42836 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

[CMS–1344–N] 

RIN 0938–AP89 

Medicare Program; Inpatient 

Rehabilitation Facility Prospective 

Payment System for Federal Fiscal 

Year 2011 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Notice. 

SUMMARY: This notice updates the 

payment rates for inpatient 

rehabilitation facilities (IRFs) for 

Federal fiscal year (FY) 2011 (for 

discharges occurring on or after October 

1, 2010 and on or before September 30, 

2011) as required under section 

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

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

requires the Secretary to publish in the 

Federal Register on or before the August 

1 that precedes the start of each fiscal 

year, the classification and weighting 

factors for the IRF prospective payment 

system’s (PPS) case-mix groups and a 

description of the methodology and data 

used in computing the prospective 

payment rates for that fiscal year. 

DATES: Effective Date: The updated IRF 

prospective payment rates are effective 

for IRF discharges occurring on or after 

October 1, 2010 and on or before 

September 30, 2011 (FY 2011). 

FOR FURTHER INFORMATION CONTACT: 

Julie Stankivic, (410) 786–5725. 

Susanne Seagrave, (410) 786–0044. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

B. Operational Overview of the Current IRF 

PPS 

II. Summary of Provisions of the Notice 

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

Relative Weights and Average Length of 

Stay Values for FY 2011 

IV. Updates to the Facility-Level Adjustment 

Factors 

V. FY 2011 IRF PPS Federal Prospective 

Payment Rates 

A. Adjustment to the FY 2010 IRF PPS 

Federal Prospective Payment Rates, 

Reflecting Adjustments to the 

Rehabilitation, Psychiatric, and Longterm Care Hospital (RPL) Market Basket 

Increase Factor in Accordance with 

Sections 3401(d) of the Patient 

Protection and Affordable Care Act 

(Affordable Care Act) as Amended by 

Section 10319 of the Same Act and by 

Section 1105(c) of the Health Care and 

Education Reconciliation Act of 2010 

B. Market Basket Increase Factor and 

Labor-Related Share for FY 2011 

C. Area Wage Adjustment 

D. Description of the IRF Standard 

Payment Conversion Factor and Payment 

Rates for FY 2011 

E. Example of the Methodology for 

Adjusting the Federal Prospective 

Payment Rates 

VI. Update to Payments for High-Cost 

Outliers under the IRF PPS 

A. Adjustment to the Outlier Threshold 

Amount for FY 2010, Reflecting 

Adjustments to the RPL Market Basket 

Increase Factor in Accordance with 

Sections 3401(d) of the Patient 

Protection and Affordable Care Act 

(Affordable Care Act) as Amended by 

Section 10319 of the Same Act and by 

Section 1105 of the Health Care and 

Education Reconciliation Act of 2010 

B. Update to the Outlier Threshold 

Amount for FY 2011 

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

Ceilings 

VII. Collection of Information Requirements 

VIII. Waiver of Proposed Rulemaking 

IX. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects of the Notice 

C. Alternatives Considered 

D. Accounting Statement 

E. Conclusion 

Addendum 

Acronyms 

Because of the many terms to which 

we refer by acronym in this notice, we 

are listing the acronyms used and their 

corresponding terms in alphabetical 

order below. 

ADC Average Daily Census 

ASCA Administrative Simplification 

Compliance Act of 2002, Public Law 

107–105 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999, Public Law 106–113 

BIPA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Benefits Improvement and 

Protection Act of 2000, Public Law 106– 

554 

CBSA Core-Based Statistical Area 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CMG Case-Mix Group 

DRG Diagnostic Related Group 

DSH Disproportionate Share Hospital 

FI Fiscal Intermediary 

FR Federal Register 

FTE Full-time Equivalent 

FY Federal Fiscal Year 

HCFA Health Care Financing 

Administration 

HHH Hubert H. Humphrey Building 

HIPAA Health Insurance Portability and 

Accountability Act of 1996, Public Law 

104–191 

IOM Internet Only Manual 

IPF Inpatient Psychiatric Facility 

IPPS Inpatient Prospective Payment 

System 

IRF Inpatient Rehabilitation Facility 

IRF–PAI Inpatient Rehabilitation FacilityPatient Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility 

Prospective Payment System 

IRVEN Inpatient Rehabilitation 

Validation and Entry 

LTCH Long Term Care Hospital 

LIP Low-Income Percentage 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MBPM Medicare Benefit Policy Manual 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110— 

173 

OMB Office of Management and Budget 

PAI Patient Assessment Instrument 

PPS Prospective Payment System 

QIC Qualified Independent Contractors 

RAC Recovery Audit Contractors 

RAND RAND Corporation 

RFA Regulatory Flexibility Act of 1980, 

Public Law 96–354 

RIA Regulatory Impact Analysis 

RIC Rehabilitation Impairment Category 

RPL Rehabilitation, Psychiatric, and 

Long-Term Care Hospital 

SCHIP State Children’s Health Insurance 

Program 

I. Background 

A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

Section 4421 of the Balanced Budget 

Act of 1997 (BBA, Pub. L. 105–33, 

enacted on August 5, 1997), as amended 

by section 125 of the Medicare, 

Medicaid, State Children’s Health 

Insurance Program (SCHIP) Balanced 

Budget Refinement Act of 1999 (BBRA, 

Pub. L. 106–113, enacted November 29, 

1999) and by section 305 of the 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA, Pub. L. 106–554, 

enacted December 21, 2000) provides 

for the implementation of a per 

discharge prospective payment system 

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

Security Act (the Act) for inpatient 

rehabilitation hospitals and inpatient 

rehabilitation units of a hospital 

(hereinafter referred to as IRFs). 

Payments under the IRF PPS 

encompass inpatient operating and 

capital costs of furnishing covered 

rehabilitation services (that is, routine, 

ancillary, and capital costs) but not 

direct graduate medical education costs, 

costs of approved nursing and allied 

health education activities, bad debts, 

and other services or items outside the 

scope of the IRF PPS. Although a 

complete discussion of the IRF PPS 

provisions appears in the original FY 

2002 IRF PPS final rule (66 FR 41316) 

and the FY 2006 IRF PPS final rule (70 

FR 47880), we are providing below a 


emcdonald on DSK2BSOYB1PROD with NOTICES2
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42837 

general description of the IRF PPS for 

fiscal years (FYs) 2002 through 2010. 

Under the IRF PPS from FY 2002 

through FY 2005, as described in the FY 

2002 IRF PPS final rule (66 FR 41316), 

the Federal prospective payment rates 

were computed across 100 distinct 

(Case-Mix Group) CMGs. We 

constructed 95 CMGs using 

rehabilitation impairment categories 

(RICs), functional status (both motor and 

cognitive), and age (in some cases, 

cognitive status and age may not be a 

factor in defining a CMG). In addition, 

we constructed five special CMGs to 

account for very short stays and for 

patients who expire in the IRF. 

For each of the CMGs, we developed 

relative weighting factors to account for 

a patient’s clinical characteristics and 

expected resource needs. Thus, the 

weighting factors accounted for the 

relative difference in resource use across 

all CMGs. Within each CMG, we created 

tiers based on the estimated effects that 

certain comorbidities would have on 

resource use. 

We established the Federal PPS rates 

using a standardized payment 

conversion factor (formerly referred to 

as the budget neutral conversion factor). 

For a detailed discussion of the budget 

neutral conversion factor, please refer to 

our FY 2004 IRF PPS final rule (68 FR 

45684 through 45685). In the FY 2006 

IRF PPS final rule (70 FR 47880), we 

discussed in detail the methodology for 

determining the standard payment 

conversion factor. 

We applied the relative weighting 

factors to the standard payment 

conversion factor to compute the 

unadjusted Federal prospective 

payment rates under the IRF PPS from 

FYs 2002 through 2005. Within the 

structure of the payment system, we 

then made adjustments to account for 

interrupted stays, transfers, short stays, 

and deaths. Finally, we applied the 

applicable adjustments to account for 

geographic variations in wages (wage 

index), the percentage of low-income 

patients, location in a rural area (if 

applicable), and outlier payments (if 

applicable) to the IRF’s unadjusted 

Federal prospective payment rates. 

For cost reporting periods that began 

on or after January 1, 2002 and before 

October 1, 2002, we determined the 

final prospective payment amounts 

using the transition methodology 

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

Act. Under this provision, IRFs 

transitioning into the PPS were paid a 

blend of the Federal IRF PPS rate and 

the payment that the IRF would have 

received had the IRF PPS not been 

implemented. This provision also 

allowed IRFs to elect to bypass this 

blended payment and immediately be 

paid 100 percent of the Federal IRF PPS 

rate. The transition methodology 

expired as of cost reporting periods 

beginning on or after October 1, 2002 

(FY 2003), and payments for all IRFs 

now consist of 100 percent of the 

Federal IRF PPS rate. 

We established a CMS Web site as a 

primary information resource for the 

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

www.cms. gov/InpatientRehabFacPPS/ 

and may be accessed to download or 

view publications, software, data 

specifications, educational materials, 

and other information pertinent to the 

IRF PPS. 

Section 1886(j) of the Act confers 

broad statutory authority upon the 

Secretary to propose refinements to the 

IRF PPS. In the FY 2006 IRF PPS final 

rule (70 FR 47880) and in correcting 

amendments to the FY 2006 IRF PPS 

final rule (70 FR 57166) that we 

published on September 30, 2005, we 

finalized a number of refinements to the 

IRF PPS case-mix classification system 

(the CMGs and the corresponding 

relative weights) and the case-level and 

facility-level adjustments. These 

refinements included the adoption of 

the Office of Management and Budget’s 

(OMB) Core-Based Statistical Area 

(CBSA) market definitions, 

modifications to the CMGs, tier 

comorbidities, and CMG relative 

weights, implementation of a new 

teaching status adjustment for IRFs, 

revision and rebasing of the market 

basket index used to update IRF 

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

outlier adjustments. Beginning with the 

FY 2006 IRF PPS final rule (70 FR 47908 

through 47917), the market basket index 

used to update IRF payments is a 2002- 

based market basket reflecting the 

operating and capital cost structures for 

freestanding IRFs and long-term care 

hospitals (LTCHs) (hereafter referred to 

as the rehabilitation, psychiatric, and 

long-term care (RPL) market basket). 

