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DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 412 

[CMS-1346-P] 

RIN 0938-AQ23 

Medicare Program; Inpatient Psychiatric Facilities Prospective 

Payment System - Update for Rate Year Beginning July 1, 2011 

(RY 2012) 

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

ACTION: Proposed rule. 

SUMMARY: This proposed rule would update the prospective 

payment rates for Medicare inpatient hospital services 

provided by inpatient psychiatric facilities (IPFs) for 

discharges occurring during the rate year beginning 

July 1, 2011 through September 30, 2012. The proposed rule 

would also change the IPF prospective payment system (PPS) 

payment rate update period to a rate year (RY) that coincides 

with a fiscal year (FY). In addition, the rule proposes 

policy changes affecting the IPF PPS teaching adjustment. It 

would also rebase and revise the Rehabilitation, Psychiatric, 

and Long-Term Care (RPL) market basket, and make some 
CMS-1346-P 2 

clarifications and corrections to terminology and regulations 

text. 

DATES: To be assured consideration, comments must be received 

at one of the addresses provided in the ADDRESSES section no 

later than 5 p.m. EST on March 22, 2011. 

ADDRESSES: In commenting, please refer to file code 

CMS-1346-P. Because of staff and resource limitations, we 

cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (please 

choose only one of the ways listed): 

1. Electronically. You may submit electronic comments 

on this regulation to http://www.regulations.gov. Follow the 

instructions under the “More Search Options” tab. 

2. By regular mail. You may mail written comments (one 

original and two copies) to the following address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

Attention: CMS-1346-P, 

 P.O. Box 8010, 

 Baltimore, MD 21244-1850. 

 Please allow sufficient time for mailed comments to be 

received before the close of the comment period. 
CMS-1346-P 3 

3. By express or overnight mail. You may send written 

comments to the following address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

Attention: CMS-1346-P, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

4. By hand or courier. If you prefer, you may deliver 

(by hand or courier) your written comments before the close of 

the comment period to either of the following addresses: 

a. For delivery in Washington, DC-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Room 445-G, Hubert H. Humphrey Building, 

 200 Independence Avenue, SW., 

 Washington, DC 20201 

(Because access to the interior of the 

Hubert H. Humphrey Building is not readily available to 

persons without Federal government identification, commenters 

are encouraged to leave their comments in the CMS drop slots 

located in the main lobby of the building. A stamp-in clock 

is available for persons wishing to retain a proof of filing 
CMS-1346-P 4 

by stamping in and retaining an extra copy of the comments 

being filed.) 

b. For delivery in Baltimore, MD-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

If you intend to deliver your comments to the Baltimore 

address, please call telephone number (410) 786-9994 in 

advance to schedule your arrival with one of our staff 

members. 

 Comments mailed to the addresses indicated as appropriate 

for hand or courier delivery may be delayed and received after 

the comment period. 

For information on viewing public comments, see the 

beginning of the "SUPPLEMENTARY INFORMATION" section. 

FOR FURTHER INFORMATION CONTACT: 

Dorothy Myrick or Jana Lindquist, (410) 786-4533 (for general 

information). 

Mary Carol Barron,(410) 786-7943, or Bridget Dickensheets, 

(410) 786-8670, (for information regarding the market basket 

and labor-related share). 
CMS-1346-P 5 

Theresa Bean, (410) 786-2287 (for information regarding the 

regulatory impact analysis). 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All comments received before 

the close of the comment period are available for viewing by 

the public, including any personally identifiable or 

confidential business information that is included in a 

comment. We post all comments received before the close of 

the comment period on the following Web site as soon as 

possible after they have been received: 

http://www.regulations.gov. Follow the search instructions on 

that Web site to view public comments. 

 Comments received timely will also be available for 

public inspection as they are received, generally beginning 

approximately 3 weeks after publication of a document, at the 

headquarters of the Centers for Medicare & Medicaid Services, 

7500 Security Boulevard, Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 a.m. to 4 p.m. To 

schedule an appointment to view public comments, phone 

1-800-743-3951. 
CMS-1346-P 6 

Table of Contents 

 To assist readers in referencing sections contained in 

this document, we are providing the following table of 

contents.

I. Background 

 A. Annual Requirements for Updating the IPF PPS 

 B. Overview of the Legislative Requirements of the IPF 

PPS 

 C. IPF PPS-General Overview 

 D. Transition Period for Implementation of the IPF PPS 

II. Proposal to Revise the IPF PPS Payment Rate Update 

 Period from a Rate Year to a Fiscal Year 

III. Proposed Rebasing and Revising of the Rehabilitation, 

 Psychiatric, and Long-Term Care (RPL) Market Basket for 

 Inpatient Psychiatric Facilities 

 A. Background 

 B. Overview of the Proposed FY 2008-Based RPL Market 

 Basket 

 C. Proposed Rebasing and Revising of the RPL Market Basket 

 1. Development of Cost Categories and Weights 

 a. Medicare Cost Reports 

 b. Other Data Sources 
CMS-1346-P 7 

 2. Final Cost Category Computation 

 3. Selection of Price Proxies 

 a. Wages and Salaries 

 b. Employee Benefits 

 c. Electricity 

 d. Fuel, Oil, and Gasoline 

 e. Water and Sewage 

 f. Professional Liability Insurance 

 g. Pharmaceuticals 

 h. Food: Direct Purchases 

 i. Food: Contract Services 

 j. Chemicals 

 k. Medical Instruments 

 l. Photographic Supplies 

 m. Rubber and Plastics 

 n. Paper and Printing Products 

 o. Apparel 

 p. Machinery and Equipment 

 q. Miscellaneous Products 

 r. Professional Fees: Labor-Related 

 s. Administrative and Business Support Services 

 t. All Other: Labor-Related Services 

 u. Professional Fees: Nonlabor-Related 
CMS-1346-P 8 

 v. Financial Services 

 w. Telephone Services 

 x. Postage 

 y. All Other: Nonlabor-Related Services 

 4. Proposed Methodology for Capital Portion of the RPL 

 Market Basket 

 5. Proposed RY 2012 Market Basket Update 

 6. Proposed Labor-Related Share 

IV. Updates to the IPF PPS for RY Beginning July 1, 2011 

 A. Determining the Standardized Budget-Neutral Federal 

 Per Diem Base Rate 

 1. Standardization of the Federal Per Diem Base Rate and 

 Electroconvulsive Therapy (ECT) Rate 

 2. Calculation of the Budget Neutrality Adjustment 

 a. Outlier Adjustment 

 b. Stop-Loss Provision Adjustment 

 c. Behavioral Offset 

 B. Proposed Update of the Federal Per Diem Base Rate and 

 Electroconvulsive Therapy Rate 

V. Proposed Update of the IPF PPS Adjustment Factors 

 A. Overview of the IPF PPS Adjustment Factors 

 B. Proposed Patient-Level Adjustments 

 1. Proposed Adjustment for MS-IPF-DRG Assignment 
CMS-1346-P 9 

 2. Proposed Payment for Comorbid Conditions 

 3. Proposed Patient Age Adjustments 

 4. Proposed Variable Per Diem Adjustments 

 C. Facility-Level Adjustments 

 1. Proposed Wage Index Adjustment 

 a. Background 

 b. Proposed Wage Index for RY 2012 

 c. OMB Bulletins 

 2. Proposed Adjustment for Rural Location 

 3. Proposed Teaching Adjustment 

 a. Proposed Temporary Adjustment to FTE Cap to Reflect 

 Residents Affected by Hospital Closure 

 b. Proposed Temporary Adjustment to FTE Cap to Reflect 

 Residents Affected By Residency Program Closure 

 4. Proposed Cost of Living Adjustment for IPFs Located 

 in Alaska and Hawaii 

 5. Proposed Adjustment for IPFs with a Qualifying 

 Emergency Department (ED) 

 D. Other Payment Adjustments and Policies 

 1. Proposed Outlier Payments 

 a. Proposed Update to the Outlier Fixed Dollar Loss 

 Threshold Amount 

 b. Proposed Statistical Accuracy of Cost-to-Charge 
CMS-1346-P 10 

 Ratios 

 2. Expiration of the Stop-Loss Provision 

 3. Future Refinements 

VI. Proposed Regulations Text Corrections 

VII. Provisions of the Proposed Regulations 

VIII. Collection of Information Requirements 

IX. Regulatory Impact Analysis 

Regulations Text 

Addenda 

Acronyms

Because of the many terms to which we refer by acronym in this 

proposed rule, we are listing the acronyms used and their 

corresponding meanings in alphabetical order below: 

BBRA Medicare, Medicaid and SCHIP [State 

Children's Health Insurance Program] Balanced 

Budget Refinement Act of 1999, (Pub. L. 106-113) 

CBSA Core-Based Statistical Area 

CCR Cost-to-charge ratio 

CAH Critical access hospital 

DSM-IV-TR Diagnostic and Statistical Manual of Mental 

Disorders Fourth Edition--Text Revision 

DRGs Diagnosis-related groups 

FY Federal fiscal year (October 1 through 
CMS-1346-P 11 

 September 30) 

ICD-9-CM International Classification of Diseases, 9th

Revision, Clinical Modification 

IPFs Inpatient psychiatric facilities 

IRFs Inpatient rehabilitation facilities 

LTCHs Long-term care hospitals 

MedPAR Medicare provider analysis and review file 

RPL Rehabilitation, Psychiatric, and Long-Term Care 

RY Rate Year (July 1 through June 30) 

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, 

(Pub. L. 97-248) 

I. Background 

A. Annual Requirements for Updating the IPF PPS

 In November 2004, we implemented the inpatient 

psychiatric facilities (IPF) prospective payment system (PPS) 

in a final rule that appeared in the November 15, 2004 Federal 

Register (69 FR 66922). In developing the IPF PPS, in order 

to ensure that the IPF PPS is able to account adequately for 

each IPF's case-mix, we performed an extensive regression 

analysis of the relationship between the per diem costs and 

certain patient and facility characteristics to determine 

those characteristics associated with statistically 

significant cost differences on a per diem basis. For 
CMS-1346-P 12 

characteristics with statistically significant cost 

differences, we used the regression coefficients of those 

variables to determine the size of the corresponding payment 

adjustments. 

 In that final rule, we explained that we believe it is 

important to delay updating the adjustment factors derived 

from the regression analysis until we have IPF PPS data that 

includes as much information as possible regarding the 

patient-level characteristics of the population that each IPF 

serves. Therefore, we indicated that we did not intend to 

update the regression analysis and recalculate the Federal per 

diem base rate and the patient- and facility-level adjustments 

until we complete that analysis. Until that analysis is 

complete, we stated our intention to publish a notice in the 

Federal Register each spring to update the IPF PPS 

(71 FR 27041). We are proposing to change the payment rate 

update period to a RY that coincides with a FY. If we 

finalize this proposal, future update notices would be 

published in the Federal Register in the summer. See 

section II. of this proposed rule. 

 Updates to the IPF PPS as specified in 42 CFR §412.428 

include the following: 

• A description of the methodology and data used to 
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calculate the updated Federal per diem base payment amount. 

• The rate of increase factor as described in 

§412.424(a)(2)(iii), which is based on the Excluded Hospital 

With Capital market basket under the update methodology of 

section 1886(b)(3)(B)(ii) of the Social Security Act (the Act) 

for each year (effective from the implementation period until 

June 30, 2006). 

• For discharges occurring on or after July 1, 2006, the 

rate of increase factor for the Federal portion of the IPF's 

payment, which is based on the Rehabilitation, Psychiatric, 

and Long-Term Care (RPL) market basket. 

• The best available hospital wage index and information 

regarding whether an adjustment to the Federal per diem base 

rate is needed to maintain budget neutrality. 

• Updates to the fixed dollar loss threshold amount in 

order to maintain the appropriate outlier percentage. 

• Description of the International Classification of 

Diseases, 9th Revision, Clinical Modification (ICD-9-CM) coding 

and diagnosis-related groups (DRGs) classification changes 

discussed in the annual update to the hospital inpatient 

prospective payment system (IPPS) regulations. 

• Update to the electroconvulsive therapy (ECT) payment 

by a factor specified by CMS. 
CMS-1346-P 14 

• Update to the national urban and rural cost-to-charge 

ratio medians and ceilings. 

• Update to the cost of living adjustment factors for 

IPFs located in Alaska and Hawaii, if appropriate. 

 Our most recent IPF PPS annual update occurred in the 

April 30, 2010 Federal Register notice (75 FR 23106) 

(hereinafter referred to as the April 2010 IPF PPS notice) 

that set forth updates to the IPF PPS payment rates for 

RY 2011. This notice updated the IPF PPS per diem payment 

rates that were published in the May 2009 IPF PPS notice in 

accordance with our established policies. 

 Since implementation of the IPF PPS, we have explained 

that we believe it is important to delay updating the 

adjustment factors derived from the regression analysis until 

we have IPF PPS data that include as much information as 

possible regarding the patient-level characteristics of the 

population that each IPF serves. Now that we are 

approximately 5 years into the system, we believe that we have 

enough data to begin that process. Therefore, we have begun 

the necessary analysis in order to make future refinements. 

While we are not proposing to make refinements in this 

rulemaking, as explained in section V.D.3 below, we 
CMS-1346-P 15 

believe that in the next rulemaking, for RY 2013, we will be 

ready to propose potential refinements. 

B. Overview of the Legislative Requirements of the IPF PPS 

 Section 124 of the Medicare, Medicaid, and SCHIP (State 

Children's Health Insurance Program) Balanced Budget 

Refinement Act of 1999, (Pub. L. 106-113) (BBRA) required 

implementation of the IPF PPS. Specifically, section 124 of 

the BBRA mandated that the Secretary develop a per diem PPS 

for inpatient hospital services furnished in psychiatric 

hospitals and psychiatric units that includes an adequate 

patient classification system that reflects the differences in 

patient resource use and costs among psychiatric hospitals and 

psychiatric units. 

 Section 405(g)(2) of the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 (MMA) 

(Pub. L. 108-173) extended the IPF PPS to distinct part 

psychiatric units of critical access hospitals (CAHs). 

 To implement these provisions, we published various 

proposed and final rules in the Federal Register. For more 

information regarding these rules, see the CMS websites 

http://www.cms.hhs.gov/InpatientPsychFacilPPS/ and 

www.cms.hhs.gov/InpatientpsychfacilPPS/02_regulations.asp. 
CMS-1346-P 16 

 Section 3401(f) of the Patient Protection and Affordable 

Care Act (Pub. L. 111-148) as amended by section 10319(e) of 

that Act and by section 1105(d) of the Health Care and 

Education Reconciliation Act of 2010 (Pub. L. 111-152) 

(hereafter referred to as “The Affordable Care Act”) added 

subsection (s) to section 1886 of the Act. 

 Section 1886(s)(1) is titled “Reference to Establishment 

and Implementation of System” and it refers to section 124 of 

the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 

Act of 1999, which relates to the establishment of the IPF 

PPS. 

 Section 1886(s)(2)(A)(i) of the Act requires the 

application of the productivity adjustment described in 

§1886(b)(3)(B)(xi)(II) of the Act to the IPF PPS for the rate 

year beginning in 2012 and each subsequent rate year. Section 

1886(s)(2)(A)(ii) of the Act requires the application of an 

“other adjustment” that reduces any update to an IPF PPS base 

rate by percentages specified in section 1886(s)(3) of the Act 

for rate years beginning in 2010 through the rate year 

beginning in 2019. For the rate year beginning in 2011, the 

reduction is 0.25 percentage point. We are proposing to 

implement that provision for RY 2012 in this proposed rule. 
CMS-1346-P 17 

 Section 1886(s)(4) of the Act requires the establishment 

of a quality data reporting program for the IPF PPS beginning 

in RY 2014. 

C. IPF PPS-General Overview

The November 2004 IPF PPS final rule (69 FR 66922) 

established the IPF PPS, as authorized under section 124 of 

the BBRA and codified at subpart N of part 412 of the Medicare 

regulations. The November 2004 IPF PPS final rule set forth 

the per diem Federal rates for the implementation year (the 

18-month period from January 1, 2005 through June 30, 2006), 

and it provided payment for the inpatient operating and 

capital costs to IPFs for covered psychiatric services they 

furnish (that is, routine, ancillary, and capital costs, but 

not costs of approved educational activities, bad debts, and 

other services or items that are outside the scope of the IPF 

PPS). Covered psychiatric services include services for which 

benefits are provided under the fee-for-service Part A 

(Hospital Insurance Program) Medicare program. 

The IPF PPS established the Federal per diem base rate 

for each patient day in an IPF derived from the national 

average daily routine operating, ancillary, and capital costs 

in IPFs in FY 2002. The average per diem cost was updated to 

the midpoint of the first year under the IPF PPS, standardized 
CMS-1346-P 18 

to account for the overall positive effects of the IPF PPS 

payment adjustments, and adjusted for budget neutrality. 

 The Federal per diem payment under the IPF PPS is 

comprised of the Federal per diem base rate described above 

and certain patient- and facility-level payment adjustments 

that were found in the regression analysis to be associated 

with statistically significant per diem cost differences. 

 The patient-level adjustments include age, DRG 

assignment, comorbidities, and variable per diem adjustments 

to reflect higher per diem costs in the early days of an IPF 

stay. Facility-level adjustments include adjustments for the 

IPF's wage index, rural location, teaching status, a cost of 

living adjustment for IPFs located in Alaska and Hawaii, and 

presence of a qualifying emergency department (ED). 

 The IPF PPS provides additional payment policies for: 

outlier cases; stop-loss protection (which was applicable only 

during the IPF PPS transition period); interrupted stays; and 

a per treatment adjustment for patients who undergo ECT. 

 A complete discussion of the regression analysis appears 

in the November 2004 IPF PPS final rule (69 FR 66933 through 

66936). 

Section 124 of BBRA does not specify an annual update 

rate strategy for the IPF PPS and is broadly written to give 
CMS-1346-P 19 

the Secretary discretion in establishing an update 

methodology. Therefore, in the November 2004 IPF PPS final 

rule, we implemented the IPF PPS using the following update 

strategy: 

• Calculate the final Federal per diem base rate to be 

budget neutral for the 18-month period of January 1, 2005 

through June 30, 2006. 

• Use a July 1 through June 30 annual update cycle. 

• Allow the IPF PPS first update to be effective for 

discharges on or after July 1, 2006 through June 30, 2007. 

D. Transition Period for Implementation of the IPF PPS

 In the November 2004 IPF PPS final rule, we provided for 

a 3-year transition period. During this 3-year transition 

period, an IPF’s total payment under the PPS was based on an 

increasing percentage of the Federal rate with a corresponding 

decreasing percentage of the IPF PPS payment that is based on 

reasonable cost concepts. However, effective for cost 

reporting periods beginning on or after January 1, 2008, IPF 

PPS payments are based on 100 percent of the Federal rate. 

II. Proposal to Revise the IPF PPS Payment Rate Update Period 

from a Rate Year to a Fiscal Year 

In this proposed rule, we are proposing a change to the 

current period for the annual updates of the IPF PPS Federal 
CMS-1346-P 20 

payment rates. We propose to revise the IPF PPS payment rate 

update period by switching from a RY that begins on July 1 and 

goes through June 30 to a period that coincides with a fiscal 

year (FY), that is, October 1 through September 30. We would 

also refer to the update period as a FY beginning with the 

update period that begins in 2012, that is, FY 2013. This 

change in the annual update period would allow us to 

consolidate Medicare publications by aligning the IPF PPS 

update with the annual update of the ICD-9-CM codes, which are 

effective on October 1 of each year. Currently, in addition 

to our annual proposed and final rulemaking documents, we 

publish a change request transmittal every August updating the 

ICD-9-CM codes related to the DRG and comorbidity adjustments. 

By aligning the IPF PPS with the same update period as the 

ICD-9-CM codes, we will eliminate the need to publish a 

transmittal off-cycle. 

We maintain the same diagnostic coding and DRG 

classification for IPFs that are used under the IPPS for 

providing the psychiatric care. When the IPF PPS was 

implemented, we adopted the same diagnostic code set and DRG 

patient classification systems (that is, the CMS DRGs) that 

were utilized at the time under the hospital IPPS. Every 

year, changes to the ICD-9-CM coding system are addressed in 
CMS-1346-P 21 

the IPPS proposed and final rules. These changes are 

effective October 1 of each year and must be used by acute 

care hospitals as well as other providers to report diagnostic 

and procedure information. The IPF PPS has always 

incorporated ICD-9-CM coding changes made in the annual IPPS 

update. This proposed change to the annual payment rate 

update period would allow the annual update to the rates and 

the ICD-9-CM coding update to occur on the same schedule and 

appear in the same Federal Register document. 

Our intent in making the change in the payment rate 

update schedule is to place the IPF PPS on the same update 

cycle as other PPSs, making it administratively efficient. In 

order to smoothly transition to a payment update period that 

runs from October 1 through September 30, we propose that the 

RY 2012 period run from July 1, 2011 to September 30, 2012 

such that RY 2012 would be 15 months. Under this proposal, 

after RY 2012, the rate update period for the IPF PPS payment 

rates and other policy changes would begin on October 1 and go 

through September 30. The next update to the IPF PPS rates 

after RY 2012 would be the FY 2013 update cycle, which would 

begin on October 1, 2012 and go through September 30, 2013. 

In addition, we are proposing to make a change to the 

regulations at §412.402 to add the term “IPF Prospective 
CMS-1346-P 22 

Payment System Rate Year” which would mean October 1 through 

September 30. We are proposing that the RY would be referred 

to as a FY. The discussion of the proposed 15-month market 

basket update for the proposed 2012 rate year can be found in 

section III.C.5. of this proposed rule. 

III. Proposed Rebasing and Revising of the Rehabilitation, 

Psychiatric, and Long-Term Care (RPL) Market Basket for 

Inpatient Psychiatric Facilities 

A. Background

 The input price index (that is, the market basket) that 

was used to develop the IPF PPS was the Excluded Hospital with 

Capital market basket. This market basket was based on 1997 

Medicare cost report data and included data for Medicare 

participating IPFs, inpatient rehabilitation facilities 

(IRFs), long-term care hospitals (LTCHs), cancer hospitals, 

and children’s hospitals. Although “market basket” 

technically describes the mix of goods and services used in 

providing hospital care, this term is also commonly used to 

denote the input price index (that is, cost category weights 

and price proxies combined) derived from that market basket. 

Accordingly, the term “market basket” as used in this document 

refers to a hospital input price index. 
CMS-1346-P 23 

 Beginning with the May 2006 IPF PPS final rule 

(71 FR 27046 through 27054), IPF PPS payments were updated 

using a FY 2002-based market basket reflecting the operating 

and capital cost structures for IRFs, IPFs, and LTCHs 

(hereafter referred to as the Rehabilitation, Psychiatric, and 

Long-Term Care (RPL) market basket). 

 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 are implemented in regulations at §413.40. They 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 the IRFs, IPFs, and LTCHs. A 

complete discussion of the FY 2002-based RPL market basket 

appears in the May 2006 IPF PPS final rule (71 FR 27046 

through 27054). 

 In the May 1, 2009 IPF PPS notice (74 FR 20362), we 

expressed our interest in exploring the possibility of 

creating a stand-alone IPF market basket that reflects the 

cost structures of only IPF providers. We note that, of the 

available options, one would be to join the Medicare cost 

report data from freestanding IPF providers (presently 
CMS-1346-P 24 

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

data from hospital-based IPF providers. We indicated that an 

examination of the Medicare cost report data comparing 

freestanding and hospital-based IPFs revealed considerable 

differences between the two with respect to cost levels and 

cost structures. At that time, we were unable to fully 

understand the differences between these two types of IPF 

providers. As a result, we felt that further research was 

required and we solicited public comment for additional 

information that might help us to better understand the 

reasons for the variations in costs and cost structures, as 

indicated by the cost report data, between freestanding and 

hospital-based IPFs (74 FR 20376). 

 We summarized the public comments we received and our 

responses in the April 2010 IPF PPS notice (75 FR 23111 

through 23113). Despite receiving comments from the public on 

this issue, we remain unable to sufficiently understand the 

observed differences in costs and cost structures between 

hospital-based and freestanding IPFs, and therefore we do not 

feel it is appropriate at this time to incorporate data from 

hospital-based IPFs with those of freestanding IPFs to create 

a stand-alone IPF market basket. 
CMS-1346-P 25 

 Although we do not feel it would be appropriate to 

propose a stand-alone IPF market basket, we are currently 

exploring the viability of creating two separate market 

baskets from the current RPL, one of which would include 

freestanding IPFs and freestanding IRFs and would be used to 

update payments under both the IPF and IRF payment systems. 

The other would be a stand-alone LTCH market basket. 

Depending on the outcome of our research, we anticipate the 

possibility of proposing a rehabilitation and psychiatric (RP) 

market basket in the next update cycle. We welcome public 

comment on the possibility of using this type of market basket 

to update IPF payments in the future. 

 For this update cycle, we are proposing to rebase and 

revise the FY 2002-based RPL market basket by creating a 

proposed FY 2008-based RPL market basket as described below. 

In the following discussion, we provide an overview of the 

market basket and describe the methodologies we propose to use 

for purposes of determining the operating and capital portions 

of the proposed FY 2008-based RPL market basket. 

B. Overview of the Proposed FY 2008-Based RPL Market Basket

 The proposed FY 2008-based RPL market basket is a 

fixed weight, Laspeyres-type price index. A Laspeyres price 

index measures the change in price, over time, of the same mix 
CMS-1346-P 26 

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 are not measured. 

 The index itself is constructed in three steps. First, a 

base period is selected (in this proposed rule, the base 

period is FY 2008) and total base period expenditures are 

estimated for a set of mutually exclusive and exhaustive 

spending categories with the proportion of total costs that 

each category represents being calculated. These proportions 

are called cost or expenditure weights. Second, each 

expenditure category is matched to an appropriate price or 

wage variable, referred to as a price proxy. In nearly every 

instance, these price proxies are derived from publicly 

available statistical series that are published on a 

consistent schedule (preferably at least on a quarterly 

basis). Finally, the expenditure weight for each cost 

category is multiplied by the level of its respective price 

proxy. The sum of these products (that is, the expenditure 

weights multiplied by their price levels) for all cost 

categories yields the composite index level of the market 

basket in a given period. Repeating this step for other 

periods produces a series of market basket levels over time. 

Dividing an index level for a given period by an index level 
CMS-1346-P 27 

for an earlier period produces a rate of growth in the input 

price index over that timeframe. 

 As noted above, the market basket is described as a 

fixed-weight index because it represents the change in price 

over time of a constant mix (quantity and intensity) of goods 

and services needed to furnish hospital services. The effects 

on total expenditures resulting from changes in the mix of 

goods and services purchased subsequent to the base period are 

not measured. For example, a hospital hiring more nurses to 

accommodate the needs of patients would increase the volume of 

goods and services purchased by the hospital, but would not be 

factored into the price change measured by a fixed-weight 

hospital market basket. Only when the index is rebased would 

changes in the quantity and intensity be captured, with those 

changes being reflected in the cost weights. Therefore, we 

rebase the market basket periodically so the cost weights 

reflect recent changes in the mix of goods and services that 

hospitals purchase (hospital inputs) to furnish inpatient care 

between base periods. 

C. Proposed Rebasing and Revising of the RPL Market Basket

 We are inviting public comments on our proposed 

methodological changes to the RPL market basket. The terms 

“rebasing” and “revising,” while often used interchangeably, 
CMS-1346-P 28 

actually denote different activities. “Rebasing” means moving 

the base year for the structure of costs of an input price 

index (for example, in this proposed rule, we are proposing to 

shift the base year cost structure for the RPL market basket 

from FY 2002 to FY 2008). “Revising” means changing data 

sources, price proxies, or methods, used to derive the input 

price index. We propose to rebase and revise the market 

basket used to update the IPF PPS. 

