Thursday, 

February 1, 2007 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 412 and 413 

Medicare Program; Prospective Payment 

System for Long-Term Care Hospitals RY 

2008: Proposed Annual Payment Rate 

Updates, and Policy Changes; and 

Proposed Hospital Direct and Indirect 

Graduate Medical Education Policy 

Changes; Proposed Rule 


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4776 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 412 and 413 

[CMS–1529–P] 

RIN 0938–AO30 

Medicare Program; Prospective 

Payment System for Long-Term Care 

Hospitals RY 2008: Proposed Annual 

Payment Rate Updates, and Policy 

Changes; and Proposed Hospital 

Direct and Indirect Graduate Medical 

Education Policy Changes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

update the annual payment rates for the 

Medicare prospective payment system 

(PPS) for inpatient hospital services 

provided by long-term care hospitals 

(LTCHs). The proposed payment 

amounts and factors used to determine 

the updated Federal rates that are 

described in this proposed rule were 

determined based on the LTCH PPS rate 

year July 1, 2007 through June 30, 2008. 

The annual update of the long-term care 

diagnosis-related group (LTC–DRG) 

classifications and relative weights 

remains linked to the annual 

adjustments of the acute care hospital 

inpatient diagnosis-related group 

system, and would continue to be 

effective each October 1. The proposed 

outlier threshold for July 1, 2007, 

through June 30, 2008, would also be 

derived from the LTCH PPS rate year 

calculations. We are also proposing to 

make policy changes which include 

proposed revisions to the GME and IME 

policies. In addition, we are adding a 

technical amendment correcting the 

regulations text at § 412.22. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on April 2, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–1529–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking/. 

(Attachments should be in Microsoft 

Word, WordPerfect, or Excel; however, 

we prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1529– 

P, P.O. Box 8015, Baltimore, MD 21244– 

8015. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1529–P, Mail Stop C4–26–5, 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7197 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Tzvi 

Hefter, (410) 786–4487 (General 

information). 

Judy Richter, (410) 786–2590 (General 

information, payment adjustments for 

special cases, and onsite discharges and 

readmissions, interrupted stays, colocated providers, and short-stay 

outliers). 

Michele Hudson, (410) 786–5490 

(Calculation of the payment rates, LTC– 

DRGs, relative weights and case-mix 

index, market basket, wage index, 

budget neutrality, and other payment 

adjustments). 

Ann Fagan, (410) 786–5662 (Patient 

classification system). 

Miechal Lefkowitz, (410) 786–5316 

(Graduate Medical Education 

payments). 

Linda McKenna, (410) 786–4537 

(Payment adjustments, interrupted stay, 

and transition period). 

Renate Rockwell, (410) 786–4645 

(Graduate Medical Education 

payments). 

Elizabeth Truong, (410) 786–6005 

(Federal rate update, budget neutrality, 

other adjustments, and calculation of 

the payment rates). 

Michael Treitel, (410) 786–4552 (High 

cost outliers and cost-to-charge ratios). 

SUPPLEMENTARY INFORMATION: 

Submission of Public Comments: We 

welcome comments from the public on 

all issues set forth in this rule to assist 

us in fully considering issues and 

developing policies. You can assist us 

by referencing the file code [CMS–1529– 

P] and the specific ‘‘issue identifier’’ 

that precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Background 

A. Legislative and Regulatory Authority 

B. Criteria for Classification as a LTCH 

1. Classification as a LTCH 

2. Hospitals Excluded From the LTCH PPS 


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C. Transition Period for Implementation of 

the LTCH PPS 

D. Limitation on Charges to Beneficiaries 

E. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and Accountability 

Act (HIPAA) Compliance 

II. Summary of Major Contents of This 

Proposed Rule 

III. Long-Term Care Diagnosis-Related Group 

(LTC–DRG) Classifications and Relative 

Weights 

A. Background 

B. Patient Classifications Into DRGs 

C. Organization of DRGs 

D. Proposed Update of LTC–DRGs 

1. Background 

2. Proposed Budget Neutrality (BN) 

Requirement for the Annual LTC–DRG 

Update 

E. ICD–9–CM Coding System 

1. Uniform Hospital Discharge Data Set 

(UHDDS) Definitions 

2. Maintenance of the ICD–9–CM Coding 

System 

3. Coding Rules and Use of ICD–9–CM 

Codes in LTCHs 

F. Method for Updating the LTC–DRG 

Relative Weights 

IV. Proposed Changes to the LTCH PPS 

Payment Rates for the 2008 LTCH PPS 

Rate Year 

A. Overview of the Development of the 

Payment Rates 

B. LTCH PPS Market Basket 

1. Overview of the RPL Market Basket 

2. Proposed Market Basket Estimate for the 

2008 LTCH PPS Rate Year 

C. Proposed Standard Federal Rate for the 

2008 LTCH PPS Rate Year 

1. Background 

2. Proposed Update to the Standard 

Federal Rate for the 2008 LTCH PPS Rate 

Year 

3. Proposed Standard Federal Rate for the 

2008 LTCH PPS Rate Year 

D. Calculation of Proposed LTCH 

Prospective Payments for the 2008 LTCH 

PPS Rate Year 

1. Proposed Adjustment for Area Wage 

Levels 

a. Background 

b. Geographic Classifications/Labor Market 

Area Definitions 

c. Proposed Labor-Related Share 

d. Proposed Wage Index Data 

2. Proposed Adjustment for Cost-of-Living 

in Alaska and Hawaii 

3. Proposed Adjustment for High-Cost 

Outliers (HCOs) 

a. Background 

b. Cost-to-Charge Ratios (CCRs) 

c. Establishment of the Proposed FixedLoss Amount 

d. Reconciliation of Outlier Payments 

Upon Cost Report Settlement 

e. Application of Outlier Policy to ShortStay Outlier (SSO) Cases 

4. Other Payment Adjustments 

5. Proposed Budget Neutrality (BN) Offset 

To Account for the Transition 

Methodology 

6. One-Time Prospective Adjustment to the 

Standard Federal Rate 

V. Other Proposed Policy Changes for the 

2008 LTCH PPS Rate Year 

A. Short-Stay Outlier (SSO) Cases 

1. Background 

2. Additional Discussion of SSO Payment 

Formula (includes Technical Correction) 

3. Determination of Cost-to-Charge Ratios 

(CCRs) 

4. Reconciliation of SSO Cases 

B. Proposed expansion of special payment 

provisions for LTCH hospitals within 

hospitals (HwHs) and LTCH satellites: 

Proposed expansion of the 25 percent 

rule to certain situations not currently 

covered under existing § 412.534 

VI. Computing the Proposed Adjusted 

Federal Prospective Payments for the 

2008 LTCH PPS Rate Year 

VII. Transition Period 

VIII. Payments to New LTCHs 

IX. Method of Payment 

X. Monitoring 

XI. MedPAC Recommendations: The RTI 

Contract 

XII. Graduate Medical Education (GME) 

A. GME Background 

B. Resident Training in Nonhospital 

Settings 

1. Background 

2. Moratorium on Disallowances of 

Allopathic or Osteopathic Family 

Practice Residents Training Time in 

Nonhospital Settings, and Questions and 

Answers (Qs&As) on CMS Web Site 

(Section 713 of the MMA and § 413.78) 

3. Requirements for Written Agreements 

for Residency Training in Nonhospital 

Settings (§ 413.78(e)) 

4. Modification of the Definition of ‘‘All or 

Substantially All of the Costs for the 

Training Program in the Nonhospital 

Setting’’

5. Implementation of a 90 Percent Cost 

Threshold 

C. Other Issues To Be Considered 

XIII. Technical Amendment 

XIV. Waiver of Proposed Rulemaking and 

Delay in the Effective Date 

XV. Collection of Information Requirements 

XVI. Regulatory Impact Analysis 

Addendum A: Tables 

Addendum B: Executive Summary of RTI’s 

Report 

Acronyms 

Because of the many terms to which we 

refer by acronym in this proposed rule, we 

are listing the acronyms used and their 

corresponding terms in alphabetical order 

below: 

AAMC Association of American Medical 

Colleges 

AFMAA Academic Family Medicine 

Advocacy Alliance 

AHA American Hospital Association 

AHIMA American Health Information 

Management Association 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital 

Association 

AMGA American Medical Group 

Association 

AMPRA American Medical Peer Review 

Association 

AOA American Osteopathic Association 

APR All patient refined 

ASCA Administrative Simplification 

Compliance Act of 2002 (Pub. L. 107–105) 

BBA Balanced Budget Act of 1997 (Pub. L. 

105–33) 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement Act 

of 1999 (Pub. L. 106–113) 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program] 

Benefits Improvement and Protection Act 

of 2000 (Pub. L. 106–554) 

BN Budget neutrality 

CBSA Core-based statistical area 

CCR Cost-to-charge ratio 

C&M Coordination and maintenance 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

COLA Cost of living adjustment 

CS Consolidated severity-adjusted 

CY Calendar year 

DSH Disproportionate share of low-income 

patients 

DRGs Diagnosis-related groups 

FI Fiscal intermediary 

FMC Family Medicine Center 

FTE Full-time equivalent 

FY Federal fiscal year 

GME Graduate medical education 

HCO High-cost outlier 

HCRIS Hospital cost report information 

system 

HHA Home health agency 

HHS (Department of) Health and Human 

Services 

HIPAA Health Insurance Portability and 

Accountability Act (Pub. L. 104–191) 

HIPC Health Information Policy Council 

HwHs Hospitals within hospitals 

ICD–9–CM International Classification of 

Diseases, Ninth Revision, Clinical 

Modification (codes) 

IME Indirect medical education 

I–O Input-Output 

IPF Inpatient psychiatric facility 

IPPS [Acute Care Hospital] Inpatient 

Prospective Payment System 

IRF Inpatient rehabilitation facility 

LOS Length of stay 

LTC–DRG Long-term care diagnosis-related 

group 

LTCH Long-term care hospital 

MCE Medicare code editor 

MDC Major diagnostic categories 

MedPAC Medicare Payment Advisory 

Commission 

MedPAR Medicare provider analysis and 

review 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MSA Metropolitan statistical area 

NAICS North American Industrial 

Classification System 

NALTH National Association of Long Term 

Hospitals 

NCHS National Center for Health Statistics 

OACT [CMS’] Office of the Actuary 

OBRA 86 Omnibus Budget Reconciliation 

Act of 1986 (Pub. L. 99–509) 

OMB Office of Management and Budget 

OPM U.S. Office of Personnel Management 

O.R. Operating room 

OSCAR Online Survey Certification and 

Reporting (System) 

OTN One-Time Notification 

PIP Periodic interim payment 


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PLI Professional liability insurance 

PMSA Primary metropolitan statistical area 

PPI Producer Price Indexes 

PPS Prospective payment system 

PRA Per resident amount 

PSF Provider specific file 

QIO Quality Improvement Organization 

(formerly Peer Review organization (PRO)) 

RIA Regulatory impact analysis 

RPL Rehabilitation psychiatric long-term 

care (hospital) 

RTI Research Triangle Institute, 

International 

RY Rate year (begins July 1 and ends June 

30) 

SIC Standard industrial code 

SNF Skilled nursing facility 

SSO Short-stay outlier 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982 (Pub. L. 97–248) 

TEP Technical expert panel 

UHDDS Uniform hospital discharge data set 

I. Background 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘BACKGROUND’’ at the 

beginning of your comments.] 

A. Legislative and Regulatory Authority 

Section 123 of the Medicare, 

Medicaid, and SCHIP [State Children’s 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106–113) as amended by 

section 307(b) of the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554) provides 

for payment for both the operating and 

capital-related costs of hospital 

inpatient stays in long-term care 

hospitals (LTCHs) under Medicare Part 

A based on prospectively set rates. The 

Medicare prospective payment system 

(PPS) for LTCHs applies to hospitals 

described in section 1886(d)(1)(B)(iv) of 

the Social Security Act (the Act), 

effective for cost reporting periods 

beginning on or after October 1, 2002. 

Section 1886(d)(1)(B)(iv)(I) of the Act 

defines a LTCH as ‘‘a hospital which has 

an average inpatient length of stay (as 

determined by the Secretary) of greater 

than 25 days.’’ Section 

1886(d)(1)(B)(iv)(II) of the Act also 

provides an alternative definition of 

LTCHs: specifically, a hospital that first 

received payment under section 1886(d) 

of the Act in 1986 and has an average 

inpatient length of stay (LOS) (as 

determined by the Secretary of Health 

and Human Services (the Secretary)) of 

greater than 20 days and has 80 percent 

or more of its annual Medicare inpatient 

discharges with a principal diagnosis 

that reflects a finding of neoplastic 

disease in the 12-month cost reporting 

period ending in fiscal year (FY) 1997. 

Section 123 of the BBRA requires the 

PPS for LTCHs to be a ‘‘per discharge’’

system with a diagnosis-related group 

(DRG) based patient classification 

system that reflects the differences in 

patient resources and costs in LTCHs. It 

also requires that the ‘‘per discharge’’

system maintain budget neutrality (BN). 

We believe the statutory mandate for BN 

applies only to the first year of the 

implementation of the LTCH PPS such 

that estimated payments in the first year 

of the PPS were projected to equal 

payments that would have been paid for 

operating and capital-related costs of 

LTCHs had this new payment system 

not been enacted. 

Section 307(b)(1) of the BIPA, among 

other things, mandates that the 

Secretary shall examine, and may 

provide for, adjustments to payments 

under the LTCH PPS, including 

adjustments to DRG weights, area wage 

adjustments, geographic reclassification, 

outliers, updates, and a disproportionate 

share adjustment. 

In the August 30, 2002 Federal 

Register, we issued a final rule that 

implemented the LTCH PPS authorized 

under BBRA and BIPA (67 FR 55954). 

This system uses information from 

LTCH patient records to classify 

patients into distinct long-term care 

diagnosis-related groups (LTC–DRGs) 

based on clinical characteristics and 

expected resource needs. Payments are 

calculated for each LTC–DRG and 

provisions are made for appropriate 

payment adjustments. Payment rates 

under the LTCH PPS are updated 

annually and published in the Federal 

Register. 

The LTCH PPS replaced the 

reasonable cost-based payment system 

under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

(Pub. L. 97–248) for payments for 

inpatient services provided by a LTCH 

with a cost reporting period beginning 

on or after October 1, 2002. (The 

regulations implementing the TEFRA 

reasonable cost-based payment 

provisions are located at 42 CFR part 

413.) With the implementation of the 

PPS for acute care hospitals authorized 

by the Social Security Amendments of 

1983 (Pub. L. 98–21), which added 

section 1886(d) to the Act, certain 

hospitals, including LTCHs, were 

excluded from the PPS for acute care 

hospitals and were paid their reasonable 

costs for inpatient services subject to a 

per discharge limitation or target 

amount under the TEFRA system. For 

each cost reporting period, a hospitalspecific ceiling on payments was 

determined by multiplying the 

hospital’s updated target amount by the 

number of total current year Medicare 

discharges. (Generally, in this document 

when we refer to discharges, the intent 

is to describe Medicare discharges.) The 

August 30, 2002 final rule further 

details the payment policy under the 

TEFRA system (67 FR 55954). 

In the August 30, 2002 final rule, we 

also presented an in-depth discussion of 

the LTCH PPS, including the patient 

classification system, relative weights, 

payment rates, additional payments, 

and the BN requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR part 412, 

subpart O, also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

In the June 6, 2003 Federal Register, 

we published a final rule that set forth 

the FY 2004 annual update of the 

payment rates for the Medicare PPS for 

inpatient hospital services furnished by 

LTCHs (68 FR 34122). It also changed 

the annual period for which the 

payment rates are effective. The annual 

updated rates are now effective from 

July 1 through June 30 instead of from 

October 1 through September 30. We 

refer to the July through June time 

period as a ‘‘long-term care hospital rate 

year’’ (LTCH PPS RY). In addition, we 

changed the publication schedule for 

the annual update to allow for an 

effective date of July 1. The payment 

amounts and factors used to determine 

the annual update of the LTCH PPS 

Federal rate is based on a LTCH PPS 

rate year. While the LTCH payment rate 

update is effective July 1, the annual 

update of the LTC–DRG classifications 

and relative weights are linked to the 

annual adjustments of the acute care 

hospital inpatient DRGs and are 

effective each October 1. 

In the Prospective Payment System 

for Long-Term Care Hospitals RY 2007: 

Annual Payment Rate Updates, Policy 

Changes, and Clarifications final rule 

(71 FR 27798) (hereinafter referred to as 

the RY 2007 LTCH PPS final rule), we 

set forth the 2007 LTCH PPS rate year 

annual update of the payment rates for 

the Medicare PPS for inpatient hospital 

services provided by LTCHs. We also 

adopted the ‘‘Rehabilitation, 

Psychiatric, Long-Term Care (RPL)’’

market basket under the LTCH PPS in 

place of the excluded hospital with 

capital market basket. In addition, we 

implemented a zero percent update to 


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the LTCH PPS Federal rate for RY 2007. 

We also revised the existing payment 

adjustment for short stay outlier (SSO) 

cases by reducing part of the current 

payment formula and adding a fourth 

component to that payment formula. 

Also, we sunsetted the surgical DRG 

exception to the payment policy 

established under the 3-day or less 

interruption of stay policy. Finally, we 

clarified the policy at § 412.534(c) for 

adjusting the LTCH PPS payment so that 

the LTCH PPS payment is equivalent to 

what would otherwise be payable under 

§ 412.1(a). 

B. Criteria for Classification as a LTCH 

1. Classification as a LTCH 

Under the existing regulations at 

§ 412.23(e)(1) and (e)(2)(i), which 

implement section 1886(d)(1)(B)(iv)(I) of 

the Act, to qualify to be paid under the 

LTCH PPS, a hospital must have a 

provider agreement with Medicare and 

must have an average Medicare 

inpatient LOS of greater than 25 days. 

Alternatively, § 412.23(e)(2)(ii) states 

that for cost reporting periods beginning 

on or after August 5, 1997, a hospital 

that was first excluded from the PPS in 

1986 and can demonstrate that at least 

80 percent of its annual Medicare 

inpatient discharges in the 12-month 

cost reporting period ending in FY 1997 

have a principal diagnosis that reflects 

a finding of neoplastic disease must 

have an average inpatient LOS for all 

patients, including both Medicare and 

non-Medicare inpatients, of greater than 

20 days. 

Section 412.23(e)(3) provides that, 

subject to the provisions of paragraphs 

(e)(3)(ii) through (e)(3)(iv) of this 

section, the average Medicare inpatient 

LOS, specified under § 412.23(e)(2)(i) is 

calculated by dividing the total number 

of covered and noncovered days of stay 

for Medicare inpatients (less leave or 

pass days) by the number of total 

Medicare discharges for the hospital’s 

most recent complete cost reporting 

period. Section 412.23 also provides 

that subject to the provisions of 

paragraphs (e)(3)(ii) through (e)(3)(iv) of 

this section, the average inpatient LOS 

specified under § 412.23(e)(2)(ii) is 

calculated by dividing the total number 

of days for all patients, including both 

Medicare and non-Medicare inpatients 

(less leave or pass days) by the number 

of total discharges for the hospital’s 

most recent complete cost reporting 

period. 

In the RY 2005 LTCH PPS final rule 

(69 FR 25674), we specified the 

procedure for calculating a hospital’s 

inpatient average length of stay (ALOS) 

for purposes of classification as a LTCH. 

That is, if a patient’s stay includes days 

of care furnished during two or more 

separate consecutive cost reporting 

periods, the total days of a patient’s stay 

would be reported in the cost reporting 

period during which the patient is 

discharged (69 FR 25705). Therefore, we 

revised § 412.23(e)(3)(ii) to specify that, 

effective for cost reporting periods 

beginning on or after July 1, 2004, in 

calculating a hospital’s ALOS, if the 

days of an inpatient stay involve days of 

care furnished during two or more 

separate consecutive cost reporting 

periods, the total number of days of the 

stay are considered to have occurred in 

the cost reporting period during which 

the inpatient was discharged. 

Fiscal intermediaries (FIs) verify that 

LTCHs meet the ALOS requirements. 

We note that the inpatient days of a 

patient who is admitted to a LTCH 

without any remaining Medicare days of 

coverage, regardless of the fact that the 

patient is a Medicare beneficiary, will 

not be included in the above 

calculation. Because Medicare would 

not be paying for any of the patient’s 

treatment, data on the patient’s stay 

would not be included in the Medicare 

claims processing systems. As described 

in § 409.61, in order for both covered 

and noncovered days of a LTCH 

hospitalization to be included, a patient 

admitted to the LTCH must have at least 

one remaining benefit day (68 FR 

34123). 

The FI’s determination of whether or 

not a hospital qualifies as an LTCH is 

based on the hospital’s discharge data 

from the hospital’s most recent 

complete cost reporting period as 

specified in § 412.23(e)(3) and is 

effective at the start of the hospital’s 

next cost reporting period as specified 

in § 412.22(d). However, if the hospital 

does not meet the ALOS requirement as 

specified in § 412.23(e)(2)(i) and (ii), the 

hospital may provide the FI with data 

indicating a change in the ALOS by the 

same method for the period of at least 

5 months of the immediately preceding 

6-month period (69 FR 25676). Our 

interpretation of § 412.23(e)(3) was to 

allow hospitals to submit data using a 

period of at least 5 months of the most 

recent data from the immediately 

preceding 6-month period. 

As we stated in the FY 2004 Inpatient 

Prospective Payment System (IPPS) 

final rule, published in the August 1, 

2003 Federal Register, prior to the 

implementation of the LTCH PPS, we 

did rely on data from the most recently 

submitted cost report for purposes of 

calculating the ALOS (68 FR 45464). 

The calculation to determine whether 

an acute care hospital qualifies for 

LTCH status was based on total days 

and discharges for LTCH inpatients. 

However, with the implementation of 

the LTCH PPS, for the ALOS specified 

under § 412.23(e)(2)(i), we revised 

§ 412.23(e)(3)(i) to only count total days 

and discharges for Medicare inpatients 

(67 FR 55970 through 55974). In 

addition, the ALOS specified under 

§ 412.23(e)(2)(ii) is calculated by 

dividing the total number of days for all 

patients, including both Medicare and 

non-Medicare inpatients (less leave or 

pass days) by the number of total 

discharges for the hospital’s most recent 

complete cost reporting period. As we 

discussed in the FY 2004 IPPS final 

rule, we are unable to capture the 

necessary data from our present cost 

reporting forms (68 FR 45464). 

Therefore, we have notified FIs and 

LTCHs that until the cost reporting 

forms are revised, for purposes of 

calculating the ALOS, we will be relying 

upon census data extracted from 

Medicare Provider Analysis and Review 

(MedPAR) files that reflect each LTCH’s 

cost reporting period (68 FR 45464). 

Requirements for hospitals seeking 

classification as LTCHs that have 

undergone a change in ownership, as 

described in § 489.18, are set forth in 

§ 412.23(e)(3)(iv). 

2. Hospitals Excluded From the LTCH 

PPS 

The following hospitals are paid 

under special payment provisions, as 

described in § 412.22(c) and, therefore, 

are not subject to the LTCH PPS rules: 

• Veterans Administration hospitals. 

• Hospitals that are reimbursed under 

State cost control systems approved 

under 42 CFR part 403. 

• Hospitals that are reimbursed in 

accordance with demonstration projects 

authorized under section 402(a) of the 

Social Security Amendments of 1967 

(Pub. L. 90–248) (42 U.S.C. 1395b–1) or 

section 222(a) of the Social Security 

Amendments of 1972 (Pub. L. 92–603) 

(42 U.S.C. 1395b–1 (note)) (Statewide 

all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the 

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

C. Transition Period for Implementation 

of the LTCH PPS 

In the August 30, 2002 final rule (67 

FR 55954), we provided for a 5-year 

transition period. During this 5-year 

transition period, a LTCH’s total 

payment under the PPS was based on an 

increasing percentage of the Federal rate 

with a corresponding decrease in the 

percentage of the LTCH PPS payment 

that is based on reasonable cost 


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concepts. However, effective for cost 

reporting periods beginning on or after 

October 1, 2006, total LTCH PPS 

payments are based on 100 percent of 

the Federal rate. 

D. Limitation on Charges to 

Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 412.507, if the Medicare payment to 

the LTCH is the full LTC–DRG payment 

amount, as consistent with other 

established hospital prospective 

payment systems, a LTCH may not bill 

a Medicare beneficiary for more than the 

deductible and coinsurance amounts as 

specified under § 409.82, § 409.83, and 

§ 409.87 and for items and services as 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the SSO 

threshold is exceeded. (See section 

V.A.1.a. of this preamble.) Therefore, if 

the Medicare payment was for a SSO 

case (§ 412.529) that was less than the 

full LTC–DRG payment amount because 

the beneficiary had insufficient 

remaining Medicare days, the LTCH 

could also charge the beneficiary for 

services delivered on those uncovered 

days (§ 412.507). 

E. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and Health Insurance 

Portability and Accountability Act 

(HIPAA) (Pub. L. 104–191). Section 3 of 

the ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’

Section 1862(h) of the Act (as added by 

section 3(a) of the ASCA) provides that 

the Secretary shall waive such denial in 

two specific types of cases and may also 

waive such denial ‘‘in such unusual 

cases as the Secretary finds appropriate’’

(68 FR 48805). Section 3 of the ASCA 

operates in the context of the ASCA 

provisions of HIPAA, which include, 

among other provisions, the transactions 

and code sets standards requirements 

codified as 45 CFR parts 160 and 162, 

subparts A and I through R (generally 

known as the Transactions Rule). The 

Transactions Rule requires covered 

entities, including covered health care 

providers, to conduct the covered 

electronic transactions according to the 

applicable transactions and code sets 

standards. 

II. Summary of the Major Contents of 

This Proposed Rule 

In this proposed rule, we are setting 

forth the proposed annual update to the 

payment rates for the Medicare LTCH 

PPS, as well as, proposing other policy 

changes. The following is a summary of 

the major areas that we are addressing 

in this proposed rule. 

In section III. of this preamble, we 

discuss the LTCH PPS patient 

classification and the relative weights 

which remain linked to the annual 

adjustments of the acute care hospital 

inpatient DRG system, and are based on 

the annual revisions to the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9–

CM) codes effective each October 1. 

Also, in section III. of this preamble, 

we are proposing to establish a BN 

requirement for when the LTC–DRG 

classifications and relative weights are 

updated annually to reflect changes in 

relative LTCH resource use. This 

requirement would ensure that 

estimated aggregate LTCH PPS 

payments would not decrease or 

increase as a result of the annual update 

to the LTC–DRG classifications and 

relative weights. 

As discussed in section IV.C. of this 

preamble, we are proposing a 0.71 

percent update to the LTCH PPS Federal 

rate for the 2008 LTCH PPS rate year 

based on an adjustment to the most 

recent estimate of the LTCH PPS market 

basket to account for changes in coding 

practices. Also in section IV. of this 

preamble, we discuss the proposed 

prospective payment rate for RY 2008, 

and in section VI. we discuss the 

applicable adjustments to the proposed 

payment rates, including the proposed 

revisions to the wage index, proposed 

labor-related share, the proposed costof-living adjustment (COLA) factors, and 

the proposed outlier threshold, for the 

2008 LTCH PPS rate year. 

In section V.A.1.b. of this preamble, 

we discuss an approach being 

considered to make a change to our 

present payment methodology for 

certain SSO cases. Under this approach, 

payment for SSO cases would be subject 

to a further adjustment where the 

patient’s LOS at the LTCH is less than 

or equal to an IPPS LOS threshold for 

the DRG. 

In section V.B. of this preamble, we 

discuss the proposed expansion of the 

present 25 percent admission policy at 

existing § 412.534(c) to those certain 

situations not already affected by that 

existing policy. We are proposing to 

specify that for cost reporting periods 

beginning on or after July 1, 2007, that 

‘‘grandfathered’’ LTCH HwHs and LTCH 

satellites, at § 412.22(f) and 

§ 412.22(h)(3)(i) respectively, would 

also be included in the policy set forth 

at existing § 412.534. We are also 

proposing that if the percentage of 

LTCH’s or LTCH satellite facility’s 

discharges that were admitted from any 

non-co-located referring hospital 

exceeds 25 percent (or the applicable 

percentage) for a particular cost 

reporting period, an adjusted amount 

would be made for those Medicare 

discharges that were admitted from that 

referring hospital beyond the 25 percent 

(or the applicable percentage) threshold. 

In section X. of this preamble, we will 

discuss our on-going monitoring 

protocols under the LTCH PPS. 

In section XI. of this preamble, we 

will discuss the recommendations made 

by the Research Triangle Institute, 

International’s (RTI) evaluation of the 

feasibility of adopting recommendations 

made in the June 2004 Medicare 

Payment Advisory Commission 

(MedPAC) Report. (Addendum B will 

include the executive summary of the 

RTI report.) 

In section XII. of this preamble, we 

discuss our proposal to redefine the 

statutory term ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting.’’ The statute 

requires that hospitals must pay all of 

substantially all of the costs for training 

in a nonhospital site in order to count 

FTE residents training in the 

nonhospital setting for Medicare 

graduate medical education (GME) 

payment purposes. We are proposing to 

revise § 413.75(b) to introduce a new 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ to mean, at least 90 

percent of the residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) and the 

portion of the cost of teaching 

physicians’ salaries attributable to direct 

GME. In addition, we are proposing to 

revise § 412.105(f)(1)(ii)(C) for IME and 

§ 413.78 to reflect this new definition of 

‘‘all or substantially all’’ of the GME 

costs in a nonhospital setting, effective 

for cost reporting periods beginning on 

or after July 1, 2007. 

In section XVI. of this preamble, we 

analyze the impact of the proposed 

changes presented in this proposed rule 

on Medicare expenditures, MedicareVerDate Aug<31>2005 17:26 Jan 31, 2007 Jkt 211001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 E:\FR\FM\01FEP2.SGM 01FEP2

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participating LTCHs, and Medicare 

beneficiaries. 

III. Long-Term Care Diagnosis-Related 

Group (LTC–DRG) Classifications and 

Relative Weights 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘LTC–DRG CLASSIFICATIONS 

AND RELATIVE WEIGHTS’’ at the 

beginning of your comments.] 

A. Background 

Section 123 of the BBRA requires that 

the Secretary implement a PPS for 

LTCHs (that is, a per discharge system 

with a DRG-based patient classification 

system reflecting the differences in 

patient resources and costs. Section 

307(b)(1) of the BIPA modified the 

requirements of section 123 of the BBRA 

by requiring that the Secretary examine 

‘‘the feasibility and the impact of basing 

payment under such a system [the 

LTCH PPS] on the use of existing (or 

refined) hospital DRGs that have been 

modified to account for different 

resource use of LTCH patients, as well 

as the use of the most recently available 

hospital discharge data.’’

In accordance with section 123 of the 

BBRA as amended by section 307(b)(1) 

of the BIPA and § 412.515, we use 

information derived from LTCH PPS 

patient records to classify these cases 

into distinct LTC–DRGs based on 

clinical characteristics and estimated 

resource needs. The LTC–DRGs used as 

the patient classification component of 

the LTCH PPS correspond to the 

hospital inpatient DRGs in the IPPS. We 

assign an appropriate weight to the 

LTC–DRGs to account for the difference 

in resource use by patients exhibiting 

the case complexity and multiple 

medical problems characteristic of 

LTCHs. 

In a departure from the IPPS, we use 

low volume LTC–DRGs (less than 25 

LTCH cases) in determining the LTC–

DRG weights, since LTCHs do not 

typically treat the full range of 

diagnoses as do acute care hospitals. To 

manage the large number of low volume 

DRGs (all DRGs with fewer than 25 

cases), we group low volume DRGs into 

5 quintiles based on average charge per 

discharge. (A listing of the current 

composition of low volume quintiles 

used in determining the FY 2007 LTC–

DRG relative weights appears in the FY 

2007 IPPS final rule (71 FR 47974 

through 47978).) We also account for 

adjustments to payments for cases in 

which the stay at the LTCH is less than 

or equal to five-sixths of the geometric 

ALOS and classify these cases as SSO 

cases. (A detailed discussion of the 

application of the Lewin Group model 

that was used to develop the LTC–DRGs 

appears in the August 30, 2002 LTCH 

PPS final rule (67 FR 55978).) 

B. Patient Classifications Into DRGs 

Generally, under the LTCH PPS, a 

Medicare payment is made at a 

predetermined specific rate for each 

discharge; that payment varies by the 

LTC–DRG to which a beneficiary’s stay 

is assigned. Cases are classified into 

LTC–DRGs for payment based on the 

following six data elements: 

(1) Principal diagnosis. 

(2) Up to eight additional diagnoses. 

(3) Up to six procedures performed. 

(4) Age. 

(5) Sex. 

(6) Discharge status of the patient. 

As indicated in the August 30, 2002 

LTCH PPS final rule, upon the discharge 

of the patient from a LTCH, the LTCH 

must assign appropriate diagnosis and 

procedure codes from the most current 

version of the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (codes) 

(ICD–9–CM). HIPAA Transactions and 

Code Sets Standards regulations at 45 

CFR parts 160 and 162 require that no 

later than October 16, 2003, all covered 

entities must comply with the 

applicable requirements of subparts A 

and I through R of part 162. Among 

other requirements, those provisions 

direct covered entities to use the ASC 

X12N 837 Health Care Claim: 

Institutional, Volumes 1 and 2, version 

4010, and the applicable standard 

medical data code sets for the 

institutional health care claim or 

equivalent encounter information 

transaction (see 45 CFR 162.1002 and 45 

CFR 162.1102). 

Medicare FIs enter the clinical and 

demographic information into their 

claims processing systems and subject 

this information to a series of automated 

screening processes called the Medicare 

Code Editor (MCE). These screens are 

designed to identify cases that require 

further review before assignment into a 

DRG can be made. During this process, 

the following types of cases are selected 

for further development: 

• Cases that are improperly coded. 

(For example, diagnoses are shown that 

are inappropriate, given the sex of the 

patient. Code 68.6, Radical abdominal 

hysterectomy, would be an 

inappropriate code for a male.) 

• Cases including surgical procedures 

not covered under Medicare. (For 

example, organ transplant in a nonapproved transplant center.) 

• Cases requiring more information. 

(For example, ICD–9–CM codes are 

required to be entered at their highest 

level of specificity. There are valid 3- 

digit, 4-digit, and 5-digit codes. That is, 

code 262, Other severe protein-calorie 

malnutrition, contains all appropriate 

digits, but if it is reported with either 

fewer or more than 3 digits, the claim 

will be rejected by the MCE as invalid.) 

• Cases with principal diagnoses that 

do not usually justify admission to the 

hospital. (For example, code 437.9, 

unspecified cerebrovascular disease. 

While this code is valid according to the 

ICD–9–CM coding scheme, a more 

precise code should be used for the 

principal diagnosis.) 

After screening through the MCE, 

each claim will be classified into the 

appropriate LTC–DRG by the Medicare 

LTCH GROUPER software. As indicated 

in the August 30, 2002 LTCH PPS final 

rule, the Medicare GROUPER software, 

which is used under the LTCH PPS, is 

specialized computer software, and is 

the same GROUPER software program 

used under the IPPS. The GROUPER 

software was developed as a means of 

classifying each case into a DRG on the 

basis of diagnosis and procedure codes 

and other demographic information 

(age, sex, and discharge status). 

Following the LTC–DRG assignment, 

the Medicare FI determines the 

prospective payment by using the 

Medicare PRICER program, which 

accounts for hospital-specific 

adjustments. Under the LTCH PPS, we 

provide an opportunity for the LTCH to 

review the LTC–DRG assignments made 

by the FI and to submit additional 

information within a specified 

timeframe as specified in § 412.513(c). 

The GROUPER software is used both 

to classify past cases to measure relative 

hospital resource consumption to 

establish the DRG weights and to 

classify current cases for purposes of 

determining payment. The records for 

all Medicare hospital inpatient 

discharges are maintained in the 

MedPAR file. The data in this file are 

used to evaluate possible DRG 

classification changes and to recalibrate 

the DRG weights during our annual 

update under both the IPPS (§ 412.60(e)) 

and the LTCH PPS (§ 412.517). As 

discussed in greater detail in sections 

III.D. and E. of this preamble, with the 

implementation of section 503(a) of the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173), there is 

the possibility that one feature of the 

GROUPER software program may be 

updated twice during a Federal FY 

(October 1 and April 1) as required by 

the statute for the IPPS (69 FR 48954 

through 48957). Specifically, as we 

discussed in the FY 2007 IPPS final 

rule, diagnosis and procedure codes for 

new medical technology may be created 


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and added to existing DRGs in the 

middle of the Federal FY on April 1 (71 

FR 47959 and 47971). However, this 

policy change will have no effect on the 

LTC–DRG relative weights (during the 

FY), which will continue to be updated 

only once a year (October 1), nor will 

there be any impact on Medicare 

payments under the LTCH PPS during 

the FY as result of this policy. The use 

of the ICD–9–CM code set is also 

compliant with the current 

requirements of the Transactions and 

Code Sets Standards regulations at 45 

CFR parts 160 and 162, published in 

accordance with HIPAA. 

C. Organization of DRGs 

The DRGs are organized into 25 major 

diagnostic categories (MDCs), most of 

which are based on a particular organ 

system of the body; the remainder 

involve multiple organ systems (such as 

MDC 22, Burns). Accordingly, the 

principal diagnosis determines MDC 

assignment. Within most MDCs, cases 

are then divided into surgical DRGs and 

medical DRGs. Surgical DRGs are 

assigned based on a surgical hierarchy 

that orders operating room (O.R.) 

procedures or groups of O.R. procedures 

by resource intensity. The GROUPER 

software program does not recognize all 

ICD–9–CM procedure codes as 

procedures that affect DRG assignment, 

that is, procedures which are not 

surgical (for example, EKG), or minor 

surgical procedures (for example, 86.11, 

Biopsy of skin and subcutaneous tissue). 

The medical DRGs are generally 

differentiated on the basis of diagnosis. 

Both medical and surgical DRGs may be 

further differentiated based on age, sex, 

discharge status, and presence or 

absence of complications or 

comorbidities (CC). We note that CCs 

are defined by certain secondary 

diagnoses not related to, or not 

inherently a part of, the disease process 

identified by the principal diagnosis. 

(For example, the GROUPER software 

would not recognize a code from the 

800.0x series, Skull fracture, as a CC 

when combined with principal 

diagnosis 850.4, Concussion with 

prolonged loss of consciousness, 

without return to preexisting conscious 

level.) In addition, we note that the 

presence of additional diagnoses does 

not automatically generate a CC, as not 

all DRGs recognize a comorbid or 

complicating condition in their 

definition. (For example, DRG 466, 

Aftercare without History of Malignancy 

as Secondary Diagnosis, is based solely 

on the principal diagnosis, without 

consideration of additional diagnoses 

for DRG determination.) 

As discussed in greater detail in the 

FY 2007 IPPS final rule (71 FR 47898 

through 47912 and 47973), in its March 

2005 Report to Congress, ‘‘PhysicianOwned Specialty Hospitals,’’ MedPAC 

recommended that the Secretary 

improve payment accuracy in the 

hospital IPPS by, among other things, 

‘‘refining the current DRGs to more fully 

capture differences in severity of illness 

among patients.’’ (Recommendation 1, 

p. 93.) As we discussed in that same 

final rule (71 FR 47973), although we 

did not adopt a new severity-adjusted 

patient classification system under the 

IPPS, for FY 2007, we refined the 

current CMS–DRG patient classification 

system by creating 20 new CMS–DRGs 

and modifying 32 others across 13 

different clinical areas for Version 24.0 

of the GROUPER software that we 

expect will improve the CMS–DRG 

system’s recognition of severity of 

illness for FY 2007. As noted previously 

in this section, the LTCH PPS patient 

classification system (that is, LTC–

DRGs) is the same patient classification 

system used under the IPPS (that is, 

CMS DRGs). As such, the updates to the 

CMS DRG patient classification system 

used under the IPPS for FY 2007 

(GROUPER Version 24.0), are the 

updates that apply to the LTC–DRGs 

used under the LTCH PPS for FY 2007. 

In the FY 2007 IPPS final rule, we 

present the changes to the DRG patient 

classification system for FY 2007 (71 FR 

47939 through 47962). In that rule, we 

adopted the IPPS GROUPER Version 

24.0 for FY 2007 to process LTCH PPS 

claims for LTCH discharges occurring 

from October 1, 2006 through 

September 30, 2007 (71 FR 47973). As 

noted above in this section and as we 

also discussed in the FY 2007 IPPS final 

rule, in its March 1, 2005 Report to 

Congress on Medicare Payment Policy 

(page 64) and Recommendation 1 in the 

2005 Report to Congress on PhysicianOwned Specialty Hospitals, MedPAC 

recommended that CMS, among other 

things, refine the current DRGs under 

the IPPS to more fully capture 

differences in severity of illness among 

patients. In evaluating this MedPAC 

recommendation for the IPPS, we 

evaluated the APR–DRG Grouper used 

by MedPAC in its analysis. Based on 

that analysis, we concur with MedPAC 

that the modified version of the APR 

DRGs would account more completely 

for differences in severity of illness and 

associated costs among hospitals. 

However, as we clarified in the FY 2007 

IPPS proposed rule and reiterated in 

section II.C.6. of the FY 2007 IPPS final 

rule, there are still further changes that 

are important to make to the 

consolidated severity-adjusted (CS) DRG 

system before it is ready for adoption. 

Therefore, in the FY 2007 IPPS final 

rule, we did not adopt a new CS DRG 

system, such as the APR DRGs or a 

modified version of the APR DRGs, 

under the IPPS. However, we refined 

the current CMS–DRG patient 

classification system by creating 20 new 

CMS–DRGs and modifying 32 others 

across 13 different clinical areas for 

Version 24.0 of the GROUPER software 

that we expect will improve the CMS 

DRG system’s recognition of severity of 

illness for FY 2007. As noted previously 

in this section, the LTCH PPS patient 

classification system (that is, LTC–

DRGs) is the same patient classification 

system used under the IPPS (that is, 

CMS DRGs). As such, the updates to the 

CMS DRG patient classification system 

used under the IPPS for FY 2007 

(GROUPER Version 24.0), are the 

updates that apply under the LTCH PPS 

for FY 2007. 

As discussed in the FY 2007 IPPS 

final rule (71 FR 47906), we have 

engaged a contractor to assist us with 

completing an evaluation of alternative 

DRG systems for use under the IPPS that 

may better recognize severity than the 

current CMS DRGs and meet other 

criteria that would make them suitable 

to adopt for purposes of payment under 

the IPPS. We expect to complete this 

evaluation of alternative DRG systems 

quickly as part of moving forward on 

adopting a revised DRG system that 

better recognizes severity in the IPPS 

rulemaking for FY 2008. 

As we also stated in that same FY 

2007 IPPS final rule (71 FR 47990), if 

and when a severity adjusted patient 

classification system is adopted under 

the IPPS, we would need to consider 

whether to propose revisions to the 

current patient classification system 

under the LTCH PPS. Any proposed 

changes to the patient classification 

system would be done through notice 

and comment rulemaking. We believe 

that it is advantageous to the LTCH 

community to wait for CMS to first 

finalize its policies regarding any 

refinements to the DRG patient 

classification system used under the 

IPPS so that we can fully analyze what 

the effects of such changes would be on 

LTCH PPS payments. To the extent any 

changes to the patient classification 

system used under the IPPS are 

proposed and subsequently finalized, an 

analysis could then be performed to 

determine whether it is appropriate to 

propose the same patient classification 

for LTCHs. As noted above in this 

section, at that time, we would need to 

consider whether to propose revisions 

to the patient classification system 


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under the LTCH PPS, which, if 

proposed would be done through notice 

and comment rulemaking. 

D. Proposed Update of LTC–DRGs 

1. Background 

As discussed in greater detail in the 

FY 2007 IPPS final rule (71 FR 47974), 

under the LTCH PPS, relative weights 

for each LTC–DRG are a primary 

element used to account for the 

variations in cost per discharge and 

resource utilization among the payment 

groups (that is, LTC–DRGs). To ensure 

that Medicare patients classified to each 

LTC–DRG have access to an appropriate 

level of services and to encourage 

efficiency, each year based on the best 

available data, we calculate a relative 

weight for each LTC–DRG that 

represents the resources needed by an 

average inpatient LTCH case in that 

LTC–DRG. For example, cases in a LTC–

DRG with a relative weight of 2 will, on 

average, cost twice as much as cases in 

a LTC–DRG with a relative weight of 1. 

Under § 412.517, the LTC–DRG 

classifications and weighting factors 

(that is, relative weights) are adjusted 

annually to reflect changes in factors 

affecting the relative use of LTCH 

resources, including treatment patterns, 

technology and number of discharges. 

For FY 2007, the LTC–DRG 

classifications and relative weights were 

updated based on LTCH data from the 

FY 2005 MedPAR file, which contained 

hospital bills data from the March 2006 

update. The LTC–DRG patient 

classification system consists of 538 

DRGs that formed the basis of the FY 

2007 LTCH PPS GROUPER program. 

The 538 LTC–DRGs included two ‘‘error 

DRGs.’’ As in the IPPS, we included two 

error DRGs in which cases that cannot 

be assigned to valid DRGs will be 

grouped. These two error DRGs are DRG 

469 (Principal Diagnosis Invalid as a 

Discharge Diagnosis) and DRG 470 

(Ungroupable). The other 536 LTC–

DRGs are the same DRGs used in the 

IPPS GROUPER program for FY 2007 

(Version 24.0). 

In the past, the annual update to the 

CMS–DRGs was based on the annual 

revisions to the ICD–9–CM codes and 

was effective each October 1. The ICD–

9–CM coding update process was 

revised as discussed in greater detail in 

the FY 2005 IPPS final rule (69 FR 

48953 through 48957). Specifically, 

section 503(a) of the MMA includes a 

requirement for updating diagnosis and 

procedure codes for twice a year instead 

of the current process of annual updates 

on October 1 of each year. This 

requirement is included as part of the 

amendments to the Act relating to 

recognition of new medical technology 

under the IPPS. (For additional 

information on this provision, including 

its implementation and its impact on 

the LTCH PPS, refer to the FY 2005 IPPS 

final rule (69 FR 48953 through 48957) 

and the RY 2006 LTCH PPS final rule 

(70 FR 24172 through 24177).) 

As noted above in this section, with 

the implementation of section 503(a) of 

the MMA, there is the possibility that 

one feature of the GROUPER software 

program may be updated twice during a 

Federal FY (October 1 and April 1) as 

required by the statute for the IPPS. 

Specifically, diagnosis and procedure 

codes for new medical technology may 

be created and added to existing DRGs 

in the middle of the Federal FY on April 

1. No new LTC–DRGs will be created or 

deleted. Consistent with our current 

practice, any changes to the DRGs or 

relative weights will be made at the 

beginning of the next Federal FY 

(October 1). Therefore, there will not be 

any impact on LTC–DRG payments 

under the LTCH PPS until the following 

October 1 (although the new ICD–9–CM 

diagnosis and procedure codes would 

be recognized April 1). The use of the 

ICD–9–CM code set is also compliant 

with the current requirements of the 

Transactions and Code Sets Standards 

regulations at 45 CFR parts 160 and 162, 

issued under HIPAA. 

As we explained in the FY 2007 IPPS 

final rule, annual changes to the ICD–9–

CM codes historically were effective for 

discharges occurring on or after October 

1 each year (71 FR 47971). Thus, the 

manual and electronic versions of the 

GROUPER software, which are based on 

the ICD–9–CM codes, were also revised 

annually and effective for discharges 

occurring on or after October 1 each 

year. The patient classification system 

used under the LTCH PPS (LTC–DRGs) 

is the same DRG patient classification 

system used under the IPPS, which 

historically had been updated annually 

and was effective for discharges 

occurring on or after October 1 through 

September 30 each year. As we 

mentioned previously in this section, 

the ICD–9–CM coding update process 

was revised as a result of the 

implementation of section 503(a) of the 

MMA, which includes a requirement for 

updating diagnosis and procedure codes 

as often as twice a year instead of the 

current process of annual updates on 

October 1 of each year (as discussed in 

greater detail in section II.D.10. of the 

FY 2007 IPPS final rule (71 FR 47957 

through 47960)). We currently use the 

ICD–9–CM codes as the code set for 

diagnoses and procedures. Therefore, 

the ICD–9–CM codes currently used 

under both the IPPS and LTCH PPS may 

be updated as often as twice a year. As 

described above in this section, this 

requirement is included as part of the 

amendments to the Act relating to 

recognition of new medical technology 

under the IPPS. 

Despite the fact that aspects of the 

GROUPER software may be updated to 

recognize any new technology ICD–9–

CM codes, there will be no impact on 

either LTC–DRG assignments or 

payments under the LTCH PPS at that 

time. That is, changes to the LTC–DRGs 

(such as the creation or deletion of LTC–

DRGs) and the relative weights will 

continue to be updated in the manner 

and timing (October 1) as they are now. 

Updates to the GROUPER software for 

both the IPPS and the LTCH PPS (for 

relative weights and the creation or 

deletion of DRGs) are made in the 

annual IPPS proposed and final rules 

and are effective each October 1. We 

have also explained that since we do not 

publish a mid-year IPPS rule, we will 

assign any new diagnosis or procedure 

codes implemented on April 1 to the 

same DRG in which its predecessor code 

was assigned, so that there will be no 

impact on the DRG assignments until 

the following October 1. Any coding 

updates will be available through the 

Web sites provided in section III.E. of 

this preamble and through the Coding 

Clinic for ICD–9–CM. Publishers and 

software vendors currently obtain code 

changes through these sources to update 

their code books and software system. If 

new codes are implemented on April 1, 

revised code books and software 

systems, including the GROUPER 

software program, will be necessary 

because we must use current ICD–9–CM 

codes. Therefore, for purposes of the 

LTCH PPS, because each ICD–9–CM 

code must be included in the GROUPER 

algorithm to classify each case into a 

LTC–DRG, the GROUPER software 

program used under the LTCH PPS 

would need to be revised to 

accommodate any new codes. 

In implementing section 503(a) of the 

MMA, there will only be an April 1 

update if diagnosis and procedure codes 

are requested and approved. We note 

that any new codes created for April 1 

implementation will be limited to those 

diagnosis and procedure code revisions 

primarily needed to describe new 

technologies and medical services. 

However, we reiterate that the process 

of discussing updates to the ICD–9–CM 

has been an open process through the 

ICD–9–CM Coordination and 

Maintenance (C&M) Committee since 

1995. Requestors will be given the 

opportunity to present the merits for a 

new code and make a clear and 

convincing case for the need to update 


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ICD–9–CM codes through an April 1 

update. 

At the September 2006 ICD–9–CM 

C&M Committee meeting, there were no 

requests for an April 1, 2007 

implementation of ICD–9–CM codes, 

and therefore, the next update to the 

ICD–9–CM coding system will not occur 

until October 1, 2007 (FY 2008). 

Presently, as there were no coding 

changes suggested for an April 1, 2007 

update, the ICD–9–CM coding set 

implemented on October 1, 2006, will 

continue through September 30, 2007 

(FY 2007). The next update to the LTC–

DRGs and relative weights for FY 2008 

will be presented in the FY 2008 IPPS 

proposed and final rules. Furthermore, 

we would notify LTCHs of any revisions 

to the GROUPER software used under 

the IPPS and LTCH PPS that would be 

implemented April 1, 2008. As noted 

previously in this section, in the FY 

2007 IPPS final rule (71 FR 47973), we 

used Version 24.0 of the CMS 

GROUPER, which was used under the 

IPPS for FY 2007, to classify cases for 

LTCH PPS discharges that would occur 

on or after October 1, 2006 and on or 

before September 30, 2007. 

2. Proposed Budget Neutrality (BN) 

Requirement for the Annual LTC–DRG 

Update 

As noted above in this section, 

currently under § 412.517, the LTC–

DRG classifications and relative weights 

are adjusted annually to reflect changes 

in factors affecting the relative use of 

LTCH resources, such as treatment 

patterns, technology and number of 

discharges. Currently, there are no 

statutory or regulatory requirements that 

the annual update to the LTC–DRG 

classifications and relative weights be 

done in a budget neutral manner. 

Historically, since the initial 

implementation of the LTCH PPS in FY 

2003, we have updated the LTC–DRG 

relative weights each year without a BN 

adjustment based on the most recent 

available LTCH claims data, which 

reflect current LTCH patient mix and 

coding practices, and appropriately 

reflected more or less resource use than 

the previous year’s LTC–DRG relative 

weights (71 FR 47991). When we 

proposed changes to the LTC–DRGs for 

FY 2007 in the FY 2007 IPPS proposed 

rule, we estimated that those proposed 

changes to the LTC–DRG classifications 

and relative weights would result in 

about an estimated 1.4 percent decrease 

in estimated aggregate LTCH PPS 

payments (71 FR 24413). As we 

discussed in the FY 2007 IPPS final rule 

(71 FR 47991), several commenters, 

including MedPAC, urged us to 

establish a BN requirement for the 

annual reclassification and recalibration 

of the LTC–DRGs so that, in future 

years, the LTCH PPS could avoid an 

estimated decrease in estimated 

aggregate payments, such as the 

estimated 1.4 percent decrease that 

resulted from the proposed update to 

the LTC–DRGs and relative weights for 

FY 2007. In response to previous 

proposed annual updates to the LTC–

DRG relative weights, we also received 

comments recommending that a BN 

adjustment be applied in determining 

the LTC–DRG relative weights to 

mitigate LTCH PPS payment 

fluctuations. (See the FY 2005 IPPS final 

rule (69 FR 48999 through 49000), and 

the FY 2006 IPPS final rule (70 FR 

47333 through 47334).) 

In response to those comments, we 

explained that we understood the 

commenters’ concern with the estimated 

decrease in payments under LTCH PPS 

based upon the changes in the LTC–

DRGs and relative weights proposed for 

FY 2007. However, as we discussed in 

the FY 2007 IPPS final rule, we did not 

postpone the proposed FY 2007 

reclassification and recalibration of the 

LTC–DRGs, nor did we implement those 

changes in a budget neutral manner. We 

noted several reasons for the annual 

fluctuations in LTC–DRG relative 

weights that have resulted in both 

estimated increases and decreases in 

estimated aggregate LTCH PPS 

payments in the 4 years since the 

implementation of the LTCH PPS in FY 

2003. Specifically, we reiterated our 

belief that several factors have affected 

the changes to the LTC–DRG relative 

weights over the past 4 years, including 

actual improvements in coding so that 

cases are appropriately assigned to 

LTC–DRGs. We also explained that, as 

noted above in this section, historically 

we recalibrated the LTC–DRG relative 

weights each year based on the most 

recent available LTCH claims data, 

which reflect current LTCH patient mix 

and coding practices, and appropriately 

reflects more or less resource use than 

the previous year’s LTC–DRG relative 

weights. The intended purpose of the 

annual recalibration of the LTC–DRG 

relative weights is to reflect any 

variation in coding practices and 

charges from the previous year and to 

help ensure that the LTC–DRG relative 

weights in the upcoming fiscal year will 

result in appropriate and accurate 

payments to LTCHs for the resources 

they expend to treat their Medicare 

patients. (71 FR 47984 through 47989) 

We also reminded the commenters 

that under the IPPS, there is a statutory 

requirement that the annual DRG 

reclassification and recalibration 

changes be made in a manner that 

assures that the estimated aggregate 

payments are neither greater than nor 

less than the estimated aggregate 

payments that would have been made 

without the changes, but there is no 

corresponding statutory requirement 

under the LTCH PPS. However, we 

noted that, given the considerable 

discretion granted to the Secretary 

under section 123 of the BBRA and 

section 307(b) of the BIPA of 2000 to 

develop the LTCH PPS, it is possible 

that, at some point, the Secretary would 

consider using this broad authority to 

establish a BN policy for the annual 

update of the LTC–DRG classifications 

and relative weights. We further stated 

that if we find that it would be 

appropriate to propose making the 

updates to the LTC–DRGs and relative 

weights in a budget neutral manner, the 

public would have the opportunity to 

submit comments on any proposed 

change during the rulemaking process. 

As we explained in the FY 2007 IPPS 

final rule (71 FR 47985 through 47986), 

a LTCH’s case-mix index (CMI) is 

defined as its case weighted average 

LTC–DRG relative weight for all its 

discharges in a given period. Changes in 

CMI consist of two components: ‘‘real’’

CMI changes and ‘‘apparent’’ CMI 

changes. Real CMI increase is defined as 

the increase in the average LTC–DRG 

relative weights resulting from the 

hospital’s treatment of more resource 

intensive patients. Apparent CMI 

increase is defined as the increase in 

CMI due to changes in coding practices. 

The computed (or observed) CMI 

increase is defined as real CMI increase 

(due to an increase in patient severity) 

plus the increase due to changes in 

coding practices (including better 

documentation of the medical record by 

physicians and more complete coding of 

the medical record by coders). If LTCH 

patients have more costly impairments, 

lower functional status, or increased 

comorbidities, and thus require more 

resources in the LTCH, we consider this 

a real change in case-mix. Conversely, if 

LTCH patients have the same 

impairments, functional status, and 

comorbidities but are coded differently 

resulting in higher payment, we 

consider this an apparent change in 

case-mix. We believe that changes in 

payment rates, including the LTC–DRG 

relative weights, should accurately 

reflect changes in LTCHs’ true cost of 

treating patients (real CMI increase), and 

should not be influenced by changes in 

coding practices (apparent CMI 

increase). 

As stated above in this section, 

apparent CMI increase results from 

cases being grouped to a LTC–DRG with 

a higher weight than it would be 


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without such changes in coding 

practices. As we discussed in the FY 

2007 IPPS final rule (71 FR 48343 

through 48344), in discussing the 

impact of the changes to the LTC–DRG 

classifications and relative weights 

established for FY 2007 that were 

estimated to result in an aggregate 

decrease in LTCH PPS payments of 

approximately 1.3 percent, we 

explained that changes in coding 

practices (rather than patient severity) 

primarily resulted in fluctuations in the 

LTC–DRG relative weights in the past. 

Specifically, based on an analysis of FY 

2005 LTCH claims data, we continued 

to observe that the average LTC–DRG 

relative weight decreases due to an 

increase of relatively lower charge cases 

being assigned to LTC–DRGs with 

higher relative weights in the prior year. 

Contributing to this increase in these 

relatively lower charge cases being 

assigned to LTC–DRGs with higher 

relative weights in the prior year are 

improvements in coding practices, 

which are typical when moving from a 

reasonable cost-based payment system 

to a PPS. The impact of including cases 

with relatively lower charges into LTC–

DRGs that had a relatively higher 

relative weight in the previous version 

of the GROUPER software is a decrease 

in the average relative weight for those 

LTC–DRGs in the updated version of the 

GROUPER software. 

We note that this same phenomenon 

of relatively lower charge cases being 

assigned to LTC–DRGs with higher 

relative weights in the prior year was 

also observed when we analyzed the 

LTCH claims data from FY 2003 and FY 

2004 to update the LTC–DRG relative 

weights for FY 2005 and FY 2006, 

respectively (see the FY 2005 IPPS final 

rule (69 FR 48999) and the FY 2006 

IPPS final rule (70 FR 47701 through 

47702).) However, this phenomenon 

was more notable based on the FY 2004 

LTCH claims data that were used to 

update the LTC–DRG relative weights 

for FY 2006, where the changes to the 

LTC–DRG weights established were 

estimated to result in a decrease in 

aggregate LTCH PPS payments of 4.2 

percent (as compared to the estimated 

1.3 percent decrease in aggregate LTCH 

PPS payments based on the FY 2005 

LTCH claims data used to determine the 

FY 2007 LTC–DRG relative weights). 

Because the estimated decrease in 

aggregate LTCH PPS payments due to 

the update to the LTC–DRG relative 

weights based on more recent (FY 2005) 

LTCH claims data was significantly 

lower (1.3 percent estimated based on 

the LTC–DRG changes for FY 2007) than 

it was based on FY 2004 LTCH claims 

data (4.2 percent estimated based on the 

LTC–DRG changes for FY 2006), we 

believe that, as LTCHs have become 

more familiar with the ICD–9–CM 

coding principles and guidelines used 

under a DRG-based system, annual 

changes in LTCH CMI are approaching 

the point where the observed CMI 

increase is primarily due to changes in 

real CMI (that is, increased patient 

severity) rather than apparent CMI (that 

is, changes in coding practices). In other 

words, because we have observed that, 

over time as LTCHs have gained more 

experience with ICD–9–CM coding, 

estimated changes in LTCH PPS 

payments due to recalibration of the 

LTC–DRG relative weights based on 

more recent claims data (for example, 

the FY 2007 LTC–DRG relative weights 

calculated from FY 2005 LTCH claims 

data as compared to the FY 2006 LTC–

DRG relative weights calculated from 

FY 2004 LTCH claims data) have 

diminished over time. That is, we have 

estimated smaller fluctuations in 

aggregate LTCH PPS payments as a 

result of the annual recalibration of the 

LTC–DRG relative weights based on 

more recent LTCH claims data generated 

after the implementation of the LTCH 

PPS (for example, the 1.3 percent 

estimated decrease in aggregate LTCH 

PPS payments for FY 2007 based on FY 

2004 LTCH claims data as compared to 

the 4.2 percent estimated decrease in 

aggregate LTCH PPS payments for FY 

2007 based on FY 2005 LTCH claims 

data). For these reasons, we believe that 

LTCH coding practices have stabilized 

such that the most recent available 

LTCH claims data now primarily reflect 

changes in the resources used by the 

average LTCH patient in a particular 

LTC–DRG (and not changes in coding 

practices). Thus, we believe that the 

most recent available data (as described 

below in this section) mainly reflect the 

true costs of treating LTCH patients, and 

as discussed above, we believe changes 

in payment rates, including the LTC–

DRGs, should reflect such costs. 

Furthermore, a LTCH CMI analysis 

based on the most recent available 

LTCH claims data, which is discussed 

in section IV.C. of this preamble, also 

supports our belief that observed CMI 

increase is primarily due to changes in 

real CMI (that is, increased patient 

severity) rather than apparent CMI (that 

is, changes in coding practices). 

Specifically, this CMI analysis indicates 

that changes in LTCH coding practices, 

which resulted in fluctuations in the 

LTC–DRG relative weights in the past, 

appear to be stabilizing as LTCHs have 

become more familiar with a DRG-based 

system. As discussed in section IV.C.2. 

of this preamble, the overall observed 

change in LTCH CMI from FY 2003 

compared to FY 2004 was an increase of 

approximately 6.75 percent while the 

overall observed change in LTCH CMI 

from FY 2004 compared to FY 2005 was 

an increase of approximately 3.49 

percent, which is only about half of the 

LTCH CMI growth measured from the 

prior period (that is, the 6.75 percent 

from FY 2003 to FY 2004). Furthermore, 

preliminary analysis of FY 2006 LTCH 

claims data, which reflects over 3 full 

years of experience under the LTCH PPS 

for most LTCHs, shows an even smaller 

overall observed CMI increase of about 

1.9 percent from FY 2005 compared to 

FY 2006. Again, the observed CMI 

increase from FY 2005 to FY 2006 is 

only about half of the LTCH CMI growth 

measured from the prior period (that is, 

the 3.49 percent from FY 2004 to FY 

2005). Because this LTCH CMI analysis 

shows that observed CMI is declining, 

we believe that LTCH coding practices 

have stabilized such that changes in 

LTCH CMI are now primarily due to 

changes in real CMI (that is, increased 

patient severity) rather than apparent 

CMI (that is, changes in coding 

practices). In other words, because we 

believe that the observed annual CMI 

increase is primarily ‘‘real’’ and not 

‘‘apparent,’’ it is no longer necessary to 

update the LTC–DRGs in a non-budget 

neutral manner (as discussed in greater 

detail below in this section). As stated 

above in this section, we believe that 

changes in payment rates, including the 

LTC–DRG relative weights, should 

accurately reflect changes in LTCHs’

true cost of treating patients (real CMI 

increase) and should not be influenced 

by changes in coding practices 

(apparent CMI increase). 

In light of these facts, in order to 

mitigate estimated fluctuations in 

estimated aggregate LTCH PPS 

payments, as urged by past commenters, 

we have given further consideration to 

the issue of establishing a BN 

requirement for annual LTC–DRG 

reclassification and recalibration. 

Therefore, in this proposed rule, under 

the broad authority conferred upon the 

Secretary under section 123 of the 

BBRA as amended by section 307(b) of 

the BIPA to develop the LTCH PPS, we 

are proposing that, beginning with the 

LTC–DRG update for FY 2008, the 

annual update to the LTC–DRG 

classifications and relative weights 

would be done in a budget neutral 

manner such that estimated aggregate 

LTCH PPS payments would be 

unaffected, that is, would be neither 

greater than nor less than the estimated 

aggregate LTCH PPS payments that 


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would have been made without the 

proposed LTC–DRG classification and 

relative weight changes. Accordingly, 

we are proposing to revise § 412.517 to 

specify that annual changes to the LTC–

DRG classifications and the 

recalibration of the LTC–DRG relative 

weights are made in a budget neutral 

manner such that estimated aggregate 

LTCH PPS payments are not affected. 

We believe that it would be appropriate 

to update the LTC–DRG classifications 

and relative weights in a budget neutral 

manner at this time for the reasons 

discussed below. 

As noted above in this section, the 

relative weight for each LTC–DRG 

represents the resources needed by an 

average inpatient LTCH case in that 

LTC–DRG, such that LTCH cases in a 

LTC–DRG with a relative weight of 2 

will, on average, cost twice as much as 

cases in a LTC–DRG with a relative 

weight of 1. As also noted above in this 

section, in the past when we 

recalibrated the LTC–DRG relative 

weights each year without a BN 

adjustment based on the most recent 

available LTCH claims data, we believe 

that the resulting LTC–DRG relative 

weights appropriately reflected more or 

less resource use than the previous 

year’s LTC–DRG relative weights, and 

that the estimated aggregate payment 

changes were appropriate given that the 

LTCH claims data used to determine 

those LTC–DRG relative weights 

reflected changes in coding practices, as 

well as changes in actual resource use. 

Historically, we have not updated the 

LTC–DRGs in a budget neutral manner 

because, as discussed above in this 

section, we believed that past 

fluctuations in the LTC–DRG relative 

weights were primarily due to changes 

in LTCH coding practices, which 

included both ‘‘real’’ and ‘‘apparent’’

changes in LTCHs’’ case-mix. We 

believe that changes in the LTCH PPS 

payment rates, including the LTC–DRG 

relative weights, should accurately 

reflect changes in LTCHs’ true cost of 

treating patients (real CMI increase), and 

should not be influenced by changes in 

coding practices (apparent CMI 

increase). Therefore, in the past we did 

not update the LTC–DRGs in a budget 

neutral manner so that ‘‘apparent’’ CMI 

changes were not permanently built into 

the LTCH PPS payment rates. Because 

LTCH 2006 claims data does not appear 

to significantly reflect changes in LTCH 

coding practices in response to the 

implementation of the LTCH PPS (as 

explained above in this section), we 

believe that it may be appropriate to 

update the LTC–DRGs so that estimated 

aggregate LTCH PPS payments would 

neither increase or decrease since we 

believe that changes in the LTC–DRG 

classifications and relative weights 

should accurately reflect changes in 

LTCHs’ resource use (that is, true cost 

of treating patients) and should not be 

influenced by changes in coding 

practices, and that the most recent such 

LTCH claims data primarily reflects 

changes in the resources needed by an 

average LTCH case in a particular LTC–

DRG (and not changes in coding 

practices). Thus, we now believe it 

would be reasonable and appropriate to 

update the LTC–DRGs in a budget 

neutral manner, beginning in FY 2008, 

so that estimated aggregate payments 

under the LTCH PPS would be 

unaffected (that is, estimated aggregate 

LTCH PPS payments would not be 

greater than or less than they would 

have been without the proposed LTC–

DRG classification and relative weight 

changes) by any changes resulting from 

the annual reclassification and 

recalibration of the LTC–DRGs. 

Updating the LTC–DRGs in a budget 

neutral manner would result in an 

annual update to the individual LTC–

DRG classifications and relative weights 

based on the most recent available data 

to reflect changes in relative LTCH 

resource use; however, the LTC–DRG 

relative weights would be uniformly 

adjusted to ensure that estimated 

aggregate payments under the LTCH 

PPS would not be affected (that is, 

decreased or increased). 

Under this proposal, we intend to 

update the LTC–DRG classifications and 

relative weights for FY 2008 based on 

the best available data at the time to 

allow for changes in factors affecting 

hospital resource use, including but not 

limited to, practice patterns and new 

technology. This would be done in a 

budget neutral manner, such that 

estimated aggregate payments under the 

LTCH PPS would neither decrease or 

increase as a result of the changes due 

to the annual reclassification and 

recalibration of the LTC–DRGs. Because, 

under this proposal, we would continue 

to use the most recent available LTCH 

data, the updated LTC–DRG relative 

weights would continue to reflect 

changes in LTCH resource use (as is the 

case under the current (non-budget 

neutral) LTC–DRG update 

methodology). Thus, for example, if the 

most recent LTCH claims data showed 

that the resource use for hypothetical 

LTC–DRG ‘‘ABC’’ is double the resource 

use for hypothetical LTC–DRG ‘‘XYZ,’’

then the value of the relative weight for 

LTC–DRG ‘‘ABC’’ would be about twice 

the value of relative weight for LTC–

DRG ‘‘XYZ.’’

In addition to accounting for changes 

in relative resource use, to include a BN 

requirement for the annual update to the 

LTC–DRGs under this proposal, the 

updated LTC–DRG relative weights 

would need to be uniformly adjusted to 

ensure that estimated aggregate LTCH 

PPS payments would not be affected. 

That is, a BN factor would need to be 

computed to ensure that the LTC–DRG 

reclassification and recalibration 

process, by itself, neither increases nor 

decreases estimated aggregate LTCH 

PPS payments. To accomplish BN when 

annually updating the LTC–DRG 

classifications and relative weights 

under the proposed change to § 412.517, 

we are proposing to use a method that 

is similar to the methodology used 

under the IPPS. Specifically, we are 

proposing that after recalibrating the 

LTC–DRG relative weights, as we do 

under our existing methodology (as 

described in detail in the FY 2007 IPPS 

final rule (71 FR 47978 through 47981)), 

we would apply a single BN adjustment 

factor (which would be published 

annually in the IPPS proposed and final 

rules when we update the LTC–DRGs 

and relative weights) to each of those 

relative weights. The LTC–DRG BN 

adjustment factor would ensure that 

estimated aggregate LTCH PPS 

payments (based on the most recent 

available LTCH claims data) after 

recalibration (the ‘‘new’’ relative 

weights) would be equal to estimated 

aggregate LTCH PPS payments (for the 

same most recent available LTCH claims 

data) before recalibration (the current or 

‘‘old’’ relative weights). (Information on 

the IPPS DRG BN adjustment can be 

found in the FY 2007 IPPS final rule (71 

FR 47970).) As noted above in this 

section, the annual update to the LTC–

DRG classifications and relative weights 

provided for under the current § 412.517 

is presented in the IPPS proposed and 

final rules, and under the proposed 

changes to § 412.517 presented in this 

proposed rule, the proposed BN update 

to the LTC–DRGs for FY 2008 would be 

presented in the FY 2008 IPPS proposed 

rule in the spring of 2007. 

E. ICD–9–CM Coding System 

1. Uniform Hospital Discharge Data Set 

(UHDDS) Definitions 

Because the assignment of a case to a 

particular LTC–DRG will help 

determine the amount that will be paid 

for the case, it is important that the 

coding is accurate. Classifications and 

terminology used in the LTCH PPS are 

consistent with the ICD–9–CM and the 

UHDDS, as recommended to the 

Secretary by the National Committee on 

Vital and Health Statistics (‘‘Uniform 


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Hospital Discharge Data: Minimum Data 

Set, National Center for Health Statistics 

(NCHS), April 1980’’) and as revised in 

1984 by the Health Information Policy 

Council (HIPC) of the Department of 

Health and Human Services (HHS). 

We note that the ICD–9–CM coding 

terminology and the definitions of 

principal and other diagnoses of the 

UHDDS are consistent with the 

requirements of the HIPAA 

Administrative Simplification Act of 

1996 (45 CFR part 162). Furthermore, 

the UHDDS was used as a standard for 

the development of policies and 

programs related to hospital discharge 

statistics by both governmental and 

nongovernmental sectors for over 30 

years. In addition, the following 

definitions (as described in the 1984 

Revision of the UHDDS, approved by 

the Secretary for use starting January 

1986) are requirements of the ICD–9–

CM coding system, and have been used 

as a standard for the development of the 

CMS-DRGs: 

• Diagnoses are defined to include all 

diagnoses that affect the current hospital 

stay. 

• Principal diagnosis is defined as the 

condition established after study to be 

chiefly responsible for occasioning the 

admission of the patient to the hospital 

for care. 

• Other diagnoses (also called 

secondary diagnoses or additional 

diagnoses) are defined as all conditions 

that coexist at the time of admission, 

that develop subsequently, or that affect 

the treatment received or the LOS or 

both. Diagnoses that relate to an earlier 

episode of care that have no bearing on 

the current hospital stay are excluded. 

• All procedures performed will be 

reported. This includes those that are 

surgical in nature, carry a procedural 

risk, carry an anesthetic risk, or require 

specialized training. 

We provide LTCHs with a 60-day 

window after the date of the notice of 

the initial LTC–DRG assignment to 

request review of that assignment of the 

discharge to a LTC–DRG. Additional 

information may be provided by the 

LTCH to the FI as part of that review. 

2. Maintenance of the ICD–9–CM 

Coding System 

The ICD–9–CM C&M Committee is a 

Federal interdepartmental committee, 

co-chaired by the National Center for 

Health Statistics (NCHS) and CMS, that 

is charged with maintaining and 

updating the ICD–9–CM system. The 

C&M Committee is jointly responsible 

for approving coding changes, and 

developing errata, addenda, and other 

modifications to the ICD–9–CM to 

reflect newly developed procedures and 

technologies and newly identified 

diseases. The C&M Committee is also 

responsible for promoting the use of 

Federal and non-Federal educational 

programs and other communication 

techniques with a view toward 

standardizing coding applications and 

upgrading the quality of the 

classification system. 

The NCHS has lead responsibility for 

the ICD–9–CM diagnosis codes included 

in the Tabular List and Alphabetic 

Index for Diseases, while we have the 

lead responsibility for the ICD–9–CM 

procedure codes included in the 

Tabular List and Alphabetic Index for 

Procedures. The C&M Committee 

encourages participation by healthrelated organizations in this process and 

holds public meetings for discussion of 

educational issues and proposed coding 

changes twice a year at the CMS Central 

Office located in Baltimore, Maryland. 

The agenda and dates of the meetings 

can be accessed on our Web site at 

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

ICD9ProviderDiagnosticCodes. 

As discussed previously in this 

section, for the IPPS, section 503(a) of 

the MMA includes a requirement for 

updating diagnosis and procedure codes 

twice a year instead of annual updates 

on October 1 of each year. This 

requirement will improve the 

recognition of new technologies under 

the IPPS by accounting for them in the 

GROUPER software at an earlier date. 

Because this statutory requirement 

could have a significant impact on 

health care providers, coding staff, 

publishers, system maintainers, and 

software systems, among others, we 

solicited comments on our proposed 

provisions to implement this 

requirement as part of the FY 2005 IPPS 

proposed rule (69 FR 28220 through 

28221). We responded to comments and 

published our new policy regarding the 

updating of diagnosis and procedure 

codes (currently the ICD–9–CM) in the 

FY 2005 IPPS final rule (69 FR 48953 

through 48957). In addition, we 

established a policy for the possibility of 

an April 1 ICD–9–CM diagnosis and 

procedure code update in the RY 2006 

LTCH PPS final rule (70 FR 24176) since 

LTCH systems would be expected to 

recognize and report those new codes 

through the channels described in this 

section even though no DRG additions 

or deletions or changes to relative 

weights will occur prior to the usual 

October 1 update. (For more detailed 

information on the affect of the statutory 

mandates directed at the IPPS as 

amended by section 503(a) of the MMA, 

refer to the FY 2005 IPPS final rule (69 

FR 48954 through 48957) and the RY 

2007 LTCH PPS final rule (71 FR 27806 

through 27808)). 

Current addendum and code title 

information is published on the CMS 

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

ICD9ProviderDiagnosticCodes/ 

04_addendum.asp. Summary tables 

showing new, revised, and deleted code 

titles are also posted on the CMS Web 

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

ICD9ProviderDiagnosticCodes/ 

07_summarytables.asp. Information on 

ICD–9–CM diagnosis codes can be 

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

ICD9ProviderDiagnosticCodes/. 

Information on new, revised, and 

deleted ICD–9–CM codes is also 

available in the American Hospital 

Association (AHA) publication, the 

Coding Clinic for ICD–9–CM. AHA also 

distributes information to publishers 

and software vendors. We also send 

copies of all ICD–9–CM coding changes 

to our contractors for use in updating 

their systems and providing education 

to providers. In addition, of particular 

note to LTCHs are the invalid diagnosis 

codes (Table 6C) and the invalid 

procedure codes (Table 6D) located in 

the annual proposed and final rules for 

the IPPS. Claims with invalid codes are 

not processed by the Medicare claims 

processing system. 

3. Coding Rules and Use of ICD–9–CM 

Codes in LTCHs 

We continue to urge LTCHs to focus 

on improved coding practices. 

Inappropriate coding of cases can 

adversely affect the uniformity of cases 

in each LTC–DRG and produce 

inappropriate weighting factors at 

recalibration. Because of concerns 

raised by LTCHs concerning correct 

coding, we have asked the AHA to 

provide additional clarification and 

instruction on proper coding in the 

LTCH setting. The AHA will provide 

this instruction via their established 

process of addressing questions through 

their publication, the Coding Clinic for 

ICD–9–CM. Written questions or 

requests for clarification may be 

addressed to the Central Office on ICD–

9–CM, American Hospital Association, 

One North Franklin, Chicago, IL 60606. 

A form for question(s) is available for 

download and can be mailed on AHA’s 

Web site at: www.ahacentraloffice.org. 

In addition, current coding guidelines 

are available at the NCHS Web site: 

http://www.cdc.gov/nchs/datawh/ 

ftpserv/ftpicd9/ftpicd9.htm#conv. 

In conjunction with the cooperating 

parties (AHA, the American Health 

Information Management Association 

(AHIMA), and NCHS), we reviewed 

actual medical records and continue to 

emphasize the importance of the quality 


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of the documentation under the LTCH 

PPS. Based on the LTCH claims data 

analysis described above in section 

III.D.2. of this preamble, we fully 

believe that with some experience under 

a PPS, the quality of the documentation 

and coding of LTCHs has improved, as 

it did for the IPPS. However, because of 

the need for proper coding by LTCHs, 

the cooperating parties have plans to 

assist their members with continued 

improvement in documentation and 

coding issues for the LTCHs through 

specific questions and coding 

guidelines. The importance of 

consistent and complete documentation 

is emphasized in the revised ICD–9–CM 

Official Guidelines for Coding and 

Reporting: ‘‘A joint effort between the 

attending physician and coder is 

essential to achieve complete and 

accurate documentation, code 

assignment, and reporting of diagnoses 

and procedures. The importance of 

consistent, complete documentation in 

the medical record cannot be 

overemphasized. Without this 

documentation, the application of all 

coding guidelines is a difficult, if not 

impossible task’’ (Coding Clinic for 

ICD–9–CM, Fourth Quarter 2002, page 

115). 

To improve medical record 

documentation, LTCHs should be aware 

that if the patient is being admitted for 

continuation of treatment of an acute or 

chronic condition, guidelines at Section 

I.B.10 of the Coding Clinic for ICD–9- 

CM, Fourth Quarter 2002 (page 129) are 

applicable for the selection of principal 

diagnosis. To clarify coding advice 

issued in the August 30, 2002 LTCH 

PPS final rule (67 FR 55979), at 

Guideline I.B.12, Late Effects, we state 

that a late effect is considered to be the 

residual effect (condition produced) 

after the acute phase of an illness or 

injury has terminated (Coding Clinic for 

ICD–9–CM, Fourth Quarter 2002, page 

129). Regarding whether a LTCH should 

report the ICD–9–CM code(s) for an 

unresolved acute condition instead of 

the code(s) for late effects of 

rehabilitation, we emphasize that each 

case must be evaluated on its unique 

circumstances and coded appropriately. 

Depending on the documentation in the 

medical record, either a code reflecting 

the acute condition or rehabilitation 

could be appropriate in a LTCH. 

Since implementation of the LTCH 

PPS, our Medicare FIs have conducted 

training and provided assistance to 

LTCHs in correct coding. We have also 

issued manuals containing procedures, 

as well as coding instructions to LTCHs 

and FIs. We will continue to conduct 

training and provide guidance on an ‘‘as 

needed’’ basis. We also refer readers to 

the detailed discussion on correct 

coding practices in the August 30, 2002 

LTCH PPS final rule (67 FR 55981 

through 55983). Additional coding 

instructions and examples will be 

published in the Coding Clinic for ICD–

9–CM. 

