Friday, 

January 27, 2006 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Part 412 

Medicare Program; Prospective Payment 

System for Long-Term Care Hospitals RY 

2007: Proposed Annual Payment Rate 

Updates, Policy Changes, and 

Clarification; Proposed Rule 


rmajette on PROD1PC67 with PROPOSALS2
4648 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 412 

[CMS–1485–P] 

RIN 0938–AO06 

Medicare Program; Prospective 

Payment System for Long-Term Care 

Hospitals RY 2007: Proposed Annual 

Payment Rate Updates, Policy 

Changes, and Clarification 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

update the annual payment rates for the 

Medicare prospective payment system 

(PPS) for inpatient hospital services 

provided by long-term care hospitals 

(LTCHs). The proposed payment 

amounts and factors used to determine 

the updated Federal rates that are 

described in this proposed rule were 

determined based on the LTCH PPS rate 

year July 1, 2006 through June 30, 2007. 

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 would continue to be 

effective each October 1. The proposed 

outlier threshold for July 1, 2006, 

through June 30, 2007, would also be 

derived from the LTCH PPS rate year 

calculations. We are also proposing to 

make policy changes and clarifications. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on March 20, 2006. 

ADDRESSES: In commenting, please refer 

to file code CMS–1485–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking/. 

(Attachments should be in Microsoft 

Word, WordPerfect, or Excel; however, 

we prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1485– 

P, P.O. Box 8012, Baltimore, MD 21244– 

8012. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1485– 

P, Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7197 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

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 

(High-cost outliers and cost-to-charge 

ratios). 

Linda McKenna, (410) 786–4537 

(Payment adjustments, interrupted 

stay, and transition period). 

Nancy Kenly, (410) 786–7792 (Federal 

rate update and case-mix index). 

SUPPLEMENTARY INFORMATION: 

Submission of Public Comments: We 

welcome comments from the public on 

all issues set forth in this rule to assist 

us in fully considering issues and 

developing policies. You can assist us 

by referencing the file code [CMS–1485- 

P] and the specific ‘‘issue identifier’’ 

that precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. CMS posts all comments 

received before the close of the 

comment period on its public website as 

soon as possible after they are received. 

Comments received timely will be 

available for public inspection as they 

are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

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 Major Contents of This 

Proposed Rule 

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 

E. ICD–9–CM Coding System 

1. Uniform Hospital Discharge Data Set 

(UHDDS) Definitions 


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2. Maintenance of the ICD–9–CM Coding 

System 

3. Coding Rules and Use of ICD–9-CM 

Codes in LTCHs 

F. Method for Updating the LTC-DRG 

Relative Weights 

IV. Proposed Changes to the LTCH PPS 

Payment Rates for the 2007 LTCH PPS 

Rate Year 

A. Overview of the Development of the 

Payment Rates 

B. Proposed LTCH PPS Market Basket 

1. Overview of the RPL Market Basket 

2. Proposed Methodology for Determining 

the Operating Portion of the RPL LTCH 

PPS Market Basket 

3. Proposed Methodology for Determining 

the Capital Portion of the RPL Market 

Basket 

4. Proposed Market Basket Estimate for the 

2007 LTCH PPS Rate Year 

C. Proposed Standard Federal Rate for the 

2007 LTCH PPS Rate Year 

1. Background 

2. Description of a Preliminary Model of an 

Update Framework Under the LTCH PPS 

3. Proposed Update to the Standard 

Federal Rate for the 2007 LTCH PPS Rate 

Year 

4. Proposed Standard Federal Rate for the 

2007 LTCH PPS Rate Year 

D. Calculation of Proposed LTCH 

Prospective Payments for the 2007 LTCH 

PPS Rate Year 

1. Proposed Adjustment for Area Wage 

Levels 

a. Background 

b. Geographic Classifications/Labor Market 

Area Definitions 

c. Proposed Labor-Related Share 

d. Proposed Wage Index Data 

2. Proposed Adjustment for Cost-of-Living 

in Alaska and Hawaii 

3. Proposed Adjustment for High-Cost 

Outliers 

a. Background 

b. Cost-to-charge ratios (CCRs) 

c. Establishment of the Proposed FixedLoss Amount 

d. Reconciliation of Outlier Payments 

Upon Cost Report Settlement 

e. Application of Outlier Policy to ShortStay Outlier Cases 

4. Other Payment Adjustments 

5. Proposed Budget Neutrality Offset To 

Account for the Transition Methodology 

6. One-time Prospective Adjustment to the 

Standard Federal Rate. 

V. Other Proposed Policy Changes for the 

2007 LTCH PPS Rate Year 

A. Proposed Adjustments for Special Cases 

1. Adjustment of Short-Stay Outlier Cases 

a. Proposed Changes to the Method for 

Determining the Payment Amount for 

Short-Stay Outlier Cases 

b. Proposed Changes to the Determination 

for Cost-to-Charge Ratios (CCRs) and 

Reconciliation of Short-Stay Outlier 

Cases 

2. The 3-Day or Less Interruption of Stay 

B. Special payment provisions for LTCH 

Hospitals Within Hospitals (HwHs) and 

LTCH Satellites 

VI. Computing the Proposed Adjusted 

Federal Prospective Payments for the 

2007 LTCH PPS Rate Year 

VII. Transition Period 

VIII. Payments to New LTCHs 

IX. Method of Payment 

X. Monitoring 

XI. RTI Report on MedPAC June 2004 LTCH 

Recommendations 

A. Overview of the Issues 

B. Describing the LTCH Universe Since FY 

2003 

C. Patient, Facility, and Alternative 

Treatment Site Analysis 

D. Specific Findings From Claims Analysis 

XII. Collection of Information Requirements 

XIII. Regulatory Impact Analysis 

Addendum—Tables 

Appendix A—Description of a Preliminary 

Model of an Update Framework Under 

the LTCH PPS 

Acronyms 

Because of the many terms to which 

we refer by acronym in this proposed 

rule, we are listing the acronyms used 

and their corresponding terms in 

alphabetical order below: 

3M 3M Health Information Systems 

AHA American Hospital Association 

AHIMA American Health Information 

Management Association 

ALOS Average length of stay 

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) 

BLS Bureau of Labor Statistics 

CBSA Core-based statistical area 

CC Complications and comorbidities 

CCR Cost-to-charge ratio 

C&M Coordination and maintenance 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

CMSA Consolidated metropolitan 

statistical area 

COLA Cost of living adjustment 

COPS Medicare conditions of 

participation 

CPI Consumer Price Indexes 

DSH Disproportionate share of lowincome patients 

DRGs Diagnosis-related groups 

ECI Employment Cost Indexes 

FI Fiscal intermediary 

FY Federal fiscal year 

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 file 

MMA Medicare Prescription Drug, 

Improvement, and Modernization 

Act of 2003 (Pub. L. 108–173) 

MSA Metropolitan statistical area 

NCHS National Center for Health 

Statistics 

NECMA New England County 

metropolitan area 

OPM U.S. Office of Personnel 

Management 

O.R. Operating room 

OSCAR Online Survey Certification 

and Reporting (System) 

PIP Periodic interim payment 

PLI Professional liability insurance 

PMSA Primary metropolitan statistical 

area 

PPI Producer Price Indexes 

PPS Prospective payment system 

QIO Quality Improvement 

Organization (formerly Peer Review 

organization (PRO)) 

RPL Rehabilitation psychiatric longterm care (hospital) 

RTI Research Triangle Institute, 

International 

RY Rate year (July 1 through June 30) 

SNF Skilled nursing facility 

SSO Short-stay outlier 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982 (Pub. L. 

97–248) 

UHDDS Uniform hospital discharge 

data set 

I. Background 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘BACKGROUND’’ at the beginning of 

your comments.] 

A. Legislative and Regulatory Authority 

Section 123 of the Medicare, 

Medicaid, and SCHIP (State Children’s 


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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) provide 

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 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 

while maintaining budget neutrality. 

Section 307(b)(1) of 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 a Federal Register document 

issued on August 30, 2002, we 

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. 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 budget neutrality 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). 

On June 6, 2003, we published a final 

rule in the Federal Register (68 FR 

34122) that set forth the 2004 annual 

update of the payment rates for the 

Medicare PPS for inpatient hospital 

services furnished by LTCHs. 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. 

On May 6, 2005, we published the 

Prospective Payment System for LongTerm Care Hospitals: Annual Payment 

Rate Updates, Policy Changes, and 

Clarifications final rule (70 FR 24168) 

(hereinafter referred to as the RY 2006 

LTCH PPS final rule). In this rule, we 

set forth the 2006 LTCH PPS rate year 

annual update of the payment rates for 

the Medicare PPS for inpatient hospital 

services provided by LTCHs. We also 

discussed clarification of the 

notification policy for colocated LTCHs 

and satellite facilities. The RY 2006 

LTCH PPS final rule also included a 

provision to extend the surgical DRG 

exception in the 3-day or less 

interruption of stay policy at § 412.531 

as well as a provision that clarified and 

modified existing notification 

requirements for the purpose of 

implementing § 412.532. 

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 

of Medicare inpatients (less leave or 

pass days) by the number of total 

Medicare discharges for the hospital’s 

most recent complete cost reporting 


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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 the regulations at 

§ 412.23(e)(3)(ii) to specify that, 

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 qualified as an LTCH is 

based on the hospital’s discharge data 

from the hospital’s most recent 

complete cost reporting period 

(§ 412.23(e)(3)) and is effective at the 

start of the hospital’s next cost reporting 

period (§ 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 intermediary 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 the current regulations 

at § 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 Inpatient 

Prospective Payment System (IPPS) 

final rule, published August 1, 2003, 

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. 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 August 1, 2003 IPPS 

final rule, we are unable to capture the 

necessary data from our present cost 

reporting forms. 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, we 

provided for a 5-year transition period 

from reasonable cost-based 

reimbursement to a full Federal 

prospective payment based on 100 

percent of the Federal rate for LTCHs 

(67 FR 56038). However, existing LTCHs 

and LTCHs that are not defined as new 

in § 412.533(d) have the option to elect 

to be paid based on 100 percent of the 

Federal prospective payment. During 

the 5-year period, two payment 

percentages are to be used to determine 

a LTCH’s total payment under the PPS. 

The blend percentages are as shown in 

Table 1. 

TABLE 1 

Cost reporting periods beginning on or after 

Prospective payment federal rate 

percentage 

Reasonable costbased reimbursement rate 

percentage 

October 1, 2002 ........................................................................................................................................... 20 80 

October 1, 2003 ........................................................................................................................................... 40 60 

October 1, 2004 ........................................................................................................................................... 60 40 

October 1, 2005 ........................................................................................................................................... 80 20 

October 1, 2006 ........................................................................................................................................... 100 0 


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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, 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), if the 

Medicare payment to the LTCH is the 

full LTC–DRG payment amount. 

However, under the LTCH PPS, 

Medicare will only pay for days for 

which the beneficiary has coverage until 

the short-stay outlier (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 and Health Insurance 

Portability and Accountability Act 

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 

ASCA requires the Medicare Program, to 

deny payment under Part A or Part B for 

any expenses for items or services ‘‘for 

which a claim is submitted other than 

in an electronic form specified by the 

Secretary.’’ Section 1862(h) of the Act 

(as added by section 3(a) of ASCA) 

provides that the Secretary shall waive 

such denial in two types of cases and 

may also waive such denial ‘‘in such 

unusual cases as the Secretary finds 

appropriate.’’ (Also, see 68 FR 48805, 

August 15, 2003, implementing section 

3 of ASCA.) Section 3 of ASCA operates 

in the context of the Administrative 

Simplification 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 

providers, to conduct covered electronic 

transactions according to the applicable 

transactions and code sets standards. 

II. Summary of the Major Contents of 

This Proposed Rule 

In this proposed rule, we are setting 

forth the proposed annual update to the 

payment rates for the Medicare LTCH 

PPS, as well as, proposing other policy 

changes. The following is a summary of 

the major areas that we are addressing 

in this proposed 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. 

In section IV.B. of this preamble, we 

propose to adopt the ‘‘Rehabilitation, 

Psychiatric, Long Term Care (RPL)’’

market basket under the LTCH PPS in 

place of the excluded hospital with 

capital market basket. 

As discussed in section IV.C. of this 

preamble, we are proposing a zero 

percent update to the LTCH PPS Federal 

rate for the 2007 LTCH PPS rate year 

instead of the most recent estimate of 

the LTCH PPS market basket. 

Also in section IV.C. of this preamble, 

we discuss the proposed prospective 

payment rate for RY 2007, and in 

section IV.D. we discuss the applicable 

adjustments to the proposed payment 

rates, including the proposed revisions 

to the wage index, the proposed cost-ofliving adjustment factors, the proposed 

outlier threshold, and the proposed 

transition period budget neutrality 

factor for the 2007 LTCH PPS rate year. 

We are also proposing revisions to the 

cost-to-charge ratio and reconciliation 

provisions as they apply to LTCH 

outlier payment policies. 

In section IV.D.1.c. of this preamble, 

we also discuss our proposal to revise 

the LTCH PPS labor-related share based 

on RPL market basket. Also in section 

IV.D. of this preamble, we are proposing 

to postpone the deadline for making the 

one-time prospective adjustment for the 

Federal rate at § 412.523(d)(3). 

In section V.A. of this preamble, we 

are proposing to revise the existing 

payment adjustment for SSO cases by 

reducing the part of the current payment 

formula that is based on costs and 

adding a fourth component to the 

current payment formula. Also in 

section V.A. of this preamble, we are 

proposing to sunset the surgical DRG 

exception to the payment policy 

established under the 3-day or less 

interruption of stay regulations at 

§ 412.531(a)(1). 

In section V.B. of this preamble, for 

LTCH hospitals within hospitals 

(HwHs) and LTCH satellites, we are 

proposing to clarify at § 412.534(c) that 

under the policy for adjusting the LTCH 

PPS payment based on the amount that 

would be determined under the IPPS 

payment methodology, we calculate the 

LTCH PPS payment amount that is 

equivalent to what would otherwise be 

paid under the IPPS. We are also 

proposing to codify in regulations the 

general formula we currently use to give 

affect to the regulations as they pertain 

to calculating an amount under subpart 

O that is equivalent to an amount that 

would be determined under § 412.1(a). 

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 will 

discuss the recommendations made by 

the Research Triangle Institute, 

International’s (RTI) evaluation of the 

feasibility of adopting recommendations 

made in the June 2004 MedPAC Report. 

In section XIII of this preamble, we 

analyze the impact of the proposed 

changes presented in this proposed rule 

on Medicare expenditures, Medicareparticipating LTCHs, and Medicare 

beneficiaries. 

In Appendix A of this proposed rule, 

we present a description of a 

preliminary model of an update 

framework under the LTCH PPS that we 

may propose to use in the future for 

purposes of the annual updating of the 

LTCH PPS Federal rate in future years. 

III. Long-Term Care Diagnosis-Related 

Group (LTC-DRG) Classifications and 

Relative Weights 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘LTC–DRG CLASSIFICATIONS AND 

RELATIVE WEIGHTS’’ at the beginning 

of your comments.] 

A. Background 

Section 123 of the BBRA specifically 

requires that the PPS for LTCHs be a per 

discharge system with a DRG-based 

patient classification system reflecting 

the differences in patient resources and 

costs in LTCHs while maintaining 

budget neutrality. Section 307(b)(1) of 

BIPA modified the requirements of 

section 123 of the BBRA by specifically 

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 


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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 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. 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. 

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. In 

order 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 2006 LTC–

DRG relative weights appears in the FY 

2006 IPPS final rule (70 FR 47329 

through 47332).) 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, 

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. 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 ICD–9–CM. HIPAA 

transactions and code sets standards 

regulations (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 that 

electronically transmit institutional 

health care claim or equivalent 

encounter information, for instance, to 

use the ASC X12N 837 Health Care 

Claim: Institutional, Volumes 1 and 2, 

version 4010, and the applicable 

standard medical data code sets. (See 45 

CFR 162.1002 and 45 CFR 162.1102). 

Medicare FIs 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 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.) 

• Cases with principal diagnoses that 

do not usually justify admission to the 

hospital. (For example, code 437.9, 

unspecified cerebrovascular disease. 

While this code is valid according to the 

ICD–9–CM coding scheme, a more 

precise code should be used for the 

principal diagnosis.) 

After screening through the MCE, 

each claim will be classified into the 

appropriate LTC–DRG by the Medicare 

LTCH GROUPER software. As indicated 

in 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 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 in order 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 fiscal 

year (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 2006 IPPS 

final rule, ICD–9 diagnosis and 

procedure codes for new medical 

technology may be created and added to 

existing DRGs in the middle of the 

Federal FY on April 1 (70 FR 47323). 

However, this policy change will have 

no effect on the LTC–DRG relative 

weights, which will continue to be 

updated only once a year (October 1), 

nor will there be any impact on 

Medicare payments under the LTCH 

PPS. 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. 

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 


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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). 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 DRGs recognize a comorbid or 

complicating condition in their 

definition. (For example, DRG 466, 

Aftercare without History of Malignancy 

as Secondary Diagnosis, is based solely 

on the principal diagnosis, without 

consideration of additional diagnoses 

for DRG determination.) 

In its June 2000, Report to Congress, 

MedPAC recommended that the 

Secretary ‘‘* * * improve the hospital 

inpatient prospective payment system 

by adopting, as soon as practicable, 

diagnosis-related group refinements that 

more fully capture differences in 

severity of illness among patients,’’

(Recommendation 3A, p. 63). In 

response to that recommendation, we 

determined at that time that it was not 

practical to develop a refinement to 

inpatient hospital DRGs based on 

severity due to time and resource 

requirements. However, this does not 

preclude us from development of a 

severity-adjusted DRG refinement in the 

future. That is, a refinement to the list 

of CCs could be incorporated into the 

existing DRG structure. It is also 

possible that a more comprehensive 

severity adjusted structure may be 

created if a new code set is adopted. 

That is, if ICD–9–CM is replaced by 

ICD–10–CM (for diagnostic coding) and 

ICD–10–PCS (for procedure coding) or 

by other code sets, a severity concept 

may be built into the resulting DRG 

assignments. Of course, any change to 

the code set would be adopted through 

the process established in the HIPAA 

Administrative Simplification 

Standards provisions. 

In its March 2005 Report to Congress, 

‘‘Physician-Owned 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.) In the FY 

2006 IPPS final rule (70 FR 47474 

through 47479), we stated that we 

expected to make changes to the DRGs 

to better reflect severity of illness and 

we indicated that we plan to conduct a 

comprehensive review of the CCs list for 

FY 2007. We also indicated that we are 

considering the possibility of proposing 

to use the All Patient Refined (APR) 

DRGs under the IPPS for FY 2007. We 

explained that we did not propose to 

adopt the APR–DRGS under the IPPS for 

FY 2006 because it would represent a 

significant undertaking that could have 

a substantial effect on all hospitals and 

there was insufficient time to fully 

analyze a change of that magnitude. 

However, as an interim step to better 

recognize severity in the DRG system for 

FY 2006, until we can complete a more 

comprehensive analysis of the APR–

DRG system and CC list as part of a 

complete analysis of the MedPAC 

recommendations that we plan to 

perform over the next year, we 

established cardiovascular DRGs 547 

through 558 as described in the FY 2006 

IPPS final rule (70 FR 47474 through 

47478). 

D. Update of LTC–DRGs 

For FY 2006, the LTC–DRG patient 

classification system was based on 

LTCH data from the FY 2004 MedPAR 

file, which contained hospital bills data 

from the March 2005 update. The 

patient classification system consists of 

526 DRGs that formed the basis of the 

FY 2006 LTCH PPS GROUPER program. 

The 526 LTC–DRGs included 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 error DRGs are DRG 

469 (Principal Diagnosis Invalid as a 

Discharge Diagnosis) and DRG 470 

(Ungroupable). (See the FY 2006 IPPS 

final rule (70 FR 47323 through 47341)). 

The other 524 LTC–DRGs are the same 

DRGs used in the IPPS GROUPER 

program for FY 2006 (Version 23.0). 

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. Recently, 

the ICD–9–CM coding update process 

was revised as discussed in greater 

detail in the FY 2005 IPPS final rule (69 

FR 48954 through 48957). Specifically, 

section 503(a) of the MMA includes a 

requirement for updating ICD–9–CM 

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 

48952 through 48957) and the RY 2006 

LTCH PPS final rule (70 FR 24172 

through 24177).) 

As discussed in the RY 2006 LTCH 

PPS final rule, with the implementation 

of section 503(a) of the MMA, 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 (70 FR 24173 

through 24175). Specifically, ICD–9–CM 

diagnosis and procedure codes for new 

medical technology may be created and 

added to existing DRGs in the middle of 

the Federal FY on April 1. No new LTC–

DRGs will be created or deleted. 

Consistent with our current practice, 

any changes to the DRGs or relative 

weights will be made at the beginning 

of the next Federal FY (October 1). 

Therefore, there will not be any impact 

on Medicare payments under the LTCH 

PPS. 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, issued under 

HIPAA. 

As we explained in the FY 2006 IPPS 

final rule, in the health care industry, 

historically annual changes to the ICD–

9–CM codes were effective for 

discharges occurring on or after October 

1 each year (70 FR 47323). Thus, the 

manual and electronic versions of the 

GROUPER software, which are based on 

the ICD–9–CM codes, were also revised 

annually and effective for discharges 

occurring on or after October 1 each 

year. The patient classification system 

used under the LTCH PPS (LTC–DRGs) 

is based on the DRG patient 

classification system used under the 

IPPS, which historically had been 

updated annually and effective for 

discharges occurring on or after October 

1 through September 30 each year. As 

we also mentioned, the ICD–9–CM 

coding update process was revised as a 

result of the implementation of section 

503(a) of the MMA, which includes a 

requirement for updating ICD–9–CM 

codes as often as twice a year instead of 

the current process of annual updates 

on October 1 of each year. As discussed 


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in the FY 2005 IPPS final rule, this 

requirement is included as part of the 

amendments to the Act relating to 

recognition of new medical technology 

under the IPPS (69 FR 48954 through 

48957). Section 503(a) of the MMA 

amended section 1886(d)(5)(K) of the 

Act by adding a new paragraph (vii) 

which states that ‘‘the Secretary shall 

provide for the addition of new 

diagnosis and procedure codes in [sic] 

April 1 of each year, but the addition of 

such codes shall not require the 

Secretary to adjust the payment (or 

diagnosis-related group classification) 

* * * until the FY that begins after such 

date.’’ This requirement will improve 

the recognition of new technologies 

under the IPPS by accounting for those 

ICD–9–CM codes in the MedPAR claims 

data at an earlier date. 

Despite the fact that aspects of the 

GROUPER software may be updated to 

recognize any new technology ICD–9–

CM codes, there will be no impact on 

either LTC–DRG assignments or 

payments under the LTCH PPS at that 

time. That is, changes to the LTC–DRGs 

(such as the creation or deletion of LTC–

DRGs) and the relative weights will 

continue to be updated in the manner 

and timing (October 1) as they are now. 

Updates to the GROUPER software for 

both the IPPS and the LTCH PPS (for 

relative weights and the creation or 

deletion of DRGs) are made in the 

annual IPPS proposed and final rules 

and are effective each October 1. We 

also explained that since we do not 

publish a midyear IPPS rule, April 1 

code updates will not be published in 

a midyear IPPS rule. Rather, we will 

assign any new diagnosis or procedure 

codes to the same DRG in which its 

predecessor code was assigned, so that 

there will be no impact on the DRG 

assignments. Any coding updates will 

be available through the Web sites 

provided in section III.E. of this 

preamble and through the Coding Clinic 

for ICD–9–CM. Publishers and software 

vendors currently obtain code changes 

through these sources in order to update 

their code books and software system. If 

new codes are implemented on April 1, 

revised code books and software 

systems, including the GROUPER 

software program, will be necessary 

because we must use current ICD–9–CM 

codes. Therefore, for purposes of the 

LTCH PPS, because each ICD–9–CM 

code must be included in the GROUPER 

algorithm to classify each case into a 

LTC–DRG, the GROUPER software 

program used under the LTCH PPS 

would need to be revised to 

accommodate any new codes. 

In implementing section 503(a) of the 

MMA, there will only be an April 1 

update if new technology 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 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 for purposes of the 

IPPS new technology add-on payment 

process through an April 1 update. 

Discharges between October 1, 2005, 

and September 30, 2006, (Federal FY 

2006) are using Version 23.0 of the 

GROUPER software for both the IPPS 

and the LTCH PPS. Consistent with our 

current practice, any changes to the 

DRGs or relative weights will be made 

at the beginning of the Federal FY 

(October 1). We will notify LTCHs of 

any revised LTC–DRG relative weights 

based on the final DRGs and the 

applicable version of the GROUPER 

software program that will be effective 

October 1, 2006, in the annual IPPS 

proposed and final rules. At the 

September 2005 ICD–9–CM 

Coordination and Maintenance 

Committee meeting, there were no 

requests for an April 1, 2006 

implementation of ICD–9–CM codes, 

and therefore, the next update to the 

ICD–9–CM coding system will not occur 

until October 1, 2006 (FY 2007). 

Presently, as there were no coding 

changes suggested for an April 1, 2006 

update, the ICD–9–CM coding set 

implemented on October 1, 2005, will 

continue through September 30, 2006 

(FY 2006). The next update to the LTC–

DRGs and relative weights for FY 2007 

will be presented in the FY 2007 IPPS 

proposed and final rules. Furthermore, 

we would notify LTCHs of any revisions 

to the GROUPER software used under 

the IPPS and LTCH PPS that would be 

implemented April 1, 2007. 

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 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 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, April 1980’’) and as revised in 

1984 by the Health Information Policy 

Council (HIPC) of 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 assignment to 

request review of that assignment. 

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 Coordination and 

Maintenance (C&M) Committee is a 

Federal interdepartmental committee, 

co-chaired by the National Center for 

Health Statistics (NCHS) and CMS, that 

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 


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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 we have 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/ 

ICD9ProviderDiagnosticCodes. 

As discussed previously in this 

section of the preamble, section 503(a) 

of the MMA includes a requirement for 

updating ICD–9–CM codes twice a year 

instead of the current process 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 new 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 ICD–9–CM codes in the FY 

2005 IPPS final rule (69 FR 48954 

through 48957). 

While this new requirement states 

that the Secretary shall not adjust the 

payment of the DRG classification for 

any codes created for use on April 1, 

DRG software and other systems will 

have to be updated in order to recognize 

and accept the new codes. If any coding 

changes were implemented on April 1, 

the Medicare GROUPER software 

program used under both the IPPS and 

the LTCH PPS would need to be revised 

to reflect the new ICD–9–CM codes 

because the LTC–DRGs are the same 

DRGs used under the IPPS. 

Furthermore, although the GROUPER 

software used under both the IPPS and 

the LTCH PPS would need to be revised 

to accommodate the new codes effective 

April 1, there would be no additions or 

deletions of DRGs nor would the 

relative weights used under the IPPS 

and the LTCH PPS, respectively, be 

changed until the annual update 

October 1 (to the extent that those 

changes are warranted), just as they are 

historically updated. As the LTCH PPS 

is based on the IPPS, we adopted the 

same approach used under the IPPS for 

potential April 1 ICD–9–CM coding 

changes. That is, we will assign any new 

diagnosis codes or procedure codes to 

the same DRG in which its predecessor 

code was assigned, so there will be no 

DRG impact in terms of potential DRG 

assignment until the following October 

1. We will maintain the current method 

of publicizing any new code changes, as 

noted below. Current addendum and 

code title information is published on 

the CMS Web page at: http:// 

www.cms.hhs.gov/ICD9Provider 

DiagnosticCodes/04_addendum.asp. 

Summary tables showing new, revised, 

and deleted code titles are also posted 

on the following CMS Web page: 

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 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 

their systems and providing education 

to providers. 

If the April 1 changes are made to 

ICD–9–CM diagnosis or procedure 

codes, LTCHs will be required to obtain 

the new codes, coding books, or encoder 

updates, and make other system changes 

in order to capture and report the new 

codes. When we implemented section 

503(a) of the MMA in the FY 2005 IPPS 

final rule, we indicated that we were 

aware of the additional burden this will 

have on health care providers. 

It should be noted 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 for discussing 

updates to the ICD–9–CM has been an 

open process through the ICD–9–CM 

C&M Committee since 1995. Any 

requestor who makes a clear and 

convincing case for the need to update 

ICD–9–CM codes for purposes of the 

IPPS new technology add-on payment 

process through an April 1 update will 

be given the opportunity to present the 

merits of their proposed new code. 

At the September 2005 C&M 

Committee meeting, no new codes were 

proposed for update on April 1, 2006. 

While no DRG additions or deletions or 

changes to relative weights will occur 

prior to the usual October 1 update, in 

the event any new codes were created 

to describe new technologies and 

medical services through an April 1, 

2006 update, under our policy 

established in the RY 2006 final rule (70 

FR 24176), LTCH systems would be 

expected to recognize and report those 

new codes through the channels as 

described in this section. 

The ICD–9–CM coding changes that 

have been adopted by the C&M 

Committee would become effective 

either at the beginning of each Federal 

FY (October 1) or, in the case of codes 

created to capture new technology, 

April 1 of each year. Coders will be 

expected to use the most current ICD–

9–CM codes, as updated. Because we do 

not publish a mid-year IPPS rule, the 

currently accepted avenues of 

information dissemination will be used 

to inform all ICD–9–CM code users of 

any changes to the coding system. These 

avenues were described in section III.D. 

of this preamble and were discussed at 

length in the FY 2005 IPPS final rule (69 

FR 48956). Coders in LTCHs using the 

updated ICD–9–CM coding system will 

be on the same schedule as the rest of 

the health care industry. In the past, the 

updated ICD–9–CM was not available 

for use until October 1 of each year. 

Therefore, because the LTCH PPS and 

the IPPS use the same GROUPER 

software, the LTCH PPS will be directly 

affected by the statutory mandates 

directed at the IPPS as amended by 

section 503(a) of the MMA. (We note 

that there is no statutory requirement in 

the LTCH PPS to make additional 

payments for new technology.) The 

practical effect of this provision is that 

the GROUPER software must accept 

new ICD–9–CM codes reflecting the 

incorporation of new technologies into 

inpatient treatment at an acute care 

hospital prior to the scheduled annual 

update of the GROUPER software. 

Despite the fact that there are no 

provisions for additional payments for 

new technology under the LTCH PPS as 

there are under the IPPS, statutory 

compliance requires an alteration of the 

GROUPER software used under the 

IPPS, and since the LTCH PPS uses the 

same GROUPER software that is used 

under the IPPS, this consequently 

means that the GROUPER software used 

under the LTCH PPS would change.’’


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While DRG assignments would not 

change from October 1 through 

September 30, it is possible that there 

could be additional new ICD–9–CM 

diagnosis and procedure codes during 

that time, which would be assigned to 

predecessor DRGs. For both the IPPS 

and LTCH coders, it is possible that 

there will be ICD–9–CM codes in effect 

from October 1 through March 31, with 

additional ICD–9–CM codes in effect 

from April 1 through September 30. 

Presently, as there were no coding 

changes suggested for an April 1, 2006 

update, the ICD–9–CM coding set 

implemented on October 1, 2005, will 

continue through September 30, 2006 

(FY 2006). 

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 emphasize the need for proper 

coding by LTCHs. Inappropriate coding 

of cases can adversely affect the 

uniformity of cases in each LTC–DRG 

and produce inappropriate weighting 

factors at recalibration. We continue to 

urge LTCHs to focus on improved 

coding practices. Because of concerns 

raised by LTCHs concerning correct 

coding, we have asked the AHA to 

provide additional clarification or 

instruction on proper coding in the 

LTCH setting. The AHA will provide 

this instruction via their established 

process of addressing questions through 

their publication ‘‘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 are 

concerned about the quality of the 

documentation under the LTCH PPS, as 

was the case at the beginning of the 

IPPS. We fully believe that, with 

experience, the quality of the 

documentation and coding will 

improve, as it did for the IPPS. The 

cooperating parties have plans to assist 

their members with improvement in 

documentation and coding issues for the 

LTCHs through specific questions and 

coding guidelines. The importance of 

good 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 concerning selection of 

principal diagnosis. To clarify coding 

advice issued in the August 30, 2002 

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 effect 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 asneeded 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 Coding Clinic for ICD–9–

CM. 

F. 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 in order to ensure both 

a fair distribution of Medicare payments 

and access to adequate 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. 

Under this payment system, 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 an appropriate level of 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 2006 IPPS 

final rule, the LTC–DRG relative weights 

effective under the LTCH PPS for 

Federal FY 2006 were calculated using 

the March 2005 update of FY 2004 

MedPAR data and Version 23.0 of the 

GROUPER software (70 FR 47325). We 

use total days and total charges in the 

calculation of the LTC–DRG relative 

weights. 

By nature, LTCHs often specialize in 

certain areas, such as ventilatordependent patients and rehabilitation 

and 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 

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 2006 IPPS final rule 

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specific relative value methodology (70 

FR 47328 through 47329).) 

In order 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 2006 based on 

the FY 2004 MedPAR data, we 

identified 171 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 a minimum of 34 LTC–

DRGs (171/5 = 34 with 1 LTC–DRG as 

a remainder). 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 2006 IPPS final 

rule for further explanation of the 

development and composition of each 

of the 5 low volume quintiles for FY 

2006 (70 FR 47329 through 47332).) 

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 short-stay 

outlier cases under § 412.529. The shortstay adjusted discharges and 

corresponding charges were used to 

calculate ‘‘relative adjusted weights’’ in 

each LTC–DRG using the hospitalspecific 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 complications or 

comorbidities (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 2006 IPPS final rule for further 

details on the steps for calculating the 

LTC–DRG relative weights (70 FR 47336 

through 47341).) 

In addition, of the 526 LTC–DRGs in 

the LTCH PPS for FY 2006, based on 

LTCH cases in the FY 2004 MedPAR 

files, we identified 196 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 

2004 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 196 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 

2006, we assigned relative weights to 

each of the 196 ‘‘no volume’’ LTC–DRGs 

based on clinical similarity and relative 

costliness to one of the remaining 330 

(526 ¥ 196 = 330) LTC–DRGs for which 

we were able to determine relative 

weights, based on the FY 2004 claims 

data. (A list of the current no-volume 

LTC–DRGs and further explanation of 

their FY 2006 relative weight 

assignment can be found in the FY 2006 

IPPS final rule (70 FR 47337 through 

47341).) 

Furthermore, for FY 2006, we 

established LTC–DRG relative weights 

of 0.0000 for heart, kidney, liver, lung, 

and simultaneous pancreas/kidney 

transplants (LTC–DRGs 103, 302, 480, 

495, 512 and 513, respectively) 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, however, a LTCH 

applies for certification as a Medicareapproved transplant center, 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, there were 

no new ICD–9–CM code requests for an 

April 1, 2006 update. Therefore, Version 

23.0 of the DRG GROUPER software 

established in the FY 2006 IPPS final 

rule (70 FR 47284 through 47322) will 

continue to be effective until October 1, 

2006. Moreover, the LTC–DRGs and 

relative weights for FY 2006 established 

in that same IPPS final rule (70 FR 

47681 through 47689) will continue to 

be effective until October 1, 2006, (just 

as they would have been even if there 

had been any new ICD–9–CM code 

requests for an April 1, 2006 update). 

Accordingly, Table 3 in the Addendum 

to this proposed rule lists the LTC–

DRGs and their respective relative 

weights, geometric mean LOS, and fivesixths of the geometric mean LOS that 

we will continue to use for the period 

of July 1, 2006 through September 30, 

2006. (This table is the same as table 11 

of the Addendum to the FY 2006 IPPS 

final rule (70 FR 47681 through 47689). 

The next update to the ICD–9–CM 

coding system will be presented in the 

FY 2007 IPPS proposed rule (since there 

will be no April 1, 2006 updates to the 

ICD–9–CM coding system). The final 

update to the ICD–9–CM coding system 

that would become effective October 1, 

2006, and the final DRGs and GROUPER 

for FY 2007 that would be used for the 

IPPS and the LTCH PPS, effective 

October 1, 2006, will be presented in the 

IPPS FY 2007 proposed and final rule in 

the Federal Register. At that time, we 

will also present the next annual update 

to the LTC–DRG relative weights based 

on the final DRGs and GROUPER 

software version that will be established 

for FY 2007. 

IV. Proposed Changes to the LTCH PPS 

Payment Rates for the 2007 LTCH PPS 

Rate Year 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘PROPOSED CHANGES TO LTCH PPS 

PAYMENT RATES FOR THE 2007 

LTCH PPS RATE YEAR’’ at the 

beginning of your comments.] 

A. Overview of the Development of the 

Payment Rates 

The LTCH PPS was effective for 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, on the basis of an 

increasing proportion of the LTCH PPS 

Federal rate and a decreasing proportion 

of a hospital’s payment under the 

reasonable cost-based payment system, 

unless the hospital makes a one-time 

election to receive payment based on 

100 percent of the Federal rate (see 

§ 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 in 

the regulations at § 412.515 through 

§ 412.532. Below we discuss the 

proposed factors that will be used to 

update the LTCH PPS standard Federal 

rate for the 2007 LTCH PPS rate year 

that would be effective for LTCHs 

discharges occurring on or after July 1, 

2006 through June 30, 2007. When we 

implemented the LTCH PPS in the 

August 30, 2002 final rule (67 FR 56029 

through 56031), we computed the LTCH 

PPS standard Federal payment rate for 

FY 2003 by updating the best available 

(FY 1998 or FY 1999) Medicare 

inpatient operating and capital costs per 

case data, using the excluded hospital 

market basket. 

Section 123(a)(1) of the BBRA 

requires that the PPS developed for 

LTCHs be budget neutral. Therefore, in 


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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 BIPA specified that the 

increases to the hospital-specific target 

amounts and cap on the target amounts 

for LTCHs for FY 2002 provided for by 

section 307(a)(1) of BIPA shall not be 

taken into account 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), 

and RY 2006 LTCH PPS final rule (70 

FR 24179 through 24180). 

B. Proposed LTCH PPS Market Basket 

Historically, the Medicare program 

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 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 market basket was 

used to update the limits on LTCHs’

operating costs for inflation under the 

former reasonable cost-based (TEFRA) 

payment system. We explained in that 

same final rule that we believe that the 

use of the excluded hospital 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. 

Since the costs of LTCHs are included 

in the excluded hospital market basket, 

this market basket index, in part, also 

reflects the costs of LTCHs. However, in 

order to capture the total costs 

(operating and capital-related) of 

LTCHs, we added a capital component 

to the excluded hospital market basket 

for use under the LTCH PPS. We refer 

to this index as the ‘‘Excluded Hospital 

with Capital’’ market basket. Currently, 

the excluded hospital with capital 

market basket used to update LTCH PPS 

payments is based on 1997 Medicare 

cost report data and includes Medicare 

participating psychiatric, rehabilitation, 

long term care, cancer, and childrens 

hospitals (68 FR 34137). (For further 

details on the development of the FY 

1997-based LTCH PPS market basket, 

see the RY 2004 LTCH PPS final rule (68 

FR 34134 through 34137)). 

In the RY 2006 LTCH PPS final rule 

(70 FR 24179), we noted that based on 

our research, we did not develop a 

market basket specific to LTCH services. 

Presently, we are still unable to create 

a separate market basket specifically for 

LTCHs due to the small number of 

facilities and the limited data that are 

provided (for instance, approximately 

15 percent of LTCHs reported contract 

labor cost data for 2002). We noted in 

that same final rule that we would 

discuss the use of the ‘‘Rehabilitation, 

Psychiatric and Long-Term Care (RPL) 

market basket’’ under the LTCH PPS, 

which is currently used under the IRF 

PPS. The RPL market basket is based on 

the operating and capital costs of 

inpatient rehabilitation facilities (IRFs), 

inpatient psychiatric facilities (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 will be based on 100 percent 

of the Federal rate for cost reporting 

periods beginning on or after January 1, 

2008), under broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

BIPA to develop the LTCH PPS, we are 

proposing to adopt the 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. The RPL market basket 

would reflect the operating and capital 

cost structures for these hospitals. 

Specifically, beginning in the 2007 

LTCH PPS rate year, we are proposing 

to adopt under the LTCH PPS the RPL 

market basket based on FY 2002 cost 

report data as it is 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 IRFs, IPF, and LTCHs serving 

Medicare beneficiaries. 

We propose to exclude childrens, 

cancer hospitals, and religious 

nonmedical healthcare institutions 

(RNHCIs) from the RPL market basket 

because their payments are based 

entirely on reasonable costs subject to 

rate-of-increase limits established under 

the authority of section 1886(b) of the 

Act, and implemented in § 413.40. 

Childrens and cancer hospitals are not 

reimbursed under a PPS. Also, based on 

FY 2002 data, the cost structures for 

childrens and cancer hospitals are 

noticeably different than the cost 

structures of the IRFs, IPFs, and LTCHs. 

The services offered in IRFs, IPFs, and 

LTCHs are typically more laborintensive than those offered in cancer 

and childrens hospitals. Therefore, the 

compensation cost weights for IRFs, 

IPFs, and LTCHs are larger than those in 

cancer and childrens hospitals. In 

addition, the depreciation cost weights 

for IRFs, IPFs, and LTCHs are noticeably 

smaller than those for childrens and 

cancer hospitals. 

Therefore, including the fact that 

IRFs, IPFs and LTCHs are subject to a 

PPS while childrens, cancer and 

RNCHIs continue to receive payment 

based on reasonable costs, 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 would reflect the cost 

structures of LTCHs. In the following 

discussion we provide a background on 

market baskets and describe the 

methodologies we propose to use under 

broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of BIPA to 

develop the LTCH PPS for purposes of 

determining the operating and capital 

portions of the FY 2002-based RPL 

market basket. 

1. Overview of the RPL Market Basket 

The proposed RPL market basket is a 

fixed weight, Laspeyres-type price index 

that is constructed in three steps. First, 

a base period is selected (in this case, 

FY 2002) and total base period 

expenditures are estimated for a set of 

mutually exclusive and exhaustive 

spending categories based upon type of 

expenditure. Then the proportion of 

total operating costs that each category 

represents is determined. These 

proportions are called cost or 

expenditure weights. Second, each 

expenditure category is matched to an 

appropriate price or wage variable, 

referred to as a price proxy. In nearly 

every instance, these price proxies are 

price levels derived from publicly 


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available statistical series that are 

published on a consistent schedule, 

preferably at least on a quarterly basis. 

Finally, the expenditure weight for each 

cost category is multiplied by the level 

of its respective price proxy for a given 

period. The sum of these products (that 

is, the expenditure weights multiplied 

by their price levels) for all cost 

categories yields the composite index 

level of the market basket in a given 

period. Repeating this step for other 

periods produces a series of market 

basket levels over time. Dividing an 

index level for a given period by an 

index level for an earlier period 

produces a rate of growth in the input 

price index over that time period. 

A market basket is described as a 

fixed-weight index because it quantifies 

the cost, at another time, to purchase the 

same mix of goods and services 

purchased to provide hospital services 

in a base period. The effects on total 

expenditures resulting from changes in 

the quantity or mix of goods and 

services (intensity) purchased 

subsequent to the base period are not 

measured. In this manner, the market 

basket measures only pure price change. 

Only when the index is rebased would 

the quantity and intensity effects be 

captured in the cost weights. Therefore, 

we rebase the market basket periodically 

so that cost weights reflect changes in 

the mix of goods and services that 

hospitals purchase (hospital inputs) to 

furnish patient care between base 

periods. 

The terms rebasing and revising, 

while often used interchangeably, 

actually denote different activities. 

Rebasing means moving the base year 

for the structure of costs of an input 

price index (for example, shifting the 

base year cost structure from FY 1997 to 

FY 2002). Revising means changing data 

sources, methodology, or price proxies 

used in the input price index. In this 

proposed rule, we are proposing to 

rebase and revise the market basket used 

to update the LTCH PPS. Specifically, as 

noted above in this section, for the 2007 

LTCH PPS rate year, we are proposing 

to use the FY 2002-based RPL market 

basket, which is described in greater 

detail below in this section. 

2. Proposed Methodology for Operating 

Portion of the RPL Market Basket 

The proposed operating portion of the 

FY 2002-based RPL market basket 

consists of several major cost categories 

derived from the FY 2002 Medicare cost 

reports for IRFs, IPFs, and LTCHs. We 

choose to use the FY 2002 Medicare cost 

reports because these are the most 

recent, relatively complete cost data for 

IRFs, IPFs, and LTCHs serving Medicare 

beneficiaries. Generally, if detailed cost 

data are not available for these Medicare 

cost reports, we prefer to use the PPS 

hospital (IPPS) Medicare cost reports to 

supplement IPF, IRF, and LTCH data 

because this is a comprehensive source 

of cost data for hospitals serving 

Medicare beneficiaries. When the IPPS 

Medicare cost report data are not 

available, we choose the best publicly 

available data source, such as the 

Bureau of Economic Analysis InputOutput Tables. 

We use the IRF, IPF, and LTCH 

Medicare cost reports to derive these 

major cost categories for the RPL market 

basket which include wages, drugs, 

professional liability insurance (PLI), 

and a residual ‘‘all other.’’ As stated 

above in this section, we propose to use 

FY 2002 as the base year because we 

believe this is the most recent, relatively 

complete year of Medicare cost report 

data. Due to insufficient Medicare cost 

report data for IRFs, IPFs, and LTCHs, 

we propose to develop cost weights for 

benefits, contract labor, and blood and 

blood products using the FY 2002-based 

IPPS market basket (70 FR 23384), 

which we explain in more detail later in 

this section. For example, less than 30 

percent of IRF, IPF, and LTCH reported 

benefit cost data in FY 2002. We noticed 

an increase in the cost data for these 

expense categories over the last four 

years. (we note that in the future, there 

may be sufficient IRFs, IPFs, and LTCHs 

cost report data to develop the weights 

for these expenditure categories. 

Since the cost weights for the 

proposed RPL market basket are based 

on facility costs, we are proposing to 

limit our sample to hospitals with a 

Medicare average LOS within a 

comparable range of the total facility 

ALOS. We believe this provides a more 

accurate reflection of the structure of 

costs for Medicare treatments. Our goal 

is to measure cost shares that are 

reflective of case-mix and practice 

patterns associated with providing 

services to Medicare beneficiaries. 

We propose to use those cost reports 

for IRFs and LTCHs whose Medicare 

ALOS is within 15 percent (that is, 15 

percent higher or lower) of the total 

facility ALOS for the hospital. This is 

the same edit applied to the FY 1992- 

based and FY 1997-based excluded 

hospital with capital market basket. 

Consistent with the development of the 

RPL market basket adopted under the 

IRF PPS in the FY 2006 IRF PPS final 

rule (70 FR 47909), we propose 15 

percent because it includes those LTCHs 

and IRFs whose Medicare LOS is within 

approximately 5 days of the facility 

LOS. We believe this edit provides us 

with a representative sample of LTCHs 

and IRFs serving Medicare beneficiaries. 

We propose to use a less stringent 

measure of Medicare LOS for IPFs 

whose ALOS is within 30 or 50 percent 

(depending on the total facility ALOS) 

of the total facility ALOS. This less 

stringent edit allows us to increase our 

sample size by over 150 reports and 

produce a cost weight more consistent 

with the overall facility. When 

developing the FY 1997-based excluded 

hospital with capital market basket, the 

edit we applied to IPFs was based on 

the best available data at the time. 

The detailed cost categories under the 

residual (that is, the remaining portion 

of the market basket after excluding 

wages and salaries, drugs, and 

professional liability cost weights) are 

derived from the FY 2002-based IPPS 

market basket and the 1997 Benchmark 

Input-Output (I–O) Tables published by 

the Bureau of Economic Analysis, U.S. 

Department of Commerce. The FY 2002- 

based IPPS market basket was 

developed using FY 2002 Medicare 

hospital cost reports with the most 

recent and detailed cost data (70 FR 

47388). The 1997 Benchmark I–O is the 

most recent, comprehensive source of 

cost data for all hospitals. The proposed 

RPL cost weights for benefits, contract 

labor, and blood and blood products 

were derived using the FY 2002-based 

IPPS market basket. For example, the 

ratio of the benefit cost weight to the 

wages and salaries cost weight in the FY 

2002-based IPPS market basket was 

applied to the RPL wages and salaries 

cost weight to derive a benefit cost 

weight for the RPL market basket. The 

remaining proposed RPL operating cost 

categories were derived using the 1997 

Benchmark I–O Tables, aged to 2002 

using relative price changes. (The 

methodology we used to age the data 

involves applying the annual price 

changes from the price proxies to the 

appropriate cost categories. We repeat 

this practice for each year.) Therefore, 

using this methodology, roughly 59 

percent of the proposed RPL market 

basket is accounted for by wages, drugs, 

and PLI data from FY 2002 Medicare 

cost report data for IRFs, LTCHs, and 

IPFs. 

The following is a summary outlining 

the choice of the proxies we propose to 

use for the operating portion of the 

market basket. The price proxies for the 

capital portion are described in more 

detail in section IV.B.3. of this 

preamble. With the exception of the 

Professional Liability proxy, all the 

proposed price proxies for the operating 

portion of the proposed RPL market 

basket are based on Bureau of Labor 


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Statistics (BLS) data and are grouped 

into one of the following BLS categories: 

• Producer Price Indexes (PPIs) 

measure price changes for goods sold in 

other than retail markets. PPIs are 

preferable price proxies for goods that 

hospitals purchase as inputs in 

producing their outputs because the 

PPIs would better reflect the prices 

faced by hospitals. For example, we 

propose to use a special PPI for 

prescription drugs, rather than the 

Consumer Price Index (CPI) for 

prescription drugs because hospitals 

generally purchase drugs directly from 

the wholesaler. The PPIs that we 

propose to use measure price change at 

the final stage of production. 

• Consumer Price Indexes (CPIs) 

measure changes in the prices of final 

goods and services bought by the typical 

consumer. Because they may not 

represent the price faced by a producer, 

we use CPIs only if an appropriate PPI 

were not available, or if the 

expenditures were more similar to those 

of retail consumers in general rather 

than purchases at the wholesale level. 

For example, the CPI for food purchases 

away from home is used as a proxy for 

contracted food services. 

• Employment Cost Indexes (ECIs) 

measure the rate of change in employee 

wage rates and employer costs for 

employee benefits per hour worked. 

These indexes are fixed-weight indexes 

and strictly measure the change in wage 

rates and employee benefits per hour. 

Appropriately, they are not affected by 

shifts in employment mix. 

We evaluated the price proxies using 

the criteria of reliability, timeliness, 

availability, and relevance. Reliability 

indicates that the index is based on 

valid statistical methods and has low 

sampling variability. Widely accepted 

statistical methods ensure that the data 

were collected and aggregated in a way 

that can be replicated. Low sampling 

variability is desirable because it 

indicates that the sample reflects the 

typical members of the population. 

(Sampling variability is variation that 

occurs by chance because a sample was 

surveyed rather than the entire 

population.) Timeliness implies that the 

proxy is published regularly, preferably 

at least once a quarter. 

The market baskets are updated 

quarterly, and therefore, it is important 

that the underlying price proxies be upto-date, reflecting the most recent data 

available. We believe that using proxies 

that are published regularly (at least 

quarterly, when possible) helps to 

ensure that we are using the most recent 

data available to update the market 

basket. We strive to use publications 

that are disseminated frequently 

because we believe that this is an 

optimal way to stay abreast of the most 

current data available. Availability 

means that the proxy is publicly 

available. We prefer that our proxies are 

publicly available because this will help 

ensure that our market basket updates 

are as transparent to the public as 

possible. In addition, this enables the 

public to be able to obtain the price 

proxy data on a regular basis. 

Finally, relevance means that the 

proxy is applicable and representative 

of the cost category weight to which it 

is applied. The CPIs, PPIs, and ECIs 

selected by us to be proposed in this 

regulation meet these criteria. Therefore, 

we believe that they continue to be the 

best measure of price changes for the 

cost categories to which they would be 

applied. 

We note that the proxies are the same 

as those used for the FY 1997-based 

excluded hospital with capital market 

basket, which is currently used under 

the LTCH PPS, and are the same proxies 

as those used for the FY 2002-based 

excluded hospital market basket that is 

used to update the reasonable costbased portion of LTCHs’ blended 

transition payments (70 FR 47399 

through 47403). Because these proxies 

meet our criteria of reliability, 

timeliness, availability, and relevance, 

we believe they continue to be the best 

measure of price changes for the cost 

categories. For further discussion on the 

FY 1997-based excluded hospital with 

capital market basket, see the 2004 

LTCH PPS rate year final rule (68 FR 

34134 through 34136). For further 

discussion on the FY 2002-based 

excluded hospital market basket, see the 

FY 2006 IPPS final rule (70 FR 47400 

through 47403). 

Table 2 sets forth the complete 

proposed 2002-based RPL market basket 

including cost categories, weights, and 

price proxies. For comparison purposes, 

the corresponding FY 1997-based 

excluded hospital with capital market 

basket, which is currently used under 

the LTCH PPS, is also listed. 

Wages and salaries are 52.895 percent 

of total costs for the proposed FY 2002- 

based RPL market basket compared to 

47.335 percent for the FY 1997-based 

excluded hospital with capital market 

basket. Employee benefits are 12.982 

percent for the proposed FY 2002-based 

RPL market basket compared to 10.244 

percent for the FY 1997-based excluded 

hospital with capital market basket. As 

a result, compensation costs (wages and 

salaries plus employee benefits) for the 

proposed FY 2002-based RPL market 

basket are 65.877 percent of costs 

compared to 57.579 percent for the FY 

1997-based excluded hospital with 

capital market basket. Of the 8 

percentage-point difference between the 

compensation shares, approximately 

three percentage points are due to the 

proposed new base year (FY 2002 

instead of FY 1997), three percentage 

points are due to revised LOS edit (that 

is, including only IRFs and LTCHs 

whose Medicare ALOS is within 15 

percent of the total facility ALOS for the 

hospital and including only IPFs whose 

Medicare average LOS in within 30 or 

50 percent of the total facility ALOS), 

and the remaining two percentage 

points are due to the proposed 

exclusion of other types of IPPSexcluded hospitals (that is, only 

including IPFs, IRFs, and LTCHs in the 

market basket and excluding childrens, 

cancer hospitals and RNCHIs.). 

TABLE 2.—PROPOSED FY 2002-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PROXIES WITH FY 

1997-BASED EXCLUDED HOSPITAL WITH CAPITAL MARKET BASKET USED FOR COMPARISON

Expense categories 

FY 1997-based 

excluded 

hospital with 

capital 

market basket 

Proposed FY 

2002-based 

RPL market 

basket 

Proposed FY 2002 RPL market basket price proxies 

Total ............................................................... 100.000 100.000 

Compensation ................................................ 57.579 65.877 

Wages and Salaries * ............................. 47.335 52.895 ECI–Wages and Salaries, Civilian Hospital Workers. 

Employee Benefits * ................................ 10.244 12.982 ECI–Benefits, Civilian Hospital Workers. 

Professional Fees, Non-Medical .................... 4.423 2.892 ECI–Compensation for Professional, Specialty & Technical 

Workers. 


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TABLE 2.—PROPOSED FY 2002-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PROXIES WITH FY 

1997-BASED EXCLUDED HOSPITAL WITH CAPITAL MARKET BASKET USED FOR COMPARISON—Continued 

Expense categories 

FY 1997-based 

excluded 

hospital with 

capital 

market basket 

Proposed FY 

2002-based 

RPL market 

basket 

Proposed FY 2002 RPL market basket price proxies 

Utilities ........................................................... 1.180 0.656 

Electricity ................................................ 0.726 0.351 PPI–Commercial Electric Power. 

Fuel Oil, Coal, etc. .................................. 0.248 0.108 PPI–Refined Petroleum Products. 

Water and Sewage ................................. 0.206 0.197 CPI–U—Water & Sewage Maintenance 

Professional Liability Insurance ..................... 0.733 1.161 CMS Professional Liability Premium Index. 

All Other Products and Services ................... 27.117 19.265 

All Other Products .................................. 17.914 13.323 

Pharmaceuticals ..................................... 6.318 5.103 PPI Prescription Drugs. 

Food: Direct Purchase ............................ 1.122 0.873 PPI Processed Foods & Feeds. 

Food: Contract Service ........................... 1.043 0.620 CPI–U Food Away From Home. 

Chemicals ............................................... 2.133 1.100 PPI Industrial Chemicals. 

Blood and Blood Products ** .................. 0.748 ..........................

Medical Instruments ............................... 1.795 1.014 PPI Medical Instruments & Equipment. 

Photographic Supplies ............................ 0.167 0.096 PPI Photographic Supplies. 

Rubber and Plastics ............................... 1.366 1.052 PPI Rubber & Plastic Products. 

Paper Products ....................................... 1.110 1.000 PPI Converted Paper & Paperboard Products. 

Apparel ................................................... 0.478 0.207 PPI Apparel. 

Machinery and Equipment ...................... 0.852 0.297 PPI Machinery & Equipment. 

Miscellaneous Products .......................... 0.783 1.963 PPI Finished Goods less Food & Energy. 

All Other Services .......................................... 9.203 5.942 

Telephone ............................................... 0.348 0.240 CPI–U Telephone Services. 

Postage ................................................... 0.702 0.682 CPI–U Postage. 

All Other: Labor Intensive ....................... 4.453 2.219 ECI–Compensation for Private Service Occupations. 

All Other: Non-labor Intensive ................ 3.700 2.800 CPI–U All Items. 

Capital-Related Costs .................................... 8.968 10.149 

Depreciation ............................................ 5.586 6.186 

Fixed Assets ........................................... 3.503 4.250 Boeckh Institutional Construction 23-year useful life. 

Movable Equipment ................................ 2.083 1.937 WPI Machinery & Equipment 11-year useful life. 

Interest Costs ......................................... 2.682 2.775 

Nonprofit ................................................. 2.280 2.081 Average yield on domestic municipal bonds (source: 

Moody’s Aaa bonds vintage). 

For Profit ................................................. 0.402 0.694 Average yield on Moody’s AAA bonds vintage weighted (23 

years). 

Other Capital-Related Costs .................. 0.699 1.187 CPI–U Residential Rent. 

* Labor-related 

** Blood and blood-related products are included in miscellaneous products 

Note: Due to rounding, weights may not sum to total. 

The following is an explanation of the 

proposed expense categories from Table 

2. 

a. Wages and Salaries 

For measuring the price growth of 

wages in the proposed FY 2002-based 

RPL market basket, we propose to use 

the ECI for wages and salaries for 

civilian hospital workers as the proxy 

for wages in the RPL market basket. 

b. Employee Benefits 

The proposed FY 2002-based RPL 

market basket uses the ECI for employee 

benefits for civilian hospital workers. 

c. Nonmedical Professional Fees 

The ECI for compensation for 

professional and technical workers in 

private industry would be applied to 

this category since it includes 

occupations such as management and 

consulting, legal, accounting, and 

engineering services. 

d. Fuel, Oil, Coal, and Gasoline. 

The percentage change in the price of 

gas fuels as measured by the PPI 

(Commodity Code #0552) would be 

applied to this component. 

e. Electricity 

The percentage change in the price of 

commercial electric power as measured 

by the PPI (Commodity Code #0542) 

would be applied to this component. 

f. Water and Sewerage 

The percentage change in the price of 

water and sewage maintenance as 

measured by the CPI for all urban 

consumers (CPI Code 

#CUUR0000SEHG01) would be applied 

to this component. 

g. Professional Liability Insurance (PLI) 

The proposed FY 2002-based RPL 

market basket would use the percentage 

change in hospital PLI premiums as 

estimated by the CMS Hospital 

Professional Liability Index for the 

proxy of this category. In the FY 1997- 

based excluded hospital with capital 

market basket, the same proxy was used. 

We continue to research options for 

improving our proxy for PLI. This 

research includes exploring various 

options for expanding our current 

survey, including the identification of 

another entity that would be willing to 

work with us to collect more complete 

and comprehensive data. We are also 

exploring other options such as third 

party or industry data that might assist 

us in creating a more precise measure of 

PLI premiums. At this time we have not 

identified a preferred option, therefore 

no change is proposed for the proxy in 

this proposed rule. 

h. Pharmaceuticals 

The percentage change in the price of 

prescription drugs as measured by the 

PPI (PPI Code #PPI32541DRX) would be 

used as a proxy for this cost category. 


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This is a special index produced by BLS 

as a proxy in the 1997-based excluded 

hospital with capital market basket. 

i. Food: Direct Purchases 

The percentage change in the price of 

processed foods and feeds as measured 

by the PPI (Commodity Code #02) 

would be applied to this component. 

j. Food: Contract Service 

The percentage change in the price of 

food purchased away from home as 

measured by the CPI for all urban 

consumers (CPI Code #CUUR0000SEFV) 

would be applied to this component. 

k. Chemicals 

The percentage change in the price of 

industrial chemical products as 

measured by the PPI (Commodity Code 

#061) would be applied to this 

component. While the chemicals 

hospitals purchase include industrial as 

well as other types of chemicals, the 

industrial chemicals component 

constitutes the largest proportion by far. 

Thus we believe that Commodity Code 

#061 is the appropriate proxy. 

l. Medical Instruments 

The percentage change in the price of 

medical and surgical instruments as 

measured by the PPI (Commodity Code 

#1562) would be applied to this 

component. 

m. Photographic Supplies 

The percentage change in the price of 

photographic supplies as measured by 

the PPI (Commodity Code #1542) would 

be applied to this component. 

n. Rubber and Plastics 

The percentage change in the price of 

rubber and plastic products as measured 

by the PPI (Commodity Code #07) 

would be applied to this component. 

o. Paper Products 

The percentage change in the price of 

converted paper and paperboard 

products as measured by the PPI 

(Commodity Code #0915) would be 

used. 

p. Apparel 

The percentage change in the price of 

apparel as measured by the PPI 

(Commodity Code #381) would be 

applied to this component. 

q. Machinery and Equipment 

The percentage change in the price of 

machinery and equipment as measured 

by the PPI (Commodity Code #11) 

would be applied to this component. 

r. Miscellaneous Products 

The percentage change in the price of 

all finished goods less food and energy 

as measured by the PPI (Commodity 

Code #SOP3500) would be applied to 

this component. Using this index would 

remove the double-counting of food and 

energy prices, which are captured 

elsewhere in the market basket. The 

weight for this cost category is higher, 

in part, than in the 1997-based index 

because the weight for blood and blood 

products (1.188) is added to it. In the 

1997-based excluded hospital with 

capital market basket we included a 

separate cost category for blood and 

blood products, using the BLS PPI for 

blood and derivatives as a price proxy. 

A review of recent trends in the PPI for 

blood and derivatives suggests that its 

movements may not be consistent with 

the trends in blood costs faced by 

hospitals. While this proxy did not 

match exactly with the product 

hospitals are buying, its trend over time 

appears to be reflective of the historical 

price changes of blood purchased by 

hospitals. However, an apparent 

divergence between the BLS PPI for 

blood and derivatives and trends in 

blood costs faced by hospitals over 

recent years led us to reevaluate 

whether the PPI for blood and 

derivatives was an appropriate measure 

of the changing price of blood. As 

discussed in both the FY 2006 IPPS and 

IRF PPS proposed rules, we ran test 

market baskets classifying blood into 

three separate cost categories: Blood and 

blood products; contained within 

chemicals as was done for the 1992- 

based excluded hospital with capital 

market basket; and, within 

miscellaneous products. These 

categories use as proxies the following 

PPIs: the PPI for blood and blood 

products, the PPI for chemicals, and the 

PPI for finished goods less food and 

energy, respectively. Of these three 

proxies, the PPI for finished goods less 

food and energy moved most like the 

recent blood cost and price trends. In 

addition, the impact on the overall 

market basket by using different proxies 

for blood was negligible, mostly due to 

the relatively small weight for blood in 

the market basket. 

Therefore, we are proposing to use the 

PPI for finished goods less food and 

energy for the blood proxy because we 

believe it more appropriately proxies 

price changes (not quantities or required 

tests) associated with blood purchased 

by hospitals because it moved most like 

the recent blood cost and price trends. 

(We note that we would continue to 

evaluate this proxy for its 

appropriateness and, if adopted, would 

explore the development of alternative 

price indexes to proxy the price changes 

associated with this cost for 

presentation in a future proposed rule.) 

s. Telephone 

The percentage change in the price of 

telephone services as measured by the 

CPI for all urban consumers (CPI Code 

#CUUR0000SEED) would be applied to 

this component. 

t. Postage 

The percentage change in the price of 

postage as measured by the CPI for all 

urban consumers (CPI Code 

#CUUR0000SEEC01) would be applied 

to this component. 

u. All Other Services, Labor Intensive 

The percentage change in the ECI for 

compensation paid to service workers 

employed in private industry would be 

applied to this component. 

v. All Other Services, Nonlabor 

Intensive 

The percentage change in the all items 

component of the CPI for all urban 

consumers (CPI Code # CUUR0000SA0) 

would be applied to this component. 

3. Proposed Methodology for Capital 

Portion of the RPL Market Basket 

Unlike for the operating costs of the 

proposed FY 2002-based RPL market 

basket, we did not have IRF, IPF, and 

LTCH FY 2002 Medicare cost report 

data for the capital cost weights, due to 

a change in the FY 2002 reporting 

requirements. Rather, we propose to use 

these hospitals’ expenditure data for the 

capital cost categories of depreciation, 

interest, and other capital expenses for 

FY 2001, and age the data to a FY 2002 

base year using relevant price proxies. 

We believe this is the best approach 

since these data are the capital cost 

structures of those IRFs, IPFs and 

LTCHs serving Medicare beneficiaries 

that require inpatient hospital services. 

We calculated weights for the 

proposed RPL market basket capital 

costs using the same set of Medicare 

cost reports used to develop the 

operating share for IRFs, IPFS, and 

LTCHs in order to use consistent 

expense data in developing the 

proposed weights for both operating and 

capital costs. The resulting proposed 

capital weight for the FY 2002 base year 

is 10.149 percent. This is based on FY 

2001 Medicare cost report data for IRFs, 

IPFs, and LTCHs, aged to FY 2002 using 

relevant price proxies. 

Lease expenses are not a separate cost 

category in the proposed market basket, 

but are distributed among the cost 

categories of depreciation, interest, and 


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other, reflecting the assumption that the 

underlying cost structure of leases is 

similar to capital costs in general. We 

assumed 10 percent of lease expenses 

are overhead and assigned them to the 

other capital expenses cost category as 

overhead. We base this assignment of 10 

percent of lease expenses to overhead 

on the common assumption that 

overhead is 10 percent of costs. The 

remaining lease expenses were 

distributed to the three cost categories 

based on the weights of depreciation, 

interest, and other capital expenses not 

including lease expenses. 

Depreciation contains two 

subcategories: building and fixed 

equipment, and movable equipment. 

The proposed split between building 

and fixed equipment and movable 

equipment was determined using the FY 

2001 Medicare cost reports for IRFs, 

IPFs, and LTCHs. We believe this is the 

best available data source because it 

reflects the capital cost structures of 

those IRFs, IPFs and LTCHs serving 

Medicare beneficiaries. This 

methodology was also used to compute 

the 1997-based index (67 FR 50044). 

The proposed total interest expense 

cost category is split between the 

government/nonprofit and for-profit 

hospitals. The 1997-based excluded 

hospital with capital market basket 

allocated 85 percent of the total interest 

cost weight to the government nonprofit 

interest, proxied by average yield on 

domestic municipal bonds, and 15 

percent to for-profit interest, proxied by 

average yield on Moody’s Aaa bonds. 