1. Development of Cost Categories and Weights 

a. Medicare Cost Reports

 The proposed FY 2008-based RPL market basket consists of 

several major cost categories derived from the FY 2008 

Medicare cost reports for freestanding IRFs, freestanding 

IPFs, and LTCHs including wages and salaries, pharmaceuticals, 

professional liability insurance, capital, and a residual. 

These FY 2008 cost reports include providers whose cost report 

begin date is on or between October 1, 2007 and September 30, 

2008. We choose to use FY 2008 as the base year because we 

believe that the Medicare cost reports for this year represent 

the most recent, complete set of Medicare cost report data 

available for IRFs, IPFs, and LTCHs. However, there is an 

issue with obtaining data specifically for benefits and 

contract labor from this set of FY 2008 Medicare cost reports 
CMS-1346-P 29 

since IRFs, IPFs, and LTCHs were not required to complete the 

Medicare cost report worksheet from which these data were 

collected (Worksheet S-3, part II). As a result, only a small 

number of providers (less than 30 percent) reported data for 

these categories, and we do not expect these FY 2008 data to 

improve over time. Furthermore, since IRFs, IPFs, and LTCHs 

were not required to submit data for Worksheet S-3, part II in 

previous cost reporting years, we have always had this issue 

of incomplete Medicare cost report data for benefits and 

contract labor (including when we finalized the FY 2002-based 

RPL market basket). Due to the incomplete benefits and 

contract labor data for IRFs, IPFs, and LTCHs, we propose to 

develop these cost weights using FY 2008 Medicare cost report 

data for IPPS hospitals (similar to the method that was used 

for the FY 2002-based RPL market basket). Additional detail 

is provided later in this section. 

 Since our goal is to measure cost shares that are 

reflective of case mix and practice patterns associated with 

providing services to Medicare beneficiaries, we are proposing 

to limit our selection of Medicare cost reports to those from 

hospitals that have a Medicare average length of stay (LOS) 

that is within a comparable range of their total facility 

average LOS. We believe this provides a more accurate 
CMS-1346-P 30 

reflection of the structure of costs for Medicare covered 

days. We propose to use the cost reports of IRFs and LTCHs 

with Medicare average LOS within 15 percent (that is, 

15 percent higher or lower) of the total facility average LOS 

for the hospital. This is the same edit applied to derive the 

FY 2002-based RPL market basket and generally includes those 

LTCHs and IRFs with Medicare LOS within approximately 5 days 

of the facility average LOS of the hospital. 

 We are proposing to use a less stringent measure of 

Medicare LOS for IPFs. For this provider-type, and in order 

to produce a robust sample size, we propose to use those 

facilities’ Medicare cost reports whose average LOS is within 

30 or 50 percent (depending on the total facility average LOS) 

of the total facility average LOS. This is the same edit 

applied to derive the FY 2002-based RPL market basket. 

 We applied these LOS edits to first obtain a set of cost 

reports for facilities that have a Medicare LOS within a 

comparable range of their total facility LOS. Using this set 

of Medicare cost reports, we then calculated cost weights for 

four cost categories directly from the FY 2008 Medicare cost 

reports for freestanding IRFs, freestanding IPFs, and LTCHs 

(found in Table 1 below). These Medicare cost report cost 

weights were then supplemented with information obtained from 
CMS-1346-P 31 

other data sources (explained in more detail below) to derive 

the proposed FY 2008-based RPL market basket cost weights. 

Table 1—Major Cost Categories and Their Respective Cost 

Weights as Calculated Directly from FY 2008 Medicare Cost 

Reports 

Major Cost Categories 

Proposed FY 2008-Based 

RPL Market Basket 

(Percent) 

Wages and salaries 47.371 

Professional Liability Insurance (Malpractice) 0.764 

Pharmaceuticals 6.514 

Capital 8.392 

All other 36.959 

b. Other Data Sources

 In addition to the IRF, IPF and LTCH Medicare cost 

reports for freestanding IRFs and freestanding IPFs, and 

LTCHs, the other data sources we used to develop the proposed 

FY 2008-based RPL market basket cost weights were the FY 2008 

IPPS Medicare cost reports and the Benchmark Input-Output 

(I-O) Tables created by the Bureau of Economic Analysis (BEA), 

U.S. Department of Commerce. The FY 2008 Medicare cost 

reports include providers whose cost report begin date is on 

or between October 1st, 2007 and September 30, 2008. 

 As noted above, the proposed FY 2008-based RPL cost 

weights for benefits and contract labor were derived using FY 

2008-based IPPS Medicare cost reports. We used these Medicare 

cost reports to calculate cost weights for Wages and Salaries, 

Benefits, and Contract Labor for IPPS hospitals for FY 2008. 
CMS-1346-P 32 

For the proposed Benefits cost weight for the FY 2008-based 

RPL market basket, the ratio of the FY 2008 IPPS Benefits cost 

weight to the FY 2008 IPPS Wages and Salaries cost weight was 

applied to the RPL Wages and Salaries cost weight. Similarly, 

the ratio of the FY 2008 IPPS Contract Labor cost weight to 

the FY 2008 IPPS Wages and Salaries cost weight was applied to 

the RPL Wages and Salaries cost weight to derive a Contract 

Labor cost weight for the proposed FY 2008-based RPL market 

basket. 

 The All Other cost category is divided into other 

hospital expenditure category shares using the 2002 BEA 

Benchmark I-O data following the removal of the portions of 

the All Other cost category provided in Table 1 that are 

attributable to Benefits and Contract Labor. The BEA 

Benchmark I-O data are scheduled for publication every 5 

years. The most recent data available are for 2002. BEA also 

produces Annual I-O estimates; however, the 2002 Benchmark I-O 

data represent a much more comprehensive and complete set of 

data that are derived from the 2002 Economic Census. The 

Annual I-O 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 are proposing to use the 2002 

Benchmark I-O data in the FY 2008-based RPL market basket. 
CMS-1346-P 33 

Instead of using the less detailed Annual I-O data, we aged 

the 2002 Benchmark I-O data forward to 2008. The methodology 

we used to age 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” in the aged 2002 Benchmark I-O data. For 

instance, if the cost for telephone services represented 10 

percent of the sum of the “all other” Benchmark I-O hospital 

expenditures, then telephone services would represent 10 

percent of the RPL market basket's All Other cost category. 

2. Final Cost Category Computation 

As stated previously, for this rebasing we are proposing 

to use the FY 2008 Medicare cost reports for IRFs, IPFs, and 

LTCHs to derive four major cost categories. The proposed FY 

2008-based RPL market basket includes two additional cost 

categories that were not broken out separately in the FY 

2002-based RPL market basket: “Administrative and Business 

Support Services” and “Financial Services”. The inclusion of 

these two additional cost categories, which are derived using 

the Benchmark I-O data, is consistent with the addition of 
CMS-1346-P 34 

these two cost categories to the FY 2006-based IPPS market 

basket (74 FR 43845). We are proposing to break out both 

categories so we can better match their respective expenses 

with more appropriate price proxies. A thorough discussion of 

our rationale for each of these cost categories is provided in 

the section III.C.3.s. of this proposed rule. Also, the 

proposed FY 2008-based RPL market basket excludes one cost 

category: Photo Supplies. The 2002 Benchmark I-O weight for 

this category is considerably smaller than the 1997 Benchmark 

I-O weight, presently accounting for less than one-tenth of 

one percentage point of the RPL market basket. Therefore, we 

are proposing to include the photo supplies costs in the 

Chemical cost category weight with other similar chemical 

products.

 We are not proposing to change our definition of the 

labor-related share. However, we are proposing to rename our 

aggregate cost categories from “labor-intensive” and 

“nonlabor-intensive” services to “labor-related” and 

“nonlabor-related” services. This is consistent with the 

FY 2006-based IPPS market basket (74 FR 43845). As discussed 

in more detail below and similar to the FY 2002-based RPL 

market basket, we classify a cost category as labor-related 

and include it in the labor-related share if the cost category 
CMS-1346-P 35 

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 proposed new labels 

more accurately reflect the concepts that they are intended to 

convey. We are not proposing to change our definition of the 

labor-related share because we continue to classify a cost 

category as labor-related if the costs are labor-intensive and 

vary with the local labor market. 

3. Selection of Price Proxies 

 After computing the FY 2008 cost weights for the proposed 

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 Professional Liability Insurance, 

all of the proxies for the operating portion of the proposed 

FY 2008-based RPL market basket are based on Bureau of Labor 

Statistics (BLS) data and are grouped into one of the 

following BLS categories: 

 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 
CMS-1346-P 36 

PPIs better reflect the actual price changes faced by 

hospitals. For example, we use a special PPI for prescription 

drugs, rather than the Consumer Price Index (CPI) for 

prescription drugs, because hospitals generally purchase drugs 

directly from a wholesaler. The PPIs that we use measure 

price changes at the final stage of production. 

 Consumer Price Indexes--Consumer Price Indexes (CPIs) 

measure change in the prices of final goods and services 

bought by the typical consumer. Because they may not 

represent the price faced by a producer, we used CPIs only if 

an appropriate PPI was not available, or if the expenditures 

were more similar to those faced by retail consumers in 

general rather than by purchasers of goods at the wholesale 

level. For example, the CPI for food purchased away from home 

is used as a proxy for contracted food services. 

 Employment Cost Indexes--Employment Cost Indexes (ECIs) 

measure the rate of change in employee wage rates and employer 

costs for employee benefits per hour worked. These indexes 

are fixed-weight indexes and strictly measure the change in 

wage rates and employee benefits per hour. Appropriately, 

they are not affected by shifts in employment mix. 

 We evaluated the price proxies using the criteria of 

reliability, timeliness, availability, and relevance. 
CMS-1346-P 37 

Reliability indicates that the index is based on valid 

statistical methods and has low sampling variability. 

Timeliness implies that the proxy is published regularly, 

preferably at least once a quarter. Availability means that 

the proxy is publicly available. Finally, relevance means 

that the proxy is applicable and representative of the cost 

category weight to which it is applied. The proposed CPIs, 

PPIs, and ECIs selected meet these criteria. 

 Table 2 sets forth the proposed FY 2008-based RPL market 

basket including cost categories, and their respective weights 

and price proxies. For comparison purposes, the corresponding 

FY 2002-based RPL market basket cost weights are listed, as 

well. For example, Wages and Salaries are 49.447 percent of 

total costs in the proposed FY 2008-based RPL market basket 

compared to 52.895 percent for the FY 2002-based RPL market 

basket. Employee Benefits are 12.831 percent in the proposed 

FY 2008-based RPL market basket compared to 12.982 percent for 

the FY 2002-based RPL market basket. As a result, 

compensation costs (Wages and Salaries plus Employee Benefits) 

for the proposed FY 2008-based RPL market basket are 62.278 

percent of total costs compared to 65.877 percent for the 

FY 2002-based RPL market basket. 
CMS-1346-P 38 

 Following Table 2 is a summary outlining the choice of 

the proxies we propose to use for the operating portion of the 

FY 2008-based RPL market basket. The price proxies proposed 

for the capital portion are described in more detail in the 

capital methodology section (see section III.C.4. of this 

proposed rule). 

 We note that the proxies for the operating portion of the 

FY 2008-based RPL market basket are the same as those used for 

the FY 2006-based IPPS operating market basket. Because these 

proxies meet our criteria of reliability, timeliness, 

availability, and relevance, we believe they are the best 

measures of price changes for the cost categories. For 

further discussion on the FY 2006-based IPPS market basket, 

see the IPPS final rule published in the Federal Register on 

August 27, 2009 (74 FR 43843). 

Table 2—Proposed FY 2008-Based RPL Market Basket Cost 

Categories, Weights, and Price Proxies with FY 2002-Based RPL 

Market Basket Cost Weights Included for Comparison 

Cost Categories 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 2008-Based RPL 

Market Basket Price Proxies 

1. Compensation 65.877 62.278 -- 

A. Wages and Salaries1 52.895 49.447 ECI for Wages and Salaries, 

Civilian Hospital Workers 

B. Employee Benefits1 12.982 12.831 ECI for Benefits, Civilian 

Hospital Workers 

2. Utilities 0.656 1.578 -- 

A. Electricity 0.351 1.125 PPI for Commercial Electric 

Power 
CMS-1346-P 39 

Cost Categories 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 2008-Based RPL 

Market Basket Price Proxies 

B. Fuel, Oil, and Gasoline 0.108 0.371 PPI for Petroleum Refineries 

C. Water and Sewage 0.197 0.082 CPI-U for Water & Sewerage 

Maintenance 

3. Professional Liability 

Insurance 

1.161 0.764 CMS Hospital Professional 

Liability Insurance 

Premium Index 

4. All Other Products and 

Services 

22.158 26.988 -- 

A. All Other Products 13.325 15.574 -- 

(1.) Pharmaceuticals 5.103 6.514 PPI for Pharmaceutical 

Preparations for Human 

Use(Prescriptions) 

(2.) Food: Direct Purchases 0.873 2.959 PPI for Processed Foods & 

Feeds 

(3.) Food: Contract Services 0.620 0.392 CPI-U for Food Away From 

Home 

(4.) Chemicals2 1.100 1.100 Blend of Chemical PPIs 

(5.) Medical Instruments 1.014 1.795 PPI for Medical, Surgical, and 

Personal Aid Devices 

(6.) Photographic Supplies 0.096 -- -- 

(7.) Rubber and Plastics 1.052 1.131 PPI for Rubber & Plastic 

Products 

(8.) Paper and Printing 

Products 

1.000 1.021 PPI for Converted Paper & 

Paperboard Products 

(9.) Apparel 0.207 0.210 PPI for Apparel 

(10.) Machinery and 

Equipment 

0.297 0.106 PPI for Machinery & Equipment 

(11.) Miscellaneous Products 1.963 0.346 PPI for Finished Goods less 

Food and Energy 

B. All Other Services 8.833 11.414 -- 

(1.) Labor-related Services 5.111 4.681 -- 

(a.) Professional Fees: Laborrelated3 2.892 2.114 ECI for Compensation for 

Professional and Related 

Occupations 

(b.) Administrative and 

Business Support Services4 n/a 0.422 ECI for Compensation for Office 

and Administrative Services 

(c.) All Other: Labor-Related 

Services5 2.219 2.145 ECI for Compensation for 

Private Service Occupations 
CMS-1346-P 40 

Cost Categories 

FY 

2002-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 

2008-Based 

RPL Market 

Basket Cost 

Weights 

Proposed FY 2008-Based RPL 

Market Basket Price Proxies 

(2.) Nonlabor-Related 

Services 

3.722 6.733 -- 

(a.) Professional Fees: 

Nonlabor-Related3 n/a 4.211 ECI for Compensation for 

Professional and Related 

Occupations 

(b.) Financial Services 5 n/a 0.853 ECI for Compensation for 

Financial Activities 

(c.) Telephone Services 0.240 0.416 CPI-U for Telephone Services 

(d.) Postage 0.682 0.630 CPI-U for Postage 

(e.) All Other: NonlaborRelated Services6

2.800 0.623 CPI-U for All Items less Food 

and Energy 

5. Capital-Related Costs 10.149 8.392 -- 

A. Depreciation 6.187 5.519 -- 

(1.) Fixed Assets 4.250 3.286 BEA chained price index for 

nonresidential construction for 

hospitals and special care 

facilities—vintage weighted (26 

years) 

(2.) Movable Equipment 1.937 2.233 PPI for Machinery and 

Equipment—vintage weighted 

(11 years). 

B. Interest Costs 2.775 1.954 -- 

(1.) Government/Nonprofit 2.081 0.653 Average yield on domestic 

municipal bonds (Bond Buyer 20 

bonds)—vintage-weighted (26 

years) 

(2.) For Profit 0.694 1.301 Average yield on Moody’s Aaa 

bonds—vintage-weighted (26 

years) 

C. Other Capital-Related 

Costs 

1.187 0.919 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 III.C.3.j. of the preamble of this proposed rule. 

3

The Professional Fees: Labor-related and Professional Fees: Nonlabor-related 

cost categories were included in one cost category called Professional Fees in 

the FY 2002-based RPL market basket. For more detail about how these new 

categories were derived, we refer readers to sections III.C.6. of the preamble 

of this proposed rule, on the labor-related share. 
CMS-1346-P 41 

4

The Administrative and Business Support Services cost category was contained 

within All Other: Labor-intensive Services cost category in the FY 2002-based 

RPL market basket. The All Other: Labor-intensive Services cost category is 

renamed the All Other: Labor-related Services cost category for the FY 2008-

based RPL market basket. 

5

The Financial Services cost category was contained within the All Other: Nonlabor Intensive Services cost category in the FY 2002-based RPL market basket. 

The All Other: Non-labor Intensive Services cost category is renamed the All 

Other: Nonlabor-related Services cost category for the FY 2008-based RPL 

market basket. 

a. Wages and Salaries

 We are proposing to use the ECI for Wages and Salaries 

for Hospital Workers (All Civilian) (BLS series code 

CIU1026220000000I) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based RPL 

market basket. 

b. Employee Benefits

 We are proposing to use the ECI for Employee Benefits for 

Hospital Workers (All Civilian) to measure the price growth of 

this cost category. This same proxy was used in the FY 2002-

based RPL market basket. 

c. Electricity

 We are proposing to use the PPI for Commercial Electric 

Power (BLS series code WPU0542). This same proxy was used in 

the FY 2002-based RPL market basket. 

d. Fuel, Oil, and Gasoline

 For the FY 2002-based RPL market basket, this category 

only included expenses classified under North American 

Industry Classification System (NAICS) 21 (Mining). We 
CMS-1346-P 42 

proxied this category using the PPI for Commercial Natural Gas 

(BLS series code WPU0552). For the proposed FY 2008-based 

market basket, we are proposing to add costs to this category 

that had previously been grouped in other categories. The 

added costs include petroleum-related expenses under NAICS 

324110 (previously captured in the miscellaneous category), as 

well as petrochemical manufacturing classified under NAICS 

325110 (previously captured in the chemicals category). These 

added costs represent 80 percent of the hospital industry's 

fuel, oil, and gasoline expenses (or 80 percent of this 

category). Because the majority of the industry's fuel, oil, 

and gasoline expenses originate from petroleum refineries 

(NAICS 324110), we are proposing to use the PPI for Petroleum 

Refineries (BLS series code PCU324110324110) as the proxy for 

this cost category. 

e. Water and Sewage

 We are proposing to use the CPI for Water and Sewerage 

Maintenance (All Urban Consumers) (BLS series code 

CUUR0000SEHG01) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based RPL 

market basket. 

f. Professional Liability Insurance
CMS-1346-P 43 

 We are proposing to proxy price changes in hospital 

professional liability insurance premiums (PLI) using 

percentage changes as estimated by the CMS Hospital 

Professional Liability Index. To generate these estimates, we 

collect commercial insurance premiums for a fixed level of 

coverage while holding nonprice 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. 

g. Pharmaceuticals

 We are proposing to use the PPI for Pharmaceuticals for 

Human Use, Prescription (BLS series code WPUSI07003) to 

measure the price growth of this cost category. We note that 

we are not making a change to the PPI that is used to proxy 

this cost category. There was a recent change to the BLS 

naming convention for this series; however this is the same 

proxy that was used in the FY 2002-based RPL market basket. 
CMS-1346-P 44 

h. Food: Direct Purchases

 We are proposing to use the PPI for Processed Foods and 

Feeds (BLS series code WPU02) to measure the price growth of 

this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 

i. Food: Contract Services

 We are proposing to use the CPI for Food Away From Home 

(All Urban Consumers) (BLS series code CUUR0000SEFV) to 

measure the price growth of this cost category. This same 

proxy was used in the FY 2002-based RPL market basket. 

j. Chemicals

 We are proposing to use a blended PPI composed of the PPI 

for Industrial Gas Manufacturing (NAICS 325120) (BLS series 

code PCU325120325120P), the PPI for Other Basic Inorganic 

Chemical Manufacturing (NAICS 325180) (BLS series code 

PCU32518-32518-), the PPI for Other Basic Organic Chemical 

Manufacturing (NAICS 325190) (BLS series code 

PCU32519-32519-), and the PPI for Soap and Cleaning Compound 

Manufacturing (NAICS 325610) (BLS series code 

PCU32561-32561-). Using the 2002 Benchmark I-O data, we found 

that these NAICS industries accounted for approximately 90 

percent of the hospital industry's chemical expenses. 
CMS-1346-P 45 

 Therefore, we are proposing to use this blended index 

because we believe its composition better reflects the 

composition of the purchasing patterns of hospitals than does 

the PPI for Industrial Chemicals (BLS series code WPU061), the 

proxy used in the FY 2002-based RPL market basket. Table 3 

below shows the weights for each of the four PPIs used to 

create the blended PPI, which we determined using the 2002 

Benchmark I-O data. 

Table 3—Blended Chemical PPI Weights 

Name 

Weights 

(in 

percent) NAICS 

PPI for Industrial Gas Manufacturing 35% 325120 

PPI for Other Basic Inorganic Chemical Manufacturing 25% 325180 

PPI for Other Basic Organic Chemical Manufacturing 30% 325190 

PPI for Soap and Cleaning Compound Manufacturing 10% 325610 

k. Medical Instruments

 We are proposing to use the PPI for Medical, Surgical, 

and Personal Aid Devices (BLS series code WPU156) to measure 

the price growth of this cost category. In the 1997 Benchmark 

I-O data, approximately half of the expenses classified in 

this category were for surgical and medical instruments. 

Therefore, we used the PPI for Surgical and Medical 

Instruments and Equipment (BLS series code WPU1562) to proxy 

this category in the FY 2002-based RPL market basket. The 

2002 Benchmark I-O data show that surgical and medical 
CMS-1346-P 46 

instruments now represent only 33 percent of these expenses 

and that the largest expense category is surgical appliance 

and supplies manufacturing (corresponding to BLS series code 

WPU1563). Due to this reallocation of costs over time, we are 

proposing to change the price proxy for this cost category to 

the more aggregated PPI for Medical, Surgical, and Personal 

Aid Devices. 

l. Photographic Supplies

 We are proposing to eliminate the cost category specific 

to photographic supplies for the proposed FY 2008-based RPL 

market basket. These costs would now be included in the 

Chemicals cost category because the costs are presently 

reported as all other chemical products. Notably, although we 

would be eliminating the specific cost category, these costs 

would still be accounted for within the RPL market basket. 

m. Rubber and Plastics

 We are proposing to use the PPI for Rubber and Plastic 

Products (BLS series code WPU07) to measure price growth of 

this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 

n. Paper and Printing Products

 We are proposing to use the PPI for Converted Paper and 

Paperboard Products (BLS series code WPU0915) to measure the 
CMS-1346-P 47 

price growth of this cost category. This same proxy was used 

in the FY 2002-based RPL market basket. 

o. Apparel

 We are proposing to use the PPI for Apparel (BLS series 

code WPU0381) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based RPL 

market basket. 

p. Machinery and Equipment

 We are proposing to use the PPI for Machinery and 

Equipment (BLS series code WPU11) to measure the price growth 

of this cost category. This same proxy was used in the FY 

2002-based RPL market basket. 

q. Miscellaneous Products

 We are proposing to 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 would 

remove the double-counting of food and energy prices, which 

would already be captured elsewhere in the market basket. 

This same proxy was used in the FY 2002-based RPL market 

basket. 

r. Professional Fees: Labor-Related

 We are proposing to use the ECI for Compensation for 

Professional and Related Occupations (Private Industry) (BLS 
CMS-1346-P 48 

series code CIS2020000120000I) to measure the price growth of 

this category. It includes occupations such as legal, 

accounting, and engineering services. This same proxy was 

used in the FY 2002-based RPL market basket. 

s. Administrative and Business Support Services

 We are proposing to use the ECI for Compensation for 

Office and Administrative Support Services (Private Industry) 

(BLS series code CIU2010000220000I) to measure the price 

growth of this category. Previously these costs were included 

in the All Other: Labor-intensive category (now renamed the 

All Other: Labor-related Services category), and were proxied 

by the ECI for Compensation for Service Occupations. We 

believe that this compensation index better reflects the 

changing price of labor associated with the provision of 

administrative services and its incorporation represents a 

technical improvement to the market basket. 

t. All Other: Labor-Related Services

 We are proposing to use the ECI for Compensation for 

Service Occupations (Private Industry) (BLS series code 

CIU2010000300000I) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based RPL 

market basket. 

u. Professional Fees: Nonlabor-Related
CMS-1346-P 49 

 We are proposing to use the ECI for Compensation for 

Professional and Related Occupations (Private Industry) (BLS 

series code CIS2020000120000I) to measure the price growth of 

this category. This is the same price proxy that we are 

proposing to use for the Professional Fees: Labor-related cost 

category. 

v. Financial Services

 We are proposing to use the ECI for Compensation for 

Financial Activities (Private Industry) (BLS series code 

CIU201520A000000I) to measure the price growth of this cost 

category. Previously these costs were included in the All 

Other: Nonlabor-intensive category (now renamed the All Other: 

Nonlabor-related Services category), and were proxied by the 

CPI for All Items. We believe that this compensation index 

better reflects the changing price of labor associated with 

the provision of financial services and its incorporation 

represents a technical improvement to the market basket. 

w. Telephone Services

 We are proposing to use the CPI for Telephone Services 

(BLS series code CUUR0000SEED) to measure the price growth of 

this cost category. This same proxy was used in the FY 2002-

based RPL market basket. 

x. Postage
CMS-1346-P 50 

 We are proposing to use the CPI for Postage (BLS series 

code CUUR0000SEEC01) to measure the price growth of this cost 

category. This same proxy was used in the FY 2002-based RPL 

market basket. 

y. All Other: Nonlabor-Related Services

 We are proposing to 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 would remove the double counting of 

changes in food and energy prices, as they are already 

captured elsewhere in the market basket. Consequently, we 

believe that the incorporation of this proxy would represent a 

technical improvement to the market basket. 

4. Proposed Methodology for Capital Portion of the RPL Market 

Basket 

 In the FY 2002-based RPL market basket, we did not have 

IRF, IPF, and LTCH 2002 Medicare cost report data for the 

capital cost weights, due to a change in the 2002 reporting 

requirements. Therefore, we used these hospitals’ 2001 

expenditure data for the capital cost categories of 
CMS-1346-P 51 

depreciation, interest, and other capital expenses, and aged 

the data to a 2002 base year using relevant price proxies. 

 For the proposed FY 2008-based RPL market basket, we are 

proposing to calculate weights for the proposed RPL market 

basket capital costs using the same set of FY 2008 Medicare 

cost reports used to develop the operating share for IRFs, 

IPFs, and LTCHs. To calculate the proposed total capital cost 

weight, we first apply the same LOS edits as applied prior to 

calculating the operating cost weights as described above in 

section III.C.3. The resulting proposed capital weight for 

the FY 2008 base year is 8.392 percent. 

 Lease expenses are unique in that they are not broken out 

as a separate cost category in the RPL market basket, but 

rather are proportionally distributed amongst the cost 

categories of Depreciation, Interest, and Other, reflecting 

the assumption that the underlying cost structure of leases is 

similar to that of capital costs in general. As was done in 

the FY 2002-based RPL market basket, we first assumed 10 

percent of lease expenses represents overhead and assigned 

those costs to the Other Capital-Related Costs category 

accordingly. The remaining lease expenses were distributed 

across the three cost categories based on the respective 
CMS-1346-P 52 

weights of depreciation, interest, and other capital not 

including lease expenses. 

 Depreciation contains two subcategories: (1) Building & 

Fixed Equipment; and (2) Movable Equipment. The apportionment 

between building & fixed equipment and movable equipment was 

determined using the FY 2008 Medicare cost reports for 

freestanding IRFs, IPFs, and LTCHs. This methodology was also 

used to compute the apportionment used in the FY 2002-based 

RPL market basket (70 FR 47912). 

