47836 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 412 

[CMS–1349–F] 

RIN 0938–AQ28 

Medicare Program; Inpatient 

Rehabilitation Facility Prospective 

Payment System for Federal Fiscal 

Year 2012; Changes in Size and Square 

Footage of Inpatient Rehabilitation 

Units and Inpatient Psychiatric Units 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule will implement 

section 3004 of the Affordable Care Act, 

which establishes a new quality 

reporting program that provides for a 2 

percent reduction in the annual increase 

factor beginning in 2014 for failure to 

report quality data to the Secretary of 

Health and Human Services. This final 

rule will also update the prospective 

payment rates for inpatient 

rehabilitation facilities (IRFs) for 

Federal fiscal year (FY) 2012 (for 

discharges occurring on or after October 

1, 2011 and on or before September 30, 

2012) as required under section 

1886(j)(3)(C) of the Social Security Act 

(the Act). Section 1886(j)(5) of the Act 

requires the Secretary to publish in the 

Federal Register on or before the August 

1 that precedes the start of each FY the 

classification and weighting factors for 

the IRF prospective payment system 

(PPS) case-mix groups and a description 

of the methodology and data used in 

computing the prospective payment 

rates for that fiscal year. We are also 

consolidating, clarifying, and revising 

existing policies regarding IRF hospitals 

and IRF units of hospitals to eliminate 

unnecessary confusion and enhance 

consistency. Furthermore, in accordance 

with the general principles of the 

President’s January 18, 2011 Executive 

Order entitled ‘‘Improving Regulation 

and Regulatory Review,’’ we are 

amending existing regulatory provisions 

regarding ’’new’’ facilities and changes 

in the bed size and square footage of 

IRFs and inpatient psychiatric facilities 

(IPFs) to improve clarity and remove 

obsolete material. 

DATES: Effective Date: This final rule 

becomes effective on October 1, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Gwendolyn Johnson, (410) 786–6954, 

for general information about the final 

rule. 

Hillary Loeffler, (410) 786–0456, for 

information about the payment rates. 

Susanne Seagrave, (410) 786–0044, for 

information about the payment 

policies. 

Judith C. Tobin, (410) 786–6892, for 

information about the quality 

reporting program. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

To assist readers in referencing 

sections contained in this document, we 

are providing the following table of 

contents. 

I. Background 

A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

B. Provisions of the Affordable Care Act 

Affecting the IRF PPS in FY 2012 and 

Beyond 

C. Operational Overview of the Current IRF 

PPS 

II. Summary of Provisions of the Proposed 

Rule 

A. Proposed Updates to the IRF Federal 

Prospective Payment Rates for Federal 

Fiscal Year (FY) 2012 

B. Proposed Revisions to Existing 

Regulation Text 

III. Analysis and Responses to Public 

Comments 

IV. Update to the Case-Mix Group (CMG) 

Relative Weights and Average Length of 

Stay Values for FY 2012 

V. Updates to the Facility-Level Adjustment 

Factors for FY 2012 

A. Updates to the IRF Facility-Level 

Adjustment Factors 

B. Policy for Temporary Cap Adjustments 

To Reflect Interns and Residents 

Displaced Due to Closure of IRFs or IRF 

Residency Training Programs 

1. Background 

2. FTE Intern and Resident Temporary Cap 

Adjustment 

3. Temporary Adjustment to the FTE Cap 

To Reflect Interns and Residents 

Displaced Due to IRF Closure 

4. Temporary Adjustment to the FTE Cap 

To Reflect Interns and Residents 

Displaced Due to a Residency Program 

Closure 

VI. FY 2012 IRF PPS Federal Prospective 

Payment Rates 

A. Market Basket Increase Factor, 

Productivity Adjustment, and LaborRelated Share for FY 2012 

1. Rebasing and Revising of the RPL Market 

Basket Used for IRF PPS for FY 2012 

2. Productivity Adjustment 

3. Calculation of the IRF PPS Market 

Basket Increase Factor for FY 2012 

4. Calculation of the Labor-Related Share 

for FY 2012 

B. Area Wage Adjustment 

C. Description of the IRF Standard 

Conversion Factor and Payment Rates for 

FY 2012 

D. Example of the Methodology for 

Adjusting the Federal Prospective 

Payment Rates 

VII. Update to Payments for High-Cost 

Outliers Under the IRF PPS 

A. Update to the Outlier Threshold 

Amount for FY 2012 

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

Ceilings 

VIII. Impact of the IPPS Data Matching 

Process Changes on the IRF PPS 

Calculation of the Low-Income 

Percentage Adjustment Factor 

IX. Updates to the Policies in 42 CFR Part 

412 

A. Consolidation of the Requirements for 

Rehabilitation Hospitals and 

Rehabilitation Units 

B. Revisions to the Regulations at § 412.29 

C. Revisions to the Requirements for 

Changes in Bed Size and Square Footage 

D. Revisions To Enhance Consistency 

Between the IRF Coverage and Payment 

Requirements 

X. Quality Reporting Program for IRFs 

A. Background and Statutory Authority 

B. Quality Measures for IRF Quality 

Reporting Program for FY 2014 

1. General 

2. Considerations in the Selection of the 

Quality Measures 

3. FY 2014 Measure #1: Healthcare 

Associated Infection Measure (HAI): 

Urinary Catheter-Associated Urinary 

Tract Infections (CAUTI) 

4. FY 2014 Measure #2: Percent of Patients 

With Pressure Ulcers That Are New or 

Worsened 

5. Potential FY 2014 Measure #3: 30-Day 

Comprehensive All Cause Risk 

Standardized Readmission Measure 

C. Data Submission Requirements 

1. Method of Data Submission for HAI 

Measure (CAUTI) 

2. Method of Data Submission for the 

Percent of Patients With New or 

Worsened Pressure Ulcer Measure. 

3. Potential Method of Data Submission for 

the 30-Day Comprehensive All-Cause 

Risk-Standardized Readmission 

Measure. 

D. Public Reporting 

E. Quality Measures for Future 

Consideration for Determination of 

Increase Factors for Future Fiscal Year 

Payments 

F. New Regulation Text for the IRF Quality 

Reporting Program 

XI. Miscellaneous Comments 

XII. Provisions of the Final Regulations 

XIII. Collection of Information Requirements 

XIV. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

2. Statement of Need 

3. Overall Impacts 

4. Detailed Economic Analysis 

5. Alternatives Considered 

6. Accounting Statement 

7. Conclusion 

B. Regulatory Flexibility Act Analysis 

C. Unfunded Mandates Reform Act 

Analysis 

XV. Federalism Analysis 

Regulation Text 

Addendum 

Acronyms 

To assist the reader, we are listing the 

acronyms used and their corresponding 

meaning in alphabetical order. 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47837 

ADC Average Daily Census 

AHA American Hospital Association 

ASCA Administrative Simplification 

Compliance Act of 2002, Public Law 107– 

105 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement Act 

of 1999, Public Law 106–113 

BEA Bureau of Economic Analysis 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program] 

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

BLS Bureau of Labor Statistics 

CAH Critical Access Hospital 

CAUTI Catheter-Associated Urinary Tract 

Infection 

CBSA Core-Based Statistical Area 

CDC Centers for Disease Control and 

Prevention 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CIPI Capital Input Price Index 

CMG Case-Mix Group 

CMS Centers for Medicare & Medicaid 

Services 

CPI Consumer Price Index 

DSH Disproportionate Share Hospital 

ECI Employment Cost Index 

EHR Electronic Health Record 

FI Fiscal Intermediary 

FR Federal Register 

FTE Full-time Equivalent 

FY Federal Fiscal Year 

GDP Gross Domestic Product 

GME Graduate Medical Education 

HAI Healthcare Associated Infection 

HHH Hubert H. Humphrey Building 

HHS Department of Health and Human 

Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996, Public Law 

104–191 

HOMER Home Office Medicare Records 

IGI IHS Global Insight 

IME Indirect Medical Education 

I–O Input-Output 

IPF Inpatient Psychiatric Facility 

IPPS Inpatient Prospective Payment System 

IRF Inpatient Rehabilitation Facility 

IRF–PAI Inpatient Rehabilitation Facility— 

Patient Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility 

Prospective Payment System 

IRVEN Inpatient Rehabilitation Validation 

and Entry 

LTCH Long Term Care Hospital 

LIP Low-Income Percentage 

LOS Length of Stay 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MedPAR Medicare Provider Analysis and 

Review 

MFP Multifactor Productivity 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110— 

173 

MSA Metropolitan Statistical Area 

NAICS North American Industry 

Classification System 

NHSN National Healthcare Safety Network 

NQF National Quality Forum 

OMB Office of Management and Budget 

PLI Professional Liability Insurance 

PPI Producer Price Indexes 

PPS Prospective Payment System 

QM Quality Measure 

RFA Regulatory Flexibility Act of 1980, 

Public Law 96–354 

RIA Regulatory Impact Analysis 

RIC Rehabilitation Impairment Category 

RO Regional Office 

RP Rehabilitation and Psychiatric 

RPL Rehabilitation, Psychiatric, and LongTerm Care Hospital 

SCHIP State Children’s Health Insurance 

Program 

SSI Supplemental Security Income 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Public Law 97– 

248 

I. Background 

A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

Section 4421 of the Balanced Budget 

Act of 1997 (Pub. L. 105–33, enacted on 

August 5, 1997) (BBA), as amended by 

section 125 of the Medicare, Medicaid, 

State Children’s Health Insurance 

Program (SCHIP) Balanced Budget 

Refinement Act of 1999 (Pub. L. 106– 

113, enacted on November 29, 1999) 

(BBRA) and by section 305 of the 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (Pub. L. 106–554, enacted 

on December 21, 2000) (BIPA) provides 

for the implementation of a per 

discharge prospective payment system 

(PPS) under section 1886(j) of the Social 

Security Act (the Act) for inpatient 

rehabilitation hospitals and inpatient 

rehabilitation units of a hospital 

(hereinafter referred to as IRFs). 

Payments under the IRF PPS 

encompass inpatient operating and 

capital costs of furnishing covered 

rehabilitation services (that is, routine, 

ancillary, and capital costs) but not 

direct graduate medical education costs, 

costs of approved nursing and allied 

health education activities, bad debts, 

and other services or items outside the 

scope of the IRF PPS. Although a 

complete discussion of the IRF PPS 

provisions appears in the original FY 

2002 IRF PPS final rule (66 FR 41316) 

and the FY 2006 IRF PPS final rule (70 

FR 47880), we are providing below a 

general description of the IRF PPS for 

fiscal years (FYs) 2002 through 2010. 

Under the IRF PPS from FY 2002 

through FY 2005, as described in the FY 

2002 IRF PPS final rule (66 FR 41316), 

the Federal prospective payment rates 

were computed across 100 distinct casemix groups (CMGs). We constructed 95 

CMGs using rehabilitation impairment 

categories (RICs), functional status (both 

motor and cognitive), and age (in some 

cases, cognitive status and age may not 

be a factor in defining a CMG). In 

addition, we constructed 5 special 

CMGs to account for very short stays 

and for patients who expire in the IRF. 

For each of the CMGs, we developed 

relative weighting factors to account for 

a patient’s clinical characteristics and 

expected resource needs. Thus, the 

weighting factors accounted for the 

relative difference in resource use across 

all CMGs. Within each CMG, we created 

tiers based on the estimated effects that 

certain comorbidities would have on 

resource use. 

We established the Federal PPS rates 

using a standardized payment 

conversion factor (formerly referred to 

as the budget neutral conversion factor). 

For a detailed discussion of the budget 

neutral conversion factor, please refer to 

our FY 2004 IRF PPS final rule (68 FR 

45684 through 45685). In the FY 2006 

IRF PPS final rule (70 FR 47880), we 

discussed in detail the methodology for 

determining the standard payment 

conversion factor. 

We applied the relative weighting 

factors to the standard payment 

conversion factor to compute the 

unadjusted Federal prospective 

payment rates under the IRF PPS from 

FYs 2002 through 2005. Within the 

structure of the payment system, we 

then made adjustments to account for 

interrupted stays, transfers, short stays, 

and deaths. Finally, we applied the 

applicable adjustments to account for 

geographic variations in wages (wage 

index), the percentage of low-income 

patients, location in a rural area (if 

applicable), and outlier payments (if 

applicable) to the IRF’s unadjusted 

Federal prospective payment rates. 

For cost reporting periods that began 

on or after January 1, 2002 and before 

October 1, 2002, we determined the 

final prospective payment amounts 

using the transition methodology 

prescribed in section 1886(j)(1) of the 

Act. Under this provision, IRFs 

transitioning into the PPS were paid a 

blend of the Federal IRF PPS rate and 

the payment that the IRF would have 

received had the IRF PPS not been 

implemented. This provision also 

allowed IRFs to elect to bypass this 

blended payment and immediately be 

paid 100 percent of the Federal IRF PPS 

rate. The transition methodology 

expired as of cost reporting periods 

beginning on or after October 1, 2002 

(FY 2003), and payments for all IRFs 

now consist of 100 percent of the 

Federal IRF PPS rate. 

We established a CMS Web site as a 

primary information resource for the 

IRF PPS. The Web site URL is http:// 

www.cms.gov/InpatientRehabFacPPS/ 

and may be accessed to download or 

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47838 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

view publications, software, data 

specifications, educational materials, 

and other information pertinent to the 

IRF PPS. 

Section 1886(j) of the Act confers 

broad statutory authority upon the 

Secretary to propose refinements to the 

IRF PPS. In the FY 2006 IRF PPS final 

rule (70 FR 47880) and in correcting 

amendments to the FY 2006 IRF PPS 

final rule (70 FR 57166) that we 

published on September 30, 2005, we 

finalized a number of refinements to the 

IRF PPS case-mix classification system 

(the CMGs and the corresponding 

relative weights) and the case-level and 

facility-level adjustments. These 

refinements included the adoption of 

the Office of Management and Budget’s 

(OMB) Core-Based Statistical Area 

(CBSA) market definitions, 

modifications to the CMGs, tier 

comorbidities, and CMG relative 

weights, implementation of a new 

teaching status adjustment for IRFs, 

revision and rebasing of the market 

basket index used to update IRF 

payments, and updates to the rural, lowincome percentage (LIP), and high-cost 

outlier adjustments. Beginning with the 

FY 2006 IRF PPS final rule (70 FR 47908 

through 47917), the market basket index 

used to update IRF payments is a market 

basket reflecting the operating and 

capital cost structures for freestanding 

IRFs, freestanding inpatient psychiatric 

facilities (IPFs), and long-term care 

hospitals (LTCHs) (hereafter referred to 

as the rehabilitation, psychiatric, and 

long-term care (RPL) market basket). 

Any reference to the FY 2006 IRF PPS 

final rule in this final rule also includes 

the provisions effective in the correcting 

amendments. For a detailed discussion 

of the final key policy changes for FY 

2006, please refer to the FY 2006 IRF 

PPS final rule (70 FR 47880 and 70 FR 

57166). 

In the FY 2007 IRF PPS final rule (71 

FR 48354), we further refined the IRF 

PPS case-mix classification system (the 

CMG relative weights) and the caselevel adjustments, to ensure that IRF 

PPS payments would continue to reflect 

as accurately as possible the costs of 

care. For a detailed discussion of the FY 

2007 policy revisions, please refer to the 

FY 2007 IRF PPS final rule (71 FR 

48354). 

In the FY 2008 IRF PPS final rule (72 

FR 44284), we updated the Federal 

prospective payment rates and the 

outlier threshold, revised the IRF wage 

index policy, and clarified how we 

determine high-cost outlier payments 

for transfer cases. For more information 

on the policy changes implemented for 

FY 2008, please refer to the FY 2008 IRF 

PPS final rule (72 FR 44284), in which 

we published the final FY 2008 IRF 

Federal prospective payment rates. 

After publication of the FY 2008 IRF 

PPS final rule (72 FR 44284), section 

115 of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (Pub. L. 

110–173, enacted on December 29, 

2007) (MMSEA), amended section 

1886(j)(3)(C) of the Act to apply a zero 

percent increase factor for FYs 2008 and 

2009, effective for IRF discharges 

occurring on or after April 1, 2008. 

Section 1886(j)(3)(C) of the Act required 

the Secretary to develop an increase 

factor to update the IRF Federal 

prospective payment rates for each FY. 

Based on the legislative change to the 

increase factor, we revised the FY 2008 

Federal prospective payment rates for 

IRF discharges occurring on or after 

April 1, 2008. Thus, the final FY 2008 

IRF Federal prospective payment rates 

that were published in the FY 2008 IRF 

PPS final rule (72 FR 44284) were 

effective for discharges occurring on or 

after October 1, 2007 and on or before 

March 31, 2008; and the revised FY 

2008 IRF Federal prospective payment 

rates were effective for discharges 

occurring on or after April 1, 2008 and 

on or before September 30, 2008. The 

revised FY 2008 Federal prospective 

payment rates are available on the CMS 

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

InpatientRehabFacPPS/ 

07_DataFiles.asp#TopOfPage. 

In the FY 2009 IRF PPS final rule (73 

FR 46370), we updated the CMG relative 

weights, the average length of stay 

values, and the outlier threshold; 

clarified IRF wage index policies 

regarding the treatment of ‘‘New 

England deemed’’ counties and multicampus hospitals; and revised the 

regulation text in response to section 

115 of the MMSEA to set the IRF 

compliance percentage at 60 percent 

(‘‘the 60 percent rule’’) and continue the 

practice of including comorbidities in 

the calculation of compliance 

percentages. We also applied a zero 

percent market basket increase factor for 

FY 2009 in accordance with section 115 

of the MMSEA. For more information on 

the policy changes implemented for FY 

2009, please refer to the FY 2009 IRF 

PPS final rule (73 FR 46370), in which 

we published the final FY 2009 IRF 

Federal prospective payment rates. 

In the FY 2010 IRF PPS final rule (74 

FR 39762) and in correcting 

amendments to the FY 2010 IRF PPS 

final rule (74 FR 50712) that we 

published on October 1, 2009, we 

updated the Federal prospective 

payment rates, the CMG relative 

weights, the average length of stay 

values, the rural, LIP, and teaching 

status adjustment factors, and the 

outlier threshold; implemented new IRF 

coverage requirements for determining 

whether an IRF claim is reasonable and 

necessary; and revised the regulation 

text to require IRFs to submit patient 

assessments on Medicare Advantage 

(MA) (Medicare Part C) patients for use 

in the 60 percent rule calculations. Any 

reference to the FY 2010 IRF PPS final 

rule in this final rule also includes the 

provisions effective in the correcting 

amendments. For more information on 

the policy changes implemented for FY 

2010, please refer to the FY 2010 IRF 

PPS final rule (74 FR 39762 and 74 FR 

50712), in which we published the final 

FY 2010 IRF Federal prospective 

payment rates. 

After publication of the FY 2010 IRF 

PPS final rule (74 FR 39762), section 

3401(d) of the Patient Protection and 

Affordable Care Act (Pub. L. 111–148, 

enacted on March 23, 2010) as amended 

by section 10319 of the same Act and by 

section 1105 of the Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152, enacted on March 30, 

2010) (collectively, hereafter referred to 

as ‘‘The Affordable Care Act’’), amended 

section 1886(j)(3)(C) of the Act and 

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

Section 1886(j)(3)(C) of the Act requires 

the Secretary to estimate a multi-factor 

productivity adjustment to the market 

basket increase factor, and to apply 

other adjustments as defined by the Act. 

The productivity adjustment applies to 

FYs from 2012 forward. The other 

adjustments apply to FYs 2010–2019. 

Sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(i) of the Act defined the 

adjustments that were to be applied to 

the market basket increase factors in 

FYs 2010 and 2011. Under these 

provisions, the Secretary was required 

to reduce the market basket increase 

factor in FY 2010 by a 0.25 percentage 

point adjustment. Notwithstanding this 

provision, in accordance with section 

3401(p) of the Affordable Care Act, the 

adjusted FY 2010 rate was only to be 

applied to discharges occurring on or 

after April 1, 2010. Based on the selfimplementing legislative changes to 

section 1886(j)(3) of the Act, we 

adjusted the FY 2010 Federal 

prospective payment rates as required, 

and applied these rates to IRF 

discharges occurring on or after April 1, 

2010 and on or before September 30, 

2010. Thus, the final FY 2010 IRF 

Federal prospective payment rates that 

were published in the FY 2010 IRF PPS 

final rule (74 FR 39762) were used for 

discharges occurring on or after October 

1, 2009 and on or before March 31, 

2010; and the adjusted FY 2010 IRF 

Federal prospective payment rates 

applied to discharges occurring on or 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47839 

after April 1, 2010 and on or before 

September 30, 2010. The adjusted FY 

2010 Federal prospective payment rates 

are available on the CMS Web site at 

http://www.cms.gov/ 

InpatientRehabFacPPS/ 

07_DataFiles.asp#TopOfPage. 

In addition, sections 1886(j)(3)(C) and 

(D) of the Act also affected the FY 2010 

IRF outlier threshold amount because 

they required an adjustment to the FY 

2010 RPL market basket increase factor, 

which changed the standard payment 

conversion factor for FY 2010. 

Specifically, the original FY 2010 IRF 

outlier threshold amount was 

determined based on the original 

estimated FY 2010 RPL market basket 

increase factor of 2.5 percent and the 

standard payment conversion factor of 

$13,661. However, as adjusted, the IRF 

prospective payments are based on the 

adjusted RPL market basket increase 

factor of 2.25 percent and the revised 

standard payment conversion factor of 

$13,627. To maintain estimated outlier 

payments for FY 2010 equal to the 

established standard of 3 percent of total 

estimated IRF PPS payments for FY 

2010, we revised the IRF outlier 

threshold amount for FY 2010 for 

discharges occurring on or after April 1, 

2010 and on or before September 30, 

2010. The revised IRF outlier threshold 

amount for FY 2010 was $10,721. 

Sections 1886(j)(3)(ii)(II) and 

1886(j)(3)(D)(i) of the Act also required 

the Secretary to reduce the market 

basket increase factor in FY 2011 by a 

0.25 percentage point adjustment. The 

FY 2011 IRF PPS notice (75 FR 42836) 

and the correcting amendments to the 

FY 2011 IRF PPS notice (75 FR 70013, 

November 16, 2010) described the 

required adjustments to the FY 2011 

and FY 2010 IRF PPS Federal 

prospective payment rates and outlier 

threshold amount for IRF discharges 

occurring on or after April 1, 2010 and 

on or before September 30, 2011. It also 

updated the FY 2011 Federal 

prospective payment rates, the CMG 

relative weights, and the average length 

of stay values. Any reference to the FY 

2011 IRF PPS notice in this final rule 

also includes the provisions effective in 

the correcting amendments. For more 

information on the FY 2010 and FY 

2011 adjustments or the updates for FY 

2011, please refer to the FY 2011 IRF 

PPS notice (75 FR 42836 and 75 FR 

70013). 

B. Provisions of the Affordable Care Act 

Affecting the IRF PPS in FY 2012 and 

Beyond 

The Affordable Care Act included 

several provisions that affect the IRF 

PPS in FYs 2012 and beyond. In 

addition to what was discussed above, 

section 3401(d) of the Affordable Care 

Act also added section 

1886(j)(3)(C)(ii)(I) of the Act (providing 

for a ‘‘productivity adjustment’’ for 

fiscal year 2012 and each subsequent 

fiscal year). The productivity 

adjustment for FY 2012 is discussed in 

section VI.A.6 of this final rule, and the 

0.1 percentage point reduction is 

discussed in section VI.A of this final 

rule. Section 1886(j)(3)(C)(ii)(II) of the 

Act notes that the application of these 

adjustments to the market basket update 

may result in an update that is less than 

0.0 for a fiscal year and in payment rates 

for a fiscal year being less than payment 

rates for the preceding fiscal year. 

Section 3004(b) of the Affordable Care 

Act also addressed the IRF PPS 

program. It reassigned the previouslydesignated section 1886(j)(7) of the Act 

to section 1886(j)(8) and inserted a new 

section 1886(j)(7) of the Act, which 

contains new requirements for the 

Secretary to establish a quality reporting 

program for IRFs. Under that program, 

data must be submitted in a form and 

manner, and at a time specified by the 

Secretary. Beginning in FY 2014, section 

1886(j)(7)(A)(i) of the Act will require 

application of a 2 percentage point 

reduction to the applicable market 

basket increase factor for IRFs that fail 

to comply with the quality data 

submission requirements. Application 

of the 2 percentage point reduction may 

result in an update that is less than 0.0 

for a fiscal year and in payment rates for 

a fiscal year being less than payment 

rates for the preceding fiscal year. 

Reporting-based reductions to the 

market basket increase factor will not be 

cumulative; they will only apply for the 

FY involved. 

Under section 1886(j)(7)(D)(i) and (ii) 

of the Act, the Secretary is generally 

required to select quality measures for 

the IRF quality reporting program from 

those that have been endorsed by the 

consensus-based entity which holds a 

performance measurement contract 

under section 1890(a) of the Act. This 

contract is currently held by the 

National Quality Forum (NQF). So long 

as due consideration is given to 

measures that have been endorsed or 

adopted by a consensus-based 

organization, section 1886(j)(7)(D)(ii) of 

the Act authorizes the Secretary to 

select non-endorsed measures for 

specified areas or medical topics when 

there are no feasible or practical 

endorsed measure(s). Under section 

1886(j)(7)(D)(iii) of the Act, the 

Secretary is required to publish the 

measures that will be used in FY 2014 

no later than October 1, 2012. 

Section 1886(j)(7)(E) of the Act 

requires the Secretary to establish 

procedures for making the IRF PPS 

quality reporting data available to the 

public. Also, the Secretary must ensure 

that IRFs have the opportunity to review 

any data prior to its release to the 

public. Future rulemaking will address 

these public reporting obligations. 

The quality reporting program for 

IRFs, in accordance with section 

1886(j)(7) of the Act, is discussed in 

detail in section X. of this final rule. 

C. Operational Overview of the Current 

IRF PPS 

As described in the FY 2002 IRF PPS 

final rule, upon the admission and 

discharge of a Medicare Part A fee-forservice patient, the IRF is required to 

complete the appropriate sections of a 

patient assessment instrument, 

designated as the Inpatient 

Rehabilitation Facility-Patient 

Assessment Instrument (IRF–PAI). In 

addition, beginning with IRF discharges 

occurring on or after October 1, 2009, 

the IRF is also required to complete the 

appropriate sections of the IRF–PAI 

upon the admission and discharge of 

each Medicare Part C (Medicare 

Advantage) patient, as described in the 

FY 2010 IRF PPS final rule. All required 

data must be electronically encoded into 

the IRF–PAI software product. 

Generally, the software product 

includes patient classification 

programming called the GROUPER 

software. The GROUPER software uses 

specific IRF–PAI data elements to 

classify (or group) patients into distinct 

CMGs and account for the existence of 

any relevant comorbidities. 

The GROUPER software produces a 5- 

digit CMG number. The first digit is an 

alpha-character that indicates the 

comorbidity tier. The last 4 digits 

represent the distinct CMG number. 

Free downloads of the Inpatient 

Rehabilitation Validation and Entry 

(IRVEN) software product, including the 

GROUPER software, are available on the 

CMS Web site at http://www.cms.gov/ 

InpatientRehabFacPPS/ 

06_Software.asp. 

Once a patient is discharged, the IRF 

submits a Medicare claim as a Health 

Insurance Portability and 

Accountability Act of 1996 (Pub. L. 

104–191, enacted on August 21, 1996) 

(HIPAA) compliant electronic claim or, 

if the Administrative Simplification 

Compliance Act of 2002 (Pub. L. 107– 

105, enacted on December 27, 2002) 

(ASCA) permits, a paper claim (a UB– 

04 or a CMS–1450 as appropriate) using 

the five-digit CMG number and sends it 

to the appropriate Medicare fiscal 

intermediary (FI) or Medicare 

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47840 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

Administrative Contractor (MAC). 

Claims submitted to Medicare must 

comply with both ASCA and HIPAA. 

For further discussion of these 

requirements, please see the FY 2011 

IRF PPS Notice (75 FR 42836 at 42838). 

The Medicare FI or MAC processes 

the claim through its software system. 

This software system includes pricing 

programming called the ‘‘PRICER’’ 

software. The PRICER software uses the 

CMG number, along with other specific 

claim data elements and providerspecific data, to adjust the IRF’s 

prospective payment for interrupted 

stays, transfers, short stays, and deaths, 

and then applies the applicable 

adjustments to account for the IRF’s 

wage index, percentage of low-income 

patients, rural location, and outlier 

payments. For discharges occurring on 

or after October 1, 2005, the IRF PPS 

payment also reflects the new teaching 

status adjustment that became effective 

as of FY 2006, as discussed in the FY 

2006 IRF PPS final rule (70 FR 47880). 

II. Summary of Provisions of the 

Proposed Rule 

In the FY 2012 IRF PPS proposed rule 

(76 FR 24214), we proposed to update 

the IRF Federal prospective payment 

rates, to rebase and revise the RPL 

market basket, to implement 

refinements to the methodologies for 

calculating the LIP adjustment, and to 

establish a new quality reporting 

program for IRFs in accordance with 

section 1886(j)(7) of the Act. We also 

proposed to revise existing regulations 

text for the purpose of updating and 

providing greater clarity. These 

proposals are as follows: 

A. Proposed Updates to the IRF Federal 

Prospective Payment Rates for Federal 

Fiscal Year (FY) 2012 

The proposed updates to the IRF 

Federal prospective payment rates for 

FY 2012 are as follows: 

• Update the FY 2012 IRF PPS 

relative weights and average length of 

stay values using the most current and 

complete Medicare claims and cost 

report data in a budget neutral manner, 

as discussed in section III. of the FY 

2012 IRF PPS proposed rule (76 FR 

24214, 24219 through 24220). 

• Update the FY 2012 IRF facilitylevel adjustments (rural, LIP, and 

teaching status adjustments) in a budget 

neutral manner using the most current 

and complete Medicare claims and cost 

report data and by removing the 

weighting methodology previously used 

to analyze the data, and propose a 

temporary cap adjustment policy for the 

teaching status adjustment to reflect 

interns and residents displaced due to 

closure of IRFs or IRF residency training 

programs, as discussed in section IV. of 

the FY 2012 IRF PPS proposed rule (76 

FR 24214, 24226). 

• Update the FY 2012 IRF PPS 

payment rates by the proposed market 

basket increase factor, based upon the 

most current data available, with a 0.1 

percentage point reduction as required 

by sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act and a 

productivity adjustment required by 

section 1886(j)(3)(C)(ii)(I) of the Act, as 

described in section V. of the FY 2012 

IRF PPS proposed rule (76 FR 24214, 

24228 through 24241). 

• Update the wage index and the 

labor-related share of the FY 2012 IRF 

PPS payment rates in a budget neutral 

manner, as discussed in section V. of 

the FY 2012 IRF PPS proposed rule (76 

FR 24214, 24241 through 24244). 

• Calculate the IRF Standard Payment 

Conversion Factor for FY 2012, as 

discussed in section V. of the FY 2012 

IRF PPS proposed rule (76 FR 24214, 

24244 through 24245). 

• Update the outlier threshold 

amount for FY 2012, as discussed in 

section VI. of the FY 2012 IRF PPS 

proposed rule (76 FR 24214, 24248 

through 24249). 

• Update the cost-to-charge ratio 

(CCR) ceiling and urban/rural average 

CCRs for FY 2012, as discussed in 

section VI. of the FY 2012 IRF PPS 

proposed rule 76 (FR 24214, 24249). 

• Discuss the impact of the Inpatient 

Prospective Payment System (IPPS) data 

matching process changes on the IRF 

PPS calculation of the Supplemental 

Security Income (SSI) ratios used to 

compute the IRF LIP adjustment factor, 

as discussed in section VII. of the FY 

2012 IRF PPS proposed rule (76 FR 

24214, 24249 through 24250). 

• Implement the IRF quality reporting 

program provisions of section 1886(j)(7) 

of the Act, as discussed in section IX. of 

the FY 2012 IRF PPS proposed rule (76 

FR 24214, 24252 through 24257). 

B. Proposed Revisions to Existing 

Regulation Text 

We proposed to revise the existing 

requirements at § 412.25(b), 

§ 412.25(b)(1), § 412.25(b)(2), and 

§ 412.25(b)(3) that apply to all units that 

are excluded from the IPPS, as 

described in section VIII. of the FY 2012 

IRF PPS proposed rule (76 FR 24214, 

24250 through 24252). To amend the 

regulatory reference to conform with the 

other proposed changes, we also 

proposed to revise the existing 

requirements at § 412.25(e)(2)(ii)(A). 

With the exception of 

§ 412.25(e)(2)(ii)(A), the proposed 

revisions would affect both IRFs and 

IPFs. 

We also proposed to relocate and 

revise the existing requirements at 

§ 412.23(b), § 412.29, and § 412.30 that 

describe the requirements for facilities 

to qualify to receive payment under the 

IRF PPS, as described in section VIII. of 

the FY 2012 IRF PPS proposed rule (76 

FR 24214, 24252). 

Finally, we proposed to re-designate 

the existing paragraph § 412.624(c)(4) as 

§ 412.624(c)(5) and add a new paragraph 

§ 412.624(c)(4) to implement the IRF 

quality reporting program. 

III. Analysis and Responses to Public 

Comments 

We received approximately 46 timely 

responses, many of which contained 

multiple comments on the FY 2012 IRF 

PPS proposed rule (76 FR 24214) from 

the public. We received comments from 

various trade associations, inpatient 

rehabilitation facilities, individual 

physicians, therapists, clinicians, health 

care industry organizations, and health 

care consulting firms. The following 

sections, arranged by subject area, 

include a summary of the public 

comments that we received, and our 

responses. 

IV. Update to the Case-Mix Group 

(CMG) Relative Weights and Average 

Length of Stay Values for FY 2012 

As specified in § 412.620(b)(1), we 

calculate a relative weight for each CMG 

that is proportional to the resources 

needed by an average inpatient 

rehabilitation case in that CMG. For 

example, cases in a CMG with a relative 

weight of 2, on average, will cost twice 

as much as cases in a CMG with a 

relative weight of 1. Relative weights 

account for the variance in cost per 

discharge due to the variance in 

resource utilization among the payment 

groups, and their use helps to ensure 

that IRF PPS payments support 

beneficiary access to care, as well as 

provider efficiency. 

In the FY 2012 proposed rule (76 FR 

24214, 24219 through 24225), we 

proposed to update the CMG relative 

weights and average length of stay 

values for FY 2012. As required by 

statute, we always use the most recent 

available data to update the CMG 

relative weights and average lengths of 

stay. This ensures that the CMG relative 

weights and average length of stay 

values reflect as accurately as possible 

the current costs of care in IRFs. For FY 

2012, we proposed to use the FY 2010 

IRF claims and FY 2009 IRF cost report 

data. These data are the most current 

and complete data available at this time. 

Currently, only a small portion of the 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47841 

FY 2010 IRF cost report data are 

available for analysis, but the majority 

of the FY 2010 IRF claims data are 

available for analysis. 

We proposed to use the same 

methodology that we have used to 

update the CMG relative weights and 

average length of stay values in the FY 

2009 IRF PPS final rule (73 FR 46370), 

the FY 2010 IRF PPS final rule (74 FR 

39762), and the FY 2011 notice (75 FR 

42836). 

In calculating the CMG relative 

weights, we use a hospital-specific 

relative value method to estimate 

operating (routine and ancillary 

services) and capital costs of IRFs. The 

process we use to calculate the CMG 

relative weights is as follows: 

Step 1. We estimate the effects that 

comorbidities have on costs. 

Step 2. We adjust the cost of each 

Medicare discharge (case) to reflect the 

effects found in the first step. 

Step 3. We use the adjusted costs from 

the second step to calculate CMG 

relative weights, using the hospitalspecific relative value method. 

Step 4. We normalize the FY 2012 

CMG relative weights to the same 

average CMG relative weight from the 

CMG relative weights implemented in 

the FY 2011 IRF PPS notice (75 FR 

42836). 

Consistent with the methodology that 

we have used to update the IRF 

classification system in each instance in 

the past, we proposed to update the 

CMG relative weights for FY 2012 in a 

way that total estimated aggregate 

payments to IRFs for FY 2012 are the 

same with or without the changes (that 

is, in a budget neutral manner) by 

applying a budget neutrality factor to 

the standard payment amount. To 

calculate the appropriate budget 

neutrality factor for use in updating the 

FY 2012 CMG relative weights, we use 

the following steps: 

Step 1. Calculate the estimated total 

amount of IRF PPS payments for FY 

2012 (with no changes to the CMG 

relative weights). 

Step 2. Calculate the estimated total 

amount of IRF PPS payments for FY 

2012 by applying the changes to the 

CMG relative weights (as discussed 

above). 

Step 3. Divide the amount calculated 

in step 1 by the amount calculated in 

step 2 to determine the budget 

neutrality factor (0.9988) that would 

maintain the same total estimated 

aggregate payments in FY 2012 with and 

without the changes to the CMG relative 

weights. 

Step 4. Apply the budget neutrality 

factor (0.9988) to the FY 2011 IRF PPS 

standard payment amount after the 

application of the budget-neutral wage 

adjustment factor. 

In section VI.C. of this final rule, we 

discuss the use of the existing 

methodology to calculate the standard 

payment conversion factor for FY 2012. 

Note that the budget neutrality factor 

that we used to update the CMG relative 

weights for FY 2012 changed from 

0.9989 in the proposed rule to 0.9988 in 

this final rule due to the use of updated 

FY 2010 IRF claims data in this final 

rule. 

We received 2 comments on the 

proposed updates to the CMG relative 

weights and average length of stay 

values, which are summarized below. 

Comment: One commenter expressed 

confusion about whether CMS might 

have used an ‘‘older’’ methodology to 

calculate the CMG relative weights in 

the FY 2011 IRF PPS Notice (75 FR 

42836) that differed from the 

methodology that CMS used to calculate 

the CMG relative weights in the FY 2009 

IRF PPS final rule (73 FR 46370), the FY 

2010 IRF PPS final rule (74 FR 39762), 

or the FY 2012 IRF PPS proposed rule 

(76 FR 24214). 

Response: We used the same 

methodology to update the CMG relative 

weights in the FY 2002 IRF PPS final 

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

final rule (70 FR 47880), and the FY 

2007 IRF PPS final rule (71 FR 48354). 

We did not update the CMG relative 

weights in the FY 2008 IRF PPS final 

rule (72 FR 44284). In the FY 2009 IRF 

PPS final rule (73 FR 46370), we 

implemented one change to the 

methodology which involved the use of 

more detailed cost-to-charge ratio (CCR) 

data from the cost reports of IRF 

subprovider units of primary acute care 

hospitals, instead of CCR data from the 

associated primary acute care hospitals, 

to calculate IRFs’ average costs per case. 

We have used this same revised 

methodology from FY 2009 to update 

the CMG relative weights in the FY 2010 

IRF PPS final rule (74 FR 39762), the FY 

2011 notice (75 FR 42836), and the FY 

2012 IRF PPS proposed rule (76 FR 

24214). We continue to use the same 

methodology that was revised in FY 

2009 for updating the CMG relative 

weights in this final rule. 

Comment: Two commenters requested 

that CMS provide more information 

about the methodology that we use to 

calculate the average length of stay 

values. One commenter noted that it 

would be useful for CMS to provide 

information on the standard deviations 

for the average length of stay values, and 

another commenter suggested that we 

reiterate the purpose of the average 

length of stay values. 

Response: To calculate the average 

length of stay values for the proposed 

and final rules each year, we use the 

following steps: 

Step 1. Sum the lengths of stay for all 

of the cases in each CMG and tier using 

the most current IRF claims data (for 

this final rule, we used FY 2010 IRF 

claims data). 

Step 2. Divide the number in step 1 

by the number of cases in each CMG 

and tier in the most current IRF claims 

data (for this final rule, we used FY 

2010 IRF claims data) to obtain an 

average. 

Step 3. Use the average length of stay 

value calculated in step 2 to identify all 

of the cases in each CMG and tier that 

would meet the criteria for payment 

under the IRF short-stay transfer policy, 

and remove those cases from the 

analysis. 

Step 4. Repeat steps 1 through 3 until 

no additional cases are identified in step 

3 (that is, until all of the cases left in 

step 3 are ‘‘full CMG’’ cases that would 

not meet the short-stay transfer policy 

criteria). 

As we have stated in previous rules, 

the average length of stay for each CMG 

is used to determine when an IRF 

discharge meets the definition of a 

short-stay transfer, which results in a 

per diem case level adjustment. The 

average length of stay values should not 

be used to limit a patient’s length of stay 

in an IRF. 

At the request of several of the 

commenters, we have placed the 

standard deviations for the proposed 

average length of stay values from the 

FY 2012 IRF PPS proposed rule (76 FR 

24214) with the other proposed rule 

data files on the IRF PPS Web site at 

http://www.cms.gov/ 

InpatientRehabFacPPS/ 

07_DataFiles.asp#TopOfPage. We will 

continue to provide this information as 

part of our standard rulemaking files 

that we post to the Web site in 

conjunction with the IRF PPS rules. 

Final Decision: After carefully 

considering all of the comments that we 

received on the proposed updates to the 

CMG relative weights and average 

length of stay values, we are 

implementing the FY 2012 updates to 

the CMG relative weights and average 

length of stay values presented in Table 

1 (which are different from the relative 

weights and average length of stay 

values that we had proposed because 

these final values are based on analysis 

of updated FY 2010 IRF claims data). 