We propose to derive the split using 

the relative FY 2001 Medicare cost 

report data for PPS hospitals on interest 

expenses for the government/nonprofit 

and for-profit hospitals. Due to 

insufficient Medicare cost report data 

for IPFs, IRFs, and LTCHs, we propose 

to use the same split used in the IPPS 

capital input price index, which is 75 

percent of the total interest cost weight 

of the government/non-profit interest 

and 25 percent of for-profit interest. We 

believe that this split reflects the latest 

relative cost structure of interest 

expenses for hospitals because it is 

based on the most recent complete 

hospital cost report data and, therefore, 

we propose to use a 75–25 split to 

allocate interest expenses to 

government/nonprofit and for-profit 

hospitals’ interest (70 FR 47408). 

Since capital is acquired and paid for 

over time, capital expenses in any given 

year are determined by both past and 

present purchases of physical and 

financial capital. The vintage-weighted 

capital index is intended to capture the 

long-term consumption of capital, using 

vintage weights for depreciation 

(physical capital) and interest (financial 

capital). These vintage weights reflect 

the purchase patterns of building and 

fixed equipment and movable 

equipment over time. Depreciation and 

interest expenses are determined by the 

amount of past and current capital 

purchases. Therefore we are proposing 

to use the vintage weights to compute 

vintage-weighted price changes 

associated with depreciation and 

interest expense. 

Vintage weights are an integral part of 

the proposed FY 2002-based RPL market 

basket. Capital costs are inherently 

complicated and are determined by 

complex capital purchasing decisions, 

over time, based on factors such as 

interest rates and debt financing. In 

addition, capital is depreciated over 

time instead of being consumed in the 

same period it is purchased. The capital 

portion of the proposed FY 2002-based 

RPL market basket would reflect the 

annual price changes associated with 

capital costs, and would be a useful 

simplification of the actual capital 

investment process. By accounting for 

the vintage nature of capital, we are able 

to provide an accurate, stable annual 

measure of price changes. Annual 

nonvintage price changes for capital are 

unstable due to the volatility of interest 

rate changes. Therefore, they do not 

reflect the actual annual price changes 

for Medicare capital-related costs. The 

capital component of the proposed FY 

2002-based RPL market basket would 

reflect the underlying stability of the 

capital acquisition process and provide 

hospitals with the ability to plan for 

changes in capital payments. 

To calculate the vintage weights for 

depreciation and interest expenses, we 

needed a time series of capital 

purchases for building and fixed 

equipment and movable equipment. We 

found no single source that provides the 

best time series of capital purchases by 

hospitals for all of the above 

components of capital purchases. The 

early Medicare Cost Reports were not 

sufficiently completed to have capital 

data to meet this need. While the AHA 

Panel Survey provided a consistent 

database back to 1963, it did not provide 

annual capital purchases. However, the 

AHA Panel Survey provided a time 

series of depreciation expenses through 

1997 which could be used to infer 

capital purchases over time. From 1998 

to 2001, hospital depreciation expenses 

were calculated by multiplying the AHA 

Annual Survey total hospital expenses 

by the ratio of depreciation to total 

hospital expenses from the Medicare 

cost reports. Beginning in 2001, the 

AHA Annual Survey began collecting 

depreciation expenses. We note that we 

hope to be able to propose to use these 

data in proposed rebasings that would 

be presented in future proposed rules. 

In order to estimate capital purchases 

from AHA data on depreciation and 

interest expenses, the expected life for 

each cost category (building and fixed 

equipment, movable equipment, and 

debt instruments) is needed. Due to 

insufficient Medicare cost report data 

for IPFs, IRFs, and LTCHs, we propose 

to use FY 2001 Medicare Cost Reports 

for IPPS hospitals to determine the 

expected life of building and fixed 

equipment and movable equipment. We 

believe this data source reflects the 

latest relative cost structure of 

depreciation expenses for all hospital 

types, including IPFs, IRFs, and LTCHs, 

and is the best available data at this 

time. The expected life of any piece of 

equipment can be determined by 

dividing the value of the asset 

(excluding fully depreciated assets) by 

its current year depreciation amount. 

This calculation yields the estimated 

useful life of an asset if depreciation 

were to continue at current year levels, 

assuming straight-line depreciation. 

From the FY 2001 Medicare cost reports 

for IPPS hospitals the expected life of 

building and fixed equipment was 

determined to be 23 years, and the 

expected life of movable equipment was 

determined to be 11 years. 

We also propose to use the fixed and 

movable weights derived from FY 2001 

Medicare cost reports for IPFs, IRFs, and 

LTCHs to separate the depreciation 

expenses into annual amounts of 

building and fixed equipment 

depreciation and movable equipment 

depreciation because this is the best 

available data source. By multiplying 

the annual depreciation amounts by the 

expected life calculations from the FY 

2001 Medicare cost reports, year-end 

asset costs for building and fixed 

equipment and movable equipment 

were determined. Then, we calculated a 

time series back to 1963 of annual 

capital purchases by subtracting the 

previous year asset costs from the 

current year asset costs. From this 

capital purchase time series we are able 

to calculate the vintage weights for 

building and fixed equipment, movable 

equipment, and debt instruments. An 

explanation of each of these sets of 

vintage weights follows. 

For proposed building and fixed 

equipment vintage weights, the real 

annual capital purchase amounts for 

building and fixed equipment derived 

from the AHA Panel Survey were used. 

The real annual purchase amount was 

used to capture the actual amount of the 

physical acquisition, net of the effect of 

price inflation. This real annual 


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purchase amount for building and fixed 

equipment was produced by deflating 

the nominal annual purchase amount by 

the building and fixed equipment price 

proxy, the Boeckh Institutional 

Construction Index. This is the same 

proxy used for the FY 1997-based 

excluded hospital with capital market 

basket. We believe this proxy continues 

to meet our criteria of reliability, 

timeliness, availability, and relevance. 

Since building and fixed equipment has 

an expected life of 23 years, the vintage 

weights for building and fixed 

equipment are deemed to represent the 

average purchase pattern of building 

and fixed equipment over 23-year 

periods. With real building and fixed 

equipment purchase estimates back to 

1963, 16 23-year periods could be 

averaged to determine the average 

vintage weights for building and fixed 

equipment that are representative of 

average building and fixed equipment 

purchase patterns over time. Vintage 

weights for each 23-year period are 

calculated by dividing the real building 

and fixed capital purchase amount in 

any given year by the total amount of 

purchases in the 23-year period. This 

calculation is done for each year in the 

23-year period, and for each of the 16 

23-year periods. The average of each 

year across the 16 23-year periods is 

used to determine the 2002 average 

building and fixed equipment vintage 

weights. 

For proposed movable equipment 

vintage weights, the real annual capital 

purchase amounts for movable 

equipment derived from the AHA Panel 

Survey were used to capture the actual 

amount of the physical acquisition, net 

of price inflation. This real annual 

purchase amount for movable 

equipment is calculated by deflating the 

nominal annual purchase amount by the 

movable equipment price proxy, the PPI 

for Machinery and Equipment. This is 

the same proxy used for the FY 1997- 

based excluded hospital with capital 

market basket. We believe this proxy, 

which meets our criteria, is the best 

measure of price changes for this cost 

category. Since movable equipment has 

an expected life of 11 years, the vintage 

weights for movable equipment are 

deemed to represent the average 

purchase pattern of movable equipment 

over an 11-year period. With real 

movable equipment purchase estimates 

available back to 1963, 28 11-year 

periods could be averaged to determine 

the average vintage weights for movable 

equipment that are representative of 

average movable equipment purchase 

patterns over time. Vintage weights for 

each 11-year period are calculated by 

dividing the real movable capital 

purchase amount for any given year by 

the total amount of purchases in the 11- 

year period. This calculation is done for 

each year in the 11-year period, and for 

each of the 28 11-year periods. The 

average of the 28 11-year periods is used 

to determine the proposed FY 2002 

average movable equipment vintage 

weights. 

For proposed interest vintage weights, 

the nominal annual capital purchase 

amounts for total equipment (building 

and fixed and movable) derived from 

the AHA Panel and Annual Surveys 

were used. Nominal annual purchase 

amounts were used to capture the value 

of the debt instrument. Since hospital 

debt instruments have an expected life 

of 23 years, the vintage weights for 

interest are deemed to represent the 

average purchase pattern of total 

equipment over 23-year periods. With 

nominal total equipment purchase 

estimates available back to 1963, 16 23- 

year periods could be averaged to 

determine the average vintage weights 

for interest that are representative of 

average capital purchase patterns over 

time. Vintage weights for each 23-year 

period are calculated by dividing the 

nominal total capital purchase amount 

for any given year by the total amount 

of purchases in the 23-year period. This 

calculation is done for each year in the 

23-year period and for each of the 16 23- 

year periods. The average of the 16 23- 

year periods is used to determine the 

proposed FY 2002 average interest 

vintage weights. The proposed vintage 

weights for the index are presented in 

Table 3. 

In addition to the proposed price 

proxies for depreciation and interest 

costs described above in the vintage 

weighted capital section, we propose to 

use the CPI–U for Residential Rent as a 

price proxy for other capital-related 

costs. Other capital-related costs are 

mainly composed of taxes and 

insurance. There is no price proxy for 

these specific costs; however, we 

believe the price changes associated 

with these costs would be reflected in 

the price changes of residential rent 

because rent is assumed to move with 

taxes and insurance on order to 

maintain profit margins. The price 

proxies for each of the capital cost 

categories are the same as those used for 

the IPPS final rule (67 FR 50044) capital 

input price index. 

TABLE 3.—PROPOSED CMS FY 2002-BASED RPL MARKET BASKET CAPITAL VINTAGE WEIGHTS

Year Fixed assets 

(23 year weights) 

Movable assets 

(11 year weights) 

Interest: 

capital-related 

(23 year weights) 

1 ................................................................................................................................. .021 .065 .010 

2 ................................................................................................................................. .022 .071 .012 

3 ................................................................................................................................. .025 .077 .014 

4 ................................................................................................................................. .027 .082 .016 

5 ................................................................................................................................. .029 .086 .019 

6 ................................................................................................................................. .031 .091 .023 

7 ................................................................................................................................. .033 .095 .026 

8 ................................................................................................................................. .035 .100 .029 

9 ................................................................................................................................. .038 .106 .033 

10 ............................................................................................................................... .040 .112 .036 

11 ............................................................................................................................... .042 .117 .039 

12 ............................................................................................................................... .045 .............................. .043 

13 ............................................................................................................................... .047 .............................. .048 

14 ............................................................................................................................... .049 .............................. .053 

15 ............................................................................................................................... .051 .............................. .056 

16 ............................................................................................................................... .053 .............................. .059 

17 ............................................................................................................................... .056 .............................. .062 

18 ............................................................................................................................... .057 .............................. .064 

19 ............................................................................................................................... .058 .............................. .066 

20 ............................................................................................................................... .060 .............................. .070 

21 ............................................................................................................................... .060 .............................. .071 


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TABLE 3.—PROPOSED CMS FY 2002-BASED RPL MARKET BASKET CAPITAL VINTAGE WEIGHTS—Continued 

Year Fixed assets 

(23 year weights) 

Movable assets 

(11 year weights) 

Interest: 

capital-related 

(23 year weights) 

22 ............................................................................................................................... .061 .............................. .074 

23 ............................................................................................................................... .061 .............................. .076 

Total .................................................................................................................... 1.000 1.000 1.000 

4. Proposed Market Basket Estimate for 

the 2007 LTCH PPS Rate Year 

As discussed previously in this 

proposed rule, beginning in the 2007 

LTCH PPS rate year, we are proposing 

to adopt the FY 2002-based RPL market 

basket as the appropriate market basket 

of goods and services under the LTCH 

PPS. We are proposing a zero percent 

update to the LTCH PPS Federal rate for 

the 2007 LTCH PPS rate year rather than 

proposing an update based solely on the 

most recent estimate of the proposed 

LTCH PPS market basket as we have 

done in the past. However, as we 

discuss in section IV.D.1.c. of this 

preamble, we are proposing to revise the 

LTCH PPS labor-related share based on 

the proposed RPL market basket. In 

Table 4, we are presenting a comparison 

of the most recent estimates of the 

increase to the current LTCH PPS 

market basket (that is, the FY 1997- 

based excluded hospital with capital 

market basket) and the proposed FY 

2002-based RPL market basket. 

Based on Global Insight’s 3rd quarter 

2005 forecast with history through the 

2nd quarter of 2005, the most recent 

estimate of the RPL market basket for 

July 1, 2006 through June 30, 2007 (the 

2007 LTCH PPS rate year) is 3.6 percent. 

Global Insight, Inc. is a nationally 

recognized economic and financial 

forecasting firm that contracts with CMS 

to forecast the components of the market 

baskets. Using the current FY 1997- 

based excluded hospital with capital 

market basket, Global Insight’s 3rd 

quarter 2005 forecast, with history 

through the 2nd quarter of 2005, for the 

2007 LTCH PPS rate year would also be 

3.6 percent. Table 4 compares the 

proposed FY 2002-based RPL market 

basket and the FY 1997-based excluded 

hospital with capital market basket 

percent changes. For both the historical 

and forecasted periods between FY 2000 

and FY 2008, the difference between the 

two market baskets is minor with the 

exception of FY 2002, where the 

proposed FY 2002-based RPL market 

basket increased 3/10 of a percentage 

point higher than the FY 1997-based 

excluded hospital with capital market 

basket. This is primarily due to the 

proposed FY 2002-based RPL having a 

larger compensation (this is, the sum of 

wages and salaries and benefits) cost 

weight than the FY 1997-based index 

and the price changes associated with 

compensation costs increasing much 

faster than the prices of other market 

basket components. Also contributing is 

the ‘‘all other nonlabor intensive’’ cost 

weight, which is smaller in the 

proposed FY 2002-based RPL market 

basket than in the FY 1997-based index, 

as well as the slower price changes 

associated with these costs. 

TABLE 4.—PROPOSED FY 2002-BASED RPL MARKET BASKET AND FY 1997-BASED EXCLUDED HOSPITAL WITH CAPITAL

MARKET BASKET, PERCENT CHANGES: 2000–2008 

Fiscal year (FY) 

Proposed 

rebased FY 

2002-based RPL 

market basket 

FY 1997-based 

excluded hospital 

market basket 

with capital 

Historical data: 

RY 2001 .................................................................................................................................................... 3.8 3.9 

RY 2002 .................................................................................................................................................... 4.1 3.8 

RY 2003 .................................................................................................................................................... 3.8 3.7 

RY 2004 .................................................................................................................................................... 3.6 3.6 

RY 2005 .................................................................................................................................................... 3.8 3.9 

Average RY 2001–2005 .................................................................................................................................. 3.8 3.8 

Forecast: 

RY 2006 .................................................................................................................................................... 3.7 3.8 

RY 2007 .................................................................................................................................................... 3.6 3.6 

RY 2008 .................................................................................................................................................... 3.5 3.5 

RY 2009 .................................................................................................................................................... 3.3 3.1 

Average RY 2006–2009 .................................................................................................................................. 3.5 3.5 

Source: Global Insight, Inc. 3rd Qtr 2005, @USMACRO/CNTL0905 @CISSIM/TL0805.SIM. 

C. Proposed Standard Federal Rate for 

the 2007 LTCH PPS Rate Year 

1. Background 

Under the existing regulations at 

§ 412.523(c)(3)(ii), we update the 

standard Federal rate annually to adjust 

for the most recent estimate of the 

projected increases in prices for LTCH 

inpatient hospital services. We 

established this regulation in the August 

30, 2002 final rule (67 FR 56030), which 

implemented the LTCH PPS, 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 

prospective payment system would be 

equal 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 


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covered inpatient LTCH services 

because, at that time, we continued to 

believe that was the most appropriate 

method for updating the LTCH PPS 

Standard Federal rate annually for years 

after RY 2004. As established in the RY 

2006 LTCH PPS final rule (70 FR 

24179), based on the most recent 

estimate of the excluded hospital with 

capital market basket, adjusted to 

account for the change in the LTCH PPS 

rate year update cycle, the current LTCH 

PPS standard Federal rate which is 

effective from July 1, 2005 through June 

30, 2006 (the 2006 LTCH PPS rate year) 

is $38,086.04 (70 FR 24179). In the 

discussion that follows, we explain how 

we developed the proposed standard 

Federal rate for the 2007 LTCH PPS rate 

year. Specifically, we explain our 

rationale, which is based on our ongoing 

monitoring activities, for proposing a 

zero percent update to the standard 

Federal rate for the 2007 LTCH PPS rate 

year rather than proposing to solely use 

the most recent estimate of the proposed 

RPL market basket as the update factor 

for the Federal rate for the upcoming 

rate year. Thus, the proposed standard 

Federal rate for the 2007 LTCH PPS rate 

year would be $38,086.04. 

2. Description of a Preliminary Model of 

an Update Framework Under the LTCH 

PPS 

In the August 30, 2002 final rule (67 

FR 56087), which implemented the 

LTCH PPS, we stated that in the future 

we may propose to develop a framework 

to update payments to LTCHs that 

would account for other appropriate 

factors that affect the efficient delivery 

of services and care provided to 

Medicare patients. A conceptual basis 

for the proposal of developing an update 

framework in the future was presented 

in Appendix B of that same final rule 

(67 FR 56086). In subsequent final rules 

that updated the LTCH PPS standard 

Federal rate for years after FY 2003, we 

explained that we did not propose an 

update framework because we had not 

yet collected sufficient data to allow for 

the analysis and development of a 

framework under the LTCH PPS (see 68 

FR 34134, 69 FR 25682, and 70 FR 

24179). Since the LTCH PPS was 

implemented just slightly over 3 years 

ago (for cost reporting periods beginning 

on or after October 1, 2002) and due to 

the time lag in the availability of 

Medicare data, we continue to believe 

that we still do not yet have sufficient 

data to develop an update framework 

upon which to base the proposed 

update to the standard Federal rate for 

the 2007 LTCH PPS rate year. 

Although we do not have enough 

complete data at this time to propose an 

update for RY 2007 based on an update 

framework, we believe that the almost 2 

full years of data generated under the 

LTCH PPS is sufficient data to begin the 

discussion of the development of a 

potential update framework that we may 

propose to use in the future under the 

LTCH PPS for the annual update to the 

LTCH standard Federal rate. Therefore, 

although we are not proposing to 

employ an analytical update framework 

in this proposed rule to determine the 

proposed 2007 LTCH PPS rate year 

update to the standard Federal rate, in 

Appendix A of this proposed rule, we 

are presenting a preliminary model of 

an update framework, using the best 

available data and concepts, which we 

may propose to adopt at some time in 

the future. 

We are soliciting comments on this 

preliminary update framework 

methodology and its application that 

may be proposed in the future. Also, we 

would appreciate comments regarding 

recommendations to improve it. We 

note that this preliminary model of an 

update framework for the LTCH PPS is 

based on the conceptual discussion of a 

LTCH PPS update framework that was 

presented in the August 30, 2002 final 

rule (67 FR 56086), and is similar to the 

update framework formerly used to 

develop the operating IPPS annual 

update recommendation (69 FR 28816 

through 28817) and that which is 

currently used under the capital IPPS 

for inpatient short-term acute-care 

hospitals set forth at § 412.308(c)(1)(ii). 

3. Proposed Update to the Standard 

Federal Rate for the 2007 LTCH PPS 

Rate Year 

Currently, under § 412.523, the 

annual update to the LTCH PPS 

standard Federal rate is 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 (that 

is, presently, the excluded hospital with 

capital market basket). As we indicated 

in previous LTCH PPS final rules (67 FR 

56014, 68 FR 34157, 69 FR 25712, and 

70 FR 24209 through 24213), we have 

developed a monitoring system to assist 

us in evaluating the LTCH PPS. We have 

used the results of these monitoring 

efforts, along with the most recently 

available LTCH PPS data to assess 

current payment adequacy under the 

LTCH PPS. As we discuss in greater 

detail, because we believe that current 

payments are more than adequate to 

account for price increases in the 

services furnished by LTCHs during the 

2007 LTCH PPS rate year, 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, we are 

proposing to revise § 412.523(c)(3)(ii), to 

specify that, for discharges occurring on 

or after July 1, 2006 and on or before 

June 30, 2007, 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 July 

1, 2006 through June 30, 2007 rate year 

would remain the same as the standard 

Federal rate in effect during the 2006 

rate year (July 1, 2005 through June 30, 

2006), that is, $38,086.04. 

In the August 30, 2002 final rule (67 

FR 56014), we describe an on-going 

monitoring component of the new LTCH 

PPS that would enable us to evaluate 

the impact of the new payment policies. 

We stated that if our data indicate that 

changes to the system might be 

warranted, we may consider proposing 

revisions to these policies in the future. 

Since the implementation of the LTCH 

PPS (for cost reporting periods 

beginning on or after October 1, 2002), 

there has been tremendous growth in 

the number of LTCHs reimbursed by 

Medicare. Specifically, the number of 

LTCHs has almost doubled over the past 

3 years from approximately 200 LTCHs 

in FY 2003 to 378 LTCHs at the start of 

FY 2005. In addition, Medicare 

spending for LTCHs has also grown 

rapidly, as noted in MedPAC’s June 

2004 Report to Congress (page 122). 

Rapid increases in LTCH growth and 

Medicare spending under the LTCH 

PPS, in conjunction with the fact that 

over 98 percent of LTCHs are currently 

paid based fully on the Federal rate 

(rather than choosing to be paid under 

a blend of the reasonable cost-based 

(TEFRA) payment amount and the 

LTCH PPS Federal rate payment 

amount), prompted us to examine 

changes in LTCHs’ patient case-mix 

index (CMI) and margins under the 

LTCH PPS. Margins are defined as 

payment-to-cost ratios of LTCH 

inpatient Medicare payments to LTCH 

inpatient Medicare costs. We believe the 

proposed zero percent update factor for 

RY 2007 is supported by our findings 

regarding CMI, Medicare margins, and 

patient census based on the most recent 

complete LTCH data. The following is a 

discussion of our analysis of each of 

these factors. 

A LTCH’s 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 


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of more resource intensive patients. 

Apparent CMI increase is defined as the 

increase in CMI due to changes in 

coding practices. Observed CMI increase 

is defined as real CMI increase plus the 

increase in computed CMI 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 

would consider this a real change in 

case-mix. Conversely, if LTCH patients 

have the same impairments, functional 

status, and 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 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). 

Apparent CMI increase results in a case 

being grouped to a LTC–DRG with a 

higher weight than it would be without 

such changes in coding practices, which 

results in a higher LTCH PPS payment 

that does not necessarily reflect the true 

cost of treating the patient. Therefore, 

under the broad discretionary 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, we are proposing to revise 

the annual update to the LTCH PPS 

standard Federal rate set forth at 

§ 412.523(a)(2) for the 2007 LTCH PPS 

rate year to adjust the payment amount 

for LTCH inpatient hospital services to 

eliminate the effect of coding or 

classification changes that do not reflect 

real changes in LTCHs’ case-mix. It is 

important to eliminate the effect of 

coding or classification changes 

because, as discussed above in this 

section, they do not reflect the true cost 

of treating patients. We believe that the 

adjustment we are proposing to 

eliminate the effect of coding or 

classification changes that do not reflect 

real changes in LTCHs’ case-mix would 

reduce the amount that RY 2007 LTCH 

PPS payments would have been absent 

this adjustment so that payments would 

become more aligned with the true costs 

of treating LTCH patients. 

As described in our August 30, 2002 

final rule, we contracted with 3M 

Health Information Systems (3M) to 

analyze LTCH data to support our 

efforts in developing the original LTCH 

PPS in 2002. We have continued our 

contract with 3M to assist CMS in 

developing potential refinements to the 

LTCH PPS, including some of the 

proposed changes presented in this 

proposed rule. As part of this research, 

we asked 3M to examine changes in 

case-mix and coding since the 

implementation of the LTCH PPS based 

on the most recently available data. As 

part of their analysis, 3M compared FY 

2003 LTCH claims data from the first 

year of implementation of the PPS with 

the FY 2001 claims data (generated prior 

to the implementation of the LTCH 

PPS), which is the same LTCH claims 

data used to develop the LTCH PPS. 

The analysis performed by 3M 

indicates that the observed case-mix in 

LTCHs increased by 5.6 percent 

between FY 2001 and FY 2003. The 

average annual CMI increase from FY 

2001 to FY 2003 was 2.75 percent. Since 

coding of diagnoses was not a factor in 

determining payments under the former 

reasonable cost-based (TEFRA) payment 

system, and since payments were not 

directly tied to diagnosis codes, there 

was no incentive for LTCHs to attempt 

to influence payments through changes 

in coding practices. Therefore, it is 

reasonable to assume that the observed 

2.75 percent change in case-mix in the 

years prior to the implementation of the 

LTCH PPS represent the value for the 

real CMI increase (that is, we assume 

that the increase in case-mix is not due 

to improvements in documentation or 

more complete coding of the medical 

record during this period). Using the 

average annual 2.75 percent observed 

CMI increase as a baseline, we can 

separate the CMI increase between FYs 

2003 and 2004 into the real CMI 

increase, which is based on the 

treatment of more resource intensive 

patients, and the apparent CMI increase, 

which is due to improvements in 

documentation and coding practices. 

The calculated observed CMI increase 

between FYs 2003 and 2004 was 6.75 

percent. Assuming that the real CMI 

increase observed (on average) from FY 

2001 to FY 2003 remained relatively 

constant into FY 2005, then the 

difference of 4.0 percent (6.75 percent 

minus 2.75 percent) represents the 

apparent CMI increase due to 

improvements in documentation and 

coding. This is considerably higher than 

the 0.34 percent behavioral offset 

originally estimated by CMS actuaries, 

which was used in the development of 

the FY 2003 LTCH PPS standard Federal 

rate (67 FR 56033). We note that the 4.0 

percent apparent CMI increase is a 

conservative estimate when compared 

to the 5.35 percent apparent CMI 

increase that would result if we applied 

the information from past studies on 

case-mix change. Based on past studies 

of IPPS case-mix change by the RAND 

Corporation, (‘‘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)), 

we have assumed that real case-mix 

change for IPPS hospitals was a fairly 

steady 1.0 to 1.4 percent per year. If we 

apply this same assumption to LTCHs, 

nearly 5.35 percent (6.75 percent ¥ 1.4 

percent) of the change in case-mix 

during the first year of the LTCH PPS is 

apparent CMI and not real CMI. 

We recognize that the LTCH PPS may 

have increased incentives for LTCHs to 

take patients with greater impairment, 

lower function, or increased 

comorbidities because the more 

complicated the patient’s principle 

diagnosis and accompanying 

comorbidities, the higher the relative 

weight for the LTC–DRG, and the higher 

the resulting LTCH PPS payment. Under 

TEFRA, LTCHs were paid on the basis 

of Medicare reasonable costs limited by 

a hospital-specific target amount per 

discharge, which were based on baseyear cost per case. Thus, LTCHs may 

have greater incentives to admit more 

costly patients and therefore, we 

expected to see an increase in the 

observed CMI due to the 

implementation of the LTCH PPS. 

However, we believe a significant 

portion of the 6.75 percent 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. In our 

analysis of cost per discharge, we found 

that while payments (revenue) per 

discharge increased approximately 17 

percent from FY 2002 to FY 2003 (the 

first year of LTCH PPS), costs (expenses) 

per discharge increased by only 8 

percent for the same period. Thus 

payments to LTCHs from FY 2002 to FY 

2003 increased more than 2 times as 

much as the increase of costs during the 

same period. We didn’t observe a large 

increase in cost per discharge, which we 

would have expected to see if the 

observed CMI was due to ‘‘real’’ CMI 

change (treating sicker patients). We 

would have expected to see a large 

increase in costs per discharge if the 

CMI was due to real CMI change 

because we expected LTCHs to admit 

more severely ill patients as described 

previously which we thought would 

have required more resources to treat 

these patients. Furthermore, review by a 

Medicare program safeguard contractor 

working with the FI sampled LTCH 

claims with specific diagnoses in one 

LTCH and determined that the majority 

of those patients were not ‘‘hospitalVerDate Aug<31>2005 15:45 Jan 26, 2006 Jkt 205001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 E:\FR\FM\27JAP2.SGM 27JAP2

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level’’ patients. Rather, the level of care 

needed by these patients was more 

suitable for a Skilled Nursing Facility 

(SNF) than a LTCH. The QIO reviewed 

a sample of the claims that had been 

determined not to be hospital-level 

patients by the Medicare program 

safeguard contractor and concurred with 

its assessment of most of those cases. 

Anecdotally, we have heard of other 

investigations of LTCHs treating 

patients that do not require hospitallevel care. This finding further supports 

the data showing that cost per discharge 

did not increase as rapidly as LTCHs’

CMI and that the increase in LTCHs’

CMI is primarily due to factors other 

than real CMI. 

In addition, an internal CMS analysis 

shows high Medicare margins among 

LTCHs since the implementation of the 

LTCH PPS in FY 2003. Specifically, we 

calculated ‘‘revenue-weighted’’

Medicare margins, which are the sum of 

hospital inpatient Medicare revenue 

(payments) minus the sum of hospital 

inpatient Medicare expenses (costs) 

divided by the sum of hospital inpatient 

Medicare revenue (payments). This 

margin calculation, also utilized by 

MedPAC in its analyses, is used to 

evaluate the overall financial status of 

LTCHs. In an analysis of the latest 

available LTCH cost reports, we found 

that LTCH Medicare payments for FY 

2003 (the first year of the LTCH PPS) 

were 8.8 percent higher than LTCHs’

Medicare costs. Preliminary cost report 

data for FY 2004 reveal an even higher 

Medicare margin of 11.7 percent. For 

the period prior to the implementation 

of the LTCH PPS (that is, FY 1996 

through FY 2002), we found that 

Medicare margins ranged between a 

minimum of ¥2.2 percent in FY 2002, 

and a maximum of 2.9 percent in FY 

1997. 

We note that MedPAC is presently 

engaged in an evaluation of payment 

adequacy for LTCHs, which upon 

completion, will be published in the 

Commission’s 2006 Reports to the 

Congress. At the Commission’s October 

7, 2005 public meeting, the preliminary 

findings were presented. The report 

included the following: 

• The number of LTCHs increased 

rapidly since the implementation of the 

LTCH PPS; the increase in the volume 

of cases was even greater; and 

beneficiaries’ access to care has also 

increased; 

• Medicare spending has increased 

more rapidly than volume. 

• LTCHs have access to capital and 

are rapidly expanding into market areas 

that had no LTCHs prior to the 

establishment of the LTCH PPS for FY 

2003, as well as in areas that already 

had LTCHs. 

• Medicare payments under the 

LTCH PPS are ‘‘attractive’’ since despite 

the fact that LTCHs could opt to be 

phased-in to the fully Federal payments 

over 5 years, with a decreasing 

percentage of payments based on their 

former TEFRA payments, since 2004, 93 

percent of LTCHs have opted to be paid 

100 percent under the Federal rate. 

• In evaluating adequacy of 

payments, it can generally be assumed 

that if the payments are adequate, the 

volume of patients will increase. This 

was true under the LTCH PPS, where 

cases increased 12 percent per year 

between 2001 and 2004, while Medicare 

spending increased 25 percent per year 

for the same period. 

• Medicare LTCH spending increased 

28 percent from 2003 to 2004. 

(The transcript of the discussion of 

LTCH payment adequacy from the 

October 7, 2005 MedPAC public 

meeting can be found at the following 

web address: http://www.medpac.gov/ 

public_meetings/transcripts/ 

1005_allcombined_transc.pdf (pages 

256 through 298).) 

Consistent with MedPAC’s most 

recent research, our margins analysis 

indicates that in spite of the estimated 

real increase in case-mix (severity of 

patients), payments to LTCHs under the 

LTCH PPS are generally more than 

adequate to cover the Medicare costs of 

the inpatient hospital services provided 

to LTCH patients. We believe this is 

because the large observed increase in 

LTCH case-mix was not accompanied by 

a corresponding increase in Medicare 

costs. This is consistent with our belief 

expressed earlier that a significant part 

of this observed increase in case-mix is 

‘‘apparent’’ and not ‘‘real.’’ Therefore, 

under the broad discretionary authority 

conferred upon the Secretary in section 

123(a) of the BBRA as amended by 

section 307(b)(1) of the BIPA to make 

appropriate adjustments, as explained 

previously, we believe that it is fiscally 

prudent and appropriate to propose to 

revise § 412.523(c)(3)(iii) to specify that 

the standard Federal rate for the LTCH 

PPS rate year July 1, 2006 through June 

30, 2007, would be the standard Federal 

rate from the previous year be updated 

by a factor of zero percent. A zero 

percent update factor would reflect an 

adjustment to the market basket update 

to account for the increase in the 

apparent case-mix in the prior period. 

Based on our analysis of the observed 

LTCH case-mix increase, we estimate 

that 4 percent of the 6.75 percent 

calculated observed LTCH CMI increase 

is due to improvements in 

documentation and coding and not due 

to an increase in the severity of the 

patients being treated at LTCHs. As 

previously noted, the Federal payment 

rate was offset by 0.34 percent to reflect 

expected behavioral changes, including 

changes in coding. The recent estimate 

of apparent CMI increase (4 percent) 

indicates that an additional 3.66 percent 

adjustment (4 percent apparent CMI 

increase minus 0.34 percent behavioral 

offset) should be made to the Federal 

payment rate to account for 

improvements in coding. Accounting for 

the most recent estimate of the RPL 

market basket increase (3.6 percent) and 

the additional adjustment for 

improvements in coding (3.66 percent), 

the resulting update is within rounding 

error of zero percent. We are proposing 

a zero percent update for the 2007 LTCH 

PPS rate year, which would result in a 

proposed LTCH PPS standard Federal 

rate of $38,086.04 for the 2007 LTCH 

PPS rate year. We believe that a zero 

percent update for the 2007 LTCH PPS 

rate year is appropriate to protect the 

integrity of the Medicare Trust Funds by 

ensuring that the LTCH PPS payment 

rates better reflect the true costs of 

treating LTCH patients. Furthermore, 

based on the sizeable Medicare margins 

among LTCHs, we believe that the 

proposed standard Federal rate for the 

2007 LTCH PPS rate year would not 

affect beneficiary access to LTCH 

services since LTCHs would continue to 

be paid adequately to reflect the cost of 

resources needed to treat Medicare 

beneficiaries. 

As discussed in section IV.B.4. of this 

preamble, the most recent estimate of 

the proposed LTCH PPS market basket 

is 3.6 percent for the 2007 LTCH PPS 

rate year. If we were not proposing to 

revise § 412.523(c)(3) to provide a zero 

percent update to the standard Federal 

rate for the 2007 LTCH PPS rate year to 

account for changes in coding that do 

not reflect real changes in the severity 

and cost of LTCH patients presented in 

this proposed rule, under existing 

§ 412.523(c)(3)(ii) the proposed update 

would have been 3.6 percent. 

We note that the proposed revision to 

§ 412.525(c)(3) would only address an 

update to the LTCH PPS Federal rate 

through the 2007 LTCH PPS rate year. 

We intend to propose future revisions to 

§ 412.525(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 that would be 

presented in upcoming LTCH proposed 

rules. As noted previously in this 

proposed rule and in the August 30, 

2002 final rule (67 FR 56097), we are 

examining the potential for developing 

and implementing an update framework 


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under the LTCH PPS. We believe an 

update framework, used in combination 

with the market basket, would enhance 

the methodology for updating payments 

by addressing factors beyond changes in 

pure input prices (measured by the 

market basket) such as case-mix, 

intensity, and productivity. (As noted in 

section IV.C.2 of this proposed rule, a 

preliminary model of an update 

framework that may be proposed at 

some later date for future use under the 

LTCH PPS is presented in Appendix A 

of this proposed rule.) However, we are 

not proposing a specific annual update 

framework until we have collected 

sufficient complete LTCH PPS data to 

evaluate payments and costs under the 

LTCH PPS. 

In addition, currently as implemented 

in § 412.523(d)(3), we have provided for 

the possibility of making a one-time 

prospective adjustment to the LTCH 

PPS rates so that any significant 

difference from actual payments and the 

estimated payments for the first year of 

the LTCH PPS is not perpetuated in the 

prospective payment rates for future 

years. As discussed in section IV.D.5. of 

this proposed rule, we are not proposing 

an adjustment to the LTCH PPS rates 

under § 412.523(d)(3) in this proposed 

rule; however, we intend to continue to 

collect and interpret new data to 

determine if an adjustment should be 

proposed in the future. In addition, as 

also discussed in section IV.D.5. of this 

proposed rule, we are proposing to 

postpone 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 in order 

to maximize the availability of data used 

to conduct a comprehensive evaluation 

of the LTCH PPS. However, we note that 

the proposed zero percent update for the 

2007 LTCH PPS rate year may make this 

one-time prospective adjustment to the 

LTCH PPS Federal rate unnecessary if 

our comprehensive analysis of the 

LTCH PPS determines that LTCH PPS 

payments and the costs for LTCH 

services become aligned as a result of 

this proposed change. We solicit 

comments on whether the proposed 

zero percent for the 2007 LTCH PPS rate 

year is appropriate or if an alternative 

percentage reduction should be applied 

to the standard Federal rate for the 2007 

LTCH PPS rate year. 

4. Proposed Standard Federal Rate for 

the 2007 LTCH PPS Rate Year 

In the RY 2006 LTCH PPS final rule 

(70 FR 24180), we established a 

standard Federal rate of $38,086.04 for 

the 2006 LTCH PPS rate year that was 

based on the best available data and 

policies established in that final rule. In 

this proposed rule, we would revise 

§ 412.523(c)(3) to establish a standard 

Federal rate based on a zero percent 

update as discussed in section IV. B. of 

this proposed rule. Therefore, based on 

the proposed zero percent update, the 

proposed standard Federal rate for RY 

2007 would be $38,086.04. As we stated 

in the RY 2006 LTCH PPS final rule, the 

standard Federal rate of $38,086.04 was 

already adjusted for differences in casemix, wages, cost-of-living, and high cost 

outlier payments. Therefore, we made 

additional adjustments in the RY 2006 

LTCH PPS standard Federal rate for 

those factors (70 FR 24180). Similarly, 

since the proposed standard Federal rate 

for the 2007 LTCH PPS rate year has 

already been adjusted for differences in 

case-mix, wages, cost-of-living, and 

high-cost outlier payments, we would 

not propose to make any additional 

adjustments in the proposed standard 

Federal rate for these factors. 

D. Calculation of Proposed LTCH 

Prospective Payments for the 2007 

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, cost-of-living in Alaska and 

Hawaii, high-cost outliers, and other 

special payment provisions (short-stay 

outliers (SSO) under § 412.529 and 

interrupted stays under § 412.531). 

In accordance with § 412.533, during 

the 5-year transition period, payment is 

based on the applicable transition blend 

percentage of the adjusted Federal rate 

and the reasonable cost-based payment 

rate unless the LTCH makes a one-time 

election to receive payment based on 

100 percent of the Federal rate. A LTCH 

defined as ‘‘new’’ under § 412.23(e)(4) is 

paid based on 100 percent of the Federal 

rate with no blended transition 

payments (§ 412.533(d)). As discussed 

in the August 30, 2002 final rule (67 FR 

56038), and in accordance with 

§ 412.533(a), the applicable transition 

blends are as shown in Table 5. 

TABLE 5 

Cost reporting 

periods beginning on or after 

Federal rate 

percentage 

Reasonable 

cost-based 

payment 

rate percentage 

October 1, 2002 20 80 

October 1, 2003 40 60 

October 1, 2004 60 40 

October 1, 2005 80 20 

October 1, 2006 100 0 

Accordingly, for cost reporting 

periods beginning during FY 2005 (that 

is, on or after October 1, 2004, and on 

or before September 30, 2005), blended 

payments under the transition 

methodology are based on 40 percent of 

the LTCH’s reasonable cost-based 

payment rate and 60 percent of the 

adjusted LTCH PPS Federal rate. For 

cost reporting periods that begin during 

FY 2006 (that is, on or after October 1, 

2005 and on or before September 30, 

2006), blended payments under the 

transition methodology will be based on 

20 percent of the LTCH’s reasonable 

cost-based payment rate 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 will be 

determined entirely (100 percent) under 

the LTCH PPS Federal rate. 

1. Proposed 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 

excluded hospital with capital market 

basket, 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 a LTCH’s cost reporting period 

as shown in Table 6. 


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TABLE 6 

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). 

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

For example, for cost reporting 

periods beginning on or after October 1, 

2004 and on or before September 30, 

2005 (FY 2005), the applicable LTCH 

wage index value is three-fifths of the 

applicable full LTCH PPS wage index 

value. Similarly, 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 will be 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. 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. 

In that same final rule (67 FR 56018), 

we stated that we would continue to 

reevaluate LTCH data as they become 

available and would propose to adjust 

the phase-in if subsequent data support 

a change. As we discussed in the RY 

2006 LTCH PPS final rule (70 FR 

24181), because the LTCH PPS was only 

recently implemented (slightly over 2 

years) and because of the time lag in 

availability of cost report data, sufficient 

new data have not been generated that 

would enable us to conduct a 

comprehensive reevaluation of the 

appropriateness of adjusting the phasein. However, for this proposed rule, we 

have reviewed the most recent data (FY 

2002–FY 2004) available and did not 

find any evidence to support a change 

in the 5-year phase-in of the wage index. 

Specifically, our statistical analysis still 

does not show a significant relationship 

between LTCHs’ costs and their 

geographic location. Therefore, in this 

proposed rule, we are not proposing a 

change in the phase-in of the adjustment 

for area wage levels under § 412.525(c). 

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 as 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. Proposed 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. In the June 6, 2003 final rule 

(68 FR 34142), in conjunction with our 

revision and rebasing of the excluded 

hospital with capital market basket from 

a FY 1992 to a FY 1997 base year, we 

discussed revising the labor-related 

share based on the relative importance 

of the labor-related share of operating 

and capital costs of the excluded 

hospital with capital market basket 

based on FY 1997 data. However, in the 

June 6, 2003 final rule (68 FR 34142), 

while we adopted the revised and 

rebased FY 1997-based LTCH PPS 

market basket as the LTCH PPS update 

factor for the 2004 LTCH PPS rate year, 

we decided not to update the laborrelated share under the LTCH PPS 

pending further analysis of the current 

labor share methodology. 

In LTCH PPS final rules subsequent to 

the FY 2003 LTCH PPS final rule in 

which we established the current laborrelated share (68 FR 34142, 69 FR 25685 

through 25686 and 70 FR 24182), we 

explained that the primary reason that 

we did not update the LTCH PPS laborrelated share for the 2004, 2005 and 

2006 LTCH PPS rate years was because 

of data and methodological concerns, 

which was the same reason for not 

updating the labor-related share under 

the IPPS for FY 2004 (68 FR 45467 

through 45468) and FY 2005 (69 FR 

49069), which are equally applicable to 

the LTCH PPS. We indicated that we 

would conduct further analysis to 

determine the most appropriate 

methodology and data for determining 

the labor-related share. We also stated 

that we would propose to update the 

IPPS and excluded hospital laborrelated shares, if necessary, once our 

research is complete. 

In the FY 2006 IPPS final rule, the 

labor-related share under the IPPS that 

is ‘‘estimated by the Secretary from time 

to time’’ as specified in section 

1886(d)(3)(E) of the Act was revised and 

rebased based on the FY 2002-based 

IPPS hospital market basket for 

discharges occurring on or after October 

1, 2005 using our established 

methodology of defining the laborrelated share as the national average 

proportion of operating costs that are 

attributable to wages and salaries, fringe 

benefits, professional fees, contract 

labor, and labor intensive services. 

Therefore, the IPPS labor-related share 

‘‘estimated by the Secretary from time to 

time’’ was calculated by adding the 

relative weights for these operating cost 

categories. In that same final rule we 

stated that we continue to believe, as we 

stated in the past, that these operating 

cost categories likely are related to, are 

influenced by, or vary with the local 

markets (70 FR 47392 through 47393). 

(We note that section 403 of the MMA 


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amended sections 1886(d)(3)(E) and 

1886(d)(9)(C)(iv) of the Act to provide 

that the Secretary must employ 62 

percent as the labor-related share under 

the IPPS unless this employment 

‘‘would result in lower payments than 

would otherwise be made.’’) In that 

same final rule, we also revised and 

rebased the excluded hospital market 

basket, which is used to update the 

reasonable cost-based portion of LTCHs’

blended transition payments (70 FR 

47399 through 47403). 

As we stated previously, 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. In this proposed rule, we are 

proposing to update the LTCH PPS 

labor-related share based on the 

proposed RPL market basket as 

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

preamble. We are proposing to adopt the 

RPL market basket under the LTCH PPS 

because we believe that this market 

basket is developed based on the best 

available data that reflect the cost 

structures of LTCHs. Specifically, we 

are proposing to revise the LTCH PPS 

labor-related share from 72.885 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 75.923 percent 

based on the relative importance of the 

labor-related share of operating costs 

(wages and salaries, employee benefits, 

professional fees, and all other laborintensive services) and capital costs of 

the proposed RPL market basket based 

on FY 2002 data, as discussed in greater 

detail below. 

Consistent with our historical 

practice, the labor-related share is 

determined by identifying the national 

average proportion of operating costs 

that are related to, influenced by, or 

varies with the local labor market. Using 

our current definition of labor-related, 

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 are 

proposing to use the proposed FY 2002- 

based RPL market basket costs to 

determine the proposed labor-related 

share for the LTCH PPS effective for 

discharges occurring on or after July 1, 

2006 as it is based on the most recent 

available data. The proposed laborrelated share for the 2007 LTCH PPS 

rate year would be the sum of the 

relative importance of each labor-related 

cost category, and would reflect the 

different rates of price change for these 

cost categories between the base year 

(FY 2002) and the 2007 LTCH PPS rate 

year. Based on the most recent available 

data, the sum of the proposed relative 

importance for 2007 LTCH PPS rate year 

for operating costs (wages and salaries, 

employee benefits, professional fees, 

and labor-intensive services) would be 

71.845, as shown in Table 7. The 

portion of capital that is influenced by 

the local labor market is estimated to be 

46 percent, which is the same 

percentage used in the 1997-based 

excluded hospital with capital market 

basket currently used under the LTCH 

PPS. Since the relative importance for 

capital would be 8.866 percent of the 

proposed FY 2002-based RPL market 

basket for the 2007 LTCH PPS rate year 

based on the latest available data, we are 

proposing to multiply the estimated 

portion of capital influenced by the 

local labor market (46 percent) by the 

relative importance for capital of the 

proposed FY 2002-based RPL market 

basket (8.866 percent) to determine the 

proposed labor-related share of capital 

for the 2007 LTCH PPS rate year. The 

result would be 4.078 percent (0.46 × 

8.866 percent), which we propose to 

add to 71.845 percent for the operating 

cost amount to determine the total 

proposed labor-related share for the 

2007 LTCH PPS rate year. Thus, based 

on the latest available data, we are 

proposing to use a labor-related share of 

75.923 percent under the LTCH PPS for 

the 2007 LTCH PPS rate year. This 

proposed labor-related share is 

determined using the same methodology 

as employed in calculating the current 

LTCH labor-related share (67 FR 56016). 

If more recent data become available 

before the publication of the final rule 

and if we revise the LTCH PPS laborrelated share based on the proposed FY 

2002-based RPL market basket, we 

propose that we would use that data to 

determine the labor-related share for the 

2007 LTCH PPS rate year in the final 

rule. 

Table 7 shows the proposed 2007 

LTCH PPS rate year relative importance 

labor-related share using the proposed 

2002-based RPL market basket and the 

current relative importance labor-related 

share using the FY 1997-based excluded 

hospital with capital market basket. 

TABLE 7.—TOTAL LABOR-RELATED SHARE-RELATIVE IMPORTANCE FOR THE 2007 FOR THE PROPOSED RPL MARKET

BASKET AND THE EXCLUDED HOSPITAL WITH CAPITAL MARKET BASKET

Cost category 

Proposed FY 2002- 

based RPL market basket relative importance 

(percent) for the 2007 

LTCH PPS rate year 

FY 1997-based excluded hospital with capital market basket relative importance (percent currently used 

under the LTCH PPS) 

Wages and salaries ................................................................................................................. 52.761 50.381 

Employee benefits ................................................................................................................... 14.008 11.525 

Professional fees ..................................................................................................................... 2.903 2.059 

Postal Services* ....................................................................................................................... ........................................ 0.244 

All other labor-intensive services** .......................................................................................... 2.173 5.219 

Subtotal .................................................................................................................................... 71.845 69.428 

Labor-related share of capital costs ........................................................................................ 4.078 3.457 

Total .................................................................................................................................. 75.923 72.885 

* No longer considered labor related. 

** 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. 


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d. Proposed Wage Index Data 

In the RY 2006 LTCH PPS final rule 

(70 FR 24190 through 24191), we 

established LTCH PPS wage index 

values for the 2006 LTCH PPS rate year 

calculated from the same data 

(generated in cost reporting periods 

beginning during FY 2000) used to 

compute the FY 2005 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, 2005 

through June 30, 2006 are shown in 

Table 1 (for urban areas) and Table 2 

(for rural areas) in the Addendum to the 

RY 2006 LTCH PPS final rule. 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 in order 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 this proposed 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, we are proposing that, for 

the 2007 LTCH PPS rate year, 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 would 

be used to determine the applicable 

wage index values under the LTCH PPS 

because these data (FY 2002) are the 

most recent complete data. We are 

proposing to continue to use IPPS wage 

data as a proxy to determine the 

proposed LTCH wage index values for 

the 2007 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 wagerelated costs. These data are the same 

FY 2002 acute care hospital inpatient 

wage data that were used to compute 

the FY 2006 wage indices currently 

used under the IPPS, SNF PPS and HHA 

PPS. 

The proposed LTCH wage index 

values that would be 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 

this proposed rule. 

As discussed above 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, for cost reporting periods 

beginning on or after October 1, 2004 

and before October 1, 2005 (FY 2005), 

the labor portion of the standard Federal 

rate is adjusted by three-fifths of the 

applicable LTCH wage index value. For 

cost reporting periods beginning on or 

after October 1, 2005 and before October 

1, 2006 (FY 2006), the labor portion of 

the standard Federal rate is adjusted by 

four-fifths of the applicable LTCH wage 

index value. Specifically, for a LTCH’s 

cost reporting period beginning during 

FY 2006, for discharges occurring on or 

after July 1, 2006 through June 30, 2007, 

the applicable wage index value would 

be four-fifths of the full 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 (shown 

in Tables 1 and 2 in the Addendum to 

this proposed rule). 

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 2007 

LTCH PPS rate year, for a LTCH with a 

January 1st FY, the four-fifths wage 

index will be applicable for the first 6 

months of the 2007 LTCH PPS rate year 

(July 1, 2006 through December 31, 

2006) and the full (five-fifths) wage 

index will be applicable for the second 

6 months of the 2007 LTCH PPS rate 

year (January 1, 2007 through June 30, 

2007). We also note that some providers 

will still be in the third year of the 5- 

year phase-in of the LTCH wage index 

(that is, those LTCHs who entered the 5- 

year phase-in during their cost reporting 

periods that began between July 1, 2003 

and September 30, 2003). For the 

remainder of those LTCHs’ FY 2005 cost 

reporting periods that will coincide 

with the first 3 months of RY 2007, the 

applicable wage index value would be 

three-fifths of the full 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 (as 

shown in Tables 1 and 2 in the 

Addendum to this proposed rule). Since 

there are no longer any LTCHs in their 

cost reporting period that began during 

FYs 2003 and 2004 (the first and second 

years of the 5-year wage index phasein), we are no longer showing the 1⁄5th 

and 2⁄5ths wage index values in Tables 

1 and 2 in the Addendum to this 

proposed rule. 

2. Proposed Adjustment for Cost-ofLiving in Alaska and Hawaii 

In the August 30, 2002 final rule (67 

FR 56022), we established, under 

§ 412.525(b), a cost-of-living adjustment 

(COLA) for LTCHs located in Alaska 

and Hawaii to account for the higher 

costs incurred in those States. In the RY 

2006 LTCH PPS final rule (70 FR 

24191), for the 2006 LTCH PPS rate 

year, we established that we make 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 I. of 

that same final rule. 

Similarly, in this proposed rule, 

under 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 2007 LTCH PPS rate year we are 

proposing to make a COLA to payments 

to LTCHs located in Alaska and Hawaii 

by multiplying the proposed standard 

Federal payment rate by the proposed 

factors listed in Table 8 because these 

are currently the most recent available 

data. These proposed factors are 

obtained from the U.S. Office of 

Personnel Management (OPM) and are 

currently used under the IPPS. In 

addition, we propose that if OPM 

releases revised COLA factors before 

March 1, 2006, we would use them for 

the development of the payments for the 

2007 LTCH rate year and publish them 

in the LTCH PPS final rule. 

TABLE 8.—PROPOSED COST-OF-LIVING

ADJUSTMENT FACTORS FOR ALASKA

AND HAWAII HOSPITALS FOR THE

2007 LTCH PPS RATE YEAR

Alaska: 

All areas ...................................... 1.25 

Hawaii: 

Honolulu County ......................... 1.25 

Hawaii County ............................. 1.165 

Kauai County .............................. 1.2325 


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4674 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 8.—PROPOSED COST-OF-LIVING

ADJUSTMENT FACTORS FOR ALASKA

AND HAWAII HOSPITALS FOR THE

2007 LTCH PPS RATE YEAR—

Continued 

Maui County ................................ 1.2375 

Kalawao County .......................... 1.2375 

3. Proposed Adjustment for High-Cost 

Outliers 

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 caused by 

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 high cost outlier policy, the 

LTCH’s loss is limited to the fixed-loss 

amount and a fixed percentage of costs 

above 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 high cost outlier 

final rule (68 FR 34506 through 34516), 

because the LTCH PPS high-cost outlier 

policy (§ 412.525) is modeled after the 

IPPS outlier policy, we believed that it 

and the short-stay outlier (SSO) policy 

(§ 412.529) are susceptible to the same 

payment vulnerabilities that became 

evident under the IPPS and therefore, 

merited revision. Thus, we revised the 

high-cost outlier policy at § 412.525(a) 

and short-stay 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) divided 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 June 9, 2003 IPPS 

high cost outlier 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 high cost 

outlier final rule, as we discussed in 

previous LTCH PPS final rules ((RY 

2004, 68 FR 34144 through 34146); (RY 

2005, 69 FR 25687 through 25690); and 

(RY 2006, 70 FR 24192 through 24194)), 

under our current policy 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 combined IPPS operating 

and capital CCR ceiling). As we 

explained in that same final rule (68 FR 

34507), 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 combined IPPS Statewide 

average CCR is assigned to the LTCH 

instead of the CCR computed from its 

most recent (settled or tentatively 

settled) cost report data. 

As we explained in the RY 2006 

LTCH PPS final rule (70 FR 24192), we 

believe it is appropriate to use the 

combined IPPS operating and capital 

CCR ceiling and the applicable 

combined IPPS Statewide average CCRs 

in determining LTCHs’ 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 

(see § 412.23(e)). Furthermore, as also 

explained in that same final rule, 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. 

As noted previously in this proposed 

rule, under the LTCH PPS, there is a 

single prospective payment per 

discharge 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 Medicare operating and capital 

costs and charges. However, under the 

IPPS, Medicare per discharge payments 

to acute-care hospitals for the costs of 

inpatient operating services are made 

under the ‘‘Operating IPPS’’ and per 

discharge payments to acute-care 

hospitals for inpatient capital-related 


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costs are made under the ‘‘Capital 

IPPS.’’ Because separate payments are 

made to acute-care hospitals under the 

IPPS for operating and capital costs, 

separate operating and capital CCRs are 

calculated and used in determining 

IPPS high cost outlier payments. 

Accordingly, under the IPPS a separate 

‘‘operating’’ CCR ceiling and a ‘‘capital’’

CCR ceiling are determined annually. 

As we explained previously in this 

proposed rule and as stated in annual 

instructions (see Transmittal A–02–093 

(Change Request 2288; September 27, 

2002); Transmittal A–03–073 (Change 

Request 2891; August 22, 2003); 

Transmittal 309 (Change Request 3459; 

October 1, 2004); and Transmittal 692 

(Change Request 4046; September 30, 

2005)), under our current policy, 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 is assigned to the LTCH. 

Because, LTCHs have a single ‘‘total’’

CCR (rather than separate operating and 

capital CCRs), under the broad authority 

of section 123 of the BBRA and section 

307(b)(1) of BIPA, we are proposing to 

revise § 412.525(a)(4) to specify that, for 

discharges occurring on or after October 

1, 2006, if, among other things, a 

LTCH’s CCR is in excess of the LTCH 

CCR ceiling (which would be calculated 

as 3 standard deviations above the 

corresponding national geometric mean 

CCR), established and published 

annually by CMS), the FI may use a 

Statewide average CCR (also established 

annually by CMS). 

This proposed change is similar to our 

existing policy (established in the June 

9, 2003 IPPS high cost outlier final rule 

as previously discussed in this proposed 

rule). Under proposed revised 

§ 412.525(a)(4)(iv)(C)(2), for discharges 

occurring on or after October 1, 2006, 

we are proposing that we would 

determine the single ‘‘total’’ CCR 

ceiling, based on IPPS CCR data, by first 

calculating the total (that is, operating 

and capital) CCR for each hospital and 

then determining the average total CCR 

for all hospitals. The ceiling would then 

be established at 3 standard deviations 

from the mean total CCR rather than 

determining the LTCH total CCR ceiling 

by adding the separate IPPS operating 

CCR and capital CCR ceilings as we do 

under our current policy. Specifically, 

under this proposed policy we would 

use the same IPPS CCR data that we 

currently use to annually determine the 

separate IPPS operating CCR and capital 

CCR ceilings (that we add together 

under our current policy to determine 

the annual CCR ceiling for LTCHs) to 

compute IPPS hospital-specific total 

CCRs that would be used to determine 

the single LTCH total CCR ceiling. We 

believe that determining a LTCH CCR 

ceiling based on IPPS total (operating 

and capital) Medicare costs and charges 

rather than adding the separate IPPS 

CCR ceilings determined from operating 

CCRs and capital CCRs, respectively, 

would be more consistent with the 

LTCH PPS single payment, which does 

not differentiate payments between 

operating and capital costs. 

As explained previously in this 

proposed rule, there is a single LTCH 

PPS Federal rate rather than a separate 

operating standardized amount and a 

capital Federal rate, as there is under 

the IPPS. (We note, as discussed in 

greater detail below in this section, in 

conjunction with this proposed change 

in the calculation of the LTCH CCR 

ceiling, we are also proposing a change 

in our methodology for calculating the 

applicable Statewide average CCRs 

under the LTCH PPS to be based on 

hospital-specific ‘‘total’’ CCRs.) Our 

rationale for proposing to continue to 

use IPPS data to determine the LTCH 

CCR ceiling annually continues to be 

the same as the one stated above. We 

note that we are proposing that the 

proposed refinement to our 

methodology for determining the annual 

CCR ceiling under the LTCH PPS at 

proposed revised 

§ 412.525(a)(4)(iv)(C)(2) would be 

effective for discharges occurring on or 

after October 1, 2006 rather than July 1, 

2006 because, we are proposing to 

continue to use the same IPPS data used 

to determine the individual IPPS 

operating and capital CCR ceilings 

established and published annually in 

the IPPS proposed and final rules. Since 

both the separate IPPS operating and 

capital CCRs ceilings and the LTCH 

‘‘total’’ CCR ceiling would be 

determined using the same data, we 

believe it would be administratively 

expedient to continue to establish the 

LTCH CCR ceiling to be effective for 

discharges occurring on or after October 

1 of each year. (As stated previously, 

this is consistent with our current 

policy, where the LTCH CCR ceiling is 

updated annually on October 1.) 

Therefore, under this proposal, the 

public should continue to consult the 

annual IPPS proposed and final rules for 

changes to the LTCH CCR ceiling that 

would be effective for discharges 

occurring on or after October 1, 2006 

(since, under this proposal, the current 

LTCH CCR ceiling, established for 

discharges occurring on or after October 

1, 2005 in the FY 2006 IPPS final rule, 

would remain in effect for discharges 

occurring on or before September 30, 

2006). 

Also in the June 9, 2003 IPPS high 

cost outlier final rule, we established 

our existing policy that, for discharges 

occurring on or after August 8, 2003, 

that in addition to assigning the 

applicable Statewide average CCR to a 

LTCH whose CCR is above the ceiling, 

the FI may use the applicable Statewide 

average CCR for LTCHs for whom data 

with which to calculate a CCR is not 

available (for example, missing or faulty 

data) or new LTCHs that have not yet 

submitted their first Medicare cost 

report (for this purpose, a new LTCH is 

defined as an entity that has not 

accepted assignment of an existing 

hospital’s provider agreement in 

accordance with § 489.18 of this 

chapter). (We note that consistent with 

our current policy, either CMS or the 

hospital may request the use of a 

different (higher or lower) CCR based on 

substantial evidence that such a CCR 

more accurately reflects the hospital’s 

actual costs and charges. This applies to 

new (as defined above) as well. For 

instance, CMS may determine that the 

applicable Statewide average CCR 

should not be applied to hospitals that 

convert from acute-care IPPS hospitals 

to LTCHs (and receive a new LTCH 

provider number). Rather, the cost and 

charge data from the IPPS hospital’s cost 

report (even if it is more or less than a 

12-month cost reporting period) would 

be used to determine the LTCH’s CCR.) 

Thus, in addition to proposing to 

revise our methodology for determining 

the annual CCR ceiling 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 are 

also proposing to revise § 412.525(a)(4), 

for discharges occurring on or after 

October 1, 2006, to codify in subpart O 

of part 42 of the CFR the remaining 

LTCH PPS high cost policy changes that 

were established in the June 9, 2003 

IPPS high cost outlier final rule (68 FR 

34506 through 34513), including 

proposed modifications and editorial 

clarifications to those existing policies 

established in that final rule, which are 

discussed in greater detail below in this 

section. We are proposing these 

additional revisions to § 412.525(a)(4), 

as discussed in greater detail below in 

this section, because we believe that a 

position such as this would more 

precisely describe the application of 

those policies as they relate to the 

determination of LTCH CCRs because 

these proposed changes would be 

consistent with the proposed changes to 

the calculation of the LTCH CCR ceiling 


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4676 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

discussed above in this section. 

Specifically, similar to our current 

policy, we are proposing in 

§ 412.525(a)(4)(iv)(C) to specify that the 

FI may use a Statewide average CCR, 

which would be 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 

of this chapter); (2) LTCHs whose CCR 

is in excess of the LTCH CCR ceiling 

(that is, 3 standard deviations above the 

corresponding national geometric mean 

total CCR, as discussed in greater 

previously in this proposed rule); and 

(3) other LTCHs for whom data with 

which to calculate a CCR is not 

available (for example, missing or faulty 

data). Also similar to our current 

practice, under proposed 

§ 412.525(a)(4)(iv)(C), for discharges 

occurring on or after October 1, 2006, 

we are proposing that we would 

annually establish Statewide average 

‘‘total’’ CCRs (as explained below in this 

section) for use under the LTCH PPS 

based on IPPS data rather than assigning 

the combined (operating and capital) 

Statewide average CCRs (see Transmittal 

692 (Change Request 4046; September 

30, 2005)). Specifically, under this 

proposed policy, we would use the 

same IPPS CCR data that we currently 

use to annually establish the separate 

IPPS operating and capital Statewide 

CCRs (that we add together under our 

current policy to determine the 

applicable ‘‘combined’’ Statewide 

average CCR for LTCHs) to compute 

Statewide average total CCRs by first 

calculating the total (that is, operating 

and capital) CCR for each hospital and 

then determining the average total CCR 

for all hospitals in each State rather than 

adding together the separate applicable 

IPPS operating and capital Statewide 

average CCRs as we do under our 

current policy. We are also proposing 

that these Statewide average ‘‘total’’

(operating and capital) CCRs that would 

be used under the LTCH PPS would 

continue to be published annually in 

the IPPS proposed and final rules, and 

therefore, 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, 2006 (since, under 

this proposal, the current applicable 

Statewide average operating and capital 

CCRs, established for discharges 

occurring on or after October 1, 2005, 

would remain in effect for discharges 

occurring on or before September 30, 

2006). Our rationale for proposing to 

establish Statewide average ‘‘total’’

CCRs (as described above in this 

section) based on IPPS data under 

proposed § 412.525(a)(4)(iv)(C) is the 

same as the one stated above for 

proposing to use IPPS data to determine 

a ‘‘total’’ LTCH CCR ceiling. 

Similar to our current policy, we are 

also proposing to specify under 

proposed § 412.525(a)(4)(iv)(B), that for 

discharges occurring on or after October 

1, 2006, the CCR applied at the time a 

claim is processed would be based on 

either the most recent settled cost report 

or the most recent tentative settled cost 

report, whichever is from the latest cost 

reporting period. Furthermore, we are 

proposing under proposed 

§ 412.525(a)(4)(iv)(A) to state that CMS 

may specify an alternative to the CCR 

computed under proposed 

§ 412.525(a)(4)(iv)(B), that is the CCR 

computed from the most recent settled 

cost report or the most recent tentative 

settled cost report, whichever is later, or 

a hospital may also request that its FI 

use a different (higher or lower) CCR 

based on substantial evidence presented 

by the hospital. These proposed 

revisions to our policy for determining 

a LTCH’s CCR for discharges occurring 

on or after October 1, 2006 under 

proposed revised § 412.525(a)(4)(iv)(A) 

and (B) are similar to our existing policy 

established in the June 9, 2003 IPPS 

high cost outlier final rule (68 FR 34506 

through 34513). 

In conjunction with the proposed 

revisions to § 412.525(a)(4) concerning 

the determination of LTCHs’ CCRs 

discussed above in this section, we are 

also proposing to revise § 412.525(a)(4) 

to codify in subpart O of part 42 of the 

CFR the existing outlier reconciliation 

provisions, including the proposed 

editorial clarifications to those existing 

policies, which are discussed in greater 

detail below in section IV.D.3.d. of this 

preamble. Furthermore, because CCRs 

are also used in determining payments 

under the existing SSO policy 

(§ 412.529), as discussed in greater 

detail in section VI.A.1. of this 

preamble, we are also proposing to 

revise § 412.529(c), for discharges 

occurring on or after October 1, 2006, to 

make the same changes to the SSO 

policy. In addition, we are also 

proposing a technical correction to 

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

plural reference from cost-to-charge 

‘‘ratios’’ to the singular reference costto-charge ‘‘ratio’’ because under the 

LTCH PPS a single (total) CCR is 

computed for LTCHs. 

c. Establishment of the Proposed FixedLoss Amount 

When we implemented the LTCH 

PPS, as discussed in the August 30, 

2002 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 2006 LTCH PPS final rule 

(70 FR 24194), in calculating the fixedloss amount that would result in outlier 

payments projected to be equal to 8 

percent of total estimated payments for 

the 2006 LTCH PPS rate year, we used 

claims data from the December 2004 

update of the FY 2004 MedPAR files 

and CCRs from the December 2004 

update of the PSF, as that was the best 

available data at that time. As we 

discussed in that same final rule (70 FR 

24193 through 24194), we believe that 

CCRs from the PSF were the best 

available CCR data for determining 

LTCHs’ LTCH PPS payments during the 

2006 LTCH PPS rate year because they 

were the most recently available CCRs 

(at that time) actually used to make 

LTCH PPS payments. 

As we also discussed in the RY 2006 

LTCH PPS rate year final rule (70 FR 

24192 through 24193), we calculated a 

single fixed-loss amount for the 2006 

LTCH PPS rate year based on the 

version 22.0 of the GROUPER, which 

was the version in effect as of the 

beginning of the LTCH PPS rate year 

(that is, July 1, 2005 for the 2006 LTCH 

PPS rate year). In addition, we applied 

the current outlier policy under 

§ 412.525(a) in determining the fixedloss amount for the 2006 LTCH PPS rate 


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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 2005 IPPS 

combined operating and capital CCR 

ceiling of 1.409 (70 FR 24192). (Our 

rationale for using the FY 2005 

combined IPPS operating and capital 

CCR ceiling for LTCHs stated in section 

IV.D.3.b. of this preamble.) As noted in 

that same final rule, in determining the 

fixed-loss amount for the 2006 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 determining the fixed-loss 

amount for the 2006 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 2006 LTCH PPS rate 

year final rule (70 FR 24194), we 

established a fixed-loss amount of 

$10,501 for the 2006 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 $10,501). 

