34444 Federal Register / Vol. 79, No. 116 / Tuesday, June 17, 2014 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 412 

[CMS–1599–N] 

RIN 0938–ZB17 

Medicare Program; Additional 

Extension of the Payment Adjustment 

for Low-Volume Hospitals and the 

Medicare-Dependent Hospital (MDH) 

Program Under the Hospital Inpatient 

Prospective Payment Systems (IPPS) 

for Acute Care Hospitals for Fiscal 

Year 2014 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Extension of a Payment 

Adjustment and a Program. 

SUMMARY: This document announces 

changes to the payment adjustment for 

low-volume hospitals and to the 

Medicare-dependent hospital (MDH) 

program under the hospital inpatient 

prospective payment systems (IPPS) for 

the second half of FY 2014 (April 1, 

2014 through September 30, 2014) in 

accordance with sections 105 and 106, 

respectively, of the Protecting Access to 

Medicare Act of 2014 (PAMA). 

DATES: Effective Date: June 12, 2014. 

Applicability Dates: The provisions 

described in this document are 

applicable for discharges on or after 

April 1, 2014 and on or before 

September 30, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Michele Hudson, (410) 786–5490. 

Maria Navarro, (410) 786–4553. 

Shevi Marciano, (410) 786–2874. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On April 1, 2014, the Protecting 

Access to Medicare Act of 2014 (PAMA) 

(Pub. L. 113–93) was enacted. Section 

105 of PAMA extends changes to the 

payment adjustment for low-volume 

hospitals for an additional year, through 

March 31, 2015, that is, through the first 

6 months of fiscal year (FY) 2015. 

Section 106 of PAMA extends the 

Medicare-dependent, small rural 

hospital (MDH) program for an 

additional year, through March 31, 

2015, that is, through the first 6 months 

of FY 2015. This document addresses 

payment for these programs only for the 

second half of FY 2014 (April 1, 2014 

through September 30, 2014). We 

proposed to implement the statutory 

changes for the first half of FY 2015 

(October 1, 2014 through March 31, 

2015) in the FY 2015 IPPS/LTCH PPS 

proposed rule that appeared in the May 

15, 2014 Federal Register. 

II. Provisions of the Document 

A. Extension of the Payment Adjustment 

for Low-Volume Hospitals 

1. Background 

Section 1886(d)(12) of the Social 

Security Act (the Act) provides for an 

additional payment to qualifying lowvolume hospitals that are paid under the 

Inpatient Prospective Payment Systems 

(IPPS) beginning in FY 2005. Sections 

3125 and 10314 of the Affordable Care 

Act provided for a temporary change in 

the low-volume hospital payment policy 

for FYs 2011 and 2012. Section 605 of 

the American Taxpayer Relief Act of 

2012 (ATRA) extended, for FY 2013, the 

temporary changes in the low-volume 

hospital payment policy provided for in 

FYs 2011 and 2012 by the Affordable 

Care Act. Section 1105 of the Pathway 

for SGR Reform Act of 2013 extended, 

for the first 6 months of FY 2014 (that 

is, through March 31, 2014), the 

temporary changes in the low-volume 

hospital payment policy originally 

provided for by the Affordable Care Act 

and extended through subsequent 

legislation. 

We addressed the extension of the 

temporary changes to the low-volume 

hospital payment policy through March 

31, 2014 under the Pathway for SGR 

Reform Act in an interim final rule with 

comment period (IFC) that appeared in 

the March 18, 2014 Federal Register (79 

FR 15022 through 15025) (hereinafter 

referred to as the FY 2014 IPPS IFC). In 

the FY 2014 IPPS IFC, we also amended 

the regulations at 42 CFR 412.101 to 

reflect the extension of the temporary 

changes to the qualifying criteria and 

the payment adjustment for low-volume 

hospitals through March 31, 2014 in 

accordance with section 1105 of the 

Pathway for SGR Reform Act. 

2. Low-Volume Hospital Payment 

Adjustment Under the Temporary 

Changes (Originally Provided by the 

Affordable Care Act) for FYs 2011 

Through 2013 and FY 2014 Discharges 

Occurring Before April 1, 2014 

For FYs 2011 and 2012, sections 3125 

and 10314 of the Affordable Care Act 

expanded the definition of low-volume 

hospital and modified the methodology 

for determining the payment adjustment 

for hospitals meeting that definition. 

Specifically, the provisions of the 

Affordable Care Act amended the 

qualifying criteria for low-volume 

hospitals under section 1886(d)(12)(C)(i) 

of the Act to specify that, for FYs 2011 

and 2012, a hospital qualifies as a lowvolume hospital if it is more than 15 

road miles from another subsection (d) 

hospital and has less than 1,600 

discharges of individuals entitled to, or 

enrolled for, benefits under Part A 

during the fiscal year. In addition, 

section 1886(d)(12)(D) of the Act, as 

added by the Affordable Care Act, 

provides that the low-volume hospital 

payment adjustment (that is, the 

percentage increase) is to be determined 

‘‘using a continuous linear sliding scale 

ranging from 25 percent for low-volume 

hospitals with 200 or fewer discharges 

of individuals entitled to, or enrolled 

for, benefits under Part A in the fiscal 

year to 0 percent for low-volume 

hospitals with greater than 1,600 

discharges of such individuals in the 

fiscal year.’’ We revised the regulations 

at 42 CFR 412.101 to reflect the changes 

to the qualifying criteria and the 

payment adjustment for low-volume 

hospitals according to the provisions of 

the Affordable Care Act in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50238 

through 50275 and 50414). In addition, 

we also defined, at § 412.101(a), the 

term ‘‘road miles’’ to mean ‘‘miles’’ as 

defined at § 412.92(c)(1), and clarified 

existing regulations that a hospital must 

continue to qualify as a low-volume 

hospital in order to receive the payment 

adjustment in that year (that is, it is not 

based on a one-time qualification). 

Section 605 of the ATRA extended the 

temporary changes in the low-volume 

hospital payment policy provided for in 

FYs 2011 and 2012 by the Affordable 

Care Act for FY 2013, that is, for 

discharges occurring before October 1, 

2013. We announced the extension of 

the Affordable Care Act amendments to 

the low-volume hospital payment 

adjustment requirements under section 

1886(d)(12) of the Act for FY 2013 

pursuant to section 605 of the ATRA in 

a notice of extension that appeared in 

the March 7, 2013 Federal Register (78 

FR 14689 through 14694). 

Section 1105 of the Pathway for SGR 

Reform Act extended, for the first 6 

months of FY 2014 (that is, through 

March 31, 2014), the temporary changes 

in the low-volume hospital payment 

policy originally provided by the 

Affordable Care Act. In the FY 2014 

IPPS IFC (79 FR 15022 through 15025), 

we implemented the extension of the 

Affordable Care Act amendments to the 

low-volume hospital payment policy 

through March 31, 2014 under the 

Pathway for SGR Reform Act. In that 

IFC, we also amended the regulations at 

42 CFR 412.101 to reflect the extension 

of the temporary changes to the 

qualifying criteria and the payment 

adjustment for low-volume hospitals 

through March 31, 2014. 


