[Federal Register Volume 74, Number 83 (Friday, May 1, 2009)]
[Notices]
[Pages 20362-20399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9962]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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Medicare Program; Inpatient Psychiatric Facilities Prospective Payment 
System Payment Update for Rate Year Beginning July 1, 2009 (RY 2010); 
Notice

Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1495-NC]
RIN 0938-AP50


Medicare Program; Inpatient Psychiatric Facilities Prospective 
Payment System Payment Update for Rate Year Beginning July 1, 2009 (RY 
2010)

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

ACTION: Notice; request for comments.

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SUMMARY: This notice updates the payment rates for the Medicare 
prospective payment system (PPS) for inpatient psychiatric hospital 
services provided by inpatient psychiatric facilities (IPFs). These 
changes are applicable to IPF discharges occurring during the rate year 
beginning July 1, 2009 through June 30, 2010. We are also requesting 
comments on the IPF PPS teaching adjustment and the market basket.

DATES: 
    Effective Date: The updated IPF prospective payment rates are 
effective for discharges occurring on or after July 1, 2009 through 
June 30, 2010.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on June 30, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1495-NC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.regulations.gov. Follow the 
instructions for ``Comment or Submission'' and enter the file code to 
find the document accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1495-NC, P.O. Box 8010, Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1495-NC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses.
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201.

(Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Dorothy Myrick or Jana Lindquist, 
(410) 786-4533 (for general information).
    Bridget Dickensheets, (410) 786-8670 (for information regarding the 
market basket and labor-related share).
    Theresa Bean, (410) 786-2287 (for information regarding the 
regulatory impact analysis).

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

    To assist readers in referencing sections contained in this 
document, we are providing the following table of contents.

I. Background
    A. Annual Requirements for Updating the IPF PPS
    B. Overview of the Legislative Requirements of the IPF PPS
    C. IPF PPS--General Overview
II. Transition Period for Implementation of the IPF PPS
III. Updates to the IPF PPS for RY Beginning July 1, 2009
    A. Determining the Standardized Budget-Neutral Federal Per Diem 
Base Rate
    1. Standardization of the Federal Per Diem Base Rate and 
Electroconvulsive Therapy Rate
    2. Calculation of the Budget Neutrality Adjustment
    a. Outlier Adjustment
    b. Stop-Loss Provision Adjustment
    c. Behavioral Offset
    B. Update of the Federal Per Diem Base Rate and 
Electroconvulsive Therapy Rate
    1. Market Basket for IPFs Reimbursed Under the IPF PPS
    a. Market Basket Index for the IPF PPS
    b. Overview of the RPL Market Basket
    2. Labor-Related Share
    3. One-Time Prospective Adjustment to the Standard Federal Rate
IV. Update of the IPF PPS Adjustment Factors
    A. Overview of the IPF PPS Adjustment Factors
    B. Patient-Level Adjustments
    1. Adjustment for MS-DRG Assignment
    2. Payment for Comorbid Conditions
    3. Patient Age Adjustments
    4. Variable Per Diem Adjustments
    C. Facility-Level Adjustments
    1. Wage Index Adjustment
    a. Background
    b. Wage Index for RY 2010
    c. OMB Bulletins
    2. Adjustment for Rural Location
    3. Teaching Adjustment
    4. Cost of Living Adjustment for IPFs Located in Alaska and 
Hawaii
    5. Adjustment for IPFs With a Qualifying Emergency Department 
(ED)
    D. Other Payment Adjustments and Policies
    1. Outlier Payments
    a. Update to the Outlier Fixed Dollar Loss Threshold Amount
    b. Statistical Accuracy of Cost-to-Charge Ratios
    2. Expiration of the Stop-Loss Provision
V. Request for Comments
VI. Waiver of Proposed Rulemaking

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VII. Collection of Information Requirements
VIII. Response to Comments
IX. Regulatory Impact Analysis
Addenda

Acronyms

    Because of the many terms to which we refer by acronym in this 
notice, we are listing the acronyms used and their corresponding terms 
in alphabetical order below:

BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance 
Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113)
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
DSM-IV-TR Diagnostic and Statistical Manual of Mental Disorders 
Fourth Edition--Text Revision
DRGs Diagnosis-related groups
FY Federal fiscal year
ICD-9-CM International Classification of Diseases, 9th Revision, 
Clinical Modification
IPFs Inpatient psychiatric facilities
IRFs Inpatient rehabilitation facilities
LTCHs Long-term care hospitals
MedPAR Medicare provider analysis and review file
RY Rate Year
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-
248)

I. Background

A. Annual Requirements for Updating the IPF PPS

    In November 2004, we implemented the inpatient psychiatric 
facilities (IPF) prospective payment system (PPS) in a final rule that 
appeared in the November 15, 2004 Federal Register (69 FR 66922). In 
developing the IPF PPS, in order to ensure that the IPF PPS is able to 
account adequately for each IPF's case-mix, we performed an extensive 
regression analysis of the relationship between the per diem costs and 
certain patient and facility characteristics to determine those 
characteristics associated with statistically significant cost 
differences on a per diem basis. For characteristics with statistically 
significant cost differences, we used the regression coefficients of 
those variables to determine the size of the corresponding payment 
adjustments.
    In that final rule, we explained that we believe it is important to 
delay updating the adjustment factors derived from the regression 
analysis until we have IPF PPS data that includes as much information 
as possible regarding the patient-level characteristics of the 
population that each IPF serves. Therefore, we indicated that we did 
not intend to update the regression analysis and recalculate the 
Federal per diem base rate and the patient- and facility-level 
adjustments until we complete that analysis. Until that analysis is 
complete, we stated our intention to publish a notice in the Federal 
Register each spring to update the IPF PPS (71 FR 27041).
    Updates to the IPF PPS as specified in 42 CFR 412.428 include the 
following:
    <bullet> A description of the methodology and data used to 
calculate the updated Federal per diem base payment amount.
    <bullet> The rate of increase factor as described in Sec.  
412.424(a)(2)(iii), which is based on the excluded hospital with 
capital market basket under the update methodology of section 
1886(b)(3)(B)(ii) of the Social Security Act (the Act) for each year 
(effective from the implementation period until June 30, 2006).
    <bullet> For discharges occurring on or after July 1, 2006, the 
rate of increase factor for the Federal portion of the IPF's payment, 
which is based on the rehabilitation, psychiatric, and long-term care 
(RPL) market basket.
    <bullet> The best available hospital wage index and information 
regarding whether an adjustment to the Federal per diem base rate is 
needed to maintain budget neutrality.
    <bullet> Updates to the fixed dollar loss threshold amount in order 
to maintain the appropriate outlier percentage.
    <bullet> Description of the International Classification of 
Diseases, 9th Revision, Clinical Modification (ICD-9-CM) coding and 
diagnosis-related groups (DRGs) classification changes discussed in the 
annual update to the hospital inpatient prospective payment system 
(IPPS) regulations.
    <bullet> Update to the electroconvulsive therapy (ECT) payment by a 
factor specified by CMS.
    <bullet> Update to the national urban and rural cost-to-charge 
ratio medians and ceilings.
    <bullet> Update to the cost of living adjustment factors for IPFs 
located in Alaska and Hawaii, if appropriate.
    Our most recent annual update occurred in the May 2008 IPF PPS 
notice (73 FR 25709) that set forth updates to the IPF PPS payment 
rates for RY 2009. This notice updates the IPF per diem payment rates 
that were published in the May 2008 IPF PPS notice in accordance with 
our established policies.

B. Overview of the Legislative Requirements for the IPF PPS

    Section 124 of the Medicare, Medicaid, and SCHIP (State Children's 
Health Insurance Program) Balanced Budget Refinement Act of 1999, (Pub. 
L. 106-113) (BBRA) required implementation of the IPF PPS. 
Specifically, section 124 of the BBRA mandated that the Secretary 
develop a per diem PPS for inpatient hospital services furnished in 
psychiatric hospitals and psychiatric units that includes an adequate 
patient classification system that reflects the differences in patient 
resource use and costs among psychiatric hospitals and psychiatric 
units.
    Section 405(g)(2) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF 
PPS to distinct part psychiatric units of critical access hospitals 
(CAHs).
    To implement these provisions, we published various proposed and 
final rules in the Federal Register. For more information regarding 
these rules, see the CMS Web sites http://www.cms.hhs.gov/InpatientPsychFacilPPS/ and http://www.cms.hhs.gov/InpatientpsychfacilPPS/02_regulations.asp.

C. IPF PPS--General Overview

    The November 2004 IPF PPS final rule (69 FR 66922) established the 
IPF PPS, as authorized under section 124 of the BBRA and codified at 
subpart N of part 412 of the Medicare regulations. The November 2004 
IPF PPS final rule set forth the per diem Federal rates for the 
implementation year (the 18-month period from January 1, 2005 through 
June 30, 2006), and it provided payment for the inpatient operating and 
capital costs to IPFs for covered psychiatric services they furnish 
(that is, routine, ancillary, and capital costs, but not costs of 
approved educational activities, bad debts, and other services or items 
that are outside the scope of the IPF PPS). Covered psychiatric 
services include services for which benefits are provided under the 
fee-for-service Part A (Hospital Insurance Program) Medicare program.
    The IPF PPS established the Federal per diem base rate for each 
patient day in an IPF derived from the national average daily routine 
operating, ancillary, and capital costs in IPFs in FY 2002. The average 
per diem cost was updated to the midpoint of the first year under the 
IPF PPS, standardized to account for the overall positive effects of 
the IPF PPS payment adjustments, and adjusted for budget neutrality.
    The Federal per diem payment under the IPF PPS is comprised of the 
Federal per diem base rate described above and certain patient- and 
facility-level payment adjustments that were found in the regression 
analysis to be associated with statistically significant per diem cost 
differences.

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    The patient-level adjustments include age, DRG assignment, 
comorbidities, and variable per diem adjustments to reflect higher per 
diem costs in the early days of an IPF stay. Facility-level adjustments 
include adjustments for the IPF's wage index, rural location, teaching 
status, a cost of living adjustment for IPFs located in Alaska and 
Hawaii, and presence of a qualifying emergency department (ED).
    The IPF PPS provides additional payment policies for: Outlier 
cases; stop-loss protection (which was applicable only during the IPF 
PPS transition period); interrupted stays; and a per treatment 
adjustment for patients who undergo ECT.
    A complete discussion of the regression analysis appears in the 
November 2004 IPF PPS final rule (69 FR 66933 through 66936).
    Section 124 of BBRA does not specify an annual update rate strategy 
for the IPF PPS and is broadly written to give the Secretary discretion 
in establishing an update methodology. Therefore, in the November 2004 
IPF PPS final rule, we implemented the IPF PPS using the following 
update strategy:
    <bullet> Calculate the final Federal per diem base rate to be 
budget neutral for the 18-month period of January 1, 2005 through June 
30, 2006.
    <bullet> Use a July 1 through June 30 annual update cycle.
    <bullet> Allow the IPF PPS first update to be effective for 
discharges on or after July 1, 2006 through June 30, 2007.

II. Transition Period for Implementation of the IPF PPS

    In the November 2004 IPF PPS final rule, we provided for a 3-year 
transition period. During this 3-year transition period, an IPF's total 
payment under the PPS was based on an increasing percentage of the 
Federal rate with a corresponding decreasing percentage of the IPF PPS 
payment that is based on reasonable cost concepts. However, effective 
for cost reporting periods beginning on or after January 1, 2008, IPF 
PPS payments are based on 100 percent of the Federal rate.

III. Updates to the IPF PPS for RY Beginning July 1, 2009

    The IPF PPS is based on a standardized Federal per diem base rate 
calculated from IPF average per diem costs and adjusted for budget-
neutrality in the implementation year. The Federal per diem base rate 
is used as the standard payment per day under the IPF PPS and is 
adjusted by the applicable wage index factor and the patient-and 
facility-level adjustments that are applicable to the IPF stay. A 
detailed explanation of how we calculated the average per diem cost 
appears in the November 2004 IPF PPS final rule (69 FR 66926).

