40954 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 405, 412, and 413

[HCFA–1003–F]

RIN 0938–AI22

Medicare Program; Changes to the

Hospital Inpatient Prospective

Payment Systems and Fiscal Year 1999

Rates

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Final rule.

SUMMARY: We are revising the Medicare

hospital inpatient prospective payment

systems for operating costs and capitalrelated costs to implement applicable

statutory requirements, including

section 4407 of the Balanced Budget Act

of 1997 (BBA), as well as changes

arising from our continuing experience

with the systems. In addition, in the

addendum to this final rule, we describe

changes in the amounts and factors

necessary to determine rates for

Medicare hospital inpatient services for

operating costs and capital-related costs.

These changes are applicable to

discharges occurring on or after October

1, 1998. We also set forth rate-ofincrease limits as well as changes for

hospitals and hospital units excluded

from the prospective payment systems.

Finally, we are implementing the

provisions of section 4625 of the BBA

concerning payment for the direct costs

of graduate medical education.

DATES: The provisions of this final rule

are effective October 1, 1998. This rule

is a major rule as defined in Title 5,

United States Code, section 804(2).

Pursuant to 5 U.S.C. section

801(a)(1)(A), we are submitting a report

to the Congress on this rule on July 31,

1998.

ADDRESSES: Copies: To order copies of

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FOR FURTHER INFORMATION CONTACT:

Nancy Edwards, (410) 786–4531,

Operating Prospective Payment, DRG,

and Wage Index Issues.

Tzvi Hefter, (410) 786–4487, Capital

Prospective Payment, Excluded

Hospitals, and Graduate Medical

Education Issues.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary

Sections 1886(d) and (g) of the Social

Security Act (the Act) set forth a system

of payment for the operating and capital

costs of acute care hospital inpatient

stays under Medicare Part A (Hospital

Insurance) based on prospectively-set

rates. Under these prospective payment

systems (PPS), Medicare payment for

hospital inpatient operating and capitalrelated costs is made at predetermined,

specific rates for each hospital

discharge. Discharges are classified

according to a list of diagnosis-related

groups (DRGs).

Certain specialty hospitals are

excluded from the prospective payment

systems. Under section 1886(d)(1)(B) of

the Act, the following hospitals and

units are excluded from PPS:

psychiatric hospitals or units,

rehabilitation hospitals or units,

children’s hospitals, long term care

hospitals, and cancer hospitals. For

these hospitals and units, Medicare

payment for operating costs is based on

reasonable costs subject to certain

limits.

Under section 1886(a)(4) of the Act,

costs incurred in connection with

approved graduate medical education

(GME) programs are excluded from the

operating costs of inpatient hospital

services. Hospitals with approved GME

programs are paid for the direct costs of

GME in accordance with section 1886(h)

of the Act; the amount of payment for

direct GME costs for a cost reporting

period is based on the number of the

hospital’s residents in that period and

the hospital’s costs per resident in a

base year.

The regulations governing the

hospital inpatient prospective payment

system are located in 42 CFR part 412.

The regulations governing excluded

hospitals are located in both parts 412

and 413, and the graduate medical

education regulations are found in part

413.

B. Summary of the Provisions of the

May 8, 1998 Proposed Rule

On May 8, 1998, we published a

proposed rule in the Federal Register

(63 FR 25576) setting forth proposed

changes to the Medicare hospital

inpatient prospective payment systems

for both operating costs and capitalrelated costs, which would be effective

for discharges occurring on or after

October 1, 1998. We also proposed

changes in payments for excluded

hospitals and payments for graduate

medical education costs. The following

is a summary of the major issues

addressed and changes we proposed to

make:

• We proposed changes to the FY

1999 DRG classifications and relative

weights, as required by section

1886(d)(4)(C) of the Act.

• We proposed to update the hospital

wage data for FY 1999. We also

proposed changes to the data categories

included in the wage index and

revisions to the wage index based on

hospital redesignations.

• We discussed several provisions of

the regulations in 42 CFR parts 412 and

413 and set forth certain proposed

changes concerning definition of

transfer cases, rural referral centers,

disproportionate share adjustment, bad

debts, and direct graduate medical

education programs.

• We discussed several provisions of

the regulations in 42 CFR Part 412 and

set forth certain proposed changes and

clarifications concerning capital indirect

medical education payments and

payments to new hospitals.

• We discussed the criteria governing

excluded hospitals including caps on

the target amounts for FY 1999 and

exceptions.

• In the addendum to the proposed

rule, we set forth proposed changes to

the amounts and factors for determining

the FY 1999 prospective payment rates

for operating costs and capital-related

costs. We also proposed update factors

for determining the rate-of-increase

limits for cost reporting periods
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40955

beginning in FY 1999 for hospitals and

hospital units excluded from the

prospective payment system.

• In Appendix A of the proposed

rule, we set forth an analysis of the

impact that the proposed changes would

have on affected entities.

• In Appendix B of the proposed rule,

we set forth the technical appendix on

the proposed FY 1999 capital cost

model.

• In Appendix C, as required by

section 1886(e)(3)(B) of the Act, we set

forth a report to Congress on our initial

estimate of a recommended update

factor for FY 1999 for both hospitals

included in and hospitals excluded

from the prospective payment systems.

• In Appendix D of the proposed rule,

we set forth our recommendation of the

appropriate percentage change for FY

1999 for the large urban area and other

area average standardized amounts (and

hospital-specific rates applicable to sole

community and Medicare-dependent,

small rural hospitals) for hospital

inpatient services paid for under the

prospective payment system for

operating costs.

• In Appendix D of the proposed rule,

we also set forth our recommendation of

the appropriate percentage change for

FY 1999 for target rate-of-increase limits

to the allowable operating costs of

hospital inpatient services furnished by

hospitals and hospital units excluded

from the prospective payment system.

• In the proposed rule, we discussed

in detail the March 1, 1998

recommendations concerning hospital

inpatient policies made by the Medicare

Payment Advisory Commission

(MedPAC) as well as our responses to

those recommendations. Under section

1805(b) of the Act, MedPAC is required

to submit a report to Congress, not later

than March 1 of each year, that reviews

and makes recommendations on

Medicare payment policies.

C. Public Comments Received in

Response to the Proposed Rule

A total of 214 items of

correspondence containing comments

on the proposed rule were received

timely. The main areas of concern

addressed by the commenters were the

change in the definition of transfer cases

and the revisions to the wage index. We

also received a number of comments on

the proposal to pay qualified

nonhospital providers for the direct

costs of graduate medical education.

Summaries of the public comments

received and our responses to those

comments are set forth below under the

appropriate section.

II. Changes to DRG Classifications and

Relative Weights

A. Background

Under the prospective payment

system, we pay for inpatient hospital

services on the basis of a rate per

discharge that varies by the DRG to

which a beneficiary’s stay is assigned.

The formula used to calculate payment

for a specific case takes an individual

hospital’s payment rate per case and

multiplies it by the weight of the DRG

to which the case is assigned. Each DRG

weight represents the average resources

required to care for cases in that

particular DRG relative to the average

resources used to treat cases in all

DRGs.

Congress recognized that it would be

necessary to recalculate the DRG

relative weights periodically to account

for changes in resource consumption.

Accordingly, section 1886(d)(4)(C) of

the Act requires that the Secretary

adjust the DRG classifications and

relative weights annually. These

adjustments are made to reflect changes

in treatment patterns, technology, and

any other factors that may change the

relative use of hospital resources. The

changes to the DRG classification

system and the recalibration of the DRG

weights for discharges occurring on or

after October 1, 1998 are discussed

below.

B. DRG Reclassification

1. General

Cases are classified into DRGs for

payment under the prospective payment

system based on the principal diagnosis,

up to eight additional diagnoses, and up

to six procedures performed during the

stay, as well as age, sex, and discharge

status of the patient. The diagnosis and

procedure information is reported by

the hospital using codes from the

International Classification of Diseases,

Ninth Revision, Clinical Modification

(ICD–9–CM). The Medicare fiscal

intermediary enters the information into

its claims system and subjects it to a

series of automated screens called the

Medicare Code Editor (MCE). These

screens are designed to identify cases

that require further review before

classification into a DRG can be

accomplished.

After screening through the MCE and

any further development of the claims,

cases are classified by the GROUPER

software program into the appropriate

DRG. The GROUPER program was

developed as a means of classifying

each case into a DRG on the basis of the

diagnosis and procedure codes and

demographic information (that is, sex,

age, and discharge status). It is used

both to classify past cases in order to

measure relative hospital resource

consumption to establish the DRG

weights and to classify current cases for

purposes of determining payment. The

records for all Medicare hospital

inpatient discharges are maintained in

the Medicare Provider Analysis and

Review (MedPAR) file. The data in this

file are used to evaluate possible DRG

classification changes and to recalibrate

the DRG weights.

Currently, cases are assigned to one of

496 DRGs in 25 major diagnostic

categories (MDCs). Most MDCs are

based on a particular organ system of

the body (for example, MDC 6, Diseases

and Disorders of the Digestive System);

however, some MDCs are not

constructed on this basis since they

involve multiple organ systems (for

example, MDC 22, Burns).

In general, cases are assigned to an

MDC based on the principal diagnosis,

before assignment to a DRG. However,

there are five DRGs to which cases are

directly assigned on the basis of

procedure codes. These are the DRGs for

liver, bone marrow, and lung transplant

(DRGs 480, 481, and 495, respectively)

and the two DRGs for tracheostomies

(DRGs 482 and 483). Cases are assigned

to these DRGs before classification to an

MDC.

Within most MDCs, cases are then

divided into surgical DRGs (based on a

surgical hierarchy that orders individual

procedures or groups of procedures by

resource intensity) and medical DRGs.

Medical DRGs generally are

differentiated on the basis of diagnosis

and age. Some surgical and medical

DRGs are further differentiated based on

the presence or absence of

complications or comorbidities

(hereafter CC).

Generally, GROUPER does not

consider other procedures; that is,

nonsurgical procedures or minor

surgical procedures generally not

performed in an operating room are not

listed as operating room (OR)

procedures in the GROUPER decision

tables. However, there are a few non-OR

procedures that do affect DRG

assignment for certain principal

diagnoses, such as extracorporeal shock

wave lithotripsy for patients with a

principal diagnosis of urinary stones.

We proposed several changes to the

DRG classification system for FY 1999.

The proposed changes, the comments

we received concerning them, our

responses to those comments, and the

final DRG changes are set forth below.

Unless otherwise noted, our DRG

analysis is based on the full (100

percent) FY 1997 MedPAR file based on
40956 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

1A single title combined with two DRG numbers

is used to signify pairs. Generally, the first DRG is

for cases with CC and the second DRG is for cases

without CC. If a third number is included, it

represents cases with patients who are age 0–17.

Occasionally, a pair of DRGs is split between age

>17 and age 0–17.

bills received through September 30,

1997.

2. MDC 5 (Diseases and Disorders of the

Circulatory System)

In the August 29, 1997 hospital

inpatient final rule with comment

period (62 FR 45974), we noted that,

because of the many recent changes in

heart surgery, we were considering

conducting a comprehensive review of

the MDC 5 surgical DRGs. We have

begun that review, and based upon our

analysis thus far, we proposed the

following DRG changes.

a. Coronary Bypass. There are two

DRGs that capture coronary bypass

procedures: DRG 106 (Coronary Bypass

with Cardiac Catheterization) and DRG

107 (Coronary Bypass without Cardiac

Catheterization). The procedures that

allow a coronary bypass case to be

assigned to DRG 106 include

percutaneous valvuloplasty,

percutaneous transluminal coronary

angioplasty (PTCA), cardiac

catheterization, coronary angiography,

and arteriography.

In analyzing the FY 1997 MedPAR

file, we noted that, of cases assigned to

DRG 106, the average standardized

charges for coronary bypass cases with

PTCA were significantly higher than

those cases without PTCA. There were

approximately 4,400 cases in DRG 106

where PTCA is performed as a

secondary procedure. These cases had

an average standardized charge of

approximately $69,000. The average

charge of the approximately 95,000

cases in DRG 106 without PTCA was

approximately $52,000.

Based on this analysis, we proposed

to create a new DRG for coronary bypass

cases with PTCA. The cases currently in

DRG 106 without PTCA would be

assigned to another DRG and the cases

currently assigned to DRG 107 would be

unmodified. Because we would replace

two DRGs with three new DRGs, we

proposed to revise the DRG numbers

and titles accordingly. The new DRGs

and their titles are set forth below:

DRG 106 Coronary Bypass with PTCA

DRG 107 Coronary Bypass with Cardiac

Catheterization

DRG 109 Coronary Bypass without Cardiac

Catheterization

We note that DRG 109 has been an

empty DRG for the last several years.

We received several comments

regarding this proposal.

Comment: While the commenters

supported the creation of a new DRG to

capture coronary bypass surgeries with

PTCA, some of the commenters were

concerned about the renumbering of the

current DRGs 106 and 107. They believe

splitting the cases currently assigned to

DRG 106 into new DRGs 106 and 107

and reassigning the cases currently

assigned to DRG 107 to DRG 109 will

make it difficult to conduct DRG trend

analyses. The commenters suggested

that DRGs 106 and 107 should not be

modified and that DRG 109 be used to

capture coronary bypass with PTCA.

Two commenters stated that a DRG that

has been invalidated (109) should not be

reintroduced.

Response: Although we understand

the commenters’ concern, we also

believe that the sequencing of surgical

DRGs in hierarchy order is appropriate.

In this case, our alternative to the

proposed revision would have been to

delete DRGs 106 and 107 and create

three new DRGs that would have been

placed at the end of the DRG table, that

is, after current DRG 503. Because we

did have an empty surgical DRG in MDC

5 and it was numerically close to DRGs

106 and 107, we believed our proposed

retitling was the best alternative.

We note that the surgical DRGs in

MDC 5 have been renumbered and

retitled several times since they were

first introduced in 1983. As stated

above, we are currently conducting a

comprehensive review of the MDC 5

surgical DRGs. If that review results in

the reclassification of procedures among

the current DRGs, we will probably

renumber and retitle those DRGs.

Comment: We received one comment

requesting clarification of the DRG

assignment for PTCA and cardiac

catheterization procedures when

performed in conjunction with coronary

bypass. The commenter suggested that

we add the phrase ‘‘without PTCA’’ to

the titles of DRGs 107 and 109 to more

aptly describe the cases assigned to

those DRGs.

Response: Coronary bypass performed

in conjunction with single or multiple

PTCA or percutaneous valvuloplasty

will be assigned to DRG 106. The

procedure codes for PTCA and

percutaneous valvuloplasty are as

follows: 35.96, 36.01, 36.02, and 36.05.

Procedures assigned to DRG 107 would

include any coronary bypass with

cardiac catheterization, coronary

angiography, or coronary arteriography,

and DRG 109 is for cases with the

coronary bypass procedure only. We

believe that the proposed titles

accurately describe the cases assigned to

each of the DRGs and that adding the

phrase ‘‘without PTCA’’ to the titles of

DRGs 107 and 109 is unnecessary. We

are incorporating our proposed DRG

changes and DRG numbers and titles in

the final DRG classifications.

b. Implantable heart assist system and

annuloplasty. In the August 29, 1997

final rule with comment period, we

moved implant of an implantable,

pulsatile heart assist system (procedure

code 37.66) from DRGs 110 and 111

(Major Cardiovascular Procedures) 1 to

DRG 108 (Other Cardiothoracic

Procedures). Although this move

improved payment for these procedures,

they were still much more expensive

than the other cases in DRG 108

($96,000 for heart assist versus an

average of $54,000 for all other cases in

the FY 1996 MedPAR file). We stated

that we would continue to review the

MDC 5 surgical DRGs in an attempt to

find a DRG placement for these cases

that would be more similar in terms of

resource use.

As discussed in the proposed rule, in

reviewing the FY 1997 MedPAR file, we

noted that heart assist system implant

continues to be the most expensive

procedure in DRG 108. In fact, other

than heart transplant, heart assist

system implant is the most expensive

procedure in MDC 5. The average FY

1997 charge for these cases, when

assigned to DRG 108, is over $150,000

compared to about $53,000 for all cases

in DRG 108. Obviously, the charges for

heart assist implant are increasing at a

much greater rate than the average

charges for DRG 108. In addition, the

length of stay for cases coded with 37.66

is approximately 32 days compared to

about 11 days for all other DRG 108

cases.

One possibility for improving

payment for these cases is to move them

to DRGs 104 and 105 (Cardiac Valve

Procedures). Those DRGs, which split

on the basis of the performance of

cardiac catheterization, have average

charges of approximately $66,000 and

$51,000, respectively. While heart assist

implant cases are still more expensive

than the average case in these DRGs,

payment would be improved. Clinically,

placement of heart assist implant in

DRGs 104 and 105 is not without

precedent. Effective with FY 1988, we

placed implant of a total automatic

implantable cardioverter defibrillator

(AICD) in these DRGs. In addition, the

vast majority of procedures assigned to

DRG 108 involve surgically splitting

open the sternum to perform the

procedure. However, implant of the

heart assist device does not require this

approach.

While reviewing the DRG 108 cases,

we also noted that procedure code 35.33
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40957

(annuloplasty) is assigned to this DRG.

Annuloplasty is a valve procedure and

is clinically more similar to the cases

assigned to DRGs 104 and 105 than it is

to the cases assigned to DRG 108. In

addition, the average standardized

charge for annuloplasty cases assigned

to DRG 108 is about $67,000, well above

the overall average charge of

approximately $53,000 for cases in DRG

108. Therefore, we proposed to move

annuloplasty from DRG 108 to DRGs

104 and 105.

In order to more accurately reflect the

cases assigned to DRGs 104 and 105, we

proposed to retitle them as follows:

DRG 104 Cardiac Valve and Other Major

Cardiothoracic Procedures with Cardiac

Catheterization

DRG 105 Cardiac Valve and Other Major

Cardiothoracic Procedures without

Cardiac Catheterization.

We received only supportive

comments for our proposal to move

annuloplasty to DRGs 104 and 105;

therefore, that change is included in the

final DRGs.

Comment: Commenters generally

appreciated any improvement in the

payment for heart assist devices.

However, some of them continue to urge

HCFA to reclassify these cases to DRG

103 (Heart Transplant) or to their own

DRG. Two commenters were unsure if

we had proposed a classification change

which was reflected in the proposed

DRG weights or had merely requested

comment on such a change. Another

commenter was concerned that cases

reassigned to DRG 105 (those in which

there is no cardiac catheterization

performed) would receive a lower

payment than they currently do in DRG

108.

Response: First, we note that the

proposed DRG weights did include this

change; that is, we moved over 2,000

heart assist implant cases from DRG 108

to DRGs 104 and 105 before

recalibrating the proposed weights. In

addition, although the final FY 1999

weight for DRG 105 is slightly lower

than the weight for DRG 108 (5.7099

and 5.9764, respectively), the much

higher DRG 104 weight (7.3690) results

in an overall improvement in payment

for these cases when reclassified. Using

the FY 1997 MedPAR cases, we estimate

that at least 40 percent of the heart assist

implant cases will be assigned to DRG

104. Thus, as long as a hospital treats a

mix of heart assist implant cases, with

and without the cardiac catheterization

procedure, its overall payment should

be higher under the revised

classification. We presume this will be

the case for virtually all hospitals.

With regard to the comments

concerning reclassification of this

procedure to DRG 103 or a new DRG, we

refer the reader to our response to a

similar comment in the August 29, 1997

final rule (62 FR 45967).

3. MDC 22 (Burns)

Under the current DRG system, burn

cases are assigned to one of six DRGs in

MDC 22 (Burns), which have not been

revised since 1986. In our FY 1998

hospital inpatient proposed rule (June 2,

1997; 62 FR 29912), in response to

inquiries we had received, we indicated

that we would conduct a comprehensive

review of MDC 22 to determine whether

changes in these DRGs could more

appropriately capture the variation in

resource use associated with different

classes of burn patients. We solicited

public comments on this issue,

particularly asking for recommendations

on ways to categorize related diagnosis

and procedure codes to produce DRG

groupings that would be more

homogeneous in terms of resource use.

In our May 8, 1998 proposed rule (63

FR 25579), we discussed in detail the

results of our review of MDC 22. We

received a proposal (endorsed by the

American Burn Association (ABA)) for

restructuring the DRGs based on several

statistical and clinical criteria, including

age, severity of the burn, and the

presence of complications or

comorbidities. Subsequently, we

worked closely with representatives of

the ABA and with the clinicians who

developed the proposal in order to

refine it for Medicare purposes. Based

on this work, we proposed to replace

the six existing DRGs in MDC 22 with

eight new DRGs. For ease of reference

and classification, the current DRGs in

MDC 22, DRGs 456 through 460 and

472, would no longer be valid, and we

would establish new DRGs 504 through

511 to contain all cases that currently

group to MDC 22. (The complete titles

of the new DRGs are set forth below.)

In reviewing the Medicare burn cases,

we found that the most important

distinguishing characteristic in terms of

resource use was the amount of body

surface affected by the burn and how

much of that burn was a 3rd degree

burn. The second most important factor

was whether or not the patient received

a skin graft. Thus, a patient with burns

covering at least 20 percent of body

area, with at least 10 percent of that a

3rd degree burn, consumed the most

resources. However, if a patient met

these criteria and did not receive a skin

graft, then the case was much less

expensive and the average length of stay

fell from over 30 days to 8 days. The

first two proposed burn DRGs reflect

these distinctions (DRGs 504 and 505).

After classifying the most extensive

burn cases, we found that the patients

with 3rd degree burns that did not meet

the criteria to be assigned to DRGs 504

and 505 were the most expensive of the

remaining cases (that is, those patients

whose burns did not meet the at least 20

percent body area or at least 10 percent

3rd degree criteria). These burns are

referred to clinically as ‘‘full-thickness

burns.’’ A subset of these full-thickness

burn cases, those with skin graft or an

inhalation injury, were much more

expensive than the other cases. After

dividing these patients into two groups,

with or without skin graft or inhalation

injury, we examined whether other

factors had an influence on resource

use. We found that patients who had a

CC (complication or comorbidity) or a

concomitant significant trauma

consumed more resources whether or

not they had a skin graft or inhalation

injury. Thus, the next four proposed

DRGs were defined as full-thickness

burns with skin graft or inhalation

injury with or without CC or significant

trauma, or full-thickness burns without

skin graft or inhalation injury with or

without CC or significant trauma (DRGs

506 through 509).

Finally, the last two proposed DRGs

(510 and 511) were for cases with

nonextensive burns. These cases are

also split on the basis of CCs or

concomitant significant trauma.

Consistent with the recommendations

of several commenters on last year’s

proposed rule, the new burn DRGs

would no longer include a separate DRG

for cases in which burn patients were

transferred to another acute care facility.

The specific diagnosis and procedure

codes that were included in each of the

eight proposed DRGs and their titles are

as follows.

DRGs 504 and 505—Extensive 3rd

Degree Burns with and without Skin

Graft. DRGs 504 and 505 include all

cases with burns involving at least 20

percent of body surface area combined

with a 3rd degree burn covering at least

10 percent of body surface area. Thus,

these cases have diagnosis codes of

948.xx, with a fourth digit of 2 or higher

(indicating that burn extends over 20

percent or more of body surface) and a

fifth digit of 1 or higher (indicating a 3rd

degree burn extending over 10 percent

or more of body surface). Cases with the

appropriate diagnosis codes are

classified into DRG 504 if one of the

following skin graft procedure codes is

present:

85.82 Split-thickness graft to breast

85.83 Full-thickness graft to breast

85.84 Pedicle graft to breast

86.60 Free skin graft, NOS

86.61 Full-thickness skin graft to hand
40958 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

86.62 Other skin graft to hand

86.63 Full-thickness skin graft to other sites

86.65 Heterograft to skin

86.66 Homograft to skin

86.67 Dermal regenerative graft (new code

in FY 1999—see Table 6A in section VI.

of the Addendum)

86.69 Other skin graft to other sites

86.70 Pedicle of flap graft, NOS

86.71 Cutting and preparation of pedicle

grafts or flaps

86.72 Advancement of pedicle graft

86.73 Attachment of pedicle or flap graft to

hand

86.74 Attachment of pedicle or flap graft to

other sites

86.75 Revision of pedicle or flap graft

86.93 Insertion of tissue expander

DRGs 506 and 507—Full Thickness

Burn with Skin Graft or Inhalation

Injury with or without CC or Significant

Trauma. These DRGs include all other

cases of 3rd degree burns that also have

either a skin graft or an inhalation

injury. Thus, these cases have diagnosis

codes of 941.xx through 946.xx, and

949.xx, with a fourth digit of 3 or

higher, as well as cases with codes of

948.xx that did not group into DRGs 504

or 505 (that is, 948.00, 948.01, and

948.1x through 948.9x with a fifth digit

of 0). In addition, cases classified into

DRGs 506 and 507 must have either one

of the skin graft procedure codes listed

above or one of the following diagnosis

codes for inhalation injuries:

518.5 Pulmonary insufficiency following

trauma and surgery

518.81 Respiratory failure

518.84 Acute and chronic respiratory

failure (new code in FY 1999—see Table

6A in section VI. of the Addendum)

947.1 Burn of larynx, trachea, or lung

987.9 Toxic effect of gas, fume, or vapor,

NOS

Cases that meet both of these coding

criteria are assigned to DRG 506 if there

is a diagnosis code indicating either a

CC (based on the standard DRG CC list)

or concomitant significant trauma

(based on the significant trauma

diagnosis codes, listed by body site,

used for classification in MDC 24).

DRGs 508 and 509—Full Thickness

Burn without Skin Graft or Inhalation

Injury with or without CC or Significant

Trauma. These DRGs include all other

cases of 3rd degree burns. Thus, these

DRGs include all cases without a skin

graft or inhalation injury that have

diagnosis codes of 941.xx through

946.xx, and 949.xx, with a fourth digit

of 3 or higher, as well as cases with

codes of 948.xx that did not group into

DRGs 504 or 505. DRG 508 also requires

a secondary diagnosis from the standard

CC list or the trauma list based on the

significant trauma diagnosis codes,

listed by body site, used for

classification in MDC 24.

DRGs 510 and 511—Nonextensive

Burns with and without CC or

Significant Trauma. The remaining burn

cases would be classified into one of

these two proposed DRGs, depending on

whether or not the claim included a

diagnosis code reflecting the presence of

a CC or a significant trauma, as

explained above.

Comment: We received five comments

on this proposed change. In general, the

commenters, including the ABA,

strongly supported the proposed

restructuring of MDC 22. The

commenters agreed that the new burn

DRGs should bring about meaningful

improvements to the clinical coherency

and payment equity for the cases

assigned to the MDC 22 DRGs. One

commenter noted that under the new

DRGs, diagnosis codes in the 948.xx

series (that is, the codes used to identify

the extent of body surface involved in

a burn and the percentage of the body

surface with a 3rd degree burn) would

take on added importance and

emphasized the need for coder

education in this area. Another

commenter submitted several

suggestions for additional procedure

codes that should be added to the list of

procedure codes that would result in

assignment to DRG 504 and to DRGs 506

and 507. These codes include both

additional codes that the commenter

believes should be considered as skin

grafts (such as procedure codes 08.61

through 08.69, reconstruction of eyelid

with flaps or grafts) as well as codes for

other procedures (for example, limb

reattachments or eyeball enucleations)

that, as the commenter pointed out, are

now considered a related operating

room procedure under existing DRG

472, Extensive Burns with Operating

Room Procedure. This commenter also

suggested that DRGs 506 and 507 be

identified as surgical DRGs in Table 5 of

the addendum to the final rule.

Response: We appreciate the positive

responses generated by this proposal.

We agree that our proposed changes will

place greater emphasis on the need for

accurate use of the series 948.xx

diagnosis codes. We note that this issue

has been addressed in the American

Hospital Association’s quarterly

publication, ‘‘Coding Clinic for ICD–9–

CM.’’ In the 1994, 4th quarter issue,

Coding Clinic stated ‘‘It is advisable to

use category 948 as additional coding

when needed to provide data for

evaluating burn mortality, such as that

needed by burn units. It is also

advisable to use category 948 as an

additional code for reporting purposes

when there is mention of a third-degree

burn involving 20 percent or more of the

body surface.’’ We believe the vast

majority of burn cases already include

the 948.xx coding if appropriate,

especially those treated in burn centers.

However, we will be pleased to work

with other hospital groups that are

interested in developing educational

materials related to the accurate coding

of burn cases.

In developing the coding

classifications used to assign cases

under the burn DRGs, we worked

closely with the ABA and its medical

consultants to identify the most

significant distinguishing characteristics

in terms of resource use in burn cases.

This process involved both grouping

cases that were clinically similar as well

as conducting a series of test runs to

maximize the amount of variation in

resource use that could be explained

using varying groups of diagnosis and

procedure codes. As stated in the May

8 proposed rule (63 FR 25579), we

estimate that the proposed changes to

the burn DRGs would increase by more

than 25 percent the amount of variation

in resource use explained by the DRGs

in MDC 22, as well as improve the

clinical coherence of the cases within

each DRG. As recommended by the

ABA, the procedure codes used to

identify skin grafts coincide with the

procedure codes now in use under

existing DRG 458, Non-Extensive Burns

with Skin Graft, and we believe that

these codes represent the most resourceintensive skin grafts. Therefore, we are

not adding the codes suggested by the

commenter.

We recognize that some procedures

now listed under DRG 472 will no

longer affect DRG assignment under the

restructured burn DRGs. However, we

believe that the substantially increased

ability of the new DRGs to explain the

variation in resource use among burn

cases clearly indicates the

appropriateness of narrowing the focus

of the classification system to

emphasize the extent and severity of the

burn, in conjunction with skin grafts or

inhalation injury. Our analysis

indicated that the presence of skin grafts

or inhalation injuries had a much more

consistent effect on the consumption of

hospital resources than the presence of

one of the numerous operating room

procedures now listed under DRG 472.

We also note that, since the skin graft

procedures now classified to DRG 504

were classified to former DRG 472,

many DRG 472 cases will now be

assigned to DRG 504, which has a

higher weight than 472 did (14.1153

versus 10.2429). When the FY 1999

cases become available, we will review

them to assess the revisions to MDC 22

and the possible need for the type of

changes suggested by the commenter.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40959

Finally, we note that we do not

classify DRGs 506 and 507 as surgical

DRGs because they include not only

cases involving skin grafts, which are

considered surgical procedures, but also

cases involving inhalation injuries,

which would not necessarily involve

any surgical procedures. Thus, in this

final rule, we are adopting the changes

to the burn DRGs as proposed.

4. Legionnaires’ Disease

Effective with discharges occurring on

or after October 1, 1997, a new diagnosis

code was created for pneumonia due to

Legionnaires’ disease (code 482.84). In

the August 29, 1997 final rule with

comment period, we assigned this code

to DRGs 79, 80, and 81 (Respiratory

Infections and Inflammations) (62 FR

46090). However, we did not include

this code as a human immunodeficiency

virus (HIV) major related condition in

MDC 25 (HIV Infections). Because

pneumonia due to Legionnaires’ disease

is a serious respiratory condition that

has a deleterious effect on patients with

HIV, we proposed to assign diagnosis

code 482.84 to DRG 489 (HIV with

Major Related Condition) as a major

related condition. In addition, we did

not assign the code as a major problem

in DRGs 387 (Prematurity with Major

Problems) and 389 (Full Term Neonate

with Major Problems). These DRGs are

assigned to MDC 15 (Newborns and

Other Neonates with Conditions

Originating in the Perinatal Period).

Again, as a part of the proposed rule, we

assigned diagnosis code 482.84 as a

major problem in DRGs 387 and 389

because of its effect on resource use in

treating newborns.

Commenters supported these

proposed revisions, and we are

incorporating them into the final DRGs.

5. Surgical Hierarchies

Some inpatient stays entail multiple

surgical procedures, each one of which,

occurring by itself, could result in

assignment of the case to a different

DRG within the MDC to which the

principal diagnosis is assigned. It is,

therefore, necessary to have a decision

rule by which these cases are assigned

to a single DRG. The surgical hierarchy,

an ordering of surgical classes from

most to least resource intensive,

performs that function. Its application

ensures that cases involving multiple

surgical procedures are assigned to the

DRG associated with the most resourceintensive surgical class.

Because the relative resource intensity

of surgical classes can shift as a function

of DRG reclassification and

recalibration, we reviewed the surgical

hierarchy of each MDC, as we have for

previous reclassifications, to determine

if the ordering of classes coincided with

the intensity of resource utilization, as

measured by the same billing data used

to compute the DRG relative weights.

A surgical class can be composed of

one or more DRGs. For example, in

MDC 5, the surgical class ‘‘heart

transplant’’ consists of a single DRG

(DRG 103) and the class ‘‘major

cardiovascular procedures’’ consists of

two DRGs (DRGs 110 and 111).

Consequently, in many cases, the

surgical hierarchy has an impact on

more than one DRG. The methodology

for determining the most resourceintensive surgical class involves

weighing each DRG for frequency to

determine the average resources for each

surgical class. For example, assume

surgical class A includes DRGs 1 and 2

and surgical class B includes DRGs 3, 4,

and 5. Assume also that the average

charge of DRG 1 is higher than that of

DRG 3, but the average charges of DRGs

4 and 5 are higher than the average

charge of DRG 2. To determine whether

surgical class A should be higher or

lower than surgical class B in the

surgical hierarchy, we would weigh the

average charge of each DRG by

frequency (that is, by the number of

cases in the DRG) to determine average

resource consumption for the surgical

class. The surgical classes would then

be ordered from the class with the

highest average resource utilization to

that with the lowest, with the exception

of ‘‘other OR procedures’’ as discussed

below.

This methodology may occasionally

result in a case involving multiple

procedures being assigned to the lowerweighted DRG (in the highest, most

resource-intensive surgical class) of the

available alternatives. However, given

that the logic underlying the surgical

hierarchy provides that the GROUPER

searches for the procedure in the most

resource-intensive surgical class this

result is unavoidable.

We note that, notwithstanding the

foregoing discussion, there are a few

instances when a surgical class with a

lower average relative weight is ordered

above a surgical class with a higher

average relative weight. For example,

the ‘‘other OR procedures’’ surgical

class is uniformly ordered last in the

surgical hierarchy of each MDC in

which it occurs, regardless of the fact

that the relative weight for the DRG or

DRGs in that surgical class may be

higher than that for other surgical

classes in the MDC. The ‘‘other OR

procedures’’ class is a group of

procedures that are least likely to be

related to the diagnoses in the MDC but

are occasionally performed on patients

with these diagnoses. Therefore, these

procedures should only be considered if

no other procedure more closely related

to the diagnoses in the MDC has been

performed.

A second example occurs when the

difference between the average weights

for two surgical classes is very small.

We have found that small differences

generally do not warrant reordering of

the hierarchy since, by virtue of the

hierarchy change, the relative weights

are likely to shift such that the higherordered surgical class has a lower

average weight than the class ordered

below it.

Based on the preliminary

recalibration of the DRGs, we proposed

to modify the surgical hierarchy as set

forth below. However, in developing the

proposed rule, we were unable to test

the effects of the proposed revisions to

the surgical hierarchy and to reflect

these changes in the proposed relative

weights due to the unavailability of

revised GROUPER software at the time

the proposed rule was prepared. Rather,

we simulated most major classification

changes to approximate the placement

of cases under the proposed

reclassification and then determined the

average charge for each DRG. These

average charges then serve as our best

estimate of relative resource use for each

surgical class. We test the proposed

surgical hierarchy changes after the

revised GROUPER is received and

reflect the final changes in the DRG

relative weights in the final rule.

We proposed to revise the surgical

hierarchy for MDC 3 (Diseases and

Disorders of the Ear, Nose, Mouth and

Throat) as follows:

• We would reorder Sinus and

Mastoid Procedures (DRGs 53–54) above

Myringotomy with Tube Insertion

(DRGs 61–62).

• We would reorder Mouth

Procedures (DRGs 168–169) above

Tonsil and Adenoid Procedure Except

Tonsillectomy and/or Adenoidectomy

Only (DRGs 57–58).

We received two comments in

support of our surgical hierarchy

proposals. However, for this final rule,

we tested the proposed changes using

the most recent MedPAR file and the

revised GROUPER software, and we

found that the proposal to move Sinus

and Mastoid Procedures (DRGs 53–54)

above Myringotomy with Tube Insertion

(DRGs 61–62) is not supported.

Therefore, this change will not be made

in this final rule. The proposed

reordering of DRGs 53 and 54 above

Cleft Lip and Palate Repair (DRG 52)

(DRG 52 is currently ordered below

DRGs 61 and 62 but above DRGs 53 and

54) is still supported and will be
40960 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

incorporated in the final GROUPER, as

will the proposed reordering of DRGs

168 and 169 above DRGs 57 and 58.

6. Refinement of Complications and

Comorbidities List

There is a standard list of diagnoses

that are considered CCs. We developed

this list using physician panels to

include those diagnoses that, when

present as a secondary condition, would

be considered a substantial

complication or comorbidity. In

previous years, we have made changes

to the standard list of CCs, either by

adding new CCs or deleting CCs already

on the list. We did not propose to delete

any of the diagnosis codes on the CC

list.

In the September 1, 1987 final notice

concerning changes to the DRG

classification system (52 FR 33143), we

modified the GROUPER logic so that

certain diagnoses included on the

standard list of CCs would not be

considered a valid CC in combination

with a particular principal diagnosis.

Thus, we created the CC Exclusions

List. We made these changes to preclude

coding of CCs for closely related

conditions, to preclude duplicative

coding or inconsistent coding from

being treated as CCs, and to ensure that

cases are appropriately classified

between the complicated and

uncomplicated DRGs in a pair.

In the May 19, 1987 proposed notice

concerning changes to the DRG

classification system (52 FR 18877), we

explained that the excluded secondary

diagnoses were established using the

following five principles:

• Chronic and acute manifestations of

the same condition should not be

considered CCs for one another (as

subsequently corrected in the

September 1, 1987 final notice (52 FR

33154)).

• Specific and nonspecific (that is,

not otherwise specified (NOS))

diagnosis codes for a condition should

not be considered CCs for one another.

• Conditions that may not co-exist,

such as partial/total, unilateral/bilateral,

obstructed/unobstructed, and benign/

malignant, should not be considered

CCs for one another.

• The same condition in anatomically

proximal sites should not be considered

CCs for one another.

• Closely related conditions should

not be considered CCs for one another.

The creation of the CC Exclusions List

was a major project involving hundreds

of codes. The FY 1988 revisions were

intended to be only a first step toward

refinement of the CC list in that the

criteria used for eliminating certain

diagnoses from consideration as CCs

were intended to identify only the most

obvious diagnoses that should not be

considered complications or

comorbidities of another diagnosis. For

that reason, and in light of comments

and questions on the CC list, we have

continued to review the remaining CCs

to identify additional exclusions and to

remove diagnoses from the master list

that have been shown not to meet the

definition of a CC. (See the September

30, 1988 final rule for the revision made

for the discharges occurring in FY 1989

(53 FR 38485); the September 1, 1989

final rule for the FY 1990 revision (54

FR 36552); the September 4, 1990 final

rule for the FY 1991 revision (55 FR

36126); the August 30, 1991 final rule

for the FY 1992 revision (56 FR 43209);

the September 1, 1992 final rule for the

FY 1993 revision (57 FR 39753); the

September 1, 1993 final rule for the FY

1994 revisions (58 FR 46278); the

September 1, 1994 final rule for the FY

1995 revisions (59 FR 45334); the

September 1, 1995 final rule for the FY

1996 revisions (60 FR 45782); the

August 30, 1996 final rule for the FY

1997 revisions (61 FR 46171); and the

August 29, 1997 final rule for the FY

1998 revisions (62 FR 45966)).

We proposed a limited revision of the

CC Exclusions List to take into account

the changes that will be made in the

ICD–9–CM diagnosis coding system

effective October 1, 1998. (See section

II.B.8, below, for a discussion of ICD–9–

CM changes.) These proposed changes

were made in accordance with the

principles established when we created

the CC Exclusions List in 1987. We

received no comments on these

proposed changes and we are

incorporating them as final changes.

Tables 6F and 6G in section VI of the

Addendum to this final rule contain the

revisions to the CC Exclusions List that

would be effective for discharges

occurring on or after October 1, 1998.

Each table shows the principal

diagnoses with changes to the excluded

CCs. Each of these principal diagnoses

is shown with an asterisk and the

additions or deletions to the CC

Exclusions List are provided in an

indented column immediately following

the affected principal diagnosis.

CCs that are added to the list are in

Table 6F—Additions to the CC

Exclusions List. Beginning with

discharges on or after October 1, 1998,

the indented diagnoses will not be

recognized by the GROUPER as valid

CCs for the asterisked principal

diagnosis.

CCs that are deleted from the list are

in Table 6G—Deletions from the CC

Exclusions List. Beginning with

discharges on or after October 1, 1998

the indented diagnoses will be

recognized by the GROUPER as valid

CCs for the asterisked principal

diagnosis.

Copies of the original CC Exclusions

List applicable to FY 1988 can be

obtained from the National Technical

Information Service (NTIS) of the

Department of Commerce. It is available

in hard copy for $92.00 plus $6.00

shipping and handling and on

microfiche for $20.50, plus $4.00 for

shipping and handling. A request for the

FY 1988 CC Exclusions List (which

should include the identification

accession number, (PB) 88–133970)

should be made to the following

address: National Technical Information

Service; United States Department of

Commerce; 5285 Port Royal Road;

Springfield, Virginia 22161; or by

calling (703) 487–4650.

Users should be aware of the fact that

all revisions to the CC Exclusions List

(FYs 1989, 1990, 1991, 1992, 1993,

1994, 1995, 1996, 1997, and 1998) and

those in Tables 6F and 6G of this

document must be incorporated into the

list purchased from NTIS in order to

obtain the CC Exclusions List applicable

for discharges occurring on or after

October 1, 1998.

Alternatively, the complete

documentation of the GROUPER logic,

including the current CC Exclusions

List, is available from 3M/Health

Information Systems (HIS), which,

under contract with HCFA, is

responsible for updating and

maintaining the GROUPER program.

Version 16.0 of this manual, which will

include the final FY 1999 DRG changes,

will be available in October 1998 for

$225.00, which includes $15.00 for

shipping and handling. This manual

may be obtained by writing 3M/HIS at

the following address: 100 Barnes Road;

Wallingford, Connecticut 06492; or by

calling (203) 949–0303.

7. Review of Procedure Codes in DRGs

468, 476, and 477

Each year, we review cases assigned

to DRG 468 (Extensive OR Procedure

Unrelated to Principal Diagnosis), DRG

476 (Prostatic OR Procedure Unrelated

to Principal Diagnosis), and DRG 477

(Nonextensive OR Procedure Unrelated

to Principal Diagnosis) in order to

determine whether it would be

appropriate to change the procedures

assigned among these DRGs.

DRGs 468, 476, and 477 are reserved

for those cases in which none of the OR

procedures performed is related to the

principal diagnosis. These DRGs are

intended to capture atypical cases, that

is, those cases not occurring with

sufficient frequency to represent a
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40961

distinct, recognizable clinical group.

DRG 476 is assigned to those discharges

in which one or more of the following

prostatic procedures are performed and

are unrelated to the principal diagnosis.

60.0 Incision of prostate

60.12 Open biopsy of prostate

60.15 Biopsy of periprostatic tissue

60.18 Other diagnostic procedures on

prostate and periprostatic tissue

60.21 Transurethral prostatectomy

60.29 Other transurethral prostatectomy

60.61 Local excision of lesion of prostate

60.69 Prostatectomy NEC

60.81 Incision of periprostatic tissue

60.82 Excision of periprostatic tissue

60.93 Repair of prostate

60.94 Control of (postoperative) hemorrhage

of prostate

60.95 Transurethral balloon dilation of the

prostatic urethra

60.99 Other operations on prostate

All remaining OR procedures are

assigned to DRGs 468 and 477, with

DRG 477 assigned to those discharges in

which the only procedures performed

are nonextensive procedures that are

unrelated to the principal diagnosis.

The original list of the ICD–9–CM

procedure codes for the procedures we

consider nonextensive procedures, if

performed with an unrelated principal

diagnosis, was published in Table 6C in

section IV. of the Addendum to the

September 30, 1988 final rule (53 FR

38591). As part of the final rules

published on September 4, 1990, August

30, 1991, September 1, 1992, September

1, 1993, September 1, 1994, September

1, 1995, August 30, 1996, and August

29, 1997, we moved several other

procedures from DRG 468 to 477, as

well as moving some procedures from

DRG 477 to 468. (See 55 FR 36135, 56

FR 43212, 57 FR 23625, 58 FR 46279,

59 FR 45336, 60 FR 45783, 61 FR 46173,

and 62 FR 45981, respectively.)

a. Adding procedure codes to MDCs.

We annually conduct a review of

procedures producing DRG 468 or 477

assignments on the basis of volume of

cases in these DRGs with each

procedure. Our medical consultants

then identify those procedures

occurring in conjunction with certain

principal diagnoses with sufficient

frequency to justify adding them to one

of the surgical DRGs for the MDC in

which the diagnosis falls. Based on this

year’s review, we did not identify any

necessary changes; therefore, we did not

propose to move any procedures from

DRGs 468 and 477 to one of the surgical

DRGs.

b. Reassignment of procedures among

DRGs 468, 476, and 477. We also

reviewed the list of procedures that

produce assignments to DRGs 468, 476,

and 477 to ascertain if any of those

procedures should be moved from one

of these DRGs to another based on

average charges and length of stay.

Generally, we move only those

procedures for which we have an

adequate number of discharges to

analyze the data. Based on our review

this year, we did not propose to move

any procedures from DRG 468 to DRGs

476 or 477, from DRG 476 to DRGs 468

or 477, or from DRG 477 to DRGS 468

or 476.

8. Changes to the ICD–9–CM Coding

System

As discussed above in section II.B.1 of

this preamble, the ICD–9–CM is a

coding system that is used for the

reporting of diagnoses and procedures

performed on a patient. In September

1985, the ICD–9–CM Coordination and

Maintenance Committee was formed.

This is a Federal interdepartmental

committee charged with the mission of

maintaining and updating the ICD–9–

CM. That mission includes approving

coding changes, and developing errata,

addenda, and other modifications to the

ICD–9–CM to reflect newly developed

procedures and technologies and newly

identified diseases. The Committee is

also responsible for promoting the use

of Federal and non-Federal educational

programs and other communication

techniques with a view toward

standardizing coding applications and

upgrading the quality of the

classification system.

The Committee is co-chaired by the

National Center for Health Statistics

(NCHS) and HCFA. The NCHS has lead

responsibility for the ICD–9–CM

diagnosis codes included in the Tabular

List and Alphabetic Index for Diseases

while HCFA has lead responsibility for

the ICD–9–CM procedure codes

included in the Tabular List and

Alphabetic Index for Procedures.

The Committee encourages

participation in the above process by

health-related organizations. In this

regard, the Committee holds public

meetings for discussion of educational

issues and proposed coding changes.

These meetings provide an opportunity

for representatives of recognized

organizations in the coding fields, such

as the American Health Information

Management Association (AHIMA)

(formerly American Medical Record

Association (AMRA)), the American

Hospital Association (AHA), and

various physician specialty groups as

well as physicians, medical record

administrators, health information

management professionals, and other

members of the public to contribute

ideas on coding matters. After

considering the opinions expressed at

the public meetings and in writing, the

Committee formulates

recommendations, which then must be

approved by the agencies.

The Committee presented proposals

for coding changes at public meetings

held on June 5 and December 4 and 5,

1997, and finalized the coding changes

after consideration of comments

received at the meetings and in writing

within 30 days following the December

1997 meeting. The initial meeting for

consideration of coding issues for

implementation in FY 2000 was held on

June 4, 1998. Copies of the minutes of

the 1997 meetings can be obtained from

the HCFA Home Page @ http://

www.hcfa.gov/pubaffr.htm, under the

‘‘What’s New’’ listing. Paper copies of

these minutes are no longer available

and the mailing list has been

discontinued. We encourage

commenters to address suggestions on

coding issues involving diagnosis codes

to: Donna Pickett, Co-Chairperson; ICD–

9–CM Coordination and Maintenance

Committee; NCHS; Room 1100; 6525

Belcrest Road; Hyattsville, Maryland

20782. Comments may be sent by E-mail

to: dfp4@cdc.gov.

Questions and comments concerning

the procedure codes should be

addressed to: Patricia E. Brooks, CoChairperson; ICD–9–CM Coordination

and Maintenance Committee; HCFA,

Center for Health Plans and Providers,

Plan and Provider Purchasing Policy

Group, Division of Acute Care; C4–05–

27; 7500 Security Boulevard; Baltimore,

Maryland 21244–1850. Comments may

be sent by E-mail to: pbrooks@hcfa.gov.

The ICD–9–CM code changes that

have been approved will become

effective October 1, 1998. The new ICD–

9–CM codes are listed, along with their

proposed DRG classifications, in Tables

6A and 6B (New Diagnosis Codes and

New Procedure Codes, respectively) in

section VI. of the Addendum to this

proposed rule. As we stated above, the

code numbers and their titles were

presented for public comment in the

ICD–9–CM Coordination and

Maintenance Committee meetings. Both

oral and written comments were

considered before the codes were

approved. Therefore, we solicited

comments only on the proposed DRG

classifications.

Further, the Committee has approved

the expansion of certain ICD–9–CM

codes to require an additional digit for

valid code assignment. Diagnosis codes

that have been replaced by expanded

codes, other codes, or have been deleted

are in Table 6C (Invalid Diagnosis

Codes). These invalid diagnosis codes

will not be recognized by the GROUPER

beginning with discharges occurring on

or after October 1, 1998. The
40962 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

corresponding new or expanded

diagnosis codes are included in Table

6A. Procedure codes that have been

replaced by expanded codes, other

codes, or have been deleted are in Table

6D (Invalid Procedure Codes). Revisions

to diagnosis code titles are in Table 6E

(Revised Diagnosis Code Titles), which

also include the proposed DRG

assignments for these revised codes. For

FY 1999, there are no revisions to

procedure code titles.

We received several comments about

our proposed DRG assignments of new

and revised codes.

Comment: One commenter believes

that revised diagnosis code 518.81

(acute respiratory failure) should be

assigned as a ‘‘major complication’’ in

DRG 121 since it was classified in this

manner prior to the code revision. In

addition, new diagnosis codes 518.83

(chronic respiratory failure) and 518.84

(acute and chronic respiratory failure)

each should also be classified as a

‘‘major complication’’ in DRG 121.

Several commenters stated that new

procedure code 37.67 (implantation of

cardiomyostimulation system) should

not be classified to DRGs 442, 443, and

486 since the procedure is not

performed for either injuries or trauma.

Commenters also noted that the DRG

assignments as set forth in Tables 6A

through 6E in the May 8, 1998 proposed

rule (63 FR 22576) were not always

aligned properly with the appropriate

MDC number.

Response: We agree with the

commenter that diagnosis codes 518.81,

518.83, and 518.84 should be included

on the ‘‘major complication’’ list for

DRG 121. As noted in the comment,

code 518.81 is currently designated as a

major complication and the assignment

remains valid. In addition, the

expanded codes 518.83 and 518.84

should be assigned to the major

complication list because these

conditions were formerly assigned to

code 518.81. We also agree that

procedure code 37.67 should not have

been assigned to DRGs 442, 443, and

486 for the reasons cited by the

commenter. We have revised Tables 6A,

6C, and 6E to reflect these changes. In

addition, we have reformatted the tables

to correct any alignment problems.

Finally, we note that in Table 6B, the

DRG assignment of procedure code

86.67 should list only DRGs 504, 506,

and 507 under MDC 22. DRGs 458 and

472, which were listed in the proposed

rule, have been deleted as a result of our

restructuring of the burn DRGs (see

section II.B.3 of this preamble).

9. Other Issues

a. Palliative care. Effective October 1,

1996 (FY 1997), we introduced a

diagnosis code to allow the

identification of those cases in which

palliative care was delivered to a

hospital inpatient. This code, V66.7

(Encounter for palliative care), was

unusual in that there had been no

previous code assignment that included

the concept of palliative care. Since this

was a new concept, instructional

materials were developed and

distributed by the AHA as well as

specialty groups on the use of this new

code. With new codes, it sometimes

takes several years for physician

documentation to improve and for

coders to become accustomed to looking

for this type of information in order to

assign a code. There is an inclusion note

listed under V66.7 which indicates that

this code should be used as a secondary

diagnosis only; the patient’s medical

problem would always be listed first.

Currently, use of diagnosis code V66.7

does not have an impact on DRG

assignment. Consistent with prior

practice, we have waited until the FY

1997 data became available for analysis

before considering any possible

modifications to the DRGs.

As discussed in the proposed rule, in

analyzing the FY 1997 bills received

through September 1997, we found that

4,769 discharges included V66.7 as a

secondary diagnosis. These cases were

widely distributed throughout 199

DRGs. The vast majority of these DRGs

included five or fewer discharges with

use of palliative care. Only 12 DRGs

included more than 100 cases. These

were the following:

DRG Title Number of

cases

10 ................................................................ Nervous System Neoplasms with CC ............................................................................ 144

14 ................................................................ Specific Cerebrovascular Disorders Except TIA ............................................................ 272

79 ................................................................ Respiratory Infections and Inflammations Age >17 with CC ......................................... 139

82 ................................................................ Respiratory Neoplasms .................................................................................................. 526

89 ................................................................ Simple Pneumonia and Pleurisy Age >17 with CC ....................................................... 200

127 .............................................................. Heart Failure and Shock ................................................................................................. 184

172 .............................................................. Digestive Malignancy with CC ........................................................................................ 226

203 .............................................................. Malignancy of Hepatobiliary System or Pancreas ......................................................... 285

239 .............................................................. Pathological Fractures and Musculosketal and Connective Tissue Malignancy ........... 218

296 .............................................................. Nutritional and Miscellaneous Metabolic Disorders Age >17 with CC .......................... 173

403 .............................................................. Lymphoma and Non-Acute Leukemia with CC .............................................................. 178

416 .............................................................. Septicemia Age >17 ....................................................................................................... 147

Six of these DRGs are cancer-related;

however, the other DRGs are quite

diverse. Upon further analysis, we

found that, for the most part, discharges

with code V66.7 do not significantly

differ in length of stay from the

discharges in the same DRG without

code V66.7. The length of stay for

discharges with code V66.7 are

sometimes longer and sometimes

shorter and the comparative length of

stay for a given DRG tends to vary by

only one day. In general, the average

charges for a palliative care case

discharge with a secondary code of

V66.7 were lower than the charges for

other discharges within the DRG.

However, these differences were

relatively small and were well within

the standard variation of charges for

cases in the DRG.

One approach we could take to revise

the DRGs would be to divide those

DRGs with a large number of cases

coded with V66.7 into two different

DRGs, with and without palliative care.

However, the relatively small

proportion of cases in each DRG argues

against this approach; no DRG has more

than 1 percent of its cases coded with

palliative care and, in most cases, the

percentage is well under 1 percent. An

alternative approach would be to group

all palliative care cases, regardless of the

underlying disease or condition, into

one new DRG. However, the charges of

these cases are so varied that this is not

a logical choice. In addition, there is a

lack of clinical coherence in such an

approach. The underlying diagnoses of

these cases range from respiratory

conditions to heart failure to septicemia.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40963

Because there are so few cases in the FY

1997 data and they are so widely

dispersed among different DRGs, we did

not propose any DRG modification. We

will make a more detailed analysis of

these cases over the next year based on

a more complete FY 1997 data file as

well as review of the FY 1998 cases that

will be available later this year. As time

goes by, hospital coders and physicians

should become more aware of this code

and we hope that more complete data

will assist our decision-making process.

We received a few comments

supporting our decision to make no

DRG changes at this time for palliative

care cases. One commenter agreed with

our statement that it may take several

years for use of this code to spread

through the medical community.

b. PTCA. Effective with discharges

occurring on or after October 1, 1997,

we reassigned cases of PTCA with

coronary artery stent implant from DRG

112 (Percutaneous Cardiovascular

Procedures) to DRG 116 (Other

Permanent Cardiac Pacemaker Implant

or PTCA with Coronary Artery Stent

Implant). In the August 29, 1997 final

rule with comment period, we

responded to several commenters who

contended that PTCA cases treated with

platelet inhibitors were as resource

intensive as the PTCA with stent

implant cases and that these cases

should also be moved to DRG 116.

However, there is currently no code that

describes the infusion of platelet

inhibitors. Therefore, we were unable to

make any changes in the DRGs for FY

1998.

As set forth in Table 6B, New

Procedure Codes in section VI. of the

addendum to this final rule, a new

procedure code for injection or infusion

of platelet inhibitors (code 99.20) will

be effective with discharges occurring

on or after October 1, 1998. Our usual

policy on new codes is to assign them

to the same DRG or DRGs as their

predecessor code. Because infusion of

platelet inhibitors is currently assigned

to a non-OR procedure code, we

followed our usual practice and

designated code 99.20 as a non-OR code

that does not affect DRG assignment.

We will not have any data on this new

code until we receive bills for FY 1999.

Thus, we would be unable to make any

changes in DRG assignment until FY

2001. We note, however, that the

Conference Report that accompanied the

Balanced Budget Act of 1997 contained

language stating that ‘‘* * * in order to

ensure that Medicare beneficiaries have

access to innovative new drug therapies,

the Conferees believe that HCFA should

consider, to the extent feasible, reliable,

validated data other than MedPAR data

in annually recalibrating and

reclassifying the DRGs.’’ (H.R. Rep. No.

105–217 at 734 (1997)). At the time the

proposed rule was published, we had

received no data that would have

allowed us to make an appropriate

modification of DRG 112 for PTCA cases

with platelet infusion therapy. In that

rule, we stated that we would review

and analyze any data we received

during the comment period about the

use of platelet inhibitors for Medicare

beneficiaries.

Since publication of the proposed

rule, we received some data concerning

the use of GPIIb/IIIa platelet inhibitor

drug therapy as well as some comments

on the issue. A discussion of the data

and the comments and our responses

are set forth below.

Comment: The data we received were

provided by the pharmaceutical

company that manufactures a GPIIb/IIIa

platelet inhibitor. In its comment

accompanying the data, the company

states its belief that the data

conclusively demonstrate that

procedure code 99.20 should be

assigned to DRG 116 effective for

discharges occurring on or after October

1, 1998. We received two other

comments from hospitals supporting

this reassignment in order to improve

payment for a beneficial drug therapy.

Another hospital urged HCFA not to

make the reassignment because the

commenter believes that there is no

evidence that use of the drug decreases

mortality or the risk of need for

emergency coronary bypass in patients

undergoing stent implantation. In

addition, this commenter believes that

the price charged for platelet inhibitor is

exorbitant and that HCFA should not

directly subsidize a pharmaceutical

company through a DRG change.

Finally, two commenters, a drug

company and a pharmaceutical

association, were encouraged by HCFA’s

willingness to consider data other than

MedPAR data for analyzing possible

DRG changes.

The data we received comprise two

different sets of Medicare beneficiaries

who received PTCA, PTCA with

implant of a coronary stent, PTCA with

platelet inhibitor therapy, or PTCA with

both implant of a stent and platelet

inhibitor therapy. One set of data

consists of just under 500 patients who

received treatment in seven hospitals

during a clinical trial conducted

between January 1, 1996 and June 15,

1997. The other set consists of just over

6,200 patients treated in 83 hospitals

between October 1, 1995 and December

31, 1996 (this is data from a health care

information company that, among other

products and services, performs clinical

and financial analysis of data under

contract with hospitals). For the first set

of data, the hospitals are identified;

however, for the second set of data, the

hospital identifying information is

confidential and was not released to

HCFA. In order to provide HCFA with

standardized charges, the information

company obtained the HCFA providerspecific file and standardized the

charges before providing them to HCFA.

According to the commenter, based

on the data provided the approximate

average standardized charges for the

different classes of patients are as

follows:

• PTCA alone—$17,000.

• PTCA and stent—$22,000.

• PTCA and platelet inhibitor—$24,000.

• PTCA and both stent and platelet

inhibitor—$29,000.

Based on these data, the drug’s

manufacturer urges us to reassign

procedure code 99.20 to DRG 116. The

commenter also argues that failure to

improve the payment for these cases

may result in Medicare beneficiaries

being denied equal access to potentially

life-saving treatment.

Response: We have reviewed the data

submitted as well as considered the

comments we have received. Based on

the data provided, it appears that the

cost of a PTCA case with platelet

inhibitor drug therapy is at least as

expensive as a PTCA case with stent

implant. However, the vast majority of

the cases (over 90 percent) cannot be

linked to a hospital. In addition,

although the large data set does

constitute a sample of cases, as claimed

by the commenter, it is not a random

sample, but rather a sample of those

hospitals that contract with the health

information company. The

pharmaceutical company states that the

83 hospitals are representative of all

hospitals in the country, but we have no

way to verify that claim. Because the

data cannot be verified, and do not

reflect a complete data set or a random

sample, HCFA cannot use the data to

make a change in the DRG assignment.

The language that Congress included

in the Conference Report that

accompanied the Balanced Budget Act

of 1997 stated that HCFA should ‘‘* * *

consider, to the extent feasible, reliable,

validated data other than MedPAR data

in annually recalibrating and

reclassifying the DRGs.’’ The data we

have been given does not meet these

requirements. We cannot validate

whether the data are Medicare

beneficiaries nor can we verify which

hospitals provided the treatment or the

amount of charges reported to Medicare.

In addition, we do not believe that we
40964 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

should base any DRG reclassification

decisions that will increase payment for

a set of cases on data that would not

meet HCFA’s strict requirements for

making a DRG change that would lower

the relative weight for a set of cases (see

discussion below concerning

radiosurgery procedures).

As we have stated in several proposed

and final rules (most recently in the

August 30, 1996 final rule in a

discussion of the coronary artery stent

implant (61 FR 46170) and the August

29, 1997 final rule in response to a

comment on the DRG assignment for

new diagnosis code 686.01) (62 FR

45982), our longstanding practice is to

assign a new code to the same DRG or

DRGs as its predecessor code. Our

compelling reason for this practice is

our inability to move the cases

associated with the new code to a new

DRG assignment as part of the DRG

reclassification and recalibration

process. Consequently, our policy is to

wait until we have a full year of

Medicare data upon which to base an

analysis of what the most appropriate

DRG assignment would be. We can then

move any cases that we would reassign

so we can revise the DRG relative

weights accordingly. If we were to

assign procedure code 99.20 to DRG 116

at this time, we would be unable to

move the cases associated with that

code from DRG 112 into DRG 116 based

on the data provided. Thus, the relative

weight of DRG 112 would still reflect

the cases with procedure code 99.20.

Since these cases presumably have

much higher charges than the other

PTCA cases, the relative weight for DRG

112 would be overstated, which means

the payments to those cases would be

overstated. In addition, the charges for

PTCA cases with platelet inhibitor drug

therapy would not be reflected in the

DRG 116 relative weight.

Our practice of waiting until we have

identifiable MedPAR data applies to all

DRG changes, that is, both those

changes that would enhance payment

for a particular diagnosis or procedure,

as well as, those that would decrease

payment for a particular diagnosis or

procedure. We note that, in FY 1996,

when we created a new procedure code

for stereotactic radiosurgery (92.3), we

assigned the code to DRGs 1, 2, and 3,

because that is where the predecessor

procedure code was assigned. However,

since code 92.3 is a nonoperating room

procedure, we were relatively sure that

the code would not remain assigned to

DRG 1, 2, and 3 (which are the highest

weighted surgical DRGs in MDC 1) once

we had the actual charge data. As

discussed in the August 29, 1997 final

rule (62 FR 45971), procedure code 92.3

was reassigned to DRGs 7 and 8 once we

had the FY 1996 data to analyze.

Therefore, we ‘‘overpaid’’ those cases

for 2 years; that is, their charges were

much less than the average charges for

DRGs 1, 2, and 3.

We believe that any data we use to

reclassify and recalibrate DRGs must be

comprehensive and valid, as well as

verifiable by HCFA.

Concerning the commenter’s

argument that failure to change the DRG

assignment for infusion of platelet

inhibitor will compromise the

availability of this treatment for

Medicare beneficiaries, we note, as we

have in several previous documents,

that it is a violation of a hospital’s

Medicare provider agreement to place

restrictions on the number of Medicare

beneficiaries it accepts for treatment

unless it places the same restrictions on

all other patients.

c. Implantation of Muscle Stimulator

Comment: We received one comment

arguing that the current DRG assignment

for the implantation of a muscle

stimulator and the associated tendon

transfer for quadriplegics is

inappropriate. The specific muscle

stimulator device (an implanted

neuroprosthesis that restores functional

hand motion in people with

quadriplegia who are 24 months postinjury) was approved by the Food and

Drug Administration in August 1996.

The device is designed to provide

neuromuscular stimulation for certain

patients with quadriplegia so that they

can grasp with their hand and perform

tasks such as holding eating utensils

and pens and brushing their teeth. In

many cases, the patient also undergoes

a tendon transfer to the hand during the

same admission or during a prior

admission. The commenter notes that

when the tendon transfer (procedure

code 82.56 (other hand tendon transfer

or transplantation)) and the insertion of

the muscle stimulator (procedure code

83.92 (insertion or replacement of

skeletal muscle stimulator)) are

performed during the same admission,

the case is assigned to DRG 7 or 8

(Peripheral and Cranial Nerve and Other

Nerve System Procedures). However,

when the procedures are performed

during two separate admissions, the

tendon transfer is assigned to DRGs 7

and 8 and the insertion of the muscle

stimulator is assigned to DRG 468

(Extensive OR Procedure Unrelated to

Principal Diagnosis). The commenter

stated that although payment for DRGs

7, 8, and 468 are all significantly less

than the cost of the hospital stay and the

device, DRG 468 pays more and results

in the hospital losing less money. The

commenter noted that the device alone

costs $24,500 and hospitals report losses

of $11,000 to $26,000 when the device

is inserted and a tendon transfer is

performed during the same admission

(resulting in assignment to DRGs 7 and

8). However, when the insertion of the

device is performed in a separate

admission, the cases are assigned to

DRG 468 and hospitals’ losses are

limited to $4,000 to $18,000.

The commenter believes that

hospitals will refuse to perform this

very useful surgery unless the DRG

assignment is revised. If the insertion of

the muscle stimulator were assigned to

a surgical DRG in MDC 1 where the

diagnosis codes for quadriplegia are

assigned, the highest paying DRG

assignment would be DRGs 1, 2, and 3

(Craniotomy). Besides being clinically

inappropriate, the commenter believes

the weights for these DRGs are too low

to adequately pay for this procedure.

The commenter recommended both a

short and a long-term solution for this

problem. For now, all cases with

insertion of muscle stimulators

performed in conjunction with tendon

transfer should be assigned to DRG 468.

In the long term, HCFA should establish

a new DRG for the implantation of

muscle stimulation devices and other

stimulation devices as they become

available.

Response: In examining the latest FY

1997 MedPAR file (bills received

through March 1998), we found only

three cases for implantation of muscle

stimulators for quadriplegics. One case

was assigned to DRG 7 and the other

two to DRG 8. The standardized charge

and length of stay for each case is set

forth below.

DRG Standardized charge

Length of

stay

(days)

7 ............................ $25,227 7

8 ............................ 8,849 2

8 ............................ 42,183 2

The average charge for all cases assigned

to DRG 7 is approximately $21,000 and

the average charge for DRG 8 cases is

about $11,500.

With so few cases, we would prefer to

review the data in the FY 1998 MedPAR

file before making any reclassification.

Therefore, we will add these cases to

our FY 2000 DRG reclassification

analysis agenda. We note that the

charges reported for two of the three

cases are significantly less than the costs

that the commenter believes would be

incurred for this surgery (approximately

$35,000).

It would be inappropriate to assign

the muscle stimulator insertions solely
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40965

to DRG 468. This DRG was created to

capture a set of clinically unrelated

cases where the only operating room

procedures performed are unrelated to

the patient’s principal diagnosis. To

permanently assign a procedure code

only to DRG 468 would be contrary to

the basic design and precepts of the

DRG system.

C. Recalibration of DRG Weights

We proposed to use the same basic

methodology for the FY 1999

recalibration as we did for FY 1998. (See

the August 29, 1997 final rule with

comment (62 FR 45982).) That is, we

recalibrated the weights based on charge

data for Medicare discharges. However,

we used the most current charge

information available, the FY 1997

MedPAR file, rather than the FY 1996

MedPAR file. The MedPAR file is based

on fully-coded diagnostic and surgical

procedure data for all Medicare

inpatient hospital bills.

The final recalibrated DRG relative

weights are constructed from FY 1997

MedPAR data, based on bills received

by HCFA through March 1998, from all

hospitals subject to the prospective

payment system and short-term acute

care hospitals in waiver States. The FY

1997 MedPAR file includes data for

approximately 11.3 million Medicare

discharges.

The methodology used to calculate

the DRG relative weights from the FY

1997 MedPAR file is as follows:

• All the claims were regrouped using

the DRG classification revisions

discussed above in section II.B of this

preamble.

• Charges were standardized to

remove the effects of differences in area

wage levels, indirect medical education

costs, disproportionate share payments,

and, for hospitals in Alaska and Hawaii,

the applicable cost-of-living adjustment.

• The average standardized charge

per DRG was calculated by summing the

standardized charges for all cases in the

DRG and dividing that amount by the

number of cases classified in the DRG.

• We then eliminated statistical

outliers, using the same criteria as was

used in computing the current weights.

That is, all cases that are outside of 3.0

standard deviations from the mean of

the log distribution of both the charges

per case and the charges per day for

each DRG.

• The average charge for each DRG

was then recomputed (excluding the

statistical outliers) and divided by the

national average standardized charge

per case to determine the relative

weight. A transfer case (including a

postacute care transfer case as discussed

in section IV.A of this preamble) is

counted as a fraction of a case based on

the ratio of its length of stay (plus one

day to account for the double per diem

payment for the first day) to the

geometric mean length of stay of the

cases assigned to the DRG. That is, a 5-

day length of stay transfer case assigned

to a DRG with a geometric mean length

of stay of 10 days is counted as 0.6 of

a total case. Transfers from DRGs 209,

210, or 211 to postacute care are

counted as a fraction of a discharge

based on the ratio determined by

dividing the geometric mean length of

stay for the DRG by the sum of half the

geometric mean and half the length of

stay for the case, plus one.

• We established the relative weight

for heart and heart-lung, liver, and lung

transplants (DRGs 103, 480, and 495) in

a manner consistent with the

methodology for all other DRGs except

that the transplant cases that were used

to establish the weights were limited to

those Medicare-approved heart, heartlung, liver, and lung transplant centers

that have cases in the FY 1995 MedPAR

file. (Medicare coverage for heart, heartlung, liver, and lung transplants is

limited to those facilities that have

received approval from HCFA as

transplant centers.)

• Acquisition costs for kidney, heart,

heart-lung, liver, and lung transplants

continue to be paid on a reasonable cost

basis. Unlike other excluded costs, the

acquisition costs are concentrated in

specific DRGs (DRG 302 (Kidney

Transplant); DRG 103 (Heart Transplant

for heart and heart-lung transplants);

DRG 480 (Liver Transplant); and DRG

495 (Lung Transplant)). Because these

costs are paid separately from the

prospective payment rate, it is necessary

to make an adjustment to prevent the

relative weights for these DRGs from

including the effect of the acquisition

costs. Therefore, we subtracted the

acquisition charges from the total

charges on each transplant bill that

showed acquisition charges before

computing the average charge for the

DRG and before eliminating statistical

outliers.

When we recalibrated the DRG

weights for previous years, we set a

threshold of 10 cases as the minimum

number of cases required to compute a

reasonable weight. We proposed to use

that same case threshold in recalibrating

the DRG weights for FY 1999. Using the

FY 1997 MedPAR data set, there are 37

DRGs that contain fewer than 10 cases.

We computed the weights for the 37

low-volume DRGs by adjusting the FY

1998 weights of these DRGs by the

percentage change in the average weight

of the cases in the other DRGs.

The weights developed according to

the methodology described above, using

the final DRG classification changes,

result in an average case weight that is

different from the average case weight

before recalibration. Therefore, the new

weights are normalized by an

adjustment factor, so that the average

case weight after recalibration is equal

to the average case weight before

recalibration. This adjustment is

intended to ensure that recalibration by

itself neither increases nor decreases

total payments under the prospective

payment system.

Comment: One commenter was

concerned about the general trend in the

relative weights. This commenter

calculated average relative weights for

each MDC as well as the overall average

DRG weight. Based upon this

calculation, the commenter noted that

the average weight for the pre-MDC

DRGs and MDCs 8 (Diseases and

Disorders of the Musculoskeletal system

and Connective Tissue) and 24

(Multiple Significant Trauma) are

decreasing. Concerning MDC 8, the

commenter believes the average weight

is decreasing because of the use of

postacute care for these DRGs, noting

that 4 of them are included in the list

of 10 DRGs affected by the transfer to

postacute care provision (see section

IV.A of this preamble for a discussion of

this provision). The commenter

suggested that we leave the FY 1998

weights intact for MDC 8 until we can

assess the effect of postacute care

transfers on average standardized

amounts. For the pre-MDCs and MDC

24, the commenter believes that the

cases assigned to these categories are

extremely resource-intensive and that

the average weights should not be

decreasing. Finally, the commenter

noted that, although the total weight

increased for MDC 22 (Burns), the

average weight decreased. The

commenter believes this is inconsistent

with the statement in the proposed rule

that the changes being made to MDC 22

would improve the explanation of

variation in resource use in those DRGs

(63 FR 25579).

Response: We reviewed the table of

average DRG weights presented in the

comment, both overall and within

MDCs, and we found that the

commenter has mistakenly used a

simple averaging methodology to

determine the mean weight rather than

a weighted averaging methodology,

which is how the DRG relative weights

are calculated. For example, suppose an

MDC has three DRGs and there are 3

cases assigned to DRG 1, 6 cases

assigned to DRG 2, and 7 cases assigned

to DRG 3. The weights for the DRGs are
40966 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

1.000, 2.000, and 3.000, respectively.

The simple average weight for the three

DRGs would be calculated by adding the

weights and dividing by the number of

DRGs as follows:

( . . . ) . 1 000 2 000 3 000

3

2 0000 + + =

However, the weighted average would

be calculated by first multiplying the

weights of each DRG by the number of

cases in that DRG and dividing by the

number of cases as follows:

(( . ) ( . ) ( . )) . 1 0000 3 2 000 6 3 0000 7

16

2 2500 × + × + × =

Because of this mistake in average

weight calculation, the commenter has

made some incorrect conclusions. For

example, the commenter states that the

average DRG weight for FY 1998 is

1.3681 and the average of the proposed

FY 1999 weights is 1.3895. In reality,

the average FY 1998 weight is 1.4606

and the average of the proposed FY

1999 weights is 1.4673.

(Note: These average weights are based on

the MedPAR cases used to recalibrate the

weights; that is, the FY 1998 weights are

based on FY 1996 cases reclassified into the

FY 1998 DRGs and the proposed FY 1999

weights are based on FY 1997 cases

reclassified into the FY 1999 DRGS).

The average weight of the final FY

1999 weights is 1.4679.

Contrary to the commenter’s

assertion, the average weight of the

proposed FY 1999 MDC 22 DRGs did

not decrease compared to the FY 1998

MDC 22 weights (4.6663 and 4.5234,

respectively). In addition, although all

of the FY 1999 proposed pre-MDC DRG

weights except DRG 483 decreased

relative to FY 1998, the increase in DRG

483 was large enough (coupled with an

increase in cases) to result in an overall

higher average weight for the pre-MDC

DRGs. We note that the weights for

DRGs 481, 482, and 483 have increased

between the proposed and final FY 1999

recalibrations. As we have noted in the

past, the weights for the transplant

DRGs (481, 482, and 495) have gradually

decreased over the years. In addition,

the transplant DRGs have a relatively

small number of cases with a large range

of reported charges. A few very low or

high charge cases can make a relatively

dramatic difference in the weights from

year to year (August 29, 1997; 62 FR

45983).

Finally, with regard to the

commenter’s request that we set the FY

1999 MDC 8 weights equal to the FY

1998 weights, we could refer the

commenter to the discussion above

concerning the steps we take in

recalibrating the weights. Each year,

when we recalibrate the DRG weights,

we use charge data from the most recent

Medicare cases available. That is, we

use the charges reported by hospitals to

establish the weights. In this way, we

ensure that we are using the most recent

hospital charging practices and patterns

to set the new relative weights. Because

each DRG weight is ‘‘relative’’ to all

other DRG weights, we cannot

arbitrarily freeze a set of those DRGs at

the previous year’s weights. In a relative

system such as this, if some weights

increase, others must decrease. Finally,

as discussed above, when we recalibrate

the weights, a transfer case is counted

as a fraction of a case rather than a

whole case.

Section 1886(d)(4)(C)(iii) of the Act

requires that beginning with FY 1991,

reclassification and recalibration

changes be made in a manner that

assures that the aggregate payments are

neither greater than nor less than the

aggregate payments that would have

been made without the changes.

Although normalization is intended to

achieve this effect, equating the average

case weight after recalibration to the

average case weight before recalibration

does not necessarily achieve budget

neutrality with respect to aggregate

payments to hospitals because payment

to hospitals is affected by factors other

than average case weight. Therefore, as

we have done in past years and as

discussed in section II.A.4.b of the

Addendum to this final rule, we make

a budget neutrality adjustment to assure

that the requirement of section

1886(d)(4)(C)(iii) of the Act is met.

III. Changes to the Hospital Wage Index

A. Background

Section 1886(d)(3)(E) of the Act

requires that, as part of the methodology

for determining prospective payments to

hospitals, the Secretary must adjust the

standardized amounts ‘‘for area

differences in hospital wage levels by a

factor (established by the Secretary)

reflecting the relative hospital wage

level in the geographic area of the

hospital compared to the national

average hospital wage level.’’ In

accordance with the broad discretion

conferred under the Act, we currently

define hospital labor market areas based

on the definitions of Metropolitan

Statistical Areas (MSAs), Primary MSAs

(PMSAs), and New England County

Metropolitan Areas (NECMAs) issued by

the Office of Management and Budget

(OMB). OMB also designates

Consolidated MSAs (CMSAs). A CMSA

is a metropolitan area with a population

of one million or more, comprised of

two or more PMSAs (identified by their

separate economic and social character).

For purposes of the hospital wage index,

we use the PMSAs rather than CMSAs

since they allow a more precise

breakdown of labor costs. If a

metropolitan area is not designated as

part of a PMSA, we use the applicable

MSA. Rural areas are areas outside a

designated MSA, PMSA, or NECMA.

Effective April 1, 1990, the term

Metropolitan Area (MA) replaced the

term Metropolitan Statistical Area

(MSA) (which had been used since June

30, 1983) to describe the set of

metropolitan areas comprised of MSAs,

PMSAs, and CMSAs. The terminology

was changed by OMB in the March 30,

1990 Federal Register to distinguish

between the individual metropolitan

areas known as MSAs and the set of all

metropolitan areas (MSAs, PMSAs, and

CMSAs) (55 FR 12154). For purposes of

the prospective payment system, we

will continue to refer to these areas as

MSAs.

Section 1886(d)(3)(E) of the Act also

requires that the wage index be updated

annually beginning October 1, 1993.

Furthermore, this section provides that

the Secretary base the update on a

survey of wages and wage-related costs

of short-term, acute care hospitals. The

survey should measure, to the extent

feasible, the earnings and paid hours of

employment by occupational category,

and must exclude the wages and wagerelated costs incurred in furnishing

skilled nursing services. We also adjust

the wage index, as discussed below in

section III.F, to take into account the

geographic reclassification of hospitals

in accordance with sections

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

B. FY 1999 Wage Index Update

The final FY 1999 wage index

(effective for hospital discharges

occurring on or after October 1, 1998

and before October 1, 1999) is based on

the data collected from the Medicare

cost reports submitted by hospitals for

cost reporting periods beginning in FY

1995 (the FY 1998 wage index was
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40967

based on FY 1994 wage data). The FY

1999 wage index includes the following

categories of data, which were also

included in the FY 1998 wage index:

• Total salaries and hours from shortterm, acute care hospitals.

• Home office costs and hours.

• Direct patient care contract labor

costs and hours.

The wage index also continues to

exclude the direct salaries and hours for

nonhospital services such as skilled

nursing facility services, home health

services, or other subprovider

components that are not subject to the

prospective payment system. Finally, as

discussed in detail in the August 29,

1997 final rule with comment period,

we calculate a separate Puerto Ricospecific wage index and apply it to the

Puerto Rico standardized amount. (See

62 FR 45984 and 46041) This wage

index is based solely on Puerto Rico’s

data.

For FY 1999 we proposed two

changes to the categories of data

included in the wage index: adding

contract labor costs and hours for top

management positions and replacing the

fringe benefit category with the wagerelated costs associated with hospital

and home office salaries category. These

two changes reflect changes to the

Medicare cost report that were

discussed in the September 1, 1994 final

rule with comment period (59 FR

45355). The changes were made to the

cost report for cost reporting periods

beginning during FY 1995. Because we

are using wage data from the FY 1995

cost report for the FY 1999 wage index,

these two changes will be reflected in

the wage index for the first time in FY

1999.

As discussed in detail in the

September 1, 1994 final rule with

comment period (59 FR 45355), we

expanded the definition of contract

services reported on the Worksheet S–

3 to include the labor-related costs

associated with contract personnel in a

hospital’s top four management

positions: Chief Executive Officer/

Hospital Administrator, Chief Operating

Officer, Chief Financial Officer, and

Nursing Administrator. We also revised

the cost report to reflect a change in

terminology from ‘‘fringe benefits’’ to

‘‘wage-related costs,’’ to promote the

consistent reporting of these costs. (See

September 1, 1994 final rule with

comment period (59 FR 45356–45359).)

We made this change in terminology

because we believed it would eliminate

confusion regarding those wage-related

costs that are incorporated in the wage

index versus the broader definition of

fringe benefits recognized under the

Medicare cost reimbursement

principles. Wage-related costs, which

include core and other wage-related

costs, are reported on the Form HCFA–

339, the Provider Cost Report

Reimbursement Questionnaire.

Finally, we analyzed the wage data for

the following costs, which were

separately reported for the first time on

the FY 1995 cost reports:

• Physician Part A costs.

• Resident and Certified Registered

Nurse Anesthetist (CRNA) Part A costs.

• Overhead cost and hours by cost

center.

Our analyses and proposals concerning

these data are set forth below in section

III.C.

Comment: MedPAC submitted a

general comment on the wage index.

First, the Commission stated that several

of the issues raised in the proposed rule

stem from the failure of the wage index

to account for the mix of occupational

categories employed by each hospital

and that if the wage index reflected this

mix it would be more accurate. In

addition, MedPAC, noted that new

measures are needed to implement each

new prospective system as well as for

Medicare+Choice plans and suggested

that attention should be given to

alternative strategies for obtaining labor

prices that could eliminate the need to

collect data separately for each type of

provider affected. MedPac intends to

examine this issue during the upcoming

year.

Response: We have addressed the

issue of occupational mix in the past. In

the May 27, 1994 Federal Register, we

indicated we were not proposing to

collect occupational mix data due to a

lack of support from the hospital

industry for an additional reporting

burden with uncertain impact (59 FR

27724). However, certain segments of

the industry continue to insist that an

occupational mix would make the wage

index fairer. We will continue to

evaluate all the data and evidence that

we receive on this issue. With respect to

MedPAC’s interest in examining

alternative data collection strategies, we

look forward to the results of its

examination, and will provide whatever

assistance we can.

C. Issues Relating to the FY 1999 Wage

Index

1. Physician Part A Costs

Currently, if a hospital directly

employs a physician, the Part A portion

of the physician’s salary and wagerelated costs (that is, administrative and

teaching services) is included in the

calculation of the wage index. However,

the costs for contract physician Part A

services are not included. Our policy

has been that, to be included in the

wage index calculation, a contracted

service must be direct patient care, or,

beginning with the FY 1999 wage index,

top level management (see discussion

above). Because some States have laws

that prohibit hospitals from directly

hiring physicians, the hospitals in those

States have claimed that they are

disadvantaged by the wage index’s

exclusion of contract physician Part A

costs. We began collecting separate

wage data for both direct and contract

physician Part A services on the FY

1995 cost report in order to analyze this

issue. As we discussed in the September

1, 1994 final rule with comment period

(59 FR 45354), our original purpose in

collecting these data was to exclude all

physician Part A costs from the wage

index.

When we made the change to the cost

report, there were five States in which

hospitals were prohibited from directly

employing physicians. We understand

that only two States currently maintain

this prohibition: Texas and California.

Thus, the number of hospitals affected

by our current policy has decreased.

Nevertheless, the fact that hospitals in

these two States are still prohibited from

directly employing physicians for Part A

services and, therefore, must enter into

contractual agreements with physicians

for these services, perpetuates the

perceived inequity.

The main reason we planned to

exclude all Part A physician costs rather

than include the contract costs was our

concern that it would be difficult to

accurately attribute the Part A costs and

hours of these contract physicians. In

addition, we were concerned that

including these costs could

inappropriately inflate the hospitals’

average hourly wages. That is, we

anticipated that average costs for

contract physicians would be

significantly higher than the costs for

those physicians directly employed by

the hospital. However, our analysis of

the data shows that the average hourly

wages for contract physician Part A

costs are very similar to, and, in fact

slightly lower than, the costs for salaried

physician Part A services.