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Federal Register / Vol. 79, No. 116 / Tuesday, June 17, 2014 / Rules and Regulations 34445 

To implement the extension of the 

temporary change in the low-volume 

hospital payment policy through the 

first half of FY 2014 (that is, for 

discharges occurring through March 31, 

2014), in the FY 2014 IPPS IFC we 

updated the discharge data source used 

to identify qualifying low-volume 

hospitals and calculate the payment 

adjustment (percentage increase) for FY 

2014 discharges occurring before April 

1, 2014. Specifically, for FY 2014 

discharges occurring before April 1, 

2014, consistent with our historical 

policy, qualifying low-volume hospitals 

and their payment adjustment were 

determined using Medicare discharge 

data from the March 2013 update of the 

FY 2012 MedPAR file, as these data 

were the most recent data available at 

the time of the development of the FY 

2014 payment rates and factors 

established in the FY 2014 IPPS/LTCH 

PPS final rule. Table 14 of the FY 2014 

IPPS IFC (which is available only 

through the Internet on the CMS Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/index.html) lists the 

hospitals with fewer than 1,600 

Medicare discharges based on that 

Medicare discharge data and their 

potential FY 2014 low-volume payment 

adjustment (for hospitals that also meet 

the mileage criterion specified at 42 CFR 

412.101(b)(2)(ii)). 

Similar to our previously established 

procedure, in the FY 2014 IPPS IFC we 

implemented the following procedure 

for a hospital to request low-volume 

hospital status for FY 2014 discharges 

occurring before April 1, 2014. In order 

for the applicable low-volume 

percentage increase to be applied to 

payments for its discharges beginning 

on or after October 1, 2013 (that is, the 

beginning of FY 2014), a hospital must 

have made its request for low-volume 

hospital status in writing and this 

request must have been received by its 

Medicare Administrative Contractor 

(MAC) no later than March 31, 2014. 

Requests for low-volume hospital status 

for FY 2014 discharges occurring before 

April 1, 2014 that were received by the 

MAC after March 31, 2014 were to be 

processed by the MAC; however, the 

hospital would not be eligible to have 

the low-volume hospital payment 

adjustment at § 412.101(c)(2) applied to 

its FY 2014 discharges occurring before 

April 1, 2014. We also explained that 

the low-volume hospital payment 

adjustment at § 412.101(c)(2) would not 

be prospectively applied in determining 

payments for the hospital’s FY 2014 

discharges, because, at that time, 

beginning on April 1, 2014, the 

temporary changes to the low-volume 

hospital payment policy provided for by 

the Pathway for SGR Reform Act would 

have expired and the low-volume 

hospital definition and payment 

methodology would have reverted back 

to the statutory requirements that were 

in effect prior to the amendments made 

by the Affordable Care Act. If the 

hospital would have otherwise met the 

criteria to qualify as a low-volume 

hospital under the temporary changes to 

the low-volume hospital policy, the 

MAC was to notify the hospital that, 

although the hospital met the lowvolume hospital criteria set forth at 

§ 412.101(b)(2)(ii) and would have had 

low-volume hospital status within 30 

days from the date of the determination, 

the hospital did not meet the criteria for 

low-volume hospital status applicable 

for discharges occurring on or after 

April 1, 2014 at that time (79 FR 15022 

through 15025). 

3. Implementation of the Extension of 

the Temporary Changes to the LowVolume Hospital Payment Adjustment 

for FY 2014 Discharges Occurring on or 

After April 1, 2014 Through September 

30, 2014 

Section 105 of the PAMA (Pub. L. 

113–93) extends, for an additional year 

(that is, through March 31, 2015), the 

temporary changes in the low-volume 

hospital payment policy provided for in 

FYs 2011 and 2012 by the Affordable 

Care Act and extended through FY 2013 

by the ATRA and the first half of FY 

2014 by the Pathway for SGR Reform 

Act. Prior to the enactment of the 

PAMA, beginning with discharges 

occurring on or after April 1, 2014, the 

low-volume hospital definition and 

payment adjustment methodology was 

to return to the policy established under 

statutory requirements that were in 

effect prior to the amendments made by 

the Affordable Care Act as extended by 

subsequent legislation. Section 105 of 

the PAMA extends the Affordable Care 

Act amendments to the low-volume 

hospital payment policy by amending 

sections 1886(d)(12)(B), (C)(i), and (D) of 

the Act. Specifically, section 105 of the 

PAMA amends section 1886(d)(12)(B) of 

the Act by striking ‘‘in the portion of 

fiscal year 2014 beginning on April 1, 

2014, fiscal year 2015, and subsequent 

fiscal years’’ and inserting ‘‘in fiscal 

year 2015 (beginning on April 1, 2015), 

fiscal year 2016, and subsequent fiscal 

years’’; amends section 1886(d)(12)(C)(i) 

by striking ‘‘fiscal years 2011, 2012, and 

2013, and the portion of fiscal year 2014 

before’’ and inserting ‘‘fiscal years 2011 

through 2014 and fiscal year 2015 

(before April 1, 2015),’’ each place it 

appears; and amends section 

1886(d)(12)(D) of the Act by striking 

‘‘fiscal years 2011, 2012, and 2013, and 

the portion of fiscal year 2014 before 

April 1, 2014,’’ and inserting ‘‘fiscal 

years 2011 through 2014 and fiscal year 

2015 (before April 1, 2015),’’. 

In the FY 2015 IPPS/LTCH PPS 

proposed rule (79 FR 28090 through 

28092), we proposed to implement the 

extension of the temporary changes to 

the low-volume hospital payment policy 

for the first half of FY 2015 and stated 

our intent to address the extension of 

those changes for the second half of FY 

2014 (that is, from April 1, 2014 through 

September 30, 2014) as provided for by 

the PAMA in a forthcoming Federal 

Register notice. In that proposed rule, 

we also proposed to make conforming 

changes to the existing regulations text 

at § 412.101 to reflect the extension of 

the changes to the qualifying criteria 

and the payment adjustment 

methodology for low-volume hospitals 

through the first half of FY 2015 (that is, 

through March 31, 2015) in accordance 

with section 105 of the PAMA. 

Specifically, we proposed to revise 

paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), 

(c)(2), and (d) of § 412.101. Under these 

proposed changes to § 412.101, 

beginning with FY 2015 discharges 

occurring on or after April 1, 2015, 

consistent with section 1886(d)(12) of 

the Act, as amended, the low volume 

hospital qualifying criteria and payment 

adjustment methodology would revert 

to that which was in effect prior to the 

amendments made by the Affordable 

Care Act and subsequent legislation 

(that is, the low-volume hospital 

payment policy in effect for FYs 2005 

through 2010). 