In this proposed rule, for the 2007 

LTCH PPS rate year, we used the June 

2005 update of the FY 2004 MedPAR 

claims data to determine a proposed 

fixed-loss amount that would result in 

outlier payments projected to be equal 

to 8 percent of total estimated payments, 

based on the policies described in this 

proposed rule, because these data are 

the most recent complete LTCH data 

available. Furthermore, as noted 

previously, 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 2007 LTCH 

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

Version 23.0 of the GROUPER (70 FR 

47324). 

We also used CCRs from the June 

2005 update of the Provider Specific 

File for determining the proposed fixedloss amount for the 2007 LTCH PPS rate 

year as they are currently the most 

recent complete available data. If more 

recent CCR data are available, we 

propose to use it for determining the 

fixed-loss amount for the 2007 LTCH 

PPS rate year in the final rule. As we 

discussed previously in this proposed 

rule, we are proposing a change to our 

methodology for our annual 

determination of the applicable LTCH 

CCR ceiling and applicable Statewide 

average CCRs that would be assigned in 

determining a LTCH’s CCR effective for 

discharges occurring on or after October 

1, 2006. As noted above in this section, 

under this proposal, the current LTCH 

CCR ceiling and applicable Statewide 

average CCRs, established for discharges 

occurring on or after October 1, 2005, 

would remain in effect for discharges 

occurring on or before September 30, 

2006. In determining the proposed 

fixed-loss amount for the 2007 LTCH 

PPS rate year, we are proposing to use 

the current FY 2006 applicable IPPS 

combined operating and capital CCR 

ceiling of 1.423 and Statewide average 

CCRs (as discussed in the FY 2006 IPPS 

final rule (70 FR 47496) and established 

in Transmittal 692 (September 30, 

2005)) such that the current applicable 

Statewide average CCR would be 

assigned if, among other things, a 

LTCH’s CCR exceeded the current 

ceiling (1.423). Our reason for proposing 

to use the existing LTCH CCR ceiling 

and Statewide average CCRs to 

determine the proposed RY 2007 fixedloss amount even though we are 

proposing to change our methodology 

for determining the CCR ceiling and 

Statewide average CCRs effective for 

discharges occurring on or after October 

1, 2006, is because, based on our 

analysis of the data used to determine 

the FY 2006 LTCH CCR ceiling, we 

believe that this methodology change 

would result in a minor change in the 

numerical value of the LTCH CCR 

ceiling, and therefore, would have a 

negligible effect on the LTCHs’ CCRs 

used to determine the proposed fixedloss amount for the 2007 LTCH PPS rate 

year. Moreover, we note that in 

determining the proposed fixed-loss 

amount for the 2007 LTCH PPS rate year 

using the CCRs from the PSF, there was 

no need for us to independently assign 

the applicable Statewide average CCR to 

any LTCHs in determining the proposed 

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 our established policy). 

(Currently, the applicable FY 2006 IPPS 

Statewide averages can be found in 

Tables 8A and 8B of the FY 2006 IPPS 

final rule (70 FR 47672).) 

Accordingly, based on the data and 

policies described in this proposed rule, 

we are proposing a fixed-loss amount of 

$18,489 for the 2007 LTCH PPS rate 

year. Thus, we would 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 

$18,489). We note that the proposed 

fixed-loss amount for the 2007 LTCH 

PPS rate year is significantly higher than 

the current fixed-loss amount of 

$10,501. This proposed change in the 

fixed-loss amount would primarily be 

due to the projected decrease in LTCH 

PPS payments resulting from the 

proposed change in the SSO policy 

under § 412.529 (discussed in greater 

detail in section V.A.1. of this preamble) 

and the changes to the LTC–DRG 

relative weights for FY 2006 (as 

discussed in the FY 2006 IPPS final rule 

(70 FR 47355)). Because we are 

projecting approximately an 11 percent 

decrease in aggregate LTCH PPS 

payments in the 2007 LTCH PPS rate 

year (as discussed in section XIII. of this 

proposed rule), we believe that an 

increase in the proposed fixed-loss 

amount is appropriate and necessary to 

maintain the requirement that estimated 

outlier payments would equal 8 percent 

of estimated total LTCH PPS payments, 

as required under § 412.525(a). 

Maintaining the fixed-loss amount at the 

current level would result in high cost 

outlier payments that significantly 

exceed the current regulatory 

requirement that estimated outlier 

payments would be projected to equal 8 

percent of estimated total LTCH PPS 

payments. We note that in the August 

30, 2002 final rule (67 FR 56022 through 

56024), based on our regression 

analysis, 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.’’ In that 

same final rule (67 FR 56023), we also 

explained that our regression analysis 

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. Since 

outlier payments are included in budget 

neutrality calculations, outlier payments 

would be funded by prospectively 

reducing the non-outlier PPS payment 

rates by the proportion of projected 

outlier payments to projected total PPS 

payments in the absence of outlier 

payments; the higher the outlier target, 

the greater the (prospective) reduction 

to the base payment rate in order to 

maintain budget neutrality. As another 

alternative to the proposed reduction to 

the fixed-loss amount for RY 2007, we 

are soliciting comments on whether we 

should revisit the regression analysis 

discussed above in this section that was 

used to establish the existing 8 percent 


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outlier target, using the most recent 

available data to evaluate whether the 

current outlier target of 8 percent should 

be adjusted, and therefore may result in 

less of an increase in the fixed-loss 

amount for RY 2007. After revisiting 

this issue and an analysis of the most 

recent complete available data, due to 

the lag time in the availability of data, 

we now believe the most appropriate 

time to revisit a budget neutral policy 

change in the outlier policy (among 

other things), which would affect future 

LTCH PPS payment rates, would be 

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. 

As an alternative to proposing to raise 

the fixed-loss amount for FY 2007, we 

also examined 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)), as a means 

of ensuring that estimated outlier 

payments would be projected to equal 8 

percent of estimated total LTCH PPS 

payments. As we established in the 

August 30, 2002 final rule (67 FR 56022 

through 56026), under the LTCH PPS 

high-cost outlier policy at 

§ 412.525(a)(3), the marginal cost factor 

is currently equal to 80 percent. A 

marginal cost factor equal to 80 percent 

means that for an outlier case we pay 

the LTCH 80 percent of the difference 

between the estimated cost of the case 

and the outlier threshold (the sum of the 

adjusted Federal rate for the LTC–DRG 

PPS payment and the fixed-loss 

amount). 

In addition, as we discussed in the 

August 30, 2002 final rule (67 FR 56023) 

that implemented the LTCH PPS, the 

marginal cost factor is designed to 

ensure ‘‘a balance between the need to 

protect LTCHs financially, while 

encouraging them to treat expensive 

patients and maintaining the incentives 

of a prospective payment system to 

improve the efficient delivery of care.’’

Decreasing the marginal cost factor from 

the established 80 percent, while 

maintaining the current fixed-loss 

amount ($10,501), would decrease total 

estimated outlier payments because we 

would pay a smaller percentage of the 

estimated costs that exceed the outlier 

threshold (the sum of the adjusted 

Federal rate for the LTC–DRG and the 

fixed-loss amount). For example, if we 

were to decrease the marginal cost factor 

to 65 percent without raising the fixedloss amount, we would pay outlier cases 

15 percent less (80 percent minus 65 

percent) of the estimated costs that 

exceed the outlier threshold (the sum of 

the adjusted Federal rate for the LTC–

DRG and the fixed-loss amount). 

While this alternative could ensure 

that outlier payments are projected to 

equal 8 percent of estimated total LTCH 

PPS payments by reducing estimated 

aggregate outlier payments, it may not 

maintain the existing balance between 

providing an incentive for LTCHs to 

treat expensive patients and improving 

the efficient delivery of care because a 

policy such as this would reduce the 

financial protection currently afforded 

to LTCHs under the current high cost 

outlier policy (with an 80 percent 

marginal cost factor), which could result 

in LTCHs’ inability to treat seriously ill 

and costly patients. This is because we 

believe it may be more financially 

difficult for LTCHs to absorb a greater 

share of the costs of a true high cost 

outlier case (that is, a case with an 

unusually high cost) than it would be to 

have a higher fixed-loss amount. 

Keeping the marginal cost factor at 80 

percent while proposing to raise the 

fixed-loss amount would afford more 

financial protection to LTCHs than 

proposing to lower the fixed-loss 

amount and retain the current fixed loss 

amount. Because a relatively higher 

fixed-loss amount identifies fewer cases 

as high cost outlier cases (since the 

amount that the estimated cost of the 

case must exceed before the case 

qualifies as a high cost outlier case is 

higher), such a proposed policy better 

identifies LTCH patients that are truly 

unusually costly cases, which is 

consistent with our intent of the LTCH 

high cost outlier policy as stated when 

we implemented the LTCH PPS in the 

August 30, 2002 final rule (67 FR 

56025). As we discussed in that same 

final rule (67 FR 56023 through 56024), 

our analysis of payment-to-cost ratios 

for outlier 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. 

Although proposing to raise the fixedloss amount from $10,501 to $18,489 

(based on the policies presented in this 

proposed rule) 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, as we explained 

previously in this proposed rule, we 

believe the 80 percent marginal cost 

factor continues to adequately maintain 

the LTCHs’ share of the financial risk in 

treating the most costly patients and 

ensure the efficient delivery of services. 

As we discussed in the August 30, 2002 

final rule when we established the high 

cost outlier policy, our analysis showed 

that a marginal cost factor of 80 percent 

appropriately addresses outlier cases 

that are significantly more expensive 

than nonoutlier cases. Accordingly, we 

are not proposing to adjust the marginal 

cost factor under the LTCH PPS highcost outlier policy; however, we are 

soliciting comments on whether we 

should revisit the regression analysis 

that was used to establish the existing 

80 percent marginal cost factor, using 

the most recent available data to 

evaluate whether the current marginal 

cost factor of 8 percent in the current 

high cost outlier policy should be 

adjusted, and therefore may result in 

less of an increase in the fixed-loss 

amount for RY 2007. 

Furthermore, we note that the 

proposed fixed-loss amount of $18,489 

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 are currently estimating positive 

Medicare margins (as discussed in 

greater detail in section IV.C.3 of this 

preamble). Therefore, we believe the 

proposed fixed-loss amount of $18,489 

would appropriately identify unusually 

costly LTCH cases while maintaining 

the integrity of the LTCH PPS. Thus, 

under the broad authority of section 

123(a)(1) of the BBRA and section 

307(b)(1) of BIPA, we are proposing to 

establish a fixed-loss amount of $18,489 

based on the best available LTCH data 

and the policies presented in this 

proposed rule because, we believe a 

proposed increase in the fixed-loss 

amount is appropriate and necessary to 

maintain estimated outlier payments 

equal to 8 percent of estimated total 

LTCH PPS payments, as required under 

§ 412.525(a). 

d. Reconciliation of Outlier Payments 

Upon Cost Report Settlement 

In the June 9, 2003 high-cost outlier 

final rule (68 FR 34508 through 34512), 

we established a 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 


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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. (We note that, 

in that same final rule (68 FR 34513), we 

also established similar changes to the 

SSO policy under the LTCH PPS at 

§ 412.529(c)(5)(ii).) These changes 

regarding the reconciliation of outlier 

payments under the LTCH PPS were 

made in conjunction with the changes 

regarding the determination of LTCHs’

CCRs that we established under 

§ 412.525(a)(4) in the June 9, 2003 IPPS 

high cost outlier final rule, as discussed 

in greater detail in section IV.D.3.b. of 

this preamble. (We note that the 

instructions for implementing these 

regulations under both the IPPS and the 

LTCH PPS are discussed in further 

detail in Program Memorandum 

Transmittal A–03–058. 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 irrespective of the 

proposed changes to the high cost 

outlier and SSO policies presented in 

this proposed rule, we are currently 

developing additional instructions on 

the administration of the existing 

reconciliation process under the LTCH 

PPS that would be similar to the IPPS 

reconciliation process.) 

As discussed in section V.C.3.b. of 

this preamble, we are proposing, for 

discharges occurring on or after October 

1, 2006, to codify into the LTCH PPS 

section of the regulations (subpart O of 

part 42 of the CFR) the provisions 

governing the determination of LTCHs’

CCRs, including proposed 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 are also 

proposing to make those same changes 

under the SSO policy at § 412.529 as 

discussed in section V.A.1. of this 

preamble). 

In this proposed rule, under the broad 

authority of section 123 of the BBRA 

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

also proposing to revise § 412.525(a)(4), 

for discharges occurring on or after 

October 1, 2006, to codify in subpart O 

of part 42 of the CFR the provisions 

discussed above concerning the 

reconciliation of LTCH PPS outlier 

payments, including proposed editorial 

clarifications discussed in greater detail 

below in this section, that would more 

precisely describe the application of 

those policies. (We note that we are also 

proposing to make the same changes 

concerning the reconciliation of outlier 

payments under (and the SSO 

provisions at § 412.529(c)), as discussed 

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

preamble.) We are proposing the 

additional revisions to § 412.525(a)(4) 

concerning the reconciliation of outlier 

payments, which are discussed in 

greater detail below in this section, 

because these proposed changes would 

be consistent with the proposed changes 

to the calculation of the LTCH CCR 

ceiling discussed above. Specifically, at 

§ 412.525(a)(4)(iv)(D), similar to our 

current policy, we are proposing to 

specify that for discharges occurring on 

or after October 1, 2006, any 

reconciliation of outlier payments 

would 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 

§ 412.525(a)(4)(iv)(E), similar to our 

current policy, we are proposing to 

specify 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. Also consistent with our 

current policy, we are proposing that 

such an adjustment would be based 

upon a widely available index to be 

established in advance by the Secretary 

and would be applied from the 

midpoint of the cost reporting period to 

the date of reconciliation. We are 

proposing to make these additional 

revisions to § 412.525(a)(4) because we 

believe that such proposed changes 

would be more consistent with the 

LTCH PPS single payment rate (as 

discussed in greater detail previously), 

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 in subpart O of part 42 

of the CFR. 

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.B.4. of this 

preamble) and also as a high-cost outlier 

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 high-cost 

outlier. Thus, for a SSO case in the 2007 

LTCH PPS rate year, the high-cost 

outlier payment would be 80 percent of 

the difference between the estimated 

cost of the case and the proposed outlier 

threshold (the sum of the proposed 

fixed-loss amount of $18,489 and the 

amount paid under the SSO policy). 

(We note that in section V.A.1. of this 

preamble, we are also proposing 

changes to the SSO policy at § 412.529, 

which are consistent with the proposed 

revisions to § 412.525(a)(4) regarding 

our policies on the determination of 

LTCH CCRs and, the reconciliation of 

outlier payments.) 

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 

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. 

Because the LTCH PPS has only been 

implemented for slightly over 3 years 

and there is a time lag in data 

availability, sufficient new data has not 

been generated that would enable us to 

conduct a comprehensive reevaluation 

of these payment adjustments. We now 

believe that after the completion of the 

5-year transition, sufficient new data 

that will be 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. Nonetheless, 

we are reviewing the limited data that 

are available and find no evidence to 

support additional proposed policy 

changes. Therefore, in this proposed 

rule, we are not proposing to make any 

adjustments for geographic 

reclassification, rural location, DSH, or 


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IME. However, 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. Specifically, as we discuss 

in greater detail in section IV.D.6. of this 

preamble, we have revisited the possible 

one-time prospective adjustment to the 

LTCH prospective payment system rates 

at § 412.523(d)(3), and after further 

analysis and evaluation we now believe 

that it is appropriate to wait for the 

conclusion of the 5-year transition to 

100 percent fully Federal payments 

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 prospective 

payment system rates provided for at 

§ 412.523(d)(3). 

5. Proposed Budget Neutrality Offset To 

Account for the Transition Methodology 

Under § 412.533, we implemented a 

5-year transition, during which a LTCH 

is paid an increasing percentage of the 

LTCH PPS Federal prospective payment 

and a decreasing percentage of its 

payments based on the reasonable costbased payment methodology 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 

provide for a 5-year transition period 

that allows LTCHs to receive payments 

based partially on the reasonable costbased methodology. In order to maintain 

budget neutrality 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, 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 2006 LTCH PPS final rule 

(70 FR 24202), 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 final 

rule (67 FR 56034), this projection, 

which used updated data and inflation 

factors, was based on our estimate that 

either: (1) A LTCH has already elected 

payment based on 100 percent of the 

Federal rate prior to the start of the 2006 

LTCH PPS rate year (July 1, 2005); or (2) 

a LTCH would receive higher payments 

based on 100 percent of the 2006 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 

will 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 2006 LTCH PPS rate year 

standard Federal rate. 

Also in the RY 2006 LTCH PPS final 

rule (70 FR 24202), based on the best 

available data at that time and policy 

revisions described in that same rule, 

we projected that the full effect of the 

remaining 2 years of the transition 

period (including the election option) 

would result in a cost to the Medicare 

program of approximately $1.675 

million. Specifically, for the RY 2006 

LTCH PPS, we estimated that the cost of 

the transition would be approximately 

$1 million. Because this amount is only 

a small percentage of total LTCH PPS 

payments for the 2006 LTCH PPS rate 

year (estimated at over $3 billion), the 

formula that we use to establish the 

budget neutrality offset to account for 

the additional costs of the transition 

period resulted in a factor of zero 

percent. Therefore, in that same final 

rule, we established a 0.0 percent 

reduction (a budget neutrality offset of 

1.000) to all LTCH payments in the 2006 

LTCH PPS rate year to account for the 

$1 million estimated cost of the 

transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal 

rate). We also indicated that we would 

use a budget neutrality offset for each of 

the remaining years of the transition 

period to account for the estimated costs 

for the respective LTCH PPS rate years. 

In that same final rule, we estimated 

that there would be a 0.0 percent budget 

neutrality offset to LTCH PPS payments 

during the remaining years of the 

transition period since, we estimated at 

that time that the additional cost to the 

Medicare program resulting from the 

transition period methodology would be 

so small that the budget neutrality factor 

determined under our established 

methodology would round to zero. 

In this proposed rule, based on the 

updated data using the same 

methodology established in the August 

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

projecting that approximately 97 

percent of LTCHs would be paid based 

on 100 percent of the proposed standard 

Federal rate rather than receive payment 

under the transition blend methodology 

during the 2007 LTCH PPS rate year. 

This projection, which used updated 

data, is based on our estimate that 

either: (1) A LTCH has already elected 

payment based on 100 percent of the 

Federal rate prior to the beginning of the 

2007 LTCH PPS rate year (July 1, 2006); 

or (2) a LTCH would receive higher 

payments based on 100 percent of the 

proposed standard Federal rate 

compared to the payments they would 

receive under the transition blend 

methodology. Similarly, we project that 

the remaining 3 percent of LTCHs 

would choose to be paid based on the 

transition blend methodology at 

§ 412.533 because those payments are 

estimated to be higher than if they were 

paid based on 100 percent of the 

proposed standard Federal rate. The 

applicable transition blend percentage is 

applicable for a LTCH’s entire cost 

reporting period beginning on or after 

October 1 (unless the LTCH elects 

payment based on 100 percent of the 

Federal rate). We note that this 

projection is slightly lower than the 

projection that 98 percent of LTCHs 

would be paid based on 100 percent of 

the proposed standard Federal rate 

rather than receive payment under the 

transition blend methodology during the 

2006 LTCH PPS rate year discussed in 

the RY 2006 LTCH PPS final rule (70 FR 

24202). The reason for this slight 

decrease is due to how our established 

methodology (described in this section) 

determines which LTCHs would be 

projected to receive payments based on 

100 percent of the Federal rate in a 

given rate year. Specifically, under our 

established methodology, if a LTCH has 

not already elected payment based on 

100 percent of the Federal rate then we 

evaluate whether a LTCH would receive 


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higher payments based on 100 percent 

of the proposed standard Federal rate or 

under the applicable transition blend 

methodology based on the most recent 

available data. Based on the best 

available data at that time, we projected 

that a few LTCHs that had not already 

elected payment based on 100 percent 

of the Federal rate would make such an 

election for RY 2006 because we 

projected that their payments based on 

100 percent of the Federal rate would 

exceed their payments under the 

applicable transition blend. Therefore, 

those LTCHs were counted in the 

number of LTCHS that would be paid 

based on 100 percent of the Federal rate 

in RY 2006. However, based on the most 

recent available data used for this 

proposed rule, those LTCHs have not 

elected to receive payments based on 

100 percent of the Federal rate and are 

being paid under the applicable 

transition blend methodology. Under 

our methodology for determining the 

percentage of LTCHs paid based on 100 

percent of the federal rate, based on the 

most recent available data, we are 

projecting that for the RY 2007 LTCH 

PPS rate year, the applicable transition 

blend methodology payments to those 

LTCHs would be greater than payment 

based 100 percent of the Federal rate, 

and therefore, those LTCHs would not 

be included in the number of LTCHS 

that we estimate would be paid based 

on 100 percent of the Federal rate in RY 

2007. Based on the policies presented in 

this proposed rule, we are projecting a 

decrease in their estimated payments 

based on 100 percent of the Federal rate 

in RY 2007 payment as compared to 

their estimated payments based on 100 

percent of the Federal rate in RY 2006 

primarily as a result of the proposed 

changes to the SSO policy (see section 

V.A.1. of this preamble) and the 

proposed increase in the outlier fixedloss amount (see section IV.D.3.c. of this 

preamble). Because we are projecting a 

decrease in payments based on 100 

percent of the Federal rate for these 

LTCHs, the estimated RY 2007 

payments based on the applicable 

transition blend methodology are now 

higher than their estimated RY 2007 

payments based on 100 percent of the 

Federal rate, we do not project that 

these LTCH would elect payment based 

on 100 percent of the Federal rate for RY 

2007. Thus, the slight decrease in the 

our projection in the number of LTCHs 

that would be paid based on 100 percent 

of the Federal rate for the 2007 LTCH 

PPS rate year is appropriate. 

Based on the best available data and 

the proposed policies described in this 

proposed rule, we are projecting that in 

absence of a transition budget neutrality 

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 cost to the Medicare 

program of approximately 2.8 million. 

(As discussed in the RY 2006 final rule 

(70 FR 24201), 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 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.) 

Accordingly, using the methodology 

established in the August 30, 2002 

LTCH PPS final rule (67 FR 56034), 

based on updated data and the policies 

and rates presented in this proposed 

rule, we are proposing a 0.1 percent 

reduction (a budget neutrality offset of 

0.999) to all LTCHs’ payments for 

discharges occurring on or after July 1, 

2006 and 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) 

of approximately $2.8 million for the 

2007 LTCH PPS rate year. We note that 

this proposed offset for the 2007 LTCH 

PPS rate year is slightly larger than the 

0.0 percent reduction (a budget 

neutrality offset of 1.000) established for 

the 2006 LTCH PPS rate year (70 FR 

24202). This is because we are now 

projecting that a few less LTCHs would 

elect payment based on 100 percent of 

the Federal rate than we were projecting 

when we determined the transition 

period budget neutrality offset for the 

2006 LTCH PPS rate year based on the 

most recent available data. 

6. One-Time Prospective Adjustment to 

the Standard Federal Rate 

As we discussed in the August 30, 

2002 final rule (67 FR 56036), consistent 

with the statutory requirement for 

budget neutrality in section 123(a)(1) of 

the BBRA, we intended that estimated 

aggregate payments under the LTCH 

PPS for FY 2003 equal the estimated 

aggregate payments that would be made 

if the LTCH PPS were not implemented. 

Our methodology for estimating 

payments for purposes of the budget 

neutrality calculations uses the best 

available data at the time and 

necessarily reflects assumptions. As the 

LTCH PPS progresses, we are 

monitoring payment data and will 

evaluate the ultimate accuracy of the 

assumptions used in the budget 

neutrality 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 budget 

neutrality 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 appropriate 

adjustments. Under this broad authority, 

as implemented in the existing 

regulations at § 412.523(d)(3), we have 

provided for the possibility of making a 

one-time prospective adjustment to the 

LTCH PPS rates by October 1, 2006, 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. 

(As discussed in greater detail below, 

we are proposing to extend the deadline 

for making this adjustment to July 1, 

2008 to this proposed rule. 

In the RY 2006 LTCH PPS final (70 FR 

24203), 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 $3.32 billion for the 

2006 LTCH PPS rate year; $3.38 billion 

for the 2007 LTCH PPS rate year; $3.48 

billion for the 2008 LTCH PPS rate year; 

$3.63 billion for the 2009 LTCH PPS 

rate year; and $3.79 billion for the 2010 

LTCH PPS rate year. 

In this proposed 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 9. 

TABLE 9 

LTCH PPS rate year 

Estimated 

payments 

($ in billions) 

2007 .................................... $5.27 

2008 .................................... 5.44 

2009 .................................... 5.64 

2010 .................................... 5.88 


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TABLE 9—Continued 

LTCH PPS rate year 

Estimated 

payments 

($ in billions) 

2011 .................................... 6.15 

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 date, including the 

projection that 97 percent of LTCHs 

would elect to be paid based on 100 

percent of the 2007 LTCH PPS rate year 

proposed standard Federal rate rather 

than the applicable transition blend and 

an estimated increase in the number of 

discharges from LTCHs. (We note that 

the 5-year spending estimates shown in 

Table 9 are significantly higher than the 

5-year spending estimates presented in 

the RY 2006 LTCH PPS final rule (70 FR 

24203). This is primarily due to an 

adjustment by our Office of the Actuary 

(OACT) to account for the significant 

increase in the expected number of 

LTCH discharges based on the most 

recent complete available LTCH 

discharge data.) These estimates are also 

based on our estimate of LTCH PPS rate 

year payments to LTCHs using OACT’s 

most recent estimate of the excluded 

hospital with capital (currently used 

under the LTCH PPS) market basket of 

3.6 percent for the 2007 LTCH PPS rate 

year, 3.5 percent for the 2008 LTCH PPS 

rate year, 3.1 percent for the 2009 LTCH 

PPS rate year, 2.6 percent for the 2010 

LTCH PPS rate year, and 3.0 percent for 

the 2011 LTCH PPS rate year. (We note 

that, although we are proposing a zero 

percent update to the LTCH PPS Federal 

rate for RY 2007 (as discussed in section 

IV.C.3. of this proposed rule) OACT 

develops its spending projections based 

on existing policy and 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 

there would be a change in Medicare 

fee-for-service beneficiary enrollment of 

¥2.3 percent in the 2007 LTCH PPS rate 

year, ¥1.0 percent in the 2008 LTCH 

PPS rate year, 0.3 percent in the 2008 

and 2009 LTCH PPS rate years and, 0.6 

percent in the 2010 LTCH PPS rate year. 

(We note that, based on the most recent 

available data, OACT is projecting a 

slight decrease in Medicare fee-forservice Part A enrollment for the 2007 

and 2008 LTCH PPS rate years, in part, 

because they are projecting an increase 

in Medicare managed care enrollment as 

a result of the implementation of several 

provisions of the MMA of 2003.) 

As we discussed in the RY 2006 

LTCH PPS final rule (70 FR 24204), 

because the LTCH PPS was only 

recently implemented, sufficient new 

data has not been generated that would 

enable us to conduct a comprehensive 

reevaluation of our budget neutrality 

calculations. Accordingly, we did not 

make a one-time adjustment under 

§ 412.523(d)(3). At this time, we still do 

not have sufficient new data to enable 

us to conduct a comprehensive 

reevaluation of our budget neutrality 

calculations. Therefore, in this proposed 

rule, we are not proposing to make 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 first year of the LTCH PPS is not 

perpetuated in the PPS rates for future 

years. However, as discussed in greater 

detail below, we will continue to collect 

and interpret new data as the data 

become available in the future to 

determine if this adjustment should be 

proposed. Additionally, as discussed in 

greater detail below, we believe that it 

is appropriate to propose postponement 

of the requirement established in 

§ 412.523(d)(3) due to the time lag in the 

availability of Medicare data upon 

which this adjustment would be based. 

Therefore, we propose to revise 

§ 412.523(d)(3) by postponing the 

October 1, 2006 deadline to July 1, 2008. 

In the August 30, 2002 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 

prospective payment system would 

equal the estimated aggregate payments 

that would be made if the LTCH 

prospective payment system 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 

budget neutrality 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 budget neutrality 

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 aggregate amount of 

actual payments during FY 2003 may 

turn out to be significantly higher or 

lower than the estimates upon which 

the budget neutrality calculations were 

based. (67 FR 56036) In that same final 

rule, the Secretary exercised his broad 

authority in establishing the LTCH PPS 

and provided for the possibility of a 

one-time prospective adjustment to the 

LTCH prospective payment system rates 

by October 1, 2006 at § 412.523(d)(3). 

The purpose of that provision was to 

prevent any significant difference 

between actual payments and estimated 

payments for the first year of the LTCH 

prospective payment system, when we 

established the budget neutral Federal 

rate, as required by the statute 

(discussed previously), from being 

perpetuated in the prospective payment 

system rates for future years. 

When we implemented the LTCH 

PPS, we established at § 412.533 a 5- 

year transition to full payments based 

on the LTCH PPS standard Federal rate. 

In addition, during that 5-year period, 

existing LTCHs (those that had their 

first cost reporting period as an LTCH 

prior to October 1, 2002), could elect for 

either full payment under the adjusted 

Federal rate payment determined under 

§ 412.523, or be phased-in to the full 

Federal rate payment over 5 years in 

annual increments of 20 percent, with 

the remainder of the payment amount 

being determined under the former costbased reimbursement rules set forth in 

the TEFRA system, (under part 413 of 

the same subchapter). Thus, for LTCH 

cost reporting periods beginning on or 

after October 1, 2006, the fifth year of 

the transition, payments to all LTCHs 

will be based fully (100 percent) on the 

LTCH PPS standard Federal rate. 

In addition to developing a LTCH PPS 

standard Federal rate that would 

‘‘maintain budget neutrality’’ for FY 

2003, under the LTCH PPS, Federal 

prospective payments are adjusted to 

account for various factors (as discussed 

below). As noted previously in this 

proposed rule, the Secretary was 

granted considerable discretion in the 

design of the payment system. 

Specifically, under section 307(b) of the 

BIPA, the Secretary shall ‘‘examine and 

* * * may provide for appropriate 

adjustments to the long-term hospital 

payment system, including adjustments 

to DRG weights, area wage adjustments, 


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geographic reclassification, outliers, 

updates, and a disproportionate share 

adjustment.’’ Thus, the Secretary was 

also given tremendous discretionary 

authority to determine which 

adjustments to include in the LTCH 

PPS. In developing the LTCH PPS, to 

evaluate whether the accuracy of the 

payment system would be enhanced by 

the inclusion of particular payment 

adjustments, and hence the 

appropriateness of those payment 

adjustments for the LTCH PPS, we 

contracted with 3M Health Information 

Systems to assist us with the analyses. 

These analyses include, among other 

techniques, the use of regression models 

and payment simulations to determine 

whether there was a correlation between 

an LTCH’s cost per case and the 

inclusion of particular payment 

adjustments. We examined payment 

variables applicable to the inpatient 

acute-care hospital and IRF prospective 

payment systems, including the local 

wage variation (wage index), 

disproportionate share patient 

percentage (DSH), indirect medical 

education (IME), variables that account 

for location in a rural or large urban 

area, and a cost of living adjustment 

(COLA) for Alaska and Hawaii (67 FR 

56015 through 56027). We concluded, 

in that August 30, 2002 final rule, that 

based on the best available LTCH data 

and consistent with the broad legal 

authority afforded to the Secretary, the 

LTCH PPS would include payment 

adjustments featured in other 

prospective payment systems: payments 

for high cost outliers (§ 412.525(a)); an 

area wage adjustment which would be 

phased-in over 5-years (§ 412.525(c)); 

and a COLA (§ 412.525(b)). 

Additionally, we established several 

adjustments specific to the LTCH PPS, 

such as adjusted payments for short’stay 

outliers (§ 412.529), interrupted stays 

(§ 412.531), and on-site discharges and 

readmittances (§ 412.532). 

In each final rule for the LTCH PPS 

subsequent to the implementation of the 

LTCH PPS for FY 2003, as new data 

from LTCHs generated under the LTCH 

PPS has become available, we have 

revisited our determinations regarding 

the inclusion of specific payment 

adjustments (68 FR 34140 through 

34150, 69 FR 25684 through 25701, and 

70 FR 24190 through 24198). Although 

no additional payment adjustments 

were added since the initial 

implementation of the LTCH PPS in FY 

2003, we stated that we would collect 

data and reevaluate the appropriateness 

of these adjustments in the future when 

more LTCH PPS data becomes available 

after the implementation of the LTCH 

PPS. After revisiting this issue and 

conducting extensive data analysis, we 

now believe that the current deadline of 

October 1, 2006, for making the one 

time adjustment to eliminate any 

significant difference between the actual 

payments and estimated payments for 

the first year of the PPS is too short. 

After the conclusion of the 5-year 

transition period (that is, after RY 2007), 

we now believe that sufficient new data 

will be generated by the LTCH PPS for 

a comprehensive reevaluation of these 

payment adjustments, including 

geographic reclassification, rural 

location, DSH, and IME. 

The final year of the 5-year transition 

to full payments for all LTCHs based on 

the adjusted Federal rate 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 (FYs 2003 

through 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 revise some LTCH 

PPS payment adjustments for future 

years for the LTCH PPS. 

Consistent with our intent to wait for 

the conclusion of the 5-year transition to 

100 percent fully Federal payments 

under the LTCH PPS, to maximize the 

availability of data used to conduct a 

comprehensive evaluation of the 

payment adjustment policies issued at 

the inception of the LTCH PPS for FY 

2003, we believe that it is appropriate to 

propose postponement of the 

requirement established by existing 

§ 412.523(d)(3), described previously, 

which allowed for the possibility of 

making a one-time prospective 

adjustment to the LTCH prospective 

payment system rates from the current 

date of October 1, 2006 to an adjustment 

that would be effective on or before July 

1, 2008. Currently, due to the time lag 

in the availability of Medicare data, the 

best available full year of LTCH claims 

data are from FY 2004 and the most 

complete full year of LTCH cost report 

data are from FY 2003. 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. In 

addition, after further analysis, we 

believe that after the end of the 

transition may be the appropriate time 

to implement this one-time prospective 

adjustment, which was written to 

ensure 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 prospective payment rates for 

future years. We note that we are 

proposing a July 1, 2008 rather than an 

October 1, 2007 date in keeping with the 

established rate year cycle. Although the 

LTCH PPS Federal rate was initially 

established with an October 1 through 

September 30th rate cycle, currently the 

LTCH PPS Federal rate is updated on a 

July 1 through June 30 rate year cycle 

(68 FR 34125 through 34128). 

The final year of the 5-year phase-in 

of the LTCH PPS will begin for cost 

reporting periods beginning on or after 

October 1, 2006, during which 

payments will be 100 percent of the 

adjusted Federal rate for all LTCHs. 

Since the inception of the LTCH PPS, 

we have noted that we fully intend to 

review our payment adjustments when 

more LTCH PPS data become available 

after the implementation of the LTCH 

PPS because at that point we would 

have a sufficient amount of data with 

which to evaluate the impact of existing 

policy and to make informed decisions 

for the future of the payment system. 

After further consideration explained 

previously, we believe that after the end 

of the 5-year transition period it would 

be the appropriate time for both our 

planned reevaluation of the LTCH PPS 

payment adjustments as well as the 

possible ‘‘one-time adjustment of the 

payment rates’’ at § 412.525(d)(3). 

Therefore, we are proposing to revise 

§ 412.523(d)(3) to change the deadline 

for the establishment of the possible 

one-time prospective adjustment from 

October 1, 2006 to July 1, 2008 and to 

synchronize these interrelated data 

analyses for purposes of determining 

future proposed payment policies under 

the LTCH PPS. 

In section IV.C.3. of this proposed 

rule, where we discuss the proposed 

zero percent update factor to the 

standard Federal rate for the 2007 LTCH 

PPS rate year, we describe two aspects 

of our data monitoring activities, both of 

which impact continuing annual policy 

updates and determinations for the 

LTCH PPS which are the basis of our 

annual rule-making activities and 

Federal Register publications. 


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For the on-going implementation of 

the payment system, which entails 

determining annual system updates for 

the LTCH PPS, we engage in data 

monitoring and analysis of patient and 

facility level data. The most recent 

claims and cost data are used for this 

rate-setting purpose. From the outset of 

the LTCH PPS, we established a 

monitoring component to the system 

directed by our Office of Research, 

Development, and Information (ORDI) 

with additional data analysis provided 

by 3M Health Information Systems. The 

purposes of this protocol, as described 

in section X. of this proposed rule was 

to evaluate the impact of the LTCH PPS 

on the LTCH universe and to provide 

on-going data analysis that would 

enable CMS to determine the 

effectiveness of various policies and to 

alert CMS to issues which could require 

further regulation. Frequently, reviews 

and analyses of the data utilized for the 

annual updates have suggested 

directions for future research, which 

have resulted in policy proposals. We 

have revised and formulated several 

significant policies since the outset of 

the LTCH PPS based on the data 

analyses, including the 3-day or fewer 

interruption of stay policy at § 412.531 

(69 FR 25690 through 25700), the LTCH 

HwH and LTCH satellite payment 

adjustment at § 412.534 (69 FR 49191 

through 49214), the proposed revisions 

to the SSO policy at § 412.529 in section 

V.A.1. of this proposed rule, and the 

proposed zero percent update to the 

standard Federal rate, as described in 

section IV.C.3. of this proposed rule. 

In the previous discussion, we have 

noted that we intend to reevaluate the 

LTCH PPS at the end of the 5-year 

transition to full Federal payments, 

based upon a comprehensive analysis of 

data generated since the start of the 

payment system for cost reporting 

periods beginning during FY 2003, in 

order to determine whether further 

payment adjustments are warranted. We 

have also proposed to revise 

§ 412.523(d)(3) to postpone the 

establishment of the possible one-time 

prospective adjustment from October 1, 

2006 to July 1, 2008. 

Evaluating the appropriateness of this 

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 during which we were 

statutorily required to maintain budget 

neutrality as specified in section 123 of 

the BBRA. When we established the FY 

2003 standard Federal rate, in order to 

meet this requirement, 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). (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 budget 

neutrality 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. We also stated our 

intentions to monitor LTCH PPS data to 

evaluate the ultimate accuracy of the 

assumptions used in the budget 

neutrality 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 

result as significantly higher or lower 

than the estimates upon which the 

budget neutrality calculations were 

based (67 FR 56036). 

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 

standard Federal payment rate once 

accurate data was 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 error in the 

Federal rate in future years. 

We are proposing 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 will be able to 

utilize the most accurate data reflecting 

the actual costs incurred by LTCHs for 

cost reporting periods beginning during 

FY 2003. It is important to note that 

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 do not 

believe that the October 1, 2006 

deadline established § 412.523(d)(3) is 

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 

and any proposed correction, if 

finalized could then be implemented on 

July 1, 2008. 

Therefore, we believe that postponing 

the deadline for this possible one-time 

prospective adjustment until July 1, 

2008 would allow us to have the best 

available data from the first year of the 

LTCH PPS upon which to base an 

adjustment such as this. 

Specifically, we wish to emphasize 

the distinction between the sufficiency 

of the data utilized for the annual data 

analysis that resulted in our proposed 

zero percent update for RY 2007 and the 

proposed postponement of the possible 

one-time prospective adjustment to the 

standard Federal rate, at proposed 

§ 412.523(d)(3). We believe that the 

proposed annual adjustment of zero 

percent is based on the best data from 

FY 2004, including case-mix data which 

is derived from the MedPAR files, and 

data analysis coordinated by ORDI, 

assisted by 3M Health Information 

Services. The case-mix data used to 

make this adjustment is current and 

accurate and is not dependent upon the 

procedures of the cost report settlement. 

However, the data review that we 

believe necessary for the comprehensive 

analysis of the accuracy of the Federal 

payment rate under § 412.523(d)(3), 

which would be applied prospectively 

(and therefore has the potential to affect 

all future LTCH PPS Federal rates), is 

dependent on Medicare data that will 

only be available by July, 2007. We 

believe that only through a thorough 

analysis of the most comprehensive and 

accurate data from the first year of the 

implementation of the LTCH PPS for FY 

2003 (including settled and fully 

audited cost reports) will we be able to 

reliably determine whether the one-time 

prospective adjustment to the standard 

Federal rate, which if issued will have 

an impact on all future payments under 

the LTCH PPS, should be proposed. 


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V. Other Proposed Policy Changes for 

the 2007 LTCH PPS Rate Year 

A. Proposed Adjustments for Special 

Cases 

1. Adjustment for SSO Cases 

a. Proposed Changes to the Method for 

Determining the Payment Amount for 

SSO Cases 

In the August 30, 2002 rule for the 

LTCH PPS, under § 412.529, we 

established a special payment policy for 

SSO cases, that is LTCH PPS cases with 

a LOS of less than or equal to five-sixths 

of the geometric ALOS for each LTC–

DRG. When we established the SSO 

policy, we explained 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. These patients may be 

discharged to another site of care or they 

may be discharged and not readmitted 

because they no longer require 

treatment. Furthermore, patients may 

expire early in their LTCH stay’’ (67 FR 

55995). Also in the August 30, 2002 

final rule, we stated that when we first 

described the policy, in the March 27, 

2002 proposed rule, ‘‘* * * 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’’ (67 FR 55995). Therefore, under 

the LTCH PPS, we implemented a 

special payment adjustment for SSO 

cases. Under the existing SSO policy at 

§ 412.529, for LTCH PPS discharges 

with a LOS of up to and including fivesixths the geometric ALOS for the LTC–

DRG, in general, we adjust the per 

discharge payment under the LTCH PPS 

by the lesser of 120 percent of the 

estimated cost of the case, 120 percent 

of the LTC–DRG specific per diem 

amount multiplied by the LOS of that 

discharge, or the full LTC–DRG 

payment. 

As noted previously, generally LTCHs 

are defined by statute as having an 

ALOS of greater than 25 days. We stated 

that we believe that the SSO payment 

adjustment results in more appropriate 

payments, since these cases most likely 

would not receive a full course of a 

LTCH-level of treatment in such a short 

period of time and a full LTC–DRG 

payment may not always be appropriate. 

Payment-to-cost ratios simulated for 

LTCHs, for the cases described above, 

indicated that if LTCHs received a full 

LTC–DRG payment for those cases, they 

were significantly ‘‘overpaid’’ for the 

resources they have actually expended. 

In establishing the SSO policy we also 

believe that providing a reduced 

payment for SSO cases would 

discourage hospitals from admitting 

patients for whom they were unable to 

provide complete treatment in order to 

maximize payment. 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 

addressed the incentives inherent in a 

discharge-based prospective payment 

system for LTCHs for treating patients 

with a short LOS (67 FR 55995 through 

56000). 

When we established the SSO 

adjustment at the outset of the LTCH 

PPS, we noted in the August 30, 2002 

final rule that the regression analyses 

and simulations based on prior years’

LTCH claims data generated under the 

former reasonable cost-based (TEFRA) 

based system, upon which we based 

many of our policy determinations 

regarding the design of the LTCH PPS 

for FY 2003, indicated that nearly half 

of LTCH cases would be paid on an 

adjusted per discharge amount based on 

the SSO payment policy established at 

existing § 412.529 once the LTCH PPS 

was implemented. However, we did 

believe that ‘‘* * * this data analysis 

does not necessarily predict the future 

behavior of LTCHs operating under a 

prospective payment system. The data 

used in the analysis are a product or 

reflection of the practice patterns of 

hospitals that operate under the 

mechanisms of the TEFRA payment 

system, which are different from the 

principles of a prospective payment 

system. However, these are the best data 

available upon which we can simulate 

LTCH behavior under the new LTCH 

prospective payment system. We believe 

that once the LTCH prospective 

payment system is implemented, the 

practice patterns of LTCHs will change. 

We anticipate that hospitals will alter 

their admission, treatment, and 

discharge patterns. Thus, we fully 

expect that an increasing majority of 

cases will be reimbursed on an 

unadjusted per discharge basis during 

the transition from reasonable costbased reimbursement to prospective 

payments.’’ (67 FR 55999) 

As we noted in the August 30, 2003 

final rule, ‘‘* * * [B]ased on our 

experience in implementing other 

Medicare prospective payment systems, 

we fully expect that as new data are 

received, we may revisit policy 

decisions described in this final rule. 

Furthermore, our Office of Research, 

Development, and Information [ORDI] 

will be tracking the impact of the 

prospective payments on LTCHs, other 

hospitals that treat long-term care 

patients, and other post-acute care 

providers, which will enable us to 

determine whether additional policy 

changes are warranted’’ (67 FR 55999). 

A change in the SSO policy was 

published in the RY 2004 LTCH PPS 

final rule (68 FR 34148), following a 

thorough reexamination of the impact of 

the SSO policy on subclause (II) LTCHs, 

authorized by section 

1886(d)(1)(B)(iv)(II) of the Act which we 

implemented at § 412.23(e)(2)(ii). At 

that time, we revised certain aspects of 

the SSO policy in order to meet the 

specific needs of this type of LTCH. 

This provision provided an exception to 

the general definition of an LTCH set 

forth in section 1886(d)(1)(B)(iv)(I) of 

the Act, implemented at 

§ 412.23(e)(2)(i), specifying that to 

qualify as a LTCH, a hospital must have 

first been excluded as a LTCH in 

calendar year (CY) 1986, have an 

average inpatient LOS of greater than 20 

days, and demonstrate that 80 percent 

or more 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 (62 FR 

46016 and 46026). In the RY 2004 final 

rule, we particularly noted that the 

Congress recognized the existence and 

importance of a distinct category of 

LTCHs that might not otherwise warrant 

exclusion from the acute care inpatient 

PPS under subclause (I) but which 

nonetheless fulfilled a unique and vital 

role in serving a particular subset of 

Medicare patients. Consistent with 

existing policies that differentiated 

subclause (II) LTCHs from other LTCHs, 

we determined that it was reasonable for 

us to consider whether or not a policy 

that was designed for LTCHs designated 

under subclause (I) could reasonably 

and equitably be applied to a subclause 

(II) LTCH without some measure of 

adjustment. Therefore, in the RY 2004 

LTCH PPS final rule, we provided an 

additional adjustment to the SSO policy 

for subclause (II) LTCHs. Specifically, in 

the RY 2004 LTCH PPS final rule (68 FR 

34147 through 34148), we made a 

temporary adjustment to the applicable 

percentages used in the SSO payment 

formula at § 412.529(c) (applied to the 

cost of the SSO or the per diem LTCH 

DRG payment) used to calculate 

Medicare payments under the SSO 

policy. Specifically, at existing 

§ 412.529(c)(4) for LTCHs designated 

under section 1886(d)(1)(B)(iv)(II) of the 

Act and § 412.23(e)(2)(ii), we 


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established a temporary adjustment that 

will sunset upon their first cost 

reporting period beginning on or after 

October 1, 2006. Under existing policy, 

for SSOs from a subclause (I) LTCH, 

Medicare payment is the least of the 

following: 120 percent of the LTC–DRG 

per diem amount multiplied by the LOS 

of the discharge; 120 percent of the cost 

of the case; or the full LTC–DRG. Under 

this temporary § 412.529(c)(4) 

adjustment, we substitute the following 

percentages for the 120 percent figure 

used in the SSO payment formula at 

§ 412.529(c) for subclause (I) hospitals. 

Therefore, for discharges from a 

subclause (II) LTCHs, occurring on or 

after July 1, 2003, for cost reporting 

periods beginning during the first year 

of the 5-year LTCH PPS transition 

period, the SSO percentage is 195 

percent. For discharges occurring in the 

cost reporting periods beginning during 

the second year of the transition period, 

the applicable SSO percentage is 193 

percent; for discharges occurring in cost 

reporting periods beginning during the 

third year of the transition period, the 

applicable percentage is 165 percent; for 

discharges occurring in the cost 

reporting period beginning during the 

fourth year of the transition, the 

percentage is 136 percent; and for 

discharges occurring in cost reporting 

periods beginning during the fifth year 

of the 5-year transition, (and for 

discharges occurring in all future cost 

reporting periods), the SSO percentage 

for ‘‘subclause (II)’’ LTCHs, would be 

120 percent, that is, the same as it 

currently is for all other LTCHs under 

the LTCH PPS. 

As we continue to monitor the SSO 

policy, an analysis of LTCH claims data 

from the FY 2004 MedPAR files (using 

version 23 of the GROUPER), reveals 

that approximately 37 percent of LTCH 

discharges continue to be paid under 

the provisions of the existing SSO 

policy at § 412.529. As noted 

previously, at the outset of the LTCH 

PPS, the data upon which we based our 

system indicated that 48.4 percent of 

patients admitted to LTCHs fell into the 

category of SSOs, a percentage that we 

believed to be inappropriately high, 

given that the category of LTCH was 

established to care for Medicare 

beneficiaries requiring long-term 

hospital-level care. We believe our 

existing policy accounts for the fact that 

an LTCH in good faith could admit a 

patient and provide some services 

before realizing that the beneficiary 

would receive more appropriate 

treatment at another site of care. But in 

establishing the SSO policy, which 

provided a reduced payment for cases 

with a LOS that is up to and including 

five-sixths of the geometric ALOS for 

the LTC–DRG, it was our intent to not 

encourage hospitals to admit patients 

for whom a long-term hospital stay was 

not medically necessary and therefore, 

for whom the LTCH would not be 

providing complete treatment. We were 

concerned that these inappropriate 

admissions could be made in order to 

maximize payment (67 FR 55995). As 

noted previously, when this policy was 

established, at the start of the LTCH PPS 

for cost reporting periods beginning on 

or after October 1, 2002, nearly one-half 

(48.4 percent) of all LTCH cases would 

have been paid as SSOs. However, we 

believed that the percentage of shortstay outliers would drop significantly 

from 48.4 percent once the LTCH PPS 

was implemented. We believe that the 

37 percent of LTCH discharges (that is, 

more than one-third of all LTCH 

patients) that the FY 2004 MedPAR 

identified as SSO cases continues to be 

an inappropriate number of patients 

being treated in LTCHs who most likely 

do not require the full measure of 

resources available in a hospital that has 

been established to treat patients 

requiring long-stay hospital-level care. 

Generally, if these patients required the 

type of care associated with LTCHs, the 

patients would most likely be in the 

LTCH for the duration of the LOS 

associated with the particular LTC–DRG 

to which the case is assigned. Therefore, 

we are concerned that the existing SSO 

payment adjustment at § 412.529, which 

generally will pay a per discharge 

amount based upon the least of 120 

percent of the specific LTC–DRG per 

diem amount (multiplied by the LOS); 

120 percent of the estimated costs of the 

case; or the full LTC–DRG payment as 

specified in existing § 412.529(c)(1), 

may unintentionally provide a financial 

incentive for LTCHs to admit patients 

not requiring the level of care available 

in that setting. 

In the August 30, 2002 final rule, 

when first we presented our rationale 

for establishing the SSO policy, we 

noted that since LTCHs are defined by 

statute as generally having an ALOS 

greater than 25 days, we had proposed 

payment adjustments to make 

appropriate payment for cases that may 

not necessarily require the type of 

services intended to be provided at a 

LTCH or may have been transferred 

from an acute hospital prematurely’’ (67 

FR 55999). We continue to have these 

concerns, and we believe that our data 

indicate that after more than 3 years of 

the LTCH PPS, a policy reexamination 

is both necessary and appropriate, when 

more than one-third of LTCH PPS 

patients are paid under the SSO 

provision. In order to address these 

concerns, we are proposing two specific 

changes to the existing SSO payment 

methodology under § 412.529. Under 

existing policy, in general, Medicare 

will pay for a SSO case at the least of 

the following: 120 percent of the 

estimated costs of the case, 120 percent 

of the per diem LTCH PPS payment 

amount for the specific LTC–DRG 

multiplied by the LOS of the discharge, 

or the full LTCH PPS payment for the 

LTC–DRG. We believe that the current 

payment adjustment for SSO cases 

appears to be providing a financial 

incentive to inappropriately admit 

short-stay patients to LTCHs as 

evidenced by the high percentage of 

SSO cases. Consistent with the 

Secretary’s broad authority ‘‘to provide 

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

established under section 123 of the 

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

of BIPA, we are proposing to reduce the 

current adjustment at existing 

§ 412.529(c)(1)(ii) which is based on 120 

percent of the costs of the case to 100 

percent of the costs of the case for 

discharges occurring on or after July 1, 

2006 at proposed § 412.529(c)(2)(ii). We 

believe that by reducing the Medicare 

payment to the LTCH for a specific SSO 

case so that it would be equal to but not 

exceed the estimated costs incurred for 

that case, we may be removing what we 

believe could be a financial incentive 

that the current policy has established 

to treat short stay cases in LTCHs. We 

are not proposing to change the 

payment option of 120 percent of the 

per diem for a specific LTC–DRG 

multiplied by the LOS for that case 

because of the specific calculations 

upon which we based this aspect of the 

SSO policy adjustment. As described in 

detail in the FY 2003 final rule LTCH 

PPS, when we first established the SSO 

policy, we found that five-sixths of the 

geometric ALOS would be the SSO 

threshold where the full LTC–DRG 

payment would be made at 120 percent. 

That is, by adjusting the per discharge 

payment by paying at 120 percent of the 

per diem DRG payment, once a stay 

reaches five-sixths of the geometric 

ALOS for the LTC–DRG, the full DRG 

payment will have been made. We 

continue to believe that this specific 

methodology, described above in this 

section, which results in a gradual 

increase in payment as the LOS 

increases without producing a payment 

‘‘cliff’’ at any one point, provides a 

reasonable payment option under the 

SSO policy. (67 FR 55997, August 30, 

2002) 


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We believe it is inappropriate that 

more than one-third of Medicare 

patients treated in the special category 

of hospitals that was established by the 

Congress, under section 

1886(d)(1)(B)(iv) of the Act to address 

the treatment of patients requiring 

extended hospital-level care are actually 

short-stay patients, as defined in 

§ 412.529(a), and do not receive such 

extended hospital-level care. Therefore, 

we are proposing reduce the current 

adjustment at existing § 412.529(c)(1)(ii) 

from 120 percent of the costs of the case 

to 100 percent of the costs of the case 

for discharges occurring on or after July 

1, 2006, for LTCHs described in 

§ 412.23(e)(2)(i) resulting in a LTCH PPS 

Medicare payment equivalent to but not 

exceeding the estimated costs of the 

case. We believe that the proposed 

revision to the SSO payment 

methodology further discourages 

inappropriate admissions of these 

patients to LTCHs because we would be 

removing the financial incentive to 

admit cases that do not typically belong 

in LTCHs but would be more 

appropriately treated in another setting 

(for example, an inpatient acute care 

hospital). 

Further, since the vast majority of 

LTCH patients are admitted directly 

from IPPS acute care hospitals, a fact 

verified by our patient data files 

(National Claims History Files), a recent 

MedPAC Report (June 2003, p. 79), and 

by research done by the Urban Institute 

at the outset of the LTCH PPS and RTI, 

we believe that the admission of shortstay patients at LTCHs may indicate 

premature and even inappropriate 

discharges from the referring acute care 

hospitals. For example, if an acute care 

hospital patient required additional 

inpatient services, it would usually be 

most appropriate for the acute care 

hospital to continue to treat the patient 

rather than discharging and admitting 

the patient to an LTCH for a short-stay 

episode. 

We believe that in order to remove 

what may be an inappropriate financial 

incentive for a LTCH to admit a shortstay case, as well as, to discourage 

LTCHs from behaving like acute care 

hospitals by having a significant number 

of cases with lengths of stay 

commensurate with acute care hospitals 

and also to discourage LTCHs from 

admitting patients that could be 

premature discharges from acute care 

hospitals, we are proposing in 

§ 412.529(c)(2)(iv) to add a fourth 

payment method to the three 

alternatives under § 412.529(c) for SSO 

cases. Specifically, we are proposing to 

revise § 412.529 to provide that for 

discharges from LTCHs described in 

§ 412.23(e)(2)(i) occurring on or after 

July 1, 2006, payment for a SSO case 

would be the least of the following: 120 

percent of the per diem amount for a 

specific LTC–DRG multiplied by the 

LOS of the discharge; 100 percent of the 

estimated costs of the case (which we 

are proposing in this proposed rule as 

a change from the existing 120 percent 

of estimated costs); the full LTCH PPS 

payment for the LTC–DRG; or a LTCH 

PPS payment comparable to the 

payment that would otherwise be paid 

under the IPPS. 

We believe that this proposed 

additional component to the SSO 

payment formula is particularly 

appropriate because it reflects our 

concern that generally, 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. Therefore, we are proposing 

to include an alternative payment 

method under the LTCH PPS SSO 

adjustment that could result in an LTCH 

PPS payment to the LTCH for a SSO 

stay that would be comparable to what 

Medicare would pay to an acute care 

hospital for the same case. Furthermore, 

since over 80 percent of all LTCH 

patients (FY 2003 MedPAR) are 

admitted from acute care hospitals to an 

LTCH, of which many become a SSO, an 

acute care hospital’s discharge of a 

patient who is still in need of acutelevel care may indicate a premature and 

inappropriate discharge from the acute 

care hospital, an inappropriate 

admission to the LTCH, and result in a 

second, unnecessary Medicare payment 

to the LTCH. We originally established 

a similar payment adjustment under the 

LTCH PPS at § 412.534 for LTCH HwHs 

and LTCH satellites for which greater 

than 25 percent of its patients were 

admitted from a host hospital (69 FR 

49191 through 49214). Under that 

policy, unless the patient reached high 

cost outlier status at the acute care 

hospital prior to discharge, Medicare 

payments to the LTCH HwH or satellite 

for those cases in excess of the threshold 

were based upon the lesser of a payment 

under the LTCH PPS or an LTCH PPS 

amount equivalent to what would 

otherwise have been paid under the 

IPPS. This payment adjustment 

reflected our belief that if patientshifting between a host hospital and its 

co-located LTCH exceeded a specific 

threshold, the onsite LTCH was 

functioning like a de facto 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. 

We reasoned that if the patient was in 

effect, being treated in a ‘‘unit’’ of the 

acute care hospital, it was reasonable to 

issue a payment methodology that took 

this into account. For LTCH HwH or 

satellite discharges in excess of the 25 

percent (or appropriate percentage) 

threshold, therefore, as specified in 

§ 412.534, Medicare will make a 

payment based upon the lesser of the 

LTCH PPS payment otherwise payable 

under subpart O and an amount under 

this subpart that is equivalent to an 

amount that would be paid under the 

IPPS. 

We believe that adapting the 

underlying premise of the payment 

adjustment at § 412.534 to a new 

payment adjustment method under the 

SSO policy is particularly appropriate, 

since we are concerned (and our data 

seems to confirm) that LTCHs may be 

admitting patients that should otherwise 

be treated in acute care hospitals, as 

evidenced by lengths of stay more in 

keeping with an acute care hospital stay 

than the considerably longer stays 

characteristic of LTCHs. We believe this 

additional proposed payment method, 

under the LTCH PPS for SSO patients 

under which, following the procedure 

set forth under § 412.529, the LTCH 

could receive a Medicare payment 

comparable to that which would 

otherwise be paid under the IPPS, is an 

appropriate response to the fact that an 

LTCH treating such patients may, in 

fact, be functioning like an acute care 

hospital. 

We are also very concerned that acute 

care hospitals may be shifting their 

patients to LTCHs, resulting in a high 

incidence of SSOs. This pattern may 

indicate a premature discharge from the 

acute care hospital (where less than a 

full course of treatment was delivered) 

and an unnecessary admission to the 

LTCH. Despite the fact that the payment 

adjustment at § 412.534, based on the 25 

percent (or applicable percentage) 

threshold, focused on inappropriate 

patient movement between co-located 

providers (69 FR 49191 through 49214), 

we do not believe that co-location is a 

prerequisite to inappropriate patientshifting between an acute care hospital 

and an LTCH. As we discuss in section 

V.B. of this proposed rule, with the 

explosive growth in the numbers of freestanding LTCHs since 2004, many of 

which receive patients from a single 

acute care hospital, we are monitoring 

patient shifting that is occurring with 

growing regularity. (This issue is 

discussed in depth in section X. of this 

proposed rule.) 

We believe that it is essential to guard 

the Medicare Trust Fund against 

admission and discharge practices that 

could result in more than one payment 


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for what was essentially one episode of 

patient care and, as we noted above in 

this section, we are concerned that there 

may be a correlation between the fact 

that one-third of LTCH discharges are 

SSO cases and what, in some cases, may 

be inappropriate admissions of patients 

who are prematurely discharged from 

acute care hospitals. We would also 

note that from the outset of the LTCH 

PPS, in our FY 2003 final rule for the 

LTCH PPS, we stated that ‘‘many of 

these [SSO] patients could have been 

treated more appropriately in an acute 

care hospital subject to the acute care 

hospital inpatient prospective payment 

system’’ (67 FR 55995). Therefore, we 

are proposing a fourth alternative in the 

SSO payment formula at § 412.529 that 

is similar to the existing payment 

adjustment at § 412.534, discussed in 

section V.B. of this proposed rule. 

In the discussion that follows, for the 

sake of clarity, we use phrases such as 

‘‘IPPS DRG relative weights,’’ and the 

‘‘IPPS labor-related share,’’ in describing 

features of the IPPS that we would use 

in calculating LTCH PPS payments 

under this proposed new alternative 

adjustment. We want to emphasize, 

however, that such a payment is not an 

IPPS payment but rather, a payment 

under the LTCH PPS that is generally 

derived from the IPPS payment 

methodology. Therefore, for Medicare 

payments for SSO cases under the LTCH 

PPS as specified in proposed 

§ 412.529(c)(2)(iv), we are proposing 

that ‘‘an amount under subpart O that is 

comparable to an amount that otherwise 

would be paid under the IPPS’’ would 

be calculated based on the sum of the 

applicable operating and capital IPPS 

rates in effect at the time of the 

discharge from the LTCH as established 

in the applicable IPPS final rule 

published annually in the Federal 

Register. This is necessary since, under 

the IPPS, there are separate Medicare 

rates for operating (subpart D of part 

412) and capital (subpart M of part 412) 

costs to acute care hospitals; while, 

under the LTCH PPS, there is a single 

payment for the operating and capital 

costs of the inpatient hospital services 

provided to LTCH Medicare patients. 

We are also proposing that ‘‘an amount 

under subpart O that is comparable to 

an amount that otherwise would be paid 

under the IPPS’’ would be calculated 

including the applicable differences in 

resource use (that is, IPPS DRG relative 

weights), differences in area wage levels 

(that is, wage index), a cost-of-living 

adjustment for hospitals located in 

Alaska and Hawaii, the treatment of a 

disproportionate share of low income 

patients (DSH), if applicable, and an 

adjustment for indirect medical 

education (IME), if applicable. (We 

would emphasize that under this 

proposed policy, Medicare payments, 

payable under subpart O, would be 

‘‘comparable’’ to what would otherwise 

be paid under the IPPS, rather than 

‘‘equal’’ to an IPPS payment because, as 

we explain, there are specific features of 

the IPPS that do not directly translate 

into the LTCH PPS, so would be no way 

to establish or evaluate whether the 

LTCH payments are ‘‘equal’’ to an 

amount that would be paid under the 

IPPS. In proposing to use the word 

‘‘comparable,’’ to describe this payment 

alternative to the existing SSO policy, 

we intend to make clear that such 

payments would be calculated by 

applying IPPS principles to achieve a 

close approximation of payments that 

would be made under the IPPS, 

recognizing the fact that not all 

components of the IPPS can be carried 

out precisely in the LTCH PPS context. 

Specifically, under this proposed 

policy, for payments under the LTCH 

PPS, we would calculate an amount 

payable under subpart O comparable to 

what would otherwise be paid under the 

IPPS for the costs of inpatient operating 

services which would be based on the 

standardized amount determined under 

§ 412.64(c), adjusted by the applicable 

DRG weighting factors at § 412.60 as set 

forth at § 412.64(g). This amount would 

be further adjusted for different area 

wage levels using the applicable IPPS 

labor-related share based on the CBSA 

where the LTCH is physically located 

set forth at § 412.525(c) and the IPPS 

wage index for non-reclassified 

hospitals as shown in Tables 4A and 4B 

in the annual IPPS final rule. (In the RY 

2006 LTCH PPS final rule (70 FR 

24200), we discuss the inapplicability of 

geographic reclassification procedures 

for LTCHs.) For LTCHs located in 

Alaska and Hawaii, we propose that this 

amount would also be adjusted by the 

applicable proposed COLA factor used 

under the IPPS published annually in 

the IPPS final rule. (We note currently 

that the same COLA factors are used 

under both the IPPS and the LTCH PPS.) 

We are additionally proposing that 

this proposed revised payment 

adjustment alternative (an amount 

comparable to what would otherwise be 

paid under the IPPS for the costs of 

inpatient operating services) would also 

include a DSH adjustment (see 

§ 412.106), if applicable, for discharges 

governed by § 412.529. 

Under this proposed revision to the 

LTCH PPS SSO payment adjustment at 

proposed § 412.529(c)(2)(iv), we are 

proposing that in the case of a LTCH 

that is a teaching hospital, we would 

determine the IME payment for the 

LTCH by imputing a limit on the 

number of full-time equivalent (FTE) 

residents that may be counted for IME 

(IME cap) based on the LTCH’s direct 

GME cap (which would already have 

been established for an LTCH which 

had residency programs as set forth at 

§ 413.79(c)(2)), thus calculating an IME 

payment for this LTCH that is in accord 

with the IPPS payment formula set forth 

at § 412.105. We are adapting this 

methodology from the payment 

adjustment established for LTCH HwHs 

and LTCH satellites under § 412.534 

where the applicable payment 

alternative is described as an amount 

‘‘equivalent’’ to what would otherwise 

be paid under the IPPS. The use of a 

proxy for the IME cap is necessary 

because it would not be appropriate to 

apply the IPPS IME rules literally in the 

context of this LTCH PPS payment 

adjustment. Under the IPPS, IME 

payment regulations at § 412.105, limits 

were established on the number of FTE 

residents a hospital is permitted to 

count for IME payments based on the 

hospital’s 1996 cost report. This IME 

FTE resident cap under the IPPS would 

not translate appropriately to an LTCH 

since an LTCH would not have reported 

any FTE residents for IME on its 1996 

cost report. Therefore, we believe the 

use of the LTCH’s direct GME cap for 

the purpose of calculating the payment 

adjustment alternative under proposed 

§ 412.529(c)(2)(iv) is reasonable since it 

is based on the best available data on 

residency programs at LTCHs (which 

could be computed from direct GME 

data for LTCHs that had residency 

programs). Using an imputed GME cap 

would enable us to factor an adjustment 

for residency programs into a Medicare 

payment under the LTCH PPS for those 

SSO cases where the least of the 

payment alternatives results in an 

amount under the LTCH PPS 

comparable to what would otherwise be 

paid under the IPPS. Both a DSH 

adjustment and an IME adjustment, as 

necessary, could be computed from data 

already collected on the LTCH’s cost 

report. 

Under this proposed LTCH PPS 

payment adjustment, an amount payable 

under subpart O comparable to what 

would otherwise be paid under the IPPS 

would also include payment for the 

costs of inpatient capital-related costs 

based on the capital Federal rate at 

§ 412.308(c), which would be adjusted 

by the applicable IPPS DRG weighting 

factors at § 412.60 as set forth at 

§ 412.312(b). This amount would be 

further adjusted by the applicable 

geographic adjustment factors set forth 


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at § 412.316, including wage index, 

(based on the CBSA where a LTCH is 

physically located and derived from the 

IPPS wage index for non-reclassified 

hospitals as shown in tables 4A and 4B 

of the annual IPPS final rule) large 

urban location, if applicable, and the 

IPPS COLA factor used under the IPPS 

for LTCHs located in Alaska and 

Hawaii. (The same COLA factors are 

used under both the IPPS and the LTCH 

PPS.). 

