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 pr ogram 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 faci lities (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 secti on 1886(j)(3)(C) of the Social Security Act (the Act). Section 1886(j)(5) of th e Act requires the Secretary to publish in the Federal Register on or before the August 1 that precedes the star t of each FY the cla ssification and weighting factors for the IRF prospective payment syst em (PPS) case-mix groups and a description of the methodology and data used in compu ting the prospective payment rates for that fiscal year. We are also consolidating, clar ifying, and revising existing policies regarding IRF hospitals and IRF units of hospitals to eliminate unnecessary confusion and enhanceCMS-1349-F 2

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 ”n ew” facilities and changes in the bed size and square footage of IRFs and inpatient psychiatric facilities (IPFs) to improve clarity a nd 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 informa tion about the quality reporting program.

SUPPLEMENTARY INFORMATION:

Table of Contents To assist readers in referencing secti ons contained in this document, we are providing the following table of contents. I. Background A. Historical Overview of the Inpati ent 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 forCMS-1349-F 3

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 Facil ity-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 Ca p to Reflect Interns and Residents Displaced Due to IRF Closure 4. Temporary Adjustment to the FTE Ca p 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 2012CMS-1349-F 4

B. Area Wage Adjustment C. Description of the IRF Standard C onversion Factor and Payment Rates for FY

2012 D. Example of the Methodology for Adju sting the Federal Pr ospective Payment

Rates VII. Update to Payments for Hi gh-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 Pr ocess 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 Sel ection of the Quality Measures

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

Urinary Catheter-Associated Ur inary 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-D ay 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 ImpactsCMS-1349-F 6

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 list ing the acronyms used and their corresponding meaning in alphabetical order. ADC Average Daily Census AHA American Hospital Association ASCA Administrative Simplifica tion Compliance Act of 2002, Pub. L. 107-105 BBA Balanced Budget Act of 1997, Pub. L. 105-33 BBRA Medicare, Medicaid, and SCHIP [S tate Children’s Health Insurance Program] Balanced Budget Refine ment Act of 1999, Pub. L. 106-113 BEA Bureau of Economic Analysis BIPA Medicare, Medicai d, and SCHIP [State Childr en’s Health Insurance Program] Benefits Improvement a nd Protection Act of 2000, Pub. L. 106-

554

BLS Bureau of Labor StatisticsCMS-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 a nd 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 Rehabi litation Facility IRF-PAI Inpatient Rehabilitation Faci lity-Patient Assessment Instrument IRF PPS Inpatient Rehabilitation Faci lity Prospective Payment System IRVEN Inpatient Rehabilita tion 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 SCHI P Extension Act of 2007, Pub. L. 110—

173 MSA Metropolitan Statistical Area

NAICS North American Indus try Classification System NHSN National Healthcare Safety NetworkCMS-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 Flexibilit y 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 H ealth Insurance Program SSI Supplemental Security Income TEFRA Tax Equity and Fiscal Res ponsibility 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 secti on 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 SC HIP Benefits Improvement and Protection Act of 2000CMS-1349-F 10

(Pub. L. 106-554, enacted on December 21, 2000)(BIPA) provides for the implementation of a per discharge prosp ective payment system (PPS) under section 1886(j) of the Social Security Act (the Act) for inpatient rehab ilitation hospitals and inpatient rehabilitation units of a hospital (hereinafter referred to as IRFs). Payments under the IRF PPS encompass inpa tient 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 desc ription 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 (CMG s). 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 rela tive weighting factors to account for a patient's clinical characteristics and expected resource needs. Thus , the weighting factors

accounted for the relative difference in reso urce use across all CM Gs. Within eachCMS-1349-F 11

CMG, we created tiers based on the estimated effects that certain comorbidities would

have on resource use.

We established the Federal PPS rates us ing 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 methodol ogy for determining the standard payment

conversion factor. We applied the relative weighting fact ors to the standard payment conversion factor to compute the unadjusted Federa l prospective payment rates under the IRF PPS

from FYs 2002 through 2005. Within th e structure of the payment system, we then made adjustments to account for interrupted stays, tr ansfers, 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 a pplicable) to the IRF's unadjusted Federal prospective payment rates. For cost reporting periods that bega n 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 bypa ss this blended payment and immediately be paid 100 percent of the Federal IRF PPS rate . The transition met hodology expired as ofCMS-1349-F 12

cost reporting periods begi nning on or after October 1, 2002 (FY 2003), and payments for all IRFs now consist of 100 per cent of the Federal IRF PPS rate. We established a CMS Web site as a pr imary 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, so ftware, data specifications, educational materials, and other information pertinent to the IRF PPS. Section 1886(j) of the Act confers broad statutory authority u pon 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 a nd the corresponding rela tive weights) and the case-level and facility-level adjustments. These refinements included the adoption of the Office of Management and Budget’s (O MB) Core-Based Statistical Area (CBSA) market definitions, modifications to the CM Gs, 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 hi gh-cost outlier adjustme nts. 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 ba sket reflecting the opera ting and capital cost structures for freestanding IR Fs, freestanding inpatient psychi atric facilities (IPFs), and long-term care hospitals (LTCHs) (hereafter refe rred to as the rehab ilitation, 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 provi sions effective in the correcting amendments.CMS-1349-F 13

For a detailed discussion of the final key policy changes fo r 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 IR F 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 th reshold, revised the IRF wage index policy, and clarified how we determine high-cost outlie r 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 Ex tension Act of 2007 (Pub. L. 110-173, enacted on December 29, 2007) (MMSEA), amended sec tion 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. Sec tion 1886(j)(3)(C) of th e Act required the Secretary to develop an incr ease factor to update the IRF Federal prospective payment rates for each FY. Based on the legislative ch ange to the increase fa ctor, we revised the FY 2008 Federal prospective payment rates fo r IRF discharges occurring on or after April 1, 2008. Thus, the final FY 2008 IRF Fede ral prospective payment rates that were published in the FY 2008 IRF PPS final rule ( 72 FR 44284) were effective for dischargesCMS-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 befo re 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 wageindex 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 comorbid ities 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 rate s, 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 cove rage 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 A dvantage (MA) (Medicar e Part C) patientsCMS-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 provi sions 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 Affo rdable 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 Reconcil iation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) (collectively, hereafter referre d 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 ba sket increase factor, and to apply other adjustments as defined by the Act. The pr oductivity 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 wa s required to reduce the market basket increase factor in FY 2010 by a 0.25 percentage point adjustment. Notwithstanding this provision, in accordance with sec tion 3401(p) of the Affordable Care Act, the adjusted FY 2010 rate was only to be applied to disc harges occurring on or after April 1, 2010. Based on the self-implementing legislative ch anges to section 1886(j) (3) of the Act, we adjusted the FY 2010 Federal prospective pa yment rates as require d, and applied theseCMS-1349-F 16

rates to IRF discharges occu rring 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 rate s 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 av ailable 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 ba sket 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 revi sed standard payment conversion factor of $13,627. To maintain estimated outlier paymen ts for FY 2010 equal to the established standard of 3 percent of to tal 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)(I I) and 1886(j)(3)(D)(i) of th e Act also required the Secretary to reduce the market basket in crease factor in FY 2011 by a 0.25 percentageCMS-1349-F 17

point adjustment. The FY 2011 IRF PPS no tice (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 a nd 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 am endments. 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 severa l 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 discusse d in section VI.A.6 of this final rule, and the 0.1 percentage point reduction is discusse d in section VI.A of this final rule. Section 1886(j)(3)(C)(ii)(II) of th e Act notes that the applica tion 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 prev iously-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 pr ogram 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 subm ission 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 fi scal year being less than pa yment rates for the preceding fiscal year. Reporting-based reductions to th e 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 IR F quality reporting program from those that have been endorsed by the consensus-ba sed entity which holds a performance

measurement contract under sec tion 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 au thorizes the Secretary to se lect non-endorsed measures for specified areas or medical topics when th ere 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 ava ilable to the public. Also, the SecretaryCMS-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 In strument (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 th e IRF-PAI upon the admissi on 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 enc oded into the IRF-PAI software product. Generally, the softwa re 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-digi t CMG number. The first digit is an alpha-character that indicates th e comorbidity tier. The last 4 digits represent the distinct CMG number. Free downloads of the Inpa tient 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 HealthCMS-1349-F 20

Insurance Portability an d Accountability Act of 1996 (Pub. L. 104-191, enacted on August 21, 1996) (HIPAA) compliant electr onic 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 ap propriate Medicare fiscal intermediary (FI) or Medicare Administrative Contractor (M AC). Claims submitted to Medicare must comply with both ASCA and HIPAA. For further discussion of these requirements, please see the FY 2011 IRF PPS Noti ce (75 FR 42836 at 42838). The Medicare FI or MAC processes the claim through its software system. This software system includes pricing programm ing 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 lo w-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 adjustme nt 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 re base 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 ofCMS-1349-F 21

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 ma nner 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 inte rns 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 s ection 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 la bor-related share of the FY 2012 IRF PPSCMS-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 Paym ent 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 thres hold 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 IR F 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 provisi ons 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 a ll 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 refe rence 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 re visions would affect both

IRFs and IPFs. We also proposed to relocate and revi se 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 pr oposed rule (76 FR 24214) from the public. We received comments from various trade associations, inpatient rehabilitation facilities, individual phy sicians, therapists, clinicians, he alth care industry organizations, and health care consulting firms. The fo llowing 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 calculat e a relative weight for each CMG that is proportional to the resources needed by an av erage inpatient rehabili tation 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 rela tive weight of 1. Re lative weights account for the variance in cost per discharge due to the variance in re source utilization amongCMS-1349-F 24

the payment groups, and their use helps to ensure that IRF PPS payments support beneficiary access to care, as we ll as provider efficiency. In the FY 2012 proposed rule (76 FR 24214, 24219 through 24225), we proposed to update the CMG relative weights and aver age 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 accu rately 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 curre nt 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 ru le (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 ancilla ry services) and capit al 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 di scharge (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-sp ecific relative value method.CMS-1349-F 25

Step 4 . We normalize the FY 2012 CMG relati ve weights to the same average CMG relative weight from the CMG relative weights impl emented 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 tota l estimated aggregate payments to IRFs for

FY 2012 are the same with or without the ch anges (that is, in a budget neutral manner) by applying a budget neutrality factor to the st andard 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 estimate d 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 rela tive weights (as discussed above). Step 3 . Divide the amount calculated in step 1 by the amount calculated in step 2 to determine the budget neutrali ty factor (0.9988) that would maintain the same total estimated aggregate payments in FY 2012 w ith and without the changes to the CMG relative weights. Step 4 . Apply the budget neutrality fact or (0.9988) to the FY 2011 IRF PPS standard payment amount after the applica tion 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 th at we used to update the CMG relative weights for FY 2012 changed from 0.9989 in the pr oposed 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 confusi on 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 fr om 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 up date 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 implemen ted one change to the methodology which

involved the use of more detailed cost-to-charge ratio (CCR) da ta from the cost reports of IRF subprovider units of primary acute care ho spitals, 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 theCMS-1349-F 27

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

this final rule.

Comment : Two commenters requested that CM S provide more information about the methodology that we use to calculate th e 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 va lues, 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 fi nal 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 calc ulated 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 remo ve 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 m eets the definition of a short-stay transfer, which results in a per diem case level adjust ment. The average length of stay valuesCMS-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 comm enters, 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 pr oposed rule data files on the IRF PPS Web

site at http://www.cms.gov/InpatientReha bFacPPS/07_DataFiles.asp#TopOfPage . We will continue to provide this information as pa rt of our standard rulemaking files that we post to the Web site in conjuncti on 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 we ights 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 (w hich 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 12CMS-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 22CMS-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 14CMS-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 N eurological M>47.75 0.9457 0.7992 0.7289 0.6589 10 11 9 9 0602 N eurological 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 N eurological 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 10CMS-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 171101 Amputation, nonlower extremity M>36.35 1.0359 1.0359 0.9826 0.9222 11 11 12 111102 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 16CMS-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 15CMS-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 7CMS-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 Facil ity-Level Adjustment Factors Section 1886(j)(3)(A)(v) of the Act conf ers broad authority u pon 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 f acility-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 (7 4 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 clai ms data (at that time, FY 2006, FY 2007, and FY 2008) and the most recent available correspo nding 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 underlyi ng data used to compute theCMS-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 appr oach that we implemented in FY 2010 improves the year-to-year stabil ity and predictability of the facility-level adjustment factors, we have continued to find unusually large year-t o-year fluctuations in the teaching status adjustment factor. To de termine the underlying reasons for these large year-to-year fluctuations in the teaching stat us adjustment factor, we analyzed the data and reviewed the methodology that we were usi ng 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, applie d to the regression analysis used to estimate the facility-level ad justment factors inappropriately exaggerated the differences among different types of IRF facilities. We proposed to remove the weighting methodology from our analysis of the fac ility-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 th at CMS release data that would enable facilities to replicate the calculation of the facility -level adjustment factors, provide more information on how CMS calcu lates 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/InpatientReha bFacPPS/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 ye ar’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 adjustme nt factors, based on FY 2008, FY 2009, and FY 2010 data, are shown below in Table 2. TABLE 2: Facility-Level Adjustment Fa ctors 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 th e proposed update to the facilitylevel adjustment factors in the FY 2012 pr oposed rule, including the use of an unweighted regression methodology to determine the facility-level ad justment factors, stating that they believe the changes will re sult in a more accurate payment system. However, several other commenters expresse d concern about the re sulting updates to the teaching status and LIP adjustment factor s for FY 2012 from using an un-weighted regression methodology. The commenters stated that the proposed updates would createCMS-1349-F 38

financial hardships for facilities with t eaching programs and a higher disproportionate share of low-income patients. Several of the commenters, including the Medicare Payment Advisory Commission (MedPA C), suggested that CMS defer the implementation of the un-w eighted regression methodology and conduct more analysis on the underlying causes of the instability in th e teaching status adjustment factor and on the most appropriate methodology for calculating the facility-level ad justment 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 f acility adjustment can d ecrease in a given year. Response : We agree with the commenters th at it is appropriate to defer implementation of the un-weight ed regression methodology for an additional year so that we can further analyze some anomalies that appear to exist in th e underlying data. We believe that these anomalies are causing the results of the weighted regression methodology to differ substantially from th e results of the un-weighted regression methodology. Thus, we believe that the best co urse of action for FY 2012 is to defer the implementation of the un-weighted regr ession methodology while we conduct more

research into the reasons for these anoma lies 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 reflecti on of cost differences among different types

of facilities.

Comment : One commenter offered several suggestions on ways to improve the computation of the facility-l evel adjustment factors w ithout altering the weighting methodology. Those suggestions included: pooli ng three year’s worth of data into aCMS-1349-F 39

single data set to increase sample size; c ontinuing 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 sugges tions that we received on ways to improve our methodology for computing the f acility-level adjustments and will take those suggestions under advisement while we con tinue to research ways to ensure that we are using the best methods to determ ine the facility-level adjustments.

