teaching physicians is established, the 

hospital would determine the national 

average salary for each of those teaching 

physicians from the national survey 

data, and then calculate the average 

national salary of the mix of physician 

specialties in the practice to be used in 

computing the 90 percent threshold. For 

example, assume that 3 FTE residents 

are rotating to an orthopedic surgery 

practice staffed by a total of 7 

physicians; 4 are orthopedic surgeons, 

and 3 are diagnostic radiologists. Again, 

unless the hospital documents 

otherwise, we would assume that all 7 

physicians supervise the residents at 

some point during their rotation to this 

practice. First, the hospital would 

access the national average salary for 

orthopedic surgeons (assume $400,000), 

and the national average salaries for 

diagnostic radiologists (assume 

$412,000). Then, the hospital would 

calculate the average salary for these 

physicians as follows: [($400,000 × 4) + 

($412,000 × 3)]/7 = $405,143. Next, the 

1:1 resident-to-teaching physician ratio 

would be applied, such that for 

purposes of determining the 90 percent 

threshold, there would be 3 FTE 

residents and 3 teaching physicians. 

Since the 3 teaching physicians are not 

in the same specialty, the hospital 

would multiply the average salary cost 

of $405,143 by 3 to get the total teaching 

physician salaries for the training 

program at that site ($405,143 × 3 = 

$1,215,429). The hospital would then 

multiply $1,215,429 by the percentage 

of time spent by the teaching physicians 

in nonpatient care direct GME activities 

(that percentage is 3 hours divided by 

the number of hours the practice is open 

during a week) to determine the 

teaching physician GME cost for the 

training program at that site. This 

teaching physician cost is then added to 

the salaries and fringe benefits 

(including travel and lodging where 

applicable) of the 3 FTE residents to 

determine the GME cost of the program 

at that practice, and the hospital must 

ensure that it incurs at least 90 percent 

of that GME cost to count the 3 FTE 

residents training at the nonhospital 

site. 

We note that, as we indicated above 

in this section, if there are several 

physicians in a nonhospital site, we 

would assume that they all supervise 

the residents at some point during the 

residents’ training. However, it may be 

that in fact only some of the physicians 

actually supervise the residents, while 

other physicians are not involved in the 

training program at all. The hospital 

may wish to document that only certain 

physicians are involved in the training 

program (to more accurately represent 

the structure and costs of the training 

program in a particular nonhospital 

site). Such documentation would 

increase the number of residents relative 

to teaching physicians that is used to 

calculate the teaching physician costs. 

That is, using the example above where 

the resident-to-teaching physician limit 

was presumed to be 3:3, since there 

were actually 3 FTE residents and 7 

physicians, if the hospital can document 

that only 2 physicians supervised the 

residents (and the other 5 physicians 

were not involved in the GME program 

at all), then the resident-to-teaching 

physician ratio would be 3:2. As a 

result, the hospital might be required to 

incur less teaching physician costs, if 

any, to meet the 90 percent threshold. 

Comment: One commenter stated that 

in using a 1:1 ratio in determining the 

90 percent threshold, it is unlikely that 

a hospital will meet the 90 percent 

threshold because physician salaries are 

quite a bit higher than resident salaries 

and fringe benefits particularly among 

specialties. Commenters also asked 

what documentation we are requiring to 

show that only certain teaching 

physicians at nonhospital sites are 

supervising residents. One commenter 

asked that we confirm that this 

information should be provided after 

the resident rotation to the nonhospital 

site has occurred. 

Response: We proposed to adopt the 

1:1 ratio so that there would be an upper 

limit on the number of physicians that 

are supervising residents in the 

nonhospital site. We believe that use of 

a 1:1 ratio greatly reduces the cost a 

hospital would have to pay when there 

is actually a higher teaching physician 

to resident ratio. For example, if two 

teaching physicians were supervising 

one resident, in the absence of the 1:1 

ratio, the costs for both of those teaching 

physicians would be included for 

purposes of making the ‘‘all or 

substantially all’’ calculation. Thus, 

hospitals could be required to pay 

significantly more of the physician 

salaries if the teaching physician to 

resident ratio is not capped at 1:1. The 

1:1 cap does not apply to the number of 

residents (and thus the resident salary 

and fringe benefit calculation). 

Therefore, where there is one teaching 

physician training three residents, the 

hospital would calculate teaching 

physician costs using one teaching 

physician salary and all three of the 

residents’ salary and fringe benefit data. 

In response to the commenters’ request 

that we advise what type of 

documentation hospitals need to submit 

to show that only certain teaching 

physicians are supervising residents, the 

hospital should have the teaching 

physicians that were not involved in the 

training submit documentation at the 

end of the rotation or by the end of the 

applicable academic year (June 30) to 

indicate that they were not involved, 

either directly, or indirectly, with the 

education of residents in their practice. 

Alternatively, those physicians involved 

in the training can be identified in the 

written agreement, or the hospital may 

submit contemporaneous 

documentation from the GME program 

director specifying which physicians 

were involved in supervising the 

residents. 

(2) Residents’ Salaries and Fringe 

Benefits 

The second variable in our 

methodology for determining the costs 

of a program at a nonhospital site is the 

salaries and fringe benefits (including 

travel and lodging where applicable) of 

the FTE residents that are rotating to a 

particular nonhospital site. We 

understand that since the salaries and 

fringe benefits (including travel and 

lodging where applicable) of most 

residents are already paid by hospitals 

(either directly, or by reimbursing 

another entity such as a medical 

school), the portion of the actual cost of 

the residents attributable to training in 

the nonhospital setting can be easily 

identified and documented by a 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26961 

hospital. Therefore, as under existing 

regulations, in determining the 90 

percent threshold for a particular 

program at a specific nonhospital site, 

the hospital must use the actual cost of 

each FTE resident’s salary and fringe 

benefits (including travel and lodging 

where applicable). In addition, the cost 

of the residents will vary by specialty 

and by program year. Furthermore, as 

with current policy, the total residents’

costs will be based on the FTE number 

rotating to a particular nonhospital site 

in a cost reporting period, not the 

number of individuals actually training 

in a nonhospital site. 

Comment: Several commenters 

requested that we specify what is 

included in resident salaries and fringe 

benefits. Several commenters also 

requested that we specify that resident 

malpractice insurance is included in 

resident fringe benefits. 

Response: It is not our intent to cause 

hospitals to modify their human 

resources policies regarding residents’

salaries and fringe benefits. Hospitals 

should maintain their definition of 

residents’ salaries and fringe benefits 

that was in place prior to the RY 2008 

LTCH PPS proposed rule. Hospitals 

should not include resident malpractice 

insurance or other costs in residents’

fringe benefits solely for the purpose of 

increasing the total cost of residents’

salaries and fringe benefits and 

minimizing the portion of teaching 

physician costs they have to pay. 

Furthermore, we note that historically, 

malpractice costs were not to be 

included in the intern and resident cost 

center on the cost report. Accordingly, 

malpractice costs should not be 

included as a fringe benefit in the 

calculation of the 90 percent threshold. 

Comment: One commenter was 

concerned about our requirement that a 

hospital must use the actual costs of 

each FTE resident’s salary and fringe 

benefits as one of the variables under 

the proposed methodology for 

determining the minimum amount that 

a hospital must pay to count FTE 

residents training in a nonhospital site. 

The commenter stated that under our 

current policy, a hospital only needs to 

know in general that it incurred the 

costs of residents’ salaries and fringe 

benefits, but need not know the actual 

amounts paid; whereas under the 

proposed methodology, a hospital 

would have the significant 

administrative burden knowing the 

precise program year and corresponding 

salary and fringe benefits amount for 

each resident that trains in the 

nonhospital setting. The commenter 

suggested that we allow hospitals the 

option of using an average salary plus 

fringe benefit amount as a means of 

simplifying the proposed methodology 

and to provide administrative relief for 

hospitals. 

Response: In the RY 2008 LTCH PPS 

proposed rule, we stated that we would 

allow a hospital to use physician 

compensation survey data as a proxy to 

determine the teaching physician costs 

associated with a program at a particular 

nonhospital site. We proposed to allow 

the hospital to use a proxy amount 

because hospitals stated that the 

existing regulation was administratively 

burdensome since many teaching 

physicians in nonhospital sites are 

reluctant to disclose their personal 

salary information. We proposed this 

policy because teaching physicians in a 

nonhospital site may not be employed 

or paid by the hospital, and hospitals 

indicated they had great difficulty 

establishing the teaching physicians’

salaries and the portion of the cost 

attributable to the nonpatient care direct 

GME activities of the teaching 

physicians. 

In contrast, we believe resident salary 

and fringe benefits amounts are more 

readily available to hospitals since they 

ordinarily pay these costs directly. 

Because hospitals have ready access to 

this data, we believe it is appropriate 

that hospitals use the actual costs of 

resident salaries and fringe benefits for 

the calculation of the 90 percent 

threshold, rather than some sort of 

proxy. 

The commenter is correct that to 

calculate the actual resident salary and 

fringe benefits amounts, hospitals will 

have to take into account the actual 

salary and fringe benefits for each FTE 

resident that trains in the nonhospital 

site, which may vary by resident. 

Comment: Several commenters 

inquired about which travel and lodging 

expenses should be considered as 

applicable to direct GME in the 

nonhospital site. 

Response: Residents’ fringe benefits 

(including travel and lodging where 

applicable) are considered a part of ‘‘all 

or substantially all of the costs for the 

training program in the nonhospital 

setting.’’ The only travel and lodging 

costs that are applicable are the 

additional travel and lodging costs that 

a hospital incurs due to the fact that a 

resident is training at a nonhospital site. 

For example, if a resident needs to 

travel long distance to another part of 

the state, and is staying in a hotel for the 

duration of the nonhospital site training, 

the costs of the traveling and 

accommodations would be costs that the 

hospital must incur and include in the 

determination of the 90 percent 

threshold. However, expenses that are 

normally incurred when the resident 

trains at or nearby the hospital, such as 

commuting and living expenses, would 

not be applicable. 

(3) The Number of Hours Spent in 

Nonpatient Care Direct GME Activities 

in a Week and the Number of Hours 

That the Nonhospital Site is Open in a 

Week 

The third variable used in the 

determination of the costs of a training 

program at a nonhospital site is the 

amount of time that the teaching 

physician(s) spends on direct GME 

(nonpatient care) activities in a week. 

As we first explained in the July 31, 

1998 Federal Register (63 FR 40987), 

and more recently in the August 8, 2005 

Qs&As posted on the CMS Web site at 

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

AcuteInpatientPPS/Downloads/ 

nonhospQA.pdf, determination of the 

teaching physician costs to the 

nonhospital site is dependent upon the 

teaching physician’s salary and the 

percentage of time he or she devotes to 

activities related to non-billable direct 

GME activities at the nonhospital site 

(such as conferences, practice 

management, lectures, and 

administrative activities like resident 

evaluations). Hospitals and teaching 

physicians have protested that 

documenting the percentage of time that 

teaching physicians spend on activities 

relating to nonpatient care direct GME 

activities at the nonhospital site is an 

onerous and impractical task. In an 

effort to eliminate the documentation 

burden on physicians of keeping track 

of the amount of time they spend in 

nonpatient care direct GME activities in 

the nonhospital site, rather than require 

teaching physicians to estimate the 

number of hours per week that they 

spend in such activities with or on 

behalf of the residents, we proposed an 

alternative option that hospitals may 

choose to use to determine the 

percentage of the teaching physician’s 

time that is spent in nonpatient care 

direct GME activities. This option is an 

administrative shortcut or a proxy, 

rather than continuing to require in all 

cases that the hospital must document 

and pay for the actual costs of a training 

program at a nonhospital site. However, 

a hospital always has the option of 

documenting and paying for at least 90 

percent of the costs of a program at a 

nonhospital site using the teaching 

physician’s actual salary and 

information on the time spent in 

nonpatient care direct GME activities. 

Under the proxy methodology, we 

would apply a presumed standard 

number of hours spent by teaching 

physicians in nonpatient care direct 


ycherry on PROD1PC64 with RULES2
26962 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

GME activities in every nonhospital site. 

Specifically, we proposed to use a 

standard of 3 hours per week spent in 

nonpatient care direct GME activities by 

teaching physicians. The 3 hour 

standard would be used in all cases in 

the formula for determining the teaching 

physician costs at all nonhospital sites, 

regardless of the specialty of the 

residents or the number of teaching 

physicians or residents training at that 

nonhospital site. Although some 

hospital industry representatives have 

stated that the amount of time spent by 

teaching physicians in nonpatient care 

direct GME activities in nonhospital 

sites is ‘‘de minimus,’’ and, therefore, 

there is typically little if any teaching 

cost to the nonhospital site, we believe 

there is also evidence indicating that in 

many cases the teaching physician is 

spending a significant amount of time 

with or on behalf of the residents in 

nonpatient care direct GME activities. 

We believe the standard of 3 hours of 

nonpatient care direct GME activities 

per week is a reasonable proxy based on 

data collected from surveys conducted 

by the Association of American Medical 

Colleges (AAMC), the American 

Osteopathic Association (AOA), and the 

Academic Family Medicine Advocacy 

Alliance (AFMAA), in addition to 

information compiled from our own 

informal surveys of teaching physicians. 

In September 2005, in response to a 

request by CMS, the AFMAA, AOA, and 

AAMC conducted informal surveys to 

determine the amount of time spent in 

nonpatient care direct GME activities by 

teaching physicians in nonhospital 

sites. In the survey results shared with 

CMS by these associations, we received 

a range of hours for the amount of 

teaching physician time spent per week 

in nonpatient care direct GME activities 

at the nonhospital site. Such nonpatient 

care GME time included time spent by 

the teaching physician in training 

activities when the patient was not 

present and time spent in administrative 

activities related to the GME program. 

The surveys showed means ranging 

from 1.1 to 4.0 hours per week and 

medians of 1.5 to 4.0 hours per week for 

time spent on residency training when 

patients were not present. The surveys 

also showed means ranging from 1.6 to 

4.7 hours per week and medians of 0 to 

2 hours per week for time spent on 

administrative activities related to 

residency training at the nonhospital 

site. Given the range of survey results, 

we believe that 3 hours per week serves 

as a reasonable number to use as a 

shortcut or a proxy for determining 

teaching physician time spent in 

nonpatient care direct GME activities at 

the nonhospital site. As previously 

stated, hospitals always still have the 

option of calculating teaching physician 

costs and the 90 percent cost threshold 

using actual data (as under current 

regulations) specific to the number of 

hours the teaching physician spends per 

week on nonpatient care direct GME 

activities at the nonhospital site. For 

example, if a hospital can document 

that a teaching physician actually 

spends 1.5 hours per week on 

nonpatient care direct GME activities at 

the nonhospital site, then the hospital 

may use 1.5 hours per week in 

calculating the teaching physician cost 

and the 90 percent cost threshold. 

We proposed to use the standard of 3 

hours of nonpatient care direct GME 

activities per week as the proxy 

regardless of the number of FTE 

residents the teaching physician is 

supervising because we believe that 

when the number of FTE residents at a 

nonhospital site increases, the teaching 

physician time associated with those 

FTE residents in many instances will 

increase by only a small multiple. For 

example, a teaching physician would 

provide a lecture to the residents 

together, rather than separately lecturing 

each FTE resident who is training at the 

nonhospital site. Accordingly, the time 

spent by the teaching physician in 

nonpatient care direct GME activities 

may increase only slightly with each 

additional FTE resident being 

supervised. 

While we proposed to use the 

standard number of hours spent by 

teaching physician(s) in nonpatient care 

direct GME activities across all training 

occurring at all nonhospital sites (that 

is, 3 hours per week), we are 

introducing a fourth variable in the 

determination of the cost of a training 

program in a nonhospital site that will 

vary depending on the specific 

nonhospital site. This fourth variable is 

the number of hours that a nonhospital 

site is open each week. Since only a 

percentage of the teaching physician’s 

salary is attributable to direct GME 

activities, and that percentage is based 

on time he or she devotes to activities 

related to non-billable direct GME 

activities at the nonhospital site, we are 

determining this percentage by dividing 

the standard number of hours spent in 

nonpatient care direct GME activities by 

the number of hours the specific 

nonhospital site is open each week. We 

proposed that the numerator will always 

be 3 hours, and the denominator will 

vary depending on the nonhospital site. 

For example, if FTE residents rotate 

throughout the year to a nonhospital site 

that is open 40 hours per week, then the 

percentage of time spent by the teaching 

physician(s) in nonpatient care direct 

GME activities throughout the year at 

that site is 3⁄40 = 0.075 or 7.5 percent. 

(If FTE residents rotate to that 

nonhospital site for only a portion of a 

year, then the ratio of 3⁄40 would be 

further multiplied by the percentage of 

the year that the FTE residents train 

there. For example, if the FTE residents 

only rotate to this nonhospital site for 3 

months of the year, then the percentage 

of time that the teaching physician(s) 

spends on nonpatient care direct GME 

activities at that site equals (3⁄40 × 0.25 

= 0.019 or 1.9 percent). Similarly, if FTE 

residents rotate throughout the year to a 

nonhospital site that is open 50 hours 

per week, then the percentage of time 

spent by the teaching physician(s) in 

nonpatient care direct GME activities 

throughout the year is 3⁄50 = 0.06 or 6 

percent. We recognize that the teaching 

physician(s) may not spend 100 percent 

of his or her time in that nonhospital 

site. In fact, many teaching physicians 

spend some of their week working in a 

hospital or other facilities. However, we 

believe that deriving the true amount of 

time spent by each teaching physician 

in each nonhospital site in nonpatient 

care GME direct GME activities would 

involve the imposition of another form 

of the documentation burden that the 

hospital industry and teaching 

physicians have found onerous up to 

this point. This methodology eliminates 

the need for any time studies and it is 

easy to gather the information needed. 

We also acknowledge that the 

proposal to use the number of hours that 

a particular nonhospital site is open as 

a proxy in the denominator for 

determining the percentage of time 

spent by the teaching physician(s) in 

nonpatient care direct GME activities 

could, in some extreme instances, result 

in an unusually high percentage of 

teaching time, which, in turn, would 

result in a determination of unusually 

high teaching costs. This is so because, 

since 3 hours is a constant in the 

numerator, the fewer the number of 

hours the clinic is open (the 

denominator), the greater the calculated 

percentage of time spent by the teaching 

physician in nonpatient care direct GME 

activities. To use an extreme example, if 

a clinic is only open 10 hours a week, 

then 3⁄10, or 30 percent of the national 

average salary for the teaching 

physician’s specialty would represent 

the teaching physician’s cost that would 

be used to determine 90 percent of the 

costs of the program at the clinic. 

However, we believe that, for most 

nonhospital training situations, this 

revision to use the 3 hour standard and 

the number of hours the nonhospital 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26963 

site is open per week is a reasonable 

alternative to the current procedures for 

determining the actual teaching 

physician’s cost because these proxies 

are easily obtainable, discrete numbers 

that do not necessitate any time studies. 

Nevertheless, we solicited comments on 

alternative proxies that might be 

appropriate to use in the place of the 

ratio of 3 hours to the number of hours 

a nonhospital site is open per week. We 

also note that in the event that this 

methodology for calculating teaching 

physician costs in a particular 

nonhospital site results in an unrealistic 

amount, we reiterate that a hospital 

always has the option of determining 

and paying at least 90 percent of the 

GME costs using actual physician salary 

and teaching time information, for all, 

or some of its training programs 

occurring in nonhospital settings. In 

fact, a hospital may choose to use a 

combination of actual information and 

proxy information for determining the 

teaching physician cost. For example, a 

hospital may choose to use actual 

physician salary information instead of 

the national average survey data, but use 

the 3 hour standard and the number of 

hours the nonhospital site is open per 

week to determine the percentage of 

time spent on teaching activities, or vice 

versa. Furthermore, we reiterate that 

under the new definition of ‘‘all or 

substantially all,’’ even if a hospital 

chooses to document the teaching 

physician cost using actual teaching 

physician-specific information, the 

hospital need only incur 90 percent of 

the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable), and the portion of 

the teaching physicians’ salaries 

attributable to direct GME, and not 100 

percent of those costs. 

Under our revised policy, 90 percent 

of the GME costs for a particular 

program at a particular nonhospital site 

would be the minimum amount that a 

hospital must pay to count the FTE 

resident(s) training at that site for direct 

GME and IME purposes. If the hospital 

is already paying the resident’s salaries 

and fringe benefits (including travel and 

lodging where applicable), and if the 

costs of the resident’s salaries and fringe 

benefits are equal to at least 90 percent 

of the total GME costs at the nonhospital 

site (that is, the 90 percent threshold), 

then the hospital is paying ‘‘all or 

substantially all’’ of the costs in 

accordance with our definition, and 

need not pay an additional amount for 

teaching physician compensation to 

count the FTE residents. However, if the 

hospital is paying less than 90 percent 

of the costs of the training program at 

the nonhospital site, then the hospital 

must pay an additional amount toward 

the teaching physician costs until it is 

paying at least 90 percent of the GME 

costs for that program. We believe our 

revised policy is relatively simple, easy 

to administer, and eliminates the 

documentation burdens cited by the 

industry as being associated with the 

current policy. However, we note again 

that even under our revised policy, a 

hospital is not precluded from choosing 

to calculate and pay 90 percent of the 

teaching costs of a program in a 

nonhospital site in accordance with the 

existing policy requirements. That is, 

the hospital may still choose to 

document the actual teaching physician 

cost using actual time and salary 

information from the teaching 

physician(s) to determine what the true 

direct GME costs are at that nonhospital 

site. Once the hospital calculates the 

actual direct GME costs, it would only 

be required to pay at least 90 percent of 

the actual direct GME costs, consistent 

with our definition of ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting.’’

The following is an additional 

example of the application of the 

methodology: 

Example: For the July 2008 through 

June 2009 academic year, a hospital 

with a family practice program sends 3 

FTE residents (in different program 

years) to train at the Family Medicine 

Center (FMC), a nonhospital site. The 

hospital’s cost reporting period began 

on January 1, 2008. The FMC is staffed 

by 5 physicians, all of whom supervise 

the residents at some point during the 

year. Four of the physicians are family 

practitioners, and 1 physician is a 

psychiatrist. The FMC is open for 50 

hours per week. To determine the cost 

of the teaching physicians, the hospital 

refers to the most recent national 

average salary amounts on the national 

survey published prior to January 1, 

2008, which is the 2007 survey. Assume 

that the national average published 

salary amount for family practice is 

$180,000, and the national average 

published salary amount for psychiatry 

is $187,000. Since there are multiple 

physicians in different specialties 

(absent specific documentation 

provided by the hospital), the average 

salary of one FMC physician is 

calculated as follows: [($180,000 × 4 

family practice physicians) + ($187,000 

× 1 psychiatrist)]/5 = $181,400. Since 

the residents are on the payroll of the 

hospital, the hospital knows that the 

total actual cost of the 3 FTE residents’

salaries and fringe benefits (including 

travel and lodging, if applicable) is 

$182,000. After applying the 1:1 

resident-to-teaching physician limit, 

there are 3 FTE residents to 3 teaching 

physicians (again, absent specific 

documentation provided by the 

hospital). Thus, the GME cost of the 3 

teaching physicians is calculated as 

follows: ($181,400 × 3) × (3 hours/50 

hours) = $32,652. This teaching 

physicians’ cost of $32,652 is added to 

the residents’ cost of $182,000 to arrive 

at the total cost of the training program 

at the nonhospital site of $214,652. To 

meet the definition of ‘‘all or 

substantially all,’’ the hospital would be 

required to pay at least 90 percent of the 

costs of the training program at the 

nonhospital site, which in this example 

equals $193,187 (that is, 0.90 × 

$214,652). Since in this case the cost of 

the 3 FTE residents’ salaries and fringe 

benefits is $182,000, the hospital would 

not reach the 90 percent cost threshold 

by simply incurring the costs associated 

with the residents. The hospital must 

pay at least an additional $11,187 (that 

is, $193,187¥$182,000) to meet the 90 

percent threshold and satisfy the 

requirement to pay ‘‘all or substantially 

all’’ of the costs of the family practice 

program at the FMC. 

Comment: One commenter, the 

Association of American Medical 

Colleges (AAMC), noted that in the 

proposed rule, we stated that ‘‘the 

standard of 3 hours of nonpatient care 

GME activities per week is a reasonable 

proxy based on data collected from 

surveys conducted by the Association of 

American Medical Colleges (AAMC), 

the American Osteopathic Association 

(AOA), and the Academic Family 

Medicine Advocacy Alliance (AFMAA), 

in addition to our own informal surveys 

of teaching physicians’’ (72 FR 4826). 

The AAMC commented that they would 

‘‘like to clarify that the AAMC did not 

provide CMS with survey data.’’ The 

AAMC indicated that we may have been 

confused on this issue because the 

surveys were presented to CMS in a 

meeting in which representatives of the 

AAMC were in attendance, and they 

noted that AAMC staff provided some 

input to the survey questions. A 

commenter said that we were correct to 

describe the surveys as ‘‘informal’’ (72 

FR 4826), since these surveys were 

developed and conducted by AOA and 

AFMAA policy staff who, due to time 

constraints, did not consult with 

persons who have expertise in survey 

development. Another commenter 

stated that any data collected by CMS 

informally and used as the basis for a 

regulation should be available to the 

public. A commenter referred to the 

limitations to the data that the AFMAA 


ycherry on PROD1PC64 with RULES2
26964 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

noted when it submitted its survey data 

to CMS, and questioned why CMS 

would use such ‘‘extremely flawed’’

data, when anecdotal evidence suggests 

that any time greater than one hour per 

week spent in didactic training is ‘‘way 

out of line with actual circumstances.’’

Commenters enlisted a professor from 

the Department of Economics at Hunter 

College in New York, to analyze the 

survey data and opine as to whether the 

survey responses provide a valid source 

for establishing a national proxy. The 

professor expressed concerns about the 

data provided to CMS, stated that the 

data are extremely limited and 

questionable and should not form the 

basis of public policy, and suggested 

that CMS conduct its own rigorous 

study to identify the best proxy. The 

professor’s analysis also recommended 

that in the meantime, if CMS wishes to 

make a decision based on the AOA and 

AFMAA survey, a proxy that is better 

supported by the current survey is 2 

hours. 

Some commenters also asked that 

CMS consider that the surveys were 

conducted prior to the issuance of the 

FY 2007 IPPS final rule in which CMS 

clarified that time spent in nonpatient 

care activities in nonhospital sites 

cannot be counted by a hospital for 

direct GME and IME purposes. Because 

of this clarification, hospitals may now 

be conducting as much of their didactic 

activities as possible in the hospital 

complex. Lastly, the commenters noted 

that to the extent that a resident may 

spend only a half a day at a nonhospital 

site per week, ‘‘the idea that [the] 2 or 

3 hours of that time is spent in 

nonpatient care activities defies 

conventional logic.’’

Several commenters suggested that 

the 3 hour proxy should be reduced to 

either 1 or 2 hours. One commenter 

stated that according to the commenter’s 

survey of 54 physicians, the average 

hours per week spent on nonpatient 

care direct GME activities was 1.45, 

with a range of 0 to 6 hours. Another 

commenter stated that teaching 

physicians spend 1.2 to 1.5 hours a 

week in nonpatient care direct GME 

activities, while one commenter 

mentioned that for family practice, a 

teaching expectation of 20 minutes per 

half day would work best. Several 

commenters stated that CMS should 

adjust the proxy according to a 

resident’s program year. For example, 

one commenter suggested that the 

number of hours spent in nonpatient 

care direct GME activities per week 

should be 1 hour for third year 

residents, 2 hours for second year 

residents, and 3 hours for first year 

residents. 

Response: We regret that we 

inadvertently misattributed the surveys 

in part to the AAMC. The AAMC is 

correct that we believed they did have 

a role in conducting the surveys, but 

based on their comments, we 

understand that their role was limited to 

providing some input into the survey 

questions. We acknowledged that the 

surveys conducted by CMS, the 

AFMAA, and the AOA respectively 

were informal, and we understood that 

persons with expertise in survey 

development were not necessarily 

consulted due to time constraints. In 

light of these considerations, we 

carefully reviewed the analysis of the 

surveys provided by the professor from 

Hunter College. We agree that it is 

inappropriate to apply a proxy of 3 

hours to one nonhospital site if the 

residents only rotate to that nonhospital 

site for a portion of the week. As we 

explain further below in response to the 

comments we received about prorating 

the teaching physician’s cost, in this 

final rule, we are allowing hospitals to 

prorate the teaching physician’s costs to 

reflect the FTE time spent by the 

residents in a program at each 

nonhospital site. Since we have heard 

from the teaching hospital industry that 

it is unlikely that a resident will spend 

an entire week at the same nonhospital 

site, in those cases, the hospital would 

be applying a prorated proxy, which 

would be less than 3 hours, and may 

even be less than the 2 hours which the 

professor from Hunter College indicated 

could be supported by the survey data. 

The suggestion from the professor at 

Hunter College that we conduct a 

rigorous study is sensible, and we will 

consider it. 

In response to the commenters who 

request that the 3 hour proxy be 

adjusted according to a resident’s 

program year, we believe that requiring 

a hospital to adjust the proxy for each 

of its residents who are training at a 

nonhospital site would add unnecessary 

complexity. Therefore, we are finalizing 

our policy to use 3 hours in the 

numerator of the teaching physician 

cost ratio. We note that if a hospital 

believes that 3 hours is greater than the 

actual amount of time spent in 

nonpatient care direct GME activities in 

a particular nonhospital site, the 

hospital always has the option to work 

with the teaching physician to provide 

an actual amount of teaching time for 

use in calculating the 90 percent cost 

threshold. 

In response to the comment 

requesting that we consider that the 

amount of time currently spent in 

nonpatient care direct GME activities in 

the nonhospital site could be less than 

the amount shown in the surveys (since 

the surveys were conducted prior to the 

issuance of our clarification regarding 

didactic activities), we believe this 

might be true. We acknowledge that the 

availability of Medicare GME funding is 

certainly an important factor in a 

hospital’s decision to rotate (or not 

rotate) residents to nonhospital settings. 

However, we also recognize there are 

other significant factors that hospitals 

must consider in making residency 

rotation decisions, such as the 

requirements of accrediting 

organizations (like the ACGME or the 

AOA), and local health ‘‘outreach’’

initiatives. Thus, we are skeptical that 

hospitals’ longstanding rotational 

models would shift so dramatically and 

in such a short period of time due to 

clarification of the agency’s policy 

regarding the time that residents spend 

in didactic activities. Further, the 

commenter is raising a point that can be 

made about any survey which captures 

data as of a certain period of time, and 

cannot necessarily be used to predict 

future scenarios. However, we may reevaluate the use of the 3-hour per week 

standard, possibly in conjunction with a 

new survey, in the future if appropriate. 

Comment: Commenters suggested that 

since the goal of the proposed rule was 

to reduce administrative burdens, 

instead of requiring that hospitals 

determine the number of hours each 

nonhospital site is open, we should 

consider using a national average proxy 

for total physician work hours per week. 

A commenter mentioned that there are 

limited, but still apparently reasonable, 

data that exist on national average 

physician work hours. For example, in 

its 2006 physician workforce report, the 

Health Resources and Services 

Administration (HRSA) used the 

American Medical Association’s (AMA) 

Socioeconomic Monitoring System 

(SMS) from 1998 to estimate work hours 

by specialty. (The commenter noted that 

this survey has been discontinued due 

to response rates that were often too low 

for individual specialties and practice 

settings.) The direct patient care hours 

reported by HRSA ranged from 47 to 58 

hours per week. Another study 

conducted in 2005 by the AAMC’s 

Center for Workforce Studies of 

physicians over age 50 showed an 

average of 55 hours worked per week 

based on over 9,000 respondents, with 

work hours varying by specialty. For 

instance, pathologists worked an 

average of 50 hours weekly on the lower 

range, while cardiologists worked an 

average of 63 hours a week. Similarly, 

data from the Center for Tracking Health 

System Change reported an average of 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26965 

53 hours worked per week based on 

interviews with about 6,600 physicians 

in all specialties. The commenter asked 

that we adopt 55 hours as the proxy to 

use, but suggested that it might be best 

to use specialty-specific proxies, since 

there is a range of work hours across 

specialties. Another commenter 

suggested that physician work hours as 

published in JAMA, 2003 be used in the 

denominator. Alternatively, if we decide 

to adopt our proposal regarding the 

clinic hours of operation, then the 

commenters requested that we confirm 

that this means the ‘‘posted’’ hours, and 

not the actual hours (for example, the 

hospital need not account for the 

closure of the site due to a holiday). 

Another commenter asked that CMS 

include a definition of ‘‘hours open’’ in 

the final rule, and specify what 

documentation would be required. 

Other commenters suggested that 

instead of the clinic hours of operation, 

the denominator of the ratio used to 

calculate the teaching physician cost 

proxy should be the number of hours 

the teaching physician is working since 

the physician’s salary is relative to the 

number of hours worked. One 

commenter requested that we allow 

adjustments as appropriate when the 

teaching physician spends only a 

portion of his or her time at the 

nonhospital site. Yet another 

commenter stated that the denominator 

should be 51 hours, which is derived 

from the CMS data that is the basis for 

the RCEs that are currently in use. This 

commenter noted that if a proxy is being 

used for both the numerator and 

denominator, then there is no need to 

use hours at all. Instead, the formula can 

be simplified by using a single 

percentage proxy of the time the 

physician spends teaching. The 

commenter thought the formula should 

be: 

Physician compensation proxy using 

RCEs 

× Percentage of business days in year 

when resident is at site 

× Percentage of presumed training time 

[number of proxy hours/51 hours 

based on RCEs] 

= Physician compensation attributable 

to training. 

Response: We appreciate the 

commenters’ proposals for alternatives 

to use in the denominator of the ratio 

that represents the percentage of time 

the teaching physician spends in 

nonpatient care direct GME activities. 

The suggestion to use national average 

proxies for total physician work hours 

per week is an interesting idea that we 

will explore more fully and consider for 

future rulemaking. In particular, we 

would like to evaluate thoroughly the 

alternative data sources that are 

available, and the ramifications of using 

specialty-specific proxy data. We expect 

to investigate this issue, and if 

appropriate, may propose to use 

specialty-specific data for physician 

work hours in the future. We are also 

not adopting the commenter’s 

suggestion to make adjustments to 

recognize the number of hours the 

specific teaching physician works each 

week as the denominator in the ratio. 

We believe the relevant figure for this 

purpose is the time the teaching 

physician spends in the specific 

nonhospital site, not the time the 

physician works elsewhere. 

Furthermore, if we were to allow for 

adjustments when the teaching 

physician spends only a portion of his 

or her time at the nonhospital site as the 

commenter recommended, the result 

might be a physician salary percentage 

that is much higher than the percentage 

that would result from use of the 

number of hours the nonhospital site is 

open in the denominator. For example, 

if a teaching physician works a total of 

60 hours per week, spending 30 hours 

in the hospital and 30 hours in the 

nonhospital site, but the nonhospital 

site is open 40 hours a week, then the 

teaching physician cost ratio (to be 

applied to the survey-based physician 

salary proxy) would be 3⁄30, or 10 

percent under the commenter’s 

suggestion, and 3⁄40, or 7.5 percent 

under our proposal. Accordingly, as we 

stated in the proposed rule, we believe 

that deriving the true amount of time 

spent by each teaching physician in 

each nonhospital site in nonpatient care 

direct GME activities would involve the 

imposition of another form of the 

documentation burden that the hospital 

industry and teaching physicians have 

found onerous up to this point. 

Therefore, we are finalizing our 

proposal to use the number of hours a 

nonhospital site is open each week as 

the denominator in the ratio for 

calculating the teaching physician cost 

ratio. 

We are also confirming that in 

determining the number of hours a 

clinic is open per week, we do not mean 

the actual hours the nonhospital site is 

open per week, but instead, we mean 

‘‘posted’’ or advertised hours. Therefore, 

the fact that a nonhospital site might be 

closed several days in a year on legal 

holidays, for example, would not affect 

the denominator. That is, if a 

nonhospital site’s posted hours are 9 

a.m. to 5 p.m. from Monday through 

Friday, then the denominator would be 

40 hours, even if that site was closed for 

a day(s) for a holiday or some other 

reason. The hospital may obtain the 

nonhospital site’s posted or advertised 

hours of operation as documentation to 

support the number of hours used in the 

denominator of the teaching time proxy. 

Comment: Commenters stated that a 

reasonable and easy way to administer 

the supervisory teaching physician cost 

ratio would be to use 2 hours in the 

numerator, as supported by the 

conclusions generated by the professor 

from Hunter College, and 55 hours in 

the denominator, which would result in 

a ‘‘maximum fixed ratio’’ of 3.6 percent. 

Alternatively, if we reject that 

suggestion, the commenters urged CMS 

to adopt a ratio ‘‘cap’’. The commenters 

noted that we solicited comments on 

how to address situations in which that 

ratio ‘‘could, in some extreme instances, 

result in a determination of unusually 

high teaching costs’’ in instances where 

the nonhospital site is open very few 

hours per week (72 FR 4827). One 

commenter suggested that this ratio 

‘‘cap’’ should be 5 percent, and would 

prevent any extreme or atypical results 

in determining the portion of teaching 

physicians’ salaries attributable to direct 

GME. Another commenter 

recommended that the proxy for 

determining teaching costs be capped at 

3 percent, which would be the result of 

using 2 hours in the numerator (as 

suggested by the professor from Hunter 

College’s analysis), and 60 hours in the 

denominator, since 60 hours is the 

amount of time a typical teaching 

physician works (in total, in all settings) 

per week. 

Response: As we explained in 

response to other comments, we believe 

it is appropriate at this time to finalize 

our proposals to use 3 hours in the 

numerator and the number of hours the 

nonhospital site is open each week in 

the denominator. However, the 

commenter is correct that we solicited 

comments on how to address situations 

in which that ratio ‘‘could, in some 

extreme instances, result in a 

determination of unusually high 

teaching costs’’ in instances where the 

nonhospital site is open very few hours 

per week (72 FR 4827). We believe that 

in light of these extreme circumstances, 

the commenters’ suggestion to establish 

a ‘‘cap’’ on the ratio is reasonable. We 

are not adopting the commenters’

suggested cap of 3 percent or 5 percent, 

since both of these caps are based on 

using 2 hours in the numerator. Since 

we are finalizing our proposal to use 3 

hours in the numerator, we believe an 

appropriate cap would be 7.5 percent, 

which would result from using 3 hours 

in the numerator and 40 hours in the 

denominator. We believe it is 


ycherry on PROD1PC64 with RULES2
26966 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

appropriate to use 40 hours in the 

denominator because 40 hours is an 

established, universally recognized, 

typical work week. However, we may 

reevaluate this cap in the context of 

other possible changes we may consider 

making to the teaching physician cost 

ratio. Thus, in this final rule, we are 

instituting a cap of 7.5 percent on the 

teaching physician cost ratio, such that 

a hospital need not employ more than 

7.5 percent of the teaching physician 

cost in calculating the amount of 

payment necessary to meet the 90 

percent threshold. However, in adopting 

this policy, we note that application of 

the 7.5 percent cap must always be after 

a hospital prorates the teaching 

physician cost to reflect the amount of 

FTE time that the residents are in the 

particular nonhospital site per year. 

Since half-day rotations appear to be a 

common model of nonhospital training, 

which would already reduce the ratio 

well below 7.5 percent, we anticipate 

that the cap will only be applicable in 

the extreme circumstances we 

mentioned when soliciting comments, 

and which were of concern to the 

commenters. 

Comment: One commenter referred to 

a letter received from CMS in which 

CMS stated that the cost of training a 

resident in a non-hospital setting is 

based on the ‘‘percentage of time’’ the 

teaching physician spends in GME 

activities. Therefore, the commenter 

asserted, if the hospital is paying for all 

of the costs of the resident, and the 

physician can attest that the percentage 

of time spent in nonpatient care direct 

GME activities is only 10 percent or less 

(that is, the remainder of the costs of the 

program), then the test of a hospital 

incurring ‘‘all or substantially all’’ of the 

costs of training the resident should be 

met. 

Response: CMS’s policy for 

determining the costs of nonpatient care 

direct GME activities of the teaching 

physician is, indeed, based on the 

‘‘percentage of time’’ that the teaching 

physician spends in such activities. We 

most recently explained this policy 

explicitly in the April 2005 Qs&As. In 

response to Question 5, we stated 

‘‘Determination of the teaching 

physician costs to the nonhospital site 

is dependent upon the teaching 

physician’s salary and the percentage of 

time he/she devotes to activities related 

to non-billable direct GME activities at 

the nonhospital site.’’ [see http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

Downloads/nonhospQA.pdf] As we 

have stated in those Qs&As, and in this 

rule, the statutory test is tied to whether 

the hospital has paid ‘‘all or 

substantially all’’ of the costs of the 

training program, and not to how much 

time the teaching physician spends in 

nonpatient care direct GME activities, 

although that time percentage is 

certainly necessary for determining the 

amount of the cost that the hospital 

must pay. Accordingly, the revised 

policy is consistent with the previous 

policy in that the hospital must 

establish the percentage of time spent by 

the teaching physician in nonpatient 

care direct GME activities in order to 

determine the cost of the teaching 

physician’s GME time. However, the 

revised policy allows for the use of 

proxies in order to make those 

calculations. That is, the ratio of 3 hours 

of nonpatient care direct GME time per 

week to the number of hours that the 

nonhospital site is open also represents 

the percentage of time the teaching 

physician spends in nonpatient care 

direct GME activities, and when applied 

to the physician’s salary (as established 

using survey data), will result in a proxy 

for the teaching physician cost. As 

mentioned in the preceding summary of 

comments, commenters requested that 

CMS place a cap on the percentage of 

the teaching physician’s time spent in 

nonpatient care direct GME activities, as 

determined using the ratio. As 

explained above, in this final rule, we 

are instituting a cap of 7.5 percent on 

this teaching physician cost ratio, which 

is less than the 10 percent to which this 

commenter requested that physicians be 

allowed to attest. Furthermore, we do 

not believe it is appropriate to say that 

a hospital has met the test of incurring 

‘‘all or substantially all’’ of the costs 

based simply on a physician’s 

attestation that 10 percent or less of his 

or her time is spent on nonpatient care 

direct GME activities. Again, it is the 

cost that is important, not the amount of 

the teaching physicians’ time. 

Comment: We received several 

comments relating to the method for 

computing the teaching physician cost 

in instances where the residents rotate 

to multiple nonhospital sites for varying 

periods of time, and whether prorating 

is applicable. The commenters 

explained that typically, nonhospital 

rotations consist of partial day rotations, 

which can be either partial days or 

partial weeks, to 3 or 4 different 

nonhospital sites per week. The 

commenters mentioned that continuity 

clinics, which are required for internal 

medicine residents, are generally 

rotations of one half-day per week to a 

specific nonhospital site over the 3-year 

internal medicine program. The 

residents may also rotate to other 

nonhospital sites during each week. The 

commenters asserted that if hospitals 

were to assume 3 hours of supervisory 

teaching physician time for each clinic 

during a week, the estimate of teaching 

physician costs would be ‘‘severely 

inflated,’’ and the hospital would be 

‘‘paying several times over for training 

costs incurred during the same time 

period.’’

One commenter noted that we 

mention the issue of prorating in 

instances where the residents are not 

rotating to the nonhospital site for a 

whole year. Specifically, the preamble 

states, ‘‘If FTE residents are not rotating 

to a particular nonhospital site 

throughout a whole year, then the 

national average salary of the teaching 

physician would be prorated 

accordingly. The cost of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable) 

would already be reflective of an FTE 

count (72 FR 4822).’’ In addition, the 

preamble stated in the context of the 

teaching physician cost ratio, ‘‘For 

example, if FTE residents rotate 

throughout the year to a nonhospital site 

that is open 40 hours per week, then the 

percentage of time spent by the teaching 

physician(s) in nonpatient care direct 

GME activities throughout the year at 

that site is 3⁄40 = 0.075 or 7.5 percent. 

If FTE residents rotate to that 

nonhospital site for only a portion of a 

year, then the ratio of 3⁄40 would be 

further multiplied by the percentage of 

the year that the FTE residents train 

there. For example, if the FTE residents 

only rotate to this nonhospital site for 3 

months of the year, then the percentage 

of time that the teaching physician(s) 

spends on nonpatient care direct GME 

activities at that site equals (3⁄40 × 0.25 

= 0.019 or 1.9 percent)’’ (72 FR 4827). 

The commenter continued that although 

the concept of prorating is supported by 

the preamble, in discussions with CMS 

staff, it seems that we intended to allow 

prorating ‘‘selectively.’’ The commenter 

stated that their understanding of our 

position is that if a resident rotates to a 

nonhospital site for several days each 

week over a period of time, the 

resident’s salary and fringe benefits 

would be prorated, but not the 

physician’s salary. The physician’s 

salary would only be prorated if the 

rotation occurred in a block situation, 

such as 3 months (in the proposed rule 

example mentioned above). 

The commenter included an 

addendum which contained examples 

to illustrate what they believe to be the 

‘‘flaws’’ in our position. In the first 

example, a resident rotates to a 

nonhospital site for 6 consecutive 

months, and then spends the rest of the 

year in a hospital. In the second 

example, the resident spends 2.5 days a 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26967 

week at a nonhospital site throughout 

the entire year (an aggregate time of 6 

months), with the remaining time in a 

hospital setting. In the first example, the 

commenter understands that we would 

prorate by 0.5 the resident’s stipends 

and benefits, as well as the physician’s 

salary. In the second example, the 

commenter understands that we would 

only prorate the resident’s stipends and 

fringe benefits. The commenter stated 

that the result is that even though ‘‘in 

the aggregate’’ the resident spends the 

same amount of time in the nonhospital 

site, if he or she rotates in increments 

of less than a week, the hospital will 

incur more in supervisory costs. 