 The total Interest expense cost category is split between 

government/nonprofit interest and for-profit interest. The FY 

2002-based RPL market basket allocated 75 percent of the total 

Interest cost weight to government/nonprofit interest and 

proxied that category by the average yield on domestic 

municipal bonds. The remaining 25 percent of the Interest 

cost weight was allocated to for-profit interest and was 

proxied by the average yield on Moody's Aaa bonds 

(70 FR 47912). This was based on the FY 2002-based IPPS 

capital input price index (70 FR 23406) due to insufficient 

Medicare cost report data for IPFs, IRFs, and LTCHs. For the 

proposed FY 2008-based RPL market basket, we are proposing to 

derive the split using the relative FY 2008 Medicare cost 

report data on interest expenses for government/nonprofit and 
CMS-1346-P 53 

for-profit IRFs, IPFs, and LTCHs. Based on these data, we 

calculated a proposed 33/67 split between government/nonprofit 

and for-profit interest. We believe it is important that this 

split reflects the latest relative cost structure of interest 

expenses for RPL providers. As stated above, we first apply 

the LOS edits (as described in section III.C.3.) prior to 

calculating this split. Therefore, we are using cost reports 

that are reflective of case mix and practice patterns 

associated with providing services to Medicare beneficiaries. 

Using data specific to government/nonprofit and for-profit 

IRFs, IPFs, and LTCHs as well as the application of these LOS 

edits are the primary reasons for the difference in this split 

relative to the FY 2002-based RPL market basket. 

 Because capital is acquired and paid for over time, 

capital expenses in any given year are determined by both past 

and present purchases of physical and financial capital. The 

vintage-weighted capital portion of the FY 2008-based RPL 

market basket is intended to capture the long-term consumption 

of capital, using vintage weights for depreciation (physical 

capital) and interest (financial capital). These vintage 

weights reflect the proportion of capital purchases 

attributable to each year of the expected life of building & 

fixed equipment, movable equipment, and interest. We are 
CMS-1346-P 54 

proposing to use the vintage weights to compute 

vintage-weighted price changes associated with depreciation 

and interest expense. 

 Vintage weights are an integral part of the proposed 

FY 2008-based RPL market basket. Capital costs are inherently 

complicated and are determined by complex capital purchasing 

decisions, over time, based on such factors as interest rates 

and debt financing. In addition, capital is depreciated over 

time instead of being consumed in the same period it is 

purchased. The capital portion of the proposed FY 2008-based 

RPL market basket would reflect the annual price changes 

associated with capital costs, and would be a useful 

simplification of the actual capital investment process. By 

accounting for the vintage nature of capital, we are able to 

provide an accurate and stable annual measure of price 

changes. Annual nonvintage price changes for capital are 

unstable due to the volatility of interest rate changes and, 

therefore, do not reflect the actual annual price changes for 

Medicare capital-related costs. The capital component of the 

proposed FY 2008-based RPL market basket would reflect the 

underlying stability of the capital acquisition process and 

provides hospitals with the ability to plan for changes in 

capital payments. 
CMS-1346-P 55 

 To calculate the vintage weights for depreciation and 

interest expenses, we needed a time series of capital 

purchases for building & fixed equipment and movable 

equipment. We found no single source that provides a uniquely 

best time series of capital purchases by hospitals for all of 

the above components of capital purchases. The early Medicare 

cost reports did not have sufficient capital data to meet this 

need. Data we obtained from the American Hospital Association 

(AHA) do not include annual capital purchases. However, AHA 

does provide a consistent database back to 1963. We used data 

from the AHA Panel Survey and the AHA Annual Survey to obtain 

a time series of total expenses for hospitals. We then used 

data from the AHA Panel Survey supplemented with the ratio of 

depreciation to total hospital expenses obtained from the 

Medicare cost reports to derive a trend of annual depreciation 

expenses for 1963 through 2008. 

 In order to estimate capital purchases using data on 

depreciation expenses, the expected life for each cost 

category (building & fixed equipment, movable equipment, and 

interest) is needed to calculate vintage weights. For the FY 

2002-based RPL market basket, due to insufficient Medicare 

cost report data for IRFs, IPFs, and LTCHs, we used 2001 

Medicare Cost Reports for IPPS hospitals to determine the 
CMS-1346-P 56 

expected life of building & fixed equipment and movable 

equipment (70 FR 47913). The FY 2002-based RPL market basket 

was based on an expected life of building & fixed equipment of 

23 years. It used 11 years as the expected life for movable 

equipment. We believed that this data source reflected the 

latest relative cost structure of depreciation expenses for 

hospitals at the time and was analogous to IRFs, IPFs, and 

LTCHs. 

 The expected life of any piece of equipment can be 

determined by dividing the value of the asset (excluding fully 

depreciated assets) by its current year depreciation amount. 

This calculation yields the estimated useful life of an asset 

if depreciation were to continue at current year levels, 

assuming straight-line depreciation. Following a similar 

method to what was applied for the FY 2002-based RPL market 

basket, we are proposing to use the expected life of building 

& fixed equipment to be equal to 26 years, and the expected 

life of movable equipment to be 11 years. These expected 

lives are calculated using FY 2008 Medicare cost reports for 

IPPS hospitals since we are currently unable to obtain robust 

measures of the expected lives for building & fixed equipment 

and movable equipment using the Medicare cost reports from 

IRFs, IPFs, and LTCHs. 
CMS-1346-P 57 

 We also propose to use the building & fixed equipment and 

movable equipment weights derived from FY 2008 Medicare cost 

reports for IRFs, IPFs, and LTCHs to separate the depreciation 

expenses into annual amounts of building & fixed equipment 

depreciation and movable equipment depreciation. Year-end 

asset costs for building & fixed equipment and movable 

equipment were determined by multiplying the annual 

depreciation amounts by the expected life calculations. We 

then calculated a time series, back to 1963, of annual capital 

purchases by subtracting the previous year asset costs from 

the current year asset costs. From this capital purchase time 

series, we were able to calculate the vintage weights for 

building & fixed equipment and for movable equipment. Each of 

these sets of vintage weights is explained in more detail 

below. 

 For the proposed building & fixed equipment vintage 

weights, we used the real annual capital purchase amounts for 

building & fixed equipment to capture the actual amount of the 

physical acquisition, net of the effect of price inflation. 

This real annual purchase amount for building & fixed 

equipment was produced by deflating the nominal annual 

purchase amount by the building & fixed equipment price proxy, 

BEA's chained price index for nonresidential construction for 
CMS-1346-P 58 

hospitals and special care facilities. Because building & 

fixed equipment have an expected life of 26 years, the vintage 

weights for building & fixed equipment are deemed to represent 

the average purchase pattern of building & fixed equipment 

over 26-year periods. With real building & fixed equipment 

purchase estimates available from 2008 back to 1963, we 

averaged twenty 26-year periods to determine the average 

vintage weights for building & fixed equipment that are 

representative of average building & fixed equipment purchase 

patterns over time. Vintage weights for each 26-year period 

are calculated by dividing the real building & fixed capital 

purchase amount in any given year by the total amount of 

purchases in the 26-year period. This calculation is done for 

each year in the 26-year period, and for each of the twenty 

26-year periods. We used the average of each year across the 

twenty 26-year periods to determine the average building & 

fixed equipment vintage weights for the FY 2008-based RPL 

market basket. 

 For the proposed movable equipment vintage weights, the 

real annual capital purchase amounts for movable equipment 

were used to capture the actual amount of the physical 

acquisition, net of price inflation. This real annual 

purchase amount for movable equipment was calculated by 
CMS-1346-P 59 

deflating the nominal annual purchase amounts by the movable 

equipment price proxy, the PPI for Machinery and Equipment. 

This is the same proxy used for the FY 2002-based RPL market 

basket. Based on our determination that movable equipment has 

an expected life of 11 years, the vintage weights for movable 

equipment represent the average expenditure for movable 

equipment over an 11-year period. With real movable equipment 

purchase estimates available from 2008 back to 1963, 

thirty-five 11-year periods were averaged to determine the 

average vintage weights for movable equipment that are 

representative of average movable equipment purchase patterns 

over time. Vintage weights for each 11-year period are 

calculated by dividing the real movable capital purchase 

amount for any given year by the total amount of purchases in 

the 11-year period. This calculation was done for each year 

in the 11-year period and for each of the thirty-five 11-year 

periods. We used the average of each year across the 

thirty-five 11-year periods to determine the average movable 

equipment vintage weights for the FY 2008-based RPL market 

basket. 

 For the proposed interest vintage weights, the nominal 

annual capital purchase amounts for total equipment (building 

& fixed, and movable) were used to capture the value of the 
CMS-1346-P 60 

debt instrument. Because we have determined that hospital 

debt instruments have an expected life of 26 years, the 

vintage weights for interest are deemed to represent the 

average purchase pattern of total equipment over 26-year 

periods. With nominal total equipment purchase estimates 

available from 2008 back to 1963, twenty 26-year periods were 

averaged to determine the average vintage weights for interest 

that are representative of average capital purchase patterns 

over time. Vintage weights for each 26-year period are 

calculated by dividing the nominal total capital purchase 

amount for any given year by the total amount of purchases in 

the 26-year period. This calculation is done for each year in 

the 26-year period and for each of the twenty 26-year periods. 

We used the average of each year across the twenty 26-year 

periods to determine the average interest vintage weights for 

the FY 2008-based RPL market basket. The vintage weights for 

the capital portion of the FY 2002-based RPL market basket and 

the FY 2008-based RPL market basket are presented in Table 4. 

Table 4—FY 2002 and FY 2008 Vintage Weights for 

Capital-Related Price Proxies 

Building & 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 
CMS-1346-P 61 

Building & 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 

6 0.031 0.030 0.091 0.089 0.023 0.020 

7 0.033 0.031 0.095 0.092 0.026 0.021 

8 0.035 0.033 0.100 0.098 0.029 0.024 

9 0.038 0.035 0.106 0.103 0.033 0.026 

10 0.040 0.037 0.112 0.109 0.036 0.029 

11 0.042 0.039 0.117 0.116 0.039 0.033 

12 0.045 0.041 -- -- 0.043 0.035 

13 0.047 0.042 -- -- 0.048 0.038 

14 0.049 0.043 -- -- 0.053 0.041 

15 0.051 0.044 -- -- 0.056 0.043 

16 0.053 0.045 -- -- 0.059 0.046 

17 0.056 0.046 -- -- 0.062 0.049 

18 0.057 0.047 -- -- 0.064 0.052 

19 0.058 0.047 -- -- 0.066 0.053 

20 0.060 0.045 -- -- 0.070 0.053 

21 0.060 0.045 -- -- 0.071 0.055 

22 0.061 0.045 -- -- 0.074 0.056 

23 0.061 0.046 -- -- 0.076 0.060 

24 -- 0.046 -- -- -- 0.063 

25 -- 0.045 -- -- -- 0.064 

26 -- 0.046 -- -- -- 0.068 

Total 1.000 1.000 1.000 1.000 1.000 1.000 

Note: Numbers may not add to total due to rounding. 

 After the capital cost category weights were computed, it 

was necessary to select appropriate price proxies to reflect 

the rate-of-increase for each expenditure category. We are 

proposing to use the same price proxies for the capital 

portion of the proposed FY 2008-based RPL market basket that 

were used in the FY 2002-based RPL market basket with the 

exception of the Boeckh Construction Index. We replaced the 

Boeckh Construction Index with BEA’s chained price index for 

nonresidential construction for hospitals and special care 

facilities. The BEA index represents construction of 

facilities such as hospitals, nursing homes, hospices, and 
CMS-1346-P 62 

rehabilitation centers. Although these price indices move 

similarly over time, we believe that it is more technically 

appropriate to use an index that is more specific to the 

hospital industry. We believe these are the most appropriate 

proxies for hospital capital costs that meet our selection 

criteria of relevance, timeliness, availability, and 

reliability. 

 The price proxies (prior to any vintage weighting) for 

each of the capital cost categories are the same as those used 

for the FY 2006-based CIPI as described in the IPPS FY 2010 

final rule (74 FR at 43857). 

5. Proposed RY 2012 Market Basket Update 

 For the proposed RY 2012 (that is, beginning July 1, 2011 

and ending September 30, 2012), we are proposing to use a 15-

month (that is July 1, 2011 through September 30, 2012) 

estimate of the proposed FY 2008-based RPL market basket based 

on the best available data. Consistent with historical 

practice, we estimate the RPL market basket update for the IPF 

PPS based on IHS Global Insight’s forecast using the most 

recent available data. IHS Global Insight, Inc. is a 

nationally recognized economic and financial forecasting firm 

that contracts with CMS to forecast the components of the 

market baskets. 
CMS-1346-P 63 

 To determine a 15-month market basket update for RY 2012, 

we calculate the 5-quarter moving average index level for July 

1, 2011 through September 30, 2012 and the 4-quarter moving 

average index level for July 1, 2010 through June 30, 2011. 

The percent change in these two values represents the proposed 

15-month market basket update. 

 Based on IHS Global Insight’s 4th quarter 2010 forecast 

with history through the 3rd quarter of 2010, the projected 

15-month market basket update for the proposed 15-month RY 

2012 (July 1, 2011 through September 30, 2012) is 3.0 percent. 

Therefore, consistent with our historical practice of 

estimating market basket increases based on the best available 

data, we are proposing a market basket update of 3.0 percent 

for the proposed 15-month RY 2012. Furthermore, because the 

proposed RY 2012 update is based on the most recent market 

basket estimate for the 15-month period (currently 3.0 

percent), we are also proposing that if more recent data are 

subsequently available (for example, a more recent estimate of 

the market basket), we would use such data, if appropriate, to 

determine the RY 2012 update in the final rule. 

 We note that the most recent estimate of the FY 2008-

based RPL market basket update for July 1, 2011 through June 

30, 2012, based on IHS Global Insight’s 4th quarter 2010 
CMS-1346-P 64 

forecast with history through the 3rd quarter of 2010, is 2.6 

percent. We determine this 12-month market basket update by 

calculating the 4-quarter moving average index level for July 

1, 2011 through June 30, 2012 and the 4-quarter moving average 

index level for July 1, 2010 through June 30, 2011. The 

percent change in these two values represents the proposed 12-

month market basket update. Consistent with our historical 

practice of using market basket estimates based on the most 

recent available data, if we were not proposing to extend the 

2012 IPF PPS rate year by 3 months, we would have proposed a 

market basket update for a 12-month RY 2012 of 2.6 percent, 

based on the most recent estimate of the 12-month RPL market 

basket update for July 1, 2011 through June 30, 2012. 

 Using the current FY 2002-based RPL market basket and IHS 

Global Insight’s 4th quarter 2010 forecast for the market 

basket components, the 15-month RY 2012 update would also be 

3.0 percent. The 12-month RY 2012 update would be 2.6 

percent. Table 5 below compares the proposed FY 2008-based 

RPL market basket and the FY 2002-based RPL market basket 

percent changes. 

Table 5—FY 2002-Based and Proposed FY 2008-Based RPL Market 

Basket Percent Change, RY 2006 through FY 2014 

Rate Year (RY) or Fiscal Year 

(FY) 

FY 2002-Based RPL 

Market Basket Index 

Percent Change 

FY 2008-Based Proposed RPL 

Market Basket Index Percent 

Change 
CMS-1346-P 65 

Rate Year (RY) or Fiscal Year 

(FY) 

FY 2002-Based RPL 

Market Basket Index 

Percent Change 

FY 2008-Based Proposed RPL 

Market Basket Index Percent 

Change 

Historical data: 

 RY 20061 3.8 3.7 

 RY 20071 3.5 3.5 

 RY 20081 3.5 3.6 

 RY 20091 3.2 3.3 

 RY 20101 2.2 2.1 

 Average 2006-2010 3.2 3.2 

Forecast: 

 RY 20111 2.2 2.3 

 RY 20122 3.0 3.0 

 FY 20133 3.0 2.9 

 FY 20143 3.0 3.0 

 Average 2011-2014 2.8 2.8 

1 RY 2006 through RY 2011 represent 12-month updates, which include July 1 

through June 30. 

2 RY 2012 represents a 15-month update, which includes July 1, 2011 through 

September 30, 2012. 

3 FY 2013 through FY 2014 represent 12-month updates, which include October 

1 through September 30. 

Note that these market basket percent changes do not include any further 

adjustments as may be statutorily required. 

Source: IHS Global Insight, Inc. 4th quarter 2010 forecast. 

 For the RY 2012 proposed market basket update, there is 

no difference between the 15-month top-line FY 2002-based and 

the proposed FY 2008-based RPL market basket increases due to 

offsetting factors. The lower total compensation weight in 

the proposed FY 2008-based RPL market basket (62.278 percent) 

relative to the FY 2002-based RPL market basket (65.877 

percent), absent other factors, would have resulted in a 

slightly lower market basket update using the FY 2008-based 

RPL market basket. This impact, however, is offset by the 

larger weight associated with the Professional Fees category. 

In both market baskets, these expenditures are proxied by the 

ECI for Compensation for Professional and Related Services. 
CMS-1346-P 66 

The weight for Professional Fees in the FY 2002-based RPL 

market basket is 2.892 percent compared to 6.325 percent in 

the proposed FY 2008-based RPL market basket. 

6. Proposed Labor-Related Share 

 As described in section V.C.1. of this proposed rule, due 

to the variations in costs and geographic wage levels, we are 

proposing that payment rates under the IPF PPS continue to be 

adjusted by a geographic wage index. This wage index would 

apply to the labor-related portion of the proposed Federal per 

diem base rate, hereafter referred to as the labor-related 

share. 

 The labor-related share is determined by identifying the 

national average proportion of total costs that are related 

to, influenced by, or vary with the local labor market. We 

continue to classify a cost category as labor-related if the 

costs are labor-intensive and vary with the local labor 

market. Given this, based on our definition of the 

labor-related share, we are proposing to include in the 

labor-related share the sum of the relative importance of 

Wages and Salaries, Employee Benefits, Professional Fees: 

Labor-related, Administrative and Business Support Services, 

All Other: Labor-related Services (previously referred to in 
CMS-1346-P 67 

the FY 2002-based RPL market basket as labor-intensive), and a 

portion of the Capital-Related cost weight. 

 Consistent with previous rebasings, the All Other: 

Labor-related Services cost category is mostly comprised of 

building maintenance and security services (including, but not 

limited to, commercial and industrial machinery and equipment 

repair, nonresidential maintenance and repair, and 

investigation and security services). Because these services 

tend to be labor-intensive and are mostly performed at the 

hospital facility (and, therefore, unlikely to be purchased in 

the national market), we believe that they meet our definition 

of labor-related services. 

 As stated in the April 2010 IPF PPS notice (75 FR 23110), 

the labor-related share was defined as the sum of the relative 

importance of Wages and Salaries, Fringe Benefits, 

Professional Fees, Labor-intensive Services, and a portion of 

the capital share from an appropriate market basket. 

Therefore, to determine the labor-related share for the IPF 

PPS for RY 2011, we used the FY 2002-based RPL market basket 

cost weights relative importance to determine the 

labor-related share for the IPF PPS. 

 For the proposed FY 2008-based RPL market basket 

rebasing, the proposed inclusion of the Administrative and 
CMS-1346-P 68 

Business Support Services cost category into the labor-related 

share remains consistent with the current labor-related share 

because this cost category was previously included in the 

Labor-intensive cost category. As previously stated, we are 

proposing to establish a separate Administrative and Business 

Support Service cost category so that we can use the ECI for 

Compensation for Office and Administrative Support Services to 

more precisely proxy these specific expenses. 

 For the FY 2002-based RPL market basket, we assumed that 

all nonmedical professional services (including accounting and 

auditing services, engineering services, legal services, and 

management and consulting services) were purchased in the 

local labor market and, therefore, all of their associated 

fees varied with the local labor market. As a result, we 

previously included 100 percent of these costs in the 

labor-related share. In an effort to more accurately 

determine the share of professional fees that should be 

included in the labor-related share, we surveyed hospitals 

regarding the proportion of those fees that go to companies 

that are located beyond their own local labor market (the 

results are discussed below). 

 We continue to look for ways to refine our market basket 

approach to more accurately account for the proportion of 
CMS-1346-P 69 

costs influenced by the local labor market. To that end, we 

conducted a survey of hospitals to empirically determine the 

proportion of contracted professional services purchased by 

the industry that are attributable to local firms and the 

proportion that are purchased from national firms. We 

notified the public of our intent to conduct this survey on 

December 9, 2005 (70 FR 73250) and received no comments 

(71 FR 8588). 

 With approval from the Office of Management and Budget 

(OMB), we contacted a sample of IPPS hospitals and received 

responses to our survey from 108 hospitals. We believe that 

these data serve as an appropriate proxy for the purchasing 

patterns of professional services for IPFs 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 

poststratification weights. Based on these weighted results, 

we determined that hospitals purchase, on average, the 

following portions of contracted professional services outside 

of their local labor market: 

• 34 percent of accounting and auditing services. 

• 30 percent of engineering services. 

• 33 percent of legal services. 
CMS-1346-P 70 

• 42 percent of management consulting services. 

 We applied each of these percentages to its respective 

Benchmark I-O cost category underlying the professional fees 

cost category. This is the methodology that we used to 

separate the FY 2008-based RPL market basket professional fees 

category into Professional Fees: Labor-related and 

Professional Fees: Nonlabor-related cost categories. In 

addition to the professional services listed above, we also 

classified expenses under NAICS 55, Management of Companies 

and Enterprises, into the Professional Fees cost category as 

was done in previous rebasings. The NAICS 55 data are mostly 

comprised of corporate, subsidiary, and regional managing 

offices, or otherwise referred to as home offices. Formerly, 

all of the expenses within this category were considered to 

vary with, or be influenced by, the local labor market and 

were thus included in the labor-related share. Because many 

hospitals are not located in the same geographic area as their 

home office, we analyzed data from a variety of sources in 

order to determine what proportion of these costs should be 

appropriately included in the labor-related share. 

 Using data primarily from the Medicare cost reports and a 

CMS database of Home Office Medicare Records (HOMER) (a 

database that provides city and state information (addresses) 
CMS-1346-P 71 

for home offices), we were able to determine that 19 percent 

of the total number of freestanding IRFs, IPFs, and LTCHs that 

had home offices had those home offices located in their 

respective local labor markets--defined as being in the same 

Metropolitan Statistical Area (MSA). 

 The Medicare cost report requires hospitals to report 

their home office provider numbers. Using the HOMER database 

to determine the home office location for each home office 

provider number, we compared the location of the provider with 

the location of the hospital's home office. We then placed 

providers into one of the following three groups: 

• Group 1--Provider and home office are located in 

different States. 

• Group 2--Provider and home office are located in the 

same State and same city. 

• Group 3--Provider and home office are located in the 

same State and different city. 

 We found that 63 percent of the providers with home 

offices were classified into Group 1 (that is, different 

State) and, thus, these providers were determined to not be 

located in the same local labor market as their home office. 

Although there were a very limited number of exceptions (that 
CMS-1346-P 72 

is, providers located in different States but the same MSA as 

their home office), the 63 percent estimate was unchanged. 

 We found that 9 percent of all providers with home 

offices were classified into Group 2 (that is, same State and 

same city and, therefore, the same MSA). Consequently, these 

providers were determined to be located in the same local 

labor market as their home offices. 

 We found that 27 percent of all providers with home 

offices were classified into Group 3 (that is, same State and 

different city). Using data from the Census Bureau to 

determine the specific MSA for both the provider and its home 

office, we found that 10 percent of all providers with home 

offices were identified as being in the same State, a 

different city, but the same MSA. 

 Pooling these results, we were able to determine that 

approximately 19 percent of providers with home offices had 

home offices located within their local labor market (that is, 

9 percent of providers with home offices had their home 

offices in the same State and city (and, thus, the same MSA), 

and 10 percent of providers with home offices had their home 

offices in the same State, a different city, but the same 

MSA). We are proposing to apportion the NAICS 55 expense data 

by this percentage. Thus, we are proposing to classify 19 
CMS-1346-P 73 

percent of these costs into the Professional Fees: 

Labor-related cost category and the remaining 81 percent into 

the Professional Fees: Nonlabor-related Services cost 

category. 

 Table 6 below shows the proposed RY 2012 relative 

importance labor-related share using the proposed FY 

2008-based RPL market basket and the FY 2002-based RPL market 

basket. 

Table 6—Comparison of the RY 2011 (12-month) Relative 

Importance Labor-Related Share based on the FY 2002-Based RPL 

Market Basket and the Proposed RY 2012 (15-month) Relative 

Importance Labor-Related Share based on the Proposed FY 2008-

Based RPL Market Basket 

RY 2011 Relative 

Importance LaborRelated Share 

Proposed RY 2012 

Relative Importance 

Labor-Related 

Share 

Wages and Salaries 52.600 49.248

Employee Benefits 13.935 12.988

Professional Fees: Labor-Related 2.853 2.085

Administrative and Business 

Support Services -- 0.417

All Other: Labor-Related Services 2.118 2.104

Subtotal 71.506 66.842

Labor-Related Portion of Capital Costs 

(46%) 3.894 3.657

Total Labor-Related Share 75.400 70.499

The proposed labor-related share for RY 2012 is the sum of the 

proposed RY 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 
CMS-1346-P 74 

2008) and RY 2012. The sum of the proposed relative 

importance for RY 2012 for operating costs (Wages and 

Salaries, Employee Benefits, Professional Fees: 

Labor-Related, Administrative and Business Support Services, 

and All Other: Labor-related Services) would be 66.842 

percent, as shown in Table 6 above. We are proposing that the 

portion of Capital that is influenced by the local labor 

market is estimated to be 46 percent, which is the same 

percentage applied to the FY 2002-based RPL market basket. 

Since the relative importance for Capital-Related Costs would 

be 7.950 percent of the proposed FY 2008-based RPL market 

basket in RY 2012, we are proposing to take 46 percent of 

7.950 percent to determine the proposed labor-related share of 

Capital for RY 2012. The result would be 3.657 percent, which 

we propose to add to 66.842 percent for the operating cost 

amount to determine the total proposed labor-related share for 

RY 2012. Therefore, the labor-related share that we propose 

to use for IPF PPS in RY 2012 would be 70.499 percent. This 

proposed labor-related share is determined using the same 

methodology as employed in calculating all previous IPF 

labor-related shares (69 FR 66952). The wage index and the 

labor-related share are adjusted for budget neutrality. 

IV. Updates to the IPF PPS for RY Beginning July 1, 2011 
CMS-1346-P 75 

The IPF PPS is based on a standardized Federal per diem 

base rate calculated from IPF average per diem costs and 

adjusted for budget-neutrality in the implementation year. 

The Federal per diem base rate is used as the standard payment 

per day under the IPF PPS and is adjusted by the patient- and 

facility-level adjustments that are applicable to the IPF 

stay. A detailed explanation of how we calculated the average 

per diem cost appears in the November 2004 IPF PPS final rule 

(69 FR 66926). 

A. Determining the Standardized Budget-Neutral Federal Per 

Diem Base Rate 

 Section 124(a)(1) of the BBRA requires that we implement 

the IPF PPS in a budget neutral manner. In other words, the 

amount of total payments under the IPF PPS, including any 

payment adjustments, must be projected to be equal to the 

amount of total payments that would have been made if the IPF 

PPS were not implemented. Therefore, we calculated the 

budget-neutrality factor by setting the total estimated IPF 

PPS payments to be equal to the total estimated payments that 

would have been made under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) 

methodology had the IPF PPS not been implemented. 
CMS-1346-P 76 

 Under the IPF PPS methodology, we calculated the final 

Federal per diem base rate to be budget neutral during the IPF 

PPS implementation period (that is, the 18-month period from 

January 1, 2005 through June 30, 2006) using a July 1 update 

cycle. We updated the average cost per day to the midpoint of 

the IPF PPS implementation period (that is, October 1, 2005), 

and this amount was used in the payment model to establish the 

budget-neutrality adjustment. 

 A step-by-step description of the methodology used to 

estimate payments under the TEFRA payment system appears in 

the November 2004 IPF PPS final rule (69 FR 66926). 

