DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 412 

[CMS-1349-F] 

RIN 0938-AQ28 

Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System 

for Federal Fiscal Year 2012; Changes in Size and Square Footage of Inpatient 

Rehabilitation Units and Inpatient Psychiatric Units 

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final Rule. 

SUMMARY: This final rule will implement section 3004 of the Affordable Care Act, 

which establishes a new quality reporting program that provides for a 2 percent reduction 

in the annual increase factor beginning in 2014 for failure to report quality data to the 

Secretary of Health and Human Services. This final rule will also update the prospective 

payment rates for inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 

2012 (for discharges occurring on or after October 1, 2011 and on or before September 

30, 2012) as required under section 1886(j)(3)(C) of the Social Security Act (the Act). 

Section 1886(j)(5) of the Act requires the Secretary to publish in the Federal Register on 

or before the August 1 that precedes the start of each FY the classification and weighting 

factors for the IRF prospective payment system (PPS) case-mix groups and a description 

of the methodology and data used in computing the prospective payment rates for that 

fiscal year. We are also consolidating, clarifying, and revising existing policies regarding 

IRF hospitals and IRF units of hospitals to eliminate unnecessary confusion and enhance 
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consistency. Furthermore, in accordance with the general principles of the President’s 

January 18, 2011 Executive Order entitled “Improving Regulation and Regulatory 

Review,” we are amending existing regulatory provisions regarding ”new” facilities and 

changes in the bed size and square footage of IRFs and inpatient psychiatric facilities 

(IPFs) to improve clarity and remove obsolete material. 

EFFECTIVE DATE: This final rule becomes effective on October 1, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Gwendolyn Johnson, (410)786-6954, for general information about the final rule. 

Hillary Loeffler, (410)786-0456, for information about the payment rates. 

Susanne Seagrave, (410)786-0044, for information about the payment policies. 

Judith C. Tobin, (410)786-6892, for information about the quality reporting program. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

 To assist readers in referencing sections contained in this document, we are 

providing the following table of contents. 

I. Background 

 A. Historical Overview of the Inpatient Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

 B. Provisions of the Affordable Care Act Affecting the IRF PPS in FY 2012 

and Beyond 

 C. Operational Overview of the Current IRF PPS 

II. Summary of Provisions of the Proposed Rule 

A. Proposed Updates to the IRF Federal Prospective Payment Rates for 
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Federal Fiscal Year (FY) 2012 

 B. Proposed Revisions to Existing Regulation Text 

III. Analysis and Responses to Public Comments 

IV. Update to the Case-Mix Group (CMG) Relative Weights and Average Length of 

Stay Values for FY 2012 

V. Updates to the Facility-Level Adjustment Factors for FY 2012 

 A. Updates to the IRF Facility-Level Adjustment Factors 

 B. Policy for Temporary Cap Adjustments to Reflect Interns and Residents 

Displaced Due to Closure of IRFs or IRF Residency Training Programs 

1. Background 

2. FTE Intern and Resident Temporary Cap Adjustment 

3. Temporary Adjustment to the FTE Cap to Reflect Interns and Residents 

Displaced Due to IRF Closure 

4. Temporary Adjustment to the FTE Cap to Reflect Interns and Residents 

Displaced Due to a Residency Program Closure 

VI. FY 2012 IRF PPS Federal Prospective Payment Rates 

 A. Market Basket Increase Factor, Productivity Adjustment, and Labor-Related 

Share for FY 2012 

 1. Rebasing and Revising of the RPL Market Basket Used for IRF PPS for FY 

2012 

 2. Productivity Adjustment 

 3. Calculation of the IRF PPS Market Basket Increase Factor for FY 2012 

 4. Calculation of the Labor-Related Share for FY 2012 
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 B. Area Wage Adjustment 

 C. Description of the IRF Standard Conversion Factor and Payment Rates for FY 

2012 

 D. Example of the Methodology for Adjusting the Federal Prospective Payment 

Rates 

VII. Update to Payments for High-Cost Outliers Under the IRF PPS 

A. Update to the Outlier Threshold Amount for FY 2012 

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

VIII. Impact of the IPPS Data Matching Process Changes on the IRF PPS Calculation of 

the Low-Income Percentage Adjustment Factor 

IX. Updates to the Policies in 42 CFR Part 412 

 A. Consolidation of the Requirements for Rehabilitation Hospitals and 

Rehabilitation Units 

 B. Revisions to the Regulations at §412.29 

 C. Revisions to the Requirements for Changes in Bed Size and Square Footage 

 D. Revisions to Enhance Consistency Between the IRF Coverage and Payment 

Requirements 

X. Quality Reporting Program for IRFs 

A. Background and Statutory Authority 

B. Quality Measures for IRF Quality Reporting Program for FY 2014 

1. General 

 2. Considerations in the Selection of the Quality Measures 

 3. FY 2014 Measure #1: Healthcare Associated Infection Measure (HAI): 
CMS-1349-F 5 

Urinary Catheter-Associated Urinary Tract Infections (CAUTI) 

 4. FY 2014 Measure #2: Percent of Patients with Pressure Ulcers that are New or 

Worsened 

 5. Potential FY 2014 Measure #3: 30-Day Comprehensive All Cause Risk 

Standardized Readmission Measure 

C. Data Submission Requirements 

1. Method of Data Submission for HAI Measure (CAUTI) 

2. Method of Data Submission for the Percent of Patients with New or 

Worsened Pressure Ulcer Measure. 

3. Potential Method of Data Submission for the 30-day Comprehensive AllCause Risk-Standardized Readmission Measure. 

D. Public Reporting 

E. Quality Measures for Future Consideration for Determination of Increase 

Factors for Future Fiscal Year Payments 

F. New Regulation Text for the IRF Quality Reporting Program 

XI. Miscellaneous Comments 

XII. Provisions of the Final Regulations 

XIII. Collection of Information Requirements 

XIV. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

2. Statement of Need 

3. Overall Impacts 
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4. Detailed Economic Analysis 

5. Alternatives Considered 

6. Accounting Statement 

7. Conclusion 

B. Regulatory Flexibility Act Analysis 

C. Unfunded Mandates Reform Act Analysis 

XV. Federalism Analysis 

Regulation Text 

Addendum 

Acronyms 

 To assist the reader, we are listing the acronyms used and their corresponding 

meaning in alphabetical order. 

 ADC Average Daily Census 

AHA American Hospital Association 

 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 

BEA Bureau of Economic Analysis 

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 
CMS-1349-F 7 

CAH Critical Access Hospital 

CAUTI Catheter-Associated Urinary Tract Infection 

CDC Centers for Disease Control and Prevention 

CBSA Core-Based Statistical Area 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CIPI Capital Input Price Index 

CMG Case-Mix Group 

CMS Centers for Medicare & Medicaid Services 

CPI Consumer Price Index 

DSH Disproportionate Share Hospital 

ECI Employment Cost Index 

EHR Electronic Health Record 

FI Fiscal Intermediary 

FR Federal Register 

FTE Full-time Equivalent 

FY Federal Fiscal Year 

GDP Gross Domestic Product 

GME Graduate Medical Education 

HAI Healthcare Associated Infection 

HHH Hubert H. Humphrey Building 

HHS Department of Health and Human Services 

HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-
CMS-1349-F 8 

191 

HOMER Home Office Medicare Records 

IGI IHS Global Insight 

IME Indirect Medical Education 

I-O Input-Output 

IPF Inpatient Psychiatric Facility 

IPPS Inpatient Prospective Payment System 

IRF Inpatient Rehabilitation Facility 

IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility Prospective Payment System 

IRVEN Inpatient Rehabilitation Validation and Entry 

LTCH Long Term Care Hospital 

LIP Low-Income Percentage 

LOS Length of Stay 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MedPAR Medicare Provider Analysis and Review 

MFP Multifactor Productivity 

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110—

173 

MSA Metropolitan Statistical Area 

NAICS North American Industry Classification System 

NHSN National Healthcare Safety Network 
CMS-1349-F 9 

NQF National Quality Forum 

OMB Office of Management and Budget 

PLI Professional Liability Insurance 

PPI Producer Price Indexes 

PPS Prospective Payment System 

QM Quality Measure 

RFA Regulatory Flexibility Act of 1980, Pub. L. 96-354 

RIA Regulatory Impact Analysis 

RIC Rehabilitation Impairment Category 

RO Regional Office 

RP Rehabilitation and Psychiatric 

RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital 

SCHIP State Children’s Health Insurance Program 

SSI Supplemental Security Income 

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248 

I. Background 

A. Historical Overview of the Inpatient Rehabilitation Facility Prospective Payment 

System (IRF PPS) 

Section 4421 of the Balanced Budget Act of 1997 (Pub. L. 105-33, enacted on 

August 5, 1997)(BBA), as amended by section 125 of the Medicare, Medicaid, State 

Children’s Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 

(Pub. L. 106-113, enacted on November 29, 1999)(BBRA) and by section 305 of the 

Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
CMS-1349-F 10 

(Pub. L. 106-554, enacted on December 21, 2000)(BIPA) provides for the 

implementation of a per discharge prospective payment system (PPS) under section 

1886(j) of the Social Security Act (the Act) for inpatient rehabilitation hospitals and 

inpatient rehabilitation units of a hospital (hereinafter referred to as IRFs). 

Payments under the IRF PPS encompass inpatient operating and capital costs of 

furnishing covered rehabilitation services (that is, routine, ancillary, and capital costs) but 

not direct graduate medical education costs, costs of approved nursing and allied health 

education activities, bad debts, and other services or items outside the scope of the IRF 

PPS. Although a complete discussion of the IRF PPS provisions appears in the original 

FY 2002 IRF PPS final rule (66 FR 41316) and the FY 2006 IRF PPS final rule (70 FR 

47880), we are providing below a general description of the IRF PPS for fiscal years 

(FYs) 2002 through 2010. 

Under the IRF PPS from FY 2002 through FY 2005, as described in the FY 2002 

IRF PPS final rule (66 FR 41316), the Federal prospective payment rates were computed 

across 100 distinct case-mix groups (CMGs). We constructed 95 CMGs using 

rehabilitation impairment categories (RICs), functional status (both motor and cognitive), 

and age (in some cases, cognitive status and age may not be a factor in defining a CMG). 

In addition, we constructed 5 special CMGs to account for very short stays and for 

patients who expire in the IRF. 

 For each of the CMGs, we developed relative weighting factors to account for a 

patient's clinical characteristics and expected resource needs. Thus, the weighting factors 

accounted for the relative difference in resource use across all CMGs. Within each 
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CMG, we created tiers based on the estimated effects that certain comorbidities would 

have on resource use. 

 We established the Federal PPS rates using a standardized payment conversion 

factor (formerly referred to as the budget neutral conversion factor). For a detailed 

discussion of the budget neutral conversion factor, please refer to our FY 2004 IRF PPS 

final rule (68 FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 

47880), we discussed in detail the methodology for determining the standard payment 

conversion factor. 

 We applied the relative weighting factors to the standard payment conversion 

factor to compute the unadjusted Federal prospective payment rates under the IRF PPS 

from FYs 2002 through 2005. Within the structure of the payment system, we then made 

adjustments to account for interrupted stays, transfers, short stays, and deaths. Finally, 

we applied the applicable adjustments to account for geographic variations in wages 

(wage index), the percentage of low-income patients, location in a rural area (if 

applicable), and outlier payments (if applicable) to the IRF's unadjusted Federal 

prospective payment rates. 

 For cost reporting periods that began on or after January 1, 2002 and before 

October 1, 2002, we determined the final prospective payment amounts using the 

transition methodology prescribed in section 1886(j)(1) of the Act. Under this provision, 

IRFs transitioning into the PPS were paid a blend of the Federal IRF PPS rate and the 

payment that the IRF would have received had the IRF PPS not been implemented. This 

provision also allowed IRFs to elect to bypass this blended payment and immediately be 

paid 100 percent of the Federal IRF PPS rate. The transition methodology expired as of 
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cost reporting periods beginning on or after October 1, 2002 (FY 2003), and payments for 

all IRFs now consist of 100 percent of the Federal IRF PPS rate. 

 We established a CMS Web site as a primary information resource for the IRF 

PPS. The Web site URL is http://www.cms.gov/InpatientRehabFacPPS/ and may be 

accessed to download or view publications, software, data specifications, educational 

materials, and other information pertinent to the IRF PPS. 

Section 1886(j) of the Act confers broad statutory authority upon the Secretary to 

propose refinements to the IRF PPS. In the FY 2006 IRF PPS final rule (70 FR 47880) 

and in correcting amendments to the FY 2006 IRF PPS final rule (70 FR 57166) that we 

published on September 30, 2005, we finalized a number of refinements to the IRF PPS 

case-mix classification system (the CMGs and the corresponding relative weights) and 

the case-level and facility-level adjustments. These refinements included the adoption of 

the Office of Management and Budget’s (OMB) Core-Based Statistical Area (CBSA) 

market definitions, modifications to the CMGs, tier comorbidities, and CMG relative 

weights, implementation of a new teaching status adjustment for IRFs, revision and 

rebasing of the market basket index used to update IRF payments, and updates to the 

rural, low-income percentage (LIP), and high-cost outlier adjustments. Beginning with 

the FY 2006 IRF PPS final rule (70 FR 47908 through 47917), the market basket index 

used to update IRF payments is a market basket reflecting the operating and capital cost 

structures for freestanding IRFs, freestanding inpatient psychiatric facilities (IPFs), and 

long-term care hospitals (LTCHs) (hereafter referred to as the rehabilitation, psychiatric, 

and long-term care (RPL) market basket). Any reference to the FY 2006 IRF PPS final 

rule in this final rule also includes the provisions effective in the correcting amendments. 
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For a detailed discussion of the final key policy changes for FY 2006, please refer to the 

FY 2006 IRF PPS final rule (70 FR 47880 and 70 FR 57166). 

 In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined the IRF PPS 

case-mix classification system (the CMG relative weights) and the case-level 

adjustments, to ensure that IRF PPS payments would continue to reflect as accurately as 

possible the costs of care. For a detailed discussion of the FY 2007 policy revisions, 

please refer to the FY 2007 IRF PPS final rule (71 FR 48354). 

 In the FY 2008 IRF PPS final rule (72 FR 44284), we updated the Federal 

prospective payment rates and the outlier threshold, revised the IRF wage index policy, 

and clarified how we determine high-cost outlier payments for transfer cases. For more 

information on the policy changes implemented for FY 2008, please refer to the FY 2008 

IRF PPS final rule (72 FR 44284), in which we published the final FY 2008 IRF Federal 

prospective payment rates. 

 After publication of the FY 2008 IRF PPS final rule (72 FR 44284), section 115 

of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173, enacted 

on December 29, 2007) (MMSEA), amended section 1886(j)(3)(C) of the Act to apply a 

zero percent increase factor for FYs 2008 and 2009, effective for IRF discharges 

occurring on or after April 1, 2008. Section 1886(j)(3)(C) of the Act required the 

Secretary to develop an increase factor to update the IRF Federal prospective payment 

rates for each FY. Based on the legislative change to the increase factor, we revised the 

FY 2008 Federal prospective payment rates for IRF discharges occurring on or after 

April 1, 2008. Thus, the final FY 2008 IRF Federal prospective payment rates that were 

published in the FY 2008 IRF PPS final rule (72 FR 44284) were effective for discharges 
CMS-1349-F 14 

occurring on or after October 1, 2007 and on or before March 31, 2008; and the revised 

FY 2008 IRF Federal prospective payment rates were effective for discharges occurring 

on or after April 1, 2008 and on or before September 30, 2008. The revised FY 2008 

Federal prospective payment rates are available on the CMS Web site at 

http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage. 

 In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG relative 

weights, the average length of stay values, and the outlier threshold; clarified IRF wage 

index policies regarding the treatment of “New England deemed” counties and multicampus hospitals; and revised the regulation text in response to section 115 of the 

MMSEA to set the IRF compliance percentage at 60 percent (“the 60 percent rule”) and 

continue the practice of including comorbidities in the calculation of compliance 

percentages. We also applied a zero percent market basket increase factor for FY 2009 in 

accordance with section 115 of the MMSEA. For more information on the policy 

changes implemented for FY 2009, please refer to the FY 2009 IRF PPS final rule 

(73 FR 46370), in which we published the final FY 2009 IRF Federal prospective 

payment rates. 

In the FY 2010 IRF PPS final rule (74 FR 39762) and in correcting amendments 

to the FY 2010 IRF PPS final rule (74 FR 50712) that we published on October 1, 2009, 

we updated the Federal prospective payment rates, the CMG relative weights, the average 

length of stay values, the rural, LIP, and teaching status adjustment factors, and the 

outlier threshold; implemented new IRF coverage requirements for determining whether 

an IRF claim is reasonable and necessary; and revised the regulation text to require IRFs 

to submit patient assessments on Medicare Advantage (MA) (Medicare Part C) patients 
CMS-1349-F 15 

for use in the 60 percent rule calculations. Any reference to the FY 2010 IRF PPS final 

rule in this final rule also includes the provisions effective in the correcting amendments. 

For more information on the policy changes implemented for FY 2010, please refer to the 

FY 2010 IRF PPS final rule (74 FR 39762 and 74 FR 50712), in which we published the 

final FY 2010 IRF Federal prospective payment rates. 

After publication of the FY 2010 IRF PPS final rule (74 FR 39762), section 

3401(d) of the Patient Protection and Affordable Care Act (Pub. L. 111-148, enacted on 

March 23, 2010) as amended by section 10319 of the same Act and by section 1105 of 

the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on 

March 30, 2010) (collectively, hereafter referred to as “The Affordable Care Act”), 

amended section 1886(j)(3)(C) of the Act and added section 1886(j)(3)(D) of the Act. 

Section 1886(j)(3)(C) of the Act requires the Secretary to estimate a multi-factor 

productivity adjustment to the market basket increase factor, and to apply other 

adjustments as defined by the Act. The productivity adjustment applies to FYs from 

2012 forward. The other adjustments apply to FYs 2010-2019. 

Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(i) of the Act defined the 

adjustments that were to be applied to the market basket increase factors in FYs 2010 and 

2011. Under these provisions, the Secretary was required to reduce the market basket 

increase factor in FY 2010 by a 0.25 percentage point adjustment. Notwithstanding this 

provision, in accordance with section 3401(p) of the Affordable Care Act, the adjusted 

FY 2010 rate was only to be applied to discharges occurring on or after April 1, 2010. 

Based on the self-implementing legislative changes to section 1886(j)(3) of the Act, we 

adjusted the FY 2010 Federal prospective payment rates as required, and applied these 
CMS-1349-F 16 

rates to IRF discharges occurring on or after April 1, 2010 and on or before September 

30, 2010. Thus, the final FY 2010 IRF Federal prospective payment rates that were 

published in the FY 2010 IRF PPS final rule (74 FR 39762) were used for discharges 

occurring on or after October 1, 2009 and on or before March 31, 2010; and the adjusted 

FY 2010 IRF Federal prospective payment rates applied to discharges occurring on or 

after April 1, 2010 and on or before September 30, 2010. The adjusted FY 2010 Federal 

prospective payment rates are available on the CMS Web site at 

http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage. 

In addition, sections 1886(j)(3)(C) and (D) of the Act also affected the FY 2010 

IRF outlier threshold amount because they required an adjustment to the FY 2010 RPL 

market basket increase factor, which changed the standard payment conversion factor for 

FY 2010. Specifically, the original FY 2010 IRF outlier threshold amount was 

determined based on the original estimated FY 2010 RPL market basket increase factor 

of 2.5 percent and the standard payment conversion factor of $13,661. However, as 

adjusted, the IRF prospective payments are based on the adjusted RPL market basket 

increase factor of 2.25 percent and the revised standard payment conversion factor of 

$13,627. To maintain estimated outlier payments for FY 2010 equal to the established 

standard of 3 percent of total estimated IRF PPS payments for FY 2010, we revised the 

IRF outlier threshold amount for FY 2010 for discharges occurring on or after 

April 1, 2010 and on or before September 30, 2010. The revised IRF outlier threshold 

amount for FY 2010 was $10,721. 

Sections 1886(j)(3)(ii)(II) and 1886(j)(3)(D)(i) of the Act also required the 

Secretary to reduce the market basket increase factor in FY 2011 by a 0.25 percentage 
CMS-1349-F 17 

point adjustment. The FY 2011 IRF PPS notice (75 FR 42836) and the correcting 

amendments to the FY 2011 IRF PPS notice (75 FR 70013, November 16, 2010) 

described the required adjustments to the FY 2011 and FY 2010 IRF PPS Federal 

prospective payment rates and outlier threshold amount for IRF discharges occurring on 

or after April 1, 2010 and on or before September 30, 2011. It also updated the FY 2011 

Federal prospective payment rates, the CMG relative weights, and the average length of 

stay values. Any reference to the FY 2011 IRF PPS notice in this final rule also includes 

the provisions effective in the correcting amendments. For more information on the FY 

2010 and FY 2011 adjustments or the updates for FY 2011, please refer to the FY 2011 

IRF PPS notice (75 FR 42836 and 75 FR 70013). 

B. Provisions of the Affordable Care Act Affecting the IRF PPS in FY 2012 and 

Beyond

 The Affordable Care Act included several provisions that affect the IRF PPS in 

FYs 2012 and beyond. In addition to what was discussed above, section 3401(d) of the 

Affordable Care Act also added section 1886(j)(3)(C)(ii)(I) of the Act (providing for a 

“productivity adjustment” for fiscal year 2012 and each subsequent fiscal year). The 

productivity adjustment for FY 2012 is discussed in section VI.A.6 of this final rule, and 

the 0.1 percentage point reduction is discussed in section VI.A of this final rule. 

Section 1886(j)(3)(C)(ii)(II) of the Act notes that the application of these adjustments to 

the market basket update may result in an update that is less than 0.0 for a fiscal year and 

in payment rates for a fiscal year being less than payment rates for the preceding fiscal 

year. 

 Section 3004(b) of the Affordable Care Act also addressed the IRF PPS program. 
CMS-1349-F 18 

It reassigned the previously-designated section 1886(j)(7) of the Act to section 1886(j)(8) 

and inserted a new section 1886(j)(7) of the Act, which contains new requirements for the 

Secretary to establish a quality reporting program for IRFs. Under that program, data 

must be submitted in a form and manner, and at a time specified by the Secretary. 

Beginning in FY 2014, section 1886(j)(7)(A)(i) of the Act will require application of a 

2 percentage point reduction to the applicable market basket increase factor for IRFs that 

fail to comply with the quality data submission requirements. Application of the 2 

percentage point reduction may result in an update that is less than 0.0 for a fiscal year 

and in payment rates for a fiscal year being less than payment rates for the preceding 

fiscal year. Reporting-based reductions to the market basket increase factor will not be 

cumulative; they will only apply for the FY involved. 

 Under section 1886(j)(7)(D)(i) and (ii) of the Act, the Secretary is generally 

required to select quality measures for the IRF quality reporting program from those that 

have been endorsed by the consensus-based entity which holds a performance 

measurement contract under section 1890(a) of the Act. This contract is currently held 

by the National Quality Forum (NQF). So long as due consideration is given to measures 

that have been endorsed or adopted by a consensus-based organization, section 

1886(j)(7)(D)(ii) of the Act authorizes the Secretary to select non-endorsed measures for 

specified areas or medical topics when there are no feasible or practical endorsed 

measure(s). Under section 1886(j)(7)(D)(iii) of the Act, the Secretary is required to 

publish the measures that will be used in FY 2014 no later than October 1, 2012. 

 Section 1886(j)(7)(E) of the Act requires the Secretary to establish procedures for 

making the IRF PPS quality reporting data available to the public. Also, the Secretary 
CMS-1349-F 19 

must ensure that IRFs have the opportunity to review any data prior to its release to the 

public. Future rulemaking will address these public reporting obligations. 

 The quality reporting program for IRFs, in accordance with section 1886(j)(7) of 

the Act, is discussed in detail in section X. of this final rule. 

C. Operational Overview of the Current IRF PPS 

 As described in the FY 2002 IRF PPS final rule, upon the admission and 

discharge of a Medicare Part A fee-for-service patient, the IRF is required to complete 

the appropriate sections of a patient assessment instrument, designated as the Inpatient 

Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI). In addition, beginning 

with IRF discharges occurring on or after October 1, 2009, the IRF is also required to 

complete the appropriate sections of the IRF-PAI upon the admission and discharge of 

each Medicare Part C (Medicare Advantage) patient, as described in the FY 2010 IRF 

PPS final rule. All required data must be electronically encoded into the IRF-PAI 

software product. Generally, the software product includes patient classification 

programming called the GROUPER software. The GROUPER software uses specific 

IRF-PAI data elements to classify (or group) patients into distinct CMGs and account for 

the existence of any relevant comorbidities. 

 The GROUPER software produces a 5-digit CMG number. The first digit is an 

alpha-character that indicates the comorbidity tier. The last 4 digits represent the distinct 

CMG number. Free downloads of the Inpatient Rehabilitation Validation and Entry 

(IRVEN) software product, including the GROUPER software, are available on the CMS 

Web site at http://www.cms.gov/InpatientRehabFacPPS/06_Software.asp. 

 Once a patient is discharged, the IRF submits a Medicare claim as a Health 
CMS-1349-F 20 

Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191, enacted on 

August 21, 1996) (HIPAA) compliant electronic claim or, if the Administrative 

Simplification Compliance Act of 2002 (Pub. L. 107-105, enacted on December 27, 

2002) (ASCA) permits, a paper claim (a UB-04 or a CMS-1450 as appropriate) using the 

five-digit CMG number and sends it to the appropriate Medicare fiscal intermediary (FI) 

or Medicare Administrative Contractor (MAC). Claims submitted to Medicare must 

comply with both ASCA and HIPAA. For further discussion of these requirements, 

please see the FY 2011 IRF PPS Notice (75 FR 42836 at 42838). 

The Medicare FI or MAC processes the claim through its software system. This 

software system includes pricing programming called the “PRICER” software. The 

PRICER software uses the CMG number, along with other specific claim data elements 

and provider-specific data, to adjust the IRF's prospective payment for interrupted stays, 

transfers, short stays, and deaths, and then applies the applicable adjustments to account 

for the IRF's wage index, percentage of low-income patients, rural location, and outlier 

payments. For discharges occurring on or after October 1, 2005, the IRF PPS payment 

also reflects the new teaching status adjustment that became effective as of FY 2006, as 

discussed in the FY 2006 IRF PPS final rule (70 FR 47880). 

II. Summary of Provisions of the Proposed Rule 

In the FY 2012 IRF PPS proposed rule (76 FR 24214), we proposed to update the 

IRF Federal prospective payment rates, to rebase and revise the RPL market basket, to 

implement refinements to the methodologies for calculating the LIP adjustment, and to 

establish a new quality reporting program for IRFs in accordance with section 1886(j)(7) 

of the Act. We also proposed to revise existing regulations text for the purpose of 
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updating and providing greater clarity. These proposals are as follows: 

A. Proposed Updates to the IRF Federal Prospective Payment Rates for Federal 

Fiscal Year (FY) 2012

The proposed updates to the IRF Federal prospective payment rates for FY 2012 

are as follows: 

● Update the FY 2012 IRF PPS relative weights and average length of stay 

values using the most current and complete Medicare claims and cost report data in a 

budget neutral manner, as discussed in section III. of the FY 2012 IRF PPS proposed rule 

(76 FR 24214, 24219 through 24220). 

● Update the FY 2012 IRF facility-level adjustments (rural, LIP, and teaching 

status adjustments) in a budget neutral manner using the most current and complete 

Medicare claims and cost report data and by removing the weighting methodology 

previously used to analyze the data, and propose a temporary cap adjustment policy for 

the teaching status adjustment to reflect interns and residents displaced due to closure of 

IRFs or IRF residency training programs, as discussed in section IV. of the FY 2012 IRF 

PPS proposed rule (76 FR 24214, 24226). 

● Update the FY 2012 IRF PPS payment rates by the proposed market basket 

increase factor, based upon the most current data available, with a 0.1 percentage point 

reduction as required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act 

and a productivity adjustment required by section 1886(j)(3)(C)(ii)(I) of the Act, as 

described in section V. of the FY 2012 IRF PPS proposed rule (76 FR 24214, 24228 

through 24241). 

● Update the wage index and the labor-related share of the FY 2012 IRF PPS 
CMS-1349-F 22 

payment rates in a budget neutral manner, as discussed in section V. of the FY 2012 IRF 

PPS proposed rule (76 FR 24214, 24241 through 24244). 

● Calculate the IRF Standard Payment Conversion Factor for FY 2012, as 

discussed in section V. of the FY 2012 IRF PPS proposed rule (76 FR 24214, 24244 

through 24245). 

● Update the outlier threshold amount for FY 2012, as discussed in section VI. of 

the FY 2012 IRF PPS proposed rule (76 FR 24214, 24248 through 24249). 

● Update the cost-to-charge ratio (CCR) ceiling and urban/rural average CCRs 

for FY 2012, as discussed in section VI. of the FY 2012 IRF PPS proposed rule 

76 (FR 24214, 24249). 

● Discuss the impact of the Inpatient Prospective Payment System (IPPS) data 

matching process changes on the IRF PPS calculation of the Supplemental Security 

Income (SSI) ratios used to compute the IRF LIP adjustment factor, as discussed in 

section VII. of the FY 2012 IRF PPS proposed rule (76 FR 24214, 24249 through 24250). 

● Implement the IRF quality reporting program provisions of section 1886(j)(7) 

of the Act, as discussed in section IX. of the FY 2012 IRF PPS proposed rule 

(76 FR 24214, 24252 through 24257). 

B. Proposed Revisions to Existing Regulation Text

We proposed to revise the existing requirements at §412.25(b), §412.25(b)(1), 

§412.25(b)(2), and §412.25(b)(3) that apply to all units that are excluded from the IPPS, 

as described in section VIII. of the FY 2012 IRF PPS proposed rule (76 FR 24214, 24250 

through 24252). To amend the regulatory reference to conform with the other proposed 

changes, we also proposed to revise the existing requirements at §412.25(e)(2)(ii)(A). 
CMS-1349-F 23 

With the exception of §412.25(e)(2)(ii)(A), the proposed revisions would affect both 

IRFs and IPFs. 

We also proposed to relocate and revise the existing requirements at §412.23(b), 

§412.29, and §412.30 that describe the requirements for facilities to qualify to receive 

payment under the IRF PPS, as described in section VIII. of the FY 2012 IRF PPS 

proposed rule (76 FR 24214, 24252). 

Finally, we proposed to re-designate the existing paragraph §412.624(c)(4) as 

§412.624(c)(5) and add a new paragraph §412.624(c)(4) to implement the IRF quality 

reporting program. 

III. Analysis and Responses to Public Comments

We received approximately 46 timely responses, many of which contained 

multiple comments on the FY 2012 IRF PPS proposed rule (76 FR 24214) from the 

public. We received comments from various trade associations, inpatient rehabilitation 

facilities, individual physicians, therapists, clinicians, health care industry organizations, 

and health care consulting firms. The following sections, arranged by subject area, 

include a summary of the public comments that we received, and our responses. 

IV. Update to the Case-Mix Group (CMG) Relative Weights and Average Length of 

Stay Values for FY 2012 

 As specified in §412.620(b)(1), we calculate a relative weight for each CMG that 

is proportional to the resources needed by an average inpatient rehabilitation case in that 

CMG. For example, cases in a CMG with a relative weight of 2, on average, will cost 

twice as much as cases in a CMG with a relative weight of 1. Relative weights account 

for the variance in cost per discharge due to the variance in resource utilization among 
CMS-1349-F 24 

the payment groups, and their use helps to ensure that IRF PPS payments support 

beneficiary access to care, as well as provider efficiency. 

 In the FY 2012 proposed rule (76 FR 24214, 24219 through 24225), we proposed 

to update the CMG relative weights and average length of stay values for FY 2012. As 

required by statute, we always use the most recent available data to update the CMG 

relative weights and average lengths of stay. This ensures that the CMG relative weights 

and average length of stay values reflect as accurately as possible the current costs of care 

in IRFs. For FY 2012, we proposed to use the FY 2010 IRF claims and FY 2009 IRF 

cost report data. These data are the most current and complete data available at this time. 

Currently, only a small portion of the FY 2010 IRF cost report data are available for 

analysis, but the majority of the FY 2010 IRF claims data are available for analysis. 

 We proposed to use the same methodology that we have used to update the CMG 

relative weights and average length of stay values in the FY 2009 IRF PPS final rule 

(73 FR 46370), the FY 2010 IRF PPS final rule (74 FR 39762), and the FY 2011 notice 

(75 FR 42836). 

 In calculating the CMG relative weights, we use a hospital-specific relative value 

method to estimate operating (routine and ancillary services) and capital costs of IRFs. 

The process we use to calculate the CMG relative weights is as follows: 

 Step 1. We estimate the effects that comorbidities have on costs. 

 Step 2. We adjust the cost of each Medicare discharge (case) to reflect the effects 

found in the first step. 

 Step 3. We use the adjusted costs from the second step to calculate CMG relative 

weights, using the hospital-specific relative value method. 
CMS-1349-F 25 

 Step 4. We normalize the FY 2012 CMG relative weights to the same average 

CMG relative weight from the CMG relative weights implemented in the FY 2011 IRF 

PPS notice (75 FR 42836). 

 Consistent with the methodology that we have used to update the IRF 

classification system in each instance in the past, we proposed to update the CMG 

relative weights for FY 2012 in a way that total estimated aggregate payments to IRFs for 

FY 2012 are the same with or without the changes (that is, in a budget neutral manner) by 

applying a budget neutrality factor to the standard payment amount. To calculate the 

appropriate budget neutrality factor for use in updating the FY 2012 CMG relative 

weights, we use the following steps: 

 Step 1. Calculate the estimated total amount of IRF PPS payments for FY 2012 

(with no changes to the CMG relative weights). 

 Step 2. Calculate the estimated total amount of IRF PPS payments for FY 2012 by 

applying the changes to the CMG relative weights (as discussed above). 

 Step 3. Divide the amount calculated in step 1 by the amount calculated in step 2 

to determine the budget neutrality factor (0.9988) that would maintain the same total 

estimated aggregate payments in FY 2012 with and without the changes to the CMG 

relative weights. 

 Step 4. Apply the budget neutrality factor (0.9988) to the FY 2011 IRF PPS 

standard payment amount after the application of the budget-neutral wage adjustment 

factor. 

 In section VI.C. of this final rule, we discuss the use of the existing methodology 

to calculate the standard payment conversion factor for FY 2012. 
CMS-1349-F 26 

 Note that the budget neutrality factor that we used to update the CMG relative 

weights for FY 2012 changed from 0.9989 in the proposed rule to 0.9988 in this final rule 

due to the use of updated FY 2010 IRF claims data in this final rule. 

 We received 2 comments on the proposed updates to the CMG relative weights 

and average length of stay values, which are summarized below. 

Comment: One commenter expressed confusion about whether CMS might have 

used an “older” methodology to calculate the CMG relative weights in the FY 2011 IRF 

PPS Notice (75 FR 42836) that differed from the methodology that CMS used to 

calculate the CMG relative weights in the FY 2009 IRF PPS final rule (73 FR 46370), the 

FY 2010 IRF PPS final rule (74 FR 39762), or the FY 2012 IRF PPS proposed rule (76 

FR 24214). 

Response: We used the same methodology to update the CMG relative weights in 

the FY 2002 IRF PPS final rule (66 FR 41316), the FY 2006 IRF PPS final rule (70 FR 

47880), and the FY 2007 IRF PPS final rule (71 FR 48354). We did not update the CMG 

relative weights in the FY 2008 IRF PPS final rule (72 FR 44284). In the FY 2009 IRF 

PPS final rule (73 FR 46370), we implemented one change to the methodology which 

involved the use of more detailed cost-to-charge ratio (CCR) data from the cost reports of 

IRF subprovider units of primary acute care hospitals, instead of CCR data from the 

associated primary acute care hospitals, to calculate IRFs’ average costs per case. We 

have used this same revised methodology from FY 2009 to update the CMG relative 

weights in the FY 2010 IRF PPS final rule (74 FR 39762), the FY 2011 notice (75 FR 

42836), and the FY 2012 IRF PPS proposed rule (76 FR 24214). We continue to use the 
CMS-1349-F 27 

same methodology that was revised in FY 2009 for updating the CMG relative weights in 

this final rule. 

Comment: Two commenters requested that CMS provide more information about 

the methodology that we use to calculate the average length of stay values. One 

commenter noted that it would be useful for CMS to provide information on the standard 

deviations for the average length of stay values, and another commenter suggested that 

we reiterate the purpose of the average length of stay values. 

Response: To calculate the average length of stay values for the proposed and 

final rules each year, we use the following steps: 

Step 1. Sum the lengths of stay for all of the cases in each CMG and tier using the 

most current IRF claims data (for this final rule, we used FY 2010 IRF claims data). 

 Step 2. Divide the number in step 1 by the number of cases in each CMG and tier 

in the most current IRF claims data (for this final rule, we used FY 2010 IRF claims data) 

to obtain an average. 

 Step 3. Use the average length of stay value calculated in step 2 to identify all of 

the cases in each CMG and tier that would meet the criteria for payment under the IRF 

short-stay transfer policy, and remove those cases from the analysis. 

 Step 4. Repeat steps 1 through 3 until no additional cases are identified in step 3 

(that is, until all of the cases left in step 3 are “full CMG” cases that would not meet the 

short-stay transfer policy criteria). 

 As we have stated in previous rules, the average length of stay for each CMG is 

used to determine when an IRF discharge meets the definition of a short-stay transfer, 

which results in a per diem case level adjustment. The average length of stay values 
CMS-1349-F 28 

should not be used to limit a patient’s length of stay in an IRF. 

 At the request of several of the commenters, we have placed the standard 

deviations for the proposed average length of stay values from the FY 2012 IRF PPS 

proposed rule (76 FR 24214) with the other proposed rule data files on the IRF PPS Web 

site at http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage. We 

will continue to provide this information as part of our standard rulemaking files that we 

post to the Web site in conjunction with the IRF PPS rules. 

 Final Decision: After carefully considering all of the comments that we received 

on the proposed updates to the CMG relative weights and average length of stay values, 

we are implementing the FY 2012 updates to the CMG relative weights and average 

length of stay values presented in Table 1 (which are different from the relative weights 

and average length of stay values that we had proposed because these final values are 

based on analysis of updated FY 2010 IRF claims data). 

TABLE 1: Relative Weights and Average Length of Stay Values for Case-Mix 

Groups 

 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0101 Stroke 

M>51.05 0.7676 0.7182 0.6451 0.6102 10 10 9 8 

0102 Stroke 

M>44.45 and 

M<51.05 and 

C>18.5 0.9527 0.8913 0.8007 0.7573 12 13 10 10 

0103 Stroke 

M>44.45 and 

M<51.05 and 

C<18.5 1.1377 1.0644 0.9562 0.9043 14 14 12 12 

0104 Stroke 

M>38.85 and 

M<44.45 1.1819 1.1058 0.9934 0.9395 15 14 13 12 
CMS-1349-F 29 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0105 Stroke 

M>34.25 and 

M<38.85 1.3733 1.2849 1.1542 1.0916 16 17 14 14 

0106 Stroke 

M>30.05 and 

M<34.25 1.5815 1.4796 1.3291 1.2571 20 18 16 16 

0107 Stroke 

M>26.15 and 

M<30.05 1.7906 1.6753 1.5049 1.4233 20 20 18 18 

0108 Stroke 

M<26.15 and 

A>84.5 2.2178 2.0749 1.8639 1.7629 31 25 23 22 

0109 Stroke 

M>22.35 and 

M<26.15 and 

A<84.5 2.0508 1.9188 1.7236 1.6302 24 23 20 20 

0110 Stroke 

M<22.35 and 

A<84.5 2.6434 2.4731 2.2216 2.1012 33 29 26 25 

0201 Traumatic brain 

injury 

M>53.35 and 

C>23.5 0.7470 0.6132 0.5680 0.5158 8 8 7 8 

0202 Traumatic brain 

injury 

M>44.25 and 

M<53.35 and 

C>23.5 1.0613 0.8712 0.8070 0.7327 12 12 10 10 

0203 Traumatic brain 

injury 

M>44.25 and 

C<23.5 1.2080 0.9917 0.9185 0.8341 16 11 13 12 

0204 Traumatic brain 

injury 

M>40.65 and 

M<44.25 1.2655 1.0388 0.9622 0.8737 16 12 12 12 

0205 Traumatic brain 

injury 

M>28.75 and 

M<40.65 1.5982 1.3120 1.2152 1.1035 17 18 15 14 

0206 Traumatic brain 

injury 

M>22.05 and 

M<28.75 1.9895 1.6332 1.5128 1.3736 23 19 19 18 

0207 Traumatic brain 

injury 

M<22.05 2.6903 2.2085 2.0456 1.8574 35 27 25 22 
CMS-1349-F 30 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0301 Non-traumatic 

brain injury 

M>41.05 1.0576 0.9514 0.8441 0.7730 12 12 11 10 

0302 Non-traumatic 

brain injury 

M>35.05 and 

M<41.05 1.3393 1.2048 1.0689 0.9789 12 15 13 13 

0303 Non-traumatic 

brain injury 

M>26.15 and 

M<35.05 1.5924 1.4325 1.2709 1.1640 21 17 15 14 

0304 Non-traumatic 

brain injury 

M<26.15 2.2048 1.9834 1.7596 1.6116 29 23 20 19 

0401 Traumatic spinal 

cord injury 

M>48.45 1.0588 0.8815 0.8019 0.7036 14 14 11 10 

0402 Traumatic spinal 

cord injury 

M>30.35 and 

M<48.45 1.3802 1.1491 1.0453 0.9171 17 14 13 12 

0403 Traumatic spinal 

cord injury 

M>16.05 and 

M<30.35 2.4659 2.0529 1.8675 1.6386 29 26 23 20 

0404 Traumatic spinal 

cord injury 

M<16.05 and 

A>63.5 4.3797 3.6461 3.3169 2.9102 52 39 38 35 

0405 Traumatic spinal 

cord injury 

M<16.05 and 

A<63.5 3.8686 3.2206 2.9298 2.5706 52 39 36 29 

0501 Non-traumatic 

spinal cord injury 

M>51.35 0.6559 0.6297 0.5616 0.4977 10 10 7 7 

0502 Non-traumatic 

spinal cord injury 

M>40.15 and 

M<51.35 0.9815 0.9423 0.8404 0.7448 13 13 11 10 

0503 Non-traumatic 

spinal cord injury 

M>31.25 and 

M<40.15 1.2460 1.1962 1.0668 0.9455 16 14 13 12 

0504 Non-traumatic 

spinal cord injury 

M>29.25 and 

M<31.25 1.5023 1.4423 1.2863 1.1400 18 16 16 14 
CMS-1349-F 31 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0505 Non-traumatic 

spinal cord injury 

M>23.75 and 

M<29.25 1.7558 1.6856 1.5033 1.3324 20 21 18 17 

0506 Non-traumatic 

spinal cord injury 

M<23.75 2.4607 2.3624 2.1069 1.8673 34 28 24 23 

0601 Neurological 

M>47.75 0.9457 0.7992 0.7289 0.6589 10 11 9 9 

0602 Neurological 

M>37.35 and 

M<47.75 1.2516 1.0577 0.9648 0.8721 12 13 12 11 

0603 Neurological 

M>25.85 and 

M<37.35 1.6164 1.3660 1.2460 1.1263 17 16 14 14 

0604 Neurological 

M<25.85 2.1432 1.8112 1.6521 1.4934 24 21 19 18 

0701 Fracture of lower 

extremity 

M>42.15 0.8001 0.7877 0.7586 0.6772 10 12 10 9 

0702 Fracture of lower 

extremity 

M>34.15 and 

M<42.15 1.0470 1.0307 0.9927 0.8861 12 13 12 12 

0703 Fracture of lower 

extremity 

M>28.15 and 

M<34.15 1.2599 1.2402 1.1945 1.0662 15 15 14 14 

0704 Fracture of lower 

extremity 

M<28.15 1.6283 1.6029 1.5439 1.3780 18 19 18 17 

0801 Replacement of 

lower extremity 

joint M>49.55 0.5745 0.5745 0.5354 0.4888 7 8 7 7 

0802 Replacement of 

lower extremity 

joint M>37.05 

and M<49.55 0.7725 0.7725 0.7199 0.6573 8 11 9 9 

0803 Replacement of 

lower extremity 

joint 

M>28.65 and 

M<37.05 and 

A>83.5 1.0651 1.0651 0.9926 0.9062 11 14 13 12 

0804 Replacement of 

lower extremity 

joint M>28.65 

and M<37.05 and 

A<83.5 0.9407 0.9407 0.8767 0.8004 10 12 11 10 
CMS-1349-F 32 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

0805 Replacement of 

lower extremity 

joint 

M>22.05 and 

M<28.65 1.1584 1.1584 1.0795 0.9856 11 14 13 13 

0806 Replacement of 

lower extremity 

joint M<22.05 1.4144 1.4144 1.3181 1.2034 13 18 16 15 

0901 Other orthopedic 

M>44.75 0.8467 0.7460 0.6751 0.6116 10 10 9 8 

0902 Other orthopedic 

M>34.35 and 

M<44.75 1.1324 0.9978 0.9029 0.8180 12 13 12 11 

0903 Other orthopedic 

M>24.15 and 

M<34.35 1.4503 1.2779 1.1564 1.0477 16 16 14 13 

0904 Other orthopedic 

M<24.15 1.8791 1.6557 1.4983 1.3575 21 20 18 17 

1001 Amputation, 

lower extremity 

M>47.65 1.0335 0.9087 0.8119 0.7256 13 12 10 10 

1002 Amputation, 

lower extremity 

M>36.25 and 

M<47.65 1.3571 1.1931 1.0660 0.9528 16 14 13 12 

1003 Amputation, 

lower extremity 

M<36.25 2.0050 1.7628 1.5750 1.4077 21 21 18 17 

1101 Amputation, nonlower extremity 

M>36.35 1.0359 1.0359 0.9826 0.9222 11 11 12 11 

1102 Amputation, nonlower extremity 

M<36.35 1.5586 1.5586 1.4783 1.3875 14 18 16 16 

1201 Osteoarthritis 

M>37.65 0.8102 0.8102 0.8104 0.7660 13 13 11 10 

1202 Osteoarthritis 

M>30.75 and 

M<37.65 1.0564 1.0564 1.0566 0.9987 16 16 14 13 

1203 Osteoarthritis 

M<30.75 1.3031 1.3031 1.3033 1.2319 13 19 15 15 

1301 Rheumatoid, other 

arthritis M>36.35 0.8937 0.9714 0.9714 0.7882 11 10 11 10 

1302 Rheumatoid, other 

arthritis M>26.15 

and M<36.35 1.1769 1.2792 1.2792 1.0379 17 17 14 13 

1303 Rheumatoid, other 

arthritis M<26.15 1.5211 1.6533 1.6533 1.3415 15 19 18 16 
CMS-1349-F 33 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

1401 Cardiac 

M>48.85 0.9411 0.7535 0.6663 0.6026 10 10 9 8 

1402 Cardiac 

M>38.55 and 

M<48.85 1.2638 1.0118 0.8947 0.8092 13 12 11 10 

1403 Cardiac 

M>31.15 and 

M<38.55 1.5263 1.2220 1.0806 0.9773 18 14 13 12 

1404 Cardiac 

M<31.15 1.9770 1.5828 1.3997 1.2659 24 19 16 15 

1501 Pulmonary 

M>49.25 0.9610 0.8973 0.7734 0.7311 10 11 8 9 

1502 Pulmonary 

M>39.05 and 

M<49.25 1.2094 1.1293 0.9734 0.9201 13 13 11 11 

1503 Pulmonary 

M>29.15 and 

M<39.05 1.4914 1.3926 1.2003 1.1346 16 16 13 13 

1504 Pulmonary 

M<29.15 1.8840 1.7592 1.5163 1.4333 22 18 17 16 

1601 Pain syndrome 

M>37.15 1.1177 0.8798 0.7721 0.7217 12 12 10 10 

1602 Pain syndrome 

M>26.75 and 

M<37.15 1.4972 1.1785 1.0342 0.9667 19 13 13 13 

1603 Pain syndrome 

M<26.75 1.9348 1.5230 1.3365 1.2493 22 18 16 15 

1701 Major multiple 

trauma without 

brain or spinal 

cord injury 

M>39.25 1.0436 0.9289 0.8430 0.7369 10 11 11 10 

1702 Major multiple 

trauma without 

brain or spinal 

cord injury 

M>31.05 and 

M<39.25 1.3771 1.2256 1.1123 0.9723 13 15 14 13 

1703 Major multiple 

trauma without 

brain or spinal 

cord injury 

M>25.55 and 

M<31.05 1.6240 1.4454 1.3117 1.1467 15 16 15 15 
CMS-1349-F 34 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

1704 Major multiple 

trauma without 

brain or spinal 

cord injury 

M<25.55 2.0792 1.8505 1.6794 1.4681 26 22 20 18 

1801 Major multiple 

trauma with brain 

or spinal cord 

injury 

M>40.85 1.2016 0.9858 0.9517 0.8705 14 15 12 11 

1802 Major multiple 

trauma with brain 

or spinal cord 

injury 

M>23.05 and 

M<40.85 1.6515 1.3548 1.3080 1.1964 18 20 15 15 

1803 Major multiple 

trauma with brain 

or spinal cord 

injury M<23.05 2.8314 2.3228 2.2425 2.0512 34 32 26 24 

1901 Guillain Barre 

M>35.95 1.1498 1.0129 0.9189 0.8923 13 14 12 12 

1902 Guillain Barre 

M>18.05 and 

M<35.95 2.1903 1.9296 1.7504 1.6999 22 22 21 21 

1903 Guillain Barre 

M<18.05 3.6722 3.2351 2.9348 2.8501 48 29 34 32 

2001 Miscellaneous 

M>49.15 0.8541 0.7547 0.6766 0.6079 9 10 9 8 

2002 Miscellaneous 

M>38.75 and 

M<49.15 1.1431 1.0100 0.9056 0.8136 12 12 11 10 

2003 Miscellaneous 

M>27.85 and 

M<38.75 1.4435 1.2755 1.1436 1.0274 15 15 13 13 

2004 Miscellaneous 

M<27.85 1.9356 1.7104 1.5335 1.3777 24 20 18 16 

2101 Burns 

M>0 2.5153 2.1771 1.7338 1.4053 34 23 19 18 

5001 Short-stay cases, 

length of stay is 3 

days or fewer 0.1475 3 

5101 Expired, 

orthopedic, length 

of stay is 13 days 

or fewer 0.5856 7 
CMS-1349-F 35 

CMG CMG 

Description 

(M=motor, 

C=cognitive, 

A=age) 

Relative weight Average length of stay 

 Tier1 Tier2 Tier3 None Tier1 Tier2 Tier3 None 

5102 Expired, 

orthopedic, length 

of stay is 14 days 

or more 1.4718 18 

5103 Expired, not 

orthopedic, length 

of stay is 15 days 

or fewer 0.6970 8 

5104 Expired, not 

orthopedic, length 

of stay is 16 days 

or more 1.8778 23 

V. Updates to the Facility-Level Adjustment Factors for FY 2012 

A. Updates to the IRF Facility-Level Adjustment Factors

 Section 1886(j)(3)(A)(v) of the Act confers broad authority upon the Secretary to 

adjust the per unit payment rate “by such . . . factors as the Secretary determines are 

necessary to properly reflect variations in necessary costs of treatment among 

rehabilitation facilities.” For example, we adjust the Federal prospective payment 

amount associated with a CMG to account for facility-level characteristics such as an 

IRF’s LIP, teaching status, and location in a rural area, if applicable, as described in 

§412.624(e). 