For LTCH discharges governed by the 

proposed revision of the SSO policy 

under the LTCH PPS, an amount 

comparable to what would be paid 

under the IPPS for the inpatient capitalrelated costs would also include a DSH 

adjustment (§ 412.320), if applicable and 

an IME adjustment (§ 412.322), if 

applicable. (As with IPPS payment for 

operating costs, a DSH or an IME 

adjustment for the purposes of this 

proposed policy could be computed 

from data already collected on the 

LTCH’s cost report, as necessary.) 

Under this proposed policy, an 

amount payable under subpart O 

comparable to what would otherwise be 

paid under the IPPS would equal the 

sum of the amount comparable to what 

would otherwise be paid under the IPPS 

for the costs of inpatient operating 

services and the amount comparable to 

what would be paid under the IPPS for 

inpatient capital-related costs (as 

described previously). We note that we 

are proposing that ‘‘a LTCH PPS 

payment amount comparable to what 

would be paid under the IPPS’’ would 

not include additional payments for 

extraordinarily high cost cases under 

the IPPS outlier policy (§ 412.80(a)) 

since, under existing LTCH PPS policy, 

a SSO case that meets the criteria for a 

LTCH PPS high cost outlier payment at 

§ 412.525(a)(1) (that is, if the estimated 

costs of the case exceed the adjusted 

LTC–DRG payment plus a fixed loss 

amount) would be receive an additional 

payment under the LTCH PPS high cost 

outlier policy at § 412.525(a) (67 FR 

56026, August 30, 2002). For purposes 

of high cost outliers under the SSO 

policy, we use a fixed loss amount 

calculated under § 412.252(a) and not a 

fixed loss amount based on § 412.80(a). 

We propose to use the term 

‘‘comparable’’ in the fourth payment 

alternative so that the public would 

realize that this payment alternative is 

not exactly the same as the one that is 

similarly worded in § 412.534(c)(2), 

(d)(1), and (e)(1), discussed in section 

V.B. of this proposed rule. 

Therefore, as noted previously in this 

proposed rule, we are proposing to add 

an additional method to the existing 

payment alternatives (that is, the least of 

120 percent of the per diem LTC–DRG 

multiplied by the number of inpatient 

days as specified in § 412.529(c)(2)(i), 

120 percent of the costs of the case as 

specified in § 412.529(c)(2)(ii), or the 

full LTC–DRG payment as specified in 

§ 412.529(c)(2)(iii)). Specifically, we are 

proposing in § 412.529(c)(2)(iv) that 

Medicare would pay an amount 

comparable to the amount that would 

have been paid under the IPPS for a 

particular case if that amount is lower 

than the existing 3 payment alternatives. 

Medicare would pay the LTCH 80 

percent of the costs of the case that 

exceed the sum of the applicable option 

and the fixed loss amount determined 

under § 412.525(a). In addition, we are 

proposing a change to § 412.529(c)(2)(ii) 

that decreases the 120 percent of the 

costs to 100 percent of costs. 

Under existing LTCH PPS SSO policy 

at § 412.529(c), the payment is 

ultimately based on the least of: 120 

percent of the LTC–DRG specific per 

diem amount multiplied by the LOS of 

the discharge; 120 percent of the cost of 

the case; or the full LTC–DRG. A high 

cost outlier payment could be made for 

a SSO stay if the total costs of the case 

exceed the least of these three options, 

plus the appropriate fixed-loss amount 

under § 412.525. In this proposed rule, 

for reasons described previously, we 

have proposed to lower the 120 percent 

of costs to 100 percent, and we have 

also proposed a fourth alternative 

method for this formula: An LTCH PPS 

payment comparable to what would 

otherwise have been paid under the 

IPPS. We would emphasize that under 

this proposed policy we are not 

proposing to change the basic payment 

determinations in the existing SSO 

payment policy for high cost outliers. 

Therefore, as noted previously in this 

proposed rule, if the costs of the case 

exceeded the payment resulting from 

this formula plus the LTCH PPS fixed 

loss amount, Medicare payment to the 

LTCH for this case, would include high 

cost outlier payment set forth at 

§ 412.525. 

Accordingly, even with the proposed 

additional alternative to the SSO 

payment policy at proposed 

§ 412.529(c)(2)(iv), high cost outlier 

payments for a SSO discharge would 

continue to be paid under the existing 

SSO policy established at the start of the 

LTCH PPS (for cost reporting periods 

beginning during FY 2003) where high 

cost outlier payments, based upon the 

use of the LTCH PPS fixed loss amount, 

were governed by § 412.525. 

We note that the approach taken 

under § 412.534 for high cost outliers is 

different than the approach that has 

been taken for more than the last 3 years 

with short-stay outliers that are also 

high cost outliers (67 FR 56026, 68 FR 

34145, 69 FR 25689, 70 FR 24197). 

Specifically, since the beginning of the 

LTCH PPS, a SSO that is also a high cost 

outlier has utilized the fixed loss 

amount calculated under § 412.525. 

Accordingly, we are not aware of any 

reason at this time to change this policy, 

regardless of the fact that we are now 

proposing to add a fourth alternative 

payment method under the SSO policy 

(that is, a payment under subpart O that 

is comparable to an amount otherwise 

payable under § 412.1(a)). Furthermore, 

we believe that it is beneficial from an 

administrative efficiency perspective to 

maintain our current policy for a SSO 

that also hits high cost outlier status. 

We have provided that under the 

LTCH HwH and satellite payment 

adjustment at § 412.534, payment for 

discharges will be ‘‘the lesser of the 

amount otherwise payable under this 

subpart [subpart O] or the amount that 

is otherwise payable under this subpart 

that is equivalent to the amount that 

would be otherwise payable under 

§ 412.1(a) [the IPPS].’’ We acknowledge 

that under this policy, if payment is 

based on the latter and the case is a high 

cost outlier, § 412.80 will govern the 

LTCH PPS payment. Therefore, if the 

estimated coast of the case exceeds the 

DRG payment plus the fixed loss 

amount under § 412.80(a), the LTCH 

would receive an additional payment 

based on the high cost outlier policy 

under the IPPS. If payment is based on 

an amount otherwise payable under 

Subpart O, and the case is a high cost 

outlier, § 412.525 will govern. If the 

estimated cost of the case exceeds the 

adjusted LTCH–DRG payment plus a 

fixed loss amount under § 412.525(a), 

the LTCH would receive an additional 

payment based on the LTCH PPS high 

cost outlier policy. We believe that 

proposing the additional alternative in 

§ 412.529(c)(2)(iv) to the payment 

options under the SSO policy, which, if 

applicable, could result in a high cost 

outlier payment determined under 

§ 412.525, is consistent with our 

existing SSO high cost outlier policy 

and the proposed policy would 

maintain that consistency. However, we 

are specifically asking for comments on 

whether we should use a fixed loss 

amount derived from the IPPS high cost 

outlier policy at § 412.80(a), where the 

least of the four options in the rate is 

comparable to the IPPS rate in the event 

that a SSO case also qualifies for a high 

cost outlier payment under the LTCH 

PPS. 

We established special provisions for 

the SSO policy for subclause (II) LTCHs 

in the RY 2004 LTCH PPS final rule (68 


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FR 34147). We are proposing to exempt 

subclause (II) LTCHs from the proposed 

additional revisions to the SSO policy 

discussed previously until the 5th year 

of the phase-in for such an LTCH of the 

LTCH PPS (that is, for discharges 

occurring during cost reporting periods 

beginning on or after October 1, 2006). 

This proposed approach is consistent 

with our existing policy as it applies to 

subclause (II) LTCHs in that these 

LTCHs do not become subject to the 

specific SSO percentages established for 

subclause (I) LTCHs until cost reporting 

periods beginning on or after October 1, 

2006. Therefore, since the percentages 

applied under the SSO policy for 

subclause II LTCHs do not go to 120 

percent until the fifth year of the 

transition, the proposed reduction from 

120 percent of the estimated costs of the 

case to 100 percent of the estimated 

costs would not apply to a subclause (II) 

LTCH until that time, nor would the 

proposed additional alternative, of an 

amount payable under Subpart O 

comparable to the amount that would 

otherwise be paid under the IPPS, apply 

to discharges from a subclause (II) LTCH 

until such an LTCH’s cost reporting 

period beginning on or after October 1, 

2006. Therefore, under our proposed 

policy, we are proposing that SSO 

discharges at a subclause (II) LTCH that 

had a cost reporting period beginning on 

January 1, for example, would be subject 

to all of the four payment alternatives 

(including the proposed reduction to 

100 percent of costs and the proposed 

addition of option of ‘‘a payment 

comparable to what would otherwise 

have been paid under the IPPS’’) for 

discharges occurring on or after the start 

of its 5th year of the transition on 

January 1, 2007. 

Our proposal to exempt subclause (II) 

LTCHs from the proposed revisions to 

the SSO policy at § 412.529(c)(2) until 

cost reporting periods beginning on or 

after October 1, 2006 is consistent with 

our understanding of Congressional 

intent in establishing this special 

category of LTCHs in section 4417(b) of 

the BBA, which states that 80 percent of 

the annual Medicare inpatient 

discharges, in such a subclause (II) 

LTCH, in the 12-month reporting period 

ending in Federal FY 1997 would have 

had principal diagnosis that reflects a 

finding of neoplastic disease. The 

Congress, in enacting subclause II, 

provided an exception to the general 

definition of LTCHs under subclause I. 

In the RY 2004 LTCH PPS final rule (68 

FR 34148), we evaluated the SSO policy 

for subclause II LTCHs, and we noted 

that the unique Congressional mandate 

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). We stated that we 

believed that a LTCH in this category 

might not be able to readily address the 

type of patients and the costs it incurs 

for those patients as would LTCHs 

described under subclause I. We 

believed that it is necessary to adjust the 

short stay policy for subclause (II) 

LTCHs during the 5-year transition 

period, so that a LTCH of this type 

could continue to serve its community, 

as intended by the Congress (68 FR 

34148). 

We continue to believe that hospitals 

fitting this description fulfill a unique 

and vital service for certain Medicare 

beneficiaries. We further believe, as we 

discussed in significant detail in the RY 

2004 final rule, that it was necessary to 

temporarily adjust the short stay policy 

for subclause (II) LTCHs during the 5- 

year transition period, so that an LTCH 

of this type could continue to serve its 

community as they adjust their 

behavior. We also stated in the FY 2004 

final rule that we expected that during 

this 5-year period, the subclause (II) 

LTCHs will make every attempt to adopt 

the type of efficiency enhancing policies 

that generally result from the 

implementation of prospective payment 

systems in other health care settings (69 

FR 34148). Therefore, we are proposing 

that hospitals that qualify as subclause 

(II) LTCHs would become subject to the 

new proposed payment options for SSO 

discharges, when a subclause (II) LTCH 

would also become fully subject to the 

general SSO policy at § 412.529, which 

would be for discharges occurring in the 

cost reporting period beginning on or 

after October 1, 2006. 

b. Proposed Changes to the 

Determination of Cost-to-Charge Ratios 

(CCRs) and Reconciliation of SSO Cases 

In the June 9, 2003 IPPS outlier final 

rule (68 FR 34507), we revised the shortstay policy at § 412.529 (and the highcost outlier policy at § 412.525(a)) 

because, as we discussed above in this 

section, we believed that the SSO (and 

high cost outlier) policy are susceptible 

to the same payment vulnerabilities that 

became evident under the IPPS, and 

therefore, merited revision. Therefore, 

in the regulations under existing 

§ 412.529(c)(5)(ii) and (iii), we 

established a policy for the 

determination of LTCH CCRs and the 

reconciliation of SSO payments, for 

discharges occurring on or after August 

8, 2003 (§ 412.529(c)(5)(ii)) and October 

1, 2003 (§ 412.529(c)(5)(iii)), 

respectively. (As noted above in this 

section, in that same final rule, we 

established the same changes to the 

high-cost outlier policy at existing 

§ 412.525(a)(4)(ii) and (iii).) 

As we discuss in section IV.D.3.b. of 

this preamble, we are proposing to 

revise the existing regulations at 

§ 412.525(a)(4) to codify in subpart O of 

part 42 of the CFR the provisions 

governing the determination of LTCHs’

CCRs, including proposed modifications 

and editorial clarifications to our 

existing methodology for determining 

the annual LTCH CCR ceiling and 

applicable Statewide average CCRs 

under the LTCH PPS, and the provisions 

governing the reconciliation of high cost 

outlier payments. We are proposing 

these changes, as we discuss in greater 

detail below in this section, because we 

believe that such proposed 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 the regulatory 

provisions that pertain only to LTCHs 

for the determination of LTCH PPS 

outlier payments applicable under the 

LTCH PPS regulations in subpart O of 

part 42 of the CFR (as opposed to 

subpart A). Since CCRs are also used in 

determining SSO payments under 

§ 412.529, we are proposing, under the 

broad authority of section 123 of the 

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

revise § 412.529(c) consistent with the 

proposed changes to § 412.525(a)(4) 

discussed in section IV.D.3. of this 

preamble. 

Specifically, we are proposing that in 

§ 412.529(c)(4)(iv)(C)(2) would specify, 

that for discharges occurring on or after 

October 1, 2006, if, among other things, 

a LTCH’s CCR is in excess of the LTCH 

CCR ceiling (which would be calculated 

as 3 standard deviations above the 

corresponding national geometric mean 

CCR (established and published 

annually by CMS)), the FI may use a 

Statewide average CCR (also established 

annually by CMS). (We note that, 

similar to our current policy, we are also 

proposing under proposed 

§ 412.529(c)(4)(iv)(C) that the FI may use 

a Statewide average CCR in two other 

circumstances, which are discussed in 

greater detail below in this section.) 

This proposed change is similar to our 

existing policy (established in the June 

9, 2003 IPPS high cost outlier final rule 

(68 FR 34494)) and the proposed change 

to the LTCH PPS high cost outlier policy 

discussed previously in this proposed 

rule. Under proposed 

§ 412.529(c)(4)(iv)(C)(2), for discharges 


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occurring on or after October 1, 2006, 

we are proposing that we would 

determine the single ‘‘total’’ CCR ceiling 

(as we proposed under the high cost 

outlier policy at proposed 

§ 412.525(a)(4)(iv)(C)(2), as explained in 

section IV.D.3.b. of this preamble) by 

first calculating the total (that is, 

operating and capital) CCR for each 

hospital and then determining the 

average total CCR for all hospitals. The 

total LTCH CCR ceiling would then be 

established at 3 standard deviations 

from that average total CCR rather than 

determining the LTCH CCR ceiling by 

adding together the separate IPPS 

operating CCR ceiling and IPPS capital 

CCR ceiling as we do under our current 

policy. (We note, as discussed in greater 

detail below in this section, in 

conjunction with this proposed change 

in the calculation of the LTCH CCR 

ceiling, we are also proposing a change 

in our methodology for calculating the 

applicable Statewide average CCRs 

under the LTCH PPS to be based on 

‘‘total’’ hospital-specific CCRs.) 

Specifically, we are proposing under the 

SSO policy at § 412.529(c)(4)(iv)(C), to 

use the same IPPS CCR data that we 

currently use to annually determine the 

separate IPPS operating CCR and capital 

CCR ceilings (that we add together 

under our current policy to determine 

the annual CCR ceiling for LTCHs) to 

compute the single LTCH ‘‘total’’ CCR 

ceiling based on IPPS hospital-specific 

total (operating and capital) Medicare 

costs and charges, as explained above in 

this section. In addition, under this 

proposal, the total CCR ceiling would 

continue to be published annually in 

the IPPS proposed and final rules, and 

therefore, the public should continue to 

consult the annual IPPS proposed and 

final rules for changes to the applicable 

LTCH PPS Statewide average total CCRs 

that would be effective for discharges 

occurring on or after October 1, 2006 

(since, under this proposal the current 

applicable combined Statewide average 

CCRs, established for discharges 

occurring on or after October 1, 2005 in 

the FY 2006 IPPS final rule, would 

remain in effect for discharges occurring 

on or before September 30, 2006.) The 

rationale for this proposed change to the 

SSO policy at proposed 

§ 412.529(c)(4)(iv)(C) mirrors the 

rationale provided for the proposed 

changes to the high cost outlier policy 

at proposed § 412.525(a)(4)(iv)(C) 

discussed in section IV.D.3.b. of this 

preamble. 

Also consistent with the proposed 

changes to § 412.525(a)(4)(iv), under the 

broad authority of section 123 of the 

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

are also proposing at 

§ 412.529(c)(4)(iv)(A) through (C), for 

discharges occurring on or after October 

1, 2006, to codify in subpart O of part 

42 of the CFR the remaining LTCH PPS 

SSO policy changes concerning the 

determination of LTCHs’ CCRs that were 

established in the June 9, 2003 IPPS 

high cost outlier final rule (68 FR 34506 

through 34513), including proposed 

modifications and editorial 

clarifications to those existing policies 

established in that final rule in order to 

more precisely describe the application 

of those policies as they relate LTCHs. 

Specifically, similar to our current 

policy and consistent with the proposed 

changes to the high cost outlier policy 

at § 412.525(a)(4) discussed previously 

in this proposed rule, we are proposing 

in § 412.529(c)(4)(iv)(C) to specify that 

the FI may use a Statewide average CCR, 

which would be 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 

of this chapter); (2) LTCHs whose CCR 

is in excess of the LTCH CCR ceiling 

(that is, 3 standard deviations above the 

corresponding national geometric mean 

total CCR); and (3) other LTCHs for 

whom data with which to calculate a 

CCR is not available (for example, 

missing or faulty data). (As we noted in 

section IV.D.3.b. of this preamble and 

consistent with our current regulations, 

either CMS or the hospital may request 

the use of a different (higher or lower) 

CCR based on substantial evidence that 

such a CCR more accurately reflects the 

hospital’s actual costs and charges. This 

applies to new (as defined above) as 

well. For instance, CMS may determine 

that the applicable Statewide average 

CCR should not be applied to hospitals 

that convert from acute-care IPPS 

hospitals to LTCHs (and receive a new 

LTCH provider number). Rather, the 

cost and charge data from the IPPS 

hospital’s cost report (even if it is more 

or less than a 12-month cost reporting 

period) would be used to determine the 

LTCH’s CCR.) 

Also similar to our current practice 

and consistent with the proposed 

change to the high cost outlier policy 

discussed previously in this proposed 

rule, under § 412.525(c)(4)(iv)(C), for 

discharges occurring on or after October 

1, 2006, we are proposing that we would 

annually establish Statewide average 

‘‘total’’ CCRs for use under the LTCH 

PPS based on IPPS data by first 

calculating the total (that is, operating 

and capital) CCR for each hospital and 

then determining the average total CCR 

for all hospitals in each State rather than 

assigning the combined (operating and 

capital) Statewide average CCRs, as we 

do under our current policy. 

Specifically, in proposing to compute 

Statewide average total CCRs, we would 

use the same IPPS CCR data that we 

currently use to annually establish the 

separate IPPS operating Statewide 

average CCRs and capital Statewide 

CCRs (that we add together under our 

current policy to determine the 

applicable ‘‘combined’’ Statewide 

average CCR for LTCHs) to compute 

Statewide average total CCRs as 

explained above in this section. In 

addition, under this proposal, the 

Statewide average total CCRs would 

continue to be published annually in 

the IPPS proposed and final rules and 

therefore, the public should continue to 

consult the annual IPPS proposed and 

final rules for changes to the applicable 

LTCH PPS Statewide average total CCRs 

that would be effective for discharges 

occurring on or after October 1, 2006 

(since, under this proposal, the current 

applicable combined Statewide average 

CCRs, established for discharges 

occurring on or after October 1, 2005 in 

the FY 2006 IPPS final rule, would 

remain in effect for discharges occurring 

on or before September 30, 2006). 

Our rationale for this proposed 

change to the SSO policy at proposed 

§ 412.529(c)(4)(iv)(C) mirrors the 

rationale provided for the proposed 

changes to the high cost outlier policy 

at proposed § 412.525(a)(4)(iv)(C) 

discussed in greater detail in section 

IV.D.3.b. of this preamble. 

In addition, we are proposing under 

§ 412.529(c)(4)(iv)(B), similar to our 

current policy and consistent with the 

proposed change to the high cost outlier 

policy discussed above, for discharges 

occurring on or after October 1, 2006, 

that the CCR applied at the time a claim 

is processed would be based on either 

the most recent settled cost report or the 

most recent tentative settled cost report, 

whichever is from the latest cost 

reporting period. Furthermore, we are 

proposing under § 412.529(c)(4)(iv)(A) 

that CMS may specify an alternative to 

the CCR computed from the most recent 

settled cost report or the most recent 

tentative settled cost report, whichever 

is later, or a hospital may also request 

that its FI use a different (higher or 

lower) CCR based on substantial 

evidence presented by the hospital. As 

noted previously in this proposed rule, 

these proposed revisions to our policy 


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for determining a LTCH’s CCR for 

discharges occurring on or after October 

1, 2006 under proposed revised 

§ 412.529(c)(4)(iv)(A) and (B) are similar 

to our existing policy established in the 

June 9, 2003 IPPS high cost outlier final 

rule (68 FR 34506 through 34513) and 

consistent with the proposed changes to 

the high cost outlier policy previously 

discussed in this proposed rule. 

Furthermore, similar to our current 

policy and consistent with the proposed 

change to the high cost outlier policy 

discussed previously in this proposed 

rule , under the broad authority under 

section 123 of the BBRA as amended by 

section 307(b) of BIPA, we are also 

proposing in under § 412.529(c)(4)(iv), 

for discharges occurring on or after 

October 1, 2006, to codify in the LTCH 

PPS regulations (subpart O of part 42 of 

the CFR) the outlier reconciliation 

provisions that were established in the 

June 9, 2003 IPPS high cost outlier final 

rule (68 FR 34506 through 34513) 

including proposed editorial 

clarifications to those provisions (which 

are the same as the proposed changes to 

the high cost outlier policy discussed 

above in section IV.D.3.d. of the 

preamble of this proposed rule). 

Specifically, under 

§ 412.529(c)(4)(iv)(D), similar to our 

current policy and consistent with the 

proposed change to the high cost outlier 

policy, we are proposing to specify that, 

for discharges occurring on or after 

October 1, 2006, any reconciliation of 

outlier payments would 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 proposed 

§ 412.529(c)(4)(iv)(E), similar to our 

current policy and consistent with the 

proposed change to the high cost outlier 

policy, we are proposing to specify 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. 

This adjustment would be based upon a 

widely available index that would be 

established in advance by the Secretary 

and would be applied from the 

midpoint of the cost reporting period to 

the date of reconciliation. Our rationale 

for these proposed changes to the SSO 

policy at proposed § 412.529(c)(4)(iv)(D) 

and (E) mirrors the rationale provided 

for the proposed changes to the high 

cost outlier policy at proposed 

§ 412.525(a)(4)(iv)(D) and (E), discussed 

in greater detail in section IV.D.3.d. of 

this preamble. 

2. The 3-Day or Less Interruption of Stay 

In the RY 2005 LTCH PPS final rule, 

we revised the definition of an 

‘‘interruption of a stay’’ at § 412.531(a) 

by establishing two distinct categories, 

‘‘[a] 3-day or less interruption of stay’’

and ‘‘[a] greater than 3-day interruption 

of stay’’ at § 412.531(a)(2). The payment 

features of the ‘‘greater than 3-day’’

policy itself apply beginning with day 4 

once the ‘‘3-day or less’’ policy no 

longer applies. 

The 3-day or less interruption of stay 

policy is defined at § 412.531(a)(1) as ‘‘a 

stay at a LTCH during which a Medicare 

inpatient is discharged from the LTCH 

to an acute care hospital, IRF, SNF, or 

the patient’s home and readmitted to the 

same LTCH within 3 days of the 

discharge from the LTCH. The 3-day or 

less period begins with the date of 

discharge from the LTCH and ends not 

later than midnight of the third day.’’ As 

discussed in detail in the RY 2005 

LTCH PPS final rule (69 FR 25691 

through 25700), there are several 

components to the payment for the 3- 

day or less interruption of stay. 

First, subject to 

§ 412.531(b)(1)(ii)(A)(1) and 

(b)(1)(ii)(A)(2), only one LTC–DRG 

payment will be made to the LTCH for 

the patient who is discharged from the 

LTCH to an acute care hospital, IRF, 

SNF, or patient’s home and readmitted 

to the same LTCH within 3 days. 

Secondly, under 

§ 412.531(b)(1)(ii)(A)(2), any off-site 

tests or medical treatment, either 

inpatient or outpatient, provided at an 

acute care hospital or an IRF, or care at 

a SNF and that are not otherwise 

excluded under § 412.509(a), must be 

provided by the LTCH ‘‘under 

arrangements’’ if the patient is 

readmitted to the LTCH within 3 days. 

We established a time-limited specific 

exception to the ‘‘under arrangements’’

requirement during the RY 2005 LTCH 

PPS, at § 412.531(b)(1)(ii)(A)(1), in the 

event that the treatment was grouped to 

a surgical DRG under the IPPS at an 

acute care hospital (69 FR 25696 

through 25700). 

We also stated that in addition to 

having sufficient data to decide upon 

continuing the exception, we will 

evaluate whether additional refinements 

to the overall 3-day or less interruption 

of stay policy were warranted (69 FR 

25697). In the RY 2006 LTCH PPS final 

rule, we extended the surgical-DRG 

exception to the 3-day or less 

interruption of stay policy because, as 

we stated, ‘‘[t]he 3-day interruption of 

stay policy was first implemented on 

July 1, 2004, and, therefore, we do not 

yet have sufficient data to accomplish 

the above evaluations * * * ’’ We 

continued, ‘‘we will be analyzing claims 

data over the next year to determine 

whether the surgical DRG exception to 

the ‘under arrangements’ feature of the 

3-day or less interrupted stay policy is 

actively accomplishing our goal of 

reducing unnecessary Medicare 

payments and to deter inappropriate 

Medicare payments while not 

compromising beneficiary access to 

medically necessary services. We 

believe that we will have sufficient data 

to evaluate continuation of the 

exception and also whether additional 

refinements to the overall 3-day or less 

interruption of stay policy are 

warranted’’ (70 FR 24206). 

We also specified that we were 

particularly interested in analyzing data 

from LTCHs to determine whether there 

was a significant increase in 

interruptions of 4 days since the 

establishment of the policy. To the 

extent interruption of stay had increased 

to at least 4 days (one day past the 3- 

day threshold that would prevent the 3- 

day or less policy from being triggered), 

we believed that this behavior could 

indicate inappropriate efforts to sidestep the provisions of our 3-day or less 

interruption of stay policy. 

As part of our on-going monitoring 

program (as discussed in Section X. of 

this proposed rule), ORDI analyzed 

claims from the MedPAR files for LTCH 

discharges from July 1, 2004 through 

June 30, 2005 and performed the data 

analysis necessary for evaluating the 

impact of the surgical DRG exception to 

the 3-day or less interruption of stay 

policy. As shown in Table 10, the data 

revealed the following for RY 2005 

LTCH PPS. 

TABLE 10 

Total LTCH discharges ........................................................................................................................................................ 120,895 

Total covered charges ......................................................................................................................................................... $8,694,137,026.00 

Average covered charge ..................................................................................................................................................... $71,855.00 

Total cases assigned an IPPS Surgical DRG ..................................................................................................................... 459 


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TABLE 10—Continued 

Average covered charge for: 

Non-surgical DRGs ....................................................................................................................................................... $18,103.00 

Surgical DRGs .............................................................................................................................................................. $22,429 

Total covered charges for surgical stays were ................................................................................................................... $10,294,925 

The 459 cases that were governed by 

the surgical DRG exception represented 

0.003 percent of total LTCH discharges 

and the total covered charges for those 

surgical DRGs, $10,294,925, represented 

0.1 percent of covered charges to LTCHs 

for RY 2005. Furthermore, the data 

revealed that the median value of the 

covered charges for the surgical DRGs at 

the acute care hospitals were $14,900. In 

addition, for FY 2004, 57 percent of the 

covered charges were below $21,720 

and 90 percent were below $33,679. 

These data do not convince us that a 

continuation of the surgical DRG 

exception to the 3 day or less 

interruption of stay policy is warranted. 

We believe that the numbers cited above 

support the following conclusions: 

• The surgical cases that fell within 

this exception are present in only a 

small fraction of LTCH hospitalizations 

and that therefore, they were neither 

numerous nor would they be 

significantly costly for LTCHs to cover 

under arrangements; 

• The surgical DRGs for which 

Medicare claims were submitted by the 

acute care hospital appear to support, in 

large part, our original hypothesis (that 

if a LTCH patient was discharged to an 

acute care hospital for only 1, 2, or 3 

days, followed by a readmission to the 

LTCH, there could be reason to believe 

that the treatment delivered, even if it 

was grouped to a surgical DRG, was not 

a major procedure because of the 

relatively short LOS, and, therefore, 

should have been provided ‘‘under 

arrangements.’’) A reasonable and 

systematic examination of a subset of 

the above noted 459 surgical DRGs 

additionally revealed the following: 

• Of 47 cases governed by the 

exception and for which Medicare made 

an additional surgical DRG payment to 

the acute care hospital, in over half of 

these cases, the entire stay in the LTCH 

was also grouped to a surgical LTC–

DRG. In 10 of these cases, the IPPS DRG 

and the LTC–DRG were the same. This 

indicates that at least in these 10 cases, 

the LTCH claim included the procedure 

that was delivered at the acute care 

hospital (for which Medicare issued an 

additional payment to the IPPS) and is 

strongly suggestive of poor 

documentation in the medical record, 

poor coding, or gaming. Since LTCHs 

typically do not perform significant 

surgical procedures, three examples of 

additional irregularities are as follows: 

—LTC–DRG 468, ‘‘extensive OR 

procedures unrelated to principal 

diagnosis,’’ with DRG 478, ‘‘other 

vascular procedures w/cc’’ at the 

acute care hospital; 

—LTC–DRG 148, small and large bowel 

procedures w/cc at the LTCH and 

DRG 442 ‘‘other OR procedures with 

injuries w/cc’’ at the acute care 

hospital. 

—LTC–DRG 76, other respiratory system 

OR procedures with CC at the LTCH 

and DRG 415, O.R. procedure for 

infectious and parasitic diseases at the 

acute care hospital. 

• The specific surgical DRGs into 

which the acute care treatments were 

grouped appear to arise directly from 

the principle diagnoses at the LTCH, a 

concern that we originally stated in the 

January 30, 2004 proposed rule for the 

LTCH PPS when we described the 

‘‘under arrangements’’ feature of the 

proposed 3-day or less interruption of 

stay policy (69 FR 4771). 

Table 11 shows examples drawn from 

the above cited subset of claims for July 

1, 2004 through June 30, 2005. 

TABLE 11 

LTC–DRG DRGs 

182 (Esophagitis gastroenteritis, and miscellaneous other digestive disorders >17 w/cc.17 Other digestive system operating room procedures. 

271 Skin ulcers ......................................................................................... 270 Other skin, subcutaneous tissue and breast procedures w/cc. 

348 Prostatitis ........................................................................................... 336 Trans-urethral prostatectomy. 

87 Pulmonary edema and respiratory failure ........................................... 55 Miscellaneous ENT, mouth, or throat procedures. 

418 Post-operative and post traumatic infections .................................... 415 Operating room procedure for infectious or parasitic diseases. 

144 Other circulatory system diagnosis w/cc ........................................... 120 Other circulatory system operating room procedures. 

The basic premise of a PPS recognizes 

that Medicare pays hospitals an amount 

per discharge based on the average costs 

of delivering care for that diagnosis 

(which is assigned a DRG), and some 

cases require more hospital resources to 

be expended, where others, require less. 

Therefore, in some cases, Medicare 

payments will be lower than the 

hospital’s costs but in other cases, the 

payments will exceed the costs. In the 

January 30, 2004 LTCH PPS proposed 

rule, we stated that surgical treatment 

that is directly related to the principle 

diagnosis at the LTCH and which only 

required 3 days or less of care at the 

acute care hospital, should be provided 

by the LTCH either directly or ‘‘under 

arrangements’’ since Medicare payment 

to the LTCH for this particular case was 

‘‘payment in full’’ as specified in 

§ 412.509(b) (69 FR 4771). It has been 

standard Medicare PPS policy for over 

two decades that the LTCH 

hospitalization, the surgical treatment 

arising from this hospitalization, and 

the post-operative stay at the LTCH are 

to be viewed as one episode of care and 

therefore, the LTC–DRG payment would 

be adequate compensation for the entire 

episode. (In fact, when LTCHs were 

paid under the reasonable-cost based 

TEFRA payment policy—subject to 

hospital-specific ceilings or ‘target 

amounts’—prior to the FY 2003 

implementation of the LTCH PPS, the 

‘‘under arrangements’’ policy, enabled 

LTCHs to include the costs of these offsite treatments on Medicare claims, 

thereby resulting in higher TEFRA target 

amounts.) However, when we restated 

the ‘‘under arrangements’’ policy for the 

3-day or less interruption of stay, and 

proposed its codification in the RY 2005 

proposed rule for the LTCH PPS, in 

response to comments received on the 

January 30, 2004 proposed rule, we did 

agree to establish a 1-year exception to 

the ‘‘under arrangements’’ feature of the 

3-day or less interruption of stay policy 

for cases that grouped to a surgical DRG 


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during an intervening acute care 

hospitalization. We subsequently 

extended this exception for an 

additional year in order to gather 

sufficient data with which to determine 

the value of retaining this exception to 

the general policy. 

Therefore, based on the above data 

analysis and under the broad 

discretionary authority granted by 

section 123 of the BBRA as amended by 

section 307(b) of the BIPA for the 

Secretary for the development and 

implementation of the LTCH PPS, 

(including the ability to make 

appropriate adjustments), we are 

proposing not to renew the surgicalDRG exception to interrupted stay of 3 

days or less policy for LTCH PPS RY 

2007. Under § 412.531, with the 

proposed sunsetting of this exception 

for LTCH PPS RY 2007, treatment at an 

acute care hospital that was grouped to 

a surgical DRG would be considered 

part of the LTCH stay and paid for by 

the LTCH ‘‘under arrangements.’’ (see 

§ 412.509(c)). Our analytic sample of 

LTCH cases that included a 3 day or less 

interruption of stay that was governed 

by the surgical DRG-exception, indicates 

that at least one-half of the LTCH claims 

themselves included surgical care, 

despite the patient’s discharge to the 

acute care hospital for treatment that 

was grouped to a surgical DRG and for 

which a separate claim was submitted to 

Medicare by the acute care hospital. 

Since typically, LTCHs do not perform 

significant surgical procedures, upon 

analyzing the data, CMS coders have 

suggested that some of the LTCH claims 

may inappropriately be including the 

surgical procedure performed during the 

prior acute care stay, complications 

from which led to the LTCH admission. 

Alternatively, if LTCHs are presently 

coding for the surgical procedures that 

are being delivered in the acute care 

hospital during a 3-day or less 

interruption of stay, in many of these 

cases they should be paying for this 

treatment ‘‘under arrangements.’’

Furthermore, in the cases where both 

the same DRG is reported by both the 

LTCH and the acute care hospital 

treating the patient during the 3 day or 

less interruption, Medicare may be 

paying twice for the same treatment. In 

any event, the above scenarios are 

indicative of poor documentation in the 

medical record, poor coding, or gaming 

of the Medicare system. 

Therefore, we are proposing to 

discontinue this policy because we do 

not believe that the surgical exception to 

the 3-day or less interruption of stay 

policy is ‘‘* * * actively accomplishing 

our goal of reducing unnecessary 

Medicare payments and * * * 

deter[ing] unnecessary inappropriate 

Medicare payments while not 

compromising beneficiary access to 

medically necessary services’’ (70 FR 

24206). 

However, there were cases among 

those that we reviewed, that may have 

been accurately coded, and that actually 

represented a LTCH patient whose 

LTCH treatment was interrupted by a 

surgery which entailed a 3-day or less 

inpatient stay at an acute care hospital 

for a problem unrelated to the on-going 

treatment at the LTCH. Once the 

proposed sunsetting of the surgical DRG 

exception goes into effect, an LTCH will 

be responsible for paying for surgical 

cases performed at an acute care 

hospital ‘‘under arrangements’’ but at 

that point, will also be able to include 

that surgical procedure on the claim that 

will be submitted to Medicare for the 

entire stay. Our coders tell us that the 

presence of a significant surgical 

procedure on the claim may impact the 

LTC–DRG to which a case is assigned by 

the GROUPER software used by the FI 

in determining the amount that 

Medicare will pay for that case. 

However, there may be situations where 

this does not occur and inclusion of the 

surgical procedure does not result in 

grouping the case to a higher-weighted 

LTC–DRG (and thus increase the 

Medicare payment). In these cases, we 

would emphasize, that, since, as noted 

previously, the ‘‘under arrangements’’

policy was a feature of the previous 

TEFRA payment policy, prior to the FY 

2003 implementation of the LTCH PPS, 

and costs of off-site surgeries were 

typically included in LTCH claims, so 

that to the extent providers included 

those costs on their claims, that these 

costs were included in the 

establishment of the LTCH PPS base 

rate, which section 123(a)(1) of the 

BBRA required to be budget neutral for 

FY 2003, to what Medicare would pay 

had the PPS not been implemented. 

We would further note that we do not 

believe that the numbers of cases 

nationwide that would fall within the 

surgical DRG exception would represent 

a significant financial burden for LTCHs 

to absorb over a cost-reporting period, 

given the nature of the LTCH PPS. 

We also believe, that the LTCH PPS 

high cost outlier policy at § 412.525(a) 

will provide somewhat of a financial 

cushion for the LTCH in those very few 

cases where a LTCH patient whose 

hospitalization at the LTCH was 

interrupted for 3 days or less for a very 

costly surgical treatment at an acute care 

hospital, in the same way that it 

presently does if costs for a costly nonsurgical inpatient or outpatient 

treatment during a 3 day or less 

interrupted stay at an acute care 

hospital, an IRF, or for care at a SNF, 

result in high cost outlier status for that 

case at the LTCH. Accordingly, we are 

not proposing to extend this exception 

because we believe that our analysis of 

the data from the MedPAR files from 

LTCH discharges occurring from July 1, 

2004 through June 30, 2005 indicates 

that the exception does not appear to 

have an overall beneficial effect on the 

program nor would its absence have a 

strong negative impact on LTCHs. 

Our further examination of the subset 

of the data indicates that the exception 

may be fostering confusion, 

perpetuating poor coding, and even 

encouraging gaming by creating a 

distinction within the well-established 

Medicare ‘‘under arrangements’’ policy 

between surgical and non-surgical 

procedures and treatments delivered 

during an episode of hospital-level care. 

Moreover, we have discovered many 

LTCHs are including the surgical 

procedures performed at the acute care 

hospital during the interruption, in their 

claims and therefore the LTCH 

hospitalizations are being grouped to 

surgical DRGs while claims for what 

appear to be the same surgeries are also 

being submitted by acute care hospitals. 

Use of the same surgical DRG in both 

the LTCH’s claim for the case and the 

acute care hospital’s claims for the 

surgery in some of these cases indicates 

that Medicare may be paying twice for 

the exact same operation, a situation 

directly contravened by sections 

1862(a)(14) and 1861(w)(1) of the Act, 

§ 411.15, § 412.509 and one that may 

involve fraud and abuse issues. 

In the RY 2006 LTCH PPS final rule 

(70 FR 24206), we also expressed 

concerns about the whether our data 

would reveal an increase in the numbers 

of interruptions of 4 days indicating an 

effort by certain LTCHs to side-step the 

‘‘under arrangements’’ provisions of our 

3-day or less interruption of stay policy. 

Our data revealed that there were 1,076 

4-day stays at acute care hospitals 

following a LTCH hospitalization during 

the 2005 rate year, of which 528 (just 

under half) returned for further 

treatment to the LTCH following the 4- 

day interruption. If the interruption in 

an LTCH patient’s stay exceeds 3 days, 

under existing policy at 

§ 412.531(b)(1)(ii)(B)and § 412.531(c), 

payment would be governed by the 

greater than 3-day or interruption of stay 

policy at § 412.531(b) and Medicare 

would generate a separate payment to 

an intervening provider where the 

patient received treatment or care, thus 

discharging the LTCH from 

responsibility to pay for the acute care 

services ‘‘under arrangements.’’


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Furthermore, an interruption in a LTCH 

stay in excess of 3 days, where the 

patient returns home but still receives 

outpatient treatment prior to returning 

to the LTCH, would result not only in 

separate Medicare payments for the 

outpatient care but would also in an 

additional discharge payment to the 

LTCH since the greater than 3-day 

interruption of stay policy only applies 

to intervening acute care hospital, IRF, 

or SNF stays. We will be evaluating data 

from RY 2004 and RY 2005 on Medicare 

payments for services or care delivered 

during LTCH interruptions of stay of 4 

days that would otherwise have been 

governed by the ‘‘under arrangements’’

feature of the 3-day or less interruption 

of stay policy at § 412.531(b)(1)(ii)(A)(2) 

to determine whether an additional day 

is being arbitrarily added to the 

interruption prior to readmittance to the 

LTCH for purposes of thwarting the goal 

of the policy. We believe it may be 

appropriate in the future to propose a 

revision to the 3-day interruption 

provision and to establish a 4-day 

threshold. 

B. Special Payment Provisions for LTCH 

Hospitals Within Hospitals and LTCH 

Satellites 

In the IPPS final rule for FY 2005, 

when we established the special 

payment provisions at § 412.534 for 

LTCHs that were HwHs or were 

satellites of LTCHs, we were seeking, in 

part, to address the on-going 

proliferation of LTCHs that were HwHs 

or satellites. (OSCAR files report that 

there were 105 LTCHs in 1993, of which 

10 were HwHs. In October 2005, there 

are 373 LTCHs, many of which are 

HwHs.) We were particularly concerned 

with patient shifting between the host 

hospitals and the LTCH HwH or satellite 

for financial rather than for medical 

reasons (69 FR 49191) and with the 

resulting inappropriate increased cost to 

the Medicare system. 

In that PPS final rule, we quoted the 

FY 1995 IPPS final rule where we first 

discussed the 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 two 

Medicare bills being submitted and paid 

(one from the acute care hospital and 

the other from the LTCH) for what was 

essentially one episode of care. (69 FR 

49191, 59 FR 45389) When we 

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 protect the integrity of 

the IPPS by ensuring that those costly, 

long-stay patients who could reasonably 

continue treatment in that setting would 

not be unnecessarily discharged to an 

onsite LTCH, a behavior that would 

skew and undermine the Medicare IPPS 

DRG system. 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. This assumes that, 

on average, both high-cost and low-cost 

patients are treated at a hospital. 

Although Medicare might pay a hospital 

less than was expended for a particular 

case, over a period of time, the hospital 

would also receive more than was 

expended for other cases. However, an 

acute care hospital that consistently 

discharges higher cost patients to a postacute care setting for the purpose of 

lowering its costs undercuts the 

foundation of the IPPS DRG system, 

which is based on averages. In this 

circumstance, the hospital 

inappropriately would have incurred 

lower costs under the IPPS because the 

course of acute treatment was not 

completed and the hospital did not 

incur those additional costs for the 

remainder of the patient’s stay at the 

IPPS acute care hospital. Once that 

patient is discharged from the IPPS 

acute care hospital to the LTCH, the 

patient, still under active treatment for 

an acute illness, will be admitted to a 

LTCH, thereby generating a second 

admission and Medicare payment that 

would not have taken place but for the 

fact of co-location (59 FR 45389). 

As explained previously, there was 

and continues to be concern that the 

LTCH HwH/host configuration could 

result in patient admission, treatment, 

and discharge patterns that are guided 

more by attempts to maximize Medicare 

payments than by patient welfare. In 

order to establish clear division between 

a host hospital and an on-site LTCH 

where the linking of an IPPS hospital 

and a LTCH could lead to two Medicare 

payments for what was essentially one 

episode of patient care, we issued 

‘‘separateness and control’’ regulations 

in that FY 1995 IPPS Final Rule at 

(former) § 412.23(e), for LTCHs that 

were seeking to co-locate with acute 

care hospitals as HwHs (59 FR 45390). 

In the ensuing decade, we revisited the 

issue of HwHs several times (for 

example, 60 FR 45836, 62 FR 46012, 67 

FR 56010, 68 FR 45462), during which 

we clarified and amplified the 

separateness and control requirements. 

In the FY 1998 IPPS final rule, we 

extended the application of these rules 

beyond LTCHs to include other classes 

of facilities that might seek exclusion 

from the IPPS as HwHs, such as IRFs 

(although the vast majority of HwHs 

have continued to be LTCHs) (62 FR 

46014). Additionally, although our 

original regulations for HwHs focused 

solely on the relationship between a 

LTCH HwH and an acute care host, and 

this is still, by far, the most common 

configuration, nothing in the regulations 

precludes other types of hospitals, for 

example, an IRFs from establishing 

HwHs (69 FR 49198). 

In addition, in the FY 1998 final rule, 

we established a ‘‘grandfathering’’

provision for HwHs in existence prior to 

September 30, 1995 at § 412.22(f), and 

in the FY 2004 IPPS final rule, we 

clarified and codified the requirements 

for ‘‘grandfathered’’ HwHs (68 FR 

45463). We believed at that time that 

these rules were sufficient solutions to 

our concerns about LTCH HwHs 

functioning as long-stay units of acute 

care hosts. 

Therefore, prior to FY 2005, a HwH 

was required to meet the separateness 

and control criteria set forth at 

§ 412.22(e). In order to be excluded from 

the IPPS, the HwH had to have a 

separate governing body, a separate 

chief medical officer, a separate medical 

staff, and a separate chief executive 

officer. Regarding the performance of 

basic hospital functions (former 

§ 412.22(e)(5)), the hospital had to meet 

at least one of the following criteria: (1) 

The hospital performs the basic 

functions through the use of employees 

or under contracts or other agreements 

with entities other than the hospital 

occupying space in the same building or 

on the same campus, or a third entity 

that controls both hospitals; (2) for the 

same period of at least 6 months 

immediately preceding the first cost 

reporting period for which exclusion is 

sought, the cost of the services that the 

hospital obtained under contracts or 

other agreements with the hospital 

occupying space in the same building or 

on the same campus, or with a third 

entity that controls both hospitals, is no 

more than 15 percent of the hospital’s 

total inpatient operating costs, as 

defined in § 412.2(c) (that is, inpatient 

operating costs include operating costs 

for routine services, such as costs of 

room, board, and routine nursing 

services; operating costs for ancillary 

services such as laboratory or radiology; 

special care unit operating costs; 

malpractice insurance costs related to 

serving inpatients; and preadmission 

services); or (3) for the same period of 

at least 6 months immediately preceding 

the first cost reporting period for which 

exclusion is sought, the hospital had an 

inpatient population of whom at least 

75 percent were referred to the hospital 

from a source other than another 

hospital occupying space in the same 


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building or on the same campus or with 

a third entity that controls both 

hospitals. 

It was our experience that the vast 

majority of HwHs elected to meet the 

second of the three criteria at 

§ 412.22(e)(5), that is, the cost of the 

services that the hospital obtained from 

the co-located hospital or with a third 

entity that controls both hospitals could 

be no more than 15 percent of its total 

inpatient operating costs. 

As detailed in the FY 2005 proposed 

rule and final rule for the IPPS (69 FR 

28323 through 28327, 69 FR 49191 

through 49214), with the noted 

explosive growth in the number of 

LTCHs, (and with LTCH HwHs, in 

particular) and concomitant costs to the 

Medicare program, we reevaluated the 

effectiveness of existing policies 

regarding HwHs insofar as whether they 

sufficiently protected the Medicare 

program from the problems that we 

envisioned in the FY 1995 IPPS final 

rule and subsequent rules. We also 

questioned the effectiveness of the 

‘‘separateness and control’’

requirements alone because entities 

have used complex arrangements among 

corporate affiliates, and obtained 

services from those affiliates, thereby 

impairing or diluting the separateness of 

the corporate entity. While technically 

remaining within the parameters of the 

rule, these arrangements were 

intermingling corporate interests so that 

the corporate distinctness has been lost. 

In accordance with notice and 

comment rule-making and following 

serious consideration of the public 

comments that we received on our 

proposed policy revisions for LTCH 

HwHs, regulatory changes were 

finalized for HwH separateness and 

control policies at § 412.22(e) and a new 

payment adjustment at § 412.534 was 

established for LTCH HwHs and 

satellites of LTCHs in our FY 2005 IPPS 

final rule (69 FR 49191 through 49214). 

Specifically, for cost reporting periods 

beginning on or after October 1, 2004, 

for LTCHs we eliminated the 15 percent 

test under then existing 

§ 412.22(e)(5)(ii), the performance of 

basic hospital functions test under 

former § 412.22(e)(5)(i) and the 75 

percent of admissions from other than 

the host criteria at former 

§ 412.22(e)(5)(iii) for LTCH HwHs. If a 

LTCH demonstrated compliance with 

the medical and administrative 

separateness, and control policies at 

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

our finalized policy, it satisfied the 

LTCH HwH requirements. We 

additionally established a payment 

adjustment for LTCH HwHs (and also 

for satellites of LTCHs) at § 412.534, 

which we believed addressed our ongoing concerns regarding the 

relationship between LTCH discharges 

who were admitted from the host 

hospital. We included LTCH satellites 

in this payment adjustment because we 

believe that that the co-location of a host 

hospital and a LTCH satellite may result 

in the same incentives for inappropriate 

patient movement as exist for hosts and 

LTCH HwHs. 

The payment adjustment at § 412.534, 

Special payment provisions for longterm care hospitals within hospitals and 

satellites of LTCHs, mandated 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. The adjustment would be the 

lesser of the otherwise payable amount 

under the LTCH PPS or the LTCH PPS 

amount that was equivalent to what 

Medicare would otherwise pay under 

the IPPS. In determining whether a 

hospital exceeded the 25 percent 

criterion, patients transferred from the 

host hospital that have already qualified 

for outlier payments at the host would 

not count as part of the host’s 25 percent 

(or the applicable percentage) and 

therefore, the payment would not be 

subject to the adjustment. Those 

patients would be eligible for otherwise 

unadjusted payment under the LTCH 

PPS. Discharged Medicare patients that 

were admitted from the host before the 

LTCH HwH or LTCH satellite crosses 

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 LTCH HwHs 

or LTCH satellites located in a rural 

area, instead of the 25 percent criterion, 

the payment adjustment would be 

imposed if the majority (that is, more 

than 50 percent) of the Medicare 

patients discharged from the LTCH 

HwH or LTCH satellite were admitted 

from the host. That is, for those LTCH 

HwH or satellite Medicare discharges in 

excess of the 50 percent threshold, the 

payment adjustment would be applied 

unless those cases had reached high cost 

outlier status at the host hospital prior 

to discharge, in which case, they would 

not be counted towards the 50 percent 

threshold. In addition, in determining 

the percentage of Medicare patients 

discharged from the LTCH HwH or 

LTCH satellite that were admitted from 

the rural host, any patients that had 

been Medicare outliers at the host and 

then discharged to the LTCH HwH or 

LTCH satellite would be considered as 

if they were admitted to the LTCH from 

a non-host hospital. For urban single or 

MSA dominant hospitals, we would 

allow the LTCH HwH or LTCH satellite 

to discharge Medicare patients that were 

admitted from the host up to the host’s 

percentage of total Medicare discharges 

for like hospitals in the MSA. We would 

apply a floor of 25 percent and a ceiling 

of 50 percent to this variation. In 

addition, in determining the percentage 

of discharged Medicare patients that 

were admitted to the LTCH HwH or 

LTCH satellite 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. 

We also provided a 4-year transition 

for existing LTCH HwHs or LTCH 

satellites for the purpose of providing a 

reasonable period during which the host 

and the LTCH HwH or LTCH satellite 

would be able to adapt to the 

requirements of the new policy. Also 

included in this transition policy were 

LTCHs-under-formation that satisfied 

the following two-prong requirement: 

(1) The hospital was paid under the 

provisions of subpart O of part 412 on 

October 1, 2005, and (2) whose 

qualifying period under § 412.23(e) 

began on or before October 1, 2004. For 

cost reporting periods beginning on or 

after October 1, 2004 through September 

30, 2005, these hospitals were to be 

grandfathered, with the first year as a 

‘‘hold harmless’. 

However, we required that even for 

grandfathered facilities, in the first cost 

reporting period, the hold harmless 

year, the percentage of Medicare 

discharges admitted from the host 

hospital to the LTCH HwH or LTCH 

satellite could not exceed the percentage 

of discharges admitted from the host 

hospital to the LTCH in its FY 2004 cost 

reporting period. Therefore, while we 

grandfathered existing LTCH HwHs and 

allowing for a 4-year transition, 

beginning on or after October 1, 2004 

and before October 1, 2005 (FY 2005), 

those hospitals could not increase the 

percentage of discharges admitted from 

the host in excess of the percentage that 

they had admitted in FY 2004. 

After the first grandfathered cost 

reporting period, these LTCH HwHs and 

LTCH satellites were required to meet a 

percentage transition over the 3 years 

beginning in FY 2006. For the second 

year (cost reporting periods beginning 

on or after October 1, 2005 but before 

October 1, 2006), the applicable 

percentage of discharges admitted from 

the host with no payment adjustment 


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would be the lesser of the percentage of 

their discharges admitted from their 

host for their FY 2004 cost reporting 

period or 75 percent. For the third year 

(cost reporting periods beginning on or 

after October 1, 2006 but before October 

1, 2007), the applicable percentage of 

discharges admitted from the host with 

no payment adjustment would be the 

lesser of the percentage of their 

discharges admitted from their host for 

their FY 2004 cost reporting period or 

50 percent, and finally 25 percent (or 

other applicable percentage) beginning 

with the third year (cost reporting 

periods beginning on or after October 1, 

2008). 

These finalized payment policies and 

the concerns that they address echo 

concerns first expressed in the FY 1995 

final rule for the IPPS, when we began 

to regulate new entities that we named 

‘‘hospitals within hospitals.’’ As noted 

elsewhere in this preamble, the reason 

that we proposed the changes in the 

criteria for LTCH HwH qualification at 

§ 412.22(e) in the FY 2005 IPPS 

proposed rule (69 FR 28323 through 

28327) was the nexus between these 

concerns and the recent explosive 

growth in the numbers of LTCH HwHs. 

Furthermore, as detailed in the FY 2005 

IPPS final rule, (69 FR 49201), these 

regulations were grounded in a 

thorough review of the available data as 

well as exhaustive policy evaluations. 

The present 25 percent policy is being 

implemented in a location-specific 

manner, which means that 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. 

However as a result of our monitoring 

efforts to date (see section X. of the 

preamble to this proposed rule), we 

have become increasingly aware that the 

intent of our existing policy is being 

thwarted by creative patient-shifting in 

some communities where there is more 

than one LTCH HwH or LTCH satellite. 

We have come to understand, based 

upon specific inquiries from LTCHs and 

their attorneys or agents, and also from 

questions posed by our fiscal 

intermediaries (FIs), that some host 

hospitals within the same community 

are arranging to cross-refer to another’s 

co-located LTCH (HwH or satellite). 

This behavior circumvents the intent of 

the payment adjustment which was to 

hinder the de facto establishment of a 

LTCH unit of a host hospital, which is 

precluded by law, and to discourage 

inappropriate patient-shifting between a 

host and a LTCH HwH or satellite. This 

practice undermines the basic premise 

of the IPPS DRG classification system 

and generates inappropriate Medicare 

payments. Another attempt to 

circumvent the present regulation at 

§ 412.534 is a situation wherein a 

patient at a LTCH (that is co-located 

with a host as a HwH or satellite) admits 

a patient from the host, provides 

treatment, then transports the patient to 

another location of that LTCH (a freestanding hospital or another HwH or 

satellite not co-located with the host 

hospital) for special treatment after 

which the patient is discharged from 

that other location. Since the payment 

adjustment is being implemented in a 

location-specific basis, we believe that 

this ‘‘transporting’’ of the patient to 

another site is an attempt to side-step 

the location-specific feature of the 

existing payment adjustment. We have 

considerable concern about attempts to 

game Medicare by circumventing the 

intent of the 25 percent (or applicable 

percentage) patient threshold payment 

adjustment at § 412.534. 

In addition, as a result of 

implementing the payment adjustment 

at § 412.534 for patients exceeding the 

25 percent (or applicable percentage) 

threshold for LTCH HwHs and satellites 

of LTCHs, the most recent growth in the 

LTCH universe is occurring with the 

development of free-standing LTCHs. 

Many of these facilities receive patients 

from one referring hospital and as is the 

case with host/HwH or satellite 

configurations, we are concerned about 

these non-co-located LTCHs may, in 

fact, be functioning like a long-stay unit 

of those referring hospitals. 

As we first stated in the FY 1995 IPPS 

final rule, ‘‘we agree that the extent to 

which a facility accepts patients from 

outside sources can be an important 

indicator of its function as a separate 

facility, not merely a unit of another 

hospital. In general, a facility’s 

functional separateness should be 

reflected in its ability to attract patients 

from sources other than the hospital that 

it serves. For example, if a facility 

receives all (or nearly all) of its 

admissions independently (that is, from 

outside sources), it can reasonably be 

assumed to be functioning separately 

from the host hospital (59 FR 45391).’’

In establishing the concept of 

‘‘functional separateness’’ in the above 

quote from the FY 1995 IPPS final rule, 

we were identifying a broader 

phenomenon than just the relationship 

between a host acute care hospital and 

a LTCH HwH or satellite of a LTCH. As 

noted below, this concern has been 

communicated to us from a variety of 

sources. 

MedPAC’s comments on the proposed 

payment adjustment for LTCH HwHs in 

the FY 2005 IPPS proposed rule focused 

directly on this issue and 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 its 

concerns were the following: 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 a 25 percent rule that only 

applies to LTCH HwHs and not to 

freestanding LTCHs and may therefore 

be inequitable; and furthermore, this 

approach may be circumvented by an 

increase in the number of freestanding 

LTCHs instead of a LTCH HwH (69 FR 

49211). 

We received comments on the FY 

2005 IPPS proposed rule (69 FR 28196) 

challenging a proposed policy to 

preclude common ownership of a host 

and a HwH (which we did not finalize). 

Two other commenters noted that the 

financial incentive to accept 

inappropriate patients from an acute 

care hospital can exist when the acute 

care hospital and the LTCH are 

commonly owned or when there is 

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). 

In discussion with a LTCH trade 

association, we were informed of a 

study that it commissioned from the 

Lewin Group that included a percentage 

breakdown of patients referred to freestanding (for example, non-co-located) 

LTCHs (and other post-acute providers) 

from ‘‘single-source acute hospitals.’’

According to the association, the data 

indicated ‘‘* * * that it is common 

practice for LTCHs * * * to admit 

patients from a single-source acute care 

hospital’’ and that 71.2 percent of freestanding LTCHs admit more than 25 

percent of their patients from a single 

source acute-care hospital. 

We are also anecdotally aware of the 

existence of frequent ‘‘arrangements’’ in 

many communities between Medicare 

acute and post-acute hospital-level 

providers that may not have any ties of 

ownership or governance relating to 

patient shifting that are based on mutual 

financial advantage rather than on 

significant medical benefits for a 

patient. 


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In our response to the MedPAC 

comment, we stated that ‘‘[w]hile we 

also understand the reservations 

expressed in the comments, we want to 

emphasize that * * * we are 

establishing these revised payment 

policies in this final notice for LTCH 

HwHs or satellites and not freestanding 

LTCHs because of the considerable 

growth in the number of LTCH HwH 

and because, ever since we first became 

aware of the existence of LTCH HwHs 

in 1994, we have been mindful of the 

strong resemblance that they bore to 

LTCH units of acute care hospitals, a 

configuration precluded by statute (69 

FR 49211).’’

Notwithstanding this response and 

the finalized payment adjustment at 

§ 412.534 which focused solely on 

LTCH HwHs and satellites of LTCHs, we 

took considerable note of these 

comments and the specific information 

that they included. Since 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.), we have become aware that 

the growth in the LTCH universe is now 

occurring through the development of 

free-standing LTCHs. As of October 

2005, there were 376 LTCHs in our 

OSCAR database, of which 201 are 

reported as freestanding (for example, 

not co-located with another Medicare 

hospital-level provider) and 175 of 

which are HwHs. But since October 1, 

2004, of the 25 new LTCHs established, 

22 are free-standing. We have been 

informed directly that at least one 

particular LTCH chain that formerly 

specialized in the establishment of 

HwHs and satellites is now 

concentrating on the development of 

free-standing LTCHs. Reviews 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 free-standing LTCHs which 

we believe may imply a response to the 

payment adjustment for co-located 

LTCHs established under § 412.534. 

We believe that this information 

indicates that the concerns that we 

expressed about the explosive growth in 

the number of LTCHs has shifted 

because of the implementation of the 

payment adjustment at § 412.534 from 

the development of co-located LTCHs as 

HwHs or satellites of LTCHs to the 

establishment of free-standing LTCHs. 

We further conducted our own data 

analysis of sole-source (for example, one 

hospital referring to one LTCH) 

relationships between acute care 

hospitals and non-co-located LTCHs. 

The FY 2004 and FY 2005 MedPAR files 

indicate 63.7 percent of the 201 freestanding LTCHs have at least 25 percent 

of their Medicare discharges admitted 

from a sole acute care hospital; for 23.9 

percent of the freestanding LTCHs, the 

percentage is 50 percent or more; and 

for 6.5 percent, 75 percent or more of 

their Medicare discharges are admitted 

from a sole acute care hospital. 

We therefore believe that the danger 

of LTCHs functioning as ‘‘units’’

appears to be occurring not only in 

LTCH HwHs and LTCH satellites but 

also with free-standing LTCHs and 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. We 

are concerned about these situations 

and in this context, we continue to 

believe that ‘‘* * * the extent to which 

a facility accepts patients from outside 

sources can be an important indicator of 

its function as a separate facility, not 

merely a unit of another hospital (59 FR 

45391).’’

We believe that our analysis of the 

available data and our awareness of 

growth patterns and behavioral changes 

in the LTCH industry corroborate the 

concerns expressed in correspondence 

and comments, but particularly in 

MedPAC’s comments on our proposed 

payment adjustment for co-located 

LTCHs in the FY 2004 IPPS final rule 

(69 FR 49211). In addition, the spiked 

increase in the number of free-standing 

LTCHs and their admission patterns 

appear to confirm MedPAC’s concerns 

that the industry may be circumventing 

the intent of the payment adjustment 

policy at § 412.534 aimed at combating 

LTCHs functioning as ‘‘units’’ by 

creating free-standing LTCHs instead of 

LTCHs co-located as HwHs or satellites. 

As we note previously in this 

proposed rule, we are keenly aware of 

the explosive growth in the number of 

free-standing LTCHs. Specifically, we 

are continuing to analyze patient claims 

data for acute care patients who are 

admitted to free-standing LTCHs for 

discharge and LOS information in order 

to evaluate whether Medicare is paying 

twice for what would essentially be one 

episode of care. We are considering 

appropriate adjustments to address this 

issue. 

Furthermore, we want to emphasize 

that we are closely monitoring patient 

shifting activities between host 

hospitals and LTCH HwHs or LTCH 

satellites, paying particular attention to 

evidence of inappropriate crossreferrals. We believe that a pattern of 

this behavior by hospitals would 

indicate an attempt to side-step the 

requirements of § 412.534 and could 

warrant an investigation by HHS’s 

Office of the Investigator General. 

Under § 412.534 for LTCH cost 

reporting periods beginning on or after 

October 1, 2004, we published the 

existing payment adjustment detailed 

above, for LTCH HwHs and LTCH 

satellites that focused on the percentage 

of Medicare patients being shifted from 

host hospitals to co-located LTCHs. 

Under this provision, we specified that 

if greater than 25 percent (or the 

appropriate percentage) of a LTCH 

HwH’s or LTCH satellite’s discharges 

during any cost reporting year were 

admitted from a host hospital, a 

payment adjustment would be applied 

to those discharges that exceeded the 

applicable threshold percentage (unless 

those patients had reached high-cost 

outlier status at the host hospital as 

specified in § 412.534(c)). (For LTCHs 

that qualified under § 412.534(f), we 

established a 4-year transition to the full 

payment adjustment.) Specifically, this 

payment adjustment provides that 

Medicare will pay the lesser of the 

amount otherwise payable under the 

LTCH PPS or an LTCH PPS payment 

amount equivalent to what would be 

paid under the IPPS for discharges in 

excess of the threshold amount. 

It has come to our attention that the 

phrase ‘‘an amount equivalent to the 

amount that would otherwise be 

determined under the rules at subpart 

A, § 412.1(a)’’, that is, the IPPS, in 

existing § 412.534(c)(2), (d)(1), and (e)(1) 

and our specific interpretation of its 

implementation may not be entirely 

apparent. Therefore, we are clarifying 

that, as explained below in this section, 

the use of the term ‘‘equivalent’’ does 

not necessarily mean precisely equal. 

We are also proposing to codify the 

formula that we currently use to give 

effect to this phrase in existing 

§ 412.534, described in this proposed 

rule, for purposes of administrative 

clarity. 

To clarify the meaning of the term 

‘‘equivalent,’’ we want to emphasize 

that we chose that word rather than 

‘‘equal’’ when referring to the amount 

payable under this subpart (the amount 

that is equivalent to the ‘‘* * * amount 

that would be otherwise determined 

under the rules at subpart A, § 412.1(a)). 

The term ‘‘equivalent’’ was used in this 

regulation because, although it was and 

continues to be our intent to include a 

payment adjustment under the LTCH 

PPS that closely replicates what an IPPS 

payment would have been for the same 

episode of care, several features of the 

IPPS cannot be translated directly into 

the LTCH PPS. Therefore, we believed 

that the term ‘‘equivalent’’ would 


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support the ultimate goals of the policy 

adjustment, while also allowing for a 

reasonable and equitable 

implementation. For example, under the 

IPPS, payments for IME are limited 

based on the hospital’s IME cap. The 

hospital’s IME cap is determined based 

on the number of IME FTE residents 

counted by the hospital for purposes of 

IME on its 1996 cost report. In the case 

of a LTCH, since it necessarily would 

not have reported any FTE residents for 

IME on its 1996 cost report, it would not 

be appropriate to apply the IPPS IME 

rules literally in the context of this 

LTCH PPS payment adjustment. 

We are clarifying that we chose to use 

the term ‘‘equivalent’’ in § 412.534(c)(2), 

(d)(1), and (e)(1) because we believe this 

language accurately reflects our intent to 

apply IPPS payment principles to 

develop a payment that approximates 

for LTCHs the payment for a particular 

case that would have been made under 

the IPPS. For example, in the case of a 

LTCH that is a teaching hospital, if a 

particular LTCH discharge is governed 

by the 25 percent payment policy 

adjustment set forth at § 412.534, we 

would determine the IME payment 

under the LTCH PPS by imputing an 

IME cap based on the LTCH’s direct 

GME cap (which would have been 

determined for an LTCH that has 

residency programs as set forth at 

§ 413.79(c)(2)) and using that imputed 

IME cap to calculate an IME payment 

for this LTCH. We believe this 

methodology is reasonable since it is 

based on the best available data on 

residency programs at LTCHs. Using an 

imputed IME cap could enable us to 

factor an adjustment for indirect costs of 

residency programs into a Medicare 

payment under the payment adjustment 

at § 412.534 for those cases in excess of 

the 25 percent (or applicable 

percentage) threshold where the 

Medicare payment would be based on 

an amount under the LTCH PPS 

equivalent to what would otherwise be 

paid under the IPPS. 

