32172 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 410, 412, 413, and 485

[HCFA–1178–IFC]

RIN 0938–AK74

Medicare Program; Provisions of the

Benefits Improvement and Protection

Act of 2000; Inpatient Payments and

Rates and Costs of Graduate Medical

Education

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Interim final rule with comment

period.

SUMMARY: This interim final rule with

comment period implements, or

conforms the regulations to, certain

statutory provisions relating to Medicare

payments to hospitals for inpatient

services that are contained in the

Medicare, Medicaid, and SCHIP (State

Children’s Health Insurance Program)

Benefits Improvement and Protection

Act of 2000 (BIPA).

Many of the provisions of BIPA

modify changes to the Social Security

Act made by the Balanced Budget

Refinement Act of 1999 or the Balanced

Budget Act of 1997 or both. Some of the

provisions of BIPA have effective dates

that are prior to its passage on December

21, 2000.

DATES: Effective Date: This interim final

rule with comment period is effective

on June 13, 2001.

Comment Period: Comments will be

considered if received at the appropriate

address, as provided below, no later

than 5 p.m. on July 13, 2001.

ADDRESSES: Mail written comments (an

original and three copies) to the

following address only: Health Care

Financing Administration, Department

of Health and Human Services,

Attention: HCFA–1178–IFC, P.O. Box

8010, Baltimore, MD 21244–1850.

If you prefer, you may deliver by hand

or courier your written comments (an

original and three copies) to one of the

following addresses:

Room 443–G, Hubert H. Humphrey

Building, 200 Independence Avenue,

SW, Washington, DC 20201, or

Room C5–14–03, Central Building, 7500

Security Boulevard, Baltimore, MD

21244–1850.

Comments mailed to the addresses

indicated as appropriate for courier

delivery may be delayed and could be

considered late.

Because of staffing and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission. In

commenting, please refer to file code

HCFA–1178–IFC.

Comments received timely will be

available for public inspection as they

are received, generally beginning

approximately 3 weeks after publication

of a document, in the Department’s

offices at 7500 Security Boulevard,

Baltimore, MD on Monday through

Friday of each week from 8:30 a.m. to

5 p.m. (phone: (410) 786–9994).

For comments that relate to

information collection requirements,

mail a copy of comments to the

following addresses:

Health Care Financing Administration,

Office of Information Services,

Security and Standards Group,

Division of HCFA Enterprise

Standards, Room N2–14–26, 7500

Security Boulevard, Baltimore,

Maryland 21244–1850. Attn: John

Burke HCFA–1178–IFC; and

Office of Information and Regulatory

Affairs, Office of Management and

Budget, Room 3001, New Executive

Office Building, Washington, DC

20503, Attn: Allison Eydt Herron,

HCFA–1178–IFC, HCFA Desk Officer.

FOR FURTHER INFORMATION CONTACT:

Steve Phillips, (410) 786–4548,

Operating Prospective Payment, Sole

Community Hospitals,

Disproportionate Share Hospitals and

Medicare-Dependent, Small Rural

Hospitals.

Tzvi Hefter, (410) 786–4487, Excluded

Hospitals, Graduate Medical

Education, and Critical Access

Hospital Issues.

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic

Access

Copies: To order copies of the Federal

Register containing this document, send

your request to: New Orders,

Superintendent of Documents, P.O. Box

371954, Pittsburgh, PA 15250–7954.

Specify the date of the issue requested

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Documents, or enclose your Visa or

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This Federal Register document is

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service of the U.S. Government Printing

Office. The Website address is: http://

www.access.gpo.gov/nara/index.html.

I. Background: Program Summary

Section 1886(d) of the Social Security

Act (the Act) sets forth a system of

payment for the operating costs of acute

care hospital inpatient stays under

Medicare Part A (Hospital Insurance)

based on prospectively set rates. Section

1886(g) of the Act requires the Secretary

to pay for the capital-related costs of

hospital inpatient stays under a

prospective payment system. Under

these prospective payment systems,

Medicare payment for hospital inpatient

operating and capital-related costs is

made at predetermined, specific rates

for each hospital discharge. Discharges

are classified according to a list of

diagnosis-related groups (DRGs).

Payment for cases within each DRG is

weighted to account for the average

resources used to treat patients within

that DRG. In addition, these payments

are adjusted by a wage index (and a

geographic adjustment factor derived

from the wage index in the case of

capital payments) to account for the

varying costs of labor across areas, and

by separate adjustment factors for the

additional indirect operating costs

associated with medical education

(IME) and for treating a disproportionate

share of low-income patients.

Certain specialty hospitals are

excluded from the prospective payment

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

the Act, the following classes of

hospitals and hospital units are

excluded from the prospective payment

system: psychiatric hospitals and units,

rehabilitation hospitals and units,

children’s hospitals, long-term care

hospitals, and cancer hospitals. For

these hospitals and units, Medicare

payment for operating costs is based on

reasonable costs subject to a hospitalspecific annual limit.

Under sections 1820 and 1834(g) of

the Act, payments are made to critical

access hospitals (CAHs) (that is, rural

hospitals that meet certain statutory

requirements) for inpatient and

outpatient services on a reasonable cost

basis. Reasonable cost is determined

under the provisions of section

1861(v)(1)(A) of the Act and existing

regulations under 42 CFR Parts 413 and

415.

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

costs of approved educational activities

are excluded from the operating costs of

inpatient hospital services. Hospitals

with approved graduate medical

education (GME) programs are paid for

the direct costs of GME in accordance

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32173

with section 1886(h) of the Act; the

amount of payment for direct GME costs

for a cost reporting period is based on

the hospital’s costs per resident in a

base year and the hospital’s number of

residents in that cost reporting period.

The regulations governing the

hospital inpatient prospective payment

system are located in 42 CFR Part 412.

The regulations governing excluded

hospitals and hospital units and the

regulations governing direct GME are

located in 42 CFR Part 413. The

regulations governing CAHs are located

in 42 CFR Parts 413 and 485.

II. Provisions of the Interim Final Rule

With Comment Period

On December 21, 2000 the Medicare,

Medicaid, and SCHIP Benefits

Improvement and Protection Act of

2000 (Pub. L. 106–554) was enacted.

Public Law 106–554 made a number of

changes to the Act affecting Medicare

payments to hospitals for inpatient

services. Many of the provisions of

Public Law 106–554 are modifications

to provisions of the Act included in the

Balanced Budget Act of 1997 (Pub. L.

105–33) or the Balanced Budget

Refinement Act of 1999 (Pub. L. 106–

113) or both. Some of the provisions of

Pub. L. 106–554 have effective dates

that are prior to its passage on December

21, 2000. Other provisions do not

become effective until April 1, 2001 or

later.

The following chart is a summary of

the effective dates of the policy changes

we are implementing in this interim

final rule with comment period as a

result of Public Law 106–554. The

individual changes are summarized

below.

EFFECTIVE DATE OF THE PROVISIONS OF PUBLIC LAW 106–554 INCLUDED IN THIS INTERIM FINAL RULE WITH COMMENT

PERIOD

Section No. Title Effective date

201 ...................................... Clarification of No Beneficiary Cost-Sharing for Clinical Diagnostic Laboratory Test Furnished by

Critical Access Hospitals.

11/29/1999

202 ...................................... Assistance with Fee Schedule Payment for Professional Services under All-Inclusive Rate ........... 07/01/2001

211 ...................................... Treatment of Rural Disproportionate Share Hospitals ....................................................................... 04/01/2001

212 ...................................... Option to Base Eligibility for Medicare-Dependent, Small Rural Hospital Program on Discharges

during Two of the Three Most Recently Audited Cost Reporting Periods.

04/01/2001

213 ...................................... Extension of Option to use Rebased Target Amounts to All Sole Community Hospitals ................. 10/01/2000

301 ...................................... Revision of Acute Care Hospital Payment Update for 2001 .............................................................. 04/01/2001

302 ...................................... Additional Modification in Transition for Indirect Medical Education Adjustment .............................. 04/01/2001

303 ...................................... Decrease in Reductions for Disproportionate Share Hospitals .......................................................... 04/01/2000

306 ...................................... Payment for Inpatient Services of Psychiatric Hospitals .................................................................... 10/01/2000

307 ...................................... Payment for Inpatient Services of Long-Term Care Hospitals .......................................................... 10/01/2000

512 ...................................... Change in Distribution Formula for Medicare+Choice-Related Nursing and Allied Health Education Costs.01/01/2001

541 ...................................... Increase in Reimbursement for Bad Debt .......................................................................................... 10/01/2000

The following is a summary of the

policy changes we are implementing in

this interim final rule with comment

period as a result of Public Law 106–

554:

A. Changes Relating to Payments for

Operating Costs Under the Hospital

Inpatient Prospective Payment System

• Treatment of Rural and Small

Urban Disproportionate Share Hospitals

(DSH). We are implementing the

provisions of section 211 of Public Law

106–554 which lowers thresholds by

which certain classes of hospitals

qualify for DSH, with repsect to

discharges occurring on or after April 1,

2001.

• Decrease in Reductions for

Disproportionate Share Hospital

Payments. We are implementing section

303 of Public Law 106–554 which

modifies the previous reduction in the

DSH payment to be 2 percent in FY

2001 and 3 percent in FY 2002.

• Medicare-Dependent, Small Rural

Hospitals (MDH). We are implementing

section 212 of Public Law 106–554

which provides an option to base

eligibility for MDH status on discharges

during two of the three most recently

audited cost reporting periods, effective

with cost reporting periods beginning

on or after April 1, 2001.

• Revision of Prospective Payment

System Standardized Amounts. We are

implementing section 301 of Public Law

106–554 which revises the update factor

increase for the inpatient prospective

payment rates for FY 2001.

• Indirect Medical Education

Adjustment (IME). We are implementing

section 302 of Public Law 106–554

which provides that for the purposes of

making the IME payment, the formula

multiplier, or ‘c’, for discharges

occurring on or after April 1, 2001 and

before October 1, 2001 will be

determined as if ‘c’ equaled 1.66, rather

than 1.54.

• Sole Community Hospitals (SCHs).

We are implementing section 213 of

Public Law 106–554 which further

extends the 1996 rebasing option, for

hospital cost reporting periods

beginning October 1, 2000, to all SCHs

and provides that this extension is

effective as if it had been included in

section 405 of Public Law 106–113.

B. Payments for Nursing and Allied

Health Education: Utilization of

Medicare+Choice Enrollees

We are implementing section 512 of

Public Law 106–554 which revised the

formula for determining the additional

payment amounts to hospitals for

Medicare+Choice nursing and allied

health education costs.

C. Changes Relating to Payments for

Capital-Related Costs Under the

Hospital Inpatient Prospective Payment

System

As a result of implementing section

301 of Public Law 106–554, which

provides increased inpatient operating

payment rates, the unified outlier

threshold for inpatient operating and

inpatient capital-related costs was

recalculated. Therefore, we are revising

the capital outlier offset which also

requires us to revise the capital-related

rates.

D. Changes Relating to Hospitals and

Hospital Units Excluded from the

Prospective Payment System

• Increase in the Incentive Payment

for Excluded Psychiatric Hospitals and

Units. We are implementing section 306

of Public Law 106–554, which provides

32174 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

that for cost reporting periods beginning

on or after October 1, 2000, for

psychiatric hospitals and units, if the

allowable net inpatient operating costs

do not exceed the hospital’s ceiling,

payment is the lower of: (1) Net

inpatient operating costs plus 15

percent of the difference between

inpatient operating costs and the

ceiling; or, (2) net inpatient costs plus

3 percent of the ceiling.

• Increase in the Wage Adjusted 75th

Percentile Cap on the Target Amounts

for Long-Term Care Hospitals. We are

implementing section 307(a) of Public

Law 106–554, which provides a 2

percent increase to the wage-adjusted

75th percentile cap on the target amount

for long-term care hospitals, effective for

cost reporting periods beginning during

FY 2001.

• Increase in the Target Amounts for

Long-Term Care Hospitals. We are

implementing section 307(a) Public Law

106–554, which provides a 25 percent

increase to the target amounts for longterm care hospitals for cost reporting

periods beginning in FY 2001, up to the

cap on target amounts.

E. Changes Relating to Critical Access

Hospitals (CAHs)

• Elimination of Coinsurance for

Clinical Diagnostic Laboratory Tests

Furnished by a CAH. We are

implementing section 201(a) of Public

Law 106–554, which amends section

1834(g) of the Act to state that there will

be no collection of coinsurance,

deductible, copayments, or any other

type of cost sharing from Medicare

beneficiaries with respect to outpatient

clinical diagnostic laboratory services

furnished as outpatient CAH services

furnished as an outpatient CAH service,

and that those services will be paid for

on a reasonable cost basis.

• Assistance With Fee Schedule

Payment for Professional Services

Under All Inclusive Rate. We are

implementing section 202 of Public Law

106–554, which amends section

1834(g)(2)(B) of the Act to provide that

when a CAH elects to be paid for

Medicare outpatient services under the

reasonable costs for facility services

plus fee schedule amounts for

professional services method, Medicare

will pay 115 percent of the amount it

otherwise pays for the professional

services.

• Condition of Participation With

Hospital Requirements at the Time of

Application for CAH Designation

(§ 485.612). We are implementing a

conforming change to correct § 485.612

to reflect that certain entities are not

required to have a provider agreement

prior to CAH designation.

F. Other Inpatient Costs

• Increase in Reimbursement for Bad

Debts. We are implementing section 541

of Public Law 106–554 which provides

a 30 percent decrease of allowable

hospital bad debt reimbursement for

cost reporting periods, beginning during

FY 2001 and all subsequent fiscal years.

This section modifies section 4451 Of

Public Law 105–33 that reduced the

total allowable bad debt reimbursement

for hospitals by 45 percent.

III. Disproportionate Share Hospitals

(Sections 211 and 303 of Public Law

106–554 and 42 CFR 412.106 (c) and

412.106(d))

A. Qualifying Thresholds for DSHs

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

provides for additional payments to

prospective payment hospitals that

serve a disproportionate share of lowincome patients. Hospitals that meet the

DSH patient percentage criteria are

entitled to adjustments to their

payments, including outlier payments.

Under section 1886(d)(5)(F)(v) of the

Act, as it existed prior to enactment of

Public Law 106–554 and under

§ 412.106(c) of the existing regulations,

a hospital qualifies for DSH if the

hospital has a disproportionate patient

percentage equal to:

• At least 15 percent for an urban

hospital with 100 or more beds or a

rural hospital with 500 or more beds;

• At least 40 percent for an urban

hospital with fewer than 100 beds;

• At least 45 percent for a rural

hospital with 100 beds or fewer, if it is

not also classified as an SCH;

• At least 30 percent for a rural

hospital with more than 100 beds and

fewer than 500 beds or which is

classified as an SCH; or

• The hospital has 100 or more beds,

is located in an urban area, and receives

more than 30 percent of its net inpatient

revenues from State and local

government sources for the care of

indigent patients not eligible for

Medicare or Medicaid.

Section 211(a) of Public Law 106–554

amended section 1886(d)(5)(F)(v), to

provide that, beginning with discharges

occurring on or after April 1, 2001, the

qualifying threshold is reduced to 15

percent for all hospitals. Therefore, we

are revising § 412.106(c) to reflect the

change in DSH qualifying threshold

percentages.

B. Calculation of the Disproportionate

Share Adjustment

Section 211(b) of Public Law 106–554

further amends section 1886(d)(5)(F) to

revise the calculation of the

disproportionate share percentage

adjustment for hospitals affected by the

revised thresholds as specified in

section 211(a) of the Act. These

adjustments, which are effective for

discharges occurring on or after April 1,

2001, are as follows:

• Urban hospitals with fewer than

100 beds and whose disproportionate

patient percentage is equal to or greater

than 15 percent and less than 19.3

percent receive the disproportionate

share adjustment percentage determined

using the following formula:

(Disproportionate patient percentage—

15) (.65) + 2.5.

• Urban hospitals with fewer than

100 beds and whose disproportionate

patient percentage is equal to or greater

than 19.3 percent:

Receive a flat add on of 5.25 percent.

• Rural hospitals that are both Rural

Referral Centers (RRCs) and SCHs

receive the disproportionate share

adjustment percentage determined using

the following:

Higher of SCH or RRC adjustment.

• Rural hospitals that are SCHs and

are not RRCs and whose

disproportionate patient percentage is

equal to or greater than 15 percent and

less than 19.3 percent receive the

disproportionate share adjustment

percentage determined using the

following formula:

(Disproportionate patient percentage—

15) (.65) + 2.5.

• Rural hospitals that are SCHs and

are not RRCs and whose

disproportionate patient percentage is

equal to or greater than 19.3 percent and

less than 30 percent:

Receive a flat add on of 5.25 percent.

• Rural hospitals that are SCHs and

are not RRCs and whose

disproportionate patient percentage is

equal to or greater than 30 percent:

Receive 10 percent.

• Rural referral centers whose

disproportionate patient percentage is

greater than or equal to 15 percent and

less than 19.3 percent receive the

disproportionate share adjustment

percentage determined using the

following formula:

(Disproportionate patient percentage—

15) (.65) + 2.5.

• Rural referral centers whose

disproportionate patient percentage is

equal to or greater than 19.3 percent but

less than 30 percent:

Receive a flat add on of 5.25 percent.

• Rural referral centers whose

disproportionate patient percentage is

equal to or greater than 30 percent

receive the disproportionate share

adjustment percentage determined using

the following formula:

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32175

(Disproportionate patient percentage—

30) (.6) + 5.25.

• Rural hospitals with fewer than 500

beds and whose disproportionate

patient percentage is equal to or greater

than 15 percent and less than 19.3

percent receive the disproportionate

share adjustment percentage using the

following formula:

(Disproportionate patient percentage—

15) (.65) + 2.5.

• Rural hospitals with fewer than 500

beds and whose disproportionate

patient percentage is equal to or greater

than 19.3 percent:

Receive a flat add on of 5.25 percent.