 In the FY 2010 IRF PPS final rule (74 FR 39762), we updated the adjustment 

factors for calculating the rural, LIP, and teaching status adjustments based on the most 

recent 3 consecutive years worth of IRF claims data (at that time, FY 2006, FY 2007, and 

FY 2008) and the most recent available corresponding IRF cost report data. As discussed 

in the FY 2010 IRF PPS proposed rule (74 FR 21060 through 21061), we observed 

relatively large year-to-year fluctuations in the underlying data used to compute the 
CMS-1349-F 36 

adjustment factors, especially the teaching status adjustment factor. Therefore, we 

implemented a 3-year moving average approach to updating the facility-level adjustment 

factors in the FY 2010 IRF PPS final rule (74 FR 39762) to provide greater stability and 

predictability of Medicare payments for IRFs. 

 Although the 3-year moving average approach that we implemented in FY 2010 

improves the year-to-year stability and predictability of the facility-level adjustment 

factors, we have continued to find unusually large year-to-year fluctuations in the 

teaching status adjustment factor. To determine the underlying reasons for these large 

year-to-year fluctuations in the teaching status adjustment factor, we analyzed the data 

and reviewed the methodology that we were using to estimate all three of the facilitylevel adjustment factors (that is, the rural, the LIP, and the teaching status adjustment 

factors). We found that the use of a weighting methodology, which assigns greater 

weight to some facilities than to others, applied to the regression analysis used to estimate 

the facility-level adjustment factors inappropriately exaggerated the differences among 

different types of IRF facilities. We proposed to remove the weighting methodology 

from our analysis of the facility-level adjustment factors and update the IRF facility-level 

adjustment factors for FY 2012 using an un-weighted regression analysis. 

We received 22 comments on the proposed updates to the facility-level 

adjustment factors, which are summarized below.

 Comment: Several commenters requested that CMS release data that would 

enable facilities to replicate the calculation of the facility-level adjustment factors, 

provide more information on how CMS calculates the 3-year moving average, and 

provide more information on CMS’s research and computations used to support an un-
CMS-1349-F 37 

weighted regression methodology. 

 Response: We provided additional information on the calculation of the facilitylevel adjustment factors on the Inpatient Rehabilitation Facility PPS web page under the 

“Research” link on the left hand side of the page: 

http://www.cms.gov/InpatientRehabFacPPS/09_Research.asp#TopOfPage. As we stated 

in the FY 2010 IRF PPS final rule, the 3-year moving average is computed by 

determining the adjustment factor for each year and then averaging those adjustment 

factors over 3 years. For FY 2012, we used the adjustment factors generated from our 

analysis of claims data and the corresponding year’s cost report data or, if unavailable, 

the most recent available cost report data for FY 2008, FY 2009 and FY 2010. Our 

estimates of the proposed FY 2012 adjustment factors, based on FY 2008, FY 2009, and 

FY 2010 data, are shown below in Table 2. 

TABLE 2: Facility-Level Adjustment Factors Using the Un-Weighted Regression 

Methodology, FY 2012 Proposed Rule. 

 FY 2008 FY 2009 FY 2010 FY 2012 Proposed 

LIP Adjustment Factor 0.1773 0.2158 0.1764 0.1897 

Teaching Status Adjustment Factor 0.3554 0.5183 0.6036 0.4888 

Rural Adjustment 0.192 0.188 0.182 0.187 

 

Comment: Several commenters supported the proposed update to the facilitylevel adjustment factors in the FY 2012 proposed rule, including the use of an unweighted regression methodology to determine the facility-level adjustment factors, 

stating that they believe the changes will result in a more accurate payment system. 

However, several other commenters expressed concern about the resulting updates to the 

teaching status and LIP adjustment factors for FY 2012 from using an un-weighted 

regression methodology. The commenters stated that the proposed updates would create 
CMS-1349-F 38 

financial hardships for facilities with teaching programs and a higher disproportionate 

share of low-income patients. Several of the commenters, including the Medicare 

Payment Advisory Commission (MedPAC), suggested that CMS defer the 

implementation of the un-weighted regression methodology and conduct more analysis 

on the underlying causes of the instability in the teaching status adjustment factor and on 

the most appropriate methodology for calculating the facility-level adjustment factors. 

Several other commenters suggested that CMS mitigate the impact of any changes in the 

facility-level adjustment factors by phasing the changes in over several years, or by 

capping the amount that a facility adjustment can decrease in a given year. 

 Response: We agree with the commenters that it is appropriate to defer 

implementation of the un-weighted regression methodology for an additional year so that 

we can further analyze some anomalies that appear to exist in the underlying data. We 

believe that these anomalies are causing the results of the weighted regression 

methodology to differ substantially from the results of the un-weighted regression 

methodology. Thus, we believe that the best course of action for FY 2012 is to defer the 

implementation of the un-weighted regression methodology while we conduct more 

research into the reasons for these anomalies and alternative ways of computing the 

facility-level adjustments that will reduce the volatility in the teaching status adjustment 

factor and provide the most accurate reflection of cost differences among different types 

of facilities.

 Comment: One commenter offered several suggestions on ways to improve the 

computation of the facility-level adjustment factors without altering the weighting 

methodology. Those suggestions included: pooling three year’s worth of data into a 
CMS-1349-F 39 

single data set to increase sample size; continuing to use existing weighted regression 

model, but with added control variables; and matching claims to corresponding cost 

report data, even if that creates a 3-year lag in the last data year used and the IRF PPS 

payment year. 

Response: We appreciate all of the suggestions that we received on ways to 

improve our methodology for computing the facility-level adjustments and will take 

those suggestions under advisement while we continue to research ways to ensure that we 

are using the best methods to determine the facility-level adjustments. 

 Final Decision: After carefully considering all of the comments that we received 

on the proposed updates to the rural, LIP and teaching status adjustment factors for FY 

2012, we are holding the facility-level adjustment factors at FY 2011 levels for FY 2012 

while we conduct further research on the underlying data and the best methodology for 

calculating the facility-level adjustment factors. Thus, the facility-level adjustments 

factors for FY 2012 will be the same as those finalized in the FY 2011 IRF PPS notice 

(75 FR 42836 at 42848), which were the same as those finalized in the FY 2010 IRF PPS 

final rule (74 FR 39762 at 39775). For the convenience of the reader, we reiterate the 

final adjustment factors (from the FY 2010 IRF PPS final rule) as follows: For FY 2012, 

the IRF PPS payments to IRFs in rural areas will be computed with an 18.4 percent 

upward adjustment for rural status. IRF PPS payments to eligible IRFs that qualify for 

the LIP adjustment for FY 2012 will be adjusted using a LIP adjustment formula of (1 + 

disproportionate share hospital (DSH) patient percentage) raised to the power of 

(0.4613), where the— 
CMS-1349-F 40 

DSH patient Medicare SSI Days Medicaid, Non-Medicare Days percentage for 

each IRF 

= 

Total Medicare Days 

+ 

Total Days 

 Finally, IRF PPS payments to eligible IRFs that qualify for the teaching status 

adjustment will be adjusted by the following formula for FY 2012: (1 + full-time 

equivalent (FTE) interns and residents/average daily census) raised to the power of 

(0.6876). 

 In section VI.C. of this final rule, we discuss the methodology for calculating the 

standard payment conversion factor for FY 2012. 

B. Policy for Temporary Cap Adjustments to Reflect Interns and Residents Displaced 

Due to Closure of IRFs or IRF Residency Training Programs

1. Background 

In the FY 2006 IRF PPS final rule (70 FR 47880 at 47928 through 47932), we 

implemented regulations at §412.624(e)(4) to establish a facility-level adjustment for 

IRFs that are, or are part of, teaching hospitals. The teaching status adjustment accounts 

for the higher indirect operating costs experienced by hospitals that participate in 

graduate medical education (GME) programs. The payment adjustments are made based 

on the number of FTE interns and residents training in the IRF and the IRF’s average 

daily census. 

We established the IRF teaching status adjustment in a manner that limited the 

incentives for IRFs to add FTE interns and residents for the purpose of increasing their 

teaching status adjustment. We imposed a cap on the number of FTE interns and 

residents that may be counted for purposes of calculating the teaching status adjustment. 

The cap limits the number of FTE interns and residents that teaching IRFs may count for 
CMS-1349-F 41 

the purpose of calculating the IRF PPS teaching status adjustment, not the number of 

interns and residents teaching institutions can hire or train. We calculated the number of 

FTE interns and residents that trained in the IRF during a "base year" and used that FTE 

intern and resident number as the cap. An IRF's FTE intern and resident cap is ultimately 

determined based on the final settlement of the IRF's most recent cost reporting period 

ending on or before November 15, 2004. A complete discussion of how the IRF teaching 

status adjustment was calculated appears in the FY 2006 IRF PPS final rule (70 FR 

47880, 47928 through 47932). 

2. FTE Intern and Resident Temporary Cap Adjustment 

Sometimes, interns and residents that are training in an IRF find themselves 

unable to complete their training in the IRF, either because the IRF closes or closes a 

residency training program (we refer to these interns and residents as “displaced”). 

Although we have not heard of any instances where IRFs did not accept displaced interns 

and residents because the additional interns and residents would put the facility over the 

facility’s FTE intern and resident cap, we believe that it is important to maintain 

consistent policies with other Medicare PPS systems, to the extent feasible. The IPPS 

indirect medical education (IME) adjustment and the direct GME policies contain 

provisions that allow for temporary adjustments to the IME/GME caps for IPPS hospitals 

that train interns and residents that are displaced because a hospital closes or closes a 

medical residency training program. We have recently implemented a similar temporary 

cap adjustment policy for the inpatient psychiatric facility (IPF) PPS teaching status 

adjustment outlined in the rate year 2012 IPF PPS final rule (76 FR 26432 at 26454 

through 26456). Consistent with the IPPS and the IPF PPS, in the FY 2012 IRF PPS 
CMS-1349-F 42 

proposed rule (76 FR 24214), we proposed to permit a temporary increase in the FTE 

intern and resident cap when an IRF increases the number of FTE interns and residents it 

trains in order to accept displaced interns and residents because another IRF closes or 

closes a medical residency training program. 

When an IRF temporarily takes on interns and residents that are displaced because 

another IRF closes or closes a residency training program, we believe that a temporary 

adjustment to the cap would be appropriate. In these situations, interns and residents may 

have partially completed a residency training program at the IRF that has closed or closed 

a training program and may be unable to complete their training at another IRF that is 

already training interns and residents up to or in excess of its FTE intern and resident cap. 

We believe that it is appropriate to allow temporary adjustments to the FTE caps for an 

IRF that provides residency training to medical interns and residents who have partially 

completed a residency training program at an IRF that closes or at an IRF that 

discontinues training interns and residents in a residency training program(s). For this 

reason, we are adopting the following temporary intern and resident cap adjustment 

policies, similar to the temporary adjustments to the FTE cap used for acute care 

hospitals and the temporary adjustments to the FTE caps for IPFs. 

The cap adjustment will be temporary because it is intern and resident specific 

and will only apply to the displaced intern(s) or resident(s) until those intern(s) or 

resident(s) have completed their training in the program in which they were training at 

the time of the IRF closure or the closure of the program. As under the IPPS policy for 

displaced interns and residents, the IRF PPS temporary cap adjustment will apply only to 

interns and residents that were still training at the IRF at the time the IRF closed or at the 
CMS-1349-F 43 

time the IRF ceased training interns and residents in the residency training program(s). 

Interns and residents who leave the IRF, for whatever reason, before the closure of the 

IRF or the closure of the residency training program will not be considered displaced 

interns and residents for purposes of the IRF temporary cap adjustment policy. We are 

adopting the same definition of “closure of a hospital residency training program” as it is 

currently defined at §413.79(h)(1)(ii); that is, the hospital ceases to offer training for 

residents in a particular approved medical residency training program. Similarly, as 

under the IPPS policy, medical students who are accepted into a program at an IRF but 

the IRF or residency training program closes before the individual begins training at that 

IRF are also not considered displaced interns and residents for purposes of the IRF 

temporary cap adjustments. We note that although we are adopting a policy under the 

IRF PPS that is consistent with the policy applicable under the IPPS, the actual caps 

under the two payment systems are separate and distinct. This means, for example, if a 

program closes at an IPPS hospital that has an IRF unit, but the interns and residents from 

that closed program were not rotating into the IRF unit when the program closed, then 

there would be no temporary FTE cap adjustment under the IRF PPS, since the interns 

and residents were not displaced from the IRF. However, if an IPPS hospital that has an 

IRF unit closes a training program and interns and residents from that program were 

rotating into the IRF unit when the program closed, an IRF hospital or IRF unit may 

temporarily adjust their FTE intern and resident cap if they train the displaced interns and 

residents, but only for the portion of the training that has to be completed in the IRF 

setting and only if all of the requirements specified in section IV.C. of this final rule are 

met. 
CMS-1349-F 44 

3. Temporary Adjustment to the FTE Cap to Reflect Interns and Residents Displaced 

Due to an IRF Closure 

We will allow an IRF to receive a temporary adjustment to the FTE cap to reflect 

interns and residents added because of another IRF’s closure. The temporary cap 

adjustment is intended to account for medical interns and residents who have partially 

completed a medical residency training program at the IRF that has closed and may be 

unable to complete their training at another IRF because that IRF is already training 

interns and residents up to or in excess of its cap. We are implementing this change 

because IRFs may be reluctant to accept additional interns and residents from a closed 

IRF without a temporary adjustment to their caps. For purposes of this policy, we are 

adopting the IPPS definition of “closure of a hospital” in §413.79(h)(1)(i) to mean the 

IRF terminates its Medicare provider agreement as specified in §489.52. Therefore, we 

will allow a temporary adjustment to an IRF’s FTE cap to reflect interns and residents 

added because of an IRF’s closure. The policy will be effective for cost reporting periods 

beginning on or after October 1, 2011, when an IRF trains an intern or resident from an 

IRF that closed. We will allow an adjustment to an IRF’s FTE cap if the IRF meets the 

following criteria: 

(a) The IRF is training displaced interns and residents from an IRF that closed. 

(b) The IRF that is training the displaced interns and residents from the closed 

IRF submits a timely request for a temporary adjustment to its FTE cap to its Medicare 

contractor. Requests generally must be submitted no later than 60 days after the hospital 

first begins training the displaced interns and residents. In the case of an IRF that is 

already training the displaced interns and residents as of October 1, 2011, requests must 
CMS-1349-F 45 

be submitted by December 1, 2011. Requests must document that the IRF is eligible for 

this temporary adjustment to its FTE cap by identifying the interns and residents who 

have come from the closed IRF and have caused the IRF to exceed its cap, (or the IRF 

may already be over its cap), and specifies the length of time that the adjustment is 

needed. 

After the displaced interns and residents leave the IRF’s training program or 

complete their residency program, the IRF’s cap will revert to its original level. 

Therefore, the temporary adjustment to the FTE cap will be available to the IRF only for 

the period of time necessary for the displaced interns and residents to complete their 

training. Further, as under the IPPS policy, the total amount of temporary cap adjustment 

that can be allotted to all receiving IRFs cannot exceed the cap amount of the IRF that 

closed. 

We also note that section 5506 of the Affordable Care Act, “Preservation of 

Resident Cap Positions from Closed Hospitals,” does not apply to IRFs that closed. 

Section 5506 of the Affordable Care Act only amends sections 1886(d) and (h) of the Act 

for direct GME and IPPS IME payments. Therefore, the IME FTE cap redistributions 

under section 5506 of the Affordable Care Act only apply to “subsection (d)” IPPS 

hospitals. Section 5506 of the Affordable Care Act has no applicability to the teaching 

status adjustments under the IRF PPS (or the IPF PPS, for that matter). 

4. Temporary Adjustment to FTE Cap to Reflect Interns and Residents Displaced Due to 

a Residency Program Closure 

 If an IRF ceases training interns and residents in a residency training program(s) 

and agrees to temporarily reduce its FTE cap, another IRF may receive a temporary 
CMS-1349-F 46 

adjustment to its FTE cap to reflect the addition of the displaced interns and residents. 

For purposes of this policy on closed residency programs, we are adopting the IPPS 

definition of “closure of a hospital residency training program” as specified in 

§413.79(h)(1)(ii) which means that the hospital ceases to offer training for interns and 

residents in a particular approved medical residency training program. The methodology 

for adjusting the caps for the “receiving IRF” and the “IRF that closed its program” is 

described below. 

a. Receiving IRF 

 An IRF may receive a temporary adjustment to its FTE cap to reflect interns and 

residents added because of the closure of another IRF’s residency training program for 

cost reporting periods beginning on or after October 1, 2011 if – 

● The IRF is training displaced interns and residents from the residency training 

program of an IRF that closed its program; and 

● The IRF that is training the displaced interns and residents from the closed 

program must submit a timely request for a temporary adjustment to its FTE cap to its 

Medicare contractor. Requests generally must be submitted no later than 60 days after 

the IRF begins to train the interns and residents. In the case of an IRF that is already 

training the displaced interns and residents as of October 1, 2011, requests must be 

submitted by December 1, 2011. Requests must document that the IRF is eligible for this 

temporary adjustment by identifying the interns and residents who have come from 

another IRF’s closed program and have caused the IRF to exceed its cap (or the IRF may 

already be in excess of its cap), specifies the length of time the adjustment is needed, and, 
CMS-1349-F 47 

as explained in more detail below, submits to its Medicare contractor a copy of the FTE 

cap reduction statement by the IRF closing the residency training program. 

 In general, the temporary adjustment criteria established for closed medical 

residency training programs at IRFs is similar to the criteria established for closed IRFs. 

More than 1 IRF may be eligible to apply for the temporary adjustment because interns 

and residents from one closed program may rotate to different IRFs, or they may 

complete their training at more than one IRF. Also, only to the extent to which an IRF 

would exceed its FTE cap by training displaced interns and residents would it be eligible 

for the temporary adjustment. Thus, for example, if the IRF has room below its cap to 

take 1 additional displaced FTE intern or resident but taking a second displaced FTE 

intern or resident would cause the IRF to exceed its FTE intern and resident cap, then the 

IRF would potentially qualify for a temporary cap adjustment for 1 FTE intern or 

resident, not 2. 

b. IRF That Closed Its Program(s) 

An IRF that agrees to train interns and residents who have been displaced by the 

closure of another IRF’s residency training program may receive a temporary FTE cap 

adjustment only if the IRF that closed its program meets the following criteria – 

● Temporarily reduces its FTE cap by the number of FTE interns and residents in 

each program year training and in the program at the time of the program’s closure. The 

yearly reduction would be determined by deducting the number of those interns and 

residents who would have been training in the program up to the IRF’s cap during the 

year of the closure, had the program not closed; and 

● Submits a timely statement to its Medicare contractor that has been signed and 
CMS-1349-F 48 

dated by its representative that specifies that it agrees to the temporary reduction in its 

FTE cap to allow the IRF training the displaced interns and residents to obtain a 

temporary adjustment to its cap. Statements generally must be submitted no later than 60 

days after the interns and residents who were in the closed program begin training at 

another IRF. In the situation where another IRF is already training the displaced interns 

and residents as of October 1, 2011, statements must be submitted no later than 

December 1, 2011. The statement must identify the interns and residents who were 

training at the time of the program’s closure, identify the IRFs to which the interns and 

residents are transferring once the program closes, and specify the reduction for the 

applicable program years. 

In addition, under this closed program policy, in order for the receiving IRF(s) to 

qualify for a temporary adjustment to their FTE cap, the IRFs that are closing their 

programs would need to reduce their FTE cap for the expected duration of time the 

displaced interns and residents would need to finish their training. We are implementing 

this because the IRF that closes the program still retains the FTE slots in its cap, even if 

the IRF chooses not to fill the slots with interns and residents. We believe that it is 

inappropriate to allow an increase to the receiving IRF’s cap without an attendant 

decrease to the cap of the IRF with the closed program, because the IRF that ceased 

training the interns and residents could fill these slots with interns and residents from 

other programs even if the increase and related decrease is only temporary. 

The cap reduction for the IRF with the closed program will be based on the 

number of FTE interns and residents in each program year that were in the program at the 

IRF at the time of the program’s closure, and who begin training at another IRF. 
CMS-1349-F 49 

We received 3 comments on the proposed temporary adjustment to the FTE cap to 

reflect interns and residents displaced due to an IRF closure or a residency training 

program closure, which are summarized below. 

Comment: One commenter suggested that the proposed temporary adjustment to 

the FTE cap would be too difficult for CMS to monitor. This commenter also stated that 

few IRFs with teaching programs have taken displaced interns and residents. 

Response: We believe that a policy allowing for temporary adjustments to the 

FTE caps for IRFs that take displaced interns and residents would be no more difficult to 

monitor than the similar policy that is already being administered for IPPS hospitals. 

Although we agree that few IRFs currently take displaced interns and residents, we 

believe that it is reasonable to allow for temporary adjustments to the FTE caps for those 

IRFs that do. 

Comment: Two commenters strongly supported our proposed policy to allow a 

temporary adjustment to the intern and resident cap when an IRF accepts interns or 

residents that are displaced due to an IRF closure or a residency training program closure. 

However, these commenters requested that CMS modify the proposed policy to allow 

IRFs to receive the temporary cap adjustment if they are training displaced interns or 

residents as of October 1, 2011. 

Response: We share the commenters’ concern for those FTE interns and residents 

who have been displaced before October 1, 2011 due to closure of an IRF or a residency 

training program. We carefully considered the commenters’ request that CMS modify 

the IRF temporary cap adjustment policy to allow IRFs that volunteered to train displaced 

interns and residents before October 1, 2011 to receive the temporary cap adjustment. In 
CMS-1349-F 50 

keeping with the similar policy for IPPS hospitals, we are revising our proposed policy to 

allow IRFs to receive temporary cap adjustments for cost reporting periods beginning on 

or after October 1, 2011 for displaced interns and residents that they are training as of 

October 1, 2011. For example, if an IRF closed or closed a residency training program 

on October 1, 2009, then an intern or resident who was in their first program year at that 

time would likely be in their third program year as of October 1, 2011 and thus would 

still be in the middle of their training. An IRF that assumed the training of this intern or 

resident who was displaced by the 2009 IRF or residency training program closure would 

be eligible to receive a temporary cap adjustment for cost reporting periods beginning on 

or after October 1, 2011. As noted above, an IRF that is requesting the temporary cap 

adjustment for the displaced interns and residents that it is training as of October 1, 2011 

must submit the required documentation to CMS no later than December 1, 2011. 

Final Decision: After carefully considering the comments that we received on the 

proposed temporary adjustment to the FTE cap to reflect interns and residents displaced 

due to an IRF closure or the closure of a residency training program, we are 

implementing the new policy for IRFs as proposed, with the one exception noted above. 

We will allow IRFs to qualify for the temporary cap adjustment for cost reporting periods 

beginning on or after October 1, 2011 if they are already training interns and residents 

displaced by IRF closures or residency program closures that occurred prior to October 1, 

2011. In these instances, all required documentation must be received by CMS no later 

than December 1, 2011. IRFs that meet the criteria will be eligible to receive temporary 

adjustments to their FTE caps for cost reporting periods beginning on or after 

October 1, 2011. 
CMS-1349-F 51 

VI. FY 2012 IRF PPS Federal Prospective Payment Rates 

A. Market Basket Increase Factor, Productivity Adjustment, and Labor-Related 

Share for FY 2012

 Section 1886(j)(3)(C) of the Act requires the Secretary to establish an increase 

factor that reflects changes over time in the prices of an appropriate mix of goods and 

services included in the covered IRF services, which is referred to as a market basket 

index. According to section 1886(j)(3)(A)(i) of the Act, the increase factor shall be used 

to update the IRF Federal prospective payment rates for each FY. Sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act require the application of a 0.1 

percentage point reduction to the market basket increase factor for FYs 2012 and 2013. 

In addition, section 1886(j)(3)(C)(ii)(I) of the Act requires the application of a 

productivity adjustment, as described below. Thus, in this final rule, we are updating the 

IRF PPS payments for FY 2012 by a market basket increase factor based upon the most 

current data available, with a productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act as described below and a 0.1 percentage point 

reduction as required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act. 

Further, we are rebasing the RPL market basket from a 2002-based market basket to a 

2008-based market basket. We typically rebase the RPL market basket every 5 to 7 years 

to ensure that it continues to reflect the most accurate account of the cost of relevant 

goods and services. 

 Thus, in this final rule, we start with a rebased RPL market basket (updated from 

a 2002 base year to a 2008 base year) and then apply a productivity adjustment as 

required by section 1886(j)(3)(C)(ii)(I) of the Act and a 0.1 percentage point reduction as 
CMS-1349-F 52 

required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act. In section 

VI.A.1 of this final rule, we describe the methodology for rebasing the RPL market 

basket from a 2002 base year to a 2008 base year, and then in section VI.A.2 of this final 

rule, we describe the methodology for calculating the productivity adjustment as required 

by section 1886(j)(3)(C)(ii)(I) of the Act. Finally, in section VI.A.3 of this final rule, we 

describe the calculation of the market basket increase factor to be used to adjust IRF PPS 

payments for FY 2012. 

1. Rebasing and Revising of the RPL Market Basket Used for IRF PPS for FY 2012 

a. Background

 The input price index (that is, the market basket) that was used to develop the IRF 

PPS was the Excluded Hospital with Capital market basket. This market basket was 

based on 1997 Medicare cost report data and included data for Medicare participating 

IRFs, IPFs, LTCHs, cancer hospitals, and children’s hospitals. Although “market basket” 

technically describes the mix of goods and services used in providing hospital care, this 

term is also commonly used to denote the input price index (that is, cost category weights 

and price proxies combined) derived from that market basket. Accordingly, the term 

“market basket”, as used in this document, refers to an input price index. 

 Beginning with FY 2006, IRF PPS payments were updated using a 

FY 2002-based RPL market basket reflecting the operating and capital cost structures for 

freestanding IRFs, freestanding IPFs, and LTCHs (70 FR 47908). We excluded cancer 

and children’s hospitals 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, which is implemented at §413.40. Cancer and 
CMS-1349-F 53 

children’s hospitals are not reimbursed through a PPS. Also, the FY 2002 cost structures 

for cancer and children’s hospitals are noticeably different than the cost structures of 

freestanding IRFs, freestanding IPFs, and LTCHs. A complete discussion of the FY 

2002-based RPL market basket can be found in the FY 2006 IRF PPS final rule 

(70 FR 47908 through 47915). 

 In the FY 2010 IRF PPS proposed rule (74 FR 21062), we expressed our interest 

in exploring the possibility of creating a stand-alone IRF market basket that reflects the 

cost structures of only IRF providers. We noted that, of the available options, one is to 

combine the Medicare cost report data from freestanding IRF providers (presently 

incorporated into the FY 2002-based RPL market basket) with data from hospital-based 

IRF providers. We indicated that an examination of the Medicare cost report data 

comparing freestanding and hospital-based IRFs revealed considerable differences 

between the two types of providers, both in terms of cost levels and cost structures. At 

that time, we were unable to fully understand the differences between these two types of 

IRF providers. As a result, we believed that further research was required and we 

solicited public comment for additional information that might help us to better 

understand the reasons for the variations in costs and cost structures, as indicated by the 

cost report data, between freestanding and hospital-based IRFs (74 FR 21062). 

 We summarized the public comments we received and our responses in the FY 

2010 IRF PPS final rule (74 FR 39762, 39776 through 39777). Despite receiving 

comments from the public on this issue, we remain unable to sufficiently understand the 

observed differences in costs and cost structures between hospital-based and freestanding 

IRFs, and therefore we do not believe it is appropriate, at this time, to incorporate data 
CMS-1349-F 54 

from hospital-based IRFs with those of freestanding IRFs to create a stand-alone IRF 

market basket. 

 Although we do not believe it would be appropriate to propose a stand-alone IRF 

market basket, we are currently exploring the viability of creating two separate market 

baskets from the current RPL, one of which would include freestanding IRFs and 

freestanding IPFs and would be used to update payments under both the IPF and IRF 

payment systems. The other would be a stand-alone LTCH market basket. Depending 

on the outcome of our research, we anticipate the possibility of proposing a rehabilitation 

and psychiatric (RP) market basket in the next update cycle. 

 In the FY 2012 IRF PPS proposed rule (76 FR 24229), we invited public 

comment on the possibility of using this type of market basket to update IRF payments in 

the future. 

 Comment: One commenter stated that CMS’ ongoing work to develop a market 

basket that reflects freestanding IRF and freestanding IPF data should be research that 

CMS continues to explore. The commenter also stressed that a separate market basket 

which excludes LTC hospital costs must be contingent on the availability of reliable data 

from a representative group of IRF and IPF facilities. 

 Response: We will consider the commenters’ concerns as we continue to 

investigate the feasibility of developing a market basket derived using data from 

freestanding IPF and freestanding IRF providers. We agree that before moving away 

from the existing RPL market basket, we must be confident that we have reliable data 

gathered from a representative group of IRF and IPF providers. Any change to the 

market basket used to update IRF payments will also be subject to the rulemaking 
CMS-1349-F 55 

process. 

 Comment: One commenter recommended that CMS proceed with caution in its 

efforts to create a market basket based solely on freestanding IRF and freestanding IPF 

data. They noted that there are substantial geographic differences in the location of RPL 

providers. Several commenters requested that CMS share its research with the industry 

in advance of any proposed rulemaking so that any unintended consequences of a change 

could be addressed by CMS and stakeholders. 

 Response: We agree with the commenter’s observation that there are substantial 

geographic differences in the location of IRF and IPF facilities. We would note that the 

CMS market baskets, including the RPL, necessarily reflect the relative costs of inputs 

for a given base year at the national level. We will continue to investigate the feasibility 

of creating a market basket that is nationally representative and is based on IPF and IRF 

data. Any changes to the market basket, including changes in methodology, would be 

subject to the rulemaking process. 

 For this update cycle (FY 2012), we are finalizing our intent to continue to use an 

RPL market basket based on freestanding IRF, freestanding IPF, and long term care 

hospital (LTCH) data. We will continue to pursue the feasibility of creating two separate 

market baskets from the current RPL, one of which would include freestanding IRFs and 

freestanding IPFs and would be used to update payments under both the IPF and IRF 

payment systems. The other would be a stand-alone LTCH market basket. 

 For this update cycle, we proposed to rebase and revise the FY 2002-based RPL 

market basket to a FY 2008-based RPL market basket. In the following discussion, we 

provide an overview of the market basket and describe the methodologies we use for 
CMS-1349-F 56 

purposes of determining the operating and capital portions of the proposed FY 2008-

based RPL market basket. 

b. Overview of the FY 2008-Based RPL Market Basket

 The FY 2008-based RPL market basket is a fixed-weight, Laspeyres-type price 

index. A Laspeyres price index measures the change in price, over time, of the same mix 

of goods and services purchased in the base period. Any changes in the quantity or mix 

of goods and services (that is, intensity) purchased over time relative to a base period are 

not measured. 

 The index itself is constructed in three steps. First, a base period is selected (in 

the proposed rule, the base period is FY 2008) and total base period expenditures are 

estimated for a set of mutually exclusive and exhaustive spending categories with the 

proportion of total costs that each category represents being calculated. 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 derived from publicly 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. 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 timeframe. 
CMS-1349-F 57 

 As noted above, the market basket is described as a fixed-weight index because it 

represents the change in price over time of a constant mix (quantity and intensity) of 

goods and services needed to furnish hospital services. The effects on total expenditures 

resulting from changes in the mix of goods and services purchased subsequent to the base 

period are not measured. For example, a hospital hiring more nurses to accommodate the 

needs of patients would increase the volume of goods and services purchased by the 

hospital, but would not be factored into the price change measured by a fixed-weight 

hospital market basket. Only when the index is rebased would changes in the quantity 

and intensity be captured, with those changes being reflected in the cost weights. 

Therefore, we rebase the market basket periodically so that the cost weights reflect recent 

changes in the mix of goods and services that hospitals purchase (hospital inputs) to 

furnish inpatient care between base periods. 

c. Rebasing and Revising of the RPL Market Basket

 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, in the proposed rule, we proposed to shift the 

base year cost structure for the RPL market basket from FY 2002 to FY 2008). 

“Revising” means changing data sources, price proxies, or methods, used to derive the 

input price index. For FY 2012, we proposed to rebase and revise the market basket used 

to update the IRF PPS. 

(1) Development of Cost Categories and Weights 

(a) Medicare Cost Reports

 The FY 2008-based RPL market basket consists of several major cost categories 
CMS-1349-F 58 

derived from the FY 2008 Medicare cost reports for freestanding IRFs, freestanding IPFs, 

and LTCHs including wages and salaries, pharmaceuticals, professional liability 

insurance (PLI), capital, and a residual. This residual reflects all remaining costs that are 

not captured in the four cost categories listed above. The FY 2008 cost reports include 

providers whose cost report begin date is on or between October 1, 2007, and September 

30, 2008. We choose to use FY 2008 as the base year because we believe that the 

Medicare cost reports for this year represent the most recent, complete set of Medicare 

cost report data available for IRFs, IPFs, and LTCHs. However, there is an issue with 

obtaining data specifically for benefits and contract labor from this set of FY 2008 

Medicare cost reports since IRFs, IPFs, and LTCHs were not required to complete the 

Medicare cost report worksheet from which these data were collected (Worksheet S-3, 

part II). As a result, only a small number of providers (less than 30 percent) reported data 

for these categories, and we do not expect these data to improve over time. Furthermore, 

since IRFs, IPFs, and LTCHs were not required to submit data for Worksheet S-3, part II 

in previous cost reporting years, we have always had this issue of incomplete Medicare 

cost report data for benefits and contract labor (including when we finalized the FY 2002-

based RPL market basket). Due to the incomplete benefits and contract labor data for 

IRFs, IPFs, and LTCHs, we will develop these cost weights using FY 2008 Medicare cost 

report data for IPPS hospitals (similar to the method that was used for the FY 2002-based 

RPL market basket). Additional detail is provided later in this section. 

 Since our goal is to measure cost shares that are reflective of case mix and 

practice patterns associated with providing services to Medicare beneficiaries, we 

proposed to limit our selection of Medicare cost reports to those from hospitals that have 
CMS-1349-F 59 

a Medicare average length of stay (LOS) that is within a comparable range of their total 

facility average LOS. We believe this provides a more accurate reflection of the structure 

of costs for Medicare covered days. We use the cost reports of IRFs and LTCHs with 

Medicare average LOS within 15 percent (that is, 15 percent higher or lower) of the total 

facility average LOS for the hospital. This is the same edit applied to derive the FY 

2002-based RPL market basket and generally includes those LTCHs and IRFs with 

Medicare LOS within approximately 5 days of the facility average LOS of the hospital. 

 We use a less stringent measure of Medicare LOS for IPFs. For this providertype, and in order to produce a robust sample size, we will use those facilities’ Medicare 

cost reports whose average LOS is within 30 or 50 percent (depending on the total 

facility average LOS) of the total facility average LOS. This is the same edit applied to 

derive the FY 2002-based RPL market basket. 

 We applied these LOS edits to first obtain a set of cost reports for facilities that 

have a Medicare LOS within a comparable range of their total facility LOS. Using this 

set of Medicare cost reports, we then calculated cost weights for 4 cost categories and a 

residual as represented by all other costs directly from the FY 2008 Medicare cost reports 

for freestanding IRFs, freestanding IPFs, and LTCHs (see Table 3 for these four cost 

categories and their associated weights). These Medicare cost report cost weights were 

then supplemented with information obtained from other data sources (explained in more 

detail below) to derive the proposed FY 2008-based RPL market basket cost weights. 
CMS-1349-F 60 

TABLE 3: Major Cost Categories and Their Respective Cost Weights as Calculated 

Directly from FY 2008 Medicare Cost Reports 

Major Cost Categories 

FY 2008-Based RPL Market 

Basket 

(Percent) 

Wages and salaries 47.371 

Professional Liability Insurance (Malpractice) 0.764 

Pharmaceuticals 6.514 

Capital 8.392 

All other 36.959 

(b) Other Data Sources

 In addition to the IRF, IPF and LTCH Medicare cost reports for freestanding IRFs 

and freestanding IPFs, and LTCHs, the other data sources we used to develop the 

proposed FY 2008-based RPL market basket cost weights were the FY 2008 IPPS 

Medicare cost reports and the Benchmark Input-Output (I-O) Tables created by the 

Bureau of Economic Analysis (BEA), U.S. Department of Commerce. The FY 2008 

Medicare cost reports include providers whose cost report begin date is on or between 

October 1, 2007 and September 30, 2008. 

 As noted above, the FY 2008-based RPL cost weights for benefits and contract 

labor were derived using FY 2008-based IPPS Medicare cost reports. We used these 

Medicare cost reports to calculate cost weights for Wages and Salaries, Benefits, and 

Contract Labor for IPPS hospitals for FY 2008. For the Benefits cost weight for the FY 

2008-based RPL market basket, the ratio of the FY 2008 IPPS Benefits cost weight to the 

FY 2008 IPPS Wages and Salaries cost weight was applied to the RPL Wages and 

Salaries cost weight. Similarly, the ratio of the FY 2008 IPPS Contract Labor cost 

weight to the FY 2008 IPPS Wages and Salaries cost weight was applied to the RPL 

Wages and Salaries cost weight to derive a Contract Labor cost weight for the proposed 

FY 2008-based RPL market basket. 
CMS-1349-F 61 

 The All Other cost category is divided into other hospital expenditure category 

shares using the 2002 BEA Benchmark I-O data following the removal of the portions of 

the All Other cost category provided in Table 3 that are attributable to Benefits and 

Contract Labor. The BEA Benchmark I-O data are scheduled for publication every 

5 years. The most recent data available are for 2002. BEA also produces Annual I-O 

estimates; however, the 2002 Benchmark I-O data represent a much more comprehensive 

and complete set of data that are derived from the 2002 Economic Census. The Annual IO is simply an update of the Benchmark I-O tables. For the FY 2002-based RPL market 

basket, we used the 1997 Benchmark I-O data. We use the 2002 Benchmark I-O data in 

the FY 2008-based RPL market basket. Instead of using the less detailed Annual I-O 

data, we inflated the 2002 Benchmark I-O data forward to 2008. The methodology we 

used to inflate the data forward involves applying the annual price changes from the 

respective price proxies to the appropriate cost categories. We repeat this practice for 

each year. 

 The “All Other” cost category expenditure shares are determined as being equal to 

each category’s proportion to total “all other” based on the inflated 2002 Benchmark I-O 

data. For instance, if the cost for telephone services represented 10 percent of the sum of 

the “all other” Benchmark I-O hospital expenditures, then telephone services would 

represent 10 percent of the RPL market basket's All Other cost category. 

 Comment: One commenter supported using the latest available data to update the 

IRF PPS; however, the commenter observed that CMS relied on acute care hospital data 

for certain items (that is, Employee Benefits, Contract Labor) that were not collected in 

the RPL settings. The commenter recommend that CMS consider revisions to the cost 
CMS-1349-F 62 

report data for the RPL settings to collect this information in advance of the next rebasing 

to allow the use of specific RPL data for all cost categories, weights, and price proxies. 

 Response: Effective for cost reports beginning on or after May 1, 2010, we 

finalized a revised Hospital and Hospital Health Care Complex Cost Report, Form CMS 

2552-10, which is available for download from the CMS webpage at 

http://www.cms.gov/Transmittals/2010Trans/list.asp?intNumPerPage=10 by clicking on 

the link to CMS Transmittal #R1P240. Form CMS 2552-10 includes a new worksheet 

(Worksheet S-3, part V) which identifies the contract labor costs and benefit costs for the 

hospital complex and is applicable to sub-providers and units. We believe that all 

providers will report this data so that we will be able to include it in future market basket 

rebasings. 

(2) Final Cost Category Computation 

As stated previously, for this rebasing we proposed to use the Medicare cost 

reports for IRFs, IPFs, and LTCHs to derive four major cost categories. The proposed 

FY 2008-based RPL market basket includes 2 additional cost categories that were not 

broken out separately in the FY 2002-based RPL market basket: “Administrative and 

Business Support Services” and “Financial Services”. The inclusion of these 2 additional 

cost categories, which are derived using the Benchmark I-O data, is consistent with the 

addition of these two cost categories to the FY 2006-based IPPS market basket 

(74 FR 43845). We are breaking out both categories so we can better match their 

respective expenses with more appropriate price proxies. A thorough discussion of our 

rationale for each of these cost categories is provided in section VI.A.1.c.(3) of this final 

rule. Also, the FY 2008-based RPL market basket excludes 1 cost category: Photo 
CMS-1349-F 63 

Supplies. The 2002 Benchmark I-O weight for this category is considerably smaller than 

the 1997 Benchmark I-O weight, presently accounting for less than one-tenth of one 

percentage point of the RPL market basket. Therefore, we will include the photo supplies 

costs in the Chemical cost category weight with other similar chemical products.

 We are not changing our definition of the labor-related share. However, we are 

renaming our aggregate cost categories from “labor-intensive” and “nonlabor-intensive” 

services to “labor-related” and “nonlabor-related” services. This is consistent with the 

FY 2006-based IPPS market basket (74 FR 43845). As discussed in more detail below 

and similar to the FY 2002-based RPL market basket, we classify a cost category as 

labor-related and include it in the labor-related share if the cost category is defined as 

being labor-intensive and its cost varies with the local labor market. In previous 

regulations, we grouped cost categories that met both of these criteria into labor-intensive 

services. We believe the new labels more accurately reflect the concepts that they are 

intended to convey. We are not changing our definition of the labor-related share 

because we continue to classify a cost category as labor-related if the costs are laborintensive and vary with the local labor market. 

(3) Selection of Price Proxies 

 After computing the FY 2008 cost weights for the rebased RPL market basket, it 

was necessary to select appropriate wage and price proxies to reflect the rate of price 

change for each expenditure category. With the exception of the proxy for PLI, all of the 

proxies for the operating portion of the proposed FY 2008-based RPL market basket are 

based on Bureau of Labor Statistics (BLS) data and are grouped into one of the following 

BLS categories: 
CMS-1349-F 64 

(a) Producer Price Indexes--Producer Price Indexes (PPIs) measure price changes for 

goods sold in markets other than the retail market. PPIs are preferable price proxies for 

goods and services that hospitals purchase as inputs because these PPIs better reflect the 

actual price changes faced by hospitals. For example, we use a special PPI for 

prescription drugs, rather than the Consumer Price Index (CPI) for prescription drugs, 

because hospitals generally purchase drugs directly from a wholesaler. The PPIs that we 

use measure price changes at the final stage of production. 

(b) Consumer Price Indexes--CPIs measure change 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 used CPIs only if an appropriate PPI was not available, or if the 

expenditures were more similar to those faced by retail consumers in general rather than 

by purchasers of goods at the wholesale level. For example, the CPI for food purchased 

away from home is used as a proxy for contracted food services. 

(c) Employment Cost Indexes--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, these indexes 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. Timeliness implies that the proxy is published 

regularly, preferably at least once a quarter. Availability means that the proxy is publicly 

available. Finally, relevance means that the proxy is applicable and representative of the 
CMS-1349-F 65 

cost category weight to which it is applied. The proposed CPIs, PPIs, and ECIs selected 

meet these criteria. 

 Table 4 sets forth the proposed FY 2008-based RPL market basket including cost 

categories, and their respective weights and price proxies. For comparison purposes, the 

corresponding FY 2002-based RPL market basket cost weights are listed, as well. For 

example, Wages and Salaries are 49.447 percent of total costs in the proposed FY 2008-

based RPL market basket compared to 52.895 percent for the FY 2002-based RPL market 

basket. Employee Benefits are 12.831 percent in the proposed FY 2008-based RPL 

market basket compared to 12.982 percent for the FY 2002-based RPL market basket. 