Final Decision : After carefully considering all of the comments that we received on the proposed updates to the ru ral, 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 t hose 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 conv enience 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 area s will be computed with an 18.4 percent upward adjustment for rural status. IRF PPS pa yments 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

Medicare SSI Days Medicaid, Non-Medicare Days DSH patient percentage for each IRF = Total Medicare Days + Total Days

Finally, IRF PPS payments to eligible IR Fs 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/aver age daily census) rais ed 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 hosp itals. The teaching status adjustment accounts for the higher indirect operating costs expe rienced 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 ad justment 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 forCMS-1349-F 41

the purpose of calculating the IRF PPS teaching status adju stment, not the number of interns and residents teaching in stitutions can hire or train. We calculated the number of

FTE interns and residents that trained in th e IRF during a "base year" and used that FTE intern and resident number as the cap. An IR F'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 co mplete 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 ar e 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 thes e 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 a nd 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 sy stems, to the extent feasible. The IPPS indirect medical education (IME) adjustme nt and the direct GME policies contain provisions that allow for temporary adjustme nts to the IME/GME caps for IPPS hospitals that train interns and residents that are disp laced because a hospital closes or closes a medical residency training program. We have recently implemented a similar temporary cap adjustment policy for the inpatient psyc hiatric 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 I PPS and the IPF PPS, in the FY 2012 IRF PPSCMS-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 in terns and residents it trains in order to accept displaced interns and residents because another IRF closes or

closes a medical reside ncy training program. When an IRF temporarily takes on interns and residents that are displaced because another IRF closes or closes a residency tr aining program, we belie ve that a temporary adjustment to the cap would be appropriate. In these situations, interns and residents may have partially completed a residency training pr ogram at the IRF that has closed or closed a training program and may be unable to comple te 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 medi cal 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 tempor ary 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 becau se 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 te mporary cap adjustment will apply only to

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

time the IRF ceased training interns and reside nts 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 traini ng 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 a pproved medical residency trai ning program. Similarly, as under the IPPS policy, medical students who ar e accepted into a program at an IRF but the IRF or residency training pr ogram closes before the indivi dual begins training at that

IRF are also not considered displaced interns and reside nts for purposes of the IRF temporary cap adjustments. We note that although we are adopti ng 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 adjust ment 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 inte rns 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 trai ning that has to be completed in the IRF setting and only if all of the requirements spec ified 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 trai ning at another IRF because th at 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 addi tional 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 agr eement 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 polic y will be effective for cost reporting periods beginning on or after October 1, 2011, when an IR F 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 displ aced 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 re sidents as of October 1, 2011, requests mustCMS-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 cau sed the IRF to exceed its cap, (or the IRF may already be over its cap), and specifies th e length of time that the adjustment is

needed. After the displaced interns and resident s 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 resident s 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 A ffordable 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. Th erefore, 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 applicabil ity to the teaching status adjustments under the IRF PPS (or the IPF PPS, for that matter). 4. Temporary Adjustment to FTE Cap to Refl ect Interns and Residents Displaced Due to a Residency Program Closure If an IRF ceases training interns and re sidents in a residency training program(s) and agrees to temporarily reduce its FTE cap, another IRF may receive a temporaryCMS-1349-F 46

adjustment to its FTE cap to reflect the addi tion of the displaced in terns and residents. For purposes of this policy on closed resi dency programs, we are adopting the IPPS definition of “closure of a hospital resi dency 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 tr aining 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 begi nning 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 te mporary 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 resident s. In the case of an IRF that is already training the displaced intern s and residents as of Oct ober 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 in terns 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 contract or a copy of the FTE cap reduction statement by the IRF clos ing 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 trai ning displaced interns and re sidents 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 ex ceed its FTE intern and resident cap, then the IRF would potentially qualif y 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 traini ng 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 Medica re contractor that has been signed andCMS-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 disp laced 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 situati on 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 iden tify 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 polic y, 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 inte rns and residents. We believe that it is inappropriate to allow an increase to th e receiving IRF’s cap without an attendant decrease to the cap of the IRF with the cl osed program, because the IRF that ceased training the interns and residents could fill th ese 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 pr ogram 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 clos ure or a residency training program closure, which are summarized below.

Comment : One commenter suggested that th e proposed temporary adjustment to the FTE cap would be too difficult for CMS to m onitor. This commenter also stated that few IRFs with teaching programs have take n displaced interns and residents. Response : We believe that a policy allowi ng for temporary adjustments to the FTE caps for IRFs that take displaced intern s and residents would be no more difficult to monitor than the similar policy that is alre ady 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 tem porary adjustments to the FTE caps for those

IRFs that do.

Comment : Two commenters strongly suppor ted our proposed policy to allow a temporary adjustment to the intern and re sident cap when an IRF accepts interns or residents that are displaced due to an IRF closure or a reside ncy 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 al low IRFs that volunteere d to train displaced interns and residents before October 1, 2011 to receive the temporary cap adjustment. InCMS-1349-F 50

keeping with the similar policy for IPPS hospita ls, we are revising our proposed policy to allow IRFs to receive temporary cap adjustme nts for cost reporting periods beginning on or after October 1, 2011 for displaced interns a nd residents that they are training as of October 1, 2011. For example, if an IRF clos ed or closed a resi dency training program on October 1, 2009, then an intern or resident w ho 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 pr ogram closure would be eligible to receive a temporary cap adjust ment for cost reporting periods beginning on or after October 1, 2011. As noted above, an IRF that is requesti ng the temporary cap adjustment for the displaced interns and reside nts 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 a nd 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 occurr ed prior to October 1, 2011. In these instances, all required docum entation must be received by CMS no later than December 1, 2011. IRFs that meet the crite ria 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, Prod uctivity 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 th e prices of an appropriate mix of goods and

services included in the covere d IRF services, which is referr ed to as a market basket index. According to section 1886( j)(3)(A)(i) of the Act, the in crease 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 requi res 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 bask et increase factor based upon the most current data available, with a pr oductivity 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 ba sket 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 mo st 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 productiv ity adjustment as required by section 1886(j)(3)(C)( ii)(I) of the Act and a 0.1 pe rcentage point reduction asCMS-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 fo r rebasing the RPL market basket from a 2002 base year to a 2008 base ye ar, and then in section VI.A.2 of this final rule, we describe the methodology for calcula ting the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I ) of the Act. Finally, in sec tion VI.A.3 of this final rule, we

describe the calculation of the market basket in crease factor to be used to adjust IRF PPS payments for FY 2012. 1. Rebasing and Revising of the RPL Mark et 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 ma rket basket. This market basket was

based on 1997 Medicare cost re port data and included data for Medicare participating IRFs, IPFs, LTCHs, cancer hospitals, and child ren’s hospitals. Although “market basket” technically describes the mix of goods and se rvices used in providi ng hospital care, this term is also commonly used to denote the i nput 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 docu ment, refers to an input price index. Beginning with FY 2006, IRF PPS pa yments were updated using a

FY 2002-based RPL market basket reflecting the operating and cap ital 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 andCMS-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 LTC Hs. 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 not ed 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 exam ination of the Medicare cost report data comparing freestanding and hospital-based IR Fs revealed considerable differences between the two types of providers, both in term s of cost levels and cost structures. At that time, we were unable to fully understa nd 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 info rmation that might help us to better

understand the reasons for the variations in co sts 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 struct ures between hospital- based and freestanding IRFs, and therefore we do not be lieve it is appropriate, at this time, to incorporate dataCMS-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 a ppropriate to propose a stand-alone IRF market basket, we are currently exploring th e viability of creating two separate market baskets from the current RPL, one of wh ich 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 pr oposing 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 freesta nding IRF and freestanding IPF da ta should be research that CMS continues to explore. The commenter also stressed that a separate market basket which excludes LTC hospital costs must be con tingent 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 provide rs. 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 IR F and IPF providers. Any change to the market basket used to update IRF paymen ts will also be subject to the rulemakingCMS-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 IR F 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 conse quences of a change could be addressed by CMS and stakeholders. Response : We agree with the commenter’s obs ervation 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, necessa rily 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 th at 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 finali zing our intent to continue to use an RPL market basket based on freestanding IR F, 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 mark et basket. In the following discussion, we provide an overview of the market basket and describe the methodologies we use forCMS-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, La speyres-type price index. A Laspeyres price index measures the ch ange 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 step s. 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 categor y represents being calculated. These proportions are called cost or expenditure weights. Second, each expenditure category is matched to an appropriate price or wage vari able, referred to as a price proxy. In nearly every instance, these price proxies are derive d from publicly available statistical series that are published on a consistent schedule (p referably at least on a quarterly basis). Finally, the expenditure weight for each cost category is multiplie d by the level of its respective price proxy. The sum of these pr oducts (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. Repea ting 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 ra te of growth in the input price index over

that timeframe.CMS-1349-F 57

As noted above, the market basket is de scribed 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 effect s 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 hos pital hiring more nurses to accommodate the needs of patients would increase the volum e of goods and services purchased by the hospital, but would not be f actored into the price change measured by a fixed-weight hospital market basket. Only when the inde x is rebased would changes in the quantity and intensity be captured, with those change s 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 th at 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,” wh ile often used interchangeably, actually denote different activities. “Rebasing” mean s 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 ma rket basket from FY 2002 to FY 2008). “Revising” means changing data sources, pri ce 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 c onsists of several ma jor cost categoriesCMS-1349-F 58

derived from the FY 2008 Medicare cost re ports for freestanding IRFs, freestanding IPFs, and LTCHs including wages and salaries, pharmaceuticals, professional liability insurance (PLI), capital, and a re sidual. This residual reflects all remaining costs that are not captured in the four cost categories listed above. Th e FY 2008 cost reports include providers whose cost report be gin date is on or between October 1, 2007, and September 30, 2008. We choose to use FY 2008 as the ba se year because we believe that the Medicare cost reports for this year represen t the most recent, complete set of Medicare cost report data available for IRFs, IPFs, a nd LTCHs. However, there is an issue with obtaining data specifically for benefits a nd 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 pe rcent) reported data for these categories, and we do not expect thes e 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 report ing years, we have always had th is 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 incomp lete 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 th e 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 shar es 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 haveCMS-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 provide s a more accurate reflection of the structure of costs for Medicare covered days. We us e 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 Me dicare 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 (dep ending on the total facility average LOS) of the total facility av erage LOS. This is the same edit applied to

derive the FY 2002-base d 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 calcu lated cost weights for 4 cost categories and a residual as represented by all other costs dire ctly from the FY 2008 Medicare cost reports for freestanding IRFs, freestanding IPFs, a nd LTCHs (see Table 3 for these four cost categories and their associated weights). Thes e Medicare cost report cost weights were then supplemented with information obtained fr om other data sources (explained in more detail below) to derive the proposed FY 2008-based RPL market ba sket cost weights.CMS-1349-F 60

TABLE 3: Major Cost Categories and Thei r 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 Me dicare cost reports fo r 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 co st 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 we ights 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 th e FY 2008 IPPS Benefits cost weight to the FY 2008 IPPS Wages and Salaries cost wei ght was applied to the RPL Wages and Salaries cost weight. Similarly, the rati o of the FY 2008 IPPS Contract Labor cost weight to the FY 2008 IPPS Wa ges and Salaries cost weig ht 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 Tabl e 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 availabl e are for 2002. BEA also produces Annual I-O estimates; however, the 2002 Benchmark I-O da ta represent a much more comprehensive and complete set of data that are derive d 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. Inst ead 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 co st for telephone services repres ented 10 percent of the sum of the “all other” Benchmark I-O hospital expe nditures, then telephone services would represent 10 percent of the RPL market basket's All Other cost category.

Comment : One commenter supported using the la test 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 th at CMS consider revisions to the costCMS-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, weight s, and price proxies. Response : Effective for cost reports be ginning on or after May 1, 2010, we finalized a revised Hospital and Hospital Hea lth Care Complex Cost Report, Form CMS 2552-10, which is available for downl oad from the CMS webpage at http://www.cms.gov/Transmittals/2010T rans/list.asp?in tNumPerPage=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 co ntract labor costs and benefit costs for the hospital complex and is applic able to sub-providers and uni ts. 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 Ca tegory 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 “F inancial Services”. The in clusion 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 cat egories 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: PhotoCMS-1349-F 63

Supplies. The 2002 Benchmark I-O weight for th is category is considerably smaller than the 1997 Benchmark I-O weight, presently acco unting 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 wei ght 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” a nd “nonlabor-related” se rvices. 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-relate d 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 accu rately 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 ca tegory 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 weight s 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 propos ed FY 2008-based RPL market basket are based on Bureau of Labor Statistics (BLS) da ta 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 purch ase drugs directly from a wh olesaler. 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. Becau se they may not represent the price faced by a producer, we used CPIs only if an appr opriate PPI was not av ailable, 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 pr oxy for contracted food services. (c) Employment Cost Indexes --Employment Cost Indexes (ECIs) measure the rate of change in employee wage rates and empl oyer costs for employee benefits per hour

worked. These indexes are fixe d-weight indexes and strictly measure the change in wage rates and employee benefits pe r hour. Appropriately, these in dexes are not affected by shifts in employment mix. We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance. Re liability indicates that the index is based on valid statistical methods and has low sampling variability. Ti meliness implies that the proxy is published regularly, preferably at least once a quarter. Availability m eans that the proxy is publicly available. Finally, relevance means that the pr oxy is applicable and representative of theCMS-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 list ed, as well. For example, Wages and Salaries are 49.447 per cent 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 pe rcent in the proposed FY 2008-based RPL market basket compared to 12.982 percent fo r 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-ba sed 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 descri bed 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 ope rating 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 m eet our criteria of reliability, timeliness, availability, and relevance, we believe they are the best measur es of price changes for the cost categories.