1. Standardization of the Federal Per Diem Base Rate and 

Electroconvulsive Therapy (ECT) Rate 

In the November 2004 IPF PPS final rule, we describe how 

we standardized the IPF PPS Federal per diem base rate in 

order to account for the overall positive effects of the IPF 

PPS payment adjustment factors. To standardize the IPF PPS 

payments, we compared the IPF PPS payment amounts calculated 

from the FY 2002 Medicare Provider Analysis and Review 

(MedPAR) file to the projected TEFRA payments from the FY 2002 

cost report file updated to the midpoint of the IPF PPS 

implementation period (that is, October 2005). The 

standardization factor was calculated by dividing total 
CMS-1346-P 77 

estimated payments under the TEFRA payment system by estimated 

payments under the IPF PPS. The standardization factor was 

calculated to be 0.8367. 

As described in detail in the May 2006 IPF PPS final rule 

(71 FR 27045), in reviewing the methodology used to simulate 

the IPF PPS payments used for the November 2004 IPF PPS final 

rule, we discovered that due to a computer code error, total 

IPF PPS payments were underestimated by about 1.36 percent. 

Since the IPF PPS payment total should have been larger than 

the estimated figure, the standardization factor should have 

been smaller (0.8254 vs. 0.8367). In turn, the Federal per 

diem base rate and the ECT rate should have been reduced by 

0.8254 instead of 0.8367. 

To resolve this issue, in RY 2007, we amended the Federal 

per diem base rate and the ECT payment rate prospectively. 

Using the standardization factor of 0.8254, the average cost 

per day was effectively reduced by 17.46 percent (100 percent 

minus 82.54 percent = 17.46 percent). 

2. Calculation of the Budget Neutrality Adjustment 

To compute the budget neutrality adjustment for the IPF 

PPS, we separately identified each component of the 

adjustment, that is, the outlier adjustment, stop-loss 

adjustment, and behavioral offset. 
CMS-1346-P 78 

A complete discussion of how we calculate each component 

of the budget neutrality adjustment appears in the November 

2004 IPF PPS final rule (69 FR 66932 through 66933) and in the 

May 2006 IPF PPS final rule (71 FR 27044 through 27046). 

a. Outlier Adjustment 

Since the IPF PPS payment amount for each IPF includes 

applicable outlier amounts, we reduced the standardized 

Federal per diem base rate to account for aggregate IPF PPS 

payments estimated to be made as outlier payments. The 

outlier adjustment was calculated to be 2 percent. As a 

result, the standardized Federal per diem base rate was 

reduced by 2 percent to account for projected outlier 

payments. 

b. Stop-Loss Provision Adjustment

As explained in the November 2004 IPF PPS final rule, we 

provided a stop-loss payment during the transition from 

cost-based reimbursement to the per diem payment system to 

ensure that an IPF's total PPS payments were no less than a 

minimum percentage of their TEFRA payment, had the IPF PPS not 

been implemented. We reduced the standardized Federal per 

diem base rate by the percentage of aggregate IPF PPS payments 

estimated to be made for stop-loss payments. As a result, the 

standardized Federal per diem base rate was reduced by 0.39 
CMS-1346-P 79 

percent to account for stop-loss payments. Since the 

transition was completed in RY 2009, the stop-loss provision 

is no longer applicable, and for cost reporting periods 

beginning on or after January 1, 2008, IPFs were paid 100 

percent PPS. 

c. Behavioral Offset

As explained in the November 2004 IPF PPS final rule, 

implementation of the IPF PPS may result in certain changes in 

IPF practices, especially with respect to coding for comorbid 

medical conditions. As a result, Medicare may make higher 

payments than assumed in our calculations. Accounting for 

these effects through an adjustment is commonly known as a 

behavioral offset. 

 Based on accepted actuarial practices and consistent with 

the assumptions made in other PPSs, we assumed in determining 

the behavioral offset that IPFs would regain 15 percent of 

potential "losses" and augment payment increases by 5 percent. 

We applied this actuarial assumption, which is based on our 

historical experience with new payment systems, to the 

estimated "losses" and "gains" among the IPFs. The behavioral 

offset for the IPF PPS was calculated to be 2.66 percent. As 

a result, we reduced the standardized Federal per diem base 

rate by 2.66 percent to account for behavioral changes. As 
CMS-1346-P 80 

indicated in the November 2004 IPF PPS final rule, we do not 

plan to change adjustment factors or projections until we 

analyze IPF PPS data. 

If we find that an adjustment is warranted, the percent 

difference may be applied prospectively to the established PPS 

rates to ensure the rates accurately reflect the payment level 

intended by the statute. In conducting this analysis, we will 

be interested in the extent to which improved coding of 

patients' principal and other diagnoses, which may not reflect 

real increases in underlying resource demands, has occurred 

under the PPS. 

B. Update of the Federal Per Diem Base Rate and 

Electroconvulsive Therapy Rate

 As described in the November 2004 IPF PPS final rule 

(69 FR 66931), the average per diem cost was updated to the 

midpoint of the implementation year. This updated average per 

diem cost of $724.43 was reduced by 17.46 percent to account 

for standardization to projected TEFRA payments for the 

implementation period, by 2 percent to account for outlier 

payments, by 0.39 percent to account for stop-loss payments, 

and by 2.66 percent to account for the behavioral offset. The 

Federal per diem base rate in the implementation year was 

$575.95. The increase in the per diem base rate for RY 2009 
CMS-1346-P 81 

included the 0.39 percent increase due to the removal of the 

stop-loss provision. We indicated in the November 2004 IPF 

PPS final rule (69 FR 66932) that we would remove this 0.39 

percent reduction to the Federal per diem base rate after the 

transition. As discussed in section IV.D.2. of the May 2008 

IPF PPS notice, we increased the Federal per diem base rate 

and the ECT base rate by 0.39 percent in RY 2009. Therefore 

for RY 2009 and beyond, the stop-loss provision has ended and 

is no longer a part of budget neutrality. 

In accordance with section 1886(s)(2)(A)(ii) of the Act, 

which requires the application of an “other adjustment,” 

described in section 1886(s)(3) of the Act (specifically, 

section 1886(s)(3)(A) for RYs 2011 and 2012) that reduces the 

update to the IPF PPS base rate for the rate year beginning in 

Calendar Year (CY) 2011, we are proposing to adjust the IPF 

PPS update by 0.25 percentage point for rate year 2012. We 

are proposing to apply the 15-month 2008-based RPL market 

basket increase of 3.0 percent, as adjusted by the “other 

adjustment” of -0.25 percentage point, and the wage index 

budget neutrality factor of 0.9995 to the RY 2011 Federal per 

diem base rate of $665.71 yielding a proposed Federal per diem 

base rate of $683.68 for RY 2012. Similarly, we propose 

applying the market basket increase, as adjusted by the “other 
CMS-1346-P 82 

adjustment”, and the wage index budget neutrality factor to 

the RY 2011 ECT base rate, yielding a proposed ECT base rate 

of $294.33 for RY 2012. 

V. Proposed Update of the IPF PPS Adjustment Factors 

A. Overview of the IPF PPS Adjustment Factors

The IPF PPS payment adjustments were derived from a 

regression analysis of 100 percent of the FY 2002 MedPAR data 

file, which contained 483,038 cases. For this proposed rule, 

we used the same results of the regression analysis used to 

implement the November 2004 IPF PPS final rule. For a more 

detailed description of the data file used for the regression 

analysis, see the November 2004 IPF PPS final rule 

(69 FR 66935 through 66936). While we have since used more 

recent claims data to set the fixed dollar loss threshold 

amount, we used the same results of this regression analysis 

to update the IPF PPS for RY 2011 and we are proposing to use 

these same results for RY 2012. Now that we are approximately 

5 years into the IPF PPS, we believe that we have enough data 

to begin looking at the process of refining the IPF PPS as 

appropriate. We believe that in the next rulemaking, for FY 

2013, we will be ready to propose potential refinements to the 

system. 
CMS-1346-P 83 

As we stated previously, we do not plan to update the 

regression analysis until we are able to analyze IPF PPS 

claims and cost report data. However, we continue to monitor 

claims and payment data independently from cost report data to 

assess issues, to determine whether changes in case-mix or 

payment shifts have occurred among freestanding governmental, 

non-profit and private psychiatric hospitals, and psychiatric 

units of general hospitals, and CAHs and other issues of 

importance to IPFs. 

B. Proposed Patient-Level Adjustments

 In the April 2010 IPF PPS notice (75 FR 23113 through 

23117), we announced payment adjustments for the following 

patient-level characteristics: Medicare Severity diagnosis 

related groups (MS–DRGs) assignment of the patient’s principal 

diagnosis, selected comorbidities, patient age, and the 

variable per diem adjustments. 

1. Proposed Adjustment for MS–IPF-DRG Assignment

 The IPF PPS includes payment adjustments for the 

psychiatric DRG assigned to the claim based on each patient’s 

principal diagnosis. The IPF PPS recognizes the MS–DRGs. The 

DRG adjustment factors were expressed relative to the most 

frequently reported psychiatric DRG in FY 2002, that is, DRG 
CMS-1346-P 84 

430 (psychoses). The coefficient values and adjustment factors 

were derived from the regression analysis. 

In accordance with §412.27(a), payment under the IPF PPS 

is conditioned on IPFs admitting “only patients whose 

admission to the unit is required for active treatment, of an 

intensity that can be provided appropriately only in an 

inpatient hospital setting, of a psychiatric principal 

diagnosis that is listed in Chapter Five (“Mental Disorders”) 

of the International Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9–CM)” or in the Fourth 

Edition, Text Revision of the American Psychiatric 

Association’s Diagnostic and Statistical Manual, (DSM–IV–TR). 

IPF claims with a principal diagnosis included in Chapter Five 

of the ICD–9–CM or the DSM–IV–TR are paid the Federal per diem 

base rate under the IPF PPS and all other applicable 

adjustments, including any applicable DRG adjustment. 

Psychiatric principal diagnoses that do not group to one of 

the designated DRGs still receive the Federal per diem base 

rate and all other applicable adjustments, but the payment 

would not include a DRG adjustment. 

The Standards for Electronic Transaction final rule 

published in the Federal Register on August 17, 2000 

(65 FR 50312), adopted the ICD–9–CM as the designated code set 
CMS-1346-P 85 

for reporting diseases, injuries, impairments, other health 

related problems, their manifestations, and causes of injury, 

disease, impairment, or other health related problems. 

Therefore, we use the ICD–9–CM as the designated code set for 

the IPF PPS. 

We believe that it is important to maintain the same 

diagnostic coding and DRG classification for IPFs that are 

used under the IPPS for providing psychiatric care. 

Therefore, when the IPF PPS was implemented for cost reporting 

periods beginning on or after January 1, 2005, we adopted the 

same diagnostic code set and DRG patient classification system 

(that is, the CMS DRGs) that were utilized at the time under 

the hospital inpatient prospective payment system (IPPS). 

Since the inception of the IPF PPS, the DRGs used as the 

patient classification system under the IPF PPS have 

corresponded exactly with the CMS DRGs applicable under the 

IPPS for acute care hospitals. 

Every year, changes to the ICD–9–CM coding system are 

addressed in the IPPS proposed and final rules. The changes 

to the codes are effective October 1 of each year and must be 

used by acute care hospitals as well as other providers to 

report diagnostic and procedure information. The IPF PPS has 

always incorporated ICD–9–CM coding changes made in the annual 
CMS-1346-P 86 

IPPS update. We publish coding changes in a 

Transmittal/Change Request, similar to how coding changes are 

announced by the IPPS and LTCH PPS. Those ICD–9–CM coding 

changes are also published in the following IPF PPS RY update, 

in either the IPF PPS proposed and final rules, or in an IPF 

PPS update notice. 

In the May 2008 IPF PPS notice (73 FR 25709), we 

discussed CMS’ effort to better recognize resource use and the 

severity of illness among patients. CMS adopted the new 

MS-DRGs for the IPPS in the FY 2008 IPPS final rule with 

comment period (72 FR 47130). We believe by better accounting 

for patients’ severity of illness in Medicare payment rates, 

the MS–DRGs encourage hospitals to improve their coding and 

documentation of patient diagnoses. The MS–DRGs, which are 

based on the CMS DRGs, represent a significant increase in the 

number of DRGs (from 538 to 745, an increase of 207). For a 

full description of the development and implementation of the 

MS–DRGs, see the FY 2008 IPPS final rule with comment period 

(72 FR 47141 through 47175). 

In the May 2008 IPF PPS notice, the IPF PPS recognized 

the MS-DRGs. A crosswalk, to reflect changes that were made 

to the DRGs under the IPF PPS to the new MS-DRGs was provided 

(73 FR 25716). Since then, we have referred to the IPF PPS 
CMS-1346-P 87 

DRGs as MS-DRGs. In this proposed rule, we are proposing that 

all references to the MS-DRGs used for the IPF PPS, would be 

to MS-IPF-DRGs. This would only be a change in terminology. 

We are proposing to revise §412.402 to add the definition of 

MS-IPF-DRG. 

All of the ICD–9–CM coding changes are reflected in the 

FY 2011 GROUPER, Version 28.0, effective for IPPS discharges 

occurring on or after October 1, 2010 through September 30, 

2011. The GROUPER Version 28.0 software package assigns each 

case to an MS–DRG on the basis of the diagnosis and procedure 

codes and demographic information (that is, age, sex, and 

discharge status). The Medicare Code Editor (MCE) 27.0 uses 

the new ICD–9–CM codes to validate coding for IPPS discharges 

on or after October 1, 2010. For additional information on 

the GROUPER Version 28.0 and MCE 27.0, see Transmittal 2060 

(Change Request 7134), dated October 1, 2010. The IPF PPS has 

always used the same GROUPER and Code Editor as the IPPS. 

Therefore, the ICD–9–CM changes, which were reflected in the 

GROUPER Version 28.0 and MCE 27.0 on October 1, 2010, also 

became effective for the IPF PPS for discharges occurring on 

or after October 1, 2010. 

The impact of the new MS–DRGs on the IPF PPS was 

negligible. Mapping to the MS–DRGs resulted in the current 17 
CMS-1346-P 88 

MS–DRGs, instead of the original 15, for which the IPF PPS 

provides an adjustment. Although the code set is updated, the 

same associated adjustment factors apply now that have been in 

place since implementation of the IPF PPS, with one exception 

that is unrelated to the update to the codes. When DRGs 521 

and 522 were consolidated into MS–DRG 895, we carried over the 

adjustment factor of 1.02 from DRG 521 to the newly 

consolidated MS–DRG. This was done to reflect the higher 

claims volume under DRG 521, with more than eight times the 

number of claims than billed under DRG 522. The updates are 

reflected in Tables 7 and 8. For a detailed description of 

the mapping changes from the original DRG adjustment 

categories to the current MS–DRG adjustment categories we 

refer readers to the May 2008 IPF PPS notice (73 FR 25714). 

The official version of the ICD–9–CM is available on 

CD-ROM from the U.S. Government Printing Office. The FY 2009 

version can be ordered by contacting the Superintendent of 

Documents, U.S. Government Printing Office, Department 50, 

Washington, DC 20402–9329, telephone number (202)512–1800. 

Questions concerning the ICD–9–CM should be directed to 

Patricia E. Brooks, Co-Chairperson, ICD–9–CM Coordination and 

Maintenance Committee, CMS, Center for Medicare Management, 

Hospital and Ambulatory Policy Group, Division of Acute Care, 
CMS-1346-P 89 

Mailstop C4–08–06, 7500 Security Boulevard, Baltimore, 

Maryland 21244–1850. 

Further information concerning the official version of 

the ICD–9–CM can be found in the IPPS final rule with comment 

period, “Changes to Hospital Inpatient Prospective Payment 

System and Fiscal Year 2011 Rates” in the August 16, 2010 

Federal Register (75 FR 50042) and at Tables 7 and 8 below 

list the FY 2011 new and revised ICD–9–CM diagnosis codes that 

group to one of the 17 MS–DRGs for which the IPF PPS provides 

an adjustment. These tables are only a listing of FY 2011 

changes and do not reflect all of the currently valid and 

applicable ICD–9–CM codes classified in the MS–DRGs. When 

coded as a principal code or diagnosis, these codes receive 

the correlating MS–DRG adjustment. 

TABLE 7—FY 2011 NEW DIAGNOSIS CODES 

Diagnosis Code MS-DRG Descriptions MS-DRG 

799.51 Attention or concentration deficit 886 

799.52 Cognitive communication deficit 884 

799.54 Psychomotor deficit 884 

799.55 Frontal lobe and executive function deficit 884 

799.59 Other signs and symptoms involving cognition 884 

TABLE 8—FY 2011 REVISED DIAGNOSIS CODE 

Diagnosis Code Description MS-DRG 

307.0 Adult onset fluency disorder 887 

Because we do not plan to update the regression analysis until 

we are able to analyze IPF PPS data, we propose that the MS–
CMS-1346-P 90 

IPF-DRG adjustment factors (as shown in Table 9) would 

continue to be paid for discharges occurring in RY 2012. 

TABLE 9—Proposed RY 2012 CURRENT MS–IPF-DRGS APPLICABLE FOR 

THE PRINCIPAL DIAGNOSIS ADJUSTMENT 

MS-DRG MS-IPF-DRG Descriptions 

Adjustment 

Factor 

056 Degenerative nervous system disorders w MCC. 1.05 

057 Degenerative nervous system disorders w/o MCC. 1.05 

080 Nontraumatic stupor & coma w MCC. 1.07 

081 Nontraumatic stupor & coma w/o MCC. 1.07 

876 O.R. procedure w principal diagnoses of mental illness. 1.22 

880 Acute adjustment reaction & psychosocial dysfunction. 1.05 

881 Depressive neuroses 0.99 

882 Neuroses except depressive. 1.02 

883 Disorders of personality & impulse control. 1.02 

884 Organic disturbances & mental retardation. 1.03 

885 Psychoses 1.00 

886 Behavioral & developmental disorders. 0.99 

887 Other mental disorder diagnoses. 0.92 

894 Alcohol/drug abuse or dependence, left AMA. 0.97 

895 Alcohol/drug abuse or dependence w 

rehabilitation therapy. 

1.02 

896 Alcohol/drug abuse or dependence w/o 

rehabilitation therapy w MCC. 

0.88 

897 Alcohol/drug abuse or dependence w/o 

rehabilitation therapy w/o MCC. 

0.88 

2. Proposed Payment for Comorbid Conditions 

The intent of the comorbidity adjustments is to recognize 

the increased costs associated with comorbid conditions by 

providing additional payments for certain concurrent medical 

or psychiatric conditions that are expensive to treat. In the 

April 2010 IPF PPS notice (75 FR 23114), we explained that the 

IPF PPS includes 17 comorbidity categories and identified the 

new, revised, and deleted ICD–9–CM diagnosis codes that 

generate a comorbid condition payment adjustment under the IPF 

PPS for RY 2011 (75 FR 23115). 
CMS-1346-P 91 

Comorbidities are specific patient conditions that are 

secondary to the patient’s principal diagnosis and that 

require treatment during the stay. Diagnoses that relate to 

an earlier episode of care and have no bearing on the current 

hospital stay are excluded and must not be reported on IPF 

claims. Comorbid conditions must exist at the time of 

admission or develop subsequently, and affect the treatment 

received, length of stay (LOS), or both treatment and LOS. 

For each claim, an IPF may receive only one comorbidity 

adjustment per comorbidity category, but it may receive an 

adjustment for more than one comorbidity category. Billing 

instructions require that IPFs must enter the full ICD–9–CM 

codes for up to 8 additional diagnoses if they co-exist at the 

time of admission or develop subsequently and impact the 

treatment provided. 

The comorbidity adjustments were determined based on the 

regression analysis using the diagnoses reported by IPFs in FY 

2002. The principal diagnoses were used to establish the DRG 

adjustments and were not accounted for in establishing the 

comorbidity category adjustments, except where ICD–9–CM “code 

first” instructions apply. As we explained in the April 2010 

IPF PPS notice (75 FR 23115), the code first rule applies when 

a condition has both an underlying etiology and a 
CMS-1346-P 92 

manifestation due to the underlying etiology. For these 

conditions, the ICD–9–CM has a coding convention that requires 

the underlying conditions to be sequenced first followed by 

the manifestation. Whenever a combination exists, there is a 

“use additional code” note at the etiology code and a code 

first note at the manifestation code. 

As discussed in the MS–IPF-DRG section (where we are 

proposing that all references to MS-DRGs used for the IPF PPS 

be to MS-IPF-DRGs, as detailed above), it is our policy to 

maintain the same diagnostic coding set for IPFs that is used 

under the IPPS for providing the same psychiatric care. 

Although the ICD–9–CM code set has been updated, the same 

adjustment factors have been in place since the implementation 

of the IPF PPS. 

 Table 10 below lists the FY 2011 new ICD diagnosis codes 

that impact the comorbidity adjustments under the IPF PPS. 

Table 10 is not a list of all currently valid ICD codes 

applicable for the IPF PPS comorbidity adjustments. 

TABLE 10—FY 2011 NEW ICD CODES APPLICABLE FOR THE COMORBIDITY 

ADJUSTMENT 

Diagnosis Code Description Comorbidity Category 

237.73 Schwannomatosis Oncology 

237.79 Other neurofibromatosis Oncology 

For RY 2012, we are applying the seventeen comorbidity 

categories for which we are providing an adjustment, their 
CMS-1346-P 93 

respective codes, including the new FY 2011 ICD–9–CM codes, 

and their respective adjustment factors in Table 11 below. 

TABLE 11—RY 2012 DIAGNOSIS CODES AND ADJUSTMENT FACTORS FOR 

COMORBIDITY CATEGORIES 

Description of Comorbidity Diagnoses Codes 

Adjustment 

Factor 

Developmental Disabilities 317, 3180, 3181, 3182, and 319. 1.04

Coagulation Factor Deficits 2860 through 2864. 1.13

Tracheostomy 51900 through 51909 and V440. 1.06

Renal Failure, Acute 5845 through 5849, 63630, 63631, 63632, 63730, 

63731, 63732, 6383, 6393, 66932, 66934, 9585.

1.11

Renal Failure, Chronic 40301, 40311, 40391, 40402, 40412, 40413, 

40492, 40493, 5853, 5854, 5855, 5856, 

5859,586, V451, V560, V561, 

and V562.

1.11

Oncology Treatment 1400 through 2399 with a radiation therapy code 

92.21-92.29 or 

chemotherapy code 99.25.

1.07

Uncontrolled DiabetesMellitus with or without 

complications

25002, 25003, 25012, 25013, 25022, 25023, 

25032, 25033, 25042, 25043, 25052, 25053, 

25062, 25063, 25072, 25073, 

25082, 25083, 25092, and 25093.

1.05

Severe Protein Calorie 

Malnutrition

260 through 262 1.13

Eating and Conduct 

Disorders

3071, 30750, 31203, 31233, and 31234. 1.12

Infectious Disease 01000 through 04110, 042, 04500 through 

05319, 05440 through 05449, 0550 through 

0770, 0782 through 07889, and 07950 through 

07959.

1.07

Drug and/or Alcohol Induced 

Mental Disorders 

2910, 2920, 29212, 2922, 30300, and 30400. 1.03

Cardiac Conditions 3910, 3911, 3912, 40201, 40403, 4160, 4210, 

4211, and 4219.

1.11

Gangrene 44024 and 7854. 1.10

Chronic Obstructive 

Pulmonary Disease 

49121, 4941, 5100, 51883, 51884, V4611 and 

V4612, V4613 and V4614.

1.12

Artificial Openings—

Digestive and Urinary 

56960 through 56969, 9975, and V441 through 

V446.

1.08

Severe Musculoskeletal and 

Connective Tissue Diseases 

6960, 7100, 73000 through 73009, 73010 

through 73019, and 73020 through 73029.

1.09

Poisoning 96500 through 96509, 9654, 9670 through 9699, 

9770, 9800 through 9809, 9830 through 9839, 

986, 9890 through 9897.

1.11
CMS-1346-P 94 

3. Proposed Patient Age Adjustments 

As explained in the November 2004 IPF PPS final rule 

(69 FR 66922), we analyzed the impact of age on per diem cost 

by examining the age variable (that is, the range of ages) for 

payment adjustments. 

In general, we found that the cost per day increases with 

age. The older age groups are more costly than the under 45 

age group, the differences in per diem cost increase for each 

successive age group, and the differences are statistically 

significant. 

We do not plan to update the regression analysis until we 

are able to analyze IPF PPS data. Therefore, for RY 2012, we 

are proposing to continue to use the patient age adjustments 

currently in effect as shown in Table 12 below. 

TABLE 12—Age Groupings and Adjustment Factors 

Age Adjustment Factor 

Under 45 1.00 

45 and under 50 1.01 

50 and under 55 1.02 

55 and under 60 1.04 

60 and under 65 1.07 

65 and under 70 1.10 

70 and under 75 1.13 

75 and under 80 1.15 

80 and over 1.17 
CMS-1346-P 95 

4. Proposed Variable Per Diem Adjustments 

We explained in the November 2004 IPF PPS final rule (69 

FR 66946) that the regression analysis indicated that per diem 

cost declines as the LOS increases. The variable per diem 

adjustments to the Federal per diem base rate account for 

ancillary and administrative costs that occur 

disproportionately in the first days after admission to an 

IPF. 

We used a regression analysis to estimate the average 

differences in per diem cost among stays of different lengths. 

As a result of this analysis, we established variable per diem 

adjustments that begin on day 1 and decline gradually until 

day 21 of a patient's stay. For day 22 and thereafter, the 

variable per diem adjustment remains the same each day for the 

remainder of the stay. However, the adjustment applied to 

day 1 depends upon whether the IPF has a qualifying ED. If an 

IPF has a qualifying ED, it receives a 1.31 adjustment factor 

for day 1 of each stay. If an IPF does not have a qualifying 

ED, it receives a 1.19 adjustment factor for day 1 of the 

stay. The ED adjustment is explained in more detail in 

section IV.C.5 of this proposed rule. 

For RY 2012, we are proposing to continue to use the 

variable per diem adjustment factors currently in effect as 
CMS-1346-P 96 

shown in Table 13 below. A complete discussion of the 

variable per diem adjustments appears in the November 2004 IPF 

PPS final rule (69 FR 66946). 

Table 13—Variable Per Diem Adjustments

Day-Of-Stay Adjustment Factor 

Day 1- IPF Without a Qualifying ED 1.19 

Day 1- IPF With a Qualifying ED 1.31 

Day 2 1.12 

Day 3 1.08 

Day 4 1.05 

Day 5 1.04 

Day 6 1.02 

Day 7 1.01 

Day 8 1.01 

Day 9 1.00 

Day 10 1.00 

Day 11 0.99 

Day 12 0.99 

Day 13 0.99 

Day 14 0.99 

Day 15 0.98 

Day 16 0.97 

Day 17 0.97 

Day 18 0.96 

Day 19 0.95 

Day 20 0.95 

Day 21 0.95 

After Day 21 0.92 

C. Facility-Level Adjustments 

The IPF PPS includes facility-level adjustments for the 

wage index, IPFs located in rural areas, teaching IPFs, cost 

of living adjustments for IPFs located in Alaska and Hawaii, 

and IPFs with a qualifying ED. 
CMS-1346-P 97 

1. Proposed Wage Index Adjustment 

a. Background 

As discussed in the May 2006 IPF PPS final rule and in the 

May 2008 and May 2009 IPF PPS notices, in providing an 

adjustment for geographic wage levels, the labor-related 

portion of an IPF's payment is adjusted using an appropriate 

wage index. Currently, an IPF's geographic wage index value 

is determined based on the actual location of the IPF in an 

urban or rural area as defined in §412.64(b)(1)(ii)(A) through 

§412.64(C). 

 b. Proposed Wage Index for RY 2012

Since the inception of the IPF PPS, we have used hospital 

wage data in developing a wage index to be applied to IPFs. 