To implement the extension of the 

temporary change in the low-volume 

hospital payment policy for the last 6 

months of FY 2014 provided for by the 

PAMA, we are using the same data 

source to identify qualifying lowvolume hospitals and calculate the 

payment adjustment (percentage 

increase) that was used to identify 

qualifying low-volume hospitals and 

calculate the payment adjustment for 

discharges that occurred during the first 

half of FY 2014 (that is, FY 2012 

Medicare discharge data from the March 

2013 update of the MedPAR files), as 

these data were the most recent data 

available at the time of the development 

of the FY 2014 payment rates and 

factors established in the FY 2014 IPPS/ 

LTCH PPS final rule. This is consistent 

with our policy at § 412.101(b)(2)(ii), 

which states that a hospital’s Medicare 

discharges from the most recently 

available MedPAR data, as determined 

by CMS, are used to determine if the 

hospital meets the discharge criteria to 


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34446 Federal Register / Vol. 79, No. 116 / Tuesday, June 17, 2014 / Rules and Regulations 

receive the low-volume payment 

adjustment in the current year. 

Accordingly, in Table 14 of this 

document (which is available only 

through the Internet on the CMS Web 

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

AcuteInpatientPPS/01_overview.asp), 

we are providing the list of the 

subsection (d) hospitals with fewer than 

1,600 Medicare discharges based on the 

March 2013 update of the FY 2012 

MedPAR files and their FY 2014 lowvolume payment adjustment, if eligible 

(Table 14 was originally made available 

in connection with the FY 2014 IPPS 

IFC that appeared in the March 18, 2014 

Federal Register). We note that the list 

of hospitals with fewer than 1,600 

Medicare discharges in Table 14 does 

not reflect whether or not the hospital 

meets the mileage criterion. A hospital 

also must be located more than 15 road 

miles from any other subsection (d) 

hospital in order to qualify for a lowvolume hospital payment adjustment for 

FY 2014 discharges occurring on or after 

April 1, 2014. 

A hospital that qualified for the lowvolume hospital payment adjustment for 

its FY 2014 discharges occurring on or 

after October 1, 2013 through March 31, 

2014 does not need to notify its MAC 

and will continue to receive the 

applicable low-volume hospital 

payment adjustment for its FY 2014 

discharges occurring on or after April 1, 

2014, without reapplying, provided it 

continues to meet the mileage criterion 

(that is, the hospital continues to be 

located more than 15 road miles from 

any other subsection (d) hospital). 

For a hospital that did not qualify for 

the low-volume hospital payment 

adjustment for its FY 2014 discharges 

occurring on or after October 1, 2013 

through March 31, 2014, in order to 

receive a low-volume hospital payment 

adjustment under § 412.101, consistent 

with our previously established 

procedure, we are continuing to require 

a hospital to notify and provide 

documentation to its MAC that it meets 

the mileage criterion. Specifically, the 

hospital must make its request for lowvolume hospital status in writing to its 

MAC and provide documentation that it 

meets the mileage criterion, so that the 

applicable low-volume percentage 

increase is applied to payments for its 

discharges occurring on or after April 1, 

2014. This written request must be 

received by its MAC no later than June 

30, 2014 in order for the applicable lowvolume percentage increase to be 

applied to payments for the hospital’s 

discharges beginning on or after April 1, 

2014. In addition, a hospital that missed 

the request deadline for FY 2014 

discharges occurring before April 1, 

2014 in the FY 2014 IPPS IFC but 

qualified for the low-volume payment 

adjustment in FY 2013 may receive a 

low-volume payment adjustment for its 

FY 2014 discharges occurring on or after 

April 1, 2014 without reapplying if it 

continues to meet the Medicare 

discharge criterion, based on the March 

2013 update of the FY 2012 MedPAR 

data (shown in Table 14), and the 

mileage criterion. However, the hospital 

must send written verification that is 

received by its MAC no later than June 

30, 2014, that it continues meet the 

mileage criterion, that is, it is located 

more than 15 miles from any other 

subsection (d) hospital. This procedure 

is similar to the procedures we used to 

implement prior extensions of the 

Affordable Care Act amendments to the 

low-volume hospital payment policy in 

the FY 2014 IPPS IFC (79 FR 15024 

through 150025) and the FY 2013 IPPS 

notice of extension (78 FR 14689). 

For requests for low-volume hospital 

status for FY 2014 discharges occurring 

on or after April 1, 2014 that are 

received by the MAC after June 30, 

2014, if the hospital meets the criteria 

to qualify as a low-volume hospital, the 

MAC will apply the applicable lowvolume adjustment in determining 

payments to the hospital’s FY 2014 

discharges occurring on or after April 1, 

2014 prospectively effective within 30 

days of the date of the MAC’s lowvolume status determination. This 

procedure is similar to the policy we 

established for a hospital to request lowvolume hospital status for FY 2013 in 

the FY 2013 IPPS notice of extension 

(78 FR 14689), as well as for FYs 2011 

and 2012 in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50274 through 

50275) and the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51680), respectively. 

The use of a Web-based mapping tool, 

such as MapQuest, as part of 

documenting that the hospital meets the 

mileage criterion for low-volume 

hospitals, is acceptable. The MAC will 

determine if the information submitted 

by the hospital, such as the name and 

street address of the nearest hospitals, 

location on a map, and distance (in road 

miles, as defined in the regulations at 

§ 412.101(a)) from the hospital 

requesting low-volume hospital status, 

is sufficient to document that the 

hospital requesting low-volume hospital 

status meets the mileage criterion. The 

MAC may follow up with the hospital 

to obtain additional necessary 

information to determine whether or not 

the hospital meets the low-volume 

hospital mileage criterion. In addition, 

the MAC will refer to the hospital’s 

Medicare discharge data determined by 

CMS (as provided in Table 14, which is 

available only through the Internet on 

the CMS Web site at http://

www.cms.hhs.gov/AcuteInpatientPPS/

01_overview.asp) to determine whether 

or not the hospital meets the discharge 

criterion, and the amount of the 

payment adjustment for FY 2014 

discharges occurring on or after April 1, 

2014, once it is determined that the 

mileage criterion has been met. The 

Medicare discharge data shown in Table 

14, as well as the Medicare discharge 

data for all subsection (d) hospitals with 

claims in the March 2013 update of the 

FY 2012 MedPAR file, is also available 

on the CMS Web site for hospitals to 

view the count of their Medicare 

discharges. The data can be used to help 

hospitals decide whether or not to apply 

for low-volume hospital status. 

Program guidance on the systems 

implementation of these provisions, 

including changes to PRICER software 

used to make payments, will be 

announced in an upcoming transmittal. 

As stated previously, we proposed to 

make conforming changes to the 

existing regulations text at § 412.101 to 

reflect the extension of the changes to 

the qualifying criteria and the payment 

adjustment methodology for lowvolume hospitals through the first half 

of FY 2015 (that is, through March 31, 

2015) in accordance with section 105 of 

the PAMA. 

