22674 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 412 

[CMS–1554–P] 

RIN 0938–AP19 

Medicare Program; Inpatient 

Rehabilitation Facility Prospective 

Payment System for Federal Fiscal 

Year 2009 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

update the prospective payment rates 

for inpatient rehabilitation facilities 

(IRFs) for Federal fiscal year (FY) 2009 

(for discharges occurring on or after 

October 1, 2008 and on or before 

September 30, 2009) as required under 

section 1886(j)(3)(C) of the Social 

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

of the Act requires the Secretary to 

publish in the Federal Register on or 

before the August 1 that precedes the 

start of each fiscal year, the 

classification and weighting factors for 

the IRF prospective payment system’s 

(PPS) case-mix groups and a description 

of the methodology and data used in 

computing the prospective payment 

rates for that fiscal year. 

We are proposing to revise existing 

policies regarding the PPS within the 

authority granted under section 1886(j) 

of the Act. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on June 20, 2008. 

ADDRESSES: In commenting, please refer 

to file code CMS–1554–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions for ‘‘Comment or 

Submission’’ and enter the filecode to 

find the document accepting comments. 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address only: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1554– 

P, P.O. Box 8012, Baltimore, MD 21244– 

8012. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1554–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–8012. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to either of the 

following addresses. 

a. Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201 (Because 

access to the interior of the HHH 

Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Susanne Seagrave, (410) 786–0044, for 

information regarding the payment 

policies. Jeanette Kranacs, (410) 786– 

9385, for information regarding the 

wage index. 

SUPPLEMENTARY INFORMATION: Inspection 

of Public Comments: All comments 

received before the close of the 

comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Background 

A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

B. Operational Overview of the Current IRF 

PPS 

C. Brief Summary of Proposed Revisions to 

the IRF PPS for Federal Fiscal Year (FY) 

2009 

II. Proposed Update to the Case-Mix Group 

(CMG) Relative Weights and Average 

Length of Stay Values for FY 2009 

III. Proposed FY 2009 IRF PPS Federal 

Prospective Payment Rates 

A. Increase Factor for FY 2009 and 

Proposed FY 2009 Labor-Related Share 

B. Proposed Area Wage Adjustment 

C. Description of the Proposed IRF 

Standard Payment Conversion Factor 

and Proposed Payment Rates for FY 2009 

D. Example of the Methodology for 

Adjusting the Proposed Federal 

Prospective Payment Rates 

IV. Proposed Update to Payments for HighCost Outliers Under the IRF PPS 

A. Proposed Update to the Outlier 

Threshold Amount for FY 2009 

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

Ceilings 

V. Revisions to the Regulation Text in 

Response to the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 

VI. Post Acute Care Payment Reform 

VII. Provisions of the Proposed Rule 

VIII. Collection of Information Requirements 

IX. Response to Public Comments 

X. Regulatory Impact Statement 

Regulation Text 

Addendum 

Acronyms 

Because of the many terms to which we 

refer by acronym in this proposed rule, we 

are listing the acronyms used and their 

corresponding terms in alphabetical order 

below. 

ASCA Administrative Simplification 

Compliance Act, Pub. L. 107–105 

BBA Balanced Budget Act of 1997, Pub. L. 

105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement Act 

of 1999, Pub. L. 106–113 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program] 

Benefits Improvement and Protection Act 

of 2000, Pub. L. 106–554 

CBSA Core-Based Statistical Area 

CCR Cost-to-Charge Ratio 

CFR Code of Federal Regulations 

CMG Case-Mix Group 

DRA Deficit Reduction Act of 2005, Pub. L. 

109–171 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22675 

DSH Disproportionate Share Hospital 

ECI Employment Cost Index 

FI Fiscal Intermediary 

FR Federal Register 

FY Federal Fiscal Year 

GDP Gross Domestic Product 

HHH Hubert H. Humphrey Building 

HIPAA Health Insurance Portability and 

Accountability Act, Pub. L. 104–191 

IFMC Iowa Foundation for Medical Care 

IPF Inpatient Psychiatric Facility 

IPPS Inpatient Prospective Payment System 

IRF Inpatient Rehabilitation Facility 

IRF–PAI Inpatient Rehabilitation FacilityPatient Assessment Instrument 

IRF PPS Inpatient Rehabilitation Facility 

Prospective Payment System 

IRVEN Inpatient Rehabilitation Validation 

and Entry 

LIP Low-Income Percentage 

LTCH Long-Term Care Hospital 

MAC Medicare Administrative Contractor 

MEDPAR Medicare Provider Analysis and 

Review 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Pub. L. 108–173 

MSA Metropolitan Statistical Area 

NAICS North American Industrial 

Classification System 

OMB Office of Management and Budget 

PAI Patient Assessment Instrument 

PPS Prospective Payment System 

RAND RAND Corporation 

RFA Regulatory Flexibility Act, Pub. L. 96–

354 

RIA Regulatory Impact Analysis 

RIC Rehabilitation Impairment Category 

RPL Rehabilitation, Psychiatric, and LongTerm Care Hospital Market Basket 

SCHIP State Children’s Health Insurance 

Program 

SIC Standard Industrial Code 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Pub. L. 97–248 

I. Background 

A. Historical Overview of the Inpatient 

Rehabilitation Facility Prospective 

Payment System (IRF PPS) 

Section 4421 of the Balanced Budget 

Act of 1997 (BBA, Pub. L. 105–33), as 

amended by section 125 of the 

Medicare, Medicaid, and SCHIP (State 

Children’s Health Insurance Program) 

Balanced Budget Refinement Act of 

1999 (BBRA, Pub. L. 106–113), and by 

section 305 of the Medicare, Medicaid, 

and SCHIP Benefits Improvement and 

Protection Act of 2000 (BIPA, Pub. L. 

106–554), provides for the 

implementation of a per discharge 

prospective payment system (PPS) 

under section 1886(j) of the Social 

Security Act (the Act) for inpatient 

rehabilitation hospitals and inpatient 

rehabilitation units of a hospital 

(hereinafter referred to as IRFs). 

Payments under the IRF PPS 

encompass inpatient operating and 

capital costs of furnishing covered 

rehabilitation services (that is, routine, 

ancillary, and capital costs) but not 

direct graduate medical education costs, 

costs of approved nursing and allied 

health education activities, bad debts, 

and other services or items outside the 

scope of the IRF PPS. Although a 

complete discussion of the IRF PPS 

provisions appears in the original, FY 

2002 IRF PPS final rule (66 FR 41316) 

as revised in the FY 2006 IRF PPS final 

rule (70 FR 47880), we are providing 

below a general description of the IRF 

PPS for fiscal years (FYs) 2002 through 

2005. 

Under the IRF PPS from FY 2002 

through FY 2005, as described in the FY 

2002 IRF PPS final rule (66 FR 41316), 

the Federal prospective payment rates 

were computed across 100 distinct casemix groups (CMGs). We constructed 95 

CMGs using rehabilitation impairment 

categories (RICs), functional status (both 

motor and cognitive), and age (in some 

cases, cognitive status and age may not 

be a factor in defining a CMG). In 

addition, we constructed five special 

CMGs to account for very short stays 

and for patients who expire in the IRF. 

For each of the CMGs, we developed 

relative weighting factors to account for 

a patient’s clinical characteristics and 

expected resource needs. Thus, the 

weighting factors accounted for the 

relative difference in resource use across 

all CMGs. Within each CMG, we created 

tiers based on the estimated effects that 

certain comorbidities would have on 

resource use. 

We established the Federal PPS rates 

using a standardized payment 

conversion factor (formerly referred to 

as the budget neutral conversion factor). 

For a detailed discussion of the budget 

neutral conversion factor, please refer to 

our FY 2004 IRF PPS final rule (68 FR 

45684 through 45685). In the FY 2006 

IRF PPS final rule (70 FR 47880), we 

discussed in detail the methodology for 

determining the standard payment 

conversion factor. 

We applied the relative weighting 

factors to the standard payment 

conversion factor to compute the 

unadjusted Federal prospective 

payment rates under the IRF PPS from 

FYs 2002 through 2005. We then 

applied adjustments for geographic 

variations in wages (wage index), the 

percentage of low-income patients, and 

location in a rural area (if applicable) to 

the IRF’s unadjusted Federal 

prospective payment rates. In addition, 

we made adjustments to account for 

short-stay transfer cases, interrupted 

stays, and high cost outliers. 

For cost reporting periods that began 

on or after January 1, 2002 and before 

October 1, 2002, we determined the 

final prospective payment amounts 

using the transition methodology 

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

Act. Under this provision, IRFs 

transitioning into the PPS were paid a 

blend of the Federal IRF PPS rate and 

the payment that the IRF would have 

received had the IRF PPS not been 

implemented. This provision also 

allowed IRFs to elect to bypass this 

blended payment and immediately be 

paid 100 percent of the Federal IRF PPS 

rate. The transition methodology 

expired as of cost reporting periods 

beginning on or after October 1, 2002 

(FY 2003), and payments for all IRFs 

now consist of 100 percent of the 

Federal IRF PPS rate. 

We established a CMS Web site as a 

primary information resource for the 

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

www.cms.hhs.gov/InpatientRehabFac

PPS/ and may be accessed to download 

or view publications, software, data 

specifications, educational materials, 

and other information pertinent to the 

IRF PPS. 