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47842 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

TABLE 1—RELATIVE WEIGHTS AND AVERAGE LENGTH OF STAY VALUES FOR CASE-MIX GROUPS

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Relative weight Average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

0101 .......................................... Stroke M > 51.05 ...................... 0.7676 0.7182 0.6451 0.6102 10 10 9 8 

0102 .......................................... Stroke M > 44.45 and 

M < 51.05 and C > 18.5 

0.9527 0.8913 0.8007 0.7573 12 13 10 10 

0103 .......................................... Stroke M > 44.45 and 

M< 51.05 and C < 18.5 

1.1377 1.0644 0.9562 0.9043 14 14 12 12 

0104 .......................................... Stroke M > 38.85 and 

M < 44.45 

1.1819 1.1058 0.9934 0.9395 15 14 13 12 

0105 .......................................... Stroke M > 34.25 and 

M < 38.85 

1.3733 1.2849 1.1542 1.0916 16 17 14 14 

0106 .......................................... Stroke M > 30.05 and 

M < 34.25 

1.5815 1.4796 1.3291 1.2571 20 18 16 16 

0107 .......................................... Stroke M > 26.15 and 

M < 30.05 

1.7906 1.6753 1.5049 1.4233 20 20 18 18 

0108 .......................................... Stroke M < 26.15 and A > 84.5 2.2178 2.0749 1.8639 1.7629 31 25 23 22 

0109 .......................................... Stroke M > 22.35 and 

M < 26.15 and A < 84.5 

2.0508 1.9188 1.7236 1.6302 24 23 20 20 

0110 .......................................... Stroke M < 22.35 and A < 84.5 2.6434 2.4731 2.2216 2.1012 33 29 26 25 

0201 .......................................... Traumatic brain injury 

M > 53.35 and C > 23.5 

0.7470 0.6132 0.5680 0.5158 8 8 7 8 

0202 .......................................... Traumatic brain injury 

M > 44.25 and M < 53.35 

and C > 23.5 

1.0613 0.8712 0.8070 0.7327 12 12 10 10 

0203 .......................................... Traumatic brain injury 

M > 44.25 and C < 23.5 

1.2080 0.9917 0.9185 0.8341 16 11 13 12 

0204 .......................................... Traumatic brain injury 

M > 40.65 and M < 44.25 

1.2655 1.0388 0.9622 0.8737 16 12 12 12 

0205 .......................................... Traumatic brain injury 

M > 28.75 and M < 40.65 

1.5982 1.3120 1.2152 1.1035 17 18 15 14 

0206 .......................................... Traumatic brain injury 

M > 22.05 and M < 28.75 

1.9895 1.6332 1.5128 1.3736 23 19 19 18 

0207 .......................................... Traumatic brain injury 

M < 22.05 

2.6903 2.2085 2.0456 1.8574 35 27 25 22 

0301 .......................................... Non-traumatic brain injury 

M > 41.05 

1.0576 0.9514 0.8441 0.7730 12 12 11 10 

0302 .......................................... Non-traumatic brain injury 

M > 35.05 and M < 41.05 

1.3393 1.2048 1.0689 0.9789 12 15 13 13 

0303 .......................................... Non-traumatic brain injury 

M > 26.15 and M < 35.05 

1.5924 1.4325 1.2709 1.1640 21 17 15 14 

0304 .......................................... Non-traumatic brain injury 

M < 26.15 

2.2048 1.9834 1.7596 1.6116 29 23 20 19 

0401 .......................................... Traumatic spinal cord injury 

M > 48.45 

1.0588 0.8815 0.8019 0.7036 14 14 11 10 

0402 .......................................... Traumatic spinal cord injury 

M > 30.35 and M < 48.45 

1.3802 1.1491 1.0453 0.9171 17 14 13 12 

0403 .......................................... Traumatic spinal cord injury 

M > 16.05 and M < 30.35 

2.4659 2.0529 1.8675 1.6386 29 26 23 20 

0404 .......................................... Traumatic spinal cord injury 

M < 16.05 and A > 63.5 

4.3797 3.6461 3.3169 2.9102 52 39 38 35 

0405 .......................................... Traumatic spinal cord injury 

M < 16.05 and A < 63.5 

3.8686 3.2206 2.9298 2.5706 52 39 36 29 

0501 .......................................... Non-traumatic spinal cord injury 

M > 51.35 

0.6559 0.6297 0.5616 0.4977 10 10 7 7 

0502 .......................................... Non-traumatic spinal cord injury 

M > 40.15 and M < 51.35 

0.9815 0.9423 0.8404 0.7448 13 13 11 10 

0503 .......................................... Non-traumatic spinal cord injury 

M > 31.25 and M < 40.15 

1.2460 1.1962 1.0668 0.9455 16 14 13 12 

0504 .......................................... Non-traumatic spinal cord injury 

M > 29.25 and M < 31.25 

1.5023 1.4423 1.2863 1.1400 18 16 16 14 

0505 .......................................... Non-traumatic spinal cord injury 

M > 23.75 and M < 29.25 

1.7558 1.6856 1.5033 1.3324 20 21 18 17 

0506 .......................................... Non-traumatic spinal cord injury 

M < 23.75 

2.4607 2.3624 2.1069 1.8673 34 28 24 23 

0601 .......................................... Neurological M > 47.75 ............ 0.9457 0.7992 0.7289 0.6589 10 11 9 9 

0602 .......................................... Neurological M > 37.35 and 

M < 47.75 

1.2516 1.0577 0.9648 0.8721 12 13 12 11 

0603 .......................................... Neurological M > 25.85 and 

M < 37.35 

1.6164 1.3660 1.2460 1.1263 17 16 14 14 

0604 .......................................... Neurological M < 25.85 ............ 2.1432 1.8112 1.6521 1.4934 24 21 19 18 

0701 .......................................... Fracture of lower extremity 

M > 42.15 

0.8001 0.7877 0.7586 0.6772 10 12 10 9 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47843 

TABLE 1—RELATIVE WEIGHTS AND AVERAGE LENGTH OF STAY VALUES FOR CASE-MIX GROUPS—Continued 

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Relative weight Average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

0702 .......................................... Fracture of lower extremity 

M > 34.15 and M < 42.15 

1.0470 1.0307 0.9927 0.8861 12 13 12 12 

0703 .......................................... Fracture of lower extremity 

M > 28.15 and M < 34.15 

1.2599 1.2402 1.1945 1.0662 15 15 14 14 

0704 .......................................... Fracture of lower extremity 

M < 28.15 

1.6283 1.6029 1.5439 1.3780 18 19 18 17 

0801 .......................................... Replacement of lower extremity 

joint M > 49.55 

0.5745 0.5745 0.5354 0.4888 7 8 7 7 

0802 .......................................... Replacement of lower extremity 

joint M > 37.05 and 

M < 49.55 

0.7725 0.7725 0.7199 0.6573 8 11 9 9 

0803 .......................................... Replacement of lower extremity 

joint M > 28.65 and 

M < 37.05 and A > 83.5 

1.0651 1.0651 0.9926 0.9062 11 14 13 12 

0804 .......................................... Replacement of lower extremity 

joint M > 28.65 and 

M < 37.05 and A < 83.5 

0.9407 0.9407 0.8767 0.8004 10 12 11 10 

0805 .......................................... Replacement of lower extremity 

joint M > 22.05 and 

M < 28.65 

1.1584 1.1584 1.0795 0.9856 11 14 13 13 

0806 .......................................... Replacement of lower extremity 

joint M < 22.05 

1.4144 1.4144 1.3181 1.2034 13 18 16 15 

0901 .......................................... Other orthopedic M > 44.75 ..... 0.8467 0.7460 0.6751 0.6116 10 10 9 8 

0902 .......................................... Other orthopedic M > 34.35 

and M < 44.75 

1.1324 0.9978 0.9029 0.8180 12 13 12 11 

0903 .......................................... Other orthopedic M > 24.15 

and M < 34.35 

1.4503 1.2779 1.1564 1.0477 16 16 14 13 

0904 .......................................... Other orthopedic M < 24.15 ..... 1.8791 1.6557 1.4983 1.3575 21 20 18 17 

1001 .......................................... Amputation, lower extremity 

M > 47.65 

1.0335 0.9087 0.8119 0.7256 13 12 10 10 

1002 .......................................... Amputation, lower extremity 

M > 36.25 and M < 47.65 

1.3571 1.1931 1.0660 0.9528 16 14 13 12 

1003 .......................................... Amputation, lower extremity 

M < 36.25 

2.0050 1.7628 1.5750 1.4077 21 21 18 17 

1101 .......................................... Amputation, non-lower extremity M > 36.35 1.0359 1.0359 0.9826 0.9222 11 11 12 11 

1102 .......................................... Amputation, non-lower extremity M < 36.35 1.5586 1.5586 1.4783 1.3875 14 18 16 16 

1201 .......................................... Osteoarthritis M > 37.65 ........... 0.8102 0.8102 0.8104 0.7660 13 13 11 10 

1202 .......................................... Osteoarthritis M > 30.75 and 

M < 37.65 

1.0564 1.0564 1.0566 0.9987 16 16 14 13 

1203 .......................................... Osteoarthritis M < 30.75 ........... 1.3031 1.3031 1.3033 1.2319 13 19 15 15 

1301 .......................................... Rheumatoid, other arthritis 

M > 36.35 

0.8937 0.9714 0.9714 0.7882 11 10 11 10 

1302 .......................................... Rheumatoid, other arthritis 

M > 26.15 and M < 36.35 

1.1769 1.2792 1.2792 1.0379 17 17 14 13 

1303 .......................................... Rheumatoid, other arthritis 

M < 26.15 

1.5211 1.6533 1.6533 1.3415 15 19 18 16 

1401 .......................................... Cardiac M > 48.85 .................... 0.9411 0.7535 0.6663 0.6026 10 10 9 8 

1402 .......................................... Cardiac M > 38.55 and 

M < 48.85 

1.2638 1.0118 0.8947 0.8092 13 12 11 10 

1403 .......................................... Cardiac M > 31.15 and 

M < 38.55 

1.5263 1.2220 1.0806 0.9773 18 14 13 12 

1404 .......................................... Cardiac M < 31.15 .................... 1.9770 1.5828 1.3997 1.2659 24 19 16 15 

1501 .......................................... Pulmonary M > 49.25 ............... 0.9610 0.8973 0.7734 0.7311 10 11 8 9 

1502 .......................................... Pulmonary M > 39.05 and 

M < 49.25 

1.2094 1.1293 0.9734 0.9201 13 13 11 11 

1503 .......................................... Pulmonary M > 29.15 and 

M < 39.05 

1.4914 1.3926 1.2003 1.1346 16 16 13 13 

1504 .......................................... Pulmonary M < 29.15 ............... 1.8840 1.7592 1.5163 1.4333 22 18 17 16 

1601 .......................................... Pain syndrome M > 37.15 ........ 1.1177 0.8798 0.7721 0.7217 12 12 10 10 

1602 .......................................... Pain syndrome M > 26.75 and 

M < 37.15 

1.4972 1.1785 1.0342 0.9667 19 13 13 13 

1603 .......................................... Pain syndrome M < 26.75 ........ 1.9348 1.5230 1.3365 1.2493 22 18 16 15 

1701 .......................................... Major multiple trauma without 

brain or spinal cord injury 

M > 39.25 

1.0436 0.9289 0.8430 0.7369 10 11 11 10 

1702 .......................................... Major multiple trauma without 

brain or spinal cord injury 

M > 31.05 and M < 39.25 

1.3771 1.2256 1.1123 0.9723 13 15 14 13 

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47844 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

TABLE 1—RELATIVE WEIGHTS AND AVERAGE LENGTH OF STAY VALUES FOR CASE-MIX GROUPS—Continued 

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Relative weight Average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

1703 .......................................... Major multiple trauma without 

brain or spinal cord injury 

M > 25.55 and M < 31.05 

1.6240 1.4454 1.3117 1.1467 15 16 15 15 

1704 .......................................... Major multiple trauma without 

brain or spinal cord injury 

M < 25.55 

2.0792 1.8505 1.6794 1.4681 26 22 20 18 

1801 .......................................... Major multiple trauma with 

brain or spinal cord injury 

M > 40.85 

1.2016 0.9858 0.9517 0.8705 14 15 12 11 

1802 .......................................... Major multiple trauma with 

brain or spinal cord injury 

M > 23.05 and M < 40.85 

1.6515 1.3548 1.3080 1.1964 18 20 15 15 

1803 .......................................... Major multiple trauma with 

brain or spinal cord injury 

M < 23.05 

2.8314 2.3228 2.2425 2.0512 34 32 26 24 

1901 .......................................... Guillain Barre M > 35.95 .......... 1.1498 1.0129 0.9189 0.8923 13 14 12 12 

1902 .......................................... Guillain Barre M > 18.05 and 

M < 35.95 

2.1903 1.9296 1.7504 1.6999 22 22 21 21 

1903 .......................................... Guillain Barre M < 18.05 .......... 3.6722 3.2351 2.9348 2.8501 48 29 34 32 

2001 .......................................... Miscellaneous M > 49.15 ......... 0.8541 0.7547 0.6766 0.6079 9 10 9 8 

2002 .......................................... Miscellaneous M > 38.75 and 

M < 49.15 

1.1431 1.0100 0.9056 0.8136 12 12 11 10 

2003 .......................................... Miscellaneous M > 27.85 and 

M < 38.75 

1.4435 1.2755 1.1436 1.0274 15 15 13 13 

2004 .......................................... Miscellaneous M < 27.85 ......... 1.9356 1.7104 1.5335 1.3777 24 20 18 16 

2101 .......................................... Burns M > 0 .............................. 2.5153 2.1771 1.7338 1.4053 34 23 19 18 

5001 .......................................... Short-stay cases, length of stay 

is 3 days or fewer 

............ ............ ............ 0.1475 ............ ............ ............ 3 

5101 .......................................... Expired, orthopedic, length of 

stay is 13 days or fewer 

............ ............ ............ 0.5856 ............ ............ ............ 7 

5102 .......................................... Expired, orthopedic, length of 

stay is 14 days or more 

............ ............ ............ 1.4718 ............ ............ ............ 18 

5103 .......................................... Expired, not orthopedic, length 

of stay is 15 days or fewer 

............ ............ ............ 0.6970 ............ ............ ............ 8 

5104 .......................................... Expired, not orthopedic, length 

of stay is 16 days or more 

............ ............ ............ 1.8778 ............ ............ ............ 23 

V. Updates to the Facility-Level 

Adjustment Factors for FY 2012 

A. Updates to the IRF Facility-Level 

Adjustment Factors 

Section 1886(j)(3)(A)(v) of the Act 

confers broad authority upon the 

Secretary to adjust the per unit payment 

rate ‘‘by such * * * factors as the 

Secretary determines are necessary to 

properly reflect variations in necessary 

costs of treatment among rehabilitation 

facilities.’’ For example, we adjust the 

Federal prospective payment amount 

associated with a CMG to account for 

facility-level characteristics such as an 

IRF’s LIP, teaching status, and location 

in a rural area, if applicable, as 

described in § 412.624(e). 

In the FY 2010 IRF PPS final rule (74 

FR 39762), we updated the adjustment 

factors for calculating the rural, LIP, and 

teaching status adjustments based on 

the most recent 3 consecutive years 

worth of IRF claims data (at that time, 

FY 2006, FY 2007, and FY 2008) and the 

most recent available corresponding IRF 

cost report data. As discussed in the FY 

2010 IRF PPS proposed rule (74 FR 

21060 through 21061), we observed 

relatively large year-to-year fluctuations 

in the underlying data used to compute 

the adjustment factors, especially the 

teaching status adjustment factor. 

Therefore, we implemented a 3-year 

moving average approach to updating 

the facility-level adjustment factors in 

the FY 2010 IRF PPS final rule (74 FR 

39762) to provide greater stability and 

predictability of Medicare payments for 

IRFs. 

Although the 3-year moving average 

approach that we implemented in FY 

2010 improves the year-to-year stability 

and predictability of the facility-level 

adjustment factors, we have continued 

to find unusually large year-to-year 

fluctuations in the teaching status 

adjustment factor. To determine the 

underlying reasons for these large yearto-year fluctuations in the teaching 

status adjustment factor, we analyzed 

the data and reviewed the methodology 

that we were using to estimate all three 

of the facility-level adjustment factors 

(that is, the rural, the LIP, and the 

teaching status adjustment factors). We 

found that the use of a weighting 

methodology, which assigns greater 

weight to some facilities than to others, 

applied to the regression analysis used 

to estimate the facility-level adjustment 

factors inappropriately exaggerated the 

differences among different types of IRF 

facilities. We proposed to remove the 

weighting methodology from our 

analysis of the facility-level adjustment 

factors and update the IRF facility-level 

adjustment factors for FY 2012 using an 

un-weighted regression analysis. 

We received 22 comments on the 

proposed updates to the facility-level 

adjustment factors, which are 

summarized below. 

Comment: Several commenters 

requested that CMS release data that 

would enable facilities to replicate the 

calculation of the facility-level 

adjustment factors, provide more 

information on how CMS calculates the 

3-year moving average, and provide 

more information on CMS’s research 

and computations used to support an 

un-weighted regression methodology. 

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Response: We provided additional 

information on the calculation of the 

facility-level adjustment factors on the 

Inpatient Rehabilitation Facility PPS 

Web page under the ‘‘Research’’ link on 

the left hand side of the page: http:// 

www.cms.gov/InpatientRehabFacPPS/ 

09_Research.asp#TopOfPage. As we 

stated in the FY 2010 IRF PPS final rule, 

the 3-year moving average is computed 

by determining the adjustment factor for 

each year and then averaging those 

adjustment factors over 3 years. For FY 

2012, we used the adjustment factors 

generated from our analysis of claims 

data and the corresponding year’s cost 

report data or, if unavailable, the most 

recent available cost report data for FY 

2008, FY 2009 and FY 2010. Our 

estimates of the proposed FY 2012 

adjustment factors, based on FY 2008, 

FY 2009, and FY 2010 data, are shown 

below in Table 2. 

TABLE 2—FACILITY-LEVEL ADJUSTMENT FACTORS USING THE UN-WEIGHTED REGRESSION METHODOLOGY, FY 2012 

PROPOSED RULE

FY 2008 FY 2009 FY 2010 FY 2012 

proposed 

LIP Adjustment Factor ..................................................................................................... 0.1773 0.2158 0.1764 0.1897 

Teaching Status Adjustment Factor ................................................................................ 0.3554 0.5183 0.6036 0.4888 

Rural Adjustment ............................................................................................................. 0.192 0.188 0.182 0.187 

Comment: Several commenters 

supported the proposed update to the 

facility-level adjustment factors in the 

FY 2012 proposed rule, including the 

use of an un-weighted regression 

methodology to determine the facilitylevel adjustment factors, stating that 

they believe the changes will result in 

a more accurate payment system. 

However, several other commenters 

expressed concern about the resulting 

updates to the teaching status and LIP 

adjustment factors for FY 2012 from 

using an un-weighted regression 

methodology. The commenters stated 

that the proposed updates would create 

financial hardships for facilities with 

teaching programs and a higher 

disproportionate share of low-income 

patients. Several of the commenters, 

including the Medicare Payment 

Advisory Commission (MedPAC), 

suggested that CMS defer the 

implementation of the un-weighted 

regression methodology and conduct 

more analysis on the underlying causes 

of the instability in the teaching status 

adjustment factor and on the most 

appropriate methodology for calculating 

the facility-level adjustment factors. 

Several other commenters suggested 

that CMS mitigate the impact of any 

changes in the facility-level adjustment 

factors by phasing the changes in over 

several years, or by capping the amount 

that a facility adjustment can decrease 

in a given year. 

Response: We agree with the 

commenters that it is appropriate to 

defer implementation of the unweighted regression methodology for an 

additional year so that we can further 

analyze some anomalies that appear to 

exist in the underlying data. We believe 

that these anomalies are causing the 

results of the weighted regression 

methodology to differ substantially from 

the results of the un-weighted regression 

methodology. Thus, we believe that the 

best course of action for FY 2012 is to 

defer the implementation of the unweighted regression methodology while 

we conduct more research into the 

reasons for these anomalies and 

alternative ways of computing the 

facility-level adjustments that will 

reduce the volatility in the teaching 

status adjustment factor and provide the 

most accurate reflection of cost 

differences among different types of 

facilities. 

Comment: One commenter offered 

several suggestions on ways to improve 

the computation of the facility-level 

adjustment factors without altering the 

weighting methodology. Those 

suggestions included: pooling three 

year’s worth of data into a single data 

set to increase sample size; continuing 

to use existing weighted regression 

model, but with added control variables; 

and matching claims to corresponding 

cost report data, even if that creates a 

3-year lag in the last data year used and 

the IRF PPS payment year. 

Response: We appreciate all of the 

suggestions that we received on ways to 

improve our methodology for 

computing the facility-level adjustments 

and will take those suggestions under 

advisement while we continue to 

research ways to ensure that we are 

using the best methods to determine the 

facility-level adjustments. 

Final Decision: After carefully 

considering all of the comments that we 

received on the proposed updates to the 

rural, LIP and teaching status 

adjustment factors for FY 2012, we are 

holding the facility-level adjustment 

factors at FY 2011 levels for FY 2012 

while we conduct further research on 

the underlying data and the best 

methodology for calculating the facilitylevel adjustment factors. Thus, the 

facility-level adjustments factors for FY 

2012 will be the same as those finalized 

in the FY 2011 IRF PPS notice (75 FR 

42836 at 42848), which were the same 

as those finalized in the FY 2010 IRF 

PPS final rule (74 FR 39762 at 39775). 

For the convenience of the reader, we 

reiterate the final adjustment factors 

(from the FY 2010 IRF PPS final rule) as 

follows: For FY 2012, the IRF PPS 

payments to IRFs in rural areas will be 

computed with an 18.4 percent upward 

adjustment for rural status. IRF PPS 

payments to eligible IRFs that qualify 

for the LIP adjustment for FY 2012 will 

be adjusted using a LIP adjustment 

formula of (1 + disproportionate share 

hospital (DSH) patient percentage) 

raised to the power of (0.4613), where 

the— 

Finally, IRF PPS payments to eligible 

IRFs that qualify for the teaching status 

adjustment will be adjusted by the 

following formula for FY 2012: (1 + fulltime equivalent (FTE) interns and residents/average daily census) raised to 

the power of (0.6876). 


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In section VI.C. of this final rule, we 

discuss the methodology for calculating 

the standard payment conversion factor 

for FY 2012. 

B. Policy for Temporary Cap 

Adjustments To Reflect Interns and 

Residents Displaced Due to Closure of 

IRFs or IRF Residency Training 

Programs 

1. Background 

In the FY 2006 IRF PPS final rule (70 

FR 47880 at 47928 through 47932), we 

implemented regulations at 

§ 412.624(e)(4) to establish a facilitylevel adjustment for IRFs that are, or are 

part of, teaching hospitals. The teaching 

status adjustment accounts for the 

higher indirect operating costs 

experienced by hospitals that 

participate in graduate medical 

education (GME) programs. The 

payment adjustments are made based on 

the number of FTE interns and residents 

training in the IRF and the IRF’s average 

daily census. 

We established the IRF teaching status 

adjustment in a manner that limited the 

incentives for IRFs to add FTE interns 

and residents for the purpose of 

increasing their teaching status 

adjustment. We imposed a cap on the 

number of FTE interns and residents 

that may be counted for purposes of 

calculating the teaching status 

adjustment. The cap limits the number 

of FTE interns and residents that 

teaching IRFs may count for the purpose 

of calculating the IRF PPS teaching 

status adjustment, not the number of 

interns and residents teaching 

institutions can hire or train. We 

calculated the number of FTE interns 

and residents that trained in the IRF 

during a ‘‘base year’’ and used that FTE 

intern and resident number as the cap. 

An IRF’s FTE intern and resident cap is 

ultimately determined based on the 

final settlement of the IRF’s most recent 

cost reporting period ending on or 

before November 15, 2004. A complete 

discussion of how the IRF teaching 

status adjustment was calculated 

appears in the FY 2006 IRF PPS final 

rule (70 FR 47880, 47928 through 

47932). 

2. FTE Intern and Resident Temporary 

Cap Adjustment 

Sometimes, interns and residents that 

are training in an IRF find themselves 

unable to complete their training in the 

IRF, either because the IRF closes or 

closes a residency training program (we 

refer to these interns and residents as 

‘‘displaced’’). Although we have not 

heard of any instances where IRFs did 

not accept displaced interns and 

residents because the additional interns 

and residents would put the facility 

over the facility’s FTE intern and 

resident cap, we believe that it is 

important to maintain consistent 

policies with other Medicare PPS 

systems, to the extent feasible. The IPPS 

indirect medical education (IME) 

adjustment and the direct GME policies 

contain provisions that allow for 

temporary adjustments to the IME/GME 

caps for IPPS hospitals that train interns 

and residents that are displaced because 

a hospital closes or closes a medical 

residency training program. We have 

recently implemented a similar 

temporary cap adjustment policy for the 

inpatient psychiatric facility (IPF) PPS 

teaching status adjustment outlined in 

the rate year 2012 IPF PPS final rule (76 

FR 26432 at 26454 through 26456). 

Consistent with the IPPS and the IPF 

PPS, in the FY 2012 IRF PPS proposed 

rule (76 FR 24214), we proposed to 

permit a temporary increase in the FTE 

intern and resident cap when an IRF 

increases the number of FTE interns and 

residents it trains in order to accept 

displaced interns and residents because 

another IRF closes or closes a medical 

residency training program. 

When an IRF temporarily takes on 

interns and residents that are displaced 

because another IRF closes or closes a 

residency training program, we believe 

that a temporary adjustment to the cap 

would be appropriate. In these 

situations, interns and residents may 

have partially completed a residency 

training program at the IRF that has 

closed or closed a training program and 

may be unable to complete their training 

at another IRF that is already training 

interns and residents up to or in excess 

of its FTE intern and resident cap. We 

believe that it is appropriate to allow 

temporary adjustments to the FTE caps 

for an IRF that provides residency 

training to medical interns and residents 

who have partially completed a 

residency training program at an IRF 

that closes or at an IRF that discontinues 

training interns and residents in a 

residency training program(s). For this 

reason, we are adopting the following 

temporary intern and resident cap 

adjustment policies, similar to the 

temporary adjustments to the FTE cap 

used for acute care hospitals and the 

temporary adjustments to the FTE caps 

for IPFs. 

The cap adjustment will be temporary 

because it is intern and resident specific 

and will only apply to the displaced 

intern(s) or resident(s) until those 

intern(s) or resident(s) have completed 

their training in the program in which 

they were training at the time of the IRF 

closure or the closure of the program. As 

under the IPPS policy for displaced 

interns and residents, the IRF PPS 

temporary cap adjustment will apply 

only to interns and residents that were 

still training at the IRF at the time the 

IRF closed or at the time the IRF ceased 

training interns and residents in the 

residency training program(s). Interns 

and residents who leave the IRF, for 

whatever reason, before the closure of 

the IRF or the closure of the residency 

training program will not be considered 

displaced interns and residents for 

purposes of the IRF temporary cap 

adjustment policy. We are adopting the 

same definition of ‘‘closure of a hospital 

residency training program’’ as it is 

currently defined at § 413.79(h)(1)(ii); 

that is, the hospital ceases to offer 

training for residents in a particular 

approved medical residency training 

program. Similarly, as under the IPPS 

policy, medical students who are 

accepted into a program at an IRF but 

the IRF or residency training program 

closes before the individual begins 

training at that IRF are also not 

considered displaced interns and 

residents for purposes of the IRF 

temporary cap adjustments. We note 

that although we are adopting a policy 

under the IRF PPS that is consistent 

with the policy applicable under the 

IPPS, the actual caps under the two 

payment systems are separate and 

distinct. This means, for example, if a 

program closes at an IPPS hospital that 

has an IRF unit, but the interns and 

residents from that closed program were 

not rotating into the IRF unit when the 

program closed, then there would be no 

temporary FTE cap adjustment under 

the IRF PPS, since the interns and 

residents were not displaced from the 

IRF. However, if an IPPS hospital that 

has an IRF unit closes a training 

program and interns and residents from 

that program were rotating into the IRF 

unit when the program closed, an IRF 

hospital or IRF unit may temporarily 

adjust their FTE intern and resident cap 

if they train the displaced interns and 

residents, but only for the portion of the 

training that has to be completed in the 

IRF setting and only if all of the 

requirements specified in section IV.C. 

of this final rule are met. 

3. Temporary Adjustment to the FTE 

Cap To Reflect Interns and Residents 

Displaced Due to an IRF Closure 

We will allow an IRF to receive a 

temporary adjustment to the FTE cap to 

reflect interns and residents added 

because of another IRF’s closure. The 

temporary cap adjustment is intended to 

account for medical interns and 

residents who have partially completed 

a medical residency training program at 

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the IRF that has closed and may be 

unable to complete their training at 

another IRF because that IRF is already 

training interns and residents up to or 

in excess of its cap. We are 

implementing this change because IRFs 

may be reluctant to accept additional 

interns and residents from a closed IRF 

without a temporary adjustment to their 

caps. For purposes of this policy, we are 

adopting the IPPS definition of ‘‘closure 

of a hospital’’ in § 413.79(h)(1)(i) to 

mean the IRF terminates its Medicare 

provider agreement as specified in 

§ 489.52. Therefore, we will allow a 

temporary adjustment to an IRF’s FTE 

cap to reflect interns and residents 

added because of an IRF’s closure. The 

policy will be effective for cost reporting 

periods beginning on or after October 1, 

2011, when an IRF trains an intern or 

resident from an IRF that closed. We 

will allow an adjustment to an IRF’s 

FTE cap if the IRF meets the following 

criteria: 

(a) The IRF is training displaced 

interns and residents from an IRF that 

closed. 

(b) The IRF that is training the 

displaced interns and residents from the 

closed IRF submits a timely request for 

a temporary adjustment to its FTE cap 

to its Medicare contractor. Requests 

generally must be submitted no later 

than 60 days after the hospital first 

begins training the displaced interns 

and residents. In the case of an IRF that 

is already training the displaced interns 

and residents as of October 1, 2011, 

requests must be submitted by 

December 1, 2011. Requests must 

document that the IRF is eligible for this 

temporary adjustment to its FTE cap by 

identifying the interns and residents 

who have come from the closed IRF and 

have caused the IRF to exceed its cap, 

(or the IRF may already be over its cap), 

and specifies the length of time that the 

adjustment is needed. 

After the displaced interns and 

residents leave the IRF’s training 

program or complete their residency 

program, the IRF’s cap will revert to its 

original level. Therefore, the temporary 

adjustment to the FTE cap will be 

available to the IRF only for the period 

of time necessary for the displaced 

interns and residents to complete their 

training. Further, as under the IPPS 

policy, the total amount of temporary 

cap adjustment that can be allotted to all 

receiving IRFs cannot exceed the cap 

amount of the IRF that closed. 

We also note that section 5506 of the 

Affordable Care Act, ‘‘Preservation of 

Resident Cap Positions from Closed 

Hospitals,’’ does not apply to IRFs that 

closed. Section 5506 of the Affordable 

Care Act only amends sections 1886(d) 

and (h) of the Act for direct GME and 

IPPS IME payments. Therefore, the IME 

FTE cap redistributions under section 

5506 of the Affordable Care Act only 

apply to ‘‘subsection (d)’’ IPPS 

hospitals. Section 5506 of the 

Affordable Care Act has no applicability 

to the teaching status adjustments under 

the IRF PPS (or the IPF PPS, for that 

matter). 

4. Temporary Adjustment to FTE Cap to 

Reflect Interns and Residents Displaced 

Due to a Residency Program Closure 

If an IRF ceases training interns and 

residents in a residency training 

program(s) and agrees to temporarily 

reduce its FTE cap, another IRF may 

receive a temporary adjustment to its 

FTE cap to reflect the addition of the 

displaced interns and residents. For 

purposes of this policy on closed 

residency programs, we are adopting the 

IPPS definition of ‘‘closure of a hospital 

residency training program’’ as specified 

in § 413.79(h)(1)(ii) which means that 

the hospital ceases to offer training for 

interns and residents in a particular 

approved medical residency training 

program. The methodology for adjusting 

the caps for the ‘‘receiving IRF’’ and the 

‘‘IRF that closed its program’’ is 

described below. 

a. Receiving IRF 

An IRF may receive a temporary 

adjustment to its FTE cap to reflect 

interns and residents added because of 

the closure of another IRF’s residency 

training program for cost reporting 

periods beginning on or after October 1, 

2011 if— 

• The IRF is training displaced 

interns and residents from the residency 

training program of an IRF that closed 

its program; and 

• The IRF that is training the 

displaced interns and residents from the 

closed program must submit a timely 

request for a temporary adjustment to its 

FTE cap to its Medicare contractor. 

Requests generally must be submitted 

no later than 60 days after the IRF 

begins to train the interns and residents. 

In the case of an IRF that is already 

training the displaced interns and 

residents as of October 1, 2011, requests 

must be submitted by December 1, 2011. 

Requests must document that the IRF is 

eligible for this temporary adjustment 

by identifying the interns and residents 

who have come from another IRF’s 

closed program and have caused the IRF 

to exceed its cap (or the IRF may already 

be in excess of its cap), specifies the 

length of time the adjustment is needed, 

and, as explained in more detail below, 

submits to its Medicare contractor a 

copy of the FTE cap reduction statement 

by the IRF closing the residency training 

program. 

In general, the temporary adjustment 

criteria established for closed medical 

residency training programs at IRFs is 

similar to the criteria established for 

closed IRFs. More than 1 IRF may be 

eligible to apply for the temporary 

adjustment because interns and 

residents from one closed program may 

rotate to different IRFs, or they may 

complete their training at more than one 

IRF. Also, only to the extent to which 

an IRF would exceed its FTE cap by 

training displaced interns and residents 

would it be eligible for the temporary 

adjustment. Thus, for example, if the 

IRF has room below its cap to take 1 

additional displaced FTE intern or 

resident but taking a second displaced 

FTE intern or resident would cause the 

IRF to exceed its FTE intern and 

resident cap, then the IRF would 

potentially qualify for a temporary cap 

adjustment for 1 FTE intern or resident, 

not 2. 

b. IRF That Closed Its Program(s) 

An IRF that agrees to train interns and 

residents who have been displaced by 

the closure of another IRF’s residency 

training program may receive a 

temporary FTE cap adjustment only if 

the IRF that closed its program meets 

the following criteria— 

• Temporarily reduces its FTE cap by 

the number of FTE interns and residents 

in each program year training and in the 

program at the time of the program’s 

closure. The yearly reduction would be 

determined by deducting the number of 

those interns and residents who would 

have been training in the program up to 

the IRF’s cap during the year of the 

closure, had the program not closed; 

and 

• Submits a timely statement to its 

Medicare contractor that has been 

signed and dated by its representative 

that specifies that it agrees to the 

temporary reduction in its FTE cap to 

allow the IRF training the displaced 

interns and residents to obtain a 

temporary adjustment to its cap. 

Statements generally must be submitted 

no later than 60 days after the interns 

and residents who were in the closed 

program begin training at another IRF. 

In the situation where another IRF is 

already training the displaced interns 

and residents as of October 1, 2011, 

statements must be submitted no later 

than December 1, 2011. The statement 

must identify the interns and residents 

who were training at the time of the 

program’s closure, identify the IRFs to 

which the interns and residents are 

transferring once the program closes, 

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and specify the reduction for the 

applicable program years. 

In addition, under this closed 

program policy, in order for the 

receiving IRF(s) to qualify for a 

temporary adjustment to their FTE cap, 

the IRFs that are closing their programs 

would need to reduce their FTE cap for 

the expected duration of time the 

displaced interns and residents would 

need to finish their training. We are 

implementing this because the IRF that 

closes the program still retains the FTE 

slots in its cap, even if the IRF chooses 

not to fill the slots with interns and 

residents. We believe that it is 

inappropriate to allow an increase to the 

receiving IRF’s cap without an attendant 

decrease to the cap of the IRF with the 

closed program, because the IRF that 

ceased training the interns and residents 

could fill these slots with interns and 

residents from other programs even if 

the increase and related decrease is only 

temporary. 

The cap reduction for the IRF with the 

closed program will be based on the 

number of FTE interns and residents in 

each program year that were in the 

program at the IRF at the time of the 

program’s closure, and who begin 

training at another IRF. 

We received 3 comments on the 

proposed temporary adjustment to the 

FTE cap to reflect interns and residents 

displaced due to an IRF closure or a 

residency training program closure, 

which are summarized below. 

Comment: One commenter suggested 

that the proposed temporary adjustment 

to the FTE cap would be too difficult for 

CMS to monitor. This commenter also 

stated that few IRFs with teaching 

programs have taken displaced interns 

and residents. 

Response: We believe that a policy 

allowing for temporary adjustments to 

the FTE caps for IRFs that take 

displaced interns and residents would 

be no more difficult to monitor than the 

similar policy that is already being 

administered for IPPS hospitals. 

Although we agree that few IRFs 

currently take displaced interns and 

residents, we believe that it is 

reasonable to allow for temporary 

adjustments to the FTE caps for those 

IRFs that do. 

Comment: Two commenters strongly 

supported our proposed policy to allow 

a temporary adjustment to the intern 

and resident cap when an IRF accepts 

interns or residents that are displaced 

due to an IRF closure or a residency 

training program closure. However, 

these commenters requested that CMS 

modify the proposed policy to allow 

IRFs to receive the temporary cap 

adjustment if they are training displaced 

interns or residents as of October 1, 

2011. 

Response: We share the commenters’ 

concern for those FTE interns and 

residents who have been displaced 

before October 1, 2011 due to closure of 

an IRF or a residency training program. 

We carefully considered the 

commenters’ request that CMS modify 

the IRF temporary cap adjustment 

policy to allow IRFs that volunteered to 

train displaced interns and residents 

before October 1, 2011 to receive the 

temporary cap adjustment. In keeping 

with the similar policy for IPPS 

hospitals, we are revising our proposed 

policy to allow IRFs to receive 

temporary cap adjustments for cost 

reporting periods beginning on or after 

October 1, 2011 for displaced interns 

and residents that they are training as of 

October 1, 2011. For example, if an IRF 

closed or closed a residency training 

program on October 1, 2009, then an 

intern or resident who was in their first 

program year at that time would likely 

be in their third program year as of 

October 1, 2011 and thus would still be 

in the middle of their training. An IRF 

that assumed the training of this intern 

or resident who was displaced by the 

2009 IRF or residency training program 

closure would be eligible to receive a 

temporary cap adjustment for cost 

reporting periods beginning on or after 

October 1, 2011. As noted above, an IRF 

that is requesting the temporary cap 

adjustment for the displaced interns and 

residents that it is training as of October 

1, 2011 must submit the required 

documentation to CMS no later than 

December 1, 2011. 

Final Decision: After carefully 

considering the comments that we 

received on the proposed temporary 

adjustment to the FTE cap to reflect 

interns and residents displaced due to 

an IRF closure or the closure of a 

residency training program, we are 

implementing the new policy for IRFs as 

proposed, with the one exception noted 

above. We will allow IRFs to qualify for 

the temporary cap adjustment for cost 

reporting periods beginning on or after 

October 1, 2011 if they are already 

training interns and residents displaced 

by IRF closures or residency program 

closures that occurred prior to October 

1, 2011. In these instances, all required 

documentation must be received by 

CMS no later than December 1, 2011. 

IRFs that meet the criteria will be 

eligible to receive temporary 

adjustments to their FTE caps for cost 

reporting periods beginning on or after 

October 1, 2011. 

VI. FY 2012 IRF PPS Federal 

Prospective Payment Rates 

A. Market Basket Increase Factor, 

Productivity Adjustment, and LaborRelated Share for FY 2012 

Section 1886(j)(3)(C) of the Act 

requires the Secretary to establish an 

increase factor that reflects changes over 

time in the prices of an appropriate mix 

of goods and services included in the 

covered IRF services, which is referred 

to as a market basket index. According 

to section 1886(j)(3)(A)(i) of the Act, the 

increase factor shall be used to update 

the IRF Federal prospective payment 

rates for each FY. Sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) 

of the Act require the application of a 

0.1 percentage point reduction to the 

market basket increase factor for FYs 

2012 and 2013. In addition, section 

1886(j)(3)(C)(ii)(I) of the Act requires the 

application of a productivity 

adjustment, as described below. Thus, 

in this final rule, we are updating the 

IRF PPS payments for FY 2012 by a 

market basket increase factor based 

upon the most current data available, 

with a productivity adjustment as 

required by section 1886(j)(3)(C)(ii)(I) of 

the Act as described below and a 

0.1 percentage point reduction as 

required by sections 1886(j)(3)(C)(ii)(II) 

and 1886(j)(3)(D)(ii) of the Act. Further, 

we are rebasing the RPL market basket 

from a 2002-based market basket to a 

2008-based market basket. We typically 

rebase the RPL market basket every 5 to 

7 years to ensure that it continues to 

reflect the most accurate account of the 

cost of relevant goods and services. 

Thus, in this final rule, we start with 

a rebased RPL market basket (updated 

from a 2002 base year to a 2008 base 

year) and then apply a productivity 

adjustment as required by section 

1886(j)(3)(C)(ii)(I) of the Act and a 0.1 

percentage point reduction as required 

by sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act. In section 

VI.A.1 of this final rule, we describe the 

methodology for rebasing the RPL 

market basket from a 2002 base year to 

a 2008 base year, and then in section 

VI.A.2 of this final rule, we describe the 

methodology for calculating the 

productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. 

Finally, in section VI.A.3 of this final 

rule, we describe the calculation of the 

market basket increase factor to be used 

to adjust IRF PPS payments for FY 2012. 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47849 

1. Rebasing and Revising of the RPL 

Market Basket Used for IRF PPS for FY 

2012 

a. Background 

The input price index (that is, the 

market basket) that was used to develop 

the IRF PPS was the Excluded Hospital 

with Capital market basket. This market 

basket was based on 1997 Medicare cost 

report data and included data for 

Medicare participating IRFs, IPFs, 

LTCHs, cancer hospitals, and children’s 

hospitals. Although ‘‘market basket’’ 

technically describes the mix of goods 

and services used in providing hospital 

care, this term is also commonly used to 

denote the input price index (that is, 

cost category weights and price proxies 

combined) derived from that market 

basket. Accordingly, the term ‘‘market 

basket’’, as used in this document, refers 

to an input price index. 

Beginning with FY 2006, IRF PPS 

payments were updated using a FY 

2002-based RPL market basket reflecting 

the operating and capital cost structures 

for freestanding IRFs, freestanding IPFs, 

and LTCHs (70 FR 47908). We excluded 

cancer and children’s hospitals from the 

RPL market basket because their 

payments are based entirely on 

reasonable costs subject to rate-ofincrease limits established under the 

authority of section 1886(b) of the Act, 

which is implemented at § 413.40. 

Cancer and children’s hospitals are not 

reimbursed through a PPS. Also, the FY 

2002 cost structures for cancer and 

children’s hospitals are noticeably 

different than the cost structures of 

freestanding IRFs, freestanding IPFs, 

and LTCHs. A complete discussion of 

the FY 2002-based RPL market basket 

can be found in the FY 2006 IRF PPS 

final rule (70 FR 47908 through 47915). 

In the FY 2010 IRF PPS proposed rule 

(74 FR 21062), we expressed our interest 

in exploring the possibility of creating a 

stand-alone IRF market basket that 

reflects the cost structures of only IRF 

providers. We noted that, of the 

available options, one is to combine the 

Medicare cost report data from 

freestanding IRF providers (presently 

incorporated into the FY 2002-based 

RPL market basket) with data from 

hospital-based IRF providers. We 

indicated that an examination of the 

Medicare cost report data comparing 

freestanding and hospital-based IRFs 

revealed considerable differences 

between the two types of providers, 

both in terms of cost levels and cost 

structures. At that time, we were unable 

to fully understand the differences 

between these two types of IRF 

providers. As a result, we believed that 

further research was required and we 

solicited public comment for additional 

information that might help us to better 

understand the reasons for the 

variations in costs and cost structures, 

as indicated by the cost report data, 

between freestanding and hospitalbased IRFs (74 FR 21062). 

We summarized the public comments 

we received and our responses in the FY 

2010 IRF PPS final rule (74 FR 39762, 

39776 through 39777). Despite receiving 

comments from the public on this issue, 

we remain unable to sufficiently 

understand the observed differences in 

costs and cost structures between 

hospital-based and freestanding IRFs, 

and therefore we do not believe it is 

appropriate, at this time, to incorporate 

data from hospital-based IRFs with 

those of freestanding IRFs to create a 

stand-alone IRF market basket. 

Although we do not believe it would 

be appropriate to propose a stand-alone 

IRF market basket, we are currently 

exploring the viability of creating two 

separate market baskets from the current 

RPL, one of which would include 

freestanding IRFs and freestanding IPFs 

and would be used to update payments 

under both the IPF and IRF payment 

systems. The other would be a standalone LTCH market basket. Depending 

on the outcome of our research, we 

anticipate the possibility of proposing a 

rehabilitation and psychiatric (RP) 

market basket in the next update cycle. 

In the FY 2012 IRF PPS proposed rule 

(76 FR 24229), we invited public 

comment on the possibility of using this 

type of market basket to update IRF 

payments in the future. 

Comment: One commenter stated that 

CMS’ ongoing work to develop a market 

basket that reflects freestanding IRF and 

freestanding IPF data should be research 

that CMS continues to explore. The 

commenter also stressed that a separate 

market basket which excludes LTC 

hospital costs must be contingent on the 

availability of reliable data from a 

representative group of IRF and IPF 

facilities. 

Response: We will consider the 

commenters’ concerns as we continue to 

investigate the feasibility of developing 

a market basket derived using data from 

freestanding IPF and freestanding IRF 

providers. We agree that before moving 

away from the existing RPL market 

basket, we must be confident that we 

have reliable data gathered from a 

representative group of IRF and IPF 

providers. Any change to the market 

basket used to update IRF payments will 

also be subject to the rulemaking 

process. 

Comment: One commenter 

recommended that CMS proceed with 

caution in its efforts to create a market 

basket based solely on freestanding IRF 

and freestanding IPF data. They noted 

that there are substantial geographic 

differences in the location of RPL 

providers. Several commenters 

requested that CMS share its research 

with the industry in advance of any 

proposed rulemaking so that any 

unintended consequences of a change 

could be addressed by CMS and 

stakeholders. 

Response: We agree with the 

commenter’s observation that there are 

substantial geographic differences in the 

location of IRF and IPF facilities. We 

would note that the CMS market 

baskets, including the RPL, necessarily 

reflect the relative costs of inputs for a 

given base year at the national level. We 

will continue to investigate the 

feasibility of creating a market basket 

that is nationally representative and is 

based on IPF and IRF data. Any changes 

to the market basket, including changes 

in methodology, would be subject to the 

rulemaking process. 

For this update cycle (FY 2012), we 

are finalizing our intent to continue to 

use an RPL market basket based on 

freestanding IRF, freestanding IPF, and 

long term care hospital (LTCH) data. We 

will continue to pursue the feasibility of 

creating two separate market baskets 

from the current RPL, one of which 

would include freestanding IRFs and 

freestanding IPFs and would be used to 

update payments under both the IPF 

and IRF payment systems. The other 

would be a stand-alone LTCH market 

basket. 

For this update cycle, we proposed to 

rebase and revise the FY 2002-based 

RPL market basket to a FY 2008-based 

RPL market basket. In the following 

discussion, we provide an overview of 

the market basket and describe the 

methodologies we use for purposes of 

determining the operating and capital 

portions of the proposed FY 2008-based 

RPL market basket. 

b. Overview of the FY 2008-Based RPL 

Market Basket 

The FY 2008-based RPL market basket 

is a fixed-weight, Laspeyres-type price 

index. A Laspeyres price index 

measures the change in price, over time, 

of the same mix of goods and services 

purchased in the base period. Any 

changes in the quantity or mix of goods 

and services (that is, intensity) 

purchased over time relative to a base 

period are not measured. 