F. Method for Updating the LTC–DRG 

Relative Weights 

As discussed in the August 30, 2002 

LTCH PPS final rule that implemented 

the LTCH PPS, under the LTCH PPS, 

each LTCH will receive a payment that 

represents an appropriate amount for 

the efficient delivery of care to Medicare 

patients (67 FR 55984). The system must 

be able to account adequately for each 

LTCH’s case-mix to ensure both a fair 

distribution of Medicare payments and 

access to care for those Medicare 

patients whose care is more costly. 

Therefore, in § 412.523(c), we adjust the 

standard Federal PPS rate by the LTC–

DRG relative weights in determining 

payment to LTCHs for each case. 

Under this payment system, relative 

weights for each LTC–DRG are a 

primary element used to account for the 

variations in cost per discharge and 

resource utilization among the payment 

groups as described in § 412.515. To 

ensure that Medicare patients who are 

classified to each LTC–DRG have access 

to services and to encourage efficiency, 

we calculate a relative weight for each 

LTC–DRG that represents the resources 

needed by an average inpatient LTCH 

case in that LTC–DRG. For example, 

cases in a LTC–DRG with a relative 

weight of 2 will, on average, cost twice 

as much as cases in a LTC–DRG with a 

weight of 1. 

As we discussed in the FY 2007 IPPS 

final rule, the LTC–DRG relative weights 

effective under the LTCH PPS for 

Federal FY 2007 were calculated using 

the March 2006 update of FY 2005 

MedPAR data and Version 24.0 of the 

GROUPER software (71 FR 47973). We 

use total days and total charges in the 

calculation of the LTC–DRG relative 

weights. 

LTCHs often specialize in certain 

areas, such as ventilator-dependent 

patients and rehabilitation or wound 

care. Some case types (DRGs) may be 

treated, to a large extent, in hospitals 

that have (from a perspective of charges) 

relatively high (or low) charges. 

Distribution of cases with relatively 

high (or low) charges in specific LTC–

DRGs has the potential to 

inappropriately distort the measure of 

average charges. To account for the fact 

that cases may not be randomly 

distributed across LTCHs, we use a 

hospital-specific relative value method 

to calculate relative weights. We believe 

this method removes this hospitalspecific source of bias in measuring 

average charges. Specifically, we reduce 

the impact of the variation in charges 

across providers on any particular LTC–

DRG relative weight by converting each 

LTCH’s charge for a case to a relative 

value based on that LTCH’s average 

charge. (See the FY 2007 IPPS final rule 

for further information on the 

application of the hospital-specific 

relative value methodology under the 

LTCH PPS (71 FR 47974 through 

47975).) 

To account for LTC–DRGs with low 

volume (that is, with fewer than 25 

LTCH cases), we grouped those low 

volume LTC–DRGs into 1 of 5 categories 

(quintiles) based on average charges, for 

the purposes of determining relative 

weights. For FY 2007 based on the FY 

2005 MedPAR data, we identified 180 

LTC–DRGs that contained between 1 

and 24 cases. This list of low volume 

LTC–DRGs was then divided into 1 of 

the 5 low volume quintiles, each 

containing 36 LTC–DRGs (180 / 5 = 36). 

Each of the low volume LTC–DRGs 

grouped to a specific quintile received 

the same relative weight and ALOS 

using the formula applied to the regular 

LTC–DRGs (25 or more cases). (See the 

FY 2007 IPPS final rule for further 

explanation of the development and 

composition of each of the 5 low 

volume quintiles for FY 2007 (71 FR 

47975 through 47978).) 

After grouping the cases in the 

appropriate LTC–DRG, we calculated 

the relative weights by first removing 

statistical outliers and cases with a LOS 

of 7 days or less. Next, we adjusted the 

number of cases remaining in each 

LTC–DRG for the effect of SSO cases 

under § 412.529. The short-stay adjusted 

discharges and corresponding charges 

were used to calculate ‘‘relative adjusted 

weights’’ in each LTC–DRG using the 

hospital-specific relative value method. 

We also adjusted the LTC–DRG relative 

weights to account for 

nonmonotonically increasing relative 

weights. That is, we made an 

adjustment if cases classified to the 

LTC–DRG ‘‘with CCs’’ of a ‘‘with CC’’/ 

‘‘without CC’’ pair had a lower average 

charge than the corresponding LTC–

DRG ‘‘without CCs’’ by assigning the 

same weight to both LTC–DRGs in the 

‘‘with CC’’/‘‘without CC’’ pair. (See the 

FY 2007 IPPS final rule for further 

details on the steps for calculating the 

LTC–DRG relative weights (71 FR 47978 

through 47984).) 

In addition, of the 538 LTC–DRGs in 

the LTCH PPS for FY 2007, based on 

LTCH cases in the FY 2005 MedPAR 

files, we identified 183 LTC–DRGs for 

which there were no LTCH cases in the 


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database. That is, no patients who 

would have been classified to those 

DRGs were treated in LTCHs during FY 

2005 and, therefore, no charge data were 

reported for those DRGs. Thus, in the 

process of determining the relative 

weights of LTC–DRGs, we were unable 

to determine weights for these 183 LTC–

DRGs using the method described in 

this section of the preamble. However, 

since patients with a number of the 

diagnoses under these LTC–DRGs may 

be treated at LTCHs beginning in FY 

2007, we assigned relative weights to 

each of the 183 ‘‘no volume’’ LTC–DRGs 

based on clinical similarity and relative 

costliness to one of the remaining 355 

(538¥183 = 355) LTC–DRGs for which 

we were able to determine relative 

weights, based on the FY 2005 claims 

data. (A list of the current no-volume 

LTC–DRGs and further explanation of 

their FY 2007 relative weight 

assignment can be found in the FY 2007 

IPPS final rule (71 FR 47980 through 

47984).) 

Furthermore, for FY 2007, we 

established LTC–DRG relative weights 

of 0.0000 for heart, kidney, liver/ 

intestinal, lung, simultaneous pancreas/ 

kidney, and pancreas transplants (LTC–

DRGs 103, 302, 480, 495, 512 and 513, 

respectively) because presently no 

LTCH meets the applicable 

requirements to perform Medicare 

covered transplant procedures. 

However, if in the future, a LTCH seeks 

to meet such requirements as a 

Medicare-approved transplant center to 

perform Medicare-covered transplant 

procedures, we believe that the 

application and approval procedure 

would allow sufficient time for us to 

propose appropriate weights for the 

LTC–DRGs affected. At the present time, 

we included these 6 transplant LTC–

DRGs in the GROUPER software 

program for administrative purposes. As 

the LTCH PPS uses the same GROUPER 

software program for LTCHs as is used 

under the IPPS, removing these DRGs 

would be administratively burdensome. 

As we noted previously in this 

proposed rule, there were no new ICD–

9–CM code requests for an April 1, 2007 

update. Therefore, Version 24.0 of the 

DRG GROUPER software established in 

the FY 2007 IPPS final rule will 

continue to be effective until October 1, 

2007. Moreover, the LTC–DRGs and 

relative weights for FY 2007 established 

in Table 11 of that same IPPS final rule 

(71 FR 48321 through 48331) will 

continue to be effective until October 1, 

2007, (just as they would have been 

even if there had been any new ICD–9–

CM code requests for an April 1, 2007 

update). Accordingly, Table 3 in 

Addendum A to this proposed rule lists 

the LTC–DRGs and their respective 

relative weights, geometric ALOS, and 

five-sixths of the geometric ALOS that 

we will continue to use for the period 

of July 1, 2007 through September 30, 

2007. (This table is the same as Table 11 

of the Addendum to the FY 2007 IPPS 

final rule.) The next update to the ICD–

9–CM coding system will be presented 

in the FY 2008 IPPS proposed rule 

(since there will be no April 1, 2007 

updates to the ICD–9–CM coding 

system). In addition, the proposed DRGs 

and GROUPER for FY 2008 that would 

be used for the IPPS and the LTCH PPS, 

effective October 1, 2007, will be 

presented in the IPPS FY 2008 proposed 

rule that will be published in the 

Federal Register. 

IV. Proposed Changes to the LTCH PPS 

Payment Rates for the 2008 LTCH PPS 

Rate Year 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘PROPOSED CHANGES TO 

LTCH PPS PAYMENT RATES FOR THE 

2007 LTCH PPS RATE YEAR’’ at the 

beginning of your comments.] 

A. Overview of the Development of the 

Payment Rates 

The LTCH PPS was effective for a 

LTCH’s first cost reporting period 

beginning on or after October 1, 2002. 

Effective with that cost reporting period, 

LTCHs are paid, during a 5-year 

transition period, a total LTCH 

prospective payment that is comprised 

of an increasing proportion of the LTCH 

PPS Federal rate and a decreasing 

proportion based on reasonable costbased principles, unless the hospital 

makes a one-time election to receive 

payment based on 100 percent of the 

Federal rate as specified in § 412.533. 

New LTCHs (as defined at 

§ 412.23(e)(4)) are paid based on 100 

percent of the Federal rate, with no 

phase-in transition payments. 

The basic methodology for 

determining LTCH PPS Federal 

prospective payment rates is set forth at 

§ 412.515 through § 412.532. In this 

section, we discuss the proposed factors 

that would be used to update the LTCH 

PPS standard Federal rate for the 2008 

LTCH PPS rate year that would be 

effective for LTCH discharges occurring 

on or after July 1, 2007 through June 30, 

2008. When we implemented the LTCH 

PPS in the August 30, 2002 LTCH PPS 

final rule (67 FR 56029 through 56031), 

we computed the LTCH PPS standard 

Federal payment rate for FY 2003 by 

updating the best latest available (FY 

1998 or FY 1999) Medicare inpatient 

operating and capital cost data, using 

the excluded hospital market basket. 

Section 123(a)(1) of the BBRA 

requires that the PPS developed for 

LTCHs be budget neutral for the initial 

year of implementation. Therefore, in 

calculating the standard Federal rate 

under § 412.523(d)(2), we set total 

estimated LTCH PPS payments equal to 

estimated payments that would have 

been made under the reasonable costbased payment methodology had the 

PPS for LTCHs not been implemented. 

Section 307(a) of the BIPA specified that 

the increases to the hospital-specific 

target amounts and the cap on the target 

amounts for LTCHs for FY 2002 

provided for by section 307(a)(1) of the 

BIPA shall not be considered in the 

development and implementation of the 

LTCH PPS. 

Furthermore, as specified at 

§ 412.523(d)(1), the standard Federal 

rate is reduced by an adjustment factor 

to account for the estimated proportion 

of outlier payments under the LTCH 

PPS to total estimated LTCH PPS 

payments (8 percent). For further details 

on the development of the FY 2003 

standard Federal rate, see the August 30, 

2002 LTCH PPS final rule (67 FR 56027 

through 56037), and for subsequent 

updates to the LTCH PPS Federal rate, 

refer to the following final rules: RY 

2004 LTCH PPS final rule (68 FR 34134 

through 34140), RY 2005 LTCH PPS 

final rule (69 FR 25682 through 25684), 

RY 2006 LTCH PPS final rule (70 FR 

24179 through 24180), and RY 2007 

LTCH PPS final rule (71 FR 27819 

through 27827). 

B. LTCH PPS Market Basket 

1. Overview of the RPL Market Basket 

Historically, the Medicare program 

has used a market basket to account for 

price increases of the services furnished 

by providers. The market basket used 

for the LTCH PPS includes both 

operating and capital-related costs of 

LTCHs because the LTCH PPS uses a 

single payment rate for both operating 

and capital-related costs. The 

development of the LTCH PPS standard 

Federal rate, using the excluded 

hospital with capital market basket, is 

discussed in further detail in the August 

30, 2002 LTCH PPS final rule (67 FR 

56027 through 56033). 

In the August 30, 2002 final rule (67 

FR 56016 through 56017 and 56030), 

which implemented the LTCH PPS, we 

established the use of the excluded 

hospital with capital market basket as 

the LTCH PPS market basket. The 

excluded hospital with capital market 

basket was also used to update the 

limits on LTCHs’ operating costs for 

inflation under the TEFRA reasonable 

cost-based payment system. We 


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explained that we believe the use of the 

excluded hospital with capital market 

basket to update LTCHs’ costs for 

inflation was appropriate because the 

excluded hospital market basket (with a 

capital component) measures price 

increases of the services furnished by 

excluded hospitals, including LTCHs. 

For further details on the development 

of the excluded hospital with capital 

market basket, see the RY 2004 LTCH 

PPS final rule (68 FR 34134 through 

34137). 

In the RY 2007 LTCH PPS final rule 

(71 FR 27810), we noted that based on 

our research, we did not develop a 

market basket specific to LTCH services. 

We are still unable to create a separate 

market basket specifically for LTCHs 

due to the small number of facilities and 

the limited amount of data that is 

reported (for instance, only 

approximately 15 percent of LTCHs 

reported contract labor cost data for 

2002). In that same final rule, under the 

broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

we adopted the ‘‘Rehabilitation, 

Psychiatric and Long-Term Care (RPL) 

market basket’’ as the appropriate 

market basket of goods and services 

under the LTCH PPS for discharges 

occurring on or after July 1, 2006. 

Specifically, beginning with the 2007 

LTCH PPS rate year, for the LTCH PPS, 

we adopted the use of the RPL market 

basket based on FY 2002 cost report 

data as it was the best available data. We 

choose to use the FY 2002 Medicare cost 

reports because these are the most 

recent, relatively complete cost data for 

inpatient rehabilitation facilities (IRFs), 

inpatient psychiatric facilities (IPF), and 

LTCHs. 

The RPL market basket is determined 

based on the operating and capital costs 

of IRFs, IPFs and LTCHs. Since all IRFs 

are now paid under the IRF PPS Federal 

payment rate, nearly all LTCHs are paid 

100 percent of the Federal rate under 

the LTCH PPS, and most IPFs are 

transitioning to payment based on 100 

percent of the Federal per diem 

payment amount under the IPF PPS 

(payments to IPFs will be based 

exclusively on 100 percent of the 

Federal rate for cost reporting periods 

beginning on or after January 1, 2008), 

the RPL market basket reflects changes 

in the operating and capital costs for 

these hospitals. As we explained in that 

same final rule, we believe a market 

basket based on the data of IRFs, IPFs 

and LTCHs is appropriate to use under 

the LTCH PPS since it is the best 

available data that reflects the cost 

structures of LTCHs. 

For further details on the 

development of the RPL market basket, 

including the methodology for 

determining the operating and capital 

portions of the RPL market basket, see 

the RY 2007 LTCH PPS final rule (71 FR 

27810 through 27817). 

2. Proposed Market Basket Estimate for 

the 2008 LTCH PPS Rate Year 

Consistent with our historical 

practice, we estimate market basket 

increase based on Global Insight’s 

forecast using the most recent available 

data. The most recent estimate of the 

RPL market basket for July 1, 2007 

through June 30, 2008 (the 2008 LTCH 

PPS rate year), based on Global Insight’s 

3rd quarter 2006 forecast with history 

through the 2nd quarter of 2006, is 3.2 

percent. Global Insight, Inc. is a 

nationally recognized economic and 

financial forecasting firm that contracts 

with CMS to forecast changes in the 

components of the market baskets. 

Consistent with our historical practice 

of using market basket estimates based 

on the most recent available data, we 

propose that if more recent data is 

available when we develop the final 

rule, we would use such data, if 

appropriate. 

As discussed in greater detail in this 

section, for the 2008 LTCH PPS rate 

year, we are proposing to update the 

standard Federal rate by 0.71 percent. 

The proposed update reflects an 

adjustment based on the most recent 

market basket estimate (currently 3.2 

percent) and an adjustment to account 

for the increase in case-mix in the prior 

period (FY 2005) that resulted from 

changes in coding practices rather than 

an increase in patient severity. We are 

also proposing that if more recent data 

are available (for example, a more recent 

estimate of the market basket), we 

would use such data, if appropriate, to 

determine the RY 2008 update in the 

final rule and thus, the rate update 

noted in regulation text could change. 

C. Proposed Standard Federal Rate for 

the 2008 LTCH PPS Rate Year 

1. Background 

At § 412.523(c)(3)(ii), for LTCH PPS 

rate years beginning RY 2004 through 

RY 2006, we updated the standard 

Federal rate to adjust for the most recent 

estimate of the projected increases in 

prices for LTCH inpatient hospital 

services. We established the policy of 

annually updating the standard Federal 

rate by the increase factor described in 

the RY 2004 LTCH PPS final rule (68 FR 

34138) because at that time we believed 

that was the most appropriate method 

for updating the LTCH PPS standard 

Federal rate annually for years after FY 

2003. When we moved the date of the 

annual update of the LTCH PPS from 

October 1 to July 1 in the RY 2004 LTCH 

PPS final rule (68 FR 34138), we revised 

§ 412.523(c)(3) to specify that for LTCH 

PPS rate years beginning on or after July 

1, 2003, the annual update to the 

standard Federal rate for the LTCH PPS 

would be equal to the previous rate 

year’s Federal rate updated by the most 

recent estimate of increases in the 

appropriate market basket of goods and 

services included in covered inpatient 

LTCH services. We believed that was 

the most appropriate method for 

updating the LTCH PPS standard 

Federal rate annually for years after RY 

2004. In the RY 2007 LTCH PPS final 

rule (71 FR 27818), we established at 

§ 412.523(c)(3)(iii) that the update to the 

standard Federal rate for the 2007 LTCH 

PPS rate year is zero percent. As 

discussed in that same final rule, we 

explained that rather than solely using 

the most recent estimate of the LTCH 

PPS market basket as the basis of the 

update factor for the Federal rate for RY 

2007, we believed it was appropriate to 

adjust the rate to account for the 

changes in coding practices (rather than 

patient severity) as indicated by our 

ongoing monitoring activities. 

Accordingly, we established the 

LTCH PPS standard Federal rate, 

effective from July 1, 2006 through June 

30, 2007 (the 2007 LTCH PPS rate year), 

at $38,086.04 (71 FR 27818). 

Additionally, in the RY 2007 LTCH PPS 

proposed rule (71 FR 4742 through 

4747), we provided a description of a 

preliminary model of an update 

framework under the LTCH PPS. We 

received few comments on that update 

framework preliminary model. As 

discussed in the RY 2007 LTCH PPS 

final rule (71 FR 27818 through 27819 

and 27902 through 27906), although we 

did not propose to adopt an analytical 

update framework, we continued to 

solicit comments on the framework 

based on the preliminary model, using 

the best available data and concepts, 

and we may propose to adopt a 

framework at some time in the future. 

We continue to be interested in 

comments and suggestions on the 

preliminary model of an update 

framework under the LTCH PPS that 

was present in Appendix A of the RY 

2007 LTCH PPS final rule (71 FR 27902 

through 27906). 

In the discussion that follows, we 

explain how we developed the proposed 

standard Federal rate for the 2008 LTCH 

PPS rate year. Specifically, we explain 

our rationale, which is based on our 

ongoing monitoring activities, for 

proposing an annual update to the 


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standard Federal rate for RY 2008 that 

reflects an adjustment for the most 

recent market basket estimate and an 

adjustment to account for the increase 

in case-mix in a prior period (FY 2005) 

that resulted from changes in coding 

practices rather than an increase in 

patient severity. 

2. Proposed Update to the Standard 

Federal Rate for the 2008 LTCH PPS 

Rate Year 

Under § 412.523(c)(3)(ii), for RY 2004 

through RY 2006, the annual update to 

the LTCH PPS standard Federal rate was 

equal to the most recent estimate of 

increases in the prices of an appropriate 

market basket of goods and services 

included in covered inpatient LTCH 

services. As noted above in this section, 

in the RY 2007 LTCH PPS final rule, 

under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

BIPA to include appropriate 

adjustments in the establishment of the 

LTCH PPS, for discharges occurring on 

or after July 1, 2006 and on or before 

June 30, 2007 (RY 2007), we specified 

at § 412.523(c)(3)(iii) that the standard 

Federal rate from the previous year 

would be updated by a factor of zero 

percent. That is, the standard Federal 

rate for the 2007 LTCH PPS rate year 

remained the same as the standard 

Federal rate in effect during the 2006 

LTCH PPS rate year (July 1, 2005 

through June 30, 2006) (that is, 

$38,086.04). 

As discussed in greater detail in the 

RY 2007 LTCH PPS final rule (71 FR 

27819 through 27827), the update to the 

standard Federal rate for RY 2007 was 

determined based on the estimate of the 

LTCH PPS market basket and an 

analysis of LTCH case-mix, in 

conjunction with a review of LTCHs’

margins and our ongoing LTCH 

monitoring activities. Specifically, from 

our CMI analysis, we calculated the 

observed CMI increase between FY 2003 

and FY 2004 (6.75 percent) and 

determined that a significant portion of 

the 6.75 percent increase in CMI 

between FY 2003 and FY 2004 is due to 

changes in coding practices, which we 

define as ‘‘apparent’’ increase in casemix, rather than the treatment of more 

resource intensive patients. We also 

noted that the large observed increase in 

LTCH case-mix was not accompanied by 

a corresponding increase in Medicare 

costs. Finally, we noted in the RY 2007 

LTCH PPS final rule (71 FR 27826 

through 27827) that although the most 

recent update of the market basket 

discussed in that final rule is 0.2 

percent lower than the estimate of the 

market basket discussed in the RY 2007 

LTCH PPS proposed rule, we believed 

that finalizing a zero percent update to 

the Federal rate for RY 2007 was 

appropriate for several reasons. First, we 

did not believe that there was a 

significant difference between the most 

recent estimates of the market basket for 

RY 2007 (3.4 percent) and the estimate 

used in the RY 2007 LTCH PPS 

proposed rule (3.6 percent). 

Furthermore, there could be some 

minimal variation in how much of the 

observed case-mix increase represents 

real case-mix changes. Finally, because 

the proposed update for RY 2007 at 

§ 412.523(c)(3)(iii) explicitly specified 

that the RY 2007 standard Federal rate 

would be the previous LTCH PPS rate 

year updated by an update factor of zero 

percent, we believe some commenters 

may not have been aware that the final 

update for RY 2007 could have been 

different than (that is, greater than or 

less than) zero percent. Thus, we 

believed that the best approach was to 

adopt an update factor of zero percent 

in the final rule for RY 2007, which 

reflected both the market basket 

estimate and an adjustment to account 

for the increase in case-mix in a prior 

period (FY 2004) that resulted from 

changes in coding practices rather than 

an increase in patient severity. In that 

same final rule (71 FR 27821), we stated 

that the revision to § 412.523(c)(3) only 

addressed an update to the LTCH PPS 

Federal rate for the 2007 LTCH PPS rate 

year (§ 412.523(c)(3)(iii)), and that we 

would propose future revisions to 

§ 412.523(c)(3) to address future 

proposed updates to the LTCH PPS 

Federal rates in future rate years based 

on an analysis of the most recent 

available LTCH data. 

In determining the proposed update 

to the standard Federal rate for the 2008 

LTCH PPS rate year, we again 

performed a CMI analysis using the 

most recent available LTCH claims data 

and found the observed CMI increase 

between FY 2004 and FY 2005 to be 

3.49 percent. We believe that there is 

still some component of apparent CMI 

increase within the observed CMI 

increase of 3.49 percent that is due to 

coding practices rather than the 

treatment of more resource intensive 

patients (real CMI increase). Therefore, 

we believe it is appropriate to propose 

an adjustment to the market basket 

update for RY 2008 to account for the 

apparent CMI increase for a subsequent 

prior period (that is, CMI increase due 

to changes in coding practices during 

FY 2005). As discussed in detail in the 

RY 2007 LTCH PPS final rule (71 FR 

27819 through 27827), in determining 

the update to the LTCH PPS Federal rate 

for RY 2007, we used 2.75 percent as the 

proxy for ‘‘real’’ CMI change during RY 

2004. We noted in that same final rule 

(71 FR 27822) that we were aware of a 

well-established RAND Corporation 

(RAND) study [‘‘Has DRG Creep Crept 

Up? Decomposing the Case-Mix Index 

Change Between 1987 and 1988’’ by G. 

M. Carter, J. P. Newhouse, and D. A. 

Relles, R–4098–HCFA/ProPAC (1991)]. 

Based upon such study, we determined 

that real case-mix change for IPPS 

hospitals was a fairly steady 1.0 and 1.4 

percent per year. We also noted that in 

updating IPPS rates, we have 

consistently assumed that real case-mix 

change was between 1.0 to 1.4 percent 

per year, which is a more conservative 

estimate of real case-mix increase than 

the 2.75 percent used in determining the 

update to the Federal rate for RY 2007 

(71 FR 27822). However, we explained 

that we believed at the time it was 

appropriate to utilize the estimate of 

2.75 percent as a proxy for real CMI 

increase in determining the update for 

RY 2007 rather than the estimates based 

on the RAND study (71 FR 27819 

through 27827). We believe it is 

appropriate to factor the impact of 

moving from a reasonable cost-based 

(TEFRA) payment system to a PPS into 

our CMI analysis for RY 2007. In 

determining the update for RY 2007, we 

measured the observed CMI increase 

from FY 2003 (the year LTCHs began 

transitioning to PPS payments from 

reasonable cost-based payments) to FY 

2004 (the first full year after 

implementation of the LTCH PPS). 

Under the reasonable cost-based 

payment system, there was little 

incentive for LTCHs to attempt to 

influence payments through changes in 

coding practices. Under the former 

reasonable cost-based payment system, 

a LTCH’s payments were limited on the 

costs per discharge of its patients in a 

base year updated. Since payment was 

based on the resource use of a particular 

mix of patients in the base year, there 

may have been reluctance on the part of 

LTCHs, in subsequent years, to accept 

more resource-intensive patients than 

those patients they treat in their base 

year. In contrast, under the LTCH PPS, 

payment is DRG-based. Payments are 

dependent on the DRG to which a 

patient is assigned as determined by the 

patient’s diagnosis. Therefore, a LTCH 

could treat higher severity patients with 

the expectation that payment will be 

determined based on the hospital case 

mix in the current year and without the 

concern, under the former payment 

system, that its costs for those more 

resource intensive patients would be 

limited by the cost per discharge limits 


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that were established by its patient mix 

in its base year. Immediately following 

the transition to the LTCH PPS, a LTCH 

could receive payment for treating 

patients with higher severity that 

require more intensive resources, which 

would have caused the LTCH to exceed 

its set limit under the TEFRA system. 

Therefore, we expected that in the first 

full year following implementation of 

the LTCH PPS, LTCHs would take 

advantage of this change and treat more 

severe patients. Accordingly, we believe 

that it is reasonable to assume that the 

real CMI increase in that first full year 

after implementation of the LTCH PPS 

would be somewhat higher than the 1.0 

to 1.4 percent annual increase. 

Thus, in the CMI analysis conducted 

for RY 2007 based on case mix data 

from FY 2003 to FY 2004, we used 2.75 

percent as the proxy for the real CMI 

increase component of the total 6.75 

percent observed CMI increase. (For a 

more detailed discussion on the 2.75 

percent proxy for real CMI increase, 

refer to the RY 2007 LTCH PPS final 

rule (71 FR 27819 through 27827).) 

Consequently for RY 2007, by 

removing the real CMI increase 

component (2.75 percent) from the 

observed CMI increase (6.75 percent), 

the apparent CMI increase from FY 2003 

to FY 2004 was estimated to be 4.0 

percent (6.75¥2.75 = 4.0). The rate for 

RY 2007 was offset by 3.4 percent to 

account for the changes in coding 

practices that do not reflect increased 

severity of LTCH patients (which 

accounts for the fact that we have 

already included a 0.34 percent 

behavioral offset in establishing the 

initial LTCH PPS Federal rate). For 

further information on the update to the 

Federal rate for RY 2007, see the RY 

2007 final rule (71 FR 27819 through 

27827). 

For this proposed rule, the CMI 

analysis performed in determining the 

proposed Federal rate update for RY 

2008 is based on the observed CMI 

increase from FY 2004 to FY 2005 (the 

first and second full years of the LTCH 

PPS, respectively). We believe that as 

the LTCH PPS matured and LTCHs have 

become more familiar with the DRGbased payment system, it is more 

appropriate to utilize the estimate of 

real case-mix increase (1.0 percent to 1.4 

percent) based on the RAND study that 

is typically found in acute care hospitals 

under the IPPS. Furthermore, an 

analysis of the most recent available 

LTCH claims data shows a steady 

decrease in the observed CMI from year 

to year since FY 2003 (the observed CMI 

change between FY 2003 and FY 2004 

is 6.75 percent, between FY 2004 and 

FY 2005 is 3.49 percent, and between 

FY 2005 and FY 2006 is estimated to be 

1.9 percent), which suggests that both 

apparent and real components of CMI 

are decreasing as the LTCH PPS 

matures. Given the estimated 1.9 

percent observed CMI increase for FY 

2006, it appears that it is inappropriate 

to assume a constant annual real case 

mix of 2.75 percent. 

Therefore, for periods beyond the first 

full year of the LTCH PPS, we believe 

it is no longer appropriate to use such 

a generous estimate of real CMI. (Many 

LTCHs have cost reporting periods 

beginning in August and thus were not 

paid under the LTCH PPS until August 

2003. For those hospitals, the first full 

year of the LTCH PPS was during FY 

2004.) While the well-established ‘‘real’’

case-mix parameters based on the RAND 

study are based on IPPS data, we believe 

they are appropriate to apply under the 

LTCH PPS for the reasons explained 

below in this section. However, we are 

soliciting comments on other data 

sources that could be used to determine 

a proxy for real LTCH PPS case-mix 

change other than the 1.0 to 1.4 percent 

per year case-mix parameters based on 

the RAND study. As we have discussed 

numerous times in previous LTCH PPS 

proposed and final rules, acute care 

hospitals paid under the IPPS and 

LTCHs paid under the LTCH PPS have 

much in common. Hospitals paid under 

both systems are required to meet the 

same certification criteria set forth in 

section 1861(e) of the Act to participate 

as a hospital in the Medicare program. 

LTCHs are certified as acute care 

hospitals but are classified as LTCHs for 

payment purposes solely because such 

hospitals generally have an inpatient 

ALOS of greater than 25 days (as set 

forth in section 1886(d)(1)(B)(iv)(I) of 

the Act). Furthermore, the LTCH PPS 

uses the same patient classification 

system that is used under the IPPS, and 

several LTCH PPS payment policies, 

such as the area wage adjustment 

(§ 412.525(c)), COLA for Alaska and 

Hawaii (§ 412.525(b)), and high cost 

outlier (HCO) policy (§ 412.525(a)) are 

modeled after the similar IPPS policies. 

Therefore, we believe it is appropriate 

to propose utilizing the estimate of real 

CMI increase based on the RAND study 

of 1.0 percent as the proxy for the 

portion of the observed 3.49 percent 

CMI increase from FY 2004 to FY 2005 

that represents real CMI changes for use 

in determining the proposed RY 2008 

Federal rate update. We propose to use 

the more conservative 1.0 percent 

(rather than the 1.4 percent) as a proxy 

for real CMI increase because it is 

consistent with what is used under the 

IPPS and we believe the similarities 

between LTCHs and acute care hospitals 

are significant as we explained 

previously. (For a more detailed 

discussion on the 1.0 percent for real 

CMI increase utilized in the IPPS, see 

the FY 2007 IPPS final rule (71 FR 

48156 through 48158), and the FY 1994 

IPPS proposed rule (58 FR 30444).) 

Accordingly, since the observed CMI 

change for FY 2005 is estimated at 3.49 

percent (based on the most recent 

available LTCH case-mix data from FY 

2004 compared to FY 2005), accounting 

for the real CMI change of 1.0 percent, 

we believe that 2.49 percent (3.49 ¥ 1.0 

= 2.49) of that increase reflects CMI 

increase that is due to changes in coding 

practices (rather than patient severity). 

As we discussed in greater detail in 

the RY 2007 LTCH PPS final rule (71 FR 

27819 through 27827), while we 

continue to believe that an update to the 

LTCH PPS Federal rate year should be 

based on the most recent estimate of the 

LTCH PPS market basket, we believe it 

appropriate that the rate be offset by an 

adjustment to account for changes in 

coding practices that do not reflect 

increased patient severity. Such an 

adjustment protects the integrity of the 

Medicare Trust Funds by ensuring that 

the LTCH PPS payment rates better 

reflect the true costs of treating LTCH 

patients (71 FR 27798 through 27820). 

Therefore, in determining the proposed 

RY 2008 update to the LTCH PPS 

Federal rate, we believe it is appropriate 

to apply an adjustment to eliminate the 

effect of coding or classification changes 

in a prior period (FY 2005) that do not 

reflect real changes in LTCHs’ case-mix. 

Specifically, the proposed case-mix 

adjustment in determining the proposed 

RY 2008 Federal rate is meant to reduce 

current payments to account for the 

increase in payments in FY 2005 that 

resulted from the CMI increase that was 

attributable to the apparent case-mix 

increase in that year. As was the case 

when we determined the RY 2007 

update factor, this adjustment would be 

necessary to account for payments that 

were made based on improved coding 

(rather than increased patient severity) 

in prior years. Therefore, in this 

proposed rule, under the broad 

authority conferred upon the Secretary 

by section 123 of the BBRA as amended 

by section 307(b) of the BIPA to include 

appropriate adjustments, including 

updates, in the establishment of the 

LTCH PPS, we are proposing to revise 

§ 412.523(c)(3), to specify that, for 

discharges occurring on or after July 1, 

2007 and on or before June 30, 2008, the 

standard Federal rate from the previous 

year would be updated by 0.71 percent, 

which is based on the most recent 

market basket estimate (3.2 percent) 


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adjusted by the apparent CMI (2.49 

percent) due to changes in coding 

practice rather than an increase in 

patient severity. As explained above in 

this section, the proposed update factor 

for RY 2008 is based on the most recent 

estimate of the LTCH PPS market basket 

offset by an adjustment to account for 

changes in case-mix in prior periods 

due to changes in coding practices 

rather than increased patient severity. 

We note that the proposed update factor 

of 0.71 percent is higher than the zero 

percent update recommended by the 

MedPAC for RY 2008 (MedPAC Public 

Meeting, January 9, 2007, Meeting 

Transcript pp. 225–226). We are 

soliciting comments on a possible zero 

percent update to the standard Federal 

rate for RY 2008. 

Furthermore, since we are proposing 

to use the most recent estimates of the 

market basket and CMI increase in the 

prior period (FY 2005) for calculating 

the update factor to the LTCH PPS 

Federal rate, we note that at the time the 

analysis must be performed for the final 

rule, we will consider comments 

received on this proposed rule and 

would also use the most recent 

estimates available at that time, if 

appropriate, which may be different 

from the data we are using in this 

proposed rule. Therefore, the proposed 

update factor applied to the standard 

Federal rate may change in the final 

rule. Consequently, the update factor in 

the regulation text would change 

accordingly. 

At this time, the most recent estimate 

of the LTCH PPS market basket is 3.2 

percent, and the most recent estimate of 

apparent CMI increase in the prior 

period (FY 2005), that is, case-mix 

increase due to changes in coding 

practices, is 2.49 percent. Therefore, we 

are proposing that the RY 2008 update 

factor to the LTCH PPS Federal rate 

would be an estimated 0.71 percent (3.2 

¥ 2.49 = 0.71), which reflects the 

proposed adjustment to the most recent 

market basket estimate and accounts for 

the increase in case-mix in the prior 

period that resulted from changes in 

coding practices rather than an increase 

in patient severity. Accordingly, under 

the same broad authority conferred 

upon the Secretary under the BBRA and 

the BIPA referenced above in this 

section, we are proposing to specify 

under § 412.523(c)(3)(iv), that, for 

discharges occurring on or after July 1, 

2007 and on or before June 30, 2008, the 

standard Federal rate from the previous 

year would be updated by 0.71 percent, 

determined based on an adjustment to 

the most recent estimate of the market 

basket to account for case-mix increase 

in the prior period (FY 2005) that is due 

to changes in coding practices rather 

than patient severity. 

3. Proposed Standard Federal Rate for 

the 2008 LTCH PPS Rate Year 

In the RY 2007 LTCH PPS final rule 

(71 FR 27827), we established a 

standard Federal rate of $38,086.04 for 

the 2007 LTCH PPS rate year that was 

based on the best available data and 

policies established in that final rule. In 

this proposed rule, under the broad 

authority conferred upon the Secretary 

by section 123 of the BBRA as amended 

by section 307(b) of the BIPA, we are 

proposing an annual update to the 

standard Federal rate for RY 2008 that 

reflects an adjustment for the most 

recent market basket estimate and an 

adjustment to account for the increase 

in case-mix in a prior period (FY 2005) 

that resulted from changes in coding 

practices rather than an increase in 

patient severity. Therefore, based on the 

proposed update factor for RY 2008 of 

0.71 percent, the proposed standard 

Federal rate for RY 2008 would be 

$38,356.45. Since the proposed standard 

Federal rate for the 2008 LTCH PPS rate 

year has already been adjusted for 

differences in case-mix, wages, COLAs, 

and HCO payments, we are not 

proposing to make any additional 

adjustments in the proposed standard 

Federal rate for these factors. Finally, 

we propose that if more recent data 

becomes available, we would use that 

data, if appropriate, to determine the 

update to the standard Federal rate for 

the RY 2008 final rule. 

D. Calculation of Proposed LTCH 

Prospective Payments for the 2008 

LTCH PPS Rate Year 

The basic methodology for 

determining prospective payment rates 

for LTCH inpatient operating and 

capital-related costs is set forth in 

§ 412.515 through § 412.532. In 

accordance with § 412.515, we assign 

appropriate weighting factors to each 

LTC–DRG to reflect the estimated 

relative cost of hospital resources used 

for discharges within that group as 

compared to discharges classified 

within other groups. The amount of the 

prospective payment is based on the 

standard Federal rate, established under 

§ 412.523, and adjusted for the LTC–

DRG relative weights, differences in area 

wage levels, COLA in Alaska and 

Hawaii, HCOs, and other special 

payment provisions (SSOs under 

§ 412.529 and interrupted stays under 

§ 412.531). 

In accordance with § 412.533, during 

the 5-year transition period, which is 

currently in its final year for LTCH cost 

reporting periods beginning on or after 

October 1, 2006 (FY 2007), a total LTCH 

PPS payment was based on the 

applicable transition blend percentage 

of the adjusted Federal rate and a 

percentage based on reasonable cost 

principles unless the LTCH made a onetime election to receive payment based 

on 100 percent of the Federal rate. In the 

final year of the 5-year transition period, 

which begins with LTCH cost reporting 

periods beginning on or after October 1, 

2006, as specified at § 412.533, a total 

LTCH PPS payment is based on 100 

percent of the Federal rate. A LTCH 

defined as ‘‘new’’ under § 412.23(e)(4) is 

paid based on 100 percent of the Federal 

rate with no blended transition 

payments as specified in § 412.533(d). 

As discussed in the August 30, 2002 

LTCH PPS final rule (67 FR 56038), the 

applicable transition blends are set forth 

in § 412.533(a). 

Accordingly, for cost reporting 

periods that began during FY 2006 (that 

is, on or after October 1, 2005 and on 

or before September 30, 2006), blended 

payments under the transition 

methodology are based on 20 percent of 

the LTCH’s rate based on reasonable 

cost principles and 80 percent of the 

adjusted LTCH PPS Federal rate. For 

cost reporting periods beginning on or 

after October 1, 2006 (FY 2007), 

Medicare payment to LTCHs are 

determined entirely (100 percent) under 

the LTCH PPS Federal rate. 

1. Proposed Adjustment for Area Wage 

Levels 

a. Background 

Under the authority of section 123 of 

the BBRA as amended by section 307(b) 

of the BIPA, we established an 

adjustment to the LTCH PPS Federal 

rate to account for differences in LTCH 

area wage levels at § 412.525(c). The 

labor-related share of the LTCH PPS 

Federal rate, currently estimated by the 

FY 2002-based RPL market basket (as 

discussed in greater detail in section 

IV.D.1.c. of this preamble), is adjusted to 

account for geographic differences in 

area wage levels by applying the 

applicable LTCH PPS wage index. The 

applicable LTCH PPS wage index is 

computed using wage data from 

inpatient acute care hospitals without 

regard to reclassification under sections 

1886(d)(8) or 1886(d)(10) of the Act. 

Furthermore, as we discussed in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56015), we established a 5-year 

transition to the full wage adjustment. 

The applicable wage index phase-in 

percentages are based on the start of a 

LTCH’s cost reporting period as shown 

in Table 1. 


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TABLE 1 

Cost reporting periods 

beginning on or after 

Phase-in percentage 

of the full wage index 

October 1, 2002 ........ 1⁄5 (20 percent). 

October 1, 2003 ........ 2⁄5 (40 percent). 

October 1, 2004 ........ 3⁄5 (60 percent). 

October 1, 2005 ........ 4⁄5 (80 percent). 

October 1, 2006 ........ 5⁄5 (100 percent). 

For example, for cost reporting 

periods beginning on or after October 1, 

2005 and on or before September 30, 

2006 (FY 2006), the applicable LTCH 

wage index value is four-fifths of the 

applicable full LTCH PPS wage index 

value. The wage index adjustment will 

be completely phased-in beginning with 

cost reporting periods beginning in FY 

2007, that is, for cost reporting periods 

beginning on or after October 1, 2006, 

the applicable LTCH wage index value 

will be the full (five-fifths) LTCH PPS 

wage index value. Therefore, the 

majority of LTCHs are currently 

receiving either the four-fifths or full 

(five-fifths) LTCH PPS wage index 

value. As we established in the August 

30, 2002 LTCH PPS final rule (67 FR 

56018), the applicable full LTCH PPS 

wage index value is calculated from 

acute-care hospital inpatient wage index 

data without taking into account 

geographic reclassification under 

sections 1886(d)(8) and (d)(10) of the 

Act. 

b. Geographic Classifications/Labor 

Market Area Definitions 

As discussed in the August 30, 2002 

LTCH PPS final rule, which 

implemented the LTCH PPS (67 FR 

56015 through 56019), in establishing 

an adjustment for area wage levels 

under § 412.525(c), the labor-related 

portion of a LTCH’s Federal prospective 

payment is adjusted by using an 

appropriate wage index based on the 

labor market area in which the LTCH is 

located. In the 2006 LTCH PPS rate year 

final rule (70 FR 24184 through 24185), 

in § 412.525(c), we revised the labor 

market area definitions used under the 

LTCH PPS effective for discharges 

occurring on or after July 1, 2005 based 

on the Office of Management and 

Budget’s (OMB’s) Core Based Statistical 

Area (CBSA) designations based on 

2000 Census data because we believe 

that those new labor market area 

definitions will ensure that the LTCH 

PPS wage index adjustment most 

appropriately accounts for and reflects 

the relative hospital wage levels in the 

geographic area of the hospital as 

compared to the national average 

hospital wage level. As set forth in 

§ 412.525(c)(2), a LTCH’s wage index is 

determined based on the location of the 

LTCH in an urban or rural area as 

defined in § 412.64(b)(1)(ii)(A) through 

(C). An urban area under the LTCH PPS 

is defined at § 412.64(b)(1)(ii)(A) and 

(B). In general, an urban area is defined 

as a Metropolitan Statistical Area (MSA) 

as defined by the OMB. (In addition, a 

few counties located outside of MSAs 

are considered urban as specified at 

§ 412.64(b)(1)(ii)(B).) Under 

§ 412.64(b)(1)(ii)(C), a rural area is 

defined as any area outside of an urban 

area. 

We note that these are the same 

CBSA-based designations implemented 

for acute care inpatient hospitals under 

the IPPS at § 412.64(b) effective October 

1, 2004 (69 FR 49026 through 49034). 

For further discussion of the labor 

market area (geographic classification) 

definitions used under the LTCH PPS, 

see the 2006 LTCH PPS rate year final 

rule (70 FR 24182 through 24191). 

c. Proposed Labor-Related Share 

In the August 30, 2002 LTCH PPS 

final rule (67 FR 56016), we established 

a labor-related share of 72.885 percent 

based on the relative importance of the 

labor-related share of operating costs 

(wages and salaries, employee benefits, 

professional fees, postal services, and all 

other labor-intensive services) and 

capital costs of the excluded hospital 

with capital market basket based on FY 

1992 data. 

As we discussed in LTCH PPS final 

rules subsequent to the FY 2003 LTCH 

PPS final rule in which we established 

the original LTCH PPS labor-related 

share (68 FR 34142, 69 FR 25685 

through 25686, and 70 FR 24182), once 

our research into the labor-related share 

methodology was complete, we would 

update the IPPS and excluded hospital 

labor-related shares based on that 

research and the best available data if 

necessary. Accordingly, we conducted 

analysis of our labor share methodology, 

which was completed prior to the 

development of the RY 2007 LTCH PPS 

proposed and final rules. In the RY 2007 

LTCH PPS final rule (71 FR 27829), we 

updated the LTCH PPS labor-related 

share based on the FY 2002-based RPL 

market basket (discussed in section 

IV.B. of this preamble) because we 

believe that this market basket was 

developed based on the best available 

data that reflect the cost structures of 

LTCHs. 

Consistent with our historical 

practice, the labor-related share 

currently used under the LTCH PPS is 

determined by identifying the national 

average proportion of operating costs 

and capital costs that are related to, 

influenced by, or vary with the local 

labor market. Specifically, in the RY 

2007 LTCH PPS final rule (71 FR 27829 

through 27832), we revised the LTCH 

PPS labor-related share from 72.885 

percent (as established in the August 30, 

2002 final rule (67 FR 56016) based on 

the FY 1997-based excluded hospital 

with capital market basket) to 75.665 

percent based on the relative 

importance of the labor-related share of 

operating costs (wages and salaries, 

employee benefits, professional fees, 

and all other labor-intensive services) 

and capital costs of the proposed RPL 

market basket based on FY 2002 data 

from the first quarter of 2006. 

As discussed in section IV.B.2. of this 

preamble, we now have data from the 

3rd quarter of 2006 (with history 

through the 2nd quarter of 2006) 

available for determining the laborrelated share of the FY 2002-based RPL 

market basket. Based on this more 

recent data, in this proposed rule, under 

the broad authority conferred upon the 

Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

consistent with our historical practice of 

determining the labor-related share by 

identifying the national average 

proportion of operating costs and capital 

costs that are related to, influenced by, 

or varies with the local labor market, we 

are proposing to revise the LTCH PPS 

labor-related share from 75.665 percent 

to 75.511 percent based on the relative 

importance of the labor-related share of 

operating costs (wages and salaries, 

employee benefits, professional fees, 

and all other labor-intensive services) 

and capital costs of the FY 2002-based 

RPL market basket from the third 

quarter of 2006, as shown in Table 2. 

The labor-related share is 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. In this 

proposed rule, for RY 2008, we are 

proposing to use the FY 2002-based RPL 

market basket costs based on data from 

the 3rd quarter of 2006 to determine the 

labor-related share for the LTCH PPS 

effective for discharges occurring on or 

after July 1, 2007, as this is the most 

recent available data. The labor-related 

share for the 2008 LTCH PPS rate year 

would continue to be the sum of the 

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 2002) and the 2008 LTCH PPS rate 

year. Consistent with our historical 

practice of using the best data available, 

if more recent data are available to 

determine the labor-related share of the 

RPL market basket (used under the 


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Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4795 

LTCH PPS), we propose to use it for 

determining the labor-related share for 

the 2008 LTCH PPS rate year in the final 

rule. 

Based on the most recent available 

data, we are proposing that the sum of 

the relative importance for 2008 LTCH 

PPS rate year for operating costs (wages 

and salaries, employee benefits, 

professional fees, and labor-intensive 

services) would be 71.484, as shown in 

Table 2. The portion of capital that is 

influenced by the local labor market is 

still estimated to be 46 percent, which 

is the same percentage used when we 

established the current labor-related 

share in the RY 2007 LTCH PPS final 

rule. Since, based on the most recent 

available data, the relative importance 

for capital would be 8.754 percent of the 

FY 2002-based RPL market basket for 

the 2008 LTCH PPS rate year, we are 

proposing to multiply the estimated 

portion of capital influenced by the 

local labor market (46 percent) by the 

relative importance for capital (8.754 

percent) to determine the proposed 

labor-related share of capital for the 

2008 LTCH PPS rate year. The result 

would be 4.027 percent (0.46 × 8.754 

percent), which we would add to the 

proposed 71.484 percent for the 

operating cost amount to determine the 

proposed total labor-related share for 

the 2008 LTCH PPS rate year. Thus, 

based on the latest available data, we are 

proposing to use a labor-related share of 

75.511 percent (71.484 percent + 4.027 

percent) under the LTCH PPS for the 

2008 LTCH PPS rate year. As noted 

above in this section, this proposed 

labor-related share is determined using 

the same methodology as employed in 

calculating the current LTCH laborrelated share (71 FR 27830) and the 

labor-related shares used under the IRF 

PPS and IPF PPS, which also use the 

RPL market basket. 

Table 2 shows the 2007 LTCH PPS 

rate year relative importance laborrelated share of the FY 2002-based RPL 

market basket (established in the RY 

2007 LTCH PPS final rule) and the 

proposed 2008 LTCH PPS rate year 

relative importance labor-related share 

of the FY 2002-based RPL market 

basket. 

TABLE 2.—RY 2007 LABOR-RELATED SHARE RELATIVE IMPORTANCE AND PROPOSED RY 2008 LABOR-RELATED SHARE

RELATIVE IMPORTANCE OF THE FY 2002-BASED RPL MARKET BASKET

Cost category 

RY 2007 

relative 

importance *

Proposed RY 

2008 relative 

importance 

Wages and Salaries ................................................................................................................................................ 52.506 52.359 

Employee Benefits ................................................................................................................................................... 14.042 14.095 

Professional fees ..................................................................................................................................................... 2.886 2.899 

All other labor intensive services ............................................................................................................................. 2.152 2.131 

Subtotal ............................................................................................................................................................. 71.586 71.484 

Labor share of capital costs .................................................................................................................................... 4.079 4.027 

Total Labor-related share ................................................................................................................................. 75.665 75.511 

*As established in the RY 2007 LTCH PPS final rule (71 FR 27830). 

**Other labor intensive services includes landscaping services, services to buildings, detective and protective services, repair services, laundry 

services, advertising, auto parking and repairs, physical fitness facilities, and other government enterprises. 

d. Proposed Wage Index Data 

In the RY 2007 LTCH PPS final rule 

(71 FR 27830 through 27831), we 

established LTCH PPS wage index 

values for the 2007 LTCH PPS rate year 

calculated from the same data 

(generated in cost reporting periods 

beginning during FY 2002) used to 

compute the FY 2006 acute care 

hospital inpatient wage index data 

without taking into account geographic 

reclassification under sections 

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

because that was the best available data 

at that time. The LTCH wage index 

values applicable for discharges 

occurring on or after July 1, 2006 

through June 30, 2007 are shown in 

Table 1 (for urban areas) and Table 2 

(for rural areas) in the Addendum to the 

RY 2007 LTCH PPS final rule (71 FR 

27906 through 27930). Acute care 

hospital inpatient wage index data are 

also used to establish the wage index 

adjustment used in the IRF PPS, HHA 

PPS, and SNF PPS. As we discussed in 

the August 30, 2002 LTCH PPS final 

rule (67 FR 56019), since hospitals that 

are excluded from the IPPS are not 

required to provide wage-related 

information on the Medicare cost report 

and because we would need to establish 

instructions for the collection of this 

LTCH data to establish a geographic 

reclassification adjustment under the 

LTCH PPS, the wage adjustment 

established under the LTCH PPS is 

based on a LTCH’s actual location 

without regard to the urban or rural 

designation of any related or affiliated 

provider. 

In this proposed rule, under the broad 

authority conferred upon the Secretary 

by section 123 of the BBRA as amended 

by section 307(b) of BIPA to determine 

appropriate adjustments under the 

LTCH PPS, we are proposing that, for 

the 2008 LTCH PPS rate year, the same 

data (generated in cost reporting periods 

beginning during FY 2003) used to 

compute the FY 2007 acute care 

hospital inpatient wage index data 

without taking into account geographic 

reclassification under sections 

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

be used to determine the applicable 

wage index values under the LTCH PPS 

because these data (FY 2003) are the 

most recent complete data. We are 

proposing to continue to use IPPS wage 

data as a proxy to determine the 

proposed LTCH wage index values for 

the 2008 LTCH PPS rate year because 

both LTCHs and acute-care hospitals are 

required to meet the same certification 

criteria set forth in section 1861(e) of the 

Act to participate as a hospital in the 

Medicare program and they both 

compete in the same labor markets, and, 

therefore, experience similar wagerelated costs. These data are the same 

FY 2003 acute care hospital inpatient 

wage data that were used to compute 

the FY 2007 wage indices currently 

used under the IPPS, skilled nursing 

facility (SNF) PPS and home health 

agency (HHA) PPS. The proposed LTCH 

wage index values that would be 

applicable for discharges occurring on 

or after July 1, 2007 through June 30, 

2008, are shown in Table 1 (for urban 

areas) and Table 2 (for rural areas) in 

Addendum A to this proposed rule. 

As discussed in section IV.D.1.a. of 

this preamble, the applicable wage 

index phase-in percentages are based on 

the start of a LTCH’s cost reporting 


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period beginning on or after October 1st 

of each year during the 5-year transition 

period. Thus, cost reporting periods 

beginning on or after October 1, 2005 

and before October 1, 2006 (FY 2006), 

the labor-related portion of the standard 

Federal rate is adjusted by four-fifths of 

the applicable LTCH wage index value. 

The wage index adjustment will be 

completely phased-in beginning with 

cost reporting periods beginning in FY 

2007. That is, for cost reporting periods 

beginning on or after October 1, 2006, 

the labor-related portion of the standard 

Federal rate is adjusted by the full (fivefifths) applicable LTCH wage index 

value. 

Because the phase-in of the wage 

index does not coincide with the LTCH 

PPS rate year (July 1st through June 

30th), most LTCHs will experience a 

change in the wage index phase-in 

percentages during the LTCH PPS rate 

year. For example, during the 2008 

LTCH PPS rate year, for a LTCH with a 

September 1st fiscal year, the four-fifths 

wage index will be applicable for the 

first 2 months of the 2007 LTCH PPS 

rate year (July 1, 2007 through August 

31, 2007) and the full (five-fifths) wage 

index will be applicable for the next 10 

months of the 2008 LTCH PPS rate year 

(September 1, 2007 through June 30, 

2008). For the remainder of such a 

LTCH’s FY 2006 cost reporting periods, 

which coincides with the first 2 months 

of RY 2008, the applicable wage index 

value would be four-fifths of the full FY 

2007 acute-care hospital inpatient wage 

index data, without taking into account 

geographic reclassification under 

sections 1886(d)(8) and (d)(10) of the 

Act (as shown in Tables 1 and 2 in 

Addendum A to this proposed rule). 

Beginning with this LTCH’s FY 2007 

cost reporting period that will begin 

during RY 2008, the applicable wage 

index value would be the full (fivefifths) FY 2007 acute care hospital 

inpatient wage index data, without 

taking into account geographic 

reclassification under sections 

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

shown in Tables 1 and 2 in Addendum 

A to this proposed rule). We note that 

since there are no longer any LTCHs in 

their cost reporting periods that began 

during FY 2003 through FY 2005 (the 

first three years of the 5-year wage index 

phase-in), we are no longer showing the 

1/5th, 2/5ths and 3/5ths wage index 

values in Tables 1 and 2 in Addendum 

A to this proposed rule. 

2. Proposed Adjustment for Cost-ofLiving in Alaska and Hawaii 

In the August 30, 2002 final rule (67 

FR 56022), we established, under 

§ 412.525(b), a COLA for LTCHs located 

in Alaska and Hawaii to account for the 

higher costs incurred in those States. In 

the RY 2007 LTCH PPS final rule (71 FR 

27832), for the 2007 LTCH PPS rate 

year, we established a COLA to 

payments for LTCHs located in Alaska 

and Hawaii by multiplying the standard 

Federal payment rate by the appropriate 

factor listed in Table 8 of that same final 

rule. 

Similarly, in this proposed rule, 

under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

BIPA to determine appropriate 

adjustments under the LTCH PPS, for 

the 2008 LTCH PPS rate year we are 

proposing a COLA to payments to 

LTCHs located in Alaska and Hawaii by 

multiplying the proposed standard 

Federal payment rate by the proposed 

factors listed in Table 3 because these 

are currently the most recent available 

data. These proposed factors are 

obtained from the U.S. Office of 

Personnel Management (OPM) and are 

currently used under the IPPS. In 

addition, we propose that if OPM 

releases revised COLA factors before 

March 1, 2007, we would use them for 

the development of the payments for the 

2008 LTCH rate year and publish them 

in the LTCH PPS final rule. 

TABLE 3.—PROPOSED COST-OF-LIVING

ADJUSTMENT FACTORS FOR ALASKA

AND HAWAII HOSPITALS FOR THE

2008 LTCH PPS RATE YEAR

Alaska: 

All areas ........................................ 1 .25 

Hawaii: 

Honolulu County ........................... 1 .25 

Hawaii County ............................... 1 .165 

Kauai County ................................ 1 .2325 

Maui County .................................. 1 .2375 

Kalawao County ............................ 1 .2375 

3. Proposed Adjustment for High-Cost 

Outliers (HCOs) 

a. Background 

Under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

BIPA, in the regulations at § 412.525(a), 

we established an adjustment for 

additional payments for outlier cases 

that have extraordinarily high costs 

relative to the costs of most discharges. 

Providing additional payments for 

outliers strongly improves the accuracy 

of the LTCH PPS in determining 

resource costs at the patient and 

hospital level. These additional 

payments reduce the financial losses 

that would otherwise be incurred when 

treating patients who require more 

costly care and, therefore, reduce the 

incentives to underserve these patients. 

We set the outlier threshold before the 

beginning of the applicable rate year so 

that total estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. Outlier payments under the LTCH 

PPS are determined consistent with the 

IPPS outlier policy. 

Under § 412.525(a), we make outlier 

payments for any discharges if the 

estimated cost of a case exceeds the 

adjusted LTCH PPS payment for the 

LTC–DRG plus a fixed-loss amount. The 

fixed-loss amount is the amount used to 

limit the loss that a hospital will incur 

under the outlier policy for a case with 

unusually high costs. This results in 

Medicare and the LTCH sharing 

financial risk in the treatment of 

extraordinarily costly cases. Under the 

LTCH PPS HCO policy, the LTCH’s loss 

is limited to the fixed-loss amount and 

a fixed percentage of costs above the 

outlier threshold (LTCH DRG payment 

plus the fixed loss amount) determined 

by the marginal cost factor. We calculate 

the estimated cost of a case by 

multiplying the overall hospital cost-tocharge ratio (CCR) by the Medicare 

allowable covered charge. In accordance 

with § 412.525(a)(3), we pay outlier 

cases 80 percent of the difference 

between the estimated cost of the 

patient case and the outlier threshold 

(the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount). 

Under the LTCH PPS, we determine a 

fixed-loss amount, that is, the maximum 

loss that a LTCH can incur under the 

LTCH PPS for a case with unusually 

high costs before the LTCH will receive 

any additional payments. We calculate 

the fixed-loss amount by estimating 

aggregate payments with and without an 

outlier policy. The fixed-loss amount 

will result in estimated total outlier 

payments being projected to be equal to 

8 percent of projected total LTCH PPS 

payments. Currently, MedPAR claims 

data and CCRs based on data from the 

most recent provider specific file (PSF) 

(or to the applicable Statewide average 

CCR if a LTCH’s CCR data are faulty or 

unavailable) are used to establish a 

fixed-loss threshold amount under the 

LTCH PPS. 

b. Cost-to-Charge Ratios (CCRs) 

In determining outlier payments, we 

calculate the estimated cost of the case 

by multiplying the LTCH’s overall CCR 

by the Medicare allowable charges for 

the case. As we discussed in greater 

detail in the June 9, 2003 IPPS HCO 

final rule (68 FR 34506 through 34516), 

because the LTCH PPS HCO policy at 

§ 412.525 is modeled after the IPPS 


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outlier policy, we believed that it and 

the SSO policy at § 412.529 are 

susceptible to the same payment 

vulnerabilities that became evident 

under the IPPS and, therefore, merited 

revision. Thus, we revised the HCO 

policy at § 412.525(a) and the SSO 

policy at § 412.529 in that same final 

rule for the determination of LTCHs’

CCRs and the reconciliation of outlier 

payments. 

Under the LTCH PPS, a single 

prospective payment per discharge is 

made for both inpatient operating and 

capital-related costs, and, therefore, we 

compute a single ‘‘overall’’ or ‘‘total’’

CCR for LTCHs based on the sum of 

their operating and capital costs (as 

described in Chapter 3, section 150.24, 

of the Medicare Claims Processing 

Manual (CMS Pub. 100–4)) as compared 

to total charges. Specifically, a LTCH’s 

CCR is calculated by dividing a LTCH’s 

total Medicare costs (that is, the sum of 

its operating and capital inpatient 

routine and ancillary costs) by its total 

Medicare charges (that is, the sum of its 

operating and capital inpatient routine 

and ancillary charges). (Instructions 

regarding the changes established in the 

June 9, 2003 IPPS HCO final rule for 

both LTCHs and IPPS hospitals can be 

found in Transmittal A–03–058 (Change 

Request 2785; July 3, 2003).) 

As a result of the changes established 

in the June 9, 2003 IPPS HCO final rule, 

as we discussed in the RY 2007 LTCH 

PPS final rule (71 FR 27832 through 

27833) and the FY 2007 IPPS final rule 

(71 FR 48119 through 48121), a LTCH 

is assigned the applicable Statewide 

average CCR if, among other things, a 

LTCH’s CCR is found to be in excess of 

the applicable maximum CCR threshold 

(that is, the LTCH CCR ceiling). As we 

explained in the FY 2007 IPPS final rule 

(71 FR 48117), CCRs above this 

threshold are most likely due to faulty 

data reporting or entry, and, therefore, 

these CCRs should not be used to 

identify and make payments for outlier 

cases. Such data are clearly errors and 

should not be relied upon. Thus, under 

our established policy, if a LTCH’s CCR 

is above the applicable ceiling, the 

applicable LTCH PPS Statewide average 

CCR is assigned to the LTCH instead of 

the CCR computed from its most recent 

(settled or tentatively settled) cost report 

data. 

Under § 412.525(a)(4)(ii), for 

discharges occurring on or after August 

8, 2003, and before October 1, 2006, we 

determined the applicable LTCH PPS 

Statewide average CCRs using the 

‘‘combined’’ IPPS operating and capital 

Statewide average CCRs (that is, adding 

the separate IPPS operating and capital 

CCRs together to determine the LTCH 

PPS Statewide average CCRs). 

Also, under § 412.525(a)(4)(ii), for 

discharges occurring on or after August 

8, 2003, and before October 1, 2006, if 

a LTCH’s CCR is above the applicable 

‘‘combined’’ IPPS operating and capital 

ceiling (that is, adding the separate IPPS 

operating and capital CCR ceiling 

together), the applicable Statewide 

average CCR may be assigned to the 

LTCH. 

As we explained in the FY 2007 IPPS 

final rule (71 FR 48117 through 48121), 

we revised our methodology for 

determining the annual CCR ceiling and 

Statewide average CCRs under the 

LTCH PPS because we believe that those 

changes are consistent with the LTCH 

PPS single payment rate for inpatient 

operating and capital costs. Therefore, 

under the broad authority of section 123 

of the BBRA and section 307(b)(1) of 

BIPA, in that same final rule, we revised 

our methodology used to determine the 

LTCH CCR ceiling. For discharges 

occurring on or after October 1, 2006, 

we established that the LTCH CCR 

ceiling specified under 

§ 412.525(a)(4)(iv)(C)(2) is calculated as 

three standard deviations above the 

corresponding national geometric mean 

total CCR (established and published 

annually by CMS). (The FI may use a 

Statewide average CCR if, among other 

things, a LTCH’s CCR is in excess of the 

LTCH CCR ceiling.) The LTCH total CCR 

ceiling is determined based on IPPS 

CCR data, by first calculating the ‘‘total’’

(that is, operating and capital) IPPS CCR 

for each hospital and then determining 

the average ‘‘total’’ IPPS CCR for all 

IPPS hospitals. (Our rationale for using 

IPPS hospital data is discussed in the 

FY 2007 IPPS final rule (71 FR 48117) 

and reiterated below in this section.) 

The LTCH CCR ceiling is then 

established at 3 standard deviations 

from the corresponding national 

geometric mean total CCR. (For further 

detail on our methodology for annually 

determining the LTCH CCR ceiling, refer 

to the FY 2007 IPPS final rule (71 FR 

48117 through 48119).) We also 

established that the LTCH ‘‘total’’ CCR 

ceiling used under the LTCH PPS will 

continue to be published annually in 

the IPPS proposed and final rules, and 

the public should continue to consult 

the annual IPPS proposed and final 

rules for changes to the LTCH total CCR 

ceiling that would be effective for 

discharges occurring on or after October 

1 each year. Accordingly, in the FY 

2007 IPPS final rule (71 FR 48119), we 

established a FY 2007 LTCH PPS total 

CCR ceiling of 1.321, effective for 

discharges occurring on or after October 

1, 2006. 

In addition, under the broad authority 

of section 123 of the BBRA and section 

307(b)(1) of BIPA, we revised our 

methodology to determine the Statewide 

average CCRs under 

§ 412.525(a)(4)(iv)(C) for use under the 

LTCH PPS in a manner similar to the 

way we compute the ‘‘total’’ CCR ceiling 

using IPPS CCR data (71 FR 48120). 

Specifically, under this revised 

methodology we first calculate the total 

(that is, operating and capital) CCR for 

each IPPS hospital. We then calculate 

the weighted average ‘‘total’’ CCR for all 

IPPS hospitals in the rural areas of the 

State and the weighted average ‘‘total’’

CCR for all IPPS hospitals in the urban 

areas of the State. (For further detail on 

our methodology for annually 

determining the LTCH urban and rural 

Statewide average CCRs, refer to the FY 

2007 IPPS final rule (71 FR 48119 

through 48121).) We also established 

that the applicable Statewide average 

‘‘total’’ (operating and capital) CCRs 

used under the LTCH PPS will continue 

to be published annually in the IPPS 

proposed and final rules, and the public 

should continue to consult the annual 

IPPS proposed and final rules for 

changes to the applicable Statewide 

average total CCRs that would be 

effective for discharges occurring on or 

after October 1 each year. Accordingly, 

in the FY 2007 IPPS final rule (71 FR 

48122), the FY 2007 LTCH PPS 

Statewide average total CCRs for urban 

and rural hospitals, effective for 

discharges occurring on or after October 

1, 2006, were presented in Table 8C of 

the Addendum of that final rule (71 FR 

48303). 

As we explained in the FY 2007 IPPS 

final rule (71 FR 48117), we continue to 

believe it is appropriate to use IPPS 

operating and capital CCRs to compute 

the LTCH total CCR ceiling and the 

Statewide average CCRs because LTCHs’

cost and charge structures are similar to 

that of IPPS acute-care hospitals. For 

instance, LTCHs are certified as acute 

care hospitals, as set forth in section 

1861(e) of the Act to participate as a 

hospital in the Medicare program, and 

these hospitals, in general, are paid as 

LTCHs only because their Medicare 

ALOS is greater than 25 days as 

specified in § 412.23(e). Furthermore, 

prior to qualifying as a LTCH under 

§ 412.23(e)(2)(i), a hospital generally is 

paid as an acute-care hospital under the 

IPPS during the period in which it 

demonstrates that it has an ALOS of 

greater than 25 days. In addition, since 

there are less than 400 LTCHs, which 

are unevenly geographically distributed 

throughout the United States, there may 

not be sufficient LTCH CCR data to 


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determine an appropriate LTCH PPS 

CCR ceiling using LTCH data. 

In the FY 2007 IPPS final rule, in 

addition to revising our methodology for 

determining the annual CCR ceiling and 

Statewide average CCRs under the 

LTCH PPS for discharges occurring on 

or after October 1, 2006, under the broad 

authority of section 123 of the BBRA 

and section 307(b)(1) of BIPA, we 

revised § 412.525(a)(4)(iv) for discharges 

occurring on or after October 1, 2006, to 

codify in 42 CFR part 412, subpart O the 

remaining LTCH PPS outlier policy 

changes that were established in the 

June 9, 2003 IPPS HCO final rule (68 FR 

34506 through 34513), including 

modifications and editorial 

clarifications to those existing policies 

established in that final rule. We made 

these revisions because we believe that 

they more precisely describe the 

application of those policies as they 

relate to the determination of LTCH 

CCRs because these changes are 

consistent with the changes to the 

calculation of the LTCH CCR ceiling. 

Specifically, in the FY 2007 IPPS final 

rule (71 FR 48119), under the broad 

authority of section 123 of the BBRA 

and section 307(b)(1) of BIPA, we 

established under the LTCH PPS HCO 

policy at § 412.525(a)(4)(iv)(C) that the 

FI may use a Statewide average CCR, 

which is established annually by CMS, 

if it is unable to determine an accurate 

CCR for a LTCH in one of the following 

three circumstances: (1) New LTCHs 

that have not yet submitted their first 

Medicare cost report (for this purpose, 

consistent with current policy, a new 

LTCH would be defined as an entity that 

has not accepted assignment of an 

existing hospital’s provider agreement 

in accordance with § 489.18); (2) LTCHs 

whose CCR is in excess of the LTCH 

CCR ceiling; and (3) other LTCHs for 

whom data with which to calculate a 

CCR are not available (for example, 

missing or faulty data). (Other sources of 

data that the FI may consider in 

determining a LTCH’s CCR included 

data from a different cost reporting 

period for the LTCH, data from the cost 

reporting period preceding the period in 

which the hospital began to be paid as 

a LTCH (that is, the period of at least 6 

months that it was paid as a short-term 

acute care hospital), or data from other 

comparable LTCHs, such as LTCHs in 

the same chain or in the same region.) 

Additionally, in the FY 2007 IPPS 

final rule (71 FR 48121), we established 

under § 412.525(a)(4)(iv)(B) and 

§ 412.529(c)(3)(iv)(B) that, for discharges 

occurring on or after October 1, 2006, 

the CCR applied at the time a claim is 

processed will be based on either the 

most recently settled cost report or the 

most recent tentatively settled cost 

report, whichever is from the latest cost 

reporting period. Under the broad 

authority of section 123 of the BBRA 

and section 307(b)(1) of BIPA, in that 

same final rule, we also established at 

§ 412.525(a)(4)(iv)(A) that, for 

discharges occurring on or after October 

1, 2006, we may specify an alternative 

to the CCR computed under 

§ 412.525(a)(4)(iv)(B) (that is, computed 

from the most recently settled cost 

report or the most recent tentatively 

settled cost report, whichever is later), 

or a hospital may also request that the 

FI use a different (higher or lower) CCR 

based on substantial evidence presented 

by the hospital. In addition, under the 

broad authority of section 123 of the 

BBRA and section 307(b)(1) of BIPA, we 

revised § 412.525(a)(3) to change the 

plural reference from cost-to-charge 

‘‘ratios’’ to the singular reference to a 

cost-to-charge ‘‘ratio’’ in that final rule. 

For a complete discussion on all these 

revisions to our methodology for 

determining a LTCH’s CCR, refer to the 

FY 2007 IPPS final rule (71 FR 48119 

through 48121). We note that in that 

same FY 2007 IPPS final rule, we made 

similar revisions to the SSO policy at 

§ 412.529(c)(3), as discussed in V.A.1.b. 

of the preamble of this proposed rule. 

c. Establishment of the Proposed FixedLoss Amount 

When we implemented the LTCH 

PPS, as discussed in the August 30, 

2002 LTCH PPS final rule (67 FR 56022 

through 56026), under the broad 

authority of section 123 of the BBRA as 

amended by section 307(b) of BIPA, we 

established a fixed-loss amount so that 

total estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. To determine the fixed-loss 

amount, we estimate outlier payments 

and total LTCH PPS payments for each 

case using claims data from the 

MedPAR files. Specifically, to 

determine the outlier payment for each 

case, we estimate the cost of the case by 

multiplying the Medicare covered 

charges from the claim by the LTCH’s 

hospital specific CCR. Under 

§ 412.525(a)(3), if the estimated cost of 

the case exceeds the outlier threshold 

(the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount), we pay an 

outlier payment equal to 80 percent of 

the difference between the estimated 

cost of the case and the outlier threshold 

(the sum of the adjusted Federal 

prospective payment for the LTC–DRG 

and the fixed-loss amount). 

In the RY 2007 LTCH PPS final rule 

(71 FR 27838), in calculating the fixedloss amount that would result in 

estimated outlier payments projected to 

be equal to 8 percent of total estimated 

payments for the 2007 LTCH PPS rate 

year, we used claims data from the 

December 2005 update of the FY 2005 

MedPAR files and CCRs from the 

December 2005 update of the PSF, as 

that was the best available data at that 

time. We believe that CCRs from the 

PSF are the best available CCR data for 

determining estimated LTCH PPS 

payments for a given LTCH PPS rate 

year because they are the most recently 

available CCRs actually used to make 

LTCH PPS payments. 

As we also discussed in the RY 2007 

LTCH PPS rate year final rule (71 FR 

27838), we calculated a single fixed-loss 

amount for the 2007 LTCH PPS rate year 

based on the version 23.0 of the 

GROUPER, which was the version in 

effect as of the beginning of the LTCH 

PPS rate year (that is, July 1, 2006 for 

the 2007 LTCH PPS rate year). In 

addition, we applied the outlier policy 

under § 412.525(a) in determining the 

fixed-loss amount for the 2007 LTCH 

PPS rate year; that is, we assigned the 

applicable Statewide average CCR only 

to LTCHs whose CCRs exceeded the 

ceiling (and not when they fell below 

the floor). Accordingly, we used the FY 

2006 LTCH PPS CCR ceiling of 1.423 (71 

FR 27838). As noted in that same final 

rule, in determining the fixed-loss 

amount for the 2007 LTCH PPS rate year 

using the CCRs from the PSF, there were 

no LTCHs with missing CCRs or with 

CCRs in excess of the current ceiling 

and, therefore, there was no need for us 

to independently assign the applicable 

Statewide average CCR to any LTCHs in 

determining the fixed-loss amount for 

the 2007 LTCH PPS rate year (as this 

may have already been done by the FI 

in the PSF in accordance with the 

established policy). 

Accordingly, in 2007 LTCH PPS rate 

year final rule (71 FR 27838), we 

established a fixed-loss amount of 

$14,887 for the 2007 LTCH PPS rate 

year. Thus, we pay an outlier case 80 

percent of the difference between the 

estimated cost of the case and the 

outlier threshold (the sum of the 

adjusted Federal LTCH PPS payment for 

the LTC–DRG and the fixed-loss amount 

of $14,887). 

In this proposed rule, for the 2008 

LTCH PPS rate year, we used the March 

2006 update of the FY 2005 MedPAR 

claims data to determine a proposed 

fixed-loss amount that would result in 

estimated outlier payments projected to 

be equal to 8 percent of total estimated 

payments, based on the policies 

described in this proposed rule, because 

these data are the most recent complete 


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LTCH data available. Consistent with 

our historical practice of using the best 

data available, if more recent LTCH 

claims data become available, we 

propose to use it for determining the 

fixed-loss amount for the 2008 LTCH 

PPS rate year in the final rule. 

Furthermore, as noted previously, we 

determined the proposed fixed-loss 

amount based on the version of the 

GROUPER that would be in effect as of 

the beginning of the 2008 LTCH PPS 

rate year (July 1, 2007), that is, Version 

24.0 of the GROUPER (as established in 

the FY 2007 IPPS final rule (71 FR 

47973)). 

We also used CCRs from the June 

2006 update of the PSF for determining 

the proposed fixed-loss amount for the 

2008 LTCH PPS rate year as they are 

currently the most recent complete 

available data. Consistent with our 

historical practice of using the best data 

available, if more recent CCR data are 

available, we propose to use it for 

determining the fixed-loss amount for 

the 2008 LTCH PPS rate year in the final 

rule. As we discussed in this proposed 

rule, we revised our methodology for 

our annual determination of the 

applicable LTCH CCR ceiling and 

applicable Statewide average CCRs in 

determining a LTCH’s CCR effective for 

discharges occurring on or after October 

1, 2006 in the FY 2007 IPPS final rule 

(71 FR 48117 through 48122). 

Accordingly, in determining the 

proposed fixed-loss amount for the 2008 

LTCH PPS rate year, we used the 

current FY 2007 applicable LTCH 

‘‘total’’ CCR ceiling of 1.321 and LTCH 

Statewide average ‘‘total’’ CCRs 

established under our revised 

methodology in the FY 2007 IPPS final 

rule (71 FR 48118 and 48121) such that 

the current applicable Statewide average 

CCR would be assigned if, among other 

things, a LTCH’s CCR exceeded the 

current ceiling (1.321). We note that in 

determining the proposed fixed-loss 

amount for the 2008 LTCH PPS rate year 

using the CCRs from the PSF, there was 

no need for us to independently assign 

the applicable Statewide average CCR to 

any LTCHs (as this may have already 

been done by the FI in the PSF in 

accordance with our established policy). 

(Currently, the applicable FY 2007 

LTCH Statewide average CCRs can be 

found in Table 8C of the FY 2007 IPPS 

final rule (71 FR 48303).) 

Accordingly, based on the data and 

policies described in this proposed rule, 

we are proposing a fixed-loss amount of 

$18,774 for the 2008 LTCH PPS rate 

year. Thus, we would pay an outlier 

case 80 percent of the difference 

between the estimated cost of the case 

and the proposed outlier threshold (the 

sum of the adjusted proposed Federal 

LTCH payment for the LTC–DRG and 

the proposed fixed-loss amount of 

$18,774). We note that the proposed 

fixed-loss amount for the 2008 LTCH 

PPS rate year is higher than the current 

fixed-loss amount of $14,887. In 

addition to being based on the most 

recent available LTCH data to estimate 

the cost of each LTCH case, this 

proposed change in the fixed-loss 

amount is primarily due to the projected 

decrease in estimated aggregate LTCH 

PPS payments that is expected to result 

from the approach discussed for the 

SSO policy under § 412.529 (discussed 

in greater detail in section V.A.2. of this 

preamble), in conjunction with the 

proposed changes to the area wage 

adjustment (discussed in greater detail 

in section IV.D.1. of this preamble) and 

the changes to the LTC–DRG relative 

weights for FY 2007 (as discussed in the 

FY 2007 IPPS final rule (71 FR 47971 

through 47994)). We note that if the 

approach discussed for the SSO policy 

was not considered, then the proposed 

fixed-loss amount would be $18,207. 

As discussed in greater detail in the 

impact analysis presented in section 

XVI.B.4. of this proposed rule, we are 

projecting that the proposed changes, 

including the approach discussed for 

the SSO policy presented in section 

V.A.2. of this proposed rule, would 

result in a 0.7 percent decrease in 

estimated payments per discharge in RY 

2008 as compared to RY 2007, on 

average, for all LTCHs. While we are 

projecting that the proposed 0.71 

percent update to the Federal rate 

(discussed in section IV.C. of this 

preamble) would result in an increase in 

estimated payments per discharge in RY 

2008 as compared to RY 2007, this 

increase would be offset by the 

projected decrease in estimated 

payments per discharge from RY 2007 to 

RY 2008 of 0.9 percent due to the 

approach being considered for the SSO 

policy and a projected decrease in 

estimated payments per discharge from 

RY 2007 to RY 2008 of 0.5 percent due 

to the proposed changes to the area 

wage adjustment (including the 

progression of the established phase-in 

of that adjustment). Without taking the 

approach being considered for the SSO 

policy into account, the proposed 

changes to the payment rate and 

policies noted above would result in a 

0.3 percent increase in estimated 

payments per discharge in RY 2008 as 

compared to RY 2007. Furthermore, as 

we discussed in the FY 2007 IPPS final 

rule (71 FR 48343 through 47994), the 

changes to the LTC–DRG relative 

weights for FY 2007, which we used to 

determine the proposed RY 2008 fixedloss amount, were projected to result in 

a 1.3 percent decrease in estimated 

aggregate LTCH PPS payments in FY 

2007. 