Section 1886(j) of the Act confers 

broad statutory authority upon the 

Secretary to propose refinements to the 

IRF PPS. In the FY 2006 IRF PPS final 

rule (70 FR 47880) and in correcting 

amendments to the FY 2006 IRF PPS 

final rule (70 FR 57166) that we 

published on September 30, 2005, we 

finalized a number of refinements to the 

IRF PPS case-mix classification system 

(the CMGs and the corresponding 

relative weights) and the case-level and 

facility-level adjustments. Any reference 

to the FY 2006 IRF PPS final rule in this 

proposed rule also includes the 

provisions effective in the correcting 

amendments. For a detailed discussion 

of the final key policy changes for FY 

2006, please refer to the FY 2006 IRF 

PPS final rule (70 FR 47880 and 70 FR 

57166). 

In the FY 2007 IRF PPS final rule (71 

FR 48354), we further refined the IRF 

PPS case-mix classification system (the 

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

PPS payments continue to reflect as 

accurately as possible the costs of care. 

For a detailed discussion of the FY 2007 

policy revisions, please refer to the FY 

2007 IRF PPS final rule (71 FR 48354). 

In the FY 2008 IRF PPS final rule (72 

FR 44284), we updated the Federal 

prospective payment rates and the 

outlier threshold, revised the IRF wage 

index policy, and clarified how we 

determine high-cost outlier payments 

for transfer cases. For more information 

on the policy changes implemented for 

FY 2008, please refer to the FY 2008 IRF 

PPS final rule (72 FR 44284), in which 

we published the final FY 2008 IRF 

Federal prospective payment rates. 


rwilkins on PROD1PC63 with PROPOSALS2
22676 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

After publication of the FY 2008 IRF 

PPS final rule (72 FR 44284), section 

115 of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007, Public 

Law 110–173, amended section 

1886(j)(3)(C) of the Act to apply a zero 

percent increase factor for FYs 2008 and 

2009, effective for IRF discharges 

occurring on or after April 1, 2008. 

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

the Secretary to develop an increase 

factor to update the IRF Federal 

prospective payment rates for each FY. 

Based on the legislative change to the 

increase factor, we revised the FY 2008 

Federal prospective payment rates for 

IRF discharges occurring on or after 

April 1, 2008. Thus, the final FY 2008 

IRF Federal prospective payment rates 

that were published in the FY 2008 IRF 

PPS final rule (72 FR 44284) were 

effective for discharges occurring on or 

after October 1, 2007 and on or before 

March 31, 2008; and the revised FY 

2008 IRF Federal prospective payment 

rates will be effective for discharges 

occurring on or after April 1, 2008 and 

on or before September 30, 2008. The 

revised FY 2008 Federal prospective 

payment rates are available on the CMS 

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

InpatientRehabFacPPS/07_DataFiles.

asp#TopOfPage. 

B. Operational Overview of the Current 

IRF PPS 

As described in the FY 2002 IRF PPS 

final rule, upon the admission and 

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

complete the appropriate sections of a 

patient assessment instrument, the 

Inpatient Rehabilitation Facility-Patient 

Assessment Instrument (IRF–PAI). All 

required data must be electronically 

encoded into the IRF–PAI software 

product. Generally, the software product 

includes patient grouping programming 

called the GROUPER software. The 

GROUPER software uses specific IRF–

PAI data elements to classify (or group) 

patients into distinct CMGs and account 

for the existence of any relevant 

comorbidities. 

The GROUPER software produces a 

five-digit CMG number. The first digit is 

an alpha-character that indicates the 

comorbidity tier. The last four digits 

represent the distinct CMG number. 

Free downloads of the Inpatient 

Rehabilitation Validation and Entry 

(IRVEN) software product, including the 

GROUPER software, are available on the 

CMS Web site at http:// 

www.cms.hhs.gov/InpatientRehabFac

PPS/06_Software.asp. 

Once a patient is discharged, the IRF 

submits a Medicare claim (a Health 

Insurance Portability and 

Accountability Act (HIPAA, Pub. L. 

104–191) compliant electronic claim or, 

if the Administrative Compliance Act 

(ASCA, Pub. L. 107–105,) permits a 

paper claim, a UB–04 or a CMS–1450, 

as appropriate) using the five-digit CMG 

number and sends it to the appropriate 

Medicare fiscal intermediary (FI) or 

Medicare Administrative Contractor 

(MAC). Claims submitted to Medicare 

must comply with both ASCA and 

HIPAA. Section 3 of the ASCA amends 

section 1862(a) of the Act by adding 

paragraph (22) which requires the 

Medicare program, subject to section 

1862(h) of the Act, to deny payment 

under Part A or Part B for any expenses 

for items or services ‘‘for which a claim 

is submitted other than in an electronic 

form specified by the Secretary.’’

Section 1862(h) of the Act, in turn, 

provides that the Secretary shall waive 

such denial in situations in which there 

is no method available for the 

submission of claims in an electronic 

form or the entity submitting the claim 

is a small provider. 

In addition, the Secretary also has the 

authority to waive such denial ‘‘in such 

unusual cases as the Secretary finds 

appropriate.’’ See also the final rule, 

‘‘Medicare Program; Electronic 

Submission of Medicare Claims’’ (70 FR 

71008, November 25, 2005). Section 3 of 

the ASCA operates in the context of the 

administrative simplification provisions 

of HIPAA, which include, among others, 

the requirements for transaction 

standards and code sets codified in 45 

CFR, parts 160 and 162, subparts A and 

I through R (generally known as the 

Transactions Rule). The Transactions 

Rule requires covered entities, including 

covered healthcare providers, to 

conduct covered electronic transactions 

according to the applicable transaction 

standards. (See the program claim 

memoranda issued and published by 

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

ElectronicBillingEDITrans/ and listed in 

the addenda to the Medicare 

Intermediary Manual, Part 3, section 

3600. CMS instructions for the limited 

number of Medicare claims submitted 

on paper are available at: http:// 

www.cms.hhs.gov/manuals/downloads/

clm104c25.pdf.) 

The Medicare FI or MAC processes 

the claim through its software system. 

This software system includes pricing 

programming called the ‘‘PRICER’’

software. The PRICER software uses the 

CMG number, along with other specific 

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

prospective payment for interrupted 

stays, transfers, short stays, and deaths, 

and then applies the applicable 

adjustments to account for the IRF’s 

wage index, percentage of low-income 

patients, rural location, and outlier 

payments. For discharges occurring on 

or after October 1, 2005, the IRF PPS 

payment also reflects the new teaching 

status adjustment that became effective 

as of FY 2006, as discussed in the FY 

2006 IRF PPS final rule (70 FR 47880). 

C. Brief Summary of Proposed Revisions 

to the IRF PPS for FY 2009 

In this proposed rule, we are 

proposing to make the following 

updates to the IRF PPS: 

• Update the FY 2009 IRF PPS 

relative weights and average length of 

stay values using the most current and 

complete Medicare claims and cost 

report data, as discussed in section II. 

• Update the FY 2009 IRF PPS 

payment rates by the proposed wage 

index and labor related share in a 

budget neutral manner, as discussed in 

sections III.A and B. 

• Update the outlier threshold 

amount for FY 2009, as discussed in 

section IV.A. 

• Update the cost-to-charge ratio 

ceiling and the national average urban 

and rural cost-to-charge ratios for 

purposes of determining outlier 

payments under the IRF PPS, as 

discussed in section IV.B. 

II. Proposed Update to the CMG 

Relative Weights and Average Length of 

Stay Values for FY 2009 

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

we calculate a relative weight for each 

CMG that is proportional to the 

resources needed by an average 

inpatient rehabilitation case in that 

CMG. For example, cases in a CMG with 

a relative weight of 2, on average, will 

cost twice as much as cases in a CMG 

with a relative weight of 1. Relative 

weights account for the variance in cost 

per discharge due to the variance in 

resource utilization among the payment 

groups, and their use helps to ensure 

that IRF PPS payments support 

beneficiary access to care as well as 

provider efficiency. 

In this proposed rule, we propose to 

update the CMG relative weights and 

average length of stay values using the 

most recent available data (FY 2006). 

We propose to do this using the same 

methodology, with one change, that was 

described in the original, FY 2002 IRF 

PPS final rule (66 FR 41316) and the FY 

2006 IRF PPS final rule (70 FR 47880, 

47887 through 47888). The proposed 

change to the methodology involves 

using new, more detailed cost-to-charge 

ratio (CCR) data from the cost reports of 

IRF subprovider units of primary acute 

care hospitals, instead of CCR data from 

the associated primary acute care 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22677 

hospitals, to calculate IRFs’ average 

costs per case. For freestanding IRFs, we 

propose to continue using CCR data 

from the freestanding IRF’s (that is, the 

primary hospital’s) cost report. 

Previously, we were only able to use the 

CCR data from the cost reports of the 

primary acute care hospitals to estimate 

the relationship between costs and 

charges for the IRF subprovider units 

because those were the best data we had 

available. However, conceptually, the 

relationship between costs and charges 

in the primary acute care hospital could 

differ from the relationship between 

costs and charges in the IRF subprovider 

units. Since the two types of facilities 

provide a different range of services and 

treat different populations of patients, it 

might not be as precise to use the data 

from the primary acute care hospital to 

estimate the relationship between costs 

and charges in the IRF subprovider unit. 