Any reference to the FY 2006 IRF PPS 

final rule in this notice also includes the 

provisions effective in the correcting 

amendments. For a detailed discussion 

of the final key policy changes for FY 

2006, please refer to the FY 2006 IRF 

PPS final rule (70 FR 47880 and 70 FR 

57166). 

In the FY 2007 IRF PPS final rule (71 

FR 48354), we further refined the IRF 

PPS case-mix classification system (the 

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

PPS payments would continue to reflect 

as accurately as possible the costs of 

care. For a detailed discussion of the FY 

2007 policy revisions, please refer to the 

FY 2007 IRF PPS final rule (71 FR 

48354). 

In the FY 2008 IRF PPS final rule (72 

FR 44284), we updated the Federal 

prospective payment rates and the 

outlier threshold, revised the IRF wage 

index policy, and clarified how we 

determine high-cost outlier payments 

for transfer cases. For more information 

on the policy changes implemented for 

FY 2008, please refer to the FY 2008 IRF 

PPS final rule (72 FR 44284), in which 

we published the final FY 2008 IRF 

Federal prospective payment rates. 

After publication of the FY 2008 IRF 

PPS final rule (72 FR 44284), section 

115 of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (MMSEA, 

Pub. L. 110–173, enacted December 29, 

2007), amended section 1886(j)(3)(C) of 

the Act to apply a zero percent increase 

factor for FYs 2008 and 2009, effective 

for IRF discharges occurring on or after 

April 1, 2008. Section 1886(j)(3)(C) of 

the Act required the Secretary to 

develop an increase factor to update the 

IRF Federal prospective payment rates 

for each FY. Based on the legislative 

change to the increase factor, we revised 

the FY 2008 Federal prospective 

payment rates for IRF discharges 

occurring on or after April 1, 2008. 

Thus, the final FY 2008 IRF Federal 

prospective payment rates that were 

published in the FY 2008 IRF PPS final 

rule (72 FR 44284) were effective for 

discharges occurring on or after October 

1, 2007 and on or before March 31, 

2008; and the revised FY 2008 IRF 

Federal prospective payment rates were 

effective for discharges occurring on or 

after April 1, 2008 and on or before 

September 30, 2008. The revised FY 

2008 Federal prospective payment rates 

are available on the CMS Web site at 

http://www.cms.gov/ 

InpatientRehabFacPPS/ 

07_DataFiles.asp#TopOfPage. 

In the FY 2009 IRF PPS final rule (73 

FR 46370), we updated the CMG relative 

weights, the average length of stay 

values, and the outlier threshold; 

clarified IRF wage index policies 

regarding the treatment of ‘‘New 

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

regulation text in response to section 

115 of the MMSEA to set the IRF 

compliance percentage at 60 percent 

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

practice of including comorbidities in 

the calculation of compliance 

percentages. We also applied a zero 

percent market basket increase factor for 

FY 2009 in accordance with section 115 

of the MMSEA. For more information on 

the policy changes implemented for FY 

2009, please refer to the FY 2009 IRF 

PPS final rule (73 FR 46370), in which 


emcdonald on DSK2BSOYB1PROD with NOTICES2
42838 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

we published the final FY 2009 IRF 

Federal prospective payment rates. 

In the FY 2010 IRF PPS final rule (74 

FR 39762) and in correcting 

amendments to the FY 2010 IRF PPS 

final rule (74 FR 50712) that we 

published on October 1, 2009, we 

updated the Federal prospective 

payment rates, the CMG relative 

weights, the average length of stay 

values, the rural, LIP, and teaching 

status adjustment factors, and the 

outlier threshold; implemented new IRF 

coverage requirements for determining 

whether an IRF claim is reasonable and 

necessary; and revised the regulation 

text to require IRFs to submit patient 

assessments on Medicare Advantage 

(Medicare Part C) patients for use in the 

60 percent rule calculations. Any 

reference to the FY 2010 IRF PPS final 

rule in this notice also includes the 

provisions effective in the correcting 

amendments. For more information on 

the policy changes implemented for FY 

2010, please refer to the FY 2010 IRF 

PPS final rule (74 FR 39762 and 74 FR 

50712), in which we published the final 

FY 2010 IRF Federal prospective 

payment rates. 

After publication of the FY 2010 IRF 

PPS final rule (74 FR 39762), section 

3401(d) of the Patient Protection and 

Affordable Care Act (Affordable Care 

Act, Pub. L. 111–148, enacted March 23, 

2010), as amended by section 10319 of 

the same act and by section 1105 of the 

Health Care and Education 

Reconciliation Act of 2010, amended 

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

added section 1886(j)(3)(D). Section 

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

Secretary to develop an adjusted market 

basket increase factor using applicable 

productivity and other adjustments as 

defined by the Act. This adjusted 

market basket increase factor is to be 

used to update the IRF Federal 

prospective payment rates for each FY 

from 2012 forward. Section 

1886(j)(3)(D)(i)(1) defines the 

adjustment that is to be applied to the 

market basket increase factor in FYs 

2010 and 2011. The Secretary is to 

reduce the market basket increase factor 

by 0.25 percentage point for FY 2010. 

Notwithstanding these provisions, in 

accordance with paragraph (p) of 

section 3401 of the Affordable Care Act, 

the adjusted FY 2010 rate is only to be 

applied to discharges occurring on or 

after April 1, 2010. Section 

1886(j)(3)(D)(i)(I) of the Act also requires 

the Secretary to reduce the market 

basket increase factor by 0.25 percentage 

point for FY 2011. Based on these 

legislative changes to section 1886(j)(3), 

we adjust the FY 2010 Federal 

prospective payment rates, and apply 

these rates to IRF discharges occurring 

on or after April 1, 2010. Thus, the final 

FY 2010 IRF Federal prospective 

payment rates that were published in 

the FY 2010 IRF PPS final rule (74 FR 

39762) were used for discharges 

occurring on or after October 1, 2009 

and on or before March 31, 2010; and 

the adjusted FY 2010 IRF Federal 

prospective payment rates apply to 

discharges occurring on or after April 1, 

2010. The adjusted FY 2010 Federal 

prospective payment rates are available 

on the CMS Web site at http:// 

www.cms.gov/InpatientRehabFacPPS/ 

07_DataFiles.asp#TopOfPage. 

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

(D) of the Act also affected the FY 2010 

IRF outlier threshold amount because 

they required an adjustment to the FY 

2010 RPL market basket increase factor, 

which changed the standard payment 

conversion factor for FY 2010. 

Specifically, the original FY 2010 IRF 

outlier threshold amount was 

determined based on the original 

estimated FY 2010 RPL market basket 

increase factor of 2.5 percent and the 

standard payment conversion factor of 

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

prospective payments are based on the 

adjusted RPL market basket increase 

factor of 2.25 percent and the revised 

standard payment conversion factor of 

$13,627. In order to maintain estimated 

outlier payments for FY 2010 equal to 

the established standard of 3 percent of 

total estimated IRF PPS payments for FY 

2010, we revised the IRF outlier 

threshold amount for FY 2010 for 

discharges occurring on or after April 1, 

2010. The revised IRF outlier threshold 

amount for FY 2010 is discussed in 

more detail in section VI.A of this 

notice. 

B. Operational Overview of the Current 

IRF PPS 

As described in the FY 2002 IRF PPS 

final rule, upon the admission and 

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

complete the appropriate sections of a 

patient assessment instrument (PAI), 

designated as the Inpatient 

Rehabilitation Facility-Patient 

Assessment Instrument (IRF–PAI). In 

addition, beginning with IRF discharges 

occurring on or after October 1, 2009, 

the IRF is also required to complete the 

appropriate sections of the IRF–PAI 

upon the admission and discharge of 

each Medicare Part C (Medicare 

Advantage) patient, as described in the 

FY 2010 IRF PPS final rule. All required 

data must be electronically encoded into 

the IRF–PAI software product. 

Generally, the software product 

includes patient classification 

programming called the GROUPER 

software. The GROUPER software uses 

specific IRF–PAI data elements to 

classify (or group) patients into distinct 

CMGs and account for the existence of 

any relevant comorbidities. 

The GROUPER software produces a 

five-digit CMG number. The first digit is 

an alpha-character that indicates the 

comorbidity tier. The last four digits 

represent the distinct CMG number. 

Free downloads of the Inpatient 

Rehabilitation Validation and Entry 

(IRVEN) software product, including the 

GROUPER software, are available on the 

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

InpatientRehabFacPPS/ 

06_Software.asp. 

Once a patient is discharged, the IRF 

submits a Medicare claim as a Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA, 

Pub. L. 104–191, enacted August 21, 

1996), compliant electronic claim or, if 

the Administrative Simplification 

Compliance Act of 2002 (ASCA, Pub. L. 

107–105, enacted December 27, 2002) 

permits, a paper claim (a UB–04 or a 

CMS–1450 as appropriate) using the 

five-digit CMG number and sends it to 

the appropriate Medicare fiscal 

intermediary (FI) or Medicare 

Administrative Contractor (MAC). 

Claims submitted to Medicare must 

comply with both ASCA and HIPAA. 

