20362 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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. 

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 BudgetNeutral 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 

Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 20363 

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 facilitylevel 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: 

• A description of the methodology 

and data used to calculate the updated 

Federal per diem base payment amount. 

• The rate of increase factor as 

described in § 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). 

• 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 longterm care (RPL) market basket. 

• 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. 

• Updates to the fixed dollar loss 

threshold amount in order to maintain 

the appropriate outlier percentage. 

• 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. 

• Update to the electroconvulsive 

therapy (ECT) payment by a factor 

specified by CMS. 

• Update to the national urban and 

rural cost-to-charge ratio medians and 

ceilings. 

• 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. 

20364 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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: 

• 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. 

• Use a July 1 through June 30 annual 

update cycle. 

• 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 budgetneutrality 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 stoploss 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 stoploss 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, 

Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 20365 

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 § 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 fixedweight 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

Cost categories 

FY 2002-based RPL 

market basket cost 

weight 

FY 2002-based RPL market basket price proxies 

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. 

20366 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

TABLE 1—FY 2002-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES—Continued 

Cost categories 

FY 2002-based RPL 

market basket cost 

weight 

FY 2002-based RPL market basket price proxies 

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 laborrelated share is the sum of the relative 

importance of wages and salaries, fringe 

benefits, professional fees, laborintensive 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 laborVerDate Nov<24>2008 15:08 Apr 30, 2009 Jkt 217001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 E:\FR\FM\01MYN2.SGM 01MYN2
Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 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 laborrelated share is determined by using the 

same methodology as employed in 

calculating all previous IPF laborrelated 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 

Cost category 

FY 2002-based RPL 

market basket laborrelated share relative 

importance (percent) 

RY 2009* 

FY 2002-based RPL 

market basket laborrelated share relative 

importance (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 services ......................................................................................................... 2.137 2.126 

Subtotal ......................................................................................................................................... 71.681 71.935 

Labor-related share of capital costs (0.46) ......................................................................................... 3.950 3.954 

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 § 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 § 412.424(c)(3)(ii). 

Evaluating the appropriateness of the 

possible one-time prospective 

adjustment under § 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 assubmitted 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 

20368 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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 patientlevel 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 § 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 

Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 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-Jakob disease .................................................................................. 056, 057 

046.19 ........................................................ Other and unspecified Creutzfeldt-Jakob disease .......................................................... 056, 057 

046.71 ........................................................ Gerstmann-Stra ̈ussler-Scheinker syndrome ................................................................... 056, 057 

046.72 ........................................................ Fatal familial insomnia .................................................................................................... 056, 057 

046.79 ........................................................ Other and unspecified prion disease of central nervous system ................................... 056, 057 

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

MS–DRG MS–DRG descriptions Adjustment 

factor 

056 ............................................................. Degenerative nervous system disorders w MCC ........................................................... 1.05 

057 ............................................................. Degenerative nervous system disorders w/o MCC ........................................................ 1.05 

080 ............................................................. Nontraumatic stupor & coma w MCC ............................................................................. 1.07 

081 ............................................................. Nontraumatic stupor & coma w/o MCC .......................................................................... 1.07 

876 ............................................................. O.R. procedure w principal diagnoses of mental illness ................................................ 1.22 

880 ............................................................. Acute adjustment reaction & psychosocial dysfunction ................................................. 1.05 

881 ............................................................. Depressive neuroses ...................................................................................................... 0.99 

882 ............................................................. Neuroses except depressive .......................................................................................... 1.02 

883 ............................................................. Disorders of personality & impulse control ..................................................................... 1.02 

884 ............................................................. Organic disturbances & mental retardation .................................................................... 1.03 

885 ............................................................. Psychoses ....................................................................................................................... 1.00 

886 ............................................................. Behavioral & developmental disorders ........................................................................... 0.99 

887 ............................................................. Other mental disorder diagnoses ................................................................................... 0.92 

894 ............................................................. Alcohol/drug abuse or dependence, left AMA ................................................................ 0.97 

895 ............................................................. Alcohol/drug abuse or dependence w rehabilitation therapy ......................................... 1.02 

896 ............................................................. Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC ......................... 0.88 

897 ............................................................. Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC ...................... 0.88 

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 

20370 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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 Staphylococcus aureus septicemia ....................................... Infectious Disease. 

046.11 .................................................... Variant Creutzfeldt-Jakob disease ........................................................................ Infectious Disease. 

046.19 .................................................... Other and unspecified Creutzfeldt-Jakob disease ................................................ Infectious Disease. 