Another commenter believed that there 

is no basis for distinguishing between 

these ‘‘half-time’’ rotations, and 

teaching hospitals should not have to 

incur any additional costs if the sum of 

the assignments for the resident on an 

FTE basis is the same in either case. The 

former commenter concluded that as 

long as both the resident and physician 

salaries are prorated to match the length 

of time of the rotation, the supervisory 

cost amount will not be overstated. 

Alternatively, the commenter noted that 

the three hour presumption could be 

prorated, rather than the physician 

salary, as the result would be the same 

either way. 

Response: In responding to these 

comments on the issue of prorating, it 

is important to first understand the 

context in which we made the decision 

to propose that 3 hours be used as the 

proxy for the amount of time a teaching 

physician spends per week in 

nonpatient care direct GME activities. 

As we explained in the proposed rule, 

we derived the 3 hour figure from 

informal surveys conducted by the 

AFMAA and the AOA, which 

essentially showed ranges of 0 hours to 

4.7 hours for the time that physicians 

spend on nonpatient care direct GME 

activities (72 FR 4826). Although we 

acknowledge that the surveys were not 

rigorous, we believed (and still believe) 

the survey data warrant the use of 3 

hours, and not a lower number, as a 

proxy in determining the costs hospitals 

must pay in accordance with the statute. 

This is especially so since, as explained 

above, the 3 hour figure is subject to 

prorating based upon the proportion of 

time residents are present in the 

nonhospital site. If ‘‘half day’’ rotations 

to nonhospital sites are a very common 

training model as the commenters 

suggest, then it is reasonable to 

conclude that the amount of nonpatient 

care direct GME hours reported in the 

survey results reflects this common 

mode of training. Given that our 

motivation was to remove the burden on 

teaching physicians in documenting 

their teaching time, we do not believe it 

was unreasonable for us to propose that 

3 hours be used as a ‘‘one size fits all’’

proxy. Given further that, as mentioned 

above and explained below, our final 

policy will permit the 3 hour figure to 

vary when residents are not rotating to 

the nonhospital site during the entire 

year, we believe this policy allows 

sufficient flexibility to recognize the 

circumstances under which most 

residency training occurs in nonhospital 

settings. And finally, we recognize that 

proxies, by definition, are not perfect. 

Therefore, we note again that hospitals 

always have the option of working with 

the nonhospital site teaching 

physician(s) to obtain actual data 

specific to the number of hours the 

teaching physician spends per week on 

nonpatient care direct GME activities in 

calculating the 90 percent threshold (72 

FR 4826). 

However, we do believe that the 

commenters raise a legitimate concern 

in that if the 3 hour proxy were to be 

applied to each nonhospital site, then, 

in cases where the residents rotate to 

multiple nonhospital sites each week, 

the percentage of teaching physician 

costs for each site would be 

considerably overstated. We agree with 

the commenters that if both the resident 

and physician costs are prorated to 

match the length of time of the rotation, 

the teaching physician cost amount will 

not be overstated. We are also 

convinced by the commenters that, for 

the amount of teaching physician costs, 

there should be no distinction between 

part-time rotations that occur in 

consecutive blocks as compared to parttime rotations that are not consecutive 

over the course of a training year, but 

equate to the same amount of time on 

an FTE basis. That is, we agree that just 

as the residents’ salary and fringe 

benefit portion is prorated to reflect the 

actual FTE time spent in a particular 

nonhospital site, the teaching physician 

cost should also be prorated to reflect 

that FTE time (that is, either the 

physician’s salary would be prorated, or 

the 3 hours would be prorated by the 

FTE percentage; the result would be the 

same either way). Accordingly, we are 

modifying our proposal to allow for 

prorating in this final rule. Thus, in the 

example on page 4827 of the proposed 

rule quoted by the commenter above, 

where the FTE residents only rotate to 

the nonhospital site for 3 months of the 

year, the percentage of time that the 

teaching physician(s) spends on 

nonpatient care direct GME activities at 

that site would be multiplied by 0.25, 

regardless of whether the rotation 

occurs in a 3-month consecutive block, 

or in increments that equate to 3 months 

(or 0.25 FTE) over the course of the 

entire training year. 

Comment: Many commenters 

recommended that we allow physicians 

at nonhospital sites to sign attestation 

forms estimating the average time they 

spend supervising residents per week. 

Another commenter said that since the 

primary reason for residents to rotate 

into nonhospital sites is to perform 

patient care activities (as opposed to 

nonpatient care or didactic activities), 

the amount of time that a supervising 

physician spends teaching residents is 

‘‘typically very low.’’ Therefore, CMS 

should accept attestations stating that 

the only teaching time ‘‘in a resident’s 

entire nonhospital rotation was for the 

resident evaluation and that it took a 

half hour or less.’’ One commenter 

asserted that ‘‘it’s a waste of money’’ to 

have physicians attest to the amount of 

money they earn, and that if CMS is 

going to make payment mandatory, then 

a minimum of $60 per hour should be 

established. Several commenters asked 

that we specify the type of actual 

documentation that is acceptable in the 

case where a hospital chooses not to use 

the proxies we specify in this final rule. 

(That is, the commenters requested that 

we specify how they might use local 

surveys and sampling techniques to 

obtain actual data to calculate 

nonhospital teaching physician costs, 

rather than comprehensive time and 

motion studies). Another commenter 

asked whether the teaching physician 

must keep continuous time records or 

whether the hospital can use time 

studies. This commenter further stated 

that if time studies are to be used, we 

should indicate that they are to ‘‘* * * 

be kept in accordance with CMS Pub. 

15–1, Section 2313.2.’’

Response: In the cases where a 

hospital wishes to use the actual 

amount of time a particular teaching 

physician is spending in nonpatient 

care direct GME activities with or on 

behalf of the residents, we do not 

believe that attestations from the 

teaching physician without any 

supporting documentation is acceptable. 

Furthermore, if a hospital chooses not to 

use the proxies specified in this final 

rule, then we believe the hospital 

should use actual data specific to the 

teaching physician in the particular 

nonhospital site, and not an arbitrary 

amount such as $60 or information from 

local surveys or broader samples. 

However, it would be acceptable for the 

physician to provide to the hospital a 

signed document specifying, based on 

actual records kept, the amount of such 


ycherry on PROD1PC64 with RULES2
26968 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

time spent with the residents, whether 

this amount is greater than 3 hours, or, 

as one commenter indicated, a half hour 

or less. Similar to the documentation 

that was historically required of 

hospitals to allocate teaching physician 

costs between Part A and Part B and 

between operating costs and direct 

medical education costs, if the 

physician is supervising residents in the 

nonhospital site throughout the 

academic year, the physician may 

complete a 2-week time study at two 

different points during the academic 

year (that is, two separate 2-week time 

studies). If a physician only supervises 

residents in the nonhospital site for the 

equivalent of a month or less in an 

academic year, then the physician may 

complete a 1 week time study. The 

percentage of time a teaching physician 

spends with or on behalf of the 

residents in nonpatient care direct GME 

activities over the course of the time 

study may then be extrapolated to apply 

to the rest of the academic year. 

Accordingly, we are not requiring that 

time studies completed by teaching 

physicians in nonhospital sites for the 

purpose of determining the 90 percent 

cost threshold meet the requirements in 

CMS Pub. 15–1, Section 2313.2. For 

example, under CMS Pub. 15–1, Section 

2313.2.E.2, a minimally-acceptable time 

study must encompass at least 1 full 

week per month of the cost reporting 

period, whereas for purposes of 

determining the percentage of time the 

teaching physician spends in nonpatient 

care direct GME activities in the 

nonhospital site, the teaching physician 

may complete two separate 2-week time 

studies (or a 1 week time study if the 

teaching physician supervises residents 

for the equivalent of a month or less 

during the academic year). Since the 

teaching physician may not know the 

percentage of time spent on nonpatient 

care direct GME activities at the time 

the written agreement between the 

hospital and the nonhospital site is 

being entered into (since the written 

agreement must be in place before the 

rotation begins), the written agreement 

can be made based upon either the 3- 

hour per week proxy or an estimated 

percentage (based on the prior year’s 

rotations, if applicable), and the 

percentage may be modified during the 

academic year if necessary. Further, the 

teaching physician (or the nonhospital 

site employer) and the hospital should 

modify the calculation of the 90 percent 

cost threshold and the written 

agreement in order to reflect the actual 

percentage by June 30 of that academic 

year. The source documentation used to 

determine the amount of teaching 

physician compensation should be 

made available to the Medicare 

contractor upon request during audit. 

Comment: One commenter asked 

CMS to ‘‘* * * expressly clarify in 

either the text of the regulation or in the 

preamble to the final rule that the 

alternative proxies will not be used by 

CMS or fiscal intermediaries as a way to 

disallow a hospital’s computation and 

payment using actual teaching time and 

teaching costs.’’ The commenter 

expressed concern ‘‘* * * that the 

alternative proxies * * * will be used 

against hospitals as some sort of floor in 

analyzing the reasonableness of actual 

costs for those hospitals that choose not 

to use these alternative proxies.’’ The 

commenter believes that our proxies 

would be viewed as a floor or a cap 

when taking into consideration actual 

data. The commenter believes we 

should affirm that the proxies are an 

option we have made available to 

providers because of the difficulty of 

documenting actual teaching costs at the 

nonhospital site. Another commenter 

urged CMS ‘‘* * * to make a clear 

statement to this effect, that is, that the 

intent of the parties is the controlling 

factor, and that neither CMS nor its 

contractors will substitute their 

judgment for [that] of the parties 

directing the training program.’’ The 

commenter noted that in the cases 

where there is a cost, the commenter 

supports the use of a formula to 

calculate faculty costs. 

Response: We do not intend to use the 

proxies specified in this final rule to 

establish a ‘‘floor’’ or ‘‘cap.’’ Rather, 

they represent an option that hospitals 

may choose to use in making the 

calculations to ensure they are incurring 

‘‘all or substantially all’’ of the training 

costs at the nonhospital site if it is too 

burdensome for them to collect actual 

data. Furthermore, we would like to 

emphasize that when there is a cost 

associated with the residency training 

program at the nonhospital site, 

regardless of the ‘‘intent of the parties,’’

the hospital must either pay the actual 

cost or the cost as determined using the 

proxies. 

C. Other Issues To Be Considered 

Although we are revising the standard 

used for a hospital to incur ‘‘all or 

substantially of the costs for the training 

program in the nonhospital setting’’

such that the hospital is permitted to 

count FTE residents training in 

nonhospital sites, the other existing 

regulations regarding nonhospital sites 

would still generally apply, but would 

require some modification. Under the 

existing regulations at § 413.78(e), a 

hospital is permitted to count residents 

training in nonhospital sites only if the 

residents spend their time in patient 

care activities, and the hospital must 

comply with either of the following: (a) 

It must pay all or substantially all of the 

costs of the training program in the 

nonhospital site by the end of the third 

month following the month in which 

the training in the nonhospital site 

occurred; or (b) it must have a written 

agreement with the nonhospital site that 

states that the hospital will incur the 

cost of the resident’s salary and fringe 

benefits while the resident is training in 

the nonhospital site and the hospital is 

providing reasonable compensation to 

the nonhospital site for supervisory 

teaching activities. The written 

agreement must indicate the 

compensation the hospital is providing 

to the nonhospital site for supervisory 

teaching activities. We proposed to add 

a new § 413.78(f) for cost reporting 

periods beginning on or after July 1, 

2007, to reflect the revised definition of 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting.’’ First, if a hospital chooses to 

make concurrent payments; that is, pay 

the training costs by the end of the third 

month following the month in which 

the training occurred, then the hospital 

must be able to document for audit 

purposes that the concurrent payments 

it makes reflect ‘‘all or substantially all’’

of the costs, in accordance with the new 

definition at § 413.75(b). 

Alternatively, if the hospital chooses 

to maintain a written agreement with 

the nonhospital site (which, we note, 

must be in place before the residents 

begin training at a nonhospital site), the 

new § 413.78(f) would state that the 

written agreement must indicate that the 

hospital will incur at least 90 percent of 

the total of the costs of the resident’s 

salary and fringe benefits (including 

travel and lodging where applicable) 

while the resident is training in the 

nonhospital site and the portion of the 

cost of the teaching physician’s salary 

attributable to direct GME. The written 

agreement should specify the total 

compensation amount the hospital will 

incur to meet the 90 percent ‘‘all or 

substantially all’’ threshold, and 

whether this amount reflects only 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable), or reflects an amount for 

teaching physician compensation as 

well. We believe the written agreement 

should specify the total amount of 

nonhospital site training costs the 

hospital will incur and specify what 

costs are included in that amount 

because the hospital would need to 

determine up front the amount it must 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26969 

pay to meet the 90 percent threshold 

and incur ‘‘all or substantially all’’ of 

the cost in accordance with our 

definition. In addition, the provision of 

this information in the written 

agreement will simplify the audit 

process when the Medicare contractor 

determines whether the amount paid by 

the hospital to the nonhospital site 

reflects ‘‘all or substantially all’’ of the 

costs of the program in the nonhospital 

site in accordance with the new 

definition at § 413.75(b). We note that 

regardless of whether a hospital chooses 

to make concurrent payments to the 

nonhospital site, or to have a written 

agreement, the hospital must 

demonstrate that it is paying for at least 

90 percent of the costs of each program 

at each nonhospital site according to the 

following formula (although actual data 

may be used in place of the proxies): 

0.90 × [(sum of each FTE resident’s 

salary + fringe benefits (including travel 

and lodging where applicable)) plus the 

portion of the teaching physician’s 

compensation attributable to nonpatient 

care direct GME activities]. 

The portion of the teaching 

physician’s compensation attributable to 

nonpatient care direct GME activities 

may be calculated as follows: (3/number 

of hours nonhospital site is open per 

week) × (national average salary for 

each teaching physician). 

If there are no teaching costs (because, 

for example, the residents are rotating to 

a nonhospital site where the teaching 

physician is a solo practitioner), then 

the written agreement should indicate 

that the specified compensation amount 

reflects only residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) because there 

are no teaching physician costs (since 

the teaching physician is a solo 

practitioner). Finally, we note that, as 

under existing regulations, if the 

hospital does choose to have a written 

agreement with the nonhospital site, the 

hospital must, at a minimum, liquidate 

the costs identified in the written 

agreement in accordance with the 

regulations at § 413.100(c)(2)(i). 

In addition, we note that under 

current policy, a hospital may choose to 

provide non-monetary, in-kind 

compensation rather than provide direct 

financial compensation to the 

nonhospital site for supervisory 

teaching activities. Under the new 

definition of ‘‘all or substantially all,’’ a 

hospital would still be permitted to 

provide in-kind compensation to the 

nonhospital site, but, as under current 

policy, the hospital must be able to 

document that the value of the in-kind 

compensation is at least equivalent 

monetarily to the portion of the actual 

or proxy-based costs for that teaching 

physician attributable to nonpatient care 

direct GME activities. That is, the 

hospital must show that the value of inkind compensation is sufficient to meet 

the 90 percent threshold using the 

formula stated above in this section. 

We also believe it is important to 

review how the written agreement 

requirements apply when a hospital’s 

residents rotate to nonhospital sites 

such as clinics owned by a medical 

school. As we stated in response to 

Question 9 on the Qs&As on our Web 

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

AcuteInpatientPPS/Downloads/ 

nonhospQA.pdf, ‘‘rather than having a 

written agreement with each clinic, it 

would be appropriate for the hospital to 

have a written agreement with the 

medical school, since the medical 

school owns the clinics. If the residents 

are training in various medical school 

clinics, the hospital must have written 

agreement(s) reflecting the 

compensation arrangements for each 

clinic’’ (emphasis added). 

Unfortunately, we have learned of 

numerous situations where a hospital 

has a single agreement with the medical 

school in which the hospital specifies a 

lump sum dollar amount that it is 

paying the medical school for GMErelated services that the medical school 

is providing, but there is no breakout at 

all as to the specific training costs 

attributable to individual clinics, or to 

the specific programs at those clinics. 

Without a breakout of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable), 

and the portion of the teaching 

physicians’ salaries attributable to 

nonpatient care direct GME activities at 

each nonhospital site, the Medicare 

contractor is unable to determine 

whether the hospital has properly paid 

the costs of each specialty training 

program at each nonhospital site in 

accordance with the statutory and 

regulatory requirements. Likewise, 

under the new definition of ‘‘all or 

substantially all,’’ whether hospitals pay 

for the costs of a program at a 

nonhospital site on a concurrent basis, 

or if they have a written agreement, they 

must be able to document how they are 

paying for ‘‘all or substantially all’’ of 

the costs of a particular program at each 

nonhospital site. Global agreements 

with lump sum payment amounts, 

either for teaching physician costs or for 

nonhospital training in general, have 

not been sufficient under existing policy 

and would not be sufficient under the 

finalized policy. Similarly, as under 

current policy, if two (or more) hospitals 

train residents in the same accredited 

program, and the residents rotate to the 

same nonhospital site(s), the hospitals 

cannot share the costs of that program 

at that nonhospital site (for example, by 

dividing the FTE residents they wish to 

count according to some predetermined 

methodology), as we do not believe this 

is consistent with the statutory 

requirement at section 1886(h)(4)(E) of 

the Act which states that the hospital 

incur ‘‘all, or substantially all, of the 

costs for the training program in that 

setting’’ (emphasis added). Finally, as 

under current policy, we note that in the 

instance where a hospital is sending 

residents in several different specialty 

programs to train in the same 

nonhospital site, and it wishes to count 

all of those FTE residents for purposes 

of IME and direct GME payment, the 

hospital must be able to document that 

it is separately meeting the ‘‘all or 

substantially all’’ threshold for each 

specialty program at that site. (That is, 

the hospital would determine the 90 

percent threshold in accordance with 

the methodology described above 

separately for the teaching physicians 

and residents involved in each specialty 

program, and would apply the residentto-teaching physician ratio limit if 

applicable). 

Comment: We received several 

comments on our existing policy as 

reiterated in the proposed rule for 

‘‘global’’ written agreements, which are 

common with academic medical 

centers. According to the commenters, 

global agreements are designed to 

provide an administratively simple 

mechanism for teaching hospitals to 

compensate the medical school for a 

variety of reasons, one of which may be 

for supervisory physician costs—both in 

the hospital and in clinics owned by the 

medical school, and for other purposes 

which may not be specified in detail. 

The commenters believe that to the 

extent that nonhospital supervisory 

costs are included in the global 

agreement, a straightforward mechanism 

for documenting the costs should be 

devised, so as not to complicate the 

process of entering into the agreements, 

which are entered into only once a year. 

One commenter noted that we stated in 

the proposed rule that ‘‘global 

agreements with lump sum payment 

amounts, either for teaching physician 

costs or for nonhospital training in 

general, have not been sufficient under 

existing policy and would not be 

sufficient under the proposed policy’’

(72 FR page 4829). The commenter 

argued that if our stated purpose in 

issuing the proposed rule was to 

simplify and relieve administrative 

burdens, then the proposed rule has not 


ycherry on PROD1PC64 with RULES2
26970 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

achieved its goal ‘‘at all in a large 

number of instances.’’ A commenter 

requested that we should issue an 

interim final rule with comment period 

to solicit additional comments to ensure 

that global agreements between teaching 

hospitals and medical schools can be 

used to simplify the administrative 

complexity of this regulation while 

addressing the intent of the statute as 

CMS sees it. One commenter suggested 

that, at a minimum, hospitals should be 

allowed to make their ‘‘best estimate’’ of 

the number and length of each rotation 

and modify them throughout the year as 

necessary. In addition, the commenter 

stated that we should allow hospitals to 

use historical nonhospital site rotation 

experiences to determine an aggregate 

nonhospital supervisory amount that 

could be referenced in the global 

agreement for the upcoming year. 

Another commenter asked that CMS 

suggest a standard written agreement 

template for hospitals to use. 

Response: In the preamble to the 

proposed rule, we mentioned several 

existing issues that we believed were 

important to reiterate and to discuss in 

the context of our new proposals. One 

such issue was ‘‘global agreements.’’ We 

believed it was necessary to remind the 

public about the concerns we had with 

global agreements, precisely because we 

understand that they are quite common 

among teaching hospitals and related 

medical schools, but if lacking relevant 

details, are not sufficient in a statutory 

and regulatory framework that requires 

a hospital to ‘‘incur all, or substantially 

all, of the costs for the training program 

in that setting’’ (that is, for each program 

at each nonhospital site as specified in 

section 1886(h)(4)(E) of the Act). In the 

proposed rule, we explained that global 

agreements often do not break out the 

specific training costs attributable to 

individual clinics, or to the specific 

programs at those clinics. ‘‘Without a 

breakout of the residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable), and the 

portion of the teaching physicians’

salaries attributable to nonpatient care 

direct GME activities at each 

nonhospital site, the Medicare 

contractor is unable to determine 

whether the hospital has properly paid 

the costs of each specialty program at 

each nonhospital site in accordance 

with the statutory and regulatory 

requirements. Likewise, under the new 

proposed definition of ‘‘all or 

substantially all,’’ whether hospitals pay 

for the costs of a program at a 

nonhospital site on a concurrent basis, 

or if they have a written agreement, they 

must be able to document how they are 

paying for ‘‘all or substantially all’’ of 

the costs of a particular program at each 

nonhospital site. Global agreements 

with lump sum payment amounts, 

either for teaching physician costs or for 

nonhospital training in general, have 

not been sufficient under existing policy 

and would not be sufficient under the 

proposed policy’’ (72 FR 4829). 

Accordingly, while it was our intent in 

the proposed rule, and in this final rule, 

to minimize hospitals’ documentation 

burdens for resident training in 

nonhospital sites, the issues to which 

we were particularly sympathetic were 

those beyond the control of a hospital, 

such as a teaching physician who 

refuses to disclose salary information. 

Further, our proposals were intended to 

encourage more transparency in those 

arrangements that are pertinent to 

Medicare payments, so as to eliminate 

the ‘‘deadlock’’ that hospitals and 

Medicare contractors have experienced, 

and to provide for an audit and 

reimbursement process that is as smooth 

and as ‘‘painless’’ as possible. As 

indicated by the commenters, these 

global agreements are entered into to 

cover a variety of funding issues, and 

are not entered into solely (if at all) for 

the purpose of meeting Medicare 

regulations. Thus, these agreements 

often do not provide the level of detail 

that is sufficient to comply with the 

Medicare regulations. Since 1987, when 

hospitals were first allowed to count the 

time that residents spent training in 

nonhospital sites for direct GME 

purposes, we instituted the written 

agreement requirement precisely to 

provide an administrative tool for use 

by the Medicare contractors to assist in 

determining whether hospitals incurred 

the necessary training costs in 

accordance with the statute and 

regulations. Similarly, that is why we 

stated in the answer to Question 9 in the 

2005 Qs&As on the CMS Web site at 

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

AcuteInpatientPPS/Downloads/ 

nonhospQA.pdf that, while it is 

permissible for a hospital to have an 

agreement with a medical school on 

behalf of the clinics owned by the 

medical school, in such a case the 

hospital also must ‘‘have written 

agreement(s) reflecting the 

compensation arrangements for each 

clinic’’ (emphasis added). Thus, while 

we certainly would like to simplify 

matters, we also want to ensure that 

hospitals receiving payment relating to 

training occurring in nonhospital 

settings are properly incurring the 

training program costs in accordance 

with the statute. If hospitals wish to 

count residents training in nonhospital 

sites for direct GME and IME purposes, 

they must be able to document that they 

are paying for ‘‘all, or substantially all’’

of the training costs for each program at 

each site. We believe that a written 

agreement reflecting the amounts being 

paid by the hospital for each site is a 

reasonable requirement for in such 

documentation. Alternatively, we note 

that under § 413.78(e) and new 

§ 413.78(f), hospitals are not required to 

have written agreements with 

nonhospital sites but instead may opt to 

pay for the nonhospital training 

program costs on a concurrent basis, 

although the hospital certainly must 

still be able to document that the 

concurrent payments reflect ‘‘all or 

substantially all’’ of the cost, in 

accordance with the current and new 

definition at § 413.75(b). However, given 

that a hospital’s residents may train at 

hundreds of nonhospital sites, we do 

understand that it may be difficult for 

hospitals to finalize the details of all of 

their written agreements by the start of 

an academic year. Accordingly, in 

response to the commenters’

suggestions, we are modifying our 

policy with respect to written 

agreements (for cost reporting periods 

beginning on or after July 1, 2007). 

Current policy requires that the written 

agreement be in place prior to the time 

that the residents begin training in the 

nonhospital site (that is, signed by both 

the hospital and the nonhospital site). 

Since residents rotate to various 

nonhospital sites at different points in 

the residency year, a written agreement 

may or may not have to be in place with 

a particular nonhospital site by July 1. 

Rather, the agreement should be in 

place by the day before the rotation is 

scheduled to begin. For example, if a 

resident is scheduled to rotate to Clinic 

A on July 1, then the written agreement 

between the hospital and Clinic A must 

be in place by June 30 (that is, the day 

before July 1, not the end of the 

following residency year). However, if 

residents first rotate to Clinic B on 

December 1, then the written agreement 

between the hospital and Clinic B 

would have to be in place by November 

30. In response to the commenters’

suggestions, we are changing our policy 

to allow hospitals to modify the 90 

percent threshold calculations in their 

written agreements by the end of the 

academic year (that is, June 30) to reflect 

that the hospital is meeting the 

requirement to incur at least 90 percent 

of the costs associated with the actual 

training program rotations. This policy 

would work in a fashion similar to our 

current policy on Medicare GME 

affiliation agreements, but with some 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26971 

differences. Under § 413.79(f), Medicare 

GME affiliation agreements must be 

entered into (and received by the 

Medicare contractor and CMS) by July 1 

of the applicable residency program 

year, but hospitals may modify these 

agreements by June 30 of that residency 

year to reflect changes in the rotations 

that may not have been anticipated. 

With respect to nonhospital training, the 

hospital would have the option of using 

either the proxies for teaching physician 

costs as finalized in this final rule, or 

actual data for the physician salary and 

teaching time spent in nonpatient care 

direct GME activities. If the hospital 

opts to use actual data and not the 

proxies, the hospital may use the prior 

year’s cost amounts as a placeholder 

upon entering into the written 

agreement, and must modify the 

agreements by June 30 of that residency 

year to properly reflect the actual costs 

that the hospital must incur in 

accordance with the 90 percent 

threshold for ‘‘all or substantially all’’ of 

the costs of the training program in the 

nonhospital setting. In addition, in the 

event that hospitals send residents to 

unanticipated or originally unscheduled 

rotations in nonhospital sites, the 

hospitals may make their ‘‘best 

estimate’’ by the day before the rotations 

occur (the hospital may use the prior 

year’s rotation experiences as a model), 

and must make modifications by the 

end of the academic year to ensure that 

they have properly met the 90 percent 

threshold. We are modifying the 

proposed regulations text at 

§ 413.78(f)(3)(ii) to reflect this new 

policy change with respect to 

modification of the written agreements 

by June 30 of the applicable academic 

year. 

With respect to the comment 

requesting that we create a standard 

template for written agreements, we do 

not believe a template would 

necessarily be helpful, considering that, 

even within one hospital, the rotations 

can differ significantly across 

specialties. The formula for determining 

the 90 percent threshold, which is the 

crux of the written agreement, is clearly 

written in this final rule, and should be 

followed for all programs. 

Comment: One comment centered on 

the various arrangements teaching 

hospitals have with affiliated medical 

schools for training residents both 

inside and outside the hospital. The 

teaching physicians, as medical school 

employees, are compensated in a 

‘‘variety of manners’’ for various types 

of services, including patient care, 

administrative duties, research, etc. The 

commenter asked that in the case where 

the hospital is paying the medical 

school an amount that the medical 

school determined ‘‘in good faith’’ to be 

the compensation for ‘‘teaching 

services’’ both in the hospital and in 

nonhospital sites, CMS should consider 

that the hospital has ‘‘borne the full 

costs of teaching services in nonhospital 

sites * * * even where there is no 

allocation of those amounts between’’

the training in the hospital and the 

training in the nonhospital sites. 

Response: Although the commenter 

does not specifically use the term 

‘‘global agreement’’ in his comment, it 

appears that the scenario being 

described has many of the same features 

as a global agreement. That is, the 

hospital pays the medical school a lump 

sum for ‘‘teaching services,’’ often 

occurring in the hospital and various 

nonhospital sites, but there is no 

allocation as to the teaching costs 

particular to each program at each 

nonhospital site. In the proposed rule, 

and in response to a comment above, we 

explained that global agreements do not 

break out the specific training costs 

attributable to individual clinics, or to 

the specific programs at those clinics. 

Without a breakout of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable), 

and the portion of the teaching 

physicians’ salaries attributable to 

nonpatient care direct GME activities at 

each nonhospital site, the Medicare 

contractor is unable to determine 

whether the hospital has actually paid 

the costs of each specialty program at 

each nonhospital site, in accordance 

with the statutory and regulatory 

requirements. This scenario differs from 

one described in Question 7 in the April 

2005 Qs&As [see http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

Downloads/nonhospQA.pdf]. In that 

instance, the teaching physician 

receives a salary directly from the 

hospital for teaching services inside the 

hospital and in nonhospital sites, rather 

than the medical school, and when the 

physician is supervising the residents in 

nonhospital sites, he/she is not 

receiving any other type of salary 

payment from the nonhospital sites. 

Thus, to the extent that there are 

teaching costs in those nonhospital 

sites, the hospital is already paying for 

those costs. The situation described in 

the Qs&As is different from the situation 

outlined by the commenter, in which 

the teaching physician receives a salary 

from the medical school covering a 

variety of activities, and, without a 

determination as to the costs of each 

training program in each nonhospital 

site, the Medicare contractor cannot 

determine if the hospital properly paid 

‘‘all or substantially all’’ of the costs. 

Comment: One commenter found our 

proposal to require hospitals to specify 

the total amount the hospital will incur, 

and to specify what costs are included 

in that amount, as ‘‘quite surprising.’’

The commenter believes that this 

requirement will complicate the 

preparation of the written agreements, 

and that it is not necessary to specify 

the cost amount which will be used to 

determine if the hospital meets a certain 

threshold for reimbursement within a 

contract between two parties. The 

commenter recognized the need for this 

information to be available upon audit, 

but strongly encouraged CMS not to 

require that the cost information be 

included in the written agreements. 

Other commenters also recommended 

that the regulation not require that the 

details of the computation be included 

in the written agreement, because the 

scheduled issuance of the final rule is 

so close to the beginning of the 

upcoming academic year (July 1, 2007), 

and also because the actual costs a 

hospital will incur cannot be accurately 

determined until after the fact. For 

example, the residents’ travel and 

lodging costs may be higher or lower 

than the amount initially estimated 

when the written agreement was made. 

Commenters questioned whether our 

proposal to use proxies to reflect the 

time the time the teaching physician 

spends in nonpatient care direct GME 

activities will actually reduce the 

documentation burden on hospitals 

since hospitals would be required to 

collect information on, in some cases, 

hundreds of clinics. One commenter 

noted that the paperwork burden 

required by the proposed rule is ‘‘still 

massive,’’ and disproportionately 

disadvantages family medicine 

programs and perhaps other primary 

care programs, threatening rural access 

to care. One commenter stated that 

hospitals which meet the 90 percent 

threshold by incurring the resident 

salaries and fringe benefits should not 

be required to state in the written 

agreements that ‘‘* * * the hospital will 

pay all or substantially all of the cost for 

resident rotations to the nonhospital 

site’’ or ‘‘* * * that the hospital will 

incur at least 90 percent of the cost of 

the resident’s salary and fringe benefits 

(and travel and lodging where 

applicable) while the resident is training 

in the non hospital site.’’ The 

commenter provided examples of how 

the regulation text should be changed to 

conform to the commenter’s suggestion 

and further stated that hospitals which 

meet the 90 percent threshold by 


ycherry on PROD1PC64 with RULES2
26972 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

incurring the resident salaries and fringe 

benefits should not be required to 

identify the compensation paid to 

residents for their salary and fringe 

benefits. Another commenter stated that 

documentation burdens associated with 

written agreements can be eliminated if 

CMS would permit a one time 

agreement with a ‘‘major affiliated 

partner,’’ and allow for multi-year 

agreements. Finally, one commenter 

argued that in light of the limited time 

that hospitals would have to enter into 

written agreements with all of their 

nonhospital sites in accordance with the 

policies set forth in the final rule by July 

1, CMS should impose a one year 

transition or grace period in which a 

written agreement can be amended or 

newly executed at any time prior to June 

30, 2008, and still be effective for the 

applicable portions of the academic year 

starting on July 1, 2007. If CMS does not 

agree with this request, then the 

commenter suggested that alternatively, 

CMS should allow a 180 day grace 

period through December 31, 2007. 

Under either scenario, the commenter 

stated that the grace period would not 

‘‘impact in any way the requirement 

that hospitals actually incur 90 percent 

of the training costs,’’ and would ‘‘still 

afford intermediaries with fully 

executed written agreements for use 

during their audits.’’ If CMS does not 

grant the commenter’s request for a 

grace period, then the commenter asked 

that CMS relax the requirement to 

specify the precise teaching 

compensation amount in the written 

agreements for at least the next 

academic year. The commenter also 

requested that in general, CMS should 

allow the written agreements to be 

executed during or shortly after 

rotations or to allow the written 

agreements to be more general about the 

amounts to be paid. CMS should also 

indicate that the ultimate amounts paid 

can vary from the amounts set forth in 

the written agreements. Finally, CMS 

should provide a clarification or 

preferably a detailed example 

demonstrating how to apply the various 

proxies when a hospital sends residents 

in two or more specialty programs to the 

same nonhospital site. The commenter 

was unclear how separate computations 

should be made when different 

specialty programs operate at the 

nonhospital site for a different number 

of hours per week (for example, internal 

medicine for 15 hours per week and 

family practice for 25 hours per week, 

while the nonhospital site is open for 40 

hours a week). 

Response: We do not believe the 

specification of the actual amounts the 

hospital is to pay the nonhospital site 

will complicate the process of the 

written agreements. The details of the 

90 percent cost threshold are the 

essence of the written agreement, and it 

is appropriate that they be included at 

the time the written agreement is being 

entered into. Considering that we are 

already allowing hospitals to use easily 

accessible proxy data, we do not believe 

it would be appropriate to allow for 

additional ‘‘short cuts’’ and imprecision 

in the development of the written 

agreements. Additionally, we do not 

believe it is advisable to encourage 

hospitals to delay the process of making 

the cost calculations necessary to 

establish that a hospital meets the 90 

percent threshold. Allowing hospitals to 

delay the process of ironing out the 

details of the costs the hospital needs to 

incur in order to meet the ‘‘all or 

substantially all’’ requirements could 

possibly lead to unforeseen 

disallowances 2 or more years after the 

fact when the applicable cost report is 

being audited. We believe it is better 

that hospitals take the time to compute 

the correct payment amounts at the 

beginning of (or modified during, as 

applicable) the academic year, rather 

than scramble to provide the details 

during an audit. (Similarly, hospitals 

that do not employ written agreements 

but instead are paying for training 

program costs on a concurrent basis also 

need to determine up front what they 

are paying to each nonhospital site to 

ensure that they pay the proper amount 

every three months). However, we are 

sympathetic to the comment regarding 

the limited time in which hospitals have 

to enter into or modify existing 

contracts in accordance with the policy 

set forth in this final rule. While we do 

not believe a transition or grace period 

is necessary, in this final rule, as we 

stated in response to a comment above, 

we are modifying our policy to allow 

modifications of written agreements. 

Should hospitals, urban or rural, find it 

difficult to calculate the exact amounts 

to be paid under the 90 percent cost 

threshold at the time they are entering 

into the agreements, our decision to 

allow modifications to the 

determination of the 90 percent 

threshold by June 30 of the applicable 

academic year should provide some 

relief. Additionally, we continue to 

believe it is important for the written 

agreements to specify the compensation 

amounts provided for resident salaries 

and fringe benefits because doing so 

will be useful for hospitals in that they 

will have greater assurance that they are 

meeting requirements to count FTE 

residents training in nonhospital 

settings and for Medicare contractors in 

that they will have available more of the 

information needed for the audit 

process. Even in the instance where the 

hospital is paying at least 90 percent of 

the total cost just by paying the 

residents’ salaries and fringe benefits, 

the Medicare contractor would still 

need to know what the total costs are in 

order to verify that the residents’

portion is, in fact, 90 percent of the total 

costs. Thus, we are also specifying in 

the regulations text of this final rule that 

the written agreement should include 

the amount that represents the total cost 

of the nonhospital site, in addition to 

including the amount that represents 90 

percent of the costs. 

In instances where residents in more 

than one specialty program are rotating 

to the same nonhospital site, the 90 

percent threshold must be determined 

separately for each program. In the 

example mentioned by the commenter, 

where a nonhospital site is used for 

internal medicine for 15 hours per week 

and for family practice for 25 hours per 

week, and the nonhospital site is open 

for 40 hours a week, the teaching time 

ratio for internal medicine and family 

practice respectively would be 3/40. In 

the preamble above (and on page 4825 

of the proposed rule), we included an 

example of how the 1:1 resident to 

teaching physician ratio would be 

applied in the instance where a 

nonhospital site is staffed by physicians 

in different specialties. We stated that 

unless the hospital can document that 

only certain physicians were involved 

in supervising the residents, we would 

apply the 1:1 ratio to all of the 

physicians in the nonhospital site. 

Then, an average national salary of the 

mix of physician specialties in the 

practice would be computed, and would 

be multiplied by 3/40 for use in the 90 

percent threshold for internal medicine 

and family practice respectively. 

Lastly, we are requiring that hospitals 

have written agreements in place with 

nonhospital sites regardless of the 

nonhospital site’s relationship to the 

hospital, and we do not believe an 

exception is warranted for a ‘‘major 

affiliated partner.’’ While we do not 

believe there is anything wrong per se 

with one time or multi-year agreements 

with nonhospital sites with which a 

hospital has a long-standing rotational 

relationship, we question whether such 

agreements would properly reflect the 

true costs in the 90 percent threshold 

that must be incurred from year to year, 

since, as so many commenters have 

pointed out, rotations to nonhospital 

sites can be so dynamic. 

Comment: Several commenters 

asserted that there is no legal 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26973 

requirement that an agreement must be 

signed before nonhospital training 

under an agreement begins. The 

commenters stated that if the presence 

of an agreement can be established after 

the fact by concurrent payments, CMS 

should not deny payment as long as 

there is an agreement that is ratified by 

the signature of all parties at any time 

during the agreement. At a minimum, 

CMS should recognize the presence of a 

binding agreement as of the time that all 

parties execute the agreement. 

Response: With respect to GME policy 

concerning written agreements relating 

to residency training in nonhospital 

sites, our policy has always been that 

the written agreement must be in place 

prior to the time the residents begin 

training at the nonhospital site. A 

written agreement signed before the 

time the residents begin training at the 

nonhospital site, stating that the 

hospital will incur the costs of the 

training program at the nonhospital site, 

indicates the hospital’s ongoing 

commitment to incur those costs. 

Written agreements that are retroactive 

to the time the residents began training 

at the nonhospital site do not 

demonstrate that there was an ongoing 

commitment by the hospital to incur the 

costs. In fact, we are taking this 

opportunity to clarify the regulations 

text at § 413.78(f)(3)(ii) to specify that 

the written agreement must be in place 

between the hospital and the 

nonhospital site before the training 

begins in that nonhospital site. The 

commenters suggest that if the presence 

of an agreement can be established after 

the fact by concurrent payments, CMS 

should not deny payment when an 

agreement is not in place at the outset 

of the training but is later ratified by the 

signature of all parties at any time. 

However, we note that if the hospital 

can show that it made payments 

representing all or substantially all of 

the costs of the training program in the 

nonhospital setting on a concurrent 

basis, then under the regulations at 

section 413.78(e) or (f), a written 

agreement is not needed. This is 

because these regulations require either 

a written agreement or concurrent 

payments. However, if, for whatever 

reason, the Medicare contractor finds 

that a written agreement is not in 

accordance with CMS policy, if the 

hospital can demonstrate that it paid for 

the nonhospital training (and the 

payments represent all or substantially 

all of the cost of the training program in 

accordance with our regulations) by the 

end of the third month following the 

month in which the training occurred, 

then, assuming the other requirements 

are met, we would allow the hospital to 

count the FTE resident time spent 

training in the nonhospital setting for 

purposes of direct GME and IME 

payments. 

Comment: One commenter asked if a 

hospital that first chooses one 

methodology of meeting the 90 percent 

threshold (that is, the proxy data or 

actual data), could later change to the 

other methodology to elicit a more 

favorable outcome. The commenter 

further inquired as to whether the 

hospital would be considered to have 

met the 90 percent threshold if it 

changes its methodology. 

Response: As we stated previously in 

this preamble, we believe that any 

Medicare policy approach to allowing 

hospitals to count FTE residents 

training in nonhospital settings for IME 

and direct GME payment purposes must 

be consistent with the statutory 

requirement that hospitals incur ‘‘all, or 

substantially all’’ of the costs of a 

training program in a nonhospital 

setting. Further, we continue to believe 

that the definition of ‘‘all, or 

substantially all’’ of the costs which 

entails documentation of and payment 

for the costs of a training program based 

on the actual costs of the program is 

truest to the intent of the statute. Yet, as 

we explained, the alternative 

methodology, which attempts to address 

the various administrative difficulties 

that could occur in documenting actual 

costs and which employs proxies in the 

place of actual data, is acceptable as 

well. However, we certainly would not 

encourage hospitals to make a practice 

of using one methodology during the 

applicable academic year, and 

attempting to switch to the other 

methodology during audit to determine 

if they met the 90 percent threshold 

under the latter methodology. 

Nevertheless, if for example, during an 

audit, a Medicare contractor determines 

that a hospital did not pay for the costs 

of a particular program in accordance 

with the 90 percent threshold calculated 

using one method, and the hospital 

requests that it be allowed to attempt to 

demonstrate that it properly paid the 

costs had the other method been used, 

the Medicare contractor should contact 

CMS to determine on whether the 

hospital met the regulations under the 

other method. However, we caution 

that, even if CMS does allow a hospital 

the opportunity to demonstrate that it 

met the regulations under the other 

method, this may not necessarily 

provide the escape from an impending 

disallowance that a hospital is seeking. 

Payment for ‘‘all or substantially all’’ of 

the costs must be made in a timely 

fashion in accordance with the 

regulations at section 413.100(c)(2)(i) in 

either case, and it could be difficult for 

the hospital to meet those requirements 

if it did not initially determine and pay 

the actual costs of the program. 

Moreover, it could be difficult for the 

hospital to identify actual costs several 

years after the training occurred, 

especially since the teaching physician 

probably would not have kept records 

on the amount of time spent with the 

residents in nonpatient care direct GME 

activities. For example, a hospital 

initially used actual data to determine 

that 90 percent of the total costs of a 

program in a particular nonhospital site 

is $70,000. The hospital identified the 

costs as being $70,000 in the written 

agreement and liquidated the costs in a 

timely fashion in accordance with the 

regulations at section 413.100(c)(2)(i) 

(that is, within one year after the end of 

the cost reporting period in which the 

liability is incurred). However, during 

audit, the FI determined that the actual 

costs of the program were $75,000, not 

$70,000, which means the hospital did 

not pay 90 percent of the costs of the 

program. The hospital requests that it be 

allowed to demonstrate that it paid at 

least 90 percent of the costs of the 

program as calculated based upon the 

proxies instead, and CMS permits the 

hospital to do so. If the hospital shows 

that 90 percent of the cost of the 

program based on the proxies was 

$70,000 or less, then it may be 

considered to have paid ‘‘all or 

substantially all’’ of the costs of the 

program. However, if the hospital, as 

verified by the Medicare contractor, 

demonstrates that 90 percent of the 

costs using proxies was $73,000, then in 

either case, the hospital would not have 

paid ‘‘all or substantially all’’ of the 

costs. The hospital would not, in all 

likelihood, be able to resolve the 

problem by paying the difference 

($3,000) at the time of the audit since 

the timeframe for liquidating the 

liabilities may have passed. If the 

reverse situation had occurred, where 

the hospital first used proxies, but then 

requested to demonstrate that it would 

meet the 90 percent threshold if actual 

data were used, as explained above, we 

believe it would be quite difficult for the 

hospital to be able to successfully 

identify the actual costs of the program 

several years after the fact. In any case, 

the hospital would not be allowed to 

count the FTE residents training in the 

nonhospital site unless it ultimately 

demonstrates that it incurred all or 

substantially all of the costs for the 

training program in the nonhospital site 

in accordance with the definition at 

section 413.75(b) of the regulations (that 


ycherry on PROD1PC64 with RULES2
26974 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

is, 90 percent). We would also apply 

this principle in determining whether 

the hospital actually incurred 90 

percent of the costs of the training 

program in a nonhospital site in the 

instance where the amount ultimately 

paid by the hospital differs from the 

amount specified in the written 

agreement. If the amount paid by the 

hospital is at least 90 percent of the total 

of the costs of the residents’ salaries and 

fringe benefits (and travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries 

attributable to nonpatient care direct 

GME activities, then, assuming all other 

requirements are met, the hospital may 

count the FTE residents training in the 

program at the nonhospital site. 

Comment: A commenter noted that 

the requirement that a hospital must 

liquidate the costs identified in the 

written agreement in accordance with 

the regulations at section 

413.100(c)(2)(i) only applies in the case 

where a hospital enters into a written 

agreement with the nonhospital site, but 

does not apply in the instance where a 

hospital chooses to pay the nonhospital 

site on a concurrent basis. The 

commenter recommended that the 

requirements for liquidation of 

liabilities be consistent for both 

situations (that is, with or without a 

written agreement). 