We are continuing that practice for RY 2012. We apply the 

wage index adjustment to the labor-related portion of the 

Federal rate, which is 70.499 percent. This percentage 

reflects the labor-related relative importance of the proposed 

FY 2008-based RPL market basket for RY 2012 (see section 

III.C.6 of this proposed rule). The IPF PPS uses the prefloor, pre-reclassified hospital wage index. Changes to the 

wage index are made in a budget neutral manner so that updates 

do not increase expenditures. 
CMS-1346-P 98 

For RY 2012, we are proposing to apply the most recent 

hospital wage index (that is, the FY 2011 pre-floor, prereclassified hospital wage index because this is the most 

appropriate index as it best reflects the variation in local 

labor costs of IPFs in the various geographic areas) using the 

most recent hospital wage data (that is, data from hospital 

cost reports for the cost reporting period beginning during FY 

2007), and applying an adjustment in accordance with our 

budget neutrality policy. This policy requires us to estimate 

the total amount of IPF PPS payments in RY 2011 using the 

applicable wage index value divided by the total estimated IPF 

PPS payments in RY 2012 using the most recent wage index. The 

estimated payments are based on FY 2009 IPF claims, inflated 

to the appropriate RY. This quotient is the wage index budget 

neutrality factor, and it is applied in the update of the 

Federal per diem base rate for RY 2012 in addition to the 

market basket described in section III.C.5 of this proposed 

rule. The wage index budget neutrality factor for RY 2012 is 

0.9995. 

The wage index applicable for RY 2012 appears in Table 1 

and Table 2 in Addendum B of this proposed rule. As explained 

in the May 2006 IPF PPS final rule for RY 2007 (71 FR 27061), 

the IPF PPS applies the hospital wage index without a 
CMS-1346-P 99 

hold-harmless policy, and without an out-commuting adjustment 

or out-migration adjustment because the statutory authority 

for these policies applies only to the IPPS. 

Also in the May 2006 IPF PPS final rule for RY 2007 

(71 FR 27061), we adopted the changes discussed in the Office 

of Management and Budget (OMB) Bulletin No. 03-04 (June 6, 

2003), which announced revised definitions for Metropolitan 

Statistical Areas (MSAs), and the creation of Micropolitan 

Statistical Areas and Combined Statistical Areas. In adopting 

the OMB Core-Based Statistical Area (CBSA) geographic 

designations, since the IPF PPS was already in a transition 

period from TEFRA payments to PPS payments, we did not provide 

a separate transition for the CBSA-based wage index. 

As was the case in RY 2011, for RY 2012 we are proposing 

to continue to use the CBSA-based wage index values as 

presented in Tables 1 and 2 in Addendum B of this proposed 

rule. A complete discussion of the CBSA labor market 

definitions appears in the May 2006 IPF PPS final rule 

(71 FR 27061 through 27067). 

In summary, for RY 2012 we are proposing to use the FY 

2011 wage index data (collected from cost reports submitted by 

hospitals for cost reporting periods beginning during FY 2007) 

to adjust IPF PPS payments beginning July 1 ,2011. 
CMS-1346-P 100 

c. OMB Bulletins

The Office of Management and Budget (OMB) publishes 

bulletins regarding CBSA changes, including changes to CBSA 

numbers and titles. In the May 2008 IPF PPS notice, we 

incorporated the CBSA nomenclature changes published in the 

most recent OMB bulletin that applies to the hospital wage 

data used to determine the current IPF PPS wage index 

(73 FR 25721). We will continue to do the same for all such 

OMB CBSA nomenclature changes in future IPF PPS rules and 

notices, as necessary. The OMB bulletins may be accessed 

online at http://www.whitehouse.gov/omb/bulletins/ index.html. 

2. Proposed Adjustment for Rural Location

In the November 2004 IPF PPS final rule, we provided a 17 

percent payment adjustment for IPFs located in a rural area. 

This adjustment was based on the regression analysis, which 

indicated that the per diem cost of rural facilities was 17 

percent higher than that of urban facilities after accounting 

for the influence of the other variables included in the 

regression. For RY 2012, we are proposing to apply a 17 

percent payment adjustment for IPFs located in a rural area as 

defined at §412.64(b)(1)(ii)(C). As stated in the November 

2004 IPF PPS final rule, we do not intend to update the 

adjustment factors derived from the regression analysis until 
CMS-1346-P 101 

we are able to analyze IPF PPS data. A complete discussion of 

the adjustment for rural locations appears in the November 

2004 IPF PPS final rule (69 FR 66954). 

3. Proposed Teaching Adjustment 

In the November 2004 IPF PPS final rule, we implemented 

regulations at §412.424(d)(1)(iii) to establish a 

facility-level adjustment for IPFs that are, or are part of, 

teaching hospitals. The teaching adjustment accounts for the 

higher indirect operating costs experienced by hospitals that 

participate in graduate medical education (GME) programs. The 

payment adjustments are made based on the number of full-time 

equivalent (FTE) interns and residents training in the IPF and 

the IPF’s average daily census. 

Medicare makes direct GME payments (for direct costs such 

as resident and teaching physician salaries, and other direct 

teaching costs) to all teaching hospitals including those paid 

under a PPS, and those paid under the TEFRA rate-of-increase 

limits. These direct GME payments are made separately from 

payments for hospital operating costs and are not part of the 

PPSs. The direct GME payments do not address the estimated 

higher indirect operating costs teaching hospitals may face. 

For teaching hospitals paid under the TEFRA rate-ofincrease limits, Medicare does not make separate payments for 
CMS-1346-P 102 

indirect medical education costs because payments to these 

hospitals are based on the hospitals' reasonable costs which 

already include these higher indirect costs that may be 

associated with teaching programs. 

The results of the regression analysis of FY 2002 IPF 

data established the basis for the payment adjustments 

included in the November 2004 IPF PPS final rule. The results 

showed that the indirect teaching cost variable is significant 

in explaining the higher costs of IPFs that have teaching 

programs. We calculated the teaching adjustment based on the 

IPF's "teaching variable," which is one plus the ratio of the 

number of FTE residents training in the IPF (subject to 

limitations described below) to the IPF's average daily census 

(ADC). 

We established the teaching adjustment in a manner that 

limited the incentives for IPFs to add FTE residents for the 

purpose of increasing their teaching adjustment. We imposed a 

cap on the number of FTE residents that may be counted for 

purposes of calculating the teaching adjustment. The cap 

limits the number of FTE residents that teaching IPFs may 

count for the purpose of calculating the IPF PPS teaching 

adjustment, not the number of residents teaching institutions 

can hire or train. We calculated the number of FTE residents 
CMS-1346-P 103 

that trained in the IPF during a "base year" and used that FTE 

resident number as the cap. An IPF's FTE resident cap is 

ultimately determined based on the final settlement of the 

IPF's most recent cost report filed before November 15, 2004 

(that is, the publication date of the IPF PPS final rule). 

In the regression analysis, the logarithm of the teaching 

variable had a coefficient value of 0.5150. We converted this 

cost effect to a teaching payment adjustment by treating the 

regression coefficient as an exponent and raising the teaching 

variable to a power equal to the coefficient value. We note 

that the coefficient value of 0.5150 was based on the 

regression analysis holding all other components of the 

payment system constant. 

As with other adjustment factors derived through the 

regression analysis, we do not plan to rerun the regression 

analysis until we analyze IPF PPS data. Therefore, for 

RY 2012, we are proposing to retain the coefficient value of 

0.5150 for the teaching adjustment to the Federal per diem 

base rate. 

A complete discussion of how the teaching adjustment was 

calculated appears in the November 2004 IPF PPS final rule (69 

FR 66954 through 66957) and the May 2008 IPF PPS notice (73 FR 

25721). 
CMS-1346-P 104 

Proposed FTE Intern and Resident Cap Adjustment

CMS has been asked to reconsider the current IPF teaching 

policy and permit a temporary increase in the FTE resident cap 

when the IPF increases the number of FTE residents it trains 

due to the acceptance of displaced residents (residents that 

are training in an IPF or a program before the IPF or program 

closed) when another IPF closes or closes its medical 

residency training program. 

To help us assess how many IPFs have been, or expect to 

be adversely affected by their inability to adjust their caps 

under §412.424(d)(1) and under these situations, we 

specifically requested public comment from IPFs in the May 1, 

2009 IPF PPS notice (74 FR 20376 through 20377). A summary of 

the comments and our response can be reviewed in the April 30, 

2010 IPF PPS notice (75 FR 23106, 23117). All of the 

commenters recommended that CMS modify the IPF PPS teaching 

adjustment policy, supporting a policy change that would 

permit the IPF PPS residency cap to be temporarily adjusted 

when that IPF trains displaced residents due to closure of an 

IPF or closure of an IPF’s medical residency training 

program(s). The commenters recommended a temporary resident 

cap adjustment policy similar to such policies applied in 

similar contexts for acute care hospitals. 
CMS-1346-P 105 

We agree with the commenters that, when a hospital 

temporarily takes on residents because another hospital closes 

or discontinues its program, a temporary adjustment to the cap 

would be appropriate for rotation that occurs in an IPF 

setting (freestanding or units). In these situations, 

residents may have partially completed a medical residency 

training program at the hospital that has closed its training 

program and may be unable to complete their training at 

another hospital that is already training residents up to or 

in excess of its cap. We believe that it is appropriate to 

allow temporary adjustments to the FTE caps for an IPF that 

provides residency training to medical residents who have 

partially completed a residency training program at an IPF 

that closes or at an IPF that discontinues training residents 

in a residency training program(s) (also referred to as a 

“closed” program throughout this preamble). For this reason, 

we are proposing to adopt the following temporary resident cap 

adjustment policies, similar to the temporary adjustments to 

the FTE cap used for acute care hospitals. We are proposing 

that the cap adjustment would be temporary because it is 

resident specific and would only apply to the displaced 

resident(s) until the resident(s) completes training in that 

specialty. We propose that, as under the IPPS policy for 
CMS-1346-P 106 

displaced residents, the IPF PPS temporary cap adjustment 

would apply only to residents that were still training at the 

IPF at the time the IPF closed or at the time the IPF ceased 

training residents in the residency training program(s). 

Residents who leave the IPF, for whatever reason, before the 

closure of the IPF hospital or medical residency training 

program would not be considered displaced residents for 

purposes of the IPF temporary cap adjustment policy. 

Similarly, as under the IPPS policy, we are proposing that 

medical students who match to a program at an IPF but the IPF 

or medical residency training program closes before the 

individual begins training at that IPF are also not considered 

displaced residents for purposes of the IPF temporary cap 

adjustments. For detailed information on these acute care 

hospital GME/IME payment policies, see 66 FR 39899 

(August 1, 2001), 64 FR 41522 (July 30 1999), and 64 FR 24736 

(May 7 1999). We note that although we are proposing to adopt 

a policy under the IPF PPS that is consistent with the policy 

applicable under the IPPS, the actual caps under the two 

payment systems may not be commingled. 
CMS-1346-P 107 

a. Proposed Temporary Adjustment to the FTE Cap to Reflect 

Residents Added Due to Hospital Closure

We are proposing to allow an IPF to receive a temporary 

adjustment to the FTE cap to reflect residents added because 

of another IPF’s closure. This adjustment is intended to 

account for medical residents who would have partially 

completed a medical residency training program at the hospital 

that has closed and may be unable to complete their training 

at another hospital because that hospital is already training 

residents up to or in excess of its cap. We are proposing this 

change because IPFs have indicated a reluctance to accept 

additional residents from a closed IPF without a temporary 

adjustment to their caps. For purposes of this policy on IPF 

closure, we are proposing to adopt the IPPS definition of 

“closure of a hospital” in 42 CFR §413.79(h) to mean the IPF 

terminates its Medicare provider agreement as specified in 42 

CFR §489.52. Therefore, we are proposing to add a new 

§412.424(d)(1)(iii)(F)(1) to allow a temporary adjustment to 

an IPF’s FTE cap to reflect residents added because of an 

IPF’s closure on or after July 1, 2011 to be effective for 

cost reporting periods beginning on or after July 1, 2011. We 

would allow an adjustment to an IPF’s FTE cap if the IPF meets 

the following criteria: (a) the IPF is training displaced 
CMS-1346-P 108 

residents from an IPF that closed on or after July 1, 2011; 

(and (b) the IPF that is training the displaced residents from 

the closed IPF submits a request for a temporary adjustment to 

its FTE cap to its Medicare contractor no later than 60 days 

after the hospital first begins training the displaced 

residents, and documents that the IPF is eligible for this 

temporary adjustment to its FTE cap by identifying the 

residents who have come from the closed IPF and have caused 

the IPF to exceed its cap, (or the IPF may already be over its 

cap), and specifies the length of time that the adjustment is 

needed. After the displaced residents leave the IPF’s 

training program or complete their residency program, the 

IPF’s cap would revert to its original level. This means that 

the temporary adjustment to the FTE cap would be available to 

the IPF only for the period of time necessary for the 

displaced residents to complete their training. Further, as 

under the IPPS policy, we are also proposing that the total 

amount of temporary cap adjustment that can be distributed to 

all receiving hospitals cannot exceed the cap amount of the 

IPF that closed. 

We also note that section 5506 of the Affordable Care 

Act, “Preservation of Resident Cap Positions from Closed 

Hospitals,” does not apply to IPFs that closed. Section 5506 
CMS-1346-P 109 

only amends sections 1886(d) and (h) of the Act with respect 

to direct GME and IPPS IME payments. Therefore, the IME FTE 

cap redistributions under section 5506 only apply to 

“subsection (d)” IPPS hospitals. Section 5506 has no 

applicability to the IME teaching adjustments under the IPF 

PPS (or the IRF PPS, for that matter). 

b. Proposed Temporary Adjustment to FTE Cap to Reflect 

Residents Affected by Residency Program Closure

 We are proposing that if an IPF that ceases training 

residents in a residency training program(s) agrees to 

temporarily reduce its FTE cap, another IPF may receive a 

temporary adjustment to its FTE cap to reflect residents added 

because of the closure of another IPF’s residency training 

program. For purposes of this policy on closed residency 

programs, we are proposing to adopt the IPPS definition of 

“closure of a hospital residency training program” to mean 

that the hospital ceases to offer training for residents in a 

particular approved medical residency training program as 

specified in §413.79(h). The methodology for adjusting the 

caps for the “receiving IPF” and the “IPF that closed its 

program” is described below. 
CMS-1346-P 110 

i. Receiving IPF 

 We are proposing that an IPF(s) may receive a temporary 

adjustment to its FTE cap to reflect residents added because 

of the closure of another IPF’s residency training program for 

cost reporting periods beginning on or after July 1, 2011 if -

- 

• The IPF is training additional residents from the 

residency training program of an IPF that closed its program 

on or after July 1, 2011; and 

• No later than 60 days after the IPF begins to train the 

residents, the IPF submits to its Medicare Contractor a 

request for a temporary adjustment to its FTE cap, documents 

that the IPF is eligible for this temporary adjustment by 

identifying the residents who have come from another IPF’s 

closed program and have caused the IPF to exceed its cap,(or 

the IPF may already be in excess of its cap), specifies the 

length of time the adjustment is needed, and, as explained in 

more detail below, submits to its Medicare contractor a copy 

of the FTE cap reduction statement by the IPF closing the 

residency training program. 

 In general, the proposed temporary adjustment criteria 

established for closed medical residency training programs at 

IPFs is similar to the criteria established for closed IPFs. 
CMS-1346-P 111 

We are proposing that more than one IPF may be eligible to 

apply for the temporary adjustment because residents from one 

closed program may migrate to different IPFs, or they may 

complete their training at more than one IPF. Also, only to 

the extent to which an IPF would exceed its FTE cap by 

training displaced residents would it be eligible for the 

temporary adjustment. 

 Finally, we are proposing that IPFs that meet the 

proposed criteria would be eligible to receive temporary 

adjustments to their FTE caps for cost reporting periods 

beginning on or after July 1, 2011. 

ii. IPF That Closed Its Program(s) 

We are proposing that an IPF that agrees to train 

residents who have been displaced by the closure of another 

IPF’s resident teaching program may receive a temporary FTE 

cap adjustment only if the IPF with the closed program meets 

the following criteria -- 

• Temporarily reduces its FTE cap by the number of FTE 

residents in each program year training in the program at the 

time of the program’s closure. The yearly reduction would be 

determined by deducting the number of those residents who 

would have been training in the program during the year of the 

closure, had the program not closed; and 
CMS-1346-P 112 

• No later than 60 days after the residents who were in the 

closed program begin training at another IPF, submits to its 

Medicare contractor a statement signed and dated by its 

representative that specifies that it agrees to the temporary 

reduction in its FTE cap to allow the IPF training the 

displaced residents to obtain a temporary adjustment to its 

cap; identifies the residents who were training at the time of 

the program’s closure; identifies the IPFs to which the 

residents are transferring once the program closes; and 

specifies the reduction for the applicable program years. 

Unlike the proposed closed IPF policy at §412.424(d) 

(1)(iii)(F)(1), we propose under this closed program policy 

that in order for the receiving IPF(s) to qualify for a 

temporary adjustment to their FTE cap, the IPFs that are 

closing their programs would need to reduce their FTE cap for 

the duration of time the displaced residents would need to 

finish their training. We are proposing this because the IPF 

that closes the program still retains the FTE slots in its 

cap, even if the IPF chooses not to fill the slots with 

residents. We believe it is inappropriate to allow an 

increase to the receiving IPF’s cap without an attendant 

decrease to the cap of the IPF with the closed program, 

because the IPF that closed a program(s) could fill these 
CMS-1346-P 113 

slots with residents from other programs even if the increase 

and related decrease is only temporary. 

We are proposing that the cap reduction for the IPF with 

the closed program would be based on the number of FTE 

residents in each program year who were in the program at the 

IPF at the time of the program’s closure, and who begin 

training at another IPF. 

In summary we are proposing to revise §412.424(d)(1)(iii) 

and to establish §412.424(d)(1)(iii)(F)(2) to implement 

policies related to temporary adjustments to FTE caps to 

reflect residents added due to closure of an IPF or an IPFs 

medical residency training program. 

4. Proposed Cost of Living Adjustment for IPFs Located in 

Alaska and Hawaii 

The IPF PPS includes a payment adjustment for IPFs 

located in Alaska and Hawaii based upon the county in which 

the IPF is located. As we explained in the November 2004 IPF 

PPS final rule, the FY 2002 data demonstrated that IPFs in 

Alaska and Hawaii had per diem costs that were 

disproportionately higher than other IPFs. Other Medicare 

PPSs (for example, the IPPS and LTCH PPS) have adopted a cost 

of living adjustment (COLA) to account for the cost 

differential of care furnished in Alaska and Hawaii. 
CMS-1346-P 114 

We analyzed the effect of applying a COLA to payments for 

IPFs located in Alaska and Hawaii. The results of our 

analysis demonstrated that a COLA for IPFs located in Alaska 

and Hawaii would improve payment equity for these facilities. 

As a result of this analysis, we provided a COLA in the 

November 2004 IPF PPS final rule. 

A COLA adjustment for IPFs located in Alaska and Hawaii 

is made by multiplying the nonlabor-related portion of the 

Federal per diem base rate by the applicable COLA factor based 

on the COLA area in which the IPF is located. 

As previously stated in the November 2004 IPF PPS final 

rule, we will update the COLA factors according to updates 

established by the U.S. Office of Personnel Management (OPM), 

which issued a final rule, May 28, 2008 to change COLA rates. 

The COLA factors are published on the OPM website at 

(http://www.opm.gov/oca/cola/rates.asp). 

We note that the COLA areas for Alaska are not defined by 

county as are the COLA areas for Hawaii. In 5 CFR 591.207, 

the OPM established the following COLA areas: 

(a) City of Anchorage, and 80-kilometer (50-mile) radius 

by road, as measured from the Federal courthouse; 

(b) City of Fairbanks, and 80-kilometer (50-mile) radius 

by road, as measured from the Federal courthouse; 
CMS-1346-P 115 

(c) City of Juneau, and 80-kilometer (50-mile) radius by 

road, as measured from the Federal courthouse; 

(d) Rest of the State of Alaska. 

For RY 2012, we are proposing that IPFs located in Alaska 

and Hawaii will continue to receive the updated COLA factors 

based on the COLA area in which the IPF is located as shown in 

Table 14 below. 

TABLE 14—Proposed COLA Factors for Alaska and Hawaii IPFs 

 Location COLA 

Alaska Anchorage 

Fairbanks 

Juneau 

Rest of Alaska 

1.19 

1.19 

1.19 

1.21 

Hawaii Honolulu County 

Hawaii County 

Kauai County 

Maui County 

Kalawao County 

1.21 

1.14 

1.21 

1.21 

1.21 

5. Proposed Adjustment for IPFs with a Qualifying Emergency 

Department (ED) 

Currently, the IPF PPS includes a facility-level 

adjustment for IPFs with qualifying EDs. We provide an 

adjustment to the Federal per diem base rate to account for 

the costs associated with maintaining a full-service ED. The 

adjustment is intended to account for ED costs incurred by a 

freestanding psychiatric hospital with a qualifying ED or a 

distinct part psychiatric unit of an acute hospital or a CAH 
CMS-1346-P 116 

for preadmission services otherwise payable under the Medicare 

Outpatient Prospective Payment System (OPPS) furnished to a 

beneficiary during the day immediately preceding the date of 

admission to the IPF (see §413.40(c)(2)) and the overhead cost 

of maintaining the ED. This payment is a facility-level 

adjustment that applies to all IPF admissions (with one 

exception described below), regardless of whether a particular 

patient receives preadmission services in the hospital's ED. 

The ED adjustment is incorporated into the variable per 

diem adjustment for the first day of each stay for IPFs with a 

qualifying ED. That is, IPFs with a qualifying ED receive an 

adjustment factor of 1.31 as the variable per diem adjustment 

for day 1 of each stay. If an IPF does not have a qualifying 

ED, it receives an adjustment factor of 1.19 as the variable 

per diem adjustment for day 1 of each patient stay. 

 The ED adjustment is made on every qualifying claim 

except as described below. As specified in 

§412.424(d)(1)(v)(B), the ED adjustment is not made where a 

patient is discharged from an acute care hospital or critical 

access hospital (CAH) and admitted to the same hospital's or 

CAH's psychiatric unit. An ED adjustment is not made in this 

case because the costs associated with ED services are 

reflected in the DRG payment to the acute care hospital or 
CMS-1346-P 117 

through the reasonable cost payment made to the CAH. If we 

provided the ED adjustment in these cases, the hospital would 

be paid twice for the overhead costs of the ED, as stated in 

the November 2004 IPF PPS final rule (69 FR 66960). 

 Therefore, when patients are discharged from an acute 

care hospital or CAH and admitted to the same hospital’s or 

CAH's psychiatric unit, the IPF receives the 1.19 adjustment 

factor as the variable per diem adjustment for the first day 

of the patient's stay in the IPF. 

For RY 2012, we are proposing to retain the 1.31 

adjustment factor for IPFs with qualifying EDs. A complete 

discussion of the steps involved in the calculation of the ED 

adjustment factor appears in the November 2004 IPF PPS final 

rule (69 FR 66959 through 66960) and the May 2006 IPF PPS 

final rule (71 FR 27070 through 27072). 

D. Other Payment Adjustments and Policies 

 For RY 2012, the IPF PPS includes an outlier adjustment 

to promote access to IPF care for those patients who require 

expensive care and to limit the financial risk of IPFs 

treating unusually costly patients. In this section, we also 

explain the reason for ending the stop-loss provision that was 

applicable during the transition period. 

1. Proposed Outlier Payments 
CMS-1346-P 118 

In the November 2004 IPF PPS final rule, we implemented 

regulations at §412.424(d)(3)(i) to provide a per-case payment 

for IPF stays that are extraordinarily costly. Providing 

additional payments to IPFs for extremely costly cases 

strongly improves the accuracy of the IPF PPS in determining 

resource costs at the patient and facility level. These 

additional payments reduce the financial losses that would 

otherwise be incurred in treating patients who require more 

costly care and, therefore, reduce the incentives for IPFs to 

under-serve these patients. 

We make outlier payments for discharges in which an IPF's 

estimated total cost for a case exceeds a fixed dollar loss 

threshold amount (multiplied by the IPF's facility-level 

adjustments) plus the Federal per diem payment amount for the 

case. 

In instances when the case qualifies for an outlier 

payment, we pay 80 percent of the difference between the 

estimated cost for the case and the adjusted threshold amount 

for days 1 through 9 of the stay (consistent with the median 

LOS for IPFs in FY 2002), and 60 percent of the difference for 

day 10 and thereafter. We established the 80 percent and 60 

percent loss sharing ratios because we were concerned that a 

single ratio established at 80 percent (like other Medicare 
CMS-1346-P 119 

PPSs) might provide an incentive under the IPF per diem 

payment system to increase LOS in order to receive additional 

payments. After establishing the loss sharing ratios, we 

determined the current fixed dollar loss threshold amount of 

$6,372 through payment simulations designed to compute a 

dollar loss beyond which payments are estimated to meet the 

2 percent outlier spending target. 

a. Proposed Update to the Outlier Fixed Dollar Loss Threshold 

Amount 

In accordance with the update methodology described in 

§412.428(d), we are proposing to update the fixed dollar loss 

threshold amount used under the IPF PPS outlier policy. Based 

on the regression analysis and payment simulations used to 

develop the IPF PPS, we established a 2 percent outlier policy 

which strikes an appropriate balance between protecting IPFs 

from extraordinarily costly cases while ensuring the adequacy 

of the Federal per diem base rate for all other cases that are 

not outlier cases. 

We believe it is necessary to update the fixed dollar 

loss threshold amount because an analysis of the latest 

available data (that is, FY 2009 IPF claims) and rate 

increases indicates that adjusting the fixed dollar loss 
CMS-1346-P 120 

amount is necessary in order to maintain an outlier percentage 

that equals 2 percent of total estimated IPF PPS payments. 

 In the May 2006 IPF PPS final rule (71 FR 27072), we 

describe the process by which we calculate the outlier fixed 

dollar loss threshold amount. We are proposing to continue to 

use this process for RY 2012. We begin by simulating 

aggregate payments with and without an outlier policy, and 

applying an iterative process to determine an outlier fixed 

dollar loss threshold amount that will result in outlier 

payments being equal to 2 percent of total estimated payments 

under the simulation. Based on this process, using the FY 2009 

claims data, we estimate that IPF outlier payments as a 

percentage of total estimated payments are approximately 2.2 

percent in RY 2010. Thus, we are proposing to update the RY 

2012 IPF outlier threshold amount to ensure that estimated RY 

2012 outlier payments are approximately 2 percent of total 

estimated IPF payments. We are proposing to change the 

outlier fixed dollar loss threshold amount of $6,372 for RY 

2011 to $7,316 for RY 2012 to reduce estimated outlier 

payments and thereby maintain estimated outlier payments at 2 

percent of total estimated aggregate IPF payments for RY 2012. 
CMS-1346-P 121 

b. Proposed Statistical Accuracy of Cost-to-Charge Ratios

 As previously stated, under the IPF PPS, an outlier 

payment is made if an IPF's cost for a stay exceeds a fixed 

dollar loss threshold amount. In order to establish an IPF's 

cost for a particular case, we multiply the IPF's reported 

charges on the discharge bill by its overall cost-to-charge 

ratio (CCR). This approach to determining an IPF's cost is 

consistent with the approach used under the IPPS and other 

PPSs. In FY 2004, we implemented changes to the IPPS outlier 

policy used to determine CCRs for acute care hospitals because 

we became aware that payment vulnerabilities resulted in 

inappropriate outlier payments. Under the IPPS, we 

established a statistical measure of accuracy for CCRs in 

order to ensure that aberrant CCR data did not result in 

inappropriate outlier payments. 