A. Determining the Standardized Budget-Neutral Federal Per Diem Base 
Rate

    Section 124(a)(1) of the BBRA requires that we implement the IPF 
PPS in a budget neutral manner. In other words, the amount of total 
payments under the IPF PPS, including any payment adjustments, must be 
projected to be equal to the amount of total payments that would have 
been made if the IPF PPS were not implemented. Therefore, we calculated 
the budget-neutrality factor by setting the total estimated IPF PPS 
payments to be equal to the total estimated payments that would have 
been made under the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA) (Pub. L. 97-248) methodology had the IPF PPS not been 
implemented.
    Under the IPF PPS methodology, we calculated the final Federal per 
diem base rate to be budget neutral during the IPF PPS implementation 
period (that is, the 18-month period from January 1, 2005 through June 
30, 2006) using a July 1 update cycle. We updated the average cost per 
day to the midpoint of the IPF PPS implementation period (that is, 
October 1, 2005), and this amount was used in the payment model to 
establish the budget-neutrality adjustment.
    A step-by-step description of the methodology used to estimate 
payments under the TEFRA payment system appears in the November 2004 
IPF PPS final rule (69 FR 66926).
1. Standardization of the Federal Per Diem Base Rate and 
Electroconvulsive Therapy (ECT) Rate
    In the November 2004 IPF PPS final rule, we describe how we 
standardized the IPF PPS Federal per diem base rate in order to account 
for the overall positive effects of the IPF PPS payment adjustment 
factors. To standardize the IPF PPS payments, we compared the IPF PPS 
payment amounts calculated from the FY 2002 Medicare Provider Analysis 
and Review (MedPAR) file to the projected TEFRA payments from the FY 
2002 cost report file updated to the midpoint of the IPF PPS 
implementation period (that is, October 2005). The standardization 
factor was calculated by dividing total estimated payments under the 
TEFRA payment system by estimated payments under the IPF PPS. The 
standardization factor was calculated to be 0.8367.
    As described in detail in the May 2006 IPF PPS final rule (71 FR 
27045), in reviewing the methodology used to simulate the IPF PPS 
payments used for the November 2004 IPF PPS final rule, we discovered 
that due to a computer code error, total IPF PPS payments were 
underestimated by about 1.36 percent. Since the IPF PPS payment total 
should have been larger than the estimated figure, the standardization 
factor should have been smaller (0.8254 vs. 0.8367). In turn, the 
Federal per diem base rate and the ECT rate should have been reduced by 
0.8254 instead of 0.8367.
    To resolve this issue, in RY 2007, we amended the Federal per diem 
base rate and the ECT payment rate prospectively. Using the 
standardization factor of 0.8254, the average cost per day was 
effectively reduced by 17.46 percent (100 percent minus 82.54 percent = 
17.46 percent).
2. Calculation of the Budget Neutrality Adjustment
    To compute the budget neutrality adjustment for the IPF PPS, we 
separately identified each component of the adjustment, that is, the 
outlier adjustment, stop-loss adjustment, and behavioral offset.
    A complete discussion of how we calculate each component of the 
budget neutrality adjustment appears in the November 2004 IPF PPS final 
rule (69 FR 66932 through 66933) and in the May 2006 IPF PPS final rule 
(71 FR 27044 through 27046).
a. Outlier Adjustment
    Since the IPF PPS payment amount for each IPF includes applicable 
outlier amounts, we reduced the standardized Federal per diem base rate 
to account for aggregate IPF PPS payments estimated to be made as 
outlier payments. The outlier adjustment was calculated to be 2 
percent. As a result, the standardized Federal per diem base rate was 
reduced by 2 percent to account for projected outlier payments.
b. Stop-Loss Provision Adjustment
    As explained in the November 2004 IPF PPS final rule, we provided a 
stop-loss payment during the transition from cost-based reimbursement 
to the per diem payment system to ensure that an IPF's total PPS 
payments were no less than a minimum percentage of their TEFRA payment, 
had the IPF PPS not been implemented. We reduced the standardized 
Federal per diem base rate by the percentage of aggregate IPF PPS 
payments estimated to be made for stop-loss payments. As a result, the 
standardized Federal per diem base rate was reduced by 0.39 percent to 
account for stop-loss payments. Since the transition was completed in 
RY 2009,

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the stop-loss provision is no longer applicable, and for cost reporting 
periods beginning on or after January 1, 2008, IPFs were paid 100 
percent PPS.
c. Behavioral Offset
    As explained in the November 2004 IPF PPS final rule, 
implementation of the IPF PPS may result in certain changes in IPF 
practices, especially with respect to coding for comorbid medical 
conditions. As a result, Medicare may make higher payments than assumed 
in our calculations. Accounting for these effects through an adjustment 
is commonly known as a behavioral offset.
    Based on accepted actuarial practices and consistent with the 
assumptions made in other PPSs, we assumed in determining the 
behavioral offset that IPFs would regain 15 percent of potential 
``losses'' and augment payment increases by 5 percent. We applied this 
actuarial assumption, which is based on our historical experience with 
new payment systems, to the estimated ``losses'' and ``gains'' among 
the IPFs. The behavioral offset for the IPF PPS was calculated to be 
2.66 percent. As a result, we reduced the standardized Federal per diem 
base rate by 2.66 percent to account for behavioral changes. As 
indicated in the November 2004 IPF PPS final rule, we do not plan to 
change adjustment factors or projections until we analyze IPF PPS data.
    If we find that an adjustment is warranted, the percent difference 
may be applied prospectively to the established PPS rates to ensure the 
rates accurately reflect the payment level intended by the statute. In 
conducting this analysis, we will be interested in the extent to which 
improved coding of patients' principal and other diagnoses, which may 
not reflect real increases in underlying resource demands, has occurred 
under the PPS.

B. Update of the Federal Per Diem Base Rate and Electroconvulsive 
Therapy Rate

1. Market Basket for IPFs Reimbursed Under the IPF PPS
    As described in the November 2004 IPF PPS final rule (69 FR 66931), 
the average per diem cost was updated to the midpoint of the 
implementation year. This updated average per diem cost of $724.43 was 
reduced by 17.46 percent to account for standardization to projected 
TEFRA payments for the implementation period, by 2 percent to account 
for outlier payments, by 0.39 percent to account for stop-loss 
payments, and by 2.66 percent to account for the behavioral offset. The 
Federal per diem base rate in the implementation year was $575.95. The 
increase in the per diem base rate for RY 2009 included the 0.39 
percent increase due to the removal of the stop-loss provision. We 
indicated in the November 2004 IPF PPS final rule (69 FR 66932) that we 
would remove this 0.39 percent reduction to the Federal per diem base 
rate after the transition. For RY 2009 and beyond, the stop-loss 
provision has ended and is therefore no longer a part of budget 
neutrality.
    Applying the market basket increase of 2.1 percent and the wage 
index budget neutrality factor of 1.0009 to the RY 2009 Federal per 
diem base rate of $637.78 yields a Federal per diem base rate of 
$651.76 for RY 2010. Similarly, applying the market basket increase and 
wage index budget neutrality factor to the RY 2009 ECT rate yields an 
ECT rate of $280.60 for RY 2010.
a. Market Basket Index for the IPF PPS
    The market basket index that was used to develop the IPF PPS was 
the excluded hospital with capital market basket. This market basket 
was based on 1997 Medicare cost report data and included data for 
Medicare-participating IPFs, inpatient rehabilitation facilities 
(IRFs), long-term care hospitals (LTCHs), cancer, and children's 
hospitals.
    Beginning with the May 2006 IPF PPS final rule (71 FR 27046 through 
27054), IPF PPS payments were updated using a 2002-based market basket 
reflecting the operating and capital cost structures for IRFs, IPFs, 
and LTCHs (hereafter referred to as the rehabilitation, psychiatric, 
long-term care (RPL) market basket).
    We excluded cancer and children's hospitals from the RPL market 
basket because their payments are based entirely on reasonable costs 
subject to rate-of-increase limits established under the authority of 
section 1886(b) of the Act, which are implemented in regulations at 
Sec.  413.40. They are not reimbursed through a PPS. Also, the FY 2002 
cost structures for cancer and children's hospitals are noticeably 
different than the cost structures of the IRFs, IPFs, and LTCHs. A 
complete discussion of the RPL market basket appears in the May 2006 
IPF PPS final rule (71 FR 27046 through 27054).
    We seek comments below on the possibility of creating a stand-alone 
IPF market basket.
b. Overview of the RPL Market Basket
    The RPL market basket is a fixed weight, Laspeyres-type price 
index. A market basket is described as a fixed-weight index because it 
answers the question of how much it would cost, at another time, to 
purchase the same mix (quantity and intensity) of goods and services 
needed to provide hospital services in a base period. The effects on 
total expenditures resulting from changes in the mix of goods and 
services purchased subsequent to the base period are not measured. In 
this manner, the market basket measures pure price change only. Only 
when the index is rebased would changes in the quantity and intensity 
be captured in the cost weights. Therefore, we rebase the market basket 
periodically so that cost weights reflect recent changes in the mix of 
goods and services that hospitals purchase to furnish patient care 
between base periods.
    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. Rebasing means 
moving the base year for the structure of costs of an input price index 
(for example, shifting the base year cost structure from FY 1997 to FY 
2002). Revising means changing data sources, methodology, or price 
proxies used in the input price index. In 2006, we rebased and revised 
the market basket used to update the IPF PPS.
    Table 1 below sets forth the completed FY 2002-based RPL market 
basket including the cost categories, weights, and price proxies.

                                  Table 1--FY 2002-Based RPL Market Basket Cost Categories, Weights, and Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             FY 2002-based RPL
             Cost categories                market basket cost                        FY 2002-based RPL market basket price proxies
                                                  weight
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total....................................               100.000  .......................................................................................
Compensation.............................                65.877  .......................................................................................
    Wages and Salaries\*\................                52.895  ECI-Wages and Salaries, Civilian Hospital Workers.
    Employee Benefits\*\.................                12.982  ECI-Benefits, Civilian Hospital Workers.
Professional Fees, Non-Medical\*\........                 2.892  ECI-Compensation for Professional & Related occupations.

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Utilities................................                 0.656  .......................................................................................
    Electricity..........................                 0.351  PPI-Commercial Electric Power.
    Fuel Oil, Coal, etc..................                 0.108  PPI-Commercial Natural Gas.
    Water and Sewage.....................                 0.197  CPI-U--Water & Sewage Maintenance.
Professional Liability Insurance.........                 1.161  CMS Professional Liability Premium Index.
All Other Products and Services..........                19.265  .......................................................................................
    All Other Products...................                13.323  .......................................................................................
    Pharmaceuticals......................                 5.103  PPI Prescription Drugs.
    Food: Direct Purchase................                 0.873  PPI Processed Foods & Feeds.
    Food: Contract Service...............                 0.620  CPI-U Food Away From Home.
    Chemicals............................                 1.100  PPI Industrial Chemicals.
    Medical Instruments..................                 1.014  PPI Medical Instruments & Equipment.
    Photographic Supplies................                 0.096  PPI Photographic Supplies.
    Rubber and Plastics..................                 1.052  PPI Rubber & Plastic Products.
    Paper Products.......................                 1.000  PPI Converted Paper & Paperboard Products.
    Apparel..............................                 0.207  PPI Apparel.
    Machinery and Equipment..............                 0.297  PPI Machinery & Equipment
    Miscellaneous Products\**\...........                 1.963  PPI Finished Goods less Food & Energy.
All Other Services.......................                 5.942  .......................................................................................
    Telephone............................                 0.240  CPI-U Telephone Services.
    Postage..............................                 0.682  CPI-U Postage.
    All Other: Labor Intensive\*\........                 2.219  ECI-Compensation for Private Service Occupations.
    All Other: Non-labor Intensive.......                 2.800  CPI-U All Items.
Capital-Related Costs\***\...............                10.149  .......................................................................................
Depreciation.............................                 6.186  .......................................................................................
    Fixed Assets.........................                 4.250  Boeckh Institutional Construction 23-year useful life.
    Movable Equipment....................                 1.937  WPI Machinery & Equipment 11-year useful life.
Interest Costs...........................                 2.775  .......................................................................................
    Nonprofit............................                 2.081  Average yield on domestic municipal bonds (Bond Buyer 20 bonds) vintage-weighted (23
                                                                  years).
    For Profit...........................                 0.694  Average yield on Moody's Aaa bond vintage-weighted (23 years).
Other Capital-Related Costs..............                 1.187  CPI-U Residential Rent.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\*\ Labor-related.
\**\ Blood and blood-related products is included in miscellaneous products.
\***\ A portion of capital costs (0.46) are labor-related.
 
Note: Due to rounding, weights may not sum to total.

    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly 
(preferably at least once a quarter). Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. The Consumer Price Indexes (CPIs), Producer Price Indexes 
(PPIs), and Employment Cost Indexes (ECIs) used as proxies in this 
market basket meet these criteria.
    We note that the proxies are the same as those used for the FY 
1997-based excluded hospital with capital market basket. Because these 
proxies meet our criteria of reliability, timeliness, availability, and 
relevance, we believe they continue to be the best measure of price 
changes for the cost categories. For further discussion on the FY 1997-
based excluded hospital with capital market basket, see the August 1, 
2002 hospital inpatient prospective payment system (IPPS) final rule 
(67 FR at 50042).
    The RY 2010 (that is, beginning July 1, 2009) update for the IPF 
PPS using the FY 2002-based RPL market basket and Information Handling 
Services (IHS) Global Insight's 1st quarter 2009 forecast for the 
market basket components is 2.1 percent. This includes increases in 
both the operating section and the capital section for the 12-month RY 
period (that is, July 1, 2009 through June 30, 2010). IHS Global 
Insight, Inc. is a nationally recognized economic and financial 
forecasting firm that contracts with CMS to forecast the components of 
the market baskets.
2. Labor-Related Share
    Due to the variations in costs and geographic wage levels, we 
believe that payment rates under the IPF PPS should continue to be 
adjusted by a geographic wage index. This wage index applies to the 
labor-related portion of the Federal per diem base rate, hereafter 
referred to as the labor-related share.
    The labor-related share is determined by identifying the national 
average proportion of operating costs that are related to, influenced 
by, or vary with the local labor market. Using our current definition 
of labor-related, the labor-related share is the sum of the relative 
importance of wages and salaries, fringe benefits, professional fees, 
labor-intensive services, and a portion of the capital share from an 
appropriate market basket. We used the FY 2002-based RPL market basket 
cost weights relative importance to determine the labor-related share 
for the IPF PPS.
    The labor-related share for RY 2010 is the sum of the RY 2010 
relative importance of each labor-related cost category, and reflects 
the different rates of price change for these cost categories between 
the base year (FY 2002) and RY 2010. The sum of the relative importance 
for the RY 2010 operating costs (wages and salaries, employee benefits, 
professional fees, and labor-

[[Page 20367]]

intensive services) is 71.935, as shown in below. The portion of 
capital that is influenced by the local labor market is estimated to be 
46 percent, which is the same percentage used in the FY 1997-based IRF 
and IPF payment systems.
    Since the relative importance for capital is 8.596 percent of the 
FY 2002-based RPL market basket in RY 2010, we are taking 46 percent of 
8.596 percent to determine the labor-related share of capital for RY 
2010. The result is 3.954 percent, which we added to 71.935 percent for 
the operating cost amount to determine the total labor-related share 
for RY 2010. Thus, the labor-related share that we are using for IPF 
PPS in RY 2010 is 75.889 percent. Table 2 below shows the RY 2010 
labor-related share using the FY 2002-based RPL market basket. We note 
that this labor-related share is determined by using the same 
methodology as employed in calculating all previous IPF labor-related 
shares.
    A complete discussion of the IPF labor-related share methodology 
appears in the November 2004 IPF PPS final rule (69 FR 66952 through 
66954).