Response: Under the Medicare 

payment rules at § 413.100 concerning 

accrued costs, hospitals are required to 

liquidate their short-term liabilities 

within one year after the end of the cost 

reporting period in which the liability is 

incurred. With respect to the payments 

that hospitals make to nonhospital sites, 

in the August 11, 2004 final rule (69 FR 

49179), in an effort to provide more 

flexibility to hospitals, we gave 

hospitals the option of either entering 

into a written agreement, or paying for 

the costs on a concurrent basis—that is, 

to pay for the costs of the training that 

occurs during a month by the end of the 

third month following the month in 

which the training in the nonhospital 

site occurred. The latter option (that is, 

concurrent payments) would require 

that payments be made on a more 

frequent basis than the timeframe 

specified at § 413.100(c)(2)(i). 

Alternatively, if a hospital opts to enter 

into written agreements, since the 

hospital would be committing upfront 

to incur the costs, the longer timeframe 

at § 413.100(c)(2)(i) would apply. 

Consequently, under the written 

agreement option, in order for the 

accrued costs to be recognized by 

Medicare in the year of the accrual, the 

costs incurred in a given cost reporting 

year for nonhospital training must be 

liquidated within one year after the end 

of that cost reporting period. For 

example, if a hospital has a December 

31, 2007 fiscal year end, costs that the 

hospital incurred for nonhospital 

training occurring during July 2007 

through December 2007 must be 

liquidated by December 31, 2008. Costs 

incurred by this hospital for nonhospital 

training occurring during January 2008 

through June 2008 would accrue during 

the December 31, 2008 fiscal year end 

and must be liquidated by December 31, 

2009. We believe these two options at 

§ 413.78(e) and (f) give hospitals 

additional flexibility in paying for the 

costs of training occurring in 

nonhospital settings. Therefore, we are 

not changing the regulations to require 

that the liquidation of liabilities be 

consistent in both situations. 

Comment: One commenter asked 

about our policy for nonhospital sites 

that are owned by a hospital, as 

articulated in the April 2005 Qs & As 

document. The document (under 

Answer #8) states that the hospital must 

‘‘actually [pay] the nonhospital site 

through the hospital’s accounts payable 

system. (If the hospital and nonhospital 

site share a single accounting system, 

the hospital could demonstrate payment 

of the nonhospital site training program 

costs using journal entries that expense 

these costs in the hospital’s GME cost 

center and credit the nonhospital site.)’’

The commenter stated that we do not 

provide any rationale for this position, 

which seems to impose an 

administrative burden on hospitals 

(requiring the hospital to essentially pay 

itself). The commenter urged CMS to 

state in the final rule that these teaching 

hospitals need not specify the 

supervisory teaching physician costs in 

the written agreement because the 

teaching hospitals either own the 

nonhospital site or both institutions are 

owned by the same organization. 

Response: We agree with the 

commenters that the proposal to require 

hospitals to include the details of the 90 

percent cost threshold in the written 

agreement might be unnecessarily 

burdensome for hospitals that own 

nonhospital sites in which residents are 

training. While the hospital certainly 

must pay for the costs of training (in 

accordance with the 90 percent 

threshold) occurring in the nonhospital 

sites that it owns in order to be 

permitted to count the time residents 

spend training there for direct GME and 

IME purposes, the written agreements 

between the hospital and the 

nonhospital sites it owns need not 

specify the total amount of costs the 

hospital will incur, and what costs are 

included in that total amount. However, 

we note that there may be some cases 

where the hospital is not automatically 

paying for the training program costs in 

the nonhospital sites it owns, simply 

because it owns those nonhospital sites. 

For example, there may be instances 

where a hospital contracts with a third 

party to provide teaching physicians to 

supervise its residents in the hospitalowned nonhospital sites. In such a case, 

the teaching physicians are paid a salary 

by that third party (for example, they are 

on the staff of a medical school). 

Therefore, in this case, the written 

agreement would need to be between 

the hospital on behalf of the clinics that 

it owns and the third party, and the 

written agreement must specify the total 

cost at the nonhospital site, and the 

amount the hospital will incur (at least 

90 percent of the total), and must 

indicate the portion of the amount the 

hospital will incur that reflects 

residents’ salaries and fringe benefits 

(and travel and lodging where 

applicable), and the portion of this 

amount that reflects teaching physician 

compensation. 

Comment: One commenter noted that 

the regulations concerning written 

agreements at section 413.78(e)(3)(ii) 

state that the hospital must provide 

‘‘reasonable compensation’’ to the 

nonhospital site, while the regulations 

concerning concurrent payments have 

no requirement regarding the 

reasonableness of the compensation. 

The commenter recommended that CMS 

make the regulations for written 

agreements and concurrent payments 

consistent, by either inserting a 

requirement for reasonableness of 

compensation for both circumstances, or 

excluding the requirement under both 

circumstances. 

Response: The commenter is referring 

to the regulations at section 413.78(e)(3) 

pertaining to the requirements for 

counting residents training in 

nonhospital settings on or after October 

1, 2004. However, we believe the 

commenters point regarding the 

regulatory requirement for 

‘‘reasonableness’’ of compensation is 

not a concern under the new regulation. 

Although the new section 413.78(f), 

effective for cost reporting periods 

beginning on or after July 1, 2007, does 

not specifically refer to reasonableness 

of compensation, it requires that the 

costs of the training program be 

determined in accordance with the 90 

percent threshold. Additionally, we 

note that the reference in the regulation 

at § 413.78(e)(3)(ii) to reasonable 

compensation was intended as a guide 

for the content of the written agreement 

and as a preface to the requirement to 

specify in the written agreement the 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26975 

amount of compensation the hospital is 

providing for supervisory teaching 

activities. Given that, and the fact that 

the regulation at § 413.78(e) will not 

apply to cost reporting periods 

beginning on or after July 1, 2007, we 

do not believe it is necessary to modify 

this section of the regulations. 

Comment: One commenter believes 

that since residency training is the final 

educational step before a resident is 

capable of independent practice, 

residents are students and not 

employees, and therefore, CMS should 

refer to resident stipends and not 

resident salaries. 

Response: We acknowledge that there 

are multiple terms to refer to the 

compensation a resident receives while 

participating in a residency training 

program. For our purposes, we have 

always referred to the compensation 

received by residents as salary and 

benefits, and will continue to do so even 

though different terms may be used by 

other organizations and entities. 

Comment: Several commenters 

inquired about whether a hospital must 

comply with the nonhospital site 

regulations for training residents in a 

nonhospital setting with respect to FTE 

residents that are not counted for 

purposes of Medicare IME or direct 

GME payments because they are in 

excess of the hospital’s FTE resident 

caps. These commenters further 

inquired about whether such a hospital 

could still include the FTEs in excess of 

its cap on its cost report even if the 

hospital didn’t comply with the 

regulations for training those FTE 

residents in nonhospital settings. The 

commenters believe that hospitals 

should be able to include those 

residents in their current year FTE 

counts on their cost reports based on the 

reasoning that, in the event the Congress 

makes a legislative change regarding 

FTE resident caps, the cost reports 

would reflect an accurate count of the 

residents that the hospital trained. 

Response: The regulations specify 

what a hospital must do to count 

residents that train at a nonhospital site 

for purposes of both direct GME and 

IME. If the hospital fails to meet the 

regulatory requirements at § 412.105(f) 

and § 413.78(f), it may not include those 

residents in its FTE count, regardless of 

whether the hospital is otherwise above 

or below its caps. However, a hospital 

may choose not to pay for the costs 

relating to the training of residents in a 

nonhospital setting if it is training FTE 

residents in excess of its caps, and 

therefore, would also not include those 

FTE residents training in nonhospital 

sites in its FTE count. With respect to 

FTE residents that a hospital does count 

on its Medicare cost report (for example, 

on line 3.05 on Worksheet E–3 Part IV, 

and on line 3.08 on Worksheet E Part 

A), a hospital must have proper 

documentation to demonstrate that the 

FTE residents are valid FTEs that, in the 

absence of the FTE caps, would 

otherwise be permitted to be counted for 

direct GME and IME payment purposes. 

Therefore, a hospital may only claim 

residents training at nonhospital sites 

on its cost report if the hospital would, 

in the absence of the FTE caps, be 

permitted to count those FTE residents 

for direct GME and IME payment 

purposes, even if those residents would 

be over its caps. We recognize the issues 

that could arise if hospitals choose not 

to take the required steps under our 

regulations to be permitted to count 

certain FTE residents, and if the 

Congress should pass new legislation 

involving residency caps. However, we 

believe it is more likely than not that 

new legislation would be based on the 

premise that hospitals have properly 

complied with the regulations and 

reported accurate data on their cost 

reports regardless of whether it was to 

their particular benefit to do so at the 

time. Thus, we would encourage 

hospitals to meet the regulatory 

requirements and report FTE residents 

to the fullest possible extent. 

Comment: Several commenters stated 

that our policy would continue to be 

administratively burdensome. One 

commenter stated that for its family 

medicine program, private physicians 

are used as preceptors and in 1 week 

residents may work with 10 to 20 

teaching physicians. The commenter 

states that, ‘‘It would be 

administratively impossible to calculate 

all of their supposed teaching costs.’’

Another commenter noted that its 

teaching program relies on 20 to 30 

private teaching physicians who 

volunteer their time training residents 

in their offices. The commenter stated 

that due to the flow of patient care, 

without the use of burdensome time 

studies, it would be impossible to 

accurately determine the amount of 

GME teaching time at the nonhospital 

site. The commenter requested that we 

work more closely with program 

directors to formulate a methodology 

which addresses the true costs of GME. 

Response: We believe that use of the 

proxies being adopted in this final rule, 

coupled with the 1:1 resident to 

teaching physician ratio, can greatly 

reduce the burdens associated with 

determining teaching physician 

supervisory GME costs, even in the 

relatively complex training 

arrangements described by the 

commenters. Although we acknowledge 

that hospitals with multiple nonhospital 

sites may face a larger task to comply 

with our regulations than hospitals with 

just a few nonhospital sites, we 

continue to believe the statute mandates 

that hospitals are required to pay for 

‘‘all or substantially all’’ of the costs of 

the training program at the nonhospital 

site, and that this final policy conforms 

with the statutory requirement while 

providing additional administrative 

flexibility. 

Comment: One commenter noted that 

in the proposed rule, CMS used the 

terms ‘‘direct GME activities,’’

‘‘nonpatient care activities,’’ as well as 

‘‘activities related to non-billable GME 

activities’’ in illustrating activities for 

which it is required that hospitals pay 

supervisory costs. The commenter urged 

CMS to consider including a definition 

in the final rule. 

Response: We appreciate the 

commenter’s suggestion to define terms 

such as those included in the above 

paragraph. We did not propose to define 

these terms since we did not believe it 

would be necessary to include a 

definition in the rule. However, we do 

believe it is important to be consistent 

in the way we reference those activities 

for which the hospital is required to 

incur the costs in the nonhospital site—

that is, nonpatient care direct GME 

activities. While we do not currently 

specifically define ‘‘nonpatient care 

direct GME activities’’ in the 

regulations, we note that the term 

‘‘patient care activities’’ is currently 

defined at § 413.75(b) as, ‘‘the care and 

treatment of particular patients, 

including services for which a physician 

or other practitioner may bill.’’

Therefore, the use of the term 

‘‘nonpatient care’’ would denote those 

activities which do not involve the care 

and treatment of specific patients, 

including non-billable time. Further, the 

term ‘‘direct GME’’ denotes those 

activities in which the physician 

engages because of his/her involvement 

in supervising residents in an approved 

GME program. We are also modifying 

our proposed definition of ‘‘All or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ at § 413.75(b) to specify the 

portion of the cost of teaching 

physicians’ salaries attributable to 

‘‘nonpatient care’’ direct GME 

‘‘activities.’’ If we find that there are 

continuing questions regarding these 

terms, we will consider proposing 

definitions in future rulemaking so that 

the proposed definitions can be 

included in the normal comment 

process. 

Comment: One commenter 

maintained that CMS’ interpretation of 


ycherry on PROD1PC64 with RULES2
26976 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

Section 1886(h)(4)(E) of the Act is not 

correct. The commenter believes that 

the statutory language does not prohibit 

payment to the ‘‘main’’ teaching 

hospital if it incurs ‘‘all or substantially 

all’’ of the costs of the residency training 

in ‘‘small, rural emergency 

departments’’ since the residents 

‘‘* * * are not serving in more than one 

hospital ‘simultaneously.’ ’’ The 

commenter further notes that few small 

rural hospitals want to assume the 

burden of becoming teaching hospitals, 

therefore, the main teaching hospital 

continues to bear the costs of the 

resident rotations to the rural emergency 

departments. The commenter urges 

CMS to change its policy with regard to 

‘‘emergency and possibly other hospitalbased physicians’’ to allow for payment 

to the ‘‘main’’ teaching hospital for 

resident training time at rural hospitals. 

Response: We did not propose to 

make any changes to our regulations 

concerning the counting of FTE 

residents training in more than one 

hospital. Therefore, we believe the 

comments are out of the scope of this 

rule and we will not be responding to 

them at this time. 

Comment: One commenter stated 

‘‘CMS currently insists that the threemonth (90 day) timeframe for payment 

be based on a calendar month without 

regard to programs such as ours that 

conduct rotations on a 4-week basis (13 

rotations per year) * * * We believe the 

written agreement is reasonable but the 

90 day time frame for payment to the 

non-hospital physician should be 

relative to the last day of the block 

rotation.’’

Response: We did not propose making 

any changes to CMS’ rules regarding 

concurrent payment for training at 

nonhospital sites and, therefore, we 

believe this comment is outside the 

scope of our proposed rule and we will 

not be responding to it at this time. 

Comment: One commenter asked 

‘‘How is CMS going to ensure 

responsible and consistent application 

of these lengthy new rules?’’

Response: CMS typically will instruct 

its contractors as to the implementation 

of any new regulatory provisions. We 

intend to do the same for these 

provisions. We urge any individuals, 

including both members of the teaching 

hospital community and Medicare 

contractors, to contact us when they 

have questions regarding application of 

this rule. 

Comment: We received several 

comments on the IME formula and other 

nonhospital site issues that were not 

included in the proposed rule. 

Response: Since these comments are 

out of the scope of this rule, we are not 

responding to them at this time. 

Comment: Several commenters 

requested that hospitals have the option 

of recalculating their PRA to include 

allowable GME costs. 

Response: We did not propose any 

changes to the existing methodology for 

calculating GME PRAs. Therefore, we 

believe this comment is outside the 

scope of our proposed rule, and 

therefore, we are not responding to it in 

this final rule. 

D. Summary of Final Provisions 

In summary, we are revising 

§ 413.75(b) to modify the definition of 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting’’ to reflect the policies in place 

between January 1, 1999 and July 1, 

2007, and our policy for cost reporting 

periods beginning on or after July 1, 

2007. We are revising the definition of 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting’’ to mean: (a) Effective on or after 

January 1, 1999 and for cost reporting 

periods beginning before July 1, 2007, 

the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries and 

fringe benefits attributable to direct 

graduate medical education (GME); and 

(b) effective for cost reporting periods 

beginning on or after July 1, 2007, at 

least 90 percent of the total of the costs 

of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries 

attributable to nonpatient care direct 

GME activities. 

In addition, we are revising 

§ 412.105(f)(1)(ii)(C) for IME and adding 

§ 413.78(f) to reflect the revised 

requirement to pay ‘‘all or substantially 

all’’ of the GME costs in a nonhospital 

site, effective for cost reporting periods 

beginning on or after July 1, 2007. In 

this final rule, we are also clarifying the 

regulations text at § 413.78(f)(3)(ii) to 

specify that the written agreement must 

be in place between the hospital and the 

nonhospital site before the training 

begins in that nonhospital site. We are 

also specifying in the regulations text of 

this final rule that the written agreement 

should include the amount that 

represents the total cost of the training 

program in the nonhospital site, in 

addition to including the amount that 

the hospital will incur (at least 90 

percent of the cost), and must indicate 

the portion of the amount that reflects 

residents’ salaries and fringe benefits 

(and travel and lodging where 

applicable), and the portion of the 

amount that reflects teaching physician 

compensation. Lastly, we are revising 

the regulations text to indicate that the 

amounts specified in the written 

agreement may be modified by June 30 

of the applicable academic year. 

XIII. Technical Amendment 

In the Revisions to Hospital Inpatient 

Prospective Payment Systems—FY 2007 

final rule (71 FR 47870 through 48136), 

in an amendatory instruction to 

§ 412.22(h)(3), we inadvertently omitted 

the words ‘‘introductory text.’’

Therefore, paragraphs § 412.22(h)(3)(i) 

and (ii) were removed. We are replacing 

§ 412.22(h)(3)(i) and (ii) in this final 

rule. 

XIV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We solicited public comments on 

each of these issues for the following 

sections of this document that contain 

information collection requirements. 

Section 413.78 Direct GME Payments: 

Determination of the Total Number of 

FTE Residents. 

Section 413.78(f) outlines the 

requirements that must be met for the 

time residents spend in non-provider 

settings to be included in determining 

the number of FTE residents used in the 

computation of a hospital’s resident 

count. A resident must spend his or her 

time in patient care activities; the 

hospital must incur substantially all of 

the costs of the training program in a 

nonhospital setting. 

In addition, § 413.78(f)(3) requires 

that a hospital comply with one of the 

two requirements listed in 

§ 413.78(f)(3)(i) and § 413.78(f)(3)(ii). 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26977 

Section § 413.78(f)(3)(i) states that a 

hospital must document that it is paying 

for all or substantially all of the costs 

associated with the training program in 

a nonhospital setting. The costs must be 

incurred between the training date and 

the end of the third month after the 

training date. The burden associated 

with this requirement is the time and 

effort associated with documenting and 

maintaining records of the incurred 

costs and subsequent payments made by 

a hospital. 

Section 413.78(f)(3)(ii) states that a 

hospital must have a written agreement 

with the nonhospital site. The 

agreement must state that the hospital 

will incur at least 90 percent of the cost 

of the resident’s salary and fringe 

benefits (and travel and lodging, where 

applicable) while the resident is training 

in the nonhospital site and the portion 

of the cost of the teaching physician’s 

salary that is attributable to GME. The 

written agreement must also specify the 

compensation amount the hospital is 

paying the nonhospital site, and 

whether this amount reflects only 

residents’ salaries and fringe benefits 

(and travel and lodging, where 

applicable), or includes an amount for 

teaching physician compensation. The 

burden associated with this requirement 

is the time and effort associated with 

drafting, signing, and maintaining the 

written agreement. 

The requirements listed in 

§ 413.78(f)(3)(i) and § 413.78(f)(3)(ii) are 

exempt from the Paperwork Reduction 

Act of 1995 in accordance with Pub. L. 

99–272. 

We will be submitting a copy of this 

final rule to OMB for its review of the 

information collection requirements 

described above. These requirements are 

not effective until they have been 

approved by OMB. 

XV. Regulatory Impact Analysis 

A. Introduction 

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 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Act, the 

Unfunded Mandates Reform Act of 1995 

(UMRA) (Pub. L. 104–4), and Executive 

Order 13132. 

1. Executive Order 12866 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely assigns 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 one year). 

We are using the rates, factors and 

policies presented in this final rule, 

including updated wage index values, 

and the best available claims and CCR 

data to estimate the change in payments 

for the 2008 LTCH PPS rate year. Based 

on the best available data for 377 

LTCHs, we estimate that the expansion 

of the existing payment provision for colocated LTCHs (HwHs and satellites of 

LTCHs) at existing § 412.534 to certain 

situations not presently covered by 

existing § 412.534 for subclause (I) 

LTCHs (as discussed in section V.B. of 

the preamble of this final rule), in 

conjunction with the update to the 

Federal rate for RY 2008 (discussed in 

section IV.C. of the preamble of this 

final rule), the changes to the area wage 

adjustment (discussed in section IV.D.1. 

of the preamble of this final rule), the 

revision to the SSO policy and the 

increase in the outlier fixed-loss amount 

(discussed in section IV.D.3.c. of the 

preamble of this final rule) for the 2008 

LTCH PPS rate year, will result in a 

decrease in estimated payments from 

the 2007 LTCH PPS rate year of 

approximately $156 million (or about 

3.8 percent). (An estimate of Medicare 

program payments for LTCH services for 

the next 5 years is shown in section 

IV.D.5. of the preamble of this final rule. 

The impact of the policy change relating 

to payment for Hospital Direct and 

Indirect Graduate Medical Education 

Payments (GME) is discussed in section 

XV.C.2. of this regulatory impact 

analysis.) The estimated impact of the 

provisions presented in this final rule 

(as detailed above) for the 377 LTCHs in 

our database are in Table 9. 

TABLE 9.—ESTIMATED IMPACT OF THE PROVISIONS OF THIS FINAL RULE 1

Policy 

Estimated 

percent change 

in estimated aggregate LTCH 

PPS payments 

(percent) 

Payment Rate and Policy Changes: 

Changes to the Federal Rate 2 ................................................................................................................................................. 0.6 

Changes to the Area Wage Adjustment .................................................................................................................................. ¥1.0 

Revision of the SSO Policy ...................................................................................................................................................... ¥0.9 

Adjustment of the High Cost Outlier Threshold 3 ..................................................................................................................... ¥2.5 

Subtotal 4 ........................................................................................................................................................................... ¥3.8 

Expansion of the ‘‘25 Percent’’ Policy 5 ........................................................................................................................................... 0 

Total 6 (¥3.8% + 0%) ....................................................................................................................................................... ¥3.8 

1Percent change in estimated aggregate LTCH PPS payments from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year based on 

the best available data for 377 LTCHs. 2As discussed in greater detail in section XV.B.4. of this regulatory impact analysis, about 34 percent of all LTCH cases are projected to receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ‘‘IPPS comparable amount’’ (rather 

than the Federal rate). Therefore, the percent change in estimated aggregate LTCH PPS payments due to the changes to the Federal rate, 0.61 

percent, is slightly less than the update to the Federal rate of 0.71 percent. 3This estimated 2.5 percent decrease in estimated payments per discharge from RY 2007 to RY 2008 is due to the changes in the fixed-loss 

amount resulting from the use of more recent LTCH data to estimate the cost of each LTCH case. 4We also note that the estimated percent change for all payment rate and policy changes may not exactly equal the sum of the estimated percent change for the changes to the Federal rate, the changes to the area wage adjustment and the revision of the SSO policy due to the effect 

of estimated changes in aggregate HCO payments, as well as other interactive effects that cannot be isolated. 


ycherry on PROD1PC64 with RULES2
26978 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

5Expansion of the existing special payment provision for co-located LTCHs (HwHs and satellites of LTCHs) at existing § 412.534 to certain situations not presently covered by existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of the preamble of this final rule). 6Total estimated impact of the provisions of this final rule (that is, sum of the estimated impact of the payment rate and policy change, including the revision of the SSO policy, and the estimated impact of the expansion of the ‘‘25 percent’’ policy). 

Because the combined distributional 

effects and estimated changes to the 

Medicare program payments would be 

greater than $100 million, this final rule 

would be considered a major economic 

rule, as defined in this section. We note 

the $156 million (or 3.8 percent) 

decrease in estimated aggregate LTCH 

PPS payments resulting from the 

provisions presented in this final rule 

does not reflect changes in LTCH 

admissions or case-mix intensity in 

estimated LTCH PPS payments, which 

would also affect overall payment 

changes. 

2. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6.5 million to $31.5 million in any 

1 year. For purposes of the RFA, 

proprietary hospitals are small entities if 

they meet the small business size 

standard described above (for further 

information, see the Small Business 

Administration’s regulation at 70 FR 

72577, December 6, 2003). Because we 

lack data on individual hospital 

receipts, we cannot determine the 

number of small proprietary LTCHs. 

Therefore, we assume that all LTCHs are 

considered small entities for the 

purpose of the analysis that follows. 

Medicare FIs are not considered to be 

small entities. Individuals and States are 

not included in the definition of a small 

entity. 

Currently, our database of 377 LTCHs 

includes the data for 83 non-profit 

(voluntary ownership control) LTCHs 

and 254 proprietary LTCHs. Of the 

remaining 40 LTCHs, 14 LTCHs are 

Government-owned and operated and 

the ownership type of the other 26 

LTCHs is unknown (as shown in Table 

11). The impact of the payment rate and 

policy changes for the 2008 LTCH PPS 

rate year (including the update to the 

Federal rate, changes to the area wage 

adjustment, and the revision of the SSO 

policy) is discussed in section XV.B.4.c. 

of this regulatory impact analysis. The 

impact of other policy changes, such as 

the effects of the expansion of the 

special payment provisions for LTCH 

HwHs and LTCH satellites to certain 

situations not presently covered by 

§ 412.534 for subclause (I) LTCHs, is 

discussed in section XV.C. of this 

regulatory impact analysis. 

As we discuss in detail throughout 

the preamble of this final rule, based on 

the most recent available LTCH data, we 

believe that although the provisions of 

this final rule would result in a decrease 

in estimated aggregate LTCH PPS 

payments, we believe the resulting 

LTCH PPS payment amounts result in 

appropriate Medicare payments. 

However, we believe that although 

appropriate, the provisions of this final 

rule could have a significant impact on 

some small entities (as defined above in 

this section). As also discussed in 

greater detail below in this section, we 

are unable to determine how significant 

the impact of some of the provisions of 

this final rule may be on small entities 

since we expect many LTCHs to adjust 

their admission practices in 

implementation of these provisions. We 

note that LTCHs have been adapting 

their behavior in response to the policy 

changes we have implemented over the 

past few years (for example, the annual 

update to the LTC–DRG relative 

weights, the ‘‘25 percent policy’’ at 

existing § 412.534, the revision to the 

SSO payment formula at existing 

§ 412.529(c)(2), and the zero percent 

update to the RY 2007 Federal rate). 

Although those policy changes were 

projected to result in decreases in 

estimated aggregate LTCH PPS 

payments, the growth in the number of 

LTCHs has continued (although at a 

reduced rate). Based on the most recent 

available OSCAR data, the number of 

LTCHs has increased over 10 percent in 

the past 2 years (from October 1, 2004 

and October 1, 2006). Because we 

acknowledge that many of the affected 

entities are small entities, the analysis 

discussed throughout the preamble of 

this final rule, in conjunction with the 

discussion presented in greater detail 

below in this section and throughout the 

remainder of this regulatory impact 

analysis, constitutes our initial analysis 

under the RFA. 

As shown in Table 9, we estimate that 

the provisions of this final rule could 

result in approximately a 3.8 percent (or 

$156 million) decrease in estimated 

payments per discharge in the 2008 

LTCH PPS rate year, on average, to all 

LTCHs. Table 9 shows that the payment 

rate and policy changes are projected to 

result in a 3.8 percent decrease in 

estimated aggregate LTCH PPS 

payments, and the expansion of the ‘‘25 

percent’’ policy is projected to result in 

neither an increase nor a decrease in 

estimated aggregate LTCH PPS 

payments. Thus, while a significant 

portion of the approximately 3.8 percent 

decrease in estimated aggregate 

payments in the 2008 LTCH PPS rate 

year as compared to the 2007 LTCH PPS 

rate year would not be due to the 

expansion of the special payment 

provisions for co-located LTCHs to 

certain situations not presently covered 

by existing § 412.534 for subclause (I) 

LTCHs (as discussed in section V.B. of 

this final rule), this is due to our 

adoption of a 3 year transition to this 

policy. However, as that policy is fully 

implemented at 25 percent (or the 

applicable level) there will be a 

significant impact in LTCH payments. 

We predict the 5 year impact of this 

policy to be as shown in Table 10. 

TABLE 10 

Rate year 

‘‘25 Percent’’ policy with 3 year 

transition (expressed in millions)* 

2008 .................................. 0 

2009 .................................. 20 

2010 .................................. 110 

2011 .................................. 160 

2012 .................................. 170 

Total ........................... 460 

* Projected decrease in estimated aggregate 

payments in the LTCH PPS rate years for 5 

years due to the expansion of the special payment provisions for co-located LTCHs to certain situations not presently covered by existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of this final rule). 

As discussed in greater detail in 

section XV.C.1. of this regulatory impact 

analysis, because we believe that this 

policy would discourage inappropriate 

patient shifting to LTCHs and would 

encourage all subclause (I) LTCHs to 

engage in more appropriate admission 

policies since, no payment adjustment 

would be made if the patient has 

reached HCO status at the co-located 

host (under the revision to § 412.534) or 

at the referring hospital (under 

§ 412.536) prior to being admitted for 

additional post-acute care at the LTCH 

(as discussed in greater detail in section 

V.B. of this final rule) since patients 

who achieved HCO status prior to 

admission to the LTCH will not be 

counted toward the applicable threshold 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26979 

under § 412.536 or under the revision to 

§ 412.534 (although the admission 

would still be counted toward the 

LTCH’s total Medicare discharges). 

Because we expect that such a policy 

would reduce the financial incentives 

that may be present currently for certain 

situations not presently covered by 

existing § 412.534 to admit patients 

prematurely discharged from other 

hospitals, we believe this policy would 

result in fewer admissions to LTCHs 

before a complete course of patient care 

is provided at the non-co-located 

referring hospital (under § 412.536) or 

co-located referring hospital (under the 

revision to § 412.534). Thus, any change 

in admission practices as a result of this 

policy would result in less of a decrease 

in estimated aggregate LTCH PPS 

payments once this policy is fully 

implemented at 25 percent (or the 

applicable level). Thus, the projected 

decrease in estimated aggregate LTCH 

PPS payments resulting from this policy 

change would only occur if there were 

no changes in LTCH admission 

practices. Furthermore, we believe that 

this policy would result in appropriate 

Medicare payments since, as noted 

above, we expect that such a policy 

would reduce the financial incentives to 

admit patients prematurely discharged 

from other hospitals and would 

encourage all LTCHs to engage in more 

appropriate admission policies. For 

these reasons, although we estimate that 

this policy would result in a decrease in 

estimated aggregate LTCH PPS 

payments beginning in the second year 

of the transition, we do not believe that 

such a projected decrease in estimated 

aggregate LTCH PPS payments, although 

possibly significant, would adversely 

affect LTCHs’ ability to deliver efficient 

care to Medicare beneficiaries nor 

would there be an adverse affect on 

Medicare beneficiaries’ access to care. 

Additionally, as shown in Table 9, we 

project an estimated 2.5 percent 

decrease in estimated payments per 

discharge from RY 2007 to RY 2008 due 

to the changes in the fixed-loss amount 

resulting from the use of more recent 

LTCH data to estimate the cost of each 

LTCH case. That is, as discussed in 

detail previously in the preamble of this 

final rule, to determine the proposed 

fixed-loss amount for RY 2008 of 

$18,778, we used claims data from the 

March 2006 update of the FY 2005 

MedPAR file and CCRs from the July 

2006 update of the provider specific file 

(PSF), as that was the best available data 

at that time. However, to determine the 

fixed-loss amount for RY 2008 in this 

final rule, the most recent available data 

are the December 2006 update of the FY 

2006 MedPAR claims data and the CCRs 

from the December 2006 update of the 

PSF. Our analysis of the FY 2006 claims 

data showed that, in general, the average 

cost per case has increased as compared 

to the FY 2005 claims data. If we had 

kept the fixed loss amount at $18,778, 

it would have caused the estimated 

aggregate high-cost outlier payments to 

exceed the 8 percent regulatory limit. In 

fact, our analysis shows that if we were 

to apply the proposed fixed-loss amount 

of $18,774, we estimate that outlier 

payments would be over 9 percent of 

total estimated LTCH PPS payments in 

RY 2008. Similarly, to determine the 

fixed-loss amount for RY 2007 of 

$14,887, we used the December 2005 

update of the FY 2005 MedPAR claims 

data and the CCRs from the December 

2005 update of the PSF, as that was the 

best available data at that time. Based on 

the most recent updated claims and CCR 

data available to us at the time of this 

final rule, we estimate that the current 

fixed-loss amount (RY 2007, $14,887) 

would result in an aggregate outlier 

payment amount of 10.3 percent. As 

discussed in previously of this rule, 

when we implemented the LTCH PPS, 

under the HCO policy we established 

the aggregate outlier payment amount at 

8 percent of estimated total LTCH PPS 

payments to allow us to achieve a 

balance between the need to protect 

hospitals with costly cases while 

providing an incentive for hospitals to 

operate efficiently. An aggregate outlier 

payment amount in excess of 8 percent 

would not allow us to achieve this goal. 

Consequently, while increasing the 

fixed-loss amount to $22,954 is 

projected to result in a decrease in 

estimated aggregate LTCH PPS 

payments of 2.5 percent, we believe that 

this is necessary in order to maintain 

the aggregate outlier payment amount at 

the appropriate 8 percent. Furthermore, 

hospitals are aware of our longstanding 

policy which limits high-cost outlier 

payments to 8 percent of estimated total 

LTCH PPS payments. For these reasons, 

although we estimate that the change in 

the fixed-cost amount would result in a 

decrease in estimated aggregate LTCH 

PPS payments, we do not believe that 

such an impact on estimated aggregate 

LTCH PPS payments would adversely 

affect LTCHs’ ability to deliver efficient 

care to Medicare beneficiaries nor 

would there be an adverse affect on 

Medicare beneficiaries’ access to care. 

The impact analysis of payment rate 

and policy changes in Table 11 shows 

that estimated payments per discharge 

are expected to decrease approximately 

3.8 percent, on average, for all LTCHs 

from the 2007 LTCH PPS rate year as 

compared to the 2008 LTCH PPS rate 

year. Although we are finalizing a 3.8 

percent decrease to the Federal rate for 

RY 2008 (as discussed in section IV.C. 

of this final rule), the projected percent 

decrease in estimated payments per 

discharge from the 2007 LTCH PPS rate 

year to the 2008 LTCH PPS rate year is 

attributable to the changes to the area 

wage adjustment (discussed in section 

IV.D.1. of this final rule), the revision of 

the SSO policy discussed in section 

V.A.2. of this final rule, as well as the 

increase to the HCO fixed-loss amount 

(as discussed in section IV.D.3.c. of this 

final rule). (As discussed in greater 

detail in section XV.B.4., the impact due 

to the expansion of the ‘‘25 percent 

policy’’ to certain situations not 

presently covered by existing § 412.534 

for subclause (I) LTCHs is not reflected 

in Table 11. However, as noted above, 

the impact of that policy is discussed in 

greater detail in section XV.C.1. of this 

regulatory impact analysis.) 

As the impact analysis in Table 11 

shows, estimated changes to the area 

wage adjustment from RY 2007 to RY 

2008 (resulting from both established 

policy and changes presented in section 

IV.D.1. of this final rule, as discussed in 

greater detail below in this section) 

contribute to the decrease in estimated 

aggregate LTCH PPS payments from the 

2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year. As discussed in 

section IV.D.1. of this final rule, we are 

updating the wage index values for RY 

2008, in accordance with the 

progression of the existing 5-year phasein of the area wage adjustment, based on 

the most recent available wage data. We 

believe that updating the LTCH PPS 

wage index based on the most recent 

available wage data would ensure that 

the LTCH PPS wage index adjustment 

appropriately accounts for and reflects 

the relative hospital wage levels in the 

geographic area of the hospital as 

compared to the national average 

hospital wage level. In addition, we are 

increasing the labor-related share from 

75.665 percent to 75.788 percent under 

the LTCH PPS for RY 2008 based on the 

most recent available data on the 

relative importance of the labor-related 

share of operating and capital costs of 

the LTCH PPS market basket (also 

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

rule). We believe that revising the laborrelated share based on the most recent 

available data would appropriately 

identify the portion of the LTCH PPS 

Federal rate that is adjusted to account 

for geographic differences in area wage 

levels by applying the applicable LTCH 

PPS wage index value. As discussed in 

greater detail in section IV.D.1. of this 


ycherry on PROD1PC64 with RULES2
26980 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

final rule, we believe that these changes 

to the LTCH PPS area wage adjustment 

based on the most recent available wage 

data and data on the relative importance 

of the labor-related share of the LTCH 

PPS market basket, respectively, would 

result in appropriate and accurate LTCH 

PPS payments for the resources used by 

LTCHs in a given area. Such updated 

data appropriately reflects national 

differences in area wage levels and 

identifies the portion of the Federal rate 

that should be adjusted to account for 

such differences in area wages. 

We also note that, even though we are 

not making any changes to the existing 

5-year phase-in of the wage index 

adjustment that was established when 

the LTCH PPS was implemented 

(August 30, 2002; 67 FR 56018), the 

continued progression of this phase-in 

also contributes to the decrease in 

estimated aggregate LTCH PPS 

payments for RY 2008. That is, since 

under the established phase-in of the 

wage-index adjustment, LTCHs receive 

an increasing percentage of the 

applicable full wage index value (which 

is less than 1.0 for the majority of 

LTCHs), we expect that estimated 

aggregate LTCH PPS payments would 

decrease from RY 2007 to RY 2008 as a 

result of the progression of the existing 

5-year phase-in of the area wage 

adjustment. Thus, the majority of the 1.0 

percent decrease in estimated payments 

per discharge, on average, for all LTCHs 

(see Table 11) is due to the existing 5- 

year phase-in of the wage index 

adjustment, and is not due to policy 

changes presented in this final rule. 

Because the existing 5-year phase-in of 

the area wage adjustment has been a 

feature of the LTCH PPS since it was 

implemented beginning October 1, 

2002, and since a large majority (over 70 

percent) of LTCHs are located in areas 

where historically the wage index value 

is less than 1.0, the decrease in 

estimated aggregate LTCH PPS 

payments resulting from this policy 

should be anticipated by LTCHs, and 

therefore, already accounted for in their 

fiscal planning. In addition, we note 

that, although the portion of the 

decrease in estimated aggregate LTCH 

PPS payments that is due to the existing 

5-year phase-in of the wage index 

adjustment is expected, we believe that 

any change in LTCHs’ wage index 

values under this policy is appropriate 

since LTCHs will be receiving an 

increasing percentage of the applicable 

full wage index value, which, by 

definition, reflects the relative hospital 

wage levels for the area in which the 

LTCH is located as compared to the 

national average hospital wage level. 

Because we cannot determine to what 

extent LTCHs may have planned for the 

decrease in estimated aggregate LTCH 

PPS payments that is due to the existing 

5-year phase-in of the area wage 

adjustment, even though the impact 

may be significant for some LTCHs, we 

believe that most LTCHs would not be 

adversely affected since, as explained 

above, we believe that the changes to 

the area wage adjustment (that is, the 

use of update wage data and the change 

in the labor-related share), in 

conjunction with the continued 

progression of the 5-year phase-in of the 

area wage adjustment, would result in 

appropriate LTCH PPS payments in RY 

2008. For these reasons, we believe that 

the decrease in estimated aggregate 

LTCH PPS payments resulting from 

changes to the area wage adjustment, 

although possibly significant for some 

LTCHs, is appropriate and would not 

adversely affect LTCHs’ ability to 

deliver efficient care to Medicare 

beneficiaries nor would there be an 

adverse affect on Medicare beneficiaries’

access to care. 

In addition, as also shown in Table 

11, the revision of the SSO policy 

discussed in section V.A.2. of this final 

rule would also contribute to the 

estimated 3.8 percent decrease in 

estimated aggregate LTCH PPS 

payments in RY 2008, on average, for all 

LTCHs. We believe that the LTCH cases 

that appear to be ‘‘similar to’’ the same 

type of cases treated in an acute care 

hospital and paid for under the IPPS, as 

discussed in greater detail in section 

V.A.2. of this final rule, would receive 

an appropriately adjusted LTCH PPS 

payment to treat such cases. We believe 

that those SSO cases that are ‘‘similar to 

IPPS cases’’ most likely do not receive 

a full course of an LTCH-level of 

treatment in such a short period of time 

since, in general, LTCHs are intended to 

treat longer stay patients. Although we 

project a decrease in estimated aggregate 

LTCH PPS with the revision of the SSO 

policy, we believe the change would 

result in appropriate and adequate 

Medicare payments for the treatment of 

Medicare beneficiaries with a LOS that 

is ‘‘similar to’’ typical IPPS cases. 

Furthermore, we believe that, the 

revision to the SSO policy would 

accomplish our stated goal of removing 

the incentive for LTCHs to admit 

patients for whom a long-term hospital 

stay is not necessary, and therefore, for 

whom the LTCH would not be 

providing complete treatment. As noted 

previously, the vast majority of LTCH 

cases, including SSO cases, are admitted 

to the LTCH directly from an acute-care 

hospital, and therefore, many SSO cases 

may still be in need of acute-level care 

(as we discuss in greater detail in 

section V.A.2. of the preamble of this 

final rule). Therefore, we believe that in 

response to the revision of the SSO 

policy, LTCHs may reduce the number 

of SSO cases that are ‘‘similar to IPPS 

cases’’ that they admit (and most of 

those patients would continue to receive 

treatment at the acute-care hospital). To 

the extent that LTCHs continue to admit 

SSO cases that are ‘‘similar to IPPS 

cases,’’ we believe that this would result 

in an adjusted LTCH PPS payment that 

is appropriate. 

For these reasons, although we 

estimate that the revision of the SSO 

policy would result in a decrease in 

estimated aggregate LTCH PPS 

payments, we do not believe that such 

an impact on estimated aggregate LTCH 

PPS payments, although possibly 

significant, would adversely affect 

LTCHs’ ability to deliver efficient care 

to Medicare beneficiaries nor would 

there be an adverse affect on Medicare 

beneficiaries’ access to care. 

For all of the reasons discussed above 

in this section, although we do not 

expect an estimated incremental 

decrease of 3.8 percent (approximately 

$156 million) in estimated aggregate 

LTCH PPS payments to have a 

significant adverse financial impact on 

LTCHs, nor do we expect there would 

be an effect on beneficiaries’ access to 

care, we acknowledge that the 

provisions of this final rule could have 

a significant impact on some small 

entities. However, we believe that the 

provisions of this final rule would result 

in appropriate LTCH PPS payments in 

RY 2008. We also note that LTCHs 

provide some services to (and generate 

revenue from) patients other than 

Medicare beneficiaries and the revenue 

to LTCHs from treating those patients is 

not affected by this final rule. This 

analysis, in conjunction with the 

remainder of this section, demonstrates 

that this final rule is consistent with the 

regulatory philosophy and principles 

identified in the RFA. We believe the 

provisions presented in this final rule 

would affect payments to LTCHs, and 

the effects on some LTCHs, although 

they may be significant, are appropriate. 

3. Impact on Rural Hospitals 

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 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26981 

beds. As shown in Table 11, we are 

projecting a 6.2 percent decrease in 

estimated payments per discharge for 

the 2008 LTCH PPS rate year as 

compared to the 2007 LTCH PPS rate 

year for rural LTCHs as a result of the 

payment rate changes, based on the data 

of the 23 rural LTCHs in our database 

of 377 LTCHs for which complete data 

were available. 

As shown in Table 11, a significant 

portion of the estimated decrease in 

estimated LTCH PPS payments in the 

2008 LTCH PPS rate year as compared 

to the 2007 LTCH PPS rate year for 

payment rate and policy changes for 

rural LTCHs is due to the change in the 

area wage adjustment (as discussed in 

greater detail in section V.D.1. of the 

preamble of this final rule). Specifically, 

although we are not making any changes 

to the existing 5-year phase-in of the 

wage index adjustment that was 

established when the LTCH PPS was 

implemented (August 30, 2002; 67 FR 

56018), the continued progression of 

this phase-in contributes to the decrease 

in estimated payments to rural LTCHs 

for RY 2008. This is because, under the 

established phase-in of the wage-index 

adjustment, LTCHs receive an 

increasing percentage of the applicable 

full wage index value (which is less 

than 1.0 for all of the 23 rural LTCHs 

in our database), we expect that 

estimated payments per discharge for 

rural LTCHs would decrease from RY 

2007 to RY 2008 as a result of the 

progression of the 5-year phase-in of the 

wage index adjustment. Thus, the 

majority of the projected decrease in 

estimated payments per discharge 

shown in Table 11 for rural LTCHs is 

due to the existing 5-year phase-in of 

the wage index adjustment, and is not 

due to policy changes presented in this 

final rule. We believe that the decrease 

in estimated aggregate LTCH PPS 

payments resulting from this existing 

policy should be anticipated by LTCHs, 

and therefore, already accounted for in 

their fiscal planning. In addition, we 

note that, although the portion of the 

decrease in estimated aggregate LTCH 

PPS payments that is due to this 

existing policy is expected, we believe 

that any change in LTCHs’ wage index 

values due to the continued progression 

of the phase-in of the area wage 

adjustment is appropriate since LTCHs 

will be receiving an increasing 

percentage of the applicable full wage 

index value, which, by definition, 

reflects the relative hospital wage levels 

for the area in which the LTCH is 

located as compared to the national 

average hospital wage level. 

Furthermore, as also explained in 

greater detail above, we believe that the 

changes to the area wage adjustment 

presented in this final rule (that is, the 

use of update wage data and the change 

in the labor-related share) would result 

in accurate and appropriate LTCH PPS 

payments in RY 2008 since they are 

based on the most recent available data. 

Such updated data appropriately reflect 

national differences in area wage levels 

and identifies the portion of the Federal 

rate that should be adjusted to account 

for such differences in area wages, 

thereby resulting in accurate and 

appropriate LTCH PPS payments. 

Because we cannot determine to what 

extent LTCHs may have planned for the 

decrease in estimated aggregate RY 2008 

LTCH PPS payments that results from 

the existing 5-year phase-in of the area 

wage adjustment, we believe that 

although the effects of the changes to 

the area wage adjustment on some rural 

LTCHs may be significant, most rural 

LTCHs should not be adversely affected 

because those changes are expected to 

result in appropriate LTCH PPS 

payments in RY 2008. 