B. Extension of the MedicareDependent, Small Rural Hospital (MDH) 

Program 

1. Background 

Section 1885(d)(5)(G) of the Act 

provides special payment protections, 

under the IPPS, to Medicare-dependent, 

small rural hospitals (MDHs). (For 

additional information on the MDH 

program and the payment methodology, 

we refer readers to the FY 2012 IPPS/

LTCH PPS final rule (76 FR 51683 

through 51684). As we discussed in the 

FY 2011 IPPS/LTCH PPS final rule (75 

FR 50287) and in the FY 2012 IPPS/

LTCH PPS final rule (76 FR 51683 

through 51684), section 3124 of the 

Affordable Care Act extended the 

expiration of the MDH program from the 

end of FY 2011 (that is, for discharges 

occurring before October 1, 2011) to the 

end of FY 2012 (that is, for discharges 

occurring before October 1, 2012). 

Under prior law, as specified in section 

5003(a) of Pub. L. 109–171 (DRA 2005), 

the MDH program was to be in effect 

through the end of FY 2011 only. 

Since the extension of the MDH 

program through FY 2012 provided by 

section 3124 of the ACA, the MDH 

program has been further extended 

multiple times. First, section 606 of the 


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Federal Register / Vol. 79, No. 116 / Tuesday, June 17, 2014 / Rules and Regulations 34447 

ATRA extended the MDH program 

through FY 2013 (that is, for discharges 

occurring before October 1, 2013). (For 

additional information on the extension 

of the MDH program for FY 2013 

pursuant to section 606 of the ATRA, 

see the notice of extension that 

appeared in the March 7, 2013 Federal 

Register (78 FR 14691 through 14692).) 

Second, section 1106 of the Pathway for 

SGR Reform Act of 2013 extended the 

MDH program through the first half of 

FY 2014 (that is, for discharges 

occurring before April 1, 2014). In the 

FY 2014 IPPS IFC, we discussed the 6- 

month extension of the MDH program 

from October 1, 2013 through March 31, 

2014 provided by the Pathway for SGR 

Reform Act of 2013 (79 FR 15025 

through 15027). In that IFC, we 

explained how providers may be 

affected by this extension of the 

program and described the steps to 

reapply for MDH status for FY 2014, as 

applicable. Generally, a provider that 

was classified as an MDH as of 

September 30, 2013 was reinstated as an 

MDH effective October 1, 2013, with no 

need to reapply for MDH classification. 

However, if the MDH had classified as 

a sole community hospital (SCH) or 

cancelled its rural classification under 

§ 412.103(g) effective on or after October 

1, 2013, the effective date of MDH status 

may not be retroactive to October 1, 

2013. 

Lastly, and under current law, section 

106 of the PAMA provides for a 1-year 

extension of the MDH program effective 

from April 1, 2014 to March 31, 2015. 

Specifically, section 106 of the PAMA 

amended sections 1886(d)(5)(G)(i) and 

1886(d)(5)(G)(ii)(II) of the Act by 

striking ‘‘April 1, 2014’’ and inserting 

‘‘April 1, 2015’’. Section 106 of the 

PAMA also made conforming 

amendments to sections 1886(b)(3)(D)(i) 

and 1886(b)(3)(D)(iv) of the Act. We 

note that because the extension 

provided by section 106 of the PAMA 

spans 2 fiscal years, that is, FY 2014 and 

FY 2015, we only address the 6-month 

extension in FY 2014 in this document. 

The extension of the MDH program 

through the first half of FY 2015 was 

addressed in the FY 2015 IPPS/LTCH 

PPS proposed rule (79 FR 28104 

through 28105), where we also proposed 

to make the conforming changes to the 

regulations at § 412.108(a)(1) and 

(c)(2)(iii) to reflect the statutory 

extension of the MDH program through 

the first half FY 2015 as provided by 

section 106 of the PAMA. 

2. Provisions of the PAMA 

Prior to the enactment of the PAMA, 

under section 1106 of the Pathway to 

SGR Reform Act of 2013, the MDH 

program authorized by section 

1886(d)(5)(G) of the Act was set to 

expire midway through FY 2014 (that is, 

March 31, 2014). Section 106 of the 

PAMA amended sections 

1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) 

of the Act to provide for an additional 

1-year extension of the MDH program, 

effective from April 1, 2014 through 

March 31, 2015. Section 106 of the 

PAMA also made conforming 

amendments to sections 1886(b)(3)(D)(i) 

and 1886(b)(3)(D)(iv) of the Act. 

As noted previously, this document 

addresses the portion of the MDH 

program extension that includes the last 

6 months of FY 2014 as provided by 

section 106 of PAMA. Consistent with 

our implementation of previous MDH 

extensions (see 79 FR 15025 through 

15027 and 78 FR 14691 through 14692), 

generally, providers that were classified 

as MDHs as of the anticipated expiration 

of the MDH provision (that is, as of 

March 31, 2014) will be reinstated as 

MDHs effective April 1, 2014 with no 

need to reapply for MDH classification. 

However, in the following two 

situations, the effective date of MDH 

status may not be retroactive to April 1, 

2014. 

a. MDHs That Classified as Sole 

Community Hospitals (SCHs) on or 

After April 1, 2014 

Our regulations at § 412.92(b)(2)(v) 

would have permitted an MDH that 

applied for reclassification as an SCH by 

March 1, 2014 to have such status be 

effective on April 1, 2014. MDHs that 

applied by the March 1, 2014 deadline 

and were approved for SCH 

classification received SCH status 

effective April 1, 2014. Hospitals that 

applied for SCH status after the March 

1, 2014 SCH application deadline would 

have been subject to the usual effective 

date for SCH classification, that is, 30 

days after the date of CMS’ written 

notification of approval, resulting in an 

effective date of SCH status after April 

1, 2014. 

In order to be reclassified as an MDH, 

these hospitals must first cancel their 

SCH status according to § 412.92(b)(4), 

because a hospital cannot be both an 

SCH and an MDH, and then reapply and 

be approved for MDH status under 

§ 412.108(b). Under § 412.92(b)(4), a 

hospital’s cancellation of its SCH 

classification becomes effective no later 

than 30 days after the date the hospital 

submits its request. Under 

§ 412.108(b)(3), the Medicare contractor 

will make a determination regarding 

whether a hospital meets the criteria for 

MDH status and notify the hospital 

within 90 days from the date that it 

receives the hospital’s request and all of 

the required documentation. Under 

§ 412.108(b)(4), a determination of MDH 

status made by the Medicare contractor 

is effective 30 days after the date the 

fiscal intermediary (Note: fiscal 

intermediaries have been replaced by 

Medicare Administrative Contractors 

(MACs)) provides written notification to 

the hospital. 

b. MDHs That Requested a Cancellation 

of Their Rural Classification Under 

§ 412.103(b) 

One of the criteria to be classified as 

an MDH is that the hospital must be 

located in a rural area. To qualify for 

MDH status, some MDHs reclassified 

from an urban to a rural hospital 

designation, under the regulations at 

§ 412.103(b). With the anticipated 

March 31, 2014 expiration of the MDH 

provision prior to the enactment of the 

PAMA, some of these providers may 

have requested a cancellation of their 

rural classification. Therefore, in order 

to qualify for MDH status, these 

hospitals must again request to be 

reclassified as rural under § 412.103(b) 

and must also reapply for MDH status 

under § 412.108(b). 