   Table 2--Total Labor-Related Share--Relative Importance for RY 2010
------------------------------------------------------------------------
                                 FY 2002-based RPL    FY 2002[dash]based
                                market basket labor-  RPL market basket
         Cost category             related share     labor-related share
                                relative importance  relative importance
                                 (percent) RY 2009*  (percent) RY 2010**
------------------------------------------------------------------------
Wages and salaries............               52.645               53.062
Employee benefits.............               14.004               13.852
Professional fees.............                2.895                2.895
All other labor-intensive                     2.137                2.126
 services.....................
                               -----------------------------------------
    Subtotal..................               71.681               71.935
Labor-related share of capital                3.950                3.954
 costs (0.46).................
                               -----------------------------------------
    Total.....................               75.631              75.889
------------------------------------------------------------------------
* Based on 2008 1st Quarter forecast.
** Based on 2009 1st Quarter forecast.

3. One-time Prospective Adjustment to the Standard Federal Rate
    As we discussed in the November 2004 IPF PPS final rule, consistent 
with the statutory requirement for budget neutrality in section 124 of 
the BBRA, we estimated aggregate payments under the IPF PPS for the IPF 
PPS implementation year (that is, the 18-month period from January 1, 
2005 through June 30, 2006) to be equal to the estimated aggregate 
payments that would be made if the IPF PPS had not been implemented. 
Our methodology for estimating payments for purposes of the budget 
neutrality calculations used the best available data at the time and 
necessarily reflected several assumptions (for example, costs, 
inflation factors and intensity of services provided).
    We indicated from the inception of the IPF PPS that it was possible 
for the aggregate amount of actual payments in the implementation year 
to be significantly higher or lower than the estimates on which the 
budget neutrality calculations were based to the extent that later, 
more complete data differ significantly from the data that were 
available at the time of the original calculations.
    Section 124 of the BBRA provides broad authority to the Secretary 
in developing the IPF PPS, including the authority for establishing 
appropriate adjustments. Under this broad authority to make appropriate 
adjustments, we provided in Sec.  412.424(c)(3)(ii) for the possibility 
of making a one-time prospective adjustment to the IPF PPS rates, so 
that the effect of any significant difference between actual payments 
and estimated payments for the first year of the IPF PPS would not be 
perpetuated in the IPF PPS rates for future years.
    The November 2004 IPF PPS final rule implementing the IPF PPS (69 
FR 66922), was based upon the broad authority granted to the Secretary 
under section 124 of the BBRA. In that same final rule, we discussed 
our authority to make a one-time prospective adjustment to the IPF PPS 
rates, which was reflected in Sec.  412.424(c)(3)(ii).
    Evaluating the appropriateness of the possible one-time prospective 
adjustment under Sec.  412.424(c)(3)(ii) requires a thorough review of 
the relevant IPF data. When we established the IPF PPS Federal per diem 
base rate in a budget neutral manner, we used the most recent IPF cost 
report data available at that time (that is, FY 2002 data), and trended 
that data forward to estimate what CMS would have paid to IPFs in the 
implementation year under the TEFRA payment system if the PPS were not 
implemented (69 FR 66927). We have since conducted a review of the 
relevant data. From the cost reports, we have TEFRA and PPS payment 
data for January 1, 2005 through June 30, 2006, the 18-month period for 
the implementation of the IPF PPS. These data are drawn from reports 
with cost reporting periods beginning in FY 2005 and FY 2006. More than 
70 percent of the cost reports from FY 2005 were settled. However, only 
approximately 33 percent of the cost reports from FY 2006 have been 
settled. The remaining 67 percent from FY 2006 are either as-submitted 
or have been reopened. Therefore, because we lack a complete set of 
final cost report data from the IPF PPS 18-month implementation period, 
we are not making a one-time adjustment to the IPF PPS rates for RY 
2010.
    We plan to revisit the possibility of making a one-time prospective 
adjustment to the IPF PPS rates as more cost report data becomes 
available.

IV. Update of the IPF PPS Adjustment Factors

A. Overview of the IPF PPS Adjustment Factors

    The IPF PPS payment adjustments were derived from a regression 
analysis of 100 percent of the FY 2002 MedPAR data file, which 
contained 483,038 cases. For this notice, we used the same results of 
the regression analysis used to implement the November 2004 IPF PPS 
final rule. For a more detailed description of the data file used for 
the regression analysis, see the November 2004 IPF PPS final rule (69 
FR 66935 through 66936). While we have since used more recent claims 
data to set the fixed dollar loss threshold amount, we use the same 
results of this regression

[[Page 20368]]

analysis to update the IPF PPS for RY 2009 as well as RY 2010.
    As previously stated, we do not plan to update the regression 
analysis until we are able to analyze IPF PPS claims and cost report 
data. However, we continue to monitor claims and payment data 
independently from cost report data to assess issues, to determine 
whether changes in case-mix or payment shifts have occurred among 
freestanding governmental, non-profit and private psychiatric 
hospitals, and psychiatric units of general hospitals, and CAHs and 
other issues of importance to IPFs.

B. Patient-Level Adjustments

    In the May 2008 IPF PPS notice (73 FR 25709), we provided payment 
adjustments for the following patient-level characteristics: Medicare 
Severity diagnosis related groups (MS-DRGs) assignment of the patient's 
principal diagnosis, selected comorbidities, patient age, and the 
variable per diem adjustments.
1. Adjustment for MS-DRG Assignment
    The IPF PPS includes payment adjustments for the psychiatric DRG 
assigned to the claim based on each patient's principal diagnosis. The 
IPF PPS recognizes the MS-DRGs. The DRG adjustment factors were 
expressed relative to the most frequently reported psychiatric DRG in 
FY 2002, that is, DRG 430 (psychoses). The coefficient values and 
adjustment factors were derived from the regression analysis.
    In accordance with Sec.  412.27(a), payment under the IPF PPS is 
conditioned on IPFs admitting ``only patients whose admission to the 
unit is required for active treatment, of an intensity that can be 
provided appropriately only in an inpatient hospital setting, of a 
psychiatric principal diagnosis that is listed in Chapter Five 
(``Mental Disorders'') of the International Classification of Diseases, 
Ninth Revision, Clinical Modification (ICD-9-CM)]'' or in the Fourth 
Edition, Text Revision of the American Psychiatric Association's 
Diagnostic and Statistical Manual, (DSM-IV-TR). IPF claims with a 
principal diagnosis included in Chapter Five of the ICD-9-CM or the 
DSM-IV-TR are paid the Federal per diem base rate under the IPF PPS and 
all other applicable adjustments, including any applicable DRG 
adjustment. Psychiatric principal diagnoses that do not group to one of 
the designated DRGs still receive the Federal per diem base rate and 
all other applicable adjustments, but the payment would not include a 
DRG adjustment.
    The Standards for Electronic Transaction final rule published in 
the Federal Register on August 17, 2000 (65 FR 50312), adopted the ICD-
9-CM as the designated code set for reporting diseases, injuries, 
impairments, other health related problems, their manifestations, and 
causes of injury, disease, impairment, or other health related 
problems. Therefore, we use the ICD-9-CM as the designated code set for 
the IPF PPS.
    We believe that it is important to maintain the same diagnostic 
coding and DRG classification for IPFs that are used under the IPPS for 
providing the psychiatric care. Therefore, when the IPF PPS was 
implemented for cost reporting periods beginning on or after January 1, 
2005, we adopted the same diagnostic code set and DRG patient 
classification system (that is, the CMS DRGs) that were utilized at the 
time under the hospital inpatient prospective payment system (IPPS). 
Since the inception of the IPF PPS, the DRGs used as the patient 
classification system under the IPF PPS have corresponded exactly with 
the CMS DRGs applicable under the IPPS for acute care hospitals.
    Every year, changes to the ICD-9-CM coding system are addressed in 
the IPPS proposed and final rules. The changes to the codes are 
effective October 1 of each year and must be used by acute care 
hospitals as well as other providers to report diagnostic and procedure 
information. The IPF PPS has always incorporated ICD-9-CM coding 
changes made in the annual IPPS update. We publish coding changes in a 
Transmittal/Change Request, similar to how coding changes are announced 
by the IPPS and LTCH PPS. Those ICD-9-CM coding changes are also 
published in the following IPF PPS RY update, in either the IPF PPS 
proposed and final rules, or in an IPF PPS update notice.
    In the May 2008 IPF PPS notice (73 FR 25714), we discussed CMS' 
effort to better recognize resource use and the severity of illness 
among patients. CMS adopted the new MS-DRGs for the IPPS in the FY 2008 
IPPS final rule with comment period (72 FR 47130). We believe by better 
accounting for patients' severity of illness in Medicare payment rates, 
the MS-DRGs encourage hospitals to improve their coding and 
documentation of patient diagnoses. The MS-DRGs, which are based on the 
CMS DRGs, represent a significant increase in the number of DRGs (from 
538 to 745, an increase of 207). For a full description of the 
development and implementation of the MS-DRGs, see the FY 2008 IPPS 
final rule with comment period (72 FR 47141 through 47175).
    All of the ICD-9-CM coding changes are reflected in the FY 2009 
GROUPER, Version 26.0, effective for IPPS discharges occurring on or 
after October 1, 2008 through September 30, 2009. The GROUPER Version 
26.0 software package assigns each case to an MS-DRG on the basis of 
the diagnosis and procedure codes and demographic information (that is, 
age, sex, and discharge status). The Medicare Code Editor (MCE) 25.0 
uses the new ICD-9-CM codes to validate coding for IPPS discharges on 
or after October 1, 2008. For additional information on the GROUPER 
Version 26.0 and MCE 25.0, see Transmittal 1610 (Change Request 6189), 
dated October 3, 2008. The IPF PPS has always used the same GROUPER and 
Code Editor as the IPPS. Therefore, the ICD-9-CM changes, which were 
reflected in the GROUPER Version 26.0 and MCE 25.0 on October 1, 2008, 
also became effective for the IPF PPS for discharges occurring on or 
after October 1, 2008.
    The impact of the new MS-DRGs on the IPF PPS was negligible. 
Mapping to the MS-DRGs resulted in the current 17 MS-DRGs, instead of 
the original 15, for which the IPF PPS provides an adjustment. Although 
the code set is updated, the same associated adjustment factors apply 
now that have been in place since implementation of the IPF PPS, with 
one exception that is unrelated to the update to the codes. When DRGs 
521 and 522 were consolidated into MS-DRG 895, we carried over the 
adjustment factor of 1.02 from DRG 521 to the newly consolidated MS-
DRG. This was done to reflect the higher claims volume under DRG 521, 
with more than eight times the number of claims than billed under DRG 
522. The updates are reflected in Table 5. For a detailed description 
of the mapping changes from the original DRG adjustment categories to 
the current MS-DRG adjustment categories we refer readers to the May 
2008 IPF PPS notice (73 FR 25714).
    The official version of the ICD-9-CM is available on CD-ROM from 
the U.S. Government Printing Office. The FY 2009 version can be ordered 
by contacting the Superintendent of Documents, U.S. Government Printing 
Office, Department 50, Washington, DC 20402-9329, telephone number 
(202) 512-1800. Questions concerning the ICD-9-CM should be directed to 
Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and 
Maintenance Committee, CMS, Center for Medicare Management, Hospital 
and Ambulatory Policy Group, Division of Acute Care, Mailstop C4-08-06, 
7500 Security

[[Page 20369]]

Boulevard, Baltimore, Maryland 21244-1850.
    Further information concerning the official version of the ICD-9-CM 
can be found in the IPPS final rule with comment period, ``Changes to 
Hospital Inpatient Prospective Payment System and Fiscal Year 2009 
Rates'' in the August 19, 2008 Federal Register (73 FR 48434) and at 
http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS/list.asp#TopOfPage.
    Tables 3 and 4 below list the FY 2009 new and invalid ICD-9-CM 
diagnosis codes that group to one of the 17 MS-DRGs for which the IPF 
PPS provides an adjustment. These tables are only a listing of FY 2009 
changes and do not reflect all of the currently valid and applicable 
ICD-9-CM codes classified in the MS-DRGs. When coded as a principal 
code or diagnosis, these codes receive the correlating MS-DRG 
adjustment.