For further discussion on the FY 2006-based IP PS market basket, see the IPPS final rule published in the August 27, 2009 Fe deral Register (74 FR 43843).CMS-1349-F 66

TABLE 4: FY 2008-Based RPL Market Basket Cost Categor ies, 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 Salaries 1 49.447 52.895 ECI for Wages and Salaries, Civilian Hospital Workers B. Employee Benefits 1 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.) Chemicals 2 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: Laborrelated 3 2.114 2.892 ECI for Compensation for Professional and Related Occupations (b.) Administrative and Business Support Services 4 0.422 n/a ECI for Compensation for Office and Administrative Services (c.) All Other: Labor-Related Services 5 2.145 2.219 ECI for Compensation for Private Service Occupations (2.) Nonlabor-Related Services 6.733 3.722 -- (a.) Professional Fees: Nonlabor-Related 3 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 Services 4 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 Professi onal 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 Supp ort Services cost category was contained within All Other: Labor-intensive Services cost cat egory in the FY 2002-based RPL market basket. The All Other: Labor-intensive Services cost categor y 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 Othe r: 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 pric e 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 categ ory. This same proxy was used in the FY

2002-based RPL market basket.CMS-1349-F 68

(iii) Electricity

We use the PPI for Commer cial 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 Cl assification 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 th is category that had previously been grouped in other categories. The added costs include petroleum-related expenses under NAICS 324110 (previously captur ed in the miscellaneous category), as well as petrochemical manufacturing cl assified under NAICS 325110 (previously captured in the chemicals category). Thes e added costs represent 80 percent of the hospital industry's fuel, oil, and gasoline ex penses (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 Pe troleum Refineries (BLS series code PCU324110324110) as th e proxy for this cost category. (v) Water and Sewage We use the CPI for Water and Sewerage Maintenance (All Urban Consumers) (BLS series code CUUR0000SEHG0 1) to measure the price grow th 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 Liab ility Index. To generate these estimates,CMS-1349-F 69

we collect commercial insura nce premiums for a fixed leve l 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 th e price growth of this cost category. We note that we are not making a change to the PPI that is us ed 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 a nd Feeds (BLS series code WPU02) to measure the price growth of this cost categ ory. 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 grow th 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 PC U325120325120P), the PPI for Other Basic Inorganic Chemical Manufacturing (NAI CS 325180) (BLS series code PCU32518- 32518-), the PPI for Other Basic Organi c 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 NAI CS 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 hospita ls than does the PPI for Industrial Chemicals (BLS se ries code WPU061), the pr oxy used in the FY 2002-based RPL market basket. Table 5 shows the weight s 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 Ch emical PPI Weights

Name Weights (in percent) NAICS PPI for Industrial Gas Manufacturing 35% 325120 PPI for Other Basic Inorganic Chem ical 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 th is cost category. In the 1997 Benchmark I-O data, approximately half of the expenses classi fied 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 th ese expenses and that the largest expense category is surgical appliance and supplies manufacturing (correspond ing to BLS seriesCMS-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 cost s are now included in the Chemicals cost category because the costs are presently reported as all othe r chemical products. Notably, although we are eliminating the specific cost category, these costs ar e 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 categor y. 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 categor y. This same proxy was used

in the FY 2002-based RPL market basket. (xv) Apparel We use the PPI for Apparel (BLS seri es code WPU0381) to measure the price growth of this cost category. This sa me proxy was used in the FY 2002-based RPL

market basket. (xvi) Machinery and Equipment We use the PPI for Machinery and Equi pment (BLS series code WPU11) toCMS-1349-F 72

measure the price growth of this cost categ ory. 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 en ergy prices, which are already captured

elsewhere in the market basket. This sa me 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 CI S2020000120000I) to measure the price growth of this category. It includes o ccupations such as legal, accoun ting, 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 Offi ce and Administrative Support Services (Private Industry) (BLS series code CI U2010000220000I) to measure th e price growth of this category. Previously these costs were included in the All Other: Labor-intensive category (now renamed the All Other: La bor-related Services category), and were proxied by the ECI for Compensation for Serv ice Occupations. We believe that this compensation index better reflects the cha nging 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 ServicesCMS-1349-F 73

We use the ECI for Compensation for Se rvice Occupations (Private Industry) (BLS series code CIU2010000300000I) to measure th e price growth of th is cost category. This same proxy was used in the FY 2002-based RPL market basket. (xxi) Professional Fe es: Nonlabor-Related We use the ECI for Compensation for Professional and Related Occupations (Private Industry) (BLS series code CI S2020000120000I) to measure the price growth of this category. This is the same price proxy th at we are using to use for the Professional Fees: Labor-related cost category. (xxii) Financial Services We use the ECI for Compensation for Fi nancial Activities (Private Industry) (BLS series code CIU201520A000000I) to meas ure the price growth of this cost category. Previously these costs were includ ed in the All Other: Nonlabor-intensive category (now renamed the All Other: Nonl abor-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 financ ial 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 cat egory. 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 RPLCMS-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 ener gy prices, as they are already captured elsewhere in the market basket. Consequentl y, 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 increa ses salary freezes or other similar factors and are not necessarily indicat ive of a reduction in the labor intensity of the services provided by IRFs. Response : We agree with the commenter that a variety of factor s 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 lo w salary increases or freezes in salary), could result in a lower cost we ight associated with wages and salaries. Likewise, stable growth in labor costs coupled with relatively fast er 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 weight s reflect an updated distribution of costs and repres ent the best available data, we are finalizing this market

basket in this final rule.CMS-1349-F 75

(4) Methodology for Capital Port ion 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 requireme nts. Therefore, we used these hospitals’ 2001 expenditure data for the capital cost cat egories of depreciation, interest, and other capital expenses, and inflated the data to a 2002 base year using rele vant price proxies.

For the FY 2008-based RPL market basket , we calculate weights for the proposed RPL market basket capital costs using the sa me 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 descri bed 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 rath er are proportionally distributed amongst the cost categories of Depreciation, Interest, a nd 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 t hose costs to the “Other Capital-Related Costs” category accordingly. The remaining l ease expenses were distributed across the 3 cost categories based on the resp ective weights of depreciatio n, 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 andCMS-1349-F 76

movable equipment was determined usi ng the FY 2008 Medicare cost reports for freestanding IRFs, freestanding IPFs, and LTC Hs. 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 cate gory is split between government/nonprofit interest and for-profit inte rest. 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 do mestic municipal bonds. The remaining 25 percent of the Interest cost weight was allocated to for-pro fit 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 th ese data, we calculated a 33/67 split between government/nonprofit and fo r-profit interest. We believe it is important that this split reflects the latest re lative cost structure of interest expenses for RPL providers. As stated above, we first ap ply the LOS edits (as described in section VI.A.1.c.(1)(a) of this final rule ) prior to calculati ng this split. Ther efore, we are using cost reports that are reflective of case mix a nd practice patterns asso ciated with providing

services to Medicare benefici aries. Using data specific to government/nonprofit and forprofit freestanding IRFs, freesta nding IPFs, and LTCHs as we ll as the application of these LOS edits are the primary reasons for the difference in this split relative to the FYCMS-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 consump tion of capital, using vintage weights for depreciation (physical capital) and interest (financial capi tal). These vintage weights reflect the proportion of capital purchases attributable to each year of the expected life of building and fixed equipment, movable equipm ent, and interest. We use the vintage weights to compute vintage-we ighted price changes associ ated with depreciation and interest expense. Vintage weights are an in tegral part of the proposed FY 2008-based RPL market basket. Capital costs are inherently compli cated and are determined by complex capital purchasing decisions, over time, based on su ch factors as intere st 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 asso ciated 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 pr ovide an accurate and stable annual measure of price changes. Annual nonvintage price ch anges for capital are unstable due to the volatility of interest rate ch anges 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 und erlying stability of the capital acquisition process and provides hospitals w ith the ability to plan for changes in capital payments.CMS-1349-F 78

To calculate the vintage weights for de preciation 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 provi des 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 Associ ation (AHA) do not include annual capital purchases. However, AHA does provide a consis tent 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 hospita l expenses obtained from the Medicare cost reports to derive a trend of annual depr eciation 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 re port 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 equi pment 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 rela tive 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-lin e depreciation. Following a similar method to what was applied for th e FY 2002-based RPL market basket, we use the expected life of building and fixed equi pment to be equal to 26 years, and the expected life of movable equipment to be 11 ye ars. 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 liv es for building and fixed equipment and movable equipment using the Medicare cost re ports from freestanding IRFs, freestanding IPFs, and LTCHs. We also use the building and fixed eq uipment and movable equipment weights

derived from FY 2008 Medicare cost reports for freestand ing IRFs, freestanding IPFs, and LTCHs to separate the depreciation expe nses into annual amounts of building and fixed equipment depreciation and movable eq uipment depreciation. Year-end asset costs for building and fixed equipment and m ovable equipment were determined by multiplying the annual depreciation amounts by th e 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 ye ar asset costs. From this capital purchase time series, we were able to calculate the vintage weights fo r 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 vint age weights, we used the real annualCMS-1349-F 80

capital purchase amounts for building and fixe d equipment to capture the actual amount of the physical acquisition, net of the effect of price inflatio n. This real annual purchase amount for building and fixed equipment was produced by deflating the nominal annual purchase amount by the building and fixed e quipment price proxy, BEA's chained price index for nonresidential construction for hosp itals 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 pe riods. With real building and fixed equipment purchase estimates available from 2008 back to 1963, we averaged twenty 26- year periods to determine th e average vintage weights for building and fixed equipment that are representative of average buildi ng 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 peri od. This calculation is done fo r each year in the 26-year period, and for each of the twenty 26-year pe riods. We used the average of each year across the twenty 26-year periods to determ ine the average building and fixed equipment vintage weights for the FY 2008-based RPL market basket. For the movable equipment vintage wei ghts, the real annua l capital purchase amounts for movable equipment were used to capture the actual amount of the physical acquisition, net of price infl ation. 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 Mach inery and Equipment. This is the same proxy used for the FY 2002-based RPL market basket. Based on our determination thatCMS-1349-F 81

movable equipment has an exp ected 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 purch ase 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 representa tive of average movable equipment purchase patterns over time. Vintage weights for each 11-year period are calculated by dividing the real movable capital purch ase amount for any given ye ar by the total amount of purchases in the 11-year period. This calcu lation 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 no minal annual capital purchase amounts for total equipment (building and fixed, and movabl e) 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 weight s 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 th e 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 fo r each of the twenty 26-year periods. We used the average of each year across the twen ty 26-year periods to determine the averageCMS-1349-F 82

interest vintage weights for the FY 2008-base d 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 we re computed, it was necessary to select appropriate price proxies to re flect the rate-of-increase for each expenditure category. We use the same price proxies for the capit al portion of the FY 2008-based RPL market

basket that were used in the FY 2002-based RPL market basket with the exception of theCMS-1349-F 83

Boeckh Construction Index. We replaced th e Boeckh Construction Index with BEA’s chained price index for nonresidential c onstruction 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 rele vance, 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 th e 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 Octobe r 1, 2011 and ending September 30, 2012),

we will use an estimate of the FY 2008-base d 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 Insi ght (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 wi th 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 ba sket 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 mark et 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 ma rket basket and IGI’s second quarter

2011 forecast for the market basket co mponents, the FY 2012 update would be 3.0 percent (before taking into account any statut ory 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 statutorilyCMS-1349-F 85

required. Source: IHS Global Insight, Inc. 2 nd quarter 2011 forecast. For FY 2012, the FY 2008-based RPL mark et basket update (2.9 percent) is slightly lower than the FY 2002-based RPL ma rket 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-base d RPL market basket (65.877 percent), absent other factors, would have resulted in a slightly lower mark et basket update using

the FY 2008-based RPL market basket. This impact, however, is partially offset by the larger weight associated with the Professi onal Fees category. In both market baskets, these expenditures are proxied by the ECI fo r Compensation for Professional and Related Services. The weight for Professional Fees in the FY 2002-based RP L 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 bask et relative to th e 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 f aced 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 re vise the index. Based on IG I’s second quarter 2011 forecast with history through the first quarter of 2011, the projected ma rket basket update for FYCMS-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 th e Act, the Secretary shall establish an increase factor “based on an appropriate per centage 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 establishi ng the increase factor for a FY, “the Secretary shall reduce such increa se 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 productiv ity adjustment to be equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity (MFP) (as projecte d by the Secretary for the 10-year period ending with the applicable FY cost repor ting period, or other annual period) (the “MFP adjustment”). The Bureau of Labor Sta tistics (BLS) is the agency that publishes the official measure of private nonfarm busine ss 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 pr oduced by IGI, an economic forecasting firm. In order to generate a forecast of M FP, IGI replicated the MFP measure calculated by the BLS using a series of proxy variable s derived from IGI’s U.S. macroeconomic models. These models take into account a very broad range of factor s that influence theCMS-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 foreca sted by IGI and determined to be the best available proxies for the BLS series.

TABLE 8: Multifactor Pro ductivity 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 co mponents identified are consis tent 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 employe d 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, withCMS-1349-F 88

2010 being a preliminary value. Using this hi storical 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, th e 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 us ed to “grow” the levels of the “real value-added output,” “private non-farm busin ess 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 deri ved by subtracting th e 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 a nd capital income. The sum of labor compensation and capital income represents total income. The BLS calculates labor compensation and capital income (in current dolla r terms) to derive the nominal values of labor and capital inputs. IG I uses the “non-government tota l compensation” and “flow of capital services from the total private non-resi dential 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 compen sation and capital income to total income. To estimate labor’s contribution and capital’s contribution to the gr owth 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 c ontributions, of labor and capital to output growth, are subtracted from to tal 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 refe rred 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 th e BLS for its historical MFP measure). Finally, the growth rates of the IG I MFP are converted to index levels based to

2005 to be consistent with the BLS’ me thodology. 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 historic al MFP estimate published by the BLS. The comparison revealed that the growth rates of the components were consistent across all series, and therefore validate d the use of the proxy variab les in generating the IGI MFP projections. The resulting MFP index was th en interpolated to a quarterly frequency using the Bassie method for temporal disaggreg ation. The Bassie technique utilizes an indicator (pattern) series fo r 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 IR F 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 andCMS-1349-F 90

subtract from that the MFP percentage adju stment 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 th e MFP-adjusted IRF PPS increase factor by 0.1 percentage point for FY 2012. Specifically, in calculating the MFP percenta ge 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 cal culation (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 ad justment 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 poin t level up or down as applicable according to conventional roundi ng 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 th e 1st quarter 2011 forecast of the proposed FY 2008-based RPL market basket update, whic h was estimated to be 2.8 percent. This increase factor was then reduced by the pr oposed 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 In sight’s 1st quarter 2011 forecast. The

increase factor for FY 2012 was then fu rther reduced by 0.1 percentage point inCMS-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 e qual to 1.5 percent, or 2.8 percent less 1.2 percentage points (for the MFP) less 0.1 pe rcentage 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 es timate and the MFP adjustment in this final

rule to reflect the most recent available data.

Comment : Several commenters recognized th at 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 re duced by a productivity adjustment beginning in FY 2012. As a result, we have no discretio nary 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 traine d personnel and that efficien cies 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 continuedCMS-1349-F 92

efficiencies at a rate that will be re quired by ongoing application of productivity adjustments. Response : We recognize that a complex a nd sophisticated mix of inputs are required to provide care to IR F patients. However, the agency is required by law to apply the MFP adjustment to provider payments as stipulated by s ection 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 IR F 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 calculati ng 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 increas e 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 base d on IGI’s second quarter 2011 forecast. Following application of the pr oductivity adjustment, the appl icable percentage increase will then be further reduced by 0.1 per centage point, as required by sectionCMS-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 th e 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 reha bilitation f acilities’ 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 fac ility compared to the national average wage level for the

facilities. Not later than Oc tober 1, 2001 (and at least ever y 36 months thereafter), the Secretary shall update th e factor under the preceding senten ce on the basis of information available to the Secretary (and updated as a ppropriate) of the wa ges and wage-related costs incurred in furnishing rehabilitation servic es. 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 th e 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 ar e related to, influenced by, or vary with th e local labor market. We continue to classify a cost ca tegory as labor-related ifthe 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 theCMS-1349-F 94

relative importance of Wages and Salaries , Employee Benefits, Professional Fees: Labor-related, Administrative a nd 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, th e “All Other” Labor-related Services cost category is mostly comprised of building main tenance and security services (including, but not limited to, commercial and indus trial machinery and equipment repair,

nonresidential maintenance and re pair, and investigation and s ecurity services). Because

these services tend to be labor-intensive and are mostly performed at the hospital facility (therefore, unlikely to be purchased in the nati onal market), we believe that they meet our

definition of labor-related services.