As noted previously, under 

§ 412.108(b)(3), the Medicare contractor 

will make a determination regarding 

whether a hospital meets the criteria for 

MDH status and notify the hospital 

within 90 days from the date that it 

receives the hospital’s request and all of 

the required documentation. Under 

§ 412.108(b)(4), a determination of MDH 

status made by the Medicare contractor 

is effective 30 days after the date the 

fiscal intermediary (MAC) provides 

written notification to the hospital. 

Any provider that falls within either 

of the two exceptions listed previously 

may not have its MDH status 

automatically reinstated effective April 

1, 2014. That is, if a provider 

reclassified to SCH status or cancelled 

its rural status effective April 1, 2014, 

its MDH status will not be retroactive to 

April 1, 2014, but will instead be 

applied prospectively, based on the date 

the hospital is notified that it again 

meets the requirements for MDH status, 

in accordance with § 412.108(b)(4), after 

the hospital reapplies for MDH status. 

Once granted, this MDH status will 

remain in effect through March 31, 

2015, subject to the requirements at 

§ 412.108. However, if a provider 

reclassified to SCH status or cancelled 

its rural status effective on a date later 

than April 1, 2014, MDH status will be 

reinstated effective from April 1, 2014, 

but will end on the date on which the 

provider changed its status to an SCH or 

cancelled its rural status. Those 

hospitals may also reapply for MDH 


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status to be effective again 30 days from 

the date the hospital is notified of the 

determination, in accordance with 

§ 412.108(b)(4). Once granted, this status 

will remain in effect through March 31, 

2015 subject to the requirements at 

§ 412.108. Providers that fall within 

either of the two exceptions, in order to 

reclassify as an MDH, will have to 

reapply for MDH status according to the 

classification procedures in 42 CFR 

412.108(b). Specifically, the regulations 

at § 412.108(b) require the following: 

• The hospital submit a written 

request along with qualifying 

documentation to its contractor to be 

considered for MDH status. 

• The contractor make its 

determination and notify the hospital 

within 90 days from the date that it 

receives the request for MDH 

classification and all required 

documentation. 

• The determination of MDH status 

be effective 30 days after the date of the 

contractor’s written notification to the 

hospital. 

The following are examples of various 

scenarios that illustrate how and when 

MDH status under section 106 of the 

PAMA will be determined for hospitals 

that were MDHs as of the anticipated 

March 31, 2014 expiration of the MDH 

program: 

Example 1: Hospital A was classified as an 

MDH as of the anticipated March 31, 2014 

expiration of the MDH program. Hospital A 

retained its rural classification and did not 

reclassify as an SCH. Hospital A’s MDH 

status will be automatically reinstated 

retroactively to April 1, 2014. 

Example 2: Hospital B was classified as an 

MDH as of the anticipated March 31, 2014 

expiration of the MDH program. Per the 

regulations at § 412.92(b)(2)(v) and in 

anticipation of the expiration of the MDH 

program, Hospital B applied for 

reclassification as an SCH by March 1, 2014, 

and was approved for SCH status effective on 

April 1, 2014. Hospital B’s MDH status will 

not be automatically reinstated. In order to 

reclassify as an MDH, Hospital B must first 

cancel its SCH status, in accordance with 

§ 412.92(b)(4), and reapply for MDH status 

under the regulations at § 412.108(b). 

Example 3: Hospital C was classified as an 

MDH as of the anticipated March 31, 2014 

expiration of the MDH program. Hospital C 

missed the application deadline of March 1, 

2014 for reclassification as an SCH under the 

regulations at § 412.92(b)(2)(v) and was not 

eligible for its SCH status to be effective as 

of April 1, 2014. The MAC approved Hospital 

C’s request for SCH status effective May 16, 

2014. Hospital C’s MDH status will be 

reinstated but only for the portion of time 

during which it met the criteria for MDH 

status. Hospital C’s MDH status will be 

reinstated effective April 1, 2014 through 

May 15, 2014, and its MDH status will be 

cancelled effective May 16, 2014. In order to 

reclassify as an MDH, Hospital C must cancel 

its SCH status, in accordance § 412.92(b)(4), 

and reapply for MDH status under the 

regulations at § 412.108(b). 

Example 4: Hospital D was classified as an 

MDH as of the anticipated March 31, 2014 

expiration of the MDH program. In 

anticipation of the expiration of the MDH 

program, Hospital D requested that its rural 

classification be cancelled per the regulations 

at § 412.103(g). Hospital D’s rural 

classification was cancelled effective April 1, 

2014. Hospital D’s MDH status will not be 

automatically reinstated. In order to 

reclassify as an MDH, Hospital D must first 

request to be reclassified as rural under 

§ 412.103(b) and must reapply for MDH 

status under § 412.108(b). 

Example 5: Hospital E was classified as an 

MDH as of the anticipated March 31, 2014 

expiration of the MDH program. In 

anticipation of the expiration of the MDH 

program, Hospital E requested that its rural 

classification be cancelled per the regulations 

at § 412.103(g). Hospital E’s rural 

classification is cancelled effective June 1, 

2014. Hospital E’s MDH status will be 

reinstated but only for the period of time 

during which it met the criteria for MDH 

status. Since Hospital E cancelled its rural 

status and is classified as urban effective June 

1, 2014, MDH status will only be reinstated 

effective April 1, 2014 through May 31, 2014, 

and will be cancelled effective June 1, 2014. 

In order to reclassify as an MDH, Hospital E 

must first request to be reclassified as rural 

under § 412.103(b) and must reapply for 

MDH status under § 412.108(b). 

Finally, we note that hospitals 

continue to be bound by 

§ 412.108(b)(4)(i) through (iii) to report 

a change in the circumstances under 

which the status was approved. Thus, if 

a hospital’s MDH status has been 

extended and it no longer meets the 

requirements for MDH status, it is 

required under § 412.108(b)(4)(i) 

through (iii) to make such a report to its 

MAC. Additionally, under the 

regulations at § 412.108(b)(5), Medicare 

contractors are required to evaluate on 

an ongoing basis whether or not a 

hospital continues to qualify for MDH 

status. 

As noted previously, we proposed to 

make conforming changes to the 

regulations at § 412.108(a)(1) and 

(c)(2)(iii) to reflect the statutory 

extension of the MDH program through 

March 31, 2015 as provided by section 

106 of the PAMA in the FY 2015 IPPS/ 

LTCH PPS proposed rule (79 FR 28104 

through 28105). Program guidance on 

the systems implementation of these 

provisions, including changes to 

PRICER software used to make 

payments, will be announced in an 

upcoming transmittal. A provider 

affected by the MDH program extension 

will receive a notice from its MAC 

detailing its status in light of the MDH 

program extension. 