Section 3 of the ASCA amends section 

1862(a) of the Act by adding paragraph 

(22) which requires the Medicare 

program, subject to section 1862(h) of 

the Act, to deny payment under Part A 

or Part B for any expenses 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, in turn, provides that 

the Secretary shall waive such denial in 

situations in which there is no method 

available for the submission of claims in 

an electronic form or the entity 

submitting the claim is a small provider. 

In addition, the Secretary also has the 

authority to waive such denial ‘‘in such 

unusual cases as the Secretary finds 

appropriate.’’ For more information we 

refer the reader to the final rule, 

‘‘Medicare Program; Electronic 

Submission of Medicare Claims’’ (70 FR 

71008, November 25, 2005). CMS 

instructions for the limited number of 

Medicare claims submitted on paper are 

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

manuals/downloads/clm104c25.pdf.) 

Section 3 of the ASCA operates in the 

context of the administrative 

simplification provisions of HIPAA, 

which include, among others, the 

requirements for transaction standards 

and code sets codified in 45 CFR, parts 

160 and 162, subparts A and I through 


emcdonald on DSK2BSOYB1PROD with NOTICES2
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42839 

R (generally known as the Transactions 

Rule). The Transactions Rule requires 

covered entities, including covered 

healthcare providers, to conduct 

covered electronic transactions 

according to the applicable transaction 

standards. (See the program claim 

memoranda issued and published by 

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

ElectronicBillingEDITrans/ and listed in 

the addenda to the Medicare 

Intermediary Manual, Part 3, section 

3600). 

The Medicare FI or MAC processes 

the claim through its software system. 

This software system includes pricing 

programming called the ‘‘PRICER’’ 

software. The PRICER software uses the 

CMG number, along with other specific 

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

prospective payment for interrupted 

stays, transfers, short stays, and deaths, 

and then applies the applicable 

adjustments to account for the IRF’s 

wage index, percentage of low-income 

patients, rural location, and outlier 

payments. For discharges occurring on 

or after October 1, 2005, the IRF PPS 

payment also reflects the new teaching 

status adjustment that became effective 

as of FY 2006, as discussed in the FY 

2006 IRF PPS final rule (70 FR 47880). 

II. Summary of Provisions of the Notice 

In this notice, we use the methods 

described in the FY 2010 IRF PPS final 

rule (74 FR 39762) to update the Federal 

prospective payment rates for FY 2011 

using updated FY 2009 IRF claims and 

FY 2008 IRF cost report data. No policy 

changes are being proposed in this 

notice. Furthermore, we explain the 

self-implementing changes resulting 

from the provisions in section 

1886(j)(3)(C) and (D) of the Act, as 

described above. 

In summary, this notice: 

• Describes the adjustments to the FY 

2010 IRF PPS Federal prospective 

payment rates and outlier threshold 

amount for IRF discharges occurring on 

or after April 1, 2010, in accordance 

with Section 3401(d) of the Affordable 

Care Act as amended by Section 10319 

of the Same Act and by section 1105(c) 

of the Health Care and Education 

Reconciliation Act of 2010, as discussed 

in more detail in sections V.A and VI.A 

of this notice. 

• Updates the FY 2011 IRF PPS 

relative weights and average length of 

stay values using the most current and 

complete Medicare claims and cost 

report data in a budget neutral manner, 

as discussed in section III of this notice. 

• Updates the FY 2011 IRF PPS 

payments rates by a market basket 

increase factor, based upon the most 

current data available, with a 0.25 

percentage point reduction as required 

by section 1886(j)(3)(D)(i)(I) of the Act, 

as described in section V.B of this 

notice. 

• Updates the FY 2011 IRF PPS 

payment rates by the FY 2011 wage 

index and the labor-related share in a 

budget neutral manner, as discussed in 

sections V.B and V.C of this notice. 

• Describes the calculation of the IRF 

Standard Payment Conversion Factor for 

FY 2011, as discussed in section V.D of 

this notice. 

• Updates the outlier threshold 

amount for FY 2011, as discussed in 

section VI.B of this notice. 

• Updates the cost-to-charge ratio 

(CCR) ceilings for FY 2011, as discussed 

in section VI.C of this notice. 

This notice does not contain any 

revisions to existing regulation text. 

III. Update to the Case-Mix Group 

(CMG) Relative Weights and Average 

Length of Stay Values for FY 2011 

As specified in 42 CFR 412.620(b)(1), 

we calculate a relative weight for each 

CMG that is proportional to the 

resources needed by an average 

inpatient rehabilitation case in that 

CMG. For example, cases in a CMG with 

a relative weight of 2, on average, will 

cost twice as much as cases in a CMG 

with a relative weight of 1. Relative 

weights account for the variance in cost 

per discharge due to the variance in 

resource utilization among the payment 

groups, and their use helps to ensure 

that IRF PPS payments support 

beneficiary access to care as well as 

provider efficiency. 

As required by statute, we always use 

the most recent available data to update 

the CMG relative weights and average 

lengths of stay. For FY 2011, we used 

FY 2009 IRF claims and FY 2008 IRF 

cost report data. These data are the most 

current and complete data available at 

this time. Currently, less than 20 

percent of the FY 2009 IRF cost report 

data are available for analysis, but the 

majority of the FY 2009 IRF claims data 

are available for analysis. 

We will apply these data using the 

methodologies that were established in 

the FY 2002 IRF PPS final rule (66 FR 

41316). In calculating the CMG relative 

weights, we use a hospital-specific 

relative value method to estimate 

operating (routine and ancillary 

services) and capital costs of IRFs. The 

process used to calculate the CMG 

relative weights for this notice is as 

follows: 

Step 1. We calculate the CMG relative 

weights by estimating the effects that 

comorbidities have on costs. 

Step 2. We adjust the cost of each 

Medicare discharge (case) to reflect the 

effects found in the first step. 

Step 3. We use the adjusted costs from 

the second step to calculate CMG 

relative weights, using the hospitalspecific relative value method. 

Step 4. We normalize the FY 2011 

CMG relative weights to the same 

average CMG relative weight from the 

CMG relative weights implemented in 

the FY 2010 IRF PPS final rule (74 FR 

39762). 

Consistent with the methodology that 

we have used to update the IRF 

classification system in each instance in 

the past, we are updating the CMG 

relative weights for FY 2011 in such a 

way that total estimated aggregate 

payments to IRFs for FY 2011 are the 

same with or without the changes (that 

is, in a budget neutral manner) by 

applying a budget neutrality factor to 

the standard payment amount. To 

calculate the appropriate budget 

neutrality factor for use in updating the 

FY 2011 CMG relative weights, we use 

the following steps: 

Step 1. Calculate the estimated total 

amount of IRF PPS payments for FY 

2011 (with no updates to the CMG 

relative weights). 

Step 2. Apply the updates to the CMG 

relative weights (as discussed above) to 

calculate the estimated total amount of 

IRF PPS payments for FY 2011. 

Step 3. Divide the amount calculated 

in step 1 by the amount calculated in 

step 2 to determine the budget 

neutrality factor (0.9942) that maintains 

the same total estimated aggregate 

payments in FY 2011 with and without 

the updates to the CMG relative weights. 

Step 4. Apply the budget neutrality 

factor (0.9942) to the FY 2010 IRF PPS 

standard payment amount after the 

application of the budget-neutral wage 

adjustment factor. 

In section V.D of this notice, we 

discuss the use of the existing 

methodology to calculate the standard 

payment conversion factor for FY 2011. 

The CMG relative weights and average 

length of stay values for FY 2011 are 

presented below in Table 1. 

BILLING CODE 4120–01–P 


emcdonald on DSK2BSOYB1PROD with NOTICES2
42840 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.011</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42841 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.012</GPH>
42842 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.013</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42843 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.014</GPH>
42844 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.015</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42845 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.016</GPH>
42846 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.017</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42847 

BILLING CODE 4120–01–C 

Generally, updates to the CMG 

relative weights result in some increases 

and some decreases to the CMG relative 

weight values. Table 2 shows how the 

application of the revisions for FY 2011 

will affect particular CMG relative 

weight values, which affect the overall 

distribution of payments within CMGs 

and tiers. Note that, because we are 

implementing the CMG relative weight 

revisions in a budget neutral manner (as 

described above), total estimated 

aggregate payments to IRFs for FY 2011 

will not be affected as a result of the 

CMG relative weight revisions. 

However, the revisions will affect the 

distribution of payments within CMGs 

and tiers. 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.018</GPH> EN22JY10.019</GPH>
42848 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

As Table 2 shows, over 98 percent of 

all IRF cases are in CMGs and tiers that 

will experience less than a 5 percent 

change (either increase or decrease) in 

the CMG relative weight value as a 

result of the revisions for FY 2011. The 

largest increase in the CMG relative 

weight values affecting the most cases is 

a 3.0 percent increase in the CMG 

relative weight value for CMG 0802— 

Replacement of Lower Extremity Joint, 

with a motor score between 37.05 and 

49.55—in the ‘‘no comorbidity’’ tier. In 

the FY 2009 data, 12,149 IRF discharges 

were classified into this CMG and tier. 

We believe that the higher costs 

reported by IRFs for this CMG and tier 

in FY 2009, compared with the costs 

reported in FY 2008, may continue to 

reflect the IRF trend away from 

admitting lower-severity joint 

replacement cases in favor of higherseverity joint replacement cases. We 

believe that this may be evidence of a 

response, at least in part, to Medicare’s 

‘‘60 percent’’ rule, and the increased 

focus on the medical review of IRF 

cases. As we said in the FY 2009 IRF 

PPS proposed rule (73 FR 22680), these 

policies likely increase the complexity 

of patients being admitted to IRFs, 

especially among the lower-extremity 

joint replacement cases with no 

comorbidities, which often do not meet 

the 60 percent rule criteria and have 

been the focus of a lot of the medical 

review activities. 