Because of the estimated decrease in 

aggregate LTCH PPS payments proposed 

for the 2008 LTCH PPS rate year (as 

discussed above in this section), we 

believe that an increase in the proposed 

fixed-loss amount is appropriate and 

necessary to maintain the requirement 

that estimated outlier payments would 

be projected to be equal to 8 percent of 

estimated total LTCH PPS payments, as 

required under § 412.525(a). As we 

discussed in the RY 2007 final rule (71 

FR 27836), maintaining the fixed-loss 

amount at the current level would result 

in HCO payments that significantly 

exceed the current regulatory 

requirement that estimated outlier 

payments would be projected to equal 8 

percent of estimated total LTCH PPS 

payments. Based on the regression 

analysis that was performed when we 

implemented the LTCH PPS (August 30, 

2002 final rule (67 FR 56022 through 

56027)), we established the outlier target 

at 8 percent of estimated total LTCH 

PPS payments to allow us to achieve a 

balance between the ‘‘conflicting 

considerations of the need to protect 

hospitals with costly cases, while 

maintaining incentives to improve 

overall efficiency’’ (67 FR 56024). That 

regression analysis also showed that 

additional increments of outlier 

payments over 8 percent (that is, raising 

the outlier target to a larger percentage 

than 8 percent) would reduce financial 

risk, but by successively smaller 

amounts. Outlier payments are budget 

neutral, and therefore, outlier payments 

are funded by prospectively reducing 

the non-outlier PPS payment rates by 

projected total outlier payments. The 

higher the outlier target, the greater the 

(prospective) reduction to the base 

payment would need to be applied to 

the Federal rate to maintain BN. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27834 

through 27835) when we proposed to 

increase the fixed-loss amount for RY 

2007 (over the RY 2006 fixed-loss 

amount), as an alternative to the 

proposal to raise the RY 2007 fixed-loss 

amount, we examined adjusting the 

marginal cost factor (that is, the 

percentage that Medicare will pay of the 

estimated cost of a case that exceeds the 

sum of the adjusted Federal prospective 

payment for the LTC–DRG and the 

fixed-loss amount for LTCH PPS outlier 

cases as specified in § 412.525(a)(3)), 

which is currently equal to 80 percent, 

as a means of ensuring that estimated 

outlier payments would be projected to 


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equal 8 percent of estimated total LTCH 

PPS payments. When we initially 

established the 80 percent marginal cost 

factor in the August 30, 2002 final rule 

(67 FR 56022 through 56027), we 

explained that our analysis of paymentto-cost ratios for HCO cases showed that 

a marginal cost factor of 80 percent 

appropriately addresses outlier cases 

that are significantly more expensive 

than nonoutlier cases, while 

simultaneously maintaining the 

integrity of the LTCH PPS. 

In proposing an increase to the fixedloss amount for RY 2007 (71 FR 27834), 

we also solicited comments on whether 

we should revisit the regression analysis 

discussed above in this section that was 

used to establish the existing 8 percent 

outlier target and 80 percent marginal 

cost factor, using the most recent 

available data to evaluate whether the 

current outlier target of 8 percent or the 

80 percent marginal cost factor should 

be adjusted, and therefore, could have 

resulted in less of an increase in the 

fixed-loss amount for RY 2007. In 

response to this solicitation (as 

summarized in the RY 2007 LTCH PPS 

final rule (71 FR 27834 through 24835)), 

several commenters opposed any option 

that would allow us to revisit the 

regression analysis that was used to 

establish the existing 80 percent 

marginal cost factor and existing outlier 

target of 8 percent. The commenters 

stated their belief that the LTCH PPS is 

still in its early stages and further 

changes to the 80 percent marginal cost 

factor or 8 percent outlier target would 

result in instability to the system. The 

commenters cautioned against making 

any premature changes to the factors 

affecting HCO payments to LTCHs, 

particularly the marginal cost factor and 

outlier target established by regulation 

when the LTCH PPS was implemented. 

Also, the commenters agreed that 

keeping the marginal cost factor at 80 

percent and the outlier pool at 8 percent 

better identifies LTCH patients that are 

truly unusually costly cases, and that 

this policy appropriately addresses 

outlier cases that are significantly more 

expensive than non-outlier cases. 

In response to these comments, we 

agreed with the commenters that, based 

on the regression analysis done for the 

implementation of the LTCH PPS 

(August 30, 2002; 68 FR 56022 through 

56026), a marginal cost factor of 80 

percent and a outlier target of 8 percent 

best identifies LTCH patients that are 

truly unusually costly cases, and that 

such a policy appropriately addresses 

LTCH HCO cases that are significantly 

more expensive than non-outlier cases, 

which is consistent with our intent of 

the LTCH HCO policy as stated when 

we implemented the LTCH PPS in the 

August 30, 2002 final rule (67 FR 

56025). Therefore, as supported by 

many commenters, in the RY 2007 

LTCH PPS final rule (71 FR 27835), we 

did not revisit the regression analysis 

that was used to establish the existing 

80 percent marginal cost factor and 

existing outlier target of 8 percent, and 

therefore, did not make any changes to 

the marginal cost factor or outlier target 

in that final rule. Furthermore, we 

stated that after revisiting this issue and 

an analysis of the most recent complete 

available data, due to the lag time in the 

availability of data, we now believe the 

most appropriate time to revisit a budget 

neutral policy change in the outlier 

policy (among other things), which 

would affect future LTCH PPS payment 

rates, would be after the conclusion of 

the 5-year transition period when we 

expect to have several years of data 

generated after the implementation of 

the LTCH PPS. 

Although proposing to raise the fixedloss amount from $14,887 to $18,774 

(based on the policies presented in this 

proposed rule) would increase the 

amount of the ‘‘loss’’ that a LTCH must 

incur under the LTCH PPS for a case 

with unusually high costs before the 

LTCH would receive any additional 

Medicare payments, as we discussed 

above and as we explained in greater 

detail in the RY 2007 LTCH PPS final 

rule, based on the best available data, 

we continue to believe that the existing 

8 percent outlier target and 80 percent 

marginal cost factor continue to 

adequately maintain the LTCHs’ share 

of the financial risk in treating the most 

costly patients and ensure the efficient 

delivery of services. Accordingly, we are 

not proposing to adjust the existing 8 

percent outlier target or 80 percent 

marginal cost factor under the LTCH 

PPS HCO policy at this time. However, 

we continue to be interested in any 

comments that would support revisiting 

the analysis that was used to establish 

the existing 8 percent outlier target and 

the existing 80 percent marginal cost 

factor, using the most recent available 

data to evaluate whether any changes to 

the current HCO policy should be made, 

and therefore, may result in less of an 

increase in the fixed-loss amount for RY 

2008. 

Furthermore, we note that the 

proposed fixed-loss amount of $18,774 

is lower than the FY 2003 fixed-loss 

amount of $24,450 (67 FR 56023) and 

the 2004 LTCH PPS rate year fixed-loss 

amount of $19,590 (68 FR 34144), and 

only slightly higher than the 2005 LTCH 

PPS rate year fixed-loss amount of 

$17,864 (69 FR 25688), all of which 

were in effect during the time period 

that we estimate positive Medicare 

margins (as discussed in the RY 2007 

LTCH PPS final rule (71 FR 27820 

through 27825). Therefore, we believe 

the proposed fixed-loss amount of 

$18,774 would appropriately identify 

unusually costly LTCH cases while 

maintaining the integrity of the LTCH 

PPS. Thus, under the broad authority of 

section 123(a)(1) of the BBRA and 

section 307(b)(1) of BIPA, we are 

proposing to establish a fixed-loss 

amount of $18,774 based on the best 

available LTCH data and the policies 

presented in this proposed rule because 

we believe a proposed increase in the 

fixed-loss amount is appropriate and 

necessary to maintain estimated outlier 

payments are projected to be equal to 8 

percent of estimated total LTCH PPS 

payments, as required under 

§ 412.525(a). 

d. Reconciliation of Outlier Payments 

Upon Cost Report Settlement 

In the June 9, 2003 HCO final rule (68 

FR 34508 through 34512), we 

established our policy for LTCHs that 

provided that effective for LTCH PPS 

discharges occurring on or after August 

8, 2003, any reconciliation of outlier 

payments will be based upon the actual 

CCR computed from the costs and 

charges incurred in the period during 

which the discharge occurs. In that 

same final rule, we also established that, 

for discharges occurring on or after 

August 8, 2003, at the time of any 

reconciliation, outlier payments may be 

adjusted to account for the time value of 

any underpayments or overpayments 

based upon a widely available index to 

be established in advance by the 

Secretary and will be applied from the 

midpoint of the cost reporting period to 

the date of reconciliation. (Additional 

information on the administration of the 

reconciliation process under the IPPS is 

provided in CMS Program Transmittal 

707 (October 12, 2005; Change Request 

3966). We note that we are currently 

developing additional instructions on 

the administration of the reconciliation 

process under the LTCH PPS that would 

be similar to the IPPS reconciliation 

process.) 

In the FY 2007 IPPS final rule (71 FR 

48121 through 48122), for discharges 

occurring on or after October 1, 2006, 

we codified into the LTCH PPS section 

of the regulations (42 CFR part 412, 

subpart O) the provisions governing the 

determination of LTCHs’ CCRs, 

including modifications and editorial 

clarifications to our existing 

methodology for determining the annual 

LTCH CCR ceiling and applicable 

Statewide average CCRs under the 

LTCH PPS. (We note that we also made 


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the same changes under the SSO policy 

at § 412.529(c)(3), as discussed in 

section V.A.1.c. of this preamble). 

In the FY 2007 IPPS final rule (71 FR 

48122), under the broad authority of 

section 123 of the BBRA and section 

307(b)(1) of BIPA, we revised 

§ 412.525(a)(4)(iv)(D) through (E), for 

discharges occurring on or after October 

1, 2006, to codify in subpart O of 42 

CFR part 412 the provisions discussed 

concerning the reconciliation of LTCH 

PPS outlier payments, including 

editorial clarifications discussed in 

greater detail in this section, that would 

more precisely describe the application 

of those policies. Specifically, at 

§ 412.525(a)(4)(iv)(D), we specified that 

for discharges occurring on or after 

October 1, 2006, any reconciliation of 

outlier payments will be based on the 

CCR calculated based on a ratio of coststo-charges computed from the relevant 

cost report and charge data determined 

at the time the cost report coinciding 

with the discharge is settled. In 

addition, at § 412.525(a)(4)(iv)(E), we 

specified that for discharges occurring 

on or after October 1, 2006, at the time 

of any reconciliation, outlier payments 

may be adjusted to account for the time 

value of any underpayments or 

overpayments. We also specified that 

such an adjustment will be based upon 

a widely available index to be 

established in advance by the Secretary 

and will be applied from the midpoint 

of the cost reporting period to the date 

of reconciliation. We made these 

additional revisions to § 412.525(a)(4) 

because we believe that these changes 

are more consistent with the LTCH PPS 

single payment rate for inpatient 

operating and capital costs (as discussed 

in greater detail previously), and 

because we believe it is more 

appropriate and administratively 

simpler to include all of the regulatory 

provisions concerning the 

determination of LTCH PPS outlier 

payments applicable under the LTCH 

PPS regulations in subpart O of 42 CFR 

part 412 of the CFR. 

e. Application of Outlier Policy to 

Short-Stay Outlier (SSO) Cases 

As we discussed in the August 30, 

2002 final rule (67 FR 56026), under 

some rare circumstances, a LTCH 

discharge could qualify as a SSO case 

(as defined under § 412.529 and 

discussed in section V.A.1.a. of this 

preamble) and also as a HCO case. In 

this scenario, a patient could be 

hospitalized for less than five-sixths of 

the geometric ALOS for the specific 

LTC–DRG, and yet incur extraordinarily 

high treatment costs. If the costs 

exceeded the outlier threshold (that is, 

the SSO payment plus the fixed-loss 

amount), the discharge would be 

eligible for payment as a HCO. Thus, for 

a SSO case in the 2008 LTCH PPS rate 

year, the HCO payment would be 80 

percent of the difference between the 

estimated cost of the case and the 

proposed outlier threshold (the sum of 

the proposed fixed-loss amount of 

$18,774 and the amount paid under the 

SSO policy). 

4. Other Payment Adjustments 

As indicated earlier, we have broad 

authority under section 123(a)(1) of the 

BBRA as amended by section 307(b) of 

BIPA to determine appropriate 

adjustments under the LTCH PPS, 

including whether (and how) to provide 

for adjustments to reflect variations in 

the necessary costs of treatment among 

LTCHs. Thus, in the August 30, 2002 

LTCH PPS final rule (67 FR 56014 

through 56027), we discussed our 

extensive data analysis and rationale for 

not implementing an adjustment for 

geographic reclassification, rural 

location, treating a disproportionate 

share of low-income patients (DSH), or 

indirect medical education (IME) costs. 

In that same final rule, we stated that we 

would collect data and reevaluate the 

appropriateness of these adjustments in 

the future once more LTCH data become 

available after the LTCH PPS is 

implemented. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27839), we 

now believe that after the completion of 

the 5-year transition, sufficient new data 

that will have been generated while 

LTCHs are subject to the LTCH PPS may 

be available for a comprehensive 

reevaluation of payment adjustments 

such as geographic reclassification, rural 

location, DSH, and IME. The end of the 

5-year transition occurs with cost 

reporting periods beginning on or after 

October 1, 2007. Therefore, in this 

proposed rule, we are not proposing to 

make any adjustments for geographic 

reclassification, rural location, DSH, or 

IME. However, we will continue to 

collect and interpret new data as they 

become available in the future to 

determine if these data support 

proposing any additional payment 

adjustments. As we also discussed in 

the RY 2007 LTCH PPS final rule (71 FR 

27839), we now believe that it is 

appropriate to wait for the conclusion of 

the 5-year transition to 100 percent of 

the Federal rate under the LTCH PPS, to 

maximize the availability of data that 

are reflective of LTCH behavior in 

response to the implementation of the 

LTCH PPS to be used to conduct a 

comprehensive evaluation of the 

potential payment adjustment policies 

(such as rural location, DSH and IME) 

in conjunction with our evaluation of 

the possibility of making a one-time 

prospective adjustment to the LTCH 

PPS rates provided for at 

§ 412.523(d)(3). 

5. Proposed Budget Neutrality (BN) 

Offset To Account for the Transition 

Methodology 

Under § 412.533, we implemented a 

5-year transition, during which a LTCH 

is paid a total LTCH PPS payment that 

is comprised of an increasing percentage 

of the LTCH PPS Federal prospective 

payment rate and a decreasing 

percentage of its payments based on the 

reasonable cost-based payment 

principles for each discharge. 

Furthermore, we allow a LTCH (other 

than those defined as ‘‘new’’ under 

§ 412.23(e)(4)) to elect to be paid based 

on 100 percent of the standard Federal 

rate in lieu of the blended methodology. 

The standard Federal rate was 

determined as if all LTCHs will be paid 

based on 100 percent of the standard 

Federal rate. As stated earlier, we 

provide for a 5-year transition period 

that allows LTCHs to receive LTCH PPS 

payments in which a component 

incorporates reasonable cost principles. 

To maintain BN for FY 2003 as required 

by section 123(a)(1) of the BBRA during 

the 5-year transition period, we reduce 

all LTCH Medicare payments (whether 

a LTCH elects payment based on 100 

percent of the Federal rate or whether a 

LTCH is being paid under the transition 

blend methodology) to account for the 

cost of the applicable transition period 

methodology in a given LTCH PPS rate 

year. 

Specifically, during the LTCH PPS 

rate years governed under the 5-year 

transition policy at § 412.533(a), we 

reduce all LTCH Medicare payments 

during the 5-year transition by a factor 

that is equal to 1 minus the ratio of the 

estimated TEFRA reasonable cost-based 

payments that would be made if the 

LTCH PPS was not implemented, to the 

projected total Medicare program PPS 

payments (that is, payments made under 

the transition methodology and the 

option to elect payment based on 100 

percent of the Federal rate). 

In the RY 2007 LTCH PPS final rule 

(71 FR 27841), based on the best 

available data at that time, we projected 

that approximately 98 percent of LTCHs 

will be paid based on 100 percent of the 

standard Federal rate rather than receive 

payment under the transition blend 

methodology for the 2006 LTCH PPS 

rate year. Using the same methodology 

described in the August 30, 2002 LTCH 

PPS final rule (67 FR 56034), this 

projection, which used updated data 


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and inflation factors, was based on our 

estimate that either: (1) A LTCH has 

already elected payment based on 100 

percent of the Federal rate prior to the 

start of the 2007 LTCH PPS rate year 

(July 1, 2006); or (2) a LTCH would 

receive higher payments based on 100 

percent of the 2007 LTCH PPS rate year 

standard Federal rate compared to the 

payments it would receive under the 

transition blend methodology. 

Similarly, we projected that the 

remaining 2 percent of LTCHs would 

choose to be paid based on the 

applicable transition blend methodology 

(as set forth under § 412.533(a)) because 

they would receive higher payments 

than if they were paid based on 100 

percent of the 2007 LTCH PPS rate year 

standard Federal rate. 

Also in the RY 2007 LTCH PPS final 

rule (71 FR 24202), based on the best 

available data at that time and policy 

revisions described in that same rule, 

we projected that in absence of a 

transition BN offset, the full effect of the 

final full year of the transition period 

(including the election option) as 

compared to payments as if all LTCHs 

would be paid based on 100 percent of 

the Federal rate would result in a 

negligible cost to the Medicare program 

(that is, less than $1 million in RY 

2007). Because the $1 million in 

estimated costs to the Medicare program 

was such a small percentage of the 

estimated total LTCH payments for RY 

2007 (over $5 billion), the formula that 

we use to establish the BN offset 

resulted in a factor, which we reduce all 

Medicare payments by to account for 

the additional costs of the transition 

methodology of zero (due to rounding). 

Therefore, we established a zero percent 

transition period BN offset to all LTCH 

PPS payments for discharge occurring 

on or after July 1, 2006 through June 30, 

2007, to account for the estimated cost 

of the transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal rate) 

in RY 2007. Furthermore, in that same 

final rule (71 FR 27841), we explained 

that we are no longer projecting a small 

cost for the 2008 LTCH PPS rate year 

(July 1, 2007 through June 30, 2008) 

even though some LTCH’s will have a 

cost reporting period for the 5th year of 

the transition period which will be 

concluding in the first 3 months of the 

2008 LTCH PPS rate year. This is 

because, based on the most available 

data, we are projecting that the vast 

majority of LTCHs would have made the 

election to be paid based on 100 percent 

of the Federal rate rather than the 

transition blend which would result in 

a negligible cost to the Medicare 

program. In fact, based on the most 

recent available data from the July 2006 

update of the PSF, we continue to 

estimate that nearly all (over 98 percent) 

LTCHs are currently being paid based 

on 100 percent of the Federal rate 

(rather than the transition blend 

methodology). Even for those few 

remaining LTCHs paid under the 

transition blend methodology set forth 

at § 412.533(a), the majority of their 

LTCH PPS payments are now based on 

at least 80 percent of the Federal rate 

and 20 percent of the reasonable cost 

amount (for cost reporting periods 

beginning during FY 2006) since there 

are no longer any LTCHs in their cost 

reporting periods that began during FY 

2003 through FY 2005 (the first three 

years of the 5-year transition period). 

Therefore, we continue to believe that 

there would be no measurable estimated 

cost to the Medicare program due to the 

transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal rate) 

in RY 2008. Accordingly, in this 

proposed rule, based on updated data 

and using the same methodology 

established in the August 30, 2002 final 

rule (67 FR 56034), we are not 

proposing a transition BN offset to all 

LTCH PPS payments for discharges 

occurring on or after July 1, 2007 

through June 30, 2008, to account for 

the estimated cost of the transition 

period methodology (including the 

option to elect payment based on 100 

percent of the Federal rate, since some 

LTCHs may still be paid under the 4th 

year of the transition blend 

methodology, specified at § 412.533, for 

the first 3 months of RY 2008) in RY 

2008. 

6. One-Time Prospective Adjustment to 

the Standard Federal Rate 

As we discussed in the August 30, 

2002 LTCH PPS final rule (67 FR 

56036), consistent with the statutory 

requirement for BN in section 123(a)(1) 

of the BBRA, we estimated aggregate 

payments under the LTCH PPS for FY 

2003 to be equal to the estimated 

aggregate payments that would be made 

if the LTCH PPS were not implemented. 

Our methodology for estimating 

payments for purposes of the BN 

calculations used the best available data 

at the time and necessarily reflected 

assumptions. As the LTCH PPS 

progresses, we are monitoring payment 

data and will evaluate the ultimate 

accuracy of the assumptions used in the 

BN calculations (for example, inflation 

factors, intensity of services provided, 

or behavioral response to the 

implementation of the LTCH PPS) 

described in the August 30, 2002 LTCH 

PPS final rule (67 FR 56027 through 

56037). To the extent these assumptions 

significantly differ from actual 

experience, the aggregate amount of 

actual payments may turn out to be 

significantly higher or lower than the 

estimates on which the BN calculations 

were based. 

Section 123(a)(1) of the BBRA as 

amended by section 307(b) of BIPA 

provides broad authority to the 

Secretary in developing the LTCH PPS, 

including the authority for establishing 

appropriate adjustments. Under this 

broad authority to make appropriate 

adjustments, as implemented in the 

existing § 412.523(d)(3) (as revised in 

the RY 2007 LTCH PPS final rule), we 

have provided for the possibility of 

making a one-time prospective 

adjustment to the LTCH PPS rates by 

July 1, 2008, so that the effect of any 

significant difference between actual 

payments and estimated payments for 

the first year of the LTCH PPS would 

not be perpetuated in the LTCH PPS 

rates for future years. In the RY 2007 

LTCH PPS final rule (71 FR 27842), 

based on the best available data at that 

time, we estimated that total Medicare 

program payments for LTCH services 

over the next 5 LTCH PPS rate years 

would be $5.27 billion for the 2007 

LTCH PPS rate year; $5.43 billion for 

the 2008 LTCH PPS rate year; $5.63 

billion for the 2009 LTCH PPS rate year; 

$5.86 billion for the 2010 LTCH PPS 

rate year; and $6.13 billion for the 2011 

LTCH PPS rate year. 

In this proposed rule, consistent with 

the methodology established in the 

August 30, 2002 final rule (67 FR 

56036), based on the most recent 

available data, we estimate that total 

Medicare program payments for LTCH 

services for the next 5 LTCH PPS rate 

years would be as shown in Table 4. 

TABLE 4 

LTCH PPS rate year 

Estimated 

payments 

($ in billions) 

2008 .................................... $4.65 

2009 .................................... 4.84 

2010 .................................... 5.02 

2011 .................................... 5.24 

2012 .................................... 5.48 

In accordance with the methodology 

established in the August 30, 2002 

LTCH PPS final rule (67 FR 56037), 

these estimates are based on the most 

recent available data, including the 

projection that nearly all LTCHs will be 

paid based on 100 percent of the LTCH 

PPS standard Federal rate during the 

majority of RY 2008 (in accordance with 

the transition blend percentages set 


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forth at § 412.533(a)). These estimates 

are also based on our estimate of LTCH 

PPS rate year payments to LTCHs using 

CMS’ Office of the Actuary’s (OACT) 

most recent estimate of the RPL market 

basket of 3.2 percent for the 2008 LTCH 

PPS rate year, 2.9 percent for the 2009 

LTCH PPS rate year, 2.5 percent for the 

2010 LTCH PPS rate year, and 2.9 

percent for the 2011 and 2012 LTCH 

PPS rate years. (We note that OACT 

develops its spending projections based 

on existing policy. Therefore, changes 

that have not yet been implemented are 

not reflected in the spending projections 

shown in this section.) We also 

considered OACT’s most recent 

projections of changes in Medicare 

beneficiary enrollment that estimate a 

change in Medicare fee-for-service 

beneficiary enrollment of 0.2 percent in 

the 2008 LTCH PPS rate year, 0.5 

percent in the 2009 LTCH PPS rate year, 

0.1 percent in the 2010 LTCH PPS rate 

year, 0.2 percent in the 2011 LTCH PPS 

rate year and, 0.4 percent in the 2012 

LTCH PPS rate year. 

In the August 30, 2002 LTCH PPS 

final rule implementing the LTCH PPS 

(67 FR 55954), we set forth the 

implementing regulations, based upon 

the broad authority granted to the 

Secretary, under section 123 of the 

BBRA as amended by section 307(b) of 

the BIPA. Section 123(a)(1) of the BBRA 

required that the system ‘‘maintain 

budget neutrality’’ for FY 2003, that is, 

that estimated aggregate payments 

under the LTCH PPS would be projected 

to be equal to the estimated aggregate 

payments that would be made if the 

LTCH PPS would not be implemented 

for FY 2003. The methodology for 

determining the LTCH PPS standard 

Federal rate for FY 2003 that would 

‘‘maintain budget neutrality’’ is 

described in considerable detail in the 

August 30, 2002 final rule (67 FR 56027 

through 56037). As we discussed in that 

same final rule, our methodology for 

estimating payments for the purposes of 

BN calculations used the best available 

data and necessarily reflects 

assumptions in estimating aggregate 

payments that would be made if the 

LTCH PPS was not implemented. We 

also stated our intentions to monitor 

LTCH PPS payment data to evaluate the 

ultimate accuracy of the assumptions 

used in the BN calculations (for 

example, inflation factors, intensity of 

services provided, or behavioral 

response to the implementation of the 

LTCH PPS). To the extent that those 

assumptions significantly differ from 

actual experience, the estimated 

aggregate amount of actual payments 

during FY 2003 may result in 

significantly higher or lower estimated 

payments than the estimates upon 

which the BN calculations were based. 

In that same final rule, the Secretary 

exercised his broad authority in 

establishing the LTCH PPS and 

provided for the possibility of a onetime prospective adjustment to the 

LTCH PPS rates by October 1, 2006, in 

§ 412.523(d)(3) (this deadline was 

revised to July 1, 2008, in the RY 2007 

LTCH PPS final rule). The purpose of 

that provision was to prevent any 

significant difference between actual 

payments and estimated payments for 

the 1st year of the LTCH PPS, when we 

established the budget neutral Federal 

rate as required by the statute (discussed 

previously), from being perpetuated in 

the PPS rates for future years. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27842 

through 27844), because the LTCH PPS 

was only recently implemented, 

sufficient new data had not been 

generated that would enable us to 

conduct a comprehensive reevaluation 

of our BN calculations. Therefore, in 

that same final rule, we did not 

implement a one-time adjustment under 

§ 412.523(d)(3) so that the effect of any 

significant difference between actual 

payments and estimated payments for 

the 1st year of the LTCH PPS would not 

be perpetuated in the PPS rates for 

future years. However, we stated that we 

will continue to collect and interpret 

new data as it becomes available in the 

future to determine if this adjustment 

should be proposed. Therefore, in the 

RY 2007 LTCH PPS final rule (71 FR 

27842), we revised § 412.523(d)(3) by 

changing the original October 1, 2006 

deadline (established in the August 30, 

2002 final rule that implemented the 

LTCH PPS) to July 1, 2008, to postpone 

the requirement due to the time lag in 

the availability of Medicare data upon 

which this adjustment would be based. 

As we discussed in the RY 2007 

LTCH PPS final rule (71 FR 27843 

through 27844), we now believe that 

after the conclusion of the 5-year 

transition period sufficient new data 

will be generated by the LTCH PPS for 

a comprehensive reevaluation of our FY 

2003 BN calculations. Specifically, we 

explained that the final year of the 5- 

year transition to LTCH PPS payments 

based on 100 percent of the Federal rate 

for all LTCHs will begin for cost 

reporting periods beginning on or after 

October 1, 2006 (FY 2007), and end with 

cost reporting periods beginning before 

October 1, 2007 (FY 2008). After the 

conclusion of the 5-year transition 

period (October 1, 2007), we expect to 

have between 3 and 4 years (FY 2003 

through FY 2006) of LTCH data 

generated since the implementation of 

the LTCH PPS. We note that there is a 

lag time between the submission of 

claims data and cost report data, and the 

availability of that data in the MedPAR 

files and HCRIS, respectively. Based on 

a comprehensive analysis of that data, 

we may then propose to make a onetime prospective adjustment to the 

LTCH PPS rates as provided for in 

§ 412.523(d)(3). As also explained in 

that same final rule, we believe that 

postponing the deadline of the possible 

one-time prospective adjustment to the 

LTCH PPS rates provided for in 

§ 412.523(d)(3) to July 1, 2008, would 

result in the availability of additional 

data generated under the LTCH PPS 

and, therefore, our decisions regarding a 

possible adjustment would be based on 

more complete and up-to-date data. This 

data would be reflective of LTCH 

behavior in response to the 

implementation of the LTCH PPS. 

Evaluating the appropriateness of the 

possible one-time prospective 

adjustment will entail a thorough 

review of the actual Medicare costs 

incurred by LTCHs during the 1st year 

of the LTCH PPS, that is, for LTCH cost 

reporting periods beginning on or after 

October 1, 2002 through September 30, 

2003. When we established the FY 2003 

standard Federal rate to be budget 

neutral, we used the most recent LTCH 

cost data available at that time, and 

trended that data forward to estimate 

what Medicare would have paid to 

LTCHs under the TEFRA payment 

system if the PPS were not implemented 

(67 FR 56033). Our methodology for 

estimating payments for the purposes of 

BN calculations, utilized the best 

available data and necessarily reflected 

assumptions in estimating aggregate 

payments that would have been made 

had the LTCH PPS not been 

implemented. (The methodology for 

determining the LTCH PPS standard 

Federal rate for FY 2003 that would 

‘‘maintain budget neutrality’’ is 

described in considerable detail in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56027 through 56037).) In that 

same final rule (67 FR 56036), we also 

stated our intentions to monitor LTCH 

PPS data to evaluate the ultimate 

accuracy of the assumptions used in the 

BN calculations (for example, inflation 

factors, intensity of services provided, 

or behavioral response to the 

implementation of the LTCH PPS). To 

the extent that those assumptions 

significantly differed from actual 

experience, the aggregate amount of 

actual payments during FY 2003 could 

be significantly higher or lower than the 


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estimates upon which the BN 

calculations were based. 

At the outset of the LTCH PPS, we 

provided for the possibility of a onetime prospective adjustment at 

§ 412.523(d)(3). Among other things, we 

wanted the opportunity to adjust the 

LTCH PPS Federal payment rate once 

data were available that reflected the 

actual cost-based payments that would 

have been made under the Medicare 

program during FY 2003 if the LTCH 

PPS had not been implemented, rather 

than perpetuate any significant 

difference between actual payments and 

estimated payments in the 1st year of 

the LTCH PPS used in determining the 

Federal rate into future years. Therefore, 

in the RY 2007 LTCH PPS final rule, we 

revised § 412.523(d)(3) to postpone the 

adjustment until July 1, 2008, because 

by that time, given the lag time typically 

involved in the entire cost report 

settlement procedure, we believe we 

will be able to utilize the most accurate 

data reflecting the actual costs incurred 

by LTCHs for cost reporting periods 

beginning during FY 2003. 

We continue to believe that collecting 

and evaluating new data as it becomes 

available will allow us to have the best 

data from the 1st year of the LTCH PPS 

upon which to base an adjustment such 

as this. As we explained in the RY 2007 

LTCH PPS final rule (71 FR 27844), 

there are many LTCHs with cost 

reporting periods from September 1 

through August 30 which first became 

subject to the LTCH PPS on September 

1, 2003. Given the lag time required for 

typical cost report settlement involving 

submission, desk review, and in some 

cases an audit, which can take 

approximately 2 additional years to 

complete (and we expect to audit a 

number of LTCH cost reports for the 

purpose of this analysis), we believe 

that the October 1, 2006 deadline 

established § 412.523(d)(3) is no longer 

reasonable or realistic. In fact, we 

believe that for cost reports for 

providers on August 2004 fiscal year 

ending date, we would be in possession 

of the most reliable cost report data, 

indicating the actual costs of the 

Medicare program of the LTCH PPS 

during the year in which we established 

the Federal payment rate by July 2007. 

Any proposed adjustment under 

§ 412.523(d)(3), if finalized could then 

be implemented on July 1, 2008. 

Therefore, at this time, for the reasons 

discussed in this section, we believe 

that we still do not have sufficient new 

data to enable us to conduct a 

comprehensive reevaluation of our FY 

2003 BN calculations. Accordingly, in 

this proposed rule, we are not proposing 

to make a one-time adjustment under 

§ 412.523(d)(3) at this time. 

V. Other Proposed Policy Changes for 

the 2008 LTCH PPS Rate Year 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘OTHER PROPOSED POLICY 

CHANGES FOR THE 2008 LTCH PPS 

RATE YEAR’’ at the beginning of your 

comments.] 

A. Short Stay Outlier (SSO) Cases 

1. Background 

In the August 30, 2002 rule for the 

LTCH PPS, under § 412.529, we 

established a special payment policy for 

SSO cases, that is, cases with a covered 

LOS that is less than or equal to fivesixths of the geometric average LOS for 

each LTC–DRG. When we established 

the SSO policy, we explained that ‘‘[a] 

short-stay outlier case may occur when 

a beneficiary receives less than the full 

course of treatment at the LTCH before 

being discharged (67 FR 55995). Also in 

the August 30, 2002 LTCH PPS final 

rule, we stated that when we first 

described the policy, in the March 27, 

2002 proposed rule, ‘‘* * * we based 

the proposed policy on the belief that 

many of these patients could have been 

treated more appropriately in an acute 

hospital subject to the acute care 

hospital inpatient prospective payment 

system’’ (67 FR 55995). Therefore, under 

the LTCH PPS, we implemented a 

special payment adjustment for SSO 

cases. Under the original SSO policy, for 

LTCH PPS discharges with a covered 

LOS of up to and including five-sixths 

the geometric average LOS for the LTC–

DRG, we adjusted the per discharge 

payment under the LTCH PPS by the 

least of 120 percent of the estimated cost 

of the case, 120 percent of the LTC–DRG 

specific per diem amount multiplied by 

the covered LOS of that discharge, or 

the full LTC–DRG payment 67 FR 55995 

through 56000). 

As noted previously, generally LTCHs 

are defined by statute as having an 

ALOS of greater than 25 days. We stated 

that we believed that the SSO payment 

adjustment results in more appropriate 

payments, since these cases most likely 

did not receive a full course of a LTCHlevel of treatment in such a short period 

of time and the full LTC–DRG payment 

would generally not be appropriate. 

Payment-to-cost ratio analyses indicated 

that if LTCHs received a full LTC–DRG 

payment for those cases, they would 

have been significantly ‘‘overpaid’’ for 

the resources they have actually 

expended in treating those patients (67 

FR 55995 through 56000). 

Furthermore, in establishing the SSO 

policy, we stated that we believed that 

providing a reduced payment for SSO 

cases would discourage hospitals from 

admitting these patients. We also 

believed that the policy did not severely 

penalize providers that, in good faith, 

had admitted a patient and provided 

some services before realizing that the 

beneficiary could receive more 

appropriate treatment at another site of 

care. As we explained in the FY 2003 

LTCH PPS final rule, establishing a SSO 

payment for these types of cases 

addresses the incentives inherent in a 

discharge-based PPS for LTCHs for 

treating patients with a short LOS (67 

FR 55995 through 56000). 

2. Additional Discussion of the SSO 

Payment Formula 

In the August 30, 2002 LTCH PPS 

final rule, when we first presented our 

rationale for establishing the SSO 

policy, we had proposed an adjustment 

to ensure appropriate payment for cases 

that we believed may have been 

transferred from an acute hospital 

prematurely. Even if a patient was an 

appropriate admission to the LTCH, we 

also believed that a short stay case at a 

LTCH most likely did not receive a full 

course of medical treatment during the 

short stay and that a full LTC–DRG 

payment would therefore, be 

inappropriate (67 FR 55995 through 

56000). 

In keeping with these concerns, and 

based on an evaluation of data from 

more than 3 years of the LTCH PPS, 

which revealed that a large percentage 

of SSOs had a covered LOS of 14 days 

or less, we revised our payment policy 

for SSO cases in the RY 2007 LTCH PPS 

final rule for subclause (I) LTCHs (71 FR 

27845 through 27870). 

Consistent with the Secretary’s broad 

authority ‘‘to provide for appropriate 

adjustments to the long-term hospital 

payment system * * *’’ established 

under section 123 of the BBRA as 

amended by section 307(b)(1) of BIPA, 

for RY 2007, we reduced the cost-based 

option of the SSO policy adjustment to 

100 percent of the estimated costs of the 

case for discharges occurring on or after 

July 1, 2006. We believed that by 

reducing the Medicare payment to a 

LTCH for a specific SSO case so that it 

would not exceed the estimated costs 

incurred for that case, we would be 

removing what we believed could be a 

financial incentive to admit and treat 

SSO cases that the then existing policy 

had established for LTCHs. We did not 

change the payment option of 120 

percent of the per diem for a specific 

LTC–DRG multiplied by the covered 

LOS for that case because as described 


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in detail in the FY 2003 final rule LTCH 

PPS, when we first established the SSO 

policy, we found that by adjusting the 

per discharge payment by paying at 120 

percent of the per diem LTC–DRG 

payment, once a stay reaches five-sixths 

of the geometric average LOS for the 

LTC–DRG, the full LTC–DRG payment 

will have been made (67 FR 55999). We 

continue to believe that this specific 

methodology, which results in a gradual 

increase in payment as the LOS 

increases without producing a 

significant payment ‘‘cliff’’ at any one 

point, provides a reasonable payment 

option under the SSO policy. 

However, an analysis of the FY 2004 

MedPAR data indicated that even under 

the existing SSO policy, LTCHs were 

admitting short stay patients that we 

believe could have continued treatment 

at the acute care hospitals (paid for 

under the IPPS) but could have been 

actually being prematurely discharged 

to LTCHs. Therefore, in the RY 2007 

LTCH PPS final rule, we added a fourth 

payment option. This fourth payment 

alternative, a blend of an LTCH PPS 

amount that is comparable to the IPPS 

per diem payment amount, and 120 

percent of the LTC–DRG per diem 

payment amount, as described below in 

this section, reflects our belief that as 

the length of a SSO stay increases, the 

case begins to resemble a more ‘‘typical’’

LTCH stay and, therefore, it is 

appropriate that incrementally, payment 

should be based more on what would 

otherwise be payable under the LTCH 

PPS and less on the IPPS-comparable 

amount. (Specifics of calculating the 

IPPS-comparable amount are set forth in 

considerable detail in the RY 2007 

LTCH PPS final rule (71 FR 27852 

through 27853). 

We noted at the outset of the LTCH 

PPS for FY 2003, that the LTCH 

standard rate was calibrated based on 

LTCH resources expended in treating a 

patient population requiring long stays. 

Therefore, in establishing the SSO 

policy at the beginning of the LTCH 

PPS, we determined that it was 

appropriate that we not pay a full LTC–

DRG payment for a patient stay not 

requiring those resources (67 FR 55995 

through 56000). Our revision of the 

payment formula for SSOs for RY 2007 

reflected our belief that where a case 

met our definition of a SSO at 

§ 412.529(a), as the covered LOS 

increased, the case began to more 

closely resemble a characteristic LTCH 

case (and less like a short term acute 

care hospital case). Therefore, it was 

appropriate to base an increasing 

percentage of payment for SSOs on the 

LTC–DRG payment amount and a 

decreasing percentage of the LTCH PPS 

payment amount based upon the IPPScomparable amount. 

We continue to believe that in 

defining a LTCH as a hospital with an 

inpatient ALOS of greater than 25 days 

in section 1886(d)(1)(B)(iv)(I) of the Act, 

that the Congress was focusing on LOS 

as the essential characteristic of this 

provider category. Furthermore, we 

believe that the statutory change 

requiring the establishment of the LTCH 

PPS emphasized that the payment 

system should reflect the different 

resource use related to inpatient 

hospital services provided by hospitals 

specified by section 1886(d)(1)(B)(iv) of 

the Act, that is, by LTCHs (71 FR 

27865). Specifically, we believe that the 

language of the statute indicates that the 

Congress believed that LTCHs treat or 

should be treating patients with 

different medical needs which results in 

those patients having a significantly 

longer LOS than those acute care 

hospital patients that we pay for under 

the IPPS. 

In section 4422 of the BBA of 1997, 

which required that the Secretary 

develop a legislative proposal for the 

establishment of a PPS for LTCHs, the 

Congress specified that the system 

‘‘shall include an adequate patient 

classification system that reflects the 

differences in patient resource use and 

costs among such hospitals.’’ Section 

123 of the BBRA of 1999, which 

required implementation of a PPS for 

LTCHs for cost reporting periods 

beginning on or after October 1, 2002, 

specified, among other things, that the 

system be a per discharge payment 

system, based on diagnosis-related 

groups (DRGs), and ‘‘reflects the 

differences in patient resource use and 

costs’’ of long-term care hospital 

patients. Section 307(b) of the BIPA of 

2000 required the Secretary ‘‘to examine 

the feasibility and the impact of basing 

payment under such a system on the use 

of existing (or refined) hospital DRGs 

that have been modified to account for 

different resource use of LTCH 

patients.’’

When we developed the LTCH PPS 

for FY 2003, the most recently available 

MedPAR data (generally, for FYs 1998 

and 1999) revealed that 52 percent of 

the Medicare patients at LTCHs 

nationwide had a LOS of less than twothirds of the ALOS for the LTC–DRG to 

which they were grouped. Of these 

cases, 20 percent had stays of less than 

8 days. Since payments under the LTCH 

PPS were based on the resources 

necessary for treatment requiring long 

term hospital-level stays, beginning 

with the start of the LTCH PPS, we 

established the SSO policy, to provide 

appropriate payment for stays that were 

significantly shorter than the ALOS for 

each specific LTC–DRG. 

The original SSO policy focused on 

our concerns that a SSO patient would 

generally receive less than the full 

course of treatment at the LTCH before 

being discharged and a full LTC–DRG 

payment would not be appropriate (67 

FR 55943, 55995 through 55996). As we 

noted in the RY 2007 LTCH PPS final 

rule, when we revised the SSO policy 

based on our analysis of the nearly 3 

years of data since we designed the 

LTCH PPS, we believed that our SSO 

policy should reflect our conviction that 

many SSO patients could otherwise 

have continued to receive appropriate 

care in the acute care hospital from 

which they were admitted. Had these 

patients not been discharged from the 

acute care hospital, the additional days 

of treatment would have continued to 

have been paid for under the IPPS (71 

FR 27845 through 27865). 

Section 123 of the BBRA, as amended 

by section 307(b) of the BIPA, confers 

broad authority on the Secretary to 

implement a PPS for LTCHs, including 

provisions for appropriate adjustments 

to the payment system. This broad 

authority gives the Secretary flexibility 

to fashion a LTCH PPS based on both 

original policies, as well as concepts 

borrowed from other payment systems 

that are adapted, where appropriate to 

the LTCH context. In the RY 2007 LTCH 

PPS final rule, we formulated a payment 

adjustment under the LTCH PPS that we 

believed would result in an appropriate 

payment adjustment for those inpatient 

stays that we believe are not 

characteristic of LTCHS but could be 

more appropriately treated in another 

setting. 

Subsequent to the RY 2007 LTCH PPS 

final rule, we have performed additional 

analysis of more recent data FY 2005 

MedPAR data, and have determined that 

42 percent of LTCH SSO discharges, or 

approximately 19,750 cases, had lengths 

of stay that were less than or equal to 

the average LOS plus one standard 

deviation of an IPPS discharge that is 

the same DRG as the LTC–DRG to which 

the case was assigned. (One standard 

deviation is a statistical test which 

measures the certainty of the average of 

a set of measurements for the purpose 

of data analysis. The standard deviation 

is the quantity commonly used by 

statisticians to measure the variation in 

a data set.) We believe that it is 

appropriate to compare the covered LOS 

of a LTCH case grouped to a particular 

LTC–DRG to the ALOS plus one 

standard deviation for the 

corresponding DRG under the IPPS. At 

one standard deviation, we have 

identified approximately 68 percent of 


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the IPPS cases within that DRG that 

were discharged from acute care 

hospitals and paid for under the IPPS. 

Using the statistical test of one standard 

deviation of the ALOS for each DRG 

under the IPPS, identifies the majority 

of IPPS discharges in any DRG. 

We believe that the 42 percent of 

LTCH SSO cases in the RY 2005 

MedPAR files with lengths of stay that 

are equal to or less than the IPPS ALOS 

plus one standard deviation for the 

same DRGs under the IPPS appear to be 

comparable to typical stays at acute care 

hospitals. 

Although LTCHs are certified by 

Medicare as acute care hospitals, we 

believe that the Congress intended for 

the higher LTCH PPS payments to be 

made to LTCHs that treat patients 

requiring prolonged hospital-level care. 

Payments under the LTCH PPS, in 

compliance with the statutory 

mandates, have been calibrated based 

on ‘‘the different resource use’’ of 

LTCHs as compared to acute care 

hospitals paid under the IPPS. We 

believe that we are ‘‘overpaying,’’ under 

the LTCH PPS, for those SSO cases in 

LTCHs with covered lengths of stay that 

are equal to or less than the typical IPPS 

ALOS (that is, a LOS that is less than 

or equal to the average IPPS LOS plus 

one standard deviation for the same 

DRG under the IPPS). 

We further believe that in excluding 

LTCHs from being paid under the IPPS, 

the Congress also recognized several 

types of hospital-level providers that 

offered a different type of treatment than 

could reasonably be paid for under the 

IPPS. Specifically, in the FY 2002 LTCH 

PPS final rule, we reviewed the history 

of LTCHs as hospitals excluded from the 

IPPS. At that time we quoted the 

legislative history of the 1983 Social 

Security Amendments which stated, 

with regard to LTCHs, that the ‘‘DRG 

system was developed for short-term 

acute care general hospitals and as 

currently constructed does not 

adequately account for special 

circumstances of diagnoses requiring 

long stays’’ (Report of the Committee on 

Ways and Means, U.S. House of 

Representatives, to Accompany HR 

1900, H.R. Rept. No. 98025, at 141 

(1983) (67 FR 55957)). Therefore, from 

the very outset of the IPPS, the Congress 

distinguished LTCHs from short term 

acute care hospitals by patients’ lengths 

of stay. The PPS for LTCHs that we 

implemented in FY 2003, complied 

with the statutory mandate, cited above 

in this section, that payments under the 

LTCH PPS be calibrated based on ‘‘the 

different resource use’’ of these longstay LTCH patients as distinct from the 

resources used to treat short stay 

patients at acute care hospitals and paid 

under the IPPS. Consequently, as we 

stated in the RY 2007 LTCH PPS final 

rule, we believe that ‘‘LTCHs that admit 

SSO patients with lengths of stay more 

typical of an acute care hospital may be, 

in fact, behaving like acute care 

hospitals’’ (71 FR 27847), and we also 

believe that it is reasonable for 

payments under the LTCH PPS for such 

cases to reflect this behavior. 

Our data indicates that for the 

approximately 350 LTCHs in existence 

during FY 2005 that discharged 

approximately 130,000 cases, 46,600 

discharges were SSO patients. During 

that same period, the approximately 

3,600 acute care hospitals throughout 

the United States discharged 

approximately 12.7 million Medicare 

beneficiaries. At the approximately 

3,600 acute care hospitals, treatment for 

Medicare patients is paid for under the 

IPPS, including those cases with a LOS 

that is the same as the LOS for SSO 

treated at a LTCH. However at a LTCH, 

even under the blend payment option of 

the SSO policy that we established for 

RY 2007, a percentage of the payment 

for those short stay patients at LTCHs 

may be based on a payment rate that 

was calculated to reflect the ‘‘different 

resource use’’ at LTCHs as compared to 

payment based on DRGs at acute care 

hospitals paid for under the IPPS. We 

believe that based on this analysis under 

the existing SSO policy for short stay 

patients where the patient’s LOS is less 

than or equal to the average LOS plus 

one standard deviation for the same 

DRG at an acute care hospital, paid for 

under the IPPS, our blended payment 

methodology could result in an 

excessive payment. 

Our data further indicates that 

typically LTCHs admit approximately 

80 percent of their patients from acute 

care hospitals where their urgent 

conditions have been diagnosed, 

treated, and stabilized. We believe that 

when these patients are admitted to a 

LTCH for an extremely short stay, the 

LTCH appears to be serving as a stepdown unit of the acute care hospital (71 

FR 27857 through 27858). (Section 

1886(d)(1)(B) of the Act, provides for the 

establishment of rehabilitation and 

psychiatric units of section 1886(d) 

hospitals (that is, acute care hospitals 

paid for under the IPPS) but not LTCH 

units.) 

As we stated in the RY 2007 LTCH 

PPS final rule, ‘‘* * * an analysis of the 

CY 2004 MedPAR files revealed that for 

specified DRGs for acute care cases 

following ICU/CCU days, there were 

significantly fewer ‘recuperative’ days 

(nearly 50 percent) for acute care outlier 

patients that were discharged from the 

acute care hospital and then admitted to 

a LTCH than for those patients that were 

discharged from the acute care hospital 

and not subsequently admitted to a 

LTCH. For example, under the IPPS for 

DRG 475 (Respiratory system diagnosis 

with ventilator support) and DRG 483 

(Trach with mechanical vent 96+ hours 

or PDX except face, mouth and neck 

diagnosis), the number of 

‘‘recuperative’’ days were considerably 

shorter at the acute care hospital if there 

was a discharge at the acute care 

hospital followed by an admission to a 

LTCH. The data in Table 5 is consistent 

with our belief that many LTCHs appear 

to be admitting some SSO patients that 

could have received the care at the acute 

care hospital. (71 FR 27857) 

TABLE 5.—HCO LOS, ICU/CCU LOS, AND POST-ICU/CCU LOS FOR SELECTED INPATIENT DRGS BY POST-DISCHARGE

STATUS

[Live discharges only] 

DRG Cases LOS Outlier ICU/ 

CCU days 

Post ICU/ 

CCU days 

475 (no LTCH) ............................................................................................................. 3,887 32.5 20 .5 12 

475 (with LTCH) .......................................................................................................... 515 29.6 22 .6 7 

483 (no LTCH) ............................................................................................................. 3,257 73.6 53 .6 20 

483 (with LTCH) .......................................................................................................... 2,353 45.7 41 4 .7 

In our analysis of what we believe are 

excessive payments under the existing 

LTCH PPS for the shortest SSOs, we are 

focusing on those SSO cases where a 

LTCH patient’s covered LOS at the 

LTCH is less than or equal to the ALOS 


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plus one standard deviation for the 

same DRG at acute care hospitals (the 

‘‘IPPS comparable threshold’’) and 

distinguishing between those SSO cases 

with lengths of stay that are less than or 

equal to the ‘‘IPPS comparable 

threshold’’ from those that exceed that 

threshold. 

For the purposes of this discussion, 

whether the LTCH SSO case is within 

the ‘‘IPPS comparable threshold’’ is 

determined by comparing the covered 

LOS of that SSO case which has been 

assigned to a particular LTC–DRG to the 

ALOS for the same DRG under the IPPS. 

For example, if the covered LOS of the 

LTCH SSO case is equal to or less than 

the average LOS plus one standard 

deviation for the same DRG under the 

IPPS, the LTCH SSO case would be 

within the ‘‘IPPS comparable 

threshold’’. We believe an alternative 

payment option would be appropriate 

for such a case. We are considering an 

approach where if the covered LOS was 

equal to or less than the ‘‘IPPS 

comparable threshold’’ (defined above 

in this section) of the same DRG under 

the IPPS, the SSO payment 

methodology could be revised so that 

payment would be based upon the least 

of 100 percent of estimated costs of the 

case as determined under 

§ 412.529(d)(2); 120 percent of the LTC–

DRG per diem multiplied by the covered 

LOS of the case as determined under 

§ 412.529(d)(1); the Federal prospective 

payment for the LTC–DRG as 

determined under § 412.529(d)(3); or an 

LTCH PPS amount comparable to the 

IPPS per diem amount as defined at 

§ 412.529(d)(4), not to exceed the full 

IPPS comparable amount. 

We would note that the RTI Report, 

discussed in Section XI. of this 

proposed rule, includes an RTI 

recommendation that ‘‘* * * for LTCH 

cases whose LOS is within 1 standard 

deviation of the IPPS average LOS, 

LTCHs should be paid the IPPS rate. 

When this occurs, it suggests that LTCH 

is providing general acute care for these 

patients. This will allow LTCHs to treat 

these cases but be paid on an equitable 

basis with other acute hospitals since 

the shorter length stay would suggest 

general acute treatment is being 

provided.’’ (Recommendation 11, p. 

139) (We discuss the RTI report in 

Section XI. and have included the 

Executive Summary of the RTI Report as 

Addendum B of this proposed rule.) 

Under this approach, SSO cases with 

covered lengths of stay that exceed the 

‘‘IPPS comparable threshold’’ would 

continue to be paid under the existing 

SSO payment policy at § 412.529(c)(2) 

which is the least of: 100 percent of the 

estimate cost of the case as determined 

under § 412.529 (d)(2); 120 percent of 

the per diem of the LTC–DRG 

multiplied by the covered LOS of the 

case as determined under 

§ 412.529(d)(1); the Federal prospective 

payment for the LTC–DRG as 

determined under § 412.529(d)(3); or a 

blend of the 120 percent of the LTC–

DRG specific per diem amount and an 

amount comparable to the IPPS per 

diem amount as set forth in § 412.529 

(c)(2)(iv). (The methodology for the 

calculation of these amounts is specified 

at § 412.529(d).) 

We believe this approach is 

appropriate because we believe that we 

should continue to ensure that the 

LTCH PPS payments are appropriate for 

all cases; including those with a LOS 

that resemble cases typically treated at 

acute care hospitals. Therefore, as noted 

in the above discussion in this section, 

for the shortest SSO cases (that is, if the 

LTCH patient’s covered LOS is less than 

or equal to the ‘‘IPPS-comparable 

threshold’’), the IPPS comparable per 

diem amount, capped at the full IPPS 

comparable amount that is used under 

the blend option of the current SSO 

policy, under this approach could be the 

fourth payment option in the SSO 

payment formula, replacing the blend 

option in the adjusted LTCH PPS 

payment formula at existing 

§ 412.529(c)(2)(iv). We are considering 

this policy because we believe that 

based on our analysis for this particular 

type of case, it is inappropriate for 

Medicare to pay a LTCH a LTCH PPS 

payment that results in a per discharge 

payment amount that is greater than a 

hospital paid under the IPPS. Consistent 

with this approach, those SSO cases 

where the covered LOS exceeded the 

‘‘IPPS-comparable threshold,’’ payment 

(that is, cases that more closely resemble 

a characteristic LTCH case and less a 

short term acute care hospital case) 

would continue to be made under the 

existing SSO policy at § 412.529(c)(2). 

In considering this policy direction, at 

the present time, we do not believe that 

this approach for SSOs would be 

appropriate for the specific situation of 

a subsection (II) LTCH (that is, a LTCH 

meeting the definition specified in 

section 1886(d)(1)(B)(iv)(II) of the Act). 

We have addressed the uniqueness of 

this type of LTCH in several notices ((62 

FR 45966, 46016, and 46026), (67 FR 

55954 and 55974), (68 FR 34147 through 

34148) (71 FR 27863)). We believe that 

subclause (II) LTCHs operate under a 

unique Congressional mandate which, 

as set forth in section 

1886(d)(1)(B)(iv)(II) of the Act, 

circumscribes such a LTCHs’ admission 

policies to the extent that it is being 

identified as a LTCH in order to provide 

a particular type of service (for which 

the ALOS is greater than 20 days) to a 

particular population (at least 80 

percent have a principal diagnosis of 

neoplastic disease) (68 FR 34147). 

Exempting subsection (II) LTCHs under 

this approach is consistent with 

positions regarding the application of 

SSO policies to subclause (II) LTCHs. 

For example, in RY 2004, we provided 

a distinctive phase-in formula for 

subclause (II) LTCHs (§ 412.529(e)), and 

in the RY 2007 LTCH PPS final rule, we 

did not apply SSO policy revisions for 

subclause (I) LTCHs (§ 412.529(c)(2)) to 

subclause (II) LTCHs ((68 FR 34122, 

34147 through 34148) (71 FR 

27798,27863)). 

To encourage a thorough and accurate 

evaluation of this approach, we have 

included a column in Table 3 of 

Addendum A of this proposed rule, 

which sets forth what would be the 

IPPS-comparable threshold for each 

LTC–DRG. We note that to determine 

the ‘‘IPPS Comparable Threshold’’ for 

some DRGs it may be necessary to 

supplement IPPS hospital statistical 

data due to a low volume of IPPS cases 

grouped to those DRGs. In addition, 

although IPPS hospital statistical data 

for the six transplant DRGs (103, 302, 

480, 495, 512 and 513) and two error 

DRGs (469 and 470) may be available, 

we could assign a value of zero for the 

‘‘IPPS Comparable Threshold’’ for these 

LTC–DRGs. This is consistent with our 

on-going policy under the LTCH PPS to 

assign a value of 0.0000 to the relative 

weights for these LTC–DRGs, as 

discussed in section III.D. 

As we have stated in this section, we 

continue to be concerned about 

appropriate payment for SSO cases 

under the LTCH PPS, and therefore, we 

are considering a policy change for the 

purpose of differentiating between those 

SSO cases that we believe are more 

appropriately admitted and treated at 

LTCHs as distinguished from those with 

a LOS that resemble cases typically 

treated at acute care hospitals. As 

described in this section, for the shortest 

SSO cases (that is, if the LTCH patient’s 

covered LOS is less than or equal to the 

‘‘IPPS-comparable threshold’’), the IPPS 

comparable per diem amount, capped at 

the full IPPS-comparable amount that is 

used under the blend option of the 

current SSO policy, could be the fourth 

payment option in the SSO payment 

formula, replacing the blend option in 

the adjusted LTCH PPS SSO payment 

formula at existing § 412.529(c)(2)(iv). 

Consistent with this approach, those 

SSO cases where the covered LOS 

exceeded the ‘‘IPPS-comparable 

threshold,’’ payment (that is, cases that 

more closely resemble a characteristic 


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LTCH case and less a short term acute 

care hospital case) would continue to be 

made under the existing SSO policy at 

§ 412.529(c)(2). 

As we detailed in this discussion, we 

are concerned as to whether it is 

appropriate to pay cases that have a 

covered LOS in the LTCH that is less 

than or equal to the IPPS ALOS plus one 

standard deviation for the same DRG 

more than would be paid under the 

IPPS for a similar case. We are 

interested in soliciting comments on 

this approach as well as suggestions as 

to alternative ways in which to address 

our concerns. 

Technical Correction. 

We are proposing a technical 

correction to existing § 412.529(a) which 

would add the term ‘‘covered’’

immediately before the phrase ‘‘length 

of stay’’ in the initial definition of a SSO 

case. This technical correction is not a 

substantive policy change but rather 

corrects the regulatory definition of a 

SSO case so that it is consistent with 

policy determinations that we have 

made since the FY 2003 implementation 

of the LTCH PPS. We would note that 

utilizing only Medicare covered days for 

payment purposes has been our policy 

from the outset of the LTCH PPS, as is 

specified at § 412.503 where we defined 

‘‘discharge’’ for purposes of payment, as 

‘‘* * * when the patient stops receiving 

Medicare-covered long-term care 

services * * *’’ Furthermore, in 

subsequent revisions of our SSO policy, 

we included the term ‘‘covered’’ in new 

regulation text, that is, 

§ 412.529(c)(2)(iv)(A) and proposed 

§ 412.529(c)(3)(i)(B) and (c)(3)(ii)(B). We 

are proposing this technical correction 

to conform all references in the 

regulation text at § 412.529 to our 

existing policy regarding a SSO 

discharge which is determined based on 

the number of ‘‘covered’’ days in the 

patient stay. 

3. Determination of Cost-to-Charge 

Ratios (CCRs) 

In the FY 2007 IPPS final rule (71 FR 

48117 through 48121), similar to the 

revisions to the HCO policy as 

discussed in IV.D.3.d. of the preamble of 

this proposed rule, we revised our 

methodology for determining the annual 

CCR ceiling and Statewide average CCRs 

under the LTCH PPS because we believe 

that those changes are more consistent 

with the LTCH PPS single payment rate 

for inpatient operating and capital costs. 

Under the broad authority of section 123 

of the BBRA and section 307(b)(1) of 

BIPA, for discharges occurring on or 

after October 1, 2006, the LTCH CCR 

ceiling specified under 

§ 412.529(c)(3)(iv)(C)(2) is calculated as 

three standard deviations above the 

corresponding national geometric mean 

total CCR (established and published 

annually by CMS). (As discussed in 

greater detail in this section, the FI may 

use a Statewide average CCR if, among 

other things, a LTCH’s CCR is in excess 

of the LTCH CCR ceiling.) The LTCH 

total CCR ceiling is determined based on 

IPPS CCR data, by first calculating the 

‘‘total’’ (that is, operating and capital) 

IPPS CCR for each IPPS hospital and 

then determining the average ‘‘total’’

IPPS CCR for all hospitals. The LTCH 

CCR ceiling is then established at 3 

standard deviations from the 

corresponding national geometric mean 

total CCR. (For further detail on our 

methodology for annually determining 

the LTCH CCR ceiling, refer to the FY 

2007 IPPS final rule (71 FR 48117 

through 48119).) We also established 

that the LTCH ‘‘total’’ CCR ceiling used 

under the LTCH PPS will continue to be 

published annually in the IPPS 

proposed and final rules, and the public 

should continue to consult the annual 

IPPS proposed and final rules for 

changes to the LTCH total CCR ceiling 

that would be effective for discharges 

occurring on or after October 1 each 

year. Accordingly, in the FY 2007 IPPS 

final rule (71 FR 48119), we established 

a FY 2007 LTCH total CCR ceiling of 

1.321, effective for discharges occurring 

on or after October 1, 2006. 

In addition, under the broad authority 

of section 123 of the BBRA and section 

307(b)(1) of BIPA, for discharges on or 

after October 1, 2006, we revised our 

methodology to determine the Statewide 

average CCRs under 

§ 412.529(c)(3)(iv)(C) for use under the 

LTCH PPS in a manner similar to the 

way we compute the ‘‘total’’ LTCH CCR 

ceiling using IPPS CCR data (71 FR 

48120). Specifically, under this revised 

methodology, we first calculate the total 

(that is, operating and capital) CCR for 

each IPPS hospital. We would then 

calculate a weighted average ‘‘total’’

CCR for all IPPS hospitals in the rural 

areas of the State and weighted average 

‘‘total’’ CCR for all IPPS hospitals in the 

urban areas of the State. (For further 

detail on our methodology for annually 

determining the LTCH urban and rural 

Statewide average CCRs, refer to the FY 

2007 IPPS final rule (71 FR 48119 

through 48121).) We also established 

that the applicable Statewide average 

‘‘total’’ (operating and capital) CCRs 

used under the LTCH PPS will continue 

to be published annually in the IPPS 

proposed and final rules, and the public 

should continue to consult the annual 

IPPS proposed and final rules for 

changes to the applicable Statewide 

average total CCRs that would be 

effective for discharges occurring on or 

after October 1 each year. Accordingly, 

in the FY 2007 IPPS final rule (71 FR 

48122), the FY 2007 LTCH PPS 

Statewide average total CCRs for urban 

and rural hospitals, effective for 

discharges occurring on or after October 

1, 2006, were presented in Table 8C of 

the Addendum of that final rule (71 FR 

48303). 

Additionally, in the FY 2007 IPPS 

final rule (71 FR 48119), under the 

broad authority of section 123 of the 

BBRA and section 307(b)(1) of BIPA, we 

established under the LTCH PPS SSO 

policy at § 412.529(c)(3)(iv)(C) that the 

FI may use a Statewide average CCR, 

which is established annually by CMS, 

if it is unable to determine an accurate 

CCR for a LTCH in one of the following 

three circumstances: (1) New LTCHs 

that have not yet submitted their first 

Medicare cost report (for this purpose, 

a new LTCH would be defined as an 

entity that has not accepted assignment 

of an existing hospital’s provider 

agreement in accordance with § 489.18); 

(2) LTCHs whose CCR is in excess of the 

LTCH CCR ceiling; and (3) other LTCHs 

for whom data with which to calculate 

a CCR are not available (for example, 

missing or faulty data). Other sources of 

data that the FI may consider in 

determining a LTCH’s CCR included 

data from a different cost reporting 

period for the LTCH, data from the cost 

reporting period preceding the period in 

which the hospital began to be paid as 

a LTCH (that is, the period of at least 6 

months that it was paid as a short-term 

acute care hospital), or data from other 

comparable LTCHs, such as LTCHs in 

the same chain or in the same region. 

Furthermore, in the FY 2007 IPPS 

final rule (71 FR 48121), we established 

under § 412.529(c)(3)(iv)(B) that, for 

discharges occurring on or after October 

1, 2006, the CCR applied at the time a 

claim is processed will be based on 

either the most recently settled cost 

report or the most recent tentatively 

settled cost report, whichever is from 

the latest cost reporting period. Under 

the broad authority of section 123 of the 

BBRA and section 307(b)(1) of BIPA, in 

that same final rule, we also established 

at § 412.529(c)(3)(iv)(A) that, for 

discharges occurring on or after October 

1, 2006, we may specify an alternative 

to the CCR computed under 

§ 412.529(c)(3)(iv)(B) (that is, computed 

from the most recently settled cost 

report or the most recent tentatively 

settled cost report, whichever is later), 

or a hospital may also request that the 

FI use a different (higher or lower) CCR 

based on substantial evidence presented 

by the hospital. A complete discussion 


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of these revisions to our methodology 

for determining a LTCH’s CCR is 

discussed in the FY 2007 IPPS final rule 

(71 FR 48119 through 48121). 

4. Reconciliation of SSO Cases 

In the FY 2007 IPPS final rule (71 FR 

48121 through 48122), under the broad 

authority of section 123 of the BBRA 

and section 307(b)(1) of BIPA, we 

revised § 412.529(c)(3)(iv)(D) through 

(E), for discharges occurring on or after 

October 1, 2006, to codify in subpart O 

of 42 CFR part 412 the provisions 

concerning the reconciliation of LTCH 

PPS outlier payments, including 

editorial clarifications discussed in 

greater detail below in this section, that 

would more precisely describe the 

application of those policies. 

Specifically, at § 412.529(c)(3)(iv)(D), 

similar to our current policy, we 

specified that for discharges occurring 

on or after October 1, 2006, any 

reconciliation of outlier payments will 

be based on the CCR calculated based 

on a ratio of costs to charges computed 

from the relevant cost report and charge 

data determined at the time the cost 

report coinciding with the discharge is 

settled. In addition, at 

§ 412.529(c)(3)(iv)(E), we specified that 

for discharges occurring on or after 

October 1, 2006, at the time of any 

reconciliation, outlier payments may be 

adjusted to account for the time value of 

any underpayments or overpayments. 

Such an adjustment will be based upon 

a widely available index to be 

established in advance by the Secretary 

and will be applied from the midpoint 

of the cost reporting period to the date 

of reconciliation. We made these 

additional revisions to § 412.529(c)(3) 

because we believe that these changes 

would be more consistent with the 

LTCH PPS single payment rate, and 

because we believe it would be more 

appropriate and administratively 

simpler to include all of the regulatory 

provisions concerning the 

determination of LTCH PPS outlier 

payments applicable under the LTCH 

PPS regulations at subpart O of 42 CFR 

part 412. (For a complete discussion on 

the revisions made to the SSO 

reconciliation policy, refer to the FY 

2007 IPPS final rule (71 FR 48121 

through 48122).) 

B. Proposed Expansion of Special 

Payment Provisions for LTCH Hospitals 

Within Hospitals (HwHs) and LTCH 

Satellites: Proposed Expansion of the 25 

Percent Rule to Certain Situations Not 

Currently Covered Under Existing 

§ 412.534 

In the FY 2005 IPPS final rule we 

established the special payment 

provisions at § 412.534 for LTCHs that 

are HwHs and for satellites of LTCHs 

that are co-located with host hospitals. 

In developing that policy, we were 

particularly concerned with patient 

shifting between the host acute care 

hospitals and the co-located LTCH HwH 

or satellite for financial rather than for 

medical reasons, a scenario that we 

believed was encouraged by physical 

proximity, and that resulted in 

inappropriate increased cost to the 

Medicare program (69 FR 49191). We 

specified in the FY 2005 IPPS final rule 

that the payment adjustment for colocated LTCHs at § 412.534 was also 

applicable to hospitals other than acute 

care hospitals that served as hosts to 

both LTCH HwHs and satellites of 

LTCHs and that we had similar 

concerns to those stated above regarding 

patient shifting between such hosts and 

their co-located LTCHs. However, the 

vast majority of host hospitals continue 

to be acute care hospitals (69 FR 49198). 

In the FY 2005 IPPS final rule, we 

quoted the FY 1995 IPPS final rule 

where we first discussed the concern 

that LTCH HwHs were, in effect, 

operating as step-down units of acute 

care hospitals. We explained that this 

was inconsistent with the statutory 

framework and that such a configuration 

could lead to two Medicare bills being 

submitted (one from the acute care 

hospital and the other from the LTCH) 

for what was essentially one episode of 

care (69 FR 49191 through 49192, 59 FR 

45389). 

When we first established the 

separateness and control criteria for 

LTCH HwHs at § 412.22(e) in the FY 

1995 IPPS final rule, our main objective 

was to address the shifting of costly, 

long-stay patients from the host to the 

on-site LTCH, resulting in two hospital 

stays which would result in a financial 

windfall for both providers. We sought 

to protect the integrity of the IPPS by 

ensuring that those costly, long-stay 

patients who could reasonably continue 

treatment in an acute care hospital 

would not be unnecessarily discharged 

to an onsite LTCH, a behavior that 

would undermine the Medicare IPPS 

DRG payment system for acute care 

hospitals. We explained that the Federal 

standardized payment amount for the 

IPPS was based on the average cost of 

an acute care patient across all acute 

care hospitals. This is premised on the 

assumption that, on average, both highcost and low-cost patients are treated at 

hospitals. Although we might pay a 

hospital less than was expended for a 

particular costly case, the hospital 

would also receive more than was 

expended for other less costly cases. 

However, an acute care hospital that 

consistently discharges higher cost 

patients to a post-acute care setting for 

the purpose of lowering its costs, 

undercuts the foundation of the IPPS 

DRG payment system which is based on 

averages, as noted above. In this 

circumstance, the hospital 

inappropriately would have incurred 

lower costs under the IPPS because the 

course of acute treatment had not been 

completed and the hospital did not 

incur those additional costs for what 

would have been the remainder of the 

patient’s stay at the IPPS acute care 

hospital. We were concerned that once 

that patient was discharged from the 

IPPS acute care hospital, the patient, 

still under active treatment for the same 

condition, would be admitted to a 

LTCH, thereby generating a second 

admission and Medicare payment that 

would not have taken place but for the 

availability of the LTCH (59 FR 45389 

through 45393). 

With the growth of satellite entities, 

another category of co-located facility, 

we established ‘‘separateness and 

control’’ policies applicable to satellites 

of excluded hospitals, which we defined 

at § 412.22(h) as ‘‘a part of a hospital 

that provides inpatient services in a 

building also used by another hospital 

or in one or more entire buildings 

located on the same campus as 

buildings used by another hospital.’’ In 

the FY 2003 IPPS final rule at 

§ 412.22(h), we finalized additional 

regulations governing the satellites of 

hospitals (64 FR 41532 through 41535 

and 67 FR 50105 through 50106). 

As detailed in the FY 2005 proposed 

rule and final rule for the IPPS (69 FR 

28323 through 28327, 69 FR 49191 

through 49214), with the explosive 

growth in the number of LTCH HwHs 

and concomitant cost to the Medicare 

program, we reevaluated the 

effectiveness of existing policies 

regarding HwHs. (OSCAR data showed 

that there were 105 LTCHs in 1993 of 

which 10 were HwHs. By October 2005, 

there were 373 LTCHs of which most 

were HwHs.) We reconsidered whether 

our regulations sufficiently protected 

the Medicare program from the 

problems that we envisioned in the FY 

1995 IPPS final rule, as discussed in this 

section. We also questioned the 

effectiveness of the ‘‘performance of 

basic hospital functions’’ aspect of the 

‘‘separateness and control’’

requirements alone because we were 

aware that some co-located providers 

had been establishing complex 

arrangements among corporate affiliates, 

and had obtained services from those 

affiliates, masking true corporate 

identities and therein diluting or 

impairing the effectiveness of the 


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separateness criteria in determining 

whether both hospitals were 

interrelated. While technically 

remaining within the parameters of the 

rule, these arrangements intermingled 

corporate interests so that the corporate 

distinctness was lost, thus side-stepping 

the intent of our regulations. (Although 

we have had similar concerns regarding 

patient movement between host 

hospitals and their satellites, there had 

never been any ‘‘performance of basic 

hospital functions’’ criteria established 

in § 412.22(h) because satellites are part 

of another hospital, and therefore, share 

a Medicare provider number with ‘‘the 

hospital of which they are a part’’ thus 

making it administratively burdensome 

to distinguish between the inpatient 

operating costs of the main hospital and 

its satellite(s).) 

In the FY 2005 IPPS final rule, 

following serious consideration of the 

public comments that we received on 

our proposed policy revisions for LTCH 

HwHs and satellites (69 FR 28323 

through 28327) and further evaluation 

of the issues, regulatory changes were 

finalized for HwH separateness and 

control policies at § 412.22(e) and a new 

payment adjustment was established for 

LTCH HwHs and for satellites of LTCHs 

at § 412.534. (We wish to note that the 

term ‘‘satellite facility’’ in this section 

refers to satellites of excluded hospitals, 

in particular, LTCHs, and does not 

include satellites of excluded units at 

§ 412.25.) 

Specifically, in the FY 2005 IPPS final 

rule (69 FR 49091 through 49214), 

effective for cost reporting periods 

beginning on or after October 1, 2004, 

for LTCHs we eliminated the 

performance of basic hospital functions 

test under § 412.22(e)(5)(i), the 15 

percent test under existing 

§ 412.22(e)(5)(ii), and the 75 percent of 

admissions from other than the host 

criteria at § 412.22(e)(5)(iii). A LTCH 

that met administrative separateness 

and control requirements at 

§ 412.22(e)(1)(i) through (e)(1)(iv), under 

our finalized policy, satisfied the LTCH 

HwH requirements. (As noted above in 

this section, the performance of basic 

hospital functions test does not exist for 

satellites. Therefore, we did not 

similarly revise § 412.22(h).) However, 

we established a payment adjustment 

based upon an annual threshold criteria 

for LTCH HwHs or LTCH satellites at 

§ 412.534 of 25 percent (or an applicable 

percentage) for LTCH discharges who 

were admitted from their host hospitals. 

Section 412.534, Special payment 

provisions for long-term care hospitals 

within hospitals and satellites of longterm care hospitals, provides that if a 

LTCH HwH or LTCH satellite’s 

discharges that were admitted from its 

host hospital exceed 25 percent (or the 

applicable percentage) of its total 

Medicare discharges for the LTCH HwH 

or LTCH satellite’s cost reporting 

period, an adjusted payment would be 

made at the lesser of the otherwise 

payable amount under the LTCH PPS or 

the amount payable under the LTCH 

PPS that would be equivalent to what 

Medicare would otherwise pay under 

the IPPS. In determining whether a 

hospital met the 25 percent (or 

applicable percentage) criterion, 

patients transferred from the host 

hospital that had already qualified for 

outlier payments at the host would not 

count as a discharge that had been 

admitted from the host. (We commonly 

refer to this throughout the preamble 

and regulations text as the discharge not 

being counted towards the applicable 

threshold.) 

It is important to note that if the 

hospital exceeds its threshold, LTCH 

discharges admitted from the host 

before the LTCH exceeds the 25 percent 

threshold, would be paid an otherwise 

unadjusted payment under the LTCH 

PPS. That is, not adjusted by § 412.534. 

We also finalized additional 

adjustments to the 25 percent policy for 

specific circumstances. For LTCH HwHs 

or LTCH satellites located in a rural 

area, there is no payment adjustment 

applied under § 412.534 if no more than 

50 percent rather than 25 percent of the 

Medicare patients discharged were 

admitted from the host. In addition, in 

determining the percentage of patients 

admitted from the host, any patients 

that had been Medicare outliers at the 

host and then discharged to the rural 

LTCH HwH or LTCH satellite would be 

considered as if they were admitted to 

the LTCH or satellite from a non-host 

hospital. In addition, in the case of a 

LTCH or LTCH satellite facility that was 

co-located with the only other hospital 

in the MSA or with an MSA-dominant 

hospital, as defined at § 412.534(e)(4), 

we provided a payment threshold that 

we believed responded to ‘‘the unique 

needs of these communities’’ (69 FR 

49207). Under § 412.534(e)(2), we do not 

adjust payments to those LTCH HwHs 

or LTCH satellite facilities as long as the 

percentage of Medicare patients 

discharged from the LTCH HwH or 

LTCH satellite that were admitted from 

the urban single or MSA dominant host 

hospital, did not exceed the percentage 

of the total Medicare discharges in the 

MSA in which the hospital is located 

that were discharged from the host 

hospital, for the cost reporting period 

for which the adjustment would be 

made, but in no case is the percentage 

less than 25 percent or more than 50 

percent. In addition, in determining the 

percentage of patients admitted to the 

LTCH from the urban single or MSA 

dominant host hospital, any patients 

that had been Medicare outliers at the 

host and then transferred to the LTCH 

HwH or LTCH satellite would be 

considered as if they were admitted to 

the LTCH from a non-host hospital. 

(When we refer to ‘‘the 25 percent (or 

applicable percentage)’’ patient 

threshold throughout this proposed 

rule, the ‘‘applicable percentage’’ refers 

to these special adjustments that we 

have provided for the special 

circumstances of rural, urban single, or 

MSA-dominant hospital or to the 

percentage associated with the 

transition policy, discussed below in 

this section.) 

When implementing this policy, we 

also provided for a 4-year transition for 

existing LTCH HwHs or LTCH satellites 

that met the applicable criteria outlined 

in the regulations to allow a reasonable 

period during which hosts and colocated LTCH HwH or LTCH satellites 

and specific ‘‘LTCHs under formation’’

would be able to adapt to the 

requirements of the new policy. For cost 

reporting periods beginning on or after 

October 1, 2004 through September 30, 

2005, these transitioned hospitals were 

to be grandfathered, with the 1st year as 

a ‘‘hold harmless’’ year. However, we 

required that even for these facilities 

that were being phased-in to the full 

payment adjustment, in the first cost 

reporting period, the hold harmless 

year, the percentage of discharges 

admitted from the host hospital to the 

LTCH could not exceed the percentage 

of discharges admitted from the host 

hospital to the LTCH HwH or LTCH 

satellite in its FY 2004 cost reporting 

period. (For the purposes of § 412.534, 

we established the hospital’s cost 

reporting period during FY 2004, the 

last cost reporting period prior to the 

implementation of § 412.534, as a ‘‘base 

period’’ for purposes of establishing the 

gradual phase-in of the full payment 

threshold adjustment (69 FR 49196). 

Therefore, while we allowed for a 4- 

year transition for those above specified 

LTCH HwHs and satellites for cost 

reporting periods beginning on or after 

October 1, 2004 and before October 1, 

2005 (FY 2005), payments to the LTCH 

hospital or LTCH satellite facility would 

be limited based on the percentage that 

it had admitted during its FY 2004 cost 

reporting period. After the first 

grandfathered cost reporting period, 

these LTCH HwHs and LTCH satellite 

facilities were required to meet a 

percentage transition over the 3-year 

period beginning in FY 2006. For the 

second year (cost reporting periods 


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beginning on or after October 1, 2005 

but before October 1, 2006), the 

percentage of Medicare discharges that 

may be admitted from the host with no 

adjustment may not exceed the lesser of 

the percentage of their discharges 

admitted from their host during its FY 

2004 cost reporting period or 75 

percent. For the third year (cost 

reporting periods beginning on or after 

October 1, 2006 but before October 1, 

2007), the percentage of Medicare 

discharges that may be admitted from 

the host with no adjustment may not 

exceed the lesser of the percentage of its 

Medicare discharges admitted from its 

host during its FY 2004 cost reporting 

period beginning or 50 percent, and 

finally, 25 percent (or other applicable 

percentage) beginning with the fourth 

year (cost reporting periods beginning 

on or after October 1, 2007). 

Additionally, the 25 percent policy for 

co-located LTCHs is currently 

implemented in a location-specific 

manner, which means that the 

computation of the percentage of LTCH 

HwH or LTCH satellite discharges 

admitted from a host is based solely on 

the admissions from the physically colocated host and not from other 

campuses or remote locations which 

may share a common Medicare provider 

number with the host. 

Although the payment adjustment at 

§ 412.534 focused on LTCH HwHs and 

satellites of LTCHs and its host 

hospitals, the relationship between a 

receiving provider and any referring 

hospital has been an issue of concern for 

the Medicare program, even in the 

absence of co-location. Under section 

1886(d)(5)(J) of the Act, added by 

section 4407 of the BBA of 1997, the 

Congress provided for a post-acute 

transfer policy which addressed certain 

patient discharges from acute care 

hospitals that subsequently received 

additional treatment delivered by a 

second Medicare provider. We believe 

that the Congress enacted this 

legislation to discourage acute care 

hospitals from prematurely discharging 

patients to another treatment setting in 

order to increase Medicare payment. 

The Congress’ enactment of the 

legislation authorizing the post-acute 

transfer policy is indicative of its 

serious concerns about patient shifting 

between acute and post-acute providers. 

In the case of the post-acute transfer 

policy, described above in this section, 

we focused on overpayment, under the 

IPPS, to the transferring hospital when 

a patient is prematurely discharged to 

another provider during the same 

episode of illness. 

The payment adjustment for colocated LTCHs at § 412.534 was based 

on concerns similar to those underlying 

the post-acute transfer policy at § 412.4, 

that is, an inappropriately truncated 

hospitalization at a host facility and an 

admission to another provider, 

specifically a LTCH, for which an 

additional Medicare payment would be 

generated. However, the payment 

adjustment at § 412.534 is not applied to 

the transferring hospital but rather, to 

discharges from the co-located LTCH to 

which the presumably prematurely 

discharged patient has been admitted. 

Moreover, although the referring 

hospital under the post-acute transfer 

policy must be an acute care hospital, 

for the purposes of the payment 

adjustment at § 412.534, any hospital is 

a potential host if it is co-located with 

a LTCH HwH or LTCH satellite. 