The index itself is constructed in 

three steps. First, a base period is 

selected (in the proposed rule, the base 

period is FY 2008) and total base period 

expenditures are estimated for a set of 

mutually exclusive and exhaustive 

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spending categories with the proportion 

of total costs that each category 

represents being calculated. These 

proportions are called cost or 

expenditure weights. Second, each 

expenditure category is matched to an 

appropriate price or wage variable, 

referred to as a price proxy. In nearly 

every instance, these price proxies are 

derived from publicly available 

statistical series that are published on a 

consistent schedule (preferably at least 

on a quarterly basis). Finally, the 

expenditure weight for each cost 

category is multiplied by the level of its 

respective price proxy. The sum of these 

products (that is, the expenditure 

weights multiplied by their price levels) 

for all cost categories yields the 

composite index level of the market 

basket in a given period. Repeating this 

step for other periods produces a series 

of market basket levels over time. 

Dividing an index level for a given 

period by an index level for an earlier 

period produces a rate of growth in the 

input price index over that timeframe. 

As noted above, the market basket is 

described as a fixed-weight index 

because it represents the change in price 

over time of a constant mix (quantity 

and intensity) of goods and services 

needed to furnish hospital services. The 

effects on total expenditures resulting 

from changes in the mix of goods and 

services purchased subsequent to the 

base period are not measured. For 

example, a hospital hiring more nurses 

to accommodate the needs of patients 

would increase the volume of goods and 

services purchased by the hospital, but 

would not be factored into the price 

change measured by a fixed-weight 

hospital market basket. Only when the 

index is rebased would changes in the 

quantity and intensity be captured, with 

those changes being reflected in the cost 

weights. Therefore, we rebase the 

market basket periodically so that the 

cost weights reflect recent changes in 

the mix of goods and services that 

hospitals purchase (hospital inputs) to 

furnish inpatient care between base 

periods. 

c. Rebasing and Revising of the RPL 

Market Basket 

The terms ‘‘rebasing’’ and ‘‘revising,’’ 

while often used interchangeably, 

actually denote different activities. 

‘‘Rebasing’’ means moving the base year 

for the structure of costs of an input 

price index (for example, in the 

proposed rule, we proposed to shift the 

base year cost structure for the RPL 

market basket from FY 2002 to FY 

2008). ‘‘Revising’’ means changing data 

sources, price proxies, or methods, used 

to derive the input price index. For FY 

2012, we proposed to rebase and revise 

the market basket used to update the 

IRF PPS. 

(1) Development of Cost Categories and 

Weights 

(a) Medicare Cost Reports 

The FY 2008-based RPL market basket 

consists of several major cost categories 

derived from the FY 2008 Medicare cost 

reports for freestanding IRFs, 

freestanding IPFs, and LTCHs including 

wages and salaries, pharmaceuticals, 

professional liability insurance (PLI), 

capital, and a residual. This residual 

reflects all remaining costs that are not 

captured in the four cost categories 

listed above. The FY 2008 cost reports 

include providers whose cost report 

begin date is on or between October 1, 

2007, and September 30, 2008. We 

choose to use FY 2008 as the base year 

because we believe that the Medicare 

cost reports for this year represent the 

most recent, complete set of Medicare 

cost report data available for IRFs, IPFs, 

and LTCHs. However, there is an issue 

with obtaining data specifically for 

benefits and contract labor from this set 

of FY 2008 Medicare cost reports since 

IRFs, IPFs, and LTCHs were not 

required to complete the Medicare cost 

report worksheet from which these data 

were collected (Worksheet S–3, part II). 

As a result, only a small number of 

providers (less than 30 percent) reported 

data for these categories, and we do not 

expect these data to improve over time. 

Furthermore, since IRFs, IPFs, and 

LTCHs were not required to submit data 

for Worksheet S–3, part II in previous 

cost reporting years, we have always 

had this issue of incomplete Medicare 

cost report data for benefits and contract 

labor (including when we finalized the 

FY 2002-based RPL market basket). Due 

to the incomplete benefits and contract 

labor data for IRFs, IPFs, and LTCHs, we 

will develop these cost weights using 

FY 2008 Medicare cost report data for 

IPPS hospitals (similar to the method 

that was used for the FY 2002-based 

RPL market basket). Additional detail is 

provided later in this section. 

Since our goal is to measure cost 

shares that are reflective of case mix and 

practice patterns associated with 

providing services to Medicare 

beneficiaries, we proposed to limit our 

selection of Medicare cost reports to 

those from hospitals that have a 

Medicare average length of stay (LOS) 

that is within a comparable range of 

their total facility average LOS. We 

believe this provides a more accurate 

reflection of the structure of costs for 

Medicare covered days. We use the cost 

reports of IRFs and LTCHs with 

Medicare average LOS within 

15 percent (that is, 15 percent higher or 

lower) of the total facility average LOS 

for the hospital. This is the same edit 

applied to derive the FY 2002-based 

RPL market basket and generally 

includes those LTCHs and IRFs with 

Medicare LOS within approximately 

5 days of the facility average LOS of the 

hospital. 

We use a less stringent measure of 

Medicare LOS for IPFs. For this 

provider-type, and in order to produce 

a robust sample size, we will use those 

facilities’ Medicare cost reports whose 

average LOS is within 30 or 50 percent 

(depending on the total facility average 

LOS) of the total facility average LOS. 

This is the same edit applied to derive 

the FY 2002-based RPL market basket. 

We applied these LOS edits to first 

obtain a set of cost reports for facilities 

that have a Medicare LOS within a 

comparable range of their total facility 

LOS. Using this set of Medicare cost 

reports, we then calculated cost weights 

for 4 cost categories and a residual as 

represented by all other costs directly 

from the FY 2008 Medicare cost reports 

for freestanding IRFs, freestanding IPFs, 

and LTCHs (see Table 3 for these four 

cost categories and their associated 

weights). These Medicare cost report 

cost weights were then supplemented 

with information obtained from other 

data sources (explained in more detail 

below) to derive the proposed FY 2008- 

based RPL market basket cost weights. 

TABLE 3—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS AS CALCULATED DIRECTLY FROM FY 2008 

MEDICARE COST REPORTS

Major cost categories 

FY 2008- 

based RPL 

market basket 

(percent) 

Wages and salaries ............................................................................................................................................................................. 47.371 

Professional Liability Insurance (Malpractice) ..................................................................................................................................... 0.764 

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TABLE 3—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS AS CALCULATED DIRECTLY FROM FY 2008 

MEDICARE COST REPORTS—Continued 

Major cost categories 

FY 2008- 

based RPL 

market basket 

(percent) 

Pharmaceuticals .................................................................................................................................................................................. 6.514 

Capital .................................................................................................................................................................................................. 8.392 

All other ................................................................................................................................................................................................ 36.959 

(b) Other Data Sources 

In addition to the IRF, IPF and LTCH 

Medicare cost reports for freestanding 

IRFs and freestanding IPFs, and LTCHs, 

the other data sources we used to 

develop the proposed FY 2008-based 

RPL market basket cost weights were the 

FY 2008 IPPS Medicare cost reports and 

the Benchmark Input-Output (I–O) 

Tables created by the Bureau of 

Economic Analysis (BEA), U.S. 

Department of Commerce. The FY 2008 

Medicare cost reports include providers 

whose cost report begin date is on or 

between October 1, 2007 and September 

30, 2008. 

As noted above, the FY 2008-based 

RPL cost weights for benefits and 

contract labor were derived using FY 

2008-based IPPS Medicare cost reports. 

We used these Medicare cost reports to 

calculate cost weights for Wages and 

Salaries, Benefits, and Contract Labor 

for IPPS hospitals for FY 2008. For the 

Benefits cost weight for the FY 2008- 

based RPL market basket, the ratio of the 

FY 2008 IPPS Benefits cost weight to the 

FY 2008 IPPS Wages and Salaries cost 

weight was applied to the RPL Wages 

and Salaries cost weight. Similarly, the 

ratio of the FY 2008 IPPS Contract Labor 

cost weight to the FY 2008 IPPS Wages 

and Salaries cost weight was applied to 

the RPL Wages and Salaries cost weight 

to derive a Contract Labor cost weight 

for the proposed FY 2008-based RPL 

market basket. 

The All Other cost category is divided 

into other hospital expenditure category 

shares using the 2002 BEA Benchmark 

I–O data following the removal of the 

portions of the All Other cost category 

provided in Table 3 that are attributable 

to Benefits and Contract Labor. The BEA 

Benchmark I–O data are scheduled for 

publication every 5 years. The most 

recent data available are for 2002. BEA 

also produces Annual I–O estimates; 

however, the 2002 Benchmark I–O data 

represent a much more comprehensive 

and complete set of data that are derived 

from the 2002 Economic Census. The 

Annual 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 use the 

2002 Benchmark I–O data in the FY 

2008-based RPL market basket. Instead 

of using the less detailed Annual I–O 

data, we inflated the 2002 Benchmark 

I–O data forward to 2008. The 

methodology we used to inflate the data 

forward involves applying the annual 

price changes from the respective price 

proxies to the appropriate cost 

categories. We repeat this practice for 

each year. 

The ‘‘All Other’’ cost category 

expenditure shares are determined as 

being equal to each category’s 

proportion to total ‘‘all other’’ based on 

the inflated 2002 Benchmark I–O data. 

For instance, if the cost for telephone 

services represented 10 percent of the 

sum of the ‘‘all other’’ Benchmark I–O 

hospital expenditures, then telephone 

services would represent 10 percent of 

the RPL market basket’s All Other cost 

category. 

Comment: One commenter supported 

using the latest available data to update 

the IRF PPS; however, the commenter 

observed that CMS relied on acute care 

hospital data for certain items (that is, 

Employee Benefits, Contract Labor) that 

were not collected in the RPL settings. 

The commenter recommend that CMS 

consider revisions to the cost report data 

for the RPL settings to collect this 

information in advance of the next 

rebasing to allow the use of specific RPL 

data for all cost categories, weights, and 

price proxies. 

Response: Effective for cost reports 

beginning on or after May 1, 2010, we 

finalized a revised Hospital and 

Hospital Health Care Complex Cost 

Report, Form CMS 2552–10, which is 

available for download from the CMS 

Web page at http://www.cms.gov/ 

Transmittals/2010Trans/ 

list.asp?intNumPerPage=10 by clicking 

on the link to CMS Transmittal 

#R1P240. Form CMS 2552–10 includes 

a new worksheet (Worksheet S–3, part 

V) which identifies the contract labor 

costs and benefit costs for the hospital 

complex and is applicable to subproviders and units. We believe that all 

providers will report this data so that 

we will be able to include it in future 

market basket rebasings. 

(2) Final Cost Category Computation 

As stated previously, for this rebasing 

we proposed to use the Medicare cost 

reports for IRFs, IPFs, and LTCHs to 

derive four major cost categories. The 

proposed FY 2008-based RPL market 

basket includes 2 additional cost 

categories that were not broken out 

separately in the FY 2002-based RPL 

market basket: ‘‘Administrative and 

Business Support Services’’ and 

‘‘Financial Services’’. The inclusion of 

these 2 additional cost categories, which 

are derived using the Benchmark I–O 

data, is consistent with the addition of 

these two cost categories to the FY 2006- 

based IPPS market basket (74 FR 43845). 

We are breaking out both categories so 

we can better match their respective 

expenses with more appropriate price 

proxies. A thorough discussion of our 

rationale for each of these cost 

categories is provided in section 

VI.A.1.c.(3) of this final rule. Also, the 

FY 2008-based RPL market basket 

excludes 1 cost category: Photo 

Supplies. The 2002 Benchmark I–O 

weight for this category is considerably 

smaller than the 1997 Benchmark I–O 

weight, presently accounting for less 

than one-tenth of one percentage point 

of the RPL market basket. Therefore, we 

will include the photo supplies costs in 

the Chemical cost category weight with 

other similar chemical products. 

We are not changing our definition of 

the labor-related share. However, we are 

renaming our aggregate cost categories 

from ‘‘labor-intensive’’ and ‘‘nonlaborintensive’’ services to ‘‘labor-related’’ 

and ‘‘nonlabor-related’’ services. This is 

consistent with the FY 2006-based IPPS 

market basket (74 FR 43845). As 

discussed in more detail below and 

similar to the FY 2002-based RPL 

market basket, we classify a cost 

category as labor-related and include it 

in the labor-related share if the cost 

category is defined as being laborintensive and its cost varies with the 

local labor market. In previous 

regulations, we grouped cost categories 

that met both of these criteria into laborintensive services. We believe the new 

labels more accurately reflect the 

concepts that they are intended to 

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47852 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

convey. We are not changing our 

definition of the labor-related share 

because we continue to classify a cost 

category as labor-related if the costs are 

labor-intensive and vary with the local 

labor market. 

(3) Selection of Price Proxies 

After computing the FY 2008 cost 

weights for the rebased RPL market 

basket, it was necessary to select 

appropriate wage and price proxies to 

reflect the rate of price change for each 

expenditure category. With the 

exception of the proxy for PLI, all of the 

proxies for the operating portion of the 

proposed FY 2008-based RPL market 

basket are based on Bureau of Labor 

Statistics (BLS) data and are grouped 

into one of the following BLS categories: 

(a) Producer Price Indexes—Producer 

Price Indexes (PPIs) measure price 

changes for goods sold in markets other 

than the retail market. PPIs are 

preferable price proxies for goods and 

services that hospitals purchase as 

inputs because these PPIs better reflect 

the actual price changes faced by 

hospitals. For example, we use a special 

PPI for prescription drugs, rather than 

the Consumer Price Index (CPI) for 

prescription drugs, because hospitals 

generally purchase drugs directly from a 

wholesaler. The PPIs that we use 

measure price changes at the final stage 

of production. 

(b) Consumer Price Indexes—CPIs 

measure change in the prices of final 

goods and services bought by the typical 

consumer. Because they may not 

represent the price faced by a producer, 

we used CPIs only if an appropriate PPI 

was not available, or if the expenditures 

were more similar to those faced by 

retail consumers in general rather than 

by purchasers of goods at the wholesale 

level. For example, the CPI for food 

purchased away from home is used as 

a proxy for contracted food services. 

(c) Employment Cost Indexes— 

Employment Cost Indexes (ECIs) 

measure the rate of change in employee 

wage rates and employer costs for 

employee benefits per hour worked. 

These indexes are fixed-weight indexes 

and strictly measure the change in wage 

rates and employee benefits per hour. 

Appropriately, these indexes are not 

affected by shifts in employment mix. 

We evaluated the price proxies using 

the criteria of reliability, timeliness, 

availability, and relevance. Reliability 

indicates that the index is based on 

valid statistical methods and has low 

sampling variability. Timeliness implies 

that the proxy is published regularly, 

preferably at least once a quarter. 

Availability means that the proxy is 

publicly available. Finally, relevance 

means that the proxy is applicable and 

representative of the cost category 

weight to which it is applied. The 

proposed CPIs, PPIs, and ECIs selected 

meet these criteria. 

Table 4 sets forth the proposed FY 

2008-based RPL market basket including 

cost categories, and their respective 

weights and price proxies. For 

comparison purposes, the 

corresponding FY 2002-based RPL 

market basket cost weights are listed, as 

well. For example, Wages and Salaries 

are 49.447 percent of total costs in the 

proposed FY 2008-based RPL market 

basket compared to 52.895 percent for 

the FY 2002-based RPL market basket. 

Employee Benefits are 12.831 percent in 

the proposed FY 2008-based RPL market 

basket compared to 12.982 percent for 

the FY 2002-based RPL market basket. 

As a result, compensation costs (Wages 

and Salaries plus Employee Benefits) for 

the proposed FY 2008-based RPL market 

basket are 62.278 percent of total costs 

compared to 65.877 percent for the FY 

2002-based RPL market basket. 

Following Table 4 is a summary 

outlining the choice of the proxies we 

are using for the operating portion of the 

FY 2008-based RPL market basket. The 

price proxies for the capital portion are 

described in more detail in the capital 

methodology section (see section 

VI.A.1.c.(4) of this final rule). 

We note that the proxies for the 

operating portion of the FY 2008-based 

RPL market basket are the same as those 

used for the FY 2006-based IPPS 

operating market basket. Because these 

proxies meet our criteria of reliability, 

timeliness, availability, and relevance, 

we believe they are the best measures of 

price changes for the cost categories. For 

further discussion on the FY 2006-based 

IPPS market basket, see the IPPS final 

rule published in the August 27, 2009 

Federal Register (74 FR 43843). 

TABLE 4—FY 2008-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2002- 

BASED RPL MARKET BASKET COST WEIGHTS INCLUDED FOR COMPARISON

Cost categories 

FY 2008- 

based RPL 

market basket 

cost weights 

FY 2002- 

based RPL 

market basket 

cost weights 

FY 2008-based RPL market basket price proxies 

1. Compensation .......................................................... 62.278 65.877 

A. Wages and Salaries1 ............................................... 49.447 52.895 ECI for Wages and Salaries, Civilian Hospital Workers. 

B. Employee Benefits1 ................................................. 12.831 12.982 ECI for Benefits, Civilian Hospital Workers. 

2. Utilities ...................................................................... 1.578 0.656 

A. Electricity .................................................................. 1.125 0.351 PPI for Commercial Electric Power. 

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

C. Water and Sewage .................................................. 0.082 0.197 CPI–U for Water and Sewerage Maintenance. 

3. Professional Liability Insurance ................................ 0.764 1.161 CMS Hospital Professional Liability Insurance Premium Index. 

4. All Other Products and Services .............................. 26.988 22.158 

A. All Other Products .................................................... 15.574 13.325 

(1.) Pharmaceuticals ..................................................... 6.514 5.103 PPI for Pharmaceutical Preparations for Human Use 

(Prescriptions). 

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

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

(4.) Chemicals 2 ............................................................ 1.100 1.100 Blend of Chemical PPIs. 

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

(6.) Photographic Supplies ........................................... 0.096 

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

(8.) Paper and Printing Products .................................. 1.021 1.000 PPI for Converted Paper and Paperboard Products. 

(9.) Apparel ................................................................... 0.210 0.207 PPI for Apparel. 

(10.) Machinery and Equipment ................................... 0.106 0.297 PPI for Machinery and Equipment. 

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TABLE 4—FY 2008-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2002- 

BASED RPL MARKET BASKET COST WEIGHTS INCLUDED FOR COMPARISON—Continued 

Cost categories 

FY 2008- 

based RPL 

market basket 

cost weights 

FY 2002- 

based RPL 

market basket 

cost weights 

FY 2008-based RPL market basket price proxies 

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

B. All Other Services .................................................... 11.414 8.833 

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

(a.) Professional Fees: Labor-related 3 ........................ 2.114 2.892 ECI for Compensation for Professional and Related 

Occupations. 

(b.) Administrative and Business Support Services 4 ... 0.422 n/a ECI for Compensation for Office and Administrative 

Services. 

(c.) All Other: Labor-Related Services 5 ....................... 2.145 2.219 ECI for Compensation for Private Service Occupations. 

(2.) Nonlabor-Related Services .................................... 6.733 3.722 

(a.) Professional Fees: Nonlabor-Related 3 .................. 4.211 n/a ECI for Compensation for Professional and Related 

Occupations. 

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

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

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

(e.) All Other: Nonlabor-Related Services 4 ................. 0.623 2.800 CPI–U for All Items less Food and Energy. 

5. Capital-Related Costs .............................................. 8.392 10.149 

A. Depreciation ............................................................. 5.519 6.187 

(1.) Fixed Assets .......................................................... 3.286 4.250 BEA chained price index for nonresidential construction for hospitals and special care facilities—vintage 

weighted (26 years). 

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

(11 years). 

B. Interest Costs ........................................................... 1.954 2.775 

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

Buyer 20 bonds)—vintage-weighted (26 years). 

(2.) For Profit ................................................................ 1.301 0.694 Average yield on Moody’s Aaa bonds—vintageweighted (26 years). 

C. Other Capital-Related Costs .................................... 0.919 1.187 CPI–U for Residential Rent. 

Total ....................................................................... 100.000 100.000 

Note: Detail may not add to total due to rounding. 1 Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total compensation that each category 

represents. 2To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gases, the PPI for Other Basic Inorganic 

Chemical Manufacturing, the PPI for Other Basic Organic Chemical Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this proxy, see section V.A.1.c.(3).(c).(x) of this proposed rule. 3The Professional Fees: Labor-related and Professional Fees: Nonlabor-related cost categories were included in one cost category called Professional Fees in the FY 2002-based RPL market basket. For more detail about how these new categories were derived, we refer readers to 

sections VI.A.1.c.(3).(c).(xviii) and VI.A.1.c.(3).(c).(xxi) of this final rule. 4The 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. 5The Financial Services cost category was contained within the All Other: Non-labor Intensive Services cost category in the FY 2002-based 

RPL market basket. The All Other: Non-labor Intensive Services cost category is renamed the All Other: Nonlabor-related Services cost category 

for the FY 2008-based RPL market basket. 

(i) Wages and Salaries 

We use the ECI for Wages and Salaries 

for Hospital Workers (All Civilian) (BLS 

series code CIU1026220000000I) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(ii) Employee Benefits 

We use the ECI for Employee Benefits 

for Hospital Workers (All Civilian) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(iii) Electricity 

We use the PPI for Commercial 

Electric Power (BLS series code 

WPU0542). This same proxy was used 

in the FY 2002-based RPL market 

basket. 

(iv) Fuel, Oil, and Gasoline 

For the FY 2002-based RPL market 

basket, this category only included 

expenses classified under North 

American Industry Classification 

System (NAICS) 21 (Mining). We 

proxied this category using the PPI for 

Commercial Natural Gas (BLS series 

code WPU0552). For the FY 2008-based 

market basket, we add costs to this 

category that had previously been 

grouped in other categories. The added 

costs include petroleum-related 

expenses under NAICS 324110 

(previously captured in the 

miscellaneous category), as well as 

petrochemical manufacturing classified 

under NAICS 325110 (previously 

captured in the chemicals category). 

These added costs represent 80 percent 

of the hospital industry’s fuel, oil, and 

gasoline expenses (or 80 percent of this 

category). Because the majority of the 

industry’s fuel, oil, and gasoline 

expenses originate from petroleum 

refineries (NAICS 324110), we use the 

PPI for Petroleum Refineries (BLS series 

code PCU324110324110) as the proxy 

for this cost category. 

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(v) Water and Sewage 

We use the CPI for Water and 

Sewerage Maintenance (All Urban 

Consumers) (BLS series code 

CUUR0000SEHG01) to measure the 

price growth of this cost category. This 

same proxy was used in the FY 2002- 

based RPL market basket. 

(vi) Professional Liability Insurance 

We proxy price changes in hospital 

PLI premiums using percentage changes 

as estimated by the CMS Hospital 

Professional Liability Index. To generate 

these estimates, we collect commercial 

insurance premiums for a fixed level of 

coverage while holding non-price 

factors constant (such as a change in the 

level of coverage). This method is also 

used to proxy PLI price changes in the 

Medicare Economic Index (75 FR 

73268). This same proxy was used in 

the FY 2002-based RPL market basket. 

(vii) Pharmaceuticals 

We use the PPI for Pharmaceuticals 

for Human Use, Prescription (BLS series 

code WPUSI07003) to measure the price 

growth of this cost category. We note 

that we are not making a change to the 

PPI that is used to proxy this cost 

category. There was a recent change to 

the BLS naming convention for this 

series; however, this is the same proxy 

that was used in the FY 2002-based RPL 

market basket. 

(viii) Food: Direct Purchases 

We use the PPI for Processed Foods 

and Feeds (BLS series code WPU02) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(ix) Food: Contract Services 

We use the CPI for Food Away From 

Home (All Urban Consumers) (BLS 

series code CUUR0000SEFV) to measure 

the price growth of this cost category. 

This same proxy was used in the FY 

2002-based RPL market basket. 

(x) Chemicals 

We use a blended PPI composed of 

the PPI for Industrial Gas Manufacturing 

(NAICS 325120) (BLS series code 

PCU325120325120P), the PPI for Other 

Basic Inorganic Chemical 

Manufacturing (NAICS 325180) (BLS 

series code PCU32518–32518–), the PPI 

for Other Basic Organic Chemical 

Manufacturing (NAICS 325190) (BLS 

series code PCU32519–32519–), and the 

PPI for Soap and Cleaning Compound 

Manufacturing (NAICS 325610) (BLS 

series code PCU32561–32561–). Using 

the 2002 Benchmark I–O data, we found 

that these NAICS industries accounted 

for approximately 90 percent of the 

hospital industry’s chemical expenses. 

Therefore, we use this blended index 

because we believe its composition 

better reflects the composition of the 

purchasing patterns of hospitals than 

does the PPI for Industrial Chemicals 

(BLS series code WPU061), the proxy 

used in the FY 2002-based RPL market 

basket. Table 5 shows the weights for 

each of the four PPIs used to create the 

blended PPI, which we determined 

using the 2002 Benchmark I–O data. 

TABLE 5—BLENDED CHEMICAL PPI WEIGHTS

Name Weights 

(in percent) NAICS 

PPI for Industrial Gas Manufacturing .............................................................................................................. 35 325120 

PPI for Other Basic Inorganic Chemical Manufacturing ................................................................................. 25 325180 

PPI for Other Basic Organic Chemical Manufacturing .................................................................................... 30 325190 

PPI for Soap and Cleaning Compound Manufacturing ................................................................................... 10 325610 

(xi) Medical Instruments 

We use the PPI for Medical, Surgical, 

and Personal Aid Devices (BLS series 

code WPU156) to measure the price 

growth of this cost category. In the 1997 

Benchmark I–O data, approximately half 

of the expenses classified in this 

category were for surgical and medical 

instruments. Therefore, we used the PPI 

for Surgical and Medical Instruments 

and Equipment (BLS series code 

WPU1562) to proxy this category in the 

FY 2002-based RPL market basket. The 

2002 Benchmark I–O data show that 

surgical and medical instruments now 

represent only 33 percent of these 

expenses and that the largest expense 

category is surgical appliance and 

supplies manufacturing (corresponding 

to BLS series code WPU1563). Due to 

this reallocation of costs over time, we 

are changing the price proxy for this 

cost category to the more aggregated PPI 

for Medical, Surgical, and Personal Aid 

Devices. 

(xii) Photographic Supplies 

We eliminate the cost category 

specific to photographic supplies for the 

proposed FY 2008 based RPL market 

basket. These costs are now included in 

the Chemicals cost category because the 

costs are presently reported as all other 

chemical products. Notably, although 

we are eliminating the specific cost 

category, these costs are still accounted 

for within the RPL market basket. 

(xiii) Rubber and Plastics 

We use the PPI for Rubber and Plastic 

Products (BLS series code WPU07) to 

measure price growth of this cost 

category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(xiv) Paper and Printing Products 

We use the PPI for Converted Paper 

and Paperboard Products (BLS series 

code WPU0915) to measure the price 

growth of this cost category. This same 

proxy was used in the FY 2002-based 

RPL market basket. 

(xv) Apparel 

We use the PPI for Apparel (BLS 

series code WPU0381) to measure the 

price growth of this cost category. This 

same proxy was used in the FY 2002- 

based RPL market basket. 

(xvi) Machinery and Equipment 

We use the PPI for Machinery and 

Equipment (BLS series code WPU11) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(xvii) Miscellaneous Products 

We use the PPI for Finished Goods 

Less Food and Energy (BLS series code 

WPUSOP3500) to measure the price 

growth of this cost category. Using this 

index removes the double-counting of 

food and energy prices, which are 

already captured elsewhere in the 

market basket. This same proxy was 

used in the FY 2002-based RPL market 

basket. 

(xviii) Professional Fees: Labor-Related 

We use the ECI for Compensation for 

Professional and Related Occupations 

(Private Industry) (BLS series code 

CIS2020000120000I) to measure the 

price growth of this category. It includes 

occupations such as legal, accounting, 

and engineering services. This same 

proxy was used in the FY 2002-based 

RPL market basket. 

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(xix) Administrative and Business 

Support Services 

We use the ECI for Compensation for 

Office and Administrative Support 

Services (Private Industry) (BLS series 

code CIU2010000220000I) to measure 

the price growth of this category. 

Previously these costs were included in 

the All Other: Labor-intensive category 

(now renamed the All Other: Laborrelated Services category), and were 

proxied by the ECI for Compensation for 

Service Occupations. We believe that 

this compensation index better reflects 

the changing price of labor associated 

with the provision of administrative 

services and its incorporation represents 

a technical improvement to the market 

basket. 

(xx) All Other: Labor-Related Services 

We use the ECI for Compensation for 

Service Occupations (Private Industry) 

(BLS series code CIU2010000300000I) to 

measure the price growth of this cost 

category. This same proxy was used in 

the FY 2002-based RPL market basket. 

(xxi) Professional Fees: NonlaborRelated 

We use the ECI for Compensation for 

Professional and Related Occupations 

(Private Industry) (BLS series code 

CIS2020000120000I) to measure the 

price growth of this category. This is the 

same price proxy that we are using to 

use for the Professional Fees: Laborrelated cost category. 

(xxii) Financial Services 

We use the ECI for Compensation for 

Financial Activities (Private Industry) 

(BLS series code CIU201520A000000I) 

to measure the price growth of this cost 

category. Previously these costs were 

included in the All Other: Nonlaborintensive category (now renamed the All 

Other: Nonlabor-related Services 

category), and were proxied by the CPI 

for All Items. We believe that this 

compensation index better reflects the 

changing price of labor associated with 

the provision of financial services and 

its incorporation represents a technical 

improvement to the market basket. 

(xxiii) Telephone Services 

We use the CPI for Telephone 

Services (BLS series code 

CUUR0000SEED) to measure the price 

growth of this cost category. This same 

proxy was used in the FY 2002-based 

RPL market basket. 

(xxiv) Postage 

We use the CPI for Postage (BLS series 

code CUUR0000SEEC01) to measure the 

price growth of this cost category. This 

same proxy was used in the FY 2002- 

based RPL market basket. 

(xxv) All Other: Nonlabor-Related 

Services 

We use the CPI for All Items Less 

Food and Energy (BLS series code 

CUUR0000SA0L1E) to measure the 

price growth of this cost category. 

Previously these costs were proxied by 

the CPI for All Items in the FY 2002- 

based RPL market basket. We believe 

that using the CPI for All Items Less 

Food and Energy removes the double 

counting of changes in food and energy 

prices, as they are already captured 

elsewhere in the market basket. 

Consequently, we believe that the 

incorporation of this proxy represents a 

technical improvement to the market 

basket. 

Comment: One commenter observed 

that the compensation cost weight 

showed a decline from the FY 2002 to 

FY 2008 base year. The commenter 

noted that these reductions may be a 

result of low salary increases salary 

freezes or other similar factors and are 

not necessarily indicative of a reduction 

in the labor intensity of the services 

provided by IRFs. 

Response: We agree with the 

commenter that a variety of factors and 

trends can influence changes in the cost 

shares of the RPL market basket. 

Relative to growth in nonlabor costs, 

slower growth in the cost of labor (due 

to low salary increases or freezes in 

salary), could result in a lower cost 

weight associated with wages and 

salaries. Likewise, stable growth in labor 

costs coupled with relatively faster 

growth in nonlabor costs could also 

result in a lower cost weight associated 

with wages and salaries. As the rebased 

and revised 2008-based RPL market 

basket’s cost weights reflect an updated 

distribution of costs and represent the 

best available data, we are finalizing this 

market basket in this final rule. 

(4) Methodology for Capital Portion of 

the RPL Market Basket 

In the FY 2002-based RPL market 

basket, we did not have freestanding 

IRF, freestanding IPF, and LTCH 2002 

Medicare cost report data for the capital 

cost weights, due to a change in the 

2002 reporting requirements. Therefore, 

we used these hospitals’ 2001 

expenditure data for the capital cost 

categories of depreciation, interest, and 

other capital expenses, and inflated the 

data to a 2002 base year using relevant 

price proxies. 

For the FY 2008-based RPL market 

basket, we calculate weights for the 

proposed RPL market basket capital 

costs using the same set of FY 2008 

Medicare cost reports used to develop 

the operating share for IRFs, IPFs, and 

LTCHs. To calculate the total capital 

cost weight, we first apply the same 

LOS edits as applied when calculating 

the operating cost weights as described 

above in section VI.A.1.c.(1)(a) of this 

final rule. The resulting capital weight 

for the FY 2008 base year is 8.392 

percent. 

Lease expenses are unique in that 

they are not broken out as a separate 

cost category in the RPL market basket, 

but rather are proportionally distributed 

amongst the cost categories of 

Depreciation, Interest, and Other, 

reflecting the assumption that the 

underlying cost structure of leases is 

similar to that of capital costs in general. 

As was done in the FY 2002-based RPL 

market basket, we first assumed 10 

percent of lease expenses represents 

overhead and assigned those costs to the 

‘‘Other Capital-Related Costs’’ category 

accordingly. The remaining lease 

expenses were distributed across the 3 

cost categories based on the respective 

weights of depreciation, interest, and 

other capital not including lease 

expenses. 

Depreciation contains two 

subcategories: (1) Building and Fixed 

Equipment; and (2) Movable Equipment. 

The apportionment between building 

and fixed equipment and movable 

equipment was determined using the FY 

2008 Medicare cost reports for 

freestanding IRFs, freestanding IPFs, 

and LTCHs. This methodology was also 

used to compute the apportionment 

used in the FY 2002-based RPL market 

basket (70 FR 47912). 

The total Interest expense cost 

category is split between government/ 

nonprofit interest and for-profit interest. 

The FY 2002-based RPL market basket 

allocated 75 percent of the total Interest 

cost weight to government/nonprofit 

interest and proxied that category by the 

average yield on domestic municipal 

bonds. The remaining 25 percent of the 

Interest cost weight was allocated to forprofit interest and was proxied by the 

average yield on Moody’s Aaa bonds 

(70 FR 47912). This was based on the 

FY 2002-based IPPS Capital input price 

index (CIPI) (70 FR 23406) due to 

insufficient Medicare cost report data 

for freestanding IRFs, freestanding IPFs, 

and LTCHs. For the FY 2008-based RPL 

market basket, we proposed to derive 

the split using the FY 2008 Medicare 

cost report data on interest expenses for 

government/nonprofit and for-profit 

freestanding IRFs, freestanding IPFs, 

and LTCHs. Based on these data, we 

calculated a 33/67 split between 

government/nonprofit and for-profit 

interest. We believe it is important that 

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47856 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

this split reflects the latest relative cost 

structure of interest expenses for RPL 

providers. As stated above, we first 

apply the LOS edits (as described in 

section VI.A.1.c.(1)(a) of this final rule) 

prior to calculating this split. Therefore, 

we are using cost reports that are 

reflective of case mix and practice 

patterns associated with providing 

services to Medicare beneficiaries. 

Using data specific to government/ 

nonprofit and for-profit freestanding 

IRFs, freestanding IPFs, and LTCHs as 

well as the application of these LOS 

edits are the primary reasons for the 

difference in this split relative to the FY 

2002-based RPL market basket. 

Because capital is acquired and paid 

for over time, capital expenses in any 

given year are determined by both past 

and present purchases of physical and 

financial capital. The vintage-weighted 

capital portion of the FY 2008-based 

RPL market basket is intended to 

capture the long-term consumption of 

capital, using vintage weights for 

depreciation (physical capital) and 

interest (financial capital). These 

vintage weights reflect the proportion of 

capital purchases attributable to each 

year of the expected life of building and 

fixed equipment, movable equipment, 

and interest. We use the vintage weights 

to compute vintage-weighted price 

changes associated with depreciation 

and interest expense. 

Vintage weights are an integral part of 

the proposed FY 2008-based RPL market 

basket. Capital costs are inherently 

complicated and are determined by 

complex capital purchasing decisions, 

over time, based on such factors as 

interest rates and debt financing. In 

addition, capital is depreciated over 

time instead of being consumed in the 

same period it is purchased. The capital 

portion of the FY 2008-based RPL 

market basket reflects the annual price 

changes associated with capital costs, 

and would be a useful simplification of 

the actual capital investment process. 

By accounting for the vintage nature of 

capital, we are able to provide an 

accurate and stable annual measure of 

price changes. Annual nonvintage price 

changes for capital are unstable due to 

the volatility of interest rate changes 

and, therefore, do not reflect the actual 

annual price changes for Medicare 

capital-related costs. The capital 

component of the proposed FY 2008- 

based RPL market basket reflects the 

underlying stability of the capital 

acquisition process and provides 

hospitals with the ability to plan for 

changes in capital payments. 

To calculate the vintage weights for 

depreciation and interest expenses, we 

needed a time series of capital 

purchases for building and fixed 

equipment and movable equipment. We 

found no single source that provides an 

appropriate time series of capital 

purchases by hospitals for all of the 

above components of capital purchases. 

The early Medicare cost reports did not 

have sufficient capital data to meet this 

need. Data we obtained from the 

American Hospital Association (AHA) 

do not include annual capital 

purchases. However, AHA does provide 

a consistent database back to 1963. We 

used data from the AHA Panel Survey 

and the AHA Annual Survey to obtain 

a time series of total expenses for 

hospitals. We then used data from the 

AHA Panel Survey supplemented with 

the ratio of depreciation to total hospital 

expenses obtained from the Medicare 

cost reports to derive a trend of annual 

depreciation expenses for 1963 through 

2008. 

To estimate capital purchases using 

data on depreciation expenses, the 

expected life for each cost category 

(building and fixed equipment, movable 

equipment, and interest) is needed to 

calculate vintage weights. For the FY 

2002-based RPL market basket, due to 

insufficient Medicare cost report data 

for freestanding IRFs, freestanding IPFs, 

and LTCHs, we used 2001 Medicare 

Cost Reports for IPPS hospitals to 

determine the expected life of building 

and fixed equipment and movable 

equipment (70 FR 47913). The FY 2002- 

based RPL market basket was based on 

an expected life of building and fixed 

equipment of 23 years. It used 11 years 

as the expected life for movable 

equipment. We believed that this data 

source reflected the latest relative cost 

structure of depreciation expenses for 

hospitals at the time and was analogous 

to freestanding IRFs, freestanding IPFs, 

and LTCHs. 

The expected life of any piece of 

equipment can be determined by 

dividing the value of the asset 

(excluding fully depreciated assets) by 

its current year depreciation amount. 

This calculation yields the estimated 

useful life of an asset if depreciation 

were to continue at current year levels, 

assuming straight-line depreciation. 

Following a similar method to what was 

applied for the FY 2002-based RPL 

market basket, we use the expected life 

of building and fixed equipment to be 

equal to 26 years, and the expected life 

of movable equipment to be 11 years. 

These expected lives are calculated 

using FY 2008 Medicare cost reports for 

IPPS hospitals since we are currently 

unable to obtain robust measures of the 

expected lives for building and fixed 

equipment and movable equipment 

using the Medicare cost reports from 

freestanding IRFs, freestanding IPFs, 

and LTCHs. 

We also use the building and fixed 

equipment and movable equipment 

weights derived from FY 2008 Medicare 

cost reports for freestanding IRFs, 

freestanding IPFs, and LTCHs to 

separate the depreciation expenses into 

annual amounts of building and fixed 

equipment depreciation and movable 

equipment depreciation. Year-end asset 

costs for building and fixed equipment 

and movable equipment were 

determined by multiplying the annual 

depreciation amounts by the expected 

life calculations. We then calculated a 

time series, back to 1963, of annual 

capital purchases by subtracting the 

previous year asset costs from the 

current year asset costs. From this 

capital purchase time series, we were 

able to calculate the vintage weights for 

building and fixed equipment and for 

movable equipment. Each of these sets 

of vintage weights is explained in more 

detail below. 

For the building and fixed equipment 

vintage weights, we used the real annual 

capital purchase amounts for building 

and fixed equipment to capture the 

actual amount of the physical 

acquisition, net of the effect of price 

inflation. This real annual purchase 

amount for building and fixed 

equipment was produced by deflating 

the nominal annual purchase amount by 

the building and fixed equipment price 

proxy, BEA’s chained price index for 

nonresidential construction for 

hospitals and special care facilities. 

Because building and fixed equipment 

have an expected life of 26 years, the 

vintage weights for building and fixed 

equipment are deemed to represent the 

average purchase pattern of building 

and fixed equipment over 26-year 

periods. With real building and fixed 

equipment purchase estimates available 

from 2008 back to 1963, we averaged 

twenty 26-year periods to determine the 

average vintage weights for building and 

fixed equipment that are representative 

of average building and fixed equipment 

purchase patterns over time. Vintage 

weights for each 26-year period are 

calculated by dividing the real building 

and fixed capital purchase amount in 

any given year by the total amount of 

purchases in the 26-year period. This 

calculation is done for each year in the 

26-year period, and for each of the 

twenty 26-year periods. We used the 

average of each year across the twenty 

26-year periods to determine the average 

building and fixed equipment vintage 

weights for the FY 2008-based RPL 

market basket. 

For the movable equipment vintage 

weights, the real annual capital 

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purchase amounts for movable 

equipment were used to capture the 

actual amount of the physical 

acquisition, net of price inflation. This 

real annual purchase amount for 

movable equipment was calculated by 

deflating the nominal annual purchase 

amounts by the movable equipment 

price proxy, the PPI for Machinery and 

Equipment. This is the same proxy used 

for the FY 2002-based RPL market 

basket. Based on our determination that 

movable equipment has an expected life 

of 11 years, the vintage weights for 

movable equipment represent the 

average expenditure for movable 

equipment over an 11-year period. With 

real movable equipment purchase 

estimates available from 2008 back to 

1963, thirty-five 11-year periods were 

averaged to determine the average 

vintage weights for movable equipment 

that are representative of average 

movable equipment purchase patterns 

over time. Vintage weights for each 11- 

year period are calculated by dividing 

the real movable capital purchase 

amount for any given year by the total 

amount of purchases in the 11-year 

period. This calculation was done for 

each year in the 11-year period and for 

each of the thirty-five 11-year periods. 

We used the average of each year across 

the thirty-five 11-year periods to 

determine the average movable 

equipment vintage weights for the FY 

2008-based RPL market basket. 

For the interest vintage weights, the 

nominal annual capital purchase 

amounts for total equipment (building 

and fixed, and movable) were used to 

capture the value of the debt 

instrument. Because we have 

determined that hospital debt 

instruments have an expected life of 26 

years, the vintage weights for interest 

are deemed to represent the average 

purchase pattern of total equipment 

over 26-year periods. With nominal total 

equipment purchase estimates available 

from 2008 back to 1963, twenty 26-year 

periods were averaged to determine the 

average vintage weights for interest that 

are representative of average capital 

purchase patterns over time. Vintage 

weights for each 26-year period are 

calculated by dividing the nominal total 

capital purchase amount for any given 

year by the total amount of purchases in 

the 26-year period. This calculation is 

done for each year in the 26-year period 

and for each of the twenty 26-year 

periods. We used the average of each 

year across the twenty 26-year periods 

to determine the average interest vintage 

weights for the FY 2008-based RPL 

market basket. The vintage weights for 

the capital portion of the FY 2002-based 

RPL market basket and the FY 2008- 

based RPL market basket are presented 

in Table 6. 

TABLE 6—FY 2002 AND FY 2008 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES

Year 

Building and fixed 

equipment 

Movable Equipment Interest 

FY 2002 

23 years 

FY 2008 

26 years 

FY 2002 

11 years 

FY 2008 

11 years 

FY 2002 

23 years 

FY 2008 

26 years 

1 ............................................................... 0.021 0.021 0.065 0.071 0.010 0.010 

2 ............................................................... 0.022 0.023 0.071 0.075 0.012 0.012 

3 ............................................................... 0.025 0.025 0.077 0.080 0.014 0.014 

4 ............................................................... 0.027 0.027 0.082 0.083 0.016 0.016 

5 ............................................................... 0.029 0.028 0.086 0.085 0.019 0.018 

6 ............................................................... 0.031 0.030 0.091 0.089 0.023 0.020 

7 ............................................................... 0.033 0.031 0.095 0.092 0.026 0.021 

8 ............................................................... 0.035 0.033 0.100 0.098 0.029 0.024 

9 ............................................................... 0.038 0.035 0.106 0.103 0.033 0.026 

10 ............................................................. 0.040 0.037 0.112 0.109 0.036 0.029 

11 ............................................................. 0.042 0.039 0.117 0.116 0.039 0.033 

12 ............................................................. 0.045 0.041 ........................ ........................ 0.043 0.035 

13 ............................................................. 0.047 0.042 ........................ ........................ 0.048 0.038 

14 ............................................................. 0.049 0.043 ........................ ........................ 0.053 0.041 

15 ............................................................. 0.051 0.044 ........................ ........................ 0.056 0.043 

16 ............................................................. 0.053 0.045 ........................ ........................ 0.059 0.046 

17 ............................................................. 0.056 0.046 ........................ ........................ 0.062 0.049 

18 ............................................................. 0.057 0.047 ........................ ........................ 0.064 0.052 

19 ............................................................. 0.058 0.047 ........................ ........................ 0.066 0.053 

20 ............................................................. 0.060 0.045 ........................ ........................ 0.070 0.053 

21 ............................................................. 0.060 0.045 ........................ ........................ 0.071 0.055 

22 ............................................................. 0.061 0.045 ........................ ........................ 0.074 0.056 

23 ............................................................. 0.061 0.046 ........................ ........................ 0.076 0.060 

24 ............................................................. ........................ 0.046 ........................ ........................ ........................ 0.063 

25 ............................................................. ........................ 0.045 ........................ ........................ ........................ 0.064 

26 ............................................................. ........................ 0.046 ........................ ........................ ........................ 0.068 

Total .................................................. 1.000 1.000 1.000 1.000 1.000 1.000 

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

After the capital cost category weights 

were computed, it was necessary to 

select appropriate price proxies to 

reflect the rate-of-increase for each 

expenditure category. We use the same 

price proxies for the capital portion of 

the FY 2008-based RPL market basket 

that were used in the FY 2002-based 

RPL market basket with the exception of 

the Boeckh Construction Index. We 

replaced the Boeckh Construction Index 

with BEA’s chained price index for 

nonresidential construction for 

hospitals and special care facilities. The 

BEA index represents construction of 

facilities such as hospitals, nursing 

homes, hospices, and rehabilitation 

centers. Although these price indices 

move similarly over time, we believe 

that it is more technically appropriate to 

use an index that is more specific to the 

hospital industry. We believe these are 

the most appropriate proxies for 

hospital capital costs that meet our 

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selection criteria of relevance, 

timeliness, availability, and reliability. 