The largest decrease in a CMG relative 

weight value affecting the most cases is 

a 0.5 percent decrease in the CMG 

relative weight for CMG A0110—Stroke, 

with motor score less than 22.35 and 

patient age less than 84.5 years—in the 

‘‘no comorbidity’’ tier. In the FY 2009 

IRF claims data, this change affects 

16,829 cases. The decrease in the 

relative weight for CMG A0110 follows 

the same trend that is occurring in all 

10 of the CMGs for stroke in the FY 

2008 IRF cost report data and the FY 

2009 IRF claims data that were used to 

update the CMG relative weights in this 

notice. That is, IRFs are reporting 

slightly lower costs for stroke patients 

that are classified into the ‘‘no 

comorbidity’’ tier and the next-lowest 

paying tier 3, with the relative weight 

values for CMG 0110 for FY 2011 

decreasing by 0.5 percent in the ‘‘no 

comorbidity’’ tier and decreasing by 0.4 

percent in tier 3, compared with FY 

2010. At the same time, however, IRFs 

are reporting higher costs for stroke 

patients that are classified into the 2 

highest-paying tiers—tiers 1 and 2— 

with the relative weight values for CMG 

0110 for FY 2011 increasing by 6.5 

percent and 1.8 percent in tiers 1 and 2, 

respectively, compared with FY 2010. 

The changes in the average length of 

stay values for FY 2011, compared with 

the FY 2010 average length of stay 

values, are small and do not show any 

particular trends in IRF length of stay 

patterns. 

IV. Updates to the Facility-Level 

Adjustment Factors 

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

confers broad authority upon the 

Secretary to adjust the per unit payment 

rate ‘‘by such * * * factors as the 

Secretary determines are necessary to 

properly reflect variations in necessary 

costs of treatment among rehabilitation 

facilities.’’ For example, we adjust the 

Federal prospective payment amount 

associated with a CMG to account for 

facility-level characteristics such as an 

IRF’s LIP percentage, teaching status, 

and location in a rural area, if 

applicable, as described in § 412.624(e). 

In the FY 2010 IRF PPS final rule (74 

FR 39762), we updated the adjustment 

factors for calculating the rural, LIP, and 

teaching status adjustments based on 

the most recent three years worth of IRF 

claims data (at that time, FY 2006, FY 

2007, and FY 2008) and the most recent 

available corresponding IRF cost report 

data. As discussed in the FY 2010 IRF 

PPS proposed rule (74 FR 21060 

through 21061), we observed relatively 

large year-to-year fluctuations in the 

underlying data used to compute the 

adjustment factors, especially the 

teaching status adjustment factor. 

Therefore, we implemented a three-year 

moving average approach to updating 

the facility-level adjustment factors in 

the FY 2010 IRF PPS final rule (74 FR 

39762) to provide greater stability and 

predictability of Medicare payments for 

IRFs. Each year, we review the major 

components of the IRF PPS to maintain 

and enhance the accuracy of the 

payment system. For FY 2010, we 

implemented a change to our 

methodology that was designed to 

decrease the IRF PPS volatility by using 

a three-year moving average to calculate 

the facility-level adjustment factors. 

This year, we are evaluating the 

effectiveness of the new methodology in 

stabilizing the IRF PPS rate structure. 

We plan to then, if necessary, propose 

further adjustments through a future 

rulemaking process. 

V. FY 2011 IRF PPS Federal 

Prospective Payment Rates 

A. Adjustment to the FY 2010 IRF PPS 

Federal Prospective Payment Rates, 

Reflecting Adjustments to the 

Rehabilitation, Psychiatric, and LongTerm Care Hospital (RPL) Market Basket 

Increase Factor in Accordance With 

Sections 3401(d) of the Patient 

Protection and Affordable Care Act 

(Affordable Care Act) as Amended by 

Section 10319 of the Same Act and by 

Section 1105(c) of the Health Care and 

Education Reconciliation Act of 2010 

As discussed previously in this 

notice, sections 1886(j)(3)(C) and (D) of 

the Act require the increase factor to be 

reduced by 0.25 percentage point for FY 

2010 and FY 2011. In accordance with 

paragraph (p) of section 3401 of the 

Affordable Care Act, the adjusted FY 

2010 market basket increase factor is 

only applied to discharges on or after 

April 1, 2010. Thus, we revised the FY 

2010 IRF Federal prospective payment 

rates for all IRF discharges occurring on 

or after April 1, 2010 to reflect an 

adjusted market basket increase factor of 

2.25 percent, instead of the 2.5 percent 

market basket increase factor for FY 

2010 that was published in the FY 2010 

IRF PPS final rule (74 FR 39778). 

Revising the market basket increase 

factor for FY 2010 from 2.5 percent to 

2.25 percent changes the FY 2010 

standard payment conversion factor 

from the $13,661 that was published in 

the FY 2010 IRF PPS final rule (74 FR 

39780) to $13,627. This change also 

affects the outlier threshold amount for 

FY 2010, as discussed further in section 

VI.A of this notice. The revised FY 2010 

Federal prospective payment rates are 

available on the CMS Web site at 

http://www.cms.gov/ 

InpatientRehabFacPPS/ 

07_DataFiles.asp#TopOfPage. 

B. Market Basket Increase Factor and 

Labor-Related Share for FY 2011 

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

requires the Secretary to establish an 

increase factor that reflects changes over 

time in the prices of an appropriate mix 

of goods and services included in the 

covered IRF services, which is referred 

to as a market basket index. According 

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

increase factor shall be used to update 

the IRF Federal prospective payment 

rates for each FY. Sections 1886(j)(3)(C) 

and (D) of the Act require the 

application of a 0.25 percentage point 

reduction to the market basket increase 

factor for FYs 2010 and 2011. Thus, in 

this notice, we are updating the IRF PPS 

payments for FY 2011 by a market 

basket increase factor based upon the 


emcdonald on DSK2BSOYB1PROD with NOTICES2
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42849 

most current data available, with a 0.25 

percentage point reduction as required 

by section 1886(j)(3)(D)(i)(I) of the Act. 

For this notice, we have used the 

same methodology described in the FY 

2006 IRF PPS final rule (70 FR 47880 at 

47908 through 47917) to compute the 

FY 2011 market basket increase factor 

and labor-related share. Using this 

method and the IHS Global Insight, Inc. 

forecast for the second quarter of 2010 

of the 2002-based RPL market basket, 

the FY 2011 RPL market basket increase 

factor is 2.5 percent. IHS Global Insight 

is an economic and financial forecasting 

firm that contracts with CMS to forecast 

the components of providers’ market 

baskets. 

In accordance with sections 

1886(j)(3)(C) and (D) of the Act, a 

reduction of 0.25 percentage point is 

then applied to the FY 2011 RPL market 

basket increase factor of 2.5 percent. 

Thus, the adjusted RPL market basket 

increase factor is 2.25 percent for FY 

2011. 

Also, using the methodology 

described in the FY 2006 IRF PPS final 

rule (70 FR 47880, 47908 through 

47917), we are updating the IRF laborrelated share for FY 2011. Using this 

method and the IHS Global Insight, Inc. 

forecast for the second quarter of 2010 

of the 2002-based RPL market basket, 

the IRF labor-related share for FY 2011 

is the sum of the FY 2011 relative 

importance of each labor-related cost 

category. This figure reflects the 

different rates of price change for these 

cost categories between the base year 

(FY 2002) and FY 2011. As shown in 

Table 3, the FY 2011 labor-related share 

is 75.271 percent. 

C. Area Wage Adjustment 

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

the Secretary to adjust the proportion of 

rehabilitation facilities’ costs 

attributable to wages and wage-related 

costs (as estimated by the Secretary from 

time to time) by a factor (established by 

the Secretary) reflecting the relative 

hospital wage level in the geographic 

area of the rehabilitation facility 

compared to the national average wage 

level for those facilities. The Secretary 

is required to update the IRF PPS wage 

index on the basis of information 

available to the Secretary on the wages 

and wage-related costs to furnish 

rehabilitation services. Any adjustments 

or updates made under section 

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

in a budget neutral manner. 

In the FY 2009 IRF PPS final rule (73 

FR 46378), we maintained the 

methodology described in the FY 2006 

IRF PPS final rule to determine the wage 

index, labor market area definitions, and 

hold harmless policy consistent with 

the rationale outlined in the FY 2006 

IRF PPS final rule (70 FR 47880, 47917 

through 47933). 

For FY 2011, we are maintaining the 

policies and methodologies described in 

the FY 2009 IRF PPS final rule relating 

to the labor market area definitions and 

the wage index methodology for areas 

with wage data. Thus, we are using the 

Core-Based Statistical area (CBSA) labor 

market area definitions and the FY 2010 

pre-reclassification and pre-floor 

hospital wage index data. In accordance 

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

the FY 2010 pre-reclassification and 

pre-floor hospital wage index is based 

on data submitted for hospital cost 

reporting periods beginning on or after 

October 1, 2005 and before October 1, 

2006 (that is, 2006 cost report data). 

The labor market designations made 

by the OMB include some geographic 

areas where there are no hospitals and, 

thus, no hospital wage index data on 

which to base the calculation of the IRF 

PPS wage index. We have used the same 

methodology discussed in the FY 2008 

IRF PPS final rule (72 FR 44299) to 

address those geographic areas where 

there are no hospitals and, thus, no 

hospital wage index data on which to 

base the calculation of the FY 2011 IRF 

PPS wage index. 

Additionally, we are incorporating the 

CBSA changes published in the most 

recent OMB bulletin that applies to the 

hospital wage data used to determine 

the current IRF PPS wage index. The 

changes were nominal and did not 

represent substantive changes to the 

CBSA-based designations. Specifically, 

OMB added or deleted certain CBSA 

numbers and revised certain titles. The 

OMB bulletins are available online at 

http://www.whitehouse.gov/omb/ 

bulletins/index.html. 