The payment adjustment under 

§ 412.534 applies only to determining 

payments under the LTCH PPS for 

patients discharged from the LTCH or 

LTCH satellite which had been admitted 

to the LTCH or LTCH satellite from the 

onsite host hospital. For example, if an 

IRF was co-located with an LTCH HwH 

and upon discharge from the IRF, the 

patient was admitted to the onsite 

LTCH, upon discharge from the LTCH, 

Medicare payment for that LTCH 

discharge, would be governed by 

§ 412.534 (69 FR 49198). This would 

also be the case for a patient shifted to 

a LTCH from a co-located host acute 

care hospital following complications 

from a surgical procedure; a patient 

requiring rehabilitation who has been 

discharged from a host IRF to a LTCH; 

or a patient who had been an inpatient 

at an IPF and was discharged to an onsite LTCH for care that could otherwise 

have been continued at the host hospital 

(that a significant number of LTCHs 

specialize in rehabilitation and 

psychiatric cases further supports this 

point (71 FR 4704 through 4719)). We 

believe that it is appropriate to pay the 

LTCH HwH or LTCH satellite that is colocated with an IRF or IPF and exceeds 

the applicable threshold at the IPPS 

equivalent rate and not a LTCH PPS rate 

that would be equivalent to the amount 

otherwise paid under the IRF or IPF PPS 

rate, since the HwH and the satellite 

LTCH are, as we explained earlier in 

this section, facilities that in many ways 

are comparable to an acute care 

hospital. 

When we proposed the 25 percent (or 

applicable percentage) payment 

adjustment for co-located LTCHs in the 

FY 2005 IPPS proposed rule, MedPAC 

expressed concern that the 25 percent 

patient threshold policy would have a 

significant impact and could possibly 

lead to an inequitable situation for colocated LTCHs, as compared to 

freestanding LTCHs. Among their 

concerns were the following: 

freestanding LTCHs also have strong 

relationships with acute care hospitals, 

and that where on average LTCH HwHs 

receive 61 percent of their patients from 

their hosts, on average freestanding 

LTCHs receive 42 percent of their 

patients from their primary referring 

hospital; a 25 percent rule that only 

applied to LTCH HwHs and not to 

freestanding LTCHs could therefore be 

inequitable; and this approach could be 

circumvented by an increase in the 

number of freestanding LTCHs instead 

of LTCH HwHs (69 FR 49211). 

In the RY 2007 LTCH PPS final rule, 

we also stated that according to a 

commenter, the data indicated ‘‘* * * 

that it is common practice for LTCHs 

* * * to admit patients from a singlesource acute care hospitals’’ and that 

71.2 percent of free-standing LTCHs 

admit more than 25 percent of their 

patients from a single source acute-care 

hospital (71 FR 27878). 

Additionally, in comments received 

on a proposed policy to preclude 

common ownership of a host and a 

HwH (which was not finalized), two 

commenters asserted that the financial 

incentive to accept inappropriate 

patients from an acute care hospital 

could exist only when the acute care 

hospital and the LTCH were commonly 

owned and when there was common 

governance, a situation that ‘‘can exist 

even without co-location, that is, a 

freestanding LTCH, exempt from the 

requirements of § 412.22(e) could be 

owned and governed by the hospital 

from which it receives the majority of its 

referrals’’ (69 FR 49202). Despite the 

commenters’ assertions, we do not 

believe that either common ownership 

or co-location are the only 

circumstances under which financial 

incentives exist for acute care hospitals 

to prematurely discharge Medicare 

patients to LTCHs for additional 

treatment during the same episode of 

patient care. In fact, we are aware 

anecdotally of the existence of 

‘‘arrangements’’ between Medicare acute 

and post-acute hospital-level providers 

that may not have any ties of ownership 

or governance relating to patient shifting 

that appear to be based on mutual 

financial gain rather than on significant 

medical benefits for the patient. This 

could be the case if an acute care 

hospital discharges a Medicare 

beneficiary who continues to require 

hospital-level care, to preclude that 

patient’s case from reaching outlier 

status at the acute care hospital, to an 

LTCH for additional treatment. Under 

this scenario, Medicare would pay the 

acute care hospital under the IPPS for 


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the beneficiary’s care but the hospital 

would be able to avoid both the ‘‘fixed 

loss’’ amount and absorbing 20 percent 

of the remaining costs of patient care, as 

established under the IPPS outlier 

policy at subpart F of part 412. 

However, Medicare would be 

responsible for an additional payment, 

to the LTCH, under the LTCH PPS upon 

the patient’s discharge from the LTCH. 

Accordingly, we believe that additional 

regulation in this area is both necessary 

and appropriate in order to protect the 

Medicare Trust Fund when generating 

two payments under two different 

payment systems for what was 

essentially one episode of beneficiary 

care. 

When we finalized the payment 

adjustment at § 412.534 which focused 

solely on co-located LTCHs, that is, 

LTCH HwHs and satellites of LTCHs, 

and as we subsequently noted in the RY 

2007 final rule for the LTCH PPS, we 

took considerable note of these 

comments and we have continued since 

that time to monitor the relationships 

between referring hospitals and LTCHs 

(71 FR 27878). Specifically, we have 

analyzed patient claims data from the 

2004 MedPAR files for acute care 

patients who are admitted to freestanding LTCHs. We have analyzed the 

discharge and LOS information from 

this data to evaluate whether there is a 

significant difference in patient shifting 

behavior between co-located LTCHs and 

their host acute care hospitals and those 

free-standing LTCHs that admit a 

majority of their patients from particular 

referring acute care hospitals. (As stated 

previously, in fact for the purposes of 

the payment adjustment at existing 

§ 412.534, any inpatient hospital-level 

provider is a potential host if it is colocated with a LTCH HwH or LTCH 

satellite (69 FR 49198). Similarly, freestanding LTCHs also admit patients 

from sources other than acute care 

hospitals. However, our data reveals 

that approximately 80 percent of all 

LTCH admissions are from acute care 

hospitals. Therefore, our data analysis 

discussed below in this section, focuses 

on the relationship between a referring 

acute care hospital and a LTCH.) 

We also analyzed data on 

relationships between LTCHs and acute 

care hospitals from which they received 

a significant percentage of referrals. The 

RY 2005 MedPAR files indicate that 

only 12.0 percent of the then 174 freestanding LTCHs admitted 25 percent or 

less of their Medicare discharges from 

an individual acute care hospital; for 

36.8 percent of those freestanding 

LTCHs, the percentage was between 25 

and 50 percent; for 34.5 percent it is 

between 50 and 75 percent, and for 

16.66 percent of those free-standing 

LTCHs it was between 75 and 100 

percent of their Medicare discharges 

that were admitted from one acute care 

hospital. Thus, the data indicates that 

for over 50 percent of all freestanding 

LTCHs, at least 50 percent of their 

discharges were for patients admitted 

from an individual acute care hospital. 

Generally, the data reveals minimal 

differences for cases grouped to the 

same DRG between the ALOS at the 

acute care hospital prior to an 

admission to a co-located LTCH and the 

ALOS at a referring acute hospital prior 

to admission to a free-standing LTCH. 

For example, we evaluated data from CY 

2004 MedPAR files regarding LTC–DRG 

475, Respiratory System Diagnosis with 

Ventilator Support, for both LTCH 

HwHs with more than 25 percent of 

their discharges admitted from their 

host hospital and free-standing LTCHs 

with more than 25 percent of their 

discharges admitted from an individual 

referring hospital. The ALOS for 

patients stays that have not reached 

outlier status at the host prior to being 

discharged to the co-located LTCH was 

12.7 days and for free-standing LTCHs, 

the average LOS at their individual 

referring hospital was 12.9 days. 

Similarly, for LTC–DRG 416, 

Septicemia, the ALOS at the host acute 

care hospital was 9.8 days prior to 

admission to the co-located LTCH and 

the prior ALOS at the individual 

referring acute care hospital was 9.6 

days prior to admission to the freestanding LTCH. We believe that this 

data indicates considerable similarity 

between the patient shifting behavior at 

acute care hospitals and co-located 

LTCHs and acute care hospitals and 

LTCHs that are not co-located. We 

would have expected the LOS at the 

acute care hospital that discharged 

patients to non-co-located LTCHs to be 

longer. 

Furthermore, as noted above in this 

section, we have concentrated on the 

relationships between acute care 

hospitals and non-co-located LTCHs in 

this discussion, because approximately 

80 percent of Medicare patients in 

LTCHs are admitted from acute care 

hospitals. However, we believe that the 

same concerns, articulated above, would 

also exist when the patient source is not 

an acute care hospital. There could still 

be a financial incentive on the part of 

the referring hospital (for example, an 

IRF, to prematurely discharge a 

beneficiary to a LTCH for additional 

post-acute treatment in order to avoid 

absorbing high treatment costs under 

the IRF outlier policy at § 412.624(e)(5)) 

that would result in two Medicare 

payments, one to the initial provider 

and the other to the LTCH for a single 

episode of beneficiary care. (We 

recognize that a patient could 

experience a medical crisis while an 

inpatient at an IRF, but typically, the 

most appropriate setting for such urgent 

care would be a general acute care 

hospital, rather than a LTCH.) 

We believe that this data gives further 

credence to concerns articulated by 

MedPAC and the assertions made by the 

Lewin Group in its comments on our FY 

2005 IPPS proposed rule regarding the 

‘‘strong relationships’’ for referral 

purposes that exist between many acute 

care hospitals and free-standing LTCHs. 

Although our decade-old concerns, 

about LTCHs functioning as long-stay or 

step-down ‘‘units’’ of acute care 

hospitals, focused on co-located LTCHs 

(HwHs and LTCH satellites), we believe 

that this data indicates that many freestanding LTCHs may also be serving the 

same purpose as those that are colocated, that is, as functional step-down 

units of their primary referring acute 

care hospital. 

We are also concerned about other 

attempts to evade our regulations at 

§ 412.534. In implementing the HwH 

regulations at § 412.22(e) and the 

satellite regulations at § 412.22(h), we 

have consistently utilized the definition 

of ‘‘campus’’ that was established in the 

provider-based regulations at 

§ 413.65(a)(2) which specifies that a 

campus is ‘‘the physical area 

immediately adjacent to the provider’s 

main buildings, other areas and 

structures that are not strictly 

contiguous to the main buildings but are 

located within 250 yards of the main 

buildings, and any other areas 

determined on an individual basis, by 

the CMS regional office, to be part of the 

provider’s campus.’’ We have become 

aware of certain LTCH companies that 

have both established new LTCHs and/ 

or are considering relocating existing 

HwHs or LTCH satellites so that they are 

at least 300 yards from the acute care 

hospital, thus side-stepping the intent of 

existing § 412.534. We believe that our 

proposals to extend the existing 

payment policy will address the type of 

‘‘gaming,’’ described above in this 

section, as well as dealing with our 

concern that LTCHs appear to be 

admitting patients from referring 

hospitals prior to the delivery of a full 

episode of care so that we are making 

two payments, one to the referring 

hospital and another much higher 

payment under the LTCH PPS to the 

LTCH for what is essentially one 

episode of care. While reviewing the 

following proposals, we would also be 

interested in receiving suggestions as to 

other ways in which we could 


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effectively address attempts to evade the 

intent of our regulations governing 

patient-shifting between referring 

hospitals and LTCHs. 

We first noted in the RY 2006 LTCH 

PPS final rule (71 FR 27878), our 

concern that in many cases the line of 

‘‘functional separateness’’ between freestanding LTCHs and their major referral 

sources appears to have been erased. We 

believe that our analysis of patient 

movement between these facilities 

supports these concerns. 

Therefore, under the broad authority 

conferred on the Secretary by section 

123 of the BBRA, as amended by section 

307(b) of the BIPA to implement a 

prospective payment system for LTCHs, 

including authority to provide for 

appropriate adjustments to the payment 

system, we are proposing to extend the 

payment adjustment at § 412.534, 

presently applicable to co-located 

subclause (I) LTCHs, to all subclause (I) 

LTCHs (section 1886(d)(1)(B)(iv)(I) of 

the Act), as explained below in this 

section. (For the purposes of the 

discussion of this proposed policy, 

‘‘subclause (I) LTCH’’ is also intended to 

include satellites of these LTCHs. Our 

proposal regarding subclause (II) 

LTCHs, that is those LTCHs that meet 

the definition at section 

1886(d)(1)(B)(iv)(II) of the Act, is 

discussed below in this section.) 

Specifically, at proposed § 412.536, we 

are setting forth proposed regulations 

that govern payments under the LTCH 

PPS for LTCH and LTCH satellite 

Medicare discharges admitted from nonco-located hospitals. We are proposing 

that the policy provisions of the existing 

25 percent (or applicable percentage) 

payment adjustment would apply to any 

subclause (I) LTCH or LTCH satellite 

regardless of the physical proximity to 

the hospital from which it is accepting 

admissions. In order to apply this policy 

at all subclause (I) LTCHs and LTCH 

satellites, we are additionally proposing 

to revise existing § 412.534 to include a 

new provision at proposed § 412.534(h) 

that would extend the 25 percent (or 

applicable percentage) payment 

threshold to those grandfathered colocated subclause (I) LTCH HwHs and 

LTCH satellites at § 412.22(f) and 

§ 412.22(h)(3)(i), respectively, for 

Medicare discharges that had been 

admitted from the grandfathered LTCH 

of LTCH satellite facility’s host for cost 

reporting periods beginning on or after 

July 1, 2007. (We address the issue of 

satellites of subclause (II) LTCHs below 

in this section. 

We are proposing to add new 

§ 412.536 that will specify a comparable 

payment adjustment governing 

Medicare discharges from subclause (I) 

LTCHs and LTCH satellites that were 

admitted from non-co-located hospitals. 

We note that under this proposal, the 

payment adjustment at § 412.536 would 

also apply to those Medicare discharges 

from co-located subclause (I) LTCHs 

(HwHs and LTCH satellite facilities) that 

have been admitted from hospitals other 

than those with which they are colocated. We believe that this proposed 

policy will address our concerns with 

LTCHs and LTCH satellites that in many 

cases appear to be functioning like stepdown units of acute care hospitals. 

Furthermore, we believe it is 

appropriate that the same analytical 

standards and payment policies be 

applied by Medicare to all subclause (I) 

LTCHs. Therefore, we are proposing to 

amend existing § 412.534 to include 

subclause (I) grandfathered LTCH HwHs 

and LTCH satellite facilities, as well as 

proposing to use the same thresholds 

applicable to co-located LTCH HwHs 

and LTCH satellite facilities for 

subclause (I) LTCHs and LTCH satellite 

facilities that admit Medicare patients 

from non-co-located hospitals under 

§ 412.536. Specifically, we are 

proposing that for cost reporting periods 

beginning on or after July 1, 2007, as we 

specify in proposed revised 

§ 412.534(h), this payment adjustment 

would include those subclause (I) LTCH 

HwHs and satellites that have been 

‘‘grandfathered’’ under § 412.22(f) and 

§ 412.22(h)(3)(i) respectively and that 

are presently exempted from the 

existing payment adjustment for colocated LTCHs. As noted previously, 

both grandfathered HwHs at § 412.22(f) 

and satellite facilities at § 412.22(h)(3)(i) 

are permitted to retain their exclusions 

from the IPPS despite not meeting 

‘‘separateness and control’’ policies 

with regard to their relationships with 

their host hospitals, as long as they 

continue to comply with applicable 

Medicare requirements. This proposed 

inclusion of grandfathered LTCH HwHs 

and LTCH satellites in the 25 percent (or 

applicable percentage) threshold policy 

would not affect their ability to continue 

to be ‘‘grandfathered’’ and excluded 

from the IPPS. Moreover, as noted 

above, the proposed 25 percent (or the 

applicable percentage) threshold policy 

governing discharges from subclause (I) 

LTCHs that had been admitted from any 

individual non-co-located hospital, at 

new proposed § 412.536, would also 

apply in determining payments under 

the LTCH PPS for Medicare discharges 

from LTCH HwHs and LTCH satellites 

that had been admitted from non-colocated hospitals other than their hosts, 

including grandfathered HwHs and 

LTCH satellites. Under the proposed 

policies applicable to grandfathered 

subclause (I) LTCH HwHs and LTCH 

satellites, we would pay an adjusted 

amount for those discharged Medicare 

patients that were admitted from their 

co-located host, under proposed 

§ 412.534(h) or from any other referring 

hospital under proposed § 412.536, in 

excess of the applicable percentage 

threshold. The grandfathered LTCHs 

and LTCH satellite facility’s Medicare 

discharges that reached outlier status at 

the host, at proposed § 412.534(b), or at 

the non-co-located referring hospital, as 

proposed at § 412.536, would not count 

towards the applicable threshold. 

When we implemented the existing 

25 percent (or applicable percentage) for 

cost reporting periods beginning on or 

after October 1, 2004, we opted to do so 

on a ‘‘location-specific’’ basis rather 

than based on Medicare provider 

numbers. That is, we applied the 

percentage threshold payment 

adjustment only to discharges from a 

specific location of a LTCH HwH or 

LTCH satellite that were admitted from 

the host hospital with which they share 

a building or campus. However, since 

implementing this policy, we have been 

contacted by numerous representatives 

of LTCH chains whose questions appear 

to indicate that the site-specific 

implementation of the threshold 

percentage had resulted in patientshifting between hospital locations that 

shared a Medicare provider number and 

even between separately owned LTCHs 

(for their mutual advantage) that sidestepped the intent of our policy. 

Specifically, we offer the following 

example of a situation that was 

occurring: a host hospital at Location A 

was discharging patients to a LTCH 

HwH or satellite at Location B while the 

host hospital at Location B discharged 

patients to the LTCH HwH or satellite at 

Location A. 

We believe that since we are 

proposing to expand the 25 percent 

policy to all subclause (I) LTCHs and 

LTCH satellite facilities it is appropriate 

to propose inclusion of LTCH HwHs 

and LTCH satellites, grandfathered 

respectively under § 412.22(f) and 

§ 412.22(h)(3)(i), in our proposal. The 

provisions at proposed § 412.534(h) 

would apply for Medicare discharges 

from grandfathered LTCH and LTCH 

satellite facilities admitted from colocated hospitals and the provisions at 

§ 412.536 would apply for discharges 

admitted from any individual non-colocated referring hospital. As we noted 

in our RY 2007 final rule regarding 

grandfathered HwHs, ‘‘[W]e do not 

believe that it is reasonable to assume 

that by creating a limited exception for 

these hospitals, the Congress was 


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immunizing these facilities from any 

further regulation by the Secretary as to 

their growth and financial impact on the 

Medicare program. We do not believe 

the Congress was establishing a separate 

class of providers’’ (71 FR 48109). 

Furthermore, for those co-located 

LTCHs already subject to the 25 percent 

(or applicable percentage) payment 

adjustment at existing § 412.534, the 

proposed policy expansion at proposed 

§ 412.536 would apply to payments 

under the LTCH PPS for patients 

discharged from co-located LTCHs 

(HwHs and satellites) that were 

admitted from referral sources other 

than their host hospital(s). 

Therefore, we are proposing that, for 

cost reporting periods beginning on or 

after July 1, 2007, that a subclause (I) 

LTCH or LTCH satellite that discharges 

more than 25 percent (or applicable 

percentage) of Medicare patients 

admitted from any non-co-located 

individual hospital (that had not already 

reached outlier status, as discussed 

above) would be subject to the proposed 

payment adjustment at proposed 

§ 412.536 for Medicare discharges from 

that hospital in excess of the applicable 

threshold. Furthermore, we believe that 

with the application of our proposed 

policy at § 412.536 to Medicare 

discharges from subclause (I) LTCH 

HwHs and LTCH satellites that were 

admitted from any individual non-colocated referring hospitals, we are 

closing the ‘‘location-specific loophole’’

established by the implementation of 

§ 412.534, described above. The 

proposed change would affect all LTCHs 

or LTCH satellite Medicare discharges 

that were admitted from hospitals that 

are located on a different campus. 

The proposed payment adjustment at 

proposed § 412.534(h) for grandfathered 

LTCH HwHs and LTCH satellite 

facilities will track the applicable 

provisions of the existing payment 

adjustment at § 412.534. Therefore, we 

are proposing at § 412.534(h) that for 

cost reporting periods beginning on or 

after July 1, 2007, the provisions of 

§ 412.534 would also apply to 

grandfathered subclause (I) LTCH HwHs 

and LTCH satellite facilities. 

Accordingly, under the proposed 

changes to § 412.534, if the percentage 

of the grandfathered LTCH or LTCH 

satellite’s discharged Medicare inpatient 

population that were admitted from its 

co-located host exceeds 25 percent (or 

the applicable percentage) of the LTCH’s 

Medicare discharges for that cost 

reporting period, an adjusted payment 

would be made for those discharges that 

were admitted from that hospital 

beyond the 25 percent threshold (or the 

applicable percent threshold), at the 

lesser of the otherwise payable amount 

under subpart O of 42 CFR part 412 or 

the amount payable under subpart O 

that would be equivalent to what 

Medicare would otherwise pay under 

the rules at subpart A, § 412.1(a). (The 

specifics of this payment formula are 

explained in considerable detail in the 

RY 2007 LTCH PPS final rule (71 FR 

27879).) In addition, we are proposing 

that for cost reporting periods beginning 

on or after July 1 2007, that the existing 

transition to the full 25 percent (or 

applicable percentage) threshold, 

specified at § 412.534(g) would apply, as 

well to these grandfathered subclause (I) 

LTCH HwHs and LTCH satellites. We 

provide at existing § 412.534(g), that in 

order to qualify for the transition, the 

LTCH HwH or LTCH satellite facility 

must have been paid under the 

provisions of subpart O on October 1, 

2004, or was a hospital paid under the 

provisions of subpart O on October 1, 

2005, and whose qualifying period 

under § 412.23(e) began on or before 

October 1, 2004. We believe that it is 

appropriate to apply the same October 

1, 2004 base year to all subclause (I) colocated HwHs and satellites, including 

grandfathered subclause (I) LTCH HwHs 

and LTCH satellites, applicable to all 

other co-located LTCHs. Accordingly, 

the percentage set forth in 

§ 412.534(g)(3), which is the lesser of 

the percentage of patients admitted from 

the host during its FY 2004 cost 

reporting period or the 50 percent 

threshold would apply to those 

grandfathered facilities with cost 

reporting periods beginning on or after 

July 1, 2007 and before October 1, 2007. 

Those grandfathered subclause (I) LTCH 

HwHs and LTCH satellites with cost 

reporting periods beginning on or after 

October 1, 2007 have the 25 percent (or 

applicable percentage) payment 

adjustment threshold, as specified in 

§ 412.534(g)(4) applied immediately, 

with no phase-in. 

In proposing the expansion of the 25 

percent threshold payment adjustment 

policy for cost reporting periods 

beginning on or after July 1, 2007, to all 

subclause (I) LTCH and LTCH satellite 

facilities (including LTCH HwHs) for 

Medicare discharges admitted from nonco-located hospitals, we are proposing 

at the new § 412.536, to generally track 

the provisions of the payment formula 

at existing § 412.534. For example, in 

determining whether a hospital meets 

the 25 percent criterion, Medicare 

discharges that have already qualified 

for outlier payments at the non-colocated referring hospital would not be 

included in the count of Medicare 

discharges admitted from the referring 

hospital. 

That is, even though the case would 

count as a discharge from the LTCH and 

be included in the denominator of the 

percentage calculation, because the 

patient had been an outlier at the 

referring hospital the case would not 

count towards determining whether or 

not the LTCH had exceeded the 

applicable threshold (that is, it would 

not be included in the numerator). An 

example of this is as follows: If one 

month prior to the end of a cost 

reporting period, a LTCH discharged 98 

Medicare patients, 24 of which were 

admitted from an individual referring 

hospital, and during that last month, 

two additional patients were discharged 

from the LTCH that had been admitted 

from that referring hospital, at the close 

of the cost reporting period, there would 

have been a total of 100 discharges from 

the LTCH and the relevant concern 

would be to determine whether or not 

those last two cases would have caused 

the LTCH to exceed the 25 percent 

threshold. If the cases had achieved 

outlier status at the referring hospital, 

they would be not included in the 

percentage calculation (which would 

remain, for that referring hospital, at 

24⁄100) and not having caused the LTCH 

to exceed the 25 percent threshold, they 

would not be included in the numerator 

of the calculation. If both of those LTCH 

cases had been discharged from that 

referring hospital prior to having 

achieved outlier status, under our 

proposed policy, the percentage 

calculation would be 26 percent (26⁄100) 

and, having exceeded the 25 percent 

threshold, Medicare would apply the 

payment adjustment set forth in 

§ 412.536 to the last discharge. 

We are also proposing, under 

proposed § 412.534, that for those 

patients, the LTCH or LTCH satellite 

facility would be eligible for payment 

under the LTCH PPS with no 

adjustment even after the 25 percent (or 

applicable percentage) threshold was 

exceeded. (As under existing § 412.534, 

proposed § 412.536 will provide that a 

subclause (I) LTCH or LTCH satellite 

facility’s Medicare discharges (including 

HwHs) admitted from any individual 

non-co-located referring hospital before 

the LTCH exceeds the 25 percent 

threshold or applicable threshold for 

that hospital would be paid an 

otherwise unadjusted payment under 

the LTCH PPS.) 

We are also proposing not to extend 

the proposed payment adjustment in 

§ 412.534(h) and § 412.536 to those 

LTCHs and LTCH satellite facilities that 

we refer to as subclause (II) LTCHs and 

LTCH satellites, established by section 


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1886(d)(1)(B)(iv)(II) of the Act. The 

policy that we are proposing for 

subclause (I) LTCHs and LTCH satellites 

is based on a calculation of the 

percentage of Medicare discharges that 

a LTCH admits from an individual 

hospital during a cost reporting period 

as compared to the LTCH’s total 

Medicare discharges during that cost 

reporting period. Because of a 

significant policy distinction that we 

made at the start of the LTCH PPS for 

FY 2003, at this time we do not believe 

that this proposed policy should be 

applied to subclause (II) LTCHs and 

LTCH satellite facilities. With the 

implementation of the LTCH PPS, we 

revised the § 412.23(e)(2)(i) and (e)(3)(i) 

to calculate the ALOS based solely on 

Medicare patients who required longstay hospitalizations at subclause (I) 

LTCHs defined by section 

1886(d)(1)(B)(iv)(I) of the Act; however, 

we did not change the formula for 

calculating the ALOS for a LTCH 

governed by section 1886(d)(1)(B)(iv)(II) 

of the Act, implemented at 

§ 412.23(e)(2)(ii), for a ‘‘subclause (II)’’

LTCH. We believed that in establishing 

a ‘‘subclause (II)’’ LTCH, the Congress 

provided an exception to the general 

definition of LTCHs under subclause (I). 

We had no reason to believe that the 

change in methodology for determining 

the average inpatient LOS would better 

identify the hospitals that the Congress 

intended to exclude under subclause (II) 

(67 FR 55974). Similarly, when we 

established the existing 25 percent or 

applicable percentage payment 

adjustment at § 412.534, we determined 

that its application to subclause (II) 

LTCHs was inappropriate because the 

designation of a subclause (II) LTCH 

was not dependent upon Medicare 

discharges (69 FR 49205). Therefore, we 

are not proposing to apply the 

expansion of the 25 percent policy that 

we are proposing at new § 412.536 and 

amended § 412.534 to LTCHs and LTCH 

satellite facilities defined under section 

1886(d)(1)(B)(iv)(II) of the Act. The 

existing and proposed amended 

payment threshold adjustments at 

§ 412.534 and at proposed § 412.536 for 

subclause (I) LTCHs and LTCH satellites 

are based solely on percentages of LTCH 

Medicare discharges. As stated above, 

we continue to believe that since we 

include both Medicare and nonMedicare discharges in our calculations 

for defining a subclause (II) LTCH at 

§ 412.23(e)(2)(ii) that applying a 

payment adjustment that is based solely 

on Medicare discharges may not be 

appropriate. Furthermore, consistent 

with our policy not to include satellites 

of subclause (II) LTCHs which were 

specifically grandfathered at 

§ 412.22(h)(3)(ii) in proposed § 412.536, 

we have excluded subclause (II) LTCH 

satellites in the proposed application of 

the 25 percent payment adjustment for 

co-located grandfathered LTCHs at 

proposed § 412.534(h). 

In summary, we are proposing a new 

provision at § 412.534(h) that would 

apply the policies established under 

existing § 412.534 to grandfathered 

subclause (I) LTCH HwHs and LTCH 

satellites for Medicare discharges that 

were admitted from co-located host 

hospitals. We are also proposing to 

apply those policies at § 412.534 to 

Medicare discharges admitted from any 

individual non-co-located referring 

hospitals to all subclause (I)LTCHs and 

LTCH satellites at proposed § 412.536, 

generally tracking the existing 

regulation at § 412.534, where 

applicable. 

We are also proposing additional 

adjustments to the 25 percent policy at 

§ 412.536 for specific circumstances in 

order to be consistent with the policy 

for co-located LTCHs under § 412.534. 

At proposed § 412.536(c) for Medicare 

discharges from subclause (I) LTCHs or 

LTCH satellites located in rural areas, 

we are proposing that Medicare 

discharges in excess of 50 percent, 

rather that 25 percent of the LTCH’s 

total Medicare discharges for a cost 

reporting period from an individual 

non-co-located referring hospital would 

be subject to the payment adjustment 

specified at proposed § 412.536(c). In 

addition, in the case of a rural subclause 

(I) LTCH or LTCH satellite facility, in 

determining the percentage of Medicare 

discharges admitted from a non-colocated referring hospital, any patients 

that had been Medicare outliers at the 

referring hospital and then discharged 

to the LTCH or LTCH satellite are not 

counted towards the threshold 

percentage (as described above). 

In proposed § 412.536, we are also 

providing that if the non-co-located 

referring hospital is the only other 

hospital in the MSA or an MSAdominant hospital as defined at 

proposed § 412.536(e)(4), we proposed 

to allow the subclause (I) LTCH or 

LTCH satellite facility a threshold 

percentage equal to the non-co-located 

referring hospital’s percentage of total 

Medicare discharges for like hospitals in 

the MSA for the most recent fiscal year 

that data is available. Consistent with 

our policy at existing § 412.534(e), we 

also propose to apply a floor of 25 

percent and a ceiling of 50 percent to 

this threshold for those hospitals 

described in proposed § 412.536(d)(4). 

As with the existing policy for colocated LTCHs, we believe that this 

adjusted payment threshold responds to 

‘‘the unique needs of these 

communities’’ (69 FR 49207). Similar to 

the existing provisions at 

§ 412.534(e)(2),we would not adjust 

payments to these hospitals as long as 

the percentage of Medicare patients 

discharged from the LTCH or LTCH 

satellite that were admitted from the 

non-co-located referring urban single or 

MSA-dominant hospital, did not exceed 

this threshold. In addition, in 

determining the percentage of Medicare 

discharges admitted to the LTCH or 

LTCH satellite facility from the urban 

single or MSA dominant hospital, any 

patients that had been Medicare outliers 

at the referring hospital before being 

admitted to the LTCH or LTCH satellite 

would not count towards the applicable 

threshold, as discussed above. 

The proposed payment adjustment at 

§ 412.536 would be synchronized with 

the phase-in of the current policy 

adjustment for LTCH HwHs and LTCH 

satellites at existing § 412.534(g). 

Therefore, for cost reporting periods 

beginning on or after July 1, 2007, and 

before October 1, 2007, the percentage 

of Medicare discharges that may be 

admitted from the non-co-located 

referring hospital with no payment 

adjustment is the lesser of the 

percentage of Medicare discharges 

admitted from the host during its FY 

2005 cost reporting period or the 50 

percent threshold. We note that under 

our proposed provision, at § 412.536, 

subclause (I) LTCHs and LTCH satellite 

facilities with cost reporting periods 

beginning on or after July 1, 2007, and 

before October 1, 2007, would be 

limited by the percentage of total 

Medicare discharges admitted from the 

referring non-co-located hospital during 

the FY 2005 cost reporting period, 

rather than utilizing the FY 2004 ‘‘base 

year’’ which is applicable under 

§ 412.534. We are also proposing that in 

determining the percentage of Medicare 

discharges admitted from any referring 

hospital, patients who reached HCO 

status at the referring hospital before 

being admitted to the LTCH or LTCH 

satellite would not count towards the 

applicable threshold, as discussed 

above. 

Subclause (I) LTCHs and LTCH 

satellite facilities with a cost reporting 

period beginning on or after October 1, 

2007, would have the 25 percent (or 

applicable percentage) payment 

threshold applied. The percentage of 

Medicare discharges that a subclause (I) 

LTCH or satellite facility may admit 

from any individual non-co-located 

referring hospital with no payment 

adjustment for Medicare discharges 

admitted from that hospital may not 


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4816 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

exceed 25 percent or the applicable 

percentage (the additional adjustments 

for rural, urban-single, or MSAdominant hospitals). 

It is important to note that we are also 

proposing that co-located subclause (I) 

LTCHs (HwHs and LTCH satellite 

facilities) would also be subject to the 

applicable payment adjustment 

threshold at § 412.536 for those 

Medicare discharges admitted from any 

individual hospital with which they are 

not co-located. 

Finally, in proposing this payment 

adjustment, we believe that we are 

addressing policy concerns that are 

consistent with those that we originally 

expressed when we implemented the 

payment adjustment for LTCHs 

discharging patients that were admitted 

from co-located hospitals. 

VI. Computing the Proposed Adjusted 

Federal Prospective Payments for the 

2008 LTCH PPS Rate Year 

In accordance with § 412.525 and as 

discussed in section IV.C. of this 

proposed rule, the standard Federal rate 

is adjusted to account for differences in 

area wages by multiplying the laborrelated share of the standard Federal 

rate by the appropriate LTCH PPS wage 

index (as shown in Tables 1 and 2 of 

Addendum A to this proposed rule). 

The standard Federal rate is also 

adjusted to account for the higher costs 

of hospitals in Alaska and Hawaii by 

multiplying the nonlabor-related share 

of the standard Federal rate by the 

appropriate cost-of-living factor (shown 

in Table 3 in section IV.D.2 of this 

preamble). In the RY 2007 LTCH PPS 

final rule (71 FR 27827), we established 

a standard Federal rate of $38,086.04 for 

the 2007 LTCH PPS rate year. In this 

proposed rule, based on the best 

available data and the proposed policies 

described in this proposed rule, we are 

proposing that the standard Federal rate 

for the 2008 LTCH PPS rate year would 

be $38,356.45 as discussed in section 

IV.C.3. of this preamble. We illustrate 

the methodology that would be used to 

adjust the proposed Federal prospective 

payments for the 2008 LTCH PPS rate 

year in the following examples: 

Example: 

During the 2008 LTCH PPS rate year, 

a Medicare patient is in a LTCH located 

in Chicago, Illinois (CBSA 16974). This 

LTCH is in the final year of the wage 

index phase-in, thus, the proposed full 

(that is, five-fifths) wage index values 

are applicable. The proposed full LTCH 

PPS wage index value for CBSA 16974 

is 1.0751 (see Table 1 in Addendum A 

to this proposed rule). The Medicare 

patient is classified into LTC–DRG 9 

(Spinal Disorders and Injuries), which 

has a current relative weight of 1.0424 

(see Table 3 of Addendum A to this 

proposed rule). 

To calculate the LTCH’s proposed 

total adjusted Federal prospective 

payment for this Medicare patient, we 

compute the proposed wage-adjusted 

Federal prospective payment amount by 

multiplying the proposed unadjusted 

standard Federal rate ($38,356.45) by 

the proposed labor-related share (75.511 

percent) and the proposed wage index 

value (1.0751). This proposed wageadjusted amount is then added to the 

nonlabor-related portion of the 

proposed unadjusted standard Federal 

rate (24.489 percent; adjusted for cost of 

living, if applicable) to determine the 

proposed adjusted Federal rate, which is 

then multiplied by the LTC–DRG 

relative weight (1.0424) to calculate the 

proposed total adjusted Federal 

prospective payment for the 2008 LTCH 

PPS rate year ($42,250.14). (As 

discussed in section IV.C.5. of this 

preamble, for the 2008 LTCH PPS rate 

year, we are no longer proposing to 

apply a transition period BN offset (to 

account for the costs of the transition 

methodology) in determining the 

proposed total adjusted Federal 

prospective payment.) Table 6 

illustrates the components of the 

calculations in this example. 

TABLE 6 

Unadjusted Proposed 

Standard Federal Prospective Payment Rate $38,356.45 

Proposed Labor-Related 

Share ........................... × 0.75511 

Proposed Labor-Related 

Portion of the Federal 

Rate ............................. = $28,963.34 

Proposed Full Wage 

Index (CBSA 16974) ... × 1.0751 

Proposed Wage-Adjusted 

Labor Share of Federal 

Rate ............................. = $31,138.49 

Proposed Nonlabor-Related Portion of the 

Federal Rate 

($38,356.45 × 0.24489) + $9,393.11 

Proposed Adjusted Federal Rate Amount ........ = $40,531.60 

LTC–DRG 9 Relative 

Weight ......................... × 1.0424 

Proposed Total Adjusted 

Federal Prospective 

Payment* ..................... = $42,250.14 

* We are no longer proposing to apply a 

transition period BN offset to account for the 

costs of the transition methodology in determining the proposed total adjusted Federal 

prospective payment for RY 2008.) 

VII. Transition Period 

To provide a stable fiscal base for 

LTCHs, under § 412.533, we 

implemented a 5-year transition period 

whereby a LTCH (except those defined 

as ‘‘new’’ under § 412.23(e)(4)) received 

a LTCH PPS payment consisting of a 

portion based on reasonable cost-based 

reimbursement principles under the 

TEFRA system and a portion based on 

the Federal prospective payment rate 

(unless the LTCH elected payment 

based on 100 percent of the Federal 

rate). As discussed in the August 30, 

2002 final rule (67 FR 56038), we 

believed that a 5-year phase-in provided 

LTCHs time to adjust their operations 

and capital financing to the LTCH PPS, 

which is based on prospectively 

determined Federal payment rates. 

Furthermore, we believed that the 5- 

year phase-in under the LTCH PPS also 

allowed LTCH personnel to develop 

proficiency with the LTC–DRG coding 

system, which will result in 

improvement in the quality of the data 

used for generating our annual 

determination of relative weights and 

payment rates. 

Under § 412.533, the 5-year transition 

period for all hospitals subject to the 

LTCH PPS began with the hospital’s 

first cost reporting period beginning on 

or after October 1, 2002 and extends 

through the hospital’s last cost reporting 

period beginning before October 1, 

2007. During the 5-year transition 

period, a LTCH’s total PPS payment 

under the LTCH PPS was based on two 

payment percentages—one based on 

reasonable cost-based principles and the 

other based on the standard Federal 

prospective payment rate. The 

percentage of the LTCH PPS payment 

based on the LTCH PPS Federal rate 

increased by 20 percentage points each 

year, while the reasonable portion of the 

LTCH PPS payment based on cost-based 

principles decreased by 20 percentage 

points each year, for the next 4 fiscal 

years. For cost reporting periods 

beginning on or after October 1, 2006, 

Medicare payment to LTCHs will be 

determined entirely under the Federal 

rate. 

In implementing the LTCH PPS, one 

of our goals was to transition hospitals 

to prospective payments based on 100 

percent of the adjusted Federal 

prospective payment rate as soon as 

appropriate. Therefore, under 

§ 412.533(c), we allowed a LTCH (other 

than new LTCHs defined at 

§ 412.23(e)(4)), which was subject to a 

blended rate, to elect payment based on 

100 percent of the Federal rate at the 

start of any of its cost reporting periods 

during the 5-year transition period. 


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Once a LTCH elected to be paid based 

on 100 percent of the Federal rate, it 

could not revert back to the transition 

blend. 

VIII. Payments to New LTCHs 

Under § 412.23(e)(4), for purposes of 

Medicare payment under the LTCH PPS, 

we define a new LTCH as a provider of 

inpatient hospital services that meets 

the qualifying criteria for LTCHs, set 

forth in § 412.23(e)(1) and (e)(2), and 

under present or previous ownership (or 

both), has its first cost reporting period 

as a LTCH beginning on or after October 

1, 2002. As we discussed in the August 

30, 2002 final rule (67 FR 56040), this 

definition of new LTCHs should not be 

confused with those LTCHs first paid 

under the TEFRA payment system for 

discharges occurring on or after October 

1, 1997, described in section 

1886(b)(7)(A) of the Act, as added by 

section 4416 of the Balanced Budget Act 

of 1997 (BBA) (Pub. L. 105–33). As 

stated in § 413.40(f)(2)(ii), for cost 

reporting periods beginning on or after 

October 1, 1997, the payment amount 

for a ‘‘new’’ (post-FY 1998) LTCH is the 

lower of the hospital’s net inpatient 

operating cost per case or 110 percent of 

the national median target amount 

payment limit for hospitals in the same 

class for cost reporting periods ending 

during FY 1996, updated to the 

applicable cost reporting period (see 62 

FR 46019, August 29, 1997). 

Under § 412.533(d), new LTCHs, as 

defined in § 412.23(e)(4), will be paid 

based on 100 percent of the standard 

Federal rate. As we discussed in the 

August 30, 2002 final rule (67 FR 

56040), the transition period was 

intended to provide existing LTCHs 

time to adjust to payment under the new 

system. Since these new LTCHs with 

their first cost reporting periods as 

LTCHs beginning on or after October 1, 

2002, would not have received payment 

under reasonable cost-based 

reimbursement for the delivery of LTCH 

services prior to the effective date of the 

LTCH PPS, we did not believe that those 

new LTCHs required a transition period 

in order to make adjustments to their 

operations and capital financing, as will 

LTCHs that have been paid under the 

reasonable cost-based methodology. 

IX. Method of Payment 

Under § 412.513, a Medicare LTCH 

patient is classified into a LTC–DRG 

based on the principal diagnosis, up to 

eight additional (secondary) diagnoses, 

and up to six procedures performed 

during the stay, as well as age, sex, and 

discharge status of the patient. The 

LTC–DRG is used to determine the 

Federal prospective payment that the 

LTCH will receive for the Medicarecovered Part A services the LTCH 

furnished during the Medicare patient’s 

stay. Under § 412.541(a), the payment is 

based on the submission of the 

discharge bill. The discharge bill also 

provides data to allow for reclassifying 

the stay from payment at the full LTC–

DRG rate to payment for a case as a SSO 

(under § 412.529) or as an interrupted 

stay (under § 412.531), or to determine 

if the case will qualify for a HCO 

payment (under § 412.525(a)). 

Accordingly, the ICD–9–CM codes 

and other information used to determine 

if an adjustment to the full LTC–DRG 

payment is necessary (for example, LOS 

or interrupted stay status) are recorded 

by the LTCH on the Medicare patient’s 

discharge bill and submitted to the 

Medicare FI for processing. The 

payment represents payment in full, 

under § 412.521(b), for inpatient 

operating and capital-related costs, but 

not for the costs of an approved medical 

education program, bad debts, blood 

clotting factors, anesthesia services by 

hospital-employed nonphysician 

anesthetists or the costs of photocopying 

and mailing medical records requested 

by a Quality Improvement Organization 

(QIO), which are costs paid outside the 

LTCH PPS. 

As under the previous reasonable 

cost-based payment system, under 

§ 412.541(b), a LTCH may elect to be 

paid using the periodic interim payment 

(PIP) method described in § 413.64(h) 

and may be eligible to receive 

accelerated payments as described in 

§ 413.64(g). 

For those LTCHs that are being paid 

under the transition methodology set 

forth at § 412.533, for cost reporting 

periods that began on or after October 1, 

2002, and before October 1, 2006, the 

PIP amount is based on the transition 

blend. For those LTCHs that are paid 

based on 100 percent of the standard 

Federal rate, the PIP amount is based on 

the estimated prospective payment for 

the year rather than on the estimated 

reasonable cost-based reimbursement. 

We exclude HCO payments that are paid 

upon submission of a discharge bill 

from the PIP amounts. In addition, Part 

A costs that are not paid for under the 

LTCH PPS, including Medicare costs of 

an approved medical education 

program, bad debts, blood clotting 

factors, anesthesia services by hospitalemployed nonphysician anesthetists 

and the costs of photocopying and 

mailing medical records requested by a 

QIO, are subject to the interim payment 

provisions as specified in § 412.541(c). 

Under § 412.541(d), LTCHs with 

unusually long lengths of stay that are 

not receiving payment under the PIP 

method may bill on an interim basis (60 

days after an admission and at intervals 

of at least 60 days after the date of the 

first interim bill) and this should 

include any HCO payment determined 

as of the last day for which the services 

have been billed. 

X. Monitoring 

In the August 30, 2002 final rule (67 

FR 56014), we described an on-going 

monitoring component to the new LTCH 

PPS. Specifically, we discussed ongoing analysis of the various policies 

that we believe would provide equitable 

payment for stays that reflect less than 

the full course of treatment and reduce 

the incentives for inappropriate 

admissions, transfers, or premature 

discharges of patients that are present in 

a discharge-based PPS. As a result of our 

data analysis, we have revisited a 

number of our original and even preLTCH PPS policies in order to address 

what we believe are behaviors by certain 

LTCHs that lead to inappropriate 

Medicare payments. In recent Federal 

Register publications, we have proposed 

and subsequently finalized revisions to 

the interruption of stay policy in the RY 

2005 LTCH PPS final rule (69 FR 

25692), and we established a payment 

adjustment for LTCH HwHs and 

satellites in the FY 2005 IPPS final rule 

(69 FR 49191 through 49214). 

In section V.A.2., we are revisiting the 

payment adjustment methodology 

established for SSOs (71 FR 27845) as a 

consequence of recent data analysis and 

discuss an approach being considered 

that would revise one of the existing 

four alternatives under the existing SSO 

payment methodology for certain SSO 

cases to an amount that would 

otherwise be paid under the IPPS. 

As we discuss in section X., our 

monitoring of discharges between acute 

care hospitals and LTCHs reveals that a 

significant number of LTCHs that are 

‘‘free-standing’’, that is, not co-located 

with other hospital-level providers (as 

defined in § 412.22(e) and § 412.22(h)), 

admit their patients from one specific 

acute care hospital. When we 

established the payment adjustment for 

LTCH HwHs and satellites of LTCHs at 

§ 412.534, we stated our concern that 

these on-site LTCHs could be 

functioning as units of their host 

(generally, an acute care hospital), a 

configuration that is not permitted in 

section 1886(d)(1)(B) of the Act. (The 

statute specifically allows only for IRF 

and IPF units in acute care hospitals, 

but not for LTCH units.) As a result of 

our data monitoring and analysis, which 

is detailed in section V.B. of this 

proposed rule, we propose to expand 

the existing payment adjustment at 


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§ 412.534 to apply to certain situations 

not currently covered by the existing 

policy for LTCHs co-located with other 

hospitals. 

As we discussed in the RY 2004 

LTCH PPS final rule (68 FR 34157), the 

Medicare Payment Advisory 

Commission (MedPAC) endorsed our 

monitoring activity as a primary aspect 

of the design of the LTCH PPS. 

Furthermore, the Commission pursued 

an independent research initiative that 

led to a section in MedPAC’s June 2004 

Report to Congress entitled ‘‘Defining 

long-term care hospitals’’. This study 

included recommendations that we 

develop facility and patient criteria for 

LTCH admission and treatment and that 

we require a review by QIOs to evaluate 

whether LTCH admissions meet criteria 

for medical necessity once the 

recommended facility and patient 

criteria are established (70 FR 24209). In 

response to the recommendation in 

MedPAC’s June 2004 Report, we 

awarded a contract to Research Triangle 

Institute, International (RTI), on 

September 27, 2004, to conduct a 

thorough examination of the feasibility 

of implementing MedPAC’s 

recommendations. 

We are continuing to pursue our ongoing program, existing QIO monitoring 

and studies described in the RY 2006 

LTCH PPS final rule (70 FR 24211), and 

our considerations of expanding the 

QIO role in the LTCH PPS. Furthermore, 

RTI has completed its examination of 

the feasibility of implementing 

MedPAC’s recommendations in the June 

2004 Report to Congress. However, we 

note that we do not anticipate 

expanding QIO activities during the 

current scope of work. 

The Executive Summary of RTI’s final 

report is included in Addendum B of 

this proposed rule and is available on 

our Web site at 

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

LongTermCareHospitalPPS/02a_

RTIReports.asp#TopOfPage. 

XI. MedPAC Recommendations: The 

RTI Contract 

With the recommendations of 

MedPAC’s June 2004 Report to Congress 

as a point of departure, RTI evaluated 

the feasibility of developing patient and 

facility level characteristics for LTCHs 

to identify and distinguish the role of 

these hospitals as a Medicare provider. 

RTI completed this project in two 

phases. In Phase I, RTI prepared a 

background report summarizing existing 

information regarding LTCHs’ current 

role in the Medicare system: Their 

history as Medicare participating 

providers; the types of patients they 

treat; the criteria QIOs currently use to 

review appropriateness of care in these 

settings; and the types of regulations 

they face as Medicare participating 

providers. This work reviewed prior 

analyses of these issues and included 

discussions with MedPAC, other 

researchers, CMS, the QIOs, and the 

hospital associations. 

In Phase II, RTI collected additional 

information on tools currently used by 

the QIOs and the industry to assess 

patient appropriateness for admission; 

analyzed claims to understand 

differences between hospital patients 

with outlier stays in non-LTCHs and 

those treated in LTCHs; and visited 

different types of hospitals to observe 

first-hand how LTCH patients differ 

from those in other settings and how 

this pattern varies in different parts of 

the country. RTI worked with different 

associations, including the National 

Association of Long Term Hospitals 

(NALTH), the Acute Long Term 

Hospital Association (ALTHA), the 

AHA, and the American Medical Peer 

Review Association (AMPRA), as well 

as several of the larger LTCH chains. 

The final report submitted by RTI 

summarizes these efforts and makes 

numerous recommendations to CMS 

regarding LTCHs. 

The reports on both Phase I and Phase 

II of RTI’s research have been posted on 

our Web site at 

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

LongTermCareHospitalPPS/ 

02a_RTIReports.asp#TopOfPage. Please 

note that this report does not represent 

our position or policy. We are currently 

evaluating RTI’s recommendations 

regarding the feasibility of developing 

patient and facility level criteria from 

several standpoints. Most significantly, 

we are concerned that several of RTI’s 

recommendations may require statutory 

changes. Furthermore, even among 

those recommendations for action that 

would be accomplished on a regulatory 

level, there are many significant issues 

that require further analysis. We have 

consistently encouraged meaningful 

contact between RTI and industry 

stakeholders throughout this research 

phase of the contract. Furthermore, RTI 

has solicited on-going involvement and 

will continue to seek such input from 

physicians who treat LTCH type 

patients both in LTCHs and as 

inpatients in other provider settings in 

forming a technical expert panel (TEP) 

to further develop some of its 

recommendations. RTI is currently 

determining the appropriate 

composition of this group, preparing a 

time table, and preparing an agenda for 

the TEP. 

While the reports from both Phase I 

and Phase II of RTI’s research are posted 

in their entirety on the CMS Web site at 

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

LongTermCareHospitalPPS/

02a_RTIReports.asp#TopOfPage, we are 

including The Executive Summary of 

RTI’s Phase II report in Addendum B to 

this proposed rule. This material is 

being reproduced as received from the 

contractors and does not represent our 

position or policy. 

XII. Payment for Direct Graduate 

Medical Education (GME) (§ 413.79) 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘PAYMENT FOR DIRECT 

GRADUATE MEDICAL EDUCATION’’

at the beginning of your comments.] 

A. GME Background 

Section 1886(h) of the Act, as added 

by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act 

(COBRA) of 1985 (Pub. L. 99–272) and 

implemented in regulations at existing 

§ 413.75 through § 413.83, establishes a 

methodology for determining payments 

to hospitals for the direct costs of 

approved graduate medical education 

(GME) programs. Section 1886(h)(2) of 

the Act, as added by COBRA, sets forth 

a payment methodology for direct GME 

costs involving the determination of a 

hospital-specific, base-period per 

resident amount (PRA) that is calculated 

by dividing a hospital’s allowable costs 

of GME for a base period by its number 

of residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, the period 

beginning between October 1, 1983, 

through September 30, 1984). Generally, 

for cost reporting periods beginning on 

or after July 1, 1985, Medicare direct 

GME payments are calculated by 

multiplying the hospital’s PRA by the 

weighted number of full-time equivalent 

(FTE) residents working in all areas of 

the hospital (and nonhospital sites, 

when applicable), and by the hospital’s 

Medicare percentage of total inpatient 

days. In addition, as specified in section 

1886(h)(2)(D)(ii) of the Act, for cost 

reporting periods beginning between 

October 1, 1993, through September 30, 

1995, each hospital-specific PRA for the 

previous cost reporting period is not 

updated for inflation for any FTE 

residents who are not either a primary 

care or an obstetrics and gynecology 

resident. As a result, hospitals that 

trained primary care, and obstetrics and 

gynecology residents, as well as 

nonprimary care residents in FY 1994 or 

FY 1995, have two separate PRAs: One 

for primary care, and obstetrics and 

gynecology residents; and one for 

nonprimary care residents. 


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The Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999 (Pub. L. 106–113) (BBRA) 

amended section 1886(h)(2) of the Act 

to establish a methodology for the use 

of a national average PRA in computing 

direct GME payments for cost reporting 

periods beginning on or after October 1, 

2000, and on or before September 30, 

2005. The BBRA established a ‘‘floor’’

for hospital-specific PRAs that is equal 

to 70 percent of the locality-adjusted 

national average PRA. In addition, the 

BBRA established a ‘‘ceiling’’ that 

limited the annual inflation update to a 

hospital-specific PRA if the hospital’s 

PRA exceeded 140 percent of the 

locality-adjusted national average PRA. 

Section 511 of the Benefits 

Improvement and Protection Act of 

2000 (Pub. L. 106–554) (BIPA) increased 

the floor established by the BBRA to 

equal 85 percent of the locality-adjusted 

national average PRA. For purposes of 

calculating direct GME payments, each 

hospital-specific PRA is compared to 

the floor and the ceiling to determine 

whether a hospital-specific PRA should 

be revised. 

Section 1886(h)(4)(F) of the Act 

established limits on the number of 

allopathic and osteopathic residents that 

a hospital may count for purposes of 

calculating direct GME payments. For 

most hospitals, the limits are the 

number of allopathic and osteopathic 

FTE residents training in the hospital’s 

most recent cost reporting period ending 

on or before December 31, 1996. 

B. Residents Training in Nonhospital 

Settings 

1. Background 

For purposes of direct GME payments, 

since July 1, 1987, the statute allows 

hospitals to count the time residents 

spend training in sites that are not part 

of the hospital (referred to as 

‘‘nonprovider’’ or ‘‘nonhospital sites’’) 

under certain conditions. Section 

1886(h)(4)(E) of the Act requires that the 

Secretary’s rules concerning 

computation of FTE residents for 

purposes of direct GME payments 

‘‘provide that only time spent in 

activities relating to patient care shall be 

counted and that all the time so spent 

by a resident under an approved 

medical residency training program 

shall be counted towards the 

determination of full-time equivalency, 

without regard to the setting in which 

the activities are performed, if the 

hospital incurs all, or substantially all, 

of the costs for the training program in 

that setting.’’ (Section 1886(h)(4)(E) of 

the Act, as added by section of 9314 of 

the Omnibus Budget Reconciliation Act 

of 1986 (Pub. L. 99–509) (OBRA 86).) 

Regulations regarding the treatment of 

time spent by residents training in 

nonhospital sites for purposes of direct 

GME payments were first implemented 

in the September 29, 1989 final rule (54 

FR 40286). In regulations adopted in 

that same rule at § 413.86(f)(3) (now 

§ 413.78(c)), we stated that a hospital 

may count the time residents spend in 

nonprovider settings for purposes of 

direct GME payment if the residents 

spend their time in patient care 

activities and there is a written 

agreement between the hospital and the 

nonprovider entity stating that the 

hospital will incur all or substantially 

all of the costs of the program. The 

regulations at that time defined ‘‘all or 

substantially all’’ of the costs to include 

the residents’ compensation for the time 

spent at the nonprovider setting. Before 

October 1, 1997, for IME payment 

purposes, hospitals were not permitted 

to count the time residents spent 

training in nonhospital settings. Section 

4621(b)(2) of the BBA revised section 

1886(d)(5)(B) of the Act to allow 

providers to count time residents spend 

training in nonprovider sites for IME 

purposes, effective for discharges 

occurring on or after October 1, 1997. 

Specifically, section 1886(d)(5)(B)(iv) of 

the Act was amended to provide that 

‘‘all the time spent by an intern or 

resident in patient care activities under 

an approved medical residency program 

at an entity in a nonhospital setting 

shall be counted towards the 

determination of full-time equivalency 

if the hospital incurs all, or substantially 

all, of the costs for the training program 

in that setting.’’ In the July 31, 1998 

final rule (63 FR 41004 through 41005) 

at § 412.105(f)(1)(ii)(C) and § 413.78(d) 

(formerly designated § 413.86(f)(4)), we 

specified the requirements a hospital 

must meet to include the time spent by 

residents training in a nonhospital site 

in its FTE count for portions of cost 

reporting periods occurring on or after 

January 1, 1999 for purposes of both 

direct GME and IME payments. Section 

413.75(b) redefined ‘‘all or substantially 

all of the costs for the training program 

in the nonhospital setting’’ as the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable), and the portion of the cost 

of teaching physicians’ salaries and 

fringe benefits attributable to direct 

GME. Section 413.78(e) provides that, in 

order for a hospital to be permitted to 

count FTE residents training in a 

nonhospital setting, a written agreement 

must be in place between the hospital 

and the nonhospital site providing that 

the hospital will incur the costs of the 

resident’s salary and fringe benefits 

while the resident is training in the 

nonhospital site. The hospital must also 

provide reasonable compensation to the 

nonhospital site for supervisory 

teaching activities, and the written 

agreement must specify that 

compensation amount. 

2. Moratorium on Disallowances of 

Allopathic or Osteopathic Family 

Practice Residents Training Time in 

Nonhospital Settings, and Questions 

and Answers (Qs&As) on CMS Web Site 

(Section 713 of the MMA and § 413.78) 

In order for the hospital to incur ‘‘all 

or substantially all’’ of the costs in 

accordance with the regulations, the 

actual cost of the time spent by teaching 

physicians in supervising residents in 

the nonhospital setting must be 

compensated by the hospital. The 

amount of supervisory GME costs is 

dependent upon the teaching 

physician’s salary and the percentage of 

time that he or she devotes to activities 

related to the residency program at the 

nonhospital site. (We note that the 

teaching physician’s involvement in the 

provision of patient care is not 

considered attributable to direct GME.) 

As long as there are supervisory GME 

costs associated with the nonhospital 

training, the hospital must reimburse 

the nonhospital setting for those costs in 

order to count FTE resident time spent 

in the nonhospital site for purposes of 

IME and direct GME payments. 

Many hospitals have entered into 

written agreements with nonhospital 

sites that state that the teaching 

physician is ‘‘volunteering’’ his or her 

time in the nonhospital site, and, 

therefore, the hospital is not providing 

any compensation to the teaching 

physician. Other hospitals have paid 

only a nominal amount of compensation 

for the supervisory teaching physicians’

time in the nonhospital setting. Because 

§ 413.78(d) requires that the hospital 

must incur ‘‘all or substantially all’’ of 

the direct GME costs, including those 

costs associated with the teaching 

physician, regardless of whether the 

written agreement states that the 

teaching physician is ‘‘volunteering,’’

we have required that the hospital pay 

these costs in order to count FTE 

residents training in the nonhospital 

site, as long as these teaching physician 

costs exist. 

Section 713 of the MMA imposed a 1- 

year moratorium relating to certain 

nonhospital site teaching physician 

costs for the period from January 1, 

2004, through December 31, 2004. 

During this 1-year period, we were 

required to allow hospitals to count FTE 


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allopathic or osteopathic family practice 

residents training in nonhospital 

settings for IME and direct GME 

payment purposes without regard to the 

financial arrangement between the 

hospital and the teaching physician 

practicing in the nonhospital setting to 

which the resident was assigned. 

We instructed our contractors 

(formerly called ‘‘fiscal intermediaries’’

or ‘‘FIs’’) regarding the effect of section 

713 of the MMA in the One-Time 

Notification (OTN), ‘‘Changes to the FY 

2004 Graduate Medical Education 

(GME) Payments as Required by the 

Medicare Modernization Act of 2003 

(MMA)’’ (CR 3071, Transmittal 61, 

issued on March 12, 2004). Generally, 

we stated in the OTN that, when settling 

prior year cost reports during this 1-year 

period, or for family practice residents 

actually training in nonhospital settings 

during this 1-year period, contractors 

should allow hospitals to count 

allopathic and osteopathic family 

practice residents training in a 

nonhospital setting for direct GME and 

IME payment purposes without regard 

to the financial arrangement between 

the hospital and the nonhospital site 

pertaining to the teaching physicians’

costs associated with the residency 

program. For further information on this 

provision and for a summary of 

comments and responses related to this 

provision, please refer to the FY 2005 

IPPS final rule (69 FR 49176). 

Furthermore, in response to questions 

and concerns raised by the industry and 

Medicare contractors as to how to 

determine the costs associated with 

residency training at the nonhospital 

setting, as well as how and when to pay 

the nonhospital setting for these costs, 

we posted Qs&As on the CMS Web site 

on April 8, 2005 at http:// 

www.cms.hhs.gov/AcuteInpatientPPS/

Downloads/nonhospQA.pdf. In the 

Qs&As, in response to the question of 

whether there are situations where it is 

acceptable for the teaching physician to 

‘‘volunteer’’ his or her time supervising 

residents at the nonhospital site, we 

stated that ‘‘* * * the relevant question 

is not whether volunteerism is 

permissible, but whether there is a cost 

to the nonhospital site for supervising 

the resident training. If there is a cost, 

the hospital must reimburse the 

nonhospital site for those costs.’’ We 

further stated that we believe in 

situations where the teaching physician 

receives a predetermined compensation 

amount for his or her time at the 

nonhospital site that does not vary with 

the number of patients he or she treats, 

there is a cost for the teaching physician 

time spent in GME activities. In 

contrast, if the physician’s 

compensation at the nonhospital site is 

based solely on his or her billings, there 

is no cost for teaching physician time 

spent in GME activities. Accordingly, 

the statute continues to require that a 

hospital must pay ‘‘all or substantially 

all’’ the costs of training residents at the 

nonhospital site in order to count FTE 

residents training at that site, including 

teaching physician costs, as long as 

those costs exist. 

3. Requirements for Written Agreements 

for Residency Training in Nonhospital 

Settings (§ 413.78(e)) 

In implementing section 1886(h)(4)(E) 

of the Act, in order to assist contractors 

in determining whether a hospital 

incurred ‘‘all or substantially all’’ of the 

costs of the program in the nonhospital 

setting, we required in § 413.78(c) and 

(d) (formerly § 413.86(f)(3) and (4)) that 

there must be a written agreement 

between the hospital and the 

nonhospital site stating that the hospital 

will incur ‘‘all or substantially all’’ of 

the costs of training in the nonhospital 

setting. We later specified at 

§ 413.78(d)(2) that the written agreement 

must indicate the amount of 

compensation provided by the hospital 

to the nonhospital site for supervisory 

teaching activities. 

In an effort to respond to concerns 

expressed by hospitals about the 

administrative burden associated with 

meeting the written agreement 

requirements, in the FY 2005 IPPS final 

rule (69 FR 49179), at § 413.78(e), we 

revised our regulations to allow 

hospitals to choose to either enter into 

a written agreement with the 

nonhospital site before the hospital may 

begin to count residents training at the 

nonhospital site, or to pay concurrently 

for the cost of training at the 

nonhospital setting. That is, in the 

absence of a written agreement, 

hospitals are required to pay ‘‘all or 

substantially all’’ of the costs of the 

training program in the nonhospital 

setting by the end of the third month 

following the month in which the 

training occurs. 

4. Modification of the Definition of ‘‘All 

or Substantially All of the Costs for the 

Training Program in the Nonhospital 

Setting’’

We have met numerous times with 

industry representatives with the goal of 

developing a proposal which would 

respond to the concerns expressed by 

the teaching hospital community about 

the administrative burden associated 

with determining and documenting that 

hospitals are paying for ‘‘all or 

substantially all’’ of the costs for the 

training in the nonhospital setting. 

Some industry representatives recently 

suggested that we could ease 

administrative burdens by modifying 

the requirements hospitals must satisfy 

to meet the statutory requirement to 

incur ‘‘all or substantially all’’ of the 

costs by allowing a teaching physician 

to attest that at least 90 percent of the 

teaching physician’s GME time is spent 

in patient care activities. However, we 

explained in response that the statutory 

test is tied to whether the hospital has 

incurred ‘‘all or substantially all’’ of the 

costs of the training at that site, not to 

how the teaching physician’s GME time 

is spent. Therefore, we do not believe 

the attestation proposed by the industry 

adequately addresses the statutory 

requirement that the hospital incur ‘‘all 

or substantially all’’ of the costs of the 

training program at that site. We 

continue to believe that any Medicare 

policy approach to allowing hospitals to 

count FTE residents training in 

nonhospital settings for IME and direct 

GME payment purposes must be 

consistent with the statutory 

requirement that hospitals incur ‘‘all, or 

substantially all’’ of the costs of a 

training program in a nonhospital 

setting. The statute is clearly concerned 

about the cost to the nonhospital site, 

and we believe the statute has set a 

priority to move resources, in terms of 

both residents and funding, out into 

community settings. Therefore, where 

there is a cost to the nonhospital setting 

for training residents, we believe that 

the Medicare program is obligated to 

ensure that the nonhospital settings 

receive the funding they are entitled to 

receive from hospitals under the statute. 

Accordingly, we continue to believe 

that our current definition of ‘‘all or 

substantially all’’ of the costs, which is 

based on the costs of the training 

program at the nonhospital site, is true 

to the intent of the statute. However, to 

address the industry’s concerns related 

to burdensome documentation 

requirements, we propose to establish 

an alternative methodology that 

hospitals may choose to use in 

determining and paying for the teaching 

physician costs attributable to direct 

GME in the nonhospital sites. As we 

explain below in this section, we are 

proposing to revise the current 

definition of ‘‘all or substantially all’’ of 

the costs to require hospitals to incur a 

percentage of the costs of the training 

program at the nonhospital site. Our 

proposal also generally incorporates the 

industry representatives’ concept of a 90 

percent threshold, but does not 

specifically relate it to the percentage of 

time spent by the teaching physician on 

GME activities, as suggested by industry 


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representatives. Furthermore, as 

explained in more detail below in this 

section, in determining whether a 

hospital has met the 90 percent cost 

threshold, we are proposing to allow 

hospitals to use certain shortcuts or 

proxies in the place of actual cost data 

specific to each teaching physician at 

each nonhospital site. However, 

hospitals would always still have the 

option of calculating the actual teaching 

physician costs and the 90 percent 

threshold using actual cost data specific 

to all, or some of their applicable 

teaching physicians. That is, even if a 

hospital chooses to calculate the direct 

GME costs of a program using actual 

teaching physician time and cost data 

(as under existing regulations) rather 

than using the proxies, under this 

proposal, a hospital would only be 

required to pay at least 90 percent of the 

total of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

teaching physicians’ costs attributable to 

direct GME for a program at the 

nonhospital site. That is, we are 

proposing that a hospital would no 

longer be required to pay 100 percent of 

the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable), plus the portion of 

the teaching physicians’ costs 

attributable to direct GME at the 

nonhospital site. Instead, we are 

proposing that a hospital would be 

required to pay for 90 percent of the 

GME costs of a training program in a 

nonhospital site, and would have a 

choice between two approaches for 

calculating teaching physician’s costs. 

Currently, ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ is defined at 

§ 413.75(b) as the residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) and the 

portion of the cost of teaching 

physicians’ salaries and fringe benefits 

attributable to direct GME. We are 

proposing to define ‘‘all or substantially 

all of the costs for the training program 

in the nonhospital setting’’ under 

§ 413.75(b) (prospectively for cost 

reporting periods beginning on or after 

July 1, 2007) to mean at least 90 percent 

of the total of the costs of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable) 

and the portion of the cost of teaching 

physicians’ salaries attributable to direct 

GME. We believe this standard is 

consistent with the statute, in that 

hospitals would still be required to 

incur substantially all of the costs of 

training programs in nonhospital 

settings, and we would expect this 

standard to further encourage hospitals 

to shift training to nonhospital settings 

as intended by the statute. Under this 

revised definition of ‘‘all or 

substantially all’’ of the costs for the 

training program in the nonhospital 

setting, we would create a 90 percent 

threshold that hospitals must meet in 

order to count FTE resident time spent 

training at the nonhospital setting for 

IME and direct GME payment purposes. 

Additionally, under the new definition, 

hospitals would only have to incur a 

minimum of 90 percent of the costs of 

the program at a nonhospital site to 

count FTE resident time spent training 

at the site. Furthermore, as is the case 

with the current definition of ‘‘all or 

substantially all,’’ the new definition 

would not include overhead costs. 

We are also soliciting comments on 

our proposed effective date for purposes 

of both direct GME and IME as to 

whether this proposal should be 

effective immediately for portions of 

cost reporting periods occurring on or 

after July 1, 2007, or alternatively, for 

cost reporting periods beginning on or 

after July 1, 2007. Although an effective 

date of ‘‘portions of cost reporting 

periods occurring on or after July 1, 

2007,’’ would provide a more immediate 

response to concerns raised by teaching 

hospitals, we are concerned that 

establishing new policies in the middle 

of hospitals’ cost reporting periods 

presents some logistical challenges, both 

from an implementation and an audit 

perspective. Therefore, we are 

proposing that the new definition of ‘‘all 

or substantially all’’ of the costs would 

be effective for both direct GME and 

IME for cost reporting periods beginning 

on or after July 1, 2007, although, as 

stated above in this section, we are 

specifically soliciting comments on this 

effective date. 

As we explained, rather than adopt 

the industry’s suggested standard of 90 

percent of the teaching physicians’ time 

spent in patient care activities, which 

we do not believe would be sufficiently 

true to the requirements of the statute, 

as a compromise, we propose to accept 

that hospitals have incurred ‘‘all or 

substantially all’’ of the costs of the 

program at the nonhospital site (and are 

therefore permitted to count the FTE 

residents training at the nonhospital site 

for IME and direct GME Medicare 

payment purposes) if the hospital incurs 

at least 90 percent of the costs of 

training at that site. Under this proposal, 

a hospital would not have to 

demonstrate that it has incurred the 

costs of the teaching physician’s time if 

it has otherwise incurred at least 90 

percent of the nonhospital site training 

costs by paying the residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable) during the 

time spent training at the site. However, 

if the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) account for less than 

90 percent of the costs of training at the 

nonhospital site, we propose the 

hospital would have to compensate the 

nonhospital site for its teaching 

physician costs so that the hospital is 

incurring at least 90 percent of the 

training program costs at the 

nonhospital site. If the hospital does not 

meet the 90 percent threshold by only 

paying for the cost of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable), 

we propose the hospital would have to 

meet the threshold by incurring some 

portion of the teaching physicians’

salaries that is attributable to direct 

GME. 

As previously stated in the Qs&As on 

the CMS Web site on April 8, 2005 at 

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

AcuteInpatientPPS/Downloads/ 

nonhospQA.pdf (Answer #4), we 

believe there are typically no costs for 

teaching physician time if the 

physician’s compensation at the 

nonhospital site is based solely and 

directly on the number of patients 

treated and for which he or she bills, 

which is the case with a solo 

practitioner. When the solo practitioner 

is not treating patients, he or she is not 

receiving payment for any other duties 

at the nonhospital site. Therefore, in 

this instance, there is no cost to the 

nonhospital site for the teaching 

physician’s time. However, in the case 

of a group practice or clinic setting, the 

physician often receives a 

predetermined payment amount, such 

as a salary, for his or her work at the 

nonhospital site. This predetermined 

payment amount reflects all of his or her 

responsibilities at the nonhospital site, 

including treating patients, training 

residents, and other administrative 

activities (as applicable), and he or she 

may receive that predetermined 

payment from the nonhospital site 

regardless of how many patients he or 

she actually treats. The predetermined 

amount implicitly also compensates the 

physician for supervising residents. A 

portion of this implicit compensation is 

the cost attributable to teaching 

activities, and, in order to count the 

residents training at that site, the 

hospital must pay the nonhospital site 

this amount. However, there may be 

instances in a group practice, where a 

teaching physician is not receiving a 

form of predetermined compensation for 

his or her work at the nonhospital site. 


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For example, three physicians may work 

in the same office and share overhead 

expenses such as electricity and rent, 

but otherwise, there is no sharing of 

revenues from patient care activities, 

and the physicians operate as solo 

practitioners and are not compensated 

according to some predetermined 

arrangement. In cases such as these, we 

assume that the teaching physician is 

functioning as a solo practitioner and 

that teaching physician costs for GME 

training at the nonhospital site are zero. 

Accordingly, this proposal affects 

members of group practices where the 

teaching physician receives a salary or 

other form of predetermined 

compensation for his or her work at the 

nonhospital site. However, we note that 

under our proposal, in the case of solo 

practitioners, hospitals must continue to 

pay for at least 90 percent of the total 

cost of the residents’ salaries and fringe 

benefits, including travel and lodging 

where applicable. 

5. Implementation of a 90 Percent Cost 

Threshold 

In proposing a new revised definition 

of ‘‘all or substantially all’’ of the costs 

of the program at a nonhospital site, and 

in establishing a 90 percent threshold, 

there are several variables that are 

important in the methodology for 

determining the minimum amount that 

a hospital must pay in order to count 

FTE residents training in a nonhospital 

site. These variables are: teaching 

physicians’ salaries, residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable), the number 

of hours per week that the teaching 

physician spends in direct GME (not 

billable patient care) activities in the 

nonhospital site, and the number of 

hours that a nonhospital site is open 

each week. To provide the reader with 

a context for the new methodology that 

we are proposing, we will first explain 

the methodology briefly, provide two 

examples, and then proceed to an indepth discussion of each variable (see 

section XII.B.5.b. of the preamble of this 

proposed rule). 

a. Methodology 

One of the primary complaints voiced 

by the hospital industry over the past 

several years is that our policy requiring 

hospitals to determine the portion of the 

teaching physician cost attributable to 

direct GME in the nonhospital site 

results in an untenable documentation 

burden since many physicians are 

reluctant to disclose their salary 

information to the hospitals. One 

solution to this problem suggested by 

the hospital industry is to use national 

average physician salary information as 

a proxy for teaching physician-specific 

salaries in the determination of the total 

cost of the program at a nonhospital site. 

In addition, since the cost of the 

teaching physician time that the 

hospital must incur is based on the 

amount of time the teaching physician 

spends in nonpatient care GME 

activities, the hospital industry has been 

concerned that determining this GME 

time could require burdensome time 

studies. Therefore, we are proposing to 

adopt an alternative methodology that 

hospitals may choose to use, instead of 

actual costs, to calculate teaching 

physician costs in nonhospital sites. 

Using this alternative methodology, to 

facilitate a less burdensome way for a 

hospital to calculate the teaching 

physician costs associated with GME 

training at the nonhospital site, we 

propose to allow hospitals to use 3 

hours per week as a presumptive 

standard number of hours that a 

teaching physician spends in nonpatient 

care GME activities at a particular 

nonhospital site. To determine the 

percentage of the average salary 

associated with the 3 hours the teaching 

physician is presumed to spend in 

nonpatient care GME activities, we 

propose that a hospital would divide 3 

hours by the number of hours the 

nonhospital site is open each week. 

Next, we propose that the hospital 

would multiply this percentage of time 

spent in nonpatient care GME activities 

by the national average salary of that 

teaching physician’s specialty to 

calculate the cost of the teaching 

physician’s direct GME time. The cost of 

the teaching physician’s direct GME 

time would then be added to the costs 

of the salaries and fringe benefits 

(including travel and lodging expenses, 

where applicable) of the FTE resident(s) 

rotating in that program to that 

nonhospital site to determine the GME 

costs for that program at that site. (If 

FTE resident(s) are not rotating to a 

particular nonhospital site throughout a 

whole year, then the national average 

salary of the teaching physician would 

be prorated accordingly. The cost of the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) would already be reflective 

of an FTE count). We propose that the 

hospital must pay at least 90 percent of 

these total GME costs for the program at 

that nonhospital site in order to count 

the resident(s) training there for direct 

GME and IME purposes. If the hospital 

is already paying all, or even a portion 

of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable), and if the amount 

that the hospital is paying for the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) is equal to at least 90 

percent of the GME costs at the 

nonhospital site (that is, the 90 percent 

threshold), then the hospital would be 

considered to be incurring ‘‘all or 

substantially all’’ of the costs, and need 

not incur an additional amount for 

teaching physician compensation to be 

permitted to include the FTE residents 

training in the nonhospital site in its 

FTE count for purposes of direct GME 

and IME payments. However, if the 

costs of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) does not equal at least 

90 percent of the GME costs of the 

training program at the nonhospital site, 

then the hospital must incur an 

additional amount for teaching 

physician costs based on the national 

average salary information until it is 

incurring at least 90 percent of the GME 

costs for that nonhospital site program. 

That is, under the proposed alternative 

definition of ‘‘all or substantially all’’ of 

the costs, a hospital is required to incur 

at least 90 percent of the total GME costs 

for a particular program at a particular 

nonhospital site. The GME costs of a 

particular program at a particular 

nonhospital site consist of FTE 

residents’ salaries and fringe benefits 

(including travel and lodging costs 

where applicable), and the portion of 

teaching physician compensation 

(which may be based on national 

average survey data) attributable to 

direct GME. As will be explained in 

more detail below in this section, the 

hospital always has the option of 

documenting the actual teaching 

physician’s cost using actual time or 

salary information to pay at least 90 

percent of the total costs of the program 

at the nonhospital site. In summary, the 

formula for determining the 90 percent 

threshold, or the minimum amount that 

a hospital must pay for the GME costs 

of a particular program at a particular 

nonhospital site is: 

0.90 × [(sum of each FTE resident’s 

salary + fringe benefits (including 

travel and lodging where 

applicable)) plus the portion of the 

teaching physician’s compensation 

attributable to direct GME 

activities.] 

The portion of the teaching 

physician’s compensation attributable to 

direct GME activities may be calculated 

as follows: 

(3/number of hours nonhospital site is 

open per week) × (national average 

salary for each teaching physician*) 

* The number of teaching physicians 

included in this formula is subject to a 1:1 


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resident to teaching physician limit, as 

explained below in this section. 

The following are two examples of the 

proposed alternative methodology: 

Example 1: Assume one teaching physician 

is supervising one FTE resident in a 

nonhospital site for 1 residency year. The 

national average published salary amount for 

that teaching physician’s specialty is 

$120,000, and he works in a clinic that is 

open 60 hours per week. Using the standard 

of 3 hours spent in GME activities per week, 

the teaching physician spends 5 percent of 

his time in GME activities (that is, 3/60 = 

0.05 or 5 percent). To determine the cost of 

the teaching physician’s time, the hospital 

may make the following calculation: 

$120,000 × 0.05 = $6,000. This teaching 

physician’s cost is added to the resident’s 

salary and fringe benefits to calculate the cost 

of the training at the nonhospital site in the 

following manner: $6,000 [cost of one 

teaching physician] + $60,000 [actual cost of 

the FTE residents’ salary & fringe benefits] = 

$66,000. To meet the proposed new 

definition of ‘‘all or substantially all,’’ the 

hospital would be required to pay at least 90 

percent of the costs of the training program 

at the nonhospital site, which in this 

example equals $59,400 (that is, 0.90 × 

$66,000). Since in this case the cost of one 

FTE resident’s salary and fringe benefits is 

$60,000, the hospital could reach the 90 

percent cost threshold by simply incurring 

the resident’s salary and fringe benefits 

during training at the nonhospital site. 

Example 2: Assume one teaching physician 

is supervising one FTE resident in a 

nonhospital site for an entire residency year. 

The national average published salary 

amount for that teaching physician’s 

specialty is $200,000, and she works in a 

clinic that is open 40 hours per week. Using 

the standard of 3 hours spent in GME 

activities per week, the teaching physician 

spends 7.5 percent of her time in GME 

activities (that is, 3/40 = 0.075 or 7.5 

percent). To determine the cost of the 

teaching physician’s time, the hospital may 

make the following calculation: $200,000 × 

0.075 = $15,000. This teaching physician’s 

cost is added to the resident’s salary and 

fringe benefits to calculate the cost of the 

training at the nonhospital site in the 

following manner: $15,000 [cost of one 

teaching physician] + $60,000 [actual cost of 

the FTE residents’ salary and fringe benefits] 

= $75,000. To meet the proposed new 

definition of ‘‘all or substantially all,’’ the 

hospital would be required to incur at least 

90 percent of the costs of the training at the 

nonhospital site, which in this example 

equals $67,500 (that is, 0.90 × $75,000). Since 

in this case the cost of one FTE resident’s 

salary and fringe benefits is $60,000, the 

hospital has not met the 90 percent threshold 

by only incurring the resident’s salary and 

fringe benefits. The hospital would have to 

incur at least an additional $7,500 of the cost 

(that is, $67,500 ¥ $60,000) to reach the 90 

percent threshold to be permitted to count 

the FTE resident for IME and direct GME 

purposes. Alternatively, the hospital could 

document the actual teaching physician cost 

using time or salary information specific to 

that teaching physician at that site, and use 

that amount to calculate 90 percent of the 

actual training program costs. 

b. Explanation of Variables 

In the following section, we discuss 

each variable in the proposed 

methodology for determining the cost 

that a hospital must incur in order to 

count FTE residents training in 

nonhospital sites, and explain our 

rationale for proposing to employ each 

of these variables. As stated previously, 

the proposed variables are: teaching 

physicians’ salaries; residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable); the number 

of hours per week that the teaching 

physician spends in nonpatient care 

GME activities in a nonhospital site; and 

the number of hours that a nonhospital 

site is open each week. 