As a result, compensation costs (Wages and Salaries plus Employee Benefits) for the 

proposed FY 2008-based RPL market basket are 62.278 percent of total costs compared 

to 65.877 percent for the FY 2002-based RPL market basket. 

 Following Table 4 is a summary outlining the choice of the proxies we are using 

for the operating portion of the FY 2008-based RPL market basket. The price proxies for 

the capital portion are described in more detail in the capital methodology section (see 

section VI.A.1.c.(4) of this final rule). 

 We note that the proxies for the operating portion of the FY 2008-based RPL 

market basket are the same as those used for the FY 2006-based IPPS operating market 

basket. Because these proxies meet our criteria of reliability, timeliness, availability, and 

relevance, we believe they are the best measures of price changes for the cost categories. 

For further discussion on the FY 2006-based IPPS market basket, see the IPPS final rule 

published in the August 27, 2009 Federal Register (74 FR 43843). 
CMS-1349-F 66 

TABLE 4: FY 2008-Based RPL Market Basket Cost Categories, Weights, and Price 

Proxies with FY 2002-Based RPL Market Basket Cost Weights Included for 

Comparison 

Cost Categories 

FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights FY 2008-Based RPL Market Basket Price Proxies 

1. Compensation 62.278 65.877 -- 

A. Wages and Salaries1 49.447 52.895 ECI for Wages and Salaries, Civilian Hospital Workers 

B. Employee Benefits1 12.831 12.982 ECI for Benefits, Civilian Hospital Workers 

2. Utilities 1.578 0.656 -- 

A. Electricity 1.125 0.351 PPI for Commercial Electric Power 

B. Fuel, Oil, and Gasoline 0.371 0.108 PPI for Petroleum Refineries 

C. Water and Sewage 0.082 0.197 CPI-U for Water and Sewerage Maintenance 

3. Professional Liability 

Insurance 

0.764 1.161 CMS Hospital Professional Liability Insurance 

Premium Index 

4. All Other Products and 

Services 

26.988 22.158 -- 

A. All Other Products 15.574 13.325 -- 

(1.) Pharmaceuticals 6.514 5.103 PPI for Pharmaceutical Preparations for Human 

Use(Prescriptions) 

(2.) Food: Direct Purchases 2.959 0.873 PPI for Processed Foods and Feeds 

(3.) Food: Contract Services 0.392 0.620 CPI-U for Food Away From Home 

(4.) Chemicals2 1.100 1.100 Blend of Chemical PPIs 

(5.) Medical Instruments 1.795 1.014 PPI for Medical, Surgical, and Personal Aid Devices 

(6.) Photographic Supplies -- 0.096 -- 

(7.) Rubber and Plastics 1.131 1.052 PPI for Rubber and Plastic Products 

(8.) Paper and Printing Products 1.021 1.000 PPI for Converted Paper and Paperboard Products 

(9.) Apparel 0.210 0.207 PPI for Apparel 

(10.) Machinery and Equipment 0.106 0.297 PPI for Machinery and Equipment 

(11.) Miscellaneous Products 0.346 1.963 PPI for Finished Goods less Food and Energy 

B. All Other Services 11.414 8.833 -- 

(1.) Labor-related Services 4.681 5.111 -- 

(a.) Professional Fees: Laborrelated3

2.114 2.892 ECI for Compensation for Professional and Related 

Occupations 

(b.) Administrative and Business 

Support Services4

0.422 n/a ECI for Compensation for Office and Administrative 

Services 

(c.) All Other: Labor-Related 

Services5

2.145 2.219 ECI for Compensation for Private Service Occupations 

(2.) Nonlabor-Related Services 6.733 3.722 -- 

(a.) Professional Fees: 

Nonlabor-Related3

4.211 n/a ECI for Compensation for Professional and Related 

Occupations 

(b.) Financial Services 5 0.853 n/a ECI for Compensation for Financial Activities 

(c.) Telephone Services 0.416 0.240 CPI-U for Telephone Services 

(d.) Postage 0.630 0.682 CPI-U for Postage 

(e.) All Other: Nonlabor-Related 

Services4

0.623 2.800 CPI-U for All Items less Food and Energy 

5. Capital-Related Costs 8.392 10.149 -- 

A. Depreciation 5.519 6.187 -- 
CMS-1349-F 67 

Cost Categories 

FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights FY 2008-Based RPL Market Basket Price Proxies 

(1.) Fixed Assets 3.286 4.250 BEA chained price index for nonresidential construction 

for hospitals and special care facilities—vintage 

weighted (26 years) 

(2.) Movable Equipment 2.233 1.937 PPI for Machinery and Equipment—vintage weighted 

(11 years). 

B. Interest Costs 1.954 2.775 -- 

(1.) Government/Nonprofit 0.653 2.081 Average yield on domestic municipal bonds (Bond 

Buyer 20 bonds)—vintage-weighted (26 years) 

(2.) For Profit 1.301 0.694 Average yield on Moody’s Aaa bonds—vintageweighted (26 years) 

C. Other Capital-Related Costs 0.919 1.187 CPI–U for Residential Rent 

Total 100.000 100.000 -- 

Note: Detail may not add to total due to rounding. 

1

Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total 

compensation that each category represents. 2

To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gases, 

the PPI for Other Basic Inorganic Chemical Manufacturing, the PPI for Other Basic Organic Chemical 

Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this 

proxy, see section V.A.1.c.(3).(c).(x) of this proposed rule. 

3

The Professional Fees: Labor-related and Professional Fees: Nonlabor-related cost categories were 

included in one cost category called Professional Fees in the FY 2002-based RPL market basket. For more 

detail about how these new categories were derived, we refer readers to sections VI.A.1.c.(3).(c).(xviii) and 

VI.A.1.c.(3).(c).(xxi) of this final rule. 

4

The Administrative and Business Support Services cost category was contained within All Other: 

Labor-intensive Services cost category in the FY 2002-based RPL market basket. The All Other: 

Labor-intensive Services cost category is renamed the All Other: Labor-related Services cost category for 

the FY 2008-based RPL market basket. 5

The Financial Services cost category was contained within the All Other: Non-labor Intensive Services 

cost category in the FY 2002-based RPL market basket. The All Other: Non-labor Intensive Services cost 

category is renamed the All Other: Nonlabor-related Services cost category for the FY 2008-based RPL 

market basket. 

(i) Wages and Salaries

 We use the ECI for Wages and Salaries for Hospital Workers (All Civilian) (BLS 

series code CIU1026220000000I) to measure the price growth of this cost category. This 

same proxy was used in the FY 2002-based RPL market basket. 

(ii) Employee Benefits

 We use the ECI for Employee Benefits for Hospital Workers (All Civilian) to 

measure the price growth of this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 
CMS-1349-F 68 

(iii) Electricity

 We use the PPI for Commercial Electric Power (BLS series code WPU0542). 

This same proxy was used in the FY 2002-based RPL market basket. 

(iv) Fuel, Oil, and Gasoline

 For the FY 2002-based RPL market basket, this category only included expenses 

classified under North American Industry Classification System (NAICS) 21 (Mining). 

We proxied this category using the PPI for Commercial Natural Gas (BLS series code 

WPU0552). For the FY 2008-based market basket, we add costs to this category that had 

previously been grouped in other categories. The added costs include petroleum-related 

expenses under NAICS 324110 (previously captured in the miscellaneous category), as 

well as petrochemical manufacturing classified under NAICS 325110 (previously 

captured in the chemicals category). These added costs represent 80 percent of the 

hospital industry's fuel, oil, and gasoline expenses (or 80 percent of this category). 

Because the majority of the industry's fuel, oil, and gasoline expenses originate from 

petroleum refineries (NAICS 324110), we use the PPI for Petroleum Refineries (BLS 

series code PCU324110324110) as the proxy for this cost category. 

(v) Water and Sewage

 We use the CPI for Water and Sewerage Maintenance (All Urban Consumers) 

(BLS series code CUUR0000SEHG01) to measure the price growth of this cost category. 

This same proxy was used in the FY 2002-based RPL market basket. 

(vi) Professional Liability Insurance

 We proxy price changes in hospital PLI premiums using percentage changes as 

estimated by the CMS Hospital Professional Liability Index. To generate these estimates, 
CMS-1349-F 69 

we collect commercial insurance premiums for a fixed level of coverage while holding 

non-price factors constant (such as a change in the level of coverage). This method is 

also used to proxy PLI price changes in the Medicare Economic Index (75 FR 73268). 

This same proxy was used in the FY 2002-based RPL market basket. 

(vii) Pharmaceuticals

 We use the PPI for Pharmaceuticals for Human Use, Prescription (BLS series 

code WPUSI07003) to measure the price growth of this cost category. We note that we 

are not making a change to the PPI that is used to proxy this cost category. There was a 

recent change to the BLS naming convention for this series; however, this is the same 

proxy that was used in the FY 2002-based RPL market basket. 

(viii) Food: Direct Purchases

 We use the PPI for Processed Foods and Feeds (BLS series code WPU02) to 

measure the price growth of this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 

(ix) Food: Contract Services

 We use the CPI for Food Away From Home (All Urban Consumers) (BLS series 

code CUUR0000SEFV) to measure the price growth of this cost category. This same 

proxy was used in the FY 2002-based RPL market basket. 

(x) Chemicals

 We use a blended PPI composed of the PPI for Industrial Gas Manufacturing 

(NAICS 325120) (BLS series code PCU325120325120P), the PPI for Other Basic 

Inorganic Chemical Manufacturing (NAICS 325180) (BLS series code PCU32518-

32518-), the PPI for Other Basic Organic Chemical Manufacturing (NAICS 325190) 
CMS-1349-F 70 

(BLS series code PCU32519-32519-), and the PPI for Soap and Cleaning Compound 

Manufacturing (NAICS 325610) (BLS series code PCU32561-32561-). Using the 2002 

Benchmark I-O data, we found that these NAICS industries accounted for approximately 

90 percent of the hospital industry's chemical expenses. 

 Therefore, we use this blended index because we believe its composition better 

reflects the composition of the purchasing patterns of hospitals than does the PPI for 

Industrial Chemicals (BLS series code WPU061), the proxy used in the FY 2002-based 

RPL market basket. Table 5 shows the weights for each of the four PPIs used to create 

the blended PPI, which we determined using the 2002 Benchmark I-O data. 

TABLE 5: Blended Chemical PPI Weights 

Name 

Weights 

(in 

percent) NAICS 

PPI for Industrial Gas Manufacturing 35% 325120 

PPI for Other Basic Inorganic Chemical Manufacturing 25% 325180 

PPI for Other Basic Organic Chemical Manufacturing 30% 325190 

PPI for Soap and Cleaning Compound Manufacturing 10% 325610 

(xi) Medical Instruments

 We use the PPI for Medical, Surgical, and Personal Aid Devices (BLS series code 

WPU156) to measure the price growth of this cost category. In the 1997 Benchmark I-O 

data, approximately half of the expenses classified in this category were for surgical and 

medical instruments. Therefore, we used the PPI for Surgical and Medical Instruments 

and Equipment (BLS series code WPU1562) to proxy this category in the FY 2002-based 

RPL market basket. The 2002 Benchmark I-O data show that surgical and medical 

instruments now represent only 33 percent of these expenses and that the largest expense 

category is surgical appliance and supplies manufacturing (corresponding to BLS series 
CMS-1349-F 71 

code WPU1563). Due to this reallocation of costs over time, we are changing the price 

proxy for this cost category to the more aggregated PPI for Medical, Surgical, and 

Personal Aid Devices. 

(xii) Photographic Supplies

 We eliminate the cost category specific to photographic supplies for the proposed 

FY 2008 based RPL market basket. These costs are now included in the Chemicals cost 

category because the costs are presently reported as all other chemical products. Notably, 

although we are eliminating the specific cost category, these costs are still accounted for 

within the RPL market basket. 

 (xiii) Rubber and Plastics

 We use the PPI for Rubber and Plastic Products (BLS series code WPU07) to 

measure price growth of this cost category. This same proxy was used in the FY 2002-

based RPL market basket. 

(xiv) Paper and Printing Products

 We use the PPI for Converted Paper and Paperboard Products (BLS series code 

WPU0915) to measure the price growth of this cost category. This same proxy was used 

in the FY 2002-based RPL market basket. 

(xv) Apparel

 We use the PPI for Apparel (BLS series code WPU0381) to measure the price 

growth of this cost category. This same proxy was used in the FY 2002-based RPL 

market basket. 

(xvi) Machinery and Equipment

 We use the PPI for Machinery and Equipment (BLS series code WPU11) to 
CMS-1349-F 72 

measure the price growth of this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 

(xvii) Miscellaneous Products

 We use the PPI for Finished Goods Less Food and Energy (BLS series code 

WPUSOP3500) to measure the price growth of this cost category. Using this index 

removes the double-counting of food and energy prices, which are already captured 

elsewhere in the market basket. This same proxy was used in the FY 2002-based RPL 

market basket. 

(xviii) Professional Fees: Labor-Related

 We use the ECI for Compensation for Professional and Related Occupations 

(Private Industry) (BLS series code CIS2020000120000I) to measure the price growth of 

this category. It includes occupations such as legal, accounting, and engineering services. 

This same proxy was used in the FY 2002-based RPL market basket. 

(xix) Administrative and Business Support Services

 We use the ECI for Compensation for Office and Administrative Support Services 

(Private Industry) (BLS series code CIU2010000220000I) to measure the price growth of 

this category. Previously these costs were included in the All Other: Labor-intensive 

category (now renamed the All Other: Labor-related Services category), and were 

proxied by the ECI for Compensation for Service Occupations. We believe that this 

compensation index better reflects the changing price of labor associated with the 

provision of administrative services and its incorporation represents a technical 

improvement to the market basket. 

(xx) All Other: Labor-Related Services
CMS-1349-F 73 

 We use the ECI for Compensation for Service Occupations (Private Industry) 

(BLS series code CIU2010000300000I) to measure the price growth of this cost category. 

This same proxy was used in the FY 2002-based RPL market basket. 

(xxi) Professional Fees: Nonlabor-Related

 We use the ECI for Compensation for Professional and Related Occupations 

(Private Industry) (BLS series code CIS2020000120000I) to measure the price growth of 

this category. This is the same price proxy that we are using to use for the Professional 

Fees: Labor-related cost category. 

(xxii) Financial Services

 We use the ECI for Compensation for Financial Activities (Private Industry) 

(BLS series code CIU201520A000000I) to measure the price growth of this cost 

category. Previously these costs were included in the All Other: Nonlabor-intensive 

category (now renamed the All Other: Nonlabor-related Services category), and were 

proxied by the CPI for All Items. We believe that this compensation index better reflects 

the changing price of labor associated with the provision of financial services and its 

incorporation represents a technical improvement to the market basket. 

(xxiii) Telephone Services

 We use the CPI for Telephone Services (BLS series code CUUR0000SEED) to 

measure the price growth of this cost category. This same proxy was used in the 

FY 2002-based RPL market basket. 

(xxiv) Postage

 We use the CPI for Postage (BLS series code CUUR0000SEEC01) to measure the 

price growth of this cost category. This same proxy was used in the FY 2002-based RPL 
CMS-1349-F 74 

market basket. 

(xxv) All Other: Nonlabor-Related Services

 We use the CPI for All Items Less Food and Energy (BLS series code 

CUUR0000SA0L1E) to measure the price growth of this cost category. Previously these 

costs were proxied by the CPI for All Items in the FY 2002-based RPL market basket. 

We believe that using the CPI for All Items Less Food and Energy removes the 

double counting of changes in food and energy prices, as they are already captured 

elsewhere in the market basket. Consequently, we believe that the incorporation of this 

proxy represents a technical improvement to the market basket. 

 Comment: One commenter observed that the compensation cost weight showed a 

decline from the FY 2002 to FY 2008 base year. The commenter noted that these 

reductions may be a result of low salary increases salary freezes or other similar factors 

and are not necessarily indicative of a reduction in the labor intensity of the services 

provided by IRFs. 

 Response: We agree with the commenter that a variety of factors and trends can 

influence changes in the cost shares of the RPL market basket. Relative to growth in 

nonlabor costs, slower growth in the cost of labor (due to low salary increases or freezes 

in salary), could result in a lower cost weight associated with wages and salaries. 

Likewise, stable growth in labor costs coupled with relatively faster growth in nonlabor 

costs could also result in a lower cost weight associated with wages and salaries. As the 

rebased and revised 2008-based RPL market basket’s cost weights reflect an updated 

distribution of costs and represent the best available data, we are finalizing this market 

basket in this final rule. 
CMS-1349-F 75 

(4) Methodology for Capital Portion of the RPL Market Basket 

 In the FY 2002-based RPL market basket, we did not have freestanding IRF, 

freestanding IPF, and LTCH 2002 Medicare cost report data for the capital cost weights, 

due to a change in the 2002 reporting requirements. Therefore, we used these hospitals’ 

2001 expenditure data for the capital cost categories of depreciation, interest, and other 

capital expenses, and inflated the data to a 2002 base year using relevant price proxies. 

 For the FY 2008-based RPL market basket, we calculate weights for the proposed 

RPL market basket capital costs using the same set of FY 2008 Medicare cost reports 

used to develop the operating share for IRFs, IPFs, and LTCHs. To calculate the total 

capital cost weight, we first apply the same LOS edits as applied when calculating the 

operating cost weights as described above in section VI.A.1.c.(1)(a) of this final rule. 

The resulting capital weight for the FY 2008 base year is 8.392 percent. 

 Lease expenses are unique in that they are not broken out as a separate cost 

category in the RPL market basket, but rather are proportionally distributed amongst the 

cost categories of Depreciation, Interest, and Other, reflecting the assumption that the 

underlying cost structure of leases is similar to that of capital costs in general. As was 

done in the FY 2002-based RPL market basket, we first assumed 10 percent of lease 

expenses represents overhead and assigned those costs to the “Other Capital-Related 

Costs” category accordingly. The remaining lease expenses were distributed across the 3 

cost categories based on the respective weights of depreciation, interest, and other capital 

not including lease expenses. 

 Depreciation contains two subcategories: (1) Building and Fixed Equipment; and 

(2) Movable Equipment. The apportionment between building and fixed equipment and 
CMS-1349-F 76 

movable equipment was determined using the FY 2008 Medicare cost reports for 

freestanding IRFs, freestanding IPFs, and LTCHs. This methodology was also used to 

compute the apportionment used in the FY 2002-based RPL market basket (70 FR 

47912). 

 The total Interest expense cost category is split between government/nonprofit 

interest and for-profit interest. The FY 2002-based RPL market basket allocated 

75 percent of the total Interest cost weight to government/nonprofit interest and proxied 

that category by the average yield on domestic municipal bonds. The remaining 25 

percent of the Interest cost weight was allocated to for-profit interest and was proxied by 

the average yield on Moody's Aaa bonds (70 FR 47912). This was based on the FY 

2002-based IPPS Capital input price index (CIPI) (70 FR 23406) due to insufficient 

Medicare cost report data for freestanding IRFs, freestanding IPFs, and LTCHs. For the 

FY 2008-based RPL market basket, we proposed to derive the split using the FY 2008 

Medicare cost report data on interest expenses for government/nonprofit and for-profit 

freestanding IRFs, freestanding IPFs, and LTCHs. Based on these data, we calculated a 

33/67 split between government/nonprofit and for-profit interest. We believe it is 

important that this split reflects the latest relative cost structure of interest expenses for 

RPL providers. As stated above, we first apply the LOS edits (as described in section 

VI.A.1.c.(1)(a) of this final rule) prior to calculating this split. Therefore, we are using 

cost reports that are reflective of case mix and practice patterns associated with providing 

services to Medicare beneficiaries. Using data specific to government/nonprofit and forprofit freestanding IRFs, freestanding IPFs, and LTCHs as well as the application of 

these LOS edits are the primary reasons for the difference in this split relative to the FY 
CMS-1349-F 77 

2002-based RPL market basket. 

 Because 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 portion of the FY 2008-based RPL market basket 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 proportion of capital purchases attributable to each year of the expected life of 

building and fixed equipment, movable equipment, and interest. We 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 2008-based RPL market 

basket. Capital costs are inherently complicated and are determined by complex capital 

purchasing decisions, over time, based on such factors 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 FY 2008-based RPL market 

basket reflects 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 and stable annual measure of 

price changes. Annual nonvintage price changes for capital are unstable due to the 

volatility of interest rate changes and, therefore, do not reflect the actual annual price 

changes for Medicare capital-related costs. The capital component of the proposed FY 

2008-based RPL market basket reflects the underlying stability of the capital acquisition 

process and provides hospitals with the ability to plan for changes in capital payments. 
CMS-1349-F 78 

 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 an appropriate time series of capital 

purchases by hospitals for all of the above components of capital purchases. The early 

Medicare cost reports did not have sufficient capital data to meet this need. Data we 

obtained from the American Hospital Association (AHA) do not include annual capital 

purchases. However, AHA does provide a consistent database back to 1963. We used 

data from the AHA Panel Survey and the AHA Annual Survey to obtain a time series of 

total expenses for hospitals. We then used data from the AHA Panel Survey 

supplemented with the ratio of depreciation to total hospital expenses obtained from the 

Medicare cost reports to derive a trend of annual depreciation expenses for 1963 through 

2008. 

 To estimate capital purchases using data on depreciation expenses, the expected 

life for each cost category (building and fixed equipment, movable equipment, and 

interest) is needed to calculate vintage weights. For the FY 2002-based RPL market 

basket, due to insufficient Medicare cost report data for freestanding IRFs, freestanding 

IPFs, and LTCHs, we used 2001 Medicare Cost Reports for IPPS hospitals to determine 

the expected life of building and fixed equipment and movable equipment (70 FR 47913). 

The FY 2002-based RPL market basket was based on an expected life of building and 

fixed equipment of 23 years. It used 11 years as the expected life for movable 

equipment. We believed that this data source reflected the latest relative cost structure of 

depreciation expenses for hospitals at the time and was analogous to freestanding IRFs, 

freestanding IPFs, and LTCHs. 
CMS-1349-F 79 

 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. Following a 

similar method to what was applied for the FY 2002-based RPL market basket, we use 

the expected life of building and fixed equipment to be equal to 26 years, and the 

expected life of movable equipment to be 11 years. These expected lives are calculated 

using FY 2008 Medicare cost reports for IPPS hospitals since we are currently unable to 

obtain robust measures of the expected lives for building and fixed equipment and 

movable equipment using the Medicare cost reports from freestanding IRFs, freestanding 

IPFs, and LTCHs. 

 We also use the building and fixed equipment and movable equipment weights 

derived from FY 2008 Medicare cost reports for freestanding IRFs, freestanding IPFs, 

and LTCHs to separate the depreciation expenses into annual amounts of building and 

fixed equipment depreciation and movable equipment depreciation. Year-end asset costs 

for building and fixed equipment and movable equipment were determined by 

multiplying the annual depreciation amounts by the expected life calculations. We then 

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 were able to calculate the vintage weights for building and fixed 

equipment and for movable equipment. Each of these sets of vintage weights is 

explained in more detail below. 

 For the building and fixed equipment vintage weights, we used the real annual 
CMS-1349-F 80 

capital purchase amounts for building and fixed equipment to capture the actual amount 

of the physical acquisition, net of the effect of price inflation. This real annual purchase 

amount for building and fixed equipment was produced by deflating the nominal annual 

purchase amount by the building and fixed equipment price proxy, BEA's chained price 

index for nonresidential construction for hospitals and special care facilities. Because 

building and fixed equipment have an expected life of 26 years, the vintage weights for 

building and fixed equipment are deemed to represent the average purchase pattern of 

building and fixed equipment over 26-year periods. With real building and fixed 

equipment purchase estimates available from 2008 back to 1963, we averaged twenty 26-

year periods 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 26-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 26-year period. This calculation is done for each year in the 26-year 

period, and for each of the twenty 26-year periods. We used the average of each year 

across the twenty 26-year periods to determine the average building and fixed equipment 

vintage weights for the FY 2008-based RPL market basket. 

 For the movable equipment vintage weights, the real annual capital purchase 

amounts for movable equipment were used to capture the actual amount of the physical 

acquisition, net of price inflation. This real annual purchase amount for movable 

equipment was calculated by deflating the nominal annual purchase amounts by the 

movable equipment price proxy, the PPI for Machinery and Equipment. This is the same 

proxy used for the FY 2002-based RPL market basket. Based on our determination that 
CMS-1349-F 81 

movable equipment has an expected life of 11 years, the vintage weights for movable 

equipment represent the average expenditure for movable equipment over an 11-year 

period. With real movable equipment purchase estimates available from 2008 back to 

1963, thirty-five 11-year periods were 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 was done for each year in the 11-year 

period and for each of the thirty-five 11-year periods. We used the average of each year 

across the thirty-five 11-year periods to determine the average movable equipment 

vintage weights for the FY 2008-based RPL market basket. 

 For the interest vintage weights, the nominal annual capital purchase amounts for 

total equipment (building and fixed, and movable) were used to capture the value of the 

debt instrument. Because we have determined that hospital debt instruments have an 

expected life of 26 years, the vintage weights for interest are deemed to represent the 

average purchase pattern of total equipment over 26-year periods. With nominal total 

equipment purchase estimates available from 2008 back to 1963, twenty 26-year periods 

were averaged to determine the average vintage weights for interest that are 

representative of average capital purchase patterns over time. Vintage weights for each 

26-year period are calculated by dividing the nominal total capital purchase amount for 

any given year by the total amount of purchases in the 26-year period. This calculation is 

done for each year in the 26-year period and for each of the twenty 26-year periods. We 

used the average of each year across the twenty 26-year periods to determine the average 
CMS-1349-F 82 

interest vintage weights for the FY 2008-based RPL market basket. The vintage weights 

for the capital portion of the FY 2002-based RPL market basket and the FY 2008-based 

RPL market basket are presented in Table 6. 

TABLE 6: FY 2002 and FY 2008 Vintage Weights for Capital-Related Price 

Proxies 

Building and Fixed Equipment Movable Equipment Interest 

Year FY 2002 

23 years 

FY 2008 

26 years 

FY 2002 

11 years 

FY 2008 

11 years 

FY 2002 

23 years 

FY 2008 

26 years 

1 0.021 0.021 0.065 0.071 0.010 0.010 

2 0.022 0.023 0.071 0.075 0.012 0.012 

3 0.025 0.025 0.077 0.080 0.014 0.014 

4 0.027 0.027 0.082 0.083 0.016 0.016 

5 0.029 0.028 0.086 0.085 0.019 0.018 

6 0.031 0.030 0.091 0.089 0.023 0.020 

7 0.033 0.031 0.095 0.092 0.026 0.021 

8 0.035 0.033 0.100 0.098 0.029 0.024 

9 0.038 0.035 0.106 0.103 0.033 0.026 

10 0.040 0.037 0.112 0.109 0.036 0.029 

11 0.042 0.039 0.117 0.116 0.039 0.033 

12 0.045 0.041 -- -- 0.043 0.035 

13 0.047 0.042 -- -- 0.048 0.038 

14 0.049 0.043 -- -- 0.053 0.041 

15 0.051 0.044 -- -- 0.056 0.043 

16 0.053 0.045 -- -- 0.059 0.046 

17 0.056 0.046 -- -- 0.062 0.049 

18 0.057 0.047 -- -- 0.064 0.052 

19 0.058 0.047 -- -- 0.066 0.053 

20 0.060 0.045 -- -- 0.070 0.053 

21 0.060 0.045 -- -- 0.071 0.055 

22 0.061 0.045 -- -- 0.074 0.056 

23 0.061 0.046 -- -- 0.076 0.060 

24 -- 0.046 -- -- -- 0.063 

25 -- 0.045 -- -- -- 0.064 

26 -- 0.046 -- -- -- 0.068 

Total 1.000 1.000 1.000 1.000 1.000 1.000 

Note: Numbers may not add to total due to rounding. 

 After the capital cost category weights were computed, it was necessary to select 

appropriate price proxies to reflect the rate-of-increase for each expenditure category. 

We use the same price proxies for the capital portion of the FY 2008-based RPL market 

basket that were used in the FY 2002-based RPL market basket with the exception of the 
CMS-1349-F 83 

Boeckh Construction Index. We replaced the Boeckh Construction Index with BEA’s 

chained price index for nonresidential construction for hospitals and special care 

facilities. The BEA index represents construction of facilities such as hospitals, nursing 

homes, hospices, and rehabilitation centers. Although these price indices move similarly 

over time, we believe that it is more technically appropriate to use an index that is more 

specific to the hospital industry. We believe these are the most appropriate proxies for 

hospital capital costs that meet our selection criteria of relevance, timeliness, availability, 

and reliability. 

 The price proxies (prior to any vintage weighting) for each of the capital cost 

categories are the same as those used for the FY 2006-based CIPI as described in the 

IPPS FY 2010 final rule (74 FR at 43857). 

 We received no comments related to the proposed capital portion of the RPL 

methodology including the selection of cost categories, cost weights, and the price 

proxies. Therefore, we are finalizing the capital portion of the 2008-based RPL market 

basket as proposed with no further changes. 

(5) FY 2012 RPL Market Basket Update Factor for IRFs 

 For FY 2012 (that is, beginning October 1, 2011 and ending September 30, 2012), 

we will use an estimate of the FY 2008-based RPL market basket increase factor based 

on the best available data. Consistent with historical practice, we estimate the RPL 

market basket update for the IRF PPS based on IHS Global Insight’s forecast using the 

most recent available data. IHS Global Insight (IGI), Inc. is a nationally recognized 

economic and financial forecasting firm that contracts with CMS to forecast the 

components of the market baskets. 
CMS-1349-F 84 

 Based on IGI’s 1st quarter 2011 forecast with historical data through the fourth 

quarter of 2010, the projected market basket increase factor for FY 2012 was 2.8 percent. 

Consistent with our historical practice of estimating market basket increases based on the 

best available data, we proposed a market basket increase factor of 2.8 percent for FY 

2012. We also proposed that if more recent data became subsequently available (for 

example, a more recent estimate of the market basket), we would use that data, if 

appropriate, to determine the FY 2012 update in the final rule. 

 Based on IGI’s second quarter 2011 forecast with history through the first quarter 

of 2011, the projected market basket update for FY 2012 based on the 2008-based RPL 

market basket is 2.9 percent. 

 Using the current FY 2002-based RPL market basket and IGI’s second quarter 

2011 forecast for the market basket components, the FY 2012 update would be 3.0 

percent (before taking into account any statutory adjustments). Table 7 compares the 

FY 2008-based RPL market basket and the FY 2002-based RPL market basket percent 

changes. 

TABLE 7: FY 2002-Based and FY 2008-Based RPL Market Basket Percent 

Changes, FY 2006 through FY 2014 

Fiscal Year (FY) 

FY 2002-Based RPL Market 

Basket Index Percent Change 

FY 2008-Based RPL Market 

Basket Index Percent Change 

Historical data: 

 FY 2006 3.9 3.7 

 FY 2007 3.4 3.4 

 FY 2008 3.8 3.7 

 FY 2009 2.5 2.7 

 FY 2010 2.3 2.2 

 Average 2006-2010 3.2 3.1 

Forecast: 

 FY 2011 2.7 2.7 

 FY 2012 3.0 2.9 

 FY 2013 3.0 2.9 

 FY 2014 3.0 3.0 

 Average 2011-2014 2.9 2.9 

Note that these market basket percent changes do not include any further adjustments as may be statutorily 
CMS-1349-F 85 

required. 

Source: IHS Global Insight, Inc. 2nd quarter 2011 forecast. 

 For FY 2012, the FY 2008-based RPL market basket update (2.9 percent) is 

slightly lower than the FY 2002-based RPL market basket update (3.0 percent). The 

lower total compensation weight in the FY 2008-based RPL market basket 

(62.278 percent) relative to the FY 2002-based RPL market basket (65.877 percent), 

absent other factors, would have resulted in a slightly lower market basket update using 

the FY 2008-based RPL market basket. This impact, however, is partially offset by the 

larger weight associated with the Professional Fees category. In both market baskets, 

these expenditures are proxied by the ECI for Compensation for Professional and Related 

Services. The weight for Professional Fees in the FY 2002-based RPL market basket is 

2.892 percent compared to 6.325 percent in the proposed FY 2008-based RPL market 

basket. The net effect is that the market basket update is slightly lower for FY 2012 

based on the FY 2008-based RPL market basket relative to the FY 2002-based RPL 

market basket. 

 Comment: Several commenters expressed support that CMS update the RPL 

market basket with more recent cost data. They note that using more up-to-date cost 

report data (2008) makes the RPL market basket more representative of the costs faced 

by IRF providers relative to more outdated cost report data (2002). 

 Response: We agree that the use of more recent cost report data allows for the 

index to better reflect the actual costs faced by IRF providers. Based on the positive 

comments received regarding the rebasing of the RPL market basket, we are finalizing 

our proposal to rebase and revise the index. Based on IGI’s second quarter 2011 forecast 

with history through the first quarter of 2011, the projected market basket update for FY 
CMS-1349-F 86 

2012 is 2.9 percent. Therefore, consistent with our historical practice of estimating 

market basket increases based on the best available data, we are finalizing a market 

basket update of 2.9 percent for FY 2012. 

2. Productivity Adjustment 

According to section 1886(j)(3)(C)(i) of the Act, the Secretary shall establish an 

increase factor “based on an appropriate percentage increase in a market basket of goods 

and services.” As described in section VI.A.1 of this final rule, we estimate the IRF PPS 

increase factor for FY 2012 based on the FY 2008-based RPL market basket. Section 

1886(j)(3)(C)(ii) of the Act then requires that, after establishing the increase factor for a 

FY, “the Secretary shall reduce such increase factor for FY 2012 and each subsequent 

FY, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II)” of the Act. 

Section 1886(b)(3)(B)(xi)(II) of the Act sets forth the definition of this productivity 

adjustment. The statute defines the productivity adjustment to be equal to the 10-year 

moving average of changes in annual economy-wide private nonfarm business 

multifactor productivity (MFP) (as projected by the Secretary for the 10-year period 

ending with the applicable FY cost reporting period, or other annual period) (the 

“MFP adjustment”). The Bureau of Labor Statistics (BLS) is the agency that publishes 

the official measure of private nonfarm business MFP. We refer readers to the BLS Web 

site at http://www.bls.gov/mfp to obtain the historical BLS-published MFP data. 

The projection of MFP is currently produced by IGI, an economic forecasting 

firm. In order to generate a forecast of MFP, IGI replicated the MFP measure calculated 

by the BLS using a series of proxy variables derived from IGI’s U.S. macroeconomic 

models. These models take into account a very broad range of factors that influence the 
CMS-1349-F 87 

total U.S. economy. IGI forecasts the underlying proxy components such as Gross 

Domestic Product (GDP), capital, and labor inputs required to estimate MFP and then 

combines those projections according to the BLS methodology. In Table 8, we identify 

each of the major MFP component series employed by the BLS to measure MFP. We 

also provide the corresponding concepts forecasted by IGI and determined to be the best 

available proxies for the BLS series. 

TABLE 8: Multifactor Productivity Component Series Employed by the Bureau of 

Labor Statistics and IHS Global Insight 

BLS series IGI series 

Real value-added output, constant 

2005 dollars 

 Non-housing, non-government, non-farm real 

GDP, Billions of chained 2005 dollars – annual 

rate 

Private non-farm business sector 

labor input; 2005=100.00 

 Hours of all persons in private non-farm 

establishments, 2005=100.00, adjusted for 

labor composition effects. 

Aggregate capital inputs; 

2005=100.00 

 Real effective capital stock used for full 

employment GDP, Billions of chained 2005 

dollars 

IGI found that the historical growth rates of the BLS components used to 

calculate MFP and the IGI components identified are consistent across all series and 

therefore suitable proxies for calculating MFP. We have included below a more detailed 

description of the methodology used by IGI to construct a forecast of MFP, which is 

aligned closely with the methodology employed by the BLS. For more information 

regarding the BLS method for estimating productivity, see the BLS Web site at 

http://www.bls.gov/mfp/mprtech.pdf. 

At the time of the development of the FY 2012 final rule, the BLS had published 

a historical time series of private nonfarm business MFP for 1987 through 2010, with 
CMS-1349-F 88 

2010 being a preliminary value. Using this historical MFP series and the IGI forecasted 

series, IGI has developed a forecast of MFP for 2011 through 2021, as described below. 

To create a forecast of BLS’ MFP index, the forecasted annual growth rates of the 

“non-housing, non-government, non-farm, real GDP”, “hours of all persons in private 

nonfarm establishments adjusted for labor composition,” and “real effective capital 

stock” series (ranging from 2011 to 2021) are used to “grow” the levels of the “real 

value-added output,” “private non-farm business sector labor input,” and “aggregate 

capital inputs” series published by the BLS. Projections of the “hours of all persons” 

measure are calculated using the difference between projections of the BLS index of 

output per hour and real GDP. This difference is then adjusted to account for changes in 

labor composition in the forecast interval. 

Using these 3 key concepts, MFP is derived by subtracting the contribution of 

labor and capital inputs from output growth. However, in order to estimate MFP, we 

need to understand the relative contributions of labor and capital to total output growth. 

Therefore, 2 additional measures are needed to operationalize the estimation of the IGI 

MFP projection: Labor compensation and capital income. The sum of labor 

compensation and capital income represents total income. The BLS calculates labor 

compensation and capital income (in current dollar terms) to derive the nominal values of 

labor and capital inputs. IGI uses the “non-government total compensation” and “flow of 

capital services from the total private non-residential capital stock” series as proxies for 

the BLS’ income measures. These two proxy measures for income are divided by total 

income to obtain the shares of labor compensation and capital income to total income. 

To estimate labor’s contribution and capital’s contribution to the growth in total output, 
CMS-1349-F 89 

the growth rates of the proxy variables for labor and capital inputs are multiplied by their 

respective shares of total income. These contributions, of labor and capital to output 

growth, are subtracted from total output growth to calculate the “change in the growth 

rates of multifactor productivity”:

MFP = Total output growth — ((labor input growth * labor compensation share) + 

(capital input growth * capital income share))

The change in the growth rates (also referred to as the compound growth rates) of 

the IGI MFP are multiplied by 100 in order to calculate the percent change in growth 

rates (the percent change in growth rates are published by the BLS for its historical MFP 

measure). Finally, the growth rates of the IGI MFP are converted to index levels based to 

2005 to be consistent with the BLS’ methodology. For benchmarking purposes, the 

historical growth rates of IGI’s proxy variables were used to estimate a historical measure 

of MFP, which was compared to the historical MFP estimate published by the BLS. The 

comparison revealed that the growth rates of the components were consistent across all 

series, and therefore validated the use of the proxy variables in generating the IGI MFP 

projections. The resulting MFP index was then interpolated to a quarterly frequency 

using the Bassie method for temporal disaggregation. The Bassie technique utilizes an 

indicator (pattern) series for its calculations. IGI uses the index of output per hour 

(published by the BLS) as an indicator when interpolating the MFP index. 

3. Calculation of the IRF PPS Market Basket Increase Factor for FY 2012 

To calculate the MFP-adjusted IRF PPS increase factor for FY 2012, in 

accordance with section 1886(j)(3)(C) of the Act, we start with the FY 2008-based RPL 

market basket increase factor described above in section VI.A.1. of this final rule and 
CMS-1349-F 90 

subtract from that the MFP percentage adjustment described in section VI.A.2.of this 

final rule. Additionally, in accordance with sections 1886(j)(3)(C)(ii)(II) and (D)(ii) of 

the Act, we further proposed to reduce the MFP-adjusted IRF PPS increase factor by 

0.1 percentage point for FY 2012. 

Specifically, in calculating the MFP percentage adjustment, the end of the 10-year 

moving average of changes in the MFP should coincide with the end of the appropriate 

FY update period. Since the market basket update is reduced by the MFP adjustment to 

determine the annual update for the IRF PPS, we believe it is appropriate for the numbers 

associated with both components of the calculation (the market basket and the 

productivity adjustment) to line up so that changes in market conditions are aligned. 

Therefore, for the FY 2012 update, the MFP adjustment is calculated as the 10-year 

moving average of changes in MFP for the period ending September 30, 2012. We round 

the final annual adjustment to the one-tenth of 1 percentage point level up or down as 

applicable according to conventional rounding rules (that is, if the number we are 

rounding is followed by 5, 6, 7, 8, or 9, we will round the number up; if the number we 

are rounding is followed by 0, 1, 2, 3, or 4, we will round the number down). 

Thus, in accordance with section 1886(j)(3)(C) of the Act, the proposed IRF PPS 

increase factor for FY 2012 was based on the 1st quarter 2011 forecast of the proposed 

FY 2008-based RPL market basket update, which was estimated to be 2.8 percent. This 

increase factor was then reduced by the proposed MFP adjustment (the 10-year moving 

average of MFP for the period ending FY 2012) of 1.2 percentage points, based on the 

methodology described above and IHS Global Insight’s 1st quarter 2011 forecast. The 

increase factor for FY 2012 was then further reduced by 0.1 percentage point in 
CMS-1349-F 91 

accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act. The 

resulting proposed IRF PPS increase factor reduced by the productivity adjustment and 

the “other adjustment” for FY 2012 was equal to 1.5 percent, or 2.8 percent less 

1.2 percentage points (for the MFP) less 0.1 percentage point in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act. Consistent with historical practice, 

we update the market basket increase factor estimate and the MFP adjustment in this final 

rule to reflect the most recent available data. 

Comment: Several commenters recognized that the productivity adjustment is 

mandated by law (section 3401(d) of the Affordable Care Act). However, they expressed 

concern about the negative impact that it could have on IRF providers and the 

beneficiaries they serve. They recommend that CMS takes steps to mitigate any negative 

effects caused by the MFP reduction.

Response: Section 3401(d) of the Affordable Care Act mandates that the market 

basket used to update IRF payments be reduced by a productivity adjustment beginning 

in FY 2012. As a result, we have no discretionary authority in this area, and we are 

applying this reduction in this final rule. 

Comment: Several commenters stated that the provision of inpatient 

rehabilitation services is largely dependent on skilled rehabilitation physicians, therapists, 

nurses, and other highly trained personnel and that efficiencies which might result from 

use of advanced technology are more limited in this setting than may be observed in the 

general economy. One commenter noted that many of the treatment plans in the IRF 

setting do not lend themselves to continual productivity improvements. The commenter 

stated that it will be challenging for efficient providers, over time, to achieve continued 
CMS-1349-F 92 

efficiencies at a rate that will be required by ongoing application of productivity 

adjustments. 

Response: We recognize that a complex and sophisticated mix of inputs are 

required to provide care to IRF patients. However, the agency is required by law to apply 

the MFP adjustment to provider payments as stipulated by section 3401(d) of the 

Affordable Care Act. 

Comment: Several commenters suggested that CMS carefully monitor the impact 

that these MFP adjustments will have on the IRF hospital sector and provide feedback to 

Congress as appropriate. 

Response: We will continue to monitor the effect of the MFP adjustments and 

share the results with policymakers. That practice will continue as we implement other 

provisions mandated by the Affordable Care Act. 

Final Decision: After careful consideration of the public comments, we are 

finalizing our proposed method for calculating and applying the MFP adjustment. In 

accordance with section 1886(j)(3)(C) of the Act, as amended by section 3401(d) of the 

Affordable Care Act, we will base the FY 2012 market basket update, which is used to 

determine the applicable percentage increase for the IRF payments, on the second quarter 

2011 forecast of the FY 2008-based RPL market basket (estimated to be 2.9 percent). 

This percentage increase will then be reduced by the MFP adjustment (the 10-year 

moving average of MFP for the period ending FY 2012) of 1.0 percent, which was 

calculated as described above and based on IGI’s second quarter 2011 forecast. 

Following application of the productivity adjustment, the applicable percentage increase 

will then be further reduced by 0.1 percentage point, as required by section 
CMS-1349-F 93 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act, as amended by sections 3401(d) of 

the Affordable Care Act. Therefore the final FY 2012 IRF update is 1.8 percent (2.9 

percent market basket update less 1.0 percentage point MFP adjustment less 0.1 

percentage point legislative adjustment). 

4. Calculation of the Labor-Related Share for FY 2012 

 Section 1886(j)(6) of the Act specifies that “[t]he Secretary shall adjust the 

proportion (as estimated by the Secretary from time to time) of rehabilitation facilities’ 

costs which are attributable to wages and wage-related costs, of the prospective payment 

rates computed under paragraph (3) for area differences in wage levels by a factor 

(established by the Secretary) reflecting the relative hospital wage level in the geographic 

area of the rehabilitation facility compared to the national average wage level for the 

facilities. Not later than October 1, 2001 (and at least every 36 months thereafter), the 

Secretary shall update the factor under the preceding sentence on the basis of information 

available to the Secretary (and updated as appropriate) of the wages and wage-related 

costs incurred in furnishing rehabilitation services. Any adjustments or updates made 

under this paragraph for a fiscal year shall be made in a manner that assures that the 

aggregated payments under this subsection in the fiscal year are not greater or less than 

those that would have been made in the year without such adjustment.” 

 The labor-related share is determined by identifying the national average 

proportion of total costs that are related to, influenced by, or vary with the local labor 

market. We continue to classify a cost category as labor-related if the costs are laborintensive and vary with the local labor market. Given this, based on our definition of the 

labor-related share, we proposed to include in the labor-related share the sum of the 
CMS-1349-F 94 

relative importance of Wages and Salaries, Employee Benefits, Professional Fees: 

Labor-related, Administrative and Business Support Services, All Other: Labor-related 

Services (previously referred to in the FY 2002-based RPL market basket as laborintensive), and a portion of the Capital-Related cost weight. 

 Consistent with previous rebasings, the “All Other” Labor-related Services cost 

category is mostly comprised of building maintenance and security services (including, 

but not limited to, commercial and industrial machinery and equipment repair, 

nonresidential maintenance and repair, and investigation and security services). Because 

these services tend to be labor-intensive and are mostly performed at the hospital facility 

(therefore, unlikely to be purchased in the national market), we believe that they meet our 

definition of labor-related services. 

 As stated in the FY 2006 IRF PPS final rule (70 FR 47880, 47915), the laborrelated share was defined as 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. Therefore, to determine the labor-related share 

for the IRF PPS for FY 2011, we used the FY 2002-based RPL market basket cost 

weights relative importance to determine the labor-related share for the IRF PPS. 

 For the FY 2008-based RPL market basket rebasing, the inclusion of the 

Administrative and Business Support Services cost category into the labor-related share 

remains consistent with the current labor-related share because this cost category was 

previously included in the Labor-intensive cost category. As previously stated, we 

establish a separate Administrative and Business Support Service cost category so that we 

can use the ECI for Compensation for Office and Administrative Support Services to 
CMS-1349-F 95 

more precisely proxy these specific expenses. 

 For the FY 2002-based RPL market basket, we assumed that all nonmedical 

professional services (including accounting and auditing services, engineering services, 

legal services, and management and consulting services) were purchased in the local 

labor market and, therefore, all of their associated fees varied with the local labor market. 

As a result, we previously included 100 percent of these costs in the labor-related share. 

In an effort to more accurately determine the share of professional fees that should be 

included in the labor-related share, we surveyed hospitals regarding the proportion of 

those fees that go to companies that are located beyond their own local labor market (the 

results are discussed below). 