The price proxies (prior to any vintage 

weighting) for each of the capital cost 

categories are the same as those used for 

the FY 2006-based CIPI as described in 

the IPPS FY 2010 final rule (74 FR at 

43857). 

We received no comments related to 

the proposed capital portion of the RPL 

methodology including the selection of 

cost categories, cost weights, and the 

price proxies. Therefore, we are 

finalizing the capital portion of the 

2008-based RPL market basket as 

proposed with no further changes. 

(5) FY 2012 RPL Market Basket Update 

Factor for IRFs 

For FY 2012 (that is, beginning 

October 1, 2011 and ending September 

30, 2012), we will use an estimate of the 

FY 2008-based RPL market basket 

increase factor based on the best 

available data. Consistent with 

historical practice, we estimate the RPL 

market basket update for the IRF PPS 

based on IHS Global Insight’s forecast 

using the most recent available data. 

IHS Global Insight (IGI), Inc. is a 

nationally recognized economic and 

financial forecasting firm that contracts 

with CMS to forecast the components of 

the market baskets. 

Based on IGI’s 1st quarter 2011 

forecast with historical data through the 

fourth quarter of 2010, the projected 

market basket increase factor for FY 

2012 was 2.8 percent. Consistent with 

our historical practice of estimating 

market basket increases based on the 

best available data, we proposed a 

market basket increase factor of 2.8 

percent for FY 2012. We also proposed 

that if more recent data became 

subsequently available (for example, a 

more recent estimate of the market 

basket), we would use that data, if 

appropriate, to determine the FY 2012 

update in the final rule. 

Based on IGI’s second quarter 2011 

forecast with history through the first 

quarter of 2011, the projected market 

basket update for FY 2012 based on the 

2008-based RPL market basket is 2.9 

percent. 

Using the current FY 2002-based RPL 

market basket and IGI’s second quarter 

2011 forecast for the market basket 

components, the FY 2012 update would 

be 3.0 percent (before taking into 

account any statutory adjustments). 

Table 7 compares the FY 2008-based 

RPL market basket and the FY 2002- 

based RPL market basket percent 

changes. 

TABLE 7—FY 2002-BASED AND FY 2008-BASED RPL MARKET BASKET PERCENT CHANGES, FY 2006 THROUGH FY 

2014 

Fiscal year (FY) 

FY 2002-based 

RPL market basket 

index percent 

change 

FY 2008-based 

RPL market basket 

index percent 

change 

Historical data: 

FY 2006 ............................................................................................................................................ 3.9 3.7 

FY 2007 ............................................................................................................................................ 3.4 3.4 

FY 2008 ............................................................................................................................................ 3.8 3.7 

FY 2009 ............................................................................................................................................ 2.5 2.7 

FY 2010 ............................................................................................................................................ 2.3 2.2 

Average 2006–2010 ......................................................................................................................... 3.2 3.1 

Forecast: 

FY 2011 ............................................................................................................................................ 2.7 2.7 

FY 2012 ............................................................................................................................................ 3.0 2.9 

FY 2013 ............................................................................................................................................ 3.0 2.9 

FY 2014 ............................................................................................................................................ 3.0 3.0 

Average 2011–2014 ......................................................................................................................... 2.9 2.9 

Note that these market basket percent changes do not include any further adjustments as may be statutorily required. 

Source: IHS Global Insight, Inc. 2nd quarter 2011 forecast. 

For FY 2012, the FY 2008-based RPL 

market basket update (2.9 percent) is 

slightly lower than the FY 2002-based 

RPL market basket update (3.0 percent). 

The lower total compensation weight in 

the FY 2008-based RPL market basket 

(62.278 percent) relative to the FY 2002- 

based RPL market basket (65.877 

percent), absent other factors, would 

have resulted in a slightly lower market 

basket update using the FY 2008-based 

RPL market basket. This impact, 

however, is partially offset by the larger 

weight associated with the Professional 

Fees category. In both market baskets, 

these expenditures are proxied by the 

ECI for Compensation for Professional 

and Related Services. The weight for 

Professional Fees in the FY 2002-based 

RPL market basket is 2.892 percent 

compared to 6.325 percent in the 

proposed FY 2008-based RPL market 

basket. The net effect is that the market 

basket update is slightly lower for FY 

2012 based on the FY 2008-based RPL 

market basket relative to the FY 2002- 

based RPL market basket. 

Comment: Several commenters 

expressed support that CMS update the 

RPL market basket with more recent 

cost data. They note that using more upto-date cost report data (2008) makes the 

RPL market basket more representative 

of the costs faced by IRF providers 

relative to more outdated cost report 

data (2002). 

Response: We agree that the use of 

more recent cost report data allows for 

the index to better reflect the actual 

costs faced by IRF providers. Based on 

the positive comments received 

regarding the rebasing of the RPL market 

basket, we are finalizing our proposal to 

rebase and revise the index. Based on 

IGI’s second quarter 2011 forecast with 

history through the first quarter of 2011, 

the projected market basket update for 

FY 2012 is 2.9 percent. Therefore, 

consistent with our historical practice of 

estimating market basket increases 

based on the best available data, we are 

finalizing a market basket update of 2.9 

percent for FY 2012. 

2. Productivity Adjustment 

According to section 1886(j)(3)(C)(i) of 

the Act, the Secretary shall establish an 

increase factor ‘‘based on an appropriate 

percentage increase in a market basket 

of goods and services.’’ As described in 

section VI.A.1 of this final rule, we 

estimate the IRF PPS increase factor for 

FY 2012 based on the FY 2008-based 

RPL market basket. Section 

1886(j)(3)(C)(ii) of the Act then requires 

that, after establishing the increase 

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factor for a FY, ‘‘the Secretary shall 

reduce such increase factor for FY 2012 

and each subsequent FY, by the 

productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II)’’ of the Act. 

Section 1886(b)(3)(B)(xi)(II) of the Act 

sets forth the definition of this 

productivity adjustment. The statute 

defines the productivity adjustment to 

be equal to the 10-year moving average 

of changes in annual economy-wide 

private nonfarm business multifactor 

productivity (MFP) (as projected by the 

Secretary for the 10-year period ending 

with the applicable FY cost reporting 

period, or other annual period) (the 

‘‘MFP adjustment’’). The Bureau of 

Labor Statistics (BLS) is the agency that 

publishes the official measure of private 

nonfarm business MFP. We refer readers 

to the BLS Web site at http:// 

www.bls.gov/mfp to obtain the historical 

BLS-published MFP data. 

The projection of MFP is currently 

produced by IGI, an economic 

forecasting firm. In order to generate a 

forecast of MFP, IGI replicated the MFP 

measure calculated by the BLS using a 

series of proxy variables derived from 

IGI’s U.S. macroeconomic models. 

These models take into account a very 

broad range of factors that influence the 

total U.S. economy. IGI forecasts the 

underlying proxy components such as 

Gross Domestic Product (GDP), capital, 

and labor inputs required to estimate 

MFP and then combines those 

projections according to the BLS 

methodology. In Table 8, we identify 

each of the major MFP component series 

employed by the BLS to measure MFP. 

We also provide the corresponding 

concepts forecasted by IGI and 

determined to be the best available 

proxies for the BLS series. 

TABLE 8—MULTIFACTOR PRODUCTIVITY COMPONENT SERIES EMPLOYED BY THE BUREAU OF LABOR STATISTICS AND IHS 

GLOBAL INSIGHT

BLS series IGI series 

Real value-added output, constant 2005 dollars ..................................... Non-housing, non-government, non-farm real GDP, Billions of chained 

2005 dollars ¥ annual rate. 

Private non-farm business sector labor input; 2005 = 100.00 ................. Hours of all persons in private non-farm establishments, 2005 = 

100.00, adjusted for labor composition effects. 

Aggregate capital inputs; 2005 = 100.00 ................................................. Real effective capital stock used for full employment GDP, Billions of 

chained 2005 dollars. 

IGI found that the historical growth 

rates of the BLS components used to 

calculate MFP and the IGI components 

identified are consistent across all series 

and therefore suitable proxies for 

calculating MFP. We have included 

below a more detailed description of the 

methodology used by IGI to construct a 

forecast of MFP, which is aligned 

closely with the methodology employed 

by the BLS. For more information 

regarding the BLS method for estimating 

productivity, see the BLS Web site at 

http://www.bls.gov/mfp/mprtech.pdf. 

At the time of the development of the 

FY 2012 final rule, the BLS had 

published a historical time series of 

private nonfarm business MFP for 1987 

through 2010, with 2010 being a 

preliminary value. Using this historical 

MFP series and the IGI forecasted series, 

IGI has developed a forecast of MFP for 

2011 through 2021, as described below. 

To create a forecast of BLS’ MFP 

index, the forecasted annual growth 

rates of the ‘‘non-housing, nongovernment, non-farm, real GDP’’, 

‘‘hours of all persons in private nonfarm establishments adjusted for labor 

composition,’’ and ‘‘real effective capital 

stock’’ series (ranging from 2011 to 

2021) are used to ‘‘grow’’ the levels of 

the ‘‘real value-added output,’’ ‘‘private 

non-farm business sector labor input,’’ 

and ‘‘aggregate capital inputs’’ series 

published by the BLS. Projections of the 

‘‘hours of all persons’’ measure are 

calculated using the difference between 

projections of the BLS index of output 

per hour and real GDP. This difference 

is then adjusted to account for changes 

in labor composition in the forecast 

interval. 

Using these 3 key concepts, MFP is 

derived by subtracting the contribution 

of labor and capital inputs from output 

growth. However, in order to estimate 

MFP, we need to understand the relative 

contributions of labor and capital to 

total output growth. Therefore, 2 

additional measures are needed to 

operationalize the estimation of the IGI 

MFP projection: Labor compensation 

and capital income. The sum of labor 

compensation and capital income 

represents total income. The BLS 

calculates labor compensation and 

capital income (in current dollar terms) 

to derive the nominal values of labor 

and capital inputs. IGI uses the ‘‘nongovernment total compensation’’ and 

‘‘flow of capital services from the total 

private non-residential capital stock’’ 

series as proxies for the BLS’ income 

measures. These two proxy measures for 

income are divided by total income to 

obtain the shares of labor compensation 

and capital income to total income. To 

estimate labor’s contribution and 

capital’s contribution to the growth in 

total output, the growth rates of the 

proxy variables for labor and capital 

inputs are multiplied by their respective 

shares of total income. These 

contributions, of labor and capital to 

output growth, are subtracted from total 

output growth to calculate the ‘‘change 

in the growth rates of multifactor 

productivity’’: 

MFP = Total output growth ¥ ((labor 

input growth * labor compensation 

share) + (capital input growth * 

capital income share)) 

The change in the growth rates (also 

referred to as the compound growth 

rates) of the IGI MFP are multiplied by 

100 in order to calculate the percent 

change in growth rates (the percent 

change in growth rates are published by 

the BLS for its historical MFP measure). 

Finally, the growth rates of the IGI MFP 

are converted to index levels based to 

2005 to be consistent with the BLS’ 

methodology. For benchmarking 

purposes, the historical growth rates of 

IGI’s proxy variables were used to 

estimate a historical measure of MFP, 

which was compared to the historical 

MFP estimate published by the BLS. 

The comparison revealed that the 

growth rates of the components were 

consistent across all series, and 

therefore validated the use of the proxy 

variables in generating the IGI MFP 

projections. The resulting MFP index 

was then interpolated to a quarterly 

frequency using the Bassie method for 

temporal disaggregation. The Bassie 

technique utilizes an indicator (pattern) 

series for its calculations. IGI uses the 

index of output per hour (published by 

the BLS) as an indicator when 

interpolating the MFP index. 

3. Calculation of the IRF PPS Market 

Basket Increase Factor for FY 2012 

To calculate the MFP-adjusted IRF 

PPS increase factor for FY 2012, in 

accordance with section 1886(j)(3)(C) of 

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the Act, we start with the FY 2008-based 

RPL market basket increase factor 

described above in section VI.A.1. of 

this final rule and subtract from that the 

MFP percentage adjustment described 

in section VI.A.2. of this final rule. 

Additionally, in accordance with 

sections 1886(j)(3)(C)(ii)(II) and (D)(ii) of 

the Act, we further proposed to reduce 

the MFP-adjusted IRF PPS increase 

factor by 0.1 percentage point for FY 

2012. 

Specifically, in calculating the MFP 

percentage adjustment, the end of the 

10-year moving average of changes in 

the MFP should coincide with the end 

of the appropriate FY update period. 

Since the market basket update is 

reduced by the MFP adjustment to 

determine the annual update for the IRF 

PPS, we believe it is appropriate for the 

numbers associated with both 

components of the calculation (the 

market basket and the productivity 

adjustment) to line up so that changes 

in market conditions are aligned. 

Therefore, for the FY 2012 update, the 

MFP adjustment is calculated as the 

10-year moving average of changes in 

MFP for the period ending September 

30, 2012. We round the final annual 

adjustment to the one-tenth of 1 

percentage point level up or down as 

applicable according to conventional 

rounding rules (that is, if the number we 

are rounding is followed by 5, 6, 7, 8, 

or 9, we will round the number up; if 

the number we are rounding is followed 

by 0, 1, 2, 3, or 4, we will round the 

number down). 

Thus, in accordance with section 

1886(j)(3)(C) of the Act, the proposed 

IRF PPS increase factor for FY 2012 was 

based on the 1st quarter 2011 forecast of 

the proposed FY 2008-based RPL market 

basket update, which was estimated to 

be 2.8 percent. This increase factor was 

then reduced by the proposed MFP 

adjustment (the 10-year moving average 

of MFP for the period ending FY 2012) 

of 1.2 percentage points, based on the 

methodology described above and IHS 

Global Insight’s 1st quarter 2011 

forecast. The increase factor for FY 2012 

was then further reduced by 0.1 

percentage point in accordance with 

sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act. The resulting 

proposed IRF PPS increase factor 

reduced by the productivity adjustment 

and the ‘‘other adjustment’’ for FY 2012 

was equal to 1.5 percent, or 2.8 percent 

less 1.2 percentage points (for the MFP) 

less 0.1 percentage point in accordance 

with sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act. Consistent 

with historical practice, we update the 

market basket increase factor estimate 

and the MFP adjustment in this final 

rule to reflect the most recent available 

data. 

Comment: Several commenters 

recognized that the productivity 

adjustment is mandated by law (section 

3401(d) of the Affordable Care Act). 

However, they expressed concern about 

the negative impact that it could have 

on IRF providers and the beneficiaries 

they serve. They recommend that CMS 

takes steps to mitigate any negative 

effects caused by the MFP reduction. 

Response: Section 3401(d) of the 

Affordable Care Act mandates that the 

market basket used to update IRF 

payments be reduced by a productivity 

adjustment beginning in FY 2012. As a 

result, we have no discretionary 

authority in this area, and we are 

applying this reduction in this final 

rule. 

Comment: Several commenters stated 

that the provision of inpatient 

rehabilitation services is largely 

dependent on skilled rehabilitation 

physicians, therapists, nurses, and other 

highly trained personnel and that 

efficiencies which might result from use 

of advanced technology are more 

limited in this setting than may be 

observed in the general economy. One 

commenter noted that many of the 

treatment plans in the IRF setting do not 

lend themselves to continual 

productivity improvements. The 

commenter stated that it will be 

challenging for efficient providers, over 

time, to achieve continued efficiencies 

at a rate that will be required by ongoing 

application of productivity adjustments. 

Response: We recognize that a 

complex and sophisticated mix of 

inputs are required to provide care to 

IRF patients. However, the agency is 

required by law to apply the MFP 

adjustment to provider payments as 

stipulated by section 3401(d) of the 

Affordable Care Act. 

Comment: Several commenters 

suggested that CMS carefully monitor 

the impact that these MFP adjustments 

will have on the IRF hospital sector and 

provide feedback to Congress as 

appropriate. 

Response: We will continue to 

monitor the effect of the MFP 

adjustments and share the results with 

policymakers. That practice will 

continue as we implement other 

provisions mandated by the Affordable 

Care Act. 

Final Decision: After careful 

consideration of the public comments, 

we are finalizing our proposed method 

for calculating and applying the MFP 

adjustment. In accordance with section 

1886(j)(3)(C) of the Act, as amended by 

section 3401(d) of the Affordable Care 

Act, we will base the FY 2012 market 

basket update, which is used to 

determine the applicable percentage 

increase for the IRF payments, on the 

second quarter 2011 forecast of the FY 

2008-based RPL market basket 

(estimated to be 2.9 percent). This 

percentage increase will then be 

reduced by the MFP adjustment (the 

10-year moving average of MFP for the 

period ending FY 2012) of 1.0 percent, 

which was calculated as described 

above and based on IGI’s second quarter 

2011 forecast. Following application of 

the productivity adjustment, the 

applicable percentage increase will then 

be further reduced by 0.1 percentage 

point, as required by section 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) 

of the Act, as amended by sections 

3401(d) of the Affordable Care Act. 

Therefore the final FY 2012 IRF update 

is 1.8 percent (2.9 percent market basket 

update less 1.0 percentage point MFP 

adjustment less 0.1 percentage point 

legislative adjustment). 

4. Calculation of the Labor-Related 

Share for FY 2012 

Section 1886(j)(6) of the Act specifies 

that ‘‘[t]he Secretary shall adjust the 

proportion (as estimated by the 

Secretary from time to time) of 

rehabilitation facilities’ costs which are 

attributable to wages and wage-related 

costs, of the prospective payment rates 

computed under paragraph (3) for area 

differences in wage levels by a factor 

(established by the Secretary) reflecting 

the relative hospital wage level in the 

geographic area of the rehabilitation 

facility compared to the national 

average wage level for the facilities. Not 

later than October 1, 2001 (and at least 

every 36 months thereafter), the 

Secretary shall update the factor under 

the preceding sentence on the basis of 

information available to the Secretary 

(and updated as appropriate) of the 

wages and wage-related costs incurred 

in furnishing rehabilitation services. 

Any adjustments or updates made under 

this paragraph for a fiscal year shall be 

made in a manner that assures that the 

aggregated payments under this 

subsection in the fiscal year are not 

greater or less than those that would 

have been made in the year without 

such adjustment.’’ 

The labor-related share is determined 

by identifying the national average 

proportion of total costs that are related 

to, influenced by, or vary with the local 

labor market. We continue to classify a 

cost category as labor-related if the costs 

are labor-intensive and vary with the 

local labor market. Given this, based on 

our definition of the labor-related share, 

we proposed to include in the laborrelated share the sum of the relative 

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importance of Wages and Salaries, 

Employee Benefits, Professional Fees: 

Labor-related, Administrative and 

Business Support Services, All Other: 

Labor-related Services (previously 

referred to in the FY 2002-based RPL 

market basket as 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 laborintensive and are mostly performed at 

the hospital facility (therefore, unlikely 

to be purchased in the national market), 

we believe that they meet our definition 

of labor-related services. 

As stated in the FY 2006 IRF PPS final 

rule (70 FR 47880, 47915), the laborrelated share was defined as the sum of 

the relative importance of Wages and 

Salaries, Fringe Benefits, Professional 

Fees, Labor-intensive Services, and a 

portion of the capital share from an 

appropriate market basket. Therefore, to 

determine the labor-related share for the 

IRF PPS for FY 2011, we used the FY 

2002-based RPL market basket cost 

weights relative importance to 

determine the labor-related share for the 

IRF PPS. 

For the FY 2008-based RPL market 

basket rebasing, the inclusion of the 

Administrative and Business Support 

Services cost category into the laborrelated share remains consistent with 

the current labor-related share because 

this cost category was previously 

included in the Labor-intensive cost 

category. As previously stated, we 

establish a separate Administrative and 

Business Support Service cost category 

so that we can use the ECI for 

Compensation for Office and 

Administrative Support Services to 

more precisely proxy these specific 

expenses. 

For the FY 2002-based RPL market 

basket, we assumed that all nonmedical 

professional services (including 

accounting and auditing services, 

engineering services, legal services, and 

management and consulting services) 

were purchased in the local labor 

market and, therefore, all of their 

associated fees varied with the local 

labor market. As a result, we previously 

included 100 percent of these costs in 

the labor-related share. In an effort to 

more accurately determine the share of 

professional fees that should be 

included in the labor-related share, we 

surveyed hospitals regarding the 

proportion of those fees that go to 

companies that are located beyond their 

own local labor market (the results are 

discussed below). 

We continue to look for ways to refine 

our market basket approach to more 

accurately account for the proportion of 

costs influenced by the local labor 

market. To that end, we conducted a 

survey of hospitals to empirically 

determine the proportion of contracted 

professional services purchased by the 

industry that are attributable to local 

firms and the proportion that are 

purchased from national firms. We 

notified the public of our intent to 

conduct this survey on December 9, 

2005 (70 FR 73250) and received no 

comments. 

With approval from the OMB (Control 

Number 0938–1036), we contacted a 

sample of IPPS hospitals and received 

responses to our survey from 108 

hospitals. We believe that these data 

serve as an appropriate proxy for the 

purchasing patterns of professional 

services for IRFs as they are also 

institutional providers of health care 

services. Using data on FTEs to allocate 

responding hospitals across strata 

(region of the country and urban/rural 

status), we calculated post-stratification 

weights. Based on these weighted 

results, we determined that hospitals 

purchase, on average, the following 

portions of contracted professional 

services outside of their local labor 

market: 

• 34 percent of accounting and 

auditing services. 

• 30 percent of engineering services. 

• 33 percent of legal services. 

• 42 percent of management 

consulting services. 

We applied each of these percentages 

to its respective Benchmark I–O cost 

category underlying the professional 

fees cost category to determine the 

Professional Fees: Nonlabor-related 

costs. The Professional Fees: Laborrelated costs were determined to be the 

difference between the total costs for 

each Benchmark I–O category and the 

Professional Fees: Nonlabor-related 

costs. This is the methodology that we 

used to separate the FY 2008-based RPL 

market basket professional fees category 

into Professional Fees: Labor-related 

and Professional Fees: Nonlabor-related 

cost categories. In addition to the 

professional services listed above, we 

also classified expenses under NAICS 

55, Management of Companies and 

Enterprises, into the Professional Fees 

cost category as was done in previous 

rebasings. The NAICS 55 data are 

mostly comprised of corporate, 

subsidiary, and regional managing 

offices, or otherwise referred to as home 

offices. Formerly, all of the expenses 

within this category were considered to 

vary with, or be influenced by, the local 

labor market and were thus included in 

the labor-related share. Because many 

hospitals are not located in the same 

geographic area as their home office, we 

analyzed data from a variety of sources 

in order to determine what proportion 

of these costs should be appropriately 

included in the labor-related share. 

Using data primarily from the 

Medicare cost reports and a CMS 

database of Home Office Medicare 

Records (HOMER) (a database that 

provides city and State information 

(addresses) for home offices), we were 

able to determine that 19 percent of the 

total number of freestanding IRFs, IPFs, 

and LTCHs that had home offices had 

those home offices located in their 

respective local labor markets—defined 

as being in the same Metropolitan 

Statistical Area (MSA). 

The Medicare cost report requires 

hospitals to report their home office 

provider numbers. Using the HOMER 

database to determine the home office 

location for each home office provider 

number, we compared the location of 

the provider with the location of the 

hospital’s home office. We then placed 

providers into one of the following three 

groups: 

• Group 1—Provider and home office 

are located in different States. 

• Group 2—Provider and home office 

are located in the same State and same 

city. 

• Group 3—Provider and home office 

are located in the same State and 

different city. 

We found that 63 percent of the 

providers with home offices were 

classified into Group 1 (that is, different 

State) and, thus, these providers were 

determined to not be located in the 

same local labor market as their home 

office. Although there were a very 

limited number of exceptions (that is, 

providers located in different States but 

the same MSA as their home office), the 

63 percent estimate was unchanged. 

We found that 9 percent of all 

providers with home offices were 

classified into Group 2 (that is, same 

State and same city and, therefore, the 

same MSA). Consequently, these 

providers were determined to be located 

in the same local labor market as their 

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 

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percent of all providers with home 

offices were identified as being in the 

same State, a different city, but the same 

MSA. 

Pooling these results, we were able to 

determine that approximately 19 

percent of providers with home offices 

had home offices located within their 

local labor market (that is, 9 percent of 

providers with home offices had their 

home offices in the same State and city 

(and, thus, the same MSA), and 10 

percent of providers with home offices 

had their home offices in the same State, 

a different city, but the same MSA). We 

proposed to apportion the NAICS 55 

expense data by this percentage. Thus, 

we proposed to classify 19 percent of 

these costs into the Professional Fees: 

Labor-related cost category and the 

remaining 81 percent into the 

Professional Fees: Nonlabor-related 

Services cost category. 

Using this method and the IGI forecast 

for the first quarter 2011 of the FY 2008- 

based RPL market basket, the proposed 

IRF labor-related share for FY 2012 was 

the sum of the FY 2012 relative 

importance of each labor-related cost 

category. Consistent with our policy for 

updating the labor-related share with 

the most recent available data, the laborrelated share for this final rule reflects 

IGI’s second quarter 2011 forecast of the 

FY 2008-based RPL market basket. Table 

9 shows the FY 2012 relative 

importance labor-related share using the 

FY 2008-based RPL market basket and 

the FY 2002-based RPL market basket. 

TABLE 9—COMPARISON OF THE FY 2011 RELATIVE IMPORTANCE LABOR-RELATED SHARE BASED ON THE FY 2002- 

BASED RPL MARKET BASKET AND THE FY 2012 RELATIVE IMPORTANCE LABOR-RELATED SHARE BASED ON THE FY 

2008-BASED RPL MARKET BASKET

FY 2011 relative 

importance laborrelated share 1

FY 2012 relative 

importance laborrelated share 2

Wages and Salaries ........................................................................................................................ 52.449 48.984 

Employee Benefits ........................................................................................................................... 13.971 12.998 

Professional Fees: Labor-Related ................................................................................................... 2.855 2.072 

Administrative and Business Support Services ............................................................................... .................................... 0.416 

All Other: Labor-Related Services ................................................................................................... 2.109 2.094 

Subtotal ............................................................................................................................................ 71.384 66.564 

Labor-Related Portion of Capital Costs (46%) ................................................................................ 3.887 3.635 

Total Labor-Related Share ....................................................................................................... 75.271 70.199 

1Published in the FY 2011 IRF PPS Notice (75 FR 42849) and based on the second quarter 2010 IGI forecast. 

2Based on the second quarter 2011 IGI forecast. 

The labor-related share for FY 2012 is 

the sum of the FY 2012 relative 

importance of each labor-related cost 

category, and would reflect the different 

rates of price change for these cost 

categories between the base year (FY 

2008) and FY 2012. The sum of the 

relative importance for FY 2012 for 

operating costs (Wages and Salaries, 

Employee Benefits, Professional Fees: 

Labor-Related, Administrative and 

Business Support Services, and All 

Other: Labor-related Services) would be 

66.564 percent, as shown in Table 9. 

The portion of Capital that is 

influenced by the local labor market is 

estimated to be 46 percent, which is the 

same percentage applied to the FY 2002- 

based RPL market basket. Since the 

relative importance for Capital-Related 

Costs would be 7.903 percent of the 

proposed FY 2008-based RPL market 

basket in FY 2012, we take 46 percent 

of 7.903 percent to determine the 

proposed labor-related share of Capital 

for FY 2012. The result would be 3.635 

percent, which we add to 66.564 

percent for the operating cost amount to 

determine the total labor-related share 

for FY 2012. Thus, the labor-related 

share that we use for the IRF PPS in FY 

2012 will be 70.199 percent. This laborrelated share is determined using the 

same methodology that we used to 

calculate all previous IRF labor-related 

shares. 

Comment: One commenter stated that 

the CMS proposal to no longer include 

100 percent of certain types of costs in 

the labor-related share calculation does 

not coincide with the application of the 

area wage index. This commenter noted 

that costs captured in the ‘‘Other 

Services’’ cost category in the RPL, 

whether employees, local contractors, 

national contractors, or home office 

allocations, represent personal services, 

which are in essence labor-related. The 

commenter also noted that the laborrelated portion of the base rate is 

adjusted by the area wage index. The 

IPPS wage index includes in its 

calculation of the local (CBSA) wage 

index not a portion based on location 

relative to the provider, but 100 percent 

of the allocated home office wages, 

benefits, and hours. The commenter 

noted that the hospital wage index also 

includes contracted administrative and 

general services, which would include 

those categories in CMS’ survey such as 

accounting, legal, etc. The commenter 

suggested that if these costs are 

included in the IPPS wage index, then 

they should also be included in full in 

the labor-related portion of the base rate 

that will be multiplied by the 

adjustment factor for the IRF 

calculation. 

Response: We appreciate the 

commenter’s suggestion. However, we 

disagree that we should allocate 100 

percent of service costs as labor-related. 

The wage index that is applied to the 

labor-related portion of any payment 

system measures the variation in labor 

costs based on geographic differences. 

Therefore, it is appropriate that the 

wage index would include all relative 

cost differences for various labor 

categories. The labor-related share is 

defined as the proportion of total costs 

that are related to, influenced by, or 

vary with the local labor market. A cost 

category is defined as labor-related if 

both the costs of the service are laborintensive and those costs vary with the 

local labor market. That is, the laborrelated share must only include the 

proportion of costs that are determined 

to vary with the local labor market. The 

apportionment of some of the costs 

associated with various nonmedical 

professional fees and home office 

expenses into nonlabor-related 

categories reflects the findings of our 

analyses that concluded portions of 

those costs are purchased (or paid for) 

beyond the organization’s local labor 

market and thus, are not related to or 

influenced by the local labor market. 

Comment: One commenter expressed 

concerns regarding the drop in the 

labor-related share from around 75 

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percent to 70 percent. The commenter 

asked CMS to articulate the driving 

factors contributing to the drop in the 

estimated labor-related share and 

consider the appropriateness of those 

factors. 

Response: Of the decrease in the 

labor-related share from about 75 

percent to 70 percent, over 3-quarters of 

that decrease is the result of the 

decrease in the compensation cost 

weight. As displayed in Table 4, the 

2008-based RPL market basket 

compensation cost weight is 62.278 

percent while the 2002-based RPL 

market basket compensation cost weight 

is 65.877 percent, a decrease of about 

3.6 percentage points. The 

compensation cost weights for both the 

2002-based and the 2008-based RPL 

market baskets were calculated using 

the Medicare cost reports for 

freestanding IRFs, IPFs, and LTCHS. We 

found during our most-recent rebasing 

process that the compensation cost 

weight had begun gradually decreasing 

over the 2003 to 2008 time period. The 

new labor-related share reflects the most 

recently available and complete set of 

Medicare cost reports, and thus reflects 

the updated and appropriate proportion 

of costs that are related to, influenced 

by, or vary with the local labor market 

for IRFs, IPFs, and LTCHs. 

The remaining difference between the 

2002-based and the 2008-based laborrelated shares is primarily attributable 

to the classification of costs as laborrelated and nonlabor-related using an 

empirically based apportionment of 

professional fees and home office costs. 

We believe the data and methods used 

to derive this apportionment were 

technically appropriate and result in a 

more accurate updated labor-related 

share. 

Comment: One commenter pointed 

out that Table 9 in the FY 2012 IRF 

Proposed Rule showed a reduction in 

the labor-related share of 4.937 percent. 

The commenter attributed this change to 

the change in the methodology for how 

CMS classified professional fees and 

home office costs. The commenter noted 

that CMS only counted 19 percent of 

costs for professional fees and home 

office costs as labor-related and subject 

to the area wage index adjustment. The 

commenter noted their support for the 

use of new data to ensure the IRF PPS 

accurately reimburses IRFs for the 

services they provide, but expressed 

concern that the survey upon which 

CMS based its decision to make a 

change to the labor-related share was 

conducted with acute care hospitals 

paid under the IPPS. The commenter 

expressed concern that the results of the 

professional fees survey may not 

accurately reflect the percentage of 

nonmedical professional services 

provided by entities outside the local 

labor market utilized by IRFs. The 

commenter requested in the future that 

CMS conduct a study of nonmedical 

professional services using only IRFs, 

IPFs, and LTCHs. 

Response: The overall proposed laborrelated share as shown in Table 9 of the 

FY 2012 IRF proposed rule (76 FR 

24243) showed a decline of 4.937 

percent. The commenter attributed the 

entire change in the labor-related share 

from the 2002-based RPL market basket 

to the 2008-based market basket to our 

change in the professional fees and 

home office cost labor-related 

designations. We disagree that this is 

the principal driver for the decline in 

the labor-related share. The majority of 

the decline is based on a decline in 

relative compensation costs from 2002 

to 2008 as reported on the Medicare cost 

reports. In particular, this accounts for 

over 3-quarters of the difference in the 

labor-related share. The remaining 

decrease in the labor-related share is 

primarily the result of the treatment of 

professional fees as labor-related or 

nonlabor-related. Finally, we did not 

use 19 percent as the value to determine 

the professional fees that were 

purchased within the local labor market. 

That is the percentage of home office 

costs that was determined to be 

purchased within the local labor market. 

For estimates associated with the 

apportionment of professional fees, we 

refer the reader to the discussion of the 

use of the survey results and how they 

were applied to determine the laborrelated portions. This discussion can be 

found in the FY 2012 IRF PPS proposed 

rule at (76 FR at 24241 through 24242). 

We note that while this survey was 

conducted using responses from IPPS 

hospitals, we would expect that these 

data serve as an appropriate proxy for 

the purchasing patterns of professional 

services for IRFs as they are also 

institutional providers of health care 

services. 

Comment: Several commenters 

recommended that CMS phase-in the 

change to the labor-related share over a 

2 year period to allow IRFs a longer 

period of time to absorb the impact of 

this reduction to the labor-related share. 

Response: We do not believe that a 

phase-in of the labor-related share is 

necessary. We estimate that only 3 IRFs 

would lose more than 5 percent in 

payments from this change, with the 

maximum estimated loss being 7.85 

percent. While significant, this is 

similar to percentage changes in 

payments due to annual wage index 

fluctuations, and we do not typically 

provide phase-ins for the standard wage 

index fluctuations that occur from year 

to year. 

Final Decision: After consideration of 

the public comments received, we are 

finalizing our methodology for 

calculating the labor-related share for 

FY 2012 using the 2008-based RPL 

market basket and the most recent 

forecast data available at the time of this 

final rule which is IHS Global Insight 

Inc.’s second quarter 2011 forecast. This 

is also the same forecast we are using to 

derive the FY 2012 market basket 

update for this final rule. As the 

updated labor-related share reflects the 

current proportion of costs that are 

related to, are influenced by, or vary 

with the local labor market, we believe 

it is appropriate to incorporate the 

results in full into the FY 2012 payment 

update. Table 9 shows the relative 

importance of the FY 2012 labor-related 

share using the FY 2008-based RPL 

market basket and the FY 2011 relative 

importance labor-related share using the 

FY 2002-based RPL market basket. 

B. Area Wage Adjustment 

Section 1886(j)(6) of the Act requires 

the Secretary to adjust the proportion of 

rehabilitation facilities’ costs 

attributable to wages and wage related 

costs (as estimated by the Secretary from 

time to time) by a factor (established by 

the Secretary) reflecting the relative 

hospital wage level in the geographic 

area of the rehabilitation facility 

compared to the national average wage 

level for those facilities. The Secretary 

is required to update the IRF PPS wage 

index on the basis of information 

available to the Secretary on the wages 

and wage-related costs to furnish 

rehabilitation services. Any adjustment 

or updates made under section 

1886(j)(6) of the Act for a FY are made 

in a budget neutral manner. 

In the FY 2009 IRF PPS final rule (73 

FR 46378), we maintained the 

methodology described in the FY 2006 

IRF PPS final rule to determine the wage 

index, labor market area definitions and 

hold harmless policy consistent with 

the rationale outlined in the FY 2006 

IRF PPS final rule (70 FR 47880, 47917 

through 47926). 

For FY 2012, we are maintaining the 

policies and methodologies described in 

the FY 2009 IRF PPS final rule (73 FR 

46378) relating to the labor market area 

definitions and the wage index 

methodology for areas with wage data. 

Thus, we are using the CBSA labor 

market area definitions and the FY 2011 

pre-reclassification and pre-floor 

hospital wage index data. In accordance 

with section 1886(d)(3)(E) of the Act, 

the FY 2011 pre-reclassification and 

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pre-floor hospital wage index is based 

on data submitted for hospital cost 

reporting periods beginning on or after 

October 1, 2006, and ending September 

30, 2007 (that is, FY 2007 cost report 

data). 

The labor market designations made 

by the OMB include some geographic 

areas where there are no hospitals and, 

thus, no hospital wage index data on 

which to base the calculation of the IRF 

PPS wage index. We will continue to 

use the same methodology discussed in 

the FY 2008 IRF PPS final rule (72 FR 

44299) to address those geographic areas 

where there are no hospitals and, thus, 

no hospital wage index data on which 

to base the calculation for the FY 2012 

IRF PPS wage index. 

Additionally, we will incorporate the 

CBSA changes published in the most 

recent OMB bulletin that applies to the 

hospital wage data used to determine 

the current IRF PPS wage index. The 

changes were nominal and did not 

represent substantive changes to the 

CBSA-based designations. Specifically, 

OMB added or deleted certain CBSA 

numbers and revised certain titles. The 

OMB bulletins are available at http:// 

www.whitehouse.gov/omb/bulletins/ 

index.html. 

To calculate the wage-adjusted facility 

payment for the payment rates set forth 

in this final rule, we multiply the 

unadjusted Federal payment rate for 

IRFs by the FY 2012 labor-related share 

based on the FY 2008-based RPL market 

basket (70.199 percent) to determine the 

labor-related portion of the standard 

payment amount. We then multiply the 

labor-related portion by the applicable 

IRF wage index from the tables in the 

addendum to this final rule. Table A is 

for urban areas and Table B is for rural 

areas. 

Adjustments or updates to the IRF 

wage index made under section 

1886(j)(6) of the Act must be made in a 

budget neutral manner. We calculate a 

budget neutral wage adjustment factor 

as established in the FY 2004 IRF PPS 

final rule (68 FR 45689), codified at 

§ 412.624(e)(1), as described in the steps 

below. We use the listed steps to ensure 

that the FY 2012 IRF standard payment 

conversion factor reflects the update to 

the wage indexes (based on the FY 2007 

hospital cost report data) and the laborrelated share in a budget neutral 

manner: 

Step 1. Determine the total amount of 

the estimated FY 2011 IRF PPS rates, 

using the FY 2011 standard payment 

conversion factor and the labor-related 

share and the wage indexes from FY 

2011 (as published in the FY 2011 IRF 

PPS final rule (75 FR 42836)). 

Step 2. Calculate the total amount of 

estimated IRF PPS payments using the 

FY 2011 standard payment conversion 

factor and the proposed FY 2012 laborrelated share and CBSA urban and rural 

wage indexes. 

Step 3. Divide the amount calculated 

in step 1 by the amount calculated in 

step 2. The resulting quotient is the FY 

2012 budget neutral wage adjustment 

factor of 0.9988 percent. 

Step 4. Apply the FY 2012 budget 

neutral wage adjustment factor from 

step 3 to the FY 2011 IRF PPS standard 

payment conversion factor after the 

application of the adjusted market 

basket update to determine the FY 2012 

standard payment conversion factor. 

We received 2 comments on the 

proposed FY 2012 IRF PPS wage index, 

which are summarized below. 

Comment: Several commenters 

recommended that CMS develop a new 

methodology for area wage adjustment 

that eventually eliminates hospital wage 

index reclassifications for all hospitals 

and that reduces the problems 

associated with unreasonable annual 

fluctuations in wage indices and across 

geographic boundaries. These 

commenters also recommended that 

CMS consider wage index policies 

under the current IPPS because IRFs 

compete in a similar labor pool as acute 

care hospitals. The IPPS wage index 

policies would allow IRFs to benefit 

from the IPPS reclassification and/or 

floor policies. The commenters further 

recommended that until a new wage 

index system is implemented, CMS 

institute a ‘‘smoothing’’ variable to the 

current process to reduce the 

fluctuations IRFs annually experience. 

Response: We note that the IRF PPS 

does not account for geographic 

reclassification under sections 

1886(d)(8) and (d)(10) of the Act, and 

does not apply the ‘‘rural floor’’ under 

section 4410 of the BBA. As we do not 

have an IRF-specific wage index, we are 

unable to determine at this time the 

degree, if any, to which a geographic 

reclassification adjustment or a ‘‘rural 

floor’’ policy under the IRF PPS is 

appropriate. The rationale for our 

current wage index policies is fully 

described in the FY 2006 final rule (70 

FR 47880, 47926 through 47928). 

Although some commenters 

recommended that we adopt the IPPS 

wage index policies such as 

reclassification and floor policies, we 

note that Medicare Payment Advisory 

Commission (MedPAC’s) June 2007 

report to the Congress, titled ‘‘Report to 

Congress: Promoting Greater Efficiency 

in Medicare,’’ recommends that 

Congress ‘‘repeal the existing hospital 

wage index statute, including 

reclassification and exceptions, and give 

the Secretary authority to establish new 

wage index systems.’’ We believe that 

adopting the IPPS wage index policies, 

such as reclassification or floor, would 

not be prudent at this time because 

MedPAC suggests that the 

reclassification and exception policies 

in the IPPS wage index alters the wage 

index values for one-third of IPPS 

hospitals. 

As one commenter noted, we have 

research currently under way to 

examine alternatives to the wage index 

methodology, including the issues the 

commenters mentioned about ensuring 

that the wage index minimizes 

fluctuations, matches the costs of labor 

in the market, and provides for a single 

wage index policy. Section 3137(b) of 

the Affordable Care Act requires CMS to 

submit a report to Congress by 

December 31, 2011 that includes a plan 

to reform the hospital wage index 

system. That report is to take MedPAC’s 

2009 recommendations on the Medicare 

wage index classification system into 

account, and is to include a proposal to 

revise the IPPS wage index system. 

MedPAC’s recommendations were 

presented in the FY 2009 IPPS final rule 

(http://edocket.access.gpo.gov/2008/ 

pdf/E8-17914.pdf). The proposal is to 

consider each of the following: 

• The use of Bureau of Labor 

Statistics data or other data or 

methodologies to calculate relative 

wages for each geographic areas. 

• Minimizing variations in wage 

index adjustments between and within 

MSAs and statewide rural areas. 

• Methods to minimize the volatility 

of wage index adjustments while 

maintaining the principle of budget 

neutrality. 

• The effect that the implementation 

of the proposal would have on health 

care providers in each region of the 

country. 

• Issues relating to occupational mix, 

such as staffing practices and any 

evidence on quality of care and patient 

safety, including any recommendations 

for alternative calculations to the 

occupational mix. 

• The provision of a transition period. 

CMS enlisted the help of Acumen, 

LLC to assist us in meeting the 

requirements of section 106(b)(2) of the 

Tax Relief and Health Care Act of 2006 

(Pub. L. 109–432, enacted on December 

2006) (TRCA). In February 2008, we 

awarded a Task Order under the 

Expedited Research and Demonstration 

Contract to Acumen, LLC. Acumen, LLC 

conducted a study of both the current 

methodology used to construct the 

Medicare wage index and the 

recommendations reported to Congress 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47865 

by MedPAC. Parts 1 and 2 of Acumen’s 

final report, which analyzes the 

strengths and weaknesses of the data 

sources used to construct the CMS and 

MedPAC indexes, is available online at 

http://www.acumenllc.com/reports/cms. 

MedPAC’s recommendations were 

presented in the FY 2009 IPPS final rule 

(http://edocket.access.gpo.gov/2008/ 

pdf/E8-17914.pdf). We plan to monitor 

the efforts to develop an alternative 

wage index system for the IPPS closely, 

and determine the impact or influence 

they may have to the IRF PPS wage 

index. 