As explained previously, we are 

proposing to codify the formula we use 

to give affect to the phrase ‘‘an amount 

under subpart O that is equivalent to 

what otherwise would be paid under the 

IPPS.’’ The existing regulations at 

§ 412.534(c)(2), (d)(1), and (e)(1) 

establish the applicable payment 

adjustment for LTCH HwHs and 

satellites not subject to the transition 

established under § 412.534(f) for cost 

reporting periods beginning on or after 

October 1, 2004 and for cost reporting 

periods beginning on or after October 1, 

2007 for those LTCH HwHs and LTCH 

satellites that will be transitioning to the 

full adjustment. Under those provisions, 

Medicare will pay for discharges from a 

LTCH HwH or LTCH satellite that were 

admitted from their host hospital in 

excess of the 25 percent (or applicable 

percentage) threshold based upon the 

lesser of the amount otherwise payable 

under [the LTCH PPS] or the amount 

payable under this subpart that is 

equivalent to the amount that would 

otherwise be payable under [the IPPS]. 

The paragraphs below detail the specific 

payment features of the IPPS that we 

use and are proposing to codify in 

regulation for administrative efficiency 

in order to allow Medicare to generate 

a fair and equitable ‘‘equivalent’’ IPPS 

payment under the LTCH PPS for those 

LTCH discharges governed by the 

payment adjustment at § 412.534. 

In the discussion that follows, we use 

phrases such as ‘‘IPPS DRG relative 

weights,’’ the ‘‘IPPS high cost outlier’’

and the ‘‘IPPS fixed loss amount’’ in 

describing features of the IPPS that we 

use in calculating LTCH payments for 

LTCH HwHs and LTCH satellites. 

However, we want to emphasize that 

such a payment is not an IPPS payment 

but rather, a payment under the LTCH 

PPS that is generally derived from the 

IPPS payment methodology. 

Specifically, under § 412.534, we are 

proposing to codify the formula that we 

use to give affect to the phrase, an 

amount payable under this subpart that 

is equivalent to what would be paid 

under the [IPPS]. This formula provides 

that an amount under subpart O that is 

equivalent to what would otherwise 

have been paid under the IPPS, would 

be calculated based on the sum of the 

applicable operating and capital IPPS 

rates in effect at the time of the 

discharge from the LTCH as established 

in the applicable IPPS final rule 

published annually in the Federal 

Register (since there is a single rate 

under the LTCH PPS to pay for the 

operating and capital costs of the 

inpatient hospitals services provided to 

LTCH Medicare patients) and applicable 

IPPS payment system adjustments for 

differences in resource use (that is, IPPS 

DRG relative weights); differences in 

area wage levels (that is, the IPPS wage 

index); cost-of-living adjustment, if 

applicable; the treatment of a 

disproportionate share of low income 

patients (DSH), if applicable; and 

indirect medical education (IME), if 

applicable. If the amount payable by 

Medicare for a specific discharge was 

the amount under subpart O that is 

equivalent to what would be otherwise 

payable under the IPPS and the case 

also qualified as an IPPS high cost 

outlier under this payment adjustment 

formula, payment would be based on 

the IPPS high cost outlier policy at 

§ 412.80(a) because the resulting 

payment would then be more equivalent 

to what would have been payable under 

the IPPS. (Similarly, if under this 

payment adjustment, the lesser amount 

resulted in an ‘‘otherwise payable 

amount under the LTCH PPS,’’ and the 

stay qualified as a high-cost outlier, 

Medicare would generate a high cost 

outlier payment governed by the LTCH 

PPS high cost outlier policy at 

§ 412.525(a).) 

Under this formula, we are proposing 

to codify in regulations, an amount 

payable under this subpart that is 

equivalent to what would otherwise be 

paid under the IPPS for the costs of 

inpatient operating services would be 

based on the standardized amount 

determined under § 412.64(c), adjusted 

by the applicable IPPS DRG weighting 

factors as specified in § 412.64(g). This 

amount would be further adjusted for 

area wage levels using the applicable 

IPPS labor-related share based on the 

CBSA where the LTCH is physically 

located set forth at § 412.525(c) and the 

IPPS wage index for non-reclassified 

hospitals as shown in Tables 4A and 4B 

in the annual IPPS final rule. (In the RY 

2005 LTCH PPS final rule (70 FR 24200) 

we discuss the inapplicability of 

geographic reclassification procedures 

for LTCHs.) For LTCHs located in 

Alaska and Hawaii, this amount would 

also be adjusted by the applicable COLA 

factors used under the IPPS. 

Furthermore, for LTCH discharges 

governed by this payment adjustment, 

an amount payable under subpart O that 

is equivalent to what would otherwise 

be paid under the IPPS for the costs of 

inpatient operating services would also 

include, where applicable, a DSH 

adjustment (§ 412.106) and where 

applicable, an IME adjustment (as 

discussed at § 413.79(c)(2)). 

Additionally, to arrive at an LTCH 

PPS payment amount equivalent to 

what would otherwise be payable under 

the IPPS, a LTCH would also be paid 

under the LTCH PPS for the costs of 

inpatient capital-related costs, using the 

capital Federal rate determined under 

§ 412.308(c), adjusted by the applicable 

IPPS DRG weighting factors at § 412.60. 

This amount would be further adjusted 

by the applicable geographic adjustment 

factors set forth at § 412.316, including 

local cost variation (based on the IPPS 

wage index for non-reclassified 

hospitals in Tables 4A and 4B of the 

annual IPPS final rule), large urban 

location and COLA, if applicable, based 

on the IPPS geographic classifications 

published annually in the IPPS final 

rule. 

For discharges governed by this 

payment adjustment under the LTCH 


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PPS, an amount payable under subpart 

O that is equivalent to an amount that 

would otherwise be paid under the IPPS 

for the inpatient capital-related costs 

would also include a DSH adjustment 

(§ 412.320), if applicable and an 

equivalent IME adjustment, (§ 412.322) 

if applicable. 

A LTCH PPS payment amount 

equivalent to what would be paid under 

the IPPS would be determined based on 

the sum of the amount equivalent to 

what would be paid under the IPPS 

inpatient operating services and the 

amount equivalent to what would be 

paid under the IPPS for inpatient 

capital-related costs. This is necessary 

since under the IPPS, there are separate 

Medicare rates for operating (subpart D 

of part 412) and capital (subpart M of 

part 412) costs to acute care hospitals 

while under the LTCH PPS, there is a 

single payment rate for the operating 

and capital costs of the inpatient 

hospitals services provided to LTCH 

Medicare patients. 

We note that in section V.A.1. of this 

proposed rule, we have proposed an 

additional component to the SSO 

payment adjustment at proposed 

§ 412.529(c)(2)(iv) that is based on an 

amount ‘‘comparable’’ to what would 

otherwise be paid under the IPPS rather 

than an amount ‘‘equivalent’’ under the 

existing payment adjustment at 

§ 412.534. Although the proposed new 

payment adjustment option under the 

SSO policy was adapted from the 

existing LTCH HwH and LTCH satellite 

payment adjustment at § 412.534, it also 

preserves a distinction in the existing 

SSO policy established at the start of the 

LTCH PPS for FY 2003: The use of the 

LTCH PPS fixed loss amount should a 

SSO case also qualify for high cost 

outlier payments after the SSO payment 

amount is determined. In contrast, as 

noted previously, under the payment 

adjustment for LTCH HwHs and LTCH 

satellites at § 412.534, if the amount 

payable by Medicare for a specific 

discharge was the amount under subpart 

O that is equivalent to what would be 

otherwise payable under the IPPS and 

the case also qualified as a high cost 

outlier, the outlier payment for this case 

under the LTCH PPS would be based on 

the IPPS high cost outlier policy at 

§ 412.80(a) because the resulting 

payment would then be more equivalent 

to what would have been payable under 

the IPPS. Similarly, if under this 

payment adjustment, the lesser amount 

resulted in an ‘‘otherwise payable 

amount under the LTCH PPS,’’ and the 

stay qualified as a high-cost outlier, 

Medicare would generate a high cost 

outlier payment governed by the LTCH 

PPS fixed loss amount calculated under 

§ 412.525(a). If the estimated cost of the 

case exceeds the adjusted LTC–DRG 

plus a fixed loss amount under 

§ 412.525(a), the LTCH would receive an 

additional payment based on the LTCH 

PPS high cost outlier policy. 

Therefore, although there are 

significant similarities between the two 

payment adjustments, as detailed in 

section V.A.1 of this proposed rule, 

there is a distinction between them 

regarding the computation of any 

applicable high cost outlier payments. 

Under the LTCH HwH and satellite 

payment adjustment at § 412.534, 

payment for discharges governed by the 

policy, will be ‘‘the lesser of the amount 

otherwise payable under this subpart 

[subpart O] or the amount that is 

otherwise payable under this subpart 

that is equivalent to the amount that 

would be otherwise payable under 

§ 412.1(a) [the IPPS].’’ From an 

implementation standpoint, Medicare 

would generate an applicable payment 

to the LTCH for this discharge (which 

could include a high cost outlier 

payment) but this payment would be 

subject to reconciliation at the end of 

the LTCH’s cost reporting period when 

it would be determined whether or not 

the particular discharge was subject to 

the payment adjustment at § 412.534, 

that is, whether the discharge exceeded 

the 25 percent (or applicable 

percentage) threshold. If this is the case, 

and the calculation of the lesser of the 

amounts for a specific discharge 

resulted in Medicare paying an amount 

under the LTCH PPS that was 

equivalent to what would otherwise 

have been paid under the IPPS, and that 

payment included a high cost outlier 

payment, this LTCH PPS payment 

would be governed by the regulations at 

§ 412.80(a), based on the IPPS high cost 

outlier policy. If the lesser of the two 

amounts is the otherwise payable 

amount under the LTCH PPS (which 

could be the case if the stay was a SSO, 

under § 412.529) the original LTCH PPS 

Medicare payment which included the 

high cost outlier payment under 

§ 412.525 will be finalized by the FI. 

In contrast, under the existing LTCH 

PPS SSO policy at § 412.529(c), high 

cost outlier payments could be made for 

a SSO stay, regardless of whether the 

payment is ultimately based on: 120 

percent of the LTC–DRG specific per 

diem amount multiplied by the LOS of 

the discharge; 120 percent of the cost of 

the case; or the full LTC–DRG, if the 

total costs of the case exceed the least 

of these three options, plus the 

appropriate fixed-loss amount under 

§ 412.525. In this proposed rule, for 

reasons described in section V.A.1, we 

have proposed to lower the 120 percent 

of costs to 100 percent, and we have 

also proposed the above noted 

additional alternative to this formula: 

An LTCH PPS payment comparable to 

what would otherwise have been paid 

under the IPPS. We have not proposed 

to change the existing SSO payment 

policy for high cost outliers, even 

though we are proposing this new 

alternative, and therefore, if the costs of 

the case exceeded the payment resulting 

from this formula by the fixed loss 

amount under the LTCH PPS, Medicare 

payment to the LTCH for this case, 

would include high cost outlier 

payment set forth at § 412.525. 

Therefore, although there are 

significant similarities between the 

payment adjustment at existing 

§ 412.534, under which Medicare pays 

an amount equivalent to what would 

otherwise have been paid under the 

IPPS (which we are proposing to clarify 

and codify at § 412.534(f)(1)), and the 

proposed additional payment 

alternative under the SSO adjustment at 

proposed § 412.529(c)(2)(iv), under 

which Medicare would pay an amount 

comparable to what would otherwise 

have been paid under the IPPS, we wish 

to emphasize the distinctions in 

applicable high cost outlier payments 

under these two payment adjustments. 

Consequently, we are clarifying the 

term ‘‘equivalent’’ at § 412.534(c)(2), 

(d)(1), and (e)(1) in our payment 

adjustment and proposing to codify the 

formula we use to give affect to these 

existing regulations. 

In § 412.534, we established special 

payment provisions for long-term care 

hospitals within hospitals and satellites 

of LTCHs. (69 FR 49206) At 

subparagraph (d), we set forth a further 

payment adjustment for LTCHs that 

were co-located as HwHs or as satellites 

of LTCHs with rural hospitals and we 

cited the definition of rural at 

§ 412.62(f). This cite was incorrect since 

beginning in FY 2005, we adopted 

OMB’s revised standards for defining 

MSAs (69 FR 49026) and therefore, the 

definition of rural that we intended to 

cite in § 412.534(d) was 

§ 412.64(b)(1)(ii)(C). We are therefore 

proposing to correct § 412.534(d) to 

correctly cite the revised definition of 

rural at § 412.64(b)(1)(ii)(C). 

VI. Computing the Proposed Adjusted 

Federal Prospective Payments for the 

2007 LTCH PPS Rate Year 

In accordance with § 412.525 and as 

discussed in section IV.C. of this 

proposed 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 


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index (as shown in Tables 1 and 2 of the 

Addendum to this proposed 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 7 

in section IV.D.1.c. of this preamble). In 

the RY 2006 LTCH PPS final rule (70 FR 

24180), we established a standard 

Federal rate of $38,086.04 for the 2006 

LTCH PPS rate year. In this proposed 

rule, based on the best available data 

and the proposed policies described in 

this proposed rule, we are proposing 

that the standard Federal rate for the 

2007 LTCH PPS rate year remain 

$38,086.04 as discussed in section IV.B. 

of this preamble. We illustrate the 

methodology used to adjust the 

proposed Federal prospective payments 

for the 2007 LTCH PPS rate year in the 

following examples: 

Example: During the 2007 LTCH PPS 

rate year, a Medicare patient is in a 

LTCH located in Chicago, Illinois (CBSA 

16974). This LTCH is in the fourth year 

of the wage index phase-in, thus, the 

proposed four-fifths wage index values 

are applicable. The proposed four-fifths 

wage index value for CBSA 16974 is 

1.0632 (see Table 1 in the Addendum to 

this proposed rule). The Medicare 

patient is classified into LTC–DRG 9 

(Spinal Disorders and Injuries), which 

has a relative weight of 0.9720 (see 

Table 3 of the Addendum to this 

proposed rule). 

To calculate the LTCH’s total 

proposed adjusted Federal prospective 

payment for this Medicare patient, we 

compute the proposed wage-adjusted 

Federal prospective payment amount by 

multiplying the proposed unadjusted 

standard Federal rate ($38,086.04) by 

the proposed labor-related share (75.923 

percent) and the proposed wage index 

value (1.0632). This proposed wageadjusted amount is then added to the 

nonlabor-related portion of the 

proposed unadjusted standard Federal 

rate (24.077 percent; adjusted for cost of 

living, if applicable) to determine the 

adjusted Federal rate, which is then 

multiplied by the LTC–DRG relative 

weight (0.9720) to calculate the total 

proposed adjusted Federal prospective 

payment for the 2007 LTCH PPS rate 

year ($38,795.95). Finally, as discussed 

in section IV.C.5. of this preamble, for 

the 2007 LTCH PPS rate year, we 

proposed a 0.0 percent reduction (a 

budget neutrality offset of 1.000) to the 

total proposed adjusted Federal 

prospective payment to account for the 

costs of the transition methodology. 

The following illustrates the 

components of the calculations in the 

example in Table 12. 

TABLE 12 

Unadjusted Proposed Standard Federal Prospective Payment Rate ................................................................................................. $38,086.04 

Proposed Labor-Related Share ........................................................................................................................................................... × 0.75923 

Proposed Labor-Related Portion of the Federal Rate ........................................................................................................................ = $28,916.06 

Proposed 4⁄5ths Wage Index (CBSA 16974) ....................................................................................................................................... × 1.0632 

Proposed Wage-Adjusted Labor Share of Federal Rate .................................................................................................................... = $30,743.55 

Proposed Nonlabor-Related Portion of the Federal Rate ($38,086.04 × 0.24077) ............................................................................ + $9,169.98 

Proposed Adjusted Federal Rate Amount ........................................................................................................................................... = $39,913.53 

LTC–DRG 9 Relative Weight .............................................................................................................................................................. × 0.9720 

Total Proposed Adjusted Federal Prospective Payment (Before the Budget Neutrality Offset) ........................................................ = $38,795.95 

Proposed Budget Neutrality Offset ...................................................................................................................................................... × 0.999 

Total Proposed Federal Prospective Payment (Including the Budget Neutrality Offset) .................................................................... = $38,757.15 

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)) receives 

payment consisting of a portion based 

on reasonable cost-based reimbursement 

under the TEFRA system and a portion 

based on the Federal prospective 

payment rate (unless the LTCH elects 

payment based on 100 percent of the 

Federal rate). Under the average pricing 

system, payment is not based on the 

experience of an individual hospital. As 

discussed in the August 30, 2002 final 

rule (67 FR 56038), we believe that a 5- 

year phase-in provides LTCHs time to 

adjust their operations and capital 

financing to the LTCH PPS, which is 

based on prospectively determined 

Federal payment rates. Furthermore, we 

believe that the 5-year phase-in of the 

LTCH PPS also allows 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 begins 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 payment under 

the LTCH PPS is based on two payment 

percentages—one based on reasonable 

cost-based (TEFRA) payments and the 

other based on the standard Federal 

prospective payment rate. The 

percentage of payment based on the 

LTCH PPS Federal rate increases by 20 

percentage points each year, while the 

reasonable cost-based payment rate 

percentage decreases 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. The blend percentages as set forth 

in § 412.533(a) are shown in Table 13. 

TABLE 13 

Cost reporting 

periods beginning on or after 

Federal rate 

percentage 

Reasonable 

cost principles rate 

percentage 

October 1, 2002 20 80 

October 1, 2003 40 60 

October 1, 2004 60 40 

October 1, 2005 80 20 

October 1, 2006 100 0 

For cost reporting periods that begin 

on or after October 1, 2005, and before 

October 1, 2006 (FY 2006), the total 

payment for an existing LTCH that has 

not elected payment under 100 percent 

of the Federal prospective payment rate 


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is 20 percent of the amount calculated 

under reasonable cost principles for that 

specific LTCH and 80 percent of the 

Federal prospective payment amount. 

For cost reporting periods that begin on 

or after October 1, 2006 (FY 2007), the 

total payment for a LTCH will be zero 

percent of the amount calculated under 

reasonable cost principles for that 

specific LTCH and 100 percent of the 

Federal prospective payment amount. 

As we noted in the June 6, 2003 final 

rule (68 FR 34155), the change in the 

effective date of the annual LTCH PPS 

rate update from October 1 to July 1 has 

no effect on the LTCH PPS transition 

period as set forth in § 412.533(a). That 

is, LTCHs paid under the transition 

blend under § 412.533(a) will receive 

those blend percentages for the entire 5- 

year transition period (unless they elect 

payments based on 100 percent of the 

Federal rate). Furthermore, LTCHs paid 

under the transition blend will receive 

the appropriate blend percentages of the 

Federal and reasonable cost-based rate 

for their entire cost reporting period as 

prescribed in § 412.533(a)(1) through 

(a)(5). 

The reasonable cost-based rate 

percentage is a LTCH specific amount 

that is based on the amount that the 

LTCH would have been paid (under 

TEFRA) if the PPS were not 

implemented. Medicare FIs will 

continue to compute the LTCH 

reasonable cost-based payment amount 

according to § 412.22(b) of the 

regulations and sections 1886(d) and (g) 

of the Act. 

In implementing the LTCH PPS, one 

of our goals is 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 allow an LTCH (other 

than new LTCHs defined at 

§ 412.23(e)(4)), which is 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 

rather than incrementally shifting from 

reasonable cost-based payments to 

prospective payments. Once a LTCH 

elects to be paid based on 100 percent 

of the Federal rate, it will not be able to 

revert to the transition blend. For cost 

reporting periods that began on or after 

December 1, 2002 through September 

30, 2006, a LTCH must notify its FI in 

writing of its election on or before the 

30th day prior to the start of the LTCH’s 

next cost reporting period regardless of 

any postmarks or anticipated delivery 

dates. For example, a LTCH with a cost 

reporting period that begins on May 1, 

2006, must notify its FI in writing of an 

election on or before April 1, 2006. 

Under § 412.533(c)(2)(i), the 

notification by the LTCH to make the 

election must be made in writing to the 

Medicare FI. Under § 412.533 (c)(2)(iii), 

the FI must receive the request on or 

before the specified date (that is, on or 

before the 30th day before the 

applicable cost reporting period begins 

for cost reporting periods beginning on 

or after December 1, 2002 through 

September 30, 2006), regardless of any 

postmarks or anticipated delivery dates. 

Requests received, postmarked, or 

delivered by other means after the 

specified date in § 412.533(c)(2)(iii) will 

not be accepted. If the specified date 

falls on a day that the postal service or 

other delivery sources are not open for 

business, the LTCH will be responsible 

for allowing sufficient time for the 

delivery of the request before the 

deadline. If a LTCH’s request is not 

received timely, payment will be based 

on the transition period blend 

percentages. 

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 begins on or after October 1, 

2002. We also specify in § 412.500 that 

the LTCH PPS is applicable to LTCHs 

for cost reporting periods 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). As stated in 

§ 413.40(f)(2)(ii), for cost reporting 

periods beginning on or after October 1, 

1997, the payment amount for a ‘‘new’’

(post-FY 1998) LTCH is the lower of the 

hospital’s net inpatient operating cost 

per case or 110 percent of the national 

median target amount payment limit for 

hospitals in the same class for cost 

reporting periods ending during FY 

1996, updated to the applicable cost 

reporting period (see 62 FR 46019, 

August 29, 1997). Under the LTCH PPS, 

those ‘‘new’’ LTCHs that meet the 

definition of ‘‘new’’ under 

§ 413.40(f)(2)(ii) and that have their first 

cost reporting period as a LTCH 

beginning prior to October 1, 2002, will 

be paid under the transition 

methodology described in § 412.533. 

Under § 412.533(d), new LTCHs will 

not participate in the 5-year transition 

from reasonable cost-based 

reimbursement to prospective payment. 

As we discussed in the August 30, 2002 

final rule (67 FR 56040), the transition 

period is 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 do not believe that those 

new LTCHs require 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 high-cost 

outlier 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 obtained under 

arrangement, or the costs of 

photocopying and mailing medical 

records requested by a Quality 

Improvement Organization (QIO), which 

are costs paid outside the LTCH PPS. 


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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 paid during 

the 5-year transition based on the 

blended transition methodology in 

§ 412.533(a) 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 high-cost outlier 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 factors, anesthesia services by 

hospital-employed nonphysician 

anesthetists or obtained under 

arrangement, and the costs of 

photocopying and mailing medical 

records requested by a QIO, are subject 

to the interim payment provisions 

(§ 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 ‘‘should include 

any high cost outlier 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. To this end, we 

have designed system features utilizing 

MedPAR data that will enable CMS and 

the FI to track beneficiary movement to 

and from a LTCH and to and from 

another Medicare provider. We also 

stated our intent to collect and interpret 

data on changes in average lengths of 

stay under the LTCH PPS for specific 

LTC–DRGs and the impact of these 

changes on the Medicare program. As a 

result of our data analysis, we have 

revisited a number of our original and 

even pre-LTCH 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 25690 through 25700), 

and we established a payment 

adjustment for LTCH HwHs and 

satellites in the FY 2005 IPPS final rule 

(69 FR 49191 through 49214). 

On-going data analysis is also the 

basis for four of the policies that we are 

proposing in this notice. As noted in 

section V.A.2, we are proposing to 

‘‘sunset’’ the surgical DRG exception to 

the 3 day or less interruption of stay 

policy at § 412.531(b)(1)(ii)(A)(1). As we 

discuss in detail in section V.A.1., we 

have determined that eliminating this 

exception will not result in significant 

hardship for LTCHs. In section V.A.2., 

we have also revisited the payment 

adjustment established for short-stay 

outliers (§ 412.529) as a consequence of 

recent data analysis and have proposed 

additional options under that policy. In 

addition to these three proposed 

policies, as a result of our analysis and 

on-going monitoring protocols, we are 

also proposing a zero percent update to 

the Federal payment rate for RY 2007, 

which is explained in detail in section 

IV.B.4. of this proposed rule. 

As we discuss in section V.B.1., our 

monitoring of discharges between acute 

care hospitals and LTCHs reveals that a 

significant number of LTCHs that are 

‘‘free-standing’’, that is, not colocated 

with other hospital-level providers (as 

defined in § 412.22(e) and § 412.22(h)), 

also 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 reiterated 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.) Therefore, we note 

that in addition to monitoring 

compliance with the payment 

adjustment established under § 412.534 

for LTCH HwHs and satellites of LTCHs, 

we will also be monitoring admissions 

of patients to freestanding LTCHs from 

referring acute hospitals. We believe 

that on-going data analysis of this 

patient movement may enable us to 

determine whether these ‘‘freestanding’’ LTCHs are functioning, in a 

similar way as some LTCH HwHs and 

LTCH satellites, as step-down units of 

their referring hospitals and are 

considering additional payment 

adjustments to address this issue. 

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 and on-going functioning 

of the LTCH PPS. Furthermore, the 

Commission pursued an independent 

research initiative that led to a section 

in the MedPAC Report entitled 

‘‘Defining long-term care hospitals’’

published in the June, 2004 Report to 

Congress. This study included 

recommendations that we develop 

facility and patient criteria for LTCH 

admission and treatment and that we 

require a review by Quality 

Improvement Organizations (QIO) to 

evaluate whether LTCH admissions 

meet criteria for medical necessity once 

the recommended facility and patient 

criteria are established. 

Therefore, in addition to pursuing our 

on-going monitoring program under the 

direction of ORDI, 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, we awarded a contract to Research 

Triangle Institute, International (RTI) in 

September 2004 for a thorough 

examination of the feasibility of 

implementing MedPAC’s 

recommendations in the June 2004 

Report to Congress (which we detail in 

section XI. of this proposed rule). In the 

RY 2005 LTCH PPS final rule, we noted 

that this research contract, which was 

funded for FY 2005 was presently being 

executed and therefore, we anticipated 

that we would be able to include some 

preliminary findings in the RY 2007 

LTCH PPS final rule. In this proposed 

rule, as noted previously, we have 

included a section that describes RTI’s 

analyses for the purpose of providing an 

opportunity for public comment prior to 

the finalizing of RTI’s final report. 

XI. RTI Report on MedPAC June 2004 

LTCH Recommendations 

In the RY 2006 LTCH PPS final rule 

(70 FR 24209), we discussed Chapter 5 

of MedPAC’s June 2004 Report to 

Congress (RTC), ‘‘Defining Long-Term 

Care Hospitals’’ (LTCHs). In that Report, 

the Commission recommended that the 

Congress and the Secretary define 

LTCHs by facility and patient criteria to 

ensure that patients admitted to LTCH 

facilities are medically complex and 

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addition, the Commission 

recommended expanding the statement 

of work for the Quality Improvement 

Organizations (QIOs) to enable them to 

monitor LTCH compliance with any 

newly-established hospital and patient 

criteria. 

As detailed in that same final rule, in 

response to the recommendation in 

MedPAC’s June 2004 Report, on 

September 27, 2004, we awarded a 

contract to Research Triangle Institute, 

International (RTI) for a thorough 

examination of the feasibility of 

implementing the Commission’s 

recommendations based on the 

performance of a wide variety of 

analytic tasks using CMS data files, and 

information RTI would collect from 

physicians, providers, and LTCH trade 

associations. This contract, ‘‘Long Term 

Care Hospital (LTCH) Payment System 

Refinement/Evaluation,’’ will result in a 

report that will assist CMS in the 

development of criteria for assuring 

appropriate and cost-effective use of 

LTCHs in the Medicare program. With 

the recommendations of MedPAC’s June 

2004 Report to Congress as a point of 

departure, RTI began to evaluate the 

feasibility of developing patient and 

facility level characteristics for LTCHs 

in order to identify and distinguish the 

role of these hospitals as a Medicare 

provider. 

In that same final rule, we also 

described RTI’s project plan which will 

be completed in two phases. Phase I 

focuses on an analysis of LTCHs within 

the current Medicare system: their 

history as participating providers; their 

case mix; the criteria currently used by 

QIOs to determine the appropriateness 

of treatment in LTCHs; and the site of 

care for patients treated in areas that 

lack LTCHs. RTI is reviewing prior 

analyses of these issues by MedPAC and 

other contractors (such as the Urban 

Institute, 3M Health Information 

Systems, and The Lewin Group) and is 

also having additional discussions with 

MedPAC, other researchers, and the 

QIOs. Building on the work of Phase I, 

Phase II addresses the feasibility of 

MedPAC’s proposed criteria based on a 

three-pronged approach: Medicare 

claims analysis to examine patient 

differences across settings; interviews 

with QIOs and providers to examine 

level of care definitions currently being 

used or tested; and finally site visits to 

interview providers with the objective 

of distinguishing LTCHs from other 

inpatient settings for payment purposes. 

During October through December 2005, 

RTI scheduled and conducted site visits 

to LTCHs throughout the country that 

are representative of the various types of 

LTCHs. A team of RTI researchers and 

CMS analysts, including a physician, 

participated in these visits. 

A. Overview of the Issues 

RTI’s research is guided by a 

conceptual framework based upon 

several fundamental premises: 

• The goal of the Medicare program is 

the cost-effective delivery of the highest 

quality of medical services to 

beneficiaries. 

• LTCHs are the highest paid 

hospitals in the Medicare program. 

Despite the fact that their availability 

varies widely across the nation, they 

have increased in numbers 

exponentially over the last 10 years. The 

research is to determine whether this 

increase is due to growing patient 

demand or industry response to 

generous payment policies. 

• In parts of the country that lack 

LTCHs, LTCH-type patients may receive 

hospital-level treatment at acute 

hospitals as outlier patients, at IRFs, or 

in some cases, IPFs with significantly 

lower payments per beneficiary 

discharge than at LTCHs. The research 

attempts to determine whether patient 

outcomes are equivalent across these 

sites. 

In order to evaluate the feasibility of 

developing patient and facility-level 

criteria specific to LTCHs, it must be 

determined whether there are 

identifiable differences in the care 

delivered at LTCHs as compared with 

other hospital-level providers for the 

same type of Medicare patient and if so, 

what distinguishes the services 

delivered by LTCHs from services at 

other settings. One clear and easily 

measurable difference is Medicare 

payments for services since payments 

for LTCH-type patients may differ 

dramatically depending on site of care 

due to the different base payment rates 

for each provider category. Determining 

whether there is a correlation between 

the higher payments at LTCHs and 

improved patient outcomes for the same 

types of patients in different treatment 

settings is the central question RTI will 

answer. Since there is a wide variation 

in the range of post-acute care available 

throughout the country, if payments are 

equivalent per case and patient 

outcomes are generally equal in 

different areas of the country, the 

variations may be explained as a 

reflection of variations in regional 

practices. However, if outcomes differ 

substantially for certain types of 

patients, indicating that LTCH patients 

have better outcomes, the recent growth 

of the LTCH industry could result in the 

availability of a better level of care for 

Medicare beneficiaries nationwide. 

Alternatively, if payments differ 

between provider types but patient 

outcomes are equivalent, one could 

question whether higher cost LTCH 

services are needed for all types of cases 

currently treated, or more specifically, 

which types of patients benefit from the 

higher cost LTCH services. Building on 

MedPAC’s earlier work (May 2004, June 

2004), RTI researchers are examining 

differences in payments and outcomes 

for patients treated in these various 

settings. 

B. Describing the LTCH Universe since 

FY 2003 

RTI is examining changes in the 

availability of LTCHs over time. The 

number of LTCHs has more than tripled 

from 105 in 1993 to 363 as of March 

2005. Although the two States with the 

largest number of LTCHs are Texas and 

Louisiana, substantial growth is also 

occurring in States with large numbers 

of elderly populations including 

Pennsylvania, Ohio, Michigan, Georgia, 

Indiana, and Oklahoma. 

Using Geographic Information 

Services (GIS) software to spatially 

present the different types of inpatient 

post-acute services in acute care 

hospital referral regions (as defined by 

Dartmouth Atlas 2005), RTI is 

highlighting the regional variation in the 

availability of LTCHs and other 

substitute providers. The resulting maps 

indicate that while LTCHs are widely 

available in the northeast and southern 

States, in the western part of the nation 

they are localized in several small areas 

(for example, Nevada and Utah) and 

relatively few LTCHs exist on the west 

coast. IPFs and IRFs, in contrast, are 

more common in the west and north 

central parts of the U.S. where there are 

few, if any, LTCHs. Also, RTI is 

identifying significant changes in the 

LTCH universe in terms of their 

ownership. The draft report submitted 

to CMS notes the following facts: 

• For-profit hospitals entered the 

market during the 1990s and grew 

continuously until 2005 when they 

accounted for 58 percent of all LTCHs. 

• While the number of non-profit 

hospitals also grew rapidly, they 

continued to account for only one-third 

of all LTCHs through 2005. 

• The number of government-owned 

hospitals declined dramatically from 25 

percent to only 8 percent of the LTCHs 

in 2005. 

There are generally three distinct 

types of LTCHs with the following basic 

characteristics and patients: 

• The majority of LTCHs specialize in 

what they consider to be medically 

complex patients (including many 

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patients), and some of these have ICUtype units; 

• In some regions, LTCHs may focus 

on rehabilitation patients; and 

• In other areas, LTCHs may be 

primarily treating patients who could 

otherwise be in IPFs. 

LTCHs in these last two categories 

differ significantly from the first, 

because generally the patients are less 

medically complex. 

C. Patient, Facility, and Alternative 

Treatment Site Analysis 

RTI is analyzing claims from the 100 

percent MedPAR files for CY 2003, 

including acute care, LTCH, IRF, IPF, 

and SNF records. Episodes are 

constructed to include 180 days of 

potential use beginning with admission 

to the index hospital and including 

payments and use of associated home 

health services. The fundamental goals 

of the analytic work are to identify 

differences between patient 

populations, utilization patterns, 

outcomes, Medicare program payments 

by site of care, and most significantly, 

to develop a profile of the LTCH 

admission in 2003. This profile is based 

on primary diagnoses and examines the 

use of other services prior and 

subsequent to the LTCH admission. 

RTI is also analyzing the data for the 

acute care hospital patients with 

multiple comorbidities who have 

reached outlier status at the acute care 

hospital with data for LTCH patients 

with similar profiles. Data on acute care 

patients who have reached outlier status 

prior to admission to an LTCH are 

evaluated to determine if there are: (1) 

Clear factors that predicted LTCH use, 

(2) differences in hospital readmission 

rates between those who use LTCHs and 

those who do not; and (3) program cost 

differences between the two types of 

patients. 

D. Specific Findings From Claims 

Analysis 

The following is a summary of the 

specific issues that the RTI draft report 

will examine followed by a brief 

description of their draft findings from 

their review of 100 percent of CY 2003 

MedPAR data. 

1. LTCHs Population 

Table 14 lists the 50 most common 

DRGs admitted to LTCHs in 2003 as a 

result of the draft report findings and 

their relative ranking in various settings. 

The top five types of admissions 

illustrate the heterogeneity of the 

population treated in these facilities and 

their relative importance as admissions 

to other facilities. While the relative 

ranking in each facility may differ, the 

absolute number of cases admitted to 

LTCHs may be similar to other settings 

(Table 15). For example, DRG 012: 

Nervous System Disorders are almost as 

likely to go to an IRF facility for a nonoutlier stay as to be admitted to an 

LTCH according to the draft report 

findings. While this DRG is ranked 3rd 

among LTCH and 8th among IRF 

admissions, the number of cases 

admitted to LTCHs and non-outlier IRFs 

is fairly comparable (5,846 compared to 

5,508, respectively). Further, nearly five 

times as many cases are admitted to 

IPFs (28,911). 

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Table 15 shows the variation in these 

admission rates to different sites of care. 

While LTCHs treat a wide range of 

DRGs, the majority of these cases are 

also treated in alternative settings. For 

example, LTCHs treat only 16 percent of 

the total DRG 012 cases while the IPFs 

treated 71 percent of these cases. It is 

interesting to note, in general, that 

LTCHs treat a relatively small 

proportion of all types of cases 

compared to other settings. 

2. Similarities Between the Acute 

Outlier and LTCH Samples 

The most common admission to both 

the LTCHs and the subset of acute 

admissions with high-cost outlier 

payments are the respiratory patients. 

DRG 475 is the most common LTCH 

admission and the third most common 

in the acute outlier group, both 

admitting over 8,000 cases a year. 

Infection cases, such as DRG 416: 

Septicemia, are also quite common in 

the LTCH and acute outlier populations 

as are renal failure patients (DRG 316). 

These types of cases are frequently 

admitted as either a primary or 

secondary diagnosis in this population. 

While patients with skin conditions are 

common to both LTCHs and other 

hospitals, LTCHs appear to specialize in 

different subsets of the patients. LTCHs 

have a large number of DRG 271: Skin 

Ulcer patients (5,348 cases) while acute 

care hospitals are more likely to be 

treating DRG 217: Wound debridement 

cases. DRG 127: (Heart failure and 

shock) cases also are common across 

settings although the severity of illness 

may differ. 

The population treated in LTCHs is 

diverse and frequently found in 

alternative settings. As indicated in 

Table 15, the top 50 DRGs for LTCHs 

constitute 86 percent of all LTCH 

discharges. These same DRGs account 

for 40 percent of acute outlier 

discharges, 93 percent of IRF outliers 

and 81 percent of IRF non-outliers 

(majority due to rehabilitation), 87 

percent of psychiatric discharges (with 

72 percent due to psychoses) and 56 

percent of SNFs/swing beds discharges. 

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3. Differences in DRG-Specific 

Diagnoses Across Treatment Settings 

While certain DRGs may be common 

to multiple settings, the underlying 

diagnoses (ICD9–CM) may differ. Table 

16 addresses whether facilities are 

specializing in certain subsets of 

patients within DRGs. As mentioned 

previously, the largest group of LTCH 

discharges are patients with respiratory 

system diagnosis with ventilator 

support (DRG 475) but within this DRG 

the majority of discharges from LTCHs 

come from ‘‘other lung diseases’’ (89.2 

percent). Pulmonary collapse, some 

emphysema, acute edema of lung and 

acute respiratory failure fall under this 

category. Only 41 percent of acute 

outlier patients within DRG 475 were 

discharged with this ICD–9–CM code. 

Instead, the DRG 475 patients in the 

acute outlier setting had higher 

proportions admitted with pneumoniarelated or chronic bronchitis diagnoses. 

The underlying diagnoses in DRG 

012: Degenerative nervous system 

disorders varied extensively across 

settings. More than 80 percent of the 

LTCH admissions had late effects of 

cerebrovascular disease, as did 74.5 

percent of the IRF outliers; however, 

this dropped to 54.2 percent of the IRF 

non-outliers and 52.5 percent of those in 

SNF/swing beds. Psychiatric patients in 

this DRG were more likely to have 

cerebral degeneration (95.7 percent), 

which includes Alzheimer’s disease. 

Parkinson’s Disease is the third most 

common diagnoses in this group, 

accounting for 4.2 percent of the LTCH 

cases and over 26 percent of the nonoutlier IRF cases. 

The primary diagnoses for DRG 249: 

Aftercare of musculoskeletal system and 

connective tissue (DRG 249) also 

differed across settings. Four-fifths of 

patients in LTCHs and SNF/swing beds 

(82.4 percent, 78.6 percent, respectively) 

were there for ‘‘other orthopedic 

aftercare,’’ (which included, for 

example, the removal of fracture plate, 

pins, rods, screws) and the aftercare for 

healing traumatic or pathologic 

fractures. In contrast, in the acute 

outlier, IRF outlier, and IRF non-outlier 

populations these patients were more 

likely to be treated for a replacement 

and graft-related complications. 

Among the 50 most frequent types of 

LTCH admissions, the most expensive 

case is DRG 076 (Other Respiratory 

System OR Procedures w/CC) which has 

an average Medicare episode payment of 

$120,806 (Table 17). While this case is 

ranked the 23rd most common type of 

LTCH admission, it is the most 

expensive type of episode due to its 

high acute and LTCH hospital 

payments. These cases have the second 

highest acute payments prior to LTCH 

admission ($60,612) and the second 

highest LTCH payment ($58,357). The 

combined acute and LTCH LOS is 81 

days, of which two-thirds is LTCH days 

(55 days). 

The most common LTCH case, DRG 

475: Respiratory System Diagnosis with 

Ventilator Support is the second most 

expensive LTCH episode. Medicare 

payments for these cases are $118,635 

on average and the average length stay 

from hospital admission to LTCH 

discharge is 70 days. These cases have 

the most expensive acute hospital stay 

and the fourth most expensive LTCH 

stay. 

DRG 462: Rehabilitation is the second 

most common type of LTCH admission, 

although it accounts for only one-third 

as many admissions as go to IRFs with 

outlier payments. These cases are 

ranked 35th in terms of episode 

payments with almost half of the 

payments ($20,311) related to the LTCH 

admission. The average length stay in 

the LTCH is 27 days following 11 days 

in the acute hospital. This DRG is also 

the most common IRF admission and 

accounts for two-thirds of all IRF cases. 

In contrast to the LTCH, IRF payments 

range from $11,741 for the majority of 

cases to $23,104 for the small percent 

that receive IRF outlier adjustments. 

Little is known about the differences in 

severity across the different settings 

since Functional Independence 

Measures (FIM scores) are only 

collected in the IRF. 

The majority of LTCH cases are 

admitted from an acute hospital (79.2 

percent), and has higher LTCH 

payments than acute care hospital 

payments. This is particularly true 

among the 20 most expensive LTCH 

cases, the exceptions being DRG 76, 

DRG 475, DRG 87, DRG 99, and DRG 

452 which have higher acute payments. 

The more common skin ailments, 

including DRG 263, DRG 217, and DRG 

271, have LTCH payments two to three 

times greater than the preceding acute 

stay payment. 

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4. Variation of Payment and Use 

Patterns by Regional Location 

Table 18 presents LTCH discharges by 

DRG and by census region to examine 

differences in the types of cases 

admitted to LTCHs across the regions. 

Use of these hospitals may vary because 

of the availability of alternative 

providers in certain parts of the country. 

The West South Central region by far 

has the largest number of discharges 

from LTCHs. Excluding this region, the 

number of discharges was lowest in the 

Western Mountain region and highest in 

the East North Central region. 

DRG 475 (respiratory with ventilator 

support) accounted for the highest 

number of discharges in most regions. 

These discharges were by far the most 

common among the 7 DRGs listed in the 

East North Central region and the South 

Atlantic. However, there were three 

regions where this DRG was not the 

most frequent type of discharge among 

those listed: New England, East South 

Central and West South Central. In the 

New England region, DRG 249 

(Aftercare, Musculoskeletal System and 

Connective Tissues), DRG 012 

(Degenerative Nervous System 

Disorders) and DRG 088 (COPD) were 

more common than DRG 475. In the East 

South Central and West South Central 

regions, DRG 462 (Rehabilitation) was 

the most common DRG. 

5. Payment Variation Across Regions 

Despite the fact that the LTCH PPS, 

like all prospective payment systems is 

designed to provide a uniform Medicare 

payment for each LTC–DRG, there are 

facility and patient level adjustments 

that may impact the payments for any 

specific case. Under the LTCH PPS, for 

example, there is an area wage 

adjustment (which is being phased-in 

over 5 years) which would impact 

payments regionally. There may also be 

variations among LTCHs and across 

regions in the admission of short stay 

outliers, the number of interrupted stay 

cases, and on-site discharges and 

readmittances, all of which could affect 

Medicare per discharge payments. 

RTI examined Medicare payments 

and levels of use across different 

regions. Among the 20 most frequently 

admitted LTCH conditions, DRG 475 

was the highest cost DRG across all 

regions. In the West South Central, with 

its high volume of LTCH admissions, 

the second most expensive type of case 

is the DRG 263: Skin Graft and 

Debridement for Skin Ulcer which 

ranked 13th in volume across all LTCH 

admissions. 

Use levels also varied regionally. As 

with the payments, LOS for DRG 475 

was highest in New England as 

compared to the shortest stays for these 

cases being in the West South Central 

region which had the highest number of 

these admissions. In general, New 

England lengths of stay were longer than 

in other parts of the nation for 

respiratory and infection cases as well 

as nervous system disorders. Skin 

ulcers, pulmonary edema, respiratory 

infections, skin graft and debridements, 

psychoses, and renal failure cases also 

tended to stay longer in the northeast. 

6. Identifying LTCH Patients Relative to 

Other PAC Patients 

While the proportion of post acute 

patients entering LTCHs is relatively 

small compared to other post acute 

settings (only 1.8 percent in 2002), the 

number of beneficiaries discharged from 

IPPS hospitals in 2002 into LTCHs more 

than doubled between 1996 and 2002. 

Thirty-six percent of the LTCH 

admissions were subsequently admitted 

to a SNF, IRF, or readmitted to an acute 

care hospital. 

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LTCH users tend to have a higher 

number of comorbidities relative to 

other types of post acute episodes. RTI 

also evaluated medical complexity by 

using Hierarchical Coexisting Condition 

(HCC) scores which are based on a 

patient’s Medicare expenditures from 

the year preceding the index IPPS 

admission. ‘‘LTCH only’’ users had the 

highest average HCC score of any 

episode type. 

7. Average Medicare Payments 

Several studies have shown that 

LTCH stays are more costly to the 

Medicare program on average than stays 

within other post acute settings 

(MedPAC 2003). 

a. LTCH and Acute Outlier Episodes of 

Care 

RTI compared the resources, 

payments, and outcomes of LTCH 

patients with one of 50 common LTCH 

DRGs to those admitted to an acute care 

hospital and for whom the acute care 

hospital received an outlier payment 

(‘Acute Outlier’) (Table 19). These two 

samples are separate, yet somewhat 

overlapping. The LTCH sample provides 

a profile of all LTCH admissions and it 

includes the 80 percent of admissions 

who had a prior hospital stay, of which 

12.4 percent had an outlier adjustment 

as well as the remaining 20 percent who 

may have been admitted from home, a 

SNF, IRF, or physician’s office. The 

acute outlier sample includes all acute 

care cases that received an outlier 

payment for one of the top 50 LTCH 

DRGs. This sample contains both cases 

that did and did not use LTCHs and 

provides an overview of high cost, 

longer stay patients in the acute hospital 

who could have potentially been 

admitted to an LTCH. Episodes are 

defined as 180 day periods beginning 

with an index stay at either the LTCH 

or the acute setting. 

Using 2003 claims, the two sets of 

episodes were created based on the 

index, or qualifying, acute care hospital 

stay. An episode is defined as all 

Medicare services provided in an acute 

hospital, LTCH, IRF, SNF, IPF, or home 

health agency within 180 days of the 

index admission. Within the 100 

percent of 2003 MedPAR files, 102,749 

LTCH episodes were identified. 

The acute outlier episode sample has 

54,023 cases that had a qualifying 

admission at an acute hospital with an 

outlier payment and an LTCH-like DRG. 

Only about 11 percent of these cases 

were discharged to an LTCH despite the 

sample being based on the top 50 DRGs 

commonly treated in an LTCH. 

Demographic Characteristics. The two 

samples differed in terms of their 

demographic characteristics. Compared 

to acute outlier episodes, LTCH 

admissions were older (73.1 years vs. 

71.4 years), more likely to be female (55 

percent vs. 50 percent) and living in a 

State with a higher concentration of 

LTCHs (57 percent vs. 23 percent). 

Acute outlier episodes had a higher 

proportion of deaths compared to LTCH 

cases (61 percent vs. 42 percent). 

Severity of Illness. Several measures 

of severity of illness were included and 

they are useful for understanding 

differences in the types of resources 

used in these two types of hospitals. 

The results show that both Acute 

Outlier (AO) and LTCH episodes had 

comparably high numbers of comorbid 

diagnosis on the index claim (8.8 vs. 

8.1, respectively). The Charlson 

Comorbidity Index, a widely used 

severity and mortality measure in health 

services research, scores were also 

comparable but relatively low (1.6 vs. 

1.5, respectively). However, there were 

substantially more procedures 

performed during the index AO stay (4.6 

vs. 1.7 procedures). Both types of 

admissions had intensive care unit 

(ICU) stays and coronary care unit 

(CCU) stays, although these were longer 

in the acute outlier episodes compared 

to LTCH cases (21 days vs. 1 day, on 

average across all cases). Almost 22 

percent of the acute outlier sample with 

ICU/CCU days had surgery during the 

outlier stay. These differences reflect 

differences in the types of procedures 

completed in an acute hospital 

compared to an LTCH. 

Regarding the most common 

conditions (that is, DRG) in both 

settings, LTCH episodes were more 

likely to have a DRG for respiratory 

conditions (DRG 079, 087, 088, 089), 

and ‘‘Degenerative Nervous System 

Disorders.’’ AO populations were more 

likely than LTCH admissions to be 

treated for ‘‘Heart Failure & Shock.’’. 

The following LTCH DRGs also 

accounted for a larger share of the LTCH 

sample than the acute outlier group: 

Aftercare, Musculoskeletal System & 

Connective Tissue; Aftercare w/o 

History of Malignancy As Secondary 

Diagnosis; Skin Ulcers; and a DRG for 

Rehabilitation. Interestingly, despite 

DRG 475 being the most common LTCH 

admission, they represent a higher share 

of the acute outlier episodes than the 

LTCH admissions (14 percent vs. 9 

percent among LTCH episodes). 

Acute hospital readmission rates 

(Table 20) were somewhat higher in 

LTCH episodes (40 percent) than acute 

outlier episodes (36 percent). Of those 

readmitted from an LTCH episode, 2.3 

percent received outlier adjustments for 

the subsequent acute stay. Subsequent 

service use also differed between the 

two populations. The LTCH sample was 

more likely to use home health care 

(33.2 percent v. 24.3 percent). However, 

they were less likely to use an IRF or 

SNF (5 percent vs. 7 percent and 26 

percent vs. 31 percent, respectively). 

Almost 80 percent of the LTCH 

admissions were admitted from an acute 

hospitalization within 5 days prior to 

the index LTCH admission. Among 

these episodes, 63 percent had surgery 

during this prior hospitalization and 12 

percent of the acute stays included an 

outlier payment, with an average 

hospital payment of $24,790 per stay. 

Among these outlier episodes, almost all 

cases had surgery (99 percent) and 

required intensive or coronary care (93 

percent) with lengthy stays in the acute 

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b. Acute Outlier Episodes Compared to 

LTCH Episodes 

RTI has noted the differences between 

the LTCH population and the subset of 

acute admissions with a DRG commonly 

found in the LTCH admissions and for 

whom an outlier payment is made. The 

acute outlier sample is further broken 

out by whether the case resulted in an 

LTCH admission. Table 21 shows that 

only 10.5 percent of the acute outlier 

cases with these DRGs were discharged 

to an LTCH. As expected, the average 

episode payments for LTCH users were 

87 percent greater than payments for 

outlier episodes that did not include 

LTCH admissions. About half the 

difference is due to the LTCH payment 

but the other half is largely due to 

substantially higher payments for the 

acute outlier stay ($80,380 for those 

discharged to an LTCH compared to 

$54,390 for outlier cases who did not 

use LTCHs). The average LTCH payment 

in the outlier sample is also higher than 

the average LTCH admission payment 

($34,990 compared to $26,786). 

The average hospitalization in the 

acute care hospital for an outlier stay is 

significantly longer than the average 

stay preceding an LTCH admission (25 

to 28 days versus 14.5 days). While 79.2 

percent of all LTCH admissions have an 

acute care stay in the 5 days preceding 

LTCH admission, only 12 percent of 

them are outlier cases. The majority of 

LTCH admissions are not acute outliers. 

Also, once in the LTCH, about 40 

percent of all cases are discharged with 

a SSO adjustment. Despite this, the 

average length stay in the all LTCHs is 

32.8 days. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 


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The subsequent use of IRFs and SNFs 

is slightly lower in the LTCH universe 

than in the acute outlier sample. 

However, within the acute outliers, 

those who were first discharged to 

LTCHs were less likely to use IRFs and 

SNFs, although their payments were 

generally higher when they did use 

these services. 

Determining and Evaluating Levels of 

Care 

A key issue in defining the distinct 

role of LTCHs in the Medicare provider 

continuum is the need to objectively 

define the service intensity level an 

LTCH should provide relative to other 

providers in the continuum. As part of 

this effort, RTI is examining the 

definitions currently used by the 

Medicare program, LTCH providers, 

potential substitute providers, and 

insurers regarding the relative role of 

acute hospitals, LTCHs, IRFs, and SNFs. 

Included are reviews of the Medicare 

conditions of participation governing 

each of these providers, the QIOs and 

insurance industry’s guidelines for 

determining appropriate levels of care, 

and the post acute industry’s definitions 

of their own and others levels of care as 

developed for Congressional testimony 

or internal discussions. In addition, RTI 

has conducted site visits to speak with 

the physicians and discharge planning 

staff at LTCHs regarding the types of 

cases they typically do or do not admit. 

First, because of the rising interest in 

better defining post acute care in all 

settings, several groups developed 

definitions of intensity for the post 

acute continuum either for 

Congressional testimony or as internal 

working documents of provider 

associations or in managed care 

organizations. These definitions were 

made available to RTI and compared 

across industries to understand the role 

each expects LTCHs and the alternative 

providers to serve in treating Medicare 

beneficiaries. These comparisons can be 

summarized in terms of the frequency of 

physician visits and nursing hours, as 

shown in Table 22. The LTCHs and IRFs 

also tend to differ by the primary 

diagnosis, with the LTCHs focusing on 

medical intensity and IRFs focusing on 

rehabilitation intensity. 

TABLE 22.—CLINICAL INTENSITY ASSOCIATED WITH DIFFERENT LEVELS OF CARE

[Based on the RTI Draft Report] 

LTCH IRF SNF 

Physician visits ...................................... Daily 2–3/week ...... 2–3/week Close med Supervision ........ General supervision at least every 14–

30 days. 

Consulting physician ............................. 2–3/week ............... Frequent ................................................ As needed. 

Nursing hours ........................................ 6–12 hr/day ........... 6.5 Rehab RN ....................................... 2.5–4 hours/day. 

RTI analyses of Medicare Administrative files, 2003. 

Source: RTI analysis of PAC comparisons developed by the PAC industries. 

Second, RTI reviewed the Medicare 

certification and conditions of 

participation regulations for LTCHs and 

potential substitute providers. These 

certification regulations define: What 

constitutes a type of provider; their 

certification requirements; and the 

coverage criteria associated with each. 

Many of the requirements are common 

across the IPPS, IRF, IPF, and LTCHs. 

Each is providing inpatient acute care. 

In addition, the IRFs and IPFs have 

staffing requirements that include teamrelated management of their patients, 

professional specializations that reflect 

the respective services, and special 

provisions governing their units and 

satellite facilities. LTCHs lack most of 

these requirements. Instead, they must 

meet the same requirements as IPPS 

acute hospitals and then demonstrate 

that they meet the LOS requirement, 

that is, they treat Medicare patients for 

an average of greater than 25 days on an 

annual basis. They have additional 

requirements governing their ability to 

open HwHs. However, they lack many 

of the staffing and treatment 

requirements that Medicare requires for 

IRFs and IPFs to qualify as specialized 

inpatient hospitals. 

Third, RTI reviewed insurance and 

industry-based definitions of the level of 

care distinctions that are commonly 

applied to different Medicare providers. 

These standards are generally used by 

the Medicare QIOs and private 

insurance review entities to make 

coverage decisions. QIOs have statutory 

authority under section 1154(a) of the 

Act to: Review the necessity and 

reasonability of services delivered under 

Medicare; whether these services meet 

professionally recognized standards of 

health care; and whether these services, 

consistent with the provision of 

appropriate medical care, could be 

‘‘effectively provided more 

economically * * * in an inpatient 

health care facility of a different type.’’

Although QIOs are not required to 

utilize uniform criteria nationwide for 

these determinations, most of them rely 

on Interqual as a baseline screening tool 

with physician-level decision-making 

for cases that appear to fall outside the 

acceptable level of care guidelines. QIOs 

were interviewed regarding the specific 

strengths and weaknesses of the 

screening criteria they presently use and 

their applicability for CMS purposes. 

Phone interviews with QIOs in 

Connecticut, Louisiana Maryland/DC, 

Massachusetts, Michigan, Nevada/Utah, 

New York, Pennsylvania and Texas 

(nine QIOs that represent 11 States/ 

districts) were conducted. In general, 

States were selected that had a high 

number or growing number of LTCHs 

and also those that had possible 

substitute providers, such as IRFs, IPFs 

or SNFs. RTI also selected States that 

had high numbers of LTCHs and at least 

one other type of provider to examine 

how the QIOs view similar cases and 

make determinations regarding 

appropriate use of LTCHs compared to 

potential substitutions. 

In general, most of the QIOs and many 

of the hospital chains used a variation 

of the Interqual definitions of level of 

care to determine appropriateness of 

admissions. These criteria measure a 

potential patient’s severity of illness 

based on combinations of conditions 

and intensity of service based on 

expected resources needed to treat the 

patient if admitted. In addition, 

hospitals may use other criteria to 

determine if a patient is appropriate for 

treatment at their facility. Parts of the 

LTCH industry have proposed 

guidelines for their hospitals to use in 

determining appropriate admissions. 

These criteria are less specific than 

those used by the QIOs although all are 

used as guidelines with the final 

determinations made by physicians. 

Fourth, patient assessment tools, 

screening criteria, and intensity 

measures were collected from LTCHs 

through their associations and corporate 

entities. These tools are used by LTCHs 

to determine appropriateness of 

admissions, intensity of patients served, 


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and outcomes expected from the 

treatment. They provide information on 

items commonly used by LTCHs to track 

patient conditions, treatment needs, and 

determine staffing levels. In addition to 

information on patient demographics, 

insurance, and medical history, the 

forms contain items on patient acuity, 

including measures of their blood gas, 

glucose levels, oxygen saturation levels, 

respiratory rates, and functional levels, 

as well as, treatment needs (such as tube 

feeding, central lines, and IV 

medications, GI suctioning, dialysis 

(hemodialysis or peritoneal), ventilator 

weaning, pain management, wound 

measures, or telemetry monitoring.) 

These measures cover the range of 

special services provided by LTCHs and 

can be useful for measuring patient 

acuity differences. While they provide 

objective measures of patient intensity, 

much work remains to be done in 

setting the levels for determining 

whether a patient belongs in an LTCH 

or an alternative site of care. Proposed 

levels were already developed by 

Interqual and other private sector 

entities, as well as, parts of the industry. 

More discussion is needed to set 

specific levels of care determinations 

that include the range of specialists 

treating these patients. RTI is reviewing 

these proposed criteria along with 

existing criteria and patient assessment 

models used by QIOs, LTCHs, and 

incorporating input from clinicians with 

the objective of developing 

recommendations to CMS regarding a 

patient assessment instrument for 

LTCHs. 

Site Visits 

RTI researchers, accompanied by CMS 

analysts (including a physician with 

clinical experience in LTCHs) visited 

LTCHs around the country. Sites were 

selected based on a breakdown of 

hospital referral regions (as defined by 

Dartmouth Atlas 2005) to select areas 

that vary in the availability of LTCHs, 

IRFs, IPFs, and SNFs across the U.S. and 

with the input and cooperation of LTCH 

industry groups. 

Facilities were selected to provide an 

overview of the range of populations 

typically treated in LTCHs and varying 

in geographic distribution, facility age, 

and medical specializations. Hospitals 

were selected to include free standing, 

HwHs, and satellites as well as LTCHs 

representing several different types of 

facilities such as: Older non-profit 

LTCHs specializing in specific types of 

cases; newer for-profit chains, colocated LTCHs that are part of a medical 

system; and other providers that treat 

LTCH-type patients. 

These site visits are essential in 

providing an in-depth examination of 

LTCHs’ populations and services 

relative to other types of facilities and 

under different models of care. 

Personnel at LTCHs were asked to 

contrast their level of care with that 

provided in other treatment settings, 

including acute care hospitals, IRFs, and 

SNFs. 

Interview materials were developed to 

ensure that the same questions were 

asked regarding the difference in 

intensity or level of care for patients 

treated in an LTCH versus other 

inpatient hospital-level settings or 

SNFs. The following groups were 

interviewed from host hospitals: 

Discharge planners, medical directors, 

admissions directors, nursing/quality 

assurance directors, therapy directors, 

and in some cases, the finance directors. 

The focus was on the types of patients 

admitted, differences in expectations 

regarding outcomes and, relative 

payment to cost differences across 

differently certified beds. 

Although we expect the final RTI 

report on this project to have a 

substantial impact on future Medicare 

policy for LTCHs, we still believe that 

even with the development of defined 

patient and perhaps facility-level 

criteria, that the retention of many of the 

specific payment adjustment features of 

the LTCH PPS presently in place may 

still be both necessary and appropriate 

for purposes of protecting the integrity 

of the Medicare Trust Fund. We expect 

that the RTI’s final report will be 

submitted to us in late Spring 2006. 

XII. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

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 are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements: 

Section 412.525 Adjustments to the 

Federal Prospective Payment Provision 

for Short-Stay Outliers 

Section 412.525(a)(4)(iv)(A) states that 

CMS may specify an alternative to the 

cost-to-charge ratio otherwise applicable 

under paragraph (a)(4)(iv)(B) of this 

section. In addition, a hospital may also 

request that its FI use a different (higher 

or lower) CCR based on substantial 

evidence provided by the hospital. 

The burden associated with this 

requirement is the time and effort 

necessary for a hospital to gather, 

process, and submit the necessary 

documentation to its FI to substantiate 

its request for the use of a different CCR 

by their FI. For example, necessary 

documentation, as stipulated by CMS 

and the FI, may include but not be 

limited to financial records 

documenting the hospital’s cost and 

charges. 

The estimated burden for this 

requirement is 8 hours per hospital. 

Therefore, we estimate that it would 

require 80 annual hours (8 hours × 10 

facilities), to comply with this 

requirement. 

Section 412.529 Special Payment 

Provision for Short-Stay Outliers 

Section 412.529(c)(4)(iv)(A) states that 

CMS may specify an alternative to the 

CCR otherwise applicable under 

paragraph (c)(4)(iv)(B) of this section. In 

addition, a hospital may also request 

that its FI use a different (higher or 

lower) CCR based on substantial 

evidence provided by the hospital. 

The burden associated with this 

requirement is the time and effort 

necessary for a hospital to gather, 

process, and submit the necessary 

documentation to its FI to substantiate 

its request for the use of a different CCR 

by their FI. For example, necessary 

documentation, as stipulated by CMS 

and the FI, may include but not be 

limited to financial records 

documenting the hospital’s cost and 

charges. 

The estimated burden for this 

requirement is 8 hours per hospital. 

Therefore, we estimate that it would 

require 80 annual hours (8 hours × 10 

facilities), to comply with this 

requirement. 

We will be submitting a copy of this 

proposed rule to OMB for its review of 

the information collection requirements 

described above. These requirements are 

not effective until they have been 

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If you comment on these information 

collection and recordkeeping 

requirements, please mail copies 

directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic Operations 

and Regulatory Affairs, Regulations 

Development Group, Attn: William N. 

Parham, III, [CMS–1485–P], Room C4–

26–05, 7500 Security Boulevard, 

Baltimore, MD 21244–1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503, 

Attn: Carolyn Lovett, CMS Desk Officer, 

[CMS–1485–P], 

carolyn_lovett@omb.eop.gov. Fax (202) 

395–6974. 

XIII. Regulatory Impact Analysis 

A. Introduction 

We have examined the impact of this 

proposed 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 proposed rates, factors 

and policies presented in this proposed 

rule, including updated proposed wage 

index values, and the best available 

claims data to estimate proposed 

payments for the 2007 LTCH PPS rate 

year. Based on the best available data for 

259 LTCHs, we estimate that the 

proposed change to the SSO policy (as 

discussed in section V.A.1. of this 

preamble) for the 2007 LTCH PPS rate 

year, in conjunction with the proposed 

changes to the area wage adjustment 

(discussed in section IV.D.1. of the 

preamble of this proposed rule) the 

proposed increase in the outlier fixedloss amount (discussed in section 

IV.D.3.c. of this preamble) and the 

proposed slight increase in the budget 

neutrality offset to account for the 

transition methodology (as discussed in 

section IV.D.5. of this preamble), would 

result in a decrease in estimated 

payments from the 2006 LTCH PPS rate 

year of approximately $362 million for 

the 259 LTCHs. (An estimate of 

Medicare program payments for LTCH 

services for the next 5 years is shown in 

section XIII.B.5. of this proposed rule.) 

Because the combined distributional 

effects and costs to the Medicare 

program are greater than $100 million, 

this proposed rule is considered a major 

economic rule, as defined in this 

section. 

2. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $26 million or less in any 1 year. For 

purposes of the RFA, all hospitals (and 

most other providers and suppliers) are 

considered small entities according to 

the Small Business Administration’s 

latest size standards (for further 

information, see the Small Business 

Administration’s regulation at 65 FR 

69432, November 17, 2000). 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 fiscal intermediaries are not 

considered to be small entities. 

Individuals and States are not included 

in the definition of a small entity. 

Currently, our database of 259 LTCHs 

includes the data for 61 non-profit 

(voluntary ownership control) LTCHs 

and 189 proprietary LTCHs. The 

remaining 9 LTCHs are Governmentowned and operated (see Table 23). The 

impact of the proposed changes for the 

2007 LTCH PPS rate year is discussed 

below in section XIII.B.4.c. of this 

proposed rule. The provisions of this 

proposed rule are estimated to result in 

approximately an 11 percent decrease in 

estimated payments per discharge in the 

2007 LTCH PPS rate year on average to 

LTCHs (as shown in Table 23). As 

discussed in greater detail below in this 

section (and as shown in Table 23), the 

majority of the approximately 11 

percent decrease in estimated payments 

in the 2007 LTCH PPS rate year as 

compared to the 2006 LTCH PPS rate 

year is due to the proposed change in 

the payment formula for SSO cases 

(discussed in section V.A.1.a. of the 

preamble of this proposed rule). We do 

not believe that this proposed change 

would result in an adverse impact on 

affected LTCHs for the reasons 

discussed below in this section. We 

believe that, if implemented, the 

proposed changes 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 we discuss in greater detail in 

section V.A.1.a. of the preamble of this 

proposed rule, currently about 37 

percent of all LTCH cases are short-stay 

outliers, most of which were admitted to 

the LTCH directly from an acute-care 

hospital. Thus, many short-stay cases 

may be still in need of acute-level care 

at the time of admission to the LTCH, 

which may indicate a premature and 

inappropriate discharge from the acute 

care hospital. As we also discussed in 

the preamble above, we believe that the 

proposed changes to the SSO policy 

would result in a more appropriate 

payment for short-stay cases treated at 

LTCHs. We believe that by removing the 

financial incentive for LTCHs to admit 

such a larger percentage of short-stay 

cases by paying appropriately for these 

cases, LTCHs would change their 

admission patterns for these patients. 

Specifically, we believe that if the 

proposed changes to the SSO are 

implemented, most LTCHs would 

substantially reduce the number of 

short-stay cases that they admit (and 

most of those patients would continue 

to receive treatment at the acute-care 

hospital from which they are typically 

discharged from immediately prior to 

their LTCH (short-stay) admission). 

The estimated 11.1 percent decrease 

in LTCH PPS payments for RY 2007 was 

determined based on the current LTCH 

admission pattern of SSO cases (that is, 

currently about 37 percent of all LTCH 

cases). Thus, we believe that the 

estimated 11.1 percent decrease in 

LTCH payments per discharge for RY 

2007 would only occur if LTCHs were 

to continue to admit the same number 

of SSO patients. Since the majority of 

the approximately 11 percent decrease 

in estimated payments is due to the 

proposed change in the SSO policy and 

since we anticipate that LTCHs would 

no longer admit such a large percentage 

of SSO patients if such proposed 

changes are implemented, we believe 

that the actual decrease in LTCHs’

payments for RY 2007 would be 

considerably less than 11 percent. 