046.71 .................................................... Gerstmann-Stra ̈ussler-Scheinker syndrome ......................................................... Infectious Disease. 

046.72 .................................................... Fatal familial insomnia .......................................................................................... Infectious Disease. 

046.79 .................................................... Other and unspecified prion disease of central nervous system ......................... Infectious Disease. 

051.01 .................................................... Cowpox ................................................................................................................. Infectious Disease. 

051.02 .................................................... Vaccinia not from vaccination ............................................................................... Infectious Disease. 

059.00 .................................................... Orthopoxvirus infection, unspecified ..................................................................... Infectious Disease. 

059.01 .................................................... Monkeypox ............................................................................................................ Infectious Disease. 

059.09 .................................................... Other orthopoxvirus infections .............................................................................. Infectious Disease. 

059.10 .................................................... Parapoxvirus infection, unspecified ...................................................................... Infectious Disease. 

059.11 .................................................... Bovine stomatitis ................................................................................................... Infectious Disease. 

059.12 .................................................... Sealpox ................................................................................................................. Infectious Disease. 

059.19 .................................................... Other parapoxvirus infections ............................................................................... Infectious Disease. 

059.20 .................................................... Yatapoxvirus infection, unspecified ...................................................................... Infectious Disease. 

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 with transplant organ ........................................ Oncology Treatment. 

203.02 .................................................... Multiple myeloma, in relapse ................................................................................ Oncology Treatment. 

203.12 .................................................... Plasma cell leukemia, in relapse .......................................................................... Oncology Treatment. 

203.82 .................................................... Other immunoproliferative neoplasms, in relapse ................................................ Oncology Treatment. 

204.02 .................................................... Acute lymphoid leukemia, in relapse .................................................................... Oncology Treatment. 

204.12 .................................................... Chronic lymphoid leukemia, in relapse ................................................................. Oncology Treatment. 

204.22 .................................................... Subacute lymphoid leukemia, in relapse .............................................................. Oncology Treatment. 

204.82 .................................................... Other lymphoid leukemia, in relapse .................................................................... Oncology Treatment. 

204.92 .................................................... Unspecified lymphoid leukemia, in relapse .......................................................... Oncology Treatment. 

205.02 .................................................... Acute myeloid leukemia, in relapse ...................................................................... Oncology Treatment. 

205.12 .................................................... Chronic myeloid leukemia, in relapse ................................................................... Oncology Treatment. 

205.22 .................................................... Subacute myeloid leukemia, in relapse ................................................................ Oncology Treatment. 

205.32 .................................................... Myeloid sarcoma, in relapse ................................................................................. Oncology Treatment. 

205.82 .................................................... Other myeloid leukemia, in relapse ...................................................................... Oncology Treatment. 

205.92 .................................................... Unspecified myeloid leukemia, in relapse ............................................................ Oncology Treatment. 

206.02 .................................................... Acute monocytic leukemia, in relapse .................................................................. Oncology Treatment. 

206.12 .................................................... Chronic monocytic leukemia, in relapse ............................................................... Oncology Treatment. 

206.22 .................................................... Subacute monocytic leukemia, in relapse ............................................................ Oncology Treatment. 

206.82 .................................................... Other monocytic leukemia, in relapse .................................................................. Oncology Treatment. 

206.92 .................................................... Unspecified monocytic leukemia, in relapse ........................................................ Oncology Treatment. 

207.02 .................................................... Acute erythremia and erythroleukemia, in relapse ............................................... Oncology Treatment. 

207.12 .................................................... Chronic erythremia, in relapse .............................................................................. Oncology Treatment. 

207.22 .................................................... Megakaryocytic leukemia, in relapse .................................................................... Oncology Treatment. 

207.82 .................................................... Other specified leukemia, in relapse .................................................................... Oncology Treatment. 

208.02 .................................................... Acute leukemia of unspecified cell type, in relapse ............................................. Oncology Treatment. 

208.12 .................................................... Chronic leukemia of unspecified cell type, in relapse .......................................... Oncology Treatment. 

208.22 .................................................... Subacute leukemia of unspecified cell type, in relapse ....................................... Oncology Treatment. 

208.82 .................................................... Other leukemia of unspecified cell type, in relapse ............................................. Oncology Treatment. 

208.92 .................................................... Unspecified leukemia, in relapse .......................................................................... Oncology Treatment. 

209.00 .................................................... Malignant carcinoid tumor of the small intestine, unspecified portion ................. Oncology Treatment. 

209.01 .................................................... Malignant carcinoid tumor of the duodenum ........................................................ Oncology Treatment. 