 We continue to look for ways to refine our market basket approach to more 

accurately account for the proportion of costs influenced by the local labor market. To 

that end, we conducted a survey of hospitals to empirically determine the proportion of 

contracted professional services purchased by the industry that are attributable to local 

firms and the proportion that are purchased from national firms. We notified the public 

of our intent to conduct this survey on December 9, 2005 (70 FR 73250) and received no 

comments. 

 With approval from the OMB (Control Number 0938-1036), we contacted a 

sample of IPPS hospitals and received responses to our survey from 108 hospitals. We 

believe that these data serve as an appropriate proxy for the purchasing patterns of 

professional services for IRFs as they are also institutional providers of health care 

services. Using data on FTEs to allocate responding hospitals across strata (region of the 

country and urban/rural status), we calculated post-stratification weights. Based on these 
CMS-1349-F 96 

weighted results, we determined that hospitals purchase, on average, the following 

portions of contracted professional services outside of their local labor market: 

• 34 percent of accounting and auditing services. 

• 30 percent of engineering services. 

• 33 percent of legal services. 

• 42 percent of management consulting services. 

 We applied each of these percentages to its respective Benchmark I-O cost 

category underlying the professional fees cost category to determine the Professional 

Fees: Nonlabor-related costs. The Professional Fees: Labor-related costs were 

determined to be the difference between the total costs for each Benchmark I-O category 

and the Professional Fees: Nonlabor-related costs. This is the methodology that we used 

to separate the FY 2008-based RPL market basket professional fees category into 

Professional Fees: Labor-related and Professional Fees: Nonlabor-related cost categories. 

In addition to the professional services listed above, we also classified expenses under 

NAICS 55, Management of Companies and Enterprises, into the Professional Fees cost 

category as was done in previous rebasings. The NAICS 55 data are mostly comprised of 

corporate, subsidiary, and regional managing offices, or otherwise referred to as home 

offices. Formerly, all of the expenses within this category were considered to vary with, 

or be influenced by, the local labor market and were thus included in the labor-related 

share. Because many hospitals are not located in the same geographic area as their home 

office, we analyzed data from a variety of sources in order to determine what proportion 

of these costs should be appropriately included in the labor-related share. 

 Using data primarily from the Medicare cost reports and a CMS database of 
CMS-1349-F 97 

Home Office Medicare Records (HOMER) (a database that provides city and State 

information (addresses) for home offices), we were able to determine that 19 percent of 

the total number of freestanding IRFs, IPFs, and LTCHs that had home offices had those 

home offices located in their respective local labor markets--defined as being in the same 

Metropolitan Statistical Area (MSA). 

 The Medicare cost report requires hospitals to report their home office provider 

numbers. Using the HOMER database to determine the home office location for each 

home office provider number, we compared the location of the provider with the location 

of the hospital's home office. We then placed providers into one of the following three 

groups: 

● Group 1--Provider and home office are located in different States. 

● Group 2--Provider and home office are located in the same State and same 

city. 

● Group 3--Provider and home office are located in the same State and different 

city. 

 We found that 63 percent of the providers with home offices were classified into 

Group 1 (that is, different State) and, thus, these providers were determined to not be 

located in the same local labor market as their home office. Although there were a very 

limited number of exceptions (that is, providers located in different States but the same 

MSA as their home office), the 63 percent estimate was unchanged. 

 We found that 9 percent of all providers with home offices were classified into 

Group 2 (that is, same State and same city and, therefore, the same MSA). Consequently, 

these providers were determined to be located in the same local labor market as their 
CMS-1349-F 98 

home offices. 

 We found that 27 percent of all providers with home offices were classified into 

Group 3 (that is, same State and different city). Using data from the Census Bureau to 

determine the specific MSA for both the provider and its home office, we found that 10 

percent of all providers with home offices were identified as being in the same State, a 

different city, but the same MSA. 

 Pooling these results, we were able to determine that approximately 19 percent of 

providers with home offices had home offices located within their local labor market 

(that is, 9 percent of providers with home offices had their home offices in the same State 

and city (and, thus, the same MSA), and 10 percent of providers with home offices had 

their home offices in the same State, a different city, but the same MSA). We proposed 

to apportion the NAICS 55 expense data by this percentage. Thus, we proposed to 

classify 19 percent of these costs into the Professional Fees: Labor-related cost category 

and the remaining 81 percent into the Professional Fees: Nonlabor-related Services cost 

category. 

 Using this method and the IGI forecast for the first quarter 2011 of the FY 2008-

based RPL market basket, the proposed IRF labor-related share for FY 2012 was the sum 

of the FY 2012 relative importance of each labor-related cost category. Consistent with 

our policy for updating the labor-related share with the most recent available data, the 

labor-related share for this final rule reflects IGI’s second quarter 2011 forecast of the FY 

2008-based RPL market basket. Table 9 shows the FY 2012 relative importance laborrelated share using the FY 2008-based RPL market basket and the FY 2002-based RPL 

market basket. 
CMS-1349-F 99 

TABLE 9: Comparison of the FY 2011 Relative Importance Labor-Related Share 

based on the FY 2002-Based RPL Market Basket and the FY 2012 Relative 

Importance Labor-Related Share based on the FY 2008-Based RPL Market Basket 

FY 2011 Relative 

Importance 

Labor-Related 

Share1

FY 2012 Relative 

Importance 

Labor-Related 

Share2

Wages and Salaries 52.449 48.984

Employee Benefits 13.971 12.998

Professional Fees: Labor-Related 2.855 2.072

Administrative and Business 

Support Services -- 0.416

All Other: Labor-Related Services 2.109 2.094

Subtotal 71.384 66.564

Labor-Related Portion of Capital 

Costs (46%) 3.887 3.635

Total Labor-Related Share 75.271 70.199 1

Published in the FY 2011 IRF PPS Notice (75 FR 42849) and based on the second quarter 2010 IGI 

forecast. 

2

Based on the second quarter 2011 IGI forecast. 

 The labor-related share for FY 2012 is the sum of the FY 2012 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 2008) and FY 2012. 

The sum of the relative importance for FY 2012 for operating costs (Wages and Salaries, 

Employee Benefits, Professional Fees: Labor-Related, Administrative and Business 

Support Services, and All Other: Labor-related Services) would be 66.564 percent, as 

shown in Table 9. 

 The portion of Capital that is influenced by the local labor market is estimated 

to be 46 percent, which is the same percentage applied to the FY 2002-based RPL market 

basket. Since the relative importance for Capital-Related Costs would be 7.903 percent 

of the proposed FY 2008-based RPL market basket in FY 2012, we take 46 percent of 

7.903 percent to determine the proposed labor-related share of Capital for FY 2012. The 
CMS-1349-F 100 

result would be 3.635 percent, which we add to 66.564 percent for the operating cost 

amount to determine the total labor-related share for FY 2012. Thus, the labor-related 

share that we use for the IRF PPS in FY 2012 will be 70.199 percent. This labor-related 

share is determined using the same methodology that we used to calculate all previous 

IRF labor-related shares. 

 Comment: One commenter stated that the CMS proposal to no longer include 

100 percent of certain types of costs in the labor-related share calculation does not 

coincide with the application of the area wage index. This commenter noted that costs 

captured in the “Other Services” cost category in the RPL, whether employees, local 

contractors, national contractors, or home office allocations, represent personal services, 

which are in essence labor-related. The commenter also noted that the labor-related 

portion of the base rate is adjusted by the area wage index. The IPPS wage index 

includes in its calculation of the local (CBSA) wage index not a portion based on location 

relative to the provider, but 100 percent of the allocated home office wages, benefits, and 

hours. The commenter noted that the hospital wage index also includes contracted 

administrative and general services, which would include those categories in CMS’ 

survey such as accounting, legal, etc. The commenter suggested that if these costs are 

included in the IPPS wage index, then they should also be included in full in the laborrelated portion of the base rate that will be multiplied by the adjustment factor for the IRF 

calculation. 

 Response: We appreciate the commenter’s suggestion. However, we disagree 

that we should allocate 100 percent of service costs as labor-related. The wage index that 

is applied to the labor-related portion of any payment system measures the variation in 
CMS-1349-F 101 

labor costs based on geographic differences. Therefore, it is appropriate that the wage 

index would include all relative cost differences for various labor categories. The laborrelated share is defined as the proportion of total costs that are related to, influenced by, 

or vary with the local labor market. A cost category is defined as labor-related if both the 

costs of the service are labor-intensive and those costs vary with the local labor market. 

That is, the labor-related share must only include the proportion of costs that are 

determined to vary with the local labor market. The apportionment of some of the costs 

associated with various nonmedical professional fees and home office expenses into 

nonlabor-related categories reflects the findings of our analyses that concluded portions 

of those costs are purchased (or paid for) beyond the organization’s local labor market 

and thus, are not related to or influenced by the local labor market. 

 Comment: One commenter expressed concerns regarding the drop in the laborrelated share from around 75 percent to 70 percent. The commenter asked CMS to 

articulate the driving factors contributing to the drop in the estimated labor-related share 

and consider the appropriateness of those factors. 

 Response: Of the decrease in the labor-related share from about 75 percent to 

70 percent, over 3-quarters of that decrease is the result of the decrease in the 

compensation cost weight. As displayed in Table 4, the 2008-based RPL market basket 

compensation cost weight is 62.278 percent while the 2002-based RPL market basket 

compensation cost weight is 65.877 percent, a decrease of about 3.6 percentage points. 

The compensation cost weights for both the 2002-based and the 2008-based RPL market 

baskets were calculated using the Medicare cost reports for freestanding IRFs, IPFs, and 

LTCHS. We found during our most-recent rebasing process that the compensation cost 
CMS-1349-F 102 

weight had begun gradually decreasing over the 2003 to 2008 time period. The new 

labor-related share reflects the most recently available and complete set of Medicare cost 

reports, and thus reflects the updated and appropriate proportion of costs that are related 

to, influenced by, or vary with the local labor market for IRFs, IPFs, and LTCHs. 

 The remaining difference between the 2002-based and the 2008-based laborrelated shares is primarily attributable to the classification of costs as labor-related and 

nonlabor-related using an empirically based apportionment of professional fees and home 

office costs. We believe the data and methods used to derive this apportionment were 

technically appropriate and result in a more accurate updated labor-related share. 

 Comment: One commenter pointed out that Table 9 in the FY 2012 IRF 

Proposed Rule showed a reduction in the labor-related share of 4.937 percent. The 

commenter attributed this change to the change in the methodology for how CMS 

classified professional fees and home office costs. The commenter noted that CMS only 

counted 19 percent of costs for professional fees and home office costs as labor-related 

and subject to the area wage index adjustment. The commenter noted their support for 

the use of new data to ensure the IRF PPS accurately reimburses IRFs for the services 

they provide, but expressed concern that the survey upon which CMS based its decision 

to make a change to the labor-related share was conducted with acute care hospitals paid 

under the IPPS. The commenter expressed concern that the results of the professional 

fees survey may not accurately reflect the percentage of nonmedical professional services 

provided by entities outside the local labor market utilized by IRFs. The commenter 

requested in the future that CMS conduct a study of nonmedical professional services using 

only IRFs, IPFs, and LTCHs.

 Response: The overall proposed labor-related share as shown in Table 9 of the 
CMS-1349-F 103 

FY 2012 IRF proposed rule (76 FR 24243) showed a decline of 4.937 percent. The 

commenter attributed the entire change in the labor-related share from the 2002-based 

RPL market basket to the 2008-based market basket to our change in the professional 

fees and home office cost labor-related designations. We disagree that this is the 

principal driver for the decline in the labor-related share. The majority of the decline is 

based on a decline in relative compensation costs from 2002 to 2008 as reported on the 

Medicare cost reports. In particular, this accounts for over 3-quarters of the difference in 

the labor-related share. The remaining decrease in the labor-related share is primarily the 

result of the treatment of professional fees as labor-related or nonlabor-related. Finally, 

we did not use 19 percent as the value to determine the professional fees that were 

purchased within the local labor market. That is the percentage of home office costs that 

was determined to be purchased within the local labor market. For estimates associated 

with the apportionment of professional fees, we refer the reader to the discussion of the 

use of the survey results and how they were applied to determine the labor-related 

portions. This discussion can be found in the FY 2012 IRF PPS proposed rule at 

(76 FR at 24241 through 24242). We note that while this survey was conducted using 

responses from IPPS hospitals, we would expect that these data serve as an appropriate 

proxy for the purchasing patterns of professional services for IRFs as they are also 

institutional providers of health care services. 

 Comment: Several commenters recommended that CMS phase-in the change to 

the labor-related share over a 2 year period to allow IRFs a longer period of time to 

absorb the impact of this reduction to the labor-related share. 

 Response: We do not believe that a phase-in of the labor-related share is 
CMS-1349-F 104 

necessary. We estimate that only 3 IRFs would lose more than 5 percent in payments 

from this change, with the maximum estimated loss being 7.85 percent. While 

significant, this is similar to percentage changes in payments due to annual wage index 

fluctuations, and we do not typically provide phase-ins for the standard wage index 

fluctuations that occur from year to year. 

 Final Decision: After consideration of the public comments received, we are 

finalizing our methodology for calculating the labor-related share for FY 2012 using the 

2008-based RPL market basket and the most recent forecast data available at the time of 

this final rule which is IHS Global Insight Inc.’s second quarter 2011 forecast. This is 

also the same forecast we are using to derive the FY 2012 market basket update for this 

final rule. As the updated labor-related share reflects the current proportion of costs that 

are related to, are influenced by, or vary with the local labor market, we believe it is 

appropriate to incorporate the results in full into the FY 2012 payment update. Table 9 

shows the relative importance of the FY 2012 labor-related share using the FY 

2008-based RPL market basket and the FY 2011 relative importance labor-related share 

using the FY 2002-based RPL market basket. 

B. Area Wage Adjustment

Section 1886(j)(6) of the Act requires the Secretary to adjust the proportion of 

rehabilitation facilities’ costs attributable to wages and wage related costs (as estimated 

by the Secretary from time to time) by a factor (established by the Secretary) reflecting 

the relative hospital wage level in the geographic area of the rehabilitation facility 

compared to the national average wage level for those facilities. The Secretary is 

required to update the IRF PPS wage index on the basis of information available to the 
CMS-1349-F 105 

Secretary on the wages and wage-related costs to furnish rehabilitation services. Any 

adjustment or updates made under section 1886(j)(6) of the Act for a FY are made in a 

budget neutral manner. 

 In the FY 2009 IRF PPS final rule (73 FR 46378), we maintained the 

methodology described in the FY 2006 IRF PPS final rule to determine the wage index, 

labor market area definitions and hold harmless policy consistent with the rationale 

outlined in the FY 2006 IRF PPS final rule (70 FR 47880, 47917 through 47926 ). 

 For FY 2012, we are maintaining the policies and methodologies described in the 

FY 2009 IRF PPS final rule (73 FR 46378) relating to the labor market area definitions 

and the wage index methodology for areas with wage data. Thus, we are using the CBSA 

labor market area definitions and the FY 2011 pre-reclassification and pre-floor hospital 

wage index data. In accordance with section 1886(d)(3)(E) of the Act, the FY 2011 prereclassification and pre-floor hospital wage index is based on data submitted for hospital 

cost reporting periods beginning on or after October 1, 2006, and ending September 30, 

2007 (that is, FY 2007 cost report data). 

 The labor market designations made by the OMB include some geographic areas 

where there are no hospitals and, thus, no hospital wage index data on which to base the 

calculation of the IRF PPS wage index. We will continue to use the same methodology 

discussed in the FY 2008 IRF PPS final rule (72 FR 44299) to address those geographic 

areas where there are no hospitals and, thus, no hospital wage index data on which to 

base the calculation for the FY 2012 IRF PPS wage index. 

 Additionally, we will incorporate the CBSA changes published in the most recent 

OMB bulletin that applies to the hospital wage data used to determine the current IRF 
CMS-1349-F 106 

PPS wage index. The changes were nominal and did not represent substantive changes to 

the CBSA-based designations. Specifically, OMB added or deleted certain CBSA 

numbers and revised certain titles. The OMB bulletins are available at 

http://www.whitehouse.gov/omb/bulletins/index.html. 

 To calculate the wage-adjusted facility payment for the payment rates set forth in 

this final rule, we multiply the unadjusted Federal payment rate for IRFs by the FY 2012 

labor-related share based on the FY 2008-based RPL market basket (70.199 percent) to 

determine the labor-related portion of the standard payment amount. We then multiply 

the labor-related portion by the applicable IRF wage index from the tables in the 

addendum to this final rule. Table A is for urban areas and Table B is for rural areas. 

 Adjustments or updates to the IRF wage index made under section 1886(j)(6) of 

the Act must be made in a budget neutral manner. We calculate a budget neutral wage 

adjustment factor as established in the FY 2004 IRF PPS final rule (68 FR 45689), 

codified at §412.624(e)(1), as described in the steps below. We use the listed steps to 

ensure that the FY 2012 IRF standard payment conversion factor reflects the update to 

the wage indexes (based on the FY 2007 hospital cost report data) and the labor-related 

share in a budget neutral manner: 

 Step 1. Determine the total amount of the estimated FY 2011 IRF PPS rates, using 

the FY 2011 standard payment conversion factor and the labor-related share and the wage 

indexes from FY 2011 (as published in the FY 2011 IRF PPS final rule (75 FR 42836)). 

 Step 2. Calculate the total amount of estimated IRF PPS payments using the FY 

2011 standard payment conversion factor and the proposed FY 2012 labor-related share 

and CBSA urban and rural wage indexes. 
CMS-1349-F 107 

 Step 3. Divide the amount calculated in step 1 by the amount calculated in step 2. 

The resulting quotient is the FY 2012 budget neutral wage adjustment factor of 0.9988 

percent. 

 Step 4. Apply the FY 2012 budget neutral wage adjustment factor from step 3 to 

the FY 2011 IRF PPS standard payment conversion factor after the application of the 

adjusted market basket update to determine the FY 2012 standard payment conversion 

factor. 

We received 2 comments on the proposed FY 2012 IRF PPS wage index, which 

are summarized below. 

Comment: Several commenters recommended that CMS develop a new 

methodology for area wage adjustment that eventually eliminates hospital wage index 

reclassifications for all hospitals and that reduces the problems associated with 

unreasonable annual fluctuations in wage indices and across geographic boundaries. 

These commenters also recommended that CMS consider wage index policies under the 

current IPPS because IRFs compete in a similar labor pool as acute care hospitals. The 

IPPS wage index policies would allow IRFs to benefit from the IPPS reclassification 

and/or floor policies. The commenters further recommended that until a new wage index 

system is implemented, CMS institute a “smoothing” variable to the current process to 

reduce the fluctuations IRFs annually experience. 

Response: We note that the IRF PPS does not account for geographic 

reclassification under sections 1886(d)(8) and (d)(10) of the Act, and does not apply the 

“rural floor” under section 4410 of the BBA. As we do not have an IRF-specific wage 

index, we are unable to determine at this time the degree, if any, to which a geographic 
CMS-1349-F 108 

reclassification adjustment or a “rural floor” policy under the IRF PPS is appropriate. 

The rationale for our current wage index policies is fully described in the FY 2006 final 

rule (70 FR 47880, 47926 through 47928). 

Although some commenters recommended that we adopt the IPPS wage index 

policies such as reclassification and floor policies, we note that Medicare Payment 

Advisory Commission (MedPAC’s) June 2007 report to the Congress, titled “Report to 

Congress: Promoting Greater Efficiency in Medicare,” recommends that Congress 

“repeal the existing hospital wage index statute, including reclassification and exceptions, 

and give the Secretary authority to establish new wage index systems.” We believe that 

adopting the IPPS wage index policies, such as reclassification or floor, would not be 

prudent at this time because MedPAC suggests that the reclassification and exception 

policies in the IPPS wage index alters the wage index values for one-third of IPPS 

hospitals. 

As one commenter noted, we have research currently under way to examine 

alternatives to the wage index methodology, including the issues the commenters 

mentioned about ensuring that the wage index minimizes fluctuations, matches the costs 

of labor in the market, and provides for a single wage index policy. Section 3137(b) of 

the Affordable Care Act requires CMS to submit a report to Congress by December 31, 

2011 that includes a plan to reform the hospital wage index system. That report is to take 

MedPAC’s 2009 recommendations on the Medicare wage index classification system 

into account, and is to include a proposal to revise the IPPS wage index system. 

MedPAC’s recommendations were presented in the FY 2009 IPPS final rule 
CMS-1349-F 109 

(http://edocket.access.gpo.gov/2008/pdf/E8-17914.pdf). The proposal is to consider each 

of the following: 

• The use of Bureau of Labor Statistics data or other data or methodologies 

to calculate relative wages for each geographic areas. 

• Minimizing variations in wage index adjustments between and within 

MSAs and statewide rural areas. 

• Methods to minimize the volatility of wage index adjustments while 

maintaining the principle of budget neutrality. 

• The effect that the implementation of the proposal would have on health 

care providers in each region of the country. 

• Issues relating to occupational mix, such as staffing practices and any 

evidence on quality of care and patient safety, including any recommendations for 

alternative calculations to the occupational mix. 

• The provision of a transition period. 

CMS enlisted the help of Acumen, LLC to assist us in meeting the requirements 

of section 106(b)2) of the Tax Relief and Health Care Act of 2006 (Pub. L. 109-432, 

enacted on December 2006) (TRCA). In February 2008, we awarded a Task Order under 

the Expedited Research and Demonstration Contract to Acumen, LLC. Acumen, LLC 

conducted a study of both the current methodology used to construct the Medicare wage 

index and the recommendations reported to Congress by MedPAC. Parts 1 and 2 of 

Acumen’s final report, which analyzes the strengths and weaknesses of the data sources 

used to construct the CMS and MedPAC indexes, is available online at 

http://www.acumenllc.com/reports/cms. 
CMS-1349-F 110 

MedPAC’s recommendations were presented in the FY 2009 IPPS final rule 

(http://edocket.access.gpo.gov/2008/pdf/E8-17914.pdf). We plan to monitor the efforts 

to develop an alternative wage index system for the IPPS closely, and determine the 

impact or influence they may have to the IRF PPS wage index. 

Final Decision: Having considered the public comments received, we have 

decided to continue to use the policies and methodologies described in the FY 2009 IRF 

PPS final rule relating to the labor market area definitions and the wage index 

methodology for areas without wage data. Therefore, this final rule continues to use the 

Core-Based Statistical Area (CBSA) labor market area definitions and the prereclassification and pre-floor hospital wage index data based on 2007 cost report data. 

However, we will continue to monitor progress on the revisions to the IPPS wage index 

to identify any policy changes that may be appropriate for IRFs. 

 We discuss the calculation of the standard payment conversion factor for FY 2012 

in section VI.C of this final rule. 

C. Description of the Final IRF Standard Payment Conversion Factor and Payment Rates 

for FY 2012

 To calculate the standard payment conversion factor for FY 2012, as illustrated in 

Table 10, we begin by applying the adjusted market basket increase factor for FY 2012 

that was adjusted in accordance with sections 1886(j)(3)(C) and (D) of the Act (1.8 

percent, or 2.9 percent less a cumulative total adjustment of 1.1 percentage points, as 

described in section VI.A.3. of this final rule), to the standard payment conversion factor 

for FY 2011 ($13,860). Applying the 1.8 percent adjusted market basket increase factor 

for FY 2012 to the standard payment conversion factor for FY 2011 of $13,860 yields a 
CMS-1349-F 111 

standard payment amount of $14,109. Then, we apply the budget neutrality factor for the 

FY 2012 wage index and labor-related share of 0.9988, which results in a standard 

payment amount of $14,093. Finally, we apply the budget neutrality factor for the 

revised CMG relative weights of 0.9988, which results in a final standard payment 

conversion factor of $14,076 for FY 2012. 

TABLE 10: Calculations to Determine the FY 2012 Standard Payment Conversion 

Factor 

Explanation for Adjustment Calculations 

Standard Payment Conversion Factor for FY 2011 $13,860

Payment Update Factor for FY 2012 (1.8 percent), which 

reflects a 2.9 percent market basket increase, reduced by 

a 1.0 percentage point productivity adjustment, and 

reduced by 0.1 percentage point in accordance with 

sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act x 1.018

Budget Neutrality Factor for the Wage Index and LaborRelated Share x 0.9988

Budget Neutrality Factor for the Revisions to the CMG 

Relative Weights x 0.9988

FY 2012 Standard Payment Conversion Factor = $14,076

 

After the application of the CMG relative weights described in section IV of this 

final rule, to the FY 2012 standard payment conversion factor ($14,076), the resulting 

unadjusted IRF prospective payment rates for FY 2012 are shown in Table 11, “FY 2012 

Payment Rates.” 

TABLE 11: FY 2012 Payment Rates 

CMG Payment Rate 

Tier 1 

 Payment Rate 

Tier 2 

 Payment Rate 

Tier 3 

 Payment Rate No 

Comorbidity 

0101 $ 10,804.74 $10,109.38 $ 9,080.43 $ 8,589.18 

0102 $ 13,410.21 $12,545.94 $11,270.65 $10,659.75 

0103 $ 16,014.27 $14,982.49 $13,459.47 $12,728.93 
CMS-1349-F 112 

CMG Payment Rate 

Tier 1 

 Payment Rate 

Tier 2 

 Payment Rate 

Tier 3 

 Payment Rate No 

Comorbidity 

0104 $ 16,636.42 $15,565.24 $13,983.10 $13,224.40 

0105 $ 19,330.57 $18,086.25 $16,246.52 $15,365.36 

0106 $ 22,261.19 $20,826.85 $18,708.41 $17,694.94 

0107 $ 25,204.49 $23,581.52 $21,182.97 $20,034.37 

0108 $ 31,217.75 $29,206.29 $26,236.26 $24,814.58 

0109 $ 28,867.06 $27,009.03 $24,261.39 $22,946.70 

0110 $ 37,208.50 $34,811.36 $31,271.24 $29,576.49 

0201 $ 10,514.77 $ 8,631.40 $ 7,995.17 $ 7,260.40 

0202 $ 14,938.86 $12,263.01 $11,359.33 $10,313.49 

0203 $ 17,003.81 $13,959.17 $12,928.81 $11,740.79 

0204 $ 17,813.18 $14,622.15 $13,543.93 $12,298.20 

0205 $ 22,496.26 $18,467.71 $17,105.16 $15,532.87 

0206 $ 28,004.20 $22,988.92 $21,294.17 $19,334.79 

0207 $ 37,868.66 $31,086.85 $28,793.87 $26,144.76 

0301 $ 14,886.78 $13,391.91 $11,881.55 $10,880.75 

0302 $ 18,851.99 $16,958.76 $15,045.84 $13,779.00 

0303 $ 22,414.62 $20,163.87 $17,889.19 $16,384.46 

0304 $ 31,034.76 $27,918.34 $24,768.13 $22,684.88 

0401 $ 14,903.67 $12,407.99 $11,287.54 $ 9,903.87 

0402 $ 19,427.70 $16,174.73 $14,713.64 $12,909.10 

0403 $ 34,710.01 $28,896.62 $26,286.93 $23,064.93 

0404 $ 61,648.66 $51,322.50 $46,688.68 $40,963.98 

0405 $ 54,454.41 $45,333.17 $41,239.86 $36,183.77 

0501 $ 9,232.45 $ 8,863.66 $ 7,905.08 $ 7,005.63 

0502 $ 13,815.59 $13,263.81 $11,829.47 $10,483.80 

0503 $ 17,538.70 $16,837.71 $15,016.28 $13,308.86 

0504 $ 21,146.37 $20,301.81 $18,105.96 $16,046.64 

0505 $ 24,714.64 $23,726.51 $21,160.45 $18,754.86 

0506 $ 34,636.81 $33,253.14 $29,656.72 $26,284.11 

0601 $ 13,311.67 $11,249.54 $10,260.00 $ 9,274.68 

0602 $ 17,617.52 $14,888.19 $13,580.52 $12,275.68 

0603 $ 22,752.45 $19,227.82 $17,538.70 $15,853.80 

0604 $ 30,167.68 $25,494.45 $23,254.96 $21,021.10 

0701 $ 11,262.21 $11,087.67 $10,678.05 $ 9,532.27 

0702 $ 14,737.57 $14,508.13 $13,973.25 $12,472.74 

0703 $ 17,734.35 $17,457.06 $16,813.78 $15,007.83 

0704 $ 22,919.95 $22,562.42 $21,731.94 $19,396.73 

0801 $ 8,086.66 $ 8,086.66 $ 7,536.29 $ 6,880.35 

0802 $ 10,873.71 $10,873.71 $10,133.31 $ 9,252.15 

0803 $ 14,992.35 $14,992.35 $13,971.84 $12,755.67 

0804 $ 13,241.29 $13,241.29 $12,340.43 $11,266.43 

0805 $ 16,305.64 $16,305.64 $15,195.04 $13,873.31 

0806 $ 19,909.09 $19,909.09 $18,553.58 $16,939.06 

0901 $ 11,918.15 $10,500.70 $ 9,502.71 $ 8,608.88 

0902 $ 15,939.66 $14,045.03 $12,709.22 $11,514.17 
CMS-1349-F 113 

CMG Payment Rate 

Tier 1 

 Payment Rate 

Tier 2 

 Payment Rate 

Tier 3 

 Payment Rate No 

Comorbidity 

0903 $ 20,414.42 $17,987.72 $16,277.49 $14,747.43 

0904 $ 26,450.21 $23,305.63 $21,090.07 $19,108.17 

1001 $ 14,547.55 $12,790.86 $11,428.30 $10,213.55 

1002 $ 19,102.54 $16,794.08 $15,005.02 $13,411.61 

1003 $ 28,222.38 $24,813.17 $22,169.70 $19,814.79 

1101 $ 14,581.33 $14,581.33 $13,831.08 $12,980.89 

1102 $ 21,938.85 $21,938.85 $20,808.55 $19,530.45 

1201 $ 11,404.38 $11,404.38 $11,407.19 $10,782.22 

1202 $ 14,869.89 $14,869.89 $14,872.70 $14,057.70 

1203 $ 18,342.44 $18,342.44 $18,345.25 $17,340.22 

1301 $ 12,579.72 $13,673.43 $13,673.43 $11,094.70 

1302 $ 16,566.04 $18,006.02 $18,006.02 $14,609.48 

1303 $ 21,411.00 $23,271.85 $23,271.85 $18,882.95 

1401 $ 13,246.92 $10,606.27 $ 9,378.84 $ 8,482.20 

1402 $ 17,789.25 $14,242.10 $12,593.80 $11,390.30 

1403 $ 21,484.20 $17,200.87 $15,210.53 $13,756.47 

1404 $ 27,828.25 $22,279.49 $19,702.18 $17,818.81 

1501 $ 13,527.04 $12,630.39 $10,886.38 $10,290.96 

1502 $ 17,023.51 $15,896.03 $13,701.58 $12,951.33 

1503 $ 20,992.95 $19,602.24 $16,895.42 $15,970.63 

1504 $ 26,519.18 $24,762.50 $21,343.44 $20,175.13 

1601 $ 15,732.75 $12,384.06 $10,868.08 $10,158.65 

1602 $ 21,074.59 $16,588.57 $14,557.40 $13,607.27 

1603 $ 27,234.24 $21,437.75 $18,812.57 $17,585.15 

1701 $ 14,689.71 $13,075.20 $11,866.07 $10,372.60 

1702 $ 19,384.06 $17,251.55 $15,656.73 $13,686.09 

1703 $ 22,859.42 $20,345.45 $18,463.49 $16,140.95 

1704 $ 29,266.82 $26,047.64 $23,639.23 $20,664.98 

1801 $ 16,913.72 $13,876.12 $13,396.13 $12,253.16 

1802 $ 23,246.51 $19,070.16 $18,411.41 $16,840.53 

1803 $ 39,854.79 $32,695.73 $31,565.43 $28,872.69 

1901 $ 16,184.58 $14,257.58 $12,934.44 $12,560.01 

1902 $ 30,830.66 $27,161.05 $24,638.63 $23,927.79 

1903 $ 51,689.89 $45,537.27 $41,310.24 $40,118.01 

2001 $ 12,022.31 $10,623.16 $ 9,523.82 $ 8,556.80 

2002 $ 16,090.28 $14,216.76 $12,747.23 $11,452.23 

2003 $ 20,318.71 $17,953.94 $16,097.31 $14,461.68 

2004 $ 27,245.51 $24,075.59 $21,585.55 $19,392.51 

2101 $ 35,405.36 $30,644.86 $24,404.97 $19,781.00 

5001 $ - $ - $ - $ 2,076.21 

5101 $ - $ - $ - $ 8,242.91 

5102 $ - $ - $ - $20,717.06 

5103 $ - $ - $ - $ 9,810.97 

5104 $ - $ - $ - $26,431.91 
CMS-1349-F 114 

D. Example of the Methodology for Adjusting the Federal Prospective Payment Rates

 Table 12 illustrates the methodology for adjusting the Federal prospective 

payments (as described in sections VI.A. through VI.C. of this final rule). The following 

examples are based on two hypothetical Medicare beneficiaries, both classified into CMG 

0110 (without comorbidities). The unadjusted Federal prospective payment rate for 

CMG 0110 (without comorbidities) appears in Table 11. 

 Example: One beneficiary is in Facility A, an IRF located in rural Spencer 

County, Indiana, and another beneficiary is in Facility B, an IRF located in urban 

Harrison County, Indiana. Facility A, a rural non-teaching hospital has a DSH 

percentage of 5 percent (which would result in a LIP adjustment of 1.0228), a wage index 

of 0.8391, and a rural adjustment of 18.4 percent. Facility B, an urban teaching hospital, 

has a DSH percentage of 15 percent (which would result in a LIP adjustment of 

1.0666 percent), a wage index of 0.8896, and a teaching status adjustment of 0.0610. 

 To calculate each IRF’s labor and non-labor portion of the Federal prospective 

payment, we begin by taking the unadjusted Federal prospective payment rate for 

CMG 0110 (without comorbidities) from Table 11. Then, we multiply the labor-related 

share for FY 2012 (70.199 percent) described in section VI.A.4 of this final rule by the 

unadjusted Federal prospective payment rate. To determine the non-labor portion of the 

Federal prospective payment rate, we subtract the labor portion of the Federal payment 

from the unadjusted Federal prospective payment. 

 To compute the wage-adjusted Federal prospective payment, we multiply the 

labor portion of the Federal payment by the appropriate wage index found in the 

addendum in Tables A and B. The resulting figure is the wage-adjusted labor amount. 
CMS-1349-F 115 

Next, we compute the wage-adjusted Federal payment by adding the wage-adjusted labor 

amount to the non-labor portion. 

 Adjusting the wage-adjusted Federal payment by the facility-level adjustments 

involves several steps. First, we take the wage-adjusted Federal prospective payment and 

multiply it by the appropriate rural and LIP adjustments (if applicable). Second, to 

determine the appropriate amount of additional payment for the teaching status 

adjustment (if applicable), we multiply the teaching status adjustment (0.0610, in this 

example) by the wage-adjusted and rural-adjusted amount (if applicable). Finally, we add 

the additional teaching status payments (if applicable) to the wage, rural, and LIPadjusted Federal prospective payment rates. Table 12 illustrates the components of the 

adjusted payment calculation. 

TABLE 12: Example of Computing the IRF FY 2012 Federal Prospective Payment 

Steps 

Rural Facility A 

(Spencer Co., IN) 

Urban Facility B 

(Harrison Co., IN) 

1 

Unadjusted Federal 

Prospective Payment $29,576.49 $29,576.49

2 Labor Share x 0.70199 x 0.70199

3 

Labor Portion of Federal 

Payment = $20,762.40 = $20,762.40

4 

CBSA Based Wage Index 

(shown in the Addendum , 

Tables 1 and 2) x 0.8391 x 0.8896

5 Wage-Adjusted Amount = $17,421.73 = $18,470.23

6 Nonlabor Amount + $8,814.09 + $8,814.09

7 

Wage-Adjusted Federal 

Payment = $26,235.82 = $27,284.32

8 Rural Adjustment x 1.184 x 1.000

9 

Wage- and Rural- Adjusted 

Federal Payment = $31,063.21 = $27,284.32

10 LIP Adjustment x 1.0228 x 1.0666

11 

FY 2012 Wage-, Rural- and 

LIP- Adjusted Federal 

Prospective Payment Rate = $31,771.45 = $29,101.46
CMS-1349-F 116 

Steps 

Rural Facility A 

(Spencer Co., IN) 

Urban Facility B 

(Harrison Co., IN) 

12 

FY 2012 Wage- and RuralAdjusted Federal Prospective 

Payment $31,063.21 $27,284.32

13 Teaching Status Adjustment x 0.0000 x 0.0610

14 

Teaching Status Adjustment 

Amount = $0.00 = $1,664.34

15 

FY2012 Wage-, Rural-, and 

LIP-Adjusted Federal 

Prospective Payment Rate + $31,771.45 + $29,101.46

16 

Total FY 2012 Adjusted 

Federal Prospective Payment = $31,771.45 = $30,765.80

Thus, the adjusted payment for Facility A would be $31,771.45 and the adjusted payment 

for Facility B would be $30,765.80. 

VII. Update to Payments for High-Cost Outliers Under the IRF PPS

A. Update to the Outlier Threshold Amount for FY 2012

 Section 1886(j)(4) of the Act provides the Secretary with the authority to make 

payments in addition to the basic IRF prospective payments for cases incurring 

extraordinarily high costs. A case qualifies for an outlier payment if the estimated cost of 

the case exceeds the adjusted outlier threshold. We calculate the adjusted outlier 

threshold by adding the IRF PPS payment for the case (that is, the CMG payment 

adjusted by all of the relevant facility-level adjustments) and the adjusted threshold 

amount (also adjusted by all of the relevant facility-level adjustments). Then, we 

calculate the estimated cost of a case by multiplying the IRF’s overall CCR by the 

Medicare allowable covered charge. If the estimated cost of the case is higher than the 

adjusted outlier threshold, we make an outlier payment for the case equal to 80 percent of 

the difference between the estimated cost of the case and the outlier threshold. 

 In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we discussed 
CMS-1349-F 117 

our rationale for setting the outlier threshold amount for the IRF PPS so that estimated 

outlier payments would equal 3 percent of total estimated payments. For the 2002 IRF 

PPS final rule, we analyzed various outlier policies using 3, 4, and 5 percent of the total 

estimated payments, and we concluded that an outlier policy set at 3 percent of total 

estimated payments would optimize the extent to which we could reduce the financial 

risk to IRFs of caring for high-cost patients, while still providing for adequate payments 

for all other (non-high cost outlier) cases. 

 Subsequently, we updated the IRF outlier threshold amount in the FYs 2006 

through 2010 IRF PPS final rules and the FY 2011 notice (70 FR 47880, 71 FR 48354, 

72 FR 44284, 73 FR 46370, 74 FR 39762, and 75 FR 42836, respectively) to maintain 

estimated outlier payments at 3 percent of total estimated payments. We also stated in 

the FY 2009 final rule (73 FR 46370 at 46385) that we would continue to analyze the 

estimated outlier payments for subsequent years and adjust the outlier threshold amount 

as appropriate to maintain the 3 percent target. 

 To update the IRF outlier threshold amount for FY 2012, we use FY 2010 claims 

data and the same methodology that we used to set the initial outlier threshold amount in 

the FY 2002 IRF PPS final rule (66 FR 41316 and 41362 through 41363), which is also 

the same methodology that we used to update the outlier threshold amounts for FYs 2006 

through 2011. Based on an analysis of the most recent FY 2010 IRF claims data, the IRF 

outlier payments as a percentage of total estimated payments were approximately 2.6 

percent in FY 2011. 

 We received 3 comments on the update to the outlier threshold amount for FY 

2012, which are summarized below: 
CMS-1349-F 118 

Comment: One commenter expressed support for continuing to establish outlier 

payments at 3 percent of total payments. However, several commenters requested more 

information on why the proposed outlier threshold increased from $11,410 in FY 2011 to 

$11,822 in the FY 2012 proposed rule when only 2.7 percent of the 3 percent outlier 

payments were projected to be paid out in FY 2011.

Response: We proposed to move to an un-weighted regression methodology in 

the FY 2012 proposed rule, which caused a reduction to the LIP and Teaching adjustment 

factors. Our facility-level adjustment factors are budget neutral, meaning that any 

reduction in the adjustment factors results in an increase to the standard payment 

conversion factor. Therefore, the standard payment conversion factor was estimated to 

increase from $13,860 in FY 2011 to $14,528 in the FY 2012 proposed rule (this has 

changed to $14,076 in this final rule, as discussed below). The large increase in the 

proposed standard payment conversion factor resulted in an increase to the outlier 

threshold, rather than the decrease anticipated by the commenters. 

 However, as we are not adopting the proposed revisions to the facility-level 

adjustments in this final rule, the increase in the standard payment conversion factor from 

FY 2011 to FY 2012 is smaller. The final standard payment conversion factor for FY 

2012 is $14,076. Consequently, the FY 2012 outlier threshold that we are finalizing in 

this final rule is lower than the FY 2011 outlier threshold amount. 

Comment: One commenter stated that the calculation of the CCRs in other 

settings has been identified as a potential reason for those settings’ difficulties in 

establishing an appropriate outlier threshold, which may also be the case for the IRF PPS. 

The commenter suggested that CMS assess whether this is a problem for the IRF PPS and 
CMS-1349-F 119 

release more information on the role that the CCRs play in establishing the outlier 

threshold. 

Response: We appreciate the commenter’s concerns. However, we do not 

believe that the calculation of the CCRs creates a problem in setting the outlier threshold 

for the IRF PPS. In order to set the outlier threshold, we first estimate the cost of a case 

in the current fiscal year by multiplying an overall facility-specific cost-to-charge ratio by 

charges and by the market basket for the current fiscal year (without any adjustments). 

The outlier threshold for the upcoming fiscal year is then calculated by simulating 

aggregate payments with and without a change in the outlier threshold, and applying an 

iterative process that accounts for changes in the market basket, wage index and laborshare, CMG relative weights, and facility-level adjustment factors, to determine a 

threshold for the upcoming fiscal year that would result in outlier payments being equal 

to 3 percent of total payments under the simulation. 

We note, too, that we implemented a new outlier reconciliation process for IRFs 

(and other settings) beginning April 1, 2011 that we believe will improve the accuracy 

and reliability of the IRF CCRs. For more information on the new outlier reconciliation 

process, please view the “Outlier Reconciliation” link on the IRF PPS Web site at 

(http://www.cms.gov/InpatientRehabFacPPS/03_OutlierR.asp#TopOfPage ). 

Comment: One commenter suggested that CMS evaluate the distribution of 

outlier payments. If CMS determines that low-volume facilities, rather than facilities 

treating patients of a higher acuity level, are mostly receiving the outlier payments then 

CMS should reduce the outlier pool and add the amount back to the standard payment 

conversion factor.
CMS-1349-F 120 

Response: We will continue to monitor our IRF outlier policies to ensure that 

they appropriately compensate IRFs for treating unusually high-cost patients and, 

thereby, promote access to care of patients who are likely to require unusually high-cost 

care. At this time, however, we do not find any indications to suggest that low-volume 

facilities are disproportionately receiving outlier payments. We believe that the outlier 

policy of 3 percent of total estimated payments optimizes the extent to which we can 

encourage facilities to continue to take patients that are likely to have unusually high 

costs, while still providing adequate payment for all other cases. In addition, as we have 

explained before, we do not make adjustments to PPS payment rates to account for 

differences between projected and actual outlier payments in a previous year. We believe 

that our outlier policies are consistent with the statute and the goals of the prospective 

payment system, and that they are equitable. We will carefully consider the commenter’s 

suggestions, and will consider proposing additional refinements to the IRF outlier 

policies in the future if we find that such refinements are necessary. 

 Final Decision: After carefully considering all of the comments we received on 

the proposed update to the outlier threshold amount for FY 2012, we are reducing the 

outlier threshold amount to $10,660 to maintain estimated outlier payments at 3 percent 

of total estimated aggregate IRF payments for FY 2012. 

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

 In accordance with the methodology stated in the FY 2004 IRF PPS final rule (68 

FR 45674, 45692 through 45694), we apply a ceiling to IRFs’ CCRs. Using the 

methodology described in that final rule, we update the national urban and rural CCRs for 

IRFs, as well as the national CCR ceiling for FY 2012, based on analysis of the most 
CMS-1349-F 121 

recent data that is available. We apply the national urban and rural CCRs in the 

following situations: 

● New IRFs that have not yet submitted their first Medicare cost report. 

● IRFs whose overall CCR is in excess of the national CCR ceiling for FY 2012, 

as discussed below. 

● Other IRFs for which accurate data to calculate an overall CCR are not 

available. 

 Specifically, for FY 2012, the national average CCR for rural IRFs is 0.669, 

which we calculated by taking an average of the CCRs for all rural IRFs using their most 

recently submitted cost report data. Similarly, the national average CCR for urban IRFs 

is 0.520, which we calculated by taking an average of the CCRs for all urban IRFs using 

their most recently submitted cost report data. We apply weights to both of these 

averages using the IRFs’ estimated costs, meaning that the CCRs of IRFs with higher 

costs factor more heavily into the averages than the CCRs of IRFs with lower costs. For 

this final rule, we used the most recent available cost report data (FY 2009). This 

includes all IRFs whose cost reporting periods begin on or after October 1, 2008, and 

before October 1, 2009. If, for any IRF, the FY 2009 cost report was missing or had an 

“as submitted” status, we used data from a previous fiscal year’s (that is, FY 2004 

through FY 2008) settled cost report for that IRF. We do not use cost report data from 

before FY 2004 for any IRF because changes in IRF utilization since FY 2004 resulting 

from the 60 percent rule and IRF medical review activities suggest that these older data 

do not adequately reflect the current cost of care. 

 In accordance with past practice, we set the national CCR ceiling at 3 standard 
CMS-1349-F 122 

deviations above the mean CCR. Using this method, the national CCR ceiling is set at 

1.55 for FY 2012. This means that, if an individual IRF’s CCR exceeds this ceiling of 

1.55 for FY 2012, we would replace the IRF’s CCR with the appropriate national average 

CCR (either rural or urban, depending on the geographic location of the IRF). We 

calculate the national CCR ceiling by: 

 Step 1. Taking the national average CCR (weighted by each IRF’s total costs, as 

discussed above) of all IRFs for which we have sufficient cost report data (both rural and 

urban IRFs combined). 

 Step 2. Calculating the standard deviation of the national average CCR computed 

in step 1. 

 Step 3. Multiplying the standard deviation of the national average CCR computed 

in step 2 by a factor of 3 to compute a statistically significant reliable ceiling. 

 Step 4. Adding the result from step 3 to the national average CCR of all IRFs for 

which we have sufficient cost report data, from step 1. 

 We did not receive any comments on the proposed updates to the IRF CCR 

Ceilings. 

Final Decision: We did not receive any comments on the IRF cost-to-charge ratio 

ceiling. Therefore, we are finalizing the national average urban CCR at 0.520, the 

national average rural CCR at 0.669, and the national CCR ceiling at 1.55 percent for FY 

2012. 

VIII. Impact of the IPPS Data Matching Process Changes on the IRF PPS 

Calculation of the Low-Income Percentage Adjustment Factor

 Section 1886(j)(3)(A)(v) of the Act confers broad authority upon the Secretary to 
CMS-1349-F 123 

adjust the per unit payment rate “by such . . . factors as the Secretary determines are 

necessary to properly reflect variations in necessary costs of treatment among 

rehabilitation facilities.” For example, we adjust the Federal prospective payment 

amount associated with a CMG to account for facility-level characteristics such as an 

IRF’s LIP, teaching status, and location in a rural area, if applicable, as described in 

§412.624(e). 