When we analyzed the CMG relative 

weights for FY 2009, using both the 

primary acute care hospital CCRs and 

the IRF subprovider unit CCRs, we 

found that the CCRs we used made very 

little difference in the CMG relative 

weights. Since the data needed to 

calculate the IRF subprovider units’

CCRs are now available in enough 

detail, and since conceptually it is more 

appropriate to use the cost report data 

from the IRF subprovider units to 

estimate the relationship between costs 

and charges in these IRF subprovider 

units, we are proposing this change to 

the methodology. As indicated 

previously, for freestanding IRFs, we 

propose to continue using CCR data 

from the freestanding IRF’s (that is, the 

primary hospital’s) cost report. In future 

years, we would continue to estimate 

the CMG relative weights using both the 

primary acute care hospital CCRs and 

the IRF subprovider unit CCRs to ensure 

that we continue to use the most 

appropriate data in updating the CMG 

relative weights. 

In calculating the CMG relative 

weights, we use a hospital-specific 

relative value method to estimate 

operating (routine and ancillary 

services) and capital costs of IRFs. To 

estimate these costs for FY 2009, we 

propose to use the CCRs from the IRF 

subprovider units of primary acute care 

hospitals, except for the freestanding 

IRFs (for which we will continue to use 

the data from the cost report of the 

primary hospital, as discussed above). 

For FY 2009, we propose to use the 

same methodology we used to compute 

the CMG relative weights for FYs 2002 

through 2008, with the one change 

described above, to update the CMG 

relative weights to reflect the most 

recent available data (FY 2006). The 

process used to calculate the CMG 

relative weights for this proposed rule 

follows below: 

Step 1. We calculate the CMG relative 

weights by estimating the effects that 

comorbidities have on costs. 

Step 2. We adjust the cost of each 

Medicare discharge (case) to reflect the 

effects found in the first step. 

Step 3. We use the adjusted costs from 

the second step to calculate CMG 

relative weights, using the hospitalspecific relative value method. 

Step 4. We normalize to the same 

average CMG relative weight from the 

CMG relative weights implemented in 

the FY 2002 IRF PPS final rule (66 FR 

41316), the FY 2006 IRF PPS final rule 

(70 FR 47880), and the FY 2007 IRF PPS 

final rule (71 FR 48354). (Note that we 

did not revise the CMG relative weights 

in the FY 2008 IRF PPS final rule (72 

FR 44284)). 

Consistent with the way we 

implemented changes to the IRF 

classification system in the FY 2006 IRF 

PPS final rule (70 FR 47880 and 70 FR 

57166) and the FY 2007 IRF PPS final 

rule (71 FR 48354), we are proposing to 

make the revisions to the CMG relative 

weights for FY 2009 in such a way that 

total estimated aggregate payments to 

IRFs for FY 2009 are the same with or 

without the proposed changes (that is, 

in a budget neutral manner) by applying 

a budget neutrality factor to the 

standard payment amount. To calculate 

the appropriate proposed budget 

neutrality factor to apply to the standard 

payment amount, we propose to use the 

following steps: 

Step 1. Calculate the estimated total 

amount of IRF PPS payments for FY 

2009 (with no proposed changes to the 

CMG relative weights). 

Step 2. Apply the proposed changes 

to the CMG relative weights (as 

discussed above) to calculate the 

estimated total amount of IRF PPS 

payments for FY 2009. 

Step 3. Divide the amount calculated 

in step 1 by the amount calculated in 

step 2 to determine the proposed factor 

(0.9969) that would maintain the same 

total estimated aggregate payments in 

FY 2009 with and without the proposed 

changes to the CMG relative weights. 

Step 4. Apply the proposed budget 

neutrality factor (0.9969) to the FY 2008 

IRF PPS standard payment amount after 

the application of the budget-neutral 

wage adjustment factor. 

In section III.C of this proposed rule, 

we discuss the proposed methodology 

for calculating the standard payment 

conversion factor for FY 2009. 

Table 1 below, ‘‘Proposed Relative 

Weights and Average Lengths of Stay for 

Case-Mix Groups,’’ presents the CMGs, 

the comorbidity tiers, the proposed 

corresponding relative weights, and the 

proposed average length of stay values 

for each CMG and tier for FY 2009. The 

average length of stay for each CMG is 

used to determine when an IRF 

discharge meets the definition of a 

short-stay transfer, which results in a 

per diem case level adjustment. The 

proposed relative weights and average 

length of stay values shown in Table 1 

are subject to change for the final rule 

based on analysis of updated data. 

TABLE 1.— PROPOSED RELATIVE WEIGHTS AND AVERAGE LENGTHS OF STAY FOR CASE-MIX GROUPS

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Proposed relative weight Proposed average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

0101 ......... Stroke M>51.05 ......................... 0.7741 0.7243 0.6463 0.6222 8 9 9 9 

0102 ......... Stroke M>44.45 and M<51.05 

and C>18.5.

0.9569 0.8953 0.7989 0.7691 11 11 11 10 

0103 ......... Stroke M>44.45 and M<51.05 

and C<18.5.

1.1184 1.0465 0.9338 0.8990 13 15 12 12 

0104 ......... Stroke M>38.85 and M<44.45 ... 1.2008 1.1235 1.0025 0.9651 14 15 13 13 

0105 ......... Stroke M>34.25 and M<38.85 ... 1.4207 1.3293 1.1861 1.1419 16 17 15 15 

0106 ......... Stroke M>30.05 and M<34.25 ... 1.6395 1.5341 1.3688 1.3178 17 19 17 17 

0107 ......... Stroke M>26.15 and M<30.05 ... 1.8826 1.7615 1.5718 1.5132 19 22 20 19 

0108 ......... Stroke M<26.15 and A>84.5 ...... 2.2430 2.0987 1.8726 1.8028 29 27 24 23 

0109 ......... Stroke M>22.35 and M<26.15 

and A<84.5.

2.1639 2.0247 1.8066 1.7393 22 25 22 22 

0110 ......... Stroke M<22.35 and A<84.5 ...... 2.6983 2.5247 2.2528 2.1688 30 31 27 27 


rwilkins on PROD1PC63 with PROPOSALS2
22678 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

TABLE 1.— PROPOSED RELATIVE WEIGHTS AND AVERAGE LENGTHS OF STAY FOR CASE-MIX GROUPS—Continued 

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Proposed relative weight Proposed average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

0201 ......... Traumatic brain injury M>53.35 

and C>23.5.

0.7957 0.6567 0.5947 0.5509 10 9 8 8 

0202 ......... Traumatic brain injury M>44.25 

and M<53.35 and C>23.5.

1.0090 0.8327 0.7541 0.6985 13 12 10 10 

0203 ......... Traumatic brain injury M>44.25 

and C<23.5.

1.2165 1.0040 0.9092 0.8422 14 13 12 12 

0204 ......... Traumatic brain injury M>40.65 

and M<44.25.

1.3278 1.0959 0.9924 0.9193 15 15 13 13 

0205 ......... Traumatic brain injury M>28.75 

and M<40.65.

1.6060 1.3255 1.2004 1.1119 17 17 16 15 

0206 ......... Traumatic brain injury M>22.05 

and M<28.75.

2.0505 1.6923 1.5326 1.4197 21 21 20 19 

0207 ......... Traumatic brain injury M<22.05 2.6905 2.2205 2.0109 1.8627 36 27 25 23 

0301 ......... Non-traumatic brain injury 

M>41.05.

1.0947 0.9303 0.8501 0.7640 12 12 11 10 

0302 ......... Non-traumatic brain injury 

M>35.05 and M<41.05.

1.4084 1.1969 1.0937 0.9829 14 15 14 13 

0303 ......... Non-traumatic brain injury 

M>26.15 and M<35.05.

1.6925 1.4384 1.3144 1.1812 17 18 16 15 

0304 ......... Non-traumatic brain injury 

M<26.15.

2.3001 1.9548 1.7862 1.6053 28 24 21 20 

0401 ......... Traumatic spinal cord injury 

M>48.45.

0.9524 0.8236 0.7692 0.7107 12 11 10 10 

0402 ......... Traumatic spinal cord injury 

M>30.35 and M<48.45.

1.3448 1.1629 1.0862 1.0035 17 16 15 13 

0403 ......... Traumatic spinal cord injury 

M>16.05 and M<30.35.

2.2969 1.9863 1.8552 1.7140 30 25 23 22 

0404 ......... Traumatic spinal cord injury 

M<16.05 and A>63.5.

4.1471 3.5864 3.3497 3.0946 66 44 38 36 

0405 ......... Traumatic spinal cord injury 

M<16.05 and A<63.5.

3.3687 2.9132 2.7209 2.5138 42 30 30 32 

0501 ......... Non-traumatic spinal cord injury 

M>51.35.

0.7485 0.6643 0.5859 0.5236 9 9 8 8 

0502 ......... Non-traumatic spinal cord injury 

M>40.15 and M<51.35.

1.0121 0.8982 0.7922 0.7080 12 12 11 10 

0503 ......... Non-traumatic spinal cord injury 

M>31.25 and M<40.15.

1.3269 1.1777 1.0387 0.9282 15 15 14 12 

0504 ......... Non-traumatic spinal cord injury 

M>29.25 and M<31.25.

1.6143 1.4327 1.2637 1.1293 19 19 17 15 

0505 ......... Non-traumatic spinal cord injury 

M>23.75 and M<29.25.

1.9083 1.6936 1.4938 1.3349 21 19 19 17 

0506 ......... Non-traumatic spinal cord injury 

M<23.75.

2.6059 2.3127 2.0399 1.8229 30 29 24 23 

0601 ......... Neurological M>47.75 ................ 0.9507 0.7701 0.7182 0.6558 11 11 9 9 

0602 ......... Neurological M>37.35 and 

M<47.75.

1.2627 1.0228 0.9539 0.8710 14 13 12 12 

0603 ......... Neurological M>25.85 and 

M<37.35.