If we calculate disproportionate

patient percentages to the hundredth

place (our current practice), these

payment formulas result in an anomaly

for some disproportionate patient

percentages just below 19.3 percent (but

greater than 19.2 percent). That is, as the

percentage values approach 19.3, the

DSH adjustment resulting from the

formula exceeds 5.25 percent. This

would result in a higher DSH

adjustment for percentages just below

19.3 than for percentages of 19.3 and

above. Because we believe it would be

contrary to the Congress’ intent for

hospitals with a disproportionate

patient percentage of less than 19.3

percent to receive a greater payment

than those hospitals of the same class

that have a disproportionate patient

percentage of 19.3 or greater, we are

implementing this provision so that, for

disproportionate patient percentages

below 19.3 for affected hospitals, the

DSH adjustment will not exceed 5.25

percent.

We are revising § 412.106(d) to reflect

the changes in the disproportionate

share adjustment.

C. Changes Relating to the DSH

Reduction in Payments

Section 4403(a) of Public Law 105–33

amended section 1886(d)(5)(F) of the

Act to reduce the payment a hospital

would otherwise receive under the DSH

formula in effect prior to Public Law

106–554 by 1 percent for FY 1998, 2

percent for FY 1999, 3 percent for FY

2000, 4 percent for FY 2001, 5 percent

for FY 2002, and 0 percent for FY 2003

and each subsequent fiscal year.

Subsequently, section 112 of Public Law

106–113 modified the amount of the

reductions under Public Law 105–33 by

changing the reduction to 3 percent for

FY 2001 and 4 percent for FY 2002.

Section 303 of Public Law 106–554

further modified the amount of the

reductions under Public Law 106–113

by changing the reduction to 3 percent

for discharges occurring on or after

October 1, 2000 and before April 1,

2001, and to 1 percent for discharges

occurring on or after April 1, 2001 and

before October 1, 2001. Therefore, we

are revising § 412.106(e) to reflect the

changes made by section 303 of Public

Law 106–554.

IV. Medicare-Dependent, Small Rural

Hospitals (Section 212 of Public Law

106–554 and 42 CFR 412.108(a)(1)(iii))

Section 6003(f) of Public Law 101–

239 added section 1886(d)(5)(G) of the

Act and created the category of

Medicare-dependent, small rural

hospitals (MDHs) (defined in § 412.108)

which are eligible for a special payment

adjustment under the hospital inpatient

prospective payment system. (For a

more detailed discussion see the April

20, 1990 Federal Register (55 FR

15154)). The special payment

adjustment for MDHs is effective for

cost reporting periods beginning on or

after April 1, 1990 and ending before

October 1, 1994, or beginning on or after

October 1, 1997 and ending before

October 1, 2006.

Section 1886(d)(5)(G)(iii) of the Act

and § 412.108(a)(1) of the regulations

define an MDH as any hospital that

meets all of the following criteria:

• The hospital is located in a rural

area (as defined in § 412.63(b)).

• The hospital has 100 or fewer beds

(as defined in § 412.105(b)) during the

cost reporting period.

• The hospital is not also classified as

an SCH (as defined in § 412.92).

• In the hospital’s cost reporting

period that began during FY 1987, at

least 60 percent of the hospital’s

inpatient days or discharges were

attributable to individuals receiving

Medicare Part A benefits during the

hospital’s cost reporting period.

If the cost reporting period is for less

than 12 months, the hospital’s most

recent 12-month or longer cost reporting

period before the short period is used.

Section 212 of Public Law 106–554

provides that, effective with cost

reporting periods beginning on or after

April 1, 2001, hospitals have the option

to base MDH eligibility on two of the

three most recently audited cost

reporting periods for which the

Secretary has a settled cost report, rather

than on the cost reporting period that

began during FY 1987. The criteria for

at least 60 percent Medicare utilization

will be met if in at least two of the three

most recently audited cost reporting

periods for which the Secretary has a

settled cost report, at least 60 percent of

the hospital’s inpatient days or

discharges were attributable to

individuals receiving Medicare Part A

benefits.

Hospitals that qualify under this new

provision are subject to the other

provisions already in place for MDHs,

that is, the payment methodology as

defined in § 412.108(c) and the volume

decrease provision as defined in

§ 412.108(d).

A hospital must notify its fiscal

intermediary to be considered for MDH

status under this new provision. Any

hospital that believes it meets the

criteria to qualify as an MDH, based on

at least two of the three most recently

audited cost reporting periods, must

submit a written request to its

intermediary. The hospital’s request

must be submitted within 180 days from

the date of the notice of amount of

program reimbursement for the cost

reporting period in question. The

intermediary will make its

determination and notify the hospital

within 180 days from the date it

receives the hospital’s request and all of

the required documentation.

We are revising § 412.108(a)(1)(iii) to

reflect the additional option provided

by section 212 of Public Law 106–554.

V. Changes to the Prospective Payment

Rates for Inpatient Operating Costs

(Section 301 of Public Law 106–554 and

42 CFR 412.63(s))

Section 301(a) of Public Law 106–554

amended section 1886(b)(3)(B)(i) of the

Act by changing the percentage increase

for the hospital inpatient payment rates

for FYs 2001, 2002, and 2003.

Previously, section 1886(b)(3)(B)(i) (as

amended by section 406 of Public Law

106–113) established the update factor

to the payment rates for inpatient

prospective payment system hospitals

(other than SCHs, who received the full

market basket update effective October

1, 2000) as market basket minus 1.1

percent for FYs 2001 and 2002; the

update factor for FY 2003 and

subsequent fiscal years was established

as the full market basket. Section 301(a)

of Public Law 106–554 amended section

1886(b)(3)(B)(i) of the Act and changed

the update factor for FY 2001 to the full

market basket. Section 301(a) also

revised the update factors applied to

FYs 2002 and 2003. Prior to enactment

of Public Law 106–554, the update

factor for FY 2002 was the market basket

minus 1.1 percentage points and the

update factor for FY 2003 was the full

market basket. Section 301(a) of Public

Law 106–554 amended section

1886(b)(3)(B)(i) of the Act to revise the

update factor for FYs 2002 and 2003 to

be the market basket minus 0.55

percentage points.

Further, section 301(b) of Public Law

106–554 provided a special rule to

implement the full market basket update

32176 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

to inpatient hospital prospective

payment rates for FY 2001. Under this

special rule, for discharges occurring on

or after October 1, 2000 and before April

1, 2001, the update factor for inpatient

prospective payment system hospitals

(other than SCHs) is equal to the market

basket minus 1.1 percentage points. For

discharges occurring on or after April 1,

2001 and before October 1, 2001, the

update factor for the payment rates for

inpatient prospective payment system

hospitals (other than SCHs) is equal to

the market basket plus 1.1 percentage

points. Section 547 of Public Law 106–

554 makes this special rule applicable

solely to payments in FY 2001 and the

payment increases resulting for FY 2001

are not taken into account in developing

payments for future fiscal years.

As directed by the special rule in

section 301(b) of Public Law 106–554,

any discharges occurring on or after

October 1, 2000, and before April 1,

2001, will be paid in accordance with

the standardized amounts set forth in

the FY 2001 hospital inpatient

prospective payment system final rule

published in the August 1, 2000,

Federal Register (65 FR 47126). These

rates were calculated using the market

basket percentage increase of 3.4

percent minus 1.1 percentage points, for

a 2.3 percent increase (see 65 FR 47112),

as directed by section 1886(b)(3)(B)(i) of

the Act, prior to the passage of Public

Law 106–554.

To implement the special rule under

section 301(b) of Public Law 106–554,

we have recomputed the standardized

amounts effective for discharges

occurring on or after April 1, 2001. That

is, we replaced the update factor of 2.3

percent applied to the standardized

amounts in the August 1, 2000, final

rule, with the update factor of 4.5

percent (the market basket percentage

plus 1.1, or 3.4 plus 1.1 percentage

points).

Large urban areas Other areas

LaborrelatedNonlaborrelatedLaborrelatedNonlaborrelated

National .................................................................................................... $2,925.82 $1,189.26 $2,879.51 $1,170.43

National PR .............................................................................................. 2,900.64 1,179.02 2,900.64 1,179.02

Puerto Rico .............................................................................................. 1,402.79 564.66 1,380.58 555.72

SCHs ........................................................................................................ 2,895.02 1,176.74 2,849.20 1,158.11

FINAL FY 2001 CAPITAL RATES

National ......................................... $380.85

Puerto Rico ................................... 184.61

A. Budget Neutrality

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

specifies that, beginning in FY 1991, the

annual diagnosis-related group (DRG)

reclassification and recalibration of the

relative weights must be made in a

manner that ensures that aggregate

payments to hospitals are projected to

be the same as those that would have

been made without such adjustments.

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

us to update the hospital wage index on

an annual basis beginning October 1,

1993. This provision also requires us to

make any updates or adjustments to the

wage index in a manner that ensures

that aggregate payments to hospitals are

projected to be the same as those that

would have been made without the

change in the wage index.

Finally, under section 1886(d)(8)(D) of

the Act, the Secretary is required to

adjust the standardized amounts so as to

ensure that final aggregate payments

under the prospective payment system

are projected to equal the aggregate

prospective payments that would have

been made absent the geographic

reclassification provisions of sections

1886(d)(8)(B) and (C) and 1886(d)(10) of

the Act.

The distributive effects on hospital

payments of the IME and DSH changes

also included in Public Law 106–554

required us to recalculate the budget

neutrality factors that are required by

section 1886(d)(8)(D) of the Act.

The budget neutrality factors that

were used to establish the standardized

amounts effective for discharges

occurring on or after October 1, 2000

were: 0.997225 for the DRG

reclassification and recalibration and

updated wage index (65 FR 47112); and

0.993187 for geographic reclassification

(65 FR 47113). Using the same

methodology that was used to calculate

the budget neutrality factors in the

August 1, 2000 final rule, the

corresponding budget neutrality factors

for the standardized amounts effective

for discharges occurring on or after

April 1, 2001 and before October 1, 2001

are: 0.997122 and 0.993279. The budget

neutrality factor for Puerto Rico did not

change. Therefore, the budget neutrality

factor for Puerto Rico as published in

the August 1, 2000 Federal Register (65

FR 47112) is still in effect.

B. Outliers

In accordance with section

1886(d)(3)(B) of the Act, which directs

the Secretary to adjust the national

standardized amounts to account for the

estimated proportion of total payments

made to outlier cases, the fixed-loss

outlier threshold was also revised as a

result of the change made by Public Law

106–554 to the update factor for the

operating standardized amounts. For

discharges occurring on or after April 1,

2001 and before October 1, 2001, we are

establishing a fixed-loss cost outlier

threshold equal to: The prospective

payment rate for the DRG, plus IME and

DSH payments, plus $16,500 ($14,940

for hospitals that have not yet entered

the prospective payment system for

capital-related costs). In determining the

outlier threshold, we used the same

methodology employed to determine the

outlier threshold for FY 2001 (65 FR

47113 through 47114). Outlier payments

for discharges occurring on or after

October 1, 2000 and before April 1,

2001, will be determined in accordance

with the standardized amounts and

outlier thresholds set forth in the FY

2001 final rule published in the August

1, 2000 Federal Register (65 FR 47113).

Although the market basket

percentage used to update SCHs was not

revised by Public Law 106–554, the

standardized rates applied to these

hospitals for discharges occurring on or

after April 1, 2001 and before October

1, 2001 also increase slightly. This

increase in SCH rates is due to the

budget neutrality factors effective for

this portion of the fiscal year.

For discharges occurring on or after

April 1, 2001 and before October 1,

2001, the outlier adjustment factors are

as follows:

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32177

Operating

standardized

amounts

Capital

Federal rate

National ................................................................................................................................................................ 0.948929 0.937854

Puerto Rico .......................................................................................................................................................... 0.973671 0.967355

VI. Changes to the IME Adjustment

(Section 302 of Public Law 106–554 and

42 CFR 412.105(d)(3))

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

provides that prospective payment

hospitals that have residents in an

approved GME program receive an

additional payment to reflect the higher

indirect operating costs associated with

GME. The regulations regarding the

calculation of this additional payment,

known as the IME adjustment, are

located at § 412.105. The additional

payment is based in part on the

applicable IME adjustment factor. The

IME adjustment factor is calculated

using a hospital’s ratio of residents-to

beds, which is represented as r, and a

multiplier, which is represented as c, in

the following equation: c × [(1 + r).405

¥1]. The formula c represents a certain

percentage increase in payment for

every 10 percent increase in the

resident-to-bed ratio.

Public Law 106–113 revised the

formula multiplier for discharges

occurring during FY 2001 to 1.54.

However, section 302(b) of Public Law

106–554 provides a special payment

rule which states that, for discharges

occurring on or after April 1, 2001 and

before October 1, 2001, IME payments

are to be made as if ‘‘c’’ equaled 1.66,

rather than 1.54. The multiplier of 1.54

for the first 6 months of FY 2001

represents a 6.24 percent increase in the

level of the IME adjustment for every 10

percent increase in the resident-to-bed

ratio, and the multiplier for the second

6 months of FY 2001 represents a 6.72

percent increase in the level of the IME

adjustment for every 10 percent increase

in the resident-to-bed ratio. This results

in an aggregate 6.5 percent increase for

every 10 percent increase in the

resident-to-bed ratio for FY 2001.

Section 547(a)(2) of Public Law 106–554

provides further clarification that these

payment increases will not apply to

discharges occurring after FY 2001 and

will not be taken into account in

calculating the payment amounts

applicable for discharges occurring after

FY 2001.

Under amendments enacted by

section 302(a) of Public Law 106–554,

for discharges occurring during FY

2002, the formula multiplier is 1.6. For

discharges occurring during FY 2003

and thereafter, the formula multiplier is

1.35. Changes to the factor for

discharges occurring in FY 2002 and

thereafter are addressed in the proposed

rule on FY 2002 hospital inpatient

prospective payment system rates and

changes (66 FR 22688). We are

amending § 412.105(d)(3) to reflect the

additional payment provided for

discharges occurring during FY 2001

under section 302(b) of Public Law 106–

554.

VII. Sole Community Hospitals (Section

213 of Public Law 106–554 and 42 CFR

412.92)

Under the hospital inpatient

prospective payment system, special

payment protections are provided to

SCHs. Section 1886(d)(5)(D)(iii) of the

Act defines an SCH as, among other

things, a hospital that, by reason of

factors such as isolated location,

weather conditions, travel conditions,

travel time, or absence of other like

hospitals (as determined by the

Secretary), is the sole source of inpatient

hospital services reasonably available to

Medicare beneficiaries. The regulations

that set forth the criteria a hospital must

meet to be classified as an SCH are

located at § 412.92(a).

Prior to FY 2001, SCHs were paid

based on whichever of the following

rates yielded the greatest aggregate

payment to the hospital for the cost

reporting period: (1) The Federal

national rate applicable to the hospital;

(2) the updated hospital-specific rate

based on FY 1982 costs per discharge;

or (3) the updated hospital-specific rate

based on FY 1987 costs per discharge.

Section 405 of Public Law 106–113,

which amended section 1886(b)(3) of

the Act, provides that an SCH that was

paid for its cost reporting period

beginning during 1999 on the basis of

either its updated FY 1982 or FY 1987

cost per discharge (the hospital-specific

rate as opposed to the Federal rate) may

elect to receive payment under a

methodology using a third hospitalspecific rate, based on the hospital’s FY

1996 costs per discharge. This

amendment to the statute means that,

for cost reporting periods beginning on

or after October 1, 2000, eligible SCHs

can elect to use the allowable FY 1996

operating costs for inpatient hospital

services as the basis for their target

amount, rather than either their FY 1982

or FY 1987 costs.

Section 213 of Public Law 106–554,

extends to all SCHs the option to rebase

using their FY 1996 operating costs.

That is, in order to rebase using its

allowable FY 1996 operating costs, it is

not necessary that the SCH was paid for

its cost reporting period beginning

during 1999 on the basis of the either its

FY 1982 or FY 1987 costs. The

provision is effective as if it were

included in the enactment of section

405 of Public Law 106–113. Therefore,

it applies to all SCHs for cost reporting

periods beginning on or after October 1,

2000.

As discussed in the August 1, 2000

final rule implementing the 1996

rebasing under section 405 of Public

Law 106–113 (65 FR 47083), when

calculating an eligible SCH’s FY 1996

hospital-specific rate, we utilize the

same basic methodology used to

calculate FY 1982 and FY 1987 base

period amounts. That methodology is

set forth in §§ 412.71 through 412.75 of

the regulations, and discussed in detail

in several prospective payment system

documents published in the Federal

Register on September 1, 1983 (48 FR

39752); January 3, 1984 (49 FR 256);

June 1, 1984 (49 FR 23010); and April

20, 1990 (55 FR 15150).

Our fiscal intermediaries will identify

those SCHs that were not included in

the FY 1996 rebasing provision prior to

enactment of Public Law 106–554, and

calculate the FY 1996 hospital-specific

rate. If this rate exceeds the Federal rate

and the higher of the FY 1982 or FY

1987 updated costs per discharge, the

hospital will receive payment based on

the FY 1996 hospital-specific rate (based

on the blended amounts described in

section 1886(b)(3)(I)(i) of the Act).

The fiscal intermediary will notify

affected hospitals of their FY 1996

hospital-specific rate prior to October 1,

2001. Consistent with our policies

relating to FY 1982 and FY 1987

hospital-specific rates, we will permit

hospitals to appeal a fiscal

intermediary’s determination of the FY

1996 hospital-specific rate under the

procedures set forth in 42 CFR part 405,

subpart R, which concern provider

payment determinations and appeals. In

the event of a modification of base

period costs for FY 1996 rebasing due to

a final nonappealable court judgment or

certain administrative actions (as

defined in § 412.72(a)(3)(i)), the

32178 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

adjustment would be retroactive to the

time of the fiscal intermediary’s initial

calculation of the base period costs,

consistent with the policy for rates

based on FY 1982 and FY 1987 costs.