 In the FY 2002 IRF PPS final rule (66 FR 41359 through 41361) that 

implemented the IRF PPS, we established the IRF LIP adjustment. In that final rule, we 

said that we would calculate the LIP adjustment by using the same DSH patient 

percentage used in the acute IPPS DSH adjustment. 

 The DSH patient percentage is equal to the sum of the “Supplemental Security 

Income (SSI) fraction” and the “Medicaid Fraction.” We compute the SSI fraction (also 

known as the “SSI ratio” or the “Medicare fraction”) by dividing the number of the 

facility’s inpatient days that are furnished to patients who were entitled to both Medicare 

Part A (including patients who are enrolled in a Medicare Advantage (Part C) plan) and 

SSI benefits by the facility’s total number of patient days furnished to patients entitled to 

benefits under Medicare Part A (including patients who are enrolled in a Medicare 

Advantage (Part C) plan). To determine the number of inpatient days for individuals 

entitled to both Medicare Part A and SSI, as required for calculation of the numerator of 

the SSI fraction, we match the Medicare records and SSI eligibility records for each 

IRF’s patients during the FY. The data underlying the match process are drawn from: 

(a) The Medicare Provider Analysis and Review (MedPAR) data file; and (b) SSI 

eligibility data provided by the Social Security Administration (SSA). We recently 
CMS-1349-F 124 

revised this data match. See the FY 2011 IPPS final rule (75 FR 50041, 50276). 

As previously stated, it is our policy to calculate the LIP adjustment using the 

same DSH patient percentage used in the acute IPPS DSH adjustment. In keeping with 

this long-standing policy, we will use the same matching process as IPPS for calculating 

the SSI fractions for FYs 2011 and beyond. This process is described in the FY 2011 

IPPS final rule, and will be used to calculate IRFs’ SSI fractions for FY 2011. The 

FY 2011 IPPS final rule (75 FR 50277 through 50286) gives information on this revised 

data matching process. 

 We received 2 comments on our stated policy to use the same data matching 

process as IPPS for calculating the SSI fractions for FYs 2011 and beyond, which are 

summarized below. 

 Comment: The commenters supported our use of the same data matching process 

for IRFs that we use for IPPS. However, one commenter asked whether CMS plans to 

use the new data matching process for calculating the IRF SSI ratios for any cost 

reporting periods prior to FY 2011. Specifically, the commenter requested information 

on whether or not CMS plans to apply the new data matching process to any existing 

appeals of the IRF SSI ratios, regardless of the cost reporting period. 

 Response: As we discussed in the FY 2012 IRF PPS proposed rule (76 FR 24214 

at 24249 through 24250), in keeping with our long-standing policy of using the same 

DSH patient percentage used in the acute IPPS DSH adjustment, we will use the same 

matching process as IPPS for calculating the IRF SSI ratios for FYs 2011 and beyond. 

The comment about the data matching process for existing appeals of the SSI ratio for 

cost reporting periods prior to FY 2011 is outside the scope of the FY 2012 IRF PPS 
CMS-1349-F 125 

proposed rule. We will continue our ongoing analysis to determine the most appropriate 

methodologies to use in addressing open appeals, in both the IPPS and the IRF settings. 

IX. Updates to the Policies in 42 CFR Part 412 

 Prior to the implementation of the IRF PPS on January 1, 2002, IRFs were paid 

based on the costs that they reported on their Medicare cost reports, subject to some 

limits. To simplify the cost reporting process, both for providers and for CMS and the 

Medicare contractors that monitored the cost reports, regulations were put into place that 

carefully defined, for example, when and how providers could be considered “new” and 

when and how they could expand their bed size and square footage. Under the IRF PPS, 

however, Medicare pays IRFs according to Federal prospective payment rates that are no 

longer tied to an individual IRF’s Medicare cost reports. This new payment methodology 

has made some of the requirements regarding new IRFs and IRF expansions obsolete. 

 Prior to 2002, the regulations distinguished between freestanding rehabilitation 

hospitals and rehabilitation units of acute care hospitals, with separate regulatory sections 

for the two types of facilities even though many of the same requirements applied to both. 

Under the IRF PPS, the distinctions between freestanding IRFs and IRF units are no 

longer relevant because both types of facilities are paid the same and are subject to the 

same rules and requirements. The separation of the regulatory sections resulted in 

unnecessary repetition and confusion about which regulations applied to which types of 

facilities. 

 In addition, we added new IRF coverage requirements to §412.622(a)(3), (4), and 

(5) in the FY 2010 IRF PPS final rule (74 FR 39762 at 39811 through 39812) for IRF 

discharges occurring on or after January 1, 2010. Several of the IRF conditions of 
CMS-1349-F 126 

payment in the existing §412.23(b) 5and §412.29, including the requirements for 

preadmission screenings to be conducted on all prospective patients, the requirements for 

IRF patients to receive close medical supervision, the requirements for plans of care to be 

developed for all IRF patients, and the requirements for patients to receive an 

interdisciplinary approach to care in the IRF, mirror some of the IRF coverage 

requirements in §412.622(a)(3), (4), and (5). 

 Finally, in recent years, we have observed an increase in the number and 

complexity of acquisitions and mergers occurring in this industry. In some cases, the 

Medicare rules and requirements for IRFs did not adequately address the number and 

complexity of acquisitions and mergers because they simply did not occur when the 

regulations were written. In other cases, regulations were written to address issues that 

do not exist today. 

 For all of these reasons, in this final rule we consolidate, clarify, and revise the 

regulations for inpatient rehabilitation facilities at §412.23(b), §412.25(b), §412.29, and 

§412.30 to update and simplify the policies, to eliminate unnecessary repetition and 

confusion, and to enhance the consistency with the IRF coverage requirements in 

§412.622(a)(3), (4), and (5). The modifications will eliminate regulations that are no 

longer necessary under the IRF PPS, and they will enable IRFs to more easily adjust to 

beneficiary changes in demand for IRF services, which will improve beneficiary access 

to these services. Many of the modifications will also reduce costs for providers and for 

the government by reducing the amount of time and expenditures devoted to adhering to 

(for providers) and enforcing (for the government) regulations that are no longer 

necessary. As we have no way of determining how many IRFs might take advantage of 
CMS-1349-F 127 

the added flexibility these regulations afford to expand or change their operations, we are 

not able to quantify the potential savings that may result from these changes. For 

example, each time an IRF unit submitted a request to add beds to its facility under the 

prior regulations; the Medicare contractor had to determine whether or not the added IRF 

beds would be considered “new.” To be considered “new,” the beds must have been 

added at the start of a cost reporting period, and the hospital must have “obtained 

approval, under State licensure and Medicare certification, for an increase in its hospital 

bed capacity that is greater than 50 percent of the number of beds it seeks to add to the 

unit.” We believe that the first requirement (that beds can only be added at the start of a 

cost reporting period) was difficult, and potentially costly, for IRFs that were expanding 

through new construction because the exact timing of the end of a construction project is 

often difficult to predict. Construction delays can hamper an IRF’s ability to have the 

construction completed exactly at the start of a cost reporting period, which can lead to 

significant revenue loss for the facility if the IRF is unable to add beds until the next cost 

reporting period. We believe that it is no longer necessary to require IRF beds to be 

added at the start of a cost reporting period. Further, the regulations required Medicare 

contractors to expend unnecessary resources determining whether the IRF met the second 

criteria, which required the hospital to have “obtained approval, under State licensure and 

Medicare certification, for an increase in its hospital bed capacity that is greater than 50 

percent of the number of beds it seeks to add to the unit.” The modifications to the 

regulations in this final rule are designed to simplify the regulations in order to minimize 

the amount of effort that Medicare contractors would need to spend enforcing them. 

Finally, the modifications will enhance the consistency between the IRF coverage and 
CMS-1349-F 128 

payment requirements. 

 We note that §412.25(b) applies to both IRFs and inpatient psychiatric facilities 

(IPFs), so the revisions to §412.25(b) will also affect IPFs in similar ways. 

A. Consolidation of the Requirements for Rehabilitation Hospitals and Rehabilitation 

Units

 Under the IRF PPS, rehabilitation hospitals and rehabilitation units of acute care 

hospitals (and critical access hospitals (CAHs)) are paid the same and, with very few 

exceptions, are subject to the same Medicare rules and requirements. For this reason, we 

believe that it is no longer necessary to have separate sections in 42 CFR part 412 that 

define the requirements for rehabilitation hospitals and rehabilitation units of acute care 

hospitals (and CAHs). This leads to excessive repetition and potential confusion about 

which rules apply to which types of facilities. 

 Thus, we are revising and consolidating the regulations for rehabilitation facilities 

that are currently in §412.23(b) (for rehabilitation hospitals), §412.29 (for rehabilitation 

units), and §412.30 (for rehabilitation units) into a revised §412.29 that contains the 

requirements for all IRFs, whether they be freestanding rehabilitation hospitals or 

rehabilitation units of acute care hospitals (or CAHs). We believe that this will simplify 

the regulations by consolidating the majority of the requirements for IRFs into just one 

sub-section of 42 CFR part 412. 

 Although we are making slight modifications to the regulations in §412.25(b), as 

discussed in section IX of this final rule, we are not moving the IRF regulations in 

§412.25 to §412.29 in this final rule. The regulations in §412.25, such as the requirement 

to have beds that are physically separate from the rest of the hospital, the requirement that 
CMS-1349-F 129 

the unit be serviced by the same Medicare contractor as the rest of the hospital, and the 

requirement that the unit be treated as a separate cost center for cost finding and 

apportionment purposes, by their nature apply uniquely to units that are part of another 

hospital. While these requirements are not applicable to freestanding IRFs, we do not 

believe that it would be appropriate to include them with the rest of the IRF regulations in 

§412.29 that are intended to apply to both freestanding IRF hospitals and to IRF units of 

hospitals. Further, we are not making modifications to §412.25, other than the changes to 

§412.25(b) as discussed in section IX of this final rule, because the regulations in 

§412.25(a) through (g) (excluding (b)) remain relevant and important for defining IRF 

units of hospitals for payment purposes. 

 However, we are replacing the text that was located at §412.23(b) with text that 

simply refers the reader to the requirements in §412.29, and moving the rest of 

§412.23(b) and all of §412.30 to §412.29. We are leaving text in §412.23(b) that refers 

IRFs to the requirements they must meet in §412.29 only so that we do not disturb the 

ordering of the rest of §412.23 that contain the Medicare regulations for inpatient 

psychiatric facilities, children’s hospitals, and long-term care hospitals. Specifically, we 

are moving all of the text in §412.23(b) to §412.29 except for a new paragraph that refers 

to the requirements in §412.29, which would read as follows: “(b) Rehabilitation 

hospitals. A rehabilitation hospital must meet the requirements specified in §412.29 to be 

excluded from the prospective payment systems specified in §412.1(a)(1) and to be paid 

under the prospective payment system specified in §412.1(a)(3) and in subpart P of this 

part.” 
CMS-1349-F 130 

B. Revisions to the Regulations at Proposed §412.29 

 As described in section IX.A. of this final rule, we are replacing the text that was 

located at §412.23(b) with text that simply refers the reader to the requirements in 

§412.29, and moving the rest of §412.23(b) and all of §412.30 to §412.29. To eliminate 

any unnecessary repetition, and to update and clarify the regulations, we are also making 

revisions to the language from all three of the prior sections, §412.23(b), §412.29, and 

§412.30. As stated in the prior §412.30, a rehabilitation unit can only be considered 

“new” if the hospital has never had a rehabilitation unit before. We have encountered 

circumstances in which a hospital closed a rehabilitation unit over 20 years ago and is 

now seeking to re-open the rehabilitation unit, and we believe that it would be reasonable 

to consider the rehabilitation unit to be “new.” Thus, we are revising the requirements 

for an IRF to be considered “new” to indicate that an IRF can be considered “new” if it 

has not been paid under the IRF PPS in 42 CFR part 412, subpart P for at least 5 calendar 

years. These requirements will now apply equally to both rehabilitation hospitals and 

rehabilitation units of acute care hospitals (or CAHs), and will be located in 

§412.29(c)(1). We believe that 5 calendar years will allow a sufficient amount of time 

between an IRF closing and an IRF reopening to prevent IRFs from closing and 

reopening annually to avoid meeting certain requirements, while allowing IRFs more 

flexibility to meet changing demand for IRF services. 

 In addition, we clarify and simplify the rules regarding change of ownership 

(including mergers) or leasing, as defined in §489.18. Changes of ownership or leasing, 

as defined in §489.18, and mergers in which the new owner(s) accept assignment of the 

previous owner’s provider agreements are transfers of the provider agreement. 
CMS-1349-F 131 

Therefore, IRFs in these situations will retain their excluded status and will continue to 

be paid under the IRF PPS before and after the change, as long as the IRF continues to 

meet all of the requirements specified in §412.29. However, we clarify that a change of 

ownership (including merger) or leasing in which the new owner(s) do not accept 

assignment of the previous owner’s provider agreement would be considered a voluntary 

termination of the provider agreement, and the new owner(s) will need to reapply to the 

Medicare program as an initial applicant to operate a new IRF. In the case of changes of 

ownership (including mergers) or leasing, the new owner(s) will not be required to wait 

for 5 calendar years to reapply to operate a new IRF, but will be required to complete the 

initial hospital or critical access hospital certification process to participate in Medicare 

as a new IRF. 

 Further, we revise the regulations regarding new IRF beds. The regulations 

formerly in §412.30(d), which required an IRF to obtain “approval, under State licensure 

and Medicare certification, for an increase in its hospital bed capacity that is greater than 

50 percent of the number of beds it seeks to add to the unit,” have become less and less 

relevant under a prospective payment system in which payments are no longer based on 

IRFs’ reported costs. Thus, we eliminate these requirements and, instead, state in 

§412.29(c)(2) that IRF beds would be considered “new” if they meet all applicable State 

Certificate of Need and State licensure laws and if they get written approval from the 

appropriate CMS regional office (RO), as described below. New IRF beds can be added 

one time at any point during a cost reporting period (instead of at the start of a cost 

reporting period), but we require that a full 12-month cost reporting period elapse before 

an IRF that has had beds delicensed or decertified can add new beds. The reason for this 
CMS-1349-F 132 

requirement is to prevent IRFs from decreasing and increasing bed size every year to 

avoid having to meet certain requirements. We require the IRF to obtain written approval 

from the appropriate CMS RO for the addition of the new beds in order to allow the CMS 

RO to verify that a full 12-month cost reporting period has elapsed before an IRF that has 

had beds delicensed or decertified can add new beds. 

C. Revisions to the Requirements for Changes in Bed Size and Square Footage

 Prior to the IRF PPS and the IPF PPS, excluded units (IRFs and IPFs) were paid 

based on their costs, as reported on their Medicare cost reports, subject to certain facilityspecific cost limits. These cost-based payments were determined separately for operating 

and capital costs. Thus, under cost-based payments, the facilities’ capital costs were 

determined, in part, by their bed size and square footage. Changes in the bed size and 

square footage would complicate the facilities’ capital cost allocation. Thus, the 

Medicare regulations at §412.25 limited the situations under which an IRF or IPF could 

change its bed size and square footage. 

 Under the IRF PPS and IPF PPS, however, a facility’s bed size and square footage 

is not relevant for determining the individual facility’s Medicare payment. Thus, we 

believe it is appropriate to modify some of the restrictions on a facility’s ability to change 

its bed size and square footage. We are therefore relaxing the restrictions on a facility’s 

ability to increase its bed size and square footage. Under the revised requirements we are 

adopting in this final rule in §412.25(b), an IRF or IPF can change (either increase or 

decrease) its bed size or square footage one time at any point in a given cost reporting 

period as long as it notifies the CMS RO at least 30 days before the date of the proposed 

change, and maintains the information needed to accurately determine costs that are 
CMS-1349-F 133 

attributable to the excluded units. As we have in prior years, we also include an 

exception to these requirements for special circumstances. We note that any IRF beds 

that are added to an existing IRF during the IRF’s cost reporting period will only be 

considered new through the end of that cost reporting period. Further, the new IRF beds 

will be included in the IRF’s compliance review calculations under the 60 percent rule 

specified in §412.29(b) beginning on the date that they are first added to the IRF. 

D. Revisions to Enhance Consistency Between the IRF Coverage and Payment 

Requirements

 In the FY 2010 IRF PPS final rule (74 FR 39762 at 39788 through 39798), we 

implemented new IRF coverage requirements in §412.622(a)(3),(4), and (5). These new 

IRF coverage requirements replaced coverage requirements that were 25 years old and no 

longer reflected current medical practice. In updating these coverage requirements, we 

added further specificity to some of the terms that had been discussed in the old coverage 

requirements. For example, we more clearly defined in the new IRF coverage 

requirements what we mean by an IRF preadmission screening, care planning, and close 

medical supervision. In the revisions to §412.23(b) and §412.29, we enhance the 

consistency between the IRF coverage and payment requirements by incorporating some 

of the added specificity from the coverage requirements into the same requirements for 

payment. Specifically, we clarify that, as in the IRF coverage requirements, IRF 

preadmission screenings must be reviewed and approved by a rehabilitation physician 

prior to each prospective patient’s admission to an IRF. As we said in the FY 2010 IRF 

PPS final rule (74 FR 39791), we believe that it is important to require that a 

rehabilitation physician document the reasoning behind the decision to admit a patient to 
CMS-1349-F 134 

an IRF, to enable medical reviewers to understand the rationale for the decision. 

 Further, we clarify, as we did in the coverage requirements at §412.622(a)(3)(iv), 

that close medical supervision in an IRF means that the patient receives at least 3 face-toface visits per week by a licensed physician with specialized training and experience in 

inpatient rehabilitation to assess the patient both medically and functionally, as well as to 

modify the course of treatment as needed to maximize the patient’s capacity to benefit 

from the rehabilitation process. As we stated in the FY 2010 IRF PPS final rule (74 FR 

39796), we believe that at least 3 face-to-face rehabilitation physician visits per week are 

necessary to coordinate the patient’s medical needs with his or her functional 

rehabilitation needs while in the facility. 

 We received 12 comments on the proposed updates to the policies in 42 CFR part 

412, which are summarized below. 

 Comment: Several commenters requested that CMS not make the proposed 

changes to the regulation text in 42 CFR 412.29(d) and (e). Although one commenter 

agreed with the proposed changes to the regulation text to align portions of the IRF 

coverage requirements with the corresponding portions of the IRF classification 

requirements, the rest of the commenters on these provisions expressed concerns. The 

concerns expressed were primarily that the proposed changes could blur the distinctions 

between the IRF coverage and the IRF classification requirements, and could potentially 

lead to inappropriate revocations of an IRF’s classification for payment under the IRF 

PPS based on only a single claim denial (or a small number of claims denials). The 

commenters suggested that CMS restate its previous position that the failure of an IRF to 

meet the IRF coverage requirements for one individual case should not be used to 
CMS-1349-F 135 

declassify an IRF for payment under the IRF PPS. Some of these commenters also asked 

for further explanation of how these proposed changes would reduce costs for IRFs and 

for the government. 

 Response: We agree with the commenters that, as we have stated previously, 

failure to meet the IRF coverage requirements in one individual case should not be used 

to decertify an entire facility for payment under the IRF PPS. However, the intent of the 

proposed revisions is to make the 2 sets of requirements consistent with each other to 

eliminate any potential for confusion or ambiguity. We believe that we would be remiss 

in not making it clear that, in the IRF context, we require the preadmission screening 

documentation to be reviewed and approved by a rehabilitation physician prior to the IRF 

admission. Under the IRF coverage requirements, this is required for all IRF admissions, 

so it also must be built into the preadmission screening procedures that all IRFs must 

have in place. Similarly, we believe that we would be remiss in not clarifying that, in the 

IRF context, we define close medical supervision to mean at least 3 face-to-face visits per 

week by a rehabilitation physician to assess the patient both medically and functionally. 

We established this definition for the IRF coverage requirements in the FY 2010 IRF PPS 

final rule (74 FR 39762 at 39795 through 39796), and we simply proposed to clarify in 

§412.29(e) that the term means the same thing in the IRF classification requirements that 

it means in the IRF coverage requirements. 

Reinforcing the identical concepts (and, in most cases, the identical wording) 

from the IRF coverage criteria to the IRF classification criteria can only serve to clarify 

exactly what we mean, so that there is no confusion or ambiguity. In our opinion, this 

aligns with our stated goals in the FY 2012 IRF PPS proposed rule (76 FR 24214 at 
CMS-1349-F 136 

24250) of updating and simplifying the policies, eliminating unnecessary repetition and 

confusion, and enhancing the consistency between the IRF classification and the IRF 

coverage requirements. This particular change does not reduce costs for IRFs or for the 

government, but does promote clarity and consistency among Medicare’s regulations. 

 As we do not intend for an IRF to be declassified for the purposes of receiving 

payment under the IRF PPS based on a small number of IRF claims denials, we agree 

with some of the commenters who suggested revisions to the language to focus the 

requirements on whether the IRFs have the correct processes in place to meet the 

requirements, rather than on whether the IRFs meet the requirements in each individual 

case. We agree that failure to meet the IRF coverage requirements in one individual case 

is not a reason to declassify an entire IRF from receiving payment under the IRF PPS. 

Thus, we are adopting slight revisions to the regulation text, suggested by commenters, 

that we believe will clarify that an IRF cannot be declassified as an IRF for failing to 

meet the coverage criteria in just one or two cases. The revised regulation text is 

included in the “Regulation Text” section of this final rule. 

Even though we believe that an IRF should not lose its IRF classification because 

one individual case (or even a small number of cases) fails to meet the IRF coverage 

requirements, we note that we do believe that it is reasonable to conclude that an IRF’s 

preadmission screening procedure is not adequate if a large percentage of the IRF’s 

claims are denied because the preadmission screening information was not reviewed and 

approved by a rehabilitation physician prior to the IRF admission. Similarly, we believe 

that it is reasonable to conclude that an IRF’s procedure for ensuring that patients receive 

close medical supervision is not adequate if a large proportion of the IRF’s claims are 
CMS-1349-F 137 

denied because the patients were not seen and assessed by a rehabilitation physician at 

least 3 times per week. 

Comment: Several commenters requested that CMS change the regulations to 

treat the acquisition of an IRF unit the same as the acquisition of a freestanding IRF 

hospital. 

Response: We appreciate the commenters’ suggestion and will carefully consider 

this for the future. However, we believe that this suggestion is outside the scope of the 

FY 2012 IRF PPS proposed rule (76 FR 24214) because it involves the issue of whether 

an entity can purchase a hospital’s payment status under Medicare. While an entity can 

purchase physical assets, Medicare payment status is assigned to a particular provider 

based on a review of the provider’s eligibility for payment under a particular Medicare 

payment system. We do not believe that a facility’s Medicare payment status or its 

provider agreement can be bought, sold, or transferred. If a different hospital other than 

the one to which the Medicare payment status was assigned wants to obtain the same 

Medicare payment status, it must apply and demonstrate that it meets the requirements 

for payment under the particular Medicare payment system. 

Comment: While several commenters supported the proposed regulations 

regarding “new” IRFs, changes of ownership, and mergers, some of these commenters 

requested that CMS specify that certain “internal corporate restructuring transactions” not 

involving external entities are not changes of ownership. For example, these commenters 

said that they do not believe that the purchase of a hospital by another hospital, where 

both hospitals are owned by the same corporate entity, should be treated as a change of 

ownership for Medicare purposes. 
CMS-1349-F 138 

Response: We believe that this suggestion is outside the scope of the FY 2012 

IRF PPS proposed rule (76 FR 24214) because it involves how Medicare defines a 

hospital. For Medicare purposes, hospitals are separate entities if they have separate 

Medicare provider agreements, regardless of whether they might both be owned by the 

same corporate entity. If one hospital with a Medicare provider agreement purchases 

another hospital with a Medicare provider agreement, regardless of whether the hospitals 

are owned by the same corporate entity or not, Medicare would consider this a change of 

ownership, which would be governed by the new regulations in 42 CFR 412.29(c)(3) 

discussed in the “Regulation Text” section of this final rule. Similarly, if hospitals with 

separate Medicare provider agreements merge their operations, regardless of whether 

they are owned by the same corporate entity or not, then the new regulations regarding 

mergers in 42 CFR 412.29(c)(4) discussed in the “Regulation Text” section of this final 

rule would apply. 

Comment: Several commenters agreed with the proposed changes to §412.25(b) 

to allow expansions of bed size or square footage at any time during a cost reporting 

period. However, some commenters suggested that CMS should allow new IRF units or 

new IPF units to open and begin being paid under their respective IRF PPS or IPF PPS at 

any time during a cost reporting period, rather than requiring that they could only begin 

being paid under the IRF PPS or the IPF PPS at the start of a cost reporting period. 

Response: We appreciate the commenters’ suggestion that we relax the 

requirement that IRF and IPF units can only begin being paid under their respective IRF 

PPS or IPF PPS at the start of a cost reporting period. However, we believe that this 

suggestion is outside the scope of the FY 2012 IRF PPS proposed rule (76 FR 24214) 
CMS-1349-F 139 

because we did not propose any changes to the regulations in § 412.25(c). However, we 

will consider this suggestion for possible inclusion in future rulemaking. 

Final Decision: After carefully considering all of the comments we received on 

the proposed updates to the policies in 42 CFR part 412, we are finalizing the regulation 

text changes as proposed, except for the following revisions in response to comment: 

• Instead of the proposed revision to §412.29(d), the paragraph will instead read, 

“(d) Have in effect a preadmission screening procedure under which each prospective 

patient’s condition and medical history are reviewed to determine whether the patient is 

likely to benefit significantly from an intensive inpatient hospital program. This 

procedure must ensure that the preadmission screening is reviewed and approved by a 

rehabilitation physician prior to the patient’s admission to the IRF.” 

• Instead of the proposed revision to §412.29(e), the paragraph will instead read, 

“(e) Have in effect a procedure to ensure that patients receive close medical supervision, 

as evidenced by at least 3 face-to-face visits per week by a licensed physician with 

specialized training and experience in inpatient rehabilitation to assess the patient both 

medically and functionally, as well as to modify the course of treatment as needed to 

maximize the patient’s capacity to benefit from the rehabilitation process.” The specific 

changes to the regulations at 42 CFR part 412 are shown in the “Regulation Text” of this 

final rule. 

X. Quality Reporting Program for IRFs 

A. Background and Statutory Authority

 CMS seeks to promote higher quality and more efficient health care for Medicare 

beneficiaries. Our efforts are, in part, effectuated by quality reporting programs coupled 
CMS-1349-F 140 

with the public reporting of data collected under those programs. The quality reporting 

programs exist for various settings such as hospital inpatient services (the Hospital 

Inpatient Quality Reporting (Hospital IQR) Program), hospital outpatient services (the 

Hospital Outpatient Quality Reporting (Hospital OQR) Program), and physicians and 

other eligible professionals (the Physician Quality Reporting System (formerly called the 

Physician Quality Reporting Initiative, or PQRI)). We have also implemented quality 

reporting programs for home health agencies and skilled nursing facilities that are based 

on conditions of participation, and an end-stage renal disease quality incentive program 

(ESRD QIP) that links payment to performance. 

 Section 3004(b) of the Affordable Care Act added section 1886(j)(7) to the Act, 

which requires the Secretary to implement a quality reporting program for IRFs, 

including freestanding IRF hospitals and IRF units within hospitals. Beginning in FY 

2014, section 1886(j)(7)(A)(i) of the Act requires the Secretary to reduce the increase 

factor to a fiscal year by 2 percentage points for any IRFs that do not submit data to the 

Secretary in accordance with requirements established by the Secretary for that fiscal 

year. Section 1886(j)(7)(A)(ii) of the Act notes that this reduction may result in the 

increase factor being less than 0.0 for a fiscal year, and in payment rates under this 

subsection for a fiscal year being less than the payment rates for the preceding fiscal year. 

Any reduction based on failure to comply with the reporting requirements is, in 

accordance with section 1886(j)(7)(B) of the Act, limited to the particular fiscal year 

involved. The reductions are not to be cumulative and will not be taken into account in 

computing the payment amount under subsection (j) for a subsequent fiscal year. 

Section 1886(j)(7)(C) of the Act requires that each IRF submit data to the 
CMS-1349-F 141 

Secretary on quality measures specified by the Secretary. The data must be submitted in 

a form and manner, and at a time, specified by the Secretary. The Secretary is generally 

required to specify measures that have been endorsed by the entity with a contract under 

section 1890(a) of the Act. This contract is currently held by the National Quality Forum 

(NQF). The NQF is a voluntary consensus standard-setting organization with a diverse 

representation of consumer, purchaser, provider, academic, clinical, and other health care 

stakeholder organizations. The NQF was established to standardize health care quality 

measurement and reporting through its consensus development process. We have 

generally adopted NQF-endorsed measures in our reporting programs. However, section 

1886(j)(7)(D)(ii)of the Act provides that “in the case of a specified area or medical topic 

determined appropriate by the Secretary for which a feasible and practical measure has 

not been endorsed by the entity with a contract under section 1890(a) of the Act, the 

Secretary may specify a measure that is not so endorsed as long as due consideration is 

given to measures that have been endorsed or adopted by a consensus-based organization 

identified by the Secretary." Under section 1886(j)(7)(D)(iii) of the Act, the Secretary 

must publish the selected measures that will be applicable to FY 2014 no later than 

October 1, 2012. 

Section 1886(j)(7)(E) of the Act requires the Secretary to establish procedures for 

making data submitted under the IRF quality reporting program available to the public. 

The Secretary must ensure that an IRF is given the opportunity to review the data that is 

to be made public prior to the data being made public. The Secretary must report quality 

measures that relate to services furnished in inpatient settings in rehabilitation facilities 

on the CMS Web site. 
CMS-1349-F 142 

B. Quality Measures for IRF Quality Reporting Program for FY 2014 

1. General 

As described below, we adopt 2 quality measures for FY 2014. These quality 

measures are: (1) Urinary Catheter-Associated Urinary Tract Infections (CAUTI); and 

(2) Pressure Ulcers that are New or Have Worsened. We also discuss below a third 

measure that we are currently developing and intend to propose to adopt for FY 2014 in 

future rulemaking. That measure will be the 30-day Comprehensive All-Cause RiskStandardized Readmission Measure. 

2. Considerations in the Selection of the Proposed Quality Measures 

 In implementing the IRF Quality Reporting Program, we seek to collect data on 

measures that will provide information on the full spectrum of the quality of care being 

furnished by IRFs while imposing as little burden as possible on IRFs. We seek to 

collect data on valid, reliable, and relevant quality measures and to make that data 

available to the public in accordance with applicable law. 

 We also seek to align new Affordable Care Act reporting requirements for IRFs 

with HHS’ broader goals of targeting high priority conditions and topics, as reflected in 

the National Quality Strategy released by the Secretary available at 

(http://www.healthcare.gov/center/reports/quality03212011a.html#es) and, ultimately, to 

provide a comprehensive assessment of the quality of healthcare delivered. We note that 

adopting a comprehensive set of measures may take multiple years because of the time, 

effort and resources required by IRFs and CMS to develop and implement the data 

collection and reporting infrastructure needed to support an expanded quality reporting 

program. Current areas of high priority for HHS include patient safety, healthcare 
CMS-1349-F 143 

associated infections, and reduction of avoidable readmissions. These priorities are 

consistent with the aim of providing safe, sound care for all patients receiving services in 

any healthcare setting including IRFs. 

 In our consideration and selection of a comprehensive set of quality measures, we 

have several objectives. First, the measures should align with CMS’ three-part aim for 

better care for individuals, better health for populations, and lower cost through 

improvement. Second, the measures should relate to specific priorities in the care setting 

for which they are adopted. For IRFs, these include improving patient safety (such as 

avoiding healthcare associated infections (HAI)), reducing adverse events, and 

encouraging better coordination of care and person-and-family-centered care. Third, the 

measures should address improved quality for the primary role of IRFs, which is to 

address the rehabilitation needs of the individual including improved functional status 

and achievement of successful return to the community post-discharge. 

 Other considerations in selecting quality measures include alignment with other 

Medicare quality reporting programs and other private sector initiatives; suggestions and 

input received from multiple stakeholders and national subject matter experts; seeking 

measures that have a low probability of causing unintended adverse consequences; and 

considering measures that are feasible, that is, measures that can be technically 

implemented within the capacity of the CMS infrastructure for data collection, analyses, 

and calculation of reporting and performance rates as applicable. 

3. FY 2014 Measure #1: Healthcare Associated Infection Measure (HAI): Urinary 

Catheter-Associated Urinary Tract Infections (CAUTI) 

The first measure we proposed for purposes of calculating the FY 2014 Increase 
CMS-1349-F 144 

Factor for IRFs is an application of the NQF-endorsed measure developed by the Centers 

for Disease Control (CDC) for hospitals entitled (NQF# 0138)"Urinary CatheterAssociated Urinary Tract Infection (CAUTI) for Intensive Care Unit Patients" to the IRF 

setting. This measure was developed by the CDC to measure the percentage of patients 

with urinary catheter associated urinary tract infections in the ICU context. We believe 

that this measure is highly relevant to IRFs in that urinary catheters are commonly used 

in the IRF setting. Section 1886(j)(7)(D)(ii) of the Act provides that “in the case of a 

specified area or medical topic determined appropriate by the Secretary for which a 

feasible and practical measure has not been endorsed by the entity with a contract under 

section 1890(a) of the Act, the Secretary may specify a measure that is not so endorsed as 

long as due consideration is given to measures that have been endorsed or adopted by a 

consensus-based organization identified by the Secretary." We reviewed the NQF’s 

consensus endorsed measures, and were unable to identify any NQF-endorsed measures 

for catheter-associated urinary tract infections for the IRF setting. We are unaware of 

any other measures of urinary tract infections that have been approved by voluntary 

consensus standards bodies. Having given due consideration to other measures that have 

been endorsed or adopted by a consensus entity, we proposed to adopt an application of 

the NQF-endorsed CAUTI measure under the Secretary's authority to select non-NQF 

endorsed measures where NQF-endorsed measures do not exist for a specified area or 

medical topic. While we proposed to adopt the measure under the exception authority 

provided in section 1886(j)(7)(D)(ii) of the Act, we noted that we intended to seek formal 

extension of the existing CAUTI measure to the IRF setting.[1] 

 

1 We inadvertently said in the FY 2012 IRF PPS proposed rule (76 FR 24214) that we (CMS) would ask 

NQF to formally extend its endorsement of the existing CAUTI measure to the IRF setting. We should 
CMS-1349-F 145 

 Urinary tract infections (UTIs) are a common cause of morbidity and mortality. 

The urinary tract is the most common site of healthcare-associated infection, accounting 

for more than 30 percent of infections reported by acute care hospitals[2]. Healthcareassociated UTIs are commonly attributed to catheterization of the urinary tract. 

CAUTI can lead to complications such as cystitis, pyelonephritis, gram-negative 

bacteremia, prostatitis, epididymitis, and orchitis in males and, less commonly, 

endocarditis, vertebral osteomyelitis, septic arthritis, endophthalmitis, and meningitis in 

all patients. Complications associated with CAUTI include discomfort to the patient, 

prolonged hospital stay, and increased cost and mortality. Each year, more than 13,000 

deaths are associated with UTIs[3]. Prevention of CAUTIs is discussed in the 

CDC/HICPAC document, Guideline for Prevention of Catheter-associated Urinary Tract 

Infections[4]. The NQF-endorsed CAUTI measure we proposed is currently collected by 

the CDC's National Healthcare Safety Network (NHSN), a secure internet-based health 

surveillance system, and we note that the CDC is also collecting data on this measure 

from IRFs. NHSN is currently used, in part, as one means by which certain Statemandated reporting and surveillance data are collected. 

 The HHS National Action Plan to Prevent HAIs located at 

(http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html) identified catheterassociated urinary tract infections as the leading type of HAI that is largely preventable. 

The technical expert panel (TEP) convened by the CMS measure-developer-contractor on 

 

have stated that we would ask CDC, as the measure steward, to ask NQF to formally extend its 

endorsement of the existing CAUTI measure to the IRF setting. 

[2]Klevens RM, Edward JR, et al. Estimating health care-associated infections and deaths 

in U.S. hospitals, 2002. Public Health Reports 2007;122:160-166. 

[3] Ibid. 

[4] Wong ES. Guideline for prevention of catheter-associated urinary tract infections. 

Infect Control 1981;2:126-30. 
CMS-1349-F 146 

February 4, 2011 (https://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/) also 

identified CAUTI as a high priority quality issue for IRFs. 

We received 23 public comments on the Urinary Catheter-Associated Urinary 

Tract Infections (CAUTI) quality measure, which are summarized below. 

Comment: Several commenters generally acknowledged CAUTI as an important 

safety and quality issue across care settings. However, several commenters expressed 

concern with the applicability of this measure to the IRF setting. They stated that the 

relatively small number of new UTIs in IRFs may reflect that the indicator is not the best 

choice as a quality indicator in the IRF setting. 

Response: Although patients with CAUTI in the IRF setting may be a minority, 

we believe that the CAUTI measure is an important indicator of quality in IRF settings 

and that promoting safe care in all settings is an important goal for quality reporting 

programs. Additionally, it is important to note that the HHS National Action Plan to 

Prevent HAIs located at (http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html) 

indicated that catheter-associated urinary tract infections are a leading type of HAI that is 

largely preventable. Also, the technical expert panel that was convened by the CMS 

contractor that was tasked with assisting with the development of measures identified 

CAUTI as a high priority issue for IRFs. 

Comment: One commenter specifically supported the adoption of CAUTI 

reporting in the IRF context through the National Healthcare Safety Network (NHSN). 

They noted that hospitals in their State, including IRFs, have been required by State lawbased reporting requirements to use NHSN to report all health care-associated infections 

since February 2008. The commenter also stated that, based on the health care-associated 
CMS-1349-F 147 

infection data collected and analyzed in that State, urinary tract infection is the most 

prevalent type of infection reported in that State’s IRFs. 

Response: We appreciate the commenter’s observation that UTIs are both the 

most prevalent and preventable form of infection in the IRF setting, and believe that 

CAUTI is an important quality measure to adopt for the IRF quality reporting program. 

Comment: One commenter stated that CAUTI is a much less relevant marker of 

quality in IRFs with short lengths of stay, where catheters come out almost immediately. 

The commenter additionally stated that it is sometimes difficult to find supporting 

documentation of catheter use within transfer documents. The commenter also stated that 

lack of documentation could lead to additional testing of patients on admission, resulting 

in increased time burden and cost to IRFs. 

Response: We acknowledge the challenges providers may initially encounter in 

finding supporting documentation in transfer documents of catheter use. However, we 

believe that implementation of this requirement will encourage better documentation of 

catheter use over time. The CDC provides educational and outreach materials to help 

promote communication of such information. Additionally, we believe such information 

may be provided by other sources, such as the patient. Finally, the specifications for the 

measure, which are available at http://www.cdc.gov.nhsn/forms/instr/57_114.pdf, do not 

require all patients to be tested on admission. We agree with this approach because 

clinical experts generally agree that identification of CAUTI rests upon a constellation of 

patient symptoms, as well as on the results of clinical and laboratory data. Quality care in 

IRFs requires close medical monitoring of all patients, and we believe that such 
CMS-1349-F 148 

monitoring will appropriately identify the subset of IRF patients who are most at risk for 

CAUTI and therefore should be tested. 

Comment: Some commenters expressed concern that the CAUTI measure was 

originally created for use in the inpatient ICU setting and questioned the use of a measure 

that was not specifically endorsed for the IRF setting. In contrast, another commenter 

noted that, although the CAUTI measure was originally created for use in the inpatient 

ICU setting, its use is also well established in other inpatient settings. Moreover, they 

asserted that this measure is an appropriate measure for the IRF setting. The commenter 

also said that they were pleased to see that only indwelling catheters are included for this 

measure, versus “straight in-and-out” (intermittent) catheters which are frequently used 

by spinal cord injury patients who often require extensive IRF services. 

Response: We acknowledge that the CAUTI measure, for which CDC is the 

measure steward, is currently endorsed by NQF for ICUs, and not specifically endorsed 

for the IRF setting. However, given the importance and preventability of CAUTIs in all 

settings including IRFs, we proposed to adopt an application of the NQF-endorsed 

measure under the Secretary’s authority to select non-NQF endorsed measures where 

measures do not exist for a specified area or medical topic. We also noted that we would 

seek NQF endorsement of the measure for application in the IRF setting. 

Comment: One commenter urged CMS to refine the CAUTI measure for specific 

use in IRFs. Additionally this commenter cited the potential need for testing the measure 

in IRFs and agreed with several other commenters, who recommended delaying reporting 

CAUTI until CMS obtains NQF endorsement of this measure specifically for the IRF 

setting. 
CMS-1349-F 149 

Response: CAUTI has been well tested in the ICU setting, and we see no reason 

why the IRF setting would produce different results since presence or absence of CAUTI 

is not dependent upon setting type, but rather clinical findings, signs, and symptoms. 

As stated above, we proposed to adopt the measure under the exception authority 

provided in section 1886 (j)(7)(D)(ii) of the Act, and we note that the quality measure 

steward, the CDC, is seeking NQF’s expansion of its endorsement of the CAUTI measure 

to IRFs. 

Comment: Several commenters expressed concern with potential erroneous 

attribution of infections that may have resulted from catheter use in a previous setting. 

However, one commenter expressed support for the CAUTI measure’s “transfer rule 

exception,” defined as transfers within an inpatient facility or transfers to a new facility, 

which may alleviate some of the perceived issues with attribution. 

Response: We thank the commenters for their remarks and we acknowledge their 

concerns. As the commenter noted, the CAUTI measure’s “transfer rule exception” 

excludes patients with CAUTI present on admission (POA) or who develop CAUTI 

within 48 hours of transfer to the IRF setting. Such CAUTIs are attributed to the 

transferring location, rather than the admitting location. We believe that this 

appropriately addresses the potential risk of erroneous attribution for transferred patients. 

Additional information on the “Transfer Rule” can be found at 

http://www.cdc.gov/nhsn/PDFs/slides/CAUTI.pdf. 

Comment: Several commenters also expressed their concern with the lack of a 

“present on admission” (POA) indicator, and stated that the absence of a POA indicator 

may result in incorrect tallies. Additionally, one commenter recommended that CMS 
CMS-1349-F 150 

pursue development of a timeline and implementation plan for a POA indicator for 

CAUTI prior to finalizing the proposed IRF measures. 

Response: We do not believe that the absence of a POA indicator will lead to 

erroneous tabulation of UTIs. The “transfer rule” that is discussed in the NHSN patient 

safety module clearly indicates that, “If the UTI develops in a patient within 48 hours of 

discharge from a location, indicate the discharging location on the infection report, not 

the current location of the patient.” We believe that this guidance allows IRFs to 

accurately tabulate the number of CAUTIs that develop in the IRF, even without a POA 

indicator for this measure. However, we will consider working with the CDC to 

determine whether the application of a claims-based POA indicator in addition to 

implementation of the “transfer rule” would be useful. If our work with the CDC finds 

that this would potentially be useful, we will consider this for future rulemaking. 

Comment: One commenter recommended that health care-associated infection 

rates and standardized infection rates for IRFs be evaluated separately from any data 

reported by general acute care hospitals and long term care hospitals. 

Response: We appreciate the commenter’s concern that health care-associated 

infection rates and standardized infection rates for IRFs be evaluated separately from any 

data reported by general acute care hospitals and long term care hospitals. As the IRF 

quality reporting program is separate from these other quality reporting programs, we do 

plan to evaluate CAUTI data reported by IRFs separately from CAUTI data reported by 

hospitals and long term care hospitals. 

Comment: Several commenters strongly urged CMS to share how it plans to 

perform HAI data validation since this was not addressed in the proposed rule. 
CMS-1349-F 151 

Response: As we agree that data validation is important, we do plan to perform 

HAI data validation prior to the public reporting of any HAI data, and are actively 

working with the CDC regarding their data validation process. As part of this process, 

we are sharing the public comments that we received on this issue with the CDC. We 

will continue to work with the CDC to develop an HAI data validation strategy, and will 

address that aspect of the quality reporting program in future rulemaking. 

Comment: Several commenters highlighted the need to risk adjust the CAUTI 

measure. They also stated that certain patients, such as those with spinal cord injury or 

neurogenic bladder, were at much higher risk of developing CAUTI than other lower risk 

patients. Furthermore, several commenters expressed concern that the lack of risk 

adjustment could possibly lead to unintended consequences such as reduced access to 

IRFs for higher risk patients. One commenter also recommended the adoption of the 

CDC definition of symptomatic UTI. 

Response: We recognize that risk adjustment is an important consideration for 

outcome quality measures, and that certain patients may have higher risks for 

complications such as UTIs. The CAUTI measure specifications use facility type 

(including IRF) and location type information (including an identifier of whether the 

facility is a freestanding hospital or a unit of a hospital) for risk adjustment, and these 

data are captured in the NHSN reporting system. As we take the appropriate access to 

care in IRFs very seriously, we intend to monitor closely whether the quality reporting 

program has any unintended consequences on access to care for higher risk patients. 

Should we find any, we will take appropriate steps to address these issues in future 

rulemaking. Also, we agree with the commenter’s suggestion that we adopt the CDC 
CMS-1349-F 152 

definition of symptomatic UTI, and are planning to adopt this definition in future 

rulemaking. 

Final Decision: Having carefully considered the comments received, we adopt as 

final an application of the NQF-endorsed measure that was developed by the CDC for 

ICUs entitled (NQF #0138)"Catheter-Associated Urinary Tract Infection [CAUTI] for 

Intensive Care Unit Patients" for the IRF setting. 

4. FY 2014 Measure #2: Percent of Patients with Pressure Ulcers that are New or 

Worsened 

 The second measure we proposed for IRFs for purposes of calculating the FY 

2014 increase factor is an application of a CMS-developed NQF-endorsed measure for 

short-stay nursing home patients; (NQF #0678, formerly assigned as NQF #NH-012-10) 

"Percent of Residents with Pressure Ulcers that Are New or Worsened." This is the 

percentage of patients who have one or more stage 2 to 4 pressure ulcers that are new or 

worsened, when assessed at the time of discharge as compared with the patient’s 

condition at admission. We recognized that NQF endorsement of this measure is 

currently limited to short-stay nursing home patients in the proposed rule, but we noted 

our belief that this measure is also highly relevant to patients in any setting who are at 

risk of pressure ulcer development and a high priority quality issue in the care of IRF 

patients. Currently, there are no other NQF-endorsed pressure ulcer measures that are 

applicable to IRFs and we were unable to identify other measures for pressure ulcers that 

have been endorsed or adopted for the IRF context by a consensus organization. We 

were also unaware of any other measures of pressure ulcers that had been approved by 

voluntary consensus standards bodies. For these reasons, we proposed to adopt an 
CMS-1349-F 153 

application of this NQF-endorsed measure under the Secretary's authority to select nonNQF endorsed measures where measures do not exist for a specified area or medical 

topic. We also stated that we intend to ask NQF to extend its endorsement of the existing 

short-stay nursing home pressure ulcer measure to the IRF setting. 

 Pressure ulcers are high-volume and high-cost adverse events across the spectrum 

of health care settings from acute hospitals to home health. Patients in the IRF setting 

may have medically complex conditions and severe functional limitations, and are 

therefore at high risk for the development, or worsening, of pressure ulcers. Pressure 

ulcers are serious medical conditions and an important measure of quality. Pressure 

ulcers can lead to serious, life-threatening infections, which substantially increase the 

total cost of care. As reported in the August 22, 2007, Inpatient Hospital PPS Final Rule 

for FY 2008 (72 FR 47205) in 2006 there were 322,946 reported cases of Medicare 

patients with a pressure ulcer as a secondary diagnosis in acute care hospitals. 