1.6055 1.3005 1.2129 1.1075 16 16 15 15 

0604 ......... Neurological M<25.85 ................ 2.1200 1.7172 1.6016 1.4624 25 21 20 18 

0701 ......... Fracture of lower extremity 

M>42.15.

0.9081 0.7815 0.7372 0.6629 10 10 10 9 

0702 ......... Fracture of lower extremity 

M>34.15 and M<42.15.

1.1867 1.0212 0.9633 0.8662 14 14 13 12 

0703 ......... Fracture of lower extremity 

M>28.15 and M<34.15.

1.4492 1.2471 1.1765 1.0579 16 16 15 14 

0704 ......... Fracture of lower extremity 

M<28.15.

1.8522 1.5939 1.5037 1.3520 19 20 19 18 

0801 ......... Replacement of lower extremity 

joint M>49.55.

0.6786 0.5637 0.5166 0.4690 8 8 7 7 

0802 ......... Replacement of lower extremity 

joint M>37.05 and M<49.55.

0.9002 0.7477 0.6853 0.6221 10 10 9 9 

0803 ......... Replacement of lower extremity 

joint M>28.65 and M<37.05 

and A>83.5.

1.2808 1.0639 0.9750 0.8851 13 13 13 12 

0804 ......... Replacement of lower extremity 

joint M>28.65 and M<37.05 

and A<83.5.

1.1331 0.9412 0.8625 0.7830 13 12 11 11 

0805 ......... Replacement of lower extremity 

joint M>22.05 and M<28.65.

1.4300 1.1879 1.0886 0.9882 16 15 14 13 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22679 

TABLE 1.— PROPOSED RELATIVE WEIGHTS AND AVERAGE LENGTHS OF STAY FOR CASE-MIX GROUPS—Continued 

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Proposed relative weight Proposed average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

0806 ......... Replacement of lower extremity 

joint M<22.05.

1.7498 1.4535 1.3320 1.2092 21 19 16 15 

0901 ......... Other orthopedic M>44.75 ......... 0.8724 0.7428 0.6672 0.5950 12 9 10 9 

0902 ......... Other orthopedic M>34.35 and 

M<44.75.

1.1764 1.0016 0.8997 0.8023 13 13 12 11 

0903 ......... Other orthopedic M>24.15 and 

M<34.35.

1.5455 1.3159 1.1821 1.0541 16 17 15 14 

0904 ......... Other orthopedic M<24.15 ......... 1.9922 1.6963 1.5238 1.3588 23 21 20 18 

1001 ......... Amputation, lower extremity 

M>47.65.

0.9530 0.9074 0.7850 0.7218 11 16 10 10 

1002 ......... Amputation, lower extremity 

M>36.25 and M<47.65.

1.2690 1.2083 1.0452 0.9611 14 15 13 13 

1003 ......... Amputation, lower extremity 

M<36.25.

1.8511 1.7625 1.5246 1.4019 19 21 19 18 

1101 ......... Amputation, non-lower extremity 

M>36.35.

1.1511 1.0159 0.9562 0.8734 12 13 12 12 

1102 ......... Amputation, non-lower extremity 

M<36.35.

1.7909 1.5805 1.4877 1.3589 19 21 18 16 

1201 ......... Osteoarthritis M>37.65 .............. 1.0383 0.8996 0.8403 0.7356 12 11 11 10 

1202 ......... Osteoarthritis M>30.75 and 

M<37.65.

1.3069 1.1323 1.0576 0.9258 13 15 13 12 

1203 ......... Osteoarthritis M<30.75 .............. 1.6806 1.4561 1.3600 1.1906 16 18 17 16 

1301 ......... Rheumatoid, other arthritis 

M>36.35.

1.2933 0.9197 0.8468 0.7603 13 12 11 10 

1302 ......... Rheumatoid, other arthritis 

M>26.15 and M<36.35.

1.7330 1.2324 1.1347 1.0188 18 15 14 14 

1303 ......... Rheumatoid, other arthritis 

M<26.15.

2.2338 1.5885 1.4625 1.3132 18 21 19 17 

1401 ......... Cardiac M>48.85 ....................... 0.8468 0.7331 0.6541 0.5895 10 10 10 9 

1402 ......... Cardiac M>38.55 and M<48.85 1.1260 0.9748 0.8697 0.7838 13 13 12 11 

1403 ......... Cardiac M>31.15 and M<38.55 1.4026 1.2142 1.0833 0.9764 14 15 14 13 

1404 ......... Cardiac M<31.15 ....................... 1.7824 1.5430 1.3767 1.2407 19 19 17 16 

1501 ......... Pulmonary M>49.25 ................... 0.8979 0.8644 0.7627 0.7277 10 11 10 10 

1502 ......... Pulmonary M>39.05 and 

M<49.25.

1.1288 1.0867 0.9588 0.9149 12 14 12 12 

1503 ......... Pulmonary M>29.15 and 

M<39.05.

1.3885 1.3367 1.1795 1.1254 16 15 15 14 

1504 ......... Pulmonary M<29.15 ................... 1.7937 1.7267 1.5236 1.4537 22 20 19 17 

1601 ......... Pain syndrome M>37.15 ............ 0.9517 0.8382 0.7807 0.6881 13 11 11 10 

1602 ......... Pain syndrome M>26.75 and 

M<37.15.

1.3184 1.1611 1.0815 0.9532 15 15 13 13 

1603 ......... Pain syndrome M<26.75 ............ 1.6571 1.4593 1.3593 1.1981 15 19 17 16 

1701 ......... Major multiple trauma without 

brain or spinal cord injury 

M>39.25.

1.0571 0.9515 0.8114 0.7336 12 14 12 10 

1702 ......... Major multiple trauma without 

brain or spinal cord injury 

M>31.05 and M<39.25.

1.4300 1.2870 1.0976 0.9924 16 15 14 13 

1703 ......... Major multiple trauma without 

brain or spinal cord injury 

M>25.55 and M<31.05.

1.6793 1.5114 1.2889 1.1654 20 19 16 15 

1704 ......... Major multiple trauma without 

brain or spinal cord injury 

M<25.55.

2.1809 1.9629 1.6740 1.5135 25 23 20 20 

1801 ......... Major multiple trauma with brain 

or spinal cord injury M>40.85.

0.9865 0.9494 0.7674 0.7313 14 13 11 10 

1802 ......... Major multiple trauma with brain 

or spinal cord injury M>23.05 

and M<40.85.

1.6484 1.5864 1.2823 1.2221 20 19 17 16 

1803 ......... Major multiple trauma with brain 

or spinal cord injury M<23.05.

2.8473 2.7401 2.2149 2.1108 38 33 27 25 

1901 ......... Guillain Barre M>35.95 .............. 1.1894 0.8847 0.8847 0.8847 18 11 13 12 

1902 ......... Guillain Barre M>18.05 and 

M<35.95.

2.3954 1.7817 1.7817 1.7817 30 23 21 22 

1903 ......... Guillain Barre M<18.05 .............. 3.8382 2.8549 2.8549 2.8549 40 36 34 36 

2001 ......... Miscellaneous M>49.15 ............. 0.8681 0.7274 0.6556 0.5908 10 10 9 8 

2002 ......... Miscellaneous M>38.75 and 

M<49.15.

1.1547 0.9676 0.8721 0.7859 12 12 11 11 

2003 ......... Miscellaneous M>27.85 and 

M<38.75.

1.4947 1.2525 1.1288 1.0173 16 15 14 13 


rwilkins on PROD1PC63 with PROPOSALS2
22680 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

TABLE 1.— PROPOSED RELATIVE WEIGHTS AND AVERAGE LENGTHS OF STAY FOR CASE-MIX GROUPS—Continued 

CMG CMG Description (M = motor, C 

= cognitive, A = age) 

Proposed relative weight Proposed average length of stay 

Tier 1 Tier 2 Tier 3 None Tier 1 Tier 2 Tier 3 None 

2004 ......... Miscellaneous M<27.85 ............. 1.9862 1.6644 1.5000 1.3518 23 20 19 17 

2101 ......... Burns M>0 ................................. 2.0633 1.8370 1.8370 1.3345 33 23 18 16 

5001 ......... Short-stay cases, length of stay 

is 3 days or fewer.

................ ................ ................ 0.1503 ................ ................ ................ 3 

5101 ......... Expired, orthopedic, length of 

stay is 13 days or fewer.

................ ................ ................ 0.6577 ................ ................ ................ 8 

5102 ......... Expired, orthopedic, length of 

stay is 14 days or more.

................ ................ ................ 1.6370 ................ ................ ................ 20 

5103 ......... Expired, not orthopedic, length 

of stay is 15 days or fewer.

................ ................ ................ 0.6924 ................ ................ ................ 8 

5104 ......... Expired, not orthopedic, length 

of stay is 16 days or more.

................ ................ ................ 1.9305 ................ ................ ................ 23 

Generally, updates to the CMG 

relative weights result in some increases 

and some decreases to the CMG relative 

weight values. Table 2 shows, overall, 

how the proposed revisions in this 

proposed rule would affect particular 

CMG relative weight values, which 

affect the overall distribution of 

payments within CMGs and tiers. Note 

that, because we propose to implement 

the CMG relative weight revisions in a 

budget neutral manner, total estimated 

aggregate payments to IRFs for FY 2009 

would not be affected. However, the 

proposed revisions would affect the 

distribution of payments within CMGs 

and tiers. 