Based on this result, we believe that

continuing to include the directly

employed physician Part A costs and

adding the costs for contract physicians

is the better policy. Thus, we proposed

to calculate the FY 1999 wage index

including both direct and contract

physician Part A costs.

Of the 5,070 hospitals included in the

FY 1995 wage data file, approximately

32 percent reported contract physician

Part A costs. Including these costs

would raise the wage index values for
40968 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

2 MSAs (4 hospitals) by more than 5

percent and 7 MSAs (43 hospitals) by

between 2 and 5 percent. Two MSAs

and one Statewide rural area (74

hospitals) would experience a decrease

between 2 and 5 percent. The wage

index values for the remaining 365 areas

(4,949 hospitals) would be relatively

unaffected, experiencing changes of

between ¥2 and 2 percent.

We received several comments

regarding the inclusion of contract

physician costs, and physician Part A

costs generally. The specific comments

and our responses are set forth below.

Comment: A national hospital

association noted its concern about the

inclusion of teaching-related costs in the

wage index because Medicare pays

separately for the salaries of teaching

physicians through direct graduate

medical education (GME) payments.

Nevertheless, the commenter supports

the inclusion of contract physician costs

in the FY 1999 wage index. The

commenter indicated that it would work

to develop a consensus among hospital

and health system representatives on

which physician salaries, if any, should

be included in future wage indexes.

Another commenter supported the

inclusion of contract physician costs but

recommended that HCFA take swift

action to remove teaching physician

costs ‘‘to achieve geographic equity in

payments.’’

Several commenters believe that all

physician Part A costs, including

teaching physician costs, should be

recognized in calculating the wage

index. The commenters asserted that

these are costs of doing business, and

including them in the wage index

appropriately measures the geographic

variations in what hospitals pay for

labor. However, numerous commenters

argued that it is inappropriate to include

teaching physician costs in the wage

index because, in effect, it results in

double payment to teaching hospitals

for these costs. Recognizing that HCFA

does not have the data available to

separately identify the portion of

physician costs attributable to teaching

physicians, these commenters believe it

would be preferable to remove all Part

A physician costs from the wage index

calculation.

Response: As a conceptual matter, we

believe that physician Part A costs other

than teaching physician costs should be

included in the wage index because

these costs are paid under the

prospective payment system. Further, in

light of the data now available, we

believe including contract physician

Part A costs improves equity in the

wage index by allowing hospitals that

are prohibited by State law from directly

employing physicians to include their

costs of contracted physicians.

With regard to teaching physician

costs, the 1995 cost report does not

separate teaching physician costs from

other physician Part A costs.

Consequently, we are unable to exclude

teaching physician costs from the FY

1999 wage index. We believe the

optimal approach is to consider this

issue directly in developing the FY 2000

wage index. To facilitate evaluation of

this issue, we will instruct the fiscal

intermediaries to separate teaching

physician costs from hospitals’ FY 1996

wage data. We will carefully analyze

those data, and any changes we propose

to make based on that analysis will be

included in the FY 2000 proposed rule.

We do not agree with the commenters’

suggestion that, in lieu of collecting data

that would allow us to separately

identify teaching physician costs, we

should remove all physician salaries

from the wage index. These physician

Part A costs are incurred by the hospital

for services related to such positions as

medical director and clinical

department heads. As such, they are

legitimate labor costs included under

the prospective payment system. Based

on our analysis of the FY 1995 cost

reports, we believe that the data

reported for physician Part A costs are

sufficiently reliable and complete that

inclusion of physician Part A costs

(direct as well as contract costs) for FY

1999 results in a wage index that better

reflects relative hospital labor costs than

a wage index that excludes all physician

Part A costs. Moreover, as stated above,

we believe the addition of contract

physician Part A costs in the FY 1999

wage index improves the fairness and

accuracy of the wage index relative to

the FY 1998 wage index (which

included direct physician Part A costs

(salaries) but not contract physician Part

A costs). Thus, rather than excluding all

physician Part A costs, we believe the

more responsible approach is to collect

the necessary data as expeditiously as

possible in order to analyze whether it

is feasible to separate teaching

physician costs from other physician

Part A costs.

Comment: Several commenters

favored not only including physician

salaries in the wage index, but also

continuing to include teaching

physician salaries. Commenters believe

that if Congress had known about the

payment redistributions that would

result from eliminating teaching

physician salaries from the wage index

before it had enacted the reductions

applicable to teaching hospitals in the

Balanced Budget Act of 1997, it may not

have enacted such deep cuts. One

commenter also suggested that if we

excluded physician salaries, we would

need to restandardize the large urban

standardized amount to reflect the new

wage index.

Another commenter stated that the

costs of teaching physicians and

residents should be included in the

wage index because Medicare payments

for GME are not sufficient to

compensate hospitals for their GME

costs. This commenter compared

hospitals’ direct GME costs on the

Medicare cost report with the payments

they receive and estimated a shortfall of

$900 million. The commenter further

noted that reductions in Medicare

disproportionate share payments as a

result of the Balanced Budget Act would

have the effect of increasing the

empirical estimate for the indirect

graduate medical education adjustment,

leading to a further shortfall in

payments for GME.

Response: We cannot know what

Congress would or would not have done

if it had known about the impacts of

future changes to wage index policy.

Rather, refinements to the wage data

should be evaluated on their individual

merits in terms of whether they

contribute to or detract from the fairness

and accuracy of the wage index. We

disagree that changes to the wage index

may require restandardization of the

large urban standardized amount. The

large urban standardized amount was

not created by a separate

standardization of the costs of hospitals

in large urban areas, but by applying

differential update factors established

by Congress.

We also disagree with the comment

that the wage index should continue to

include costs related to teaching

physicians and residents because

current and future GME payments are

not fully compensating hospitals for

their GME costs. The adequacy of direct

GME payments is a separate issue by

virtue of the fact that these costs are

recognized separately and paid for

through Medicare outside the

prospective payment system. The

amount Medicare pays for direct GME is

based on policy considerations related

to the nature of GME, and reflects

Medicare’s fair share of those costs.

Similarly, indirect GME costs are

distinct from hospitals’ labor costs, and

the level of IME payments is not

relevant to the wage index.

Comment: Many commenters referred

to an analysis done by one commenter

showing the projected payment impacts

by State of our proposed policy of

including physician (both direct and

contract), resident, and CRNA costs in

the wage index. These commenters
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40969

referred to the large losses that,

according to this analysis, certain States

will allegedly suffer because of this

policy (California: $79 million; Florida:

$36 million; Texas: $10 million).

Corresponding gains were cited among

northeast hospitals. The suggestion of

these comments was that we should

revise our proposed policy and exclude

all of these costs to redistribute these

losses and gains.

Response: We disagree with the

characterization of this analysis. With

the exception of contract physician

costs, all of these costs have been

included in prior wage indexes.

Therefore, the commenter’s analysis

does not reflect the impact of the

proposed wage index relative to the

current wage index. With respect to the

losses in certain States cited by the

commenter, our analysis indicates that,

the projected payment impacts of

including contract physician costs

relative to a wage index without these

costs are, respectively: a $13 million

decrease, a $15 million decrease, and an

$18 million increase. We note that these

figures do not reflect the impact of

changes to the wage indexes in these

areas resulting from updating from the

1994 wage data to 1995 wage data, or

the exclusion of allocated overhead.

They do, however, present a clearer

picture of the impacts in these States of

including contract physician costs

relative to current policy.

Comment: One commenter vigorously

opposes the inclusion of contract

physician Part A costs, arguing we

should instead exclude all physician

Part A costs. The commenter, a national

association of health systems, argued

that this proposal contradicts the

objectives we identified in the May 27,

1994 proposed rule (59 FR 27720) and

the September 1, 1994 final rule (59 FR

45354), where we discussed the need to

separately collect physician Part A

costs. The commenter raises the

following points and ultimately

recommends excluding all physician

Part A costs from the calculation of the

wage index.

First, the commenter contends that,

by choosing to include physician Part A

contract costs rather than exclude all

physician Part A costs, we ‘‘have

expanded the unfair and unjustifiable

policy tilt enjoyed by teaching

hospitals.’’ To emphasize this point, the

commenter notes that over 70 percent of

all contract physician costs stem from

teaching hospitals (90 percent of

salaried physician costs are also from

teaching hospitals).

Second, the commenter states that our

rationale for proposing to include

contract physician costs focused

narrowly on whether these costs would

inappropriately inflate the wage data.

This narrow focus, according to the

commenter, left out any explanation of

why it is better to include contract

physician costs rather than to exclude

all Part A physician costs.

Third, the commenter quotes liberally

from our discussion in the proposed and

final rules published in 1994,

particularly our rationale for providing

for separate reporting of physician Part

A costs on the cost report. Referenced

specifically are the three reasons why

HCFA believed at that time that

eliminating physician Part A costs

would be preferable to including

contracted physician costs. These

reasons were: (1) Physician costs are not

driven by normal labor market

situations; (2) many hospitals indicated

difficulties in accurately determining

hours for these physicians’ services; and

(3) some hospitals have difficulty

separating costs related to Part A from

those related to Part B. The commenter

specifically asks HCFA why it has

changed its beliefs.

Finally, the commenter surmises that

one reason we proposed to include

contract physician costs is that few

areas would experience a significant

change in their wage index values. To

refute this, the commenter describes the

results of analysis of the impacts of the

proposed policy. The analysis found ‘‘a

dramatic and damaging impact on

California, the largest state in the nation

in terms of hospitals and number of

Medicare discharges.’’ The commenter

believes that ‘‘HCFA’s wage index

policy should be based not on whether

the outcome will result in little change,

but on whether it is the right policy in

the first place.’’

Response: We appreciate the

considered arguments and detailed

analysis presented by the commenter

and understand the importance of this

issue to the hospitals represented by the

association. We agree with the

commenter that the primary

consideration in developing and

refining the hospital wage index should

be the ‘‘right policy.’’ In the context of

the hospital wage index, we believe we

should promote the fair and accurate

measurement of relative hospital wage

levels across geographic areas. At the

same time, we believe it is appropriate

to consider the potential impact of

possible courses of action, though we

agree with the commenter that the

potential impact should not be the

driving force in policy decisions.

In the context of the hospital wage

index, it is also critical to keep in mind

that developing the ‘‘right policy’’ is a

function not only of conceptual issues

but also of data issues. If, for example,

we believe as a conceptual matter that

a certain type of cost should be included

in the wage index, but the data on those

costs are incomplete and unreliable,

then including the costs in the wage

index (which are conceptually right)

could (because of the data problems)

distort the measure of relative wage

levels across geographic areas, and thus

detract from the fairness and accuracy of

the wage index; similarly, if we believe

as a conceptual matter that a certain

type of cost should be excluded from

the wage index, but there is incomplete

and unreliable data to separate those

costs from other costs, then excluding

the costs based on bad data could

detract from the equity of the wage

index. Thus, our ability to implement a

‘‘conceptually right’’ policy depends on

the availability of reliable and complete

data.

As indicated above in the response to

another comment, we believe there is

good reason to include all physician

Part A costs, rather than exclude all

physician Part A costs as the commenter

recommends. Among other things, with

the exception of teaching physician

costs, physician Part A costs are Part A

costs that are paid under the prospective

payment system. In addition, physician

Part A costs represent above-average

costs, although only a small percentage

of the total for most hospitals; therefore,

excluding all physician Part A costs

might understate the relative wages of

some hospitals. Based on our analysis of

the FY 1995 cost reports, we believe that

data reported for physician Part A costs

are sufficiently reliable and complete

that inclusion of the costs results in a

wage index that is more fair and

accurate, relative to a wage index which

would exclude all physician Part A

costs, even if the data are not perfect.

As discussed above, although we have

decided to adopt our proposal to

include contract physician Part A costs

in the wage index, we intend to direct

the fiscal intermediaries to separately

identify physician Part A costs (salaried

and contracted) related to teaching for

cost reports beginning during FY 1996.

Although this information will not be

reported separately on the Worksheet S,

Part III until FY 1997 cost reports, we

believe this issue merits undertaking a

special auditing effort of the FY 1996

cost reports.

With regard to the high proportion of

physician costs attributable to teaching

hospitals, although the distribution of

costs seems disproportionate (and this is

a large part of the reason we are

expediting our efforts to separate

teaching physician costs from other

physician costs), our analysis of these
40970 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

data indicates that, among hospitals

reporting these costs, there is little

difference between teaching and

nonteaching hospitals in terms of the

relative impact of these costs on

hospitals’ average hourly wages. That is,

among both teaching and nonteaching

hospitals reporting physician Part A

costs, these costs make up between 3

and 4 percent of their total wage costs.

Therefore, although more teaching

hospitals report these costs than

nonteaching hospitals (47 percent of

teaching hospitals versus 30 percent of

nonteaching hospitals), the average

hourly wages of teaching hospitals are

not more heavily weighted by these

costs than they are for nonteaching

hospitals.

In fact, two of the MSAs that would

be most negatively affected by excluding

all physician costs from the wage data,

Pittsburgh, PA and Rochester, NY, both

have more nonteaching hospitals

reporting physician costs than teaching

hospitals. We believe the commenter’s

perception that we are tilting the wage

index policy toward teaching hospitals

is misguided and reflects an

oversimplification of the issue. Based on

our analysis of this issue, we are

convinced the most prudent course is to

focus on specifically developing data to

further improve the fairness and

accuracy of the wage index.

In describing the perceived problems

from our discussion of the physician

cost data in the May 27, 1994 proposed

rule, the commenter fails to

acknowledge that the discussion was in

relation to a proposed change. In fact, it

was in response to public comments on

this proposed change where we agreed

to revise the cost report to collect data

on contract physician costs. In addition,

the September 1, 1994 final rule clearly

stated that HCFA intended to evaluate

the physician cost data prior to

proposing any changes for the FY 1999

wage index.

Regarding the problems associated

with contract labor discussed in the FY

1995 proposed and final rules, we note

that the separate physician cost data

were not available at that time, and

therefore the discussion was based on

information provided from fiscal

intermediaries and industry sources.

Based on our analysis of the data

available now, we believe that the

problems are not as widespread as

initially feared. Rather, these costs are

similar to those reported for contracted

medical providers that we do include,

such as therapists and nursing staff. The

commenter did not allege that there

were widespread problems reporting

these data.

The commenter’s characterization of

the impact of this change on California’s

hospitals is inaccurate. No California

MSA experiences a decrease in their

wage index of more than 0.6 percent as

a result of this change. The dramatic

impacts referenced by the commenter

occur only under the assumption that

the comparative baseline excludes all

physician Part A costs, the course

recommended by the commenter. While

excluding all physician Part A costs

would result in a significant

redistribution of payments to certain

States such as California, other areas

would experience dramatic payment

decreases relative to last year.

Comment: One commenter believes

that, because the hospital wage index is

used to adjust payments for various

other types of providers, the wage data

should be expanded to be as

comprehensive as possible. Specifically,

the commenter recommended that wage

data related to excluded distinct part

units, as well as all physician data, be

included.

Response: We have convened

workgroups, both internally and

externally, to focus on future wage

index policies, and we anticipate that

we will continue to focus on the

appropriate scope of the wage data in

those workgroups. In addition, any

significant changes in the types of data

to be included in the wage index will be

implemented through the annual

rulemaking process with opportunity for

public comment, as has been our policy

in the past. For the record, we believe

that the hospital wage index should

reflect, to the greatest degree possible,

the wage costs associated with the

prospective payment areas of the

hospital.

Comment: One commenter believes

that there are ‘‘evident problems with

the quality and consistency of the

physician contract labor data,’’ which is

evidenced by California’s ranking as the

7th lowest State in terms of contract

physician average hourly wage. This

commenter also recommended that we

begin a more rigorous audit mechanism

of the wage data, stating that data

reliability is still a problem.

Response: We do not include

hospitals’ data (other than wage-related

costs) if either the salaries or hours

reported for contract labor are zero.

Applying this edit to the wage data,

California ranks as the 12th highest

State in terms of contract physician

average hourly wages. The analysis

provided by the commenters did not

include such an edit; therefore, their

results are different. We disagree with

the general point of this comment that

there are quality problems with these

data. These data have been subjected to

the same review and edit process as are

all wage data. We will continue to

monitor the process for collecting wage

data in the future, and make

improvements as necessary. We also

encourage hospitals and their

associations to feel free to provide

specific recommendations for potential

improvements.

Comment: One commenter noted that

hospitals that acquire their physician

Part A services through related

organizations do not have an

appropriate line on Worksheet S–3 to

record these wage costs. Therefore,

these hospitals are disadvantaged by the

inclusion of costs only for directly

employed and contract physician Part A

services in the wage index calculation.

The commenter recommended that we

adjust the FY 1999 wage index to

include related organization physician

Part A costs for hospitals that were

unable to include the costs on their

Worksheet S–3s.

Response: The commenter’s

statements about Worksheet S–3 are

incorrect. The cost report instructions at

section 2806.3 of the Provider

Reimbursement Manual, Part II, allow

hospitals to include the costs for

physician Part A services from related

organizations on line 33 of Worksheet

S–3. These costs are also included on

the trial balance, Worksheet A, in

column 2 (with any adjustments in

column 6). Regarding the commenter’s

recommendation, we cannot adjust the

final FY 1999 wage index to include

costs that hospitals did not properly

report on their cost reports.

2. Resident and CRNA Part A Costs

The wage index presently includes

salaries and wage-related costs for

residents in approved medical

education programs and for CRNAs

employed by hospitals under the rural

pass-through provision. However,

Medicare pays for these costs outside

the prospective payment system.

Removing these costs from the wage

index calculation would be consistent

with our general policy to exclude costs

that are not paid through the

prospective payment system, but,

because they were not separately

reported, we could not remove them.

In the September 1, 1994 final rule

with comment period (59 FR 45355), we

stated that we would begin collecting

the resident and CRNA wage data

separately and would evaluate the data

before proposing a change in computing

the wage index. However, there were

data reporting problems associated with

these costs on the FY 1995 cost report.

The original instructions for reporting
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40971

resident costs on Line 6 of Worksheet

S–3, Part III, erroneously included

teaching physician salaries and other

teaching program costs from Worksheet

A of the cost report. Although we issued

revised instructions to correct this error,

we understand these revisions may not

have been uniformly instituted. Another

issue relating to residents’ salaries stems

from apparent underreporting of these

costs by hospitals and inconsistent

treatment of the associated wage-related

costs.

In addition, the original Worksheet

S–3 and reporting instructions did not

provide for the separate reporting of

CRNA wage-related costs. We believe

that much of the CRNA Part A costs are

reported under contract labor, rather

than under salaried employee costs, due

to the heavy use of contract labor by

rural hospitals. We do not believe that

it would be feasible at this time to try

to remove these CRNA Part A costs from

the contract labor costs in the FY 1995

cost report data. We improved the

reporting instructions for CRNA costs

on the FY 1996 cost report.

Our analysis of the CRNA and

resident wage data submitted on the FY

1995 cost report convinces us that these

data are inaccurately and incompletely

reported by hospitals. For example,

although there are over 900 teaching

hospitals receiving graduate medical

education payments, only about 800

hospitals reported resident cost data.

Because we do not want to make a

relatively significant change in the wage

index data calculation without complete

and accurate data upon which to base

our decision, we proposed to delay any

decision regarding excluding resident

and CRNA costs from the wage index

until at least next year. In the May 8

proposed rule, we announced our

intention to review the FY 1996 data

when it becomes available later this year

and present our analysis and any

proposals in next year’s proposed rule.

Comment: Several commenters

believe that HCFA should immediately

exclude intern and resident and CRNA

wage costs for the same reasons the

commenters cited for excluding the

teaching physician costs. One

commenter objected to our statement

that problems with the reporting of

these data (stemming from inconsistent

instructions) warranted a one-year

delay. The commenter stated that ‘‘it is

better to exclude all clearly identified

costs now rather than waiting some

indeterminate time for all costs to be

identified before excluding any of it.’’

Analysis purporting to show a negative

impact of $24 million on California due

to including these data in the wage

index was cited.

Response: As we stated above, the

instructions to the FY 1995 cost report

Worksheet S–3 for reporting resident

costs did not specifically separate

teaching physician salaries and other

GME program costs from residents’

costs. This may have inappropriately

inflated resident costs on Line 6 of

Worksheet S–3. As a result, removing

the costs reported on Line 6 from the FY

1999 wage index calculation would

distort the wage index. Our reasoning

with respect to retaining the CRNA costs

is similar; that is, if Line 2 was removed,

it would result in distortions since these

costs were reported inconsistently.

Therefore, because the data for these

costs are not sufficiently reliable and

complete, we maintain our position that

the more responsible approach is to

delay removing these costs until more

accurate data are available for the FY

2000 wage index. With regard to the

negative impact on California, any

analysis based on this data will be

skewed by the reporting flaws noted.

The FY 1999 wage index calculation

will continue to include intern and

resident and CRNA wage costs.

We also believe that several of the

commenters are confused about the

issue of CRNA costs. Currently, only the

Part A portion of these costs are

included in the wage index, and the

only hospitals paid for these costs are

small rural hospitals who employ the

equivalent of no more than one full-time

CRNA and are paid on the basis of

reasonable costs. Therefore, they do not

contribute to the concentration of

physician costs in teaching hospitals.

Comment: One commenter noted that

the hourly wage rates for residents are

lower than the overall average hourly

wage of the hospitals that pay their

salaries, and that the inclusion of

residents’ salaries and wage-related

costs actually results in a decrease in

teaching hospitals’ average hourly

wages rather than an increase, as

suggested by most other commenters.

The commenter suggested that removing

residents from the data used to calculate

the wage index would increase the wage

index values in areas with a high

concentration of teaching hospitals.

Response: The FY 1995 data do not

permit us to evaluate the accuracy of

this comment because residents’ salaries

are commingled with teaching

physicians’ salaries for many hospitals.

As with all changes to the wage data,

the impacts cannot be evaluated

properly until accurate data are

available for all hospitals nationally.

3. Overhead Allocation

In the proposed rule, we discussed in

detail our proposal to remove from the

calculation of the FY 1999 wage index

the overhead costs associated with

certain subprovider components that are

excluded from the prospective payment

system (63 FR 25586). Although the

overall impact on hospitals of this

change is relatively small, we believe it

is an appropriate step toward improving

the overall consistency of the wage

index. In addition, we believe this

change will significantly increase the

accuracy of the wage data for individual

hospitals, especially hospitals that have

a relatively small portion of their facility

devoted to acute inpatient care.

We received several comments

supporting this change, and none

expressing opposition to it. One

commenter referred to it as a step

toward improving uniformity and

overall consistency in the wage index

process. We have, therefore,

incorporated our proposal in the final

wage index.

D. Verification of Wage Data From the

Medicare Cost Report

The data for the FY 1999 wage index

were obtained from Worksheet S–3,

Parts III and IV of the FY 1995 Medicare

cost reports. The data file used to

construct the final wage index includes

FY 1995 data submitted to the Health

Care Provider Cost Report Information

System (HCRIS). As in past years, we

performed an intensive review of the

wage data, mostly through the use of

edits designed to identify aberrant data.

As a part of the August 29, 1997 final

rule with comment period, we

implemented a new timetable for

requesting wage data corrections (62 FR

45990). We notified hospitals again of

these changes through a February 1998

memorandum to the fiscal

intermediaries and in the proposed rule.

As noted in the proposed rule,

beginning this year with the FY 1999

wage index, the wage index published

in the final rule incorporates all

corrections, including those to correct

data entry or tabulation errors of the

final wage data by the intermediary or

HCFA.

To allow hospitals an opportunity to

evaluate the wage data to be used to

construct the proposed and the final FY

1999 hospital wage index, we made

available to the public data files

containing the FY 1995 hospital wage

data. In memoranda dated February 2

and April 21, 1998, we instructed all

Medicare intermediaries to inform the

prospective payment hospitals they

serve of the availability of the wage data

files and the process and timeframe for

requesting revisions. The proposed and

the final wage data files were made

available February 6 and May 14, 1998,
40972 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

through the Internet at HCFA’s home

page (http://www.hcfa.gov). The

intermediaries were also instructed to

advise hospitals of the alternative

availability of these data through their

representative hospital organizations or

directly from HCFA.

Table 3C in the Addendum to this

final rule, as in the proposed rule,

contains each hospital’s adjusted

average hourly wage used to construct

the wage index values. A hospital can

verify its adjusted average hourly wage,

as calculated from Steps 4 and 5 of the

computation of the wage index (see

section III.E of this preamble) based on

the wage data on the hospital’s cost

report (after taking into account any

adjustments made by the intermediary),

by dividing the adjusted average hourly

wage in Table 3C by the applicable wage

adjustment factors as set forth in Step 5

of the computation of the wage index.

However, a hospital’s average hourly

wage using this calculation will vary

from the average hourly wage shown on

Line 32 of Worksheet S–3, Part III. (See

Step 5 for a complete explanation.)

We created the correction process, as

detailed in the proposed rule, to resolve

all substantive wage data correction

disputes before finalizing the wage data

for the FY 1999 payment rates.

Hospitals had until June 5, 1998, to

submit requests to correct errors in the

final wage data (released May 14, 1998)

due to data entry or tabulation errors by

the intermediary or HCFA. The

correction requests considered were

limited to errors in the final wage data

that the hospital could not have known

about prior to the availability of the

final wage data public use file. If

hospitals availed themselves of these

opportunities to timely identify and

bring errors in their wage data to their

intermediaries’ attention, the wage

index implemented on October 1 should

be free of such errors. Nevertheless, in

the unlikely event that errors should

arise after that date, we retain the right

to make midyear changes to the wage

index under very limited circumstances.

Specifically, in accordance with

§ 412.63(w)(2), we may make midyear

corrections to the wage index only in

those limited circumstances where a

hospital can show: (1) That the

intermediary or HCFA made an error in

tabulating its data; and (2) that the

hospital could not have known about

the error, or did not have an opportunity

to correct the error, before the beginning

of FY 1999 (that is, by the June 5, 1998

deadline). As indicated earlier, since a

hospital will have had the opportunity

to verify its data, and the intermediary

will notify the hospital of any changes,

we do not foresee any specific

circumstances under which midyear

corrections would be made. However,

should a midyear correction be

necessary, the wage index change for

the affected area will be effective

prospectively from the date the

correction is made.

E. Computation of the Wage Index

The method used to compute the final

wage index is as follows:

Step 1—As noted above, we based the

FY 1999 wage index on wage data

reported on the FY 1995 Medicare cost

reports. We gathered data from each of

the non-Federal, short-term, acute care

hospitals for which data were reported

on the Worksheet S–3, Parts III and IV

of the Medicare cost report for the

hospital’s cost reporting period

beginning on or after October 1, 1994

and before October 1, 1995. In addition,

we included data from a few hospitals

that had cost reporting periods

beginning in September 1994 and

reported a cost reporting period

exceeding 52 weeks. These data were

included because no other data from

these hospitals would be available for

the cost reporting period described

above, and particular labor market areas

might be affected due to the omission of

these hospitals. However, we generally

describe these wage data as FY 1995

data.

Step 2—For each hospital, we

subtracted the excluded salaries (that is,

direct salaries attributable to skilled

nursing facility services, home health

services, and other subprovider

components not subject to the

prospective payment system) from gross

hospital salaries to determine net

hospital salaries. To determine total

salaries plus wage-related costs, we

added the costs of contract labor for

direct patient care, certain top

management, and physician Part A

services; hospital wage-related costs,

and any home office salaries and wagerelated costs reported by the hospital, to

the net hospital salaries. The actual

calculation is the sum of lines 2, 4, 6,

32, and 33 of Worksheet S–3, Part III.

This calculation differs from the one

computed on line 32 of Worksheet S–3,

Part III. Therefore, a hospital’s average

hourly wage calculated under this step

will be different from the average hourly

wage shown on line 32, column 5.

Step 3—For each hospital, we

subtracted the reported excluded hours

from the gross hospital hours to

determine net hospital hours. To

determine total hours, we increased the

net hours by the addition of home office

hours and hours for contract labor

attributable to direct patient care,

certain top management, and physician

Part A salaries.

Step 4—For each hospital reporting

both total overhead salaries and total

overhead hours greater than zero, we

then allocated overhead costs. First, we

determined the ratio of excluded area

hours (Line 24 of Worksheet S–3, Part

III) to revised total hours (Line 9 of

Worksheet S–3, Part III, adding back

CRNA Part A, physician Part A, and

resident hours). Second, we computed

the amounts of overhead salaries and

hours to be allocated to excluded areas

by multiplying the above ratio by the

total overhead salaries and hours

reported on Line 16 of Worksheet S–3,

Part IV. Finally, we subtracted the

computed overhead salaries and hours

associated with excluded areas from the

total salaries and hours derived in Steps

2 and 3.

Step 5—For each hospital, we

adjusted the total salaries plus wagerelated costs to a common period to

determine total adjusted salaries plus

wage-related costs. To make the wage

inflation adjustment, we estimated the

percentage change in the employment

cost index (ECI) for compensation for

each 30-day increment from October 14,

1994 through April 15, 1996, for private

industry hospital workers from the

Bureau of Labor Statistics Compensation

and Working Conditions. For previous

wage indexes, we used the percentage

change in average hourly earnings for

hospital industry workers to make the

wage inflation adjustment. For FY 1999

we used the ECI for compensation for

private industry hospital workers

because it reflects the price increase

associated with total compensation

(salaries plus fringes) rather than just

the increase in salaries, which is what

the average hourly earnings category

reflected. In addition, the ECI includes

managers as well as other hospital

workers. We changed the methodology

used to compute the monthly update

factors. This new methodology uses

actual quarterly ECI data to determine

the monthly update factors. The

methodology assures that the update

factors match the actual quarterly and

annual percent changes. The inflation

factors used to inflate the hospital’s data

were based on the midpoint of the cost

reporting period as indicated below.

MIDPOINT OF COST REPORTING

PERIOD

After Before Adjustment

factor

10/14/94 ............ 11/15/94 1.032882

11/14/94 ............ 12/15/94 1.030771

12/14/94 ............ 01/15/95 1.028721
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40973

MIDPOINT OF COST REPORTING

PERIOD—Continued

After Before Adjustment

factor

01/14/95 ............ 02/15/95 1.026731

02/14/95 ............ 03/15/95 1.024776

03/14/95 ............ 04/15/95 1.022827

04/14/95 ............ 05/15/95 1.020886

05/14/95 ............ 06/15/95 1.018901

06/14/95 ............ 07/15/95 1.016822

07/14/95 ............ 08/15/95 1.014649

08/14/95 ............ 09/15/95 1.012446

09/14/95 ............ 10/15/95 1.010279

10/14/95 ............ 11/15/95 1.008146

11/14/95 ............ 12/15/95 1.006047

12/14/95 ............ 01/15/96 1.003981

01/14/96 ............ 02/15/96 1.001950

02/14/96 ............ 03/15/96 1.000000

03/14/96 ............ 04/15/96 0.998181

For example, the midpoint of a cost

reporting period beginning January 1,

1995 and ending December 31, 1995 is

June 30, 1995. An inflation adjustment

factor of 1.016822 would be applied to

the wages of a hospital with such a cost

reporting period. In addition, for the

data for any cost reporting period that

began in FY 1995 and covers a period

of less than 360 days or greater than 370

days, we annualized the data to reflect

a 1-year cost report. Annualization is

accomplished by dividing the data by

the number of days in the cost report

and then multiplying the results by 365.

Step 6—Each hospital was assigned to

its appropriate urban or rural labor

market area prior to any reclassifications

under sections 1886(d)(8)(B) or

1886(d)(10) of the Act. Within each

urban or rural labor market area, we

added the total adjusted salaries plus

wage-related costs obtained in Step 5 for

all hospitals in that area to determine

the total adjusted salaries plus wagerelated costs for the labor market area.

Step 7—We divided the total adjusted

salaries plus wage-related costs obtained

in Step 6 by the sum of the total hours

(from Step 4) for all hospitals in each

labor market area to determine an

average hourly wage for the area.

Step 8—We added the total adjusted

salaries plus wage-related costs obtained

in Step 5 for all hospitals in the Nation

and then divided the sum by the

national sum of total hours from Step 4

to arrive at a national average hourly

wage. Using the data as described above,

the national average hourly wage is

$20.7325.

Step 9—For each urban or rural labor

market area, we calculated the hospital

wage index value by dividing the area

average hourly wage obtained in Step 7

by the national average hourly wage

computed in Step 8. We note that in

June, 1998, OMB announced the

designation of the Missoula, Montana

MSA comprising Missoula, Montana.

Step 10—Following the process set

forth above, we developed a separate

Puerto Rico-specific wage index for

purposes of adjusting the Puerto Rico

standardized amounts. We added the

total adjusted salaries plus wage-related

costs (as calculated in Step 5) for all

hospitals in Puerto Rico and divided the

sum by the total hours for Puerto Rico

(as calculated in Step 4) to arrive at an

overall average hourly wage of $9.5025

for Puerto Rico. For each labor market

area in Puerto Rico, we calculated the

hospital wage index value by dividing

the area average hourly wage (as

calculated in Step 7) by the overall

Puerto Rico average hourly wage.

Step 11—Section 4410 of Public Law

105–33 provides that, for discharges on

or after October 1, 1997, the area wage

index applicable to any hospital that is

not located in a rural area may not be

less than the area wage index applicable

to hospitals located in rural areas in that

State. Furthermore, this wage index

floor is to be implemented in such a

manner as to assure that aggregate

prospective payments are not greater or

less than those which would have been

made in the year if this section did not

apply. For FY 1999, this change affects

118 hospitals in 32 MSAs. The MSAs

affected by this provision are identified

in Table 4A by a footnote.

F. Revisions to the Wage Index Based on

Hospital Redesignation

Under section 1886(d)(8)(B) of the

Act, hospitals in certain rural counties

adjacent to one or more MSAs are

considered to be located in one of the

adjacent MSAs if certain standards are

met. Under section 1886(d)(10) of the

Act, the Medicare Geographic

Classification Review Board (MGCRB)

considers applications by hospitals for

geographic reclassification for purposes

of payment under the prospective

payment system.

The methodology for determining the

wage index values for redesignated

hospitals is applied jointly to the

hospitals located in those rural counties

that were deemed urban under section

1886(d)(8)(B) of the Act and those

hospitals that were reclassified as a

result of the MGCRB decisions under

section 1886(d)(10) of the Act. Section

1886(d)(8)(C) of the Act provides that

the application of the wage index to

redesignated hospitals is dependent on

the hypothetical impact that the wage

data from these hospitals would have on

the wage index value for the area to

which they have been redesignated.

Therefore, as provided in section

1886(d)(8)(C) of the Act, the wage index

values were determined by considering

the following:

• If including the wage data for the

redesignated hospitals would reduce the

wage index value for the area to which

the hospitals are redesignated by 1

percentage point or less, the area wage

index value determined exclusive of the

wage data for the redesignated hospitals

applies to the redesignated hospitals.

• If including the wage data for the

redesignated hospitals reduces the wage

index value for the area to which the

hospitals are redesignated by more than

1 percentage point, the hospitals that are

redesignated are subject to that

combined wage index value.

• If including the wage data for the

redesignated hospitals increases the

wage index value for the area to which

the hospitals are redesignated, both the

area and the redesignated hospitals

receive the combined wage index value.

• The wage index value for a

redesignated urban or rural hospital

cannot be reduced below the wage

index value for the rural areas of the

State in which the hospital is located.

• Rural areas whose wage index

values would be reduced by excluding

the wage data for hospitals that have

been redesignated to another area

continue to have their wage index

values calculated as if no redesignation

had occurred.

• Rural areas whose wage index

values increase as a result of excluding

the wage data for the hospitals that have

been redesignated to another area have

their wage index values calculated

exclusive of the wage data of the

redesignated hospitals.

• The wage index value for an urban

area is calculated exclusive of the wage

data for hospitals that have been

reclassified to another area. However,

geographic reclassification may not

reduce the wage index value for an

urban area below the statewide rural

wage index value.

We note that, except for those rural

areas where redesignation would reduce

the rural wage index value, the wage

index value for each area is computed

exclusive of the wage data for hospitals

that have been redesignated from the

area for purposes of their wage index.

As a result, several urban areas listed in

Table 4a have no hospitals remaining in

the area. This is because all the

hospitals originally in these urban areas

have been reclassified to another area by

the MGCRB. These areas with no

remaining hospitals receive the

prereclassified wage index value. The

prereclassified wage index value will

apply as long as the area remains empty.

The final wage index values for FY

1999 are shown in Tables 4A, 4B, 4C,
40974 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

and 4F in the Addendum to this final

rule. Hospitals that are redesignated

should use the wage index values

shown in Table 4C. Areas in Table 4C

may have more than one wage index

value because the wage index value for

a redesignated urban or rural hospital

cannot be reduced below the wage

index value for the rural areas of the

State in which the hospital is located.

When the wage index value of the area

to which a hospital is redesignated is

lower than the wage index value for the

rural areas of the State in which the

hospital is located, the redesignated

hospital receives the higher wage index

value, that is, the wage index value for

the rural areas of the State in which it

is located, rather than the wage index

value otherwise applicable to the

redesignated hospitals.

Tables 4D and 4E list the average

hourly wage for each labor market area,

prior to the redesignation of hospitals,

based on the FY 1995 wage data. In

addition, Table 3C in the Addendum to

this final rule includes the adjusted

average hourly wage for each hospital

based on the FY 1995 data (as calculated

from Steps 4 and 5, above). The MGCRB

will use the average hourly wage

published in the final rule to evaluate a

hospital’s application for

reclassification for FY 2000, unless that

average hourly wage is later revised in

accordance with the wage data

correction policy described in

§ 412.63(w)(2). In such cases, the

MGCRB will use the most recent revised

data used for purposes of the hospital

wage index.

Although we did not propose any

changes to the reclassification

guidelines, we received two comments

on that issue.

Comment: One commenter was

concerned that the number of hospitals

participating in countywide

reclassifications has declined over the

years. The commenter believes that this

is an indication that the criteria for

hospitals in an urban county seeking

reclassification to another urban county

should be adjusted.

Response: When we implemented the

MGCRB process, we anticipated that,

over the years, the number of hospitals

that would continue to qualify for

reclassification would decrease due to

better data reporting and efforts by

hospitals to constrain costs. The

reclassification process is an annual

process in which a hospital or group of

hospitals must meet the defined criteria

on an annual basis in order to remain

reclassified to an alternative area for

either the wage index, the standardized

amount, or both. We note that hospitals

that do not meet the countywide criteria

under § 412.234 may apply on an

individual basis.

Comment: One commenter supports

the policy that allows rural hospitals to

reclassify to another area for purposes of

the disproportionate share adjustment

even if the standardized amount is the

same for both areas. However, this

commenter is also concerned that

separate criteria have not been

developed for this type of

reclassification and that we continue to

rely on the criteria set forth in

§ 412.230(d), which is the criteria for

reclassification to another area for

purposes of the standardized amount.

Response: Section 4203(a) of the

Balanced Budget Act of 1997 provided

that, for a limited period of time, a rural

hospital may apply for reclassification

to another area for purposes of receiving

disproportionate share payments

whether or not the standardized amount

is the same for both areas. Section

4203(b) provides that the MGCRB will

apply the guidelines for reclassification

for purposes of the standardized amount

until the Secretary establishes other

guidelines.

We believe that the criteria in place

for standardized amount reclassification

are appropriate for determining whether

hospitals should be reclassified for

purposes of the disproportionate share

payment. The criteria address the extent

to which a hospital warrants

reclassification by comparing the

hospital’s costs to its payments with and

without reclassification. Nevertheless,

we welcome specific suggestions for

revising the DSH reclassification

criteria.

IV. Other Decisions and Changes to the

Prospective Payment System for

Inpatient Operating Costs

A. Definition of Transfers (§ 412.4)

Pursuant to section 1886(d)(5)(I) of

the Act, the prospective payment system

distinguishes between ‘‘discharges,’’

situations in which a patient leaves an

acute care (prospective payment)

hospital after receiving complete acute

care treatment, and ‘‘transfers,’’

situations in which the patient is

transferred to another acute care

hospital for related care. If a full DRG

payment were made to each hospital

involved in a transfer situation,

irrespective of the length of time the

patient spent in the ‘‘sending’’ hospital

prior to transfer, a strong incentive to

increase transfers would be created,

thereby unnecessarily endangering

patients’ health. Therefore, our policy,

which is set forth in the regulations at

§ 412.4, provides that, in a transfer

situation, full payment is made to the

final discharging hospital and each

transferring hospital is paid a per diem

rate for each day of the stay, not to

exceed the full DRG payment that

would have been made if the patient

had been discharged without being

transferred.

Currently, the per diem rate paid to a

transferring hospital is determined by

dividing the full DRG payment that

would have been paid in a nontransfer

situation by the geometric mean length

of stay for the DRG into which the case

falls. Hospitals receive twice the per

diem for the first day of the stay and the

per diem for every following day up to

the full DRG amount. Transferring

hospitals are also eligible for outlier

payments. Two exceptions to the

current transfer payment policy are

transfer cases classified into DRG 385

(Neonates, Died or Transferred to

Another Acute Care Facility) and DRG

456 (Burns, Transferred to Another

Acute Care Facility), which receive the

full DRG payment instead of being paid

on a per diem basis.

Under section 1886(d)(5)(J) of the Act,

which was added by section 4407 of the

Balanced Budget Act of 1997, a

‘‘qualified discharge’’ from one of 10

DRGs selected by the Secretary to a

postacute care provider will be treated

as a transfer case beginning with

discharges on or after October 1, 1998.

Section 1886(d)(5)(J)(iii) confers broad

authority on the Secretary to select 10

DRGs ‘‘based upon a high volume of

discharges classified within such group

and a disproportionate use of’’ certain

postdischarge services. Section

1886(d)(5)(J)(ii) defines a ‘‘qualified

discharge’’ as a discharge from a

prospective payment hospital of an

individual whose hospital stay is

classified in one of the 10 selected DRGs

if, upon such discharge, the

individual—

• Is admitted to a hospital or hospital

unit that is not a prospective payment

system hospital;

• Is admitted to a skilled nursing

facility; or

• Is provided home health services by

a home health agency if the services

relate to the condition or diagnosis for

which the individual received inpatient

hospital services and if these services

are provided within an appropriate

period as determined by the Secretary.

The Conference Agreement that

accompanied the law noted that ‘‘(t)he

Conferees are concerned that Medicare

may in some cases be overpaying

hospitals for patients who are

transferred to a post acute care setting

after a very short acute care hospital

stay. The Conferees believe that

Medicare’s payment system should
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40975

continue to provide hospitals with

strong incentives to treat patients in the

most effective and efficient manner,

while at the same time, adjust PPS

[prospective payment system] payments

in a manner that accounts for reduced

hospital lengths of stay because of a

discharge to another setting.’’ (H.R. Rep.

No. 105–217, 740.) In its March 1, 1997

report, ProPAC expressed similar

concerns: ‘‘* * * length of stay declines

have been greater in DRGs associated

with substantial postacute care use,

suggesting a shift in care from hospital

inpatient to postacute settings’ (pp. 21–

22).

In fact, based on the latest available

data, overall Medicare hospital costs per

case have decreased during FYs 1994

and 1995. This unprecedented real

decline in costs per case has led to

historically high Medicare operating

margins (over 10 percent on average).

Along with these declining lengths of

stay and costs per case, there has been

an increase in the utilization of

postacute care. In 1990, the rate of

skilled nursing facility services per

1,000 Medicare enrollees was 19. By

1995, it had grown to 33. Corresponding

numbers for home health agency

services are 58 per 1,000 Medicare

enrollees during 1990 and 93 per 1,000

enrollees during 1995. Although home

health services are not always directly

related to a hospitalization episode,

there does appear to be a trend toward

increased use of home health for the

provision of postacute care

rehabilitation services. Previous

analysis of the percentage of hospital

discharges that receive postacute home

health care showed a 10.3 percent

increase in 1994 compared to 1992.

In the May 8, 1998 proposed rule, we

discussed our proposals to implement

section 1886(d)(5)(J) of the Act. These

proposals are set forth below.

1. Selection of 10 DRGs

Section 1886(d)(5)(J)(iii)(I) of the Act

provides that the Secretary select 10

DRGs based on a high volume of

discharges to postacute care and a

disproportionate use of postacute care

services. Therefore, in order to select the

DRGs to be paid as transfers, we first

identified those DRGs with the highest

percentage of postacute care.

We used the FY 1996 MedPAR file

because the complete FY 1997 MedPAR

file was not available at the time we

conducted our analysis. To identify

postacute care utilization, we merged

hospital inpatient bill files with

postacute care bill files matching

beneficiary identification numbers and

discharge and admission dates. We

created this file rather than depend on

information concerning discharge

destination on the inpatient bill because

we have found that the discharge

destination codes included on the

hospital bills are often inaccurate in

identifying discharges to a facility other

than another prospective payment

hospital.

Section 1886(d)(5)(J)(ii)(III) of the Act

requires the Secretary to choose an

appropriate window of days in which

the home health services start in order

for the discharge to meet the definition

of a transfer. In order to include

postdischarge home health utilization in

our analysis, we identified all hospital

discharges for patients who received

any home health care within 7 days

after the date of discharge. (As described

below in section IV.A.2., we ultimately

decided to propose 3 days as the

window for home health services.)

Starting with the DRG with the

highest percentage of postacute care

discharges and continuing in

descending order, we selected the first

20 DRG’s that had a relatively large

number of discharges to postacute care

(our lower limit was 14,000 cases). In

order to select 10 DRG’s from the 20

DRG’s on our list, for each of the DRG’s

we considered the volume and

percentage of discharges to postacute

care that occurred before the mean

length of stay and whether the

discharges occurring early in the stay

were more likely to receive postacute

care. The following table lists the 10

DRG’s we proposed to include under

our expanded transfer definition, their

percentage of postacute utilization

compared to total cases, and the total

number of cases identified as going to

postacute care.

DRG Title and type of DRG (surgical or medical)

Percent of

postacute

utilization

Number of

postacute

cases

14 ........... Specific Cerebrovascular Disorders Except Transient Ischemic Attack (Medical) ..................................... 49.5 186,845

113 ......... Amputation for Circulatory System Disorders Excluding Upper Limb and Toe (Surgical) ......................... 59.0 28,402

209 ......... Major Joint Limb Reattachment Procedures of Lower Extremity (Surgical) ............................................... 71.9 257,875

210 ......... Hip and Femur Procedures Except Major Joint Age >17 With CC (Surgical) ........................................... 77.8 111,799

211 ......... Hip and Femur Procedures Except Major Joint Age >17 Without CC (Surgical) ...................................... 74.2 19,548

236 ......... Fractures of Hip and Pelvis (Medical) ......................................................................................................... 61.2 24,498

263 ......... Skin Graft and/or Debridement for Skin Ulcer or Cellulitis With CC (Surgical) .......................................... 49.4 14,499

264 ......... Skin Graft and/or Debridement for Skin Ulcer or Cellulitis W/O CC (Surgical) .......................................... 39.3 1,328

429 ......... Organic Disturbances and Mental Retardation (Medical) ........................................................................... 45.4 19,314

483 ......... Tracheostomy Except for Face, Mouth and Neck Diagnoses (Surgical) .................................................... 45.3 18,254

We included DRG 263 on the list

because of its ranking in the top 20

DRG’s in terms of postacute utilization

and volume of discharges to postacute

care. DRG’s 263 and 264 are paired

DRG’s; that is, the only difference in the

cases assigned to DRG 263 as opposed

to DRG 264 is that the patient has a

complicating or comorbid condition. If

we included only DRG 263 in the list,

it would be possible for a transfer case

with a relatively short length of stay that

should be assigned to DRG 263 and

receive a relatively small transfer

payment to be assigned instead to DRG

264, and receive the full DRG payment,

simply by failing to include the CC

diagnosis code on the bill. Therefore,

our choice was to either delete DRG 263

from the list or add DRG 264. We

decided to include DRG 264 in the

proposed list because DRG 263 fully

meets all the conditions for inclusion on

the list of 10 DRG’s.

2. Postacute Care Settings

Section 1886(d)(5)(J)(ii) of the Act

requires the Secretary to define and pay

as transfers cases from one of 10 DRG’s

selected by the Secretary if the

individual is discharged to one of the

following settings:

• A hospital or hospital unit that is

not a subsection [1886](d) hospital, that

is, a hospital or unit excluded from the

inpatient prospective payment system.

• A skilled nursing facility, that is, a

facility that meets the definition of a

skilled nursing facility set forth at

section 1819 of the Act.

• Home health services provided by a

home health agency, if the services are
40976 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

related to the condition or diagnosis for

which the individual received inpatient

hospital services, and if the home health

services are provided within an

appropriate period (as determined by

the Secretary).

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

defines the hospitals and hospital units

that are excluded from the prospective

payment system as the following:

psychiatric, rehabilitation, childrens’,

long-term care, and cancer hospitals and

psychiatric and rehabilitation distinct

part units of a hospital. Therefore, any

discharge from a prospective payment

hospital from one of the 10 proposed

DRG’s that is admitted to one of these

types of facilities on the date of

discharge from the acute hospital, on or

after October 1, 1998, would be

considered a transfer and paid

accordingly under the prospective

payment systems (operating and capital)

for inpatient hospital services.

We proposed that a discharge from a

prospective payment hospital to a

skilled nursing facility would include

cases discharged from one of the 10

DRG’s from an inpatient bed in the

hospital to a bed in the same hospital

that has been designated for the

provision of skilled nursing care (a

‘‘swing’’ bed). The swing bed provision

allows certain small rural hospitals to

furnish services in inpatient beds

which, if furnished by a skilled nursing

facility, would constitute extended care

services. In addition, any patient who

receives swing-bed services is deemed

to have received extended care services

as if furnished by a skilled nursing

facility. Thus, if swing beds were not

included in the transfer policy, those

hospitals with swing bed agreements

could move patients assigned to one of

the 10 selected DRG’s from an inpatient

bed to a swing bed and receive payment

and receive the full DRG payment. In

the proposed rule, we stated that we did

not believe that this would be a fair

policy in that it would create a payment

advantage for swing bed hospitals.

Therefore, we proposed that a discharge

to a swing bed would be paid as a

transfer when the patient is classified to

one of the 10 selected DRG’s.

Section 1886(d)(5)(J)(ii)(III) of the Act

states that the discharge of an individual

who receives home health services upon

discharge will be treated as a transfer if

‘‘such services are provided within an

appropriate period (as determined by

the Secretary) * * *.’’ As discussed

above in section IV.A.1, we began our

analysis using 7 days (one week) as the

time period we would consider.

However, after conducting further

analysis, we proposed that 3 days after

the date of discharge would be a more

appropriate timeframe. Based on our

analysis of the FY 1996 bills,

approximately 90 percent of patients

began receiving home health care within

3 days.

With regard to an appropriate

definition of ‘‘home health services

* * * relate[d] to the condition or

diagnosis for which the individual

received inpatient hospital services

* * *’’, we considered several possible

approaches. Under one approach we

could compare the principal diagnosis

of the inpatient stay to the diagnosis

code indicated on the home health bill,

similar to our policy on the 3-day

payment window for preadmission

services. However, we believe that such

a policy is far too restrictive in terms of

qualifying discharges for transfer

payment. In addition, a hospital would

not know when it discharges a patient

to home health what diagnosis code the

home health agency will put on the bill.

Therefore, the hospital would not be

able to correctly code the inpatient bill

as a transfer or discharge.

We also considered proposing that

any home health care that begins within

the designated timeframe be included

‘‘as related’’ in our definition. However,

this definition might be too broad and

the hospital would not be able to predict

which cases should be coded as

transfers because the hospital often may

not know about home health services

that are provided upon discharge but

were not ordered or planned for as part

of the hospital discharge plan.

We proposed that home health

services would be considered related to

the hospital discharge if the patient is

discharged from the hospital with a

written plan of care for the provision of

home health care services from a home

health agency. In this way, the hospital

would be fully aware of the status of the

patient when discharged and could be

held responsible for correctly coding the

discharge as a transfer on the inpatient

bill. In general, this would mean that

the home health service would qualify

as a Part A home health benefit under

section 1861(tt) of the Act as added by

section 4611(b) of the BBA.

In the proposed rule, we noted that

we plan to compare inpatient bills with

home health service bills for care

provided within 3 days after discharge.

If we find that home health services

were provided within the postdischarge

window, the hospital will be notified

and the hospital payment adjusted

unless the hospital can submit

documentation verifying the discharge

status of the patient. This will alert

hospitals if there are problems with

their discharge/transfer billing and

allow them to adjust their discharge

planning process and billing practices.

If we find a continued pattern of a

hospital billing for cases from the 10

DRG’s as discharges and our records

indicate that the patients are receiving

postacute care services from an

excluded hospital, a skilled nursing

facility, or within the 3-day home health

service window, the hospitals may be

investigated for fraudulent or abusive

billing practices.

3. Payment Methodology

The statute does not dictate the

payment methodology we must use for

these transfer cases. However, section

1886(d)(5)(J)(i) of the Act provides that

the payment amount for a case may not

exceed the sum of half the full DRG

payment amount and half of the

payment amount under the current per

diem payment methodology.

Based on our analysis comparing the

costs per case for the transfers in the 10

DRG’s with payments under our current

transfer payment methodology, we

found that most of the 10 DRG’s are

appropriately paid using our current

methodology (that is, twice the per diem

for the first day and the per diem for

each subsequent day). In fact, this

payment would, on average, slightly

exceed costs. However, this is not true

of DRG’s 209, 210, and 211. For those

three DRG’s, a disproportionate

percentage (about 50 percent) of the

costs of the case are incurred on the first

day of the stay. Therefore, we stated in

the proposed rule that we would pay

DRG’s 209, 210, and 211 based on 50

percent of the DRG payment for the first

day of the stay and 50 percent of the per

diem for the remaining days of the stay.

The other seven DRG’s would be paid

under the current transfer payment

methodology.

We proposed to revise § 412.4 to

reflect these policies. In addition, we

proposed to delete the reference in

§ 412.4(d)(2) to DRG 456 (Burns,

Transferred to Another Acute Care

Facility) because we proposed to replace

that DRG and there would no longer be

any burn DRG with a transfer

designation. As discussed in section

II.B.3 of this preamble, we have adopted

that DRG change effective for FY 1999.

We received a large number of

comments concerning this proposal. In

general, commenters were opposed to

the implementation of any postacute

care transfer policy. Acknowledging that

the policy is required by statute, most

commenters also disagreed with the

manner in which we proposed to

implement the policy. However, one

association representing postacute care

providers was supportive of the

proposed policy, in general, and our
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40977

various policy proposals. As discussed

in the specific comments and responses

that follow, we are implementing the

discharge to postacute care provision as

set forth in the proposed rule except

that we are not including swing beds in

the definition of a postacute care setting

and we are clarifying the payment

methodology for DRGs 209, 210, and

211.

Comment: Commenters believed that

the postacute care transfer provision

penalizes hospitals for providing

effective care and creates a perverse

incentive for hospitals to keep patients

longer. Some commenters suggested that

this provision interferes with the

practice of medicine by overriding the

clinical decision-making process by

physicians in determining the most

appropriate level of care to provide to

their patients. Many commenters stated

that the postacute care transfer policy is

contrary to the original intent of the

prospective payment system. Several

commenters urged us either to repeal

the entire provision or to support efforts

to have it repealed.

Response: We disagree that this

provision penalizes hospitals for

effective care. As noted in the May 8

proposed rule, the Conference

Agreement accompanying Public Law

105–33 states that ‘‘Medicare’s payment

system should continue to provide

hospitals with strong incentives to treat

patients in the most effective and

efficient manner, while at the same

time, adjust PPS payments in a manner

that accounts for reduced hospital

lengths of stay because of a discharge to

another setting.’’ The transfer provision

adjusts payments to hospitals to reflect

the reduced lengths of stay arising from

the shift of patient care from the acute

care setting to the postacute care setting.

In addition, because Medicare also often

pays for the postacute care portion of

beneficiaries’ care, the transfer

provision appropriately adjusts

hospitals’ payments to avoid duplicate

payments for the care provided during

a patient’s episode of care.

With respect to the payment

incentives created by this provision, we

would refer the reader to the tables set

forth at Appendix D of this final rule.

These tables graphically demonstrate

payments compared to costs for transfer

cases in each of the 10 selected DRGs.

These tables show that, across virtually

all lengths of stay for each of the DRGs,

Medicare will pay in excess of costs

even after the implementation of this

provision. Thus, the argument that this

provision creates perverse incentives

and interferes with the appropriate

practice of medicine is not persuasive.

This policy does not require a change in

physician clinical decision-making nor

in the manner in which physicians and

hospitals practice medicine; it simply

addresses the appropriate level of

payments once those decisions have

been made.

We believe a stronger argument can be

made that the incentives of the current

policy, where hospitals receive the full

DRG payment for these DRGs regardless

of how long patients remain in the acute

care hospital prior to being transferred

for postacute care, potentially have a

greater impact on clinical decisionmaking. Simply put, as costs rise with

each additional acute care day and

payments are fixed, hospitals have a

financial incentive to discharge patients

as soon as possible. The incentive is less

clear, and can be argued to be neutral,

to the extent that the marginal payments

for an additional acute inpatient care

day increase in proportion to the

marginal costs of that day. Thus, the

postacute care transfer policy does not

create perverse incentives for hospitals

to keep patients longer; instead, it

addresses current incentives to

discharge patients as soon as possible.

With respect to whether the provision

is contrary to the original intent of the

prospective payment system, we believe

it is entirely consistent with the

following statement made in the Federal

Register during the first year of the

prospective payment system in response

to a comment concerning the hospitalto-hospital transfer policy: ‘‘(t)he

rationale for per diem payments as part

of our transfer policy is that the

transferring hospital generally provides

only a limited amount of treatment.

Therefore, payment of the full

prospective payment rate would be

unwarranted’’ (49 FR 244). We also note

that in its earliest update

recommendations, the Prospective

Payment Assessment Commission

(MedPAC’s predecessor organization)

included what it called a site-of-service

substitution adjustment to account for

the shifting of portions of inpatient care

to other settings. We believe this

provision is an appropriate and

consistent response to the changing

treatment practice of the hospital

industry.

Comment: A commenter observed that

our estimate of the impact of this

transfer provision on hospitals’

payments per case (a 0.6 percent

decrease in payments) results in an

overall payment reduction of $600

million for FY 1999. The commenter

stated that the Congressional Budget

Office (CBO) estimated the impact at

$100 million for FY 1999. The

commenter believed that this disparity

in estimates substantiates claims that

the new provision will have undesirable

and unintended consequences.

Response: We believe the

commenter’s estimate of the impacts of

this provision are overstated. Based on

the 0.6 percent decrease in payment per

case estimated in our impact analysis,

the projected impact of this transfer

provision is approximately a $480

million decrease in overall payments.

Although this savings estimate is higher

than CBO’s estimate, we would note

that CBO assumed hospitals would

change their behavior by keeping

patients longer. As we describe in our

impact analysis, we do not make any

assumptions regarding changes in

hospitals’ behavior. We would also note

that the precision with which one can

estimate the savings associated with a

provision such as this is highly

dependent on the specifications of the

provision and the data available to

generate an estimate. Unlike the CBO

estimate, our estimate reflects the 10

actual DRGs to be included and the

latest discharge data to identify which

cases would qualify as transfers.

Comment: A large number of

commenters objected to the inclusion of

swing beds as a postacute care setting.

Many of these commenters stated that

they believed that Congress did not

intend that discharges to swing beds be

included in the postacute transfer

provision. In addition, the commenters

were concerned about the negative

impact of this policy on rural hospitals

and rural health care in general. Two

commenters, including MedPAC,

supported our proposal concerning

swing bed discharges.

Response: We proposed to include

discharges to swing beds because the

services provided in swing beds are

exactly the same as the services

provided in skilled nursing facilities.

That is, a swing-bed hospital is

equivalent to a skilled nursing facility

when it provides a swing-bed service.

Thus, the policy rationale for including

discharges to skilled nursing facilities in

the postacute care provision would

apply equally to discharges to swing

beds.

Although we are not persuaded by the

commenters that, from a payment policy

perspective, our proposal to include

swing beds in the transfer provision was

inappropriate, we understand the

commenter’s concern that this policy

could have an adverse impact on small

rural hospitals. Although our analysis

shows that the impact on these hospitals

is negligible in the aggregate, the impact

on individual hospitals may be more

significant. We have decided not to

include discharges to a swing bed in the

expanded transfer definition at this
40978 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

time. We will monitor these discharges

closely and may reconsider this

decision in the future. We note that

section 1886(d)(5)(J)(iv) of the Act

requires the Secretary to include a

description of the effect of the postacute

care transfer policy in the FY 2001

hospital inpatient prospective payment

system proposed rule.

Comment: Commenters requested

clarification of our policy concerning

transfers to skilled nursing facilities.

First, the commenters questioned the

Secretary’s authority to include as

transfers those discharges to nursing

homes that are not certified by

Medicare. In addition, the commenters

believed that patients discharged to a

Medicare-certified skilled nursing

facility for custodial care should not be

included. The commenters also urged us

to limit application of the transfer

policy to discharges to skilled nursing

facilities in cases where the patient

receives Medicare-covered postacute

care.

Response: Section 1886(d)(5)(J)(ii) of

the Act defines a ‘‘qualified discharge’’

in part as a discharge of an individual

from a prospective payment system

hospital, if upon such discharge, the

individual is ‘‘* * * admitted to a

skilled nursing facility. * * *’’ There is

no language in the statute that further

defines skilled nursing facility. In the

proposed rule, we stated that a

discharge to a facility that meets the

definition of a skilled nursing facility

set forth at section 1819 of the Act

would be considered a transfer.

Discharges to nursing homes that are not

certified by Medicare as skilled nursing

facilities, or distinct parts of nursing

homes that are not certified as skilled

nursing facilities, would not be

considered transfers.

However, we do not believe it would

be appropriate from either a legal or

policy perspective to limit the transfer

definition to situations where a patient

is transferred to a skilled nursing facility

for noncovered services. The statute

does not limit application of the transfer

definition to ‘‘covered’’ skilled nursing

facility services. Moreover, there are

several policy reasons why we would

not adopt such a policy. First, it would

place an added administrative burden

upon the hospital to evaluate the

patient’s eligibility for covered skilled

nursing services. Second, it would

create incentives for providing

noncovered postacute care that could

potentially place beneficiaries at

medical and financial risk. Third, it

would be inconsistent with existing

transfer policy (from one acute care

hospital to another acute care hospital),

which does not limit the definition of a

transfer to those cases in which a

patient receives Medicare-covered

services at the receiving hospital.

Finally, the basic rationale for the

transfer policy (that is, adjusting

hospital payments to reflect reduced

hospital costs due to discharge to a

postacute care facility) applies

regardless of whether the postacute care

is covered by Medicare. Therefore, our

final regulations provide that all

discharges from the 10 specified DRGs

admitted to a skilled nursing facility

will be defined as transfers, regardless

of the coverage status of that admission.

Comment: One commenter believes

that patients who were admitted to a

skilled nursing facility any time within

30 days after the date of discharge (the

so-called 30-day skilled nursing facility

eligibility window) and who received

care related to the inpatient stay will be

considered a transfer under this policy.

The commenter is concerned that

hospitals will be expected to track

patients for this period of time and be

held accountable for their actions in

such situations.

Response: In order to be considered a

transfer, the patient must be admitted

directly from the hospital to the skilled

nursing facility. If the patient is not

admitted directly to a skilled nursing

facility, it would not constitute a

transfer situation, even if care begins

within the 30-day eligibility window

and is related to the acute care hospital

stay.

Comment: One commenter suggested

that the expanded transfer definition

should apply only in cases where the

patient is transferred within a hospital

system, that is, the patient is discharged

to an entity that is related to or owned

by the hospital. A transfer to an

independent postacute care entity

would be defined as a discharge.

Response: Section 1886(d)(5)(J)(ii) of

the Act defines a qualified discharge

from a prospective payment hospital as

one in which the individual, upon

discharge, ‘‘* * * is admitted as an

inpatient of a hospital or hospital unit

excluded that is not a subsection (d)

hospital * * * is admitted to a skilled

nursing facility * * * is provided home

health services from a home health

agency. * * *’’ The statute or the

conference report does not limit the

applicability of this provision to

postacute care providers that are owned

by or related to the discharging hospital.

In addition, we do not believe that

ownership of or affiliation with the

postacute care providers is the

overriding concern that led to the

enactment of this provision. Although a

hospital that owns or is related to the

postacute care provider has an even

greater financial incentive to transfer a

patient early in the hospital stay to that

facility, the current incentive to the

hospital itself to discharge the patient as

soon as possible is the same whether or

not it owns or is related to the postacute

care provider. Finally, if the transfer

definition were based on a hospital’s

affiliation with the postacute provider,

it would create a strong incentive to

reconfigure the hospital’s corporate

structure to avoid being included under

the provision.

Comment: One commenter suggested

that psychiatric hospitals and units be

excluded from the provision because the

postacute care services furnished by

these facilities are unrelated to a

medical hospitalization.

Response: As a legal matter, section

1886(d)(5)(J)(ii)(I) of the Act includes all

hospitals and hospital units excluded

from the prospective payment system.

This definition covers psychiatric

hospitals and units. As a policy matter,

we also strongly believe that transfers to

psychiatric hospitals and units should

be included under this provision.

Inpatient care furnished by hospitals is

not limited to diseases and disorders of

the body, but is also furnished to

patients with mental diseases and

disorders as evidenced by the nine

DRGs devoted solely to these

conditions. Furthermore, exempting

psychiatric hospitals and units from the

provision could create an incentive to

temporarily transfer patients who need

postacute care to a psychiatric hospital

or unit setting as a way of avoiding the

transfer payment, thus delaying the

appropriate medical care for the patient.

Comment: Several commenters

disagreed with our proposal to include

as transfers all discharges from the 10

specified DRGs to home health care that

begins within 3 days after the date of

discharge. The commenters argued that

postacute care that begins 3 days after

discharge should not be considered a

substitute for inpatient hospital care.

Although MedPAC agreed with these

commenters that home health services

furnished after a delay of more than one

day may not necessarily be regarded as

substituting for inpatient acute care,

they also noted that a 3-day window

allows for the fact that most home

health patients do not receive care every

day as well as those occasions in which

there may be a delay in arranging for the

provision of planned care. The

Commission also stated that a shorter

period may create a stronger incentive

to delay the provision of necessary

treatment beyond the window so the

hospital can receive the full DRG

payment. Another commenter
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40979

supported 3 days as an appropriate

period of time.

Those commenters who

recommended an alternative number of

days for the home health window

universally stated that a discharge to

home health care should be considered

a transfer only if the patients begin to

receive home health care on the day of

discharge. One commenter argued that a

3-day window would lead to either

needlessly prolonged hospital stays or

delayed home health care. Another

commenter questioned why we would

not want patients transferred to home

health care as soon as possible.

Response: The statute defines

‘‘qualified discharge’’ to include

discharges where the individual is

provided home health care ‘‘within an

appropriate period (as determined by

the Secretary).’’ We continue to believe

a 3-day window for home health

services is appropriate. Home health

care is a less-structured and more

flexible means of providing postacute

care because it is provided not in an

institutional setting but rather in the

patient’s home. We believe that a 3-day

window provides flexibility in

situations where home care may not be

available or medically appropriate

immediately upon discharge. It is also of

sufficient length to discourage hospitals

and physicians from delaying the

initiation of necessary postacute care,

while being short enough to avoid

placing an undue burden upon hospitals

that may want to delay submitting the

inpatient hospital claim until they

verify whether or not home health care

has begun within the 3 days.

We do not believe that it is

appropriate to limit the transfer

definition to situations where home care

begins on the same day as the patient is

discharged from the hospital. Our

analysis indicates that currently less

than 8 percent of discharged patients

who receive home health services begin

receiving those services on the date of

discharge. It is unreasonable to expect

that patients who are discharged in the

late afternoon or evening would receive

a home health visit that same day.

Furthermore, we believe the financial

incentive to delay needed home care for

only a matter of hours would be

overwhelming if we limited the

definition to the same day. As we noted

in the proposed rule, approximately 90

percent of patients who receive home

health services after an inpatient

hospital stay began their treatment

within 3 days after the date of discharge.

We believe 3 days accommodates

current practices, while also being

sufficiently narrow to allow hospitals to

determine whether the care was actually

delivered prior to submitting the bill.

We intend to monitor this aspect of the

policy through case review in order to

track any changes in hospital practices

that may indicate that we need to revise

our window definition.

Comment: One commenter argued

that the best method to determine

whether postacute home health services

are related to the inpatient stay would

be to match the principal diagnosis

codes on the inpatient and home health

bills. The commenter believed this

would alleviate situations where the

patient is discharged from the hospital

with a written plan for the provision of

home health services, but the services

are related to a medical condition other

than the condition responsible for the

inpatient stay. In addition, the

commenter noted that matching

principal diagnosis codes would be

consistent with current policy for the 3-

day window for preadmission services.

Response: We disagree that the

determination of whether home health

care is related to the acute

hospitalization should be based on the

presence of identical diagnosis codes on

the inpatient and home health bills.

This approach would rely on the coding

practices of the providers involved.

Providers, especially postacute care

providers, frequently have the

discretion to select from several possible

diagnosis codes. A common practice of

postacute care providers is to use the

V57 diagnosis code category (care

involving use of rehabilitation

procedures) as principal because those

codes best describe the reason for the

postacute care. However, this code is

seldom used by hospitals for acute care

discharges because they are instructed

by coding rules to code as principal the

condition that required the hospital

admission as determined at the time of

discharge. In fact, if the hospitals coded

discharges with the rehabilitation codes

as principal, the discharges would never

be included in the postacute care policy

because those discharges would never

be classified to one of the 10 selected

DRGs.

We believe our proposed policy on

this issue is preferable. We note that

hospitals that code a discharge to home

health will be permitted to indicate

through a condition code on the

inpatient bill that the hospital’s

discharge plan does not call for home

care related to the hospitalization, but

that other nonrelated home care is

appropriate. This way, the hospital will

make a conscious selection that the

home care the patient is to receive is not

related to the hospitalization, and

would be expected to have

documentation in the patient’s records

to that effect.

Comment: In the context of discussing

the home health window, MedPAC

questioned whether the same day

requirement for admission to an

excluded hospital or unit or a skilled

nursing facility was too limited. The

Commission suggested expanding the

definition to account for a 24-hour

period following discharge.

Response: In describing which

discharges to excluded hospitals and

units or skilled nursing facilities should

be treated as a transfer, the statute states

that the patient is admitted to the

facility upon discharge from the

hospital. We believe that Congress

intended that the policy apply to

situations when the patient moves from

the hospital directly to the excluded

facility or the skilled nursing facility.

Therefore, unless a patient is being

transported from the hospital to the

other facility in the middle of the night,

the discharge and admission should

occur on the same calendar day. We

note that a direct transfer that spans

midnight and results in a one-day

difference in the discharge and

admission dates will be considered a

transfer for purposes of this policy.

Comment: Many commenters

indicated the discharge to postacute

care provision will be an administrative

burden for hospitals. Because Medicare

beneficiaries are free to obtain services

without a hospital referral, hospitals are

concerned that they will be subject to

allegations of fraud and abuse if they

discharge a beneficiary to home with no

plan of care for home health services

and the beneficiary subsequently

receives postacute care without the

hospital’s knowledge. These hospitals

believe that they may be forced to hold

bills for the 10 DRGS when they

discharge a patient to self-care at home

so they can follow-up and ensure that

the patient did not receive postacute

care.

Another commenter is disturbed by

our discussion in the proposed rule

concerning future actions we may take

if we find continued patterns of a

hospital billing postacute transfer cases

as discharges, including the possibility

that hospitals may be investigated for

fraudulent or abusive billing practices.

The commenter believes that our

language was too strong and that we are

not allowing a period of transition in

which hospitals may make honest

billing errors as they adjust to this new

policy.

Finally, commenters suggested that

we clarify when hospitals are

responsible for knowing that a case is

transferred for postacute care.
40980 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

Response: We recognize there may

occasionally be cases where a hospital

believes it is discharging a patient to

home or another setting not included in

the postacute transfer definition, and a

physician orders postacute care for the

patient without notifying the hospital.

Although these cases would be

considered transfers under this

provision, we do not believe that such

instances, where they occur truly

without knowledge of the hospital,

constitute fraudulent actions. As we

indicated in the proposed rule, we

intend to monitor postacute care cases

to evaluate whether such situations

occur with unlikely frequency at

specific hospitals and we will

investigate the circumstances in those

instances.

Although we recognize honest

mistakes will occur, we do not believe

it is inappropriate to put hospitals on

notice that we reserve the right to

investigate those with aberrant patterns

of inaccurate billing on these cases.

While it is reasonable to assume there

will be a learning curve in terms of

hospitals’ billing practices as these

changes are implemented, we also take

seriously our responsibility to protect

the Medicare trust fund. Our intention

in including a discussion of this issue

in the proposed rule was an attempt to

avoid any misunderstanding in terms of

our commitment to ensure the correct

implementation of this provision.

In response to the request for

clarification about the hospital’s

responsibility for knowing when a

transfer occurs, the hospital is

responsible for coding the bill based on

its discharge plan for the patient, or if

it finds out subsequently that postacute

care occurred, it is responsible for either

coding the original bill as a transfer or

submitting an adjustment bill. We have

consulted with the National Uniform

Billing Committee (NUBC) to ensure

that the appropriate changes are made

on the claims form to enable hospitals

to accurately code these cases and to

submit corrections to them when

additional information affecting the

patient’s discharge status code becomes

available after the bill is submitted.

Comment: One commenter

recommended that we establish a

hierarchical decision process for

determining whether a discharge to

home health services qualifies as a

transfer. This commenter believed that

the overriding consideration should be

whether the services are related to the

hospital stay. This commenter suggested

that any home care ordered in the

discharge plan should constitute related

home health care, regardless of when it

is provided.

Response: Congress directed the

Secretary to determine the appropriate

time period within which the provision

of home health services would trigger a

transfer payment. Services provided

outside that window, even if related to

the hospital stay, would not result in the

discharge being considered a transfer. In

addition, we believe that a time limit is

consistent with the concern that these

transfer cases are predominantly

situations where care is being shifted

from the acute setting to a postacute

care setting. If a patient is discharged to

home and does not need home health

care for several days, there may be little,

if any, shift of acute care services to the

postacute care setting.

Comment: One commenter stated that

we should specify that the written plan

of care for home health services should

be defined clearly as ‘‘a specific order

by the patient’s physician in the

hospital medical record that directs the

hospital to arrange for home health

services upon discharge.’’

Response: We do not believe that it is

necessary to specify the precise

definition of what a written plan of care

for home health services must entail.

We note that we would deem a case to

be a transfer if care related to the

discharge was provided within 3 days

after the date of discharge even if the

hospital had no written plan of care.

Comment: A representative of

physical therapists expressed concern

that the 3-day window for home health

services may influence hospitals to wait

until after the 3 days to initiate home

health services. This commenter is also

concerned that our proposal to identify

related home health services based on

the written plan of care by the hospital

at the time of discharge may discourage

hospitals from planning for home

health, resulting in uncoordinated and

delayed postacute care following

discharge.

Response: We believe there are

sufficient protections against hospitals

inappropriately delaying home health

care. First, the provision of home health

care is ordered by the patient’s

physician orders. We believe physicians

will be reluctant to compromise their

patients’ treatment by inappropriately

delaying home health care. In addition,

we will monitor hospitals’ discharge

patterns to home health for evidence

that care is being routinely delayed until

the fourth day after discharge and

intend to aggressively pursue situations

where abuse is evident. If evidence of a

pattern of abuse is found, we will

address it through appropriate policy

changes in the FY 2001 proposed rule.

With respect to the commenter’s

concern that identifying related home

health services based on the hospital’s

written plan of care may create a

disincentive to plan home care, we will

also be able to identify those cases

where home health services were

received within 3 days of discharge and

the hospital indicated that the patient

was discharged home with no plan for

home health services. As we noted

above, we recognize there will be a

certain percentage of cases where home

care is arranged after release from the

hospital; however, we would expect

such situations to be relatively rare.

Comment: One commenter,

representing medical rehabilitation

providers, expressed concern that this

provision may change hospitals’ referral

patterns, delaying the initiation of

rehabilitation services. The commenter

suggested that we collect the following

information from prospective payment

hospitals to monitor their referral

patterns:

• Site of referral for cases in the 10

DRGs, including discharge to home

without postacute care.

• Date from onset and length of stay

prior to referral, by DRG.

• General medical condition and

functional status of the patient if the

hospital normally collects functional

information.

In addition, HCFA should collect the

following information from postacute

care providers:

• The DRG assigned to the acute care

hospitalization.

• The date from onset and date of

referral to the postacute care provider.

• For patients referred for

rehabilitation services to a rehabilitation

hospital or unit, the functional status of

the patient on admission to and at

discharge from the rehabilitation

provider.

The commenter noted that over 90

percent of rehabilitation providers

already use functional assessment tools,

therefore, this data collection would not

be excessively burdensome.

Response: We appreciate this

commenter’s concerns regarding any

potentially adverse effects of this

provision with respect to beneficiaries’

health. We already collect most of the

hospital data suggested by the

commenter (with the exception of

patients’ functional status and medical

condition, though even this could be

accessed on a limited basis). Similarly,

for postacute providers, the first two

items of data are already readily

available in our system. As we have

described above, we intend to use these

data to monitor providers’ behavior after

implementation of this policy.

Comment: Commenters requested that

we require the fiscal intermediaries to
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40981

automatically adjust the payments

received by the hospital when the

hospital codes a case as a discharge and

no bill is ever received for postacute

care services. In making this request, the

commenters referred to the process we

described in the proposed rule in which

we would compare the discharge status

coded on the hospital bills with

postacute care bills received to

determine whether qualifying postacute

care was provided when the hospital

billed the case as a discharge.

Response: As noted above, hospitals

will be able to submit corrections to

their discharge status codes when they

determine that previously submitted

bills are incorrect. It would be

impractical to require the fiscal

intermediaries to adjust payments for

cases coded as transfers when no

matching postacute care bill is

identified. Such a requirement raises a

potential scenario where a case may be

inappropriately adjusted upward

because the matching postacute bill has

not entered the claims system at the

time the bill comparison is made. The

prescribed period of time within which

a provider may submit a bill for

Medicare payment is relatively long and

we believe it would be impractical for

each intermediary to reprocess already

paid bills based solely on the absence of

a matching postacute care bill. In

addition, we note that there may be

occasions when no postacute care bill is

submitted even though the patient was

discharged to that care. For example, as

we discussed above, if a patient is

transferred to a skilled nursing facility

and receives noncovered care, there will

be no bill in the Medicare claims files.

We believe it is preferable to require

hospitals to submit bill adjustments.

Comment: One commenter was

unclear about how postacute care

transfers will be identified in the billing

process. Specifically, the commenter

questioned whether the hospital will

indicate a transfer by the discharge

status code or whether the identification

will occur by matching the acute

hospitalization bill against a postacute

bill at the fiscal intermediary.

Response: Transfer cases will be

identified based on the discharge status

code listed on the hospital claim form

(the HCFA–1490, also known as the

UB–92). As noted above, we have

consulted with the NUBC to ensure that

the appropriate changes are made on the

claims form to enable hospitals to

accurately code these cases. The

language in the proposed rule

concerning a process of matching the

date of discharge from the acute hospital

stay with the date that postacute care

services begin was a description of the

process that HCFA will use as a check

to verify the accuracy of the discharge

codes.

Comment: One commenter asked

whether the discharge destination code

‘‘08,’’ which is described as

‘‘Discharged/transferred to home under

care of a Home IV (intravenous)

provider,’’ would be used to identify a

transfer. This commenter was also

concerned about whether code ‘‘05,’’

which is described as ‘‘Discharged/

transferred to another type of institution

for inpatient care or referred for

outpatient services to another

institution’’ would be sufficient to

identify transfers to excluded hospitals

or units.

Response: Discharge code ‘‘08’’ will

not trigger a transfer payment because it

should not be used in situations where

a patient is receiving IV services under

the Medicare home health benefit.

Rather, code ‘‘06’’ should be used to

signify all care provided by a home

health agency under the Medicare home

health benefit.

With respect to discharge code ‘‘05,’’

the NUBC is discussing what additional

codes need to be added or what current

codes may be revised to allow for more

specific coding to distinguish transfer

situations from nontransfers.

Instructions on the discharge codes will

be provided to the fiscal intermediaries

and, thereafter, to the hospitals before

the effective date of the postacute

transfer provision (that is, October 1,

1998).

Comment: Several commenters

suggested that DRG 483 should not be

included as one of the 10 DRGs under

this provision. The commenters

believed that this DRG is not clinically

homogeneous and includes many

different conditions with different

expected lengths of stay. They also

stated that our analysis showed that

transfers from this DRG would be paid

below costs for almost every day below

the mean length of stay. One commenter

indicated it appeared this DRG was

singled out for specific treatment.

MedPAC commented that the criteria

we used to select the 10 DRGs was

reasonable, although it indicated that

the list is fairly narrow in the types of

conditions or procedures represented.

Therefore, when we consider an

expansion of this list, MedPAC

recommended that we include coronary

surgery DRGs, such as the coronary

bypass DRGs (106, 107, and 109), and

the pneumonia DRGs (89, 90, or 91).

Response: As described in the

proposed rule and above in this section

of the preamble, the 10 DRGs were

selected based on the criteria specified

in the statute, that is, the DRGs exhibit

a high volume and disproportionate

percentage of postacute cases. None of

the 10 DRGs were predetermined. With

respect to DRG 483, a significant

percentage of discharges (over 45

percent are transferred to postacute care.

This places it in the top 25 DRGs in

terms of postacute care utilization. Of

those 25 DRGs, it is ranked 9th in terms

of the volume of cases receiving

postacute care. We believe these factors

justify its inclusion.

In addition, contrary to the

commenter’s statement, our analysis of

payments and costs for transfers in this

DRG shows that average payments

exceed average costs for all but those

cases transferred very early in the stay

(before the 6th day in a DRG with an

average length of stay of 34 days). (See

the table for DRG 483 in Appendix D of

this final rule.) The marginal costs per

day for this DRG are consistent with and

are accommodated almost perfectly by

the transfer per diem payment

methodology.

We appreciate MedPAC’s support

regarding our selection criteria and will

take its recommendations regarding

additional DRGs into consideration in

our future analysis.

Comment: Some commenters believe

that the process we used to select the 10

DRGs did not reflect the intent of

Congress. They suggested that, in

selecting the 10 DRGs, we should

include an evaluation of whether a DRG

was prone to inappropriate use of

postacute care.

Response: Section 1886(d)(5)(J)(iii)(I)

of the Act provides that the affected

DRGs are ‘‘* * *10 diagnosis-related

groups selected by the Secretary based

on a high-volume of discharges

classified within such groups and a

disproportionate use of post discharge

[sic] services * * *.’’ This language

does not direct the Secretary to select

the 10 DRGs based upon their

vulnerability to inappropriate use of

postacute care. As stated earlier, the

postacure care transfer provision adjusts

hospital payments to reflect the reduced

lengths of stay arising from the shift of

care to the postacute care setting.

Comment: One commenter was

offended by the rationale stated in the

proposed rule for including DRG 264

(Skin Graft and/or Debridement for Skin

Ulcer or Cellulitis without complication

or comorbidity (CC)) in the list of 10

DRGs. The commenter argued that no

medical record coder would

intentionally fail to list a CC in order to

avoid the transfer payment for a case

that groups to DRG 263 (Skin Graft and/

or Debridement for Skin Ulcer or

Cellulitis With CC). The commenter

noted that this would be an illegal,
40982 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

fraudulent act on the part of the coder

and should not be used as a deciding

factor in the methodology for selecting

the 10 DRGs.

Response: In making our selection of

the 10 DRGs, we decided to include

paired DRGs if one of them met our

criteria. While we do not believe that

medical record coders will exclude a CC

code in their list of diagnosis codes, the

hospital claim is not generally

submitted to HCFA by the coder, but

rather by a billing office where

information included on the claim is

frequently subject to additional review.

By including DRG 264, we hope to

avoid any questions or issues

concerning the accurate coding of a

particular case involving skin graft and

debridement.

Comment: Several commenters stated

that the alternative payment

methodology for DRGs 209, 210, and

211 described in the proposed rule

would not pay the full DRG amount

until one day after the geometric mean

length of stay for the DRG. This result

is contrary to the usual per diem

payment methodology where the full

DRG payment is received one day before

the geometric mean length of stay.

Response: The alternative payment

methodology in the proposed rule was

described as ‘‘50 percent of the DRG

payment for the first day of the stay, and

50 percent of the per diem for the

remaining days of the stay.’’ This

wording imprecisely described our

proposed policy. The alternative

payment methodology proposed for

DRGs 209, 210, and 211 is equal to 50

percent of the DRG payment plus 50

percent of the amount which would be

paid under our per diem methodology.

Under this formula, on day one of a

postacute care transfer, hospitals would

receive one-half the DRG payment

amount plus the per diem payment for

the DRG (one-half the usual transfer

payment of double the per diem for day

one). For each subsequent day prior to

transfer, hospitals receive one-half the

per diem up to the full DRG payment,

which is reached one day prior to the

geometric mean length of stay for the

DRG. We note that, although we

inaccurately described the methodology,

we used the correct formula in

calculating the budget neutrality factors

and outlier thresholds in the proposed

rule.