(1) National Average Physician Salary 

Data by Specialty 

One of the foremost objections voiced 

by the hospital industry to our current 

policy is the documentation burden 

associated with requesting salary 

information from individual teaching 

physicians in nonhospital sites. 

Hospitals believe that many teaching 

physicians in nonhospital sites are 

reluctant to disclose their personal 

salary information, yet this disclosure is 

necessary to enable the hospital to 

determine and pay the nonhospital site 

for the actual costs of the GME program 

in accordance with our current 

regulations. One suggestion mentioned 

by the hospital industry as an 

alternative to obtaining individual 

teaching physician-specific salary 

information is to allow hospitals to use 

national average salary survey data by 

specialty. We understand that there are 

a number of organizations that conduct 

annual national surveys on physician 

compensation. We are proposing to 

allow hospitals to use physician 

compensation survey data as a proxy to 

determine the teaching physician costs 

associated with GME in a program at a 

particular nonhospital site. For 

example, one such national organization 

that collects data on physician 

compensation that we are considering 

using is the American Medical Group 

Association (AMGA). AMGA’s 2006 

Medical Group Compensation and 

Financial Survey was performed under 

contract by RSM McGladrey. Founded 

in 1950, AMGA (formerly the American 

Association of Medical Clinics) is a 

trade association which dedicates itself 

to making the ‘‘* * * multi-specialty 

medical group model the preferred 

delivery system for patient-centered, 

affordable, quality medical care in 

America,’’ and represents 283 medical 

groups that include an average of 272 

physicians. AMGA’s use of the term 

‘‘medical group’’ is based on the 

American Medical Association’s 

definition of ‘‘group practice,’’ which is 

defined as a group that ‘‘includes the 

provision of health care services by 

three or more physicians who are 

formally organized as a legal entity 

governed by physicians in which 

business, clinical, and administrative 

facilities, records and personnel are 

shared and the practice goals, 

objectives, and values are commonly 

defined. Income from medical services 

provided by the group is treated as 

receipts of the group and is distributed 

according to some prearranged plan.’’

AMGA has been performing surveys like 

the 2006 Medical Group Compensation 

and Financial Survey since 1986. The 

2006 survey was sent to over 2,600 

medical groups, including medical 

groups that are not members of AMGA. 

To give readers an idea of the average 

compensation amounts in the survey, 

we have randomly selected 10 

specialties included in the 2006 survey 

and listed their compensation 

information in Table 7. If we adopt the 

AMGA survey for use to determine the 

cost of teaching physicians’ time 

attributable to GME, we would make the 

salary information for all specialties 

accessible to hospitals on our Web site 

and would provide it in a manner 

similar to Table 7. 

TABLE 7.—PHYSICIAN SALARY INFORMATION

*Specialty Mean salary 

(in dollars) 

Median salary 

(in dollars) 

Cardiology ................................................................................................................................................................ $411,916 $363,081 

Dermatology ............................................................................................................................................................. 336,531 306,935 

Family Medicine ....................................................................................................................................................... 187,891 178,366 

Gynecology and Obstetrics ..................................................................................................................................... 286,418 271,273 

Internal Medicine ..................................................................................................................................................... 192,264 183,840 


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4824 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 7.—PHYSICIAN SALARY INFORMATION—Continued 

*Specialty Mean salary 

(in dollars) 

Median salary 

(in dollars) 

Ophthalmology ......................................................................................................................................................... 307,044 281,112 

Pediatrics & Adolescent: General ............................................................................................................................ 191,122 182,186 

Physical Medicine and Rehabilitation ...................................................................................................................... 208,442 207,004 

Diagnostic Radiology: Non-Interventional ............................................................................................................... 415,521 400,000 

General Surgery ...................................................................................................................................................... 331,970 310,736 

*This information was obtained from the 2006 Medical Group Compensation and Financial Survey published by the American Medical Group 

Association (AMGA). For further information, visit AMGA’s Web site at http://www.amga.org/. 

We are soliciting comments as to 

whether we should use the mean or 

median compensation amounts for 

purposes of determining the teaching 

physicians’ cost. In addition, although 

we recognize that there are generally 

geographic variations in salary amounts 

within each specialty (and, although not 

included in Table 7, AMGA does 

provide some detail of salaries by 

geographic area), we are proposing to 

use the single national average or 

median salary amount for each 

specialty, rather than consider 

geographic variations, because we 

would like to simplify and streamline 

the proposed methodology for 

determining the GME costs in 

nonhospital sites as much as possible. 

We are specifically soliciting comments 

about whether AMGA’s salary 

information should be used, and if not, 

which other physician compensation 

survey (or possible mix of surveys) 

would be more appropriate for this 

purpose, and whether we should 

consider additional factors such as 

geographic variation in physician 

salaries within each specialty. We note 

that we believe it is important for the 

organization providing specialtyspecific physician compensation 

information for this purpose to be one 

that is nationally recognized as an 

authoritative source. Additionally, we 

believe the data should contain 

compensation amounts for the fullest 

range possible of specialties and 

subspecialties, and should be issued 

annually so that hospitals will always 

have the most current data to use in 

determining the teaching physician 

costs in nonhospital sites. In addition, 

we would prefer a survey that is 

available to the public at no cost. (We 

understand that a number of these 

surveys are proprietary.) We are also 

soliciting comments as to how to make 

the survey data available in the most 

efficient possible manner. 

Regardless of the survey source that 

we ultimately use, we are proposing that 

hospitals would use the most recent 

survey data available as of the beginning 

of the hospital’s particular cost 

reporting year. For example—

• If residents are rotating to a 

particular nonhospital site to receive 

training in family practice in a 

hospital’s cost reporting year beginning 

January 1, 2008, then the hospital would 

use the family practice average salary 

from the most recently issued survey (in 

the case of AMGA, 2007) as the salary 

cost of that teaching physician, even 

though that teaching physician may in 

fact earn more or less than that national 

average salary amount. 

• If the teaching physician is a 

neurologist providing residents with 

neurology training in a nonhospital site 

in a hospital’s cost reporting year 

beginning July 1, 2007, then the hospital 

would use the neurology average salary 

from most recently issued survey (in the 

case of AMGA, 2006, since AMGA’s 

surveys are typically released in August) 

as the salary cost of that teaching 

physician. 

Determining Teaching Physicians’ Cost 

In determining the teaching 

physicians’ cost, the specialty of the 

teaching physician is the relevant 

criterion, not the specialty of the 

residents that the teaching physician is 

training in the nonhospital site. 

Generally, we believe the specialty of 

the teaching physician will be selfevident, and the hospital can easily 

locate the national average salary 

information for that teaching 

physician’s specialty on the survey (for 

example, if family practice residents are 

rotating to a dermatology practice to 

receive training in dermatology, then 

the national average salary for 

dermatologists would be used from the 

survey). However, it is possible that the 

teaching physician is highly specialized 

and the average compensation for his or 

her subspecialty is not listed in the 

survey we decide to use. In such a case, 

we are proposing that the hospital 

should use the immediately lessspecialized form of that specialty 

applicable to that teaching physician (or 

the hospital may use the physician’s 

actual salary information). For example, 

if residents are receiving training from 

a forensic pathologist, and the national 

average salary for the subspecialty of 

forensic pathology is not included in the 

physician compensation survey, then 

we are proposing that the hospital 

should instead use the national average 

salary for the specialty of pathology to 

determine the cost of that teaching 

physician. We believe this is the 

simplest method of assigning a national 

average physician compensation 

amount in the instance where the 

teaching physician’s actual subspecialty 

is not included in the survey. However, 

we are soliciting comments as to 

whether it is possible or appropriate to 

use survey data from other sources in 

the event that data is not available from 

the particular survey source. 

In addition, although it may not be a 

common occurrence, it is possible that 

residents could be receiving training in 

a nonhospital site from a teaching 

physician that is board certified in more 

than one specialty, but the residents are 

only receiving training in one of the 

specialties in which the physician is 

board certified. In this case, we are 

proposing that the national average 

salary that should be used to determine 

the teaching physician’s cost should be 

the one for the specialty in which the 

teaching physician is training the 

residents. For example, if residents are 

being supervised by a cardiologist who 

is board certified in internal medicine 

and cardiology, but the residents are 

training with him or her specifically to 

learn internal medicine, then we are 

proposing that the hospital should use 

the national average salary for internal 

medicine, and not cardiology, to 

determine the teaching cost of that 

physician. That is, in instances where 

the residents are receiving training at a 

nonhospital site from a teaching 

physician that is board certified in more 

than one specialty, and it is unclear 

which specialty to use for purposes of 

assigning a national average salary to 

that physician, we are proposing that 

the question for the hospital to ask is, 

why are the residents training with that 

physician? If the answer is, ‘‘to receive 


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Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4825 

training in Specialty X,’’ then the 

national average salary amount for 

Specialty X should be used to determine 

the teaching physician’s cost. If the 

answer is, ‘‘to receive training in 

Specialty Y,’’ then the national average 

salary amount for Specialty Y should be 

used to determine the teaching 

physician’s cost, regardless of the 

specific board certification that the 

teaching physician has actually 

received. In general, the hospital, with 

assistance from the GME Program 

Director as necessary, should be able to 

document for the Medicare contractor 

the specialty in which the residents are 

receiving training at the nonhospital 

site, and the national average physician 

compensation amount for that specialty 

used in paying ‘‘all or substantially all’’

of the costs, as defined in this proposed 

rule. 

Multiple Teaching Physicians and 

Residents: 1:1 Resident to Teaching 

Physician Ratio 

We understand that it is not unusual 

for several residents in the same 

program to rotate to a particular 

nonhospital site at the same time, and 

be supervised by one teaching 

physician, or for residents to be 

supervised by several teaching 

physicians during their time at that 

nonhospital site. In determining the 

total costs of the training program at the 

nonhospital site, it is necessary to 

consider all of the residents’ salaries 

and fringe benefits (including travel and 

lodging where applicable), and the 

teaching physicians’ national average 

salaries. However, to maintain 

administrative simplicity, we are 

proposing to allow hospitals to apply a 

maximum of a 1:1 resident-to-teaching 

physician ratio ‘‘limit’’ in determining 

the total GME costs applicable to a 

program at a nonhospital site. For 

example, if at the nonhospital site there 

are two teaching physicians and one 

FTE resident, the hospital may 

determine 90 percent of the total costs 

of the program using a 1:1 resident-toteaching physician ratio, not a 1:2 

resident-to-teaching physician ratio. The 

90 percent threshold would be based on 

the total cost of the one FTE resident 

(salary and fringe benefits, and travel 

and lodging where applicable) and one 

teaching physician (national average 

salary for the specialty multiplied by the 

percentage of time spent in nonpatient 

care GME activities). Similarly, if a 

hospital rotated 3 FTE residents in the 

same program to a particular 

nonhospital site with 7 physicians, 

unless the hospital documents 

otherwise, we would assume that all 7 

physicians supervise the residents at 

some point during the training, but, for 

purposes of determining the 90 percent 

threshold, we propose to assume that 

there are only 3 FTE residents being 

supervised by 3 teaching physicians. 

Accordingly, the 90 percent threshold 

would be based on the total cost of the 

3 FTE residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and 3 teaching 

physicians (national average salaries for 

the specialties multiplied by the 

percentage of time spent in nonpatient 

care GME activities). (In addition, we 

note that the 1:1 limit may be applied 

to FTE fractions, as well. That is, if in 

the preceding example, 3.5 FTE 

residents were being supervised by 7 

physicians, the 90 percent threshold 

would be determined based on the costs 

associated with a resident-to-teaching 

physician ratio of 3.5:3.5.) 

In the case of multiple teaching 

physicians, we must also consider that 

a particular nonhospital site may be 

staffed by physicians in different 

specialties. For example, an orthopedics 

practice may include orthopedists and 

radiologists. In this case, we would still 

maintain the 1:1 resident-to-teaching 

physician limit, even if the teaching 

physicians are in different specialties, 

unless the hospital can document that 

the number of physicians actually 

teaching the residents is less than the 

number of FTE residents training at that 

nonhospital site. Once the number of 

teaching physicians is established, we 

are proposing that the hospital would 

determine the national average salary 

for each of those teaching physicians 

from the national survey data, and then 

calculate the average national salary of 

the mix of physician specialties in the 

practice to be used in computing the 90 

percent threshold. For example, assume 

that 3 FTE residents are rotating to an 

orthopedic surgery practice staffed by a 

total of 7 physicians; 4 are orthopedic 

surgeons, and 3 are diagnostic 

radiologists. Again, unless the hospital 

documents otherwise, we would assume 

that all 7 physicians supervise the 

residents at some point during their 

rotation to this practice. First, the 

hospital would access the national 

average salary for orthopedic surgeons 

(assume $400,000), and the national 

average salaries for diagnostic 

radiologists (assume $412,000). Then, 

the hospital would calculate the average 

salary for these physicians as follows: 

[($400,000 × 4) + ($412,000 × 3)]/7 = 

$405,143. Next, the 1:1 resident-toteaching physician ratio would be 

applied, such that for purposes of 

determining the 90 percent threshold, 

there would be 3 FTE residents and 3 

teaching physicians. Since the 3 

teaching physicians are not in the same 

specialty, the hospital would multiply 

the average salary cost of $405,143 by 3 

to get the total teaching physician 

salaries for the training program at that 

site ($405,143 × 3 = $1,215,429). The 

hospital would then multiply 

$1,215,429 by the percentage of time 

spent by the teaching physicians in 

nonpatient care GME activities (that 

percentage is 3 hours divided by the 

number of hours the practice is open 

during a week) to determine the 

teaching physician GME cost for the 

training program at that site. This 

teaching physician cost is then added to 

the salaries and fringe benefits 

(including travel and lodging where 

applicable) of the 3 FTE residents to 

determine the GME cost of the program 

at that practice, and the hospital must 

ensure that it incurs at least 90 percent 

of that GME cost to count the 3 FTE 

residents training at the nonhospital 

site. 

We note that, as we indicated above 

in this section, if there are several 

physicians in a nonhospital site, we 

would assume that they all supervise 

the residents at some point during the 

residents’ training. However, it may be 

that in fact only some of the physicians 

actually supervise the residents, while 

other physicians are not involved in the 

training program at all. The hospital 

may wish to document that only certain 

physicians are involved in the training 

program (in order to more accurately 

represent the structure and costs of the 

training program in a particular 

nonhospital site). Such documentation 

would increase the number of residents 

relative to teaching physicians that is 

used to calculate the teaching physician 

costs. That is, using the example above 

where the resident-to-teaching 

physician limit was presumed to be 3:3, 

since there were actually 3 FTE 

residents and 7 physicians, if the 

hospital can document that only 2 

physicians supervised the residents 

(and the other 5 physicians were not 

involved in the GME program at all), 

then the resident-to-teaching physician 

ratio would be 3:2. As a result, the 

hospital might be required to incur less 

teaching physician costs, if any, to meet 

the 90 percent threshold. 

(2) Residents’ Salaries and Fringe 

Benefits 

The second variable in our proposed 

methodology for determining the costs 

of a program at a nonhospital site is the 

salaries and fringe benefits (including 

travel and lodging where applicable) of 

the FTE residents that are rotating to a 

particular nonhospital site. We 

understand that since the salaries and 


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4826 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

fringe benefits (including travel and 

lodging where applicable) of most 

residents are already paid by hospitals 

(either directly, or by reimbursing 

another entity such as a medical 

school), the portion of the actual cost of 

the residents attributable to training in 

the nonhospital setting can be easily 

identified and documented by a 

hospital. Therefore, as under existing 

regulations, in determining the 90 

percent threshold for a particular 

program at a specific nonhospital site, 

the hospital must use the actual cost of 

each FTE resident’s salary and fringe 

benefits (including travel and lodging 

where applicable). In addition, the cost 

of the residents will vary by specialty 

and by program year. Furthermore, as 

with current policy, the total residents’

costs will be based on the FTE number 

rotating to a particular nonhospital site 

in a cost reporting period, not the 

number of individuals actually training 

in a nonhospital site. 

(3) The Number of Hours Spent in 

Nonpatient Care GME Activities in a 

Week and the Number of Hours That the 

Nonhospital Site Is Open in a Week 

The third variable used in the 

determination of the costs of a training 

program at a nonhospital site is the 

amount of time that the teaching 

physician(s) spends on direct GME 

(nonpatient care) activities in a week. 

As we first explained in the July 31, 

1998 Federal Register (63 FR 40987), 

and more recently in the August 8, 2005 

Qs&As posted on the CMS Web site at 

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

AcuteInpatientPPS/Downloads/ 

nonhospQA.pdf, determination of the 

teaching physician costs to the 

nonhospital site is dependent upon the 

teaching physician’s salary and the 

percentage of time he or she devotes to 

activities related to non-billable GME 

activities at the nonhospital site (such as 

conferences, practice management, 

lectures, and administrative activities 

like resident evaluations). Hospitals and 

teaching physicians have protested that 

documenting the percentage of time that 

teaching physicians spend on activities 

relating to nonpatient care GME 

activities at the nonhospital site is an 

onerous and impractical task. In an 

effort to eliminate the documentation 

burden on physicians of keeping track 

of the amount of time they spend in 

nonpatient care GME activities in the 

nonhospital site, rather than require 

teaching physicians to estimate the 

number of hours per week that they 

spend in such activities with or on 

behalf of the residents, we are proposing 

an alternative option that hospitals may 

choose to use to determine the 

percentage of the teaching physician’s 

time that is spent in nonpatient care 

GME activities. This option is an 

administrative shortcut or a proxy that 

we are proposing, rather than 

continuing to require in all cases that 

the hospital must document and pay for 

the actual costs of a training program at 

a nonhospital site. However, a hospital 

always has the option of documenting 

and paying for at least 90 percent of the 

costs of a program at a nonhospital site 

using the teaching physician’s actual 

salary and information on the time 

spent in nonpatient care GME activities. 

Under the proposed proxy 

methodology, we would apply a 

presumed standard number of hours 

spent by teaching physicians in 

nonpatient care GME activities in every 

nonhospital site. Specifically, we are 

proposing to use a standard of 3 hours 

per week spent in nonpatient care GME 

activities by teaching physicians. We 

propose that the 3 hour standard would 

be used in all cases in the formula for 

determining the teaching physician 

costs at all nonhospital sites, regardless 

of the specialty of the residents or the 

number of teaching physicians or 

residents training at that nonhospital 

site. Although some hospital industry 

representatives have stated that the 

amount of time spent by teaching 

physicians in nonpatient care GME 

activities in nonhospital sites is ‘‘de 

minimus,’’ and, therefore, there is 

typically little if any teaching cost to the 

nonhospital site, we believe there is also 

evidence indicating that in many cases 

the teaching physician is spending a 

significant amount of time with or on 

behalf of the residents in nonpatient 

care GME activities. We believe the 

standard of 3 hours of nonpatient care 

GME activities per week is a reasonable 

proxy based on data collected from 

surveys conducted by the Association of 

American Medical Colleges (AAMC), 

the American Osteopathic Association 

(AOA), and the Academic Family 

Medicine Advocacy Alliance (AFMAA), 

in addition to information compiled 

from our own informal surveys of 

teaching physicians. 

In September 2005, in response to a 

request by CMS, the AFMAA, AOA, and 

AAMC conducted informal surveys to 

determine the amount of time spent in 

nonpatient care activities by teaching 

physicians in nonhospital sites. In the 

survey results shared with CMS by these 

associations, we received a range of 

hours for the amount of teaching 

physician time spent per week in 

nonpatient care GME activities at the 

nonhospital site. Such nonpatient care 

GME time included time spent by the 

teaching physician in training activities 

when the patient was not present and 

time spent in administrative activities 

related to the GME program. The 

surveys showed means ranging from 1.1 

to 4.0 hours per week and medians of 

1.5 to 4.0 hours per week for time spent 

on residency training when patients 

were not present. The surveys also 

showed means ranging from 1.6 to 4.7 

hours per week and medians of 0 to 2 

hours per week for time spent on 

administrative activities related to 

residency training at the nonhospital 

site. Given the range of survey results, 

we believe that 3 hours per week serves 

as a reasonable number to use as a 

shortcut or a proxy for determining 

teaching physician time spent in 

nonpatient care GME activities at the 

nonhospital site. As previously stated, 

hospitals always still have the option of 

calculating teaching physician costs and 

the 90 percent cost threshold using 

actual data (as under current 

regulations) specific to the number of 

hours the teaching physician spends per 

week on GME activities at the 

nonhospital site. For example, if a 

hospital can document that a teaching 

physician actually spends 1.5 hours per 

week on GME activities at the 

nonhospital site, then the hospital may 

use 1.5 hours per week in calculating 

the teaching physician cost and the 90 

percent cost threshold. 

We are proposing to use the standard 

of 3 hours of nonpatient care activities 

per week as the proxy regardless of the 

number of FTE residents the teaching 

physician is supervising because we 

believe that when the number of FTE 

residents at a nonhospital site increases, 

the teaching physician time associated 

with those FTE residents in many 

instances will increase by only a small 

multiple. For example, a teaching 

physician would provide a lecture to the 

residents together, rather than 

separately lecturing each FTE resident 

training at the nonhospital site. 

Accordingly, the time spent by the 

teaching physician in nonpatient care 

activities may increase only slightly 

with each additional FTE resident being 

supervised. 

While we are proposing to use the 

standard number of hours spent by 

teaching physician(s) in nonpatient care 

direct GME activities across all training 

occurring at all nonhospital sites (that 

is, 3 hours per week), we are proposing 

to introduce a fourth variable in the 

determination of the cost of a training 

program in a nonhospital site that will 

vary depending on the specific 

nonhospital site. This fourth variable is 

the number of hours that a nonhospital 

site is open each week. Since only a 

percentage of the teaching physician’s 


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salary is attributable to direct GME 

activities, and that percentage is based 

on time he or she devotes to activities 

related to non-billable GME activities at 

the nonhospital site, we are proposing 

to determine this percentage by dividing 

the standard number of hours spent in 

nonpatient care GME activities by the 

number of hours the specific 

nonhospital site is open each week. We 

are proposing that the numerator will 

always be 3 hours, and the denominator 

will vary depending on the nonhospital 

site. For example, if FTE residents rotate 

throughout the year to a nonhospital site 

that is open 40 hours per week, then the 

percentage of time spent by the teaching 

physician(s) in nonpatient care GME 

activities throughout the year at that site 

is 3/40 = 0.075 or 7.5 percent. (If FTE 

residents rotate to that nonhospital site 

for only a portion of a year, then the 

ratio of 3/40 would be further 

multiplied by the percentage of the year 

that the FTE residents train there. For 

example, if the FTE residents only rotate 

to this nonhospital site for 3 months of 

the year, then the percentage of time 

that the teaching physician(s) spends on 

nonpatient care GME activities at that 

site equals (3/40 × 0.25 = 0.019 or 1.9 

percent). Similarly, if FTE residents 

rotate throughout the year to a 

nonhospital site that is open 50 hours 

per week, then the percentage of time 

spent by the teaching physician(s) in 

nonpatient care direct GME activities 

throughout the year is 3/50 = 0.06 or 6 

percent. We recognize that the teaching 

physician(s) may not spend 100 percent 

of his or her time in that nonhospital 

site. In fact, many teaching physicians 

spend some of their week working in a 

hospital or other facilities. However, we 

believe that deriving the true amount of 

time spent by each teaching physician 

in each nonhospital site in nonpatient 

care GME activities would involve the 

imposition of another form of the 

documentation burden that the hospital 

industry and teaching physicians have 

found onerous up to this point. This 

proposed methodology eliminates the 

need for any time studies and it is easy 

to gather the information needed. 

We also acknowledge that this 

proposal to use the number of hours that 

a particular nonhospital site is open as 

a proxy in the denominator for 

determining the percentage of time 

spent by the teaching physician(s) in 

nonpatient care GME activities could, in 

some extreme instances, result in an 

unusually high percentage of teaching 

time, which, in turn, would result in a 

determination of unusually high 

teaching costs. This is so because, since 

3 hours is a constant in the numerator, 

the fewer the number of hours the clinic 

is open (the denominator), the greater 

the calculated percentage of time spent 

by the teaching physician in nonpatient 

care GME activities. To use an extreme 

example, if a clinic is only open 10 

hours a week, then 3/10, or 30 percent 

of the national average salary for the 

teaching physician’s specialty would 

represent the teaching physician’s cost 

that would be used to determine 90 

percent of the costs of the program at 

the clinic. However, we believe that, for 

most nonhospital training situations, 

this proposal to use the 3 hour standard 

and the number of hours the 

nonhospital site is open per week is a 

reasonable alternative to the current 

procedures for determining the actual 

teaching physician’s cost because these 

proxies are easily obtainable, discrete 

numbers that do not necessitate any 

time studies. Nevertheless, we are 

soliciting comments on alternative 

proxies that might be appropriate to use 

in the place of the ratio of 3 hours to the 

number of hours a nonhospital site is 

open per week. We also note that in the 

event that this proposed methodology 

for calculating teaching physician costs 

in a particular nonhospital site results 

in an unrealistic amount, we reiterate 

that a hospital always has the option of 

determining and paying at least 90 

percent of the GME costs using actual 

physician salary and teaching time 

information, for all, or some of its 

training programs occurring in 

nonhospital settings. In fact, we are 

proposing that a hospital may choose to 

use a combination of actual information 

and proxy information for determining 

the teaching physician cost. For 

example, a hospital may choose to use 

actual physician salary information 

instead of the national average survey 

data, but use the 3 hour standard and 

the number of hours the nonhospital 

site is open per week to determine the 

percentage of time spent on teaching 

activities, or vice versa. Furthermore, 

we reiterate that under the proposed 

new definition of ‘‘all or substantially 

all,’’ even if a hospital chooses to 

document the teaching physician cost 

using actual teaching physician-specific 

information, the hospital need only 

incur 90 percent of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable), 

and the portion of the teaching 

physicians’ salaries attributable to direct 

GME, and not 100 percent of those 

costs. 

Under our proposal, 90 percent of the 

GME costs for a particular program at a 

particular nonhospital site would be the 

minimum amount that a hospital must 

pay to count the FTE resident(s) training 

at that site for direct GME and IME 

purposes. If the hospital is already 

paying the resident’s salaries and fringe 

benefits (including travel and lodging 

where applicable), and if the costs of the 

resident’s salaries and fringe benefits are 

equal to at least 90 percent of the total 

GME costs at the nonhospital site (that 

is, the 90 percent threshold), then the 

hospital is paying ‘‘all or substantially 

all’’ of the costs in accordance with our 

proposed definition, and need not pay 

an additional amount for teaching 

physician compensation in order to 

count the FTE residents. However, if the 

hospital is paying less than 90 percent 

of the costs of the training program at 

the nonhospital site, then the hospital 

must pay an additional amount toward 

the teaching physician costs until it is 

paying at least 90 percent of the GME 

costs for that program. We believe our 

proposal is relatively simple, easy to 

administer, and eliminates the 

documentation burdens cited by the 

industry as being associated with the 

current policy. However, we note again 

that even under our proposal, a hospital 

is not precluded from choosing to 

calculate and pay 90 percent of the 

teaching costs of a program in a 

nonhospital site in accordance with the 

existing policy requirements. That is, 

the hospital may still choose to 

document the actual teaching physician 

cost using actual time and salary 

information from the teaching 

physician(s) to determine what the true 

direct GME costs are at that nonhospital 

site. Once the hospital calculates the 

actual direct GME costs, we propose 

that it would only be required to pay at 

least 90 percent of the actual direct GME 

costs, consistent with our proposed 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting.’’

The following is an additional 

example of the application of the 

proposed methodology: 

Example: For the July 2008 through June 

2009 academic year, a hospital with a family 

practice program sends 3 FTE residents (in 

different program years) to train at the Family 

Medicine Center (FMC), a nonhospital site. 

The hospital’s cost reporting period began on 

January 1, 2008. The FMC is staffed by 5 

physicians, all of whom supervise the 

residents at some point during the year. Four 

of the physicians are family practitioners, 

and 1 physician is a psychiatrist. The FMC 

is open for 50 hours per week. To determine 

the cost of the teaching physicians, the 

hospital refers to the most recent national 

average salary amounts on the national 

survey published prior to January 1, 2008, 

which is the 2007 survey. Assume that the 

national average published salary amount for 

family practice is $180,000, and the national 


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average published salary amount for 

psychiatry is $187,000. Since there are 

multiple physicians in different specialties 

(absent specific documentation provided by 

the hospital), the average salary of one FMC 

physician is calculated as follows: [($180,000 

× 4 family practice physicians) + ($187,000 

× 1 psychiatrist)]/5 = $181,400. Since the 

residents are on the payroll of the hospital, 

the hospital knows that the total actual cost 

of the 3 FTE residents’ salaries and fringe 

benefits (including travel and lodging, if 

applicable) is $182,000. After applying the 

1:1 resident-to-teaching physician limit, there 

are 3 FTE residents to 3 teaching physicians 

(again, absent specific documentation 

provided by the hospital). Thus, the GME 

cost of the 3 teaching physicians is calculated 

as follows: ($181,400 × 3) × (3 hours/50 

hours) = $32,652. This teaching physicians’

cost of $32,652 is added to the residents’ cost 

of $182,000 to arrive at the total cost of the 

training program at the nonhospital site of 

$214,652. To meet the proposed definition of 

‘‘all or substantially all,’’ the hospital would 

be required to pay at least 90 percent of the 

costs of the training program at the 

nonhospital site, which in this example 

equals $193,187 (that is, 0.90 × $214,652). 

Since in this case the cost of the 3 FTE 

residents’ salaries and fringe benefits is 

$182,000, the hospital would not reach the 

90 percent cost threshold by simply incurring 

the costs associated with the residents. The 

hospital must pay at least an additional 

$11,187 (that is, $193,187¥$182,000) to meet 

the 90 percent threshold and satisfy the 

requirement to pay ‘‘all or substantially all’’

of the costs of the family practice program at 

the FMC. 

C. Other Issues To Be Considered 

Although we are proposing a revised 

standard for a hospital to incur ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ in order to count FTE residents 

training in nonhospital sites, the other 

existing regulations regarding 

nonhospital sites would still generally 

apply, but would require some 

modification. Under the existing 

regulations at § 413.78(e), a hospital is 

permitted to count residents training in 

nonhospital sites only if the residents 

spend their time in patient care 

activities, and the hospital must comply 

with either of the following: (a) It must 

pay all or substantially all of the costs 

of the training program in the 

nonhospital site by the end of the third 

month following the month in which 

the training in the nonhospital site 

occurred; or (b) it must have a written 

agreement with the nonhospital site that 

states that the hospital will incur the 

cost of the resident’s salary and fringe 

benefits while the resident is training in 

the nonhospital site and the hospital is 

providing reasonable compensation to 

the nonhospital site for supervisory 

teaching activities. The written 

agreement must indicate the 

compensation the hospital is providing 

to the nonhospital site for supervisory 

teaching activities. We are proposing to 

add a new § 413.78(f) for cost reporting 

periods beginning on or after July 1, 

2007, to reflect the revised definition of 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting.’’ First, if a hospital chooses to 

make concurrent payments; that is, pay 

the training costs by the end of the third 

month following the month in which 

the training occurred, then we propose 

that the hospital must be able to 

document for audit purposes that the 

concurrent payments it makes reflects 

‘‘all or substantially all’’ of the costs, in 

accordance with the new proposed 

definition at § 413.75(b). 

Alternatively, if the hospital chooses 

to maintain a written agreement with 

the nonhospital site (which, we note, 

must be in place before the hospital may 

begin to count residents training at a 

nonhospital site), we are proposing that 

the new § 413.78(f) would state that the 

written agreement must indicate that the 

hospital will incur at least 90 percent of 

the total of the costs of the resident’s 

salary and fringe benefits (including 

travel and lodging where applicable) 

while the resident is training in the 

nonhospital site and the portion of the 

cost of the teaching physician’s salary 

attributable to direct GME. We are 

proposing that the written agreement 

should specify the total compensation 

amount the hospital will incur to the 

nonhospital site to meet the 90 percent 

‘‘all or substantially all’’ threshold, and 

whether this amount reflects only 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable), or reflects an amount for 

teaching physician compensation as 

well. We believe the written agreement 

should specify the total amount of 

nonhospital site training costs the 

hospital will incur and specify what 

costs are included in that amount 

because the hospital would need to 

determine up front the amount it must 

pay to the nonhospital site in order to 

meet the 90 percent threshold and incur 

‘‘all or substantially all’’ of the cost in 

accordance with our proposed 

definition. In addition, the provision of 

this information in the written 

agreement will simplify the audit 

process when the Medicare contractor 

determines whether the amount paid by 

the hospital to the nonhospital site 

reflects ‘‘all or substantially all’’ of the 

costs of the program in the nonhospital 

site in accordance with the new 

proposed definition at § 413.75(b). We 

note that regardless of whether a 

hospital chooses to make concurrent 

payments to the nonhospital site, or to 

have a written agreement, the hospital 

must demonstrate that it is paying for at 

least 90 percent of the costs of each 

program at each nonhospital site 

according to the following formula 

(although actual data may be used in 

place of the proxies): 

0.90 × [(sum of each FTE resident’s 

salary + fringe benefits (including 

travel and lodging where 

applicable)) plus the portion of the 

teaching physician’s compensation 

attributable to direct GME 

activities]. 

The portion of the teaching 

physician’s compensation attributable to 

direct GME activities may be calculated 

as follows: 

(3/number of hours nonhospital site is 

open per week) × (national average 

salary for each teaching physician). 

If there are no teaching costs (because, 

for example, the residents are rotating to 

a nonhospital site where the teaching 

physician is a solo practitioner), then 

the written agreement should indicate 

that the specified compensation amount 

reflects only residents’ salaries and 

fringe benefits (including travel and 

lodging where applicable) because there 

are no teaching physician costs (since 

the teaching physician is a solo 

practitioner). Finally, we note that, as 

under existing regulations, if the 

hospital does choose to have a written 

agreement with the nonhospital site, the 

hospital must, at a minimum, liquidate 

the costs identified in the written 

agreement in accordance with the 

regulations at § 413.100(c)(2)(i). 

In addition, we note that under 

current policy, a hospital may choose to 

provide non-monetary, in-kind 

compensation rather than provide direct 

financial compensation to the 

nonhospital site for supervisory 

teaching activities. Under the new 

proposed definition of ‘‘all or 

substantially all,’’ a hospital would still 

be permitted to provide in-kind 

compensation to the nonhospital site, 

but, as under current policy, the 

hospital must be able to document that 

the value of the in-kind compensation is 

at least equivalent monetarily to the 

portion of the actual or proxy-based 

costs for that physician attributable to 

nonpatient care GME activities. That is, 

the hospital must show that the value of 

in-kind compensation is sufficient to 

meet the 90 percent threshold using the 

formula stated above in this section. 

We also believe it is important to 

review how the written agreement 

requirements apply when a hospital’s 

residents rotate to nonhospital sites 

such as clinics owned by a medical 


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school. As we stated in response to 

Question 9 on the Qs&As on our Web 

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

AcuteInpatientPPS/Downloads/ 

nonhospQA.pdf, ‘‘rather than having a 

written agreement with each clinic, it 

would be appropriate for the hospital to 

have a written agreement with the 

medical school, since the medical 

school owns the clinics. If the residents 

are training in various medical school 

clinics, the hospital must have written 

agreement(s) reflecting the 

compensation arrangements for each 

clinic’’ (emphasis added). 

Unfortunately, we have learned of 

numerous situations where a hospital 

has a single agreement with the medical 

school in which the hospital specifies a 

lump sum dollar amount that it is 

paying the medical school for GMErelated services that the medical school 

is providing, but there is no breakout at 

all as to the specific training costs 

attributable to individual clinics, or to 

the specific programs at those clinics. 

Without a breakout of the residents’

salaries and fringe benefits (including 

travel and lodging where applicable), 

and the portion of the teaching 

physicians’ salaries attributable to 

nonpatient care GME activities at each 

nonhospital site, the Medicare 

contractor is unable to determine 

whether the hospital has properly paid 

the costs of each specialty program at 

each nonhospital site in accordance 

with the statutory and regulatory 

requirements. Likewise, under the new 

proposed definition of ‘‘all or 

substantially all,’’ whether hospitals pay 

for the costs of a program at a 

nonhospital site on a concurrent basis, 

or if they have a written agreement, they 

must be able to document how they are 

paying for ‘‘all or substantially all’’ of 

the costs of a particular program at each 

nonhospital site. Global agreements 

with lump sum payment amounts, 

either for teaching physician costs or for 

nonhospital training in general, have 

not been sufficient under existing policy 

and would not be sufficient under the 

proposed policy. Similarly, as under 

current policy, if two (or more) hospitals 

both train residents in the same 

accredited program, and the residents 

rotate to the same nonhospital site(s), 

the hospitals cannot share the costs of 

that program at that nonhospital site (for 

example, by dividing the FTE residents 

they wish to count according to some 

pre-determined methodology), as this 

violates the statutory requirement at 

section 1886(h)(4)(E) of the Act that the 

hospital incur ‘‘all, or substantially all, 

of the costs for the training program in 

that setting’’ (emphasis added). Finally, 

as under current policy, we note that in 

the instance where a hospital is sending 

residents in several different specialty 

programs to train in the same 

nonhospital site, and it wishes to count 

all of those FTE residents for purposes 

of IME and direct GME payment, the 

hospital must be able to document that 

it is separately meeting the ‘‘all or 

substantially all’’ threshold for each 

specialty program at that site. (That is, 

the hospital would determine the 90 

percent threshold in accordance with 

the proposed methodology described 

above separately for multiple teaching 

physicians and residents, and would 

apply the resident-to-teaching physician 

ratio limit if applicable). 

In summary, we are proposing to 

revise § 413.75(b) to modify the 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ to reflect the 

policies in place between January 1, 

1999 and July 1, 2007, and our proposed 

policy on or after July 1, 2007. We are 

revising the definition of ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ to mean: (a) Effective on or after 

January 1, 1999 and for cost reporting 

periods beginning before July 1, 2007, 

the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries and 

fringe benefits attributable to direct 

graduate medical education (GME); and 

(b) effective for cost reporting periods 

beginning on or after July 1, 2007, at 

least 90 percent of the total of the costs 

of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries 

attributable to direct GME. 

In addition, we are proposing to 

revise § 412.105(f)(1)(ii)(C) for IME and 

add a new § 413.78(f) to reflect the 

revised requirement to pay ‘‘all or 

substantially all’’ of the GME costs in a 

nonhospital site, effective for cost 

reporting periods beginning on or after 

July 1, 2007. 

XIII. Technical Amendment 

In the Revisions to Hospital Inpatient 

Prospective Payment Systems—FY 2007 

final rule (71 FR 47870 through 48136), 

in an amendatory instruction to 

§ 412.22(h)(3), we inadvertently omitted 

the words ‘‘introductory text.’’

Therefore, paragraphs § 412.22(h)(3)(i) 

and (ii) were removed. We are 

proposing to replace § 412.22(h)(3)(i) 

and (ii) in this proposed rule. 

XIV. Waiver of Proposed Rulemaking 

and Delay in the Effective Date 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment on 

the proposed rule in accordance with 5 

U.S.C. section 553(b) of the 

Administrative Procedure Act (APA). 

The notice of proposed rulemaking 

includes a reference to the legal 

authority under which the rule is 

proposed, and the terms and substances 

of the proposed rule or a description of 

the subjects and issues involved. This 

procedure can be waived, however, if an 

agency finds good cause that a noticeand-comment procedure is 

impracticable, unnecessary, or contrary 

to the public interest and incorporates a 

statement of the finding and its reasons 

in the rule issued. 

In addition, we ordinarily provide a 

30-day delay in the effective date of the 

provisions of a proposed rule. Section 

553(d) of the APA (5 U.S.C. section 

553(d)) ordinarily requires a 30-day 

delay in the effective date of final rules 

after the date of their publication in the 

Federal Register. This 30-day delay in 

effective date can be waived, however, 

if an agency finds for good cause that 

the delay is impracticable, unnecessary, 

or contrary to the public interest, and 

the agency incorporates a statement of 

the finding and its reasons in the rule 

issued. 

In the Revisions to Hospital Inpatient 

Prospective Payment Systems—FY 2007 

Occupational Mix Adjustment to Wage 

Index; Implementation; Final rule (71 

FR 47870 through 48136), in an 

amendatory instruction to 

§ 412.22(h)(3), we inadvertently omitted 

the words ‘‘introductory text.’’

Therefore, paragraphs § 412.22(h)(3)(i) 

and (ii) were removed from the CFR. We 

believe that since we are merely making 

a technical correction by correcting an 

amendatory instruction and since these 

paragraphs were subject to notice and 

comment when originally added to the 

CFR, we have just cause to waive 

additional notice and comment 

rulemaking at this time. Also, it is in the 

public interest to have these paragraphs 

reinstated immediately because the 

entities to which these provisions apply 

may believe they will no longer be 

excluded from the IPPS and may be in 

the process of closing their facilities 

including transferring patients to other 

facilities. In addition, it is in the public 

interest to have these paragraphs 

reinstated immediately because they are 

part of current policy. The paragraphs 

are being added without any changes to 

the language or its intent. For these 

same reasons, we believe that we have 


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just cause to waive the 30-day delay in 

effective date since we are correcting an 

error from the previously published rule 

and not implementing new policy. 

For the reasons stated above in this 

section, we find that both notice and 

comment and the 30-day delay in 

effective date for this correction are 

unnecessary and impracticable, and that 

it is in the public interest to make this 

notice effective in conjunction with the 

final rule to which the corrections apply 

(and could be contrary to the public 

interest to do otherwise). The technical 

correction is effective as if it had been 

included in the Revisions to Hospital 

Inpatient Prospective Payment 

Systems—FY 2007 Occupational Mix 

Adjustment to Wage Index; 

Implementation; Final rule. 

XV. 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 Office of Management 

and Budget (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. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements: 

Section 413.78 Direct GME Payments: 

Determination of the Total Number of 

FTE Residents 

Section 413.78(f) outlines the 

requirements that must be met for the 

time residents spend in non-provider 

settings to be included in determining 

the number of FTE residents used in the 

computation of a hospital’s resident 

count. A resident must spend his or her 

time in patient care activities; the 

hospital must incur substantially all of 

the costs of the training program in a 

nonhospital setting. 

In addition, § 413.78(f)(3) requires 

that a hospital comply with one of the 

two requirements listed in 

§ 413.78(f)(3)(i) and § 413.78(f)(3)(ii). 

Section 413.78(f)(3)(i) states that a 

hospital must document that it is paying 

for all or substantially all of the costs 

associated with the training program in 

nonhospital settings. The costs must be 

incurred between the training date and 

the end of the third month after the 

training date. The burden associated 

with this requirement is the time and 

effort associated with documenting and 

maintaining records of the incurred 

costs and subsequent payments made by 

a hospital. 

Section 413.78(f)(3)(ii) states that a 

hospital must have a written agreement 

with the nonhospital site. The 

agreement must state that the hospital 

will incur at least 90 percent of the cost 

of the resident’s salary and fringe 

benefits (and travel and lodging where 

applicable) while the resident is training 

in the nonhospital site and the portion 

of the cost of the teaching physician’s 

salary is attributable to GME. The 

written agreement must also specify the 

compensation amount the hospital is 

paying the nonhospital site, and 

whether this amount reflects only 

residents’ salaries and fringe benefits 

(and travel and lodging is applicable), or 

includes an amount for teaching 

physician compensation. The burden 

associated with this requirement is the 

time and effort associated with drafting, 

signing, and maintaining the written 

agreement. 

The requirements listed in 

§ 413.78(f)(3)(i) and § 413.78(f)(3)(ii) are 

exempt from the Paperwork Reduction 

Act of 1995 in accordance with Pub. L. 

99–272. 

We will be submitting a copy of this 

proposed rule to OMB for its review of 

the information collection requirements 

described above. These requirements are 

not effective until they have been 

approved by OMB. 

If you comment on these information 

collection and recordkeeping 

requirements, please mail copies 

directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development Group, 

Attn: William N. Parham, III, [CMS–

1529–P], Room C4–26–05, 7500 

Security Boulevard, Baltimore, MD 

21244–1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: Carolyn Lovett, CMS 

Desk Officer, [CMS–1529–P], 

carolyn_lovett@omb.eop.gov. Fax 

(202) 395–6974. 

XVI. Regulatory Impact Analysis 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘IMPACT’’ at the beginning of 

your comments.] 

A. Introduction 

We have examined the impacts of this 

proposed rule as required by Executive 

Order 12866 (September 1993, 

Regulatory Planning and Review), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Act, the 

Unfunded Mandates Reform Act of 1995 

(UMRA) (Pub. L. 104–4), and Executive 

Order 13132. 

1. Executive Order 12866 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely assigns responsibility of duties) 

directs agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any one year). 

We are using the proposed rates, factors 

and policies presented in this proposed 

rule, including updated proposed wage 

index values, and the best available 

claims and CCR data to estimate the 

change in proposed payments for the 

2008 LTCH PPS rate year. Based on the 

best available data for 369 LTCHs, we 

estimate that the proposed expansion of 

the existing payment provision for colocated LTCHs (HwHs and satellites of 

LTCHs) at existing § 412.534 to certain 

situations not presently covered by 

existing § 412.534 for subclause (I) 

LTCHs (as discussed in section V.B. of 

the preamble of this proposed rule), in 

conjunction with the proposed update 

to the Federal rate for RY 2008 

(discussed in section IV.C. of the 

preamble of this proposed rule), the 

proposed changes to the area wage 

adjustment (discussed in section IV.D.1. 

of the preamble of this proposed rule), 

and the proposed increase in the outlier 

fixed-loss amount (discussed in section 

IV.D.3.c. of the preamble of this 

proposed rule) for the 2008 LTCH PPS 

rate year, would result in a decrease in 

estimated payments from the 2007 

LTCH PPS rate year of approximately 

$80 million (or about 2.0 percent) for 

the 369 LTCHs in our database. 


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Regarding the approach discussed for 

addressing our concerns with the 

existing SSO policy presented in section 

V.A.2. of the preamble of this proposed 

rule, we estimate that such an approach 

would result in a decrease in estimated 

payments in the 2008 LTCH PPS rate 

year of about an additional $37 million 

(for a total decrease in estimated 

aggregate payments of $117 million ($80 

million plus $37 million) or about 2.9 

percent) for the 369 LTCHs in our 

database. (An estimate of Medicare 

program payments for LTCH services for 

the next 5 years is shown in section 

IV.D.5. of the preamble of this proposed 

rule. The impact of the proposed policy 

change relating to payment for Hospital 

Direct and Indirect Graduate Medical 

Education Payments (GME) is discussed 

in section XVI.C.2. of this regulatory 

impact analysis.) The estimated impact 

of the provisions presented in this 

proposed rule (as detailed above) for the 

369 LTCHs in our database are in 

Table 8. 

TABLE 8.—ESTIMATED IMPACT OF THE PROVISIONS OF THIS PROPOSED RULE 1

Proposed policy 

Estimated percent change in 

estimated aggregate LTCH 

PPS payments 

Proposed Payment Rate and Policy Changes: 

Proposed Changes to the Federal Rate 2 .................................................................................................................................... 0.61 

Proposed Changes to the Area Wage Adjustment ...................................................................................................................... ¥0.49 

Approach Discussed for SSO Policy ............................................................................................................................................ ¥0.91 

Subtotal 3 ............................................................................................................................................................................... ¥0.7 

Expansion of the ‘‘25 Percent’’ Policy 4 ............................................................................................................................................... ¥2.2 

Total 5 (¥0.7% + ¥2.2%) ............................................................................................................................................................ ¥2.9 

1Percent change in estimated aggregate LTCH PPS payments from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year based on 

the best available data for 369 LTCHs. 2As discussed in greater detail in section XV.B.4. of this regulatory impact analysis, because about 35 percent of all LTCH cases are projected 

to receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ‘‘IPPS comparable amount’’

(rather than the proposed Federal rate). Therefore, the percent change in estimated aggregate LTCH PPS payments due to the proposed 

changes to the Federal rate, 0.61 percent, is slightly less than the proposed update to the Federal rate of 0.71 percent. 3 In absence of including the approach considered for the SSO policy (discussed in section V.A.2. of this proposed rule), we estimate that in 

place of the 0.7 percent decrease in estimated aggregate LTCH PPS payments, on average, for all LTCHs, there would be 0.25 percent increase 

in estimated aggregate LTCH PPS payments, on average, for all LTCHs for all proposed payment rate and policy changes. We also note that 

the estimated percent change for all proposed payment rate and policy changes may not exactly equal the sum of the estimated percent change 

for the proposed changes to the Federal rate, the proposed changes to the area wage adjustment and the approach discussed for the SSO policy due to the effect of estimated changes in aggregate HCO payments as well as other interactive effects that cannot be isolated. 4Proposed expansion of the existing special payment provision for co-located LTCHs (HwHs and satellites of LTCHs) at existing § 412.534 to 

certain situations not presently covered by existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of the preamble of this proposed rule). 5Total estimated impact of the provisions of this proposed rule (that is, sum of the estimated impact of the proposed payment rate and policy 

change, including the approach discussed for the SSO policy, and the estimated impact of the expansion of the ‘‘25 percent’’ policy). We note 

that in absence of including the approach discussed for the SSO policy, we project that the total estimated impact of the provisions of this proposed rule are projected to result in a 2.0 percent decrease in estimated aggregate LTCH PPS payments. 

Because the combined distributional 

effects and estimated changes to the 

Medicare program payments would be 

greater than $100 million if we take into 

consideration the approach discussed 

for the SSO policy (in section V.A.2. of 

the preamble of this proposed rule), this 

proposed rule would be considered a 

major economic rule, as defined in this 

section. We note the $117 million (or 

2.9 percent) decrease in estimated 

aggregate LTCH PPS payments resulting 

from the provisions presented in this 

proposed rule does not reflect changes 

in LTCH admissions or case-mix 

intensity in estimated LTCH PPS 

payments, which would also affect 

overall payment changes. 

2. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6 million to $29 million in any 1 

year. For purposes of the RFA, 

proprietary hospitals are small entities if 

they meet the small business size 

standard described above (for further 

information, see the Small Business 

Administration’s regulation at 65 FR 

69432, November 17, 2000). Because we 

lack data on individual hospital 

receipts, we cannot determine the 

number of small proprietary LTCHs. 

Therefore, we assume that all LTCHs are 

considered small entities for the 

purpose of the analysis that follows. 

Medicare FIs are not considered to be 

small entities. Individuals and States are 

not included in the definition of a small 

entity. 

Currently, our database of 369 LTCHs 

includes the data for 78 non-profit 

(voluntary ownership control) LTCHs 

and 246 proprietary LTCHs. Of the 

remaining 45 LTCHs, 13 LTCHs are 

Government-owned and operated and 

the ownership type of the other 32 

LTCHs is unknown (as shown in Table 

9). The impact of the proposed payment 

rate and policy changes for the 2008 

LTCH PPS rate year (including the 

proposed update to the Federal rate, 

proposed changes to the area wage 

adjustment, and the approach discussed 

for the SSO policy) is discussed in 

section XVI.B.4.c. of this regulatory 

impact analysis. The impact of other 

proposed policy changes, such as the 

effects of the proposed expansion of the 

special payment provisions for LTCHs 

HwHs and LTCH satellites to certain 

situations not presently covered by 

§ 412.534 for subclause (I) LTCHs, is 

discussed in section XVI.C. of this 

regulatory impact analysis. 

As we discuss in detail throughout 

the preamble of this proposed rule, 

based on the most recent available 

LTCH data, we believe that although the 


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provisions of this proposed rule would 

result in a decrease in estimated 

aggregate LTCH PPS payments, we 

believe the resulting LTCH PPS 

payment amounts result in appropriate 

Medicare payments. However, we 

believe that although appropriate, the 

provisions of this proposed rule could 

have a significant impact on some small 

entities (as defined above in this 

section). As also discussed in greater 

detail below in this section, we are 

unable to determine how significant the 

impact of some of the provisions of this 

proposed rule may be on small entities 

since we expect many LTCHs to adjust 

their admission practices if some of 

these provisions are implemented. We 

note that LTCHS have been adapting 

their behavior in response to the policy 

changes we have implemented over the 

past few years (for example, the annual 

update to the LTC–DRG relative 

weights, the ‘‘25 percent policy’’ at 

existing § 412.534, the revision to the 

SSO payment formula at existing 

§ 412.529(c)(2), and the zero percent 

update to the RY 2007 Federal rate). 

Although those policy changes were 

projected to result in decreases in 

estimated aggregate LTCH PPS 

payments, the growth in the number of 

LTCHs has continued (although at a 

reduced rate). Based on the most recent 

available OSCAR data, the number of 

LTCHs has increased over 10 percent in 

the past 2 years (from October 1, 2004 

and October 1, 2006). Because we 

acknowledge that many of the affected 

entities are small entities, the analysis 

discussed throughout the preamble of 

this proposed rule, in conjunction with 

the discussion presented in greater 

detail below in this section and 

throughout the remainder of this 

regulatory impact analysis, constitutes 

our initial RFA. Therefore, in this 

proposed rule, we are soliciting 

comments on our estimates and analysis 

of the impact of the provisions of this 

proposed rule on small entities. 

The proposed changes presented in 

this proposed rule, which include the 

proposed payment rate and policy 

changes and the proposed expansion of 

the ‘‘25 percent’’ policy (described 

above in this section), are estimated to 

result in approximately a 2.0 percent 

($80 million) decrease in estimated 

payments per discharge in the 2008 

LTCH PPS rate year, on average, to all 

LTCHs. As shown Table 8, taking into 

consideration the approach discussed 

for the SSO policy in section V.A.2. of 

the preamble of this proposed rule in 

addition to the proposed payment rate 

and policy changes and the proposed 

expansion of the ‘‘25 percent’’ policy 

(described above in this section), we 

estimate that the provisions of this 

proposed rule could result in 

approximately a 2.9 percent (or $117 

million) decrease in estimated payments 

per discharge in the 2008 LTCH PPS 

rate year, on average, to all LTCHs. 

Table 8 shows that the proposed 

payment rate and policy changes 

(including the approach discussed for 

the SSO policy) is projected to result in 

a 0.7 percent decrease in estimated 

aggregate LTCH PPS payments, and the 

proposed expansion of the ‘‘25 percent’’

policy is projected to result in a 2.2 

percent decrease in estimated aggregate 

LTCH PPS payments. Thus, the majority 

of the approximately 2.9 percent 

decrease in estimated aggregate 

payments in the 2008 LTCH PPS rate 

year as compared to the 2007 LTCH PPS 

rate year would be due to the proposed 

expansion of the special payment 

provisions for co-located LTCHs to 

certain situations not presently covered 

by existing § 412.534 for subclause (I) 

LTCHs (as discussed in section V.B. of 

this proposed rule). 

As discussed in greater detail in 

section XVI.C.1. of this regulatory 

impact analysis, because we believe that 

this proposed policy would discourage 

inappropriate patient shifting to LTCHs 

and would encourage all subclause (I) 

LTCHs to engage in more appropriate 

admission policies since, under this 

proposal no payment adjustment would 

be made if the patient has reached HCO 

status at the co-located host (under the 

proposed revision to § 412.534) or at the 

referring hospital (under proposed 

§ 412.536) prior to being admitted for 

additional post-acute care at the LTCH 

(as discussed in greater detail in section 

V.B. of this proposed rule). Because we 

expect that such a proposed policy 

would reduce the financial incentives 

that may be present currently for certain 

situations not presently covered by 

existing § 412.534 to admit patients 

prematurely discharged from other 

hospitals, we believe this proposed 

policy would result in fewer admissions 

to LTCHs before a complete course of 

patient care is provided at the non-colocated referring hospital (under 

proposed § 412.536) or co-located 

referring hospital (under the proposed 

revision to § 412.534). Thus, any change 

in admission practices as a result of this 

proposed policy would result in less of 

a decrease in estimated aggregate LTCH 

PPS payments than the 2.2 percent (90 

million) estimated based on current 

admission practices. Thus, the projected 

2.2 percent (decrease in estimated 

aggregate LTCH PPS payments resulting 

from this proposed policy change would 

only occur if there were no changes in 

LTCH admission practices. 

Furthermore, we believe that this 

proposed policy would result in 

appropriate Medicare payments since, 

as noted above, we expect that such a 

policy would reduce the financial 

incentives to admit patients prematurely 

discharged from other hospitals and 

would encourage all LTCHs to engage in 

more appropriate admission policies. 

For these reasons, although we estimate 

that, if implemented, this proposed 

policy would result in a decrease in 

estimated aggregate LTCH PPS 

payments, we do not believe that such 

a projected decrease in estimated 

aggregate LTCH PPS payments, although 

possibly significant, would adversely 

affect LTCHs’ ability to deliver efficient 

care to Medicare beneficiaries nor 

would there be an adverse affect on 

Medicare beneficiaries’ access to care. 

The impact analysis of proposed 

payment rate and policy changes in 

Table 9 (including the approach 

discussed for the SSO policy in section 

V.A.2. of the preamble of this proposed 

rule) shows that estimated payments per 

discharge are expected to decrease 

approximately 0.7 percent, on average, 

for all LTCHs from the 2007 LTCH PPS 

rate year as compared to the 2008 LTCH 

PPS rate year. Although we are 

proposing a 0.71 percent increase to the 

Federal rate for RY 2008 (as discussed 

in section IV.C. of this proposed rule), 

the projected percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year is attributable to the 

proposed changes to the area wage 

adjustment (discussed in section IV.D.1. 

of this proposed rule), in conjunction 

with the approach discussed for SSO 

cases in section V.A.2. of this proposed 

rule, as well as the proposed increase to 

the HCO fixed-loss amount (as 

discussed in section IV.D.3.c. of this 

proposed rule). (As discussed in greater 

detail in section XVI.B.4., the 2.2 

percent decrease in estimated aggregate 

LTCH PPS payments due to the 

proposed expansion of the ‘‘25 percent 

policy’’ to certain situations not 

presently covered by existing § 412.534 

for subclause (I) LTCHs is not reflected 

in Table 9. However, as noted above, the 

impact of that proposed policy is 

discussed in greater detail in section 

XVI.C.1. of this regulatory impact 

analysis.) 

As the impact analysis in Table 9 

shows, estimated changes to the area 

wage adjustment from RY 2007 to RY 

2008 (resulting from both established 

policy and proposed changes presented 

in section IV.D.1. of this proposed rule, 

as discussed in greater detail below in 


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this section) contribute to the decrease 

in estimated aggregate LTCH PPS 

payments from the 2007 LTCH PPS rate 

year to the 2008 LTCH PPS rate year. As 

discussed in section IV.D.1. of this 

proposed rule, we are proposing to 

update the wage index values for RY 

2008, in accordance with the 

progression of the existing 5-year phasein of the area wage adjustment, based on 

the most recent available wage data. We 

believe that proposing to update the 

LTCH PPS wage index based on the 

most recent available wage data would 

ensure that the LTCH PPS wage index 

adjustment appropriately accounts for 

and reflects the relative hospital wage 

levels in the geographic area of the 

hospital as compared to the national 

average hospital wage level. In addition, 

we are proposing to decrease the laborrelated share from 75.665 percent to 

75.511 percent under the LTCH PPS for 

RY 2008 based on the most recent 

available data on the relative 

importance of the labor-related share of 

operating and capital costs of the LTCH 

PPS market basket (also discussed in 

section IV.D.1. of this proposed rule). 

We believe that proposing to revise the 

labor-related share based on the most 

recent available data would 

appropriately identify the portion of the 

proposed LTCH PPS Federal rate that is 

adjusted to account for geographic 

differences in area wage levels by 

applying the applicable proposed LTCH 

PPS wage index value. As discussed in 

greater detail in section IV.D.1. of this 

proposed rule, we believe that these 

proposed changes to the LTCH PPS area 

wage adjustment based on the most 

recent available wage data and data on 

the relative importance of the laborrelated share of the LTCH PPS market 

basket, respectively, would result in 

appropriate and accurate LTCH PPS 

payments for the resources used by 

LTCHs in a given area. Such updated 

data appropriately reflects national 

differences in area wage levels and 

identifies the portion of the proposed 

Federal rate that should be adjusted to 

account for such differences in area 

wages. 

We also note that, even though we 

have not proposed to make any changes 

to the existing 5-year phase-in of the 

wage index adjustment that was 

established when the LTCH PPS was 

implemented (August 30, 2002; 67 FR 

56018), the continued progression of 

this phase-in also contributes to the 

decrease in estimated aggregate LTCH 

PPS payments for RY 2008. That is, 

since under the established phase-in of 

the wage-index adjustment, LTCHs 

receive an increasing percentage of the 

applicable full wage index value (which 

is less than 1.0 for the majority of 

LTCHs), we expect that estimated 

aggregate LTCH PPS payments would 

decrease from RY 2007 to RY 2008 as a 

result of the progression of the existing 

5-year phase-in of the area wage 

adjustment. Thus, the majority of the 0.5 

percent decrease in estimated payments 

per discharge, on average, for all LTCHs 

(see Table 9) is due to the existing 5- 

year phase-in of the wage index 

adjustment, and is not due to proposed 

policy changes presented in this 

proposed rule. Because the existing 5- 

year phase-in of the area wage 

adjustment has been a feature of the 

LTCH PPS since it was implemented 

beginning October 1, 2002, and since a 

large majority (over 70 percent) of 

LTCHs are located in areas where 

historically the wage index value is less 

than 1.0, the decrease in estimated 

aggregate LTCH PPS payments resulting 

from this policy should be anticipated 

by LTCHs, and therefore, already 

accounted for in their fiscal planning. In 

addition, we note that, although the 

portion of the decrease in estimated 

aggregate LTCH PPS payments that is 

due to the existing 5-year phase-in of 

the wage index adjustment is expected, 

we believe that any change in LTCHs’

wage index values under this policy is 

appropriate since LTCHs will be 

receiving an increasing percentage of 

the applicable full wage index value, 

which, by definition, reflects the 

relative hospital wage levels for the area 

in which the LTCH is located as 

compared to the national average 

hospital wage level. 

Because we cannot determine to what 

extent LTCHs may have planned for the 

decrease in estimated aggregate LTCH 

PPS payments that is due to the existing 

5-year phase-in of the area wage 

adjustment, even though the impact 

may be significant for some LTCHs, we 

believe that most LTCHs would not be 

adversely affected since, as explained 

above, we believe that the proposed 

changes to the area wage adjustment 

(that is, the proposed use of update 

wage data and the proposed change in 

the labor-related share), in conjunction 

with the continued progression of the 5- 

year phase-in of the area wage 

adjustment, would result in appropriate 

LTCH PPS payments in RY 2008. For 

these reasons, we believe that the 

decrease in estimated aggregate LTCH 

PPS payments resulting from proposed 

changes to the area wage adjustment, 

although possibly significant for some 

LTCHs, is appropriate and would not 

adversely affect LTCHs’ ability to 

deliver efficient care to Medicare 

beneficiaries nor would there be an 

adverse affect on Medicare beneficiaries’

access to care. 

In addition, as also shown in Table 9, 

the approach for the SSO policy 

discussed in section V.A.2. of this 

proposed rule would also contribute to 

the estimated 0.7 percent decrease in 

estimated aggregate LTCH PPS 

payments in RY 2008, on average, for all 

LTCHs. Under that approach, we believe 

that the LTCH cases that appear to be 

‘‘similar to’’ the same type of cases 

treated in an acute care hospital and 

paid for under the IPPS, as discussed in 

greater detail in section V.A.2. of this 

proposed rule, would receive an 

appropriately adjusted LTCH PPS 

payment to treat such cases. We believe 

that those SSO cases that are ‘‘similar to 

IPPS cases’’ most likely do not receive 

a full course of an LTCH-level of 

treatment in such a short period of time 

since, in general, LTCHs are intended to 

treat longer stay patients. Although we 

project a decrease in estimated aggregate 

LTCH PPS with the approach discussed 

for the SSO policy in section V.A.2. of 

this proposed rule, we believe that such 

an approach would result in appropriate 

and adequate Medicare payments for the 

treatment of Medicare beneficiaries with 

a LOS is ‘‘similar to’’ typical IPPS cases. 

Furthermore, we believe that, if 

adopted, the approach to the SSO policy 

discussed in section V.A.2. of the 

preamble of this proposed rule would 

accomplish our stated goal of removing 

the incentive for LTCHs to admit 

patients for whom a long-term hospital 

stay is not necessary, and therefore, for 

whom the LTCH would not be 

providing complete treatment. As noted 

previously, the vast majority of LTCH 

cases, including SSO cases, are admitted 

to the LTCH directly from an acute-care 

hospital, and therefore, many SSO cases 

may still be in need of acute-level care 

(as we discuss in greater detail in 

section V.A.2. of the preamble of this 

proposed rule). Therefore, we believe 

that in response to the approach 

discussed for the SSO policy in section 

V.A.2. of this proposed rule LTCHs may 

reduce the number of SSO cases that are 

‘‘similar to IPPS cases’’ that they admit 

(and most of those patients would 

continue to receive treatment at the 

acute-care hospital). To the extent that 

LTCHs continue to admit SSO cases that 

are ‘‘similar to IPPS cases,’’ we believe 

that this approach to the SSO policy 

would result in an adjusted LTCH PPS 

payment that is appropriate, as 

discussed above. For these reasons, 

although we estimate that the approach 

to the SSO policy discussed in section 

V.A.2. of this proposed rule would 

result in a decrease in estimated 


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aggregate LTCH PPS payments, we do 

not believe that such an impact on 

estimated aggregate LTCH PPS 

payments, although possibly significant, 

would adversely affect LTCHs’ ability to 

deliver efficient care to Medicare 

beneficiaries nor would there be an 

adverse affect on Medicare beneficiaries’

access to care. 

For all of the reasons discussed above 

in this section, although we do not 

expect an estimated incremental 

decrease of 2.9 percent (approximately 

$117 million) in estimated aggregate 

LTCH PPS payments to have a 

significant adverse financial impact on 

LTCHs, nor do we expect there would 

be an effect on beneficiaries’ access to 

care, we acknowledge that the 

provisions of this proposed rule could 

have a significant impact on some small 

entities. However, we believe that the 

provisions of this proposed rule would 

result in appropriate LTCH PPS 

payments in RY 2008. We also note that 

LTCHs provide some services to (and 

generate revenue from) patients other 

than Medicare beneficiaries, and the 

revenue to LTCHs from treating those 

patients is not affected by this proposed 

rule. The analysis presented above, in 

conjunction with the remainder of this 

section, demonstrates that this proposed 

rule is consistent with the regulatory 

philosophy and principles identified in 

the RFA. We believe the provisions 

presented in this proposed rule would 

affect payments to LTCHs, and the 

effects on some LTCHs, although they 

may be significant, are appropriate (as 

discussed above). 

3. Impact on Rural Hospitals 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a rule may have a significant impact 

on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the provisions 

of section 603 of the RFA. For purposes 

of section 1102(b) of the Act, we define 

a small rural hospital as a hospital that 

is located outside of a Metropolitan 

Statistical Area and has fewer than 100 

beds. As shown in Table 9, we are 

projecting a 2.6 percent decrease in 

estimated payments per discharge for 

the 2008 LTCH PPS rate year as 

compared to the 2007 LTCH PPS rate 

year for rural LTCHs as a result of the 

proposed payment rate changes, 

including the approach discussed for 

addressing our concerns with the 

existing SSO policy presented in section 

V.A.2. of the preamble of this proposed 

rule, based on the data of the 25 rural 

LTCHs in our database of 369 LTCHs for 

which complete data were available. 

As shown in Table 9, the majority of 

the estimated decrease in estimated 

LTCH PPS payments in the 2008 LTCH 

PPS rate year as compared to the 2007 

LTCH PPS rate year for proposed 

payment rate and policy changes for 

rural LTCHs is due to the proposed 

change in the area wage adjustment (as 

discussed in greater detail in section 

V.D.1. of the preamble of this proposed 

rule). Specifically, as discussed above, 

although we are not making any changes 

to the existing 5-year phase-in of the 

wage index adjustment that was 

established when the LTCH PPS was 

implemented (August 30, 2002; 67 FR 

56018), the continued progression of 

this phase-in contributes to the decrease 

in estimated payments to rural LTCHs 

for RY 2008. This is because, under the 

established phase-in of the wage-index 

adjustment, LTCHs receive an 

increasing percentage of the applicable 

full wage index value (which is less 

than 1.0 for all of the 25 rural LTCHs 

in our database), we expect that 

estimated payments per discharge for 

rural LTCHs would decrease from RY 

2007 to RY 2008 as a result of the 

progression of the 5-year phase-in of the 

wage index adjustment. Thus, the 

majority of the projected 2.6 percent 

decrease in estimated payments per 

discharge shown in Table 9 for rural 

LTCHs is due to the existing 5-year 

phase-in of the wage index adjustment, 

and is not due to proposed policy 

changes presented in this proposed rule. 

As discussed above, we believe that the 

decrease in estimated aggregate LTCH 

PPS payments resulting from this 

existing policy should be anticipated by 

LTCHs, and therefore, already 

accounted for in their fiscal planning. In 

addition, we note that, although the 

portion of the decrease in estimated 

aggregate LTCH PPS payments that is 

due to this existing policy is expected, 

we believe that any change in LTCHs’

wage index values due to the continued 

progression of the phase-in of the area 

wage adjustment is appropriate since 

LTCHs will be receiving an increasing 

percentage of the applicable full wage 

index value, which, by definition, 

reflects the relative hospital wage levels 

for the area in which the LTCH is 

located as compared to the national 

average hospital wage level. 

Furthermore, as also explained in 

greater detail above, we believe that the 

proposed changes to the area wage 

adjustment presented in this proposed 

rule (that is, the proposed use of update 

wage data and the proposed change in 

the labor-related share) would result in 

accurate and appropriate LTCH PPS 

payments in RY 2008 since they are 

based on the most recent available data. 

Such updated data appropriately reflect 

national differences in area wage levels 

and identifies the portion of the 

proposed Federal rate that should be 

adjusted to account for such differences 

in area wages, thereby, resulting in 

accurate and appropriate LTCH PPS 

payments. Because we cannot determine 

to what extent LTCHs may have 

planned for the decrease in estimated 

aggregate RY 2008 LTCH PPS payments 

that results from the existing 5-year 

phase-in of the area wage adjustment, 

we believe that although the effects of 

the proposed changes to the area wage 

adjustment on some rural LTCH may be 

significant, most rural LTCHs should be 

not adversely affected because those 

proposed changes are expected to result 

in appropriate LTCH PPS payments in 

RY 2008. 

We also believe that the proposed 

expansion of the payment adjustment at 

existing § 412.534 to certain situations 

not presently covered by that policy for 

subclause (I) LTCHs may have a 

significant adverse impact on some rural 

LTCHs, although we cannot determine 

how significant for the reasons 

explained below in this section. Even 

though this proposed policy is 

estimated to reduce estimated aggregate 

LTCH PPS payments in RY 2008 and 

may result in a significant impact on 

some rural LTCHs, we also believe, that 

such changes would result in 

appropriately adjusted LTCH PPS 

payments (as explained below in this 

section). As discussed in greater detail 

in section V.B. of this proposed rule, in 

designing features of the original ‘‘25 

percent policy’’ for co-located LTCHs 

(HwHs and LTCH satellites), which we 

are proposing to extend to certain 

situations not presently covered by 

existing § 412.534 for subclause (I) 

LTCHs, we provided special treatment 

for rural hospitals which would increase 

the threshold from 25 percent to 50 

percent. When we established the 25 

percent (or applicable percentage) 

payment adjustment for co-located 

LTCHs at existing § 412.534, after which 

this proposed payment adjustment for 

situations not presently covered by that 

policy has been modeled, we noted in 

response to comments that ‘‘the 

Congress has authorized special 

treatment for rural areas under the 

Medicare program because of the 

particular geographic and demographic 

challenges in those locations, as well as 

the difference between the provision 

and availability of medical services as 

compared to urban areas’’ (69 FR 

49206). Therefore, under our proposed 

policy, we would apply the same 


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rationale to certain situations not 

presently covered by existing § 412.534 

that would occur in subclause (I) LTCHs 

that are located in rural areas. 

Accordingly, rather than a 25 percent 

threshold (as is being proposed for most 

urban LTCHs), for rural LTCHs, the 

payment adjustment would be applied 

only to those LTCH’s or LTCH satellite 

facility’s Medicare discharges that were 

admitted from a non-co-located referring 

hospital under proposed § 412.536 or 

co-located host under the proposed 

revision to § 412.534 that are in excess 

of 50 percent of the LTCH’s total 

Medicare discharges for that hospital for 

any cost reporting period. Under this 

proposal, consistent with the existing 

policy at § 412.534, no payment 

adjustment would be made if the patient 

has reached HCO status at the referring 

hospital (under proposed § 412.536) or 

at the co-located host (under the 

proposed revision to § 412.534) prior to 

being admitted for additional post-acute 

care at the LTCH. That is, in calculating 

the proposed 50 percent threshold (for 

rural LTCHs), patients who achieved 

HCO status prior to admission to the 

LTCH would not be counted toward the 

applicable threshold under proposed 

§ 412.536 or under the proposed 

revision to § 412.534 (although the 

admission would still be counted 

toward the LTCH’s total Medicare 

discharges). 

Furthermore, because such a policy 

would reduce the financial incentives 

for all LTCHs, including rural LTCHs, to 

admit patients prematurely discharged 

from other hospitals, we believe this 

proposed policy would result in fewer 

admissions to LTCHs before a complete 

course of patient care is provided at the 

referring hospital. As noted above, any 

changes in admission practices as a 

result of this proposed policy would 

result in less of a decrease in estimated 

aggregate LTCH PPS payments than the 

$90 million estimated based on current 

admission practices. Thus, the decrease 

in estimated aggregate LTCH PPS 

payments to rural LTCHs resulting from 

this proposed policy change would only 

occur if there were no change in rural 

LTCH admission practices. It is our 

intention, under this proposed policy, to 

discourage LTCHs from serving as 

‘‘step-down’’ units after a patient has 

been diagnosed and received initial 

treatment at another hospital, a scenario 

that results in two Medicare payments 

(one to the referring hospital and one to 

the LTCH) for what was essentially one 

episode of patient care. Rather, it is our 

intent to encourage LTCHs to admit 

patients who required additional longstay hospital-level treatment following 

the provision of a full episode of care at 

the referring hospital. For those 

patients, under this proposed policy, 

Medicare would pay an unadjusted 

amount under the LTCH PPS. We 

believe that this proposed policy would 

result in more appropriate admission 

policies by rural LTCHs. Therefore, we 

believe that although the effects on 

some rural LTCHs of the proposed 

expansion of the payment adjustment at 

existing § 412.534 to certain situations 

not presently covered by that policy for 

subclause (I) LTCHs may be significant, 

most rural LTCHs should be not 

adversely affected because this 

proposed policy changes is expected to 

result in changes in admission practices 

and appropriate payments for such 

cases, as explained above in this 

section. 

In addition, the approach for SSO 

policy discussed in section V.A.2. of 

this proposed rule would also 

contribute to the projected decrease in 

estimated payments to rural LTCHs for 

RY 2008. As discussed below in section 

XVI.B.4.a. of this regulatory impact 

analysis, we project a slightly larger 

than average decrease in estimated 

payments per discharge (as compared to 

urban LTCHs; see column 9 of Table 9) 

if this approach were adopted. About 40 

percent of rural LTCHs treat a larger 

than average percentage of SSO cases (in 

fact, based on FY 2005 data for a few 

rural LTCHs, SSO cases represent over 

half of their total cases). However, we 

are not able to determine whether this 

approach, if adopted, would result in an 

adverse financial impact on rural LTCHs 

because we believe that most LTCHs 

(including rural LTCHs) would reduce 

the number of SSO cases that they admit 

that are ‘‘similar to IPPS cases’’ (as 

discussed in greater detail above). (We 

note that although we expect most 

LTCHs (including rural LTCHs) to admit 

fewer SSO cases under this approach to 

the SSO policy, most of those patients 

would continue to receive treatment at 

the acute-care hospital from which they 

are typically discharged immediately 

prior to their LTCH (short-stay) 

admission.) Thus, the projected 2.6 

percent decrease in estimated payments 

per discharge shown in Table 9 for rural 

LTCHs represent an average maximum 

reduction in estimated aggregate LTCH 

PPS payments in RY 2008, and since we 

anticipate that LTCHs (including rural 

LTCHs) would admit fewer SSO 

patients for whom payments would be 

affected by this approach to the SSO 

policy, if adopted, we believe that the 

actual decrease in rural LTCHs’

payments for RY 2008 would be less 

than the 2.6 percent decrease in 

estimated payments for RY 2008 shown 

in Table 9. 

Furthermore, to the extent that rural 

LTCHs would continue to admit SSO 

cases with a LOS that is ‘‘similar to IPPS 

cases,’’ we believe the approach 

discussed for the SSO policy would 

result in an appropriate adjusted LTCH 

PPS payment because we believe that 

many of those SSO cases most likely do 

not receive a full course of a LTCH-level 

of treatment in such a short period of 

time since, in general, LTCHs are 

intended to treat longer stay patients. 

Therefore, although we estimate the 

approach discussed for the SSO policy 

in section V.A.2. of this proposed rule 

could result in a decrease in estimated 

aggregate LTCH PPS payment to rural 

LTCHs, we do not believe that such an 

estimated impact on rural LTCHs’ LTCH 

PPS payments, even though possibly 

significant, would adversely affect most 

rural LTCHs because this approach 

would be expected to result in changes 

in admission practices and in 

appropriate payments for such cases. 

For these reasons, we believe that 

there may be a significant impact on 

some rural LTCHs resulting from the 

proposed changes present in this 

proposed rule. However, a portion of the 

decrease in rural LTCHs’ estimated 

payments per discharge from RY 2007 to 

RY 2008 would be less than what we 

estimate based on current admission 

practices (as explained above in this 

section). We also believe (as discussed 

previously) a significant portion of the 

projected decrease in estimated 

payments per discharge for RY 2008, 

which is due to the established phasein of the wage index adjustment, is not 

a result of a proposed policy change, 

and may already be accounted for in 

LTCHs’ fiscal plans. Therefore, although 

we believe this proposed rule would 

affect payments to rural LTCHs, and the 

effects on some rural LTCHs, although 

appropriate, may be significant, we are 

unable to determine how significantly 

the proposed changes presented in this 

proposed rule, if adopted, would 

adversely affect rural LTCHs. However, 

because we expect changes in admission 

practice and appropriate payments, if 

the changes present in this proposed 

rule are adopted (as discussed above), 

we do not anticipate that the provisions 

of this proposed rule would affect the 

ability of the vast majority of rural 

LTCHs to provide cost efficient services 

to Medicare patients nor do we expect 

there would be an adverse effect on 

beneficiaries’ access to care. The 

analysis presented above, in 

conjunction with the remainder of this 

regulatory impact analysis, 

demonstrates that this proposed rule is 


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consistent with the regulatory 

philosophy and principles identified in 

section 1102(b) of the Act. (For 

additional information on the estimated 

impact of the changes on rural LTCHs 

presented in this proposed rule, refer to 

section XVI.B.4.a. of this regulatory 

impact analysis.) However, in this 

proposed rule, we are soliciting 

comments on our estimates and analysis 

of the impact of the provisions of this 

proposed rule on rural LTCHs. 

4. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any one year of 

$100 million in 1995 dollars, updated 

annually for inflation. That threshold 

level is currently approximately $120 

million. This proposed rule would not 

mandate any requirements for State, 

local, or tribal governments, nor would 

it result in expenditures by the private 

sector of $120 million or more in any 1 

year. 

5. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes 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. 

We have examined this proposed rule 

under the criteria set forth in Executive 

Order 13132 and have determined that 

this proposed rule would not have any 

significant impact on the rights, roles, 

and responsibilities of State, local, or 

tribal governments or preempt State 

law, based on the 13 State and local 

LTCHs in our database of 369 LTCHs for 

which data were available. 

6. Alternatives Considered 

In preamble of this proposed rule, we 

are setting forth the proposed annual 

update to the payment rates for the 

LTCH PPS, as well as proposing other 

policy changes and discussing 

approaches for other areas of concern. In 

this preamble, we specify the statutory 

authority for the provisions that are 

presented, identify those proposed 

policies (and approaches discussed) 

when discretion has been exercised, and 

present rationale for our decisions, 

alternatives that were considered and 

solicit comments on suggested 

alternatives from commenters (where 

relevant). 