We also note that the same approach 

for the additional payment for 

uncompensated care under § 412.106(g) 

discussed in the FY 2014 IPPS IFC (79 

FR 15027) will apply in determining 

MDH payments for FY 2014 discharges 

occurring on or after April 1, 2014. That 

is, a pro rata share of the 

uncompensated care payment amount 

for that period will be included as part 

of the Federal rate payment in the 

comparison of payments under the 

hospital-specific rate and the Federal 

rate. Therefore, in making this 

comparison at cost report settlement, we 

will include the pro rata share of the 

uncompensated care payment amount 

that reflects the period of time the 

hospital was paid under the MDH 

program for its FY 2014 discharges 

occurring on or after April 1, 2014 and 

before September 30, 2014. This pro rata 

share will be determined based on the 

proportion of the applicable Federal 

fiscal year that is included in that cost 

reporting period. (For additional 

information on our implementation of 

the additional payment for 

uncompensated care under § 412.106(g), 

refer to the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50620 through 50647) 

and the interim final rule with comment 

period titled ‘‘FY 2014 IPPS Changes to 

Certain Cost Reporting Procedures 

Related to Disproportionate Share 

Hospital Uncompensated Care 

Payments’’ that appeared in the October 

3, 2013 Federal Register (78 FR 61191 

through 61194).) 

3. The Treatment of MDHs Under the 

Hospital Readmissions Reduction 

Program and the Hospital Value-Based 

Purchasing (VBP) Program for FY 2014 

The Hospital Readmissions Reduction 

Program at section 1886(q) of the Act 

requires the Secretary to reduce 

payments to applicable hospitals with 

excess readmissions effective for 

discharges beginning on or after October 

1, 2012. Section 1886(o) of the Act 

requires the Secretary to establish a 

hospital value-based purchasing 

program (the Hospital Value-Based 

Purchasing (VBP) Program), effective for 

discharges beginning on or after October 

1, 2012, under which value-based 

incentive payments are made in a fiscal 

year to hospitals that meet performance 

standards established for a performance 

period for such fiscal year. In general, 

the adjustments under both the Hospital 

Readmissions Reduction Program and 

Hospital VBP Program are applicable to 

MDHs (except when certain exclusions 

from the Hospital VBP Program are 

met). 

The payment methodology under the 

Hospital Readmissions Reduction 


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Program and Hospital VBP Program 

applies each program’s adjustment 

factors respectively to the ‘‘base 

operating DRG payment amount.’’ (For 

additional information on the 

calculation of the adjustment factor and 

payment methodology under the 

Hospital Readmissions Reduction 

Program, refer to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53374 

through 53391). For additional 

information on the calculation of the 

adjustment factor and payment 

methodology under the Hospital VBP 

Program, refer to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53569 

through 53576).) The ‘‘base operating 

DRG payment amount’’ is generally 

defined as the wage-adjusted DRG 

operating payment plus any applicable 

new technology add-on payments (see 

§ 412.152 and § 412.160). For years prior 

to FY 2014, the statutory provisions 

related to the definition of ‘‘base 

operating DRG payment amount’’ under 

section 1886(q) of the Act and section 

1886(o) of the Act excluded the 

difference between an MDH’s applicable 

hospital-specific payment (HSP) rate 

and the Federal payment rate (referred 

to as the HSP add-on) from the 

definition of the base operating DRG 

payment amount. (MDHs are paid based 

on the Federal rate or, if higher, the 

Federal rate plus 75 percent of the 

amount by which the Federal rate is 

exceeded by the updated HSP rate from 

certain specified base years. Thus for 

MDHs, the HSP add-on for these years 

is equal to 75 percent of the difference 

between the Federal rate payment and 

HSP rate payment. At cost report 

settlement, the MAC determines which 

of the payment options yields a higher 

aggregate payment for an MDH, and also 

determines the final HSP add-on (if 

applicable) for that MDH for each cost 

reporting period.) 

The treatment of MDHs under the 

Hospital Readmissions Reduction 

Program and the Hospital VBP Program 

for FY 2014 was not addressed in the FY 

2014 IPPS/LTCH PPS final rule because 

at the time of the publication of that 

final rule, the MDH program was set to 

expire at the end of FY 2013. 

Accordingly, the payment adjustment 

factors and payment methodology for 

FY 2014 under both the Hospital 

Readmissions Reduction Program and 

Hospital VBP Program established in 

that final rule were determined without 

regard to HSP add-on payments to 

MDHs. That is, for hospitals that were 

MDHs, the FY 2014 readmissions and 

value-based incentive payment 

adjustment factors were calculated 

using base operating DRG payment 

amounts that do not include the 

difference between the HSP payment 

rate and the Federal payment rate (as 

applicable). Similarly, in determining 

payments for MDH discharges occurring 

in FY 2014, the base operating DRG 

payment amounts currently also do not 

include the difference between the HSP 

payment rate and the Federal payment 

rate (as applicable). 

As discussed previously, subsequent 

to the publication of the FY 2014 IPPS/ 

LTCH PPS final rule, the MDH program 

was extended from October 1, 2013, to 

March 31, 2014, by section 1106 of the 

Pathway for SGR Reform Act (Pub. L. 

113–67) and was further extended an 

additional year from April 1, 2014, to 

March 31, 2015, by section 106 of the 

Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93). This legislation 

extended the MDH program by 

amending sections 1886(d)(5)(G)(i) and 

1886(d)(5)(G)(ii)(II) of the Act and also 

made conforming amendments to 

sections 1886(b)(3)(D)(i) and 

1886(b)(3)(D)(iv) of the Act. Given the 

extension of the MDH program for FY 

2014, in this document we discuss how 

the payment methodology under both 

the Hospital Readmissions Reduction 

Program and Hospital VBP Program will 

be applied for MDH discharges 

occurring during FY 2014, consistent 

with the sections 1886(q)(2)(B)(i) and 

1886(o)(7)(D)(i)(I) of the Act. 

We are not revising the FY 2014 

readmissions and value-based incentive 

payment adjustment factors that we 

established through notice and 

comment rulemaking in the FY 2014 

IPPS/LTCH PPS final rule because at the 

time we established those factors, the 

MDH program was set to expire at the 

end of FY 2013. Therefore, the FY 2014 

Readmissions Adjustment Factors in 

Table 15 of the FY 2014 IPPS/LTCH PPS 

final rule (as subsequently corrected by 

the FY 2014 IPPS/LTCH PPS final rule 

correcting document that appeared in 

the October 3, 2013 Federal Register) 

and the FY 2014 Hospital VBP Program 

Adjustment Factors in Table 16B of the 

FY 2014 IPPS/LTCH PPS final rule 

(which are only available on the Internet 

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

Medicare-Fee-for-Service-Payment/ 

AcuteInpatientPPS/index.html) will 

remain unchanged and will continue to 

apply in determining payments for 

MDHs’ discharges occurring during FY 

2014. 