As stated in the FY 2006 IRF PPS fi nal rule (70 FR 47880, 47915), the laborrelated share was defined as the sum of th e relative importance of Wages and Salaries, Fringe Benefits, Professional Fees, Labor-inten sive 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 ba sket rebasing, the inclusion of the Administrative and Business Support Services cost category into th e labor-related share

remains consistent with the current labor-re lated share because this cost category was previously included in the Labor-intensive cost category. As pr eviously stated, we establish a separate Administra tive and Business Support Servi ce cost category so that we can use the ECI for Compensation for Office and Administrative S upport Services toCMS-1349-F 95

more precisely proxy thes e specific expenses. For the FY 2002-based RPL market basket, we assumed that all nonmedical professional services (including accounting a nd auditing services, e ngineering services, legal services, and management and consulti ng 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 th e share of professional fees that should be

included in the labor-related sh are, we surveyed hospitals regarding the proportion of those fees that go to companies that are lo cated 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 at tributable to local firms and the proportion that are purchased fr om 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 (Cont rol Number 0938-1036), we contacted a sample of IPPS hospitals and received respons es to our survey from 108 hospitals. We believe that these data serve as an appr opriate proxy for the pur chasing 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-stratificat ion weights. Based on theseCMS-1349-F 96

weighted results, we determined that hos pitals purchase, on average, the following portions of contracted professional servic es 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 manageme nt consulting services. We applied each of these percentages to its respective Benchmark I-O cost category underlying the professional fees co st category to determine the Professional

Fees: Nonlabor-related costs. The Prof essional 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 co sts. This is the methodology that we used to separate the FY 2008-based RPL market basket professional fees category into

Professional Fees: Labor-related a nd Professional Fees: Nonlabo r-related cost categories. In addition to the professional services liste d above, we also classified expenses under NAICS 55, Management of Compan ies and Enterprises, into the Professional Fees cost category as was done in previ ous rebasings. The NAICS 55 da ta are mostly comprised of corporate, subsidiary, and re gional managing offices, or othe rwise 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 ofCMS-1349-F 97

Home Office Medicare Records (HOMER) (a database that provi des city and State information (addresses) for home offices), we were able to determine that 19 percent of

the total number of freestandi ng 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 th e location of the provi der 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 offi ce are located in different States.

● Group 2--Provider and home office ar e located in the sa me 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 offi ces were classified into Group 1 (that is, different Stat e) and, thus, these providers were determined to not be

located in the same local labor market as th eir home office. Although there were a very limited number of exceptions (tha t is, providers located in di fferent 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 a nd, therefore, the same MSA). Consequently, these providers were determined to be located in the same local labor market as theirCMS-1349-F 98

home offices. We found that 27 percent of all providers with home offi ces 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 provid er 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 offi ces had their home offices in the same State and city (and, thus, the same MSA), and 10 pe rcent of providers with home offices had their home offices in the same State, a diffe rent city, but the same MSA). We proposed to apportion the NAICS 55 expense data by th is percentage. Thus, we proposed to classify 19 percent of these costs into the Pr ofessional Fees: Labor-r elated cost category and the remaining 81 percent into the Professional F ees: 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 importa nce 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 refl ects IGI’s second quarter 2011 forecast of the FY

2008-based RPL market basket. Table 9 s hows the FY 2012 relativ e 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 Share 1 FY 2012 Relative Importance Labor-Related Share 2 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 quar ter 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: La bor-Related, Administrative and Business Support Services, and All Other: Labor-relate d 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 percen tage 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-r elated share of Capital for FY 2012. TheCMS-1349-F 100

result would be 3.635 percent, which we a dd 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 ca lculate all previous

IRF labor-related shares.

Comment : One commenter stated that th e CMS proposal to no longer include 100 percent of certain types of costs in the labor-relat ed share calculation does not coincide with the application of the area wa ge index. This commenter noted that costs captured in the “Other Services” cost cate gory in the RPL, whether employees, local contractors, national contractor s, or home office allocations , represent personal services,

which are in essence labor-related. The comme nter 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 (CBS A) 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 hospita l 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 s hould 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 servi ce costs as labor-related. The wage index that is applied to the labor-related portion of a ny payment system measures the variation inCMS-1349-F 101

labor costs based on geographic differences. Th erefore, it is appropr iate that the wage

index would include all relative cost differences for various labor categories. The laborrelated share is defined as the proportion of to tal costs that are rela ted to, influenced by, or vary with the local labor market. A cost category is defined as la bor-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 apporti onment of some of the costs associated with various nonmedical profe ssional fees and home office expenses into nonlabor-related categories refl ects the findings of our analys es 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 influe nced 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 appropriaten ess 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 weight s for both the 2002-based a nd the 2008-based RPL market baskets were calculated using the Medicare co st reports for freesta nding IRFs, IPFs, and LTCHS. We found during our most-recent rebasi ng process that the compensation costCMS-1349-F 102

weight had begun gradually decreasing ove r 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 proporti on 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 ap portionment of professional fees and home

office costs. We believe the data and methods used to derive this apportionment were technically appropriate and re sult 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 la bor-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 fo r professional fees and home o ffice costs as labor-related and subject to the area wage index adjustme nt. 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 con cern that the results of the professional fees survey may not accurately reflect the pe rcentage of nonmedical professional services provided by entities outside th e local labor market utili zed 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 theCMS-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 desi gnations. 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 compensati on costs from 2002 to 2008 as reported on the Medicare cost reports. In pa rticular, 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 pr ofessional 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 purchase d 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 we re 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 professiona l 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 reducti on to the labor-related share. Response : We do not believe that a phase -in of the labor-related share isCMS-1349-F 104

necessary. We estimate that only 3 IRFs w ould lose more than 5 percent in payments from this change, with the maximum es timated loss being 7.85 percent. While significant, this is similar to percentage ch anges in payments due to annual wage index fluctuations, and we do not t ypically provide phase-ins fo r the standard wage index fluctuations that occur from year to year.

Final Decision: After consideration of the pub lic 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 r ecent 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 shar e reflects the current pr oportion of costs that are related to, are influenced by, or vary w ith the local labor mark et, we believe it is appropriate to incorporate the results in fu ll 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 Ac t 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 fact or (established by the Secretary) reflecting the relative hospital wage level in the geogr aphic area of the rehabilitation facility compared to the national average wage leve l for those facilities. The Secretary is required to update the IRF PPS wage index on the basis of information available to theCMS-1349-F 105

Secretary on the wages and wage-related cost s 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 fi nal rule to determine the wage index,

labor market area definitions and hold harm less 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 polic ies and methodologies described in the FY 2009 IRF PPS final rule (73 FR 46378) relati ng 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 a nd pre-floor hospital wage index data. In accordance with sect ion 1886(d)(3)(E) of th e Act, the FY 2011 prereclassification and pre-floor hospital wage i ndex is based on data submitted for hospital cost reporting periods beginning on or af ter October 1, 2006, and ending September 30, 2007 (that is, FY 2007 co st report data). The labor market designations made by the OMB include some geographic areas where there are no hospitals and, thus, no hosp ital wage index data on which to base the calculation of the IRF PPS wage index. We w ill 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 CBS A changes published in the most recent OMB bulletin that applies to the hospital wage data used to determine the current IRFCMS-1349-F 106

PPS wage index. The changes were nominal an d did not represent substantive changes to the CBSA-based designations. Specifica lly, 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-base d RPL market basket (70.199 percent) to determine the labor-related portion of the st andard 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 ma nner. 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 paymen t conversion factor re flects the update to the wage indexes (based on the FY 2007 hospita l 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 estim ated IRF PPS payments using the FY 2011 standard payment conversion factor a nd 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 ad justment factor from step 3 to the FY 2011 IRF PPS standard payment conversi on factor after the application of the adjusted market basket update to determ ine the FY 2012 standard payment conversion

factor. We received 2 comments on the propos ed FY 2012 IRF PPS wage index, which

are summarized below.

Comment : Several commenters recomm ended that CMS develop a new methodology for area wage adjustment that ev entually 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 simila r 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 furt her 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 ti me the degree, if any, to which a geographicCMS-1349-F 108

reclassification adjustment or a “rural fl oor” policy under the IRF PPS is appropriate. The rationale for our current wage index polic ies is fully described in the FY 2006 final rule (70 FR 47880, 47926 through 47928). Although some commenters recommended th at we adopt the IPPS wage index policies such as reclassification and floor policies, we note that Medicare Payment Advisory Commission (MedPAC’s) June 2007 re port to the Congress, titled “Report to Congress: Promoting Greater Efficiency in Medicare,” recommends that Congress “repeal the existing hospital wage index statut e, 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 suggest s 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 met hodology, including the issues the commenters mentioned about ensuring that the wage inde x minimizes fluctuations, matches the costs of labor in the market, and provides for a single wage index polic y. 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 Medi care wage index classification system into account, and is to incl ude a proposal to revise th e IPPS wage index system. MedPAC’s recommendations were pres ented in the FY 2009 IPPS final ruleCMS-1349-F 109

( http://edocket.acce ss.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 wage s for each geographic areas.

• Minimizing variations in wage inde x 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 Febr uary 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 methodolog y used to construct the Medicare wage

index and the recommendations reported to Congress by Me dPAC. Parts 1 and 2 of Acumen’s final report, which analyzes the st rengths 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 pres ented 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 syst em 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 mark et area definitions and the wage index methodology for areas without wage data. Theref ore, this final rule continues to use the Core-Based Statistical Area (CBSA) labormarket 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 stan dard 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 convers ion factor for FY 2012, as illustrated in Table 10, we begin by applying the adjusted market basket increas e factor for FY 2012 that was adjusted in accordance with sect ions 1886(j)(3)(C) and (D) of the Act (1.8 percent, or 2.9 percent less a cumulative tota l adjustment of 1.1 pe rcentage 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 ad justed market basket increase factor for FY 2012 to the standard payment conve rsion factor for FY 2011 of $13,860 yields aCMS-1349-F 111

standard payment amount of $14,109. Then, we a pply the budget neutrality factor for the FY 2012 wage index and labor-related shar e 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, whic h 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 pr oductivity adjustment, and reduced by 0.1 percentage poi nt in accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act x 1.018Budget Neutrality Factor for the Wage Index and LaborRelated Share x 0.9988 Budget Neutrality Factor fo r 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 we ights described in section IV of this final rule, to the FY 2012 standard paymen t 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 $12,728.93CMS-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 $11,514.17CMS-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 $ - $ - $ - $26,431.91CMS-1349-F 114

D. Example of the Methodology for Adjusti ng the Federal Prosp ective Payment Rates Table 12 illustrates the methodology fo r adjusting the Federal prospective payments (as described in sections VI.A. thr ough VI.C. of this final rule). The following examples are based on two hypothe tical Medicare bene ficiaries, 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-la bor 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 th e appropriate wage index found in the addendum in Tables A and B. The resulting figure is the wage-a djusted labor amount.CMS-1349-F 115

Next, we compute the wage-adjusted Federa l payment by adding the wage-adjusted labor amount to the non-labor portion. Adjusting the wage-adjusted Federal pa yment 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 th e teaching status adjustment (0.0610, in this example) by the wage-adjusted and rural-adjust ed 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 IR F 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 = $29,101.46CMS-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 Hi gh-Cost Outliers Under the IRF PPS A. Update to the Outlier Threshold Amount for FY 2012 Section 1886(j)(4) of the Act provides th e Secretary with the authority to make payments in addition to the basic IRF pr ospective 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 thresh old. 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 es timated cost of the cas e is higher than the adjusted outlier threshold, we make an outlier payment for the case eq ual to 80 percent of

the difference between the estimated cost of the case and th e outlier threshold. In the FY 2002 IRF PPS final rule (6 6 FR 41362 through 41363), we discussedCMS-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 pol icies 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 hi gh-cost patients, while still providing for adequate payments for all other (non-high cost outlier) cases. Subsequently, we updated the IRF ou tlier 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 to tal estimated payments. We also stated in the FY 2009 final rule (73 FR 46370 at 46385) th at we would continue to analyze the estimated outlier payments for subsequent ye ars 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 th at we used to set the initia l 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 mo st 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 fo r continuing to establish outlier payments at 3 percent of total payments. However, several commenters requested more information on why the proposed outlier thre shold increased from $11,410 in FY 2011 to $11,822 in the FY 2012 proposed rule when onl y 2.7 percent of th e 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 redu ction 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 disc ussed 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 pr oposed 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 outlie r threshold that we are finalizing in

this final rule is lower than the FY 2011 outlier threshold amount.

Comment : One commenter stated that th e calculation of the CCRs in other settings has been identified as a potential reason for those settings’ difficulties in establishing an appropriate outlie r threshold, which may also be the case for the IRF PPS. The commenter suggested that CMS assess whet her this is a problem for the IRF PPS andCMS-1349-F 119

release more information on the role that the CCRs play in establishing the outlier

threshold. Response : We appreciate the commenter’s c oncerns. 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 se t the outlier thre shold, we first estimate the cost of a case in the current fiscal year by multiplying an ove rall facility-specific cost-to-charge ratio by charges and by the market basket for the curr ent fiscal year (without any adjustments). The outlier threshold for the upcoming fis cal year is then calculated by simulating aggregate payments with and without a cha nge in the outlier thre shold, and applying an iterative process that accounts for changes inthe market basket, wage index and laborshare, CMG relative weights, and facility-l evel adjustment factors, to determine a threshold for the upcoming fiscal year that w ould result in outlier payments being equal to 3 percent of total payments under the simulation. We note, too, that we implemented a new outlier reconciliati on process for IRFs (and other settings) beginning April 1, 2011 that we believe will im prove the accuracy and reliability of the IRF CCRs. For more information on the new outlier reconciliation process, please view the “Outlier Reconc iliation” link on the IRF PPS Web site at ( http://www.cms.gov/InpatientReha bFacPPS/03_OutlierR.asp#TopOfPage ).

Comment : One commenter suggested that CMS evaluate the distribution of outlier payments. If CMS determines that lo w-volume facilities, rather than facilities treating patients of a higher acuity level, are mostly receivi ng the outlier payments then CMS should reduce the outlier pool and add th e 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 sugge st that low-volume facilities are disproportionately receiving outlier payments. We believe that the outlier policy of 3 percent of total estimated paymen ts optimizes the extent to which we can encourage facilities to continue to take pati ents that are likely to have unusually high costs, while still providing ade quate payment for all other cases. In addition, as we have explained before, we do not make adjustme nts to PPS payment rates to account for differences between projected and actual outlie r payments in a previous year. We believe that our outlier policies are c onsistent 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 th at such refinements are necessary.

Final Decision : After carefully considering all of the comments we received on the proposed update to the outlier thres hold 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 IR F 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 mostCMS-1349-F 121

recent data that is availabl e. We apply the national urban and rural CCRs in the following situations:

● New IRFs that have not yet subm itted their first Medicare cost report.