We also believe that the expansion of 

the payment adjustment at existing 

§ 412.534 to certain situations not 

presently covered by that policy for 

subclause (I) LTCHs may have a 

significant adverse impact on some rural 

LTCHs, although we cannot determine 

how significant for the reasons 

explained below in this section. Even 

though this policy, once it is fully 

implemented at 25 percent (or the 

applicable level), is estimated to reduce 

estimated aggregate LTCH PPS 

payments and may result in a significant 

impact on some rural LTCHs, we also 

believe that such changes would result 

in appropriately adjusted LTCH PPS 

payments (as explained below in this 

section). As discussed in greater detail 

in section V.B. of this final rule, in 

designing features of the original ‘‘25 

percent policy’’ for co-located LTCHs 

(HwHs and LTCH satellites), which we 

proposed to extend to certain situations 

not presently covered by existing 

§ 412.534 for subclause (I) LTCHs, we 

provided special treatment for rural 

hospitals which would increase the 

threshold from 25 percent to 50 percent. 

When we established the 25 percent (or 

applicable percentage) payment 

adjustment for co-located LTCHs at 

existing § 412.534, after which this 

payment adjustment for situations not 

presently covered by that policy has 

been modeled, we noted in response to 

comments that ‘‘the Congress has 

authorized special treatment for rural 

areas under the Medicare program 

because of the particular geographic and 

demographic challenges in those 

locations, as well as the difference 

between the provision and availability 

of medical services as compared to 

urban areas’’ (69 FR 49206). Therefore, 

under our policy, we will apply the 

same rationale to certain situations not 

presently covered by existing § 412.534 

that would occur in subclause (I) LTCHs 

that are located in rural areas. 

Accordingly, rather than a 25 percent 

threshold (as is being implemented for 

most urban LTCHs), for rural LTCHs, 

the payment adjustment will only be 

applied to those LTCH’s or LTCH 

satellite facility’s Medicare discharges 

that were admitted from a non-colocated referring hospital under 

§ 412.536 or co-located host under the 

revision to § 412.534 that are in excess 

of 50 percent of the LTCH’s total 

Medicare discharges for that hospital for 

any cost reporting period. Under this 

revision, consistent with the existing 

policy at § 412.534, no payment 

adjustment will be made if the patient 

has reached HCO status at the referring 

hospital (under § 412.536) or at the colocated host (under the revision to 

§ 412.534) prior to being admitted for 

additional post-acute care at the LTCH. 

That is, in calculating the 50 percent 

threshold (for rural LTCHs), patients 

who achieved HCO status prior to 

admission to the LTCH will not be 

counted toward the applicable threshold 

under § 412.536 or under the revision to 

§ 412.534 (although the admission 

would still be counted toward the 

LTCH’s total Medicare discharges). 

Furthermore, because such a policy 

would reduce the financial incentives 

for all LTCHs, including rural LTCHs, to 

admit patients prematurely discharged 

from other hospitals, we believe this 

policy will result in fewer admissions to 

LTCHs before a complete course of 

patient care is provided at the referring 

hospital. As noted above, any changes 

in admission practices as a result of this 

policy will result in less of a decrease 

in estimated aggregate LTCH PPS 

payments based on current admission 

practices. Thus, the decrease in 

estimated aggregate LTCH PPS 

payments to rural LTCHs resulting from 

this policy change will only occur if 

there were no change in rural LTCH 

admission practices. It is our intention, 

under this policy, to discourage LTCHs 

from serving as ‘‘step-down’’ units after 

a patient has been diagnosed and 

received initial treatment at another 

hospital, a scenario that results in two 

Medicare payments (one to the referring 

hospital and one to the LTCH) for what 

was essentially one episode of patient 

care. Rather, it is our intent to encourage 

LTCHs to admit patients who required 


ycherry on PROD1PC64 with RULES2
26982 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

additional long-stay hospital-level 

treatment following the provision of a 

full episode of care at the referring 

hospital. For those patients, under this 

policy Medicare would pay an 

unadjusted amount under the LTCH 

PPS. We believe that this policy would 

result in more appropriate admission 

policies by rural LTCHs. Therefore, we 

believe that although the effects on 

some rural LTCHs of the expansion of 

the payment adjustment at existing 

§ 412.534 to certain situations not 

presently covered by that policy for 

subclause (I) LTCHs may be significant, 

most rural LTCHs will not be adversely 

affected because this policy change is 

expected to result in changes in 

admission practices and appropriate 

payments for such cases, as explained 

above in this section. 

Additionally, according to our 

analysis, we project an estimated 2.8 

percent decrease in estimated payments 

per discharge to rural LTCHs from RY 

2007 to RY 2008 due to the changes in 

the fixed-loss amount resulting from the 

use of more recent LTCH data to 

estimate the cost of each LTCH case. As 

discussed previously in this impact 

analysis regarding small entities, based 

on the most recent updated claims and 

CCR data, we increased the fixed-loss 

amount in order to maintain an 

aggregate outlier payment amount of 8 

percent of estimated total payments. As 

discussed previously in this final rule, 

when we implemented the LTCH PPS, 

under the HCO policy we established 

the aggregate outlier payment amount at 

8 percent of estimated total LTCH PPS 

payments to allow us to achieve a 

balance between the need to protect 

hospitals with costly cases while 

providing an incentive for hospitals to 

operate efficiently. An aggregate outlier 

payment amount in excess of 8 percent 

would not allow us to achieve this goal. 

Consequently, while the increase in the 

fixed-loss amount to $22,954 for RY 

2008 is projected to result in a decrease 

in estimated aggregate LTCH PPS 

payments to rural hospitals by 2.8 

percent, we believe that this is 

necessary in order to maintain the 

aggregate outlier payment amount at the 

appropriate 8 percent. Furthermore, 

hospitals are aware of our longstanding 

policy which limits high-cost outlier 

payments to 8 percent of estimated total 

LTCH PPS payments. For these reasons, 

although we estimate that the change in 

the fixed-loss amount would result in a 

decrease in estimated aggregate LTCH 

PPS payments, we do not believe that 

such an impact on estimated aggregate 

LTCH PPS payments would adversely 

affect LTCHs’ ability to deliver efficient 

care to Medicare beneficiaries, nor 

would there be an adverse effect on 

Medicare beneficiaries’ access to care. 

In addition, the revision of the SSO 

policy will also contribute to the 

projected decrease in estimated 

payments to rural LTCHs for RY 2008. 

About 40 percent of rural LTCHs treat 

a larger than average percentage of SSO 

cases (in fact, based on FY 2005 data for 

a few rural LTCHs, SSO cases represent 

over half of their total cases). However, 

we are not able to determine whether 

the revision to the SSO policy would 

result in an adverse financial impact on 

rural LTCHs because we believe that 

most LTCHs (including rural LTCHs) 

would reduce the number of SSO cases 

that they admit that are ‘‘similar to IPPS 

cases’’ (as discussed in greater detail 

above). (We note that although we 

expect most LTCHs (including rural 

LTCHs) to admit fewer SSO cases under 

the revision of the SSO policy, most of 

those patients would continue to receive 

treatment at the acute-care hospital from 

which they are typically discharged 

immediately prior to their LTCH (shortstay) admission.) Thus, the projected 6.2 

percent decrease in estimated payments 

per discharge shown in Table 11 for 

rural LTCHs represents an average 

maximum reduction in estimated 

aggregate LTCH PPS payments in RY 

2008, and since we anticipate that 

LTCHs (including rural LTCHs) would 

admit fewer SSO patients for whom 

payments would be affected by the 

revision of the SSO policy, we believe 

that the actual decrease in rural LTCHs’

payments for RY 2008 would be less 

than the 6.2 percent decrease in 

estimated payments for RY 2008 shown 

in Table 11. 

Furthermore, to the extent that rural 

LTCHs would continue to admit SSO 

cases with a LOS that is ‘‘similar to IPPS 

cases,’’ we believe the revision of the 

SSO policy will result in an appropriate 

adjusted LTCH PPS payment because 

we believe that many of those SSO cases 

most likely do not receive a full course 

of a LTCH-level of treatment in such a 

short period of time since, in general, 

LTCHs are intended to treat longer stay 

patients. Therefore, although we 

estimate the revision to the SSO policy 

could result in a decrease in estimated 

aggregate LTCH PPS payment to rural 

LTCHs, we do not believe that such an 

estimated impact on rural LTCHs’ LTCH 

PPS payments, even though possibly 

significant, would adversely affect most 

rural LTCHs because the revision would 

be expected to result in changes in 

admission practices and in appropriate 

payments for such cases. 

For these reasons, we believe that 

there may be a significant impact on 

some rural LTCHs resulting from the 

changes present in this final rule. 

However, a portion of the decrease in 

rural LTCHs’ estimated payments per 

discharge from RY 2007 to RY 2008 

would be less than what we estimate 

based on current admission practices (as 

explained above in this section). We 

also believe (as discussed previously) a 

significant portion of the projected 

decrease in estimated payments per 

discharge for RY 2008, which is due to 

the established phase-in of the wage 

index adjustment, and the increased fixloss amount in order to maintain the 

aggregate outlier payment amount of 8 

percent, is not a result of a policy 

change, and may already be accounted 

for in LTCHs’ fiscal plans. Therefore, 

although we believe this final rule 

would affect payments to rural LTCHs, 

and the effects on some rural LTCHs, 

although appropriate, may be 

significant, we are unable to determine 

how significantly the changes presented 

in this final rule, would adversely affect 

rural LTCHs. However, because we 

expect changes in admission practice 

and appropriate payments, (as discussed 

above), we do not anticipate that the 

provisions of this final rule would affect 

the ability of the vast majority of rural 

LTCHs to provide cost efficient services 

to Medicare patients nor do we expect 

there would be an adverse effect on 

beneficiaries’ access to care. The 

analysis presented above, in 

conjunction with the remainder of this 

regulatory impact analysis, 

demonstrates that this final rule is 

consistent with the regulatory 

philosophy and principles identified in 

section 1102(b) of the Act. (For 

additional information on the estimated 

impact of the changes on rural LTCHs 

presented in this final rule, refer to 

section XV.B.4.a. of this regulatory 

impact analysis.) 

4. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any one year of 

$100 million in 1995 dollars, updated 

annually for inflation. That threshold 

level is currently approximately $120 

million. This final rule would not 

mandate any requirements for State, 

local, or tribal governments, nor would 

it result in expenditures by the private 

sector of $120 million or more in any 1 

year. 

5. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26983 

must meet when it publishes a final 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 examined this final rule 

under the criteria set forth in Executive 

Order 13132 and have determined that 

this final rule would not have any 

significant impact on the rights, roles, 

and responsibilities of State, local, or 

tribal governments or preempt State 

law, based on the 14 State and local 

LTCHs in our database of 377 LTCHs for 

which data were available. 

6. Alternatives Considered 

In the preamble of this final rule, we 

are setting forth the annual update to 

the payment rates for the LTCH PPS, as 

well as proposing other policy changes 

and discussing approaches for other 

areas of concern. In this preamble, we 

specify the statutory authority for the 

provisions that are presented, identify 

those policies when discretion has been 

exercised, and present rationale for our 

decisions, alternatives that were 

considered and solicit comments on 

suggested alternatives from commenters 

(where relevant). 

B. Anticipated Effects of Payment Rate 

Changes 

We discuss the impact of the changes 

to the payment rates, factors, and other 

payment rate policies presented in the 

preamble of this final rule in terms of 

their estimated fiscal impact on the 

Medicare budget and on LTCHs. (We 

note that the impact of other policy 

changes presented in this final rule, 

which do not directly affect the LTCH 

PPS per discharge payment rates (for 

example, the expansion of the existing 

payment provision for co-located LTCHs 

to certain situations not presently 

covered by existing § 412.534 for 

subclause (I) LTCHs discussed in 

section V.B. of this final rule and the 

policy change relating to GME payments 

discussed in section XII. of this final 

rule), are not included as part of the 

impact analysis shown in Table 11. 

However, the impact of certain other 

policies are discussed separately in 

section XV.C. of this regulatory impact 

analysis. 

1. Budgetary Impact 

Section 123(a)(1) of the BBRA 

requires that the PPS developed for 

LTCHs ‘‘maintain budget neutrality.’’

We believe that the statute’s mandate for 

budget neutrality (BN) applies only to 

the first year of the implementation of 

the LTCH PPS (that is, FY 2003). 

Therefore, in calculating the FY 2003 

standard Federal rate under 

§ 412.523(d)(2), we set total estimated 

payments for FY 2003 under the LTCH 

PPS so that estimated aggregate 

payments under the LTCH PPS are 

estimated to equal the amount that 

would have been paid if the LTCH PPS 

had not been implemented. However, as 

discussed in greater detail in the August 

30, 2002 final rule (67 FR 56033 through 

56036), the FY 2003 LTCH PPS standard 

Federal rate ($34,956.15) was calculated 

based on all LTCHs being paid 100 

percent of the standard Federal rate in 

FY 2003. As discussed in section IV.D.5. 

of this final rule, during LTCH rate years 

governed by the 5-year transition period 

policy set forth at § 412.533(a), we 

applied a BN offset to payments to 

account for the monetary effect of the 

applicable transition period 

methodology (including the option to 

elect payments based on 100 percent of 

the Federal rate in lieu of the transition 

blend methodology) in a given LTCH 

PPS rate year. Specifically, for FY 2003 

and RYs 2004 through 2007, the amount 

of the transition period BN offset was 

equal to 1 minus the ratio of the 

estimated payments based on 100 

percent of the LTCH PPS Federal rate to 

the projected total Medicare program 

payments that would be made under the 

transition methodology and the option 

to elect payment based on 100 percent 

of the Federal prospective payment rate. 

However, as we discuss in greater detail 

in section IV.D.5. of this final rule, we 

are no longer projecting a small cost for 

the 2008 LTCH PPS rate year (July 1, 

2007 through June 30, 2008) even 

though some LTCH’s will have a cost 

reporting period for the 5th year of the 

transition period which will be 

concluding in the first 3 months of the 

2008 LTCH PPS rate year. Based on the 

most recent available data, we are 

projecting that the vast majority of 

LTCHs would have made the election to 

be paid based on 100 percent of the 

Federal rate rather than the transition 

blend, which would result in a 

negligible cost to the Medicare program. 

Therefore, in this final rule, we did not 

propose a transition BN offset to all 

LTCH PPS payments for RY 2008 to 

account for the estimated cost of the 

transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal rate) 

in RY 2008. 

2. Impact on Providers 

The basic methodology for 

determining a per discharge LTCH PPS 

payment is set forth in § 412.515 

through § 412.525. In addition to the 

basic LTC–DRG payment (standard 

Federal rate multiplied by the LTC–DRG 

relative weight), we make adjustments 

for differences in area wage levels, 

COLA for Alaska and Hawaii, and SSOs. 

Furthermore, LTCHs may also receive 

HCO payments for those cases that 

qualify based on the threshold 

established each rate year. 

To understand the impact of the 

changes to the LTCH PPS payment rates 

and payment rate policy changes 

discussed in sections IV. and V.A. of 

this final rule on different categories of 

LTCHs for the 2008 LTCH PPS rate year, 

it is necessary to estimate payments per 

discharge under the LTCH PPS rates, 

factors and policies established for RY 

2007 (established in the RY 2007 LTCH 

PPS final rule (71 FR 27798 through 

27939)) and to estimate payments per 

discharge that would be made under the 

LTCH PPS rates, factors and policies for 

the 2008 LTCH PPS rate year (as 

discussed in the preamble of this final 

rule). We also evaluated the change in 

estimated 2007 LTCH PPS rate year 

payments to estimated 2008 LTCH PPS 

rate year payments (on a per discharge 

basis) for each category of LTCHs. 

Hospital groups were based on 

characteristics provided in the OSCAR 

data, FY 2002 through FY 2004 cost 

report data in HCRIS, and PSF data. 

Hospitals with incomplete 

characteristics were grouped into the 

‘‘unknown’’ category. Hospital groups 

include: 

• Location: Large Urban/Other Urban/ 

Rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the 

payment rates and payment rate policy 

changes among the various categories of 

existing providers, we used LTCH cases 

from the FY 2006 MedPAR file to 

estimate payments for RY 2007 and to 

estimate payments for RY 2008 for 377 

LTCHs. While currently there are just 

under 400 LTCHs, the most recent 

growth is predominantly in for-profit 

LTCHs that provide respiratory and 

ventilator-dependent patient care. We 

believe that the discharges from the FY 

2006 MedPAR data for the 377 LTCHs 

in our database, which includes 254 

proprietary LTCHs, provide sufficient 

representation in the LTC–DRGs 

containing discharges for patients who 

received LTCH care for the most 

commonly treated LTCH patients’

diagnoses. 

As discussed in greater detail in 

section VII. of this final rule, under the 

5-year transition set forth at 

§ 412.533(a), a LTCH’s total payment 

under the LTCH PPS was based on an 

increasing percentage of the Federal rate 


ycherry on PROD1PC64 with RULES2
26984 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

with a corresponding decrease in the 

percentage of its LTCH PPS payment 

based on reasonable cost principles. 

However, effective for cost reporting 

periods beginning on or after October 1, 

2006, total LTCH PPS payments are 

based entirely on the Federal rate. 

Therefore, even though some LTCHs 

will have a cost reporting period for the 

4th year of the transition period that 

will be concluding in the first 3 months 

of the 2008 LTCH PPS rate year, the 

portion of those LTCHs’ LTCH PPS 

payments that will be based on 

reasonable cost principles during RY 

2008 is negligible relative to LTCH PPS 

payments based on the Federal rate. 

This is because, as discussed in greater 

detail in section IV.D.5. of this final 

rule, based on the most recent available 

data, we are projecting that the vast 

majority of LTCHs have already made 

the election to be paid based on 100 

percent of the Federal rate rather than 

the transition blend prior to the start of 

their FY 2006 cost reporting period (that 

is, the 4th year of the transition period 

as set forth at § 412.533(a)), and even for 

those few remaining LTCHs paid under 

the transition blend methodology set 

forth at § 412.533(a), their total LTCH 

PPS payments are now based mostly on 

the Federal rate (since the transition 

blend percentages for cost reporting 

periods beginning during FY 2006 are 

80 percent of the Federal rate and 20 

percent of the LTCH PPS payment based 

on reasonable cost principles). 

Therefore, in this final rule, we are no 

longer providing a separate impact table 

reflecting the applicable transition 

blend percentages, which required cost 

data to determine estimated LTCH PPS 

payments based on reasonable cost 

principles. Accordingly, the impact 

analyses of the payment rates and 

payment rate policy changes presented 

below reflects estimated LTCH PPS 

payments to all LTCHs based solely on 

the Federal rate. 

These impacts reflect the estimated 

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

classifications of LTCHs for the 2007 

LTCH PPS rate year (July 1, 2006 

through June 30, 2007) compared to the 

2008 LTCH PPS rate year (July 1, 2007 

through June 30, 2008) based on the 

payment rates and payment rate policy 

changes presented in this final rule. 

Prospective payments for the 2007 

LTCH rate year were based on the 

standard Federal rate of $38,086.04, the 

outlier fixed-loss amount of $14,887, 

and the LTCHs’ estimated case-mix 

based on FY 2006 LTCH claims data. 

Estimated prospective payments for the 

2008 LTCH PPS rate year would be 

based on the standard Federal rate of 

$38,356.45 (based on the 0.71 percent 

update discussed in section IV.C.3. of 

the preamble to this final rule), the 

outlier fixed-loss amount of $22,954, 

and the same FY 2006 LTCH claims 

data. 

3. Calculation of Prospective Payments 

To estimate per discharge payments 

under the LTCH PPS, we simulated 

payments on a case-by-case basis by 

applying the established (for RY 2007) 

and (for RY 2008) adjustments for area 

wage differences (as described in 

section IV.D.1. of the preamble of this 

final rule), and the COLA for Alaska and 

Hawaii (as described in section IV.D.2. 

of the preamble of this final rule). As 

discussed above, we also accounted for 

the existing payment policy for SSOs in 

RY 2007 and the revision of the SSO 

policy in RY 2008. Additional payments 

would also be made for HCOs (as 

described in section IV.D.3. of this final 

rule). As noted in section IV.D.4. of this 

final rule, we are not proposing to make 

adjustments for rural location, 

geographic reclassification, indirect 

medical education costs, or a DSH 

payment for the treatment of lowincome patients because sufficient new 

data have not been generated that would 

enable us to conduct a comprehensive 

reevaluation of these payment 

adjustments. 

We adjusted for area wage differences 

for estimated 2007 LTCH PPS rate year 

payments by computing a weighted 

average of a LTCH’s applicable wage 

index during the period from July 1, 

2006 through June 30, 2007 because 

some providers may experience a 

change in the wage index phase-in 

percentage during that period. For cost 

reporting periods beginning on or after 

October 1, 2005, and before September 

30, 2006 (FY 2006), the labor portion of 

the Federal rate is adjusted by four-fifths 

of the applicable LTCH PPS wage index. 

For cost reporting periods beginning on 

or after October 1, 2006, and before 

September 30, 2007 (FY 2007), the labor 

portion of the Federal rate is adjusted by 

five-fifths (that is, the full amount) of 

the applicable LTCH PPS wage index. 

Therefore, during RY 2007, a provider 

with a cost reporting period that began 

October 1, 2006, would have 3 months 

(July 2006 through September 2006) of 

payments under the four-fifths wage 

index value and 9 months (October 2006 

through June 2007) of payment under 

the (full) five-fifths wage index value. 

For this provider, we computed a 

blended wage index of 25 percent (3 

months/12 months) of the four-fifths 

wage index value and 75 percent (9 

months/12 months) of the (full) fivefifths wage index value. The applicable 

LTCH PPS wage index values for the 

2007 LTCH PPS rate year are shown in 

Tables 1 and 2 of the Addendum to the 

RY 2007 LTCH PPS final rule (71 FR 

27906 through 27930). We adjusted for 

area wage differences for estimated 2007 

LTCH PPS rate year payments using the 

current LTCH PPS labor-related share of 

75.665 percent (71 FR 27830). 

Similarly, we adjusted for area wage 

differences for estimated 2008 LTCH 

PPS rate year payments by computing a 

weighted average of a LTCH’s applicable 

wage index during the period from July 

1, 2007, through June 30, 2008, because, 

although under the established phase-in 

of the wage index adjustment for cost 

reporting periods beginning on or after 

October 1, 2006, the applicable LTCH 

wage index value is the full (five-fifths) 

LTCH PPS wage index value, during RY 

2008 some providers will still 

experience a change in the wage index 

phase-in percentage during that period. 

For example, during RY 2008, a 

provider with a FY 2006 cost reporting 

period that began September 1, 2006, 

(and will end on August 31, 2007) 

would have 2 months (July 2007 and 

August 2007) of payments under the 

four-fifths wage index value and 10 

months (September 2007 through June 

2007) of payment under the (full) fivefifths wage index value. For this 

provider, we computed a blended wage 

index of 16.7 percent (2 months/12 

months) of the four-fifths wage index 

value and 83.3 percent (10 months/12 

months) of the (full) five-fifths wage 

index value. The applicable LTCH PPS 

wage index values for the 2008 LTCH 

PPS rate year are shown in Tables 1 and 

2 of Addendum A to this final rule. We 

adjusted for area wage differences for 

estimated 2008 LTCH PPS rate year 

payments using the LTCH PPS laborrelated share of 75.511 percent (see 

section IV.D.1.c. of this final rule). 

As noted previously in this final rule, 

under the 5-year transition set forth at 

§ 412.533(a), a LTCH’s total payment 

under the LTCH PPS was based on an 

increasing percentage of the Federal rate 

with a corresponding decrease in the 

percentage of the LTCH PPS payment 

that is based on reasonable cost 

principles. However, effective for cost 

reporting periods beginning on or after 

October 1, 2006, total LTCH PPS 

payments are based solely on the 

Federal rate. Therefore, even though 

some LTCHs will have a cost reporting 

period for the 4th year of the transition 

period that will be concluding in the 

first 3 months of the 2008 LTCH PPS 

rate year, the portion of those LTCH PPS 

payments that will be based on 

reasonable cost principles during RY 

2008 is negligible relative to LTCH PPS 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26985 

payments based on the Federal rate, and 

therefore, we are no longer estimating 

transition payments as we have done in 

past impact analyses (for example, 71 

FR 27892). 

Furthermore, in estimating both RY 

2007 and RY 2008 LTCH PPS payments, 

we did not apply a transition period BN 

offset to payments to account for the 

effect of the 5-year transition 

methodology and election of payment 

based on 100 percent of the Federal rate 

on Medicare program payments 

(established in the August 30, 2002 final 

rule (67 FR 56034)). This is because, for 

RY 2007, we established a 0.0 percent 

BN offset (a BN factor of 1.0) to 

payments to account for the effect of the 

5-year transition methodology and 

election of payment based on 100 

percent of the Federal rate on Medicare 

program payments in RY 2007 (71 FR 

27841). As noted above and discussed 

in greater detail in section IV.D.5. of this 

final rule, we are not proposing a 

transition period BN offset to all LTCH 

PPS payments in RY 2008 to account for 

the estimated cost of the transition 

period methodology (including the 

option to elect payment based on 100 

percent of the Federal rate) in RY 2008 

since we are projecting that such costs 

would be negligible. 

As noted in Table 11, we show the 

impact as if all LTCHs would be paid 

100 percent of the Federal rate since, 

based on the most recent available data 

and the transition blend percentages set 

forth at § 412.533(a), nearly all LTCH 

PPS payments would be based on 100 

percent of the applicable LTCH PPS 

standard Federal rate during the 

majority of RYs 2007 and 2008. Table 11 

illustrates the estimated aggregate 

impact of the LTCH PPS among various 

classifications of LTCHs. 

• The first column, LTCH 

Classification, identifies the type of 

LTCH. 

• The second column lists the 

number of LTCHs of each classification 

type. 

• The third column identifies the 

number of LTCH cases. 

• The fourth column shows the 

estimated payment per discharge for the 

2007 LTCH PPS rate year. 

• The fifth column shows the 

estimated payment per discharge for the 

2008 LTCH PPS rate year. 

• The sixth column shows the 

estimated percentage change in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year for changes to the 

Federal rate. 

• The seventh column shows the 

percentage change in estimated 

payments per discharge from the 2007 

LTCH PPS rate year to the 2008 LTCH 

PPS rate year for changes to the area 

wage adjustment at § 412.525(c) (as 

discussed in section IV.D.1. of the 

preamble of this final rule). 

• The eighth column shows the 

percent change in estimated payments 

per discharge from the 2007 LTCH PPS 

rate year to the 2008 LTCH PPS rate year 

for the revision of the SSO policy at 

§ 412.529. 

• The ninth column shows the 

estimated percentage change in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year for all changes. 

TABLE 11: PROJECTED IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS

FOR RY 2008* 

[Estimated 2007 LTCH PPS Rate Year Payments Compared to Estimated 2008 LTCH PPS Rate Year Payments*] 

LTCH Classification 

Number 

of 

LTCHs 

Number of LTCH 

PPS cases 

Average RY 

2007 LTCH 

PPS rate 

year payment per 

case 1

Average RY 

2008 LTCH 

PPS rate 

year payment per 

case 2

Percent 

change in 

estimated 

payments 

per discharge from 

RY 2007 to 

RY 2008 for 

finalized 

changes to 

the Federal 

rate 3

Percent 

change 3 in 

estimated 

payments 

per discharge from 

RY 2007 to 

RY 2008 for 

finalized 

changes to 

the area 

wage adjustment 4

Percent 

change in 

estimated 

payments 

per discharge from 

RY 2007 to 

RY 2008 for 

finalized 

changes to 

the SSO 

policy 5

Percent 

change in 

payments 

per discharge from 

RY 2007 to 

RV 2008 for 

all 

changes 6

ALL PROVIDERS 377 129,812 32,948.31 31,690.36 0.6 ¥1 ¥0.9 ¥3.8 

By Location: 

RURAL .................. 23 5,300 26,996.15 25,311.01 0.7 ¥2.8 ¥0.9 ¥6.2 

URBAN ................. 354 124,512 33,201.67 31,961.90 0.6 ¥1 ¥0.9 ¥3.7 

LARGE .................. 182 75,064 34,569.39 33,479.26 0.6 ¥0.6 ¥0.9 ¥3.2 

OTHER ................. 172 49,448 31,125.41 29,658.50 0.6 ¥1.7 ¥0.9 ¥4.7 

By Participation Date: 

BEFORE OCT. 

1983 .................. 16 6,989 28,710.08 27,984.35 0.6 ¥0.4 ¥0.6 ¥2.5 

OCT. 1983–SEPT. 

1993 .................. 44 20,751 34,144.47 32,974.16 0.6 ¥0.8 ¥0.9 ¥3.4 

OCT. 1993–SEPT. 

2002 .................. 203 73,460 32,799.56 31,565.05 0.6 ¥1 ¥0.8 ¥3.8 

AFTER OCTOBER 

2002 .................. 108 27,949 33,576.33 32,052.78 0.6 ¥1.5 ¥1.1 ¥4.5 

UNKNOWN PARTICIPATION 

DATE ................. 6 663 30,193.71 29,182.43 0.6 ¥0.7 ¥0.7 ¥3.3 

By Ownership Type: 

VOLUNTARY ........ 83 25,732 32,158.56 30,868.01 0.6 ¥1.2 ¥1 ¥4 

PROPRIETARY .... 254 97,294 33,085.40 31,855.57 0.6 ¥1 ¥0.9 ¥3.7 

GOVERNMENT .... 14 2,694 36,386.88 34,739.92 0.6 ¥1.8 ¥0.9 4.5 

UNKNOWN OWNERSHIP TYPE .. 23 4,027 32,383.98 30,918.43 0.6 ¥1.4 ¥1 ¥4.5 

By Census Region: 

NEW ENGLAND ... 16 9,634 27,868.81 27,195.59 0.6 ¥0.3 ¥0.7 ¥2.4 


ycherry on PROD1PC64 with RULES2
26986 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 11: PROJECTED IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS

FOR RY 2008*—Continued 

[Estimated 2007 LTCH PPS Rate Year Payments Compared to Estimated 2008 LTCH PPS Rate Year Payments*] 

LTCH Classification 

Number 

of 

LTCHs 

Number of LTCH 

PPS cases 

Average RY 

2007 LTCH 

PPS rate 

year payment per 

case 1

Average RY 

2008 LTCH 

PPS rate 

year payment per 

case 2

Percent 

change in 

estimated 

payments 

per discharge from 

RY 2007 to 

RY 2008 for 

finalized 

changes to 

the Federal 

rate 3

Percent 

change 3 in 

estimated 

payments 

per discharge from 

RY 2007 to 

RY 2008 for 

finalized 

changes to 

the area 

wage adjustment 4

Percent 

change in 

estimated 

payments 

per discharge from 

RY 2007 to 

RY 2008 for 

finalized 

changes to 

the SSO 

policy 5

Percent 

change in 

payments 

per discharge from 

RY 2007 to 

RV 2008 for 

all 

changes 6

MIDDLE ATLANTIC ..................... 30 8,114 33,633.19 32,342.46 0.6 ¥1.1 ¥0.9 ¥3.8 

SOUTH ATLANTIC 47 13,402 36,618.12 35,064.93 0.6 ¥1.5 ¥1 ¥4.2 

EAST NORTH 

CENTRAL .......... 69 19,477 35,727.90 34,565.61 0.6 ¥0.5 ¥0.9 ¥3.3 

EAST SOUTH 

CENTRAL .......... 28 7,848 33,523.34 31,749.31 0.6 ¥2.3 ¥1 ¥5.3 

WEST NORTH 

CENTRAL .......... 18 5,337 35,460.12 33,952.08 0.6 ¥1.4 ¥0.9 ¥4.3 

WEST SOUTH 

CENTRAL .......... 129 50,983 29,548.10 28,136.94 0.6 ¥1.7 ¥0.9 ¥4.8 

MOUNTAIN ........... 22 5,768 35,112.45 34,384.29 0.6 0.6 ¥1.1 ¥2.1 

PACIFIC ................ 18 9,249 41,923.26 41,407.75 0.6 0.8 ¥0.7 ¥1.2 

By Bed Size: 

BEDS: 0–24 .......... 32 4,998 30,256.35 28,833.57 0.7 ¥1.4 ¥0.9 ¥4.7 

BEDS: 25–49 ........ 196 45,487 33,211.07 31,783.23 0.6 ¥1.4 ¥1 ¥4.3 

BEDS: 50–74 ........ 65 24,371 33,228.43 31,986.77 0.6 ¥0.9 ¥0.9 ¥3.7 

BEDS: 75–124 ...... 48 22,364 33,612.00 32,369.11 0.6 ¥1 ¥0.8 ¥3.7 

BEDS: 125–199 .... 21 17,716 33,261.36 32,056.82 0.6 ¥0.9 ¥0.9 ¥3.6 

BEDS: 200 + ......... 15 14,876 31,219.79 30,423.78 0.6 ¥0.2 ¥0.7 ¥2.5 

UNKNOWN BED 

SIZE .................. 0 0 0.00 0.00 0 0 0 0 

* We also note that, as discussed above in section XV.B.4. of this regulatory impact analysis, the 2.2 percent decrease in estimated aggregate 

LTCH PPS payments due to the expansion of the special payment provision for co-located LTCHs to certain situations not presently covered by 

existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of this final rule) is not reflected in this impact table. However, the impact of the expansion of the ‘‘25 percent’’ policy is discussed in greater detail below in section XV.C.1. of this regulatory impact analysis. 1Estimated average estimated payment per case for the 12-month period of July 1, 2006 through June 30, 2007. 

2Estimated average estimated payment per case for the 12-month period of July 1, 2007 through June 30, 2008. 

3Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the changes 

to the Federal rate. (Note, as discussed in section XV.B.4. of this regulatory impact analysis, because about 34 percent of all LTCH cases are 

projected to receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ‘‘IPPS comparable 

amount’’ (rather than the Federal rate), the percent change in estimated payments per discharge due to the changes to the Federal rate for most 

of the categories of LTCHs, 0.6 percent, is slightly less than the update to the Federal rate of 0.71 percent.) 4Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for changes to 

the area wage adjustment policy at § 412.525(c) (as discussed in section V.D.1. of the preamble of this final rule). 5Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the revision of 

the existing SSO policy at § 412.529 (presented in section V.A.1.a. of the preamble of this final rule). 6Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year (as established in the RY 2007 LTCH PPS final 

rule (71 FR 27798 through 27939)) to the 2008 LTCH PPS rate year (as discussed in the preamble of this final rule) for all of the payment rate 

and policy provisions presented in the preamble of this final rule. Note, this column, which shows the percent change in estimated payments per 

discharge for all changes, may not exactly equal the sum of the percent changes in estimated payments per discharge for changes to the Federal rate (column 7), for area wage adjustment changes (column 8) and the approach discussed for the SSO policy (column 9) due to the effect 

of estimated changes in aggregate HCO payments, as well as other interactive effects that cannot be isolated. 

4. Results 

Based on the most recent available 

data (as described previously for 377 

LTCHs), we have prepared the following 

summary of the impact (as shown in 

Table 11) of the LTCH PPS payment rate 

and payment rate policy changes 

presented in this final rule. (As noted 

above, the impact of other policy 

changes presented in this final rule, 

which do not directly affect the LTCH 

PPS per discharge payment rate, such as 

the expansion of the existing payment 

provision for co-located LTCHs to 

certain situations not presently covered 

by existing § 412.534 for subclause (I) 

LTCHs, are not included as part of the 

impact analysis shown in Table 11. 

However, the impact of those other 

policies are discussed separately in 

section XV.C. of this regulatory impact 

analysis.) 

The impact analysis in Table 11 

shows that estimated payments per 

discharge are expected to decrease 

approximately 3.8 percent, on average, 

for all LTCHs from the 2007 LTCH PPS 

rate year as compared to the 2008 LTCH 

PPS rate year as a result of the payment 

rate and policy changes presented in 

this final rule. We note that although we 

are proposing a 0.71 percent increase to 

the Federal rate for RY 2008, the impact 

analysis shown in Table 11 (column 6), 

only shows a 0.6 percent increase in 

estimated payments per discharge from 

RY 2007 to RY 2008, for most categories 

of LTCHs, as a result of the changes to 

the Federal rate. The reason that this 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26987 

column shows an estimated 0.6 percent 

increase rather than an estimated 0.7 

percent increase (based on the 0.71 

percent update to the Federal rate) is 

because about 34 percent of all LTCH 

cases are projected to receive a payment 

under the existing SSO policy. Under 

either the existing SSO policy or 

revision of the SSO policy discussed in 

section V.A.2. of this final rule, the 

majority of SSO cases would receive an 

adjusted LTCH PPS payment in RY 2008 

that would be based either on the 

estimated cost of the case or the ‘‘IPPS 

comparable amount’’ (that is, either 

under the ‘‘blend amount’’ at existing 

§ 412.529(c)(2)(iv) or the amount 

discussed in our approach to address 

our concerns with the existing SSO 

policy) rather than a LTCH PPS 

payment based on the Federal rate. 

Therefore, because over 30 percent of all 

LTCH PPS cases would receive a 

payment that is not based on the Federal 

rate, the percent change in estimated 

payments per discharge due to the 

changes to the Federal rate for most 

categories of LTCHs shown in Table 11 

is projected to be slightly less (0.6 

percent) than the 0.71 percent update to 

the Federal rate. Furthermore, although 

we are proposing a 0.71 percent increase 

to the Federal rate for RY 2008, the 

projected percent decrease in estimated 

payments per discharge from the 2007 

LTCH PPS rate year to the 2008 LTCH 

PPS rate year shown in Table 11 is due 

to changes to the area wage adjustment 

(discussed in section IV.D.1. of this final 

rule), in conjunction with the revision 

of the SSO policy (discussed in section 

V.A.2. of this final rule) and the increase 

to the HCO fixed-loss amount (as 

discussed in section IV.D.3.c. of this 

final rule). 

Specifically, as we discussed in 

greater detail in section IV.D.1. of the 

preamble of this final rule, we are 

updating the wage index values for RY 

2008 in accordance with the progression 

of the 5-year phase-in of the wage index 

adjustment. We are also increasing the 

labor-related share from 75.665 percent 

to 75.788 percent under the LTCH PPS 

beginning in RY 2008. Because this 

change to the labor-related share would 

increase the portion of the Federal rate 

that is adjusted by the wage index to 

account for differences in local cost 

variation (in accordance with 

§ 412.525(c)), LTCHs located in areas 

with a RY 2008 wage index value that 

is greater than 1.0 would experience an 

increase in estimated payments per 

discharge as a result of the increase in 

the labor-related share. Conversely, 

LTCHs located in areas with a RY 2008 

wage index value that is less than 1.0 

are expected to experience a decrease in 

estimated payments per discharge as a 

result of the increase in the labor-related 

share since a larger portion of the 

Federal rate would be adjusted by the 

wage index to account for differences in 

local cost variation (in accordance with 

§ 412.525(c)). However, the effect of the 

progression of the 5-year phase-in of the 

wage index adjustment results in a 

relatively more significant decrease in 

estimated payments for LTCHs located 

in areas with a RY 2008 wage index 

value that is less than 1.0, than the 

effect on payments due to the increase 

in the labor-related share. Consequently, 

the changes to the wage index 

adjustment presented in this final rule 

for LTCHs located in areas with a RY 

2008 wage index value that is less than 

1.0 are expected to also contribute to the 

projected decrease in estimated 

payments per discharge from RY 2007 

as compared to RY 2008. 

In addition, under the revision to the 

SSO policy, those LTCH SSO cases with 

a covered LOS that is less than or equal 

to the IPPS ALOS plus one standard 

deviation for the same DRG would 

receive a lower adjusted LTCH PPS 

payment than under the current SSO 

policy. We believe that the LTCH cases 

meeting the criteria stated above are 

similar to the same type of cases treated 

in an acute care hospital and paid for 

under the IPPS since one standard 

deviation is a statistical test which 

measures the certainty of the average of 

a set of measurements for the purpose 

of this data analysis. Accordingly, we 

believe the revision of the SSO policy is 

appropriate, given that many of these 

SSO cases that are ‘‘similar to IPPS 

cases’’ most likely do not receive a full 

course of a LTCH-level of treatment in 

such a short period of time since, in 

general, LTCHs are intended to treat 

longer stay patients. Furthermore, since 

by far the majority of SSO cases were 

admitted to the LTCH directly from an 

acute-care hospital, they are likely to 

still be in need of acute-level care at the 

time of admission to the LTCH. We 

believe that this may indicate that the 

LTCH admission is a premature and 

inappropriate discharge from the acutecare hospital and an inappropriate 

admission to the LTCH. We believe that 

the revision of the SSO policy will 

result in appropriate payments for shortstay cases treated at LTCHs as discussed 

in greater detail in section V.A.2. of this 

final rule. 

Furthermore, as we discussed in 

greater detail in section IV.D.3.c. of the 

preamble of this final rule, given the 

regulatory requirement at § 412.525(a) 

that estimated outlier payments not 

exceed 8 percent of estimated total 

LTCH PPS payments, this decrease in 

estimated LTCH PPS payments for RY 

2008 resulting primarily from the 

changes to the SSO policy and the 

changes to the area wage adjustment 

would require an increase in the HCO 

fixed-loss amount to maintain estimated 

outlier payments of no more than 8 

percent of the estimated total LTCH PPS 

payments (resulting from the payment 

rate and policy changes presented in 

this rule). Thus, the increase in the 

outlier fixed-loss amount also 

contributes to the projected decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year. For example, many 

LTCHs are expected to receive a 

decrease in HCO payments. As a result 

of the increase to the fixed-loss amount 

from the 2007 LTCH PPS rate year 

($14,887) to the 2008 LTCH PPS rate 

year ($22,954), fewer cases would 

qualify as outlier cases (that is, the 

estimated cost of the case exceeds the 

outlier threshold). Since many LTCHs 

are expected to receive fewer outlier 

payments, total estimated payments per 

discharge are expected to decrease from 

RY 2007 to RY 2008. 

a. Location 

Based on the most recent available 

data, the majority of LTCHs are in urban 

areas. Approximately 6 percent of the 

LTCHs are identified as being located in 

a rural area, and approximately 4 

percent of all LTCH cases are treated in 

these rural hospitals. The impact 

analysis presented in Table 11 shows 

that the percent decrease in estimated 

payments per discharge for the 2007 

LTCH PPS rate year compared to the 

2008 LTCH PPS rate year for rural 

LTCHs would be 6.2 percent for all 

changes, and would be 3.7 percent for 

urban LTCHs for all changes. 

The projected percent decrease in 

estimated payments to rural LTCHs is 

greater than that for urban LTCHs 

because rural LTCHs are expected to 

experience a larger decrease in 

estimated payments due to the changes 

to the area wage adjustment because the 

wage index for all rural LTCHs is less 

than 1.0, as explained above in this 

section. Furthermore, the wage indices 

of all 23 rural LTCHs in our database 

have decreased from RY 2007 to RY 

2008. 

Large urban LTCHs are projected to 

experience a 3.2 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year, while 

other urban LTCHs are projected to 

experience a 4.7 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 


ycherry on PROD1PC64 with RULES2
26988 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

to the 2008 LTCH PPS rate year, as 

shown in Table 11. Other urban LTCHs 

are projected to experience a higher 

than average decrease in estimated 

payments per discharge because of the 

changes to the area wage adjustment. 

This is because the majority of other 

urban LTCHs (over 90 percent) are 

located in urban areas that have a wage 

index value of less than 1.0, and 

therefore, would experience a higher 

than average decrease in estimated 

payments per discharge as a result of the 

changes to the wage index adjustment, 

as explained above. 

Large urban LTCHs are projected to 

experience a lower than average 

decrease in estimated payments per 

discharge for all changes because of the 

changes to the area wage adjustment 

because the majority of large urban 

LTCHs are located in urban areas that 

have a wage index value of greater than 

1.0, as explained above in this section. 

Additionally, all rural and both large 

and other urban hospitals are projected 

to experience a lower than average 

decrease in estimated payments per 

discharge for all changes because of the 

increased HCO fixed-loss amount as 

discussed previously. 

b. Participation Date 

LTCHs are grouped by participation 

date into four categories: (1) Before 

October 1983; (2) between October 1983 

and September 1993; (3) between 

October 1993 and September 2002; and 

(4) after October 2002. Based on the 

most recent available data, the majority 

(approximately 54 percent) of the LTCH 

cases are in hospitals that began 

participating between October 1993 and 

September 2002, and are projected to 

experience a 3.8 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year, as 

shown in Table 11. 

Approximately 12 percent of LTCH 

PPS cases are in LTCHs that began 

participating in Medicare between 

October 1983 and September 1993, and 

those LTCHs are projected to experience 

a 3.4 percent decrease in estimated 

payments per discharge from the 2007 

LTCH PPS rate year compared to the 

2008 LTCH PPS rate year, as shown in 

Table 11. We are projecting that LTCHs 

that began participating in Medicare 

between October 1983 and September 

1993 would experience a lower than 

average decrease in estimated payments 

for RY 2008 primarily because we are 

projecting that these LTCHs are 

expected to experience a lower than 

average decrease (0.8 percent) in 

estimated payments per discharge due 

to the changes to the area wage 

adjustment. This is because many of the 

LTCHs that began participating in 

Medicare between October 1983 and 

September 1993 are located in areas 

where the RY 2008 wage index value 

would be greater than the RY 2007 wage 

index value, and because several of 

these LTCHs are located in areas that 

have a wage index value of greater than 

1.0, (as explained above). 