Comment: One commenter believed

that the alternative payment

methodology used for DRGs 209, 210,

and 211 should be used for all 10 of the

DRGs selected under the postacute care

transfer provision. The commenter

argued that for postacute care transfers,

unlike transfers under our current

transfer policy, the hospital provides all

necessary acute care services to the

patient, regardless of length of stay,

before transferring the patient to

postacute care.

Response: As noted above, we believe

care previously provided in the acute

care setting increasingly has been

shifted to the postacute setting.

Therefore, we do not agree with the

commenter’s belief that these cases are

significantly different from those

considered transfers under our current

definition of transfers; in both

situations, the length of stay is reduced

and presumably a hospital furnished

fewer services and incurs lower costs

relative to a typical discharge.

Furthermore, as demonstrated in the

tables comparing average payments and

costs for these DRGs in Appendix D, the

seven DRGs that will be paid under the

current per diem methodology have a

gradual increase in costs as length of

stay rises, consistent with the gradual

increase in payments under our current

per diem methodology. Therefore, we

are not expanding the application of the

alternative payment methodology

beyond the three DRGs identified in the

proposed rule.

Comment: MedPAC suggested we may

wish to evaluate whether the alternative

payment methodology for postacute

transfers in DRGs 209, 210, and 211

should be expanded to our policy for

transfers between two acute care

hospitals.

Response: We have evaluated our

transfer payment formula for our current

transfer policy in the past and revised

it to pay double the per diem amount for

the first day of a transfer stay. Because

the majority of cases that are transferred

from one acute care hospital to another

result in the case being assigned to a

medical DRG, our analysis indicated

that the current per diem payment (with

a double payment on the first day)

accurately reflects the costs of these

cases, as it does for the seven DRGs paid

under the per diem methodology under

the postacute transfer provision.

Although we do not plan further

changes in the payment methodology

for transfers to another acute care

hospital, we will continue to evaluate

the potential for further refinements in

this policy, particularly in light of the

changes introduced in this final rule.

Comment: One commenter requested

clarification of how the indirect medical

education (IME) and disproportionate

share hospital (DSH) adjustments are

treated under the transfer payment

methodology. This commenter also

requested clarification regarding the

outlier payment calculation for transfer

cases and recommended that the

transfer payment rather than the DRG

payment serve as the comparative basis

for determining whether a transfer case

qualifies as an outlier.

Commenters also indicated some

confusion as to when full payment

would be made under the transfer

methodology in situations where the

geometric mean length of stay for a DRG

is not a whole number, for example, 9.8

days.

Response: The IME and DSH

payments are determined in accordance

with §§ 412.105(e) and 412.106(a)(2),

respectively, by applying the IME and

DSH adjustment factors calculated

under those sections to the DRG

revenue. In the case of a transfer

occurring before the average length of

stay, the applicable IME or DSH factor

would be applied to the DRG revenue

determined under the applicable

transfer payment methodology.

With respect to outliers for transfer

cases, the methodology suggested by the

commenter is actually the methodology

we use to determine outliers for these

cases. In the September 1, 1995 Federal

Register, we described how the cost

outlier threshold is calculated for

transfers (60 FR 45804). The outlier

threshold for transfer cases reflects the

fact that transfer cases receive a reduced

payment amount. Specifically, the

threshold for transfers paid under the

current per diem methodology is equal

to the fixed loss outlier threshold for all

cases ($11,100 for FY 1999) divided by

the geometric mean length of stay for

the DRG, multiplied by the length of

stay prior to transfer, plus one day. For

postacute transfers in DRGs 209, 210,

and 211, the outlier threshold is

determined by dividing the fixed loss

outlier threshold for all cases by the

geometric mean length of stay for the

DRG, multiplied by the sum of half the

geometric mean and half the length of

stay for the case, plus one. We note that

we are making a conforming change in

§ 412.80(b), which describes outlier

payments for transfers, to incorporate

the revisions we are making in the

transfer policy.

Finally, in the case of a DRG with a

geometric mean length of stay of 9.8

days, full payment would be received

on day 9. The following table illustrates

this point, using DRGs 209 and 236 with

geometric mean lengths of stay of 4.9

and 4.1 days, respectively.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40983

DRG 209 236

Full DRG Payment Amount 1 ................................................................................................................................... $8,400.32 $2,790.60

Per Diem Amount ..................................................................................................................................................... 2,048.86 680.63

Payment for Transfer on Day 1 2 ............................................................................................................................. 6,249.02 1,361.26

Payment for Transfer on Day 2 ............................................................................................................................... 7,273.45 2,041.89

Payment for Transfer on Day 3 ............................................................................................................................... 8,297.88 2,722.52

Payment for Transfer on Day 4 3 ............................................................................................................................. 8,400.32 2,790.60

1This amount is determined using the other areas national standardized amount from Table 1A in Section VI of the addendum to this final rule.

The respective relative DRG weights are taken from Table 5. For DRG 209, the relative weight is 2.1803, and for DRG 236 it is 0.7243. It assumes a wage index of 1.0, and no IME or DSH payments. Any IME or DSH payments would be factored into the transfer amount as described

above. 2For DRG 209, the payment amount is equal to one-half of the full DRG payment amount ($4,200.16) plus the per diem amount ($2,048.86).

For DRG 236, the payment amount is equal to double the per diem amount. 3Total payment is limited to the full DRG amount (with the exception of outlier cases), rather the result of an additional per diem amount (or

half the per diem).

Comment: A few commenters stated

that because average lengths of stay vary

by geographic region, the transfer policy

punishes those regions with average

lengths of stay less than the mean. They

recommended that an adjustment factor

be developed to recognize this disparity

or that regional averages should be used

to compute the per diem amount.

Response: We recognize that lengths

of stay vary by region and are generally

lower in the west, particularly

compared to the northeast. In addition,

regions with shorter lengths of stay tend

to also have lower average costs due to

the fewer number of days that patients

spend in the hospital. One of the

reasons for this variation is the greater

reliance on postacute care earlier in the

stay in those areas with lower average

lengths of stay.

We do not believe it would be

appropriate to base the transfer payment

methodology on regional average

lengths of stay. The national

standardized amounts, which apply

across all regions, reflect costs and

lengths of stay across all regions. If a

hospital in one region has a case with

certain patient characteristics and a

hospital in another region has a case

with identical patient characteristics

(including the same length of stay), we

see no reason to have a rule under

which one hospital would receive the

full DRG payment but the other hospital

would receive a transfer payment.

Comment: One commenter believed

that, in lieu of expanding the transfer

definition, it would make more sense to

recalibrate the 10 DRGs to better reflect

the recent reductions in lengths of stay

and costs for these categories.

Response: All of the DRGs are

recalibrated annually, using the latest

available charge data for Medicare

beneficiaries. Because of the

recalibration process, a reduction in the

relative weights of certain DRGs results

in an increase in the weights of other

DRGs. Therefore, there are no overall

reductions in Medicare payments to

hospitals. That is, although the hospital

will receive a reduced payment through

lower weights for the DRGs affected by

the shift toward greater utilization of

postacute care early in a stay, it will

receive greater payment for the DRGs in

which the weight is increased because

there is no reduction in overall costs. In

addition, any reduction in payment for

the selected DRGs is shared by all

hospitals including those that have not

reduced their average length of stay and

costs through the increased use of

postacute care. We believe that any

change in Medicare payment because of

the early transfer of acute care patients

to postacute care should be targeted at

those hospitals that have actually

incorporated this practice into their

patient care.

Comment: Another commenter noted

that, if these cases are to be treated as

transfers for payment, they should be

treated that way for recalibration as

well.

Response: We agree. In the proposed

rule, we did not revise the discussion of

the recalibration process to specifically

mention the postacute transfers, but we

did treat these cases as transfers during

the recalibration process that resulted in

the DRG weights set forth in that rule.

For purposes of the DRG recalibration,

transfer cases, including the postacute

transfer cases, are counted as a fraction

of a discharge based on the length of

stay, thereby reducing proportionately

the contribution of the charges for the

case toward the average charges for the

DRG. This process effectively inflates

the charges of a transfer case to what

they would have been had the patient’s

length of stay been equal to the

geometric mean length of stay. If we do

not perform this calculation, these cases

would receive reduced payment because

they are transfers, but be treated as

discharges in recalibration, lowering the

relative weights for affected DRGs.

Comment: One commenter questioned

whether the postacute care transfer

provision will have any effect on the

payments made by Medicare to the

postacute providers.

Response: The only payment

implication of this provision is to affect

the prospective payment for the acute

inpatient hospitalization. Medicare

payment to any postacute providers

involved in the stay are not affected by

this policy.

B. Rural Referral Centers (§ 412.96)

Under the authority of section

1886(d)(5)(C)(I) of the Act, § 412.96 sets

forth the criteria a hospital must meet in

order to receive special treatment under

the prospective payment system as a

rural referral center. For discharges

occurring before October 1, 1994, rural

referral centers received the benefit of

payment based on the other urban rather

than the rural standardized amount. As

of that date, the other urban and rural

standardized amounts were the same.

However, rural referral centers continue

to receive special treatment under both

the disproportionate share hospital

payment adjustment and the criteria for

geographic reclassification.

One of the criteria under which a

rural hospital may qualify as a rural

referral center is to have 275 or more

beds available for use. A rural hospital

that does not meet the bed size criterion

can qualify as a rural referral center if

the hospital meets two mandatory

criteria (specifying a minimum case-mix

index and a minimum number of

discharges) and at least one of the three

optional criteria (relating to specialty

composition of medical staff, source of

inpatients, or volume of referrals). With

respect to the two mandatory criteria, a

hospital may be classified as a rural

referral center if its—

• Case-mix index is at least equal to

the lower of the median case-mix index

for urban hospitals in its census region,

excluding hospitals with approved

teaching programs, or the median casemix index for all urban hospitals

nationally; and
40984 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

• Number of discharges is at least

5,000 discharges per year or, if fewer,

the median number of discharges for

urban hospitals in the census region in

which the hospital is located. (The

number of discharges criterion for an

osteopathic hospital is at least 3,000

discharges per year.)

1. Case-Mix Index

Section 412.96(c)(1) provides that

HCFA will establish updated national

and regional case-mix index values in

each year’s annual notice of prospective

payment rates for purposes of

determining rural referral center status.

The methodology we use to determine

the proposed national and regional casemix index values, is set forth in

regulations at § 412.96(c)(1)(ii). The

proposed national case-mix index value

included all urban hospitals

nationwide, and the proposed regional

values were the median values of urban

hospitals within each census region,

excluding those with approved teaching

programs (that is, those hospitals

receiving indirect medical education

payments as provided in § 412.105).

These values were based on

discharges occurring during FY 1997

(October 1, 1996 through September 30,

1997) and include bills posted to

HCFA’s records through December

1997. Therefore, in addition to meeting

other criteria, for hospitals with fewer

than 275 beds, we proposed that to

qualify for initial rural referral center

status for cost reporting periods

beginning on or after October 1, 1998, a

hospital’s case-mix index value for FY

1997 would have to be at least—

• 1.3578; or

• Equal to the median case-mix index

value for urban hospitals (excluding

hospitals with approved teaching

programs as identified in § 412.105)

calculated by HCFA for the census

region in which the hospital is located.

(See the table set forth in the May 8,

1998 proposed rule at 63 FR 25593.)

Based on the latest data available (FY

1997 bills received through March 31,

1998), the final national case-mix value

is 1.3590 and the median case-mix

values by region are set forth in the table

below:

Region

Case-mix

index

value

1. New England (CT, ME, MA,

NH, RI, VT) ............................... 1.2490

2. Middle Atlantic (PA, NJ, NY) .... 1.2519

3. South Atlantic (DE, DC, FL,

GA, MD, NC, SC, VA, WV) ....... 1.3474

4. East North Central (IL, IN, MI,

OH, WI) ..................................... 1.2711

Region

Case-mix

index

value

5. East South Central (AL, KY,

MS, TN) ..................................... 1.3042

6. West North Central (IA, KS,

MN, MO, NE, ND, SD) .............. 1.2325

7. West South Central (AR, LA,

OK, TX) ..................................... 1.3326

8. Mountain (AZ, CO, ID, MT, NV,

NM, UT, WY) ............................. 1.3726

9. Pacific (AK, CA, HI, OR, WA) .. 1.3427

For the benefit of hospitals seeking to

qualify as referral centers or those

wishing to know how their case-mix

index value compares to the criteria, we

are publishing each hospital’s FY 1997

case-mix index value in Table 3C in

section VI. of the Addendum to this

final rule. In keeping with our policy on

discharges, these case-mix index values

are computed based on all Medicare

patient discharges subject to DRG-based

payment.

2. Discharges

Section 412.96(c)(2)(I) provides that

HCFA will set forth the national and

regional numbers of discharges in each

year’s annual notice of prospective

payment rates for purposes of

determining referral center status. As

specified in section 1886(d)(5)(C)(ii) of

the Act, the national standard is set at

5,000 discharges. However, we

proposed to update the regional

standards. The proposed regional

standards were based on discharges for

urban hospitals’ cost reporting periods

that began during FY 1996 (that is,

October 1, 1995 through September 30,

1996). That is the latest year for which

we have complete discharge data

available.

Therefore, in addition to meeting

other criteria, we proposed that to

qualify for initial rural referral center

status for cost reporting periods

beginning on or after October 1, 1998,

the number of discharges a hospital

must have for its cost reporting period

that began during FY 1997 would have

to be at least—

• 5,000; or

• Equal to the median number of

discharges for urban hospitals in the

census region in which the hospital is

located. (See the table set forth in the

May 8, 1998 proposed rule at 63 FR

65594.)

Based on the latest discharge data

available for FY 1996, the final median

numbers of discharges for urban

hospitals by census region areas are as

follows:

Region

Number

of discharges

1. New England (CT, ME, MA,

NH, RI, VT) ............................... 6,672

2. Middle Atlantic (PA, NJ, NY) .... 8,676

3. South Atlantic (DE, DC, FL,

GA, MD, NC, SC, VA, WV) ....... 7,753

4. East North Central (IL, IN, MI,

OH, WI) ..................................... 7,346

5. East South Central (AL, KY,

MS, TN) ..................................... 6,741

6. West North Central (IA, KS,

MN, MO, NE, ND, SD) .............. 5,346

7. West South Central (AR, LA,

OK, TX) ..................................... 5,251

8. Mountain (AZ, CO, ID, MT, NV,

NM, UT, WY) ............................. 7,992

9. Pacific (AK, CA, HI, OR, WA) .. 5,993

We note that the number of discharges

for hospitals in each census region is

greater than the national standard of

5,000 discharges. Therefore, 5,000

discharges is the minimum criterion for

all hospitals.

We reiterate that, to qualify for rural

referral center status for cost reporting

periods beginning on or after October 1,

1998, an osteopathic hospital’s number

of discharges for its cost reporting

period that began during FY 1996 would

have to be at least 3,000.

We received no comments on the

rural referral center criteria.

C. Payments to Disproportionate Share

Hospitals: Conforming Change

Regarding Interpretation of Medicaid

Patient Days Included in

Disproportionate Patient Percentage

(§ 412.106)

Effective for discharges beginning on

or after May 1, 1986, hospitals that treat

a disproportionately large number of

low-income patients receive additional

payments through the disproportionate

share (DSH) adjustment. One means of

determining a hospital’s DSH payment

adjustment for a cost reporting period

requires calculation of its

disproportionate patient percentage for

the period. The disproportionate patient

percentage is the sum of a prescribed

Medicare fraction and a Medicaid

fraction for the hospital’s fiscal period.

Under clause (I) of section

1886(d)(5)(F)(vi) of the Act and

§ 412.106(b)(2), the Medicare fraction is

determined by dividing the number of

the hospital’s patient days for patients

who were entitled (for such days) to

benefits under both Medicare Part A and

Supplemental Security Income (SSI)

under Title XVI of the Act, by the total

number of the hospital’s patient days for

the patients who were entitled to

Medicare Part A. The Medicaid fraction

is determined, in accordance with

clause (II) of section 1886(d)(5)(F)(vi) of
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40985

the Act and § 412.106(b)(4), by dividing

the number of the hospital’s patient

days for patients who (for such days)

were eligible for medical assistance

under a State Medicaid plan approved

under Title XIX of the Act but who were

not entitled to Medicare Part A, by the

total number of the hospital’s patient

days for that period.

Initially, HCFA calculated the

Medicaid fraction by interpreting

section 1886(d)(5)(F)(vi)(II) of the Act to

recognize as Medicaid patient days only

those days for which the hospital

received Medicaid payment for

inpatient hospital services. See 51 Fed.

Reg. 31454, 31460 (1986). The agency’s

interpretation was declared invalid by

four Federal circuit courts of appeals.

See Cabell Huntington Hosp., Inc. v.

Shalala, 101 F.3d 984, 990–91 (4th Cir.

1996) (following three other circuits).

These courts held that the statute

requires, for purposes of calculating the

Medicaid fraction, inclusion of each

patient day of service for which a

patient was eligible on that day for

medical assistance under an approved

State Medicaid plan. Specifically, the

statute requires inclusion of each

hospital patient day for a patient eligible

for Medicaid on such day, regardless of

whether particular items or services

were covered or paid under the State

Medicaid plan.

On February 27, 1997, the HCFA

Administrator issued HCFA Ruling 97–

2, which acquiesced in the four adverse

appellate court decisions. The Ruling

changed the agency’s statutory

construction to comport with those

decisions, in order to facilitate

nationwide uniformity in the

calculation of the Medicaid fraction.

Like the court decisions, the Ruling

provides that a hospital’s Medicaid

patient days include each patient day of

service for which a patient was eligible

on such day for medical assistance

under an approved State Medicaid plan,

regardless of whether particular items or

services were covered or paid under the

State plan. The Ruling also reflects the

hospital’s burden of furnishing data

adequate to prove each claimed

Medicaid patient day, and of verifying

with the State that a patient was eligible

for Medicaid during each day of the

inpatient hospital stay.

The Ruling further provides that the

agency’s new interpretation is effective

February 27, 1997 for each cost

reporting period that: (1) Begins on or

after that effective date; (2) was not

settled, as of that date, on the Medicaid

patient days issue, by means of an

applicable notice of program

reimbursement (NPR) (see § 405.1803);

or (3) was settled through such an NPR

as of the Ruling’s effective date and is

the subject of a pending administrative

appeal or civil action that satisfies all

applicable jurisdictional requirements

of the Medicare statute and regulations.

The Ruling also provides, however, that

the change in statutory interpretation

effected by the Ruling is not a basis for

reopening a hospital cost reporting

period (see §§ 405.1885-405.1889) that

was finalized previously on the same

matter at issue.

We proposed to revise § 412.106(b)(4)

in order to conform the Medicare

regulations to the new statutory

construction issued in HCFA Ruling 97–

2. These revisions are necessary to

ensure that the regulations comport

with the four appellate court decisions

that declared invalid the agency’s prior

interpretation and led to the issuance of

the HCFA Ruling. The proposed

revisions would further facilitate

nationwide uniformity in the

calculation of the Medicaid fraction.

Since the proposed revisions were

intended simply to conform the

regulations to HCFA Ruling 97–2 (and

hence to the four adverse court

decisions), revised § 412.106(b)(4)

would reiterate the Ruling’s change of

interpretation that the Medicaid fraction

under section 1886(d)(5)(F)(vi)(II) of the

Act includes each hospital patient day

for a patient eligible for Medicaid on

such day, regardless of whether

particular items or services were

covered or paid under the State

Medicaid Plan. Our proposed revisions

to § 412.106(b)(4), like the Ruling,

would continue to place on the hospital

the burdens of production, proof, and

verification as to each claimed Medicaid

patient day.

Under our proposal, revised

§ 412.106(b)(4) would apply to cost

reporting periods beginning on or after

October 1, 1998. HCFA Ruling 97–2,

which includes the same provisions as

proposed § 412.106(b)(4), would

continue to apply to any cost reporting

period beginning before October 1, 1998

provided that, as of February 27, 1997,

there is for such period: no submitted

cost report; no cost report settled on the

Medicaid patient days issue through an

applicable NPR; or a cost report settled

on that issue, which is also the subject

of a jurisdictionally proper

administrative appeal or civil action on

the issue.

We received no comments in response

to this proposal. Therefore, we are

incorporating the proposed conforming

change in this final rule.

D. Payment for Bad Debts (§ 413.80)

Section 4451 of the Balanced Budget

Act of 1997 reduces the payment for

enrollee bad debt for hospitals.

Specifically, this provision reduces the

amount of bad debts otherwise treated

as allowable costs, attributable to the

deductibles and coinsurance amounts

under this title, by 25 percent for cost

reporting periods beginning during

fiscal year 1998, by 40 percent for cost

reporting periods beginning during

fiscal year 1999, and by 45 percent for

cost reporting periods beginning during

a subsequent fiscal year. We proposed to

conform the regulations to the statute.

Section 4451 of the Balanced Budget

Act of 1997 also provides that in

determining such reasonable costs for

hospitals, any copayments reduced

under the election available for hospital

outpatient services under section

1833(t)(5)(B) of the Act will not be

treated as a bad debt. This provision

will be implemented in the outpatient

prospective payment system regulation

that implements sections 4521, 4522,

and 4523 of the Balanced Budget Act of

1997, to be published later this year.

We received one comment regarding

the reduction in Medicare bad debt

reimbursement which is discussed

below.

Comment: One commenter requested

that the regulations and/or cost report

forms (HCFA 2552–96) be modified to

clarify that hospital-based skilled

nursing facility bad debts will continue

to be 100 percent reimbursable since

freestanding skilled nursing facilities

are not subject to the reduction in

reimbursement and skilled nursing

facilities are not mentioned in the law

at section 1861(v)(1)(T). The commenter

believed that in the BBA committee

reports describing changes in

reimbursement for Medicare bad debts,

it seemed clear the changes were to

apply to all providers, yet the law

clearly stated that hospitals are the sole

provider type subject to reductions in

reimbursement. The commenter also

noted that in reviewing the new hospital

cost report forms, HCFA 2552–96, the

commenter believed that the forms

would apply the reduction in

reimbursement to hospital-based skilled

nursing facilities.

Response: The HCFA 2552–96

hospital cost report forms do not apply

the reduction in bad debt

reimbursement to hospital-based skilled

nursing facilities. Page 36–159, Line 26

and Page 36–164, Line 40 require

entering the reduction for ‘‘hospitals

only’’. Section 4451 of the BBA, and

these implementing regulations, apply

only to hospitals and any subprovider

units settled through the hospital cost

report, whether or not they have a

separate provider number. Included in

this are rehabilitation units, psychiatric
40986 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

units, and childrens’ hospitals, which

are considered hospital providers. Cost

reports for skilled nursing facilities,

home health agencies, outpatient

therapy, comprehensive outpatient

rehabilitation facilities, community

mental health centers, federally

qualified health centers, and rural

health clinics (after January 1, 1998) are

separately settled and bad debts for

these providers are not reduced. The

bad debt reduction does not apply to

ambulatory surgical centers because

they are paid on another basis (fee

schedule). End stage renal disease bad

debts are computed separately and are

not reduced.

E. Payment for Direct Costs of Graduate

Medical Education to Hospitals and

Qualified Nonhospital Providers

(§§ 405.2468, 413.85, and 413.86)

1. Statutory Background

Since its inception in 1965, Medicare

has provided payment only to hospitals

for the costs of graduate medical

education (GME) training. The BBA

allows for direct GME payment to

qualified nonhospital providers to

encourage training of future physicians

in nonhospital settings.

Under section 1886(k) of the Act, as

added by section 4625 of the BBA, the

Secretary is now authorized, but not

required, to pay qualified nonhospital

providers for the direct costs of GME

training. The Conference Report also

notes that the Conferees believe this

authority may help alleviate physician

shortages in underserved rural areas. We

believe that providing Medicare

payment directly to qualified

nonhospital providers may facilitate

more training and better quality training

in nonhospital sites.

Section 1886(k) of the Act states: ‘‘For

cost reporting periods beginning on or

after October 1, 1997, the Secretary may

establish rules for payment to qualified

nonhospital providers for their direct

costs of medical education, if those

costs are incurred in the operation of an

approved medical residency training

programs described in subsection (h).’’

The statute further provides that, to the

extent the Secretary exercises this broad

discretionary authority, the rules ‘‘shall

specify the amounts, form, and manner

in which such payments will be made

and the portion of such payments that

will be made from each of the trust

funds under this title.’’

a. Payments only to ‘‘qualified

nonhospital providers’’. The statute

confers broad discretion on the

Secretary regarding whether and how to

pay qualified nonhospital providers for

direct GME costs. However, the statute

does specify the entities whom the

Secretary can pay—‘‘qualified

nonhospital providers.’’ Section

1886(k)(2) of the Act defines ‘‘qualified

nonhospital providers’’ to include:

Federally Qualified Health Centers

(FQHCs), as defined in section

1861(aa)(4); Rural Health Centers

(RHCs), as defined in section

1861(aa)(2); Medicare+Choice

organizations; and such other providers

(other than hospitals) as the Secretary

determines to be appropriate.

b. Payments only for the ‘‘direct

costs’’ of training. The statute also

specifies the costs the Secretary can pay

for under section 1886(k) of the Act.

Medicare pays hospitals for both the

direct and indirect costs of medical

education under sections 1886(h) and

1886(d)(5)(B) of the Act respectively,

but section 1886(k) of the Act provides

for payment to qualified nonhospital

providers only for the direct costs of

medical education. In addition, section

1886(k) of the Act provides for payment

for the direct costs of training medical

residents only if those costs are incurred

in the operation of an ‘‘approved

medical residency training program.’’

Accordingly, the statute authorizes

Medicare payments to qualified

nonhospital providers only for the costs

of training medical residents, not for the

costs of training other health

professionals.

In addition to adding section 1886(k)

of the Act, section 4625 of the BBA

amends section 1886(h)(3)(B) of the Act

to prohibit double payments for direct

GME to a hospital and a qualified

nonhospital provider. This prohibition

on double payments requires that the

Secretary reduce a hospital’s GME

payments (the ‘‘aggregate approved

amount’’ as defined in section

1886(h)(3)(b) of the Act) to the extent we

pay a qualified nonhospital provider for

GME under section 1886(k) of the Act.

2. Payment to Hospitals for GME

Under sections 1886(d)(5)(B)(iv) and

1886(h)(4)(E) of the Act, a hospital may

include the time a resident spends in

nonprovider settings in its indirect

medical education (IME) and direct

GME full-time equivalent count if it

incurs ‘‘all or substantially all’’ of the

costs of training residents in the

nonhospital site. Under §§ 412.105(f)

and 413.86(f)(1)(iii), a hospital may

count resident training time in

nonhospital sites for indirect and direct

GME respectively if the resident is

involved in patient care and there is a

written agreement between the hospital

and the nonhospital site that states that

the resident’s compensation for training

time spent outside the hospital setting is

to be paid by the hospital.

3. Proposed Policies

Pursuant to section 4625 of the BBA,

we proposed to provide Medicare

payment to qualified nonhospital

providers for the direct costs of GME

training, effective for portions of cost

reporting periods occurring on or after

January 1, 1999. We proposed Medicare

would make GME payments to the

following ‘‘qualified nonhospital

providers’’—FQHCs, RHCs, and

Medicare+Choice organizations. Under

the authority of section 1886(k)(2)(D) of

the Act, the Secretary may expand the

definition of a ‘‘qualified nonhospital

provider’’ to include such other

providers (other than hospitals) as the

Secretary determines to be appropriate.

Once we have gained experience

providing direct GME payments to

FQHCs, RHCs, and Medicare+Choice

organizations, we may consider

including other types of nonhospital

providers in the definition of a

‘‘qualified nonhospital provider.’’

Additionally, we proposed that, under

certain circumstances, a hospital may

continue to receive GME payments for

residents who train in the nonhospital

setting. In those instances where a

hospital is eligible to continue receiving

GME payments for residents who train

in the nonhospital setting, the

nonhospital site could receive payment

from the hospital for costs they incur in

training medical residents. Thus, our

proposed policy would promote the

intent of section 4625 of the BBA to

provide financial support, either

directly from Medicare or through the

hospital, to qualified nonhospital

providers for the direct costs of training

residents in the nonhospital site.

a. ‘‘All or substantially all’’ of the

costs of training. Similar to our current

policy of paying hospitals for training in

nonhospital sites, we proposed that a

qualified nonhospital provider may

receive payment for the direct costs of

GME if it incurs ‘‘all or substantially

all’’ of the training costs. Although we

proposed to pay the qualified

nonhospital provider only when it

incurred ‘‘all or substantially all’’ of the

costs of training, we solicited comment

on possible methods for allocating the

GME payments for training in the

nonhospital site where neither the

hospital nor the qualified nonhospital

provider is incurring ‘‘all or

substantially all’’ of the costs of the

training program. Under the proposed

system, we would pay either the

hospital or the qualified nonhospital

provider for the cost of training in the

nonhospital site, depending on which
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40987

entity incurs ‘‘all or substantially all’’ of

the costs of training in the nonhospital

site. We proposed to revise the

definition of ‘‘all or substantially all’’ of

the costs, which currently applies only

to hospitals. Under the proposed

redefinition, a hospital or qualified

nonhospital provider would incur ‘‘all

or substantially all’’ of the costs for the

training program in the nonhospital

setting if it pays for, at a minimum: that

portion of the costs of the teaching

physicians’ salaries and fringe benefits

that are related to the time spent in

teaching and supervision of residents;

and residents’ salaries and fringe

benefits (including travel and lodging

expenses where applicable).

b. Definition of ‘‘direct costs’’ of

medical education for qualified

nonhospital providers. Section 4625 of

the BBA provides for payment to

qualified nonhospital providers only for

the direct costs of training residents.

Our proposed definition of ‘‘direct

costs’’ for qualified nonhospital

providers is comparable to the direct

costs for hospitals under section 1886(h)

of the Act. Under our proposed policy,

direct GME costs include costs incurred

by the nonhospital site for the education

and training of medical residents in

approved programs. We proposed to

include the following costs in the

definition of direct costs:

• residents’ salaries and fringe

benefits (including related travel and

lodging expenses where applicable);

• that portion of costs of the teaching

physicians’ salaries and fringe benefits

that are related to the time spent in

teaching and supervision of residents;

and

• other related GME overhead costs.

Consistent with our policies on direct

GME costs for hospitals, we proposed

direct GME costs for qualified

nonhospital providers will not include

normal operating costs or the marginal

increase in costs that the nonhospital

site experiences as a result of having an

approved medical residency training

program. For example, a decrease in

productivity and increased intensity in

treatment patterns as the result of a

training program do not constitute

‘‘direct costs’’ of training residents in

the nonhospital setting; rather, these are

the ‘‘indirect costs’’ of such training.

Also consistent with our policies for

direct GME payments to hospitals, we

proposed to pay qualified nonhospital

providers only for training that is

related to the delivery of patient care

services.

We also proposed that direct GME

costs for qualified nonhospital

providers, like direct GME costs for

hospitals, would include only that

portion of costs of the teaching

physicians’ salaries and fringe benefits

associated with time spent in teaching

and supervising residents. Specifically,

a physician’s time spent on teaching of

a general nature would constitute a

direct GME cost while activities spent in

direct patient care which involve

residents do not constitute direct costs.

In addition, we proposed that direct

costs in the qualified nonhospital

provider would include that portion of

teaching physicians’ salaries and fringe

benefits associated with time spent

developing resident schedules and

evaluating or rating the residents. Direct

costs may also include the portion of a

teaching physician’s office costs

allocated to GME.

We stated that direct GME costs for

qualified nonhospital providers would

not include the following: a teaching

physician’s time spent in the care of

individual patients which results in

billable services; teaching physicians’

activities that are related to the

education of other health professionals

(i.e., classroom instruction in

connection with approved activities

other than GME such as provideroperated nursing programs); teaching

physicians’ time spent on

administrative and supervisory services

to the qualified nonhospital provider

that are unrelated to approved

educational activities (i.e. operating

costs); and teaching physician activities

that involve nonallowable costs such as

research and medical school activities

that are not related to patient care in the

nonhospital setting. Costs associated

with the providing teaching services to

undergraduate medical students are also

not include in direct graduate medical

education costs.

GME overhead costs include only

those costs that are allocable to direct

GME and that are not used in patient

care. For example, a portion of

administrative and general costs could

be appropriately allocated to an RHC’s

or FQHC’s GME cost center. Similarly,

a conference room that is dedicated

specifically for the training of residents

could be appropriately allocated to an

RHC or FQHC’s GME cost center. By

contrast, patient care rooms added to an

RHC or an FQHC cannot be

appropriately allocated to an RHC’s or

FQHC’s GME cost center.

One of the advantages of the proposed

definition of ‘‘direct costs’’ is that it is

administratively feasible. Our definition

of ‘‘direct costs’’ for qualified

nonhospital providers is comparable to

the direct costs that are included in the

per resident amount paid to hospitals

under section 1886(h) of the Act. At

present, there is limited information

regarding the actual costs of training

residents in nonhospital sites. After we

gain experience providing direct GME

payments to qualified nonhospital

providers and have reviewed the GME

costs separately reported by these

qualified nonhospital providers, we may

revise the definition of ‘‘direct costs.’’

We solicited comments on other

elements that may constitute direct

costs of GME in the qualified

nonhospital provider that can be

identified, reported, and verified as

directly attributable to GME activities

through the cost reporting process. We

were interested in comments on

whether we should include other costs

in the definition of ‘‘direct costs’’ for

qualified nonhospital providers and on

the administrative feasibility of

identifying the GME portion of those

costs.

c. Determining direct costs. One of our

major concerns in developing policies

for paying qualified nonhospital

providers for the direct costs of GME is

the administrative feasibility of

determining the amount of direct costs

incurred by the qualified nonhospital

provider. It is our understanding that,

currently, hospitals and nonhospital

sites often share, to varying degrees, the

costs of training residents in the

nonhospital site. Because of the

difficulty in apportioning costs between

the hospital and the nonhospital for the

training in the nonhospital site, we

believe that it is not administratively

feasible to pay both the hospital and the

nonhospital site for the cost of training

in the nonhospital site. We have been

unable to devise a method for accurately

apportioning costs between the two

entities.

Furthermore, the potential for both

the hospital and the qualified

nonhospital provider to be paid for the

same direct GME expenses poses a

significant problem for complying with

section 1886(h)(3)(B) of the Act, as

amended by the BBA, which

specifically prohibits double payments.

Under this provision, the Secretary shall

reduce the hospital’s GME payment (the

‘‘aggregate approved amount’’) to the

extent we pay the qualified nonhospital

provider for GME costs under section

1886(k) of the Act. Consequently, our

policy must ensure that Medicare does

not pay two entities for the same

training time in the nonhospital site.

Given that the hospital’s per resident

amount can include, but is not

necessarily based on the costs of

training in the nonhospital site, we were

not able to devise an equitable way of

reducing the hospital’s per resident

payment to reflect payments made
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under section 1886(k) of the Act. It may

not be equitable to subtract the exact

amount of payment made to the

qualified nonhospital provider from the

hospital’s per resident payment because

the payment made to the nonhospital

site may be unrelated to the hospital’s

per resident amount. We believe that the

residents’ salaries, teaching physicians’

salaries, and overhead costs for the

nonhospital setting will constitute a

different proportion of the total GME

costs in the nonhospital setting as

compared with the hospital setting.

Rather, it may be more equitable to

determine the proportion of costs

incurred by each entity and reduce the

hospital’s per resident payment by the

proportion of GME costs incurred by the

nonhospital site; however, since specific

components of the per resident amount

were not identified in the hospital’s

GME base year (1984), we cannot

accurately determine the appropriate

amount to reduce the current year

hospital per resident payment amount.

Moreover, to reduce the hospital’s GME

payments based solely on the amount

paid to the qualified nonhospital

provider could result in inequitable

payments to the hospital, which has

ongoing costs even when the resident is

training in the nonhospital site. In fact,

it could leave the hospital at risk of

receiving no payment for the GME costs

it has incurred.

In order to encourage training in

nonhospital sites, it is important to

develop a policy that, while providing

payment to qualified nonhospital

providers, would also be equitable to

hospitals. We believe that paying only

the qualified nonhospital provider for

the training costs could result in

hospitals choosing not to rotate their

residents to the nonhospital site. We

have been unable to devise an equitable

and accurate method for dividing the

GME payment for training in the

nonhospital site if neither the hospital,

nor the nonhospital site incurs ‘‘all or

substantially all’’ of the costs. As such,

we solicited comment on possible

methods for allocating the GME

payments for training in the nonhospital

site where neither the hospital nor the

qualified nonhospital provider agrees

who is incurring ‘‘all or substantially

all’’ of the costs for the training

program. We believe that the policies

discussed below are equitable to both

hospital and qualified nonhospital

providers and will achieve Congress’

objective of encouraging and supporting

training in the nonhospital setting.

Given our concerns about

administrative feasibility, the statutory

prohibition on double payments, and

developing policies that are equitable to

hospitals as well as qualified

nonhospital providers, we believe the

only feasible way to pay for training in

nonhospital settings is to pay either the

hospital or the nonhospital provider.

Currently, hospitals may receive

payment for the time residents spend in

the nonhospital setting if the hospital

incurs ‘‘all or substantially all’’ of the

training costs. We proposed to adopt a

similar policy for qualified nonhospital

providers; that is, a qualified

nonhospital provider may receive

payment for the direct costs of GME if

it incurs ‘‘all or substantially all’’ of the

training costs.

d. Payment to FQHC’s and RHC’s. We

proposed to pay FQHC’s or RHC’s for

direct GME costs based on reasonable

costs if the FQHC or RHC incurs ‘‘all or

substantially all’’ of the costs of training

the resident in the nonhospital setting.

The FQHC or RHC would have to report

direct GME costs in a reimbursable cost

center on its cost report under the

proposal. Conversely, where an FQHC

or RHC did not incur ‘‘all or

substantially all’’ of the costs of training

residents in the nonhospital site, the

FQHC or RHC would report direct GME

costs in a nonreimbursable cost center

on the cost report.

We proposed that the FQHC’s and

RHC’s allowable direct GME costs be

subject to reasonable cost principles in

42 CFR part 413 and other relevant

provisions referenced in part 413. In

addition, the FQHC’s and RHC’s direct

GME costs would be subject to the

Reasonable Compensation Equivalency

limits under §§ 415.60 and 415.70.

Also, Medicare would pay only for its

share of the direct costs of training in

the qualified nonhospital provider. We

proposed that the FQHC’s and RHC’s

Medicare share equal the qualified

nonhospital provider’s ratio of Medicare

visits to total visits. Thus, the amount of

Medicare payment would equal the

product of the clinic’s Medicare allowed

reasonable direct GME costs and the

clinic’s ratio of Medicare visits to total

visits.

For FQHC’s and RHC’s that incur ‘‘all

or substantially all’’ of the costs for the

training program in the nonhospital

setting, we proposed that the direct

GME costs would not be subject to the

existing per visit payment caps for

reimbursement under sections 505.1

and 505.2 of the Medicare Rural Health

Clinic and Federally Qualified Health

Centers Manual. We also proposed that,

where payment is available under

section 1886(k) of the Act for residents

working in either an FQHC or an RHC,

the FQHC’s and RHC’s do not need to

include residents as health care staff in

the calculation of productivity

standards under section 503 of the

Manual.

e. Payment to Medicare+Choice

organizations. We proposed making

direct GME payment to

Medicare+Choice organizations which

incur ‘‘all or substantially all’’ of the

costs of training in a nonhospital site.

The Medicare+Choice organization

would be eligible to receive payment on

a reasonable costs basis for residents’

salaries and fringe benefits only for the

time that the resident spends in the

nonhospital setting. In addition, we

proposed that the Medicare+Choice

organization’s allowed costs include

only that portion of the teaching

physician salaries and fringe benefits

that is related to training in the

nonhospital setting. We proposed

limiting payment to Medicare+Choice

organizations to residents’ salaries and

fringe benefits and supervisory teaching

physician compensation which can be

allocated to direct GME. We did not

propose to pay Medicare+Choice

organizations for the costs of overhead

that may be associated with a GME

program. We solicited suggestions for

creating a methodology for allocating

and reporting overhead costs for

Medicare+Choice organizations and

suggestions for mechanisms for the

audit and review of the costs for

Medicare+Choice organizations.

Similar to our proposed policy for

paying FQHCs and RHCs for direct costs

of GME, we proposed that the

Medicare+Choice organization’s

reimbursement for residents’ salaries

and fringe benefits (including related

travel and lodging expenses where

applicable) would be subject to the

reasonable cost principles in 42 CFR

part 413 and any other relevant

provisions referenced in part 413. In

addition, we proposed the

Medicare+Choice organization’s GME

reimbursement would also be subject to

the Reasonable Compensation

Equivalency limits under §§ 415.60 and

415.70.

We proposed to allow the

Medicare+Choice organization to

receive direct GME payment only for the

direct costs of training in the

nonhospital site that are associated with

the delivery of patient care services. In

determining the amount of direct GME

payments to Medicare+Choice

organizations, we proposed adjusting for

Medicare’s share of those education

costs. Medicare’s share would equal the

ratio of the total number of Medicare

enrollees in the Medicare+Choice

organization to total enrollees in the

Medicare+Choice organization.

We proposed that, in order to receive

the direct GME payment, the
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Medicare+Choice organization must

produce a contractual agreement

between itself and the nonhospital sites.

Medicare+Choice organizations may

contract with any nonhospital patient

care site, including freestanding clinics,

nursing homes, and physicians’ offices

in connection with approved programs.

The contract between the

Medicare+Choice organization and the

nonhospital site must indicate that, for

the time that residents spend in the

nonhospital site, the Medicare+Choice

organization agrees to pay for the cost of

residents’ salaries and fringe benefits. In

addition, the contract must indicate that

the Medicare+Choice organization

agrees to pay the portion of the costs of

teaching physicians’ salaries and fringe

benefits that is related to the time spent

in teaching and supervision of residents

and is unrelated to the volume of

services provided by the physician. The

contract must stipulate the portion of

each teaching physician’s time that will

be spent training residents in the

nonhospital setting. Moreover, the

contract must indicate that the

Medicare+Choice organization agrees to

identify an amount for the cost of the

teaching physician’s salary based on the

time that the resident spends in the

nonhospital setting, not based upon a

capitated rate for the delivery of

physician services.

f. Payment to hospitals. A hospital

may include a resident’s training time in

a nonhospital setting in its FTE counts

for direct GME and for IME if the

hospital incurs ‘‘all or substantially all’’

of the costs for training in the

nonhospital setting. We proposed that,

in order for a hospital to include

residents’ training time in a nonhospital

setting, the hospital and the nonhospital

site must have a written contract which

indicates the hospital is assuming

financial responsibility for, at a

minimum, the cost of residents’ salaries

and fringe benefits (including travel and

lodging expenses where applicable) and

the costs for that portion of teaching

physicians’ salaries and fringe benefits

related to the time spent in teaching and

supervision of residents.

The contract must indicate that the

hospital is assuming financial

responsibility for these costs directly or

that the hospital agrees to reimburse the

nonhospital site for such costs. The

contract must also contain an

acknowledgment on the part of the

qualified nonhospital provider if the

nonhospital site is an FQHC or RHC

that, since the residents’ time is being

counted by the hospital, the nonhospital

site must report GME costs on the

Medicare cost report in a

nonreimbursable GME costs center. In

addition, in order to determine teaching

physician compensation that may be

allocated to direct GME, the FQHC and

RHC will have to specify the portion of

the teaching physicians’ time that will

be spent training residents in the

nonhospital setting. Under

§ 413.86(f)(1)(iii), hospitals may contract

with any nonhospital patient care site

such as freestanding clinics, nursing

homes, and physicians’ offices in

connection with approved programs.

Payment to the hospital for the direct

costs of GME training in the nonhospital

setting will continue to reflect

Medicare’s share, which equals the

hospital’s ratio of Medicare inpatient

days to total inpatient days.

5. Trust Funds

Under section 1886(k)(1) of the Act,

the rules established by the Secretary for

paying qualified nonhospital providers

for GME must specify the portion of

Medicare payments that will be made

from each of the Medicare trust funds.

We proposed that GME payments made

directly to an FQHC, RHC, or

Medicare+Choice organization would be

made from the Federal Supplementary

Medical Insurance Trust Fund.

6. Proposed Effective Dates

We proposed that the effective date of

these provisions for FQHCs, RHCs,

Medicare+Choice organizations, and

hospitals would be January 1, 1999. Of

the provisions affecting hospitals, the

policies for IME payments would apply

to discharges occurring on or after

January 1, 1999. The policies

concerning medical education payments

to FQHCs, RHCs, and hospitals would

apply to portions of cost reporting

periods occurring on or after January 1,

1999. We proposed that

Medicare+Choice organizations could

begin receiving payments for direct

GME costs incurred on or after January

1, 1999.

7. Responses to Comments Received on

Proposed Policies and Final Rule

Provisions

Below we are summarize the

comments we received on the proposed

policies and provide our responses to

those comments.

a. Definition of qualified nonhospital

provider. Comment: One commenter

stated that HCFA should expand the

definition of a qualified nonhospital

provider to include preventive medicine

residencies. This commenter quoted the

Conference Report statement:

The Conferees also note that preventive

medicine residency training occurs most

often in nonhospital settings and the

Conferees encourage the Secretary to

examine carefully the opportunities to

provide support to such training programs.

The commenter further noted that a

small number of residency programs

would benefit if we adopted the

suggestion.

Response: Consistent with the

direction of the Conference Report, we

have examined how to encourage

preventive medicine training through

the Medicare program. We understand

that preventive medicine training

consists of one year of clinical training,

one year of academic study, and a

practicum year. To the extent that the

one year of clinical training is provided

in patient care sites that qualify to

receive medical education payments,

Medicare provides payment for training

much in the same way we provide

payment for all other specialty

programs. A hospital can count a

preventive medicine resident who

receives training in all areas of the

hospital complex. The hospital may also

count a preventive medicine resident

who receives training in a nonhospital

site if the resident is involved in direct

patient care and there is a written

agreement between the hospital and the

nonhospital site that the hospital is

incurring ‘‘all or substantially all’’ of the

costs of training the resident in the

nonhospital site. FQHCs, RHCs, and

Medicare+Choice organizations can

receive payment on a reasonable cost

basis for costs associated with training

preventive medicine residents if the

entity incurs ‘‘all or substantially all’’ of

the costs.

Since the year of academic study does

not involve direct patient care, a

hospital or qualified nonhospital

provider cannot receive Medicare

payment for that year of preventive

medicine training. A fundamental

principle of Medicare payment for

education is that the residents must

participate in patient care services to

patients at the health care site. Although

we believe that preventive medicine

residents are engaging in activities that

will benefit all patients, not just

Medicare patients in general, the year of

academic study does not constitute

patient care services which would

qualify for Medicare payment for GME.

We understand the clinical training

that preventive medicine residents

receive may also occur in patient care

sites that do not receive payments from

Medicare, such as public health clinics.

Even if the clinics were included under

the definition of qualified nonhospital

provider, Medicare payment to clinics

for GME would likely still be very low

because it would reflect the share of

services provided by the clinic to
40990 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

Medicare beneficiaries as compared to

all services it provides. We do not

believe that Medicare beneficiaries

make significant use of public health

clinics for Medicare covered services

since these services are also available

through their regular doctor. If we were

to provide payments to public health

clinics associated with the training of

preventive medicine residents, we

would also have to resolve technical

problems related to providing payments

to entities that have never had a

relationship with Medicare. As we

stated above, where a hospital or

qualified nonhospital provider incurs

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

the clinical training in that nonhospital

site, Medicare will make payments for

GME costs associated with training

preventive medicine residents.

Comment: One commenter urged

HCFA to consider including

nonhospital dental clinics in the

definition of qualified nonhospital

providers. One commenter urged us to

expand the definition of a qualified

nonhospital provider to make payment

of both direct and indirect GME directly

to nursing homes and hospices. One

commenter requested clarification as to

whether our definition of a qualified

nonhospital provider includes

community mental health centers. If

not, the commenter requested that we

consider including community mental

health centers in the definition of

qualified nonhospital provider.

Response: As we stated in the

proposed rule, we believe that it is

appropriate to have more experience

with providing payments to the

qualified nonhospital providers listed in

the statute before we expand the

definition to include other sites such as

those stated by these commenters. We

note that even if nonhospital dental

clinics were included in the definition

of a qualified nonhospital provider, a

dental clinic’s low Medicare share

means the benefit of the provision

would be small. Dental clinics are likely

to have a low Medicare share because

Medicare covers few dental services.

Currently, our definition of qualified

nonhospital provider does not include

community mental health centers per

se, but it may be possible for a

community mental health center to meet

the criteria for being designated as a

rural health clinic under section

1861(aa)(2) of the Act and section

405.2402.

We would note that a hospital or

Medicare+Choice organization may

receive payment associated with

resident rotations through the

nonhospital sites suggested by these

commenters if the hospital or

Medicare+Choice organization incurs

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

the clinic. In this way the clinic will be

paid by the hospital for GME costs.

Comment: One commenter argued

that Congress specified that a qualified

nonhospital provider includes FQHC’s,

RHC’s, and managed care plans to

ensure that these organizations were

included but that Congress did not

intend to limit qualified nonhospital

providers to these organizations. The

commenter believed that excluding

other nonhospital sites from the

definition of a qualified nonhospital

provider is contrary to Congress’ intent.

Response: As we have stated, we will

consider other nonhospital sites in the

definition of qualified nonhospital

providers once we have experience with

these policies. We disagree that the

proposal to limit the definition of a

qualified nonhospital provider at this

time to the entities listed in the statute

is inconsistent with Congressional

intent. The statute defines qualified

nonhospital provider to include ‘‘such

other providers (other than hospitals) as

the Secretary determines to be

appropriate.’’ Thus, the statute

authorizes but does not require the

inclusion of other entities.

Comment: One commenter stated that

educational consortia are becoming

important models for community-based

graduate medical and nursing training

and suggested that we expand the

definition of qualified nonhospital

provider to include consortia.

Response: We are interested in

learning more about the development of

GME programs through educational

consortia. Section 4628 of the BBA

requires the Secretary to establish a

demonstration project under which

GME payments will be made to

consortia. We will consider changes to

our GME payment policies based on our

evaluation of any future demonstration

projects.

Comment: One commenter urged us

to expand the definition of a qualified

nonhospital provider to include

Osteopathic Postdoctoral Training

Institutions (OPTIs), community based

health care consortia consisting of one

or more colleges accredited by the

American Osteopathic Association

(AOA), one or more AOA accredited

hospitals, and other health care facilities

such as nursing homes, ambulatory

clinics, community health centers, and

managed care organizations. The

commenter suggested that payments be

made directly to the OPTI based on the

number of residents participating in

OPTI hospitals or a national average

payment. The commenter stated that the

OPTI would distribute the payments

among the consortia members.

Response: An OPTI includes hospital

and nonhospital sites as well as

educational institutions and we believe

an OPTI is a consortium. As we stated

above, we will be studying GME

payments to consortia in a

demonstration project required by

section 4628 of BBA.

b. Definition of direct costs.

Comment: One commenter suggested

that direct costs of training in

nonhospital sites should include

mileage associated with travel between

multiple clinic sites. The commenter

also stated that direct costs should

include the costs of telemedicine,

including telephone, fax,

videoconference, and the internet

because these electronic communication

mechanisms enable primary care

residents in nonhospital sites to be

trained for practice outside of the

resource-rich, multispecialty hospital

setting.

Response: We agree that travel costs

may be an element of direct costs when

residents work in multiple nonhospital

sites or when residents travel from a

hospital training site to remote clinics.

We disagree that the cost associated

with telecommunication services should

be allowable as training costs. Although

telecommunication services may be

integral to providing services to patients

while residents are training in

nonhospital sites, these services are not

principally designed to be used as GME

training tools. Rather, the

telecommunication services to which

the commenter is referring, like the use

of a stethoscope or an examining room,

are compensated as operating costs

through Medicare’s payments for patient

care services.

Comment: Several commenters stated

that the effect of training on indirect

costs is similar in nonhospital clinics

and hospitals. One commenter

suggested that indirect costs are easily

identifiable and should be separately

reimbursable in nonhospital settings.

Response: The statute states that the

‘‘Secretary may establish rules for

payment to qualified nonhospital

providers for the direct costs of medical

education if those costs are incurred in

operation of an approved medical

residency training program described in

subsection (h).’’ The statute clearly

limits payment to qualified nonhospital

providers under section 1886(k) of the

Act for the direct costs of GME.

Comment: One commenter stated that

the proposed regulations fail to reflect

that FQHCs are eligible for Part B

payments for allowable teaching costs

even without the new methodology
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40991

established pursuant to the new BBA

provision. Because FQHCs are governed

by cost reimbursement principles that

include teaching costs, FQHCs are

already allowed to claim all trainingrelated costs, including direct faculty

and resident costs. This commenter

suggested that FQHCs that participate in

teaching programs should be able to

recapture higher operating costs caused

by lower productivity and increased

overhead. According to this commenter,

we should consider including the

following in direct costs:

—Slowdown in productivity;

—Facilities and space for training;

—Transportation and living costs for

residents;

—Availability of lab and radiology

equipment and services;

—Administrative overhead;

—Increased intensity in treatment

patterns used in training;

—Equipment costs;

—Library (either onsite or electronic

access);

—Capital costs for startup of residency

program;

—Increased complexity at teaching

FQHCs; and

—Increased social complexity of patient

case mix.

Response: The costs of resident

salaries and fringe benefits and

supervising physicians may be

allowable costs under § 405.2470. If the

RHC or FQHC were to have a written

agreement with a hospital where the

hospital provides compensation for

these costs to the clinic, these costs

would become nonreimbursable costs.

However, FQHCs and RHCs that have an

all-inclusive rate that exceeds the cap

under sections 505.1 and 505.2 of the

Medicare Rural Health Clinic and

Federally Qualified Health Centers

Manual would still benefit from the

proposed policy in that costs above the

cap that would otherwise be

nonreimbursable by Medicare can now

be compensated as direct GME costs

through the agreement with the

hospital. That is, if the FQHC or RHC

incurs ‘‘all or substantially all’’ of the

costs and receives payment directly

from Medicare, these costs are GME

costs that are treated separately in

applying the caps on the all-inclusive

rate under sections 505.1 and 505.2 of

the Medicare Rural Health Clinic and

Federally Qualified Health Centers

Manual.

An additional benefit in the situation

where we pay the FQHC or RHC directly

for GME is that residents do not need to

be included as health care staff in the

calculation of productivity standards

under section 503 of the Manual. We

further believe that residents should be

excluded from productivity standards in

situations where the hospital is being

paid for training time and GME costs are

not reimbursable costs for the FQHC or

RHC. We are adopting this policy in this

final rule and will modify section 503

of the Manual accordingly. Among the

items listed in this comment, we believe

that costs which are directly related to

the operation of a medical residency

training program (facilities and space

exclusively dedicated to training,

resident travel costs between remote

clinic sites) in addition to facility

overhead which can be allocated to a

medical education cost center constitute

allowable direct GME costs for which

the FQHC or RHC can receive payment

directly from Medicare. We believe the

remaining items listed are either

indirect costs of training or allowable

cost for patient care services under

§ 405.2468(a) through (e) which can

only be reimbursed as non-GME

operating costs.

Comment: One commenter was

opposed to the application of reasonable

compensation equivalents to physicians

in FQHCs and RHCs. The commenter

stated that the BBA required HCFA to

subject RHCs to productivity standards

and the per-visit cost limit. According to

the commenter, if Congress had

intended for the RCE limits to be

imposed on RHCs, the BBA would have

required such a policy. The commenter

stated that, by definition, RHCs and

FQHCs are located in areas where it is

difficult to attract physicians and that

the providers must pay compensation

that exceeds the RCE limits to attract

qualified physicians. The commenter

requested that the limits not be imposed

on FQHC and RHC services to

individual patients.

Response: For purposes of making

indirect GME payments to FQHCs and

RHCs, the RCE limits will only apply to

the portion of a teaching physician’s

compensation that is attributable to

direct GME. We are not applying the

RCE limit to physician compensation

that is related to providing services to

individual patients. Because we intend

to pay for these GME costs on a

reasonable cost basis, it is necessary to

apply the RCE limits to assure that GME

costs will be reasonable.

Comment: One commenter stated that

if HCFA intends to compute the fixed

cost for nonhospital training of all

health professionals from the cost

reimbursement data received over the

next few years from qualified

nonhospital providers, costs associated

with training of nonphysician health

practitioners should also be reported.

This commenter stated that it will be

difficult to collect these data at a later

date.

Response: FQHCs and RHCs seeking

payment from Medicare for direct GME

must appropriately classify those costs

to a GME cost center on the cost report.

These payments are limited to the direct

costs the FQHC or RHC incurs for an

approved medical residency training

program as described under section

1886(h) of the Act. Training of nonphysician health professionals are not

included in these programs. Therefore,

in submitting costs reports, FQHCs and

RHCs must clearly distinguish the costs

of training residents from the cost of

training other health professionals in

nonhospital sites. Although FQHCs and

RHCs will need to document costs of

approved medical residency programs

to be allocated to the GME cost center,

we do not believe the information

benefit associated with obtaining data

on training of other health practitioners

would justify imposing an additional

administrative burden on FQHCs and

RHCs to report costs for which they will

receive no payment.

c. Revised definition of ‘‘all or

substantially all’’ of the costs. Comment:

A number of commenters felt the

proposed redefinition of ‘‘all or

substantially all’’ of the costs will be

counterproductive and result in less

training in nonhospital settings. One

commenter stated that the current

standard of ‘‘or substantially all’’ has

helped to facilitate resident training in

nonhospital sites. This commenter

stated that there is strong anecdotal

evidence that resident training in

ambulatory sites has been increasing

and recommended that any changes to

existing policies be tested for the

likelihood that they promote expanded

ambulatory GME.

Response: We disagree with the

commenters who suggested that the

proposed redefinition of ‘‘all or

substantially all’’ of the costs of training

residents in the nonhospital sites will

result in less training in nonhospital

settings. First, we do not believe that

hospitals themselves will be

discouraged from continuing to rotate

residents to nonhospital sites. Hospitals

must consider accreditation and other

program requirements in addition to

purely financial considerations. We

have reviewed the program

requirements for residency education in

family practice and internal medicine in

the 1997–1998 GME Directory. The

Directory specifies that family practice

residents must spend specified amounts

of time and see a minimum number of

patients in the family practice center in

each residency program year. Similarly,

the Directory specifies that at least 25
40992 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

percent of the 3 year residency program

for internal medicine must be in an

ambulatory care setting. Given these

requirements for primary care training

programs, we do not believe that

hospitals will respond to the revised

definition of ‘‘all or substantially all’’ of

the costs by rotating fewer residents to

nonhospital sites. Moreover, a hospital

that meets the ‘‘all or substantially all’’

criterion may count the resident’s

training time in the nonhospital site for

direct GME as well as IME.

Second, we believe that our proposal

will encourage more ambulatory sites to

participate in training. To the extent our

policies would allow qualified

nonhospital providers to receive

payments directly from Medicare, more

qualified nonhospital providers may be

willing to become training sites. In

addition, the hospital may incur

supervisory teaching physician costs

that previously might have been borne

by the nonhospital site. Therefore, the

nonhospital site either will receive

revenues for costs that the site itself

incurs or will no longer incur those

costs.

Comment: Several commenters agreed

that it is appropriate to provide GME

payment to the entity that incurs ‘‘all or

substantially all’’ of the costs whether it

be the hospital or the qualified

nonhospital provider. Many of these

commenters, however, believe that ‘‘all

or substantially all’’ of the costs should

be limited to resident salaries and fringe

benefits.

Response: We disagree. Section

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

hospitals may include residents in their

FTE counts for direct GME if the

hospital incurs ‘‘all or substantially all

of the costs of the training program in

that setting.’’ Section 1886(d)(5)(B)(iv)

of the Act allows hospitals to count

residents for IME effective October 1,

1997 if the hospital ‘‘incurs all or

substantially all of the costs for the

training program in that setting.’’ As we

stated previously and in the preamble to

the proposed rule (63 FR 25597), we

reviewed data on resident costs from

recent Medicare hospital cost reports

and found that, on average, resident

salaries and fringe benefits account for

less than half of total direct GME costs.

We believe that the revised policy,

which requires hospitals to incur a

higher percentage of total training costs

in the nonhospital setting than are

accounted for by resident compensation

reflect a better measure of ‘‘all or

substantially all’’ of the costs than

current policy.

Comment: One commenter argued

that the rationale for the proposal is

insufficient to merit a change in current

policy. This commenter stated that our

proposal focused only cost data from

hospitals and not nonhospital sites. This

commenter believed that, because our

proposal addressed training in

nonhospital sites, it would be more

appropriate to analyze resident salaries

and fringe benefits as a share of overall

training costs at nonhospital sites. The

commenter acknowledged that these

data are not available at the present

time, but believed that resident

compensation is likely to be a

substantial component of overall

training costs in nonhospital sites. The

commenter noted that the preamble to

the proposed rule indicates that

residents’ salaries and supervisory costs

would likely ‘‘constitute a different

proportion of the total GME costs in the

nonhospital setting as compared with

the hospital setting.’’ (63 FR 25597). The

commenter added that direct GME

payments to hospitals are based on 1984

hospital costs that may not accurately

reflect current costs.

Response: Our analysis is based on

recent cost report data submitted to us

by hospitals. That data shows that

resident salaries and fringe benefits are

less than half of total resident costs for

hospitals. At this time, based on

available data as well as a desire to treat

hospitals and nonhospital sites

equitably, we believe the hospital cost

report data is a useful proxy for

purposes of applying a standard of ‘‘all

or substantially all’’ to nonhospital sites.

We agree that it would be appropriate to

analyze data on the cost of training from

nonhospital sites and we will consider

revisions to our policies as we obtain

cost data from nonhospital sites.

We note that, if resident

compensation is, in fact, a larger

percentage of total costs in the

nonhospital site relative to the hospital,

as suggested by this commenter, this

would mean that costs other than

resident compensation are a smaller

proportion of total costs. The hospital

would have to assume relatively modest

additional costs through arrangements

with nonhospital sites to continue

counting the residents for indirect and

direct GME. We also note that

preliminary data by researchers

studying costs incurred by a

nonhospital site to train residents has

shown that resident salary and fringe

benefits are a smaller ratio of total costs

at the nonhospital site relative to the

hospital. If this conclusion is accurate,

it would provide additional evidence

that our revised definition is a better

measure of ‘‘all or substantially all’’ of

the costs.

Comment: One commenter

acknowledged that we revised the

definition of ‘‘all or substantially all’’ to

address a concern that nonhospital sites

do not have sufficient resources to

support their medical education

activities, but argued that the proposed

change in policy will not improve the

ability of nonhospital sites to support

training and may compromise existing

and developing relationships between

hospital and nonhospital GME sites.

This commenter stated that the

relationship between the hospital and

nonhospital site should be voluntary

and that it is up to the parties to define

the appropriate parameters of their

relationships, including how costs

beyond the resident stipend and

benefits should be accommodated.

Response: As we stated earlier, we do

not believe that this revised policy will

compromise existing training

relationships between hospitals and

nonhospital sites. We agree with the

commenter that arrangements between

hospitals and nonhospital sites for

training should be voluntary and the

entities should be responsible for

negotiating the parameters of their

relationship. If a hospital and

nonhospital site cannot agree on an

arrangement regarding costs, the

hospital may pursue an agreement with

another nonhospital site for training.

Similarly, if a nonhospital site cannot

reach agreement with a hospital, it does

not have to allow its facility to be used

as a training site and can pursue a

training arrangement with another

hospital.

Comment: One commenter asked why

a nonhospital site would claim costs,

and report an offset to those costs, if the

hospital incurs the GME costs for

training in the nonhospital site.

Response: In response to this

comment, in this final rule we are

modifying the requirements for both

hospitals and qualified nonhospital

providers. As stated previously,

hospitals are required to furnish a

written agreement between the hospital

and the nonhospital site that indicates

that the hospital is incurring the cost of

the resident’s compensation in the

nonhospital site and that the hospital is

providing reasonable compensation for

teaching activities to the nonhospital

site. The agreement must also indicate

the amounts being furnished to the

nonhospital site for teaching activities.

If the resident is working at an FQHC or

RHC and there is a written agreement

that allows the hospital to count the

resident for indirect and direct GME, the

FQHC or RHC must report its direct

GME costs in a nonreimbursable cost

center. The FQHC or RHC is not

required to offset from those GME costs

revenues received from the hospital.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40993

We are requiring the FQHC or RHC to

report its direct GME costs in a

nonreimbursable cost center because

these costs will no longer be allowable

costs under § 405.2468(a) through (e).

As stated earlier, direct GME costs will

not be subject to the cap on the allinclusive rate under section 503 of the

RHC and FQHC Manual. The reporting

of direct GME costs in a separate cost

center on the FQHC and RHC cost report

will also allow us to receive data on the

costs of training in nonhospital sites.

Comment: Some commenters argued

that our proposal would impose undue

administrative burden on hospitals and

nonhospital sites by requiring them to

report all of the GME costs they incur.

One commenter stated that HCFA

should retain the current definition of

‘‘all or substantially all’’ of the costs

because it is logical, straightforward,

and appropriate. This commenter

asserted that it is difficult to isolate and

quantify costs other than resident

salaries and fringe benefits are incurred

in nonhospital sites. According to this

commenter, resident salaries and fringe

benefits are easy to identify and their

administration and recordkeeping can

be monitored uniformly across the GME

community. The commenter suggested

that in assuming responsibility for

resident compensation, the teaching

hospital assumes responsibility for

assuring that all residents are provided

appropriate educational environments,

supervision, and support for their

training.

Another commenter argued that the

proposed redefinition of ‘‘all or

substantially all’’ of the costs does not

reflect certain services or costs (e.g.

house staff credentialing and related

functions) just as the per resident

amounts do not reflect services or costs

that are included in the proposal (e.g.

resident travel and lodging). These

commenters suggested that resident

salaries and fringe benefits should

suffice as a proxy that appropriate

educational services at an appropriate

cost are being delivered by the hospital

for the nonhospital training. Another

commenter stated that it is a managed

care organization that pays the resident

salaries and fringe benefits and that this

should be sufficient for receiving GME

payment in the nonhospital site.

According to these commenters, the

entity that incurs the costs of the

resident compensation should be

considered to be incurring ‘‘all or

substantially all’’ of the costs and be

eligible to count the resident for direct

and indirect GME.

Response: We do not believe that we

are establishing a burdensome

regulatory structure with tremendous

documentation requirements. For

hospitals seeking to count the time of

residents training in the nonhospital

site, we are requiring a written

agreement between the hospital and the

nonhospital site stating that the hospital

will incur ‘‘all or substantially all’’ of

the costs. The written agreement must

indicate that the hospital is incurring

the cost of the resident salaries and

providing compensation for supervisory

teaching physician costs. The agreement

must also specify the amounts paid to

the nonhospital site. These agreements

and amounts paid by the hospital to the

nonhospital site may be the product of

negotiation between the hospital and

nonhospital site. The hospital does not

have to report the nonhospital site’s

GME costs. We anticipate that in the

course of any negotiation between the

hospital and nonhospital site, the

nonhospital site may need to identify its

training costs. However, this is a matter

between the hospital and nonhospital.

If a hospital seeks to count the time

of residents training in FQHC’s and

RHC’s, the FQHC or RHC must identify

its training costs in a nonreimbursable

GME cost center. FQHC’s and RHC’s

must separately report GME costs in

order to distinguish these costs from

other patient care costs that are paid for

by Medicare on the basis of reasonable

costs through the all inclusive rate.

Under this final rule, we are not

requiring FQHC’s and RHC’s to report

the offset to those costs for payments

received from the hospital. Requiring

FQHC’s and RHC’s to report costs

without offsetting revenues received

from the hospital will allow us to obtain

gross cost data on the costs of training

in nonhospital sites.

RHC’s and FQHC’s must identify

teaching physician costs and allocate

overhead to the direct GME cost center,

in addition to the current cost reporting

requirements for these entities. These

entities are currently paid on the basis

of costs, and we do not believe the

additional cost reporting requirements

will be substantial.

We disagree with the comment that

resident compensation should suffice as

a proxy that appropriate educational

services, at an appropriate cost, are

being delivered and should be the sole

criterion for determining which entity

receives payment. Our concern in

developing this policy is not whether

we are paying for appropriate

educational services but whether the

entities that incur training costs are

appropriately paid. Regardless of which

entity incurs the cost of the resident’s

compensation, Medicare should only

pay for appropriate educational

services. Other regulations independent

of the ‘‘all or substantially all’’ criterion

ensure that Medicare pays for accredited

educational programs.

Comment: One commenter stated that

teaching physicians in nonhospital sites

may be remunerated through a variety of

different arrangements, including ‘‘in

kind’’ compensation for continuing

education or through voluntary

contributions. According to this

commenter, the proposed policies

would require hospitals and

nonhospital sites to identify financial

transactions which may not exist. The

commenter further stated that there is

no established methodology for defining

or quantifying supervisory costs. The

commenter noted that even if the costs

could be identified, the costs would

vary depending upon specialty and the

year of residency training, which would

require a sophisticated accounting

infrastructure. The commenter also

asserted that community-based

physicians would be discouraged from

training residents because of the

administrative burden of documenting

the precise number of hours they spend

teaching or supervising residents.

Response: We recognize that there

could be a variety of financial

arrangements between hospitals and

nonhospital sites with regard to

training. The hospital and the

nonhospital site can take into account

those types of arrangements in

negotiating an agreement.

Although there will be some

additional cost reporting requirements

imposed on FQHC’s and RHC’s that

receive payment for direct GME through

the hospital or directly from Medicare,

there are established cost reporting

principles for identifying these costs in

providers. Medicare+Choice

organizations, in addition to producing

a written agreement with nonhospital

sites, will have to report GME costs

when they incur ‘‘all or substantially

all’’ of the costs. We are developing a

modest one page cost statement that will

allow the Medicare+Choice

organizations to claim direct GME costs

that are eligible for payment. If an FQHC

or RHC incurs ‘‘all or substantially all’’

of the costs of the program, and is

therefore eligible to be paid directly for

GME, we do not believe the burden of

documenting supervisory physician

time spent in GME activities will be

substantial. Our expectation is that

physicians will need to estimate the

number of hours they will spend in

GME and non-GME activities during the

course of the year and verify the

estimates with a limited time study.

This is similar to the documentation

that was required of hospitals to allocate

teaching physician costs between Part A
40994 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

and Part B and between operating costs

and direct medical education.

Comment: Several commenters

suggested that we initiate demonstration

projects addressing payment for GME in

nonhospital sites. One commenter

suggested that we analyze our proposed

revision to ‘‘all or substantially all’’ of

the costs through a demonstration

project before implementing the changes

on a nationwide basis. Such a

demonstration project would indicate

whether the proposed change would

encourage or discourage training in

nonhospital sites. Another commenter

suggested that our proposed policy may

adversely affect many GME programs

and should be tested prior to being

implemented on a national basis.

Response: Congress established a

provision in the BBA authorizing the

Secretary to provide payment to

nonhospital sites and we do not believe

a demonstration project is necessary.

Furthermore, since this policy is more

stringent than existing regulations, we

are doubtful that hospitals would

participate voluntarily in a

demonstration project.

Comment: One commenter objected to

the revision of the ‘‘all or substantially

all’’ criteria and stated that the proposed

policy would constrain the ability of

teaching hospitals and Medicare+Choice

organizations to develop reasonable

rotations in hospitals and managed care

plans. The commenter suggested an

alternative under which a

Medicare+Choice organization could

submit a short application that would

contain agreements between hospitals

and Medicare+Choice organization

addressing, among other things, the

amount of time residents would spend

at each site.

Under this approach, we would pay

the qualified nonhospital provider

based on the product of a per resident

amount, the number of FTE residents,

and the Medicare share. Each resident

would be counted as a partial FTE based

for the hospital and for the qualified

nonhospital provider based on the

percentage of time worked at each site.

A Medicare+Choice organization would

be paid its FTE percentage times a

portion of the hospital per resident

payment amount or a national average

per resident amount. This commenter

argued that this approach would meet

the Congressional objective of allowing

residents to receive training in hospitals

and Medicare+Choice organizations

while prohibiting double payment

without establishing a cumbersome new

set of cost reporting requirements.

Response: We considered the

approach suggested by this commenter

but we believe it would not facilitate

training in qualified nonhospital

providers. FQHC’s, RHC’s, and

Medicare+Choice organizations

generally provide a low percentage of

total services to Medicare beneficiaries.

The commenter’s approach would to

some extent substitute the Medicare

share of the qualified nonhospital

provider for the Medicare share of the

hospital, and we believe this would

result in lower Medicare payments

overall for training in nonhospital sites.

Also, we believe this approach would be

inequitable to hospitals in that they

would lose both the direct and indirect

medical education payments for the

proportion of time residents spend in

the qualified nonhospital provider even

though they have ongoing training costs

while the residents train in the

nonhospital site.

We believe that it is reasonable to pay

the hospital or qualified nonhospital

provider which incurs ‘‘all or

substantially all’’ of the costs.

Furthermore, the revised definition

reflects a better measure of ‘‘all or

substantially all’’ of the costs and will

result in appropriate payment to

hospitals for training in qualified

nonhospital providers and other

nonhospital sites.

As we stated in the May 8 proposed

rule (63 FR 25597), we also have

concerns that it would not be equitable

to eliminate the hospital’s payment

entirely for the time resident’s spend in

nonhospital sites because the hospital

may continue to incur some of the costs

associated with training residents in

nonhospital sites. We believe that the

policies we are adopting are equitable to

both hospital and nonhospital sites and

will achieve Congress’ objective of

encouraging training in nonhospital

sites.

Comment: One commenter stated that

there might be important differences in

the accounting and administrative

systems of various categories of

qualified nonhospital providers that

might present some difficulties in

identifying the cost data necessary to

accurately complete cost reporting

forms. Other commenters stated that

hospitals will have difficulty obtaining

the necessary data from the nonhospital

sites to complete the agreements or that

the revised definition of ‘‘all or

substantially all’’ would impose undue

administrative burden. Another

commenter stated that the revised

definition of ‘‘all or substantially all’’

creates a major problem in identifying

the portion of time office physicians

spend in teaching and supervising

residents and is another administrative

burden placed on physicians.

Response: As stated before, we do not

believe we are imposing undue

administrative burden. Direct GME costs

for FQHC’s and RHC’s will have to be

separately identified and reported.

Although this will require the

development of a mechanism for

FQHC’s and RHC’s to allocate overhead

and supervisory physician costs to the

GME costs center, we do not believe that

our policy will create significant

administrative difficulties for FQHC’s

and RHC’s, which already prepare cost

reports for Medicare. As stated

previously, we do not believe this

process will generate a substantial

burden on supervising physicians in

FQHC’s and RHC’s beyond a written

agreement between the clinic and the

physician regarding the amount of time

the physician expects to spend in GME

activities and a time study verifying the

allocation.

The submission of a cost statement for

GME will be a new responsibility for

Medicare+Choice organizations which

do not have experience with reporting

costs. However, as stated above, we are

developing a one page cost statement of

GME expenses to limit the

administrative burden on

Medicare+Choice organizations.

With regard to the concern expressed

about creating a burdensome set of new

cost reporting requirements, we reiterate

that a condition of payment to the

hospital for training in the nonhospital

site is the production of the written

agreement between the hospital and the

nonhospital site. We are not requiring

hospitals to submit cost data to

Medicare as a precondition to counting

the resident for indirect and direct GME.

Comment: One commenter noted that

some arrangements between hospitals

and nonhospital settings for the training

of residents predate the GME base year.

This commenter stated that hospitals

did not compensate nonhospital sites

for supervisory teaching physician costs

and it would not be fair to shift these

costs to teaching hospitals. The

commenter also stated that teaching

hospitals have already entered into

written agreements with nonhospital

sites under the existing rules. According

to the commenter, the proposed rule

would necessitate renegotiation of

thousands of agreements, imposing

tremendous transaction costs upon the

academic medical community. The

commenter noted that if the agreements

are not renegotiated prior to the

effective date, the hospital will be

unable to count the residents for direct

and indirect GME, and this will have a

lasting effect because of the 3 year

averaging rules. Another commenter

stated that there are many complex
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40995

contractual arrangements between

hospital based programs and

nonhospital sites regarding the

placement, training and patient service

utilization of residents, and any change

in Medicare GME payment policy could

have significant and unknown impacts

on these current training structures.

Response: The GME provisions of this

final rule will be effective January 1,

1999. All other provisions of this final

rule are effective October 1, 1998. By

making a later effective date for the

GME provisions, hospitals and

nonhospital sites will have 5 months

following publication of this final rule

to negotiate agreements that will allow

hospitals to continue counting residents

training in nonhospital sites for indirect

and direct GME. These agreements are

related solely to financial arrangements

for training in nonhospital sites. We do

not believe that the agreements

regarding these financial transactions

will necessitate changes in the

placement and training of residents.

In response to the comment that it is

unfair to shift costs to the hospital, we

believe it is appropriate to include

supervisory costs in the nonhospital site

as part of ‘‘all or substantially all’’ of the

costs that hospitals must incur to count

the resident. Currently, the hospital is

able to count the resident even though

its costs for that resident may be lower

during the time the resident trains

outside the hospital. At the same time,

the nonhospital site may have incurred

costs for which it received no

compensation. We believe that requiring

the hospital to incur the costs associated

with training in the nonhospital site is

equitable to both the hospital and

nonhospital site and is consistent with

the statutory requirement that the

hospital must incur ‘‘all or substantially

all’’ of the costs.

Comment: One commenter argued

that we should not use reasonable costs

as the basis for making payment to

qualified nonhospital providers. This

commenter stated that Medicare+Choice

organizations do not submit cost reports

and it would be extraordinarily

expensive and cumbersome to report

accounting costs. Several commenters

also objected to our proposal to the

extent we would allow overhead costs

for FQHCs, RHCs, and hospitals but not

Medicare+Choice organizations. These

commenters believed that the policy

cannot be justified on the basis that

Medicare+Choice organizations do not

submit cost reports. One commenter

suggested that HCFA use predetermined

payment amounts that do not require

the subsequent submission of cost

reports. The commenter noted that the

proposed rule itself notes that direct

GME payments are based on average per

resident costs from 1984 that might bear

little or no relation to accounting costs

in 1998. Another commenter suggested

that Medicare+Choice organizations

should be paid an overhead factor for

direct GME costs based on square

footage of the clinic and a number of

other factors. Alternatively, this

commenter suggested use of an average

overhead factor based on the number of

residents trained until actual overhead

expenses for Medicare+Choice

organizations can be identified.

Response: Medicare+Choice

organizations will typically contract

with clinics for the provision of services

to beneficiaries. In these situations, we

can make payment directly to the

Medicare+Choice organization if the

plan produces a written agreement with

the clinics where training occurs that

the plan will incur ‘‘all or substantially

all’’ of the costs associated with training

in the nonhospital site. We are requiring

a written agreement between the

Medicare+Choice organization and the

nonhospital sites. We believe that the

primary components of GME costs are

resident compensation and supervisory

teaching physician costs and that

facility overhead costs which can be

allocated to direct GME are a smaller

component of direct GME costs.

Nevertheless, we agree that we should

not limit allowable direct GME costs for

Medicare+Choice organizations to

resident compensation and supervisory

physician costs. If the Medicare+Choice

organization can document other direct

GME costs that directly relate to a

training program, we will allow these

costs. We note that, at this time, it is not

feasible to develop an average overhead

factor which can be paid to

Medicare+Choice organizations that

incur ‘‘all or substantially all’’ of the

costs of a training program in a

nonhospital site. This is because our

data systems on hospital GME costs do

not distinguish between supervisory

teaching physician costs and overhead

costs attributable to direct GME.

In response to the comment that we

use square footage or other mechanisms

as a basis for allocating overhead to

GME costs for Medicare+Choice

organizations, we are concerned about

developing a sophisticated cost

allocation process for determining

Medicare+Choice allowable direct GME

costs since Medicare+Choice

organizations do not submit cost

reports. However, we are revising our

proposal to require the written

agreement to state that the

Medicare+Choice organization will

incur the costs of residents’ salaries and

fringe benefits and provide reasonable

compensation for the remaining costs of

the training program in the nonhospital

site. Based on the statement of costs, the

Medicare+Choice organization will

report its costs to HCFA and we will

provide payment based on the lower of

the Medicare+Choice organization’s cost

per resident or a national average of the

hospital per resident amounts.

Comment: Several commenters were

concerned that if neither the hospital or

nonhospital site incurs ‘‘all or

substantially all’’ of the costs, neither

setting would receive payment even

though each entity incurs a portion of

the training costs. One commenter

suggested that there will be difficulty

allocating costs under our proposed

definition of ‘‘incurring costs’’ and

stated that we should encourage

affiliations and provide simpler and

clearer guidance for institutions.

Response: Under this final rule, an

entity must incur ‘‘all or substantially

all’’ of the costs to receive payments for

the time the resident spends in the

nonhospital site. Since we do not

conduct cost-finding to determine who

bears ‘‘all or substantially all’’ of the

graduate medical education costs, we

are generally dependent on hospital and

non-hospital provider agreements to

determine who bears them. As stated

earlier in this final rule as well as in the

proposed rule, we do not believe it

would be administratively feasible to

apportion payments appropriate to the

hospital and nonhospital site in

situations where neither the hospital or

nonhospital site agree on who incurs

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

must also consider the statutory

prohibition on double payments in

these situations. Furthermore, although

it may be appropriate to provide

payment for GME costs where the

nonhospital site incurs only a portion of

the training costs, we do not believe it

would be equitable to allow a

nonhospital site to be paid where it was

incurring only a portion of the costs but

only allow payment to a hospital when

it incurs ‘‘all or substantially all’’ of the

costs.

In response to the commenter who

suggested that we should encourage

‘‘affiliations,’’ we believe the revised

definition of ‘‘all or substantially all’’ of

the costs provides incentives for

hospitals and nonhospital sites to reach

agreement with regard to financial

arrangements for training in nonhospital

sites to avoid the situation where

neither entity receives payment for

GME.

Comment: One commenter asked

whether hospitals would be eligible to

receive payments in situations where

the teaching faculty volunteers their
40996 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

services and neither the hospital or

nonhospital entity incurs costs for

supervisory teaching physicians, but the

hospital incurs the costs of resident

salaries and fringe benefits (including

travel and lodging expenses where

applicable). The commenter asked

whether the contract should state that

there are no teaching physician costs

incurred and the remainder of the costs

represent ‘‘all or substantially all’’ of the

costs. Another commenter stated that

the ‘‘all or substantially all’’ definition

creates special problems where

community physicians voluntarily serve

in a teaching capacity without

compensation. The commenter stated

that the implication of the proposed

policy is that some portion of the

community physician’s earnings must

be included in the calculation and asked

that we either delete the proposed

change or specify that voluntary

supervision of training residents does

not need to be included in the definition

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

Response: We have received

anecdotal information that some

supervisory teaching physicians

participate in teaching activities without

compensation in nonhospital clinics.

Although there may be situations where

a supervising physician is participating

in teaching, we do not believe that lack

of explicit compensation for teaching

activities means that physicians are

necessarily volunteering their time.

Rather, we believe that the physician’s

compensation in the clinic encompasses

both teaching and nonteaching

activities. Nevertheless, for purposes of

satisfying the requirement of a written

agreement, the written agreement

between a hospital and a nonhospital

site may specify that there is no

payment to the clinic for supervisory

activities because the clinic does not

have these costs.

Comment: One commenter stated that

a hospital was permitted to include,

within in its GME base period costs,

teaching physician costs related to the

hospital by common ownership or

control under § 413.17. Citing the GME

consistency principle at § 412.113(b)(3),

this commenter requested that we

clarify that the same policy applies in

the context of GME payment to

nonhospital sites. That is, the regulation

should include specific language which

states that costs incurred by an

organization related to the hospital

under § 413.17 will be recognized as if

incurred by the hospital in applying the

expanded definition of ‘‘all or

substantially all’’ of the costs.

Response: The consistency principle

under § 412.113(b)(3) required

consistent treatment of medical

education costs during the transition to

the inpatient hospital PPS during the

1980s. This rule was intended to

prevent medical education costs from

being included in hospital payments for

operating costs and also being paid on

a reasonable costs basis to hospitals as

GME during the early years of the PPS.

We do not see a relationship between

the consistency rule and our proposed

policies with regard to payment for

GME training in nonhospital sites.

With regard to the costs of related

parties under § 413.17, our policy was

not to include costs associated with

training in nonhospital clinics in the per

resident amount even though certain

direct GME costs of related parties could

have been allowable. We also do not

believe that § 413.17 has applicability to

our proposed policy. We are requiring a

written agreement between hospitals

and nonhospital sites for purposes of

this final rule, even where the hospital

and nonhospital site are related

organizations under § 413.17. In

practice, since we are requiring an

agreement between hospitals and

nonhospital sites that are under

common ownership or control, the

agreements should be a formality.

Comment: One commenter stated that

the necessary statutory and regulatory

incentives do not exist for teaching

hospitals to provide compensation to

nonhospital sites for their GME costs.

Response: We disagree. The proposed

rule requires a written agreement

between the hospital and nonhospital

site that the hospital will provide

compensation to the nonhospital site for

certain types of GME costs. Without this

agreement, the hospital will be unable

to count the resident for indirect and

direct GME. As stated earlier, the

agreements must also indicate the

amounts the hospital will actually pay

to the nonhospital site for GME training.