                  Table 3--FY 2009 New Diagnosis Codes
------------------------------------------------------------------------
          Diagnosis code                  Description           MS-DRG
------------------------------------------------------------------------
046.11...........................  Variant Creutzfeldt-         056, 057
                                    Jakob disease.
046.19...........................  Other and unspecified        056, 057
                                    Creutzfeldt-Jakob
                                    disease.
046.71...........................  Gerstmann-                   056, 057
                                    Str[auml]ussler-
                                    Scheinker syndrome.
046.72...........................  Fatal familial insomnia.     056, 057
046.79...........................  Other and unspecified        056, 057
                                    prion disease of
                                    central nervous system.
------------------------------------------------------------------------


                Table 4--FY 2009 Invalid Diagnosis Codes
------------------------------------------------------------------------
          Diagnosis code                  Description           MS-DRG
------------------------------------------------------------------------
046.1............................  Jakob-Creutzfeldt.......     056, 057
------------------------------------------------------------------------

    We do not plan to update the regression analysis until we are able 
to analyze IPF PPS data. The MS-DRG adjustment factors (as shown in 
Table 5) will continue to be paid for discharges occurring in RY 2010.

 Table 5--RY 2010 Current MS-DRGs Applicable for the Principal Diagnosis
                               Adjustment
------------------------------------------------------------------------
                                                              Adjustment
              MS-DRG                  MS-DRG descriptions       factor
------------------------------------------------------------------------
056..............................  Degenerative nervous             1.05
                                    system disorders w MCC.
057..............................  Degenerative nervous             1.05
                                    system disorders w/o
                                    MCC.
080..............................  Nontraumatic stupor &            1.07
                                    coma w MCC.
081..............................  Nontraumatic stupor &            1.07
                                    coma w/o MCC.
876..............................  O.R. procedure w                 1.22
                                    principal diagnoses of
                                    mental illness.
880..............................  Acute adjustment                 1.05
                                    reaction & psychosocial
                                    dysfunction.
881..............................  Depressive neuroses.....         0.99
882..............................  Neuroses except                  1.02
                                    depressive.
883..............................  Disorders of personality         1.02
                                    & impulse control.
884..............................  Organic disturbances &           1.03
                                    mental retardation.
885..............................  Psychoses...............         1.00
886..............................  Behavioral &                     0.99
                                    developmental disorders.
887..............................  Other mental disorder            0.92
                                    diagnoses.
894..............................  Alcohol/drug abuse or            0.97
                                    dependence, left AMA.
895..............................  Alcohol/drug abuse or            1.02
                                    dependence w
                                    rehabilitation therapy.
896..............................  Alcohol/drug abuse or            0.88
                                    dependence w/o
                                    rehabilitation therapy
                                    w MCC.
897..............................  Alcohol/drug abuse or            0.88
                                    dependence w/o
                                    rehabilitation therapy
                                    w/o MCC.
------------------------------------------------------------------------

2. Payment for Comorbid Conditions
    The intent of the comorbidity adjustments is to recognize the 
increased costs associated with comorbid conditions by providing 
additional payments for certain concurrent medical or psychiatric 
conditions that are expensive to treat. In the May 2008 IPF PPS notice 
(73 FR 25716), we explained that the IPF PPS includes 17 comorbidity 
categories and identified the new, revised, and deleted ICD-9-CM 
diagnosis codes that generate a comorbid condition payment adjustment 
under the IPF PPS for RY 2009 (73 FR 25718).
    Comorbidities are specific patient conditions that are secondary to 
the patient's principal diagnosis and that require treatment during the 
stay. Diagnoses that relate to an earlier episode of care and have no 
bearing on the current hospital stay are excluded and must not be 
reported on IPF claims. Comorbid conditions must exist at the time of 
admission or develop subsequently, and affect the treatment received, 
length of stay (LOS), or both treatment and LOS.
    For each claim, an IPF may receive only one comorbidity adjustment 
per comorbidity category, but it may receive an adjustment for more 
than one comorbidity category. Billing instructions require that IPFs 
must enter the full ICD-9-CM codes for up to 8 additional diagnoses if 
they co-exist at the time of admission or develop subsequently and 
impact the treatment provided.
    The comorbidity adjustments were determined based on the regression 
analysis using the diagnoses reported by IPFs in FY 2002. The principal 
diagnoses were used to establish the DRG adjustments and were not 
accounted for in establishing the comorbidity category adjustments, 
except where ICD-9-CM ``code first'' instructions apply. As we 
explained in

[[Page 20370]]

the May 2008 IPF PPS notice (73 FR 25716), the code first rule applies 
when a condition has both an underlying etiology and a manifestation 
due to the underlying etiology. For these conditions, the ICD-9-CM has 
a coding convention that requires the underlying conditions to be 
sequenced first followed by the manifestation. Whenever a combination 
exists, there is a ``use additional code'' note at the etiology code 
and a code first note at the manifestation code.
    As discussed in the MS-DRG section, it is our policy to maintain 
the same diagnostic coding set for IPFs that is used under the IPPS for 
providing the same psychiatric care. Although the ICD-9-CM code set has 
been updated, the same adjustment factors have been in place since the 
implementation of the IPF PPS. Table 6 below lists the FY 2009 new ICD 
diagnosis codes that impact the comorbidity adjustments under the IPF 
PPS. Table 6 is not a list of all currently valid ICD codes applicable 
for the IPF PPS comorbidity adjustments.

                    Table 6--FY 2009 New ICD Codes Applicable for the Comorbidity Adjustment
----------------------------------------------------------------------------------------------------------------
             Diagnosis code                          Description                    Comorbidity category
----------------------------------------------------------------------------------------------------------------
038.12..................................  Methicillin resistant             Infectious Disease.
                                           Staphylococcus aureus
                                           septicemia.
046.11..................................  Variant Creutzfeldt-Jakob         Infectious Disease.
                                           disease.
046.19..................................  Other and unspecified             Infectious Disease.
                                           Creutzfeldt-Jakob disease.
046.71..................................  Gerstmann-Str[auml]ussler-        Infectious Disease.
                                           Scheinker syndrome.
046.72..................................  Fatal familial insomnia.........  Infectious Disease.
046.79..................................  Other and unspecified prion       Infectious Disease.
                                           disease of central nervous
                                           system.
051.01..................................  Cowpox..........................  Infectious Disease.
051.02..................................  Vaccinia not from vaccination...  Infectious Disease.
059.00..................................  Orthopoxvirus infection,          Infectious Disease.
                                           unspecified.
059.01..................................  Monkeypox.......................  Infectious Disease.
059.09..................................  Other orthopoxvirus infections..  Infectious Disease.
059.10..................................  Parapoxvirus infection,           Infectious Disease.
                                           unspecified.
059.11..................................  Bovine stomatitis...............  Infectious Disease.
059.12..................................  Sealpox.........................  Infectious Disease.
059.19..................................  Other parapoxvirus infections...  Infectious Disease.
059.20..................................  Yatapoxvirus infection,           Infectious Disease.
                                           unspecified.
059.21..................................  Tanapox.........................  Infectious Disease.
059.22..................................  Yaba monkey tumor virus.........  Infectious Disease.
059.8...................................  Other poxvirus infections.......  Infectious Disease.
059.9...................................  Poxvirus infections, unspecified  Infectious Disease.
199.2...................................  Malignant neoplasm associated     Oncology Treatment.
                                           with transplant organ.
203.02..................................  Multiple myeloma, in relapse....  Oncology Treatment.
203.12..................................  Plasma cell leukemia, in relapse  Oncology Treatment.
203.82..................................  Other immunoproliferative         Oncology Treatment.
                                           neoplasms, in relapse.
204.02..................................  Acute lymphoid leukemia, in       Oncology Treatment.
                                           relapse.
204.12..................................  Chronic lymphoid leukemia, in     Oncology Treatment.
                                           relapse.
204.22..................................  Subacute lymphoid leukemia, in    Oncology Treatment.
                                           relapse.
204.82..................................  Other lymphoid leukemia, in       Oncology Treatment.
                                           relapse.
204.92..................................  Unspecified lymphoid leukemia,    Oncology Treatment.
                                           in relapse.
205.02..................................  Acute myeloid leukemia, in        Oncology Treatment.
                                           relapse.
205.12..................................  Chronic myeloid leukemia, in      Oncology Treatment.
                                           relapse.
205.22..................................  Subacute myeloid leukemia, in     Oncology Treatment.
                                           relapse.
205.32..................................  Myeloid sarcoma, in relapse.....  Oncology Treatment.
205.82..................................  Other myeloid leukemia, in        Oncology Treatment.
                                           relapse.
205.92..................................  Unspecified myeloid leukemia, in  Oncology Treatment.
                                           relapse.
206.02..................................  Acute monocytic leukemia, in      Oncology Treatment.
                                           relapse.
206.12..................................  Chronic monocytic leukemia, in    Oncology Treatment.
                                           relapse.
206.22..................................  Subacute monocytic leukemia, in   Oncology Treatment.
                                           relapse.
206.82..................................  Other monocytic leukemia, in      Oncology Treatment.
                                           relapse.
206.92..................................  Unspecified monocytic leukemia,   Oncology Treatment.
                                           in relapse.
207.02..................................  Acute erythremia and              Oncology Treatment.
                                           erythroleukemia, in relapse.
207.12..................................  Chronic erythremia, in relapse..  Oncology Treatment.
207.22..................................  Megakaryocytic leukemia, in       Oncology Treatment.
                                           relapse.
207.82..................................  Other specified leukemia, in      Oncology Treatment.
                                           relapse.
208.02..................................  Acute leukemia of unspecified     Oncology Treatment.
                                           cell type, in relapse.
208.12..................................  Chronic leukemia of unspecified   Oncology Treatment.
                                           cell type, in relapse.
208.22..................................  Subacute leukemia of unspecified  Oncology Treatment.
                                           cell type, in relapse.
208.82..................................  Other leukemia of unspecified     Oncology Treatment.
                                           cell type, in relapse.
208.92..................................  Unspecified leukemia, in relapse  Oncology Treatment.
209.00..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           small intestine, unspecified
                                           portion.
209.01..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           duodenum.
209.02..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           jejunum.
209.03..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           ileum.
209.10..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           large intestine, unspecified
                                           portion.
209.11..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           appendix.
209.12..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           cecum.
209.13..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           ascending colon.
209.14..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           transverse colon.
209.15..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           descending colon.
209.16..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           sigmoid colon.
209.17..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           rectum.

[[Page 20371]]

 
209.20..................................  Malignant carcinoid tumor of      Oncology Treatment.
                                           unknown primary site.
209.21..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           bronchus and lung.
209.22..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           thymus.
209.23..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           stomach.
209.24..................................  Malignant carcinoid tumor of the  Oncology Treatment.
                                           kidney.
209.25..................................  Malignant carcinoid tumor of      Oncology Treatment.
                                           foregut, not otherwise
                                           specified.
209.26..................................  Malignant carcinoid tumor of      Oncology Treatment.
                                           midgut, not otherwise specified.
209.27..................................  Malignant carcinoid tumor of      Oncology Treatment.
                                           hindgut, not otherwise
                                           specified.
209.29..................................  Malignant carcinoid tumor of      Oncology Treatment.
                                           other sites.
209.30..................................  Malignant poorly differentiated   Oncology Treatment.
                                           neuroendocrine carcinoma, any
                                           site.
209.40..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           small intestine, unspecified
                                           portion.
209.41..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           duodenum.
209.42..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           jejunum.
209.43..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           ileum.
209.50..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           large intestine, unspecified
                                           portion.
209.51..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           appendix.
209.52..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           cecum.
209.53..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           ascending colon.
209.54..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           transverse colon.
209.55..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           descending colon.
209.56..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           sigmoid colon.
209.57..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           rectum.
209.60..................................  Benign carcinoid tumor of         Oncology Treatment.
                                           unknown primary site.
209.61..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           bronchus and lung.
209.62..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           thymus.
209.63..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           stomach.
209.64..................................  Benign carcinoid tumor of the     Oncology Treatment.
                                           kidney.
209.65..................................  Benign carcinoid tumor of         Oncology Treatment.
                                           foregut, not otherwise
                                           specified.
209.66..................................  Benign carcinoid tumor of         Oncology Treatment.
                                           midgut, not otherwise specified.
209.67..................................  Benign carcinoid tumor of         Oncology Treatment.
                                           hindgut, not otherwise
                                           specified.
209.69..................................  Benign carcinoid tumor of other   Oncology Treatment.
                                           sites.
238.77..................................  Post-transplant                   Oncology Treatment.
                                           lymphoproliferative disorder
                                           (PTLD).
V45.11..................................  Renal dialysis status...........  Chronic Renal Failure.
V45.12..................................  Noncompliance with renal          Chronic Renal Failure.
                                           dialysis.
----------------------------------------------------------------------------------------------------------------

    Table 7 lists the FY 2009 revised ICD diagnosis codes that are 
applicable for the comorbidity adjustment.