Final Decision: Having considered the 

public comments received, we have 

decided to continue to use the policies 

and methodologies described in the FY 

2009 IRF PPS final rule relating to the 

labor market area definitions and the 

wage index methodology for areas 

without wage data. Therefore, this final 

rule continues to use the Core-Based 

Statistical Area (CBSA) labor market 

area definitions and the prereclassification and pre-floor hospital 

wage index data based on 2007 cost 

report data. However, we will continue 

to monitor progress on the revisions to 

the IPPS wage index to identify any 

policy changes that may be appropriate 

for IRFs. 

We discuss the calculation of the 

standard payment conversion factor for 

FY 2012 in section VI.C of this final 

rule. 

C. Description of the Final IRF Standard 

Payment Conversion Factor and 

Payment Rates for FY 2012 

To calculate the standard payment 

conversion factor for FY 2012, as 

illustrated in Table 10, we begin by 

applying the adjusted market basket 

increase factor for FY 2012 that was 

adjusted in accordance with sections 

1886(j)(3)(C) and (D) of the Act (1.8 

percent, or 2.9 percent less a cumulative 

total adjustment of 1.1 percentage 

points, as described in section VI.A.3. of 

this final rule), to the standard payment 

conversion factor for FY 2011 ($13,860). 

Applying the 1.8 percent adjusted 

market basket increase factor for FY 

2012 to the standard payment 

conversion factor for FY 2011 of $13,860 

yields a standard payment amount of 

$14,109. Then, we apply the budget 

neutrality factor for the FY 2012 wage 

index and labor-related share of 0.9988, 

which results in a standard payment 

amount of $14,093. Finally, we apply 

the budget neutrality factor for the 

revised CMG relative weights of 0.9988, 

which results in a final standard 

payment conversion factor of $14,076 

for FY 2012. 

TABLE 10—CALCULATIONS TO DETERMINE THE FY 2012 STANDARD PAYMENT CONVERSION FACTOR

Explanation for adjustment Calculations 

Standard Payment Conversion Factor for FY 2011 .................................................................................................................... $13,860 

Payment Update Factor for FY 2012 (1.8 percent), which reflects a 2.9 percent market basket increase, reduced by a 1.0 

percentage point productivity adjustment, and reduced by 0.1 percentage point in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act ................................................................................................................... × 1.018 

Budget Neutrality Factor for the Wage Index and Labor-Related Share .................................................................................... × 0.9988 

Budget Neutrality Factor for the Revisions to the CMG Relative Weights ................................................................................. × 0.9988 

FY 2012 Standard Payment Conversion Factor ......................................................................................................................... = $14,076 

After the application of the CMG 

relative weights described in section IV 

of this final rule, to the FY 2012 

standard payment conversion factor 

($14,076), the resulting unadjusted IRF 

prospective payment rates for FY 2012 

are shown in Table 11, ‘‘FY 2012 

Payment Rates.’’ 

TABLE 11—FY 2012 PAYMENT RATES

CMG Payment rate tier 1 Payment rate tier 2 Payment rate tier 3 Payment rate no 

comorbidity 

0101 ................................................................................. $10,804.74 $10,109.38 $9,080.43 $8,589.18 

0102 ................................................................................. 13,410.21 12,545.94 11,270.65 10,659.75 

0103 ................................................................................. 16,014.27 14,982.49 13,459.47 12,728.93 

0104 ................................................................................. 16,636.42 15,565.24 13,983.10 13,224.40 

0105 ................................................................................. 19,330.57 18,086.25 16,246.52 15,365.36 

0106 ................................................................................. 22,261.19 20,826.85 18,708.41 17,694.94 

0107 ................................................................................. 25,204.49 23,581.52 21,182.97 20,034.37 

0108 ................................................................................. 31,217.75 29,206.29 26,236.26 24,814.58 

0109 ................................................................................. 28,867.06 27,009.03 24,261.39 22,946.70 

0110 ................................................................................. 37,208.50 34,811.36 31,271.24 29,576.49 

0201 ................................................................................. 10,514.77 8,631.40 7,995.17 7,260.40 

0202 ................................................................................. 14,938.86 12,263.01 11,359.33 10,313.49 

0203 ................................................................................. 17,003.81 13,959.17 12,928.81 11,740.79 

0204 ................................................................................. 17,813.18 14,622.15 13,543.93 12,298.20 

0205 ................................................................................. 22,496.26 18,467.71 17,105.16 15,532.87 

0206 ................................................................................. 28,004.20 22,988.92 21,294.17 19,334.79 

0207 ................................................................................. 37,868.66 31,086.85 28,793.87 26,144.76 

0301 ................................................................................. 14,886.78 13,391.91 11,881.55 10,880.75 

0302 ................................................................................. 18,851.99 16,958.76 15,045.84 13,779.00 

0303 ................................................................................. 22,414.62 20,163.87 17,889.19 16,384.46 

0304 ................................................................................. 31,034.76 27,918.34 24,768.13 22,684.88 

0401 ................................................................................. 14,903.67 12,407.99 11,287.54 9,903.87 

0402 ................................................................................. 19,427.70 16,174.73 14,713.64 12,909.10 

0403 ................................................................................. 34,710.01 28,896.62 26,286.93 23,064.93 

0404 ................................................................................. 61,648.66 51,322.50 46,688.68 40,963.98 

0405 ................................................................................. 54,454.41 45,333.17 41,239.86 36,183.77 

0501 ................................................................................. 9,232.45 8,863.66 7,905.08 7,005.63 

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47866 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

TABLE 11—FY 2012 PAYMENT RATES—Continued 

CMG Payment rate tier 1 Payment rate tier 2 Payment rate tier 3 Payment rate no 

comorbidity 

0502 ................................................................................. 13,815.59 13,263.81 11,829.47 10,483.80 

0503 ................................................................................. 17,538.70 16,837.71 15,016.28 13,308.86 

0504 ................................................................................. 21,146.37 20,301.81 18,105.96 16,046.64 

0505 ................................................................................. 24,714.64 23,726.51 21,160.45 18,754.86 

0506 ................................................................................. 34,636.81 33,253.14 29,656.72 26,284.11 

0601 ................................................................................. 13,311.67 11,249.54 10,260.00 9,274.68 

0602 ................................................................................. 17,617.52 14,888.19 13,580.52 12,275.68 

0603 ................................................................................. 22,752.45 19,227.82 17,538.70 15,853.80 

0604 ................................................................................. 30,167.68 25,494.45 23,254.96 21,021.10 

0701 ................................................................................. 11,262.21 11,087.67 10,678.05 9,532.27 

0702 ................................................................................. 14,737.57 14,508.13 13,973.25 12,472.74 

0703 ................................................................................. 17,734.35 17,457.06 16,813.78 15,007.83 

0704 ................................................................................. 22,919.95 22,562.42 21,731.94 19,396.73 

0801 ................................................................................. 8,086.66 8,086.66 7,536.29 6,880.35 

0802 ................................................................................. 10,873.71 10,873.71 10,133.31 9,252.15 

0803 ................................................................................. 14,992.35 14,992.35 13,971.84 12,755.67 

0804 ................................................................................. 13,241.29 13,241.29 12,340.43 11,266.43 

0805 ................................................................................. 16,305.64 16,305.64 15,195.04 13,873.31 

0806 ................................................................................. 19,909.09 19,909.09 18,553.58 16,939.06 

0901 ................................................................................. 1,918.15 10,500.70 9,502.71 8,608.88 

0902 ................................................................................. 15,939.66 14,045.03 12,709.22 11,514.17 

0903 ................................................................................. 20,414.42 17,987.72 16,277.49 14,747.43 

0904 ................................................................................. 26,450.21 23,305.63 21,090.07 19,108.17 

1001 ................................................................................. 14,547.55 12,790.86 11,428.30 10,213.55 

1002 ................................................................................. 19,102.54 16,794.08 15,005.02 13,411.61 

1003 ................................................................................. 28,222.38 24,813.17 22,169.70 19,814.79 

1101 ................................................................................. 14,581.33 14,581.33 13,831.08 12,980.89 

1102 ................................................................................. 21,938.85 21,938.85 20,808.55 19,530.45 

1201 ................................................................................. 11,404.38 11,404.38 11,407.19 10,782.22 

1202 ................................................................................. 14,869.89 14,869.89 14,872.70 14,057.70 

1203 ................................................................................. 18,342.44 18,342.44 18,345.25 17,340.22 

1301 ................................................................................. 12,579.72 13,673.43 13,673.43 11,094.70 

1302 ................................................................................. 16,566.04 18,006.02 18,006.02 14,609.48 

1303 ................................................................................. 1,411.00 23,271.85 23,271.85 18,882.95 

1401 ................................................................................. 13,246.92 10,606.27 9,378.84 8,482.20 

1402 ................................................................................. 17,789.25 14,242.10 12,593.80 11,390.30 

1403 ................................................................................. 21,484.20 17,200.87 15,210.53 13,756.47 

1404 ................................................................................. 27,828.25 22,279.49 19,702.18 17,818.81 

1501 ................................................................................. 13,527.04 12,630.39 10,886.38 10,290.96 

1502 ................................................................................. 17,023.51 15,896.03 13,701.58 12,951.33 

1503 ................................................................................. 20,992.95 19,602.24 16,895.42 15,970.63 

1504 ................................................................................. 26,519.18 24,762.50 21,343.44 20,175.13 

1601 ................................................................................. 15,732.75 12,384.06 10,868.08 10,158.65 

1602 ................................................................................. 21,074.59 16,588.57 14,557.40 13,607.27 

1603 ................................................................................. 27,234.24 21,437.75 18,812.57 17,585.15 

1701 ................................................................................. 14,689.71 13,075.20 11,866.07 10,372.60 

1702 ................................................................................. 19,384.06 17,251.55 15,656.73 13,686.09 

1703 ................................................................................. 22,859.42 20,345.45 18,463.49 16,140.95 

1704 ................................................................................. 29,266.82 26,047.64 23,639.23 20,664.98 

1801 ................................................................................. 16,913.72 13,876.12 13,396.13 12,253.16 

1802 ................................................................................. 23,246.51 19,070.16 18,411.41 16,840.53 

1803 ................................................................................. 39,854.79 32,695.73 31,565.43 28,872.69 

1901 ................................................................................. 16,184.58 14,257.58 12,934.44 12,560.01 

1902 ................................................................................. 30,830.66 27,161.05 24,638.63 23,927.79 

1903 ................................................................................. 51,689.89 45,537.27 41,310.24 40,118.01 

2001 ................................................................................. 12,022.31 10,623.16 9,523.82 8,556.80 

2002 ................................................................................. 16,090.28 14,216.76 12,747.23 11,452.23 

2003 ................................................................................. 20,318.71 17,953.94 16,097.31 14,461.68 

2004 ................................................................................. 27,245.51 24,075.59 21,585.55 19,392.51 

2101 ................................................................................. 35,405.36 30,644.86 24,404.97 19,781.00 

5001 ................................................................................. ................................ ................................ ................................ 2,076.21 

5101 ................................................................................. ................................ ................................ ................................ 8,242.91 

5102 ................................................................................. ................................ ................................ ................................ 20,717.06 

5103 ................................................................................. ................................ ................................ ................................ 9,810.97 

5104 ................................................................................. ................................ ................................ ................................ 26,431.91 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47867 

D. Example of the Methodology for 

Adjusting the Federal Prospective 

Payment Rates 

Table 12 illustrates the methodology 

for adjusting the Federal prospective 

payments (as described in sections VI.A. 

through VI.C. of this final rule). The 

following examples are based on two 

hypothetical Medicare beneficiaries, 

both classified into CMG 0110 (without 

comorbidities). The unadjusted Federal 

prospective payment rate for CMG 0110 

(without comorbidities) appears in 

Table 11. 

Example: One beneficiary is in Facility A, 

an IRF located in rural Spencer County, 

Indiana, and another beneficiary is in Facility 

B, an IRF located in urban Harrison County, 

Indiana. Facility A, a rural non-teaching 

hospital has a DSH percentage of 5 percent 

(which would result in a LIP adjustment of 

1.0228), a wage index of 0.8391, and a rural 

adjustment of 18.4 percent. Facility B, an 

urban teaching hospital, has a DSH 

percentage of 15 percent (which would result 

in a LIP adjustment of 1.0666 percent), a 

wage index of 0.8896, and a teaching status 

adjustment of 0.0610. 

To calculate each IRF’s labor and nonlabor portion of the Federal prospective 

payment, we begin by taking the 

unadjusted Federal prospective 

payment rate for CMG 0110 (without 

comorbidities) from Table 11. Then, we 

multiply the labor-related share for FY 

2012 (70.199 percent) described in 

section VI.A.4 of this final rule by the 

unadjusted Federal prospective 

payment rate. To determine the nonlabor portion of the Federal prospective 

payment rate, we subtract the labor 

portion of the Federal payment from the 

unadjusted Federal prospective 

payment. 

To compute the wage-adjusted 

Federal prospective payment, we 

multiply the labor portion of the Federal 

payment by the appropriate wage index 

found in the addendum in Tables A and 

B. The resulting figure is the wageadjusted labor amount. Next, we 

compute the wage-adjusted Federal 

payment by adding the wage-adjusted 

labor amount to the non-labor portion. 

Adjusting the wage-adjusted Federal 

payment by the facility-level 

adjustments involves several steps. 

First, we take the wage-adjusted Federal 

prospective payment and multiply it by 

the appropriate rural and LIP 

adjustments (if applicable). Second, to 

determine the appropriate amount of 

additional payment for the teaching 

status adjustment (if applicable), we 

multiply the teaching status adjustment 

(0.0610, in this example) by the wageadjusted and rural-adjusted amount (if 

applicable). Finally, we add the 

additional teaching status payments (if 

applicable) to the wage, rural, and LIPadjusted Federal prospective payment 

rates. Table 12 illustrates the 

components of the adjusted payment 

calculation. 

TABLE 12—EXAMPLE OF COMPUTING THE IRF FY 2012 FEDERAL PROSPECTIVE PAYMENT

Steps Rural facility A 

(Spencer Co., IN) 

Urban facility B 

(Harrison Co., IN) 

1 .......... Unadjusted Federal Prospective Payment ............................................................................ $29,576.49 $29,576.49 

2 .......... Labor Share ........................................................................................................................... × 0.70199 × 0.70199 

3 .......... Labor Portion of Federal Payment ......................................................................................... = $20,762.40 = $20,762.40 

4 .......... CBSA Based Wage Index (shown in the Addendum, Tables 1 and 2) ................................ × 0.8391 × 0.8896 

5 .......... Wage-Adjusted Amount ......................................................................................................... = $17,421.73 = $18,470.23 

6 .......... Nonlabor Amount ................................................................................................................... + $8,814.09 + $8,814.09 

7 .......... Wage-Adjusted Federal Payment .......................................................................................... = $26,235.82 = $27,284.32 

8 .......... Rural Adjustment .................................................................................................................... × 1.184 × 1.000 

9 .......... Wage- and Rural-Adjusted Federal Payment ........................................................................ = $31,063.21 = $27,284.32 

10 ........ LIP Adjustment ....................................................................................................................... × 1.0228 × 1.0666 

11 ........ FY 2012 Wage-, Rural-, and LIP-Adjusted Federal Prospective Payment Rate .................. = $31,771.45 = $29,101.46 

12 ........ FY 2012 Wage- and Rural-Adjusted Federal Prospective Payment ..................................... $31,063.21 $27,284.32 

13 ........ Teaching Status Adjustment .................................................................................................. × 0.0000 × 0.0610 

14 ........ Teaching Status Adjustment Amount .................................................................................... = $0.00 = $1,664.34 

15 ........ FY2012 Wage-, Rural-, and LIP-Adjusted Federal Prospective Payment Rate ................... + $31,771.45 + $29,101.46 

16 ........ Total FY 2012 Adjusted Federal Prospective Payment ........................................................ = $31,771.45 = $30,765.80 

Thus, the adjusted payment for Facility 

A would be $31,771.45 and the adjusted 

payment for Facility B would be 

$30,765.80. 

VII. Update to Payments for High-Cost 

Outliers Under the IRF PPS 

A. Update to the Outlier Threshold 

Amount for FY 2012 

Section 1886(j)(4) of the Act provides 

the Secretary with the authority to make 

payments in addition to the basic IRF 

prospective payments for cases 

incurring extraordinarily high costs. A 

case qualifies for an outlier payment if 

the estimated cost of the case exceeds 

the adjusted outlier threshold. We 

calculate the adjusted outlier threshold 

by adding the IRF PPS payment for the 

case (that is, the CMG payment adjusted 

by all of the relevant facility-level 

adjustments) and the adjusted threshold 

amount (also adjusted by all of the 

relevant facility-level adjustments). 

Then, we calculate the estimated cost of 

a case by multiplying the IRF’s overall 

CCR by the Medicare allowable covered 

charge. If the estimated cost of the case 

is higher than the adjusted outlier 

threshold, we make an outlier payment 

for the case equal to 80 percent of the 

difference between the estimated cost of 

the case and the outlier threshold. 

In the FY 2002 IRF PPS final rule (66 

FR 41362 through 41363), we discussed 

our rationale for setting the outlier 

threshold amount for the IRF PPS so 

that estimated outlier payments would 

equal 3 percent of total estimated 

payments. For the 2002 IRF PPS final 

rule, we analyzed various outlier 

policies using 3, 4, and 5 percent of the 

total estimated payments, and we 

concluded that an outlier policy set at 

3 percent of total estimated payments 

would optimize the extent to which we 

could reduce the financial risk to IRFs 

of caring for high-cost patients, while 

still providing for adequate payments 

for all other (non-high cost outlier) 

cases. 

Subsequently, we updated the IRF 

outlier threshold amount in the FYs 

2006 through 2010 IRF PPS final rules 

and the FY 2011 notice (70 FR 47880, 

71 FR 48354, 72 FR 44284, 73 FR 46370, 

74 FR 39762, and 75 FR 42836, 

respectively) to maintain estimated 

outlier payments at 3 percent of total 

estimated payments. We also stated in 

the FY 2009 final rule (73 FR 46370 at 

46385) that we would continue to 

analyze the estimated outlier payments 

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47868 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

for subsequent years and adjust the 

outlier threshold amount as appropriate 

to maintain the 3 percent target. 

To update the IRF outlier threshold 

amount for FY 2012, we use FY 2010 

claims data and the same methodology 

that we used to set the initial outlier 

threshold amount in the FY 2002 IRF 

PPS final rule (66 FR 41316 and 41362 

through 41363), which is also the same 

methodology that we used to update the 

outlier threshold amounts for FYs 2006 

through 2011. Based on an analysis of 

the most recent FY 2010 IRF claims 

data, the IRF outlier payments as a 

percentage of total estimated payments 

were approximately 2.6 percent in FY 

2011. 

We received 3 comments on the 

update to the outlier threshold amount 

for FY 2012, which are summarized 

below: 

Comment: One commenter expressed 

support for continuing to establish 

outlier payments at 3 percent of total 

payments. However, several 

commenters requested more information 

on why the proposed outlier threshold 

increased from $11,410 in FY 2011 to 

$11,822 in the FY 2012 proposed rule 

when only 2.7 percent of the 3 percent 

outlier payments were projected to be 

paid out in FY 2011. 

Response: We proposed to move to an 

un-weighted regression methodology in 

the FY 2012 proposed rule, which 

caused a reduction to the LIP and 

Teaching adjustment factors. Our 

facility-level adjustment factors are 

budget neutral, meaning that any 

reduction in the adjustment factors 

results in an increase to the standard 

payment conversion factor. Therefore, 

the standard payment conversion factor 

was estimated to increase from $13,860 

in FY 2011 to $14,528 in the FY 2012 

proposed rule (this has changed to 

$14,076 in this final rule, as discussed 

below). The large increase in the 

proposed standard payment conversion 

factor resulted in an increase to the 

outlier threshold, rather than the 

decrease anticipated by the commenters. 

However, as we are not adopting the 

proposed revisions to the facility-level 

adjustments in this final rule, the 

increase in the standard payment 

conversion factor from FY 2011 to FY 

2012 is smaller. The final standard 

payment conversion factor for FY 2012 

is $14,076. Consequently, the FY 2012 

outlier threshold that we are finalizing 

in this final rule is lower than the FY 

2011 outlier threshold amount. 

Comment: One commenter stated that 

the calculation of the CCRs in other 

settings has been identified as a 

potential reason for those settings’ 

difficulties in establishing an 

appropriate outlier threshold, which 

may also be the case for the IRF PPS. 

The commenter suggested that CMS 

assess whether this is a problem for the 

IRF PPS and release more information 

on the role that the CCRs play in 

establishing the outlier threshold. 

Response: We appreciate the 

commenter’s concerns. However, we do 

not believe that the calculation of the 

CCRs creates a problem in setting the 

outlier threshold for the IRF PPS. In 

order to set the outlier threshold, we 

first estimate the cost of a case in the 

current fiscal year by multiplying an 

overall facility-specific cost-to-charge 

ratio by charges and by the market 

basket for the current fiscal year 

(without any adjustments). The outlier 

threshold for the upcoming fiscal year is 

then calculated by simulating aggregate 

payments with and without a change in 

the outlier threshold, and applying an 

iterative process that accounts for 

changes in the market basket, wage 

index and labor-share, CMG relative 

weights, and facility-level adjustment 

factors, to determine a threshold for the 

upcoming fiscal year that would result 

in outlier payments being equal to 

3 percent of total payments under the 

simulation. 

We note, too, that we implemented a 

new outlier reconciliation process for 

IRFs (and other settings) beginning 

April 1, 2011 that we believe will 

improve the accuracy and reliability of 

the IRF CCRs. For more information on 

the new outlier reconciliation process, 

please view the ‘‘Outlier 

Reconciliation’’ link on the IRF PPS 

Web site at (http://www.cms.gov/

InpatientRehabFacPPS/03_OutlierR.

asp#TopOfPage). 

Comment: One commenter suggested 

that CMS evaluate the distribution of 

outlier payments. If CMS determines 

that low-volume facilities, rather than 

facilities treating patients of a higher 

acuity level, are mostly receiving the 

outlier payments then CMS should 

reduce the outlier pool and add the 

amount back to the standard payment 

conversion factor. 

Response: We will continue to 

monitor our IRF outlier policies to 

ensure that they appropriately 

compensate IRFs for treating unusually 

high-cost patients and, thereby, promote 

access to care of patients who are likely 

to require unusually high-cost care. At 

this time, however, we do not find any 

indications to suggest that low-volume 

facilities are disproportionately 

receiving outlier payments. We believe 

that the outlier policy of 3 percent of 

total estimated payments optimizes the 

extent to which we can encourage 

facilities to continue to take patients 

that are likely to have unusually high 

costs, while still providing adequate 

payment for all other cases. In addition, 

as we have explained before, we do not 

make adjustments to PPS payment rates 

to account for differences between 

projected and actual outlier payments in 

a previous year. We believe that our 

outlier policies are consistent with the 

statute and the goals of the prospective 

payment system, and that they are 

equitable. We will carefully consider the 

commenter’s suggestions, and will 

consider proposing additional 

refinements to the IRF outlier policies in 

the future if we find that such 

refinements are necessary. 

Final Decision: After carefully 

considering all of the comments we 

received on the proposed update to the 

outlier threshold amount for FY 2012, 

we are reducing the outlier threshold 

amount to $10,660 to maintain 

estimated outlier payments at 3 percent 

of total estimated aggregate IRF 

payments for FY 2012. 

B. Update to the IRF Cost-to-Charge 

Ratio Ceilings 

In accordance with the methodology 

stated in the FY 2004 IRF PPS final rule 

(68 FR 45674, 45692 through 45694), we 

apply a ceiling to IRFs’ CCRs. Using the 

methodology described in that final 

rule, we update the national urban and 

rural CCRs for IRFs, as well as the 

national CCR ceiling for FY 2012, based 

on analysis of the most recent data that 

is available. We apply the national 

urban and rural CCRs in the following 

situations: 

• New IRFs that have not yet 

submitted their first Medicare cost 

report. 

• IRFs whose overall CCR is in excess 

of the national CCR ceiling for FY 2012, 

as discussed below. 

• Other IRFs for which accurate data 

to calculate an overall CCR are not 

available. 

Specifically, for FY 2012, the national 

average CCR for rural IRFs is 0.669, 

which we calculated by taking an 

average of the CCRs for all rural IRFs 

using their most recently submitted cost 

report data. Similarly, the national 

average CCR for urban IRFs is 0.520, 

which we calculated by taking an 

average of the CCRs for all urban IRFs 

using their most recently submitted cost 

report data. We apply weights to both of 

these averages using the IRFs’ estimated 

costs, meaning that the CCRs of IRFs 

with higher costs factor more heavily 

into the averages than the CCRs of IRFs 

with lower costs. For this final rule, we 

used the most recent available cost 

report data (FY 2009). This includes all 

IRFs whose cost reporting periods begin 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47869 

on or after October 1, 2008, and before 

October 1, 2009. If, for any IRF, the FY 

2009 cost report was missing or had an 

‘‘as submitted’’ status, we used data 

from a previous fiscal year’s (that is, FY 

2004 through FY 2008) settled cost 

report for that IRF. We do not use cost 

report data from before FY 2004 for any 

IRF because changes in IRF utilization 

since FY 2004 resulting from the 60 

percent rule and IRF medical review 

activities suggest that these older data 

do not adequately reflect the current 

cost of care. 

In accordance with past practice, we 

set the national CCR ceiling at 3 

standard deviations above the mean 

CCR. Using this method, the national 

CCR ceiling is set at 1.55 for FY 2012. 

This means that, if an individual IRF’s 

CCR exceeds this ceiling of 1.55 for FY 

2012, we would replace the IRF’s CCR 

with the appropriate national average 

CCR (either rural or urban, depending 

on the geographic location of the IRF). 

We calculate the national CCR ceiling 

by: 

Step 1. Taking the national average 

CCR (weighted by each IRF’s total costs, 

as discussed above) of all IRFs for which 

we have sufficient cost report data (both 

rural and urban IRFs combined). 

Step 2. Calculating the standard 

deviation of the national average CCR 

computed in step 1. 

Step 3. Multiplying the standard 

deviation of the national average CCR 

computed in step 2 by a factor of 3 to 

compute a statistically significant 

reliable ceiling. 

Step 4. Adding the result from step 3 

to the national average CCR of all IRFs 

for which we have sufficient cost report 

data, from step 1. 

We did not receive any comments on 

the proposed updates to the IRF CCR 

Ceilings. 

Final Decision: We did not receive 

any comments on the IRF cost-to-charge 

ratio ceiling. Therefore, we are 

finalizing the national average urban 

CCR at 0.520, the national average rural 

CCR at 0.669, and the national CCR 

ceiling at 1.55 percent for FY 2012. 

VIII. Impact of the IPPS Data Matching 

Process Changes on the IRF PPS 

Calculation of the Low-Income 

Percentage Adjustment Factor 

Section 1886(j)(3)(A)(v) of the Act 

confers broad authority upon the 

Secretary to adjust the per unit payment 

rate ‘‘by such * * * factors as the 

Secretary determines are necessary to 

properly reflect variations in necessary 

costs of treatment among rehabilitation 

facilities.’’ For example, we adjust the 

Federal prospective payment amount 

associated with a CMG to account for 

facility-level characteristics such as an 

IRF’s LIP, teaching status, and location 

in a rural area, if applicable, as 

described in § 412.624(e). 

In the FY 2002 IRF PPS final rule (66 

FR 41359 through 41361) that 

implemented the IRF PPS, we 

established the IRF LIP adjustment. In 

that final rule, we said that we would 

calculate the LIP adjustment by using 

the same DSH patient percentage used 

in the acute IPPS DSH adjustment. 

The DSH patient percentage is equal 

to the sum of the ‘‘Supplemental 

Security Income (SSI) fraction’’ and the 

‘‘Medicaid Fraction.’’ We compute the 

SSI fraction (also known as the ‘‘SSI 

ratio’’ or the ‘‘Medicare fraction’’) by 

dividing the number of the facility’s 

inpatient days that are furnished to 

patients who were entitled to both 

Medicare Part A (including patients 

who are enrolled in a Medicare 

Advantage (Part C) plan) and SSI 

benefits by the facility’s total number of 

patient days furnished to patients 

entitled to benefits under Medicare Part 

A (including patients who are enrolled 

in a Medicare Advantage (Part C) plan). 

To determine the number of inpatient 

days for individuals entitled to both 

Medicare Part A and SSI, as required for 

calculation of the numerator of the SSI 

fraction, we match the Medicare records 

and SSI eligibility records for each IRF’s 

patients during the FY. The data 

underlying the match process are drawn 

from: (a) The Medicare Provider 

Analysis and Review (MedPAR) data 

file; and (b) SSI eligibility data provided 

by the Social Security Administration 

(SSA). We recently revised this data 

match. See the FY 2011 IPPS final rule 

(75 FR 50041, 50276). 

As previously stated, it is our policy 

to calculate the LIP adjustment using 

the same DSH patient percentage used 

in the acute IPPS DSH adjustment. In 

keeping with this long-standing policy, 

we will use the same matching process 

as IPPS for calculating the SSI fractions 

for FYs 2011 and beyond. This process 

is described in the FY 2011 IPPS final 

rule, and will be used to calculate IRFs’ 

SSI fractions for FY 2011. The FY 2011 

IPPS final rule (75 FR 50277 through 

50286) gives information on this revised 

data matching process. 

We received 2 comments on our 

stated policy to use the same data 

matching process as IPPS for calculating 

the SSI fractions for FYs 2011 and 

beyond, which are summarized below. 

Comment: The commenters supported 

our use of the same data matching 

process for IRFs that we use for IPPS. 

However, one commenter asked 

whether CMS plans to use the new data 

matching process for calculating the IRF 

SSI ratios for any cost reporting periods 

prior to FY 2011. Specifically, the 

commenter requested information on 

whether or not CMS plans to apply the 

new data matching process to any 

existing appeals of the IRF SSI ratios, 

regardless of the cost reporting period. 

Response: As we discussed in the FY 

2012 IRF PPS proposed rule (76 FR 

24214 at 24249 through 24250), in 

keeping with our long-standing policy 

of using the same DSH patient 

percentage used in the acute IPPS DSH 

adjustment, we will use the same 

matching process as IPPS for calculating 

the IRF SSI ratios for FYs 2011 and 

beyond. The comment about the data 

matching process for existing appeals of 

the SSI ratio for cost reporting periods 

prior to FY 2011 is outside the scope of 

the FY 2012 IRF PPS proposed rule. We 

will continue our ongoing analysis to 

determine the most appropriate 

methodologies to use in addressing 

open appeals, in both the IPPS and the 

IRF settings. 

IX. Updates to the Policies in 42 CFR 

Part 412 

Prior to the implementation of the IRF 

PPS on January 1, 2002, IRFs were paid 

based on the costs that they reported on 

their Medicare cost reports, subject to 

some limits. To simplify the cost 

reporting process, both for providers 

and for CMS and the Medicare 

contractors that monitored the cost 

reports, regulations were put into place 

that carefully defined, for example, 

when and how providers could be 

considered ‘‘new’’ and when and how 

they could expand their bed size and 

square footage. Under the IRF PPS, 

however, Medicare pays IRFs according 

to Federal prospective payment rates 

that are no longer tied to an individual 

IRF’s Medicare cost reports. This new 

payment methodology has made some 

of the requirements regarding new IRFs 

and IRF expansions obsolete. 

Prior to 2002, the regulations 

distinguished between freestanding 

rehabilitation hospitals and 

rehabilitation units of acute care 

hospitals, with separate regulatory 

sections for the two types of facilities 

even though many of the same 

requirements applied to both. Under the 

IRF PPS, the distinctions between 

freestanding IRFs and IRF units are no 

longer relevant because both types of 

facilities are paid the same and are 

subject to the same rules and 

requirements. The separation of the 

regulatory sections resulted in 

unnecessary repetition and confusion 

about which regulations applied to 

which types of facilities. 

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In addition, we added new IRF 

coverage requirements to 

§ 412.622(a)(3), (4), and (5) in the FY 

2010 IRF PPS final rule (74 FR 39762 at 

39811 through 39812) for IRF discharges 

occurring on or after January 1, 2010. 

Several of the IRF conditions of 

payment in the existing § 412.23(b)5 and 

§ 412.29, including the requirements for 

preadmission screenings to be 

conducted on all prospective patients, 

the requirements for IRF patients to 

receive close medical supervision, the 

requirements for plans of care to be 

developed for all IRF patients, and the 

requirements for patients to receive an 

interdisciplinary approach to care in the 

IRF, mirror some of the IRF coverage 

requirements in § 412.622(a)(3), (4), and 

(5). 

Finally, in recent years, we have 

observed an increase in the number and 

complexity of acquisitions and mergers 

occurring in this industry. In some 

cases, the Medicare rules and 

requirements for IRFs did not 

adequately address the number and 

complexity of acquisitions and mergers 

because they simply did not occur when 

the regulations were written. In other 

cases, regulations were written to 

address issues that do not exist today. 

For all of these reasons, in this final 

rule we consolidate, clarify, and revise 

the regulations for inpatient 

rehabilitation facilities at § 412.23(b), 

§ 412.25(b), § 412.29, and § 412.30 to 

update and simplify the policies, to 

eliminate unnecessary repetition and 

confusion, and to enhance the 

consistency with the IRF coverage 

requirements in § 412.622(a)(3), (4), and 

(5). The modifications will eliminate 

regulations that are no longer necessary 

under the IRF PPS, and they will enable 

IRFs to more easily adjust to beneficiary 

changes in demand for IRF services, 

which will improve beneficiary access 

to these services. Many of the 

modifications will also reduce costs for 

providers and for the government by 

reducing the amount of time and 

expenditures devoted to adhering to (for 

providers) and enforcing (for the 

government) regulations that are no 

longer necessary. As we have no way of 

determining how many IRFs might take 

advantage of the added flexibility these 

regulations afford to expand or change 

their operations, we are not able to 

quantify the potential savings that may 

result from these changes. For example, 

each time an IRF unit submitted a 

request to add beds to its facility under 

the prior regulations; the Medicare 

contractor had to determine whether or 

not the added IRF beds would be 

considered ‘‘new.’’ To be considered 

‘‘new,’’ the beds must have been added 

at the start of a cost reporting period, 

and the hospital must have ‘‘obtained 

approval, under State licensure and 

Medicare certification, for an increase in 

its hospital bed capacity that is greater 

than 50 percent of the number of beds 

it seeks to add to the unit.’’ We believe 

that the first requirement (that beds can 

only be added at the start of a cost 

reporting period) was difficult, and 

potentially costly, for IRFs that were 

expanding through new construction 

because the exact timing of the end of 

a construction project is often difficult 

to predict. Construction delays can 

hamper an IRF’s ability to have the 

construction completed exactly at the 

start of a cost reporting period, which 

can lead to significant revenue loss for 

the facility if the IRF is unable to add 

beds until the next cost reporting 

period. We believe that it is no longer 

necessary to require IRF beds to be 

added at the start of a cost reporting 

period. Further, the regulations required 

Medicare contractors to expend 

unnecessary resources determining 

whether the IRF met the second criteria, 

which required the hospital to have 

‘‘obtained approval, under State 

licensure and Medicare certification, for 

an increase in its hospital bed capacity 

that is greater than 50 percent of the 

number of beds it seeks to add to the 

unit.’’ The modifications to the 

regulations in this final rule are 

designed to simplify the regulations in 

order to minimize the amount of effort 

that Medicare contractors would need to 

spend enforcing them. Finally, the 

modifications will enhance the 

consistency between the IRF coverage 

and payment requirements. 

We note that § 412.25(b) applies to 

both IRFs and inpatient psychiatric 

facilities (IPFs), so the revisions to 

§ 412.25(b) will also affect IPFs in 

similar ways. 

A. Consolidation of the Requirements 

for Rehabilitation Hospitals and 

Rehabilitation Units 

Under the IRF PPS, rehabilitation 

hospitals and rehabilitation units of 

acute care hospitals (and critical access 

hospitals (CAHs)) are paid the same 

and, with very few exceptions, are 

subject to the same Medicare rules and 

requirements. For this reason, we 

believe that it is no longer necessary to 

have separate sections in 42 CFR part 

412 that define the requirements for 

rehabilitation hospitals and 

rehabilitation units of acute care 

hospitals (and CAHs). This leads to 

excessive repetition and potential 

confusion about which rules apply to 

which types of facilities. 

Thus, we are revising and 

consolidating the regulations for 

rehabilitation facilities that are currently 

in § 412.23(b) (for rehabilitation 

hospitals), § 412.29 (for rehabilitation 

units), and § 412.30 (for rehabilitation 

units) into a revised § 412.29 that 

contains the requirements for all IRFs, 

whether they be freestanding 

rehabilitation hospitals or rehabilitation 

units of acute care hospitals (or CAHs). 

We believe that this will simplify the 

regulations by consolidating the 

majority of the requirements for IRFs 

into just one sub-section of 42 CFR part 

412. 

Although we are making slight 

modifications to the regulations in 

§ 412.25(b), as discussed in section IX of 

this final rule, we are not moving the 

IRF regulations in § 412.25 to § 412.29 

in this final rule. The regulations in 

§ 412.25, such as the requirement to 

have beds that are physically separate 

from the rest of the hospital, the 

requirement that the unit be serviced by 

the same Medicare contractor as the rest 

of the hospital, and the requirement that 

the unit be treated as a separate cost 

center for cost finding and 

apportionment purposes, by their nature 

apply uniquely to units that are part of 

another hospital. While these 

requirements are not applicable to 

freestanding IRFs, we do not believe 

that it would be appropriate to include 

them with the rest of the IRF regulations 

in § 412.29 that are intended to apply to 

both freestanding IRF hospitals and to 

IRF units of hospitals. Further, we are 

not making modifications to § 412.25, 

other than the changes to § 412.25(b) as 

discussed in section IX of this final rule, 

because the regulations in § 412.25(a) 

through (g) (excluding (b)) remain 

relevant and important for defining IRF 

units of hospitals for payment purposes. 

However, we are replacing the text 

that was located at § 412.23(b) with text 

that simply refers the reader to the 

requirements in § 412.29, and moving 

the rest of § 412.23(b) and all of § 412.30 

to § 412.29. We are leaving text in 

§ 412.23(b) that refers IRFs to the 

requirements they must meet in § 412.29 

only so that we do not disturb the 

ordering of the rest of § 412.23 that 

contain the Medicare regulations for 

inpatient psychiatric facilities, 

children’s hospitals, and long-term care 

hospitals. Specifically, we are moving 

all of the text in § 412.23(b) to § 412.29 

except for a new paragraph that refers to 

the requirements in § 412.29, which 

would read as follows: ‘‘(b) 

Rehabilitation hospitals. A 

rehabilitation hospital must meet the 

requirements specified in § 412.29 to be 

excluded from the prospective payment 

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systems specified in § 412.1(a)(1) and to 

be paid under the prospective payment 

system specified in § 412.1(a)(3) and in 

subpart P of this part.’’ 

B. Revisions to the Regulations at 

Proposed § 412.29 

As described in section IX.A. of this 

final rule, we are replacing the text that 

was located at § 412.23(b) with text that 

simply refers the reader to the 

requirements in § 412.29, and moving 

the rest of § 412.23(b) and all of § 412.30 

to § 412.29. To eliminate any 

unnecessary repetition, and to update 

and clarify the regulations, we are also 

making revisions to the language from 

all three of the prior sections, 

§ 412.23(b), § 412.29, and § 412.30. As 

stated in the prior § 412.30, a 

rehabilitation unit can only be 

considered ‘‘new’’ if the hospital has 

never had a rehabilitation unit before. 

We have encountered circumstances in 

which a hospital closed a rehabilitation 

unit over 20 years ago and is now 

seeking to re-open the rehabilitation 

unit, and we believe that it would be 

reasonable to consider the rehabilitation 

unit to be ‘‘new.’’ Thus, we are revising 

the requirements for an IRF to be 

considered ‘‘new’’ to indicate that an 

IRF can be considered ‘‘new’’ if it has 

not been paid under the IRF PPS in 42 

CFR part 412, subpart P for at least 5 

calendar years. These requirements will 

now apply equally to both rehabilitation 

hospitals and rehabilitation units of 

acute care hospitals (or CAHs), and will 

be located in § 412.29(c)(1). We believe 

that 5 calendar years will allow a 

sufficient amount of time between an 

IRF closing and an IRF reopening to 

prevent IRFs from closing and 

reopening annually to avoid meeting 

certain requirements, while allowing 

IRFs more flexibility to meet changing 

demand for IRF services. 

In addition, we clarify and simplify 

the rules regarding change of ownership 

(including mergers) or leasing, as 

defined in § 489.18. Changes of 

ownership or leasing, as defined in 

§ 489.18, and mergers in which the new 

owner(s) accept assignment of the 

previous owner’s provider agreements 

are transfers of the provider agreement. 

Therefore, IRFs in these situations will 

retain their excluded status and will 

continue to be paid under the IRF PPS 

before and after the change, as long as 

the IRF continues to meet all of the 

requirements specified in § 412.29. 

However, we clarify that a change of 

ownership (including merger) or leasing 

in which the new owner(s) do not 

accept assignment of the previous 

owner’s provider agreement would be 

considered a voluntary termination of 

the provider agreement, and the new 

owner(s) will need to reapply to the 

Medicare program as an initial applicant 

to operate a new IRF. In the case of 

changes of ownership (including 

mergers) or leasing, the new owner(s) 

will not be required to wait for 5 

calendar years to reapply to operate a 

new IRF, but will be required to 

complete the initial hospital or critical 

access hospital certification process to 

participate in Medicare as a new IRF. 

Further, we revise the regulations 

regarding new IRF beds. The regulations 

formerly in § 412.30(d), which required 

an IRF to obtain ‘‘approval, under State 

licensure and Medicare certification, for 

an increase in its hospital bed capacity 

that is greater than 50 percent of the 

number of beds it seeks to add to the 

unit,’’ have become less and less 

relevant under a prospective payment 

system in which payments are no longer 

based on IRFs’ reported costs. Thus, we 

eliminate these requirements and, 

instead, state in § 412.29(c)(2) that IRF 

beds would be considered ‘‘new’’ if they 

meet all applicable State Certificate of 

Need and State licensure laws and if 

they get written approval from the 

appropriate CMS regional office (RO), as 

described below. New IRF beds can be 

added one time at any point during a 

cost reporting period (instead of at the 

start of a cost reporting period), but we 

require that a full 12-month cost 

reporting period elapse before an IRF 

that has had beds delicensed or 

decertified can add new beds. The 

reason for this requirement is to prevent 

IRFs from decreasing and increasing bed 

size every year to avoid having to meet 

certain requirements. We require the 

IRF to obtain written approval from the 

appropriate CMS RO for the addition of 

the new beds in order to allow the CMS 

RO to verify that a full 12-month cost 

reporting period has elapsed before an 

IRF that has had beds delicensed or 

decertified can add new beds. 

C. Revisions to the Requirements for 

Changes in Bed Size and Square 

Footage 

Prior to the IRF PPS and the IPF PPS, 

excluded units (IRFs and IPFs) were 

paid based on their costs, as reported on 

their Medicare cost reports, subject to 

certain facility-specific cost limits. 

These cost-based payments were 

determined separately for operating and 

capital costs. Thus, under cost-based 

payments, the facilities’ capital costs 

were determined, in part, by their bed 

size and square footage. Changes in the 

bed size and square footage would 

complicate the facilities’ capital cost 

allocation. Thus, the Medicare 

regulations at § 412.25 limited the 

situations under which an IRF or IPF 

could change its bed size and square 

footage. 

Under the IRF PPS and IPF PPS, 

however, a facility’s bed size and square 

footage is not relevant for determining 

the individual facility’s Medicare 

payment. Thus, we believe it is 

appropriate to modify some of the 

restrictions on a facility’s ability to 

change its bed size and square footage. 

We are therefore relaxing the 

restrictions on a facility’s ability to 

increase its bed size and square footage. 

Under the revised requirements we are 

adopting in this final rule in § 412.25(b), 

an IRF or IPF can change (either 

increase or decrease) its bed size or 

square footage one time at any point in 

a given cost reporting period as long as 

it notifies the CMS RO at least 30 days 

before the date of the proposed change, 

and maintains the information needed 

to accurately determine costs that are 

attributable to the excluded units. As we 

have in prior years, we also include an 

exception to these requirements for 

special circumstances. We note that any 

IRF beds that are added to an existing 

IRF during the IRF’s cost reporting 

period will only be considered new 

through the end of that cost reporting 

period. Further, the new IRF beds will 

be included in the IRF’s compliance 

review calculations under the 60 

percent rule specified in § 412.29(b) 

beginning on the date that they are first 

added to the IRF. 