TABLE 2.—DISTRIBUTIONAL EFFECTS OF THE PROPOSED CHANGES TO THE CMG RELATIVE WEIGHTS (FY 2008 VALUES

COMPARED WITH FY 2009 VALUES) 

Percentage change Number of 

cases affected 

Percentage of 

cases affected 

Increased by 15% or more ...................................................................................................................................... 65 0.0 

Increased by between 5% and 15% ....................................................................................................................... 4,979 1.2 

Changed by less than 5% ....................................................................................................................................... 390,600 96.1 

Decreased by between 5% and 15% ...................................................................................................................... 1,706 0.4 

Decreased by 15% or more .................................................................................................................................... 2,531 2.3 

As Table 2 shows, over 96 percent of 

all IRF cases are in CMGs and tiers that 

would experience less than a 5 percent 

change (either increase or decrease) in 

the CMG relative weight value as a 

result of the proposed revisions. The 

most significant increase in the 

proposed CMG relative weight values, 

in terms of the largest number of cases 

affected, would be a 3.3 percent increase 

in the CMG relative weight value for 

CMG A0802—Replacement of lower 

extremity joint, motor score greater than 

37.05 and motor score less than 49.55—

in the ‘‘no-comorbidity’’ tier. In the FY 

2006 data, 25,822 IRF discharges were 

classified into this CMG and tier. We 

believe that the higher costs reported in 

this CMG and tier in FY 2006, compared 

with those reported for this CMG and 

tier in FY 2003, may reflect recent IRF 

case mix changes caused, at least in 

part, by the phase-in of the ‘‘75 percent’’

rule and increased medical review of 

IRF discharges. These changes to the 

system have likely increased the 

complexity of patients being admitted to 

IRFs, especially among the lowerextremity joint replacement cases with 

no comorbidities, which do not meet the 

75 percent rule criteria and have been 

the focus of a lot of the medical review 

activities. 

These same trends explain the most 

significant decrease in the proposed 

CMG relative weight values, in terms of 

the largest number of cases affected. The 

proposed revisions would reduce the 

CMG relative weight value for CMG 

5001—Short-stay cases, length of stay is 

3 days or fewer—by 31.7 percent. This 

decrease is associated with a substantial 

decrease in the number of cases 

classified into this extremely short-stay 

CMG, from 10,222 IRF discharges in FY 

2003 to 2,376 IRF discharges in FY 

2006. We believe that increases in the 

complexity of IRF patients resulting 

from the ‘‘75 percent’’ rule and the IRF 

medical review activities may mean that 

fewer IRF patients can effectively be 

treated in IRFs for 3 days or fewer. 

The changes in the proposed average 

length of stay values in this proposed 

rule, compared with the current (FY 

2008) average length of stay values, are 

small and primarily distributional. 

Some values increase and some 

decrease, compared with the FY 2008 

values. The only notable changes are in 

3 of the CMGs for traumatic spinal cord 

injuries, B0403, B0404, and B0405 (all 

in tier 1), for which the proposed 

average length of stay values increased 

by 8.55 days, 14.92 days, and 9.72 days, 

respectively. This may, again, be due to 

increases in the complexity of IRF 

patients resulting from the ‘‘75 percent’’

rule and the IRF medical review 

activities. The overall average length of 

stay in IRFs also increased from 12.8 

days in FY 2003 to 13.9 days in FY 

2006, which may be attributable to 

increases in IRFs’ case mix over this 

period. 

Given the recent changes in IRFs’ case 

mix, we believe that it is especially 

important to update the CMG relative 

weights and average length of stay 

values at this time to reflect these 

changes. 

III. Proposed FY 2009 IRF PPS Federal 

Prospective Payment Rates 

A. Increase Factor for FY 2009 and 

Proposed FY 2009 Labor-Related Share 

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

requires the Secretary to establish an 

increase factor that reflects changes over 

time in the prices of an appropriate mix 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22681 

of goods and services included in the 

covered IRF services, which is referred 

to as a market basket index. According 

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

increase factor shall be used to update 

the IRF Federal prospective payment 

rates for each FY. However, section 115 

of the Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–

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

the Act to apply a zero percent increase 

factor for FYs 2008 and 2009, effective 

for IRF discharges occurring on or after 

April 1, 2008. In accordance with 

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

amended by the legislation, we are 

applying an increase factor of zero 

percent to update the proposed IRF 

Federal prospective payment rates for 

FY 2009 in this proposed rule. 

We continue to use the methodology 

described in the FY 2006 IRF PPS final 

rule to update the labor-related share for 

FY 2009. In FY 2004, we updated the 

1992 market basket data to 1997 based 

on the methodology described in the FY 

2004 IRF PPS final rule (68 FR 45688 

through 45689). As discussed in the FY 

2006 IRF PPS final rule (70 FR 47915 

through 47917), we rebased and revised 

the market basket for FY 2006 using the 

2002-based cost structures for IRFs, 

inpatient psychiatric facilities (IPFs), 

and long-term care hospitals (LTCHs) to 

determine the FY 2006 labor-related 

share. For FYs 2007 and 2008, we used 

the same methodology discussed in the 

FY 2006 IRF PPS final rule (70 FR at 

47908 through 47917) to determine the 

IRF labor-related share. For FY 2009, we 

continue to use the same methodology 

discussed in the FY 2006 IRF PPS final 

rule. The labor-related share for FY 2009 

is the sum of the FY 2009 relative 

importance of each labor-related cost 

category, and reflects the different rates 

of price change for these cost categories 

between the base year (FY 2002) and FY 

2009. For this proposed rule, the laborrelated share reflects Global Insight’s 

first quarter 2008 forecast. As shown in 

Table 3, the total FY 2009 

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

labor-related share in this proposed rule 

is 75.691 percent. We propose to update 

the labor-related share with the most 

recent available data for the final rule. 

TABLE 3.—PROPOSED FY 2009 IRF RPL LABOR-RELATED SHARE RELATIVE IMPORTANCE

Cost category 

Proposed FY 2009 IRF 

labor-related share 

relative importance 

Wages and salaries ............................................................................................................................................................. 52.683 

Employee benefits ............................................................................................................................................................... 14.039 

Professional fees ................................................................................................................................................................. 2.896 

All other labor intensive services ......................................................................................................................................... 2.137 

Subtotal: ........................................................................................................................................................................ 71.755 

Labor-related share of capital costs (.46) ........................................................................................................................... 3.936 

Total: ............................................................................................................................................................................. 75.691 

Source: GLOBAL INSIGHT, INC, 1st QTR, 2008; @USMACRO/CONTROL0308 @CISSIM/TL0208.SIM Historical Data through 4th QTR, 

2007. 

B. Proposed Area Wage Adjustment 

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

the Secretary to adjust the proportion 

(as estimated by the Secretary from time 

to time) of rehabilitation facilities’ costs 

attributable to wages and wage-related 

costs by a factor (established by the 

Secretary) reflecting the relative hospital 

wage level in the geographic area of the 

rehabilitation facility compared to the 

national average wage level for those 

facilities. The Secretary is required to 

update the IRF PPS wage index on the 

basis of information available to the 

Secretary on the wages and wage-related 

costs to furnish rehabilitation services. 

Any adjustments or updates made under 

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

made in a budget neutral manner. 

In the FY 2008 IRF PPS final rule (72 

FR 44299), we maintained the 

methodology described in the FY 2006 

IRF PPS final rule to determine the wage 

index, labor market area definitions, and 

hold harmless policy consistent with 

the rationale outlined in the FY 2006 

IRF PPS final rule (70 FR 47917 through 

47933). 

For FY 2009, we propose to maintain 

the policies and methodologies 

described in the FY 2008 IRF PPS final 

rule relating to the labor market area 

definitions and the wage index 

methodology for areas with wage data. 

Therefore, this proposed rule continues 

to use the Core-Based Statistical Area 

(CBSA) labor market area definitions 

and the pre-reclassification and prefloor hospital wage index data based on 

2004 cost report data. 

When adopting new labor market 

designations made by the Office of 

Management and Budget (OMB), we 

identified some geographic areas where 

there were no hospitals and, thus, no 

hospital wage index data on which to 

base the calculation of the IRF PPS wage 

index. We continue to use the same 

methodology discussed in the FY 2008 

IRF PPS final rule (72 FR 44299) to 

address those geographic areas where 

there are no hospitals and, thus, no 

hospital wage index data on which to 

base the calculation of the FY 2009 IRF 

PPS wage index. 

Additionally, this proposed rule 

incorporates the CBSA changes 

published in the most recent OMB 

bulletin that applies to the hospital 

wage data used to determine the current 

IRF PPS wage index. The changes were 

nomenclature and did not represent 

substantive changes to the CBSA-based 

designations. Specifically, OMB added 

or deleted certain CBSA numbers and 

revised certain titles. The OMB bulletins 

are available online at http:// 

www.whitehouse.gov/omb/bulletins/

index.html. 

Finally, as discussed in the FY 2008 

IRF PPS final rule (72 FR 44298), FY 

2008 was the third and final year of the 

3-year phase-out of the budget neutral 

hold harmless policy. For FY 2008 and 

beyond, we no longer apply an 

adjustment for IRFs that meet the 

criteria described in the FY 2006 final 

rule (70 FR 47923 through 47926). 

1. Clarification of New England Deemed 

Counties 

We are taking this opportunity to 

address the change in the treatment of 

‘‘New England deemed counties’’ (that 

is, those counties in New England listed 

in § 412.64(b)(1)(ii)(B) that were deemed 


rwilkins on PROD1PC63 with PROPOSALS2
22682 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

to be parts of urban areas under section 

601(g) of the Social Security 

Amendments of 1983) that was made in 

the FY 2008 Inpatient Prospective 

Payment System (IPPS) final rule with 

comment period (72 FR 47337). These 

counties include the following: 

Litchfield County, CT; York County, 

ME; Sagadahoc County, ME; Merrimack 

County, NH; and Newport County, RI. 