209.02 .................................................... Malignant carcinoid tumor of the jejunum ............................................................ Oncology Treatment. 

209.03 .................................................... Malignant carcinoid tumor of the ileum ................................................................ Oncology Treatment. 

209.10 .................................................... Malignant carcinoid tumor of the large intestine, unspecified portion .................. Oncology Treatment. 

209.11 .................................................... Malignant carcinoid tumor of the appendix .......................................................... Oncology Treatment. 

209.12 .................................................... Malignant carcinoid tumor of the cecum .............................................................. Oncology Treatment. 

209.13 .................................................... Malignant carcinoid tumor of the ascending colon ............................................... Oncology Treatment. 

209.14 .................................................... Malignant carcinoid tumor of the transverse colon .............................................. Oncology Treatment. 

209.15 .................................................... Malignant carcinoid tumor of the descending colon ............................................. Oncology Treatment. 

209.16 .................................................... Malignant carcinoid tumor of the sigmoid colon ................................................... Oncology Treatment. 

209.17 .................................................... Malignant carcinoid tumor of the rectum .............................................................. Oncology Treatment. 

Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 20371 

TABLE 6—FY 2009 NEW ICD CODES APPLICABLE FOR THE COMORBIDITY ADJUSTMENT—Continued 

Diagnosis code Description Comorbidity category 

209.20 .................................................... Malignant carcinoid tumor of unknown primary site ............................................. Oncology Treatment. 

209.21 .................................................... Malignant carcinoid tumor of the bronchus and lung ........................................... Oncology Treatment. 

209.22 .................................................... Malignant carcinoid tumor of the thymus ............................................................. Oncology Treatment. 

209.23 .................................................... Malignant carcinoid tumor of the stomach ........................................................... Oncology Treatment. 

209.24 .................................................... Malignant carcinoid tumor of the kidney ............................................................... Oncology Treatment. 

209.25 .................................................... Malignant carcinoid tumor of foregut, not otherwise specified ............................. Oncology Treatment. 

209.26 .................................................... Malignant carcinoid tumor of midgut, not otherwise specified ............................. Oncology Treatment. 

209.27 .................................................... Malignant carcinoid tumor of hindgut, not otherwise specified ............................ Oncology Treatment. 

209.29 .................................................... Malignant carcinoid tumor of other sites .............................................................. Oncology Treatment. 

209.30 .................................................... Malignant poorly differentiated neuroendocrine carcinoma, any site ................... Oncology Treatment. 

209.40 .................................................... Benign carcinoid tumor of the small intestine, unspecified portion ...................... Oncology Treatment. 

209.41 .................................................... Benign carcinoid tumor of the duodenum ............................................................ Oncology Treatment. 

209.42 .................................................... Benign carcinoid tumor of the jejunum ................................................................. Oncology Treatment. 

209.43 .................................................... Benign carcinoid tumor of the ileum ..................................................................... Oncology Treatment. 

209.50 .................................................... Benign carcinoid tumor of the large intestine, unspecified portion ...................... Oncology Treatment. 

209.51 .................................................... Benign carcinoid tumor of the appendix ............................................................... Oncology Treatment. 

209.52 .................................................... Benign carcinoid tumor of the cecum ................................................................... Oncology Treatment. 

209.53 .................................................... Benign carcinoid tumor of the ascending colon ................................................... Oncology Treatment. 

209.54 .................................................... Benign carcinoid tumor of the transverse colon ................................................... Oncology Treatment. 

209.55 .................................................... Benign carcinoid tumor of the descending colon ................................................. Oncology Treatment. 

209.56 .................................................... Benign carcinoid tumor of the sigmoid colon ....................................................... Oncology Treatment. 

209.57 .................................................... Benign carcinoid tumor of the rectum .................................................................. Oncology Treatment. 

209.60 .................................................... Benign carcinoid tumor of unknown primary site ................................................. Oncology Treatment. 

209.61 .................................................... Benign carcinoid tumor of the bronchus and lung ............................................... Oncology Treatment. 

209.62 .................................................... Benign carcinoid tumor of the thymus .................................................................. Oncology Treatment. 

209.63 .................................................... Benign carcinoid tumor of the stomach ................................................................ Oncology Treatment. 

209.64 .................................................... Benign carcinoid tumor of the kidney ................................................................... Oncology Treatment. 

209.65 .................................................... Benign carcinoid tumor of foregut, not otherwise specified ................................. Oncology Treatment. 

209.66 .................................................... Benign carcinoid tumor of midgut, not otherwise specified .................................. Oncology Treatment. 