To calculate the wage-adjusted facility 

payment for the payment rates set forth 

in this notice, we multiply the 

unadjusted Federal payment rate for 

IRFs by the FY 2011 RPL labor-related 

share (75.271 percent) to determine the 

labor-related portion of the standard 

payment amount. We then multiply the 

labor-related portion by the applicable 

IRF wage index from the tables in the 

addendum to this notice. Table 1 is for 

urban areas, and Table 2 is for rural 

areas. 

Adjustments or updates to the IRF 

wage index made under section 

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

budget neutral manner. We calculate a 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.020</GPH>
42850 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

budget neutral wage adjustment factor 

as established in the FY 2004 IRF PPS 

final rule (68 FR 45689), codified at 

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

below. We use the listed steps to ensure 

that the FY 2011 IRF standard payment 

conversion factor reflects the update to 

the wage indexes (based on the FY 2006 

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

manner: 

Step 1. Determine the total amount of 

the estimated FY 2010 IRF PPS rates, 

using the FY 2010 standard payment 

conversion factor and the labor-related 

share and the wage indexes from FY 

2010 (as published in the FY 2010 IRF 

PPS final rule (74 FR 39762)). 

Step 2. Calculate the total amount of 

estimated IRF PPS payments using the 

FY 2010 standard payment conversion 

factor and the FY 2011 labor-related 

share and CBSA urban and rural wage 

indexes. 

Step 3. Divide the amount calculated 

in step 1 by the amount calculated in 

step 2. The resulting quotient is the FY 

2011 budget neutral wage adjustment 

factor of 1.0005. 

Step 4. Apply the FY 2011 budget 

neutral wage adjustment factor from 

step 3 to the FY 2010 IRF PPS standard 

payment conversion factor after the 

application of the adjusted market 

basket update to determine the FY 2011 

standard payment conversion factor. 

We discuss the calculation of the 

standard payment conversion factor for 

FY 2011 in section V.D. of this notice. 

D. Description of the IRF Standard 

Payment Conversion Factor and 

Payment Rates for FY 2011 

To calculate the standard payment 

conversion factor for FY 2011, as 

illustrated in Table 4 below, we begin 

by applying the adjusted market basket 

increase factor for FY 2011 that was 

adjusted in accordance with sections 

1886(j)(3)(C) and (D) of the Act (2.25 

percent, or 2.5 percent less 0.25 

percentage point), to the standard 

payment conversion factor for FY 2010 

($13,627). As described in section V.A 

of this notice, the adjusted standard 

payment conversion factor of $13,627 

for FY 2010 differs from the original FY 

2010 standard payment conversion 

factor that was published in the FY 2010 

IRF PPS final rule (74 FR 39778) 

because of the requirements of sections 

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

Applying the 2.25 percent adjusted 

market basket increase factor for FY 

2011 to the revised standard payment 

conversion factor for FY 2010 of $13,627 

yields a standard payment amount of 

$13,934. Then, we apply the budget 

neutrality factor for the FY 2011 wage 

index and labor related share of 1.0005, 

which results in a standard payment 

amount of $13,941. Then, we apply the 

budget neutrality factor for the revised 

CMG relative weights of 0.9942, which 

results in a standard payment amount of 

$13,860 for FY 2011. 

After the application of the CMG 

relative weights described in section III 

of this notice, the resulting unadjusted 

IRF prospective payment rates for FY 

2011 are shown below in Table 5, ‘‘FY 

2011 Payment Rates.’’ 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.021</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42851 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.022</GPH>
42852 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.023</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42853 

E. Example of the Methodology for 

Adjusting the Federal Prospective 

Payment Rates 

Table 6 illustrates the methodology 

for adjusting the Federal prospective 

payments (as described in sections V.B 

through V.D of this notice). The 

examples below are based on two 

hypothetical Medicare beneficiaries, 

both classified into CMG 0110 (without 

comorbidities). The unadjusted Federal 

prospective payment rate for CMG 0110 

(without comorbidities) appears in 

Table 5 above. 

One beneficiary is in Facility A, an 

IRF located in rural Spencer County, 

Indiana, and another beneficiary is in 

Facility B, an IRF located in urban 

Harrison County, Indiana. Facility A, a 

rural non-teaching hospital has a 

disproportionate share hospital (DSH) 

percentage of 5 percent (which would 

result in a LIP adjustment of 1.0228), a 

wage index of 0.8529, and a rural 

adjustment of 18.4 percent. Facility B, 

an urban teaching hospital, has a DSH 

percentage of 15 percent (which would 

result in a LIP adjustment of 1.0666), a 

wage index of 0.8964, and a teaching 

status adjustment of 0.0610. 

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

payment, we begin by taking the 

unadjusted Federal prospective 

payment rate for CMG 0110 (without 

comorbidities) from Table 5 above. 

Then, we multiply the estimated laborrelated share (75.271) described in 

section V.B of this notice by the 

unadjusted Federal prospective 

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

payment rate, we subtract the labor 

portion of the Federal payment from the 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.024</GPH>
42854 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

unadjusted Federal prospective 

payment. 

To compute the wage-adjusted 

Federal prospective payment, we 

multiply the labor portion of the Federal 

payment by the appropriate wage index 

found in the addendum in Tables 1 and 

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

compute the wage-adjusted Federal 

payment by adding the wage-adjusted 

labor amount to the non-labor portion. 

Adjusting the wage-adjusted Federal 

payment by the facility-level 

adjustments involves several steps. 

First, we take the wage-adjusted Federal 

prospective payment and multiply it by 

the appropriate rural and LIP 

adjustments (if applicable). Second, to 

determine the appropriate amount of 

additional payment for the teaching 

status adjustment (if applicable), we 

multiply the teaching status adjustment 

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

applicable). Finally, we add the 

additional teaching status payments (if 

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

rates. Table 6 illustrates the components 

of the adjusted payment calculation. 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.025</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42855 

Thus, the adjusted payment for 

Facility A would be $31,532.60 and the 

adjusted payment for Facility B would 

be $30,442.17. 

VI. Update to Payments for High-Cost 

Outliers Under the IRF PPS 

A. Adjustment to the Outlier Threshold 

Amount for FY 2010, Reflecting the 

Adjustment to the FY 2010 RPL Market 

Basket in Accordance With Sections 

3401(d) of the Patient Protection and 

Affordable Care Act (Affordable Care 

Act), as Amended by Section 10319 of 

the Same Act and by Section 1105(c) of 

the Health Care and Education 

Reconciliation Act of 2010 

As discussed in section I.A of this 

notice, after publication of the FY 2010 

IRF PPS final rule (74 FR 39762), 

Affordable Care Act amended section 

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

section 1886(j)(3)(D) which, in concert, 

required the application of a 0.25 

percentage point reduction to the 

market basket increase factor for FY 

2010. Notwithstanding these provisions, 

paragraph (p) of section 3401 of the 

Affordable Care Act provides that the 

adjusted FY 2010 rate is only to be 

applied to discharges occurring on or 

after April 1, 2010. Thus, based on the 

legislative change to the increase factor, 

we revised the FY 2010 Federal 

prospective payment rates for IRF 

discharges occurring on or after April 1, 

2010. 

In addition, the legislative change to 

the market basket increase factor for FY 

2010 also affects the FY 2010 IRF outlier 

threshold amount because it reduces the 

FY 2010 RPL market basket increase 

factor, which changes the standard 

payment conversion factor for FY 2010. 

Specifically, the FY 2010 IRF outlier 

threshold amount was determined based 

on the estimated FY 2010 RPL market 

basket increase factor of 2.5 percent and 

the standard payment conversion factor 

of $13,661. However, for FY 2010 IRF 

discharges occurring on or after April 1, 

2010, IRF prospective payments are 

based on the adjusted RPL market 

basket increase factor of 2.25 percent 

and the revised standard payment 

conversion factor of $13,627. In order to 

maintain estimated outlier payments in 

FY 2010 at the percentage adopted in 

our FY 2010 final rule, we revise the IRF 

outlier threshold amount for FY 2010 

from $10,652 that was published in the 

FY 2010 IRF PPS final rule (74 FR 

39788) to $10,721 for FY 2010 IRF 

discharges occurring on or after April 1, 

2010. The outlier threshold amount of 

$10,652 continues to apply for IRF 

discharges occurring on or after October 

1, 2009 through March 31, 2010. The 

revised IRF outlier threshold amount 

was computed using the same data and 

the same methodology as was used to 

compute the FY 2010 outlier threshold 

amount for the FY 2010 IRF PPS final 

rule (74 FR 39762). 

B. Update to the Outlier Threshold 

Amount for FY 2011 

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

the Secretary with the authority to make 

payments in addition to the basic IRF 

prospective payments for cases 

incurring extraordinarily high costs. A 

case qualifies for an outlier payment if 

the estimated cost of the case exceeds 

the adjusted outlier threshold. We 

calculate the adjusted outlier threshold 

by adding the IRF PPS payment for the 

case (that is, the CMG payment adjusted 

by all of the relevant facility-level 

adjustments) and the adjusted threshold 

amount (also, adjusted by all of the 

relevant facility-level adjustments). 

Then, we calculate the estimated cost of 

a case by multiplying the IRF’s overall 

cost-to-charge (CCR) by the Medicare 

allowable covered charge. If the 

estimated cost of the case is higher than 

the adjusted outlier threshold, we make 

an outlier payment for the case equal to 

80 percent of the difference between the 

estimated cost of the case and the 

outlier threshold. 