B. Anticipated Effects of Proposed 

Payment Rate Changes 

We discuss the impact of the 

proposed changes to the payment rates, 

factors, and other payment rate policies 

presented in the preamble of this 

proposed rule (including the approach 

discussed for the SSO policy in section 

IV.A.2. of this proposed rule) in terms 

of their estimated fiscal impact on the 

Medicare budget and on LTCHs. (We 

note that the impact of other policy 

changes presented in this proposed rule, 

which do not directly affect the LTCH 

PPS per discharge payment rates (for 

example, the proposed expansion of the 

existing payment provision for colocated LTCHs to certain situations not 

presently covered by existing § 412.534 

for subclause (I) LTCHs discussed in 

section V.B. of this proposed rule and 

the proposed policy change relating to 

GME payments discussed in section XII. 

of this proposed rule), are not included 

as part of the impact analysis shown in 

Table 9. However, the impact of certain 

other proposed policies are discussed 

separately in section XVI.C. of this 

regulatory impact analysis. 

1. Budgetary Impact 

Section 123(a)(1) of the BBRA 

requires that the PPS developed for 

LTCHs ‘‘maintain budget neutrality.’’

We believe that the statute’s mandate for 

budget neutrality (BN) applies only to 

the first year of the implementation of 

the LTCH PPS (that is, FY 2003). 

Therefore, in calculating the FY 2003 

standard Federal rate under 

§ 412.523(d)(2), we set total estimated 

payments for FY 2003 under the LTCH 

PPS so that estimated aggregate 

payments under the LTCH PPS are 

estimated to equal the amount that 

would have been paid if the LTCH PPS 

had not been implemented. However, as 

discussed in greater detail in the August 

30, 2002 final rule (67 FR 56033 through 

56036), the FY 2003 LTCH PPS standard 

Federal rate ($34,956.15) was calculated 

based on all LTCHs being paid 100 

percent of the standard Federal rate in 

FY 2003. As discussed in section IV.D.5. 

of this proposed rule, during LTCH rate 

years governed by the 5-year transition 

period policy set forth at § 412.533(a), 

we applied a BN offset to payments to 

account for the monetary effect of the 

applicable transition period 

methodology (including the option to 

elect payments based on 100 percent of 

the Federal rate in lieu of the transition 

blend methodology) in a given LTCH 

PPS rate year. Specifically, for FY 2003 

and RYs 2004 through 2007, the amount 

of the transition period BN offset was 

equal to 1 minus the ratio of the 

estimated payments based on 100 

percent of the LTCH PPS Federal rate to 

the projected total Medicare program 

payments that would be made under the 

transition methodology and the option 

to elect payment based on 100 percent 

of the Federal prospective payment rate. 

However, as we discuss in greater detail 

in section IV.D.5. of this proposed rule, 

we are no longer projecting a small cost 

for the 2008 LTCH PPS rate year (July 

1, 2007 through June 30, 2008) even 

though some LTCH’s will have a cost 

reporting period for the 5th year of the 

transition period which will be 

concluding in the first 3 months of the 

2008 LTCH PPS rate year. Based on the 

most recent available data, we are 

projecting that the vast majority of 

LTCHs would have made the election to 

be paid based on 100 percent of the 

Federal rate rather than the transition 

blend, which would result in a 

negligible cost to the Medicare program. 

Therefore, in this proposed rule, we did 

not propose a transition BN offset to all 

LTCH PPS payments for RY 2008 to 

account for the estimated cost of the 

transition period methodology 

(including the option to elect payment 

based on 100 percent of the Federal rate) 

in RY 2008. 

2. Impact on Providers 

The basic methodology for 

determining a per discharge LTCH PPS 

payment is set forth in § 412.515 

through § 412.525. In addition to the 

basic LTC–DRG payment (standard 

Federal rate multiplied by the LTC–DRG 

relative weight), we make adjustments 

for differences in area wage levels, 

COLA for Alaska and Hawaii, and SSOs. 

Furthermore, LTCHs may also receive 

HCO payments for those cases that 

qualify based on the threshold 

established each rate year. 

To understand the impact of the 

proposed changes to the LTCH PPS 

payment rates and payment rate policy 

changes discussed in sections IV. and 

V.A. of this proposed rule on different 

categories of LTCHs for the 2008 LTCH 

PPS rate year, it is necessary to estimate 

payments per discharge under the LTCH 

PPS rates, factors and policies 

established for RY 2007 (established in 

the RY 2007 LTCH PPS final rule (71 FR 

27798 through 27939)) and to estimate 

proposed payments per discharge that 

would be made under the proposed 

LTCH PPS rates, factors and policies for 

the 2008 LTCH PPS rate year (as 

discussed in the preamble of this 

proposed rule). We also evaluated the 

change in estimated 2007 LTCH PPS 

rate year payments to estimated 

proposed 2008 LTCH PPS rate year 


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payments (on a per discharge basis) for 

each category of LTCHs. 

Hospital groups were based on 

characteristics provided in the OSCAR 

data, FY 2002 through FY 2004 cost 

report data in HCRIS, and PSF data. 

Hospitals with incomplete 

characteristics were grouped into the 

‘‘unknown’’ category. Hospital groups 

include: 

• Location: Large Urban/Other Urban/ 

Rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the 

proposed payment rates and payment 

rate policy changes among the various 

categories of existing providers, we used 

LTCH cases from the FY 2005 MedPAR 

file to estimate payments for RY 2007 

and to estimate proposed payments for 

RY 2008 for 369 LTCHs. While currently 

there are just under 400 LTCHs, the 

most recent growth is predominantly in 

for-profit LTCHs that provide 

respiratory and ventilator-dependent 

patient care. We believe that the 

discharges from the FY 2005 MedPAR 

data for the 369 LTCHs in our database, 

which includes 246 proprietary LTCHs, 

provide sufficient representation in the 

LTC–DRGs containing discharges for 

patients who received LTCH care for the 

most commonly treated LTCH patients’

diagnoses. 

As discussed in greater detail in 

section VII. of this proposed rule, under 

the 5-year transition set forth at 

§ 412.533(a), a LTCH’s total payment 

under the LTCH PPS was based on an 

increasing percentage of the Federal rate 

with a corresponding decrease in the 

percentage of its LTCH PPS payment 

based on reasonable cost principles. 

However, effective for cost reporting 

periods beginning on or after October 1, 

2006, total LTCH PPS payments are 

based entirely on the Federal rate. 

Therefore, even though some LTCH’s 

will have a cost reporting period for the 

4th year of the transition period that 

will be concluding in the first 3 months 

of the 2008 LTCH PPS rate year, the 

portion of those LTCHs’ LTCH PPS 

payments that will be based on 

reasonable cost principles during RY 

2008 is negligible relative to LTCH PPS 

payments based on the Federal rate. 

This is because, as discussed in greater 

detail in section IV.D.5. of this proposed 

rule, based on the most recent available 

data, we are projecting that the vast 

majority of LTCHs have already made 

the election to be paid based on 100 

percent of the Federal rate rather than 

the transition blend prior to the start of 

their FY 2006 cost reporting period (that 

is, the 4th year of the transition period 

as set forth at § 412.533(a)), and even for 

those few remaining LTCHs paid under 

the transition blend methodology set 

forth at § 412.533(a), their total LTCH 

PPS payments are now based mostly on 

the Federal rate (since the transition 

blend percentages for cost reporting 

periods beginning during FY 2006 are 

80 percent of the Federal rate and 20 

percent of the LTCH PPS payment based 

on reasonable cost principles). 

Therefore, in this proposed rule, we are 

no longer providing a separate impact 

table reflecting the applicable transition 

blend percentages, which required cost 

data to determine estimated LTCH PPS 

payments based on reasonable cost 

principles. Accordingly, the impact 

analyses of the proposed payment rates 

and payment rate policy changes 

presented below reflects estimated 

LTCH PPS payments to all LTCHs based 

solely on the Federal rate. 

These impacts reflect the estimated 

‘‘losses’’ or ‘‘gains’’ among the various 

classifications of LTCHs for the 2007 

LTCH PPS rate year (July 1, 2006 

through June 30, 2007) compared to the 

2008 LTCH PPS rate year (July 1, 2007 

through June 30, 2008) based on the 

proposed payment rates and payment 

rate policy changes presented in this 

proposed rule. Prospective payments for 

the 2007 LTCH rate year were based on 

the standard Federal rate of $38,086.04, 

the outlier fixed-loss amount of $14,887, 

and the LTCHs’ estimated case-mix 

based on FY 2005 LTCH claims data. 

Estimated proposed prospective 

payments for the 2008 LTCH PPS rate 

year would be based on the proposed 

standard Federal rate of $38,356.45 

(based on the proposed 0.71 percent 

update discussed in section IV.C.3. of 

the preamble to this proposed rule), the 

proposed outlier fixed-loss amount of 

$18,774, and the same FY 2005 LTCH 

claims data. 

3. Calculation of Prospective Payments 

To estimate per discharge payments 

under the LTCH PPS, we simulated 

payments on a case-by-case basis by 

applying the established (for RY 2007) 

and proposed (for RY 2008) adjustments 

for area wage differences (as described 

in section IV.D.1. of the preamble of this 

proposed rule), and the COLA for 

Alaska and Hawaii (as described in 

section IV.D.2. of the preamble of this 

proposed rule). As discussed above, we 

also accounted for the existing payment 

policy for SSOs in RY 2007 and the 

approach for the SSO policy in RY 2008 

discussed in section V.A.2. of this 

proposed rule). Additional payments 

would also be made for HCOs (as 

described in section IV.D.3. of this 

proposed rule). As noted in section 

IV.D.4. of this proposed rule, we are not 

proposing to make adjustments for rural 

location, geographic reclassification, 

indirect medical education costs, or a 

DSH payment for the treatment of lowincome patients because sufficient new 

data have not been generated that would 

enable us to conduct a comprehensive 

reevaluation of these payment 

adjustments. 

We adjusted for area wage differences 

for estimated 2007 LTCH PPS rate year 

payments by computing a weighted 

average of a LTCH’s applicable wage 

index during the period from July 1, 

2006 through June 30, 2007 because 

some providers may experience a 

change in the wage index phase-in 

percentage during that period. For cost 

reporting periods beginning on or after 

October 1, 2005, and before September 

30, 2006 (FY 2006), the labor portion of 

the Federal rate is adjusted by four-fifths 

of the applicable LTCH PPS wage index. 

For cost reporting periods beginning on 

or after October 1, 2006, and before 

September 30, 2007 (FY 2007), the labor 

portion of the Federal rate is adjusted by 

five-fifths (that is, the full amount) of 

the applicable LTCH PPS wage index. 

Therefore, during RY 2007, a provider 

with a cost reporting period that began 

October 1, 2006, would have 3 months 

(July 2006 through September 2006) of 

payments under the four-fifths wage 

index value and 9 months (October 2006 

through June 2007) of payment under 

the (full) five-fifths wage index value. 

For this provider, we computed a 

blended wage index of 25 percent (3 

months/12 months) of the four-fifths 

wage index value and 75 percent (9 

months/12 months) of the (full) fivefifths wage index value. The applicable 

LTCH PPS wage index values for the 

2007 LTCH PPS rate year are shown in 

Tables 1 and 2 of the Addendum to the 

RY 2007 LTCH PPS final rule (71 FR 

27906 through 27930). We adjusted for 

area wage differences for estimated 2007 

LTCH PPS rate year payments using the 

current LTCH PPS labor-related share of 

75.665 percent (71 FR 27830). 

Similarly, we adjusted for area wage 

differences for estimated proposed 2008 

LTCH PPS rate year payments by 

computing a weighted average of a 

LTCH’s applicable wage index during 

the period from July 1, 2007, through 

June 30, 2008, because, although under 

the established phase-in of the wage 

index adjustment for cost reporting 

periods beginning on or after October 1, 

2006, the applicable LTCH wage index 

value is the full (five-fifths) LTCH PPS 

wage index value, during RY 2008 some 

providers will still experience a change 

in the wage index phase-in percentage 


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during that period. For example, during 

RY 2008, a provider with a FY 2006 cost 

reporting period that began September 

1, 2006, (and will end on August 31, 

2007,) would have 2 months (July 2007 

and August 2007) of payments under 

the proposed four-fifths wage index 

value and 10 months (September 2007 

through June 2007) of payment under 

the proposed (full) five-fifths wage 

index value. For this provider, we 

computed a blended wage index of 16.7 

percent (2 months/12 months) of the 

proposed four-fifths wage index value 

and 83.3 percent (10 months/12 months) 

of the proposed (full) five-fifths wage 

index value. The proposed applicable 

LTCH PPS wage index values for the 

2008 LTCH PPS rate year are shown in 

Tables 1 and 2 of Addendum A to this 

proposed rule. We adjusted for area 

wage differences for estimated 2008 

LTCH PPS rate year payments using the 

proposed LTCH PPS labor-related share 

of 75.511 percent (see section IV.D.1.c. 

of this proposed rule). 

As noted previously in this proposed 

rule, under the 5-year transition set 

forth at § 412.533(a), a LTCH’s total 

payment under the LTCH PPS was 

based on an increasing percentage of the 

Federal rate with a corresponding 

decrease in the percentage of the LTCH 

PPS payment that is based on 

reasonable cost principles. However, 

effective for cost reporting periods 

beginning on or after October 1, 2006, 

total LTCH PPS payments are based 

solely on the Federal rate. Therefore, 

even though some LTCH’s will have a 

cost reporting period for the 4th year of 

the transition period that will be 

concluding in the first 3 months of the 

2008 LTCH PPS rate year, the portion of 

those LTCH PPS payments that will be 

based on reasonable cost principles 

during RY 2008 is negligible relative to 

LTCH PPS payments based on the 

Federal rate, and therefore, we are no 

longer estimating transition payments as 

we have done in past impact analyses 

(for example, 71 FR 27892). 

Furthermore, in estimating both RY 

2007 and proposed RY 2008 LTCH PPS 

payments, we did not apply a transition 

period BN offset to payments to account 

for the effect of the 5-year transition 

methodology and election of payment 

based on 100 percent of the Federal rate 

on Medicare program payments 

(established in the August 30, 2002 final 

rule (67 FR 56034)). This is because, for 

RY 2007, we established a 0.0 percent 

BN offset (a BN factor of 1.0) to 

payments to account for the effect of the 

5-year transition methodology and 

election of payment based on 100 

percent of the Federal rate on Medicare 

program payments in RY 2007 (71 FR 

27841). As noted above and discussed 

in greater detail in section IV.D.5. of this 

proposed rule, we are not proposing a 

transition period BN offset to all LTCH 

PPS payments in RY 2008 to account for 

the estimated cost of the transition 

period methodology (including the 

option to elect payment based on 100 

percent of the Federal rate) in RY 2008 

since we are projecting that such costs 

would be negligible. 

As noted in Table 9, we show the 

impact as if all LTCHs would be paid 

100 percent of the Federal rate since, 

based on the most recent available data 

and the transition blend percentages set 

forth at § 412.533(a), nearly all LTCH 

PPS payments would be based on 100 

percent of the applicable LTCH PPS 

standard Federal rate during the 

majority of RYs 2007 and 2008. Table 9 

illustrates the estimated aggregate 

impact of the LTCH PPS among various 

classifications of LTCHs. 

• The first column, LTCH 

Classification, identifies the type of 

LTCH. 

• The second column lists the 

number of LTCHs of each classification 

type. 

• The third column identifies the 

number of LTCH cases. 

• The fourth column shows the 

estimated payment per discharge for the 

2007 LTCH PPS rate year. 

• The fifth column shows the 

estimated proposed payment per 

discharge for the 2008 LTCH PPS rate 

year. 

• The sixth column shows the 

estimated percentage change in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year for proposed 

changes to the Federal rate. 

• The seventh column shows the 

percentage change in estimated 

payments per discharge from the 2007 

LTCH PPS rate year to the 2008 LTCH 

PPS rate year for proposed changes to 

the area wage adjustment at § 412.525(c) 

(as discussed in section IV.D.1. of the 

preamble of this proposed rule). 

• The eighth column shows the 

percent change in estimated payments 

per discharge from the 2007 LTCH PPS 

rate year to the 2008 LTCH PPS rate year 

for the approach discussed for 

addressing our concerns with the 

existing SSO policy at § 412.529 (as 

discussed in section V.A.2. of the 

preamble of this proposed rule). 

• The ninth column shows the 

estimated percentage change in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year for all proposed 

changes (and includes the estimated 

impact of the approach for the SSO 

policy discussed in section V.A.2. of the 

preamble of this proposed rule). 

TABLE 9.—PROJECTED IMPACT OF PROPOSED PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS 

PAYMENTS FOR RY 2008* 

[Estimated 2007 LTCH PPS rate year payments compared to estimated proposed 2008 LTCH PPS rate year payments*] 

LTCH Classification Number of 

LTCHs 

Number of 

LTCH PPS 

cases 

Average 

estimated 

RY 2007 

LTCH PPS 

rate year 

payment 

per case 1

Average 

estimated 

proposed 

RY 2008 

LTCH PPS 

rate year 

payment 

per case 2

Percent increase in 

estimated 

payments 

per discharge 

from RY 

2007 to 

(proposed) 

RY 2008 

for proposed 

changes to 

the Federal rate 4

Percent 

decrease 3

in estimated payments per 

discharge 

from RY 

2007 to 

RY 2008 

for proposed 

changes to 

the area 

wage adjustment 5

Percent 

decrease 3

in estimated payments per 

discharge 

from RY 

2007 to 

RY 2008 

for approach discussed for 

the SSO 

policy 6* 

Percent 

decrease 3

in estimated payments per 

discharge 

from RY 

2007 to 

RY 2008 

for all proposed 

changes 7* 

ALL PROVIDERS .............................................................. 369 129,584 $31,486 $31,278 0.6 0.5 0.9 0.7 

BY LOCATION: 

RURAL ....................................................................... 25 5,044 25,100 24,447 0.7 2.2 1.0 2.6 

URBAN ....................................................................... 344 124,540 31,744 31,555 0.6 0.5 0.9 0.6 

LARGE ................................................................ 181 77,511 32,819 32,768 0.6 0.1 0.9 0.2 

OTHER ............................................................... 163 47,029 29,974 29,555 0.6 1.1 1.0 1.4 


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TABLE 9.—PROJECTED IMPACT OF PROPOSED PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS 

PAYMENTS FOR RY 2008*—Continued 

[Estimated 2007 LTCH PPS rate year payments compared to estimated proposed 2008 LTCH PPS rate year payments*] 

LTCH Classification Number of 

LTCHs 

Number of 

LTCH PPS cases 

Average 

estimated 

RY 2007 

LTCH PPS 

rate year 

payment 

per case 1

Average 

estimated 

proposed 

RY 2008 

LTCH PPS 

rate year 

payment 

per case 2

Percent increase in 

estimated 

payments 

per discharge 

from RY 

2007 to 

(proposed) 

RY 2008 

for proposed 

changes to 

the Federal rate 4

Percent 

decrease 3

in estimated payments per 

discharge 

from RY 

2007 to 

RY 2008 

for proposed 

changes to 

the area 

wage adjustment 5

Percent 

decrease 3

in estimated payments per 

discharge 

from RY 

2007 to 

RY 2008 

for approach discussed for 

the SSO 

policy 6* 

Percent 

decrease 3

in estimated payments per 

discharge 

from RY 

2007 to 

RY 2008 

for all proposed 

changes 7* 

BY PARTICIPATION DATE: 

BEFORE OCT. 1983 ................................................. 15 7,966 26,999 27,157 0.6 ¥0.1 0.4 ¥0.6 

OCT. 1983–SEPT. 1993 ............................................ 44 22,661 33,171 33,050 0.6 0.3 1.0 0.4 

OCT. 1993–SEPT. 2002 ............................................ 207 75,380 31,382 31,169 0.6 0.6 0.9 0.7 

AFTER OCT. 2002 .................................................... 101 23,163 31,709 31,303 0.6 1.0 1.0 1.3 

UNKNOWN ................................................................ 2 414 31,888 32,068 0.6 ¥0.4 0.8 ¥0.6 

BY OWNERSHIP CONTROL: 

VOLUNTARY ............................................................. 78 26,725 30,329 30,069 0.6 0.6 1.0 0.9 

PROPRIETARY ......................................................... 246 96,236 31,715 31,532 0.6 0.5 0.9 0.6 

GOVERNMENT ......................................................... 13 3,087 32,116 31,763 0.6 0.9 0.9 1.1 

UNKNOWN ................................................................ 32 3,536 33,437 33,072 0.6 0.8 1.0 1.1 

BY CENSUS REGION: 

NEW ENGLAND ........................................................ 14 9,858 26,775 26,984 0.6 ¥0.4 0.5 ¥0.8 

MIDDLE ATLANTIC ................................................... 28 7,697 32,405 32,063 0.6 1.0 0.9 1.1 

SOUTH ATLANTIC .................................................... 43 13,684 35,178 34,834 0.6 0.9 1.0 1.0 

EAST NORTH CENTRAL .......................................... 66 18,555 35,545 35,508 0.6 0.1 0.9 0.1 

EAST SOUTH CENTRAL .......................................... 28 7,525 31,242 30,611 0.6 1.6 1.2 2.0 

WEST NORTH CENTRAL ......................................... 18 5,173 34,383 34,057 0.6 0.7 1.0 0.9 

WEST SOUTH CENTRAL ......................................... 134 52,681 27,848 27,454 0.6 1.2 0.9 1.4 

MOUNTAIN ................................................................ 22 6,378 33,642 33,894 0.6 ¥1.0 1.1 ¥0.7 

PACIFIC ..................................................................... 16 8,033 41,224 41,801 0.6 ¥1.3 0.8 ¥1.4 

BY BED SIZE: 

BEDS: 0–24 ............................................................... 25 4,120 29,754 29,266 0.6 1.1 1.1 1.6 

BEDS: 25–49 ............................................................. 174 43,374 31,469 31,133 0.6 0.9 0.9 1.1 

BEDS: 50–74 ............................................................. 57 22,539 31,860 31,664 0.6 0.4 1.0 0.6 

BEDS: 75–124 ........................................................... 45 21,862 32,641 32,473 0.6 0.5 0.9 0.5 

BEDS: 125–199 ......................................................... 23 21,724 30,395 30,286 0.6 0.3 0.9 0.4 

BEDS: 200 + .............................................................. 13 12,429 30,756 30,869 0.6 ¥0.2 0.7 ¥0.4 

UNKNOWN ................................................................ 32 3,536 33,437 33,072 0.6 0.8 1.0 1.1 

*As discussed above in section XVI.A.1. of this regulatory impact analysis, we estimate that the approach discussed for addressing our concerns with the existing 

SSO policy presented in section V.A.2. of the preamble of this proposed rule would result in the decrease in estimated payments in the 2008 LTCH PPS rate year 

(approximately an additional $37 million, on average, for all LTCHs as shown in column 8). However, we note that in absence of including such an approach, we estimate that in place of the 0.7 percent decrease in estimated payments per discharge, on average, for all LTCHs (shown in column 9), there would be 0.3 percent increase in estimated payments per discharge, on average, for all LTCHs from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for all proposed payment rate and policy changes presented in the preamble of this proposed rule. We also note that, as discussed above in section XVI.B.4. of this regulatory impact 

analysis, the 2.2 percent decrease in estimated aggregate LTCH PPS payments due to the proposed expansion of the special payment provision for co-located 

LTCHs to certain situations not presently covered by existing § 412.534 for subclause (I) LTCHs (as discussed in section V.B. of this proposed rule) is not reflected in 

this impact table. However, the impact of the proposed expansion of the ‘‘25 percent’’ policy is discussed in greater detail below in section XVI.C.1. of this regulatory 

impact analysis. 1Estimated average estimated payment per case for the 12-month period of July 1, 2006 through June 30, 2007. 

2Estimated proposed average estimated payment per case for the 12-month period of July 1, 2007 through June 30, 2008. 

3As the percent change shown in this column represents a percent decrease in estimated payments per discharge, a negative (that is, minus) sign indicates a percent increase in estimated payments per discharge and the absence of a sign (that is, a positive sign) indicates a percent decrease in estimated payments per discharge. 4Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the proposed changes to the Federal rate. (Note, as discussed in section XVI.B.4. of this regulatory impact analysis, because about 35 percent of all LTCH cases are projected to receive a payment 

under the existing SSO policy that is based either on the estimated cost of the case or the ‘‘IPPS comparable amount’’ (rather than the proposed Federal rate), the 

percent change in estimated payments per discharge due to the proposed changes to the Federal rate for most of the categories of LTCHs, 0.6 percent, is slightly 

less than the proposed update to the Federal rate of 0.71 percent.) 5Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for proposed changes to the area 

wage adjustment policy at § 412.525(c) (as discussed in section V.D.1. of the preamble of this proposed rule). 6Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the approach discussed to address 

our concerns with the existing SSO policy at § 412.529 (presented in section V.A.1.a. of the preamble of this proposed rule). 7Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year (as established in the RY 2007 LTCH PPS final rule (71 FR 27798 

through 27939)) to the 2008 LTCH PPS rate year (as discussed in the preamble of this proposed rule, including the approach to the SSO policy discussed in section 

V.A.2. of this proposed rule) for all of the payment rate and policy provisions presented in the preamble of this proposed rule. Note, this column, which shows the percent change in estimated payments per discharge for all proposed changes, may not exactly equal the sum of the percent changes in estimated payments per discharge for proposed changes to the Federal rate (column 7), for proposed area wage adjustment changes (column 8) and the approach discussed for the SSO policy 

(column 9) due to the effect of estimated changes in aggregate HCO payments, as well as other interactive effects that cannot be isolated. 

4. Results 

Based on the most recent available 

data (as described previously for 369 

LTCHs), we have prepared the following 

summary of the impact (as shown in 

Table 9) of the proposed LTCH PPS 

payment rate and payment rate policy 

changes presented in this proposed rule 

(including the approach to the SSO 

policy discussed in section V.A.2. of 

this proposed rule). (As noted above, the 

impact of other policy changes 

presented in this proposed rule, which 

do not directly affect the LTCH PPS per 

discharge payment rate, such as the 

proposed expansion of the existing 

payment provision for co-located LTCHs 


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4840 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

to certain situations not presently 

covered by existing § 412.534 for 

subclause (I) LTCHs, are not included as 

part of the impact analysis shown in 

Table 9. However, the impact of those 

other proposed policies are discussed 

separately in section XVI.C. of this 

regulatory impact analysis.) 

The impact analysis in Table 9 shows 

that estimated payments per discharge 

are expected to decrease approximately 

0.7 percent, on average, for all LTCHs 

from the 2007 LTCH PPS rate year as 

compared to the 2008 LTCH PPS rate 

year as a result of the proposed payment 

rate and policy changes presented in 

this proposed rule. We note that 

although we are proposing a 0.71 

percent increase to the Federal rate for 

RY 2008, the impact analysis shown in 

Table 9 (column 6), only shows a 0.6 

percent increase in estimated payments 

per discharge from RY 2007 to RY 2008, 

for most categories of LTCHs, as a result 

of the proposed changes to the Federal 

rate. The reason that this column shows 

an estimated 0.6 percent increase rather 

than an estimated 0.7 percent increase 

(based on the proposed 0.71 percent 

update to the Federal rate) is because 

about 35 percent of all LTCH cases are 

projected to receive a payment under 

the existing SSO policy. Under either 

the existing SSO policy or the approach 

for the SSO policy discussed in section 

V.A.2. of this proposed rule, the 

majority of SSO cases would receive an 

adjusted LTCH PPS payment in RY 2008 

that would be based either on the 

estimated cost of the case or the ‘‘IPPS 

comparable amount’’ (that is, either 

under the ‘‘blend amount’’ at existing 

§ 412.529(c)(2)(iv) or the amount 

discussed in our approach to address 

our concerns with the existing SSO 

policy) rather than a LTCH PPS 

payment based on the proposed Federal 

rate. Therefore, because over 30 percent 

of all LTCH PPS cases would receive a 

payment that is not based on the 

proposed Federal rate, the percent 

change in estimated payments per 

discharge due to the proposed changes 

to the Federal rate for most categories of 

LTCHs shown in Table 9 is projected to 

be slightly less (0.6 percent) than the 

proposed 0.71 percent update to the 

Federal rate. Although, we are 

proposing a 0.71 percent increase to the 

Federal rate for RY 2008, the projected 

percent decrease in estimated payments 

per discharge from the 2007 LTCH PPS 

rate year to the 2008 LTCH PPS rate year 

shown in Table 9 is due the proposed 

changes to the area wage adjustment 

(discussed in section IV.D.1. of this 

proposed rule), in conjunction with the 

approach to the SSO policy (discussed 

in section V.A.2. of this proposed rule) 

and the proposed increase to the HCO 

fixed-loss amount (as discussed in 

section IV.D.3.c. of this proposed rule). 

Specifically, as we discussed in 

greater detail in section IV.D.1. of the 

preamble of this proposed rule, we are 

proposing to update the wage index 

values for RY 2008 in accordance with 

the progression of the 5-year phase-in of 

the wage index adjustment. We are also 

proposing to decrease the labor-related 

share from 75.665 percent to 75.511 

percent under the LTCH PPS beginning 

in RY 2008. Because this proposed 

change to the labor-related share would 

lower the portion of the Federal rate that 

is adjusted by the wage index to account 

for differences in local cost variation (in 

accordance with § 412.525(c)), LTCHs 

located in areas with a proposed RY 

2008 wage index value that is greater 

than 1.0 would experience a slight 

decrease in estimated payments per 

discharge as a result of the proposed 

decrease in the labor-related share. 

Conversely, LTCHs located in areas with 

a proposed RY 2008 wage index value 

that is less than 1.0 are expected to 

experience an increase in estimated 

payments per discharge as a result of the 

proposed decrease in the labor-related 

share since a smaller portion of the 

Federal rate would be adjusted by the 

proposed wage index to account for 

differences in local cost variation (in 

accordance with § 412.525(c)). However, 

the effect of the progression of the 5- 

year phase-in of the wage index 

adjustment, which results in a relatively 

more significant decrease in estimated 

payments for LTCHs located in areas 

with a proposed RY 2008 wage index 

value that is less than 1.0, would likely 

offset the effect on payments due to the 

decrease in the labor-related share. 

Consequently, the proposed changes to 

the wage index adjustment presented in 

this proposed rule for LTCHs located in 

areas with a proposed RY 2008 wage 

index value that is less than 1.0 are 

expected to also contribute to the 

projected decrease in estimated 

payments per discharge from RY 2007 

as compared to RY 2008. 

In addition, under the approach 

discussed to address our concerns with 

the existing SSO policy (discussed in 

section V.A.2. of this proposed rule), 

those LTCH SSO cases with a covered 

LOS that is less than or equal to the 

IPPS ALOS plus one standard deviation 

for the same DRG would receive a lower 

adjusted LTCH PPS payment than under 

the current SSO policy. We believe that 

the LTCH cases meeting the criteria 

stated above appear to be similar to the 

same type of cases treated in an acute 

care hospital and paid for under the 

IPPS since one standard deviation is a 

statistical test which measures the 

certainty of the average of a set of 

measurements for the purpose of this 

data analysis. Accordingly, we believe 

the approach discussed for the SSO 

policy could be appropriate, given that 

many of these SSO cases that are 

‘‘similar to IPPS cases’’ most likely do 

not receive a full course of a LTCH-level 

of treatment in such a short period of 

time since, in general, LTCHs are 

intended to treat longer stay patients. 

Furthermore, since by far the majority of 

SSO cases were admitted to the LTCH 

directly from an acute-care hospital, 

they are likely to still be in need of 

acute-level care at the time of admission 

to the LTCH. We believe that this may 

indicate that the LTCH admission is a 

premature and inappropriate discharge 

from the acute-care hospital and an 

inappropriate admission to the LTCH. 

We believe that the approach for the 

SSO policy could result in appropriate 

payments for short-stay cases treated at 

LTCHs as discussed in greater detail in 

section V.A.2. of this proposed rule. 

Furthermore, as we discussed in 

greater detail in section IV.D.3.c. of the 

preamble of this proposed rule, given 

the regulatory requirement at 

§ 412.525(a) that estimated outlier 

payments equal 8 percent of estimated 

total LTCH PPS payments, this decrease 

in estimated LTCH PPS payments for 

RY 2008 resulting primarily from the 

proposed changes to the SSO policy and 

the proposed changes to the area wage 

adjustment would require a proposed 

increase in the HCO fixed-loss amount 

to maintain estimated outlier payments 

at 8 percent of the estimated total LTCH 

PPS payments (resulting from the 

proposed payment rate and policy 

changes presented in this proposed 

rule). Thus, the proposed increase in the 

outlier fixed-loss amount also 

contributes to the projected decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year. For example, many 

LTCHs are expected to receive a 

decrease in HCO payments. As a result 

of the proposed increase to the fixedloss amount from the 2007 LTCH PPS 

rate year ($14,887) to the 2008 LTCH 

PPS rate year ($18,774), fewer cases 

would qualify as outlier cases (that is, 

the estimated cost of the case exceeds 

the outlier threshold). Since many 

LTCHs are expected to receive fewer 

outlier payments, total estimated 

payments per discharge are expected to 

decrease slightly from RY 2007 to RY 

2008. 


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Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4841 

a. Location 

Based on the most recent available 

data, the majority of LTCHs are in urban 

areas. Approximately 7 percent of the 

LTCHs are identified as being located in 

a rural area, and approximately 4 

percent of all LTCH cases are treated in 

these rural hospitals. The impact 

analysis presented in Table 9 shows that 

the percent decrease in estimated 

payments per discharge for the 2007 

LTCH PPS rate year compared to the 

2008 LTCH PPS rate year for rural 

LTCHs would be 2.6 percent for all 

proposed changes, and would be 0.6 

percent for urban LTCHs for all 

proposed changes. 

The primary reasons that the 

projected percent decrease in estimated 

payments to rural LTCHs is greater than 

that for urban LTCHs is that rural 

LTCHs are expected to experience a 

larger decrease in estimated payments 

due to the approach discussed for the 

SSO policy because, based on the most 

recent available data, many rural LTCHs 

treat a larger than average percentage of 

SSO cases (in fact, for a few rural 

LTCHs, SSO cases represent over half of 

their total cases based on FY 2005 data). 

Furthermore, rural LTCHs are projected 

to experience a higher than average 

decrease in estimated payments per 

discharge as a result of the proposed 

changes to the area wage adjustment 

because the proposed wage index for all 

rural LTCHs is less than 1.0, as 

explained above in this section. 

Large urban LTCHs are projected to 

experience a 0.2 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year, while 

other urban LTCHs are projected to 

experience a 1.4 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year, as 

shown in Table 9. Other urban LTCHs 

are projected to experience a higher 

than average decrease in estimated 

payments per discharge primarily 

because of the proposed changes to the 

area wage adjustment. This is because 

the majority of other urban LTCHs (over 

80 percent) are located in urban areas 

that have a proposed wage index value 

of less than 1.0, and therefore, would 

experience a higher than average 

decrease in estimated payments per 

discharge as a result of the proposed 

changes to the wage index adjustment, 

as explained above. In addition, other 

urban LTCHs have a slightly higher 

percentage of SSO cases and therefore, 

are projected to experience a slightly 

higher than average decrease in 

estimated payments per discharge as a 

result of the approach discussed for the 

SSO policy (as also discussed in greater 

detail above in this section). 

Large urban LTCHs are projected to 

experience a lower than average 

decrease in estimated payments per 

discharge for all changes primarily 

because of the proposed changes to the 

area wage adjustment because the 

majority of large urban LTCHs are 

located in urban areas that have a 

proposed wage index value of greater 

than 1.0, as explained above in this 

section. 

b. Participation Date 

LTCHs are grouped by participation 

date into four categories: (1) Before 

October 1983; (2) between October 1983 

and September 1993; (3) between 

October 1993 and September 2002; and 

(4) after October 2002. Based on the 

most recent available data, the majority 

(approximately 56 percent) of the LTCH 

cases are in hospitals that began 

participating between October 1993 and 

September 2002, and are projected to 

experience a 0.7 percent decrease in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year, as 

shown in Table 9. 

Approximately 12 percent of LTCH 

PPS cases are in LTCHs that began 

participating in Medicare between 

October 1983 and September 1993, and 

those LTCHs are projected to experience 

a 0.4 percent decrease in estimated 

payments per discharge from the 2007 

LTCH PPS rate year compared to the 

2008 LTCH PPS rate year, as shown in 

Table 9. We are projecting that LTCHs 

that began participating in Medicare 

between October 1983 and September 

1993 would experience a lower than 

average decrease in estimated payments 

for RY 2008 primarily because we are 

projecting that these LTCHs are 

expected to experience a lower than 

average decrease (0.3 percent) in 

estimated payments per discharge due 

to the proposed changes to the area 

wage adjustment. This is because many 

of the LTCHs that began participating in 

Medicare between October 1983 and 

September 1993 are located in areas 

where the proposed RY 2008 wage 

index value would be greater than the 

RY 2007 wage index value, and because 

several of these LTCHs are located in 

areas that have a proposed wage index 

value of greater than 1.0, (as explained 

above). 

LTCHs that began participating before 

October 1983 are projected to 

experience a 0.6 percent increase in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year compared 

to the 2008 LTCH PPS rate year (see 

Table 9). We are projecting that LTCHs 

that began participating in Medicare 

before October 1983 would experience 

an increase in estimated payments for 

RY 2008 as compared to RY 2007 

primarily because we are projecting that 

LTCHs in this participation date 

category would experience a slight 

increase in estimated payments in RY 

2008 as compared to RY 2007 due to the 

proposed changes to the area wage 

adjustment. This is because many of the 

LTCHs that began participating in 

Medicare before October 1983 are 

located in areas where the proposed RY 

2008 wage index value would be greater 

than the proposed RY 2007 wage index 

value, and because several of these 

LTCHs are located in areas that would 

have a proposed RY 2008 wage index 

value of greater than 1.0, (as discussed 

in section XVI.B.4. of this regulatory 

impact analysis). In addition, LTCHs 

that began participating in Medicare 

before October 1983 are expected to 

experience a lower than average 

decrease in estimated payments due to 

the approach discussed for the SSO 

policy (discussed in section V.A.2. of 

this proposed rule). Specifically, based 

on the FY 2005 LTCH claims data, the 

majority of LTCHs in this participation 

date category treat a smaller than 

average percentage of SSO cases. 

Approximately 27 percent of LTCHs 

began participating in Medicare after 

October 2002 (that is, the beginning of 

the LTCH PPS, which was implemented 

for cost reporting periods beginning on 

or after October 1, 2002), and those 

LTCHs are projected to experience a 1.3 

percent decrease in estimated payments 

per discharge from the 2007 LTCH PPS 

rate year compared to the 2008 LTCH 

PPS rate year (see Table 9). We are 

projecting that LTCHs that began 

participating in Medicare after October 

2002 will experience a higher than 

average decrease in estimated payments 

for RY 2008 primarily because we are 

projecting that these LTCHs would 

experience a larger than average 

decrease (1.0 percent) in estimated 

payments per discharge due to the 

proposed changes to the area wage 

adjustment. This is because the majority 

of the LTCHs that began participating in 

Medicare after October 2002 are located 

in areas where the proposed RY 2008 

wage index value would be less than the 

RY 2007 wage index value, and because 

the majority (over 80 percent) of these 

LTCHs are located in areas that would 

have a proposed RY 2008 wage index 

value of less than 1.0, (as discussed 

above in this section). 


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c. Ownership Control 

Other than LTCHs whose ownership 

control type is unknown, LTCHs are 

grouped into three categories based on 

ownership control type: Voluntary; 

proprietary; and government. Based on 

the most recent available data, 

approximately 4 percent of LTCHs are 

identified as government-owned and 

operated. We expect that for these 

government-owned and operated 

LTCHs, estimated 2008 LTCH PPS rate 

year payments per discharge would 

decrease 1.1 percent in comparison to 

the 2007 LTCH PPS rate year, as shown 

in Table 9. We are projecting that 

government-run LTCHs would 

experience a higher than average 

decrease in estimated payments in RY 

2008 as compared to RY 2007 primarily 

due to the effect of the proposed 

changes to the area wage adjustment. 

This is because all but 3 of the 13 

government-run LTCHs in our database 

are located in areas where the proposed 

wage index value for RY 2008 is less 

than 1.0, as explained above. 

Similarly, we project that estimated 

2008 LTCH PPS rate year payments per 

discharge for voluntary LTCHs, which 

account for approximately 21 percent of 

LTCHs, would decrease 0.9 percent in 

comparison to estimated 2007 LTCH 

PPS rate year payments (see Table 9). 

We are projecting that voluntary LTCHs 

would experience a slightly higher than 

average decrease in estimated payments 

in RY 2008 as compared to RY 2007 due 

to the proposed changes to the wage 

index adjustment, as well as the 

approach discussed for the SSO policy. 

Specifically, we expect voluntary 

LTCHs would experience a slightly 

higher than average decrease in 

estimated payments in RY 2008 as 

compared to RY 2007 due to the 

approach discussed for the SSO policy 

since over half (48 LTCHs) of the 

voluntary LTCHs have a higher than 

average percentage of SSO cases. We 

expect voluntary LTCHs would 

experience a slightly higher than 

average decrease in estimated payments 

in RY 2008 as compared to RY 2007 due 

to the proposed changes to the wage 

index adjustment since over threequarters (61 LTCHs) of the voluntary 

LTCHs are located in areas where the 

proposed wage index value is less than 

1.0 (as discussed above). 

The majority (approximately 67 

percent) of LTCHs are identified as 

proprietary. We project that 2008 LTCH 

PPS rate year estimated payments per 

discharge for these proprietary LTCHs 

would decrease 0.6 percent in 

comparison to the 2007 LTCH PPS rate 

year (see Table 9). 

d. Census Region 

Estimated payments per discharge for 

the 2008 LTCH PPS rate year are 

projected to decrease for LTCHs located 

in most regions (with the exception of 

New England, Mountain, and Pacific 

regions) in comparison to the 2007 

LTCH PPS rate year. The percent 

decrease in estimated payments per 

discharge from the 2007 LTCH PPS rate 

year to the 2008 LTCH PPS rate year for 

most regions is largely attributable to 

the approach discussed for the SSO 

policy, the proposed changes in the area 

wage adjustment, and the increase in 

the HCO fixed-loss amount (as 

explained above). 

Of the 9 census regions, we project 

that the decrease in proposed 2008 

LTCH PPS rate year estimated payments 

per discharge in comparison to the 2007 

LTCH PPS rate year would have the 

largest impact on LTCHs in the East 

South Central and West South Central 

regions (2.0 percent and 0.5 percent, 

respectively; see Table 9). LTCHs 

located in both the East South Central 

and West South Central regions are 

expected to experience a higher than 

average decrease in estimated payments 

due to the proposed changes in the area 

wage adjustment (1.6 percent for the 

East South Central region, and 1.2 

percent for the West South Central 

region, as shown in Table 9). This is 

because nearly all LTCHs located in the 

East South Central region and the West 

South Central regions are located in 

areas with a wage index value that is 

less than 1.0 (as described above). In 

addition, LTCHs are also expected to 

experience a higher than average 

decrease in estimated payments per 

discharge due to the approach discussed 

for the SSO policy since many of the 

LTCHs in these two regions have a 

larger than average percentage of SSO 

cases (based on FY 2005 LTCH claims 

data). 

We project that proposed 2008 LTCH 

PPS rate year estimated payments per 

discharge would increase for LTCHs in 

the New England, Mountain and Pacific 

region in comparison to the 2007 LTCH 

PPS rate year (0.8 percent, 0.7 percent 

and 1.4 percent, respectively; see Table 

9). We estimate that for LTCHs located 

in these three regions, the projected 

increases in estimated payments per 

discharge for the 2008 LTCH PPS rate 

year compared to the 2007 LTCH PPS 

rate year are largely a result of the 

proposed changes to the area wage 

adjustment. Specifically, we are 

projecting an increase in estimated 

LTCH PPS payments due to the changes 

to the area wage adjustment because all 

LTCHs in the New England and Pacific 

regions and the majority (over 68 

percent) of LTCHs in the Mountain 

region are located in areas where the 

proposed wage index value for RY 2008 

is greater than 1.0, and because many of 

the LTCHs in these three regions are 

located in areas where the proposed RY 

2008 wage index value is greater than 

the RY 2007 wage index value (as 

described above). 

e. Bed Size 

LTCHs were grouped into seven 

categories based on bed size: 0–24 beds; 

25–49 beds; 50–74 beds; 75–124 beds; 

125–199 beds; greater than 200 beds; 

and unknown bed size. 

We are projecting a decrease in 

estimated 2008 LTCH PPS rate year 

payments per discharge in comparison 

to the 2007 LTCH PPS rate year for all 

bed size categories except for the 

category with greater than 200 beds. 

Most LTCHs are in bed size categories 

where estimated 2008 LTCH PPS rate 

year payments per discharge are 

projected to decrease between 1.1 

percent and 1.6 percent in comparison 

to the 2007 LTCH PPS rate year (that is, 

LTCHs with less than 49 beds). As noted 

above, the projected percent increase in 

estimated payments per discharge from 

the 2007 LTCH PPS rate year to the 2008 

LTCH PPS rate year is largely 

attributable to the approach discussed 

for the SSO policy, the proposed 

changes in the area wage adjustment, 

and the proposed increase in the outlier 

fixed-loss amount (as explained above). 

Estimated payments per discharge for 

the 2008 LTCH PPS rate year for LTCHs 

with 0–24 beds are projected to decrease 

the most in comparison to the 2007 

LTCH PPS rate year (1.6 percent; see 

Table 9), followed by LTCHs with 25–

49 beds (1.1 percent; see Table 9). This 

higher than average decrease in 

estimated payments per discharge for 

LTCHs with less than 49 beds (that is, 

LTCHs in the 0–24 bed size category 

and LTCHs in the 25–49 bed size 

category) is largely due to the proposed 

changes to the area wage adjustment 

and the approach discussed for the SSO 

policy. Specifically, the majority of 

LTCHs with 49 beds or less are located 

in areas where the proposed RY 2008 

wage index value is less than the RY 

2007 wage index value. In addition, the 

majority (over 80 percent) of LTCHs 

with 49 beds or less are located in areas 

where the proposed RY 2008 wage 

index is less than 1.0. Furthermore, 

many of the LTCHs with less than 25 

beds have a larger than average 

percentage of SSO cases, and therefore, 

are expected to experience a larger than 

average decrease in estimated payments 


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per discharge due to the approach 

discussed for the SSO policy. 

We project that LTCHs with greater 

than 200 beds would have a slight 

increase in estimated 2008 LTCH PPS 

rate year payments per discharge in 

comparison to the 2007 LTCH PPS rate 

year (0.4 percent; see Table 9). This 

slight increase in estimated payments 

per discharge for LTCHs with greater 

than 200 beds is primarily due to the 

proposed changes to the area wage 

adjustment. This is because the majority 

of these LTCHs are located in areas 

where the proposed RY 2008 wage 

index value is greater than the RY 2007 

wage index value, and because 12 of the 

13 LTCHs with greater than 200 beds are 

located in an area where the proposed 

RY 2008 wage index value is greater 

than 1.0 (as described above). 

5. Effect on the Medicare Program 

Based on actuarial projections, an 

estimate of Medicare spending (total 

estimated Medicare program payments) 

for LTCH services over the next 5 years 

based on current LTCH PPS policy (as 

established in previous LTCH PPS final 

rules) is shown in Table 4 in section 

IV.D.5. of the preamble of this proposed 

rule. As noted we project that the 

provisions of this proposed rule 

(including the approach discussed for 

the SSO policy), would result in a 

decrease in estimated aggregate LTCH 

PPS payments in RY 2008 of about $117 

million (or about 2.9 percent) for the 

369 LTCHs in our database, as 

explained in greater detail above in 

section XVI.A. of this regulatory impact 

analysis. 

Consistent with the statutory 

requirement for BN, as we discussed in 

the August 30, 2002 final rule that 

implemented the LTCH PPS, in 

developing the LTCH PPS, we intended 

estimated aggregate payments under the 

LTCH PPS in FY 2003 be projected to 

equal the estimated aggregate payments 

that would have been made if the LTCH 

PPS were not implemented. Our 

methodology for estimating payments 

for purposes of the BN calculations for 

determining the FY 2003 standard 

Federal rate uses the best available data 

and necessarily reflects assumptions. As 

we collect data from LTCHs, we will 

monitor payments and evaluate the 

ultimate accuracy of the assumptions 

used in the BN calculations (that is, 

inflation factors, intensity of services 

provided, or behavioral response to the 

implementation of the LTCH PPS). As 

discussed in section IV.D.6. of this 

proposed rule, we still do not have 

sufficient new cost report and claims 

data generated under the LTCH PPS to 

enable us to conduct a comprehensive 

reevaluation of our FY 2003 BN 

calculation at this time. 

Section 123 of the BBRA and section 

307 of the BIPA provide the Secretary 

with extremely broad authority in 

developing the LTCH PPS, including the 

authority for appropriate adjustments. 

In accordance with this broad authority, 

we may discuss in a future proposed 

rule a possible one-time prospective 

adjustment to the LTCH PPS rates under 

§ 412.523(d)(3) on or before July 1, 2008, 

so that the effect of any significant 

differences between actual payments 

and estimated payments for the first 

year of the LTCH PPS is not perpetuated 

in the LTCH PPS payment rates for 

future years. 

6. Effect on Medicare Beneficiaries 

Under the LTCH PPS, hospitals 

receive payment based on the average 

resources consumed by patients for each 

diagnosis. We do not expect any 

changes in the quality of care or access 

to services for Medicare beneficiaries 

under the LTCH PPS, but we expect that 

paying prospectively for LTCH services 

would enhance the efficiency of the 

Medicare program. 

C. Impact of Other Proposed Policy 

Changes 

1. Effects of Proposed Policy Expansion 

of the Special Payment Provisions for 

LTCH HwHs and LTCH Satellites to 

Certain Situations Not Presently 

Covered by Existing § 412.534 for 

Subclause (I) LTCHs 

In section V.B. of the preamble to this 

proposed rule, we are proposing to 

revise § 412.534 and add a § 412.536 to 

expand the existing payment provision 

for co-located LTCHs (HwHs and 

satellites of LTCHs) to certain situations 

not presently covered by existing 

§ 412.534 for subclause (I) LTCHs. 

Under the existing policy, which was 

finalized for FY 2004, a payment 

adjustment is applied to those 

discharges from co-located LTCHs that 

were admitted from host hospitals that 

are in excess of a specified threshold 

unless those patients had reached HCO 

status at the referring hospital. 

Following a 4-year phase-in of this 

payment adjustment, for cost reporting 

periods beginning during FY 2008, the 

threshold is 25 percent or an applicable 

percentage established under the 

regulation that takes into account the 

particular circumstances of rural, urban 

single, or MSA dominant hospitals. 

Specifically, at existing § 412.534, we 

have provided that under the LTCH 

PPS, Medicare will pay the lesser of an 

amount otherwise payable under 

subpart O of 42 CFR part 412 or a LTCH 

PPS payment amount equivalent to 

what would have been paid under the 

IPPS for those discharges that were not 

HCOs from the referring hospital and 

that exceed 25 percent (or the applicable 

percentage) of the LTCH or LTCH 

satellite’s Medicare discharges for any 

cost reporting period (69 FR 49191 

through 49213). We originally 

established this payment adjustment 

because our data suggested that in many 

cases, hospitals were prematurely 

shifting patients to co-located LTCHs, 

and therefore, that we were generating 

a Medicare payment to the first hospital 

(generally an acute care hospital paid 

under the IPPS) and also an additional 

Medicare payment under the LTCH PPS 

to an LTCH for what was, in essence, 

one episode of care. Consequently, we 

believed that in such circumstances colocated LTCHs were functioning as stepdown units of their host hospitals, a 

configuration which is not permitted 

under section 1886(d)(1)(B) of the Act, 

which provides for the establishment of 

rehabilitation and psychiatric units of 

acute care hospitals but does not allow 

LTCH units. 

As detailed in section V.B. of the 

preamble of this proposed rule, our data 

suggests that many of our concerns 

regarding patient shifting between colocated providers also pertain to those 

LTCHs that are not co-located with 

other hospitals. The RY 2005 LTCH 

discharges from the MedPAR files 

indicate that only about 12 percent of 

the then 174 free-standing LTCHs 

admitted 25 percent or less of their 

Medicare discharges from an individual 

acute care hospital; for about 37 percent 

of those freestanding LTCHs, the 

percentage was between 25 and 50 

percent; for about 34 percent, it was 

between 50 and 75 percent; and for 

about 17 percent of those free-standing 

LTCHs, it was between 75 and 100 

percent of their Medicare discharges 

were admitted from one acute care 

hospital. In addition, the RY 2005 LTCH 

discharges from the MedPAR files 

indicate that for over 50 percent of all 

LTCHs, at least 50 percent of their 

discharges are for patients admitted 

from an individual acute care hospital. 

Based on this data, as discussed in 

section V.B. of this proposed rule, we 

have proposed to expand this described 

payment adjustment at existing 

§ 412.534 to apply equally to certain 

situations not presently covered by 

existing § 412.534 for subclause (I) 

LTCHs beginning with cost reporting 

periods starting in RY 2008. Under this 

proposed policy, if any subclause (I) 

LTCH’s or satellite facility’s discharges 

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co-located referring hospital (under 

proposed § 412.536) or from a co-located 

host (under the proposed revision to 

§ 412.534) exceed 25 percent (or the 

applicable percentage) for the LTCH’s 

cost reporting period, an adjusted 

payment would be made at the lesser of 

the otherwise payable amount under the 

LTCH PPS or the LTCH PPS payment 

amount that would be equivalent to 

what Medicare would otherwise pay 

under the IPPS. 

It is our intent that the proposed 

revisions would discourage 

inappropriate patient shifting to LTCHs 

before the referring hospital delivers a 

full episode of patient care. To the 

extent that LTCHs change their 

behaviors because this proposed policy 

reduces the financial incentives for 

certain situations not presently covered 

by existing § 412.534 to admit patients 

prematurely discharged from other 

hospitals, we believe that there would 

be savings to the Medicare program. 

Specifically, as under the existing 

policy for co-located LTCHs at existing 

§ 412.534, the proposed payment 

adjustment would not apply to either 

those subclause (I) LTCH discharges 

admitted from non-co-located referring 

hospitals (under proposed § 412.536) or 

those subclause (I)LTCH HwH or 

satellite discharges admitted from colocated host hospitals (under the 

proposed revision to § 412.534) that 

have already reached HCO status. 

At this time, based on the most recent 

LTCH claims data available and 

assuming no change in LTCH behavior 

if this proposed policy were 

implemented, we estimate that the 

proposed extension of the 25 percent (or 

applicable percentage) threshold at 

existing § 412.534 to certain situations 

not presently covered by existing 

§ 412.534 subclause (I) LTCHs would 

result in savings of $90 million to the 

Medicare program (or 2.2 percent 

decrease in estimated aggregate LTCH 

PPS payments) in RY 2008. (As noted 

above, this estimated $90 million 

impact is in addition to the estimated 

impact of the proposed payment rate 

and policy changes discussed in section 

XVI.B.4. of this regulatory impact 

analysis. Thus, the projected 2.2 percent 

decrease in estimated aggregate LTCH 

PPS payments due to this proposed 

policy is included in the 2.9 percent 

decrease in estimated aggregate LTCH 

PPS payments projected for all of the 

provisions of this proposed rule, as 

explained in greater detail above in 

section XVI.A. of this regulatory impact 

analysis.) As discussed above in this 

section, because we believe that this 

proposed policy would discourage 

inappropriate patient shifting to LTCHs 

before the non-co-located referring 

hospital or co-located host delivered a 

full episode of patient care and because 

we believe that this proposed policy 

would result in appropriate Medicare 

payments under the LTCH PPS, we do 

not believe that there would be an 

adverse financial impact on LTCHs, nor 

would there be an adverse impact on 

Medicare beneficiaries’ access to care. 

2. Effects of Proposed Policy Change 

Relating to Payment for Direct Graduate 

Medical Education (GME) 

In section XII. of the preamble of this 

proposed rule, with respect to the rules 

that hospitals must meet to count 

residents training in nonhospital 

settings for indirect medical education 

(IME) and direct GME payment 

purposes, we are proposing to revise 

§ 413.75(b) to revise the definition of 

‘‘all or substantially all of the costs for 

the training program in the nonhospital 

setting.’’ The revised definition would 

be at least 90 percent of the total cost 

of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries 

attributable to direct GME. This differs 

from the current definition of ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ which requires that, to count 

FTE residents training in nonhospital 

setting, hospitals must pay for 100 

percent of the residents’ salaries and 

fringe benefits, as well as the portion of 

the actual cost of the teaching 

physicians’ salary and fringe benefits 

attributable to GME activities during the 

time the residents are training in the 

nonhospital site. In addition, under the 

proposed definition of ‘‘all or 

substantially all’’ of the costs, in 

response to hospitals’ concerns 

regarding the difficulty of acquiring 

actual salary data from teaching 

physicians to document the actual cost 

of the teaching physicians’ time spent 

on GME activities, we are proposing to 

allow hospitals to use certain proxy 

information, such as national average 

physician compensation amounts, to 

calculate the cost of the teaching 

physicians’ time spent in GME activities 

in nonhospital sites. 

We believe that the administrative 

burden on hospitals related to 

calculating and documenting that they 

are paying for all or substantially all of 

the costs of residency training in 

nonhospital sites would be significantly 

reduced, if not eliminated, under our 

proposal. If the proposed changes are 

not made, and we continue to require 

that hospitals provide extensive 

documentation that they are paying for 

‘‘all’’ of the costs of the training program 

in the nonhospital setting, we 

understand that there is industry 

concern that hospitals may significantly 

reduce the amount of training occurring 

in nonhospital settings, and may 

transfer that residency training back to 

hospitals. We further note that the 

Congress intended to encourage the shift 

of training to nonhospital settings and 

we believe this proposed policy change 

could facilitate further shifts to 

nonhospital settings. Since we are not 

proposing a change that would impact 

the aggregate amount of residency 

training that will occur, and Medicare 

would continue to pay for residency 

training occurring in hospitals, overall 

Medicare payments for residency 

training as a result of this proposal will 

remain constant. 

D. Accounting Statement 

As discussed in section XVI.A.1. of 

this regulatory impact analysis, 

including the approach discussed for 

addressing our concerns with the 

existing SSO policy (presented in 

section V.A.2. of the preamble of this 

proposed rule) in the impact analysis of 

this proposed rule results in a decrease 

in estimated aggregate payments of $117 

million (or about 2.9 percent) for the 

369 LTCHs in our database. Therefore, 

as required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 10, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. Table 

10 provides our best estimate of the 

proposed decrease in Medicare 

payments under the LTCH PPS as a 

result of the provisions presented in this 

proposed rule based on the data for the 

369 LTCHs in our database. All 

expenditures are classified as transfers 

to Medicare providers (that is, LTCHs). 


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TABLE 10.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2007 LTCH PPS RATE

YEAR TO THE 2008 LTCH PPS RATE YEAR

[In millions] 

Category Transfers 

Annualized Monetized Transfers .............................................................. Negative transfer—Estimated decrease in expenditures: $117.* 

From Whom To Whom? ........................................................................... Federal Government To LTCH Medicare Providers. 

* As noted above and as discussed in greater detail above in section XVI.A.1. of this regulatory impact analysis, we have included the approach discussed for addressing our concerns with the existing SSO policy in the impact analysis of this proposed rule, which is projected to result in a $117 million decrease in estimated aggregate LTCH PPS payments from RY 2007 to RY 2008. However, we note that in absence of including such an approach, we estimate that the estimated impact of the provisions of this proposed rule are projected to result in an $80 million 

decrease in estimated aggregate LTCH PPS payments from RY 2007 to RY 2008. 

In accordance with the provisions of 

Executive Order 12866, this proposed 

rule was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services would amend 42 CFR 

chapter IV as set forth below: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

1. The authority citation for part 412 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh) and section 124 of Pub. L. 106–113 

(113 Stat. 1501A–332). 

Subpart B—Hospital Services Subject 

to and Excluded From the Prospective 

Payment Systems for Inpatient 

Operating Costs and Inpatient CapitalRelated Costs 

2. Section 412.22 is amended by 

adding paragraphs (h)(3)(i) and (ii) to 

read as follows: 

§ 412.22 Excluded hospitals and hospital 

units: General rules. 

* * * * * 

(h) * * * 

(3) * * * 

(i) Any hospital structured as a 

satellite facility on September 30, 1999, 

and excluded from the prospective 

payment systems on that date, to the 

extent the hospital continues operating 

under the same terms and conditions, 

including the number of beds and 

square footage considered, for the 

purposes of Medicare participation and 

payment, to be part of the hospital, in 

effect on September 30, 1999; or 

(ii) Any hospital excluded from the 

prospective payment systems under 

§ 412.23(e)(2)(ii). 

* * * * * 

Subpart G—Special Treatment of 

Certain Facilities Under the 

Prospective Payment System for 

Inpatient Operating Costs 

3. Section 412.105 is amended by 

revising paragraph (f)(1)(ii)(C) to read as 

follows: 

§ 412.105 Special treatment: Hospitals that 

incur indirect costs for graduate medical 

education programs. 

* * * * * 

(f) * * * 

(1) * * * 

(ii) * * * 

(C) Effective for discharges occurring 

on or after October 1, 1997, the time 

spent by a resident in a nonhospital 

setting in patient care activities, as 

defined in § 413.75(b) of this 

subchapter, under an approved medical 

residency training program is counted 

towards the determination of full-time 

equivalency if the criteria set forth in 

§ 413.78(c), (d), (e), or (f) of this 

subchapter, as applicable, are met. 

* * * * * 

Subpart O—Prospective Payment 

System for Long-Term Care Hospitals 

4. Section 412.517 is amended by —

A. Redesignating the introductory text 

and paragraphs (a), (b), (c), and (d) as 

paragraphs (a) introductory text, (a)(1), 

(a)(2), (a)(3), and (a)(4), respectively. 

B. Adding new paragraph (b). 

The addition reads as follows: 

§ 412.517 Revision of LTC–DRG group 

classifications and weighting factors. 

* * * * * 

(b) Beginning in FY 2008, the annual 

changes to the LTC–DRG classifications 

and recalibration of the weighting 

factors described in paragraph (a) are 

made in a budget neutral manner such 

that estimated aggregate LTCH PPS 

payments are not affected. 

5. Section 412.523 is amended by 

adding new paragraph (c)(3)(iv) to read 

as follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) * * * 

(iv) For long-term care hospital 

prospective payment system rate year 

beginning July 1, 2007 and ending June 

30, 2008. The standard Federal rate for 

long-term care hospital prospective 

payment system rate year beginning July 

1, 2007 and ending June 30, 2008 is the 

standard Federal rate for the previous 

long-term care hospital prospective 

payment system rate year updated by 

0.71 percent. The standard Federal rate 

is adjusted, as appropriate, as described 

in paragraph (d) of this section. 

* * * * * 

6. Section 412.534 is amended by—

A. Revising paragraph (b). 

B. Adding paragraph (h). 

The revision and addition read as 

follows: 

§ 412.534 Special payment provisions for 

long-term care hospitals within hospitals 

and satellites of long-term care hospitals. 

* * * * * 

(b) Patients admitted from hospitals 

not located in the same building or on 

the same campus as the long-term care 

hospital or long-term care hospital 

satellite. Payments to the long-term care 

hospital for patients admitted to the 

long-term care hospital to a satellite of 

the long-term care hospital from another 

hospital that is not the co-located 

hospital are made under the rules in this 

subpart with no adjustment under this 

section. For cost reporting periods 

beginning on or after July 1, 2007, 

payments to the long-term care hospital 

or long-term care hospital satellite 

facility for patients admitted to the 

LTCH hospital or LTCH satellite facility 

of the long-term care hospital from 

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located hospital are subject to the 

provisions in § 412.536. 

* * * * * 

(h) Effective date of policies in this 

section. The policies set forth in this 

section apply to discharges occurring in 

cost reporting periods beginning on or 

after July 1, 2007 from long-term care 

hospitals as described in 

§ 412.23(e)(2)(i) that meet criteria in 

§ 412.22(f)and satellite facilities of longterm care hospitals as described at 

§ 412.22(h)(3)(i). 

7. Section 412.536 is added to read as 

follows: 

§ 412.536 Special payment provisions for 

long-term care hospitals and satellites not 

co-located with other hospitals. 

(a) Scope. For cost reporting periods 

beginning on or after July 1, 2007, the 

policies set forth in this section apply to 

discharges from long-term care hospitals 

as described in § 412.23(e)(2)(i) and 

satellite facilities of long-term care 

hospitals described in § 412.22(h), 

including satellite facilities of long-term 

care hospitals described in (h)(3)(i) but 

excluding satellite facilities described in 

(h)(3)(ii). 

(b) For cost reporting periods 

beginning on or after July 1, 2007, 

payments for discharged patients 

admitted from a hospital not located in 

the same building or on the same 

campus as the long-term care hospital or 

long-term care hospital satellite facility 

will be made under either paragraph 

(b)(1) or paragraph (b)(2) of this section. 

(1) Except as provided in paragraphs 

(c), (d) or (f) of this section, for any cost 

reporting period beginning on or after 

July 1, 2007 in which a long-term care 

hospital or a long-term care hospital 

satellite facility has a discharged 

Medicare inpatient population of whom 

no more than 25 percent were admitted 

to the hospital or the satellite facility 

from any individual hospital, payments 

for the Medicare discharges admitted 

from that hospital are made under the 

rules at § 412.500 through § 412.541 in 

this subpart with no adjustment under 

this section. 

(2) Except as provided in paragraph 

(c), (d), or (f) of this section, for any cost 

reporting period beginning on or after 

July 1, 2007 in which a long-term care 

hospital or long-term care hospital 

satellite facility has a discharged 

Medicare inpatient population of whom 

more than 25 percent were admitted to 

the hospital or satellite facility from any 

individual hospital, payment for the 

Medicare discharges who are admitted 

from that hospital and who cause the 

long-term care hospital or satellite 

facility to exceed the 25 percent 

threshold for discharged patients who 

have been admitted from that referring 

hospital, are determined at the lesser of 

the amount otherwise payable under 

this subpart or the amount payable 

under this subpart that is equivalent, as 

set forth in paragraph (e) of this section, 

to the amount that would be determined 

under the rules at Subpart A, § 412.1(a). 

Payments for the remainder of the longterm care hospital’s or satellite facility’s 

patients admitted from that referring 

hospital are made under the rules in this 

subpart at § 412.500 through § 412.541 

with no adjustment under this section. 

(3) In determining the percentage of 

Medicare discharges admitted to the 

long-term care hospital or long-term 

care hospital satellite facility from any 

referring hospital under paragraphs 

(b)(1) and (b)(2) of this section, patients 

on whose behalf a Medicare outlier 

payment was made to the referring 

hospital are not counted towards the 25 

percent threshold from that referring 

hospital. 

(c) Special treatment of rural 

hospitals. (1) Subject to paragraph (f) of 

this section, in the case of a long-term 

care hospital or long-term care hospital 

satellite facility that is located in a rural 

area as defined in § 412.64(b)(1)(ii)(C) 

that has a discharged Medicare inpatient 

population of whom more than 50 

percent were admitted to the long-term 

care hospital or long-term care hospital 

satellite facility from a hospital, 

payment for the Medicare discharges 

who are admitted from that hospital and 

who cause the long-term care hospital or 

satellite facility to exceed the 50 percent 

threshold for Medicare discharges is 

determined at the lesser of the amount 

otherwise payable under this subpart or 

the amount payable under this subpart 

that is equivalent, as set forth in 

paragraph (e) of this section, to the 

amount that is otherwise payable under 

subpart A, § 412.1(a). Payments for the 

remainder of the long-term care 

hospital’s or long-term care hospital 

satellite facility’s Medicare discharges 

admitted from the referring hospital are 

made under the rules in this subpart at 

§ 412.500 through § 412.541 with no 

adjustment under this section. 

(2) In determining the percentage of 

Medicare discharges admitted from the 

referring hospital under paragraph (c)(1) 

of this section, patients on whose behalf 

a Medicare outlier payment was made at 

the referring hospital are not counted 

toward the 50 percent threshold. 

(d) Special treatment of urban single 

or MSA dominant hospitals. (1) Subject 

to paragraph (f) of this section, in the 

case of a long-term care hospital or longterm care hospital satellite facility that 

admits Medicare patients from the only 

other hospital in the MSA or from a 

MSA dominant hospital as defined in 

paragraph (d)(4) of this section, for any 

cost reporting period beginning on or 

after July 1, 2007, in which the longterm care hospital or satellite facility 

has a discharged Medicare inpatient 

population of whom more than the 

percentage calculated under paragraph 

(d)(2) of this section were admitted to 

the hospital from the urban single or 

MSA-dominant referring hospital, 

payment for the Medicare discharges 

who are admitted from the referring 

hospital and who cause the long-term 

care hospital or long-term care hospital 

satellite facility to exceed the applicable 

threshold for Medicare discharges who 

have been admitted from the referring 

hospital is the lesser of the amount 

otherwise payable under this subpart or 

the amount under this subpart that is 

equivalent, as set forth in paragraph (e) 

of this section, to the amount that 

otherwise would be determined under 

Subpart A, § 412.1(a). Payments for the 

remainder of the long-term care 

hospital’s or satellite facility’s Medicare 

discharges admitted from that referring 

hospital are made under the rules in this 

subpart at § 412.500 through § 412.541 

with no adjustment under this section. 

(2) For purposes of paragraph (d)(1) of 

this section, the percentage used is the 

percentage of total Medicare discharges 

in the Metropolitan Statistical Area 

(MSA) in which the hospital is located 

that are from the referring hospital for 

the cost reporting period for which the 

adjustment was made, but in no case is 

less than 25 percent or more than 50 

percent. 

(3) In determining the percentage of 

patients admitted from the referring 

hospital under paragraph (d)(1) of this 

section, patients on whose behalf a 

Medicare outlier payment was made at 

the referring hospital are not counted 

toward the applicable threshold. 

(4) For purposes of this paragraph, an 

‘‘MSA-dominant hospital’’ is a hospital 

that has discharged more than 25 

percent of the total hospital Medicare 

discharges in the MSA in which the 

hospital is located. 

(e) Calculation of rates. (1) 

Calculation of long-term care hospital 

prospective payment system amount. 

CMS calculates an amount payable 

under subpart O equivalent to an 

amount that would otherwise be paid 

under the hospital inpatient prospective 

payment system. The amount is based 

on the sum of the applicable hospital 

inpatient prospective payment system 

operating standardized amount and 

capital Federal rate in effect at the time 

of the long-term care hospital discharge. 

(2) Operating inpatient prospective 

payment system standardized amount. 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4847 

The hospital inpatient prospective 

payment system operating standardized 

amount—

(i) Is adjusted for the applicable 

hospital inpatient prospective payment 

system DRG weighting factors; 

(ii) Is adjusted for different area wage 

levels based on the geographic 

classifications set forth at 

§ 412.64(b)(1)(ii)(A) through (C) and the 

applicable hospital inpatient 

prospective payment system laborrelated share, using the applicable 

hospital inpatient prospective payment 

system wage index value for nonreclassified hospitals. For long-term care 

hospitals located in Alaska and Hawaii, 

this amount is also adjusted by the 

applicable hospital inpatient 

prospective payment system cost of 

living adjustment factors; 

(iii) Includes, where applicable, 

adjustments for indirect medical 

education costs and for the costs of 

serving a disproportionate share of lowincome patients. 

(3) Hospital inpatient prospective 

payment system capital Federal rate. 

The hospital inpatient prospective 

payment system capital Federal rate—

(i) Is adjusted for the applicable 

hospital inpatient prospective payment 

system DRG weighting factors; 

(ii) Is adjusted by the applicable 

geographic adjustment factors, 

including local cost variation based on 

the applicable geographic classifications 

set forth at § 412.64(b)(1)(ii)(A) through 

(C) and the applicable full hospital 

inpatient prospective payment system 

wage index value for non-reclassified 

hospitals, applicable large urban 

location and cost of living adjustment 

factors for long-term care hospitals for 

Alaska and Hawaii, if applicable; 

(iii) Includes, where applicable, 

capital inpatient prospective payment 

system adjustments for indirect medical 

education costs and the costs of serving 

a disproportionate share of low-income 

patients. 

(4) High cost outlier. An additional 

payment for high cost outlier cases is 

based on the fixed loss amount 

established for the hospital inpatient 

prospective payment system. 

(f) Transition period for long-term 

care hospitals and long-term care 

hospital satellite facilities paid under 

this subpart. (1) In the case of a longterm care hospital or a long-term care 

hospital satellite facility that is paid 

under the provisions of this subpart, for 

cost reporting periods beginning on or 

after July 1, 2007, the amount paid is 

based on the following: 

(2) For long term care hospitals or 

long term care hospital satellite facilities 

with cost reporting period beginning on 

or after July 1, 2007, and before October 

1, 2007, the percentage of Medicare 

discharges admitted from the referring 

hospital with no payment adjustment, 

may not exceed the lesser of the 

percentage of the long term care hospital 

or long-term care hospital satellite’s 

Medicare discharges that were admitted 

from the referring hospital during the 

FY 2005 cost reporting period or 50 

percent. In determining the percentage 

of Medicare discharges admitted from 

the referring hospital under this 

paragraph, patients on whose behalf a 

Medicare outlier payment was made at 

the referring hospital are not counted 

toward this threshold. 

(3) For long term care hospitals or 

long term care hospital satellites with 

cost reporting periods beginning on or 

after October 1, 2007, the percentage of 

Medicare discharges admitted from any 

referring hospital with no payment 

adjustment, may not exceed 25 percent 

or the applicable percentage determined 

under paragraph (c) or (d) of this 

section. 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; PROSPECTIVELY 

DETERMINED PAYMENT RATES FOR 

SKILLED NURSING FACILITIES 

8. The authority citation for part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Pub. L. 106–133 (113 Stat. 1501A–

332). 

Subpart F—Specific Categories of 

Costs 

9. Section 413.75(b) is amended by 

revising the definition ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ to read as follows: 

§ 413.75 Direct GME payments: General 

requirements. 

* * * * * 

(b) * * * 

* * * * * 

All or substantially all of the costs for 

the training program in the nonhospital 

setting means—(1) Effective on or after 

January 1, 1999 and for cost reporting 

periods beginning before July 1, 2007, 

the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries and 

fringe benefits attributable to direct 

graduate medical education (GME); and 

(2) Effective for cost reporting periods 

beginning on or after July 1, 2007, at 

least 90 percent of the total of the costs 

of the residents’ salaries and fringe 

benefits (including travel and lodging 

where applicable) and the portion of the 

cost of teaching physicians’ salaries 

attributable to direct GME. 

* * * * * 

10. Section 413.78 is amended by 

adding new paragraph (f) to read as 

follows: 

§ 413.78 Direct GME payments: 

Determination of the total number of FTE 

residents 

* * * * * 

(f) For cost reporting periods 

beginning on or after July 1, 2007, the 

time residents spend in non-provider 

settings such as freestanding clinics, 

nursing homes, and physicians’ offices 

in connection with approved programs 

may be included in determining the 

number of FTE residents the calculation 

of a hospital’s resident count if the 

following conditions are met—

(1) The resident spends his or her 

time in patient care activities. 

(2) The hospital must incur all or 

substantially all of the costs for the 

training program in the nonhospital 

setting(s) (in accordance with the 

definition under § 413.75(b)). 

(3) The hospital must comply with 

one of the following: 

(i) The hospital must document that it 

is paying for all or substantially all of 

the costs for the training program in a 

nonhospital setting(s) attributable to 

training that occurs during a month by 

the end of the third month following the 

month in which the training in the 

nonhospital site occurred; or 

(ii) There is a written agreement 

between the hospital and the 

nonhospital site that states that the 

hospital will incur at least 90 percent of 

the total of the costs of the resident’s 

salary and fringe benefits (and travel 

and lodging where applicable) while the 

resident is training in the nonhospital 

site and the portion of the cost of the 

teaching physician’s salary attributable 

to direct GME. The written agreement 

must specify the total amount the 

hospital will incur, and must indicate 

the portion of this amount that reflects 

residents’ salaries and fringe benefits 

(and travel and lodging where 

applicable), and the portion of this 

amount that reflects teaching physician 

compensation. 

(4) The hospital is subject to the 

principles of community support and 

redistribution of costs as specified in 

§ 413.81. 


rwilkins on PRODPC74 with PROPOSALS2
4848 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: December 14, 2006. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: January 24, 2007. 

Michael O. Leavitt, 

Secretary. 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4849 

Note: The following addenda will not 

appear in the Code of Federal Regulations. 

Addendum A 

Addendum A contains the tables referred 

to throughout the preamble to this proposed 

rule. The tables presented below are as 

follows: 

Table 1: Proposed Long-Term Care 

Hospital Wage Index for Urban Areas for 

Discharges Occurring from July 1, 2007 

through June 30, 2008. 

Table 2: Proposed Long-Term Care 

Hospital Wage Index for Rural Areas for 

Discharges Occurring from July 1, 2007 

through June 30, 2008. 

Table 3: FY 2007 LTC–DRG Relative 

Weights, Geometric Average Length of Stay, 

and five-sixths of the Geometric Average 

Length of Stay (for Short-Stay Outlier Cases) 

(effective for discharges occurring on or after 

October 1, 2006 through September 30, 

2007), and the IPPS Average Length of Stay 

plus one Standard Deviation (that could be 

used under the approach discussed for ShortStay Outlier policy). (Note: The first four 

columns of this table are the same 

information provided in Table 11 of the FY 

2007 IPPS final rule (71 FR 48321 through 

48320), which has been reprinted here for 

convenience. The fifth column of this table 

was added to provide information on the 

approach discussed for the short-stay outlier 

policy, discussed in section VI.A.2. of the 

preamble of this proposed rule.) 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

10180 ....... Abilene, TX ....................................................................................................................................................... 0.8000 0.8400 

Callahan County, TX.

Jones County, TX.

Taylor County, TX.

10380 ....... Aguadilla-Isabela-San Sebastia ́n, PR ............................................................................................................... 0.3915 0.5132 

Aguada Municipio, PR.

Aguadilla Municipio, PR.

An ̃asco Municipio, PR.

Isabela Municipio, PR.

Lares Municipio, PR.

Moca Municipio, PR.

Rinco ́n Municipio, PR.

San Sebastia ́n Municipio, PR.

10420 ....... Akron, OH ......................................................................................................................................................... 0.8654 0.8923 

Portage County, OH.

Summit County, OH.

10500 ....... Albany, GA ........................................................................................................................................................ 0.8991 0.9193 

Baker County, GA.

Dougherty County, GA.

Lee County, GA.

Terrell County, GA.

Worth County, GA.

10580 ....... Albany-Schenectady-Troy, NY .......................................................................................................................... 0.8720 0.8976 

Albany County, NY.

Rensselaer County, NY.

Saratoga County, NY.

Schenectady County, NY.

Schoharie County, NY.

10740 ....... Albuquerque, NM .............................................................................................................................................. 0.9458 0.9566 

Bernalillo County, NM.

Sandoval County, NM.

Torrance County, NM.

Valencia County, NM.

10780 ....... Alexandria, LA ................................................................................................................................................... 0.8006 0.8405 

Grant Parish, LA.

Rapides Parish, LA.

10900 ....... Allentown-Bethlehem-Easton, PA-NJ ............................................................................................................... 0.9947 0.9958 

Warren County, NJ.

Carbon County, PA.

Lehigh County, PA.

Northampton County, PA.

11020 ....... Altoona, PA ....................................................................................................................................................... 0.8812 0.9050 

Blair County, PA.

11100 ....... Amarillo, TX ...................................................................................................................................................... 0.9169 0.9335 

Armstrong County, TX.

Carson County, TX.

Potter County, TX.

Randall County, TX.

11180 ....... Ames, IA ........................................................................................................................................................... 0.9760 0.9808 

Story County, IA.

11260 ....... Anchorage, AK .................................................................................................................................................. 1.2023 1.1618 

Anchorage Municipality, AK.

Matanuska-Susitna Borough, AK.

11300 ....... Anderson, IN ..................................................................................................................................................... 0.8681 0.8945 

Madison County, IN.

11340 ....... Anderson, SC .................................................................................................................................................... 0.9017 0.9214 


rwilkins on PRODPC74 with PROPOSALS2
4850 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Anderson County, SC.

11460 ....... Ann Arbor, MI .................................................................................................................................................... 1.0826 1.0661 

Washtenaw County, MI.

11500 ....... Anniston-Oxford, AL .......................................................................................................................................... 0.7770 0.8216 

Calhoun County, AL.

11540 ....... Appleton, WI ..................................................................................................................................................... 0.9455 0.9564 

Calumet County, WI.

Outagamie County, WI.

11700 ....... Asheville, NC .................................................................................................................................................... 0.9216 0.9373 

Buncombe County, NC.

Haywood County, NC.

Henderson County, NC.