For purposes of payment to SCHs for

which the FY 1996 hospital-specific rate

yields the greatest aggregate payment,

section 213 of Public Law 106–554

utilizes a formula similar to that set

forth in section 405 of Public Law 106–

113, except that the Federal rate will

now be included in the blend, as set

forth below:

• For discharges during FY 2001,

• 75 percent of the Federal amount or

the greater of the updated FY 1982 or

FY 1987 former target (identified in the

statute as the subsection (d)(5)(D)(i)

amount), plus 25 percent of the updated

FY 1996 amount (identified in the

statute as the ‘‘rebased target amount’’).

• For discharges during FY 2002,

• 50 percent of the greater of the

Federal amount or the updated FY 1982

or FY 1987 former target, plus 50

percent of the updated FY 1996 amount.

• For discharges during FY 2003,

• 25 percent of the Federal amount or

the greater of the updated FY 1982 or

FY 1987 former target, plus 75 percent

of the updated FY 1996 amount.

• For discharges during FY 2004 or

any subsequent fiscal year, the hospitalspecific rate would be determined based

on 100 percent of the updated FY 1996

amount.

We are revising § 412.92(d) to

incorporate the provisions of section

1886(b)(3)(I) of the Act as amended by

section 213 of Public Law 106–554.

VIII. Additional Payment to Hospitals

That Operate Approved Nursing and

Allied Health Education Programs

(Section 512 of Public Law 106–554 and

42 CFR 413.87)

Under sections 1861(v) and 1886(a) of

the Act, hospitals that operate approved

nursing or allied health education

programs may be eligible for the

reimbursement of their reasonable costs

of operating such programs. Section

1886(h) of the Act establishes the

methodology for determining payments

to hospitals for the direct costs of GME

programs. Section 1886(h) of the Act, as

implemented in regulations at 42 CFR

413.86, specifies that Medicare

payments for direct costs of GME are

based on a prospectively determined per

resident amount (PRA). The PRA is

multiplied by the number of full-time

equivalent residents working in all areas

of the hospital complex (and

nonhospital sites, where applicable),

and the product is then multiplied by

the hospital’s Medicare share of total

inpatient days to determine Medicare’s

direct GME payment.

Section 1886(h)(3)(D) of the Act, as

added by section 4624 of Public Law

105–33, provides a 5-year phase-in of

payments to teaching hospitals for

direct costs of GME associated with

services to Medicare+Choice (managed

care) enrollees for portions of cost

reporting periods occurring on or after

January 1, 1998. The amount of payment

for direct GME is calculated by (1)

multiplying the aggregate approved

amount (that is, the product of the PRA

and the number of FTE residents

working in all areas of the hospital (and

nonhospital sites, if applicable)), by the

ratio of the number of inpatient bed

days that are attributable to

Medicare+Choice enrollees to total

inpatient bed days, and (2) multiplying

the result by an applicable percentage.

The applicable percentages are 20

percent for portions of cost reporting

periods occurring in calendar year (CY)

1998, 40 percent in CY 1999, 60 percent

in CY 2000, 80 percent in CY 2001, and

100 percent in CY 2002 and subsequent

years. (Section 1886(d)(11) of the Act, as

added by section 4622 of Public Law

105–33, provides a 5-year phase-in of

payments to teaching hospitals for IME

associated with services to

Medicare+Choice enrollees for portions

of cost reporting periods occurring on or

after January 1, 1998, as well. However,

the Medicare+Choice IME payments are

irrelevant for the purposes of this

section of the interim final rule, because

although section 541 of Public Law 106–

113 affects the payments for

Medicare+Choice direct GME, it in no

way affects the payments for

Medicare+Choice IME.)

Section 541 of Public Law 106–113

further amended section 1886 of the Act

by adding subsection (l) and amending

section 1886(h)(3)(D) to provide for

additional payments to hospitals for

nursing and allied health education

programs associated with services to

Medicare+Choice enrollees. Hospitals

that operate approved nursing or allied

health education programs, as defined

under the regulations at 42 CFR 413.85,

and receive Medicare reasonable cost

reimbursement for these programs,

would receive additional payments.

This provision is effective for portions

of cost reporting periods occurring in a

calendar year, beginning with calendar

year 2000.

Section 1886(l) of the Act, as added

by section 541 of Public Law 106–113,

specifies the methodology to be used to

calculate these additional payments and

places a limitation, that is, $60 million,

on the total amount that is projected to

be expended in any calendar year. We

refer to the total amount of $60 million

or less as the payment ‘‘pool.’’ We

emphasize that we use the term ‘‘pool’’

solely for ease of reference; the term

reflects an estimated dollar figure, a

number that is plugged into a formula

to calculate the amount of additional

payments. The term ‘‘pool’’ does not

refer to a discrete fund of money that is

set aside in order to make the additional

payments (thus, for example, if the

estimated ‘‘pool’’ is $50 million, we use

the number $50 million to calculate the

amount of additional payments, but this

does not mean that we set aside $50

million in a separate fund from which

we make the additional payments). The

total amount of additional payments is

based on the ratio of estimated total

direct GME payments for

Medicare+Choice enrollees to estimated

total Medicare direct GME payments,

multiplied by the total Medicare nursing

and allied health education payments.

Under section 541 of Public Law 106–

113, a hospital would receive its share

of these additional payments in

proportion to the amount of Medicare

nursing and allied health education

payments received in the cost reporting

period that ended in the fiscal year that

is 2 years prior to the current calendar

year, to the total amount of nursing and

allied health payments made to all

hospitals in that cost reporting period.

Section 541(b) of Public Law 106–113

amended section 1886(h)(3) of the Act

to provide that direct GME payments for

Medicare+Choice utilization will be

reduced to account for the additional

payments that are made for nursing and

allied health education programs under

the provisions of section 1886(l) of the

Act.

We implemented section 541 by

establishing regulations at 42 CFR

413.87 to incorporate the provisions of

section 1886(l) of the Act. We specified

the rules for a hospital’s eligibility to

receive the additional payment under

section 1886(l), the requirements for

determining the additional payment to

each eligible hospital, and the

methodologies for calculating each

additional payment and for calculating

the payment ‘‘pool.’’ The preamble

language regarding § 413.87 can be

found in the August 1, 2000 interim

final rule with comment period (65 FR

47036 through 47039).

Public Law 106–554 further amended

section 1886(l)(2)(C) of the Act.

Specifically, section 512 of Public Law

106–554 changed the formula for

determining the additional amounts to

be paid to hospitals for

Medicare+Choice nursing and allied

health costs. Under Public Law 106–

113, as described above, the additional

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32179

payment amount was determined based

on the proportion of each individual

hospital’s nursing and allied health

education payments to total nursing and

allied health education payments made

across all hospitals. This formula does

not account for a hospital’s specific

Medicare+Choice utilization. Section

512 of Public Law 106–554 revised this

payment formula to specifically account

for each hospital’s Medicare+Choice

utilization. Accordingly, we are making

conforming changes at § 413.87 to

reflect this change. The changes are

effective for portions of cost reporting

periods occurring on or after January 1,

2001. The revised methodology for

calculating the additional payments is

described below.

A. Calculating the Additional Payment

Amount

For portions of cost reporting periods

occurring on or after January 1, 2001, an

eligible hospital will receive the

additional payment amount calculated

according to the following steps:

Step 1: Determine for each eligible

hospital the—

• Total Medicare payments received

for approved nursing or allied health

education programs based on data from

the settled cost reports for the period(s)

ending in the fiscal year that is 2 years

prior to the current calendar year;

• Total inpatient days for that same

cost reporting period; and

• Total Medicare+Choice inpatient

days for that same cost reporting period.

For example, if the current calendar

year is 2001, determine the hospital’s

total nursing or allied health education

payments made in its cost reporting

period(s) ending in FY 1999. Also,

determine the hospital’s total inpatient

days and total Medicare+Choice

inpatient days for its cost reporting

period ending in FY 1999. If a hospital

has more than one cost reporting period

ending in that fiscal year, the fiscal

intermediary will add the nursing and

allied health payments made to the

hospital over those cost reporting

periods. The inpatient days and

Medicare+Choice inpatient days for the

cost reporting periods would be added,

as well.

Step 2: Using the data in step 1,

determine the ratio of the individual

hospital’s total nursing or allied health

payments, to its total inpatient days.

Multiply this ratio by the hospital’s total

Medicare+Choice inpatient days.

Step 3: HCFA will determine the

following:

• The total of all nursing and allied

health education program payments

made to all hospitals for all cost

reporting periods ending in the fiscal

year that is 2 years prior to the current

calendar year.

• The total of all inpatient days from

those same cost reporting periods.

• The total of all Medicare+Choice

inpatient days for those same cost

reporting periods.

Step 4: HCFA will use the data in step

3 to determine the ratio of the total of

all nursing and allied health education

program payments made to all hospitals

for all cost reporting periods ending in

the fiscal year that is 2 years prior to the

current calendar year, to the total of all

inpatient days from that cost reporting

period. HCFA will multiply this ratio by

the total of all Medicare+Choice

inpatient days for that cost reporting

period.

Step 5: Calculate the ratio of the

product determined in step 2 to the

product determined in step 4.

Step 6: Multiply the ratio determined

in step 5 by the Medicare+Choice

nursing and allied health payment

‘‘pool’’ (as determined below). This is

the additional payment amount for the

current calendar year for an eligible

hospital.

Example: In its cost reporting period

ending in FY 1999, Hospital A received

$100,000 in total Medicare payments for

approved nursing and allied health

education programs. Hospital A’s total

inpatient days were 28,000. Total

Medicare+Choice inpatient days were

2,800.

For all cost reporting periods ending

in FY 1999, Medicare paid $250,000,000

in total nursing and allied health

education program payments. The total

number of inpatient days across all

hospitals in that year was 142,000,000,

and the total number of

Medicare+Choice inpatient days was

14,200,000.

The CY 2001 Medicare+Choice

nursing and allied health payment

‘‘pool’’ is $26,000,000. Thus, Hospital

A’s Medicare+Choice nursing and allied

health education payment for CY 2001

will be calculated as follows:

$100,

, ,

, ,

, , $10,

000

28 000

2 800

142 000 000

26 000 000 400 inpatient days M + C inpatient days

$250,000,000

 inpatient days 14,200,000 M + C inpatient days

×

×

×





















=

To determine these totals, we will use

the best available cost reporting data for

the applicable hospitals from the

Hospital Cost Report Information

System (HCRIS) for cost reporting

periods in the fiscal year that is 2 years

prior to the current calendar year. If the

necessary data are not included in

HCRIS because a hospital files a manual

cost report, we will obtain the necessary

data from the fiscal intermediaries that

serve those hospitals. If a hospital has

more than one cost reporting period

ending in the fiscal year that is 2 years

prior to the current calendar year, we

will include all of the hospital’s cost

reports for those periods in our

calculations. If a hospital does not have

a cost reporting period ending in the

fiscal year that is 2 years prior to the

current calendar year (such as a hospital

with a long cost reporting period), the

hospital’s data will be included in the

calculations for the calendar year that is

2 years after the fiscal year in which the

long cost reporting period ends.

B. HCFA Calculation of

Medicare+Choice Nursing and Allied

Health Payment ‘‘Pool’’

In accordance with section 1886(l) of

the Act, each calendar year, HCFA

estimates a total amount, not to exceed

$60 million, which is the basis for

determining the additional payments for

nursing and allied health education

associated with Medicare+Choice

enrollees to hospitals that operate

approved nursing or allied health

education programs. The ‘‘pool’’ is

calculated for each calendar year by

determining the product of: (1) The ratio

of total projected Medicare+Choice

direct GME payments to total projected

direct GME payments, and (2) the total

projected nursing and allied health

education payments. This methodology

is explained in more detail in the

August 1, 2000 interim final rule with

comment period (65 FR 47038).

The projections of direct GME,

Medicare+Choice direct GME, and

nursing and allied health payments for

a calendar year are based on the best

available cost report data from HCRIS.

(For example, for CY 2001, the

32180 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

projections are based on the best

available cost report data from HCRIS

1999). These payment amounts are then

increased to the appropriate calendar

year using the increases allowed by

section 1886(h) of the Act for these

services (using the Consumer Price

Index (CPI) increases for direct GME,

the percentage applicable for the current

calendar year for Medicare+Choice

direct GME, and assuming nursing and

allied health remains a constant

percentage of inpatient hospital

spending).

C. Proportional Reduction to

Medicare+Choice Direct GME Payments

In order for the Secretary to make the

additional payments to eligible

hospitals operating approved nursing or

allied health education programs,

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

amended by section 541(b) of Public

Law 106–113, specifies that the

Secretary will carve out an estimated

percentage of payments that are made to

teaching hospitals for direct GME

associated with services to

Medicare+Choice enrollees.

Specifically, the law provides that the

estimated reductions in

Medicare+Choice direct GME payments

must equal the estimated total

additional Medicare+Choice nursing

and allied health education payments.

The percentage reduction is estimated

by calculating the ratio of the

Medicare+Choice nursing and allied

health payment ‘‘pool’’ for the current

calendar year to the projected total

Medicare+Choice direct GME payments

made to all hospitals for the current

calendar year. Accordingly, the

regulations at § 413.86(d)(4) state that

for portions of cost reporting periods

occurring in a calendar year, each

hospital that receives Medicare+Choice

direct GME payments will have these

payments reduced by a certain

percentage.

D. Calculation of Amounts for CY 2001

In order for the Medicare+Choice

nursing and allied health payments to

be made in CY 2001 (as described in

section A above), HCFA must provide

the appropriate data to the fiscal

intermediaries. The data that HCFA will

provide include the Medicare+Choice

nursing and allied health payment

‘‘pool’’ for CY 2001, the total amount of

Medicare nursing and allied health

education payments made to all

hospitals for cost reporting periods

ending in FY 1999, the total number of

inpatient days from all hospitals for cost

reporting periods ending in FY 1999,

the total Medicare+Choice inpatient

days from all hospitals for cost reporting

periods ending in FY 1999, and the

percent reduction to Medicare+Choice

direct GME payments in CY 2001. (The

fiscal intermediaries will obtain the data

for each individual hospital from the

hospital’s cost report to complete the

calculation). We are not publishing this

data in this interim final rule with

comment period, because the FY 1999

data in HCRIS is not complete at this

time. Rather, we will provide the

necessary data to the fiscal

intermediaries in a Program

Memorandum as soon as more complete

data is available later this calendar year.

E. Regulation Changes

We are revising § 413.87 to

incorporate the provisions of section

512 of Public Law 106–554.

F. Technical Amendment

It has come to our attention that the

regulations at § 413.86(d)(4) and

§ 413.87(d) contain errors. The

regulations at § 413.86(d)(4) currently

read, ‘‘Effective for cost reporting

periods beginning on or after January 1,

2000, the product derived from step

three is reduced in accordance with the

provisions of § 413.87(f).’’ Consistent

with the statutory effective date and to

clarify the intent of the reference to

§ 413.87(f), we are revising

§ 413.86(d)(4) to state that, ‘‘Effective for

portions of cost reporting periods

occurring on or after January 1, 2000,

the product derived from step three is

reduced by a percentage equal to the

ratio of the Medicare+Choice nursing

and allied health payment ‘‘pool’’ for

the current calendar year as described at

§ 413.87(f), to the projected total

Medicare+Choice direct GME payments

made to all hospitals for the current

calendar year.’’ We are also making a

conforming change to § 413.87(d),

which currently reads, ‘‘Subject to the

provisions of paragraph (f) of this

section * * *’’ instead, we are revising

this language to state, ‘‘Subject to the

provisions of § 413.86(d)(4) * * *.’’

IX. Changes to the Capital Prospective

Payment System Rates (Section 301 of

Public Law 106–554)

Section 301(b) of Public Law 106–554

provides for a special rule for payment

for the operating standardized amounts

for hospitals other than SCHs for FY

2001. For discharges occurring on or

after April 1, 2001, and before October

1, 2001, the update to the operating

standardized amounts for hospitals

other than SCHs is equal to the market

basket percentage increase plus 1.1

percentage points. This provision

amends the prior statutory 1.1 percent

reduction to the update to the FY 2001

operating standardized amounts for

hospitals other than SCHs as provided

by section 4401(a)(1) of Public Law 105–

33 and section 406 of Public Law 106–

113.

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

directs the Secretary to adjust the

inpatient operating national

standardized amounts to account for the

estimated proportion of operating DRG

payments made to payments in outlier

cases. Accordingly, as a result of this

change to the update to the operating

standardized amounts for discharges

occurring on or after April 1, 2001 and

before October 1, 2001, we are revising

the fixed-loss outlier thresholds. The

regulations at § 412.312(c) establish a

unified outlier methodology for

inpatient operating and inpatient

capital-related costs, which utilizes a

single set of thresholds to identify

outlier cases for both inpatient operating

and inpatient capital prospective

payment system payments. Because

operating DRG payments will increase

as a result of section 301 of Public Law

106–554, we decreased the fixed-loss

threshold. The decrease in the outlier

threshold also results in an increase in

the estimated outlier payments for

capital from 5.91 percent to 6.21

percent. Thus, the capital national

outlier adjustment factor is revised from

0.9409 (as specified in the August 1,

2000 final rule (65 FR 47121)) to 0.9379.

The basic methodology for

determining the capital Federal rate is

set forth in §§ 412.308 through 412.352.

Although the operating update was

affected by section 301 of Public Law

106–554, the standard capital Federal

rate update remains unchanged (0.9

percent). The exceptions adjustment

factor is determined based on an

estimate of the ratio of exception

payments to total capital payments. As

a result of the fixed-cost outlier

threshold, which affects total capital

payments, in order to maintain budget

neutrality for exception payments, we

are revising the exception adjustment

factor from 0.9785 to 0.9787. The

national GAF/DRG budget neutrality

factor is revised from 0.9979 to 0.9978.