Of these five ‘‘New England deemed 

counties,’’ three (York County, ME, 

Sagadahoc County, ME, and Newport 

County, RI) are also included in 

metropolitan statistical areas (MSAs) 

defined by OMB and are considered 

urban under both the current IPPS and 

IRF PPS labor market area definitions in 

§ 412.64(b)(1)(ii)(A). The remaining two, 

Litchfield County, CT and Merrimack 

County, NH, are geographically located 

in areas that are considered rural under 

the current IPPS (and IRF PPS) labor 

market area definitions, but have been 

previously deemed urban under the 

IPPS in certain circumstances, as 

discussed below. 

In the FY 2008 IPPS final rule with 

comment period, (72 FR 47337 through 

47338), § 412.64(b)(1)(ii)(B) was revised 

that the two ‘‘New England deemed 

counties’’ that are still considered rural 

under the OMB definitions (Litchfield 

County, CT and Merrimack County, 

NH), are no longer considered urban, 

effective for discharges occurring on or 

after October 1, 2007, and, therefore, are 

considered rural in accordance with 

§ 412.64(b)(1)(ii)(C). However, for 

purposes of payment under the IPPS, 

acute care hospitals located within 

those areas are treated as being 

reclassified to their deemed urban area 

effective for discharges occurring on or 

after October 1, 2007 (see 72 FR 47337 

through 47338). We note that the IRF 

PPS does not provide for geographic 

reclassification. Also, in the FY 2008 

IPPS final rule with comment period (72 

FR 47338), we explained that we limited 

this policy change for the ‘‘New England 

deemed counties’’ only to IPPS 

hospitals, and any change to non-IPPS 

provider wage indexes would be 

addressed in the respective payment 

system rules. 

Accordingly, as stated above, we are 

taking this opportunity to clarify the 

treatment of ‘‘New England deemed 

counties’’ under the IRF PPS in this 

proposed rule. 

As discussed above, the IRF PPS has 

consistently used the IPPS definition of 

‘‘urban’’ and ‘‘rural’’ with regard to the 

wage index used in the IRF PPS. Under 

existing § 412.602, an IRF’s wage index 

is determined based on the location of 

the IRF in an urban or rural area as 

defined in §§ 412.64(b)(1)(ii)(A) through 

(C). 

Historical changes to the labor market 

area/geographic classifications and 

annual updates to the wage index values 

under the IRF PPS are made effective 

October 1 each year. When we 

established the most recent IRF PPS 

payment rate update, effective for 

discharges occurring on or after October 

1, 2007 through September 30, 2008, we 

considered the ‘‘New England deemed 

counties’’ (including Litchfield County, 

CT and Merrimack County, NH) as 

urban for FY 2008, as evidenced by the 

inclusion of Litchfield County, CT as 

one of the constituent counties of urban 

CBSA 25540 (Hartford-West HartfordEast Hartford, CT), and the inclusion of 

Merrimack County, NH as one of the 

constituent counties of urban CBSA 

31700 (Manchester-Nashua, NH). 

As noted above, § 412.602 indicates 

that the terms ‘‘rural’’ and ‘‘urban’’ are 

defined according to the definitions of 

those terms in §§ 412.64(b)(1)(ii)(A) 

through (C). Applying the IPPS 

definitions, Litchfield County, CT and 

Merrimack County, NH are not 

considered ‘‘urban’’ under 

§§ 412.64(b)(1)(ii)(A) and (B) as revised 

under the FY 2008 IPPS final rule and, 

therefore, are considered ‘‘rural’’ under 

§ 412.64(b)(1)(ii)(C). Accordingly, 

reflecting our policy to use the IPPS 

definitions of ‘‘urban’’ and ‘‘rural’’, 

these two counties would be considered 

‘‘rural’’ under the IRF PPS effective with 

the next update of the IRF PPS payment 

rates, October 1, 2008, and would no 

longer be included in urban CBSA 

25540 (Hartford-West Hartford-East 

Hartford, CT) and urban CBSA 31700 

(Manchester-Nashua, NH), respectively. 

We note that this policy is consistent 

with our policy of not taking into 

account IPPS geographic 

reclassifications in determining 

payments under the IRF PPS. We do not 

need to make any changes to our 

regulations to effectuate this change. 

There is one IRF (in Merrimack 

County, NH) that greatly benefits from 

treating these counties as rural. This IRF 

would begin to receive a higher wage 

index value and the 21.3 percent 

adjustment that is applied to IRF PPS 

payments for rural facilities. Currently, 

there are no IRFs in the following areas: 

Litchfield County, CT; rural 

Connecticut; or rural New Hampshire. 

2. Multi-Campus Hospital Wage Index 

Data 

In the FY 2008 IRF PPS final rule (72 

FR 44284, August 7, 2007), we 

established IRF PPS wage index values 

for FY 2008 calculated from the same 

data (collected from cost reports 

submitted by hospitals for cost reporting 

periods beginning during FY 2003) used 

to compute the FY 2007 acute care 

hospital inpatient wage index, without 

taking into account geographic 

reclassification under sections 

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

IRF PPS wage index values applicable 

for discharges occurring on or after 

October 1, 2007 through September 30, 

2008 are shown in Table 1 (for urban 

areas) and Table 2 (for rural areas) in the 

addendum to the FY 2008 IRF PPS final 

rule (72 FR 44312 through 44335). 

We are continuing to use IPPS wage 

data for the FY 2009 IRF PPS Wage 

Index, because we believe that using the 

hospital inpatient wage data is 

appropriate and reasonable for the IRF 

PPS. We note that the IPPS wage data 

used to determine the FY 2009 IRF wage 

index values reflect our policy that was 

adopted under the IPPS beginning in FY 

2008, which apportions the wage data 

for multi-campus hospitals located in 

different labor market areas (CBSAs) to 

each CBSA where the campuses are 

located (see the FY 2008 IPPS final rule 

with comment period (72 FR 47317 

through 47320)). We computed the FY 

2009 IRF PPS wage index values 

presented in this notice consistent with 

our pre-reclassified IPPS wage index 

policy (that is, our historical policy of 

not taking into account IPPS geographic 

reclassifications in determining 

payments under the IRF PPS). 

For the FY 2009 IRF PPS, we 

computed the wage index from IPPS 

wage data (submitted by hospitals for 

cost reporting periods beginning in FY 

2004 and used in the FY 2008 IPPS 

wage index), which allocated salaries 

and hours to the campuses of two multicampus hospitals with campuses that 

are located in different labor areas, one 

in Massachusetts and another in Illinois. 

Thus, the proposed FY 2009 IRF PPS 

wage index values for the following 

CBSAs are affected by this policy: 

Boston-Quincy, MA (CBSA 14484), 

Providence-New Bedford-Falls River, 

RI–MA (CBSA 39300), ChicagoNaperville-Joliet, IL (CBSA 16974) and 

Lake County-Kenosha County, IL–WI 

(CBSA 29404) (please refer to Table 1 in 

the addendum of this proposed rule). 

3. Methodology for Applying the 

Proposed Revisions to the Area Wage 

Adjustment for FY 2009 in a BudgetNeutral Manner 

To calculate the wage-adjusted facility 

payment for the payment rates set forth 

in this proposed rule, we multiply the 

unadjusted Federal prospective 

payment by the proposed FY 2009 RPL 

labor-related share (75.691 percent) to 

determine the labor-related portion of 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22683 

the Federal prospective payments. We 

then multiply this labor-related portion 

by the applicable proposed IRF wage 

index shown in Table 1 for urban areas 

and Table 2 for rural areas in the 

addendum. 

Adjustments or updates to the IRF 

wage index made under section 

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

budget neutral manner; therefore, we 

calculated a budget neutral wage 

adjustment factor as established in the 

FY 2004 IRF PPS final rule and codified 

at § 412.624(e)(1), and described in the 

steps below. We propose to use the 

following steps to ensure that the FY 

2009 IRF standard payment conversion 

factor reflects the update to the 

proposed wage indexes (based on the 

FY 2004 pre-reclassified and pre-floor 

hospital wage data) and the proposed 

labor-related share in a budget neutral 

manner: 

Step 1. Determine the total amount of 

the estimated FY 2008 IRF PPS rates, 

using the FY 2008 standard payment 

conversion factor and the labor-related 

share and the wage indexes from FY 

2008 (as published in the FY 2008 IRF 

PPS final rule). 

Step 2. Calculate the total amount of 

estimated IRF PPS payments, using the 

FY 2008 standard payment conversion 

factor and the proposed FY 2009 laborrelated share and proposed CBSA urban 

and rural wage indexes. 

Step 3. Divide the amount calculated 

in step 1 by the amount calculated in 

step 2, which equals the FY 2009 budget 

neutral wage adjustment factor of 

1.0004. 

Step 4. Apply the FY 2009 budget 

neutral wage adjustment factor from 

step 3 to the FY 2008 IRF PPS standard 

payment conversion factor after the 

application of the estimated market 

basket update to determine the FY 2009 

standard payment conversion factor. 