D. Revisions To Enhance Consistency 

Between the IRF Coverage and Payment 

Requirements 

In the FY 2010 IRF PPS final rule (74 

FR 39762 at 39788 through 39798), we 

implemented new IRF coverage 

requirements in § 412.622(a)(3),(4), and 

(5). These new IRF coverage 

requirements replaced coverage 

requirements that were 25 years old and 

no longer reflected current medical 

practice. In updating these coverage 

requirements, we added further 

specificity to some of the terms that had 

been discussed in the old coverage 

requirements. For example, we more 

clearly defined in the new IRF coverage 

requirements what we mean by an IRF 

preadmission screening, care planning, 

and close medical supervision. In the 

revisions to § 412.23(b) and § 412.29, we 

enhance the consistency between the 

IRF coverage and payment requirements 

by incorporating some of the added 

specificity from the coverage 

requirements into the same 

requirements for payment. Specifically, 

we clarify that, as in the IRF coverage 

requirements, IRF preadmission 

screenings must be reviewed and 

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approved by a rehabilitation physician 

prior to each prospective patient’s 

admission to an IRF. As we said in the 

FY 2010 IRF PPS final rule (74 FR 

39791), we believe that it is important 

to require that a rehabilitation physician 

document the reasoning behind the 

decision to admit a patient to an IRF, to 

enable medical reviewers to understand 

the rationale for the decision. 

Further, we clarify, as we did in the 

coverage requirements at 

§ 412.622(a)(3)(iv), that close medical 

supervision in an IRF means that the 

patient receives at least 3 face-to-face 

visits per week by a licensed physician 

with specialized training and 

experience in inpatient rehabilitation to 

assess the patient both medically and 

functionally, as well as to modify the 

course of treatment as needed to 

maximize the patient’s capacity to 

benefit from the rehabilitation process. 

As we stated in the FY 2010 IRF PPS 

final rule (74 FR 39796), we believe that 

at least 3 face-to-face rehabilitation 

physician visits per week are necessary 

to coordinate the patient’s medical 

needs with his or her functional 

rehabilitation needs while in the 

facility. 

We received 12 comments on the 

proposed updates to the policies in 42 

CFR part 412, which are summarized 

below. 

Comment: Several commenters 

requested that CMS not make the 

proposed changes to the regulation text 

in 42 CFR 412.29(d) and (e). Although 

one commenter agreed with the 

proposed changes to the regulation text 

to align portions of the IRF coverage 

requirements with the corresponding 

portions of the IRF classification 

requirements, the rest of the 

commenters on these provisions 

expressed concerns. The concerns 

expressed were primarily that the 

proposed changes could blur the 

distinctions between the IRF coverage 

and the IRF classification requirements, 

and could potentially lead to 

inappropriate revocations of an IRF’s 

classification for payment under the IRF 

PPS based on only a single claim denial 

(or a small number of claims denials). 

The commenters suggested that CMS 

restate its previous position that the 

failure of an IRF to meet the IRF 

coverage requirements for one 

individual case should not be used to 

declassify an IRF for payment under the 

IRF PPS. Some of these commenters also 

asked for further explanation of how 

these proposed changes would reduce 

costs for IRFs and for the government. 

Response: We agree with the 

commenters that, as we have stated 

previously, failure to meet the IRF 

coverage requirements in one individual 

case should not be used to decertify an 

entire facility for payment under the IRF 

PPS. However, the intent of the 

proposed revisions is to make the 2 sets 

of requirements consistent with each 

other to eliminate any potential for 

confusion or ambiguity. We believe that 

we would be remiss in not making it 

clear that, in the IRF context, we require 

the preadmission screening 

documentation to be reviewed and 

approved by a rehabilitation physician 

prior to the IRF admission. Under the 

IRF coverage requirements, this is 

required for all IRF admissions, so it 

also must be built into the preadmission 

screening procedures that all IRFs must 

have in place. Similarly, we believe that 

we would be remiss in not clarifying 

that, in the IRF context, we define close 

medical supervision to mean at least 3 

face-to-face visits per week by a 

rehabilitation physician to assess the 

patient both medically and functionally. 

We established this definition for the 

IRF coverage requirements in the FY 

2010 IRF PPS final rule (74 FR 39762 at 

39795 through 39796), and we simply 

proposed to clarify in § 412.29(e) that 

the term means the same thing in the 

IRF classification requirements that it 

means in the IRF coverage requirements. 

Reinforcing the identical concepts 

(and, in most cases, the identical 

wording) from the IRF coverage criteria 

to the IRF classification criteria can only 

serve to clarify exactly what we mean, 

so that there is no confusion or 

ambiguity. In our opinion, this aligns 

with our stated goals in the FY 2012 IRF 

PPS proposed rule (76 FR 24214 at 

24250) of updating and simplifying the 

policies, eliminating unnecessary 

repetition and confusion, and enhancing 

the consistency between the IRF 

classification and the IRF coverage 

requirements. This particular change 

does not reduce costs for IRFs or for the 

government, but does promote clarity 

and consistency among Medicare’s 

regulations. 

As we do not intend for an IRF to be 

declassified for the purposes of 

receiving payment under the IRF PPS 

based on a small number of IRF claims 

denials, we agree with some of the 

commenters who suggested revisions to 

the language to focus the requirements 

on whether the IRFs have the correct 

processes in place to meet the 

requirements, rather than on whether 

the IRFs meet the requirements in each 

individual case. We agree that failure to 

meet the IRF coverage requirements in 

one individual case is not a reason to 

declassify an entire IRF from receiving 

payment under the IRF PPS. Thus, we 

are adopting slight revisions to the 

regulation text, suggested by 

commenters, that we believe will clarify 

that an IRF cannot be declassified as an 

IRF for failing to meet the coverage 

criteria in just one or two cases. The 

revised regulation text is included in the 

‘‘Regulation Text’’ section of this final 

rule. 

Even though we believe that an IRF 

should not lose its IRF classification 

because one individual case (or even a 

small number of cases) fails to meet the 

IRF coverage requirements, we note that 

we do believe that it is reasonable to 

conclude that an IRF’s preadmission 

screening procedure is not adequate if a 

large percentage of the IRF’s claims are 

denied because the preadmission 

screening information was not reviewed 

and approved by a rehabilitation 

physician prior to the IRF admission. 

Similarly, we believe that it is 

reasonable to conclude that an IRF’s 

procedure for ensuring that patients 

receive close medical supervision is not 

adequate if a large proportion of the 

IRF’s claims are denied because the 

patients were not seen and assessed by 

a rehabilitation physician at least 3 

times per week. 

Comment: Several commenters 

requested that CMS change the 

regulations to treat the acquisition of an 

IRF unit the same as the acquisition of 

a freestanding IRF hospital. 

Response: We appreciate the 

commenters’ suggestion and will 

carefully consider this for the future. 

However, we believe that this 

suggestion is outside the scope of the FY 

2012 IRF PPS proposed rule (76 FR 

24214) because it involves the issue of 

whether an entity can purchase a 

hospital’s payment status under 

Medicare. While an entity can purchase 

physical assets, Medicare payment 

status is assigned to a particular 

provider based on a review of the 

provider’s eligibility for payment under 

a particular Medicare payment system. 

We do not believe that a facility’s 

Medicare payment status or its provider 

agreement can be bought, sold, or 

transferred. If a different hospital other 

than the one to which the Medicare 

payment status was assigned wants to 

obtain the same Medicare payment 

status, it must apply and demonstrate 

that it meets the requirements for 

payment under the particular Medicare 

payment system. 

Comment: While several commenters 

supported the proposed regulations 

regarding ‘‘new’’ IRFs, changes of 

ownership, and mergers, some of these 

commenters requested that CMS specify 

that certain ‘‘internal corporate 

restructuring transactions’’ not 

involving external entities are not 

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changes of ownership. For example, 

these commenters said that they do not 

believe that the purchase of a hospital 

by another hospital, where both 

hospitals are owned by the same 

corporate entity, should be treated as a 

change of ownership for Medicare 

purposes. 

Response: We believe that this 

suggestion is outside the scope of the FY 

2012 IRF PPS proposed rule (76 FR 

24214) because it involves how 

Medicare defines a hospital. For 

Medicare purposes, hospitals are 

separate entities if they have separate 

Medicare provider agreements, 

regardless of whether they might both 

be owned by the same corporate entity. 

If one hospital with a Medicare provider 

agreement purchases another hospital 

with a Medicare provider agreement, 

regardless of whether the hospitals are 

owned by the same corporate entity or 

not, Medicare would consider this a 

change of ownership, which would be 

governed by the new regulations in 42 

CFR 412.29(c)(3) discussed in the 

‘‘Regulation Text’’ section of this final 

rule. Similarly, if hospitals with 

separate Medicare provider agreements 

merge their operations, regardless of 

whether they are owned by the same 

corporate entity or not, then the new 

regulations regarding mergers in 42 CFR 

412.29(c)(4) discussed in the 

‘‘Regulation Text’’ section of this final 

rule would apply. 

Comment: Several commenters agreed 

with the proposed changes to 

§ 412.25(b) to allow expansions of bed 

size or square footage at any time during 

a cost reporting period. However, some 

commenters suggested that CMS should 

allow new IRF units or new IPF units to 

open and begin being paid under their 

respective IRF PPS or IPF PPS at any 

time during a cost reporting period, 

rather than requiring that they could 

only begin being paid under the IRF PPS 

or the IPF PPS at the start of a cost 

reporting period. 

Response: We appreciate the 

commenters’ suggestion that we relax 

the requirement that IRF and IPF units 

can only begin being paid under their 

respective IRF PPS or IPF PPS at the 

start of a cost reporting period. 

However, we believe that this 

suggestion is outside the scope of the FY 

2012 IRF PPS proposed rule (76 FR 

24214) because we did not propose any 

changes to the regulations in § 412.25(c). 

However, we will consider this 

suggestion for possible inclusion in 

future rulemaking. 

Final Decision: After carefully 

considering all of the comments we 

received on the proposed updates to the 

policies in 42 CFR part 412, we are 

finalizing the regulation text changes as 

proposed, except for the following 

revisions in response to comment: 

• Instead of the proposed revision to 

§ 412.29(d), the paragraph will instead 

read, ‘‘(d) Have in effect a preadmission 

screening procedure under which each 

prospective patient’s condition and 

medical history are reviewed to 

determine whether the patient is likely 

to benefit significantly from an intensive 

inpatient hospital program. This 

procedure must ensure that the 

preadmission screening is reviewed and 

approved by a rehabilitation physician 

prior to the patient’s admission to the 

IRF.’’ 

• Instead of the proposed revision to 

§ 412.29(e), the paragraph will instead 

read, ‘‘(e) Have in effect a procedure to 

ensure that patients receive close 

medical supervision, as evidenced by at 

least 3 face-to-face visits per week by a 

licensed physician with specialized 

training and experience in inpatient 

rehabilitation to assess the patient both 

medically and functionally, as well as to 

modify the course of treatment as 

needed to maximize the patient’s 

capacity to benefit from the 

rehabilitation process.’’ The specific 

changes to the regulations at 42 CFR 

part 412 are shown in the ‘‘Regulation 

Text’’ of this final rule. 

X. Quality Reporting Program for IRFs 

A. Background and Statutory Authority 

CMS seeks to promote higher quality 

and more efficient health care for 

Medicare beneficiaries. Our efforts are, 

in part, effectuated by quality reporting 

programs coupled with the public 

reporting of data collected under those 

programs. The quality reporting 

programs exist for various settings such 

as hospital inpatient services (the 

Hospital Inpatient Quality Reporting 

(Hospital IQR) Program), hospital 

outpatient services (the Hospital 

Outpatient Quality Reporting (Hospital 

OQR) Program), and physicians and 

other eligible professionals (the 

Physician Quality Reporting System 

(formerly called the Physician Quality 

Reporting Initiative, or PQRI)). We have 

also implemented quality reporting 

programs for home health agencies and 

skilled nursing facilities that are based 

on conditions of participation, and an 

end-stage renal disease quality incentive 

program (ESRD QIP) that links payment 

to performance. 

Section 3004(b) of the Affordable Care 

Act added section 1886(j)(7) to the Act, 

which requires the Secretary to 

implement a quality reporting program 

for IRFs, including freestanding IRF 

hospitals and IRF units within 

hospitals. Beginning in FY 2014, section 

1886(j)(7)(A)(i) of the Act requires the 

Secretary to reduce the increase factor to 

a fiscal year by 2 percentage points for 

any IRFs that do not submit data to the 

Secretary in accordance with 

requirements established by the 

Secretary for that fiscal year. Section 

1886(j)(7)(A)(ii) of the Act notes that 

this reduction may result in the increase 

factor being less than 0.0 for a fiscal 

year, and in payment rates under this 

subsection for a fiscal year being less 

than the payment rates for the preceding 

fiscal year. Any reduction based on 

failure to comply with the reporting 

requirements is, in accordance with 

section 1886(j)(7)(B) of the Act, limited 

to the particular fiscal year involved. 

The reductions are not to be cumulative 

and will not be taken into account in 

computing the payment amount under 

subsection (j) for a subsequent fiscal 

year. 

Section 1886(j)(7)(C) of the Act 

requires that each IRF submit data to the 

Secretary on quality measures specified 

by the Secretary. The data must be 

submitted in a form and manner, and at 

a time, specified by the Secretary. The 

Secretary is generally required to 

specify measures that have been 

endorsed by the entity with a contract 

under section 1890(a) of the Act. This 

contract is currently held by the 

National Quality Forum (NQF). The 

NQF is a voluntary consensus standardsetting organization with a diverse 

representation of consumer, purchaser, 

provider, academic, clinical, and other 

health care stakeholder organizations. 

The NQF was established to standardize 

health care quality measurement and 

reporting through its consensus 

development process. We have 

generally adopted NQF-endorsed 

measures in our reporting programs. 

However, section 1886(j)(7)(D)(ii)of the 

Act provides that ‘‘in the case of a 

specified area or medical topic 

determined appropriate by the Secretary 

for which a feasible and practical 

measure has not been endorsed by the 

entity with a contract under section 

1890(a) of the Act, the Secretary may 

specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensusbased organization identified by the 

Secretary.’’ Under section 

1886(j)(7)(D)(iii) of the Act, the 

Secretary must publish the selected 

measures that will be applicable to FY 

2014 no later than October 1, 2012. 

Section 1886(j)(7)(E) of the Act 

requires the Secretary to establish 

procedures for making data submitted 

under the IRF quality reporting program 

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47874 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

1We inadvertently said in the FY 2012 IRF PPS 

proposed rule (76 FR 24214) that we (CMS) would 

ask NQF to formally extend its endorsement of the 

existing CAUTI measure to the IRF setting. We 

should have stated that we would ask CDC, as the 

measure steward, to ask NQF to formally extend its 

endorsement of the existing CAUTI measure to the 

IRF setting. 

2 Klevens RM, Edward JR, et al. Estimating health 

care-associated infections and deaths in U.S. 

hospitals, 2002. Public Health Reports 

2007;122:160–166. 3 Ibid. 

4Wong ES. Guideline for prevention of catheterassociated urinary tract infections. Infect Control 

1981;2:126–30. 

available to the public. The Secretary 

must ensure that an IRF is given the 

opportunity to review the data that is to 

be made public prior to the data being 

made public. The Secretary must report 

quality measures that relate to services 

furnished in inpatient settings in 

rehabilitation facilities on the CMS Web 

site. 

B. Quality Measures for IRF Quality 

Reporting Program for FY 2014 

1. General 

As described below, we adopt 2 

quality measures for FY 2014. These 

quality measures are: (1) Urinary 

Catheter-Associated Urinary Tract 

Infections (CAUTI); and (2) Pressure 

Ulcers that are New or Have Worsened. 

We also discuss below a third measure 

that we are currently developing and 

intend to propose to adopt for FY 2014 

in future rulemaking. That measure will 

be the 30-day Comprehensive All-Cause 

Risk-Standardized Readmission 

Measure. 

2. Considerations in the Selection of the 

Proposed Quality Measures 

In implementing the IRF Quality 

Reporting Program, we seek to collect 

data on measures that will provide 

information on the full spectrum of the 

quality of care being furnished by IRFs 

while imposing as little burden as 

possible on IRFs. We seek to collect data 

on valid, reliable, and relevant quality 

measures and to make that data 

available to the public in accordance 

with applicable law. 

We also seek to align new Affordable 

Care Act reporting requirements for IRFs 

with HHS’ broader goals of targeting 

high priority conditions and topics, as 

reflected in the National Quality 

Strategy released by the Secretary 

available at (http://www.healthcare.gov/ 

center/reports/ 

quality03212011a.html#es) and, 

ultimately, to provide a comprehensive 

assessment of the quality of healthcare 

delivered. We note that adopting a 

comprehensive set of measures may take 

multiple years because of the time, 

effort and resources required by IRFs 

and CMS to develop and implement the 

data collection and reporting 

infrastructure needed to support an 

expanded quality reporting program. 

Current areas of high priority for HHS 

include patient safety, healthcare 

associated infections, and reduction of 

avoidable readmissions. These priorities 

are consistent with the aim of providing 

safe, sound care for all patients 

receiving services in any healthcare 

setting including IRFs. 

In our consideration and selection of 

a comprehensive set of quality 

measures, we have several objectives. 

First, the measures should align with 

CMS’ three-part aim for better care for 

individuals, better health for 

populations, and lower cost through 

improvement. Second, the measures 

should relate to specific priorities in the 

care setting for which they are adopted. 

For IRFs, these include improving 

patient safety (such as avoiding 

healthcare associated infections (HAI)), 

reducing adverse events, and 

encouraging better coordination of care 

and person-and-family-centered care. 

Third, the measures should address 

improved quality for the primary role of 

IRFs, which is to address the 

rehabilitation needs of the individual 

including improved functional status 

and achievement of successful return to 

the community post-discharge. 

Other considerations in selecting 

quality measures include alignment 

with other Medicare quality reporting 

programs and other private sector 

initiatives; suggestions and input 

received from multiple stakeholders and 

national subject matter experts; seeking 

measures that have a low probability of 

causing unintended adverse 

consequences; and considering 

measures that are feasible, that is, 

measures that can be technically 

implemented within the capacity of the 

CMS infrastructure for data collection, 

analyses, and calculation of reporting 

and performance rates as applicable. 

3. FY 2014 Measure #1: Healthcare 

Associated Infection Measure (HAI): 

Urinary Catheter-Associated Urinary 

Tract Infections (CAUTI) 

The first measure we proposed for 

purposes of calculating the FY 2014 

Increase Factor for IRFs is an 

application of the NQF-endorsed 

measure developed by the Centers for 

Disease Control (CDC) for hospitals 

entitled (NQF# 0138)’’Urinary CatheterAssociated Urinary Tract Infection 

(CAUTI) for Intensive Care Unit 

Patients’’ to the IRF setting. This 

measure was developed by the CDC to 

measure the percentage of patients with 

urinary catheter associated urinary tract 

infections in the ICU context. We 

believe that this measure is highly 

relevant to IRFs in that urinary catheters 

are commonly used in the IRF setting. 

Section 1886(j)(7)(D)(ii) of the Act 

provides that ‘‘in the case of a specified 

area or medical topic determined 

appropriate by the Secretary for which 

a feasible and practical measure has not 

been endorsed by the entity with a 

contract under section 1890(a) of the 

Act, the Secretary may specify a 

measure that is not so endorsed as long 

as due consideration is given to 

measures that have been endorsed or 

adopted by a consensus-based 

organization identified by the 

Secretary.’’ We reviewed the NQF’s 

consensus endorsed measures, and were 

unable to identify any NQF-endorsed 

measures for catheter-associated urinary 

tract infections for the IRF setting. We 

are unaware of any other measures of 

urinary tract infections that have been 

approved by voluntary consensus 

standards bodies. Having given due 

consideration to other measures that 

have been endorsed or adopted by a 

consensus entity, we proposed to adopt 

an application of the NQF-endorsed 

CAUTI measure under the Secretary’s 

authority to select non-NQF endorsed 

measures where NQF-endorsed 

measures do not exist for a specified 

area or medical topic. While we 

proposed to adopt the measure under 

the exception authority provided in 

section 1886(j)(7)(D)(ii) of the Act, we 

noted that we intended to seek formal 

extension of the existing CAUTI 

measure to the IRF setting.1

Urinary tract infections (UTIs) are a 

common cause of morbidity and 

mortality. The urinary tract is the most 

common site of healthcare-associated 

infection, accounting for more than 30 

percent of infections reported by acute 

care hospitals 2. Healthcare-associated 

UTIs are commonly attributed to 

catheterization of the urinary tract. 

CAUTI can lead to complications 

such as cystitis, pyelonephritis, gramnegative bacteremia, prostatitis, 

epididymitis, and orchitis in males and, 

less commonly, endocarditis, vertebral 

osteomyelitis, septic arthritis, 

endophthalmitis, and meningitis in all 

patients. Complications associated with 

CAUTI include discomfort to the 

patient, prolonged hospital stay, and 

increased cost and mortality. Each year, 

more than 13,000 deaths are associated 

with UTIs 3. Prevention of CAUTIs is 

discussed in the CDC/HICPAC 

document, Guideline for Prevention of 

Catheter-associated Urinary Tract 

Infections4. The NQF-endorsed CAUTI 

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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 47875 

measure we proposed is currently 

collected by the CDC’s National 

Healthcare Safety Network (NHSN), a 

secure Internet-based health 

surveillance system, and we note that 

the CDC is also collecting data on this 

measure from IRFs. NHSN is currently 

used, in part, as one means by which 

certain State-mandated reporting and 

surveillance data are collected. 

The HHS National Action Plan to 

Prevent HAIs located at (http://www.

hhs.gov/ash/initiatives/hai/actionplan/

index.html) identified catheterassociated urinary tract infections as the 

leading type of HAI that is largely 

preventable. The technical expert panel 

(TEP) convened by the CMS measuredeveloper-contractor on February 4, 

2011 (https://www.cms.gov/LTCH-IRFHospice-Quality-Reporting/) also 

identified CAUTI as a high priority 

quality issue for IRFs. 

We received 23 public comments on 

the Urinary Catheter-Associated Urinary 

Tract Infections (CAUTI) quality 

measure, which are summarized below. 

Comment: Several commenters 

generally acknowledged CAUTI as an 

important safety and quality issue 

across care settings. However, several 

commenters expressed concern with the 

applicability of this measure to the IRF 

setting. They stated that the relatively 

small number of new UTIs in IRFs may 

reflect that the indicator is not the best 

choice as a quality indicator in the IRF 

setting. 

Response: Although patients with 

CAUTI in the IRF setting may be a 

minority, we believe that the CAUTI 

measure is an important indicator of 

quality in IRF settings and that 

promoting safe care in all settings is an 

important goal for quality reporting 

programs. Additionally, it is important 

to note that the HHS National Action 

Plan to Prevent HAIs located at (http://

www.hhs.gov/ash/initiatives/hai/

actionplan/index.html) indicated that 

catheter-associated urinary tract 

infections are a leading type of HAI that 

is largely preventable. Also, the 

technical expert panel that was 

convened by the CMS contractor that 

was tasked with assisting with the 

development of measures identified 

CAUTI as a high priority issue for IRFs. 

Comment: One commenter 

specifically supported the adoption of 

CAUTI reporting in the IRF context 

through the National Healthcare Safety 

Network (NHSN). They noted that 

hospitals in their State, including IRFs, 

have been required by State law-based 

reporting requirements to use NHSN to 

report all health care-associated 

infections since February 2008. The 

commenter also stated that, based on the 

health care-associated infection data 

collected and analyzed in that State, 

urinary tract infection is the most 

prevalent type of infection reported in 

that State’s IRFs. 

Response: We appreciate the 

commenter’s observation that UTIs are 

both the most prevalent and preventable 

form of infection in the IRF setting, and 

believe that CAUTI is an important 

quality measure to adopt for the IRF 

quality reporting program. 

Comment: One commenter stated that 

CAUTI is a much less relevant marker 

of quality in IRFs with short lengths of 

stay, where catheters come out almost 

immediately. The commenter 

additionally stated that it is sometimes 

difficult to find supporting 

documentation of catheter use within 

transfer documents. The commenter 

also stated that lack of documentation 

could lead to additional testing of 

patients on admission, resulting in 

increased time burden and cost to IRFs. 

Response: We acknowledge the 

challenges providers may initially 

encounter in finding supporting 

documentation in transfer documents of 

catheter use. However, we believe that 

implementation of this requirement will 

encourage better documentation of 

catheter use over time. The CDC 

provides educational and outreach 

materials to help promote 

communication of such information. 

Additionally, we believe such 

information may be provided by other 

sources, such as the patient. Finally, the 

specifications for the measure, which 

are available at http:// 

www.cdc.gov.nhsn/forms/instr/ 

57_114.pdf, do not require all patients 

to be tested on admission. We agree 

with this approach because clinical 

experts generally agree that 

identification of CAUTI rests upon a 

constellation of patient symptoms, as 

well as on the results of clinical and 

laboratory data. Quality care in IRFs 

requires close medical monitoring of all 

patients, and we believe that such 

monitoring will appropriately identify 

the subset of IRF patients who are most 

at risk for CAUTI and therefore should 

be tested. 

Comment: Some commenters 

expressed concern that the CAUTI 

measure was originally created for use 

in the inpatient ICU setting and 

questioned the use of a measure that 

was not specifically endorsed for the 

IRF setting. In contrast, another 

commenter noted that, although the 

CAUTI measure was originally created 

for use in the inpatient ICU setting, its 

use is also well established in other 

inpatient settings. Moreover, they 

asserted that this measure is an 

appropriate measure for the IRF setting. 

The commenter also said that they were 

pleased to see that only indwelling 

catheters are included for this measure, 

versus ‘‘straight in-and-out’’ 

(intermittent) catheters which are 

frequently used by spinal cord injury 

patients who often require extensive IRF 

services. 

Response: We acknowledge that the 

CAUTI measure, for which CDC is the 

measure steward, is currently endorsed 

by NQF for ICUs, and not specifically 

endorsed for the IRF setting. However, 

given the importance and preventability 

of CAUTIs in all settings including IRFs, 

we proposed to adopt an application of 

the NQF-endorsed measure under the 

Secretary’s authority to select non-NQF 

endorsed measures where measures do 

not exist for a specified area or medical 

topic. We also noted that we would seek 

NQF endorsement of the measure for 

application in the IRF setting. 

Comment: One commenter urged 

CMS to refine the CAUTI measure for 

specific use in IRFs. Additionally this 

commenter cited the potential need for 

testing the measure in IRFs and agreed 

with several other commenters, who 

recommended delaying reporting 

CAUTI until CMS obtains NQF 

endorsement of this measure 

specifically for the IRF setting. 

Response: CAUTI has been well tested 

in the ICU setting, and we see no reason 

why the IRF setting would produce 

different results since presence or 

absence of CAUTI is not dependent 

upon setting type, but rather clinical 

findings, signs, and symptoms. 

As stated above, we proposed to adopt 

the measure under the exception 

authority provided in section 

1886(j)(7)(D)(ii) of the Act, and we note 

that the quality measure steward, the 

CDC, is seeking NQF’s expansion of its 

endorsement of the CAUTI measure to 

IRFs. 

Comment: Several commenters 

expressed concern with potential 

erroneous attribution of infections that 

may have resulted from catheter use in 

a previous setting. However, one 

commenter expressed support for the 

CAUTI measure’s ‘‘transfer rule 

exception,’’ defined as transfers within 

an inpatient facility or transfers to a new 

facility, which may alleviate some of the 

perceived issues with attribution. 

Response: We thank the commenters 

for their remarks and we acknowledge 

their concerns. As the commenter noted, 

the CAUTI measure’s ‘‘transfer rule 

exception’’ excludes patients with 

CAUTI present on admission (POA) or 

who develop CAUTI within 48 hours of 

transfer to the IRF setting. Such CAUTIs 

are attributed to the transferring 

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location, rather than the admitting 

location. We believe that this 

appropriately addresses the potential 

risk of erroneous attribution for 

transferred patients. Additional 

information on the ‘‘Transfer Rule’’ can 

be found at http://www.cdc.gov/nhsn/ 

PDFs/slides/CAUTI.pdf. 

Comment: Several commenters also 

expressed their concern with the lack of 

a ‘‘present on admission’’ (POA) 

indicator, and stated that the absence of 

a POA indicator may result in incorrect 

tallies. Additionally, one commenter 

recommended that CMS pursue 

development of a timeline and 

implementation plan for a POA 

indicator for CAUTI prior to finalizing 

the proposed IRF measures. 

Response: We do not believe that the 

absence of a POA indicator will lead to 

erroneous tabulation of UTIs. The 

‘‘transfer rule’’ that is discussed in the 

NHSN patient safety module clearly 

indicates that, ‘‘If the UTI develops in 

a patient within 48 hours of discharge 

from a location, indicate the discharging 

location on the infection report, not the 

current location of the patient.’’ We 

believe that this guidance allows IRFs to 

accurately tabulate the number of 

CAUTIs that develop in the IRF, even 

without a POA indicator for this 

measure. However, we will consider 

working with the CDC to determine 

whether the application of a claimsbased POA indicator in addition to 

implementation of the ‘‘transfer rule’’ 

would be useful. If our work with the 

CDC finds that this would potentially be 

useful, we will consider this for future 

rulemaking. 

Comment: One commenter 

recommended that health careassociated infection rates and 

standardized infection rates for IRFs be 

evaluated separately from any data 

reported by general acute care hospitals 

and long term care hospitals. 

Response: We appreciate the 

commenter’s concern that health careassociated infection rates and 

standardized infection rates for IRFs be 

evaluated separately from any data 

reported by general acute care hospitals 

and long term care hospitals. As the IRF 

quality reporting program is separate 

from these other quality reporting 

programs, we do plan to evaluate 

CAUTI data reported by IRFs separately 

from CAUTI data reported by hospitals 

and long term care hospitals. 

Comment: Several commenters 

strongly urged CMS to share how it 

plans to perform HAI data validation 

since this was not addressed in the 

proposed rule. 

Response: As we agree that data 

validation is important, we do plan to 

perform HAI data validation prior to the 

public reporting of any HAI data, and 

are actively working with the CDC 

regarding their data validation process. 

As part of this process, we are sharing 

the public comments that we received 

on this issue with the CDC. We will 

continue to work with the CDC to 

develop an HAI data validation strategy, 

and will address that aspect of the 

quality reporting program in future 

rulemaking. 

Comment: Several commenters 

highlighted the need to risk adjust the 

CAUTI measure. They also stated that 

certain patients, such as those with 

spinal cord injury or neurogenic 

bladder, were at much higher risk of 

developing CAUTI than other lower risk 

patients. Furthermore, several 

commenters expressed concern that the 

lack of risk adjustment could possibly 

lead to unintended consequences such 

as reduced access to IRFs for higher risk 

patients. One commenter also 

recommended the adoption of the CDC 

definition of symptomatic UTI. 

Response: We recognize that risk 

adjustment is an important 

consideration for outcome quality 

measures, and that certain patients may 

have higher risks for complications such 

as UTIs. The CAUTI measure 

specifications use facility type 

(including IRF) and location type 

information (including an identifier of 

whether the facility is a freestanding 

hospital or a unit of a hospital) for risk 

adjustment, and these data are captured 

in the NHSN reporting system. As we 

take the appropriate access to care in 

IRFs very seriously, we intend to 

monitor closely whether the quality 

reporting program has any unintended 

consequences on access to care for 

higher risk patients. Should we find 

any, we will take appropriate steps to 

address these issues in future 

rulemaking. Also, we agree with the 

commenter’s suggestion that we adopt 

the CDC definition of symptomatic UTI, 

and are planning to adopt this definition 

in future rulemaking. 

Final Decision: Having carefully 

considered the comments received, we 

adopt as final an application of the 

NQF-endorsed measure that was 

developed by the CDC for ICUs entitled 

(NQF #0138) ‘‘Catheter-Associated 

Urinary Tract Infection [CAUTI] for 

Intensive Care Unit Patients’’ for the IRF 

setting. 

4. FY 2014 Measure #2: Percent of 

Patients With Pressure Ulcers That Are 

New or Worsened 

The second measure we proposed for 

IRFs for purposes of calculating the FY 

2014 increase factor is an application of 

a CMS-developed NQF-endorsed 

measure for short-stay nursing home 

patients; (NQF #0678, formerly assigned 

as NQF #NH–012–10) ‘‘Percent of 

Residents with Pressure Ulcers that Are 

New or Worsened.’’ This is the 

percentage of patients who have one or 

more stage 2 to 4 pressure ulcers that are 

new or worsened, when assessed at the 

time of discharge as compared with the 

patient’s condition at admission. We 

recognized that NQF endorsement of 

this measure is currently limited to 

short-stay nursing home patients in the 

proposed rule, but we noted our belief 

that this measure is also highly relevant 

to patients in any setting who are at risk 

of pressure ulcer development and a 

high priority quality issue in the care of 

IRF patients. Currently, there are no 

other NQF-endorsed pressure ulcer 

measures that are applicable to IRFs and 

we were unable to identify other 

measures for pressure ulcers that have 

been endorsed or adopted for the IRF 

context by a consensus organization. We 

were also unaware of any other 

measures of pressure ulcers that had 

been approved by voluntary consensus 

standards bodies. For these reasons, we 

proposed to adopt an application of this 

NQF-endorsed measure under the 

Secretary’s authority to select non-NQF 

endorsed measures where measures do 

not exist for a specified area or medical 

topic. We also stated that we intend to 

ask NQF to extend its endorsement of 

the existing short-stay nursing home 

pressure ulcer measure to the IRF 

setting. 

Pressure ulcers are high-volume and 

high-cost adverse events across the 

spectrum of health care settings from 

acute hospitals to home health. Patients 

in the IRF setting may have medically 

complex conditions and severe 

functional limitations, and are therefore 

at high risk for the development, or 

worsening, of pressure ulcers. Pressure 

ulcers are serious medical conditions 

and an important measure of quality. 

Pressure ulcers can lead to serious, lifethreatening infections, which 

substantially increase the total cost of 

care. As reported in the August 22, 

2007, Inpatient Hospital PPS Final Rule 

for FY 2008 (72 FR 47205) in 2006 there 

were 322,946 reported cases of Medicare 

patients with a pressure ulcer as a 

secondary diagnosis in acute care 

hospitals. 

We received 26 comments on the 

Percent of Patients with Pressure Ulcers 

that are New or Worsening quality 

measure, which are summarized below. 

Comment: A few commenters 

expressed concerns about whether 

pressure ulcers are really relevant to the 

IRF setting, citing the small number of 

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IRF patients that develop a new or 

worsening pressure ulcer. They stated 

that more relevant measures were those 

focusing on the output of the 

rehabilitative process, such as change in 

function or discharge to community. 

Response: We agree that functional 

restoration and return to community are 

also key aims for IRFs and central to 

patient-centered care. We plan to add 

such measures through future 

rulemaking, as the measures are further 

developed. 

However, we believe that the percent 

of patients with new or worsening 

pressure ulcers is an important indicator 

of quality in the IRF setting. Even if the 

proportion of patients in IRFs with new 

or worsening pressure ulcers is small, 

any such cases are particularly troubling 

given the requirement that IRF patients 

receive an intensive rehabilitation 

therapy program throughout their IRF 

stay, which would tend to require 

patients to be out-of-bed and active 

throughout their stay. 

Comment: Some commenters 

expressed concern over the ambiguity of 

the definition of ‘‘worsening’’ pressure 

ulcers and requested clarification of the 

definition. Some commenters cited the 

difficulty in accurately differentiating 

between worsening pressure ulcers and 

pressure ulcers that are changing as part 

of the healing process. Several 

commenters suggested that ‘‘worsening’’ 

be removed from the description and 

CMS base the quality measure solely on 

the appearance of ‘‘new’’ pressure 

ulcers. Some commenters questioned 

why unstageable pressure ulcers and 

suspected deep tissue injuries were not 

included in the measure. 

Response: The new or worsening 

pressure ulcer measure is based on 

changes in skin integrity between the 

admission and discharge assessments. 

Pressure ulcer ‘‘worsening’’ is defined 

in the measure specifications as a 

pressure ulcer that has progressed to a 

deeper level of tissue damage and is 

therefore staged at a higher number 

using a numerical scale of 1 through 4 

(using the staging assessment 

determinations assigned to each stage; 

starting at the stage 1, and increasing in 

severity to stage 4) on the discharge 

assessment as compared to the 

admission assessment. 

The National Pressure Ulcer Advisory 

Panel (NPUAP) has specific, wellestablished clinical criteria for 

determining the current stage of a 

wound (stages I through IV). These 

criteria, which are incorporated into the 

measure specifications, are used by 

clinicians in determining whether or not 

a wound has changed stages, and 

thereby worsened or improved. We 

believe that appropriate application of 

these guidelines should enable 

clinicians to identify pressure ulcers 

that have ‘‘worsened’’. Thus, we do not 

believe that the idea of ‘‘worsening’’ 

pressure ulcers should be removed from 

the measure. 

Unstageable wounds, including deep 

tissue injuries, are not currently 

included in this measure since the 

presence of worsening cannot be 

determined if they are unstageable. 

Furthermore, a pressure ulcer that 

presents with slough or eschar cannot 

be staged, and is not considered 

worsened. Only after, and if, 

debridement occurs, whereby dead 

tissue is removed, can the wound be 

staged. If after wound debridement, the 

wound is evaluated to have increased in 

the stage, the wound is considered 

worsened. 

If the patient was admitted with a 

deep tissue injury, and/or an 

unstageable pressure ulcer, the deep 

tissue injury and/or unstageable 

pressure ulcer would be documented as 

present on admission. As stated above, 

if after debridement the wound is 

evaluated to have increased in the stage, 

the wound is considered worsened but 

is considered to have been present on 

admission. 

Although the presence of new 

pressure ulcers is an indicator of 

adverse quality in IRFs, we believe that 

the presence of worsening pressure 

ulcers is also an important aspect of the 

measure because worsening pressure 

ulcers can indicate a lack of both 

appropriate medical monitoring and 

appropriate clinical treatment. In 

addition, as noted previously, the 

existence of worsening pressure ulcers 

in the IRF setting is particularly 

troubling given the requirement that IRF 

patients receive an intensive 

rehabilitation therapy program 

throughout their IRF stay, which would 

tend to require patients to be out-of-bed 

and active throughout their stay. Thus, 

we believe that it is imperative to 

include both new and worsening 

pressure ulcers in the measure. 

Comment: Several commenters 

expressed concern that the proposed 

measure does not adequately address 

the issue of pressure ulcers that are 

present on admission. These 

commenters recommended that CMS 

develop a timeline and implementation 

plan for a POA indicator for the 

pressure ulcer measure, with 

consideration of an appropriate 

attribution window to avoid IRFs being 

penalized for pressure ulcers that were 

present on admission or acquired from 

another facility prior to the IRF 

admission. 

Response: The measure that we are 

adopting in this final rule is the Percent 

of Patients with Pressure Ulcers that are 

New or Worsening between the IRF 

admission assessment and the discharge 

assessment. The measure accounts for 

any relevant pressure ulcers that were 

present on admission because it requires 

IRFs to supply data on the number of 

stage 2, stage 3, and stage 4 pressure 

ulcers that were present on admission. 

In addition, the measure asks IRFs to 

report any pressure ulcers that were 

present on admission. Thus, we believe 

that the pressure ulcer measure that we 

are adopting in this final rule already 

contains sufficient present on admission 

information and will not lead to 

inappropriate attribution to an IRF of a 

pressure ulcer that developed in another 

inpatient setting. 

Comment: One commenter suggested 

that CMS harmonize the IRF and the 

inpatient prospective payment system 

(IPPS) versions of the pressure ulcer 

measures so that both capture the same 

range of wound staging. While the IRF 

quality reporting program measure 

includes wound stages 2 though 4, the 

Hospital IQR Program measure only 

includes stages 3 through 4. 

Response: We agree that harmonizing 

the measures is a good suggestion. This 

will take significant development work 

as the data elements, data sources, and 

measure specifications differ for the IRF 

and IPPS quality reporting programs. 

We will take the commenter’s 

suggestions into consideration for future 

quality measurement development 

work, which will be considered for 

implementation through future 

rulemaking. 

Comment: One commenter suggested 

that the Pressure Ulcer Scale for Healing 

Tool (PUSH) tool, which provides 

clinicians with a scale for assessing 

wound healing or deterioration, is more 

appropriate for recording wounds. 

Another commenter said that they do 

not recommend the PUSH tool, but 

recognized its superiority to the 

proposed measure in that it allows 

addressing of wound healing in a 

standardized manner. This commenter 

also stated that if measurement of 

pressure ulcers is a quality measure, 

that the measure used should 

incorporate the NPUAP guidelines 

regarding wound healing. 

Response: We recognize that the 

PUSH tool is one of the instruments 

sometimes used by clinicians to assess 

healing or deterioration of pressure 

ulcers. However, CMS developed the 

New or Worsening Pressure Ulcer 

measure in consultation with our 

measure-developer contractor, which 

further consulted with NPUAP and 

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47878 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

other nationally recognized subject 

matter experts. Based on the input we 

received from these experts, we believe 

that the pressure ulcer measure that we 

are requiring IRFs to report beginning 

October 1, 2012 most appropriately 

captures this aspect of care provided in 

IRFs. In response to the commenter that 

suggested that any measure of pressure 

ulcers that is used in the IRF setting 

should be incorporate the NPUAP 

guidelines regarding wound staging, we 

note that the ‘‘New or Worsening 

Pressure Ulcer’’ measure that we are 

adopting in this final rule does 

incorporate the NPUAP guidelines 

regarding wound staging. 

Comment: Several commenters 

objected to the proposed application of 

a pressure ulcer measure that has been 

NQF-endorsed for short-stay residents 

in nursing homes but has not 

specifically been endorsed for the IRF 

setting. 

Response: We are using the authority 

to adopt non-NQF endorsed measures in 

cases where there is not an NQFendorsed measure for a particular area 

or topic. We do not believe that there 

are substantive issues that would make 

it inappropriate to apply the pressure 

ulcer measure that has been NQFendorsed for short-stay nursing home 

residents to IRFs. 

Comment: One commenter suggested 

that CMS include stage 1 wounds in the 

pressure ulcer measure. They stated 

that, if stage 1 wounds are not 

adequately treated, they will progress to 

more serious wounds. 

Response: We agree with the 

commenter about the importance of 

clinicians recognizing the presence of 

stage 1 wounds and adequately treating 

them so that they do not progress to 

more serious wounds. However, based 

on the CMS contractor’s extensive 

analysis of the issue, in consultation 

with national subject matter experts, we 

believe that the additional burden on 

providers of collecting and reporting 

information on stage 1 pressure ulcers 

outweighs the benefits of requiring such 

reporting. Thus, in an effort to minimize 

the reporting burden on providers, we 

have decided not to require reporting on 

stage 1 pressure ulcers. 

Comment: Some commenters stated 

that patients treated in IRFs have a 

higher level of medical complexity and 

receive more intense services than 

nursing home patients, highlighting the 

need for CMS to risk adjust the pressure 

ulcer measure. 

Response: We agree that some 

patients are at higher risk for pressure 

ulcers than others. The pressure ulcer 

measure (NQF #0678, formerly assigned 

as NQF #NH–012–10) that we are 

adopting for the IRF setting already 

includes a risk adjustment component. 

For example, the measure accounts for 

the higher risk of pressure ulcers among 

patients with low body mass index 

(BMI), diabetes, Peripheral Vascular 

Disease, bowel incontinence, and 

immobility. These clinical factors are 

known to increase the risk of pressure 

ulcer development for patients 

regardless of their setting of care. 

Comment: Several commenters 

expressed support of CMS’ adoption of 

the NPUAP stance that measurement of 

pressure ulcers not be based on ‘‘reverse 

staging’’. 

Response: We appreciate the 

commenters for their supportive 

comments and agree that it is not 

appropriate to ‘‘reverse-stage’’ pressure 

ulcers because staging only refers to the 

level of tissue damage. So, for example, 

a stage 3 pressure ulcer with full 

thickness tissue loss will always have 

that amount of damage present. If that 

pressure ulcer should heal and resurface 

with a new epithelial layer and later 

reopen, it is still a stage 3 pressure 

ulcer, even if it appears to meet the 

criteria for a stage 2 pressure ulcer. 

Final Decision: Having carefully 

considered the comments, we adopt as 

final an application of the CMSdeveloped NQF-endorsed measure for 

short-stay nursing home patients (NQF 

#0678, formerly assigned as NQF #NH– 

012–10) for the IRF setting. 

5. Potential FY 2014 Measure #3: 

30-Day Comprehensive All-Cause RiskStandardized Readmission Measure 

In the proposed rule, we stated our 

intent to propose a 30-day 

comprehensive all-cause riskstandardized readmission measure 

when one is developed. Addressing 

avoidable hospital readmissions is a 

high priority for HHS and CMS. We are 

currently developing setting-specific 

risk adjusted 30-day all-condition allcause risk-standardized readmission 

measures for hospitals, IRFs, long term 

care hospitals and nursing homes. 