The Puerto Rico GAF/DRG budget

neutrality factor remains unchanged

(1.0037). Accordingly as a result of the

revisions to the capital outlier reduction

factor and the capital exceptions

adjustment factor, for discharges

occurring on or after April 1, 2001 and

before October 1, 2001, the national

capital Federal rate is revised from

$382.03 (65 FR 47127) to $380.85 and

the Puerto Rico capital rate is revised

from $185.06 (65 FR 47127) to $184.61

as set forth in section IX of this interim

final rule with comment period.

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32181

In accordance with § 412.328(e), the

hospital-specific rate is determined

using the update factor and the

exceptions adjustment factor. As a result

of revising the exceptions adjustment

factor to account for the change to the

fixed-loss outlier threshold resulting

from the special payment rule for FY

2001 provided for under section 301(b)

of Public Law 106–554, for discharges

occurring on or after April 1, 2001 and

before October 1, 2001, the cumulative

net adjustment to the hospital-specific

rate has been revised from 1.0147 (65 FR

47124) to 1.0145. For discharges

occurring on or after April 1, 2001, and

before October 1, 2001, the hospitalspecific rate is determined by

multiplying the FY 2000 hospitalspecific rate by the cumulative net

adjustment of 1.0145.

X. Changes for Excluded Hospitals and

Hospital Units

A. Increase in the Incentive Payment for

Excluded Psychiatric Hospitals and

Units (Section 306 of Public Law 106–

554 and 42 CFR 413.40(d)(2))

For cost reporting periods beginning

before October 1, 1997, a hospital that

had inpatient operating costs less than,

or equal to, its ceiling was paid its costs

plus the lower of 50 percent of the

difference between inpatient operating

costs and the ceiling or 5 percent of the

ceiling.

Section 4415 of Public Law 105–33

amended section 1886(b)(1)(A) of the

Act to provide that for cost reporting

periods beginning on or after October 1,

1997, if a hospital’s net inpatient

operating costs are less than or equal to,

the ceiling, the amount of the bonus

payment would be the lower of 15

percent of the difference between the

inpatient operating costs and the ceiling

or 2 percent of the ceiling.

Section 306 of the Public Law 106–

554 has further amended section

1886(b)(1)(A) of the Act, as it applied to

a psychiatric hospital or unit, to provide

that effective for cost reporting periods

beginning on or after October 1, 2000,

and before October 1, 2001, if a

psychiatric hospital or unit’s net

inpatient operating costs are less than,

or equal to, the ceiling, the amount of

the bonus payment is the lower of 15

percent of the difference between the

inpatient operating costs and the

ceiling, or 3 percent of the ceiling.

We are revising the regulations at

§ 413.40(d)(2) to incorporate this

change.

B. Payment for Long-Term Care Hospital

Costs (Section 307 of Public Law 106–

554 and 42 CFR 413.40(c)(4)

1. Increase in the Limitation on the

Target Amounts for Long-Term Care

Hospitals

In the August 29, 1997 final rule with

comment period (62 FR 46018), in

accordance with section 4414 of Public

Law 105–33, we implemented section

1886(b)(3)(H) of the Act, which provides

for caps on the target amounts for

existing and new excluded hospitals

and units for cost reporting periods

beginning on or after October 1, 1997,

through September 30, 2002. The caps

on the target amounts apply to three

classes of excluded hospitals:

psychiatric hospitals and units,

rehabilitation hospitals and units, and

long-term care hospitals. In establishing

the caps on the payment amounts

within each class of hospital for new

hospitals, section 1886(b)(7)(C) of the

Act, as amended by section 4416 of

Public Law 105–33, instructed the

Secretary to provide an appropriate

adjustment to take into account area

differences in average wage-related

costs. However, because the statutory

language under section 4414 of Public

Law 105–33 did not provide for the

Secretary to adjust for area differences

in wage-related costs in establishing the

caps on the target amounts within each

class of hospital for existing hospitals,

we did not adjust for wage-related

differences for existing facilities.

In the August 1, 2000 interim final

rule with comment period (65 FR

47039), we implemented section 121 of

Public Law 106–113, which further

amended section 1886(b)(3)(H) of the

Act by directing the Secretary to provide

for an appropriate wage adjustment to

the caps on the target amounts for all

psychiatric hospitals and units,

rehabilitation hospitals and units and

long-term care hospitals, effective for

cost reporting periods beginning on or

after October 1, 1999, through

September 30, 2002. For purposes of

calculating the caps, section

1886(b)(3)(H)(ii) of the Act requires the

Secretary to first ‘‘estimate the 75th

percentile of the target amounts for such

hospitals within such class for cost

reporting periods ending during fiscal

year 1996.’’ Section 1886(b)(3)(H)(iii) of

the Act, as added by section 121 of

Public Law 106–113, requires the

Secretary to provide for ‘‘an appropriate

adjustment to the labor-related portion

of the amount determined under such

subparagraph to take into account

differences between average wagerelated costs in the area of the hospital

and the national average of such costs

within the same class of hospital.’’

The August 1, 2000 final rule (65 FR

47096) listed the FY 2001 labor-related

share and nonlabor-related share of the

national 75th percentile wageneutralized cap for long-term care

hospitals as follows:

• Labor-related Share: $29,284.

• Nonlabor-related Share: $11,642.

The final rule also discussed that within

each class a hospital’s wage-adjusted

cap on its target amount is determined

by adding the hospital’s nonlaborrelated portion of the national wageneutralized cap to its wage-adjusted

labor-related portion of the national

wage-neutralized cap. A hospital’s

wage-adjusted labor-related portion is

calculated by multiplying the laborrelated portion of the national wageneutralized 75th percentile cap for the

hospital’s class by the hospital’s

applicable wage index. For FY 2001, a

hospital’s applicable wage index is the

wage index under the hospital inpatient

prospective payment system as shown

in Tables 4A and 4B of the August 1,

2000 final rule (65 FR 47149 through

47156) corresponding to the area in

which the hospital is physically located

(MSA or rural area).

Section 307(a) of Public Law 106–554

further amends section 1886(b)(3) of the

Act and provides for a 2-percent

increase to the wage-adjusted 75th

percentile cap on the target amount for

long-term care hospitals effective for

cost reporting periods beginning during

FY 2001. This provision is only

applicable to long-term care hospitals

that were subject to the cap for existing

excluded providers as specified in

§ 413.40(c).

In accordance with section 1886(b)(3)

of the Act as amended, for cost reporting

periods beginning during FY 2001, the

revised labor-related and nonlaborrelated shares of the cap on the target

amount for long-term care hospitals,

which reflect the 2-percent increase, are

as follows:

REVISED FY 2001 NATIONAL CAP FOR

LONG-TERM CARE HOSPITALS

FY 2001 LaborRelated ShareFY 2001 NonlaborRelated Share

$29,870 $11,875

Note that the national 75th percentile

wage-neutralized caps on the target

amount for the other excluded hospitals

and units subject to the caps under

section 1886(b)(3)(H) of the Act

(psychiatric and rehabilitation) are not

affected by section 307 of Public Law

106–554. We are revising the regulations

32182 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

at § 413.40(c)(4)(iii) to incorporate this

change.

2. Increase in the Target Amounts for

Long-Term Care Hospitals

In the August 29, 1997 final rule with

comment period (62 FR 46016), we

implemented the amendment to section

1886(b)(3)(B) of the Act, as made by

section 4411 of Public Law 105–33,

which set forth the applicable rate-ofincrease percentage for cost reporting

periods beginning during FY 1999

through FY 2002. The rate-of-increase is

equal to the market basket increase

percentage minus an amount based on

the percentage by which the hospital’s

operating costs exceed the hospital’s

ceiling for the most recent available cost

reporting period. The applicable rate-ofincrease percentages (update factors) for

FY 2001 are described in the August 1,

2000 final rule (65 FR 47125). For FY

2001, the market basket increase

percentage was forecast at 3.4 percent,

which results in an update for long-term

care hospitals for FY 2001 of between

0.9 percent and 3.4 percent, or 0

percent, depending on the hospital’s

costs in relation to its rate-of-increase

limit.

In addition to the increase to the cap

on the target amounts for long-term care

hospitals, section 307(a) of Public Law

106–554 also amends section 1886(b)(3)

of the Act to provide for a 25 percent

increase to the target amounts

determined under section 1886(b)(3)(A)

of the Act for long-term care hospitals,

for cost reporting periods beginning in

FY 2001, subject to the applicable cap

on the target amounts. Thus, this

provision requires a revision to the

determination of each long-term care

hospital’s FY 2001 target amount as

specified § 413.40(c)(4). For cost

reporting periods beginning during FY

2001, the hospital-specific target

amount otherwise determined for a

long-term care hospital as specified in

the regulations at § 413.40(c)(4)(ii) is

multiplied by 1.25 (that is, increased by

25 percent), subject to the limitation

that the revised FY 2001 target amounts

for a long-term care hospital cannot

exceed its wage-adjusted national cap as

required by section 1886(b)(3) of the

Act, as amended by section 307(a) of

Public Law 106–554. Note that the 25

percent increase to the target amount

under section 307(a) of Public Law 106–

554 is applicable only to long-term care

hospitals, and not to other excluded

hospitals as defined by section

1886(d)(1)(B) of the Act (psychiatric and

rehabilitation hospitals and units,

children’s and cancer hospitals).

We are revising the regulations at

§ 413.40(c)(4)(iii) to incorporate this

change.

XI. Critical Access Hospitals (CAHs)

A. Elimination of Coinsurance for

Clinical Diagnostic Laboratory Tests

Furnished by a CAH (§§ 410.52 and

413.70)

Under section 1834(g) of the Act,

prior to the enactment of the Medicare,

Medicaid, and SCHIP Balanced Budget

Refinement Act of 1999, Public Law

106–113, clinical diagnostic laboratory

services furnished by a CAH to its

outpatients were, like other outpatient

CAH services, paid for on a reasonable

cost basis, subject to the Part B

deductible and coinsurance provisions.

With respect to coinsurance, this meant

that the beneficiary was responsible for

payment of 20 percent of the CAH’s

customary charges for the services and

the CAH received payment from the

Medicare program equal to 80 percent of

its reasonable costs of furnishing the

services.

Section 403(e) of Public Law 106–113

amended section 1833(a) of the Act and

eliminated the Part B coinsurance and

deductible for laboratory tests furnished

by a CAH on an outpatient basis. Thus,

CAHs were not permitted to impose a

deductible or coinsurance charge on the

beneficiary for these services. Also, in

accordance with section 1833(a)(1)(D)

and (a)(2)(d), as also amended by

section 403(e) of Public Law 106–113,

Medicare Part B was to pay 100 percent

of the lesser of the amount determined

under the local laboratory fee schedule,

the national limitation amount for that

test, or the amount of the charges billed

for the tests.

The effect of this change was that

clinical diagnostic laboratory tests

furnished by a CAH to its outpatients,

were paid for on the same basis as

clinical diagnostic laboratory tests

furnished by full-service hospitals to

outpatients. Section 403(e)(2) of Public

Law 106–113 provided that this

provision was effective with respect to

services furnished on or after November

29, 1999.

Section 201(a) of the Medicare,

Medicaid, and SCHIP Benefits

Improvement and Protection Act (BIPA),

Public Law 106–554 amends section

1834(g) of the Act to provide that there

will be no collection of coinsurance,

deductible, copayments, or any other

type of cost sharing from Medicare

beneficiaries with respect to outpatient

clinical diagnostic laboratory services in

a CAH.

Section 201(a) further provides that

payment for these services will be made

on a reasonable cost basis. Section

201(b) of the Public Law 106–554,

amends section 1833(a) of the Act by

eliminating any reference to CAHs

receiving payment for outpatient

clinical diagnostic laboratory services

on a fee schedule basis. These

amendments are effective for services

furnished on or after November 29,

1999.

We are incorporating the provisions of

section 201 of Public Law 106–554 in

section 413.70 of the regulations and

changing the references cited in

§ 410.152(k)(2). To prevent any

misunderstanding of the scope of

section 201(a), we are further revising

§ 413.70(b)(3)(iii) to clarify that payment

to a CAH for clinical diagnostic

laboratory tests for individuals who are

not inpatients of the CAH will be made

on a reasonable cost basis only if the

individuals are outpatients of the CAH

at the time the specimens are collected.

Outpatient status will be determined

under the definition in § 410.2, which

provide that an ‘‘outpatient’’ is a person

who has not been admitted as an

inpatient but is registered as an

outpatient and receives services (rather

than supplies alone) from the CAH.

We recognize that CAHs may

appropriately function as reference

laboratories, by performing clinical

diagnostic laboratory tests on specimens

from persons who do not meet the

‘‘outpatient’’ definition but have the

specimens drawn at other locations,

such as physician offices. Payment for

clinical diagnostic laboratory tests for

these other individuals (that are persons

who are not patients of the CAH when

the specimens are collected) will be

made in accordance with the provisions

of sections 1833(a)(1)(D) and

1833(a)(2)(D) of the Act.

Revised program instructions and

billing systems changes to implement

these provisions are being developed

and will be released as soon as possible.

B. Assistance With Fee Schedule

Payment for Professional Services

Under All Inclusive Rate

Prior to enactment of Public Law 106–

113, section 1834(g) of the Act provided

that the amount of payment for

outpatient CAH services would be the

reasonable costs of the CAH in

providing such services. However, the

reasonable costs of the CAH’s services to

outpatients included only the CAH’s

costs of providing facility services, and

did not include any payment for

professional services. Physicians and

other practitioners who furnished

professional services to CAH outpatients

billed the Part B carrier for these

services and were paid under the

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32183

physician fee schedule in accordance

with the provisions of section 1848 of

the Act.

Section 403(d) of Public Law 106–113

amended section 1834(g) of the Act to

permit the CAH to elect to be paid for

its outpatient services under an optional

method. CAHs making this election

would be paid amounts equal to the

sum of the following costs, less the

amount that the hospital may charge as

described in section 1866(a)(2)(A) of the

Act (that is, Part A and Part B

deductibles and coinsurance amounts):

• For facility services, not including

any services for which payment may be

made as outpatient professional

services, the reasonable costs of the

CAH in providing the services; and

• For professional services otherwise

included within outpatient CAH

services, the amounts that would

otherwise be paid under Medicare if the

services were not included as outpatient

CAH services.

Section 403(d) of Public Law 106–113

added section 1834(g)(3) to the Act to

further specify that payment amounts

under this optional method are to be

determined without regard to the

amount of the customary or other

charge. The amendment made by

section 403(d) was effective for cost

reporting periods beginning on or after

October 1, 2000.

Section 202 of Public Law 106–554,

amends section 1834(g) of the Act to

provide that when a CAH elects the

option to be paid for Medicare

outpatient services under the reasonable

costs for facility services plus fee

schedule amounts for professional

services method, Medicare will pay 115

percent of the amount it would

otherwise pay for the professional

services. This provision is effective for

items and services furnished on or after

July 1, 2001.

We are revising the regulations at

§ 413.70(b)(3) to reflect the change in

the level of payment for professional

services under the alternative payment

method for outpatient CAH services.

C. Conforming Change—Conditions of

Participation Relating to Compliance

With Hospital requirements at Time of

Application for CAH Designation

(§ 485.612)

Under the law in effect prior to

enactment of the Medicare, Medicaid

and SCHIP Balanced Budget Refinement

Act of 1999 (Public Law 106–113), CAH

status was available to facilities only if

they were hospitals at the time of their

application for designation as CAHs.

This requirement was implemented

through regulations, at § 485.610

(Condition of Participation: Status and

limitations) and § 485.612 (Condition of

Participation: Compliance with hospital

requirements at time of application).

Section 403(c) of the Public Law 106–

113 added subparagraphs (C) and (D) to

section 1820(c)(2) of the Act to specify

that recently closed facilities and

facilities that had downsized from

hospital status to being a clinic or health

center would also be eligible to apply

for CAH designation.

In the August 1, 2000 final rule (65 FR

47052), we revised our regulations at

§ 485.610 to reflect the provisions of

section 403(c) of the Public Law 106–

113. However, we inadvertently did not

make a conforming change to § 485.612,

which continues to state that the

applicant facility must be a hospital

with a provider agreement to participate

in the Medicare program at the time it

applies for designation as a CAH. To

correct this oversight and reflect the

provisions of section 403(c) in the

regulations at § 485.612, we are revising

§ 485.612 to state that the requirement

to have a provider agreement as a

hospital at the time of application does

not apply to recently closed facilities as

described in § 485.610(a)(2) or to health

clinics or health centers as described in

§ 485.610(a)(3).

XII. Payment for Bad Debts (Section 541

of Public Law 106–554 and 42 CFR

413.80)

Section 4451 of Public Law 105–33

required that allowable bad debt

reimbursement for hospitals be reduced

by 25 percent for cost reporting periods

beginning during FY 1998, by 40

percent for cost reporting periods

beginning during FY 1999, and by 45

percent for cost reporting periods

beginning during a subsequent fiscal

year.

Section 541 of Public Law 106–554

amended section 1861(v)(1)(T) thereby

modifying the reduction in payment for

Medicare beneficiary bad debt for

hospitals made by section 4451 of

Public Law 105–33. Specifically, this

provision reduces the amount of bad

debts otherwise treated as allowable

reductions in revenue, attributable to

the deductibles and coinsurance

amounts, by 30 percent for cost

reporting periods beginning during FY

2001 and later. Therefore, for cost

reporting periods beginning during the

year 2001 and later, hospital bad debt

amounts otherwise allowable will be

reimbursed at 70 percent of the total

allowable amount. We are revising

§ 413.80 to implement this change.

XIII. Waiver of Notice of Proposed

Rulemaking and Delay in the Effective

Date

We ordinarily publish a notice of

proposed rulemaking in the Federal

Register to provide a period for public

comment before the provisions of the

rule take effect. However, section

1871(b) of the Act provides that

publication of a notice of proposed

rulemaking is not required before a rule

takes effect where ‘‘a statute establishes

a specific deadline for the

implementation of the provision and the

deadline is less than 150 days after the

date of enactment of the statute in

which the deadline is contained.’’ In

addition, we may waive a notice of

proposed rulemaking if we find good

cause that notice and comment are

impracticable, unnecessary, or contrary

to the public interest.