                  Table 7--FY 2009 Revised ICD Codes Applicable for the Comorbidity Adjustment
----------------------------------------------------------------------------------------------------------------
             Diagnosis code                          Description                    Comorbidity category
----------------------------------------------------------------------------------------------------------------
038.11..................................  Methicillin susceptible           Infectious Disease.
                                           Staphylococcus aureus
                                           septicemia.
203.00..................................  Multiple myeloma, without         Oncology Treatment.
                                           mention of having achieved
                                           remission.
203.10..................................  Plasma cell leukemia, without     Oncology Treatment.
                                           mention of having achieved
                                           remission.
203.80..................................  Other immunoproliferative         Oncology Treatment.
                                           neoplasms, without mention of
                                           having achieved remission.
204.00..................................  Acute lymphoid leukemia, without  Oncology Treatment.
                                           mention of having achieved
                                           remission.
204.10..................................  Chronic lymphoid leukemia,        Oncology Treatment.
                                           without mention of having
                                           achieved remission.
204.20..................................  Subacute lymphoid leukemia,       Oncology Treatment.
                                           without mention of having
                                           achieved remission.
204.80..................................  Other lymphoid leukemia, without  Oncology Treatment.
                                           mention of having achieved
                                           remission.
204.90..................................  Unspecified lymphoid leukemia,    Oncology Treatment.
                                           without mention of having
                                           achieved remission.
205.00..................................  Acute myeloid leukemia, without   Oncology Treatment.
                                           mention of having achieved
                                           remission.
205.10..................................  Chronic myeloid leukemia,         Oncology Treatment.
                                           without mention of having
                                           achieved remission.
205.20..................................  Subacute myeloid leukemia,        Oncology Treatment.
                                           without mention of having
                                           achieved remission.
205.30..................................  Myeloid sarcoma, without mention  Oncology Treatment.
                                           of having achieved remission.
205.80..................................  Other myeloid leukemia, without   Oncology Treatment.
                                           mention of having achieved
                                           remission.
205.90..................................  Unspecified myeloid leukemia,     Oncology Treatment.
                                           without mention of having
                                           achieved remission.
206.00..................................  Acute monocytic leukemia,         Oncology Treatment.
                                           without mention of having
                                           achieved remission.
206.10..................................  Chronic monocytic leukemia,       Oncology Treatment.
                                           without mention of having
                                           achieved remission.
206.20..................................  Subacute monocytic leukemia,      Oncology Treatment.
                                           without mention of having
                                           achieved remission.
206.80..................................  Other monocytic leukemia,         Oncology Treatment.
                                           without mention of having
                                           achieved remission.
206.90..................................  Unspecified monocytic leukemia,   Oncology Treatment.
                                           without mention of having
                                           achieved remission.
207.00..................................  Acute erythremia and              Oncology Treatment.
                                           erythroleukemia, without
                                           mention of having achieved
                                           remission.
207.10..................................  Chronic erythremia, without       Oncology Treatment.
                                           mention of having achieved
                                           remission.

[[Page 20372]]

 
207.20..................................  Megakaryocytic leukemia, without  Oncology Treatment.
                                           mention of having achieved
                                           remission.
207.80..................................  Other specified leukemia,         Oncology Treatment.
                                           without mention of having
                                           achieved remission.
208.00..................................  Acute leukemia of unspecified     Oncology Treatment.
                                           cell type, without mention of
                                           having achieved remission.
208.10..................................  Chronic leukemia of unspecified   Oncology Treatment.
                                           cell type, without mention of
                                           having achieved remission.
208.20..................................  Subacute leukemia of unspecified  Oncology Treatment.
                                           cell type, without mention of
                                           having achieved remission.
208.80..................................  Other leukemia of unspecified     Oncology Treatment.
                                           cell type, without mention of
                                           having achieved remission.
208.90..................................  Unspecified leukemia, without     Oncology Treatment.
                                           mention of having achieved
                                           remission.
----------------------------------------------------------------------------------------------------------------

    Table 8 lists the invalid FY 2009 ICD-9-CM codes no longer 
applicable for the comorbidity adjustment.

             Table 8--FY 2009 Invalid ICD Codes No Longer Applicable for the Comorbidity Adjustment
----------------------------------------------------------------------------------------------------------------
             Diagnosis Code                        Description                     Comorbidity category
----------------------------------------------------------------------------------------------------------------
046.1..................................  Jakob-Creutzfeldt disease.....  Infectious Disease.
051.0..................................  Cowpox........................  Infectious Disease.
V45.1..................................  Renal dialysis status.........  Chronic Renal Failure.
----------------------------------------------------------------------------------------------------------------

    For RY 2010, we are applying the seventeen comorbidity categories 
for which we are providing an adjustment, their respective codes, 
including the new FY 2009 ICD-9-CM codes, and their respective 
adjustment factors in Table 9 below.

 Table 9--RY 2010 Diagnosis Codes and Adjustment Factors for Comorbidity
                               Categories
------------------------------------------------------------------------
                                                              Adjustment
    Description of comorbidity           ICD-9CM Code           factor
------------------------------------------------------------------------
Developmental Disabilities.......  317, 3180, 3181, 3182,           1.04
                                    and 319.
Coagulation Factor Deficits......  2860 through 2864.......         1.13
Tracheostomy.....................  51900 through 51909 and          1.06
                                    V440.
Renal Failure, Acute.............  5845 through 5849,               1.11
                                    63630, 63631, 63632,
                                    63730, 63731, 63732,
                                    6383, 6393, 66932,
                                    66934, 9585.
Renal Failure, Chronic...........  40301, 40311, 40391,             1.11
                                    40402, 40412, 40413,
                                    40492, 40493, 5853,
                                    5854, 5855, 5856, 5859,
                                    586, V451, V560, V561,
                                    and V562.
Oncology Treatment...............  1400 through 2399 with a         1.07
                                    radiation therapy code
                                    92.21-92.29 or
                                    chemotherapy code 99.25.
Uncontrolled Diabetes-Mellitus     25002, 25003, 25012,             1.05
 with or without complications.     25013, 25022, 25023,
                                    25032, 25033, 25042,
                                    25043, 25052, 25053,
                                    25062, 25063, 25072,
                                    25073, 25082, 25083,
                                    25092, and 25093.
Severe Protein Calorie             260 through 262.........         1.13
 Malnutrition.
Eating and Conduct Disorders.....  3071, 30750, 31203,              1.12
                                    31233, and 31234.
Infectious Disease...............  01000 through 04110,             1.07
                                    042, 04500 through
                                    05319, 05440 through
                                    05449, 0550 through
                                    0770, 0782 through
                                    07889, and 07950
                                    through 07959.
Drug and/or Alcohol Induced        2910, 2920, 29212, 2922,         1.03
 Mental Disorders.                  30300, and 30400.
Cardiac Conditions...............  3910, 3911, 3912, 40201,         1.11
                                    40403, 4160, 4210,
                                    4211, and 4219.
Gangrene.........................  44024 and 7854..........         1.10
Chronic Obstructive Pulmonary      49121, 4941, 5100,               1.12
 Disease.                           51883, 51884, V4611 and
                                    V4612, V4613 and V4614.
Artificial Openings--Digestive     56960 through 56969,             1.08
 and Urinary.                       9975, and V441 through
                                    V446.
Severe Musculoskeletal and         6960, 7100, 73000                1.09
 Connective Tissue Diseases.        through 73009, 73010
                                    through 73019, and
                                    73020 through 73029.
Poisoning........................  96500 through 96509,             1.11
                                    9654, 9670 through
                                    9699, 9770, 9800
                                    through 9809, 9830
                                    through 9839, 986, 9890
                                    through 9897.
------------------------------------------------------------------------

3. Patient Age Adjustments
    As explained in the November 2004 IPF PPS final rule (69 FR 66922), 
we analyzed the impact of age on per diem cost by examining the age 
variable (that is, the range of ages) for payment adjustments.
    In general, we found that the cost per day increases with age. The 
older age groups are more costly than the under 45 age group, the 
differences in per diem cost increase for each successive age group, 
and the differences are statistically significant.

[[Page 20373]]

    For RY 2010, we are continuing to use the patient age adjustments 
currently in effect as shown in Table 10 below.

             Table 10--Age Groupings and Adjustment Factors
------------------------------------------------------------------------
                                                              Adjustment
                            Age                                 factor
------------------------------------------------------------------------
Under 45...................................................         1.00
45 and under 50............................................         1.01
50 and under 55............................................         1.02
55 and under 60............................................         1.04
60 and under 65............................................         1.07
65 and under 70............................................         1.10
70 and under 75............................................         1.13
75 and under 80............................................         1.15
80 and over................................................         1.17
------------------------------------------------------------------------

4. Variable Per Diem Adjustments
    We explained in the November 2004 IPF PPS final rule (69 FR 66946) 
that the regression analysis indicated that per diem cost declines as 
the LOS increases. The variable per diem adjustments to the Federal per 
diem base rate account for ancillary and administrative costs that 
occur disproportionately in the first days after admission to an IPF.
    We used a regression analysis to estimate the average differences 
in per diem cost among stays of different lengths. As a result of this 
analysis, we established variable per diem adjustments that begin on 
day 1 and decline gradually until day 21 of a patient's stay. For day 
22 and thereafter, the variable per diem adjustment remains the same 
each day for the remainder of the stay. However, the adjustment applied 
to day 1 depends upon whether the IPF has a qualifying ED. If an IPF 
has a qualifying ED, it receives a 1.31 adjustment factor for day 1 of 
each stay. If an IPF does not have a qualifying ED, it receives a 1.19 
adjustment factor for day 1 of the stay. The ED adjustment is explained 
in more detail in section IV.C.5 of this notice.
    For RY 2010, we are to continuing to use the variable per diem 
adjustment factors currently in effect as shown in Table 11 below. A 
complete discussion of the variable per diem adjustments appears in the 
November 2004 IPF PPS final rule (69 FR 66946).

                 Table 11--Variable Per Diem Adjustments
------------------------------------------------------------------------
                                                              Adjustment
                        Day-of-Stay                             factor
------------------------------------------------------------------------
Day 1--IPF Without a Qualifying ED.........................         1.19
Day 1--IPF With a Qualifying ED............................         1.31
Day 2......................................................         1.12
Day 3......................................................         1.08
Day 4......................................................         1.05
Day 5......................................................         1.04
Day 6......................................................         1.02
Day 7......................................................         1.01
Day 8......................................................         1.01
Day 9......................................................         1.00
Day 10.....................................................         1.00
Day 11.....................................................         0.99
Day 12.....................................................         0.99
Day 13.....................................................         0.99
Day 14.....................................................         0.99
Day 15.....................................................         0.98
Day 16.....................................................         0.97
Day 17.....................................................         0.97
Day 18.....................................................         0.96
Day 19.....................................................         0.95
Day 20.....................................................         0.95
Day 21.....................................................         0.95
After Day 21...............................................         0.92
------------------------------------------------------------------------

C. Facility-Level Adjustments

    The IPF PPS includes facility-level adjustments for the wage index, 
IPFs located in rural areas, teaching IPFs, cost of living adjustments 
for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.
1. Wage Index Adjustment
a. Background
    As discussed in the May 2006 IPF PPS final rule and in the May 2007 
and May 2008 update notices, in providing an adjustment for geographic 
wage levels, the labor-related portion of an IPF's payment is adjusted 
using an appropriate wage index. Currently, an IPF's geographic wage 
index value is determined based on the actual location of the IPF in an 
urban or rural area as defined in Sec.  412.64(b)(1)(ii)(A) through 
Sec.  412.64(C).
b. Wage Index for RY 2010
    Since the inception of the IPF PPS, we have used hospital wage data 
in developing a wage index to be applied to IPFs. We are continuing 
that practice for RY 2010. We apply the wage index adjustment to the 
labor-related portion of the Federal rate, which is 75.889 percent. 
This percentage reflects the labor-related relative importance of the 
RPL market basket for RY 2010 (see section III.B.2 of this notice). The 
IPF PPS uses the pre-floor, pre-reclassified hospital wage index. 
Changes to the wage index are made in a budget neutral manner so that 
updates do not increase expenditures.
    For RY 2010, we are applying the most recent hospital wage index 
(that is, the FY 2009 pre-floor, pre-reclassified hospital wage index 
because this is the most appropriate index as it best reflects the 
variation in local labor costs of IPFs in the various geographic areas) 
using the most recent hospital wage data (that is, data from FY 2005 
hospital cost reports), and applying an adjustment in accordance with 
our budget neutrality policy. This policy requires us to estimate the 
total amount of IPF PPS payments in RY 2009 using the applicable wage 
index value divided by the total estimated IPF PPS payments in RY 2010 
using the most recent wage index. The estimated payments are based on 
FY 2007 IPF claims, inflated to the appropriate RY. This quotient is 
the wage index budget neutrality factor, and it is applied in the 
update of the Federal per diem base rate for RY 2010 in addition to the 
market basket described in section III.B.1 of this notice. The wage 
index budget neutrality factor for RY 2010 is 1.0009.
    The wage index applicable for RY 2010 appears in Table 1 and Table 
2 in Addendum B of this notice. As explained in the May 2006 IPF PPS 
final rule for RY 2007 (71 FR 27061), the IPF PPS applies the hospital 
wage index without a hold-harmless policy, and without an out-commuting 
adjustment or out-migration adjustment because the statutory authority 
for these policies applies only to the IPPS.
    Also in the May 2006 IPF PPS final rule for RY 2007 (71 FR 27061), 
we adopted the changes discussed in the Office of Management and Budget 
(OMB) Bulletin No. 03-04 (June 6, 2003), which announced revised 
definitions for Metropolitan Statistical Areas (MSAs), and the creation 
of Micropolitan Statistical Areas and Combined Statistical Areas. In 
adopting the OMB Core-Based Statistical Area (CBSA) geographic 
designations, since the IPF PPS was already in a transition period from 
TEFRA payments to PPS payments, we did not provide a separate 
transition for the CBSA-based wage index.
    As was the case in RY 2009, for RY 2010 we will continue to use the 
CBSA-based wage index values as presented in Tables 1 and 2 in Addendum 
B of this notice. A complete discussion of the CBSA labor market 
definitions appears in the May 2006 IPF PPS final rule (71 FR 27061 
through 27067).
c. OMB Bulletins
    The Office of Management and Budget (OMB) publishes bulletins 
regarding CBSA changes, including changes to CBSA numbers and titles. 
In the May 2008 IPF PPS notice, we incorporated the CBSA nomenclature 
changes published in the most recent OMB bulletin that applies to the 
hospital