LTCHs that began participating before 

October 1983 are projected to 

experience a 2.5 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year (see 

Table 11). We are projecting that LTCHs 

that began participating in Medicare 

before October 1983 would experience a 

decrease in estimated payments for RY 

2008 as compared to RY 2007 primarily 

because we are projecting that LTCHs in 

this participation date category would 

experience a decrease in estimated 

payments in RY 2008 as compared to 

RY 2007 due to the changes to the fixedloss amount. In addition, LTCHs that 

began participating in Medicare before 

October 1983 are expected to experience 

a lower than average decrease in 

estimated payments due to the revision 

of the SSO policy. 

Approximately 29 percent of LTCHs 

began participating in Medicare after 

October 2002 (that is, the beginning of 

the LTCH PPS, which was implemented 

for cost reporting periods beginning on 

or after October 1, 2002), and those 

LTCHs are projected to experience a 4.5 

percent decrease in estimated payments 

per discharge from the 2007 LTCH PPS 

rate year compared to the 2008 LTCH 

PPS rate year (see Table 11). We are 

projecting that LTCHs that began 

participating in Medicare after October 

2002 will experience a higher than 

average decrease in estimated payments 

for RY 2008 primarily because we are 

projecting that these LTCHs would 

experience a larger than average 

decrease (1.5 percent) in estimated 

payments per discharge due to the 

changes to the area wage adjustment. 

This is because the majority of the 

LTCHs that began participating in 

Medicare after October 2002 are located 

in areas where the RY 2008 wage index 

value would be less than the RY 2007 

wage index value, and because the 

majority (over 96 percent) of these 

LTCHs are located in areas that would 

have a RY 2008 wage index value of less 

than 1.0, (as discussed above in this 

section). 

c. Ownership Control 

Other than LTCHs whose ownership 

control type is unknown, LTCHs are 

grouped into three categories based on 

ownership control type: voluntary; 

proprietary; and government. Based on 

the most recent available data, 

approximately 4 percent of LTCHs are 

identified as government-owned and 

operated. We expect that for these 

government-owned and operated 

LTCHs, estimated 2008 LTCH PPS rate 

year payments per discharge would 

decrease 4.5 percent in comparison to 

the 2007 LTCH PPS rate year, as shown 

in Table 11. We are projecting that 

government-run LTCHs would 

experience a higher than average 

decrease in estimated payments in RY 

2008 as compared to RY 2007 due to the 

effect of the changes to the area wage 

adjustment. This is because all but 3 of 

the 13 government-run LTCHs in our 

database are located in areas where the 

wage index value for RY 2008 is less 

than 1.0, as explained above. 

Similarly, we project that estimated 

2008 LTCH PPS rate year payments per 

discharge for voluntary LTCHs, which 

account for approximately 22 percent of 

LTCHs, would decrease 4 percent in 

comparison to estimated 2007 LTCH 

PPS rate year payments (see Table 11). 

We are projecting that voluntary LTCHs 

would experience a slightly higher than 

average decrease in estimated payments 

in RY 2008 as compared to RY 2007 due 

to the changes to the wage index 

adjustment since over 60 percent (51 

LTCHs) of the voluntary LTCHs are 

located in areas where the wage index 

value is less than 1.0 (as discussed 

above). 

The majority (approximately 67 

percent) of LTCHs are identified as 

proprietary. We project that 2008 LTCH 

PPS rate year estimated payments per 

discharge for these proprietary LTCHs 

would decrease 3.7 percent in 

comparison to the 2007 LTCH PPS rate 

year (see Table 11). 

d. Census Region 

Estimated payments per discharge for 

the 2008 LTCH PPS rate year are 

projected to decrease for LTCHs located 

in all regions in comparison to the 2007 

LTCH PPS rate year although five out of 

the nine regions are projected to have a 

lower than average or average decrease 

in payments as compared to the average 

decrease for all providers. The percent 

decrease in estimated payments per 

discharge from the 2007 LTCH PPS rate 

year to the 2008 LTCH PPS rate year for 

most regions is largely attributable to 

the increase in the HCO fixed-loss 

amount (as explained above). 

Of the 9 census regions, we project 

that the decrease in 2008 LTCH PPS rate 

year estimated payments per discharge 

in comparison to the 2007 LTCH PPS 

rate year would have the largest impact 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26989 

on LTCHs in the East South Central and 

West South Central regions (5.3 percent 

and 4.8 percent, respectively; see Table 

11). LTCHs located in both the East 

South Central and West South Central 

regions are expected to experience a 

higher than average decrease in 

estimated payments due to the changes 

in the area wage adjustment (2.3 percent 

for the East South Central region, and 

1.7 percent for the West South Central 

region, as shown in Table 11). This is 

because over 80 percent of all LTCHs 

located in the East South Central region 

and the West South Central regions are 

located in areas with a wage index value 

that is less than 1.0 (as described above). 

In addition, these LTCHs are also 

expected to experience a higher than 

average decrease in estimated payments 

per discharge due to the revision of the 

SSO policy since many of the LTCHs in 

these two regions have a larger than 

average percentage of SSO cases (based 

on FY 2006 LTCH claims data). 

e. Bed Size 

LTCHs were grouped into seven 

categories based on bed size: 0–24 beds; 

25–49 beds; 50–74 beds; 75–124 beds; 

125–199 beds; greater than 200 beds; 

and unknown bed size. 

We are projecting a decrease in 

estimated 2008 LTCH PPS rate year 

payments per discharge in comparison 

to the 2007 LTCH PPS rate year for all 

bed size categories. As noted above, the 

projected percent decrease in estimated 

payments per discharge from the 2007 

LTCH PPS rate year to the 2008 LTCH 

PPS rate year is largely attributable to 

the changes in the area wage 

adjustment, and the increase in the 

outlier fixed-loss amount (as explained 

above). 

Of the six different bed size 

categories, the two categories with the 

lowest bed count (0–24 beds and 25–49 

beds) are projected to have higher than 

average decreases in payment. 

Estimated payments per discharge for 

the 2008 LTCH PPS rate year for LTCHs 

with 0–24 beds are projected to decrease 

the most in comparison to the 2007 

LTCH PPS rate year (4.7 percent; see 

Table 11), followed by LTCHs with 25–

49 beds (4.3 percent; see Table 11). This 

higher than average decrease in 

estimated payments per discharge for 

LTCHs with less than 49 beds (that is, 

LTCHs in the 0–24 bed size category 

and LTCHs in the 25–49 bed size 

category) is largely due to the changes 

to the area wage adjustment and the 

increase in the HCO fixed-loss amount 

(as explained above). Specifically, the 

majority of LTCHs with 49 beds or less 

are located in areas where the RY 2008 

wage index value is less than the RY 

2007 wage index value. In addition, the 

majority (over 84 percent) of LTCHs 

with 49 beds or less are located in areas 

where the RY 2008 wage index is less 

than 1.0. We project that LTCHs with 

greater than 200 beds would have a less 

than average decrease in estimated 2008 

LTCH PPS rate year payments per 

discharge in comparison to the 2007 

LTCH PPS rate year (2.5 percent; see 

Table 11). This smaller decrease in 

estimated payments per discharge for 

LTCHs with greater than 200 beds is 

primarily due to the changes to the area 

wage adjustment. This is because the 

majority of these LTCHs are located in 

areas where the RY 2008 wage index 

value is greater than the RY 2007 wage 

index value, and because 12 of the 13 

LTCHs with greater than 200 beds are 

located in an area where the RY 2008 

wage index value is greater than 1.0 (as 

described above). 

5. Effect on the Medicare Program 

Based on actuarial projections, an 

estimate of Medicare spending (total 

estimated Medicare program payments) 

for LTCH services over the next 5 years 

based on current LTCH PPS policy (as 

established in previous LTCH PPS final 

rules) is shown in Table 4 in section 

IV.D.5. of the preamble of this final rule. 

As noted, we project that the provisions 

of this final rule, would result in a 

decrease in estimated aggregate LTCH 

PPS payments in RY 2008 of about $156 

million (or about 3.8 percent) for the 

377 LTCHs in our database, as 

explained in greater detail above in 

section XV.A. of this regulatory impact 

analysis. 

Consistent with the statutory 

requirement for BN, as we discussed in 

the August 30, 2002 final rule that 

implemented the LTCH PPS, in 

developing the LTCH PPS, we intended 

that estimated aggregate payments 

under the LTCH PPS in FY 2003 be 

projected to equal the estimated 

aggregate payments that would have 

been made if the LTCH PPS were not 

implemented. Our methodology for 

estimating payments for purposes of the 

BN calculations for determining the FY 

2003 standard Federal rate uses the best 

available data and necessarily reflects 

assumptions. As we collect data from 

LTCHs, we will monitor payments and 

evaluate the ultimate accuracy of the 

assumptions used in the BN 

calculations (that is, inflation factors, 

intensity of services provided, or 

behavioral response to the 

implementation of the LTCH PPS). As 

discussed in section IV.D.6. of this final 

rule, we still do not have sufficient new 

cost report and claims data generated 

under the LTCH PPS to enable us to 

conduct a comprehensive reevaluation 

of our FY 2003 BN calculation at this 

time. 

Section 123 of the BBRA and section 

307 of the BIPA provide the Secretary 

with extremely broad authority in 

developing the LTCH PPS, including the 

authority for appropriate adjustments. 

In accordance with this broad authority, 

we may discuss in a future proposed 

rule a possible one-time prospective 

adjustment to the LTCH PPS rates under 

§ 412.523(d)(3) on or before July 1, 2008, 

so that the effect of any significant 

differences between actual payments 

and estimated payments for the first 

year of the LTCH PPS is not perpetuated 

in the LTCH PPS payment rates for 

future years. 

6. Effect on Medicare Beneficiaries 

Under the LTCH PPS, hospitals 

receive payment based on the average 

resources consumed by patients for each 

diagnosis. We do not expect any 

changes in the quality of care or access 

to services for Medicare beneficiaries 

under the LTCH PPS, but we expect that 

paying prospectively for LTCH services 

would enhance the efficiency of the 

Medicare program. 

C. Impact of Other Policy Changes 

1. Effects of Policy Expansion of the 

Special Payment Provisions for LTCH 

HwHs and LTCH Satellites to Certain 

Situations Not Presently Covered by 

Existing § 412.534 for Subclause (I) 

LTCHs 

In section V.B. of the preamble to this 

final rule, we have revised § 412.534 

and added § 412.536 to extend the 

existing payment provision for colocated LTCHs (HwHs and satellites of 

LTCHs) to certain situations not 

presently covered by existing § 412.534 

for subclause (I) LTCHs. Under the 

existing policy, which was finalized for 

FY 2005, a payment adjustment is 

applied to those discharges from colocated LTCHs that were admitted from 

host hospitals that are in excess of a 

specified threshold unless those 

patients had reached HCO status at the 

referring hospital. Following a 4-year 

phase-in of this payment adjustment, for 

cost reporting periods beginning during 

FY 2008, the threshold is 25 percent or 

an applicable percentage established 

under the regulation that takes into 

account the particular circumstances of 

rural, urban single, or MSA dominant 

hospitals. Specifically, at existing 

§ 412.534, we have provided that under 

the LTCH PPS, Medicare will pay the 

lesser of an amount otherwise payable 

under subpart O of 42 CFR part 412 or 

a LTCH PPS payment amount 


ycherry on PROD1PC64 with RULES2
26990 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

equivalent to what would have been 

paid under the IPPS for those discharges 

that were not HCOs from the referring 

hospital and that exceed 25 percent (or 

the applicable percentage) of the LTCH 

or LTCH satellite’s Medicare discharges 

for any cost reporting period (69 FR 

49191 through 49213). We originally 

established this payment adjustment 

because our data suggested that in many 

cases, hospitals were prematurely 

shifting patients to co-located LTCHs, 

and therefore, that we were generating 

a Medicare payment to the first hospital 

(generally an acute care hospital paid 

under the IPPS) and also an additional 

Medicare payment under the LTCH PPS 

to an LTCH for what was, in essence, 

one episode of care. Consequently, we 

believed that in such circumstances colocated LTCHs were functioning as stepdown units of their host hospitals, a 

configuration which is not permitted 

under section 1886(d)(1)(B) of the Act, 

which provides for the establishment of 

rehabilitation and psychiatric units of 

acute care hospitals but does not allow 

LTCH units. 

As detailed in section V.B. of the 

preamble of this final rule, our data 

suggests that many of our concerns 

regarding patient shifting between colocated providers also pertain to those 

LTCHs that are not co-located with 

other hospitals. The RY 2005 LTCH 

discharges from the MedPAR files 

indicate that about 73 percent of the 

then 200 free-standing LTCHs admitted 

25 percent or less of their Medicare 

discharges from an individual acute care 

hospital; for 82 of those freestanding 

LTCHs, the percentage was between 25 

and 50 percent; for 33 of the 

freestanding LTCHs, it was between 50 

and 75 percent. For 6 percent of those 

free-standing LTCHs, it was between 75 

and 100 percent of their Medicare 

discharges were admitted from one 

acute care hospital. In addition, the RY 

2005 LTCH discharges from the 

MedPAR files indicate that for over 63 

percent of all LTCHs, more than 25 

percent of their discharges are for 

patients admitted from an individual 

acute care hospital. Based on this data, 

as discussed in section V.B. of this final 

rule, we have decided to expand this 

above described payment adjustment at 

existing § 412.534 to apply equally to 

certain situations not presently covered 

by existing § 412.534 for subclause (I) 

LTCHs beginning with cost reporting 

periods starting in RY 2008. Under this 

policy, if any subclause (I) LTCH’s or 

satellite facility’s discharges that had 

been admitted from any referring 

hospital that is not co-located with the 

LTCH or LTCH satellite (under 

§ 412.536) or from a co-located host 

(under the revision to § 412.534) exceed 

25 percent (or the applicable 

percentage) for the LTCH’s cost 

reporting period, an adjusted payment 

would be made at the lesser of the 

otherwise payable amount under the 

LTCH PPS or the LTCH PPS payment 

amount that would be equivalent to 

what Medicare would otherwise pay 

under the IPPS. Grandfathered LTCH 

HwHs and LTCH satellites will also be 

subject to the 25 percent (or applicable 

percentage) threshold payment 

adjustment for Medicare discharges 

admitted from their co-located host, 

under § 412.534(g) and will additionally 

be governed by § 412.536 for discharges 

admitted from non-co-located referring 

hospitals. 

It is our intent that the revisions that 

we are finalizing would discourage 

inappropriate patient shifting to LTCHs 

before the referring hospital delivers a 

full episode of patient care. To the 

extent that LTCHs change their 

behaviors because this policy reduces 

the financial incentives for certain 

situations not presently covered by 

existing § 412.534 to admit patients 

prematurely discharged from other 

hospitals, we believe that there would 

be savings to the Medicare program. 

Specifically, as under the existing 

policy for co-located LTCHs at existing 

§ 412.534, the payment adjustment 

would not apply to either those 

subclause (I) LTCH discharges admitted 

from referring hospitals not co-located 

with the LTCH or LTCH satellite (under 

§ 412.536) or those subclause (I)LTCH 

HwH or satellite discharges admitted 

from co-located host hospitals (under 

the revision to § 412.534) that have 

already reached HCO status. 

At this time, based on the most recent 

LTCH claims data available and 

assuming no change in LTCH behavior 

if this policy were implemented, we 

estimate that the extension of the 25 

percent (or applicable percentage) 

threshold at existing § 412.534 to certain 

situations not presently covered by 

existing § 412.534 subclause (I) LTCHs 

would not result in savings to the 

Medicare program in RY 2008 due to 

our adoption of a 3 year transition to 

this policy. However, as that policy is 

fully implemented at 25 percent (or the 

applicable level) there will be a 

significant impact in LTCH payments. 

As discussed above in this section, we 

believe that this policy would 

discourage inappropriate patient 

shifting to LTCHs before the non-colocated referring hospital or co-located 

host delivered a full episode of patient 

care and because we believe that this 

policy would result in appropriate 

Medicare payments under the LTCH 

PPS, and therefore, to the extent that 

LTCHs alter their admission protocols, 

we do not believe that there would be 

an adverse financial impact on LTCHs, 

nor would there be an adverse impact 

on Medicare beneficiary’s access to care. 

2. Effects of Policy Change Relating to 

Payment for Direct Graduate Medical 

Education (GME) 

In section XII. of the preamble of this 

final rule, with respect to the rules that 

hospitals must meet to count residents 

training in nonhospital settings for 

indirect medical education (IME) and 

direct GME payment purposes, we 

finalized our proposal to revise 

§ 413.75(b) revising the definition of ‘‘all 

or substantially all of the costs for the 

training program in the nonhospital 

setting.’’ We also finalized our proposal 

to revise § 412.105(f)(1)(ii)(C) for IME 

and add § 413.78(f) to reflect the revised 

definition of ‘‘all or substantially all.’’

The revised definition is effective for 

cost reporting periods beginning on or 

after July 1, 2007 and states that ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ means at least 90 percent of the 

total of the costs of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable) 

and the portion of the cost of teaching 

physicians’ salaries attributable to direct 

GME. This differs from the prior 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting,’’ which required 

that, to count FTE residents training in 

a nonhospital setting, a hospital was 

required to pay for 100 percent of the 

residents’ salaries and fringe benefits, as 

well as the portion of the actual cost of 

the teaching physician’s salary and 

fringe benefits attributable to direct 

GME activities at the nonhospital site. 

In addition, under the revised definition 

of ‘‘all or substantially all’’ of the costs, 

in response to hospitals’ concerns 

regarding the difficulty of obtaining 

actual salary data from teaching 

physicians to document the actual cost 

of the teaching physicians’ time spent 

on GME activities, we are finalizing our 

proposal to allow hospitals to use 

certain proxy information, such as 

national average physician 

compensation amounts, to calculate the 

cost of the teaching physicians’ time 

spent in GME activities at the 

nonhospital site. 

We believe that much of the 

administrative burden on hospitals 

related to calculating and documenting 

the amount they need to pay for ‘‘all or 

substantially all’’ of the costs of 

residency training at the nonhospital 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26991 

site will be significantly reduced, if not 

eliminated, under our final rule. Had we 

not made the changes and continued to 

require that hospitals provide extensive 

documentation that they are paying for 

the costs of the training program in the 

nonhospital setting, we understand the 

industry had expressed concern that 

hospitals may significantly reduce the 

amount of training occurring in 

nonhospital settings and caused 

residency training to be transferred to 

hospitals. We further note that the 

Congress intended to encourage the shift 

of training to nonhospital settings and 

we believe this policy change can 

facilitate further shifts to nonhospital 

settings. Since we are not finalizing a 

change that will impact the aggregate 

amount of residency training that will 

occur, and Medicare will continue to 

pay for residency training occurring in 

hospitals, overall Medicare payments 

for residency training as a result of this 

finalized policy will remain constant. 

D. Accounting Statement 

As discussed in section XV.A.1. of 

this regulatory impact analysis, the 

impact analysis of this final rule results 

in a decrease in estimated aggregate 

payments of $156 million (or about 3.8 

percent) for the 377 LTCHs in our 

database. Therefore, as required by OMB 

Circular A–4 (available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 12, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this final rule. Table 12 

provides our best estimate of the 

decrease in Medicare payments under 

the LTCH PPS as a result of the 

provisions presented in this final rule 

based on the data for the 377 LTCHs in 

our database. All expenditures are 

classified as transfers to Medicare 

providers (that is, LTCHs). 

TABLE 12.—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2007 LTCH 

PPS RATE YEAR TO THE 2008 

LTCH PPS RATE YEAR

[In Millions] 

Category Transfers 

Annualized Monetized 

Transfers.

Negative transfer—

estimated decrease 

in expenditures: 

$156. 

From Whom To 

Whom? 

Federal Government 

to LTCH Medicare 

Providers. 

In accordance with the provisions of 

Executive Order 12866, this final rule 

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 413 

Health facilities, Kidney diseases, 

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 set forth below: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

■ 1. The authority citation for part 412 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh) and section 124 of Pub. L. 106–113 

(113 Stat. 1501A–332). 

Subpart B—Hospital Services Subject 

to and Excluded From the Prospective 

Payment Systems for Inpatient 

Operating Costs and Inpatient CapitalRelated Costs 

■ 2. Section 412.22 is amended by 

adding paragraphs (h)(3)(i) and (ii) to 

read as follows: 

§ 412.22 Excluded hospitals and hospital 

units: General rules. 

* * * * * 

(h) * * * 

(3) * * * 

(i) Any hospital structured as a 

satellite facility on September 30, 1999, 

and excluded from the prospective 

payment systems on that date, to the 

extent the hospital continues operating 

under the same terms and conditions, 

including the number of beds and 

square footage considered, for the 

purposes of Medicare participation and 

payment, to be part of the hospital, in 

effect on September 30, 1999; or 

(ii) Any hospital excluded from the 

prospective payment systems under 

§ 412.23(e)(2)(ii). 

* * * * * 

Subpart G—Special Treatment of 

Certain Facilities Under the 

Prospective Payment System for 

Inpatient Operating Costs 

■ 3. Section 412.105 is amended by 

revising paragraph (f)(1)(ii)(C) to read as 

follows: 

§ 412.105 Special treatment: Hospitals that 

incur indirect costs for graduate medical 

education programs. 

* * * * * 

(f) * * * 

(1) * * * 

(ii) * * * 

(C) Effective for discharges occurring 

on or after October 1, 1997, the time 

spent by a resident in a nonhospital 

setting in patient care activities, as 

defined in § 413.75(b) of this 

subchapter, under an approved medical 

residency training program is counted 

towards the determination of full-time 

equivalency if the criteria set forth in 

§ 413.78(c), (d), (e), or (f) of this 

subchapter, as applicable, are met. 

* * * * * 

Subpart O—Prospective Payment 

System for Long-Term Care Hospitals 

■ 4. Section 412.517 is amended by—

■ A. Redesignating the introductory text 

and paragraphs (a), (b), (c), and (d) as 

paragraphs (a) introductory text, (a)(1), 

(a)(2), (a)(3), and (a)(4), respectively. 

■ B. Adding new paragraph (b). 

The addition reads as follows: 

§ 412.517 Revision of LTC–DRG group 

classifications and weighting factors. 

* * * * * 

(b) Beginning in FY 2008, the annual 

changes to the LTC–DRG classifications 

and recalibration of the weighting 

factors described in paragraph (a) of this 

section are made in a budget neutral 

manner such that estimated aggregate 

LTCH PPS payments are not affected. 

■ 5. Section 412.523 is amended by 

adding new paragraph (c)(3)(iv) to read 

as follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) * * * 

(iv) For long-term care hospital 

prospective payment system rate year 

beginning July 1, 2007 and ending June 

30, 2008. The standard Federal rate for 

long-term care hospital prospective 

payment system rate year beginning July 

1, 2007 and ending June 30, 2008 is the 

standard Federal rate for the previous 

long-term care hospital prospective 

payment system rate year updated by 

0.71 percent. The standard Federal rate 

is adjusted, as appropriate, as described 

in paragraph (d) of this section. 

* * * * * 

■ 6. Section 412.529 is amended by—

■ A. Revising paragraph (a). 

■ B. Revising the introductory text for 

paragraph (c)(2). 

■ C. Redesignating paragraph (c)(3) as 

paragraph (c)(4). 


ycherry on PROD1PC64 with RULES2
26992 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

■ D. Adding new paragraph (c)(3). 

The revision and addition reads as 

follows: 

§ 412.529 Special payment provision for 

short-stay outliers. 

(a) Short-stay outlier defined. ‘‘Shortstay outlier’’ means a discharge with a 

covered length of stay in a long-term 

care hospital that is up to and including 

five-sixths of the geometric average 

length of stay for each LTC–DRG. 

* * * * * 

(c) * * * 

(2) Except as provided in paragraph 

(c)(3)(i) of this section, for discharges 

occurring on or after July 1, 2006, from 

long-term care hospitals described 

under § 412.23(e)(2)(i), the LTCH 

prospective payment system adjusted 

payment amount for a short-stay outlier 

case is the least of the following 

amounts: 

(i) * * * 

(ii) * * * 

(iii) * * * 

(iv) * * * 

(3) For discharges specified in 

paragraph (c)(3)(i) of this section, 

occurring on or after July 1, 2007, from 

long-term care hospitals described 

under § 412.23(e)(2)(i), the LTCH 

prospective payment system adjusted 

payment amount for a short-stay outlier 

case is adjusted as follows: 

(i) If the covered length of stay of the 

case assigned to a particular LTC–DRG 

is less than or equal to one standard 

deviation from the geometric ALOS of 

the same DRG under the inpatient 

prospective payment system (the IPPScomparable threshold), the LTCH 

prospective payment system adjusted 

payment amount for such a case is the 

least of the following amounts: 

(A) 120 percent of the LTC–DRG 

specific per diem amount determined 

under paragraph (d)(1) of this section; 

(B) 100 percent of the estimated cost 

of the case determined under paragraph 

(d)(2) of this section; 

(C) The Federal prospective payment 

for the LTC–DRG as determined under 

paragraph (d)(3) of this section; or 

(D) An amount payable under subpart 

O comparable to the hospital inpatient 

prospective payment system per diem 

amount determined under paragraph 

(d)(4) of this section. 

(ii) If the covered length of stay of the 

case assigned to a particular LTC–DRG 

is greater than one standard deviation 

from the geometric ALOS of the same 

DRG under the inpatient prospective 

payment system (the IPPS-comparable 

threshold), the LTCH prospective 

payment system adjusted payment 

amount for such a case is determined 

under paragraph (c)(2) of this section. 

* * * * * 

■ 7. Section 412.534 is amended by—

■ A. Revising paragraphs (a), (b), (c)(1), 

(c)(2), (d)(1), and (e)(1). 

■ B. Revising the introductory text for 

paragraph (g). 

■ C. Adding paragraph (h). 

The revision and addition read as 

follows: 

§ 412.534 Special payment provisions for 

long-term care hospitals within hospitals 

and satellites of long-term care hospitals. 

(a) Scope. Except as provided in 

paragraph (h), the policies set forth in 

this section apply to discharges 

occurring in cost reporting periods 

beginning on or after October 1, 2004 

from long-term care hospitals as 

described in § 412.23(e)(2)(i) meeting 

the criteria in § 412.22(e)(2), or satellite 

facilities of long-term care hospitals that 

meet the criteria in § 412.22(h). 

(b) Patients admitted from hospitals 

not located in the same building or on 

the same campus as the long-term care 

hospital or long-term care hospital 

satellite. Payments to the long-term care 

hospital for patients admitted to the 

long-term care hospital or to a satellite 

of the long-term care hospital from 

another hospital that is not the colocated hospital are made under the 

rules in this subpart with no adjustment 

under this section. For cost reporting 

periods beginning on or after July 1, 

2007, payments to the long-term care 

hospital for discharges of Medicare 

patients admitted to the LTCH hospital 

or LTCH satellite facility of the longterm care hospital from another hospital 

that is not the co-located hospital are 

subject to the provisions in § 412.536. 

(c) * * * 

(1) Except as provided in paragraphs 

(g) and (h) of this section, for any cost 

reporting period beginning on or after 

October 1, 2004 in which the long-term 

care hospital or its satellite facility has 

a discharged Medicare inpatient 

population of whom no more than 25 

percent were admitted to the hospital or 

its satellite facility from the co-located 

hospital, payments are made under the 

rules at § 412.500 through § 412.541 in 

this subpart with no adjustment under 

this section. 

(2) Except as provided in paragraph 

(d), (e), (g), or (h) of this section, for any 

cost reporting period beginning on or 

after October 1, 2004 in which the longterm care hospital or satellite facility 

has a discharged Medicare inpatient 

population of whom more than 25 

percent were admitted to the hospital or 

satellite facility from the co-located 

hospital, payments for the patients who 

are admitted from the co-located 

hospital and who cause the long-term 

care hospital or satellite facility to 

exceed the 25 percent threshold for 

discharged patients who have been 

admitted from the co-located hospital 

are the lesser of the amount otherwise 

payable under this subpart or the 

amount payable under this subpart that 

is equivalent, as set forth in paragraph 

(f) of this section, to the amount that 

would be determined under the rules at 

Subpart A, § 412.1(a). Payments for the 

remainder of the long-term care 

hospital’s or satellite facility’s patients 

are made under the rules in this subpart 

at § 412.500 through § 412.541 with no 

adjustment under this section. 

* * * * * 

(d) * * * 

(1) Subject to paragraphs (g) and (h) 

of this section, in the case of a long-term 

care hospital or satellite facility that is 

located in a rural area as defined in 

§ 412.64(b)(1)(ii)(C) and is co-located 

with another hospital for any cost 

reporting period beginning on or after 

October 1, 2004 in which the long-term 

care hospital or satellite facility has a 

discharged Medicare inpatient 

population of whom more than 50 

percent were admitted to the long-term 

care hospital or satellite facility from the 

co-located hospital, payments for the 

patients who are admitted from the colocated hospital and who cause the 

long-term care hospital or satellite 

facility to exceed the 50 percent 

threshold for discharged patients who 

were admitted from the co-located 

hospital are the lesser of the amount 

otherwise payable under this subpart or 

the amount payable under this subpart 

that is equivalent, as set forth in 

paragraph (f) of this section, to the 

amount that were otherwise payable 

under subpart A, § 412.1(a). Payments 

for the remainder of the long-term care 

hospital’s or satellite facility’s patients 

are made under the rules in this subpart 

at § 412.500 through § 412.541 with no 

adjustment under this section. 

* * * * * 

(e) Special treatment of urban single 

or MSA dominant hospitals. (1) Subject 

to paragraphs (g) and (h) of this section, 

in the case of a long-term care hospital 

or satellite facility that is co-located 

with the only other hospital in the MSA 

or with a MSA dominant hospital as 

defined in paragraph (e)(4) of this 

section, for any cost reporting period 

beginning on or after October 1, 2004 in 

which the long-term care hospital or 

satellite facility has a discharged 

Medicare inpatient population of whom 

more than the percentage calculated 

under paragraph (e)(2) of this section 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26993 

were admitted to the hospital from the 

co-located hospital, payments for the 

patients who are admitted from the colocated hospital and who cause the 

long-term care hospital to exceed the 

applicable threshold for discharged 

patients who have been admitted from 

the co-located hospital are the lesser of 

the amount otherwise payable under 

this subpart or the amount under this 

subpart that is equivalent, as set forth in 

paragraph (f) of this section, to the 

amount that otherwise would be 

determined under Subpart A, § 412.1(a). 

Payments for the remainder of the longterm care hospital’s or satellite facility’s 

patients are made under the rules in this 

subpart with no adjustment under this 

section. 

* * * * * 

(g) Transition period for long-term 

care hospitals and satellite facilities 

paid under this subpart. Except as 

specified in paragraph (h)(2), in the case 

of a long-term care hospital or a satellite 

facility that is paid under the provisions 

of this subpart on October 1, 2004 or of 

a hospital that is paid under the 

provisions of this subpart and whose 

qualifying period under § 412.23(e) 

began on or before October 1, 2004, the 

amount paid is calculated as specified 

below: 

* * * * * 

(h) Effective date of policies in this 

section for certain co-located LTCH 

hospitals and satellites of LTCHs. 

(1) The policies set forth in this 

section apply to Medicare patient 

discharges that were admitted from a 

hospital located in the same building or 

on the same campus as a long-term care 

hospital described in § 412.23(e)(2)(i) 

that meets the criteria in § 412.22(f) and 

a satellite facility of a long-term care 

hospital as described at § 412.22(h)(3)(i) 

for discharges occurring in cost 

reporting periods beginning on or after 

July 1, 2007. 

(2) In the case of a long-term care 

hospital or satellite of a long-term care 

hospital that is described under 

paragraph (h)(1), the thresholds applied 

at (c), (d), and (e) will not be less than 

the percentages specified below: 

(i) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2008, the lesser of 75 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or satellite from 

its co-located hospital during the cost 

reporting period or the percentage of 

Medicare discharges that had been 

admitted to the long-term care hospital 

or satellite from that co-located hospital 

during the long-term care hospital’s or 

satellite’s RY 2005 cost reporting period. 

(ii) For cost reporting periods 

beginning on or after July 1, 2008 and 

before July 1, 2009, the lesser of 50 

percent of the total number of Medicare 

discharges that were admitted to the 

LTCH or the satellite of an LTCH from 

its co-located hospital or the percentage 

of Medicare discharges that had been 

admitted from that co-located hospital 

during the long-term care hospital’s or 

satellite’s RY 2005 cost reporting period. 

(iii) For cost reporting periods 

beginning on or after July 1, 2009, 25 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or satellite from 

its co-located hospital during the cost 

reporting period. 

(3) In determining the percentage of 

Medicare discharges admitted from the 

co-located hospital under this 

paragraph, patients on whose behalf a 

Medicare high cost outlier payment was 

made at the co-located referring hospital 

are not counted toward this threshold. 

(4) For cost reporting periods 

beginning on or after July 1, 2007, 

payments to long term care hospitals 

described in § 412.23(e)(2)(i) that meet 

the criteria in § 412.22(f) and satellite 

facilities of long-term care hospitals 

described at § 412.22(h)(3)(i) are subject 

to the provisions of § 412.536 for 

discharges of Medicare patients who are 

admitted from a hospital not located in 

the same building or on the same 

campus as the LTCH or LTCH satellite 

facility. 

■ 8. Section 412.536 is added to read as 

follows: 

§ 412.536 Special payment provisions for 

long-term care hospitals and satellites of 

long-term care hospitals that discharged 

Medicare patients admitted from a hospital 

not located in the same building or on the 

same campus as the long-term care 

hospital or satellite of the long-term care 

hospital. 

(a) Scope. For cost reporting periods 

beginning on or after July 1, 2007, the 

policies set forth in this section apply to 

discharges from long-term care hospitals 

as described in § 412.23(e)(2)(i) and 

satellite facilities of long-term care 

hospitals described in § 412.22(h), 

including satellite facilities of long-term 

care hospitals described in (h)(3)(i) but 

excluding satellite facilities described in 

(h)(3)(ii). 

(b) For cost reporting periods 

beginning on or after July 1, 2007, 

payments for discharges of Medicare 

patients admitted from a hospital not 

located in the same building or on the 

same campus as the long-term care 

hospital or long-term care hospital 

satellite facility will be made under 

either paragraph (b)(1) or paragraph 

(b)(2) of this section. 

(1) Except as provided in paragraphs 

(c), (d) and subject to paragraph (f) of 

this section, for any cost reporting 

period beginning on or after July 1, 2007 

in which a long-term care hospital or a 

long-term care hospital satellite facility 

has a discharged Medicare inpatient 

population of whom no more than 25 

percent were admitted to the long-term 

care hospital or the satellite facility from 

any individual hospital not co-located 

with the long-term care hospital or with 

the satellite of a long-term care hospital, 

payments for the Medicare discharges 

admitted from that hospital are made 

under the rules at § 412.500 through 

§ 412.541 in this subpart with no 

adjustment under this section. 

(2) Except as provided in paragraph 

(c) and (d) and subject to paragraph (f) 

of this section, for any cost reporting 

period beginning on or after July 1, 2007 

in which a long-term care hospital or 

long-term care hospital satellite facility 

has a discharged Medicare inpatient 

population of whom more than 25 

percent were admitted to the long-term 

care hospital or satellite facility from 

any individual hospital not co-located 

with the long-term care hospital or with 

the satellite of a long-term care hospital, 

payment for the Medicare discharges 

who cause the long-term care hospital or 

satellite facility to exceed the 25 percent 

threshold for discharged patients who 

have been admitted from that referring 

hospital is the lesser of the amount 

otherwise payable under this subpart or 

the amount payable under this subpart 

that is equivalent, as set forth in 

paragraph (e) of this section, to the 

amount that would be determined under 

the rules at subpart A, § 412.1(a). 

Payments for the remainder of the longterm care hospital’s or satellite facility’s 

patients admitted from that referring 

hospital are made under the rules in this 

subpart at § 412.500 through § 412.541 

with no adjustment under this section. 

(3) In determining the percentage of 

Medicare discharges admitted to the 

long-term care hospital or long-term 

care hospital satellite facility from any 

referring hospital not co-located with 

the long-term care hospital or with the 

satellite of a long-term care hospital, 

under paragraphs (b)(1) and (b)(2) of this 

section, patients on whose behalf a 

Medicare high cost outlier payment was 

made to the referring hospital are not 

counted towards the 25 percent 

threshold from that referring hospital. 

(c) Special treatment of rural 

hospitals. (1) Subject to paragraph (f) of 

this section, in the case of a long-term 

care hospital or long-term care hospital 

satellite facility that is located in a rural 


ycherry on PROD1PC64 with RULES2
26994 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

area as defined in § 412.64(b)(1)(ii)(C) 

that has a discharged Medicare inpatient 

population of whom more than 50 

percent were admitted to the long-term 

care hospital or long-term care hospital 

satellite facility from a hospital not colocated with the long-term care hospital 

or with the satellite of a long-term car 

hospital, payment for the Medicare 

discharges who are admitted from that 

hospital and who cause the long-term 

care hospital or satellite facility to 

exceed the 50 percent threshold for 

Medicare discharges is determined at 

the lesser of the amount otherwise 

payable under this subpart or the 

amount payable under this subpart that 

is equivalent, as set forth in paragraph 

(e) of this section, to the amount that is 

otherwise payable under subpart A, 

§ 412.1(a). Payments for the remainder 

of the long-term care hospital’s or longterm care hospital satellite facility’s 

Medicare discharges admitted from that 

referring hospital are made under the 

rules in this subpart at § 412.500 

through § 412.541 with no adjustment 

under this section. 

(2) In determining the percentage of 

Medicare discharges admitted from the 

referring hospital under paragraph (c)(1) 

of this section, patients on whose behalf 

a Medicare high cost outlier payment 

was made at the referring hospital are 

not counted toward the 50 percent 

threshold. 

(d) Special treatment of urban single 

or MSA dominant hospitals. (1) Subject 

to paragraph (f) of this section, in the 

case of a long-term care hospital or longterm care hospital satellite facility that 

admits Medicare patients from the only 

other hospital in the MSA or from a 

referring MSA dominant hospital as 

defined in paragraph (d)(4) of this 

section, that are not co-located with the 

long-term care hospital or with the 

satellite of a long-term care hospital for 

any cost reporting period beginning on 

or after July 1, 2007, in which the longterm care hospital or satellite facility 

has a discharged Medicare inpatient 

population of whom more than the 

percentage calculated under paragraph 

(d)(2) of this section were admitted to 

the hospital from the single or MSAdominant referring hospital, payment 

for the Medicare discharges who are 

admitted from the referring hospital and 

who cause the long-term care hospital or 

long-term care hospital satellite facility 

to exceed the applicable threshold for 

Medicare discharges who have been 

admitted from the referring hospital is 

the lesser of the amount otherwise 

payable under this subpart or the 

amount under this subpart that is 

equivalent, as set forth in paragraph (e) 

of this section, to the amount that 

otherwise would be determined under 

Subpart A, § 412.1(a). Payments for the 

remainder of the long-term care 

hospital’s or satellite facility’s Medicare 

discharges admitted from that referring 

hospital are made under the rules in this 

subpart at § 412.500 through § 412.541 

with no adjustment under this section. 

(2) For purposes of paragraph (d)(1) of 

this section, the percentage threshold is 

equal to the percentage of total Medicare 

discharges in the Metropolitan 

Statistical Area (MSA) in which the 

hospital is located that are from the 

referring hospital, but in no case is less 

than 25 percent or more than 50 

percent. 

(3) In determining the percentage of 

patients admitted from the referring 

hospital under paragraph (d)(1) of this 

section, patients on whose behalf a 

Medicare outlier payment was made at 

the referring hospital are not counted 

toward the applicable threshold. 

(4) For purposes of this paragraph, an 

‘‘MSA-dominant hospital’’ is a hospital 

that has discharged more than 25 

percent of the total hospital Medicare 

discharges in the MSA in which the 

hospital is located. 

(e) Calculation of adjusted payment—

(1) Calculation of adjusted long-term 

care hospital prospective payment 

system amount. CMS calculates an 

amount payable under subpart O 

equivalent to an amount that would 

otherwise be paid under the hospital 

inpatient prospective payment system at 

Subpart A, § 412.1(a). The amount is 

based on the sum of the applicable 

hospital inpatient prospective payment 

system operating standardized amount 

and capital Federal rate in effect at the 

time of the long-term care hospital 

discharge. 

(2) Operating inpatient prospective 

payment system standardized amount. 

The hospital inpatient prospective 

payment system operating standardized 

amount—

(i) Is adjusted for the applicable 

hospital inpatient prospective payment 

system DRG weighting factors; 

(ii) Is adjusted for different area wage 

levels based on the geographic 

classifications set forth at 

§ 412.64(b)(1)(ii)(A) through (C) and the 

applicable hospital inpatient 

prospective payment system laborrelated share, using the applicable 

hospital inpatient prospective payment 

system wage index value for nonreclassified hospitals. For long-term care 

hospitals located in Alaska and Hawaii, 

this amount is also adjusted by the 

applicable hospital inpatient 

prospective payment system cost of 

living adjustment factors; 

(iii) Includes, where applicable, 

adjustments for indirect medical 

education costs and for the costs of 

serving a disproportionate share of lowincome patients. 

(3) Hospital inpatient prospective 

payment system capital Federal rate. 

The hospital inpatient prospective 

payment system capital Federal rate—

(i) Is adjusted for the applicable 

hospital inpatient prospective payment 

system DRG weighting factors; 

(ii) Is adjusted by the applicable 

geographic adjustment factors, 

including local cost variation based on 

the applicable geographic classifications 

set forth at § 412.64(b)(1)(ii)(A) through 

(C) and the applicable full hospital 

inpatient prospective payment system 

wage index value for non-reclassified 

hospitals, applicable large urban 

location and cost of living adjustment 

factors for long-term care hospitals for 

Alaska and Hawaii, if applicable; 

(iii) Includes, where applicable, 

capital inpatient prospective payment 

system adjustments for indirect medical 

education costs and the costs of serving 

a disproportionate share of low-income 

patients. 

(4) High cost outlier. An additional 

payment for high cost outlier cases is 

based on the applicable fixed loss 

amount established for the hospital 

inpatient prospective payment system. 

(f) Transition period for long-term 

care hospitals and satellites paid under 

this section. In the case of a long-term 

care hospital or satellite of a long-term 

care hospital that is paid under the 

provisions of this section, the thresholds 

applied under paragraphs (b), (c) and (d) 

of this section will not be less than the 

percentages specified below: 

(1) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2008, the lesser of 75 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or satellite 

facility of a long-term care hospital from 

all referring hospitals not co-located 

with the long-term care hospital or with 

the satellite facility of a long-term care 

hospital during the cost reporting period 

or the percentage of Medicare 

discharges that had been admitted to the 

long-term care hospital or satellite of a 

long-term care hospital from that 

referring hospital during the long-term 

care hospital’s or satellite’s RY 2005 

cost reporting period. 

(2) For cost reporting periods 

beginning on or after July 1, 2008 and 

before July 1, 2009, the lesser of 50 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or to the satellite 

facility of a long-term care hospital from 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26995 

all referring hospitals not co-located 

with the long-term care hospital or with 

the satellite facility of a long-term care 

hospital during the cost reporting period 

or the percentage of Medicare 

discharges that had been admitted from 

that referring hospital during the longterm care hospital’s or satellite’s RY 

2005 cost reporting period. 

(3) For cost reporting periods 

beginning on or after July 1, 2009, 25 

percent of the total number of Medicare 

discharges that were admitted to the 

long-term care hospital or to the satellite 

facility of a long-term care hospital from 

all referring hospitals not co-located 

with the long-term care hospital or with 

the satellite facility of a long-term care 

hospital to the long-term care hospital 

during the cost reporting period. 

(4) In determining the percentage of 

Medicare discharges admitted from the 

referring hospital under this paragraph, 

patients on whose behalf a Medicare 

high cost outlier payment was made at 

the referring hospital are not counted 

toward this threshold. 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; PROSPECTIVELY 

DETERMINED PAYMENT RATES FOR 

SKILLED NURSING FACILITIES 

■ 9. The authority citation for part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Pub. L. 106–133 (113 Stat. 1501A–

332). 

Subpart F—Specific Categories of 

Costs 

■ 10. Section 413.75(b) is amended by 

revising the definition ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ to read as follows: 

§ 413.75 Direct GME payments: General 

requirements. 

* * * * * 

(b) * * * 

* * * * * 

All or substantially all of the costs for 

the training program in the nonhospital 

setting means—

(1) Effective on or after January 1, 

1999 and for cost reporting periods 

beginning before July 1, 2007, the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) and the portion of the cost 

of teaching physicians’ salaries and 

fringe benefits attributable to direct 

graduate medical education (GME); and 

(2) Effective for cost reporting periods 

beginning on or after July 1, 2007, at 

least 90 percent of the total of the costs 

of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries 

attributable to nonpatient care direct 

GME activities. 

* * * * * 

■ 11. Section 413.78 is amended by—

■ A. Revising the introductory text of 

paragraph (e). 

■ B. Adding new paragraph (f). 

The revision and addition read as 

follows: 

§ 413.78 Direct GME payments: 

Determination of the total number of FTE 

residents. 

* * * * * 

(e) For portions of cost reporting 

periods occurring on or after October 1, 

2004, and for cost reporting periods 

beginning before July 1, 2007, the time 

residents spend in nonprovider settings 

such as freestanding clinics, nursing 

homes, and physicians’ offices in 

connection with approved programs 

may be included in determining the 

number of FTE residents in the 

calculation of a hospital’s resident count 

if the following conditions are met: 

* * * * * 

(f) For cost reporting periods 

beginning on or after July 1, 2007, the 

time residents spend in non-provider 

settings such as freestanding clinics, 

nursing homes, and physicians’ offices 

in connection with approved programs 

may be included in determining the 

number of FTE residents the calculation 

of a hospital’s resident count if the 

following conditions are met—

(1) The resident spends his or her 

time in patient care activities. 