On August 1, 2000, we published a

final rule addressing FY 2001 payment

rates and policies for prospective

payment system hospitals and excluded

hospitals and hospital units (65 FR

47054). Subsequently, on December 21,

2000, Public Law 106–554 was enacted.

This public law contains a number of

provisions relating to issues addressed

in the final rule that have effective dates

of October 1, 2000, April 1, 2001, or

other dates prior to the end of FY 2001.

In accordance with section 1871(b) of

the Act, publication of a notice of

proposed rulemaking is not required

before implementing the statutory

provisions of Public Law 106–554 that

take effect October 1, 2000 or April 1,

2001. In addition, notice and comment

would be unnecessary because the

provisions of Public Law 106–554 that

are addressed in this rule do not permit

the exercise of discretion. Delaying

publication of the rule to provide for

notice and a comment period would

also be impracticable and contrary to

the public interest because it is

important that the rule be published as

soon as possible, in order for the public

to know how we are implementing the

statutory provisions covered by the rule,

and in order to revise our current

regulations to conform with the changes

mandated by Public Law 106–554.

We are providing a 30-day period for

public comments on all of these

provisions.

This rule has been determined to be

a major rule as defined in Title 5,

United State Code, section 804(2), that

is, one with an anticipated annual effect

of $100 million or more on the

economy. Ordinarily, under 5 U.S.C.

801, as added by section 251 of Public

Law 104–121, a major rule shall take

effect 60 days after the later of (1) the

32184 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

date a report on the rule is submitted to

Congress or (2) the date the rule is

published in the Federal Register.

However, section 808(2) of Title 5,

United States Code, provides that,

notwithstanding 5 U.S.C. 801, a major

rule shall take effect at such time as the

Federal agency promulgating the rule

determines, if for good cause, the agency

determines that notice and public

procedure are impracticable,

unnecessary, or contrary to the public

interest. As indicated above, for good

cause we find that it was unnecessary,

impracticable and contrary to the public

interest to complete notice and

comment procedures before publication

of this rule and to delay the effective

date of this rule. Accordingly, pursuant

to 5 U.S.C. 808, these regulations are

effective April 1, 2001.

XIV. Response to Comments

Because of the large number of items

of correspondence we normally receive

on Federal Register documents

published for comment, we are not able

to acknowledge or respond to them

individually. Comments on the

provisions of this interim final rule with

comment period will be considered if

we receive them by the date specified in

the DATES section of this preamble.

XV. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this

rule as required by Executive Order

12866. Although not required to do so,

due to the interim final nature of this

rule, we have also examined the impacts

of this rule under the criteria of the

Regulatory Flexibility Act (RFA) Public

Law 96–354, section 1102(b) of the Act,

and the Unfunded Mandate Reform Act

of 1995 (UMRA) Public Law 104–4.

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

rules that constitute significant

regulatory action, including rules that

have an economic effect of $100 million

or more annually (major rules). We have

determined that this is a major rule

within the meaning of Executive Order

12866.

The RFA requires agencies to analyze

options for regulatory relief of small

businesses in issuing a proposed rule

and a final rule that has been preceded

by a proposed rule. For purposes of the

RFA, small entities include small

businesses, nonprofit organizations and

government agencies. Most hospitals

and most other providers and suppliers

are small entities, either by nonprofit

status or by having revenues of $25

million or less annually. For purposes of

the RFA, all hospitals are considered

small entities. Individuals and States are

not included in the definition of a small

entity.

In addition, section 1102(b) of the Act

requires us to prepare a regulatory

impact analysis if a proposed rule or a

final rule preceded by a proposed rule

may have a significant impact on the

operations of a substantial number of

small rural hospitals. This analysis must

conform to the provisions of section 604

of the RFA. For purposes of section

1102(b) of the Act, we define a small

rural hospital as a hospital that is

located outside of an MSA and has

fewer than 100 beds.

Section 202 of the UMRA also

requires that agencies assess anticipated

costs and benefits before issuing any

proposed rule or any final rule preceded

by a proposed rule that may result in

expenditures in any one year by State,

local, or tribal governments, in the

aggregate, or by the private sector, of

$110 million or more. This interim final

rule with comment period does not

mandate any requirements for State,

local, or tribal governments.

B. Anticipated Effects

We estimated the impact of the

changes described in this interim final

rule with comment period resulting

from the passage of Public Law 106–554

on the inpatient prospective payment

systems to be $1.04 billion. The

changes, discussed separately below are

as follows:

The effects of the change in the DSH

payment reduction factor and the DSH

payment qualification criteria as set

forth by sections 211 and 303 of Public

Law 106–554.

• The effects of introducing the

option to base eligibility for Medicare

dependent hospitals (MDHs), for

hospitals otherwise qualifying for MDH

status, on discharges during two of the

three most recently audited cost

reporting periods as directed by section

212 of Public Law 106–554.

• The total change in payments for

hospitals, other than SCHs, including

the increase in the update factor from

market basket minus 1.1 percentage

points, or 2.3 percent, to market basket

plus 1.1 percentage points, or 4.5

percent, based on the policies in effect

for the first half of FY 2001, relative to

payments based on the policies in effect

for the second half of FY 2001. (As

directed by section 301 of Public Law

106–554). We estimate the financial

impact of this provision will be $700

million.

Table 1 displays the estimated

payment impacts of the provisions of

Public Law 106–554 for all hospitals

under the inpatient hospital prospective

payment system. Specifically, this table

compares simulated payments for

hospitals using the policy and payment

rate updates in effect for discharges

occurring on or after October 1, 2000

and before April 1, 2001, to simulated

payments using the policy changes and

payment rate updates published in this

interim final rule with comment. The

hospital categories in the table are

identical to those published in the

August 1, 2000 final rule. Also, the

simulation methodology here is

identical to the methodology described

in that final rule.

The estimated overall impact of the

changes in policy and the update to the

standardized amounts is a 2.9 percent

increase in payments across all

hospitals, and the average payment per

case increased $202, from $6,883 to

$7,085.

• The effects of the change to the IME

adjustment factor as directed by section

302 of Public Law 106–554.

• The effects of expanding the 1996

rebasing option to all SCHs as directed

by Section 213 of Public Law 106–554.

• The effects of the changes made to

the TEFRA payment mechanism under

section 1886(b) by sections 306 and

307(a) of 106–554.

1. Decrease In Reductions for DSH

Payments and Changes in Treatment of

Rural and Small Urban Disproportionate

Share Hospitals.

Under section 303 of Public Law 106–

554, reductions in the otherwise

applicable DSH payment formula

amounts would be 2 percent in FY 2001

and 3 percent in FY 2002. We estimate

that the financial impact of this

amendment from October 1, 2000

through FY 2002 will be $40 million. To

implement the FY 2001 provision, DSH

payments for discharges occurring on or

after October 1, 2000 and before April

1, 2001, are reduced by 3 percent

(which was the reduction in effect prior

to enactment of Public Law 106–554),

and for discharges occurring on or after

April 1, 2001 and before October 1,

2001, DSH amounts would be reduced

by only 1 percent.

Additionally, Section 211 of Public

Law 106–554 amended section

1886(d)(5)(F)(v) of the Act, by lowering

the thresholds by which certain classes

of hospitals qualify for DSH.

Specifically, for discharges occurring on

or after April 1, 2001, the qualifying

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32185

disproportionate payment percentage is

reduced to 15 percent for SCHs, RRCs,

and other small rural and urban

hospitals. Also, a formula will be used

to calculate DSH adjustments for these

groups of hospitals that have a DSH

patient percentage equal to or greater

than 15 percent and less than 19.3

percent. For SCHs and RRCs with a

disproportionate patient percentage

equal to or greater than 19.3 percent, but

less than 30 percent, a flat 5.25 percent

adjustment applies, and a formula again

applies to the DSH adjustment for these

same hospitals with a disproportionate

patient percentage equal to or greater

than 30 percent. A hospital that is both

an SCH and an RRC, or a small rural

hospital, receives a flat 5.25 percent

adjustment if its disproportionate

patient percentage is equal to or greater

than 19.3 percent but less than 30

percent, and if that hospital has a

disproportionate patient percentage

equal to or greater than 30 percent, it

receives the greater of the SCH or RRC

adjustment. We estimate the financial

impact of this amendment from October

2000 through FY 2002 will be $60

million.

In column 1 of Table 1 we present the

combined effect of the two DSH

provisions, as discussed in section III of

this interim final rule with comment

period. We compared estimated

aggregate payments for the first half of

FY 2001 to estimated aggregate

payments for the second half of FY 2001

keeping all payment factors constant

except those affected by the DSH

changes. Because the criteria for

qualifying for DSH payment status was

changed as discussed above, more

hospitals should be receiving DSH

payments for the second half of FY

2001.

Comparing Table 1 of this section to

the Table 1 in the Inpatient Prospective

Payment System Final Rule that

appeared in the August 1, 2000 Federal

Register (65 FR 47192), there are

significant increases in the estimated

number of hospitals receiving DSH

payments. Specifically, whereas 3,070

hospitals were estimated not to qualify

for DSH payments for the first half of FY

2001, that number is expected to

decrease to 1,914, meaning that for the

second half of FY 2001, 1,156 more

hospitals are expected to receive DSH

payments. The 1,156 new DSH hospitals

in our estimate are primarily small

urban or rural hospitals, which are the

same groups of hospitals targeted for

assistance by Section 211 of Public Law

106–554.

For example, the DSH payment

category for urban hospitals with fewer

than 100 beds is estimated to increase

by 284, from 72 hospitals in the first

half of FY 2001 to 356 hospitals in the

second half of FY 2001. Rural SCHs

estimated to qualify for DSH payments

rose by 389, from 149 in the first half

of FY 2001 to 538 hospitals in the

second half of FY 2001. RRCs appear to

experience an increase of 83 providers,

with the number of providers estimated

to qualify for DSH payments moving

from 56 to 139. Other rural DSH

hospitals with fewer than 100 beds

appear to benefit as well, with the

number of those eligible for DSH

payments estimated to increase by 364

from 103 to 467.

Overall, we estimate that hospitals

experience a 0.4 percent increase in

payments, with rural hospitals receiving

an increase of 1.7 percent and large

urban and other urban hospitals both

receiving a 0.2 percent increase.

Rural DSH hospitals with between 0

and 100 beds are estimated to receive

the largest increase, 4.1 percent. Urban

DSH hospitals with between 0 and 100

beds are estimated to receive a 3.5

percent increase in payments. We

anticipate that no hospitals were

negatively impacted by these changes in

DSH policy.

2. Changes to Qualifications for MDHs

Section 212 of Public Law 106–554

provides an option to base eligibility for

an MDH on discharges during two of the

three most recently audited cost

reporting periods. An otherwise

qualifying hospital would be able to be

classified as an MDH if at least 60

percent of its inpatient days or

discharges were attributable to Medicare

Part A beneficiaries during two of the

three most recently audited cost

reporting periods, for which the

Secretary has a settled cost report,

effective with discharges on or after

April 1, 2001.

To estimate the effect of this change

we examined cost report data from 1994

through 1999, and selected all hospitals

with settled and audited cost reports for

each prospective payment system year

(1994 through 1999). We then took these

subsets of settled and audited cost

reports and selected providers who met

the criteria for MDH status and who had

at least 60 percent of inpatient days or

discharges attributable to Medicare Part

A beneficiaries, for 1 year.

We then combined the sets of

qualifying providers from each

prospective payment system year during

the period of 1994 through 1999 and

selected those providers who met the 60

percent criterion for 2 out of 3 cost

reports and would therefore meet the

MDH criteria as stated in Section 212 of

Public Law 106–554. Although we

identified 139 hospitals through this

analysis, these providers were already

listed as MDH providers in our records.

However, it is important to note that our

most complete data set for hospital cost

reports is still 1998 and we are therefore

unable to measure the effects of this

provision on the most recent data.

Therefore, while the results of one

analysis appear to indicate that this

provision will not have the first half of

FY 2001 to the second half of FY 2001.

We have estimated the financial impact

of this amendment to be $10 million.

3. Indirect Medical Education (IME)

Section 302 of the Public Law 106–

554 modified the transition for the IME

adjustment that was first established by

Public Law 105–33 and revised by

Public Law 106–113. Specifically, the

new transition schedule (where c is

represented in the following formula: c

* [(1 + resident-to-bed ratio) .405 ¥1]) is:

• For discharges occurring on or after

October 1, 2000 and before April 1,

2001, c equals 1.54;

• For discharges occurring on or after

April 1, 2001 and before October 1,

2001, c equals 1.66;

• For discharges occurring during FY

2002, c equals 1.66;

• For discharges occurring on or after

October 1, 2002, c equals 1.35.

We have estimated the financial

impact of this provision to be $200

million. To estimate the impact of this

change, we compared estimated

aggregate payments for the first half of

FY 2001 to estimated aggregate

payments for the second half of FY

2001, keeping all payment factors

except those affected by the IME

changes constant.

Overall, hospitals appear to be

experiencing a 0.4 percent increase in

payments, with large urban hospitals

receiving a 0.6 percent increase and

other urban hospitals receiving an

increase of 0.3 percent. Rural hospitals

are estimated to receive a 0.1 percent

increase. Teaching hospitals with 100 or

more residents are estimated to receive

a 1.2 percent increase in payments.

Additionally, urban hospitals in the

New England region are projected to

experience an 0.8 percent increase,

while rural hospitals in the New

England region are projected to

experience an increase of 0.4 percent.

4. Sole Community Hospitals (SCHs)

Section 405 of the Public Law 106–

113 included a 1996 rebasing option for

cost reporting periods beginning

October 1, 2000, that was limited to

SCHs that received payment based on

their hospital-specific rate for reporting

periods beginning in 1999. This

32186 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

amendment allowed eligible SCHs to

use this 1996 target amount rather than

either their FY 1982 or FY 1987 costs.

Section 213 of Public Law 106–554

extends this rebasing option to all SCHs

and provides that this extension is

effective for cost reporting periods

beginning on or after October 1, 2000.

In estimating the impact of this

change, we compared estimated

aggregate payments for the first half of

FY 2001 to estimated aggregate

payments for the second half of FY

2001, keeping all payment factors

except those effected by the SCH

changes constant. Overall, hospitals do

not appear to be experiencing any

change in payments due to this

provision, though some categories of

hospitals, for example rural SCH and

RRC hospitals, are estimated to receive

a 0.1 percent increase.

5. Hospitals and Hospital Units

Excluded From the PPS

We are implementing sections 306

and 307(a) of Public Law 106–554

which makes several modifications to

the TEFRA payment mechanism under

section 1886(b). Section 306 amends

section 1886(b)(1)(A) of the Act, as it

applies to a psychiatric hospital or unit,

to provide that if a psychiatric hospital

or unit’s net inpatient operating costs

are less than, or equal to, the ceiling for

cost reporting periods beginning on or

after October 1, 2000 and before October

1, 2001, the amount of bonus payment

is the lower of 15 percent of the

difference between the inpatient

operating costs and the ceiling, or 3

percent of the ceiling.

Prior to enactment of Public Law 106–

554, for cost reporting periods beginning

before October 1, 1997, a hospital (or

unit) that had net inpatient operating

costs that were less than its ceiling was

paid the lower of 50 percent of the

difference between inpatient operating

costs and the ceiling, or 5 percent of the

ceiling. Section 4415 of Public Law

105–33 amended section 1886(b)(1)(A)

of the Act to provide that for cost

reporting periods beginning on or after

October 1, 1997, the amount of the

bonus payment would be based on the

lower of 15 percent of the difference

between the net inpatient operating

costs and the ceiling, or 2 percent of the

ceiling.

The impact on hospitals of the

increase in the bonus payment from 2

percent to 3 percent depends on the

hospital’s or unit’s total allowable net

inpatient operating costs based on its

current cost report. Because a hospital’s

or unit’s cost reporting period generally

covers a 12-month period of time and

this provision is effective for cost

reporting periods beginning on or after

October 1, 2000 and before October 1,

2001, the relevant cost data needed to

determine the impact of this provision

will not be available until sometime

after October 1, 2001. Our initial

estimate of the financial impact of this

provision is $20 million; however, given

the lack of available data we are unable

to fully estimate the financial impact

this provision will have on the Medicare

program.

We are also implementing section

307(a) of Public Law 106–554 which

amended section 1886(b)(3) of the Act to

provide for a 2 percent increase to the

wage-adjusted 75th percentile cap on

the target amount for LTCHs, effective

for cost reporting periods beginning

during FY 2001. This provision is

applicable to LTCHs that were subject to

the cap for existing excluded providers,

as specified in § 413.40(c).

In addition to the increase to the cap

on the target amounts for LTCHs,

section 307(a) of Public Law 106–554

also amends section 1886(b)(3) of the

Act to provide for a 25 percent increase

to the target amounts determined under

1886(b)(3)(A) of the Act for all LTCHs,

effective for cost reporting periods

beginning during FY 2001. Thus, this

provision requires a revision to the

determination of each LTCH’s FY 2001

target amount as specified in

§ 413.40(c)(4). For cost reporting periods

beginning during FY 2001, the hospitalspecific target amount otherwise

determined for a LTCH as specified in

the regulations at § 413.40(c)(4)(ii) is

multiplied by 1.25 (that is, increased by

25 percent). However, the revised FY

2001 target amount for the LTCH cannot

exceed its wage-adjusted national cap as

required by 1886(b)(3) of the Act, as

amended by section 307(a) of Public

Law 106–554.