Comment: One commenter stated the

definition of ‘‘all or substantially all’’ of

the costs should not include residents’

travel and lodging costs. This

commenter stated that there is no

rationale for this change and that the

criteria imposes significant reporting

burdens with no offsetting benefits. The

commenter also stated that the phrase

‘‘where applicable’’ is vague and

requires additional definition language

(related to distance, means of travel) if

entities are to understand their reporting

obligations.

Response: Our intent in adding the

phrase ‘‘including residents travel and

lodging costs, where applicable’’ was to

provide for the inclusion of direct GME

costs that may be more prevalent in a

nonhospital setting than in the hospital

setting. The phrase ‘‘where applicable’’

means that depending on the specific

arrangement in some cases, residents

will be responsible for paying their own

travel and lodging costs while serving at

the nonhospital site. In other cases, it is

possible that the site will pay for the

residents to travel to the site and for

lodging while at the site. This is

basically a fringe benefit paid by the site

for the resident. Therefore, in situations

where travel and lodging is an expense

of the nonhospital site while the

resident is training there, the written

agreement must indicate that the

hospital will incur these costs. In

determining whether the hospital has

incurred ‘‘all or substantially all’’ of the

costs of the program, the hospital must

include this ‘‘unique’’ fringe benefit if it

was paid for by the nonhospital site.

Comment: One commenter stated that

the proposed regulations effectively

deny payments to FQHC’s unless they

incur ‘‘all or substantially all’’ of the

costs of the program. The commenter

stated that since the FQHC does not

typically pay the residents’ salaries, the

proposed rule does not significantly

increase the ability of the FQHC to

recover GME costs. This commenter

stated that it is eminently possible to

devise a method under which hospitals

that utilize qualified nonhospital

providers would report costs showing

allowable FQHC costs. In these

situations, costs would be apportioned

to the proper cost center.

Response: We disagree. The FQHC

can recover its GME costs either directly

from Medicare if it incurs ‘‘all or

substantially all’’ of the costs, or from

the hospital through the written

agreement. Without a written agreement

that specifies the amounts the hospital

will pay the nonhospital site for training

in the nonhospital site, the hospital will

be unable to count the resident for

indirect and direct GME.

d. Medicare share. Comment: One

commenter stated that the limitation of

direct GME payments to FQHC’s based

on Medicare’s share at the FQHC will

seriously constrain participation

because only 8 percent of FQHC

patients are Medicare patients. The

commenter quoted the Conference

Report which states that ‘‘the Conferees

believe this authority may help alleviate

physician shortages in rural areas.’’

According to this commenter, the

combination of requiring the FQHC to

incur ‘‘all or substantially all’’ of the

costs in order to receive payment and

the limitation to Medicare share does

little to provide sufficient resources to

allow FQHC’s to train physicians in

underserved rural areas. The commenter

believed the limitation of payments

based on Medicare’s share is not
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40997

required by the BBA provision

authorizing GME to qualified

nonhospital providers and is contrary to

the intent of the law.

Response: It is a fundamental and

longstanding principle that, to the

extent Medicare pays for certain types of

costs, the Medicare program should pay

only its fair share. This principle

applies not only in the context of

Medicare payment for medical

education, but also to Medicare

payment in general.

Comment: One commenter stated that

Medicare enrollees use 3.5 times the

number of outpatient services as nonenrollees. The commenter suggested

that it would be more equitable to base

Medicare’s share for Medicare+Choice

organizations on the ratio of outpatient

expenses for Medicare enrollees to total

enrollees. As an alternative, this

commenter suggested using Medicare

visits to total visits to calculate

Medicare share, consistent with the

calculation in the inpatient setting of

Medicare inpatient days to total

inpatient days.

Response: We believe that either of

the proposals suggested by this

commenter would impose significant

additional reporting responsibilities on

Medicare+Choice organizations which

receive payment from Medicare for

direct GME. Basing the Medicare share

calculation on the ratio of outpatient

expenses attributable to Medicare

beneficiaries to total expenses would

require Medicare+Choice organizations

to provide a sophisticated report of

expenses not unlike the Medicare cost

report. In situations where the

Medicare+Choice organization is

contracting for services provided in a

clinic, this would require the

Medicare+Choice organization to

document costs which are not even its

own. We considered using the ratio of

Medicare enrollee to total enrollee visits

in the Medicare share calculation, but

have concerns that this approach would

also be burdensome in that it would

require Medicare+Choice organizations

to furnish utilization data for clinics or

physician offices that they do not own

or control.

e. National average per resident

amounts. Comment: One commenter

argued that national average per

resident amounts are not appropriate for

the nonhospital setting. According to

the commenter, residency training

differs from other types of services

because it involves complicated

transactions with nongovernmental

entities such as medical schools that

may sponsor a hospital’s programs and

compensate physicians directly, and

accreditation bodies that may require a

certain content and curriculum in

training programs.

Response: We did not propose the use

of national average per resident amounts

in the nonhospital setting but will

consider whether a national average per

resident amount is appropriate after we

have experience with the provision and

have reliable data on the costs of

training in the nonhospital setting.

f. Technical errors concerning GME

policy published in the May 12, 1998

final rule.

In the May 12, 1998 final rule for the

FY 1998 inpatient hospital prospective

payment system, we set forth certain

policies on GME. The portion of the

May 12, 1998 final rule concerning

counting residents for direct medical

education (beginning at (63 FR 26327))

contained the following technical errors:

• Merged Hospitals—On page 26329,

third column, we stated that the FTE

cap of merged hospitals would be the

aggregation of the FTE cap for each

hospital participating in the merger. We

stated that § 413.86 would be modified

to reflect this policy, but we did not

modify the regulations text. We do not

believe a change to the regulations text

is necessary.

• Application of the FTE Cap—There

is a discrepancy between the

methodologies described in the August

29, 1997 final rule with comment period

(62 FR 46005) and the May 12, 1998

final rule (63 FR 26330) for application

of the FTE cap in situations where a

hospital has more residents than the

cap. The methodology described in the

May 12, 1998 final rule is incorrect. The

correct methodology is described in the

August 29, 1997 final rule with

comment period.

• New Medical Residency Training

Program—On page 26332, in the first

column, we stated, ‘‘for these reasons,

we believe it is appropriate to consider

a medical residency training program to

be newly established if the program

received initial accreditation or began

training residents on or after January 1,

1995.’’ We are clarifying that, for

hospitals that trained residents prior to

January 1, 1995, we will adjust the FTE

caps for programs were accredited or

began training residents on or after

January 1, 1995 and prior to August 5,

1997.

• Application of the FTE Cap to an

Affiliated Group—On page 26341, in the

third column, we stated, ‘‘If the

combined FTE counts for the individual

hospitals do not exceed the aggregate

cap, we will pay each hospital based on

its FTE cap as adjusted per agreements.’’

That sentence should have read as

follows: ‘‘If the combined FTE counts

for the individual hospitals exceed the

aggregate cap, we will pay each hospital

based on its FTE cap as adjusted per

agreements.’’

V. Changes to the Prospective Payment

System for Capital-Related Costs

A. Cap on the Capital Indirect Medical

Education Adjustment Ratio (§ 417.322)

Under section 1886(g) of the Act, the

Secretary has broad discretion in

implementing the capital prospective

payment system. Section 412.322 of the

regulations specifies the formula for the

capital indirect medical education (IME)

adjustment factor. The capital IME

adjustment is intended to pay the

Medicare capital prospective payment

system share of the indirect costs of

medical education to teaching hospitals.

The formula was incorporated in the

August 30, 1991 final rule for the capital

prospective payment system (56 FR

43380), and uses the ratio of interns and

residents to average daily census

(defined as total inpatient days divided

by the number of days in the cost

reporting period). Section 1886(d)(5)(B)

of the Act requires the use of the ratio

of residents-to-beds to calculate the IME

adjustment for the operating prospective

payment system. However, pursuant to

our authority under section 1886(g) of

the Act, we adopted the resident to

average daily census ratio for the capital

prospective payment system because we

believed it was a more appropriate

method for measuring teaching

intensity, and because we believed it

was less subject to manipulation.

The IME adjustment factor increases

by approximately 2.8 percentage points

for each 0.10 increase in the hospital’s

ratio of residents to average daily

census. The IME adjustment for

inpatient capital-related costs for

hospitals paid under the prospective

payment system takes the form of [e

raised to the power (.2822 x ratio of

interns and residents to average daily

census)¥1] where e is the natural

antilog of 1, based on the total cost

regression results. In order to determine

the Federal rate portion of the hospital’s

payment, the IME adjustment factor is

multiplied by the standard Federal rate,

the DRG weight, the geographic

adjustment factor, and any other

relevant payment adjustments such as

the DSH adjustment or the large urban

add-on. The formula is as follows:

(Standard Federal Rate) x (DRG weight)

x (GAF) x (Large Urban Add-on, if

applicable) x (COLA adjustment for

hospitals located in Alaska and Hawaii)

x (1 + Disproportionate Share

Adjustment Factor + IME Adjustment

Factor, if applicable).
40998 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

In the May 8, 1998 proposed rule (63

FR 25600) we indicated that it had come

to our attention that because of the

application of the capital IME

adjustment, one hospital would receive

a capital IME payment greater than its

total hospital costs. We also stated that

of the approximately 1,200 teaching

hospitals in the United States, based on

December 1997 data, 8 hospitals had a

resident to average daily census ratio of

more than 1.5. A resident to average

daily census ratio of 1.5 results in a

capital IME adjustment factor of 0.53,

which increases the Federal rate portion

of the hospital’s capital payment by 53

percent.

To address this unintended effect of

the capital IME methodology, we

proposed capping the capital IME ratio

at 1.5. A ratio greater than 1.5 means a

hospital has, on average, considerably

more residents than inpatients. Capping

the ratio at 1.5 would allow for one

resident per patient on the inpatient

side plus some outpatient training, and

would keep capital IME payments more

consistent with the costs incurred.

Because the operating IME ratio is based

on the number of beds, it has only

slightly exceeded 1.0 in two cases. This

change would ensure that the capital

IME adjustment is more in line with

hospital costs.

We received no comments on our

proposed change. We have decided to

implement this policy as proposed.

Effective October 1, 1998, the capital

IME ratio will be capped at 1.5.

B. Payment Methodology for Mergers

Involving New Hospitals (§ 412.331)

The August 30, 1991 final rule (56 FR

43418), which implemented the capital

prospective payment system,

established special payment provisions

for new hospitals. Under § 412.324(b), a

new hospital is paid 85 percent of its

allowable Medicare capital-related costs

through its first cost reporting period

ending at least 2 years after the hospital

accepts its first patient. The first cost

reporting period beginning at least 1

year after the hospital accepts its first

patient is the hospital’s base year for

purposes of determining its hospitalspecific rate. Section 412.302(b) defines

a new hospital’s old capital costs as

allowable capital-related costs for land

and depreciable assets that were put in

use for patient care on or before the last

day of the hospital’s base year cost

reporting period. Beginning with the

third year, the hospital is paid under the

fully prospective or hold-harmless

payment methodology, as appropriate. If

the hospital is paid under the holdharmless payment methodology, the

hospital’s hold-harmless payments for

its old capital costs can continue for up

to 8 years.

In the August 30, 1991 final rule, we

defined a new hospital as one that had

operated (under previous or present

ownership) for less than 2 years and did

not have a 12-month cost reporting

period that ended on or before

December 31, 1990. In the September 1,

1992 final rule (57 FR 39789), as a result

of situations brought to our attention

after publication of the original

prospective payment system final rule,

we clarified that the new hospital

exemption would not apply in

situations where the facility was not

truly a new hospital.

In the May 8, 1998 proposed rule (63

FR 25600), we indicated that questions

had arisen regarding application of our

rules for payment of new hospitals in

merger situations. We stated that

consistent with our previously stated

policy, we were proposing to further

clarify the new hospital payment

provisions. We proposed that, if during

the period it is eligible for payment as

a new hospital (as defined at

§ 412.300(b) and § 412.328(b)), a new

hospital merges with one or more

existing hospitals, and the merger meets

the existing capital-related reasonable

cost rules regarding the criteria for

recognizing a merger at § 413.134 and

the new hospital is the surviving

corporation (as defined in

§ 413.134(l)(2)), we would treat as old

capital only those assets of the existing

hospital that met the definition of old

capital (as defined in § 412.302(b)) prior

to the merger, for purposes of

determining payments after the merger.

Any assets of the existing hospital

that were considered new capital prior

to the merger would still be considered

new capital after the merger. However,

the merger cannot be used to convert the

existing hospital’s new capital into old

capital. After the merger, the discharges

of each campus of the merged entity

would maintain their pre-merger

payment methodology until the end of

the 2-year period that the new hospital

campus is eligible for reasonable cost

reimbursement as defined at

§ 412.324(b). That is, the discharges at

the new hospital would be paid based

on 85 percent of its allowable Medicare

hospital capital-related costs, while

discharges from the existing hospital

would continue to be paid under that

hospital’s methodology, that is, fully

prospective or hold-harmless. At the

end of this period, the intermediary

would calculate a hospital specific rate

for the ‘‘new’’ campus of the merged

hospital. Finally, the calculation

methodology for hospital mergers at

new § 412.331(a)(1) and (2) would be

performed and a combined hospitalspecific rate would be determined and

a payment methodology selected for the

merged hospital as a whole.

The calculation at § 412.331(a)(1) and

(2) uses each hospital’s base year old

capital costs. Any new capital of the

previously existing hospital would not

be used in the determination. If the

merged entity qualifies for the holdharmless payment methodology, only

the capital which meets the definition of

old capital at § 412.302(b) would be

eligible for hold-harmless payments.

We received one comment on our

proposal.

Comment: One hospital association

commented on the policy that only the

assets of the existing hospital that met

the definition of old capital prior to the

merger would be treated as old capital

after the merger, even if all of the capital

had been acquired and put into use

during the new hospital’s base year.

They also stated that the proposal

changes the regulatory definition of a

new hospital’s old capital, revises its

payment methodology determination,

and creates special payment rules for

new hospitals that merge with existing

hospitals. The commenter also states

that a hospital in a situation similar to

that described in our example was told

that after a merger between a new

hospital and an existing hospital, all

assets acquired by the new hospital in

the base year would become old capital

costs. The commenter suggests that if

HCFA will not reconsider the proposed

change, at least it should not be applied

retroactively.

Response: As indicated in the

proposed rule, we addressed this issue

because questions have arisen regarding

application of our rules for payment for

new hospitals in merger situations.

Accordingly, we proposed to clarify the

application of our rules in merger

situations. Before the proposed rule, we

had not specifically addressed in the

Federal Register the issue of mergers

between an ‘‘existing’’ hospital and a

‘‘new’’ hospital, but our clarification is

consistent with existing rules; the

clarification does not reflect new policy

or a change in policy that can only be

applied prospectively.

The commenter is correct that with

regard to the capital of the existing

hospital that merges with a new

hospital, our proposal would treat as old

capital only capital that qualified as old

capital prior to the merger. Any capital

that was new capital of the existing

hospital prior to the merger would

remain new capital after the merger. The

new hospital will be paid 85 percent of

its allowable Medicare inpatient

hospital capital-related costs through its
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 40999

cost reporting period ending at least two

years after the hospital accepts its first

patient. In our September 1, 1992 final

rule (57 FR 39789), we clarified that the

new hospital exemption under the

capital prospective payment system

would not apply to a facility that

opened as an acute care hospital if that

hospital had previously operated under

current or prior ownership and had a

historic asset base. We also clarified that

even a hospital that replaced its entire

facility (with or without a change of

ownership) would not qualify for a new

hospital exemption and that a

previously existing PPS-excluded

hospital (paid under section 1886(b) of

the Act) that became an acute care

hospital (paid under section 1886(d)) of

the Act would not qualify as a new

hospital. With this current proposal we

are clarifying our rules as they apply to

a new hospital which merges with an

existing hospital.

When a new hospital merges with an

existing hospital that has already had

the benefit of reasonable cost

reimbursement prior to the inception of

capital PPS, on October 1, 1991, we

believe it would be inappropriate for all

of the capital assets of a previously

existing hospital to be eligible for

payment as old capital simply because

it merged with a new hospital. As with

the other situations that we clarified in

1992, this current clarification of the

regulation at § 412.331(a)(3) is

consistent with the principle that the

new hospital exemption should only be

available to those hospitals that had not

received reasonable cost payments in

the past and needed special payment

protection during their initial period of

operation. Our policy seeks to ensure

that when a new hospital acquires the

assets of an existing hospital through a

merger, any assets of the existing

hospital that were previously

considered new capital prior to the

merger are not transformed to old

capital, as a result of the merger. The

new hospital will still be paid 85

percent of its allowable Medicare

capital-related costs for all other assets

it acquires through the end of its base

period.

The commenter fails to note that our

current payment rules at § 412.331(a)(3)

for merger situations already provide

that only the existing capital-related

costs related to the assets of each

merged or consolidated hospital as of

December 31, 1990 are recognized as old

capital costs during the transition

period. If the merged hospital is paid

under the hold-harmless methodology

after merger or consolidation, only that

original base year old capital is eligible

for hold-harmless payments. These rules

mean that in cases of a merger between

two existing hospitals, only the capital

assets which were recognized as old

capital prior to December 31, 1990 are

eligible for payment as old capital after

the merger. We are clarifying that this

principle would also apply to the

situation of merger between an existing

hospital and a new hospital. The

regulation that defines a new hospital’s

old capital was not intended to apply to

capital acquired through merger with an

existing hospital subject to capital PPS.

Finally, the commenter is mistaken

that HCFA has previously ruled that the

new capital assets of an existing

hospital could be paid as old capital

after a merger with a new hospital. In

fact, our policy is consistent with our

regulation at § 412.331(a)(3) cited above,

in that only the existing capital-related

costs related to the assets of each

merged or consolidated hospital as of

December 31, 1990 are recognized as old

capital costs during the transition

period.

We are implementing this

clarification as proposed. For an

example of how our policy works, see

the May 8, 1998 proposed rule (63 FR

25601).

C. Special Exceptions Process

As described in § 412.348(g) of the

regulations, an additional payment may

be made for up to 10 years beyond the

end of the capital PPS transition period

for eligible hospitals that meet: (1) a

project need requirement, (2) a project

size requirement, and, (3) in the case of

certain urban hospitals, an excess

capacity test. The regulation

establishing this special exceptions

provision, and describing the criteria by

which eligible hospitals qualify, was

published on September 1, 1994 (59 FR

45385). At that time we described the

purpose of the special exceptions

process as ‘‘* * * narrowly defined,

focusing on a small group of hospitals

who found themselves in a

disadvantaged position. The target

hospitals were those who had an

immediate and imperative need to begin

major renovations or replacements just

after the beginning of the capital

prospective payment system. These

hospitals would not be eligible for

protection under the old capital and

obligated capital provisions, and would

not have been allowed any time to

accrue excess capital prospective

payments to fund these projects.’’

The special exceptions process is

available to certain classes of hospitals

that meet the eligibility criteria

described at § 412.348(g)(1). The eligible

classes of hospitals are sole community

hospitals; urban hospitals with at least

100 beds that either have a

disproportionate share percentage of

20.2 percent or receive at least 30

percent of their revenue from State or

local funds for indigent care; and

hospitals with a combined inpatient

Medicare and Medicaid utilization of at

least 70 percent.

Eligible hospitals must satisfy a

project need requirement as described at

§ 412.348(g)(2) and a project size

requirement as described at

§ 412.348(g)(5). For hospitals in States

with Certificate of Need (CON)

requirements, the project need

requirement is satisfied by obtaining

CON approval. For other hospitals, the

project need requirement is satisfied by

meeting an age of assets test. The project

size requirement is satisfied if the

hospital completes the qualifying

project during the period beginning on

or after its first cost reporting period

beginning on or after October 1, 1991 to

the end of its last cost reporting period

beginning before October 1, 2001, and

the project meets certain cost thresholds

specified in the regulations.

The minimum payment level for

qualifying hospitals is 70 percent of

allowable capital-related costs. A

qualifying hospital may receive

payments for up to ten years from the

year which it completes a qualifying

project. Finally, the regulations at

§ 412.348(g)(8) describe the cumulative

payment comparison and offsetting

amounts which are used to determine a

qualifying hospital’s exception

payment.

A few hospitals have expressed

concern with the required completion

date of October 1, 2001, and other

qualifying criteria for the special

exceptions. When we established the

special exceptions process, we selected

the hospital’s cost reporting period

beginning before October 1, 2001 as the

project completion date, because

hospitals are eligible to receive special

exceptions payments for up to ten years

from the year in which they complete

their project. If a project is completed by

September 30, 2001, then exceptions

payments could continue up to October

30, 2011. We intended to limit costbased exceptions payments to the

period not more than ten years beyond

the end of the transition to fully

prospective payment for capital. When

we adopted the criteria for the special

exceptions process, we selected the

project completion date with the goal of

not extending this transition

unnecessarily. In addition, we believed

that eligible hospitals will not have had

the opportunity to reserve prior year

capital PPS payments for financing

projects begun in the early years of PPS.
41000 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

In order for us to analyze the impact

of potential changes in the special

exceptions policies, we are soliciting the

following information on major capital

construction projects as defined at

§ 412.348(g)(5) that will be put to use for

patient care on or after October 1, 1996:

(1) Name, address, phone number and

provider number of hospital;

(2) Cost of capital project;

(3) Date of CON approval, if required;

(4) Start date of project; and

(5) Anticipated completion date.

Please forward this information by

September 30, 1998 to the Division of

Acute Care, Attention: Cassandra Black

at the following address: HCFA, C4–01–

26, 7500 Security Blvd., Baltimore, Md.

21244–1850. We will analyze the data to

determine whether any changes in the

special exceptions policies are

necessary. Any changes, if necessary,

would be included in next year’s FY

2000 proposed rule for hospital PPS.

VI. Changes for Hospitals and Units

Excluded From the Prospective

Payment System

Limits on and Adjustments to the Target

Amounts for Excluded Hospitals and

Units (§ 413.40(g))

1. Updated Caps

Section 1886(b)(3) of the Act as

amended by section 4414 of the BBA

established caps on the target amounts

for excluded hospitals and units for cost

reporting periods beginning on or after

October 1, 1997, through September 30,

2002. The caps on the target amounts

apply to the following three categories

of excluded hospitals: psychiatric

hospitals and units, rehabilitation

hospitals and units, and long-term care

hospitals. For purposes of calculating

the caps, the statute requires the

Secretary to first calculate the 75th

percentile of the target amounts for each

class of hospital (psychiatric,

rehabilitation, or long-term care) for cost

reporting periods ending during FY

1996. The resulting amounts are

updated by the market basket

percentage to the applicable fiscal year.

A discussion of how the caps on the

target amounts were calculated for cost

reporting periods beginning during FY

1998 can be found in the August 29,

1997, final rule with comment period

(62 FR 46018). On March 6, 1998, we

published a correction notice correcting

the caps for FY 1998 (63 FR 11148).

In the May 8 proposed rule for FY

1999, we published proposed caps for

cost reporting periods beginning during

FY 1999 (63 FR 25601); however, the

caps that we published inadvertently

reflected updates to the amounts

published on August 29, 1997, rather

than the corrected amounts published

on March 6, 1998 (see May 13, 1998

correction notice, 63 FR 26565). Thus,

as corrected, the proposed caps for FY

1999 were as follows:

(1) Psychiatric hospitals and units: $10,797

(2) Rehabilitation hospitals and units:

$19,582

(3) Long-term care hospitals: $38,630

These proposed caps reflected an

update of 2.5 percent, the projected

market basket percentage increase at the

time we developed the proposed rule.

The final projection of the market

basket percentage for excluded hospitals

and units for FY 1999, based on the

most recent data available, is 2.4

percent. Accordingly, the final caps on

the target amounts for existing hospitals

for cost reporting periods beginning

during FY 1999 are as follows:

(1) Psychiatric hospitals and units: $10,787

(2) Rehabilitation hospitals and units:

$19,562

(3) Long-term care hospitals: $38,593

2. New Excluded Hospitals and Units

(§ 413.40(f))

Section 1886(b)(7) of the Act

establishes a new statutory payment

methodology for new psychiatric

hospitals and units, rehabilitation

hospitals and units, and long-term care

hospitals. Under the statutory

methodology, for a hospital that is

within a class of hospitals specified in

the statute and which first receives

payments on or after October 1, 1997,

the amount of payment will be

determined as follows. For each of the

first two cost reporting periods, the

amount of payment is lesser of (1) the

operating costs per case, or (2) 110

percent of the national median of target

amounts for the same class of hospitals

for cost reporting periods ending during

FY 1996, updated and adjusted for

differences in area wage levels.

In the August 29, 1997 final rule with

comment period, we published the

figures for 110 percent of the national

median of target amounts for each class

of hospital (62 FR 46020). In the May

12, 1998 final rule for FY 1998, we

revised the figure for long-term care

hospitals to $21,494 (63 FR 26347).

The table below lists 110 percent of

the wage neutral national median target

amounts for each class of excluded

hospitals for cost reporting periods

beginning during FY 1999. These figures

reflect updates to the final FY 1998

figures by the projected market basket

increase of 2.4 percent. For a new

provider, the labor-related share of the

target amount should be multiplied by

the appropriate geographic area wage

index and added to the nonlabor-related

share in order to determine the limit on

payment under the statutory payment

methodology for new providers.

Total

Laborrelated

share

Nonlaborrelated

share

(1) Psychiatric ........... $6,214 $2,472

(2) Rehabilitation ....... 12,219 4,858

(3) Long-Term Care .. 15,749 6,261

3. Classification of Hospitals and

Units (§ 413.40(c))

In the May 8 proposed rule, we stated

that, after publication of the August 29,

1997 final rule with comment period,

some excluded facilities had suggested

that if they are currently excluded as

one class of hospital or unit but also

qualify for exclusion as another class of

hospital, they should be permitted to

choose which classification applies for

purposes of applying the cap on target

amounts. For example, some hospitals

that participate in Medicare as

psychiatric hospitals (defined under

section 1861(f) of the Act, and the

special conditions of participation in 42

CFR part 482 subpart E) have noted that

they have average lengths of stay greater

than 25 days. Those hospitals have

asked to be ‘‘reclassified’’ as long-term

care hospitals and given the benefit of

the higher cap on target amounts

applicable to that hospital class.

In the proposed rule, we indicated

that we had considered these hospitals’

suggestions but, for reasons explained in

that document, believed it would not be

appropriate to adopt them. Accordingly,

in the May 8 proposed rule, we

proposed to revise § 413.40(c)(4)(iii) to

specify that, for purposes of that

paragraph, the classification of a

hospital that was excluded from the

prospective payment system for its cost

reporting period ending in FY 1996

would be determined by its

classification (that is, the basis on which

it was excluded) in FY 1996. If a

hospital or unit was not excluded for a

cost reporting period ending in FY 1996,

but could be excluded on more than one

basis (for example, as either a

rehabilitation or long-term care hospital)

in a given cost reporting period, it

would be assigned to the classification

group with the lowest limit.

Comment: One commenter agreed that

psychiatric hospitals should not be

allowed the higher cap on target

amounts that is applicable to long-term

care hospitals, even if they also have

average lengths of inpatient stay greater

than 25 days. The commenter pointed

out that psychiatric hospitals participate

in Medicare under a provision of the

law (section 1861(f) of the Act) that is

separate from the provision applicable
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41001

to other excluded hospitals (section

1861(e) of the Act), and that the

exclusion criteria for psychiatric

hospitals differ from those for other

hospitals. The commenter stated that

because of these differences, a

psychiatric hospital could not qualify

for exclusion as another type of hospital

or be eligible for the cap that applies to

another type of hospital. The

commenter suggested that it is

unnecessary to specify that a psychiatric

hospital cannot qualify for the cap on

target amounts applicable to long-term

care or other types of excluded

hospitals.

Response: If a hospital qualifies under

more than one of the exclusion criteria

pursuant to section 1886(d)(1)(B) of the

Act, we would apply the lowest

applicable cap to the hospital. For

example, where a hospital qualifies as

both a rehabilitation and long-term care

hospital, we will apply the lower

rehabilitation hospital cap to the

hospital. Since this rule applies to all

PPS-excluded hospitals, whether a

psychiatric hospital can qualify as

another type of hospital or not, the

policy of applying the lowest cap is still

needed.

Comment: One commenter pointed

out that some non-psychiatric (section

1861(e) of the Act) hospitals might be

able to qualify for exclusion either as

rehabilitation or as long-term care

hospitals. The commenter stated that in

many cases such facilities are excluded

as long-term care hospitals. Therefore,

the commenter recommended that any

hospital in this category be given the

benefit of the long-term care hospital

cap.

Response: We understand that some

hospitals may simultaneously be able to

qualify for exclusion on more than one

basis. If a hospital is excluded from PPS

as a certain type of hospital, we believe

the hospital should be subject to the cap

applicable for that class of hospital,

even if it qualifies for exclusion on

another basis. Thus, if a hospital

qualifies for exclusion on more than one

basis, then it is subject to all applicable

caps, which in turn means the hospital’s

target amount cannot exceed the lowest

of the applicable caps. We believe this

policy not only is appropriate, but also

provides greater incentives for efficient

and cost-effective operation.

Comment: Two commenters stated

that if a hospital is classified as one type

of hospital in any period to which the

limits apply, and does not

simultaneously qualify for exclusion on

any other basis, the law (section

1886(b)(3) of the Act) does not authorize

application of any cap other than the

one applicable to the exclusion category

to which the hospital is assigned. One

commenter stated that this is the case

even if the basis for the hospital’s

exclusion in a given cost reporting

period is different than the basis for its

exclusion for the cost reporting period

ending during FY 1996 (for example, a

hospital may have been excluded as a

rehabilitation hospital during that

period and later qualified for exclusion

as a long-term care hospital).

Response: We agree with the

commenter that, if the basis for a

hospital’s exclusion for a given cost

reporting period is different than the

basis for the hospital’s exclusion for the

cost reporting period ending during FY

1996, the earlier basis of exclusion

should not control which cap applies.

We are revising § 413.40(c)(4)(iv)

accordingly. Thus, in applying the caps

to excluded hospitals (or units), we will

consider only the current basis (or

bases) for exclusion. As stated above, if

a hospital qualifies for more than one

type of exclusion, its target amount may

not exceed the lowest of the applicable

caps.

We note that, for the reasons

explained in the proposed rule, we

continue to be concerned that hospitals

and units may seek changes in their

basis of exclusion solely to take

advantage of a higher cap, and that the

resulting changes could compromise the

effectiveness of the caps. We will

monitor this situation carefully and may

seek further legislative changes to the

extent necessary to preserve the

effectiveness of the caps.

Comment: One commenter

recommended that the regulations be

revised to state that where two hospitals

who are subject to different caps on

TEFRA limits merge, the TEFRA cap

that applies is the cap of the surviving

hospital.

Response: If two hospitals merge, the

cap that applies depends on the status

of the surviving entity. However, we do

not believe that the regulations as

described above, can be interpreted in

any other way. Therefore, we do not

agree that the regulations need to be

revised to specifically address this

situation.

Comment: One commenter suggested

that if a new hospital subject to the

limits revised under § 413.40(f)(2)(ii)

changes the basis on which it is

excluded from the PPS (for example,

from being a rehabilitation hospital to a

long-term care hospital), the cap applied

for purposes of the comparison should

be the cap applicable to the hospital’s

‘‘current’’ exclusion category, not the

hospital’s previous exclusion category.

Response: We agree that the cap

applied should be based on the

exclusion category for which the

hospital currently qualifies. In light of

the changes made in response to

comments described above, we do not

believe the regulations need to be

further revised.

4. Exceptions

The August 29, 1997 final rule with

comment period (62 FR 46018) specified

that a hospital that has a target amount

that is capped at the 75th percentile,

would not be granted an adjustment

payment to the target amount (also

referred to as an exception payment) as

governed by § 413.40(g)(3) based solely

on a comparison of its costs or patient

mix in its base year to its costs or

patient mix in the payment year. Since

the hospital’s target amount would not

be determined based on its own

experience in a base year, any

comparison of costs or patient mix in its

base year to costs or patient mix in the

payment year would be irrelevant.

In addition, in the May 8, 1998

proposed rule, we proposed to clarify

that, to the extent we grant an exception

in accordance with § 413.40(g)(3) to a

hospital not affected by the cap, the

amount of the exception would be

limited to the cap on the hospital’s

target amount. By establishing caps on

TEFRA target amounts, Congress has

limited payments to individual

hospitals based on amounts that reflect

the cost experience of other hospitals.

Therefore, in determining the extent of

any adjustment paid to a hospital as an

exception under our regulations at

§ 413.40(g)(3), we believe it is consistent

with Congressional intent to limit the

extent of the adjustment to the

hospital’s cap on its target amount.

We proposed to revise § 413.40(g)(1)

in order to set forth the limitation on the

adjustment payments.

Comment: One commenter stated that

the proposed rule conflicts with section

1886(b)(4)(A)(i) of the Act, which

requires HCFA to provide for

adjustments to providers who exceed

their TEFRA ceiling. The commenter

also believed that our proposed

provision limiting the TEFRA exception

to the TEFRA cap is inconsistent with

HCFA’s past TEFRA adjustment

processing practices. The commenter

also stated that the proposed rule would

adversely affect beneficiaries by limiting

the scope and extent of services that

hospitals in high wage areas are

financially able to deliver. For these

reasons, the commenter requested that

HCFA modify the proposed rule to

permit the granting of exceptions to the

TEFRA cap.

Response: Section 1886(b)(4)(A)(i) of

the Act provides that the Secretary
41002 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

‘‘shall provide’’ for exceptions and

adjustments ‘‘where events beyond the

hospital’s control or extraordinary

circumstances, including changes in the

case mix of such hospital, create a

distortion in the increase in costs for a

cost reporting period.’’ Prior to the

enactment of Public Law 105–33, the

payment for each excluded hospital was

limited by a hospital-specific target

amount, which was updated each year.

The exceptions and adjustments

provision provided for payments above

the hospital’s target amount if the

hospital experienced ‘‘a distortion in the

increase in costs’’ for a given period.

Thus, a hospital could receive an

exception based on its cost experience.

The BBA enacted a system of caps

which significantly changed the TEFRA

payment system. Under the new system

of TEFRA caps, a hospital’s payments

are not based solely on its own cost

experience; instead, a hospital is now

subject to a cap based on the cost

experience of other hospitals.

We believe our policies harmonize the

exceptions provision and the cap

provision. Under our policies, a hospital

whose target amount is below the cap

may receive an exception up to the cap.

Thus, consistent with the mandate of

section 1886(b)(4) of the Act, we

continue to provide for exceptions,

contrary to the assertion of the

commenter. However, by establishing

caps on TEFRA target amounts,

Congress has limited payments to

individual hospitals based on amounts

that reflect the cost experience of other

hospitals. Therefore, in determining the

extent of any adjustment paid to a

hospital as an exception under our

regulations, we believe it is consistent

with Congressional intent to limit the

extent of the adjustment to the

hospital’s cap on its target amount. If a

hospital’s otherwise applicable target

amount is above the cap, it cannot

receive an exception based solely on a

comparison of its current year costs or

patient mix to base year costs or patient

mix.

VII. MedPAC Recommendations

As required by law, we have reviewed

the March 1998 report submitted by

MedPAC to Congress and gave its

recommendations careful consideration

in conjunction with the proposals set

forth in the proposed rule. We also

responded to the individual

recommendations in the proposed rule.

The comments we received on the

treatment of the MedPAC

recommendations are set forth below

along with our responses to those

comments. However, if we received no

comments from the public concerning a

MedPAC recommendation or our

response to that recommendation, we

have not repeated the recommendation

and response in the discussion below.

Recommendations concerning the

update factors for inpatient operating

costs and for hospitals and hospital

distinct-part units excluded from the

prospective payment system are

discussed in Appendix C, of this final

rule.

Potential Effects of Target Amount Caps

Recommendation: The wage-related

portion of the excluded hospital target

amount caps should be adjusted by the

appropriate hospital wage index to

account for geographic differences in

wages. (For more information see

Volume 1, chapter 7, page 71 of the

March 1998 report.)

Response in the Proposed Rule: As

MedPAC indicated in its

recommendation, legislation would be

required to adjust the target amount

caps in such a substantial manner as to

adjust for differences in area labor costs.

Comment: Several commenters

believed that the caps on the target

amounts should be wage adjusted in

order to recognize the different labor

markets. They believe to do otherwise

would be unfair and inequitable and

may cause hospitals to cut back on

services they provide to their Medicare

beneficiaries.

Response: We previously addressed

this issue in the final rule published in

the Federal Register on May 12, 1998

(63 FR 26345). Our decision, as

expressed in our response in that final

rule, remains unchanged.

VIII. Other Required Information

Requests for Data From the Public

In order to respond promptly to

public requests for data related to the

prospective payment system, we have

set up a process under which

commenters can gain access to the raw

data on an expedited basis. Generally,

the data are available in computer tape

format or cartridges; however, some files

are available on diskette, and on the

Internet at HTTP://WWW.HCFA.GOV/

STATS/PUBFILES.HTML. In our May 8

proposed rule, we published a list of

data files that are available for purchase

(63 FR 25603).

List of Subjects

42 CFR Part 405

Administrative practice and

procedure, Health facilities, Health

professions, Kidney diseases, Medicare,

Reporting and recordkeeping

requirements, Rural areas, X-rays.

42 CFR Part 412

Administrative practice and

procedure, Health facilities, Medicare,

Puerto Rico, Reporting and

recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases,

Medicare, Puerto Rico, Reporting and

recordkeeping requirements.

42 CFR Chapter IV is amended as set

forth below:

A. Part 405 is amended as follows:

PART 405—FEDERAL HEALTH

INSURANCE FOR THE AGED AND

DISABLED

1. The authority citation for part 405

is revised to read as follows:

Authority: Secs. 1102, 1861, 1862(a), 1871,

1874, 1881, and 1886(k) of the Social

Security Act (42 U.S.C. 1302, 1395x,

1395y(a), 1395hh, 1395kk, 1395rr and

1395ww(k)), and sec. 353 of the Public

Health Service Act (42 U.S.C. 263a), unless

otherwise noted.

Subpart X—Rural Health Clinic and

Federally Qualified Health Center

Services

2. In § 405.2468, a new paragraph (f)

is added to read as follows:

§ 405.2468 Allowable costs

* * * * *

(f) Graduate medical education. (1)

Effective for that portion of cost

reporting periods occurring on or after

January 1, 1999, if an RHC or an FQHC

incurs ‘‘all or substantially all’’ of the

costs for the training program in the

nonhospital setting as defined in

§ 413.86(b) of this chapter, the RHC or

FQHC may receive direct graduate

medical education payment for those

residents.

(2) Direct graduate medical education

costs are not included as allowable cost

under § 405.2466(b)(1)(i); and therefore,

are not subject to the limit on the allinclusive rate for allowable costs.

(3) Allowable graduate medical

education costs must be reported on the

RHC’s or the FQHC’s cost report under

a separate cost center.

(4) Allowable graduate medical

education costs are non-reimbursable if

payment for these costs are received

from a hospital or a Medicare+Choice

organization.

(5) Allowable direct graduate medical

education costs under paragraphs (f)(6)

and (f)(7)(i) of this section, are subject

to reasonable cost principles under part

413 and the reasonable compensation

equivalency limits in §§ 415.60 and

415.70 of this chapter.

(6) The allowable direct graduate

medical education costs are those costs
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41003

incurred by the nonhospital site for the

educational activities associated with

patient care services of an approved

program, subject to the redistribution

and community support principles in

§ 413.85(c).

(i) The following costs are allowable

direct graduate medical education costs

to the extent that they are reasonable—

(A) The costs of the residents’ salaries

and fringe benefits (including travel and

lodging expenses where applicable).

(B) The portion of teaching

physicians’ salaries and fringe benefits

that are related to the time spent

teaching and supervising residents.

(C) Facility overhead costs that are

allocated to direct graduate medical

education.

(ii) The following costs are not

allowable graduate medical education

costs—

(A) Costs associated with training, but

not related to patient care services.

(B) Normal operating and capitalrelated costs.

(C) The marginal increase in patient

care costs that the RHC or FQHC

experiences as a result of having an

approved program.

(D) The costs associated with

activities described in § 413.85(d) of this

chapter.

(7) Payment is equal to the product

of—

(i) The RHC’s or the FQHC’s allowable

direct graduate medical education costs;

and

(ii) Medicare’s share, which is equal

to the ratio of Medicare visits to the total

number of visits (as defined in

§ 405.2463).

(8) Direct graduate medical education

payments to RHCs and FQHCs made

under this section are made from the

Federal Supplementary Medical

Insurance Trust Fund.

B. Part 412 is amended as set forth

below:

PART 412—PROSPECTIVE PAYMENT

SYSTEMS FOR INPATIENT HOSPITAL

SERVICES

1. The authority citation for part 412

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1895hh).

Subpart A—General Provisions

2. Section 412.4 is revised to read as

follows:

§ 412.4 Discharges and transfers.

(a) Discharges. Subject to the

provisions of paragraphs (b) and (c) of

this section, a hospital inpatient is

considered discharged from a hospital

paid under the prospective payment

system when—

(1) The patient is formally released

from the hospital; or

(2) The patient dies in the hospital.

(b) Transfer—Basic rule. A discharge

of a hospital inpatient is considered to

be a transfer for purposes of payment

under this part if the discharge is made

under any of the following

circumstances:

(1) From a hospital to the care of

another hospital that is—

(i) Paid under the prospective

payment system; or

(ii) Excluded from being paid under

the prospective payment system because

of participation in an approved

Statewide cost control program as

described in subpart C of part 403 of

this chapter.

(2) From one inpatient area or unit of

a hospital to another inpatient area or

unit of the hospital that is paid under

the prospective payment system.

(c) Transfers—Special 10 DRG rule.

For discharges occurring on or after

October 1, 1998, a discharge of a

hospital inpatient is considered to be a

transfer for purposes of this part when

the patient’s discharge is assigned, as

described in § 412.60(c), to one of the

qualifying diagnosis-related groups

(DRGs) listed in paragraph (d) of this

section and the discharge is made under

any of the following circumstances—

(1) To a hospital or distinct part

hospital unit excluded from the

prospective payment system under

subpart B of this part.

(2) To a skilled nursing facility.

(3) To home under a written plan of

care for the provision of home health

services from a home health agency and

those services begin within 3 days after

the date of discharge.

(d) Qualifying DRGs. The qualifying

DRGs for purposes of paragraph (c) of

this section are DRGs 14, 113, 209, 210,

211, 236, 263, 264, 429, and 483.

(e) Payment for discharges. The

hospital discharging an inpatient (under

paragraph (a) of this section) is paid in

full, in accordance with § 412.2(b).

(f) Payment for transfers. (1) General

rule. Except as provided in paragraph

(f)(2) or (f)(3) of this section, a hospital

that transfers an inpatient under the

circumstances described in paragraph

(b) or (c) of this section, is paid a

graduated per diem rate for each day of

the patient’s stay in that hospital, not to

exceed the amount that would have

been paid under subparts D and M of

this part if the patient had been

discharged to another setting. The per

diem rate is determined by dividing the

appropriate prospective payment rate

(as determined under subparts D and M

of this part) by the geometric mean

length of stay for the specific DRG to

which the case is assigned. Payment is

graduated by paying twice the per diem

amount for the first day of the stay, and

the per diem amount for each

subsequent day, up to the full DRG

payment.

(2) Special rule for DRGs 209, 210,

and 211. A hospital that transfers an

inpatient under the circumstances

described in paragraph (c) of this

section and the transfer is assigned to

DRGs 209, 210 or 211 is paid as follows:

(i) 50 percent of the appropriate

prospective payment rate (as

determined under subparts D and M of

this part) for the first day of the stay;

and

(ii) 50 percent of the amount

calculated under paragraph (f)(1) of this

section for each day of the stay, up to

the full DRG payment.

(3) Transfer assigned to DRG 385. If a

transfer is classified into DRG 385

(Neonates, died or transferred) the

transferring hospital is paid in

accordance with § 412.2(e).

(4) Outliers. Effective with discharges

occurring on or after October 1, 1984, a

transferring hospital may qualify for an

additional payment for extraordinarily

high-cost cases that meet the criteria for

cost outliers as described in subpart F

of this part.

Subpart F—Payment for Outlier Cases

3. In § 412.80, paragraph (b) is revised

to read as follows:

§ 412.80 General provisions

* * * * *

(b) Outlier cases in transferring

hospitals. HCFA provides cost outlier

payments to a transferring hospital for

cases paid in accordance with § 412.4(f),

if the hospital’s charges for covered

services furnished to the beneficiary,

adjusted to costs by applying cost-tocharge ratios as described in § 412.84(h),

exceed the DRG payment for the case

plus a fixed dollar amount (adjusted for

geographic variation in costs) as

specified by HCFA, divided by the

geometric mean length of stay for the

DRG, and multiplied by an applicable

factor determined as follows:

(1) For transfer cases paid in

accordance with § 412.4(f)(1), the

applicable factor is equal to the length

of stay plus 1 day.

(2) For transfer cases paid in

accordance with § 412.4(f)(2), the

applicable factor is equal to 0.5 plus the

product of the length of stay plus 1 day

multiplied by 0.5.

* * * * *
41004 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

Subpart G—Special Treatment of

Certain Facilities Under the

Prospective Payment System for

Inpatient Operating Costs

§ 412.105 [Amended]

4. In § 412.105(f)(1)(ii)(C), the

reference to ‘‘413.86(f)(1)(iii)’’ is revised

to read ‘‘413.86(f)(4).’’

5. In § 412.106, paragraph (b)(4) is

revised to read as follows:

§ 412.106 Special treatment: Hospitals that

serve a disproportionate share of lowincome patients.

* * * * *

(b) * * *

(4) Second computation. The fiscal

intermediary determines, for the same

cost reporting period used for the first

computation, the number of the

hospital’s patient days of service for

which patients were eligible for

Medicaid but not entitled to Medicare

Part A, and divides that number by the

total number of patient days in the same

period. For purposes of this second

computation, the following

requirements apply:

(i) A patient is deemed eligible for

Medicaid on a given day if the patient

is eligible for medical assistance under

an approved State Medicaid plan on

such day, regardless of whether

particular items or services were

covered or paid under the State plan.

(ii) The hospital has the burden of

furnishing data adequate to prove

eligibility for each Medicaid patient day

claimed under this paragraph, and of

verifying with the State that a patient

was eligible for Medicaid during each

claimed patient hospital day.

* * * * *

Subpart M—Prospective Payment

System for Inpatient Hospital Capital

Costs

6. In § 412.322, paragraph (a)(3) is

revised to read as follows:

§ 412.322 Indirect medical education

adjustment factor.

(a) * * *

(3) The measurement of teaching

activity is the ratio of the hospital’s fulltime equivalent residents to average

daily census. This ratio cannot exceed

1.5.

* * * * *

7. In § 412.331, paragraphs (a) and (b)

are redesignated as paragraphs (b) and

(c) respectively, a new paragraph (a) is

added and the first sentence of the

introductory text of newly redesignated

paragraph (b) is revised to read as

follows:

§ 412.331 Determining hospital-specific

rates in cases of hospital merger,

consolidation, or dissolution.

(a) New hospital merger or

consolidation. If, after a new hospital

accepts its first patient but before the

end of its base year, it merges with one

or more existing hospitals, and two or

more separately located hospital

campuses are maintained, the hospitalspecific rate and payment determination

for the merged entity are determined as

follows—

(1) Post-merger base year payment

methodology. The new campus is paid

based on reasonable costs until the end

of its base year. The existing campus

remains on its previous payment

methodology until the end of the new

campus’ base year. Effective with the

first cost reporting period beginning

after the the end of the new campus’

base year, the intermediary determines

a hospital-specific rate applicable to the

new campus in accordance with

§ 412.328, and then determines a

revised hospital-specific rate for the

merged entity in accordance with

paragraph (a)(2) of this section.

(2) Revised hospital-specific rate.

Using each hospital’s base period data,

the intermediary determines a combined

average discharge-weighted hospitalspecific rate.

(3) Post-base year payment

determination. To determine the

applicable payment methodology under

§ 412.336 and for payment purposes

under § 412.340 or § 412.344, the

discharge-weighted hospital-specific

rate determined by the intermediary is

compared to the Federal rate. The

revised payment methodology is

effective on the first day of the cost

reporting period beginning after the end

of the new campus’ base year.

(b) Existing hospital merger or

consolidation. If, after the base year, two

or more hospitals merge or consolidate

into one hospital as provided for under

§ 413.134(k) of this chapter and the

provisions of paragraph (a) of this

section do not apply, the intermediary

determines a revised hospital-specific

rate applicable to the combined facility

under § 412.328, which is effective

beginning with the date of merger or

consolidation. * * *

* * * * *

C. Part 413 is amended as set forth

below:

PART 413—PRINCIPLES OF

REASONABLE COST

REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE

SERVICES; OPTIONAL

PROSPECTIVELY DETERMINED

PAYMENT FOR SKILLED NURSING

FACILITIES

1. The authority citation for part 413

is revised to read as follows:

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

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

1881, 1883, and 1866 of the Social Security

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

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

1395rr, 1395tt, and 1395ww).

Subpart C—Limits on Cost

Reimbursement

2. In § 413.40, paragraph (c)(4)(iv) is

redesignated as paragraph (c)(4)(v), a

new paragraph (c)(4)(iv) is added, and

paragraph (g)(1) is revised to read as

follows:

§ 413.40 Ceiling on the rate of increase in

hospital inpatient costs.

* * * * *

(c) * * *

(4) * * *

(iv) For purposes of the limits on

target amounts established under

paragraph (c)(4)(iii) of this section, each

hospital or unit that qualifies for

exclusion as a member of only one class

of excluded facility (psychiatric hospital

or unit, rehabilitation hospital or unit,

or long-term care hospital) will be

subject to the limit applicable to that

class. If a hospital or unit qualifies to be

classified in more than one way under

the exclusion criteria in subpart B of

part 412 of this chapter, the hospital’s

or unit’s target amount may not exceed

the lowest applicable limit.

* * * * *

(g) Adjustments—(1) General rule.

HCFA may adjust the amount of the

operating costs considered in

establishing the rate-of-increase ceiling

for one or more cost reporting periods,

including both periods subject to the

ceiling and the hospital’s base period,

under the circumstances specified in

paragraphs (g)(2), (g)(3), and (g)(4) of

this section. When an adjustment is

requested by the hospital, HCFA makes

an adjustment only to the extent that the

hospital’s operating costs are

reasonable, attributable to the

circumstances specified separately

identified by the hospital, and verified

by the intermediary. HCFA may grant an

adjustment requested by the hospital

only if the hospital’s operating costs

exceed the rate-of-increase ceiling

imposed under this section. In the case

of a psychiatric hospital or unit,
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41005

rehabilitation hospital or unit, or longterm care hospital, the amount of

payment made to a hospital after an

adjustment under paragraph (g)(3) of

this section may not exceed the

applicable limit based on 75th

percentile of the target amounts for

hospitals of the same class as described

in § 413.40(c)(4)(iii).

* * * * *

Subpart F—Specific Categories of

Costs

3. In § 413.80, paragraph (h) is

redesignated as paragraph (i), and a new

paragraph (h) is added to read as

follows:

§ 413.80 Bad debts, charity, and courtesy

allowances.

* * * * *

(h) Limitations on bad debts. In

determining reasonable costs for

hospitals, the amount of bad debts

otherwise treated as allowable costs (as

defined in paragraph (e) of this section)

is reduced—

(1) For cost reporting periods

beginning during fiscal year 1998, by 25

percent;

(2) For cost reporting periods

beginning during fiscal year 1999, by 40

percent; and

(3) For cost reporting periods

beginning during a subsequent fiscal

year, by 45 percent.

* * * * *

4. In § 413.85, a new paragraph (h) is

added to read as follows:

§ 413.85 Cost of educational activities.

* * * * *

(h) Medicare+Choice organizations.

(1) Effective January 1, 1999,

Medicare+Choice organizations may

receive direct graduate medical

education payments for the time that

residents spend in nonhospital provider

settings such as freestanding clinics,

nursing homes, and physicians’ offices

in connection with approved programs.

(2) Medicare+Choice organizations

may receive direct graduate medical

education payments if all of the

following conditions are met:

(i) The resident spends his or her time

in patient care activities.

(ii) The Medicare+Choice

organization incurs ‘‘all or substantially

all’’ of the costs for the training program

in the nonhospital setting as defined in

§ 413.86(b).

(iii) There is a written agreement

between the Medicare+Choice

organization and the nonhospital site

that indicates the Medicare+Choice

organization will incur the costs of the

resident’s salary and fringe benefits and

provide reasonable compensation to the

nonhospital site for teaching activities.

(3) A Medicare+Choice organization’s

allowable direct graduate medical

education costs, subject to the

redistribution and community support

principles in § 413.85(c), consist of—

(i) Residents’ salaries and fringe

benefits (including travel and lodging

where applicable); and

(ii) Reasonable compensation to the

nonhospital site for teaching activities

related to the training of medical

residents.

(4) The direct graduate medical

education payment is equal to the

product of—

(i) The lower of—

(A) The Medicare+Choice

organization’s allowable direct graduate

medical education costs per resident as

defined in paragraph (h)(3) of this

section; or

(B) The national average per resident

amount; and

(ii) Medicare’s share, which is equal

to the ratio of the number of Medicare

beneficiaries enrolled to the total

number of individuals enrolled in the

Medicare+Choice organization.

(5) Direct graduate medical education

payments made to Medicare+Choice

organizations under this section are

made from the Federal Supplementary

Medical Insurance Trust Fund.

5. In § 413.86, the introductory text of

paragraph (b) is republished, a new

definition in alphabetical order is added

to paragraph (b), paragraphs (i) and (j)

are redesignated as paragraphs (j)and (k)

respectively, paragraph (f)(2) is

redesignated as new paragraph (i),

paragraphs (f)(2)(i) through (vii) are

redesignated as paragraphs (i)(1)

through (7) respectively, the

introductory text of paragraph (f)(1) is

redesignated as the introductory text of

paragraph (f), paragraphs (f)(1)(i)

through (iii) are redesignated as

paragraphs (f)(1) through (3)

respectively, paragraphs (f)(1)(iii)(A)

and (B) are redesignated as (f)(3)(i) and

(ii) respectively, new paragraphs (f)(2)

and (f)(3) introductory text are revised,

and a new paragraph (f)(4) is added to

read as follows:

§ 413.86 Direct graduate medical

education payments.

* * * * *

(b) Definitions. For purposes of this

section, the following definitions apply:

* * * * *

All or substantially all of the costs for

the training program in the nonhospital

setting means the residents’ salaries and

fringe benefits (including travel and

lodging where applicable) and the

portion of the cost of teaching

physicians’ salaries and fringe benefits

attributable to direct graduate medical

education.

* * * * *

(f) * * *

(2) No individual may be counted as

more than one FTE. Except as provided

in paragraphs (f)(3) and (4) of this

section, if a resident spends time in

more than one hospital or, in a

nonprovider setting, the resident counts

as partial FTE based on the proportion

of time worked at the hospital to the

total time worked. A part-time resident

counts as a partial FTE based on the

proportion of allowable time worked

compared to the total time necessary to

fill a full-time internship or residency

slot.

(3) On or after July, 1, 1987 and for

portions of cost reporting periods

occurring before January 1, 1999, the

time residents spend in nonprovider

settings such as freestanding clinics,

nursing homes, and physicians’ offices

in connection with approved programs

is not excluded in determining the

number of FTE residents in the

calculation of a hospital’s resident count

if the following conditions are met—

* * * * *

(4) For portions of cost reporting

periods occurring on or after January 1,

1999, the time residents spend in

nonprovider settings such as

freestanding clinics, nursing homes, and

physicians’ offices in connection with

approved programs may be included in

determining the number of FTE

residents in the calculation of a

hospital’s resident count if the following

conditions are met—

(i) The resident spends his or her time

in patient care activities.

(ii) The written agreement between

the hospital and the nonhospital site

must indicate that the hospital will

incur the cost of the resident’s salary

and fringe benefits while the resident is

training in the nonhospital site and the

hospital is providing reasonable

compensation to the nonhospital site for

supervisory teaching activities. The

agreement must indicate the

compensation the hospital is providing

to the nonhospital site for supervisory

teaching activities.

* * * * *

(Catalog of Federal Domestic Assistance

Program No. 93.773, Medicare—Hospital

Insurance; and Program No. 93.774,

Medicare—Supplementary Medical

Insurance)
41006 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

Dated: July 23, 1998.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing

Administration.

Dated: July 27, 1998.

Donna E. Shalala,

Secretary.

[Editorial Note: The following addendum

and appendixes will not appear in the Code

of Federal Regulations.]

Addendum—Schedule of Standardized

Amounts Effective With Discharges

Occurring On or After October 1, 1998,

Payment Amounts for Blood Clotting

Factor Effective for Discharges

Occurring On or After October 1, 1998,

and Update Factors and Rate-ofIncrease Percentages Effective With

Cost Reporting Periods Beginning On or

After October 1, 1998

I. Summary and Background

In this addendum, we set forth the

amounts and factors for determining

prospective payment rates for Medicare

inpatient operating costs and Medicare

inpatient capital-related costs. In

addition, we set forth the updated addon payment amounts for blood clotting

factors. We also set forth rate-of-increase

percentages for updating the target

amounts for hospitals and hospital units

excluded from the prospective payment

system. For discharges occurring on or after

October 1, 1998, except for sole

community hospitals, Medicaredependent, small rural hospitals, and

hospitals located in Puerto Rico, each

hospital’s payment per discharge under

the prospective payment system will be

based on 100 percent of the Federal

national rate.

Sole community hospitals are paid

based on whichever of the following

rates yield the greatest aggregate

payment: the Federal national rate, the

updated hospital-specific rate based on

FY 1982 cost per discharge, or the

updated hospital-specific rate based on

FY 1987 cost per discharge. Medicaredependent, small rural hospitals are

paid based on the Federal national rate

or, if higher, the Federal national rate

plus 50 percent of the difference

between the Federal national rate and

the updated hospital-specific rate based

on FY 1982 or FY 1987 cost per

discharge, whichever is higher. For

hospitals in Puerto Rico, the payment

per discharge is based on the sum of 50

percent of a Puerto Rico rate and 50

percent of a national rate. As discussed below in section II, we

are making changes in the

determination of the prospective

payment rates for Medicare inpatient

operating costs. The changes, to be

applied prospectively, affect the

calculation of the Federal rates. In

section III, we are updating the

payments per unit for blood clotting

factor provided to hospital inpatients

who have hemophilia. In section IV of

this addendum, we discuss our changes

for determining the prospective

payment rates for Medicare inpatient

capital-related costs. Section V of this

addendum sets forth our changes for

determining the rate-of-increase limits

for hospitals excluded from the

prospective payment system. The tables

to which we refer in the preamble to

this final rule are presented at the end

of this addendum in section VI.

II. Changes to Prospective Payment

Rates For Inpatient Operating Costs for

FY 1999

The basic methodology for

determining prospective payment rates

for inpatient operating costs is set forth

at § 412.63 for hospitals located outside

of Puerto Rico. The basic methodology

for determining the prospective

payment rates for inpatient operating

costs for hospitals located in Puerto

Rico is set forth at §§ 412.210 and

412.212. Below, we discuss the factors

used for determining the prospective

payment rates. The Federal and Puerto

Rico rate changes will be effective with

discharges occurring on or after October

1, 1998. As required by section

1886(d)(4)(C) of the Act, we must also

adjust the DRG classifications and

weighting factors for discharges in FY

1999.

In summary, the standardized

amounts set forth in Tables 1A and 1C

of section VI of this addendum reflect— • Updates of 0.5 percent for all areas

(that is, the market basket percentage

increase of 2.4 percent minus 1.9

percentage points); • An adjustment to ensure budget

neutrality as provided for in sections

1886(d)(4)(C)(iii) and (d)(3)(E) of the Act

by applying new budget neutrality

adjustment factors to the large urban

and other standardized amounts; • An adjustment to ensure budget

neutrality as provided for in section

1886(d)(8)(D) of the Act by removing the

FY 1998 budget neutrality factor and

applying a revised factor; and • An adjustment to apply the revised

outlier offset by removing the FY 1998

outlier offset and applying a new offset. The standardized amounts set forth in

Tables 1E and 1F of section VI of this

addendum, which apply to ‘‘temporary

relief’’ hospitals (see 62 FR 46001 for a

discussion of these hospitals), reflect

updates of 0.8 percent for all areas but

otherwise reflect the same adjustments

as the national standardized amounts.

As described in § 412.107, these

hospitals receive an update that is 0.3

percentage points more than the update

factor applicable to all other prospective

payment hospitals for FY 1999.

A. Calculation of Adjusted

Standardized Amounts

1. Standardization of Base-Year Costs or

Target Amounts

Section 1886(d)(2)(A) of the Act

required the establishment of base-year

cost data containing allowable operating

costs per discharge of inpatient hospital

services for each hospital. The preamble

to the September 1, 1983 interim final

rule (48 FR 39763) contains a detailed

explanation of how base-year cost data

were established in the initial

development of standardized amounts

for the prospective payment system and

how they are used in computing the

Federal rates.

Section 1886(d)(9)(B)(i) of the Act

required that Medicare target amounts

be determined for each hospital located

in Puerto Rico for its cost reporting

period beginning in FY 1987. The

September 1, 1987 final rule contains a

detailed explanation of how the target

amounts were determined and how they

are used in computing the Puerto Rico

rates (52 FR 33043, 33066).

The standardized amounts are based

on per discharge averages of adjusted

hospital costs from a base period or, for

Puerto Rico, adjusted target amounts

from a base period, updated and

otherwise adjusted in accordance with

the provisions of section 1886(d) of the

Act. Sections 1886(d)(2) (B) and (C) of

the Act required that the base-year per

discharge costs be updated for FY 1984

and then standardized in order to

remove from the cost data the effects of

certain sources of variation in cost

among hospitals. These include case

mix, differences in area wage levels,

cost of living adjustments for Alaska

and Hawaii, indirect medical education

costs, and payments to hospitals serving

a disproportionate share of low-income

patients. Under sections 1886(d)(2)(H) and

(d)(3)(E) of the Act, in making payments

under the prospective payment system,

the Secretary estimates from time to

time the proportion of costs that are

wages and wage-related costs. Since

October 1, 1997, when the market basket

was last revised, we have considered

71.1 percent of costs to be labor-related

for purposes of the prospective payment

system. For the Puerto Rico

standardized amounts, the labor share is

71.3 percent. We are revising the

discharge-weighted national

standardized amount for Puerto Rico to

reflect the proportion of discharges in

large urban and other areas from the FY

1997 MedPAR file.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41007

2. Computing Large Urban and Other

Area Averages

Sections 1886(d)(2)(D) and (3) of the

Act require the Secretary to compute

two average standardized amounts for

discharges occurring in a fiscal year: one

for hospitals located in large urban areas

and one for hospitals located in other

areas. In addition, under sections

1886(d)(9)(B)(iii) and (C)(i) of the Act,

the average standardized amount per

discharge must be determined for

hospitals located in urban and other

areas in Puerto Rico. Hospitals in Puerto

Rico are paid a blend of 50 percent of

the applicable Puerto Rico standardized

amount and 50 percent of a national

standardized payment amount.

Section 1886(d)(2)(D) of the Act

defines ‘‘urban area’’ as those areas

within a Metropolitan Statistical Area

(MSA). A ‘‘large urban area’’ is defined

as an urban area with a population of

more than 1,000,000. In addition,

section 4009(i) of Public Law 100–203

provides that a New England County

Metropolitan Area (NECMA) with a

population of more than 970,000 is

classified as a large urban area. As

required by section 1886(d)(2)(D) of the

Act, population size is determined by

the Secretary based on the latest

population data published by the

Bureau of the Census. Urban areas that

do not meet the definition of a ‘‘large

urban area’’ are referred to as ‘‘other

urban areas.’’ Areas that are not

included in MSAs are considered ‘‘rural

areas’’ under section 1886(d)(2)(D) of

the Act. Payment for discharges from

hospitals located in large urban areas

will be based on the large urban

standardized amount. Payment for

discharges from hospitals located in

other urban and rural areas will be

based on the other standardized

amount.

Based on 1997 population estimates

published by the Bureau of the Census,

61 areas meet the criteria to be defined

as large urban areas for FY 1999. These

areas are identified by a footnote in

Table 4A. We note that on June 23,

1998, the Office of Management and

Budget announced the designation of

the Missoula, Montana MSA. We have

incorporated this change in this final

rule.

3. Updating the Average Standardized

Amounts

Under section 1886(d)(3)(A) of the

Act, we update the area average

standardized amounts each year. In

accordance with section

1886(d)(3)(A)(iv) of the Act, we are

updating the large urban and the other

areas average standardized amounts for

FY 1999 using the applicable percentage

increases specified in section

1886(b)(3)(B)(i) of the Act. Section

1886(b)(3)(B)(i)(XIV) of the Act specifies

that, for hospitals in all areas, the

update factor for the standardized

amounts for FY 1999 is equal to the

market basket percentage increase

minus 1.9 percentage points. The

‘‘temporary relief’’ provision under

section 4401 of Public Law 105–33

provides for an update equal to the

market basket percentage increase

minus 1.6 percentage points for

hospitals that are not Medicaredependent, small rural hospitals, that

receive no IME or DSH payments, that

are located in a state in which aggregate

Medicare operating payments for such

hospitals were less than their aggregate

allowable Medicare operating costs for

their cost reporting periods beginning

during FY 1995, and whose Medicare

operating payments are less than their

allowable Medicare operating costs for

their cost reporting period beginning

during FY 1999.

The percentage change in the market

basket reflects the average change in the

price of goods and services purchased

by hospitals to furnish inpatient care.

The most recent forecast of the hospital

market basket increase for FY 1999 is

2.4 percent. Thus, for FY 1999, the

update to the average standardized

amounts equals 0.5 percent (0.8 percent

for those hospitals qualifying under the

‘‘temporary relief’’ provision of Public

Law 105–33).

As in the past, we are adjusting the

FY 1998 standardized amounts to

remove the effects of the FY 1998

geographic reclassifications and outlier

payments before applying the FY 1999

updates. That is, we are increasing the

standardized amounts to restore the

reductions that were made for the

effects of geographic reclassification and

outliers. We then apply the new offsets

to the standardized amounts for outliers

and geographic reclassifications for FY

1999.

Although the update factor for FY

1999 is set by law, we are required by

section 1886(e)(4)(A) of the Act to report

to Congress on our final

recommendation of update factors for

FY 1999 for both prospective payment

hospitals and hospitals excluded from

the prospective payment system. We

have included our final

recommendations in Appendix C to this

final rule.

4. Other Adjustments to the Average

Standardized Amounts

a. Recalibration of DRG Weights and

Updated Wage Index—Budget

Neutrality Adjustment. Section

1886(d)(4)(C)(iii) of the Act specifies

that beginning in FY 1991, the annual

DRG reclassification and recalibration of

the relative weights must be made in a

manner that ensures that aggregate

payments to hospitals are not affected.

As discussed in section II of the

preamble, we normalized the

recalibrated DRG weights by an

adjustment factor, so that the average

case weight after recalibration is equal

to the average case weight prior to

recalibration.

Section 1886(d)(3)(E) of the Act

specifies that the hospital wage index

must be updated on an annual basis

beginning October 1, 1993. This

provision also requires that any updates

or adjustments to the wage index must

be made in a manner that ensures that

aggregate payments to hospitals are not

affected by the change in the wage

index.

To comply with the requirement of

section 1886(d)(4)(C)(iii) of the Act that

DRG reclassification and recalibration of

the relative weights be budget neutral,

and the requirement in section

1886(d)(3)(E) of the Act that the updated

wage index be budget neutral, and the

requirement in section 4410 of Public

law 105–33 that application of the floor

on the wage index be budget neutral, we

used historical discharge data to

simulate payments and compared

aggregate payments using the FY 1998

relative weights and wage index to

aggregate payments using the FY 1999

relative weights and wage index. The

same methodology was used for the FY

1998 budget neutrality adjustment. (See

the discussion in the September 1, 1992

final rule (57 FR 39832).) Based on this

comparison, we computed a budget

neutrality adjustment factor equal to

0.999006. We adjust the Puerto Ricospecific standardized amounts for the

effect of DRG reclassification and

recalibration. We computed a budget

neutrality adjustment factor for Puerto

Rico-specific standardized amounts

equal to 0.998912. These budget

neutrality adjustment factors are applied

to the standardized amounts without

removing the effects of the FY 1998

budget neutrality adjustments. We do

not remove the prior budget neutrality

adjustment because estimated aggregate

payments after the changes in the DRG

relative weights and wage index should

equal estimated aggregate payments

prior to the changes. If we removed the

prior year adjustment, we would not

satisfy this condition.

In addition, we will continue to apply

the same FY 1999 adjustment factor to

the hospital-specific rates that are

effective for cost reporting periods

beginning on or after October 1, 1998, in
41008 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

order to ensure that we meet the

statutory requirement that aggregate

payments neither increase nor decrease

as a result of the implementation of the

FY 1999 DRG weights and updated

wage index. (See the discussion in the

September 4, 1990 final rule (55 FR

36073).)

b. Reclassified hospitals—budget

neutrality adjustment. Section

1886(d)(8)(B) of the Act provides that

certain rural hospitals are deemed urban

effective with discharges occurring on

or after October 1, 1988. In addition,

section 1886(d)(10) of the Act provides

for the reclassification of hospitals

based on determinations by the

Medicare Geographic Classification

Review Board (MGCRB). Under section

1886(d)(10) of the Act, a hospital may be

reclassified for purposes of the

standardized amount or the wage index,

or both.

Under section 1886(d)(8)(D) of the

Act, the Secretary is required to adjust

the standardized amounts so as to

ensure that total aggregate payments

under the prospective payment system

after implementation of the provisions

of sections 1886(d)(8)(B) and (C) and

1886(d)(10) of the Act are equal to the

aggregate prospective payments that

would have been made absent these

provisions. To calculate this budget

neutrality factor, we used historical

discharge data to simulate payments,

and compared total prospective

payments (including IME and DSH

payments) prior to any reclassifications

to total prospective payments after

reclassifications. In the proposed rule,

we applied an adjustment factor of

0.994019 to ensure that the effects of

reclassification are budget neutral. The

final budget neutrality adjustment factor

is 0.993433.

The adjustment factor is applied to

the standardized amounts after

removing the effects of the FY 1998

budget neutrality adjustment factor. We

note that the proposed FY 1999

adjustment reflected wage index and

standardized amount reclassifications

approved by the MGCRB or the

Administrator as of February 27, 1998.

The effects of any additional

reclassification changes resulting from

appeals and reviews of the MGCRB

decisions for FY 1999 or from a

hospital’s request for the withdrawal of

a reclassification request are reflected in

the final budget neutrality adjustment

that is required under section

1886(d)(8)(D) of the Act and that is

published in this final rule.

c. Outliers. Section 1886(d)(5)(A) of

the Act provides for payments in

addition to the basic prospective

payments for ‘‘outlier’’ cases, cases

involving extraordinarily high costs

(cost outliers). Section 1886(d)(3)(B) of

the Act requires the Secretary to adjust

both the large urban and other area

national standardized amounts by the

same factor to account for the estimated

proportion of total DRG payments made

to outlier cases. Similarly, section

1886(d)(9)(B)(iv) of the Act requires the

Secretary to adjust the large urban and

other standardized amounts applicable

to hospitals in Puerto Rico to account

for the estimated proportion of total

DRG payments made to outlier cases.

Furthermore, under section

1886(d)(5)(A)(iv) of the Act, outlier

payments for any year must be projected

to be not less than 5 percent nor more

than 6 percent of total payments based

on DRG prospective payment rates.

i. FY 1999 Outlier Thresholds. For FY

1998, the fixed loss cost outlier

threshold is equal to the prospective

payment for the DRG plus the IME and

DSH payments plus $11,050 ($10,080

for hospitals that have not yet entered

the prospective payment system for

capital-related costs). The marginal cost

factor for cost outliers (the percent of

costs paid after costs for the case exceed

the threshold) is 80 percent. We applied

an outlier adjustment to the FY 1998

standardized amounts of 0.948840 for

the large urban and other areas rates and

0.9382 for the capital Federal rate.

We proposed to establish a fixed loss

cost outlier threshold for FY 1999 equal

to the prospective payment rate for the

DRG plus the IME and DSH payments

plus $11,350 ($10,355 for hospitals that

have not yet entered the prospective

payment system for capital-related

costs). In addition, we proposed to

maintain the marginal cost factor for

cost outliers at 80 percent. In setting the

final FY 1999 outlier thresholds, we

used updated data and a revised cost

inflation factor. In this final rule, we are

establishing a fixed loss cost outlier

threshold for FY 1999 equal to the

prospective payment rate for the DRG

plus IME and DSH payments plus

$11,100 ($10,129 for hospitals that have

not yet entered the prospective payment

system for capital-related costs). In

addition, we are maintaining the

marginal cost factor for cost outliers at

80 percent. In FY 1994, we began using

a cost inflation factor rather than a

charge inflation factor to update billed

charges for purposes of estimating

outlier payments. This refinement was

made to improve our estimation

methodology. For FY 1998, we used a

cost inflation factor of minus 2.005

percent (a cost per case decrease of

2.005 percent). In the proposed rule,

based on data then available, we used a

cost inflation factor of minus 1.831

percent to set outlier thresholds for FY

1999. Based on the most recent data

available, we are using a cost inflation

factor of minus 1.724 percent to set the

final FY 1999 outlier thresholds.

ii. Other changes concerning outliers.

In accordance with section

1886(d)(5)(A)(iv) of the Act, we

calculated outlier thresholds so that

outlier payments are projected to equal

5.1 percent of total payments based on

DRG prospective payment rates. In

accordance with section 1886(d)(3)(E),

we reduced the FY 1999 standardized

amounts by the same percentage to

account for the projected proportion of

payments paid to outliers.

As stated in the September 1, 1993

final rule (58 FR 46348), we establish

outlier thresholds that are applicable to

both inpatient operating costs and

inpatient capital-related costs. When we

modeled the combined operating and

capital outlier payments, we found that

using a common set of thresholds

resulted in a higher percentage of outlier

payments for capital-related costs than

for operating costs. We project that the

thresholds for FY 1999 will result in

outlier payments equal to 5.1 percent of

operating DRG payments and 6.1

percent of capital payments based on

the Federal rate.

The proposed outlier adjustment

factors applied to the standardized

amounts for FY 1999 were as follows:

Operating

standardized

amounts

Capital

federal

rate

National ................. 0.948819 0.9378

Puerto Rico ........... 0.972962 0.9626

The final outlier adjustment factors

applied to the standardized amounts for

FY 1999 are as follows:

Operating

standardized

amounts

Capital

federal

rate

National ................. 0.948740 0.9392

Puerto Rico ........... 0.972959 0.9634

As in the proposed rule, we apply the

outlier adjustment factors after

removing the effects of the FY 1998

outlier adjustment factors on the

standardized amounts.

Table 8A in section VI of this

addendum contains the updated

Statewide average operating cost-tocharge ratios for urban hospitals and for

rural hospitals to be used in calculating

cost outlier payments for those hospitals

for which the intermediary is unable to

compute a reasonable hospital-specific

cost-to-charge ratio. These Statewide
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41009

average ratios would replace the ratios

published in the August 29, 1997 final

rule with comment period (62 FR

46113), effective October 1, 1998. Table

8B contains comparable Statewide

average capital cost-to-charge ratios.

These average ratios would be used to

calculate cost outlier payments for those

hospitals for which the intermediary

computes operating cost-to-charge ratios

lower than 0.217484 or greater than

1.27282 and capital cost-to-charge ratios

lower than 0.01313 or greater than

0.17490. This range represents 3.0

standard deviations (plus or minus)

from the mean of the log distribution of

cost-to-charge ratios for all hospitals.

We note that the cost-to-charge ratios in

Tables 8A and 8B will be used during

FY 1999 when hospital-specific cost-tocharge ratios based on the latest settled

cost report are either not available or

outside the three standard deviations

range.

iii. FY 1997 and FY 1998 outlier

payments. In the August 29, 1997 final

rule with comment period (62 FR

46041), we stated that, based on

available data, we estimated that actual

FY 1997 outlier payments would be

approximately 4.8 percent of actual total

DRG payments. This was computed by

simulating payments using actual FY

1996 bill data available at the time. That

is, the estimate of actual outlier

payments did not reflect actual FY 1997

bills but instead reflected the

application of FY 1997 rates and

policies to available FY 1996 bills. Our

current estimate, using available FY

1997 bills, is that actual outlier

payments for FY 1997 were

approximately 5.5 percent of actual total

DRG payments. We note that the

MedPAR file for FY 1997 discharges

continues to be updated.

We currently estimate that actual

outlier payments for FY 1998 will be

approximately 5.4 percent of actual total

DRG payments, slightly higher than the

5.1 percent we projected in setting

outlier policies for FY 1998. This

estimate is based on simulations using

the March 1998 update of the providerspecific file and the March 1998 update

of the FY 1997 MedPAR file (discharge

data for FY 1997 bills). We used these

data to calculate an estimate of the

actual outlier percentage for FY 1998 by

applying FY 1998 rates and policies to

available FY 1997 bills.

We received one comment on outliers,

which commended us for improving our

outlier estimation methodology.

5. FY 1999 Standardized Amounts

The adjusted standardized amounts

are divided into labor and nonlabor

portions. Table 1A (Table 1E for

‘‘temporary relief’’ hospitals) contains

the two national standardized amounts

that are applicable to all hospitals,

except for hospitals in Puerto Rico.

Under section 1886(d)(9)(A)(ii) of the

Act, the Federal portion of the Puerto

Rico payment rate is based on the

discharge-weighted average of the

national large urban standardized

amount and the national other

standardized amount (as set forth in

Table 1A and 1E). The labor and

nonlabor portions of the national

average standardized amounts for

Puerto Rico hospitals are set forth in

Table 1C (Table 1F for ‘‘temporary

relief’’ hospitals). These tables also

include the Puerto Rico standardized

amounts.

B. Adjustments for Area Wage Levels

and Cost of Living

Tables 1A, 1C, 1E and 1F, as set forth

in section VI of this addendum, contain

the labor-related and nonlabor-related

shares used to calculate the prospective

payment rates for hospitals located in

the 50 States, the District of Columbia,

and Puerto Rico. This section addresses

two types of adjustments to the

standardized amounts that are made in

determining the prospective payment

rates as described in this addendum.

1. Adjustment for Area Wage Levels

Sections 1886(d)(3)(E) and

1886(d)(9)(C)(iv) of the Act require that

an adjustment be made to the laborrelated portion of the prospective

payment rates to account for area

differences in hospital wage levels. This

adjustment is made by multiplying the

labor-related portion of the adjusted

standardized amounts by the

appropriate wage index for the area in

which the hospital is located. In section

III of the preamble, we discuss certain

revisions we are making to the wage

index. The wage index is set forth in

Tables 4A through 4F of this addendum.

2. Adjustment for Cost of Living in

Alaska and Hawaii

Section 1886(d)(5)(H) of the Act

authorizes an adjustment to take into

account the unique circumstances of

hospitals in Alaska and Hawaii. Higher

labor-related costs for these two States

are taken into account in the adjustment

for area wages described above. For FY

1999, we are adjusting the payments for

hospitals in Alaska and Hawaii by

multiplying the nonlabor portion of the

standardized amounts by the

appropriate adjustment factor contained

in the table below.

TABLE OF COST-OF-LIVING ADJUSTMENT FACTORS, ALASKA AND HAWAII

HOSPITALS

Alaska—All areas ........................... 1.25

Hawaii: ..............

County of Honolulu ..................... 1.225

County of Hawaii ......................... 1.15

County of Kauai .......................... 1.225

County of Maui ............................ 1.225

County of Kalawao ...................... 1.225

(The above factors are based on data

obtained from the U.S. Office of Personnel

Management.)

C. DRG Relative Weights

As discussed in section II of the

preamble, we have developed a

classification system for all hospital

discharges, assigning them into DRGs,

and have developed relative weights for

each DRG that reflect the resource

utilization of cases in each DRG relative

to Medicare cases in other DRGs. Table

5 of section VI of this addendum

contains the relative weights that we

will use for discharges occurring in FY

1999. These factors have been

recalibrated as explained in section II.C

of the preamble.

D. Calculation of Prospective Payment

Rates for FY 1999 General Formula for

Calculation of Prospective Payment

Rates for FY 1999

Prospective payment rate for all

hospitals located outside of Puerto Rico

except sole community hospitals and

Medicare-dependent, small rural

hospitals = Federal rate.

Prospective payment rate for sole

community hospitals = Whichever of

the following rates yields the greatest

aggregate payment: 100 percent of the

Federal rate, 100 percent of the updated

FY 1982 hospital-specific rate, or 100

percent of the updated FY 1987

hospital-specific rate.

Prospective payment rate for

Medicare-dependent, small rural

hospitals = 100 percent of the Federal

rate plus, if the greater of the updated

FY 1982 hospital-specific rate or the

updated FY 1987 hospital-specific rate

is higher than the Federal rate, 50

percent of the difference between the

applicable hospital-specific rate and the

Federal rate.

Prospective payment rate for Puerto

Rico = 50 percent of the Puerto Rico rate

+ 50 percent of a discharge-weighted

average of the national large urban

standardized amount and the national

other standardized amount.

1. Federal Rate

For discharges occurring on or after

October 1, 1998 and before October 1,
41010 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

1999, except for sole community

hospitals, Medicare-dependent, small

rural hospitals, and hospitals in Puerto

Rico, the hospital’s payment is based

exclusively on the Federal national rate.

The payment amount is determined as

follows:

Step 1—Select the appropriate

national standardized amount

considering the type of hospital and

designation of the hospital as large

urban or other (see Table 1A or 1E, in

section VI of this addendum).

Step 2—Multiply the labor-related

portion of the standardized amount by

the applicable wage index (see Tables

4A, 4B, and 4C in section VI of this

addendum).

Step 3—For hospitals in Alaska and

Hawaii, multiply the nonlabor-related

portion of the standardized amount by

the appropriate cost-of-living

adjustment factor.

Step 4—Add the amount from Step 2

and the nonlabor-related portion of the

standardized amount (adjusted if

appropriate under Step 3).

Step 5—Multiply the final amount

from Step 4 by the relative weight

corresponding to the appropriate DRG

(see Table 5 in section VI of this

addendum).

2. Hospital-Specific Rate (Applicable

Only to Sole Community Hospitals and

Medicare-Dependent, Small Rural

Hospitals)

Sections 1886(d)(5)(D)(i) and (b)(3)(C)

of the Act provide that sole community

hospitals are paid based on whichever

of the following rates yields the greatest

aggregate payment: the Federal rate, the

updated hospital-specific rate based on

FY 1982 cost per discharge, or the

updated hospital-specific rate based on

FY 1987 cost per discharge.

Sections 1886(d)(5)(G) and (b)(3)(D) of

the Act provide that Medicaredependent, small rural hospitals are

paid based on whichever of the

following rates yields the greatest

aggregate payment: the Federal rate or

the Federal rate plus 50 percent of the

difference between the Federal rate and

the greater of the updated hospitalspecific rate based on FY 1982 and FY

1987 cost per discharge.

Hospital-specific rates have been

determined for each of these hospitals

based on both the FY 1982 cost per

discharge and the FY 1987 cost per

discharge. For a more detailed

discussion of the calculation of the FY

1982 hospital-specific rate and the FY

1987 hospital-specific rate, we refer the

reader to the September 1, 1983 interim

final rule (48 FR 39772); the April 20,

1990 final rule with comment (55 FR

15150); and the September 4, 1990 final

rule (55 FR 35994).

a. Updating the FY 1982 and FY 1987

hospital-specific rates for FY 1999. We

are increasing the hospital-specific rates

by 0.5 percent (the hospital market

basket percentage increase of 2.4

percent minus 1.9 percentage points) for

sole community hospitals and

Medicare-dependent, small rural

hospitals located in all areas for FY

1999. Section 1886(b)(3)(C)(iv) of the

Act provides that the update factor

applicable to the hospital-specific rates

for sole community hospitals equals the

update factor provided under section

1886(b)(3)(B)(iv) of the Act, which, for

FY 1999, is the market basket rate of

increase minus 1.9 percentage points.

Section 1886(b)(3)(D) of the Act

provides that the update factor

applicable to the hospital-specific rates

for Medicare-dependent, small rural

hospitals equals the update factor

provided under section 1886(b)(3)(B)(iv)

of the Act, which, for FY 1999, is the

market basket rate of increase minus 1.9

percentage points.

b. Calculation of hospital-specific

rate. For sole community hospitals and

Medicare-dependent, small rural

hospitals, the applicable FY 1999

hospital-specific rate would be

calculated by increasing the hospital’s

hospital-specific rate for the preceding

fiscal year by the applicable update

factor (0.5 percent), which is the same

as the update for all prospective

payment hospitals except ‘‘temporary

relief’’ hospitals. In addition, the

hospital-specific rate would be adjusted

by the budget neutrality adjustment

factor (that is, 0.999006) as discussed in

section II.A.4.a of this Addendum. This

resulting rate would be used in

determining under which rate a sole

community hospital or Medicaredependent, small rural hospital is paid

for its discharges beginning on or after

October 1, 1998, based on the formula

set forth above.