209.67 .................................................... Benign carcinoid tumor of hindgut, not otherwise specified ................................. Oncology Treatment. 

209.69 .................................................... Benign carcinoid tumor of other sites ................................................................... Oncology Treatment. 

238.77 .................................................... Post-transplant lymphoproliferative disorder (PTLD) ............................................ Oncology Treatment. 

V45.11 ................................................... Renal dialysis status ............................................................................................. Chronic Renal Failure. 

V45.12 ................................................... Noncompliance with renal dialysis ........................................................................ Chronic Renal Failure. 

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 Staphylococcus aureus septicemia .................................. Infectious Disease. 

203.00 .................................................... Multiple myeloma, without mention of having achieved remission ...................... Oncology Treatment. 

203.10 .................................................... Plasma cell leukemia, without mention of having achieved remission ................ Oncology Treatment. 

203.80 .................................................... Other immunoproliferative neoplasms, without mention of having achieved remission.Oncology Treatment. 

204.00 .................................................... Acute lymphoid leukemia, without mention of having achieved remission .......... Oncology Treatment. 

204.10 .................................................... Chronic lymphoid leukemia, without mention of having achieved remission ....... Oncology Treatment. 

204.20 .................................................... Subacute lymphoid leukemia, without mention of having achieved remission .... Oncology Treatment. 

204.80 .................................................... Other lymphoid leukemia, without mention of having achieved remission .......... Oncology Treatment. 

204.90 .................................................... Unspecified lymphoid leukemia, without mention of having achieved remission Oncology Treatment. 

205.00 .................................................... Acute myeloid leukemia, without mention of having achieved remission ............ Oncology Treatment. 

205.10 .................................................... Chronic myeloid leukemia, without mention of having achieved remission ......... Oncology Treatment. 

205.20 .................................................... Subacute myeloid leukemia, without mention of having achieved remission ...... Oncology Treatment. 

205.30 .................................................... Myeloid sarcoma, without mention of having achieved remission ....................... Oncology Treatment. 

205.80 .................................................... Other myeloid leukemia, without mention of having achieved remission ............ Oncology Treatment. 

205.90 .................................................... Unspecified myeloid leukemia, without mention of having achieved remission .. Oncology Treatment. 

206.00 .................................................... Acute monocytic leukemia, without mention of having achieved remission ........ Oncology Treatment. 

206.10 .................................................... Chronic monocytic leukemia, without mention of having achieved remission ..... Oncology Treatment. 

206.20 .................................................... Subacute monocytic leukemia, without mention of having achieved remission .. Oncology Treatment. 

206.80 .................................................... Other monocytic leukemia, without mention of having achieved remission ........ Oncology Treatment. 

206.90 .................................................... Unspecified monocytic leukemia, without mention of having achieved remission Oncology Treatment. 

207.00 .................................................... Acute erythremia and erythroleukemia, without mention of having achieved remission.Oncology Treatment. 

207.10 .................................................... Chronic erythremia, without mention of having achieved remission .................... Oncology Treatment. 

20372 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

TABLE 7—FY 2009 REVISED ICD CODES APPLICABLE FOR THE COMORBIDITY ADJUSTMENT—Continued 

Diagnosis code Description Comorbidity 

category 

207.20 .................................................... Megakaryocytic leukemia, without mention of having achieved remission .......... Oncology Treatment. 

207.80 .................................................... Other specified leukemia, without mention of having achieved remission .......... Oncology Treatment. 

208.00 .................................................... Acute leukemia of unspecified cell type, without mention of having achieved remission.Oncology Treatment. 

208.10 .................................................... Chronic leukemia of unspecified cell type, without mention of having achieved 

remission.

Oncology Treatment. 

208.20 .................................................... Subacute leukemia of unspecified cell type, without mention of having

achieved remission.

Oncology Treatment. 

208.80 .................................................... Other leukemia of unspecified cell type, without mention of having achieved remission.Oncology Treatment. 

208.90 .................................................... Unspecified leukemia, without mention of having achieved remission ................ Oncology Treatment. 

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

Description of comorbidity ICD–9CM Code Adjustment 

factor 

Developmental Disabilities ......................... 317, 3180, 3181, 3182, and 319 .................................................................................... 1.04 

Coagulation Factor Deficits ........................ 2860 through 2864 .......................................................................................................... 1.13 

Tracheostomy ............................................. 51900 through 51909 and V440 ..................................................................................... 1.06 

Renal Failure, Acute .................................. 5845 through 5849, 63630, 63631, 63632, 63730, 63731, 63732, 6383, 6393, 66932, 

66934, 9585.