(Although we expect LTCHs to admit 

fewer cases under this proposed change, 


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we believe that most LTCHs, which are 

HwHs, would not experience an 

increase in cost per discharge as a result 

of unoccupied beds. Rather, we expect 

that LTCHs would make a 

commensurate reduction in available 

beds. LTCHs would lease fewer beds, 

and therefore, the LTCHs’ cost per 

discharge would not increase 

dramatically.) 

Furthermore, our Medicare margins 

analysis of the most recent LTCH cost 

report data, show that LTCH PPS 

payments for FY 2003 were 8.8 percent 

higher than LTCHs’ Medicare costs, and 

preliminary cost report data for FY 2004 

reveal an even higher Medicare margin 

of 11.7 percent (as discussed in greater 

detail in section IV.C.3. of the preamble 

to this proposed rule). Since LTCH PPS 

payments appear to be more than 

adequate to cover the costs of the 

efficient delivery of care to patients at 

LTCHs, based on this margins analysis, 

we believe that even with an estimated 

decrease in LTCHs’ payments per 

discharge for the 2007 LTCH PPS rate 

year, which may result from, among 

other things, the continued treatment of 

some short-stay cases and the estimated 

slight decrease in payments due to the 

proposed changes to the area wage 

adjustment (see Table 23 below in this 

section) LTCH PPS payments in RY 

2007 would still be sufficient to 

compensate LTCHs for the costs of the 

efficient delivery of LTCH services to 

LTCH patients. Thus, we do not expect 

that the provisions of this proposed rule 

would result in an adverse financial 

impact on affected LTCHs nor would 

there be an effect on beneficiaries’

access to care. 

For the reasons discussed above, we 

do not expect an estimated decrease of 

11.1 percent to the LTCH PPS Medicare 

payment rates to have a significant 

adverse effect on the ability of most 

LTCHs to provide cost efficient services 

to Medicare patients. In addition, 

LTCHs provide some services to (and 

generate revenue from) patients other 

than Medicare beneficiaries. The 

revenue to LTCHs from treating those 

patients is not affected by this proposed 

rule. Accordingly, we certify that this 

proposed rule would not have a 

significant impact on a substantial 

number of small entities, in accordance 

with RFA. 

3. Impact on Rural Hospitals 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a proposed or final rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. As shown in Table 

23, we are estimating an 11.3 percent 

decrease in payment per discharge for 

the 2007 LTCH PPS rate year as 

compared to the 2006 LTCH PPS rate 

year based on the data of the 9 rural 

hospitals in our database of 259 LTCHs 

for which complete data were available. 

As discussed above in this section, 

the majority of the approximately 11 

percent decrease in estimated payments 

in the 2007 LTCH PPS rate year as 

compared to the 2006 LTCH PPS rate 

year for rural LTCHs is due to the 

proposed change in the payment 

formula for SSO cases (discussed in 

section V.A.1.a of the preamble of this 

proposed rule). We do not believe that 

this proposed change would result in an 

adverse impact on rural LTCHs because, 

under this proposed change, we believe 

that LTCHs (including rural LTCHs) 

would significantly reduce the number 

of short-stay cases that they admit since 

such a policy would remove the 

financial incentive for LTCHs to treat 

short-stay cases by paying appropriately 

for them (as we discussed in greater 

detail above in section XIII.A.2. of this 

proposed rule). Furthermore, we believe 

that if the proposed changes to the SSO 

policy are implemented, although most 

LTCHs (including rural LTCHs) would 

admit fewer short-stay cases, most of 

those patients would continue to receive 

treatment at the acute-care hospital from 

which they are typically discharged 

from immediately prior to their LTCH 

(short-stay) admission, and most LTCHs 

(which are HwHs) would not experience 

an increase in cost per discharge as a 

result of unoccupied beds. 

The estimated 11.3 percent decrease 

in LTCH PPS payments for RY 2007 for 

rural LTCHs was determined based on 

the current LTCH admission pattern of 

SSO cases (that is, currently about 37 

percent of all LTCH cases). Thus, we 

believe that the estimated 11.3 percent 

decrease in LTCH payments per 

discharge for RY 2007 for rural LTCHs 

would only occur if rural LTCHs were 

to continue to admit the same 

percentage of SSO patients. Since the 

majority of the approximately 11 

percent decrease in estimated payments 

for rural LTCHs is due to the proposed 

change in the SSO policy and since we 

anticipate that LTCHs (including rural 

LTCHs) would no longer admit such a 

large percentage of SSO patients if such 

proposed changes are implemented, we 

believe that the actual decrease in rural 

LTCHs’ payments for RY 2007 would be 

considerably less than 11 percent. 

Therefore, we believe that the estimated 

11.3 percent decrease in payments per 

discharge for the 2007 LTCH PPS rate 

year for rural LTCHs would only occur 

if LTCHs maintain the same level of 

SSO patients. 

Moreover, as also discussed in greater 

detail above in section XIII.A.2. of this 

proposed rule, based on our Medicare 

margins analysis for LTCHs which 

shows payments in excess of costs for 

FYs 2003 and 2004, we believe that 

even with an estimated decrease in 

LTCHs’ payments per discharge for the 

2007 LTCH PPS rate year, LTCH PPS 

payments to rural LTCHs would still be 

sufficient to compensate LTCHs for the 

costs of the efficient delivery of LTCH 

services to LTCH patients. (For 

additional information on the impact of 

the proposed changes on rural LTCHs 

presented in this proposed rule, refer to 

the discussion of the impact analysis in 

section XIII.B.4 of this proposed rule.) 

For the reasons discussed in this 

section, we do not expect that the 

provisions of this proposed rule would 

result in an adverse financial impact on 

rural LTCHs nor would there be an 

effect on beneficiaries’ access to care. 

Therefore, we do not expect an 

estimated decrease of 11.3 percent to the 

LTCH PPS Medicare payment rates for 

rural LTCHs to have a significant 

adverse effect on the ability of most 

LTCHs to provide cost efficient services 

to Medicare patients. Accordingly, we 

substantiate that the rates and policies 

set forth in this proposed rule would not 

have an adverse impact on rural 

hospitals based on the data of the 9 rural 

hospitals in our database of 259 LTCHs 

for which data were available. 

4. Unfunded Mandates 

Section 202 of the UMRA requires 

that agencies assess anticipated costs 

and benefits before issuing any rule that 

may result in expenditures in any one 

year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $120 million or more. 

This proposed rule would not mandate 

any requirements for State, local, or 

tribal governments, nor would it result 

in expenditures by the private sector of 

$110 million or more in any one year. 

5. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes a proposed 

rule (and subsequent final rule) that 

imposes substantial direct requirement 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. 

We have examined this proposed rule 

under the criteria set forth in Executive 


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Order 13132 and have determined that 

this proposed 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 9 State and local 

LTCHs in our database of 259 LTCHs for 

which data were available. 

B. Anticipated Effects of Proposed 

Payment Rate Changes 

We discuss the impact of the 

proposed changes to the payment rates, 

factors, and policies presented in this 

proposed rule in terms of their fiscal 

impact on the Medicare budget and on 

LTCHs. 

1. Budgetary Impact 

Section 123(a)(1) of BBRA requires 

that the PPS developed for LTCHs 

‘‘maintain budget neutrality.’’ 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 

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 

proposed rule, we would apply a 

proposed budget neutrality offset to 

payments to account for the monetary 

effect of the 5-year transition period and 

the policy to permit LTCHs to elect to 

be paid based on 100 percent of the 

proposed standard Federal rate rather 

than a blend of proposed Federal 

prospective payments and reasonable 

cost-based payments during the 

transition. The amount of the proposed 

offset is 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. 

2. Impact on Providers 

The basic methodology for 

determining a LTCH PPS payment is set 

forth in § 412.515 through § 412.525. In 

addition to the basic LTC–DRG payment 

(standard Federal rate x LTC–DRG 

relative weight), we make adjustments 

for differences in area wage levels, costof-living adjustment for Alaska and 

Hawaii, and short-stay outliers. 

Furthermore, LTCHs may also receive 

high-cost outlier payments for those 

cases that qualify based on the threshold 

established each rate year. Section 

412.533 provides for a 5-year transition 

to payments based on 100 percent of the 

Federal prospective payment rate. 

During the 5-year transition period, 

payments to LTCHs are based on an 

increasing percentage of the LTCH PPS 

Federal rate and a decreasing percentage 

of payment based on reasonable costbased methodology. Section 412.533(c) 

provides for a one-time opportunity for 

LTCHs to elect payments based on 100 

percent of the LTCH PPS Federal rate. 

In order to understand the impact of 

the proposed changes to the LTCH PPS 

discussed in this proposed rule on 

different categories of LTCHs for the 

2007 LTCH PPS rate year, it is necessary 

to estimate payments per discharge 

under the LTCH PPS rates, factors and 

policies established for the RY 2006 

LTCH PPS final rule and to estimate 

proposed payments per discharge that 

would be made under the proposed 

LTCH PPS rates, factors and policies for 

the 2007 LTCH PPS rate year (as 

discussed in the preamble of this 

proposed rule). We also evaluated the 

percent change in payments per 

discharge of estimated 2006 LTCH PPS 

rate year payments to estimated 

proposed 2007 LTCH PPS rate year 

payments for each category of LTCHs. 

Hospital groups were based on 

characteristics provided in the Online 

Survey Certification and Reporting 

(System) (OSCAR) data, FYs 2001 

through 2003 cost report data, and 

Provider Specific File 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 among the 

various categories of providers during 

the LTCH PPS transition period, it is 

necessary that reasonable cost-based 

methodology payments and prospective 

payments contain similar inputs. More 

specifically, in the impact analysis 

showing the impact reflecting the 

applicable transition blend percentages 

of prospective payments and reasonable 

cost-based methodology payments and 

the option to elect payment based on 

100 percent of the proposed Federal rate 

(see Table 24), we estimated payments 

only for those providers for whom we 

are able to calculate payments based on 

reasonable cost-based methodology. For 

example, if we did not have at least 2 

years of historical cost data for a LTCH, 

we were unable to determine an update 

to the LTCH’s target amount to estimate 

payment under reasonable cost-based 

methodology. 

Using LTCH cases from the FY 2004 

MedPAR file and cost data from FYs 

1999 through 2003 to estimate payments 

under the current reasonable cost-based 

principles, we have obtained both casemix and cost data for 259 LTCHs. Thus, 

for the impact analyses reflecting the 

applicable transition blend percentages 

of proposed prospective payments and 

reasonable cost-based methodology 

payments and the option to elect 

payment based on 100 percent of the 

Federal rate (see Table 23), we used data 

from 259 LTCHs. While currently there 

are more than 375 LTCHs, the most 

recent growth is predominantly in forprofit LTCHs that provide respiratory 

and ventilator-dependent patient care. 

We believe that the discharges from the 

FY 2004 MedPAR data for the 259 

LTCHs in our database provide 

sufficient representation in the LTC–

DRGs containing discharges for patients 

who received respiratory and ventilatordependent care based on the relatively 

large number of LTCH cases in LTC–

DRGs for these diagnoses. However, 

using cases from the FY 2004 MedPAR 

file we had case-mix data for 337 

LTCHs. Cost data to determine current 

payments under reasonable cost-based 

methodology payments are not needed 

to simulate payments based on 100 

percent of the proposed Federal rate. 

Therefore, for the impact analyses 

reflecting fully phased-in prospective 

payments (see Table 24), we used data 

from 337 LTCHs. 

These impacts reflect the estimated 

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

classifications of LTCHs for the 2006 

LTCH PPS rate year (July 1, 2005 

through June 30, 2006) compared to the 

2007 LTCH PPS rate year (July 1, 2006 

through June 30, 2007). Prospective 

payments for the 2006 LTCH rate year 

were based on the standard Federal rate 

of $38,086.04, the outlier fixed-loss 

amount of $10,501, and the hospitals’

estimated case-mix based on FY 2004 

LTCH claims data. Estimated proposed 

prospective payments for the 2007 

LTCH PPS rate year would be based on 

the proposed standard Federal rate of 

$38,086.04 (based on the proposed zero 

percent update discussed in section 

IV.C.3. of this proposed rule), the 

proposed outlier fixed-loss amount of 

$18,489, and the same FY 2004 LTCH 

claims data. 

3. Calculation of Prospective Payments 

To estimate payments under the 

LTCH PPS, we simulated payments on 

a case-by-case basis by applying the 


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proposed payment policy for short-stay 

outliers (as described in section V.A.1. 

of this proposed rule), the proposed 

adjustments for area wage differences 

(as described in section IV.D.1. of this 

proposed rule), and for the cost-of-living 

for Alaska and Hawaii (as described in 

section IV.D.2. of this proposed rule). 

Additional payments would also be 

made for high-cost outlier cases (as 

described in section IV.D.3. of this 

proposed rule). As noted in section 

IV.D.4. of this proposed rule, we are not 

proposing to make adjustments for rural 

location, geographic reclassification, 

indirect medical education costs, or a 

disproportionate share of low-income 

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 2006 LTCH 

PPS rate year payments by computing a 

weighted average of a LTCH’s applicable 

wage index during the period from July 

1, 2005 through June 30, 2006 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, 2004 and before September 

30, 2005 (FY 2005), the labor portion of 

the Federal rate was adjusted by threefifths of the applicable LTCH PPS wage 

index. 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. 

Therefore, during RY 2006, a provider 

with a cost reporting period that began 

October 1, 2005 would have 3 months 

of payments under the three-fifths wage 

index value and 9 months of payment 

under the four-fifths wage index value. 

For this provider, we computed a 

blended wage index of 25 percent (3 

months/12 months) of the three-fifths 

wage index value and 75 percent (9 

months/12 months) of the four-fifths 

wage index value. The applicable LTCH 

PPS wage index values for the 2006 

LTCH PPS rate year are shown in Tables 

1 and 2 of the Addendum to the RY 

2006 LTCH PPS final rule (70 FR 24224 

through 24247). We adjusted for area 

wage differences for estimated 2006 

LTCH PPS rate year payments using the 

current LTCH PPS labor-related share of 

72.885 percent (70 FR 241852). 

Similarly, we adjusted for area wage 

differences for estimated proposed 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 that 

began on or after October 1, 2005 and 

on or 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, the labor portion 

of the Federal rate is adjusted by the full 

(five-fifths) applicable LTCH PPS wage 

index. The applicable proposed LTCH 

PPS wage index values for the 2007 

LTCH PPS rate year are shown in Tables 

1 and 2 of the Addendum to this 

proposed rule. We adjusted for area 

wage differences for estimated proposed 

2007 LTCH PPS rate year payments 

using the proposed LTCH PPS laborrelated share of 75.923 percent (see 

section IV.D.1.c. of this proposed rule). 

For those providers projected to 

receive payment under the transition 

blend methodology, we also calculated 

payments using the applicable 

transition blend percentages. During the 

2006 LTCH PPS rate year, based on the 

transition blend percentages set forth in 

§ 412.533(a), some providers may 

experience a change in the transition 

blend percentage during the period from 

July 1, 2005 through June 30, 2006. For 

example, during the period from July 1, 

2005 through June 30, 2006, a provider 

with a cost reporting period beginning 

on October 1, 2004 (which is paid under 

the 40/60 transition blend (40 percent of 

payments based on reasonable costbased methodology and 60 percent of 

payments under the LTCH PPS)) had 3 

months (July 1, 2005 through September 

30, 2005) under the 40/60 blend and 9 

months (October 1, 2005 through June 

30, 2006) of payment under the 20/80- 

transition blend (20 percent of payments 

based on reasonable cost-based 

methodology and 80 percent of 

payments under the LTCH PPS). The 

20/80 transition blend will continue 

until the provider’s cost reporting 

period beginning on October 1, 2006 

(FY 2007). 

Similarly, during the 2007 LTCH PPS 

rate year, based on the transition blend 

percentages set forth in § 412.533(a), 

some of the providers that would be 

paid under the transition blend 

methodology may experience a change 

in the transition blend percentage 

during the period from July 1, 2006 

through June 30, 2007. For example, 

during the period from July 1, 2006 

through June 30, 2007, a provider with 

a cost reporting period beginning on 

October 1, 2005 (which is paid under 

the 20/80 transition blend) would have 

3 months (July 1, 2006 through 

September 30, 2006) under the 20/80 

blend and 9 months (October 1, 2006 

through June 30, 2007) of payment 

based on 100 percent of Federal rate 

payments under the LTCH PPS (and 

zero percent based on reasonable costbased methodology). The provider will 

continue to receive payments based on 

100 percent of the LTCH PPS Federal 

rate for its cost reporting period 

beginning on October 1, 2006 (FY 2007). 

In estimating blended transition 

payments, we estimated payments based 

on the reasonable cost-based 

methodology, in accordance with the 

requirements at section 1886(b) of the 

Act. For those providers who have not 

already made the election (as 

determined from PSF data) to be paid 

based on 100 percent of the Federal rate, 

we compared the estimated blended 

transition payment to the LTCH’s 

estimated payment if it would elect 

payment based on 100 percent of the 

Federal rate. If we estimated that the 

LTCH would be paid more based on 100 

percent of the Federal rate, we assumed 

that it would elect to bypass the 

transition methodology and would 

receive payments based on 100 percent 

of prospective payment. 

We applied the applicable budget 

neutrality 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)). In estimating 2006 

LTCH PPS rate year payments, we 

applied the 0.0 percent (a budget 

neutrality factor of 1.0) budget 

neutrality 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 (see the 

RY 2006 LTCH PPS final rule (70 FR 

24202)) to each LTCH’s estimated 

payments under the LTCH PPS for the 

2006 LTCH PPS rate year. Similarly, in 

estimating proposed 2007 LTCH PPS 

rate year payments, we applied the 

proposed 0.1 percent (a budget 

neutrality factor of 0.999) budget 

neutrality 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 (see 

section IV.D.5. of this proposed rule) to 

each LTCH’s estimated payments under 

the LTCH PPS for the 2007 LTCH PPS 

rate year. The impact, based on our 

projection using the best available data 

for 259 LTCHs that approximately 3 

percent of LTCHs would be paid based 

on the transition blend methodology 

and 97 percent of LTCHs would elect 


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payment based on 100 percent of the 

Federal rate is shown in Table 23. 

In Table 24, we also show the impact 

if all LTCHs would be paid 100 percent 

of the Federal rate; that is, as if there 

were a mandatory immediate transition 

to fully Federal prospective payments 

under the LTCH PPS for the 2006 LTCH 

PPS rate year and the 2007 LTCH PPS 

rate year. In the impact analysis shown 

in Table 24, the respective budget 

neutrality adjustments to account for the 

5-year transition methodology on 

LTCHs’ Medicare program payments for 

the 2006 and 2007 LTCH PPS rate years 

(0.0 percent and the proposed 0.1 

percent, respectively) were not applied 

to LTCHs’ estimated payments under 

the LTCH PPS. 

Tables 23 and 24 illustrate the 

estimated aggregate impact of the 

payment system 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 long-term care cases. 

• The fourth column shows the 

estimated payment per discharge for the 

2006 LTCH PPS rate year. 

• The fifth column shows the 

estimated proposed payment per 

discharge for the 2007 LTCH PPS rate 

year. 

• The sixth column shows the 

estimated percent decrease in estimated 

payments per discharge from the 2006 

LTCH PPS rate year to the 2007 LTCH 

PPS rate year for proposed changes to 

the area wage adjustment at § 412.525(c) 

(as discussed in section IV.D.1. of the 

preamble of this proposed rule). 

• The seventh column shows the 

estimated percent change in estimated 

payments per discharge from the 2006 

LTCH PPS rate year to the 2007 LTCH 

PPS rate year for proposed changes to 

the SSO policy at § 412.529 (as 

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

preamble of this proposed rule). 

• The eighth column shows the 

percent decrease in estimated payments 

per discharge from the 2006 LTCH PPS 

rate year to the 2007 LTCH PPS rate year 

for all proposed changes (as discussed 

in the preamble of this proposed rule.) 

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4. Results 

Based on the most recent available 

data (as described previously for 259 

LTCHs), we have prepared the following 

summary of the impact (as shown above 

in Table 23) of the LTCH PPS set forth 

in this proposed rule. The impact 

analysis in Table 23 shows that 

estimated payments per discharge are 

expected to decrease approximately 11 

percent on average for all LTCHs from 

the 2006 LTCH PPS rate year as 

compared to the 2007 LTCH PPS rate 

year as a result of the proposed changes 

presented in this proposed rule. As 

noted previously, the estimated percent 

decrease in payments per discharge 

from the 2006 LTCH PPS rate year to the 

2007 LTCH PPS rate year is largely 

attributable to the proposed change in 

the payment formula for SSO cases 

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

proposed rule). Specifically, under the 

proposed changes to the SSO policy for 

RY 2007, approximately 96 percent of 

LTCH SSO cases (which is 

approximately 36 percent of all LTCH 

cases) would receive a lower payment 

than under the current SSO policy. We 

believe this proposed policy is 

appropriate given that many of these 

short-stay cases most likely do not 

belong in a LTCH, which in general are 

intended to treat patients with an ALOS 

of greater than 25 days. As we discussed 

in greater detail in section IV.D.3.c. of 

the preamble of this proposed rule), 

given the regulatory requirement at 

§ 412.525(a) that estimated outlier 

payments equal to 8 percent of 

estimated total LTCH PPS payments, 

this estimated decrease in LTCH PPS 

payments for RY 2007 resulting from the 

proposed changes to the SSO policy 

would require a proposed increase in 

the high-cost outlier fixed-loss amount 

in order to maintain that estimated 

outlier payments at 8 percent of the 

reduced estimated total LTCH PPS 

payments (resulting from the proposed 

changes to the SSO policy). The 

proposed increase in the outlier fixedloss amount and the proposed slight 

increase in the budget neutrality offset 

to account for the transition 

methodology (discussed in section 

IV.D.5. of this proposed rule) are also 

factors contributing to the proposed 

decrease in payments per discharge 

from the 2006 LTCH PPS rate year to the 

2007 LTCH PPS rate year. For example, 

many LTCHs are expected to receive a 

decrease in high-cost outlier payments. 

A result of the proposed increase to the 

fixed-loss amount from the 2006 LTCH 

PPS rate year ($10,501) to the 2007 

LTCH PPS rate year ($18,489), fewer 

cases would qualify as outlier cases 

(that is, the estimated cost of the case 

exceeds the outlier threshold). Since, 

many LTCHs would receive fewer 

outlier payments, total estimated 

payments per discharge would 

discharge (as discussed in section 

IV.D.3. of this proposed rule). 

a. Location 

Based on the most recent available 

data, the majority of LTCHs are in urban 

areas. Approximately 3.5 percent of the 

LTCHs are identified as being located in 

a rural area, and approximately 2.3 

percent of all LTCH cases are treated in 

these rural hospitals. Impact analysis in 

Table 23 shows that the percent 

decrease in estimated payments per 

discharge for the 2006 LTCH PPS rate 

year compared to the 2007 LTCH PPS 

rate year for rural LTCHs would be 

¥11.3 percent, and would be ¥11.1 

percent for urban LTCHs (see Table 23). 

While rural LTCHS are expected to 

experience a lower decrease in 

payments due to the proposed changes 

in the SSO policy because they treat a 

smaller percentage of SSO cases, they 

are projected to experience a higher 

decrease in payments per discharge as a 

result of the proposed changes to the 

area wage adjustment (discussed in 

section IV.D.1. of the preamble of this 

proposed rule). Specifically, rural 

LTCHs are expected to experience a 

higher decrease in payments per 

discharge as a result of the proposed 

changes to the area wage adjustment 

because the wage index for all rural 

LTCHs is less than 1.0, and therefore, 

they would experience a decrease in 

payments per discharge as a result of the 

proposed increase in the labor-related 

share and the progression of the 5-year 

phase-in of the wage index adjustment. 

Large urban LTCHs are projected to 

experience a 12.8 percent decrease in 

payments per discharge from the 2006 

LTCH PPS rate year compared to the 

2007 LTCH PPS rate year, while other 

urban LTCHs are projected to 

experience a 11.8 percent decrease in 

payments per discharge from the 2006 

LTCH PPS rate year compared to the 

2007 LTCH PPS rate year (see Table 23). 

Other urban LTCHs are projected to 

experience a higher than average 

decrease in payments per discharge 

primarily because of the proposed 

changes to the area wage adjustment 

(discussed in section IV.D.1. of the 

preamble of this proposed rule). 

Specifically, the majority of other urban 

LTCHs (over 80 percent) are located in 

urban areas that have a proposed wage 

index value of less than 1.0, and 

therefore, would experience a higher 

than average decrease in payments per 

discharge as a result of the proposed 

increase in the labor-related share and 

the progression of the 5-year phase-in of 

the wage index adjustment. In addition, 

other urban LTCHs have a slightly 

higher percentage of SSO cases and 

therefore are projected to experience a 

slightly higher than average decrease in 

payments per discharge as a result of the 

proposed changes to the SSO policy (as 

discussed in greater detail above in this 

section). 

b. Participation Date 

LTCHs are grouped by participation 

date into three categories: (1) Before 

October 1983; (2) between October 1983 

and September 1993; and (3) between 

October 1993 and September 2002. At 

this time, we do not have sufficient cost 

report data for any of the LTCHs that 

began participating in the Medicare 

program after October 2002 (the 

implementation of the LTCH PPS), and, 

therefore, they are not included in the 

impact analysis shown in Table 23. 

Based on the most recent available 

data, the majority, approximately 71 

percent, of the LTCH cases are in 

hospitals that began participating 

between October 1993 and September 

2002, and are projected to experience an 

11.3 percent decrease in payments per 

discharge from the 2006 LTCH PPS rate 

year compared to the 2007 LTCH PPS 

rate year. Approximately 22 percent of 

the cases are in LTCHs that began 

participating in Medicare between 

October 1983 and September 1993, and 

those LTCHs are projected to experience 

a 10.2 percent decrease in payments per 

discharge from the 2006 LTCH PPS rate 

year compared to the 2007 LTCH PPS 

rate year (see Table 23). We are 

projecting that LTCHs that began 

participating in Medicare between 

October 1983 and September 1993 

would experience a lower than average 

decrease in payments for RY 2007 

primarily because we are projecting that 

these LTCH would experience a slight 

increase (0.1 percent) in payments per 

discharge due to the proposed changes 

to the area wage adjustment. 

Specifically, many of the LTCHs that 

began participating in Medicare 

between October 1983 and September 

1993 are located in areas where the 

proposed RY 2007 wage index value 

would be greater than the RY 2006 wage 

index value. In addition, several of these 

LTCH are located in areas that have a 

proposed wage index value of greater 

than 1.0, and therefore, would 

experience a slight increase in payments 

per discharge as a result of the proposed 

increase in the labor-related share and 

the progression of the 5-year phase-in of 

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LTCHs that began participating before 

October 1983 are projected to 

experience a 12.0 percent decrease in 

payments per discharge from the 2006 

LTCH PPS rate year compared to the 

2007 LTCH PPS rate year (see Table 23). 

We are projecting that LTCHs that 

began participating in Medicare before 

October 1983 would experience a higher 

than average decrease in payments for 

RY 2007 as compared to RY 2006 

primarily because many of these LTCHs 

have a higher than average percentage of 

SSO cases, and therefore, we are 

projecting that they would experience a 

higher than average decrease in 

payments per discharge due to the 

proposed changes to the SSO policy. 

c. Ownership Control 

LTCHs are grouped into three 

categories based on ownership control 

type: voluntary; proprietary; and 

government. 

Based on the most recent available 

data, approximately 3.5 percent of 

LTCHs are government owned and 

operated. We expect that for these 

government-owned and operated 

LTCHs, 2007 LTCH PPS rate year 

payments per discharge would decrease 

14.3 percent in comparison to the 2006 

LTCH PPS rate year (see Table 23). We 

are projecting that government-run 

LTCHs would experience a higher than 

average decrease in payment in RY 2007 

as compared to RY 2006 primarily due 

to the proposed changes to the SSO 

policy, since many of these LTCHs have 

a higher than average percentage of SSO 

cases. Also contributing to the projected 

higher than average decrease in 

payments in RY 2007 as compared to 

RY 2006 for government-run LTCHs is 

the effect of the proposed changes to the 

area wage adjustment. Specifically, all 

but 1 of the 9 government-run LTCHs in 

our database are located in areas where 

the proposed wage index value for RY 

2007 is less than 1.0, and therefore, 

would experience a higher than average 

decrease in payments per discharge as a 

result of the proposed increase in the 

labor-related share and the progression 

of the 5-year phase-in of the wage index 

adjustment. 

Similarly, we project that 2006 LTCH 

PPS rate year payments per discharge 

for voluntary LTCHs would decrease 

13.2 percent in comparison to the 2006 

LTCH PPS rate year (see Table 23). We 

are projecting that voluntary LTCHs 

would experience a higher than average 

decrease in payments in RY 2007 as 

compared to RY 2006 primarily due to 

the proposed changes to the SSO policy, 

since approximately two-thirds (40 

LTCHs) of the voluntary LTCHs have a 

higher than average percentage of SSO 

cases. 

The majority (approximately 73 

percent) of LTCHs are proprietary. We 

project that 2007 LTCH PPS rate year 

payments per discharge for these 

proprietary LTCHs would decrease 10.4 

percent in comparison to the 2006 

LTCH PPS rate year (see Table 23). We 

are projecting that proprietary LTCHs 

would experience a lower than average 

decrease in payments in RY 2007 as 

compared to RY 2006 primarily due to 

our estimate that these LTCHs would 

experience a lower than average 

decrease in payments due to the 

proposed changes to the SSO policy, 

since many proprietary LTCHs have a 

lower than average percentage of SSO 

cases. 

d. Census Region 

Payments per discharge for the 2007 

LTCH PPS rate year are estimated to 

decrease for LTCHs located in all 

regions in comparison to the 2006 LTCH 

PPS rate year. As explained in greater 

detail above in this section, the 

estimated percent decrease in payments 

per discharge from the 2006 LTCH PPS 

rate year to the 2007 LTCH PPS rate year 

is largely attributable to the proposed 

change in the payment formula for SSO 

cases, the proposed changes in the area 

wage adjustment, the proposed increase 

in outlier fixed-loss amount, and the 

proposed slight decrease in the 

transition period budget neutrality 

offset. 

Of the 9 census regions, we project 

that the estimated decrease in proposed 

2007 LTCH PPS rate year payments per 

discharge in comparison to the 2006 

LTCH PPS rate year would have the 

largest impact on LTCHs in the New 

England region (12.7 percent; see Table 

23). LTCHs located in New England are 

expected to experience an increase (0.8 

percent) in payments due to the 

proposed changes in the area wage 

adjustment, since all New England 

LTCHs are located in areas where the 

proposed wage index value for RY 2007 

is greater than 1.0, and therefore, would 

experience an increase in payments per 

discharge as a result of the proposed 

increase in the labor-related share and 

the progression of the 5-year phase-in of 

the wage index adjustment. However, 

even with this projected increase in 

payments from the proposed changes in 

the area wage adjustment, because the 

vast majority of New England LTCH 

treat a higher than average percentage of 

SSO cases, we are projecting that these 

LTCHs would experience a higher than 

average decrease in payments in RY 

2007 as a result of the proposed changes 

to the SSO policy. 

We project that proposed 2007 LTCH 

PPS rate year payments per discharge 

would decrease the least for LTCHs in 

the Pacific region in comparison to the 

2006 LTCH PPS rate year (6.3 percent; 

see Table 23). We estimate that for 

LTCHs located in the Pacific region, the 

projected decrease in payments per 

discharge for the 2007 LTCH PPS rate 

year compared to the 2006 LTCH PPS 

rate year is less than the decreases 

projected for other regions, because all 

LTCHs in this region are located in areas 

where the proposed RY 2007 wage 

index value is greater than the RY 2006 

wage index value. Furthermore, all of 

the LTCHs located in the Pacific region 

are located in areas where the proposed 

wage index value for RY 2007 is greater 

than 1.0, and therefore, would 

experience an increase in payments per 

discharge as a result of the proposed 

increase in the labor-related share and 

the progression of the 5-year phase-in of 

the wage index adjustment. In addition, 

many of the Pacific LTCHs treat a lower 

than average percentage of SSO cases, 

and therefore, we are projecting that 

these LTCHs would experience a lower 

than average decrease in average 

payments as a result of the proposed 

changes to the SSO policy. 

e. Bed Size 

LTCHs were grouped into six 

categories based on bed size: 0–24 beds; 

25–49 beds; 50–74 beds; 75–124 beds; 

125–199 beds; and 200+ beds. 

We are projecting a decrease in 2007 

LTCH PPS rate year payments per 

discharge in comparison to the 2006 

LTCH PPS rate year for all bed size 

categories. Most LTCHs are in bed size 

categories where 2007 LTCH PPS rate 

year payments per discharge are 

projected to decrease by at least 10 

percent in comparison to the 2006 

LTCH PPS rate year. As discussed in 

greater detail above in this section, the 

estimated percent decrease in payments 

per discharge from the 2006 LTCH PPS 

rate year to the 2007 LTCH PPS rate year 

is largely attributable to the proposed 

change in the payment formula for SSO 

cases, the proposed changes in the area 

wage adjustment, the proposed increase 

in outlier fixed-loss amount, and the 

proposed slight increase in the 

transition period budget neutrality 

offset. 

We project that LTCHs with greater 

than 200 beds would have the smallest 

decrease in estimated 2007 LTCH PPS 

rate year payments per discharge in 

comparison to the 2006 LTCH PPS rate 

year (9.5 percent), followed by LTCHs 

with 75–124 beds (10.3 percent). This 

lower than average decrease in projected 

payments per discharge for LTCHs with 


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greater than 200 beds and for LTCHs 

with 75–124 beds is largely due to the 

proposed changes to the area wage 

adjustment. Specifically, for LTCHs 

with 75–124 beds, the majority of these 

LTCHs are located in areas where the 

proposed change in the wage index 

value from RY 2006 to RY 2007 would 

be very small, and therefore we are 

projecting that the proposed changes to 

the area wage adjustment would have a 

negligible impact on these LTCHs’ RY 

2007 payments (0.0 percent) rather than 

decreasing their RY 2007 payments (as 

we estimate would be the impact of 

such proposed changes for ‘‘All 

Providers’’ as shown in Table 23). For 

LTCHs with greater than 200 beds, the 

majority of these LTCHs are located in 

areas where the proposed RY 2007 wage 

index value is greater than the RY 2006 

wage index value. In addition, the 

majority of LTCHs with greater than 200 

beds are located in areas where the 

proposed RY 2007 wage index value is 

greater than 1.0, and therefore, would 

experience an increase in payments per 

discharge as a result of the proposed 

increase in the labor-related share and 

the progression of the 5-year phase-in of 

the wage index adjustment. 

Payments per discharge for the 2007 

LTCH PPS rate year for LTCHs with 0–

24 beds are projected to decrease the 

most in comparison to the 2006 LTCH 

PPS rate year (13.5 percent; see Table 

23), followed by LTCHs with 25–49 

beds (11.8 percent; see Table 23). This 

higher than average decrease in 

projected 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 proposed 

changes to the area wage adjustment. 

Specifically, the majority of LTCHs with 

49 beds or less are located in areas 

where the proposed RY 2007 wage 

index value is less than the RY 2006 

wage index value. In addition, the 

majority of LTCHs with 49 beds or less 

are located in areas where the proposed 

RY 2007 wage index is less than 1.0, 

and therefore, would experience a 

higher than average decrease in 

payments per discharge as a result of the 

proposed increase in the labor-related 

share and the progression of the 5-year 

phase-in of the wage index adjustment. 

Furthermore, many of LTCHs with 0–24 

beds have a higher than average percent 

of SSO cases, and therefore, would 

experience a higher than average 

decrease in payments per discharge as a 

result of the proposed changes to the 

SSO policy. 

5. Effect on the Medicare Program 

Based on actuarial projections, we 

estimate that Medicare spending (total 

estimated Medicare program payments) 

for LTCH services over the next 5 years 

would be as shown in Table 25: 

TABLE 25 

LTCH PPS 

rate year 

Estimated 

payments 

($ in billions) 

2007 .................................... $5.27 

2008 .................................... 5.44 

2009 .................................... 5.64 

2010 .................................... 5.88 

2011 .................................... 6.15 

These estimates are based on the most 

recent and complete LTCH data 

available, including the projection that 

97 percent of LTCHs would elect to be 

paid based on 100 percent of the 2007 

LTCH PPS rate year proposed standard 

Federal rate rather than the applicable 

transition blend, and an estimated 

increase in the number of discharges 

from LTCHs. (We note that the 5-year 

spending estimates shown in above 

Table 25 are significantly higher than 

the 5-year spending estimates presented 

in the 2006 LTCH PPS final rule (70 FR 

24203). This is primarily due to an 

adjustment by our Office of the Actuary 

(OACT) to account for the significant 

increase in the expected number of 

LTCH discharges based on the most 

recent complete available LTCH 

discharge data.) These estimates are also 

based on the current estimate of the 

increase in the excluded hospital with 

capital market basket (currently used 

under the LTCH PPS) of 3.6 percent for 

the 2007 LTCH PPS rate year, 3.5 

percent for the 2008 LTCH PPS rate 

year, 3.1 for the 2009 LTCH PPS rate 

year, 2.6 percent for the 2010 LTCH PPS 

rate year and 3.0 percent for the 2011 

LTCH PPS rate year. (We note that, 

although we are proposing a zero 

percent update to the LTCH PPS Federal 

rate for RY 2007 (as discussed in section 

IV.C.3. of this proposed rule), OACT 

develops its spending projections based 

on existing policy and therefore, 

changes that have not yet been 

implemented are not reflected in the 

spending projections shown in Table 

25.) We estimate that there would be a 

change in Medicare fee-for service 

beneficiary enrollment of ¥2.3 percent 

in the 2007 LTCH PPS rate year, ¥1.0 

percent in the 2008 LTCH PPS rate year, 

0.3 percent in 2009 and 2010 LTCH PPS 

rate years, and 0.6 percent in the 2011 

LTCH PPS rate year, and an estimated 

increase in the total number of LTCHs. 

(We note that, based on the most recent 

available data, OACT is projecting a 

decrease in Medicare fee-for-service Part 

A enrollment, in part, because they are 

projecting an increase in Medicare 

managed care enrollment as a result of 

the implementation of several 

provisions of the MMA.) 

Consistent with the statutory 

requirement for budget neutrality, as we 

discussed in the August 30, 2002 final 

rule that implemented the LTCH PPS, in 

developing the LTCH PPS, we intended 

for estimated aggregate payments under 

the LTCH PPS in FY 2003 would 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 budget neutrality 

calculations 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 to calculate the budget neutrality 

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 

proposed 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 budget 

neutrality calculation at this time. 

Section 123 of BBRA and section 307 

of 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) to maintain budget 

neutrality so that the effect of the 

difference between actual payments and 

estimated payments for the first year of 

LTCH PPS is not perpetuated in the PPS 

rates for future years. As discussed in 

section IV.D.6. of this proposed rule, 

due to the lag time in the availability of 

Medicare data upon which this 

adjustment would be based, we believe 

that it is appropriate to propose a 

postponement of the requirement 

established in § 412.523(d)(3) from the 

existing October 1, 2006 deadline to July 

1, 2008. 

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 


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paying prospectively for LTCH services 

would enhance the efficiency of the 

Medicare program. 

C. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 26, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. Table 

26 provides our best estimate of the 

proposed decrease in Medicare 

payments under the LTCH PPS as a 

result of the proposed changes 

presented in this proposed rule based 

on the data for 259 LTCHs in our 

database. All expenditures are classified 

as transfers to Medicare providers (that 

is, LTCHs). 

TABLE 26.—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2006 LTCH 

PPS RATE YEAR TO THE 2007 

[LTCH PPS rate year (in millions)] 

Category Transfers 

Annualized Monetized 

Transfers.

Negative transfer—

Estimated decrease 

in expenditures: 

$362. 

From Whom To 

Whom? 

Federal Government 

To LTCH Medicare 

Providers. 

In accordance with the provisions of 

Executive Order 12866, this proposed 

rule was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services would amend 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). 

Subpart O—Prospective Payment 

System for Long-Term Care Hospitals 

2. Section 412.523 is amended by—

A. Revising paragraph (c)(3)(ii). 

B. Adding new paragraph (c)(3)(iii). 

C. Revising paragraph (d)(3). 

The revisions and addition read as 

follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) For long-term care hospital 

prospective payment system rate years 

beginning on or after July 1, 2003 and 

ending on or before June 30, 2006. The 

standard Federal rate for long-term care 

hospital prospective payment system 

rate years beginning on or after July 1, 

2003 and ending on or before June 30, 

2006 is the standard Federal rate for the 

previous long-term care hospital 

prospective payment system rate year, 

updated by the increase factor described 

in paragraph (a)(2) of this section, and 

adjusted, as appropriate, as described in 

paragraph (d) of this section. For the 

rate year from July 1, 2003 through June 

30, 2004, the updated and adjusted 

standard Federal rate is offset by a 

budget neutrality factor to account for 

updating the FY 2003 standard Federal 

rate on July 1 rather than October 1. 

(iii) For long-term care hospital 

prospective payment system rate year 

July 1, 2006 through June 30, 2007. The 

standard Federal rate for long-term care 

hospital prospective payment system 

rate year July 1, 2006 through June 30, 

2007 is the standard Federal rate for the 

previous long-term care hospital 

prospective payment system rate year, 

updated by an update factor of zero 

percent. The standard Federal rate is 

adjusted, as appropriate, as described in 

paragraph (d) of this section. 

* * * * * 

(d) * * * 

(3) One-time prospective adjustment. 

The Secretary reviews payments under 

this prospective payment system and 

may make a one-time prospective 

adjustment to the long-term care 

hospital prospective payment system 

rates on or before July 1, 2008, so that 

the effect of any significant difference 

between actual payments and estimated 

payments for the first year of the longterm care hospital prospective payment 

system is not perpetuated in the 

prospective payment rates for future 

years. 

* * * * * 

3. Section 412.525 is amended by—

A. Revising paragraph (a)(3). 

B. Revising paragraph (a)(4)(ii). 

C. Revising paragraph (a)(4)(iii). 

D. Adding new paragraph (a)(4)(iv). 

The revisions and addition read as 

follows: 

§ 412.525 Adjustments to the Federal 

prospective payment. 

(a) * * * 

(3) The additional payment equals 80 

percent of the difference between the 

estimated cost of the patient care 

(determined by multiplying the 

hospital-specific cost-to-charge ratio by 

the Medicare allowable covered charge) 

and the sum of the adjusted LTCH PPS 

Federal prospective payment and the 

fixed-loss amount. 

(4) * * * 

(ii) For discharges occurring on or 

after August 8, 2003 and before October 

1, 2006, high-cost outlier payments are 

subject to the provisions of 

§ 412.84(i)(1), (i)(3), and (i)(4) and (m) 

for adjustments of cost-to-charge ratios. 

(iii) For discharges occurring on or 

after October 1, 2003 and before October 

1, 2006, high-cost outlier payments are 

subject to the provisions of § 412.84(i)(2) 

for adjustments to cost-to-charge ratios. 

(iv) For discharges occurring on or 

after October 1, 2006, high cost stay 

outlier payments are subject to the 

following provisions: 

(A) CMS may specify an alternative to 

the cost-to-charge ratio otherwise 

applicable under paragraph (a)(4)(iv)(B) 

of this section. A hospital may also 

request that its fiscal intermediary use a 

different (higher or lower) cost-to-charge 

ratio based on substantial evidence 

presented by the hospital. A request 

must be approved by the CMS Regional 

Office. 

(B) The cost-to-charge ratio applied at 

the time a claim is processed is based 

on either the most recent settled cost 

report or the most recent tentative 

settled cost report, whichever is from 

the latest cost reporting period. 

(C) The fiscal intermediary may use a 

Statewide average cost-to-charge ratio, 

which CMS establishes annually, if it is 

unable to determine an accurate cost-tocharge ratio for a hospital in one of the 

following circumstances: 

(1) New hospitals that have not yet 

submitted their first Medicare cost 

report. (For this purpose, a new hospital 

is defined as an entity that has not 

accepted assignment of an existing 

hospital’s provider agreement in 

accordance with § 489.18 of this 

chapter.) 

(2) Hospitals whose cost-to-charge 

ratio is in excess of 3 standard 

deviations above the corresponding 

national geometric mean cost to charge 

ratio. CMS establishes and publishes 

this mean annually. 

(3) Other hospitals for whom data 

with which to calculate a cost-to-charge 

ratio is not available. 

(D) Any reconciliation of outlier 

payments is based on the cost-to-charge 


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ratio 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. 

(E) At the time of any reconciliation 

under paragraph (a)(4)(iv)(D) of this 

section, outlier payments may be 

adjusted to account for the time value of 

any underpayments or overpayments. 

Any adjustment is based upon a widely 

available index to be established in 

advance by the Secretary, and is applied 

from the midpoint of the cost reporting 

period to the date of reconciliation. 

* * * * * 

4. Section 412.529 is amended by—

A. Revising paragraph (c). 

B. Adding new paragraph (d). 

The revision and addition read as 

follows: 

§ 412.529 Special payment provision for 

short-stay outliers. 

* * * * * 

(c) Method for determining the 

payment amount. (1) For discharges 

from long-term care hospitals described 

under § 412.23(e)(2)(i), occurring before 

July 1, 2006, the LTCH prospective 

payment system adjusted payment 

amount for a short-stay outlier case is 

the least of the following amounts: 

(i) 120 percent of the LTC–DRG 

specific per diem amount determined 

under paragraph (d)(1) of this section 

multiplied by the length of stay of the 

discharge; 

(ii) 120 percent of the cost of the case 

determined under paragraph (d)(2) of 

this section; or 

(iii) The Federal prospective payment 

for the LTC–DRG. 

(2) For discharges occurring on or 

after July 1, 2006, from long-term care 

hospitals described under 

§ 412.23(e)(2)(i), and for discharges 

occurring in cost reporting periods 

beginning on or after October 1, 2006, 

from the long-term care hospitals 

described under § 412.23(e)(2)(ii), the 

LTCH prospective payment system 

adjusted payment amount for a shortstay outlier case is the least of the 

following amounts: 

(i) 120 percent of the LTC–DRG 

specific per diem amount determined 

under paragraph (d)(1) of this section 

multiplied by the length of stay of the 

discharge; 

(ii) 100 percent of the cost of the case 

determined under paragraph (d)(2) of 

this section; 

(iii) The Federal prospective payment 

for the LTC–DRG; or 

(iv) An amount payable under subpart 

O that is comparable to an amount that 

is otherwise paid under the hospital 

inpatient prospective payment system 

determined under paragraph (d)(3) of 

this section. 

(3) The adjusted payment amount for 

discharges from long-term care hospitals 

described under § 412.23(e)(2)(ii) that 

occur on or after October 1, 2002, 

through June 30, 2003, is determined 

under paragraph (c)(1) of this section. 

Effective for discharges occurring on or 

after July 1, 2003, subject to provisions 

of paragraph (c)(3)(v) of this section, for 

long-term care hospitals described 

under § 412.23(e)(2)(ii), the adjusted 

payment amount for a short-stay outlier 

is determined under the formulas set 

forth in paragraphs (c)(3)(i) through (iv) 

of this section. 

(i) For the first year of the transition 

period, as specified at § 412.533(a)(1), 

under the formula set forth in paragraph 

(c)(1) of this section, the percentages 

specified for the LTC–DRG specific per 

diem amount and the cost of the case 

under paragraphs (c)(1)(i) and (c)(1)(ii) 

of this section are substituted with 195 

percent. 

(ii) For the second year of the 

transition period, as specified at 

§ 412.533(a)(2), under the formula set 

forth in paragraph (c)(1) of this section, 

the percentages specified for the LTC–

DRG specific per diem amount and the 

cost of the case under paragraphs 

(c)(1)(i) and (c)(1)(ii) of this section are 

substituted with 193 percent. 

(iii) For the third year of the transition 

period, as specified at § 412.533(a)(3), 

under the formula set forth in paragraph 

(c)(1) of this section, the percentages 

specified for the LTC–DRG specific per 

diem amount and the cost of the case 

under paragraphs (c)(1)(i) and (c)(1)(ii) 

of this section are substituted with 165 

percent. 

(iv) For the fourth year of the 

transition period, as specified at 

§ 412.533(a)(4), under the formula set 

forth in paragraph (c)(1) of this section, 

the percentages specified for the LTC–

DRG specific per diem amount and cost 

of the case under paragraphs (c)(1)(i) 

and (c)(1)(ii) of this section are 

substituted with 136 percent. 

(v) For discharges occurring in cost 

reporting periods beginning on or after 

October 1, 2006 (beginning with the 

fifth year of the transition period), as 

specified at § 412.533(a)(5)), short-stay 

outlier payments to long-term care 

hospitals described under 

§ 412.23(e)(2)(ii) are made in accordance 

with the formula set forth in paragraph 

(c)(2) of this section. 

(4) Short-stay outlier payments. (i) For 

discharges occurring on or after October 

1, 2002 and before August 8, 2003, no 

reconciliations are made to short-stay 

outlier payments upon cost report 

settlement to account for differences 

between cost-to-charge ratio and the 

actual cost-to-charge ratio of the case. 

(ii) For discharges occurring on or 

after August 8, 2003 and before October 

1, 2006, short-stay outlier payments are 

subject to the provisions of 

§ 412.84(i)(1), (i)(3), and (i)(4) and (m) 

for adjustments of cost-to-charge ratios. 

(iii) For discharges occurring on or 

after October 1, 2003 and before October 

1, 2006, short-stay outlier payments are 

subject to the provisions of § 412.84(i)(2) 

for adjustments to cost-to-charge ratios. 

(iv) For discharges occurring on or 

after October 1, 2006, short-stay outlier 

payments are subject to the following 

provisions: 

(A) CMS may specify an alternative to 

the cost-to-charge ratio otherwise 

applicable under paragraph (c)(4)(iv)(B) 

of this section. A hospital may also 

request that its fiscal intermediary use a 

different (higher or lower) cost-to-charge 

ratio based on substantial evidence 

presented by the hospital. This request 

must be approved by the CMS Regional 

Office. 

(B) The cost-to-charge ratio applied at 

the time a claim is processed is based 

on either the most recent settled cost 

report or the most recent tentative 

settled cost report, whichever is from 

the latest cost reporting period. 

(C) The fiscal intermediary may use a 

Statewide average cost-to-charge ratio, 

which CMS establishes annually, if it is 

unable to determine an accurate cost-tocharge ratio for a hospital in one of the 

following circumstances: 

(1) New hospitals that have not yet 

submitted their first Medicare cost 

report. (For this purpose, a new hospital 

is defined as an entity that has not 

accepted assignment of an existing 

hospital’s provider agreement in 

accordance with § 489.18 of this 

chapter.) 

(2) Hospitals whose cost-to-charge 

ratio is in excess of 3 standard 

deviations above the corresponding 

national geometric mean. CMS 

establishes and publishes this mean 

annually. 

(3) Other hospitals for whom data 

with which to calculate a cost-to-charge 

ratio is not available. 

(D) Any reconciliation of outlier 

payments is based on the cost-to-charge 

ratio 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. 

(E) At the time of any reconciliation 

under paragraph (c)(4)(iv)(C)(4) of this 

section, outlier payments may be 

adjusted to account for the time value of 

any underpayments or overpayments. 

Any adjustment is based upon a widely 


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available index to be established in 

advance by the Secretary, and is applied 

from the midpoint of the cost reporting 

period to the date of reconciliation. 

(d) Calculation of costs. (1) CMS 

calculates a per diem amount for shortstay outliers for each LTC–DRG by 

dividing the product of the standard 

Federal payment rate and the LTC–DRG 

weight by the geometric mean length of 

stay of the specific LTC–DRG. 

(2) To determine the cost of a case, 

CMS uses the hospital-specific cost-tocharge ratio and the Medicare allowable 

charges for the case. 

(3) CMS calculates, under Subpart O, 

an amount comparable to what would 

otherwise be paid under the hospital 

Inpatient prospective payment system 

based on the sum of the applicable 

operating inpatient prospective payment 

system standardized amount and capital 

inpatient prospective payment system 

Federal rate in effect at the time of the 

LTCH discharge. 

(i) Operating inpatient prospective 

payment system standardized amount. 

The operating inpatient prospective 

payment system standardized amount—

(A) Is adjusted for the applicable 

inpatient prospective payment system 

DRG weighting factors. 

(B) 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 inpatient prospective 

payment system labor-related share, 

using the applicable inpatient 

prospective payment system wage index 

value for non-reclassified inpatient 

prospective payment system hospitals. 

For LTCHs located in Alaska and 

Hawaii, this amount is also adjusted by 

the applicable inpatient prospective 

payment system cost of living 

adjustment factors. 

(C) Includes, where applicable, 

adjustments for indirect medical 

education costs and the costs of serving 

a disproportionate share of low-income 

patients. 

(ii) Capital inpatient prospective 

payment system Federal rate. The 

capital inpatient prospective payment 

system Federal rate—

(A) Is adjusted for the applicable 

inpatient prospective payment system 

DRG weighting factors. 

(B) Is adjusted for the applicable 

geographic adjustment factors, 

including local cost variation based on 

the geographic classifications set forth at 

§ 412.64(b)(1)(ii)(A) through (C) and the 

applicable full inpatient prospective 

payment system wage index value for 

non-reclassified inpatient prospective 

payment system hospitals and, 

applicable large urban location cost of 

living adjustment factors for LTCHs in 

Alaska and Hawaii, if applicable. 

(C) Includes, where applicable, 

adjustments for indirect medical 

education costs and the costs of serving 

a disproportionate share of low-income 

patients. 

5. Section 412.531 is amended by—

A. Revising paragraph (b)(1)(i)(C). 

B. Redesignating paragraph 

(b)(1)(ii)(A)(2) as (b)(1)(ii)(A)(3). 

C. Adding new paragraph 

(b)(1)(ii)(A)(2). 

The revisions and additions read as 

follows: 

§ 412.531 Special payment provisions 

when an interruption of a stay occurs in a 

long-term care hospital. 

* * * * * 

(b) * * * 

(1) * * * 

(i) * * * 

(C) Surgical DRG exception to the 3- 

day or less interruption of stay policy. 

(1) The number of days that a 

beneficiary spends away from a longterm care hospital during a 3-day or less 

interruption of stay under paragraph 

(a)(1) of this section during which the 

beneficiary receives a procedure 

grouped to a surgical DRG under the 

inpatient prospective payment system 

in an acute care hospital during the 

2005 and 2006 LTCH prospective 

payment system rate years are not 

included in determining the length of 

stay of the patient at the long-term care 

hospital. 

(2) For discharges occurring on or 

after July 1 2006, the number of days 

that a beneficiary spends away from a 

long-term care hospital during a 3-day 

or less interruption of stay under 

paragraph (a)(1) of this section during 

which the beneficiary receives a 

procedure grouped to a surgical DRG 

under the inpatient prospective 

payment system in an acute care 

hospital are included in determining the 

length of stay of the patient at the longterm care hospital. 

* * * * * 

(ii) * * * 

(A) * * * 

(2) For discharges occurring on or 

after July 1, 2006, for a 3-day or less 

interruption of stay under paragraph 

(a)(1) of this section in which a longterm care hospital discharges a patient 

to an acute care hospital and the 

patient’s treatment during the 

interruption is grouped into a surgical 

DRG under the acute care inpatient 

hospital prospective payment system, 

the services must be provided under 

arrangements in accordance with 

§ 412.509(c). CMS does not make a 

separate payment to the acute care 

hospital for the surgical treatment. The 

LTC–DRG payment made to the longterm care hospital is considered 

payment in full as specified in 

§ 412.521(b). 

* * * * * 

6. Section 412.534 is amended by—

A. Revising paragraph (c)(1). 

B. Revising paragraph (c)(2). 

C. Revising paragraph (d)(1). 

D. Revising paragraph (e)(1). 

E. Redesignating paragraph (f) as 

paragraph (g). 

F. Adding new paragraph (f). 

The revisions and addition read as 

follows: 

§ 412.534 Special payment provisions for 

long-term care hospitals within hospitals 

and satellites of long-term care hospitals. 

* * * * * 

(c) * * * 

(1) Except as provided in paragraph 

(g) 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), or (g) 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 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 paragraph (g) 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 


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4742 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

§ 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) * * * 

(1) Subject to paragraph (g) of this 

section, In the case of a long-term care 

hospital or satellite facility that is colocated 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 were admitted to 

the hospital 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 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 long-term care 

hospital’s or satellite facility’s patients 

are made under the rules in this subpart 

with no adjustment under this section. 

* * * * * 

(f) Calculation of rates. (1) Calculation 

of LTCH 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 based on the sum of the 

applicable operating inpatient 

prospective payment system 

standardized amount and capital 

inpatient prospective payment system 

Federal rate in effect at the time of the 

LTCH discharge. 

(2) Operating inpatient prospective 

payment system standardized amount. 

The operating inpatient prospective 

payment system standardized amount—

(i) Is adjusted for the applicable 

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 inpatient prospective 

payment system labor-related share, 

using the applicable inpatient 

prospective payment system wage index 

value for non-reclassified inpatient 

prospective payment system hospitals. 

For LTCHs located in Alaska and 

Hawaii, this amount is also adjusted by 

the applicable inpatient prospective 

payment system cost of living 

adjustment factors; 

(iii) Includes, where applicable, 

adjustments for indirect medical 

education costs and the costs of serving 

a disproportionate share of low-income 

patients. 

(3) Capital inpatient prospective 

payment system Federal rate. The 

capital inpatient prospective payment 

system Federal rate —

(i) Is adjusted for the applicable 

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 inpatient 

prospective payment system wage index 

value for non-reclassified inpatient 

prospective payment system hospitals, 

applicable large urban location and cost 

of living adjustment factors for LTCHs 

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 fixed loss amount paid 

under the inpatient prospective 

payment system if the estimated 

operating and capital costs exceed the 

applicable inpatient prospective 

payment system outlier threshold. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance) 

Dated: December 8, 2005. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: January 19, 2006. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: The following appendix 

will not appear in the Code of Federal 

Regulations. 

Appendix A—Description of a 

Preliminary Model of an Update 

Framework under the LTCH PPS 

Section 307(b) of BIPA requires that the 

Secretary shall examine and may provide for 

appropriate adjustments to the LTCH PPS, 

including updates. Updates are necessary to 

appropriately account for changes in the 

prices of goods and services used by a 

provider in furnishing care to patients. A 

market basket has historically been used 

under the Medicare program in setting 

update factors for services furnished by 

providers. When we established the LTCH 

PPS for FY 2003 in the August 30, 2002 final 

rule (67 FR 56030), we established under 

§ 412.523(c)(3)(ii) that for FYs after FY 2003, 

the LTCH PPS Federal rate was to be the 

previous year’s Federal rate updated by the 

most recent estimate of the LTCH PPS market 

basket. When we moved the date of the 

annual update of the LTCH PPS from October 

1 to July 1, beginning with the RY 2004 

LTCH PPS final rule (68 FR 34138), we 

revised § 412.523(c)(3)(ii) 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 

prospective payment system will be equal to 

the previous rate year’s Federal rate updated 

by the most recent estimate of the LTCH PPS 

market basket. (Currently, the LTCH PPS 

market basket is the FY 1997-based excluded 

hospital with capital market basket index (68 

FR 34134 through 34137); however, we are 

proposing to adopt the FY 2002-based RPL 

market basket, as discussed in section IV.B. 

of this proposed rule.) As we discuss in 

section IV.C.3. of this proposed rule, based 

on our analysis of the best available LTCH 

case-mix and margins data, we are proposing 

to revise § 412.523(c) to specify that for the 

2007 LTCH PPS rate year, the standard 

Federal rate from the previous year would be 

updated by a factor of zero percent. However, 

in the future we may propose to develop an 

update framework to update payments to 

LTCHs that would account for other 

appropriate factors that affect the efficient 

delivery of services and care provided to 

Medicare patients. The update framework 

would be proposed in accordance with the 

notice and comment rulemaking process. 

While we are not implementing a specific 

update framework for the LTCH prospective 

payment system at this time in this proposed 

rule, we are providing a conceptual basis for 

developing such an update framework. 


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A. Need for an Update Framework 

Under the LTCH prospective payment 

system, Medicare payments to LTCHs are 

based on a predetermined national payment 

amount per discharge. Under section 123 of 

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

Secretary has broad discretionary authority to 

make appropriate adjustments to the LTCH 

payment system, including updates to the 

payment rates. Our goal is to develop a 

method for analyzing and comparing 

expected trends in the underlying cost per 

discharge to use in establishing these 

updates. However, as stated earlier, until an 

appropriate update framework is developed, 

future updates may be based on the increase 

in the applicable LTCH PPS market basket. 

The market basket for the LTCH PPS, 

developed by OACT, represents only one 

component in the measure of growth in 

LTCHs’ costs per discharge. It captures only 

the pure price change of inputs (labor, 

materials, and capital) used by the hospital 

to produce a constant quantity and quality of 

care. However, other factors also contribute 

to the change in costs per discharge, 

including changes in case-mix, intensity, and 

productivity. 

Previously, under the acute care hospital 

IPPS for operating costs (the operating IPPS), 

we utilized an update framework to account 

for these other factors and to make annual 

recommendations to the Congress concerning 

the magnitude of the update. We continue to 

use a similar framework under the acute care 

hospital IPPS for capital costs (the capital 

IPPS) to determine the annual update to the 

capital PPS Federal rate. We also use a 

similar framework under the SNF PPS. Based 

on our experience in developing other update 

frameworks, we are currently examining 

these factors and exploring ways that they 

could be measured and incorporated into an 

update framework for the LTCH PPS. We are 

also examining additional conceptual and 

data issues that must be considered when the 

framework is constructed and applied. 

In the August 30, 2002 final rule (67 FR 

56087), we pointed out that it is important 

to develop successively more refined models 

of an update framework based on our 

evaluation of public comments and 

recommendations submitted to us on this 

issue. We would then further study the 

potential adjustments using the best available 

data. To actively pursue the development of 

an analytical framework that would support 

the continued appropriateness and relevance 

of the payment rates for services provided to 

beneficiaries in LTCHs, in this proposed rule, 

we are soliciting comments concerning the 

use and feasibility of the conceptual 

approach outlined in section B of this 

Appendix. Specifically, we are requesting 

comments concerning which factors are 

appropriate and should be accounted for in 

the framework, and suggestions concerning 

potential data sources and analysis to 

support the model. As with the existing 

methodology used under both the capital 

IPPS and SNF PPS, the features of a LTCHspecific update framework would need to be 

based on sound policy and methodology. 

Although we received no comments on the 

conceptual basis for a LTCH PPS update 

framework presented in the August 30, 2002 

final rule, we continue to be interested in 

comments concerning the potential 

development of an update framework for the 

LTCH prospective payment system. 

Therefore, in this proposed rule we are again 

presenting a conceptual basis for the 

framework along with an illustrative LTCH 

PPS framework for RY 2007 (shown in 

section E of this Appendix). 

B. Factors Inherent in LTCH Payments Per 

Discharge 

In order to understand the factors that 

determine LTCH costs per discharge, it is 

first necessary to understand the factors that 

determine LTCH payments per discharge. 

Payments per discharge under the LTCH PPS 

are based on the cost and an implicit normal 

profit margin to the LTCH in providing an 

efficient level of care. We have developed a 

methodology to identify a mutually exclusive 

and exhaustive set of factors included in 

LTCH payments per discharge. The 

discussion here details a set of equations to 

identify these factors. 

In its simplest form, the average payment 

per discharge to a LTCH can be separated 

into a cost term and a profit term as shown 

in Equation 1. 

EQUATION Payments Costs 1: 

Discharge Discharge

Profits

Disc

= +

harge

This equation can be made multiplicative 

by converting profit per discharge into a 

profit rate as shown in Equation 2. 

EQUATION Payments Costs Payments

Costs

 2:

Discharge Discharge = *

An output price term can be introduced 

into the equation by multiplying and 

dividing through by input prices and 

productivity. As shown in Equation 3, the 

term inside the brackets represents the 

output price, since an output price reflects 

the input price and profit margin adjusted for 

productivity. 

EQUATION Payments Costs Payments

Costs

 3:

Discharge Discharge = * * Input

Input

 Prices

Productivity

Productivity

 Prices





 



*

The cost per discharge term can be further 

separated by accounting for real case-mix. 

Under the LTCH PPS, LTC–DRGs are used to 

classify patients. Based on accurate DRG 

classification data, average real case-mix per 

discharge can be incorporated, as shown in 

Equation 4. 

EQUATION

Payments Costs

 4:

Discharge

Discharge

Real Case Mix/ = /

Discharge

Real Case Mix

Discharge

 Pric * ** Payments

Costs

Input es

Productivity

Productivity

 Prices





 



*

Input


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4744 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

The term ‘‘real’’ is imperative here because 

only true case-mix should be measured, not 

case-mix caused by improper coding 

behavior. We believe payment should be 

based on changes in ‘‘real’’ case mix (that is, 

the treatment of more resource intensive and 

costly patients) rather than case mix caused 

by improper coding behavior or changes in 

coding practice (that is, ‘‘apparent’’ case mix 

change) because ‘‘apparent’’ case mix 

increase does not result in an increase in a 

hospital’s cost of treating those patients. By 

rearranging the terms in Equation 4, a set of 

mutually exclusive and exhaustive factors 

such as those shown in Equation 5 can be 

identified. 

EQUATION

Payments

Input

 5:

Discharge

Costs

Discharge

 Prices*Re = al Case Mix

Discharge

Productivity Real Case M * *

























ix

Discharge Productivity

 Prices* Payments * * 1 Input Costs

The term in brackets can be analyzed in 

two steps. First, excluding the productivity 

term results in case-mix adjusted real cost 

per discharge, which is input intensity per 

discharge. Second, multiplying input 

intensity by productivity results in case-mix 

adjusted real payment per discharge, or 

output intensity per discharge. The rationale 

behind this step is explained in detail in 

section C. 

The result of this exercise is that LTCH 

payment per discharge can be determined 

from the following factors as shown in 

Equation 6. 

EQUATION

Payment

Case

 6:

 Per Discharge =

-Mix-Constant

Real Output Intensity Per Discharge

Real Case Mix

 Discha





 



* per rge Prices Profit Margins

Productivity

( ) * * ( )( ) Input

Thus, it holds that the change in LTCH 

payment per discharge is a function of the 

change in these factors as shown in Equation 

6. In order to determine an annual update 

that most accurately reflects the underlying 

cost to the LTCH of efficiently providing 

care, the four factors related to cost must be 

accounted for when an update framework is 

developed. A brief discussion of each factor, 

including specific conceptual and data 

issues, is provided in section C. 

C. Defining Each Factor Inherent in LTCH 

Costs Per Discharge 

Each cost factor from Equation 6 in section 

B is discussed here in detail. Because this is 

a basic conceptual discussion, it is likely that 

more detailed issues may be relevant that are 

not explored here. 

1. Input Prices 

Input prices are the pure prices of inputs 

used by the LTCH in providing services. 

When we refer to inputs, we are referring to 

costs, which have both a price and a quantity 

component. The price is an input price, and 

the quantity component reflects real inputs 

or real costs. Similarly, when we refer to 

outputs, we are referring to payments, which 

also have both a price and a quantity 

component. The price component is the 

transaction output price, and the quantity 

component is the real output or real 

payment. The real inputs include labor, 

capital, and other materials, such as drugs. 

By definition, an input price reflects prices 

that LTCHs encounter in purchasing these 

inputs, whereas an output price reflects the 

prices that buyers encounter in purchasing 

LTCH services. We currently measure input 

prices using the excluded hospital with 

capital market basket; however, as discussed 

section IV.B. of this proposed rule, we are 

proposing to adopt the RPL market basket, 

which is based on the operating and capital 

costs of IRFs, IPFs and LTCHs. While not 

specific to LTCHs, we believe this index 

would adequately reflect the input prices 

faced by LTCHs. 