3. General Formula for Calculation of

Prospective Payment Rates for Hospitals

Located in Puerto Rico Beginning on or

After October 1, 1998 and Before

October 1, 1999

a. Puerto Rico rate. The Puerto Rico

prospective payment rate is determined

as follows:

Step 1—Select the appropriate

adjusted average standardized amount

considering the large urban or other

designation of the hospital (see Table 1C

or 1F of section VI of this addendum).

Step 2—Multiply the labor-related

portion of the standardized amount by

the appropriate Puerto Rico-specific

wage index (see Table 4F in section VI

of this addendum).

Step 3—Add the amount from Step 2

and the nonlabor-related portion of the

standardized amount.

Step 4—Multiply the result in Step 3

by 50 percent.

Step 5—Multiply the amount from

Step 4 by the appropriate DRG relative

weight (see Table 5 in section VI of this

addendum).

b. National rate. The national

prospective payment rate is determined

as follows:

Step 1—Multiply the labor-related

portion of the national average

standardized amount (see Table 1C or

1F of section VI of the addendum) by

the appropriate national wage index (see

Tables 4A and 4B in section VI of this

addendum).

Step 2—Add the amount from Step 1

and the nonlabor-related portion of the

national average standardized amount.

Step 3—Multiply the result in Step 2

by 50 percent.

Step 4—Multiply the amount from

Step 3 by the appropriate DRG relative

weight (see Table 5 in section VI of this

addendum).

The sum of the Puerto Rico rate and

the national rate computed above equals

the prospective payment for a given

discharge for a hospital located in

Puerto Rico.

III. Changes to the Payment Rates for

Blood Clotting Factor for Hemophilia

Inpatients

As discussed in our August 29, 1997

final rule with comment period (62 FR

46002) and our May 12, 1998 final rule

(63 FR 26327), section 4452 of Public

Law 105–33 amended section 6011(d) of

Public Law 101–239 to reinstate the

add-on payment for the costs of

administering blood clotting factor to

Medicare beneficiaries who have

hemophilia and who are hospital

inpatients for discharges occurring on or

after October 1, 1997.

We are calculating the add-on

payment for FY 1999 using the same

methodology we described in the

August 29, 1997 and May 12, 1998 final

rules. That is, we are establishing a

price per unit of clotting factor based on

the average wholesale price (AWP). To

identify the AWP, we are using the most

recent data available from First

Databank. The add-on payment amount

for each clotting factor, as described by

HCFA’s Common Procedure Coding

System (HCPCS), is based on the

median AWP of the several products

available in that category of factor,

discounted by 15 percent.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41011

Based on this methodology, the prices

per unit of factor for FY 1999 are as

follows:

J7190 Factor VIII (antihemophilic

factor, human) .............................. 0.78

J7192 Factor VIII (antihemophilic

factor, recombinant) ..................... 1.00

J7194 Factor IX (complex) .............. 0.38

J7196 Other hemophilia clotting

factors (e.g., anti-inhibitors) ........ 1.10

Q0160 Factor IX (antihemophilic

factor, purified, nonrecombinant) 0.93

Q0161 Factor IX (antihemophilic

factor, purified, recombinant) ..... 1.00

These prices for blood clotting factor

administered to inpatients who have

hemophilia will be effective for

discharges beginning on or after October

1, 1998 through September 30, 1999.

Payment will be made for blood clotting

factor only if there is an ICD–9–CM

diagnosis code for hemophilia included

on the bill.

IV. Changes to Payment Rates for

Inpatient Capital-Related Costs for FY

1999

The prospective payment system for

hospital inpatient capital-related costs

was implemented for cost reporting

periods beginning on or after October 1,

1991. Effective with that cost reporting

period and during a 10-year transition

period extending through FY 2001,

hospital inpatient capital-related costs

are paid on the basis of an increasing

proportion of the capital prospective

payment system Federal rate and a

decreasing proportion of a hospital’s

historical costs for capital.

The basic methodology for

determining Federal capital prospective

rates is set forth at §§ 412.308 through

412.352. Below we discuss the factors

that we used to determine the Federal

rate and the hospital-specific rates for

FY 1999. The rates will be effective for

discharges occurring on or after October

1, 1998.

For FY 1992, we computed the

standard Federal payment rate for

capital-related costs under the

prospective payment system by

updating the FY 1989 Medicare

inpatient capital cost per case by an

actuarial estimate of the increase in

Medicare inpatient capital costs per

case. Each year after FY 1992 we update

the standard Federal rate, as provided in

§ 412.308(c)(1), to account for capital

input price increases and other factors.

Also, § 412.308(c)(2) provides that the

Federal rate is adjusted annually by a

factor equal to the estimated proportion

of outlier payments under the Federal

rate to total capital payments under the

Federal rate. In addition, § 412.308(c)(3)

requires that the Federal rate be reduced

by an adjustment factor equal to the

estimated proportion of payments for

exceptions under § 412.348.

Furthermore, § 412.308(c)(4)(ii) requires

that the Federal rate be adjusted so that

the annual DRG reclassification and the

recalibration of DRG weights and

changes in the geographic adjustment

factor are budget neutral. For FYs 1992

through 1995, § 412.352 required that

the Federal rate also be adjusted by a

budget neutrality factor so that aggregate

payments for inpatient hospital capital

costs were projected to equal 90 percent

of the payments that would have been

made for capital-related costs on a

reasonable cost basis during the fiscal

year. That provision expired in FY 1996.

Section 412.308(b)(2) describes the 7.4

percent reduction to the rate made in FY

1994, and § 412.308(b)(3) describes the

0.28 percent reduction to the rate made

in FY 1996 as a result of the revised

policy of paying for transfers. In the FY

1998 final rule with comment period (62

FR 45966) we implemented section

4402 of the BBA, which required that

for discharges occurring on or after

October 1, 1997 and before October 1,

2002, the unadjusted standard Federal

rate is reduced by 17.78 percent. A

small part of that reduction will be

restored effective October 1, 2002.

For each hospital, the hospitalspecific rate was calculated by dividing

the hospital’s Medicare inpatient

capital-related costs for a specified base

year by its Medicare discharges

(adjusted for transfers), and dividing the

result by the hospital’s case mix index

(also adjusted for transfers). The

resulting case-mix adjusted average cost

per discharge was then updated to FY

1992 based on the national average

increase in Medicare’s inpatient capital

cost per discharge and adjusted by the

exceptions payment adjustment factor

and the budget neutrality adjustment

factor to yield the FY 1992 hospitalspecific rate. Since FY 1992, the

hospital-specific rate has been updated

annually for inflation and for changes in

the exceptions payment adjustment

factor. For FYs 1992 through 1995, the

hospital-specific rate was also adjusted

by a budget neutrality adjustment factor.

In the FY 1998 final rule with comment

period (62 FR 46012) we implemented

section 4402 of the BBA, which required

that for discharges occurring on or after

October 1, 1997 and before October 1,

2002, the unadjusted hospital-specific

rate is reduced by 17.78 percent. A

small part of that reduction will also be

restored effective October 1, 2002.

To determine the appropriate budget

neutrality adjustment factor and the

exceptions payment adjustment factor,

we developed a dynamic model of

Medicare inpatient capital-related costs,

that is, a model that projects changes in

Medicare inpatient capital-related costs

over time. With the expiration of the

budget neutrality provision, the model

is still used to estimate the exceptions

payment adjustment and other factors.

The model and its application are

described in greater detail in Appendix

B of this final rule.

In accordance with section

1886(d)(9)(A) of the Act, under the

prospective payment system for

inpatient operating costs, hospitals

located in Puerto Rico are paid for

operating costs under a special payment

formula. Prior to FY 1998, hospitals in

Puerto Rico were paid a blended rate

that consisted of 75 percent of the

applicable standardized amount specific

to Puerto Rico hospitals and 25 percent

of the applicable national average

standardized amount. However,

effective October 1, 1997, as a result of

section 4406 of the BBA, operating

payments to hospitals in Puerto Rico are

based on a blend of 50 percent of the

applicable standardized amount specific

to Puerto Rico hospitals and 50 percent

of the applicable national average

standardized amount. In conjunction

with this change to the operating blend

percentage, effective with discharges on

or after October 1, 1997, we compute

capital payments to hospitals in Puerto

Rico based on a blend of 50 percent of

the Puerto Rico rate and 50 percent of

the Federal rate. Section 412.374

provides for the use of this blended

payment system for payments to Puerto

Rico hospitals under the prospective

payment system for inpatient capitalrelated costs. Accordingly, for capitalrelated costs we compute a separate

payment rate specific to Puerto Rico

hospitals using the same methodology

used to compute the national Federal

rate for capital.

A. Determination of Federal Inpatient

Capital-Related Prospective Payment

Rate Update

For FY 1998, the Federal rate was

$371.51. In the proposed rule, we stated

that the proposed FY 1999 Federal rate

was $377.25. In this final rule, we are

establishing a FY 1999 Federal rate of

$378.05.

In the discussion that follows, we

explain the factors that were used to

determine the FY 1999 Federal rate. In

particular, we explain why the FY 1999

Federal rate has increased 1.76 percent

compared to the FY 1998 Federal rate.

Even though we estimate that Medicare

hospital inpatient discharges will

decline by approximately 2.25 percent

between FY 1998 and FY 1999, we also

estimate that aggregate capital payments
41012 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

will increase by 2.78 percent during this

same period. This aggregate increase is

primarily due to the change in the

federal rate blend percentage from 70

percent to 80 percent, the 1.76 percent

increase in the rate, and a projected

increase in case mix.

The major factor contributing to the

increase in the capital Federal rate for

FY 1999 relative to FY 1998 is that the

FY 1999 exceptions reduction factor is

1.28 percent higher than the factor for

FY 1998. The exceptions reduction

factor equals 1 minus the projected

percentage of exceptions payments. We

estimate that the projected percentage of

exceptions payments for FY 1999 will

be lower than the projected percentage

for FY 1998; accordingly, the FY 1999

rate reflects less of a reduction to

account for exceptions than the FY 1998

rate.

Total payments to hospitals under the

prospective payment system are

relatively unaffected by changes in the

capital prospective payments. Since

capital payments constitute about 10

percent of hospital payments, a 1

percent change in the capital Federal

rate yields only about 0.1 percent

change in actual payments to hospitals.

Aggregate payments under the capital

prospective payment transition system

are estimated to increase in FY 1999

compared to FY 1998.

1. Standard Federal Rate Update

a. Description of the update

framework. Under section 412.308(c)(1),

the standard Federal rate is updated on

the basis of an analytical framework that

takes into account changes in a capital

input price index (CIPI) and other

factors. The update framework consists

of a CIPI and several policy adjustment

factors. Specifically, we have adjusted

the projected CIPI rate of increase as

appropriate each year for case-mix

index related changes, for intensity, and

for errors in previous CIPI forecasts. The

proposed rule reflected an update factor

of 0.2 percent, based on data available

at that time. Under the update

framework the final update factor for FY

1999 is 0.1 percent. This update factor

is based on a projected 0.7 percent

increase in the CIPI, policy adjustment

factors of ¥0.2, and a forecast error

correction of ¥0.4 percent. We explain

the basis for the FY 1999 CIPI projection

in section D of this addendum. Here we

describe the policy adjustments that

have been applied.

The case-mix index is the measure of

the average DRG weight for cases paid

under the prospective payment system.

Because the DRG weight determines the

prospective payment for each case, any

percentage increase in the case-mix

index corresponds to an equal

percentage increase in hospital

payments.

The case-mix index can change for

any of several reasons:

• The average resource use of

Medicare patients changes (‘‘real’’ casemix change);

• Changes in hospital coding of

patient records result in higher weight

DRG assignments (‘‘coding effects’’); and

• The annual DRG reclassification

and recalibration changes may not be

budget neutral (‘‘reclassification

effect’’).

We define real case-mix change as

actual changes in the mix (and resource

requirements) of Medicare patients as

opposed to changes in coding behavior

that result in assignment of cases to

higher-weighted DRGs but do not reflect

higher resource requirements. In the

update framework for the prospective

payment system for operating costs, we

adjust the update upwards to allow for

real case-mix change, but remove the

effects of coding changes on the casemix index. We also remove the effect on

total payments of prior changes to the

DRG classifications and relative

weights, in order to retain budget

neutrality for all case-mix index-related

changes other than patient severity. (For

example, we adjusted for the effects of

the FY 1992 DRG reclassification and

recalibration as part of our FY 1994

update recommendation.) The operating

adjustment consists of a reduction for

total observed case-mix change, an

increase for the portion of case-mix

change that we determine is due to real

case-mix change rather than coding

modifications, and an adjustment for the

effect of prior DRG reclassification and

recalibration changes. We have adopted

this case-mix index adjustment in the

capital update framework as well.

For FY 1999, we are projecting a 1.0

percent increase in the case-mix index.

We estimate that real case-mix increase

will equal 0.8 percent in FY 1999.

Therefore, the net adjustment for casemix change in FY 1999 is—0.2

percentage points.

We estimate that DRG reclassification

and recalibration result in a 0.0 percent

change in the case mix when compared

with the case-mix index that would

have resulted if we had not made the

reclassification and recalibration

changes to the DRGs.

The capital update framework

contains an adjustment for forecast

error. The input price index forecast is

based on historical trends and

relationships ascertainable at the time

the update factor is established for the

upcoming year. In any given year there

may be unanticipated price fluctuations

that may result in differences between

the actual increase in prices faced by

hospitals and the forecast used in

calculating the update factors. In setting

a prospective payment rate under the

framework, we make an adjustment for

forecast error only if our estimate of the

capital input price index rate of increase

for any year is off by 0.25 percentage

points or more. There is a 2-year lag

between the forecast and the

measurement of the forecast error. We

estimate a forecast error of ¥0.4

percentage points in the update for FY

1997. That is, current data indicate that

the FY 1997 CIPI used in calculating the

FY 1997 update factor overstated price

increases by 0.4 percent. Therefore we

are making a ¥0.4 percent adjustment

for forecast error in the update for FY

1999.

Under the capital prospective

payment system framework, we also

make an adjustment for changes in

intensity. We calculate this adjustment

using the same methodology and data as

in the framework for the operating

prospective payment system. The

intensity factor for the operating update

framework reflects how hospital

services are utilized to produce the final

product, that is, the discharge. This

component accounts for changes in the

use of quality-enhancing services,

changes in within-DRG severity, and

expected modification of practice

patterns to remove cost-ineffective

services.

We calculate case-mix constant

intensity as the change in total charges

per admission, adjusted for price level

changes (the CPI hospital component),

and changes in real case mix. The use

of total charges in the calculation of the

intensity factor makes it a total intensity

factor, that is, charges for capital

services are already built into the

calculation of the factor. We have,

therefore, incorporated the intensity

adjustment from the operating update

framework into the capital update

framework. Without reliable estimates

of the proportions of the overall annual

intensity increases that are due,

respectively, to ineffective practice

patterns and to the combination of

quality-enhancing new technologies and

within-DRG complexity, we assume, as

in the revised operating update

framework, that one-half of the annual

increase is due to each of these factors.

The capital update framework thus

provides an add-on to the input price

index rate of increase of one-half of the

estimated annual increase in intensity to

allow for within-DRG severity increases

and the adoption of quality-enhancing

technology.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41013

For FY 1999, we have developed a

Medicare-specific intensity measure

based on a 5-year average using FY

1993–1997 data. In determining casemix constant intensity, we found that

observed case-mix increase was 0.9

percent in FY 1993, 0.8 percent in FY

1994, 1.7 percent in FY 1995, 1.6

percent in FY 1996, and 0.3 percent in

FY 1997. For FY 1995 and FY 1996, we

estimate that real case-mix increase was

1.0 to 1.4 percent each year. The

estimate for those years is supported by

past studies of case-mix change by the

RAND Corporation. The most recent

study was ‘‘Has DRG Creep Crept Up?

Decomposing the Case Mix Index

Change Between 1987 and 1988’’ by G.

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

Relles, R–4098–HCFA/ProPAC (1991).

The study suggested that real case-mix

change was not dependent on total

change, but was usually a fairly steady

1.0 to 1.5 percent per year. We use 1.4

percent as the upper bound because the

RAND study did not take into account

that hospitals may have induced doctors

to document medical records more

completely in order to improve

payment. Following that study, we

consider up to 1.4 percent of observed

case-mix change as real for FY 1992

through FY 1997. Based on this

analysis, we believe that all of the

observed case-mix increase for FY 1993,

FY 1994 and FY 1997 is real.

We calculate case-mix constant

intensity as the change in total charges

per admission, adjusted for price level

changes (the CPI hospital component),

and changes in real case-mix. Given

estimates of real case mix of 0.9 percent

for FY 1993, 0.8 percent for FY 1994, 1.0

percent for FY 1995, and 1.0 percent for

FY 1996, and 0.3 percent for FY 1997,

we estimate that case-mix constant

intensity declined by an average 1.5

percent during FYs 1993 through 1997,

for a cumulative decrease of 7.3 percent.

If we assume that real case-mix increase

was 0.9 percent for FY 1993, 0.8 percent

for FY 1994, 1.4 percent for FY 1995, 1.4

percent for FY 1996 and 0.3 percent for

FY 1997, we estimate that case-mix

constant intensity declined by an

average 1.6 percent during FYs 1993

through 1997, for a cumulative decrease

of 7.7 percent. Since we estimate that

intensity has declined during that

period, we are making a 0.0 percent

intensity adjustment for FY 1999.

In summary, the FY 1999 final update

under our framework is 0.1 percent.

This update factor is based on a

projected 0.7 percent increase in the

CIPI, policy adjustment factors of ¥0.2,

and a forecast error correction of ¥0.4

percent.

b. Comparison of HCFA and MedPAC

update recommendations. As discussed

in the proposed rule, MedPAC

recommended a 0.0 to 0.7 percent

update to the standard Federal rate and

we recommended a 0.2 percent update.

(See the May 8, 1998 proposed rule for

a discussion of the differences between

the MedPAC and HCFA update

frameworks (63 FR 25615)). In this final

rule, as discussed in the previous

section, we are implementing a 0.1

percent update to the capital Federal

rate.

Comment: MedPAC noted our update

recommendation of 0.2 percent was

within the range of the 0.0 percent to 0.7

percent update which they had

recommended. They also restated a

comment from their March report, that

although the operating and capital

payment rates are determined

separately, they are related to the costs

generated by providing hospital services

to the same Medicare patients, and

distinguishing between them for

payment purposes is arbitrary and does

not foster efficient hospital decisionmaking about resource allocation. Since

the transition to fully prospective

payment for capital will end on

September 30, 2001, the objective of

combining the two payment systems

should be kept in mind.

Response: Several years ago ProPAC

made a similar comment recommending

the adoption of a single update

framework for adjusting operating and

capital prospective payment rates when

the transition to full Federal rate capital

payments is complete. In the September

1, 1995 prospective payment system

final rule (60 FR 45816) we responded

that our long term goal was to develop

a single update framework and that we

would begin development of a unified

framework. We stated that in the

meantime we would maintain as much

consistency as possible with the current

operating framework in order to

facilitate the eventual development of a

unified framework. We believe that

because of the similarities in the

operating and capital update

frameworks, they could be combined

without too much difficulty. We

maintain our goal of combining the

update frameworks at the end of the

capital transition period and may

examine combining the payment

systems post transition.

2. Outlier Payment Adjustment Factor

Section 412.312(c) establishes a

unified outlier methodology for

inpatient operating and inpatient

capital-related costs. A single set of

thresholds is used to identify outlier

cases for both inpatient operating and

inpatient capital-related payments.

Outlier payments are made only on the

portion of the Federal rate that is used

to calculate the hospital’s inpatient

capital-related payments (for example,

80 percent for cost reporting periods

beginning in FY 1999 for hospitals paid

under the fully prospective

methodology). Section 412.308(c)(2)

provides that the standard Federal rate

for inpatient capital-related costs be

reduced by an adjustment factor equal

to the estimated proportion of outlier

payments under the Federal rate to total

inpatient capital-related payments

under the Federal rate. The outlier

thresholds are set so that operating

outlier payments are projected to be 5.1

percent of total operating DRG

payments. The inpatient capital-related

outlier reduction factor reflects the

inpatient capital-related outlier

payments that would be made if all

hospitals were paid 100 percent of the

Federal rate. For purposes of calculating

the outlier thresholds and the outlier

reduction factor, we model payments as

if all hospitals were paid 100 percent of

the Federal rate because, as explained

above, outlier payments are made only

on the portion of the Federal rate that

is included in the hospital’s inpatient

capital-related payments.

In the August 29, 1997 final rule with

comment period, we estimated that

outlier payments for capital in FY 1998

would equal 6.18 percent of inpatient

capital-related payments based on the

Federal rate. Accordingly, we applied

an outlier adjustment factor of 0.9382 to

the Federal rate. For FY 1999, we

estimate that outlier payments for

capital will equal 6.08 percent of

inpatient capital-related payments based

on the Federal rate. We are, therefore,

establishing an outlier adjustment factor

of 0.9392 to the Federal rate. Thus,

estimated capital outlier payments for

FY 1999 represent a smaller percentage

of total capital standard payments than

in FY 1998.

The outlier reduction factors are not

built permanently into the rates; that is,

they are not applied cumulatively in

determining the Federal rate. Therefore,

the net change in the outlier adjustment

to the Federal rate for FY 1999 is 1.0011

(0.9392/0.9382). Thus, the outlier

adjustment increases the FY 1999

Federal rate by 0.11 percent (1.0011–1)

compared with the FY 1998 outlier

adjustment.

3. Budget Neutrality Adjustment Factor

for Changes in DRG Classifications and

Weights and the Geographic Adjustment

Factor

Section 412.308(c)(4)(ii) requires that

the Federal rate be adjusted so that
41014 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

aggregate payments for the fiscal year

based on the Federal rate after any

changes resulting from the annual DRG

reclassification and recalibration and

changes in the GAF are projected to

equal aggregate payments that would

have been made on the basis of the

Federal rate without such changes. We

use the actuarial model, described in

Appendix B, to estimate the aggregate

payments that would have been made

on the basis of the Federal rate without

changes in the DRG classifications and

weights and in the GAF. We also use the

model to estimate aggregate payments

that would be made on the basis of the

Federal rate as a result of those changes.

We then use these figures to compute

the adjustment required to maintain

budget neutrality for changes in DRG

weights and in the GAF.

For FY 1998, we calculated a GAF/

DRG budget neutrality factor of 0.9989.

In the proposed rule for FY 1999, we

proposed a GAF/DRG budget neutrality

factor of 1.0032. In this final rule, based

on calculations using updated data, we

are applying a factor of 1.0027. The

GAF/DRG budget neutrality factors are

built permanently into the rates; that is,

they are applied cumulatively in

determining the Federal rate. This

follows from the requirement that

estimated aggregate payments each year

be no more than they would have been

in the absence of the annual DRG

reclassification and recalibration and

changes in the GAF. The incremental

change in the adjustment from FY 1998

to FY 1999 is 1.0027. The cumulative

change in the rate due to this

adjustment is 1.0028 (the product of the

incremental factors for FY 1993, FY

1994, FY 1995, FY 1996, FY 1997, FY

1998, and FY 1999: 0.9980 x 1.0053 x

0.9998 x 0.9994 x 0.9987 x 0.9989 x

1.0027 = 1.0028).

This factor accounts for DRG

reclassifications and recalibration and

for changes in the GAF. It also

incorporates the effects on the GAF of

FY 1999 geographic reclassification

decisions made by the MGCRB

compared to FY 1998 decisions.

However, it does not account for

changes in payments due to changes in

the disproportionate share and indirect

medical education adjustment factors or

in the large urban add-on.

4. Exceptions Payment Adjustment

Factor

Section 412.308(c)(3) requires that the

standard Federal rate for inpatient

capital-related costs be reduced by an

adjustment factor equal to the estimated

proportion of additional payments for

exceptions under § 412.348 relative to

total payments under the hospitalspecific rate and Federal rate. We use an

actuarial model described in Appendix

B to determine the exceptions payment

adjustment factor.

For FY 1998, we estimated that

exceptions payments would equal 3.41

percent of aggregate payments based on

the Federal rate and the hospitalspecific rate. Therefore, we applied an

exceptions reduction factor of 0.9659

(1—0.0341) in determining the Federal

rate. In the May 8, 1998 proposed rule,

we estimated that exceptions payments

for FY 1999 would equal 2.39 percent of

aggregate payments based on the

Federal rate and the hospital-specific

rate. Therefore, we proposed an

exceptions payment reduction factor of

0.9761 to the Federal rate for FY 1999.

For this final rule, based on updated

data, we estimate that exceptions

payments for FY 1999 will equal 2.17

percent of aggregate payments based on

the Federal rate and the hospitalspecific rate. We are, therefore, applying

an exceptions payment reduction factor

of 0.9783 (1—0.0217) to the Federal rate

for FY 1999. The final exceptions

reduction factor for FY 1999 is 1.28

percent higher than the factor for FY

1998 and .23 percent higher than the

factor in the FY 1999 proposed rule.

The exceptions reduction factors are

not built permanently into the rates; that

is, the factors are not applied

cumulatively in determining the Federal

rate. Therefore, the net adjustment to

the FY 1999 Federal rate is 0.9783/

0.9659, or 1.0128.

5. Standard Capital Federal Rate for FY

1999

For FY 1998, the capital Federal rate

was $371.51. With the changes we

proposed to the factors used to establish

the Federal rate, we proposed that the

FY 1999 Federal rate would be $377.25.

In this final rule, we are establishing a

FY 1999 Federal rate of $378.05. The

Federal rate for FY 1999 was calculated

as follows:

• The FY 1999 update factor is

1.0010, that is, the update is 0.10

percent.

• The FY 1999 budget neutrality

adjustment factor that is applied to the

standard Federal payment rate for

changes in the DRG relative weights and

in the GAF is 1.0027.

• The FY 1999 outlier adjustment

factor is 0.9392.

• The FY 1999 exceptions payments

adjustment factor is 0.9783.

Since the Federal rate has already

been adjusted for differences in case

mix, wages, cost of living, indirect

medical education costs, and payments

to hospitals serving a disproportionate

share of low-income patients, we have

made no additional adjustments in the

standard Federal rate for these factors

other than the budget neutrality factor

for changes in the DRG relative weights

and the GAF.

We are providing a chart that shows

how each of the factors and adjustments

for FY 1999 affected the computation of

the FY 1999 Federal rate in comparison

to the FY 1998 Federal rate. The FY

1999 update factor has the effect of

increasing the Federal rate by 0.10

percent compared to the rate in FY

1998, while the final geographic and

DRG budget neutrality factor has the

effect of increasing the Federal rate by

0.27 percent. The FY 1999 outlier

adjustment factor has the effect of

increasing the Federal rate by 0.11

percent compared to FY 1998. The FY

1999 exceptions reduction factor has the

effect of increasing the Federal rate by

1.27 percent compared to the exceptions

reduction factor for FY 1998. The

combined effect of all the changes is to

increase the Federal rate by 1.76 percent

compared to the Federal rate for FY

1998.

COMPARISON OF FACTORS AND ADJUSTMENTS—FY 1998 FEDERAL RATE AND FY 1999 FEDERAL RATE

FY 98 FY 99 Change Percent

change

Update factor 1 .............................................................................................................. 1.0090 1.0010 1.0010 0.10

GAF/DRG Adjustment Factor 1 ..................................................................................... 0.9989 1.0027 1.0027 0.27

Outlier Adjustment Factor 2 .......................................................................................... 0.9382 0.9392 1.0011 0.11

Exceptions Adjustment Factor 2 ................................................................................... 0.9659 0.9783 1.0128 1.28

Federal Rate ................................................................................................................. $371.51 $378.05 1.0176 1.76

1The update factor and the GAF/DRG budget neutrality factors are built permanently into the rates. Thus, for example, the incremental change

from FY 1998 to FY 1999 resulting from the application of the GAF/DRG budget neutrality factor for FY 1999 is 1.0027.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41015

2The outlier reduction factor and the exceptions reduction factor are not built permanently into the rates; that is, these factors are not applied

cumulatively in determining the rates. Thus, for example, the net change resulting from the application of the FY 1999 outlier reduction factor is

0.9392/0.9382, or 1.0011.

We are also providing a chart that

shows how the final FY 1999 Federal

rate differs from the proposed FY 1999

Federal rate.

COMPARISON OF FACTORS AND ADJUSTMENTS—FY 1999 PROPOSED FEDERAL RATE AND FY 1999 FINAL FEDERAL RATE

Proposed FY

99 Final FY 99 Change Percentchange

Update factor ................................................................................................................ 1.0020 1.0010 0.9990 ¥0.10

GAF/DRG Adjustment Factor ....................................................................................... 1.0032 1.0027 0.9995 ¥0.05

Outlier Adjustment Factor ............................................................................................. 0.9378 0.9392 1.0015 0.15

Exceptions Adjustment Factor ...................................................................................... 0.9761 0.9783 1.0023 0.23

Federal Rate ................................................................................................................. $377.25 $378.05 1.0021 0.21

6. Special Rate for Puerto Rico Hospitals

As explained at the beginning of this

section, hospitals in Puerto Rico are

paid based on 50 percent of the Puerto

Rico rate and 50 percent of the Federal

rate. The Puerto Rico rate is derived

from the costs of Puerto Rico hospitals

only, while the Federal rate is derived

from the costs of all acute care hospitals

participating in the prospective

payment system (including Puerto

Rico). To adjust hospitals’ capital

payments for geographic variations in

capital costs, we apply a geographic

adjustment factor (GAF) to both portions

of the blended rate. The GAF is

calculated using the operating PPS wage

index and varies depending on the MSA

or rural area in which the hospital is

located. We use the Puerto Rico wage

index to determine the GAF for the

Puerto Rico part of the capital blended

rate and the national wage index to

determine the GAF for the national part

of the blended rate.

Since we implemented a separate

GAF for Puerto Rico, we applied

separate budget neutrality adjustments

for the national GAF and for the Puerto

Rico GAF. We applied the same budget

neutrality factor for DRG

reclassifications and recalibration

nationally and for Puerto Rico. Separate

adjustments were unnecessary for FY

1998 since the Puerto Rico specific GAF

was implemented that year. For FY 1999

the Puerto Rico GAF budget neutrality

factor is 0.9988, while the DRG

adjustment is 1.0034, for a combined

cumulative adjustment of 1.0022. (For a

more detailed explanation of this

change see Appendix B.)

In computing the payment for a

particular Puerto Rico hospital, the

Puerto Rico portion of the rate (50%) is

multiplied by the Puerto Rico-specific

GAF for the MSA in which the hospital

is located, and the national portion of

the rate (50%) is multiplied by the

national GAF for the MSA in which the

hospital is located (which is computed

from national data for all hospitals in

the United States and Puerto Rico). In

FY 1998, we implemented a 17.78

percent reduction to the Puerto Rico rate

as a result of the BBA.

For FY 1998, before application of the

GAF, the special rate for Puerto Rico

hospitals was $177.57. With the changes

we proposed to the factors used to

determine the rate, the proposed FY

1999 special rate for Puerto Rico was

$180.73. In this final rule, the FY 1999

capital rate for Puerto Rico is $181.10.

B. Determination of Hospital-Specific

Rate Update

Section 412.328(e) of the regulations

provides that the hospital-specific rate

for FY 1999 be determined by adjusting

the FY 1998 hospital-specific rate by the

following factors:

1. Hospital-Specific Rate Update Factor

The hospital-specific rate is updated

in accordance with the update factor for

the standard Federal rate determined

under § 412.308(c)(1). For FY 1999, we

are updating the hospital-specific rate

by a factor of 1.0010.

2. Exceptions Payment Adjustment

Factor

For FYs 1992 through FY 2001, the

updated hospital-specific rate is

multiplied by an adjustment factor to

account for estimated exceptions

payments for capital-related costs under

§ 412.348, determined as a proportion of

the total amount of payments under the

hospital-specific rate and the Federal

rate. For FY 1999, we estimated in the

proposed rule that exceptions payments

would be 2.39 percent of aggregate

payments based on the Federal rate and

the hospital-specific rate. Therefore, we

proposed that the updated hospitalspecific rate be adjusted by a factor of

0.9761. In this final rule, we estimate

that exceptions payments will be 2.17

percent of aggregate payments based on

the Federal rate and the hospitalspecific rate. Accordingly, for FY 1999,

we are applying an exceptions reduction

factor of 0.9783 to the hospital-specific

rate. The exceptions reduction factors

are not built permanently into the rates;

that is, the factors are not applied

cumulatively in determining the

hospital-specific rate. The net

adjustment to the FY 1999 hospitalspecific rate is 0.9783/0.9659, or 1.0128.

3. Net Change to Hospital-Specific Rate

We are providing a chart to show the

net change to the hospital-specific rate.

The chart shows the factors for FY 1998

and FY 1999 and the net adjustment for

each factor. It also shows that the

cumulative net adjustment from FY

1998 to FY 1999 is 1.0138, which

represents a increase of 1.38 percent to

the hospital-specific rate. For each

hospital, the FY 1999 hospital-specific

rate is determined by multiplying the

FY 1998 hospital-specific rate by the

cumulative net adjustment of 1.0138.

FY 1999 UPDATE AND ADJUSTMENTS TO HOSPITAL-SPECIFIC RATES

FY 98 FY 99 Net adjustment

Percent

change

Update Factor ................................................................................................................... 1.0090 1.0010 1.0010 0.10

Exceptions Payment Adjustment Factor .......................................................................... 0.9659 0.9783 1.0128 1.28
41016 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

FY 1999 UPDATE AND ADJUSTMENTS TO HOSPITAL-SPECIFIC RATES—Continued

FY 98 FY 99 Net adjustment

Percent

change

Cumulative Adjustments ................................................................................................... 0.9746 0.9880 1.0138 1.38

Note: The update factor for the hospital-specific rate is applied cumulatively in determining the rates. Thus, the incremental increase in the update factor from FY 1998 to FY 1999 is 1.0020. In contrast, the exceptions payment adjustment factor is not applied cumulatively. Thus, for example, the incremental increase in the exceptions reduction factor from FY 1998 to FY 1999 is 0.9783/0.9659, or 1.0128.

C. Calculation of Inpatient CapitalRelated Prospective Payments for FY

1999

During the capital prospective

payment system transition period, a

hospital is paid for the inpatient capitalrelated costs under one of two payment

methodologies—the fully prospective

payment methodology or the holdharmless methodology. The payment

methodology applicable to a particular

hospital is determined when a hospital

comes under the prospective payment

system for capital-related costs by

comparing its hospital-specific rate to

the Federal rate applicable to the

hospital’s first cost reporting period

under the prospective payment system.

The applicable Federal rate was

determined by making adjustments as

follows:

• For outliers by dividing the

standard Federal rate by the outlier

reduction factor for that fiscal year; and,

• For the payment adjustment factors

applicable to the hospital (that is, the

hospital’s GAF, the disproportionate

share adjustment factor, and the indirect

medical education adjustment factor,

when appropriate).

If the hospital-specific rate is above

the applicable Federal rate, the hospital

is paid under the hold-harmless

methodology. If the hospital-specific

rate is below the applicable Federal rate,

the hospital is paid under the fully

prospective methodology.

For purposes of calculating payments

for each discharge under both the holdharmless payment methodology and the

fully prospective payment methodology,

the standard Federal rate is adjusted as

follows: (Standard Federal Rate) x (DRG

weight) x (GAF) x (Large Urban Add-on,

if applicable) x (COLA adjustment for

hospitals located in Alaska and Hawaii)

x (1 + Disproportionate Share

Adjustment Factor + IME Adjustment

Factor, if applicable). The result is the

adjusted Federal rate.

Payments under the hold-harmless

methodology are determined under one

of two formulas. A hold-harmless

hospital is paid the higher of the

following:

• 100 percent of the adjusted Federal

rate for each discharge; or

• An old capital payment equal to 85

percent (100 percent for sole community

hospitals) of the hospital’s allowable

Medicare inpatient old capital costs per

discharge for the cost reporting period

plus a new capital payment based on a

percentage of the adjusted Federal rate

for each discharge. The percentage of

the adjusted Federal rate equals the ratio

of the hospital’s allowable Medicare

new capital costs to its total Medicare

inpatient capital-related costs in the cost

reporting period.

Once a hospital receives payment

based on 100 percent of the adjusted

Federal rate in a cost reporting period

beginning on or after October 1, 1994 (or

the first cost reporting period after

obligated capital that is recognized as

old capital under § 412.302(c) is put in

use for patient care, if later), the hospital

continues to receive capital prospective

payment system payments on that basis

for the remainder of the transition

period.

Payment for each discharge under the

fully prospective methodology is the

sum of the following:

• The hospital-specific rate

multiplied by the DRG relative weight

for the discharge and by the applicable

hospital-specific transition blend

percentage for the cost reporting period;

and

• The adjusted Federal rate

multiplied by the Federal transition

blend percentage.

The blend percentages for cost

reporting periods beginning in FY 1999

are 80 percent of the adjusted Federal

rate and 20 percent of the hospitalspecific rate.

Hospitals may also receive outlier

payments for those cases that qualify

under the thresholds established for

each fiscal year. Section 412.312(c)

provides for a single set of thresholds to

identify outlier cases for both inpatient

operating and inpatient capital-related

payments. Outlier payments are made

only on that portion of the Federal rate

that is used to calculate the hospital’s

inpatient capital-related payments. For

fully prospective hospitals, that portion

is 80 percent of the Federal rate for

discharges occurring in cost reporting

periods beginning during FY 1999.

Thus, a fully prospective hospital will

receive 80 percent of the capital-related

outlier payment calculated for the case

for discharges occurring in cost

reporting periods beginning in FY 1999.

For hold-harmless hospitals paid 85

percent of their reasonable costs for old

inpatient capital, the portion of the

Federal rate that is included in the

hospital’s outlier payments is based on

the hospital’s ratio of Medicare

inpatient costs for new capital to total

Medicare inpatient capital costs. For

hold-harmless hospitals that are paid

100 percent of the Federal rate, 100

percent of the Federal rate is included

in the hospital’s outlier payments.

The outlier thresholds for FY 1999 are

in section II.A.4.c of this Addendum.

For FY 1999, a case qualifies as a cost

outlier if the cost for the case (after

standardization for the indirect teaching

adjustment and disproportionate share

adjustment) is greater than the

prospective payment rate for the DRG

plus $11,100.

During the capital prospective

payment system transition period, a

hospital may also receive an additional

payment under an exceptions process if

its total inpatient capital-related

payments are less than a minimum

percentage of its allowable Medicare

inpatient capital-related costs. The

minimum payment level is established

by class of hospital under § 412.348.

The minimum payment levels for

portions of cost reporting periods

beginning in FY 1999 are:

• Sole community hospitals (located

in either an urban or rural area), 90

percent;

• Urban hospitals with at least 100

beds and a disproportionate share

patient percentage of at least 20.2

percent; and

• Urban hospitals with at least 100

beds that qualify for disproportionate

share payments under § 412.106(c)(2),

80 percent; and

• All other hospitals, 70 percent.

Under § 412.348(d), the amount of the

exceptions payment is determined by

comparing the cumulative payments

made to the hospital under the capital

prospective payment system to the

cumulative minimum payment levels

applicable to the hospital for each cost

reporting period subject to that system.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41017

Any amount by which the hospital’s

cumulative payments exceed its

cumulative minimum payment is

deducted from the additional payment

that would otherwise be payable for a

cost reporting period.

New hospitals are exempted from the

capital prospective payment system for

their first 2 years of operation and are

paid 85 percent of their reasonable costs

during that period. A new hospital’s old

capital costs are its allowable costs for

capital assets that were put in use for

patient care on or before the later of

December 31, 1990 or the last day of the

hospital’s base year cost reporting

period, and are subject to the rules

pertaining to old capital and obligated

capital as of the applicable date.

Effective with the third year of

operation, we will pay the hospital

under either the fully prospective

methodology, using the appropriate

transition blend in that Federal fiscal

year, or the hold-harmless methodology.

If the hold-harmless methodology is

applicable, the hold-harmless payment

for assets in use during the base period

would extend for 8 years, even if the

hold-harmless payments extend beyond

the normal transition period.

D. Capital Input Price Index

1. Background

Like the prospective payment hospital

operating input price index, the Capital

Input Price Index (CIPI) is a fixedweight price index that measures the

price changes associated with costs

during a given year. The CIPI differs

from the operating input price index in

one important aspect—the CIPI reflects

the vintage nature of capital, which is

the acquisition and use of capital over

time. Capital expenses in any given year

are determined by the stock of capital in

that year (that is, capital that remains on

hand from all current and prior capital

acquisitions). An index measuring

capital price changes needs to reflect

this vintage nature of capital. Therefore,

the CIPI was developed to capture the

vintage nature of capital by using a

weighted-average of past capital

purchase prices up to and including the

current year.

Using Medicare cost reports, AHA

data, and Securities Data Corporation

data, a vintage-weighted price index

was developed to measure price

increases associated with capital

expenses. We periodically update the

base year for the operating and capital

input prices to reflect the changing

composition of inputs for operating and

capital expenses. Currently, the CIPI is

based to FY 1992 and was last rebased

in 1997. The most recent explanation of

the CIPI was discussed in the final rule

with comment period for FY 1998

published in the August 29, 1997

Federal Register (62 FR 46050). The

following Federal Register documents

also describe development and revisions

of the methodology involved with the

construction of the CIPI: September 1,

1992 (57 FR 40016), May 26, 1993 (58

FR 30448), September 1, 1993 (58 FR

46490), May 27, 1994 (59 FR 27876),

September 1, 1994 (59 FR 45517), June

2, 1995 (60 FR 29229), and September

1, 1995 (60 FR 45815), May 31, 1996 (61

FR 27466), August 30, 1996 (61 FR

46196), and June 2, 1997 (62 FR 29953),

August 29, 1997 (67 FR 46050), and May

8, 1998 (63 FR 25619).

2. Forecast of the CIPI for Federal Fiscal

Year 1999

DRI forecasts a 0.7 percent increase in

the CIPI for FY 1999. This is the

outcome of a projected 1.9 percent

increase in vintage-weighted

depreciation prices (building and fixed

equipment, and movable equipment)

and a 2.9 percent increase in other

capital expense prices in FY 1999,

partially offset by a 3.0 percent decline

in vintage-weighted interest rates in FY

1999. The weighted average of these

three factors produces the 0.7 percent

increase for the CIPI as a whole.

V. Changes to Payment Rates for

Excluded Hospitals and Hospital Units:

Rate-of-Increase Percentages

A. Rate-of-Increase Percentages for

Excluded Hospitals and Hospital Units

The inpatient operating costs of

hospitals and hospital units excluded

from the prospective payment system

are subject to rate-of-increase limits

established under the authority of

section 1886(b) of the Act, which is

implemented in § 413.40 of the

regulations. Under these limits, an

annual target amount (expressed in

terms of the inpatient operating cost per

discharge) is set for each hospital, based

on the hospital’s own historical cost

experience trended forward by the

applicable rate-of-increase percentages

(update factors). In the case of a

psychiatric hospital or unit,

rehabilitation hospital or unit, or longterm care hospital, the target amount

may not exceed the 75th percentile of

target amounts for hospitals and units in

the same class (psychiatric,

rehabilitation, and long-term care). The

target amount is multiplied by the

number of Medicare discharges in a

hospital’s cost reporting period, yielding

the ceiling on aggregate Medicare

inpatient operating costs for the cost

reporting period.

Each hospital’s target amount is

adjusted annually, at the beginning of

its cost reporting period, by an

applicable update factor. Section

1886(b)(3)(B) of the Act provides that for

cost reporting periods beginning on or

after October 1, 1998 and before October

1, 1999, the update factor is the market

basket less a percentage point between

0 and 2.5 depending on the hospital’s or

unit’s costs in relation to the ceiling. For

hospitals with costs exceeding the

ceiling by 10 percent or more, the

update factor is the market basket

increase. For hospitals with costs

exceeding the ceiling by less than 10

percent, the update factor is the greater

of 0 percent or the market basket minus

.25 percent for each percentage point by

which costs are less than 10 percent

over the ceiling. For hospitals with costs

equal to or less than the ceiling but

greater than 66.7 percent of the ceiling,

the update factor is the greater of 0

percent or the market basket minus 2.5

percent. For hospitals with costs that do

not exceed 66.7 percent of the ceiling,

the update factor is 0.

The most recent forecast of the market

basket increase for FY 1999 for hospitals

and hospital units excluded from the

prospective payment system is 2.4

percent; therefore, the update to a

hospital’s target amount for its cost

reporting period beginning in FY 1999

would be between 0 and 2.4 percent.

In addition, section 1886(b)(3)(H) of

the Act provides that for cost reporting

periods beginning on or after October 1,

1998 and before October 1, 1999, the

target amount for psychiatric hospitals

and units, rehabilitation hospitals and

units, and long-term care hospitals may

not exceed an updated cap that is based

on the 75th percentile of target amounts

for hospitals in the same class for cost

reporting periods ending during FY

1996. The FY 1998 75th percentile

target amounts were $10,534 for

psychiatric hospitals and units, $19,104

for rehabilitation hospital and units, and

$37,688 for long-term care hospitals. As

discussed in detail in section VII. of the

preamble, for purposes of calculating

the caps, the statute requires the

Secretary to first calculate the 75th

percentile of the target amounts for each

class of hospital (psychiatric,

rehabilitation, or long-term care) for cost

reporting periods ending during FY

1996. The resulting amounts are

updated by the market basket

percentage to the applicable fiscal year.

B. Wage Index Exceptions for Excluded

Hospitals and Units

In the August 30, 1991 final rule (56

FR 43232), we set forth our policy for

target amount adjustments for
41018 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

significant wage increases. Effective

with cost reporting periods beginning

on or after April 1, 1990, significant

increases in wages since the base period

are recognized as a basis for an

adjustment in the target amount under

§ 413.40(g).

To qualify for an adjustment, the

excluded hospital or hospital unit must

be located in a labor market area for

which the average hourly wage

increased significantly more than the

national average hourly wage between

the hospital’s base period and the

period subject to the ceiling. We use the

hospital wage index for prospective

payment hospitals to determine the rate

of increase in the average hourly wage

in the labor market area. For a hospital

to qualify for an adjustment, the wage

index value for the cost reporting period

subject to the ceiling must be at least 8

percent higher than the wage index

based on wage survey data collected for

the base year cost reporting period. If

survey data are not available for one (or

both) of the cost reporting periods used

in the comparison, the wage index

based on the latest available survey data

collected before that cost reporting

period will be used. For example, to

make the comparison between a 1983

base period and a hospital’s cost

reporting period beginning in FY 1996,

we would use the rate of increase

between the wage index based on 1982

wage data and the wage index based on

the FY 1995 data, since the FY 1995

data are the most recent data currently

available. Further, the comparison is

made without regard to geographic

reclassifications made by the MGCRB

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

the Act. Therefore, the comparison is

made based on the wage index value of

the labor market area in which the

hospital is actually located.

We determine the amount of the

adjustment for wage increases by

considering three factors for the time

between the base period and the period

for which an adjustment is requested:

The rate of increase in the hospital’s

average hourly wage; the rate of increase

in the average hourly wage in the labor

market area in which the hospital is

located; and, the rate of increase in the

national average hourly wage for

hospital workers. The adjustment is

limited to the amount by which the

lower of the hospital’s or the labor

market area’s rate of increase in average

hourly wages significantly exceeds the

national increase (that is, exceeds the

national rate of increase by more than 8

percent). For purposes of computing the

adjustment, the relative rate of increase

in the average hourly wage for the labor

market area is assumed to have been the

same over each of the intervening years

between the wage surveys.

To determine the rate of increase in

the national average hourly wage, we

use the average hourly earnings (AHE)

for hospital workers produced by the

Bureau of Labor Statistics.

The average hourly earnings for

hospital workers show the following

increases:

1992=4.8 percent

1993=3.6 percent

1994=2.7 percent

1995=3.3 percent

1996=3.1 percent

1997=2.0 percent

1998=2.6 percent

1999=2.7 percent

We note that this section merely

provides updated information with

respect to areas that would qualify for

the wage index adjustment under

§ 413.30(g). This information was

calculated in accordance with

established policy and does not reflect

any change in that policy. The

geographic areas in which the

percentage difference in wage indexes

was sufficient to qualify for a wage

index adjustment are listed in Table 10

of section VI of the addendum to this

final rule.

VI. Tables

This section contains the tables

referred to throughout the preamble to

this final rule and in this Addendum.

For purposes of this final rule, and to

avoid confusion, we have retained the

designations of Tables 1 through 5 that

were first used in the September 1, 1983

initial prospective payment final rule

(48 FR 39844). Tables 1A, 1C, 1D, 1E,

1F, 3C, 4A, 4B, 4C, 4D, 4E, 4F, 5, 6A,

6B, 6C, 6D, 6E, 6F, 6G, 7A, 7B, 8A, 8B,

and 10 are presented below. The tables

presented below are as follows:

Table 1A—National Adjusted Operating

Standardized Amounts, Labor/

Nonlabor

Table 1C—Adjusted Operating

Standardized Amounts for Puerto

Rico, Labor/Nonlabor

Table 1D—Capital Standard Federal

Payment Rate

Table 1E—National Adjusted Operating

Standardized Amounts for

‘‘Temporary Relief’’ Hospitals,

Labor/Nonlabor

Table 1F—Adjusted Operating

Standardized Amounts for

‘‘Temporary Relief’’ Hospitals in

Puerto Rico, Labor/Nonlabor

Table 3C—Hospital Case Mix Indexes

for Discharges Occurring in Federal

Fiscal Year 1997 and Hospital

Average Hourly Wage for Federal

Fiscal Year 1999 Wage Index

Table 4A—Wage Index and Capital

Geographic Adjustment Factor

(GAF) for Urban Areas

Table 4B—Wage Index and Capital

Geographic Adjustment Factor

(GAF) for Rural Areas

Table 4C—Wage Index and Capital

Geographic Adjustment Factor

(GAF) for Hospitals That Are

Reclassified

Table 4D—Average Hourly Wage for

Urban Areas

Table 4E—Average Hourly Wage for

Rural Areas

Table 4F—Puerto Rico Wage Index and

Capital Geographic Adjustment

Factor (GAF)

Table 5—List of Diagnosis Related

Groups (DRGs), Relative Weighting

Factors, Geometric Mean Length of

Stay, and Arithmetic Mean Length

of Stay Points Used in the

Prospective Payment System

Table 6A—New Diagnosis Codes

Table 6B—New Procedure Codes

Table 6C—Invalid Diagnosis Codes

Table 6D—Invalid Procedure Codes

Table 6E—Revised Diagnosis Code

Titles

Table 6F—Additions to the CC

Exclusions List

Table 6G—Deletions to the CC

Exclusions List

Table 7A—Medicare Prospective

Payment System Selected Percentile

Lengths of Stay FY 97 MEDPAR

Update 03/98 GROUPER V15.0

Table 7B—Medicare Prospective

Payment System Selected Percentile

Lengths of Stay FY 97 MEDPAR

Update 03/98 GROUPER V16.0

Table 8A—Statewide Average Operating

Cost-to-Charge Ratios for Urban and

Rural Hospitals (Case Weighted)

July 1998

Table 8B—Statewide Average Capital

Cost-to-Charge Ratios (Case

Weighted) July 1998

Table 10—Percentage Difference on

Wage Indexes for Areas that Qualify

for a Wage Index Exception for

Excluded Hospitals and Units
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TABLE 1A.—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR

Large urban areas Other areas

Labor-related Nonlabor-related Labor-related Nonlabor-related

2,783.42 1,313.41 2,739.36 1,113.47

TABLE 1C.—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR

Large urban areas Other areas

Labor Nonlabor Labor Nonlabor

National ............................................................................................................................. 2,760.01 1,121.87 2,760.01 1,121.87

Puerto Rico ....................................................................................................................... 1,327.81 534.48 1,306.79 526.01

TABLE 1D.—CAPITAL STANDARD FEDERAL PAYMENT RATE

Rate

National ............................................................................................................................................................................................................ 378.05

Puerto Rico ...................................................................................................................................................................................................... 181.10

TABLE 1E.—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR ‘‘TEMPORARY RELIEF’’ HOSPITALS, LABOR/

NONLABOR

Large urban areas Other areas

Labor-related Nonlabor-related Labor-related Nonlabor-related

2,791.73 1,134.76 2,747.54 1,116.79

TABLE 1F.—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR ‘‘TEMPORARY RELIEF’’ HOSPITALS IN PUERTO RICO,

LABOR/NONLABOR

Large urban areas Other areas

Labor Nonlabor Labor Nonlabor

National ............................................................................................................................. 2,768.25 1,125.22 2,768.25 1,125.22

Puerto Rico ....................................................................................................................... 1,331.77 536.08 1,310.69 527.58

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TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS

Urban area

(Constituent counties)

Wage

index GAF

0040 Abilene, TX ........ 0.8083 0.8644

Taylor, TX

0060 Aguadilla, PR ..... 0.4738 0.5996

Aguada, PR

Aguadilla, PR

Moca, PR

0080 Akron, OH .......... 0.9954 0.9968

Portage, OH

Summit, OH

0120 Albany, GA ........ 0.7993 0.8578

Dougherty, GA

Lee, GA

0160 Albany-Schenectady-Troy, NY ............ 0.8629 0.9040

Albany, NY

Montgomery, NY

Rensselaer, NY

Saratoga, NY

Schenectady, NY

Schoharie, NY

0200 Albuquerque, NM 0.8632 0.9042

Bernalillo, NM

Sandoval, NM

Valencia, NM

0220 Alexandria, LA ... 0.8544 0.8978

Rapides, LA

0240 Allentown-Bethlehem-Easton, PA ..... 1.0226 1.0154

Carbon, PA

Lehigh, PA

Northampton, PA

0280 Altoona, PA ....... 0.9355 0.9554

Blair, PA

0320 Amarillo, TX ....... 0.8509 0.8953

Potter, TX

Randall, TX

0380 Anchorage, AK .. 1.3007 1.1973

Anchorage, AK

0440 Ann Arbor, MI .... 1.1057 1.0712

Lenawee, MI

Livingston, MI

Washtenaw, MI

0450 Anniston, AL ...... 0.8676 0.9073

Calhoun, AL

0460 Appleton-Oshkosh-Neenah, WI ....... 0.8844 0.9193

Calumet, WI

Outagamie, WI

Winnebago, WI

0470 Arecibo, PR ....... 0.4878 0.6117

Arecibo, PR

Camuy, PR

Hatillo, PR

0480 Asheville, NC ..... 0.8960 0.9276

Buncombe, NC

Madison, NC

0500 Athens, GA ........ 0.8692 0.9085

Clarke, GA

Madison, GA

Oconee, GA

0520 1Atlanta, GA ...... 0.9936 0.9956

Barrow, GA

Bartow, GA

Carroll, GA

Cherokee, GA

Clayton, GA

Cobb, GA

Coweta, GA

DeKalb, GA

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Douglas, GA

Fayette, GA

Forsyth, GA

Fulton, GA

Gwinnett, GA

Henry, GA

Newton, GA

Paulding, GA

Pickens, GA

Rockdale, GA

Spalding, GA

Walton, GA

0560 Atlantic-Cape

May, NJ.

Atlantic, NJ

Cape May, NJ 1.0377 1.0257

0600 Augusta-Aiken,

GA–SC ...................... 0.9253 0.9482

Columbia, GA

McDuffie, GA

Richmond, GA

Aiken, SC

Edgefield, SC

0640 1Austin-San

Marcos, TX ................ 0.8442 0.8905

Bastrop, TX

Caldwell, TX

Hays, TX

Travis, TX

Williamson, TX

0680 2Bakersfield, CA 0.9959 0.9972

Kern, CA

0720 1Baltimore, MD 0.9663 0.9768

Anne Arundel, MD

Baltimore, MD

Baltimore City, MD

Carroll, MD

Harford, MD

Howard, MD

Queen Anne’s, MD

0733 Bangor, ME ....... 0.9495 0.9651

Penobscot, ME

0743 Barnstable-Yarmouth, MA ................. 1.5415 1.3449

Barnstable, MA

0760 Baton Rouge, LA 0.8891 0.9227

Ascension, LA

East Baton Rouge, LA

Livingston, LA

West Baton Rouge,

LA

0840 Beaumont-Port

Arthur, TX .................. 0.9071 0.9354

Hardin, TX

Jefferson, TX

Orange, TX

0860 Bellingham, WA 1.1459 1.0978

Whatcom, WA

0870 2Benton Harbor,

MI ............................... 0.8903 0.9235

Berrien, MI

0875 1Bergen-Passaic, NJ ...................... 1.1774 1.1183

Bergen, NJ

Passaic, NJ

0880 Billings, MT ........ 0.9162 0.9418

Yellowstone, MT

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

0920 Biloxi-GulfportPascagoula, MS ........ 0.8294 0.8798

Hancock, MS

Harrison, MS

Jackson, MS

0960 Binghamton, NY 0.9078 0.9359

Broome, NY

Tioga, NY

1000 Birmingham, AL 0.9092 0.9369

Blount, AL

Jefferson, AL

St. Clair, AL

Shelby, AL

1010 Bismarck, ND .... 0.8042 0.8614

Burleigh, ND

Morton, ND

1020 Bloomington, IN 0.8984 0.9293

Monroe, IN

1040 Bloomington-Normal, IL ........................ 0.8870 0.9212

McLean, IL

1080 Boise City, ID .... 0.9209 0.9451

Ada, ID

Canyon, ID

1123 1Boston-Worcester-Lawrence-LowellBrockton, MA–NH ...... 1.1307 1.0878

Bristol, MA

Essex, MA

Middlesex, MA

Norfolk, MA

Plymouth, MA

Suffolk, MA

Worcester, MA

Hillsborough, NH

Merrimack, NH

Rockingham, NH

Strafford, NH

1125 BoulderLongmont, CO ........... 1.0059 1.0040

Boulder, CO

1145 Brazoria, TX ...... 0.8925 0.9251

Brazoria, TX

1150 Bremerton, WA .. 1.1079 1.0727

Kitsap, WA

1240 Brownsville-Harlingen-San Benito, TX 0.8255 0.8769

Cameron, TX

1260 Bryan-College

Station, TX ................. 0.8084 0.8645

Brazos, TX

1280 1Buffalo-Niagara

Falls, NY .................... 0.9607 0.9729

Erie, NY

Niagara, NY

1303 Burlington, VT .... 0.9616 0.9735

Chittenden, VT

Franklin, VT

Grand Isle, VT

1310 Caguas, PR ....... 0.4419 0.5716

Caguas, PR

Cayey, PR

Cidra, PR

Gurabo, PR

San Lorenzo, PR

1320 CantonMassillon, OH ............ 0.8827 0.9181
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TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Carroll, OH

Stark, OH

1350 Casper, WY ....... 0.9170 0.9424

Natrona, WY

1360 Cedar Rapids, IA 0.8833 0.9185

Linn, IA

1400 Champaign-Urbana, IL ..................... 0.8789 0.9154

Champaign, IL

1440 Charleston-North

Charleston, SC .......... 0.9134 0.9399

Berkeley, SC

Charleston, SC

Dorchester, SC

1480 Charleston, WV 0.9009 0.9310

Kanawha, WV

Putnam, WV

1520 1 Charlotte-Gastonia-Rock Hill, NC–

SC .............................. 0.9562 0.9698

Cabarrus, NC

Gaston, NC

Lincoln, NC

Mecklenburg, NC

Rowan, NC

Stanly, NC

Union, NC

York, SC

1540 Charlottesville,

VA .............................. 1.0294 1.0200

Albemarle, VA

Charlottesville City,

VA

Fluvanna, VA

Greene, VA

1560 Chattanooga,

TN–GA ....................... 0.9093 0.9370

Catoosa, GA

Dade, GA

Walker, GA

Hamilton, TN

Marion, TN

1580 2 Cheyenne, WY 0.8787 0.9153

Laramie, WY

1600 1 Chicago, IL ...... 1.0469 1.0319

Cook, IL

DeKalb, IL

DuPage, IL

Grundy, IL

Kane, IL

Kendall, IL

Lake, IL

McHenry, IL

Will, IL

1620 Chico-Paradise,

CA .............................. 1.0167 1.0114

Butte, CA

1640 2 Cincinnati, OH–

KY–IN ........................ 0.9615 0.9735

Dearborn, IN

Ohio, IN

Boone, KY

Campbell, KY

Gallatin, KY

Grant, KY

Kenton, KY

Pendleton, KY

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Brown, OH

Clermont, OH

Hamilton, OH

Warren, OH

1660 Clarksville-Hopkinsville, TN–KY ........ 0.8231 0.8752

Christian, KY

Montgomery, TN

1680 1 Cleveland-Lorain-Elyria, OH ........... 0.9907 0.9936

Ashtabula, OH

Cuyahoga, OH

Geauga, OH

Lake, OH

Lorain, OH

Medina, OH

1720 Colorado

Springs, CO ............... 0.9410 0.9592

El Paso, CO

1740 Columbia, MO ... 0.8961 0.9276

Boone, MO

1760 Columbia, SC .... 0.9310 0.9522

Lexington, SC

Richland, SC

1800 Columbus, GA–

AL.

Russell, AL ................ 0.8529 0.8968

Chattahoochee, GA

Harris, GA

Muscogee, GA

1840 1 Columbus, OH 0.9802 0.9864

Delaware, OH

Fairfield, OH

Franklin, OH

Licking, OH

Madison, OH

Pickaway, OH

1880 Corpus Christi,

TX .............................. 0.8549 0.8982

Nueces, TX

San Patricio, TX

1900 2 Cumberland,

MD–WV (Maryland

Hospitals) ................... 0.8574 0.9000

Allegany, MD

Mineral, WV

1900 Cumberland,

MD–WV (West Virginia Hospital) ............ 0.8259 0.8772

Allegany, MD

Mineral, WV

1920 1 Dallas, TX ........ 0.9364 0.9560

Collin, TX

Dallas, TX

Denton, TX

Ellis, TX

Henderson, TX

Hunt, TX

Kaufman, TX

Rockwall, TX

1950 Danville, VA ....... 0.9065 0.9350

Danville City, VA

Pittsylvania, VA

1960

DavenportMolineRock Island, IA–IL ..... 0.8431 0.8897

Scott, IA

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Henry, IL

Rock Island, IL

2000 Dayton-Springfield, OH .................... 0.9584 0.9713

Clark, OH

Greene, OH

Miami, OH

Montgomery, OH

2020 Daytona Beach,

FL .............................. 0.9153 0.9412

Flagler, FL

Volusia, FL

2030 Decatur, AL ....... 0.8251 0.8766

Lawrence, AL

Morgan, AL

2040 Decatur, IL ......... 0.8052 0.8621

Macon, IL

2080 1 Denver, CO ..... 1.0059 1.0040

Adams, CO

Arapahoe, CO

Denver, CO

Douglas, CO

Jefferson, CO

2120 Des Moines, IA .. 0.8494 0.8942

Dallas, IA

Polk, IA

Warren, IA

2160 1 Detroit, MI ........ 1.0567 1.0385

Lapeer, MI

Macomb, MI

Monroe, MI

Oakland, MI

St. Clair, MI

Wayne, MI

2180 Dothan, AL ........ 0.7909 0.8516

Dale, AL

Houston, AL

2190 Dover, DE .......... 0.9383 0.9573

Kent, DE

2200 Dubuque, IA ...... 0.8240 0.8758

Dubuque, IA

2240 Duluth-Superior,

MN–WI ....................... 1.0031 1.0021

St. Louis, MN

Douglas, WI

2281 Dutchess County, NY ......................... 0.9904 0.9934

Dutchess, NY

2290 2Eau Claire, WI 0.8729 0.9111

Chippewa, WI

Eau Claire, WI

2320 El Paso, TX ....... 0.9235 0.9470

El Paso, TX

2330 Elkhart-Goshen,

IN ............................... 0.9388 0.9577

Elkhart, IN

2335 2Elmira, NY ....... 0.8605 0.9022

Chemung, NY

2340 Enid, OK ............ 0.7969 0.8560

Garfield, OK

2360 Erie, PA ............. 0.9290 0.9508

Erie, PA

2400 Eugene-Springfield, OR .................... 1.1217 1.0818

Lane, OR

2440 Evansville-Henderson, IN–KY ........... 0.8547 0.8981
41054 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Posey, IN

Vanderburgh, IN

Warrick, IN

Henderson, KY

2520 Fargo-Moorhead,

ND–MN ...................... 0.9537 0.9681

Clay, MN

Cass, ND

2560 Fayetteville, NC 0.8407 0.8880

Cumberland, NC

2580 FayettevilleSpringdale-Rogers,

AR .............................. 0.8632 0.9042

Benton, AR

Washington, AR

2620 Flagstaff, AZ–UT 0.9543 0.9685

Coconino, AZ

Kane, UT

2640 Flint, MI .............. 1.1054 1.0710

Genesee, MI

2650 Florence, AL ...... 0.7692 0.8355

Colbert, AL

Lauderdale, AL

2655 Florence, SC ..... 0.8520 0.8961

Florence, SC

2670 Fort CollinsLoveland, CO ............ 1.0319 1.0217

Larimer, CO

2680 1Ft. Lauderdale,

FL .............................. 0.9867 0.9909

Broward, FL

2700 Fort Myers-Cape

Coral, FL .................... 0.8936 0.9259

Lee, FL

2710 Fort Pierce-Port

St. Lucie, FL .............. 1.0263 1.0179

Martin, FL

St. Lucie, FL

2720 Fort Smith, AR–

OK ............................. 0.7639 0.8316

Crawford, AR

Sebastian, AR

Sequoyah, OK

2750 2Fort Walton

Beach, FL .................. 0.8896 0.9230

Okaloosa, FL

2760 Fort Wayne, IN .. 0.9066 0.9351

Adams, IN

Allen, IN

De Kalb, IN

Huntington, IN

Wells, IN

Whitley, IN

2800 1Forth Worth-Arlington, TX ................. 0.9729 0.9814

Hood, TX

Johnson, TX

Parker, TX

Tarrant, TX

2840 Fresno, CA ........ 1.0409 1.0278

Fresno, CA

Madera, CA

2880 Gadsden, AL ..... 0.8799 0.9161

Etowah, AL

2900 Gainesville, FL ... 0.9482 0.9642

Alachua, FL

2920 Galveston-Texas

City, TX ...................... 1.0848 1.0573

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Galveston, TX

2960 Gary, IN ............. 0.9482 0.9642

Lake, IN

Porter, IN

2975 2Glens Falls, NY 0.8605 0.9022

Warren, NY

Washington, NY

2980 Goldsboro, NC ... 0.8548 0.8981

Wayne, NC

2985 Grand Forks,

ND–MN ...................... 0.8918 0.9246

Polk, MN

Grand Forks, ND

2995 Grand Junction,

CO ............................. 0.9099 0.9374

Mesa, CO

3000 1Grand RapidsMuskegon-Holland, MI 0.9992 0.9995

Allegan, MI

Kent, MI

Muskegon, MI

Ottawa, MI

3040 Great Falls, MT 0.9304 0.9518

Cascade, MT

3060 Greeley, CO ...... 0.9477 0.9639

Weld, CO

3080 Green Bay, WI ... 0.9268 0.9493

Brown, WI

3120 1GreensboroWinston-Salem-High

Point, NC ................... 0.9567 0.9701

Alamance, NC

Davidson, NC

Davie, NC

Forsyth, NC

Guilford, NC

Randolph, NC

Stokes, NC

Yadkin, NC

3150 Greenville, NC ... 0.9454 0.9623

Pitt, NC

3160 GreenvilleSpartanburg-Anderson, SC ...................... 0.9242 0.9475

Anderson, SC

Cherokee, SC

Greenville, SC

Pickens, SC

Spartanburg, SC

3180 Hagerstown, MD 1.0204 1.0139

Washington, MD

3200 Hamilton-Middletown, OH ................... 0.9253 0.9482

Butler, OH

3240 Harrisburg-Lebanon-Carlisle, PA ...... 1.0082 1.0056

Cumberland, PA

Dauphin, PA

Lebanon, PA

Perry, PA

3283 1, 2 Hartford, CT .. 1.2100 1.1394

Hartford, CT

Litchfield, CT

Middlesex, CT

Tolland, CT

3285 2 Hattiesburg, MS 0.7327 0.8082

Forrest, MS

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Lamar, MS

3290 Hickory-Morganton-Lenoir, NC ........... 0.8668 0.9067

Alexander, NC

Burke, NC

Caldwell, NC

Catawba, NC

3320 Honolulu, HI ....... 1.1535 1.1027

Honolulu, HI

3350 Houma, LA ........ 0.8215 0.8740

Lafourche, LA

Terrebonne, LA

3360 1 Houston, TX .... 0.9904 0.9934

Chambers, TX

Fort Bend, TX

Harris, TX

Liberty, TX

Montgomery, TX

Waller, TX

3400 Huntington-Ashland, WV–KY–OH ...... 0.9668 0.9771

Boyd, KY

Carter, KY

Greenup, KY

Lawrence, OH

Cabell, WV

Wayne, WV

3440 Huntsville, AL .... 0.8403 0.8877

Limestone, AL

Madison, AL

3480 1 Indianapolis, IN 0.9852 0.9898

Boone, IN

Hamilton, IN

Hancock, IN

Hendricks, IN

Johnson, IN

Madison, IN

Marion, IN

Morgan, IN

Shelby, IN

3500 Iowa City, IA ...... 0.9502 0.9656

Johnson, IA

3520 Jackson, MI ....... 0.9244 0.9476

Jackson, MI

3560 Jackson, MS ...... 0.8310 0.8809

Hinds, MS

Madison, MS

Rankin, MS

3580 Jackson, TN ...... 0.8578 0.9003

Madison, TN

Chester, TN

3600 1 Jacksonville, FL 0.8919 0.9246

Clay, FL

Duval, FL

Nassau, FL

St. Johns, FL

3605 2 Jacksonville,

NC ............................. 0.8130 0.8678

Onslow, NC

3610 2 Jamestown, NY 0.8605 0.9022

Chautauqua, NY

3620 Janesville-Beloit,

WI .............................. 0.9071 0.9354

Rock, WI

3640 Jersey City, NJ .. 1.1623 1.1085

Hudson, NJ
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41055

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

3660 Johnson CityKingsport-Bristol, TN–

VA .............................. 0.8792 0.9156

Carter, TN

Hawkins, TN

Sullivan, TN

Unicoi, TN

Washington, TN

Bristol City, VA

Scott, VA

Washington, VA

3680 2 Johnstown, PA 0.8683 0.9078

Cambria, PA

Somerset, PA

3700 Jonesboro, AR ... 0.7595 0.8283

Craighead, AR

3710 Joplin, MO ......... 0.7890 0.8502

Jasper, MO

Newton, MO

3720 KalamazooBattlecreek, MI .......... 1.1355 1.0909

Calhoun, MI

Kalamazoo, MI

Van Buren, MI

3740 Kankakee, IL ..... 0.9438 0.9612

Kankakee, IL

3760 1Kansas City,

KS–MO ...................... 0.9666 0.9770

Johnson, KS

Leavenworth, KS

Miami, KS

Wyandotte, KS

Cass, MO

Clay, MO

Clinton, MO

Jackson, MO

Lafayette, MO

Platte, MO

Ray, MO

3800 Kenosha, WI ...... 0.9149 0.9409

Kenosha, WI

3810 Killeen-Temple,

TX .............................. 1.0131 1.0090

Bell, TX

Coryell, TX–

3840 Knoxville, TN ..... 0.8937 0.9259

Anderson, TN

Blount, TN

Knox, TN

Loudon, TN

Sevier, TN

Union, TN

3850 Kokomo, IN ........ 0.9295 0.9512

Howard, IN

Tipton, IN

3870 La Crosse, WI–

MN ............................. 0.8933 0.9256

Houston, MN

La Crosse, WI

3880 Lafayette, LA ..... 0.8311 0.8810

Acadia, LA

Lafayette, LA

St. Landry, LA

St. Martin, LA

3920 Lafayette, IN ...... 0.8928 0.9253

Clinton, IN

Tippecanoe, IN

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

3960 Lake Charles, LA 0.7690 0.8354

Calcasieu, LA

3980 Lakeland-Winter

Haven, FL .................. 0.8896 0.9230

Polk, FL

4000 Lancaster, PA .... 0.9581 0.9711

Lancaster, PA

4040 Lansing-East

Lansing, MI ................ 1.0112 1.0077

Clinton, MI

Eaton, MI

Ingham, MI

4080 2 Laredo, TX ...... 0.7441 0.8168

Webb, TX

4100 Las Cruces, NM 0.8989 0.9296

Dona Ana, NM

4120 1 Las Vegas,

NV–AZ ....................... 1.1438 1.0964

Mohave, AZ

Clark, NV

Nye, NV

4150 Lawrence, KS .... 0.8674 0.9072

Douglas, KS

4200 Lawton, OK ........ 0.8716 0.9102

Comanche, OK

4243 Lewiston-Auburn,

ME ............................. 0.9169 0.9423

Androscoggin, ME

4280 Lexington, KY .... 0.8525 0.8965

Bourbon, KY

Clark, KY

Fayette, KY

Jessamine, KY

Madison, KY

Scott, KY

Woodford, KY

4320 Lima, OH ........... 0.8968 0.9281

Allen, OH

Auglaize, OH

4360 Lincoln, NE ........ 0.9323 0.9531

Lancaster, NE

4400 Little Rock-North

Little Rock, AR .......... 0.8553 0.8985

Faulkner, AR

Lonoke, AR

Pulaski, AR

Saline, AR

4420 Longview-Marshall, TX .................... 0.8717 0.9103

Gregg, TX

Harrison, TX

Upshur, TX

4480 1 Los AngelesLong Beach, CA ........ 1.2070 1.1375

Los Angeles, CA

4520 Louisville, KY–IN 0.9113 0.9384

Clark, IN

Floyd, IN

Harrison, IN

Scott, IN

Bullitt, KY

Jefferson, KY

Oldham, KY

4600 Lubbock, TX ...... 0.8514 0.8957

Lubbock, TX

4640 Lynchburg, VA ... 0.8919 0.9246

Amherst, VA

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Bedford, VA

Bedford City, VA

Campbell, VA

Lynchburg City, VA

4680 Macon, GA ........ 0.8629 0.9040

Bibb, GA

Houston, GA

Jones, GA

Peach, GA

Twiggs, GA

4720 Madison, WI ...... 1.0040 1.0027

Dane, WI

4800 Mansfield, OH .... 0.8552 0.8984

Crawford, OH

Richland, OH

4840 Mayaguez, PR ... 0.4188 0.5510

Anasco, PR

Cabo Rojo, PR

Hormigueros, PR

Mayaguez, PR

Sabana Grande, PR

San German, PR

4880 McAllen-Edinburg-Mission, TX ....... 0.8506 0.8951

Hidalgo, TX

4890 Medford-Ashland, OR .................... 1.0042 1.0029

Jackson, OR

4900 MelbourneTitusville-Palm Bay,

FL .............................. 0.9236 0.9470

Brevard, FL

4920 1 Memphis, TN–

AR–MS ...................... 0.8371 0.8854

Crittenden, AR

DeSoto, MS

Fayette, TN

Shelby, TN

Tipton, TN

4940 Merced, CA ....... 1.0240 1.0164

Merced, CA

5000 1 Miami, FL ........ 1.0038 1.0026

Dade, FL

5015 1 Middlesex-Somerset-Hunterdon, NJ .. 1.0785 1.0531

Hunterdon, NJ

Middlesex, NJ

Somerset, NJ

5080 1 MilwaukeeWaukesha, WI ........... 0.9135 0.9399

Milwaukee, WI

Ozaukee, WI

Washington, WI

Waukesha, WI

5120 1 Minneapolis-St.

Paul, MN–WI ............. 1.0877 1.0593

Anoka, MN

Carver, MN

Chisago, MN

Dakota, MN

Hennepin, MN

Isanti, MN

Ramsey, MN

Scott, MN

Sherburne, MN

Washington, MN

Wright, MN
41056 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Pierce, WI

St. Croix, WI

5140 Missoula, MT ..... 0.9208 0.9451

Missoula, MT

5160 Mobile, AL ......... 0.8395 0.8871

Baldwin, AL

Mobile, AL

5170 Modesto, CA ...... 1.0368 1.0251

Stanislaus, CA

5190 1 MonmouthOcean, NJ ................. 1.1341 1.0900

Monmouth, NJ

Ocean, NJ

5200 Monroe, LA ........ 0.8236 0.8756

Ouachita, LA

5240 Montgomery, AL 0.7877 0.8492

Autauga, AL

Elmore, AL

Montgomery, AL

5280 Muncie, IN ......... 0.9434 0.9609

Delaware, IN

5330 Myrtle Beach,

SC .............................. 0.8196 0.8726

Horry, SC

5345 Naples, FL ......... 1.0199 1.0136

Collier, FL

5360 1 Nashville, TN ... 0.9500 0.9655

Cheatham, TN

Davidson, TN

Dickson, TN

Robertson, TN

Rutherford TN

Sumner, TN

Williamson, TN

Wilson, TN

5380 1 Nassau-Suffolk,

NY .............................. 1.3579 1.2331

Nassau, NY

Suffolk, NY

5483 1 New HavenBridgeport-StamfordWaterbury-Danbury,

CT .............................. 1.2271 1.1504

Fairfield, CT

New Haven, CT

5523 2 New LondonNorwich, CT ............... 1.2100 1.1394

New London, CT

5560 1 New Orleans,

LA .............................. 0.9330 0.9536

Jefferson, LA

Orleans, LA

Plaquemines, LA

St. Bernard, LA

St. Charles, LA

St. James, LA

St. John The Baptist,

LA

St. Tammany, LA

5600 1 New York, NY 1.4431 1.2855

Bronx, NY

Kings, NY

New York, NY

Putnam, NY

Queens, NY

Richmond, NY

Rockland, NY

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Westchester, NY

5640 1 Newark, NJ ...... 1.0895 1.0605

Essex, NJ

Morris, NJ

Sussex, NJ

Union, NJ

Warren, NJ

5660 Newburgh, NYPA .............................. 1.1247 1.0838

Orange, NY

Pike, PA

5720 1 Norfolk-Virginia

Beach-Newport News,

VA-NC ....................... 0.8214 0.8740

Currituck, NC

Chesapeake City, VA

Gloucester, VA

Hampton City, VA

Isle of Wight, VA

James City, VA

Mathews, VA

Newport News City,

VA

Norfolk City, VA

Poquoson City, VA

Portsmouth City, VA

Suffolk City, VA

Virginia Beach City,

VA

Williamsburg City, VA

York, VA

5775 1Oakland, CA .... 1.5194 1.3317

Alameda, CA

Contra Costa, CA

5790 Ocala, FL ........... 0.9172 0.9425

Marion, FL

5800 Odessa-Midland,

TX .............................. 0.8683 0.9078

Ector, TX

Midland, TX

5880 1Oklahoma City,

OK ............................. 0.8727 0.9110

Canadian, OK

Cleveland, OK

Logan, OK

McClain, OK

Oklahoma, OK

Pottawatomie, OK

5910 Olympia, WA ..... 1.1547 1.1035

Thurston, WA

5920 Omaha, NE–IA .. 0.9993 0.9995

Pottawattamie, IA

Cass, NE

Douglas, NE

Sarpy, NE

Washington, NE

5945 1Orange County,

CA .............................. 1.1472 1.0986

Orange, CA

5960 1Orlando, FL ..... 0.9834 0.9886

Lake, FL

Orange, FL

Osceola, FL

Seminole, FL

5990 2Owensboro, KY 0.7861 0.8481

Daviess, KY

6015 2Panama City,

FL .............................. 0.8896 0.9230

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Bay, FL

6020 ParkersburgMarietta, WV–OH

(West Virginia Hospitals) ......................... 0.8034 0.8608

Washington, OH

Wood, WV

6020 2ParkersburgMarietta, WV–OH

(Ohio Hospitals) ......... 0.8537 0.8973

Washington, OH

Wood, WV

6080 2Pensacola, FL 0.8896 0.9230

Escambia, FL

Santa Rosa, FL

6120 Peoria-Pekin, IL 0.8081 0.8642

Peoria, IL

Tazewell, IL

Woodford, IL

6160 1Philadelphia,

PA–NJ ....................... 1.1382 1.0927

Burlington, NJ

Camden, NJ

Gloucester, NJ

Salem, NJ

Bucks, PA

Chester, PA

Delaware, PA

Montgomery, PA

Philadelphia, PA

6200 1Phoenix-Mesa,

AZ .............................. 0.9611 0.9732

Maricopa, AZ

Pinal, AZ

6240 Pine Bluff, AR .... 0.7929 0.8531

Jefferson, AR

6280 1Pittsburgh, PA 0.9809 0.9869

Allegheny, PA

Beaver, PA

Butler, PA

Fayette, PA

Washington, PA

Westmoreland, PA

6323 2Pittsfield, MA ... 1.0857 1.0579

Berkshire, MA

6340 Pocatello, ID ...... 0.8811 0.9170

Bannock, ID

6360 Ponce, PR ......... 0.4799 0.6049

Guayanilla, PR

Juana Diaz, PR

Penuelas, PR

Ponce, PR

Villalba, PR

Yauco, PR

6403 Portland, ME ...... 0.9595 0.9721

Cumberland, ME

Sagadahoc, ME

York, ME

6440 1Portland-Vancouver, OR–WA ........ 1.1202 1.0808

Clackamas, OR

Columbia, OR

Multnomah, OR

Washington, OR

Yamhill, OR

Clark, WA
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41057

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

6483 1ProvidenceWarwick-Pawtucket,

RI ............................... 1.0824 1.0557

Bristol, RI

Kent, RI

Newport, RI

Providence, RI

Washington, RI

6520 Provo-Orem, UT 0.9907 0.9936

Utah, UT

6560 Pueblo, CO ........ 0.8731 0.9113

Pueblo, CO

6580 Punta Gorda, FL 0.9050 0.9339

Charlotte, FL

6600 Racine, WI ......... 0.9149 0.9409

Racine, WI

6640 1 Raleigh-Durham-Chapel Hill, NC 0.9833 0.9885

Chatham, NC

Durham, NC

Franklin, NC

Johnston, NC

Orange, NC

Wake, NC

6660 Rapid City, SD ... 0.8226 0.8748

Pennington, SD

6680 Reading, PA ...... 0.9254 0.9483

Berks, PA

6690 Redding, CA ...... 1.1883 1.1254

Shasta, CA

6720 Reno, NV ........... 1.1118 1.0753

Washoe, NV

6740 2 RichlandKennewick-Pasco,

WA ............................. 1.0512 1.0348

Benton, WA

Franklin, WA

6760 Richmond-Petersburg, VA .............. 0.9231 0.9467

Charles City County,

VA

Chesterfield, VA

Colonial Heights City,

VA

Dinwiddie, VA

Goochland, VA

Hanover, VA

Henrico, VA

Hopewell City, VA

New Kent, VA

Petersburg City, VA

Powhatan, VA

Prince George, VA

Richmond City, VA

6780 1 Riverside-San

Bernardino, CA .......... 1.0141 1.0096

Riverside, CA

San Bernardino, CA

6800 Roanoke, VA ..... 0.8528 0.8967

Botetourt, VA

Roanoke, VA

Roanoke City, VA

Salem City, VA

6820 Rochester, MN .. 1.1723 1.1150

Olmsted, MN

6840 1 Rochester, NY 0.9677 0.9778

Genesee, NY

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Livingston, NY

Monroe, NY

Ontario, NY

Orleans, NY

Wayne, NY

6880 Rockford, IL ....... 0.8634 0.9043

Boone, IL

Ogle, IL

Winnebago, IL

6895 Rocky Mount,

NC ............................. 0.9031 0.9326

Edgecombe, NC

Nash, NC

6920 1Sacramento,

CA .............................. 1.1864 1.1242

El Dorado, CA

Placer, CA

Sacramento, CA

6960 Saginaw-Bay

City-Midland, MI ........ 0.9507 0.9660

Bay, MI

Midland, MI

Saginaw, MI

6980 St. Cloud, MN .... 0.9607 0.9729

Benton, MN

Stearns, MN

7000 St. Joseph, MO 0.9910 0.9938

Andrew, MO

Buchanan, MO

7040 1St. Louis, MOIL ................................ 0.9171 0.9425

Clinton, IL

Jersey, IL

Madison, IL

Monroe, IL

St. Clair, IL

Franklin, MO

Jefferson, MO

Lincoln, MO

St. Charles, MO

St. Louis, MO

St. Louis City, MO

Warren, MO

7080 2Salem, OR ....... 0.9933 0.9954

Marion, OR

Polk, OR

7120 Salinas, CA ........ 1.5175 1.3306

Monterey, CA

7160 1Salt Lake CityOgden, UT ................. 0.9400 0.9585

Davis, UT

Salt Lake, UT

Weber, UT

7200 San Angelo, TX 0.7662 0.8333

Tom Green, TX

7240 1San Antonio,

TX .............................. 0.8117 0.8669

Bexar, TX

Comal, TX

Guadalupe, TX

Wilson, TX

7320 1San Diego, CA 1.2336 1.1546

San Diego, CA

7360 1San Francisco,

CA .............................. 1.3507 1.2286

Marin, CA

San Francisco, CA

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

San Mateo, CA

7400 1San Jose, CA .. 1.3724 1.2421

Santa Clara, CA

7440 1San Juan-Bayamon, PR .................... 0.4633 0.5904

Aguas Buenas, PR

Barceloneta, PR

Bayamon, PR

Canovanas, PR

Carolina, PR

Catano, PR

Ceiba, PR

Comerio, PR

Corozal, PR

Dorado, PR

Fajardo, PR

Florida, PR

Guaynabo, PR

Humacao, PR

Juncos, PR

Los Piedras, PR

Loiza, PR

Luguillo, PR

Manati, PR

Morovis, PR

Naguabo, PR

Naranjito, PR

Rio Grande, PR

San Juan, PR

Toa Alta, PR

Toa Baja, PR

Trujillo Alto, PR

Vega Alta, PR

Vega Baja, PR

Yabucoa, PR

7460 San Luis ObispoAtascadero-Paso

Robles, CA ................ 1.0739 1.0500

San Luis Obispo, CA

7480 Santa BarbaraSanta Maria-Lompoc,

CA .............................. 1.1218 1.0819

Santa Barbara, CA

7485 Santa CruzWatsonville, CA ......... 1.4011 1.2598

Santa Cruz, CA

7490 Santa Fe, NM .... 0.9623 0.9740

Los Alamos, NM

Santa Fe, NM

7500 Santa Rosa, CA 1.3099 1.2031

Sonoma, CA

7510 Sarasota-Bradenton, FL ................. 0.9553 0.9692

Manatee, FL

Sarasota, FL

7520 Savannah, GA ... 1.0081 1.0055

Bryan, GA

Chatham, GA

Effingham, GA

7560 2Scranton—

Wilkes-Barre—Hazleton, PA ....................... 0.8683 0.9078

Columbia, PA

Lackawanna, PA

Luzerne, PA

Wyoming, PA

7600 1Seattle-Bellevue-Everett, WA ........ 1.1560 1.1044
41058 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Island, WA

King, WA

Snohomish, WA

7610 Sharon, PA ........ 0.8866 0.9209

Mercer, PA

7620 2Sheboygan, WI 0.8729 0.9111

Sheboygan, WI

7640 ShermanDenison, TX ............... 0.8588 0.9010

Grayson, TX

7680 Shreveport-Bossier City, LA ............... 0.9400 0.9585

Bossier, LA

Caddo, LA

Webster, LA

7720 Sioux City, IA–

NE .............................. 0.8499 0.8946

Woodbury, IA

Dakota, NE

7760 Sioux Falls, SD .. 0.8931 0.9255

Lincoln, SD

Minnehaha, SD

7800 South Bend, IN .. 0.9880 0.9918

St. Joseph, IN

7840 Spokane, WA .... 1.0952 1.0643

Spokane, WA

7880 Springfield, IL .... 0.8739 0.9118

Menard, IL

Sangamon, IL

7920 Springfield, MO .. 0.8088 0.8647

Christian, MO

Greene, MO

Webster, MO

8003 Springfield, MA .. 1.0857 1.0579

Hampden, MA

Hampshire, MA

8050 State College,

PA .............................. 0.9469 0.9633

Centre, PA

8080 2SteubenvilleWeirton, OH–WV

(Ohio Hospitals) ......... 0.8537 0.8973

Jefferson, OH

Brooke, WV

Hancock, WV

8080 SteubenvilleWeirton, OH–WV

(West Virginia Hospitals) ......................... 0.8447 0.8909

Jefferson, OH

Brooke, WV

Hancock, WV

8120 Stockton-Lodi,

CA .............................. 1.1099 1.0740

San Joaquin, CA

8140 Sumter, SC ........ 0.8144 0.8688

Sumter, SC

8160 Syracuse, NY .... 0.9420 0.9599

Cayuga, NY

Madison, NY

Onondaga, NY

Oswego, NY

8200 2Tacoma, WA ... 1.0512 1.0348

Pierce, WA

8240 2Tallahassee, FL 0.8896 0.9230

Gadsden, FL

Leon, FL

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

8280 1Tampa-St. Petersburg-Clearwater,

FL .............................. 0.9203 0.9447

Hernando, FL

Hillsborough, FL

Pasco, FL

Pinellas, FL

8320 Terre Haute, IN 0.9010 0.9311

Clay, IN

Vermillion, IN

Vigo, IN

8360 Texarkana, ARTexarkana, TX ........... 0.8542 0.8977

Miller, AR

Bowie, TX

8400 Toledo, OH ........ 1.0012 1.0008

Fulton, OH

Lucas, OH

Wood, OH

8440 Topeka, KS ........ 0.9833 0.9885

Shawnee, KS

8480 Trenton, NJ ........ 1.0532 1.0361

Mercer, NJ

8520 Tucson, AZ ........ 0.9047 0.9337

Pima, AZ

8560 Tulsa, OK .......... 0.8481 0.8933

Creek, OK

Osage, OK

Rogers, OK

Tulsa, OK

Wagoner, OK

8600 Tuscaloosa, AL .. 0.7658 0.8330

Tuscaloosa, AL

8640 Tyler, TX ............ 0.8837 0.9188

Smith, TX

8680 2 Utica-Rome,

NY .............................. 0.8605 0.9022

Herkimer, NY

Oneida, NY

8720 Vallejo-FairfieldNapa, CA ................... 1.2845 1.1870

Napa, CA

Solano, CA

8735 Ventura, CA ....... 1.0715 1.0484

Ventura, CA

8750 Victoria, TX ........ 0.8400 0.8875

Victoria, TX

8760 Vineland-MillvilleBridgeton, NJ ............. 1.0463 1.0315

Cumberland, NJ

8780 Visalia-TularePorterville, CA ........... 1.0105 1.0072

Tulare, CA

8800 Waco, TX ........... 0.8389 0.8867

McLennan, TX

8840 1Washington,

DC–MD–VA–WV ....... 1.0812 1.0549

District of Columbia,

DC

Calvert, MD

Charles, MD

Frederick, MD

Montgomery, MD

Prince Georges, MD

Alexandria City, VA

Arlington, VA

Clarke, VA

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Culpeper, VA

Fairfax, VA

Fairfax City, VA

Falls Church City, VA

Fauquier, VA

Fredericksburg City,

VA

King George, VA

Loudoun, VA

Manassas City, VA

Manassas Park City,

VA

Prince William, VA

Spotsylvania, VA

Stafford, VA

Warren, VA

Berkeley, WV

Jefferson, WV

8920 Waterloo-Cedar

Falls, IA ..................... 0.8350 0.8838

Black Hawk, IA

8940 Wausau, WI ....... 0.9753 0.9830

Marathon, WI

8960 1West Palm

Beach-Boca Raton,

FL .............................. 1.0203 1.0139

Palm Beach, FL

9000 2Wheeling, WVOH (West Virginia

Hospitals) ................... 0.7892 0.8503

Belmont, OH

Marshall, WV

Ohio, WV

9000 2Wheeling, WVOH (Ohio Hospitals) .. 0.8537 0.8973

Belmont, OH

Marshall, WV

Ohio, WV

9040 Wichita, KS ........ 0.8917 0.9245

Butler, KS

Harvey, KS

Sedgwick, KS

9080 Wichita Falls, TX 0.7847 0.8470

Archer, TX

Wichita, TX

9140 2Williamsport,

PA .............................. 0.8683 0.9078

Lycoming, PA

9160 Wilmington-Newark, DE–MD ............... 1.1894 1.1261

New Castle, DE

Cecil, MD

9200 Wilmington, NC 0.9364 0.9560

New Hanover, NC

Brunswick, NC

9260 2Yakima, WA .... 1.0512 1.0348

Yakima, WA

9270 Yolo, CA ............ 1.0636 1.0431

Yolo, CA

9280 York, PA ............ 0.9431 0.9607

York, PA

9320 YoungstownWarren, OH ............... 0.9836 0.9887

Columbiana, OH

Mahoning, OH

Trumbull, OH

9340 Yuba City, CA .... 1.0889 1.0601
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41059

TABLE 4A.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR URBAN AREAS—Continued

Urban area

(Constituent counties)

Wage

index GAF

Sutter, CA

Yuba, CA

9360 Yuma, AZ .......... 1.0080 1.0055

Yuma, AZ

1 Large Urban Area

2 Hospitals geographically located in the

area are assigned the statewide rural wage

index for FY 1999.