[[Page 20374]]

wage data used to determine the current IPF PPS wage index (73 FR 
25721). We will continue to do the same for all such OMB CBSA 
nomenclature changes in future IPF PPS rules and notices, as necessary. 
The OMB bulletins may be accessed Online at http://www.whitehouse.gov/omb/bulletins/index.html.
    In summary, for RY 2010 we will use the FY 2009 wage index data 
(collected from cost reports submitted by hospitals for cost reporting 
periods beginning during FY 2005) to adjust IPF PPS payments beginning 
July 1, 2009.
2. Adjustment for Rural Location
    In the November 2004 IPF PPS final rule, we provided a 17 percent 
payment adjustment for IPFs located in a rural area. This adjustment 
was based on the regression analysis, which indicated that the per diem 
cost of rural facilities was 17 percent higher than that of urban 
facilities after accounting for the influence of the other variables 
included in the regression. For RY 2010, we are applying a 17 percent 
payment adjustment for IPFs located in a rural area as defined at Sec.  
412.64(b)(1)(ii)(C). As stated in the November 2004 IPF PPS final rule, 
we do not intend to update the adjustment factors derived from the 
regression analysis until we are able to analyze IPF PPS data. A 
complete discussion of the adjustment for rural locations appears in 
the November 2004 IPF PPS final rule (69 FR 66954).
3. Teaching Adjustment
    In the November 2004 IPF PPS final rule, we implemented regulations 
at Sec.  412.424(d)(1)(iii) to establish a facility-level adjustment 
for IPFs that are, or are part of, teaching institutions. The teaching 
adjustment accounts for the higher indirect operating costs experienced 
by facilities that participate in graduate medical education (GME) 
programs. The payment adjustments are made based on the number of full-
time equivalent (FTE) interns and residents training in the IPF and the 
IPF's average daily census.
    Medicare makes direct GME payments (for direct costs such as 
resident and teaching physician salaries, and other direct teaching 
costs) to all teaching hospitals including those paid under the IPPS, 
and those that were once paid under the TEFRA rate-of-increase limits 
but are now paid under other PPSs. These direct GME payments are made 
separately from payments for hospital operating costs and are not part 
of the PPSs. The direct GME payments do not address the estimated 
higher indirect operating costs teaching hospitals may face.
    For teaching hospitals paid under the TEFRA rate-of-increase 
limits, Medicare did not make separate medical education payments 
because payments to these hospitals were based on the hospitals' 
reasonable costs. Since payments under TEFRA were based on hospitals' 
reasonable costs, the higher indirect costs that may be associated with 
teaching programs were factored automatically into the TEFRA payments.
    The results of the regression analysis of FY 2002 IPF data 
established the basis for the payment adjustments included in the 
November 2004 IPF PPS final rule. The results showed that the indirect 
teaching cost variable is significant in explaining the higher costs of 
IPFs that have teaching programs. We calculated the teaching adjustment 
based on the IPF's ``teaching variable,'' which is one plus the ratio 
of the number of FTE residents training in the IPF (subject to 
limitations described below) to the IPF's average daily census (ADC).
    We established the teaching adjustment in a manner that limited the 
incentives for IPFs to add FTE residents for the purpose of increasing 
their teaching adjustment. We imposed a cap on the number of FTE 
residents that may be counted for purposes of calculating the teaching 
adjustment. We emphasize that the cap limits the number of FTE 
residents that teaching IPFs may count for the purposes of calculating 
the IPF PPS teaching adjustment, not the number of residents teaching 
institutions can hire or train. We calculated the number of FTE 
residents that trained in the IPF during a ``base year'' and used that 
FTE resident number as the cap. An IPF's FTE resident cap is ultimately 
determined based on the final settlement of the IPF's most recent cost 
report filed before November 15, 2004 (that is, the publication date of 
the IPF PPS final rule).
    In the regression analysis, the logarithm of the teaching variable 
had a coefficient value of 0.5150. We converted this cost effect to a 
teaching payment adjustment by treating the regression coefficient as 
an exponent and raising the teaching variable to a power equal to the 
coefficient value. We note that the coefficient value of 0.5150 was 
based on the regression analysis holding all other components of the 
payment system constant.
    As with other adjustment factors derived through the regression 
analysis, we do not plan to rerun the regression analysis until we 
analyze IPF PPS data. Therefore, for RY 2010, we are retaining the 
coefficient value of 0.5150 for the teaching adjustment to the Federal 
per diem base rate.
    A complete discussion of how the teaching adjustment was calculated 
appears in the November 2004 IPF PPS final rule (69 FR 66954 through 
66957) and the May 2008 IPF PPS notice (73 FR 25721). Below, in the 
``Request for Comments'' section of this notice, we are seeking public 
input on the FTE Intern and Resident Cap Adjustment.
4. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii
    The IPF PPS includes a payment adjustment for IPFs located in 
Alaska and Hawaii based upon the county in which the IPF is located. As 
we explained in the November 2004 IPF PPS final rule, the FY 2002 data 
demonstrated that IPFs in Alaska and Hawaii had per diem costs that 
were disproportionately higher than other IPFs. Other Medicare PPSs 
(for example, the IPPS and LTCH PPS) have adopted a cost of living 
adjustment (COLA) to account for the cost differential of care 
furnished in Alaska and Hawaii.
    We analyzed the effect of applying a COLA to payments for IPFs 
located in Alaska and Hawaii. The results of our analysis demonstrated 
that a COLA for IPFs located in Alaska and Hawaii would improve payment 
equity for these facilities. As a result of this analysis, we provided 
a COLA in the November 2004 IPF PPS final rule.
    A COLA adjustment for IPFs located in Alaska and Hawaii is made by 
multiplying the non-labor share of the Federal per diem base rate by 
the applicable COLA factor based on the COLA area in which the IPF is 
located.
    As previously stated in the November 2004 IPF PPS final rule, we 
will update the COLA factors according to updates established by the 
U.S. Office of Personnel Management (OPM), which issued a final rule, 
May 28, 2008 to change COLA rates.
    The COLA factors are published on the OPM Web site at (http://www.opm.gov/oca/cola/rates.asp).
    We note that the COLA areas for Alaska are not defined by county as 
are the COLA areas for Hawaii. In 5 CFR 591.207, the OPM established 
the following COLA areas:
    (a) City of Anchorage, and 80-kilometer (50-mile) radius by road, 
as measured from the Federal courthouse;
    (b) City of Fairbanks, and 80-kilometer (50-mile) radius by road, 
as measured from the Federal courthouse;
    (c) City of Juneau, and 80-kilometer (50-mile) radius by road, as 
measured from the Federal courthouse;
    (d) Rest of the State of Alaska.

[[Page 20375]]

    For RY 2010, IPFs located in Alaska and Hawaii will continue to 
receive the updated COLA factors based on the COLA area in which the 
IPF is located as shown in Table 12 below.

            Table 12--COLA Factors for Alaska and Hawaii IPFs
------------------------------------------------------------------------
                                            Location               COLA
------------------------------------------------------------------------
Alaska........................  Anchorage......................     1.23
                                Fairbanks......................     1.23
                                Juneau.........................     1.23
                                Rest of Alaska.................     1.25
Hawaii........................  Honolulu County................     1.25
                                Hawaii County..................     1.18
                                Kauai County...................     1.25
                                Maui County....................     1.25
                                Kalawao County.................     1.25
------------------------------------------------------------------------

5. Adjustment for IPFs With a Qualifying Emergency Department (ED)
    Currently, the IPF PPS includes a facility-level adjustment for 
IPFs with qualifying EDs. We provide an adjustment to the Federal per 
diem base rate to account for the costs associated with maintaining a 
full-service ED. The adjustment is intended to account for ED costs 
incurred by a freestanding psychiatric hospital with a qualifying ED or 
a distinct part psychiatric unit of an acute hospital or a CAH for 
preadmission services otherwise payable under the Medicare Outpatient 
Prospective Payment System (OPPS) furnished to a beneficiary during the 
day immediately preceding the date of admission to the IPF (see Sec.  
413.40(c)(2)) and the overhead cost of maintaining the ED. This payment 
is a facility-level adjustment that applies to all IPF admissions (with 
one exception described below), regardless of whether a particular 
patient receives preadmission services in the hospital's ED.
    The ED adjustment is incorporated into the variable per diem 
adjustment for the first day of each stay for IPFs with a qualifying 
ED. That is, IPFs with a qualifying ED receive an adjustment factor of 
1.31 as the variable per diem adjustment for day 1 of each stay. If an 
IPF does not have a qualifying ED, it receives an adjustment factor of 
1.19 as the variable per diem adjustment for day 1 of each patient 
stay.
    The ED adjustment is made on every qualifying claim except as 
described below. As specified in Sec.  412.424(d)(1)(v)(B), the ED 
adjustment is not made where a patient is discharged from an acute care 
hospital or critical access hospital (CAH) and admitted to the same 
hospital's or CAH's psychiatric unit. An ED adjustment is not made in 
this case because the costs associated with ED services are reflected 
in the DRG payment to the acute care hospital or through the reasonable 
cost payment made to the CAH. If we provided the ED adjustment in these 
cases, the hospital would be paid twice for the overhead costs of the 
ED, as stated in the November 2004 IPF PPS final rule (69 FR 66960).
    Therefore, when patients are discharged from an acute care hospital 
or CAH and admitted to the same hospital's or CAH's psychiatric unit, 
the IPF receives the 1.19 adjustment factor as the variable per diem 
adjustment for the first day of the patient's stay in the IPF.
    For RY 2010, we are retaining the 1.31 adjustment factor for IPFs 
with qualifying EDs. A complete discussion of the steps involved in the 
calculation of the ED adjustment factor appears in the November 2004 
IPF PPS final rule (69 FR 66959 through 66960) and the May 2006 IPF PPS 
final rule (71 FR 27070 through 27072).