● IRFs whose overall CCR is in exce ss 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 averag e of the CCRs for all urban IRFs using their most recently submitted cost report data. We appl y 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 av ailable 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, th e 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 IR F. 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 revi ew activities suggest th at these older data do not adequately reflect the current cost of care. In accordance with past practice, we se t the national CCR ceiling at 3 standardCMS-1349-F 122

deviations above the mean CCR. Using th is method, the national CCR ceiling is set at 1.55 for FY 2012. This means that, if an i ndividual IRF’s CCR exceeds this ceiling of 1.55 for FY 2012, we would replace the IRF’s C CR with the appropriate national average CCR (either rural or urban, depending on th e geographic location of the IRF). We calculate the national CCR ceiling by: Step 1 . Taking the national average CCR (wei ghted 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 signifi cant reliable ceiling. Step 4 . Adding the result from step 3 to th e 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 comment s 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 conf ers broad authority u pon the Secretary toCMS-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 f acility-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 IR F LIP adjustment. In that final rule, we

said that we would calculate the LIP ad justment 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 Fr action.” We compute the SSI fraction (also

known as the “SSI ratio” or the “Medicar e fraction”) by dividing the number of the facility’s inpatient days that are furnished to patients who were en titled 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 ar e enrolled in a Medicare Advantage (Part C) plan). To determine th e number of inpatient days for individuals entitled to both Medicare Part A and SSI, as re quired for calculation of the numerator of the SSI fraction, we match the Medicare reco rds and SSI eligibility records for each IRF’s patients during the FY. The data unde rlying the match process are drawn from: (a) The Medicare Provider Analysis and Re view (MedPAR) data file; and (b) SSI eligibility data provided by the Social Secu rity Administration (SSA). We recentlyCMS-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 acu te IPPS DSH adjustment. In keeping with this long-standing policy, we will use the sa me matching process as IPPS for calculating the SSI fractions for FYs 2011 and beyond. This process is descri bed in the FY 2011 IPPS final rule, and will be used to calcul ate IRFs’ SSI fractions for FY 2011. The FY 2011 IPPS final rule (75 FR 50277 through 5 0286) 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 fr actions 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 calcu lating the IRF SSI ratios for any cost reporting periods prior to FY 2011. Specifical ly, 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, regard less of the cost re porting period. Response : As we discussed in the FY 2012 IRF PPS proposed rule (76 FR 24214 at 24249 through 24250), in keeping with our lo ng-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 PPSCMS-1349-F 125

proposed rule. We will continue our ongoing an alysis to determine the most appropriate methodologies to use in addressing open app eals, in both the IPPS and the IRF settings. IX. Updates to the Policies in 42 CFR Part 412 Prior to the implementation of the IR F 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 proce ss, 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 si ze and square footage. Under the IRF PPS, however, Medicare pays IRFs according to Fe deral 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 regardi ng new IRFs and IRF expansions obsolete. Prior to 2002, the regulations distingu ished 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 separati on of the regulatory s ections resulted in unnecessary repetition and confusion about whic h 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 ofCMS-1349-F 126

payment in the existing §412.23(b) 5a nd §412.29, including the requirements for preadmission screenings to be conducted on a ll 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 th e IRF, mirror some of the IRF coverage requirements in §412.622(a)(3 ), (4), and (5). Finally, in recent years, we have obs erved an increase in the number and complexity of acquisitions and mergers occurr ing in this industry. In some cases, the Medicare rules and requirements for IRFs di d not adequately address the number and complexity of acquisitions and mergers beca use they simply did not occur when the regulations were written. In other cases, regulations were wr itten to address issues that do not exist today. For all of these reasons, in this final ru le we consolidate, clarify, and revise the regulations for inpatient rehabilitati on 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 modificati ons will eliminate regul ations 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 serv ices, which will improve beneficiary access to these services. Many of th e 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 determin ing how many IRFs might take advantage ofCMS-1349-F 127

the added flexibility these regulations afford to expand or change their operations, we are not able to quantify the potential savings th at may result from these changes. For example, each time an IRF unit submitted a requ est to add beds to its facility under the prior regulations; the Me dicare contractor had to determin e 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 pe riod, and the hospital must have “obtained approval, under State licensure and Medicare certification, fo r 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 (t hat beds can only be added at the start of a cost reporting period) was diffi cult, and potentially costly, fo r IRFs that were expanding through new construction because the exact timi ng of the end of a construction project is often difficult to predict. Construction dela ys can hamper an IRF’s ability to have the construction completed exactly at the start of a cost reporting peri od, which can lead to significant revenue loss for the facility if the IR F is unable to add beds until the next cost reporting period. We believe that it is no l onger 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 th e IRF met the second criteria, which required the hospital to have “obtained approval, unde r State licensure and Medicare certification, for an increase in its hospital bed capac ity 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 contract ors would need to spend enforcing them. Finally, the modifications will enhance the consistency between the IRF coverage andCMS-1349-F 128

payment requirements. We note that §412.25(b) applies to both IR Fs and inpatient ps ychiatric 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 un its of acute care hospitals (and critical access hospitals (C AHs)) are paid the same and, with very few exceptions, are subject to the same Medicare ru les and requirements. For this reason, we believe that it is no longer n ecessary to have separate sec tions in 42 CFR part 412 that define the requirements for rehabilitation hospi tals and rehabilitati on units of acute care hospitals (and CAHs). This leads to exce ssive repetition and poten tial confusion about which rules apply to which types of facilities. Thus, we are revising and consolidating th e regulations for reha bilitation facilities that are currently in §412.23(b) (for rehabilitation hospita ls), §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 (o r 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 modificati ons 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 regulat ions in §412.25, such as the requirement to have beds that are physically separate from the rest of the hospital, the requirement thatCMS-1349-F 129

the unit be serviced by the same Medicare contr actor 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 uni quely to units that are part of another hospital. While these requirements are not applicable to freest anding IRFs, we do not

believe that it would be appropriate to include them with th e rest of the IR F regulations in §412.29 that are intended to appl y to both freestanding IRF hosp itals and to IRF units of hospitals. Further, we are not making modifi cations 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 re levant 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 requi rements 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 contai n 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 re ad as follows: “(b) Rehabilitation hospitals. A rehabilitation hospital must m eet 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 fina l 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) a nd 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 thr ee of the prior sections, §412.23(b), §412.29, and §412.30. As stated in the prior §412.30, a reha bilitation unit can only be considered “new” if the hospital has never had a rehabili tation 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 e qually 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 y ears will allow a suffi cient amount of time between an IRF closing and an IRF reope ning 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 th e rules regarding change of ownership (including mergers) or leasi ng, as defined in §489.18. Change s 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 leasi ng 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 th e 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, th e 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 cert ification process to pa rticipate in Medicare

as a new IRF. Further, we revise the regulations re garding 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 it s 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 eliminat e 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 offi ce (RO), as described below. New IRF beds can be added one time at any point during a cost reporting pe riod (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 delic ensed or decertified can add ne w beds. The reason for thisCMS-1349-F 132

requirement is to prevent IRFs from decrea sing 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 repor ting period has elapsed be fore 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, ex cluded 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 paymen ts were determined separately for operating and capital costs. Thus, under cost-based pa yments, the facilities’ capital costs were determined, in part, by their bed size and squa re footage. Changes in the bed size and square footage would complicate the facili ties’ capital cost allocation. Thus, the Medicare regulations at §412.25 limited the situ ations 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 individua l 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 ther efore relaxing the restri ctions on a facility’s ability to increase its bed size and square foot age. Under the revised requirements we are adopting in this final rule in §412.25(b), an IR F 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 notif ies the CMS RO at least 30 days before the date of the proposed change, and maintains the information needed to accurately determine costs that areCMS-1349-F 133

attributable to the excluded units. As we have in prior years, we also include an exception to these requirements for special ci rcumstances. We note that any IRF beds that are added to an existing IRF during th e IRF’s cost reporting period will only be considered new through the end of that cost reporting period. Furthe r, the new IRF beds will be included in the IRF’s compliance re view calculations under the 60 percent rule specified in §412.29(b) beginning on the date that they are fi rst 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 cl early defined in the new IRF coverage requirements what we mean by an IRF pr eadmission screening, care planning, and close medical supervision. In the revision s to §412.23(b) and §412.29, we enhance the consistency between the IRF coverage and pa yment 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 re habilitation 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 reasoni ng behind the decision to admit a patient toCMS-1349-F 134

an IRF, to enable medical reviewers to understand the rationale for the decision. Further, we clarify, as we did in th e 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 trai ning and experience in inpatient rehabilitation to assess the patient both medically and functi onally, 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 st ated in the FY 2010 IRF PPS final rule (74 FR 39796), we believe that at least 3 face-to-face rehabilitation p hysician visits per week are necessary to coordinate th e 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 CF R 412.29(d) and (e). Although one commenter agreed with the proposed changes to the re gulation text to ali gn portions of the IRF coverage requirements with the correspondi ng portions of the IRF classification requirements, the rest of the commenters on these provisions expr essed concerns. The concerns expressed were primarily that the pr oposed changes could blur the distinctions between the IRF coverage and the IRF classi fication requirements, and could potentially lead to inappropriate revoca tions of an IRF’s classifica tion 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 re state its previous position that the failure of an IRF to meet the IRF coverage requirements for one individual case should not be used toCMS-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 ambi guity. We believe that we would be remiss in not making it clear that, in the IRF cont ext, 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 supervisi on to mean at least 3 fa ce-to-face visits per week by a rehabilitation physicia n to assess the patient both me dically and functionally.

We established this definition for the IRF c overage requirements in the FY 2010 IRF PPS final rule (74 FR 39762 at 39795 through 39796), a nd 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 c oncepts (and, in most cases , the identical wording) from the IRF coverage criteria to the IRF cl assification 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 atCMS-1349-F 136

24250) of updating and simplifying the policies, eliminating unnecessary repetition and confusion, and enhancing the consistency be tween the IRF classi fication and the IRF coverage requirements. This particular cha nge does not reduce costs for IRFs or for the government, but does promote clarity and consiste ncy among Medicare’s regulations.

As we do not intend for an IRF to be d eclassified for the purposes of receiving payment under the IRF PPS based on a small num ber 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, s uggested by commenters, that we believe will clarify th at an IRF cannot be declassifi ed as an IRF for failing to meet the coverage criteria in just one or two cases. The revise d regulation text is included in the “Regulation Text ” section of this final rule. Even though we believe that an IRF shoul d 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 c onclude that an IRF’s preadmission screening procedure is not ade quate if a large per centage of the IRF’s claims are denied because the preadmission sc reening information was not reviewed and approved by a rehabilitation phys ician prior to the IRF admiss ion. Similarly, we believe

that it is reasonable to concl ude that an IRF’s procedure fo r ensuring that patients receive close medical supervision is not adequate if a large proporti on of the IRF’s claims areCMS-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 th at CMS change the regulations to treat the acquisition of an IR F unit the same as the acquisition of a freestanding IRF hospital. Response : We appreciate the commenters’ s uggestion and will carefully consider this for the future. However, we believe that this suggestion is out side the scope of the FY 2012 IRF PPS proposed rule (76 FR 24214) b ecause it involves the issue of whether an entity can purchase a hosp ital’s payment status under Medi care. While an entity can purchase physical assets, Medicare payment st atus 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 transf erred. 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 s upported the proposed regulations regarding “new” IRFs, change s of ownership, and mergers, some of these commenters requested that CMS specify that certain “inter nal corporate restructur ing transactions” not involving external entities are not changes of ownership. Fo r example, these commenters said that they do not believe that the purch ase of a hospital by a nother 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) becau se it involves how Medicare defines a hospital. For Medicare purposes, hospitals ar e 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 w ith a Medicare provider agreement purchases another hospital with a Medica re provider agreement, regard less 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 th e 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, rega rdless 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 th e “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 th ey 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 reporti ng 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 CF R part 412, we are finalizing the regulation text changes as proposed, except for the fo llowing 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 scr eening procedure under which each prospective patient’s condition and medical history are reviewed to dete rmine whether the patient is likely to benefit significantly from an intensive inpatient hospital program. This procedure must ensure that the preadmissi on screening is reviewed and approved by a rehabilitation physician prior to th e 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 th at patients receive cl ose medical supervision, as evidenced by at least 3 face-to-face visits per week by a licen sed physician with specialized training and experience in inpatien t rehabilitation to assess the patient both medically and functionally, as well as to modi fy 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, e ffectuated by quality reporting programs coupledCMS-1349-F 140

with the public reporting of da ta collected under those progra ms. The quality reporting programs exist for various settings such as hospital inpatient services (the Hospital Inpatient Quality Reporting (Hospital IQR) Pr ogram), hospital outpatient services (the Hospital Outpatient Quality Reporting (Hospital OQR) Program), and physicians and other eligible professionals (the Physician Quality Reporti ng System (formerly called the Physician Quality Reporting Initiative, or PQ RI)). We have also implemented quality reporting programs for home health agencies a nd skilled nursing facili ties that are based on conditions of participation, and an end-stage renal diseas e 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 implem ent 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 Secretar y 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 es tablished 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 fi scal year, and in payment rates under this subsection for a fiscal year being less than th e 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 cumula tive and will not be taken into account in computing the payment amount under subsectio n (j) for a subsequent fiscal year. Section 1886(j)(7)(C) of the Act requires that each IRF submit data to theCMS-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 S ecretary 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 st andard-setting organiza tion with a diverse representation of consumer, purchaser, provid er, academic, clinical, and other health care stakeholder organizations. The NQF was establ ished to standardize health care quality measurement and reporting through its cons ensus development process. We have generally adopted NQF-endorsed measures in our reporting programs. However, section 1886(j)(7)(D)(ii)of the Act provi des that “in the case of a sp ecified 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 cont ract 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 secti on 1886(j)(7)(D)(iii) of the Act, the Secretary must publish the selected measures that wi ll be applicable to FY 2014 no later than October 1, 2012. Section 1886(j)(7)(E) of the Act requires th e Secretary to establish procedures for making data submitted under the IRF quality re porting program available to the public. The Secretary must ensure that an IRF is give n the opportunity to revi ew 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 Qu ality 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-Associ ated 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 a nd 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 bu rden 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 accord ance with applicable law. We also seek to align new Affordable Care Act reporting requirements for IRFs with HHS’ broader goals of targeting high prio rity conditions and topi cs, as reflected in the National Quality Strategy released by the Secretary available at ( http://www.healthcare.gov/cente r/reports/quality03212011a.html#es ) and, ultimately, to provide a comprehensive assessment of the qual ity 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 a nd CMS to develop and implement the data collection and reporting infras tructure needed to support an expanded quality reporting program. Current areas of high priority for HHS include patient safety, healthcareCMS-1349-F 143

associated infections, and re duction of avoidable readmission s. These priorities are consistent with the aim of providing safe, s ound care for all patients receiving services in any healthcare set ting 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 hea lth 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, thes e include improving patient safety (such as avoiding healthcare associated infecti ons (HAI)), reducing adverse events, and encouraging better coordination of care and pe rson-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 indi vidual including improve d functional status

and achievement of successful return to the community post-discharge. Other considerations in selecting qualit y 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, th at is, measures that can be technically implemented within the capacity of the CMS infrastructure for data collection, analyses, and calculation of reporting and perf ormance rates as applicable.