In order to estimate the impact of the

25 percent increase in the hospitalspecific target amount as well as the 2

percent increase in the LTCH cap, we

adjusted the historical hospital-specific

target amounts for each LTCH, as

specified in § 413.40(c)(4)(iii)(A), by a

factor of 1.25 (that is, the 25 percent

increase). We then determined the

wage-adjusted cap for these LTCHs and

increased the cap by 2 percent to

calculate the applicable cap on the

hospital’s adjusted target amount. An

analysis of the best available data

indicates that 64.6 percent of the LTCHs

will benefit only from the 25 percent

increase; in other words, these

hospitals’ target amounts were at least

25 percent below their cap. Our analysis

also indicated that 22.9 percent of the

hospitals will only benefit from the 2

percent increase in the wage-adjusted

cap (their target amounts prior to the

BIPA provision were equal to or

exceeded the cap). The analysis also

showed that 13.5 percent of the

hospitals will benefit from both the 25

percent increase and the 2 percent

increase provisions. These hospitals

will not benefit from the full 25 percent

increase to their target amounts because

prior to this Public Law 106–554

provision their target amounts were not

less than 25 percent below their cap.

Thus, these hospitals received a portion

of the 25 percent increase to their target

amounts plus the 2 percent increase to

the payment limitations.

The impact of the increases in

hospital-specific target amounts and

wage-adjusted caps for LTCHs was

estimated based on FY 1998 cost

reporting data as this was the most

complete data source available. We note

that these changes will also have

somewhat of an impact on incentive

payments, continuous improvement

bonus payments, or other payment

adjustment for excluded hospitals

outlined in the regulations at

§ 413.40(d). However, in making this

comparative analysis, we did not

attempt to determine the impact on

those payments. Our initial estimate of

the financial impact of this provision is

$10 million; however, given the lack of

available data we are unable to fully

estimate the financial impact this

provision will have on the Medicare

program.

6. Critical Access Hospitals (CAH)

Section 201(a) of Public Law 106–554

amends section 1834(g) of the Act to

state that there will be no collection of

coinsurance, deductible, copayments, or

other type of cost sharing from Medicare

beneficiaries with respect to outpatient

clinical diagnostic laboratory services in

a CAH. This provision also provides for

the payment of those services on a

reasonable cost basis. Furthermore,

section 201(b) of Public Law 106–554

amends section 1833(a) of the Act by

eliminating any reference to a CAH

receiving payment for outpatient

clinical diagnostic laboratory services

on a fee schedule basis. These

amendments are effective for services

furnished on or after November 29,

1999.

There are approximately 365 facilities

that qualify as CAHs. These CAHs are

paid based on reasonable costs rather

than a fee schedule amount for

outpatient clinical diagnostic laboratory

services furnished on or after November

29, 1999. We estimate that the financial

impact of this amendment from

November 29, 1999 through fiscal year

2001 will be $4.5 million.

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32187

Section 202 of Public Law 106–554

amends section 1834(g) of the Act to

provide that when a CAH elects to be

paid for Medicare outpatient services

under the reasonable costs for facility

services plus fee schedule amounts for

professional services method, Medicare

will pay 115 percent of the amount it

would otherwise pay for the

professional services. This provision is

effective for items and services

furnished on or after July 1, 2001.

At this point, our information

indicates that very few CAHs have

elected this option. We note that, with

the enactment of this provision, which

increases payment levels, that there may

be an increase in the number of CAHs

that make the election. We do not have

adequate data to develop a reliable

estimate of the financial impact of the

change. Based on current levels of

interest, we believe the financial impact

will be minimal.

C. Overall Impact of Inpatient Operating

Changes

Overall, the changes implemented by

Public Law 106–554 are estimated to

increase payments to providers by 2.9

percent. Given the 0.22 percentage

increase in the update factor for the

inpatient hospital payment rates as

discussed in section V. of this interim

final rule, the increase in hospitals

eligible for DSH payments, the changes

to the DSH formulas and the increase in

the IME adjustment factor, this is not

suprising. Additionally, the lowered

threshold for outlier payments enabled

some classes of providers to more easily

qualify for outlier status. For example,

urban hospitals with neither DSH nor

IME are estimated to experience a 0.1

percent increase from each of those two

provisions due to the effects of the

provisions on payment distribution and

outliers. Therefore, it appears that all

classes of hospitals in this analysis will

benefit from the changes instituted by

Public Law 106–554.

TABLE I.—IMPACT ANALYSIS OF CHANGES FOR THE SECOND HALF OF FY 2001 (DISCHARGES OCCURRING ON OR AFTER

APRIL 1, 2001 AND BEFORE OCTOBER 1, 2001) OPERATING PROSPECTIVE PAYMENT SYSTEM

[Percent changes in payments per case]

Number of

hosps.1

(0)

DSH

changes 2

(1)

IME

changes 3

(2)

SCH

changes 4

(3)

All FY 2001

changes 5

(4)

By Geographic Location:

All Hospitals .................................................................. 4,888 0.4 0.4 0.0 2.9

Urban Hospitals ............................................................ 2,756 0.2 0.5 0.0 2.9

Large Urban Areas ................................................ 1,573 0.2 0.6 0.0 3.0

Other Urban Areas ................................................ 1,183 0.2 0.3 0.0 2.7

Rural Hospitals ............................................................. 2,132 1.7 0.1 0.0 3.3

Bed Size (Urban):

0–99 Beds ..................................................................... 720 1.5 0.1 0.0 3.8

100–199 Beds ............................................................... 944 0.2 0.2 0.0 2.6

200–299 Beds ............................................................... 548 0.1 0.3 0.0 2.6

300–499 Beds ............................................................... 401 0.1 0.5 0.0 2.9

500 or More Beds ......................................................... 143 0.2 1.0 0.0 3.3

Bed Size (Rural):

0–49 Beds ..................................................................... 1,229 1.7 0.0 0.0 3.1

50–99 Beds ................................................................... 535 2.0 0.0 0.0 3.4

100–149 Beds ............................................................... 219 1.7 0.1 0.0 3.3

150–199 Beds ............................................................... 81 1.6 0.1 0.1 3.4

200 or More Beds ......................................................... 68 1.3 0.2 0.1 3.6

Urban by Census Division:

New England ................................................................ 146 0.1 0.8 0.1 3.2

Middle Atlantic .............................................................. 422 0.1 0.6 0.0 3.0

South Atlantic ................................................................ 404 0.3 0.3 ¥0.1 2.7

East North Central ........................................................ 467 0.1 0.6 0.0 2.9

East South Central ....................................................... 161 0.2 0.3 0.0 2.7

West North Central ....................................................... 188 0.2 0.5 0.0 2.8

West South Central ...................................................... 350 0.4 0.3 0.0 2.9

Mountain ....................................................................... 133 0.2 0.3 0.0 2.4

Pacific ........................................................................... 440 0.4 0.4 0.0 2.9

Puerto Rico ................................................................... 45 0.1 0.2 0.1 2.5

Rural by Census Division:

New England ................................................................ 52 0.9 0.4 0.0 2.8

Middle Atlantic .............................................................. 79 1.4 0.2 0.1 3.4

South Atlantic ................................................................ 277 2.0 0.1 0.0 3.9

East North Central ........................................................ 279 1.0 0.0 0.1 2.7

East South Central ....................................................... 266 2.4 0.0 0.0 4.5

West North Central ....................................................... 492 0.8 0.1 0.0 2.1

West South Central ...................................................... 341 2.6 0.0 0.0 4.1

Mountain ....................................................................... 201 1.3 0.0 0.0 1.7

Pacific ........................................................................... 140 2.2 0.1 0.0 3.4

Puerto Rico ................................................................... 5 0.3 0.0 0.1 2.5

By Payment Categories:

Urban Hospitals ............................................................ 2,838 0.2 0.5 0.0 2.9

Large Urban ........................................................... 1,665 0.2 0.6 0.0 3.0

Other Urban ........................................................... 1,168 0.2 0.3 0.0 2.7

Rural Hospitals ............................................................. 2,055 1.8 0.1 0.0 3.3

Teaching Status:

Non-Teaching ............................................................... 3,770 0.7 0.1 0.0 2.8

Fewer Than 100 Residents .......................................... 876 0.2 0.4 0.1 2.7

32188 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

TABLE I.—IMPACT ANALYSIS OF CHANGES FOR THE SECOND HALF OF FY 2001 (DISCHARGES OCCURRING ON OR AFTER

APRIL 1, 2001 AND BEFORE OCTOBER 1, 2001) OPERATING PROSPECTIVE PAYMENT SYSTEM—Continued

[Percent changes in payments per case]

Number of

hosps.1

(0)

DSH

changes 2

(1)

IME

changes 3

(2)

SCH

changes 4

(3)

All FY 2001

changes 5

(4)

100 or More Residents ................................................. 242 0.1 1.2 0.0 3.5

Disproportionate Share Hospitals (DSH):

Non–DSH ...................................................................... 1,914 0.0 0.3 ¥0.2 2.4

Urban DSH:

100 Beds or More .................................................. 1,390 0.2 0.6 0.0 2.9

Fewer Than 100 Beds ........................................... 356 3.5 0.1 0.0 5.8

Rural DSH:

Sole Community (SCH) ......................................... 538 1.6 0.0 0.0 2.1

Referral Centers (RRC) ......................................... 139 2.5 0.1 0.0 4.4

Other Rural DSH Hospitals:

100 Beds or More ......................................................... 84 2.9 0.1 0.1 5.1

Fewer Than 100 Beds .................................................. 467 4.1 0.0 0.1 6.4

Urban Teaching and DSH:

Both Teaching and DSH ............................................... 748 0.2 0.8 0.0 3.1

Teaching and No DSH ................................................. 305 0.0 0.6 ¥0.1 2.8

No Teaching and DSH ................................................. 998 0.5 0.1 0.0 2.8

No Teaching and No DSH ............................................ 787 0.1 0.1 0.1 2.4

Rural Hospital Types:

Nonspecial Status Hospitals ......................................... 829 2.8 0.0 0.1 5.0

RRC ....................................................................... 150 1.8 0.2 0.0 4.2

SCH ....................................................................... 662 0.8 0.0 0.0 0.8

MDH ....................................................................... 352 1.6 0.0 0.0 3.8

SCH and RRC ....................................................... 57 1.3 0.1 0.0 1.8

Type of Ownership:

Voluntary ....................................................................... 2,834 0.4 0.5 0.0 2.9

Proprietary .................................................................... 776 0.6 0.2 0.1 2.9

Government .................................................................. 1,278 0.8 0.5 ¥0.3 3.3

Unknown ....................................................................... 0 0.0 0.0 0.0 0.0

Medicare Utilization as a Percent of Inpatient Days:

0–25 .............................................................................. 381 0.4 0.9 0.0 3.4

25–50 ............................................................................ 1,830 0.3 0.7 0.0 3.1

50–65 ............................................................................ 1,893 0.5 0.2 0.1 2.8

Over 65 ......................................................................... 699 0.8 0.1 0.1 2.9

Unknown ....................................................................... 85 ¥3.0 ¥2.5 ¥3.5 ¥0.1

1Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal

the national total. Discharge data are from FY 1999, and hospital cost report data are from reporting periods beginning in FY 1997 and FY 1998. 2This column displays the payment impact of the change in DSH payment policy between the first and second half of FY 2001.

3This column displays the payment effects of the increase in the IME adjustment factor between the first and second half of FY 2001. 4This column displays the payment impact of allowing all SCHs to rebase using 1996 cost data between the first and second half of FY 2001. 5This column shows changes in payments from the first half of FY 2001 to the second half of FY 2001. It incorporates all of the changes displayed in columns 1, 2, and 3. It also displays the impact of the increase in the FY 2001 update rates, the difference in outlier offsets from FY

2000 to FY 2001, and the increase to payments from the IME adjustment and DSH changes taking effect during FY 2001. It also reflects the

SCHs rebasing provision contained in Public Law 106–554.

D. Impact of Changes in the Capital

Prospective Payment System

In this impact analysis, we

dynamically model the impact of the

capital prospective payment system for

the periods from October 2000 through

March 2001 and April 2001 through

September 2001. We have used the

actuarial model described in Appendix

B of the August 1, 2001 final rule (65 FR

47204 through 47207) to estimate the

changes in capital-related costs. Table

III shows the effect of the capital

prospective payment system on low

capital costs hospitals and high capital

costs hospitals by their capital

prospective payment system transition

period payment methodology (fully

prospective or hold harmless).

Assuming no behavioral changes, Table

III displays the percentage change in

payments per discharge for the periods

between October 2000 through March

2001 and April 2001 through September

2001. Overall, there will be no

significant impact on capital

prospective payment system payments.

We project low cost hospitals will

experience a 0.04 percent decrease in

payments per case, while high cost

hospitals will experience a 0.16 percent

increase in payments per case.

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32189

TABLE III.—IMPACT OF PROPOSED CHANGES FOR APRIL 2001–SEPTEMBER 2001 ON PAYMENTS PER DISCHARGE

Number of

hospitals Discharges

Adjusted

Federal

payment

Average

Federal

percent

Hospital

specific

payment

Hold

harmless

payment

Exceptions

payment

Total

payment

Percent

change

over

Oct-00–

Mar-01

10/2000–03/2001 Payments per Discharge:

Low Cost Hospitals 3,188 6,835,493 $637.91 99.74 .................. $2.42 $9.69 $650.02 ..............

Fully Prospective ... 3,014 6,356,216 638.58 100.00 .................. .................. 9.20 647.79 ..............

100% Federal Rate 159 445,296 638.34 100.00 .................. .................. 4.35 642.69 ..............

Hold Harmless ...... 15 33,981 506.60 60.11 .................. 486.54 170.96 1,164.09 ..............

High Cost Hospitals .................. 1,594 4,146,176 653.32 98.38 .................. 15.35 21.47 690.14 ..............

100% Federal Rate 1,390 3,793,344 664.47 100.00 .................. .................. 10.65 675.12 ..............

Hold Harmless ...... 204 352,832 533.52 80.86 .................. 180.41 137.76 851.69 ..............

Total Hospitals 4,782 10,981,669 643.73 99.21 .................. 7.30 14.14 665.17 ..............

04/2001–09/2001 Payments per Discharge:

Low Cost Hospitals 3,188 6,835,493 637.72 99.74 .................. 2.42 9.63 649.77 ¥0.0

Fully Prospective ... 3,014 6,356,216 638.34 100.00 .................. .................. 9.15 647.49 ¥0.0

100% Federal Rate 159 445,296 638.64 100.00 .................. .................. 4.37 643.01 0.0

Hold Harmless ...... 15 33,981 509.14 60.15 .................. 486.54 168.45 1,164.13 0.0

High Cost Hospitals .................. 1,594 4,146,176 654.60 98.38 .................. 15.35 21.28 691.23 0.1

100% Federal Rate 1,390 3,793,344 665.70 100.00 .................. .................. 10.55 676.25 0.1

Hold Harmless ...... 204 352,832 535.28 80.86 .................. 180.41 136.65 852.34 0.0

Total Hospitals 4,782 10,981,669 644.09 99.21 .................. 7.30 14.03 665.42 0.0

Table IV presents a cross-sectional

summary of hospital groupings

(geographic location, region, and

payment classification) by capital

prospective payment system transition

period payment methodology generated

by our actuarial model. The percentage

of hospitals within a particular hospital

grouping is not projected to change

significantly from those shown in the

Table IV of the impact section of the

August 1, 2001 final rule (65 FR 47201

through 47202).

TABLE IV.—DISTRIBUTION BY METHOD OF PAYMENT (HOLD-HARMLESS/FULLY PROSPECTIVE) OF HOSPITALS RECEIVING

CAPITAL PAYMENTS

(1)

Total number

of hospitals

(2)

Hold-harmless (3)

Percentage

paid fully

prospective

rate

Percentage

paid holdharmless (A)

Percentage

paid fully

federal (B)

By Geographic Location:

All hospitals .............................................................................................. 4,782 4.6 32.4 63.0

Large urban areas (populations over 1 million) ....................................... 1,516 4.3 41.0 54.7

Other urban areas (populations of 1 million or fewer) ............................. 1,147 5.8 39.5 54.7

Rural areas ............................................................................................... 2,119 4.1 22.4 73.5

Urban hospitals ......................................................................................... 2,663 5.0 40.3 54.7

0–99 beds .......................................................................................... 652 6.3 33.6 60.1

100–199 beds .................................................................................... 927 7.2 45.6 47.1

200–299 beds .................................................................................... 542 3.3 41.3 55.4

300–499 beds .................................................................................... 400 0.8 37.0 62.3

500 or more beds .............................................................................. 142 2.1 42.3 55.6

Rural hospitals .......................................................................................... 2,119 4.1 22.4 73.5

0–49 beds .......................................................................................... 1,219 2.9 16.6 80.6

50–99 beds ........................................................................................ 532 6.8 26.9 66.4

100–149 beds .................................................................................... 219 5.9 35.2 58.9

150–199 beds .................................................................................... 81 2.5 25.9 71.6

200 or more beds .............................................................................. 68 1.5 47.1 51.5

By Region:

Urban by Region ...................................................................................... 2,663 5.0 40.3 54.7

New England ..................................................................................... 145 0.7 25.5 73.8

Middle Atlantic ................................................................................... 407 2.9 34.6 62.4

South Atlantic .................................................................................... 396 5.6 51.8 42.7

East North Central ............................................................................. 454 4.2 29.7 66.1

East South Central ............................................................................ 153 8.5 46.4 45.1

West North Central ............................................................................ 181 6.1 37.0 56.9

West South Central ........................................................................... 326 8.9 58.0 33.1

Mountain ............................................................................................ 124 4.8 48.4 46.8

32190 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

TABLE IV.—DISTRIBUTION BY METHOD OF PAYMENT (HOLD-HARMLESS/FULLY PROSPECTIVE) OF HOSPITALS RECEIVING

CAPITAL PAYMENTS—Continued

(1)

Total number

of hospitals

(2)

Hold-harmless (3)

Percentage

paid fully

prospective

rate

Percentage

paid holdharmless (A)

Percentage

paid fully

federal (B)

Pacific ................................................................................................ 432 4.2 36.3 59.5

Puerto Rico ........................................................................................ 45 2.2 26.7 71.1

Rural by Region ........................................................................................ 2,119 4.1 22.4 73.5