C. Description of the Proposed IRF 

Standard Payment Conversion Factor 

and Proposed Payment Rates for FY 

2009 

To calculate the proposed standard 

payment conversion factor for FY 2009, 

as illustrated in Table 5 below, we begin 

with the standard payment conversion 

factor for FY 2008. To explain how we 

determined the standard payment 

conversion factor for FY 2008, we 

include Table 4 below. The final FY 

2008 IRF standard payment conversion 

factor that we show in Tables 4 and 5 

below is different than the IRF standard 

payment conversion factor that we 

finalized in the FY 2008 IRF PPS final 

rule (72 FR 44284) because we adjusted 

the IRF standard payment conversion 

factor for IRF discharges occurring on or 

after April 1, 2008 to reflect the changes 

codified in section 115 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007 (Pub. L. 110–173). Section 115 of 

the Medicare, Medicaid, and SCHIP 

Extension Act of 2007 amended section 

1886(j)(3)(C) of the Act to require the 

Secretary to apply a zero percent 

increase factor for FYs 2008 and 2009, 

effective for discharges occurring on or 

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

of the Act requires the Secretary to 

develop an increase factor to update the 

IRF Federal prospective payment rates 

for each FY. For a discussion of the 

increase factor the Secretary typically 

uses to update the IRF Federal 

prospective payment rates, see the FY 

2008 IRF PPS final rule (72 FR 44284). 

In the FY 2008 IRF PPS final rule, we 

used the RPL market basket estimate 

described in that final rule (3.2 percent) 

to update the IRF standard payment 

conversion factor. As shown in Table 3 

of the FY 2008 IRF PPS final rule, 

applying this market basket estimate to 

the standard payment amount resulted 

in a final standard payment conversion 

factor for FY 2008 of $13,451. 

However, section 115 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007 had the effect of changing the 

increase factor for FY 2008 from 3.2 

percent to zero percent for discharges 

occurring on or after April 1, 2008. This, 

in turn, had the effect of decreasing the 

IRF standard payment conversion factor 

for discharges occurring on or after 

April 1, 2008. 

As shown in Table 4, to develop the 

FY 2008 standard payment conversion 

factor for discharges beginning on or 

after April 1, 2008, we started with the 

FY 2007 standard payment conversion 

factor that was finalized in the FY 2007 

IRF PPS final rule (71 FR 48354). We 

then multiplied this by the zero percent 

increase factor, as described above. 

Then, we applied the same FY 2008 

budget neutrality factor (1.0041) for the 

Wage Index, Labor-Related Share, and 

the Hold Harmless Provision that was 

published in the FY 2008 IRF PPS Final 

Rule (72 FR 44284). This resulted in the 

final FY 2008 standard payment 

conversion factor, effective for 

discharges occurring on or after April 1, 

2008, of $13,034. 

TABLE 4.—CALCULATIONS TO DETERMINE THE FY 2008 IRF STANDARD PAYMENT CONVERSION FACTOR FOR

DISCHARGES BEGINNING ON OR AFTER APRIL 1, 2008 

Explanation for adjustment Calculations 

FY 2007 Standard Payment Conversion Factor (published in the FY 2007 IRF PPS Final Rule (71 FR 48354)) ........................... $12,981 

Zero Percent Increase Factor for Discharges Occurring on or after April 1, 2008 ............................................................................ × 1.0000 

Budget Neutrality Factor for the Wage Index, Labor-Related Share, and the Hold Harmless Provision that was published in the 

FY 2008 IRF PPS Final Rule (72 FR 44284) .................................................................................................................................. × 1.0041 

Standard Payment Conversion Factor for Discharges Occurring on or After April 1, 2008 ............................................................... = $13,034 

As a result, the IRF standard payment 

conversion factor changed from $13,451 

for discharges occurring on or after 

October 1, 2007 to $13,034 for 

discharges occurring on or after April 1, 

2008. 

Further, as required by section 115 of 

the Medicare, Medicaid, and SCHIP 

Extension Act of 2007, we apply an 

increase factor of zero percent to the 

standard payment conversion factor for 

FY 2009, meaning that it does not 

change from the current value of 

$13,034. Next, we apply the proposed 

combined budget neutrality factor for 

the FY 2009 wage index and labor 

related share of 1.0004, which would 

result in a standard payment amount of 

$13,039. Finally, we apply the proposed 

budget neutrality factor for the revised 

CMG relative weights of 0.9969, which 

would result in the proposed FY 2009 

standard payment conversion factor of 

$12,999. 

TABLE 5.—CALCULATIONS TO DETERMINE THE PROPOSED FY 2009 STANDARD PAYMENT CONVERSION FACTOR

Explanation for adjustment Calculations 

Standard Payment Conversion Factor for Discharges Occurring on or After April 1, 2008 ............................................................... $13,034 


rwilkins on PROD1PC63 with PROPOSALS2
22684 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

TABLE 5.—CALCULATIONS TO DETERMINE THE PROPOSED FY 2009 STANDARD PAYMENT CONVERSION FACTOR—

Continued 

Explanation for adjustment Calculations 

Zero Percent Increase Factor for FY 2009 ......................................................................................................................................... × 1.0000 

Proposed Budget Neutrality Factor for the Wage Index and Labor-Related Share ........................................................................... × 1.0004 

Proposed Budget Neutrality Factor for the Revisions to the CMG Relative Weights ........................................................................ × 0.9969 

Proposed FY 2009 Standard Payment Conversion Factor ................................................................................................................. = $12,999 

After the application of the CMG 

relative weights described in section II 

of this proposed rule, the resulting 

proposed unadjusted IRF prospective 

payment rates for FY 2009 are shown 

below in Table 6, ‘‘Proposed FY 2009 

Payment Rates.’’

TABLE 6.—PROPOSED FY 2009 PAYMENT RATES

CMG Payment rate tier 

1 

Payment rate tier 

2 

Payment rate tier 

3 

Payment rate no 

comorbidity 

0101 ......................................................................................... $10,062.53 $9,415.18 $8,401.25 $8,087.98 

0102 ......................................................................................... 12,438.74 11,638.00 10,384.90 9,997.53 

0103 ......................................................................................... 14,538.08 13,603.45 12,138.47 11,686.10 

0104 ......................................................................................... 15,609.20 14,604.38 13,031.50 12,545.33 

0105 ......................................................................................... 18,467.68 17,279.57 15,418.11 14,843.56 

0106 ......................................................................................... 21,311.86 19,941.77 17,793.03 17,130.08 

0107 ......................................................................................... 24,471.92 22,897.74 20,431.83 19,670.09 

0108 ......................................................................................... 29,156.76 27,281.00 24,341.93 23,434.60 

0109 ......................................................................................... 28,128.54 26,319.08 23,483.99 22,609.16 

0110 ......................................................................................... 35,075.20 32,818.58 29,284.15 28,192.23 

0201 ......................................................................................... 10,343.30 8,536.44 7,730.51 7,161.15 

0202 ......................................................................................... 13,115.99 10,824.27 9,802.55 9,079.80 

0203 ......................................................................................... 15,813.28 13,051.00 11,818.69 10,947.76 

0204 ......................................................................................... 17,260.07 14,245.60 12,900.21 11,949.98 

0205 ......................................................................................... 20,876.39 17,230.17 15,604.00 14,453.59 

0206 ......................................................................................... 26,654.45 21,998.21 19,922.27 18,454.68 

0207 ......................................................................................... 34,973.81 28,864.28 26,139.69 24,213.24 

0301 ......................................................................................... 14,230.01 12,092.97 11,050.45 9,931.24 

0302 ......................................................................................... 18,307.79 15,558.50 14,217.01 12,776.72 

0303 ......................................................................................... 22,000.81 18,697.76 17,085.89 15,354.42 

0304 ......................................................................................... 29,899.00 25,410.45 23,218.81 20,867.29 

0401 ......................................................................................... 12,380.25 10,705.98 9,998.83 9,238.39 

0402 ......................................................................................... 17,481.06 15,116.54 14,119.51 13,044.50 

0403 ......................................................................................... 29,857.40 25,819.91 24,115.74 22,280.29 

0404 ......................................................................................... 53,908.15 46,619.61 43,542.75 40,226.71 

0405 ......................................................................................... 43,789.73 37,868.69 35,368.98 32,676.89 

0501 ......................................................................................... 9,729.75 8,635.24 7,616.11 6,806.28 

0502 ......................................................................................... 13,156.29 11,675.70 10,297.81 9,203.29 

0503 ......................................................................................... 17,248.37 15,308.92 13,502.06 12,065.67 

0504 ......................................................................................... 20,984.29 18,623.67 16,426.84 14,679.77 

0505 ......................................................................................... 24,805.99 22,015.11 19,417.91 17,352.37 

0506 ......................................................................................... 33,874.09 30,062.79 26,516.66 23,695.88 

0601 ......................................................................................... 12,358.15 10,010.53 9,335.88 8,524.74 

0602 ......................................................................................... 16,413.84 13,295.38 12,399.75 11,322.13 

0603 ......................................................................................... 20,869.89 16,905.20 15,766.49 14,396.39 

0604 ......................................................................................... 27,557.88 22,321.88 20,819.20 19,009.74 

0701 ......................................................................................... 11,804.39 10,158.72 9,582.86 8,617.04 

0702 ......................................................................................... 15,425.91 13,274.58 12,521.94 11,259.73 

0703 ......................................................................................... 18,838.15 16,211.05 15,293.32 13,751.64 

0704 ......................................................................................... 24,076.75 20,719.11 19,546.60 17,574.65 

0801 ......................................................................................... 8,821.12 7,327.54 6,715.28 6,096.53 

0802 ......................................................................................... 11,701.70 9,719.35 8,908.21 8,086.68 

0803 ......................................................................................... 16,649.12 13,829.64 12,674.03 11,505.41 

0804 ......................................................................................... 14,729.17 12,234.66 11,211.64 10,178.22 