However, because a final payment 

determination for an MDH’s cost 

reporting period is not done until cost 

report settlement, if an MDH ultimately 

receives the HSP add-on (that is, its 

final payment is determined to be the 

Federal rate payment plus 75 percent of 

the amount by which the Federal rate is 

exceeded by the updated HSP rate), then 

additional adjustments under the 

Hospital Readmissions Reduction 

Program and Hospital VBP Program (as 

applicable) will be made during cost 

report settlement. If at cost report 

settlement an MDH ultimately does not 

receive an HSP add-on for the cost 

reporting period (that is, its final 

payment is determined to be the Federal 

rate payment only), then no additional 

adjustment (if otherwise applicable) 

under the Hospital Readmissions 

Reduction Program and Hospital VBP 

Program will be made. 

III. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 35). 

IV. Waiver of Proposed Rulemaking 

and Delay of Effective Date 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment 

prior to a rule taking effect in 

accordance with section 553(b) of the 

Administrative Procedure Act (APA) 

and section 1871 of the Act. In addition, 

in accordance with section 553(d) of the 

APA and section 1871(e)(1)(B)(i) of the 

Act, we ordinarily provide a 30-day 

delay to a substantive rule’s effective 

date. For substantive rules that 

constitute major rules, in accordance 

with 5 U.S.C. 801, we ordinarily provide 

a 60-day delay in the effective date. 

None of the processes or effective date 

requirements apply, however, when the 

rule in question is interpretive, a general 

statement of policy, or a rule of agency 

organization, procedure or practice. 

They also do not apply when the statute 

establishes rules to be applied, leaving 

no discretion or gaps for an agency to 

fill in through rulemaking. In addition, 

an agency may waive notice and 

comment rulemaking, as well as any 

delay in effective date, when the agency 

for good cause finds that notice and 

public comment on the rule as well the 

effective date delay are impracticable, 

unnecessary, or contrary to the public 

interest. In cases where an agency finds 

good cause, the agency must incorporate 

a statement of this finding and its 

reasons in the rule issued. 

The policies being publicized in this 

document do not constitute agency 

rulemaking. Rather, the statute, as 

amended by the PAMA, has already 


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required that the agency make these 

changes, and we are simply notifying 

the public of the extension of the 

changes to the payment adjustment for 

low-volume hospitals and the MDH 

program that was effective April 1, 

2014. As this document merely informs 

the public of these extensions, it is not 

a rule and does not require any notice 

and comment rulemaking. To the extent 

any of the policies articulated in this 

document constitute interpretations of 

the statute’s requirements or procedures 

that will be used to implement the 

statute’s directive, they are interpretive 

rules, general statements of policy, and 

rules of agency procedure or practice, 

which are not subject to notice and 

comment rulemaking or a delayed 

effective date. 

However, to the extent that notice and 

comment rulemaking or a delay in 

effective date or both would otherwise 

apply, we find good cause to waive such 

requirements. Specifically, we find it 

unnecessary to undertake notice and 

comment rulemaking in this instance as 

this document does not propose to make 

any substantive changes to the policies 

or methodologies already in effect as a 

matter of law, but simply applies rate 

adjustments under the PAMA to these 

existing policies and methodologies. As 

the changes outlined in this document 

have already taken effect, it would also 

be impracticable to undertake notice 

and comment rulemaking. For these 

reasons, we also find that a waiver of 

any delay in effective date, if it were 

otherwise applicable, is necessary to 

comply with the requirements of the 

PAMA. Therefore, we find good cause to 

waive notice and comment procedures 

as well as any delay in effective date, if 

such procedures or delays are required 

at all. 

V. Regulatory Impact Analysis 

A. Introduction 

We have examined the impacts of this 

document as required by Executive 

Order 12866 on Regulatory Planning 

and Review (September 30, 1993), 

Executive Order 13563 on Improving 

Regulation and Regulatory Review 

(January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security 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. A 

regulatory impact analysis (RIA) must 

be prepared for regulatory actions with 

economically significant effects ($100 

million or more in any 1 year). Although 

we do not consider this document to 

constitute a substantive rule or 

regulatory action, the changes 

announced in this document are 

’’economically’’ significant, under 

section 3(f)(1) of Executive Order 12866, 

and therefore we have prepared a RIA, 

that to the best of our ability, presents 

the costs and benefits of the provisions 

announced in this document. In 

accordance with Executive Order 12866, 

this document has been reviewed by the 

Office of Management and Budget. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, 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 

government jurisdictions. We estimate 

that most hospitals and most other 

providers and suppliers are small 

entities as that term is used in the RFA. 

The great majority of hospitals and most 

other health care providers and 

suppliers are small entities, either by 

being nonprofit organizations or by 

meeting the Small Business 

Administration definition of a small 

business (having revenues of less than 

$7.5 to $35.5 million in any 1 year). (For 

details on the latest standard for health 

care providers, we refer readers to page 

33 of the Table of Small Business Size 

Standards at the Small Business 

Administration’s Web site at http:// 

www.sba.gov/services/ 

contractingopportunities/ 

sizestandardstopics/tableofsize/ 

index.html.) For purposes of the RFA, 

all hospitals and other providers and 

suppliers are considered to be small 

entities. Individuals and States are not 

included in the definition of a small 

entity. We believe that this document 

will have a significant impact on small 

entities. Because we acknowledge that 

many of the affected entities are small 

entities, the analysis discussed in this 

section would fulfill any requirement 

for a final regulatory flexibility analysis. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. With the exception of hospitals 

located in certain New England 

counties, for purposes of section 1102(b) 

of the Act, we now define a small rural 

hospital as a hospital that is located 

outside of an urban area and has fewer 

than 100 beds. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

(Pub. L. 104–4) also requires that 

agencies assess anticipated costs and 

benefits before issuing any rule whose 

mandates require spending in any 1 year 

of $100 million in 1995 dollars, updated 

annually for inflation. In 2014, that 

threshold is approximately $141 

million. This document will not 

mandate any requirements for State, 

local, or tribal governments, nor will it 

affect private sector costs. 

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 document will not have a 

substantial effect on State and local 

governments. 

Although this document merely 

reflects the implementation of two 

provisions of the PAMA and does not 

constitute a substantive rule, we 

nevertheless prepared this impact 

analysis in the interest of ensuring that 

the impacts of these changes are fully 

understood. The following analysis, in 

conjunction with the remainder of this 

document, demonstrates that this 

document is consistent with the 

regulatory philosophy and principles 

identified in Executive Order 12866 and 

13563, the RFA, and section 1102(b) of 

the Act. The changes announced in this 

document will positively affect 

payments to a substantial number of 

small rural hospitals and providers, as 

well as other classes of hospitals and 

providers, and the effects on some 

hospitals and providers may be 

significant. The impact analysis, which 

discusses the effect on total payments to 

IPPS hospitals and providers, is 

presented in this section. 