The main features of the measure 

methodology will be consistent with 

that of the NQF-endorsed CMS hospital 

risk-adjusted 30-day readmission 

measures for the Acute Myocardial 

Infarction (AMI), Heart Failure (HF), 

Pneumonia and Percutaneous Coronary 

Intervention (PCI). We plan to cover the 

maximum number of patient conditions 

possible in the all-condition measures. 

We will consult existing literature and 

solicit input from national experts and 

conduct analyses on the types and 

comorbidities of the patients of each 

setting in order to establish appropriate 

risk-adjustment for the measures as well 

as appropriate specification of the 

meaning/definition of readmission and 

the appropriate time-window for 

readmission for each care setting. To 

expand beyond the condition-specific 

measures to an all-condition 

readmission measure for each setting, 

we will conduct analyses to determine 

whether it is statistically and clinically 

sound to derive the all-condition 

measures from one single risk 

adjustment model, or if it would be 

better to form a composite of multiple 

models for multiple conditions. We plan 

to use hierarchical logistic regression 

modeling to take into account the effects 

of the clustering of patients and the 

sample size in the IRF setting. The IRF 

readmission measure is expected to be 

completed in late 2011, at which time 

it will be submitted to the entity with 

a contract under section 1890(a) of the 

Act for endorsement. 

We received 19 comments on our 

intent to propose a 30-day 

Comprehensive All-Cause RiskStandardized Readmission Measure for 

IRFs, which are summarized below. 

Comment: Several commenters stated 

that risk adjustment will be an 

important consideration as CMS 

develops this readmission measure. 

Several commenters suggested that only 

preventable readmissions should be 

measured, and that planned 

readmissions should be excluded. 

Several commenters also stated that the 

causes of readmissions are complex and 

that there are no solutions that could be 

applied globally to reduce readmissions. 

Response: We appreciate the input. 

As indicated, the measure will be riskstandardized. We will take these 

comments into consideration as we 

further develop the measure. As part of 

development, the measure developer 

will provide an opportunity to the 

public to comment on specific aspects 

of the measure, including risk 

adjustment. Although we agree that the 

factors that are related to readmission 

are varied, readmission rates among 

Medicare beneficiaries are high, and we 

believe that they can be significantly 

improved through improved quality. 

C. Data Submission Requirements 

1. Method of Data Submission for HAI 

Measure (CAUTI) 

In the proposed rule, we proposed to 

require that IRFs submit data on the 

Catheter-Associated Urinary Tract 

Infection (CAUTI) measure through the 

Centers for Disease Control (CDC)/ 

National Healthcare Safety Network 

(NHSN). As we noted above, the NHSN 

is a secure, Internet-based surveillance 

system maintained by the CDC that can 

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be utilized by all types of healthcare 

facilities in the United States, including 

acute care hospitals, long term acute 

care hospitals, psychiatric hospitals, 

rehabilitation hospitals, outpatient 

dialysis centers, ambulatory surgery 

centers, and long term care facilities. 

The NHSN enables healthcare facilities 

to collect and use data about HAIs, 

including information on clinical 

practices known to prevent HAIs, 

information on the incidence or 

prevalence of multidrug-resistant 

organisms within their organizations, 

and information on other adverse 

events. Some States use the NHSN as a 

means of collecting State law mandated 

HAI reporting. NHSN collects data via a 

Web-based tool hosted by the CDC 

(http://www.cdc.gov/). This reporting 

service is provided free of charge to 

healthcare facilities. Additionally, the 

ability of the CDC to receive NHSN 

measures data from electronic health 

records (EHR) may be possible in the 

near future. Currently, more than 20 

States require hospitals to report HAIs 

using NHSN, and the CDC supports 

more 4,000 hospitals that are using the 

NHSN. 

We also proposed to require 

submission of the data elements needed 

to calculate the Catheter-Associated 

Urinary Tract Infection measure using 

the NHSN’s standard data submission 

requirements. The NHSN requires 

submission of data on HAI events on all 

patients. Collecting data on all patients 

will provide CMS with the most robust, 

accurate reflection of the quality of care 

delivered to Medicare beneficiaries as 

compared with non-Medicare patients. 

Therefore, to measure the quality of care 

that is delivered to Medicare 

beneficiaries in the IRF setting, we 

proposed to collect quality data related 

to HAI events on all patients regardless 

of payor. 

CDC/NHSN requirements may 

include adherence to training 

requirements, use of CDC measure 

specifications, data element definitions, 

data submission requirements and 

instructions, data reporting timeframes, 

as well as NHSN participation forms 

and indications to CDC allowing CMS to 

access data for this measure for the IRF 

quality reporting program purposes. 

Detailed requirements for NHSN 

participation, measure specifications, 

and data collection can be found at 

http://www.cdc.gov/nhsn/. We proposed 

to require IRFs to use the specifications 

and data collection tools for the CAUTI 

measure as required by CDC as of the 

time that the data is submitted. 

For purposes of calculating the FY 

2014 increase factor we proposed to 

collect data on CAUTI events that occur 

from October 1, 2012 through December 

31, 2012, which we inadvertently 

misidentified as the ‘‘final fiscal quarter 

of calendar year 2013.’’ We should have 

identified it as the final quarter of 

calendar year (CY) 2012. We proposed 

that all subsequent IRF quality reporting 

cycles would be based on a full CY 

cycle (that is January 1 through 

December 31 of the applicable year). For 

example, the FY 2015 payment 

determinations will be made based on 

CY 2013 data submitted to CDC. 

We stated that further details 

regarding data submission and reporting 

requirements for this measure would be 

posted on the CMS Web site http:// 

www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ no later than January 

31, 2012. IRFs were also encouraged to 

visit the CDC Web site http:// 

www.cdc.gov/nhsn/ to review the NHSN 

enrollment and reporting requirements. 

We received 21 comments on the 

proposed submission requirements for 

the CAUTI measure, which are 

summarized below. 

Comment: Several commenters 

expressed concerns about the readiness 

of the CDC’s NHSN infrastructure to 

accept a greater volume of data by 

adding IRF reporters. 

Response: As reported to us by CDC, 

the NHSN has undergone a major 

architectural redesign over the last year 

in response to the need to scale up to 

more users, facilities and functionality. 

It is our understanding that the addition 

of IRF quality reporting on the NHSN 

will not unduly strain the system. 

Comment: Several commenters 

expressed concerns with provider 

burden and resources needed to enroll, 

train and implement data reporting 

through the CDC’s NHSN. One 

commenter suggested CMS should move 

to a single standardized and streamlined 

quality reporting system and added that 

training on multiple quality reporting 

systems would be confusing and time 

consuming. Another commenter 

suggested that the IRF–PAI could be 

modified to collect CAUTI data. 

Response: We recognize that there are 

initial start-up costs and time 

investments to enroll and complete the 

required training for reporting through 

CDC’s NHSN. We have factored these 

costs into the provider burden estimates 

that we provided in both the FY 2012 

IRF PPS proposed rule and in this final 

rule. We believe that safety benefits will 

result from this new quality reporting 

requirement such as the ability to track 

serious, and at times, life threatening 

infections like CAUTI. As such, the 

benefits outweigh the costs. In addition, 

these costs are primarily incurred 

during the initial phase of the data 

reporting, and will be lower in 

subsequent years. For future rulemaking 

cycles, we will take into consideration 

the suggestion that CMS should move to 

a single standardized and streamlined 

quality reporting system and potentially 

consider collecting CAUTI data through 

an additional modification to the IRF– 

PAI. 

Final Decision: Having carefully 

considered the comments received on 

the method of data submission for the 

measure, we finalize our proposals to 

require that IRFs submit data on the 

measure through the Centers for Disease 

Control (CDC)/National Healthcare 

Safety Network (NHSN); to require 

submission of the data elements needed 

to calculate the measure using the 

NHSN’s standard data submission 

requirements; to collect quality data 

related to HAI events on all patients 

regardless of payor; and to require IRFs 

to use the specifications and data 

collection tools for the measure as 

required by CDC as of the time that the 

data is submitted. Data collection for the 

FY 2014 program will pertain to CAUTI 

events that occur from October 1, 2012 

through December 31, 2012 (the last 

quarter of CY 2012). All subsequent IRF 

quality reporting cycles will be based on 

a full calendar year (CY) cycle (that is 

January 1 through December 31 of the 

applicable year). Further details 

regarding data submission and reporting 

requirements for this measure will be 

posted on the CMS Web site http:// 

www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ no later than January 

31, 2012. 

2. Method of Data Submission for the 

Percent of Patients With New or 

Worsened Pressure Ulcer Measure 

We seek to implement the IRF Quality 

Reporting Program in a manner that 

imposes as little burden as possible. 

IRFs already are required to submit 

certain data for purposes of determining 

payment via the current Inpatient 

Rehabilitation Facility-Patient 

Assessment Instrument (IRF–PAI). 

Previously the IRF–PAI included 

optional ‘‘quality indicators’’ (QI). To 

support the standardized collection and 

calculation of quality measures 

specifically focused on IRF services, we 

proposed to modify the IRF–PAI by 

replacing the optional pressure ulcer 

items in the previous QI section of the 

IRF–PAI with mandatory pressure ulcer 

data elements. 

We proposed that IRFs would be 

required to submit the data needed to 

calculate the measure ‘‘Percent of 

Patients with New or Worsened 

Pressure Ulcers’’ on all Medicare 

patients. Therefore, to measure the 

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quality of care that is delivered to 

Medicare beneficiaries in the IRF 

setting, we proposed to collect quality 

data related to new or worsening 

pressure ulcers on all Medicare patients. 

We proposed to use the IRF–PAI to 

collect pressure ulcer data elements that 

would be similar to those collected 

through the Minimum Data Set 3.0 

(MDS 3.0), which is a reporting 

instrument that is used in nursing 

homes. A draft of the proposed IRF–PAI 

revisions with the new pressure ulcer 

elements that we are submitting to OMB 

for approval is available on the CMS 

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

InpatientRehabFacPPS/ 

04_IRFPAI.asp#TopOfPage. The current 

MDS 3.0 pressure ulcer items evolved as 

an outgrowth of CMS’ work to develop 

a set of standardized patient assessment 

items, now referred to as CARE 

(Continuity Assessment Record & 

Evaluation). 

The CARE assessment items were 

developed and tested in the post-acute 

care payment reform demonstration 

(PAC–PRD) which included IRFs as 

required by section 5008 of the 2005 

Deficit Reduction Act (DRA) (Pub. L. 

109–171, enacted February 8, 2006) 

(more information may be found at 

http://www.pacdemo.rti.org). We note 

that the proposed data elements are 

supported by the NPUAP. We believe 

that modifying the current IRF–PAI 

pressure ulcer items to be consistent 

with the standardized data elements 

now used in the MDS 3.0, will drive 

uniformity across settings that will lead 

to better quality of care in IRFs and 

ultimately, across the continuum of care 

settings. Additional details regarding 

the use of modified IRF–PAI data 

elements to calculate this measure will 

be published on the CMS Web site at 

http://www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/by no later than 

January 31, 2012. 

We received 23 comments on the data 

collection and reporting of new and 

worsening pressure ulcers for the IRF 

quality reporting program, which are 

summarized below. 

Comment: One commenter expressed 

a preference for a claims-based pressure 

ulcer measure, citing inter-rater 

reliability concerns with clinicians 

assessing pressure ulcers at admission 

and at discharge. Another commenter 

recommended inclusion of a body 

diagram to record the location of 

pressure ulcers. Another commenter 

expressed concern that the data 

collection mechanism allows for a count 

of multiple pressure ulcers and specific 

stages, but not the sizes of multiple 

pressure ulcers at the same stage. 

Response: Although one of the 

commenters suggested that we consider 

collecting data on the pressure ulcer 

measure on the claims form instead of 

the IRF–PAI, we do not currently collect 

this type of patient assessment data on 

the claim form, nor do we have a 

mechanism for collecting such data 

through the IRF claims. Furthermore, 

even if the data were to be collected 

through the IRF claim, it would still 

need to be based on a clinician’s 

assessment of the patient at admission 

and at discharge from the IRF. Since we 

currently use the IRF–PAI to collect 

other sorts of patient assessment data, 

we believe that this is the most 

appropriate vehicle for collecting data 

for the pressure ulcer measure. 

We agree that it is good clinical 

practice to record the location of 

pressure ulcers in the medical record. 

However, this is not part of the measure 

specifications because we do not believe 

that reporting the location of pressure 

ulcers to CMS will enhance the 

usefulness of the New or Worsening 

Pressure Ulcer quality measure for 

measuring quality in IRFs. We believe, 

after extensive consultation with 

national subject matter experts on 

wound healing, that recording the 

overall number of new pressure ulcers 

and presence (or lack thereof) of 

worsening pressure ulcers, provides an 

adequate indication of the quality of 

care provided in IRFs with regard to 

skin integrity management and wound 

healing. 

Comment: Several commenters 

commended CMS on modifications to 

the IRF–PAI to include pressure ulcer 

elements that are consistent with the 

MDS 3.0. They noted that the elements 

offer clear ulcer staging definitions 

consistent with NPUAP and the Wound 

Ostomy and Continence Nurses Society 

(WOCN). 

Response: We thank the commenters 

for their positive comments with respect 

to the IRF–PAI modifications. 

Comment: Several commenters 

suggested that any plans to incorporate 

elements from Continuity Assessment 

Record and Evaluation (CARE), which 

was developed for and used in the PostAcute Care Payment Reform 

Demonstration, be delayed until the 

demonstration findings have been 

reported to Congress and the public has 

had an opportunity to comment on 

CARE. 

Response: We did not propose to use 

the CARE instrument to collect this 

data. The Pressure Ulcer Measure we are 

adopting, as noted previously, is based 

on a similar measure generated from 

data collected through the current MDS 

3.0 instrument. This measure is NQFendorsed for short-stay nursing home 

residents. We proposed to amend the 

IRF PAI to replace the prior quality 

indicator (QI) elements with the data 

elements needed to generate the 

pressure ulcer measure. The IRF–PAI 

that has been submitted to OMB for 

approval can be downloaded from the 

IRF PPS Web site at http:// 

www.cms.gov/InpatientRehabFacPPS/ 

04_IRFPAI.asp#TopOfPage. 

We concluded the PAC–PRD, and 

data collection using CARE, in 

December 2010. We plan to submit our 

Report to Congress by the close of 2011. 

As we are not proposing the use of 

CARE at this time, we do not believe 

there is a need to defer the start of the 

new IRF quality reporting program 

pending delivery of the CARE report. 

Final Decision: Having carefully 

considered the comments, we finalize 

our proposal to require IRFs to submit 

the data needed to calculate the measure 

‘‘Percent of Patients with New or 

Worsened Pressure Ulcers’’ on all 

Medicare patients to CMS through the 

modified IRF PAI for all Medicare 

beneficiaries treated in the IRF setting. 

Additional details regarding the use of 

modified IRF–PAI data elements to 

calculate this measure are currently 

available on the CMS Web site at 

http://www.cms.gov/ 

InpatientRehabFacPPS/ 

04_IRFPAI.asp#TopOfPage. We will 

publish the electronic specifications 

related to reporting the pressure ulcer 

measure on the CMS Web site http:// 

www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ no later than January 

31, 2012. 

3. Potential Method of Data Submission 

for the 30-Day Comprehensive AllCause Risk-Standardized Readmission 

Measure 

If we adopt a 30-day comprehensive 

all-cause risk-standardized readmission 

measure for the IRF quality reporting 

program, we anticipate being able to use 

claims data otherwise submitted by the 

IRF to construct it. We generally 

anticipate constructing the measure 

using 3 years of claims data so that the 

measure rate captures a sufficient 

number of discharges. 

D. Public Reporting 

Under section 1886(j)(7)(E)of the Act, 

the Secretary is required to establish 

procedures for making data submitted 

by IRFs under the IRF quality reporting 

program available to the public. In 

accordance with this provision, we 

proposed to establish procedures to 

make the data available to the public. As 

noted in the proposed rule, we do not 

intend to make individual patient-level 

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data public. We believe that existing 

laws governing access to agency records 

will adequately address requests for 

such data. We will adopt procedures 

that will ensure that an IRF has the 

opportunity to review the data to be 

made public prior to the data being 

made public. Additionally, as required 

under section 1886(j)(7)(E) of the Act, 

we will report quality measures that 

relate to services furnished in IRFs on 

CMS’ Web site. 

We received 3 comments on public 

reporting, which are summarized below. 

Comment: One commenter supported 

CMS’ proposal to allow IRFs to preview 

data and measures prior to any 

information being posted on a Web site. 

One commenter suggested that CMS 

provide IRFs with a 30-day preview 

period prior to publicly posting the data 

submitted by IRFs under the quality 

reporting program and that CMS engage 

in ‘‘user testing’’ procedures before 

posting the information. 

Response: We agree with the 

commenters that it is important to allow 

IRFs to preview data and measures prior 

to any information being publicly 

displayed. We will adopt procedures 

that will ensure that an IRF has the 

opportunity to review the data to be 

made public prior to the data being 

made public. Additionally, as required 

under section 1886(j)(7)(E) of the Act, 

we will report quality measures that 

relate to services furnished in IRFs on 

a CMS Web site. We will take the 

commenter’s suggestions regarding 

‘‘user testing’’ into consideration as we 

develop procedures to publicly report 

IRF quality data. 

Comment: One commenter urged 

CMS to delay public reporting of the IRF 

quality data until the second year of 

reporting to avoid that potential that 

inaccurate data would be posted based 

on unintended analytical issues. 

Response: We have not at this time 

proposed a specific date to begin 

publicly reporting IRF quality data. We 

will take the commenter’s suggestions 

into account as we develop our plans for 

future public reporting. 

E. Quality Measures for Future 

Consideration for Determination of 

Increase Factors for Future Fiscal Year 

Payments 

As indicated previously in this 

section, we ultimately seek to adopt a 

comprehensive set of quality measures 

to be available for widespread use for 

informed decision making and quality 

improvement. While we are initially 

adopting a limited set of measures for 

the IRF quality reporting program, we 

expect to expand the measure set 

through rulemaking which will allow 

us, for example, to assess an IRF 

patient’s functional status and whether 

he/she has achieved his or her 

rehabilitation goals and potential. 

We intend to propose a more robust 

set of measures for the IRF quality 

reporting program in the FY 2013 

rulemaking cycle for the determination 

of the FY 2015 payment increase factor. 

We are considering the measures listed 

in Table 13 which include, but are not 

limited to, measure topics reported by 

skilled nursing facilities (SNFs) for short 

stay nursing home patients. 

Some quality data on short stay 

nursing home patients in skilled nursing 

facilities (SNFs) are collected via the 

MDS 3.0 data collection vehicle. We are 

currently analyzing these quality data, 

and expect to have findings by early 

2012. Next steps would include 

analyzing whether any of these 

measures would be appropriate for 

application in the IRF setting. 

If any of the short stay nursing home 

measures are appropriate for application 

to the IRF setting we intend to propose 

some or all of these measures in the FY 

2013 rulemaking cycle. Any measures 

that we proposed to adopt in through 

the FY 2013 rulemaking cycle would 

apply to the payment determination for 

FY 2015. We expect that any measures 

proposed in the FY 2013 rulemaking 

cycle would be collected via the IRF– 

PAI, and that further changes to this 

data collection vehicle and the 

supporting information technology (IT) 

infrastructure would be necessary. We 

expect that it would take providers, 

vendors, and CMS approximately one 

year to make the necessary changes to 

their IT systems to support the 

collection and reporting of new or 

modified IRF–PAI data elements. We 

would expect providers, vendors, and 

CMS to complete any needed changes to 

their IT systems by August 2013. We 

intend to propose that IRFs submit any 

additional or revised IRF–PAI data 

elements starting October 1, 2013 

through December 31, 2013 for the FY 

2015 payment update, but we are 

considering the possibility of basing 

future quality measures on data sources 

or assessment instruments other than 

the IRF–PAI. As stated earlier, we 

developed and tested the CARE 

assessment instrument for the postacute demonstration under section 5008 

of the DRA. We intend to submit a 

report to Congress by the end of 2011 

with findings from the 3-year PAC–PRD 

and its use of the CARE patient 

assessment instrument as a data 

collection vehicle. More details on the 

PAC–PRD which concluded in late 2010 

are available at http:// 

www.pacdemo.rti.org. We believe that 

the data elements that were collected 

using this CARE standardized 

assessment instrument could be used 

across all post-acute care sites to 

measure functional status and other 

factors during treatment and at 

discharge which are key indicators of 

quality in IRFs and in nursing homes 

treating short stay patients requiring 

rehabilitative services. We believe the 

instrument could be beneficial in 

supporting the submission of data on 

quality measures by IRFs and other care 

settings by using a standardized data 

collection instrument 

During the NQF endorsement process 

for nursing home quality measures, 

conducted through the NQF’s 2010 

measures maintenance cycle, the NQF 

steering committee pointed to the need 

for CMS to consider pairing pain 

measures with a measure or measures 

that reflect patients’ preferences for how 

their care, treatment and symptoms are 

managed by healthcare providers. These 

items, and other items in Table 13, are 

under consideration for future years. 

TABLE 13—POSSIBLE FUTURE MEASURES AND TOPICS FOR THE IRF QUALITY REPORTING PROGRAM

Overarching Goal: Safety and Healthcare Acquired Conditions: Avoidable Adverse Events and Serious Reportable Events * 

• Unplanned acute care hospitalizations. 

• Falls with major injury.* ** 

• Falls with major injury per 1,000 days. 

• Incidence of venous thromboembolism (VTE), potentially preventable.* 

• Poly-pharmacy related injury. 

• Medication errors.* 

• Stage III and IV pressure ulcers.** 

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TABLE 13—POSSIBLE FUTURE MEASURES AND TOPICS FOR THE IRF QUALITY REPORTING PROGRAM—Continued 

Overarching Goal: Safety and Prevention 

• VTE Prophylaxis. 

• Patient Immunization for Influenza. 

• Patient Immunization for Pneumonia. 

• Staff Immunization. 

Overarching Goal: Safety and Healthcare Acquired Conditions—HAIs 

• Surgical site infections. 

• Multidrug resistant organism infection. 

Overarching Goal: Better, Person Centered-Care: Care Coordination/Care Outcome 

• Functional Change: Change in Motor Score. 

• Change in Cognitive Function: Change in Cognitive Score. 

• Communication. 

• Percent of patients whose individually stated goals were met. 

• Care Transitions Measure–3 (CTM–3). 

• Discharge Outcome/Discharge disposition: 

—Home. 

—Assisted Living. 

—Nursing Home. 

—LTCH. 

—Hospital. 

—Hospice. 

• Patient Preferences for care, treatment and management of symptoms by healthcare providers. 

Overarching Goal: Better, Person Centered-Care: Symptom Management 

• Percent of patients on a scheduled pain management regime on admission who report a decrease in pain intensity or frequency. 

• Percent of patients with pain assessment conducted and documented prior to therapy. 

• Percent of patients who self-report moderate to severe pain. 

• Percent of patients with dyspnea improved within one day of assessment. 

Overarching Goal: Better, Person Centered-Care: Experience of Care 

• Patient Survey, for example, Hospital Consumer Assessment of Healthcare Providers & Systems. 

• Percent of patients for whom care delivered was consistent with patient stated care preferences. 

* Consistent with NQF Serious Reportable Events. 

** Consistent with Healthcare Acquired Conditions (HAC) Prevalence Measure. 

We received 8 comments on CMS’ 

potential future use of the CARE 

assessment instrument to collect quality 

reporting data, which are summarized 

below. 

Comment: Several commenters said 

that they recognized the value of 

standardizing assessment data across 

settings. However, they expressed 

concerns about CMS’ potential future 

use of CARE as a data collection vehicle 

in IRFs. These commenters questioned 

CARE’s ability to accurately document 

medical severity, functional status and 

other factors related to quality 

outcomes. In addition, several 

commenters suggested the need for 

additional testing of CARE items in IRFs 

should CMS elect to use CARE. 

Response: CARE was developed in 

response to the Deficit Reduction Act of 

2005 which directed CMS to develop a 

standardized assessment and test it in a 

demonstration for the purposes of ‘‘costs 

and outcomes across different postacute care sites.’’ CARE was used in the 

PAC–PRD to collect over 7,000 

assessments in IRFs (as well as longterm care hospitals, nursing homes, 

home health agencies and acute-care 

hospitals at discharge) across the 

country. Items were tested for reliability 

using two methods—a traditional interrater reliability test where 2 clinicians of 

the same discipline scored the same 

patient, and a test of reliability 

examining differences among 

disciplines in rating the same case. 

Overall, the vast majority of items had 

‘‘good’’ to ‘‘very good’’ agreement. We 

will deliver our Report to Congress with 

findings by the close of 2011. 

We received 16 comments on possible 

Future Measures and Topics for the IRF 

Quality Reporting Program, which are 

summarized below. 

Comment: The majority of the 

commenters were supportive of the 

listed possible future quality measures. 

Many applauded consideration of 

measures for functional status, 

discharge to community, falls with 

major injuries, incidence of venous 

thromboembolism (VTE), patient 

preferences and symptom management. 

The MedPAC expressed support for the 

development of a limited number of 

quality measures in the IRF sector that 

would focus on outcomes measures 

when possible and patient safety and 

experience where applicable. Moreover, 

MedPAC expressed support for CMS 

developing and including a hospital 

readmission measure into the IRF 

quality reporting program, and 

encouraged CMS to add a measure of 

functional improvement given its 

centrality to IRF care. 

Response: We thank the commenters 

for their input. We appreciate 

MedPAC’s support of our efforts to 

develop a quality reporting program for 

IRFs that focuses on outcome measures 

and patient safety. We will take all 

comments into consideration for future 

expansion of the IRF quality reporting 

program. 

Final Decision: After carefully 

considering the comments we received 

on the new IRF quality reporting 

program, we are finalizing the new IRF 

quality reporting program for the first 

reporting year, as proposed. In addition, 

we are submitting the revised IRF–PAI, 

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which can be downloaded from the IRF 

PPS Web site at http://www.cms.gov/ 

InpatientRehabFacPPS/ 

04_IRFPAI.asp#TopOfPage, to OMB for 

approval. 

We are also re-designating the existing 

paragraph § 412.624(c)(4) as 

§ 412.624(c)(5) and adding a new 

paragraph § 412.624(c)(4). The specific 

changes to the regulations at part 412 

are shown in the ‘‘Regulation Text’’ of 

this final rule. 

XI. Miscellaneous Comments 

Comment: Several commenters 

requested that CMS use the most recent 

3 years of data to review and update the 

list of comorbidities used to determine 

the tier payments to ensure that the tier 

list reflects all conditions that 

contribute significantly to IRF costs of 

care. Along these same lines, one 

commenter suggested that additional 

tier comorbidity codes might be 

appropriate for the list if CMS were to 

require IRFs to provide ‘‘present on 

admission’’ information to verify that 

the condition had been present on 

admission and did not occur during the 

IRF stay. 

Response: We appreciate the 

commenters’ suggestions, and will 

consider these suggestions for future 

analyses. 

Comment: Several commenters 

requested that CMS provide more data 

to allow stakeholders to replicate our 

analyses. Specifically, one commenter 

requested that CMS amend the MedPAR 

file to include information on a patient’s 

CMG classification, and provide 

stakeholders with patient-level IRF–PAI 

data. 

Response: We agree that the public 

should have access to whatever is 

necessary to review and comment on 

our proposed policies and evaluate the 

impacts of these policies. Some 

commenters have expressed a belief that 

the MedPAR files could inform their 

review of our proposals if it included 

CMGs. While we are unsure how this 

information would assist commenters, 

our policy is to supply whatever data is 

requested if such disclosure is legally 

permitted. We are therefore working 

towards including CMG information on 

the MedPAR, to the extent that such 

information will not make the MedPAR 

a patient-identifiable data file. The 

commenters also requested that we 

provide public access to patientidentifiable data, such as the IRF–PAI. 

We are restricted in our ability to release 

patient-level data under several privacy 

and security laws, such as the Privacy 

Act and the Health Insurance Portability 

and Accountability Act of 1996 (HIPAA) 

and the implementing regulations. For 

example, the HIPAA Privacy Rule 

provides that we may only disclose the 

minimum data necessary to accomplish 

the purpose of the disclosure (45 CFR 

164.502(b)). We did not use IRF–PAI 

data in our analysis for the FY 2012 IRF 

PPS proposed and final rules. As such, 

these data are not relevant to the ability 

of commenters to review or comment on 

our proposals. We would violate 

HIPAA’s minimum necessary 

requirements if we were to release these 

data for purposes of reviewing and 

responding to these rules. If identifiable 

data is used in future rulemaking, we 

will make data available in accordance 

with applicable law. Further, if 

commenters wish to request identifiable 

data for purposes outside the IRF PPS 

rulemaking process, we encourage them 

to use CMS’ normal data request 

process. More information on CMS’ data 

distribution policies is available on 

CMS’s Web site at http://www.cms.gov/ 

IdentifiableDataFiles/. 

Comment: One commenter suggested 

that CMS revise the IRF coverage 

requirements that are described in 

chapter 1, section 110 of the Medicare 

Benefit Policy Manual (Pub. L. 100–02) 

to allow recreational therapy services to 

count, on a limited basis, towards the 

intensive rehabilitation therapy 

requirement in IRFs and also to state 

that recreational therapy is a covered 

service in IRFs when the medical 

necessity is well-documented by the 

rehabilitation physician in the medical 

record and is ordered by the 

rehabilitation physician as part of the 

overall plan of care for the patient. 

Response: As we did not propose any 

changes to the IRF coverage 

requirements in § 412.622(a)(3), (4), and 

(5) that would affect any of the 

requirements described in chapter 1, 

section 110 of the Medicare Benefit 

Policy Manual (Pub. L. 100–02), this 

comment is outside the scope of the 

proposed rule. However, as we have 

indicated before, we do not believe that 

recreational therapy services should 

replace the provision of the 4 core 

skilled therapy services (physical 

therapy, occupational therapy, speechlanguage pathology, and prosthetics/ 

orthotics). Thus, we believe it should be 

left to each individual IRF to determine 

whether offering recreational therapy is 

the best way to achieve the desired 

patient care outcomes. As we have 

stated previously, recreational therapy 

is a covered service in IRFs when the 

medical necessity is well-documented 

by the rehabilitation physician in the 

medical record and is ordered by the 

rehabilitation physician as part of the 

overall plan of care for the patient. 

XII. Provisions of the Final Regulations 

In this final rule, we are adopting the 

provisions as set forth in the FY 2012 

IRF PPS proposed rule (76 FR 24214), 

except as noted elsewhere in the 

preamble. Specifically: 

A. Payment Provision Changes 

• We will update the FY 2012 IRF 

PPS relative weights and average length 

of stay values using the most current 

and complete Medicare claims and cost 

report data in a budget neutral manner, 

as discussed in section IV. of this final 

rule. 

• We will hold the FY 2012 IRF 

facility-level adjustments (rural, LIP, 

and teaching status adjustments) at FY 

2011 levels while we conduct further 

research on the underlying reasons for 

the fluctuations in the data, as discussed 

in section V. of this final rule. 

• We will implement a temporary cap 

adjustment policy for the teaching status 

adjustment to reflect interns and 

residents displaced due to closure of 

IRFs or IRF residency training programs, 

as discussed in section V. of this final 

rule. 

• We will update the FY 2012 IRF 

PPS payment rates by the market basket 

increase factor, based upon the most 

current data available, with a 0.1 

percentage point reduction as required 

by sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act and a 

productivity adjustment required by 

section 1886(j)(3)(C)(ii)(I) of the Act, as 

described in section VI. of this final 

rule. 

• We will update the wage index and 

the labor-related share of the FY 2012 

IRF PPS payment rates in a budget 

neutral manner, as discussed in section 

VI. of this final rule. 

• We will calculate the final IRF 

Standard Payment Conversion Factor for 

FY 2012, as discussed in section VI. of 

this final rule. 

• We will update the outlier 

threshold amount for FY 2012, as 

discussed in section VII. of this final 

rule. 

• We will update the cost-to-charge 

ratio (CCR) ceiling and urban/rural 

average CCRs for FY 2012, as discussed 

in section VII. of this final rule. 

• We will discuss the impact of the 

IPPS data matching process changes on 

the IRF PPS calculation of the 

Supplemental Security Income (SSI) 

ratios used to compute the IRF LIP 

adjustment factor, as discussed in 

section VIII. of this final rule. 

• We will implement the IRF quality 

reporting program provisions of section 

1886(j)(7) of the Act, as discussed in 

section X. of this final rule. 

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B. Proposed Revisions to Existing 

Regulation Text 

In addition, we will revise the 

existing requirements at § 412.25(b), 

§ 412.25(b)(1), § 412.25(b)(2), and 

§ 412.25(b)(3) that apply to all units that 

are excluded from the IPPS, as 

described in section IX. of this final 

rule. To amend the regulatory reference 

to conform with these changes, we will 

also revise the existing requirements at 

§ 412.25(e)(2)(ii)(A), as described in 

section IX. of this final rule. With the 

exception of § 412.25(e)(2)(ii)(A), the 

revisions affect both IRFs and IPFs. 

We will also relocate and revise the 

existing requirements at § 412.23(b), 

§ 412.29, and § 412.30 that describe the 

requirements for facilities to qualify to 

receive payment under the IRF PPS, as 

described in section IX. of this final 

rule. 

Finally, we will re-designate the 

existing paragraph § 412.624(c)(4) as 

§ 412.624(c)(5) and add a new paragraph 

§ 412.624(c)(4) to implement the IRF 

quality reporting program, as described 

in section X of this final rule. 

XIII. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the OMB for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

This final rule does not impose any 

new information collection 

requirements as outlined in the 

regulation text. However, this final rule 

does make reference to associated 

information collections that are not 

discussed in the regulation text 

contained in this document. The 

following is a discussion of these 

information collections, some of which 

have already received OMB approval. 

As stated in section X.B of this final 

rule, for purposes of calculating the FY 

2014 IRF PPS increase factor, we require 

IRFs to submit data on 2 quality 

measures beginning October 1, 2012. 

These quality measures are: (1) Catheter 

Associated Urinary Tract Infections; and 

(2) Pressure Ulcers that are New or Have 

Worsened. The aforementioned 

measures will be collected via the 

following respective means. 

A. Catheter Associated Urinary Tract 

Infections (CAUTI) 

Regarding the collection of data on 

the first quality measure, Catheter 

Associated Urinary Tract Infections, we 

will require as the form and manner of 

submission for the measure, CAUTI rate 

per 1,000 urinary catheter days, to be 

through the Centers for Disease Control 

(CDC)/National Health Safety Network 

(NHSN). Data collection by the NHSN 

occurs via a Web-based tool hosted by 

the CDC. This reporting service is 

provided free of charge to healthcare 

facilities. In fact, some IRFs are already 

using the NHSN to collect and submit 

this data. With this final rule, we will 

impose an information collection 

requirement for the CAUTI measure. It 

should be noted that information 

collection activities associated with the 

CDC/NHSN are currently approved 

under OMB control number 0920–0666. 

Detailed requirements for NHSN 

participation, measure specifications, 

and data collection can be found at 

http://www.cdc.gov/nhsn/. IRFs must 

use the current specifications and data 

collection tools for Catheter Associated 

Urinary Tract Infections. 

While IRFs were not previously 

required to report data to NHSN, 

according to the CDC, there are 26 IRFs 

that already submit data to NHSN either 

voluntarily or per State mandate. To 

report data to NHSN, the CDC requires 

the facility to enroll into the NHSN and 

take specified training. According to the 

NHSN Web site, it will take 240 minutes 

(4 hours) to register and complete the 

necessary training provided by the CDC. 

The estimated annual burden associated 

with this requirement is 270,000 

minutes/4,500 hours (240 minutes x 

1,126 IRFs) at an estimated cost of 

$187,321. This cost is estimated using 

the average hourly wage of a Registered 

Nurse which is reported by the U.S. 

Bureau of Labor Statistics to be $41.59. 

Once each facility has been properly 

registered into NHSN and trained, they 

will need to submit two types of forms 

in order for CDC to calculate the CAUTI 

rate per 1,000 urinary catheter days. The 

first form, the Urinary Tract Infection 

(UTI) form, is submitted by facilities for 

each patient with a CAUTI. We estimate 

that it will take 15 minutes per form per 

IRF. This time estimate consists of 5 

minutes of nursing time needed to 

collect the clinical data and 10 minutes 

of clerical time necessary to enter the 

data into NHSN. We further anticipate 

that there will be approximately 2.25 

forms submitted per IRF per month. 

Based on this estimate, we expect for 

each IRF to expend 33.75 minutes 

(0.5625 hours) per month or 405 

minutes (6.75 hours) per year reporting 

to NHSN. The estimated annual burden 

to all IRFs in the U.S. for reporting to 

NHSN is 7,776 hours. The estimated 

cost per IRF is $186.15 per year. 

Similarly, the estimated total yearly cost 

across all IRFs is $214,445. These costs 

are estimated using an hourly wage for 

a Registered Nurse of $41.59 and a 

Medical Billing Clerk/Data Entry person 

of $20.57 as stated by the U.S. Bureau 

of Labor Statistics. The second form, the 

denominator form, is used to count 

daily the number of patients with an 

indwelling catheter device. These daily 

counts are summed and only the total 

for each month is submitted to NHSN. 

While CDC estimates that the 

denominator form takes 5 hours per 

month to complete, we estimate that it 

will take 2.5 hours per form per IRF per 

month, as the number of patients with 

an indwelling catheter is the only part 

of this form that IRFs will be required 

to complete. We anticipate that there 

will be one form submitted per IRF per 

month. Based on this estimate, we 

expect for each IRF to expend 150 

minutes (2.5 hours) per month and 

1,800 minutes (30 hours) per year 

reporting to NHSN. The estimated 

annual burden to all IRFs in the U.S. for 

reporting to NHSN is 34,560 hours. The 

estimated cost per IRF is $1,247.70 per 

year. Similarly, the estimated total 

yearly cost across all IRFs is $1,437,350. 

These costs are estimated using an 

hourly wage for a Registered Nurse of 

$41.59. 

B. Pressure Ulcers That Are New or 

Have Worsened 

As stated in section X.C.2 of this final 

rule, to support the standardized 

collection and calculation of quality 

measures specifically focused on IRF 

services, we modified the IRF–PAI by 

replacing and harmonizing the pressure 

ulcer items with data elements similar 

to those collected through the MDS 3.0 

used in nursing homes. Additionally, 

the MDS 3.0 pressure ulcer items have 

been harmonized with the CARE data 

set, which was developed for and 

broadly tested in the post-acute 

demonstration as required by section 

5008 of the Deficit Reduction Act of 

2005 (Pub. L. 109–171, enacted on 

February 8, 2006) (DRA). We believe the 

modified IRF–PAI pressure ulcer items 

are consistent with the standardized 

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data elements now used in the MDS 3.0, 

and supported by the NPUAP. They will 

provide better informed decision 

making and quality improvement in 

IRFs and ultimately, across the 

continuum of care settings. 

Since all IRFs are already required to 

complete and transmit IRF–PAIs on all 

Medicare Part A fee-for-service and 

Medicare Part C (Medicare Advantage) 

patients in order to receive payment 

from Medicare, and the number of IRFs 

submitting claims to Medicare has 

remained stable over the past several 

years, we do not estimate that there are 

any IRFs that would need to conduct 

additional training or set-up for 

completing and transmitting the IRF– 

PAI. Thus, we do not estimate any 

additional burden on IRFs for these 

activities. In addition, we do not 

estimate any additional burden for IRFs 

to complete the IRF–PAI with the 

mandatory quality measures, as the IRF– 

PAI currently contains a voluntary 

‘‘Quality Indicators’’ section. We are 

replacing the voluntary data items with 

the proposed pressure ulcer question 

set. When the original burden estimates 

were completed for the IRF–PAI, we 

estimated that the ‘‘Quality Indicators’’ 

section of the IRF–PAI would take about 

10 minutes to complete, and we 

assumed that all IRFs would complete 

the Quality Indicators items, even 

though completion of this section was 

voluntary. Thus, removing the Quality 

Indicators items from the IRF–PAI 

decreases the total estimated burden of 

completing each IRF–PAI by about 10 

minutes. However, we estimate that it 

will take about 10 minutes to complete 

the new pressure ulcer item that we 

require IRFs to complete as part of the 

new IRF quality reporting program. 

Since the time to complete the items 

that we are removing from the IRF–PAI 

is the same as the time to complete the 

new items we added, we estimate no net 

change in the amount of time associated 

with completing each IRF–PAI and no 

net change in burden. 

We will be submitting a revision to 

the IRF–PAI information collection 

request currently approved under OMB 

control number 0938–0842 for OMB 

review and approval. 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Attention: CMS Desk Officer, 

CMS–1349–F, Fax: (202) 395–6974; or 

E-mail: OIRA_submission@omb.eop.gov. 

XIV. Economic Analyses 

A. Regulatory Impact Analysis 

1. Introduction 

We have examined the impacts of this 

final rule as required by Executive 

Order 12866 (September 30, 1993, 

Regulatory Planning and Review), 

Executive Order 13563 on Improving 

Regulation and Regulatory Review 

(January 18, 2011), the Regulatory 

Flexibility Act (September 19, 1980, 

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

of the Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This final 

rule has been designated an 

‘‘economically’’ significant rule, under 

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

Accordingly, the rule has been reviewed 

by the OMB. 

2. Statement of Need 

This final rule updates the IRF 

prospective payment rates for FY 2012 

as required under section 1886(j)(3)(C) 

of the Act. It responds to Section 

1886(j)(5) of the Act, which requires the 

Secretary to publish in the Federal 

Register on or before the August 1 that 

precedes the start of each fiscal year, the 

classification and weighting factors for 

the IRF PPS’s case-mix groups and a 

description of the methodology and data 

used in computing the prospective 

payment rates for that fiscal year. 

This rule also implements some 

policy changes within the statutory 

discretion afforded to the Secretary 

under section 1886(j) of the Act. We 

believe that the policy changes will 

better align IRF PPS policies with those 

of other Medicare payment systems and 

will clarify the IRF payment regulations. 

Further, many of the policy changes are 

designed to promote greater flexibility 

in the IRF PPS policies. 

This final rule also implements 

section 3401(d) of the Affordable Care 

Act, which amended section 

1886(j)(3)(C) of the Act and added 

section 1886(j)(3)(D) of the Act. Section 

1886(j)(3)(C) of the Act requires the 

Secretary to apply a multi-factor 

productivity adjustment to the market 

basket increase factor, and to apply 

other adjustments as defined by the Act. 

The productivity adjustment applies to 

FYs from 2012 forward. The other 

adjustments apply to FYs 2010 through 

2019. 

Finally, this final rule discusses the 

IRF quality measures that we are 

adopting for the first year of 

implementation of a new IRF quality 

reporting program, as required by 

section 3004(b) of the Affordable Care 

Act. 

3. Overall Impacts 

We estimate that the total impact of 

these changes for estimated FY 2012 

payments compared to estimated FY 

2011 payments would be an increase of 

approximately $150 million (this 

reflects a $120 million increase from the 

update to the payment rates and a $30 

million increase due to the update to the 

outlier threshold amount to increase 

estimated outlier payments from 

approximately 2.6 percent in FY 2011 to 

3 percent in FY 2012). 

4. Detailed Economic Analysis 

i. Basis and Methodology of Estimates 

This final rule sets forth updates of 

the IRF PPS rates contained in the FY 

2011 notice and updates to the CMG 

relative weights and average length of 

stay values, the wage index, and the 

outlier threshold for high-cost cases. 

This final rule also implements a 0.1 

percentage point reduction to the FY 

2012 rebased RPL market basket 

increase factor (updated from a 2002 

base year to a 2008 base year) in 

accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) 

of the Act and a 1.0 percent reduction 

to the FY 2012 rebased RPL market 

basket increase factor for the 

productivity adjustment as required by 

section 1886(j)(3)(C)(ii)(I) of the Act. 

We estimate that the FY 2012 impact 

would be a net increase of $150 million 

in payments to IRF providers (this 

reflects a $120 million estimated 

increase from the update to the payment 

rates and a $30 million estimated 

increase due to the update to the outlier 

threshold amount to increase the 

estimated outlier payments from 

approximately 2.6 percent in FY 2011 to 

3.0 percent in FY 2012). The impact 

analysis in Table 14 of this final rule 

represents the projected effects of the 

policy changes in the IRF PPS for FY 

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2012 compared with estimated IRF PPS 

payments in FY 2011 without the policy 

changes. We estimate the effects by 

estimating payments while holding all 

other payment variables constant. We 

use the best data available, but we do 

not attempt to predict behavioral 

responses to these changes, and we do 

not make adjustments for future changes 

in variables, such as the number of 

discharges or case-mix. 