(2) The hospital must incur all or 

substantially all of the costs for the 

training program in the nonhospital 

setting(s) (in accordance with the 

definition under § 413.75(b)). 

(3) The hospital must comply with 

one of the following: 

(i) The hospital must pay for all or 

substantially all of the costs for the 

training program in a nonhospital 

setting(s) attributable to training that 

occurs during a month by the end of the 

third month following the month in 

which the training in the nonhospital 

site occurred; or 

(ii) There is a written agreement in 

place between the hospital and the 

nonhospital site before the training 

begins that states that the hospital will 

incur at least 90 percent of the total of 

the costs of the resident’s salary and 

fringe benefits (and travel and lodging 

where applicable) while the resident is 

training in the nonhospital site and the 

portion of the cost of the teaching 

physician’s salary attributable to 

nonpatient care direct GME activities. 

The written agreement must specify the 

total cost of the training program at the 

nonhospital site, and the amount the 

hospital will incur (at least 90 percent 

of the total), and must indicate the 

portion of the amount the hospital will 

incur that reflects residents’ salaries and 

fringe benefits (and travel and lodging 

where applicable), and the portion of 

this amount that reflects teaching 

physician compensation. Hospitals may 

modify the amounts specified in the 

written agreement by the end of the 

academic year (that is, June 30) to reflect 

that at least 90 percent of the costs of 

the training program in the nonhospital 

site has been incurred. 

(4) The hospital is subject to the 

principles of community support and 

redistribution of costs as specified in 

§ 413.81. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: April 24, 2007. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: April 30, 2007. 

Michael O. Leavitt, 

Secretary. 

The following addenda will not 

appear in the Code of Federal 

Regulations. 

Addendum 

Addendum A contains the tables 

referred to throughout the preamble to 

this final rule. The tables presented 

below are as follows: 

Table 1: Long-Term Care Hospital 

Wage Index for Urban Areas for 

Discharges Occurring from July 1, 2007 

through June 30, 2008. 

Table 2: Long-Term Care Hospital 

Wage Index for Rural Areas for 

Discharges Occurring from July 1, 2007 

through June 30, 2008. 

Table 3: FY 2007 LTC–DRG Relative 

Weights, Geometric Average Length of 

Stay, and Five-sixths of the Geometric 

Average Length of Stay (for Short-Stay 

Outlier Cases) (effective for discharges 

occurring on or after October 1, 2006 

through September 30, 2007), and the 

IPPS Average Length of Stay plus one 

Standard Deviation (for the Short-Stay 

Outlier policy). (Note: The first four 


ycherry on PROD1PC64 with RULES2
26996 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

columns of this table are the same 

information provided in Table 11 of the 

FY 2007 IPPS final rule (71 FR 48321 

through 48331), which has been 

reprinted here for convenience. The 

fifth column of this table was added to 

provide information on the revision to 

the short-stay outlier policy, discussed 

in section VI.A.2. of the preamble of this 

final rule.) 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

10180 ....... Abilene, TX ....................................................................................................................................................... 0.8000 0.8400 

Callahan County, TX.

Jones County, TX.

Taylor County, TX.

10380 ....... Aguadilla-Isabela-San Sebastia ́n, PR ............................................................................................................... 0.3915 0.5132 

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 ......................................................................................................................................................... 0.8654 0.8923 

Portage County, OH.

Summit County, OH.

10500 ....... Albany, GA ........................................................................................................................................................ 0.8991 0.9193 

Baker County, GA.

Dougherty County, GA.

Lee County, GA.

Terrell County, GA.

Worth County, GA.

10580 ....... Albany-Schenectady-Troy, NY .......................................................................................................................... 0.8720 0.8976 

Albany County, NY.

Rensselaer County, NY.

Saratoga County, NY.

Schenectady County, NY.

Schoharie County, NY.

10740 ....... Albuquerque, NM .............................................................................................................................................. 0.9458 0.9566 

Bernalillo County, NM.

Sandoval County, NM.

Torrance County, NM.

Valencia County, NM.

10780 ....... Alexandria, LA ................................................................................................................................................... 0.8006 0.8405 

Grant Parish, LA.

Rapides Parish, LA.

10900 ....... Allentown-Bethlehem-Easton, PA-NJ ............................................................................................................... 0.9947 0.9958 

Warren County, NJ.

Carbon County, PA.

Lehigh County, PA.

Northampton County, PA.

11020 ....... Altoona, PA ....................................................................................................................................................... 0.8812 0.9050 

Blair County, PA.

11100 ....... Amarillo, TX ...................................................................................................................................................... 0.9169 0.9335 

Armstrong County, TX.

Carson County, TX.

Potter County, TX.

Randall County, TX.

11180 ....... Ames, IA ........................................................................................................................................................... 0.9760 0.9808 

Story County, IA.

11260 ....... Anchorage, AK .................................................................................................................................................. 1.2023 1.1618 

Anchorage Municipality, AK.

Matanuska-Susitna Borough, AK.

11300 ....... Anderson, IN ..................................................................................................................................................... 0.8681 0.8945 

Madison County, IN.

11340 ....... Anderson, SC .................................................................................................................................................... 0.9017 0.9214 

Anderson County, SC.

11460 ....... Ann Arbor, MI .................................................................................................................................................... 1.0826 1.0661 

Washtenaw County, MI.

11500 ....... Anniston-Oxford, AL .......................................................................................................................................... 0.7770 0.8216 

Calhoun County, AL.

11540 ....... Appleton, WI ..................................................................................................................................................... 0.9455 0.9564 

Calumet County, WI.

Outagamie County, WI.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26997 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

11700 ....... Asheville, NC .................................................................................................................................................... 0.9216 0.9373 

Buncombe County, NC.

Haywood County, NC.

Henderson County, NC.

Madison County, NC.

12020 ....... Athens-Clarke County, GA ................................................................................................................................ 0.9856 0.9885 

Clarke County, GA.

Madison County, GA.

Oconee County, GA.

Oglethorpe County, GA.

12060 ....... Atlanta-Sandy Springs-Marietta, GA ................................................................................................................. 0.9762 0.9810 

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 ................................................................................................................................................ 1.1831 1.1465 

Atlantic County, NJ.

12220 ....... Auburn-Opelika, AL ........................................................................................................................................... 0.8096 0.8477 

Lee County, AL.

12260 ....... Augusta-Richmond County, GA-SC .................................................................................................................. 0.9667 0.9734 

Burke County, GA.

Columbia County, GA.

McDuffie County, GA.

Richmond County, GA.

Aiken County, SC.

Edgefield County, SC.

12420 ....... Austin-Round Rock, TX .................................................................................................................................... 0.9344 0.9475 

Bastrop County, TX.

Caldwell County, TX.

Hays County, TX.

Travis County, TX.

Williamson County, TX.

12540 ....... Bakersfield, CA ................................................................................................................................................. 1.0725 1.0580 

Kern County, CA.

12580 ....... Baltimore-Towson, MD ...................................................................................................................................... 1.0088 1.0070 

Anne Arundel County, MD.

Baltimore County, MD.

Carroll County, MD.

Harford County, MD.

Howard County, MD.

Queen Anne’s County, MD.

Baltimore City, MD.

12620 ....... Bangor, ME ....................................................................................................................................................... 0.9711 0.9769 

Penobscot County, ME.

12700 ....... Barnstable Town, MA ........................................................................................................................................ 1.2539 1.2031 


ycherry on PROD1PC64 with RULES2
26998 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Barnstable County, MA.

12940 ....... Baton Rouge, LA .............................................................................................................................................. 0.8084 0.8467 

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 ................................................................................................................................................ 0.9762 0.9810 

Calhoun County, MI.

13020 ....... Bay City, MI ...................................................................................................................................................... 0.9251 0.9401 

Bay County, MI.

13140 ....... Beaumont-Port Arthur, TX ................................................................................................................................ 0.8595 0.8876 

Hardin County, TX.

Jefferson County, TX.

Orange County, TX.

13380 ....... Bellingham, WA ................................................................................................................................................ 1.1104 1.0883 

Whatcom County, WA.

13460 ....... Bend, OR .......................................................................................................................................................... 1.0743 1.0594 

Deschutes County, OR.

13644 ....... Bethesda-Gaithersburg-Frederick, MD ............................................................................................................. 1.0903 1.0722 

Frederick County, MD.

Montgomery County, MD.

13740 ....... Billings, MT ....................................................................................................................................................... 0.8712 0.8970 

Carbon County, MT.

Yellowstone County, MT.

13780 ....... Binghamton, NY ................................................................................................................................................ 0.8786 0.9029 

Broome County, NY.

Tioga County, NY.

13820 ....... Birmingham-Hoover, AL .................................................................................................................................... 0.8894 0.9115 

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 .................................................................................................................................................... 0.7240 0.7792 

Burleigh County, ND.

Morton County, ND.

13980 ....... Blacksburg-Christiansburg-Radford, VA ........................................................................................................... 0.8213 0.8570 

Giles County, VA.

Montgomery County, VA.

Pulaski County, VA.

Radford City, VA.

14020 ....... Bloomington, IN ................................................................................................................................................ 0.8533 0.8826 

Greene County, IN.

Monroe County, IN.

Owen County, IN.

14060 ....... Bloomington-Normal, IL .................................................................................................................................... 0.8944 0.9155 

McLean County, IL.

14260 ....... Boise City-Nampa, ID ....................................................................................................................................... 0.9401 0.9521 

Ada County, ID.

Boise County, ID.

Canyon County, ID.

Gem County, ID.

Owyhee County, ID.

14484 ....... Boston-Quincy, MA ........................................................................................................................................... 1.1679 1.1343 

Norfolk County, MA.

Plymouth County, MA.

Suffolk County, MA.

14500 ....... Boulder, CO ...................................................................................................................................................... 1.0350 1.0280 

Boulder County, CO.

14540 ....... Bowling Green, KY ........................................................................................................................................... 0.8148 0.8518 

Edmonson County, KY.

Warren County, KY.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 26999 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

14740 ....... Bremerton-Silverdale, WA ................................................................................................................................. 1.0913 1.0730 

Kitsap County, WA.

14860 ....... Bridgeport-Stamford-Norwalk, CT ..................................................................................................................... 1.2659 1.2127 

Fairfield County, CT.

15180 ....... Brownsville-Harlingen, TX ................................................................................................................................. 0.9430 0.9544 

Cameron County, TX.

15260 ....... Brunswick, GA .................................................................................................................................................. 1.0164 1.0131 

Brantley County, GA.

Glynn County, GA.

McIntosh County, GA.

15380 ....... Buffalo-Niagara Falls, NY ................................................................................................................................. 0.9424 0.9539 

Erie County, NY.

Niagara County, NY.

15500 ....... Burlington, NC ................................................................................................................................................... 0.8674 0.8939 

Alamance County, NC.

15540 ....... Burlington-South Burlington, VT ....................................................................................................................... 0.9474 0.9579 

Chittenden County, VT.

Franklin County, VT.

Grand Isle County, VT.

15764 ....... Cambridge-Newton-Framingham, MA .............................................................................................................. 1.0970 1.0776 

Middlesex County, MA.

15804 ....... Camden, NJ ...................................................................................................................................................... 1.0392 1.0314 

Burlington County, NJ.

Camden County, NJ.

Gloucester County, NJ.

15940 ....... Canton-Massillon, OH ....................................................................................................................................... 0.9031 0.9225 

Carroll County, OH.

Stark County, OH.

15980 ....... Cape Coral-Fort Myers, FL ............................................................................................................................... 0.9342 0.9474 

Lee County, FL.

16180 ....... Carson City, NV ................................................................................................................................................ 1.0025 1.0020 

Carson City, NV.

16220 ....... Casper, WY ....................................................................................................................................................... 0.9145 0.9316 

Natrona County, WY.

16300 ....... Cedar Rapids, IA .............................................................................................................................................. 0.8888 0.9110 

Benton County, IA.

Jones County, IA.

Linn County, IA.

16580 ....... Champaign-Urbana, IL ...................................................................................................................................... 0.9644 0.9715 

Champaign County, IL.

Ford County, IL.

Piatt County, IL.

16620 ....... Charleston, WV ................................................................................................................................................. 0.8542 0.8834 

Boone County, WV.

Clay County, WV.

Kanawha County, WV.

Lincoln County, WV.

Putnam County, WV.

16700 ....... Charleston-North Charleston, SC ..................................................................................................................... 0.9145 0.9316 

Berkeley County, SC.

Charleston County, SC.

Dorchester County, SC.

16740 ....... Charlotte-Gastonia-Concord, NC-SC ................................................................................................................ 0.9554 0.9643 

Anson County, NC.

Cabarrus County, NC.

Gaston County, NC.

Mecklenburg County, NC.

Union County, NC.

York County, SC.

16820 ....... Charlottesville, VA ............................................................................................................................................. 1.0125 1.0100 

Albemarle County, VA.

Fluvanna County, VA.

Greene County, VA.

Nelson County, VA.

Charlottesville City, VA.

16860 ....... Chattanooga, TN-GA ........................................................................................................................................ 0.8948 0.9158 

Catoosa County, GA.

Dade County, GA.

Walker County, GA.


ycherry on PROD1PC64 with RULES2
27000 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Hamilton County, TN.

Marion County, TN.

Sequatchie County, TN.

16940 ....... Cheyenne, WY .................................................................................................................................................. 0.9060 0.9248 

Laramie County, WY.

16974 ....... Chicago-Naperville-Joliet, IL ............................................................................................................................. 1.0751 1.0601 

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 .......................................................................................................................................................... 1.1053 1.0842 

Butte County, CA.

17140 ....... Cincinnati-Middletown, OH-KY-IN ..................................................................................................................... 0.9601 0.9681 

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 ............................................................................................................................................. 0.8436 0.8749 

Christian County, KY.

Trigg County, KY.

Montgomery County, TN.

Stewart County, TN.

17420 ....... Cleveland, TN ................................................................................................................................................... 0.8109 0.8487 

Bradley County, TN.

Polk County, TN.

17460 ....... Cleveland-Elyria-Mentor, OH ............................................................................................................................ 0.9400 0.9520 

Cuyahoga County, OH.

Geauga County, OH.

Lake County, OH.

Lorain County, OH.

Medina County, OH.

17660 ....... Coeur d’Alene, ID ............................................................................................................................................. 0.9344 0.9475 

Kootenai County, ID.

17780 ....... College Station-Bryan, TX ................................................................................................................................ 0.9045 0.9236 

Brazos County, TX.

Burleson County, TX.

Robertson County, TX.

17820 ....... Colorado Springs, CO ....................................................................................................................................... 0.9701 0.9761 

El Paso County, CO.

Teller County, CO.

17860 ....... Columbia, MO ................................................................................................................................................... 0.8542 0.8834 

Boone County, MO.

Howard County, MO.

17900 ....... Columbia, SC .................................................................................................................................................... 0.8933 0.9146 

Calhoun County, SC.

Fairfield County, SC.

Kershaw County, SC.

Lexington County, SC.

Richland County, SC.

Saluda County, SC.

17980 ....... Columbus, GA-AL ............................................................................................................................................. 0.8239 0.8591 

Russell County, AL.

Chattahoochee County, GA.

Harris County, GA.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27001 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Marion County, GA.

Muscogee County, GA.

18020 ....... Columbus, IN .................................................................................................................................................... 0.9318 0.9454 

Bartholomew County, IN.

18140 ....... Columbus, OH .................................................................................................................................................. 1.0107 1.0086 

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 ............................................................................................................................................. 0.8564 0.8851 

Aransas County, TX.

Nueces County, TX.

San Patricio County, TX.

18700 ....... Corvallis, OR ..................................................................................................................................................... 1.1546 1.1237 

Benton County, OR.

19060 ....... Cumberland, MD-WV ........................................................................................................................................ 0.8446 0.8757 

Allegany County, MD.

Mineral County, WV.

19124 ....... Dallas-Plano-Irving, TX ..................................................................................................................................... 1.0075 1.0060 

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 ........................................................................................................................................................ 0.9093 0.9274 

Murray County, GA.

Whitfield County, GA.

19180 ....... Danville, IL ........................................................................................................................................................ 0.9266 0.9413 

Vermilion County, IL.

19260 ....... Danville, VA ...................................................................................................................................................... 0.8451 0.8761 

Pittsylvania County, VA.

Danville City, VA.

19340 ....... Davenport-Moline-Rock Island, IA-IL ................................................................................................................ 0.8846 0.9077 

Henry County, IL.

Mercer County, IL.

Rock Island County, IL.

Scott County, IA.

19380 ....... Dayton, OH ....................................................................................................................................................... 0.9037 0.9230 

Greene County, OH.

Miami County, OH.

Montgomery County, OH.

Preble County, OH.

19460 ....... Decatur, AL ....................................................................................................................................................... 0.8159 0.8527 

Lawrence County, AL.

Morgan County, AL.

19500 ....... Decatur, IL ........................................................................................................................................................ 0.8172 0.8538 

Macon County, IL.

19660 ....... Deltona-Daytona Beach-Ormond Beach, FL .................................................................................................... 0.9263 0.9410 

Volusia County, FL.

19740 ....... Denver-Aurora, CO ........................................................................................................................................... 1.0930 1.0744 

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.

Jefferson County, CO.

Park County, CO.

19780 ....... Des Moines,-West Des Moines, IA ................................................................................................................... 0.9214 0.9371 

Dallas County, IA.


ycherry on PROD1PC64 with RULES2
27002 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Guthrie County, IA.

Madison County, IA.

Polk County, IA.

Warren County, IA.

19804 ....... Detroit-Livonia-Dearborn, MI ............................................................................................................................. 1.0281 1.0225 

Wayne County, MI.

20020 ....... Dothan, AL ........................................................................................................................................................ 0.7381 0.7905 

Geneva County, AL.

Henry County, AL.

Houston County, AL.

20100 ....... Dover, DE ......................................................................................................................................................... 0.9847 0.9878 

Kent County, DE.

20220 ....... Dubuque, IA ...................................................................................................................................................... 0.9133 0.9306 

Dubuque County, IA.

20260 ....... Duluth, MN-WI .................................................................................................................................................. 1.0042 1.0034 

Carlton County, MN.

St. Louis County, MN.

Douglas County, WI.

20500 ....... Durham, NC ...................................................................................................................................................... 0.9826 0.9861 

Chatham County, NC.

Durham County, NC.

Orange County, NC.

Person County, NC.

20740 ....... Eau Claire, WI ................................................................................................................................................... 0.9630 0.9704 

Chippewa County, WI.

Eau Claire County, WI.

20764 ....... Edison, NJ ......................................................................................................................................................... 1.1190 1.0952 

Middlesex County, NJ.

Monmouth County, NJ.

Ocean County, NJ.

Somerset County, NJ.

20940 ....... El Centro, CA .................................................................................................................................................... 0.9076 0.9261 

Imperial County, CA.

21060 ....... Elizabethtown, KY ............................................................................................................................................. 0.8697 0.8958 

Hardin County, KY.

Larue County, KY.

21140 ....... Elkhart-Goshen, IN ........................................................................................................................................... 0.9426 0.9541 

Elkhart County, IN.

21300 ....... Elmira, NY ......................................................................................................................................................... 0.8240 0.8592 

Chemung County, NY.

21340 ....... El Paso, TX ....................................................................................................................................................... 0.9053 0.9242 

El Paso County, TX.

21500 ....... Erie, PA ............................................................................................................................................................. 0.8827 0.9062 

Erie County, PA.

21604 ....... Essex County, MA ............................................................................................................................................ 1.0418 1.0334 

Essex County, MA.

21660 ....... Eugene-Springfield, OR .................................................................................................................................... 1.0876 1.0701 

Lane County, OR.

21780 ....... Evansville, IN-KY .............................................................................................................................................. 0.9071 0.9257 

Gibson County, IN.

Posey County, IN.

Vanderburgh County, IN.

Warrick County, IN.

Henderson County, KY.

Webster County, KY.

21820 ....... Fairbanks, AK ................................................................................................................................................... 1.1059 1.0847 

Fairbanks North Star Borough, AK.

21940 ....... Fajardo, PR ....................................................................................................................................................... 0.4036 0.5229 

Ceiba Municipio, PR.

Fajardo Municipio, PR.

Luquillo Municipio, PR.

22020 ....... Fargo, ND-MN ................................................................................................................................................... 0.8250 0.8600 

Cass County, ND.

Clay County, MN.

22140 ....... Farmington, NM ................................................................................................................................................ 0.8589 0.8871 

San Juan County, NM.

22180 ....... Fayetteville, NC ................................................................................................................................................. 0.8945 0.9156 

Cumberland County, NC.

Hoke County, NC.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27003 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

22220 ....... Fayetteville-Springdale-Rogers, AR-MO ........................................................................................................... 0.8865 0.9092 

Benton County, AR.

Madison County, AR.

Washington County, AR.

McDonald County, MO.

22380 ....... Flagstaff, AZ ...................................................................................................................................................... 1.1601 1.1281 

Coconino County, AZ.

22420 ....... Flint, MI ............................................................................................................................................................. 1.0969 1.0775 

Genesee County, MI.

22500 ....... Florence, SC ..................................................................................................................................................... 0.8388 0.8710 

Darlington County, SC.

Florence County, SC.

22520 ....... Florence-Muscle Shoals, AL ............................................................................................................................. 0.7843 0.8274 

Colbert County, AL.

Lauderdale County, AL.

22540 ....... Fond du Lac, WI ............................................................................................................................................... 1.0063 1.0050 

Fond du Lac County, WI.

22660 ....... Fort Collins-Loveland, CO ................................................................................................................................. 0.9544 0.9635 

Larimer County, CO.

22744 ....... Fort Lauderdale-Pompano Beach-Deerfield Beach, FL ................................................................................... 1.0133 1.0106 

Broward County, FL.

22900 ....... Fort Smith, AR-OK ............................................................................................................................................ 0.7731 0.8185 

Crawford County, AR.

Franklin County, AR.

Sebastian County, AR.

Le Flore County, OK.

Sequoyah County, OK.

23020 ....... Fort Walton Beach-Crestview-Destin, FL ......................................................................................................... 0.8643 0.8914 

Okaloosa County, FL.

23060 ....... Fort Wayne, IN .................................................................................................................................................. 0.9517 0.9614 

Allen County, IN.

Wells County, IN.

Whitley County, IN.

23104 ....... Fort Worth-Arlington, TX ................................................................................................................................... 0.9569 0.9655 

Johnson County, TX.

Parker County, TX.

Tarrant County, TX.

Wise County, TX.

23420 ....... Fresno, CA ........................................................................................................................................................ 1.0943 1.0754 

Fresno County, CA.

23460 ....... Gadsden, AL ..................................................................................................................................................... 0.8066 0.8453 

Etowah County, AL.

23540 ....... Gainesville, FL .................................................................................................................................................. 0.9277 0.9422 

Alachua County, FL.

Gilchrist County, FL.

23580 ....... Gainesville, GA ................................................................................................................................................. 0.8958 0.9166 

Hall County, GA.

23844 ....... Gary, IN ............................................................................................................................................................. 0.9334 0.9467 

Jasper County, IN.

Lake County, IN.

Newton County, IN.

Porter County, IN.

24020 ....... Glens Falls, NY ................................................................................................................................................. 0.8324 0.8659 

Warren County, NY.

Washington County, NY.

24140 ....... Goldsboro, NC .................................................................................................................................................. 0.9171 0.9337 

Wayne County, NC.

24220 ....... Grand Forks, ND-MN ........................................................................................................................................ 0.7949 0.8359 

Polk County, MN.

Grand Forks County, ND.

24300 ....... Grand Junction, CO .......................................................................................................................................... 0.9668 0.9734 

Mesa County, CO.

24340 ....... Grand Rapids-Wyoming, MI .............................................................................................................................. 0.9455 0.9564 

Barry County, MI.

Ionia County, MI.

Kent County, MI.

Newaygo County, MI.

24500 ....... Great Falls, MT ................................................................................................................................................. 0.8598 0.8878 

Cascade County, MT.


ycherry on PROD1PC64 with RULES2
27004 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

24540 ....... Greeley, CO ...................................................................................................................................................... 0.9602 0.9682 

Weld County, CO.

24580 ....... Green Bay, WI .................................................................................................................................................. 0.9787 0.9830 

Brown County, WI.

Kewaunee County, WI.

Oconto County, WI.

24660 ....... Greensboro-High Point, NC .............................................................................................................................. 0.8866 0.9093 

Guilford County, NC.

Randolph County, NC.

Rockingham County, NC.

24780 ....... Greenville, NC ................................................................................................................................................... 0.9432 0.9546 

Greene County, NC.

Pitt County, NC.

24860 ....... Greenville, SC ................................................................................................................................................... 0.9804 0.9843 

Greenville County, SC.

Laurens County, SC.

Pickens County, SC.

25020 ....... Guayama, PR ................................................................................................................................................... 0.3235 0.4588 

Arroyo Municipio, PR.

Guayama Municipio, PR.

Patillas Municipio, PR.

25060 ....... Gulfport-Biloxi, MS ............................................................................................................................................ 0.8915 0.9132 

Hancock County, MS.

Harrison County, MS.

Stone County, MS.

25180 ....... Hagerstown-Martinsburg, MD-WV .................................................................................................................... 0.9038 0.9230 

Washington County, MD.

Berkeley County, WV.

Morgan County, WV.

25260 ....... Hanford-Corcoran, CA ...................................................................................................................................... 1.0282 1.0226 

Kings County, CA.

25420 ....... Harrisburg-Carlisle, PA ..................................................................................................................................... 0.9402 0.9522 

Cumberland County, PA.

Dauphin County, PA.

Perry County, PA.

25500 ....... Harrisonburg, VA .............................................................................................................................................. 0.9073 0.9258 

Rockingham County, VA.

Harrisonburg City, VA.

25540 ....... Hartford-West Hartford-East Hartford, CT ........................................................................................................ 1.0894 1.0715 

Hartford County, CT.

Litchfield County, CT.

Middlesex County, CT.

Tolland County, CT.

25620 ....... Hattiesburg, MS ................................................................................................................................................ 0.7430 0.7944 

Forrest County, MS.

Lamar County, MS.

Perry County, MS.

25860 ....... Hickory-Lenoir-Morganton, NC ......................................................................................................................... 0.9010 0.9208 

Alexander County, NC.

Burke County, NC.

Caldwell County, NC.

Catawba County, NC.

26100 ....... Holland-Grand Haven, MI ................................................................................................................................. 0.9163 0.9330 

Ottawa County, MI.

26180 ....... Honolulu, HI ...................................................................................................................................................... 1.1096 1.0877 

Honolulu County, HI.

26300 ....... Hot Springs, AR ................................................................................................................................................ 0.8782 0.9026 

Garland County, AR.

26380 ....... Houma-Bayou Cane-Thibodaux, LA ................................................................................................................. 0.8082 0.8466 

Lafourche Parish, LA.

Terrebonne Parish, LA.

26420 ....... Houston-Sugar Land-Baytown, TX ................................................................................................................... 1.0008 1.0006 

Austin County, TX.

Brazoria County, TX.

Chambers County, TX.

Fort Bend County, TX.

Galveston County, TX.

Harris County, TX.

Liberty County, TX.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27005 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Montgomery County, TX.

San Jacinto County, TX.

Waller County, TX.

26580 ....... Huntington-Ashland, WV-KY-OH ...................................................................................................................... 0.8997 0.9198 

Boyd County, KY.

Greenup County, KY.

Lawrence County, OH.

Cabell County, WV.

Wayne County, WV.

26620 ....... Huntsville, AL .................................................................................................................................................... 0.9007 0.9206 

Limestone County, AL.

Madison County, AL.

26820 ....... Idaho Falls, ID ................................................................................................................................................... 0.9088 0.9270 

Bonneville County, ID.

Jefferson County, ID.

26900 ....... Indianapolis-Carmel, IN ..................................................................................................................................... 0.9895 0.9916 

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 ...................................................................................................................................................... 0.9714 0.9771 

Johnson County, IA.

Washington County, IA.

27060 ....... Ithaca, NY ......................................................................................................................................................... 0.9928 0.9942 

Tompkins County, NY.

27100 ....... Jackson, MI ....................................................................................................................................................... 0.9560 0.9648 

Jackson County, MI.

27140 ....... Jackson, MS ..................................................................................................................................................... 0.8271 0.8617 

Copiah County, MS.

Hinds County, MS.

Madison County, MS.

Rankin County, MS.

Simpson County, MS.

27180 ....... Jackson, TN ...................................................................................................................................................... 0.8853 0.9082 

Chester County, TN.

Madison County, TN.

27260 ....... Jacksonville, FL ................................................................................................................................................ 0.9165 0.9332 

Baker County, FL.

Clay County, FL.

Duval County, FL.

Nassau County, FL.

St. Johns County, FL.

27340 ....... Jacksonville, NC ............................................................................................................................................... 0.8231 0.8585 

Onslow County, NC.

27500 ....... Janesville, WI .................................................................................................................................................... 0.9655 0.9724 

Rock County, WI.

27620 ....... Jefferson City, MO ............................................................................................................................................ 0.8332 0.8666 

Callaway County, MO.

Cole County, MO.

Moniteau County, MO.

Osage County, MO.

27740 ....... Johnson City, TN .............................................................................................................................................. 0.8043 0.8434 

Carter County, TN.

Unicoi County, TN.

Washington County, TN.

27780 ....... Johnstown, PA .................................................................................................................................................. 0.8620 0.8896 

Cambria County, PA.

27860 ....... Jonesboro, AR .................................................................................................................................................. 0.7662 0.8130 

Craighead County, AR.

Poinsett County, AR.

27900 ....... Joplin, MO ......................................................................................................................................................... 0.8605 0.8884 

Jasper County, MO.

Newton County, MO.


ycherry on PROD1PC64 with RULES2
27006 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

28020 ....... Kalamazoo-Portage, MI .................................................................................................................................... 1.0704 1.0563 

Kalamazoo County, MI.

Van Buren County, MI.

28100 ....... Kankakee-Bradley, IL ........................................................................................................................................ 1.0083 1.0066 

Kankakee County, IL.

28140 ....... Kansas City, MO-KS ......................................................................................................................................... 0.9495 0.9596 

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 ....................................................................................................................... 1.0343 1.0274 

Benton County, WA.

Franklin County, WA.

28660 ....... Killeen-Temple-Fort Hood, TX .......................................................................................................................... 0.8901 0.9121 

Bell County, TX.

Coryell County, TX.

Lampasas County, TX.

28700 ....... Kingsport-Bristol-Bristol, TN-VA ........................................................................................................................ 0.7985 0.8388 

Hawkins County, TN.

Sullivan County, TN.

Bristol City, VA.

Scott County, VA.

Washington County, VA.

28740 ....... Kingston, NY ..................................................................................................................................................... 0.9367 0.9494 

Ulster County, NY.

28940 ....... Knoxville, TN ..................................................................................................................................................... 0.8249 0.8599 

Anderson County, TN.

Blount County, TN.

Knox County, TN.

Loudon County, TN.

Union County, TN.

29020 ....... Kokomo, IN ....................................................................................................................................................... 0.9669 0.9735 

Howard County, IN.

Tipton County, IN.

29100 ....... La Crosse, WI-MN ............................................................................................................................................ 0.9426 0.9541 

Houston County, MN.

La Crosse County, WI.

29140 ....... Lafayette, IN ...................................................................................................................................................... 0.8931 0.9145 

Benton County, IN.

Carroll County, IN.

Tippecanoe County, IN.

29180 ....... Lafayette, LA ..................................................................................................................................................... 0.8289 0.8631 

Lafayette Parish, LA.

St. Martin Parish, LA.

29340 ....... Lake Charles, LA .............................................................................................................................................. 0.7914 0.8331 

Calcasieu Parish, LA.

Cameron Parish, LA.

29404 ....... Lake County-Kenosha County, IL-WI ............................................................................................................... 1.0570 1.0456 

Lake County, IL.

Kenosha County, WI.

29460 ....... Lakeland, FL ..................................................................................................................................................... 0.8879 0.9103 

Polk County, FL.

29540 ....... Lancaster, PA ................................................................................................................................................... 0.9589 0.9671 

Lancaster County, PA.

29620 ....... Lansing-East Lansing, MI ................................................................................................................................. 1.0088 1.0070 

Clinton County, MI.

Eaton County, MI.

Ingham County, MI.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27007 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

29700 ....... Laredo, TX ........................................................................................................................................................ 0.7811 0.8249 

Webb County, TX.

29740 ....... Las Cruces, NM ................................................................................................................................................ 0.9273 0.9418 

Dona Ana County, NM.

29820 ....... Las Vegas-Paradise, NV ................................................................................................................................... 1.1430 1.1144 

Clark County, NV.

29940 ....... Lawrence, KS .................................................................................................................................................... 0.8365 0.8692 

Douglas County, KS.

30020 ....... Lawton, OK ....................................................................................................................................................... 0.8065 0.8452 

Comanche County, OK.

30140 ....... Lebanon, PA ..................................................................................................................................................... 0.8679 0.8943 

Lebanon County, PA.

30300 ....... Lewiston, ID-WA ............................................................................................................................................... 0.9853 0.9882 

Nez Perce County, ID.

Asotin County, WA.

30340 ....... Lewiston-Auburn, ME ........................................................................................................................................ 0.9126 0.9301 

Androscoggin County, ME.

30460 ....... Lexington-Fayette, KY ...................................................................................................................................... 0.9181 0.9345 

Bourbon County, KY.

Clark County, KY.

Fayette County, KY.

Jessamine County, KY.

Scott County, KY.

Woodford County, KY.

30620 ....... Lima, OH ........................................................................................................................................................... 0.9042 0.9234 

Allen County, OH.

30700 ....... Lincoln, NE ........................................................................................................................................................ 1.0092 1.0074 

Lancaster County, NE.

Seward County, NE.

30780 ....... Little Rock-North Little Rock, AR ...................................................................................................................... 0.8890 0.9112 

Faulkner County, AR.

Grant County, AR.

Lonoke County, AR.

Perry County, AR.

Pulaski County, AR.

Saline County, AR.

30860 ....... Logan, UT-ID .................................................................................................................................................... 0.9022 0.9218 

Franklin County, ID.

Cache County, UT.

30980 ....... Longview, TX .................................................................................................................................................... 0.8788 0.9030 

Gregg County, TX.

Rusk County, TX.

Upshur County, TX.

31020 ....... Longview, WA ................................................................................................................................................... 1.0011 1.0009 

Cowlitz County, WA.

31084 ....... Los Angeles-Long Beach-Glendale, CA ........................................................................................................... 1.1760 1.1408 

Los Angeles County, CA.

31140 ....... Louisville-Jefferson County, KY-IN ................................................................................................................... 0.9118 0.9294 

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 ...................................................................................................................................................... 0.8613 0.8890 

Crosby County, TX.

Lubbock County, TX.

31340 ....... Lynchburg, VA .................................................................................................................................................. 0.8694 0.8955 

Amherst County, VA.

Appomattox County, VA.

Bedford County, VA.

Campbell County, VA.


ycherry on PROD1PC64 with RULES2
27008 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Bedford City, VA.

Lynchburg City, VA.

31420 ....... Macon, GA ........................................................................................................................................................ 0.9519 0.9615 

Bibb County, GA.

Crawford County, GA.

Jones County, GA.

Monroe County, GA.

Twiggs County, GA.

31460 ....... Madera, CA ....................................................................................................................................................... 0.8154 0.8523 

Madera County, CA.

31540 ....... Madison, WI ...................................................................................................................................................... 1.0840 1.0672 

Columbia County, WI.

Dane County, WI.

Iowa County, WI.

31700 ....... Manchester-Nashua, NH ................................................................................................................................... 1.0243 1.0194 

Hillsborough County, NH.

Merrimack County, NH.

31900 ....... Mansfield, OH ................................................................................................................................................... 0.9271 0.9417 

Richland County, OH.

32420 ....... Mayagu ̈ez, PR .................................................................................................................................................. 0.3848 0.5078 

Hormigueros Municipio, PR.

Mayagu ̈ez Municipio, PR.

32580 ....... McAllen-Edinburg-Mission, TX .......................................................................................................................... 0.8773 0.9018 

Hidalgo County, TX.

32780 ....... Medford, OR ..................................................................................................................................................... 1.0818 1.0654 

Jackson County, OR.

32820 ....... Memphis, TN-MS-AR ........................................................................................................................................ 0.9373 0.9498 

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 ....................................................................................................................................................... 1.1471 1.1177 

Merced County, CA.

33124 ....... Miami-Miami Beach-Kendall, FL ....................................................................................................................... 0.9812 0.9850 

Miami-Dade County, FL.

33140 ....... Michigan City-La Porte, IN ................................................................................................................................ 0.9118 0.9294 

LaPorte County, IN.

33260 ....... Midland, TX ....................................................................................................................................................... 0.9786 0.9829 

Midland County, TX.

33340 ....... Milwaukee-Waukesha-West Allis, WI ............................................................................................................... 1.0218 1.0174 

Milwaukee County, WI.

Ozaukee County, WI.

Washington County, WI.

Waukesha County, WI.

33460 ....... Minneapolis-St. Paul-Bloomington, MN-WI ....................................................................................................... 1.0946 1.0757 

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 ..................................................................................................................................................... 0.8928 0.9142 

Missoula County, MT.

33660 ....... Mobile, AL ......................................................................................................................................................... 0.7913 0.8330 

Mobile County, AL.

33700 ....... Modesto, CA ..................................................................................................................................................... 1.1729 1.1383 

Stanislaus County, CA.

33740 ....... Monroe, LA ....................................................................................................................................................... 0.7997 0.8398 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27009 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Ouachita Parish, LA.

Union Parish, LA.

33780 ....... Monroe, MI ........................................................................................................................................................ 0.9707 0.9766 

Monroe County, MI.

33860 ....... Montgomery, AL ................................................................................................................................................ 0.8009 0.8407 

Autauga County, AL.

Elmore County, AL.

Lowndes County, AL.

Montgomery County, AL.

34060 ....... Morgantown, WV .............................................................................................................................................. 0.8423 0.8738 

Monongalia County, WV.

Preston County, WV.

34100 ....... Morristown, TN .................................................................................................................................................. 0.7933 0.8346 

Grainger County, TN.

Hamblen County, TN.

Jefferson County, TN.

34580 ....... Mount Vernon-Anacortes, WA .......................................................................................................................... 1.0517 1.0414 

Skagit County, WA.

34620 ....... Muncie, IN ......................................................................................................................................................... 0.8562 0.8850 

Delaware County, IN.

34740 ....... Muskegon-Norton Shores, MI ........................................................................................................................... 0.9941 0.9953 

Muskegon County, MI.

34820 ....... Myrtle Beach-Conway-North Myrtle Beach, SC ............................................................................................... 0.8810 0.9048 

Horry County, SC.

34900 ....... Napa, CA .......................................................................................................................................................... 1.3374 1.2699 

Napa County, CA.

34940 ....... Naples-Marco Island, FL ................................................................................................................................... 0.9941 0.9953 

Collier County, FL.

34980 ....... Nashville-Davidson—Murfreesboro, TN ............................................................................................................ 0.9847 0.9878 

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 ........................................................................................................................................... 1.2662 1.2130 

Nassau County, NY.

Suffolk County, NY.

35084 ....... Newark-Union, NJ-PA ....................................................................................................................................... 1.1892 1.1514 

Essex County, NJ.

Hunterdon County, NJ.

Morris County, NJ.

Sussex County, NJ.

Union County, NJ.

Pike County, PA.

35300 ....... New Haven-Milford, CT ..................................................................................................................................... 1.1953 1.1562 

New Haven County, CT.

35380 ....... New Orleans-Metairie-Kenner, LA .................................................................................................................... 0.8831 0.9065 

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 ............................................................................................................ 1.3177 1.2542 

Bergen County, NJ.

Hudson County, NJ.

Passaic County, NJ.

Bronx County, NY.

Kings County, NY.

New York County, NY.


ycherry on PROD1PC64 with RULES2
27010 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Putnam County, NY.

Queens County, NY.

Richmond County, NY.

Rockland County, NY.

Westchester County, NY.

35660 ....... Niles-Benton Harbor, MI ................................................................................................................................... 0.8915 0.9132 

Berrien County, MI.

35980 ....... Norwich-New London, CT ................................................................................................................................. 1.1932 1.1546 

New London County, CT.

36084 ....... Oakland-Fremont-Hayward, CA ........................................................................................................................ 1.5819 1.4655 

Alameda County, CA.

Contra Costa County, CA.

36100 ....... Ocala, FL .......................................................................................................................................................... 0.8867 0.9094 

Marion County, FL.

36140 ....... Ocean City, NJ .................................................................................................................................................. 1.0472 1.0378 

Cape May County, NJ.

36220 ....... Odessa, TX ....................................................................................................................................................... 1.0073 1.0058 

Ector County, TX.

36260 ....... Ogden-Clearfield, UT ........................................................................................................................................ 0.8995 0.9196 

Davis County, UT.

Morgan County, UT.

Weber County, UT.

36420 ....... Oklahoma City, OK ........................................................................................................................................... 0.8843 0.9074 

Canadian County, OK.

Cleveland County, OK.

Grady County, OK.

Lincoln County, OK.

Logan County, OK.

McClain County, OK.

Oklahoma County, OK.

36500 ....... Olympia, WA ..................................................................................................................................................... 1.1081 1.0865 

Thurston County, WA.

36540 ....... Omaha-Council Bluffs, NE-IA ........................................................................................................................... 0.9450 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 .................................................................................................................................... 0.9452 0.9562 

Lake County, FL.

Orange County, FL.

Osceola County, FL.

Seminole County, FL.

36780 ....... Oshkosh-Neenah, WI ........................................................................................................................................ 0.9315 0.9452 

Winnebago County, WI.

36980 ....... Owensboro, KY ................................................................................................................................................. 0.8748 0.8998 

Daviess County, KY.

Hancock County, KY.

McLean County, KY.

37100 ....... Oxnard-Thousand Oaks-Ventura, CA ............................................................................................................... 1.1546 1.1237 

Ventura County, CA.

37340 ....... Palm Bay-Melbourne-Titusville, FL ................................................................................................................... 0.9443 0.9554 

Brevard County, FL.

37460 ....... Panama City-Lynn Haven, FL ........................................................................................................................... 0.8027 0.8422 

Bay County, FL.

37620 ....... Parkersburg-Marietta-Vienna, WV-OH .............................................................................................................. 0.7977 0.8382 

Washington County, OH.

Pleasants County, WV.

Wirt County, WV.

Wood County, WV.

37700 ....... Pascagoula, MS ................................................................................................................................................ 0.8215 0.8572 

George County, MS.

Jackson County, MS.

37860 ....... Pensacola-Ferry Pass-Brent, FL ....................................................................................................................... 0.8000 0.8400 

Escambia County, FL.

Santa Rosa County, FL.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27011 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

37900 ....... Peoria, IL ........................................................................................................................................................... 0.8982 0.9186 

Marshall County, IL.

Peoria County, IL.

Stark County, IL.

Tazewell County, IL.

Woodford County, IL.

37964 ....... Philadelphia, PA ................................................................................................................................................ 1.0996 1.0797 

Bucks County, PA.

Chester County, PA.

Delaware County, PA.

Montgomery County, PA.

Philadelphia County, PA.

38060 ....... Phoenix-Mesa-Scottsdale, AZ ........................................................................................................................... 1.0287 1.0230 

Maricopa County, AZ.

Pinal County, AZ.

38220 ....... Pine Bluff, AR ................................................................................................................................................... 0.8383 0.8706 

Cleveland County, AR.

Jefferson County, AR.

Lincoln County, AR.

38300 ....... Pittsburgh, PA ................................................................................................................................................... 0.8674 0.8939 

Allegheny County, PA.

Armstrong County, PA.

Beaver County, PA.

Butler County, PA.

Fayette County, PA.

Washington County, PA.

Westmoreland County, PA.

38340 ....... Pittsfield, MA ..................................................................................................................................................... 1.0266 1.0213 

Berkshire County, MA.

38540 ....... Pocatello, ID ...................................................................................................................................................... 0.9400 0.9520 

Bannock County, ID.

Power County, ID.

38660 ....... Ponce, PR ......................................................................................................................................................... 0.4842 0.5874 

Juana Dı ́az Municipio, PR.

Ponce Municipio, PR.

Villalba Municipio, PR.

38860 ....... Portland-South Portland-Biddeford, ME ............................................................................................................ 0.9908 0.9926 

Cumberland County, ME.

Sagadahoc County, ME.

York County, ME.

38900 ....... Portland-Vancouver-Beaverton, OR-WA .......................................................................................................... 1.1416 1.1133 

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 ........................................................................................................................... 0.9833 0.9866 

Martin County, FL.

St. Lucie County, FL.

39100 ....... Poughkeepsie-Newburgh-Middletown, NY ....................................................................................................... 1.0911 1.0729 

Dutchess County, NY.

Orange County, NY.

39140 ....... Prescott, AZ ...................................................................................................................................................... 0.9836 0.9869 

Yavapai County, AZ.

39300 ....... Providence-New Bedford-Fall River, RI-MA ..................................................................................................... 1.0783 1.0626 

Bristol County, MA.

Bristol County, RI.

Kent County, RI.

Newport County, RI.

Providence County, RI.

Washington County, RI.

39340 ....... Provo-Orem, UT ................................................................................................................................................ 0.9537 0.9630 

Juab County, UT.

Utah County, UT.

39380 ....... Pueblo, CO ....................................................................................................................................................... 0.8753 0.9002 

Pueblo County, CO.

39460 ....... Punta Gorda, FL ............................................................................................................................................... 0.9405 0.9524 


ycherry on PROD1PC64 with RULES2
27012 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Charlotte County, FL.

39540 ....... Racine, WI ........................................................................................................................................................ 0.9356 0.9485 

Racine County, WI.