B. Statement of Need 

This document is necessary to update 

the FY 2014 IPPS final payment policies 

to reflect changes required by the 

implementation of two provisions of the 

PAMA. Section 105 of the PAMA 

extends the temporary changes to the 

payment adjustment for low-volume 


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hospitals from April 1, 2014 through 

March 31, 2015. Section 106 of the 

PAMA extends the MDH program from 

April 1, 2014 through March 31, 2015. 

As noted previously, program guidance 

on the systems implementation of these 

provisions, including changes to 

PRICER software used to make 

payments, will be announced in an 

upcoming transmittal. 

C. Overall Impact 

The FY 2014 IPPS/LTCH PPS final 

rule and the FY 2014 IPPS IFC included 

an impact analysis for the changes to the 

IPPS included in those rules. This 

document updates those impacts to the 

IPPS to reflect the changes made by 

sections 105 and 106 of the PAMA. 

Since these sections were not budget 

neutral, the overall estimates for 

hospitals have changed from our 

estimates that were published in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

51037) and the FY 2014 IPPS IFC (79 FR 

15029 and 15030). We estimate that the 

changes in the FY 2014 IPPS payments, 

including the changes announced in 

this document, will result in an 

approximate $1.68 billion increase in 

total payments to IPPS hospitals relative 

to FY 2013 rather than the $1.44 billion 

increase we projected in the FY 2014 

IPPS IFC (79 FR 15029). 

D. Anticipated Effects 

The impact analysis reflects the 

change in estimated payments to IPPS 

hospitals in FY 2014 as a result of the 

implementation of sections 105 and 106 

of the PAMA relative to the revised 

estimated FY 2014 payments to IPPS 

hospitals that were published in the FY 

2014 IPPS IFC (79 FR 15029), which 

include both the estimated FY 2014 

IPPS payments from the provisions 

implemented in that IFC in addition to 

the estimated FY 2014 IPPS payments 

published in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 51037). As 

described later in this regulatory impact 

analysis, FY 2014 IPPS payments to 

hospitals affected by sections 105 and 

106 of the PAMA are projected to 

increase by $227 million (relative to the 

FY 2014 payments estimated for these 

hospitals for the FY 2014 IPPS IFC). 

Therefore, we project that, on the 

average, overall IPPS payments in FY 

2014 for all hospitals will increase by 

approximately an additional 0.24 

percent as a result of the estimated $227 

million increase in payments due to the 

implementation of sections 105 and 106 

of the PAMA compared to the previous 

estimate of FY 2014 payments to all 

IPPS hospitals published in the FY 2014 

IPPS IFC. 

1. Effects of the Extension of the 

Temporary Changes to the Payment 

Adjustment for Low-Volume Hospitals 

The extension of the temporary 

changes to the payment adjustment for 

low-volume hospitals (originally 

provided for by the Affordable Care Act) 

for the last 6 months of FY 2014 (that 

is, for April 1, 2014 through September 

30, 2014) as provided for under section 

105 of the PAMA is a non-budget 

neutral payment provision. The 

provisions of the Affordable Care Act 

expanded the definition of low-volume 

hospital and modified the methodology 

for determining the payment adjustment 

for hospitals meeting that definition. 

Prior to the enactment of the PAMA, 

beginning April 1, 2014, the low-volume 

hospital definition and payment 

adjustment methodology was to return 

to the statutory requirements that were 

in effect prior to the amendments made 

by the Affordable Care Act and 

extended by subsequent legislation. 

With the extension for the last 6 months 

of FY 2014 (that is, April 1, 2014 

through September 30, 2014), provided 

for by the PAMA, based on FY 2012 

claims data (March 2013 update of the 

MedPAR file), we estimate that 

approximately 600 hospitals will qualify 

as a low-volume hospital through 

September 30, 2014. We project that 

these hospitals will experience an 

increase in payments of approximately 

$161 million as compared to our 

previous estimate of payments to these 

hospitals for FY 2014 published in the 

FY 2014 IPPS IFC. 

2. Effects of the Extension of the MDH 

Program 

The extension of the MDH program 

for the last 6 months of FY 2014 (that 

is, from April 1, 2014 through 

September 30, 2014) as provided for 

under section 106 of the PAMA is a 

non-budget neutral payment provision. 

Hospitals that qualify as a MDHs receive 

the higher of operating IPPS payments 

made under the Federal standardized 

amount or the payments made under the 

Federal standardized amount plus 75 

percent of the difference between the 

Federal standardized amount and the 

hospital-specific rate. Because this 

provision is not budget neutral, we 

estimate that the extension of this 

payment provision for the last 6 months 

of FY 2014 will result in a 0.1-percent 

increase in payments overall. Prior to 

the extension of the MDH program, 

there were 198 MDHs, of which 118 

were estimated to be paid under the 

blended payment of the Federal 

standardized amount and hospitalspecific rate through April 1, 2014. 

Because those 118 MDHs will now 

receive the blended payment (that is, 

the Federal standardized amount plus 

75 percent of the difference between the 

Federal standardized amount and the 

hospital-specific rate) for the second 

half of FY 2014 (from April 1, 2014 

through September 30, 2014), we 

estimate that those hospitals will 

experience an overall increase in 

payments of approximately $66 million 

as compared to our previous estimate of 

payments to these hospitals for FY 2014 

published in the FY 2014 IPPS IFC. 

E. Alternatives Considered 

This document provides descriptions 

of the statutory provisions that are 

addressed and identifies policies for 

implementing these provisions. Due to 

the prescriptive nature of the statutory 

provisions, no alternatives were 

considered. 

F. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/ 

circulars_a004_a-4), in Table I, we have 

prepared an accounting statement 

showing the classification of 

expenditures associated with the 

provisions of this document as they 

relate to acute care hospitals. This table 

provides our best estimate of the change 

in Medicare payments to providers as a 

result of the changes to the IPPS 

presented in this document. All 

expenditures are classified as transfers 

from the Federal government to 

Medicare providers. As previously 

discussed, relative to what was 

projected in the FY 2014 IPPS IFC, the 

changes to FY 2014 IPPS payments 

made by sections 105 and 106 of the 

PAMA presented in this document are 

projected to increase FY 2014 payments 

to IPPS hospitals by approximately $227 

million. 


tkelley on DSK3SPTVN1PROD with RULES
34452 Federal Register / Vol. 79, No. 116 / Tuesday, June 17, 2014 / Rules and Regulations 

TABLE I—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE IPPS 

FROM PUBLISHED FY 2014 TO REVISED FY 2014 

Category Transfers 

Annualized Monetized 

Transfers.

$227 million. 

From Whom to Whom Federal Government 

to IPPS Medicare 

Providers. 

Total ....................... $227 million. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: June 3, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: June 11, 2014. 

Sylvia M. Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–14070 Filed 6–12–14; 11:15 am] 

BILLING CODE 4120–01–P 


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