TABLE 4B.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR RURAL AREAS

Nonurban area Wage

index GAF

Alabama ........................ 0.7338 0.8090

Alaska ........................... 1.2456 1.1623

Arizona .......................... 0.8007 0.8588

Arkansas ....................... 0.7265 0.8035

California ....................... 0.9959 0.9972

Colorado ........................ 0.8454 0.8914

Connecticut ................... 1.2100 1.1394

Delaware ....................... 0.8826 0.9180

Florida ........................... 0.8896 0.9230

Georgia ......................... 0.7905 0.8513

Hawaii ........................... 1.0933 1.0630

Idaho ............................. 0.8495 0.8943

Illinois ............................ 0.7942 0.8540

Indiana .......................... 0.8398 0.8873

Iowa ............................... 0.7793 0.8430

Kansas .......................... 0.7330 0.8084

Kentucky ....................... 0.7861 0.8481

Louisiana ....................... 0.7481 0.8198

Maine ............................ 0.8485 0.8936

Maryland ....................... 0.8574 0.9000

Massachusetts .............. 1.0857 1.0579

Michigan ........................ 0.8903 0.9235

Minnesota ...................... 0.8613 0.9028

Mississippi ..................... 0.7327 0.8082

Missouri ......................... 0.7468 0.8188

Montana ........................ 0.8596 0.9016

Nebraska ....................... 0.7690 0.8354

Nevada .......................... 0.9276 0.9498

New Hampshire ............ 1.0262 1.0179

New Jersey 1 ................. ..............

New Mexico .................. 0.8136 0.8683

New York ...................... 0.8605 0.9022

North Carolina ............... 0.8130 0.8678

North Dakota ................. 0.7514 0.8222

Ohio ............................... 0.8537 0.8973

Oklahoma ...................... 0.7139 0.7939

Oregon .......................... 0.9933 0.9954

Pennsylvania ................. 0.8683 0.9078

Puerto Rico ................... 0.4089 0.5420

Rhode Island 1 ............... ..............

South Carolina .............. 0.8063 0.8629

South Dakota ................ 0.7524 0.8230

Tennessee .................... 0.7508 0.8218

Texas ............................ 0.7441 0.8168

Utah ............................... 0.8878 0.9217

Vermont ......................... 0.9436 0.9610

Virginia .......................... 0.7863 0.8482

Washington ................... 1.0512 1.0348

West Virginia ................. 0.7892 0.8503

Wisconsin ...................... 0.8729 0.9111

TABLE 4B.—WAGE INDEX AND CAPITAL

GEOGRAPHIC ADJUSTMENT FACTOR

(GAF) FOR RURAL AREAS—Continued

Nonurban area Wage

index GAF

Wyoming ....................... 0.8787 0.9153

1All counties within the State are classified

as urban.

TABLE 4C.—WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT

FACTOR (GAF) FOR HOSPITALS

THAT ARE RECLASSIFIED

Area Wage

index GAF

Abilene, TX ................... 0.8083 0.8644

Albany, GA .................... 0.7905 0.8513

Albuquerque, NM .......... 0.8632 0.9042

Alexandria, LA ............... 0.8544 0.8978

Allentown-BethlehemEaston, PA ................ 1.0226 1.0154

Amarillo, TX .................. 0.8509 0.8953

Anchorage, AK .............. 1.3007 1.1973

Asheville, NC ................ 0.8960 0.9276

Atlanta, GA .................... 0.9936 0.9956

Augusta-Aiken, GA–SC 0.9253 0.9482

Baltimore, MD ............... 0.9663 0.9768

Barnstable-Yarmouth,

MA ............................. 1.4458 1.2872

Baton Rouge, LA .......... 0.8891 0.9227

Benton Harbor, MI ........ 0.8903 0.9235

Bergen-Passaic, NJ ...... 1.1774 1.1183

Billings, MT ................... 0.9162 0.9418

Binghamton, NY ............ 0.9078 0.9359

Birmingham, AL ............ 0.9092 0.9369

Bismarck, ND ................ 0.7863 0.8482

Boise City, ID ................ 0.9209 0.9451

Boston-Worcester-Lawrence-Lowell-Brockton, MA–NH ............... 1.1307 1.0878

Brazoria, TX .................. 0.8925 0.9251

Bryan-College Station,

TX .............................. 0.8084 0.8645

Buffalo-Niagara Falls,

NY .............................. 0.9607 0.9729

Burlington, VT ............... 0.9616 0.9735

Caguas, PR ................... 0.4419 0.5716

Canton-Massillon, OH ... 0.8827 0.9181

Casper, WY ................... 0.9170 0.9424

Champaign-Urbana, IL .. 0.8789 0.9154

Charleston-North

Charleston, SC .......... 0.9134 0.9399

Charleston, WV ............. 0.8782 0.9149

Charlotte-Gastonia-Rock

Hill, NC–SC ............... 0.9562 0.9698

Charlottesville, VA ......... 0.9754 0.9831

Chattanooga, TN–GA ... 0.8888 0.9224

Chicago, IL .................... 1.0469 1.0319

Cincinnati, OH–KY–IN .. 0.9615 0.9735

Clarksville-Hopkinsville,

TN–KY ....................... 0.8231 0.8752

Cleveland-Lorain-Elyria,

OH ............................. 0.9907 0.9936

Columbia, MO ............... 0.8817 0.9174

Columbus, GA–AL ........ 0.8529 0.8968

Columbus, OH .............. 0.9802 0.9864

Corpus Christi, TX ........ 0.8549 0.8982

Dallas, TX ..................... 0.9364 0.9560

Danville, VA .................. 0.8735 0.9115

TABLE 4C.—WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT

FACTOR (GAF) FOR HOSPITALS

THAT ARE RECLASSIFIED—Continued

Area Wage

index GAF

Davenport-Moline-Rock

Island, IA–IL .............. 0.8431 0.8897

Dayton-Springfield, OH 0.9584 0.9713

Denver, CO ................... 1.0059 1.0040

Des Moines, IA ............. 0.8494 0.8942

Duluth-Superior, MN–WI 1.0031 1.0021

Dutchess County, NY ... 0.9904 0.9934

Elkhart-Goshen, IN ....... 0.9388 0.9577

Eugene-Springfield, OR 1.1072 1.0722

Evansville-Henderson,

IN–KY ........................ 0.8433 0.8898

Fargo-Moorhead, ND–

MN ............................. 0.9264 0.9490

Fayetteville, NC ............. 0.8407 0.8880

Flagstaff, AZ–UT ........... 0.9543 0.9685

Flint, MI ......................... 1.1054 1.0710

Fort Collins-Loveland,

CO ............................. 1.0319 1.0217

Ft. Lauderdale, FL ........ 0.9867 0.9909

Fort Pierce-Port St.

Lucie, FL .................... 1.0263 1.0179

Fort Smith, AR–OK ....... 0.7535 0.8238

Fort Walton Beach, FL .. 0.8640 0.9047

Forth Worth-Arlington,

TX .............................. 0.9729 0.9814

Gadsden, AL ................. 0.8799 0.9161

Gainesville, FL .............. 0.9482 0.9642

Goldsboro, NC .............. 0.8353 0.8841

Grand Forks, ND–MN ... 0.8918 0.9246

Grand Junction, CO ...... 0.9099 0.9374

Grand Rapids-Muskegon-Holland, MI ......... 0.9878 0.9916

Great Falls, MT ............. 0.9304 0.9518

Greeley, CO .................. 0.9376 0.9568

Green Bay, WI .............. 0.9268 0.9493

Greenville, NC ............... 0.9118 0.9387

Greenville-SpartanburgAnderson, SC ............ 0.9242 0.9475

Harrisburg-LebanonCarlisle, PA ................ 1.0082 1.0056

Hartford, CT .................. 1.1879 1.1251

Hattiesburg, MS ............ 0.7327 0.8082

Hickory-MorgantonLenoir, NC ................. 0.8668 0.9067

Honolulu, HI .................. 1.1535 1.1027

Houston, TX .................. 0.9904 0.9934

Huntington-Ashland,

WV–KY–OH ............... 0.9295 0.9512

Huntsville, AL ................ 0.8240 0.8758

Indianapolis, IN ............. 0.9748 0.9827

Iowa City, IA .................. 0.9382 0.9573

Jackson, MS ................. 0.8310 0.8809

Jackson, TN .................. 0.8578 0.9003

Jacksonville, FL ............ 0.8919 0.9246

Johnson City-KingsportBristol, TN–VA ........... 0.8792 0.9156

Jonesboro, AR .............. 0.7595 0.8283

Joplin, MO ..................... 0.7890 0.8502

Kalamazoo-Battlecreek,

MI ............................... 1.1102 1.0742

Kansas City, KS–MO .... 0.9666 0.9770

Knoxville, TN ................. 0.8937 0.9259

Lafayette, LA ................. 0.8311 0.8810

Lansing-East Lansing,

MI ............................... 0.9995 0.9997

Las Cruces, NM ............ 0.8989 0.9296
41060 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 4C.—WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT

FACTOR (GAF) FOR HOSPITALS

THAT ARE RECLASSIFIED—Continued

Area Wage

index GAF

Las Vegas, NV–AZ ....... 1.1438 1.0964

Lexington, KY ................ 0.8525 0.8965

Lima, OH ....................... 0.8787 0.9153

Lincoln, NE .................... 0.9051 0.9340

Little Rock-North Little

Rock, AR ................... 0.8553 0.8985

Los Angeles-Long

Beach, CA ................. 1.2070 1.1375

Louisville, KY–IN ........... 0.9113 0.9384

Macon, GA .................... 0.8502 0.8948

Madison, WI .................. 1.0040 1.0027

Mansfield, OH ............... 0.8552 0.8984

Memphis, TN–AR–MS .. 0.8371 0.8854

Merced, CA ................... 1.0240 1.0164

Milwaukee-Waukesha,

WI .............................. 0.9135 0.9399

Minneapolis-St. Paul,

MN–WI ....................... 1.0877 1.0593

Modesto, CA ................. 1.0368 1.0251

Monroe, LA ................... 0.8097 0.8654

Montgomery, AL ............ 0.7877 0.8492

Myrtle Beach, SC .......... 0.8196 0.8726

Nashville, TN ................. 0.9322 0.9531

New Haven-BridgeportStamford-WaterburyDanbury, CT .............. 1.2271 1.1504

New London-Norwich,

CT .............................. 1.1665 1.1112

New Orleans, LA ........... 0.9330 0.9536

New York, NY ............... 1.4431 1.2855

Newburgh, NY–PA ........ 1.1247 1.0838

Oakland, CA .................. 1.5194 1.3317

Odessa-Midland, TX ..... 0.8683 0.9078

Oklahoma City, OK ....... 0.8727 0.9110

Omaha, NE–IA .............. 0.9993 0.9995

Orange County, CA ...... 1.1472 1.0986

Orlando, FL ................... 0.9834 0.9886

Peoria-Pekin, IL ............ 0.8081 0.8642

Philadelphia, PA–NJ ..... 1.1382 1.0927

Pittsburgh, PA ............... 0.9661 0.9767

Pocatello, ID (Idaho

Hospital) .................... 0.8673 0.9071

Pocatello, ID (Wyoming

Hospitals) ................... 0.8787 0.9153

Portland, ME ................. 0.9595 0.9721

Portland-Vancouver,

OR–WA ..................... 1.1202 1.0808

Provo-Orem, UT ............ 0.9907 0.9936

Raleigh-Durham-Chapel

Hill, NC ...................... 0.9833 0.9885

Rapid City, SD .............. 0.8226 0.8748

Reno, NV ...................... 1.1118 1.0753

Rochester, MN .............. 1.1723 1.1150

Rockford, IL ................... 0.8634 0.9043

Sacramento, CA ............ 1.1864 1.1242

Saginaw-Bay City-Midland, MI ...................... 0.9507 0.9660

St. Cloud, MN ............... 0.9607 0.9729

St. Louis, MO–IL ........... 0.9171 0.9425

Salt Lake City-Ogden,

UT .............................. 0.9400 0.9585

San Diego, CA .............. 1.2336 1.1546

Santa Fe, NM ................ 0.9493 0.9650

Santa Rosa, CA ............ 1.2934 1.1927

Seattle-Bellevue-Everett,

WA ............................. 1.1560 1.1044

TABLE 4C.—WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT

FACTOR (GAF) FOR HOSPITALS

THAT ARE RECLASSIFIED—Continued

Area Wage

index GAF

Sharon, PA .................... 0.8866 0.9209

Sherman-Denison, TX .. 0.8266 0.8777

Sioux City, IA–NE ......... 0.8499 0.8946

Sioux Falls, SD ............. 0.8828 0.9182

South Bend, IN ............. 0.9880 0.9918

Spokane, WA ................ 1.0752 1.0509

Springfield, IL ................ 0.8739 0.9118

Springfield, MO ............. 0.8088 0.8647

State College, PA ......... 0.8812 0.9170

Syracuse, NY ................ 0.9420 0.9599

Tallahassee, FL ............ 0.8518 0.8960

Tampa-St. PetersburgClearwater, FL ........... 0.9203 0.9447

Texarkana, AR-Texarkana, TX ................. 0.8542 0.8977

Toledo, OH .................... 1.0012 1.0008

Topeka, KS ................... 0.9609 0.9731

Tucson, AZ .................... 0.9047 0.9337

Tulsa, OK ...................... 0.8376 0.8857

Tuscaloosa, AL ............. 0.7658 0.8330

Tyler, TX ....................... 0.8837 0.9188

Vallejo-Fairfield-Napa,

CA .............................. 1.2845 1.1870

Victoria, TX ................... 0.8400 0.8875

Washington, DC–MD–

VA–WV ...................... 1.0812 1.0549

Waterloo-Cedar Falls, IA 0.8350 0.8838

Wausau, WI .................. 0.9442 0.9614

Wichita, KS ................... 0.8789 0.9154

Wichita Falls, TX ........... 0.7677 0.8344

Rural Alabama .............. 0.7338 0.8090

Rural Illinois .................. 0.7942 0.8540

Rural Louisiana ............. 0.7481 0.8198

Rural Massachusetts .... 1.0421 1.0286

Rural Michigan .............. 0.8903 0.9235

Rural Minnesota ............ 0.8613 0.9028

Rural Missouri ............... 0.7468 0.8188

Rural Nevada ................ 0.8851 0.9198

Rural New Mexico ......... 0.8136 0.8683

Rural Oregon ................ 0.9933 0.9954

Rural Washington ......... 1.0512 1.0348

Rural Wyoming ............. 0.8787 0.9153

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS

Urban area

Average

hourly

wage

Abilene, TX ................................... 16.5825

Aguadilla, PR ................................ 9.8222

Akron, OH ..................................... 20.5687

Albany, GA .................................... 16.5708

Albany-Schenectady-Troy, NY ..... 17.8900

Albuquerque, NM .......................... 17.8958

Alexandria, LA .............................. 17.7146

Allentown-Bethlehem-Easton, PA 21.2002

Altoona, PA ................................... 19.3951

Amarillo, TX .................................. 17.6070

Anchorage, AK .............................. 26.6324

Ann Arbor, MI ............................... 22.9238

Anniston, AL ................................. 17.9884

Appleton-Oshkosh-Neenah, WI .... 18.3354

Arecibo, PR ................................... 10.1129

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS—Continued

Urban area

Average

hourly

wage

Asheville, NC ................................ 18.5755

Athens, GA ................................... 18.0203

Atlanta, GA ................................... 20.6008

Atlantic-Cape May, NJ .................. 23.9678

Augusta-Aiken, GA–SC ................ 19.1829

Austin-San Marcos, TX ................. 17.5021

Bakersfield, CA ............................. 19.3407

Baltimore, MD ............................... 20.0332

Bangor, ME ................................... 19.6846

Barnstable-Yarmouth, MA ............ 31.9593

Baton Rouge, LA .......................... 18.4325

Beaumont-Port Arthur, TX ............ 18.8069

Bellingham, WA ............................ 23.7572

Benton Harbor, MI ........................ 17.7241

Bergen-Passaic, NJ ...................... 25.3184

Billings, MT ................................... 18.9960

Biloxi-Gulfport-Pascagoula, MS .... 17.1946

Binghamton, NY ............................ 18.8217

Birmingham, AL ............................ 18.8506

Bismarck, ND ................................ 16.6736

Bloomington, IN ............................ 18.6271

Bloomington-Normal, IL ................ 18.3900

Boise City, ID ................................ 19.0323

Boston-Worcester-Lawrence-Lowell-Brockton, MA–NH ................. 23.4028

Boulder-Longmont, CO ................. 20.8550

Brazoria, TX .................................. 18.5041

Bremerton, WA ............................. 22.9686

Brownsville-Harlingen-San Benito,

TX .............................................. 17.1138

Bryan-College Station, TX ............ 16.2473

Buffalo-Niagara Falls, NY ............. 19.9187

Burlington, VT ............................... 19.8983

Caguas, PR .................................. 9.1414

Canton-Massillon, OH ................... 18.3002

Casper, WY .................................. 18.0774

Cedar Rapids, IA .......................... 18.3134

Champaign-Urbana, IL ................. 18.1242

Charleston-North Charleston, SC 18.9373

Charleston, WV ............................. 18.6776

Charlotte-Gastonia-Rock Hill, NC–

SC ............................................. 19.8253

Charlottesville, VA ........................ 21.3425

Chattanooga, TN–GA ................... 18.8525

Cheyenne, WY .............................. 16.9321

Chicago, IL .................................... 21.7048

Chico-Paradise, CA ...................... 21.0787

Cincinnati, OH–KY–IN .................. 19.9348

Clarksville-Hopkinsville, TN–KY ... 16.7045

Cleveland-Lorain-Elyria, OH ......... 20.5401

Colorado Springs, CO .................. 19.5098

Columbia, MO ............................... 18.5780

Columbia, SC ................................ 19.3016

Columbus, GA–AL ........................ 17.6831

Columbus, OH .............................. 20.3213

Corpus Christi, TX ........................ 17.6885

Cumberland, MD–WV ................... 17.1237

Dallas, TX ..................................... 19.4566

Danville, VA .................................. 18.7936

Davenport-Moline-Rock Island,

IA–IL .......................................... 17.4790

Dayton-Springfield, OH ................. 19.8696

Daytona Beach, FL ....................... 18.9775

Decatur, AL ................................... 17.1056

Decatur, IL .................................... 16.6936

Denver, CO ................................... 20.8379

Des Moines, IA ............................. 17.5526

Detroit, MI ..................................... 21.9074

Dothan, AL .................................... 16.3982
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41061

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS—Continued

Urban area

Average

hourly

wage

Dover, DE ..................................... 19.4527

Dubuque, IA .................................. 17.0836

Duluth-Superior, MN–WI ............... 20.6977

Dutchess County, NY ................... 21.8781

Eau Claire, WI .............................. 17.8112

El Paso, TX ................................... 19.1468

Elkhart-Goshen, IN ....................... 19.3331

Elmira, NY ..................................... 17.5367

Enid, OK ....................................... 16.5214

Erie, PA ......................................... 19.2614

Eugene-Springfield, OR ................ 23.2566

Evansville, Henderson, IN–KY ..... 17.7198

Fargo-Moorhead, ND–MN ............ 19.7733

Fayetteville, NC ............................ 17.4302

Fayetteville-Springdale-Rogers,

AR ............................................. 17.8965

Flagstaff, AZ–UT ........................... 19.7032

Flint, MI ......................................... 22.9184

Florence, AL ................................. 15.9479

Florence, SC ................................. 17.6631

Fort Collins-Loveland, CO ............ 21.3936

Fort Lauderdale, FL ...................... 20.3766

Fort Myers-Cape Coral, FL ........... 18.5257

Fort Pierce-Port St. Lucie, FL ....... 21.2784

Fort Smith, AR–OK ....................... 15.8375

Fort Walton Beach, FL ................. 17.8995

Fort Wayne, IN ............................. 18.7962

Fort Worth-Arlington, TX ............... 20.1487

Fresno, CA .................................... 21.5811

Gadsden, AL ................................. 18.2411

Gainesville, FL .............................. 19.6396

Galveston-Texas City, TX ............. 22.4914

Gary, IN ........................................ 19.6025

Glens Falls, NY ............................. 17.6404

Goldsboro, NC .............................. 17.7222

Grand Forks, ND–MN ................... 18.3589

Grand Junction, CO ...................... 17.0997

Grand Rapids-Muskegon-Holland,

MI .............................................. 20.7161

Great Falls, MT ............................. 18.4336

Greeley, CO .................................. 19.6480

Green Bay, WI .............................. 19.0230

Greensboro-Winston-Salem-High

Point, NC ................................... 19.8355

Greenville, NC .............................. 19.6007

Greenville-Spartanburg-Anderson,

SC ............................................. 19.1612

Hagerstown, MD ........................... 21.1564

Hamilton-Middletown, OH ............. 19.1833

Harrisburg-Lebanon-Carlisle, PA .. 20.9016

Hartford, CT .................................. 24.5817

Hattiesburg, MS ............................ 15.0868

Hickory-Morganton-Lenoir, NC ..... 18.4995

Honolulu, HI .................................. 23.9148

Houma, LA .................................... 17.0314

Houston, TX .................................. 20.5336

Huntington-Ashland, WV–KY–OH 20.0441

Huntsville, AL ................................ 17.4211

Indianapolis, IN ............................. 20.4258

Iowa City, IA ................................. 19.6992

Jackson, MI ................................... 19.1645

Jackson, MS ................................. 17.2283

Jackson, TN .................................. 17.7852

Jacksonville, FL ............................ 18.4915

Jacksonville, NC ........................... 15.6996

Jamestown, NY ............................. 15.9148

Janesville-Beloit, WI ..................... 18.8060

Jersey City, NJ ............................. 24.0964

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS—Continued

Urban area

Average

hourly

wage

Johnson City-Kingsport-Bristol,

TN–VA ....................................... 18.2276

Johnstown, PA .............................. 17.9084

Jonesboro, AR .............................. 15.3904

Joplin, MO ..................................... 16.3572

Kalamazoo-Battlecreek, MI ........... 23.5418

Kankakee, IL ................................. 19.5674

Kansas City, KS–MO .................... 20.0395

Kenosha, WI ................................. 18.9676

Killeen-Temple, TX ....................... 21.0041

Knoxville, TN ................................. 18.5294

Kokomo, IN ................................... 19.2700

La Crosse, WI–MN ....................... 18.5196

Lafayette, LA ................................. 17.1506

Lafayette, IN ................................. 18.3693

Lake Charles, LA .......................... 15.9437

Lakeland-Winter Haven, FL .......... 18.5726

Lancaster, PA ............................... 19.8644

Lansing-East Lansing, MI ............. 20.9650

Laredo, TX .................................... 15.2556

Las Cruces, NM ............................ 18.4298

Las Vegas, NV–AZ ....................... 23.7139

Lawrence, KS ............................... 17.9827

Lawton, OK ................................... 18.0698

Lewiston-Auburn, ME ................... 19.0090

Lexington, KY ............................... 17.6740

Lima, OH ....................................... 18.5932

Lincoln, NE ................................... 19.3291

Little Rock-North Little Rock, AR .. 17.6667

Longview-Marshall, TX ................. 18.0723

Los Angeles-Long Beach, CA ...... 24.9564

Louisville, KY–IN ........................... 18.8926

Lubbock, TX .................................. 17.6523

Lynchburg, VA .............................. 18.4907

Macon, GA .................................... 17.8909

Madison, WI .................................. 20.8155

Mansfield, OH ............................... 17.7305

Mayaguez, PR .............................. 8.6819

McAllen-Edinburg-Mission, TX ..... 17.6361

Medford-Ashland, OR ................... 20.8190

Melbourne-Titusville-Palm Bay, FL 19.1487

Memphis, TN–AR–MS .................. 17.3552

Merced, CA ................................... 20.8449

Miami, FL ...................................... 20.8119

Middlesex-Somerset-Hunterdon,

NJ .............................................. 23.1702

Milwaukee-Waukesha, WI ............ 18.9231

Minneapolis-St. Paul, MN–WI ....... 22.5517

Missoula, MT ................................ 19.0914

Mobile, AL ..................................... 17.4040

Modesto, CA ................................. 21.4951

Monmouth-Ocean, NJ ................... 23.5125

Monroe, LA ................................... 17.0762

Montgomery, AL ........................... 16.2493

Muncie, IN ..................................... 19.5589

Myrtle Beach, SC .......................... 16.9930

Naples, FL .................................... 21.1457

Nashville, TN ................................ 19.6966

Nassau-Suffolk, NY ...................... 28.1530

New Haven-Bridgeport-StamfordWaterbury-Danbury, CT ............ 25.6149

New London-Norwich, CT ............ 24.1351

New Orleans, LA .......................... 19.3440

New York, NY ............................... 29.9194

Newark, NJ ................................... 24.6026

Newburgh, NY–PA ........................ 23.1779

Norfolk-Virginia Beach-Newport

News, VA–NC ........................... 17.0290

Oakland, CA ................................. 31.1506

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS—Continued

Urban area

Average

hourly

wage

Ocala, FL ...................................... 19.0159

Odessa-Midland, TX ..................... 17.9849

Oklahoma City, OK ....................... 18.0923

Olympia, WA ................................. 23.9389

Omaha, NE–IA .............................. 20.7181

Orange County, CA ...................... 23.8979

Orlando, FL ................................... 20.3876

Owensboro, KY ............................. 16.1460

Panama City, FL ........................... 17.6753

Parkersburg-Marietta, WV–OH ..... 16.6559

Pensacola, FL ............................... 16.9466

Peoria-Pekin, IL ............................ 16.7415

Philadelphia, PA–NJ ..................... 23.5963

Phoenix-Mesa, AZ ........................ 19.9270

Pine Bluff, AR ............................... 16.4382

Pittsburgh, PA ............................... 20.3368

Pittsfield, MA ................................. 22.4781

Pocatello, ID ................................. 18.2669

Ponce, PR ..................................... 9.9487

Portland, ME ................................. 19.8655

Portland-Vancouver, OR–WA ....... 23.2244

Providence-Warwick, RI ............... 22.4405

Provo-Orem, UT ........................... 20.5384

Pueblo, CO ................................... 18.1010

Punta Gorda, FL ........................... 18.7634

Racine, WI .................................... 18.9687

Raleigh-Durham-Chapel Hill, NC .. 20.3867

Rapid City, SD .............................. 17.0546

Reading, PA .................................. 19.1866

Redding, CA ................................. 24.6374

Reno, NV ...................................... 23.0512

Richland-Kennewick-Pasco, WA .. 21.3732

Richmond-Petersburg, VA ............ 19.1375

Riverside-San Bernardino, CA ..... 21.4175

Roanoke, VA ................................. 17.6802

Rochester, MN .............................. 24.3054

Rochester, NY .............................. 20.0636

Rockford, IL .................................. 17.8998

Rocky Mount, NC ......................... 18.7242

Sacramento, CA ........................... 24.5905

Saginaw-Bay City-Midland, MI ..... 19.7109

St. Cloud, MN ............................... 19.9167

St. Joseph, MO ............................. 20.5465

St. Louis, MO–IL ........................... 19.0136

Salem, OR .................................... 20.5776

Salinas, CA ................................... 31.4614

Salt Lake City-Ogden, UT ............ 19.4382

San Angelo, TX ............................ 15.8857

San Antonio, TX ........................... 16.8290

San Diego, CA .............................. 25.4828

San Francisco, CA ........................ 28.8570

San Jose, CA ................................ 28.7281

San Juan-Bayamon, PR ............... 9.6051

San Luis Obispo-Atascadero-Paso

Robles, CA ................................ 22.2647

Santa Barbara-Santa MariaLompoc, CA .............................. 23.2580

Santa Cruz-Watsonville, CA ......... 29.0487

Santa Fe, NM ............................... 19.9519

Santa Rosa, CA ............................ 28.2508

Sarasota-Bradenton, FL ............... 19.8054

Savannah, GA .............................. 20.9009

Scranton-Wilkes Barre-Hazleton,

PA .............................................. 17.2431

Seattle-Bellevue-Everett, WA ....... 23.9486

Sharon, PA ................................... 18.3824

Sheboygan, WI ............................. 17.0899

Sherman-Denison, TX .................. 17.8053

Shreveport-Bossier City, LA ......... 19.4893
41062 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS—Continued

Urban area

Average

hourly

wage

Sioux City, IA–NE ......................... 17.6215

Sioux Falls, SD ............................. 18.5158

South Bend, IN ............................. 20.4831

Spokane, WA ................................ 22.7055

Springfield, IL ................................ 18.1176

Springfield, MO ............................. 16.7688

Springfield, MA ............................. 22.8337

State College, PA ......................... 19.6319

Steubenville-Weirton, OH–WV ..... 17.5119

Stockton-Lodi, CA ......................... 23.0115

Sumter, SC ................................... 16.8850

Syracuse, NY ................................ 19.5305

Tacoma, WA ................................. 21.5661

Tallahassee, FL ............................ 17.5545

Tampa-St. Petersburg-Clearwater,

FL .............................................. 18.9348

Terre Haute, IN ............................. 18.6798

Texarkana, AR-Texarkana, TX ..... 17.7097

Toledo, OH ................................... 20.7579

Topeka, KS ................................... 20.3862

Trenton, NJ ................................... 21.8355

Tucson, AZ ................................... 18.7576

Tulsa, OK ...................................... 17.5841

Tuscaloosa, AL ............................. 15.8762

Tyler, TX ....................................... 18.3215

Utica-Rome, NY ............................ 17.4892

Vallejo-Fairfield-Napa, CA ............ 26.6436

Ventura, CA .................................. 22.7551

Victoria, TX ................................... 17.4131

Vineland-Millville-Bridgeton, NJ .... 21.6923

Visalia-Tulare-Porterville, CA ........ 20.9493

Waco, TX ...................................... 17.3923

Washington, DC–MD–VA–WV ..... 22.4162

Waterloo-Cedar Falls, IA .............. 16.5347

Wausau, WI .................................. 20.2214

West Palm Beach-Boca Raton, FL 21.2323

Wheeling, OH–WV ........................ 15.8460

Wichita, KS ................................... 18.4872

TABLE 4D.—AVERAGE HOURLY WAGE

FOR URBAN AREAS—Continued

Urban area

Average

hourly

wage

Wichita Falls, TX ........................... 16.2686

Williamsport, PA ........................... 17.7778

Wilmington-Newark, DE–MD ........ 24.6591

Wilmington, NC ............................. 19.4129

Yakima, WA .................................. 21.4371

Yolo, CA ........................................ 22.0507

York, PA ........................................ 19.5520

Youngstown-Warren, OH .............. 20.3921

Yuba City, CA ............................... 22.5751

Yuma, AZ ...................................... 20.8977

TABLE 4E.—AVERAGE HOURLY WAGE

FOR RURAL AREAS

Nonurban area

Average

hourly

wage

Alabama ........................................ 15.1457

Alaska ........................................... 25.8250

Arizona .......................................... 16.5996

Arkansas ....................................... 15.0624

California ....................................... 20.6476

Colorado ....................................... 17.5278

Connecticut ................................... 25.0854

Delaware ....................................... 18.2993

Florida ........................................... 18.4445

Georgia ......................................... 16.3888

Hawaii ........................................... 22.6670

Idaho ............................................. 17.6129

Illinois ............................................ 16.4463

Indiana .......................................... 17.4120

Iowa .............................................. 16.1574

Kansas .......................................... 15.1960

Kentucky ....................................... 16.2977

Louisiana ....................................... 15.4880

TABLE 4E.—AVERAGE HOURLY WAGE

FOR RURAL AREAS—Continued

Nonurban area

Average

hourly

wage

Maine ............................................ 17.5914

Maryland ....................................... 17.7750

Massachusetts .............................. 22.5095

Michigan ........................................ 18.4407

Minnesota ..................................... 17.8572

Mississippi ..................................... 15.1905

Missouri ......................................... 15.4837

Montana ........................................ 17.4489

Nebraska ....................................... 15.9437

Nevada .......................................... 19.2311

New Hampshire ............................ 21.2761

New Jersey 1 ................................. ................

New Mexico .................................. 16.8682

New York ...................................... 17.8401

North Carolina ............................... 16.8551

North Dakota ................................. 15.5776

Ohio .............................................. 17.6991

Oklahoma ...................................... 14.8012

Oregon .......................................... 20.5901

Pennsylvania ................................. 18.0013

Puerto Rico ................................... 8.4766

Rhode Island 1 .............................. ................

South Carolina .............................. 16.7176

South Dakota ................................ 15.5989

Tennessee .................................... 15.5660

Texas ............................................ 15.4273

Utah .............................................. 18.4060

Vermont ........................................ 19.5637

Virginia .......................................... 16.3017

Washington ................................... 21.7934

West Virginia ................................. 16.3620

Wisconsin ...................................... 18.0975

Wyoming ....................................... 18.2168

1All counties within the State are classified

as urban.

TABLE 4F.—PUERTO RICO WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT FACTOR (GAF)

Area Wage

index GAF

Wage

index—

reclass.

hospitals

GAF—

Reclass.

hospitals

Aguadilla, PR .................................................................................................................... 1.0336 1.0229 .................... ....................

Arecibo, PR ...................................................................................................................... 1.0642 1.0435 .................... ....................

Caguas, PR ...................................................................................................................... 0.9642 0.9753 0.9642 0.9753

Mayaguez, PR .................................................................................................................. 0.9136 0.9400 .................... ....................

Ponce, PR ........................................................................................................................ 1.0470 1.0320 .................... ....................

San Juan-Bayamon, PR ................................................................................................... 1.0108 1.0074 .................... ....................

Rural Puerto Rico ............................................................................................................. 0.8920 0.9247 .................... ....................

BILLING CODE 4120–01–P
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41064 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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41066 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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41068 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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41070 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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41072 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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41074 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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41076 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations
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BILLING CODE 4120–01–C
41078 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 6A.—NEW DIAGNOSIS CODES

Diagnosis

code Description CC MDC DRG

337.3 Autonomic dysreflexia .......................................................................................... N 1 18, 19

438.53 Other paralytic syndrome, bilateral ...................................................................... N 1 12

482.40 Pneumonia due to Staphyloccus, unspecified ..................................................... Y 4

5

15

25

79, 80, 81

121 1

387, 389 2

489 3

482.41 Pneumonia due to Staphylococcus aureus ......................................................... Y 4

5

15

25

79, 80, 81

121 1

387, 389 2

489 3

482.49 Other Staphylococcus pneumonia ....................................................................... Y 4

5

15

25

79, 80, 81

121 1

387, 389 2

489 3

518.83 Chronic respiratory failure .................................................................................... Y 4

5

87

121 1

518.84 Acute and chronic respiratory failure ................................................................... Y 4

5

22

87

121 1

506, 507

519.00 Unspecified tracheostomy complication .............................................................. Y Pre

4

482

101, 102

519.01 Infection of tracheostomy ..................................................................................... Y Pre

4

482

101, 102

519.02 Mechanical complication of tracheostomy ........................................................... Y Pre

4

482

101, 102

519.09 Other tracheostomy complication ........................................................................ Y Pre

4

482

101, 102

536.40 Unspecified gastrostomy complication ................................................................ Y 6 188, 189, 190

536.41 Infection of gastrostomy ....................................................................................... Y 6 188, 189, 190

536.42 Mechanical complication of gastrostomy ............................................................. Y 6 188, 189, 190

536.49 Other gastrostomy complication .......................................................................... Y 6 188, 189, 190

564.81 Neurogenic bowel ................................................................................................ N 6 182, 183, 184

564.89 Other functional disorders of intestine ................................................................. N 6 182, 183, 184

569.62 Mechanical complication of colostomy and enterostomy .................................... Y 6 188, 189, 190

659.70 Abnormality in fetal heart rate/rhythm, unspecified as to episode of care or not

applicable.

N 14 370, 371, 372, 373,

374, 375

659.71 Abnormality in fetal heart rate/rhythm, delivered, with or without mention of

antepartum condition.

N 14 370, 371, 372, 373,

374, 375

659.73 Abnormality in fetal heart rate/rhythm, antepartum condition or complication .... N 14 383, 384

763.81 Abnormality in fetal heart rate or rhythm before the onset of labor .................... N 15 390

763.82 Abnormality in fetal heart rate or rhythm during labor ........................................ N 15 390

763.83 Abnormality in fetal heart rate or rhythm, unspecified as to time of onset ......... N 15 390

763.89 Other specified complications of labor and delivery affecting fetus and newborn.N 15 390

780.71 Chronic fatigue syndrome .................................................................................... N 23

25

463, 464

490

780.79 Other malaise and fatigue ................................................................................... N 23

25

463, 464

490

786.03 Apnea ................................................................................................................... Y 4

25

99, 100

490

786.04 Cheyne-Stokes respiration ................................................................................... Y 4

25

99, 100

490

786.05 Shortness of breath ............................................................................................. N 4

25

99, 100

490

786.06 Tachypnea ........................................................................................................... N 4

25

99, 100

490

786.07 Wheezing ............................................................................................................. N 4

25

99, 100

490

965.61 Poisoning by propionic acid derivatives .............................................................. N 21 449, 450, 451

965.69 Poisoning by other antirheumatics ...................................................................... N 21 449, 450, 451

995.86 Malignant hyperthermia ....................................................................................... Y 21 454,455

996.55 Mechanical complications due to artificial skin graft and decellularized

allodermis.

Y 21 452, 453

996.56 Mechanical complications due to peritoneal dialysis catheter ............................ Y 21 452, 453

996.68 Infection and inflammatory reaction due to peritoneal dialysis catheter ............. Y 21 452, 453

V02.51 Carrier or suspected carrier of Group B streptococcus ...................................... N 23 467

V02.52 Carrier or suspected carrier of other streptococcus ............................................ N 23 467

V02.59 Carrier or suspected carrier of other specified bacterial diseases ...................... N 23 467

V10.48 Personal history of malignant neoplasm of epididymis ....................................... N 17 411, 412

V13.61 Personal history of hypospadias .......................................................................... N 23 467

V13.69 Personal history other congenital malformation .................................................. N 23 467
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41079

TABLE 6A.—NEW DIAGNOSIS CODES—Continued

Diagnosis

code Description CC MDC DRG

V16.51 Family history of malignant neoplasm of kidney ................................................. N 23 467

V16.59 Family history of malignant neoplasm of other urinary organs ........................... N 23 467

V18.61 Family history of polycystic kidney ...................................................................... N 23 467

V18.69 Family history of other kidney diseases .............................................................. N 23 467

V23.81 Supervision of high-risk pregnancy of elderly primigravida ................................. Y 14 469

V23.82 Supervision of high-risk pregnancy of elderly multigravida ................................. Y 14 469

V23.83 Supervision of high-risk pregnancy of young primigravida ................................. Y 14 469

V23.84 Supervision of high-risk pregnancy of young multigravida .................................. Y 14 469

V23.89 Supervision of other high-risk pregnancy ............................................................ Y 14 469

V26.51 Tubal ligation status ............................................................................................. N 23 467

V26.52 Vasectomy status ................................................................................................. N 23 467

V29.3 Observation for suspected genetic or metabolic condition ................................. N 23 467

V43.83 Organ or tissue replaced by artificial skin ........................................................... N 23 467

V44.50 Unspecified cystostomy status ............................................................................ N 23 467

V44.51 Cutaneous-vesicostomy status ............................................................................ N 23 467

V44.52 Appendico-vesicostomy status ............................................................................ N 23 467

V44.59 Other cystostomy status ...................................................................................... N 23 467

V56.2 Fitting and adjustment of peritoneal dialysis catheter ......................................... N 11 317

V58.62 Encounter for aftercare for long- term (current) use of antibiotics ...................... N 23 465, 466

V76.44 Special screening for malignant neoplasm of prostate ....................................... N 23 467

V76.45 Special screening for malignant neoplasm of testis ............................................ N 23 467

1 Classified as a ‘‘major complication’’ in this DRG.

2 Classified as a ‘‘major problem’’ in these DRGs.

3 HIV major related condition in this DRG.

TABLE 6B.—NEW PROCEDURE CODES

Procedure

code Description OR MDC DRG

36.31 Open chest transmyocardial revascularization ........................................................ Y 5 108

36.32 Other transmyocardial revascularization .................................................................. Y 5 108

36.39 Other heart revascularization ................................................................................... Y 5 108

37.67 Implantation of cardiomyostimulation system .......................................................... Y 5 110, 111

75.37 Amnioinfusion ........................................................................................................... N

86.67 Dermal regenerative graft ........................................................................................ Y 1 7, 8

3 63

5 120

6 170, 171

8 217

9 263, 264, 265, 266

10 287

21 439

22 504, 506, 507

24 486

92.30 Stereotactic radiosurgery, not otherwise specified .................................................. N 1 1

10

17

7, 8

292, 293

401, 402, 408

92.31 Single source photon radiosurgery .......................................................................... N 1 1

10

17

7, 8

292, 293

401, 402, 408

92.32 Multi-source photon radiosurgery ............................................................................. N 1 1

10

17

7, 8

292, 293

401, 402, 408

92.33 Particulate radiosurgery ........................................................................................... N 1 1

10

17

7, 8

292, 293

401, 402, 408

92.39 Stereotactic radiosurgery, not elsewhere classified ................................................. N 1 1

10

17

7, 8

292, 293

401, 402, 408

96.29 Reduction of intussusception of alimentary tract ..................................................... N

99.10 Injection or infusion of thrombolytic agent ............................................................... N

99.20 Injection or infusion of platelet inhibitor ................................................................... N

1 Non-operating room procedure that affects DRG assignment.
41080 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 6C.—INVALID DIAGNOSIS CODES

Diagnosis

code Description CC MDC DRG

482.4 Pneumonia due to Staphylococcus ..................................................................... Y 4

5

15

25

79, 80, 81

121 11

387, 389 2

489 3

519.0 Tracheostomy complication ................................................................................. Y PRE

4

482

101, 102

564.8 Other specified functional disorders of intestine ................................................. N 6 182, 183, 184

763.8 Other specified complications of labor and delivery affecting fetus and newborn.N 15 390

780.7 Malaise and fatigue .............................................................................................. N 23

25

463, 464

490

965.6 Poisoning by antirheumatics [antiphlogistics] ...................................................... N 21 449, 450, 451

V02.5 Carrier or suspected carrier of other specified bacterial diseases ...................... N 23 467

V13.6 Personal history of congenital malformations ...................................................... N 23 467

V16.5 Family history of malignant neoplasm of urinary organs .................................... N 23 467

V18.6 Family history of kidney diseases ........................................................................ N 23 467

V23.8 Supervision of other high-risk pregnancy ............................................................ Y 14 469

V44.5 Cystostomy status ................................................................................................ N 23 467

1 Classified as a ‘‘major complication’’ in this DRG.

2 Classified as a ‘‘major problem’’ in these DRGs.

3 HIV major related condition in this DRG.

TABLE 6D.—INVALID PROCEDURE CODES

Procedure

code Description OR MDC DRG

36.3 Other heart revascularization ............................................................................... Y 5 108

92.3 Stereotactic radiosurgery ..................................................................................... N 1 1

10

17

7,8

292, 293

401, 402, 408

1 Non-operating room procedure that affects DRG assignment.

TABLE 6E.—REVISED DIAGNOSIS CODE TITLES

Diagnosis

code Description CC MDC DRG

518.81 Acute respiratory failure ....................................................................................... Y 4

5

22

87

121 1

506, 507

659.60 Elderly multigravida unspecified as to episode of care or not applicable ........... N 14 370, 371, 372, 373,

374, 375

659.61 Elderly multigravida delivered, with mention of antepartum condition ................ N 14 370, 371, 372, 373,

374, 375

659.63 Elderly multigravida with antepartum condition or complication ......................... N 14 383, 384

V56.1 Fitting and adjustment of extracorporeal dialysis catheter .................................. N 11 317

V82.4 Maternal postnatal screening for chromosomal anomalies ................................. N 23 467

1 Classified as a ‘‘major complication’’ in this DRG.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41081

TABLE 6F.—ADDITIONS TO THE CC EXCLUSIONS LIST

PAGE 1 OF 3 PAGES

CCs that are added to the list are in Table 6F—Additions to the CC Exclusions List. Each of the principal diagnoses is shown with an asterisk,

and the revisions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis.

*01100 *01123 *01146 *01172 *01195 *01281 *11515 48249

48240 48240 48240 48240 48240 48240 48240 *48230

48241 48241 48241 48241 48241 48241 48241 48240

48249 48249 48249 48249 48249 48249 48249 48241

*01101 *01124 *01150 *01173 *01196 *01282 *11595 48249

48240 48240 48240 48240 48240 48240 48240 *48231

48241 48241 48241 48241 48241 48241 48241 48240

48249 48249 48249 48249 48249 48249 48249 48241

*01102 *01125 *01151 *01174 *01200 *01283 *1221 48249

48240 48240 48240 48240 48240 48240 48240 *48232

48241 48241 48241 48241 48241 48241 48241 48240

48249 48249 48249 48249 48249 48249 48249 48241

*01103 *01126 *01152 *01175 *01201 *01284 *1304 48249

48240 48240 48240 48240 48240 48240 48240 *48239

48241 48241 48241 48241 48241 48241 48241 48240

48249 48249 48249 48249 48249 48249 48249 48241

*01104 *01130 *01153 *01176 *01202 *01285 *1363 48249

48240 48240 48240 48240 48240 48240 48240 *48240

48241 48241 48241 48241 48241 48241 48241 01100

48249 48249 48249 48249 48249 48249 48249 01101

*01105 *01131 *01154 *01180 *01203 *01286 *3373 01102

48240 48240 48240 48240 48240 48240 3350 01103

48241 48241 48241 48241 48241 48241 33510 01104

48249 48249 48249 48249 48249 48249 33511 01105

*01106 *01132 *01155 *01181 *01204 *01790 33519 01106

48240 48240 48240 48240 48240 48240 33520 01110

48241 48241 48241 48241 48241 48241 33521 01111

48249 48249 48249 48249 48249 48249 33522 01112

*01110 *01133 *01156 *01182 *01205 *01791 33523 01113

48240 48240 48240 48240 48240 48240 33524 01114

48241 48241 48241 48241 48241 48241 33529 01115

48249 48249 48249 48249 48249 48249 3358 01116

*01111 *01134 *01160 *01183 *01206 *01792 3359 01120

48240 48240 48240 48240 48240 48240 *4800 01121

48241 48241 48241 48241 48241 48241 48240 01122

48249 48249 48249 48249 48249 48249 48241 01123

*01112 *01135 *01161 *01184 *01210 *01793 48249 01124

48240 48240 48240 48240 48240 48240 *4801 01125

48241 48241 48241 48241 48241 48241 48240 01126

48249 48249 48249 48249 48249 48249 48241 01130

*01113 *01136 *01162 *01185 *01211 *01794 48249 01131

48240 48240 48240 48240 48240 48240 *4802 01132

48241 48241 48241 48241 48241 48241 48240 01133

48249 48249 48249 48249 48249 48249 48241 01134

*01114 *01140 *01163 *01186 *01212 *01795 48249 01135

48240 48240 48240 48240 48240 48240 *4808 01136

48241 48241 48241 48241 48241 48241 48240 01140

48249 48249 48249 48249 48249 48249 48241 01141

*01115 *01141 *01164 *01190 *01213 *01796 48249 01142

48240 48240 48240 48240 48240 48240 *4809 01143

48241 48241 48241 48241 48241 48241 48240 01144

48249 48249 48249 48249 48249 48249 48241 01145

*01116 *01142 *01165 *01191 *01214 *0212 48249 01146

48240 48240 48240 48240 48240 48240 *481 01150

48241 48241 48241 48241 48241 48241 48240 01151

48249 48249 48249 48249 48249 48249 48241 01152

*01120 *01143 *01166 *01192 *01215 *0310 48249 01153

48240 48240 48240 48240 48240 48240 *4820 01154

48241 48241 48241 48241 48241 48241 48240 01155

48249 48249 48249 48249 48249 48249 48241 01156

*01121 *01144 *01170 *01193 *01216 *0391 48249 01160

48240 48240 48240 48240 48240 48240 *4821 01161

48241 48241 48241 48241 48241 48241 48240 01162

48249 48249 48249 48249 48249 48249 48241 01163

*01122 *01145 *01171 *01194 *01280 *11505 48249 01164

48240 48240 48240 48240 48240 48240 *4822 01165

48241 48241 48241 48241 48241 48241 48240 01166

48249 48249 48249 48249 48249 48249 48241 01170
41082 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

PAGE 2 OF 3 PAGES

01171 4955 01183 5078 01195 48240 48241 48249

01172 4956 01184 5080 01196 48241 48249 *5061

01173 4957 01185 5081 01200 48249 *4950 48240

01174 4958 01186 5171 01201 *48283 48240 48241

01175 4959 01190 *48249 01202 48240 48241 48249

01176 5060 01191 01100 01203 48241 48249 *5062

01180 5061 01192 01101 01204 48249 *4951 48240

01181 5070 01193 01102 01205 *48284 48240 48241

01182 5071 01194 01103 01206 48240 48241 48249

01183 5078 01195 01104 01210 48241 48249 *5063

01184 5080 01196 01105 01211 48249 *4952 48240

01185 5081 01200 01106 01212 *48289 48240 48241

01186 5171 01201 01110 01213 48240 48241 48249

01190 *48241 01202 01111 01214 48241 48249 *5064

01191 01100 01203 01112 01215 48249 *4953 48240

01192 01101 01204 01113 01216 *4829 48240 48241

01193 01102 01205 01114 0310 48240 48241 48249

01194 01103 01206 01115 11505 48241 48249 *5069

01195 01104 01210 01116 11515 48249 *4954 48240

01196 01105 01211 01120 1304 *4830 48240 48241

01200 01106 01212 01121 1363 48240 48241 48249

01201 01110 01213 01122 481 48241 48249 *5070

01202 01111 01214 01123 4820 48249 *4955 48240

01203 01112 01215 01124 4821 *4831 48240 48241

01204 01113 01216 01125 4822 48240 48241 48249

01205 01114 0310 01126 48230 48241 48249 *5071

01206 01115 11505 01130 48231 48249 *4956 48240

01210 01116 11515 01131 48232 *4838 48240 48241

01211 01120 1304 01132 48239 48240 48241 48249

01212 01121 1363 01133 48240 48241 48249 *5078

01213 01122 481 01134 48241 48249 *4957 48240

01214 01123 4820 01135 48249 *4841 48240 48241

01215 01124 4821 01136 48281 48240 48241 48249

01216 01125 4822 01140 48282 48241 48249 *5080

0310 01126 48230 01141 48283 48249 *4958 48240

11505 01130 48231 01142 48284 *4843 48240 48241

11515 01131 48232 01143 48289 48240 48241 48249

1304 01132 48239 01144 4829 48241 48249 *5081

1363 01133 48240 01145 4830 48249 *4959 48240

481 01134 48241 01146 4831 *4845 48240 48241

4820 01135 48249 01150 4838 48240 48241 48249

4821 01136 48281 01151 4841 48241 48249 *5088

4822 01140 48282 01152 4843 48249 *496 48240

48230 01141 48283 01153 4845 *4846 48240 48241

48231 01142 48284 01154 4846 48240 48241 48249

48232 01143 48289 01155 4847 48241 48249 *5089

48239 01144 4829 01156 4848 48249 *500 48240

48240 01145 4830 01160 485 *4847 48240 48241

48241 01146 4831 01161 486 48240 48241 48249

48249 01150 4838 01162 4870 48241 48249 *5171

48281 01151 4841 01163 4950 48249 *501 48240

48282 01152 4843 01164 4951 *4848 48240 48241

48283 01153 4845 01165 4952 48240 48241 48249

48284 01154 4846 01166 4953 48241 48249 *5178

48289 01155 4847 01170 4954 48249 *502 48240

4829 01156 4848 01171 4955 *485 48240 48241

4830 01160 485 01172 4956 48240 48241 48249

4831 01161 486 01173 4957 48241 48249 *51881

4838 01162 4870 01174 4958 48249 *503 51883

4841 01163 4950 01175 4959 *486 48240 51884

4843 01164 4951 01176 5060 48240 48241 78603

4845 01165 4952 01180 5061 48241 48249 78604

4846 01166 4953 01181 5070 48249 *504 *51882

4847 01170 4954 01182 5071 *4870 48240 51883

4848 01171 4955 01183 5078 48240 48241 51884

485 01172 4956 01184 5080 48241 48249 78603

486 01173 4957 01185 5081 48249 *505 78604

4870 01174 4958 01186 5171 *4871 48240 *51883

4950 01175 4959 01190 *48281 48240 48241 51881

4951 01176 5060 01191 48240 48241 48249 51882

4952 01180 5061 01192 48241 48249 *5060 51883

4953 01181 5070 01193 48249 *494 48240 51884

4954 01182 5071 01194 *48282 48240 48241 78603
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41083

PAGE 3 OF 3 PAGES

78604 53642 *99656 56962 V2384 V2384

7991 53649 99655 *99791 V2389 V2389

*51884 56962 99656 53640 *V230 V239

51881 9974 99659 53641 V2381 *V2389

51882 *53642 99660 53642 V2382 V237

51883 53640 99661 53649 V2383 V2381

51884 53641 99662 56962 V2384 V2382

78603 53642 99663 99586 V2389 V2383

78604 53649 99664 99655 *V231 V2384

7991 56962 99665 99656 V2381 V2389

*51889 9974 99666 99668 V2382 V239

48240 *53649 99667 *99799 V2383 *V239

48241 53640 99668 53640 V2384 V2381

48249 53641 99669 53641 V2389 V2382

*51900 53642 99670 53642 *V232 V2383

51900 53649 99671 53649 V2381 V2384

51901 56962 99672 56962 V2382 V2389

51902 9974 99673 99586 V2383

51909 *56960 99674 99655 V2384

*51901 56962 99675 99656 V2389

51900 *56961 99676 99668 *V233

51901 56962 99677 *9980 V2381

51902 *56962 99678 99586 V2382

51909 56960 99679 *99811 V2383

*51902 56961 *99659 99586 V2384

51900 56962 99655 *99812 V2389

51901 56969 99656 99586 *V234

51902 *56969 99668 *99813 V2381

51909 56962 *99660 99586 V2382

*51909 *74861 99655 *99881 V2383

51900 48240 99656 53640 V2384

51901 48241 99668 53641 V2389

51902 48249 *99668 53642 *V235

51909 *78603 99655 53649 V2381

*5191 78603 99656 56962 V2382

51900 78604 99659 99586 V2383

51901 *78604 99660 *99883 V2384

51902 78603 99661 53640 V2389

51909 78604 99662 53641 *V237

*5198 *7991 99663 53642 V2381

48240 51883 99664 53649 V2382

48241 51884 99665 56962 V2383

48249 78603 99666 99586 V2384

51883 78604 99667 *99889 V2389

51884 *9584 99668 53640 *V2381

51900 99586 99669 53641 V237

51901 *9954 99670 53642 V2381

51902 99586 99671 53649 V2382

51909 *99586 99672 56962 V2383

78603 99586 99673 99586 V2384

78604 *99652 99674 *9989 V2389

*5199 99655 99675 53640 V239

48240 *99655 99676 53641 *V2382

48241 99652 99677 53642 V237

48249 99655 99678 53649 V2381

51883 99660 99679 56962 V2382

51884 99661 *99669 99586 V2383

51900 99662 99655 *V220 V2384

51901 99663 99656 V2381 V2389

51902 99665 99668 V2382 V239

51909 99666 *99670 V2383 *V2383

78603 99667 99655 V2384 V237

78604 99669 99656 V2389 V2381

*53640 99670 99668 *V221 V2382

53640 99671 *99679 V2381 V2383

53641 99672 99655 V2382 V2384

53642 99673 99656 V2383 V2389

53649 99674 99668 V2384 V239

56962 99675 *9974 V2389 *V2384

9974 99676 53640 *V222 V237

*53641 99677 53641 V2381 V2381

53640 99678 53642 V2382 V2382

53641 99679 53649 V2383 V2383
41084 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 6G.—DELETIONS TO THE CC EXCLUSIONS LIST

[CCs that are deleted from the list are in Table 6G—Deletions to the CC Exclusions List. Each of the principal diagnoses is shown with an

asterisk, and the revisions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis.]

*01100 *01146 *01195 *11515 01143 48282 4824 4824

4824 4824 4824 4824 01144 48283 *4870 *5178

*01101 *01150 *01196 *11595 01145 48284 4824 4824

4824 4824 4824 4824 01146 48289 *4871 *51889

*01102 *01151 *01200 *1221 01150 4829 4824 4824

4824 4824 4824 4824 01151 4830 *494 *5190

*01103 *01152 *01201 *1304 01152 4831 4824 5190

4824 4824 4824 4824 01153 4838 *4950 *5191

*01104 *01153 *01202 *1363 01154 4841 4824 5190

4824 4824 4824 4824 01155 4843 *4951 *5198

*01105 *01154 *01203 *4800 01156 4845 4824 4824

4824 4824 4824 4824 01160 4846 *4952 5190

*01106 *01155 *01204 *4801 01161 4847 4824 *5199

4824 4824 4824 4824 01162 4848 *4953 4824

*01110 *01156 *01205 *4802 01163 485 4824 5190

4824 4824 4824 4824 01164 486 *4954 *74861

*01111 *01160 *01206 *4808 01165 4870 4824 4824

4824 4824 4824 4824 01166 4950 *4955 *V220

*01112 *01161 *01210 *4809 01170 4951 4824 V238

4824 4824 4824 4824 01171 4952 *4956 *V221

*01113 *01162 *01211 *481 01172 4953 4824 V238

4824 4824 4824 4824 01173 4954 *4957 *V222

*01114 *01163 *01212 *4820 01174 4955 4824 V238

4824 4824 4824 4824 01175 4956 *4958 *V230

*01115 *01164 *01213 *4821 01176 4957 4824 V238

4824 4824 4824 4824 01180 4958 *4959 *V231

*01116 *01165 *01214 *4822 01181 4959 4824 V238

4824 4824 4824 4824 01182 5060 *496 *V232

*01120 *01166 *01215 *48230 01183 5061 4824 V238

4824 4824 4824 4824 01184 5070 *500 *V233

*01121 *01170 *01216 *48231 01185 5071 4824 V238

4824 4824 4824 4824 01186 5078 *501 *V234

*01122 *01171 *01280 *48232 01190 5080 4824 V238

4824 4824 4824 4824 01191 5081 *502 *V235

*01123 *01172 *01281 *48239 01192 5171 4824 V238

4824 4824 4824 4824 01193 *48281 *503 *V237

*01124 *01173 *01282 *4824 01194 4824 4824 V238

4824 4824 4824 01100 01195 *48282 *504 *V238

*01125 *01174 *01283 01101 01196 4824 4824 V237

4824 4824 4824 01102 01200 *48283 *505 V238

*01126 *01175 *01284 01103 01201 4824 4824 V239

4824 4824 4824 01104 01202 *48284 *5060 *V239

*01130 *01176 *01285 01105 01203 4824 4824 V238

4824 4824 4824 01106 01204 *48289 *5061

*01131 *01180 *01286 01110 01205 4824 4824

4824 4824 4824 01111 01206 *4829 *5062

*01132 *01181 *01790 01112 01210 4824 4824

4824 4824 4824 01113 01211 *4830 *5063

*01133 *01182 *01791 01114 01212 4824 4824

4824 4824 4824 01115 01213 *4831 *5064

*01134 *01183 *01792 01116 01214 4824 4824

4824 4824 4824 01120 01215 *4838 *5069

*01135 *01184 *01793 01121 01216 4824 4824

4824 4824 4824 01122 0310 *4841 *5070

*01136 *01185 *01794 01123 11505 4824 4824

4824 4824 4824 01124 11515 *4843 *5071

*01140 *01186 *01795 01125 1304 4824 4824

4824 4824 4824 01126 1363 *4845 *5078

*01141 *01190 *01796 01130 481 4824 4824

4824 4824 4824 01131 4820 *4846 *5080

*01142 *01191 *0212 01132 4821 4824 4824

4824 4824 4824 01133 4822 *4847 *5081

*01143 *01192 *0310 01134 48230 4824 4824

4824 4824 4824 01135 48231 *4848 *5088

*01144 *01193 *0391 01136 48232 4824 4824

4824 4824 4824 01140 48239 *485 *5089

*01145 *01194 *11505 01141 4824 4824 4824

4824 4824 4824 01142 48281 *486 *5171
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41085

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

1 .................................... 36863 9.6140 2 4 7 12 20

2 .................................... 7073 10.0431 3 5 8 13 20

3 .................................... 3 9.3333 7 7 9 12 12

4 .................................... 6387 7.7417 1 3 5 9 17

5 .................................... 101629 3.6388 1 2 2 4 8

6 .................................... 359 3.0306 1 1 2 4 7

7 .................................... 12693 10.1052 2 4 7 12 20

8 .................................... 3051 3.1786 1 1 2 4 7

9 .................................... 1712 6.5724 1 3 5 8 13

10 .................................. 19898 6.8603 2 3 5 8 14

11 .................................. 2976 4.1398 1 2 3 5 8

12 .................................. 38546 6.6802 2 3 5 8 12

13 .................................. 6395 5.4835 2 3 4 6 9

14 .................................. 374285 6.2936 2 3 5 8 12

15 .................................. 146334 3.8586 1 2 3 5 7

16 .................................. 13990 5.9277 2 3 4 7 11

17 .................................. 3228 3.4291 1 2 3 4 7

18 .................................. 27696 5.5756 2 3 4 7 10

19 .................................. 7354 3.8089 1 2 3 5 7

20 .................................. 6638 10.1788 2 5 8 13 19

21 .................................. 1386 6.8283 2 3 5 8 14

22 .................................. 2803 4.6522 2 2 4 6 9

23 .................................. 6933 4.2573 1 2 3 5 8

24 .................................. 58307 5.0648 1 2 4 6 10

25 .................................. 22886 3.4256 1 2 3 4 7

26 .................................. 35 3.2857 1 1 3 4 7

27 .................................. 4246 5.4788 1 1 3 7 12

28 .................................. 14087 5.9295 1 2 4 7 12

29 .................................. 4349 3.5220 1 1 3 4 7

31 .................................. 3135 4.4287 1 2 3 5 8

32 .................................. 1378 2.9594 1 1 2 3 5

34 .................................. 20202 5.4414 1 3 4 7 11

35 .................................. 4292 3.5517 1 2 3 4 7

36 .................................. 5421 1.5379 1 1 1 1 2

37 .................................. 1697 3.7183 1 1 2 4 8

38 .................................. 116 2.5948 1 1 2 3 5

39 .................................. 1908 2.0383 1 1 1 2 4

40 .................................. 2300 3.1822 1 1 2 4 7

42 .................................. 4052 2.0908 1 1 1 2 4

43 .................................. 120 3.4250 1 2 3 5 7

44 .................................. 1346 5.0498 2 3 4 6 9

45 .................................. 2428 3.4773 1 2 3 4 6

46 .................................. 3177 4.6396 1 2 4 6 9

47 .................................. 1232 3.2873 1 1 3 4 7

48 .................................. 2 4.5000 4 4 5 5 5

49 .................................. 2297 5.0004 1 2 4 6 9

50 .................................. 3026 1.9752 1 1 2 2 3

51 .................................. 308 2.8182 1 1 1 3 6

52 .................................. 89 2.7528 1 1 2 3 7

53 .................................. 3012 3.6597 1 1 2 4 8

54 .................................. 2 6.0000 5 5 7 7 7

55 .................................. 1704 2.9607 1 1 2 3 6

56 .................................. 695 2.8374 1 1 2 3 6

57 .................................. 611 3.6759 1 1 3 4 7

59 .................................. 121 2.4215 1 1 2 3 5

60 .................................. 1 4.0000 4 4 4 4 4

61 .................................. 280 4.6464 1 1 2 5 10

62 .................................. 4 1.2500 1 1 1 1 2

63 .................................. 3733 4.4466 1 2 3 5 9

64 .................................. 3432 6.6973 1 2 5 8 14

65 .................................. 29238 2.9721 1 2 2 4 5

66 .................................. 6848 3.2604 1 2 3 4 6

67 .................................. 494 3.7854 1 2 3 4 7

68 .................................. 11573 4.1497 1 2 3 5 7

69 .................................. 3471 3.3244 1 2 3 4 6

70 .................................. 37 2.5405 1 1 2 3 4

71 .................................. 100 3.9300 1 2 3 6 7

72 .................................. 829 3.7853 1 2 3 5 7

73 .................................. 6323 4.4058 1 2 3 6 8

74 .................................. 2 2.5000 2 2 3 3 3
41086 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

75 .................................. 41135 10.2396 4 5 8 13 20

76 .................................. 41950 11.3136 3 5 9 14 21

77 .................................. 2041 4.8863 1 2 4 7 10

78 .................................. 31059 7.3075 3 5 7 9 12

79 .................................. 248239 8.4083 3 4 7 10 15

80 .................................. 8319 5.8721 2 3 5 7 10

81 .................................. 7 11.2857 2 3 6 7 8

82 .................................. 71558 7.1252 2 3 6 9 14

83 .................................. 7419 5.5741 2 3 4 7 10

84 .................................. 1322 3.3162 1 2 3 4 6

85 .................................. 22565 6.6618 2 3 5 8 13

86 .................................. 1510 3.8801 1 2 3 5 7

87 .................................. 73527 6.3192 1 3 5 8 12

88 .................................. 390502 5.4117 2 3 4 7 10

89 .................................. 471124 6.2766 2 4 5 8 11

90 .................................. 39143 4.4608 2 3 4 6 8

91 .................................. 48 3.9375 1 2 3 5 7

92 .................................. 14606 6.3852 2 3 5 8 12

93 .................................. 1323 4.3583 1 2 4 6 8

94 .................................. 13510 6.4760 2 3 5 8 12

95 .................................. 1408 3.8544 1 2 3 5 7

96 .................................. 62085 4.8491 2 3 4 6 9

97 .................................. 25768 3.8219 1 2 3 5 7

98 .................................. 28 4.9286 1 2 3 5 13

99 .................................. 26603 3.0405 1 1 2 4 6

100 ................................ 10353 2.1232 1 1 2 3 4

101 ................................ 20349 4.4392 1 2 3 5 9

102 ................................ 4579 2.7917 1 1 2 3 5

103 ................................ 515 50.5320 9 14 32 71 124

104 ................................ 29432 12.4392 4 7 10 16 23

105 ................................ 25718 9.6492 4 6 8 11 17

106 ................................ 107341 10.6962 6 7 9 12 17

107 ................................ 69437 7.9517 4 5 7 9 13

108 ................................ 8142 11.7677 4 6 9 14 22

110 ................................ 62676 9.6167 2 5 8 12 18

111 ................................ 5616 5.8063 2 4 6 7 9

112 ................................ 119137 3.9263 1 1 3 5 8

113 ................................ 46975 12.2664 4 6 9 15 24

114 ................................ 8543 8.4041 2 4 7 11 16

115 ................................ 15131 8.7469 2 4 7 11 17

116 ................................ 210530 4.1764 1 2 3 5 8

117 ................................ 3747 3.9861 1 1 2 5 9

118 ................................ 6529 2.9326 1 1 2 3 6

119 ................................ 1640 5.3829 1 1 3 7 13

120 ................................ 38162 8.1769 1 2 5 10 18

121 ................................ 170973 6.6427 2 4 6 8 12

122 ................................ 83711 4.1990 1 2 4 6 7

123 ................................ 43626 4.3987 1 1 2 5 10

124 ................................ 155144 4.4560 1 2 4 6 9

125 ................................ 63029 2.8712 1 1 2 4 6

126 ................................ 5445 12.4382 4 6 9 15 25

127 ................................ 723327 5.5118 2 3 4 7 10

128 ................................ 16139 6.0284 3 4 5 7 9

129 ................................ 4482 2.9514 1 1 1 3 7

130 ................................ 98650 5.9904 2 3 5 7 10

131 ................................ 24713 4.6719 1 3 4 6 8

132 ................................ 175262 3.1519 1 2 3 4 6

133 ................................ 6682 2.4811 1 1 2 3 5

134 ................................ 30563 3.4498 1 2 3 4 6

135 ................................ 8271 4.3344 1 2 3 5 8

136 ................................ 1117 2.9687 1 1 2 4 5

138 ................................ 210196 4.0456 1 2 3 5 8

139 ................................ 67634 2.5762 1 1 2 3 5

140 ................................ 108283 2.9686 1 1 2 4 5

141 ................................ 82219 3.8511 1 2 3 5 7

142 ................................ 36801 2.7878 1 1 2 3 5

143 ................................ 144774 2.2571 1 1 2 3 4

144 ................................ 79437 5.2262 1 2 4 7 10

145 ................................ 6398 2.8678 1 1 2 4 6

146 ................................ 10433 10.2667 5 7 9 12 17
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41087

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

147 ................................ 1790 6.7374 4 5 7 8 10

148 ................................ 147867 12.2636 5 7 10 15 22

149 ................................ 14480 6.8502 4 5 6 8 10

150 ................................ 23924 10.8759 4 6 9 13 19

151 ................................ 4176 5.8829 2 3 5 8 10

152 ................................ 4736 8.3328 4 5 7 10 14

153 ................................ 1616 5.6293 3 4 5 7 8

154 ................................ 34592 13.3723 4 7 11 16 25

155 ................................ 4766 4.6897 1 2 4 6 9

156 ................................ 2 18.0000 6 6 30 30 30

157 ................................ 9351 5.4102 1 2 4 7 11

158 ................................ 4141 2.6218 1 1 2 3 5

159 ................................ 18453 4.9685 1 2 4 6 10

160 ................................ 9823 2.6793 1 1 2 3 5

161 ................................ 14694 4.0874 1 2 3 5 9

162 ................................ 7099 2.0338 1 1 1 2 4

163 ................................ 6 10.0000 1 4 9 13 13

164 ................................ 5319 8.5336 4 5 7 10 15

165 ................................ 1658 4.9566 2 3 5 6 8

166 ................................ 3561 5.1106 2 3 4 6 9

167 ................................ 2350 2.8400 1 2 2 4 5

168 ................................ 1732 4.5704 1 2 3 6 9

169 ................................ 853 2.5768 1 1 2 3 5

170 ................................ 12888 11.2453 2 5 8 14 23

171 ................................ 1013 4.8164 1 2 4 6 9

172 ................................ 33258 7.1141 2 3 5 9 14

173 ................................ 2164 3.9750 1 1 3 5 8

174 ................................ 250195 4.9246 2 3 4 6 9

175 ................................ 21767 3.0099 1 2 3 4 5

176 ................................ 18457 5.4888 2 3 4 7 10

177 ................................ 11202 4.5540 2 2 4 6 8

178 ................................ 3523 3.2109 1 2 3 4 6

179 ................................ 12572 6.4144 2 3 5 8 12

180 ................................ 93855 5.4295 2 3 4 7 10

181 ................................ 21459 3.5079 1 2 3 4 6

182 ................................ 236477 4.3554 1 2 3 5 8

183 ................................ 70321 3.0159 1 1 2 4 6

184 ................................ 91 3.2857 1 2 2 4 7

185 ................................ 4110 4.4822 1 2 3 6 9

187 ................................ 892 3.9608 1 2 3 5 8

188 ................................ 75769 5.5554 1 2 4 7 11

189 ................................ 8683 3.2034 1 1 2 4 6

190 ................................ 62 5.2903 1 2 4 7 11

191 ................................ 10738 14.5968 4 7 11 18 29

192 ................................ 839 6.7247 2 4 6 8 12

193 ................................ 7407 12.4918 5 7 10 15 22

194 ................................ 774 6.9225 3 4 6 9 12

195 ................................ 7134 9.8004 4 6 8 12 17

196 ................................ 1274 5.7245 2 4 5 7 10

197 ................................ 25188 8.6282 3 5 7 10 15

198 ................................ 6401 4.5894 2 3 4 6 8

199 ................................ 2067 10.1751 3 5 8 14 20

200 ................................ 1357 11.4952 2 4 8 14 24

201 ................................ 1670 14.3072 4 6 11 18 29

202 ................................ 28883 6.7510 2 3 5 8 13

203 ................................ 29715 6.8468 2 3 5 9 14

204 ................................ 53504 6.0856 2 3 5 7 11

205 ................................ 23103 6.5500 2 3 5 8 13

206 ................................ 1630 4.0865 1 2 3 5 8

207 ................................ 35726 5.1383 1 2 4 6 10

208 ................................ 9541 2.9005 1 1 2 4 6

209 ................................ 364469 5.4343 3 4 5 6 8

210 ................................ 142415 7.0179 3 4 6 8 12

211 ................................ 26144 5.1433 3 4 5 6 8

212 ................................ 13 3.7692 1 2 4 5 6

213 ................................ 7546 8.4157 2 4 6 11 16

216 ................................ 6154 9.8351 2 4 7 12 19

217 ................................ 20823 12.9944 3 5 9 16 27

218 ................................ 24004 5.3243 2 3 4 6 10

219 ................................ 18448 3.2888 1 2 3 4 5
41088 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

220 ................................ 5 3.2000 1 1 3 4 7

223 ................................ 18683 2.6174 1 1 2 3 5

224 ................................ 7760 2.0628 1 1 2 3 4

225 ................................ 5697 4.3498 1 2 3 5 9

226 ................................ 5583 5.9226 1 2 4 7 12

227 ................................ 4638 2.7288 1 1 2 3 5

228 ................................ 2773 3.4241 1 1 2 4 8

229 ................................ 1114 2.3887 1 1 2 3 5

230 ................................ 2399 4.5302 1 2 3 5 9

231 ................................ 10765 4.5644 1 2 3 5 9

232 ................................ 498 3.8273 1 1 2 4 9

233 ................................ 4948 7.6326 2 3 5 9 16

234 ................................ 2286 3.6374 1 2 3 5 7

235 ................................ 5378 5.3103 1 3 4 6 10

236 ................................ 39661 5.1485 1 3 4 6 9

237 ................................ 1608 3.6486 1 2 3 5 7

238 ................................ 7892 8.8692 3 4 7 11 17

239 ................................ 59978 6.4285 2 3 5 8 12

240 ................................ 13753 6.6862 2 3 5 8 13

241 ................................ 2925 4.0021 1 2 3 5 7

242 ................................ 2652 6.7266 2 3 5 8 13

243 ................................ 82323 4.8596 2 3 4 6 9

244 ................................ 12497 5.0070 2 3 4 6 9

245 ................................ 4392 3.7368 1 2 3 5 7

246 ................................ 1280 3.9313 1 2 3 5 7

247 ................................ 12331 3.4951 1 2 3 4 7

248 ................................ 8162 4.6837 1 2 4 6 9

249 ................................ 10919 3.6445 1 1 3 4 7

250 ................................ 3586 4.2284 1 2 3 5 8

251 ................................ 2229 2.9484 1 1 2 4 5

252 ................................ 1 1.0000 1 1 1 1 1

253 ................................ 19548 4.8593 1 3 4 6 9

254 ................................ 9373 3.3465 1 2 3 4 6

255 ................................ 2 3.5000 1 1 6 6 6

256 ................................ 5566 5.1175 1 2 4 6 10

257 ................................ 21299 2.9851 1 2 2 3 5

258 ................................ 16484 2.1352 1 1 2 3 3

259 ................................ 3797 3.0830 1 1 2 3 7

260 ................................ 4492 1.5410 1 1 1 2 2

261 ................................ 2003 2.2476 1 1 2 3 4

262 ................................ 665 4.2391 1 1 3 6 9

263 ................................ 27639 11.4184 3 5 8 14 22

264 ................................ 3332 7.0624 2 3 5 8 14

265 ................................ 4341 6.5312 1 2 4 8 13

266 ................................ 2480 3.4161 1 1 2 4 7

267 ................................ 254 4.5984 1 2 3 5 9

268 ................................ 888 3.5676 1 1 2 4 7

269 ................................ 9483 7.8891 2 3 6 10 16

270 ................................ 2696 3.1439 1 1 2 4 7

271 ................................ 23100 7.1558 3 4 6 9 13

272 ................................ 5981 6.4233 2 3 5 8 12

273 ................................ 1315 4.8008 1 2 4 6 8

274 ................................ 2440 6.7398 1 3 5 8 14

275 ................................ 215 3.5163 1 1 3 4 7

276 ................................ 944 4.4492 1 2 4 6 8

277 ................................ 82207 5.9080 2 3 5 7 10

278 ................................ 24763 4.4937 2 3 4 6 8

279 ................................ 12 5.0000 2 2 4 7 9

280 ................................ 14318 4.3117 1 2 3 5 8

281 ................................ 6028 3.1443 1 1 3 4 6

282 ................................ 2 2.0000 2 2 2 2 2

283 ................................ 5236 4.8010 1 2 4 6 9

284 ................................ 1668 3.3171 1 2 3 4 6

285 ................................ 5567 11.0223 3 5 8 13 21

286 ................................ 2153 6.9833 3 4 5 8 13

287 ................................ 6222 11.2252 3 5 8 13 22

288 ................................ 1521 5.9382 3 3 5 6 9

289 ................................ 5499 3.2366 1 1 2 3 7

290 ................................ 8981 2.5171 1 1 2 3 4

291 ................................ 67 1.7612 1 1 1 2 3
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41089