 We received 26 comments on the Percent of Patients with Pressure Ulcers that are 

New or Worsening quality measure, which are summarized below. 

 Comment: A few commenters expressed concerns about whether pressure ulcers 

are really relevant to the IRF setting, citing the small number of IRF patients that develop 

a new or worsening pressure ulcer. They stated that more relevant measures were those 

focusing on the output of the rehabilitative process, such as change in function or 

discharge to community. 

Response: We agree that functional restoration and return to community are also 

key aims for IRFs and central to patient-centered care. We plan to add such measures 

through future rulemaking, as the measures are further developed. 
CMS-1349-F 154 

 However, we believe that the percent of patients with new or worsening pressure 

ulcers is an important indicator of quality in the IRF setting. Even if the proportion of 

patients in IRFs with new or worsening pressure ulcers is small, any such cases are 

particularly troubling given the requirement that IRF patients receive an intensive 

rehabilitation therapy program throughout their IRF stay, which would tend to require 

patients to be out-of-bed and active throughout their stay. 

 Comment: Some commenters expressed concern over the ambiguity of the 

definition of “worsening” pressure ulcers and requested clarification of the definition. 

Some commenters cited the difficulty in accurately differentiating between worsening 

pressure ulcers and pressure ulcers that are changing as part of the healing process. 

Several commenters suggested that “worsening” be removed from the description and 

CMS base the quality measure solely on the appearance of “new” pressure ulcers. Some 

commenters questioned why unstageable pressure ulcers and suspected deep tissue 

injuries were not included in the measure. 

Response: The new or worsening pressure ulcer measure is based on changes in 

skin integrity between the admission and discharge assessments. Pressure ulcer 

“worsening” is defined in the measure specifications as a pressure ulcer that has 

progressed to a deeper level of tissue damage and is therefore staged at a higher number 

using a numerical scale of 1 through 4 (using the staging assessment determinations 

assigned to each stage; starting at the stage 1, and increasing in severity to stage 4) on the 

discharge assessment as compared to the admission assessment. 

The National Pressure Ulcer Advisory Panel (NPUAP) has specific, wellestablished clinical criteria for determining the current stage of a wound (stages I through 
CMS-1349-F 155 

IV). These criteria, which are incorporated into the measure specifications, are used by 

clinicians in determining whether or not a wound has changed stages, and thereby 

worsened or improved. We believe that appropriate application of these guidelines 

should enable clinicians to identify pressure ulcers that have “worsened”. Thus, we do 

not believe that the idea of “worsening” pressure ulcers should be removed from the 

measure. 

Unstageable wounds, including deep tissue injuries, are not currently included in 

this measure since the presence of worsening cannot be determined if they are 

unstageable. Furthermore, a pressure ulcer that presents with slough or eschar cannot be 

staged, and is not considered worsened. Only after, and if, debridement occurs, whereby 

dead tissue is removed, can the wound be staged. If after wound debridement, the wound 

is evaluated to have increased in the stage, the wound is considered worsened. 

If the patient was admitted with a deep tissue injury, and or an unstageable 

pressure ulcer, the deep tissue injury and or unstageable pressure ulcer would be 

documented as present on admission. As stated above, if after debridement the wound is 

evaluated to have increased in the stage, the wound is considered worsened but is 

considered to have been present on admission. 

Although the presence of new pressure ulcers is an indicator of adverse quality in 

IRFs, we believe that the presence of worsening pressure ulcers is also an important 

aspect of the measure because worsening pressure ulcers can indicate a lack of both 

appropriate medical monitoring and appropriate clinical treatment. In addition, as noted 

previously, the existence of worsening pressure ulcers in the IRF setting is particularly 

troubling given the requirement that IRF patients receive an intensive rehabilitation 
CMS-1349-F 156 

therapy program throughout their IRF stay, which would tend to require patients to be 

out-of-bed and active throughout their stay. Thus, we believe that it is imperative to 

include both new and worsening pressure ulcers in the measure. 

 Comment: Several commenters expressed concern that the proposed measure 

does not adequately address the issue of pressure ulcers that are present on admission. 

These commenters recommended that CMS develop a timeline and implementation plan 

for a POA indicator for the pressure ulcer measure, with consideration of an appropriate 

attribution window to avoid IRFs being penalized for pressure ulcers that were present on 

admission or acquired from another facility prior to the IRF admission. 

 Response: The measure that we are adopting in this final rule is the Percent of 

Patients with Pressure Ulcers that are New or Worsening between the IRF admission 

assessment and the discharge assessment. The measure accounts for any relevant 

pressure ulcers that were present on admission because it requires IRFs to supply data on 

the number of stage 2, stage 3, and stage 4 pressure ulcers that were present on 

admission. In addition, the measure asks IRFs to report any pressure ulcers that were 

present on admission. Thus, we believe that the pressure ulcer measure that we are 

adopting in this final rule already contains sufficient present on admission information 

and will not lead to inappropriate attribution to an IRF of a pressure ulcer that developed 

in another inpatient setting. 

Comment: One commenter suggested that CMS harmonize the IRF and the 

inpatient prospective payment system (IPPS) versions of the pressure ulcer measures so 

that both capture the same range of wound staging. While the IRF quality reporting 
CMS-1349-F 157 

program measure includes wound stages 2 though 4, the Hospital IQR Program measure 

only includes stages 3 through 4. 

Response: We agree that harmonizing the measures is a good suggestion. This 

will take significant development work as the data elements, data sources, and measure 

specifications differ for the IRF and IPPS quality reporting programs. We will take the 

commenter’s suggestions into consideration for future quality measurement development 

work, which will be considered for implementation through future rulemaking. 

 Comment: One commenter suggested that the Pressure Ulcer Scale for Healing 

Tool (PUSH) tool, which provides clinicians with a scale for assessing wound healing or 

deterioration, is more appropriate for recording wounds. Another commenter said that 

they do not recommend the PUSH tool, but recognized its superiority to the proposed 

measure in that it allows addressing of wound healing in a standardized manner. This 

commenter also stated that if measurement of pressure ulcers is a quality measure, that 

the measure used should incorporate the NPUAP guidelines regarding wound healing. 

Response: We recognize that the PUSH tool is one of the instruments sometimes 

used by clinicians to assess healing or deterioration of pressure ulcers. However, CMS 

developed the New or Worsening Pressure Ulcer measure in consultation with our 

measure-developer contractor, which further consulted with NPUAP and other nationally 

recognized subject matter experts. Based on the input we received from these experts, we 

believe that the pressure ulcer measure that we are requiring IRFs to report beginning 

October 1, 2012 most appropriately captures this aspect of care provided in IRFs. In 

response to the commenter that suggested that any measure of pressure ulcers that is used 

in the IRF setting should be incorporate the NPUAP guidelines regarding wound staging, 
CMS-1349-F 158 

we note that the “New or Worsening Pressure Ulcer” measure that we are adopting in this 

final rule does incorporate the NPUAP guidelines regarding wound staging. 

Comment: Several commenters objected to the proposed application of a pressure 

ulcer measure that has been NQF-endorsed for short-stay residents in nursing homes but 

has not specifically been endorsed for the IRF setting. 

 Response: We are using the authority to adopt non-NQF endorsed measures in 

cases where there is not an NQF-endorsed measure for a particular area or topic. We do 

not believe that there are substantive issues that would make it inappropriate to apply the 

pressure ulcer measure that has been NQF-endorsed for short-stay nursing home residents 

to IRFs. 

 Comment: One commenter suggested that CMS include stage 1 wounds in the 

pressure ulcer measure. They stated that, if stage 1 wounds are not adequately treated, 

they will progress to more serious wounds. 

 Response: We agree with the commenter about the importance of clinicians 

recognizing the presence of stage 1 wounds and adequately treating them so that they do 

not progress to more serious wounds. However, based on the CMS contractor’s extensive 

analysis of the issue, in consultation with national subject matter experts, we believe that 

the additional burden on providers of collecting and reporting information on stage 1 

pressure ulcers outweighs the benefits of requiring such reporting. Thus, in an effort to 

minimize the reporting burden on providers, we have decided not to require reporting on 

stage 1 pressure ulcers. 

 Comment: Some commenters stated that patients treated in IRFs have a higher 

level of medical complexity and receive more intense services than nursing home 
CMS-1349-F 159 

patients, highlighting the need for CMS to risk adjust the pressure ulcer measure. 

Response: We agree that some patients are at higher risk for pressure ulcers than 

others. The pressure ulcer measure (NQF #0678, formerly assigned as NQF #NH-012-10) 

that we are adopting for the IRF setting already includes a risk adjustment component. 

For example, the measure accounts for the higher risk of pressure ulcers among patients 

with low body mass index (BMI), diabetes, Peripheral Vascular Disease, bowel 

incontinence, and immobility. These clinical factors are known to increase the risk of 

pressure ulcer development for patients regardless of their setting of care. 

Comment: Several commenters expressed support of CMS’ adoption of the 

NPUAP stance that measurement of pressure ulcers not be based on “reverse staging”. 

Response: We appreciate the commenters for their supportive comments and 

agree that it is not appropriate to “reverse-stage” pressure ulcers because staging only 

refers to the level of tissue damage. So, for example, a stage 3 pressure ulcer with full 

thickness tissue loss will always have that amount of damage present. If that pressure 

ulcer should heal and resurface with a new epithelial layer and later reopen, it is still a 

stage 3 pressure ulcer, even if it appears to meet the criteria for a stage 2 pressure ulcer. 

 Final Decision: Having carefully considered the comments, we adopt as final an 

application of the CMS-developed NQF-endorsed measure for short-stay nursing home 

patients (NQF #0678, formerly assigned as NQF #NH-012-10) for the IRF setting. 

5. Potential FY 2014 measure #3: 30-day Comprehensive All-Cause Risk-Standardized 

Readmission Measure. 

 In the proposed rule, we stated our intent to propose a 30-day comprehensive allcause risk-standardized readmission measure when one is developed. Addressing 
CMS-1349-F 160 

avoidable hospital readmissions is a high priority for HHS and CMS. We are currently 

developing setting-specific risk adjusted 30-day all-condition all-cause risk-standardized 

readmission measures for hospitals, IRFs, long term care hospitals and nursing homes. 

 The main features of the measure methodology will be consistent with that of the 

NQF-endorsed CMS hospital risk-adjusted 30-day readmission measures for the Acute 

Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia and Percutaneous Coronary 

Intervention (PCI). We plan to cover the maximum number of patient conditions 

possible in the all-condition measures. We will consult existing literature and solicit 

input from national experts and conduct analyses on the types and comorbidities of the 

patients of each setting in order to establish appropriate risk–adjustment for the measures 

as well as appropriate specification of the meaning/definition of readmission and the 

appropriate time-window for readmission for each care setting. To expand beyond the 

condition-specific measures to an all-condition readmission measure for each setting, we 

will conduct analyses to determine whether it is statistically and clinically sound to derive 

the all-condition measures from one single risk adjustment model, or if it would be better 

to form a composite of multiple models for multiple conditions. We plan to use 

hierarchical logistic regression modeling to take into account the effects of the clustering 

of patients and the sample size in the IRF setting. The IRF readmission measure is 

expected to be completed in late 2011, at which time it will be submitted to the entity 

with a contract under section 1890(a) of the Act for endorsement. 

 We received 19 comments on our intent to propose a 30-day Comprehensive AllCause Risk-Standardized Readmission Measure for IRFs, which are summarized below. 

 Comment: Several commenters stated that risk adjustment will be an important 
CMS-1349-F 161 

consideration as CMS develops this readmission measure. Several commenters suggested 

that only preventable readmissions should be measured, and that planned readmissions 

should be excluded. Several commenters also stated that the causes of readmissions are 

complex and that there are no solutions that could be applied globally to reduce 

readmissions. 

Response: We appreciate the input. As indicated, the measure will be risk—

standardized. We will take these comments into consideration as we further develop the 

measure. As part of development, the measure developer will provide an opportunity to 

the public to comment on specific aspects of the measure, including risk adjustment. 

Although we agree that the factors that are related to readmission are varied, readmission 

rates among Medicare beneficiaries are high, and we believe that they can be 

significantly improved through improved quality. 

C. Data Submission Requirements

1. Method of data submission for HAI measure (CAUTI) 

In the proposed rule, we proposed to require that IRFs submit data on the 

Catheter-Associated Urinary Tract Infection (CAUTI) measure through the Centers for 

Disease Control (CDC)/National Healthcare Safety Network (NHSN). As we noted 

above, the NHSN is a secure, Internet-based surveillance system maintained by the CDC 

that can be utilized by all types of healthcare facilities in the United States, including 

acute care hospitals, long term acute care hospitals, psychiatric hospitals, rehabilitation 

hospitals, outpatient dialysis centers, ambulatory surgery centers, and long term care 

facilities. The NHSN enables healthcare facilities to collect and use data about HAIs, 

including information on clinical practices known to prevent HAIs, information on the 
CMS-1349-F 162 

incidence or prevalence of multidrug-resistant organisms within their organizations, and 

information on other adverse events. Some States use the NHSN as a means of collecting 

State law mandated HAI reporting. NHSN collects data via a Web-based tool hosted by 

the CDC (http://www.cdc.gov/). This reporting service is provided free of charge to 

healthcare facilities. Additionally, the ability of the CDC to receive NHSN measures 

data from electronic health records (EHR) may be possible in the near future. Currently, 

more than 20 States require hospitals to report HAIs using NHSN, and the CDC supports 

more 4,000 hospitals that are using the NHSN. 

We also proposed to require submission of the data elements needed to calculate 

the Catheter-Associated Urinary Tract Infection measure using the NHSN's standard data 

submission requirements. The NHSN requires submission of data on HAI events on all 

patients. Collecting data on all patients will provide CMS with the most robust, accurate 

reflection of the quality of care delivered to Medicare beneficiaries as compared with 

non-Medicare patients. Therefore, to measure the quality of care that is delivered to 

Medicare beneficiaries in the IRF setting, we proposed to collect quality data related to 

HAI events on all patients regardless of payor. 

CDC/NHSN requirements may include adherence to training requirements, use of 

CDC measure specifications, data element definitions, data submission requirements and 

instructions, data reporting timeframes, as well as NHSN participation forms and 

indications to CDC allowing CMS to access data for this measure for the IRF quality 

reporting program purposes. Detailed requirements for NHSN participation, measure 

specifications, and data collection can be found at http://www.cdc.gov/nhsn/. We 

proposed to require IRFs to use the specifications and data collection tools for the CAUTI 
CMS-1349-F 163 

measure as required by CDC as of the time that the data is submitted. 

For purposes of calculating the FY 2014 increase factor we proposed to collect 

data on CAUTI events that occur from October 1, 2012 through December 31, 2012, 

which we inadvertently misidentified as the “final fiscal quarter of calendar year 2013.” 

We should have identified it as the final quarter of calendar year (CY) 2012. We 

proposed that all subsequent IRF quality reporting cycles would be based on a full CY 

cycle (that is January 1 through December 31 of the applicable year). For example, the 

FY 2015 payment determinations will be made based on CY 2013 data submitted to 

CDC. 

We stated that further details regarding data submission and reporting 

requirements for this measure would be posted on the CMS Web site 

http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ no later than January 31, 

2012. IRFs were also encouraged to visit the CDC Web site http://www.cdc.gov/nhsn/ to 

review the NHSN enrollment and reporting requirements. 

We received 21 comments on the proposed submission requirements for the 

CAUTI measure, which are summarized below. 

Comment: Several commenters expressed concerns about the readiness of the 

CDC’s NHSN infrastructure to accept a greater volume of data by adding IRF reporters. 

Response: As reported to us by CDC, the NHSN has undergone a major 

architectural redesign over the last year in response to the need to scale up to more users, 

facilities and functionality. It is our understanding that the addition of IRF quality 

reporting on the NHSN will not unduly strain the system. 

Comment: Several commenters expressed concerns with provider burden and 
CMS-1349-F 164 

resources needed to enroll, train and implement data reporting through the CDC’s NHSN. 

One commenter suggested CMS should move to a single standardized and streamlined 

quality reporting system and added that training on multiple quality reporting systems 

would be confusing and time consuming. Another commenter suggested that the IRF-PAI 

could be modified to collect CAUTI data. 

Response: We recognize that there are initial start-up costs and time investments 

to enroll and complete the required training for reporting through CDC’s NHSN. We 

have factored these costs into the provider burden estimates that we provided in both the 

FY 2012 IRF PPS proposed rule and in this final rule. We believe that safety benefits 

will result from this new quality reporting requirement such as the ability to track serious, 

and at times, life threatening infections like CAUTI. As such, the benefits outweigh the 

costs. In addition, these costs are primarily incurred during the initial phase of the data 

reporting, and will be lower in subsequent years. For future rulemaking cycles, we will 

take into consideration the suggestion that CMS should move to a single standardized and 

streamlined quality reporting system and potentially consider collecting CAUTI data 

through an additional modification to the IRF-PAI. 

Final Decision: Having carefully considered the comments received on the 

method of data submission for the measure, we finalize our proposals to require that IRFs 

submit data on the measure through the Centers for Disease Control (CDC)/National 

Healthcare Safety Network (NHSN); to require submission of the data elements needed 

to calculate the measure using the NHSN's standard data submission requirements; to 

collect quality data related to HAI events on all patients regardless of payor; and to 

require IRFs to use the specifications and data collection tools for the measure as required 
CMS-1349-F 165 

by CDC as of the time that the data is submitted. Data collection for the FY 2014 

program will pertain to CAUTI events that occur from October 1, 2012 through 

December 31, 2012 (the last quarter of CY 2012). All subsequent IRF quality reporting 

cycles will be based on a full calendar year (CY) cycle (that is January 1 through 

December 31 of the applicable year). Further details regarding data submission and 

reporting requirements for this measure will be posted on the CMS Web site 

http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ no later than January 31, 

2012. 

2. Method of data submission for the Percent of Patients with New or Worsened Pressure 

Ulcer measure. 

We seek to implement the IRF Quality Reporting Program in a manner that 

imposes as little burden as possible. IRFs already are required to submit certain data for 

purposes of determining payment via the current Inpatient Rehabilitation Facility-Patient 

Assessment Instrument (IRF-PAI). Previously the IRF-PAI included optional "quality 

indicators" (QI). To support the standardized collection and calculation of quality 

measures specifically focused on IRF services, we proposed to modify the IRF-PAI by 

replacing the optional pressure ulcer items in the previous QI section of the IRF-PAI with 

mandatory pressure ulcer data elements. 

We proposed that IRFs would be required to submit the data needed to calculate 

the measure “Percent of Patients with New or Worsened Pressure Ulcers” on all 

Medicare patients. Therefore, to measure the quality of care that is delivered to Medicare 

beneficiaries in the IRF setting, we proposed to collect quality data related to new or 

worsening pressure ulcers on all Medicare patients. 
CMS-1349-F 166 

We proposed to use the IRF-PAI to collect pressure ulcer data elements that 

would be similar to those collected through the Minimum Data Set 3.0 (MDS 3.0), which 

is a reporting instrument that is used in nursing homes. A draft of the proposed IRF-PAI 

revisions with the new pressure ulcer elements that we are submitting to OMB for 

approval is available on the CMS Web site at 

http://www.cms.gov/InpatientRehabFacPPS/04_IRFPAI.asp#TopOfPage. The current 

MDS 3.0 pressure ulcer items evolved as an outgrowth of CMS’ work to develop a set of 

standardized patient assessment items, now referred to as CARE (Continuity Assessment 

Record & Evaluation). 

The CARE assessment items were developed and tested in the post-acute care 

payment reform demonstration (PAC-PRD) which included IRFs as required by section 

5008 of the 2005 Deficit Reduction Act (DRA) (Pub. L. 109-171, enacted February 8, 

2006) (more information may be found at www.pacdemo.rti.org). We note that the 

proposed data elements are supported by the NPUAP. We believe that modifying the 

current IRF-PAI pressure ulcer items to be consistent with the standardized data elements 

now used in the MDS 3.0, will drive uniformity across settings that will lead to better 

quality of care in IRFs and ultimately, across the continuum of care settings. Additional 

details regarding the use of modified IRF-PAI data elements to calculate this measure 

will be published on the CMS Web site at http://www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ by no later than January 31, 2012. 

We received 23 comments on the data collection and reporting of new and 

worsening pressure ulcers for the IRF quality reporting program, which are summarized 

below. 
CMS-1349-F 167 

Comment: One commenter expressed a preference for a claims-based pressure 

ulcer measure, citing inter-rater reliability concerns with clinicians assessing pressure 

ulcers at admission and at discharge. Another commenter recommended inclusion of a 

body diagram to record the location of pressure ulcers. Another commenter expressed 

concern that the data collection mechanism allows for a count of multiple pressure ulcers 

and specific stages, but not the sizes of multiple pressure ulcers at the same stage. 

Response: Although one of the commenters suggested that we consider collecting 

data on the pressure ulcer measure on the claims form instead of the IRF-PAI, we do not 

currently collect this type of patient assessment data on the claim form, nor do we have a 

mechanism for collecting such data through the IRF claims. Furthermore, even if the 

data were to be collected through the IRF claim, it would still need to be based on a 

clinician’s assessment of the patient at admission and at discharge from the IRF. Since 

we currently use the IRF-PAI to collect other sorts of patient assessment data, we believe 

that this is the most appropriate vehicle for collecting data for the pressure ulcer measure. 

We agree that it is good clinical practice to record the location of pressure ulcers 

in the medical record. However, this is not part of the measure specifications because we 

do not believe that reporting the location of pressure ulcers to CMS will enhance the 

usefulness of the New or Worsening Pressure Ulcer quality measure for measuring 

quality in IRFs. We believe, after extensive consultation with national subject matter 

experts on wound healing, that recording the overall number of new pressure ulcers and 

presence (or lack thereof) of worsening pressure ulcers, provides an adequate indication 

of the quality of care provided in IRFs with regard to skin integrity management and 

wound healing. 
CMS-1349-F 168 

Comment: Several commenters commended CMS on modifications to the IRFPAI to include pressure ulcer elements that are consistent with the MDS 3.0. They noted 

that the elements offer clear ulcer staging definitions consistent with NPUAP and the 

Wound Ostomy and Continence Nurses Society (WOCN). 

Response: We thank the commenters for their positive comments with respect to 

the IRF-PAI modifications. 

Comment: Several commenters suggested that any plans to incorporate elements 

from Continuity Assessment Record and Evaluation (CARE), which was developed for 

and used in the Post-Acute Care Payment Reform Demonstration, be delayed until the 

demonstration findings have been reported to Congress and the public has had an 

opportunity to comment on CARE. 

Response: We did not propose to use the CARE instrument to collect this data. 

The Pressure Ulcer Measure we are adopting, as noted previously, is based on a similar 

measure generated from data collected through the current MDS 3.0 instrument. This 

measure is NQF-endorsed for short-stay nursing home residents. We proposed to amend 

the IRF PAI to replace the prior quality indicator (QI) elements with the data elements 

needed to generate the pressure ulcer measure. The IRF-PAI that has been submitted to 

OMB for approval can be downloaded from the IRF PPS Web site at

http://www.cms.gov/InpatientRehabFacPPS/04_IRFPAI.asp#TopOfPage. 
CMS-1349-F 169 

We concluded the PAC-PRD, and data collection using CARE, in December 

2010. We plan to submit our Report to Congress by the close of 2011. As we are not 

proposing the use of CARE at this time, we do not believe there is a need to defer the 

start of the new IRF quality reporting program pending delivery of the CARE report. 

 Final Decision: Having carefully considered the comments, we finalize our 

proposal to require IRFs to submit the data needed to calculate the measure “Percent of 

Patients with New or Worsened Pressure Ulcers” on all Medicare patients to CMS 

through the modified IRF PAI for all Medicare beneficiaries treated in the IRF setting. 

Additional details regarding the use of modified IRF-PAI data elements to calculate this 

measure are currently available on the CMS Web site at 

http://www.cms.gov/InpatientRehabFacPPS/04_IRFPAI.asp#TopOfPage. We will 

publish the electronic specifications related to reporting the pressure ulcer measure on the 

CMS Web site http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ no later than 

January 31, 2012. 

3. Potential method of data submission for the 30-day Comprehensive All-Cause RiskStandardized Readmission Measure. 

If we adopt a 30-day comprehensive all-cause risk-standardized readmission 

measure for the IRF quality reporting program, we anticipate being able to use claims 

data otherwise submitted by the IRF to construct it. We generally anticipate constructing 

the measure using 3 years of claims data so that the measure rate captures a sufficient 

number of discharges. 

D. Public Reporting

 Under section 1886(j)(7)(E)of the Act, the Secretary is required to establish 
CMS-1349-F 170 

procedures for making data submitted by IRFs under the IRF quality reporting program 

available to the public. In accordance with this provision, we proposed to establish 

procedures to make the data available to the public. As noted in the proposed rule, we do 

not intend to make individual patient-level data public. We believe that existing laws 

governing access to agency records will adequately address requests for such data. We 

will adopt procedures that will ensure that an IRF has the opportunity to review the data 

to be made public prior to the data being made public. Additionally, as required under 

section 1886(j)(7)(E) of the Act, we will report quality measures that relate to services 

furnished in IRFs on CMS’ Web site. 

 We received 3 comments on public reporting, which are summarized below. 

Comment: One commenter supported CMS’ proposal to allow IRFs to preview 

data and measures prior to any information being posted on a website. One commenter 

suggested that CMS provide IRFs with a 30-day preview period prior to publicly posting 

the data submitted by IRFs under the quality reporting program and that CMS engage in 

“user testing” procedures before posting the information. 

 Response: We agree with the commenters that it is important to allow IRFs to 

preview data and measures prior to any information being publicly displayed. We will 

adopt procedures that will ensure that an IRF has the opportunity to review the data to be 

made public prior to the data being made public. Additionally, as required under section 

1886(j)(7)(E) of the Act, we will report quality measures that relate to services furnished 

in IRFs on a CMS Web site. We will take the commenter’s suggestions regarding “user 

testing” into consideration as we develop procedures to publicly report IRF quality data. 

 Comment: One commenter urged CMS to delay public reporting of the IRF 
CMS-1349-F 171 

quality data until the second year of reporting to avoid that potential that inaccurate data 

would be posted based on unintended analytical issues. 

Response: We have not at this time proposed a specific date to begin publicly 

reporting IRF quality data. We will take the commenter’s suggestions into account as we 

develop our plans for future public reporting. 

E. Quality Measures for Future Consideration for Determination of Increase Factors for 

Future Fiscal Year Payments

 As indicated previously in this section, we ultimately seek to adopt a 

comprehensive set of quality measures to be available for widespread use for informed 

decision making and quality improvement. While we are initially adopting a limited set 

of measures for the IRF quality reporting program, we expect to expand the measure set 

through rulemaking which will allow us, for example, to assess an IRF patient’s 

functional status and whether he/she has achieved his or her rehabilitation goals and 

potential. 

 We intend to propose a more robust set of measures for the IRF quality reporting 

program in the FY 2013 rulemaking cycle for the determination of the FY 2015 payment 

increase factor. We are considering the measures listed in Table 13 which include, but 

are not limited to, measure topics reported by skilled nursing facilities (SNFs) for short 

stay nursing home patients. 

Some quality data on short stay nursing home patients in skilled nursing facilities 

(SNFs) are collected via the MDS 3.0 data collection vehicle. We are currently analyzing 

these quality data, and expect to have findings by early 2012. Next steps would include 

analyzing whether any of these measures would be appropriate for application in the IRF 
CMS-1349-F 172 

setting. 

If any of the short stay nursing home measures are appropriate for application to 

the IRF setting we intend to propose some or all of these measures in the FY 2013 

rulemaking cycle. Any measures that we proposed to adopt in through the FY 2013 

rulemaking cycle would apply to the payment determination for FY 2015. We expect 

that any measures proposed in the FY 2013 rulemaking cycle would be collected via the 

IRF-PAI, and that further changes to this data collection vehicle and the supporting 

information technology (IT) infrastructure would be necessary. We expect that it would 

take providers, vendors, and CMS approximately one year to make the necessary changes 

to their IT systems to support the collection and reporting of new or modified IRF-PAI 

data elements. We would expect providers, vendors, and CMS to complete any needed 

changes to their IT systems by August 2013. We intend to propose that IRFs submit any 

additional or revised IRF-PAI data elements starting October 1, 2013 through December 

31, 2013 for the FY 2015 payment update, but we are considering the possibility of 

basing future quality measures on data sources or assessment instruments other than the 

IRF-PAI. As stated earlier, we developed and tested the CARE assessment instrument 

for the post-acute demonstration under section 5008 of the DRA. We intend to submit a 

report to Congress by the end of 2011 with findings from the 3-year PAC-PRD and its 

use of the CARE patient assessment instrument as a data collection vehicle. More details 

on the PAC-PRD which concluded in late 2010 are available at www.pacdemo.rti.org. 

We believe that the data elements that were collected using this CARE standardized 

assessment instrument could be used across all post-acute care sites to measure functional 

status and other factors during treatment and at discharge which are key indicators of 
CMS-1349-F 173 

quality in IRFs and in nursing homes treating short stay patients requiring rehabilitative 

services. We believe the instrument could be beneficial in supporting the submission of 

data on quality measures by IRFs and other care settings by using a standardized data 

collection instrument 

During the NQF endorsement process for nursing home quality measures, 

conducted through the NQF’s 2010 measures maintenance cycle, the NQF steering 

committee pointed to the need for CMS to consider pairing pain measures with a measure 

or measures that reflect patients’ preferences for how their care, treatment and symptoms 

are managed by healthcare providers. These items, and other items in Table 13, are under 

consideration for future years. 

TABLE 13: Possible Future Measures and Topics for the IRF Quality Reporting 

Program 

Overarching Goal: Safety and Healthcare Acquired Conditions: Avoidable Adverse 

Events and Serious Reportable Events* 

• Unplanned acute care hospitalizations 

• Falls with Major Injury* ** 

• Falls with major injury per 1000 days. 

• Incidence of venous thromboembolism (VTE), potentially 

preventable. * 

• Poly-pharmacy related injury 

• Medication errors* 

• Stage III and IV Pressure Ulcers** 

Overarching Goal: Safety and Prevention 

• VTE Prophylaxis 

• Patient Immunization for Influenza 

• Patient Immunization for Pneumonia 

• Staff Immunization 

Overarching Goal: Safety and Healthcare Acquired Conditions – HAIs 
CMS-1349-F 174 

 • Surgical site infections 

• Multidrug resistant organism infection 

Overarching Goal: Better, Person Centered-Care: Care Coordination/Care 

Outcome 

• Functional Change: Change in Motor Score 

• Change in Cognitive Function: Change in Cognitive Score 

• Communication 

• Percent of patients whose individually stated goals were met 

• Care Transitions Measure-3 (CTM-3) 

• Discharge Outcome/Discharge disposition: 

- Home 

- Assisted Living 

- Nursing Home 

- LTCH 

- Hospital 

- Hospice 

• Patient Preferences for care, treatment and management of 

symptoms by healthcare providers 

Overarching Goal: Better, Person Centered-Care: Symptom Management 

• Percent of patients on a scheduled pain management regime on 

admission who report a decrease in pain intensity or frequency 

• Percent of patients with pain assessment conducted and 

documented prior to therapy. 

• Percent of patients who self-report moderate to severe pain. 

• Percent of patients with dyspnea improved within one day of 

assessment. 

Overarching Goal: Better, Person Centered-Care: Experience of Care 

• Patient Survey, for example, 

 Hospital Consumer Assessment of Healthcare Providers & Systems 

• Percent of patients for whom care delivered was consistent with 

patient stated care preferences. 

*Consistent with NQF Serious Reportable Events 

**Consistent with Healthcare Acquired Conditions (HAC) Prevalence Measure 

We received 8 comments on CMS’ potential future use of the CARE assessment 

instrument to collect quality reporting data, which are summarized below. 

Comment: Several commenters said that they recognized the value of 

standardizing assessment data across settings. However, they expressed concerns about 
CMS-1349-F 175 

CMS’ potential future use of CARE as a data collection vehicle in IRFs. These 

commenters questioned CARE’s ability to accurately document medical severity, 

functional status and other factors related to quality outcomes. In addition, several 

commenters suggested the need for additional testing of CARE items in IRFs should 

CMS elect to use CARE. 

Response: CARE was developed in response to the Deficit Reduction Act of 

2005 which directed CMS to develop a standardized assessment and test it in a 

demonstration for the purposes of “costs and outcomes across different post-acute care 

sites”. CARE was used in the PAC-PRD to collect over 7,000 assessments in IRFs (as 

well as long term care hospitals, nursing homes, home health agencies and acute-care 

hospitals at discharge) across the country. Items were tested for reliability using two 

methods - a traditional inter-rater reliability test where 2 clinicians of the same discipline 

scored the same patient, and a test of reliability examining differences among disciplines 

in rating the same case. Overall, the vast majority of items had “good” to “very good” 

agreement. We will deliver our Report to Congress with findings by the close of 2011. 

We received 16 comments on possible Future Measures and Topics for the IRF 

Quality Reporting Program, which are summarized below. 

Comment: The majority of the commenters were supportive of the listed possible 

future quality measures. Many applauded consideration of measures for functional status, 

discharge to community, falls with major injuries, incidence of venous thromboembolism 

(VTE), patient preferences and symptom management. The MedPAC expressed support 

for the development of a limited number of quality measures in the IRF sector that would 

focus on outcomes measures when possible and patient safety and experience where 
CMS-1349-F 176 

applicable. Moreover, MedPAC expressed support for CMS developing and including a 

hospital readmission measure into the IRF quality reporting program, and encouraged 

CMS to add a measure of functional improvement given its centrality to IRF care. 

Response: We thank the commenters for their input. We appreciate MedPAC’s 

support of our efforts to develop a quality reporting program for IRFs that focuses on 

outcome measures and patient safety. We will take all comments into consideration for 

future expansion of the IRF quality reporting program. 

 Final Decision: After carefully considering the comments we received on the new 

IRF quality reporting program, we are finalizing the new IRF quality reporting program 

for the first reporting year, as proposed. In addition, we are submitting the revised IRFPAI, which can be downloaded from the IRF PPS Web site at 

http://www.cms.gov/InpatientRehabFacPPS/04_IRFPAI.asp#TopOfPage, to OMB for 

approval. 

 We are also re-designating the existing paragraph §412.624(c)(4) as 

§412.624(c)(5) and adding a new paragraph §412.624(c)(4). The specific changes to the 

regulations at part 412 are shown in the “Regulation Text” of this final rule.

XI. Miscellaneous Comments 

Comment: Several commenters requested that CMS use the most recent 3 years 

of data to review and update the list of comorbidities used to determine the tier payments 

to ensure that the tier list reflects all conditions that contribute significantly to IRF costs 

of care. Along these same lines, one commenter suggested that additional tier 

comorbidity codes might be appropriate for the list if CMS were to require IRFs to 

provide “present on admission” information to verify that the condition had been present 
CMS-1349-F 177 

on admission and did not occur during the IRF stay. 

Response: We appreciate the commenters’ suggestions, and will consider these 

suggestions for future analyses. 

Comment: Several commenters requested that CMS provide more data to allow 

stakeholders to replicate our analyses. Specifically, one commenter requested that CMS 

amend the MedPAR file to include information on a patient’s CMG classification, and 

provide stakeholders with patient-level IRF-PAI data. 

 Response: We agree that the public should have access to whatever is necessary 

to review and comment on our proposed policies and evaluate the impacts of these 

policies. Some commenters have expressed a belief that the MedPAR files could inform 

their review of our proposals if it included CMGs. While we are unsure how this 

information would assist commenters, our policy is to supply whatever data is requested 

if such disclosure is legally permitted. We are therefore working towards including CMG 

information on the MedPAR, to the extent that such information will not make the 

MedPAR a patient-identifiable data file. The commenters also requested that we provide 

public access to patient-identifiable data, such as the IRF-PAI. We are restricted in our 

ability to release patient-level data under several privacy and security laws, such as the 

Privacy Act and the Health Insurance Portability and Accountability Act of 1996 

(HIPAA) and the implementing regulations. For example, the HIPAA Privacy Rule 

provides that we may only disclose the minimum data necessary to accomplish the 

purpose of the disclosure (45 CFR 164.502(b)). We did not use IRF-PAI data in our 

analysis for the FY 2012 IRF PPS proposed and final rules. As such, these data are not 

relevant to the ability of commenters to review or comment on our proposals. We would 
CMS-1349-F 178 

violate HIPAA’s minimum necessary requirements if we were to release these data for 

purposes of reviewing and responding to these rules. If identifiable data is used in future 

rulemaking, we will make data available in accordance with applicable law. Further, if 

commenters wish to request identifiable data for purposes outside the IRF PPS 

rulemaking process, we encourage them to use CMS’ normal data request process. More 

information on CMS’ data distribution policies is available on CMS’s Web site at 

http://www.cms.gov/IdentifiableDataFiles/. 

 Comment: One commenter suggested that CMS revise the IRF coverage 

requirements that are described in chapter 1, section 110 of the Medicare Benefit Policy 

Manual (Pub. L. 100-02) to allow recreational therapy services to count, on a limited 

basis, towards the intensive rehabilitation therapy requirement in IRFs and also to state 

that recreational therapy is a covered service in IRFs when the medical necessity is welldocumented by the rehabilitation physician in the medical record and is ordered by the 

rehabilitation physician as part of the overall plan of care for the patient. 

 Response: As we did not propose any changes to the IRF coverage requirements 

in §412.622(a)(3),(4), and (5) that would affect any of the requirements described in 

chapter 1, section 110 of the Medicare Benefit Policy Manual (Pub. L. 100-02), this 

comment is outside the scope of the proposed rule. However, as we have indicated 

before, we do not believe that recreational therapy services should replace the provision 

of the 4 core skilled therapy services (physical therapy, occupational therapy, speechlanguage pathology, and prosthetics/orthotics). Thus, we believe it should be left to each 

individual IRF to determine whether offering recreational therapy is the best way to 

achieve the desired patient care outcomes. As we have stated previously, recreational 
CMS-1349-F 179 

therapy is a covered service in IRFs when the medical necessity is well-documented by 

the rehabilitation physician in the medical record and is ordered by the rehabilitation 

physician as part of the overall plan of care for the patient. 

XII. Provisions of the Final Regulations 

In this final rule, we are adopting the provisions as set forth in the FY 2012 IRF 

PPS proposed rule (76 FR 24214), except as noted elsewhere in the preamble. 

Specifically: 

A. Payment Provision Changes

● We will update the FY 2012 IRF PPS relative weights and average length of 

stay values using the most current and complete Medicare claims and cost report data in a 

budget neutral manner, as discussed in section IV. of this final rule. 

● We will hold the FY 2012 IRF facility-level adjustments (rural, LIP, and 

teaching status adjustments) at FY 2011 levels while we conduct further research on the 

underlying reasons for the fluctuations in the data, as discussed in section V. of this final 

rule. 

● We will implement a temporary cap adjustment policy for the teaching status 

adjustment to reflect interns and residents displaced due to closure of IRFs or IRF 

residency training programs, as discussed in section V. of this final rule. 

● We will update the FY 2012 IRF PPS payment rates by the market basket 

increase factor, based upon the most current data available, with a 0.1 percentage point 

reduction as required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act 

and a productivity adjustment required by section 1886(j)(3)(C)(ii)(I) of the Act, as 

described in section VI. of this final rule. 
CMS-1349-F 180 

● We will update the wage index and the labor-related share of the FY 2012 IRF 

PPS payment rates in a budget neutral manner, as discussed in section VI. of this final 

rule. 

● We will calculate the final IRF Standard Payment Conversion Factor for FY 

2012, as discussed in section VI. of this final rule. 

● We will update the outlier threshold amount for FY 2012, as discussed in 

section VII. of this final rule. 

● We will update the cost-to-charge ratio (CCR) ceiling and urban/rural average 

CCRs for FY 2012, as discussed in section VII. of this final rule. 

● We will discuss the impact of the IPPS data matching process changes on the 

IRF PPS calculation of the Supplemental Security Income (SSI) ratios used to compute 

the IRF LIP adjustment factor, as discussed in section VIII. of this final rule. 

● We will implement the IRF quality reporting program provisions of section 

1886(j)(7) of the Act, as discussed in section X. of this final rule. 

B. Proposed Revisions to Existing Regulation Text

In addition, we will revise the existing requirements at §412.25(b), §412.25(b)(1), 

§412.25(b)(2), and §412.25(b)(3) that apply to all units that are excluded from the IPPS, 

as described in section IX. of this final rule. To amend the regulatory reference to 

conform with these changes, we will also revise the existing requirements at 

§412.25(e)(2)(ii)(A), as described in section IX. of this final rule. With the exception of 

§412.25(e)(2)(ii)(A), the revisions affect both IRFs and IPFs. 

We will also relocate and revise the existing requirements at §412.23(b), §412.29, 

and §412.30 that describe the requirements for facilities to qualify to receive payment 
CMS-1349-F 181 

under the IRF PPS, as described in section IX. of this final rule. 

Finally, we will re-designate the existing paragraph §412.624(c)(4) as 

§412.624(c)(5) and add a new paragraph §412.624(c)(4) to implement the IRF quality 

reporting program, as described in section X of this final rule. 

XIII. 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 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. 

This final rule does not impose any new information collection requirements as 

outlined in the regulation text. However, this final rule does make reference to associated 

information collections that are not discussed in the regulation text contained in this 

document. The following is a discussion of these information collections, some of which 

have already received OMB approval. 

As stated in section X.B of this final rule, for purposes of calculating the FY 2014 
CMS-1349-F 182 

IRF PPS increase factor, we require IRFs to submit data on 2 quality measures beginning 

October 1, 2012. These quality measures are: 1) Catheter Associated Urinary Tract 

Infections; and 2) Pressure Ulcers that are New or Have Worsened. The aforementioned 

measures will be collected via the following respective means. 

A. Catheter Associated Urinary Tract Infections (CAUTI)

Regarding the collection of data on the first quality measure, Catheter Associated 

Urinary Tract Infections, we will require as the form and manner of submission for the 

measure, CAUTI rate per 1,000 urinary catheter days, to be through the Centers for 

Disease Control (CDC)/National Health Safety Network (NHSN). Data collection by the 

NHSN occurs via a Web-based tool hosted by the CDC. This reporting service is 

provided free of charge to healthcare facilities. In fact, some IRFs are already using the 

NHSN to collect and submit this data. With this final rule, we will impose an 

information collection requirement for the CAUTI measure. It should be noted that 

information collection activities associated with the CDC/NHSN are currently approved 

under OMB control number 0920-0666. Detailed requirements for NHSN participation, 

measure specifications, and data collection can be found at http://www.cdc.gov/nhsn/. 

IRFs must use the current specifications and data collection tools for Catheter Associated 

Urinary Tract Infections. 

 While IRFs were not previously required to report data to NHSN, according to the 

CDC, there are 26 IRFs that already submit data to NHSN either voluntarily or per State 

mandate. To report data to NHSN, the CDC requires the facility to enroll into the NHSN 

and take specified training. According to the NHSN Web site, it will take 240 minutes 

(4 hours) to register and complete the necessary training provided by the CDC. The 
CMS-1349-F 183 

estimated annual burden associated with this requirement is 270,000 minutes/4,500 hours 

(240 minutes x 1,126 IRFs) at an estimated cost of $187,321. This cost is estimated 

using the average hourly wage of a Registered Nurse which is reported by the U.S. 

Bureau of Labor Statistics to be $41.59. Once each facility has been properly registered 

into NHSN and trained, they will need to submit two types of forms in order for CDC to 

calculate the CAUTI rate per 1,000 urinary catheter days. The first form, the Urinary 

Tract Infection (UTI) form, is submitted by facilities for each patient with a CAUTI. We 

estimate that it will take 15 minutes per form per IRF. This time estimate consists of 5 

minutes of nursing time needed to collect the clinical data and 10 minutes of clerical time 

necessary to enter the data into NHSN. We further anticipate that there will be 

approximately 2.25 forms submitted per IRF per month. Based on this estimate, we 

expect for each IRF to expend 33.75 minutes (0.5625 hours) per month or 405 minutes 

(6.75 hours) per year reporting to NHSN. The estimated annual burden to all IRFs in the 

U.S. for reporting to NHSN is 7,776 hours. The estimated cost per IRF is $186.15 per 

year. Similarly, the estimated total yearly cost across all IRFs is $214,445. These costs 

are estimated using an hourly wage for a Registered Nurse of $41.59 and a Medical 

Billing Clerk/Data Entry person of $20.57 as stated by the U.S. Bureau of Labor 

Statistics. The second form, the denominator form, is used to count daily the number of 

patients with an indwelling catheter device. These daily counts are summed and only the 

total for each month is submitted to NHSN. While CDC estimates that the denominator 

form takes 5 hours per month to complete, we estimate that it will take 2.5 hours per form 

per IRF per month, as the number of patients with an indwelling catheter is the only part 

of this form that IRFs will be required to complete. We anticipate that there will be one 
CMS-1349-F 184 

form submitted per IRF per month. Based on this estimate, we expect for each IRF to 

expend 150 minutes (2.5 hours) per month and 1,800 minutes (30 hours) per year 

reporting to NHSN. The estimated annual burden to all IRFs in the U.S. for reporting to 

NHSN is 34,560 hours. The estimated cost per IRF is $1,247.70 per year. Similarly, the 

estimated total yearly cost across all IRFs is $1,437,350. These costs are estimated using 

an hourly wage for a Registered Nurse of $41.59. 

B. Pressure Ulcers that are New or Have Worsened

 As stated in section X.C.2 of this final rule, to support the standardized collection 

and calculation of quality measures specifically focused on IRF services, we modified the 

IRF-PAI by replacing and harmonizing the pressure ulcer items with data elements 

similar to those collected through the MDS 3.0 used in nursing homes. Additionally, the 

MDS 3.0 pressure ulcer items have been harmonized with the CARE data set, which was 

developed for and broadly tested in the post-acute demonstration as required by section 

5008 of the Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted on 

February 8, 2006) (DRA). We believe the modified IRF-PAI pressure ulcer items are 

consistent with the standardized data elements now used in the MDS 3.0, and supported 

by the NPUAP. They will provide better informed decision making and quality 

improvement in IRFs and ultimately, across the continuum of care settings. 

 Since all IRFs are already required to complete and transmit IRF-PAIs on all 

Medicare Part A fee-for-service and Medicare Part C (Medicare Advantage) patients in 

order to receive payment from Medicare, and the number of IRFs submitting claims to 

Medicare has remained stable over the past several years, we do not estimate that there 

are any IRFs that would need to conduct additional training or set-up for completing and 
CMS-1349-F 185 

transmitting the IRF-PAI. Thus, we do not estimate any additional burden on IRFs for 

these activities. In addition, we do not estimate any additional burden for IRFs to 

complete the IRF-PAI with the mandatory quality measures, as the IRF-PAI currently 

contains a voluntary “Quality Indicators” section. We are replacing the voluntary data 

items with the proposed pressure ulcer question set. When the original burden estimates 

were completed for the IRF-PAI, we estimated that the “Quality Indicators” section of the 

IRF-PAI would take about 10 minutes to complete, and we assumed that all IRFs would 

complete the Quality Indicators items, even though completion of this section was 

voluntary. Thus, removing the Quality Indicators items from the IRF-PAI decreases the 

total estimated burden of completing each IRF-PAI by about 10 minutes. However, we 

estimate that it will take about 10 minutes to complete the new pressure ulcer item that 

we require IRFs to complete as part of the new IRF quality reporting program. Since the 

time to complete the items that we are removing from the IRF-PAI is the same as the 

time to complete the new items we added, we estimate no net change in the amount of 

time associated with completing each IRF-PAI and no net change in burden. 