In the FY 2002 IRF PPS final rule (66 

FR 41362 through 41363), we discussed 

our rationale for setting the outlier 

threshold amount for the IRF PPS so 

that estimated outlier payments would 

equal 3 percent of total estimated 

payments. For the 2002 IRF PPS final 

rule, we analyzed various outlier 

policies using 3, 4, and 5 percent of the 

total estimated payments, and we 

concluded that an outlier policy set at 

3 percent of total estimated payments 

would optimize the extent to which we 

could reduce the financial risk to IRFs 

of caring for high-cost patients, while 

still providing for adequate payments 

for all other (non-high cost outlier) 

cases. 

Subsequently, we updated the IRF 

outlier threshold amount in the FYs 

2006 through 2010 IRF PPS final rules 

(70 FR 47880, 70 FR 57166, 71 FR 

48354, 72 FR 44284, 73 FR 46370, 74 FR 

39762, respectively) to maintain 

estimated outlier payments at 3 percent 

of total estimated payments. We also 

stated in the FY 2009 final rule (FR 73 

46287) that we would continue to 

analyze the estimated outlier payments 

for subsequent years and adjust the 

outlier threshold amount as appropriate 

to maintain the 3 percent target. 

To update the IRF outlier threshold 

amount for FY 2011 in this notice, we 

are using FY 2009 claims data and the 

same methodology that we used to set 

the initial outlier threshold amount in 

the FY 2002 IRF PPS final rule (66 FR 

41362 through 41363), which is also the 

same methodology that we used to 

update the outlier threshold amounts for 

FYs 2006 through 2010. Based on an 

analysis of this updated data, we 

estimate that IRF outlier payments as a 

percentage of total estimated payments 

are approximately 3.1 percent in FY 

2010. Although we are still analyzing 

the reasons for this unexpected increase 

in outlier payments in the FY 2009 IRF 

claims data, we note that IPPS hospitals 

experienced about the same magnitude 

increase in outlier payments in FY 2009 

(from 5.1 percent to 5.3 percent). Based 

on this updated analysis, we will update 

the FY 2011 outlier threshold amount to 

ensure that estimated FY 2011 outlier 

payments are approximately 3 percent 

of total estimated IRF payments. The 

outlier threshold amount of $10,721 for 

discharges occurring on or after April 1, 

2010 will be changed to $11,410 in FY 

2011 to reduce estimated outlier 

payments and thereby maintain 

estimated outlier payments at 3 percent 

of total estimated aggregate IRF 

payments for FY 2011. 

C. Update to the IRF Cost-to-Charge 

Ratio Ceilings 

In accordance with the methodology 

stated in the FY 2004 IRF PPS final rule 

(68 FR 45674, 45692 through 45694), we 

apply a ceiling to IRFs’ CCRs. Using the 

methodology described in that final 

rule, we are updating the national urban 

and rural CCRs for IRFs, as well as the 

national CCR ceiling for FY 2011, in this 

notice based on analysis of the most 

recent data that is available. We apply 

the national urban and rural CCRs in the 

following situations: 

• New IRFs that have not yet 

submitted their first Medicare cost 

report. 

• IRFs whose overall CCR is in excess 

of the national CCR ceiling for FY 2011, 

as discussed below. 

• Other IRFs for which accurate data 

to calculate an overall CCR are not 

available. 

Specifically, for FY 2011, we estimate 

a national average CCR of 0.620 for rural 

IRFs, which we calculate by taking an 

average of the CCRs for all rural IRFs 

using their most recently submitted cost 

report data. Similarly, we estimate a 

national average CCR of 0.489 for urban 

IRFs, which we calculate by taking an 

average of the CCRs for all urban IRFs 

using their most recently submitted cost 

report data. We apply weights to both of 

these averages using the IRFs’ estimated 

costs, meaning that the CCRs of IRFs 

with higher costs factor more heavily 


emcdonald on DSK2BSOYB1PROD with NOTICES2
42856 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

into the averages than the CCRs of IRFs 

with lower costs. For this notice, we 

have used the most recent available cost 

report data (FY 2008). This includes all 

IRFs whose cost reporting periods began 

on or after October 1, 2007, and before 

October 1, 2008. If, for any IRF, the FY 

2008 cost report was missing or had an 

‘‘as submitted’’ status, we used data from 

a previous fiscal year’s (that is, FY 2004 

through FY 2007) settled cost report for 

that IRF. We do not use cost report data 

from before FY 2004 for any IRF because 

changes in IRF utilization since FY 2004 

resulting from the 60 percent rule and 

IRF medical review activities suggest 

that these older data do not adequately 

reflect the current cost of care. 

In addition, in accordance with past 

practice, we set the national CCR ceiling 

at 3 standard deviations above the mean 

CCR. Using this method, the national 

CCR ceiling is set at 2.94 for FY 2011. 

This means that, if an individual IRF’s 

CCR exceeds this ceiling of 2.94 for FY 

2011, we would replace the IRF’s CCR 

with the appropriate national average 

CCR (either rural or urban, depending 

on the geographic location of the IRF). 

We calculate the national CCR ceiling 

by: 

Step 1. Taking the national average 

CCR (weighted by each IRF’s total costs, 

as discussed above) of all IRFs for which 

we have sufficient cost report data (both 

rural and urban IRFs combined). 

Step 2. Estimating the standard 

deviation of the national average CCR 

computed in step 1. 

Step 3. Multiplying the standard 

deviation of the national average CCR 

computed in step 2 by a factor of 3 to 

compute a statistically significant 

reliable ceiling. 

Step 4. Adding the result from step 3 

to the national average CCR of all IRFs 

for which we have sufficient cost report 

data, from step 1. 

VII. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

VIII. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register to provide a period for public 

comment before the provisions of a rule 

take effect. We can waive this 

procedure, however, if we find good 

cause that notice and comment 

procedures are impracticable, 

unnecessary, or contrary to the public 

interest and we incorporate a statement 

of finding and its reasons in the notice. 

We find that it is unnecessary to 

undertake notice and comment 

rulemaking for the updates in this 

notice because the update does not 

make any substantive changes in policy, 

but merely reflects the application of 

previously established methodologies. 

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

and (D) of the Act require the 

application of an ‘‘Other Adjustment’’ to 

the update to the IRF PPS increase 

factor in FYs 2010 and 2011. We 

applied the statutorily-required 

adjustments in this notice. We find that 

notice and comment rulemaking is 

unnecessary to implement those 

statutory provisions because they are 

self-implementing provisions of law, not 

requiring the exercise of any discretion 

on the part of the Secretary. Therefore, 

under 5 U.S.C. 553(b)(3)(B), for good 

cause, we waive notice and comment 

procedures. 

IX. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

notice as required by Executive Order 

12866 (September 30, 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA, September 19, 

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

the Social Security Act, section 202 of 

the Unfunded Mandates Reform Act of 

1995 (Pub. L. 104–4), Executive Order 

13132 on Federalism (August 4, 1999), 

and the Congressional Review Act (5 

U.S.C. 804(2)). 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for a 

major notice with economically 

significant effects ($100 million or more 

in any one year). We estimate that this 

notice is economically significant, as 

measured by the $100 million threshold 

and hence also a major rule under the 

Congressional Review Act. To estimate 

the total impact of the updates 

described in this notice, we compare the 

FY 2011 estimated payments with the 

revised FY 2010 estimated payments. 

The revised FY 2010 estimated 

payments reflect the revised Federal 

prospective payment rates and outlier 

threshold amount that applied to IRF 

discharges occurring on or after April 1, 

2010, in accordance with sections 

1886(j)(3)(C) and (D) of the Act, as 

described in sections V.A and VI.A of 

this notice. Based on this analysis, we 

estimate that the total impact of these 

updates on FY 2011 IRF PPS payments 

will be an increase of approximately 

$135 million. 

The Regulatory Flexibility Act (RFA) 

requires agencies to analyze options for 

regulatory relief of small entities, if a 

rule has a significant impact on a 

substantial number of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions. Most IRFs and most other 

providers and suppliers are small 

entities, either by nonprofit status or by 

having revenues of $7 million to $34.5 

million in any one year. (For details, see 

the Small Business Administration’s 

final rule that set forth size standards for 

health care industries, at 65 FR 69432 at 

http://www.sba.gov/idc/groups/public/ 

documents/sba_homepage/serv_sstd_

tablepdf.pdf, November 17, 2000.) 

Because we lack data on individual 

hospital receipts, we cannot determine 

the number of small proprietary IRFs or 

the proportion of IRFs’ revenue that is 

derived from Medicare payments. 

Therefore, we assume that all IRFs (an 

approximate total of 1,200 IRFs, of 

which approximately 60 percent are 

nonprofit facilities) are considered small 

entities and that Medicare payment 

constitutes the majority of their 

revenues. The Department of Health and 

Human Services generally uses a 

revenue impact of 3 to 5 percent as a 

significance threshold under the RFA. 

As shown in Table 7, we estimate that 

the net revenue impact of this notice on 

all IRFs is to increase estimated 

payments by approximately 2.16 

percent, with only one category of IRFs 

(32 urban IRFs in the New England 

region) estimated to receive an increase 

in estimated payments of greater than 3 

percent (3.19 percent). Thus, we do not 

anticipate that this notice would have a 

significant impact on a substantial 

number of small entities. Medicare 

fiscal intermediaries, Medicare 

Administrative Contractors, and carriers 

are not considered to be small entities. 

Individuals and States are not included 

in the definition of a small entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. As discussed in 


emcdonald on DSK2BSOYB1PROD with NOTICES2
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42857 

detail below, the rates and policies set 

forth in this notice will not have an 

adverse impact on rural hospitals based 

on the data of the 182 rural units and 

21 rural hospitals in our database of 

1,171 IRFs for which data were 

available. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–04, enacted on March 22, 1995) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any one year of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2010, that 

threshold level is approximately $135 

million. This notice will not impose 

spending costs on State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $135 million. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

As stated above, this notice will not 

have a substantial effect on State and 

local governments, preempt State law, 

or otherwise have a Federalism 

implication. 