New England ..................................................................................... 52 0.0 23.1 76.9

Middle Atlantic ................................................................................... 78 5.1 19.2 75.6

South Atlantic .................................................................................... 276 2.2 33.3 64.5

East North Central ............................................................................. 279 3.9 16.5 79.6

East South Central ............................................................................ 265 3.4 32.8 63.8

West North Central ............................................................................ 490 3.3 14.5 82.2

West South Central ........................................................................... 335 4.5 26.6 69.0

Mountain ............................................................................................ 200 9.5 15.0 75.5

Pacific ................................................................................................ 139 5.0 23.7 71.2

By Payment Classification:

Large urban areas (populations over 1 million) ....................................... 1,612 4.2 41.3 54.5

Other urban areas (populations of 1 million or fewer) ............................. 1,133 6.0 38.8 55.2

Rural areas ............................................................................................... 2,037 4.1 21.8 74.1

Teaching Status:

Non-teaching ..................................................................................... 3,673 5.1 31.6 63.3

Fewer than 100 residents .................................................................. 871 2.9 35.9 61.2

100 or more residents ....................................................................... 238 2.1 32.4 65.5

Disproportionate Share Hospitals (DSH):

Non-DSH .................................................................................................. 1,841 4.5 29.2 66.3

Urban DSH:

100 or more beds .............................................................................. 1,377 4.6 42.6 52.8

Less than 100 beds ........................................................................... 342 5.8 32.2 62.0

Rural DSH:

Sole Community (SCH/EACH) .......................................................... 538 6.1 20.1 73.8

Referral Center (RRC/EACH) ............................................................ 139 6.5 36.0 57.6

Other Rural:

100 or more beds .............................................................................. 84 1.2 36.9 61.9

Less than 100 beds ........................................................................... 461 2.0 27.3 70.7

Urban teaching and DSH:

Both teaching and DSH .................................................................... 741 2.7 36.7 60.6

Teaching and no DSH ....................................................................... 303 2.6 33.7 63.7

No teaching and DSH ....................................................................... 978 6.5 43.4 50.1

No teaching and no DSH .................................................................. 723 6.1 42.5 51.5

Rural Hospital Types:

Non special status hospitals .............................................................. 817 1.5 24.0 74.5

RRC/EACH ........................................................................................ 150 2.7 36.0 61.3

SCH/EACH ........................................................................................ 662 8.5 18.3 73.3

Medicare-dependent hospitals (MDH) ............................................... 351 1.4 16.5 82.1

SCH, RRC and EACH ....................................................................... 57 10.5 26.3 63.2

Type of Ownership:

Voluntary ........................................................................................... 2,520 4.5 32.4 63.1

Proprietary ......................................................................................... 653 7.2 57.1 35.7

Government ....................................................................................... 1,093 4.1 19.2 76.7

Medicare Utilization as a Percent of Inpatient Days:

0–25 ................................................................................................... 367 5.4 27.5 67.0

25–50 ................................................................................................. 1,820 4.3 35.1 60.7

50–65 ................................................................................................. 1,882 4.7 31.2 64.1

Over 65 .............................................................................................. 688 4.8 32.1 63.1

In Table V we present the results of

the cross-sectional analysis using the

results from our actuarial model and the

aggregate impact resulting from section

301 of Public Law 106–554 that will

affect capital prospective payment

system payments for discharges

occurring on or after April 1, 2001 and

before October 1, 2001. Our comparison

of payments for the periods from

October 2000 through March 2001 and

April 2001 through September 2001 by

geographic location, region, payment

classification, and type of ownership

shows no significant effect (ranging

from ¥0.2 percent to 0.2 percent) on

payments for hospitals in all groupings.

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32191

TABLE V.—COMPARISON OF TOTAL PAYMENTS PER CASE

[October 2000–March 2001 Payments Compared to April 2001–September 2001 Payments]

Number of

hospitals

Average Oct 00–

Mar 01 payments/

case

Average Apr 01–

Sept 01 payments/caseAll changes

Portion attributable to Federal rate

change

By Geographic Location:

All hospitals ........................................................... 4,782 665 665 0.0 0.1

Large urban areas (populations over 1 million) ... 1,516 772 773 0.1 0.1

Other urban areas (populations of 1 million or

fewer) ................................................................ 1,147 653 653 0.0 0.0

Rural areas ........................................................... 2,119 449 449 ¥0.1 ¥0.1

Urban hospitals ..................................................... 2,663 720 720 0.1 0.1

0–99 beds ...................................................... 652 518 518 0.1 0.1

100–199 beds ................................................ 927 630 630 0.0 0.0

200–299 beds ................................................ 542 684 685 0.0 0.1

300–499 beds ................................................ 400 754 754 0.1 0.1

500 or more beds .......................................... 142 923 924 0.1 0.1

Rural hospitals ...................................................... 2,119 449 449 ¥0.1 ¥0.1

0–49 beds ...................................................... 1,219 378 377 ¥0.2 ¥0.2

50–99 beds .................................................... 532 429 429 ¥0.2 ¥0.2

100–149 beds ................................................ 219 461 460 ¥0.2 ¥0.1

150–199 beds ................................................ 81 489 489 ¥0.1 ¥0.1

200 or more beds .......................................... 68 547 548 0.1 0.2

By Region:

Urban by Region ................................................... 2,663 720 720 0.1 0.1

New England ................................................. 145 751 750 0.0 0.0

Middle Atlantic ............................................... 407 797 798 0.1 0.1

South Atlantic ................................................ 396 693 694 0.1 0.1

East North Central ......................................... 454 692 692 0.0 0.0

East South Central ........................................ 153 660 660 0.0 0.1

West North Central ........................................ 181 715 715 0.1 0.1

West South Central ....................................... 326 678 680 0.2 0.2

Mountain ........................................................ 124 723 723 0.0 0.0

Pacific ............................................................ 432 804 805 0.1 0.2

Puerto Rico .................................................... 45 311 311 0.0 0.0

Rural by Region .................................................... 2,119 449 449 ¥0.1 ¥0.1

New England ................................................. 52 544 542 ¥0.3 ¥0.3

Middle Atlantic ............................................... 78 469 468 0.0 0.3

South Atlantic ................................................ 276 462 462 0.0 0.0

East North Central ......................................... 279 459 458 ¥0.2 ¥0.2

East South Central ........................................ 265 411 411 0.0 0.0

West North Central ........................................ 490 440 438 ¥0.3 ¥0.3

West South Central ....................................... 335 404 404 ¥0.1 ¥0.1

Mountain ........................................................ 200 478 477 ¥0.1 ¥0.1

Pacific ............................................................ 139 543 543 ¥0.1 ¥0.1

By Payment Classification:

All hospitals ........................................................... 4,782 665 665 0.0 0.1

Large urban areas (populations over 1 million) ... 1,612 763 764 0.1 0.1

Other urban areas (populations of 1 million or

fewer) ................................................................ 1,133 650 651 0.0 0.0

Rural areas ........................................................... 2,037 446 445 ¥0.1 ¥0.1

Teaching Status:

Non-teaching ......................................................... 3,673 549 549 0.0 0.0

Fewer than 100 Residents ................................... 871 694 695 0.0 0.1

100 or more Residents ......................................... 238 1,022 1,023 0.1 0.1

Urban DSH:

100 or more beds .......................................... 1,377 759 760 0.1 0.1

Less than 100 beds ....................................... 342 506 506 ¥0.1 ¥0.1

Rural DSH:

Sole Community (SCH/EACH) ...................... 538 420 419 ¥0.1 ¥0.2

Referral Center (RRC/EACH) ........................ 139 505 505 0.0 0.2

Other Rural:

100 or more beds .......................................... 84 422 421 ¥0.2 ¥0.2

Less than 100 beds ....................................... 461 379 378 ¥0.2 ¥0.2

Urban teaching and DSH:

Both teaching and DSH ................................. 741 837 837 0.1 0.1

Teaching and no DSH ................................... 303 729 729 0.0 0.0

No teaching and DSH ................................... 978 609 609 0.0 0.1

No teaching and no DSH .............................. 723 600 601 0.1 0.1

Rural Hospital Types:

Non special status hospitals .......................... 817 394 394 ¥0.2 ¥0.2

RRC/EACH .................................................... 150 515 514 ¥0.1 ¥0.1

SCH/EACH .................................................... 662 448 448 ¥0.1 ¥0.1

32192 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

TABLE V.—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued

[October 2000–March 2001 Payments Compared to April 2001–September 2001 Payments]

Number of

hospitals

Average Oct 00–

Mar 01 payments/

case

Average Apr 01–

Sept 01 payments/caseAll changes

Portion attributable to Federal rate

change

Medicare-dependent hospitals (MDH) ........... 351 377 376 ¥0.2 ¥0.2

SCH, RRC and EACH ................................... 57 516 517 0.0 0.3

Type of Ownership:

Voluntary ........................................................ 2,520 680 680 0.0 0.0

Proprietary ..................................................... 653 643 644 0.2 0.2

Government ................................................... 1,093 602 602 0.0 0.0

Medicare Utilization as a Percent of Inpatient

Days:

0–25 ............................................................... 367 838 839 0.1 0.1

25–50 ............................................................. 1,820 763 764 0.1 0.1

50–65 ............................................................. 1,882 590 590 0.0 0.0

Over 65 .......................................................... 688 528 528 0.0 0.0

D. Federalism

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.

Although not required to do so, we

have examined this interim final rule

with comment period, under the criteria

set forth in, Executive Order 13132 and

have determined that this interim final

rule with comment period will not have

any negative impact on the rights, rules,

and responsibilities of State, local, or

tribal governments.

E. Executive Order 12866

In accordance with the provisions of

Executive Order 12866, this interim

final rule with comment period was

reviewed by the Office of Management

and Budget.

List of Subjects

42 CFR Part 410

Health facilities, Health professions,

Kidney diseases, Laboratories,

Medicare, Reporting and recordkeeping

requirements, Rural areas, X-rays.

42 CFR Part 412

Administrative practice and

procedure, Health facilities, Medicare,

Puerto Rico, Reporting and

recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases,

Medicare, Puerto Rico, Reporting and

recordkeeping requirements.

42 CFR Part 485

Grant programs-health, Health

facilities, Medicaid, Medicare,

Reporting and recordkeeping

requirements.

42 CFR Chapter IV is amended as set

forth below:

PART 410—SUPPLEMENTARY

MEDICAL INSURANCE (SMI)

BENEFITS

A. Part 410 is amended as follows:

1. The authority citation for Part 410

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh).

2. Section 410.152 is amended by

revising paragraph (k)(2) to read as

follows:

§ 410.152 Amounts of payment.

* * * * *

(k) * * *

(2) Payment for CAH outpatient

services is subject to the applicable

Medicare Part B deductible and

coinsurance amounts, except as

described in § 413.70(b)(2)(iii) of this

chapter, with Part B coinsurance being

calculated as 20 percent of the

customary (insofar as reasonable)

charges of the CAH for the services.

* * * * *

PART 412—PROSPECTIVE PAYMENT

SYSTEMS FOR INPATIENT HOSPITAL

SERVICES

B. Part 412 is amended as follows:

1. The authority citation for Part 412

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh).

2. Section 412.63 is amended by

revising paragraph(s) to read as follows:

§ 412.63 Federal rates for inpatient

operating costs for fiscal years after

Federal fiscal year 1984

* * * * *

(s) Applicable percentage change for

fiscal year 2001. The applicable

percentage change for discharges

occurring in fiscal year 2001 is the

percentage increase in the market basket

index for prospective payment hospitals

(as defined in § 413.40(a) of this

subchapter) for hospitals in all areas as

follows:

(1) For discharges occurring on

October 1, 2000 or before April 1, 2001

the percentage increase in the market

basket index for prospective payment

hospitals (as defined in § 413.40(a) of

this subchapter) for sole community

hospitals and the increase in the market

basket index minus 1.1 percentage

points for other hospitals in all areas;

and

(2) For discharges occurring on April

1, 2001 or before October 1, 2001 the

percentage increase in the market basket

index for prospective payment hospitals

(as defined in § 413.40(a) of this

subchapter) for sole community

hospitals and the increase in the market

basket index plus 1.1 percentage points

for other hospitals in all areas.

* * * * *

3. Section 412.77 is amended by:

A. Revising the section heading.

B. Revising paragraph (a)(1).

C. Removing paragraph (a)(2).

D. Redesignating paragraphs (a)(3)

and (a)(4) as paragraphs (a)(2) and (a)(3).

§ 412.77 Determination of the hospitalspecific rate for inpatient operating costs

for sole community hospitals based on a

Federal fiscal year 1996 base period

(a) * * *

(1) This section applies to a hospital

that has been designated as a sole

community hospital, as described in

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32193

§ 412.92. If the 1996 hospital-specific

rate exceeds the rate that would

otherwise apply, that is, either the

Federal rate under § 412.63 or the

hospital-specific rates for either fiscal

year 1982 under § 412.73 or fiscal year

1987 under § 412.75, this 1996 rate will

be used in the payment formula set forth

in § 412.92(d)(1).

* * * * *

4. Section 412.92 is amended by

revising paragraphs (d)(1)(iv), (d)(2)(i),

(d)(2)(ii), and (d)(2)(iii) to read as

follows:

§ 412.92 Special treatment: Sole

community hospitals.

* * * * *

(d) * * *

(1) * * *

(iv) For cost reporting periods

beginning on or after October 1, 2000,

the hospital-specific rate as determined

under § 412.77 (calculated under the

transition schedule set forth in

paragraph (d)(2) of this section).

(2) * * *

(i) For Federal fiscal year 2001, the

hospital-specific rate is the sum of 75

percent of the greater of the amounts

specified in paragraph (d)(1)(i),

(d)(1)(ii), or (d)(1)(iii) of this section,

plus 25 percent of the hospital-specific

rate as determined under § 412.77.

(ii) For Federal fiscal year 2002, the

hospital-specific rate is the sum of 50

percent of the greater of the amounts

specified in paragraph (d)(1)(i),

(d)(1)(ii), or (d)(1)(iii) of this section,

plus 50 percent of the hospital-specific

rate as determined under § 412.77.

(iii) For Federal fiscal year 2003, the

hospital-specific rate is the sum of 25

percent of the greater of the amounts

specified in paragraph (d)(1)(i),

(d)(1)(ii), or (d)(1)(iii) of this section,

plus 75 percent of the hospital-specific

rate as determined under § 412.77.

* * * * *

5. Section 412.105 is amended by:

A. Republishing the introductory text

of paragraphs (d) and (d)(3).

B. Revising paragraph (d)(3)(v).

§ 412.105 Special treatment: Hospitals that

incur indirect costs for graduate medical

education programs.

* * * * *

(d) Determination of education

adjustment factor. Each hospital’s

education adjustment factor is

calculated as follows:

* * * * *

(3) Step three. The factor derived from

completing steps one and two is

multiplied by ‘c’, and where ‘c’ is equal

to the following:

* * * * *

(v) For fiscal year 2001—

(A) For discharges occurring on or

after October 1, 2000 and before April

1, 2001, 1.54.

(B) For discharges occurring on or

after April 1, 2001 and before October

1, 2001, the adjustment factor is

determined as if ‘‘c’’ equaled 1.66,

rather than 1.54. This payment increase

will not apply to discharges occurring

after fiscal year 2001 and will not be

taken into account in calculating the

payment amounts applicable for

discharges occurring after fiscal year

2001.

* * * * *

6. Section 412.106 is amended by:

A. Republishing the introductory text

to paragraph (c)(1).

B. Revising paragraphs (c)(1)(i),

(c)(1)(ii), (c)(1)(iii), and (c)(1)(iv).

C. Revising paragraphs (d)(2)(ii)(A),

(d)(2)(ii)(B), (d)(2)(ii)(C), and

(d)(2)(ii)(D).

D. Revising paragraphs (d)(2)(iii) and

(d)(2)(iv).

E. Revising paragraph (e)(4).

§ 412.106 Special treatment: Hospitals that

serve a disproportionate share of lowincome patients.

* * * * *

(c) * * *

(1) The hospital’s disproportionate

patient percentage, as determined under

paragraph (b)(5) of this section, is at

least equal to one of the following:

(i) 15 percent, if the hospital is

located in an urban area, and has 100 or

more beds, or is located in a rural area

and has 500 or more beds.

(ii) 30 percent for discharges

occurring before April 1, 2001, and 15

percent for discharges occurring on or

after April 1, 2001, if the hospital is

located in a rural area and either has

more than 100 beds and fewer than 500

beds or is classified as a sole community

hospital under § 412.92.

(iii) 40 percent for discharges before

April 1, 2001, and 15 percent for

discharges occurring on or after April 1,

2001, if the hospital is located in an

urban area and has fewer than 100 beds.

(iv) 45 percent for discharges before

April 1, 2001, and 15 percent for

discharges occurring on or after April 1

2001, if the hospital is located in a rural

area and has 100 or fewer beds.

* * * * *

(d) * * *

(2) * * *

(ii) * * *

(A) If the hospital is classified as a

rural referral center, for discharges prior

to April 1, 2001, the payment

adjustment factor is 4 percent plus 60

percent of the difference between the

hospital’s disproportionate patient

percentage and 30 percent. For

discharges occurring on or after April 1,

2001, the following applies:

(1) If the hospital’s disproportionate

patient percentage is less than 19.3

percent, the applicable payment

adjustment factor is 2.5 percent plus 65

percent of the difference between 15

percent and the hospital’s

disproportionate patient percentage.

(2) If the hospital’s disproportionate

patient percentage is greater than 19.3

percent and less than 30 percent, the

payment adjustment factor is 5.25

percent.

(3) If the hospital’s disproportionate

patient percentage is greater than or

equal to 30 percent, the applicable

payment adjustment factor is 5.25

percent plus 60 percent of the difference

between 30 percent and the hospital’s

disproportionate patient percentage.