 As we indicated in the November 2004 IPF PPS final rule, 

because we believe that the IPF outlier policy is susceptible 

to the same payment vulnerabilities as the IPPS, we adopted an 

approach to ensure the statistical accuracy of CCRs under the 

IPF PPS (69 FR 66961). Therefore, we adopted the following 

procedure in the November 2004 IPF PPS final rule: 

• We calculated two national ceilings, one for IPFs located 

in rural areas and one for IPFs located in urban areas. We 
CMS-1346-P 122 

computed the ceilings by first calculating the national 

average and the standard deviation of the CCR for both urban 

and rural IPFs. 

 To determine the rural and urban ceilings, we multiplied 

each of the standard deviations by 3 and added the result to 

the appropriate national CCR average (either rural or urban). 

We estimated a proposed upper threshold CCR for IPFs in 

RY 2012 of 1.8522 for rural IPFs, and 1.7619 for urban IPFs, 

based on CBSA-based geographic designations. If an IPF's CCR 

is above the applicable ceiling, the ratio is considered 

statistically inaccurate and we assign the appropriate 

national (either rural or urban) median CCR to the IPF. 

 We apply the national CCRs to the following situations: 

++ New IPFs that have not yet submitted their first 

Medicare cost report. 

 ++ IPFs whose overall CCR is in excess of 3 standard 

deviations above the corresponding national geometric mean 

(that is, above the ceiling). 

 ++ Other IPFs for which the Medicare contractor obtains 

inaccurate or incomplete data with which to calculate a CCR. 

 For new IPFs, we are using these national CCRs until the 

facility's actual CCR can be computed using the first 

tentatively or final settled cost report. 
CMS-1346-P 123 

 We are not making any changes to the procedures for 

ensuring the statistical accuracy of CCRs in RY 2012. 

However, we are proposing to update the national urban and 

rural CCRs (ceilings and medians) for IPFs for RY 2012 based 

on the CCRs entered in the latest available IPF PPS Provider 

Specific File. 

 Specifically, for RY 2012,and to be used in each of the 

three situations listed above, we estimate a proposed national 

average CCR of 0.6480 for rural IPFs and a proposed national 

average CCR of 0.5140 for urban IPFs. These calculations are 

based on the IPF's location (either urban or rural) using the 

CBSA-based geographic designations. 

 A complete discussion regarding the national median CCRs 

appears in the November 2004 IPF PPS final rule (69 FR 66961 

through 66964). 

2. Expiration of the Stop-Loss Provision 

 In the November 2004 IPF PPS final rule, we implemented a 

stop-loss policy that reduced financial risk to IPFs projected 

to experience substantial reductions in Medicare payments 

during the period of transition to the IPF PPS. This 

stop-loss policy guaranteed that each facility received total 

IPF PPS payments that were no less than 70 percent of its 

TEFRA payments had the IPF PPS not been implemented. This 
CMS-1346-P 124 

policy was applied to the IPF PPS portion of Medicare payments 

during the 3-year transition. 

In the implementation year, the 70 percent of TEFRA 

payment stop-loss policy required a reduction in the 

standardized Federal per diem and ECT base rates of 

0.39 percent in order to make the stop-loss payments budget 

neutral. As described in the May 2008 IPF PPS notice for 

RY 2009, we increased the Federal per diem base rate and ECT 

rate by 0.39 percent because these rates were reduced by 

0.39 percent in the implementation year to ensure 

stop-loss payments were budget neutral. 

The stop-loss provision ended during RY 2009 (that is for 

discharges occurring on or after July 1, 2008 through 

June 30, 2009). The stop-loss policy is no longer applicable 

under the IPF PPS. 

3. Future Refinements 

 As we have noted throughout this proposed rule, we have 

delayed making refinements to the IPF PPS until we have 

adequate IPF PPS data on which to base those decisions. Now 

that we are approximately 5 years into the system, we believe 

that we have enough data to begin that process. We have begun 

the necessary analysis to better understand IPF industry 

practices so that we may refine the IPF PPS as appropriate. 
CMS-1346-P 125 

While we are not proposing to make the following refinements 

in this rulemaking, we believe that in the rulemaking for FY 

2013 we will be ready to present the results of our analysis. 

 Specifically, with the change from ICD-9-CM to ICD-10-CM 

coming in 2013, we are analyzing the comorbidity categories 

and related codes for utilization and continued 

suitability. While we would continue to provide 

for comorbidity adjustments, we are analyzing whether the 

current groupings and codes continue to be warranted 

and whether other appropriate codes should be added. Also, we 

are analyzing our current policies for interrupted stays, 

readmissions, same-day transfers, and length of stays in order 

to assess whether these policies continue to be appropriate. 

Additionally, in accordance with section 1886(s)(4) of the 

Act, which was added by section 10322 of the Affordable Care 

Act, IPFs must submit data on quality measures, as specified 

by the Secretary, for each RY beginning in RY 2014. If data 

is not submitted, any annual update to a Federal base rate for 

discharges for the payments shall be reduced by 2 percentage 

points. Quality measures are currently being developed to 

effectuate this requirement. Lastly, for the first time 

MedPAC will become involved in evaluating facility margins and 

will likely make recommendations regarding the appropriate 
CMS-1346-P 126 

payment update to IPFs based on their findings. CMS is 

interested in gaining feedback on these areas for future 

refinements and therefore we invite comments on these issues 

described in this section at this time. 

VI. Proposed Regulations Text Corrections 

 We are proposing several minor corrections to the 

regulations text to address typographical errors. We note 

that these proposed changes do not impact policy. We are 

proposing to correct typographical errors at §412.404, 

“Conditions for payment under the prospective payment system 

for inpatient hospital services of psychiatric facilities; 

§412.422, “Basis of payment;” and §412.426, “Transition 

period.” In addition to these corrections, we are proposing 

to add clarifying language at §412.426 and §412.432(d), 

“Method of payment under the inpatient psychiatric facility 

prospective payment system.” The proposed revisions are 

described below. 

Section 412.404(a)(1)

 Under §412.404, in paragraph (a)(1), “General 

requirements,” we are proposing to delete the word “in” 

between the words “furnished” and “to Medicare”. 
CMS-1346-P 127 

Section 412.422(b)(2)

 Under §412.422, in paragraph (b)(2), we are proposing to 

correct the reference to §413.80 to §413.89. The regulations 

covered at §413.89 include bad debts, charity, and courtesy 

allowances. 

Section 412.426(a)

 Under §412.426, in paragraph (a), “Duration of transition 

period and composition of the blended transition payment,” we 

are proposing to replace “Except as provided in paragraph (d) 

of this section” with “Except as provided in paragraph (c) of 

this section.” There is no paragraph (d); this exception 

should refer to paragraph (c), “Treatment of new inpatient 

psychiatric facilities.” 

 Also in paragraph (a), we are proposing to add the words 

“of this part” after “as specified in §412.424(d)” and “of 

this section” after “as specified under paragraph (b).” This 

regulatory language is required by the Federal Register. 

 In each of paragraphs §412.426(a)(1) through (a)(3), we 

are proposing to delete the words “on or” directly before the 

words “before January”. For example, paragraph (a)(1) 

currently states, “For cost reporting periods beginning on or 

after January 1, 2005 and on or before January 1, 2006...” We 

are proposing that this statement read: “For cost reporting 
CMS-1346-P 128 

periods beginning on or after January 1, 2005 and before 

January 1, 2006...” This correction does not represent a change 

in policy. Rather, it is a correction to conform the 

regulation text to our policy, which was established in our 

final rule that appeared in the Federal Register on November 

15, 2004 (69 FR 66980) (which was subsequently corrected on 

April 1, 2005 (70 FR 16729)). It is clear that the current 

regulation text is incorrect. The same January date (for 

example, January 1, 2007) cannot be both the date on which a 

new transition period begins and the date on which the 

previous transition period ends. Our policy, since we 

established the transition, has been to begin a transition 

period on or after a January 1 date and to end that transition 

period before the next transition period begins. Because our 

regulation text does not accurately reflect our actual policy, 

we are proposing this correction. 

 At §412.426(a)(4), we are proposing to replace the 

statement, “For cost reporting periods beginning on or after 

July 1, 2008, payment is based entirely on the Federal per 

diem payment amount” with the following statement: “For cost 

reporting periods beginning on or after January 1, 2008, 

payment is based entirely on the Federal per diem payment 

amount.” The transition period during which payment was based 
CMS-1346-P 129 

on a combination of the Federal per diem payment amount and 

TEFRA payments, ended on January 1, 2008, not July 1, 2008. 

§412.432(d)

 Under §412.432, in paragraph (d), “Outlier payments,” we 

are proposing to add the words “of this part” after “subject 

to the cost report settlement specified in §412.84(i) and 

§412.84(m).” This regulatory language is required by the 

Federal Register and clarifies that §412.84(i) and §412.84(m) 

refer to 42 CFR part 412, “Prospective Payment Systems for 

Inpatient Hospital Services.”

VII. Provisions of the Proposed Regulations

In this proposed rule, we are proposing to update the IPF 

PPS payment rates for RY 2012. We are also proposing to 

revise the IPF PPS payment update period and make other policy 

changes and clarifications. The following is a summary of the 

areas that we are addressing in this proposed rule: 

• We are proposing to switch the annual update period for 

the IPF PPS from a rate year that begins on July 1 and goes 

through June 30 to one that coincides with a FY, that is, 

that begins on October 1 and goes through September 30. For 

the update period that begins in 2012, and thereafter, we 

would refer to the update period as a FY. In order to make 

this switch, we are proposing that rate year 2012 be a 
CMS-1346-P 130 

15-month period, from July 1, 2011 through September 30, 

2012. This change in the payment update period would allow 

us to have one consolidated annual update to both the rates 

and the ICD-9-CM coding changes (MS-DRG and comorbidities). 

The coding changes will continue to be effective October 1 of 

each year. 

• We are proposing to rebase and revise the FY 2002-based 

RPL market basket to a FY 2008-based RPL market basket. We 

are proposing a 3.0 percent market basket update to the IPF 

PPS for RY 2012 based on the most recent estimate of the 

market basket update for the proposed 15-month 2012 IPF PPS 

rate year, with a 0.25 percentage point reduction as required 

by section 1886 (s)(3)(A) of the Act. 

• We are proposing to adopt IPF policies similar to such 

IPPS GME policies providing for temporary adjustments to an 

IPF’s FTE cap to reflect residents added due to the closure of 

an IPF or an IPF’s residency training program. 

• We are proposing to update the fixed dollar loss 

threshold amount in order to maintain the appropriate outlier 

percentage. 

• We are proposing to update the ECT adjustment by a factor 

specified by CMS. 
CMS-1346-P 131 

• We are proposing to update the national urban and rural 

cost-to-charge ratio medians and ceilings. 

• We are proposing to update the cost of living adjustment 

factors for IPFs located in Alaska and Hawaii, if appropriate. 

• We are proposing to describe the ICD-9-CM and MS-DRG 

classification changes discussed in the annual update to the 

hospital inpatient prospective payment system regulations. 

• We are proposing the best available hospital wage index 

and information regarding whether an adjustment to the Federal 

per diem base rate is needed to maintain budget neutrality. 

• We are proposing to retain the 17 percent adjustment for 

IPFs located in rural areas, the 1.31 adjustment for IPFs with 

a qualifying ED, the 0.5150 teaching adjustment to the Federal 

per diem rate, and the MS-DRG adjustment factor currently 

being paid to IPFs for RY 2011. 

• We are proposing to update the MS-DRG listing and 

comorbidity categories to reflect the ICD-9-CM revisions 

effective October 1, 2010. 

VIII. Collection of Information Requirements

 This document does not impose any information collection 

and recordkeeping requirements. Consequently, it need not be 

reviewed by the Office of Management and Budget under the 
CMS-1346-P 132 

authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 

35). 

IX. Regulatory Impact Analysis 

A. Statement of Need 

This proposed rule would update the prospective payment 

rates for Medicare inpatient hospital services provided by 

inpatient psychiatric facilities for discharges occurring 

during the rate year beginning July 1, 2011 through 

September 30, 2012. We propose to apply the 15-month 

FY2008-based RPL market basket increase of 3.0 percent, 

adjusted by the 0.25 percentage point reduction, as required 

by section 1886(s)(3)(A)of the Act. In addition, the rule 

proposes policy changes affecting the IPF PPS teaching 

adjustment, as well as makes some clarifications and 

corrections to terminology and regulations text. 

B. Overall Impact

 We have examined the impacts of this proposed rule as 

required by Executive Order 12866 (September 1993, Regulatory 

Planning and Review), the September 19, 1980 Regulatory 

Flexibility Act (RFA) (Pub. L. 96-354), section 1102(b) of the 

Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), 

Executive Order 13132 on Federalism, and the Congressional 

Review Act (5 U.S.C. 804(2)). 
CMS-1346-P 133 

Executive Order 12866 directs agencies to assess all 

costs and benefits of available regulatory alternatives and, 

if regulation is necessary, to select regulatory approaches 

that maximize net benefits (including potential economic, 

environmental, public health and safety effects, distributive 

impacts, and equity). A regulatory impact analysis (RIA) must 

be prepared for major rules with economically significant 

effects ($100 million or more in any 1 year). This proposed 

rule is a major rule as defined in Title 5, United States 

Code, section 804(2), because we estimate that the impact to 

the Medicare program, and the annual effects to the economy, 

will be more than $100 million. We estimate that the total 

impact of these proposed changes for estimated RY 2012 

payments compared to estimated RY 2011 payments would be an 

increase of approximately $110 million (this reflects a $120 

million increase from the update to the payment rates and a 

$10 million decrease due to the proposed update to the outlier 

threshold amount to decrease estimated outlier payments from 

approximately 2.2 percent in RY 2011 to 2.0 percent in RY 

2012). 

The RFA requires agencies to analyze options for 

regulatory relief of small entities, if a rule has a 

significant impact on a substantial number of small entities. 
CMS-1346-P 134 

For purposes of the RFA, small entities include small 

businesses, nonprofit organizations, and small governmental 

jurisdictions. Most IPFs and most other providers and 

suppliers are small entities, either by nonprofit status or by 

having revenues of $7 million to $34.5 million in any one year 

(for details, refer to the SBA Small Business Size Standards 

found at http://ecfr.gpoaccess.gov/cgi/t/text/textidx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=

text&node=13:1.0.1.1.16.1.266.9&idno=13). Because we lack 

data on individual hospital receipts, we cannot determine the 

number of small proprietary IPFs or the proportion of IPFs' 

revenue that is derived from Medicare payments. Therefore, we 

assume that all IPFs are considered small entities. The 

Department of Health and Human Services generally uses a 

revenue impact of 3 to 5 percent as a significance threshold 

under the RFA. As shown in Table 15, we estimate that the 

revenue impact of this proposed rule on all IPFs is to 

increase estimated Medicare payments by about 2.54 percent, 

with rural IPFs estimated to receive an increase in estimated 

Medicare payments greater than 3 percent (an aggregate 

3.56 percent). Since Medicare payments do not necessarily 

constitute total revenue for all IPFs, the overall total 

revenue impact to IPFs would be less than the significant 
CMS-1346-P 135 

threshold of 3 to 5 percent under the RFA. As a result, the 

Secretary has determined that this proposed rule will not have 

a significant impact on a substantial number of small 

entities. Medicare fiscal intermediaries, Medicare 

Administrative Contractors, and carriers are not considered to 

be small entities. Individuals and States are not included in 

the definition of a small entity. We solicit comment on the 

above analysis. 

In addition, section 1102(b) of the Act requires us to 

prepare a regulatory impact analysis if a rule may have a 

significant impact on the operations of a substantial number 

of small rural hospitals. This analysis must conform to the 

provisions of section 603 of the RFA. For purposes of section 

1102(b) of the Act, we define a small rural hospital as a 

hospital that is located outside of a metropolitan statistical 

area and has fewer than 100 beds. As discussed in detail 

below, the rates and policies set forth in this proposed rule 

will not have an adverse impact on the rural hospitals based 

on the data of the 387 rural units and 67 rural hospitals in 

our database of 1,653 IPFs for which data were available. 

Therefore, we are not preparing an analysis for section 

1102(b) of the Act because the Secretary has determined that 
CMS-1346-P 136 

this proposed rule will not have a significant impact on the 

operations of a substantial number of small rural hospitals. 

Section 202 of the Unfunded Mandates Reform Act of 1995 

(UMRA) also requires that agencies assess anticipated costs 

and benefits before issuing any rule whose mandates require 

spending in any 1 year of $100 million in 1995 dollars, 

updated annually for inflation. In 2010, that threshold is 

approximately $135 million. This proposed rule will not 

impose spending costs on State, local, or tribal governments 

in the aggregate, or by the private sector, of $135 million. 

Executive Order 13132 establishes certain requirements 

that an agency must meet when it promulgates a proposed rule 

(and subsequent final rule) that imposes substantial direct 

requirement costs on State and local governments, preempts 

State law, or otherwise has Federalism implications. As 

stated above this proposed rule would not have a substantial 

effect on State and local governments. 

C. Anticipated Effects of the Proposed Rule

 We discuss below the historical background of the IPF PPS 

and the impact of this proposed rule on the Federal Medicare 

budget and on IPFs. 
CMS-1346-P 137 

1. Budgetary Impact 

 As discussed in the November 2004 and May 2006 IPF PPS 

final rules, we applied a budget neutrality factor to the 

Federal per diem and ECT base rates to ensure that total 

estimated payments under the IPF PPS in the implementation 

period would equal the amount that would have been paid if the 

IPF PPS had not been implemented. The budget neutrality 

factor includes the following components: outlier adjustment, 

stop-loss adjustment, and the behavioral offset. As discussed 

in the May 2008 IPF PPS notice (73 FR 25711), the stop-loss 

adjustment is no longer applicable under the IPF PPS. 

In accordance with §412.424(c)(3)(ii), we indicated that 

we would evaluate the accuracy of the budget neutrality 

adjustment within the first 5 years after implementation of 

the payment system. We may make a one-time prospective 

adjustment to the Federal per diem and ECT base rates to 

account for differences between the historical data on costbased TEFRA payments (the basis of the budget neutrality 

adjustment) and estimates of TEFRA payments based on actual 

data from the first year of the IPF PPS. As part of that 

process, we will reassess the accuracy of all of the factors 

impacting budget neutrality. In addition, as discussed in 

section III.C.6 of this proposed rule, we are using the wage 
CMS-1346-P 138 

index and labor-related share in a budget neutral manner by 

applying a wage index budget neutrality factor to the Federal 

per diem and ECT base rates. Therefore, the budgetary impact 

to the Medicare program of this proposed rule will be due to 

the 15-month market basket update for RY 2012 of 3.0 percent 

(see section III.C.5 of this proposed rule) as adjusted by the 

“other adjustment” of -0.25 percentage point according to 

section 1886(s)(3)(A) of the Act, and the proposed update to 

the outlier fixed dollar loss threshold amount. 

We estimate that the RY 2012 impact would be a net 

increase of $110 million in payments to IPF providers. This 

reflects a $120 million increase from the update to the 

payment rates and a $10 million decrease due to the proposed 

update to the outlier threshold amount to decrease estimated 

outlier payments from approximately 2.2 percent in RY 2011 to 

2.0 percent in RY 2012. 

2. Impacts on Providers 

 To understand the impact of the changes to the IPF PPS on 

providers, discussed in this proposed rule, it is necessary to 

compare estimated payments under the IPF PPS rates and factors 

for RY 2012 versus those under RY 2011. The estimated 

payments for RY 2011 and RY 2012 will be 100 percent of the 

IPF PPS payment, since the transition period has ended and 
CMS-1346-P 139 

stop-loss payments are no longer paid. We determined the 

percent change of estimated RY 2012 IPF PPS payments to 

estimated RY 2011 IPF PPS payments for each category of IPFs. 

In addition, for each category of IPFs, we have included the 

estimated percent change in payments resulting from the 

proposed update to the outlier fixed dollar loss threshold 

amount, the labor-related share and wage index changes for the 

RY 2012 IPF PPS, and the 15-month market basket update for RY 

2012, as adjusted by the “other adjustment” according to 

section 1886(s)(3)(A) of the Act. 

 To illustrate the impacts of the RY 2012 changes in this 

proposed rule, our analysis begins with a RY 2011 baseline 

simulation model based on FY 2009 IPF payments inflated to the 

midpoint of RY 2011 using IHS Global Insight's most recent 

forecast of the market basket update (see section III.C.5 of 

this proposed rule); the estimated outlier payments in RY 

2011; the CBSA designations for IPFs based on OMB's MSA 

definitions after June 2003; the FY 2010 pre-floor, 

pre-reclassified hospital wage index; the RY 2011 labor-market 

share; and the RY 2011 percentage amount of the rural 

adjustment. During the simulation, the total estimated 

outlier payments are maintained at 2 percent of total 

estimated IPF PPS payments. 
CMS-1346-P 140 

 Each of the following proposed changes is added 

incrementally to this baseline model in order for us to 

isolate the effects of each change: 

• The update to the outlier fixed dollar loss threshold 

amount. 

• The FY 2011 pre-floor, pre-reclassified hospital wage 

index and RY 2012 labor-related share. 

• The 15-month market basket update for RY 2012 of 3.0 

percent adjusted by 0.25 percentage point reduction in 

accordance with section 1886(s)(3)(A) of the Act. 

Our final comparison illustrates the percent change in 

payments from RY 2011 (that is, July 1, 2010 to June 30, 2011) 

to RY 2012 (that is, July 1, 2011 to September 30, 2012) 

including all the changes in this proposed rule. 

TABLE 15—Proposed IPF Impact Table for RY 2012 

Projected Impacts (% Change) 

Facility by Type 

Number of 

Facilities Outlier 

CBSA 

Wage 

Index & 

Labor 

Share 

Adjusted 

Market 

Basket 

Update1

Total 

Percent 

Change2

(1) (2) (3) (4) (5) (6) 

All Facilities 1,653 -0.21 0.00 2.75 2.54 

 

 Total Urban 1,266 -0.21 -0.16 2.75 2.37 

 Total Rural 387 -0.18 0.98 2.75 3.56 

 

 Urban DPU 854 -0.28 -0.22 2.75 2.23 

 Urban CAH unit 10 -0.84 -0.21 2.75 1.65 

 Urban hospital 402 -0.06 -0.04 2.75 2.64 

 
CMS-1346-P 141 

Projected Impacts (% Change) 

Facility by Type 

Number of 

Facilities Outlier 

CBSA 

Wage 

Index & 

Labor 

Share 

Adjusted 

Market 

Basket 

Update1

Total 

Percent 

Change2

 Rural DPU 267 -0.24 1.01 2.75 3.54 

 Rural CAH unit 53 -0.13 0.60 2.75 3.23 

 Rural hospital 67 -0.06 1.06 2.75 3.78 

 

Freestanding IPF 

By Type of Ownership: 

 Urban Psychiatric Hospitals 

 Government 169 -0.08 -0.33 2.75 2.33 

 Non-Profit 117 -0.07 0.02 2.75 2.69 

 For-Profit 116 -0.04 0.21 2.75 2.92 

 Rural Psychiatric Hospitals 

 Government 43 -0.07 0.58 2.75 3.28 

 Non-Profit 9 -0.01 0.99 2.75 3.76 

 For-Profit 15 -0.03 2.20 2.75 4.98 

 

IPF Units 

By Type of Ownership: 

 Urban DPU 

 Government 148 -0.43 -0.30 2.75 2.02 

 Non-Profit 589 -0.27 -0.27 2.75 2.19 

 For-Profit 117 -0.17 0.06 2.75 2.64 

 Urban CAH 

 Government 4 -1.57 -0.18 2.75 0.90 

 Non-Profit 6 -0.31 -0.23 2.75 2.20 

 Rural DPU 

 Government 64 -0.25 1.01 2.75 3.52 

 Non-Profit 153 -0.22 0.93 2.75 3.47 

 For-Profit 50 -0.27 1.24 2.75 3.73 

 Rural CAH 

 Government 21 -0.08 0.38 2.75 3.04 

 Non-Profit 28 -0.15 0.74 2.75 3.35 

 For-Profit 4 -0.20 0.80 2.75 3.36 

 

 By Teaching Status: 

 Non-teaching 1,428 -0.19 0.12 2.75 2.67 

 Less than 10% interns and residents 

to beds 130 -0.18 -0.52 2.75 2.04 

 10% to 30% interns and residents to 

beds 66 -0.43 -0.34 2.75 1.98 

 More than 30% interns and residents 

to beds 29 -0.40 -0.37 2.75 1.96 

 
CMS-1346-P 142 

Projected Impacts (% Change) 

Facility by Type 

Number of 

Facilities Outlier 

CBSA 

Wage 

Index & 

Labor 

Share 

Adjusted 

Market 

Basket 

Update1

Total 

Percent 

Change2

 By Region: 

 New England 117 -0.23 -0.89 2.75 1.60 

 Mid-Atlantic 273 -0.19 -0.73 2.75 1.82 

 South Atlantic 233 -0.17 0.18 2.75 2.75 

 East North Central 274 -0.24 0.22 2.75 2.72 

 East South Central 166 -0.16 0.59 2.75 3.19 

 West North Central 149 -0.21 0.02 2.75 2.56 

 West South Central 228 -0.18 1.15 2.75 3.74 

 Mountain 87 -0.17 0.03 2.75 2.60 

 Pacific 126 -0.29 -0.40 2.75 2.03 

 

 By Bed Size: 

 Psychiatric Hospitals 

 Under 12 beds 12 -0.43 0.02 2.75 2.31 

 Beds: 12-24 71 -0.13 1.06 2.75 3.71 

 Beds: 25-49 70 -0.15 0.31 2.75 2.90 

 Beds: 50-75 72 -0.05 0.16 2.75 2.87 

 Over 75 beds 244 -0.04 -0.12 2.75 2.59 

 Psychiatric Units 

 Under 12 beds 189 -0.34 0.72 2.75 3.12 

 Beds: 12-24 515 -0.26 0.14 2.75 2.62 

 Beds: 25-49 313 -0.28 -0.15 2.75 2.30 

 Beds: 50-75 105 -0.27 -0.05 2.75 2.43 

 Over 75 beds 62 -0.27 -0.56 2.75 1.92 1

 This column reflects the impact of the 15-month market basket update for RY 2012 of 3.0 percent, reduced by 

0.25 percentage point in accordance with section 1886(s)(3)(A) of the Act. 

2

Percent changes in estimated payments from RY 2011 to RY 2012 include all proposed changes of this rule. 

Note, the products of these impacts may be different from the percentage changes shown here due to rounding 

effects. 
CMS-1346-P 143 

3. Results 

 Table 15 above displays the results of our analysis. The 

table groups IPFs into the categories listed below based on 

characteristics provided in the Provider of Services (POS) 

file, the IPF provider specific file, and cost report data 

from HCRIS: 

• Facility Type 

• Location 

• Teaching Status Adjustment 

• Census Region 

• Size 

The top row of the table shows the overall impact on the 1,653 

IPFs included in this analysis. 

 In column 3, we present the effects of the proposed 

update to the outlier fixed dollar loss threshold amount. We 

estimate that IPF outlier payments as a percentage of total 

estimated IPF payments are 2.2 percent in RY 2011. Thus, we 

are proposing to adjust the outlier threshold amount from 

$6,372 in RY 2011 to $7,316 in RY 2012 in order to set total 

estimated outlier payments equal to 2 percent of total 

estimated payments in RY 2012. The estimated change in total 

IPF payments for RY 2012, therefore, includes an approximate 
CMS-1346-P 144 

0.2 percent decrease in payments because the estimated outlier 

portion of total payments is estimated to decrease from 

approximately 2.2 percent to 2 percent. 

 The overall aggregate effect of this proposed outlier 

adjustment updates (as shown in column 3 of table 15), across 

all hospital groups, is to decrease total estimated payments 

to IPFs by about 0.21 percent. We do not estimate that any 

group of IPFs will experience an increase in payments from 

this proposed update. We estimate the largest decrease in 

payments to be a 1.57 percent decrease in estimated payments 

to urban, government IPF units located in CAHs which is due to 

the small number of IPFs of that type and the high volume of 

outlier payments made to those IPFs. 