Madison County, NC.

12020 ....... Athens-Clarke County, GA ................................................................................................................................ 0.9856 0.9885 

Clarke County, GA.

Madison County, GA.

Oconee County, GA.

Oglethorpe County, GA.

12060 ....... Atlanta-Sandy Springs-Marietta, GA ................................................................................................................. 0.9762 0.9810 

Barrow County, GA.

Bartow County, GA.

Butts County, GA.

Carroll County, GA.

Cherokee County, GA.

Clayton County, GA.

Cobb County, GA.

Coweta County, GA.

Dawson County, GA.

DeKalb County, GA.

Douglas County, GA.

Fayette County, GA.

Forsyth County, GA.

Fulton County, GA.

Gwinnett County, GA.

Haralson County, GA.

Heard County, GA.

Henry County, GA.

Jasper County, GA.

Lamar County, GA.

Meriwether County, GA.

Newton County, GA.

Paulding County, GA.

Pickens County, GA.

Pike County, GA.

Rockdale County, GA.

Spalding County, GA.

Walton County, GA.

12100 ....... Atlantic City, NJ ................................................................................................................................................ 1.1831 1.1465 

Atlantic County, NJ.

12220 ....... Auburn-Opelika, AL ........................................................................................................................................... 0.8096 0.8477 

Lee County, AL.

12260 ....... Augusta-Richmond County, GA-SC .................................................................................................................. 0.9667 0.9734 

Burke County, GA.

Columbia County, GA.

McDuffie County, GA.

Richmond County, GA.

Aiken County, SC.

Edgefield County, SC.

12420 ....... Austin-Round Rock, TX .................................................................................................................................... 0.9344 0.9475 

Bastrop County, TX.

Caldwell County, TX.

Hays County, TX.

Travis County, TX.

Williamson County, TX.

12540 ....... Bakersfield, CA ................................................................................................................................................. 1.0725 1.0580 

Kern County, CA.

12580 ....... Baltimore-Towson, MD ...................................................................................................................................... 1.0088 1.0070 

Anne Arundel County, MD.

Baltimore County, MD.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4851 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Carroll County, MD.

Harford County, MD.

Howard County, MD.

Queen Anne’s County, MD.

Baltimore City, MD.

12620 ....... Bangor, ME ....................................................................................................................................................... 0.9711 0.9769 

Penobscot County, ME.

12700 ....... Barnstable Town, MA ........................................................................................................................................ 1.2539 1.2031 

Barnstable County, MA.

12940 ....... Baton Rouge, LA .............................................................................................................................................. 0.8084 0.8467 

Ascension Parish, LA.

East Baton Rouge Parish, LA.

East Feliciana Parish, LA.

Iberville Parish, LA.

Livingston Parish, LA.

Pointe Coupee Parish, LA.

St. Helena Parish, LA.

West Baton Rouge Parish, LA.

West Feliciana Parish, LA.

12980 ....... Battle Creek, MI ................................................................................................................................................ 0.9762 0.9810 

Calhoun County, MI.

13020 ....... Bay City, MI ...................................................................................................................................................... 0.9251 0.9401 

Bay County, MI.

13140 ....... Beaumont-Port Arthur, TX ................................................................................................................................ 0.8595 0.8876 

Hardin County, TX.

Jefferson County, TX.

Orange County, TX.

13380 ....... Bellingham, WA ................................................................................................................................................ 1.1104 1.0883 

Whatcom County, WA.

13460 ....... Bend, OR .......................................................................................................................................................... 1.0743 1.0594 

Deschutes County, OR.

13644 ....... Bethesda-Gaithersburg-Frederick, MD ............................................................................................................. 1.0903 1.0722 

Frederick County, MD.

Montgomery County, MD.

13740 ....... Billings, MT ....................................................................................................................................................... 0.8712 0.8970 

Carbon County, MT.

Yellowstone County, MT.

13780 ....... Binghamton, NY ................................................................................................................................................ 0.8786 0.9029 

Broome County, NY.

Tioga County, NY.

13820 ....... Birmingham-Hoover, AL .................................................................................................................................... 0.8894 0.9115 

Bibb County, AL.

Blount County, AL.

Chilton County, AL.

Jefferson County, AL.

St. Clair County, AL.

Shelby County, AL.

Walker County, AL.

13900 ....... Bismarck, ND .................................................................................................................................................... 0.7240 0.7792 

Burleigh County, ND.

Morton County, ND.

13980 ....... Blacksburg-Christiansburg-Radford, VA ........................................................................................................... 0.8213 0.8570 

Giles County, VA.

Montgomery County, VA.

Pulaski County, VA.

Radford City, VA.

14020 ....... Bloomington, IN ................................................................................................................................................ 0.8533 0.8826 

Greene County, IN.

Monroe County, IN.

Owen County, IN.

14060 ....... Bloomington-Normal, IL .................................................................................................................................... 0.8944 0.9155 

McLean County, IL.

14260 ....... Boise City-Nampa, ID ....................................................................................................................................... 0.9401 0.9521 

Ada County, ID.

Boise County, ID.

Canyon County, ID.

Gem County, ID.

Owyhee County, ID.

14484 ....... Boston-Quincy, MA ........................................................................................................................................... 1.1679 1.1343 


rwilkins on PRODPC74 with PROPOSALS2
4852 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Norfolk County, MA.

Plymouth County, MA.

Suffolk County, MA.

14500 ....... Boulder, CO ...................................................................................................................................................... 1.0350 1.0280 

Boulder County, CO.

14540 ....... Bowling Green, KY ........................................................................................................................................... 0.8148 0.8518 

Edmonson County, KY.

Warren County, KY.

14740 ....... Bremerton-Silverdale, WA ................................................................................................................................. 1.0913 1.0730 

Kitsap County, WA.

14860 ....... Bridgeport-Stamford-Norwalk, CT ..................................................................................................................... 1.2659 1.2127 

Fairfield County, CT.

15180 ....... Brownsville-Harlingen, TX ................................................................................................................................. 0.9430 0.9544 

Cameron County, TX.

15260 ....... Brunswick, GA .................................................................................................................................................. 1.0164 1.0131 

Brantley County, GA.

Glynn County, GA.

McIntosh County, GA.

15380 ....... Buffalo-Niagara Falls, NY ................................................................................................................................. 0.9424 0.9539 

Erie County, NY.

Niagara County, NY.

15500 ....... Burlington, NC ................................................................................................................................................... 0.8674 0.8939 

Alamance County, NC.

15540 ....... Burlington-South Burlington, VT ....................................................................................................................... 0.9474 0.9579 

Chittenden County, VT.

Franklin County, VT.

Grand Isle County, VT.

15764 ....... Cambridge-Newton-Framingham, MA .............................................................................................................. 1.0970 1.0776 

Middlesex County, MA.

15804 ....... Camden, NJ ...................................................................................................................................................... 1.0392 1.0314 

Burlington County, NJ.

Camden County, NJ.

Gloucester County, NJ.

15940 ....... Canton-Massillon, OH ....................................................................................................................................... 0.9031 0.9225 

Carroll County, OH.

Stark County, OH.

15980 ....... Cape Coral-Fort Myers, FL ............................................................................................................................... 0.9342 0.9474 

Lee County, FL.

16180 ....... Carson City, NV ................................................................................................................................................ 1.0025 1.0020 

Carson City, NV.

16220 ....... Casper, WY ....................................................................................................................................................... 0.9145 0.9316 

Natrona County, WY.

16300 ....... Cedar Rapids, IA .............................................................................................................................................. 0.8888 0.9110 

Benton County, IA.

Jones County, IA.

Linn County, IA.

16580 ....... Champaign-Urbana, IL ...................................................................................................................................... 0.9644 0.9715 

Champaign County, IL.

Ford County, IL.

Piatt County, IL.

16620 ....... Charleston, WV ................................................................................................................................................. 0.8542 0.8834 

Boone County, WV.

Clay County, WV.

Kanawha County, WV.

Lincoln County, WV.

Putnam County, WV.

16700 ....... Charleston-North Charleston, SC ..................................................................................................................... 0.9145 0.9316 

Berkeley County, SC.

Charleston County, SC.

Dorchester County, SC.

16740 ....... Charlotte-Gastonia-Concord, NC-SC ................................................................................................................ 0.9554 0.9643 

Anson County, NC.

Cabarrus County, NC.

Gaston County, NC.

Mecklenburg County, NC.

Union County, NC.

York County, SC.

16820 ....... Charlottesville, VA ............................................................................................................................................. 1.0125 1.0100 

Albemarle County, VA.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4853 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Fluvanna County, VA.

Greene County, VA.

Nelson County, VA.

Charlottesville City, VA.

16860 ....... Chattanooga, TN-GA ........................................................................................................................................ 0.8948 0.9158 

Catoosa County, GA.

Dade County, GA.

Walker County, GA.

Hamilton County, TN.

Marion County, TN.

Sequatchie County, TN.

16940 ....... Cheyenne, WY .................................................................................................................................................. 0.9060 0.9248 

Laramie County, WY.

16974 ....... Chicago-Naperville-Joliet, IL ............................................................................................................................. 1.0751 1.0601 

Cook County, IL.

DeKalb County, IL.

DuPage County, IL.

Grundy County, IL.

Kane County, IL.

Kendall County, IL.

McHenry County, IL.

Will County, IL.

17020 ....... Chico, CA .......................................................................................................................................................... 1.1053 1.0842 

Butte County, CA.

17140 ....... Cincinnati-Middletown, OH-KY-IN ..................................................................................................................... 0.9601 0.9681 

Dearborn County, IN.

Franklin County, IN.

Ohio County, IN.

Boone County, KY.

Bracken County, KY.

Campbell County, KY.

Gallatin County, KY.

Grant County, KY.

Kenton County, KY.

Pendleton County, KY.

Brown County, OH.

Butler County, OH.

Clermont County, OH.

Hamilton County, OH.

Warren County, OH.

17300 ....... Clarksville, TN-KY ............................................................................................................................................. 0.8436 0.8749 

Christian County, KY.

Trigg County, KY.

Montgomery County, TN.

Stewart County, TN.

17420 ....... Cleveland, TN ................................................................................................................................................... 0.8109 0.8487 

Bradley County, TN.

Polk County, TN.

17460 ....... Cleveland-Elyria-Mentor, OH ............................................................................................................................ 0.9400 0.9520 

Cuyahoga County, OH.

Geauga County, OH.

Lake County, OH.

Lorain County, OH.

Medina County, OH.

17660 ....... Coeur d’Alene, ID ............................................................................................................................................. 0.9344 0.9475 

Kootenai County, ID.

17780 ....... College Station-Bryan, TX ................................................................................................................................ 0.9045 0.9236 

Brazos County, TX.

Burleson County, TX.

Robertson County, TX.

17820 ....... Colorado Springs, CO ....................................................................................................................................... 0.9701 0.9761 

El Paso County, CO.

Teller County, CO.

17860 ....... Columbia, MO ................................................................................................................................................... 0.8542 0.8834 

Boone County, MO.

Howard County, MO.

17900 ....... Columbia, SC .................................................................................................................................................... 0.8933 0.9146 

Calhoun County, SC.

Fairfield County, SC.


rwilkins on PRODPC74 with PROPOSALS2
4854 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Kershaw County, SC.

Lexington County, SC.

Richland County, SC.

Saluda County, SC.

17980 ....... Columbus, GA-AL ............................................................................................................................................. 0.8239 0.8591 

Russell County, AL.

Chattahoochee County, GA.

Harris County, GA.

Marion County, GA.

Muscogee County, GA.

18020 ....... Columbus, IN .................................................................................................................................................... 0.9318 0.9454 

Bartholomew County, IN.

18140 ....... Columbus, OH .................................................................................................................................................. 1.0107 1.0086 

Delaware County, OH.

Fairfield County, OH.

Franklin County, OH.

Licking County, OH.

Madison County, OH.

Morrow County, OH.

Pickaway County, OH.

Union County, OH.

18580 ....... Corpus Christi, TX ............................................................................................................................................. 0.8564 0.8851 

Aransas County, TX.

Nueces County, TX.

San Patricio County, TX.

18700 ....... Corvallis, OR ..................................................................................................................................................... 1.1546 1.1237 

Benton County, OR.

19060 ....... Cumberland, MD-WV ........................................................................................................................................ 0.8446 0.8757 

Allegany County, MD.

Mineral County, WV.

19124 ....... Dallas-Plano-Irving, TX ..................................................................................................................................... 1.0075 1.0060 

Collin County, TX.

Dallas County, TX.

Delta County, TX.

Denton County, TX.

Ellis County, TX.

Hunt County, TX.

Kaufman County, TX.

Rockwall County, TX.

19140 ....... Dalton, GA ........................................................................................................................................................ 0.9093 0.9274 

Murray County, GA.

Whitfield County, GA.

19180 ....... Danville, IL ........................................................................................................................................................ 0.9266 0.9413 

Vermilion County, IL.

19260 ....... Danville, VA ...................................................................................................................................................... 0.8451 0.8761 

Pittsylvania County, VA.

Danville City, VA.

19340 ....... Davenport-Moline-Rock Island, IA-IL ................................................................................................................ 0.8846 0.9077 

Henry County, IL.

Mercer County, IL.

Rock Island County, IL.

Scott County, IA.

19380 ....... Dayton, OH ....................................................................................................................................................... 0.9037 0.9230 

Greene County, OH.

Miami County, OH.

Montgomery County, OH.

Preble County, OH.

19460 ....... Decatur, AL ....................................................................................................................................................... 0.8159 0.8527 

Lawrence County, AL.

Morgan County, AL.

19500 ....... Decatur, IL ........................................................................................................................................................ 0.8172 0.8538 

Macon County, IL.

19660 ....... Deltona-Daytona Beach-Ormond Beach, FL .................................................................................................... 0.9263 0.9410 

Volusia County, FL.

19740 ....... Denver-Aurora, CO ........................................................................................................................................... 1.0930 1.0744 

Adams County, CO.

Arapahoe County, CO.

Broomfield County, CO.

Clear Creek County, CO.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4855 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Denver County, CO.

Douglas County, CO.

Elbert County, CO.

Gilpin County, CO.

Jefferson County, CO.

Park County, CO.

19780 ....... Des Moines,-West Des Moines, IA ................................................................................................................... 0.9214 0.9371 

Dallas County, IA.

Guthrie County, IA.

Madison County, IA.

Polk County, IA.

Warren County, IA.

19804 ....... Detroit-Livonia-Dearborn, MI ............................................................................................................................. 1.0281 1.0225 

Wayne County, MI.

20020 ....... Dothan, AL ........................................................................................................................................................ 0.7381 0.7905 

Geneva County, AL.

Henry County, AL.

Houston County, AL.

20100 ....... Dover, DE ......................................................................................................................................................... 0.9847 0.9878 

Kent County, DE.

20220 ....... Dubuque, IA ...................................................................................................................................................... 0.9133 0.9306 

Dubuque County, IA.

20260 ....... Duluth, MN-WI .................................................................................................................................................. 1.0042 1.0034 

Carlton County, MN.

St. Louis County, MN.

Douglas County, WI.

20500 ....... Durham, NC ...................................................................................................................................................... 0.9826 0.9861 

Chatham County, NC.

Durham County, NC.

Orange County, NC.

Person County, NC.

20740 ....... Eau Claire, WI ................................................................................................................................................... 0.9630 0.9704 

Chippewa County, WI.

Eau Claire County, WI.

20764 ....... Edison, NJ ......................................................................................................................................................... 1.1190 1.0952 

Middlesex County, NJ.

Monmouth County, NJ.

Ocean County, NJ.

Somerset County, NJ.

20940 ....... El Centro, CA .................................................................................................................................................... 0.9076 0.9261 

Imperial County, CA.

21060 ....... Elizabethtown, KY ............................................................................................................................................. 0.8697 0.8958 

Hardin County, KY.

Larue County, KY.

21140 ....... Elkhart-Goshen, IN ........................................................................................................................................... 0.9426 0.9541 

Elkhart County, IN.

21300 ....... Elmira, NY ......................................................................................................................................................... 0.8240 0.8592 

Chemung County, NY.

21340 ....... El Paso, TX ....................................................................................................................................................... 0.9053 0.9242 

El Paso County, TX.

21500 ....... Erie, PA ............................................................................................................................................................. 0.8827 0.9062 

Erie County, PA.

21604 ....... Essex County, MA ............................................................................................................................................ 1.0418 1.0334 

Essex County, MA.

21660 ....... Eugene-Springfield, OR .................................................................................................................................... 1.0876 1.0701 

Lane County, OR.

21780 ....... Evansville, IN-KY .............................................................................................................................................. 0.9071 0.9257 

Gibson County, IN.

Posey County, IN.

Vanderburgh County, IN.

Warrick County, IN.

Henderson County, KY.

Webster County, KY.

21820 ....... Fairbanks, AK ................................................................................................................................................... 1.1059 1.0847 

Fairbanks North Star Borough, AK.

21940 ....... Fajardo, PR ....................................................................................................................................................... 0.4036 0.5229 

Ceiba Municipio, PR.

Fajardo Municipio, PR.

Luquillo Municipio, PR.


rwilkins on PRODPC74 with PROPOSALS2
4856 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

22020 ....... Fargo, ND-MN ................................................................................................................................................... 0.8250 0.8600 

Cass County, ND.

Clay County, MN.

22140 ....... Farmington, NM ................................................................................................................................................ 0.8589 0.8871 

San Juan County, NM.

22180 ....... Fayetteville, NC ................................................................................................................................................. 0.8945 0.9156 

Cumberland County, NC.

Hoke County, NC.

22220 ....... Fayetteville-Springdale-Rogers, AR-MO ........................................................................................................... 0.8865 0.9092 

Benton County, AR.

Madison County, AR.

Washington County, AR.

McDonald County, MO.

22380 ....... Flagstaff, AZ ...................................................................................................................................................... 1.1601 1.1281 

Coconino County, AZ.

22420 ....... Flint, MI ............................................................................................................................................................. 1.0969 1.0775 

Genesee County, MI.

22500 ....... Florence, SC ..................................................................................................................................................... 0.8388 0.8710 

Darlington County, SC.

Florence County, SC.

22520 ....... Florence-Muscle Shoals, AL ............................................................................................................................. 0.7843 0.8274 

Colbert County, AL.

Lauderdale County, AL.

22540 ....... Fond du Lac, WI ............................................................................................................................................... 1.0063 1.0050 

Fond du Lac County, WI.

22660 ....... Fort Collins-Loveland, CO ................................................................................................................................. 0.9544 0.9635 

Larimer County, CO.

22744 ....... Fort Lauderdale-Pompano Beach-Deerfield Beach, FL ................................................................................... 1.0133 1.0106 

Broward County, FL.

22900 ....... Fort Smith, AR-OK ............................................................................................................................................ 0.7731 0.8185 

Crawford County, AR.

Franklin County, AR.

Sebastian County, AR.

Le Flore County, OK.

Sequoyah County, OK.

23020 ....... Fort Walton Beach-Crestview-Destin, FL ......................................................................................................... 0.8643 0.8914 

Okaloosa County, FL.

23060 ....... Fort Wayne, IN .................................................................................................................................................. 0.9517 0.9614 

Allen County, IN.

Wells County, IN.

Whitley County, IN.

23104 ....... Fort Worth-Arlington, TX ................................................................................................................................... 0.9569 0.9655 

Johnson County, TX.

Parker County, TX.

Tarrant County, TX.

Wise County, TX.

23420 ....... Fresno, CA ........................................................................................................................................................ 1.0943 1.0754 

Fresno County, CA.

23460 ....... Gadsden, AL ..................................................................................................................................................... 0.8066 0.8453 

Etowah County, AL.

23540 ....... Gainesville, FL .................................................................................................................................................. 0.9277 0.9422 

Alachua County, FL.

Gilchrist County, FL.

23580 ....... Gainesville, GA ................................................................................................................................................. 0.8958 0.9166 

Hall County, GA.

23844 ....... Gary, IN ............................................................................................................................................................. 0.9334 0.9467 

Jasper County, IN.

Lake County, IN.

Newton County, IN.

Porter County, IN.

24020 ....... Glens Falls, NY ................................................................................................................................................. 0.8324 0.8659 

Warren County, NY.

Washington County, NY.

24140 ....... Goldsboro, NC .................................................................................................................................................. 0.9171 0.9337 

Wayne County, NC.

24220 ....... Grand Forks, ND-MN ........................................................................................................................................ 0.7949 0.8359 

Polk County, MN.

Grand Forks County, ND.

24300 ....... Grand Junction, CO .......................................................................................................................................... 0.9668 0.9734 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4857 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Mesa County, CO.

24340 ....... Grand Rapids-Wyoming, MI .............................................................................................................................. 0.9455 0.9564 

Barry County, MI.

Ionia County, MI.

Kent County, MI.

Newaygo County, MI.

24500 ....... Great Falls, MT ................................................................................................................................................. 0.8598 0.8878 

Cascade County, MT.

24540 ....... Greeley, CO ...................................................................................................................................................... 0.9602 0.9682 

Weld County, CO.

24580 ....... Green Bay, WI .................................................................................................................................................. 0.9787 0.9830 

Brown County, WI.

Kewaunee County, WI.

Oconto County, WI.

24660 ....... Greensboro-High Point, NC .............................................................................................................................. 0.8866 0.9093 

Guilford County, NC.

Randolph County, NC.

Rockingham County, NC.

24780 ....... Greenville, NC ................................................................................................................................................... 0.9432 0.9546 

Greene County, NC.

Pitt County, NC.

24860 ....... Greenville, SC ................................................................................................................................................... 0.9804 0.9843 

Greenville County, SC.

Laurens County, SC.

Pickens County, SC.

25020 ....... Guayama, PR ................................................................................................................................................... 0.3235 0.4588 

Arroyo Municipio, PR.

Guayama Municipio, PR.

Patillas Municipio, PR.

25060 ....... Gulfport-Biloxi, MS ............................................................................................................................................ 0.8915 0.9132 

Hancock County, MS.

Harrison County, MS.

Stone County, MS.

25180 ....... Hagerstown-Martinsburg, MD-WV .................................................................................................................... 0.9038 0.9230 

Washington County, MD.

Berkeley County, WV.

Morgan County, WV.

25260 ....... Hanford-Corcoran, CA ...................................................................................................................................... 1.0282 1.0226 

Kings County, CA.

25420 ....... Harrisburg-Carlisle, PA ..................................................................................................................................... 0.9402 0.9522 

Cumberland County, PA.

Dauphin County, PA.

Perry County, PA.

25500 ....... Harrisonburg, VA .............................................................................................................................................. 0.9073 0.9258 

Rockingham County, VA.

Harrisonburg City, VA.

25540 ....... Hartford-West Hartford-East ............................................................................................................................. 1.0894 1.0715 

Hartford, CT.

Hartford County, CT.

Litchfield County, CT.

Middlesex County, CT.

Tolland County, CT.

25620 ....... Hattiesburg, MS ................................................................................................................................................ 0.7430 0.7944 

Forrest County, MS.

Lamar County, MS.

Perry County, MS.

25860 ....... Hickory-Lenoir-Morganton, NC ......................................................................................................................... 0.9010 0.9208 

Alexander County, NC.

Burke County, NC.

Caldwell County, NC.

Catawba County, NC.

26100 ....... Holland-Grand Haven, MI ................................................................................................................................. 0.9163 0.9330 

Ottawa County, MI.

26180 ....... Honolulu, HI ...................................................................................................................................................... 1.1096 1.0877 

Honolulu County, HI.

26300 ....... Hot Springs, AR ................................................................................................................................................ 0.8782 0.9026 

Garland County, AR.

26380 ....... Houma-Bayou Cane-Thibodaux, LA ................................................................................................................. 0.8082 0.8466 

Lafourche Parish, LA.


rwilkins on PRODPC74 with PROPOSALS2
4858 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Terrebonne Parish, LA.

26420 ....... Houston-Sugar Land-Baytown, TX ................................................................................................................... 1.0008 1.0006 

Austin County, TX.

Brazoria County, TX.

Chambers County, TX.

Fort Bend County, TX.

Galveston County, TX.

Harris County, TX.

Liberty County, TX.

Montgomery County, TX.

San Jacinto County, TX.

Waller County, TX.

26580 ....... Huntington-Ashland, WV-KY-OH ...................................................................................................................... 0.8997 0.9198 

Boyd County, KY.

Greenup County, KY.

Lawrence County, OH.

Cabell County, WV.

Wayne County, WV.

26620 ....... Huntsville, AL .................................................................................................................................................... 0.9007 0.9206 

Limestone County, AL.

Madison County, AL.

26820 ....... Idaho Falls, ID ................................................................................................................................................... 0.9088 0.9270 

Bonneville County, ID.

Jefferson County, ID.

26900 ....... Indianapolis-Carmel, IN ..................................................................................................................................... 0.9895 0.9916 

Boone County, IN.

Brown County, IN.

Hamilton County, IN.

Hancock County, IN.

Hendricks County, IN.

Johnson County, IN.

Marion County, IN.

Morgan County, IN.

Putnam County, IN.

Shelby County, IN.

26980 ....... Iowa City, IA ...................................................................................................................................................... 0.9714 0.9771 

Johnson County, IA.

Washington County, IA.

27060 ....... Ithaca, NY ......................................................................................................................................................... 0.9928 0.9942 

Tompkins County, NY.

27100 ....... Jackson, MI ....................................................................................................................................................... 0.9560 0.9648 

Jackson County, MI.

27140 ....... Jackson, MS ..................................................................................................................................................... 0.8271 0.8617 

Copiah County, MS.

Hinds County, MS.

Madison County, MS.

Rankin County, MS.

Simpson County, MS.

27180 ....... Jackson, TN ...................................................................................................................................................... 0.8853 0.9082 

Chester County, TN.

Madison County, TN.

27260 ....... Jacksonville, FL ................................................................................................................................................ 0.9165 0.9332 

Baker County, FL.

Clay County, FL.

Duval County, FL.

Nassau County, FL.

St. Johns County, FL.

27340 ....... Jacksonville, NC ............................................................................................................................................... 0.8231 0.8585 

Onslow County, NC.

27500 ....... Janesville, WI .................................................................................................................................................... 0.9655 0.9724 

Rock County, WI.

27620 ....... Jefferson City, MO ............................................................................................................................................ 0.8332 0.8666 

Callaway County, MO.

Cole County, MO.

Moniteau County, MO.

Osage County, MO.

27740 ....... Johnson City, TN .............................................................................................................................................. 0.8043 0.8434 

Carter County, TN.

Unicoi County, TN.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4859 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Washington County, TN.

27780 ....... Johnstown, PA .................................................................................................................................................. 0.8620 0.8896 

Cambria County, PA.

27860 ....... Jonesboro, AR .................................................................................................................................................. 0.7662 0.8130 

Craighead County, AR.

Poinsett County, AR.

27900 ....... Joplin, MO ......................................................................................................................................................... 0.8605 0.8884 

Jasper County, MO.

Newton County, MO.

28020 ....... Kalamazoo-Portage, MI .................................................................................................................................... 1.0704 1.0563 

Kalamazoo County, MI.

Van Buren County, MI.

28100 ....... Kankakee-Bradley, IL ........................................................................................................................................ 1.0083 1.0066 

Kankakee County, IL.

28140 ....... Kansas City, MO-KS ......................................................................................................................................... 0.9495 0.9596 

Franklin County, KS.

Johnson County, KS.

Leavenworth County, KS.

Linn County, KS.

Miami County, KS.

Wyandotte County, KS.

Bates County, MO.

Caldwell County, MO.

Cass County, MO.

Clay County, MO.

Clinton County, MO.

Jackson County, MO.

Lafayette County, MO.

Platte County, MO.

Ray County, MO.

28420 ....... Kennewick-Richland-Pasco, WA ....................................................................................................................... 1.0343 1.0274 

Benton County, WA.

Franklin County, WA.

28660 ....... Killeen-Temple-Fort Hood, TX .......................................................................................................................... 0.8901 0.9121 

Bell County, TX.

Coryell County, TX.

Lampasas County, TX.

28700 ....... Kingsport-Bristol-Bristol, TN-VA ........................................................................................................................ 0.7985 0.8388 

Hawkins County, TN.

Sullivan County, TN.

Bristol City, VA.

Scott County, VA.

Washington County, VA.

28740 ....... Kingston, NY ..................................................................................................................................................... 0.9367 0.9494 

Ulster County, NY.

28940 ....... Knoxville, TN ..................................................................................................................................................... 0.8249 0.8599 

Anderson County, TN.

Blount County, TN.

Knox County, TN.

Loudon County, TN.

Union County, TN.

29020 ....... Kokomo, IN ....................................................................................................................................................... 0.9669 0.9735 

Howard County, IN.

Tipton County, IN.

29100 ....... La Crosse, WI-MN ............................................................................................................................................ 0.9426 0.9541 

Houston County, MN.

La Crosse County, WI.

29140 ....... Lafayette, IN ...................................................................................................................................................... 0.8931 0.9145 

Benton County, IN.

Carroll County, IN.

Tippecanoe County, IN.

29180 ....... Lafayette, LA ..................................................................................................................................................... 0.8289 0.8631 

Lafayette Parish, LA.

St. Martin Parish, LA.

29340 ....... Lake Charles, LA .............................................................................................................................................. 0.7914 0.8331 

Calcasieu Parish, LA.

Cameron Parish, LA.

29404 ....... Lake County-Kenosha County, IL-WI ............................................................................................................... 1.0570 1.0456 

Lake County, IL.


rwilkins on PRODPC74 with PROPOSALS2
4860 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Kenosha County, WI.

29460 ....... Lakeland, FL ..................................................................................................................................................... 0.8879 0.9103 

Polk County, FL.

29540 ....... Lancaster, PA ................................................................................................................................................... 0.9589 0.9671 

Lancaster County, PA.

29620 ....... Lansing-East Lansing, MI ................................................................................................................................. 1.0088 1.0070 

Clinton County, MI.

Eaton County, MI.

Ingham County, MI.

29700 ....... Laredo, TX ........................................................................................................................................................ 0.7811 0.8249 

Webb County, TX.

29740 ....... Las Cruces, NM ................................................................................................................................................ 0.9273 0.9418 

Dona Ana County, NM.

29820 ....... Las Vegas-Paradise, NV ................................................................................................................................... 1.1430 1.1144 

Clark County, NV.

29940 ....... Lawrence, KS .................................................................................................................................................... 0.8365 0.8692 

Douglas County, KS.

30020 ....... Lawton, OK ....................................................................................................................................................... 0.8065 0.8452 

Comanche County, OK.

30140 ....... Lebanon, PA ..................................................................................................................................................... 0.8679 0.8943 

Lebanon County, PA.

30300 ....... Lewiston, ID-WA ............................................................................................................................................... 0.9853 0.9882 

Nez Perce County, ID.

Asotin County, WA.

30340 ....... Lewiston-Auburn, ME ........................................................................................................................................ 0.9126 0.9301 

Androscoggin County, ME.

30460 ....... Lexington-Fayette, KY ...................................................................................................................................... 0.9181 0.9345 

Bourbon County, KY.

Clark County, KY.

Fayette County, KY.

Jessamine County, KY.

Scott County, KY.

Woodford County, KY.

30620 ....... Lima, OH ........................................................................................................................................................... 0.9042 0.9234 

Allen County, OH.

30700 ....... Lincoln, NE ........................................................................................................................................................ 1.0092 1.0074 

Lancaster County, NE.

Seward County, NE.

30780 ....... Little Rock-North Little Rock, AR ...................................................................................................................... 0.8890 0.9112 

Faulkner County, AR.

Grant County, AR.

Lonoke County, AR.

Perry County, AR.

Pulaski County, AR.

Saline County, AR.

30860 ....... Logan, UT-ID .................................................................................................................................................... 0.9022 0.9218 

Franklin County, ID.

Cache County, UT.

30980 ....... Longview, TX .................................................................................................................................................... 0.8788 0.9030 

Gregg County, TX.

Rusk County, TX.

Upshur County, TX.

31020 ....... Longview, WA ................................................................................................................................................... 1.0011 1.0009 

Cowlitz County, WA.

31084 ....... Los Angeles-Long Beach-Glendale, CA ........................................................................................................... 1.1760 1.1408 

Los Angeles County, CA.

31140 ....... Louisville-Jefferson County, KY-IN ................................................................................................................... 0.9118 0.9294 

Clark County, IN.

Floyd County, IN.

Harrison County, IN.

Washington County, IN.

Bullitt County, KY.

Henry County, KY.

Jefferson County, KY.

Meade County, KY.

Nelson County, KY.

Oldham County, KY.

Shelby County, KY.

Spencer County, KY.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4861 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Trimble County, KY.

31180 ....... Lubbock, TX ...................................................................................................................................................... 0.8613 0.8890 

Crosby County, TX.

Lubbock County, TX.

31340 ....... Lynchburg, VA .................................................................................................................................................. 0.8694 0.8955 

Amherst County, VA.

Appomattox County, VA.

Bedford County, VA.

Campbell County, VA.

Bedford City, VA.

Lynchburg City, VA.

31420 ....... Macon, GA ........................................................................................................................................................ 0.9519 0.9615 

Bibb County, GA.

Crawford County, GA.

Jones County, GA.

Monroe County, GA.

Twiggs County, GA.

31460 ....... Madera, CA ....................................................................................................................................................... 0.8154 0.8523 

Madera County, CA.

31540 ....... Madison, WI ...................................................................................................................................................... 1.0840 1.0672 

Columbia County, WI.

Dane County, WI.

Iowa County, WI.

31700 ....... Manchester-Nashua, NH ................................................................................................................................... 1.0243 1.0194 

Hillsborough County, NH.

Merrimack County, NH.

31900 ....... Mansfield, OH ................................................................................................................................................... 0.9271 0.9417 

Richland County, OH.

32420 ....... Mayagu ̈ez, PR .................................................................................................................................................. 0.3848 0.5078 

Hormigueros Municipio, PR.

Mayagu ̈ez Municipio, PR.

32580 ....... McAllen-Edinburg-Mission, TX .......................................................................................................................... 0.8773 0.9018 

Hidalgo County, TX.

32780 ....... Medford, OR ..................................................................................................................................................... 1.0818 1.0654 

Jackson County, OR.

32820 ....... Memphis, TN-MS-AR ........................................................................................................................................ 0.9373 0.9498 

Crittenden County, AR.

DeSoto County, MS.

Marshall County, MS.

Tate County, MS.

Tunica County, MS.

Fayette County, TN.

Shelby County, TN.

Tipton County, TN.

32900 ....... Merced, CA ....................................................................................................................................................... 1.1471 1.1177 

Merced County, CA.

33124 ....... Miami-Miami Beach-Kendall, FL ....................................................................................................................... 0.9812 0.9850 

Miami-Dade County, FL.

33140 ....... Michigan City-La Porte, IN ................................................................................................................................ 0.9118 0.9294 

LaPorte County, IN.

33260 ....... Midland, TX ....................................................................................................................................................... 0.9786 0.9829 

Midland County, TX.

33340 ....... Milwaukee-Waukesha-West Allis, WI ............................................................................................................... 1.0218 1.0174 

Milwaukee County, WI.

Ozaukee County, WI.

Washington County, WI.

Waukesha County, WI.

33460 ....... Minneapolis-St. Paul-Bloomington, MN-WI ....................................................................................................... 1.0946 1.0757 

Anoka County, MN.

Carver County, MN.

Chisago County, MN.

Dakota County, MN.

Hennepin County, MN.

Isanti County, MN.

Ramsey County, MN.

Scott County, MN.

Sherburne County, MN.

Washington County, MN.

Wright County, MN.


rwilkins on PRODPC74 with PROPOSALS2
4862 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Pierce County, WI.

St. Croix County, WI.

33540 ....... Missoula, MT ..................................................................................................................................................... 0.8928 0.9142 

Missoula County, MT.

33660 ....... Mobile, AL ......................................................................................................................................................... 0.7913 0.8330 

Mobile County, AL.

33700 ....... Modesto, CA ..................................................................................................................................................... 1.1729 1.1383 

Stanislaus County, CA.

33740 ....... Monroe, LA ....................................................................................................................................................... 0.7997 0.8398 

Ouachita Parish, LA.

Union Parish, LA.

33780 ....... Monroe, MI ........................................................................................................................................................ 0.9707 0.9766 

Monroe County, MI.

33860 ....... Montgomery, AL ................................................................................................................................................ 0.8009 0.8407 

Autauga County, AL.

Elmore County, AL.

Lowndes County, AL.

Montgomery County, AL.

34060 ....... Morgantown, WV .............................................................................................................................................. 0.8423 0.8738 

Monongalia County, WV.

Preston County, WV.

34100 ....... Morristown, TN .................................................................................................................................................. 0.7933 0.8346 

Grainger County, TN.

Hamblen County, TN.

Jefferson County, TN.

34580 ....... Mount Vernon-Anacortes, WA .......................................................................................................................... 1.0517 1.0414 

Skagit County, WA.

34620 ....... Muncie, IN ......................................................................................................................................................... 0.8562 0.8850 

Delaware County, IN.

34740 ....... Muskegon-Norton Shores, MI ........................................................................................................................... 0.9941 0.9953 

Muskegon County, MI.

34820 ....... Myrtle Beach-Conway-North Myrtle Beach, SC ............................................................................................... 0.8810 0.9048 

Horry County, SC.

34900 ....... Napa, CA .......................................................................................................................................................... 1.3374 1.2699 

Napa County, CA.

34940 ....... Naples-Marco Island, FL ................................................................................................................................... 0.9941 0.9953 

Collier County, FL.

34980 ....... Nashville-Davidson—Murfreesboro, TN ............................................................................................................ 0.9847 0.9878 

Cannon County, TN.

Cheatham County, TN.

Davidson County, TN.

Dickson County, TN.

Hickman County, TN.

Macon County, TN.

Robertson County, TN.

Rutherford County, TN.

Smith County, TN.

Sumner County, TN.

Trousdale County, TN.

Williamson County, TN.

Wilson County, TN.

35004 ....... Nassau-Suffolk, NY ........................................................................................................................................... 1.2662 1.2130 

Nassau County, NY.

Suffolk County, NY.

35084 ....... Newark-Union, NJ-PA ....................................................................................................................................... 1.1892 1.1514 

Essex County, NJ.

Hunterdon County, NJ.

Morris County, NJ.

Sussex County, NJ.

Union County, NJ.

Pike County, PA.

35300 ....... New Haven-Milford, CT ..................................................................................................................................... 1.1953 1.1562 

New Haven County, CT.

35380 ....... New Orleans-Metairie-Kenner, LA .................................................................................................................... 0.8831 0.9065 

Jefferson Parish, LA.

Orleans Parish, LA.

Plaquemines Parish, LA.

St. Bernard Parish, LA.

St. Charles Parish, LA.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4863 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

St. John the Baptist Parish, LA.

St. Tammany Parish, LA.

35644 ....... New York-White Plains-Wayne, NY-NJ ............................................................................................................ 1.3177 1.2542 

Bergen County, NJ.

Hudson County, NJ.

Passaic County, NJ.

Bronx County, NY.

Kings County, NY.

New York County, NY.

Putnam County, NY.

Queens County, NY.

Richmond County, NY.

Rockland County, NY.

Westchester County, NY.

35660 ....... Niles-Benton Harbor, MI ................................................................................................................................... 0.8915 0.9132 

Berrien County, MI.

35980 ....... Norwich-New London, CT ................................................................................................................................. 1.1932 1.1546 

New London County, CT.

36084 ....... Oakland-Fremont-Hayward, CA ........................................................................................................................ 1.5819 1.4655 

Alameda County, CA.

Contra Costa County, CA.

36100 ....... Ocala, FL .......................................................................................................................................................... 0.8867 0.9094 

Marion County, FL.

36140 ....... Ocean City, NJ .................................................................................................................................................. 1.0472 1.0378 

Cape May County, NJ.

36220 ....... Odessa, TX ....................................................................................................................................................... 1.0073 1.0058 

Ector County, TX.

36260 ....... Ogden-Clearfield, UT ........................................................................................................................................ 0.8995 0.9196 

Davis County, UT.

Morgan County, UT.

Weber County, UT.

36420 ....... Oklahoma City, OK ........................................................................................................................................... 0.8843 0.9074 

Canadian County, OK.

Cleveland County, OK.

Grady County, OK.

Lincoln County, OK.

Logan County, OK.

McClain County, OK.

Oklahoma County, OK.

36500 ....... Olympia, WA ..................................................................................................................................................... 1.1081 1.0865 

Thurston County, WA.

36540 ....... Omaha-Council Bluffs, NE-IA ........................................................................................................................... 0.9450 0.9560 

Harrison County, IA.

Mills County, IA.

Pottawattamie County, IA.

Cass County, NE.

Douglas County, NE.

Sarpy County, NE.

Saunders County, NE.

Washington County, NE.

36740 ....... Orlando-Kissimmee, FL .................................................................................................................................... 0.9452 0.9562 

Lake County, FL.

Orange County, FL.

Osceola County, FL.

Seminole County, FL.

36780 ....... Oshkosh-Neenah, WI ........................................................................................................................................ 0.9315 0.9452 

Winnebago County, WI.

36980 ....... Owensboro, KY ................................................................................................................................................. 0.8748 0.8998 

Daviess County, KY.

Hancock County, KY.

McLean County, KY.

37100 ....... Oxnard-Thousand Oaks-Ventura, CA ............................................................................................................... 1.1546 1.1237 

Ventura County, CA.

37340 ....... Palm Bay-Melbourne-Titusville, FL ................................................................................................................... 0.9443 0.9554 

Brevard County, FL.

37460 ....... Panama City-Lynn Haven, FL ........................................................................................................................... 0.8027 0.8422 

Bay County, FL.

37620 ....... Parkersburg-Marietta-Vienna, WV-OH .............................................................................................................. 0.7977 0.8382 

Washington County, OH.


rwilkins on PRODPC74 with PROPOSALS2
4864 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Pleasants County, WV.

Wirt County, WV.

Wood County, WV.

37700 ....... Pascagoula, MS ................................................................................................................................................ 0.8215 0.8572 

George County, MS.

Jackson County, MS.

37860 ....... Pensacola-Ferry Pass-Brent, FL ....................................................................................................................... 0.8000 0.8400 

Escambia County, FL.

Santa Rosa County, FL.

37900 ....... Peoria, IL ........................................................................................................................................................... 0.8982 0.9186 

Marshall County, IL.

Peoria County, IL.

Stark County, IL.

Tazewell County, IL.

Woodford County, IL.

37964 ....... Philadelphia, PA ................................................................................................................................................ 1.0996 1.0797 

Bucks County, PA.

Chester County, PA.

Delaware County, PA.

Montgomery County, PA.

Philadelphia County, PA.

38060 ....... Phoenix-Mesa-Scottsdale, AZ ........................................................................................................................... 1.0287 1.0230 

Maricopa County, AZ.

Pinal County, AZ.

38220 ....... Pine Bluff, AR ................................................................................................................................................... 0.8383 0.8706 

Cleveland County, AR.

Jefferson County, AR.

Lincoln County, AR.

38300 ....... Pittsburgh, PA ................................................................................................................................................... 0.8674 0.8939 

Allegheny County, PA.

Armstrong County, PA.

Beaver County, PA.

Butler County, PA.

Fayette County, PA.

Washington County, PA.

Westmoreland County, PA.

38340 ....... Pittsfield, MA ..................................................................................................................................................... 1.0266 1.0213 

Berkshire County, MA.

38540 ....... Pocatello, ID ...................................................................................................................................................... 0.9400 0.9520 

Bannock County, ID.

Power County, ID.

38660 ....... Ponce, PR ......................................................................................................................................................... 0.4842 0.5874 

Juana D ́ıaz Municipio, PR.

Ponce Municipio, PR.

Villalba Municipio, PR.

38860 ....... Portland-South Portland-Biddeford, ME ............................................................................................................ 0.9908 0.9926 

Cumberland County, ME.

Sagadahoc County, ME.

York County, ME.

38900 ....... Portland-Vancouver-Beaverton, OR-WA .......................................................................................................... 1.1416 1.1133 

Clackamas County, OR.

Columbia County, OR.

Multnomah County, OR.

Washington County, OR.

Yamhill County, OR.

Clark County, WA.

Skamania County, WA.

38940 ....... Port St. Lucie-Fort Pierce, FL ........................................................................................................................... 0.9833 0.9866 

Martin County, FL.

St. Lucie County, FL.

39100 ....... Poughkeepsie-Newburgh-Middletown, NY ....................................................................................................... 1.0911 1.0729 

Dutchess County, NY.

Orange County, NY.

39140 ....... Prescott, AZ ...................................................................................................................................................... 0.9836 0.9869 

Yavapai County, AZ.

39300 ....... Providence-New Bedford-Fall River, RI-MA ..................................................................................................... 1.0783 1.0626 

Bristol County, MA.

Bristol County, RI.

Kent County, RI.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4865 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Newport County, RI.

Providence County, RI.

Washington County, RI.

39340 ....... Provo-Orem, UT ................................................................................................................................................ 0.9537 0.9630 

Juab County, UT.

Utah County, UT.

39380 ....... Pueblo, CO ....................................................................................................................................................... 0.8753 0.9002 

Pueblo County, CO.

39460 ....... Punta Gorda, FL ............................................................................................................................................... 0.9405 0.9524 

Charlotte County, FL.

39540 ....... Racine, WI ........................................................................................................................................................ 0.9356 0.9485 

Racine County, WI.

39580 ....... Raleigh-Cary, NC .............................................................................................................................................. 0.9864 0.9891 

Franklin County, NC.

Johnston County, NC.

Wake County, NC.

39660 ....... Rapid City, SD .................................................................................................................................................. 0.8833 0.9066 

Meade County, SD.

Pennington County, SD.

39740 ....... Reading, PA ...................................................................................................................................................... 0.9622 0.9698 

Berks County, PA.

39820 ....... Redding, CA ...................................................................................................................................................... 1.3198 1.2558 

Shasta County, CA.

39900 ....... Reno-Sparks, NV .............................................................................................................................................. 1.1963 1.1570 

Storey County, NV.

Washoe County, NV.

40060 ....... Richmond, VA ................................................................................................................................................... 0.9177 0.9342 

Amelia County, VA.

Caroline County, VA.

Charles City County, VA.

Chesterfield County, VA.

Cumberland County, VA.

Dinwiddie County, VA.

Goochland County, VA.

Hanover County, VA.

Henrico County, VA.

King and Queen County, VA.

King William County, VA.

Louisa County, VA.

New Kent County, VA.

Powhatan County, VA.

Prince George County, VA.

Sussex County, VA.

Colonial Heights City, VA.

Hopewell City, VA.

Petersburg City, VA.

Richmond City, VA.

40140 ....... Riverside-San Bernardino-Ontario, CA ............................................................................................................. 1.0904 1.0723 

Riverside County, CA.

San Bernardino County, CA.

40220 ....... Roanoke, VA ..................................................................................................................................................... 0.8647 0.8918 

Botetourt County, VA.

Craig County, VA.

Franklin County, VA.

Roanoke County, VA.

Roanoke City, VA.

Salem City, VA.

40340 ....... Rochester, MN .................................................................................................................................................. 1.1408 1.1126 

Dodge County, MN.

Olmsted County, MN.

Wabasha County, MN.

40380 ....... Rochester, NY ................................................................................................................................................... 0.8994 0.9195 

Livingston County, NY.

Monroe County, NY.

Ontario County, NY.

Orleans County, NY.

Wayne County, NY.

40420 ....... Rockford, IL ....................................................................................................................................................... 0.9989 0.9991 

Boone County, IL.


rwilkins on PRODPC74 with PROPOSALS2
4866 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Winnebago County, IL.

40484 ....... Rockingham County-Strafford County, NH ....................................................................................................... 1.0159 1.0127 

Rockingham County, NH.

Strafford County, NH.

40580 ....... Rocky Mount, NC .............................................................................................................................................. 0.8854 0.9083 

Edgecombe County, NC.

Nash County, NC.

40660 ....... Rome, GA ......................................................................................................................................................... 0.9193 0.9354 

Floyd County, GA.

40900 ....... Sacramento—Arden-Arcade—Roseville, CA .................................................................................................... 1.3372 1.2698 

El Dorado County, CA.

Placer County, CA.

Sacramento County, CA.

Yolo County, CA.

40980 ....... Saginaw-Saginaw Township North, MI ............................................................................................................. 0.8874 0.9099 

Saginaw County, MI.

41060 ....... St. Cloud, MN ................................................................................................................................................... 1.0362 1.0290 

Benton County, MN.

Stearns County, MN.

41100 ....... St. George, UT .................................................................................................................................................. 0.9265 0.9412 

Washington County, UT.

41140 ....... St. Joseph, MO-KS ........................................................................................................................................... 1.0118 1.0094 

Doniphan County, KS.

Andrew County, MO.

Buchanan County, MO.

DeKalb County, MO.

41180 ....... St. Louis, MO-IL ................................................................................................................................................ 0.9005 0.9204 

Bond County, IL.

Calhoun County, IL.

Clinton County, IL.

Jersey County, IL.

Macoupin County, IL.

Madison County, IL.

Monroe County, IL.

St. Clair County, IL.

Crawford County, MO.

Franklin County, MO.

Jefferson County, MO.

Lincoln County, MO.

St. Charles County, MO.

St. Louis County, MO.

Warren County, MO.

Washington County, MO.

St. Louis City, MO.

41420 ....... Salem, OR ........................................................................................................................................................ 1.0438 1.0350 

Marion County, OR.

Polk County, OR.

41500 ....... Salinas, CA ....................................................................................................................................................... 1.4337 1.3470 

Monterey County, CA.

41540 ....... Salisbury, MD .................................................................................................................................................... 0.8953 0.9162 

Somerset County, MD.

Wicomico County, MD.

41620 ....... Salt Lake City, UT ............................................................................................................................................. 0.9402 0.9522 

Salt Lake County, UT.

Summit County, UT.

Tooele County, UT.

41660 ....... San Angelo, TX ................................................................................................................................................. 0.8362 0.8690 

Irion County, TX.

Tom Green County, TX.

41700 ....... San Antonio, TX ................................................................................................................................................ 0.8844 0.9075 

Atascosa County, TX.

Bandera County, TX.

Bexar County, TX.

Comal County, TX.

Guadalupe County, TX.

Kendall County, TX.

Medina County, TX.

Wilson County, TX.

41740 ....... San Diego-Carlsbad-San Marcos, CA .............................................................................................................. 1.1354 1.1083 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4867 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

San Diego County, CA.

41780 ....... Sandusky, OH ................................................................................................................................................... 0.9302 0.9442 

Erie County, OH.

41884 ....... San Francisco-San Mateo-Redwood City, CA ................................................................................................. 1.5165 1.4132 

Marin County, CA.

San Francisco County, CA.

San Mateo County, CA.

41900 ....... San Germa ́n-Cabo Rojo, PR ............................................................................................................................ 0.4885 0.5908 

Cabo Rojo Municipio, PR.

Lajas Municipio, PR.

Sabana Grande Municipio, PR.

San Germa ́n Municipio, PR.

41940 ....... San Jose-Sunnyvale-Santa Clara, CA .............................................................................................................. 1.5543 1.4434 

San Benito County, CA.

Santa Clara County, CA.

41980 ....... San Juan-Caguas-Guaynabo, PR .................................................................................................................... 0.4452 0.5562 

Aguas Buenas Municipio, PR.

Aibonito Municipio, PR.

Arecibo Municipio, PR.

Barceloneta Municipio, PR.

Barranquitas Municipio, PR.

Bayamo ́n Municipio, PR.

Caguas Municipio, PR.

Camuy Municipio, PR.

Cano ́vanas Municipio, PR.

Carolina Municipio, PR.

Catan ̃o Municipio, PR.

Cayey Municipio, PR.

Ciales Municipio, PR.

Cidra Municipio, PR.

Comer ́ıo Municipio, PR.

Corozal Municipio, PR.

Dorado Municipio, PR.

Florida Municipio, PR.

Guaynabo Municipio, PR.

Gurabo Municipio, PR.

Hatillo Municipio, PR.

Humacao Municipio, PR.

Juncos Municipio, PR.

Las Piedras Municipio, PR.

Lo ́ıza Municipio, PR.

Manat ́ı Municipio, PR.

Maunabo Municipio, PR.

Morovis Municipio, PR.

Naguabo Municipio, PR.

Naranjito Municipio, PR.

Orocovis Municipio, PR.

Quebradillas Municipio, PR.

R ́ıo Grande Municipio, PR.

San Juan Municipio, PR.

San Lorenzo Municipio, PR.

Toa Alta Municipio, PR.

Toa Baja Municipio, PR.

Trujillo Alto Municipio, PR.

Vega Alta Municipio, PR.

Vega Baja Municipio, PR.

Yabucoa Municipio, PR.

42020 ....... San Luis Obispo-Paso Robles, CA ................................................................................................................... 1.1598 1.1278 

San Luis Obispo County, CA.

42044 ....... Santa Ana-Anaheim-Irvine, CA ......................................................................................................................... 1.1473 1.1178 

Orange County, CA.

42060 ....... Santa Barbara-Santa Maria, CA ....................................................................................................................... 1.1091 1.0873 

Santa Barbara County, CA.

42100 ....... Santa Cruz-Watsonville, CA ............................................................................................................................. 1.5457 1.4366 

Santa Cruz County, CA.

42140 ....... Santa Fe, NM .................................................................................................................................................... 1.0824 1.0659 

Santa Fe County, NM.

42220 ....... Santa Rosa-Petaluma, CA ................................................................................................................................ 1.4464 1.3571 

Sonoma County, CA.


rwilkins on PRODPC74 with PROPOSALS2
4868 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

42260 ....... Sarasota-Bradenton-Venice, FL ........................................................................................................................ 0.9868 0.9894 

Manatee County, FL.

Sarasota County, FL.

42340 ....... Savannah, GA ................................................................................................................................................... 0.9351 0.9481 

Bryan County, GA.

Chatham County, GA.

Effingham County, GA.

42540 ....... Scranton—Wilkes-Barre, PA ............................................................................................................................. 0.8347 0.8678 

Lackawanna County, PA.

Luzerne County, PA.

Wyoming County, PA.

42644 ....... Seattle-Bellevue-Everett, WA ............................................................................................................................ 1.1434 1.1147 

King County, WA.

Snohomish County, WA.

42680 ....... Sebastian-Vero Beach, FL ................................................................................................................................ 0.9573 0.9658 

Indian River County, FL.

43100 ....... Sheboygan, WI ................................................................................................................................................. 0.9026 0.9221 

Sheboygan County, WI.

43300 ....... Sherman-Denison, TX ....................................................................................................................................... 0.8502 0.8802 

Grayson County, TX.

43340 ....... Shreveport-Bossier City, LA .............................................................................................................................. 0.8865 0.9092 

Bossier Parish, LA.

Caddo Parish, LA.

De Soto Parish, LA.

43580 ....... Sioux City, IA-NE-SD ........................................................................................................................................ 0.9200 0.9360 

Woodbury County, IA.

Dakota County, NE.

Dixon County, NE.

Union County, SD.

43620 ....... Sioux Falls, SD ................................................................................................................................................. 0.9559 0.9647 

Lincoln County, SD.

McCook County, SD.

Minnehaha County, SD.

Turner County, SD.

43780 ....... South Bend-Mishawaka, IN-MI ......................................................................................................................... 0.9842 0.9874 

St. Joseph County, IN.

Cass County, MI.

43900 ....... Spartanburg, SC ............................................................................................................................................... 0.9174 0.9339 

Spartanburg County, SC.

44060 ....... Spokane, WA .................................................................................................................................................... 1.0447 1.0358 

Spokane County, WA.

44100 ....... Springfield, IL .................................................................................................................................................... 0.8890 0.9112 

Menard County, IL.

Sangamon County, IL.

44140 ....... Springfield, MA .................................................................................................................................................. 1.0079 1.0063 

Franklin County, MA.

Hampden County, MA.

Hampshire County, MA.

44180 ....... Springfield, MO ................................................................................................................................................. 0.8469 0.8775 

Christian County, MO.

Dallas County, MO.

Greene County, MO.

Polk County, MO.

Webster County, MO.

44220 ....... Springfield, OH .................................................................................................................................................. 0.8593 0.8874 

Clark County, OH.

44300 ....... State College, PA ............................................................................................................................................. 0.8784 0.9027 

Centre County, PA.

44700 ....... Stockton, CA ..................................................................................................................................................... 1.1442 1.1154 

San Joaquin County, CA.

44940 ....... Sumter, SC ....................................................................................................................................................... 0.8083 0.8466 

Sumter County, SC.

45060 ....... Syracuse, NY .................................................................................................................................................... 0.9691 0.9753 

Madison County, NY.

Onondaga County, NY.

Oswego County, NY.

45104 ....... Tacoma, WA ..................................................................................................................................................... 1.0789 1.0631 

Pierce County, WA.

45220 ....... Tallahassee, FL ................................................................................................................................................ 0.8942 0.9154 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4869 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Gadsden County, FL.

Jefferson County, FL.

Leon County, FL.

Wakulla County, FL.

45300 ....... Tampa-St. Petersburg-Clearwater, FL .............................................................................................................. 0.9144 0.9315 

Hernando County, FL.

Hillsborough County, FL.

Pasco County, FL.

Pinellas County, FL.

45460 ....... Terre Haute, IN ................................................................................................................................................. 0.8765 0.9012 

Clay County, IN.

Sullivan County, IN.

Vermillion County, IN.

Vigo County, IN.

45500 ....... Texarkana, TX-Texarkana, AR ......................................................................................................................... 0.8104 0.8483 

Miller County, AR.

Bowie County, TX.

45780 ....... Toledo, OH ........................................................................................................................................................ 0.9586 0.9669 

Fulton County, OH.

Lucas County, OH.

Ottawa County, OH.

Wood County, OH.

45820 ....... Topeka, KS ....................................................................................................................................................... 0.8730 0.8984 

Jackson County, KS.

Jefferson County, KS.

Osage County, KS.

Shawnee County, KS.

Wabaunsee County, KS.

45940 ....... Trenton-Ewing, NJ ............................................................................................................................................ 1.0835 1.0668 

Mercer County, NJ.

46060 ....... Tucson, AZ ........................................................................................................................................................ 0.9202 0.9362 

Pima County, AZ.

46140 ....... Tulsa, OK .......................................................................................................................................................... 0.8103 0.8482 

Creek County, OK.

Okmulgee County, OK.

Osage County, OK.

Pawnee County, OK.

Rogers County, OK.

Tulsa County, OK.

Wagoner County, OK.

46220 ....... Tuscaloosa, AL ................................................................................................................................................. 0.8542 0.8834 

Greene County, AL.

Hale County, AL.

Tuscaloosa County, AL.

46340 ....... Tyler, TX ........................................................................................................................................................... 0.8811 0.9049 

Smith County, TX.

46540 ....... Utica-Rome, NY ................................................................................................................................................ 0.8396 0.8717 

Herkimer County, NY.

Oneida County, NY.

46660 ....... Valdosta, GA ..................................................................................................................................................... 0.8369 0.8695 

Brooks County, GA.

Echols County, GA.

Lanier County, GA.

Lowndes County, GA.

46700 ....... Vallejo-Fairfield, CA .......................................................................................................................................... 1.5137 1.4110 

Solano County, CA.

47020 ....... Victoria, TX ....................................................................................................................................................... 0.8560 0.8848 

Calhoun County, TX.

Goliad County, TX.

Victoria County, TX.

47220 ....... Vineland-Millville-Bridgeton, NJ ........................................................................................................................ 0.9832 0.9866 

Cumberland County, NJ.

47260 ....... Virginia Beach-Norfolk-Newport News, VA-NC ................................................................................................ 0.8790 0.9032 

Currituck County, NC.

Gloucester County, VA.

Isle of Wight County, VA.

James City County, VA.

Mathews County, VA.

Surry County, VA.


rwilkins on PRODPC74 with PROPOSALS2
4870 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

York County, VA.

Chesapeake City, VA.

Hampton City, VA.

Newport News City, VA.

Norfolk City, VA.

Poquoson City, VA.

Portsmouth City, VA.

Suffolk City, VA.

Virginia Beach City, VA.

Williamsburg City, VA.

47300 ....... Visalia-Porterville, CA ....................................................................................................................................... 0.9968 0.9974 

Tulare County, CA.

47380 ....... Waco, TX .......................................................................................................................................................... 0.8633 0.8906 

McLennan County, TX.

47580 ....... Warner Robins, GA ........................................................................................................................................... 0.8380 0.8704 

Houston County, GA.

47644 ....... Warren-Troy-Farmington Hills, MI ..................................................................................................................... 1.0054 1.0043 

Lapeer County, MI.

Livingston County, MI.

Macomb County, MI.

Oakland County, MI.

St. Clair County, MI.

47894 ....... Washington-Arlington-Alexandria, DC-VA-MD-WV ........................................................................................... 1.1054 1.0843 

District of Columbia, DC.

Calvert County, MD.

Charles County, MD.

Prince George’s County, MD.

Arlington County, VA.

Clarke County, VA.

Fairfax County, VA.

Fauquier County, VA.

Loudoun County, VA.

Prince William County, VA.

Spotsylvania County, VA.

Stafford County, VA.

Warren County, VA.

Alexandria City, VA.

Fairfax City, VA.

Falls Church City, VA.

Fredericksburg City, VA.

Manassas City, VA.

Manassas Park City, VA.

Jefferson County, WV.

47940 ....... Waterloo-Cedar Falls, IA ................................................................................................................................... 0.8408 0.8726 

Black Hawk County, IA.

Bremer County, IA.

Grundy County, IA.

48140 ....... Wausau, WI ...................................................................................................................................................... 0.9722 0.9778 

Marathon County, WI.

48260 ....... Weirton-Steubenville, WV-OH ........................................................................................................................... 0.8063 0.8450 

Jefferson County, OH.

Brooke County, WV.

Hancock County, WV.

48300 ....... Wenatchee, WA ................................................................................................................................................ 1.0346 1.0277 

Chelan County, WA.

Douglas County, WA.

48424 ....... West Palm Beach-Boca Raton-Boynton Beach, FL ......................................................................................... 0.9649 0.9719 

Palm Beach County, FL.

48540 ....... Wheeling, WV-OH ............................................................................................................................................. 0.7010 0.7608 

Belmont County, OH.

Marshall County, WV.

Ohio County, WV.

48620 ....... Wichita, KS ....................................................................................................................................................... 0.9063 0.9250 

Butler County, KS.

Harvey County, KS.

Sedgwick County, KS.

Sumner County, KS.

48660 ....... Wichita Falls, TX ............................................................................................................................................... 0.8311 0.8649 

Archer County, TX.


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4871 

TABLE 1.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR URBAN AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Urban area (constituent counties) Full wage 

index 2

4/5ths 

wage 

index 3

Clay County, TX.

Wichita County, TX.

48700 ....... Williamsport, PA ................................................................................................................................................ 0.8139 0.8511 

Lycoming County, PA.

48864 ....... Wilmington, DE-MD-NJ ..................................................................................................................................... 1.0684 1.0547 

New Castle County, DE.

Cecil County, MD.

Salem County, NJ.

48900 ....... Wilmington, NC ................................................................................................................................................. 0.9835 0.9868 

Brunswick County, NC.

New Hanover County, NC.

Pender County, NC.

49020 ....... Winchester, VA-WV .......................................................................................................................................... 1.0091 1.0073 

Frederick County, VA.

Winchester City, VA.

Hampshire County, WV.

49180 ....... Winston-Salem, NC ........................................................................................................................................... 0.9276 0.9421 

Davie County, NC.

Forsyth County, NC.

Stokes County, NC.

Yadkin County, NC.

49340 ....... Worcester, MA .................................................................................................................................................. 1.0722 1.0578 

Worcester County, MA.

49420 ....... Yakima, WA ...................................................................................................................................................... 0.9847 0.9878 

Yakima County, WA.

49500 ....... Yauco, PR ......................................................................................................................................................... 0.3854 0.5083 

Gua ́nica Municipio, PR.

Guayanilla Municipio, PR.

Pen ̃uelas Municipio, PR.

Yauco Municipio, PR.

49620 ....... York-Hanover, PA ............................................................................................................................................. 0.9397 0.9518 

York County, PA.

49660 ....... Youngstown-Warren-Boardman, OH-PA .......................................................................................................... 0.8802 0.9042 

Mahoning County, OH.

Trumbull County, OH.

Mercer County, PA.

49700 ....... Yuba City, CA ................................................................................................................................................... 1.0730 1.0584 

Sutter County, CA.

Yuba County, CA.

49740 ....... Yuma, AZ .......................................................................................................................................................... 0.9109 0.9287 

Yuma County, AZ.

1As discussed in section IV.D.1.d. of the preamble of this proposed rule, because there will no longer be any LTCHs in their cost reporting periods that began during FYs 2003, 2004 or 2005 (the first 3 years of the 5-year wage index phase-in, respectively), we are no longer showing the 

1/5th, 2/5ths and 3/5ths wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this proposed rule. 2The wage index values are calculated using the same wage data used to compute the wage index used by acute care hospitals under the 

IPPS for Federal FY 2007 (that is, fiscal year 2003 audited acute care hospital inpatient wage data without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act). 3Four-fifths of the proposed full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2005 through 

September 30, 2006 (Federal FY 2006). That is, for a LTCH’s cost reporting period that begins during Federal FY 2006 and located in Chicago, 

Illinois (CBSA 16974), the 4/5ths wage index value is computed as ((4*1.0751) + 1))/5 = 1.0601. For further details on the 5-year phase-in of the 

wage index, see section IV.D.1. of this proposed rule. 

TABLE 2.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1

CBSA code Nonurban area 

Full 

wage 

index 2

4/5ths 

wage 

index 3

01 ............. Alabama ............................................................................................................................................................ 0.7591 0.8073 

02 ............. Alaska ............................................................................................................................................................... 1.0661 1.0529 

03 ............. Arizona .............................................................................................................................................................. 0.8908 0.9126 

04 ............. Arkansas ........................................................................................................................................................... 0.7307 0.7846 

05 ............. California ........................................................................................................................................................... 1.1454 1.1163 

06 ............. Colorado ............................................................................................................................................................ 0.9325 0.9460 

07 ............. Connecticut ....................................................................................................................................................... 1.1709 1.1367 

08 ............. Delaware ........................................................................................................................................................... 0.9705 0.9764 

10 ............. Florida ............................................................................................................................................................... 0.8594 0.8875 

11 ............. Georgia ............................................................................................................................................................. 0.7593 0.8074 


rwilkins on PRODPC74 with PROPOSALS2
4872 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 2.—PROPOSED LONG-TERM CARE HOSPITAL WAGE INDEX FOR RURAL AREAS FOR DISCHARGES OCCURRING

FROM JULY 1, 2007 THROUGH JUNE 30, 2008 1—Continued 

CBSA code Nonurban area 

Full 

wage 

index 2

4/5ths 

wage 

index 3

12 ............. Hawaii ............................................................................................................................................................... 1.0448 1.0358 

13 ............. Idaho ................................................................................................................................................................. 0.8120 0.8496 

14 ............. Illinois ................................................................................................................................................................ 0.8320 0.8656 

15 ............. Indiana .............................................................................................................................................................. 0.8538 0.8830 

16 ............. Iowa ................................................................................................................................................................... 0.8681 0.8945 

17 ............. Kansas .............................................................................................................................................................. 0.7998 0.8398 

18 ............. Kentucky ........................................................................................................................................................... 0.7768 0.8214 

19 ............. Louisiana ........................................................................................................................................................... 0.7438 0.7950 

20 ............. Maine ................................................................................................................................................................ 0.8443 0.8754 

21 ............. Maryland ........................................................................................................................................................... 0.8926 0.9141 

22 ............. Massachusetts 4 ................................................................................................................................................ ................ ................

23 ............. Michigan ............................................................................................................................................................ 0.9062 0.9250 

24 ............. Minnesota .......................................................................................................................................................... 0.9153 0.9322 

25 ............. Mississippi ......................................................................................................................................................... 0.7738 0.8190 

26 ............. Missouri ............................................................................................................................................................. 0.7927 0.8342 

27 ............. Montana ............................................................................................................................................................ 0.8590 0.8872 

28 ............. Nebraska ........................................................................................................................................................... 0.8677 0.8942 

29 ............. Nevada .............................................................................................................................................................. 0.8944 0.9155 

30 ............. New Hampshire ................................................................................................................................................ 1.0853 1.0682 

31 ............. New Jersey 4 ..................................................................................................................................................... ................ ................

32 ............. New Mexico ...................................................................................................................................................... 0.8332 0.8666 

33 ............. New York .......................................................................................................................................................... 0.8232 0.8586 

34 ............. North Carolina ................................................................................................................................................... 0.8588 0.8870 

35 ............. North Dakota ..................................................................................................................................................... 0.7215 0.7772 

36 ............. Ohio ................................................................................................................................................................... 0.8658 0.8926 

37 ............. Oklahoma .......................................................................................................................................................... 0.7629 0.8103 

38 ............. Oregon .............................................................................................................................................................. 0.9753 0.9802 

39 ............. Pennsylvania ..................................................................................................................................................... 0.8320 0.8656 

40 ............. Puerto Rico 4 ..................................................................................................................................................... ................ ................

41 ............. Rhode Island 4 ................................................................................................................................................... ................ ................

42 ............. South Carolina .................................................................................................................................................. 0.8566 0.8853 

43 ............. South Dakota .................................................................................................................................................... 0.8480 0.8784 

44 ............. Tennessee ........................................................................................................................................................ 0.7827 0.8262 

45 ............. Texas ................................................................................................................................................................ 0.7965 0.8372 

46 ............. Utah ................................................................................................................................................................... 0.8140 0.8512 

47 ............. Vermont ............................................................................................................................................................. 0.9744 0.9795 

49 ............. Virginia .............................................................................................................................................................. 0.7940 0.8352 

50 ............. Washington ....................................................................................................................................................... 1.0263 1.0210 

51 ............. West Virginia ..................................................................................................................................................... 0.7607 0.8086 

52 ............. Wisconsin .......................................................................................................................................................... 0.9553 0.9642 

53 ............. Wyoming ........................................................................................................................................................... 0.9295 0.9436 

1As discussed in section IV.D.1.d. of the preamble of this proposed rule, because there are no longer any LTCHs in their cost reporting periods that began during FYs 2003, 2004 or 2005 (the first 3 years of the 5-year wage index phase-in, respectively), we are no longer showing the 

1/5th, 2/5ths and 3/5ths wage index value. For further details on the 5-year phase-in of the wage index, see section IV.D.1. of this proposed rule. 2The wage index values are calculated using the same wage data used to compute the wage index used by acute care hospitals under the 

IPPS for Federal FY 2007 (that is, fiscal year 2003 audited acute care hospital inpatient wage data without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act). 3Four-fifths of the proposed full wage index value, applicable for a LTCH’s cost reporting period beginning on or after October 1, 2005 through 

September 30, 2006 (Federal FY 2006). That is, for a LTCH’s cost reporting period that begins during Federal FY 2006 and located in rural Illinois, the 4/5ths wage index value is computed as ((4*0.8320) + 1))/5 = 0.8656. For further details on the 5-year phase-in of the wage index, see 

section IV.D.1. of this proposed rule. 4All counties within the State are classified as urban. 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

1 .......... 5 CRANIOTOMY AGE >17 W CC .................................................. 1.6835 37.1 30.9 16.1 

2 .......... 6 CRANIOTOMY AGE >17 W/O CC .............................................. 1.6835 37.1 30.9 7.1 

3 .......... 6 CRANIOTOMY AGE 0–17 ........................................................... 1.6835 37.1 30.9 20.1 

6 .......... 6 CARPAL TUNNEL RELEASE ..................................................... 0.4175 17.0 14.2 4.8 

7 .......... PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W 

CC.

1.2052 36.1 30.1 15.8 

8 .......... 2PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC 

W/O CC.

0.5594 21.0 17.5 4.2 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4873 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

9 .......... SPINAL DISORDERS & INJURIES ............................................... 1.0424 34.0 28.3 9.7 

10 ........ NERVOUS SYSTEM NEOPLASMS W CC ................................... 0.6971 22.1 18.4 9.6 

11 ........ 2 NERVOUS SYSTEM NEOPLASMS W/O CC ............................. 0.5594 21.0 17.5 5.7 

12 ........ DEGENERATIVE NERVOUS SYSTEM DISORDERS .................. 0.6788 25.1 20.9 8.4 

13 ........ MULTIPLE SCLEROSIS & CEREBELLAR ATAXIA ..................... 0.6003 23.1 19.3 7.4 

14 ........ INTRACRANIAL HEMORRHAGE OR CEREBRALINFARCTION 0.6772 24.9 20.8 8.6 

15 ........ NONSPECIFIC CVA & PRECEREBRAL OCCLUSION W/O INFARCT.0.7705 26.1 21.8 6.4 

16 ........ NONSPECIFIC CEREBROVASCULAR DISORDERS W CC ....... 0.6978 23.1 19.3 10.1 

17 ........ 2 NONSPECIFIC CEREBROVASCULAR DISORDERS W/O CC 0.5594 21.0 17.5 4.7 

18 ........ CRANIAL & PERIPHERAL NERVE DISORDERS W CC ............. 0.7503 25.4 21.2 8.2 

19 ........ CRANIAL & PERIPHERAL NERVE DISORDERS W/O CC ......... 0.4512 19.5 16.3 5.3 

21 ........ 3VIRAL MENINGITIS ..................................................................... 0.7819 23.9 19.9 9.9 

22 ........ 3 HYPERTENSIVE ENCEPHALOPATHY ...................................... 0.7819 23.9 19.9 7.9 

23 ........ NONTRAUMATIC STUPOR & COMA ........................................... 1.0118 29.4 24.5 6.1 

26 ........ 6SEIZURE & HEADACHE AGE 0–17 ........................................... 0.5594 21.0 17.5 6.2 

27 ........ TRAUMATIC STUPOR & COMA, COMA >1 HR .......................... 0.9978 30.6 25.5 7.6 

28 ........ TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W CC 0.7983 25.8 21.5 9.1 

29 ........ 1TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W/O 

CC.

0.4175 17.0 14.2 5.0 

30** ...... 6TRAUMATIC STUPOR & COMA, COMA <1 HR AGE 0–17 ...... 0.4175 17.0 14.2 2.0 

31 ........ 1 CONCUSSION AGE >17 W CC .................................................. 0.4175 17.0 14.2 6.2 

32 ........ 6 CONCUSSION AGE >17 W/O CC .............................................. 0.4175 17.0 14.2 3.4 

33** ...... 6 CONCUSSION AGE 0–17 ........................................................... 0.4175 17.0 14.2 1.6 

34 ........ OTHER DISORDERS OF NERVOUS SYSTEM W CC ................ 0.7029 23.4 19.5 7.4 

35 ........ OTHER DISORDERS OF NERVOUS SYSTEM W/O CC ............ 0.5080 21.1 17.6 4.7 

36 ........ 6 RETINAL PROCEDURES ........................................................... 0.5594 21.0 17.5 2.7 

37 ........ 6ORBITAL PROCEDURES ........................................................... 0.5594 21.0 17.5 6.6 

38 ........ 6PRIMARY IRIS PROCEDURES .................................................. 0.5594 21.0 17.5 4.3 

39 ........ 6 LENS PROCEDURES WITH OR WITHOUT VITRECTOMY ..... 0.5594 21.0 17.5 3.1 

40 ........ 6EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE >17 .... 0.5594 21.0 17.5 6.7 

41** ...... 6EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE 0–17 .. 0.5594 21.0 17.5 1.6 

42 ........ 6 INTRAOCULAR PROCEDURES EXCEPT RETINA, IRIS & 

LENS.

0.5594 21.0 17.5 3.7 

43 ........ 6 HYPHEMA ................................................................................... 0.4175 17.0 14.2 4.6 

44 ........ 3ACUTE MAJOR EYE INFECTIONS ............................................ 0.7819 23.9 19.9 7.4 

45 ........ 1 NEUROLOGICAL EYE DISORDERS .......................................... 0.4175 17.0 14.2 4.6 

46 ........ 2OTHER DISORDERS OF THE EYE AGE >17 W CC ................ 0.5594 21.0 17.5 6.6 

47 ........ 6OTHER DISORDERS OF THE EYE AGE >17 W/O CC ............ 0.4175 17.0 14.2 4.7 

48** ...... 6OTHER DISORDERS OF THE EYE AGE 0–17 ......................... 0.4175 17.0 14.2 2.9 

49 ........ 6 MAJOR HEAD & NECK PROCEDURES .................................... 1.1625 29.5 24.6 7.1 

50 ........ 6SIALOADENECTOMY ................................................................. 1.1625 29.5 24.6 2.6 

51 ........ 6SALIVARY GLAND PROCEDURES EXCEPT 

SIALOADENECTOMY.

1.1625 29.5 24.6 4.0 

52 ........ 6 CLEFT LIP & PALATE REPAIR .................................................. 1.1625 29.5 24.6 2.1 

53 ........ 6SINUS & MASTOID PROCEDURES AGE >17 .......................... 1.1625 29.5 24.6 6.2 

54** ...... 6SINUS & MASTOID PROCEDURES AGE 0–17 ........................ 1.1625 29.5 24.6 3.2 

55 ........ 4 MISCELLANEOUS EAR, NOSE, MOUTH & THROAT PROCEDURES.1.1625 29.5 24.6 4.3 

56 ........ 6 RHINOPLASTY ............................................................................ 1.1625 29.5 24.6 4.1 

57 ........ 6T&A PROC, EXCEPT TONSILLECTOMY &/OR 

ADENOIDECTOMY ONLY, AGE >17.

0.4175 17.0 14.2 4.9 

58** ...... 6T&A PROC, EXCEPT TONSILLECTOMY &/OR 

ADENOIDECTOMY ONLY, AGE 0–17.

0.4175 17.0 14.2 1.5 

59 ........ 6TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >17 0.4175 17.0 14.2 3.6 

60 ........ 6TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0–

17.

0.4175 17.0 14.2 2.7 

61 ........ 6 MYRINGOTOMY W TUBE INSERTION AGE >17 ..................... 0.4175 17.0 14.2 10.2 

62 ........ 6 MYRINGOTOMY W TUBE INSERTION AGE 0–17 ................... 0.4175 17.0 14.2 2.3 

63 ........ 4OTHER EAR, NOSE, MOUTH & THROAT O.R. PROCEDURES.1.1625 29.5 24.6 7.2 

64 ........ EAR, NOSE, MOUTH & THROAT MALIGNANCY ........................ 1.1797 26.2 21.8 10.2 

65 ........ 1 DYSEQUILIBRIUM ...................................................................... 0.4175 17.0 14.2 4.2 

66 ........ 6EPISTAXIS ................................................................................... 0.4175 17.0 14.2 4.8 

67 ........ 3EPIGLOTTITIS ............................................................................. 0.7819 23.9 19.9 5.8 

68 ........ OTITIS MEDIA & URI AGE >17 W CC ......................................... 0.6211 20.3 16.9 5.9 


rwilkins on PRODPC74 with PROPOSALS2
4874 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

69 ........ 1OTITIS MEDIA & URI AGE >17 W/O CC ................................... 0.4175 17.0 14.2 4.5 

70 ........ 6OTITIS MEDIA & URI AGE 0–17 ................................................ 0.4175 17.0 14.2 3.6 

71 ........ 6 LARYNGOTRACHEITIS .............................................................. 0.5594 21.0 17.5 6.7 

72 ........ 3 NASAL TRAUMA & DEFORMITY ............................................... 0.7819 23.9 19.9 5.2 

73 ........ OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE 

>17.

0.7745 22.9 19.1 6.9 

74 ........ 6OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE 

0–17.

0.4175 17.0 14.2 3.9 

75 ........ MAJOR CHEST PROCEDURES ................................................... 1.9944 33.5 27.9 15.4 

76 ........ OTHER RESP SYSTEM O.R. PROCEDURES W CC .................. 2.3982 42.5 35.4 17.2 

77 ........ 2OTHER RESP SYSTEM O.R. PROCEDURES W/O CC ............ 0.5594 21.0 17.5 7.4 

78 ........ PULMONARY EMBOLISM ............................................................ 0.6746 22.6 18.8 9.4 

79 ........ RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W 

CC.

0.8182 22.8 19.0 12.9 

80 ........ RESPIRATORY INFECTIONS & INFLAMMATIONSAGE >17 W/ 

O CC.