D. Other Payment Adjustments and Policies

    For RY 2010, the IPF PPS includes: An outlier adjustment to promote 
access to IPF care for those patients who require expensive care and to 
limit the financial risk of IPFs treating unusually costly patients. In 
this section, we also explain the reason for ending the stop-loss 
provision that was applicable during the transition period.
1. Outlier Payments
    In the November 2004 IPF PPS final rule, we implemented regulations 
at Sec.  412.424(d)(3)(i) to provide a per-case payment for IPF stays 
that are extraordinarily costly. Providing additional payments to IPFs 
for extremely costly cases strongly improves the accuracy of the IPF 
PPS in determining resource costs at the patient and facility level. 
These additional payments reduce the financial losses that would 
otherwise be incurred in treating patients who require more costly care 
and, therefore, reduce the incentives for IPFs to under-serve these 
patients.
    We make outlier payments for discharges in which an IPF's estimated 
total cost for a case exceeds a fixed dollar loss threshold amount 
(multiplied by the IPF's facility-level adjustments) plus the Federal 
per diem payment amount for the case.
    In instances when the case qualifies for an outlier payment, we pay 
80 percent of the difference between the estimated cost for the case 
and the adjusted threshold amount for days 1 through 9 of the stay 
(consistent with the median LOS for IPFs in FY 2002), and 60 percent of 
the difference for day 10 and thereafter. We established the 80 percent 
and 60 percent loss sharing ratios because we were concerned that a 
single ratio established at 80 percent (like other Medicare PPSs) might 
provide an incentive under the IPF per diem payment system to increase 
LOS in order to receive additional payments. After establishing the 
loss sharing ratios, we determined the current fixed dollar loss 
threshold amount of $6,113 through payment simulations designed to 
compute a dollar loss beyond which payments are estimated to meet the 2 
percent outlier spending target.
    a. Update to the Outlier Fixed Dollar Loss Threshold Amount:
    In accordance with the update methodology described in Sec.  
412.428(d), we are updating the fixed dollar loss threshold amount used 
under the IPF PPS outlier policy. Based on the regression analysis and 
payment simulations used to develop the IPF PPS, we established a 2 
percent outlier policy which strikes an appropriate balance between 
protecting IPFs from extraordinarily costly cases while ensuring the 
adequacy of the Federal per diem base rate for all other cases that are 
not outlier cases.
    We believe it is necessary to update the fixed dollar loss 
threshold amount because analysis of the latest available data (that 
is, FY 2007 IPF claims) and rate increases indicates adjusting the 
fixed dollar loss amount is necessary in order to maintain an outlier 
percentage that equals 2 percent of total estimated IPF PPS payments.
    In the May 2006 IPF PPS final rule (71 FR 27072), we describe the 
process by which we calculate the outlier fixed dollar loss threshold 
amount. We continue to use this process for RY 2010. We begin by 
simulating aggregate payments with and without an outlier policy, and 
applying an iterative process to a fixed dollar loss amount that will 
result in outlier payments being equal to 2 percent of total estimated 
payments under the simulation. Based on this process, for RY 2010, the 
IPF PPS will use $6,565 as the fixed dollar loss threshold amount in 
the outlier calculation in order to maintain the 2 percent outlier 
policy.
b. Statistical Accuracy of Cost-to-Charge Ratios
    As previously stated, under the IPF PPS, an outlier payment is made 
if an IPF's cost for a stay exceeds a fixed dollar loss threshold 
amount. In order to establish an IPF's cost for a particular case, we 
multiply the IPF's reported

[[Page 20376]]

charges on the discharge bill by its overall cost-to-charge ratio 
(CCR). This approach to determining an IPF's cost is consistent with 
the approach used under the IPPS and other PPSs. In FY 2004, we 
implemented changes to the IPPS outlier policy used to determine CCRs 
for acute care hospitals because we became aware that payment 
vulnerabilities resulted in inappropriate outlier payments. Under the 
IPPS, we established a statistical measure of accuracy for CCRs in 
order to ensure that aberrant CCR data did not result in inappropriate 
outlier payments.
    As we indicated in the November 2004 IPF PPS final rule, because we 
believe that the IPF outlier policy is susceptible to the same payment 
vulnerabilities as the IPPS, we adopted an approach to ensure the 
statistical accuracy of CCRs under the IPF PPS (69 FR 66961). 
Therefore, we adopted the following procedure in the November 2004 IPF 
PPS final rule:
    <bullet> We calculated two national ceilings, one for IPFs located 
in rural areas and one for IPFs located in urban areas. We computed the 
ceilings by first calculating the national average and the standard 
deviation of the CCR for both urban and rural IPFs.
    To determine the rural and urban ceilings, we multiplied each of 
the standard deviations by 3 and added the result to the appropriate 
national CCR average (either rural or urban). The upper threshold CCR 
for IPFs in RY 2010 is 1.7381 for rural IPFs, and 1.7647 for urban 
IPFs, based on CBSA-based geographic designations. If an IPF's CCR is 
above the applicable ceiling, the ratio is considered statistically 
inaccurate and we assign the appropriate national (either rural or 
urban) median CCR to the IPF.
    We are applying the national CCRs to the following situations:
    ++ New IPFs that have not yet submitted their first Medicare cost 
report.
    ++ IPFs whose overall CCR is in excess of 3 standard deviations 
above the corresponding national geometric mean (that is, above the 
ceiling).
    ++ Other IPFs for which the Medicare contractor obtains inaccurate 
or incomplete data with which to calculate a CCR.
    For new IPFs, we are using these national CCRs until the facility's 
actual CCR can be computed using the first tentatively or final settled 
cost report.
    We are not making any changes to the procedures for ensuring the 
statistical accuracy of CCRs in RY 2010. However, we are updating the 
national urban and rural CCRs (ceilings and medians) for IPFs for RY 
2010 based on the CCRs entered in the latest available IPF PPS Provider 
Specific File.
    The national CCRs for RY 2010 are 0.6515 for rural IPFs and 0.5300 
for urban IPFs and will be used in each of the three situations listed 
above. These calculations are based on the IPF's location (either urban 
or rural) using the CBSA-based geographic designations.
    A complete discussion regarding the national median CCRs appears in 
the November 2004 IPF PPS final rule (69 FR 66961 through 66964).
2. Expiration of the Stop-Loss Provision
    In the November 2004 IPF PPS final rule, we implemented a stop-loss 
policy that reduced financial risk to IPFs projected to experience 
substantial reductions in Medicare payments during the period of 
transition to the IPF PPS. This stop-loss policy guaranteed that each 
facility received total IPF PPS payments that were no less than 70 
percent of its TEFRA payments had the IPF PPS not been implemented. 
This policy was applied to the IPF PPS portion of Medicare payments 
during the 3-year transition.
    In the implementation year, the 70 percent of TEFRA payment stop-
loss policy required a reduction in the standardized Federal per diem 
and ECT base rates of 0.39 percent in order to make the stop-loss 
payments budget neutral. As described in the May 2008 IPF PPS notice 
for RY 2009, we increased the Federal per diem base rate and ECT rate 
by 0.39 percent because these rates were reduced by 0.39 percent in the 
implementation year to ensure stop-loss payments were budget neutral.
    The stop-loss provision ended during RY 2009 (that is for 
discharges occurring on or after July 1, 2008 through June 30, 2009). 
The stop-loss policy is no longer applicable under the IPF PPS.

V. Request for Comments

A. Market Basket Index for the IPF PPS; Costs and Cost Structures of 
IPF Providers

    We are interested in exploring the possibility of creating a stand-
alone IPF market basket that reflects the cost structures of only IPF 
providers. The intent would be to join the Medicare cost report data 
from freestanding IPF providers (presently incorporated into the RPL 
market basket) with data from hospital-based IPF providers.
    An examination of the Medicare cost report data comparing 
freestanding and hospital-based IPFs reveals considerable differences 
in both cost levels and cost structure. We have reviewed several 
explanatory variables such as geographic variation, case mix (including 
DRG, comorbidity, and age), urban or rural status, length of stay, 
teaching status, and presence of a qualifying emergency department; 
however, we are currently unable to fully understand the differences 
between these two types of IPF providers. As a result, we feel that 
further research is required. Having examined the relevant data that is 
internal to CMS, we welcome any help from the public in the form of 
additional information, data, or suggested data sources that may help 
us to better understand the underlying reasons for the variations in 
cost structures between freestanding and hospital-based IPFs.

B. FTE Intern and Resident Cap Adjustment

    As previously mentioned, the IPF PPS imposed a cap on the number of 
full-time equivalent (FTE) residents that may be used to calculate the 
teaching status adjustment. The cap is based on the number of FTE 
residents reported in the IPF's most recent cost report filed before 
November 15, 2004.
    CMS has been asked to reconsider its position under the IPF PPS 
regulations regarding application of the FTE resident cap when 
residents in a psychiatry residency program must be relocated from one 
IPF to another. Specifically, we have been asked to reconsider our 
current policy and permit an increase in the FTE resident cap when the 
IPF increases the number of FTE residents it trains due to the 
acceptance of relocated residents when another IPF closes or closes its 
psychiatry residency program.
    Currently, if an IPF with a psychiatry residency training program 
agrees to accept residents relocated from another IPF after November 
2004, the IPF's FTE resident count would continue to be capped at the 
number of FTE residents included in the cost report filed before 
November 15, 2004. Furthermore, according to Sec.  
412.424(d)(1)(iii)(D), an adjustment to the FTE resident cap can only 
be made for those IPFs that begin training residents in a new approved 
psychiatric residency program after November 15, 2004. For a new 
program adjustment, the IPF's FTE cap would be revised beginning with 
the fourth year of the new training program. We included these policies 
because we believe it is important to limit the total pool of FTE 
resident cap positions within the IPF community and avoid incentives 
for IPFs to add FTE residents in order to increase their payments.
    We are now assessing how many IPFs have been, or expect to be, 
adversely affected by their inability to adjust their caps under Sec.  
412.424(d)(1) in situations

[[Page 20377]]

where residents from a hospital that closed or from a program that 
closed at a hospital are moved to another hospital to complete their 
training. To help us access this situation, we specifically request 
public comment from IPFs to help us understand the impact of this issue 
on IPFs. At a minimum, we need to know the following information:
    1. How many IPFs currently training additional residents from a 
closed residency program have exceeded their caps because of those 
residents?
    2. How many IPFs have been asked to train additional residents from 
a closed residency program but have not currently agreed because these 
additional residents would cause them to exceed the caps?
    We will take all comments into consideration as we assess the IPF 
PPS regulations with respect to the FTE resident cap and the relocation 
of FTE residents from one IPF to another due to closure of an IPF or an 
IPF's psychiatry residency training program.

VI. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect. We can waive this procedure, however, 
if we find good cause that notice and comment procedures are 
impracticable, unnecessary, or contrary to the public interest and we 
incorporate a statement of finding and its reasons in the notice. We 
find it is unnecessary to undertake notice and comment rulemaking for 
the update in this notice because the update does not make any 
substantive changes in policy, but merely reflects the application of 
previously established methodologies. Therefore, under 5 U.S.C. 
553(b)(3)(B), for good cause, we waive notice and comment procedures.

VII. Collection of Information Requirement

    This document does not impose any information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 35).

VIII. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

IX. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the September 19, 1980 Regulatory Flexibility Act (RFA) (Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). Although this 
notice does not meet the $100 million threshold established by 
Executive Order 12866, we are considering this notice to be 
``economically significant'' because the redistributive effects are 
estimated to be close to constituting a shift of $100 million. For 
purposes of Title 5, United States Code, section 804(2), we estimate 
that this rulemaking is ``economically significant'', and is also a 
major rule under the Congressional Review Act. Accordingly, we have 
prepared a Regulatory Impact Analysis that to the best of our ability 
presents the costs and benefits of the rulemaking on the 1,706 IPFs.
    The updates to the IPF labor-related share and wage indices are 
made in a budget neutral manner and thus have no effect on estimated 
costs to the Medicare program. Therefore, the estimated increased cost 
to the Medicare program is due to the updated IPF payment rates, which 
results in an approximate $91 million increase in payments, and the 
increase to the outlier fixed dollar loss threshold amount, which 
results in about a $4 million decrease in payments. The distribution of 
these impacts is summarized in Table 13. The net effect of the updates 
described in this notice results in an overall estimated $87 million 
increase in payments from RY 2009 to RY 2010.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, we 
estimate that the great majority of IPFs are small entities as that 
term is used in the RFA (include small businesses, nonprofit 
organizations, and small governmental jurisdictions). The majority of 
hospitals and most other health care providers and suppliers are small 
entities, either by being nonprofit organizations or by meeting the SBA 
definition of a small business (having revenues of $7 million to $34.5 
million in any 1 year). (For details, see the Small Business 
Administration's Interim final rule that set forth size standards at 70 
FR 72577, December 6, 2005.) Because we lack data on individual 
hospital receipts, we cannot determine the number of small proprietary 
IPFs or the proportion of IPFs' revenue that is derived from Medicare 
payments. Therefore, we assume that all IPFs are considered small 
entities. The Department of Health and Human Services generally uses a 
revenue impact of 3 to 5 percent as a significance threshold under the 
RFA. As shown in Table 13, we estimate that the net revenue impact of 
this notice on all IPFs is to increase payments by about 2.0 percent. 
Since the estimated impact of this notice is a net increase in revenue 
across all categories of IPFs, we believe that this notice would not 
impose a significant burden on small entities. Medicare contractors are 
not considered to be small entities. Individuals and States are not 
included in the definition of a small entity.
    Although section 1102(b) of the Act applies to regulations for 
which a proposed rule is published, the HHS policy is to prepare an 
analysis of the impact on small rural hospitals for any regulation 
published. As a result, we are voluntarily determining whether this 
notice will have a significant impact on the operations of a 
substantial number of small rural hospitals. 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 an MSA. As discussed in 
detail below, the rates and policies set forth in this notice will not 
have an adverse impact on the rural hospitals based on the data of the 
317 rural units and 68 rural hospitals in our database of 1,706 IPFs 
for which data were available.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2009, that 
threshold is approximately $133

[[Page 20378]]

million. This notice will not impose spending costs on State, local, or 
tribal governments in the aggregate, or by the private sector, of $133 
million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have reviewed this notice under the criteria set forth 
in Executive Order 13132 and have determined that the notice will not 
have any substantial direct impact on State, or local governments, 
preempt States, or otherwise have a Federalism implication.