3. FY 2014 Measure #1: Health care Associated Infection Measure (HAI): Urinary Catheter-Associated Urinary Tract Infections (CAUTI) The first measure we proposed for pur poses of calculating the FY 2014 IncreaseCMS-1349-F 144

Factor for IRFs is an application of th e NQF-endorsed measure developed by the Centers for Disease Control (CDC) for hospitals entitled (NQF# 0138)"Urinary CatheterAssociated Urinary Tract Inf ection (CAUTI) for Intensive Care Unit Patients" to the IRF setting. This measure was developed by the CDC to measure the pe rcentage 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 cathe ters are commonly used in the IRF setting. Section 1886(j)(7)(D)(ii) of th e 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 sp ecify a measure that is not so endorsed as long as due consideration is gi ven 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 unabl e to identify any NQF-endorsed measures for catheter-associated urinary tract infecti ons for the IRF setting. We are unaware of any other measures of urinar y tract infections that ha ve been approved by voluntary consensus standards bodies. Having given due co nsideration to other measures that have been endorsed or adopted by a consensus entit y, we proposed to adopt an application of the NQF-endorsed CAUTI measure under the Se cretary'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 th e 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 shouldCMS-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 reporte d 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, a nd 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 a nd mortality. Each year, more than 13,000 deaths are associated with UTIs[3]. Pr evention of CAUTIs is discussed in the CDC/HICPAC document, Guideline for Preven tion of Catheter-associated Urinary Tract

Infections [4]. The NQF-endorsed CAUTI measure we pr oposed is currently collected by the CDC's National Healthcare Safety Network (NHSN), a secure internet-based health surveillance system, and we note that the CD C is also collecting data on this measure from IRFs. NHSN is currently used, in pa rt, as one means by which certain Statemandated reporting and surveilla nce data are collected.

The HHS National Action Plan to Prevent HAIs located at ( http://www.hhs.gov/ash /initiatives/h ai/actionplan/index.html ) identified catheterassociated urinary tract infecti ons 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 meas ure 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 he alth care-associated in fections and deaths in U.S. hospitals, 2002. Public Health Reports 2007;122:160-166. [3] Ibid. [4] Wong ES. Guideline for prevention of cat heter-associated urinar y 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 prio rity quality issue for IRFs. We received 23 public comments on the Urinary Catheter-Associated Urinary Tract Infections (CAUTI) quality meas ure, which are summarized below.

Comment : Several commenters generally ac knowledged 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 se tting. They stated that the relatively small number of new UTIs in IRFs ma y reflect that the indicator is not the best choice as a quality indica tor 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 im portant 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/initiative s/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 th at was convened by the CMS

contractor that was tasked w ith assisting with the developm ent 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 Nati onal Healthcare Safety Network (NHSN). They noted that hospitals in their State, in cluding IRFs, have been required by State lawbased reporting requirements to use NHSN to report all health care-a ssociated infections since February 2008. The commenter also stated that, based on the he alth care-associatedCMS-1349-F 147

infection data collected and an alyzed in that State, urinar y tract infection is the most prevalent type of infection re ported in that State’s IRFs. Response : We appreciate the commenter’s observation that UTIs are both the most prevalent and preventable form of inf ection in the IRF setting, and believe that CAUTI is an important quality measure to adopt for the IRF quali ty 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 do cuments. The commenter also stated that

lack of documentation could l ead to additional testing of patients on admission, resulting

in increased time burden and cost to IRFs. Response : We acknowledge the cha llenges providers may in itially encounter in finding supporting documentation in transfer do cuments of catheter use. However, we believe that implementation of this require ment will encourage better documentation of catheter use over time. The CDC provides e ducational 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 genera lly 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 suchCMS-1349-F 148

monitoring will appropriately identify the subset of IRF patients who are most at risk for

CAUTI and therefore shoul d be tested.

Comment : Some commenters expressed conc ern that the CAUTI measure was originally created for use in the inpatient IC U setting and questioned the use of a measure that was not specifically endorsed for the IR F setting. In contrast, another commenter noted that, although the CAUTI measure was orig inally 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 appropri ate 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 of ten 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 impor tance 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 me dical topic. We also noted that we would seek NQF endorsement of the measur e for application in the IRF setting.

Comment : One commenter urged CMS to refine the CAUTI measure for specific use in IRFs. Additionally this commenter cite d the potential need for testing the measure in IRFs and agreed with se veral 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 re sults 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 expansi on of its endorsement of the CAUTI measure

to IRFs.

Comment : Several commenters expressed concern with potential erroneous attribution of infections that may have resu lted from catheter use in a previous setting. However, one commenter expressed support for the CAUTI measure’s “transfer rule exception,” defined as transfers w ithin an inpatient facility or transfers to a new facility, which may alleviate some of the pe rceived 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 C AUTIs are attributed to the transferring location, rather than the admitting location. We believe that this appropriately addresses the potenti al risk of erroneous attribut ion 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 expresse d their concern with the lack of a “present on admission” (POA) indicator, and st ated that the absence of a POA indicator may result in incorrect tallies. Additi onally, one commenter recommended that CMSCMS-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 discha rging location on the in fection report, not the current location of the patient.” We be lieve 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 cl aims-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 infecti on rates for IRFs be evaluated separately from any data reported by general acute care hospit als and long term care hospitals. Response : We appreciate the commenter’s c oncern that health care-associated

infection rates and standardized infection rate s 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 IR Fs separately from CAUTI data reported by hospitals and long term care hospitals.

Comment : Several commenters strongly ur ged CMS to share how it plans to perform HAI data validation since this was not addre ssed 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 reporti ng of any HAI data, and are actively working with the CDC regarding their data vali dation 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 re porting program in future rulemaking.

Comment : Several commenters highlighted th e need to risk adjust the CAUTI measure. They also stated that certain patien ts, 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 ri sk adjustment is an important consideration for outcome quality measures, and that certain patients may have higher risks for complications such as UTIs. The CAUTI m easure specifications use facility type (including IRF) and location type informati on (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 a ccess 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 comme nter’s suggestion that we adopt the CDCCMS-1349-F 152

definition of symptomatic UTI, and are plan ning to adopt this definition in future rulemaking.

Final Decision : Having carefully considered th e comments received, we adopt as final an application of the NQF-endorsed m easure that was developed by the CDC for ICUs entitled (NQF #0138)"Cat heter-Associated Urinary Tr act Infection [CAUTI] for

Intensive Care Unit Patie nts" for the IRF setting.

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

Worsened The second measure we proposed for IR Fs 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 th at Are New or Worsened." This is the percentage of patients who have one or more st age 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 hi gh priority quality issue in the care of IRF patients. Currently, there are no other NQF-e ndorsed pressure ulcer measures that are applicable to IRFs and we were unable to iden tify other measures for pressure ulcers that have been endorsed or adopted for the IR F 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 anCMS-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 as k 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 hi gh-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 a nd 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, lif e-threatening infections, whic h 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 we re 322,946 reported cases of Medicare patients with a pressure ul cer 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 th e small number of IRF patients that develop a new or worsening pressure ulcer. They stat ed that more relevant measures were those focusing on the output of the rehabilitative pr ocess, such as change in function or discharge to community. Response : We agree that functional restorati on 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 setti ng. Even if the proportion of patients in IRFs with new or worsening pre ssure ulcers is small, any such cases are particularly troubling given the requiremen t that IRF patients receive an intensive rehabilitation therapy program throughout th eir IRF stay, which would tend to require patients to be out-of-bed and active throughout their stay.

Comment : Some commenters expressed c oncern over the ambiguity of the definition of “worsening” pressure ulcers and requested clarificati on of the definition.

Some commenters cited the di fficulty in accurately differentiating between worsening pressure ulcers and pressure ulcers that are changing as pa rt of the healing process. Several commenters suggested that “worseni ng” be removed from the description and CMS base the quality measure solely on the ap pearance of “new” pressure ulcers. Some commenters questioned why unstageable pre ssure ulcers and suspected deep tissue injuries were not included in the measure. Response : The new or worsening pressure ul cer measure is based on changes in skin integrity between the admission and discharge assessments. Pressure ulcer “worsening” is defined in the measure speci fications as a pressure ulcer that has progressed to a deeper level of tissue damage and is theref ore 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 st age of a wound (s tages I throughCMS-1349-F 155

IV). These criteria, which are incorporated into the measure specifications, are used by clinicians in determining whether or no t a wound has changed stages, and thereby worsened or improved. We believe that a ppropriate application of these guidelines should enable clinicians to identify pressure ulcers that have “w orsened”. Thus, we do not believe that the idea of “worsening” pr essure ulcers should be removed from the

measure. Unstageable wounds, including deep tissue in juries, are not curre ntly included in this measure since the presence of worsening cannot be determined if they are unstageable. Furthermore, a pressure ulcer th at 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 stag ed. If after wound de bridement, the wound

is evaluated to have increased in the st age, 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 a nd or unstageable pressure ulcer would be documented as present on admission. As stated above, if after debr idement 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 worsen ing pressure ulcers is also an important aspect of the measure because worsening pre ssure ulcers can indi cate a lack of both appropriate medical monitoring and appropriate clinical treatment. In addition, as noted previously, the existence of worsening pressu re ulcers in the IRF setting is particularly troubling given the requirement that IRF pa tients receive an intensive rehabilitationCMS-1349-F 156

therapy program throughout their IRF stay, whic h would tend to require patients to be out-of-bed and active throughout their stay. T hus, 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 pre ssure ulcers that are present on admission.

These commenters recommended that CMS de velop a timeline and implementation plan for a POA indicator for the pressure ulcer meas ure, with consideration of an appropriate

attribution window to avoid IRFs being penalized for pressure ulcers that were present on admission or acquired from another faci lity 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 Ne w or Worsening between the IRF admission assessment and the discharge assessment. The measure accounts for any relevant pressure ulcers that were pr esent on admission because it requ ires 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) ve rsions of the pressure ulcer measures so that both capture the same range of wound staging. Wh ile the IRF quality reportingCMS-1349-F 157

program measure includes w ound stages 2 though 4, the Ho spital 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 qua lity 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 provi des clinicians with a scale for assessing wound healing or deterioration, is more appropriate for r ecording wounds. Another commenter said that they do not recommend the PUSH tool, but r ecognized its superiority to the proposed measure in that it allows addressing of w ound 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 NP UAP guidelines regarding wound healing. Response : We recognize that the PUSH tool is one of the instruments sometimes used by clinicians to assess healing or deteri oration 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 th is aspect of care provided in IRFs. In response to the commenter that suggested that an y 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 NP UAP guidelines regarding wound staging.

Comment : Several commenters objected to th e proposed applicati on 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 measur e 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-endor sed 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 a bout the importance of clinicians recognizing the presence of st age 1 wounds and adequately tr eating 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 na tional subject matter expe rts, we believe that the additional burden on providers of colle cting and reporting information on stage 1 pressure ulcers outweighs the benefits of requi ring 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 patie nts treated in IRFs have a higher level of medical complexity and receive more intense services than nursing homeCMS-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 alre ady includes a risk adjustment component. For example, the measure accounts for the highe r 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 re gardless of their se tting 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 supportiv e comments and agree that it is not appropriate to “reverse-s tage” pressure ulcers because staging only refers to the level of tissue damage. So, fo r example, a stage 3 pressure ulcer with full thickness tissue loss will always have that amou nt of damage present. If that pressure ulcer should heal and resurface with a new ep ithelial 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-endor sed measure for shor t-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 Co mprehensive All-Cause Risk-Standardized

Readmission Measure. In the proposed rule, we stated our inte nt to propose a 30-day comprehensive allcause risk-standardized readmission meas ure when one is developed. AddressingCMS-1349-F 160

avoidable hospital readmissions is a high prio rity for HHS and CMS. We are currently developing setting-specific risk adjusted 30- day all-condition all-cau se risk-standardized readmission measures for hospita ls, IRFs, long term care hosp itals and nursing homes.

The main features of the measure methodol ogy will be consistent with that of the NQF-endorsed CMS hospital risk-adjusted 30-da y 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 anal yses on the types and comorbidities of the patients of each setting in or der to establish appropriate ri sk–adjustment for the measures as well as appropriate specification of th e meaning/definition of readmission and the appropriate time-window fo r readmission for each care setting. To expand beyond the condition-specific measures to an all-condi tion 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 regressi on modeling to take into account the effects of the clustering of patients and the sample size in the IR F 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 ri sk adjustment will be an importantCMS-1349-F 161

consideration as CMS develops this readmi ssion measure. Several commenters suggested that only preventable readmissions should be measured, and that planned readmissions

should be excluded. Several commenters also st ated that the causes of readmissions are complex and that there are no solutions th at could be applie d globally to reduce

readmissions. Response : We appreciate the input. As i ndicated, the measure will be risk— standardized. We will take these comments into consideration as we further develop the measure. As part of development, the meas ure developer will provi de an opportunity to the public to comment on specific aspects of the measure, including risk adjustment. Although we agree that the fact ors that are related to read mission are varied, readmission rates among Medicare beneficiaries are hi gh, 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 re quire that IRFs submit data on the Catheter-Associated Urinary Tract Infec tion (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 healthca re facilities in the United States, including acute care hospitals, long term acute care hos pitals, psychiatric hos pitals, rehabilitation hospitals, outpatient dialysis centers, ambul atory surgery centers, and long term care

facilities. The NHSN enables healthcare facili ties to collect and use data about HAIs, including information on clinical practices known to prevent HAIs, information on theCMS-1349-F 162

incidence or prevalence of multidrug-resistan t organisms within their organizations, and

information on other adverse events. Some St ates use the NHSN as a means of collecting State law mandated HAI reporti ng. 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 abil ity 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 re port 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 Infect ion 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. Therefor e, 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 adhere nce to training requirements, use of CDC measure specifications, da ta 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 requi rements 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 specifica tions and data collection tools for the CAUTICMS-1349-F 163

measure as required by CDC as of the time that the data is submitted. For purposes of calculating the FY 2014 incr ease 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 “fin al fiscal quarter of calendar year 2013.”

We should have identified it as the final quarter of cal endar year (CY) 2012. We proposed that all subsequent IRF quality re porting cycles would be based on a full CY cycle (that is January 1 thr ough 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 re garding data submission and reporting requirements for this measure woul d 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 co ncerns about the readiness of the CDC’s NHSN infrastructure to accept a greate r volume of data by adding IRF reporters. Response : As reported to us by CDC, the NHSN has undergone a major architectural redesign over the la st year in response to the need to scale up to more users, facilities and functionality. It is our unde rstanding that the addition of IRF quality reporting on the NHSN will not unduly strain the system.