2. Productivity 

Productivity measures the efficiency of the 

LTCH in producing outputs. It is the amount 

of real outputs, or real payments that can be 

produced from a given amount of real inputs 

or real costs. For LTCHs, these inputs are in 

the form of both labor and capital; thus, they 

represent multifactor productivity, as not just 

labor productivity is reflected. Equation 7 

shows how multifactor productivity can be 

measured in terms of available data, such as 

payments, costs, and input prices: 

EQUATION Productivity = Real Payments

Real Costs

 (Paym

7 :

= ents/Output Price)

(Costs/Input Price)

 = * Payments Inp

Costs

ut Price

Output Price

Rearranging the terms, this multifactor 

productivity equation (Equation 7) was used 

as the basis for incorporating an output price 

term in Equation 3. This equation is the basis 

for understanding the relationship between 

input prices, output prices, profit margins, 

and productivity. 

Equation 6 shows that productivity is 

divided through the equation, offsetting other 

factors. The theory behind this offset is that 

if an efficient LTCH in a competitive market 

can produce more output with the same 

amount of inputs, the full increase in input 

costs does not have to be passed on by the 

provider to maintain a normal profit margin. 

3. Real Case Mix Per Discharge 

Real case mix per discharge is the average 

overall mix of care provided by the LTCH, as 

measured using the LTC–DRG classification 


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system. Over time, a measure of real case mix 

will change as care is given in more or less 

complex LTC–DRGs. Changes in the level of 

care within a LTC–DRG classification group 

would not be reflected in a case-mix measure 

based on LTC–DRGs, but instead should be 

captured in the intensity factor of Equation 

6. The important distinction here is the 

difference between real and nominal casemix. Under the LTCH prospective payment 

system, LTCHs will submit claims using the 

LTC–DRG classification system. The casemix reflected by the claims is considered 

‘‘nominal’’. However, the reported 

classification can reflect the true level of care 

provided or improper coding behavior. An 

example of improper coding behavior would 

be the upcoding, or case-mix ‘‘creep,’’ that 

took place when the acute care hospital IPPS 

was implemented. (For further details, see 

ProPAC’s March 1, 1994 Report and 

Recommendations to Congress (pp. 73–74).) 

Any change in case-mix that is not associated 

with the actual level of care or a true change 

in the level of care provided must be 

excluded in order to determine real case-mix. 

4. Case-Mix Constant Real Output Intensity 

Per Discharge 

Intensity is the true underlying nature of 

the product or service and can take the form 

of output or input intensity, or both. In the 

case of LTCHs, output intensity per discharge 

is associated with real payment per 

discharge, while input intensity per 

discharge is associated with real cost per 

discharge. For example, input intensity 

would be associated with a nurse’s hours 

when providing treatment, whereas output 

intensity would be associated with the type 

and number of treatments a nurse provides. 

The underlying nature of LTCH services is 

determined by factors such as technological 

capabilities, increased utilization of inputs 

(such as labor or drugs), site of care, and 

practice patterns. Because these factors can 

be difficult to measure, intensity per 

discharge is usually calculated as a residual 

after the other factors from Equation 6 were 

accounted for. 

Accounting for output intensity associated 

with an efficient LTCH can be more 

accurately analyzed using a LTCH’s costs 

rather than its payments. This analysis would 

also provide an alternative to developing or 

using a transaction output price index. 

Equation 8 shows how to use the definition 

of an output price as defined earlier to 

convert the equation for output intensity per 

discharge to reflect costs instead of 

payments, as used in Equation 6. 

EQUATION 8: Case-Mix-Constant Real Output Intensity per Discharge

 Discharge

O = [ ] Payments /

utput Prices*Real Case Mix/Discharge

 = Payments/Discharge

Payments

[ ]

Costs

Input * Prices

Productivity Real Case Mix/Discharge

 





 



*

 = Payments/Discharge

Payments*

[ ]*Costs

Input Prices

Productivity *Real Case Mix/Discharge

 Costs/Discharge = Payments [ ]

Paym

*

ents* * Input Prices

Productivity Real Case Mix/Discharge

 

 = Costs/Discharge

 P

[ ]

Input rices Case Mix/Discharge

 

Pr

*Re

oductivity

al

 = Costs/Discharge

Input Pr

[ ]

ices*Real Case Mix/Discharge *Productivity 

The last equation in Equation 8 is identical 

to the term in brackets in Equation 5, casemix constant real input intensity per 

discharge multiplied by productivity. Thus, 

output intensity per discharge can be defined 

in such a way that cost data from the LTCH 

are utilized. This equation can be broken 

down even further to account for different 

types of input intensity per discharge. We 

discuss this matter more fully in section D. 

D. Applying the Factors That Affect LTCH 

Costs Per Discharge in an Update Framework 

As discussed earlier, payments per 

discharge under the LTCH PPS have been 

updated annually since the LTCH PPS was 

implemented for cost-reporting periods 

beginning on or after October 1, 2002. Under 

this proposed rule, the standard Federal rate 

from the previous year would be updated by 

a factor of zero percent based on our analysis 

of LTCH margins and case-mix using the best 

available data. The development of an update 

framework with a sound conceptual basis 

provides the capability to understand the 

underlying trends in LTCH costs per 

discharge for an efficient provider. 

Previously we identified factors inherent in 

LTCH costs per discharge. Changes in these 

factors determine the change in LTCH costs 

per discharge and fitting these factors into an 

appropriate framework would allow us to 

accurately reflect changes in the underlying 

costs for efficient LTCHs. The following 

explanation accounts for each of these factors 

from Equation 6 under the LTCH PPS: 

• Change in case-mix constant real output 

intensity per discharge would be accounted 

for in the update framework, reflecting the 

factors that affect not only case-mix constant 

real input intensity per discharge, but also 

productivity, which is determined separately. 

Factors that can cause changes in case-mix 

constant real input intensity per discharge 

include, but are not limited to, changes in 

site of service, changes in within-LTC–DRG 

case-mix, changes in practice patterns, 

changes in the use of inputs, and changes in 

technology available. 

• Changes in nominal case-mix are 

automatically included in the payment to the 

LTCH. Therefore, the update framework 

should include an adjustment to convert 

changes in nominal case-mix per discharge to 

changes in real case-mix per discharge, if 

they are different. 

• Change in multifactor productivity 

would be accounted for in the update 

framework. The availability of historical data 


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on input prices, payments, and costs are 

useful in the analysis of this factor. 

• Changes in input prices for labor, 

material, and capital would be accounted for 

in the update framework using an input price 

index, or market basket. To assist in updating 

payments for LTCH services, OACT currently 

has developed an input price index; this is 

currently the excluded hospital with capital 

market basket, and we are proposing to use 

the RPL market basket as discussed in section 

IV.B. of the preamble of this proposed rule. 

• In an update framework, a forecast error 

adjustment would be included to reflect that 

the updates are set prospectively and a 

forecast error for a given year should not be 

perpetuated in payments for future years. In 

the case of the acute care hospital IPPS, this 

prospective adjustment is made on a 2-year 

lag and only if the error exceeds a defined 

threshold (0.25 percentage points). 

E. Illustrative LTCH Prospective Payment 

System Update Framework for the 2007 

LTCH PPS Rate Year 

Table 27 shows an illustrative update 

framework for the LTCH PPS for RY 2007. 

Some of the factors in the LTCH framework 

are computed using Medicare cost report 

data, while others are determined based on 

policy considerations. This is consistent with 

the factors in the capital IPPS and SNF PPS 

update frameworks. This design for a LTCH 

update framework is for illustrative purposes 

only, as much more work needs to be done 

to determine the appropriate level of detail 

for each factor. 

MedPAC supported this for updating 

payments and applied a similar framework 

when it proposed updates to hospital 

payments in its annual Report to Congress 

(MedPAC, 2000). The appropriateness of this 

framework for updating hospital payments 

was also discussed in the article, ‘‘Are PPS 

Payments Adequate? Issues for Updating and 

Assessing Rates’’ (Health Care Financing 

Review, Winter 1992). We believe a similar 

framework would be useful for analyzing 

updates to LTCH payments. 

If we applied this update framework to 

determine the LTCH PPS standard Federal 

rate for RY 2007, the update factor for RY 

2007 would be ¥0.5 percent. This estimate 

is based on the best available data at this 

time. The estimated update factor is based on 

a projected 3.6 percent increase in the 

proposed RPL market basket, a 0.0 

adjustment for intensity, a ¥0.9 percent 

adjustment for productivity, a ¥4.0 percent 

adjustment for case-mix, and a forecast error 

correction of 0.8 percent. The following is a 

description of the policy adjustments that 

have been applied under the illustrative 

LTCH PPS update framework for RY 2007. 

The case-mix index is the measure of the 

average DRG weight for cases paid under the 

LTCH PPS. Because the DRG weight 

determines the prospective payment for each 

case, any percentage increase in the case-mix 

index corresponds to an equal percentage 

increase in hospital payments. 

The case-mix index can change for any of 

several reasons: 

• The average resource use of Medicare 

patients changes (‘‘real’’ case-mix change); 

• Changes in hospital coding of patient 

records result in higher weight DRG 

assignments (‘‘apparent’’ case-mix index). 

We define real case-mix change as actual 

changes in the mix (and resource 

requirements) of Medicare patients as 

opposed to changes in coding behavior that 

result in assignment of cases to higher 

weighted DRGs but do not reflect higher 

resource requirements. 

As discussed in section IV.C.3. of the 

preamble of this proposed rule, for RY 2007, 

we are estimating a 6.75 percent nominal 

increase in the case-mix index. We estimate 

that the real case-mix increase would equal 

2.75 percent in RY 2007. The net adjustment 

for change in case-mix is the difference 

between the projected increase in real casemix and the projected nominal increase in 

real case-mix. Therefore, the estimated 

adjustment for case-mix change would be 

¥4.0 percentage points (2.75 percent minus 

6.75 percent). 

The framework also contains an 

adjustment for forecast error. The market 

basket forecast is based on historical trends 

and relationships ascertainable at the time 

the update factor is established for the 

upcoming year. In any given year, there may 

be unanticipated price fluctuations that may 

result in differences between the actual 

increases in prices and the forecast used in 

calculating the update factors. There is a 2- 

year lag between the forecast and the 

measurement of the forecast error. A forecast 

error of 0.8 percentage points was calculated 

for the RY 2005 update. That is, current 

historical data indicate that the forecasted RY 

2005 market basket (3.1 percent) understated 

the actual realized price increases (3.9 

percent) by 0.8 percentage points. Therefore, 

a 0.8 percent adjustment would be 

appropriate to account for the forecast error 

under the illustrative LTCH PPS update 

framework for RY 2007. 

Under this framework, we also make an 

adjustment for productivity, an efficiency 

measure. Productivity measures the ability of 

hospitals to reduce the quantity of inputs 

required to produce a unit of service while 

maintaining quality. MedPAC has 

recommended a productivity target based on 

the Bureau of Labor Statistics’ estimate of the 

10-year moving national average rate of 

productivity growth. The productivity target 

currently equals 0.9 percent. This target is 

lower than the productivity estimate 

calculated using the latest available LTCH 

cost report data. Therefore, under the 

illustrative LTCH PPS update framework for 

RY 2007, we would recommend a 0.9 percent 

adjustment for productivity. 

We also make an adjustment for changes in 

intensity. The intensity factor reflects how 

hospital services are utilized to produce the 

final product, that is, the discharge. This 

component accounts for changes in these 

types of factors, such as the use of qualityenhancing services, for changes in withinDRG severity, and for expected modification 

of practice patterns to remove non-cost 

effective services. Based on the latest 

available LTCH data, we calculated a 

negative intensity factor. As we have done in 

the past under the IPPS, when we have found 

that case-mix consistent intensity is 

declining, we believe that it would be 

appropriate to apply a zero intensity 

adjustment under the illustrative LTCH PPS 

update framework for RY 2007 (August 1, 

2000, 65 FR 47119). 

Table 27 illustrates what a possible LTCH 

PPS update framework would be if we 

proposed to determine the annual update to 

the LTCH PPS Federal rate based on a 

framework model such as this for RY 2007. 

This conceptual model of a LTCH PPS 

update framework is for illustrative purposes 

only. As we discuss in greater detail in 

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

proposed rule, we are proposing a 0 percent 

update to the LTCH PPS standard Federal 

rate for RY 2007. 

TABLE 27.—ILLUSTRATIVE LTCH PPS 

UPDATE FRAMEWORK FOR RY 2007 

Factors Percent 

change 

Price (+): 

Proposed RPL Market Basket ...................................... 3 .6 

Forecast Error ....................... 0 .8 

Productivity (¥) ........................ 0 .9 

Output Intensity (+) ................... 0 .0 

Input Intensity 

Productivity ............................ 0 .9 

Case-mix Creep Adjustment (+) ¥4 .0 

Nominal Case-Mix ................. ¥6 .75 

Real Case-Mix ...................... 2 .75 

Other factors (+) ....................... 0 .0 

Total ................................... ¥0 .5 

F. Additional Conceptual and Data Issues 

Additional conceptual issues specific to 

the LTCH PPS include the relevance of a siteof-service substitution adjustment, the 

necessity of an adjustment for LTC–DRG 

reclassification, the handling of one-time 

factors, and consistency with other types of 

hospital updates since LTCHs are similar in 

structure to these other types of hospitals. 

Under the acute care hospital IPPS, a siteof-service substitution factor (captured as 

part of intensity) was necessary because of 

the incentive to shift care from inpatient 

hospital to other settings such as hospital 

outpatient departments, SNFs, or HHAs. For 

the LTCH PPS, it is not clear without 

additional research whether there is an 

incentive to shift care either into or out of the 

LTCH because of the changes in behavior 

created by the different Medicare payment 

systems. 

A reclassification and recalibration 

adjustment under the acute care hospital 

IPPS is necessary to account for changes in 

the case-mix or the types of patients treated 

by hospitals resulting from the annual 

reclassification and recalibration of the 

DRGs. This adjustment for case-mix is 

applied to the current FY update, but reflects 

the effect of revisions in the FY that is 2 years 

before that fiscal year. Whether a LTC–DRG 

reclassification adjustment would be 

necessary in the update framework would 

depend on the data availability and the 

likelihood of revisions to LTC–DRG 

classifications on a periodic basis. 


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Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4747 

There is also a question about how to 

handle one-time factors (an example of these 

could be the increased costs of converting 

computer systems to Year 2000 compliance). 

An update framework might be an 

appropriate mechanism to account for these 

items, but because of uncertainty 

surrounding their impact on costs, 

determining an appropriate adjustment 

amount may be difficult. 

LTCHs are heterogeneous and are 

designated as a separate payment category 

only because their patients have longer 

average lengths of stay. This raises the 

question of whether certain factors in an 

update framework for LTCHs should be 

consistent with the factors in an update 

framework for other types of hospitals since 

they face similar cost pressures. Additional 

research in this area would need to be 

conducted to determine the reasonableness of 

having consistent updates. 

The purpose of this conceptual discussion 

is not to determine how the identified factors 

of the update framework would be measured. 

We recognize that there are significant 

measurement issues in accurately 

determining the factors that would account 

for growth in costs per discharge for 

efficiently providing care. This is driven, in 

part, by the shift from a cost-based payment 

system with an upper payment limit to a 

PPS. Significant research and data collection 

would be necessary to accurately measure 

these factors over the historical period. One 

example of this would be to measure the 

distinction between real and nominal casemix change. However, many of these same 

concerns were also encountered and 

successfully addressed in the hospital IPPS 

update framework. 

The discussion here provides the 

conceptual basis for developing an update 

framework for the LTCH PPS that reflects 

changes in the underlying costs of efficiently 

providing services. It is important to note 

that the framework would not handle 

distribution issues such as geographic wage 

variations. Due to some variations in 

technical methodologies for measuring the 

factors of an update framework, and because 

of some of the data concerns mentioned 

earlier, implementing an update framework 

for the LTCH PPS would involve making 

significant policy decisions on issues similar 

to those made for the hospital IPPS update 

framework. We invite comments on the type 

of data sources to use, what other factors (if 

any) we should consider in an update 

framework, and any additional comments 

concerning the issues discussed in this 

proposed rule regarding the update 

framework. 

The following addendum will not appear 

in the Code of Federal Regulations. 

Addendum 

This addendum contains the tables referred 

to throughout the preamble to this proposed 

rule. The tables presented below are as 

follows: 

Table 1: Proposed Long-Term Care 

Hospital Wage Index for Urban Areas for 

Discharges Occurring from July 1, 2006 

through June 30, 2007. 

Table 2: Proposed Long-Term Care 

Hospital Wage Index for Rural Areas for 

Discharges Occurring from July 1, 2006 

through June 30, 2007. 

Table 3: FY 2006 LTC-DRG Relative 

Weights and Geometric Mean Length of Stay 

for Discharges Occurring from October 1, 

2005 through September 30, 2006. (Note: 

This is the same information provided in 

Table 11 of the FY 2006 IPPS final rule 

(August 12, 2005; 70 FR 47681 through 

47690), which has been reprinted here for 

convenience.) 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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

Callahan County, TX.

Jones County, TX.

Taylor County, TX .................................................................................................................................. 0.8738 0.8317 0.7896 

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

Aguada Municipio, PR.

Aguadilla Municipio, PR.

A±asco Municipio, PR.

Isabela Municipio, PR.

Lares Municipio, PR.

Moca Municipio, PR.

Rino ́n Municipio, PR.

San Sebastia ́n Municipio, PR ................................................................................................................ 0.6843 0.5790 0.4738 

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

Portage County, OH.

Summit County, OH ............................................................................................................................... 0.9389 0.9186 0.8982 

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

Baker County, GA.

Dougherty County, GA.

Lee County, GA.

Terrell County, GA.

Worth County, GA ................................................................................................................................. 0.9177 0.8902 0.8628 

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

Albany County, NY.

Rensselaer County, NY.

Saratoga County, NY.

Schenectady County, NY.

Schoharie County, NY ........................................................................................................................... 0.9153 0.8871 0.8589 

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

Bernalillo County, NM.

Sandoval County, NM.

Torrance County, NM.

Valencia County, NM ............................................................................................................................. 0.9810 0.9747 0.9684 

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

Grant Parish, LA.

Rapides Parish, LA ................................................................................................................................ 0.8820 0.8426 0.8033 

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

Warren County, NJ.

Carbon County, PA.


rmajette on PROD1PC67 with PROPOSALS2
4748 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Lehigh County, PA.

Northampton County, PA ....................................................................................................................... 0.9891 0.9854 0.9818 

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

Blair County, PA .................................................................................................................................... 0.9366 0.9155 0.8944 

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

Armstrong County, TX.

Carson County, TX.

Potter County, TX.

Randall County, TX ............................................................................................................................... 0.9494 0.9325 0.9156 

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

Story County, IA .................................................................................................................................... 0.9722 0.9629 0.9536 

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

Anchorage Municipality, AK.

Matanuska-Susitna Borough, AK .......................................................................................................... 1.1137 1.1516 1.1895 

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

Madison County, IN ............................................................................................................................... 0.9152 0.8869 0.8586 

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

Anderson County, SC ............................................................................................................................ 0.9398 0.9198 0.8997 

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

Washtenaw County, MI ......................................................................................................................... 1.0515 1.0687 1.0859 

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

Calhoun County, AL .............................................................................................................................. 0.8609 0.8146 0.7682 

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

Calumet County, WI.

Outagamie County, WI .......................................................................................................................... 0.9573 0.9430 0.9288 

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

Buncombe County, NC.

Haywood County, NC.

Henderson County, NC.

Madison County, NC ............................................................................................................................. 0.9571 0.9428 0.9285 

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

Clarke County, GA.

Madison County, GA.

Oconee County, GA.

Oglethorpe County, GA ......................................................................................................................... 0.9913 0.9884 0.9855 

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

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 ................................................................................................................................ 0.9876 0.9834 0.9793 

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

Atlantic County, NJ ................................................................................................................................ 1.0969 1.1292 1.1615 

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

Lee County, AL ...................................................................................................................................... 0.8860 0.8480 0.8100 

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


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4749 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Burke County, GA.

Columbia County, GA.

McDuffie County, GA.

Richmond County, GA.

Aiken County, SC.

Edgefield County, SC ............................................................................................................................ 0.9849 0.9798 0.9748 

12420 ....... Austin-Round Rock, TX.

Bastrop County, TX.

Caldwell County, TX.

Hays County, TX.

Travis County, TX.

Williamson County, TX .......................................................................................................................... 0.9662 0.9550 0.9437 

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

Kern County, CA .................................................................................................................................... 1.0282 1.0376 1.0470 

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

Anne Arundel County, MD.

Baltimore County, MD.

Carroll County, MD.

Harford County, MD.

Howard County, MD.

Queen Anne’s County, MD.

Baltimore City, MD ................................................................................................................................. 0.9938 0.9918 0.9897 

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

Penobscot County, ME .......................................................................................................................... 0.9996 0.9994 0.9993 

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

Barnstable County, MA .......................................................................................................................... 1.1560 1.2080 1.2600 

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

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 ..................................................................................................................... 0.9156 0.8874 0.8593 

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

Calhoun County, MI ............................................................................................................................... 0.9705 0.9606 0.9508 

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

Bay County, MI ...................................................................................................................................... 0.9606 0.9474 0.9343 

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

Hardin County, TX.

Jefferson County, TX.

Orange County, TX ................................................................................................................................ 0.9047 0.8730 0.8412 

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

Whatcom County, WA ........................................................................................................................... 1.1039 1.1385 1.1731 

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

Deschutes County, OR .......................................................................................................................... 1.0472 1.0629 1.0786 

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

Frederick County, MD.

Montgomery County, MD ....................................................................................................................... 1.0890 1.1186 1.1483 

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

Carbon County, MT.

Yellowstone County, MT ........................................................................................................................ 0.9300 0.9067 0.8834 

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

Broome County, NY.

Tioga County, NY .................................................................................................................................. 0.9137 0.8850 0.8562 

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

Bibb County, AL.

Blount County, AL.

Chilton County, AL.

Jefferson County, AL.

St. Clair County, AL.

Shelby County, AL.

Walker County, AL ................................................................................................................................. 0.9375 0.9167 0.8959 

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

Burleigh County, ND.

Morton County, ND ................................................................................................................................ 0.8544 0.8059 0.7574 

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


rmajette on PROD1PC67 with PROPOSALS2
4750 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Giles County, VA.

Montgomery County, VA.

Pulaski County, VA.

Radford City, VA .................................................................................................................................... 0.8772 0.8363 0.7954 

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

Greene County, IN.

Monroe County, IN.

Owen County, IN ................................................................................................................................... 0.9068 0.8758 0.8447 

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

McLean County, IL ................................................................................................................................ 0.9445 0.9260 0.9075 

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

Ada County, ID.

Boise County, ID.

Canyon County, ID.

Gem County, ID.

Owyhee County, ID ............................................................................................................................... 0.9431 0.9242 0.9052 

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

Norfolk County, MA.

Plymouth County, MA.

Suffolk County, MA ................................................................................................................................ 1.0935 1.1246 1.1558 

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

Boulder County, CO .............................................................................................................................. 0.9840 0.9787 0.9734 

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

Edmonson County, KY.

Warren County, KY ................................................................................................................................ 0.8927 0.8569 0.8211 

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

Kitsap County, WA ................................................................................................................................ 1.0405 1.0540 1.0675 

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

Fairfield County, CT ............................................................................................................................... 1.1555 1.2074 1.2592 

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

Cameron County, TX ............................................................................................................................. 0.9882 0.9843 0.9804 

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

Brantley County, GA.

Glynn County, GA.

McIntosh County, GA ............................................................................................................................ 0.9587 0.9449 0.9311 

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

Erie County, NY.

Niagara County, NY ............................................................................................................................... 0.9707 0.9609 0.9511 

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

Alamance County, NC ........................................................................................................................... 0.9343 0.9124 0.8905 

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

Chittenden County, VT.

Franklin County, VT.

Grand Isle County, VT ........................................................................................................................... 0.9646 0.9528 0.9410 

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

Middlesex County, MA ........................................................................................................................... 1.0703 1.0938 1.1172 

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

Burlington County, NJ.

Camden County, NJ.

Gloucester County, NJ .......................................................................................................................... 1.0310 1.0414 1.0517 

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

Carroll County, OH.

Stark County, OH .................................................................................................................................. 0.9361 0.9148 0.8935 

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

Lee County, FL ...................................................................................................................................... 0.9614 0.9485 0.9356 

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

Carson City, NV ..................................................................................................................................... 1.0140 1.0187 1.0234 

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

Natrona County, WY .............................................................................................................................. 0.9416 0.9221 0.9026 

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

Benton County, IA.

Jones County, IA.

Linn County, IA ...................................................................................................................................... 0.9295 0.9060 0.8825 

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

Champaign County, IL.

Ford County, IL.

Piatt County, IL ...................................................................................................................................... 0.9756 0.9675 0.9594 

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

Boone County, WV.


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4751 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Clay County, WV.

Kanawha County, WV.

Lincoln County, WV.

Putnam County, WV .............................................................................................................................. 0.9067 0.8756 0.8445 

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

Berkeley County, SC.

Charleston County, SC.

Dorchester County, SC .......................................................................................................................... 0.9547 0.9396 0.9245 

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

Anson County, NC.

Cabarrus County, NC.

Gaston County, NC.

Mecklenburg County, NC.

Union County, NC.

York County, SC .................................................................................................................................... 0.9850 0.9800 0.9750 

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

Albemarle County, VA.

Fluvanna County, VA.

Greene County, VA.

Nelson County, VA.

Charlottesville City, VA .......................................................................................................................... 1.0112 1.0150 1.0187 

16860 ....... Chattanooga, TN-GA.

Catoosa County, GA.

Dade County, GA.

Walker County, GA.

Hamilton County, TN.

Marion County, TN.

Sequatchie County, TN ......................................................................................................................... 0.9453 0.9270 0.9088 

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

Laramie County, WY ............................................................................................................................. 0.9265 0.9020 0.8775 

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

Cook County, IL.

DeKalb County, IL.

DuPage County, IL.

Grundy County, IL.

Kane County, IL.

Kendall County, IL.

McHenry County, IL.

Will County, IL ....................................................................................................................................... 1.0474 1.0632 1.0790 

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

Butte County, CA ................................................................................................................................... 1.0307 1.0409 1.0511 

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

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 ............................................................................................................................... 0.9769 0.9692 0.9615 

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

Christian County, KY.

Trigg County, KY.

Montgomery County, TN.

Stewart County, TN ............................................................................................................................... 0.8970 0.8627 0.8284 

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

Bradley County, TN.

Polk County, TN .................................................................................................................................... 0.8883 0.8511 0.8139 

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

Cuyahoga County, OH.

Geauga County, OH.

Lake County, OH.


rmajette on PROD1PC67 with PROPOSALS2
4752 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Lorain County, OH.

Medina County, OH ............................................................................................................................... 0.9528 0.9370 0.9213 

17660 ....... Coeur d’Alene, ID.

Kootenai County, ID .............................................................................................................................. 0.9788 0.9718 0.9647 

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

Brazos County, TX.

Burleson County, TX.

Robertson County, TX ........................................................................................................................... 0.9340 0.9120 0.8900 

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

El Paso County, CO.

Teller County, CO .................................................................................................................................. 0.9681 0.9574 0.9468 

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

Boone County, MO.

Howard County, MO .............................................................................................................................. 0.9007 0.8676 0.8345 

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

Calhoun County, SC.

Fairfield County, SC.

Kershaw County, SC.

Lexington County, SC.

Richland County, SC.

Saluda County, SC ................................................................................................................................ 0.9434 0.9246 0.9057 

17980 ....... Columbus, GA-AL.

Russell County, AL.

Chattahoochee County, GA.

Harris County, GA.

Marion County, GA.

Muscogee County, GA .......................................................................................................................... 0.9136 0.8848 0.8560 

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

Bartholomew County, IN ........................................................................................................................ 0.9753 0.9670 0.9588 

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

Delaware County, OH.

Fairfield County, OH.

Franklin County, OH.

Licking County, OH.

Madison County, OH.

Morrow County, OH.

Pickaway County, OH.

Union County, OH ................................................................................................................................. 0.9916 0.9888 0.9860 

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

Aransas County, TX.

Nueces County, TX.

San Patricio County, TX ........................................................................................................................ 0.9130 0.8840 0.8550 

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

Benton County, OR ............................................................................................................................... 1.0437 1.0583 1.0729 

19060 ....... Cumberland, MD-WV.

Allegany County, MD.

Mineral County, WV ............................................................................................................................... 0.9590 0.9454 0.9317 

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

Collin County, TX.

Dallas County, TX.

Delta County, TX.

Denton County, TX.

Ellis County, TX.

Hunt County, TX.

Kaufman County, TX.

Rockwall County, TX ............................................................................................................................. 1.0137 1.0182 1.0228 

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

Murray County, GA.

Whitfield County, GA ............................................................................................................................. 0.9447 0.9263 0.9079 

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

Vermilion County, IL .............................................................................................................................. 0.9417 0.9222 0.9028 

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

Pittsylvania County, VA.

Danville City, VA .................................................................................................................................... 0.9093 0.8791 0.8489 

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

Henry County, IL.

Mercer County, IL.

Rock Island County, IL.

Scott County, IA ..................................................................................................................................... 0.9234 0.8979 0.8724 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4753 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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

Greene County, OH.

Miami County, OH.

Montgomery County, OH.

Preble County, OH ................................................................................................................................ 0.9438 0.9251 0.9064 

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

Lawrence County, AL.

Morgan County, AL ................................................................................................................................ 0.9081 0.8775 0.8469 

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

Macon County, IL .................................................................................................................................. 0.8840 0.8454 0.8067 

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

Volusia County, FL ................................................................................................................................ 0.9579 0.9439 0.9299 

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

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 ................................................................................................................................... 1.0434 1.0578 1.0723 

19780 ....... Des Moines-West Des Moines, IA.

Dallas County, IA.

Guthrie County, IA.

Madison County, IA.

Polk County, IA.

Warren County, IA ................................................................................................................................. 0.9801 0.9735 0.9669 

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

Wayne County, MI ................................................................................................................................. 1.0254 1.0339 1.0424 

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

Geneva County, AL.

Henry County, AL.

Houston County, AL .............................................................................................................................. 0.8633 0.8177 0.7721 

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

Kent County, DE .................................................................................................................................... 0.9866 0.9821 0.9776 

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

Dubuque County, IA .............................................................................................................................. 0.9414 0.9219 0.9024 

20260 ....... Duluth, MN-WI.

Carlton County, MN.

St. Louis County, MN.

Douglas County, WI ............................................................................................................................... 1.0128 1.0170 1.0213 

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

Chatham County, NC.

Durham County, NC.

Orange County, NC.

Person County, NC ................................................................................................................................ 1.0146 1.0195 1.0244 

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

Chippewa County, WI.

Eau Claire County, WI ........................................................................................................................... 0.9521 0.9361 0.9201 

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

Middlesex County, NJ.

Monmouth County, NJ.

Ocean County, NJ.

Somerset County, NJ ............................................................................................................................ 1.0749 1.0999 1.1249 

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

Imperial County, CA .............................................................................................................................. 0.9344 0.9125 0.8906 

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

Hardin County, KY.

Larue County, KY .................................................................................................................................. 0.9281 0.9042 0.8802 

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

Elkhart County, IN ................................................................................................................................. 0.9776 0.9702 0.9627 

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

Chemung County, NY ............................................................................................................................ 0.8950 0.8600 0.8250 

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

El Paso County, TX ............................................................................................................................... 0.9386 0.9182 0.8977 

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

Erie County, PA ..................................................................................................................................... 0.9242 0.8990 0.8737 


rmajette on PROD1PC67 with PROPOSALS2
4754 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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

Essex County, MA ................................................................................................................................. 1.0323 1.0430 1.0538 

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

Lane County, OR ................................................................................................................................... 1.0491 1.0654 1.0818 

21780 ....... Evansville, IN-KY.

Gibson County, IN.

Posey County, IN.

Vanderburgh County, IN.

Warrick County, IN.

Henderson County, KY.

Webster County, KY .............................................................................................................................. 0.9228 0.8970 0.8713 

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

Fairbanks North Star Borough, AK ........................................................................................................ 1.0845 1.1126 1.1408 

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

Ceiba Municipio, PR.

Fajardo Municipio, PR.

Luquillo Municipio, PR ........................................................................................................................... 0.6492 0.5322 0.4153 

22020 ....... Fargo, ND-MN.

Cass County, ND.

Clay County, MN ................................................................................................................................... 0.9092 0.8789 0.8486 

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

San Juan County, NM ........................................................................................................................... 0.9105 0.8807 0.8509 

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

Cumberland County, NC.

Hoke County, NC ................................................................................................................................... 0.9650 0.9533 0.9416 

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

Benton County, AR.

Madison County, AR.

Washington County, AR.

McDonald County, MO .......................................................................................................................... 0.9197 0.8929 0.8661 

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

Coconino County, AZ ............................................................................................................................ 1.1255 1.1674 1.2092 

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

Genesee County, MI .............................................................................................................................. 1.0393 1.0524 1.0655 

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

Darlington County, SC.

Florence County, SC ............................................................................................................................. 0.9368 0.9158 0.8947 

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

Colbert County, AL.

Lauderdale County, AL .......................................................................................................................... 0.8963 0.8618 0.8272 

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

Fond du Lac County, WI ....................................................................................................................... 0.9784 0.9712 0.9640 

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

Larimer County, CO ............................................................................................................................... 1.0073 1.0098 1.0122 

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

Broward County, FL ............................................................................................................................... 1.0259 1.0346 1.0432 

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

Crawford County, AR.

Franklin County, AR.

Sebastian County, AR.

Le Flore County, OK.

Sequoyah County, OK ........................................................................................................................... 0.8938 0.8584 0.8230 

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

Okaloosa County, FL ............................................................................................................................. 0.9323 0.9098 0.8872 

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

Allen County, IN.

Wells County, IN.

Whitley County, IN ................................................................................................................................. 0.9876 0.9834 0.9793 

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

Johnson County, TX.

Parker County, TX.

Tarrant County, TX.

Wise County, TX .................................................................................................................................... 0.9692 0.9589 0.9486 

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

Fresno County, CA ................................................................................................................................ 1.0323 1.0430 1.0538 

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

Etowah County, AL ................................................................................................................................ 0.8763 0.8350 0.7938 

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

Alachua County, FL.


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4755 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Gilchrist County, FL ............................................................................................................................... 0.9633 0.9510 0.9388 

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

Hall County, GA ..................................................................................................................................... 0.9324 0.9099 0.8874 

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

Jasper County, IN.

Lake County, IN.

Newton County, IN.

Porter County, IN ................................................................................................................................... 0.9637 0.9516 0.9395 

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

Warren County, NY.

Washington County, NY ........................................................................................................................ 0.9135 0.8847 0.8559 

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

Wayne County, NC ................................................................................................................................ 0.9265 0.9020 0.8775 

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

Polk County, MN.

Grand Forks County, ND ....................................................................................................................... 0.8741 0.8321 0.7901 

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

Mesa County, CO .................................................................................................................................. 0.9730 0.9640 0.9550 

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

Barry County, MI.

Ionia County, MI.

Kent County, MI.

Newaygo County, MI ............................................................................................................................. 0.9634 0.9512 0.9390 

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

Cascade County, MT ............................................................................................................................. 0.9431 0.9242 0.9052 

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

Weld County, CO ................................................................................................................................... 0.9742 0.9656 0.9570 

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

Brown County, WI.

Kewaunee County, WI.

Oconto County, WI ................................................................................................................................ 0.9690 0.9586 0.9483 

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

Guilford County, NC.

Randolph County, NC.

Rockingham County, NC ....................................................................................................................... 0.9462 0.9283 0.9104 

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

Greene County, NC.

Pitt County, NC ...................................................................................................................................... 0.9655 0.9540 0.9425 

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

Greenville County, SC.

Laurens County, SC.

Pickens County, SC ............................................................................................................................... 1.0016 1.0022 1.0027 

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

Arroyo Municipio, PR.

Guayama Municipio, PR.

Patillas Municipio, PR ............................................................................................................................ 0.5909 0.4545 0.3181 

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

Hancock County, MS.

Harrison County, MS.

Stone County, MS ................................................................................................................................. 0.9357 0.9143 0.8929 

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

Washington County, MD.

Berkeley County, WV.

Morgan County, WV .............................................................................................................................. 0.9693 0.9591 0.9489 

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

Kings County, CA .................................................................................................................................. 1.0022 1.0029 1.0036 

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

Cumberland County, PA.

Dauphin County, PA.

Perry County, PA ................................................................................................................................... 0.9588 0.9450 0.9313 

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

Rockingham County, VA.

Harrisonburg City, VA ............................................................................................................................ 0.9453 0.9270 0.9088 

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

Hartford County, CT.

Litchfield County, CT.

Middlesex County, CT.

Tolland County, CT ................................................................................................................................ 1.0644 1.0858 1.1073 

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


rmajette on PROD1PC67 with PROPOSALS2
4756 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Forrest County, MS.

Lamar County, MS.

Perry County, MS .................................................................................................................................. 0.8561 0.8081 0.7601 

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

Alexander County, NC.

Burke County, NC.

Caldwell County, NC.

Catawba County, NC ............................................................................................................................. 0.9353 0.9137 0.8921 

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

Liberty County, GA.

Long County, GA ................................................................................................................................... 0.8597 0.8130 0.7662 

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

Ottawa County, MI ................................................................................................................................. 0.9433 0.9244 0.9055 

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

Honolulu County, HI .............................................................................................................................. 1.0728 1.0971 1.1214 

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

Garland County, AR .............................................................................................................................. 0.9403 0.9204 0.9005 

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

Lafourche Parish, LA.

Terrebonne Parish, LA .......................................................................................................................... 0.8736 0.8315 0.7894 

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

Austin County, TX.

Brazoria County, TX.

Chambers County, TX.

Fort Bend County, TX.

Galveston County, TX.

Harris County, TX.

Liberty County, TX.

Montgomery County, TX.

San Jacinto County, TX.

Waller County, TX ................................................................................................................................. 0.9998 0.9997 0.9996 

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

Boyd County, KY.

Greenup County, KY.

Lawrence County, OH.

Cabell County, WV.

Wayne County, WV ............................................................................................................................... 0.9686 0.9582 0.9477 

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

Limestone County, AL.

Madison County, AL .............................................................................................................................. 0.9488 0.9317 0.9146 

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

Bonneville County, ID.

Jefferson County, ID .............................................................................................................................. 0.9652 0.9536 0.9420 

26900 ....... Indianapolis-Carmel, IN.

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 .................................................................................................................................. 0.9952 0.9936 0.9920 

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

Johnson County, IA.

Washington County, IA .......................................................................................................................... 0.9848 0.9798 0.9747 

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

Tompkins County, NY ............................................................................................................................ 0.9876 0.9834 0.9793 

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

Jackson County, MI ............................................................................................................................... 0.9582 0.9443 0.9304 

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

Copiah County, MS.

Hinds County, MS.

Madison County, MS.

Rankin County, MS.

Simpson County, MS ............................................................................................................................. 0.8987 0.8649 0.8311 

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

Chester County, TN.


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4757 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Madison County, TN .............................................................................................................................. 0.9378 0.9171 0.8964 

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

Baker County, FL.

Clay County, FL.

Duval County, FL.

Nassau County, FL.

St. Johns County, FL ............................................................................................................................. 0.9574 0.9432 0.9290 

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

Onslow County, NC ............................................................................................................................... 0.8942 0.8589 0.8236 

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

Rock County, WI .................................................................................................................................... 0.9723 0.9630 0.9538 

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

Callaway County, MO.

Cole County, MO.

Moniteau County, MO.

Osage County, MO ................................................................................................................................ 0.9032 0.8710 0.8387 

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

Carter County, TN.

Unicoi County, TN.

Washington County, TN ........................................................................................................................ 0.8762 0.8350 0.7937 

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

Cambria County, PA .............................................................................................................................. 0.9012 0.8683 0.8354 

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

Craighead County, AR.

Poinsett County, AR .............................................................................................................................. 0.8747 0.8329 0.7911 

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

Jasper County, MO.

Newton County, MO .............................................................................................................................. 0.9149 0.8866 0.8582 

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

Kalamazoo County, MI.

Van Buren County, MI ........................................................................................................................... 1.0229 1.0305 1.0381 

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

Kankakee County, IL ............................................................................................................................. 1.0433 1.0577 1.0721 

28140 ....... Kansas City, MO-KS.

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 .................................................................................................................................... 0.9686 0.9581 0.9476 

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

Benton County, WA.

Franklin County, WA .............................................................................................................................. 1.0371 1.0495 1.0619 

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

Bell County, TX.

Coryell County, TX.

Lampasas County, TX ........................................................................................................................... 0.9116 0.8821 0.8526 

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

Hawkins County, TN.

Sullivan County, TN.

Bristol City, VA.

Scott County, VA.

Washington County, VA ........................................................................................................................ 0.8832 0.8443 0.8054 

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

Ulster County, NY .................................................................................................................................. 0.9553 0.9404 0.9255 

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

Anderson County, TN.

Blount County, TN.

Knox County, TN.

Loudon County, TN.


rmajette on PROD1PC67 with PROPOSALS2
4758 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Union County, TN .................................................................................................................................. 0.9065 0.8753 0.8441 

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

Howard County, IN.

Tipton County, IN ................................................................................................................................... 0.9705 0.9606 0.9508 

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

Houston County, MN.

La Crosse County, WI ........................................................................................................................... 0.9738 0.9651 0.9564 

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

Benton County, IN.

Carroll County, IN.

Tippecanoe County, IN .......................................................................................................................... 0.9242 0.8989 0.8736 

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

Lafayette Parish, LA.

St. Martin Parish, LA ............................................................................................................................. 0.9057 0.8742 0.8428 

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

Calcasieu Parish, LA.

Cameron Parish, LA .............................................................................................................................. 0.8700 0.8266 0.7833 

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

Lake County, IL.

Kenosha County, WI .............................................................................................................................. 1.0257 1.0343 1.0429 

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

Polk County, FL ..................................................................................................................................... 0.9347 0.9130 0.8912 

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

Lancaster County, PA ............................................................................................................................ 0.9816 0.9755 0.9694 

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

Clinton County, MI.

Eaton County, MI.

Ingham County, MI ................................................................................................................................ 0.9876 0.9835 0.9794 

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

Webb County, TX .................................................................................................................................. 0.8841 0.8454 0.8068 

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

Dona Ana County, NM .......................................................................................................................... 0.9080 0.8774 0.8467 

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

Clark County, NV ................................................................................................................................... 1.0862 1.1150 1.1437 

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

Douglas County, KS .............................................................................................................................. 0.9122 0.8830 0.8537 

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

Comanche County, OK .......................................................................................................................... 0.8723 0.8298 0.7872 

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

Lebanon County, PA ............................................................................................................................. 0.9075 0.8767 0.8459 

30300 ....... Lewiston, ID-WA.

Nez Perce County, ID.

Asotin County, WA ................................................................................................................................ 0.9932 0.9909 0.9886 

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

Androscoggin County, ME ..................................................................................................................... 0.9599 0.9465 0.9331 

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

Bourbon County, KY.

Clark County, KY.

Fayette County, KY.

Jessamine County, KY.

Scott County, KY.

Woodford County, KY ............................................................................................................................ 0.9445 0.9260 0.9075 

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

Allen County, OH ................................................................................................................................... 0.9535 0.9380 0.9225 

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

Lancaster County, NE.

Seward County, NE ............................................................................................................................... 1.0128 1.0171 1.0214 

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

Faulkner County, AR.

Grant County, AR.

Lonoke County, AR.

Perry County, AR.

Pulaski County, AR.

Saline County, AR ................................................................................................................................. 0.9248 0.8998 0.8747 

30860 ....... Logan, UT-ID.

Franklin County, ID.

Cache County, UT ................................................................................................................................. 0.9498 0.9331 0.9164 

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

Gregg County, TX.


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4759 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Rusk County, TX.

Upshur County, TX ................................................................................................................................ 0.9238 0.8984 0.8730 

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

Cowlitz County, WA ............................................................................................................................... 0.9747 0.9663 0.9579 

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

Los Angeles County, CA ....................................................................................................................... 1.1070 1.1426 1.1783 

31140 ....... Louisville-Jefferson County, KY-IN.

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 ............................................................................................................................... 0.9551 0.9401 0.9251 

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

Crosby County, TX.

Lubbock County, TX .............................................................................................................................. 0.9270 0.9026 0.8783 

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

Amherst County, VA.

Appomattox County, VA.

Bedford County, VA.

Campbell County, VA.

Bedford City, VA.

Lynchburg City, VA ................................................................................................................................ 0.9215 0.8953 0.8691 

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

Bibb County, GA.

Crawford County, GA.

Jones County, GA.

Monroe County, GA.

Twiggs County, GA ................................................................................................................................ 0.9666 0.9554 0.9443 

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

Madera County, CA ............................................................................................................................... 0.9228 0.8970 0.8713 

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

Columbia County, WI.

Dane County, WI.

Iowa County, WI .................................................................................................................................... 1.0395 1.0527 1.0659 

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

Hillsborough County, NH.

Merrimack County, NH .......................................................................................................................... 1.0212 1.0283 1.0354 

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

Richland County, OH ............................................................................................................................. 0.9935 0.9913 0.9891 

32420 ....... Mayagu ̈ez, PR.

Hormigueros Municipio, PR.

Mayagu ̈ez Municipio, PR ....................................................................................................................... 0.6412 0.5216 0.4020 

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

Hidalgo County, TX ............................................................................................................................... 0.9360 0.9147 0.8934 

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

Jackson County, OR .............................................................................................................................. 1.0135 1.0180 1.0225 

32820 ....... Memphis, TN-MS-AR.

Crittenden County, AR.

DeSoto County, MS.

Marshall County, MS.

Tate County, MS.

Tunica County, MS.

Fayette County, TN.

Shelby County, TN.

Tipton County, TN ................................................................................................................................. 0.9638 0.9518 0.9397 

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

Merced County, CA ............................................................................................................................... 1.0665 1.0887 1.1109 

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

Miami-Dade County, FL ......................................................................................................................... 0.9850 0.9800 0.9750 

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

LaPorte County, IN ................................................................................................................................ 0.9639 0.9519 0.9399 


rmajette on PROD1PC67 with PROPOSALS2
4760 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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

Midland County, TX ............................................................................................................................... 0.9708 0.9611 0.9514 

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

Milwaukee County, WI.

Ozaukee County, WI.

Washington County, WI.

Waukesha County, WI ........................................................................................................................... 1.0088 1.0117 1.0146 

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

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 .............................................................................................................................. 1.0645 1.0860 1.1075 

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

Missoula County, MT ............................................................................................................................. 0.9684 0.9578 0.9473 

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

Mobile County, AL ................................................................................................................................. 0.8735 0.8313 0.7891 

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

Stanislaus County, CA ........................................................................................................................... 1.1131 1.1508 1.1885 

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

Ouachita Parish, LA.

Union Parish, LA .................................................................................................................................... 0.8819 0.8425 0.8031 

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

Monroe County, MI ................................................................................................................................ 0.9681 0.9574 0.9468 

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

Autauga County, AL.

Elmore County, AL.

Lowndes County, AL.

Montgomery County, AL ........................................................................................................................ 0.9171 0.8894 0.8618 

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

Monongalia County, WV.

Preston County, WV .............................................................................................................................. 0.9052 0.8736 0.8420 

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

Grainger County, TN.

Hamblen County, TN.

Jefferson County, TN ............................................................................................................................. 0.8777 0.8369 0.7961 

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

Skagit County, WA ................................................................................................................................ 1.0272 1.0363 1.0454 

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

Delaware County, IN ............................................................................................................................. 0.9358 0.9144 0.8930 

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

Muskegon County, MI ............................................................................................................................ 0.9798 0.9731 0.9664 

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

Horry County, SC .................................................................................................................................. 0.9360 0.9147 0.8934 

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

Napa County, CA ................................................................................................................................... 1.1586 1.2114 1.2643 

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

Collier County, FL .................................................................................................................................. 1.0083 1.0111 1.0139 

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

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.


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4761 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Wilson County, TN ................................................................................................................................. 0.9874 0.9832 0.9790 

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

Nassau County, NY.

Suffolk County, NY ................................................................................................................................ 1.1631 1.2175 1.2719 

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

Essex County, NJ.

Hunterdon County, NJ.

Morris County, NJ.

Sussex County, NJ.

Union County, NJ.

Pike County, PA .................................................................................................................................... 1.1130 1.1506 1.1883 

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

New Haven County, CT ......................................................................................................................... 1.1132 1.1510 1.1887 

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

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 ....................................................................................................................... 0.9397 0.9196 0.8995 

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

Bergen County, NJ.

Hudson County, NJ.

Passaic County, NJ.

Bronx County, NY.

Kings County, NY.

New York County, NY.

Putnam County, NY.

Queens County, NY.

Richmond County, NY.

Rockland County, NY.

Westchester County, NY ....................................................................................................................... 1.1913 1.2550 1.3188 

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

Berrien County, MI ................................................................................................................................. 0.9327 0.9103 0.8879 

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

New London County, CT ....................................................................................................................... 1.0807 1.1076 1.1345 

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

Alameda County, CA.

Contra Costa County, CA ...................................................................................................................... 1.3208 1.4277 1.5346 

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

Marion County, FL ................................................................................................................................. 0.9355 0.9140 0.8925 

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

Cape May County, NJ ........................................................................................................................... 1.0607 1.0809 1.1011 

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

Ector County, TX ................................................................................................................................... 0.9930 0.9907 0.9884 

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

Davis County, UT.

Morgan County, UT.

Weber County, UT ................................................................................................................................. 0.9417 0.9223 0.9029 

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

Canadian County, OK.

Cleveland County, OK.

Grady County, OK.

Lincoln County, OK.

Logan County, OK.

McClain County, OK.

Oklahoma County, OK ........................................................................................................................... 0.9419 0.9225 0.9031 

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

Thurston County, WA ............................................................................................................................ 1.0556 1.0742 1.0927 

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

Harrison County, IA.

Mills County, IA.

Pottawattamie County, IA.

Cass County, NE.

Douglas County, NE.

Sarpy County, NE.

Saunders County, NE.

Washington County, NE ........................................................................................................................ 0.9736 0.9648 0.9560 


rmajette on PROD1PC67 with PROPOSALS2
4762 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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

Lake County, FL.

Orange County, FL.

Osceola County, FL.

Seminole County, FL ............................................................................................................................. 0.9678 0.9571 0.9464 

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

Winnebago County, WI .......................................................................................................................... 0.9510 0.9346 0.9183 

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

Daviess County, KY.

Hancock County, KY.

McLean County, KY ............................................................................................................................... 0.9268 0.9024 0.8780 

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

Ventura County, CA ............................................................................................................................... 1.0973 1.1298 1.1622 

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

Brevard County, FL ............................................................................................................................... 0.9903 0.9871 0.9839 

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

Bay County, FL ...................................................................................................................................... 0.8803 0.8404 0.8005 

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

Washington County, OH.

Pleasants County, WV.

Wirt County, WV.

Wood County, WV ................................................................................................................................. 0.8962 0.8616 0.8270 

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

George County, MS.

Jackson County, MS .............................................................................................................................. 0.8894 0.8525 0.8156 

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

Escambia County, FL.

Santa Rosa County, FL ......................................................................................................................... 0.8858 0.8477 0.8096 

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

Marshall County, IL.

Peoria County, IL.

Stark County, IL.

Tazewell County, IL.

Woodford County, IL .............................................................................................................................. 0.9322 0.9096 0.8870 

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

Bucks County, PA.

Chester County, PA.

Delaware County, PA.

Montgomery County, PA.

Philadelphia County, PA ........................................................................................................................ 1.0623 1.0830 1.1038 

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

Maricopa County, AZ.

Pinal County, AZ .................................................................................................................................... 1.0076 1.0102 1.0127 

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

Cleveland County, AR.

Jefferson County, AR.

Lincoln County, AR ................................................................................................................................ 0.9208 0.8944 0.8680 

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

Allegheny County, PA.

Armstrong County, PA.

Beaver County, PA.

Butler County, PA.

Fayette County, PA.

Washington County, PA.

Westmoreland County, PA .................................................................................................................... 0.9307 0.9076 0.8845 

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

Berkshire County, MA ............................................................................................................................ 1.0109 1.0145 1.0181 

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

Bannock County, ID.

Power County, ID .................................................................................................................................. 0.9611 0.9481 0.9351 

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

Juana D ́ıaz Municipio, PR.

Ponce Municipio, PR.

Villalba Municipio, PR ............................................................................................................................ 0.6963 0.5951 0.4939 

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

Cumberland County, ME.

Sagadahoc County, ME.

York County, ME ................................................................................................................................... 1.0229 1.0306 1.0382 

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


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4763 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Clackamas County, OR.

Columbia County, OR.

Multnomah County, OR.

Washington County, OR.

Yamhill County, OR.

Clark County, WA.

Skamania County, WA .......................................................................................................................... 1.0760 1.1013 1.1266 

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

Martin County, FL.

St. Lucie County, FL .............................................................................................................................. 1.0074 1.0098 1.0123 

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

Dutchess County, NY.

Orange County, NY ............................................................................................................................... 1.0535 1.0713 1.0891 

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

Yavapai County, AZ ............................................................................................................................... 0.9921 0.9895 0.9869 

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

Bristol County, MA.

Bristol County, RI.

Kent County, RI.

Newport County, RI.

Providence County, RI.

Washington County, RI .......................................................................................................................... 1.0580 1.0773 1.0966 

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

Juab County, UT.

Utah County, UT .................................................................................................................................... 0.9700 0.9600 0.9500 

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

Pueblo County, CO ................................................................................................................................ 0.9174 0.8898 0.8623 

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

Charlotte County, FL ............................................................................................................................. 0.9553 0.9404 0.9255 

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

Racine County, WI ................................................................................................................................. 0.9398 0.9198 0.8997 

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

Franklin County, NC.

Johnston County, NC.

Wake County, NC .................................................................................................................................. 0.9815 0.9753 0.9691 

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

Meade County, SD.

Pennington County, SD ......................................................................................................................... 0.9392 0.9190 0.8987 

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

Berks County, PA .................................................................................................................................. 0.9812 0.9749 0.9686 

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

Shasta County, CA ................................................................................................................................ 1.1322 1.1762 1.2203 

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

Storey County, NV.

Washoe County, NV .............................................................................................................................. 1.0589 1.0786 1.0982 

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

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 ................................................................................................................................ 0.9597 0.9462 0.9328 

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

Riverside County, CA.

San Bernardino County, CA .................................................................................................................. 1.0616 1.0822 1.1027 


rmajette on PROD1PC67 with PROPOSALS2
4764 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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

Botetourt County, VA.

Craig County, VA.

Franklin County, VA.

Roanoke County, VA.

Roanoke City, VA.

Salem City, VA ...................................................................................................................................... 0.9024 0.8699 0.8374 

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

Dodge County, MN.

Olmsted County, MN.

Wabasha County, MN ........................................................................................................................... 1.0679 1.0905 1.1131 

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

Livingston County, NY.

Monroe County, NY.

Ontario County, NY.

Orleans County, NY.

Wayne County, NY ................................................................................................................................ 0.9473 0.9297 0.9121 

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

Boone County, IL.

Winnebago County, IL ........................................................................................................................... 0.9990 0.9987 0.9984 

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

Rockingham County, NH.

Strafford County, NH ............................................................................................................................. 1.0224 1.0299 1.0374 

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

Edgecombe County, NC.

Nash County, NC ................................................................................................................................... 0.9349 0.9132 0.8915 

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

Floyd County, GA .................................................................................................................................. 0.9648 0.9531 0.9414 

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

El Dorado County, CA.

Placer County, CA.

Sacramento County, CA.

Yolo County, CA .................................................................................................................................... 1.1781 1.2375 1.2969 

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

Saginaw County, MI .............................................................................................................................. 0.9453 0.9270 0.9088 

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

Benton County, MN.

Stearns County, MN .............................................................................................................................. 0.9979 0.9972 0.9965 

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

Washington County, UT ........................................................................................................................ 0.9635 0.9514 0.9392 

41140 ....... St. Joseph, MO-KS.

Doniphan County, KS.

Andrew County, MO.

Buchanan County, MO.

DeKalb County, MO ............................................................................................................................... 0.9711 0.9615 0.9519 

41180 ....... St. Louis, MO-IL.

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 ................................................................................................................................. 0.9372 0.9163 0.8954 

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

Marion County, OR.

Polk County, OR .................................................................................................................................... 1.0265 1.0354 1.0442 

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

Monterey County, CA ............................................................................................................................ 1.2477 1.3302 1.4128 

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


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4765 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Somerset County, MD.

Wicomico County, MD ........................................................................................................................... 0.9438 0.9251 0.9064 

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

Salt Lake County, UT.

Summit County, UT.

Tooele County, UT ................................................................................................................................ 0.9653 0.9537 0.9421 

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

Irion County, TX.

Tom Green County, TX ......................................................................................................................... 0.8963 0.8617 0.8271 

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

Atascosa County, TX.

Bandera County, TX.

Bexar County, TX.

Comal County, TX.

Guadalupe County, TX.

Kendall County, TX.

Medina County, TX.

Wilson County, TX ................................................................................................................................. 0.9388 0.9184 0.8980 

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

San Diego County, CA .......................................................................................................................... 1.0848 1.1130 1.1413 

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

Erie County, OH .................................................................................................................................... 0.9411 0.9215 0.9019 

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

Marin County, CA.

San Francisco County, CA.

San Mateo County, CA .......................................................................................................................... 1.2996 1.3995 1.4994 

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

Cabo Rojo Municipio, PR.

Lajas Municipio, PR.

Sabana Grande Municipio, PR.

San Germa ́n Municipio, PR ................................................................................................................... 0.6790 0.5720 0.4650 

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

San Benito County, CA.

Santa Clara County, CA ........................................................................................................................ 1.3059 1.4079 1.5099 

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

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.


rmajette on PROD1PC67 with PROPOSALS2
4766 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

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 ......................................................................................................................... 0.6773 0.5697 0.4621 

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

San Luis Obispo County, CA ................................................................................................................ 1.0809 1.1079 1.1349 

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

Orange County, CA ............................................................................................................................... 1.0935 1.1247 1.1559 

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

Santa Barbara County, CA .................................................................................................................... 1.1016 1.1355 1.1694 

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

Santa Cruz County, CA ......................................................................................................................... 1.3100 1.4133 1.5166 

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

Santa Fe County, NM ............................................................................................................................ 1.0552 1.0736 1.0920 

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

Sonoma County, CA .............................................................................................................................. 1.2096 1.2794 1.3493 

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

Manatee County, FL.

Sarasota County, FL .............................................................................................................................. 0.9783 0.9711 0.9639 

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

Bryan County, GA.

Chatham County, GA.

Effingham County, GA ........................................................................................................................... 0.9677 0.9569 0.9461 

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

Lackawanna County, PA.

Luzerne County, PA.

Wyoming County, PA ............................................................................................................................ 0.9124 0.8832 0.8540 

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

King County, WA.

Snohomish County, WA ........................................................................................................................ 1.0946 1.1262 1.1577 

42680 ....... Sebastian-Vero Beach, FL.

Indian River County, FL ......................................................................................................................... 0.9660 0.9547 0.9434 

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

Sheboygan County, WI .......................................................................................................................... 0.9347 0.9129 0.8911 

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

Grayson County, TX .............................................................................................................................. 0.9704 0.9606 0.9507 

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

Bossier Parish, LA.

Caddo Parish, LA.

De Soto Parish, LA ................................................................................................................................ 0.9256 0.9008 0.8760 

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

Woodbury County, IA.

Dakota County, NE.

Dixon County, NE.

Union County, SD .................................................................................................................................. 0.9629 0.9505 0.9381 

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

Lincoln County, SD.

McCook County, SD.

Minnehaha County, SD.

Turner County, SD ................................................................................................................................. 0.9781 0.9708 0.9635 

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

St. Joseph County, IN.

Cass County, MI .................................................................................................................................... 0.9873 0.9830 0.9788 

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

Spartanburg County, SC ....................................................................................................................... 0.9503 0.9338 0.9172 

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

Spokane County, WA ............................................................................................................................ 1.0543 1.0724 1.0905 

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

Menard County, IL.

Sangamon County, IL ............................................................................................................................ 0.9275 0.9034 0.8792 

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

Franklin County, MA.

Hampden County, MA.

Hampshire County, MA ......................................................................................................................... 1.0149 1.0198 1.0248 

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

Christian County, MO.


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4767 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Dallas County, MO.

Greene County, MO.

Polk County, MO.

Webster County, MO ............................................................................................................................. 0.8942 0.8590 0.8237 

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

Clark County, OH .................................................................................................................................. 0.9038 0.8717 0.8396 

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

Centre County, PA ................................................................................................................................. 0.9014 0.8685 0.8356 

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

San Joaquin County, CA ....................................................................................................................... 1.0784 1.1046 1.1307 

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

Sumter County, SC ................................................................................................................................ 0.9026 0.8702 0.8377 

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

Madison County, NY.

Onondaga County, NY.

Oswego County, NY .............................................................................................................................. 0.9744 0.9659 0.9574 

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

Pierce County, WA ................................................................................................................................ 1.0445 1.0594 1.0742 

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

Gadsden County, FL.

Jefferson County, FL.

Leon County, FL.

Wakulla County, FL ............................................................................................................................... 0.9213 0.8950 0.8688 

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

Hernando County, FL.

Hillsborough County, FL.

Pasco County, FL.

Pinellas County, FL ............................................................................................................................... 0.9540 0.9386 0.9233 

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

Clay County, IN.

Sullivan County, IN.

Vermillion County, IN.

Vigo County, IN ..................................................................................................................................... 0.8982 0.8643 0.8304 

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

Miller County, AR.

Bowie County, TX .................................................................................................................................. 0.8970 0.8626 0.8283 

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

Fulton County, OH.

Lucas County, OH.

Ottawa County, OH.

Wood County, OH ................................................................................................................................. 0.9744 0.9659 0.9574 

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

Jackson County, KS.

Jefferson County, KS.

Osage County, KS.

Shawnee County, KS.

Wabaunsee County, KS ........................................................................................................................ 0.9352 0.9136 0.8920 

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

Mercer County, NJ ................................................................................................................................. 1.0500 1.0667 1.0834 

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

Pima County, AZ ................................................................................................................................... 0.9404 0.9206 0.9007 

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

Creek County, OK.

Okmulgee County, OK.

Osage County, OK.

Pawnee County, OK.

Rogers County, OK.

Tulsa County, OK.

Wagoner County, OK ............................................................................................................................ 0.9126 0.8834 0.8543 

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

Greene County, AL.

Hale County, AL.

Tuscaloosa County, AL ......................................................................................................................... 0.9187 0.8916 0.8645 

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

Smith County, TX .................................................................................................................................. 0.9501 0.9334 0.9168 

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

Herkimer County, NY.

Oneida County, NY ................................................................................................................................ 0.9015 0.8686 0.8358 

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


rmajette on PROD1PC67 with PROPOSALS2
4768 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Brooks County, GA.

Echols County, GA.

Lanier County, GA.

Lowndes County, GA ............................................................................................................................. 0.9320 0.9093 0.8866 

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

Solano County, CA ................................................................................................................................ 1.2962 1.3949 1.4936 

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

Calhoun County, TX.

Goliad County, TX.

Victoria County, TX ................................................................................................................................ 0.8896 0.8528 0.8160 

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

Cumberland County, NJ ........................................................................................................................ 0.9896 0.9862 0.9827 

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

Currituck County, NC.

Gloucester County, VA.

Isle of Wight County, VA.

James City County, VA.

Mathews County, VA.

Surry County, VA.

York County, VA.

Chesapeake City, VA.

Hampton City, VA.

Newport News City, VA.

Norfolk City, VA.

Poquoson City, VA.

Portsmouth City, VA.

Suffolk City, VA.

Virginia Beach City, VA.

Williamsburg City, VA ............................................................................................................................ 0.9279 0.9039 0.8799 

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

Tulare County, CA ................................................................................................................................. 1.0074 1.0098 1.0123 

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

McLennan County, TX ........................................................................................................................... 0.9111 0.8814 0.8518 

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

Houston County, GA .............................................................................................................................. 0.9187 0.8916 0.8645 

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

Lapeer County, MI.

Livingston County, MI.

Macomb County, MI.

Oakland County, MI.

St. Clair County, MI ............................................................................................................................... 0.9923 0.9897 0.9871 

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

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 ............................................................................................................................ 1.0556 1.0741 1.0926 

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

Black Hawk County, IA.

Bremer County, IA.

Grundy County, IA ................................................................................................................................. 0.9134 0.8846 0.8557 

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

Marathon County, WI ............................................................................................................................. 0.9754 0.9672 0.9590 

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


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4769 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1—Continued 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

Jefferson County, OH.

Brooke County, WV.

Hancock County, WV ............................................................................................................................ 0.8691 0.8255 0.7819 

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

Chelan County, WA.

Douglas County, WA ............................................................................................................................. 1.0042 1.0056 1.0070 

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

Palm Beach County, FL ........................................................................................................................ 1.0040 1.0054 1.0067 

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

Belmont County, OH.

Marshall County, WV.

Ohio County, WV ................................................................................................................................... 0.8297 0.7729 0.7161 

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

Butler County, KS.

Harvey County, KS.

Sedgwick County, KS.

Sumner County, KS ............................................................................................................................... 0.9492 0.9322 0.9153 

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

Archer County, TX.

Clay County, TX.

Wichita County, TX ................................................................................................................................ 0.8971 0.8628 0.8285 

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

Lycoming County, PA ............................................................................................................................ 0.9018 0.8691 0.8364 

48864 ....... Wilmington, DE-MD-NJ.

New Castle County, DE.

Cecil County, MD.

Salem County, NJ .................................................................................................................................. 1.0283 1.0377 1.0471 

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

Brunswick County, NC.

New Hanover County, NC.

Pender County, NC ............................................................................................................................... 0.9749 0.9666 0.9582 

49020 ....... Winchester, VA-WV.

Frederick County, VA.

Winchester City, VA.

Hampshire County, WV ......................................................................................................................... 1.0128 1.0171 1.0214 

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

Davie County, NC.

Forsyth County, NC.

Stokes County, NC.

Yadkin County, NC ................................................................................................................................ 0.9366 0.9155 0.8944 

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

Worcester County, MA .......................................................................................................................... 1.0617 1.0822 1.1028 

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

Yakima County, WA .............................................................................................................................. 1.0093 1.0124 1.0155 

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

Gua ́nica Municipio, PR.

Guayanilla Municipio, PR.

Pen ̃uelas Municipio, PR.

Yauco Municipio, PR ............................................................................................................................. 0.6645 0.5526 0.4408 

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

York County, PA .................................................................................................................................... 0.9608 0.9478 0.9347 

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

Mahoning County, OH.

Trumbull County, OH.

Mercer County, PA ................................................................................................................................ 0.9162 0.8882 0.8603 

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

Sutter County, CA.