In column 4, we present the effects of the proposed 

budget-neutral update to the labor-related share and the wage 

index adjustment under the CBSA geographic area definitions 

announced by OMB in June 2003. This is a comparison of the 

simulated RY 2012 payments under the FY 2011 hospital wage 

index under CBSA classification and associated labor-related 

share to the simulated RY 2011 payments under the FY 2010 

hospital wage index under CBSA classifications and associated 

labor-related share. We note that there is no projected 

change in aggregate payments to IPFs, as indicated in the 
CMS-1346-P 145 

first row of column 4. However, there would be distributional 

effects among different categories of IPFs. For example, we 

estimate a 0.98 percent increase in overall payments to rural 

IPFs, with the largest increase in estimated payments of 2.2 

percent for rural, for-profit freestanding psychiatric 

hospitals. In addition, we estimate the largest decrease in 

estimated payments to be a 0.89 percent decrease for IPFs in 

the New England region. 

Column 5 shows the estimated effect of the proposed 

update to the IPF PPS payment rates, which includes a 3.0 

percent 15-month market basket update with the 0.25 percentage 

point reduction in accordance with section 1886(s)(3)(A). 

 Column 6 compares our estimates of the changes reflected 

in this proposed rule for RY 2012, to our estimates of 

payments for RY 2011 (without these changes). This column 

reflects all RY 2012 changes relative to RY 2011. The average 

estimated increase for all IPFs is approximately 2.54 percent. 

This estimated net increase includes the effects of the 3.0 

percent 15-month market basket update adjusted by the “other 

adjustment” of -0.25 percentage point, as required by section 

1886(s)(3)(A) of the Act. It also includes the approximate 

0.2 percent overall estimated decrease in estimated IPF 

outlier payments from the proposed update to the outlier fixed 
CMS-1346-P 146 

dollar loss threshold amount. Since we are making the updates 

to the IPF labor-related share and wage index in a budgetneutral manner, they will not affect total estimated IPF 

payments in the aggregate. However, they will affect the 

estimated distribution of payments among providers. 

 Overall, no IPFs are estimated to experience a net 

decrease in payments as a result of the proposed updates in 

this rule. IPFs in urban areas will experience a 2.37 percent 

increase and IPFs in rural areas will experience a 3.56 

percent increase. The largest payment increase is estimated 

at 4.98 percent for rural, for-profit freestanding psychiatric 

hospitals. This is due to the larger than average positive 

effect of the FY 2011 CBSA wage index and labor-related share 

updates for rural IPFs in this category. 

4. Effect on the Medicare Program 

Based on actuarial projections resulting from our 

experience with other PPSs, we estimate that Medicare spending 

(total Medicare program payments) for IPF services over the 

next 5 years would be as shown in Table 16 below. 

TABLE 16-- Estimated Payments 

Rate Year Dollars in Millions 

July 1, 2011 to June 30, 2012 $4,615 

July 1, 2012 to June 30, 2013 $4,938 

July 1, 2013 to June 30, 2014 $5,320 

July 1, 2014 to June 30, 2015 $5,750 

July 1, 2015 to June 30, 2016 $6,235 

 
CMS-1346-P 147 

 These estimates are based on the current forecast of the 

increases in the RPL market basket, including an adjustment 

for productivity, for the rate year beginning in 2012 and each 

subsequent rate year, as required by section 1886(s)(3)(A) of 

the Act, as follows: 

• 2.6 percent for rate years beginning in 2011 

(RY 2012). 

• 1.7 percent for rate years beginning in 2012 

(RY 2013). 

• 1.9 percent for rate years beginning in 2013 

(RY 2014). 

• 2.1 percent for rate years beginning in 2014 

(RY 2015). 

• 2.3 percent for rate years beginning in 2015 

(RY 2016). 

The estimates in Table 14 also include the application of 

the “other adjustment,” as required by section 1886(s)(3)(A) 

of the Act, as follows: 

• -0.25 percent for rate years beginning in 2011. 

• -0.1 percent for rate years beginning in 2012. 

• -0.1 percent for rate years beginning in 2013. 

• -0.3 percent for rate years beginning in 2014. 

• -0.2 percent for rate years beginning in 2015. 
CMS-1346-P 148 

We estimate that there would be a change in 

fee-for-service Medicare beneficiary enrollment as follows: 

• 3.3 percent in RY 2012. 

• 3.7 percent in RY 2013. 

• 4.3 percent in RY 2014. 

• 4.9 percent in RY 2015. 

• 5.6 percent in RY 2016. 

5. Effect on Beneficiaries 

 Under the IPF PPS, IPFs would receive payment based on 

the average resources consumed by patients for each day. We 

do not expect changes in the quality of care or access to 

services for Medicare beneficiaries under the RY 2012 IPF PPS. 

In fact, we believe that access to IPF services will be 

enhanced due to the patient- and facility-level adjustment 

factors, all of which are intended to adequately reimburse 

IPFs for expensive cases. Finally, the outlier policy is 

intended to assist IPFs that experience high-cost cases. 

D. Alternatives Considered

The statute does not specify an update strategy for the 

IPF PPS and is broadly written to give the Secretary 

discretion in establishing an update methodology. Therefore, 

we are updating the IPF PPS using the methodology published in 

the November 2004 IPF PPS final rule. 
CMS-1346-P 149 

 We note that this proposed rule initiates policy changes 

with regard to the IPF PPS, and it also provides an update to 

the rates for RY 2012. We considered making refinements to 

the IPF PPS in this proposed rule. However, we decided that 

we needed more time to assess the data and would therefore 

once again delay running the regression analysis until we have 

adequate IPF PPS data. We have initiated the necessary 

analysis to better understand IPF industry practices. We did 

not consider rebasing the IPF PPS for concerns that rebasing 

would be too costly (re-calculate the cost-per-day) and time 

consuming. 

E. Accounting Statement

 As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in 

Table 17 below, we have prepared an accounting statement 

showing the classification of the expenditures associated with 

the provisions of this proposed rule. This table provides our 

best estimate of the increase in Medicare payments under the 

IPF PPS as a result of the proposed changes presented in this 

proposed rule and based on the data for 1,653 IPFs in our 

database. All expenditures are classified as transfers to 

Medicare providers (that is, IPFs). 
CMS-1346-P 150 

Table 17—Accounting Statement: Classification of Estimated 

Expenditures, from the 2011 IPF PPS RY to the 2012 IPF PPS RY 

(in Millions) 

Category TRANSFERS 

Annualized Monetized Transfers $110 

From Whom To Whom? Federal Government To IPF Medicare 

Providers 

In accordance with the provisions of Executive Order 

12866, this regulation was reviewed by the Office of 

Management and Budget.
List of Subjects in 42 CFR Part 412 

 Administrative practice and procedure, Health 

facilities, Medicare, Puerto Rico, Reporting and 

recordkeeping requirements. 
 For the reasons set forth in the preamble, the Centers 

for Medicare & Medicaid Services proposes to amend 42 CFR 

chapter IV as set forth below: 

PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

1. The authority citation for part 412 continues to 

read as follows: 

Authority: Secs 1102, 1862, and 1871 of the Social 

Security Act (42 U.S.C. 1302, 1395y, and 1395hh). 

Subpart N—Prospective payment system for inpatient hospital 

services of inpatient psychiatric facilities 

 2. In §412.402, new definitions of “IPF prospective 

payment system rate year” and “MS-IFP-DRG” are added in 

alphabetical order to read as follows: 

§412.402 Definitions.

 * * * * * 

IPF prospective payment system rate year means --

(1) Through June 30, 2011, the 12-month period of 

July 1 through June 30. 

(2) Beginning July 1, 2011, the 15-month period of 

July 1, 2011 through September 30, 2012. 
(3) Beginning October 1, 2012, the 12-month period of 

October 1 through September 30, referred to as Fiscal Year 

(FY). 

* * * * * 

MS-IFP-DRG means the severity adjusted diagnosis 

groups used to classify IPF patients. For IPF discharges 

occurring on or after July 1, 2008, all reference to MSDRGs used for the IPF PPS are to MS-IPF-DRGs. 

 * * * * * 

3. Section 412.404 is amended by revising paragraph 

(a)(1) to read as follows: 

§412.404 Conditions for payment under the prospective 

payment system for inpatient hospital services of 

psychiatric facilities. 

 (a) General requirements. (1) Effective for cost 

reporting periods beginning on or after January 1, 2005, an 

inpatient psychiatric facility must meet the conditions of 

this section to receive payment under the prospective 

payment system described in this subpart for inpatient 

hospital services furnished to Medicare Part A fee-forservice beneficiaries. 

 * * * * * 
 4. Section 412.422 is amended by revising paragraph 

(b)(2) to read as follows: 

§412.422 Basis of payment. 

* * * * * 

 (b) * * * 

 (2) In addition to the Federal per diem payment 

amounts, inpatient psychiatric facilities receive payment 

for bad debts of Medicare beneficiaries, as specified in 

§413.89 of this chapter. 

 5. Section 412.424 is amended by adding a new 

paragraph (d)(1)(iii)(F) to read as follows: 

§412.424 Methodology for calculating the Federal per diem 

payment amount. 

* * * * * 

(d) * * * 

(1) * * * 

(iii) * * * 

(F) Closure of an IPF. (1) For cost reporting 

periods beginning on or after July 1, 2011, an IPF may 

receive a temporary adjustment to its FTE cap to reflect 

residents added because of another IPF’s closure if the IPF 

meets the following criteria: 
(i) The IPF is training additional residents from an 

IPF that closed on or after July 1, 2011. 

(ii) No later than 60 days after the IPF begins to 

train the residents, the IPF submits a request to its 

Medicare contractor for a temporary adjustment to its cap, 

documents that the IPF is eligible for this temporary 

adjustment by identifying the residents who have come from 

the closed IPF and have caused the IPF to exceed its cap, 

and specifies the length of time the adjustment is needed. 

 (2) Closure of an IPF’s residency training program. 

If an IPF that closes its residency training program agrees 

to temporarily reduce its FTE cap according to the criteria 

specified in paragraph (d)(1)(iii)(F)(2)(ii) of this 

section, another IPF(s) may receive a temporary adjustment 

to its FTE cap to reflect residents added because of the 

closure of the residency training program if the criteria 

specified in paragraph (d)(1)(iii)(F)(2)(i) of this section 

are met. 

 (i) Receiving IPF(s). For cost reporting periods 

beginning on or after July 1, 2001, an IPF may receive a 

temporary adjustment to its FTE cap to reflect residents 

added because of the closure of another IPF’s residency 

training program if the IPF is training additional 
residents from the residency training program of an IPF 

that closed a program; and if no later than 60 days after 

the IPF begins to train the residents, the IPF submits to 

its Medicare Contractor a request for a temporary 

adjustment to its FTE cap, documents that it is eligible 

for this temporary adjustment by identifying the residents 

who have come from another IPF’s closed program and have 

caused the IPF to exceed its cap, specifies the length of 

time the adjustment is needed, and submits to its Medicare 

contractor a copy of the FTE reduction statement by the 

hospital that closed its program, as specified in paragraph 

(d)(1)(iii)(F)(2)(ii) of this section. 

 (ii) IPF that closed its program. An IPF that agrees 

to train residents who have been displaced by the closure 

of another IPF’s program may receive a temporary FTE cap 

adjustment only if the hospital with the closed program

temporarily reduces its FTE cap based on the FTE residents 

in each program year training in the program at the time of 

the program’s closure. This yearly reduction in the FTE 

cap will be determined based on the number of those 

residents who would have been training in the program 

during that year had the program not closed. No later than 

60 days after the residents who were in the closed program 
begin training at another hospital, the hospital with the 

closed program must submit to its Medicare contractor a 

statement signed and dated by its representative that 

specifies that it agrees to the temporary reduction in its 

FTE cap to allow the IPF training the displaced residents 

to obtain a temporary adjustment to its cap; identifies the 

residents who were in training at the time of the program’s 

closure; identifies the IPFs to which the residents are 

transferring once the program closes; and specifies the 

reduction for the applicable program years. 

* * * * * 

 6. Section 412.426 is amended by revising paragraph 

(a) to read as follows: 

§412.426 Transition period. 

 (a) Duration of transition period and composition of 

the blended transition payment. Except as provided in 

paragraph (c) of this section, for cost reporting periods 

beginning on or after January 1, 2005 through January 1, 

2008, an inpatient psychiatric facility receives a payment 

comprised of a blend of the estimated Federal per diem 

payment amount, as specified in §412.424(d) of this subpart 

and a facility-specific payment as specified under 

paragraph (b) of this section. 
(1) For cost reporting periods beginning on or after 

January 1, 2005 and before January 1, 2006, payment is 

based on 75 percent of the facility-specific payment and 25 

percent is based on the Federal per diem payment amount. 

 (2) For cost reporting periods beginning on or after 

January 1, 2006 and before January 1, 2007, payment is 

based on 50 percent of the facility-specific payment and 

50 percent is based on the Federal per diem payment amount. 

 (3) For cost reporting periods beginning on or after 

January 1, 2007 and before January 1, 2008, payment is 

based on 25 percent of the facility-specific payment and 

75 percent is based on the Federal per diem payment amount. 

 (4) For cost reporting periods beginning on or after 

January 1, 2008, payment is based entirely on the Federal 

per diem payment amount. 

* * * * * 

7. Section 412.432 is amended by revising paragraph (d) to 

read as follows: 

§412.432 Method of payment under the inpatient psychiatric 

facility prospective payment system. 

* * * * * 

 (d) Outlier payments. Additional payments for 

outliers are not made on an interim basis. Outlier 
payments are made based on the submission of a discharge 

bill and represents final payment subject to the cost 

report settlement specified in §412.84(i) and §412.84(m) of 

this part. 

* * * * * 
Catalog of Federal Domestic Assistance Program No. 93.773, 

Medicare--Hospital Insurance; and Program No. 93.774, 

Medicare--Supplementary Medical Insurance Program) 

Dated: January 13, 2011

 ______________________________ 

Donald Berwick, 

Administrator, 

Centers for Medicare & Medicaid

 

Services. 

Approved: January 20, 2011 

 ______________________________ 

 Kathleen Sebelius, 

 Secretary. 

BILLING CODE 4120-01-P
[Note: The following Addendums will not appear in the Code 

of Federal Regulations].

Addendum A—Rate and Adjustment Factors 

Per Diem Rate:

Federal Per Diem Base 

Rate 

$683.68 

Labor Share (0.70499) $481.99 

Non-Labor Share 

(0.29501) 

$201.69 

Fixed Dollar Loss Threshold Amount:

$7,316 

Wage Index Budget Neutrality Factor:

0.9995 

Facility Adjustments:

Rural Adjustment Factor 1.17 

Teaching Adjustment 

Factor 

0.5150 

Wage Index Pre-reclass Hospital Wage Index 

(FY2011) 

Cost of Living Adjustments (COLAs):

Alaska 

Anchorage 1.19 

Fairbanks 1.19 

Juneau 1.19 

Rest of Alaska 1.21 

Hawaii 

Honolulu County 1.21 

Hawaii County 1.14 

Kauai County 1.21 

Maui County 1.21 
Kalawao County 1.21 

Patient Adjustments:

ECT – Per Treatment $294.33

Variable Per Diem Adjustments:

Adjustment Factor 

Day 1 -- Facility Without a Qualifying Emergency Department 1.19 

Day 1 -- Facility With a Qualifying Emergency Department 1.31 

Day 2 1.12 

Day 3 1.08 

Day 4 1.05 

Day 5 1.04 

Day 6 1.02 

Day 7 1.01 

Day 8 1.01 

Day 9 1.00 

Day 10 1.00 

Day 11 0.99 

Day 12 0.99 

Day 13 0.99 

Day 14 0.99 

Day 15 0.98 

Day 16 0.97 

Day 17 0.97 

Day 18 0.96 

Day 19 0.95 

Day 20 0.95 

Day 21 0.95 

After Day 21 0.92 

Age Adjustments:

Age (in years) Adjustment Factor 

Under 45 1.00 

45 and under 50 1.01 

50 and under 55 1.02 

55 and under 60 1.04 

60 and under 65 1.07 

65 and under 70 1.10 

70 and under 75 1.13 

75 and under 80 1.15 

80 and over 1.17 
DRG Adjustments:

MS-DRG MS-DRG Descriptions 

Adjustment 

Factor 

056 

057 

Degenerative nervous system disorders w MCC 

Degenerative nervous system disorders w/o MCC 

1.05 

080 

081 

Nontraumatic stupor & coma w MCC 

Nontraumatic stupor & coma w/o MCC 

1.07 

876 O.R. procedure w principal diagnoses of mental illness 1.22 

880 Acute adjustment reaction & psychosocial dysfunction 1.05 

881 Depressive neuroses 0.99 

882 Neuroses except depressive 1.02 

883 Disorders of personality & impulse control 1.02 

884 Organic disturbances & mental retardation 1.03 

885 Psychoses 1.00 

886 Behavioral & developmental disorders 0.99 

887 Other mental disorder diagnoses 0.92 

894 Alcohol/drug abuse or dependence, left AMA 0.97 

895 Alcohol/drug abuse or dependence w rehabilitation therapy 1.02 

896 

897 

Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC 

Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC 

0.88 

Comorbidity Adjustments:

Comorbidity 

Adjustment 

Factor 

Developmental Disabilities 1.04 

Coagulation Factor Deficit 1.13 

Tracheostomy 1.06 

Eating and Conduct Disorders 1.12 

Infectious Diseases 1.07 

Renal Failure, Acute 1.11 

Renal Failure, Chronic 1.11 

Oncology Treatment 1.07 

Uncontrolled Diabetes Mellitus 1.05 

Severe Protein Malnutrition 1.13 

Drug/Alcohol Induced Mental Disorders 1.03 

Cardiac Conditions 1.11 

Gangrene 1.10 

Chronic Obstructive Pulmonary Disease 1.12 

Artificial Openings – Digestive & Urinary 1.08 

Severe Musculoskeletal & Connective Tissue Diseases 1.09 

Poisoning 1.11 
Addendum B—RY 2012 CBSA Wage Index Tables 

In this addendum, we provide the wage index tables 

referred to in the preamble to this notice. Tables 1 and 2 

display the CBSA-based wage index values for urban and 

rural providers.