39580 ....... Raleigh-Cary, NC .............................................................................................................................................. 0.9864 0.9891 

Franklin County, NC.

Johnston County, NC.

Wake County, NC.

39660 ....... Rapid City, SD .................................................................................................................................................. 0.8833 0.9066 

Meade County, SD.

Pennington County, SD.

39740 ....... Reading, PA ...................................................................................................................................................... 0.9622 0.9698 

Berks County, PA.

39820 ....... Redding, CA ...................................................................................................................................................... 1.3198 1.2558 

Shasta County, CA.

39900 ....... Reno-Sparks, NV .............................................................................................................................................. 1.1963 1.1570 

Storey County, NV.

Washoe County, NV.

40060 ....... Richmond, VA ................................................................................................................................................... 0.9177 0.9342 

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 ............................................................................................................. 1.0904 1.0723 

Riverside County, CA.

San Bernardino County, CA.

40220 ....... Roanoke, VA ..................................................................................................................................................... 0.8647 0.8918 

Botetourt County, VA.

Craig County, VA.

Franklin County, VA.

Roanoke County, VA.

Roanoke City, VA.

Salem City, VA.

40340 ....... Rochester, MN .................................................................................................................................................. 1.1408 1.1126 

Dodge County, MN.

Olmsted County, MN.

Wabasha County, MN.

40380 ....... Rochester, NY ................................................................................................................................................... 0.8994 0.9195 

Livingston County, NY.

Monroe County, NY.

Ontario County, NY.

Orleans County, NY.

Wayne County, NY.

40420 ....... Rockford, IL ....................................................................................................................................................... 0.9989 0.9991 

Boone County, IL.

Winnebago County, IL.

40484 ....... Rockingham County-Strafford County, NH ....................................................................................................... 1.0159 1.0127 

Rockingham County, NH.

Strafford County, NH.

40580 ....... Rocky Mount, NC .............................................................................................................................................. 0.8854 0.9083 

Edgecombe County, NC.

Nash County, NC.

40660 ....... Rome, GA ......................................................................................................................................................... 0.9193 0.9354 

Floyd County, GA.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27013 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

40900 ....... Sacramento—Arden-Arcade—Roseville, CA .................................................................................................... 1.3372 1.2698 

El Dorado County, CA.

Placer County, CA.

Sacramento County, CA.

Yolo County, CA.

40980 ....... Saginaw-Saginaw Township North, MI ............................................................................................................. 0.8874 0.9099 

Saginaw County, MI.

41060 ....... St. Cloud, MN ................................................................................................................................................... 1.0362 1.0290 

Benton County, MN.

Stearns County, MN.

41100 ....... St. George, UT .................................................................................................................................................. 0.9265 0.9412 

Washington County, UT.

41140 ....... St. Joseph, MO-KS ........................................................................................................................................... 1.0118 1.0094 

Doniphan County, KS.

Andrew County, MO.

Buchanan County, MO.

DeKalb County, MO.

41180 ....... St. Louis, MO-IL ................................................................................................................................................ 0.9005 0.9204 

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 ........................................................................................................................................................ 1.0438 1.0350 

Marion County, OR.

Polk County, OR.

41500 ....... Salinas, CA ....................................................................................................................................................... 1.4337 1.3470 

Monterey County, CA.

41540 ....... Salisbury, MD .................................................................................................................................................... 0.8953 0.9162 

Somerset County, MD.

Wicomico County, MD.

41620 ....... Salt Lake City, UT ............................................................................................................................................. 0.9402 0.9522 

Salt Lake County, UT.

Summit County, UT.

Tooele County, UT.

41660 ....... San Angelo, TX ................................................................................................................................................. 0.8362 0.8690 

Irion County, TX.

Tom Green County, TX.

41700 ....... San Antonio, TX ................................................................................................................................................ 0.8844 0.9075 

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 .............................................................................................................. 1.1354 1.1083 

San Diego County, CA.

41780 ....... Sandusky, OH ................................................................................................................................................... 0.9302 0.9442 

Erie County, OH.

41884 ....... San Francisco-San Mateo-Redwood City, CA ................................................................................................. 1.5165 1.4132 

Marin County, CA.

San Francisco County, CA.

San Mateo County, CA.

41900 ....... San Germa ́n-Cabo Rojo, PR ............................................................................................................................ 0.4885 0.5908 

Cabo Rojo Municipio, PR.


ycherry on PROD1PC64 with RULES2
27014 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Lajas Municipio, PR.

Sabana Grande Municipio, PR.

San Germa ́n Municipio, PR.

41940 ....... San Jose-Sunnyvale-Santa Clara, CA .............................................................................................................. 1.5543 1.4434 

San Benito County, CA.

Santa Clara County, CA.

41980 ....... San Juan-Caguas-Guaynabo, PR .................................................................................................................... 0.4452 0.5562 

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 ................................................................................................................... 1.1598 1.1278 

San Luis Obispo County, CA.

42044 ....... Santa Ana-Anaheim-Irvine, CA ......................................................................................................................... 1.1473 1.1178 

Orange County, CA.

42060 ....... Santa Barbara-Santa Maria, CA ....................................................................................................................... 1.1091 1.0873 

Santa Barbara County, CA.

42100 ....... Santa Cruz-Watsonville, CA ............................................................................................................................. 1.5457 1.4366 

Santa Cruz County, CA.

42140 ....... Santa Fe, NM .................................................................................................................................................... 1.0824 1.0659 

Santa Fe County, NM.

42220 ....... Santa Rosa-Petaluma, CA ................................................................................................................................ 1.4464 1.3571 

Sonoma County, CA.

42260 ....... Sarasota-Bradenton-Venice, FL ........................................................................................................................ 0.9868 0.9894 

Manatee County, FL.

Sarasota County, FL.

42340 ....... Savannah, GA ................................................................................................................................................... 0.9351 0.9481 

Bryan County, GA.

Chatham County, GA.

Effingham County, GA.

42540 ....... Scranton—Wilkes-Barre, PA ............................................................................................................................. 0.8347 0.8678 

Lackawanna County, PA.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27015 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Luzerne County, PA.

Wyoming County, PA.

42644 ....... Seattle-Bellevue-Everett, WA ............................................................................................................................ 1.1434 1.1147 

King County, WA.

Snohomish County, WA.

42680 ....... Sebastian-Vero Beach, FL ................................................................................................................................ 0.9573 0.9658 

Indian River County, FL.

43100 ....... Sheboygan, WI ................................................................................................................................................. 0.9026 0.9221 

Sheboygan County, WI.

43300 ....... Sherman-Denison, TX ....................................................................................................................................... 0.8502 0.8802 

Grayson County, TX.

43340 ....... Shreveport-Bossier City, LA .............................................................................................................................. 0.8865 0.9092 

Bossier Parish, LA.

Caddo Parish, LA.

De Soto Parish, LA.

43580 ....... Sioux City, IA-NE-SD ........................................................................................................................................ 0.9200 0.9360 

Woodbury County, IA.

Dakota County, NE.

Dixon County, NE.

Union County, SD.

43620 ....... Sioux Falls, SD ................................................................................................................................................. 0.9559 0.9647 

Lincoln County, SD.

McCook County, SD.

Minnehaha County, SD.

Turner County, SD.

43780 ....... South Bend-Mishawaka, IN-MI ......................................................................................................................... 0.9842 0.9874 

St. Joseph County, IN.

Cass County, MI.

43900 ....... Spartanburg, SC ............................................................................................................................................... 0.9174 0.9339 

Spartanburg County, SC.

44060 ....... Spokane, WA .................................................................................................................................................... 1.0447 1.0358 

Spokane County, WA.

44100 ....... Springfield, IL .................................................................................................................................................... 0.8890 0.9112 

Menard County, IL.

Sangamon County, IL.

44140 ....... Springfield, MA .................................................................................................................................................. 1.0079 1.0063 

Franklin County, MA.

Hampden County, MA.

Hampshire County, MA.

44180 ....... Springfield, MO ................................................................................................................................................. 0.8469 0.8775 

Christian County, MO.

Dallas County, MO.

Greene County, MO.

Polk County, MO.

Webster County, MO.

44220 ....... Springfield, OH .................................................................................................................................................. 0.8593 0.8874 

Clark County, OH.

44300 ....... State College, PA ............................................................................................................................................. 0.8784 0.9027 

Centre County, PA.

44700 ....... Stockton, CA ..................................................................................................................................................... 1.1442 1.1154 

San Joaquin County, CA.

44940 ....... Sumter, SC ....................................................................................................................................................... 0.8083 0.8466 

Sumter County, SC.

45060 ....... Syracuse, NY .................................................................................................................................................... 0.9691 0.9753 

Madison County, NY.

Onondaga County, NY.

Oswego County, NY.

45104 ....... Tacoma, WA ..................................................................................................................................................... 1.0789 1.0631 

Pierce County, WA.

45220 ....... Tallahassee, FL ................................................................................................................................................ 0.8942 0.9154 

Gadsden County, FL.

Jefferson County, FL.

Leon County, FL.

Wakulla County, FL.

45300 ....... Tampa-St. Petersburg-Clearwater, FL .............................................................................................................. 0.9144 0.9315 

Hernando County, FL.

Hillsborough County, FL.

Pasco County, FL.

Pinellas County, FL.


ycherry on PROD1PC64 with RULES2
27016 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

45460 ....... Terre Haute, IN ................................................................................................................................................. 0.8765 0.9012 

Clay County, IN.

Sullivan County, IN.

Vermillion County, IN.

Vigo County, IN.

45500 ....... Texarkana, TX-Texarkana, AR ......................................................................................................................... 0.8104 0.8483 

Miller County, AR.

Bowie County, TX.

45780 ....... Toledo, OH ........................................................................................................................................................ 0.9586 0.9669 

Fulton County, OH.

Lucas County, OH.

Ottawa County, OH.

Wood County, OH.

45820 ....... Topeka, KS ....................................................................................................................................................... 0.8730 0.8984 

Jackson County, KS.

Jefferson County, KS.

Osage County, KS.

Shawnee County, KS.

Wabaunsee County, KS.

45940 ....... Trenton-Ewing, NJ ............................................................................................................................................ 1.0835 1.0668 

Mercer County, NJ.

46060 ....... Tucson, AZ ........................................................................................................................................................ 0.9202 0.9362 

Pima County, AZ.

46140 ....... Tulsa, OK .......................................................................................................................................................... 0.8103 0.8482 

Creek County, OK.

Okmulgee County, OK.

Osage County, OK.

Pawnee County, OK.

Rogers County, OK.

Tulsa County, OK.

Wagoner County, OK.

46220 ....... Tuscaloosa, AL ................................................................................................................................................. 0.8542 0.8834 

Greene County, AL.

Hale County, AL.

Tuscaloosa County, AL.

46340 ....... Tyler, TX ........................................................................................................................................................... 0.8811 0.9049 

Smith County, TX.

46540 ....... Utica-Rome, NY ................................................................................................................................................ 0.8396 0.8717 

Herkimer County, NY.

Oneida County, NY.

46660 ....... Valdosta, GA ..................................................................................................................................................... 0.8369 0.8695 

Brooks County, GA.

Echols County, GA.

Lanier County, GA.

Lowndes County, GA.

46700 ....... Vallejo-Fairfield, CA .......................................................................................................................................... 1.5137 1.4110 

Solano County, CA.

47020 ....... Victoria, TX ....................................................................................................................................................... 0.8560 0.8848 

Calhoun County, TX.

Goliad County, TX.

Victoria County, TX.

47220 ....... Vineland-Millville-Bridgeton, NJ ........................................................................................................................ 0.9832 0.9866 

Cumberland County, NJ.

47260 ....... Virginia Beach-Norfolk-Newport News, VA-NC ................................................................................................ 0.8790 0.9032 

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.


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27017 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Williamsburg City, VA.

47300 ....... Visalia-Porterville, CA ....................................................................................................................................... 0.9968 0.9974 

Tulare County, CA.

47380 ....... Waco, TX .......................................................................................................................................................... 0.8633 0.8906 

McLennan County, TX.

47580 ....... Warner Robins, GA ........................................................................................................................................... 0.8380 0.8704 

Houston County, GA.

47644 ....... Warren-Troy-Farmington Hills, MI ..................................................................................................................... 1.0054 1.0043 

Lapeer County, MI.

Livingston County, MI.

Macomb County, MI.

Oakland County, MI.

St. Clair County, MI.

47894 ....... Washington-Arlington-Alexandria, DC-VA-MD-WV ........................................................................................... 1.1054 1.0843 

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 ................................................................................................................................... 0.8408 0.8726 

Black Hawk County, IA.

Bremer County, IA.

Grundy County, IA.

48140 ....... Wausau, WI ...................................................................................................................................................... 0.9722 0.9778 

Marathon County, WI.

48260 ....... Weirton-Steubenville, WV-OH ........................................................................................................................... 0.8063 0.8450 

Jefferson County, OH.

Brooke County, WV.

Hancock County, WV.

48300 ....... Wenatchee, WA ................................................................................................................................................ 1.0346 1.0277 

Chelan County, WA.

Douglas County, WA.

48424 ....... West Palm Beach-Boca Raton-Boynton Beach, FL ......................................................................................... 0.9649 0.9719 

Palm Beach County, FL.

48540 ....... Wheeling, WV-OH ............................................................................................................................................. 0.7010 0.7608 

Belmont County, OH.

Marshall County, WV.

Ohio County, WV.

48620 ....... Wichita, KS ....................................................................................................................................................... 0.9063 0.9250 

Butler County, KS.

Harvey County, KS.

Sedgwick County, KS.

Sumner County, KS.

48660 ....... Wichita Falls, TX ............................................................................................................................................... 0.8311 0.8649 

Archer County, TX.

Clay County, TX.

Wichita County, TX.

48700 ....... Williamsport, PA ................................................................................................................................................ 0.8139 0.8511 

Lycoming County, PA.

48864 ....... Wilmington, DE-MD-NJ ..................................................................................................................................... 1.0684 1.0547 

New Castle County, DE.

Cecil County, MD.

Salem County, NJ.

48900 ....... Wilmington, NC ................................................................................................................................................. 0.9835 0.9868 


ycherry on PROD1PC64 with RULES2
27018 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 1.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Brunswick County, NC.

New Hanover County, NC.

Pender County, NC.

49020 ....... Winchester, VA-WV .......................................................................................................................................... 1.0091 1.0073 

Frederick County, VA.

Winchester City, VA.

Hampshire County, WV.

49180 ....... Winston-Salem, NC ........................................................................................................................................... 0.9276 0.9421 

Davie County, NC.

Forsyth County, NC.

Stokes County, NC.

Yadkin County, NC.

49340 ....... Worcester, MA .................................................................................................................................................. 1.0722 1.0578 

Worcester County, MA.

49420 ....... Yakima, WA ...................................................................................................................................................... 0.9847 0.9878 

Yakima County, WA.

49500 ....... Yauco, PR ......................................................................................................................................................... 0.3854 0.5083 

Gua ́nica Municipio, PR.

Guayanilla Municipio, PR.

Pen ̃uelas Municipio, PR.

Yauco Municipio, PR.

49620 ....... York-Hanover, PA ............................................................................................................................................. 0.9397 0.9518 

York County, PA.

49660 ....... Youngstown-Warren-Boardman, OH-PA .......................................................................................................... 0.8802 0.9042 

Mahoning County, OH.

Trumbull County, OH.

Mercer County, PA.

49700 ....... Yuba City, CA ................................................................................................................................................... 1.0730 1.0584 

Sutter County, CA.

Yuba County, CA.

49740 ....... Yuma, AZ .......................................................................................................................................................... 0.9109 0.9287 

Yuma County, AZ.

1As discussed in section IV.D.1.d. of the preamble of this final rule, because there will no longer be any LTCHs in their cost reporting periods 

that began during FYs 2003, 2004 or 2005 (the first 3 years of the 5-year wage index phase-in, respectively), we are no longer showing the 1/ 

5th, 2/5ths and 3/5ths wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1.of this final rule. 2The wage index values are calculated using the same wage data used to compute the wage index used by acute care hospitals under the 

IPPS for Federal FY 2007 (that is, fiscal year 2003 audited acute care hospital inpatient wage data without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act). 3Four-fifths of the full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2005 through September 30, 2006 (Federal FY 2006). That is, for a LTCH’s cost reporting period that begins during Federal FY 2006 and located in Chicago, Illinois (CBSA 16974), the 4/5ths wage index value is computed as ((4*1.0751) + 1))/5 = 1.0601. For further details on the 5-year phase-in of the 

wage index, see section IV.D.1. of this final rule. 

TABLE 2.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1

CBSA code Nonurban area Full wage 

index 2

4/5ths 

wage 

index 3

01 ............. Alabama ............................................................................................................................................................ 0.7591 0.8073 

02 ............. Alaska ............................................................................................................................................................... 1.0661 1.0529 

03 ............. Arizona .............................................................................................................................................................. 0.8908 0.9126 

04 ............. Arkansas ........................................................................................................................................................... 0.7307 0.7846 

05 ............. California ........................................................................................................................................................... 1.1454 1.1163 

06 ............. Colorado ............................................................................................................................................................ 0.9325 0.9460 

07 ............. Connecticut ....................................................................................................................................................... 1.1709 1.1367 

08 ............. Delaware ........................................................................................................................................................... 0.9705 0.9764 

10 ............. Florida ............................................................................................................................................................... 0.8594 0.8875 

11 ............. Georgia ............................................................................................................................................................. 0.7593 0.8074 

12 ............. Hawaii ............................................................................................................................................................... 1.0448 1.0358 

13 ............. Idaho ................................................................................................................................................................. 0.8120 0.8496 

14 ............. Illinois ................................................................................................................................................................ 0.8320 0.8656 

15 ............. Indiana .............................................................................................................................................................. 0.8538 0.8830 

16 ............. Iowa ................................................................................................................................................................... 0.8681 0.8945 

17 ............. Kansas .............................................................................................................................................................. 0.7998 0.8398 

18 ............. Kentucky ........................................................................................................................................................... 0.7768 0.8214 

19 ............. Louisiana ........................................................................................................................................................... 0.7438 0.7950 

20 ............. Maine ................................................................................................................................................................ 0.8443 0.8754 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27019 

TABLE 2.—LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING FROM JULY 1, 

2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Nonurban area Full wage 

index 2

4/5ths 

wage 

index 3

21 ............. Maryland ........................................................................................................................................................... 0.8926 0.9141 

22 ............. Massachusetts 4 ................................................................................................................................................ ................ ................

23 ............. Michigan ............................................................................................................................................................ 0.9062 0.9250 

24 ............. Minnesota .......................................................................................................................................................... 0.9153 0.9322 

25 ............. Mississippi ......................................................................................................................................................... 0.7738 0.8190 

26 ............. Missouri ............................................................................................................................................................. 0.7927 0.8342 

27 ............. Montana ............................................................................................................................................................ 0.8590 0.8872 

28 ............. Nebraska ........................................................................................................................................................... 0.8677 0.8942 

29 ............. Nevada .............................................................................................................................................................. 0.8944 0.9155 

30 ............. New Hampshire ................................................................................................................................................ 1.0853 1.0682 

31 ............. New Jersey 4 ..................................................................................................................................................... ................ ................

32 ............. New Mexico ...................................................................................................................................................... 0.8332 0.8666 

33 ............. New York .......................................................................................................................................................... 0.8232 0.8586 

34 ............. North Carolina ................................................................................................................................................... 0.8588 0.8870 

35 ............. North Dakota ..................................................................................................................................................... 0.7215 0.7772 

36 ............. Ohio ................................................................................................................................................................... 0.8658 0.8926 

37 ............. Oklahoma .......................................................................................................................................................... 0.7629 0.8103 

38 ............. Oregon .............................................................................................................................................................. 0.9753 0.9802 

39 ............. Pennsylvania ..................................................................................................................................................... 0.8320 0.8656 

40 ............. Puerto Rico 4 ..................................................................................................................................................... ................ ................

41 ............. Rhode Island 4 ................................................................................................................................................... ................ ................

42 ............. South Carolina .................................................................................................................................................. 0.8566 0.8853 

43 ............. South Dakota .................................................................................................................................................... 0.8480 0.8784 

44 ............. Tennessee ........................................................................................................................................................ 0.7827 0.8262 

45 ............. Texas ................................................................................................................................................................ 0.7965 0.8372 

46 ............. Utah ................................................................................................................................................................... 0.8140 0.8512 

47 ............. Vermont ............................................................................................................................................................. 0.9744 0.9795 

49 ............. Virginia .............................................................................................................................................................. 0.7940 0.8352 

50 ............. Washington ....................................................................................................................................................... 1.0263 1.0210 

51 ............. West Virginia ..................................................................................................................................................... 0.7607 0.8086 

52 ............. Wisconsin .......................................................................................................................................................... 0.9553 0.9642 

53 ............. Wyoming ........................................................................................................................................................... 0.9295 0.9436 

1As discussed in section IV.D.1.d. of the preamble of this final rule, because there are no longer any LTCHs in their cost reporting periods that 

began during FYs 2003, 2004 or 2005 (the first 3 years of the 5-year wage index phase-in, respectively), we are no longer showing the 

1/5th, 2/5ths and 3/5ths wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this final rule. 2The wage index values are calculated using the same wage data used to compute the wage index used by acute care hospitals under the 

IPPS for Federal FY 2007 (that is, fiscal year 2003 audited acute care hospital inpatient wage data without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act). 3Four-fifths of the full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2005 through September 30, 2006 (Federal FY 2006). That is, for a LTCH’s cost reporting period that begins during Federal FY 2006 and located in rural Illinois, 

the 4/5ths wage index value is computed as ((4*0.8320) + 1))/5 = 0.8656. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this final rule. 4All counties within the State are classified as urban. 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

1 ............... 5 CRANIOTOMY AGE >17 W CC ............................................................................. 1.6835 37.1 30.9 16.1 

2 ............... 6 CRANIOTOMY AGE >17 W/O CC ......................................................................... 1.6835 37.1 30.9 7.1 

3 ............... 6 CRANIOTOMY AGE 0–17 ...................................................................................... 1.6835 37.1 30.9 20.1 

6 ............... 6 CARPAL TUNNEL RELEASE ................................................................................. 0.4175 17.0 14.2 4.8 

7 ............... PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W CC ...................... 1.2052 36.1 30.1 15.8 

8 ............... 2PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W/O CC ................ 0.5594 21.0 17.5 4.2 

9 ............... SPINAL DISORDERS & INJURIES .......................................................................... 1.0424 34.0 28.3 9.7 

10 ............. NERVOUS SYSTEM NEOPLASMS W CC .............................................................. 0.6971 22.1 18.4 9.6 

11 ............. 2 NERVOUS SYSTEM NEOPLASMS W/O CC ........................................................ 0.5594 21.0 17.5 5.7 

12 ............. DEGENERATIVE NERVOUS SYSTEM DISORDERS ............................................. 0.6788 25.1 20.9 8.4 

13 ............. MULTIPLE SCLEROSIS & CEREBELLAR ATAXIA ................................................. 0.6003 23.1 19.3 7.4 

14 ............. INTRACRANIAL HEMORRHAGE OR CEREBRAL INFARCTION ........................... 0.6772 24.9 20.8 8.6 

15 ............. NONSPECIFIC CVA & PRECEREBRAL OCCLUSION W/O INFARCT .................. 0.7705 26.1 21.8 6.4 

16 ............. NONSPECIFIC CEREBROVASCULAR DISORDERS W CC .................................. 0.6978 23.1 19.3 10.1 

17 ............. 2 NONSPECIFIC CEREBROVASCULAR DISORDERS W/O CC ............................ 0.5594 21.0 17.5 4.7 


ycherry on PROD1PC64 with RULES2
27020 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

18 ............. CRANIAL & PERIPHERAL NERVE DISORDERS W CC ........................................ 0.7503 25.4 21.2 8.2 

19 ............. CRANIAL & PERIPHERAL NERVE DISORDERS W/O CC ..................................... 0.4512 19.5 16.3 5.3 

21 ............. 3VIRAL MENINGITIS ................................................................................................ 0.7819 23.9 19.9 9.9 

22 ............. 3 HYPERTENSIVE ENCEPHALOPATHY ................................................................. 0.7819 23.9 19.9 7.9 

23 ............. NONTRAUMATIC STUPOR & COMA ...................................................................... 1.0118 29.4 24.5 6.1 

26 ............. 6SEIZURE & HEADACHE AGE 0–17 ...................................................................... 0.5594 21.0 17.5 6.2 

27 ............. TRAUMATIC STUPOR & COMA, COMA >1 HR ..................................................... 0.9978 30.6 25.5 7.6 

28 ............. TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W CC .......................... 0.7983 25.8 21.5 9.1 

29 ............. 1TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W/O CC .................... 0.4175 17.0 14.2 5.0 

30** .......... 6TRAUMATIC STUPOR & COMA, COMA <1 HR AGE 0–17 ................................. 0.4175 17.0 14.2 2.0 

31 ............. 1 CONCUSSION AGE >17 W CC ............................................................................. 0.4175 17.0 14.2 6.2 

32 ............. 6 CONCUSSION AGE >17 W/O CC ......................................................................... 0.4175 17.0 14.2 3.4 

33** .......... 6 CONCUSSION AGE 0–17 ...................................................................................... 0.4175 17.0 14.2 1.6 

34 ............. OTHER DISORDERS OF NERVOUS SYSTEM W CC ........................................... 0.7029 23.4 19.5 7.4 

35 ............. OTHER DISORDERS OF NERVOUS SYSTEM W/O CC ........................................ 0.5080 21.1 17.6 4.7 

36 ............. 6 RETINAL PROCEDURES ....................................................................................... 0.5594 21.0 17.5 2.7 

37 ............. 6ORBITAL PROCEDURES ....................................................................................... 0.5594 21.0 17.5 6.6 

38 ............. 6PRIMARY IRIS PROCEDURES ............................................................................. 0.5594 21.0 17.5 4.3 

39 ............. 6 LENS PROCEDURES WITH OR WITHOUT VITRECTOMY ................................. 0.5594 21.0 17.5 3.1 

40 ............. 6EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE >17 ............................... 0.5594 21.0 17.5 6.7 

41** .......... 6EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE 0–17 ............................. 0.5594 21.0 17.5 1.6 

42 ............. 6 INTRAOCULAR PROCEDURES EXCEPT RETINA, IRIS & LENS ....................... 0.5594 21.0 17.5 3.7 

43 ............. 6 HYPHEMA ............................................................................................................... 0.4175 17.0 14.2 4.6 

44 ............. 3ACUTE MAJOR EYE INFECTIONS ....................................................................... 0.7819 23.9 19.9 7.4 

45 ............. 1 NEUROLOGICAL EYE DISORDERS ..................................................................... 0.4175 17.0 14.2 4.6 

46 ............. 2OTHER DISORDERS OF THE EYE AGE >17 W CC ........................................... 0.5594 21.0 17.5 6.6 

47 ............. 6OTHER DISORDERS OF THE EYE AGE >17 W/O CC ........................................ 0.4175 17.0 14.2 4.7 

48** .......... 6OTHER DISORDERS OF THE EYE AGE 0–17 .................................................... 0.4175 17.0 14.2 2.9 

49 ............. 6 MAJOR HEAD & NECK PROCEDURES ............................................................... 1.1625 29.5 24.6 7.1 

50 ............. 6SIALOADENECTOMY ............................................................................................. 1.1625 29.5 24.6 2.6 

51 ............. 6SALIVARY GLAND PROCEDURES EXCEPT SIALOADENECTOMY .................. 1.1625 29.5 24.6 4.0 

52 ............. 6 CLEFT LIP & PALATE REPAIR ............................................................................. 1.1625 29.5 24.6 2.1 

53 ............. 6SINUS & MASTOID PROCEDURES AGE >17 ...................................................... 1.1625 29.5 24.6 6.2 

54** .......... 6SINUS & MASTOID PROCEDURES AGE 0–17 .................................................... 1.1625 29.5 24.6 3.2 

55 ............. 4 MISCELLANEOUS EAR, NOSE, MOUTH & THROAT PROCEDURES ............... 1.1625 29.5 24.6 4.3 

56 ............. 6 RHINOPLASTY ....................................................................................................... 1.1625 29.5 24.6 4.1 

57 ............. 6T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, 

AGE >17.

0.4175 17.0 14.2 4.9 

58** .......... 6T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, 

AGE 0–17.

0.4175 17.0 14.2 1.5 

59 ............. 6TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >17 ........................... 0.4175 17.0 14.2 3.6 

60 ............. 6TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0–17 ......................... 0.4175 17.0 14.2 2.7 

61 ............. 6 MYRINGOTOMY W TUBE INSERTION AGE >17 ................................................. 0.4175 17.0 14.2 10.2 

62 ............. 6 MYRINGOTOMY W TUBE INSERTION AGE 0–17 ............................................... 0.4175 17.0 14.2 2.3 

63 ............. 4OTHER EAR, NOSE, MOUTH & THROAT O.R. PROCEDURES ......................... 1.1625 29.5 24.6 7.2 

64 ............. EAR, NOSE, MOUTH & THROAT MALIGNANCY ................................................... 1.1797 26.2 21.8 10.2 

65 ............. 1 DYSEQUILIBRIUM .................................................................................................. 0.4175 17.0 14.2 4.2 

66 ............. 6EPISTAXIS .............................................................................................................. 0.4175 17.0 14.2 4.8 

67 ............. 3EPIGLOTTITIS ........................................................................................................ 0.7819 23.9 19.9 5.8 

68 ............. OTITIS MEDIA & URI AGE &>17 W CC .................................................................. 0.6211 20.3 16.9 5.9 

69 ............. 1OTITIS MEDIA & URI AGE &>17 W/O CC ............................................................ 0.4175 17.0 14.2 4.5 

70 ............. 6OTITIS MEDIA & URI AGE 0–17 ........................................................................... 0.4175 17.0 14.2 3.6 

71 ............. 6 LARYNGOTRACHEITIS .......................................................................................... 0.5594 21.0 17.5 6.7

72 ............. 3 NASAL TRAUMA & DEFORMITY .......................................................................... 0.7819 23.9 19.9 5.2 

73 ............. OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE >17 ....................... 0.7745 22.9 19.1 6.9 

74 ............. 6OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE 0–17 ................... 0.4175 17.0 14.2 3.9 

75 ............. MAJOR CHEST PROCEDURES .............................................................................. 1.9944 33.5 27.9 15.4 

76 ............. OTHER RESP SYSTEM O.R. PROCEDURES W CC ............................................. 2.3982 42.5 35.4 17.2 

77 ............. 2OTHER RESP SYSTEM O.R. PROCEDURES W/O CC ....................................... 0.5594 21.0 17.5 7.4 

78 ............. PULMONARY EMBOLISM ........................................................................................ 0.6746 22.6 18.8 9.4 

79 ............. RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W CC .................... 0.8182 22.8 19.0 12.9 

80 ............. RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W/O CC ................. 0.6485 20.9 17.4 8.3 

81 ............. 6 RESPIRATORY INFECTIONS & INFLAMMATIONS AGE 0–17 ........................... 0.4175 17.0 14.2 10.1 

82 ............. RESPIRATORY NEOPLASMS ................................................................................. 0.8242 21.4 17.8 11.0 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27021 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

83 ............. 1 MAJOR CHEST TRAUMA W CC ........................................................................... 0.4175 17.0 14.2 8.2 

84 ............. 6 MAJOR CHEST TRAUMA W/O CC ....................................................................... 0.4175 17.0 14.2 4.8 

85 ............. PLEURAL EFFUSION W CC .................................................................................... 0.6956 21.4 17.8 9.9 

86 ............. 6PLEURAL EFFUSION W/O CC .............................................................................. 0.4175 17.0 14.2 5.5 

87 ............. PULMONARY EDEMA & RESPIRATORY FAILURE ............................................... 1.0295 24.8 20.7 10.3 

88 ............. CHRONIC OBSTRUCTIVE PULMONARY DISEASE .............................................. 0.6411 19.3 16.1 7.5 

89 ............. SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC ............................................. 0.6802 20.6 17.2 8.6 

90 ............. SIMPLE PNEUMONIA & PLEURISY AGE >17 W/O CC ......................................... 0.4958 17.8 14.8 5.6 

91 ............. 6SIMPLE PNEUMONIA & PLEURISY AGE 0–17 .................................................... 0.5594 21.0 17.5 5.3 

92 ............. INTERSTITIAL LUNG DISEASE W CC .................................................................... 0.6638 19.6 16.3 9.4 

93 ............. 1 INTERSTITIAL LUNG DISEASE W/O CC .............................................................. 0.4175 17.0 14.2 5.9 

94 ............. PNEUMOTHORAX W CC ......................................................................................... 0.6785 21.3 17.8 9.6 

95 ............. 8PNEUMOTHORAX W/O CC ................................................................................... 0.6785 21.3 17.8 5.3 

96 ............. BRONCHITIS & ASTHMA AGE >17 W CC .............................................................. 0.6230 18.9 15.8 6.7 

97 ............. 8BRONCHITIS & ASTHMA AGE >17 W/O CC ........................................................ 0.6230 18.9 15.8 5.2 

98 ............. 6BRONCHITIS & ASTHMA AGE 0–17 ..................................................................... 0.5594 21.0 17.5 4.4 

99 ............. RESPIRATORY SIGNS & SYMPTOMS W CC ........................................................ 0.9381 24.6 20.5 4.8 

100 ........... 3RESPIRATORY SIGNS & SYMPTOMS W/O CC .................................................. 0.7819 23.9 19.9 3.1 

101 ........... OTHER RESPIRATORY SYSTEM DIAGNOSES W CC .......................................... 0.8147 22.2 18.5 6.7 

102 ........... 1OTHER RESPIRATORY SYSTEM DIAGNOSES W/O CC .................................... 0.4175 17.0 14.2 3.9 

103*** ....... 7 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM .................. 0.0000 0.0 0.0 0.0 

104 ........... 6 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W CARDIAC 

CATH.

1.1625 29.5 24.6 22.3 

105 ........... 6 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W/O CARDIAC CATH.1.1625 29.5 24.6 15.0 

106 ........... 6 CORONARY BYPASS W PTCA ............................................................................. 1.1625 29.5 24.6 16.6 

108 ........... 6OTHER CARDIOTHORACIC PROCEDURES ....................................................... 1.1625 29.5 24.6 17.1 

110 ........... 4 MAJOR CARDIOVASCULAR PROCEDURES W CC ............................................ 1.1625 29.5 24.6 13.8 

111 ........... 6 MAJOR CARDIOVASCULAR PROCEDURES W/O CC ........................................ 1.1625 29.5 24.6 4.9 

113 ........... AMPUTATION FOR CIRC SYSTEM DISORDERS EXCEPT UPPER LIMB & TOE 1.3942 36.1 30.1 20.5 

114 ........... UPPER LIMB & TOE AMPUTATION FOR CIRC SYSTEM DISORDERS .............. 1.2425 33.0 27.5 14.0 

117 ........... 2 CARDIAC PACEMAKER REVISION EXCEPT DEVICE REPLACEMENT ............ 0.5594 21.0 17.5 6.7 

118 ........... 3 CARDIAC PACEMAKER DEVICE REPLACEMENT .............................................. 0.7819 23.9 19.9 4.6 

119 ........... 3VEIN LIGATION & STRIPPING .............................................................................. 0.7819 23.9 19.9 8.8 

120 ........... OTHER CIRCULATORY SYSTEM O.R. PROCEDURES ........................................ 1.0893 31.4 26.2 15.5 

121 ........... CIRCULATORY DISORDERS W AMI & MAJOR COMP, DISCHARGED ALIVE ... 0.7451 22.4 18.7 10.1 

122 ........... 2 CIRCULATORY DISORDERS W AMI W/O MAJOR COMP, DISCHARGED 

ALIVE.

0.5594 21.0 17.5 5.3 

123 ........... CIRCULATORY DISORDERS W AMI, EXPIRED .................................................... 0.7858 17.0 14.2 7.6 

124 ........... 4 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH & COMPLEX 

DIAG.

1.1625 29.5 24.6 7.0 

125 ........... 1 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX 

DIAG.

0.4175 17.0 14.2 4.1 

126 ........... ACUTE & SUBACUTE ENDOCARDITIS .................................................................. 0.8867 26.3 21.9 17.5 

127 ........... HEART FAILURE & SHOCK ..................................................................................... 0.6832 21.2 17.7 8.0 

128 ........... 2 DEEP VEIN THROMBOPHLEBITIS ....................................................................... 0.5594 21.0 17.5 8.0 

129 ........... 1 CARDIAC ARREST, UNEXPLAINED ..................................................................... 0.4175 17.0 14.2 3.5 

130 ........... PERIPHERAL VASCULAR DISORDERS W CC ...................................................... 0.6484 22.8 19.0 8.6 

131 ........... PERIPHERAL VASCULAR DISORDERS W/O CC .................................................. 0.5267 21.0 17.5 5.9 

132 ........... ATHEROSCLEROSIS W CC .................................................................................... 0.6621 20.7 17.3 4.3 

133 ........... 2ATHEROSCLEROSIS W/O CC .............................................................................. 0.5594 21.0 17.5 3.2 

134 ........... HYPERTENSION ...................................................................................................... 0.4909 21.7 18.1 4.8 

135 ........... CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W CC ................. 0.8014 23.8 19.8 6.8 

136 ........... 1 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W/O CC ........... 0.4175 17.0 14.2 4.1 

137** ........ 6 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE 0–17 ........................ 0.4175 17.0 14.2 3.3 

138 ........... CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W CC ........................... 0.6618 21.9 18.3 6.1 

139 ........... 2 CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W/O CC ..................... 0.5594 21.0 17.5 3.7 

140 ........... 1ANGINA PECTORIS ............................................................................................... 0.4175 17.0 14.2 3.6 

141 ........... SYNCOPE & COLLAPSE W CC .............................................................................. 0.5891 22.1 18.4 5.3 

142 ........... 8SYNCOPE & COLLAPSE W/O CC ........................................................................ 0.5891 22.1 18.4 3.8 

143 ........... 1 CHEST PAIN ........................................................................................................... 0.4175 17.0 14.2 3.1 

144 ........... OTHER CIRCULATORY SYSTEM DIAGNOSES W CC .......................................... 0.7715 22.1 18.4 9.6 

145 ........... OTHER CIRCULATORY SYSTEM DIAGNOSES W/O CC ...................................... 0.4292 17.0 14.2 3.9 

146 ........... 5 RECTAL RESECTION W CC ................................................................................. 1.6835 37.1 30.9 14.6 


ycherry on PROD1PC64 with RULES2
27022 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

147 ........... 6 RECTAL RESECTION W/O CC ............................................................................. 0.7819 23.9 19.9 8.5 

149 ........... 6 MAJOR SMALL & LARGE BOWEL PROCEDURES W/O CC .............................. 0.7819 23.9 19.9 8.1 

150 ........... 5PERITONEAL ADHESIOLYSIS W CC ................................................................... 1.6835 37.1 30.9 17.3 

151 ........... 6PERITONEAL ADHESIOLYSIS W/O CC ............................................................... 0.4175 17.0 14.2 8.2 

152 ........... 5 MINOR SMALL & LARGE BOWEL PROCEDURES W CC ................................... 1.6835 37.1 30.9 12.0 

153 ........... 6 MINOR SMALL & LARGE BOWEL PROCEDURES W/O CC ............................... 1.6835 37.1 30.9 7.1 

155 ........... 6STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE >17 W/O CC .. 1.6835 37.1 30.9 6.4 

156 ........... 6STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE 0–17 .............. 1.6835 37.1 30.9 12.1 

157 ........... 3ANAL & STOMAL PROCEDURES W CC .............................................................. 0.7819 23.9 19.9 9.3 

158 ........... 6ANAL & STOMAL PROCEDURES W/O CC .......................................................... 0.7819 23.9 19.9 4.1 

159 ........... 5 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W CC ..... 1.6835 37.1 30.9 8.2 

160 ........... 1 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W/O CC .. 0.4175 17.0 14.2 4.1 

161 ........... 6 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W CC ..................... 0.4175 17.0 14.2 7.3 

162 ........... 6 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W/O CC ................. 0.4175 17.0 14.2 3.1 

163 ........... 6 HERNIA PROCEDURES AGE 0–17 ...................................................................... 0.4175 17.0 14.2 4.0 

164 ........... 6APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W CC ......................... 0.7819 23.9 19.9 11.9 

165 ........... 6APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W/O CC ...................... 0.7819 23.9 19.9 6.1 

166 ........... 6APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W CC ...................... 0.7819 23.9 19.9 6.8 

167 ........... 6APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W/O CC .................. 0.7819 23.9 19.9 3.1 

168 ........... 5 MOUTH PROCEDURES W CC .............................................................................. 1.6835 37.1 30.9 7.7 

169 ........... 6 MOUTH PROCEDURES W/O CC .......................................................................... 0.5594 21.0 17.5 3.5 

170 ........... OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W CC .................................... 1.6163 35.8 29.8 18.0 

171 ........... 3OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W/O CC .............................. 0.7819 23.9 19.9 6.7 

172 ........... DIGESTIVE MALIGNANCY W CC ............................................................................ 0.8497 21.8 18.2 11.1 

173 ........... 2 DIGESTIVE MALIGNANCY W/O CC ...................................................................... 0.5594 21.0 17.5 5.6 

174 ........... G.I. HEMORRHAGE W CC ....................................................................................... 0.7149 22.9 19.1 7.2 

175 ........... 2G.I. HEMORRHAGE W/O CC ................................................................................. 0.5594 21.0 17.5 4.3 

176 ........... COMPLICATED PEPTIC ULCER ............................................................................. 0.9514 24.8 20.7 8.0 

177 ........... 2 UNCOMPLICATED PEPTIC ULCER W CC ........................................................... 0.5594 21.0 17.5 6.8 

178 ........... 6 UNCOMPLICATED PEPTIC ULCER W/O CC ....................................................... 0.4175 17.0 14.2 4.7 

179 ........... INFLAMMATORY BOWEL DISEASE ....................................................................... 0.8157 23.3 19.4 9.1 

180 ........... G.I. OBSTRUCTION W CC ....................................................................................... 0.9126 22.8 19.0 8.3 

181 ........... 1G.I. OBSTRUCTION W/O CC ................................................................................. 0.4175 17.0 14.2 5.1 

182 ........... ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W CC .... 0.7866 21.8 18.2 6.4 

183 ........... 1ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W/O 

CC.

0.4175 17.0 14.2 4.4 

184 ........... 6ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE 0–17 ........... 0.4175 17.0 14.2 5.6 

185 ........... DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE >17 .. 0.6634 23.2 19.3 7.2 

186 ........... 6 DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE 0–

17.

0.5594 21.0 17.5 5.0 

187 ........... 6 DENTAL EXTRACTIONS & RESTORATIONS ...................................................... 0.5594 21.0 17.5 6.8 

188 ........... OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W CC ................................ 0.9596 24.4 20.3 8.5 

189 ........... 2OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W/O CC .......................... 0.5594 21.0 17.5 4.6 

190 ........... 6OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0–17 ....................................... 0.5594 21.0 17.5 5.1 

191 ........... 5PANCREAS, LIVER & SHUNT PROCEDURES W CC ......................................... 1.6835 37.1 30.9 21.1 

192 ........... 6PANCREAS, LIVER & SHUNT PROCEDURES W/O CC ...................................... 1.6835 37.1 30.9 9.3 

193 ........... 4BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W 

CC.

1.1625 29.5 24.6 19.7 

194 ........... 6BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W/O 

CC.

1.1625 29.5 24.6 9.9 

195 ........... 5 CHOLECYSTECTOMY W C.D.E. W CC ................................................................ 1.6835 37.1 30.9 16.2 

196 ........... 6 CHOLECYSTECTOMY W C.D.E. W/O CC ............................................................ 1.1625 29.5 24.6 8.3 

197 ........... 4 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W CC .......... 1.1625 29.5 24.6 14.0 

198 ........... 6 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W/O CC ...... 1.1625 29.5 24.6 6.6 

199 ........... 3 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR MALIGNANCY .................. 0.7819 23.9 19.9 15.2 

200 ........... 5 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR NON-MALIGNANCY ......... 1.6835 37.1 30.9 17.5 

201 ........... OTHER HEPATOBILIARY OR PANCREAS O.R. PROCEDURES .......................... 1.5802 28.8 24.0 22.6 

202 ........... CIRRHOSIS & ALCOHOLIC HEPATITIS ................................................................. 0.6011 20.2 16.8 9.9 

203 ........... MALIGNANCY OF HEPATOBILIARY SYSTEM OR PANCREAS ........................... 0.7466 19.6 16.3 10.6 

204 ........... DISORDERS OF PANCREAS EXCEPT MALIGNANCY .......................................... 0.8853 22.1 18.4 8.5 

205 ........... DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W CC ........................ 0.6933 23.1 19.3 9.4 

206 ........... 8 DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W/O CC .................. 0.6933 23.1 19.3 6.0 

207 ........... DISORDERS OF THE BILIARY TRACT W CC ........................................................ 0.7295 21.5 17.9 8.4 

208 ........... 1 DISORDERS OF THE BILIARY TRACT W/O CC .................................................. 0.4175 17.0 14.2 4.6 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27023 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

210 ........... HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W CC ............. 1.4826 41.9 34.9 9.5 

211 ........... 6 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W/O CC ....... 1.6835 37.1 30.9 6.3 

212 ........... 6 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 0–17 ................... 1.6835 37.1 30.9 3.8 

213 ........... AMPUTATION FOR MUSCULOSKELETAL SYSTEM & CONN TISSUE DISORDERS.1.1871 33.5 27.9 15.2 

216 ........... BIOPSIES OF MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE ............ 1.2147 37.6 31.3 8.8 

217 ........... WND DEBRID & SKN GRFT EXCEPT HAND,FOR MUSCSKELET & CONN TISS 

DIS.