Yuba County, CA ................................................................................................................................... 1.0553 1.0737 1.0921 

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

Yuma County, AZ .................................................................................................................................. 0.9476 0.9301 0.9126 

1As discussed in section IV.D.1.d. of the preamble of this proposed rule, because there will no longer be any LTCHs in their cost reporting periods that began during FYs 2003 or 2004 (the first and second years of the 5-year wage index phase-in, respectively), we are no longer showing the 1⁄5 and 2⁄5 wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this proposed rule. 2Three-fifths of the proposed full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2004 

through September 30, 2005 (Federal FY 2005). That is, for a LTCH’s cost reporting period that begins during Federal FY 2005 and located in 

Chicago, Illinois (CBSA 16974), the proposed 3⁄5 wage index value is computed as ((3*1.0790) + 2))/5 = 1.0474. For further details on the 5-year 

phase-in of the wage index, see section IV.D.1. of this proposed rule. 


rmajette on PROD1PC67 with PROPOSALS2
4770 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

3Four-fifths of the proposed 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 proposed 4⁄5 wage index value is computed as ((4*1.0790) + 1))/5 = 1.0632. For further details on the 5-year phase-in 

of the wage index, see section IV.D.1. of this proposed rule. 4The proposed 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 2006 (that is, fiscal year 2002 audited acute care hospital inpatient wage data without regard to reclassification 

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

TABLE 2.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2006 THROUGH JUNE 30, 2007 1

CBSA 

Code Nonurban Area 

3⁄5

Wage 

Index 2

4⁄5

Wage 

Index 3

Full 

Wage 

Index 4

01 ........ Alabama ......................................................................................................................................................... 0.8468 0.7957 0.7446 

02 ........ Alaska ............................................................................................................................................................ 1.1186 1.1582 1.1977 

03 ........ Arizona ........................................................................................................................................................... 0.9261 0.9014 0.8768 

04 ........ Arkansas ........................................................................................................................................................ 0.8480 0.7973 0.7466 

05 ........ California ........................................................................................................................................................ 1.0632 1.0843 1.1054 

06 ........ Colorado ......................................................................................................................................................... 0.9628 0.9504 0.9380 

07 ........ Connecticut .................................................................................................................................................... 1.1038 1.1384 1.1730 

08 ........ Delaware ........................................................................................................................................................ 0.9747 0.9663 0.9579 

10 ........ Florida ............................................................................................................................................................ 0.9141 0.8854 0.8568 

11 ........ Georgia .......................................................................................................................................................... 0.8597 0.8130 0.7662 

12 ........ Hawaii ............................................................................................................................................................ 1.0331 1.0441 1.0551 

13 ........ Idaho .............................................................................................................................................................. 0.8822 0.8430 0.8037 

14 ........ Illinois ............................................................................................................................................................. 0.8963 0.8617 0.8271 

15 ........ Indiana ........................................................................................................................................................... 0.9174 0.8899 0.8624 

16 ........ Iowa ................................................................................................................................................................ 0.9105 0.8807 0.8509 

17 ........ Kansas ........................................................................................................................................................... 0.8821 0.8428 0.8035 

18 ........ Kentucky ........................................................................................................................................................ 0.8660 0.8213 0.7766 

19 ........ Louisiana ........................................................................................................................................................ 0.8447 0.7929 0.7411 

20 ........ Maine ............................................................................................................................................................. 0.9306 0.9074 0.8843 

21 ........ Maryland ........................................................................................................................................................ 0.9612 0.9482 0.9353 

22 ........ Massachusetts 5 ............................................................................................................................................. ............ ............ ............

23 ........ Michigan ......................................................................................................................................................... 0.9337 0.9116 0.8895 

24 ........ Minnesota ....................................................................................................................................................... 0.9479 0.9306 0.9132 

25 ........ Mississippi ...................................................................................................................................................... 0.8604 0.8139 0.7674 

26 ........ Missouri .......................................................................................................................................................... 0.8740 0.8320 0.7900 

27 ........ Montana ......................................................................................................................................................... 0.9257 0.9010 0.8762 

28 ........ Nebraska ........................................................................................................................................................ 0.9194 0.8926 0.8657 

29 ........ Nevada ........................................................................................................................................................... 0.9439 0.9252 0.9065 

30 ........ New Hampshire ............................................................................................................................................. 1.0490 1.0654 1.0817 

31 ........ New Jersey 5 .................................................................................................................................................. ............ ............ ............

32 ........ New Mexico ................................................................................................................................................... 0.9181 0.8908 0.8635 

33 ........ New York ....................................................................................................................................................... 0.8892 0.8523 0.8154 

34 ........ North Carolina ................................................................................................................................................ 0.9124 0.8832 0.8540 

35 ........ North Dakota .................................................................................................................................................. 0.8357 0.7809 0.7261 

36 ........ Ohio ................................................................................................................................................................ 0.9296 0.9061 0.8826 

37 ........ Oklahoma ....................................................................................................................................................... 0.8549 0.8065 0.7581 

38 ........ Oregon ........................................................................................................................................................... 0.9896 0.9861 0.9826 

39 ........ Pennsylvania .................................................................................................................................................. 0.8975 0.8633 0.8291 

40 ........ Puerto Rico 5 .................................................................................................................................................. ............ ............ ............

41 ........ Rhode Island 5 ................................................................................................................................................ ............ ............ ............

42 ........ South Carolina ............................................................................................................................................... 0.9183 0.8910 0.8638 

43 ........ South Dakota ................................................................................................................................................. 0.9136 0.8848 0.8560 

44 ........ Tennessee ..................................................................................................................................................... 0.8737 0.8316 0.7895 

45 ........ Texas ............................................................................................................................................................. 0.8802 0.8402 0.8003 

46 ........ Utah ................................................................................................................................................................ 0.8871 0.8494 0.8118 

47 ........ Vermont .......................................................................................................................................................... 0.9898 0.9864 0.9830 

49 ........ Virginia ........................................................................................................................................................... 0.8808 0.8410 0.8013 

50 ........ Washington .................................................................................................................................................... 1.0306 1.0408 1.0510 

51 ........ West Virginia .................................................................................................................................................. 0.8630 0.8174 0.7717 

52 ........ Wisconsin ....................................................................................................................................................... 0.9705 0.9607 0.9509 

53 ........ Wyoming ........................................................................................................................................................ 0.9554 0.9406 0.9257 

1As discussed in section IV.D.1.d. of the preamble of this proposed rule, because there are no longer any LTCHs in their cost reporting periods that began during FYs 2003 and 2004 (the first and second years of the 5-year wage index phase-in, respectively), we are no longer showing the 1⁄5 and 2⁄5 wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this proposed rule. 2The proposed 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 2006 (that is, fiscal year 2002 audited acute care hospital inpatient wage data without regard to reclassification 

under section 1886(d)(8) or section 1886(d)(10) of the Act). 3Three-fifths of the proposed full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2004 

through September 30, 2005 (Federal FY 2005). That is, for a LTCH’s cost reporting period that begins during Federal FY 2005 and located in 

rural Illinois, the proposed 3⁄5 wage index value is computed as ((3*0.8271) + 2))/5 = 0.8963. For further details on the 5-year phase-in of the 

wage index, see section IV.D.1. of this proposed rule. 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4771 

4Four-fifths of the proposed 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 proposed 4⁄5 wage index value is computed as ((3*0.9271) + 2))/5 = 0.8617. For further details on the 5-year phase-in of the wage 

index, see section IV.D.1. of this proposed rule. 5All counties within the State are classified as urban. 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

1 .......... 5 CRANIOTOMY AGE >17 W CC ...................................................................................................................... 1.7034 38.5 

2 .......... 7 CRANIOTOMY AGE > 17 W/O CC ................................................................................................................. 1.7034 38.5 

3 .......... 7 CRANIOTOMY AGE 0–17 ............................................................................................................................... 1.7034 38.5 

6 .......... 7 CARPAL TUNNEL RELEASE ......................................................................................................................... 0.4499 19.0 

7 .......... PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W CC .............................................................. 1.3984 37.7 

8 .......... 3PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W/O CC ........................................................ 0.7637 24.8 

9 .......... SPINAL DISORDERS & INJURIES ................................................................................................................... 0.9720 33.7 

10 ........ NERVOUS SYSTEM NEOPLASMS W CC ....................................................................................................... 0.7554 24.5 

11 ........ 2 NERVOUS SYSTEM NEOPLASMS W/O CC ................................................................................................. 0.5837 21.3 

12 ........ DEGENERATIVE NERVOUS SYSTEM DISORDERS ..................................................................................... 0.6851 25.5 

13 ........ MULTIPLE SCLEROSIS & CEREBELLAR ATAXIA ......................................................................................... 0.6531 23.1 

14 ........ INTERCRANIAL HEMORRHAGE OR STROKE WITH INFARCT .................................................................... 0.7783 26.0 

15 ........ NONSPECIFIC CVA & PRECEREBRAL OCCULUSION WITHOUT INFARCT .............................................. 0.7314 26.8 

16 ........ NONSPECIFIC CEREBROVASCULAR DISORDERS W CC ........................................................................... 0.7471 23.5 

17 ........ 1 NONSPECIFIC CEREBROVASCULAR DISORDERS W/O CC ..................................................................... 0.4499 19.0 

18 ........ CRANIAL & PERIPHERAL NERVE DISORDERS W CC ................................................................................. 0.7197 23.6 

19 ........ CRANIAL & PERIPHERAL NERVE DISORDERS W/O CC ............................................................................. 0.4773 21.2 

20 ........ NERVOUS SYSTEM INFECTION EXCEPT VIRAL MENINGITIS ................................................................... 1.0277 27.2 

21 ........ 3VIRAL MENINGITIS ........................................................................................................................................ 0.7637 24.8 

22 ........ 4 HYPERTENSIVE ENCEPHALOPATHY .......................................................................................................... 1.1820 29.6 

23 ........ NONTRAUMATIC STUPOR & COMA .............................................................................................................. 0.8054 25.4 

24 ........ SEIZURE & HEADACHE AGE >17 W CC ........................................................................................................ 0.6251 22.6 

25 ........ 1SEIZURE & HEADACHE AGE >17 W/O CC .................................................................................................. 0.4499 19.0 

26 ........ 7SEIZURE & HEADACHE AGE 0–17 ............................................................................................................... 0.4499 19.0 

27 ........ TRAUMATIC STUPOR & COMA, COMA >1 HR .............................................................................................. 0.9444 27.1 

28 ........ TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W CC ................................................................... 0.8890 30.2 

29 ........ 2TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W/O CC ............................................................. 0.5837 21.3 

30 ........ 7TRAUMATIC STUPOR & COMA, COMA <1 HR AGE 0–17 .......................................................................... 0.5837 21.3 

31 ........ 3 CONCUSSION AGE >17 W CC ...................................................................................................................... 0.7637 24.8 

32 ........ 7 CONCUSSION AGE >17 W/O CC .................................................................................................................. 0.4499 19.0 

33 ........ 7 CONCUSSION AGE 0–17 ............................................................................................................................... 0.4499 19.0 

34 ........ OTHER DISORDERS OF NERVOUS SYSTEM W CC .................................................................................... 0.8004 25.3 

35 ........ OTHER DISORDERS OF NERVOUS SYSTEM W/O CC ................................................................................ 0.5698 24.2 

36 ........ 7 RETINAL PROCEDURES ............................................................................................................................... 1.1820 29.6 

37 ........ 7ORBITAL PROCEDURES ............................................................................................................................... 1.1820 29.6 

38 ........ 7PRIMARY IRIS PROCEDURES ...................................................................................................................... 1.1820 29.6 

39 ........ 7 LENS PROCEDURES WITH OR WITHOUT VITRECTOMY ......................................................................... 1.1820 29.6 

40 ........ 4EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE >17 ........................................................................ 1.1820 29.6 

41 ........ 7EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE 0–17 ...................................................................... 1.1820 29.6 

42 ........ 7 INTRAOCULAR PROCEDURES EXCEPT RETINA, IRIS & LENS ............................................................... 1.1820 29.6 

43 ........ 7 HYPHEMA ....................................................................................................................................................... 1.1820 29.6 

44 ........ 2ACUTE MAJOR EYE INFECTIONS ................................................................................................................ 0.5837 21.3 

45 ........ 7 NEUROLOGICAL EYE DISORDERS ............................................................................................................. 1.1820 29.6 

46 ........ 2OTHER DISORDERS OF THE EYE AGE >17 W CC .................................................................................... 0.5837 21.3 

47 ........ 7OTHER DISORDERS OF THE EYE AGE >17 W/O CC ................................................................................ 1.1820 29.6 

48 ........ 7OTHER DISORDERS OF THE EYE AGE 0–17 ............................................................................................. 1.1820 29.6 

49 ........ 7 MAJOR HEAD & NECK PROCEDURES ........................................................................................................ 1.1820 29.6 

50 ........ S7 IALOADENECTOMY .................................................................................................................................... 1.1820 29.6 

51 ........ 7SALIVARY GLAND PROCEDURES EXCEPT SIALOADENECTOMY .......................................................... 1.1820 29.6 

52 ........ 7 CLEFT LIP & PALATE REPAIR ...................................................................................................................... 1.1820 29.6 

53 ........ 7SINUS & MASTOID PROCEDURES AGE >17 .............................................................................................. 1.1820 29.6 

54 ........ 7SINUS & MASTOID PROCEDURES AGE 0–17 ............................................................................................ 1.1820 29.6 

55 ........ 7 MISCELLANEOUS EAR, NOSE, MOUTH & THROAT PROCEDURES ........................................................ 1.1820 29.6 

56 ........ 7 RHINOPLASTY ................................................................................................................................................ 1.1820 29.6 

57 ........ 7T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >17 ............................... 0.4499 19.0 

58 ........ 7T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0–17 ............................. 0.4499 19.0 

59 ........ 7TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >17 .................................................................... 0.4499 19.0 

60 ........ 7TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0–17 .................................................................. 0.4499 19.0 

61 ........ 3 MYRINGOTOMY W TUBE INSERTION AGE >17 ......................................................................................... 0.7637 24.8 

62 ........ 7 MYRINGOTOMY W TUBE INSERTION AGE 0–17 ....................................................................................... 0.4499 19.0 

63 ........ 4OTHER EAR, NOSE, MOUTH & THROAT O.R. PROCEDURES ................................................................. 1.1820 29.6 

64 ........ EAR, NOSE, MOUTH & THROAT MALIGNANCY ........................................................................................... 1.1480 26.2 


rmajette on PROD1PC67 with PROPOSALS2
4772 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

65 ........ 1 DYSEQUILIBRIUM .......................................................................................................................................... 0.4499 19.0 

66 ........ 7EPISTAXIS ...................................................................................................................................................... 0.4499 19.0 

67 ........ 3EPIGLOTTITIS ................................................................................................................................................. 0.7637 24.8 

68 ........ OTITIS MEDIA & URI AGE >17 W CC ............................................................................................................. 0.5111 18.0 

69 ........ 1OTITIS MEDIA & URI AGE >17 W/O CC ....................................................................................................... 0.4499 19.0 

70 ........ 7OTITIS MEDIA & URI AGE 0–17 .................................................................................................................... 0.4499 19.0 

71 ........ 7 LARYNGOTRACHEITIS .................................................................................................................................. 0.5837 21.3 

72 ........ 7 NASAL TRAUMA & DEFORMITY ................................................................................................................... 0.7637 24.8 

73 ........ OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE >17 ................................................................ 0.7535 21.9 

74 ........ 7OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE 0–17 ............................................................ 0.4499 19.0 

75 ........ 5 MAJOR CHEST PROCEDURES .................................................................................................................... 1.7034 38.5 

76 ........ OTHER RESP SYSTEM O.R. PROCEDURES W CC ..................................................................................... 2.5523 43.9 

77 ........ 5OTHER RESP SYSTEM O.R. PROCEDURES W/O CC ............................................................................... 1.7034 38.5 

78 ........ PULMONARY EMBOLISM ................................................................................................................................ 0.6900 21.9 

79 ........ RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W CC ............................................................. 0.8280 22.9 

80 ........ RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W/O CC ......................................................... 0.5986 21.7 

81 ........ 7 RESPIRATORY INFECTIONS & INFLAMMATIONS AGE 0–17 .................................................................... 0.4499 19.0 

82 ........ RESPIRATORY NEOPLASMS .......................................................................................................................... 0.7174 20.1 

83 ........ 2 MAJOR CHEST TRAUMA W CC .................................................................................................................... 0.5837 21.3 

84 ........ 7 MAJOR CHEST TRAUMA W/O CC ................................................................................................................ 0.5837 21.3 

85 ........ PLEURAL EFFUSION W CC ............................................................................................................................ 0.7264 21.2 

86 ........ 1PLEURAL EFFUSION W/O CC ...................................................................................................................... 0.4499 19.0 

87 ........ PULMONARY EDEMA & RESPIRATORY FAILURE ....................................................................................... 1.0816 25.4 

88 ........ CHRONIC OBSTRUCTIVE PULMONARY DISEASE ....................................................................................... 0.6585 19.6 

89 ........ SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC ..................................................................................... 0.6987 20.8 

90 ........ SIMPLE PNEUMONIA & PLEURISY AGE >17 W/O CC .................................................................................. 0.4970 17.8 

91 ........ 7SIMPLE PNEUMONIA & PLEURISY AGE 0–17 ............................................................................................ 0.4499 19.0 

92 ........ INTERSTITIAL LUNG DISEASE W CC ............................................................................................................ 0.6704 20.2 

93 ........ 2 INTERSTITIAL LUNG DISEASE W/O CC ...................................................................................................... 0.5837 21.3 

94 ........ PNEUMOTHORAX W CC ................................................................................................................................. 0.5880 17.0 

95 ........ 1PNEUMOTHORAX W/O CC ........................................................................................................................... 0.4499 19.0 

96 ........ BRONCHITIS & ASTHMA AGE >17 W CC ...................................................................................................... 0.6417 19.4 

97 ........ 2BRONCHITIS & ASTHMA AGE >17 W/O CC ................................................................................................ 0.5837 21.3 

98 ........ 7BRONCHITIS & ASTHMA AGE 0–17 ............................................................................................................. 0.5837 21.3 

99 ........ RESPIRATORY SIGNS & SYMPTOMS W CC ................................................................................................. 0.9219 23.2 

100 ...... 3 RESPIRATORY SIGNS & SYMPTOMS W/O CC ........................................................................................... 0.7637 24.8 

101 ...... OTHER RESPIRATORY SYSTEM DIAGNOSES W CC .................................................................................. 0.8147 21.1 

102 ...... 1OTHER RESPIRATORY SYSTEM DIAGNOSES W/O CC ............................................................................ 0.4499 19.0 

103 ...... 6 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM ........................................................... 0.0000 0.0 

104 ...... 7 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W CARDIAC CATH .............................. 0.7637 24.8 

105 ...... 7 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W/O CARDIAC CATH ........................... 0.7637 24.8 

106 ...... 7 CORONARY BYPASS W PTCA ..................................................................................................................... 0.7637 24.8 

108 ...... 7OTHER CARDIOTHORACIC PROCEDURES ................................................................................................ 0.7637 24.8 

110 ...... 3 MAJOR CARDIOVASCULAR PROCEDURES W CC .................................................................................... 0.7637 24.8 

111 ...... 7 MAJOR CARDIOVASCULAR PROCEDURES W/O CC ................................................................................ 0.7637 24.8 

113 ...... AMPUTATION FOR CIRC SYSTEM DISORDERS EXCEPT UPPER LIMB & TOE ....................................... 1.4887 39.3 

114 ...... UPPER LIMB & TOE AMPUTATION FOR CIRC SYSTEM DISORDERS ....................................................... 1.2389 33.2 

117 ...... 4 CARDIAC PACEMAKER REVISION EXCEPT DEVICE REPLACEMENT .................................................... 1.1820 29.6 

118 ...... 4 CARDIAC PACEMAKER DEVICE REPLACEMENT ...................................................................................... 1.1820 29.6 

119 ...... 3VEIN LIGATION & STRIPPING ...................................................................................................................... 0.7637 24.8 

120 ...... OTHER CIRCULATORY SYSTEM O.R. PROCEDURES ................................................................................ 1.0979 31.7 

121 ...... CIRCULATORY DISORDERS W AMI & MAJOR COMP, DISCHARGED ALIVE ............................................ 0.8429 23.2 

122 ...... 2 CIRCULATORY DISORDERS W AMI W/O MAJOR COMP, DISCHARGED ALIVE ..................................... 0.5837 21.3 

123 ...... CIRCULATORY DISORDERS W AMI, EXPIRED ............................................................................................. 1.1811 20.4 

124 ...... 4 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH & COMPLEX DIAG ..................................... 1.1820 29.6 

125 ...... 3 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX DIAG ................................ 0.7637 24.8 

126 ...... ACUTE & SUBACUTE ENDOCARDITIS .......................................................................................................... 0.8386 25.3 

127 ...... HEART FAILURE & SHOCK ............................................................................................................................. 0.6857 21.2 

128 ...... 2 DEEP VEIN THROMBOPHLEBITIS ................................................................................................................ 0.5837 21.3 

129 ...... 7 CARDIAC ARREST, UNEXPLAINED ............................................................................................................. 0.7637 24.8 

130 ...... PERIPHERAL VASCULAR DISORDERS W CC .............................................................................................. 0.6741 23.2 

131 ...... PERIPHERAL VASCULAR DISORDERS W/O CC .......................................................................................... 0.4675 20.4 

132 ...... ATHEROSCLEROSIS W CC ............................................................................................................................. 0.6565 21.8 

133 ...... 1ATHEROSCLEROSIS W/O CC ....................................................................................................................... 0.4499 19.0 

134 ...... HYPERTENSION ............................................................................................................................................... 0.6354 24.8 

135 ...... CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W CC ......................................................... 0.7211 23.7 

136 ...... 2 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W/O CC ................................................... 0.5837 21.3 

137 ...... 7 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE 0–17 ................................................................ 0.5837 21.3 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4773 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

138 ...... CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W CC ................................................................... 0.6201 20.5 

139 ...... 2 CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W/O CC ............................................................. 0.5837 21.3 

140 ...... 1ANGINA PECTORIS ........................................................................................................................................ 0.4499 19.0 

141 ...... 8SYNCOPE & COLLAPSE W CC ..................................................................................................................... 0.4271 18.3 

142 ...... 8SYNCOPE & COLLAPSE W/O CC ................................................................................................................. 0.4271 18.3 

143 ...... 1 CHEST PAIN ................................................................................................................................................... 0.4499 19.0 

144 ...... OTHER CIRCULATORY SYSTEM DIAGNOSES W CC .................................................................................. 0.7413 21.7 

145 ...... OTHER CIRCULATORY SYSTEM DIAGNOSES W/O CC .............................................................................. 0.4568 18.2 

146 ...... 7 RECTAL RESECTION W CC .......................................................................................................................... 1.7034 38.5 

147 ...... 7 RECTAL RESECTION W/O CC ...................................................................................................................... 1.7034 38.5 

148 ...... MAJOR SMALL & LARGE BOWEL PROCEDURES W CC ............................................................................. 1.8616 40.9 

149 ...... 7 MAJOR SMALL & LARGE BOWEL PROCEDURES W/O CC ....................................................................... 0.7637 24.8 

150 ...... 4PERITONEAL ADHESIOLYSIS W CC ............................................................................................................ 1.1820 29.6 

151 ...... 2PERITONEAL ADHESIOLYSIS W/O CC ........................................................................................................ 0.5837 21.3 

152 ...... 3 MINOR SMALL & LARGE BOWEL PROCEDURES W CC ........................................................................... 0.7637 24.8

153 ...... 7 MINOR SMALL & LARGE BOWEL PROCEDURES W/O CC ....................................................................... 0.7637 24.8 

154 ...... 5STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE >17 W CC .............................................. 1.7034 38.5 

155 ...... 7STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE >17 W/O CC .......................................... 1.7034 38.5 

156 ...... 7STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE 0–17 ....................................................... 1.7034 38.5 

157 ...... 4ANAL & STOMAL PROCEDURES W CC ...................................................................................................... 1.1820 29.6 

158 ...... 7ANAL & STOMAL PROCEDURES W/O CC ................................................................................................... 1.1820 29.6 

159 ...... 7 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W CC .............................................. 0.7637 24.8 

160 ...... 7 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W/O CC .......................................... 0.7637 24.8 

161 ...... 5 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W CC ............................................................. 1.7034 38.5 

162 ...... 7 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W/O CC .......................................................... 0.7637 24.8 

163 ...... 7 HERNIA PROCEDURES AGE 0–17 ............................................................................................................... 0.7637 24.8 

164 ...... 1APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W CC .................................................................. 1.7034 38.5 

165 ...... 7APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W/O CC .............................................................. 1.7034 38.5 

166 ...... 7APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W CC .............................................................. 1.7034 38.5 

167 ...... 7APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W/O CC .......................................................... 1.7034 38.5 

168 ...... 4 MOUTH PROCEDURES W CC ...................................................................................................................... 1.1820 29.6 

169 ...... 7 MOUTH PROCEDURES W/O CC .................................................................................................................. 0.7637 24.8 

170 ...... OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W CC ............................................................................ 1.6271 35.9 

171 ...... 1OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W/O CC ...................................................................... 0.4499 19.0 

172 ...... DIGESTIVE MALIGNANCY W CC .................................................................................................................... 0.8553 21.8 

173 ...... 2 DIGESTIVE MALIGNANCY W/O CC .............................................................................................................. 0.5837 21.3 

174 ...... G.I. HEMORRHAGE W CC ............................................................................................................................... 0.7119 22.2 

175 ...... 1G.I. HEMORRHAGE W/O CC ......................................................................................................................... 0.4499 19.0 

176 ...... COMPLICATED PEPTIC ULCER ...................................................................................................................... 0.8426 21.5 

177 ...... 3 UNCOMPLICATED PEPTIC ULCER W CC ................................................................................................... 0.7637 24.8 

178 ...... 3 UNCOMPLICATED PEPTIC ULCER W/O CC ............................................................................................... 0.7637 24.8 

179 ...... INFLAMMATORY BOWEL DISEASE ................................................................................................................ 0.9675 24.0 

180 ...... G.I. OBSTRUCTION W CC ............................................................................................................................... 0.9375 23.5 

181 ...... 3G.I. OBSTRUCTION W/O CC ......................................................................................................................... 0.7637 24.8 

182 ...... ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W CC ............................................ 0.7745 22.6 

183 ...... ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W/O CC ........................................ 0.3870 16.8 

184 ...... 7ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE 0–17 ................................................... 0.4499 19.0 

185 ...... 3 DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE >17 ........................................ 0.7637 24.8 

186 ...... 7 DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE 0–17 ....................................... 0.7637 24.8 

187 ...... 7 DENTAL EXTRACTIONS & RESTORATIONS ............................................................................................... 0.7637 24.8 

188 ...... OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W CC ......................................................................... 0.9952 24.0 

189 ...... OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W/O CC ..................................................................... 0.4707 18.2 

190 ...... 7OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0–17 ............................................................................... 0.4499 19.0 

191 ...... 4PANCREAS, LIVER & SHUNT PROCEDURES W CC .................................................................................. 1.1820 29.6 

192 ...... 7PANCREAS, LIVER & SHUNT PROCEDURES W/O CC .............................................................................. 1.1820 29.6 

193 ...... 3BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W CC ...................................... 0.7637 24.8 

194 ...... 7BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W/O CC ................................... 0.7637 24.8 

195 ...... 3 CHOLECYSTECTOMY W C.D.E. W CC ........................................................................................................ 0.7637 24.8 

196 ...... 7 CHOLECYSTECTOMY W C.D.E. W/O CC .................................................................................................... 0.7637 24.8 

197 ...... 3 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W CC ................................................... 0.7637 24.8 

198 ...... 7 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W/O CC ............................................... 0.7637 24.8 

199 ...... 7 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR MALIGNANCY ........................................................... 1.7034 38.5 

200 ...... 5 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR NON-MALIGNANCY .................................................. 1.7034 38.5 

201 ...... OTHER HEPATOBILIARY OR PANCREAS O.R. PROCEDURES .................................................................. 2.0371 36.1 

202 ...... CIRRHOSIS & ALCOHOLIC HEPATITIS .......................................................................................................... 0.6610 20.6 

203 ...... MALIGNANCY OF HEPATOBILIARY SYSTEM OR PANCREAS .................................................................... 0.7896 19.5 

204 ...... DISORDERS OF PANCREAS EXCEPT MALIGNANCY .................................................................................. 0.9441 22.7 

205 ...... DISORDERS OF LIVER EXCEPT MALIG, CIRR, ALC HEPA W CC .............................................................. 0.6642 20.5 


rmajette on PROD1PC67 with PROPOSALS2
4774 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

206 ...... 2 DISORDERS OF LIVER EXCEPT MALIG, CIRR, ALC HEPA W/O CC ........................................................ 0.5837 21.3 

207 ...... DISORDERS OF THE BILIARY TRACT W CC ................................................................................................ 0.7570 21.5 

208 ...... 2 DISORDERS OF THE BILIARY TRACT W/O CC .......................................................................................... 0.5837 21.3 

210 ...... 5 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W CC ................................................... 1.7034 38.5 

211 ...... 4 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W/O CC ............................................... 1.1820 29.6 

212 ...... 7 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 0–17 ............................................................ 1.7034 38.5 

213 ...... AMPUTATION FOR MUSCULOSKELETAL SYSTEM & CONN TISSUE DISORDERS ................................. 1.1948 34.0 

216 ...... 4BIOPSIES OF MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE .................................................. 1.1820 29.6 

217 ...... WND DEBRID & SKN GRFT EXCEPT HAND, FOR MUSCSKELET & CONN TISS DIS .............................. 1.2927 38.0 

218 ...... 5 LOWER EXTREM & HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE >17 W CC ................................. 1.7034 38.5 

219 ...... 1 LOWER EXTREM & HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE >17 W/O CC ............................. 0.4499 19.0 

220 ...... 7 LOWER EXTREM & HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE 0–17 .......................................... 1.7034 38.5 

223 ...... 3 MAJOR SHOULDER/ELBOW PROC, OR OTHER UPPER EXTREMITY PROC W CC .............................. 0.7637 24.8 

224 ...... 7SHOULDER, ELBOW OR FOREARM PROC, EXC MAJOR JOINT PROC, W/O CC .................................. 0.7637 24.8 

225 ...... FOOT PROCEDURES ....................................................................................................................................... 0.9869 28.4 

226 ...... SOFT TISSUE PROCEDURES W CC .............................................................................................................. 0.9443 29.5 

227 ...... 3SOFT TISSUE PROCEDURES W/O CC ........................................................................................................ 0.7637 24.8 

228 ...... 4 MAJOR THUMB OR JOINT PROC, OR OTH HAND OR WRIST PROC W CC ........................................... 1.1820 29.6 

229 ...... 7 HAND OR WRIST PROC, EXCEPT MAJOR JOINT PROC, W/O CC ........................................................... 0.4499 19.0 

230 ...... 5 LOCAL EXCISION & REMOVAL OF INT FIX DEVICES OF HIP & FEMUR ................................................. 1.7034 38.5 

232 ...... 7ARTHROSCOPY ............................................................................................................................................. 0.4499 19.0 

233 ...... OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W CC ............................................................. 1.3522 34.6 

234 ...... 7OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W/O CC ........................................................ 0.4499 19.0 

235 ...... 3FRACTURES OF FEMUR ............................................................................................................................... 0.7637 24.8 

236 ...... FRACTURES OF HIP & PELVIS ...................................................................................................................... 0.6531 25.2 

237 ...... 1SPRAINS, STRAINS, & DISLOCATIONS OF HIP, PELVIS & THIGH ........................................................... 0.4499 19.0 

238 ...... OSTEOMYELITIS .............................................................................................................................................. 0.8278 28.3 

239 ...... PATHOLOGICAL FRACTURES & MUSCULOSKELETAL & CONN TISS MALIGNANCY ............................. 0.6935 23.6 

240 ...... CONNECTIVE TISSUE DISORDERS W CC .................................................................................................... 0.7310 24.8 

241 ...... 1 CONNECTIVE TISSUE DISORDERS W/O CC .............................................................................................. 0.4499 19.0 

242 ...... SEPTIC ARTHRITIS .......................................................................................................................................... 0.7864 26.5 

243 ...... MEDICAL BACK PROBLEMS ........................................................................................................................... 0.6061 23.4 

244 ...... BONE DISEASES & SPECIFIC ARTHROPATHIES W CC .............................................................................. 0.5259 22.2 

245 ...... BONE DISEASES & SPECIFIC ARTHROPATHIES W/O CC .......................................................................... 0.4635 20.4 

246 ...... 1 NON-SPECIFIC ARTHROPATHIES ............................................................................................................... 0.4499 19.0 

247 ...... SIGNS & SYMPTOMS OF MUSCULOSKELETAL SYSTEM & CONN TISSUE ............................................. 0.5548 21.9 

248 ...... TENDONITIS, MYOSITIS & BURSITIS ............................................................................................................. 0.6574 22.6 

249 ...... AFTERCARE, MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE .................................................... 0.6577 24.7 

250 ...... 2FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W CC .................................................. 0.5837 21.3 

251 ...... 1FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W/O CC ............................................... 0.4499 19.0 

252 ...... 7FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 0–17 ............................................................ 0.7637 24.8 

253 ...... FX, SPRN, STRN & DISL OF UPARM, LOWLEG EX FOOT AGE >17 W CC ............................................... 0.6802 26.3 

254 ...... 2FX, SPRN, STRN & DISL OF UPARM, LOWLEG EX FOOT AGE >17 W/O CC ......................................... 0.5837 21.3 

255 ...... 7FX, SPRN, STRN & DISL OF UPARM, LOWLEG EX FOOT AGE 0–17 ...................................................... 0.7637 24.8 

256 ...... OTHER MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE DIAGNOSES ........................................ 0.7924 25.3 

257 ...... 7TOTAL MASTECTOMY FOR MALIGNANCY W CC ...................................................................................... 0.7637 24.8 

258 ...... 7TOTAL MASTECTOMY FOR MALIGNANCY W/O CC .................................................................................. 0.7637 24.8 

259 ...... 2SUBTOTAL MASTECTOMY FOR MALIGNANCY W CC ............................................................................... 0.5837 21.3 

260 ...... 7SUBTOTAL MASTECTOMY FOR MALIGNANCY W/O CC ........................................................................... 0.7637 24.8

261 ...... 7BREAST PROC FOR NON-MALIGNANCY EXCEPT BIOPSY & LOCAL EXCISION ................................... 0.7637 24.8 

262 ...... 1BREAST BIOPSY & LOCAL EXCISION FOR NON-MALIGNANCY .............................................................. 0.4499 19.0 

263 ...... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR CELLULITIS W CC ....................................................... 1.3222 39.5 

264 ...... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR CELLULITIS W/O CC ................................................... 0.9584 32.0 

265 ...... SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W CC ...................................... 1.0398 33.1 

266 ...... 3SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W/O CC ................................ 0.7637 24.8 

267 ...... 7PERIANAL & PILONIDAL PROCEDURES ..................................................................................................... 0.7637 24.8 

268 ...... 5SKIN, SUBCUTANEOUS TISSUE & BREAST PLASTIC PROCEDURES .................................................... 1.7034 38.5 

269 ...... OTHER SKIN, SUBCUT TISS & BREAST PROC W CC ................................................................................. 1.3037 36.1 

270 ...... 3OTHER SKIN, SUBCUT TISS & BREAST PROC W/O CC ........................................................................... 0.7637 24.8 

271 ...... SKIN ULCERS ................................................................................................................................................... 0.8720 27.7 

272 ...... MAJOR SKIN DISORDERS W CC ................................................................................................................... 0.7420 22.6 

273 ...... 1 MAJOR SKIN DISORDERS W/O CC ............................................................................................................. 0.4499 19.0 

274 ...... 3 MALIGNANT BREAST DISORDERS W CC ................................................................................................... 0.7637 24.8 

275 ...... 7 MALIGNANT BREAST DISORDERS W/O CC ............................................................................................... 0.7637 24.8 

276 ...... 2 NON-MALIGANT BREAST DISORDERS ....................................................................................................... 0.5837 21.3 

277 ...... CELLULITIS AGE >17 W CC ............................................................................................................................ 0.6264 21.0 

278 ...... CELLULITIS AGE >17 W/O CC ........................................................................................................................ 0.4420 17.8 

279 ...... 7 CELLULITIS AGE 0–17 ................................................................................................................................... 0.4499 19.0 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4775 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

280 ...... TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W CC ........................................................... 0.6698 24.3 

281 ...... 1TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W/O CC ..................................................... 0.4499 19.0 

282 ...... 7TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE 0–17 .................................................................. 0.4499 19.0 

283 ...... MINOR SKIN DISORDERS W CC .................................................................................................................... 0.6935 23.9 

284 ...... 1 MINOR SKIN DISORDERS W/O CC .............................................................................................................. 0.4499 19.0 

285 ...... AMPUTAT OF LOWER LIMB FOR ENDOCRINE, NUTRIT, & METABOL DISORDERS ............................... 1.3501 35.6 

286 ...... 7ADRENAL & PITUITARY PROCEDURES ...................................................................................................... 1.7034 38.5 

287 ...... SKIN GRAFTS & WOUND DEBRID FOR ENDOC, NUTRIT & METAB DISORDERS ................................... 1.1387 33.9 

288 ...... 4O.R. PROCEDURES FOR OBESITY ............................................................................................................. 1.1820 29.6 

289 ...... 7PARATHYROID PROCEDURES .................................................................................................................... 1.1820 29.6 

290 ...... 5THYROID PROCEDURES .............................................................................................................................. 1.7034 38.5 

291 ...... 7THYROGLOSSAL PROCEDURES ................................................................................................................. 1.1820 29.6 

292 ...... OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W CC ........................................................................ 1.3409 31.7 

293 ...... 2OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W/O CC .................................................................. 0.5837 21.3 

294 ...... DIABETES AGE >35 ......................................................................................................................................... 0.7293 25.0 

295 ...... 3 DIABETES AGE 0–35 ..................................................................................................................................... 0.7637 24.8 

296 ...... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W CC .............................................................. 0.7212 23.1 

297 ...... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W/O CC .......................................................... 0.5227 18.4 

298 ...... 7 NUTRITIONAL & MISC METABOLIC DISORDERS AGE 0–17 ..................................................................... 0.5837 21.3 

299 ...... 4 INBORN ERRORS OF METABOLISM ........................................................................................................... 1.1820 29.6 

300 ...... ENDOCRINE DISORDERS W CC .................................................................................................................... 0.6376 21.2 

301 ...... 1ENDOCRINE DISORDERS W/O CC .............................................................................................................. 0.4499 19.0 

302 ...... 6KIDNEY TRANSPLANT ................................................................................................................................... 0.0000 0.0 

303 ...... 4KIDNEY, URETER & MAJOR BLADDER PROCEDURES FOR NEOPLASM ............................................... 1.1820 29.6 

304 ...... 5KIDNEY, URETER & MAJOR BLADDER PROC FOR NON-NEOPL W CC ................................................. 1.7034 38.5 

305 ...... 1KIDNEY, URETER & MAJOR BLADDER PROC FOR NON-NEOPL W/O CC ............................................. 0.4499 19.0 

306 ...... 2PROSTATECTOMY W CC .............................................................................................................................. 0.5837 21.3 

307 ...... 7PROSTATECTOMY W/O CC .......................................................................................................................... 0.5837 21.3 

308 ...... 3 MINOR BLADDER PROCEDURES W CC ..................................................................................................... 0.7637 24.8 

309 ...... 7 MINOR BLADDER PROCEDURES W/O CC ................................................................................................. 0.7637 24.8 

310 ...... 4TRANSURETHRAL PROCEDURES W CC .................................................................................................... 1.1820 29.6 

311 ...... 7TRANSURETHRAL PROCEDURES W/O CC ................................................................................................ 1.1820 29.6 

312 ...... 1 URETHRAL PROCEDURES, AGE >17 W CC ............................................................................................... 0.4499 19.0 

313 ...... 7 URETHRAL PROCEDURES, AGE >17 W/O CC ........................................................................................... 0.4499 19.0 

314 ...... 7 URETHRAL PROCEDURES, AGE 0–17 ........................................................................................................ 0.4499 19.0 

315 ...... OTHER KIDNEY & URINARY TRACT O.R. PROCEDURES ........................................................................... 1.4055 31.6 

316 ...... RENAL FAILURE ............................................................................................................................................... 0.8219 22.7 

317 ...... ADMIT FOR RENAL DIALYSIS ......................................................................................................................... 0.9852 25.2 

318 ...... KIDNEY & URINARY TRACT NEOPLASMS W CC ......................................................................................... 0.7586 20.2 

319 ...... 1KIDNEY & URINARY TRACT NEOPLASMS W/O CC ................................................................................... 0.4499 19.0 

320 ...... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W CC .......................................................................... 0.6179 22.2 

321 ...... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W/O CC ...................................................................... 0.4792 19.0 

322 ...... 7KIDNEY & URINARY TRACT INFECTIONS AGE 0–17 ................................................................................ 0.4499 19.0 

323 ...... 4 URINARY STONES W CC, &/OR ESW LITHOTRIPSY ................................................................................. 1.1820 29.6 

324 ...... 7 URINARY STONES W/O CC .......................................................................................................................... 0.4499 19.0 

325 ...... 2KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W CC ......................................................... 0.5837 21.3 

326 ...... 7KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W/O CC ..................................................... 0.4499 19.0 

327 ...... 7KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE 0–17 .................................................................. 0.4499 19.0 

328 ...... 1 URETHRAL STRICTURE AGE >17 W CC ..................................................................................................... 0.4499 19.0 

329 ...... 7 URETHRAL STRICTURE AGE >17 W/O CC ................................................................................................. 0.4499 19.0 

330 ...... 7 URETHRAL STRICTURE AGE 0–17 .............................................................................................................. 0.4499 19.0 

331 ...... OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W CC ............................................................ 0.8010 23.1 

332 ...... 2OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W/O CC ...................................................... 0.5837 21.3 

333 ...... 7OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE 0–17 ................................................................... 0.5837 21.3 

334 ...... 2 MAJOR MALE PELVIC PROCEDURES W CC .............................................................................................. 0.5837 21.3 

335 ...... 7 MAJOR MALE PELVIC PROCEDURES W/O CC .......................................................................................... 1.7034 38.5 

336 ...... 2TRANSURETHRAL PROSTATECTOMY W CC ............................................................................................. 0.5837 21.3 

337 ...... 7TRANSURETHRAL PROSTATECTOMY W/O CC ......................................................................................... 0.5837 21.3 

338 ...... 7TESTES PROCEDURES, FOR MALIGNANCY .............................................................................................. 0.5837 21.3 

339 ...... 4TESTES PROCEDURES, NON-MALIGNANCY AGE >17 ............................................................................. 1.1820 29.6 

340 ...... 7TESTES PROCEDURES, NON-MALIGNANCY AGE 0–17 ........................................................................... 1.1820 29.6 

341 ...... 4PENIS PROCEDURES .................................................................................................................................... 1.1820 29.6 

342 ...... 7 CIRCUMCISION AGE >17 .............................................................................................................................. 1.1820 29.6 

343 ...... 7 CIRCUMCISION AGE 0–17 ............................................................................................................................ 1.1820 29.6 

344 ...... 1OTHER MALE REPRODUCTIVE SYSTEM O.R. PROCEDURES FOR MALIGNANCY ............................... 0.4499 19.0 

345 ...... 5OTHER MALE REPRODUCTIVE SYSTEM O.R. PROC EXCEPT FOR MALIGNANCY .............................. 1.7034 38.5 

346 ...... MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W CC .............................................................................. 0.6060 20.6 

347 ...... 2 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W/O CC ........................................................................ 0.5837 21.3


rmajette on PROD1PC67 with PROPOSALS2
4776 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

348 ...... 2BENIGN PROSTATIC HYPERTROPHY W CC .............................................................................................. 0.5837 21.3 

349 ...... 7BENIGN PROSTATIC HYPERTROPHY W/O CC .......................................................................................... 1.1820 29.6 

350 ...... INFLAMMATION OF THE MALE REPRODUCTIVE SYSTEM ......................................................................... 0.6798 21.9 

351 ...... 7STERILIZATION, MALE .................................................................................................................................. 1.1820 29.6 

352 ...... OTHER MALE REPRODUCTIVE SYSTEM DIAGNOSES ............................................................................... 0.6375 23.4 

353 ...... 7PELVIC EVISCERATION, RADICAL HYSTERECTOMY & RADICAL VULVECTOMY ................................. 1.1820 29.6 

354 ...... 7 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W CC ................................................. 1.1820 29.6 

355 ...... 7 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W/O CC .............................................. 1.1820 29.6 

356 ...... 7FEMALE REPRODUCTIVE SYSTEM RECONSTRUCTIVE PROCEDURES ................................................ 1.1820 29.6 

357 ...... 7 UTERINE & ADNEXA PROC FOR OVARIAN OR ADNEXAL MALIGNANCY .............................................. 1.1820 29.6 

358 ...... 7 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W CC .................................................................... 1.1820 29.6 

359 ...... 7 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W/O CC ................................................................ 1.1820 29.6 

360 ...... 4VAGINA, CERVIX & VULVA PROCEDURES ................................................................................................. 1.1820 29.6 

361 ...... 7 LAPAROSCOPY & INCISIONAL TUBAL INTERRUPTION ............................................................................ 0.7637 24.8 

362 ...... 7ENDOSCOPIC TUBAL INTERRUPTION ........................................................................................................ 0.7637 24.8 

363 ...... 7 D&C, CONIZATION & RADIO-IMPLANT, FOR MALIGNANCY ..................................................................... 0.7637 24.8

364 ...... 5 D&C, CONIZATION EXCEPT FOR MALIGNANCY ........................................................................................ 1.7034 38.5 

365 ...... 5OTHER FEMALE REPRODUCTIVE SYSTEM O.R. PROCEDURES ............................................................ 1.7034 38.5 

366 ...... MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W CC .......................................................................... 0.7072 20.3 

367 ...... 7 MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W/O CC .................................................................... 0.7637 24.8 

368 ...... INFECTIONS, FEMALE REPRODUCTIVE SYSTEM ....................................................................................... 0.6416 20.7 

369 ...... 3 MENSTRUAL & OTHER FEMALE REPRODUCTIVE SYSTEM DISORDERS .............................................. 0.7637 24.8 

370 ...... 7 CESAREAN SECTION W CC ......................................................................................................................... 0.7637 24.8 

371 ...... 7 CESAREAN SECTION W/O CC ..................................................................................................................... 0.5837 21.3 

372 ...... 7VAGINAL DELIVERY W COMPLICATING DIAGNOSES ............................................................................... 0.7637 24.8 

373 ...... 7VAGINAL DELIVERY W/O COMPLICATING DIAGNOSES ........................................................................... 0.7637 24.8 

374 ...... 7VAGINAL DELIVERY W STERILIZATION &/OR D&C ................................................................................... 0.7637 24.8 

375 ...... 7VAGINAL DELIVERY W O.R. PROC EXCEPT STERIL &/OR D&C ............................................................. 0.7637 24.8 

376 ...... 7POSTPARTUM & POST ABORTION DIAGNOSES W/O O.R. PROCEDURE .............................................. 0.7637 24.8 

377 ...... 7POSTPARTUM & POST ABORTION DIAGNOSES W O.R. PROCEDURE .................................................. 0.7637 24.8 

378 ...... 7ECTOPIC PREGNANCY ................................................................................................................................. 0.7637 24.8 

379 ...... 7THREATENED ABORTION ............................................................................................................................. 0.7637 24.8 

380 ...... 7ABORTION W/O D&C ..................................................................................................................................... 0.7637 24.8 

381 ...... 7ABORTION W D&C, ASPIRATION CURETTAGE OR HYSTEROTOMY ...................................................... 0.7637 24.8 

382 ...... 7FALSE LABOR ................................................................................................................................................ 0.7637 24.8 

383 ...... 7OTHER ANTEPARTUM DIAGNOSES W MEDICAL COMPLICATIONS ....................................................... 0.7637 24.8 

384 ...... 7OTHER ANTEPARTUM DIAGNOSES W/O MEDICAL COMPLICATIONS ................................................... 0.7637 24.8 

385 ...... 7 NEONATES, DIED OR TRANSFERRED TO ANOTHER ACUTE CARE FACILITY ..................................... 0.7637 24.8 

386 ...... 7EXTREME IMMATURITY ................................................................................................................................ 1.1820 29.6 

387 ...... 7PREMATURITY W MAJOR PROBLEMS ........................................................................................................ 1.1820 29.6 

388 ...... 7PREMATURITY W/O MAJOR PROBLEMS .................................................................................................... 0.7637 24.8 

389 ...... 7FULL TERM NEONATE W MAJOR PROBLEMS ........................................................................................... 1.1820 29.6 

390 ...... 7 NEONATE W OTHER SIGNIFICANT PROBLEMS ........................................................................................ 1.1820 29.6 

391 ...... 7 NORMAL NEWBORN ...................................................................................................................................... 0.7637 24.8 

392 ...... 7SPLENECTOMY AGE >17 .............................................................................................................................. 0.7637 24.8 

393 ...... 7SPLENECTOMY AGE 0–17 ............................................................................................................................ 0.7637 24.8 

394 ...... 5OTHER O.R. PROCEDURES OF THE BLOOD AND BLOOD FORMING ORGANS ................................... 1.7034 38.5 

395 ...... RED BLOOD CELL DISORDERS AGE >17 ..................................................................................................... 0.6581 22.0 

396 ...... 7 RED BLOOD CELL DISORDERS AGE 0–17 ................................................................................................. 0.5837 21.3 

397 ...... COAGULATION DISORDERS .......................................................................................................................... 0.8675 22.9 

398 ...... RETICULOENDOTHELIAL & IMMUNITY DISORDERS W CC ........................................................................ 0.8240 23.7 

399 ...... 2 RETICULOENDOTHELIAL & IMMUNITY DISORDERS W/O CC .................................................................. 0.5837 21.3 

401 ...... 5 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W CC ..................................................... 1.7034 38.5 

402 ...... 7 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W/O CC .................................................. 0.5837 21.3 

403 ...... LYMPHOMA & NON-ACUTE LEUKEMIA W CC .............................................................................................. 0.8757 21.3 

404 ...... 2 LYMPHOMA & NON-ACUTE LEUKEMIA W/O CC ........................................................................................ 0.5837 21.3 

405 ...... 7ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE 0–17 ................................................................ 0.5837 21.3 

406 ...... 4 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R. PROC W CC ....................................... 1.1820 29.6 

407 ...... 7 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R. PROC W/O CC ................................... 1.1820 29.6 

408 ...... 4 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W OTHER O.R. PROC ............................................ 1.1820 29.6 

409 ...... RADIOTHERAPY ............................................................................................................................................... 0.8642 23.5 

410 ...... CHEMOTHERAPY W/O ACUTE LEUKEMIA AS SECONDARY DIAGNOSIS ................................................ 1.1684 26.4 

411 ...... 7 HISTORY OF MALIGNANCY W/O ENDOSCOPY ......................................................................................... 0.7637 24.8 

412 ...... 7 HISTORY OF MALIGNANCY W ENDOSCOPY ............................................................................................. 0.7637 24.8 

413 ...... OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W CC .......................................................... 0.8920 20.5 

414 ...... 7OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W/O CC .................................................... 0.5837 21.3 

415 ...... O.R. PROCEDURE FOR INFECTIOUS & PARASITIC DISEASES ................................................................. 1.4251 35.6 

416 ...... SEPTICEMIA AGE >17 ..................................................................................................................................... 0.8241 23.5 


rmajette on PROD1PC67 with PROPOSALS2
Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4777 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

417 ...... 7SEPTICEMIA AGE 0–17 ................................................................................................................................. 0.7637 24.8 

418 ...... POSTOPERATIVE & POST-TRAUMATIC INFECTIONS ................................................................................. 0.8252 24.7 

419 ...... 4FEVER OF UNKNOWN ORIGIN AGE >17 W CC .......................................................................................... 1.1820 29.6 

420 ...... 7FEVER OF UNKNOWN ORIGIN AGE >17 W/O CC ...................................................................................... 1.1820 29.6 

421 ...... VIRAL ILLNESS AGE >17 ................................................................................................................................. 0.9441 27.3 

422 ...... 7VIRAL ILLNESS & FEVER OF UNKNOWN ORIGIN AGE 0–17 ................................................................... 0.4499 19.0 

423 ...... OTHER INFECTIOUS & PARASITIC DISEASES DIAGNOSES ...................................................................... 0.9505 21.8 

424 ...... 3O.R. PROCEDURE W PRINCIPAL DIAGNOSES OF MENTAL ILLNESS .................................................... 0.7637 24.8 

425 ...... 2ACUTE ADJUSTMENT REACTION & PSYCHOLOGICAL DYSFUNCTION ................................................. 0.5837 21.3 

426 ...... DEPRESSIVE NEUROSES ............................................................................................................................... 0.4113 20.7 

427 ...... NEUROSES EXCEPT DEPRESSIVE ............................................................................................................... 0.4653 23.8 

428 ...... 1 DISORDERS OF PERSONALITY & IMPULSE CONTROL ............................................................................ 0.4499 19.0 

429 ...... ORGANIC DISTURBANCES & MENTAL RETARDATION ............................................................................... 0.5813 26.8 

430 ...... PSYCHOSES ..................................................................................................................................................... 0.4330 24.2 

431 ...... 1 CHILDHOOD MENTAL DISORDERS ............................................................................................................. 0.4499 19.0 

432 ...... 2OTHER MENTAL DISORDER DIAGNOSES .................................................................................................. 0.5837 21.3 

433 ...... 2ALCOHOL/DRUG ABUSE OR DEPENDENCE, LEFT AMA .......................................................................... 0.5837 21.3

439 ...... SKIN GRAFTS FOR INJURIES ......................................................................................................................... 1.3677 35.6 

440 ...... WOUND DEBRIDEMENTS FOR INJURIES ..................................................................................................... 1.3442 36.1 

441 ...... 1 HAND PROCEDURES FOR INJURIES .......................................................................................................... 0.4499 19.0 

442 ...... OTHER O.R. PROCEDURES FOR INJURIES W CC ...................................................................................... 1.3937 33.4 

443 ...... 3OTHER O.R. PROCEDURES FOR INJURIES W/O CC ................................................................................ 0.7637 24.8 

444 ...... TRAUMATIC INJURY AGE >17 W CC ............................................................................................................. 0.7584 26.3 

445 ...... 1TRAUMATIC INJURY AGE >17 W/O CC ....................................................................................................... 0.4499 19.0 

446 ...... 7TRAUMATIC INJURY AGE 0–17 .................................................................................................................... 0.4499 19.0 

447 ...... 2ALLERGIC REACTIONS AGE >17 ................................................................................................................. 0.5837 21.3 

448 ...... 7ALLERGIC REACTIONS AGE 0–17 ............................................................................................................... 0.5837 21.3 

449 ...... 3POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W CC .................................................................... 0.7637 24.8 

450 ...... 7POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W/O CC ................................................................ 0.7637 24.8 

451 ...... 7POISONING & TOXIC EFFECTS OF DRUGS AGE 0–17 ............................................................................. 0.7637 24.8 

452 ...... COMPLICATIONS OF TREATMENT W CC ..................................................................................................... 0.9265 25.3 

453 ...... COMPLICATIONS OF TREATMENT W/O CC ................................................................................................. 0.5871 23.8 

454 ...... 3OTHER INJURY, POISONING & TOXIC EFFECT DIAG W CC .................................................................... 0.7637 24.8

455 ...... 7OTHER INJURY, POISONING & TOXIC EFFECT DIAG W/O CC ................................................................ 0.7637 24.8 

461 ...... O.R. PROC W DIAGNOSES OF OTHER CONTACT W HEALTH SERVICES ............................................... 1.2245 34.0 

462 ...... REHABILITATION .............................................................................................................................................. 0.5787 22.4 

463 ...... SIGNS & SYMPTOMS W CC ............................................................................................................................ 0.6258 23.8 

464 ...... SIGNS & SYMPTOMS W/O CC ........................................................................................................................ 0.5554 24.1 

465 ...... AFTERCARE W HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS ............................................. 0.6958 21.9 

466 ...... AFTERCARE W/O HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS ......................................... 0.6667 21.9 

467 ...... 3OTHER FACTORS INFLUENCING HEALTH STATUS .................................................................................. 0.7637 24.8 

468 ...... EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ................................................ 2.1478 40.2 

469 ...... 6PRINCIPAL DIAGNOSIS INVALID AS DISCHARGE DIAGNOSIS ................................................................ 0.0000 0.0 

470 ...... 6 UNGROUPABLE ............................................................................................................................................. 0.0000 0.0 

471 ...... 5BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF LOWER EXTREMITY ........................................... 1.7034 38.5 

473 ...... ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE >17 ..................................................................... 0.8537 20.0 

475 ...... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR SUPPORT ....................................................... 2.0831 34.6

476 ...... 4PROSTATIC O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ............................................. 1.1820 29.6 

477 ...... NON-EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS ...................................... 1.5836 35.3 

479 ...... 7OTHER VASCULAR PROCEDURES W/O CC .............................................................................................. 0.7637 24.8 

480 ...... 6 LIVER TRANSPLANT ...................................................................................................................................... 0.0000 0.0 

481 ...... 7BONE MARROW TRANSPLANT .................................................................................................................... 1.7034 38.5 

482 ...... 5TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES ................................................................... 1.7034 38.5 

484 ...... 2 CRANIOTOMY FOR MULTIPLE SIGNIFICANT TRAUMA ............................................................................. 0.5837 21.3 

485 ...... 7 LIMB REATTACHMENT, HIP AND FEMUR PROC FOR MULTIPLE SIGNIFICANT TR .............................. 1.1820 29.6 

486 ...... 5OTHER O.R. PROCEDURES FOR MULTIPLE SIGNIFICANT TRAUMA ..................................................... 1.7034 38.5 

487 ...... OTHER MULTIPLE SIGNIFICANT TRAUMA ................................................................................................... 0.8992 26.0 

488 ...... 5 HIV W EXTENSIVE O.R. PROCEDURE ........................................................................................................ 1.7034 38.5 

489 ...... HIV W MAJOR RELATED CONDITION ............................................................................................................ 0.8535 21.4 

490 ...... HIV W OR W/O OTHER RELATED CONDITION ............................................................................................. 0.4919 16.6 

491 ...... 5 MAJOR JOINT & LIMB REATTACHMENT PROCEDURES OF UPPER EXTREMITY ................................. 1.7034 38.5 

492 ...... 7 CHEMOTHERAPY W ACUTE LEUKEMIA AS SECONDARY DIAGNOSIS .................................................. 1.1820 29.6 

493 ...... 5 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC ....................................................................... 1.7034 38.5 

494 ...... 7 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W/O CC ................................................................... 1.7034 38.5 

495 ...... 6 LUNG TRANSPLANT ...................................................................................................................................... 0.0000 0.0 

496 ...... 7 COMBINED ANTERIOR/POSTERIOR SPINAL FUSION ............................................................................... 1.1820 29.6 

497 ...... 4SPINAL FUSION W CC .................................................................................................................................. 1.1820 29.6 

498 ...... 7SPINAL FUSION W/O CC ............................................................................................................................... 1.1820 29.6 


rmajette on PROD1PC67 with PROPOSALS2
4778 Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 

TABLE 3.—FY 2006 LTC–DRGS, RELATIVE WEIGHTS AND GEOMETRIC AVERAGE LENGTH OF STAY—Continued 

[Effective for discharges occurring on or after October 1, 2005 through September 30, 2006] 

LTC–

DRG Description Relative Weight 

Geometric 

Average 

Length of 

Stay 

499 ...... 5BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W CC .............................................................. 1.7034 38.5 

500 ...... 4BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC ........................................................... 1.1820 29.6 

501 ...... 5KNEE PROCEDURES W PDX OF INFECTION W CC .................................................................................. 1.7034 38.5 

502 ...... 4KNEE PROCEDURES W PDX OF INFECTION W/O CC .............................................................................. 1.1820 29.6 

503 ...... 2KNEE PROCEDURES W/O PDX OF INFECTION ......................................................................................... 0.5837 21.3 

504 ...... 7EXTENSIVE BURN OR FULL THICKNESS BURNS WITH MECH VENT 96+ HOURS WITH SKIN 

GRAFT.

1.7034 38.5 

505 ...... 4EXTENSIVE BURN OR FULL THICKNESS BURNS WITH MECH VENT 96+ HOURS WITHOUT SKIN 

GRAFT.

1.1820 29.6 

506 ...... 4FULL THICKNESS BURN W SKIN GRAFT OR INHAL INJ W CC OR SIG TRAUMA ................................. 1.1820 29.6 

507 ...... 3FULL THICKNESS BURN W SKIN GRFT OR INHAL INJ W/O CC OR SIG TRAUMA ................................ 0.7637 24.8 

508 ...... FULL THICKNESS BURN W/O SKIN GRFT OR INHAL INJ W CC OR SIG TRAUMA .................................. 0.8367 29.4 

509 ...... 1FULL THICKNESS BURN W/O SKIN GRFT OR INH INJ W/O CC OR SIG TRAUMA ................................ 0.4499 19.0 

510 ...... NON-EXTENSIVE BURNS W CC OR SIGNIFICANT TRAUMA ...................................................................... 0.7709 24.6 

511 ...... 1 NON-EXTENSIVE BURNS W/O CC OR SIGNIFICANT TRAUMA ................................................................ 0.4499 19.0 

512 ...... 6SIMULTANEOUS PANCREAS/KIDNEY TRANSPLANT ................................................................................ 0.0000 0.0 

513 ...... 6PANCREAS TRANSPLANT ............................................................................................................................ 0.0000 0.0 

515 ...... 5 CARDIAC DEFIBRILATOR IMPLANT W/O CARDIAC CATH ........................................................................ 1.7034 38.5 

518 ...... 7PERCUTANEOUS CARDIVASCULAR PROC W/O CORONARY ARTERY STENT OR AMI ...................... 0.7637 24.8 

519 ...... 5 CERVICAL SPINAL FUSION W CC ............................................................................................................... 1.7034 38.5 

520 ...... 7 CERVICAL SPINAL FUSION W/O CC ........................................................................................................... 1.1820 29.6 

521 ...... ALCOHOL/DRUG ABUSE OR DEPENDENCE W CC ..................................................................................... 0.4457 19.4 

522 ...... 7ALCOHOL/DRUG ABUSE OR DEPENDENCE W REHABILITATION THERAPY W/O CC .......................... 0.4499 19.0 

523 ...... 7ALCOHOL/DRUG ABUSE OR DEPENDENCE W/O REHABILITATION THERAPY W/O CC ...................... 0.4499 19.0 

524 ...... TRANSIENT ISCHEMIA .................................................................................................................................... 0.5043 21.1 

525 ...... 7OTHER HEART ASSIST SYSTEM IMPLANT ................................................................................................ 1.7034 38.5 

528 ...... 7 INTRACRANIAL VASCULAR PROC W PDX HEMORRHAGE ...................................................................... 1.7034 38.5 

529 ...... 5VENTRICULAR SHUNT PROCEDURES W CC ............................................................................................ 1.7034 38.5 

530 ...... 7VENTRICULAR SHUNT PROCEDURES W/O CC ......................................................................................... 1.7034 38.5 

531 ...... 3SPINAL PROCEDURES WITH CC ................................................................................................................. 0.7637 24.8 

532 ...... 3SPINAL PROCEDURES WITHOUT CC ......................................................................................................... 0.7637 24.8 

533 ...... 5EXTRACRANIAL VASCULAR PROCEDURES WITH CC ............................................................................. 1.7034 38.5 

534 ...... 7EXTRACRANIAL VASCULAR PROCEDURES WITHOUT CC ...................................................................... 1.1820 29.6 

535 ...... 7 CARDIAC DEFIB IMPLANT W CARDIAC CATH W AMI/HF/SHOCK ............................................................ 1.7034 38.5 

536 ...... 7 CARDIAC DEFIB IMPLANT W CARDIAC CATH W/O AMI/HF/SHOCK ........................................................ 1.7034 38.5 

537 ...... LOCAL EXCISION AND REMOVAL OF INTERNAL FIXATION DEVICES EXCEPT HIP AND FEMUR 

WITH CC.

1.1615 34.7 

538 ...... 7 LOCAL EXCISION AND REMOVAL OF INTERNAL FIXATION DEVICES EXCEPT HIP AND FEMUR 

WITHOUT CC.

1.1820 29.6 

539 ...... 4 LYMPHOMA AND LEUKEMIA WITH MAJOR O.R. PROCEDURE WITH CC ............................................... 1.1820 29.6 

540 ...... 7 LYMPHOMA AND LEUKEMIA WITH MAJOR O.R. PROCEDURE WITHOUT CC ....................................... 0.5837 21.3 

541 ...... ECMO OR TRACH W MECH VENT 96+ HRS OR PDX EXCEPT FACE, MOUTH & NECK DIAG WITH 

MAJOR OR.

4.2287 65.6 

542 ...... TRACH W MECH VENT 96+ HRS OR PDX EXCEPT FACE, MOUTH & NECK DIAG WITHOUT MAJOR 

OR.

3.1869 48.2 

543 ...... 5 CRANIOTOMY W IMPLANT OF CHEMO AGENT OR ACUTE COMPLEX CNS PDX ................................. 1.7034 38.5 

544 ...... 5 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY ..................................... 1.7034 38.5 

545 ...... 5 REVISION OF HIP OR KNEE REPLACEMENT ............................................................................................. 1.7034 38.5 

546 ...... 7SPINAL FUSION EXCEPT CERVICAL WITH CURVATURE OF SPINE OR MALIGNANCY ....................... 1.7034 38.5 

547 ...... 7 CORONARY BYPASS WITH CARDIAC CATH WITH MAJOR CV DIAGNOSIS .......................................... 1.7034 38.5 

548 ...... 7 CORONARY BYPASS WITH CARDIAC CATH WITHOUT MAJOR CV DIAGNOSIS ................................... 1.7034 38.5 

549 ...... 7 CORONARY BYPASS WITHOUT CARDIAC CATH WITH MAJOR CV DIAGNOSIS ................................... 1.7034 38.5 

550 ...... 7 CORONARY BYPASS WITHOUT CARDIAC CATH WITHOUT MAJOR CV DIAGNOSIS ........................... 1.7034 38.5 

551 ...... 4PERMANENT CARDIAC PACEMAKER IMPLANT WITH MAJOR CV DIAGNOSIS OR AICD LEAD OR 

GNRTR.

1.1820 29.6 

552 ...... 4OTHER PERMANENT CARDIAC PACEMAKER IMPLANT WITHOUT MAJOR CV DIAGNOSIS ................ 1.1820 29.6 

553 ...... 8OTHER VASCULAR PROCEDURES WITH CC WITH MAJOR CV DIAGNOSIS ......................................... 1.3255 30.6 

554 ...... 8OTHER VASCULAR PROCEDURES WITH CC WITHOUT MAJOR CV DIAGNOSIS ................................. 1.3255 30.6 

555 ...... 4PERCUTANEOUS CARDIOVASCULAR PROC WITH MAJOR CV DIAGNOSIS ......................................... 1.1820 29.6 

556 ...... 8PERCUTANEOUS CARDIOVASCULAR PROC WITH NON-DRUG-ELUTING STENT WITHOUT MAJOR 

CV DIAGNOSIS.

1.1820 29.6 

557 ...... 8PERCUTANEOUS CARDIOVASCULAR PROC WITH DRUG-ELUTING STENT WITH MAJOR CV DIAGNOSIS.1.1820 29.6 

558 ...... 7PERCUTANEOUS CARDIOVASCULAR PROC WITH DRUG-ELUTING STENT WITHOUT MAJOR CV 

DIAGNOSIS.

1.1820 29.6 

559 ...... 7ACUTE ISCHEMIC STROKE WITH USE OF THROMBOLYTIC AGENT ...................................................... 0.7637 24.8 

1 Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 1. 


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Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / Proposed Rules 4779 

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 assigned a value of 0.0000. 

7 Relative weights for these LTC-DRGs were determined by assigning these cases to the appropriate low volume quintile because there are no 

LTCH cases in the FY 2004 MedPAR file. 8 Relative weights for these LTC-DRGs were determined after adjusting to account for nonmonotonicity. 

[FR Doc. 06–665 Filed 1–19–06; 4:05 pm] 

BILLING CODE 4120–01–P 


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