We will be submitting a revision to the IRF-PAI information collection request 

currently approved under OMB control number 0938-0842 for OMB review and 

approval.

If you comment on these information collection and recordkeeping requirements, 

please do either of the following: 

 1. Submit your comments electronically as specified in the ADDRESSES section 

of this proposed rule; or 
CMS-1349-F 186 

 2. Submit your comments to the Office of Information and Regulatory Affairs, 

Office of Management and Budget, 

 Attention: CMS Desk Officer, CMS-1349-F 

 Fax: (202) 395-6974; or 

 Email: OIRA_submission@omb.eop.gov 

XIV. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

 We have examined the impacts of this final rule as required by Executive Order 12866 

(September 30, 1993, Regulatory Planning and Review), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory 

Flexibility Act (September 19, 1980, Pub. L. 96-354)(RFA), section 1102(b) of the Act, 

section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive 

Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act 

(5 U.S.C. 804(2)). 

 Executive Orders 12866 and 13563 direct 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). Executive Order 13563 

emphasizes the importance of quantifying both costs and benefits, of reducing costs, of 

harmonizing rules, and of promoting flexibility. This final rule has been designated an 

"economically" significant rule, under section 3(f)(1) of Executive Order 12866. 

Accordingly, the rule has been reviewed by the OMB. 
CMS-1349-F 187 

2. Statement of Need 

 This final rule updates the IRF prospective payment rates for FY 2012 as 

required under section 1886(j)(3)(C) of the Act. It responds to Section 1886(j)(5) of the 

Act, which requires the Secretary to publish in the Federal Register on or before the 

August 1 that precedes the start of each fiscal year, the classification and weighting 

factors for the IRF PPS’s case-mix groups and a description of the methodology and data 

used in computing the prospective payment rates for that fiscal year. 

 This rule also implements some policy changes within the statutory discretion 

afforded to the Secretary under section 1886(j) of the Act. We believe that the policy 

changes will better align IRF PPS policies with those of other Medicare payment systems 

and will clarify the IRF payment regulations. Further, many of the policy changes are 

designed to promote greater flexibility in the IRF PPS policies. 

 This final rule also implements section 3401(d) of the Affordable Care Act, which 

amended section 1886(j)(3)(C) of the Act and added section 1886(j)(3)(D) of the Act. 

Section 1886(j)(3)(C) of the Act requires the Secretary to apply a multi-factor 

productivity adjustment to the market basket increase factor, and to apply other 

adjustments as defined by the Act. The productivity adjustment applies to FYs from 

2012 forward. The other adjustments apply to FYs 2010 through 2019. 

 Finally, this final rule discusses the IRF quality measures that we are adopting for the 

first year of implementation of a new IRF quality reporting program, as required by 

section 3004(b) of the Affordable Care Act. 
CMS-1349-F 188 

3. Overall Impacts 

 We estimate that the total impact of these changes for estimated FY 2012 payments 

compared to estimated FY 2011 payments would be an increase of approximately $150 

million (this reflects a $120 million increase from the update to the payment rates and a 

$30 million increase due to the update to the outlier threshold amount to increase 

estimated outlier payments from approximately 2.6 percent in FY 2011 to 3 percent in 

FY 2012). 

4. Detailed Economic Analysis 

i. Basis and Methodology of Estimates 

 This final rule sets forth updates of the IRF PPS rates contained in the FY 2011 notice 

and updates to the CMG relative weights and average length of stay values, the wage 

index, and the outlier threshold for high-cost cases. This final rule also implements a 0.1 

percentage point reduction to the FY 2012 rebased RPL market basket increase factor 

(updated from a 2002 base year to a 2008 base year) in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and a 1.0 percent reduction to the 

FY 2012 rebased RPL market basket increase factor for the productivity adjustment as 

required by section 1886(j)(3)(C)(ii)(I) of the Act. 

 We estimate that the FY 2012 impact would be a net increase of $150 million in 

payments to IRF providers (this reflects a $120 million estimated increase from the 

update to the payment rates and a $30 million estimated increase due to the update to the 

outlier threshold amount to increase the estimated outlier payments from approximately 

2.6 percent in FY 2011 to 3.0 percent in FY 2012). The impact analysis in Table 14 of 

this final rule represents the projected effects of the policy changes in the IRF PPS for 
CMS-1349-F 189 

FY 2012 compared with estimated IRF PPS payments in FY 2011 without the policy 

changes. We estimate the effects by estimating payments while holding all other 

payment variables constant. We use the best data available, but we do not attempt to 

predict behavioral responses to these changes, and we do not make adjustments for future 

changes in variables, such as the number of discharges or case-mix. 

 We note that certain events may combine to limit the scope or accuracy of our impact 

analysis, because an analysis is future-oriented and, thus, susceptible to forecasting errors 

because of other changes in the forecasted impact time period. Some examples could be 

legislative changes made by the Congress to the Medicare program that would impact 

program funding, or changes specifically related to IRFs. Although some of these 

changes may not necessarily be specific to the IRF PPS, the nature of the Medicare 

program is that the changes may interact, and the complexity of the interaction of these 

changes could make it difficult to predict accurately the full scope of the impact upon 

IRFs. 

 In updating the rates for FY 2012, we are implementing a number of standard annual 

revisions and clarifications mentioned elsewhere in this final rule (for example, the 

update to the wage index and market basket increase factor used to adjust the Federal 

rates). We estimate that these revisions will increase payments to IRFs by approximately 

$120 million (all due to the update to the market basket increase factor, since the update 

to the wage index is done in a budget neutral manner-as required by statute-and therefore 

neither increases nor decreases aggregate payments to IRFs). 

 The aggregate change in estimated payments associated with this final rule is 

estimated to be an increase in payments to IRFs of $150 million for FY 2012. The 
CMS-1349-F 190 

market basket increase of $120 million and the $30 million increase due to the update to 

the outlier threshold amount to increase estimated outlier payments from approximately 

2.6 percent in FY 2011 to 3.0 percent in FY 2012 result in a net change in estimated 

payments from FY 2011 to FY 2012 of $150 million. 

 The effects of the changes that impact IRF PPS payment rates are shown in Table 14. 

The following changes that affect the IRF PPS payment rates are discussed separately 

below: 

● The effects of the update to the outlier threshold amount, from approximately 

2.6 to 3.0 percent of total estimated payments for FY 2012, consistent with section 

1886(j)(4) of the Act. 

● The effects of the 2.9 percent annual market basket update for FY 2012 

(using the rebased RPL market basket) to IRF PPS payment rates, as required by sections 

1886(j)(3)(A)(i) and 1886(j)(3)(C) of the Act, including a 0.1 percentage point reduction 

for FY 2012 in accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act and a 1.0 percent reduction for the productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. 

● The effects of applying the budget-neutral labor-related share and wage 

index adjustment, as required under section 1886(j)(6) of the Act. 

● The effects of the budget-neutral changes to the CMG relative weights and 

average length of stay values, under the authority of section 1886(j)(2)(C)(i) of the Act. 

● The effect of the data matching process to compute the DSH patient 

percentage used in the IPPS DSH adjustment that is also used by IRF PPS to compute the 

low-income percentage adjustment factor. 
CMS-1349-F 191 

● The effect of the IRF quality reporting program, beginning in FY 2013. 

● The total change in estimated payments based on the FY 2012 policies 

relative to estimated FY 2011 payments without the policies. 

ii. Description of Table 14 

 Table 14 categorizes IRFs by geographic location, including urban or rural location, 

and location in one of CMS's 9 census divisions (as defined on the cost report) of the 

country. In addition, the table divides IRFs into those that are separate rehabilitation 

hospitals (otherwise called freestanding hospitals in this section), those that are 

rehabilitation units of a hospital (otherwise called hospital units in this section), rural or 

urban facilities, ownership (otherwise called for-profit, non-profit, and government), by 

teaching status, and by disproportionate share patient percentage (DSH PP). The top row 

of the table shows the overall impact on the 1,152 IRFs included in the analysis. 

 The next 12 rows of Table 14 contain IRFs categorized according to their geographic 

location, designation as either a freestanding hospital or a unit of a hospital, and by type 

of ownership; all urban, which is further divided into urban units of a hospital, urban 

freestanding hospitals, and by type of ownership; and all rural, which is further divided 

into rural units of a hospital, rural freestanding hospitals, and by type of ownership. 

There are 956 IRFs located in urban areas included in our analysis. Among these, there 

are 752 IRF units of hospitals located in urban areas and 205 freestanding IRF hospitals 

located in urban areas. There are 195 IRFs located in rural areas included in our analysis. 

Among these, there are 175 IRF units of hospitals located in rural areas and 20 

freestanding IRF hospitals located in rural areas. There are 380 for-profit IRFs. Among 

these, there are 317 IRFs in urban areas and 63 IRFs in rural areas. There are 718 non-
CMS-1349-F 192 

profit IRFs. Among these, there are 596 urban IRFs and 122 rural IRFs. There are 54 

government-owned IRFs. Among these, there are 44 urban IRFs and 10 rural IRFs. 

 The remaining three parts of Table 14 show IRFs grouped by their geographic location 

within a region, by teaching status, and by DSH PP. First, IRFs located in urban areas 

are categorized to their location within one of the 9 CMS geographic regions. Second, 

IRFs located in rural areas are categorized to their location within one of the 9 CMS 

geographic regions. In some cases, especially for rural IRFs located in the New England, 

Mountain, and Pacific regions, the number of IRFs represented is small. Third, IRFs are 

grouped by teaching status, including non-teaching IRFs, IRFs with an intern and resident 

to Average Daily Census (ADC) ratio less than 10 percent, IRFs with an intern and 

resident to ADC ratio greater than or equal to 10 percent and less than or equal to 19 

percent, and IRFs with an intern and resident to ADC ratio greater than 19 percent. 

Finally, IRFs are grouped by DSH PP, including IRFs with zero DSH PP, IRFs with a 

DSH PP less than 5 percent, IRFs with a DSH PP between 5 percent and 10 percent, IRFs 

with a DSH PP between 10 percent and 20 percent, and IRFs with a DSH PP greater than 

20 percent. 

 The estimated impacts of each change to the facility categories listed above are shown 

in the columns of Table 14. The description of each column is as follows: 

 Column (1) shows the facility classification categories described above. 

 Column (2) shows the number of IRFs in each category in our FY 2010 analysis file. 

 Column (3) shows the number of cases in each category in our FY 2010 analysis file. 
CMS-1349-F 193 

 Column (4) shows the estimated effect of the adjustment to the outlier threshold 

amount so that estimated outlier payments increase from approximately 2.6 percent in FY 

2011 to 3.0 percent of total estimated payments for FY 2012. 

 Column (5) shows the estimated effect of the rebased market basket update to the IRF 

PPS payment rates. 

 Column (6) shows the estimated effect of the update to the IRF labor-related share and 

wage index, in a budget neutral manner. 

 Column (7) shows the estimated effect of the update to the CMG relative weights 

and average length of stay values, in a budget neutral manner. 

 Column (8) compares our estimates of the payments per discharge, incorporating 

all of the proposed changes reflected in this final rule for FY 2012, to our estimates of 

payments per discharge in FY 2011 (without these changes). 

 The average estimated increase for all IRFs is approximately 2.2 percent. This 

estimated increase includes the effects of the 1.8 percent market basket update, which is 

derived from a 2.9 percent rebased market basket update reduced by 0.1 percentage point 

for FY 2012, in accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 

Act, and reduced by a 1.0 percentage point productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. It also includes the 0.4 percent overall estimated 

increase (the difference between 2.6 percent in FY 2011 and 3.0 percent in FY 2012) in 

estimated IRF outlier payments from the update to the outlier threshold amount. Because 

we are making the remainder of the changes outlined in this final rule in a budget-neutral 

manner, they will not affect total estimated IRF payments in the aggregate. However, as 
CMS-1349-F 194 

described in more detail in each section, they will affect the estimated distribution of 

payments among providers. 

TABLE 14: IRF Impact Table for FY 2012 

Facility Classification 

Number 

of IRFs 

Number 

of Cases Outlier 

FY 2012 

Adjusted 

Market Basket 

Increase Factor1

FY2012 

CBSA wage 

index and 

labor-share CMG 

Total 

Percent 

Change 

(1) (2) (3) (4) (5) (6) (7) (8) 

Total 

 

1,152 

 

397,256 0.4% 1.8% 0.0% 0.0% 2.2% 

Urban unit 

 

752 

 

200,510 0.6 1.8 -0.1 0.0 2.3 

Rural unit 

 

175 

 

27,993 0.5 1.8 0.7 0.1 3.2 

Urban hospital 

 

205 

 

162,121 0.2 1.8 0.0 0.0 1.9 

Rural hospital 

 

20 

 

6,632 0.2 1.8 1.6 -0.1 3.5 

Urban For-Profit 

 

317 

 

151,768 0.2 1.8 0.1 0.0 2.1 

Rural For-Profit 

 

63 

 

12,437 0.4 1.8 1.1 0.1 3.4 

Urban Non-Profit 

 

596 

 

199,249 0.6 1.8 -0.3 0.0 2.1 

Rural Non-Profit 

 

122 

 

20,437 0.5 1.8 0.8 0.0 3.1 

Urban Government 

 

44 

 

11,614 0.7 1.8 0.2 0.0 2.8 

Rural Government 

 

10 

 

751 0.9 1.8 1.3 0.1 4.1 

Urban 

 

957 

 

362,631 0.4 1.8 -0.1 0.0 2.1 

Rural 

 

195 

 

34,625 0.5 1.8 0.9 0.1 3.2 

Urban by region2 

Urban New England 

 

32 

 

16,385 0.4 1.8 -1.2 0.1 1.1 

Urban Middle Atlantic 

 

142 

 

66,330 0.3 1.8 -0.7 0.0 1.4 

Urban South Atlantic 

 

132 

 

63,773 0.4 1.8 0.0 0.0 2.2 

Urban East North Central 

 

188 

 

57,251 0.6 1.8 0.0 0.0 2.4 

Urban East South Central 

 

49 

 

26,367 0.2 1.8 0.4 -0.1 2.3 

Urban West North Central 

 

73 

 

18,112 0.6 1.8 0.0 0.0 2.4 

Urban West South Central 

 

169 

 

66,296 0.4 1.8 0.5 0.0 2.7 

Urban Mountain 

 

70 

 

23,827 0.5 1.8 0.2 -0.1 2.3 

Urban Pacific 

 

102 

 

24,290 0.7 1.8 -0.3 0.0 2.2 

Rural by region2 

Rural New England 

 

6 

 

1,354 1.0 1.8 0.7 0.1 3.6 

Rural Middle Atlantic 

 

16 

 

3,232 0.3 1.8 1.8 0.0 3.9 
CMS-1349-F 195 

Facility Classification 

Number 

of IRFs 

Number 

of Cases Outlier 

FY 2012 

Adjusted 

Market Basket 

Increase Factor1

FY2012 

CBSA wage 

index and 

labor-share CMG 

Total 

Percent 

Change 

Rural South Atlantic 

 

25 

 

5,988 0.3 1.8 0.8 0.0 2.9 

Rural East North Central 

 

33 

 

5,775 0.4 1.8 0.1 0.1 2.4 

Rural East South Central 

 

23 

 

4,016 0.2 1.8 1.4 0.0 3.4 

Rural West North Central 

 

31 

 

3,944 0.8 1.8 -0.2 0.1 2.5 

Rural West South Central 

 

50 

 

9,259 0.6 1.8 1.6 0.1 4.0 

Rural Mountain 

 

7 

 

670 0.6 1.8 0.3 0.1 2.8 

Rural Pacific 

 

4 

 

387 1.5 1.8 -0.4 -0.1 2.8 

Teaching status 

Non-teaching 

 

1,036 

 

345,421 0.4 1.8 0.1 0.0 2.3 

Resident to ADC less than 10% 

 

69 

 

36,843 0.6 1.8 -0.4 0.0 2.0 

Resident to ADC 10%-19% 

 

33 

 

12,481 0.6 1.8 -0.3 0.1 2.2 

Resident to ADC greater than 19% 

 

14 

 

2,511 0.7 1.8 -0.7 0.0 1.9 

Disproportionate share patient 

percentage (DSH PP) 

DSH PP = 0% 

 

39 

 

10,532 0.5 1.8 0.4 0.0 2.7 

DSH PP <5% 

 

208 

 

62,428 0.4 1.8 -0.2 0.0 2.0 

DSH PP 5%-10% 

 

342 

 

134,672 0.3 1.8 0.0 0.0 2.2 

DSH PP 10%-20% 

 

330 

 

123,352 0.4 1.8 0.0 0.0 2.2 

DSH PP greater than 20% 

 

233 

 

66,272 0.6 1.8 0.0 0.0 2.4 1

This column reflects the impact of the rebased RPL market basket increase factor for FY 2012 of 1.8 percent, which includes a 

market basket update of 2.9 percent, a 0.1 percentage point reduction in accordance with sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act and a 1.0 percent reduction for the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of 

the Act. 

2

A map of States that comprise the 9 geographic regions can be found at: http://www.census.gov/geo/www/us_regdiv.pdf.) 

iii. Impact of the Update to the Outlier Threshold Amount 

 In the FY 2011 IRF PPS notice (75 FR 42836), we used FY 2009 patient-level claims 

data (the best, most complete data available at that time) to set the outlier threshold 

amount for FY 2011 so that estimated outlier payments would equal 3 percent of total 

estimated payments for FY 2011. For this final rule, we update our analysis using more 

current FY 2010 data. Using the updated FY 2010 data, we now estimate that IRF outlier 

payments, as a percentage of total estimated payments for FY 2011, decreased from 
CMS-1349-F 196 

3 percent using the FY 2009 data to approximately 2.6 percent using the updated FY 

2010 data. As a result, we adjust the outlier threshold amount for FY 2012 to $10,660, 

reflecting total estimated outlier payments equal to 3 percent of total estimated payments 

in FY 2012. 

 The impact of the update to the outlier threshold amount (as shown in column 4 of 

Table 14) is to increase estimated overall payments to IRFs by 0.4 percent. We do not 

estimate that any group of IRFs would experience a decrease in payments from this 

update. We estimate the largest increase in payments to be a 1.5 percent increase in 

estimated payments to rural IRFs in the Pacific region. 

iv. Impact of the Market Basket Update to the IRF PPS Payment Rates 

 The adjusted market basket update to the IRF PPS payment rates is presented in 

column 5 of Table 14. In the aggregate the update will result in a net 1.8 percent increase 

in overall estimated payments to IRFs. This net increase reflects the estimated rebased 

RPL market basket increase factor for FY 2012 of 2.9 percent, reduced by 0.1 percentage 

point in accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act, 

and reduced by a 1.0 percent productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. 

v. Impact of the CBSA Wage Index and Labor-Related Share 

 In column 6 of Table 14, we present the effects of the budget neutral update of the 

wage index and labor-related share. The changes to the wage index and the labor-related 

share are discussed together because the wage index is applied to the labor-related share 

portion of payments, so the changes in the two have a combined effect on payments to 
CMS-1349-F 197 

providers. As discussed in section VI.A.4 of this final rule, the labor-related share 

decreased from 75.271 percent in FY 2011 to 70.199 percent in FY 2012. 

 In the aggregate, since these updates to the wage index and the labor-related share 

are applied in a budget-neutral manner as required under section 1886(j)(6) of the Act, 

we do not estimate that these updates will affect overall estimated payments to IRFs. 

However, we estimate that these changes will have small distributional effects. For 

example, we estimate a 0.9 percent increase in payments to rural IRFs, with the largest 

increase in payments of 1.8 percent for rural IRFs in the Mid-Atlantic region. We 

estimate the largest decrease in payments from the update to the CBSA wage index and 

labor-related share to be a 1.2 percent decrease for urban IRFs in the New England 

region. 

vi. Impact of the update to the CMG relative weights and average length of stay values 

 In column 7 of Table 14, we present the effects of the budget neutral update of the 

CMG relative weights and average length of stay values. In the aggregate we do not 

estimate that these updates will affect overall estimated payments to IRFs. However, we 

estimate that these updates will have small distributional effects. The largest decrease in 

payments as a result of these updates is a 0.1 percent decrease to rural freestanding IRFs, 

urban IRFs in the East South Central and Mountain regions, and rural IRFs in the Pacific 

region. 

vii. Impact of the IPPS Data Matching Process Changes on the IRF PPS Calculation of 

the Low-Income Percentage Adjustment Factor 

 In section VIII of this final rule, we note the recent revision of the data 

matching process that is used to calculate the DSH patient percentage used in the acute 
CMS-1349-F 198 

IPPS DSH adjustment. As we have stated previously, it is our policy in calculating the 

LIP adjustment factor to use the same DSH patient percentage used in the acute IPPS 

DSH adjustment. This would include the data matching process. We are not able to 

provide a detailed analysis of the impact of the revised data matching process. That is, it 

is not possible to determine whether IRF LIP adjustment payments will generally 

increase or decrease, because IRFs’ SSI fractions will vary depending on various factors, 

including the use of a more updated MedPAR claims data file, use of a more updated SSI 

eligibility data file, and the other features of the revised data matching process. See the 

FY 2011 IPPS final rule (75 FR 50663 through 50664) for more information on the 

revised data matching process. 

ix. Impact of the IRF Quality Reporting Program Beginning in FY 2013 

 As discussed in section X.B of this final rule, we will collect data on 2 quality 

measures from October 1, 2012 through December 31, 2012 (FY 2013). These quality 

measures are: 1) Catheter-Associated Urinary Tract Infections; and 2) Pressure Ulcers 

that are New or Have Worsened. As discussed in section XIII. of this final rule, we 

estimate that IRFs will incur costs associated with the collection of these data, which we 

detail below. 

a. Catheter Associated Urinary Tract Infections

 As stated in section X.C.1. of this final rule, we collect data on the first quality 

measure, Catheter Associated Urinary Tract Infections, through CDC/NHSN. We do not 

currently require IRFs to report data to NHSN. However, some IRFs submit data to 

NHSN either voluntarily or per State mandate. According to the CDC, 26 IRFs already 

report data to NHSN. We estimate that 1,126 IRFs (1,152 minus the 26 IRFs that are 
CMS-1349-F 199 

already reporting data to NHSN) will incur costs for registering and completing the 

necessary training provided by the CDC in FY 2012 in preparation for submitting the 

data beginning on October 1, 2012 (FY 2013). We estimate that registering and 

completing the necessary training of the required personnel at each IRF will take 4 hours 

at a cost of $41.59 per hour, at an estimated cost per IRF of $166.36 and a total estimated 

cost across all IRFs of $187,321. 

 Once IRFs begin submitting data to the NHSN on Catheter Associated Urinary Tract 

Infections by October 1, 2012 (FY 2013), they will need to submit two types of forms in 

order for CDC to calculate the CAUTI rate per 1,000 urinary catheter days. We estimate 

that the first form, the UTI form, will take 15 minutes per reporting episode per IRF and 

that there will be approximately 2.25 NHSN submissions per IRF per month. Based on 

this estimate, we expect for each IRF to expend 33.75 minutes (0.5625 hours) per month 

or 405 minutes (6.75 hours) per year reporting to NHSN. The estimated annual burden to 

all IRFs in the U.S. for reporting to NHSN is 7,776 hours. The estimated yearly cost per 

IRF is $186.15 and the estimated total yearly cost across all IRFs is $214,445. While 

CDC estimates that the second form, the denominator form used to count daily the 

number of patients with an indwelling catheter device, will take 5 hours per month to 

complete, we estimate that it will take 2.5 hours per form per IRF per month as the 

number of patients with an indwelling catheter is the only part of this form that IRFs will 

be required to complete. We anticipate that there will be one form submitted per IRF per 

month and each IRF will expend 150 minutes (2.5 hours) per month and 1,800 minutes 

(30 hours) per year reporting to NHSN. The estimated annual burden to all IRFs in the 

U.S. for reporting to NHSN is 34,560 hours. The estimated cost per IRF is $1,247.70 per 
CMS-1349-F 200 

year and the estimated total yearly cost across all IRFs is $1,437,350. These costs are 

estimated using an hourly wage for a Registered Nurse of $41.59 and a Medical Billing 

Clerk/Data Entry person of $20.57. 

b. Pressure Ulcers that are New or Have Worsened

 As stated in section X.C.2 of this final rule, we modified the IRF-PAI by removing the 

items previously in the “Quality Indicators” section and replacing them with pressure 

ulcer items similar to elements from the MDS 3.0 nursing home instrument. Since all 

IRFs are already required to complete and transmit IRF-PAIs on all Medicare Part A feefor-service and Medicare Part C (Medicare Advantage) to receive payment from 

Medicare, and since the number of IRFs submitting claims to Medicare has remained 

stable over the past several years, we do not estimate that there are any IRFs that will 

need to conduct additional training or set-up for completing and transmitting the IRFPAI. Thus, we do not estimate any additional cost to IRFs in FY 2012 for these 

activities. While IRFs are already transmitting the IRF-PAI form to CMS, we do not 

estimate any additional transmission costs associated with the proposed IRF quality 

reporting program. Further, we do not estimate any additional burden for IRFs to 

complete an IRF-PAI with mandatory quality measures as the IRF-PAI previously 

contained a voluntary “Quality Indicators” section, which we replaced with the pressure 

ulcer question set. When the original burden estimates were completed for the IRF-PAI, 

we estimated that the “Quality Indicators” section of the IRF-PAI would take about 10 

minutes to complete, and we assumed that all IRFs would complete the Quality Indicators 

items, even though completion of this section was voluntary. Thus, removing the Quality 

Indicators items from the IRF-PAI decreases the total estimated burden of completing 
CMS-1349-F 201 

each IRF-PAI by about 10 minutes. However, we estimate that it will take about 10 

minutes to complete the new pressure ulcer item that we are requiring IRFs to complete 

as part of the new IRF quality reporting program. Since the time to complete the items 

that we are removing from the IRF-PAI is the same as the time to complete the new items 

we are adding, we estimate no net change in the amount of time or the costs associated 

with completing each IRF-PAI. 

5. Alternatives Considered

 Although we have determined that this final rule will not have a significant economic 

impact on a substantial number of small entities, we have voluntarily prepared a 

discussion on the alternatives considered to the IRF PPS. 

 Section 1886(j)(3)(C) of the Act requires the Secretary to update the IRF PPS 

payment rates by an increase factor that reflects changes over time in the prices of an 

appropriate mix of goods and services included in the covered IRF services. Thus, we 

did not consider alternatives to updating payments using the estimated RPL market 

basket increase factor for FY 2012. In this final rule, we rebase the RPL market basket 

for FY 2012, as we typically do every 5 to 7 years, from a 2002 base year to a 2008 base 

year. We considered not rebasing the RPL market basket for FY 2012; however, 

periodically rebasing the RPL market basket ensures that it continues to reflect the most 

accurate account of the cost of relevant goods and services. In accordance with the 

recently amended section 1886(j)(3)(C) of the Act, we are updating IRF Federal 

prospective payments in this final rule by 1.8 percent (which equals the 2.9 percent 

estimated rebased RPL market basket increase factor for FY 2012 reduced by 0.1 

percentage point, as required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the 
CMS-1349-F 202 

Act, and reduced by a 1.0 percent productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act). 

 We considered maintaining the existing CMG relative weights and average length 

of stay values for FY 2012. However, in light of recently available data and our desire to 

ensure that the CMG relative weights and average length of stay values are as reflective 

as possible of recent changes in IRF utilization and case mix, we believe that it is 

appropriate to update the CMG relative weights and average length of stay values at this 

time to ensure that IRF PPS payments continue to reflect as accurately as possible the 

current costs of care in IRFs. 

 We considered adjusting the facility-level adjustments (the rural, LIP, and 

teaching status adjustment) for FY 2012 using updated data and a revised methodology 

that would remove a weighting factor from the regression analysis that we believe is no 

longer appropriate. However, we found that the proposed changes to the adjustment 

factors would cause unusually large reductions in payment for some facilities that are not 

clearly justified. Thus, we are freezing the IRF facility-level adjustment factors at FY 

2011 levels for FY 2012 while we continue to study the underlying anomalies in the data 

that may be causing some of the instability in the facility-level adjustments and analyze 

the most appropriate methodology to use to update the facility-level adjustment factors. 

 We considered maintaining the existing outlier threshold amount for FY 2012. 

However, the update to the outlier threshold amount will have a positive impact on IRF 

providers and, therefore, on small entities (as shown in Table 14, column 4). If we were 

to maintain the FY 2011 outlier threshold amount, fewer outlier cases would qualify for 

the additional outlier payments in FY 2012. Analysis of updated FY 2010 data indicates 
CMS-1349-F 203 

that estimated outlier payments would not equal 3 percent of estimated total payments for 

FY 2012 unless we update the outlier threshold amount. Thus, we believe that this 

update is appropriate for FY 2012. 

6. Accounting Statement 

 As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 15, we have prepared 

an accounting statement showing the classification of the transfers associated with the 

provisions of this final rule. This table provides our best estimate of the increase in 

Medicare payments under the IRF PPS as a result of the changes presented in this final 

rule based on the data for 1,152 IRFs in our database. 

TABLE 15.--Accounting Statement: Classification of Estimated Transfers, from the 

2011 IRF PPS Fiscal Year to the 2012 IRF PPS Fiscal Year 

Category Transfers 

Annualized Monetized Transfers $150 million 

From Whom to Whom? Federal Government to IRF Medicare 

Providers 

7. Conclusion 

 Overall, the estimated payments per discharge for IRFs in FY 2012 are projected to 

increase by 2.2 percent, compared with those in FY 2011, as reflected in column 8 of 

Table 14. IRF payments are estimated to increase 2.1 percent in urban areas and 3.2 

percent in rural areas, per discharge, compared with FY 2011. Payments to rehabilitation 

units in hospitals in urban areas are estimated to increase 2.3 percent per discharge. 

Payments to freestanding rehabilitation hospitals in urban areas are estimated to increase 

1.9 percent per discharge. Payments to rehabilitation units in hospitals in rural areas are 

estimated to increase 3.2 percent per discharge, while payments to freestanding 

rehabilitation hospitals in rural areas are estimated to increase 3.5 percent per discharge. 
CMS-1349-F 204 

 Overall, the largest payment increase is estimated at 4.1 percent for rural governmentowned IRFs and rural IRFs in the West South Central region. We are not estimating any 

payment decreases for FY 2012. 

B. Regulatory Flexibility Act Analysis

 The RFA requires agencies to analyze options for regulatory relief of small entities, if 

a rule has a significant impact on a substantial number of small entities. For purposes of 

the RFA, small entities include small businesses, nonprofit organizations, and small 

governmental jurisdictions. Most IRFs and most other providers and suppliers are small 

entities, either by nonprofit status or by having revenues of $34.5 million in any 1 year. 

(For details, see the Small Business Administration’s Web site at 

http://ecfr.gpoaccess.gov/cgi/t/text/textidx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=text&node=13

:1.0.1.1.16.1.266.9&idno=13) (refer to subsector 622). Because we lack data on 

individual hospital receipts, we cannot determine the number of small proprietary IRFs or 

the proportion of IRFs' revenue that is derived from Medicare payments. Therefore, we 

assume that all IRFs (an estimated 1,152 IRFs that are in our analysis file, of which 

approximately 60 percent are nonprofit facilities) are considered small entities and that 

Medicare payment constitutes the majority of their revenues. The HHS generally uses a 

revenue or cost impact of 3 to 5 percent as a significance threshold under the RFA. There 

is no negative estimated impact as a result of this final rule that is within the significance 

threshold of 3 to 5 percent. As shown in Table 14, we estimate that the net revenue 

impact of this final rule on all IRFs is to increase estimated payments by about 

2.2 percent, with an estimated increase in payments of 3 percent or higher for some 
CMS-1349-F 205 

categories of IRFs (such as both freestanding rehabilitation hospitals located in rural 

areas and rehabilitation units in hospitals located in rural areas, rural government-owned 

IRFS and rural IRFs in the New England, Mid-Atlantic, East South Central, and West 

South Central) and no estimated decreases in payment. Therefore, we estimate that all 

IRFs will experience a net positive increase in payments. As a result, the Secretary has 

determined that this final rule will not have a significant impact on a substantial number 

of small entities. We present, in the Alternatives Considered section XIV.A.5 of this 

final rule, an analysis of the alternatives we considered for this final IRF PPS rule. 

Medicare fiscal intermediaries and carriers are not considered to be small entities. 

Individuals and States are not included in the definition of a small entity. 

 In addition, section 1102(b) of the Act requires us to prepare a RIA if a rule may have 

a significant impact on the operations of a substantial number of small rural hospitals. 

This analysis must conform to the provisions of section 603 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 MSA and has fewer than 100 beds. Based on the data of the 175 rural units 

and 20 rural hospitals in our database of 1,152 IRFs, we estimate that small rural IRF 

hospitals will receive between 2.4 percent and 4.1 percent higher net payments in 

FY 2012 due to the provisions in this final rule, with no rural IRF hospitals estimated to 

receive negative net payments. Thus, the Secretary has determined that the rates and 

policies set forth in this final rule will not have a significant impact on the operations of a 

substantial number of small rural hospitals. 

C. Unfunded Mandates Reform Act Analysis 
CMS-1349-F 206 

 Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that 

agencies assess anticipated costs and benefits before issuing any rule whose mandates 

require spending in any one year of $100 million in 1995 dollars, updated annually for 

inflation. In 2011, that threshold level is approximately $136 million. This final rule will 

not impose spending costs on State, local, or tribal governments, in the aggregate, or by 

the private sector, of $136 million. 

XV. Federalism Analysis 

 Executive Order 13132 establishes certain requirements that an agency must meet 

when it promulgates a proposed rule (and subsequent final rule) that imposes substantial 

direct requirement costs on State and local governments, preempts State law, or otherwise 

has Federalism implications. This final rule will have no substantial direct effect on State 

and local governments, preempt State law, or otherwise have Federalism implications.
CMS-1349-F 207 

List of Subjects in 42 CFR Part 412 

 Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, 

Reporting and recordkeeping requirements. 
CMS-1349-F 208 

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid 

Services amends 42 CFR chapter IV as follows: 

PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT 

HOSPITAL SERVICES 

 1. The authority citation for part 412 continues to read as follows: 

Authority: Sections 1102, 1862, and 1871 of the Social Security Act (42 U.S.C. 

1302, 1395y, and 1395hh). 

Subpart B--Hospital Services Subject to and Excluded From the Prospective 

Payment Systems for Inpatient Operating Costs and Inpatient Capital-Related 

Costs 

 2. Section 412.23 is amended by revising paragraph (b) to read as follows: 

§412.23 Excluded hospitals: Classifications.

* * * * * 

(b) Rehabilitation hospitals. A rehabilitation hospital or unit must meet the 

requirements specified in §412.29 of this subpart to be excluded from the prospective 

payment systems specified in §412.1(a)(1) of this subpart and to be paid under the 

prospective payment system specified in §412.1(a)(3) of this subpart and in subpart P of 

this part. 

* * * * * 

3. Section 412.25 is amended by revising paragraphs (b) and (e)(2)(ii)(A) to read 

as follows: 

§412.25 Excluded hospital units: Common requirements.

* * * * * 
CMS-1349-F 209 

 (b) Changes in the size of excluded units. Except in the special cases noted at the 

end of this paragraph, changes in the number of beds or square footage considered to be 

part of an excluded unit under this section are allowed one time during a cost reporting 

period if the hospital notifies its Medicare contractor and the CMS RO in writing of the 

planned change at least 30 days before the date of the change. The hospital must 

maintain the information needed to accurately determine costs that are attributable to the 

excluded unit. A change in bed size or a change in square footage may occur at any time 

during a cost reporting period and must remain in effect for the rest of that cost reporting 

period. Changes in bed size or square footage may be made at any time if these changes 

are made necessary by relocation of a unit to permit construction or renovation necessary 

for compliance with changes in Federal, State, or local law affecting the physical facility 

or because of catastrophic events such as fires, floods, earthquakes, or tornadoes. 

 

* * * * * 

 (e) * * * 

 (2) * * * 

 (ii)* * * 

(A) For a rehabilitation unit, the requirements under §412.29 of this subpart; 

or 

* * * * * 
CMS-1349-F 210 

 4. Section 412.29 is revised to read as follows: 

§412.29 Classification criteria for payment under the inpatient rehabilitation 

facility prospective payment system.

 To be excluded from the prospective payment systems described in 

§412.1(a)(1) and to be paid under the prospective payment system specified in 

§412.1(a)(3), an inpatient rehabilitation hospital or an inpatient rehabilitation unit of a 

hospital (otherwise referred to as an IRF) must meet the following requirements: 

 (a) Have (or be part of a hospital that has) a provider agreement under part 489 of 

this chapter to participate as a hospital. 

 (b) Except in the case of a “new” IRF or “new” IRF beds, as defined in paragraph 

(c) of this section, an IRF must show that, during its most recent, consecutive, and 

appropriate 12-month time period (as defined by CMS or the Medicare contractor), it 

served an inpatient population that meets the following criteria: 

 (1) For cost reporting periods beginning on or after July 1, 2004, and before July 

1, 2005, the IRF served an inpatient population of whom at least 50 percent, and for cost 

reporting periods beginning on or after July 1, 2005, the IRF served an inpatient 

population of whom at least 60 percent required intensive rehabilitation services for 

treatment of one or more of the conditions specified at paragraph (b)(2) of this section. A 

patient with a comorbidity, as defined at §412.602 of this part, may be included in the 

inpatient population that counts toward the required applicable percentage if-- 

 (i) The patient is admitted for inpatient rehabilitation for a condition that is not 

one of the conditions specified in paragraph (b)(2) of this section; 
CMS-1349-F 211 

 (ii) The patient has a comorbidity that falls in one of the conditions specified in 

paragraph (b)(2) of this section; and 

 (iii) The comorbidity has caused significant decline in functional ability in the 

individual that, even in the absence of the admitting condition, the individual would 

require the intensive rehabilitation treatment that is unique to inpatient rehabilitation 

facilities paid under subpart P of this part and that cannot be appropriately performed in 

another care setting covered under this title. 

(2) List of conditions. 

(i) Stroke. 

(ii) Spinal cord injury. 

(iii) Congenital deformity. 

(iv) Amputation. 

(v) Major multiple trauma. 

(vi) Fracture of femur (hip fracture). 

 (vii) Brain injury. 

 (viii) Neurological disorders, including multiple sclerosis, motor neuron diseases, 

polyneuropathy, muscular dystrophy, and Parkinson's disease. 

 (ix) Burns. 

 (x) Active, polyarticular rheumatoid arthritis, psoriatic arthritis, and seronegative 

arthropathies resulting in significant functional impairment of ambulation and other 

activities of daily living that have not improved after an appropriate, aggressive, and 

sustained course of outpatient therapy services or services in other less intensive 

rehabilitation settings immediately preceding the inpatient rehabilitation admission or 
CMS-1349-F 212 

that result from a systemic disease activation immediately before admission, but have the 

potential to improve with more intensive rehabilitation. 

 (xi) Systemic vasculidities with joint inflammation, resulting in significant 

functional impairment of ambulation and other activities of daily living that have not 

improved after an appropriate, aggressive, and sustained course of outpatient therapy 

services or services in other less intensive rehabilitation settings immediately preceding 

the inpatient rehabilitation admission or that result from a systemic disease activation 

immediately before admission, but have the potential to improve with more intensive 

rehabilitation. 

 (xii) Severe or advanced osteoarthritis (osteoarthrosis or degenerative joint 

disease) involving two or more major weight bearing joints (elbow, shoulders, hips, or 

knees, but not counting a joint with a prosthesis) with joint deformity and substantial loss 

of range of motion, atrophy of muscles surrounding the joint, significant functional 

impairment of ambulation and other activities of daily living that have not improved after 

the patient has participated in an appropriate, aggressive, and sustained course of 

outpatient therapy services or services in other less intensive rehabilitation settings 

immediately preceding the inpatient rehabilitation admission but have the potential to 

improve with more intensive rehabilitation. (A joint replaced by a prosthesis no longer is 

considered to have osteoarthritis, or other arthritis, even though this condition was the 

reason for the joint replacement.) 

 (xiii) Knee or hip joint replacement, or both, during an acute hospitalization 

immediately preceding the inpatient rehabilitation stay and also meet one or more of the 

following specific criteria: 
CMS-1349-F 213 

 (A) The patient underwent bilateral knee or bilateral hip joint replacement surgery 

during the acute hospital admission immediately preceding the IRF admission. 

 (B) The patient is extremely obese with a Body Mass Index of at least 50 at the 

time of admission to the IRF. 

 (C) The patient is age 85 or older at the time of admission to the IRF. 

 (c) In the case of new IRFs (as defined in paragraph (c)(1) of this section) or new 

IRF beds (as defined in paragraph (c)(2)of this section), the IRF must provide a written 

certification that the inpatient population it intends to serve meets the requirements of 

paragraph (b) of this section. This written certification will apply until the end of the 

IRF’s first full 12-month cost reporting period or, in the case of new IRF beds, until the 

end of the cost reporting period during which the new beds are added to the IRF. 

 (1) New IRFs. An IRF hospital or IRF unit is considered new if it has not been 

paid under the IRF PPS in subpart P of this part for at least 5 calendar years. A new IRF 

will be considered new from the point that it first participates in Medicare as an IRF until 

the end of its first full 12-month cost reporting period. 

 (2) New IRF beds. Any IRF beds that are added to an existing IRF must meet all 

applicable State Certificate of Need and State licensure laws. New IRF beds may be 

added one time at any point during a cost reporting period and will be considered new for 

the rest of that cost reporting period. A full 12-month cost reporting period must elapse 

between the delicensing or decertification of IRF beds in an IRF hospital or IRF unit and 

the addition of new IRF beds to that IRF hospital or IRF unit. Before an IRF can add 

new beds, it must receive written approval from the appropriate CMS RO, so that the 

CMS RO can verify that a full 12-month cost reporting period has elapsed since the IRF 
CMS-1349-F 214 

has had beds delicensed or decertified. New IRF beds are included in the compliance 

review calculations under paragraph (b) of this section from the time that they are added 

to the IRF. 

 (3) Change of ownership or leasing. An IRF hospital or IRF unit that undergoes a 

change of ownership or leasing, as defined in §489.18 of this chapter, retains its excluded 

status and will continue to be paid under the prospective payment system specified in 

§412.1(a)(3) before and after the change of ownership or leasing if the new owner(s) of 

the IRF accept assignment of the previous owners’ Medicare provider agreement and the 

IRF continues to meet all of the requirements for payment under the IRF prospective 

payment system. If the new owner(s) do not accept assignment of the previous owners’ 

Medicare provider agreement, the IRF is considered to be voluntarily terminated and the 

new owner(s) may re-apply to participate in the Medicare program. If the IRF does not 

continue to meet all of the requirements for payment under the IRF prospective payment 

system, then the IRF loses its excluded status and is paid according to the prospective 

payment systems described in §412.1(a)(1). 

 (4) Mergers. If an IRF hospital (or a hospital with an IRF unit) merges with 

another hospital and the owner(s) of the merged hospital accept assignment of the IRF 

hospital’s provider agreement (or the provider agreement of the hospital with the IRF 

unit), then the IRF hospital or IRF unit retains its excluded status and will continue to be 

paid under the prospective payment system specified in §412.1(a)(3) before and after the 

merger, as long as the IRF hospital or IRF unit continues to meet all of the requirements 

for payment under the IRF prospective payment system. If the owner(s) of the merged 

hospital do not accept assignment of the IRF hospital’s provider agreement (or the 
CMS-1349-F 215 

provider agreement of the hospital with the IRF unit), then the IRF hospital or IRF unit is 

considered voluntarily terminated and the owner(s) of the merged hospital may reapply to 

the Medicare program to operate a new IRF. 

 (d) Have in effect a preadmission screening procedure under which each 

prospective patient's condition and medical history are reviewed to determine whether the 

patient is likely to benefit significantly from an intensive inpatient hospital program. This 

procedure must ensure that the preadmission screening is reviewed and approved by a 

rehabilitation physician prior to the patient’s admission to the IRF. 

 (e) Have in effect a procedure to ensure that patients receive close medical 

supervision, as evidenced by at least 3 face-to-face visits per week by a licensed 

physician with specialized training and experience in inpatient rehabilitation to assess the 

patient both medically and functionally, as well as to modify the course of treatment as 

needed to maximize the patient’s capacity to benefit from the rehabilitation process. 

 (f) Furnish, through the use of qualified personnel, rehabilitation nursing, physical 

therapy, and occupational therapy, plus, as needed, speech-language pathology, social 

services, psychological services (including neuropsychological services), and orthotic and 

prosthetic services. 

 (g) Have a director of rehabilitation who-- 

 (1) Provides services to the IRF hospital and its inpatients on a full-time basis or, 

in the case of a rehabilitation unit, at least 20 hours per week; 

 (2) Is a doctor of medicine or osteopathy; 

 (3) Is licensed under State law to practice medicine or surgery; and 
CMS-1349-F 216 

 (4) Has had, after completing a one-year hospital internship, at least 2 years of 

training or experience in the medical-management of inpatients requiring rehabilitation 

services. 

 (h) Have a plan of treatment for each inpatient that is established, reviewed, and 

revised as needed by a physician in consultation with other professional personnel who 

provide services to the patient. 

 (i) Use a coordinated interdisciplinary team approach in the rehabilitation of each 

inpatient, as documented by the periodic clinical entries made in the patient's medical 

record to note the patient's status in relationship to goal attainment and discharge plans, 

and that team conferences are held at least once per week to determine the 

appropriateness of treatment. 

 (j) Retroactive adjustments. If a new IRF (or new beds that are added to an 

existing IRF) are excluded from the prospective payment systems specified in 

§412.1(a)(1) and paid under the prospective payment system specified in §412.1(a)(3) for 

a cost reporting period under paragraph (c) of this section, but the inpatient population 

actually treated during that period does not meet the requirements of paragraph (b) of this 

section, we adjust payments to the IRF retroactively in accordance with the provisions in 

§412.130. 

§412.30 [Removed and Reserved] 

5. Section 412.30 is removed and reserved. 

Subpart P--Prospective Payment for Inpatient Rehabilitation Hospitals and 

Rehabilitation Units 

 6. Section 412.624 is amended by 
CMS-1349-F 217 

A. Redesignating paragraph (c)(4) as paragraph (c)(5). 

B. Adding a new paragraph (c)(4). 

The addition reads as follows: 

§412.624 Methodology for calculating the Federal prospective payment rates.

* * * * * 

 (c) * * * 

 (4) Applicable increase factor for FY 2014 and for subsequent FY. Subject to the 

provisions of paragraphs (c)(4)(i) and (c)(4)(ii) of this section, the applicable increase 

factor for FY 2014 and for subsequent years for updating the standard payment 

conversion factor is the increase factor described in paragraph (a)(3) of this section, 

including adjustments described in paragraph (d) of this section as appropriate. 

 (i) In the case of an IRF that is paid under the prospective payment system specified in 

§412.1(a)(3) of this part that does not submit quality data to CMS, in the form and 

manner specified by CMS, the applicable increase factor specified in paragraph (a)(3) of 

this section is reduced by 2 percentage points. 

 (ii) Any reduction of the increase factor will apply only to the fiscal year involved and 

will not be taken into account in computing the applicable increase factor for a 

subsequent fiscal year. 