B. Anticipated Effects of the Notice 

1. Basis and Methodology of Estimates 

This notice sets forth updates to the 

IRF PPS rates contained in the FY 2010 

final rule, as revised by sections 

1886(j)(3)(C) and (D) of the Act for IRF 

discharges occurring on or after April 1, 

2010, as described in sections V.A and 

VI.A of this notice. Specifically, this 

notice sets forth updates to the CMG 

relative weights and length of stay 

values, the wage index, and the outlier 

threshold for high-cost cases. This 

notice also implements a 0.25 

percentage point reduction to the FY 

2011 RPL market basket increase factor 

in accordance with sections 

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

We estimate that the FY 2011 impact 

will be a net increase of $135 million in 

payments to IRF providers. The impact 

analysis in Table 7 of this notice 

represents the projected effects of the 

updates to IRF PPS payments for FY 

2011 compared with the revised 

estimated IRF PPS payments in FY 

2010. The revised FY 2010 estimated 

payments reflect the revised Federal 

prospective payment rates and outlier 

threshold amount that applied to IRF 

discharges occurring on or after April 1, 

2010, in accordance with sections 

1886(j)(3)(C) and (D) of the Act, as 

described in sections V.A and VI.A of 

this notice. We determine the effects by 

estimating payments while holding all 

other payment variables constant. We 

use the best data available, but we do 

not attempt to predict behavioral 

responses to these changes, and we do 

not make adjustments for future changes 

in such variables as number of 

discharges or case-mix. 

We note that certain events may 

combine to limit the scope or accuracy 

of our impact analysis, because such an 

analysis is future-oriented and, thus, 

susceptible to forecasting errors because 

of other changes in the forecasted 

impact time period. Some examples 

could be legislative changes made by 

the Congress to the Medicare program 

that would impact program funding, or 

changes specifically related to IRFs. 

Although some of these changes may 

not necessarily be specific to the IRF 

PPS, the nature of the Medicare program 

is such that the changes may interact, 

and the complexity of the interaction of 

these changes could make it difficult to 

predict accurately the full scope of the 

impact upon IRFs. 

In updating the rates for FY 2011, we 

are implementing standard annual 

revisions described in this notice (for 

example, the update to the wage and 

market basket indexes used to adjust the 

Federal rates). We are also 

implementing a 0.25 percentage point 

reduction to the FY 2011 RPL market 

basket increase factor in accordance 

with sections 1886(j)(3)(C) and (D) of the 

Act. We estimate that these revisions 

will increase payments to IRFs by 

approximately $140 million. 

The aggregate change in estimated 

payments associated with this notice is 

an increase in payments to IRFs of $135 

million for FY 2011. We estimate that 

the application of the FY 2011 RPL 

market basket increase factor, as 

reduced by 0.25 percentage point in 

accordance with sections 1886(j)(3)(C) 

and (D) of the Act, will increase 

aggregate payments to IRFs by $140 

million. However, we estimate a $5 

million decrease in aggregate payments 

to IRFs due to the update to the outlier 

threshold amount to decrease estimated 

outlier payments from approximately 

3.1 percent in FY 2010 to 3.0 percent in 

FY 2011. Taken together, these updates 

will result in a net change in estimated 

payments from FY 2010 to FY 2011 of 

$135 million. 

The effects of the changes that impact 

IRF PPS payment rates are shown in 

Table 7. The following changes that 

affect the IRF PPS payment rates are 

discussed separately below: 

• The effects of the update to the 

outlier threshold amount, from 

approximately 3.1 percent to 3.0 percent 

of total estimated payments for FY 2011, 

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

Act. 

• The effects of the annual market 

basket update (using the RPL market 

basket) to IRF PPS payment rates, as 

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

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

including the 0.25 percentage point 

reduction for FY 2011 in accordance 

with sections 1886(j)(3)(C) and (D) of the 

Act. 

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

index adjustment, as required under 

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

• The effects of the budget-neutral 

changes to the CMG relative weights 

and average length of stay values, under 

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

of the Act. 

• The total change in estimated 

payments based on the FY 2011 

payment updates relative to the revised 

estimated FY 2010 payments. The 

revised FY 2010 estimated payments 

reflect the adjusted Federal prospective 

payment rates and outlier threshold 

amount that apply to IRF discharges 

occurring on or after April 1, 2010, in 

accordance with sections 1886(j)(3)(C) 

and (D) of the Act. 

2. Description of Table 7 

The table below categorizes IRFs by 

geographic location, including urban or 

rural location, and location with respect 

to CMS’s nine census divisions (as 

defined on the cost report) of the 

country. In addition, the table divides 

IRFs into those that are separate 

rehabilitation hospitals (otherwise 

called freestanding hospitals in this 

section), those that are rehabilitation 

units of a hospital (otherwise called 

hospital units in this section), rural or 

urban facilities, ownership (otherwise 

called for-profit, non-profit, and 

government), and by teaching status. 

The top row of the table shows the 

overall impact on the 1,171 IRFs 

included in the analysis. 

The next 12 rows of Table 7 contain 

IRFs categorized according to their 

geographic location, designation as 

either a freestanding hospital or a unit 

of a hospital, and by type of ownership; 

all urban, which is further divided into 

urban units of a hospital, urban 

freestanding hospitals, and by type of 

ownership; and all rural, which is 

further divided into rural units of a 

hospital, rural freestanding hospitals, 

and by type of ownership. There are 968 

IRFs located in urban areas included in 

our analysis. Among these, there are 768 

IRF units of hospitals located in urban 

areas and 200 freestanding IRF hospitals 

located in urban areas. There are 203 


emcdonald on DSK2BSOYB1PROD with NOTICES2
42858 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

IRFs located in rural areas included in 

our analysis. Among these, there are 182 

IRF units of hospitals located in rural 

areas and 21 freestanding IRF hospitals 

located in rural areas. There are 382 forprofit IRFs. Among these, there are 317 

IRFs in urban areas and 65 IRFs in rural 

areas. There are 721 non-profit IRFs. 

Among these, there are 597 urban IRFs 

and 124 rural IRFs. There are 68 

government-owned IRFs. Among these, 

there are 54 urban IRFs and 14 rural 

IRFs. 

The remaining three parts of Table 7 

show IRFs grouped by their geographic 

location within a region and by teaching 

status. First, IRFs located in urban areas 

are categorized with respect to their 

location within a particular one of the 

nine CMS geographic regions. Second, 

IRFs located in rural areas are 

categorized with respect to their 

location within a particular one of the 

nine CMS geographic regions. In some 

cases, especially for rural IRFs located 

in the New England, Mountain, and 

Pacific regions, the number of IRFs 

represented is small. Finally, IRFs are 

grouped by teaching status, including 

non-teaching IRFs, IRFs with an intern 

and resident to average daily census 

(ADC) ratio less than 10 percent, IRFs 

with an intern and resident to ADC ratio 

greater than or equal to 10 percent and 

less than or equal to 19 percent, and 

IRFs with an intern and resident to ADC 

ratio greater than 19 percent. 

The estimated impacts of each 

payment update described in this notice 

to the facility categories listed above are 

shown in the columns of Table 7. The 

description of each column is as 

follows: 

Column (1) shows the facility 

classification categories described 

above. 

Column (2) shows the number of IRFs 

in each category in our FY 2009 analysis 

file. 

Column (3) shows the number of 

cases in each category in our FY 2009 

analysis file. 

Column (4) shows the estimated effect 

of the adjustment to the outlier 

threshold amount. 

Column (5) shows the estimated effect 

of the update to the IRF PPS payment 

rates, which includes a 2.5 percent 

market basket increase factor with the 

0.25 percentage point reduction in 

accordance with sections 1886(f)(3)(C) 

and (D) of the Act. 

Column (6) shows the estimated effect 

of the update to the IRF labor-related 

share and wage index, in a budget 

neutral manner. 

Column (7) shows the estimated effect 

of the update to the CMG relative 

weights and average length of stay 

values, in a budget neutral manner. 

Column (8) compares our estimates of 

the payments per discharge, 

incorporating all of the payment 

updates reflected in this notice for FY 

2011 to our estimates of the revised 

payments per discharge in FY 2010. The 

revised FY 2010 estimated payments 

reflect the revised Federal prospective 

payment rates and outlier threshold 

amount that became effective for IRF 

discharges occurring on or after April 1, 

2010, in accordance with sections 

1886(j)(3)(C) and (d) of the Act, as 

described in sections V.A and VI.A of 

this notice. 

The average estimated increase for all 

IRFs is approximately 2.16 percent. This 

estimated net increase includes the 

effects of the RPL market basket increase 

factor for FY 2011 of 2.5 percent, 

reduced by 0.25 percentage point in 

accordance with sections 1886(j)(3)(C) 

and (D) of the Act. It also includes the 

approximate 0.1 percent overall 

estimated decrease in estimated IRF 

outlier payments from the update to the 

outlier threshold amount. Since we are 

making the updates to the IRF wage 

index and the CMG relative weights in 

a budget-neutral manner, they will not 

affect total estimated IRF payments in 

the aggregate. However, as described in 

more detail in each section, they will 

affect the estimated distribution of 

payments among providers. 