0.6485 20.9 17.4 8.3 

81 ........ 6 RESPIRATORY INFECTIONS & INFLAMMATIONS AGE 0–17 0.4175 17.0 14.2 10.1 

82 ........ RESPIRATORY NEOPLASMS ...................................................... 0.8242 21.4 17.8 11.0 

83 ........ 1 MAJOR CHEST TRAUMA W CC ................................................ 0.4175 17.0 14.2 8.2 

84 ........ 6 MAJOR CHEST TRAUMA W/O CC ............................................ 0.4175 17.0 14.2 4.8 

85 ........ PLEURAL EFFUSION W CC ......................................................... 0.6956 21.4 17.8 9.9 

86 ........ 6PLEURAL EFFUSION W/O CC ................................................... 0.4175 17.0 14.2 5.5 

87 ........ PULMONARY EDEMA & RESPIRATORY FAILURE .................... 1.0295 24.8 20.7 10.3 

88 ........ CHRONIC OBSTRUCTIVE PULMONARY DISEASE ................... 0.6411 19.3 16.1 7.5 

89 ........ SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC ................. 0.6802 20.6 17.2 8.6 

90 ........ SIMPLE PNEUMONIA & PLEURISY AGE >17 W/O CC .............. 0.4958 17.8 14.8 5.6 

91 ........ 6SIMPLE PNEUMONIA & PLEURISY AGE 0–17 ........................ 0.5594 21.0 17.5 5.3 

92 ........ INTERSTITIAL LUNG DISEASE W CC ........................................ 0.6638 19.6 16.3 9.4 

93 ........ 1 INTERSTITIAL LUNG DISEASE W/O CC .................................. 0.4175 17.0 14.2 5.9 

94 ........ PNEUMOTHORAX W CC .............................................................. 0.6785 21.3 17.8 9.6 

95 ........ 8PNEUMOTHORAX W/O CC ........................................................ 0.6785 21.3 17.8 5.3 

96 ........ BRONCHITIS & ASTHMA AGE >17 W CC .................................. 0.6230 18.9 15.8 6.7 

97 ........ 8BRONCHITIS & ASTHMA AGE >17 W/O CC ............................ 0.6230 18.9 15.8 5.2 

98 ........ 6BRONCHITIS & ASTHMA AGE 0–17 ......................................... 0.5594 21.0 17.5 4.4 

99 ........ RESPIRATORY SIGNS & SYMPTOMS W CC ............................. 0.9381 24.6 20.5 4.8 

100 ...... 3 RESPIRATORY SIGNS & SYMPTOMS W/O CC ....................... 0.7819 23.9 19.9 3.1 

101 ...... OTHER RESPIRATORY SYSTEM DIAGNOSES W CC .............. 0.8147 22.2 18.5 6.7 

102 ...... 1OTHER RESPIRATORY SYSTEM DIAGNOSES W/O CC ........ 0.4175 17.0 14.2 3.9 

103*** .. 7 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST 

SYSTEM.

0.0000 0.0 0.0 0.0 

104 ...... 6 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC 

PROC W CARDIAC CATH.

1.1625 29.5 24.6 22.3 

105 ...... 6 CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC 

PROC W/O CARDIAC CATH.

1.1625 29.5 24.6 15.0 

106 ...... 6 CORONARY BYPASS W PTCA ................................................. 1.1625 29.5 24.6 16.6 

108 ...... 6OTHER CARDIOTHORACIC PROCEDURES ............................ 1.1625 29.5 24.6 17.1 

110 ...... 4 MAJOR CARDIOVASCULAR PROCEDURES W CC ................ 1.1625 29.5 24.6 13.8 

111 ...... 6 MAJOR CARDIOVASCULAR PROCEDURES W/O CC ............. 1.1625 29.5 24.6 4.9 

113 ...... AMPUTATION FOR CIRC SYSTEM DISORDERS EXCEPT 

UPPER LIMB & TOE.

1.3942 36.1 30.1 20.5 

114 ...... UPPER LIMB & TOE AMPUTATION FOR CIRC SYSTEM DISORDERS.1.2425 33.0 27.5 14.0 

117 ...... 2 CARDIAC PACEMAKER REVISION EXCEPT DEVICE REPLACEMENT.0.5594 21.0 17.5 6.7 

118 ...... 3 CARDIAC PACEMAKER DEVICE REPLACEMENT .................. 0.7819 23.9 19.9 4.6 

119 ...... 3VEIN LIGATION & STRIPPING ................................................... 0.7819 23.9 19.9 8.8 

120 ...... OTHER CIRCULATORY SYSTEM O.R. PROCEDURES ............. 1.0893 31.4 26.2 15.5 

121 ...... CIRCULATORY DISORDERS W AMI & MAJOR COMP, DISCHARGED ALIVE.0.7451 22.4 18.7 10.1 

122 ...... 2 CIRCULATORY DISORDERS W AMI W/O MAJOR COMP, 

DISCHARGED ALIVE.

0.5594 21.0 17.5 5.3 

123 ...... CIRCULATORY DISORDERS W AMI, EXPIRED ......................... 0.7858 17.0 14.2 7.6 

124 ...... 4 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH 

& COMPLEX DIAG.

1.1625 29.5 24.6 7.0 

125 ...... 1 CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH 

W/O COMPLEX DIAG.

0.4175 17.0 14.2 4.1 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4875 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

126 ...... ACUTE & SUBACUTE ENDOCARDITIS ...................................... 0.8867 26.3 21.9 17.5 

127 ...... HEART FAILURE & SHOCK ......................................................... 0.6832 21.2 17.7 8.0 

128 ...... 2 DEEP VEIN THROMBOPHLEBITIS ............................................ 0.5594 21.0 17.5 8.0 

129 ...... 1 CARDIAC ARREST, UNEXPLAINED .......................................... 0.4175 17.0 14.2 3.5 

130 ...... PERIPHERAL VASCULAR DISORDERS W CC .......................... 0.6484 22.8 19.0 8.6 

131 ...... PERIPHERAL VASCULAR DISORDERS W/O CC ....................... 0.5267 21.0 17.5 5.9 

132 ...... ATHEROSCLEROSIS W CC ......................................................... 0.6621 20.7 17.3 4.3 

133 ...... 2ATHEROSCLEROSIS W/O CC ................................................... 0.5594 21.0 17.5 3.2 

134 ...... HYPERTENSION ........................................................................... 0.4909 21.7 18.1 4.8 

135 ...... CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 

W CC.

0.8014 23.8 19.8 6.8 

136 ...... 1 CARDIAC CONGENITAL & VALVULAR DISORDERS AGE 

>17 W/O CC.

0.4175 17.0 14.2 4.1 

137** .... 6CARDIAC CONGENITAL & VALVULAR DISORDERS AGE 0–

17.

0.4175 17.0 14.2 3.3 

138 ...... CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W CC 0.6618 21.9 18.3 6.1 

139 ...... 2 CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W/O 

CC.

0.5594 21.0 17.5 3.7 

140 ...... 1ANGINA PECTORIS .................................................................... 0.4175 17.0 14.2 3.6 

141 ...... SYNCOPE & COLLAPSE W CC ................................................... 0.5891 22.1 18.4 5.3 

142 ...... 8SYNCOPE & COLLAPSE W/O CC ............................................. 0.5891 22.1 18.4 3.8 

143 ...... 1 CHEST PAIN ............................................................................... 0.4175 17.0 14.2 3.1 

144 ...... OTHER CIRCULATORY SYSTEM DIAGNOSES W CC .............. 0.7715 22.1 18.4 9.6 

145 ...... OTHER CIRCULATORY SYSTEM DIAGNOSES W/O CC .......... 0.4292 17.0 14.2 3.9 

146 ...... 5 RECTAL RESECTION W CC ...................................................... 1.6835 37.1 30.9 14.6 

147 ...... 6 RECTAL RESECTION W/O CC .................................................. 0.7819 23.9 19.9 8.5 

149 ...... 6 MAJOR SMALL & LARGE BOWEL PROCEDURES W/O CC ... 0.7819 23.9 19.9 8.1 

150 ...... 5PERITONEAL ADHESIOLYSIS W CC ........................................ 1.6835 37.1 30.9 17.3 

151 ...... 6PERITONEAL ADHESIOLYSIS W/O CC .................................... 0.4175 17.0 14.2 8.2 

152 ...... 5 MINOR SMALL & LARGE BOWEL PROCEDURES W CC ....... 1.6835 37.1 30.9 12.0 

153 ...... 6 MINOR SMALL & LARGE BOWEL PROCEDURES W/O CC .... 1.6835 37.1 30.9 7.1 

155 ...... 6STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES 

AGE >17 W/O CC.

1.6835 37.1 30.9 6.4 

156 ...... 6STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES 

AGE 0–17.

1.6835 37.1 30.9 12.1 

157 ...... 3ANAL & STOMAL PROCEDURES W CC ................................... 0.7819 23.9 19.9 9.3 

158 ...... 6ANAL & STOMAL PROCEDURES W/O CC ............................... 0.7819 23.9 19.9 4.1 

159 ...... 5 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL 

AGE >17 W CC.

1.6835 37.1 30.9 8.2 

160 ...... 1 HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL 

AGE >17 W/O CC.

0.4175 17.0 14.2 4.1 

161 ...... 6 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W 

CC.

0.4175 17.0 14.2 7.3 

162 ...... 6 INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W/ 

O CC.

0.4175 17.0 14.2 3.1 

163 ...... 6 HERNIA PROCEDURES AGE 0–17 ........................................... 0.4175 17.0 14.2 4.0 

164 ...... 6APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W 

CC.

0.7819 23.9 19.9 11.9 

165 ...... 6APPENDECTOMY W COMPLICATED PRINCIPALDIAG W/O 

CC.

0.7819 23.9 19.9 6.1 

166 ...... 6APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W 

CC.

0.7819 23.9 19.9 6.8 

167 ...... 6APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W/ 

O CC.

0.7819 23.9 19.9 3.1 

168 ...... 5 MOUTH PROCEDURES W CC .................................................. 1.6835 37.1 30.9 7.7 

169 ...... 6 MOUTH PROCEDURES W/O CC ............................................... 0.5594 21.0 17.5 3.5 

170 ...... OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W CC ........ 1.6163 35.8 29.8 18.0 

171 ...... 3OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W/O CC .. 0.7819 23.9 19.9 6.7 

172 ...... DIGESTIVE MALIGNANCY W CC ................................................ 0.8497 21.8 18.2 11.1 

173 ...... 2 DIGESTIVE MALIGNANCY W/O CC .......................................... 0.5594 21.0 17.5 5.6 

174 ...... G.I. HEMORRHAGE W CC ........................................................... 0.7149 22.9 19.1 7.2 

175 ...... 2G.I. HEMORRHAGE W/O CC ..................................................... 0.5594 21.0 17.5 4.3 

176 ...... COMPLICATED PEPTIC ULCER .................................................. 0.9514 24.8 20.7 8.0 

177 ...... 2 UNCOMPLICATED PEPTIC ULCER W CC ............................... 0.5594 21.0 17.5 6.8 

178 ...... 6 UNCOMPLICATED PEPTIC ULCER W/O CC ............................ 0.4175 17.0 14.2 4.7 

179 ...... INFLAMMATORY BOWEL DISEASE ............................................ 0.8157 23.3 19.4 9.1 


rwilkins on PRODPC74 with PROPOSALS2
4876 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

180 ...... G.I. OBSTRUCTION W CC ........................................................... 0.9126 22.8 19.0 8.3 

181 ...... 1G.I. OBSTRUCTION W/O CC ..................................................... 0.4175 17.0 14.2 5.1 

182 ...... ESOPHAGITIS, GASTROENT & MISC DIGESTDISORDERS 

AGE >17 W CC.

0.7866 21.8 18.2 6.4 

183 ...... 1ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS 

AGE >17 W/O CC.

0.4175 17.0 14.2 4.4 

184 ...... 6ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS 

AGE 0–17.

0.4175 17.0 14.2 5.6 

185 ...... DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE >17.0.6634 23.2 19.3 7.2 

186 ...... 6 DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE 0–17.0.5594 21.0 17.5 5.0 

187 ...... 6 DENTAL EXTRACTIONS & RESTORATIONS ........................... 0.5594 21.0 17.5 6.8 

188 ...... OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W CC ..... 0.9596 24.4 20.3 8.5 

189 ...... 2OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W/O CC 0.5594 21.0 17.5 4.6 

190 ...... 6OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0–17 ............ 0.5594 21.0 17.5 5.1 

191 ...... 5PANCREAS, LIVER & SHUNT PROCEDURES W CC .............. 1.6835 37.1 30.9 21.1 

192 ...... 6PANCREAS, LIVER & SHUNT PROCEDURES W/O CC .......... 1.6835 37.1 30.9 9.3 

193 ...... 4BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR 

W/O C.D.E. W CC.

1.1625 29.5 24.6 19.7 

194 ...... 6BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR 

W/O C.D.E. W/O CC.

1.1625 29.5 24.6 9.9 

195 ...... 5 CHOLECYSTECTOMY W C.D.E. W CC .................................... 1.6835 37.1 30.9 16.2 

196 ...... 6 CHOLECYSTECTOMY W C.D.E. W/O CC ................................. 1.1625 29.5 24.6 8.3 

197 ...... 4 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O 

C.D.E. W CC.

1.1625 29.5 24.6 14.0 

198 ...... 6 CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O 

C.D.E. W/O CC.

1.1625 29.5 24.6 6.6 

199 ...... 3 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR MALIGNANCY.0.7819 23.9 19.9 15.2 

200 ...... 5 HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR NON-MALIGNANCY.1.6835 37.1 30.9 17.5 

201 ...... OTHER HEPATOBILIARY OR PANCREAS O.R. PROCEDURES.1.5802 28.8 24.0 22.6 

202 ...... CIRRHOSIS & ALCOHOLIC HEPATITIS ...................................... 0.6011 20.2 16.8 9.9 

203 ...... MALIGNANCY OF HEPATOBILIARY SYSTEM OR PANCREAS 0.7466 19.6 16.3 10.6 

204 ...... DISORDERS OF PANCREAS EXCEPT MALIGNANCY .............. 0.8853 22.1 18.4 8.5 

205 ...... DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W 

CC.

0.6933 23.1 19.3 9.4 

206 ...... 8 DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W/ 

O CC.

0.6933 23.1 19.3 6.0 

207 ...... DISORDERS OF THE BILIARY TRACT W CC ............................ 0.7295 21.5 17.9 8.4 

208 ...... 1 DISORDERS OF THE BILIARY TRACT W/O CC ...................... 0.4175 17.0 14.2 4.6 

210 ...... HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 

>17 W CC.

1.4826 41.9 34.9 9.5 

211 ...... 6 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 

>17 W/O CC.

1.6835 37.1 30.9 6.3 

212 ...... 6 HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 

0–17.

1.6835 37.1 30.9 3.8 

213 ...... AMPUTATION FOR MUSCULOSKELETAL SYSTEM & CONN 

TISSUE DISORDERS.

1.1871 33.5 27.9 15.2 

216 ...... BIOPSIES OF MUSCULOSKELETAL SYSTEM & CONNECTIVE 

TISSUE.

1.2147 37.6 31.3 8.8 

217 ...... WND DEBRID & SKN GRFT EXCEPT HAND,FOR 

MUSCSKELET & CONN TISS DIS.

1.2414 36.5 30.4 20.4 

218 ...... 5 LOWER EXTREM & HUMER PROC EXCEPT 

HIP,FOOT,FEMUR AGE >17 W CC.

1.6835 37.1 30.9 8.4 

219 ...... 6 LOWER EXTREM & HUMER PROC EXCEPT 

HIP,FOOT,FEMUR AGE >17 W/O CC.

1.6835 37.1 30.9 4.8 

220 ...... 6 LOWER EXTREM & HUMER PROC EXCEPT 

HIP,FOOT,FEMUR AGE 0–17.

1.6835 37.1 30.9 10.5 

223 ...... 4 MAJOR SHOULDER/ELBOW PROC, OR OTHER UPPER EXTREMITY PROC W CC.1.1625 29.5 24.6 5.1 

224 ...... 1SHOULDER,ELBOW OR FOREARM PROC,EXC MAJOR 

JOINT PROC, W/O CC.

0.4175 17.0 14.2 2.8 

225 ...... FOOT PROCEDURES ................................................................... 0.9550 30.6 25.5 8.7 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4877 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

226 ...... SOFT TISSUE PROCEDURES W CC .......................................... 1.0626 34.3 28.6 10.6 

227 ...... 3SOFT TISSUE PROCEDURES W/O CC .................................... 0.7819 23.9 19.9 4.0 

228 ...... 3 MAJOR THUMB OR JOINT PROC,OR OTH HAND OR WRIST 

PROC W CC.

0.7819 23.9 19.9 6.7 

229 ...... 6 HAND OR WRIST PROC, EXCEPT MAJOR JOINT PROC, W/ 

O CC.

0.4175 17.0 14.2 3.8 

230 ...... 5 LOCAL EXCISION & REMOVAL OF INT FIX DEVICES OF 

HIP & FEMUR.

1.6835 37.1 30.9 8.8 

232 ...... 5ARTHROSCOPY ......................................................................... 1.6835 37.1 30.9 4.1 

233 ...... OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W 

CC.

1.1724 32.4 27.0 10.8 

234 ...... 6OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC 

W/O CC.

0.4175 17.0 14.2 4.1 

235 ...... 3FRACTURES OF FEMUR ........................................................... 0.7819 23.9 19.9 7.4 

236 ...... FRACTURES OF HIP & PELVIS ................................................... 0.6802 28.9 24.1 6.8 

237 ...... 1SPRAINS, STRAINS, & DISLOCATIONS OF HIP, PELVIS & 

THIGH.

0.4175 17.0 14.2 5.9 

238 ...... OSTEOMYELITIS .......................................................................... 0.8589 28.4 23.7 12.8 

239 ...... PATHOLOGICAL FRACTURES & MUSCULOSKELETAL & 

CONN TISS MALIGNANCY.

0.6031 20.6 17.2 9.6 

240 ...... CONNECTIVE TISSUE DISORDERS W CC ................................ 0.7134 22.4 18.7 10.3 

241 ...... 1 CONNECTIVE TISSUE DISORDERS W/O CC .......................... 0.4175 17.0 14.2 5.6 

242 ...... SEPTIC ARTHRITIS ...................................................................... 0.7700 26.2 21.8 10.2 

243 ...... MEDICAL BACK PROBLEMS ....................................................... 0.6028 22.3 18.6 7.1 

244 ...... BONE DISEASES & SPECIFIC ARTHROPATHIES W CC .......... 0.5516 22.0 18.3 7.0 

245 ...... BONE DISEASES & SPECIFIC ARTHROPATHIES W/O CC ...... 0.4463 19.4 16.2 4.8 

246 ...... 2 NON-SPECIFIC ARTHROPATHIES ............................................ 0.5594 21.0 17.5 5.6 

247 ...... SIGNS & SYMPTOMS OF MUSCULOSKELETAL SYSTEM & 

CONN TISSUE.

0.4582 17.6 14.7 5.1 

248 ...... TENDONITIS, MYOSITIS & BURSITIS ......................................... 0.7328 23.2 19.3 7.5 

249 ...... AFTERCARE, MUSCULOSKELETAL SYSTEM & CONNECTIVE 

TISSUE.

0.6370 24.0 20.0 6.2 

250 ...... 1FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 

>17 W CC.

0.4175 17.0 14.2 6.0 

251 ...... 6FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 

>17 W/O CC.

0.4175 17.0 14.2 4.3 

252** .... 6FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 

0–17.

0.5594 21.0 17.5 1.8 

253 ...... FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE 

>17 W CC.

0.5609 24.0 20.0 7.0 

254 ...... 1FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT 

AGE >17 W/O CC.

0.4175 17.0 14.2 4.7 

255** .... 6FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT 

AGE 0–17.

0.5594 21.0 17.5 2.9 

256 ...... OTHER MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE DIAGNOSES.0.7132 23.6 19.7 7.9 

257 ...... 5TOTAL MASTECTOMY FOR MALIGNANCY W CC .................. 1.6835 37.1 30.9 3.8 

258 ...... 6TOTAL MASTECTOMY FOR MALIGNANCY W/O CC .............. 0.7819 23.9 19.9 2.4 

259 ...... 3SUBTOTAL MASTECTOMY FOR MALIGNANCY W CC ........... 0.7819 23.9 19.9 4.1 

260 ...... 6SUBTOTAL MASTECTOMY FOR MALIGNANCY W/O CC ....... 0.7819 23.9 19.9 1.9 

261 ...... 2BREAST PROC FOR NON-MALIGNANCY EXCEPT BIOPSY & 

LOCAL EXCISION.

0.5594 21.0 17.5 3.2 

262 ...... 4BREAST BIOPSY & LOCAL EXCISION FOR NON-MALIGNANCY.1.1625 29.5 24.6 7.7 

263 ...... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR 

CELLULITIS W CC.

1.2748 38.0 31.7 16.9 

264 ...... SKIN GRAFT &/OR DEBRID FOR SKN ULCER OR 

CELLULITIS W/O CC.

0.8507 29.9 24.9 9.9 

265 ...... SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR 

CELLULITIS W CC.

1.1019 30.2 25.2 10.7 

266 ...... 3SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR 

CELLULITIS W/O CC.

0.7819 23.9 19.9 4.7 

267 ...... 6PERIANAL & PILONIDAL PROCEDURES ................................. 0.7819 23.9 19.9 6.8 

268 ...... 4SKIN, SUBCUTANEOUS TISSUE & BREAST PLASTIC PROCEDURES.1.1625 29.5 24.6 5.4 

269 ...... OTHER SKIN, SUBCUT TISS & BREAST PROC W CC ............. 1.2075 34.7 28.9 13.4 


rwilkins on PRODPC74 with PROPOSALS2
4878 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

270 ...... 3OTHER SKIN, SUBCUT TISS & BREAST PROC W/O CC ....... 0.7819 23.9 19.9 5.7 

271 ...... SKIN ULCERS ............................................................................... 0.8269 26.9 22.4 10.7 

272 ...... MAJOR SKIN DISORDERS W CC ................................................ 0.6584 23.0 19.2 9.3 

273 ...... 1 MAJOR SKIN DISORDERS W/O CC .......................................... 0.4175 17.0 14.2 5.9 

274 ...... MALIGNANT BREAST DISORDERS W CC ................................. 0.7231 21.8 18.2 10.1 

275 ...... 6 MALIGNANT BREAST DISORDERS W/O CC ........................... 0.7819 23.9 19.9 5.2 

276 ...... 2 NON-MALIGNANT BREAST DISORDERS ................................. 0.5594 21.0 17.5 7.3 

277 ...... CELLULITIS AGE >17 W CC ........................................................ 0.6089 20.9 17.4 8.4 

278 ...... CELLULITIS AGE >17 W/O CC .................................................... 0.4254 18.0 15.0 6.1 

279 ...... 6 CELLULITIS AGE 0–17 ............................................................... 0.4175 17.0 14.2 5.8 

280 ...... TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 

W CC.

0.7148 24.1 20.1 6.3 

281 ...... 2TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 

W/O CC.

0.5594 21.0 17.5 4.3 

282** .... 6TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE 0–17 0.5594 21.0 17.5 2.2 

283 ...... MINOR SKIN DISORDERS W CC ................................................ 0.6876 23.1 19.3 7.2 

284 ...... 2 MINOR SKIN DISORDERS W/O CC .......................................... 0.5594 21.0 17.5 4.6 

285 ...... AMPUTAT OF LOWER LIMB FOR ENDOCRINE,NUTRIT,& 

METABOL DISORDERS.

1.2418 31.6 26.3 16.0 

286 ...... 6ADRENAL & PITUITARY PROCEDURES .................................. 1.1625 29.5 24.6 8.0 

287 ...... SKIN GRAFTS & WOUND DEBRID FOR ENDOC, NUTRIT & 

METAB DISORDERS.

1.0402 33.0 27.5 15.2 

288 ...... 4O.R. PROCEDURES FOR OBESITY .......................................... 1.1625 29.5 24.6 5.4 

289 ...... 6PARATHYROID PROCEDURES ................................................. 1.1625 29.5 24.6 3.3 

290 ...... 6THYROID PROCEDURES .......................................................... 1.1625 29.5 24.6 2.8 

291 ...... 6THYROGLOSSAL PROCEDURES ............................................. 1.1625 29.5 24.6 2.1 

292 ...... OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W CC .... 1.1549 32.0 26.7 16.9 

293 ...... 8OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W/O 

CC.

1.1549 32.0 26.7 7.8 

294 ...... DIABETES AGE >35 ..................................................................... 0.6958 23.9 19.9 6.7 

295 ...... 2 DIABETES AGE 0–35 ................................................................. 0.5594 21.0 17.5 5.7 

296 ...... NUTRITIONAL & MISC METABOLIC DISORDERSAGE >17 W 

CC.

0.7092 22.3 18.6 7.3 

297 ...... NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W/ 

O CC.

0.4596 19.3 16.1 4.6 

298 ...... 6 NUTRITIONAL & MISC METABOLIC DISORDERS AGE 0–17 0.4175 17.0 14.2 5.3 

299 ...... 3 INBORN ERRORS OF METABOLISM ........................................ 0.7819 23.9 19.9 8.2 

300 ...... ENDOCRINE DISORDERS W CC ................................................ 0.7004 23.7 19.8 9.3 

301 ...... 2ENDOCRINE DISORDERS W/O CC .......................................... 0.5594 21.0 17.5 5.2 

302*** .. 7KIDNEY TRANSPLANT ............................................................... 0.0000 0.0 0.0 0.0 

303 ...... 6KIDNEY AND URETER PROCEDURES FOR NEOPLASM ...... 0.7819 23.9 19.9 9.7 

304 ...... 4KIDNEY AND URETER PROCEDURES FOR NON-NEOPLASM W CC.1.1625 29.5 24.6 13.4 

305 ...... 6KIDNEY AND URETER PROCEDURES FOR NON-NEOPLASM W/O CC.0.7819 23.9 19.9 4.7 

306 ...... 4PROSTATECTOMY W CC .......................................................... 1.1625 29.5 24.6 9.1 

307 ...... 6PROSTATECTOMY W/O CC ...................................................... 1.1625 29.5 24.6 2.9 

308 ...... 4 MINOR BLADDER PROCEDURES W CC ................................. 1.1625 29.5 24.6 8.6 

309 ...... 6 MINOR BLADDER PROCEDURES W/O CC .............................. 1.1625 29.5 24.6 2.4 

310 ...... 4TRANSURETHRAL PROCEDURES W CC ................................ 1.1625 29.5 24.6 7.2 

311 ...... 6TRANSURETHRAL PROCEDURES W/O CC ............................ 1.1625 29.5 24.6 2.7 

312 ...... 3 URETHRAL PROCEDURES, AGE >17 W CC ........................... 0.7819 23.9 19.9 8.0 

313 ...... 6 URETHRAL PROCEDURES, AGE >17 W/O CC ....................... 0.7819 23.9 19.9 3.6 

314 ...... 6 URETHRAL PROCEDURES, AGE 0–17 .................................... 0.7819 23.9 19.9 360.4 

315 ...... OTHER KIDNEY & URINARY TRACT PROCEDURES ............... 1.4016 33.9 28.3 11.1 

316 ...... RENAL FAILURE ........................................................................... 0.8321 22.9 19.1 9.9 

317 ...... ADMIT FOR RENAL DIALYSIS ..................................................... 0.9102 24.4 20.3 5.4 

318 ...... KIDNEY & URINARY TRACT NEOPLASMS W CC ..................... 0.7565 21.0 17.5 9.8 

319 ...... 6KIDNEY & URINARY TRACT NEOPLASMS W/O CC ............... 0.7819 23.9 19.9 3.9 

320 ...... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W CC ...... 0.6200 21.7 18.1 7.7 

321 ...... KIDNEY & URINARY TRACT INFECTIONS AGE >17 W/O CC .. 0.4450 18.5 15.4 5.4 

322 ...... 6KIDNEY & URINARY TRACT INFECTIONS AGE 0–17 ............. 0.4175 17.0 14.2 5.2 

323 ...... 1 URINARY STONES W CC, &/OR ESW LITHOTRIPSY ............. 0.4175 17.0 14.2 4.8 

324 ...... 1 URINARY STONES W/O CC ...................................................... 0.4175 17.0 14.2 2.7 

325 ...... 2KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 

W CC.

0.5594 21.0 17.5 5.8 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4879 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

326 ...... 6KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 

W/O CC.

0.4175 17.0 14.2 3.9 

327 ...... 6KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE 0–

17.

0.4175 17.0 14.2 2.8 

328 ...... 6 URETHRAL STRICTURE AGE >17 W CC ................................. 0.5594 21.0 17.5 5.4 

329 ...... 6 URETHRAL STRICTURE AGE >17 W/O CC ............................. 0.5594 21.0 17.5 2.4 

330** .... 6 URETHRAL STRICTURE AGE 0–17 .......................................... 0.5594 21.0 17.5 1.6 

331 ...... OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W 

CC.

0.7773 22.5 18.8 8.7 

332 ...... 1OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 

W/O CC.

0.4175 17.0 14.2 4.8 

333 ...... 6OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE 0–17 0.4175 17.0 14.2 8.4 

334 ...... 6 MAJOR MALE PELVIC PROCEDURES W CC .......................... 0.4175 17.0 14.2 6.1 

335 ...... 1 MAJOR MALE PELVIC PROCEDURES W/O CC ...................... 0.4175 17.0 14.2 3.7 

336 ...... 4TRANSURETHRAL PROSTATECTOMY W CC ......................... 1.1625 29.5 24.6 4.9 

337 ...... 6TRANSURETHRAL PROSTATECTOMY W/O CC ..................... 1.1625 29.5 24.6 2.6 

338 ...... 3TESTES PROCEDURES, FOR MALIGNANCY .......................... 0.7819 23.9 19.9 9.7 

339 ...... 3TESTES PROCEDURES, NON-MALIGNANCY AGE >17 ......... 0.7819 23.9 19.9 8.4 

340** .... 6TESTES PROCEDURES, NON-MALIGNANCY AGE 0–17 ....... 0.7819 23.9 19.9 2.4 

341 ...... 5PENIS PROCEDURES ................................................................ 1.6835 37.1 30.9 4.4 

342 ...... 6 CIRCUMCISION AGE >17 .......................................................... 0.7819 23.9 19.9 4.6 

343** .... 6 CIRCUMCISION AGE 0–17 ........................................................ 0.7819 23.9 19.9 1.7 

344 ...... 3OTHER MALE REPRODUCTIVE SYSTEM O.R. PROCEDURES FOR MALIGNANCY.0.7819 23.9 19.9 3.9 

345 ...... 4OTHER MALE REPRODUCTIVE SYSTEM O.R. PROC EXCEPT FOR MALIGNANCY.1.1625 29.5 24.6 8.6 

346 ...... 3 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, WCC ......... 0.7819 23.9 19.9 9.6 

347 ...... 1 MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W/O CC .... 0.4175 17.0 14.2 4.2 

348 ...... 2BENIGN PROSTATIC HYPERTROPHY W CC .......................... 0.5594 21.0 17.5 6.3 

349 ...... 6BENIGN PROSTATIC HYPERTROPHY W/O CC ...................... 0.7819 23.9 19.9 4.1 

350 ...... INFLAMMATION OF THE MALE REPRODUCTIVE SYSTEM ..... 0.5606 21.0 17.5 7.0 

351** .... 6STERILIZATION, MALE .............................................................. 0.7819 23.9 19.9 1.3 

352 ...... OTHER MALE REPRODUCTIVE SYSTEM DIAGNOSES ........... 0.8209 27.5 22.9 6.7 

353 ...... 6PELVIC EVISCERATION, RADICAL HYSTERECTOMY & 

RADICAL VULVECTOMY.

1.1625 29.5 24.6 9.2 

354 ...... 6 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL 

MALIG W CC.

1.1625 29.5 24.6 8.2 

355 ...... 6 UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL 

MALIG W/O CC.

1.1625 29.5 24.6 4.2 

356 ...... 6FEMALE REPRODUCTIVE SYSTEM RECONSTRUCTIVE 

PROCEDURES.

1.1625 29.5 24.6 2.7 

357 ...... 6 UTERINE & ADNEXA PROC FOR OVARIAN OR ADNEXAL 

MALIGNANCY.

1.1625 29.5 24.6 12.3 

358 ...... 6 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W CC 1.1625 29.5 24.6 5.7 

359 ...... 6 UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W/O 

CC.

1.1625 29.5 24.6 3.3 

360 ...... 6VAGINA, CERVIX & VULVA PROCEDURES ............................. 1.1625 29.5 24.6 3.7 

361 ...... 6 LAPAROSCOPY & INCISIONAL TUBAL INTERRUPTION ........ 0.4175 17.0 14.2 4.5 

362 ...... 6ENDOSCOPIC TUBAL INTERRUPTION .................................... 0.4175 17.0 14.2 1.0 

363 ...... 6 D&C, CONIZATION & RADIO-IMPLANT, FOR MALIGNANCY 0.4175 17.0 14.2 6.5 

364 ...... 6 D&C, CONIZATION EXCEPT FOR MALIGNANCY .................... 0.4175 17.0 14.2 6.1 

365 ...... 4OTHER FEMALE REPRODUCTIVE SYSTEM O.R. PROCEDURES.1.1625 29.5 24.6 13.0 

366 ...... MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W CC ...... 0.9106 21.6 18.0 10.2 

367 ...... 1 MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W/O CC 0.4175 17.0 14.2 4.6 

368 ...... INFECTIONS, FEMALE REPRODUCTIVE SYSTEM ................... 0.7846 21.3 17.8 10.2 

369 ...... 3 MENSTRUAL & OTHER FEMALE REPRODUCTIVE SYSTEM 

DISORDERS.

0.7819 23.9 19.9 5.1 

370 ...... 6 CESAREAN SECTION W CC ..................................................... 0.4175 17.0 14.2 7.0 

371 ...... 6 CESAREAN SECTION W/O CC ................................................. 0.4175 17.0 14.2 4.5 

372 ...... 6VAGINAL DELIVERY W COMPLICATING DIAGNOSES ........... 0.4175 17.0 14.2 4.7 

373 ...... 6VAGINAL DELIVERY W/O COMPLICATING DIAGNOSES ....... 0.4175 17.0 14.2 3.0 

374 ...... 6VAGINAL DELIVERY W STERILIZATION &/ORD&C ................ 0.4175 17.0 14.2 4.1 

375 ...... 6VAGINAL DELIVERY W O.R. PROC EXCEPT STERIL &/OR 

D&C.

0.4175 17.0 14.2 11.0 


rwilkins on PRODPC74 with PROPOSALS2
4880 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

376 ...... 4POSTPARTUM & POST ABORTION DIAGNOSES W/O O.R. 

PROCEDURE.

1.1625 29.5 24.6 5.1 

377 ...... 6POSTPARTUM & POST ABORTION DIAGNOSES WO.R. 

PROCEDURE.

0.4175 17.0 14.2 7.2 

378 ...... 6ECTOPIC PREGNANCY ............................................................. 0.4175 17.0 14.2 3.2 

379 ...... 6THREATENED ABORTION ......................................................... 0.4175 17.0 14.2 4.8 

380 ...... 6ABORTION W/O D&C ................................................................. 0.4175 17.0 14.2 2.9 

381 ...... 6ABORTION W D&C, ASPIRATION CURETTAGE OR 

HYSTEROTOMY.

0.4175 17.0 14.2 3.6 

382 ...... 6FALSE LABOR ............................................................................ 0.4175 17.0 14.2 2.1 

383 ...... 1OTHER ANTEPARTUM DIAGNOSES W MEDICAL COMPLICATIONS.0.4175 17.0 14.2 5.6 

384 ...... 6OTHER ANTEPARTUM DIAGNOSES W/O MEDICAL COMPLICATIONS.0.4175 17.0 14.2 3.6 

385** .... 6 NEONATES, DIED OR TRANSFERRED TO ANOTHER 

ACUTE CARE FACILITY.

0.4175 17.0 14.2 1.8 

386** .... 6EXTREME IMMATURITY OR RESPIRATORY DISTRESS 

SYNDROME, NEONATE.

0.4175 17.0 14.2 17.9 

387** .... 6PREMATURITY W MAJOR PROBLEMS .................................... 0.4175 17.0 14.2 13.3 

388** .... 6PREMATURITY W/O MAJOR PROBLEMS ................................ 0.4175 17.0 14.2 8.6 

389 ...... 6FULL TERM NEONATE W MAJOR PROBLEMS ....................... 0.4175 17.0 14.2 17.6 

390** .... 6 NEONATE W OTHER SIGNIFICANT PROBLEMS .................... 0.4175 17.0 14.2 3.4 

391** .... 6 NORMAL NEWBORN .................................................................. 0.4175 17.0 14.2 3.1 

392 ...... 6SPLENECTOMY AGE >17 .......................................................... 1.1625 29.5 24.6 14.5 

393** .... 6SPLENECTOMY AGE 0–17 ........................................................ 1.1625 29.5 24.6 9.1 

394 ...... 4OTHER O.R. PROCEDURES OF THE BLOOD AND BLOOD 

FORMING ORGANS.

1.1625 29.5 24.6 12.1 

395 ...... RED BLOOD CELL DISORDERS AGE >17 ................................. 0.6651 21.9 18.3 6.5 

396 ...... 6 RED BLOOD CELL DISORDERS AGE 0–17 ............................. 0.4175 17.0 14.2 4.5 

397 ...... COAGULATION DISORDERS ....................................................... 0.8276 20.4 17.0 8.2 

398 ...... RETICULOENDOTHELIAL & IMMUNITY DISORDERS W CC .... 0.6278 20.8 17.3 8.8 

399 ...... 1 RETICULOENDOTHELIAL & IMMUNITY DISORDERS W/O 

CC.

0.4175 17.0 14.2 5.1 

401 ...... 4 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. 

PROC W CC.

1.1625 29.5 24.6 18.9 

402 ...... 6 LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. 

PROC W/O CC.

0.5594 21.0 17.5 6.3 

403 ...... LYMPHOMA & NON-ACUTE LEUKEMIA W CC .......................... 0.8846 23.9 19.9 13.2 

404 ...... 3 LYMPHOMA & NON-ACUTE LEUKEMIA W/O CC .................... 0.7819 23.9 19.9 6.6 

405** .... 6ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE 0–

17.

0.7819 23.9 19.9 4.9 

406 ...... 5 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ 

O.R.PROC W CC.

1.6835 37.1 30.9 15.5 

407 ...... 6 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ 

O.R.PROC W/O CC.

1.1625 29.5 24.6 5.5 

408 ...... 4 MYELOPROLIF DISORD OR POORLY DIFF NEOPL W 

OTHER O.R.PROC.

1.1625 29.5 24.6 14.0 

409 ...... RADIOTHERAPY ........................................................................... 0.8416 23.2 19.3 9.5 

410 ...... CHEMOTHERAPY W/O ACUTE LEUKEMIA AS SECONDARY 

DIAGNOSIS.

1.2527 28.7 23.9 5.8 

411 ...... 6 HISTORY OF MALIGNANCY W/O ENDOSCOPY ..................... 0.5594 21.0 17.5 3.3 

412 ...... 6 HISTORY OF MALIGNANCY W ENDOSCOPY ......................... 0.5594 21.0 17.5 2.1 

413 ...... OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG 

W CC.

0.8429 21.4 17.8 11.0 

414 ...... 3OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG 

W/O CC.

0.7819 23.9 19.9 6.4 

417 ...... 6SEPTICEMIA AGE 0–17 ............................................................. 0.7819 23.9 19.9 10.5 

418 ...... POSTOPERATIVE & POST-TRAUMATIC INFECTIONS ............. 0.7961 24.1 20.1 9.6 

419 ...... 2FEVER OF UNKNOWN ORIGIN AGE >17 W CC ...................... 0.5594 21.0 17.5 6.8 

420 ...... 2FEVER OF UNKNOWN ORIGIN AGE >17 W/O CC .................. 0.5594 21.0 17.5 4.9 

421 ...... VIRAL ILLNESS AGE >17 ............................................................. 0.7065 20.4 17.0 6.2 

422 ...... 6VIRAL ILLNESS & FEVER OF UNKNOWN ORIGIN AGE 0–17 0.4175 17.0 14.2 5.6 

423 ...... OTHER INFECTIOUS & PARASITIC DISEASES DIAGNOSES .. 1.0426 23.2 19.3 13.2 

424 ...... 5O.R. PROCEDURE W PRINCIPAL DIAGNOSES OF MENTAL 

ILLNESS.

1.6835 37.1 30.9 19.7 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4881 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

425 ...... 1ACUTE ADJUSTMENT REACTION & PSYCHOSOCIAL DYSFUNCTION.0.4175 17.0 14.2 5.3 

426 ...... DEPRESSIVE NEUROSES ........................................................... 0.4038 22.5 18.8 6.8 

427 ...... 2 NEUROSES EXCEPT DEPRESSIVE ......................................... 0.5594 21.0 17.5 7.3 

428 ...... DISORDERS OF PERSONALITY & IMPULSE CONTROL .......... 0.5183 24.5 20.4 11.4 

429 ...... ORGANIC DISTURBANCES & MENTAL RETARDATION ........... 0.5326 24.0 20.0 8.5 

430 ...... PSYCHOSES ................................................................................. 0.4024 23.1 19.3 12.6 

431 ...... 2 CHILDHOOD MENTAL DISORDERS ......................................... 0.5594 21.0 17.5 10.1 

432 ...... 1OTHER MENTAL DISORDER DIAGNOSES .............................. 0.4175 17.0 14.2 6.1 

433 ...... 6ALCOHOL/DRUG ABUSE OR DEPENDENCE, LEFTAMA ....... 0.4175 17.0 14.2 4.2 

439 ...... SKIN GRAFTS FOR INJURIES ..................................................... 1.2203 36.0 30.0 13.6 

440 ...... WOUND DEBRIDEMENTS FOR INJURIES ................................. 1.2248 34.4 28.7 13.4 

441 ...... 2 HAND PROCEDURES FOR INJURIES ...................................... 0.5594 21.0 17.5 5.2 

442 ...... OTHER O.R. PROCEDURES FOR INJURIES W CC .................. 1.3670 34.9 29.1 14.5 

443 ...... 6OTHER O.R. PROCEDURES FOR INJURIES W/O CC ............ 0.5594 21.0 17.5 5.6 

444 ...... TRAUMATIC INJURY AGE >17 W CC ......................................... 0.6598 23.2 19.3 6.4 

445 ...... 2TRAUMATIC INJURY AGE >17 W/O CC ................................... 0.5594 21.0 17.5 4.4 

446** .... 6TRAUMATIC INJURY AGE 0–17 ................................................ 0.5594 21.0 17.5 2.4 

447 ...... 2ALLERGIC REACTIONS AGE >17 ............................................. 0.5594 21.0 17.5 3.9 

448** .... 6ALLERGIC REACTIONS AGE 0–17 ........................................... 0.5594 21.0 17.5 2.9 

449 ...... 3POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W CC 0.7819 23.9 19.9 5.8 

450 ...... 2POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W/O 

CC.

0.5594 21.0 17.5 2.9 

451 ...... 6POISONING & TOXIC EFFECTS OF DRUGS AGE 0–17 ......... 0.7819 23.9 19.9 14.4 

452 ...... COMPLICATIONS OF TREATMENT W CC ................................. 0.9275 25.7 21.4 7.8 

453 ...... COMPLICATIONS OF TREATMENT W/O CC ............................. 0.5790 21.6 18.0 4.2 

454 ...... 3OTHER INJURY, POISONING & TOXIC EFFECT DIAG W CC 0.7819 23.9 19.9 6.5 

455 ...... 6OTHER INJURY, POISONING & TOXIC EFFECT DIAG W/O 

CC.

0.7819 23.9 19.9 3.4 

461 ...... O.R. PROC W DIAGNOSES OF OTHER CONTACT W HEALTH 

SERVICES.

1.1466 32.7 27.3 8.8 

462 ...... REHABILITATION .......................................................................... 0.5823 22.1 18.4 14.8 

463 ...... SIGNS & SYMPTOMS W CC ........................................................ 0.6082 22.9 19.1 6.1 

464 ...... SIGNS & SYMPTOMS W/O CC .................................................... 0.5831 24.3 20.3 4.5 

465 ...... AFTERCARE W HISTORY OF MALIGNANCY AS SECONDARY 

DIAGNOSIS.

0.6877 21.2 17.7 5.5 

466 ...... AFTERCARE W/O HISTORY OF MALIGNANCY AS SECONDARY DIAGNOSIS.0.6700 21.7 18.1 7.0 

467 ...... 3OTHER FACTORS INFLUENCING HEALTH STATUS .............. 0.7819 23.9 19.9 4.0 

468 ...... EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL 

DIAGNOSIS.

2.1478 40.5 33.8 21.4 

469*** .. 7PRINCIPAL DIAGNOSIS INVALID AS DISCHARGE DIAGNOSIS.0.0000 0.0 0.0 0.0 

470*** .. 7 UNGROUPABLE .......................................................................... 0.0000 0.0 0.0 0.0 

471 ...... 5BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF 

LOWER EXTREMITY.

1.6835 37.1 30.9 6.2 

473 ...... ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE >17 0.9917 25.3 21.1 21.4 

476 ...... 5PROSTATIC O.R. PROCEDURE UNRELATED TO PRINCIPAL 

DIAGNOSIS.

1.6835 37.1 30.9 17.7 

477 ...... NON-EXTENSIVE O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS.1.5119 35.9 29.9 14.8 

479 ...... 2OTHER VASCULAR PROCEDURES W/O CC ........................... 0.5594 21.0 17.5 3.9 

480*** .. 7 LIVER TRANSPLANT AND/OR INTESTINAL TRANSPLANT .... 0.0000 0.0 0.0 0.0 

481 ...... 6BONE MARROW TRANSPLANT ................................................ 1.1625 29.5 24.6 35.2 

482 ...... 5TRACHEOSTOMY FOR FACE,MOUTH & NECK DIAGNOSES 1.6835 37.1 30.9 17.6 

484 ...... 6 CRANIOTOMY FOR MULTIPLE SIGNIFICANT TRAUMA ......... 1.6835 37.1 30.9 23.1 

485 ...... 6 LIMB REATTACHMENT, HIP & FEMUR PROC FOR MULTIPLE SIGNIFICANT TRAUMA.1.1625 29.5 24.6 14.7 

486 ...... 3OTHER O.R. PROCEDURES FOR MULTIPLE SIGNIFICANT 

TRAUMA.

0.7819 23.9 19.9 21.8 

487 ...... 4OTHER MULTIPLE SIGNIFICANT TRAUMA ............................. 1.1625 29.5 24.6 11.5 

488 ...... 4 HIV W EXTENSIVE O.R. PROCEDURE .................................... 1.1625 29.5 24.6 29.6 

489 ...... HIV W MAJOR RELATED CONDITION ........................................ 0.9436 22.1 18.4 13.3 

490 ...... HIV W OR W/O OTHER RELATED CONDITION ......................... 0.6456 20.3 16.9 8.5 

491 ...... 5 MAJOR JOINT & LIMB REATTACHMENT PROCEDURES OF 

UPPER EXTREMITY.

1.6835 37.1 30.9 4.5 


rwilkins on PRODPC74 with PROPOSALS2
4882 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

492 ...... 2 CHEMO W ACUTE LEUKEMIA AS SDX OR W USE OF HIGH 

DOSE CHEMO AGENT.

0.5594 21.0 17.5 23.1 

493 ...... 4 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC ... 1.1625 29.5 24.6 9.8 

494 ...... 6 LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W/O CC 1.1625 29.5 24.6 4.2 

495*** .. 7 LUNG TRANSPLANT .................................................................. 0.0000 0.0 0.0 0.0 

496 ...... 4 COMBINED ANTERIOR/POSTERIOR SPINAL FUSION ........... 1.1625 29.5 24.6 13.8 

497 ...... 5SPINAL FUSION EXCEPT CERVICAL W CC ............................ 1.6835 37.1 30.9 8.3 

498 ...... 6SPINAL FUSION EXCEPT CERVICAL W/O CC ........................ 1.6835 37.1 30.9 5.3 

499 ...... 5BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W 

CC.

1.6835 37.1 30.9 6.6 

500 ...... 4BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/ 

O CC.

1.1625 29.5 24.6 3.3 

501 ...... KNEE PROCEDURES W PDX OF INFECTION W CC ................ 1.2164 33.3 27.8 15.4 

502 ...... 3KNEE PROCEDURES W PDX OF INFECTION W/O CC .......... 0.7819 23.9 19.9 8.7 

503 ...... 4KNEE PROCEDURES W/O PDX OF INFECTION ..................... 1.1625 29.5 24.6 6.1 

504 ...... 5EXTENSIVE BURNS OR FULL THICKNESS BURNS W MV 

96+ HRS W SKIN GRAFT.

1.6835 37.1 30.9 48.4 

505 ...... 5EXTENSIVE BURNS OR FULL THICKNESS BURNS W MV 

96+ HRS W/O SKIN GRAFT.

1.6835 37.1 30.9 9.4 

506 ...... 4FULL THICKNESS BURN W SKIN GRAFT OR INHAL INJ W 

CC OR SIG TRAUMA.

1.1625 29.5 24.6 26.1 

507 ...... 6FULL THICKNESS BURN W SKIN GRFT OR INHAL INJ W/O 

CC OR SIG TRAUMA.

0.4175 17.0 14.2 13.2 

508 ...... FULL THICKNESS BURN W/O SKIN GRFT OR INHAL INJ W 

CC OR SIG TRAUMA.

0.7588 25.6 21.3 12.1 

509 ...... 1FULL THICKNESS BURN W/O SKIN GRFT OR INH INJ W/O 

CC OR SIG TRAUMA.

0.4175 17.0 14.2 8.6 

510 ...... NON-EXTENSIVE BURNS W CC OR SIGNIFICANT TRAUMA .. 0.6720 22.6 18.8 9.7 

511 ...... 1 NON-EXTENSIVE BURNS W/O CC OR SIGNIFICANT TRAUMA.0.4175 17.0 14.2 5.7 

512*** .. 7SIMULTANEOUS PANCREAS/KIDNEY TRANSPLANT ............ 0.0000 0.0 0.0 0.0 

513*** .. 7PANCREAS TRANSPLANT ........................................................ 0.0000 0.0 0.0 0.0 

515 ...... 4 CARDIAC DEFIBRILLATOR IMPLANT W/O CARDIAC CATH .. 1.1625 29.5 24.6 5.9 

518 ...... 6PERCUTANEOUS CARDIOVASC PROC W/O CORONARY 

ARTERY STENT OR AMI.

0.4175 17.0 14.2 3.7 

519 ...... 4 CERVICAL SPINAL FUSION W CC ........................................... 1.1625 29.5 24.6 7.4 

520 ...... 6 CERVICAL SPINAL FUSION W/O CC ........................................ 1.6835 37.1 30.9 2.8 

521 ...... 2ALCOHOL/DRUG ABUSE OR DEPENDENCE W CC ............... 0.5594 21.0 17.5 8.4 

522 ...... 6ALCOHOL/DRUG ABUSE OR DEPENDENCE W REHABILITATION THERAPY W/O CC.0.5594 21.0 17.5 16.7 

523 ...... 1ALCOHOL/DRUG ABUSE OR DEPENDENCE W/O REHABILITATION THERAPY W/O CC.0.4175 17.0 14.2 5.8 

524 ...... 2TRANSIENT ISCHEMIA .............................................................. 0.5594 21.0 17.5 4.8 

525 ...... 6OTHER HEART ASSIST SYSTEM IMPLANT ............................ 1.6835 37.1 30.9 24.1 

528 ...... 6 INTRACRANIAL VASCULAR PROCEDURES W PDX HEMORRHAGE.1.6835 37.1 30.9 26.9 

529 ...... 5VENTRICULAR SHUNT PROCEDURES W CC ......................... 1.6835 37.1 30.9 11.7 

530 ...... 6VENTRICULAR SHUNT PROCEDURES W/O CC ..................... 1.6835 37.1 30.9 4.5 

531 ...... 5SPINAL PROCEDURES W CC ................................................... 1.6835 37.1 30.9 15.5 

532 ...... 3SPINAL PROCEDURES W/O CC ............................................... 0.7819 23.9 19.9 5.9 

533 ...... 4EXTRACRANIAL PROCEDURES W CC .................................... 1.1625 29.5 24.6 5.7 

534 ...... 6EXTRACRANIAL PROCEDURES W/O CC ................................ 1.1625 29.5 24.6 2.5 

535 ...... 5 CARDIAC DEFIB IMPLANT W CARDIAC CATH W AMI/HF/ 

SHOCK.

1.6835 37.1 30.9 15.6 

536 ...... 6 CARDIAC DEFIB IMPLANT W CARDIAC CATH W/O AMI/HF/ 

SHOCK.

1.1625 29.5 24.6 11.7 

537 ...... LOCAL EXCISION & REMOVAL INT FIX DEVICES EXCEPT 

HIP & FEMUR W CC.

1.4672 39.9 33.3 10.8 

538 ...... 4 LOCAL EXCISION & REMOVAL INT FIX DEVICES EXCEPT 

HIP & FEMUR W/O CC.

1.1625 29.5 24.6 4.5 

539 ...... 4 LYMPHOMA & LEUKEMIA W MAJOR O.R. PROCEDURE W 

CC.

1.1625 29.5 24.6 18.1 

540 ...... 6 LYMPHOMA & LEUKEMIA W MAJOR O.R. PROCEDURE W/ 

O CC.

0.4175 17.0 14.2 5.6 

541 ...... ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, 

MOUTH & NECK W MAJ O.R.

3.8893 58.1 48.4 65.8 


rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4883 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

542 ...... TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK 

W/O MAJ O.R.

2.8689 45.1 37.6 49.1 

543 ...... 5 CRANIOTOMY W MAJOR DEVICE IMPLANT ORACUTE 

COMPLEX CNS PDX.

1.6835 37.1 30.9 20.4 

544 ...... 5 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF 

LOWER EXTREMITY.

1.6835 37.1 30.9 6.1 

545 ...... 5 REVISION OF HIP OR KNEE REPLACEMENT ......................... 1.6835 37.1 30.9 7.4 

546 ...... 6SPINAL FUSION EXC CERV WITH CURVATURE OF THE 

SPINE OR MALIG.

1.6835 37.1 30.9 13.4 

547 ...... 6 CORONARY BYPASS W CARDIAC CATH W MAJOR CV DX 1.1625 29.5 24.6 17.8 

548 ...... 6 CORONARY BYPASS W CARDIAC CATH W/O MAJOR CV 

DX.

1.1625 29.5 24.6 12.0 

549 ...... 6 CORONARY BYPASS W/O CARDIAC CATH W MAJOR CV 

DX.

1.1625 29.5 24.6 15.0 

550 ...... 6 CORONARY BYPASS W/O CARDIAC CATH W/O MAJOR CV 

DX.

1.1625 29.5 24.6 9.3 

551 ...... PERMANENT CARDIAC PACEMAKER IMPL W MAJ CV DX 

OR AICD LEAD OR GNRTR.

1.6035 29.5 24.6 10.3 

552 ...... 4OTHER PERMANENT CARDIAC PACEMAKER IMPLANT W/O 

MAJOR CV DX.

1.1625 29.5 24.6 5.5 

553 ...... OTHER VASCULAR PROCEDURES W CC W MAJOR CV DX .. 1.5837 32.5 27.1 15.8 

554 ...... OTHER VASCULAR PROCEDURES W CC W/O MAJOR CV 

DX.

1.2817 31.6 26.3 9.3 

555 ...... 3PERCUTANEOUS CARDIOVASCULAR PROC W MAJOR CV 

DX.

0.7819 23.9 19.9 7.8 

556 ...... 6PERCUTANEOUS CARDIOVASC PROC W NON-DRUGELUTING STENT W/O MAJ CV DX.0.4175 17.0 14.2 2.9 

557 ...... 4PERCUTANEOUS CARDIOVASCULAR PROC W DRUGELUTING STENT W MAJOR CV DX.1.1625 29.5 24.6 6.5 

558 ...... 6PERCUTANEOUS CARDIOVASCULAR PROC W DRUGELUTING STENT W/O MAJ CV DX.0.4175 17.0 14.2 2.6 

559 ...... 6ACUTE ISCHEMIC STROKE WITH USE OF THROMBOLYTIC 

AGENT.

0.7819 23.9 19.9 10.7 

560 ...... BACTERIAL & TUBERCULOUS INFECTIONS OF NERVOUS 

SYSTEM.

0.9308 25.5 21.3 16.9 

561 ...... NON-BACTERIAL INFECTIONS OF NERVOUS SYSTEM EXCEPT VIRAL MENINGITIS.0.8145 22.3 18.6 15.5 

562 ...... SEIZURE AGE >17 W CC ............................................................. 0.6844 23.2 19.3 7.6 

563 ...... 2SEIZURE AGE >17 W/O CC ....................................................... 0.5594 21.0 17.5 4.9 

564 ...... HEADACHES AGE >17 ................................................................. 0.7565 24.1 20.1 5.3 

565 ...... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR 

SUPPORT 96+ HOURS.

2.0557 34.7 28.9 23.3 

566 ...... RESPIRATORY SYSTEM DIAGNOSIS WITH VENTILATOR 

SUPPORT < 96 HOURS.

1.5445 27.4 22.8 13.2 

567 ...... 5STOMACH, ESOPHAGEAL & DUODENAL PROC AGE >17 W 

CC W MAJOR GI DX.

1.6835 37.1 30.9 25.4 

568 ...... 5STOMACH, ESOPHAGEAL & DUODENAL PROC AGE >17 W 

CC W/O MAJOR GI DX.

1.6835 37.1 30.9 19.2 

569 ...... 5 MAJOR SMALL & LARGE BOWEL PROCEDURES W CC W 

MAJOR GI DX.

1.6835 37.1 30.9 22.5 

570 ...... 5 MAJOR SMALL & LARGE BOWEL PROCEDURES W CC W/O 

MAJOR GI DX.

1.6835 37.1 30.9 14.9 

571 ...... MAJOR ESOPHAGEAL DISORDERS .......................................... 0.8214 21.9 18.3 7.5 

572 ...... MAJOR GASTROINTESTINAL DISORDERS AND PERITONEAL INFECTIONS.0.8505 23.3 19.4 11.0 

573 ...... 5 MAJOR BLADDER PROCEDURES ............................................ 1.6835 37.1 30.9 16.7 

574 ...... MAJOR HEMATOLOGIC/IMMUNOLOGIC DIAG EXC SICKLE 

CELL CRISIS & COAGUL.

0.8106 19.7 16.4 9.1 

575 ...... SEPTICEMIA W MV 96+ HOURS AGE >17 ................................. 1.6583 27.8 23.2 24.4 

576 ...... SEPTICEMIA W/O MV 96+ HOURS AGE >17 ............................. 0.7925 23.0 19.2 11.8 

577 ...... 6 CAROTID ARTERY STENT PROCEDURE ................................ 1.1625 29.5 24.6 3.3 

578 ...... O. R. PROCEDURE W PDX EXC POSTOPERATIVE OR POSTTRAUMATIC INFECTION.1.4849 35.7 29.8 26.5 


rwilkins on PRODPC74 with PROPOSALS2
4884 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

TABLE 3.—FY 2007 LTC–DRGS, RELATIVE WEIGHTS, GEOMETRIC AVERAGE LENGTH OF STAY, FIVE-SIXTHS OF THE

GEOMETRIC AVERAGE LENGTH OF STAY AND IPPS AVERAGE LENGTH OF STAY PLUS ONE STANDARD DEVIATION—

Continued 

LTC–

DRG Description Relative weight 

Geometric average length 

of stay 

5/6ths of the 

geometric average length 

of stay 

IPPS average 

length of stay 

plus one 

standard 

deviation* 

579 ...... O. R. PROCEDURE W PDX OF POSTOPERATIVE OR POSTTRAUMATIC INFECTION.1.2978 35.2 29.3 18.0 

1 Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 1. 

2 Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 2. 

3 Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 3. 

4 Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 4. 

5 Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 5. 

6 Relative weights for these LTC-DRGs were determined by assigning these cases to the appropriate low volume quintile because they had no 

LTCH cases in the FY 2005 MedPAR file. 7 Relative weights for these LTC-DRGs were assigned a value of 0.0000. 

8 Relative weights for these LTC-DRGs were determined after adjusting to account for nonmonotonicity (see step 5 above). 

*‘‘IPPS Comparable Threshold’’ that could be used under the approach discussed for the short-stay outlier policy, as discussed in section 

V.A.2. of the preamble of this proposed rule. 

** IPPS hospital statistical data for these LTC-DRGs would be supplemented due to a low volume of IPPS cases. 

*** Although IPPS hospital statistical data for these DRGs may be available, a value of zero for the ‘‘IPPS Comparable Threshold’’ would be 

assigned for these LTC-DRGs since the relative weights for these LTC-DRGs were assigned a value of 0.0000, as discussed in section III. of the 

preamble of this proposed rule. 

Addendum B: Executive Summary of 

RTI’s Report (See http:// 

www.cms.hhs.gov/

LongTermCareHospitalPPS/ 

02a_RTIReports.asp#TopOfPage for 

a Copy of the Entire Report) 

ES.1 Overview of the Project Purpose 

This project, ‘‘Long-Term Care Hospital 

(LTCH) Payment System Refinement/ 

Evaluation,’’ will assist the Centers for 

Medicare & Medicaid Services (CMS) in 

developing criteria for assuring appropriate 

and cost-effective use of LTCHs in the 

Medicare program. The Medicare Payment 

Advisory Commission (MedPAC) 

recommended that CMS examine patient and 

facility-level criteria to identify and 

distinguish the role of these hospitals as a 

Medicare provider. This project evaluated 

these criteria and scanned the environment 

to identify feasible options for implementing 

these types of measures. CMS has been 

particularly interested in the factors that 

distinguish LTCHs from other acute care 

hospitals. 

ES.2 The Project Approach 

RTI completed this project in two phases. 

In Phase I, RTI prepared a background report 

for CMS summarizing existing information 

regarding LTCHs’ current role in the 

Medicare system: their history as Medicare 

participating providers, the types of patients 

they treat, the criteria Quality Improvement 

Organizations (QIO) currently use to review 

appropriateness of care in these settings, and 

the types of regulations they face as Medicare 

participating providers. This work reviewed 

prior analyses of these issues and included 

discussions with MedPAC, other researchers, 

CMS, the QIOs, and the hospital associations. 

In Phase II, RTI collected additional 

information, including: 

• An examination of tools currently used 

by the QIOs and the industry to assess 

patient appropriateness for admission; 

• Analysis of claims to understand 

variations in the LTCH populations and 

differences between the LTCH populations 

and those treated in other acute hospitals, 

particularly those that received outlier 

payments for the longer stays; 

• Administration of site visits at eight 

LTCHs and 1 acute hospital to interview 

providers regarding the differences between 

LTCH patients and those admitted to other 

hospitals or treated in parts of the country 

lacking LTCHs. 

In recognition of the heterogeneity of 

LTCHs, RTI worked with each of the different 

associations, including the National 

Association of Long Term Hospitals 

(NALTH), the Acute Long Term Hospital 

Association (ALTHA), the American Hospital 

Association (AHA), and the American 

Medical Rehabilitation Providers Association 

(AMPRA), as well as several of the larger 

LTCH chains. 

This report summarizes these efforts and 

makes recommendations to CMS regarding 

the types of criteria needed to distinguish 

LTCHs from other types of hospitals. These 

criteria will help define LTCH patients on the 

basis of patient care needs or different levels 

of care. They include both patient and 

facility-level measures. The report is 

organized in six sections: 

• Section 1 summarizes the importance of, 

and the issues in, defining criteria for LTCH 

payments. 

• Section 2 provides an overview of the 

industry growth in recent years and an 

analysis of whether these changes are 

occurring throughout all segments of the 

LTCH industry. Included with these analyses 

are findings from past work on these issues. 

• Section 3 presents analyses of Medicare 

claims directed at understanding the 

differences in resources, costs, and outcomes 

for LTCH patients and similar cases treated 

in general acute hospitals. 

• Section 4 focuses on existing level of 

care definitions and summarizes the tools 

currently used to make level of care 

determinations by QIOs, hospitals, and 

healthcare systems, including those criteria 

applied in areas with and without local 

LTCHs. Included are interviews with some of 

the Medicare QIOs as well as analysis of 

existing tools, such as the InterQualTM level 

of care determination tools. 

• Section 5 presents RTI’s analysis of 

hospital margins, both LTCH margins and 

general acute margins for certain types of 

cases. DRG-specific analysis examines the 

relationship between Medicare payments and 

hospital costs for certain types of cases. 

• Section 6 presents RTI’s 

recommendations for identifying cases that 

should qualify for LTCH payments. Fifteen 

recommendations are included which focus 

on patient-level characteristics, facility-level 

characteristics, issues related to creating 

consistent standards across acute hospitals 

for these medically complex patients, and 

additional administrative changes that would 

improve CMS’ ability to implement their 

payment policies. 

ES.3 Section Summaries 

Section 1: Introduction 

This section presents the importance of 

defining LTCH criteria to distinguish cases 

that qualify for the higher LTCH PPS 

payments. Information is presented that 

compares the LTCH and IPPS rates, case mix 

weights, and expected length of stay for each 

DRG. The two hospitals are very similar in 

that LTCHs must meet acute hospital 

certification requirements. However, LTCHs 

must have average Medicare LOS of more 

than 25 days to qualify for the higher PPS 

payment rate. The base LTCH payment rate 

is substantially higher than the IPPS rate 

($38,086 compared to $5,308 in 2007). While 

both types of hospitals have payment factors 

to adjust for higher and lower cost cases, 

such as short stay and high cost outliers, the 

average cost episode is substantially higher 

when LTCHs are used as part of the episode. 

This section also compares the certification 

requirements of LTCHs to other IPPSVerDate Aug<31>2005 17:26 Jan 31, 2007 Jkt 211001 PO 00000 Frm 00110 Fmt 4701 Sfmt 4702 E:\FR\FM\01FEP2.SGM 01FEP2

rwilkins on PRODPC74 with PROPOSALS2
Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 4885 

excluded hospitals. The Medicare conditions 

of participation set staffing and patient 

management requirements for hospitals to 

ensure that appropriate care is provided. For 

the IPPS-excluded hospitals, these standards 

ensure that the provider can meet the 

specialized needs of the populations they are 

treating, such as those required by the acute 

physical rehabilitation or psychiatric 

populations. 

Differences in expected patient severity, 

staff expertise, and case mix measurement 

methods used for LTCHs, IPPS, IRFs, 

Psychiatric hospitals, and SNFs are also 

presented. In general, the IPPS covers the 

most severely ill cases in their ICU, the 

LTCHs admit cases that are medically 

complex and equal to an ICU step-down unit 

in terms of intensity and higher staffing 

needs, IRFs admit cases that are less 

medically complex but highly acute in terms 

of their functional impairments. Psychiatric 

hospitals and skilled nursing facilities have 

the least medically complex admissions. The 

lines between each group are poorly defined. 

Section 2: LTCH Availability 

This section presents information on the 

changing supply of LTCHs. The number of 

LTCHs has grown markedly since the IPPS 

was established in 1983. Much of the growth 

has occurred since 1993 when the number of 

LTCHs exploded from 105 hospitals to the 

current number of 383 hospitals as of 

December 2005. The states with the highest 

number of facilities are also those with the 

highest number of Medicare beneficiaries, 

including Texas, Louisiana, Ohio, 

Pennsylvania, and Michigan to name a few. 

The number of states with LTCHs has 

continued growing as well. Many of the new 

hospitals are for-profit organizations which 

accounted for 58 percent of all hospitals in 

December 2005, up from 45 percent in 1996. 

The greatest growth was in the smaller 

hospitals with the opening of many hospital 

in hospitals, although this may be changing 

in response to Medicare co-location policies. 

LTCH hospitals generally specialize in 

three types of populations. The majority of 

cases are medically complex, many of whom 

have respiratory conditions. A second, but 

smaller group are those admitted for 

rehabilitation services. And a smaller group 

are admitted for longer stay psychiatric 

services. Specialization in different cases is 

notable by looking at the distributions of 

cases admitted to each hospital. Respiratoryrelated, psychoses, and ventilator cases 

accounted for the highest proportion of 

admissions at most hospitals (averaging 

around 15 percent of all admissions/facility). 

However, the medians were much lower 

except in the case of ventilator admissions 

which accounted for 9.3 percent of 

admissions at half the LTCHs in the US. Also 

notable are the small proportion of hospitals 

that have a very high proportion of their 

cases in certain DRGs. For example, DRG 

430: Psychoses accounts for 62 percent of 

admissions in a few of the LTCHs. 

Section 3: LTCH Populations, Potential 

Substitutes, and Patient Differences Among 

Hospitals 

This work has been useful for answering 

the questions identified in Section 1, 

specifically whether there are differences 

between LTCH cases and other inpatient 

cases in terms of the average program 

payments, beneficiary use levels, and 

individual outcomes. The first half of this 

section profiled the typical LTCH admission 

to examine the types of cases treated in 

LTCHs, their associated program costs, and 

this population’s use of other services. The 

results showed that many of the types of 

patients treated in LTCHs are also treated in 

other acute care settings. While the most 

common LTCH admission is DRG 475, the 

majority of these cases, nationally are treated 

in IPPS settings, both as inlier and outlier 

populations. Similarly the second most 

frequent LTCH admission, DRG 249 is 

admitted as a non-outlier IRF patient or SNF 

patient almost as often as an LTCH patient. 

LTCH patients also use many services 

during an episode of care. These cases are 

frequently readmitted to the general acute 

hospital (about 40 percent of the time) and 

may have intervening stays at IRFs or SNFs 

prior to readmission. Also included were 

comparisons of the costs and use for patients 

in the same DRG groups who were treated at 

other types of inpatient settings. Average 

costs per case differed by type of setting. 

The second part of this section examined 

the acute care admissions to identify 

differences between the types of cases likely 

to be admitted to an LTCH and other acute 

discharges in the same diagnostic and 

severity group. The multivariate analysis of 

this issue suggested that severity is an 

important predictor of LTCH use. This 

supports past work suggesting that LTCH 

cases have a higher severity level, although 

a large proportion are in APR–DRG group 3, 

as well as group 4. Being located in a state 

with a large number of LTCHs was the most 

important predictor of LTCH use, all else 

equal. 

Examining the acute length of stay 

differences was also useful for understanding 

the relative role of general acute and LTCHs 

in treating these severely ill populations. The 

multivariate work showed that LTCH users 

have a shorter acute inpatient length stay. 

Understanding whether LTCH hospitals are 

substituting for services already paid to IPPS 

hospitals or whether LTCHs are providing 

specialized services is not well understood. 

Better measures of acuity are needed to 

gauge the differences in medical or 

functional impairments between patients 

using LTCHs and those using other settings. 

Additional work in Phase 3 of this project 

will examine the discharge transitions for 

acute hospital discharges in areas that lack 

LTCHs. Using propensity score methods to 

match patients on diagnosis, severity, and 

additional factors, as well as control for 

differences in the availability of services will 

be important for understanding the potential 

overlap between acute and LTCH admissions. 

Section 4: Determining Levels of Care 

This section examines current standards in 

the Medicare program and private sector for 

determining appropriate levels of care. We 

explored three areas: 1) Current Medicare 

certification rules governing acute, LTCH, 

IRF, and Psychiatric hospital conditions of 

participation; 2) QIO and private sector 

definitions of populations qualifying for 

different hospital and PAC sites of care; and 

3) QIO’s current roles in reviewing 

appropriateness of hospital admissions. This 

included interviewing 11 QIOs in states with 

both LTCHs and other PAC providers. 

The Medicare certification rules are 

important because they set standards of 

practice to ensure appropriate quality of care 

is provided to Medicare beneficiaries. While 

LTCHs must meet the acute inpatient 

certification requirements, IRF and 

psychiatric hospitals have additional 

requirements governing the management of 

their patients and the types of staff they must 

employ. Both types of IPPS-excluded 

hospitals are required to have a physician in 

charge of an interdisciplinary team that 

includes professionals of varied backgrounds, 

specific to the respective types of patients. 

Nursing and therapy staff are expected to 

have relevant backgrounds in psychiatric or 

rehabilitation services, respectively. They are 

to be lead by a physician with ‘‘appropriate 

training’’ in the psychiatric hospital or ‘‘at 

least 2 years of rehabilitation training or 

experience’’ in the IRF. 

They are also limited to admitting certain 

populations. All psychiatric admissions must 

be admitted for psychiatric conditions and 

must be actively treated or discharged. IRFs, 

on the other hand, can admit a wide range 

of rehabilitation populations but 50–75 

percent must be treated for one of 13 groups 

of conditions or the IRF can lose its 

certification. 

Patient level criteria were also examined. 

The Medicare program, in general, does not 

specify patient level criteria for LTCHs. IRF 

patients must be well enough to participate 

in 3 hours therapy/day, in general. 

Psychiatric patients must be actively treated 

and not just admitted for monitoring of a 

chronic condition. Both IRF and psychiatric 

patients must be improving from treatment or 

be discharged. 

Primary responsibility for monitoring 

whether Medicare cases are admitted to 

appropriate facilities rests with the Quality 

Improvement Organizations (QIO). QIOs 

were interviewed regarding the tools they use 

to assess appropriate admissions. Their 

formal charge is to assess whether the 

services needed could be provided on a more 

economical basis in an alternative setting. 

However, they do not distinguish between 

types of acute settings. 

The QIOS use several tools, although most 

use one developed by the private sector and 

used by several other insurers, the 

InterQual TM tool. This tool is a set of clinical 

algorithms intended to create mutually 

exclusive groups of cases for admission to 

different types of hospitals (acute, LTCH, 

IRF, psychiatric), as well as SNFs and 

ambulatory services, such as home health 

and less intensive psychiatric services. These 

tools are guidelines for these decisions with 

final decisions made by physicians or nurses, 

depending on how complicated a case may 

be. In general, the InterQual TM tool is a 

complex set of conditions and treatment 

needs that identify ICU cases, less intensive 

hospital cases, and other types of admissions. 

While this tool is widely used by QIOs, they 

have not been using it to distinguish between 


rwilkins on PRODPC74 with PROPOSALS2
4886 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Proposed Rules 

LTCH and general acute admissions nor do 

the criteria currently distinguish between 

those two groups. 

Some members of the LTCH industry have 

proposed criteria for identifying their 

patients. However, these criteria lacked 

specificity in several areas and like the 

InterQual TM tool, failed to distinguish 

between general acute and LTCH admissions. 

However, they suggested that all LTCH cases 

should be medically complex, including any 

types of rehabilitation or psychiatric cases. 

Other parts of the industry suggested that 

LTCH admissions be restricted to 8 types of 

cases commonly admitted to LTCHs. 

However, these proposals failed to 

distinguish severity within these conditions 

again, making no distinction between general 

acute and LTCH severity. 

Site visits at eight LTCHs and one acute 

hospital with a respiratory ventilator unit 

were conducted to understand the providers’

perceptions of appropriate admissions to 

these settings. Physicians at each site were 

interviewed regarding the differences 

between the patients they treated and those 

treated in an acute hospital ICU, medical/ 

surgical floor, IRF, or SNF. The LTCH 

physicians perceived themselves as 

specialists in treating these very complicated 

patients. Many of the patients are having 

acute exacerbations of chronic respiratory 

conditions, multi-system organ failures, and 

other complications, including wounds and 

infections. The hospitals provide 

interdisciplinary treatment teams with nurse 

staffing levels that were lower than ICU but 

higher than general units in acute hospitals. 

Many had ICUs, particularly the freestanding facilities as patients often had 

emergent care needs, particularly if they were 

being weaned from a ventilator. The LTCHs 

consistently distinguished their admissions 

from ICU cases in that they only admitted 

medically stable patients. They perceived the 

acute hospitals’ roles to be one of diagnosis 

and stabilization. 

The acute hospital with a ventilator unit 

was very similar in practice to an LTCH but 

was paid under the IPPS system. This unit 

was a special unit where respiratory cases 

were admitted for higher levels of monitoring 

than was available on the general floor and 

interdisciplinary treatment teams cared for 

the patients. However, anecdotal concerns 

were also raised about the cost of caring for 

these difficult patients under the IPPS 

payment system. 

Section 5: Medicare Margins Analysis 

This section examined LTCH facility 

financial performance before and after the 

introduction of PPS. We found that aggregate 

facility total margins rose from 4.9% in FY 

2002 to 8.9% in FY 2003, and Medicare 

inpatient PPS margins rose from 1.9% to 

8.3% in the same period. In the first year of 

implementation, the inter-quartile range on 

LTCH PPS margins was ¥0.2% to +17.1%. 

Facilities paid under the phased-in rates and 

public LTCHs were disproportionately 

represented at the lower end of the 

distribution. Many facilities were able to 

improve their profitability by opting for 

100% federal rates in year 2, indicating that 

the base rate was set at a generous level 

relative to average standardized cost per case. 

Median facility PPS margins were highest 

among for-profits and highest for those 

certified in recent years. Margins were lower 

for those with a higher proportion of highcost outliers. and—somewhat surprisingly—

lower for those with a higher proportion of 

very short-stay outliers (stays less than one 

half the geometric mean LOS). 

Case-level margin analyses were conducted 

for claims in FY 2003 and 2004 that were 

paid under the 100% federal rate. Margins 

varied substantially across DRGs, even after 

stratifying to remove the effects of high-cost 

or short-stay outlier prevalence. Across the 

10 most common reasons for admission, 

average margins were lowest for those in 

Rehabilitation (¥0.1%) and highest for those 

in Ventilator Support (21.3%). Across all 

cases the aggregate margin was 12.4%, but it 

was 17.4% for inlier cases, 13.8% for shortstay outlier cases and ¥14.3% for high-cost 

outlier cases. The variation in profitability 

across DRGs was even greater in multivariate 

models that were able to control for fixed 

hospital-specific effects, as well as outlier 

status. 

In fiscal 2004, the median margin for LTCH 

Ventilator Support cases was 23.1%. We 

found that in IPPS settings, the median for 

cases in that same DRG 475 was 13.1%. The 

mean 1.4%, indicating some cases had very 

large losses. There is an unusually large 

amount of within-DRG variation in the IPPS 

setting; among the roughly half of cases 

staying 10 days or less, the median margin 

was 42.6%, compared to negative 27.1% for 

those staying 10 days or more. IPPS margins 

were slightly lower for the Ventilator Support 

cases that transferred to LTCHs than for those 

with other discharge dispositions. Settingspecific profit differentials require further 

study using a complete episode-of-care file, 

to adjust for changes in DRGs across 

inpatient settings and to control adequately 

for possible patient selection effects. 

We conclude that underlying high LTCH 

profitability stems from a generous base rate 

during the first two PPS years. However, 

substantial variation in profitability across 

DRGs ‘‘ including the unusually high margins 

that we found for Ventilator cases and other 

respiratory-related DRGs ‘‘ stems from bias in 

the DRG weights that causes systematic 

understatement of costs for cases using 

relatively more ancillary services. This is a 

design problem within LTCH PPS that can 

only be addressed with improved cost-based 

weights. 

Section 6: Recommendations for Identifying 

Appropriate LTCH Cases 

Based on the findings in this report, this 

Section provides recommendations and 

discussions for developing patient level 

criteria, facility level criteria, creating more 

consistency between general acute and LTCH 

payment and certification rules, and several 

administrative issues related to LTCH 

identification methods. Complete discussions 

accompany each recommendation in Section 

6. 

A. Patient-Level Recommendations 

Recommendation 1: Restrict LTCH 

admissions to cases that meet certain medical 

conditions, including having a primary 

diagnosis that is medical in nature, not 

function or psychiatric, and meeting a certain 

level of medical complexity that reflects 

severely ill populations. 

Recommendation 2: Require LTCH 

Admissions to be discharged if not having 

diagnostic procedures or improving with 

treatment, such as those receiving long term 

ventilator management. 

Recommendation 3: Develop a list of 

criteria to measure medical severity for 

hospital admissions. 

Recommendation 4: Establish a Technical 

Advisory Group. 

Recommendation 5: Establish a data 

collection mechanism to collect this 

information. 

Recommendation 6: Require LTCHs to 

collect functional measures as well as 

physiologic measures on all patients 

receiving physical, occupational, or speech 

and language pathology services. 

B. Facility Level Recommendations 

Recommendation 7: Standardize 

conditions of participation and set staffing 

requirements to ensure appropriate staff for 

treating medically complex cases. 

Recommendation 8: Keep the 25 day 

average length stay requirement in place to 

limit LTCH’s incentives to unbundle and 

clearly delineate between general and long 

term acute patients. 

C. Recommendations To Improve 

Consistency Between General Acute and 

Long Term Acute Hospital Payment and 

Certification Policies 

Recommendation 9: Allow LTCHs, like 

general acute hospitals, to open certified, 

distinct-part rehabilitation and psychiatric 

units if CMS finds that restricting LTCH 

admissions to the medically complex cases 

results in access problems for IRF or 

psychiatric patient populations. 

Recommendation 10: Require LTCHs to 

meet the same regulatory restrictions as 

general acute hospitals by limiting their 

allowance to only one of each type of 

distinct-part unit. 

Recommendation 11: Establish payment 

rules that provide a disincentive for LTCHs 

to transfer cases early to other post acute 

settings. 

Recommendation 12: Conduct additional 

research to examine costs associated with 

different segments of an acute episode for 

medically complex patients. This should also 

include an examination of the IPPS margins 

for common types of LTCH cases. 

D. Administrative Recommendations 

Recommendation 13: Establish a provider 

identification code for satellite facilities and 

hospitals in hospitals (HIH). 

Recommendation 14: Strengthen the 

requirement for parent facilities to report 

satellite locations by requiring them to be 

identified on the cost report. 

Recommendation 15: Clarify QIO roles in 

overseeing appropriateness of admissions of 

LTCHs. 

[FR Doc. 07–392 Filed 1–25–07; 4:30 pm] 

BILLING CODE 4120–01–P 


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