GAO-03-1085R 

United States General Accounting Office

Washington, DC 20548 

B-292671 

August 8, 2003 

The Honorable Charles Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable William M. Thomas 

Chairman 

The Honorable Charles B. Rangel 

Ranking Minority Member 

Committee on Ways and Means 

House of Representatives 

Subject: Department of Health and Human Services, Centers for Medicare and 

Medicaid Services: Medicare Program; Changes to the Hospital Inpatient 

Prospective Payment Systems and Fiscal Year 2004 Rates

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a 

major rule promulgated by the Department of Health and Human Services, Centers 

for Medicare and Medicaid Services (CMS), entitled “Medicare Program; Changes to 

the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates” 

(RIN: 0938-AL89). We received the rule on July 31, 2003. It was published in the 

Federal Register as a final rule on August 1, 2003. 68 Fed. Reg. 45346. 

The final rule revises the Medicare hospital inpatient prospective payment systems 

for operating and capital costs to implement changes arising from CMS’s continuing 

experience with the systems. Also, the rule describes the changes to the amounts 

and factors used to determine the rates for Medicare hospital inpatient services for 

operating costs and capital-related costs. 

Enclosed is our assessment of the CMS’s compliance with the procedural steps 

required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. 

Our review indicates that the CMS complied with the applicable requirements. 

If you have any questions about this report, please contact James W. Vickers, 

Assistant General Counsel, at (202) 512-8210. The official responsible for GAO 
Page 2 GAO-03-1085R 

evaluation work relating to the subject matter of the rule is William Scanlon, 

Managing Director, Health Care. Mr. Scanlon can be reached at (202) 512-7114. 

 signed 

Kathleen E. Wannisky 

Managing Associate General Counsel 

Enclosure 

cc: Ann Stallion 

Regulations Coordinator 

Department of Health and 

 Human Services 
GAO-03-1085R 

ENCLOSURE 

ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE 

ISSUED BY THE 

DEPARTMENT OF HEALTH AND HUMAN SERVICES, 

CENTERS FOR MEDICARE AND MEDICAID SERVICES 

ENTITLED 

"MEDICARE PROGRAM; CHANGES TO THE HOSPITAL INPATIENT 

PROSPECTIVE PAYMENT SYSTEMS AND FISCAL YEAR 2004 RATES" 

(RIN: 0938-AL89) 

(i) Cost-benefit analysis

The Centers for Medicare and Medicaid Services estimates that, based on the overall 

percentage change in payments per case using CMS’s payment simulation model (a 

1.8 percent increase), the total impact is approximately a $1.8 billion increase from 

Fiscal Year 2003 to Fiscal Year 2004. 

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605, 

607, and 609

CMS prepared a Final Regulatory Flexibility Analysis in conjunction with its 

Regulatory Impact Analysis. The analysis discusses the impacts of the final rule on 

hospitals by geographic location, size, and payment classification. 

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform 

Act of 1995, 2 U.S.C. §§ 1532-1535

The final rule does not contain either an intergovernmental or private sector 

mandate, as defined in title II, of more than $100 million in any one year. 

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. 

The final rule was published using the notice and comment procedures found at 

5 U.S.C. 553. On May 19, 2003, CMS published a Notice of Proposed Rulemaking in 

the Federal Register. 68 Fed. Reg. 27154. In response, CMS received approximately 

4,200 comments, which are discussed in the final rule’s preamble. 

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520 

The final rule does not contain any information collections that are subject to review 

by the Office of Management and Budget (OMB) under the Paperwork Reduction 

Act. 
Page 2 GAO-03-1085R 

Statutory authorization for the rule 

The final rule was promulgated under the authority contained in sections 1102; 

1812(d); 1814(b); 1815; 1833(a), (i), and (n); 1871; 1881; 1883; and 1886 of the Social 

Security Act (42 U.S.C. 1302; 1395d; 1395f(b); 1395g; 1395l(a), (i), and (n); 1395hh; 

1395rr; 1395tt; and 1395ww) and the Medicare, Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 2000 (Pub. L. 106-554). 

Executive Order No. 12866 

The final rule was reviewed by OMB and found to be an “economically significant”

regulatory action under the order. 

Executive Order No. 13132 (Federalism) 

CMS has examined the final rule under the order and concludes that it will not have 

any negative impact on the rights, rules, and responsibilities of state, local, or tribal 

governments.