BILLING CODE 4120–01–P 


emcdonald on DSK2BSOYB1PROD with NOTICES2
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42859 


emcdonald on DSK2BSOYB1PROD with NOTICES2en22jy10.026</GPH>
42860 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2en22jy10.027</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42861 

BILLING CODE 4120–01–C 


emcdonald on DSK2BSOYB1PROD with NOTICES2en22jy10.028</GPH>
42862 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

3. Impact of the Update to the Outlier 

Threshold Amount 

The outlier threshold adjustment is 

presented in column 4 of Table 7. In the 

FY 2010 IRF PPS final rule (74 FR 39786 

through 39788), we used FY 2008 IRF 

claims data (the best, most complete 

data available at that time) to set the 

outlier threshold amount for FY 2010 so 

that estimated outlier payments would 

equal 3 percent of total estimated 

payments for FY 2010. As discussed in 

section VI.A of this notice, we revised 

the outlier threshold amount for IRF 

discharges occurring on or after April 1, 

2010 to reflect the reduction to the RPL 

market basket that was made in 

accordance with sections 1886(J)(3)(C) 

and (D) of the Act and to ensure that 

estimated IRF outlier payments for FY 

2010 would continue to equal 3 percent 

of total estimated payments for FY 2010. 

This revised analysis was done using 

the same data and the same 

methodology that was used to set the FY 

2010 outlier threshold amount for the 

FY 2010 IRF PPS final rule (74 FR 39786 

through 39788). 

However, for this notice, we are 

updating our analysis using FY 2009 

IRF claims data and, based on this 

updated analysis, we estimate that IRF 

outlier payments as a percentage of total 

estimated IRF payments are 3.1 percent 

in FY 2010. Thus, we are adjusting the 

outlier threshold amount in this notice 

to set total estimated outlier payments 

equal to 3 percent of total estimated 

payments in FY 2011. The estimated 

change in total IRF payments for FY 

2011, therefore, includes an 

approximate 0.1 percent decrease in 

payments because the estimated outlier 

portion of total payments is estimated to 

decrease from approximately 3.1 

percent to 3 percent. 

The impact of this outlier adjustment 

update (as shown in column 4 of Table 

7) is to decrease estimated overall 

payments to IRFs by about 0.09 percent. 

We do not estimate that any group of 

IRFs will experience an increase in 

payments from this update. We estimate 

the largest decrease in payments to be 

a 0.41 percent decrease in estimated 

payments to rural IRFs in the Pacific 

region, which is due to the small 

number of IRFs in that region (5) and 

the high volume of outlier payments 

paid to those IRFs. 

4. Impact of the Market Basket Update 

to the IRF PPS Payment Rates, Including 

the 0.25 Percentage Point Reduction to 

the RPL Market Basket Increase Factor 

in Accordance with Sections 

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

The adjusted market basket update to 

the IRF PPS payment rates is presented 

in column 5 of Table 7. In the aggregate 

the update would result in a net 2.25 

percent increase in overall estimated 

payments to IRFs. This net increase 

reflects the estimated RPL market basket 

increase factor for FY 2011 of 2.5 

percent, and the 0.25 percentage point 

reduction to the RPL market basket 

increase factor in accordance with 

sections 1886(j)(3)(C) and (D) of the Act. 

5. Impact of the CBSA Wage Index and 

Labor-Related Share 

In column 6 of Table 7, we present the 

effects of the budget neutral update of 

the wage index and labor-related share. 

The changes to the wage index and the 

labor-related share are discussed 

together because the wage index is 

applied to the labor-related share 

portion of payments, so the changes in 

the two have a combined effect on 

payments to providers. As discussed in 

section V.B of this notice, the laborrelated share decreased from 75.779 

percent in FY 2010 to 75.271 percent in 

FY 2011. 

In the aggregate, since these updates 

to the wage index and the labor-related 

share are applied in a budget-neutral 

manner as required under section 

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

that these updates will affect overall 

estimated payments to IRFs. However, 

we estimate that these updates will have 

small distributional effects. For 

example, we estimate the largest 

increase in estimated payments from the 

update to the CBSA wage index and 

labor-related share to be a 0.94 percent 

increase for urban IRFs in the New 

England region. In addition, we estimate 

a 0.17 percent decrease in overall 

payments to rural IRFs, with the largest 

decrease in estimated payments of 1.22 

percent for rural IRFs in the New 

England region. 

6. Impact of the Update to the CMG 

Relative Weights and Average Length of 

Stay Values 

In column 7 of Table 7, we present the 

effects of the budget neutral update of 

the CMG relative weights and average 

length of stay values. In the aggregate 

we do not estimate that these updates 

will affect overall estimated payments to 

IRFs. However, we estimate that these 

updates will have small distributional 

effects, with the largest decrease in 

payments as a result of these updates 

being a 0.30 percent decrease to rural 

IRFs in the Pacific region and the largest 

increase in payments as a result of these 

updates being a 0.20 percent increase to 

rural IRFs in the West North Central 

region. 

C. Alternatives Considered 

Because we have determined that this 

notice would have a significant 

economic impact on IRFs and on a 

substantial number of small entities, we 

will discuss the alternative changes to 

the IRF PPS that we considered. 

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

requires the Secretary to update the IRF 

PPS payment rates by an increase factor 

that reflects changes over time in the 

prices of an appropriate mix of goods 

and services included in the covered 

IRF services. Thus, we did not consider 

alternatives to updating payments using 

the estimated RPL market basket 

increase factor for FY 2011. However, as 

noted previously in this notice, sections 

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

the Secretary to apply a 0.25 percentage 

point reduction to the market basket 

increase factor for FY 2011. Thus, in 

accordance with the recently amended 

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

updating IRF Federal prospective 

payments in this notice by 2.25 percent 

(which equals the 2.5 percent estimated 

RPL market basket increase factor for FY 

2011 reduced by 0.25 percentage points, 

as required by sections 1886(f)(3)(C) and 

(D) of the Act). 

We considered maintaining the 

existing CMG relative weights and 

average length of stay values for FY 

2011. However, in light of recently 

available data and our desire to ensure 

that the CMG relative weights and 

average length of stay values are as 

reflective as possible of recent changes 

in IRF utilization and case mix, we 

believe that it is appropriate to update 

the CMG relative weights and average 

length of stay values at this time to 

ensure that IRF PPS payments continue 

to reflect as accurately as possible the 

current costs of care in IRFs. 

We considered maintaining the 

existing outlier threshold amount for FY 

2011 because updating the outlier 

threshold amount has an estimated 

negative effect on IRF payments and, 

therefore, on small entities. If we were 

to maintain the FY 2010 outlier 

threshold amount, more outlier cases 

would have qualified for the additional 

outlier payments in FY 2011. However, 

analysis of updated FY 2009 data 

indicates that estimated outlier 

payments would exceed 3 percent of 

total estimated payments for FY 2011 

unless we updated the outlier threshold 


emcdonald on DSK2BSOYB1PROD with NOTICES2
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42863 

amount. Also, we estimate that the 

overall effect of this update on 

estimated payments to IRFs is small 

(less than 1 percent). 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 8 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this notice. This table 

provides our best estimate of the 

increase in Medicare payments under 

the IRF PPS as a result of the updates 

presented in this notice based on the 

data for 1,171 IRFs in our database. All 

estimated expenditures are classified as 

transfers to Medicare providers (that is, 

IRFs). 

E. Conclusion 

Overall, the estimated payments per 

discharge for IRFs in FY 2011 are 

projected to increase by 2.16 percent, 

compared with the revised estimated 

payments in FY 2010, as reflected in 

column 8 of Table 7. As noted 

previously, the revised FY 2010 

estimated payments reflect the revised 

Federal prospective payment rates and 

outlier threshold amount that became 

effective for IRF discharges occurring on 

or after April 1, 2010, in accordance 

with sections 1886(j)(3)(C) and (D) of the 

Act, as described in sections V.A and 

VI.A of this notice. IRF payments per 

discharge are estimated to increase 2.17 

percent in urban areas and 2.05 percent 

in rural areas, compared with the 

revised estimated FY 2010 payments. 

Payments to rehabilitation units in rural 

areas are estimated to increase by 2.03 

percent per discharge, and payments to 

rehabilitation units in urban areas are 

estimated to increase by 2.20 percent 

per discharge. Payments to 

rehabilitation freestanding hospitals in 

rural and urban areas are estimated to 

increase 2.15 percent per discharge. 

Overall, no IRFs are estimated to 

experience a net decrease in payments 

as a result of the updates in this notice. 

The largest payment increase is 

estimated at 3.19 percent for urban IRFs 

located in the New England region. This 

is due to the larger than average positive 

effect of the FY 2011 CBSA wage index 

and labor-related share updates for 

urban IRFs in this region. 

In accordance with the provisions of 

Executive Order 12866, this Notice was 

reviewed by the Office of Management 

and Budget. 

Authority: Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program. 

Dated: May 13, 2010. 

Marilyn Tavenner, 

Acting Administrator and Chief Operating 

Officer, Centers for Medicare & Medicaid 

Services. 

Approved: July 14, 2010. 

Kathleen Sebelius, 

Secretary. 

BILLING CODE 4120–01–P 


emcdonald on DSK2BSOYB1PROD with NOTICES2en22jy10.029</GPH>
42864 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.030</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42865 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.031</GPH>
42866 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.032</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42867 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.033</GPH>
42868 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.034</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42869 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.035</GPH>
42870 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.036</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42871 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.037</GPH>
42872 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.038</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42873 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.039</GPH>
42874 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.040</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42875 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.041</GPH>
42876 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.042</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42877 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.043</GPH>
42878 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.044</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42879 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.045</GPH>
42880 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.046</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42881 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.047</GPH>
42882 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.048</GPH>
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 42883 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.049</GPH>
42884 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices 

[FR Doc. 2010–17621 Filed 7–16–10; 4:15 pm] 

BILLING CODE 4120–01–C 


emcdonald on DSK2BSOYB1PROD with NOTICES2EN22JY10.050</GPH>