Comment : Several commenters expressed co ncerns with provider burden andCMS-1349-F 164

resources needed to enroll, train and imple ment 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 tr aining on multiple quality reporting systems would be confusing and time consuming. Anot her commenter suggested that the IRF-PAI

could be modified to collect CAUTI data. Response : We recognize that there are init ial start-up costs and time investments to enroll and complete the required trai ning for reporting thro ugh 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 requi rement 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 ini tial phase of the data reporting, and will be lower in subsequent year s. For future rulemaking cycles, we will

take into consideration the s uggestion 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 Cent ers 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 specifi cations and data collection tool s for the measure as requiredCMS-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). Fu rther 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 al ready are required to submit certain data for purposes of determining payment via the curren t Inpatient Rehabilita tion Facility-Patient Assessment Instrument (IRF-PAI). Previous ly the IRF-PAI included optional "quality indicators" (QI). To support the standardized collection and calculation of quality measures specifically focused on IRF servic es, 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 Ne w 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 thr ough 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 el ements that we are submitting to OMB for approval is available on the CMS Web site at http://www.cms.gov/InpatientReha bFacPPS/04_IRFPAI.asp#TopOfPage . The current MDS 3.0 pressure ulcer items evolved as an out growth of CMS’ work to develop a set of standardized patient assessment items, now re ferred to as CARE (Continuity Assessment Record & Evaluation). The CARE assessment items were develope d and tested in the post-acute care payment reform demonstration (PAC-PRD) whic h 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 cons istent 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 m odified 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 quali ty 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 cl inicians assessing pressure ulcers at admission and at discharge. Anot her commenter recomme nded inclusion of a body diagram to record the location of pressu re ulcers. Another commenter expressed

concern that the data collection mechanism a llows for a count of multiple pressure ulcers and specific stages, but not the sizes of multip le pressure ulcers at the same stage. Response : Although one of the commenters sugge sted that we consider collecting data on the pressure ulcer measure on the clai ms 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 th e 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 admissi on 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 co llecting data for the pressure ulcer measure. We agree that it is good clin ical 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 Pressu re Ulcer quality measure for measuring quality in IRFs. We believe, after extensive consultation with national subject matter experts on wound healing, that recording the ove rall number of new pressure ulcers and presence (or lack thereof) of worsening pre ssure 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 clea r 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 reporte d 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 th rough 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 indica tor (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 downloade d from the IRF PPS Web site at http://www.cms.gov/InpatientReha bFacPPS/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 Congr ess 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 fo r 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 fo r the 30-day Comprehensive All-Cause RiskStandardized Readmission Measure. If we adopt a 30-day comprehensive al l-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 establishCMS-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 da ta public. We believe that existing laws governing access to agency records will adequa tely address requests for such data. We will adopt procedures that will ensure that an IRF has the oppo rtunity 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 re porting, which are summarized below.

Comment : One commenter supported CMS’ pr oposal to allow IRFs to preview data and measures prior to any informati on being posted on a website. One commenter suggested that CMS provide IRFs with a 30-d ay preview period prio r 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 re view the data to be made public prior to the data being made pub lic. Additionally, as required under section 1886(j)(7)(E) of the Act, we will report quality measures that re late 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 IRFCMS-1349-F 171

quality data until the second year of reporting to avoid that po tential that inaccurate data would be posted based on uni ntended analytical issues. Response : We have not at this time propos ed a specific date to begin publicly reporting IRF quality data. We will take the co mmenter’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 se ction, we ultimately seek to adopt a comprehensive set of quality measures to be available for widespread use for informed decision making and quality improvement. Wh ile we are initially adopting a limited set of measures for the IRF quality reporting pr ogram, 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 ach ieved 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 m easures 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 hom e patients in skilled nursing facilities (SNFs) are collected via the MDS 3.0 data colle ction vehicle. We ar e currently analyzing these quality data, and expect to have findings by early 2012. Next steps would include analyzing whether any of these measures woul d be appropriate for a pplication in the IRFCMS-1349-F 172

setting. If any of the short stay nursing home meas ures 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 paymen t determination for FY 2015. We expect that any measures proposed in the FY 2013 ru lemaking cycle would be collected via the IRF-PAI, and that further changes to this data collection vehi cle and the supporting information technology (IT) infrastructure woul d 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 collecti on 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 elem ents starting October 1, 2013 through December 31, 2013 for the FY 2015 payment update, but we are considering th e possibility of basing future quality measures on data source s or assessment instruments other than the IRF-PAI. As stated earlier, we develope d and tested the CARE assessment instrument for the post-acute demonstration under secti on 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 we re collected using this CARE standardized

assessment instrument could be used across all post-acute care sites to measure functional

status and other factors duri ng treatment and at discharge which are key indicators ofCMS-1349-F 173

quality in IRFs and in nursing homes treati ng short stay patients requiring rehabilitative

services. We believe the instrument could be beneficial in suppor ting the submission of data on quality measures by IRFs and other ca re 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 cons ider pairing pain measures with a measure or measures that reflect patients’ preference s for how their care, treatment and symptoms are managed by healthcare providers. These it ems, and other items in Table 13, are under consideration for future years.

TABLE 13: Possible Future Measures and To pics 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 thromboe mbolism (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 – HAIsCMS-1349-F 174

• Surgical site infections

• Multidrug resistant organism infection Overarching Goal : Better, Person Centered-Ca re: 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-repo rt moderate to severe pain.

• Percent of patients with dyspn ea 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, th ey expressed concerns aboutCMS-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 respons e 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 a nd 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 hospita ls, nursing homes, home hea lth agencies and acute-care hospitals at discharge) across the country. Items were test ed for reliability using two

methods - a traditional inter-rate r reliability test where 2 clin icians of the same discipline scored the same patient, and a test of reliability examining differences among disciplines in rating the same case. Over all, 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 consid eration of measures for functional status, discharge to community, falls with major in juries, incidence of venous thromboembolism (VTE), patient preferences and symptom mana gement. The MedPAC expressed support for the development of a limited number of qual ity measures in the IRF sector that would focus on outcomes measures when possible and patient safety and experience whereCMS-1349-F 176

applicable. Moreover, MedPAC expressed su pport for CMS developing and including a hospital readmission measure into the IRF quality reporting program, and encouraged CMS to add a measure of functional improveme nt given its centrality to IRF care. Response : We thank the commenters for th eir 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 w ill 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 finalizi ng the new IRF quality reporting program for the first reporting year, as proposed. Inaddition, we are submitting the revised IRFPAI, which can be downloaded from the IRF PPS Web site at http://www.cms.gov/InpatientReha bFacPPS/04_IRFPAI.asp#TopOfPage , to OMB for approval. We are also re-designating th e 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 th e list of comorbidities used to determine the tier payments

to ensure that the tier list re flects all conditions th at contribute signifi cantly to IRF costs of care. Along these same lines, one co mmenter suggested that additional tier comorbidity codes might be appropriate for th e list if CMS were to require IRFs to provide “present on admission” information to verify that the condition had been presentCMS-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 inform ation on a patient’s CMG classification, and provide stakeholders with pa tient-level IRF-PAI data. Response : We agree that the public should ha ve access to whatever is necessary to review and comment on our proposed pol icies 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 incl uded 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. Th e 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 se veral privacy and security laws, such as the Privacy Act and the Health Insurance Po rtability 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 fi nal rules. As such, these data are not relevant to the ability of commenters to re view or comment on our proposals. We wouldCMS-1349-F 178

violate HIPAA’s minimum necessa ry requirements if we were to release these data for purposes of reviewing and responding to these rules. If identifia ble data is used in future rulemaking, we will make data available in acco rdance with applicable law. Further, if commenters wish to request identifiabl e data for purposes outside the IRF PPS rulemaking process, we encourage them to us e CMS’ normal data request process. More information on CMS’ data distribution polic ies 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 recreationa l therapy services to count, on a limited basis, towards the intensive rehabilitation ther apy 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 th e overall plan of care for the patient. Response : As we did not propose any change s 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 Be nefit 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 th erapy services should replace the provision

of the 4 core skilled thera py services (physical therapy, occupational therapy, speechlanguage pathology, and prosthetic s/orthotics). Thus, we beli eve it should be left to each

individual IRF to determine whether offeri ng recreational therapy is the best way to achieve the desired patient car e outcomes. As we have st ated previously, recreationalCMS-1349-F 179

therapy is a covered service in IRFs when the medical necessity is well-documented by the rehabilitation physician in the medical r ecord 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 rela tive 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 discusse d 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 s ection 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 ne utral manner, as discussed in section VI. of this final

rule.

● We will calculate the final IRF Sta ndard 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 ra tio (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 Secur ity Income (SSI) ratios used to compute the IRF LIP adjustment factor, as discusse d 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 existi ng requirements at §412.25(b), §412.25(b)(1), §412.25(b)(2), and §412.25(b)(3) that apply to a ll 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 al so revise the existing requirements at §412.25(e)(2)(ii)(A), as described in section IX. of this final ru le. With the exception of §412.25(e)(2)(ii)(A), the revisions a ffect 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 f acilities to qualify to receive paymentCMS-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 co llection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Ac t of 1995 requires that we solicit comment on the following issues:

● The need for the information collecti on 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 auto mated 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 discusse d in the regulation text contained in this document. The following is a discussion of th ese 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 2014CMS-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 Associ ated Urinary Tract Infections; and 2) Pressure Ul cers that are New or Have Worsened. The aforementioned measures will be collected via the following respective means.

A. Catheter Associated Ur inary Tract Infections (CAUTI) Regarding the collection of data on the firs t 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 cathet er 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 hea lthcare facilities. In fact, so me 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 C AUTI 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 fo r 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 da ta to NHSN either voluntarily or per State mandate. To report data to NHSN, the CDC requi res 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 n ecessary training provided by the CDC. TheCMS-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 Regist ered 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 s ubmit two types of forms in order for CDC to calculate the CAUTI rate per 1,000 urinary cath eter 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 pe r 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 cat heter 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 es timate that it will take 2.5 hours per form per IRF per month, as the number of patients wi th an indwelling catheter is the only part

of this form that IRFs will be required to complete. We anticipate that there will be oneCMS-1349-F 184

form submitted per IRF per month. Based on th is 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 pe r IRF is $1,247.70 per year. Similarly, the estimated total yearly cost across all IRFs is $1,437,350. Thes e 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 st andardized collection and calculation of quality measures specifically focused on IRF services, we modified the IRF-PAI by replacing and harmonizing the pre ssure 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 harm onized with the CARE data set, which was developed for and broadly tested in the pos t-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 m odified IRF-PAI pressure ulcer items are

consistent with the standardized data el ements 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, acr oss the continuum of care settings. Since all IRFs are already required to complete and transmit IRF-PAIs on all

Medicare Part A fee-for-servic e and Medicare Part C (Medic are Advantage) patients in order to receive payment from Medicare, a nd the number of IRFs submitting claims to

Medicare has remained stable ov er 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 andCMS-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 es timate any additional burden for IRFs to complete the IRF-PAI with the mandatory qua lity measures, as the IRF-PAI currently contains a voluntary “Quality Indicators” s ection. We are repl acing 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 comp lete, and we assumed that all IRFs would complete the Quality Indicators items, even though completion of this section was voluntary. Thus, removing the Quality Indicato rs items from the IRF-PAI decreases the total estimated burden of completing each IR F-PAI by about 10 minutes. However, we

estimate that it will take about 10 minutes to complete the new pre ssure ulcer item that we require IRFs to complete as part of th e 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 colle ction and recordkeeping requirements, please do either of the following: 1. Submit your comments electronically as specified in the ADDRESSES section of this proposed rule; orCMS-1349-F 186

2. Submit your comments to the Office of Information and Regulatory Affairs, Office of Management and Budget,

Attention: CMS De sk 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 require d by Executive Order 12866 (September 30, 1993, Regulatory Planning and Review), Executive Order 13563 on Improving Regulation and Re gulatory 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 Refo rm 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 ag encies to assess all costs and benefits of available regulatory alternativ es and, if regulation is necessary, to select regulatory approaches that maximize net benefits (inc luding potential economi c, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both co sts and benefits, of reducing costs, of harmonizing rules, and of promoting flexibilit y. This final rule has been designated an "economically" significant rule, under s ection 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 pros pective payment ra tes 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 st art 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 pa yment rates for that fiscal year. This rule also implements some polic y 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 Medica re payment systems and will clarify the IRF payment regulations. Further, many of the policy changes are designed to promote greater flexib ility in the IRF PPS policies. This final rule also implements sec tion 3401(d) of the Afford able 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 ba sket increase factor, and to apply other adjustments as defined by the Act. The pr oductivity adjustment applies to FYs from 2012 forward. The other adjustments apply to FYs 2010 through 2019. Finally, this final rule discusses the IRF quality measur es 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 approximate ly 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 re based RPL market bask et increase factor (updated from a 2002 base year to a 2008 ba se 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 re duction 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 incr ease 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 esti mated 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 e ffects of the policy cha nges in the IRF PPS forCMS-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 th e number of discharges or case-mix. We note that certain events may combin e 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 im pact time period. Some examples could be legislative changes made by the Congress to the Medicare program that would impact program funding, or changes specifically re lated 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 sc ope of the impact upon

IRFs. In updating the rates for FY 2012, we ar e implementing a number of standard annual

revisions and clarifications mentioned elsewh ere 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 neutra l manner-as required by statute-and therefore

neither increases nor decreases aggregate payments to IRFs). The aggregate change in estimated pa yments associated with this final rule is estimated to be an increase in paymen ts to IRFs of $150 million for FY 2012. TheCMS-1349-F 190

market basket increase of $120 million and th e $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 imp act 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 updat e to the outlier threshold amount, from approximately 2.6 to 3.0 percent of total estimated paymen ts for FY 2012, consistent with section 1886(j)(4) of the Act.

● The effects of the 2.9 percent annu al 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 pr oductivity 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 ch anges 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 re porting program, beginning in FY 2013.

● The total change in estimated payments based on the FY 2012 policies relative to estimated FY 2011 pa yments without the policies. ii. Description of Table 14 Table 14 categorizes IRFs by geographi c location, including urba n or rural location,

and location in one of CMS's 9 census divisi ons (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 hos pitals in this sect ion), those that are rehabilitation units of a hospita l (otherwise called hospital units in this section), rural or urban facilities, ownership (otherwise calle d for-profit, non-profit, and government), by teaching status, and by disproportionate share pa tient 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 IR Fs categorized according to their geographic location, designation as either a freestanding hos pital or a unit of a hospital, and by type of ownership; all urban, which is further di vided into urban units of a hospital, urban freestanding hospitals, and by type of ownershi p; and all rural, which is further divided into rural units of a hospital, rural freest anding hospitals, and by type of ownership.