1.11 

Renal Failure, Chronic ............................... 40301, 40311, 40391, 40402, 40412, 40413, 40492, 40493, 5853, 5854, 5855, 5856, 

5859, 586, V451, V560, V561, and V562.

1.11 

Oncology Treatment ................................... 1400 through 2399 with a radiation therapy code 92.21–92.29 or chemotherapy code 

99.25.

1.07 

Uncontrolled Diabetes-Mellitus with or 

without complications.

25002, 25003, 25012, 25013, 25022, 25023, 25032, 25033, 25042, 25043, 25052, 

25053, 25062, 25063, 25072, 25073, 25082, 25083, 25092, and 25093.

1.05 

Severe Protein Calorie Malnutrition ........... 260 through 262 .............................................................................................................. 1.13 

Eating and Conduct Disorders ................... 3071, 30750, 31203, 31233, and 31234 ........................................................................ 1.12 

Infectious Disease ...................................... 01000 through 04110, 042, 04500 through 05319, 05440 through 05449, 0550 

through 0770, 0782 through 07889, and 07950 through 07959.

1.07 

Drug and/or Alcohol Induced Mental Disorders.2910, 2920, 29212, 2922, 30300, and 30400 ................................................................ 1.03 

Cardiac Conditions ..................................... 3910, 3911, 3912, 40201, 40403, 4160, 4210, 4211, and 4219 ................................... 1.11 

Gangrene ................................................... 44024 and 7854 .............................................................................................................. 1.10 

Chronic Obstructive Pulmonary Disease ... 49121, 4941, 5100, 51883, 51884, V4611 and V4612, V4613 and V4614 ................... 1.12 

Artificial Openings—Digestive and Urinary 56960 through 56969, 9975, and V441 through V446 ................................................... 1.08 

Severe Musculoskeletal and Connective 

Tissue Diseases.

6960, 7100, 73000 through 73009, 73010 through 73019, and 73020 through 73029 1.09 

Poisoning .................................................... 96500 through 96509, 9654, 9670 through 9699, 9770, 9800 through 9809, 9830 

through 9839, 986, 9890 through 9897.

1.11 

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. 

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

Age Adjustment 

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

Day-of-Stay Adjustment 

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 

TABLE 11—VARIABLE PER DIEM

ADJUSTMENTS—Continued 

Day-of-Stay Adjustment 

factor 

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 § 412.64(b)(1)(ii)(A) through 

§ 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 CBSAbased 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 

20374 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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 § 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 

§ 412.424(d)(1)(iii) to establish a facilitylevel 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. 

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

Fairbanks ....................

Juneau ........................

Rest of Alaska ............

1.23 

1.23 

1.23 

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 § 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 

§ 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 stoploss provision that was applicable 

during the transition period. 

1. Outlier Payments 

In the November 2004 IPF PPS final 

rule, we implemented regulations at 

§ 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 § 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 

20376 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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: 

• 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 fulltime 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 § 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 § 412.424(d)(1) in situations 

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

20378 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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 § 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 costbased 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, prereclassified 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: 

• The increase to the outlier fixed 

dollar loss threshold amount. 

• The FY 2009 pre-floor, prereclassified 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

Facility by type Number of 

facilities 

Outlier 

(percent) 

CBSA wage 

index & 

labor share 

(percent) 

Total with 

2.1 market 

basket 

(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 

Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 20379 

TABLE 13—PROJECTED IMPACTS—Continued 

Facility by type Number of 

facilities 

Outlier 

(percent) 

CBSA wage 

index & 

labor share 

(percent) 

Total with 

2.1 market 

basket 

(percent) 

(1) (2) (3) (4) (5) 

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: 

• Facility Type. 

• Location. 

• Teaching Status Adjustment. 

• Census Region. 

• 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 laborrelated 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 laborrelated share. We note that there is no 

projected change in aggregate payments 

20380 Federal Register / Vol. 74, No. 83 / Friday, May 1, 2009 / Notices 

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 MidAtlantic 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

Rate year Dollars 

in 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: 

• 2.1 percent for RY 2010. 

• 2.8 percent for RY 2011. 

• 2.9 percent for RY 2012. 

• 3.1 percent for RY 2013. 

• 3.2 percent for RY 2014. 

We estimate that there would be a 

change in fee-for-service Medicare 

beneficiary enrollment as follows: 

• 0.1 percent in RY 2010. 

• 1.8 percent in RY 2011. 

• 2.9 percent in RY 2012. 

• 3.1 percent in RY 2013. 

• 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. 

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