We note that certain events may 

combine to limit the scope or accuracy 

of our impact analysis, because an 

analysis is future-oriented and, thus, 

susceptible to forecasting errors because 

of other changes in the forecasted 

impact time period. Some examples 

could be legislative changes made by 

the Congress to the Medicare program 

that would impact program funding, or 

changes specifically related to IRFs. 

Although some of these changes may 

not necessarily be specific to the IRF 

PPS, the nature of the Medicare program 

is that the changes may interact, and the 

complexity of the interaction of these 

changes could make it difficult to 

predict accurately the full scope of the 

impact upon IRFs. 

In updating the rates for FY 2012, we 

are implementing a number of standard 

annual revisions and clarifications 

mentioned elsewhere in this final rule 

(for example, the update to the wage 

index and market basket increase factor 

used to adjust the Federal rates). We 

estimate that these revisions will 

increase payments to IRFs by 

approximately $120 million (all due to 

the update to the market basket increase 

factor, since the update to the wage 

index is done in a budget neutral 

manner-as required by statute-and 

therefore neither increases nor decreases 

aggregate payments to IRFs). 

The aggregate change in estimated 

payments associated with this final rule 

is estimated to be an increase in 

payments to IRFs of $150 million for FY 

2012. The market basket increase of 

$120 million and the $30 million 

increase due to the update to the outlier 

threshold amount to increase estimated 

outlier payments from approximately 

2.6 percent in FY 2011 to 3.0 percent in 

FY 2012 result in a net change in 

estimated payments from FY 2011 to FY 

2012 of $150 million. 

The effects of the changes that impact 

IRF PPS payment rates are shown in 

Table 14. The following changes that 

affect the IRF PPS payment rates are 

discussed separately below: 

• The effects of the update to the 

outlier threshold amount, from 

approximately 2.6 to 3.0 percent of total 

estimated payments for FY 2012, 

consistent with section 1886(j)(4) of the 

Act. 

• The effects of the 2.9 percent 

annual market basket update for FY 

2012 (using the rebased RPL market 

basket) to IRF PPS payment rates, as 

required by sections 1886(j)(3)(A)(i) and 

1886(j)(3)(C) of the Act, including a 0.1 

percentage point reduction for FY 2012 

in accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) 

of the Act and a 1.0 percent reduction 

for the productivity adjustment as 

required by section 1886(j)(3)(C)(ii)(I) of 

the Act. 

• The effects of applying the budgetneutral labor-related share and wage 

index adjustment, as required under 

section 1886(j)(6) of the Act. 

• The effects of the budget-neutral 

changes to the CMG relative weights 

and average length of stay values, under 

the authority of section 1886(j)(2)(C)(i) 

of the Act. 

• The effect of the data matching 

process to compute the DSH patient 

percentage used in the IPPS DSH 

adjustment that is also used by IRF PPS 

to compute the low-income percentage 

adjustment factor. 

• The effect of the IRF quality 

reporting program, beginning in FY 

2013. 

• The total change in estimated 

payments based on the FY 2012 policies 

relative to estimated FY 2011 payments 

without the policies. 

ii. Description of Table 14 

Table 14 categorizes IRFs by 

geographic location, including urban or 

rural location, and location in one of 

CMS’s 9 census divisions (as defined on 

the cost report) of the country. In 

addition, the table divides IRFs into 

those that are separate rehabilitation 

hospitals (otherwise called freestanding 

hospitals in this section), those that are 

rehabilitation units of a hospital 

(otherwise called hospital units in this 

section), rural or urban facilities, 

ownership (otherwise called for-profit, 

non-profit, and government), by 

teaching status, and by disproportionate 

share patient percentage (DSH PP). The 

top row of the table shows the overall 

impact on the 1,152 IRFs included in 

the analysis. 

The next 12 rows of Table 14 contain 

IRFs categorized according to their 

geographic location, designation as 

either a freestanding hospital or a unit 

of a hospital, and by type of ownership; 

all urban, which is further divided into 

urban units of a hospital, urban 

freestanding hospitals, and by type of 

ownership; and all rural, which is 

further divided into rural units of a 

hospital, rural freestanding hospitals, 

and by type of ownership. There are 956 

IRFs located in urban areas included in 

our analysis. Among these, there are 752 

IRF units of hospitals located in urban 

areas and 205 freestanding IRF hospitals 

located in urban areas. There are 195 

IRFs located in rural areas included in 

our analysis. Among these, there are 175 

IRF units of hospitals located in rural 

areas and 20 freestanding IRF hospitals 

located in rural areas. There are 380 forprofit IRFs. Among these, there are 317 

IRFs in urban areas and 63 IRFs in rural 

areas. There are 718 non-profit IRFs. 

Among these, there are 596 urban IRFs 

and 122 rural IRFs. There are 54 

government-owned IRFs. Among these, 

there are 44 urban IRFs and 10 rural 

IRFs. 

The remaining three parts of Table 14 

show IRFs grouped by their geographic 

location within a region, by teaching 

status, and by DSH PP. First, IRFs 

located in urban areas are categorized to 

their location within one of the 9 CMS 

geographic regions. Second, IRFs 

located in rural areas are categorized to 

their location within one of the 9 CMS 

geographic regions. In some cases, 

especially for rural IRFs located in the 

New England, Mountain, and Pacific 

regions, the number of IRFs represented 

is small. Third, IRFs are grouped by 

teaching status, including non-teaching 

IRFs, IRFs with an intern and resident 

to Average Daily Census (ADC) ratio less 

than 10 percent, IRFs with an intern and 

resident to ADC ratio greater than or 

equal to 10 percent and less than or 

equal to 19 percent, and IRFs with an 

intern and resident to ADC ratio greater 

than 19 percent. Finally, IRFs are 

grouped by DSH PP, including IRFs 

with zero DSH PP, IRFs with a DSH PP 

less than 5 percent, IRFs with a DSH PP 

between 5 percent and 10 percent, IRFs 

with a DSH PP between 10 percent and 

20 percent, and IRFs with a DSH PP 

greater than 20 percent. 

The estimated impacts of each change 

to the facility categories listed above are 

shown in the columns of Table 14. The 

description of each column is as 

follows: 

Column (1) shows the facility 

classification categories described 

above. 

Column (2) shows the number of IRFs 

in each category in our FY 2010 analysis 

file. 

Column (3) shows the number of 

cases in each category in our FY 2010 

analysis file. 

Column (4) shows the estimated effect 

of the adjustment to the outlier 

threshold amount so that estimated 

outlier payments increase from 

approximately 2.6 percent in FY 2011 to 

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3.0 percent of total estimated payments 

for FY 2012. 

Column (5) shows the estimated effect 

of the rebased market basket update to 

the IRF PPS payment rates. 

Column (6) shows the estimated effect 

of the update to the IRF labor-related 

share and wage index, in a budget 

neutral manner. 

Column (7) shows the estimated effect 

of the update to the CMG relative 

weights and average length of stay 

values, in a budget neutral manner. 

Column (8) compares our estimates of 

the payments per discharge, 

incorporating all of the proposed 

changes reflected in this final rule for 

FY 2012, to our estimates of payments 

per discharge in FY 2011 (without these 

changes). 

The average estimated increase for all 

IRFs is approximately 2.2 percent. This 

estimated increase includes the effects 

of the 1.8 percent market basket update, 

which is derived from a 2.9 percent 

rebased market basket update reduced 

by 0.1 percentage point for FY 2012, in 

accordance with sections 

1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) 

of the Act, and reduced by a 1.0 

percentage point productivity 

adjustment as required by section 

1886(j)(3)(C)(ii)(I) of the Act. It also 

includes the 0.4 percent overall 

estimated increase (the difference 

between 2.6 percent in FY 2011 and 3.0 

percent in FY 2012) in estimated IRF 

outlier payments from the update to the 

outlier threshold amount. Because we 

are making the remainder of the changes 

outlined in this final rule in a budgetneutral manner, they will not affect total 

estimated IRF payments in the 

aggregate. However, as described in 

more detail in each section, they will 

affect the estimated distribution of 

payments among providers. 

TABLE 14—IRF IMPACT TABLE FOR FY 2012 

Facility classification Number 

of IRFs 

Number 

of cases 

Outlier FY 2012 

Adjusted 

market 

basket 

increase 

factor1

FY 2012 

CBSA 

wage 

index and 

laborshare 

CMG Total 

percent 

change 

(1) (2) (3) (4) 

(5) (6) 

(7) 

(8) 

Total ..................................................................................... 1,152 397,256 0.4% 1.8% 0.0% 0.0% 2.2

Urban unit ............................................................................ 752 200,510 0.6 1.8 ¥0.1 0.0 2.3 

Rural unit .............................................................................. 175 27,993 0.5 1.8 0.7 0.1 3.2 

Urban hospital ...................................................................... 205 162,121 0.2 1.8 0.0 0.0 1.9 

Rural hospital ....................................................................... 20 6,632 0.2 1.8 1.6 ¥0.1 3.5 

Urban For-Profit ................................................................... 317 151,768 0.2 1.8 0.1 0.0 2.1 

Rural For-Profit .................................................................... 63 12,437 0.4 1.8 1.1 0.1 3.4 

Urban Non-Profit .................................................................. 596 199,249 0.6 1.8 ¥0.3 0.0 2.1 

Rural Non-Profit ................................................................... 122 20,437 0.5 1.8 0.8 0.0 3.1 

Urban Government .............................................................. 44 11,614 0.7 1.8 0.2 0.0 2.8 

Rural Government ................................................................ 10 751 0.9 1.8 1.3 0.1 4.1 

Urban ................................................................................... 957 362,631 0.4 1.8 ¥0.1 0.0 2.1 

Rural ..................................................................................... 195 34,625 0.5 1.8 0.9 0.1 3.2 

Urban by region 2

Urban New England ..................................................... 32 16,385 0.4 1.8 ¥1.2 0.1 1.1 

Urban Middle Atlantic ................................................... 142 66,330 0.3 1.8 ¥0.7 0.0 1.4 

Urban South Atlantic ..................................................... 132 63,773 0.4 1.8 0.0 0.0 2.2 

Urban East North Central ............................................. 188 57,251 0.6 1.8 0.0 0.0 2.4 

Urban East South Central ............................................ 49 26,367 0.2 1.8 0.4 ¥0.1 2.3 

Urban West North Central ............................................ 73 18,112 0.6 1.8 0.0 0.0 2.4 

Urban West South Central ........................................... 169 66,296 0.4 1.8 0.5 0.0 2.7 

Urban Mountain ............................................................ 70 23,827 0.5 1.8 0.2 ¥0.1 2.3 

Urban Pacific ................................................................ 102 24,290 0.7 1.8 ¥0.3 0.0 2.2 

Rural by region 2 ................ ................ ................ ................ ................ ................ ................

Rural New England ....................................................... 6 1,354 1.0 1.8 0.7 0.1 3.6 

Rural Middle Atlantic ..................................................... 16 3,232 0.3 1.8 1.8 0.0 3.9 

Rural South Atlantic ...................................................... 25 5,988 0.3 1.8 0.8 0.0 2.9 

Rural East North Central .............................................. 33 5,775 0.4 1.8 0.1 0.1 2.4 

Rural East South Central .............................................. 23 4,016 0.2 1.8 1.4 0.0 3.4 

Rural West North Central ............................................. 31 3,944 0.8 1.8 ¥0.2 0.1 2.5 

Rural West South Central ............................................. 50 9,259 0.6 1.8 1.6 0.1 4.0 

Rural Mountain ............................................................. 7 670 0.6 1.8 0.3 0.1 2.8 

Rural Pacific .................................................................. 4 387 1.5 1.8 ¥0.4 ¥0.1 2.8 

Teaching status 

Non-teaching ................................................................. 1,036 345,421 0.4 1.8 0.1 0.0 2.3 

Resident to ADC less than 10% ................................... 69 36,843 0.6 1.8 ¥0.4 0.0 2.0 

Resident to ADC 10%–19% ......................................... 33 12,481 0.6 1.8 ¥0.3 0.1 2.2 

Resident to ADC greater than 19% .............................. 14 2,511 0.7 1.8 ¥0.7 0.0 1.9 

Disproportionate share patient percentage (DSH PP) 

DSH PP = 0% ............................................................... 39 10,532 0.5 1.8 0.4 0.0 2.7 

DSH PP < 5% ............................................................... 208 62,428 0.4 1.8 ¥0.2 0.0 2.0 

DSH PP 5%–10% ......................................................... 342 134,672 0.3 1.8 0.0 0.0 2.2 

DSH PP 10%–20% ....................................................... 330 123,352 0.4 1.8 0.0 0.0 2.2 

DSH PP greater than 20% ........................................... 233 66,272 0.6 1.8 0.0 0.0 2.4 

1This column reflects the impact of the rebased RPL market basket increase factor for FY 2012 of 1.8 percent, which includes a market basket 

update of 2.9 percent, a 0.1 percentage point reduction in accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and a 1.0 

percent reduction for the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act. 

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2A map of States that comprise the 9 geographic regions can be found at: http://www.census.gov/geo/www/us_regdiv.pdf.) 

iii. Impact of the Update to the Outlier 

Threshold Amount 

In the FY 2011 IRF PPS notice (75 FR 

42836), we used FY 2009 patient-level 

claims data (the best, most complete 

data available at that time) to set the 

outlier threshold amount for FY 2011 so 

that estimated outlier payments would 

equal 3 percent of total estimated 

payments for FY 2011. For this final 

rule, we update our analysis using more 

current FY 2010 data. Using the updated 

FY 2010 data, we now estimate that IRF 

outlier payments, as a percentage of 

total estimated payments for FY 2011, 

decreased from 3 percent using the FY 

2009 data to approximately 2.6 percent 

using the updated FY 2010 data. As a 

result, we adjust the outlier threshold 

amount for FY 2012 to $10,660, 

reflecting total estimated outlier 

payments equal to 3 percent of total 

estimated payments in FY 2012. 

The impact of the update to the 

outlier threshold amount (as shown in 

column 4 of Table 14) is to increase 

estimated overall payments to IRFs by 

0.4 percent. We do not estimate that any 

group of IRFs would experience a 

decrease in payments from this update. 

We estimate the largest increase in 

payments to be a 1.5 percent increase in 

estimated payments to rural IRFs in the 

Pacific region. 

iv. Impact of the Market Basket Update 

to the IRF PPS Payment Rates 

The adjusted market basket update to 

the IRF PPS payment rates is presented 

in column 5 of Table 14. In the aggregate 

the update will result in a net 1.8 

percent increase in overall estimated 

payments to IRFs. This net increase 

reflects the estimated rebased RPL 

market basket increase factor for FY 

2012 of 2.9 percent, reduced by 0.1 

percentage point in accordance with 

sections 1886(j)(3)(C)(ii)(II) and 

1886(j)(3)(D)(ii) of the Act, and reduced 

by a 1.0 percent productivity adjustment 

as required by section 1886(j)(3)(C)(ii)(I) 

of the Act. 

v. Impact of the CBSA Wage Index and 

Labor-Related Share 

In column 6 of Table 14, we present 

the effects of the budget neutral update 

of the wage index and labor-related 

share. The changes to the wage index 

and the labor-related share are 

discussed together because the wage 

index is applied to the labor-related 

share portion of payments, so the 

changes in the two have a combined 

effect on payments to providers. As 

discussed in section VI.A.4 of this final 

rule, the labor-related share decreased 

from 75.271 percent in FY 2011 to 

70.199 percent in FY 2012. 

In the aggregate, since these updates 

to the wage index and the labor-related 

share are applied in a budget-neutral 

manner as required under section 

1886(j)(6) of the Act, we do not estimate 

that these updates will affect overall 

estimated payments to IRFs. However, 

we estimate that these changes will have 

small distributional effects. For 

example, we estimate a 0.9 percent 

increase in payments to rural IRFs, with 

the largest increase in payments of 1.8 

percent for rural IRFs in the MidAtlantic region. We estimate the largest 

decrease in payments from the update to 

the CBSA wage index and labor-related 

share to be a 1.2 percent decrease for 

urban IRFs in the New England region. 

vi. Impact of the Update to the CMG 

Relative Weights and Average Length of 

Stay Values 

In column 7 of Table 14, we present 

the effects of the budget neutral update 

of the CMG relative weights and average 

length of stay values. In the aggregate 

we do not estimate that these updates 

will affect overall estimated payments to 

IRFs. However, we estimate that these 

updates will have small distributional 

effects. The largest decrease in 

payments as a result of these updates is 

a 0.1 percent decrease to rural 

freestanding IRFs, urban IRFs in the East 

South Central and Mountain regions, 

and rural IRFs in the Pacific region. 

vii. Impact of the IPPS Data Matching 

Process Changes on the IRF PPS 

Calculation of the Low-Income 

Percentage Adjustment Factor 

In section VIII of this final rule, we 

note the recent revision of the data 

matching process that is used to 

calculate the DSH patient percentage 

used in the acute IPPS DSH adjustment. 

As we have stated previously, it is our 

policy in calculating the LIP adjustment 

factor to use the same DSH patient 

percentage used in the acute IPPS DSH 

adjustment. This would include the data 

matching process. We are not able to 

provide a detailed analysis of the impact 

of the revised data matching process. 

That is, it is not possible to determine 

whether IRF LIP adjustment payments 

will generally increase or decrease, 

because IRFs’ SSI fractions will vary 

depending on various factors, including 

the use of a more updated MedPAR 

claims data file, use of a more updated 

SSI eligibility data file, and the other 

features of the revised data matching 

process. See the FY 2011 IPPS final rule 

(75 FR 50663 through 50664) for more 

information on the revised data 

matching process. 

ix. Impact of the IRF Quality Reporting 

Program Beginning in FY 2013 

As discussed in section X.B of this 

final rule, we will collect data on 2 

quality measures from October 1, 2012 

through December 31, 2012 (FY 2013). 

These quality measures are: (1) CatheterAssociated Urinary Tract Infections; and 

(2) Pressure Ulcers that are New or Have 

Worsened. As discussed in section XIII. 

of this final rule, we estimate that IRFs 

will incur costs associated with the 

collection of these data, which we detail 

below. 

a. Catheter Associated Urinary Tract 

Infections 

As stated in section X.C.1. of this final 

rule, we collect data on the first quality 

measure, Catheter Associated Urinary 

Tract Infections, through CDC/NHSN. 

We do not currently require IRFs to 

report data to NHSN. However, some 

IRFs submit data to NHSN either 

voluntarily or per State mandate. 

According to the CDC, 26 IRFs already 

report data to NHSN. We estimate that 

1,126 IRFs (1,152 minus the 26 IRFs that 

are already reporting data to NHSN) will 

incur costs for registering and 

completing the necessary training 

provided by the CDC in FY 2012 in 

preparation for submitting the data 

beginning on October 1, 2012 (FY 2013). 

We estimate that registering and 

completing the necessary training of the 

required personnel at each IRF will take 

4 hours at a cost of $41.59 per hour, at 

an estimated cost per IRF of $166.36 and 

a total estimated cost across all IRFs of 

$187,321. 

Once IRFs begin submitting data to 

the NHSN on Catheter Associated 

Urinary Tract Infections by October 1, 

2012 (FY 2013), they will need to 

submit two types of forms in order for 

CDC to calculate the CAUTI rate per 

1,000 urinary catheter days. We estimate 

that the first form, the UTI form, will 

take 15 minutes per reporting episode 

per IRF and that there will be 

approximately 2.25 NHSN submissions 

per IRF per month. Based on this 

estimate, we expect for each IRF to 

expend 33.75 minutes (0.5625 hours) 

per month or 405 minutes (6.75 hours) 

per year reporting to NHSN. The 

estimated annual burden to all IRFs in 

the U.S. for reporting to NHSN is 7,776 

hours. The estimated yearly cost per IRF 

is $186.15 and the estimated total yearly 

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cost across all IRFs is $214,445. While 

CDC estimates that the second form, the 

denominator form used to count daily 

the number of patients with an 

indwelling catheter device, will take 5 

hours per month to complete, we 

estimate that it will take 2.5 hours per 

form per IRF per month as the number 

of patients with an indwelling catheter 

is the only part of this form that IRFs 

will be required to complete. We 

anticipate that there will be one form 

submitted per IRF per month and each 

IRF will expend 150 minutes (2.5 hours) 

per month and 1,800 minutes (30 hours) 

per year reporting to NHSN. The 

estimated annual burden to all IRFs in 

the U.S. for reporting to NHSN is 34,560 

hours. The estimated cost per IRF is 

$1,247.70 per year and the estimated 

total yearly cost across all IRFs is 

$1,437,350. These costs are estimated 

using an hourly wage for a Registered 

Nurse of $41.59 and a Medical Billing 

Clerk/Data Entry person of $20.57. 

b. Pressure Ulcers That Are New or 

Have Worsened 

As stated in section X.C.2 of this final 

rule, we modified the IRF–PAI by 

removing the items previously in the 

‘‘Quality Indicators’’ section and 

replacing them with pressure ulcer 

items similar to elements from the MDS 

3.0 nursing home instrument. Since all 

IRFs are already required to complete 

and transmit IRF–PAIs on all Medicare 

Part A fee-for-service and Medicare Part 

C (Medicare Advantage) to receive 

payment from Medicare, and since the 

number of IRFs submitting claims to 

Medicare has remained stable over the 

past several years, we do not estimate 

that there are any IRFs that will need to 

conduct additional training or set-up for 

completing and transmitting the IRF– 

PAI. Thus, we do not estimate any 

additional cost to IRFs in FY 2012 for 

these activities. While IRFs are already 

transmitting the IRF–PAI form to CMS, 

we do not estimate any additional 

transmission costs associated with the 

proposed IRF quality reporting program. 

Further, we do not estimate any 

additional burden for IRFs to complete 

an IRF–PAI with mandatory quality 

measures as the IRF–PAI previously 

contained a voluntary ‘‘Quality 

Indicators’’ section, which we replaced 

with the pressure ulcer question set. 

When the original burden estimates 

were completed for the IRF–PAI, we 

estimated that the ‘‘Quality Indicators’’ 

section of the IRF–PAI would take about 

10 minutes to complete, and we 

assumed that all IRFs would complete 

the Quality Indicators items, even 

though completion of this section was 

voluntary. Thus, removing the Quality 

Indicators items from the IRF–PAI 

decreases the total estimated burden of 

completing each IRF–PAI by about 10 

minutes. However, we estimate that it 

will take about 10 minutes to complete 

the new pressure ulcer item that we are 

requiring IRFs to complete as part of the 

new IRF quality reporting program. 

Since the time to complete the items 

that we are removing from the IRF–PAI 

is the same as the time to complete the 

new items we are adding, we estimate 

no net change in the amount of time or 

the costs associated with completing 

each IRF–PAI. 

5. Alternatives Considered 

Although we have determined that 

this final rule will not have a significant 

economic impact on a substantial 

number of small entities, we have 

voluntarily prepared a discussion on the 

alternatives considered to the IRF PPS. 

Section 1886(j)(3)(C) of the Act 

requires the Secretary to update the IRF 

PPS payment rates by an increase factor 

that reflects changes over time in the 

prices of an appropriate mix of goods 

and services included in the covered 

IRF services. Thus, we did not consider 

alternatives to updating payments using 

the estimated RPL market basket 

increase factor for FY 2012. In this final 

rule, we rebase the RPL market basket 

for FY 2012, as we typically do every 5 

to 7 years, from a 2002 base year to a 

2008 base year. We considered not 

rebasing the RPL market basket for FY 

2012; however, periodically rebasing the 

RPL market basket ensures that it 

continues to reflect the most accurate 

account of the cost of relevant goods 

and services. In accordance with the 

recently amended section 1886(j)(3)(C) 

of the Act, we are updating IRF Federal 

prospective payments in this final rule 

by 1.8 percent (which equals the 2.9 

percent estimated rebased RPL market 

basket increase factor for FY 2012 

reduced by 0.1 percentage point, as 

required by sections 1886(j)(3)(C)(ii)(II) 

and 1886(j)(3)(D)(ii) of the Act, and 

reduced by a 1.0 percent productivity 

adjustment as required by section 

1886(j)(3)(C)(ii)(I) of the Act). 

We considered maintaining the 

existing CMG relative weights and 

average length of stay values for FY 

2012. However, in light of recently 

available data and our desire to ensure 

that the CMG relative weights and 

average length of stay values are as 

reflective as possible of recent changes 

in IRF utilization and case mix, we 

believe that it is appropriate to update 

the CMG relative weights and average 

length of stay values at this time to 

ensure that IRF PPS payments continue 

to reflect as accurately as possible the 

current costs of care in IRFs. 

We considered adjusting the facilitylevel adjustments (the rural, LIP, and 

teaching status adjustment) for FY 2012 

using updated data and a revised 

methodology that would remove a 

weighting factor from the regression 

analysis that we believe is no longer 

appropriate. However, we found that the 

proposed changes to the adjustment 

factors would cause unusually large 

reductions in payment for some 

facilities that are not clearly justified. 

Thus, we are freezing the IRF facilitylevel adjustment factors at FY 2011 

levels for FY 2012 while we continue to 

study the underlying anomalies in the 

data that may be causing some of the 

instability in the facility-level 

adjustments and analyze the most 

appropriate methodology to use to 

update the facility-level adjustment 

factors. 

We considered maintaining the 

existing outlier threshold amount for FY 

2012. However, the update to the outlier 

threshold amount will have a positive 

impact on IRF providers and, therefore, 

on small entities (as shown in Table 14, 

column 4). If we were to maintain the 

FY 2011 outlier threshold amount, 

fewer outlier cases would qualify for the 

additional outlier payments in FY 2012. 

Analysis of updated FY 2010 data 

indicates that estimated outlier 

payments would not equal 3 percent of 

estimated total payments for FY 2012 

unless we update the outlier threshold 

amount. Thus, we believe that this 

update is appropriate for FY 2012. 

6. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 15, we have 

prepared an accounting statement 

showing the classification of the 

transfers associated with the provisions 

of this final rule. This table provides our 

best estimate of the increase in Medicare 

payments under the IRF PPS as a result 

of the changes presented in this final 

rule based on the data for 1,152 IRFs in 

our database. 

TABLE 15—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED

TRANSFERS, FROM THE 2011 IRF 

PPS FISCAL YEAR TO THE 2012 IRF 

PPS FISCAL YEAR

Category Transfers 

Annualized Monetized 

Transfers.

$150 million. 

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47890 Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations 

TABLE 15—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED

TRANSFERS, FROM THE 2011 IRF 

PPS FISCAL YEAR TO THE 2012 IRF 

PPS FISCAL YEAR—Continued 

Category Transfers 

From Whom to 

Whom? 

Federal Government 

to IRF Medicare 

Providers. 

7. Conclusion 

Overall, the estimated payments per 

discharge for IRFs in FY 2012 are 

projected to increase by 2.2 percent, 

compared with those in FY 2011, as 

reflected in column 8 of Table 14. IRF 

payments are estimated to increase 2.1 

percent in urban areas and 3.2 percent 

in rural areas, per discharge, compared 

with FY 2011. Payments to 

rehabilitation units in hospitals in urban 

areas are estimated to increase 2.3 

percent per discharge. Payments to 

freestanding rehabilitation hospitals in 

urban areas are estimated to increase 1.9 

percent per discharge. Payments to 

rehabilitation units in hospitals in rural 

areas are estimated to increase 3.2 

percent per discharge, while payments 

to freestanding rehabilitation hospitals 

in rural areas are estimated to increase 

3.5 percent per discharge. 

Overall, the largest payment increase 

is estimated at 4.1 percent for rural 

government-owned IRFs and rural IRFs 

in the West South Central region. We 

are not estimating any payment 

decreases for FY 2012. 

B. Regulatory Flexibility Act Analysis 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most IRFs 

and most other providers and suppliers 

are small entities, either by nonprofit 

status or by having revenues of $34.5 

million in any 1 year. (For details, see 

the Small Business Administration’s 

Web site at http://ecfr.gpoaccess.gov/

cgi/t/text/text-idx?c=ecfr&sid=2465b

064ba6965cc1fbd2eae60854b11&rgn=

div8&view=text&node=13:1.0.1.1.16.1.

266.9&idno=13) (refer to subsector 622). 

Because we lack data on individual 

hospital receipts, we cannot determine 

the number of small proprietary IRFs or 

the proportion of IRFs’ revenue that is 

derived from Medicare payments. 

Therefore, we assume that all IRFs (an 

estimated 1,152 IRFs that are in our 

analysis file, of which approximately 60 

percent are nonprofit facilities) are 

considered small entities and that 

Medicare payment constitutes the 

majority of their revenues. The HHS 

generally uses a revenue or cost impact 

of 3 to 5 percent as a significance 

threshold under the RFA. There is no 

negative estimated impact as a result of 

this final rule that is within the 

significance threshold of 3 to 5 percent. 

As shown in Table 14, we estimate that 

the net revenue impact of this final rule 

on all IRFs is to increase estimated 

payments by about 2.2 percent, with an 

estimated increase in payments of 3 

percent or higher for some categories of 

IRFs (such as both freestanding 

rehabilitation hospitals located in rural 

areas and rehabilitation units in 

hospitals located in rural areas, rural 

government-owned IRFS and rural IRFs 

in the New England, Mid-Atlantic, East 

South Central, and West South Central) 

and no estimated decreases in payment. 

Therefore, we estimate that all IRFs will 

experience a net positive increase in 

payments. As a result, the Secretary has 

determined that this final rule will not 

have a significant impact on a 

substantial number of small entities. We 

present, in the Alternatives Considered 

section XIV.A.5 of this final rule, an 

analysis of the alternatives we 

considered for this final IRF PPS rule. 

Medicare fiscal intermediaries and 

carriers are not considered to be small 

entities. Individuals and States are not 

included in the definition of a small 

entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a RIA if a rule 

may have a significant impact on the 

operations of a substantial number of 

small rural hospitals. This analysis must 

conform to the provisions of section 603 

of the RFA. For purposes of section 

1102(b) of the Act, we define a small 

rural hospital as a hospital that is 

located outside of a MSA and has fewer 

than 100 beds. Based on the data of the 

175 rural units and 20 rural hospitals in 

our database of 1,152 IRFs, we estimate 

that small rural IRF hospitals will 

receive between 2.4 percent and 4.1 

percent higher net payments in FY 2012 

due to the provisions in this final rule, 

with no rural IRF hospitals estimated to 

receive negative net payments. Thus, 

the Secretary has determined that the 

rates and policies set forth in this final 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

C. Unfunded Mandates Reform Act 

Analysis 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any one year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2011, that threshold level is 

approximately $136 million. This final 

rule will not impose spending costs on 

State, local, or Tribal governments, in 

the aggregate, or by the private sector, of 

$136 million. 

XV. Federalism Analysis 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This final rule will have no substantial 

direct effect on State and local 

governments, preempt State law, or 

otherwise have Federalism implications. 

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 amends 42 CFR 

chapter IV as follows: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

■ 1. The authority citation for part 412 

continues to read as follows: 

Authority: Sections 1102, 1862, and 1871 

of the Social Security Act (42 U.S.C. 1302, 

1395y, and 1395hh). 

Subpart B—Hospital Services Subject 

to and Excluded From the Prospective 

Payment Systems for Inpatient 

Operating Costs and Inpatient CapitalRelated Costs 

■ 2. Section 412.23 is amended by 

revising paragraph (b) to read as follows: 

§ 412.23 Excluded hospitals: 

Classifications. 

* * * * * 

(b) Rehabilitation hospitals. A 

rehabilitation hospital or unit must meet 

the requirements specified in § 412.29 of 

this subpart to be excluded from the 

prospective payment systems specified 

in § 412.1(a)(1) of this subpart and to be 

paid under the prospective payment 

system specified in § 412.1(a)(3) of this 

subpart and in subpart P of this part. 

* * * * * 

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■ 3. Section 412.25 is amended by 

revising paragraphs (b) and (e)(2)(ii)(A) 

to read as follows: 

§ 412.25 Excluded hospital units: Common 

requirements. 

* * * * * 

(b) Changes in the size of excluded 

units. Except in the special cases noted 

at the end of this paragraph, changes in 

the number of beds or square footage 

considered to be part of an excluded 

unit under this section are allowed one 

time during a cost reporting period if 

the hospital notifies its Medicare 

contractor and the CMS RO in writing 

of the planned change at least 30 days 

before the date of the change. The 

hospital must maintain the information 

needed to accurately determine costs 

that are attributable to the excluded 

unit. A change in bed size or a change 

in square footage may occur at any time 

during a cost reporting period and must 

remain in effect for the rest of that cost 

reporting period. Changes in bed size or 

square footage may be made at any time 

if these changes are made necessary by 

relocation of a unit to permit 

construction or renovation necessary for 

compliance with changes in Federal, 

State, or local law affecting the physical 

facility or because of catastrophic events 

such as fires, floods, earthquakes, or 

tornadoes. 

* * * * * 

(e) * * * 

(2) * * * 

(ii) * * * 

(A) For a rehabilitation unit, the 

requirements under § 412.29 of this 

subpart; or 

* * * * * 

■ 4. Section 412.29 is revised to read as 

follows: 

§ 412.29 Classification criteria for payment 

under the inpatient rehabilitation facility 

prospective payment system. 

To be excluded from the prospective 

payment systems described in 

§ 412.1(a)(1) and to be paid under the 

prospective payment system specified 

in § 412.1(a)(3), an inpatient 

rehabilitation hospital or an inpatient 

rehabilitation unit of a hospital 

(otherwise referred to as an IRF) must 

meet the following requirements: 

(a) Have (or be part of a hospital that 

has) a provider agreement under part 

489 of this chapter to participate as a 

hospital. 

(b) Except in the case of a ‘‘new’’ IRF 

or ‘‘new’’ IRF beds, as defined in 

paragraph (c) of this section, an IRF 

must show that, during its most recent, 

consecutive, and appropriate 12-month 

time period (as defined by CMS or the 

Medicare contractor), it served an 

inpatient population that meets the 

following criteria: 

(1) For cost reporting periods 

beginning on or after July 1, 2004, and 

before July 1, 2005, the IRF served an 

inpatient population of whom at least 

50 percent, and for cost reporting 

periods beginning on or after July 1, 

2005, the IRF served an inpatient 

population of whom at least 60 percent 

required intensive rehabilitation 

services for treatment of one or more of 

the conditions specified at paragraph 

(b)(2) of this section. A patient with a 

comorbidity, as defined at § 412.602 of 

this part, may be included in the 

inpatient population that counts toward 

the required applicable percentage if— 

(i) The patient is admitted for 

inpatient rehabilitation for a condition 

that is not one of the conditions 

specified in paragraph (b)(2) of this 

section; 

(ii) The patient has a comorbidity that 

falls in one of the conditions specified 

in paragraph (b)(2) of this section; and 

(iii) The comorbidity has caused 

significant decline in functional ability 

in the individual that, even in the 

absence of the admitting condition, the 

individual would require the intensive 

rehabilitation treatment that is unique to 

inpatient rehabilitation facilities paid 

under subpart P of this part and that 

cannot be appropriately performed in 

another care setting covered under this 

title. 

(2) List of conditions. 

(i) Stroke. 

(ii) Spinal cord injury. 

(iii) Congenital deformity. 

(iv) Amputation. 

(v) Major multiple trauma. 

(vi) Fracture of femur (hip fracture). 

(vii) Brain injury. 

(viii) Neurological disorders, 

including multiple sclerosis, motor 

neuron diseases, polyneuropathy, 

muscular dystrophy, and Parkinson’s 

disease. 

(ix) Burns. 

(x) Active, polyarticular rheumatoid 

arthritis, psoriatic arthritis, and 

seronegative arthropathies resulting in 

significant functional impairment of 

ambulation and other activities of daily 

living that have not improved after an 

appropriate, aggressive, and sustained 

course of outpatient therapy services or 

services in other less intensive 

rehabilitation settings immediately 

preceding the inpatient rehabilitation 

admission or that result from a systemic 

disease activation immediately before 

admission, but have the potential to 

improve with more intensive 

rehabilitation. 

(xi) Systemic vasculidities with joint 

inflammation, resulting in significant 

functional impairment of ambulation 

and other activities of daily living that 

have not improved after an appropriate, 

aggressive, and sustained course of 

outpatient therapy services or services 

in other less intensive rehabilitation 

settings immediately preceding the 

inpatient rehabilitation admission or 

that result from a systemic disease 

activation immediately before 

admission, but have the potential to 

improve with more intensive 

rehabilitation. 

(xii) Severe or advanced osteoarthritis 

(osteoarthrosis or degenerative joint 

disease) involving two or more major 

weight bearing joints (elbow, shoulders, 

hips, or knees, but not counting a joint 

with a prosthesis) with joint deformity 

and substantial loss of range of motion, 

atrophy of muscles surrounding the 

joint, significant functional impairment 

of ambulation and other activities of 

daily living that have not improved after 

the patient has participated in an 

appropriate, aggressive, and sustained 

course of outpatient therapy services or 

services in other less intensive 

rehabilitation settings immediately 

preceding the inpatient rehabilitation 

admission but have the potential to 

improve with more intensive 

rehabilitation. (A joint replaced by a 

prosthesis no longer is considered to 

have osteoarthritis, or other arthritis, 

even though this condition was the 

reason for the joint replacement.) 

(xiii) Knee or hip joint replacement, 

or both, during an acute hospitalization 

immediately preceding the inpatient 

rehabilitation stay and also meet one or 

more of the following specific criteria: 

(A) The patient underwent bilateral 

knee or bilateral hip joint replacement 

surgery during the acute hospital 

admission immediately preceding the 

IRF admission. 

(B) The patient is extremely obese 

with a Body Mass Index of at least 50 

at the time of admission to the IRF. 

(C) The patient is age 85 or older at 

the time of admission to the IRF. 

(c) In the case of new IRFs (as defined 

in paragraph (c)(1) of this section) or 

new IRF beds (as defined in paragraph 

(c)(2)of this section), the IRF must 

provide a written certification that the 

inpatient population it intends to serve 

meets the requirements of paragraph (b) 

of this section. This written certification 

will apply until the end of the IRF’s first 

full 12-month cost reporting period or, 

in the case of new IRF beds, until the 

end of the cost reporting period during 

which the new beds are added to the 

IRF. 

(1) New IRFs. An IRF hospital or IRF 

unit is considered new if it has not been 

paid under the IRF PPS in subpart P of 

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this part for at least 5 calendar years. A 

new IRF will be considered new from 

the point that it first participates in 

Medicare as an IRF until the end of its 

first full 12-month cost reporting period. 

(2) New IRF beds. Any IRF beds that 

are added to an existing IRF must meet 

all applicable State Certificate of Need 

and State licensure laws. New IRF beds 

may be added one time at any point 

during a cost reporting period and will 

be considered new for the rest of that 

cost reporting period. A full 12-month 

cost reporting period must elapse 

between the delicensing or 

decertification of IRF beds in an IRF 

hospital or IRF unit and the addition of 

new IRF beds to that IRF hospital or IRF 

unit. Before an IRF can add new beds, 

it must receive written approval from 

the appropriate CMS RO, so that the 

CMS RO can verify that a full 12-month 

cost reporting period has elapsed since 

the IRF has had beds delicensed or 

decertified. New IRF beds are included 

in the compliance review calculations 

under paragraph (b) of this section from 

the time that they are added to the IRF. 

(3) Change of ownership or leasing. 

An IRF hospital or IRF unit that 

undergoes a change of ownership or 

leasing, as defined in § 489.18 of this 

chapter, retains its excluded status and 

will continue to be paid under the 

prospective payment system specified 

in § 412.1(a)(3) before and after the 

change of ownership or leasing if the 

new owner(s) of the IRF accept 

assignment of the previous owners’ 

Medicare provider agreement and the 

IRF continues to meet all of the 

requirements for payment under the IRF 

prospective payment system. If the new 

owner(s) do not accept assignment of 

the previous owners’ Medicare provider 

agreement, the IRF is considered to be 

voluntarily terminated and the new 

owner(s) may re-apply to participate in 

the Medicare program. If the IRF does 

not continue to meet all of the 

requirements for payment under the IRF 

prospective payment system, then the 

IRF loses its excluded status and is paid 

according to the prospective payment 

systems described in § 412.1(a)(1). 

(4) Mergers. If an IRF hospital (or a 

hospital with an IRF unit) merges with 

another hospital and the owner(s) of the 

merged hospital accept assignment of 

the IRF hospital’s provider agreement 

(or the provider agreement of the 

hospital with the IRF unit), then the IRF 

hospital or IRF unit retains its excluded 

status and will continue to be paid 

under the prospective payment system 

specified in § 412.1(a)(3) before and 

after the merger, as long as the IRF 

hospital or IRF unit continues to meet 

all of the requirements for payment 

under the IRF prospective payment 

system. If the owner(s) of the merged 

hospital do not accept assignment of the 

IRF hospital’s provider agreement (or 

the provider agreement of the hospital 

with the IRF unit), then the IRF hospital 

or IRF unit is considered voluntarily 

terminated and the owner(s) of the 

merged hospital may reapply to the 

Medicare program to operate a new IRF. 

(d) Have in effect a preadmission 

screening procedure under which each 

prospective patient’s condition and 

medical history are reviewed to 

determine whether the patient is likely 

to benefit significantly from an intensive 

inpatient hospital program. This 

procedure must ensure that the 

preadmission screening is reviewed and 

approved by a rehabilitation physician 

prior to the patient’s admission to the 

IRF. 

(e) Have in effect a procedure to 

ensure that patients receive close 

medical supervision, as evidenced by at 

least 3 face-to-face visits per week by a 

licensed physician with specialized 

training and experience in inpatient 

rehabilitation to assess the patient both 

medically and functionally, as well as to 

modify the course of treatment as 

needed to maximize the patient’s 

capacity to benefit from the 

rehabilitation process. 

(f) Furnish, through the use of 

qualified personnel, rehabilitation 

nursing, physical therapy, and 

occupational therapy, plus, as needed, 

speech-language pathology, social 

services, psychological services 

(including neuropsychological services), 

and orthotic and prosthetic services. 

(g) Have a director of rehabilitation 

who— 

(1) Provides services to the IRF 

hospital and its inpatients on a full-time 

basis or, in the case of a rehabilitation 

unit, at least 20 hours per week; 

(2) Is a doctor of medicine or 

osteopathy; 

(3) Is licensed under State law to 

practice medicine or surgery; and 

(4) Has had, after completing a oneyear hospital internship, at least 2 years 

of training or experience in the medicalmanagement of inpatients requiring 

rehabilitation services. 

(h) Have a plan of treatment for each 

inpatient that is established, reviewed, 

and revised as needed by a physician in 

consultation with other professional 

personnel who provide services to the 

patient. 

(i) Use a coordinated interdisciplinary 

team approach in the rehabilitation of 

each inpatient, as documented by the 

periodic clinical entries made in the 

patient’s medical record to note the 

patient’s status in relationship to goal 

attainment and discharge plans, and 

that team conferences are held at least 

once per week to determine the 

appropriateness of treatment. 

(j) Retroactive adjustments. If a new 

IRF (or new beds that are added to an 

existing IRF) are excluded from the 

prospective payment systems specified 

in § 412.1(a)(1) and paid under the 

prospective payment system specified 

in § 412.1(a)(3) for a cost reporting 

period under paragraph (c) of this 

section, but the inpatient population 

actually treated during that period does 

not meet the requirements of paragraph 

(b) of this section, we adjust payments 

to the IRF retroactively in accordance 

with the provisions in § 412.130. 

§ 412.30 [Removed and Reserved] 

■ 5. Section 412.30 is removed and 

reserved. 

Subpart P—Prospective Payment for 

Inpatient Rehabilitation Hospitals and 

Rehabilitation Units 

■ 6. Section 412.624 is amended by 

■ A. Redesignating paragraph (c)(4) as 

paragraph (c)(5). 

■ B. Adding a new paragraph (c)(4). 

The addition reads as follows: 

§ 412.624 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(4) Applicable increase factor for FY 

2014 and for subsequent FY. Subject to 

the provisions of paragraphs (c)(4)(i) 

and (c)(4)(ii) of this section, the 

applicable increase factor for FY 2014 

and for subsequent years for updating 

the standard payment conversion factor 

is the increase factor described in 

paragraph (a)(3) of this section, 

including adjustments described in 

paragraph (d) of this section as 

appropriate. 

(i) In the case of an IRF that is paid 

under the prospective payment system 

specified in § 412.1(a)(3) of this part that 

does not submit quality data to CMS, in 

the form and manner specified by CMS, 

the applicable increase factor specified 

in paragraph (a)(3) of this section is 

reduced by 2 percentage points. 

(ii) Any reduction of the increase 

factor will apply only to the fiscal year 

involved and will not be taken into 

account in computing the applicable 

increase factor for a subsequent fiscal 

year. 

* * * * * 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

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Dated: July 21, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: July 27, 2011. 

Kathleen Sebelius, 

Secretary, Health and Human Services. 

The following addendum will not 

appear in the Code of Federal 

Regulations. 

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