* * * * * 
CMS-1349-F 218 

Authority: (Catalog of Federal Domestic Assistance Program No. 93.773, Medicare--Hospital 

Insurance; and Program No. 93.774, Medicare--Supplementary Medical Insurance Program) 

Dated: _____July 21, 2011____ 

 _______________________________

Donald M. Berwick, 

Administrator,

 Centers for Medicare & Medicaid Services.

Approved: __July 27, 2011_____ _

 __________________________________ 

Kathleen Sebelius, 

Secretary,

Health and Human Services. 

BILLING CODE 4120-01-P
CMS-1349-F 219 

The following addendum will not appear in the Code of Federal Regulations. 

Addendum 

In this addendum, we provide the wage index tables referred to throughout the preamble to this 

final rule. The tables presented below are as follows: 

 Table A.— Inpatient Rehabilitation Facility Wage Index for Urban Areas for Discharges 

Occurring from October 1, 2011 through September 30, 2012. 

 Table B—Inpatient Rehabilitation Facility Wage Index for Rural Areas for Discharges 

Occurring from October 1, 2011 through September 30, 2012. 

TABLE A: INPATIENT REHABILITATION FACILITY WAGE INDEX FOR 

URBAN AREAS FOR DISCHARGES OCCURRING FROM OCTOBER 1, 2011 

THROUGH SEPTEMBER 30, 2012 

 Urban Area 

(Constituent Counties) Wage Index

10180 Abilene, TX 

Callahan County, TX 

Jones County, TX 

Taylor County, TX 0.8003

10380 Aguadilla-Isabela-San Sebastián, PR 

Aguada Municipio, PR 

Aguadilla Municipio, PR 

Añasco Municipio, PR 

Isabela Municipio, PR 

Lares Municipio, PR 

Moca Municipio, PR 

Rincón Municipio, PR 

San Sebastián Municipio, PR 0.3471

10420 Akron, OH 

Portage County, OH 

Summit County, OH 0.8843

10500 Albany, GA 

Baker County, GA 

Dougherty County, GA 

Lee County, GA 

Terrell County, GA 

Worth County, GA 0.9036
CMS-1349-F 220 

 Urban Area 

(Constituent Counties) Wage Index

10580 Albany-Schenectady-Troy, NY 

Albany County, NY 

Rensselaer County, NY 

Saratoga County, NY 

Schenectady County, NY 

Schoharie County, NY 0.8653

10740 Albuquerque, NM 

Bernalillo County, NM 

Sandoval County, NM 

Torrance County, NM 

Valencia County, NM 0.9456

10780 Alexandria, LA 

Grant Parish, LA 

Rapides Parish, LA 0.7995

10900 Allentown-Bethlehem-Easton, PA-NJ 

Warren County, NJ 

Carbon County, PA 

Lehigh County, PA 

Northampton County, PA 0.9194

11020 Altoona, PA 

Blair County, PA 0.8620

11100 Amarillo, TX 

Armstrong County, TX 

Carson County, TX 

Potter County, TX 

Randall County, TX 0.8644

11180 Ames, IA 

Story County, IA 0.9970

11260 Anchorage, AK 

Anchorage Municipality, AK 

Matanuska-Susitna Borough, AK 1.1964

11300 Anderson, IN 

Madison County, IN 0.9192

11340 Anderson, SC 

Anderson County, SC 0.8691

11460 Ann Arbor, MI 

Washtenaw County, MI 1.0124

11500 Anniston-Oxford, AL 

Calhoun County, AL 0.7918
CMS-1349-F 221 

 Urban Area 

(Constituent Counties) Wage Index

11540 Appleton, WI 

Calumet County, WI 

Outagamie County, WI 0.9361

11700 Asheville, NC 

Buncombe County, NC 

Haywood County, NC 

Henderson County, NC 

Madison County, NC 0.9001

12020 Athens-Clarke County, GA 

Clarke County, GA 

Madison County, GA 

Oconee County, GA 

Oglethorpe County, GA 0.9659

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 0.9549
CMS-1349-F 222 

 Urban Area 

(Constituent Counties) Wage Index

12100 Atlantic City-Hammonton, NJ 

Atlantic County, NJ 1.1129

12220 Auburn-Opelika, AL 

Lee County, AL 0.7190

12260 Augusta-Richmond County, GA-SC 

Burke County, GA 

Columbia County, GA 

McDuffie County, GA 

Richmond County, GA 

Aiken County, SC 

Edgefield County, SC 0.9538

12420 Austin-Round Rock, TX 

Bastrop County, TX 

Caldwell County, TX 

Hays County, TX 

Travis County, TX 

Williamson County, TX 0.9514

12540 Bakersfield, CA 

Kern County, CA 1.1707

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 1.0255

12620 Bangor, ME 

Penobscot County, ME 0.9777

12700 Barnstable Town, MA 

Barnstable County, MA 1.2823

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 0.8583
CMS-1349-F 223 

 Urban Area 

(Constituent Counties) Wage Index

12980 Battle Creek, MI 

Calhoun County, MI 0.9656

13020 Bay City, MI 

Bay County, MI 0.9221

13140 Beaumont-Port Arthur, TX 

Hardin County, TX 

Jefferson County, TX 

Orange County, TX 0.8488

13380 Bellingham, WA 

Whatcom County, WA 1.1390

13460 Bend, OR 

Deschutes County, OR 1.1372

13644 Bethesda-Frederick-Gaithersburg, MD 

Frederick County, MD 

Montgomery County, MD 1.0525

13740 Billings, MT 

Carbon County, MT 

Yellowstone County, MT 0.8674

13780 Binghamton, NY 

Broome County, NY 

Tioga County, NY 0.8719

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 0.8611

13900 Bismarck, ND 

Burleigh County, ND 

Morton County, ND 0.7348

13980 Blacksburg-Christiansburg-Radford, VA 

Giles County, VA 

Montgomery County, VA 

Pulaski County, VA 

Radford City, VA 0.8314

14020 Bloomington, IN 

Greene County, IN 

Monroe County, IN 

Owen County, IN 0.8989
CMS-1349-F 224 

 Urban Area 

(Constituent Counties) Wage Index

14060 Bloomington-Normal, IL 

McLean County, IL 0.9439

14260 Boise City-Nampa, ID 

Ada County, ID 

Boise County, ID 

Canyon County, ID 

Gem County, ID 

Owyhee County, ID 0.9273

14484 Boston-Quincy, MA 

Norfolk County, MA 

Plymouth County, MA 

Suffolk County, MA 1.2178

14500 Boulder, CO 

Boulder County, CO 1.0065

14540 Bowling Green, KY 

Edmonson County, KY 

Warren County, KY 0.8666

14740 Bremerton-Silverdale, WA 

Kitsap County, WA 1.0667

14860 Bridgeport-Stamford-Norwalk, CT 

Fairfield County, CT 1.2547

15180 Brownsville-Harlingen, TX 

Cameron County, TX 0.9173

15260 Brunswick, GA 

Brantley County, GA 

Glynn County, GA 

McIntosh County, GA 0.9209

15380 Buffalo-Niagara Falls, NY 

Erie County, NY 

Niagara County, NY 0.9530

15500 Burlington, NC 

Alamance County, NC 0.8863

15540 Burlington-South Burlington, VT 

Chittenden County, VT 

Franklin County, VT 

Grand Isle County, VT 0.9947

15764 Cambridge-Newton-Framingham, MA 

Middlesex County, MA 1.1250
CMS-1349-F 225 

 Urban Area 

(Constituent Counties) Wage Index

15804 Camden, NJ 

Burlington County, NJ 

Camden County, NJ 

Gloucester County, NJ 1.0386

15940 Canton-Massillon, OH 

Carroll County, OH 

Stark County, OH 0.8749

15980 Cape Coral-Fort Myers, FL 

Lee County, FL 0.9195

16020 Cape Girardeau-Jackson, MO-IL 

Alexander County, IL 

Bollinger County, MO 

Cape Girardeau County, MO 0.8983

16180 Carson City, NV 

Carson City, NV 1.0465

16220 Casper, WY 

Natrona County, WY 0.9655

16300 Cedar Rapids, IA 

Benton County, IA 

Jones County, IA 

Linn County, IA 0.8844

16580 Champaign-Urbana, IL 

Champaign County, IL 

Ford County, IL 

Piatt County, IL 1.0235

16620 Charleston, WV 

Boone County, WV 

Clay County, WV 

Kanawha County, WV 

Lincoln County, WV 

Putnam County, WV 0.7895

16700 Charleston-North Charleston-Summerville, SC 

Berkeley County, SC 

Charleston County, SC 

Dorchester County, SC 0.9354

16740 Charlotte-Gastonia-Concord, NC-SC 

Anson County, NC 

Cabarrus County, NC 

Gaston County, NC 

Mecklenburg County, NC 

Union County, NC 

York County, SC 0.9420
CMS-1349-F 226 

 Urban Area 

(Constituent Counties) Wage Index

16820 Charlottesville, VA 

Albemarle County, VA 

Fluvanna County, VA 

Greene County, VA 

Nelson County, VA 

Charlottesville City, VA 0.9342

16860 Chattanooga, TN-GA 

Catoosa County, GA 

Dade County, GA 

Walker County, GA 

Hamilton County, TN 

Marion County, TN 

Sequatchie County, TN 0.8829

16940 Cheyenne, WY 

Laramie County, WY 0.9392

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 1.0593

17020 Chico, CA 

Butte County, CA 1.1533

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 0.9699
CMS-1349-F 227 

 Urban Area 

(Constituent Counties) Wage Index

17300 Clarksville, TN-KY 

Christian County, KY 

Trigg County, KY 

Montgomery County, TN 

Stewart County, TN 0.7888

17420 Cleveland, TN 

Bradley County, TN 

Polk County, TN 0.7731

17460 Cleveland-Elyria-Mentor, OH 

Cuyahoga County, OH 

Geauga County, OH 

Lake County, OH 

Lorain County, OH 

Medina County, OH 0.9050

17660 Coeur d'Alene, ID 

Kootenai County, ID 0.9364

17780 College Station-Bryan, TX 

Brazos County, TX 

Burleson County, TX 

Robertson County, TX 0.9588

17820 Colorado Springs, CO 

El Paso County, CO 

Teller County, CO 0.9481

17860 Columbia, MO 

Boone County, MO 

Howard County, MO 0.8282

17900 Columbia, SC 

Calhoun County, SC 

Fairfield County, SC 

Kershaw County, SC 

Lexington County, SC 

Richland County, SC 

Saluda County, SC 0.8733

17980 Columbus, GA-AL 

Russell County, AL 

Chattahoochee County, GA 

Harris County, GA 

Marion County, GA 

Muscogee County, GA 0.9027

18020 Columbus, IN 

Bartholomew County, IN 0.9434
CMS-1349-F 228 

 Urban Area 

(Constituent Counties) Wage Index

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 1.0141

18580 Corpus Christi, TX 

Aransas County, TX 

Nueces County, TX 

San Patricio County, TX 0.8585

18700 Corvallis, OR 

Benton County, OR 1.0455

18880 Crestview-Fort Walton Beach-Destin, FL 

Okaloosa County, FL 0.8842

19060 Cumberland, MD-WV 

Allegany County, MD 

Mineral County, WV 0.8186

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 0.9860

19140 Dalton, GA 

Murray County, GA 

Whitfield County, GA 0.8622

19180 Danville, IL 

Vermilion County, IL 0.9693

19260 Danville, VA 

Pittsylvania County, VA 

Danville City, VA 0.8168

19340 Davenport-Moline-Rock Island, IA-IL 

Henry County, IL 

Mercer County, IL 

Rock Island County, IL 

Scott County, IA 0.8400
CMS-1349-F 229 

 Urban Area 

(Constituent Counties) Wage Index

19380 Dayton, OH 

Greene County, OH 

Miami County, OH 

Montgomery County, OH 

Preble County, OH 0.9140

19460 Decatur, AL 

Lawrence County, AL 

Morgan County, AL 0.7621

19500 Decatur, IL 

Macon County, IL 0.7916

19660 Deltona-Daytona Beach-Ormond Beach, FL 

Volusia County, FL 0.8736

19740 Denver-Aurora-Broomfield, 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 1.0718

19780 Des Moines-West Des Moines, IA 

Dallas County, IA 

Guthrie County, IA 

Madison County, IA 

Polk County, IA 

Warren County, IA 0.9621

19804 Detroit-Livonia-Dearborn, MI 

Wayne County, MI 0.9699

20020 Dothan, AL 

Geneva County, AL 

Henry County, AL 

Houston County, AL 

 0.7435

20100 Dover, DE 

Kent County, DE 0.9921

20220 Dubuque, IA 

Dubuque County, IA 0.8774
CMS-1349-F 230 

 Urban Area 

(Constituent Counties) Wage Index

20260 Duluth, MN-WI 

Carlton County, MN 

St. Louis County, MN 

Douglas County, WI 1.0565

20500 Durham-Chapel Hill, NC 

Chatham County, NC 

Durham County, NC 

Orange County, NC 

Person County, NC 0.9664

20740 Eau Claire, WI 

Chippewa County, WI 

Eau Claire County, WI 0.9639

20764 Edison-New Brunswick, NJ 

Middlesex County, NJ 

Monmouth County, NJ 

Ocean County, NJ 

Somerset County, NJ 1.1006

20940 El Centro, CA 

Imperial County, CA 0.9258

21060 Elizabethtown, KY 

Hardin County, KY 

Larue County, KY 0.8449

21140 Elkhart-Goshen, IN 

Elkhart County, IN 0.9465

21300 Elmira, NY 

Chemung County, NY 0.8445

21340 El Paso, TX 

El Paso County, TX 0.8475

21500 Erie, PA 

Erie County, PA 0.8360

21660 Eugene-Springfield, OR 

Lane County, OR 1.1384

21780 Evansville, IN-KY 

Gibson County, IN 

Posey County, IN 

Vanderburgh County, IN 

Warrick County, IN 

Henderson County, KY 

Webster County, KY 0.8433
CMS-1349-F 231 

 Urban Area 

(Constituent Counties) Wage Index

21820 Fairbanks, AK 

Fairbanks North Star Borough, AK 1.1080

21940 Fajardo, PR 

Ceiba Municipio, PR 

Fajardo Municipio, PR 

Luquillo Municipio, PR 0.3883

22020 Fargo, ND-MN 

Cass County, ND 

Clay County, MN 0.8064

22140 Farmington, NM 

San Juan County, NM 0.9339

22180 Fayetteville, NC 

Cumberland County, NC 

Hoke County, NC 0.9323

22220 Fayetteville-Springdale-Rogers, AR-MO 

Benton County, AR 

Madison County, AR 

Washington County, AR 

McDonald County, MO 0.8616

22380 Flagstaff, AZ 

Coconino County, AZ 1.2443

22420 Flint, MI 

Genesee County, MI 1.1496

22500 Florence, SC 

Darlington County, SC 

Florence County, SC 

 0.8252

22520 Florence-Muscle Shoals, AL 

Colbert County, AL 

Lauderdale County, AL 0.8144

22540 Fond du Lac, WI 

Fond du Lac County, WI 0.9223

22660 Fort Collins-Loveland, CO 

Larimer County, CO 0.9892

22744 Fort Lauderdale-Pompano Beach-Deerfield Beach, FL 

Broward County, FL 1.0160
CMS-1349-F 232 

 Urban Area 

(Constituent Counties) Wage Index

22900 Fort Smith, AR-OK 

Crawford County, AR 

Franklin County, AR 

Sebastian County, AR 

Le Flore County, OK 

Sequoyah County, OK 0.7599

23060 Fort Wayne, IN 

Allen County, IN 

Wells County, IN 

Whitley County, IN 0.9362

23104 Fort Worth-Arlington, TX 

Johnson County, TX 

Parker County, TX 

Tarrant County, TX 

Wise County, TX 0.9474

23420 Fresno, CA 

Fresno County, CA 1.1422

23460 Gadsden, AL 

Etowah County, AL 0.7180

23540 Gainesville, FL 

Alachua County, FL 

Gilchrist County, FL 0.9160

23580 Gainesville, GA 

Hall County, GA 0.9223

23844 Gary, IN 

Jasper County, IN 

Lake County, IN 

Newton County, IN 

Porter County, IN 0.9084

24020 Glens Falls, NY 

Warren County, NY 

Washington County, NY 0.8507

24140 Goldsboro, NC 

Wayne County, NC 0.9067

24220 Grand Forks, ND-MN 

Polk County, MN 

Grand Forks County, ND 0.7717

24300 Grand Junction, CO 

Mesa County, CO 0.9850
CMS-1349-F 233 

 Urban Area 

(Constituent Counties) Wage Index

24340 Grand Rapids-Wyoming, MI 

Barry County, MI 

Ionia County, MI 

Kent County, MI 

Newaygo County, MI 0.9169

24500 Great Falls, MT 

Cascade County, MT 0.8289

24540 Greeley, CO 

Weld County, CO 0.9496

24580 Green Bay, WI 

Brown County, WI 

Kewaunee County, WI 

Oconto County, WI 0.9586

24660 Greensboro-High Point, NC 

Guilford County, NC 

Randolph County, NC 

Rockingham County, NC 0.8882

24780 Greenville, NC 

Greene County, NC 

Pitt County, NC 0.9370

24860 Greenville-Mauldin-Easley, SC 

Greenville County, SC 

Laurens County, SC 

Pickens County, SC 0.9644

25020 Guayama, PR 

Arroyo Municipio, PR 

Guayama Municipio, PR 

Patillas Municipio, PR 0.3686

25060 Gulfport-Biloxi, MS 

Hancock County, MS 

Harrison County, MS 

Stone County, MS 0.8877

25180 Hagerstown-Martinsburg, MD-WV 

Washington County, MD 

Berkeley County, WV 

Morgan County, WV 0.9254

25260 Hanford-Corcoran, CA 

Kings County, CA 1.1205

25420 Harrisburg-Carlisle, PA 

Cumberland County, PA 

Dauphin County, PA 

Perry County, PA 0.9296
CMS-1349-F 234 

 Urban Area 

(Constituent Counties) Wage Index

25500 Harrisonburg, VA 

Rockingham County, VA 

Harrisonburg City, VA 0.9158

25540 Hartford-West Hartford-East Hartford, CT 

Hartford County, CT 

Middlesex County, CT 

Tolland County, CT 1.0927

25620 Hattiesburg, MS 

Forrest County, MS 

Lamar County, MS 

Perry County, MS 0.7714

25860 Hickory-Lenoir-Morganton, NC 

Alexander County, NC 

Burke County, NC 

Caldwell County, NC 

Catawba County, NC 0.8693

25980 Hinesville-Fort Stewart, GA1

Liberty County, GA 

Long County, GA 0.8958

26100 Holland-Grand Haven, MI 

Ottawa County, MI 0.8632

26180 Honolulu, HI 

Honolulu County, HI 1.1807

26300 Hot Springs, AR 

Garland County, AR 0.9151

26380 Houma-Bayou Cane-Thibodaux, LA 

Lafourche Parish, LA 

Terrebonne Parish, LA 0.7852

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 0.9824
CMS-1349-F 235 

 Urban Area 

(Constituent Counties) Wage Index

26580 Huntington-Ashland, WV-KY-OH 

Boyd County, KY 

Greenup County, KY 

Lawrence County, OH 

Cabell County, WV 

Wayne County, WV 0.8953

26620 Huntsville, AL 

Limestone County, AL 

Madison County, AL 0.9191

26820 Idaho Falls, ID 

Bonneville County, ID 

Jefferson County, ID 0.9663

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 0.9672

26980 Iowa City, IA 

Johnson County, IA 

Washington County, IA 0.9657

27060 Ithaca, NY 

Tompkins County, NY 0.9842

27100 Jackson, MI 

Jackson County, MI 0.9155

27140 Jackson, MS 

Copiah County, MS 

Hinds County, MS 

Madison County, MS 

Rankin County, MS 

Simpson County, MS 0.8042

27180 Jackson, TN 

Chester County, TN 

Madison County, TN 0.8404
CMS-1349-F 236 

 Urban Area 

(Constituent Counties) Wage Index

27260 Jacksonville, FL 

Baker County, FL 

Clay County, FL 

Duval County, FL 

Nassau County, FL 

St. Johns County, FL 0.8884

27340 Jacksonville, NC 

Onslow County, NC 0.7807

27500 Janesville, WI 

Rock County, WI 0.9415

27620 Jefferson City, MO 

Callaway County, MO 

Cole County, MO 

Moniteau County, MO 

Osage County, MO 0.8434

27740 Johnson City, TN 

Carter County, TN 

Unicoi County, TN 

Washington County, TN 0.8105

27780 Johnstown, PA 

Cambria County, PA 0.8090

27860 Jonesboro, AR 

Craighead County, AR 

Poinsett County, AR 0.7757

27900 Joplin, MO 

Jasper County, MO 

Newton County, MO 0.8214

28020 Kalamazoo-Portage, MI 

Kalamazoo County, MI 

Van Buren County, MI 1.0292

28100 Kankakee-Bradley, IL 

Kankakee County, IL 1.0619
CMS-1349-F 237 

 Urban Area 

(Constituent Counties) Wage Index

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 0.9652

28420 Kennewick-Pasco-Richland, WA 

Benton County, WA 

Franklin County, WA 0.9976

28660 Killeen-Temple-Fort Hood, TX 

Bell County, TX 

Coryell County, TX 

Lampasas County, TX 0.8798

28700 Kingsport-Bristol-Bristol, TN-VA 

Hawkins County, TN 

Sullivan County, TN 

Bristol City, VA 

Scott County, VA 

Washington County, VA 0.7588

28740 Kingston, NY 

Ulster County, NY 0.9075

28940 Knoxville, TN 

Anderson County, TN 

Blount County, TN 

Knox County, TN 

Loudon County, TN 

Union County, TN 0.7842

29020 Kokomo, IN 

Howard County, IN 

Tipton County, IN 0.9130

29100 La Crosse, WI-MN 

Houston County, MN 

La Crosse County, WI 0.9803
CMS-1349-F 238 

 Urban Area 

(Constituent Counties) Wage Index

29140 Lafayette, IN 

Benton County, IN 

Carroll County, IN 

Tippecanoe County, IN 0.9289

29180 Lafayette, LA 

Lafayette Parish, LA 

St. Martin Parish, LA 0.8489

29340 Lake Charles, LA 

Calcasieu Parish, LA 

Cameron Parish, LA 0.8196

29404 Lake County-Kenosha County, IL-WI 

Lake County, IL 

Kenosha County, WI 1.0781

29420 Lake Havasu City-Kingman, AZ 

Mohave County, AZ 1.0235

29460 Lakeland-Winter Haven, FL 

Polk County, FL 0.8447

29540 Lancaster, PA 

Lancaster County, PA 0.9344

29620 Lansing-East Lansing, MI 

Clinton County, MI 

Eaton County, MI 

Ingham County, MI 1.0298

29700 Laredo, TX 

Webb County, TX 0.7914

29740 Las Cruces, NM 

Dona Ana County, NM 0.9296

29820 Las Vegas-Paradise, NV 

Clark County, NV 1.2099

29940 Lawrence, KS 

Douglas County, KS 0.8533

30020 Lawton, OK 

Comanche County, OK 0.8285

30140 Lebanon, PA 

Lebanon County, PA 0.7807

30300 Lewiston, ID-WA 

Nez Perce County, ID 

Asotin County, WA 0.9358
CMS-1349-F 239 

 Urban Area 

(Constituent Counties) Wage Index

30340 Lewiston-Auburn, ME 

Androscoggin County, ME 0.8903

30460 Lexington-Fayette, KY 

Bourbon County, KY 

Clark County, KY 

Fayette County, KY 

Jessamine County, KY 

Scott County, KY 

Woodford County, KY 0.8817

30620 Lima, OH 

Allen County, OH 0.9271

30700 Lincoln, NE 

Lancaster County, NE 

Seward County, NE 0.9617

30780 Little Rock-North Little Rock-Conway, AR 

Faulkner County, AR 

Grant County, AR 

Lonoke County, AR 

Perry County, AR 

Pulaski County, AR 

Saline County, AR 0.8546

30860 Logan, UT-ID 

Franklin County, ID 

Cache County, UT 0.8794

30980 Longview, TX 

Gregg County, TX 

Rusk County, TX 

Upshur County, TX 0.8563

31020 Longview, WA 

Cowlitz County, WA 1.0296

31084 Los Angeles-Long Beach-Glendale, CA 

Los Angeles County, CA 1.2130
CMS-1349-F 240 

 Urban Area 

(Constituent Counties) Wage Index

31140 Louisville-Jefferson County, KY-IN 

Clark County, IN 

Floyd County, IN 

Harrison County, IN 

Washington County, IN 

Bullitt County, KY 

Henry County, KY 

Meade County, KY 

Nelson County, KY 

Oldham County, KY 

Shelby County, KY 

Spencer County, KY 

Trimble County, KY 0.8896

31180 Lubbock, TX 

Crosby County, TX 

Lubbock County, TX 0.8847

31340 Lynchburg, VA 

Amherst County, VA 

Appomattox County, VA 

Bedford County, VA 

Campbell County, VA 

Bedford City, VA 

Lynchburg City, VA 0.8694

31420 Macon, GA 

Bibb County, GA 

Crawford County, GA 

Jones County, GA 

Monroe County, GA 

Twiggs County, GA 0.9202

31460 Madera-Chowchilla, CA 

Madera County, CA 0.7986

31540 Madison, WI 

Columbia County, WI 

Dane County, WI 

Iowa County, WI 1.1294

31700 Manchester-Nashua, NH 

Hillsborough County, NH 0.9869

31740 Manhattan, KS 

Geary County, KS 

Pottawatomie County, KS 

Riley County, KS 0.7847
CMS-1349-F 241 

 Urban Area 

(Constituent Counties) Wage Index

31860 Mankato-North Mankato, MN 

Blue Earth County, MN 

Nicollet County, MN 0.9083

31900 Mansfield, OH 

Richland County, OH 0.8918

32420 Mayagüez, PR 

Hormigueros Municipio, PR 

Mayagüez Municipio, PR 0.3640

32580 McAllen-Edinburg-Mission, TX 

Hidalgo County, TX 0.8837

32780 Medford, OR 

Jackson County, OR 1.0061

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 0.9268

32900 Merced, CA 

Merced County, CA 1.2359

33124 Miami-Miami Beach-Kendall, FL 

Miami-Dade County, FL 1.0128

33140 Michigan City-La Porte, IN 

LaPorte County, IN 0.9470

33260 Midland, TX 

Midland County, TX 0.9711

33340 Milwaukee-Waukesha-West Allis, WI 

Milwaukee County, WI 

Ozaukee County, WI 

Washington County, WI 

Waukesha County, WI 1.0183
CMS-1349-F 242 

 Urban Area 

(Constituent Counties) Wage Index

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 1.1143

33540 Missoula, MT 

Missoula County, MT 0.8921

33660 Mobile, AL 

Mobile County, AL 0.7960

33700 Modesto, CA 

Stanislaus County, CA 1.2104

33740 Monroe, LA 

Ouachita Parish, LA 

Union Parish, LA 0.7993

33780 Monroe, MI 

Monroe County, MI 0.8684

33860 Montgomery, AL 

Autauga County, AL 

Elmore County, AL 

Lowndes County, AL 

Montgomery County, AL 0.8442

34060 Morgantown, WV 

Monongalia County, WV 

Preston County, WV 0.8137

34100 Morristown, TN 

Grainger County, TN 

Hamblen County, TN 

Jefferson County, TN 0.7041

34580 Mount Vernon-Anacortes, WA 

Skagit County, WA 1.0363
CMS-1349-F 243 

 Urban Area 

(Constituent Counties) Wage Index

34620 Muncie, IN 

Delaware County, IN 0.8206

34740 Muskegon-Norton Shores, MI 

Muskegon County, MI 0.9809

34820 Myrtle Beach-North Myrtle Beach-Conway, SC 

Horry County, SC 0.8738

34900 Napa, CA 

Napa County, CA 1.4604

34940 Naples-Marco Island, FL 

Collier County, FL 0.9698

34980 Nashville-Davidson—Murfreesboro-Franklin, 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 

Wilson County, TN 0.9457

35004 Nassau-Suffolk, NY 

Nassau County, NY 

Suffolk County, NY 1.2315

35084 Newark-Union, NJ-PA 

Essex County, NJ 

Hunterdon County, NJ 

Morris County, NJ 

Sussex County, NJ 

Union County, NJ 

Pike County, PA 1.1460

35300 New Haven-Milford, CT 

New Haven County, CT 1.1515
CMS-1349-F 244 

 Urban Area 

(Constituent Counties) Wage Index

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 0.9070

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 1.2955

35660 Niles-Benton Harbor, MI 

Berrien County, MI 0.8872

35840 North Port-Bradenton-Sarasota-Venice, FL 

Manatee County, FL 

Sarasota County, FL 0.9481

35980 Norwich-New London, CT 

New London County, CT 1.1215

36084 Oakland-Fremont-Hayward, CA 

Alameda County, CA 

Contra Costa County, CA 1.6354

36100 Ocala, FL 

Marion County, FL 0.8468

36140 Ocean City, NJ 

Cape May County, NJ 1.0879

36220 Odessa, TX 

Ector County, TX 0.9436

36260 Ogden-Clearfield, UT 

Davis County, UT 

Morgan County, UT 

Weber County, UT 0.9267
CMS-1349-F 245 

 Urban Area 

(Constituent Counties) Wage Index

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 0.8877

36500 Olympia, WA 

Thurston County, WA 1.1269

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 0.9583

36740 Orlando-Kissimmee, FL 

Lake County, FL 

Orange County, FL 

Osceola County, FL 

Seminole County, FL 0.9163

36780 Oshkosh-Neenah, WI 

Winnebago County, WI 0.9566

36980 Owensboro, KY 

Daviess County, KY 

Hancock County, KY 

McLean County, KY 0.8370

37100 Oxnard-Thousand Oaks-Ventura, CA 

Ventura County, CA 1.2377

37340 Palm Bay-Melbourne-Titusville, FL 

Brevard County, FL 0.9211

37380 Palm Coast, FL 

Flagler County, FL 0.8405

37460 Panama City-Lynn Haven-Panama City Beach, FL 

Bay County, FL 0.7954
CMS-1349-F 246 

 Urban Area 

(Constituent Counties) Wage Index

37620 Parkersburg-Marietta-Vienna, WV-OH 

Washington County, OH 

Pleasants County, WV 

Wirt County, WV 

Wood County, WV 0.7455

37700 Pascagoula, MS 

George County, MS 

Jackson County, MS 0.8299

37764 Peabody, MA 

Essex County, MA 1.0979

37860 Pensacola-Ferry Pass-Brent, FL 

Escambia County, FL 

Santa Rosa County, FL 0.8254

37900 Peoria, IL 

Marshall County, IL 

Peoria County, IL 

Stark County, IL 

Tazewell County, IL 

Woodford County, IL 0.9149

37964 Philadelphia, PA 

Bucks County, PA 

Chester County, PA 

Delaware County, PA 

Montgomery County, PA 

Philadelphia County, PA 1.0803

38060 Phoenix-Mesa-Scottsdale, AZ 

Maricopa County, AZ 

Pinal County, AZ 1.0642

38220 Pine Bluff, AR 

Cleveland County, AR 

Jefferson County, AR 

Lincoln County, AR 0.8012

38300 Pittsburgh, PA 

Allegheny County, PA 

Armstrong County, PA 

Beaver County, PA 

Butler County, PA 

Fayette County, PA 

Washington County, PA 

Westmoreland County, PA 0.8605

38340 Pittsfield, MA 

Berkshire County, MA 1.0371
CMS-1349-F 247 

 Urban Area 

(Constituent Counties) Wage Index

38540 Pocatello, ID 

Bannock County, ID 

Power County, ID 0.9507

38660 Ponce, PR 

Juana Díaz Municipio, PR 

Ponce Municipio, PR 

Villalba Municipio, PR 0.4326

38860 Portland-South Portland-Biddeford, ME 

Cumberland County, ME 

Sagadahoc County, ME 

York County, ME 0.9899

38900 Portland-Vancouver-Beaverton, OR-WA 

Clackamas County, OR 

Columbia County, OR 

Multnomah County, OR 

Washington County, OR 

Yamhill County, OR 

Clark County, WA 

Skamania County, WA 1.1476

38940 Port St. Lucie, FL 

Martin County, FL 

St. Lucie County, FL 1.0723

39100 Poughkeepsie-Newburgh-Middletown, NY 

Dutchess County, NY 

Orange County, NY 1.1354

39140 Prescott, AZ 

Yavapai County, AZ 1.2234

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 1.0714

39340 Provo-Orem, UT 

Juab County, UT 

Utah County, UT 0.9321

39380 Pueblo, CO 

Pueblo County, CO 0.8721

39460 Punta Gorda, FL 

Charlotte County, FL 0.8759
CMS-1349-F 248 

 Urban Area 

(Constituent Counties) Wage Index

39540 Racine, WI 

Racine County, WI 1.0580

39580 Raleigh-Cary, NC 

Franklin County, NC 

Johnston County, NC 

Wake County, NC 0.9811

39660 Rapid City, SD 

Meade County, SD 

Pennington County, SD 1.0442

39740 Reading, PA 

Berks County, PA 0.8904

39820 Redding, CA 

Shasta County, CA 1.4134

39900 Reno-Sparks, NV 

Storey County, NV 

Washoe County, NV 1.0419

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 0.9661

40140 Riverside-San Bernardino-Ontario, CA 

Riverside County, CA 

San Bernardino County, CA 1.1570
CMS-1349-F 249 

 Urban Area 

(Constituent Counties) Wage Index

40220 Roanoke, VA 

Botetourt County, VA 

Craig County, VA 

Franklin County, VA 

Roanoke County, VA 

Roanoke City, VA 

Salem City, VA 0.8827

40340 Rochester, MN 

Dodge County, MN 

Olmsted County, MN 

Wabasha County, MN 1.0942

40380 Rochester, NY 

Livingston County, NY 

Monroe County, NY 

Ontario County, NY 

Orleans County, NY 

Wayne County, NY 0.8595

40420 Rockford, IL 

Boone County, IL 

Winnebago County, IL 1.0033

40484 Rockingham County-Strafford County, NH 

Rockingham County, NH 

Strafford County, NH 1.0026

40580 Rocky Mount, NC 

Edgecombe County, NC 

Nash County, NC 0.9034

40660 Rome, GA 

Floyd County, GA 0.8635

40900 Sacramento-Arden-Arcade-Roseville, CA 

El Dorado County, CA 

Placer County, CA 

Sacramento County, CA 

Yolo County, CA 1.4053

40980 Saginaw-Saginaw Township North, MI 

Saginaw County, MI 0.8728

41060 St. Cloud, MN 

Benton County, MN 

Stearns County, MN 1.1042

41100 St. George, UT 

Washington County, UT 0.9133
CMS-1349-F 250 

 Urban Area 

(Constituent Counties) Wage Index

41140 St. Joseph, MO-KS 

Doniphan County, KS 

Andrew County, MO 

Buchanan County, MO 

DeKalb County, MO 1.0302

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 0.9090

41420 Salem, OR 

Marion County, OR 

Polk County, OR 1.1133

41500 Salinas, CA 

Monterey County, CA 1.5686

41540 Salisbury, MD 

Somerset County, MD 

Wicomico County, MD 0.9005

41620 Salt Lake City, UT 

Salt Lake County, UT 

Summit County, UT 

Tooele County, UT 0.9266

41660 San Angelo, TX 

Irion County, TX 

Tom Green County, TX 0.8303
CMS-1349-F 251 

 Urban Area 

(Constituent Counties) Wage Index

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 0.8998

41740 San Diego-Carlsbad-San Marcos, CA 

San Diego County, CA 1.1979

41780 Sandusky, OH 

Erie County, OH 0.8686

41884 San Francisco-San Mateo-Redwood City, CA 

Marin County, CA 

San Francisco County, CA 

San Mateo County, CA 1.5733

41900 San Germán-Cabo Rojo, PR 

Cabo Rojo Municipio, PR 

Lajas Municipio, PR 

Sabana Grande Municipio, PR 

San Germán Municipio, PR 0.4560

41940 San Jose-Sunnyvale-Santa Clara, CA 

San Benito County, CA 

Santa Clara County, CA 1.6703
CMS-1349-F 252 

 Urban Area 

(Constituent Counties) Wage Index

41980 San Juan-Caguas-Guaynabo, PR 

Aguas Buenas Municipio, PR 

Aibonito Municipio, PR 

Arecibo Municipio, PR 

Barceloneta Municipio, PR 

Barranquitas Municipio, PR 

Bayamón Municipio, PR 

Caguas Municipio, PR 

Camuy Municipio, PR 

Canóvanas Municipio, PR 

Carolina Municipio, PR 

Cataño Municipio, PR 

Cayey Municipio, PR 

Ciales Municipio, PR 

Cidra Municipio, PR 

Comerío 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 

Loíza Municipio, PR 

Manatí Municipio, PR 

Maunabo Municipio, PR 

Morovis Municipio, PR 

Naguabo Municipio, PR 

Naranjito Municipio, PR 

Orocovis Municipio, PR 

Quebradillas Municipio, PR 

Río Grande Municipio, PR 

San Juan Municipio, PR 

San Lorenzo Municipio, PR 

Toa Alta Municipio, PR 

Toa Baja Municipio, PR 

Trujillo Alto Municipio, PR 

Vega Alta Municipio, PR 

Vega Baja Municipio, PR 

Yabucoa Municipio, PR 0.4296
CMS-1349-F 253 

 Urban Area 

(Constituent Counties) Wage Index

42020 San Luis Obispo-Paso Robles, CA 

San Luis Obispo County, CA 1.2915

42044 Santa Ana-Anaheim-Irvine, CA 

Orange County, CA 1.2162

42060 Santa Barbara-Santa Maria-Goleta, CA 

Santa Barbara County, CA 1.1909

42100 Santa Cruz-Watsonville, CA 

Santa Cruz County, CA 1.6740

42140 Santa Fe, NM 

Santa Fe County, NM 1.0847

42220 Santa Rosa-Petaluma, CA 

Sonoma County, CA 1.6143

42340 Savannah, GA 

Bryan County, GA 

Chatham County, GA 

Effingham County, GA 0.8907

42540 Scranton--Wilkes-Barre, PA 

Lackawanna County, PA 

Luzerne County, PA 

Wyoming County, PA 0.8238

42644 Seattle-Bellevue-Everett, WA 

King County, WA 

Snohomish County, WA 1.1556

42680 Sebastian-Vero Beach, FL 

Indian River County, FL 0.9097

43100 Sheboygan, WI 

Sheboygan County, WI 0.9233

43300 Sherman-Denison, TX 

Grayson County, TX 0.8279

43340 Shreveport-Bossier City, LA 

Bossier Parish, LA 

Caddo Parish, LA 

De Soto Parish, LA 0.8536

43580 Sioux City, IA-NE-SD 

Woodbury County, IA 

Dakota County, NE 

Dixon County, NE 

Union County, SD 0.9091
CMS-1349-F 254 

 Urban Area 

(Constituent Counties) Wage Index

43620 Sioux Falls, SD 

Lincoln County, SD 

McCook County, SD 

Minnehaha County, SD 

Turner County, SD 0.9299

43780 South Bend-Mishawaka, IN-MI 

St. Joseph County, IN 

Cass County, MI 0.9948

43900 Spartanburg, SC 

Spartanburg County, SC 0.9383

44060 Spokane, WA 

Spokane County, WA 1.0571

44100 Springfield, IL 

Menard County, IL 

Sangamon County, IL 0.9130

44140 Springfield, MA 

Franklin County, MA 

Hampden County, MA 

Hampshire County, MA 1.0251

44180 Springfield, MO 

Christian County, MO 

Dallas County, MO 

Greene County, MO 

Polk County, MO 

Webster County, MO 0.8371

44220 Springfield, OH 

Clark County, OH 0.9234

44300 State College, PA 

Centre County, PA 0.8779

44600 Steubenville-Weirton, OH-WV 

Jefferson County, OH 

Brooke County, WV 

Hancock County, WV 0.7315

44700 Stockton, CA 

San Joaquin County, CA 1.2644

44940 Sumter, SC 

Sumter County, SC 0.7860
CMS-1349-F 255 

 Urban Area 

(Constituent Counties) Wage Index

45060 Syracuse, NY 

Madison County, NY 

Onondaga County, NY 

Oswego County, NY 0.9905

45104 Tacoma, WA 

Pierce County, WA 1.1343

45220 Tallahassee, FL 

Gadsden County, FL 

Jefferson County, FL 

Leon County, FL 

Wakulla County, FL 0.8806

45300 Tampa-St. Petersburg-Clearwater, FL 

Hernando County, FL 

Hillsborough County, FL 

Pasco County, FL 

Pinellas County, FL 0.9054

45460 Terre Haute, IN 

Clay County, IN 

Sullivan County, IN 

Vermillion County, IN 

Vigo County, IN 0.9205

45500 Texarkana, TX-Texarkana, AR 

Miller County, AR 

Bowie County, TX 0.7748

45780 Toledo, OH 

Fulton County, OH 

Lucas County, OH 

Ottawa County, OH 

Wood County, OH 0.9432

45820 Topeka, KS 

Jackson County, KS 

Jefferson County, KS 

Osage County, KS 

Shawnee County, KS 

Wabaunsee County, KS 0.8952

45940 Trenton-Ewing, NJ 

Mercer County, NJ 1.0150

46060 Tucson, AZ 

Pima County, AZ 0.9480
CMS-1349-F 256 

 Urban Area 

(Constituent Counties) Wage Index

46140 Tulsa, OK 

Creek County, OK 

Okmulgee County, OK 

Osage County, OK 

Pawnee County, OK 

Rogers County, OK 

Tulsa County, OK 

Wagoner County, OK 0.8793

46220 Tuscaloosa, AL 

Greene County, AL 

Hale County, AL 

Tuscaloosa County, AL 0.8843

46340 Tyler, TX 

Smith County, TX 0.8065

46540 Utica-Rome, NY 

Herkimer County, NY 

Oneida County, NY 0.8471

46660 Valdosta, GA 

Brooks County, GA 

Echols County, GA 

Lanier County, GA 

Lowndes County, GA 0.7941

46700 Vallejo-Fairfield, CA 

Solano County, CA 1.4931

47020 Victoria, TX 

Calhoun County, TX 

Goliad County, TX 

Victoria County, TX 0.8219

47220 Vineland-Millville-Bridgeton, NJ 

Cumberland County, NJ 1.0534
CMS-1349-F 257 

 Urban Area 

(Constituent Counties) Wage Index

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 0.8961

47300 Visalia-Porterville, CA 

Tulare County, CA 1.0738

47380 Waco, TX 

McLennan County, TX 0.8403

47580 Warner Robins, GA 

Houston County, GA 0.8028

47644 Warren-Troy-Farmington Hills, MI 

Lapeer County, MI 

Livingston County, MI 

Macomb County, MI 

Oakland County, MI 

St. Clair County, MI 0.9648
CMS-1349-F 258 

 Urban Area 

(Constituent Counties) Wage Index

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 1.0723

47940 Waterloo-Cedar Falls, IA 

Black Hawk County, IA 

Bremer County, IA 

Grundy County, IA 0.8462

48140 Wausau, WI 

Marathon County, WI 0.9563

48300 Wenatchee-East Wenatchee, WA 

Chelan County, WA 

Douglas County, WA 0.9615

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

Palm Beach County, FL 0.9934

48540 Wheeling, WV-OH 

Belmont County, OH 

Marshall County, WV 

Ohio County, WV 0.6675

48620 Wichita, KS 

Butler County, KS 

Harvey County, KS 

Sedgwick County, KS 

Sumner County, KS 0.8898
CMS-1349-F 259 

 Urban Area 

(Constituent Counties) Wage Index

48660 Wichita Falls, TX 

Archer County, TX 

Clay County, TX 

Wichita County, TX 0.9566

48700 Williamsport, PA 

Lycoming County, PA 0.7256

48864 Wilmington, DE-MD-NJ 

New Castle County, DE 

Cecil County, MD 

Salem County, NJ 1.0580

48900 Wilmington, NC 

Brunswick County, NC 

New Hanover County, NC 

Pender County, NC 0.9202

49020 Winchester, VA-WV 

Frederick County, VA 

Winchester City, VA 

Hampshire County, WV 1.0002

49180 Winston-Salem, NC 

Davie County, NC 

Forsyth County, NC 

Stokes County, NC 

Yadkin County, NC 0.8939

49340 Worcester, MA 

Worcester County, MA 1.1012

49420 Yakima, WA 

Yakima County, WA 1.0067

49500 Yauco, PR 

Guánica Municipio, PR 

Guayanilla Municipio, PR 

Peñuelas Municipio, PR 

Yauco Municipio, PR 0.3536

49620 York-Hanover, PA 

York County, PA 0.9983

49660 Youngstown-Warren-Boardman, OH-PA 

Mahoning County, OH 

Trumbull County, OH 

Mercer County, PA 0.8625

49700 Yuba City, CA 

Sutter County, CA 

Yuba County, CA 1.1043
CMS-1349-F 260 

 Urban Area 

(Constituent Counties) Wage Index

49740 Yuma, AZ 

Yuma County, AZ 0.9283

1 At this time, there are no hospitals located in this urban area on which to base a wage index. 

TABLE B: INPATIENT REHABILITATION FACILITY WAGE INDEX FOR RURAL 

AREAS FOR DISCHARGES OCCURRING FROM 

OCTOBER 1, 2011 THROUGH SEPTEMBER 30, 2012 

State Code Nonurban Area Wage 

Index 

1 Alabama 0.7380

2 Alaska 1.2626

3 Arizona 0.9095

4 Arkansas 0.7222

5 California 1.2056

6 Colorado 0.9933

7 Connecticut 1.1128

8 Delaware 0.9757

10 Florida 0.8409

11 Georgia 0.7566

12 Hawaii 1.1189

13 Idaho 0.7556

14 Illinois 0.8343

15 Indiana 0.8391

16 Iowa 0.8545

17 Kansas 0.7981

18 Kentucky 0.7830

19 Louisiana 0.7712

20 Maine 0.8588

21 Maryland 0.9175

22 Massachusetts1

1.1769

23 Michigan 0.8555

24 Minnesota 0.9038

25 Mississippi 0.7620

26 Missouri 0.7655
CMS-1349-F 261 

State Code Nonurban Area Wage 

Index 

27 Montana 0.8517

28 Nebraska 0.8911

29 Nevada 0.9350

30 New Hampshire 1.0207

31 New Jersey1

----- 

32 New Mexico 0.8911

33 New York 0.8185

34 North Carolina 0.8359

35 North Dakota 0.6831

36 Ohio 0.8561

37 Oklahoma 0.7860

38 Oregon 1.0029

39 Pennsylvania 0.8480

40 Puerto Rico1

0.4047

41 Rhode Island1

----- 

42 South Carolina 0.8413

43 South Dakota 0.8536

44 Tennessee 0.7886

45 Texas 0.7806

46 Utah 0.8649

47 Vermont 0.9591

48 Virgin Islands 0.7993

49 Virginia 0.7841

50 Washington 1.0184

51 West Virginia 0.7474

52 Wisconsin 0.9186

53 Wyoming 0.9528

65 Guam 0.9611

1

 All counties within the State are classified as urban, with the exception of Massachusetts and Puerto Rico. 

Massachusetts and Puerto Rico have areas designated as rural; however, no short-term, acute care hospitals are 

located in the area(s) for FY 2011. The rural Massachusetts wage index is calculated as the average of all 

contiguous CBSAs. The Puerto Rico wage index is the same as FY 2010.
CMS-1349-F 262 

[FR Doc. 2011-19516 Filed 07/29/2011 at 4:15 pm; Publication Date: 08/05/2011]