1.2414 36.5 30.4 20.4 

218 ........... 5 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W 

CC.

1.6835 37.1 30.9 8.4 

219 ........... 6 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W/ 

O CC.

1.6835 37.1 30.9 4.8 

220 ........... 6 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE 0–17 .... 1.6835 37.1 30.9 10.5 

223 ........... 4 MAJOR SHOULDER/ELBOW PROC, OR OTHER UPPER EXTREMITY PROC 

W CC.

1.1625 29.5 24.6 5.1 

224 ........... 1SHOULDER,ELBOW OR FOREARM PROC,EXC MAJOR JOINT PROC, W/O 

CC.

0.4175 17.0 14.2 2.8 

225 ........... FOOT PROCEDURES .............................................................................................. 0.9550 30.6 25.5 8.7 

226 ........... SOFT TISSUE PROCEDURES W CC ..................................................................... 1.0626 34.3 28.6 10.6 

227 ........... 3SOFT TISSUE PROCEDURES W/O CC ............................................................... 0.7819 23.9 19.9 4.0 

228 ........... 3 MAJOR THUMB OR JOINT PROC,OR OTH HAND OR WRIST PROC W CC .... 0.7819 23.9 19.9 6.7 

229 ........... 6 HAND OR WRIST PROC, EXCEPT MAJOR JOINT PROC, W/O CC .................. 0.4175 17.0 14.2 3.8 

230 ........... 5 LOCAL EXCISION & REMOVAL OF INT FIX DEVICES OF HIP & FEMUR ........ 1.6835 37.1 30.9 8.8 

232 ........... 5ARTHROSCOPY ..................................................................................................... 1.6835 37.1 30.9 4.1 

233 ........... OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W CC ..................... 1.1724 32.4 27.0 10.8 

234 ........... 6OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W/O CC ............... 0.4175 17.0 14.2 4.1 

235 ........... 3FRACTURES OF FEMUR ...................................................................................... 0.7819 23.9 19.9 7.4 

236 ........... FRACTURES OF HIP & PELVIS .............................................................................. 0.6802 28.9 24.1 6.8 

237 ........... 1SPRAINS, STRAINS, & DISLOCATIONS OF HIP, PELVIS & THIGH .................. 0.4175 17.0 14.2 5.9 

238 ........... OSTEOMYELITIS ...................................................................................................... 0.8589 28.4 23.7 12.8 

239 ........... PATHOLOGICAL FRACTURES & MUSCULOSKELETAL & CONN TISS MALIGNANCY.0.6031 20.6 17.2 9.6 

240 ........... CONNECTIVE TISSUE DISORDERS W CC ........................................................... 0.7134 22.4 18.7 10.3 

241 ........... 1 CONNECTIVE TISSUE DISORDERS W/O CC ..................................................... 0.4175 17.0 14.2 5.6 

242 ........... SEPTIC ARTHRITIS .................................................................................................. 0.7700 26.2 21.8 10.2 

243 ........... MEDICAL BACK PROBLEMS ................................................................................... 0.6028 22.3 18.6 7.1 

244 ........... BONE DISEASES & SPECIFIC ARTHROPATHIES W CC ..................................... 0.5516 22.0 18.3 7.0 

245 ........... BONE DISEASES & SPECIFIC ARTHROPATHIES W/O CC ................................. 0.4463 19.4 16.2 4.8 

246 ........... 2 NON-SPECIFIC ARTHROPATHIES ....................................................................... 0.5594 21.0 17.5 5.6 

247 ........... SIGNS & SYMPTOMS OF MUSCULOSKELETAL SYSTEM & CONN TISSUE ..... 0.4582 17.6 14.7 5.1 

248 ........... TENDONITIS, MYOSITIS & BURSITIS .................................................................... 0.7328 23.2 19.3 7.5 

249 ........... AFTERCARE, MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE ............ 0.6370 24.0 20.0 6.2 

250 ........... 1FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W CC .......... 0.4175 17.0 14.2 6.0 

251 ........... 6FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W/O CC ...... 0.4175 17.0 14.2 4.3 

252** ........ 6FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 0–17 ................... 0.5594 21.0 17.5 1.8 

253 ........... FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W CC ........ 0.5609 24.0 20.0 7.0 

254 ........... 1FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC .. 0.4175 17.0 14.2 4.7 

255** ........ 6FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE 0–17 ............... 0.5594 21.0 17.5 2.9 

256 ........... OTHER MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE DIAGNOSES 0.7132 23.6 19.7 7.9 

257 ........... 5TOTAL MASTECTOMY FOR MALIGNANCY W CC .............................................. 1.6835 37.1 30.9 3.8 

258 ........... 6TOTAL MASTECTOMY FOR MALIGNANCY W/O CC .......................................... 0.7819 23.9 19.9 2.4 

259 ........... 3SUBTOTAL MASTECTOMY FOR MALIGNANCY W CC ...................................... 0.7819 23.9 19.9 4.1 

260 ........... 6SUBTOTAL MASTECTOMY FOR MALIGNANCY W/O CC .................................. 0.7819 23.9 19.9 1.9 

261 ........... 2BREAST PROC FOR NON-MALIGNANCY EXCEPT BIOPSY & LOCAL EXCISION.0.5594 21.0 17.5 3.2 

262 ........... 4BREAST BIOPSY & LOCAL EXCISION FOR NON-MALIGNANCY ...................... 1.1625 29.5 24.6 7.7 

263 ........... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR CELLULITIS W CC .............. 1.2748 38.0 31.7 16.9 

264 ........... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR CELLULITIS W/O CC ........... 0.8507 29.9 24.9 9.9 

265 ........... SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W 

CC.

1.1019 30.2 25.2 10.7 

266 ........... 3SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W/O 

CC.

0.7819 23.9 19.9 4.7 

267 ........... 6PERIANAL & PILONIDAL PROCEDURES ............................................................. 0.7819 23.9 19.9 6.8 

268 ........... 4SKIN, SUBCUTANEOUS TISSUE & BREAST PLASTIC PROCEDURES ............ 1.1625 29.5 24.6 5.4 


ycherry on PROD1PC64 with RULES2
27024 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

269 ........... OTHER SKIN, SUBCUT TISS & BREAST PROC W CC ......................................... 1.2075 34.7 28.9 13.4 

270 ........... 3OTHER SKIN, SUBCUT TISS & BREAST PROC W/O CC ................................... 0.7819 23.9 19.9 5.7 

271 ........... SKIN ULCERS ........................................................................................................... 0.8269 26.9 22.4 10.7 

272 ........... MAJOR SKIN DISORDERS W CC ........................................................................... 0.6584 23.0 19.2 9.3 

273 ........... 1 MAJOR SKIN DISORDERS W/O CC ..................................................................... 0.4175 17.0 14.2 5.9 

274 ........... MALIGNANT BREAST DISORDERS W CC ............................................................. 0.7231 21.8 18.2 10.1

275 ........... 6 MALIGNANT BREAST DISORDERS W/O CC ....................................................... 0.7819 23.9 19.9 5.2 

276 ........... 2 NON-MALIGNANT BREAST DISORDERS ............................................................ 0.5594 21.0 17.5 7.3 

277 ........... CELLULITIS AGE >17 W CC ................................................................................... 0.6089 20.9 17.4 8.4 

278 ........... CELLULITIS AGE >17 W/O CC ................................................................................ 0.4254 18.0 15.0 6.1 

279 ........... 6 CELLULITIS AGE 0–17 .......................................................................................... 0.4175 17.0 14.2 5.8 

280 ........... TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W CC ................... 0.7148 24.1 20.1 6.3 

281 ........... 2TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W/O CC ............. 0.5594 21.0 17.5 4.3 

282** ........ 6TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE 0–17 .......................... 0.5594 21.0 17.5 2.2 

283 ........... MINOR SKIN DISORDERS W CC ............................................................................ 0.6876 23.1 19.3 7.2 

284 ........... 2 MINOR SKIN DISORDERS W/O CC ...................................................................... 0.5594 21.0 17.5 4.6 

285 ........... AMPUTAT OF LOWER LIMB FOR ENDOCRINE,NUTRIT,& METABOL DISORDERS.1.2418 31.6 26.3 16.0 

286 ........... 6ADRENAL & PITUITARY PROCEDURES ............................................................. 1.1625 29.5 24.6 8.0 

287 ........... SKIN GRAFTS & WOUND DEBRID FOR ENDOC, NUTRIT & METAB DISORDERS.1.0402 33.0 27.5 15.2 

288 ........... 4O.R. PROCEDURES FOR OBESITY ..................................................................... 1.1625 29.5 24.6 5.4 

289 ........... 6PARATHYROID PROCEDURES ............................................................................ 1.1625 29.5 24.6 3.3 

290 ........... 6THYROID PROCEDURES ...................................................................................... 1.1625 29.5 24.6 2.8 

291 ........... 6THYROGLOSSAL PROCEDURES ......................................................................... 1.1625 29.5 24.6 2.1 

292 ........... OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W CC ................................ 1.1549 32.0 26.7 16.9 

293 ........... 8OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W/O CC .......................... 1.1549 32.0 26.7 7.8 

294 ........... DIABETES AGE >35 ................................................................................................. 0.6958 23.9 19.9 6.7 

295 ........... 2 DIABETES AGE 0–35 ............................................................................................. 0.5594 21.0 17.5 5.7 

296 ........... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W CC ..................... 0.7092 22.3 18.6 7.3 

297 ........... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W/O CC ................. 0.4596 19.3 16.1 4.6 

298 ........... 6 NUTRITIONAL & MISC METABOLIC DISORDERS AGE 0–17 ............................ 0.4175 17.0 14.2 5.3 

299 ........... 3 INBORN ERRORS OF METABOLISM ................................................................... 0.7819 23.9 19.9 8.2 

300 ........... ENDOCRINE DISORDERS W CC ............................................................................ 0.7004 23.7 19.8 9.3 

301 ........... 2ENDOCRINE DISORDERS W/O CC ...................................................................... 0.5594 21.0 17.5 5.2 

302*** ....... 7KIDNEY TRANSPLANT .......................................................................................... 0.0000 0.0 0.00.0 

303 ........... 6KIDNEY AND URETER PROCEDURES FOR NEOPLASM .................................. 0.7819 23.9 19.9 9.7 

304 ........... 4KIDNEY AND URETER PROCEDURES FOR NON-NEOPLASM W CC .............. 1.1625 29.5 24.6 13.4 

305 ........... 6KIDNEY AND URETER PROCEDURES FOR NON-NEOPLASM W/O CC .......... 0.7819 23.9 19.9 4.7 

306 ........... 4PROSTATECTOMY W CC ..................................................................................... 1.1625 29.5 24.6 9.1 

307 ........... 6PROSTATECTOMY W/O CC ................................................................................. 1.1625 29.5 24.6 2.9 

308 ........... 4 MINOR BLADDER PROCEDURES W CC ............................................................. 1.1625 29.5 24.6 8.6 

309 ........... 6 MINOR BLADDER PROCEDURES W/O CC ......................................................... 1.1625 29.5 24.6 2.4 

310 ........... 4TRANSURETHRAL PROCEDURES W CC ........................................................... 1.1625 29.5 24.6 7.2 

311 ........... 6TRANSURETHRAL PROCEDURES W/O CC ........................................................ 1.1625 29.5 24.6 2.7 

312 ........... 3 URETHRAL PROCEDURES, AGE >17 W CC ....................................................... 0.7819 23.9 19.9 8.0 

313 ........... 6 URETHRAL PROCEDURES, AGE >17 W/O CC ................................................... 0.7819 23.9 19.9 3.6 

314 ........... 6 URETHRAL PROCEDURES, AGE 0–17 ................................................................ 0.7819 23.9 19.9 360.4 

315 ........... OTHER KIDNEY & URINARY TRACT PROCEDURES ........................................... 1.4016 33.9 28.3 11.1 

316 ........... RENAL FAILURE ...................................................................................................... 0.8321 22.9 19.1 9.9 

317 ........... ADMIT FOR RENAL DIALYSIS ................................................................................ 0.9102 24.4 20.3 5.4 

318 ........... KIDNEY & URINARY TRACT NEOPLASMS W CC ................................................. 0.7565 21.0 17.5 9.8 

319 ........... 6KIDNEY & URINARY TRACT NEOPLASMS W/O CC ........................................... 0.7819 23.9 19.9 3.9 

320 ........... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W CC ................................. 0.6200 21.7 18.1 7.7 

321 ........... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W/O CC ............................. 0.4450 18.5 15.4 5.4 

322 ........... 6KIDNEY & URINARY TRACT INFECTIONS AGE 0–17 ........................................ 0.4175 17.0 14.2 5.2 

323 ........... 1 URINARY STONES W CC, &/OR ESW LITHOTRIPSY ........................................ 0.4175 17.0 14.2 4.8 

324 ........... 1 URINARY STONES W/O CC .................................................................................. 0.4175 17.0 14.2 2.7 

325 ........... 2KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W CC ................ 0.5594 21.0 17.5 5.8 

326 ........... 6KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W/O CC ............ 0.4175 17.0 14.2 3.9 

327 ........... 6KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE 0–17 ......................... 0.4175 17.0 14.2 2.8 

328 ........... 6 URETHRAL STRICTURE AGE >17 W CC ............................................................ 0.5594 21.0 17.5 5.4 

329 ........... 6 URETHRAL STRICTURE AGE >17 W/O CC ......................................................... 0.5594 21.0 17.5 2.4 

330** ........ 6 URETHRAL STRICTURE AGE 0–17 ..................................................................... 0.5594 21.0 17.5 1.6 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27025 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

331 ........... OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W CC .................... 0.7773 22.5 18.8 8.7 

332 ........... 1OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W/O CC .............. 0.4175 17.0 14.2 4.8 

333 ........... 6OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE 0–17 ........................... 0.4175 17.0 14.2 8.4 

334 ........... 6 MAJOR MALE PELVIC PROCEDURES W CC ..................................................... 0.4175 17.0 14.2 6.1 

335 ........... 1 MAJOR MALE PELVIC PROCEDURES W/O CC .................................................. 0.4175 17.0 14.2 3.7 

336 ........... 4TRANSURETHRAL PROSTATECTOMY W CC .................................................... 1.1625 29.5 24.6 4.9 

337 ........... 6TRANSURETHRAL PROSTATECTOMY W/O CC ................................................. 1.1625 29.5 24.6 2.6 

338 ........... 3TESTES PROCEDURES, FOR MALIGNANCY ..................................................... 0.7819 23.9 19.9 9.7 

339 ........... 3TESTES PROCEDURES, NON-MALIGNANCY AGE >17 ..................................... 0.7819 23.9 19.9 8.4 

340** ........ 6TESTES PROCEDURES, NON-MALIGNANCY AGE 0–17 ................................... 0.7819 23.9 19.9 2.4 

341 ........... 5PENIS PROCEDURES ........................................................................................... 1.6835 37.1 30.9 4.4

342 ........... 6 CIRCUMCISION AGE >17 ...................................................................................... 0.7819 23.9 19.9 4.6 

343** ........ 6 CIRCUMCISION AGE 0–17 .................................................................................... 0.7819 23.9 19.9 1.7 

344 ........... 3OTHER MALE REPRODUCTIVE SYSTEM O.R. PROCEDURES FOR MALIGNANCY.0.7819 23.9 19.9 3.9 

345 ........... 4OTHER MALE REPRODUCTIVE SYSTEM O.R. PROC EXCEPT FOR MALIGNANCY.1.1625 29.5 24.6 8.6 

346 ........... 3 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W CC ................................... 0.7819 23.9 19.9 9.6 

347 ........... 1 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W/O CC ............................... 0.4175 17.0 14.2 4.2 

348 ........... 2BENIGN PROSTATIC HYPERTROPHY W CC ..................................................... 0.5594 21.0 17.5 6.3 

349 ........... 6BENIGN PROSTATIC HYPERTROPHY W/O CC .................................................. 0.7819 23.9 19.9 4.1 

350 ........... INFLAMMATION OF THE MALE REPRODUCTIVE SYSTEM ................................ 0.5606 21.0 17.5 7.0 

351** ........ 6STERILIZATION, MALE .......................................................................................... 0.7819 23.9 19.9 1.3 

352 ........... OTHER MALE REPRODUCTIVE SYSTEM DIAGNOSES ....................................... 0.8209 27.5 22.9 6.7 

353 ........... 6PELVIC EVISCERATION, RADICAL HYSTERECTOMY & RADICAL 

VULVECTOMY.

1.1625 29.5 24.6 9.2 

354 ........... 6 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W CC ......... 1.1625 29.5 24.6 8.2 

355 ........... 6 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W/O CC ..... 1.1625 29.5 24.6 4.2 

356 ........... 6FEMALE REPRODUCTIVE SYSTEM RECONSTRUCTIVE PROCEDURES ....... 1.1625 29.5 24.6 2.7 

357 ........... 6 UTERINE & ADNEXA PROC FOR OVARIAN OR ADNEXAL MALIGNANCY ...... 1.1625 29.5 24.6 12.3 

358 ........... 6 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W CC ............................ 1.1625 29.5 24.6 5.7 

359 ........... 6 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W/O CC ........................ 1.1625 29.5 24.6 3.3 

360 ........... 6VAGINA, CERVIX & VULVA PROCEDURES ........................................................ 1.1625 29.5 24.6 3.7 

361 ........... 6 LAPAROSCOPY & INCISIONAL TUBAL INTERRUPTION ................................... 0.4175 17.0 14.2 4.5 

362 ........... 6ENDOSCOPIC TUBAL INTERRUPTION ............................................................... 0.4175 17.0 14.2 1.0 

363 ........... 6 D&C, CONIZATION & RADIO-IMPLANT, FOR MALIGNANCY ............................. 0.4175 17.0 14.2 6.5 

364 ........... 6 D&C, CONIZATION EXCEPT FOR MALIGNANCY ............................................... 0.4175 17.0 14.2 6.1 

365 ........... 4OTHER FEMALE REPRODUCTIVE SYSTEM O.R. PROCEDURES ................... 1.1625 29.5 24.6 13.0 

366 ........... MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W CC .................................. 0.9106 21.6 18.0 10.2 

367 ........... 1 MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W/O CC ............................ 0.4175 17.0 14.2 4.6 

368 ........... INFECTIONS, FEMALE REPRODUCTIVE SYSTEM ............................................... 0.7846 21.3 17.8 10.2 

369 ........... 3 MENSTRUAL & OTHER FEMALE REPRODUCTIVE SYSTEM DISORDERS ..... 0.7819 23.9 19.9 5.1 

370 ........... 6 CESAREAN SECTION W CC ................................................................................. 0.4175 17.0 14.2 7.0 

371 ........... 6 CESAREAN SECTION W/O CC ............................................................................. 0.4175 17.0 14.2 4.5 

372 ........... 6VAGINAL DELIVERY W COMPLICATING DIAGNOSES ...................................... 0.4175 17.0 14.2 4.7 

373 ........... 6VAGINAL DELIVERY W/O COMPLICATING DIAGNOSES .................................. 0.4175 17.0 14.2 3.0 

374 ........... 6VAGINAL DELIVERY W STERILIZATION &/OR D&C ........................................... 0.4175 17.0 14.2 4.1 

375 ........... 6VAGINAL DELIVERY W O.R. PROC EXCEPT STERIL &/OR D&C ..................... 0.4175 17.0 14.2 11.0 

376 ........... 4POSTPARTUM & POST ABORTION DIAGNOSES W/O O.R. PROCEDURE ..... 1.1625 29.5 24.6 5.1 

377 ........... 6POSTPARTUM & POST ABORTION DIAGNOSES W O.R. PROCEDURE ......... 0.4175 17.0 14.2 7.2 

378 ........... 6ECTOPIC PREGNANCY ......................................................................................... 0.4175 17.0 14.2 3.2 

379 ........... 6THREATENED ABORTION .................................................................................... 0.4175 17.0 14.2 4.8 

380 ........... 6ABORTION W/O D&C ............................................................................................. 0.4175 17.0 14.2 2.9 

381 ........... 6ABORTION W D&C, ASPIRATION CURETTAGE OR HYSTEROTOMY ............. 0.4175 17.0 14.2 3.6 

382 ........... 6FALSE LABOR ........................................................................................................ 0.4175 17.0 14.2 2.1 

383 ........... 1OTHER ANTEPARTUM DIAGNOSES W MEDICAL COMPLICATIONS ............... 0.4175 17.0 14.2 5.6 

384 ........... 6OTHER ANTEPARTUM DIAGNOSES W/O MEDICAL COMPLICATIONS ........... 0.4175 17.0 14.2 3.6 

385** ........ 6 NEONATES, DIED OR TRANSFERRED TO ANOTHER ACUTE CARE FACILITY.0.4175 17.0 14.2 1.8 

386** ........ 6EXTREME IMMATURITY OR RESPIRATORY DISTRESS SYNDROME, 

NEONATE.

0.4175 17.0 14.2 17.9 

387** ........ 6PREMATURITY W MAJOR PROBLEMS ............................................................... 0.4175 17.0 14.2 13.3 

388** ........ 6PREMATURITY W/O MAJOR PROBLEMS ........................................................... 0.4175 17.0 14.2 8.6 

389 ........... 6FULL TERM NEONATE W MAJOR PROBLEMS .................................................. 0.4175 17.0 14.2 17.6 


ycherry on PROD1PC64 with RULES2
27026 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

390** ........ 6 NEONATE W OTHER SIGNIFICANT PROBLEMS ................................................ 0.4175 17.0 14.2 3.4 

391** ........ 6 NORMAL NEWBORN ............................................................................................. 0.4175 17.0 14.2 3.1

392 ........... 6SPLENECTOMY AGE >17 ..................................................................................... 1.1625 29.5 24.6 14.5 

393** ........ 6SPLENECTOMY AGE 0–17 ................................................................................... 1.1625 29.5 24.6 9.1 

394 ........... 4OTHER O.R. PROCEDURES OF THE BLOOD AND BLOOD FORMING ORGANS.1.1625 29.5 24.6 12.1 

395 ........... RED BLOOD CELL DISORDERS AGE >17 ............................................................ 0.6651 21.9 18.3 6.5 

396 ........... 6 RED BLOOD CELL DISORDERS AGE 0–17 ........................................................ 0.4175 17.0 14.2 4.5 

397 ........... COAGULATION DISORDERS .................................................................................. 0.8276 20.4 17.0 8.2 

398 ........... RETICULOENDOTHELIAL & IMMUNITY DISORDERS W CC ............................... 0.6278 20.8 17.3 8.8 

399 ........... 1 RETICULOENDOTHELIAL & IMMUNITY DISORDERS W/O CC ......................... 0.4175 17.0 14.2 5.1 

401 ........... 4 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W CC ............. 1.1625 29.5 24.6 18.9 

402 ........... 6 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W/O CC ......... 0.5594 21.0 17.5 6.3 

403 ........... LYMPHOMA & NON-ACUTE LEUKEMIA W CC ...................................................... 0.8846 23.9 19.9 13.2 

404 ........... 3 LYMPHOMA & NON-ACUTE LEUKEMIA W/O CC ................................................ 0.7819 23.9 19.9 6.6 

405** ........ 6ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE 0–17 ........................ 0.7819 23.9 19.9 4.9 

406 ........... 5 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R.PROC W CC 1.6835 37.1 30.9 15.5 

407 ........... 6 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R.PROC W/O 

CC.

1.1625 29.5 24.6 5.5 

408 ........... 4 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W OTHER O.R.PROC ..... 1.1625 29.5 24.6 14.0 

409 ........... RADIOTHERAPY ...................................................................................................... 0.8416 23.2 19.3 9.5 

410 ........... CHEMOTHERAPY W/O ACUTE LEUKEMIA AS SECONDARY DIAGNOSIS ........ 1.2527 28.7 23.9 5.8 

411 ........... 6 HISTORY OF MALIGNANCY W/O ENDOSCOPY ................................................. 0.5594 21.0 17.5 3.3 

412 ........... 6 HISTORY OF MALIGNANCY W ENDOSCOPY ..................................................... 0.5594 21.0 17.5 2.1 

413 ........... OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W CC .................. 0.8429 21.4 17.8 11.0 

414 ........... 3OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W/O CC ............ 0.7819 23.9 19.9 6.4 

417 ........... 6SEPTICEMIA AGE 0–17 ......................................................................................... 0.7819 23.9 19.9 10.5 

418 ........... POSTOPERATIVE & POST-TRAUMATIC INFECTIONS ......................................... 0.7961 24.1 20.1 9.6 

419 ........... 2FEVER OF UNKNOWN ORIGIN AGE >17 W CC ................................................. 0.5594 21.0 17.5 6.8 

420 ........... 2FEVER OF UNKNOWN ORIGIN AGE >17 W/O CC ............................................. 0.5594 21.0 17.5 4.9 

421 ........... VIRAL ILLNESS AGE >17 ........................................................................................ 0.7065 20.4 17.0 6.2 

422 ........... 6VIRAL ILLNESS & FEVER OF UNKNOWN ORIGIN AGE 0–17 ........................... 0.4175 17.0 14.2 5.6 

423 ........... OTHER INFECTIOUS & PARASITIC DISEASES DIAGNOSES .............................. 1.0426 23.2 19.3 13.2 

424 ........... 5O.R. PROCEDURE W PRINCIPAL DIAGNOSES OF MENTAL ILLNESS ............ 1.6835 37.1 30.9 19.7 

425 ........... 1ACUTE ADJUSTMENT REACTION & PSYCHOSOCIAL DYSFUNCTION ........... 0.4175 17.0 14.2 5.3 

426 ........... DEPRESSIVE NEUROSES ...................................................................................... 0.4038 22.5 18.8 6.8 

427 ........... 2 NEUROSES EXCEPT DEPRESSIVE ..................................................................... 0.5594 21.0 17.5 7.3 

428 ........... DISORDERS OF PERSONALITY & IMPULSE CONTROL ..................................... 0.5183 24.5 20.4 11.4 

429 ........... ORGANIC DISTURBANCES & MENTAL RETARDATION ...................................... 0.5326 24.0 20.0 8.5 

430 ........... PSYCHOSES ............................................................................................................ 0.4024 23.1 19.3 12.6 

431 ........... 2 CHILDHOOD MENTAL DISORDERS ..................................................................... 0.5594 21.0 17.5 10.1 

432 ........... 1OTHER MENTAL DISORDER DIAGNOSES ......................................................... 0.4175 17.0 14.2 6.1 

433 ........... 6ALCOHOL/DRUG ABUSE OR DEPENDENCE, LEFT AMA .................................. 0.4175 17.0 14.2 4.2 

439 ........... SKIN GRAFTS FOR INJURIES ................................................................................ 1.2203 36.0 30.0 13.6 

440 ........... WOUND DEBRIDEMENTS FOR INJURIES ............................................................. 1.2248 34.4 28.7 13.4

441 ........... 2 HAND PROCEDURES FOR INJURIES ................................................................. 0.5594 21.0 17.5 5.2 

442 ........... OTHER O.R. PROCEDURES FOR INJURIES W CC .............................................. 1.3670 34.9 29.1 14.5 

443 ........... 6OTHER O.R. PROCEDURES FOR INJURIES W/O CC ........................................ 0.5594 21.0 17.5 5.6 

444 ........... TRAUMATIC INJURY AGE >17 W CC .................................................................... 0.6598 23.2 19.3 6.4 

445 ........... 2TRAUMATIC INJURY AGE >17 W/O CC ............................................................... 0.5594 21.0 17.5 4.4 

446** ........ 6TRAUMATIC INJURY AGE 0–17 ........................................................................... 0.5594 21.0 17.5 2.4 

447 ........... 2ALLERGIC REACTIONS AGE >17 ........................................................................ 0.5594 21.0 17.5 3.9 

448** ........ 6ALLERGIC REACTIONS AGE 0–17 ....................................................................... 0.5594 21.0 17.5 2.9 

449 ........... 3POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W CC ........................... 0.7819 23.9 19.9 5.8 

450 ........... 2POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W/O CC ........................ 0.5594 21.0 17.5 2.9 

451 ........... 6POISONING & TOXIC EFFECTS OF DRUGS AGE 0–17 .................................... 0.7819 23.9 19.9 14.4 

452 ........... COMPLICATIONS OF TREATMENT W CC ............................................................. 0.9275 25.7 21.4 7.8 

453 ........... COMPLICATIONS OF TREATMENT W/O CC ......................................................... 0.5790 21.6 18.0 4.2 

454 ........... 3OTHER INJURY, POISONING & TOXIC EFFECT DIAG W CC ........................... 0.7819 23.9 19.9 6.5 

455 ........... 6OTHER INJURY, POISONING & TOXIC EFFECT DIAG W/O CC ....................... 0.7819 23.9 19.9 3.4 

461 ........... O.R. PROC W DIAGNOSES OF OTHER CONTACT W HEALTH SERVICES ....... 1.1466 32.7 27.3 8.8 

462 ........... REHABILITATION ..................................................................................................... 0.5823 22.1 18.4 14.8 

463 ........... SIGNS & SYMPTOMS W CC ................................................................................... 0.6082 22.9 19.1 6.1 

464 ........... SIGNS & SYMPTOMS W/O CC ............................................................................... 0.5831 24.3 20.3 4.5 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27027 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

465 ........... AFTERCARE W HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS ..... 0.6877 21.2 17.7 5.5 

466 ........... AFTERCARE W/O HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS 0.6700 21.7 18.1 7.0 

467 ........... 3OTHER FACTORS INFLUENCING HEALTH STATUS ......................................... 0.7819 23.9 19.9 4.0 

468 ........... EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ....... 2.1478 40.5 33.8 21.4 

469*** ....... 7PRINCIPAL DIAGNOSIS INVALID AS DISCHARGE DIAGNOSIS ....................... 0.0000 0.0 0.0 0.0 

470*** ....... 7 UNGROUPABLE ..................................................................................................... 0.0000 0.0 0.0 0.0 

471 ........... 5BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF LOWER EXTREMITY .. 1.6835 37.1 30.9 6.2 

473 ........... ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE >17 ............................ 0.9917 25.3 21.1 21.4 

476 ........... 5PROSTATIC O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ..... 1.6835 37.1 30.9 17.7 

477 ........... NON-EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS.1.5119 35.9 29.9 14.8 

479 ........... 2OTHER VASCULAR PROCEDURES W/O CC ...................................................... 0.5594 21.0 17.5 3.9 

480*** ....... 7 LIVER TRANSPLANT AND/OR INTESTINAL TRANSPLANT ............................... 0.0000 0.0 0.0 0.0 

481 ........... 6BONE MARROW TRANSPLANT ........................................................................... 1.1625 29.5 24.6 35.2 

482 ........... 5TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES ........................... 1.6835 37.1 30.9 17.6 

484 ........... 6 CRANIOTOMY FOR MULTIPLE SIGNIFICANT TRAUMA .................................... 1.6835 37.1 30.9 23.1 

485 ........... 6 LIMB REATTACHMENT, HIP & FEMUR PROC FOR MULTIPLE SIGNIFICANT 

TRAUMA.

1.1625 29.5 24.6 14.7 

486 ........... 3OTHER O.R. PROCEDURES FOR MULTIPLE SIGNIFICANT TRAUMA ............. 0.7819 23.9 19.9 21.8 

487 ........... 4OTHER MULTIPLE SIGNIFICANT TRAUMA ......................................................... 1.1625 29.5 24.6 11.5 

488 ........... 4 HIV W EXTENSIVE O.R. PROCEDURE ................................................................ 1.1625 29.5 24.6 29.6 

489 ........... HIV W MAJOR RELATED CONDITION ................................................................... 0.9436 22.1 18.4 13.3 

490 ........... HIV W OR W/O OTHER RELATED CONDITION .................................................... 0.6456 20.3 16.9 8.5 

491 ........... 5 MAJOR JOINT & LIMB REATTACHMENT PROCEDURES OF UPPER EXTREMITY.1.6835 37.1 30.9 4.5 

492 ........... 2 CHEMO W ACUTE LEUKEMIA AS SDX OR W USE OF HIGH DOSE CHEMO 

AGENT.

0.5594 21.0 17.5 23.1 

493 ........... 4 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC .............................. 1.1625 29.5 24.6 9.8 

494 ........... 6 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W/O CC ........................... 1.1625 29.5 24.6 4.2 

495*** ....... 7 LUNG TRANSPLANT .............................................................................................. 0.0000 0.0 0.0 0.0

496 ........... 4 COMBINED ANTERIOR/POSTERIOR SPINAL FUSION ...................................... 1.1625 29.5 24.6 13.8 

497 ........... 5SPINAL FUSION EXCEPT CERVICAL W CC ....................................................... 1.6835 37.1 30.9 8.3 

498 ........... 6SPINAL FUSION EXCEPT CERVICAL W/O CC ................................................... 1.6835 37.1 30.9 5.3 

499 ........... 5BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W CC ...................... 1.6835 37.1 30.9 6.6 

500 ........... 4BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC .................. 1.1625 29.5 24.6 3.3 

501 ........... KNEE PROCEDURES W PDX OF INFECTION W CC ........................................... 1.2164 33.3 27.8 15.4 

502 ........... 3KNEE PROCEDURES W PDX OF INFECTION W/O CC ..................................... 0.7819 23.9 19.9 8.7 

503 ........... 4KNEE PROCEDURES W/O PDX OF INFECTION ................................................ 1.1625 29.5 24.6 6.1 

504 ........... 5EXTENSIVE BURNS OR FULL THICKNESS BURNS W MV 96+ HRS W SKIN 

GRAFT.

1.6835 37.1 30.9 48.4 

505 ........... 5EXTENSIVE BURNS OR FULL THICKNESS BURNS W MV 96+ HRS W/O 

SKIN GRAFT.

1.6835 37.1 30.9 9.4 

506 ........... 4FULL THICKNESS BURN W SKIN GRAFT OR INHAL INJ W CC OR SIG 

TRAUMA.

1.1625 29.5 24.6 26.1 

507 ........... 6FULL THICKNESS BURN W SKIN GRFT OR INHAL INJ W/O CC OR SIG 

TRAUMA.

0.4175 17.0 14.2 13.2 

508 ........... FULL THICKNESS BURN W/O SKIN GRFT OR INHAL INJ W CC OR SIG 

TRAUMA.

0.7588 25.6 21.3 12.1 

509 ........... 1FULL THICKNESS BURN W/O SKIN GRFT OR INH INJ W/O CC OR SIG 

TRAUMA.

0.4175 17.0 14.2 8.6 

510 ........... NON-EXTENSIVE BURNS W CC OR SIGNIFICANT TRAUMA .............................. 0.6720 22.6 18.8 9.7 

511 ........... 1 NON-EXTENSIVE BURNS W/O CC OR SIGNIFICANT TRAUMA ........................ 0.4175 17.0 14.2 5.7 

512*** ....... 7SIMULTANEOUS PANCREAS/KIDNEY TRANSPLANT ........................................ 0.0000 0.0 0.0 0.0 

513*** ....... 7PANCREAS TRANSPLANT .................................................................................... 0.0000 0.0 0.0 0.0 

515 ........... 4 CARDIAC DEFIBRILLATOR IMPLANT W/O CARDIAC CATH ............................. 1.1625 29.5 24.6 5.9 

518 ........... 6PERCUTANEOUS CARDIOVASC PROC W/O CORONARY ARTERY STENT 

OR AMI.

0.4175 17.0 14.2 3.7 

519 ........... 4 CERVICAL SPINAL FUSION W CC ....................................................................... 1.1625 29.5 24.6 7.4 

520 ........... 6 CERVICAL SPINAL FUSION W/O CC ................................................................... 1.6835 37.1 30.9 2.8 

521 ........... 2ALCOHOL/DRUG ABUSE OR DEPENDENCE W CC ........................................... 0.5594 21.0 17.5 8.4 

522 ........... 6ALCOHOL/DRUG ABUSE OR DEPENDENCE W REHABILITATION THERAPY 

W/O CC.

0.5594 21.0 17.5 16.7 

523 ........... 1ALCOHOL/DRUG ABUSE OR DEPENDENCE W/O REHABILITATION THERAPY W/O CC.0.4175 17.0 14.2 5.8 


ycherry on PROD1PC64 with RULES2
27028 Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

524 ........... 2TRANSIENT ISCHEMIA .......................................................................................... 0.5594 21.0 17.5 4.8 

525 ........... 6OTHER HEART ASSIST SYSTEM IMPLANT ........................................................ 1.6835 37.1 30.9 24.1 

528 ........... 6 INTRACRANIAL VASCULAR PROCEDURES W PDX HEMORRHAGE .............. 1.6835 37.1 30.9 26.9 

529 ........... 5VENTRICULAR SHUNT PROCEDURES W CC .................................................... 1.6835 37.1 30.9 11.7 

530 ........... 6VENTRICULAR SHUNT PROCEDURES W/O CC ................................................ 1.6835 37.1 30.9 4.5 

531 ........... 5SPINAL PROCEDURES W CC .............................................................................. 1.6835 37.1 30.9 15.5 

532 ........... 3SPINAL PROCEDURES W/O CC .......................................................................... 0.7819 23.9 19.9 5.9 

533 ........... 4EXTRACRANIAL PROCEDURES W CC ............................................................... 1.1625 29.5 24.6 5.7 

534 ........... 6EXTRACRANIAL PROCEDURES W/O CC ............................................................ 1.1625 29.5 24.6 2.5 

535 ........... 5 CARDIAC DEFIB IMPLANT W CARDIAC CATH W AMI/HF/SHOCK ................... 1.6835 37.1 30.9 15.6 

536 ........... 6 CARDIAC DEFIB IMPLANT W CARDIAC CATH W/O AMI/HF/SHOCK ............... 1.1625 29.5 24.6 11.7 

537 ........... LOCAL EXCISION & REMOVAL INT FIX DEVICES EXCEPT HIP & FEMUR W 

CC.

1.4672 39.9 33.3 10.8 

538 ........... 4 LOCAL EXCISION & REMOVAL INT FIX DEVICES EXCEPT HIP & FEMUR W/ 

O CC.

1.1625 29.5 24.6 4.5 

539 ........... 4 LYMPHOMA & LEUKEMIA W MAJOR O.R. PROCEDURE W CC ....................... 1.1625 29.5 24.6 18.1 

540 ........... 6 LYMPHOMA & LEUKEMIA W MAJOR O.R. PROCEDURE W/O CC ................... 0.4175 17.0 14.2 5.6 

541 ........... ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W 

MAJ O.R..

3.8893 58.1 48.4 65.8 

542 ........... TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W/O MAJ O.R. 2.8689 45.1 37.6 49.1 

543 ........... 5 CRANIOTOMY W MAJOR DEVICE IMPLANT OR ACUTE COMPLEX CNS PDX 1.6835 37.1 30.9 20.4 

544 ........... 5 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY.1.6835 37.1 30.9 6.1 

545 ........... 5 REVISION OF HIP OR KNEE REPLACEMENT .................................................... 1.6835 37.1 30.9 7.4 

546 ........... 6SPINAL FUSION EXC CERV WITH CURVATURE OF THE SPINE OR MALIG .. 1.6835 37.1 30.9 13.4 

547 ........... 6 CORONARY BYPASS W CARDIAC CATH W MAJOR CV DX ............................ 1.1625 29.5 24.6 17.8 

548 ........... 6 CORONARY BYPASS W CARDIAC CATH W/O MAJOR CV DX ......................... 1.1625 29.5 24.6 12.0 

549 ........... 6 CORONARY BYPASS W/O CARDIAC CATH W MAJOR CV DX ......................... 1.1625 29.5 24.6 15.0 

550 ........... 6 CORONARY BYPASS W/O CARDIAC CATH W/O MAJOR CV DX ..................... 1.1625 29.5 24.6 9.3 

551 ........... PERMANENT CARDIAC PACEMAKER IMPL W MAJ CV DX OR AICD LEAD OR 

GNRTR.

1.6035 29.5 24.6 10.3 

552 ........... 4OTHER PERMANENT CARDIAC PACEMAKER IMPLANT W/O MAJOR CV DX 1.1625 29.5 24.6 5.5 

553 ........... OTHER VASCULAR PROCEDURES W CC W MAJOR CV DX ............................. 1.5837 32.5 27.1 15.8 

554 ........... OTHER VASCULAR PROCEDURES W CC W/O MAJOR CV DX ......................... 1.2817 31.6 26.3 9.3 

555 ........... 3PERCUTANEOUS CARDIOVASCULAR PROC W MAJOR CV DX ...................... 0.7819 23.9 19.9 7.8 

556 ........... 6PERCUTANEOUS CARDIOVASC PROC W NON-DRUG-ELUTING STENT W/O 

MAJ CV DX.

0.4175 17.0 14.2 2.9 

557 ........... 4PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W 

MAJOR CV DX.

1.1625 29.5 24.6 6.5 

558 ........... 6PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W/ 

O MAJ CV DX.

0.4175 17.0 14.2 2.6 

559 ........... 6ACUTE ISCHEMIC STROKE WITH USE OF THROMBOLYTIC AGENT ............. 0.7819 23.9 19.9 10.7 

560 ........... BACTERIAL & TUBERCULOUS INFECTIONS OF NERVOUS SYSTEM ............... 0.9308 25.5 21.3 16.9 

561 ........... NON-BACTERIAL INFECTIONS OF NERVOUS SYSTEM EXCEPT VIRAL MENINGITIS.0.8145 22.3 18.6 15.5 

562 ........... SEIZURE AGE >17 W CC ........................................................................................ 0.6844 23.2 19.3 7.6 

563 ........... 2SEIZURE AGE >17 W/O CC .................................................................................. 0.5594 21.0 17.5 4.9 

564 ........... HEADACHES AGE >17 ............................................................................................ 0.7565 24.1 20.1 5.3 

565 ........... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT 96+ 

HOURS.

2.0557 34.7 28.9 23.3 

566 ........... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT < 96 

HOURS.

1.5445 27.4 22.8 13.2 

567 ........... 5STOMACH, ESOPHAGEAL & DUODENAL PROC AGE >17 W CC W MAJOR 

GI DX.

1.6835 37.1 30.9 25.4 

568 ........... 5STOMACH, ESOPHAGEAL & DUODENAL PROC AGE >17 W CC W/O 

MAJOR GI DX.

1.6835 37.1 30.9 19.2 

569 ........... 5 MAJOR SMALL & LARGE BOWEL PROCEDURES W CC W MAJOR GI DX ..... 1.6835 37.1 30.9 22.5 

570 ........... 5 MAJOR SMALL & LARGE BOWEL PROCEDURES W CC W/O MAJOR GI DX 1.6835 37.1 30.9 14.9 

571 ........... MAJOR ESOPHAGEAL DISORDERS ...................................................................... 0.8214 21.9 18.3 7.5 

572 ........... MAJOR GASTROINTESTINAL DISORDERS AND PERITONEAL INFECTIONS ... 0.8505 23.3 19.4 11.0 

573 ........... 5 MAJOR BLADDER PROCEDURES ....................................................................... 1.6835 37.1 30.9 16.7 

574 ........... MAJOR HEMATOLOGIC/IMMUNOLOGIC DIAG EXC SICKLE CELL CRISIS & 

COAGUL.

0.8106 19.7 16.4 9.1 

575 ........... SEPTICEMIA W MV 96+ HOURS AGE >17 ............................................................ 1.6583 27.8 23.2 24.4 


ycherry on PROD1PC64 with RULES2
Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and Regulations 27029 

TABLE 3: FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE GEOMETRIC AVERAGE LENGTH OF STAY AND THE IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–DRG Description Relative 

weight 

Geometric average 

length of 

stay 

5/6ths of 

the geometric average 

length of 

stay 

IPPS average 

length of 

stay plus 

one 

standard 

deviation* 

576 ........... SEPTICEMIA W/O MV 96+ HOURS AGE >17 ........................................................ 0.7925 23.0 19.2 11.8 

577 ........... 6 CAROTID ARTERY STENT PROCEDURE ........................................................... 1.1625 29.5 24.6 3.3 

578 ........... O. R. PROCEDURE W PDX EXC POSTOPERATIVE OR POST-TRAUMATIC INFECTION.1.4849 35.7 29.8 26.5 

579 ........... O. R. PROCEDURE W PDX OF POSTOPERATIVE OR POST-TRAUMATIC INFECTION.1.2978 35.2 29.3 18.0 

1 Relative weights for these LTC–DRGs were determined by assigning these cases to low-volume quintile 1. 2 Relative weights for these LTC–DRGs were determined by assigning these cases to low-volume quintile 2. 3 Relative weights for these LTC–DRGs were determined by assigning these cases to low-volume quintile 3. 4 Relative weights for these LTC–DRGs were determined by assigning these cases to low-volume quintile 4. 5 Relative weights for these LTC–DRGs were determined by assigning these cases to low-volume quintile 5. 6 Relative weights for these LTC–DRGs were determined by assigning these cases to the appropriate low volume quintile because they had no 

LTCH cases in the FY 2005 MedPAR file. 7 Relative weights for these LTC–DRGs were assigned a value of 0.0000. 8 Relative weights for these LTC–DRGs were determined after adjusting to account for nonmonotonicity. 

*‘‘IPPS Comparable Threshold’’ for the revision to the short-stay outlier policy, as discussed in section V.A.2. of the preamble of this final rule. 

** IPPS hospital statistical data for these LTC–DRGs was supplemented due to a low volume of IPPS cases. 

*** Although IPPS hospital statistical data for these DRGs may be available, a value of zero for the ‘‘IPPS Comparable Threshold’’ was assigned for these LTC–DRGs since the relative weights for these LTC–DRGs were assigned a value of 0.0000, as discussed in section III. of the 

preamble of this final rule. 

[FR Doc. 07–2206 Filed 5–1–07; 4:00 pm] 

BILLING CODE 4120–01–P 


ycherry on PROD1PC64 with RULES2