(B) If the hospital is classified as a

sole community hospital, for discharges

prior to April 1, 2001, the payment

adjustment factor is 10 percent. For

discharges occurring on or after April 1,

2001, the following applies:

(1) If the hospital’s disproportionate

patient percentage is less than 19.3

percent, the adjustment factor is 2.5

percent plus 65 percent of the difference

between 15 percent and the hospital’s

disproportionate patient percentage.

(2) If the hospital’s disproportionate

patient percentage is equal to or greater

than 19.3 percent and less than 30

percent, the payment adjustment factor

is 5.25 percent.

(3) If the hospital’s disproportionate

patient percentage is equal to or greater

than 30 percent the applicable payment

adjustment factor is 10 percent.

(C) If the hospital is classified as both

a rural referral center and a sole

community hospital, the payment

adjustment factor is:

(1) For discharges occurring before

April 1, 2001, the greater of—

(i) 10 percent; or

(ii) 4 percent plus 60 percent of the

difference between the hospital’s

disproportionate patient percentage and

30 percent.

(2) For discharges occurring on or

after April 1, 2001, the greater of the

adjustments determined under

paragraph (d)(2)(ii)(A) or (d)(2)(ii)(B) of

this section.

(D) If the hospital is classified as a

rural hospital and is not classified as

either a sole community hospital or a

rural referral center, and has 100 or

more beds, for discharges prior to April

1, 2001, the payment adjustment factor

is 4 percent. For discharges occurring on

or after April 1, 2001, the following

applies:

32194 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

(1) If the hospital’s disproportionate

patient percentage is less than 19.3

percent the applicable payment

adjustment factor is 2.5 percent plus 65

percent of the difference between the

hospital’s disproportionate patient

percentage and 15 percent.

(2) If the hospital’s disproportionate

patient percentage is equal to or greater

than 19.3 percent the applicable

payment adjustment factor is 5.25

percent.

(iii) If the hospital meets the criteria

of paragraph (c)(1)(iii) of this section,

the payment adjustment factor is as

follows:

(A) For discharges occurring before

April 1, 2001, 5 percent.

(B) For discharges occurring on or

after April 1, 2001:

(1) If the hospital’s disproportionate

patient percentage is less than 19.3

percent, the applicable payment

adjustment factor is 2.5 percent plus 65

percent of the difference between the

hospital’s disproportionate patient

percentage and 15 percent.

(2) If the hospital’s disproportionate

patient percentage is equal to or greater

than 19.3 percent, the applicable

payment adjustment factor is 5.25

percent.

(iv) If the hospital meets the criteria

of paragraph (c)(1)(iv) of this section,

the payment adjustment factor is as

follows:

(A) For discharges occurring before

April 1, 2001, 5 percent.

(B) For discharges occurring on or

after April 1, 2001:

(1) If the hospital’s disproportionate

patient percentage is less than 19.3

percent, the applicable payment

adjustment factor is 2.5 percent plus 65

percent of the difference between the

hospital’s disproportionate patient

percentage and 15 percent.

(2) If the hospital’s disproportionate

patient percentage is equal to or greater

than 19.3 percent, the applicable

payment adjustment factor is 5.25

percent.

* * * * *

(e) * * *

(4) For FY 2001:

(i) For discharges occurring on or after

October 1, 2000 and before April 1,

2001, 3 percent.

(ii) For discharges occurring on or

after April 1, 2001 and before October

1, 2001, 1 percent.

* * * * *

7. Section 412.108 is amended by:

A. Revising paragraphs (a)(1)(iii)

introductory text and (b).

B. Adding a new paragraph

(a)(1)(iii)(C).

C. Adding a sentence at the end of

(d)(3)(iii).

§ 412.108 Special treatment: Medicaredependent, small rural hospitals.

(a) * * *

(1) * * *

(iii) At least 60 percent of the

hospital’s inpatient days or discharges

were attributable to individuals

receiving Medicare Part A benefits

during the hospital’s cost reporting

period or periods as follows, subject to

the provisions of paragraph (a)(1)(iv) of

this section:

* * * * *

(C) At least two of the last three most

recent audited cost reporting periods for

which the Secretary has a settled cost

report.

* * * * *

(b) Classification procedures. The

fiscal intermediary determines whether

a hospital meets the criterion in

paragraph (a) of this section. A hospital

must notify its fiscal intermediary to be

considered for MDH status based on the

criterion under paragraph (a)(1)(iii)(C) of

this section. Any hospital that believes

it meets this criterion to qualify as an

MDH, based on at least two of the three

most recently audited cost reporting

periods, must submit a written request

to its intermediary. The hospital’s

request must be submitted within 180

days from the date of the notice of

amount of program reimbursement

(NPR) for the cost reporting period in

question. The intermediary will make

its determination and notify the hospital

within 180 days from the date that it

receives the hospital’s request and all of

the required documentation. If a

hospital disagrees with an

intermediary’s determination, it should

notify its intermediary and submit

documentable evidence that it meets the

criteria. The intermediary determination

is subject to review under subpart R of

part 405 of this chapter. The time

required by the intermediary to review

the request is considered good cause for

granting an extension of the time limit

for the hospital to apply for such a

review.

* * * * *

(d) * * *

(3) * * *

(iii) * * * The time required by the

intermediary to review the request is

considered good cause for granting an

extension of the time limit for the

hospital to apply for that review.

PART 413—PRINCIPLES OF

REASONABLE COST

REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE

SERVICES; PROSPECTIVELY

DETERMINED PAYMENT RATES FOR

SKILLED NURSING FACILITIES

C. Part 413 is amended as follows:

1. The authority citation for Part 413

continues to read as follows:

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

1815, 1833(a), (i), and (n), 1871, 1881, 1883,

and 1886 of the Social Security Act (42

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

1395l(a), (i), and (n), 1395hh, 1395rr, 1395tt,

and 1395ww).

2. Section 413.40 is amended by:

A. Republishing the introductory text

of paragraph (c)(4).

B. Revising paragraphs (c)(4)(iii)

introductory text and (c)(4)(iii)(A).

C. Republishing the introductory text

of paragraphs (c)(4)(iii)(B) and

(c)(4)(iii)(B)(4).

D. Revising paragraph

(c)(4)(iii)(B)(4)(i).

E. Revising paragraph (d)(2).

§ 413.40 Ceiling on the rate of increase in

hospital inpatient costs.

* * * * *

(c) * * *

(4) Target amounts. The intermediary

will establish a target amount for each

hospital. The target amount for a cost

reporting period is determined as

follows:

* * * * *

(iii) In the case of a psychiatric

hospital or unit, rehabilitation hospital

or unit, or long-term care hospital, the

target amount is the lower of the

amounts specified in paragraph

(c)(4)(iii)(A) or (c)(4)(iii)(B) of this

section.

(A) The hospital-specific target

amount.

(1) In the case of all hospitals and

units, except long-term care hospitals

for cost reporting periods beginning on

or after October 1, 2001, the hospitalspecific target amount is the net

allowable costs in a base period

increased by the applicable update

factors.

(2) In the case of long-term care

hospitals, for cost reporting periods

beginning on or after October 1, 2001,

the hospital-specific target amount is

the net allowable costs in a base period

increased by the applicable update

factors multiplied by 1.25.

* * * * *

(B) One of the following for the

applicable cost reporting period—

* * * * *

Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations 32195

(4) For cost reporting periods

beginning during fiscal years 2001

through 2002—

(i) The amounts determined under

paragraph (c)(4)(iii)(B)(3)(i) of this

section are: increased by the market

basket percentage up through the

subject period; or in the case of a longterm care hospital, for cost reporting

periods beginning on or after October 1,

2001, the amounts determined under

paragraph (c)(4)(iii)(B)(3)(i) of this

section increased by the market basket

percentage up through the subject

period and further increased by 2

percent.

* * * * *

(d) * * *

(2) Net inpatient operating costs are

less than or equal to the ceiling.

(i) For cost reporting periods

beginning on or after October 1, 1997, if

a hospital’s allowable net inpatient

operating costs do not exceed the

hospital’s ceiling, payment to the

hospital will be determined on the basis

of the lower of the—

(A) Net inpatient operating costs plus

15 percent of the difference between

inpatient operating costs and the

ceiling; or

(B) Net inpatient operating costs plus

2 percent of the ceiling.

(ii) For psychiatric hospitals and

units, for cost reporting periods

beginning on or after October 1, 2000

and before October 1, 2001, if a

hospital’s allowable net inpatient

operating costs do not exceed the

hospital’s ceiling, payment to the

hospital will be determined on the basis

of the lower of the—

(A) Net inpatient operating costs plus

15 percent of the difference between

inpatient operating costs and the

ceiling; or

(B) Net inpatient costs plus 3 percent

of the ceiling.

* * * * *

3. Section 413.70 is amended by

revising paragraphs (b)(2)(ii), (b)(2)(iii),

(b)(3)(ii)(B), and (b)(3)(iii).

§ 413.70 Payment for services of a CAH.

* * * * *

(b) * * *

(2) * * *

(ii) Payment to a CAH under

paragraph (b)(2) of this section does not

include any costs of physician services

or other professional services to CAH

outpatients and, other than for clinical

diagnostic laboratory tests, is subject to

the Part B deductible and coinsurance

amounts as determined under

§§ 410.152(k), 410.160, and 410.161 of

this chapter.

(iii) Payment for outpatient clinical

diagnostic laboratory tests is not subject

to the Medicare Part B deductible and

coinsurance amounts. Payment to a

CAH for clinical diagnostic laboratory

tests will be made on a reasonable cost

basis under this section only if the

individuals are outpatients of the CAH,

as defined in § 410.2 of this chapter, at

the time the specimens are collected.

Clinical diagnostic laboratory tests

performed for persons who are not

patients of the CAH when the

specimens are collected will be made in

accordance with the provisions of

sections 1833(a)(1)(D) and 1833(a)(2)(D)

of the Social Security Act.

(3) * * *

(ii) * * *

(B) For professional services

otherwise payable to the physician or

other practitioner, 115 percent of the

amounts that otherwise would be paid

for the services if the CAH had not

elected payment under this method.

(iii) Payment to a CAH, other than for

clinical diagnostic laboratory tests, is

subject to the Part B deductible and

coinsurance amounts, as determined

under §§ 410.152(k), 410.160, and

410.161 of this chapter.

* * * * *

4. Section 413.80 is amended by

revising paragraph (h)(3) and adding a

new paragraph (h)(4).

§ 413.80 Bad debts, charity, and courtesy

allowances.

* * * * *

(h) * * *

(3) For cost reporting periods

beginning during fiscal year 2000, by 45

percent.

(4) For cost reporting periods

beginning during a subsequent fiscal

year, by 30 percent.

* * * * *

5. Section 413.86 is amended by

revising paragraph (d)(4) to read as

follows:

§ 413.86 Direct graduate medical

education payments.

* * * * *

(d) * * *

(4) Step four. Effective for portions of

cost reporting periods occurring on or

after January 1, 2000, the product

derived from step three is reduced by a

percentage equal to the ratio of the

Medicare+Choice nursing and allied

health payment ‘‘pool’’ for the current

calendar year as described at § 413.87(f),

to the projected total Medicare+Choice

direct GME payments made to all

hospitals for the current calendar year.

* * * * *

6. Section 413.87 is amended by:

A. Redesignating the introductory text

of (c) as (c)(1) introductory text.

B. Redesignating paragraphs (c)(1) and

(c)(2) as paragraphs (c)(1)(i) and (c)(1)(ii)

respectively.

C. Revising the newly redesignated

paragraph (c)(1).

D. Adding a new paragraph (c)(2).

E. Revising the introductory text of

paragraph (d).

F. Revising paragraph (d)(3)

G. Redesignating paragraph (e) as

paragraph (f).

H. Adding a new paragraph (e).

I. Revising newly redesignated

paragraphs (f)(1) introductory text,

(f)(1)(ii), and (f)(2).

§ 413.87 Payments for Medicare+Choice

nursing and allied health education

programs.

* * * * *

(c) Qualifying conditions for payment.

(1) For portions of cost reporting

periods occurring on or after January 1,

2000 and before January 1, 2001, a

hospital that operates and receives

payment for a nursing or allied health

education program under § 413.85 may

receive an additional payment amount

associated with Medicare+Choice

utilization. The hospital may receive the

additional payment amount, which is

calculated in accordance with the

provisions of paragraph (d) of this

section, if both of the conditions

specified in paragraphs (c)(1)(i) and

(c)(1)(ii) of this section are met.

(i) The hospital must have received

Medicare reasonable cost payment for

an approved nursing or allied health

education program under § 413.85 in its

cost reporting period(s) ending in the

fiscal year that is 2 years prior to the

current calendar year. (For example, if

the current year is calendar year 2000,

the fiscal year that is 2 years prior to

calendar year 2000 is FY 1998.) For a

hospital that first establishes a nursing

or allied health education program after

FY 1998 and receives reasonable cost

payment for the program as specified

under § 413.85 after FY 1998, the

hospital is eligible to receive an

additional payment amount in a

calendar year that is 2 years after the

respective fiscal year so long as the

hospital also meets the condition under

paragraph (c)(1(ii) of this section.

(ii) The hospital must be receiving

reasonable cost payment for an

approved nursing or allied health

education program under § 413.85 in the

current calendar year.

(2) For portions of cost reporting

periods occurring on or after January 1,

2001, in addition to meeting the

conditions specified in paragraphs

(c)(1)(i) and (c)(1)(ii) of this section, the

hospital must have had a

Medicare+Choice utilization greater

32196 Federal Register / Vol. 66, No. 114 / Wednesday, June 13, 2001 / Rules and Regulations

than zero in its cost reporting period(s)

ending in the fiscal year that is 2 years

prior to the current calendar year.

* * * * *

(d) Calculating the additional

payment amount for portions of cost

reporting periods occurring on or after

January 1, 2000 and before January 1,

2001. For portions of cost reporting

periods occurring on or after January 1,

2000 and before January 1, 2001, subject

to the provisions of § 413.86(d)(4)

relating to calculating a proportional

reduction in Medicare+Choice direct

GME payments, the additional payment

amount specified in paragraph (c) of this

section is calculated according to the

following steps:

* * * * *

(3) Step three. Multiply the ratio

calculated in step two by the

Medicare+Choice nursing and allied

health payment ‘‘pool’’ determined in

accordance with paragraph (f) of this

section for the current calendar year.

The resulting product is each respective

hospital’s additional payment amount.

* * * * *

(e) Calculating the additional

payment amount for portions of cost

reporting periods occurring on or after

January 1, 2001. For portions of cost

reporting periods occurring on or after

January 1, 2001, subject to the

provisions of § 413.86(d)(4) relating to

calculating a proportional reduction in

Medicare+Choice direct GME payments,

the additional payment amount

specified in paragraph (c) of this section

is calculated according to the following

steps:

(1) Step one. Each calendar year,

determine for each eligible hospital the

total—

(i) Medicare payments received for

approved nursing or allied health

education programs based on data from

the settled cost reports for the period(s)

ending in the fiscal year that is 2 years

prior to the current calendar year; and

(ii) Inpatient days for that same cost

reporting period.

(iii) Medicare+Choice inpatient days

for that same cost reporting period.

(2) Step two. Using the data from step

one, determine the ratio of the

individual hospital’s total nursing or

allied health payments, to its total

inpatient days. Multiply this ratio by the

hospital’s total Medicare+Choice

inpatient days.

(3) Step three. HCFA will determine,

using the best available data, for all

eligible hospitals the total of all—

(i) Nursing and allied health

education program payments made to

all hospitals for all cost reporting

periods ending in the fiscal year that is

2 years prior to the current calendar

year;

(ii) Inpatient days from those same

cost reporting periods; and

(iii) Medicare+Choice inpatient days

for those same cost reporting periods.

(4) Step four. Using the data from step

three, HCFA will determine the ratio of

the total of all nursing and allied health

education program payments made to

all hospitals for all cost reporting

periods ending in the fiscal year that is

2 years prior to the current calendar

year, to the total of all inpatient days

from those same cost reporting periods.

HCFA will multiply this ratio by the

total of all Medicare+Choice inpatient

days for those same cost reporting

periods.

(5) Step 5. Calculate the ratio of the

product determined in step two to the

product determined in step four.

(6) Step 6. Multiply the ratio

calculated in step five by the amount

determined in accordance with

paragraph (f) of this section for the

current calendar year. The resulting

product is each respective hospital’s

additional payment amount.

* * * * *

(f) Calculation of the payment ‘‘pool.’’

(1) Subject to paragraph (f)(3) of this

section, each calendar year, HCFA will

calculate a Medicare+Choice nursing

and allied health payment ‘‘pool’’

according to the following steps:

(i) * * *

(ii) Multiply the ratio calculated in

paragraph (f)(1)(i) of this section by

projected total Medicare nursing and

allied health education reasonable cost

payments made to all hospitals in the

current calendar year.

(2) The resulting product of the steps

under paragraphs (f)(1)(i) and (f)(1)(ii) of

this section is the Medicare+Choice

nursing and allied health payment

‘‘pool’’ for the current calendar year.

* * * * *

PART 485—CONDITIONS OF

PARTICIPATION: SPECIALIZED

PROVIDERS

D. Part 485 is amended as follows:

1. The authority citation for Part 485

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh).

2. Section 485.612 is revised to read

as follows:

§ 485.612 Condition of participation:

Compliance with hospital requirements at

the time of application.

Except for recently closed facilities as

described in § 485.610(a)(2), or health

clinics or health centers as described in

§ 485.610(a)(3), the facility is a hospital

that has a provider agreement to

participate in the Medicare program as

a hospital at the time the hospital

applies for designation as a CAH.

(Catalog of Federal Domestic Assistance

Program No. 93.773, Medicare—Hospital

Insurance)

Dated: March 28, 2001.

Michael McMullan,

Acting Deputy Administrator, Health Care

Financing Administration.

Dated: April 18, 2001.

Tommy G. Thompson,

Secretary.

[FR Doc. 01–14732 Filed 6–12–01; 8:45 am]

BILLING CODE 4120–01–P