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

292 ................................ 5072 10.7744 2 4 8 14 21

293 ................................ 351 5.4672 1 2 4 7 12

294 ................................ 82620 4.9159 1 2 4 6 9

295 ................................ 3630 3.9573 1 2 3 5 7

296 ................................ 236933 5.3935 2 3 4 7 10

297 ................................ 32857 3.6526 1 2 3 4 7

298 ................................ 95 3.6526 1 1 2 4 8

299 ................................ 979 5.3463 1 2 4 7 10

300 ................................ 16904 6.2827 2 3 5 8 12

301 ................................ 2411 3.8075 1 2 3 5 7

302 ................................ 8040 10.1373 5 6 8 12 18

303 ................................ 19774 9.2208 4 5 7 10 16

304 ................................ 12948 8.9874 2 4 7 11 18

305 ................................ 2570 3.8911 1 2 3 5 7

306 ................................ 10714 5.5080 1 2 3 7 12

307 ................................ 2368 2.4041 1 1 2 3 4

308 ................................ 9227 6.0016 1 2 4 8 13

309 ................................ 3565 2.5910 1 1 2 3 5

310 ................................ 26862 4.3113 1 2 3 5 9

311 ................................ 7848 1.9509 1 1 1 2 4

312 ................................ 1744 4.3354 1 1 3 6 9

313 ................................ 589 2.3820 1 1 2 3 5

314 ................................ 1 10.0000 10 10 10 10 10

315 ................................ 28603 8.0449 1 2 5 10 18

316 ................................ 93772 6.7982 2 3 5 9 14

317 ................................ 803 2.8543 1 1 2 3 6

318 ................................ 6238 6.0928 1 3 4 8 12

319 ................................ 412 2.9879 1 1 2 4 6

320 ................................ 178400 5.5722 2 3 4 7 10

321 ................................ 23782 4.0371 2 2 3 5 7

322 ................................ 85 4.0588 2 2 3 4 7

323 ................................ 17085 3.2128 1 1 2 4 6

324 ................................ 7560 1.9376 1 1 1 2 4

325 ................................ 7442 3.9614 1 2 3 5 8

326 ................................ 2205 2.7728 1 1 2 3 5

327 ................................ 9 2.8889 1 1 2 3 4

328 ................................ 767 3.7171 1 2 3 5 7

329 ................................ 88 2.2500 1 1 1 3 4

331 ................................ 44022 5.5767 1 3 4 7 11

332 ................................ 4566 3.5572 1 1 3 5 7

333 ................................ 320 4.9219 1 2 4 6 11

334 ................................ 18718 4.9703 3 3 4 6 8

335 ................................ 10403 3.7142 2 3 3 4 5

336 ................................ 54368 3.6034 1 2 3 4 7

337 ................................ 31918 2.2865 1 1 2 3 4

338 ................................ 2785 4.7885 1 2 3 6 10

339 ................................ 2000 4.1895 1 1 3 5 9

340 ................................ 2 1.0000 1 1 1 1 1

341 ................................ 4945 2.9521 1 1 2 3 6

342 ................................ 1013 3.4423 1 2 2 4 7

344 ................................ 3904 2.6360 1 1 1 3 5

345 ................................ 1349 3.6338 1 1 2 4 8

346 ................................ 4889 5.8151 1 3 4 7 11

347 ................................ 368 3.1141 1 1 2 4 6

348 ................................ 3216 4.2463 1 2 3 5 8

349 ................................ 636 2.7453 1 1 2 3 5

350 ................................ 6146 4.4007 2 2 4 5 8

352 ................................ 640 3.6078 1 1 3 4 7

353 ................................ 2831 6.9347 3 4 5 8 12

354 ................................ 10001 5.7745 3 3 4 6 10

355 ................................ 5668 3.4622 2 3 3 4 5

356 ................................ 29070 2.6484 1 2 2 3 4

357 ................................ 6365 9.0207 3 5 7 11 17

358 ................................ 27581 4.3699 2 3 3 5 7

359 ................................ 28195 2.9766 2 2 3 3 4

360 ................................ 17946 3.1562 1 2 3 4 5

361 ................................ 543 3.3204 1 1 2 3 7

363 ................................ 3976 3.3154 1 2 2 3 6

364 ................................ 1838 3.5620 1 1 2 5 8

365 ................................ 2315 6.8877 1 2 5 9 14
41090 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

366 ................................ 4395 6.8066 1 3 5 8 14

367 ................................ 510 2.8863 1 1 2 3 6

368 ................................ 2907 6.3509 2 3 5 8 12

369 ................................ 2621 3.0626 1 1 2 4 6

370 ................................ 1207 5.4905 2 3 4 5 9

371 ................................ 1184 3.4611 2 3 3 4 5

372 ................................ 1004 3.1464 1 2 2 3 5

373 ................................ 3985 2.1154 1 1 2 2 3

374 ................................ 159 3.0629 1 2 2 3 4

375 ................................ 9 5.1111 2 2 3 9 10

376 ................................ 222 2.9144 1 2 2 3 6

377 ................................ 53 4.4528 1 2 3 6 9

378 ................................ 171 2.5906 1 2 2 3 4

379 ................................ 338 3.5562 1 1 2 3 7

380 ................................ 90 2.1556 1 1 2 3 4

381 ................................ 192 2.1198 1 1 1 2 4

382 ................................ 42 1.2619 1 1 1 1 2

383 ................................ 1490 3.7302 1 2 3 4 8

384 ................................ 129 2.6512 1 1 1 3 6

385 ................................ 1 2.0000 2 2 2 2 2

389 ................................ 10 10.2000 1 7 7 15 19

390 ................................ 13 6.0000 2 2 4 5 17

392 ................................ 2546 10.3987 4 5 7 12 21

394 ................................ 1820 7.0368 1 2 4 8 16

395 ................................ 71452 4.7241 1 2 3 6 9

396 ................................ 16 17.3750 1 1 4 11 13

397 ................................ 18933 5.5143 1 2 4 7 11

398 ................................ 18263 6.0488 2 3 5 7 11

399 ................................ 1325 3.7170 1 2 3 5 7

400 ................................ 7291 9.3665 2 3 6 12 20

401 ................................ 6715 11.0067 2 4 8 14 23

402 ................................ 1465 3.8826 1 1 3 5 8

403 ................................ 39249 8.1435 2 3 6 10 17

404 ................................ 3823 4.4499 1 2 3 6 9

406 ................................ 3326 9.5391 2 4 7 12 20

407 ................................ 636 4.3270 1 2 4 5 8

408 ................................ 2692 7.5137 1 2 5 9 16

409 ................................ 4682 5.8317 2 3 4 6 11

410 ................................ 59539 3.4172 1 2 3 4 6

411 ................................ 19 3.5263 1 1 2 2 7

412 ................................ 25 2.2800 1 1 2 3 4

413 ................................ 7854 7.4318 2 3 6 9 15

414 ................................ 677 4.1905 1 2 3 5 8

415 ................................ 45551 14.3639 4 7 11 18 28

416 ................................ 231746 7.3984 2 4 6 9 14

417 ................................ 43 5.8837 2 3 5 7 11

418 ................................ 21340 6.1925 2 3 5 8 11

419 ................................ 15355 5.0178 2 3 4 6 9

420 ................................ 2697 3.9459 1 2 3 5 7

421 ................................ 12186 3.9568 1 2 3 5 7

422 ................................ 89 3.3258 1 2 2 4 7

423 ................................ 10830 7.7667 2 3 6 9 15

424 ................................ 1640 14.2976 2 5 10 18 29

425 ................................ 15541 4.1344 1 2 3 5 8

426 ................................ 4507 4.9022 1 2 3 6 10

427 ................................ 1656 4.7977 1 2 3 6 10

428 ................................ 963 7.2887 1 2 5 8 15

429 ................................ 32953 7.1813 2 3 5 8 14

430 ................................ 57380 8.7114 2 4 7 11 17

431 ................................ 220 7.2409 1 3 5 8 13

432 ................................ 414 5.3116 1 2 3 6 12

433 ................................ 6874 3.2098 1 1 2 4 7

434 ................................ 21742 5.1845 2 3 4 6 9

435 ................................ 14706 4.4104 1 2 4 5 8

436 ................................ 3357 13.9896 4 7 13 21 27

437 ................................ 12879 9.2165 3 5 8 12 16

439 ................................ 1149 7.7346 1 3 5 9 16

440 ................................ 5199 8.9683 2 3 6 10 19

441 ................................ 578 3.4810 1 1 2 4 7

442 ................................ 16431 8.1169 1 3 6 10 17
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41091

TABLE 7A.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V15.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

443 ................................ 3185 3.3215 1 1 2 4 7

444 ................................ 3471 4.4967 1 2 3 5 8

445 ................................ 1261 3.3672 1 2 3 4 6

446 ................................ 1 2.0000 2 2 2 2 2

447 ................................ 4291 2.5101 1 1 2 3 5

449 ................................ 28174 3.7816 1 1 3 5 8

450 ................................ 6226 2.0830 1 1 1 2 4

451 ................................ 9 2.7778 1 1 1 4 5

452 ................................ 23072 5.0396 1 2 4 6 10

453 ................................ 3826 2.9260 1 1 2 4 6

454 ................................ 3900 4.6767 1 2 3 6 9

455 ................................ 772 2.7176 1 1 2 3 5

456 ................................ 197 8.4721 1 1 3 9 20

457 ................................ 128 3.5781 1 1 1 3 9

458 ................................ 1543 15.0194 3 7 12 19 31

459 ................................ 487 8.9548 2 3 6 11 19

460 ................................ 2357 6.0793 1 3 4 7 12

461 ................................ 3071 4.4435 1 1 2 4 11

462 ................................ 10468 12.4882 4 6 10 16 23

463 ................................ 14079 4.4165 1 2 3 5 8

464 ................................ 3582 3.3707 1 2 3 4 6

465 ................................ 207 2.9179 1 1 1 3 5

466 ................................ 1765 4.0436 1 1 2 4 8

467 ................................ 1331 4.4132 1 1 2 4 7

468 ................................ 62314 13.4808 3 6 10 17 27

471 ................................ 12993 6.0741 3 4 5 7 10

472 ................................ 181 27.2983 1 8 19 38 55

473 ................................ 8512 12.7849 2 3 7 18 33

475 ................................ 110026 11.1951 2 5 9 15 22

476 ................................ 5974 11.9093 3 6 10 15 22

477 ................................ 28969 8.1503 1 3 6 11 17

478 ................................ 124086 7.4574 1 3 5 9 15

479 ................................ 18459 3.8438 1 2 3 5 7

480 ................................ 415 26.7590 8 11 20 32 55

481 ................................ 263 27.8213 16 20 24 33 44

482 ................................ 6659 12.7485 4 7 10 15 23

483 ................................ 42214 40.2055 14 21 33 50 74

484 ................................ 411 14.7591 2 6 11 18 28

485 ................................ 3536 9.6649 4 5 7 11 18

486 ................................ 2380 12.4319 1 5 10 16 25

487 ................................ 4381 7.4170 1 3 6 9 14

488 ................................ 874 17.1201 4 7 12 22 35

489 ................................ 15056 8.9267 2 4 6 11 19

490 ................................ 4923 5.4148 1 2 4 7 11

491 ................................ 11099 3.6559 2 2 3 4 6

492 ................................ 2359 17.1768 4 5 12 27 36

493 ................................ 56592 5.6275 1 2 5 7 11

494 ................................ 25335 2.4293 1 1 2 3 5

495 ................................ 130 16.7538 7 9 13 19 30

496 ................................ 904 10.5564 4 6 8 13 20

497 ................................ 22184 6.2841 2 3 5 7 11

498 ................................ 12634 3.5001 1 2 3 5 6

499 ................................ 36447 4.9602 2 2 4 6 9

500 ................................ 36672 2.8703 1 2 2 4 5

501 ................................ 1910 10.4806 4 6 8 12 19

502 ................................ 471 6.5669 3 4 6 8 10

503 ................................ 6366 4.2147 1 2 3 5 8

11317977

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

1 .................................... 36863 9.6140 2 4 7 12 20

2 .................................... 7073 10.0431 3 5 8 13 20

3 .................................... 3 9.3333 7 7 9 12 12
41092 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

4 .................................... 6387 7.7417 1 3 5 9 17

5 .................................... 101629 3.6388 1 2 2 4 8

6 .................................... 359 3.0306 1 1 2 4 7

7 .................................... 12693 10.1052 2 4 7 12 20

8 .................................... 3051 3.1786 1 1 2 4 7

9 .................................... 1712 6.5724 1 3 5 8 13

10 .................................. 19898 6.8603 2 3 5 8 14

11 .................................. 2976 4.1398 1 2 3 5 8

12 .................................. 38546 6.6802 2 3 5 8 12

13 .................................. 6395 5.4835 2 3 4 6 9

14 .................................. 374285 6.2936 2 3 5 8 12

15 .................................. 146334 3.8586 1 2 3 5 7

16 .................................. 13990 5.9277 2 3 4 7 11

17 .................................. 3228 3.4291 1 2 3 4 7

18 .................................. 27696 5.5756 2 3 4 7 10

19 .................................. 7354 3.8089 1 2 3 5 7

20 .................................. 6638 10.1788 2 5 8 13 19

21 .................................. 1386 6.8283 2 3 5 8 14

22 .................................. 2803 4.6522 2 2 4 6 9

23 .................................. 6933 4.2573 1 2 3 5 8

24 .................................. 58307 5.0648 1 2 4 6 10

25 .................................. 22886 3.4256 1 2 3 4 7

26 .................................. 35 3.2857 1 1 3 4 7

27 .................................. 4246 5.4788 1 1 3 7 12

28 .................................. 14087 5.9295 1 2 4 7 12

29 .................................. 4349 3.5220 1 1 3 4 7

31 .................................. 3135 4.4287 1 2 3 5 8

32 .................................. 1378 2.9594 1 1 2 3 5

34 .................................. 20202 5.4414 1 3 4 7 11

35 .................................. 4292 3.5517 1 2 3 4 7

36 .................................. 5421 1.5379 1 1 1 1 2

37 .................................. 1697 3.7183 1 1 2 4 8

38 .................................. 116 2.5948 1 1 2 3 5

39 .................................. 1908 2.0383 1 1 1 2 4

40 .................................. 2300 3.1822 1 1 2 4 7

42 .................................. 4052 2.0908 1 1 1 2 4

43 .................................. 120 3.4250 1 2 3 5 7

44 .................................. 1346 5.0498 2 3 4 6 9

45 .................................. 2428 3.4773 1 2 3 4 6

46 .................................. 3177 4.6396 1 2 4 6 9

47 .................................. 1232 3.2873 1 1 3 4 7

48 .................................. 2 4.5000 4 4 5 5 5

49 .................................. 2297 5.0004 1 2 4 6 9

50 .................................. 3026 1.9752 1 1 2 2 3

51 .................................. 308 2.8182 1 1 1 3 6

52 .................................. 80 2.4125 1 1 2 3 5

53 .................................. 3021 3.6660 1 1 2 4 8

54 .................................. 2 6.0000 5 5 7 7 7

55 .................................. 1704 2.9607 1 1 2 3 6

56 .................................. 695 2.8374 1 1 2 3 6

57 .................................. 523 3.5488 1 1 3 4 7

59 .................................. 121 2.4215 1 1 2 3 5

60 .................................. 1 4.0000 4 4 4 4 4

61 .................................. 280 4.6464 1 1 2 5 10

62 .................................. 4 1.2500 1 1 1 1 2

63 .................................. 3733 4.4466 1 2 3 5 9

64 .................................. 3432 6.6973 1 2 5 8 14

65 .................................. 29238 2.9721 1 2 2 4 5

66 .................................. 6848 3.2604 1 2 3 4 6

67 .................................. 494 3.7854 1 2 3 4 7

68 .................................. 11573 4.1497 1 2 3 5 7

69 .................................. 3471 3.3244 1 2 3 4 6

70 .................................. 37 2.5405 1 1 2 3 4

71 .................................. 100 3.9300 1 2 3 6 7

72 .................................. 829 3.7853 1 2 3 5 7

73 .................................. 6323 4.4058 1 2 3 6 8

74 .................................. 2 2.5000 2 2 3 3 3

75 .................................. 41135 10.2396 4 5 8 13 20

76 .................................. 41950 11.3136 3 5 9 14 21

77 .................................. 2041 4.8863 1 2 4 7 10
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41093

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

78 .................................. 31059 7.3075 3 5 7 9 12

79 .................................. 248239 8.4083 3 4 7 10 15

80 .................................. 8319 5.8721 2 3 5 7 10

81 .................................. 7 11.2857 2 3 6 7 8

82 .................................. 71558 7.1252 2 3 6 9 14

83 .................................. 7419 5.5741 2 3 4 7 10

84 .................................. 1322 3.3162 1 2 3 4 6

85 .................................. 22565 6.6618 2 3 5 8 13

86 .................................. 1510 3.8801 1 2 3 5 7

87 .................................. 73527 6.3192 1 3 5 8 12

88 .................................. 390502 5.4117 2 3 4 7 10

89 .................................. 471124 6.2766 2 4 5 8 11

90 .................................. 39143 4.4608 2 3 4 6 8

91 .................................. 48 3.9375 1 2 3 5 7

92 .................................. 14606 6.3852 2 3 5 8 12

93 .................................. 1323 4.3583 1 2 4 6 8

94 .................................. 13510 6.4760 2 3 5 8 12

95 .................................. 1408 3.8544 1 2 3 5 7

96 .................................. 62085 4.8491 2 3 4 6 9

97 .................................. 25768 3.8219 1 2 3 5 7

98 .................................. 28 4.9286 1 2 3 5 13

99 .................................. 26603 3.0405 1 1 2 4 6

100 ................................ 10353 2.1232 1 1 2 3 4

101 ................................ 20349 4.4392 1 2 3 5 9

102 ................................ 4579 2.7917 1 1 2 3 5

103 ................................ 515 50.5320 9 14 32 71 124

104 ................................ 30204 12.5198 4 7 10 16 23

105 ................................ 26990 9.7535 4 6 8 11 17

106 ................................ 4691 10.8874 5 7 9 13 19

107 ................................ 102650 10.6875 6 7 9 12 17

108 ................................ 6098 11.2642 4 6 9 14 21

109 ................................ 69437 7.9517 4 5 7 9 13

110 ................................ 62676 9.6167 2 5 8 12 18

111 ................................ 5616 5.8063 2 4 6 7 9

112 ................................ 119137 3.9263 1 1 3 5 8

113 ................................ 46975 12.2664 4 6 9 15 24

114 ................................ 8543 8.4041 2 4 7 11 16

115 ................................ 15131 8.7469 2 4 7 11 17

116 ................................ 210530 4.1764 1 2 3 5 8

117 ................................ 3747 3.9861 1 1 2 5 9

118 ................................ 6529 2.9326 1 1 2 3 6

119 ................................ 1640 5.3829 1 1 3 7 13

120 ................................ 38162 8.1769 1 2 5 10 18

121 ................................ 170973 6.6427 2 4 6 8 12

122 ................................ 83711 4.1990 1 2 4 6 7

123 ................................ 43626 4.3987 1 1 2 5 10

124 ................................ 155144 4.4560 1 2 4 6 9

125 ................................ 63029 2.8712 1 1 2 4 6

126 ................................ 5445 12.4382 4 6 9 15 25

127 ................................ 723327 5.5118 2 3 4 7 10

128 ................................ 16139 6.0284 3 4 5 7 9

129 ................................ 4482 2.9514 1 1 1 3 7

130 ................................ 98650 5.9904 2 3 5 7 10

131 ................................ 24713 4.6719 1 3 4 6 8

132 ................................ 175262 3.1519 1 2 3 4 6

133 ................................ 6682 2.4811 1 1 2 3 5

134 ................................ 30563 3.4498 1 2 3 4 6

135 ................................ 8271 4.3344 1 2 3 5 8

136 ................................ 1117 2.9687 1 1 2 4 5

138 ................................ 210196 4.0456 1 2 3 5 8

139 ................................ 67634 2.5762 1 1 2 3 5

140 ................................ 108283 2.9686 1 1 2 4 5

141 ................................ 82219 3.8511 1 2 3 5 7

142 ................................ 36801 2.7878 1 1 2 3 5

143 ................................ 144774 2.2571 1 1 2 3 4

144 ................................ 79437 5.2262 1 2 4 7 10

145 ................................ 6398 2.8678 1 1 2 4 6

146 ................................ 10433 10.2667 5 7 9 12 17

147 ................................ 1790 6.7374 4 5 7 8 10

148 ................................ 147867 12.2636 5 7 10 15 22
41094 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

149 ................................ 14480 6.8502 4 5 6 8 10

150 ................................ 23924 10.8759 4 6 9 13 19

151 ................................ 4176 5.8829 2 3 5 8 10

152 ................................ 4736 8.3328 4 5 7 10 14

153 ................................ 1616 5.6293 3 4 5 7 8

154 ................................ 34592 13.3723 4 7 11 16 25

155 ................................ 4766 4.6897 1 2 4 6 9

156 ................................ 2 18.0000 6 6 30 30 30

157 ................................ 9351 5.4102 1 2 4 7 11

158 ................................ 4141 2.6218 1 1 2 3 5

159 ................................ 18453 4.9685 1 2 4 6 10

160 ................................ 9823 2.6793 1 1 2 3 5

161 ................................ 14694 4.0874 1 2 3 5 9

162 ................................ 7099 2.0338 1 1 1 2 4

163 ................................ 6 10.0000 1 4 9 13 13

164 ................................ 5319 8.5336 4 5 7 10 15

165 ................................ 1658 4.9566 2 3 5 6 8

166 ................................ 3561 5.1106 2 3 4 6 9

167 ................................ 2350 2.8400 1 2 2 4 5

168 ................................ 1790 4.5961 1 2 3 6 9

169 ................................ 883 2.5787 1 1 2 3 5

170 ................................ 12888 11.2453 2 5 8 14 23

171 ................................ 1013 4.8164 1 2 4 6 9

172 ................................ 33258 7.1141 2 3 5 9 14

173 ................................ 2164 3.9750 1 1 3 5 8

174 ................................ 250195 4.9246 2 3 4 6 9

175 ................................ 21767 3.0099 1 2 3 4 5

176 ................................ 18457 5.4888 2 3 4 7 10

177 ................................ 11202 4.5540 2 2 4 6 8

178 ................................ 3523 3.2109 1 2 3 4 6

179 ................................ 12572 6.4144 2 3 5 8 12

180 ................................ 93855 5.4295 2 3 4 7 10

181 ................................ 21459 3.5079 1 2 3 4 6

182 ................................ 236477 4.3554 1 2 3 5 8

183 ................................ 70321 3.0159 1 1 2 4 6

184 ................................ 91 3.2857 1 2 2 4 7

185 ................................ 4110 4.4822 1 2 3 6 9

187 ................................ 892 3.9608 1 2 3 5 8

188 ................................ 75769 5.5554 1 2 4 7 11

189 ................................ 8683 3.2034 1 1 2 4 6

190 ................................ 62 5.2903 1 2 4 7 11

191 ................................ 10738 14.5968 4 7 11 18 29

192 ................................ 839 6.7247 2 4 6 8 12

193 ................................ 7407 12.4918 5 7 10 15 22

194 ................................ 774 6.9225 3 4 6 9 12

195 ................................ 7134 9.8004 4 6 8 12 17

196 ................................ 1274 5.7245 2 4 5 7 10

197 ................................ 25188 8.6282 3 5 7 10 15

198 ................................ 6401 4.5894 2 3 4 6 8

199 ................................ 2067 10.1751 3 5 8 14 20

200 ................................ 1357 11.4952 2 4 8 14 24

201 ................................ 1670 14.3072 4 6 11 18 29

202 ................................ 28883 6.7510 2 3 5 8 13

203 ................................ 29715 6.8468 2 3 5 9 14

204 ................................ 53504 6.0856 2 3 5 7 11

205 ................................ 23103 6.5500 2 3 5 8 13

206 ................................ 1630 4.0865 1 2 3 5 8

207 ................................ 35726 5.1383 1 2 4 6 10

208 ................................ 9541 2.9005 1 1 2 4 6

209 ................................ 364469 5.4343 3 4 5 6 8

210 ................................ 142415 7.0179 3 4 6 8 12

211 ................................ 26144 5.1433 3 4 5 6 8

212 ................................ 13 3.7692 1 2 4 5 6

213 ................................ 7546 8.4157 2 4 6 11 16

216 ................................ 6154 9.8351 2 4 7 12 19

217 ................................ 20823 12.9944 3 5 9 16 27

218 ................................ 24004 5.3243 2 3 4 6 10

219 ................................ 18448 3.2888 1 2 3 4 5

220 ................................ 5 3.2000 1 1 3 4 7

223 ................................ 18683 2.6174 1 1 2 3 5
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41095

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

224 ................................ 7760 2.0628 1 1 2 3 4

225 ................................ 5697 4.3498 1 2 3 5 9

226 ................................ 5583 5.9226 1 2 4 7 12

227 ................................ 4638 2.7288 1 1 2 3 5

228 ................................ 2773 3.4241 1 1 2 4 8

229 ................................ 1114 2.3887 1 1 2 3 5

230 ................................ 2399 4.5302 1 2 3 5 9

231 ................................ 10765 4.5644 1 2 3 5 9

232 ................................ 498 3.8273 1 1 2 4 9

233 ................................ 4948 7.6326 2 3 5 9 16

234 ................................ 2286 3.6374 1 2 3 5 7

235 ................................ 5378 5.3103 1 3 4 6 10

236 ................................ 39661 5.1485 1 3 4 6 9

237 ................................ 1608 3.6486 1 2 3 5 7

238 ................................ 7892 8.8692 3 4 7 11 17

239 ................................ 59978 6.4285 2 3 5 8 12

240 ................................ 13753 6.6862 2 3 5 8 13

241 ................................ 2925 4.0021 1 2 3 5 7

242 ................................ 2652 6.7266 2 3 5 8 13

243 ................................ 82323 4.8596 2 3 4 6 9

244 ................................ 12497 5.0070 2 3 4 6 9

245 ................................ 4392 3.7368 1 2 3 5 7

246 ................................ 1280 3.9313 1 2 3 5 7

247 ................................ 12331 3.4951 1 2 3 4 7

248 ................................ 8162 4.6837 1 2 4 6 9

249 ................................ 10919 3.6445 1 1 3 4 7

250 ................................ 3586 4.2284 1 2 3 5 8

251 ................................ 2229 2.9484 1 1 2 4 5

252 ................................ 1 1.0000 1 1 1 1 1

253 ................................ 19548 4.8593 1 3 4 6 9

254 ................................ 9373 3.3465 1 2 3 4 6

255 ................................ 2 3.5000 1 1 6 6 6

256 ................................ 5566 5.1175 1 2 4 6 10

257 ................................ 21299 2.9851 1 2 2 3 5

258 ................................ 16484 2.1352 1 1 2 3 3

259 ................................ 3797 3.0830 1 1 2 3 7

260 ................................ 4492 1.5410 1 1 1 2 2

261 ................................ 2003 2.2476 1 1 2 3 4

262 ................................ 665 4.2391 1 1 3 6 9

263 ................................ 27639 11.4184 3 5 8 14 22

264 ................................ 3332 7.0624 2 3 5 8 14

265 ................................ 4341 6.5312 1 2 4 8 13

266 ................................ 2480 3.4161 1 1 2 4 7

267 ................................ 254 4.5984 1 2 3 5 9

268 ................................ 888 3.5676 1 1 2 4 7

269 ................................ 9483 7.8891 2 3 6 10 16

270 ................................ 2696 3.1439 1 1 2 4 7

271 ................................ 23100 7.1558 3 4 6 9 13

272 ................................ 5981 6.4233 2 3 5 8 12

273 ................................ 1315 4.8008 1 2 4 6 8

274 ................................ 2440 6.7398 1 3 5 8 14

275 ................................ 215 3.5163 1 1 3 4 7

276 ................................ 944 4.4492 1 2 4 6 8

277 ................................ 82207 5.9080 2 3 5 7 10

278 ................................ 24763 4.4937 2 3 4 6 8

279 ................................ 12 5.0000 2 2 4 7 9

280 ................................ 14318 4.3117 1 2 3 5 8

281 ................................ 6028 3.1443 1 1 3 4 6

282 ................................ 2 2.0000 2 2 2 2 2

283 ................................ 5236 4.8010 1 2 4 6 9

284 ................................ 1668 3.3171 1 2 3 4 6

285 ................................ 5567 11.0223 3 5 8 13 21

286 ................................ 2153 6.9833 3 4 5 8 13

287 ................................ 6222 11.2252 3 5 8 13 22

288 ................................ 1521 5.9382 3 3 5 6 9

289 ................................ 5499 3.2366 1 1 2 3 7

290 ................................ 8981 2.5171 1 1 2 3 4

291 ................................ 67 1.7612 1 1 1 2 3

292 ................................ 5072 10.7744 2 4 8 14 21

293 ................................ 351 5.4672 1 2 4 7 12
41096 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

294 ................................ 82620 4.9159 1 2 4 6 9

295 ................................ 3630 3.9573 1 2 3 5 7

296 ................................ 236933 5.3935 2 3 4 7 10

297 ................................ 32857 3.6526 1 2 3 4 7

298 ................................ 95 3.6526 1 1 2 4 8

299 ................................ 979 5.3463 1 2 4 7 10

300 ................................ 16904 6.2827 2 3 5 8 12

301 ................................ 2411 3.8075 1 2 3 5 7

302 ................................ 8040 10.1373 5 6 8 12 18

303 ................................ 19774 9.2208 4 5 7 10 16

304 ................................ 12948 8.9874 2 4 7 11 18

305 ................................ 2570 3.8911 1 2 3 5 7

306 ................................ 10714 5.5080 1 2 3 7 12

307 ................................ 2368 2.4041 1 1 2 3 4

308 ................................ 9227 6.0016 1 2 4 8 13

309 ................................ 3565 2.5910 1 1 2 3 5

310 ................................ 26862 4.3113 1 2 3 5 9

311 ................................ 7848 1.9509 1 1 1 2 4

312 ................................ 1744 4.3354 1 1 3 6 9

313 ................................ 589 2.3820 1 1 2 3 5

314 ................................ 1 10.0000 10 10 10 10 10

315 ................................ 28603 8.0449 1 2 5 10 18

316 ................................ 93772 6.7982 2 3 5 9 14

317 ................................ 803 2.8543 1 1 2 3 6

318 ................................ 6238 6.0928 1 3 4 8 12

319 ................................ 412 2.9879 1 1 2 4 6

320 ................................ 178400 5.5722 2 3 4 7 10

321 ................................ 23782 4.0371 2 2 3 5 7

322 ................................ 85 4.0588 2 2 3 4 7

323 ................................ 17085 3.2128 1 1 2 4 6

324 ................................ 7560 1.9376 1 1 1 2 4

325 ................................ 7442 3.9614 1 2 3 5 8

326 ................................ 2205 2.7728 1 1 2 3 5

327 ................................ 9 2.8889 1 1 2 3 4

328 ................................ 767 3.7171 1 2 3 5 7

329 ................................ 88 2.2500 1 1 1 3 4

331 ................................ 44022 5.5767 1 3 4 7 11

332 ................................ 4566 3.5572 1 1 3 5 7

333 ................................ 320 4.9219 1 2 4 6 11

334 ................................ 18718 4.9703 3 3 4 6 8

335 ................................ 10403 3.7142 2 3 3 4 5

336 ................................ 54368 3.6034 1 2 3 4 7

337 ................................ 31918 2.2865 1 1 2 3 4

338 ................................ 2785 4.7885 1 2 3 6 10

339 ................................ 2000 4.1895 1 1 3 5 9

340 ................................ 2 1.0000 1 1 1 1 1

341 ................................ 4945 2.9521 1 1 2 3 6

342 ................................ 1013 3.4423 1 2 2 4 7

344 ................................ 3904 2.6360 1 1 1 3 5

345 ................................ 1349 3.6338 1 1 2 4 8

346 ................................ 4889 5.8151 1 3 4 7 11

347 ................................ 368 3.1141 1 1 2 4 6

348 ................................ 3216 4.2463 1 2 3 5 8

349 ................................ 636 2.7453 1 1 2 3 5

350 ................................ 6146 4.4007 2 2 4 5 8

352 ................................ 640 3.6078 1 1 3 4 7

353 ................................ 2831 6.9347 3 4 5 8 12

354 ................................ 10001 5.7745 3 3 4 6 10

355 ................................ 5668 3.4622 2 3 3 4 5

356 ................................ 29070 2.6484 1 2 2 3 4

357 ................................ 6365 9.0207 3 5 7 11 17

358 ................................ 27581 4.3699 2 3 3 5 7

359 ................................ 28195 2.9766 2 2 3 3 4

360 ................................ 17946 3.1562 1 2 3 4 5

361 ................................ 543 3.3204 1 1 2 3 7

363 ................................ 3976 3.3154 1 2 2 3 6

364 ................................ 1838 3.5620 1 1 2 5 8

365 ................................ 2315 6.8877 1 2 5 9 14

366 ................................ 4395 6.8066 1 3 5 8 14

367 ................................ 510 2.8863 1 1 2 3 6
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41097

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

368 ................................ 2907 6.3509 2 3 5 8 12

369 ................................ 2621 3.0626 1 1 2 4 6

370 ................................ 1207 5.4905 2 3 4 5 9

371 ................................ 1184 3.4611 2 3 3 4 5

372 ................................ 1004 3.1464 1 2 2 3 5

373 ................................ 3985 2.1154 1 1 2 2 3

374 ................................ 159 3.0629 1 2 2 3 4

375 ................................ 9 5.1111 2 2 3 9 10

376 ................................ 222 2.9144 1 2 2 3 6

377 ................................ 53 4.4528 1 2 3 6 9

378 ................................ 171 2.5906 1 2 2 3 4

379 ................................ 338 3.5562 1 1 2 3 7

380 ................................ 90 2.1556 1 1 2 3 4

381 ................................ 192 2.1198 1 1 1 2 4

382 ................................ 42 1.2619 1 1 1 1 2

383 ................................ 1490 3.7302 1 2 3 4 8

384 ................................ 129 2.6512 1 1 1 3 6

385 ................................ 1 2.0000 2 2 2 2 2

389 ................................ 10 10.2000 1 7 7 15 19

390 ................................ 13 6.0000 2 2 4 5 17

392 ................................ 2546 10.3987 4 5 7 12 21

394 ................................ 1820 7.0368 1 2 4 8 16

395 ................................ 71452 4.7241 1 2 3 6 9

396 ................................ 16 17.3750 1 1 4 11 13

397 ................................ 18933 5.5143 1 2 4 7 11

398 ................................ 18263 6.0488 2 3 5 7 11

399 ................................ 1325 3.7170 1 2 3 5 7

400 ................................ 7291 9.3665 2 3 6 12 20

401 ................................ 6715 11.0067 2 4 8 14 23

402 ................................ 1465 3.8826 1 1 3 5 8

403 ................................ 39249 8.1435 2 3 6 10 17

404 ................................ 3823 4.4499 1 2 3 6 9

406 ................................ 3326 9.5391 2 4 7 12 20

407 ................................ 636 4.3270 1 2 4 5 8

408 ................................ 2692 7.5137 1 2 5 9 16

409 ................................ 4682 5.8317 2 3 4 6 11

410 ................................ 59539 3.4172 1 2 3 4 6

411 ................................ 19 3.5263 1 1 2 2 7

412 ................................ 25 2.2800 1 1 2 3 4

413 ................................ 7854 7.4318 2 3 6 9 15

414 ................................ 677 4.1905 1 2 3 5 8

415 ................................ 45551 14.3639 4 7 11 18 28

416 ................................ 231746 7.3984 2 4 6 9 14

417 ................................ 43 5.8837 2 3 5 7 11

418 ................................ 21340 6.1925 2 3 5 8 11

419 ................................ 15355 5.0178 2 3 4 6 9

420 ................................ 2697 3.9459 1 2 3 5 7

421 ................................ 12186 3.9568 1 2 3 5 7

422 ................................ 89 3.3258 1 2 2 4 7

423 ................................ 10830 7.7667 2 3 6 9 15

424 ................................ 1640 14.2976 2 5 10 18 29

425 ................................ 15541 4.1344 1 2 3 5 8

426 ................................ 4507 4.9022 1 2 3 6 10

427 ................................ 1656 4.7977 1 2 3 6 10

428 ................................ 963 7.2887 1 2 5 8 15

429 ................................ 32953 7.1813 2 3 5 8 14

430 ................................ 57380 8.7114 2 4 7 11 17

431 ................................ 220 7.2409 1 3 5 8 13

432 ................................ 414 5.3116 1 2 3 6 12

433 ................................ 6874 3.2098 1 1 2 4 7

434 ................................ 21742 5.1845 2 3 4 6 9

435 ................................ 14706 4.4104 1 2 4 5 8

436 ................................ 3357 13.9896 4 7 13 21 27

437 ................................ 12879 9.2165 3 5 8 12 16

439 ................................ 1149 7.7346 1 3 5 9 16

440 ................................ 5199 8.9683 2 3 6 10 19

441 ................................ 578 3.4810 1 1 2 4 7

442 ................................ 16431 8.1169 1 3 6 10 17

443 ................................ 3185 3.3215 1 1 2 4 7

444 ................................ 3471 4.4967 1 2 3 5 8
41098 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE 7B.—MEDICARE PROSPECTIVE PAYMENT SYSTEM SELECTED PERCENTILE LENGTHS OF STAY—Continued

[FY97 MEDPAR Update 03/98 Grouper V16.0]

DRG Number

discharges

Arithmetic

mean LOS

10th

percentile

25th

percentile

50th

percentile

75th

percentile

90th

percentile

445 ................................ 1261 3.3672 1 2 3 4 6

446 ................................ 1 2.0000 2 2 2 2 2

447 ................................ 4291 2.5101 1 1 2 3 5

449 ................................ 28174 3.7816 1 1 3 5 8

450 ................................ 6226 2.0830 1 1 1 2 4

451 ................................ 9 2.7778 1 1 1 4 5

452 ................................ 23072 5.0396 1 2 4 6 10

453 ................................ 3826 2.9260 1 1 2 4 6

454 ................................ 3900 4.6767 1 2 3 6 9

455 ................................ 772 2.7176 1 1 2 3 5

461 ................................ 3071 4.4435 1 1 2 4 11

462 ................................ 10468 12.4882 4 6 10 16 23

463 ................................ 14079 4.4165 1 2 3 5 8

464 ................................ 3582 3.3707 1 2 3 4 6

465 ................................ 207 2.9179 1 1 1 3 5

466 ................................ 1765 4.0436 1 1 2 4 8

467 ................................ 1331 4.4132 1 1 2 4 7

468 ................................ 62290 13.4801 3 6 10 17 27

471 ................................ 12993 6.0741 3 4 5 7 10

473 ................................ 8512 12.7849 2 3 7 18 33

475 ................................ 110026 11.1951 2 5 9 15 22

476 ................................ 5972 11.9089 3 6 10 15 22

477 ................................ 28961 8.1501 1 3 6 11 17

478 ................................ 124086 7.4574 1 3 5 9 15

479 ................................ 18459 3.8438 1 2 3 5 7

480 ................................ 415 26.7590 8 11 20 32 55

481 ................................ 263 27.8213 16 20 24 33 44

482 ................................ 6659 12.7485 4 7 10 15 23

483 ................................ 42214 40.2055 14 21 33 50 74

484 ................................ 411 14.7591 2 6 11 18 28

485 ................................ 3536 9.6649 4 5 7 11 18

486 ................................ 2380 12.4319 1 5 10 16 25

487 ................................ 4381 7.4170 1 3 6 9 14

488 ................................ 874 17.1201 4 7 12 22 35

489 ................................ 15056 8.9267 2 4 6 11 19

490 ................................ 4923 5.4148 1 2 4 7 11

491 ................................ 11099 3.6559 2 2 3 4 6

492 ................................ 2359 17.1768 4 5 12 27 36

493 ................................ 56592 5.6275 1 2 5 7 11

494 ................................ 25335 2.4293 1 1 2 3 5

495 ................................ 130 16.7538 7 9 13 19 30

496 ................................ 904 10.5564 4 6 8 13 20

497 ................................ 22184 6.2841 2 3 5 7 11

498 ................................ 12634 3.5001 1 2 3 5 6

499 ................................ 36447 4.9602 2 2 4 6 9

500 ................................ 36672 2.8703 1 2 2 4 5

501 ................................ 1910 10.4806 4 6 8 12 19

502 ................................ 471 6.5669 3 4 6 8 10

503 ................................ 6366 4.2147 1 2 3 5 8

504 ................................ 158 31.8481 9 14 26 39 57

505 ................................ 174 5.8218 1 1 1 5 11

506 ................................ 1138 16.7926 4 8 13 22 34

507 ................................ 395 8.9747 2 4 7 12 17

508 ................................ 1227 7.8240 2 3 5 10 16

509 ................................ 483 4.9896 1 2 3 6 10

510 ................................ 1024 6.9355 2 3 5 8 14

511 ................................ 328 4.8323 1 2 3 6 9

11317977
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41099

TABLE 8A.—STATEWIDE AVERAGE OPERATING COST-TO-CHARGE RATIOS

FOR URBAN AND RURAL HOSPITALS

(CASE WEIGHTED) JULY 1998

State Urban Rural

ALABAMA ..................... 0.387 0.442

ALASKA ........................ 0.503 0.733

ARIZONA ...................... 0.374 0.542

ARKANSAS ................... 0.516 0.458

CALIFORNIA ................. 0.365 0.480

COLORADO .................. 0.467 0.566

CONNECTICUT ............ 0.546 0.532

DELAWARE .................. 0.506 0.487

DISTRICT OF COLUMBIA ............................. 0.521 ..............

FLORIDA ....................... 0.384 0.394

GEORGIA ..................... 0.498 0.498

HAWAII ......................... 0.434 0.558

IDAHO ........................... 0.563 0.585

ILLINOIS ....................... 0.445 0.547

INDIANA ........................ 0.559 0.597

IOWA ............................. 0.514 0.641

KANSAS ........................ 0.415 0.641

KENTUCKY ................... 0.496 0.520

LOUISIANA ................... 0.442 0.495

MAINE ........................... 0.620 0.576

MARYLAND .................. 0.764 0.818

MASSACHUSETTS ...... 0.541 0.571

MICHIGAN .................... 0.468 0.580

MINNESOTA ................. 0.532 0.603

MISSISSIPPI ................. 0.478 0.499

MISSOURI .................... 0.442 0.519

MONTANA .................... 0.529 0.574

NEBRASKA ................... 0.483 0.640

NEVADA ....................... 0.322 0.585

NEW HAMPSHIRE ....... 0.574 0.584

NEW JERSEY ............... 0.437 ..............

NEW MEXICO .............. 0.467 0.511

NEW YORK .................. 0.551 0.623

NORTH CAROLINA ...... 0.522 0.464

NORTH DAKOTA ......... 0.617 0.666

OHIO ............................. 0.534 0.569

OKLAHOMA .................. 0.460 0.530

OREGON ...................... 0.554 0.620

TABLE 8A.—STATEWIDE AVERAGE OPERATING COST-TO-CHARGE RATIOS

FOR URBAN AND RURAL HOSPITALS

(CASE WEIGHTED) JULY 1998—

Continued

State Urban Rural

PENNSYLVANIA ........... 0.406 0.528

PUERTO RICO ............. 0.479 0.561

RHODE ISLAND ........... 0.571 ..............

SOUTH CAROLINA ...... 0.472 0.478

SOUTH DAKOTA .......... 0.537 0.620

TENNESSEE ................ 0.482 0.507

TEXAS .......................... 0.428 0.536

UTAH ............................ 0.535 0.632

VERMONT .................... 0.615 0.576

VIRGINIA ...................... 0.476 0.499

WASHINGTON ............. 0.600 0.661

WEST VIRGINIA ........... 0.591 0.573

WISCONSIN ................. 0.569 0.641

WYOMING .................... 0.495 0.698

TABLE 8B.—STATEWIDE AVERAGE

CAPITAL COST-TO-CHARGE RATIOS

(CASE WEIGHTED) JULY 1998

State Ratio

ALABAMA ....................................... 0.050

ALASKA .......................................... 0.066

ARIZONA ........................................ 0.043

ARKANSAS .................................... 0.054

CALIFORNIA .................................. 0.039

COLORADO ................................... 0.053

CONNECTICUT .............................. 0.041

DELAWARE .................................... 0.057

DISTRICT OF COLUMBIA ............. 0.040

FLORIDA ........................................ 0.046

GEORGIA ....................................... 0.049

HAWAII ........................................... 0.045

IDAHO ............................................. 0.054

ILLINOIS ......................................... 0.043

INDIANA ......................................... 0.059

IOWA .............................................. 0.054

TABLE 8B.—STATEWIDE AVERAGE

CAPITAL COST-TO-CHARGE RATIOS

(CASE WEIGHTED) JULY 1998—

Continued

State Ratio

KANSAS ......................................... 0.051

KENTUCKY .................................... 0.051

LOUISIANA ..................................... 0.055

MAINE ............................................. 0.040

MARYLAND .................................... 0.013

MASSACHUSETTS ........................ 0.056

MICHIGAN ...................................... 0.046

MINNESOTA ................................... 0.055

MISSISSIPPI ................................... 0.048

MISSOURI ...................................... 0.048

MONTANA ...................................... 0.052

NEBRASKA .................................... 0.057

NEVADA ......................................... 0.066

NEW HAMPSHIRE ......................... 0.066

NEW JERSEY ................................ 0.039

NEW MEXICO ................................ 0.047

NEW YORK .................................... 0.053

NORTH CAROLINA ........................ 0.047

NORTH DAKOTA ........................... 0.075

OHIO ............................................... 0.053

OKLAHOMA .................................... 0.055

OREGON ........................................ 0.055

PENNSYLVANIA ............................ 0.043

PUERTO RICO ............................... 0.054

RHODE ISLAND ............................. 0.033

SOUTH CAROLINA ........................ 0.052

SOUTH DAKOTA ........................... 0.061

TENNESSEE .................................. 0.056

TEXAS ............................................ 0.051

UTAH .............................................. 0.056

VERMONT ...................................... 0.047

VIRGINIA ........................................ 0.058

WASHINGTON ............................... 0.066

WEST VIRGINIA ............................. 0.056

WISCONSIN ................................... 0.052

WYOMING ...................................... 0.056

BILLING CODE 4120–01–P
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BILLING CODE 4120–01–C
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Appendix A—Regulatory Impact Analysis

I. Introduction

Section 804(2) of Title 5, United States

Code (as added by section 251 of Public Law

104–121), specifies that a ‘‘major rule’’ is any

rule that the Office of Management and

Budget finds is likely to result in—

• An annual effect on the economy of $100

million or more;

• A major increase in costs or prices for

consumers, individual industries, Federal,

State, or local government agencies, or

geographic regions; or

• Significant adverse effects on

competition, employment, investment,

productivity, innovation, or on the ability of

United States-based enterprises to compete

with foreign-based enterprises in domestic

and export markets.

We estimate that the impact of this final

rule will be to decrease payments to hospitals

by approximately $530 million in FY 1999.

Therefore, this rule is a major rule as defined

in Title 5, United States Code, section 804(2).

We have examined the impacts of this final

rule as required by Executive Order 12866

and the Regulatory Flexibility Act (RFA)

(Public Law 96–354). Executive Order 12866

directs agencies to assess all costs and

benefits of available regulatory alternatives

and, when regulation is necessary, to select

regulatory approaches that maximize net

benefits (including potential economic,

environmental, public health and safety

effects; distributive impacts; and equity). The

RFA requires agencies to analyze options for

regulatory relief for small businesses. For

purposes of the RFA, most hospitals, and

most other providers, physicians, and health

care suppliers are small entities, either by

nonprofit status or by having revenues of $5

million or less annually.

Also, section 1102(b) of the Social Security

Act requires us to prepare a regulatory

impact analysis for any final rule that may

have a significant impact on the operations

of a substantial number of small rural

hospitals. Such an analysis must conform to

the provisions of section 603 of the RFA.

With the exception of hospitals located in

certain New England counties, for purposes

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

small rural hospital as a hospital with fewer

than 100 beds that is located outside of a

Metropolitan Statistical Area (MSA) or New

England County Metropolitan Area

(NECMA). Section 601(g) of the Social

Security Amendments of 1983 (Public Law

98–21) designated hospitals in certain New

England counties as belonging to the adjacent

NECMA. Thus, for purposes of the

prospective payment system, we classify

these hospitals as urban hospitals.

It is clear that the changes being made in

this document will affect both a substantial

number of small rural hospitals as well as

other classes of hospitals, and the effects on

some may be significant. Therefore, the

discussion below, in combination with the

rest of this final rule, constitutes a combined

regulatory impact analysis and regulatory

flexibility analysis.

In accordance with the provisions of

Executive Order 12866, this final rule was

reviewed by the Office of Management and

Budget.

II. Changes in the Final Rule

Since we published the proposed rule, the

market basket estimates for hospitals subject

to the prospective payment system and

hospitals and units excluded from the system

have both fallen by 0.2 percentage points. As

a result, the updates are 0.2 percent lower

than the updates reflected in the impact

analysis for the proposed rule.

Also, in the proposed rule, we included

discharges to swing beds under the expanded

transfer definition. In this final rule we are

not including swing beds from the definition

of a postacute care setting. The overall

payment impact of this change is relatively

very small (an increase of approximately $4

million).

With the exception of these two changes,

we are generally implementing the policy

and statutory changes discussed in the

proposed rule.

III. Limitations of Our Analysis

As has been the case in previously

published regulatory impact analyses, the

following quantitative analysis presents the

projected effects of our policy changes, as

well as statutory changes effective for FY

1999, on various hospital groups. We

estimate the effects of individual policy

changes by estimating payments per case

while holding all other payment policies

constant. We use the best data available, but

we do not attempt to predict behavioral

responses to our policy changes, and we do

not make adjustments for future changes in

such variables as admissions, lengths of stay,

or case mix.

We received no comments on the

methodology used for the impact analysis in

the proposed rule.

IV. GME Payment to Nonhospital Providers

In the past, Medicare only paid hospitals

for GME costs. Therefore, FQHCs, RHCs, and

Medicare+Choice organizations may have

been reluctant to train large numbers of

residents since Medicare would not

reimburse their incurred training costs. This

final rule specifies that Medicare will

reimburse the qualified nonhospital provider

for Medicare’s share of the reasonable costs

of the training where the qualified

nonhospital provider incurs all or

substantially all of the costs of the training

at that site. This final rule may facilitate more

training of residents in settings where many

of those residents will ultimately practice

after their training is completed.

Additionally, this could result in an increase

in the number of physicians practicing in

underserved areas.

In addition, hospitals are currently allowed

to count residents working in nonhospital

sites in their FTE count of residents for

determining indirect and direct graduate

medical education payments, if the hospital

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

of the training at the non-hospital site. The

regulation defined the statutory requirement

of ‘‘all or substantially all’’ to mean at least

the residents’ salaries and fringe benefits. In

this final rule, we are defining ‘‘all or

substantially all’’ of the costs of training in

the nonhospital site to mean residents’

salaries and fringe benefits as well as the

portion of teaching physicians’ salaries and

fringe benefits that can be allocated to direct

GME. We believe that this definition will not

discourage training in nonhospital settings.

Section 4625 of the Balanced Budget Act,

which provides for direct graduate medical

education payments to nonhospital

providers, would have minimal impact in the

context of total graduate medical education

costs. We believe that the most significant

impact resulting from making payment

directly to qualified nonhospital providers

and the redefinition of ‘‘all or substantially

all’’ will be that additional nonhospital sites

may participate in training residents. We

expect that such an impact will result in little

if any additional cost to Medicare.

V. Hospitals Included in and Excluded From

the Prospective Payment System

The prospective payment systems for

hospital inpatient operating and capitalrelated costs encompass nearly all general,

short-term, acute care hospitals that

participate in the Medicare program. There

were 45 Indian Health Service hospitals in

our database, which we excluded from the

analysis due to the special characteristics of

the prospective payment method for these

hospitals. Among other short-term, acute care

hospitals, only the 50 such hospitals in

Maryland remain excluded from the

prospective payment system under the

waiver at section 1814(b)(3) of the Act. Thus,

as of July 1998, we have included 4,975

hospitals in our analysis. This represents

about 82 percent of all Medicareparticipating hospitals. The majority of this

impact analysis focuses on this set of

hospitals.

The remaining 18 percent are specialty

hospitals that are excluded from the

prospective payment system and continue to

be paid on the basis of their reasonable costs

(subject to a rate-of-increase ceiling on their

inpatient operating costs per discharge).

These hospitals include psychiatric,

rehabilitation, long-term care, children’s, and

cancer hospitals. The impacts of our final

policy changes on these hospitals are

discussed below.

VI. Impact on Excluded Hospitals and Units

As of July 1998, there were 1,077 specialty

hospitals excluded from the prospective

payment system and instead paid on a

reasonable cost basis subject to the rate-ofincrease ceiling under § 413.40. In addition,

there were 2,408 psychiatric and

rehabilitation units in hospitals otherwise

subject to the prospective payment system.

These excluded units are also paid in

accordance with § 413.40.

As required by section 1886(b)(3)(B) of the

Act, the update factor applicable to the rateof-increase limit for excluded hospitals and

units for FY 1999 would be between 0 and

2.4 percent, depending on the hospital’s costs

in relation to its limit.

The impact on excluded hospitals and

units of the update in the rate-of-increase

limit depends on the cumulative cost

increases experienced by each excluded

hospital or unit since its applicable base

period. For excluded hospitals and units that

have maintained their cost increases at a
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41105

level below the percentage increases in the

rate-of-increase limits since their base period,

the major effect will be on the level of

incentive payments these hospitals and units

receive. Conversely, for excluded hospitals

and units with per-case cost increases above

the cumulative update in their rate-ofincrease limits, the major effect will be the

amount of excess costs that would not be

reimbursed.

We note that, under § 413.40(d)(3), an

excluded hospital or unit whose costs exceed

110 percent of its rate-of-increase limit

receives its rate-of-increase limit plus 50

percent of the difference between its

reasonable costs and 110 percent of the limit,

not to exceed 110 percent of its limit. In

addition, under the various provisions set

forth in § 413.40, certain excluded hospitals

and units can obtain payment adjustments

for justifiable increases in operating costs

that exceed the limit. At the same time,

however, by generally limiting payment

increases, we continue to provide an

incentive for excluded hospitals and units to

restrain the growth in their spending for

patient services.

VII. Quantitative Impact Analysis of the

Final Policy Changes Under the Prospective

Payment System for Operating Costs

A. Basis and Methodology of Estimates

In this final rule, we are announcing policy

changes and payment rate updates for the

prospective payment systems for operating

and capital-related costs. We have prepared

separate impact analyses of the changes to

each system. This section deals with changes

to the operating prospective payment system.

The data used in developing the

quantitative analyses presented below are

taken from the FY 1997 MedPAR file and the

most current provider-specific file that is

used for payment purposes. Although the

analyses of the changes to the operating

prospective payment system do not

incorporate cost data, the most recently

available hospital cost report data were used

to categorize hospitals. Our analysis has

several qualifications. First, we do not make

adjustments for behavioral changes that

hospitals may adopt in response to these

final policy changes. Second, due to the

interdependent nature of the prospective

payment system, it is very difficult to

precisely quantify the impact associated with

each change. Third, we draw upon various

sources for the data used to categorize

hospitals in the tables. In some cases,

particularly the number of beds, there is a

fair degree of variation in the data from

different sources. We have attempted to

construct these variables with the best

available source overall. For individual

hospitals, however, some miscategorizations

are possible.

Using cases in the FY 1997 MedPAR file,

we simulated payments under the operating

prospective payment system given various

combinations of payment parameters. Any

short-term, acute care hospitals not paid

under the general prospective payment

systems (Indian Health Service hospitals and

hospitals in Maryland) are excluded from the

simulations. Payments under the capital

prospective payment system, or payments for

costs other than inpatient operating costs, are

not analyzed here. Estimated payment

impacts of final FY 1999 changes to the

capital prospective payment system are

discussed below in section VIII of this

Appendix.

The final changes discussed separately

below are the following:

• The effects of implementing the

expanded transfer definition enacted by

section 4407 of the BBA, which counts as a

transfer any discharge from one of 10 DRGs

if upon discharge the patient is admitted to

an excluded hospital or distinct part unit or

a skilled nursing facility, or is provided home

health care that is related to the

hospitalization within 3 days of the date of

discharge.

• The effects of the annual reclassification

of diagnoses and procedures and the

recalibration of the DRG relative weights

required by section 1886(d)(4)(C) of the Act.

• The effects of changes in hospitals’ wage

index values reflecting the wage index

update (FY 1995 data).

• The effects of two changes to the wage

index for FY 1999: (1) Including the Part A

costs associated with physicians under

contract; and (2) removing the overhead costs

related to departments excluded from the

wage data used to calculate the wage index

(for example, skilled nursing facilities and

distinct part units).

• The effects of geographic

reclassifications by the Medicare Geographic

Classification Review Board (MGCRB) that

will be effective in FY 1999.

• The total change in payments based on

FY 1999 policies relative to payments based

on FY 1998 policies.

To illustrate the impacts of the FY 1999

changes, our analysis begins with a FY 1999

baseline simulation model using: the FY

1998 GROUPER (version 15.0); the FY 1998

wage index; the transfer definition prior to

implementation of section 4407 of the BBA;

and no MGCRB reclassifications. Outlier

payments are set at 5.1 percent of total DRG

payments.

Each final and statutory policy change is

then added incrementally to this baseline

model, finally arriving at an FY 1999 model

incorporating all of the changes. This allows

us to isolate the effects of each change.

Our final comparison illustrates the

percent change in payments per case from FY

1998 to FY 1999. Four factors have

significant impacts here. First is the update

to the standardized amounts. In accordance

with section 1886(d)(3)(A)(iv) of the Act, we

are updating the large urban and the other

areas average standardized amounts for FY

1999 by the most recently forecasted hospital

market basket increase for FY 1999 of 2.4

percent minus 1.9 percentage points.

Similarly, section 1886(b)(3)(C)(ii) of the Act

provides that the update factor applicable to

the hospital-specific rates for sole community

hospitals (SCHs) and Medicare-dependent,

small rural hospitals (MDHs) is equal to the

market basket increase of 2.4 percent minus

1.9 percentage points (for an update of 0.5

percent).

A second significant factor impacting

changes in hospitals’ payments per case from

FY 1998 to FY 1999 is a change in MGCRB

reclassification status from one year to the

next. That is, hospitals reclassified in FY

1998 that are no longer reclassified in FY

1999 may have a negative payment impact

going from FY 1998 to FY 1999; conversely,

hospitals not reclassified in FY 1998 that are

reclassified in FY 1999 may have a positive

impact. In some cases, these impacts can be

quite substantial, so if a relatively small

number of hospitals in a particular category

lose their reclassification status, the

percentage increase in payments for the

category may be below the national mean.

A third significant factor is that we

currently estimate that actual outlier

payments during FY 1998 will be 5.4 percent

of actual total DRG payments. When the FY

1998 final rule was published, we projected

FY 1998 outlier payments would be 5.1

percent of total DRG payments, and the

standardized amounts were reduced

correspondingly. The effects of the slightly

higher than expected outlier payments

during FY 1998 (as discussed in the

Addendum to this final rule) are reflected in

the analyses below comparing our current

estimates of FY 1998 payments per case to

estimated FY 1999 payments per case.

Fourth, payments per case in FY 1999 are

reduced from FY 1998 for hospitals that

receive the indirect medical education (IME)

or the disproportionate share (DSH)

adjustments. Section 1886(d)(5)(B)(ii) of the

Act provides that the IME adjustment is

reduced from approximately a 7.0 percent

increase for every 10 percent increase in a

hospital’s resident-to-bed ratio in FY 1998, to

a 6.5 percent increase in FY 1999. Similarly,

in accordance with section 1886(d)(5)(F)(ix)

of the Act, the DSH adjustment for FY 1999

is reduced by 2 percent from what would

otherwise have been paid, compared to a 1

percent reduction for FY 1998.

Table I demonstrates the results of our

analysis. The table categorizes hospitals by

various geographic and special payment

consideration groups to illustrate the varying

impacts on different types of hospitals. The

top row of the table shows the overall impact

on the 4,975 hospitals included in the

analysis. This is 113 fewer hospitals than

were included in the impact analysis in the

FY 1998 final rule with comment period (62

FR 46119).

The next four rows of Table I contain

hospitals categorized according to their

geographic location (all urban, which is

further divided into large urban and other

urban, or rural). There are 2,810 hospitals

located in urban areas (MSAs or NECMAs)

included in our analysis. Among these, there

are 1,611 hospitals located in large urban

areas (populations over 1 million), and 1,199

hospitals in other urban areas (populations of

1 million or fewer). In addition, there are

2,165 hospitals in rural areas. The next two

groupings are by bed-size categories, shown

separately for urban and rural hospitals. The

final groupings by geographic location are by

census divisions, also shown separately for

urban and rural hospitals.

The second part of Table I shows hospital

groups based on hospitals’ FY 1999 payment

classifications, including any

reclassifications under section 1886(d)(10) of

the Act. For example, the rows labeled urban,
41106 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

large urban, other urban, and rural show the

numbers of hospitals paid based on these

categorizations (after consideration of

geographic reclassifications) are 2,894, 1,698,

1,196, and 2,081, respectively.

The next three groupings examine the

impacts of the final changes on hospitals

grouped by whether or not they have

residency programs (teaching hospitals that

receive an IME adjustment), receive DSH

payments, or some combination of these two

adjustments. There are 3,880 nonteaching

hospitals in our analysis, 854 teaching

hospitals with fewer than 100 residents, and

241 teaching hospitals with 100 or more

residents.

In the DSH categories, hospitals are

grouped according to their DSH payment

status, and whether they are considered

urban or rural after MGCRB reclassifications.

Hospitals in the rural DSH categories,

therefore, represent hospitals that were not

reclassified for purposes of the standardized

amount or for purposes of the DSH

adjustment. (They may, however, have been

reclassified for purposes of the wage index.)

The next category groups hospitals

considered urban after geographic

reclassification, in terms of whether they

receive the IME adjustment, the DSH

adjustment, both, or neither.

The next row separately examines

hospitals that available data show may

qualify under section 4401(b) of the BBA for

the special temporary relief provision, which

grants an additional 0.3 percent update to the

standardized amounts (in addition to the 0.5

percent update other hospitals receive during

FY 1999), resulting in a 0.8 percent update

for this category of hospitals. To be eligible,

a hospital must not be an MDH, nor may it

receive either IME or DSH payments. It must

also experience a negative margin on its

operating prospective payments during FY

1999. We estimated eligible hospitals based

on whether they had a negative operating

margin on their FY 1995 cost report (latest

available data). Finally, to qualify, a hospital

must be located in a State where the

aggregate FY 1995 operating prospective

payments were less than the aggregate

associated costs for all of the non-IME, nonDSH, non-MDH hospitals in the State. There

are 344 hospitals in this row.

The next four rows examine the impacts of

the final changes on rural hospitals by

special payment groups (SCHs, rural referral

centers (RRCs), and MDHs), as well as rural

hospitals not receiving a special payment

designation. The RRCs (145), SCHs (637),

MDHs (352), and SCH and RRCs (59) shown

here were not reclassified for purposes of the

standardized amount. There are six SCHs

that will be reclassified for the standardized

amount in FY 1999 that, therefore, are not

included in these rows. There are seven

hospitals that continue to be paid under the

same rules as SCHs, by virtue of their prior

designation as essential access community

hospitals (EACH). These hospitals are

categorized in our analysis as SCHs (there are

also three EACH/RRCs).

The next two groupings are based on type

of ownership and the hospital’s Medicare

utilization expressed as a percent of total

patient days. These data are taken primarily

from the FY 1995 Medicare cost report files,

if available (otherwise FY 1994 data are

used). Data needed to determine ownership

status or Medicare utilization percentages

were unavailable for 115 hospitals. For the

most part, these are new hospitals.

The next series of groupings concern the

geographic reclassification status of

hospitals. The first three groupings display

hospitals that were reclassified by the

MGCRB for both FY 1998 and FY 1999, or

for either of those 2 years, by urban/rural

status. The next rows illustrate the overall

number of FY 1999 reclassifications, as well

as the numbers of reclassified hospitals

grouped by urban and rural location. The

final row in Table I contains hospitals

located in rural counties but deemed to be

urban under section 1886(d)(8)(B) of the Act.

TABLE I.—IMPACT ANALYSIS OF CHANGES FOR FY 1999 OPERATING PROSPECTIVE PAYMENT SYSTEM

[Percent Changes in Payments Per Case]

Num. of

hosps.1

Pac tran.

provision 2

DRG recalib.3

New

wage

Data 4

Contract

phys. pt

A Costs 5

Allocated

overhead

costs 6

DRG &

WI

changes 7

MGCRB

reclassification 8All FY 99

changes 9

(0) (1) (2) (3) (4) (5) (6) (7) (8)

(BY GEOGRAPHIC LOCATION):

ALL HOSPITALS ..................................................... 4,975 ¥0.6 0.1 0.0 0.0 0.0 0.0 0.0 ¥1.0

URBAN HOSPITALS ............................................... 2,810 ¥0.7 0.2 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.4 ¥1.3

LARGE URBAN ................................................ 1,611 ¥0.7 0.2 ¥0.4 0.0 ¥0.1 ¥0.5 ¥0.5 ¥1.7

OTHER URBAN ............................................... 1,199 ¥0.6 0.1 0.4 0.0 ¥0.1 0.3 ¥0.4 ¥0.7

RURAL HOSPITALS ............................................... 2,165 ¥0.4 0.1 0.7 0.0 0.4 1.0 2.7 1.3

BED SIZE (URBAN):

0–99 BEDS .............................................................. 704 ¥0.8 0.1 ¥0.2 0.0 0.0 ¥0.2 ¥0.6 ¥0.9

100–199 BEDS ........................................................ 937 ¥0.9 0.2 ¥0.2 0.0 ¥0.1 ¥0.2 ¥0.5 ¥1.2

200–299 BEDS ........................................................ 568 ¥0.7 0.2 ¥0.2 0.0 ¥0.1 ¥0.2 ¥0.4 ¥1.2

300–499 BEDS ........................................................ 449 ¥0.6 0.1 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.5 ¥1.4

500 OR MORE BEDS ............................................. 152 ¥0.5 0.1 0.1 0.0 ¥0.2 0.0 ¥0.3 ¥1.6

BED SIZE (RURAL):

0–49 BEDS .............................................................. 1,137 ¥0.2 0.0 0.7 0.0 0.5 1.0 0.0 1.0

50–99 BEDS ............................................................ 634 ¥0.3 0.0 0.6 0.0 0.4 0.8 1.1 0.8

100–149 BEDS ........................................................ 229 ¥0.5 0.1 0.6 ¥0.1 0.5 1.0 3.6 1.1

(0) (1) (2) (3) (4) (5) (6) (7) (8)

150–199 BEDS ........................................................ 91 ¥0.5 0.1 0.8 0.0 0.4 1.1 4.5 2.5

200 OR MORE BEDS ............................................. 74 ¥0.4 0.1 0.8 0.0 0.3 1.1 5.3 1.7

URBAN BY CENSUS DIVISION:

NEW ENGLAND ...................................................... 152 ¥0.7 0.1 ¥1.1 0.2 ¥0.3 ¥1.2 ¥0.2 ¥2.6

MIDDLE ATLANTIC ................................................. 425 ¥0.4 0.2 0.2 0.2 ¥0.1 0.3 ¥0.4 ¥0.9

SOUTH ATLANTIC .................................................. 414 ¥0.6 0.2 0.7 ¥0.2 ¥0.1 0.5 ¥0.5 ¥0.4

EAST NORTH CENTRAL ........................................ 476 ¥0.8 0.1 ¥0.4 ¥0.2 ¥0.3 ¥0.9 ¥0.4 ¥2.2

EAST SOUTH CENTRAL ........................................ 162 ¥0.5 0.2 0.7 ¥0.2 ¥0.3 0.2 ¥0.5 ¥0.7

WEST NORTH CENTRAL ....................................... 189 ¥0.7 0.1 0.6 0.2 0.2 1.0 ¥0.5 ¥0.1

WEST SOUTH CENTRAL ....................................... 354 ¥1.0 0.2 ¥0.7 0.3 ¥0.1 ¥0.4 ¥0.5 ¥1.6

MOUNTAIN .............................................................. 129 ¥0.9 0.1 ¥0.1 0.1 ¥0.1 ¥0.2 ¥0.5 ¥1.1

PACIFIC ................................................................... 461 ¥0.8 0.2 ¥0.9 ¥0.2 0.1 ¥0.9 ¥0.4 ¥2.0

PUERTO RICO ........................................................ 48 ¥0.8 0.3 0.9 ¥0.2 ¥0.3 0.5 ¥0.6 ¥0.3

RURAL BY CENSUS DIVISION:

NEW ENGLAND ...................................................... 53 ¥0.4 0.0 1.0 0.0 0.0 0.9 1.4 ¥0.3

MIDDLE ATLANTIC ................................................. 80 ¥0.2 0.0 0.7 0.4 0.2 1.2 1.7 1.3

SOUTH ATLANTIC .................................................. 286 ¥0.4 0.1 0.6 ¥0.2 0.3 0.7 3.8 1.8

EAST NORTH CENTRAL ........................................ 285 ¥0.4 0.1 0.8 ¥0.1 0.3 1.0 2.1 1.3

EAST SOUTH CENTRAL ........................................ 269 ¥0.3 0.1 1.3 ¥0.2 0.4 1.5 2.7 1.7

WEST NORTH CENTRAL ....................................... 500 ¥0.3 ¥0.1 0.9 0.0 0.7 1.5 2.3 1.4

WEST SOUTH CENTRAL ....................................... 342 ¥0.5 0.1 0.1 0.1 0.5 0.6 3.5 0.7
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41107

TABLE I.—IMPACT ANALYSIS OF CHANGES FOR FY 1999 OPERATING PROSPECTIVE PAYMENT SYSTEM—Continued

[Percent Changes in Payments Per Case]

Num. of

hosps.1

Pac tran.

provision 2

DRG recalib.3

New

wage

Data 4

Contract

phys. pt

A Costs 5

Allocated

overhead

costs 6

DRG &

WI

changes 7

MGCRB

reclassification 8All FY 99

changes 9

(0) (1) (2) (3) (4) (5) (6) (7) (8)

(0) (1) (2) (3) (4) (5) (6) (7) (8)

MOUNTAIN .............................................................. 204 ¥0.2 0.0 0.2 ¥0.1 0.5 0.5 1.8 0.6

PACIFIC ................................................................... 141 ¥0.5 0.1 0.3 ¥0.2 0.5 0.6 2.4 0.7

PUERTO RICO ........................................................ 5 ¥0.5 0.0 2.3 ¥0.2 ¥0.2 1.8 1.7 ¥0.2

(BY PAYMENT CATEGORIES):

URBAN HOSPITALS ............................................... 2,894 ¥0.7 0.2 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.4 ¥1.3

LARGE URBAN ................................................ 1,698 ¥0.7 0.2 ¥0.4 0.0 ¥0.1 ¥0.4 ¥0.3 ¥1.6

OTHER URBAN ............................................... 1,196 ¥0.6 0.1 0.4 0.0 ¥0.1 0.3 ¥0.4 ¥0.6

RURAL HOSPITALS ............................................... 2,081 ¥0.4 0.1 0.7 0.0 0.4 1.0 2.4 1.1

TEACHING STATUS:

NON-TEACHING ..................................................... 3,880 ¥0.7 0.1 0.1 ¥0.1 0.1 0.2 0.3 ¥0.3

LESS THAN 100 RES ............................................. 854 ¥0.7 0.1 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.3 ¥1.1

100+ RESIDENTS ................................................... 241 ¥0.5 0.2 ¥0.1 0.1 ¥0.2 ¥0.1 ¥0.3 ¥2.0

DISPROPORTIONATE SHARE HOSPITALS (DSH):

NON-DSH ................................................................ 3,089 ¥0.6 0.1 0.1 0.0 0.0 0.0 0.3 ¥0.6

URBAN DSH:

100 BEDS OR MORE ...................................... 1,404 ¥0.7 0.2 ¥0.1 0.0 ¥0.1 ¥0.1 ¥0.4 ¥1.4

FEWER THAN 100 BEDS ................................ 88 ¥0.6 0.2 ¥0.6 ¥0.1 0.0 ¥0.7 ¥0.4 ¥1.2

RURAL DSH:

SOLE COMMUNITY (SCH) .............................. 162 ¥0.2 0.0 0.7 ¥0.1 0.3 0.8 0.0 1.0

REFERRAL CENTERS (RRC) ......................... 53 ¥0.5 0.2 1.1 ¥0.1 0.4 1.4 5.6 2.5

(0) (1) (2) (3) (4) (5) (6) (7) (8)

OTHER RURAL DSH HOSP:

100 BEDS OR MORE ...................................... 60 ¥0.6 0.2 0.9 ¥0.2 0.5 1.3 1.1 0.7

FEWER THAN 100 BEDS ................................ 119 ¥0.2 0.0 1.1 ¥0.1 0.5 1.4 ¥0.2 1.3

URBAN TEACHING AND DSH:

BOTH TEACHING AND DSH .................................. 709 ¥0.7 0.2 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.5 ¥1.6

TEACHING AND NO DSH ...................................... 331 ¥0.6 0.1 ¥0.1 0.0 ¥0.2 ¥0.3 ¥0.1 ¥1.3

NO TEACHING AND DSH ...................................... 783 ¥0.8 0.2 0.0 ¥0.1 0.0 0.0 ¥0.2 ¥0.7

NO TEACHING AND NO DSH ................................ 1,071 ¥0.7 0.1 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.4 ¥0.9

SPECIAL UPDATE HOSPITALS (UNDER SEC.

4401(b) OF PUBLIC LAW 105–33) ............................ 344 ¥0.6 0.1 0.0 ¥0.1 ¥0.1 ¥0.1 ¥0.2 ¥0.8

RURAL HOSPITAL TYPES:

NONSPECIAL STATUS HOSPITALS ..................... 888 ¥0.4 0.1 0.9 ¥0.1 0.6 1.3 1.2 0.7

RRC ......................................................................... 145 ¥0.6 0.2 0.9 0.0 0.4 1.4 6.4 2.2

SCH ......................................................................... 637 ¥0.1 ¥0.1 0.3 0.0 0.2 0.4 0.1 0.4

MDH ......................................................................... 352 ¥0.2 0.0 0.8 0.0 0.5 1.2 0.5 1.0

SCH AND RRC ........................................................ 59 ¥0.2 0.0 0.3 ¥0.1 0.2 0.3 2.0 1.2

TYPE OF OWNERSHIP:

VOLUNTARY ........................................................... 2,858 ¥0.6 0.1 0.0 0.0 ¥0.1 ¥0.1 ¥0.1 ¥1.0

PROPRIETARY ....................................................... 671 ¥0.9 0.2 0.1 ¥0.1 0.0 0.0 0.2 ¥1.0

GOVERNMENT ....................................................... 1,331 ¥0.5 0.2 0.1 0.0 0.1 0.2 0.3 ¥0.5

(0) (1) (2) (3) (4) (5) (6) (7) (8)

UNKNOWN .............................................................. 115 ¥0.8 0.2 0.3 ¥0.2 0.1 0.4 ¥0.5 ¥1.0

MEDICARE UTILIZATION AS A PERCENT OF INPATIENT DAYS:

0–25 ......................................................................... 247 ¥0.6 0.2 ¥1.0 0.0 0.0 ¥0.8 ¥0.2 ¥2.0

25–50 ....................................................................... 1,264 ¥0.7 0.2 ¥0.2 0.0 ¥0.1 ¥0.2 ¥0.3 ¥1.5

50–65 ....................................................................... 1,978 ¥0.6 0.1 0.2 0.0 ¥0.1 0.1 0.2 ¥0.6

OVER 65 .................................................................. 1,371 ¥0.6 0.1 0.2 0.0 0.0 0.3 0.1 ¥0.2

UNKNOWN .............................................................. 115 ¥0.8 0.2 0.3 ¥0.2 0.1 0.4 ¥0.5 ¥1.0

HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC REVIEW BOARD:

RECLASSIFICATION STATUS DURING FY 98

AND FY 99:

RECLASSIFIED DURING BOTH FY98 AND

FY99 .............................................................. 315 ¥0.5 0.1 0.6 ¥0.1 0.2 0.7 6.8 ¥0.5

URBAN ...................................................... 72 ¥0.4 0.2 0.4 ¥0.1 ¥0.2 0.1 4.9 ¥1.0

RURAL ...................................................... 243 ¥0.5 0.1 0.7 ¥0.1 0.4 1.1 8.3 ¥0.1

RECLASSIFIED DURING FY 99 ONLY ........... 170 ¥0.5 0.1 0.5 0.0 0.3 0.8 5.0 5.4

URBAN ...................................................... 15 ¥0.7 0.1 ¥0.1 0.1 0.1 0.1 4.6 2.3

RURAL ...................................................... 155 ¥0.5 0.1 0.7 0.0 0.3 1.0 5.1 6.3

RECLASSIFIED DURING FY 98 ONLY ........... 126 ¥0.7 0.1 0.3 ¥0.1 ¥0.1 0.1 ¥0.6 ¥3.6

URBAN ...................................................... 53 ¥0.8 0.1 0.2 ¥0.1 ¥0.3 ¥0.1 ¥0.7 ¥2.9

(0) (1) (2) (3) (4) (5) (6) (7) (8)

RURAL ...................................................... 73 ¥0.3 0.1 0.6 ¥0.1 0.4 1.0 ¥0.5 ¥5.9

FY 99 RECLASSIFICATIONS:

ALL RECLASSIFIED HOSP .................................... 485 ¥0.5 0.1 0.6 ¥0.1 0.2 0.7 6.2 1.4

STAND. AMOUNT ONLY ................................. 94 ¥0.6 0.1 0.5 0.0 ¥0.2 0.3 1.0 ¥0.7

WAGE INDEX ONLY ........................................ 281 ¥0.5 0.1 0.4 ¥0.1 0.3 0.6 6.9 ¥1.2

BOTH ................................................................ 47 ¥0.6 0.2 0.9 ¥0.2 ¥0.3 0.5 3.7 ¥2.2

NONRECLASSIFIED ........................................ 4,526 ¥0.7 0.1 0.0 0.0 ¥0.1 ¥0.1 ¥0.4 ¥0.9

ALL URBAN RECLASS ........................................... 87 ¥0.5 0.2 0.3 ¥0.1 ¥0.2 0.1 4.8 ¥0.3

STAND. AMOUNT ONLY ................................. 26 ¥0.4 0.2 1.3 ¥0.1 ¥0.3 0.9 0.8 0.1
41108 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE I.—IMPACT ANALYSIS OF CHANGES FOR FY 1999 OPERATING PROSPECTIVE PAYMENT SYSTEM—Continued

[Percent Changes in Payments Per Case]

Num. of

hosps.1

Pac tran.

provision 2

DRG recalib.3

New

wage

Data 4

Contract

phys. pt

A Costs 5

Allocated

overhead

costs 6

DRG &

WI

changes 7

MGCRB

reclassification 8All FY 99

changes 9

(0) (1) (2) (3) (4) (5) (6) (7) (8)

NONRECLASSIFIED ........................................ 2,696 ¥0.7 0.2 ¥0.1 0.0 ¥0.1 ¥0.2 ¥0.6 1.3

ALL RURAL RECLASS ........................................... 398 ¥0.5 0.1 0.7 ¥0.1 0.4 1.1 7.0 2.4

STAND. AMOUNT ONLY ................................. 55 ¥0.4 0.1 0.9 ¥0.1 0.4 1.1 4.8 2.7

WAGE INDEX ONLY ........................................ 314 ¥0.5 0.1 0.7 0.0 0.4 1.1 6.9 2.2

BOTH ................................................................ 29 ¥0.5 0.1 0.8 ¥0.1 0.3 1.1 10.0 3.8

NONRECLASSIFIED ........................................ 1,767 ¥0.3 0.0 0.7 0.0 0.4 0.9 ¥0.4 0.4

OTHER RECLASSIFIED HOSPITALS (SECTION

1886(d)(8)(B)) .............................................................. 27 ¥0.5 0.1 ¥0.4 0.0 ¥0.3 ¥0.6 1.0 1.1

1Because data necessary to classify some hospitals by category are missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 1997, and hospital cost report data are from reporting periods beginning in FY 1994 and FY 1995. 2This column displays the impact of the change enacted by section 4407 of the BBA, which defines discharges from 1 of 10 DRGs to postacute care as transfers.

Under our final policy, 3 of the 10 DRGs will be paid under an alternative methodology where they will receive 50 percent of the full DRG amount on the first day and

50 percent of the current per diem transfer payment amount for each day of the stay. The remaining seven DRGs would be paid using our current transfer payment

methodology. 3This column displays the payment impact of the recalibration of the DRG weights based on FY 1997 MedPAR data and the DRG classification changes, in accordance with section 1886(d)(4)(C) of the Act. 4This column shows the payment effects of updating the data used to calculate the wage index with data from the FY 1995 cost reports.

5This column displays the impact of adding contract Part A physician costs to the wage data.

6This column illustrates the payment impact of removing the overhead costs allocated to departments where the directly assigned costs are already excluded from

the wage index calculation (for example, SNFs and distinct part units). 7This column displays the combined impact of the reclassification and recalibration of the DRGs, the updated and revised wage data used to calculate the wage

index, and the budget neutrality adjustment factor for these two changes, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act. Thus, it represents the combined impacts shown in columns 2, 3, 4, and 5, and the FY 1999 budget neutrality factor of 0.999006. 8Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects shown here demonstrate the FY 1999 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 1999. Reclassification for prior years

has no bearing on the payment impacts shown here. 9This column shows changes in payments from FY 1998 to FY 1999. It incorporates all of the changes displayed in columns 1, 6, and 7 (the changes displayed in

columns 2, 3, 4 and 5 are included in column 6). It also displays the impact of the FY 1999 update, changes in hospitals’ reclassification status in FY 1999 compared

to FY 1998, the difference in outlier payments from FY 1998 to FY 1999, and the reductions to payments through the IME and DSH adjustments taking effect during

FY 1999. The sum of these columns may be different from the percentage changes shown here due to rounding and interactive effects.

B. Impact of the Implementation of the

Expanded Transfer Definition (Column 1)

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

section 4407 of the BBA) requires the

Secretary to select 10 DRGs for which

discharges (from any one of these DRGs) to

a postacute care provider will be treated as

a transfer beginning with discharges on or

after October 1, 1998. Column 1 shows the

impact of this provision.

Although the expanded definition

encompasses only 10 DRGs, they were

selected, in accordance with the statute,

based upon their large and disproportionate

volume of cases receiving postacute care.

Therefore, the overall payment impact of this

change is significant (a 0.6 percent decrease

in payments per case).

The 10 DRGs that we are including under

this provision are identified in section IV.A.

of the preamble to this final rule. In addition

to selecting 10 DRGs, the statute authorizes

the Secretary to develop an alternative

transfer payment methodology for DRGs

where a substantial portion of the costs of the

cases occur very early in the stay. This is

particularly likely to happen in some surgical

DRGs because of the high cost of the surgical

procedure. Based on our analysis comparing

the costs per case for these cases with

payments under our current transfer payment

methodology, we will pay the current

transfer per diem for all DRGs except DRGs

209, 210, and 211. For those three DRGs, the

alternative payment methodology is 50

percent of the full DRG payment amount,

plus 50 percent of the current per diem

transfer payment for each day of the stay, up

to the full DRG payment.

To simulate the impact of these final

policies, we adjusted hospitals’ transferadjusted discharges and case-mix index

values (using version 15 of the GROUPER) to

reflect the impact of this expansion in the

transfer definition. The transfer-adjusted

discharge fraction is calculated one of two

ways, depending on the transfer payment

methodology. Under our current transfer

payment methodology, and for all but the

three DRGs receiving special payment

consideration, this adjustment is made

simply by adding one to the length of stay

and dividing that amount by the geometric

mean length of stay for the DRG (with the

resulting fraction not to exceed 1.0). For

example, a transfer after 3 days from a DRG

with a geometric mean length of stay of 6

days would have a transfer-adjusted

discharge fraction of 0.667 ((3+1)/6).

For transfers from any one of the three

DRGs receiving the alternative payment

methodology, the transfer-adjusted discharge

fraction is 0.5 (to reflect that these cases

receive half the full DRG amount the first

day), plus one-half of the result of dividing

one plus the length of stay prior to transfer

by the geometric mean length of stay for the

DRG. As with the above adjustment, the

result is equal to the lesser of the transferadjusted discharge fraction or 1.

The transfer-adjusted case-mix index

values are calculated by summing the

transfer-adjusted DRG weights and dividing

by the transfer-adjusted discharges. The

transfer-adjusted DRG weights are calculated

by multiplying the DRG weight by the lesser

of 1 or the transfer-adjusted discharge

fraction for the case, divided by the

geometric mean length of stay for the DRG.

In this way, simulated payments per case can

be compared before and after the change to

the transfer policy.

This change has the greatest impact among

urban hospitals (0.7 percent decrease).

Among urban hospitals, hospitals with up to

99 beds and those with between 100 and 199

beds are most affected, with 0.8 percent and

0.9 percent reductions in payments,

respectively. For urban hospitals grouped by

census division, the Middle Atlantic division

has the smallest negative impact, a 0.4

percent decrease. The Middle Atlantic

division has traditionally had the longest

average lengths of stay, therefore, it is

reasonable that the impact is smallest here.