There are 956 IRFs located in urban areas incl uded 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 lo cated in rural areas included in our analysis. Among these, there are 175 IRF units of hos pitals located in rural areas and 20 freestanding IRF hospitals located in rural ar eas. There are 380 for-profit IRFs. Among these, there are 317 IRFs in urban areas a nd 63 IRFs in rural areas. There are 718 non-CMS-1349-F 192

profit IRFs. Among these, there are 596 urba n IRFs and 122 rural IRFs. There are 54 government-owned IRFs. Among these, ther e are 44 urban IRFs and 10 rural IRFs. The remaining three parts of Table 14 show IRFs grouped by th eir geographic location within a region, by teaching status, and by DSH PP. First, IRFs located in urban areas are categorized to th eir 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 reside nt to ADC ratio greater than 19 percent. Finally, IRFs are grouped by DSH PP, includi ng 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 percen t, and IRFs with a DSH PP greater than 20 percent. The estimated impacts of each change to the facility categorie s listed above are shown

in the columns of Table 14. The descri ption of each column is as follows: Column (1) shows the facility classification categorie s 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 in crease 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 valu es, in a budget neutral manner. Column (8) compares our estimates of th e 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 th e 1.8 percent market basket update, which is derived from a 2.9 percent rebased market ba sket 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 percen t 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 out lined in this final ru le in a budget-neutral manner, they will not affect total estimated IR F payments in the aggregate. However, asCMS-1349-F 194

described in more detail in each section, th ey 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 Factor 1 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 region 2 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 region 2 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 3.9CMS-1349-F 195

Facility Classification Number of IRFs Number of Cases Outlier FY 2012 Adjusted Market Basket Increase Factor 1 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 re based RPL market basket increase factor fo r 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)(i i)(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 fromCMS-1349-F 196

3 percent using the FY 2009 data to appr oximately 2.6 percent using the updated FY 2010 data. As a result, we adjust the out lier threshold amount for FY 2012 to $10,660, reflecting total estimated outlier payments equa l to 3 percent of total estimated payments

in FY 2012. The impact of the upd ate to the outlier th reshold 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 experi ence 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 sect ions 1886(j)(3)(C)(ii )(II) and 1886(j)(3)(D)( ii) of the Act, and reduced by a 1.0 percent product ivity 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 cha nges 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 tw o have a combined effect on payments toCMS-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 aff ect 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 ru ral 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 d ecrease for urban IRFs in the New England region. vi. Impact of the update to the CMG relativ e 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 th e aggregate we do not estimate that these updates will affect overall estimated paymen ts to IRFs. However, we estimate that these updates will have small dist ributional 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 M ountain regions, and rural IRFs in the Pacific region. vii. Impact of the IPPS Data Matching Pr ocess 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 th e DSH patient percentage used in the acuteCMS-1349-F 198

IPPS DSH adjustment. As we have stated pr eviously, 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 f ile, use of a more updated SSI eligibility data file, and the ot her 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 Re porting 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 Urinar y Tract Infections; and 2) Pressure Ulcers

that are New or Have Worsened. As discusse d 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 NHS N. 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 areCMS-1349-F 199

already reporting data to NHSN) will incu r 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 requi red 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 sec ond form, the denominator form used to count daily the number of patients with an indwelling catheter device, wi ll 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 perCMS-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 Regi stered 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 fi nal 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 th e 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 (Medicar e Advantage) to receive payment from Medicare, and since the number of IRFs su bmitting 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 se t-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 transm itting 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 esti mate any additional burden for IRFs to complete an IRF-PAI with mandatory quali ty measures as the IRF-PAI previously contained a voluntary “Quality I ndicators” section, which we replaced with the pressure ulcer question set. When the original burde n 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 a ll IRFs would complete the Quality Indicators items, even though completion of this secti on was voluntary. Thus, removing the Quality

Indicators items from the IR F-PAI decreases the total es timated burden of completingCMS-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 it em 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 vol untarily prepared a

discussion on the alternatives considered to the IRF PPS. Section 1886(j)(3)(C) of the Act requir es the Secretary to update the IRF PPS payment rates by an increase factor that refl ects changes over time in the prices of an appropriate mix of goods and services include d 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 en sures 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 e quals the 2.9 percent

estimated rebased RPL market basket increase factor for FY 2012 reduced by 0.1 percentage point, as requir ed by sections 1886(j)(3)(C)(ii)(I I) and 1886(j)(3)(D)(ii) of theCMS-1349-F 202

Act, and reduced by a 1.0 percent pr oductivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act). We considered maintaining the existi ng 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 aver age length of stay values are as reflective as possible of recent changes in IRF utiliz ation and case mix, we believe that it is appropriate to update the CMG re lative weights and average lengt h 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-l evel adjustments (the rural, LIP, and teaching status adjustment) for FY 2012 usi ng updated data and a revised methodology that would remove a weighting factor from th e regression analysis th at 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 ar e freezing the IRF fac ility-level adjustment factors at FY

2011 levels for FY 2012 while we continue to study the underl ying 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 adju stment factors. We considered maintaining the exis ting outlier threshold amount for FY 2012. However, the update to the outlier thres hold 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 am ount, fewer outlier cases would qualify for the additional outlier payments in FY 2012. An alysis of updated FY 2010 data indicatesCMS-1349-F 203

that estimated outlier payments would not equa l 3 percent of estimated total payments for FY 2012 unless we update the outlier threshol d amount. Thus, we believe that this update is appropriate for FY 2012.

6. Accounting Statement As required by OMB Circ ular A-4 (available at http://www.whitehouse.gov/om b/circulars/a004/a-4.pdf ), in Table 15, we have prepared an accounting statement showing the classificat ion of the transfers associated with the provisions of this final rule. This table pr ovides our best estimate of the increase in Medicare payments under the IRF PPS as a resu lt 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 Estima ted 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 thos e 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 disc harge, compared with FY 2011. Payments to rehabilitation units in hospitals in urban areas are estimat ed to increase 2.3 per cent per discharge. Payments to freestanding rehabi litation hospitals in urban areas are estimated to increase 1.9 percent per discharge. Payments to rehabi litation units in hospita ls in rural areas are estimated to increase 3.2 percent per disc harge, while payments to freestanding rehabilitation hospitals in rural areas are es timated 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 Sout h Central region. We are not estimating any payment decreases for FY 2012. B. Regulatory Flexibility Act Analysis The RFA requires agencies to analyze optio ns 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 bus inesses, nonprofit orga nizations, and small governmental jurisdictions. Most IRFs and most other providers a nd suppliers are small entities, either by nonprofit status or by ha ving revenues of $34.5 million in any 1 year. (For details, see the Small Busine ss Administration’s Web site at http://ecfr.gpoaccess.go v/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 derive d 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 nonp rofit facilities) ar e 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 threshol d 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 someCMS-1349-F 205

categories of IRFs (such as both freestandi ng 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 pa yment. 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 presen t, in the Alternatives Consid ered section XIV.A.5 of this final rule, an analysis of th e 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 s ubstantial 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 hospi tal 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 es timate 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 rura l IRF hospitals estimated to receive negative net payments. Thus, the S ecretary 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 AnalysisCMS-1349-F 206

Section 202 of the Unfunded Mandate s Reform Act of 1995 also requires that agencies assess anticipated costs and benef its 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 a pproximately $136 million. This final rule will not impose spending costs on State, local, or tr ibal governments, in the aggregate, or by the private sector, of $136 million. XV. Federalism Analysis

Executive Order 13132 establishes certa in requirements that an agency must meet when it promulgates a proposed rule (and subseq uent final rule) that imposes substantial direct requirement costs on State and local gov ernments, 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 facilitie s, 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 PAYM ENT 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 Operatin g 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 para graphs (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 squa re 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 th e CMS RO in writing of the planned change at least 30 days before th e date of the change. The hospital must maintain the information needed to accurately determine costs that ar e attributable to the excluded unit. A change in bed size or a cha nge 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 Fe deral, 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 re quirements 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 paym ent 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 pros pective payment system specified in §412.1(a)(3), an inpatient rehabi litation hospital or an inpatient rehabilitation unit of a hospital (otherwise referred to as an IR F) must meet the fo llowing 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 mo st 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 Ju ly 1, 2005, the IRF served an inpatient population of whom at least 60 percent requir ed intensive rehabilitation services for treatment of one or more of the conditions spec ified 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 pa ragraph (b)(2) of this section;CMS-1349-F 211

(ii) The patient has a comorbidity that fa lls 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 rehabil itation treatment that is unique to inpatient rehabilitation facilities paid under subpart P of this part a nd that cannot be appropr iately 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, incl uding multiple sclerosis, motor neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's disease. (ix) Burns. (x) Active, polyarticular rheumatoid arthri tis, psoriatic arthritis, and seronegative arthropathies resulting in significant functional impairmen t of ambulation and other activities of daily living that have not improved after an appropriate, aggressive, and sustained course of outpatient therapy serv ices or services in other less intensive rehabilitation settings immediately precedi ng the inpatient rehabilitation admission orCMS-1349-F 212

that result from a systemic disease activation immediately before admission, but have the potential to improve with mo re intensive rehabilitation. (xi) Systemic vasculidities with join t inflammation, resulting in significant functional impairment of ambulation and other activities of daily liv ing that have not improved after an appropriate, aggressive, and sustained course of outpatient therapy

services or services in other less intensiv e 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 (osteoarthro sis or degenerative joint disease) involving two or more major weight bearing joints (elbow , shoulders, hips, or knees, but not counting a joint with a prosthes is) with joint deformity and substantial loss of range of motion, atrophy of muscles su rrounding the joint, significant functional impairment of ambulation and ot her activities of daily living that have not improved after the patient has participated in an appropr iate, aggressive, and sustained course of outpatient therapy services or services in other less intensive rehabilitation settings immediately preceding the inpatient rehabilita tion 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 othe r 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 imme diately 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 th is section) or new IRF beds (as defined in paragraph (c)(2)of th is 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 wi ll 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 wh ich 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 calenda r 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 St ate 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 repor ting period. A full 12-month cost reporting period must elapse between the delicensing or decer tification of IRF beds in an IRF hospital or IRF unit and

the addition of new IRF beds to that IRF hospital or IRF un it. Before an IRF can add new beds, it must receive written approval fr om the appropriate CMS RO, so that the CMS RO can verify that a full 12-month cost reporting period has elapsed since the IRFCMS-1349-F 214

has had beds delicensed or d ecertified. New IRF beds ar e included in the compliance review calculations under paragr aph (b) of this section from the time that they are added

to the IRF. (3) Change of ownership or leasing . An IRF hospital or IR F unit that undergoes a change of ownership or leasi ng, 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 leas ing if the new owner(s) of the IRF accept assignment of the previous owners’ Medicare provide r agreement and the IRF continues to meet all of the requirem ents 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 cons idered 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 stat us and is paid according to the prospective payment systems described in §412.1(a)(1). (4) Mergers . If an IRF hospital (or a hospita l with an IRF unit) merges with another hospital and the owner(s) of the me rged hospital accept assignment of the IRF hospital’s provider agreement (or the provide r 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 sp ecified in §412.1(a)(3) before and after the merger, as long as the IRF hospital or IRF un it continues to meet a ll of the requirements for payment under the IRF prospective payment system. If the owner(s) of the merged hospital do not accept assignmen t of the IRF hospital’s pr ovider agreement (or theCMS-1349-F 215

provider agreement of the hospita l with the IRF unit), then th e IRF hospital or IRF unit is considered voluntarily terminated and the owne r(s) of the merged hospital may reapply to the Medicare program to operate a new IRF. (d) Have in effect a preadmissi on screening procedure under which each prospective patient's condition and medical hist ory are reviewed to determine whether the patient is likely to benefit significantly from an intensive inpatient hospital program. This procedure must ensure that the preadmissi on screening is reviewed and approved by a rehabilitation physician prior to th e patient’s admission to the IRF. (e) Have in effect a procedure to en sure that patients re ceive close medical supervision, as evidenced by at least 3 face-to-face vi sits per week by a licensed physician with specialized training and experience in inpatient rehabilitation to assess the patient both medically and functi onally, 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 neur opsychological 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; andCMS-1349-F 216

(4) Has had, after completing a one-year hospital internship, at least 2 years of training or experience in the medical-managemen t of inpatients requiring rehabilitation

services. (h) Have a plan of treatment for each i npatient that is established, reviewed, and revised as needed by a physician in consu ltation with other prof essional personnel who provide services to the patient. (i) Use a coordinated interd isciplinary team approach in the rehabilitation of each inpatient, as documented by the periodic clin ical entries made in the patient's medical record to note the patient's status in relati onship 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 pr ospective payment systems specified in §412.1(a)(1) and paid under the prospective pa yment system specified in §412.1(a)(3) for a cost reporting period under paragraph (c) of this section, but th e inpatient population actually treated during that peri od does not meet the requirement s of paragraph (b) of this section, we adjust payments to the IRF retroa ctively in accordance wi th the provisions in §412.130. §412.30 [Removed and Reserved]

5. Section 412.30 is removed and reserved. Subpart P--Prospective Payment for Inpa tient Rehabilitation Hospitals and

Rehabilitation Units 6. Section 412.624 is amended byCMS-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 incr ease factor described in para graph (a)(3) of this section, including adjustments descri bed in paragraph (d) of th is section as appropriate. (i) In the case of an IR F that is paid under the prospect ive 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 increa se 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 fi scal year involved and will not be taken into account in compu ting the applicable in crease factor for a subsequent fiscal year.

* * * * *CMS-1349-F 218

Authority: (Catalog of Federal Domestic Assistan ce Program No. 93.773, Medicare--Hospital Insurance; and Program No. 93.774, Medicare--S upplementary 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-PCMS-1349-F 219

The following addendum will not appear in the Code of Federal Regulations.

Addendum In this addendum, we provide th e 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 REHABILITA TION FACILITY WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OC CURRING 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 0.9036CMS-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 0.7918CMS-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 0.9549CMS-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 0.8583CMS-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 0.8989CMS-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 1.1250CMS-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 0.9420CMS-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-Mi ddletown, 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 0.9699CMS-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 0.9434CMS-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 0.8400CMS-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 0.8774CMS-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 0.8433CMS-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 1.0160CMS-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 0.9850CMS-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 0.9296CMS-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, GA 1 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 0.9824CMS-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 0.8404CMS-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 1.0619CMS-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 0.9803CMS-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 0.9358CMS-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 1.2130CMS-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 0.7847CMS-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 1.0183CMS-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 1.0363CMS-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 1.1515CMS-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 0.9267CMS-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 0.7954CMS-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 1.0371CMS-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 0.8759CMS-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 1.1570CMS-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-St rafford 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 0.9133CMS-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 0.8303CMS-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 1.6703CMS-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 0.4296CMS-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 0.9091CMS-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 0.7860CMS-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 0.9480CMS-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 1.0534CMS-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 0.9648CMS-1349-F 258

Urban Area (Constituent Counties) Wage Index 47894 Washington-Arlington-Al exandria, 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 0.8898CMS-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 1.1043CMS-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 Massachusetts 1 1.1769 23 Michigan 0.8555 24 Minnesota 0.9038 25 Mississippi 0.7620 26 Missouri 0.7655CMS-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 Jersey 1

----- 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 Rico 1 0.4047 41 Rhode Island 1

----- 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 cla ssified as urban, with the exception of Massachusetts and Puerto Rico. Massachusetts and Puerto Rico have areas designated as rural; however, no short-te rm, 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]