Table 1—RY 2012 WAGE INDEX FOR URBAN AREAS BASED ON CBSA 

LABOR MARKET AREAS 

CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

10180 Abilene, TX 

Callahan County, TX 

Jones County, TX 

Taylor County, TX 0.8003

10380 Aguadilla-Isabela-San Sebastián, PR 

Aguada Municipio, PR 

Aguadilla Municipio, PR 

Añasco Municipio, PR 

Isabela Municipio, PR 

Lares Municipio, PR 

Moca Municipio, PR 

Rincón Municipio, PR 

San Sebastián Municipio, PR 0.3471

10420 Akron, OH 

Portage County, OH 

Summit County, OH 0.8843

10500 Albany, GA 

Baker County, GA 

Dougherty County, GA 

Lee County, GA 

Terrell County, GA 

Worth County, GA 0.9036

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

10780 Alexandria, LA 

Grant Parish, LA 

Rapides Parish, LA 0.7995

10900 Allentown-Bethlehem-Easton, PA-NJ 

Warren County, NJ 

Carbon County, PA 

Lehigh County, PA 

Northampton County, PA 0.9194

11020 Altoona, PA 

Blair County, PA 

0.8620

11100 Amarillo, TX 

Armstrong County, TX 

Carson County, TX 

Potter County, TX 

Randall County, TX 0.8644

11180 Ames, IA 

Story County, IA 

0.9970

11260 Anchorage, AK 

Anchorage Municipality, AK 

Matanuska-Susitna Borough, AK 1.1964

11300 Anderson, IN 

Madison County, IN 

0.9192

11340 Anderson, SC 

Anderson County, SC 

0.8691

11460 Ann Arbor, MI 

Washtenaw County, MI 

1.0124

11500 Anniston-Oxford, AL 

Calhoun County, AL 

0.7918

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

12060 Atlanta-Sandy Springs-Marietta, GA 

Barrow County, GA 

Bartow County, GA 

Butts County, GA 

Carroll County, GA 

Cherokee County, GA 

Clayton County, GA 

Cobb County, GA 

Coweta County, GA 

Dawson County, GA 

DeKalb County, GA 

Douglas County, GA 

Fayette County, GA 

Forsyth County, GA 

Fulton County, GA 

Gwinnett County, GA 

Haralson County, GA 

Heard County, GA 

Henry County, GA 

Jasper County, GA 

Lamar County, GA 

Meriwether County, GA 

Newton County, GA 

Paulding County, GA 

Pickens County, GA 

Pike County, GA 

Rockdale County, GA 

Spalding County, GA 

Walton County, GA 0.9549

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

12580 Baltimore-Towson, MD 

Anne Arundel County, MD 

Baltimore County, MD 

Carroll County, MD 

Harford County, MD 

Howard County, MD 

Queen Anne's County, MD 

Baltimore City, MD 1.0255

12620 Bangor, ME 

Penobscot County, ME 

0.9777

12700 Barnstable Town, MA 

Barnstable County, MA 

1.2823

12940 Baton Rouge, LA 

Ascension Parish, LA 

East Baton Rouge Parish, LA 

East Feliciana Parish, LA 

Iberville Parish, LA 

Livingston Parish, LA 

Pointe Coupee Parish, LA 

St. Helena Parish, LA 

West Baton Rouge Parish, LA 

West Feliciana Parish, LA 0.8583

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

13820 Birmingham-Hoover, AL 

Bibb County, AL 

Blount County, AL 

Chilton County, AL 

Jefferson County, AL 

St. Clair County, AL 

Shelby County, AL 

Walker County, AL 0.8611

13900 Bismarck, ND 

Burleigh County, ND 

Morton County, ND 0.7348

13980 Blacksburg-Christiansburg-Radford, VA 

Giles County, VA 

Montgomery County, VA 

Pulaski County, VA 

Radford City, VA 0.8314

14020 Bloomington, IN 

Greene County, IN 

Monroe County, IN 

Owen County, IN 0.8989

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

15260 Brunswick, GA 

Brantley County, GA 

Glynn County, GA 

McIntosh County, GA 0.9209

15380 Buffalo-Niagara Falls, NY 

Erie County, NY 

Niagara County, NY 0.9530

15500 Burlington, NC 

Alamance County, NC 

0.8863

15540 Burlington-South Burlington, VT 

Chittenden County, VT 

Franklin County, VT 

Grand Isle County, VT 0.9947

15764 Cambridge-Newton-Framingham, MA 

Middlesex County, MA 

1.1250

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

16620 Charleston, WV 

Boone County, WV 

Clay County, WV 

Kanawha County, WV 

Lincoln County, WV 

Putnam County, WV 0.7895

16700 Charleston-North Charleston-Summerville, SC 

Berkeley County, SC 

Charleston County, SC 

Dorchester County, SC 0.9354

16740 Charlotte-Gastonia-Concord, NC-SC 

Anson County, NC 

Cabarrus County, NC 

Gaston County, NC 

Mecklenburg County, NC 

Union County, NC 

York County, SC 0.9420

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

17140 Cincinnati-Middletown, OH-KY-IN 

Dearborn County, IN 

Franklin County, IN 

Ohio County, IN 

Boone County, KY 

Bracken County, KY 

Campbell County, KY 

Gallatin County, KY 

Grant County, KY 

Kenton County, KY 

Pendleton County, KY 

Brown County, OH 

Butler County, OH 

Clermont County, OH 

Hamilton County, OH 

Warren County, OH 0.9699

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

17980 Columbus, GA-AL 

Russell County, AL 

Chattahoochee County, GA 

Harris County, GA 

Marion County, GA 

Muscogee County, GA 0.9027

18020 Columbus, IN 

Bartholomew County, IN 

0.9434

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

19340 Davenport-Moline-Rock Island, IA-IL 

Henry County, IL 

Mercer County, IL 

Rock Island County, IL 

Scott County, IA 0.8400

19380 Dayton, OH 

Greene County, OH 

Miami County, OH 

Montgomery County, OH 

Preble County, OH 0.9140

19460 Decatur, AL 

Lawrence County, AL 

Morgan County, AL 0.7621

19500 Decatur, IL 

Macon County, IL 

0.7916

19660 Deltona-Daytona Beach-Ormond Beach, FL 

Volusia County, FL 

0.8736

19740 Denver-Aurora-Broomfield, CO 

Adams County, CO 

Arapahoe County, CO 

Broomfield County, CO 

Clear Creek County, CO 

Denver County, CO 

Douglas County, CO 

Elbert County, CO 

Gilpin County, CO 

Jefferson County, CO 

Park County, CO 1.0718

19780 Des Moines-West Des Moines, IA 

Dallas County, IA 

Guthrie County, IA 

Madison County, IA 

Polk County, IA 

Warren County, IA 0.9621

19804 Detroit-Livonia-Dearborn, MI 

Wayne County, MI 

0.9699

20020 Dothan, AL 

Geneva County, AL 

Henry County, AL 

Houston County, AL 

0.7435

20100 Dover, DE 

Kent County, DE 

0.9921

20220 Dubuque, IA 

Dubuque County, IA 

0.8774
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

20260 Duluth, MN-WI 

Carlton County, MN 

St. Louis County, MN 

Douglas County, WI 1.0565

20500 Durham-Chapel Hill, NC 

Chatham County, NC 

Durham County, NC 

Orange County, NC 

Person County, NC 0.9664

20740 Eau Claire, WI 

Chippewa County, WI 

Eau Claire County, WI 0.9639

20764 Edison-New Brunswick, NJ 

Middlesex County, NJ 

Monmouth County, NJ 

Ocean County, NJ 

Somerset County, NJ 1.1006

20940 El Centro, CA 

Imperial County, CA 

0.9258

21060 Elizabethtown, KY 

Hardin County, KY 

Larue County, KY 0.8449

21140 Elkhart-Goshen, IN 

Elkhart County, IN 

0.9465

21300 Elmira, NY 

Chemung County, NY 

0.8445

21340 El Paso, TX 

El Paso County, TX 

0.8475

21500 Erie, PA 

Erie County, PA 

0.8360

21660 Eugene-Springfield, OR 

Lane County, OR 

1.1384

21780 Evansville, IN-KY 

Gibson County, IN 

Posey County, IN 

Vanderburgh County, IN 

Warrick County, IN 

Henderson County, KY 

Webster County, KY 0.8433

21820 Fairbanks, AK 

Fairbanks North Star Borough, AK 

1.1080
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

21940 Fajardo, PR 

Ceiba Municipio, PR 

Fajardo Municipio, PR 

Luquillo Municipio, PR 0.3883

22020 Fargo, ND-MN 

Cass County, ND 

Clay County, MN 0.8064

22140 Farmington, NM 

San Juan County, NM 

0.9339

22180 Fayetteville, NC 

Cumberland County, NC 

Hoke County, NC 0.9323

22220 Fayetteville-Springdale-Rogers, AR-MO 

Benton County, AR 

Madison County, AR 

Washington County, AR 

McDonald County, MO 0.8616

22380 Flagstaff, AZ 

Coconino County, AZ 

1.2443

22420 Flint, MI 

Genesee County, MI 

1.1496

22500 Florence, SC 

Darlington County, SC 

Florence County, SC 

0.8252

22520 Florence-Muscle Shoals, AL 

Colbert County, AL 

Lauderdale County, AL 0.8144

22540 Fond du Lac, WI 

Fond du Lac County, WI 

0.9223

22660 Fort Collins-Loveland, CO 

Larimer County, CO 

0.9892

22744 Fort Lauderdale-Pompano Beach-Deerfield Beach, FL 

Broward County, FL 

1.0160

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

23104 Fort Worth-Arlington, TX 

Johnson County, TX 

Parker County, TX 

Tarrant County, TX 

Wise County, TX 0.9474

23420 Fresno, CA 

Fresno County, CA 

1.1422

23460 Gadsden, AL 

Etowah County, AL 

0.7180

23540 Gainesville, FL 

Alachua County, FL 

Gilchrist County, FL 0.9160

23580 Gainesville, GA 

Hall County, GA 

0.9223

23844 Gary, IN 

Jasper County, IN 

Lake County, IN 

Newton County, IN 

Porter County, IN 0.9084

24020 Glens Falls, NY 

Warren County, NY 

Washington County, NY 0.8507

24140 Goldsboro, NC 

Wayne County, NC 

0.9067

24220 Grand Forks, ND-MN 

Polk County, MN 

Grand Forks County, ND 0.7717

24300 Grand Junction, CO 

Mesa County, CO 

0.9850

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

24660 Greensboro-High Point, NC 

Guilford County, NC 

Randolph County, NC 

Rockingham County, NC 0.8882

24780 Greenville, NC 

Greene County, NC 

Pitt County, NC 0.9370

24860 Greenville-Mauldin-Easley, SC 

Greenville County, SC 

Laurens County, SC 

Pickens County, SC 0.9644

25020 Guayama, PR 

Arroyo Municipio, PR 

Guayama Municipio, PR 

Patillas Municipio, PR 0.3686

25060 Gulfport-Biloxi, MS 

Hancock County, MS 

Harrison County, MS 

Stone County, MS 0.8877

25180 Hagerstown-Martinsburg, MD-WV 

Washington County, MD 

Berkeley County, WV 

Morgan County, WV 0.9254

25260 Hanford-Corcoran, CA 

Kings County, CA 

1.1205

25420 Harrisburg-Carlisle, PA 

Cumberland County, PA 

Dauphin County, PA 

Perry County, PA 0.9296

25500 Harrisonburg, VA 

Rockingham County, VA 

Harrisonburg City, VA 0.9158

25540 Hartford-West Hartford-East Hartford, CT 

Hartford County, CT 

Middlesex County, CT 

Tolland County, CT 1.0927

25620 Hattiesburg, MS 

Forrest County, MS 

Lamar County, MS 

Perry County, MS 0.7714

25860 Hickory-Lenoir-Morganton, NC 

Alexander County, NC 

Burke County, NC 

Caldwell County, NC 

Catawba County, NC 0.8693

25980 Hinesville-Fort Stewart, GA1

Liberty County, GA 

Long County, GA 0.8958
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

26100 Holland-Grand Haven, MI 

Ottawa County, MI 

0.8632

26180 Honolulu, HI 

Honolulu County, HI 

1.1807

26300 Hot Springs, AR 

Garland County, AR 

0.9151

26380 Houma-Bayou Cane-Thibodaux, LA 

Lafourche Parish, LA 

Terrebonne Parish, LA 0.7852

26420 Houston-Sugar Land-Baytown, TX 

Austin County, TX 

Brazoria County, TX 

Chambers County, TX 

Fort Bend County, TX 

Galveston County, TX 

Harris County, TX 

Liberty County, TX 

Montgomery County, TX 

San Jacinto County, TX 

Waller County, TX 0.9824

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

27060 Ithaca, NY 

Tompkins County, NY 

0.9842

27100 Jackson, MI 

Jackson County, MI 

0.9155

27140 Jackson, MS 

Copiah County, MS 

Hinds County, MS 

Madison County, MS 

Rankin County, MS 

Simpson County, MS 0.8042

27180 Jackson, TN 

Chester County, TN 

Madison County, TN 0.8404

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

28100 Kankakee-Bradley, IL 

Kankakee County, IL 

1.0619

28140 Kansas City, MO-KS 

Franklin County, KS 

Johnson County, KS 

Leavenworth County, KS 

Linn County, KS 

Miami County, KS 

Wyandotte County, KS 

Bates County, MO 

Caldwell County, MO 

Cass County, MO 

Clay County, MO 

Clinton County, MO 

Jackson County, MO 

Lafayette County, MO 

Platte County, MO 

Ray County, MO 0.9652

28420 Kennewick-Pasco-Richland, WA 

Benton County, WA 

Franklin County, WA 0.9976

28660 Killeen-Temple-Fort Hood, TX 

Bell County, TX 

Coryell County, TX 

Lampasas County, TX 0.8798

28700 Kingsport-Bristol-Bristol, TN-VA 

Hawkins County, TN 

Sullivan County, TN 

Bristol City, VA 

Scott County, VA 

Washington County, VA 0.7588

28740 Kingston, NY 

Ulster County, NY 

0.9075

28940 Knoxville, TN 

Anderson County, TN 

Blount County, TN 

Knox County, TN 

Loudon County, TN 

Union County, TN 0.7842

29020 Kokomo, IN 

Howard County, IN 

Tipton County, IN 0.9130

29100 La Crosse, WI-MN 

Houston County, MN 

La Crosse County, WI 0.9803
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

29140 Lafayette, IN 

Benton County, IN 

Carroll County, IN 

Tippecanoe County, IN 0.9289

29180 Lafayette, LA 

Lafayette Parish, LA 

St. Martin Parish, LA 0.8489

29340 Lake Charles, LA 

Calcasieu Parish, LA 

Cameron Parish, LA 0.8196

29404 Lake County-Kenosha County, IL-WI 

Lake County, IL 

Kenosha County, WI 1.0781

29420 Lake Havasu City-Kingman, AZ 

Mohave County, AZ 

1.0235

29460 Lakeland-Winter Haven, FL 

Polk County, FL 

0.8447

29540 Lancaster, PA 

Lancaster County, PA 

0.9344

29620 Lansing-East Lansing, MI 

Clinton County, MI 

Eaton County, MI 

Ingham County, MI 1.0298

29700 Laredo, TX 

Webb County, TX 

0.7914

29740 Las Cruces, NM 

Dona Ana County, NM 

0.9296

29820 Las Vegas-Paradise, NV 

Clark County, NV 

1.2099

29940 Lawrence, KS 

Douglas County, KS 

0.8533

30020 Lawton, OK 

Comanche County, OK 

0.8285

30140 Lebanon, PA 

Lebanon County, PA 

0.7807

30300 Lewiston, ID-WA 

Nez Perce County, ID 

Asotin County, WA 0.9358

30340 Lewiston-Auburn, ME 

Androscoggin County, ME 

0.8903
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

30460 Lexington-Fayette, KY 

Bourbon County, KY 

Clark County, KY 

Fayette County, KY 

Jessamine County, KY 

Scott County, KY 

Woodford County, KY 0.8817

30620 Lima, OH 

Allen County, OH 

0.9271

30700 Lincoln, NE 

Lancaster County, NE 

Seward County, NE 0.9617

30780 Little Rock-North Little Rock-Conway, AR 

Faulkner County, AR 

Grant County, AR 

Lonoke County, AR 

Perry County, AR 

Pulaski County, AR 

Saline County, AR 0.8546

30860 Logan, UT-ID 

Franklin County, ID 

Cache County, UT 0.8794

30980 Longview, TX 

Gregg County, TX 

Rusk County, TX 

Upshur County, TX 0.8563

31020 Longview, WA 

Cowlitz County, WA 

1.0296

31084 Los Angeles-Long Beach-Glendale, CA 

Los Angeles County, CA 

1.2130

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

31340 Lynchburg, VA 

Amherst County, VA 

Appomattox County, VA 

Bedford County, VA 

Campbell County, VA 

Bedford City, VA 

Lynchburg City, VA 0.8694

31420 Macon, GA 

Bibb County, GA 

Crawford County, GA 

Jones County, GA 

Monroe County, GA 

Twiggs County, GA 0.9202

31460 Madera-Chowchilla, CA 

Madera County, CA 

0.7986

31540 Madison, WI 

Columbia County, WI 

Dane County, WI 

Iowa County, WI 1.1294

31700 Manchester-Nashua, NH 

Hillsborough County, NH 

0.9869

31740 Manhattan, KS 

Geary County, KS 

Pottawatomie County, KS 

Riley County, KS 0.7847

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

32820 Memphis, TN-MS-AR 

Crittenden County, AR 

DeSoto County, MS 

Marshall County, MS 

Tate County, MS 

Tunica County, MS 

Fayette County, TN 

Shelby County, TN 

Tipton County, TN 0.9268

32900 Merced, CA 

Merced County, CA 

1.2359

33124 Miami-Miami Beach-Kendall, FL 

Miami-Dade County, FL 

1.0128

33140 Michigan City-La Porte, IN 

LaPorte County, IN 

0.9470

33260 Midland, TX 

Midland County, TX 

0.9711

33340 Milwaukee-Waukesha-West Allis, WI 

Milwaukee County, WI 

Ozaukee County, WI 

Washington County, WI 

Waukesha County, WI 1.0183

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

33740 Monroe, LA 

Ouachita Parish, LA 

Union Parish, LA 0.7993

33780 Monroe, MI 

Monroe County, MI 

0.8684

33860 Montgomery, AL 

Autauga County, AL 

Elmore County, AL 

Lowndes County, AL 

Montgomery County, AL 0.8442

34060 Morgantown, WV 

Monongalia County, WV 

Preston County, WV 0.8137

34100 Morristown, TN 

Grainger County, TN 

Hamblen County, TN 

Jefferson County, TN 0.7041

34580 Mount Vernon-Anacortes, WA 

Skagit County, WA 

1.0363

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

35004 Nassau-Suffolk, NY 

Nassau County, NY 

Suffolk County, NY 1.2315

35084 Newark-Union, NJ-PA 

Essex County, NJ 

Hunterdon County, NJ 

Morris County, NJ 

Sussex County, NJ 

Union County, NJ 

Pike County, PA 1.1460

35300 New Haven-Milford, CT 

New Haven County, CT 

1.1515

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

36220 Odessa, TX 

Ector County, TX 

0.9436

36260 Ogden-Clearfield, UT 

Davis County, UT 

Morgan County, UT 

Weber County, UT 0.9267

36420 Oklahoma City, OK 

Canadian County, OK 

Cleveland County, OK 

Grady County, OK 

Lincoln County, OK 

Logan County, OK 

McClain County, OK 

Oklahoma County, OK 0.8877

36500 Olympia, WA 

Thurston County, WA 

1.1269

36540 Omaha-Council Bluffs, NE-IA 

Harrison County, IA 

Mills County, IA 

Pottawattamie County, IA 

Cass County, NE 

Douglas County, NE 

Sarpy County, NE 

Saunders County, NE 

Washington County, NE 0.9583

36740 Orlando-Kissimmee, FL 

Lake County, FL 

Orange County, FL 

Osceola County, FL 

Seminole County, FL 0.9163

36780 Oshkosh-Neenah, WI 

Winnebago County, WI 

0.9566

36980 Owensboro, KY 

Daviess County, KY 

Hancock County, KY 

McLean County, KY 0.8370

37100 Oxnard-Thousand Oaks-Ventura, CA 

Ventura County, CA 

1.2377

37340 Palm Bay-Melbourne-Titusville, FL 

Brevard County, FL 

0.9211

37380 Palm Coast, FL 

Flagler County, FL 

0.8405

37460 Panama City-Lynn Haven-Panama City Beach, FL 

Bay County, FL 

0.7954
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

37620 Parkersburg-Marietta-Vienna, WV-OH 

Washington County, OH 

Pleasants County, WV 

Wirt County, WV 

Wood County, WV 0.7455

37700 Pascagoula, MS 

George County, MS 

Jackson County, MS 0.8299

37764 Peabody, MA 

Essex County, MA 

1.0979

37860 Pensacola-Ferry Pass-Brent, FL 

Escambia County, FL 

Santa Rosa County, FL 0.8254

37900 Peoria, IL 

Marshall County, IL 

Peoria County, IL 

Stark County, IL 

Tazewell County, IL 

Woodford County, IL 0.9149

37964 Philadelphia, PA 

Bucks County, PA 

Chester County, PA 

Delaware County, PA 

Montgomery County, PA 

Philadelphia County, PA 1.0803

38060 Phoenix-Mesa-Scottsdale, AZ 

Maricopa County, AZ 

Pinal County, AZ 1.0642

38220 Pine Bluff, AR 

Cleveland County, AR 

Jefferson County, AR 

Lincoln County, AR 0.8012

38300 Pittsburgh, PA 

Allegheny County, PA 

Armstrong County, PA 

Beaver County, PA 

Butler County, PA 

Fayette County, PA 

Washington County, PA 

Westmoreland County, PA 0.8605

38340 Pittsfield, MA 

Berkshire County, MA 

1.0371

38540 Pocatello, ID 

Bannock County, ID 

Power County, ID 0.9507
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

38660 Ponce, PR 

Juana Díaz Municipio, PR 

Ponce Municipio, PR 

Villalba Municipio, PR 0.4326

38860 Portland-South Portland-Biddeford, ME 

Cumberland County, ME 

Sagadahoc County, ME 

York County, ME 0.9899

38900 Portland-Vancouver-Beaverton, OR-WA 

Clackamas County, OR 

Columbia County, OR 

Multnomah County, OR 

Washington County, OR 

Yamhill County, OR 

Clark County, WA 

Skamania County, WA 1.1476

38940 Port St. Lucie, FL 

Martin County, FL 

St. Lucie County, FL 1.0723

39100 Poughkeepsie-Newburgh-Middletown, NY 

Dutchess County, NY 

Orange County, NY 1.1354

39140 Prescott, AZ 

Yavapai County, AZ 

1.2234

39300 Providence-New Bedford-Fall River, RI-MA 

Bristol County, MA 

Bristol County, RI 

Kent County, RI 

Newport County, RI 

Providence County, RI 

Washington County, RI 1.0714

39340 Provo-Orem, UT 

Juab County, UT 

Utah County, UT 0.9321

39380 Pueblo, CO 

Pueblo County, CO 

0.8721

39460 Punta Gorda, FL 

Charlotte County, FL 

0.8759

39540 Racine, WI 

Racine County, WI 

1.0580

39580 Raleigh-Cary, NC 

Franklin County, NC 

Johnston County, NC 

Wake County, NC 0.9811
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

39660 Rapid City, SD 

Meade County, SD 

Pennington County, SD 1.0442

39740 Reading, PA 

Berks County, PA 

0.8904

39820 Redding, CA 

Shasta County, CA 

1.4134

39900 Reno-Sparks, NV 

Storey County, NV 

Washoe County, NV 1.0419

40060 Richmond, VA 

Amelia County, VA 

Caroline County, VA 

Charles City County, VA 

Chesterfield County, VA 

Cumberland County, VA 

Dinwiddie County, VA 

Goochland County, VA 

Hanover County, VA 

Henrico County, VA 

King and Queen County, VA 

King William County, VA 

Louisa County, VA 

New Kent County, VA 

Powhatan County, VA 

Prince George County, VA 

Sussex County, VA 

Colonial Heights City, VA 

Hopewell City, VA 

Petersburg City, VA 

Richmond City, VA 0.9661

40140 Riverside-San Bernardino-Ontario, CA 

Riverside County, CA 

San Bernardino County, CA 1.1570

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

40380 Rochester, NY 

Livingston County, NY 

Monroe County, NY 

Ontario County, NY 

Orleans County, NY 

Wayne County, NY 0.8595

40420 Rockford, IL 

Boone County, IL 

Winnebago County, IL 1.0033

40484 Rockingham County-Strafford County, NH 

Rockingham County, NH 

Strafford County, NH 1.0026

40580 Rocky Mount, NC 

Edgecombe County, NC 

Nash County, NC 0.9034

40660 Rome, GA 

Floyd County, GA 

0.8635

40900 Sacramento-Arden-Arcade-Roseville, CA 

El Dorado County, CA 

Placer County, CA 

Sacramento County, CA 

Yolo County, CA 1.4053

40980 Saginaw-Saginaw Township North, MI 

Saginaw County, MI 

0.8728

41060 St. Cloud, MN 

Benton County, MN 

Stearns County, MN 1.1042

41100 St. George, UT 

Washington County, UT 

0.9133

41140 St. Joseph, MO-KS 

Doniphan County, KS 

Andrew County, MO 

Buchanan County, MO 

DeKalb County, MO 1.0302
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

41180 St. Louis, MO-IL 

Bond County, IL 

Calhoun County, IL 

Clinton County, IL 

Jersey County, IL 

Macoupin County, IL 

Madison County, IL 

Monroe County, IL 

St. Clair County, IL 

Crawford County, MO 

Franklin County, MO 

Jefferson County, MO 

Lincoln County, MO 

St. Charles County, MO 

St. Louis County, MO 

Warren County, MO 

Washington County, MO 

St. Louis City, MO 0.9090

41420 Salem, OR 

Marion County, OR 

Polk County, OR 1.1133

41500 Salinas, CA 

Monterey County, CA 

1.5686

41540 Salisbury, MD 

Somerset County, MD 

Wicomico County, MD 0.9005

41620 Salt Lake City, UT 

Salt Lake County, UT 

Summit County, UT 

Tooele County, UT 0.9266

41660 San Angelo, TX 

Irion County, TX 

Tom Green County, TX 0.8303

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

41884 San Francisco-San Mateo-Redwood City, CA 

Marin County, CA 

San Francisco County, CA 

San Mateo County, CA 1.5733

41900 San Germán-Cabo Rojo, PR 

Cabo Rojo Municipio, PR 

Lajas Municipio, PR 

Sabana Grande Municipio, PR 

San Germán Municipio, PR 0.4560

41940 San Jose-Sunnyvale-Santa Clara, CA 

San Benito County, CA 

Santa Clara County, CA 1.6703
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

41980 San Juan-Caguas-Guaynabo, PR 

Aguas Buenas Municipio, PR 

Aibonito Municipio, PR 

Arecibo Municipio, PR 

Barceloneta Municipio, PR 

Barranquitas Municipio, PR 

Bayamón Municipio, PR 

Caguas Municipio, PR 

Camuy Municipio, PR 

Canóvanas Municipio, PR 

Carolina Municipio, PR 

Cataño Municipio, PR 

Cayey Municipio, PR 

Ciales Municipio, PR 

Cidra Municipio, PR 

Comerío Municipio, PR 

Corozal Municipio, PR 

Dorado Municipio, PR 

Florida Municipio, PR 

Guaynabo Municipio, PR 

Gurabo Municipio, PR 

Hatillo Municipio, PR 

Humacao Municipio, PR 

Juncos Municipio, PR 

Las Piedras Municipio, PR 

Loíza Municipio, PR 

Manatí Municipio, PR 

Maunabo Municipio, PR 

Morovis Municipio, PR 

Naguabo Municipio, PR 

Naranjito Municipio, PR 

Orocovis Municipio, PR 

Quebradillas Municipio, PR 

Río Grande Municipio, PR 

San Juan Municipio, PR 

San Lorenzo Municipio, PR 

Toa Alta Municipio, PR 

Toa Baja Municipio, PR 

Trujillo Alto Municipio, PR 

Vega Alta Municipio, PR 

Vega Baja Municipio, PR 

Yabucoa Municipio, PR 0.4296

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

42100 Santa Cruz-Watsonville, CA 

Santa Cruz County, CA 

1.6740

42140 Santa Fe, NM 

Santa Fe County, NM 

1.0847

42220 Santa Rosa-Petaluma, CA 

Sonoma County, CA 

1.6143

42340 Savannah, GA 

Bryan County, GA 

Chatham County, GA 

Effingham County, GA 0.8907

42540 Scranton--Wilkes-Barre, PA 

Lackawanna County, PA 

Luzerne County, PA 

Wyoming County, PA 0.8238

42644 Seattle-Bellevue-Everett, WA 

King County, WA 

Snohomish County, WA 1.1556

42680 Sebastian-Vero Beach, FL 

Indian River County, FL 

0.9097

43100 Sheboygan, WI 

Sheboygan County, WI 

0.9233

43300 Sherman-Denison, TX 

Grayson County, TX 

0.8279

43340 Shreveport-Bossier City, LA 

Bossier Parish, LA 

Caddo Parish, LA 

De Soto Parish, LA 0.8536

43580 Sioux City, IA-NE-SD 

Woodbury County, IA 

Dakota County, NE 

Dixon County, NE 

Union County, SD 0.9091

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

44060 Spokane, WA 

Spokane County, WA 

1.0571

44100 Springfield, IL 

Menard County, IL 

Sangamon County, IL 0.9130

44140 Springfield, MA 

Franklin County, MA 

Hampden County, MA 

Hampshire County, MA 1.0251

44180 Springfield, MO 

Christian County, MO 

Dallas County, MO 

Greene County, MO 

Polk County, MO 

Webster County, MO 0.8371

44220 Springfield, OH 

Clark County, OH 

0.9234

44300 State College, PA 

Centre County, PA 

0.8779

44600 Steubenville-Weirton, OH-WV 

Jefferson County, OH 

Brooke County, WV 

Hancock County, WV 0.7315

44700 Stockton, CA 

San Joaquin County, CA 

1.2644

44940 Sumter, SC 

Sumter County, SC 

0.7860

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

45460 Terre Haute, IN 

Clay County, IN 

Sullivan County, IN 

Vermillion County, IN 

Vigo County, IN 0.9205

45500 Texarkana, TX-Texarkana, AR 

Miller County, AR 

Bowie County, TX 0.7748

45780 Toledo, OH 

Fulton County, OH 

Lucas County, OH 

Ottawa County, OH 

Wood County, OH 0.9432

45820 Topeka, KS 

Jackson County, KS 

Jefferson County, KS 

Osage County, KS 

Shawnee County, KS 

Wabaunsee County, KS 0.8952

45940 Trenton-Ewing, NJ 

Mercer County, NJ 

1.0150

46060 Tucson, AZ 

Pima County, AZ 

0.9480

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
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

46700 Vallejo-Fairfield, CA 

Solano County, CA 

1.4931

47020 Victoria, TX 

Calhoun County, TX 

Goliad County, TX 

Victoria County, TX 0.8219

47220 Vineland-Millville-Bridgeton, NJ 

Cumberland County, NJ 

1.0534

47260 Virginia Beach-Norfolk-Newport News, VA-NC 

Currituck County, NC 

Gloucester County, VA 

Isle of Wight County, VA 

James City County, VA 

Mathews County, VA 

Surry County, VA 

York County, VA 

Chesapeake City, VA 

Hampton City, VA 

Newport News City, VA 

Norfolk City, VA 

Poquoson City, VA 

Portsmouth City, VA 

Suffolk City, VA 

Virginia Beach City, VA 

Williamsburg City, VA 0.8961

47300 Visalia-Porterville, CA 

Tulare County, CA 

1.0738

47380 Waco, TX 

McLennan County, TX 

0.8403

47580 Warner Robins, GA 

Houston County, GA 

0.8028

47644 Warren-Troy-Farmington Hills, MI 

Lapeer County, MI 

Livingston County, MI 

Macomb County, MI 

Oakland County, MI 

St. Clair County, MI 0.9648
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

47894 Washington-Arlington-Alexandria, DC-VA-MD-WV 

District of Columbia, DC 

Calvert County, MD 

Charles County, MD 

Prince George's County, MD 

Arlington County, VA 

Clarke County, VA 

Fairfax County, VA 

Fauquier County, VA 

Loudoun County, VA 

Prince William County, VA 

Spotsylvania County, VA 

Stafford County, VA 

Warren County, VA 

Alexandria City, VA 

Fairfax City, VA 

Falls Church City, VA 

Fredericksburg City, VA 

Manassas City, VA 

Manassas Park City, VA 

Jefferson County, WV 1.0723

47940 Waterloo-Cedar Falls, IA 

Black Hawk County, IA 

Bremer County, IA 

Grundy County, IA 0.8462

48140 Wausau, WI 

Marathon County, WI 

0.9563

48300 Wenatchee-East Wenatchee, WA 

Chelan County, WA 

Douglas County, WA 0.9615

48424 West Palm Beach-Boca Raton-Boynton Beach, FL 

Palm Beach County, FL 

0.9934

48540 Wheeling, WV-OH 

Belmont County, OH 

Marshall County, WV 

Ohio County, WV 0.6675

48620 Wichita, KS 

Butler County, KS 

Harvey County, KS 

Sedgwick County, KS 

Sumner County, KS 0.8898

48660 Wichita Falls, TX 

Archer County, TX 

Clay County, TX 

Wichita County, TX 0.9566

48700 Williamsport, PA 

Lycoming County, PA 

0.7256
CBSA 

Code 

Urban Area 

(Constituent Counties) 

Wage 

Index

48864 Wilmington, DE-MD-NJ 

New Castle County, DE 

Cecil County, MD 

Salem County, NJ 1.0580

48900 Wilmington, NC 

Brunswick County, NC 

New Hanover County, NC 

Pender County, NC 0.9202

49020 Winchester, VA-WV 

Frederick County, VA 

Winchester City, VA 

Hampshire County, WV 1.0002

49180 Winston-Salem, NC 

Davie County, NC 

Forsyth County, NC 

Stokes County, NC 

Yadkin County, NC 0.8939

49340 Worcester, MA 

Worcester County, MA 

1.1012

49420 Yakima, WA 

Yakima County, WA 

1.0067

49500 Yauco, PR 

Guánica Municipio, PR 

Guayanilla Municipio, PR 

Peñuelas Municipio, PR 

Yauco Municipio, PR 0.3536

49620 York-Hanover, PA 

York County, PA 

0.9983

49660 Youngstown-Warren-Boardman, OH-PA 

Mahoning County, OH 

Trumbull County, OH 

Mercer County, PA 0.8625

49700 Yuba City, CA 

Sutter County, CA 

Yuba County, CA 1.1043

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 2—RY 2012 WAGE INDEX BASED ON CBSA LABOR MARKET AREAS 

FOR RURAL AREAS 

State Code Nonurban Area 

Wage 

Index 

1 Alabama 0.7380

2 Alaska 1.2626

3 Arizona 0.9095

4 Arkansas 0.7222

5 California 1.2056

6 Colorado 0.9933

7 Connecticut 1.1128

8 Delaware 0.9757

10 Florida 0.8409

11 Georgia 0.7566

12 Hawaii 1.1189

13 Idaho 0.7556

14 Illinois 0.8343

15 Indiana 0.8391

16 Iowa 0.8545

17 Kansas 0.7981

18 Kentucky 0.7830

19 Louisiana 0.7712

20 Maine 0.8588

21 Maryland 0.9175

22 Massachusetts1

1.1769

23 Michigan 0.8555

24 Minnesota 0.9038

25 Mississippi 0.7620

26 Missouri 0.7655

27 Montana 0.8517

28 Nebraska 0.8911

29 Nevada 0.9350

30 New Hampshire 1.0207

31 New Jersey1

----- 
State Code Nonurban Area 

Wage 

Index 

32 New Mexico 0.8911

33 New York 0.8185

34 North Carolina 0.8359

35 North Dakota 0.6831

36 Ohio 0.8561

37 Oklahoma 0.7860

38 Oregon 1.0029

39 Pennsylvania 0.8480

40 Puerto Rico1

0.4047

41 Rhode Island1

----- 

42 South Carolina 0.8413

43 South Dakota 0.8536

44 Tennessee 0.7886

45 Texas 0.7806

46 Utah 0.8649

47 Vermont 0.9591

48 Virgin Islands 0.7993

49 Virginia 0.7841

50 Washington 1.0184

51 West Virginia 0.7474

52 Wisconsin 0.9186

53 Wyoming 0.9528

65 Guam 0.9611

1

 All counties within the State are classified as urban, with the 

exception of Massachusetts and Puerto Rico. Massachusetts and Puerto 

Rico have areas designated as rural; however, no short-term, acute care 

hospitals are located in the area(s) for FY 2011. The rural 

Massachusetts wage index is calculated as the average of all contiguous 

CBSAs. The Puerto Rico wage index is the same as FY 2010. 

<FRDOC> [FR Doc. 2011–1507 Filed 1–26–11; 8:45 am] 

<BILCOD>BILLING CODE 4120–01–P 
[FR Doc. 2011-1507 Filed 01/21/2011 at 4:15 pm; Publication Date: 

01/27/2011]