Transfer cases with a length of stay more

than the (geometric) mean length of stay

minus one day do not experience any

payment impact under this provision. (Full

payment is reached one day prior to the

mean length of stay due to the double per

diem paid for the first day under our current

transfer payment methodology.)

Rural hospitals experience a smaller

payment impact overall, especially the

smallest rural hospitals: those with fewer

than 50 beds (a 0.2 percent decrease). The

smallest impacts among rural census

divisions are in the Middle Atlantic and the

Mountain. The largest rural impacts are in

the West South Central and the Pacific

divisions, and Puerto Rico, all with 0.5

percent decreases. This change is consistent

with the shorter lengths of stay in these

geographic regions.

The largest negative impact is a 1.0 percent

decrease in payments observed among urban

West South Central hospitals. The smallest

negative impact occurs in SCHs (0.1 percent

decrease). Those SCHs paid based on their

hospital-specific amount would see no

impact related to this change, since there is

no transfer adjustment made to the hospitalspecific amount.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41109

C. Impact of the Changes to the DRG

Classifications and Relative Weights (Column

2)

In column 2 of Table I, we present the

combined effects of the DRG reclassifications

and recalibration, as discussed in section II

of the preamble to this final rule. Section

1886(d)(4)(C)(i) of the Act requires us to

annually make appropriate classification

changes and to recalibrate the DRG weights

in order to reflect changes in treatment

patterns, technology, and any other factors

that may change the relative use of hospital

resources.

We compared aggregate payments using

the FY 1998 DRG relative weights (GROUPER

version 15) to aggregate payments using the

final FY 1999 DRG relative weights

(GROUPER version 16). Overall, payments

increase by 0.1 percent due to the DRG

changes, although this is prior to applying

the budget neutrality factor for DRG and

wage index changes (see column 6).

Consistent with the minor changes reflected

in the FY 1999 GROUPER, the

redistributional impacts of DRG

reclassifications and recalibration across

hospital groups are very small (a 0.2 percent

increase for large urban hospitals, and a 0.1

percent increase for other urban hospitals as

well as for rural hospitals). Within hospital

categories, the net effects for urban hospitals

are small positive changes for all hospitals (a

0.2 percent increase for hospitals with

between 100 and 299 beds, and a 0.1 percent

increase for smaller or larger urban

hospitals). Rural hospitals with 100 or more

beds experience an increase of 0.1 percent,

for smaller rural hospitals, there is no impact

(0.0 percent change).

The breakdowns by urban census division

show that the increase among urban hospitals

is spread across all census categories, with

the largest increase (0.3 percent) for hospitals

in Puerto Rico. For rural hospitals, there is

no impact (that is, a 0.0 percent change) for

hospitals in the New England, Middle

Atlantic, and Mountain census divisions. The

West North Central division experiences a

0.1 percent decrease. All other rural census

divisions experience a 0.1 percent increase.

The only other hospital category

experiencing a negative impact is SCHs, with

a 0.1 percent decrease.

This pattern of small increases or no

change applies to all other hospital

categories. Overall, we attribute this change

to the increasing severity of illness of

hospital inpatients. That is, as greater

numbers of less acutely ill patients are

treated outside the inpatient setting, the

acuity of the remaining hospital inpatients

increases. Although, in the past, this effect

was seen more clearly in large urban and

very large rural hospitals, which often had

more outpatient settings available for patient

treatment, hospitals in all areas now appear

to be able to take advantage of this practice.

Of course, in general, these positive impacts

are very minor, with virtually no hospital

group experiencing more than a 0.2 percent

increase.

D. Impact of Updating the Wage Data

(Column 3)

Section 1886(d)(3)(E) of the Act requires

that, beginning October 1, 1993, we annually

update the wage data used to calculate the

wage index. In accordance with this

requirement, the wage index for FY 1999 is

based on data submitted for hospital cost

reporting periods beginning on or after

October 1, 1994 and before October 1, 1995.

As with the previous column, the impact of

the new data on hospital payments is isolated

by holding the other payment parameters

constant in the two simulations. That is,

column 3 shows the percentage changes in

payments when going from a model using the

FY 1998 wage index based on FY 1994 wage

data before geographic reclassifications to a

model using the FY 1999 prereclassification

wage index based on FY 1995 wage data.

The wage data collected on the FY 1995

cost reports includes, for the first time,

contract labor costs and hours for top

management positions as allowable in the

wage index calculation. In addition, the

changes to wage-related costs associated with

hospital and home office salaries that were

discussed in the September 1, 1994 final rule

(59 FR 45355) are reflected in the FY 1995

data. These changes are reflected in column

3, as well as other year-to-year changes in

hospitals’ labor costs.

The results indicate that the new wage data

have no overall impact in hospital payments.

Rural hospitals as a category, however,

benefit from the update. Their payments

increase by 0.7 percent. These increases are

attributable to increases above 5 percent in

the wage index values for the rural areas of

several States.

Urban hospitals as a group are not

significantly affected by the updated wage

data (a 0.1 percent decrease). The gains of

hospitals in other urban areas (0.4 percent

increase) are offset by decreases among

hospitals in large urban areas (0.4 percent

decrease). The negative impact among large

urban areas appears to be largely due to three

large urban MSAs with decreases of greater

than 6 percent in their wage index values due

to the FY 1995 data.

Among urban census divisions, New

England experiences the largest decline, 1.1

percent. This is primarily attributable to a 2.0

percent decline in the Boston MSA’s wage

index. The negative impact in the Pacific

division is associated with three MSAs that

have a 7 percent decline in their wage index.

On the other hand, in urban Puerto Rico, two

MSAs had increases of more than 10 percent.

The largest increases are in the rural

census divisions. Rural Puerto Rico

experiences the greatest positive impact, 2.3

percent. Hospitals in two other census

divisions receive positive increases of at least

1.0 percent; East South Central at 1.3 percent,

and New England at 1.0 percent. We believe

these positive impacts of the new wage data

for rural hospitals stem from the expansion

of the contract labor definition, specifically

the inclusion certain management categories.

On average, the hourly cost of contract labor

increased for rural hospitals by 5.9 percent.

Among urban hospitals, the increase was 4.2

percent.

E. Impact of Including Contract Physician

Part A Costs (Column 4)

As discussed in section III.C.1 of the

preamble, we began collecting separate wage

data for both direct and contract physician

Part A services on the FY 1995 cost report.

This change was made in order to address

any potential inequity of including only

salaried Part A physician costs in the wage

index while some States had laws prohibiting

their hospitals from employing physicians

directly (forcing hospitals to contract with

physicians for administrative services). We

are including contract physician Part A costs

in the wage index calculation.

Column 4 shows the payment impacts of

including these data. Although only two

States currently maintain the prohibition

against hospitals directly employing

physicians (Texas and California), many

hospitals in other States reported these costs

as well. Thus, the impacts of this final

change extend well beyond Texas and

California.

In general, most hospital categories

experience either no changes due to this final

policy, or small (0.1 percent) increases or

decreases. Urban hospitals in the West South

Central census division (which includes

Texas) have a 0.3 percent increase. Hospitals

in the Pacific division (which includes

California) have a decrease of 0.2 percent

overall in their wage index.

The MSA with the greatest increase due to

this change is Galveston-Texas City, TX.

Although hospitals in this MSA experience a

drop in their wage index due to the use of

FY 1995 data, much of that decrease is

recovered by a 12 percent increase resulting

from the inclusion of contract physician Part

A costs. Two California MSAs experience

increases in their wage indexes of at least 1.0

percent: Stockton-Lodi and Fresno.

F. Impact of Removing Overhead Costs of

Excluded Areas (Column 5)

Prior years’ wage index calculations have

removed the direct wages and hours

associated with certain subprovider

components excluded from the prospective

payment system; however, the overhead costs

associated with these excluded components

have not been removed. We revised the FY

1995 cost report to allow hospitals to report

separately overhead salaries and hours, and

for the FY 1999 wage index we are removing

the overhead costs and hours allocated to

areas of the hospital excluded from the wage

index calculation.

Column 5 displays the impacts on FY 1999

payments per case of implementing this

change. The overall payment impact is 0.0

percent; however, the impact diverges along

urban and rural lines. Urban hospitals lose

0.1 percent as a result of removing these

overhead costs, while rural hospitals gain 0.4

percent.

Hospitals in the rural West North Central

census division experience the largest

percentage increase (0.7 percent). All the

rural Statewide wage indexes increased in

this census division, led by Minnesota (3.2

percent) and South Dakota (2.4 percent).

The combined wage index changes in

Table I are determined by summing the

individual impacts in columns 3, 4, and 5.

For example, the rural West North Central

census division gains 0.9 percent from the

new wage data, and 0.7 percent from

removing the overhead costs allocated to
41110 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

excluded areas. Therefore, the combined

impact of the FY 1999 wage index for these

hospitals is a 1.6 percent increase.

The following chart compares the shifts in

wage index values for labor market areas for

FY 1999 relative to FY 1998. This chart

demonstrates the impact of the changes for

the FY 1999 wage index relative to the FY

1998 wage index. The majority of labor

market areas (305) experience less than a 5

percent change. A total of 38 labor market

areas experience an increase of more than 5

percent, with 9 having an increase greater

than 10 percent. A total of 28 areas (all

urban) experience decreases of more than 5

percent, although, of those, all decline by less

than 10 percent.

Percentage change in

area wage index

values

Number of labor

market areas

FY 1998 FY 1999

Increase more than

10 percent ............. 2 9

Increase more than 5

percent and less

than 10 percent ..... 24 29

Increase or decrease

less than 5 percent 334 305

Decrease more than

5 percent and less

than 10 percent ..... 9 28

Decrease more than

10 percent ............. 1 0

Among urban hospitals, 129 would

experience an increase of more than 5

percent and 23 more than 10 percent. More

rural hospitals have increases greater than 5

percent (355), but none greater than 10

percent. On the negative side, 186 urban

hospitals but no rural hospitals have

decreases in their wage index values of at

least 5 percent (none have decreases greater

than 10 percent). The following chart shows

the impact for urban and rural hospitals.

Percentage change in

area wage index

values

Number of hospitals

Urban Rural

Increase more than

10 percent ............. 23 0

Increase more than 5

percent and less

than 10 percent ..... 129 355

Increase or decrease

less than 5 percent 2472 1810

Decrease more than

5 percent and less

than 10 percent ..... 186 0

Decrease more than

10 percent ............. 0 0

G. Combined Impact of DRG and Wage Index

Changes—Including Budget Neutrality

Adjustment (Column 6)

The impact of DRG reclassifications and

recalibration on aggregate payments is

required by section 1886(d)(4)(C)(iii) of the

Act to be budget neutral. In addition, section

1886(d)(3)(E) of the Act specifies that any

updates or adjustments to the wage index are

to be budget neutral. As noted in the

Addendum to this final rule, we compared

aggregate payments using the FY 1998 DRG

relative weights and wage index to aggregate

payments using the FY 1999 DRG relative

weights and wage index. Based on this

comparison, we computed a wage and

recalibration budget neutrality factor of

0.999006. In Table I, the combined overall

impacts of the effects of both the DRG

reclassifications and recalibration and the

updated wage index are shown in column 6.

The 0.0 percent impact for All Hospitals

demonstrates that these changes, in

combination with the budget neutrality

factor, are budget neutral.

For the most part, the changes in this

column are the sum of the changes in

columns 2, 3, 4, and 5, minus approximately

0.1 percent attributable to the budget

neutrality factor. There may, of course, be

some variation of plus or minus 0.1 percent

due to rounding.

H. Impact of MGCRB Reclassifications

(Column 7)

Our impact analysis to this point has

assumed hospitals are paid on the basis of

their actual geographic location (with the

exception of ongoing policies that provide

that certain hospitals receive payments on

bases other than where they are

geographically located, such as hospitals in

rural counties that are deemed urban under

section 1886(d)(8)(B) of the Act). The changes

in column 7 reflect the per case payment

impact of moving from this baseline to a

simulation incorporating the MGCRB

decisions for FY 1999. As noted below, these

decisions affect hospitals’ standardized

amount and area wage index assignments. In

addition, rural hospitals may be reclassified

for purposes of receiving a higher DSH

adjustment.

Beginning in 1998, by February 28 of each

year, the MGCRB makes reclassification

determinations that will be effective for the

next fiscal year, which begins on October 1.

(In previous years, these determinations were

made by March 30.) The MGCRB may

approve a hospital’s reclassification request

for the purpose of using the other area’s

standardized amount, wage index value, or

both. For FYs 1999 through 2001, a hospital

may reclassify for purposes of qualifying for

a DSH adjustment or to receive a higher DSH

payment.

The FY 1999 final wage index values

incorporate all of the MGCRB’s

reclassification decisions for FY 1999. The

wage index values also reflect all decisions

made by the HCFA Administrator through

the appeals and review process. The overall

effect of geographic reclassification is

required by section 1886(d)(8)(D) of the Act

to be budget neutral. Therefore, we applied

an adjustment of 0.993433 to ensure that the

effects of reclassification are budget neutral.

(See section II.A.4 of the Addendum to this

final rule.)

As a group, rural hospitals benefit from

geographic reclassification. Their payments

rise 2.7 percent, while payments to urban

hospitals decline 0.4 percent. Hospitals in

other urban areas see a decrease in payments

of 0.4 percent, while large urban hospitals

lose 0.5 percent. Among urban hospital

groups (that is, bed size, census division, and

special payment status), payments generally

decline.

A positive impact is evident among all

rural hospital groups except the smallest

hospitals (under 50 beds), which experience

no payment impact overall. The smallest

increase among the rural census divisions is

1.4 percent for New England. The largest

increase is in rural South Atlantic, with an

increase of 3.8 percent.

Among rural hospitals designated as RRCs,

116 hospitals are reclassified for purposes of

the wage index only, leading to the 6.4

percent increase in payments among RRCs

overall. This positive impact on RRCs is also

reflected in the category of rural hospitals

with 200 or more beds, which has a 5.3

percent increase in payments.

Rural hospitals reclassified for FY 1998

and FY 1999 experience a 8.3 percent

increase in payments. This may be due to the

fact that these hospitals have the most to gain

from reclassification and have been

reclassified for a period of years. Rural

hospitals reclassified for FY 1999 only

experience a 5.1 percent increase in

payments, while rural hospitals reclassified

for FY 1998 only experience a 0.5 percent

decrease in payments. Urban hospitals

reclassified for FY 1998 but not FY 1999

experience a 0.7 percent decline in payments

overall. Urban hospitals reclassified for FY

1999 but not for FY 1998 experience a 4.6

percent increase in payments.

The FY 1999 Reclassification rows of Table

I show the changes in payments per case for

all FY 1999 reclassified and nonreclassified

hospitals in urban and rural locations for

each of the three reclassification categories

(standardized amount only, wage index only,

or both). The table illustrates that the largest

impact for reclassified rural hospitals is for

those hospitals reclassified for both the

standardized amount and the wage index.

These hospitals receive a 10.0 percent

increase in payments. In addition, rural

hospitals reclassified just for the wage index

receive a 6.9 percent payment increase. The

overall impact on reclassified hospitals is to

increase their payments per case by an

average of 6.2 percent for FY 1999.

Among the 27 rural hospitals deemed to be

urban under section 1886(d)(8)(B) of the Act,

payments increase 1.0 percent due to MGCRB

reclassification. This is because, although

these hospitals are treated as being attached

to an urban area in our baseline (their

redesignation is ongoing, rather than annual

like the MGCRB reclassifications), they are

eligible for MGCRB reclassification. For FY

1999, one hospital in this category

reclassified to a large urban area.

The reclassification of hospitals primarily

affects payment to nonreclassified hospitals

through changes in the wage index and the

geographic reclassification budget neutrality

adjustment required by section 1886(d)(8)(D)

of the Act. Among hospitals that are not

reclassified, the overall impact of hospital

reclassifications is an average decrease in

payments per case of about 0.4 percent.

Urban nonreclassified hospitals decrease

slightly more, experiencing a 0.6 percent

decrease (roughly the amount of the budget

neutrality offset).

The number of reclassifications for

purposes of the standardized amount, or for
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41111

both the standardized amount and the wage

index, has decreased from 149 in FY 1998 to

141 in FY 1999. The number of wage index

only reclassifications decreased from 284 in

FY 1998 to 281 in FY 1999.

I. All Changes (Column 8)

Column 8 compares our estimate of

payments per case, incorporating all changes

reflected in this final rule for FY 1999

(including statutory changes), to our estimate

of payments per case in FY 1998. It includes

the effects of the 0.5 percent update to the

standardized amounts and the hospitalspecific rates for SCHs and MDHs. It also

reflects the 0.3 percentage point difference

between the projected outlier payments in FY

1999 (5.1 percent of total DRG payments) and

the current estimate of the percentage of

actual outlier payments in FY 1998 (5.4

percent), as described in the introduction to

this Appendix and the Addendum to this

final rule.

Additional changes affecting the difference

between FY 1998 and FY 1999 payments are

the reductions to the IME and DSH

adjustments enacted by the BBA. These

changes initially went into effect during FY

1998 and include additional decreases in

payment for each of several succeeding years.

As noted in the introduction to this impact

analysis, for FY 1999, IME is reduced to

approximately a 6.5 percent rate of increase,

and DSH is reduced by 2 percent from what

hospitals otherwise would receive. We

estimate the overall effect of these statutory

changes to be a 0.5 percent reduction in FY

1999 payments relative to FY 1998. For

hospitals receiving both IME and DSH, the

impact is estimated to be a 0.9 percent

reduction in payments per case.

Column 8 also includes the impacts of FY

1999 MGCRB reclassifications compared to

the payment impacts of FY 1998

reclassifications. Therefore, when comparing

FY 1999 payments to FY 1998, the percent

changes due to FY 1999 reclassifications

shown in column 7 need to be offset by the

effects of reclassification on hospitals’ FY

1998 payments (column 7 of Table 1, August

29, 1997 final rule with comment period; 62

FR 46119). For example, the impact of

MGCRB reclassifications on rural hospitals’

FY 1998 payments was approximately a 2.2

percent increase, offsetting much of the 2.7

percent increase in column 7 for FY 1999.

Therefore, the net change in FY 1999

payments due to reclassification for rural

hospitals is actually closer to an increase of

0.5 percent relative to FY 1998. However, last

year’s analysis contained a somewhat

different set of hospitals, so this might affect

the numbers slightly.

There might also be interactive effects

among the various factors comprising the

payment system that we are not able to

isolate. For these reasons, the values in

column 8 may not equal the sum of the

changes in columns 1, 6, and 7, plus the

other impacts that we are able to identify.

The overall payment change from FY 1998

to FY 1999 for all hospitals is a 1.0 percent

decrease. This reflects the 0.6 percent net

change in total payments due to the

postacute transfer change for FY 1999 shown

in column 1; the 0.5 percent update for FY

1999, the 0.3 percent lower outlier payments

in FY 1999 compared to FY 1998 (5.1 percent

compared to 5.4 percent); and the 0.5 percent

reduction due to lower IME and DSH

payments.

Hospitals in urban areas experience a 1.3

percent drop in payments per case compared

to FY 1998. Urban hospitals lose 0.9 percent

due to the combined effects of the expanded

transfer definition and the DRG and wage

index changes. The 0.4 percent negative

impact due to reclassification is offset by an

identical negative impact for FY 1998. The

impact of reducing IME and DSH is a 0.5

percent reduction in FY 1999 payments per

case. Most of this negative impact is incurred

by hospitals in large urban areas, where

payments are expected to fall 1.7 percent per

case compared to 0.7 percent per case for

hospitals in other urban areas.

Hospitals in rural areas, meanwhile,

experience a 1.3 percent payment increase.

As discussed previously, this is primarily

due to a smaller negative impact due to the

expanded transfer definition (0.4 percent

decrease compared to 0.6 percent nationally)

and the positive effect due to the wage index

and DRG changes (1.0 percent increase).

Among census divisions, urban New

England displays the largest negative impact,

2.6 percent. This outcome is primarily

related to the 1.1 percent decrease due to the

new wage data. Similarly, urban East North

Central experiences a 2.2 percent drop in

payments per case, due to a 0.9 percent drop

due to the combined wage index and DRG

changes. The urban Pacific and the urban

West South Central also experience overall

larger payment declines, with 2.0 and 1.6

percent decreases, respectively. The urban

West North Central has the smallest negative

change among urban census divisions (0.1

percent), stemming primarily from a 1.0

percent increase due to the DRG and wage

index changes. Hospitals in this census

division also are less reliant on IME and DSH

funding, and are, therefore, impacted less by

these reductions.

The only rural census division to

experience a negative payment impact is

New England (0.3 percent decrease). This

appears to result from a much smaller

reclassification effect for rural New England

hospitals in FY 1999. For FY 1998, the

impact of MGCRB reclassification for these

hospitals was a 2.1 percent increase (see 62

FR 46119). For FY 1999, the increase is only

1.4 percent. The largest increases by a rural

census division are in the South Atlantic and

the East South Central, with 1.8 and 1.7

percent increases, respectively. In the South

Atlantic, this is primarily due to a larger FY

1999 benefit from MGCRB reclassifications.

For the East South Central, it is largely due

to a 1.3 percent increase from the FY 1995

wage data.

Among special categories of rural

hospitals, RRCs have the largest increase, 2.2

percent. This carries over to other categories

as well: rural hospitals with between 150 and

200 beds have a 2.5 percent rise in payments

(there are 37 RRCs in this category); and

RRCs receiving DSH see a 2.5 percent

increase.

The largest negative payment impacts from

FY 1998 to FY 1999 are among hospitals that

were reclassified for FY 1998 and are not

reclassified for FY 1999. Overall, these

hospitals lose 3.6 percent. The urban

hospitals in this category lose 2.9 percent,

while the rural hospitals lose 5.9 percent. On

the other hand, hospitals reclassified for FY

1999 that were not reclassified for FY 1998

would experience the greatest payment

increases: 5.4 percent overall; 6.3 percent for

155 rural hospitals; and 2.3 percent for 15

urban hospitals.

TABLE II.—IMPACT ANALYSIS OF CHANGES FOR FY 1999 OPERATING PROSPECTIVE PAYMENT SYSTEM

[Payments per case]

Number of

hospitals

Average FY

1998 payment per

case

Average FY

1999 payment per

case

All changes

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

(BY GEOGRAPHIC LOCATION):

ALL HOSPITALS ....................................................................................................... 4,975 6,773 6,707 ¥1.0

URBAN HOSPITALS ................................................................................................. 2,810 7,342 7,246 ¥1.3

LARGE URBAN AREAS ........................................................................................... 1,611 7,891 7,758 ¥1.7

OTHER URBAN AREAS ........................................................................................... 1,199 6,589 6,544 ¥0.7

RURAL AREAS ......................................................................................................... 2,165 4,460 4,517 1.3

BED SIZE (URBAN):

0–99 BEDS ................................................................................................................ 704 4,931 4,889 ¥0.9

100–199 BEDS .......................................................................................................... 937 6,128 6,056 ¥1.2

200–299 BEDS .......................................................................................................... 568 6,934 6,851 ¥1.2
41112 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE II.—IMPACT ANALYSIS OF CHANGES FOR FY 1999 OPERATING PROSPECTIVE PAYMENT SYSTEM—Continued

[Payments per case]

Number of

hospitals

Average FY

1998 payment per

case

Average FY

1999 payment per

case

All changes

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

300–499 BEDS .......................................................................................................... 449 7,846 7,738 ¥1.4

500 OR MORE BEDS ............................................................................................... 152 9,743 9,592 ¥1.6

BED SIZE (RURAL):

0–49 BEDS ................................................................................................................ 1,137 3,665 3,701 1.0

50–99 BEDS .............................................................................................................. 634 4,176 4,207 0.8

100–149 BEDS .......................................................................................................... 229 4,613 4,662 1.1

150–199 BEDS .......................................................................................................... 91 4,776 4,895 2.5

200 OR MORE BEDS ............................................................................................... 74 5,610 5,704 1.7

URBAN BY CENSUS DIV:

NEW ENGLAND ........................................................................................................ 152 7,887 7,682 ¥2.6

MIDDLE ATLANTIC .................................................................................................. 425 8,181 8,107 ¥0.9

SOUTH ATLANTIC ................................................................................................... 414 6,978 6,948 ¥0.4

EAST NORTH CENTRAL ......................................................................................... 476 7,029 6,873 ¥2.2

EAST SOUTH CENTRAL ......................................................................................... 162 6,569 6,524 ¥0.7

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

WEST NORTH CENTRAL ........................................................................................ 189 7,001 6,996 ¥0.1

WEST SOUTH CENTRAL ........................................................................................ 354 6,830 6,720 ¥1.6

MOUNTAIN ............................................................................................................... 129 7,046 6,971 ¥1.1

PACIFIC .................................................................................................................... 461 8,409 8,245 ¥2.0

PUERTO RICO ......................................................................................................... 48 3,065 3,056 ¥0.3

RURAL BY CENSUS DIV:

NEW ENGLAND ........................................................................................................ 53 5,305 5,287 ¥0.3

MIDDLE ATLANTIC .................................................................................................. 80 4,818 4,881 1.3

SOUTH ATLANTIC ................................................................................................... 286 4,610 4,694 1.8

EAST NORTH CENTRAL ......................................................................................... 285 4,496 4,553 1.3

EAST SOUTH CENTRAL ......................................................................................... 269 4,162 4,235 1.7

WEST NORTH CENTRAL ........................................................................................ 500 4,178 4,236 1.4

WEST SOUTH CENTRAL ........................................................................................ 342 3,991 4,017 0.7

MOUNTAIN ............................................................................................................... 204 4,750 4,779 0.6

PACIFIC .................................................................................................................... 141 5,608 5,647 0.7

PUERTO RICO ......................................................................................................... 5 2,374 2,370 ¥0.2

(BY PAYMENT CATEGORIES):

URBAN HOSPITALS ................................................................................................. 2,894 7,299 7,207 ¥1.3

LARGE URBAN AREAS ........................................................................................... 1,698 7,798 7,670 ¥1.6

OTHER URBAN AREAS ........................................................................................... 1,196 6,570 6,530 ¥0.6

RURAL AREAS ......................................................................................................... 2,081 4,444 4,494 1.1

TEACHING STATUS:

NON-TEACHING ....................................................................................................... 3,880 5,468 5,450 ¥0.3

FEWER THAN 100 RESIDENTS .............................................................................. 854 7,228 7,145 ¥1.1

100 OR MORE RESIDENTS .................................................................................... 241 10,974 10,755 ¥2.0

DISPROPORTIONATE SHARE HOSPITALS (DSH):

NON-DSH .................................................................................................................. 3,089 5,837 5,799 ¥0.6

URBAN DSH:

100 BEDS OR MORE ........................................................................................ 1,404 7,951 7,843 ¥1.4

FEWER THAN 100 BEDS ................................................................................. 88 5,068 5,007 ¥1.2

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

RURAL DSH:

SOLE COMMUNITY (SCH) ............................................................................... 162 4,211 4,251 1.0

REFERRAL CENTERS (RRC) .......................................................................... 53 5,294 5,428 2.5

OTHER RURAL DSH HOSP:

100 BEDS OR MORE ........................................................................................ 60 4,134 4,162 0.7

FEWER THAN 100 BEDS ................................................................................. 119 3,553 3,600 1.3

URBAN TEACHING AND DSH:

BOTH TEACHING AND DSH ................................................................................... 709 8,975 8,828 ¥1.6

TEACHING AND NO DSH ........................................................................................ 331 7,384 7,291 ¥1.3

NO TEACHING AND DSH ........................................................................................ 783 6,318 6,271 ¥0.7

NO TEACHING AND NO DSH ................................................................................. 1,071 5,664 5,612 ¥0.9

SPECIAL UPDATE HOSPITALS (UNDER SEC. 4401(b) OF PUBLIC LAW 105–

33 ........................................................................................................................... 344 5,276 5,236 ¥0.8

RURAL HOSPITAL TYPES:

NONSPECIAL STATUS

HOSPITALS .............................................................................................................. 888 3,920 3,947 0.7

RRC ........................................................................................................................... 145 5,170 5,286 2.2

SCH ........................................................................................................................... 637 4,484 4,502 0.4
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41113

TABLE II.—IMPACT ANALYSIS OF CHANGES FOR FY 1999 OPERATING PROSPECTIVE PAYMENT SYSTEM—Continued

[Payments per case]

Number of

hospitals

Average FY

1998 payment per

case

Average FY

1999 payment per

case

All changes

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

MDH .......................................................................................................................... 352 3,715 3,753 1.0

SCH AND RRC ......................................................................................................... 59 5,339 5,402 1.2

TYPE OF OWNERSHIP:

VOLUNTARY ............................................................................................................. 2,858 6,956 6,884 ¥1.0

PROPRIETARY ......................................................................................................... 671 6,160 6,096 ¥1.0

GOVERNMENT ......................................................................................................... 1,331 6,243 6,209 ¥0.5

UNKNOWN ................................................................................................................ 115 7,894 7,811 ¥1.0

MEDICARE UTILIZATION AS A PERCENT OF INPATIENT DAYS:

0–25 ........................................................................................................................... 247 8,931 8,755 ¥2.0

25–50 ......................................................................................................................... 1,264 8,254 8,127 ¥1.5

50–65 ......................................................................................................................... 1,978 6,170 6,134 ¥0.6

OVER 65 ................................................................................................................... 1,371 5,253 5,241 ¥0.2

UNKNOWN ................................................................................................................ 115 7,894 7,811 ¥1.0

HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC REVIEW BOARD:

RECLASSIFICATION STATUS DURING FY98 AND FY99:

RECLASSIFIED DURING BOTH FY98 AND FY99 .......................................... 315 5,971 5,944 ¥0.5

URBAN ........................................................................................................ 72 7,376 7,302 ¥1.0

RURAL ........................................................................................................ 243 5,258 5,254 ¥0.1

RECLASSIFIED DURING FY99 ONLY ............................................................. 170 5,149 5,427 5.4

URBAN ........................................................................................................ 15 8,019 8,207 2.3

RURAL ........................................................................................................ 155 4,668 4,960 6.3

RECLASSIFIED DURING FY98 ONLY ............................................................. 126 6,310 6,084 ¥3.6

URBAN ........................................................................................................ 53 7,218 7,011 ¥2.9

RURAL ........................................................................................................ 73 4,453 4,188 ¥5.9

FY 99 RECLASSIFICATIONS:

ALL RECLASSIFIED HOSP ...................................................................................... 485 5,683 5,763 1.4

STAND. AMT. ONLY ......................................................................................... 94 5,940 5,899 ¥0.7

WAGE INDEX ONLY ......................................................................................... 281 6,007 5,935 ¥1.2

BOTH ................................................................................................................. 47 6,407 6,264 ¥2.2

NONRECLASS ................................................................................................... 4,526 6,851 6,786 ¥0.9

ALL URBAN RECLASS ............................................................................................ 87 7,497 7,472 ¥0.3

STAND. AMT. ONLY ......................................................................................... 26 5,630 5,635 0.1

WAGE INDEX ONLY ......................................................................................... 40 8,874 8,872 0.0

BOTH ................................................................................................................. 21 6,810 6,725 ¥1.3

NONRECLASS ................................................................................................... 2,696 7,348 7,249 ¥1.3

ALL RURAL RECLASS ............................................................................................. 398 5,016 5,134 2.4

STAND. AMT. ONLY ......................................................................................... 55 4,374 4,494 2.7

WAGE INDEX ONLY ......................................................................................... 314 5,083 5,194 2.2

BOTH ................................................................................................................. 29 5,039 5,231 3.8

NONRECLASS ................................................................................................... 1,767 4,109 4,127 0.4

OTHER RECLASSIFIED HOSPITALS (SECTION 1886(d)(8)(B)) ........................... 27 4,765 4,714 ¥1.1

1These payment amounts per case do not reflect any estimates of annual case-mix increase.

Table II presents the projected impact on

payments per case of the final changes for FY

1999 for urban and rural hospitals and for the

different categories of hospitals shown in

Table I. It compares the projected payments

per case for FY 1999 with the average

estimated per case payments for FY 1998, as

calculated under our models. Thus, this table

presents, in terms of the average dollar

amounts paid per discharge, the combined

effects of the changes presented in Table I.

The percentage changes shown in the last

column of Table II equal the percentage

changes in average payments from column 8

of Table I.

VIII. Impact of Changes in the Capital

Prospective Payment System

A. General Considerations

We now have data that were unavailable in

previous impact analyses for the capital

prospective payment system. Specifically, we

have cost report data available for the fourth

year of the capital prospective payment

system (cost reports beginning in FY 1995)

available through the March 1998 update of

the Health Care Provider Cost Report

Information System (HCRIS). We also have

updated information on the projected

aggregate amount of obligated capital

approved by the fiscal intermediaries.

However, our impact analysis of payment

changes for capital-related costs is still

limited by the lack of hospital-specific data

on several items. These are the hospital’s

projected new capital costs for each year, its

projected old capital costs for each year, and

the actual amounts of obligated capital that

will be put in use for patient care and

recognized as Medicare old capital costs in

each year. The lack of this information affects

our impact analysis in the following ways:

• Major investment in hospital capital

assets (for example in building and major

fixed equipment) occurs at irregular

intervals. As a result, there can be significant

variation in the growth rates of Medicare

capital-related costs per case among

hospitals. We do not have the necessary

hospital-specific budget data to project the

hospital capital growth rate for individual

hospitals.

• Moreover, our policy of recognizing

certain obligated capital as old capital makes

it difficult to project future capital-related

costs for individual hospitals. Under

§ 412.302(c), a hospital is required to notify
41114 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

its intermediary that it has obligated capital

by the later of October 1, 1992, or 90 days

after the beginning of the hospital’s first cost

reporting period under the capital

prospective payment system. The

intermediary must then notify the hospital of

its determination whether the criteria for

recognition of obligated capital have been

met by the later of the end of the hospital’s

first cost reporting period subject to the

capital prospective payment system or 9

months after the receipt of the hospital’s

notification. The amount that is recognized

as old capital is limited to the lesser of the

actual allowable costs when the asset is put

in use for patient care or the estimated costs

of the capital expenditure at the time it was

obligated. We have substantial information

regarding intermediary determinations of

projected aggregate obligated capital

amounts. However, we still do not know

when these projects will actually be put into

use for patient care, the actual amount that

will be recognized as obligated capital when

the project is put into use, or the Medicare

share of the recognized costs. Therefore, we

do not know actual obligated capital

commitments for purposes of the FY 1999

capital cost projections. In Appendix B of

this final rule, we discuss the assumptions

and computations that we employ to generate

the amount of obligated capital commitments

for use in the FY 1999 capital cost

projections.

In Table III of this section, we present the

redistributive effects that are expected to

occur between ‘‘hold-harmless’’ hospitals

and ‘‘fully prospective’’ hospitals in FY 1999.

In addition, we have integrated sufficient

hospital-specific information into our

actuarial model to project the impact of the

final FY 1999 capital payment policies by the

standard prospective payment system

hospital groupings. While we now have

actual information on the effects of the

transition payment methodology and interim

payments under the capital prospective

payment system and cost report data for most

hospitals, we still need to randomly generate

numbers for the change in old capital costs,

new capital costs for each year, and obligated

amounts that will be put in use for patient

care services and recognized as old capital

each year. We continue to be unable to

predict accurately FY 1999 capital costs for

individual hospitals, but with the most

recent data hospitals’ experience under the

capital prospective payment system, there is

adequate information to estimate the

aggregate impact on most hospital groupings.

B. Projected Impact Based on the Final FY

1999 Actuarial Model

1. Assumptions

In this impact analysis, we model

dynamically the impact of the capital

prospective payment system from FY 1998 to

FY 1999 using a capital cost model. The FY

1999 model, as described in Appendix B of

this final rule, integrates actual data from

individual hospitals with randomly

generated capital cost amounts. We have

capital cost data from cost reports beginning

in FY 1989 through FY 1995 as reported on

the March 1998 update of HCRIS, interim

payment data for hospitals already receiving

capital prospective payments through

PRICER, and data reported by the

intermediaries that include the hospitalspecific rate determinations that have been

made through April 1, 1998 in the providerspecific file. We used these data to determine

the final FY 1999 capital rates. However, we

do not have individual hospital data on old

capital changes, new capital formation, and

actual obligated capital costs. We have data

on costs for capital in use in FY 1995, and

we age that capital by a formula described in

Appendix B. Therefore, we need to randomly

generate only new capital acquisitions for

any year after FY 1995. All Federal rate

payment parameters are assigned to the

applicable hospital.

For purposes of this impact analysis, the

FY 1999 actuarial model includes the

following assumptions:

• Medicare inpatient capital costs per

discharge will change at the following rates

during these periods:

AVERAGE PERCENTAGE CHANGE IN

CAPITAL COSTS PER DISCHARGE

Fiscal year

Percentage

change

1997 .............................................. ¥3.02

1998 .............................................. ¥0.46

1999 .............................................. 0.61

We have reduced our estimate of the growth

in Medicare costs per discharge from the

August 29, 1997 final rule with comment

period to this final rule based on later cost

data. We are now estimating a much smaller

increase in costs per discharge.

• The Medicare case-mix index will

increase by 1.0 percent in FY 1998 and FY

1999.

• The Federal capital rate and hospitalspecific rate were updated in FY 1996 by an

analytical framework that considers changes

in the prices associated with capital-related

costs, and adjustments to account for forecast

error, changes in the case-mix index,

allowable changes in intensity, and other

factors. The final FY 1999 update for

inflation is 0.10 percent (see section IV of the

Addendum).

2. Results

We have used the actuarial model to

estimate the change in payment for capitalrelated costs from FY 1998 to FY 1999. Table

III shows the effect of the capital prospective

payment system on low capital cost hospitals

and high capital cost hospitals. We consider

a hospital to be a low capital cost hospital

if, based on a comparison of its initial

hospital-specific rate and the applicable

Federal rate, it will be paid under the fully

prospective payment methodology. A high

capital cost hospital is a hospital that, based

on its initial hospital-specific rate and the

applicable Federal rate, will be paid under

the hold-harmless payment methodology.

Based on our actuarial model, the breakdown

of hospitals is as follows:

CAPITAL TRANSITION PAYMENT METHODOLOGY FOR FY 1999

Type of hospital Percent of

hospitals

Percent of

discharges

Percent of

capital costs

Percent of

capital payments

Low Cost Hospital ............................................................................................................ 66 62 53 58

High Cost Hospital ............................................................................................................ 34 38 47 42

A low capital cost hospital may request to

have its hospital-specific rate redetermined

based on old capital costs in the current year,

through the later of the hospital’s cost

reporting period beginning in FY 1994 or the

first cost reporting period beginning after

obligated capital comes into use (within the

limits established in § 412.302(e) for putting

obligated capital in to use for patient care).

If the redetermined hospital-specific rate is

greater than the adjusted Federal rate, these

hospitals will be paid under the holdharmless payment methodology. Regardless

of whether the hospital became a holdharmless payment hospital as a result of a

redetermination, we continue to show these

hospitals as low capital cost hospitals in

Table III.

Assuming no behavioral changes in capital

expenditures, Table III displays the

percentage change in payments from FY 1998

to FY 1999 using the above described

actuarial model. With the final Federal rate,

we estimate aggregate Medicare capital

payments will increase by 2.78 percent in FY

1999.
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41115

TABLE III.—IMPACT OF PROPOSED CHANGES FOR FY 1999 ON PAYMENTS PER DISCHARGE

Number

of hospitalsDischarges

Adjusted

Federal

payment

Average

Federal

percent

Hospital

specific

payment

Hold

harmless

payment

Exceptions

payment

Total

payment

Percent

change

over FY

1998

FY 1998 Payments per Discharge:

Low Cost Hospitals ......................... 3,258 6,777,970 $458.00 72.42 $86.30 $3.85 $8.89 $557.04 ..............

Fully Prospective ..................... 3,024 6,149,617 441.23 70.00 95.12 .............. 7.61 543.95 ..............

100% Federal Rate ................. 204 554,222 650.05 100.00 .............. 17.77 667.82 ..............

Hold Harmless ......................... 30 74,130 413.10 61.17 .............. 351.63 49.36 814.09 ..............

High Cost Hospitals ........................ 1,643 4,203,327 635.31 95.72 .............. 37.11 15.30 687.72 ..............

100% Federal Rate ................. 1,415 3,748,353 660.94 100.00 .............. .............. 10.62 671.56 ..............

Hold Harmless ......................... 228 454,974 424.09 61.78 .............. 342.86 53.86 820.81 ..............

Total Hospitals ................. 4,901 10,981,297 525.87 81.61 53.27 16.58 11.35 607.06 ..............

FY 1999 Payments per Discharge:

Low Cost Hospitals ......................... 3,258 6,626,732 527.01 81.53 58.33 3.13 9.57 598.04 7.36

Fully Prospective ..................... 3,024 6,012,484 515.37 80.00 64.29 .............. 8.28 587.94 8.09

100% Federal Rate ................. 207 545,059 663.77 100.00 .............. .............. 17.97 681.75 2.09

Hold Harmless ......................... 27 69,188 460.62 66.21 .............. 300.02 55.73 816.37 0.28

High Cost Hospitals ........................ 1,643 4,107,081 656.33 96.98 .............. 26.89 20.02 703.24 2.26

100% Federal Rate ................. 1,438 3,730,929 674.49 100.00 .............. .............. 14.16 688.65 2.54

Hold Harmless ......................... 205 376,151 476.26 68.09 .............. 293.59 78.14 847.99 3.31

Total Hospitals ................. 4,901 10,733,812 576.49 87.61 36.01 12.22 13.57 638.29 5.15

We project that low capital cost hospitals

paid under the fully prospective payment

methodology will experience an average

increase in payments per case of 7.36

percent, and high capital cost hospitals will

experience an average increase of 2.26

percent.

For hospitals paid under the fully

prospective payment methodology, the

Federal rate payment percentage will

increase from 70 percent to 80 percent and

the hospital-specific rate payment percentage

will decrease from 30 to 20 percent in FY

1999. The Federal rate payment percentage

for hospitals paid under the hold-harmless

payment methodology is based on the

hospital’s ratio of new capital costs to total

capital costs. The average Federal rate

payment percentage for high cost hospitals

receiving a hold-harmless payment for old

capital will increase from 61.78 percent to

68.09 percent. We estimate the percentage of

hold-harmless hospitals paid based on 100

percent of the Federal rate will increase from

86.3 percent to 87.6 percent. We estimate that

high cost hold-harmless hospitals will

experience an increase in payments of 3.31

per cent from FY 1998 to FY 1999. This is

different from our projection in the proposed

rule, which projected a decrease in

payments. This change is a result of lower

projected capital costs, which means some

hospitals who otherwise would have been

paid hold-harmless will now receive 100

percent of the federal rate. Since these are the

lowest cost hospitals in the hold-harmless

grouping, removing these hospitals from the

mix increased the average projected holdharmless payment and, consequently, the

average projected total payment.

We expect that the average hospitalspecific rate payment per discharge will

decrease from $53.27 in FY 1998 to $36.01

in FY 1999. This is partly due to the decrease

in the hospital-specific rate payment

percentage from 30 percent in FY 1998 to 20

percent in FY 1999.

We are making no changes in our

exceptions policies for FY 1999. As a result,

the minimum payment levels would be:

• 90 percent for sole community hospitals;

• 80 percent for urban hospitals with 100

or more beds and a disproportionate share

patient percentage of 20.2 percent or more; or

• 70 percent for all other hospitals.

We estimate that exceptions payments will

be 2.13 percent of the total capital payments

in FY 1999. Since the August 29, 1997 final

rule with comment period, we have reduced

our estimates of capital cost per case based

on more recent data. Although we still

estimate that more hospitals will receive

exceptions payment in FY 1999 than in FY

1998 fewer hospitals will have costs over the

exceptions threshold then we previously

estimated. The projected distribution of the

eligible hospitals and exception payments is

shown in the table below:

ESTIMATED FY 1999 EXCEPTIONS

PAYMENTS

Type of hospital Number of

hospitals

Percent of

exceptions

payments

Low Capital Cost 185 44

High Capital

Cost ............... 215 56

Total ........... 400 100

C. Cross-Sectional Comparison of Capital

Prospective Payment Methodologies

Table IV presents a cross-sectional

summary of hospital groupings by capital

prospective payment methodology. This

distribution is generated by our actuarial

model.

TABLE IV.—DISTRIBUTION BY METHOD OF PAYMENT (HOLD-HARMLESS/FULLY PROSPECTIVE) OF HOSPITALS RECEIVING

CAPITAL PAYMENTS

(1)

Total No. of

Hospitals

(2)

Hold-harmless (3)

Percentage

paid fully

prospective

rate

Percentage

paid holdharmless

Percentage

paid fully

federal

(A) (B)

By Geographic Location:

All hospitals ............................................................................................................... 4,901 4.7 33.6 61.7

Large urban areas (populations over 1 million) ........................................................ 1,574 5.4 41.1 53.5

Other urban areas (populations of 1 million of fewer) ..................................................... 1,178 5.4 41.6 53.0
41116 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

TABLE IV.—DISTRIBUTION BY METHOD OF PAYMENT (HOLD-HARMLESS/FULLY PROSPECTIVE) OF HOSPITALS RECEIVING

CAPITAL PAYMENTS—Continued

(1)

Total No. of

Hospitals

(2)

Hold-harmless (3)

Percentage

paid fully

prospective

rate

Percentage

paid holdharmless

Percentage

paid fully

federal

(A) (B)

Rural areas ................................................................................................................ 2,149 3.9 23.6 72.5

Urban hospitals ......................................................................................................... 2,752 5.4 41.3 53.3

0–99 beds .......................................................................................................... 656 5.3 34.8 59.9

100–199 beds .................................................................................................... 929 7.3 47.0 45.6

200–299 beds .................................................................................................... 567 5.5 41.4 53.1

300–499 beds .................................................................................................... 448 1.8 40.8 57.4

500 or more beds ............................................................................................... 152 4.6 35.5 59.9

Rural hospitals ........................................................................................................... 2,149 3.9 23.6 72.5

0–49 beds .......................................................................................................... 1,124 3.6 15.7 80.6

50–99 beds ........................................................................................................ 632 4.6 28.5 66.9

100–149 beds .................................................................................................... 229 3.1 39.7 57.2

150–199 beds .................................................................................................... 90 5.6 26.7 67.8

200 or more beds ............................................................................................... 74 1.4 48.6 50.0

By Region:

Urban by Region ....................................................................................................... 2,752 5.4 41.3 53.3

New England ...................................................................................................... 151 0.0 27.8 72.2

Middle Atlantic .................................................................................................... 421 5.0 33.3 61.8

South Atlantic ..................................................................................................... 409 5.1 53.8 41.1

East North Central ............................................................................................. 472 4.7 31.4 64.0

East South Central ............................................................................................. 157 7.0 52.2 40.8

West North Central ............................................................................................ 183 6.6 36.1 57.4

West South Central ............................................................................................ 334 12.0 57.2 30.8

Mountain ............................................................................................................. 125 4.8 52.0 43.2

Pacific ................................................................................................................. 452 3.3 37.6 59.1

Puerto Rico ........................................................................................................ 48 2.1 27.1 70.8

Rural by Region ........................................................................................................ 2,149 3.9 23.6 72.5

New England ...................................................................................................... 53 0.0 22.6 77.4

Middle Atlantic .................................................................................................... 79 5.1 24.1 70.9

South Atlantic ..................................................................................................... 282 2.5 33.0 64.5

East North Central ............................................................................................. 283 3.2 19.1 77.7

East South Central ............................................................................................. 267 0.7 35.2 64.0

West North Central ............................................................................................ 498 3.4 16.3 80.3

West South Central ............................................................................................ 339 3.5 28.0 68.4

Mountain ............................................................................................................. 203 11.3 14.3 74.4

Pacific ................................................................................................................. 140 6.4 22.1 71.4

Large urban areas (populations over 1 million) ........................................................ 1,661 5.5 40.9 53.6

Other urban areas (populations of 1 million of fewer) .............................................. 1,175 5.1 41.8 53.1

Rural areas ................................................................................................................ 2,065 3.9 23.0 73.1

Teaching Status:

Non-teaching ...................................................................................................... 3,809 4.8 33.1 62.1

Fewer than 100 Residents ................................................................................. 852 4.9 35.7 59.4

100 or more Residents ...................................................................................... 240 2.9 32.9 64.2

Disproportionate share hospitals (DSH):

Non-DSH ............................................................................................................ 3,030 5.1 29.2 65.6

Urban DSH:

100 or more beds ....................................................................................... 1,398 4.6 44.1 51.3

Less than 100 beds .................................................................................... 82 2.4 26.8 70.7

Rural DSH:

Sole Community (SCH/EACH) ................................................................... 162 4.3 22.8 72.8

Referral Center (RRC/EACH) ..................................................................... 53 3.8 49.1 47.2

Other Rural:

100 or more beds ................................................................................ 60 1.7 40.0 58.3

Less than 100 beds ............................................................................. 116 0.0 28.4 71.6

Urban teaching and DSH:.

Both teaching and DSH ..................................................................................... 707 3.8 36.8 59.4

Teaching and no DSH ....................................................................................... 330 6.1 32.1 61.8

No teaching and DSH ........................................................................................ 773 5.0 49.0 45.9

No teaching and no DSH ................................................................................... 1,026 6.3 41.5 52.1

Rural Hospital Types:

Non special status hospitals .............................................................................. 875 1.7 24.2 74.1

RRC/EACH ......................................................................................................... 145 1.4 39.3 59.3

SCH/EACH ......................................................................................................... 636 8.8 19.5 71.7

Medicare-dependent hospitals (MDH) ............................................................... 350 0.9 18.0 81.1
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41117

TABLE IV.—DISTRIBUTION BY METHOD OF PAYMENT (HOLD-HARMLESS/FULLY PROSPECTIVE) OF HOSPITALS RECEIVING

CAPITAL PAYMENTS—Continued

(1)

Total No. of

Hospitals

(2)

Hold-harmless (3)

Percentage

paid fully

prospective

rate

Percentage

paid holdharmless

Percentage

paid fully

federal

(A) (B)

SCH, RRC and EACH ....................................................................................... 59 8.5 30.5 61.0

Type of Ownership:

Voluntary ............................................................................................................ 2,848 4.7 33.1 62.2

Proprietary .......................................................................................................... 658 8.2 60.2 31.6

Government ........................................................................................................ 1,329 3.2 21.1 75.6

Medicare Utilization as a Percent of Inpatient Days:

0–25 ................................................................................................................... 237 3.8 32.1 64.1

25–50 ................................................................................................................. 1,259 5.3 41.5 53.1

50–65 ................................................................................................................. 1,972 5.3 33.4 61.4

Over 65 .............................................................................................................. 1,367 3.7 26.5 69.8

As we explain in Appendix B, we were not

able to determine a hospital-specific rate for

74 of the 4,975 hospitals in our database.

Consequently, the payment methodology

distribution is based on 4,901 hospitals.

These data should be fully representative of

the payment methodologies that will be

applicable to hospitals.

The cross-sectional distribution of hospital

by payment methodology is presented by: (1)

Geographic location, (2) region, and (3)

payment classification. This provides an

indication of the percentage of hospitals

within a particular hospital grouping that

will be paid under the fully prospective

payment methodology and the hold-harmless

payment methodology.

The percentage of hospitals paid fully

Federal (100 percent of the Federal rate) as

hold-harmless hospitals is expected to

increase to 33.6 percent in FY 1999. We note

that the number of hospitals paid fully

Federal as hold-harmless hospitals has not

increased as quickly as we predicted in the

August 29, 1997 final rule with comment

period because of revised estimates.

Table IV indicates that 61.7 percent of

hospitals will be paid under the fully

prospective payment methodology. (This

figure, unlike the figure of 66 percent for low

cost capital hospitals in the previous section,

takes account of the effects of

redeterminations. In other words, this figure

does not include low cost hospitals that,

following a hospital-specific rate

redetermination, are now paid under the

hold-harmless methodology.) As expected, a

relatively higher percentage of rural and

governmental hospitals (72.5 percent and

75.6 percent, respectively by payment

classification) are being paid under the fully

prospective methodology. This is a reflection

of their lower than average capital costs per

case. In contrast, only 31.6 percent of

proprietary hospitals are being paid under

the fully prospective methodology. This is a

reflection of their higher than average capital

costs per case. (We found at the time of the

August 30, 1991 final rule (56 FR 43430) that

62.7 percent of proprietary hospitals had a

capital cost per case above the national

average cost per case.)

D. Cross-Sectional Analysis of Changes in

Aggregate Payments

We used our FY 1999 actuarial model to

estimate the potential impact of our final

changes for FY 1999 on total capital

payments per case, using a universe of 4,901

hospitals. The individual hospital payment

parameters are taken from the best available

data, including: the April 1, 1998 update to

the provider-specific file, cost report data,

and audit information supplied by

intermediaries. In Table V we present the

results of the cross-sectional analysis using

the results of our actuarial model and the

aggregate impact of the FY 1999 payment

policies. Columns 3 and 4 show estimates of

payments per case under our model for FY

1998 and FY 1999. Column 5 shows the total

percentage change in payments from FY 1998

to FY 1999. Column 6 presents the

percentage change in payments that can be

attributed to Federal rate changes alone.

Federal rate changes represented in

Column 6 include the 1.8 percent increase in

the Federal rate, a 1.0 percent increase in

case mix, changes in the adjustments to the

Federal rate (for example, the effect of the

new hospital wage index on the geographic

adjustment factor), and reclassifications by

the MGCRB. Column 5 includes the effects of

the Federal rate changes represented in

Column 6. Column 5 also reflects the effects

of all other changes, including: the change

from 70 percent to 80 percent in the portion

of the Federal rate for fully prospective

hospitals, the hospital-specific rate update,

changes in the proportion of new to total

capital for hold-harmless hospitals, changes

in old capital (for example, obligated capital

put in use), hospital-specific rate

redeterminations, and exceptions. The

comparisons are provided by: (1) Geographic

location, (2) region, and (3) payment

classification.

The simulation results show that, on

average, capital payments per case can be

expected to increase 5.1 percent in FY 1999.

The results show that the effect of the Federal

rate changes alone is to increase payments by

1.8 percent. In addition to the increase

attributable to the Federal rate changes, a 3.3

percent increase is attributable to the effects

of all other changes.

Our comparison by geographic location

shows that urban and rural hospitals will

experience slightly different rates of increase

in capital payments per case (4.9 percent and

6.7 percent, respectively). This difference is

due to the lower rate of increase for urban

hospitals relative to rural hospitals (1.6

percent and 3.4 percent, respectively) from

the Federal rate changes alone. Urban

hospitals will gain approximately the same as

rural hospitals (3.3 percent for both) from the

effects of all other changes.

All regions are estimated to receive

increases in total capital payments per case,

partly due to the increased share of payments

that are based on the Federal rate (from 70

to 80 percent). Changes by region vary from

a low of 4.0 percent increase (West South

Central urban region) to a high of 8.6 percent

increase (Middle Atlantinc Rural Region).

By type of ownership, government

hospitals are projected to have the largest rate

of increase (6.6 percent, 2.2 percent due to

Federal rate changes and 4.4 percent from the

effects of all other changes). Payments to

voluntary hospitals will increase 5.2 percent

(a 1.8 percent increase due to Federal rate

changes and a 3.4 percent increase from the

effects of all other changes) and payments to

proprietary hospitals will increase 3.1

percent (a 1.5 percent increase due to Federal

rate changes and a 1.6 percent increase from

the effects of all other changes).

Section 1886(d)(10) of the Act established

the MGCRB. Hospitals may apply for

reclassification for purposes of the

standardized amount, wage index, or both

and for purposes of DSH, for FY 1999–2001.

Although the Federal capital rate is not

affected, a hospital’s geographic classification

for purposes of the operating standardized

amount does affect a hospital’s capital

payments as a result of the large urban

adjustment factor and the disproportionate

share adjustment for urban hospitals with

100 or more beds. Reclassification for wage

index purposes affects the geographic

adjustment factor since that factor is

constructed from the hospital wage index.
41118 Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations

To present the effects of the hospitals being

reclassified for FY 1999 compared to the

effects of reclassification for FY 1998, we

show the average payment percentage

increase for hospitals reclassified in each

fiscal year and in total. For FY 1999

reclassifications, we indicate those hospitals

reclassified for standardized amount

purposes only, for wage index purposes only,

and for both purposes. The reclassified

groups are compared to all other

nonreclassified hospitals. These categories

are further identified by urban and rural

designation.

Hospitals reclassified for FY 1999 as a

whole are projected to experience a 7.1

percent increase in payments (a 3.8 percent

increase attributable to Federal rate changes

and a 3.3 percent increase attributable to the

effects of all other changes). Payments to

nonreclassified hospitals will increase

slightly less (6.2 percent) than reclassified

hospitals (7.1 percent) overall. Payments to

nonreclassified hospitals will increase less

than reclassified hospitals from the Federal

rate changes (1.9 percent compared to 3.8

percent), but they will gain about the same

from the effects of all other changes (3.3

percent for both).

TABLE V.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 1998 Payments Compared to FY 1999 Payments]

Number of

hospitals

Average FY

1998 payments/case

Average FY

1999 payments/caseAll changes

Portion attributable to

Federal rate

change

By Geographic Location:

All hospitals ....................................................................................... 4,901 607 638 5.1 1.8

Large urban areas (populations over 1 million) ................................ 1,574 700 733 4.7 1.4

Other urban areas (populations of 1 million or fewer). ..................... 1,178 596 628 5.3 1.9

Rural areas ........................................................................................ 2,149 406 433 6.7 3.4

Urban hospitals .................................................................................. 2,752 656 688 4.9 1.6

0–99 beds ................................................................................... 656 482 502 4.3 1.5

100–199 beds ............................................................................. 929 581 606 4.4 1.5

200–299 beds ............................................................................. 567 626 655 4.8 1.6

300–499 beds ............................................................................. 448 682 718 5.4 1.6

500 or more beds ....................................................................... 152 830 872 5.1 1.6

Rural hospitals ................................................................................... 2,149 406 433 6.7 3.4

0–49 beds ................................................................................... 1,124 323 346 7.2 3.0

50–99 beds ................................................................................. 632 389 413 6.2 2.8

100–149 beds ............................................................................. 229 423 450 6.4 3.2

150–199 beds ............................................................................. 90 437 468 7.2 4.2

200 or more beds ....................................................................... 74 499 534 7.0 4.1

By Region:

Urban by Region ............................................................................... 2,752 656 688 4.9 1.6

New England .............................................................................. 151 663 700 5.7 0.9

Middle Atlantic ............................................................................ 421 711 747 5.1 2.0

South Atlantic ............................................................................. 409 642 674 5.0 2.3

East North Central ...................................................................... 472 615 646 4.9 0.9

East South Central ..................................................................... 157 602 626 4.0 1.4

West North Central ..................................................................... 183 638 677 6.1 2.6

West South Central .................................................................... 334 664 691 4.0 1.2

Mountain ..................................................................................... 125 684 715 4.6 1.5

Pacific ......................................................................................... 452 717 752 4.9 1.1

Puerto Rico ................................................................................. 48 272 286 5.5 2.6

Rural by Region ................................................................................. 2,149 406 433 6.7 3.4

New England .............................................................................. 53 474 505 6.3 2.4

Middle Atlantic ............................................................................ 79 427 463 8.6 3.9

South Atlantic ............................................................................. 282 437 467 7.0 3.7

East North Central ...................................................................... 283 402 431 7.2 3.5

East South Central ..................................................................... 267 376 400 6.3 3.5

West North Central ..................................................................... 498 387 410 6.0 3.4

West South Central .................................................................... 339 372 394 6.1 2.8

Mountain ..................................................................................... 203 421 442 4.9 2.3

Pacific ......................................................................................... 140 466 501 7.3 3.0

By Payment Classification:

All hospitals ....................................................................................... 4,901 607 638 5.1 1.8

Large urban areas (populations over 1 million) ................................ 1,661 693 725 4.7 1.4

Other urban areas (populations of 1 million or fewer). ..................... 1,175 594 626 5.4 2.0

Rural areas ........................................................................................ 2,065 404 430 6.5 3.2

Teaching Status:

Non-teaching .............................................................................. 3,809 513 538 4.9 2.0

Fewer than 100 Residents ......................................................... 852 643 678 5.5 1.7

100 or more Residents ............................................................... 240 897 944 5.2 1.5

Urban DSH:

100 or more beds ................................................................ 1,398 690 725 5.0 1.6

Less than 100 beds ............................................................ 82 457 475 3.9 1.0

Rural DSH:

Sole Community (SCH/EACH) ............................................ 162 362 379 4.7 2.7

Referral Center (RRC/EACH) ............................................. 53 472 507 7.4 4.6

Other Rural:

100 or more beds ................................................................ 60 378 397 5.1 2.8

Less than 100 beds ............................................................ 116 318 339 6.5 3.4
Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 /Rules and Regulations 41119

TABLE V.—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued

[FY 1998 Payments Compared to FY 1999 Payments]

Number of

hospitals

Average FY

1998 payments/case

Average FY

1999 payments/caseAll changes

Portion attributable to

Federal rate

change

Urban teaching and DSH:

Both teaching and DSH ............................................................. 707 759 799 5.2 1.6

Teaching and no DSH ................................................................ 330 662 701 5.8 1.6

No teaching and DSH ................................................................ 773 580 607 4.7 1.8

No teaching and no DSH ........................................................... 1,026 554 576 3.9 1.6

Rural Hospital Types:

Nonspecial status hospitals ........................................................ 875 368 391 6.1 2.7

RRC/EACH ................................................................................. 145 469 503 7.3 4.3

SCH/EACH ................................................................................. 636 390 412 5.9 2.3

Medicare-dependent hospitals (MDH) ....................................... 350 323 352 9.0 3.7

SCH, RRC and EACH ................................................................ 59 499 526 5.5 3.2

Hospitals Reclassified by the Medicare Geographic Classification:

Review Board:

Reclassification Status During FY98 and FY99:

Reclassified During Both FY98 and FY99 ................... 315 541 568 5.0 1.9

Reclassified During FY99 Only ........................................... 170 466 521 11.8 7.8

Reclassified During FY98 Only ........................................... 106 598 607 1.6 ¥1.4

FY99 Reclassifications:

All Reclassified Hospitals .................................................... 485 515 551 7.1 3.8

All Nonreclassified Hospitals ............................................... 4,453 613 645 5.2 1.9

All Urban Reclassified Hospitals ......................................... 87 651 695 6.7 2.3

Urban Nonreclassified Hospitals ......................................... 2,638 657 689 4.9 1.6

All Reclassified Rural Hospitals .......................................... 398 464 498 7.4 4.5

Rural Nonreclassified Hospitals .......................................... 1,751 369 392 6.1 2.4

Other Reclassified Hospitals (Section 1886(D)(8)(B)) ............... 27 470 492 4.6 1.3

Type of Ownership:

Voluntary .................................................................................... 2,848 621 654 5.2 1.8

Proprietary .................................................................................. 658 612 631 3.1 1.5

Government ................................................................................ 1,329 530 566 6.6 2.2

Medicare Utilization as a Percent of Inpatient Days:

0–25 ............................................................................................ 237 687 736 7.2 1.2

25–50 .......................................................................................... 1,259 726 761 4.7 1.5

50–65 .......................................................................................... 1,972 561 591 5.3 2.0

Appendix B—Technical Appendix on the

Capital Cost Model and Required

Adjustments

Under section 1886(g)(1)(A) of the Act, we

set capital prospective payment rates for FY

1992 through FY 1995 so that aggregate

prospective payments for capital costs were

projected to be 10 percent lower than the

amount that would have been payable on a

reasonable cost basis for capital-related costs

in that year. To implement this requirement,

we developed the capital acquisition model

to determine the budget neutrality

adjustment factor. Even though the budget

neutrality requirement expired effective with

FY 1996, we must continue to determine the

recalibration and geographic reclassification

budget neutrality adjustment factor, and the

reduction in the Federal and hospital-specific

rates for exceptions payments. To determine

these factors, we must continue to project

capital costs and payments.

We have used the capital acquisition

model since the start of prospective

payments for capital costs. We now have 4

years of cost reports under the capital

prospective payment system. For FY 1998,

we developed a new capital cost model to

replace the capital acquisition model. This

revised model makes use of the data from

these cost reports.

The following cost reports are used in the

capital cost model for this final rule: the

March 31, 1998 update of the cost reports for

PPS–IX (cost reporting periods beginning in

FY 1992), PPS–X (cost reporting periods

beginning in FY 1993), PPS–XI (cost

reporting periods beginning in FY 1994), and

PPS–XII (cost reporting periods beginning in

FY 1995). In addition, to model payments,

we use the April 1, 1998 update of the

provider-specific file, and the March 1994

update of the intermediary audit file.

Since hospitals under alternative payment

system waivers (that is, hospitals in

Maryland) are currently excluded from the

capital prospective payment system, we

excluded these hospitals from our model.

We developed FY 1992 through FY 1998

hospital-specific rates using the providerspecific file and the intermediary audit file.

(We used the cumulative provider-specific

file, which includes all updates to each

hospital’s records, and chose the latest record

for each fiscal year.) We checked the

consistency between the provider-specific

file and the intermediary audit file. We

ensured that increases in the hospitalspecific rates were at least as large as the

published updates (increases) for the

hospital-specific rates each year. We were

able to match hospitals to the files as shown

in the following table:

Source Number of

hospitals

Provider-Specific File Only ....... 118

Provider-Specific and Audit File 4,857

Total ................................... 4,975

Ninety-seven of the 4,975 hospitals had

unusable or missing data or had no cost

reports available. We determined from the

cost reports that 23 of the 97 hospitals were

paid under the hold-harmless methodology.

Since the hospital-specific amount is not

used to determine payments for these

hospitals, we were able to include these 23

hospitals in the analysis. We used the cost

report data of 4,901 hospitals for the analysis.

Seventy-four hospitals could not be used in

the analysis because of insufficient

information. These hospitals account for

approximately 0.3 percent of admissions,

therefore, any effects from the elimination of

their cost report data should be minimal.

We analyzed changes in capital-related

costs (depreciation, interest, rent, leases,

insurance, and taxes) reported in the cost

reports. We found a wide variance among

hospitals in the growth of these costs. For

hospitals with more than 100 beds, the

distribution and mean of these cost increases

were different for large changes in bed-size
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(greater than +20 percent). We also analyzed

changes in the growth in old capital and new

capital for cost reports that provided this

information. For old capital, we limited the

analysis to decreases in old capital. We did

this since the opportunity for most hospitals

to treat ‘‘obligated’’ capital put into service as

old capital has expired. Old capital costs

should, therefore, decrease as assets become

fully depreciated, and as interest costs

decrease as the loan is amortized.

The new capital cost model separates the

hospitals into three mutually exclusive

groups. Hold-harmless hospitals with data on

old capital were placed in the first group. Of

the remaining hospitals, those hospitals with

fewer than 100 beds comprise the second

group. The third group consists of all

hospitals that did not fit into either of the

groups. Each of these groups displayed

unique patterns of growth in capital costs.

We found that the gamma distribution is

useful in explaining and describing the

patterns of increase in capital costs. A gamma

distribution is a statistical distribution that

can be used to describe patterns of growth

rates, with greatest proportion of rates being

at the low end. We use the gamma

distribution to estimate individual hospital

rates of increase as follows:

(1) For hold-harmless hospitals, old capital

cost changes were fitted to a truncated

gamma distribution, that is, a gamma

distribution covering only the distribution of

cost decreases. New capital costs changes

were fitted to the entire gamma distribution

allowing for both decreases and increases.

(2) For hospitals with fewer than 100 beds

(small), total capital cost changes were fitted

to the gamma distribution allowing for both

decreases and increases.

(3) Other (large) hospitals were further

separated into three groups:

• Bed-size decreases over 20 percent

(decrease).

• Bed-size increases over 20 percent

(increase).

• Other (no-change).

Capital cost changes for large hospitals

were fitted to gamma distributions for each

bed-size change group, allowing for both

decreases and increases in capital costs. We

analyzed the probability distribution of

increases and decreases in bed-size for large

hospitals. We found the probability

somewhat dependent on the prior year

change in bed-size and factored this

dependence into the analysis. Probabilities of

bed-size change were determined. Separate

sets of probability factors were calculated to

reflect the dependence on prior year change

in bed-size (increase, decrease, and no

change).

The gamma distributions were fitted to

changes in aggregate capital costs for the

entire hospital. We checked the relationship

between aggregate costs and Medicare per

discharge costs. For large hospitals, there was

a small variance, but the variance was larger

for small hospitals. Since costs are used only

for the hold-harmless methodology and to

determine exceptions, we decided to use the

gamma distributions fitted to aggregate cost

increases for estimating distributions of cost

per discharge increases.

Capital costs per discharge calculated from

the cost reports were increased by random

numbers drawn from the gamma distribution

to project costs in future years. Old and new

capital were projected separately for holdharmless hospitals. Aggregate capital per

discharge costs were projected for all other

hospitals. Because the distribution of

increases in capital costs varies with changes

in bed-size for large hospitals, we first

projected changes in bed-size for large

hospitals before drawing random numbers

from the gamma distribution. Bed-size

changes were drawn from the uniform

distribution with the probabilities dependent

on the previous year bed-size change. The

gamma distribution has a shape parameter

and a scaling parameter. (We used different

parameters for each hospital group, and for

old and new capital.)

We used discharge counts from the cost

reports to calculate capital cost per discharge.

To estimate total capital costs for FY 1997

(the MedPR data year) and later, we use the

number of discharges from the MedPAR data.

Some hospitals have considerably more

discharges in FY 1997 than in the years for

which we calculated cost per discharge from

the cost report data. Consequently, a hospital

with few cost report discharges would have

a high capital cost per discharge since fixed

costs would be allocated over only a few

discharges. If discharges increase

substantially, the cost per discharge would

decrease because fixed costs would be

allocated over more discharges. If the

projection of capital cost per discharge is not

adjusted for increases in discharges, the

projection of exceptions would be overstated.

We address this situation by recalculating the

cost per discharge with the MedPAR

discharges if the MedPAR discharges exceed

the cost report discharges by more than 20

percent. We do not adjust for increases of less

than 20 percent because we have not

received all of the FY 1997 discharges, and

we have removed some discharges from the

analysis because they are statistical outliers.

This adjustment reduces our estimate of

exceptions payments, and consequently, the

reduction to the Federal rate for exceptions

is smaller. We will continue to monitor our

modeling of exceptions payments and make

adjustments as needed.

The average national capital cost per

discharge generated by this model is the

combined average of many randomly

generated increases. This average must equal

the projected average national capital cost

per discharge, which we projected separately

(outside this model). We adjusted the shape

parameter of the gamma distributions so that

the modeled average capital cost per

discharge matches our projected capital cost

per discharge. The shape parameter for old

capital was not adjusted since we are

modeling the aging of ‘‘existing’’ assets. This

model provides a distribution of capital costs

among hospitals that is consistent with our

aggregate capital projections.

Once each hospital’s capital-related costs

are generated, the model projects capital

payments. We use the actual payment

parameters (for example, the case-mix index

and the geographic adjustment factor) that

are applicable to the specific hospital.

To project capital payments, the model

first assigns the applicable payment

methodology (fully prospective or holdharmless) to the hospital as determined from

the provider-specific file and the cost reports.

The model simulates Federal rate payments

using the assigned payment parameters and

hospital-specific estimated outlier payments.

The case-mix index for a hospital is derived

from the FY 1997 MedPAR file using the FY

1999 DRG relative weights published in

section V. of the Addendum to this final rule.

The case-mix index is increased each year

after FY 1997 based on analysis of past

experiences in case-mix increases. Based on

analysis of recent case-mix increases, we

estimate that case-mix will increase 1.0

percent in FY 1998 and 1.0 percent in FY

1999. (Since we are using FY 1997 cases for

our analysis, the FY 1997 increase in case

mix has no effect on projected capital

payments.)

Changes in geographic classification and

revisions to the hospital wage data used to

establish the hospital wage index affect the

geographic adjustment factor. Changes in the

DRG classification system and the relative

weights affect the case-mix index.

Section 412.308(c)(4)(ii) requires that the

estimated aggregate payments for the fiscal

year, based on the Federal rate after any

changes resulting from DRG reclassifications

and recalibration and the geographic

adjustment factor, equal the estimated

aggregate payments based on the Federal rate

that would have been made without such

changes. For FY 1998, the budget neutrality

adjustment factor was 1.00015.

Since we implemented a separate

geographic adjustment factor for Puerto Rico,

we applied separate budget neutrality

adjustments for the national geographic

adjustment factor and the Puerto Rico

geographic adjustment factor. We applied the

same budget neutrality factor for DRG

reclassifications and recalibration nationally

and for Puerto Rico. Separate adjustments

were unnecessary for FY 1998 since the

geographic adjustment factor for Puerto Rico

was implemented in 1998.

To determine the factors for FY 1999, we

first determined the portions of the Federal

national and Puerto Rico rates that would be

paid for each hospital in FY 1999 based on

its applicable payment methodology. Using

our model, we then compared, separately for

the national rate and the Puerto Rico rate,

estimated aggregate Federal rate payments

based on the FY 1998 DRG relative weights

and the FY 1998 geographic adjustment

factor to estimated aggregate Federal rate

payments based on the FY 1998 relative

weights and the FY 1999 geographic

adjustment factor. In making the comparison,

we held the FY 1999 Federal rate portion

constant and set the other budget neutrality

adjustment factor and the exceptions

reduction factor to 1.00. We determined that,

to achieve budget neutrality for the changes

in the national geographic adjustment factor,

an incremental budget neutrality adjustment

of 0.99930 for FY 1999 should be applied to

the previous cumulative FY 1998 adjustment

of 1.00015, yielding a cumulative adjustment

of 0.99945 through FY 1999. Since this is the

first adjustment for Puerto Rico, the

incremental and cumulative adjustment for

Puerto Rico would be 0.99883 through FY
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1999. We apply these new adjustments, then

compare estimated aggregate Federal rate

payments based on the FY 1998 DRG relative

weights and the FY 1999 geographic

adjustment factors to estimated aggregate

Federal rate payments based on the FY 1999

DRG relative weights and the FY 1999

geographic adjustment factors. The

incremental adjustment for DRG

classifications and changes in relative

weights would be 1.00336 nationally and for

Puerto Rico. The cumulative adjustments for

DRG classifications and changes in relative

weights and for changes in the geographic

adjustment factors through 1999 would be

1.00281 nationally, and 1.00219 for Puerto

Rico. The following table summarizes the

adjustment factors for each fiscal year:

BUDGET NEUTRALITY ADJUSTMENT FOR DRG RECLASSIFICATIONS AND RECALIBRATION AND THE GEOGRAPHIC

ADJUSTMENT FACTORS

Fiscal year

National Puerto Rico

Incremental adjustment

Cumulative

Incremental adjustment

Geographic

adjustment factor

DRG reclassifications and

recalibration

Combined

Geographic

adjustment factor

DRG reclassifications and

recalibration

Combined Cumulative

1992 ................................................................... ................ ................ ................ 1.00000 ................ ................ ................ ................

1993 ................................................................... ................ ................ 0.99800 0.99800 ................ ................ ................ ................

1994 ................................................................... ................ ................ 1.00531 1.00330 ................ ................ ................ ................

1995 ................................................................... ................ ................ 0.99980 1.00310 ................ ................ ................ ................

1996 ................................................................... ................ ................ 0.99940 1.00250 ................ ................ ................ ................

1997 ................................................................... ................ ................ 0.99873 1.00123 ................ ................ ................ ................

1998 ................................................................... ................ ................ 0.99892 1.00015 ................ ................ ................ 1.00000

1999 ................................................................... 0.99930 1.00336 1.00266 1.00281 0.99883 1.00336 1.00219 1.00219

The methodology used to determine the

recalibration and geographic (DRG/GAF)

budget neutrality adjustment factor is similar

to that used in establishing budget neutrality

adjustments under the prospective payment

system for operating costs. One difference is

that, under the operating prospective

payment system, the budget neutrality

adjustments for the effect of geographic

reclassifications are determined separately

from the effects of other changes in the

hospital wage index and the DRG relative

weights. Under the capital prospective

payment system, there is a single DRG/GAF

budget neutrality adjustment factor (the

national rate and the Puerto Rico rate are

determined separately) for changes in the

geographic adjustment factor (including

geographic reclassification) and the DRG

relative weights. In addition, there is no

adjustment for the effects that geographic

reclassification has on the other payment

parameters, such as the payments for serving

low-income patients or the large urban addon payments.

In addition to computing the DRG/

GAF budget neutrality adjustment

factor, we used the model to simulate

total payments under the prospective

payment system.

Additional payments under the

exceptions process are accounted for

through a reduction in the Federal and

hospital-specific rates. Therefore, we

used the model to calculate the

exceptions reduction factor. This

exceptions reduction factor ensures that

aggregate payments under the capital

prospective payment system, including

exceptions payments, are projected to

equal the aggregate payments that

would have been made under the

capital prospective payment system

without an exceptions process. Since

changes in the level of the payment

rates change the level of payments

under the exceptions process, the

exceptions reduction factor must be

determined through iteration.

In the August 30, 1991 final rule (56

FR 43517), we indicated that we would

publish each year the estimated

payment factors generated by the model

to determine payments for the next 5

years. The table below provides the

actual factors for fiscal years 1992

through 1999, and the estimated factors

that would be applicable through FY

2003. We caution that these are

estimates for fiscal years 2000 and later,

and are subject to revisions resulting

from continued methodological

refinements, receipt of additional data,

and changes in payment policy changes.

We note that in making these

projections, we have assumed that the

cumulative national DRG/GAF budget

neutrality adjustment factor will remain

at 1.00281 (1.00219 for Puerto Rico) for

FY 1999 and later because we do not

have sufficient information to estimate

the change that will occur in the factor

for years after FY 1999.

The projections are as follows:

Fiscal year Update factor

Exceptions

reduction

factor

Budget neutrality factor

DRG/GAF

adjustment

factor 1

Outlier adjustment

factor

Federal rate

adjustment

Federal rate

(after outlier

reduction)

1992 .......................................................... N/A 0.9813 0.9602 .9497 415.59

1993 .......................................................... 6.07 .9756 .9162 .9980 .9496 417.29

1994 .......................................................... 3.04 .9485 .8947 1.0053 .9454 2 .9260 378.34

1995 .......................................................... 3.44 .9734 .8432 .9998 .9414 376.83

1996 .......................................................... 1.20 .9849 N/A .9994 .9536 3 .9972 461.96

1997 .......................................................... 0.70 .9358 N/A .9987 .9481 438.92

1998 .......................................................... 0.90 .9659 N/A .9989 .9382 4 .8222 371.51

1999 .......................................................... 0.10 .9783 N/A 1.0027 .9392 378.05

2000 .......................................................... 0.70 .9763 N/A 5 1.0000 5 .9392 379.92

2001 .......................................................... 0.70 .9735 N/A 1.0000 .9392 381.48

2002 .......................................................... 0.70 6 1.0000 N/A 1.0000 .9392 394.61

2003 .......................................................... 0.80 6 1.0000 N/A 1.0000 .9392 4 1.0255 407.92

1 Note: The incremental change over the previous year.

2 Note: OBRA 1993 adjustment.
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3 Note: Adjustment for change in the transfer policy.

4 Note: Balanced Budget Act of 1997 adjustment.

5 Note: Future adjustments are, for purposes of this projection, assumed to remain at the same level.

6 Note: We are unable to estimate exceptions payments for the year under the special exceptions provision (§ 412.348(g) of the regulations)

because the regular exceptions provision (§ 412.348(e)) expires.

Appendix C—Recommendation of Update

Factors for Operating Cost Rates of Payment

for Inpatient Hospital Services

I. Background

Several provisions of the Act address the

setting of update factors for inpatient services

furnished in FY 1999 by hospitals subject to

the prospective payment system and those

excluded from the prospective payment

system. Section 1886(b)(3)(B)(i)(XIV) of the

Act sets the FY 1999 percentage increase in

the operating cost standardized amounts

equal to the rate of increase in the hospital

market basket minus 1.9 percent for

prospective payment hospitals in all areas.

Section 1886(b)(3)(B)(iv) of the Act sets the

FY 1999 percentage increase in the hospitalspecific rates applicable to sole community

and Medicare-dependent, small rural

hospitals equal to the rate set forth in section

1886(b)(3)(B)(i) of the Act, that is, the same

update factor as all other hospitals subject to

the prospective payment system, or the rate

of increase in the market basket minus 1.9

percentage points. Under section

1886(b)(3)(B)(ii)(VII) of the Act, the FY 1999

percentage increase in the rate of increase

limits for hospitals excluded from the

prospective payment system can range from

the rate of increase in the excluded hospital

market basket to zero, depending on the

hospital’s costs in relation to its limit for the

most recent cost reporting period for which

information is available.

In accordance with section 1886(d)(3)(A) of

the Act, we are updating the standardized

amounts, the hospital-specific rates, and the

rate-of-increase limits for hospitals excluded

from the prospective payment system as

provided in section 1886(b)(3)(B) of the Act.

Based on the second quarter 1998 forecast of

the FY 1999 market basket increase of 2.4

percent for hospitals subject to the

prospective payment system, the updates in

the standardized amounts are 0.5 percent for

hospitals in both large urban and other areas.

The update in the hospital-specific rate

applicable to sole community and Medicaredependent, small rural hospitals is also 0.5

percent. The update for hospitals excluded

from the prospective payment system can be

as high as the percentage increase in the

excluded hospital market basket (currently

estimated at 2.4 percent) or as low as zero,

depending on the hospital’s costs in relation

to its rate-of-increase limit. (See section V of

the addendum to this final rule.)

Section 1886(e)(4) of the Act requires that

the Secretary, taking into consideration the

recommendations of the Medicare Payment

Advisory Commission (MedPAC),

recommend update factors for each fiscal

year that take into account the amounts

necessary for the efficient and effective

delivery of medically appropriate and

necessary care of high quality. In its March

1, 1998 report, MedPAC stated that, although

a somewhat lower update could be justified

in light of changes in the utilization and

provision of hospital inpatient care, the

legislated update of the market basket

increase minus 1.9 percentage points will

provide a reasonable level of payments to

hospitals.

Under section 1886(e)(5) of the Act, we are

required to publish the update factors

recommended under section 1886(e)(4) of the

Act. Accordingly, we published the FY 1999

update factors recommended by the Secretary

as Appendix D of the May 8, 1998 proposed

rule (63 FR 25704).

II. Secretary’s Final Recommendations

We received two comments concerning our

proposed recommendations, neither of which

took issue with the update recommendation

itself. Therefore, our final recommendations

for the operating update for both prospective

and excluded hospitals do not differ from the

proposed, except that the forecast of the

market basket percentage increase has been

revised from 2.6 to 2.4 percent for

prospective payment hospitals and from 2.5

to 2.4 percent for excluded hospitals.

Comment: The commenters suggested that

HCFA’s update framework take into account

the impact of ‘‘Year 2000’’ (Y2K) systems’’

conversions on hospital expenditures.

Response: The purpose of the hospital

input price indexes in the hospital market

basket is to measure the price escalation

associated with the inputs needed to provide

hospital services, not to measure changes in

the quantity and quality of inputs used to

provide these services. The increased costs

associated with Y2K systems conversions are

in the form of 3 factors: (1) Increased

quantities (such as more workers), (2)

increased price levels for higher quality

workers (with higher wage levels) or other

inputs, and (3) increased price escalation,

holding constant the quantity and quality of

inputs (such as faster wage and input price

escalation rates). The third factor of increased

escalation for wages and prices should be

picked up by the hospital input price

indexes.

Since the input price indexes measure the

‘‘pure price’’ changes associated with the

inputs needed to provide hospital services,

they would reflect the potentially faster rate

of price escalation faced by hospitals from

Y2K. An example would be higher market

prices paid by hospitals for goods and

services purchased from suppliers that also

incurred higher production costs due to the

Y2K conversion. We believe that the price

proxies used in the hospital input price

indexes, such as CPIs, PPIs, and ECIs, will

reflect any escalating prices since all sectors

of the economy are faced with additional

costs of Y2K. This escalation will show up

in the monthly or quarterly updates of the

price proxies from the Bureau of Labor

Statistics.

Any change in the mix of inputs caused by

Y2K would not be picked up in the index

until it is rebased. Such a change would

cause a modification of the weights in the

input price index. However, any changes in

the weights are likely to have a minimal

effect on the overall percent change in the

index. For example, we did a sensitivity

analysis of this effect by increasing the

weight for professional and technical wages

and benefits by 10 percent with a

corresponding 10 percent decrease in the

non-professional and technical wages and

benefits. Altering the weights in this manner

had no impact on the overall percent change

in the index.

Comment: MedPAC commented that

HCFA’s recommendations differed from

those of MedPAC in the proposed rule

because HCFA did not separately account for

hospital product change. Hospital product

change reflects the dramatic change in recent

years in the role of the hospital inpatient

setting in the continuum of care. More

patients are receiving postacute care after a

hospital stay, and the average length of acute

care stays has declined sharply.

Response: HCFA recognizes the changes in

hospital inpatient care delivery noted by

MedPAC and for FY 1999, accounted for

them in the determination of the intensity

factor. To the extent that there is a mismatch

in component designation between HCFA

and MedPAC, HCFA is willing to work with

MedPAC to set more clearly defined and

mutually agreeable categories for future

update recommendations.

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[FR Doc. 98–20459 Filed 7–30–98; 8:45 am]

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