B. Anticipated Effects

    We discuss below the historical background of the IPF PPS and the 
impact of this notice on the Federal Medicare budget and on IPFs.
1. Budgetary Impact
    As discussed in the November 2004 and May 2006 IPF PPS final rules, 
we applied a budget neutrality factor to the Federal per diem and ECT 
base rates to ensure that total estimated payments under the IPF PPS in 
the implementation period would equal the amount that would have been 
paid if the IPF PPS had not been implemented. The budget neutrality 
factor includes the following components: Outlier adjustment, stop-loss 
adjustment, and the behavioral offset. As discussed in the May 2008 IPF 
PPS notice (73 FR 25711), the stop-loss adjustment is no longer 
applicable under the IPF PPS.
    In accordance with Sec.  412.424(c)(3)(ii), we indicated that we 
would evaluate the accuracy of the budget neutrality adjustment within 
the first 5 years after implementation of the payment system. We may 
make a one-time prospective adjustment to the Federal per diem and ECT 
base rates to account for differences between the historical data on 
cost-based TEFRA payments (the basis of the budget neutrality 
adjustment) and estimates of TEFRA payments based on actual data from 
the first year of the IPF PPS. As part of that process, we will 
reassess the accuracy of all of the factors impacting budget 
neutrality.
    In addition, as discussed in section III.B.2 of this notice, we are 
using the wage index and labor market share in a budget neutral manner 
by applying a wage index budget neutrality factor to the Federal per 
diem and ECT base rates. Thus, the budgetary impact to the Medicare 
program by the update of the IPF PPS will be due to the market basket 
update (see section III.B.2.a of this notice) and the increase in the 
fixed dollar loss threshold amount.
2. Impacts on Providers
    To understand the impact of the changes to the IPF PPS on 
providers, discussed in this notice, it is necessary to compare 
estimated payments under the IPF PPS rates and factors for RY 2010 
versus those under RY 2009. The estimated payments for RY 2009 and RY 
2010 will be 100 percent of the IPF PPS payment, since the transition 
period has ended and stop-loss payments are no longer paid. We 
determined the percent change of estimated RY 2010 IPF PPS payments to 
estimated RY 2009 IPF PPS payments for each category of IPFs. In 
addition, for each category of IPFs, we have included the estimated 
percent change in payments resulting from the increase to the fixed 
dollar loss threshold amount, the wage index changes for the RY 2010 
IPF PPS, and the market basket update to IPF PPS payments.
    To illustrate the impacts of the final RY 2010 changes in this 
notice, our analysis begins with a RY 2009 baseline simulation model 
based on FY 2007 IPF payments inflated to the midpoint of RY 2009 using 
IHS Global Insight's most recent forecast of the market basket update 
(see section III.2.b of this notice); the estimated outlier payments in 
RY 2009; the CBSA designations for IPFs based on OMB's MSA definitions 
after June 2003; the FY 2008 pre-floor, pre-reclassified hospital wage 
index; the RY 2009 labor-market share; and the RY 2009 percentage 
amount of the rural adjustment. During the simulation, the outlier 
payment is maintained at the target of 2 percent of total PPS payments.
    Each of the following changes is added incrementally to this 
baseline model in order for us to isolate the effects of each change:
    <bullet> The increase to the outlier fixed dollar loss threshold 
amount.
    <bullet> The FY 2009 pre-floor, pre-reclassified hospital wage 
index and RY 2010 final labor-related share. Our final comparison 
illustrates the percent change in payments from RY 2009 (that is, July 
1, 2008 to June 30, 2009) to RY 2010 (that is, July 1, 2009 to June 30, 
2010) and includes a 2.1 percent market basket update to the IPF PPS 
base rates.

                                           Table 13--Projected Impacts
----------------------------------------------------------------------------------------------------------------
                                                                                         CBSA wage    Total with
                                                               Number of     Outlier      index &     2.1 market
                      Facility by type                         facilities   (percent)   labor share     basket
                                                                                         (percent)    (percent)
(1)                                                                   (2)          (3)          (4)          (5)
----------------------------------------------------------------------------------------------------------------
All Facilities..............................................        1,706         -0.1          0.0          2.0
    Total Urban.............................................        1,321         -0.1          0.0          1.9
    Total Rural.............................................          385         -0.2          0.1          2.0
    Urban DPU...............................................          924         -0.2         -0.1          1.8
    Urban CAH Unit..........................................           14         -0.4          0.3          2.1
    Urban hospital..........................................          383          0.0          0.1          2.2
    Rural DPU...............................................          264         -0.2          0.1          2.0
    Rural CAH Unit..........................................           53         -0.2         -0.1          1.8
    Rural hospital..........................................           68         -0.1          0.3          2.3
Freestanding IPF by Type of Ownership:
    Urban Psychiatric Hospitals:
        Government..........................................          149         -0.1          0.2          2.2
        Non-Profit..........................................           86         -0.1         -0.1          1.9
        For-Profit..........................................          148          0.0          0.2          2.3
    Rural Psychiatric Hospitals:
        Government..........................................           43         -0.1          0.2          2.2
        Non-Profit..........................................            9         -0.1          0.5          2.5
        For-Profit..........................................           16         -0.2          0.6          2.5

[[Page 20379]]

 
IPF Units by Type of Ownership:
    Urban DPU:
        Government..........................................          158         -0.2         -0.1          1.8
        Non-Profit..........................................          636         -0.2         -0.1          1.8
        For-Profit..........................................          130         -0.1          0.0          1.9
    Urban CAH:
        Government..........................................            7         -0.3          0.8          2.5
        Non-Profit..........................................            6         -0.5         -0.1          1.5
        For-Profit..........................................            1          0.0         -0.3          1.8
    Rural DPU:
        Government..........................................           63         -0.3          0.0          1.8
        Non-Profit..........................................          154         -0.1          0.0          1.9
        For-Profit..........................................           47         -0.2          0.4          2.4
    Rural CAH:
        Government..........................................           23         -0.2          0.0          1.9
        Non-Profit..........................................           27         -0.2         -0.2          1.7
        For-Profit..........................................            3         -0.1         -0.2          1.9
By Teaching Status:
    Non-teaching............................................        1,458         -0.1          0.1          2.0
        Less than 10 interns and residents to beds..........          140         -0.2         -0.3          1.6
        10 to 30 interns and residents to beds..............           73         -0.2         -0.2          1.7
        More than 30 interns and residents to beds..........           35         -0.1          0.2          2.2
By Region:
    New England.............................................          119         -0.2          0.2          2.1
    Mid-Atlantic............................................          287         -0.1         -0.6          1.4
    South Atlantic..........................................          238         -0.1         -0.3          1.7
    East North Central......................................          289         -0.2         -0.5          1.4
    East South Central......................................          164         -0.1         -0.2          1.8
    West North Central......................................          151         -0.2          0.3          2.2
    West South Central......................................          236         -0.2          0.4          2.3
    Mountain................................................           85         -0.2          0.1          2.0
    Pacific.................................................          130         -0.2          1.5          3.4
By Bed Size:
    Psychiatric Hospitals:
        Less than 12 beds...................................           25         -0.2          0.2          2.1
        12 to 25 beds.......................................           67         -0.1          0.5          2.4
        25 to 50 beds.......................................           98          0.0          0.0          2.1
        50 to 75 beds.......................................           83          0.0          0.5          2.6
        More than 75 beds...................................          178          0.0          0.0          2.1
    Psychiatric Units:
        Less than 12 beds...................................          487         -0.3          0.1          1.9
        12 to 25 beds.......................................          438         -0.2          0.1          2.0
        25 to 50 beds.......................................          219         -0.2         -0.1          1.8
        50 to 75 beds.......................................           59         -0.2         -0.2          1.7
        More than 75 beds...................................           52         -0.1         -0.5          1.5
----------------------------------------------------------------------------------------------------------------

3. Results
    Table 13 above displays the results of our analysis. The table 
groups IPFs into the categories listed below based on characteristics 
provided in the Provider of Services (POS) file, the IPF provider 
specific file, and cost report data from HCRIS:
    <bullet> Facility Type.
    <bullet> Location.
    <bullet> Teaching Status Adjustment.
    <bullet> Census Region.
    <bullet> Size.

The top row of the table shows the overall impact on the 1,706 IPFs 
included in the analysis.
    In column 3, we present the effects of the increase in the fixed 
dollar loss threshold amount. The overall aggregate effect, across all 
hospital groups, is projected to be a 0.1 percent decrease in payments 
to IPFs. All categories of IPFs are projected to receive either a 
decrease or no change in payments. There are distributional effects of 
this change among different categories of IPFs. Urban, for-profit 
freestanding psychiatric hospitals; urban, for-profit IPF units located 
in CAHs; and psychiatric hospitals with 25 beds or more will experience 
no changes in their payments. Alternatively, urban, non-profit 
psychiatric units in CAHs will receive the largest decrease of 0.5 
percent.
    In column 4, we present the effects of the budget-neutral update to 
the labor-related share and the wage index adjustment under the CBSA 
geographic area definitions announced by OMB in June 2003. This is a 
comparison of the simulated RY 2010 payments under the FY 2009 hospital 
wage index under CBSA classification and associated labor-related share 
to the simulated RY 2009 payments under the FY 2008 hospital wage index 
under CBSA classifications and associated labor-related share. We note 
that there is no projected change in aggregate payments

[[Page 20380]]

to IPFs, as indicated in the first row of column 4. However, there 
would be small distributional effects among different categories of 
IPFs. For example, IPFs located in the Mid-Atlantic region will 
experience a 0.6 percent decrease in payments. IPFs located in the 
Pacific region will receive the largest increase of 1.5 percent.
    Column 5 compares our estimates of the changes reflected in this 
notice for RY 2010, to our estimates of payments for RY 2009 (without 
these changes). This column reflects all RY 2010 changes relative to RY 
2009 (as shown in columns 3 and 4). The average increase for all IPFs 
is approximately 2.0 percent. This increase includes the effects of the 
market basket update resulting in a 2.1 percent increase in total RY 
2010 payments, and an approximate 0.1 percent decrease in RY 2009 
payments for the fixed dollar loss threshold amount.
    Overall, the largest payment increase is projected to be among IPFs 
located in the Pacific region, which will receive a 3.4 percent 
increase. IPFs located in the East North Central and Mid-Atlantic 
regions will receive the smallest increase of 1.4 percent.
4. Effect on the Medicare Program
    Based on actuarial projections resulting from our experience with 
other PPSs, we estimate that Medicare spending (total Medicare program 
payments) for IPF services over the next 5 years would be as shown in 
Table 14 below.

                      Table 14--Estimated Payments
------------------------------------------------------------------------
                                                             Dollars in
                         Rate year                            millions
------------------------------------------------------------------------
July 1, 2009 to June 30, 2010.............................         4,531
July 1, 2010 to June 30, 2011.............................         4,745
July 1, 2011 to June 30, 2012.............................         5,005
July 1, 2012 to June 30, 2013.............................         5,320
July 1, 2013 to June 30, 2014.............................         5,656
------------------------------------------------------------------------

    These estimates are based on the current estimate of increases in 
the RPL market basket as follows:
    <bullet> 2.1 percent for RY 2010.
    <bullet> 2.8 percent for RY 2011.
    <bullet> 2.9 percent for RY 2012.
    <bullet> 3.1 percent for RY 2013.
    <bullet> 3.2 percent for RY 2014.
    We estimate that there would be a change in fee-for-service 
Medicare beneficiary enrollment as follows:
    <bullet> 0.1 percent in RY 2010.
    <bullet> 1.8 percent in RY 2011.
    <bullet> 2.9 percent in RY 2012.
    <bullet> 3.1 percent in RY 2013.
    <bullet> 3.0 percent in RY 2014.
5. Effect on Beneficiaries
    Under the IPF PPS, IPFs will receive payment based on the average 
resources consumed by patients for each day. We do not expect changes 
in the quality of care or access to services for Medicare beneficiaries 
under the RY 2010 IPF PPS. In fact, we believe that access to IPF 
services will be enhanced due to the patient- and facility-level 
adjustment factors, all of which are intended to adequately reimburse 
IPFs for expensive cases. Finally, the outlier policy is intended to 
assist IPFs that experience high-cost cases.

C. Alternatives Considered

    The statute does not specify an update strategy for the IPF PPS and 
is broadly written to give the Secretary discretion in establishing an 
update methodology. Therefore, we are updating the IPF PPS using the 
methodology published in the November 2004 IPF PPS final rule.
    We note that this notice does not initiate any policy changes with 
regard to the IPF PPS; rather, it simply provides an update to the 
rates for RY 2010. Therefore, no options were considered.

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 15 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this notice. This table 
provides our best estimate of the increase in Medicare payments under 
the IPF PPS notice, as a result of the changes presented in this 
notice, and based on the data for 1,706 IPFs in our database. All 
expenditures are classified as transfers to Medicare providers (that 
is, IPFs).

       Table 15--Accounting Statement: Classification of Estimated
      Expenditures, From the 2009 IPF PPS RY to the 2010 IPF PPS RY
                              [In millions]
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $87.
From Whom To Whom?                          Federal Government To IPF
                                             Medicare Providers.
------------------------------------------------------------------------

    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by OMB.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: March 6, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: March 20, 2009.
Charles E. Johnson,
Acting Secretary.
BILLING CODE P

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[FR Doc. E9-9962 Filed 4-30-09; 8:45 am]
BILLING CODE C