0805 ......................................................................................... 18,588.57 15,441.51 14,150.71 12,845.61 

0806 ......................................................................................... 22,745.65 18,894.05 17,314.67 15,718.39 

0901 ......................................................................................... 11,340.33 9,655.66 8,672.93 7,734.41 

0902 ......................................................................................... 15,292.02 13,019.80 11,695.20 10,429.10 

0903 ......................................................................................... 20,089.95 17,105.38 15,366.12 13,702.25 

0904 ......................................................................................... 25,896.61 22,050.20 19,807.88 17,663.04 

1001 ......................................................................................... 12,388.05 11,795.29 10,204.22 9,382.68 

1002 ......................................................................................... 16,495.73 15,706.69 13,586.55 12,493.34 

1003 ......................................................................................... 24,062.45 22,910.74 19,818.28 18,223.30 

1101 ......................................................................................... 14,963.15 13,205.68 12,429.64 11,353.33 

1102 ......................................................................................... 23,279.91 20,544.92 19,338.61 17,664.34 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22685 

TABLE 6.—PROPOSED FY 2009 PAYMENT RATES—Continued 

CMG Payment rate tier 

1 

Payment rate tier 

2 

Payment rate tier 

3 

Payment rate no 

comorbidity 

1201 ......................................................................................... 13,496.86 11,693.90 10,923.06 9,562.06 

1202 ......................................................................................... 16,988.39 14,718.77 13,747.74 12,034.47 

1203 ......................................................................................... 21,846.12 18,927.84 17,678.64 15,476.61 

1301 ......................................................................................... 16,811.61 11,955.18 11,007.55 9,883.14 

1302 ......................................................................................... 22,527.27 16,019.97 14,749.97 13,243.38 

1303 ......................................................................................... 29,037.17 20,648.91 19,011.04 17,070.29 

1401 ......................................................................................... 11,007.55 9,529.57 8,502.65 7,662.91 

1402 ......................................................................................... 14,636.87 12,671.43 11,305.23 10,188.62 

1403 ......................................................................................... 18,232.40 15,783.39 14,081.82 12,692.22 

1404 ......................................................................................... 23,169.42 20,057.46 17,895.72 16,127.86 

1501 ......................................................................................... 11,671.80 11,236.34 9,914.34 9,459.37 

1502 ......................................................................................... 14,673.27 14,126.01 12,463.44 11,892.79 

1503 ......................................................................................... 18,049.11 17,375.76 15,332.32 14,629.07 

1504 ......................................................................................... 23,316.31 22,445.37 19,805.28 18,896.65 

1601 ......................................................................................... 12,371.15 10,895.76 10,148.32 8,944.61 

1602 ......................................................................................... 17,137.88 15,093.14 14,058.42 12,390.65 

1603 ......................................................................................... 21,540.64 18,969.44 17,669.54 15,574.10 

1701 ......................................................................................... 13,741.24 12,368.55 10,547.39 9,536.07 

1702 ......................................................................................... 18,588.57 16,729.71 14,267.70 12,900.21 

1703 ......................................................................................... 21,829.22 19,646.69 16,754.41 15,149.03 

1704 ......................................................................................... 28,349.52 25,515.74 21,760.33 19,673.99 

1801 ......................................................................................... 12,823.51 12,341.25 9,975.43 9,506.17 

1802 ......................................................................................... 21,427.55 20,621.61 16,668.62 15,886.08 

1803 ......................................................................................... 37,012.05 35,618.56 28,791.49 27,438.29 

1901 ......................................................................................... 15,461.01 11,500.22 11,500.22 11,500.22 

1902 ......................................................................................... 31,137.80 23,160.32 23,160.32 23,160.32 

1903 ......................................................................................... 49,892.76 37,110.85 37,110.85 37,110.85 

2001 ......................................................................................... 11,284.43 9,455.47 8,522.14 7,679.81 

2002 ......................................................................................... 15,009.95 12,577.83 11,336.43 10,215.91 

2003 ......................................................................................... 19,429.61 16,281.25 14,673.27 13,223.88 

2004 ......................................................................................... 25,818.61 21,635.54 19,498.50 17,572.05 

2101 ......................................................................................... 26,820.84 23,879.16 23,879.16 17,347.17 

5001 ......................................................................................... 0.00 0.00 0.00 1,953.75 

5101 ......................................................................................... 0.00 0.00 0.00 8,549.44 

5102 ......................................................................................... 0.00 0.00 0.00 21,279.36 

5103 ......................................................................................... 0.00 0.00 0.00 9,000.51 

5104 ......................................................................................... 0.00 0.00 0.00 25,094.57 

D. Example of the Methodology for 

Adjusting the Proposed Federal 

Prospective Payment Rates 

Table 7 illustrates the proposed 

methodology for adjusting the Federal 

prospective payments (as described in 

sections III.A through III.C of this 

proposed rule). The examples below are 

based on two hypothetical Medicare 

beneficiaries, both classified into CMG 

0110 (without comorbidities). The 

unadjusted Federal prospective 

payment rate for CMG 0110 (without 

comorbidities) appears in Table 6 above. 

One beneficiary is in Facility A, an 

IRF located in rural Spencer County, 

Indiana, and another beneficiary is in 

Facility B, an IRF located in urban 

Harrison County, Indiana. Facility A, a 

non-teaching hospital, has a 

disproportionate share hospital (DSH) 

percentage of 5 percent (which results 

in a low-income percentage (LIP) 

adjustment of 1.0309), a wage index of 

0.8576, and an applicable rural 

adjustment of 21.3 percent. Facility B, a 

teaching hospital, has a DSH percentage 

of 15 percent (which results in a LIP 

adjustment of 1.0910), a wage index of 

0.9065, and an applicable teaching 

status adjustment of 0.109. 

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

payment, we begin by taking the 

unadjusted Federal prospective 

payment rate for CMG 0110 (without 

comorbidities) from Table 6 above. 

Then, we multiply the estimated laborrelated share (75.691) described in 

section III.A by the unadjusted Federal 

prospective payment rate. To determine 

the non-labor portion of the Federal 

prospective payment rate, we subtract 

the labor portion of the Federal payment 

from the unadjusted Federal prospective 

payment. 

To compute the wage-adjusted 

Federal prospective payment, we 

multiply the result of the labor portion 

of the Federal payment by the 

appropriate wage index found in the 

addendum in Tables 1 and 2, which 

would result in the wage-adjusted 

amount. Next, we compute the wageadjusted Federal payment by adding the 

wage-adjusted amount to the non-labor 

portion. 

Adjusting the Federal prospective 

payment by the facility-level 

adjustments involves several steps. 

First, we take the wage-adjusted Federal 

prospective payment and multiply it by 

the appropriate rural and LIP 

adjustments (if applicable). Second, to 

determine the appropriate amount of 

additional payment for the teaching 

status adjustment (if applicable), we 

multiply the teaching status adjustment 

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

applicable). Finally, we add the 

additional teaching status payments (if 

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

rates. Table 7 illustrates the components 

of the proposed adjusted payment 

calculation. 


rwilkins on PROD1PC63 with PROPOSALS2
22686 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

TABLE 7.—EXAMPLE OF COMPUTING AN IRF-PROPOSED FY 2009 FEDERAL PROSPECTIVE PAYMENT

Steps Rural Facility A 

(Spencer Co., IN) 

Urban Facility B 

(Harrison Co., IN) 

1 ................... Unadjusted Federal Prospective Payment ........................................................................ $28,192.23 $28,192.23 

2 ................... Labor Share ....................................................................................................................... × 0.75691 × 0.75691 

3 ................... Labor Portion of Federal Payment .................................................................................... = $21,338.98 = $21,338.98 

4 ................... CBSA Based Wage Index (shown in the Addendum, Tables 1 and 2) ............................ × 0.8576 × 0.9065 

5 ................... Wage-Adjusted Amount ..................................................................................................... = $18,300.31 = $19,343.79 

6 ................... Non-labor Amount ............................................................................................................. + $6,853.25 + $6,853.25 

7 ................... Wage-Adjusted Federal Payment ..................................................................................... = $25,153.56 = $26,197.04 

8 ................... Rural Adjustment ............................................................................................................... × 1.213 × 1.000 

9 ................... Wage- and Rural-Adjusted Federal Payment ................................................................... = $30,511.27 = $26,197.04 

10 ................. LIP Adjustment .................................................................................................................. × 1.0309 × 1.0910 

11 ................. FY 2009 Wage-, Rural- and LIP-Adjusted Federal Prospective Payment Rate ............... = $31,454.07 = $28,580.97 

12 ................. FY 2009 Wage- and Rural-Adjusted Federal Prospective Payment ................................ $30,511.27 $26,197.04 

13 ................. Teaching Status Adjustment ............................................................................................. × 0.000 × 0.109 

14 ................. Teaching Status Adjustment Amount ................................................................................ = $0.00 = $2,855.48 

15 ................. FY 2009 Wage-, Rural-, and LIP-Adjusted Federal Prospective Payment Rate .............. + $31,454.07 + $28,580.97 

16 ................. Total FY 2009 Adjusted Federal Prospective Payment .................................................... = $31,454.07 = $31,436.44 

Thus, the proposed adjusted payment 

for Facility A would be $31,454.07 and 

the proposed adjusted payment for 

Facility B would be $31,436.44. 

IV. Proposed Update to Payments for 

High-Cost Outliers Under the IRF PPS 

A. Proposed Update to the Outlier 

Threshold Amount for FY 2009 

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

the Secretary with the authority to make 

payments in addition to the basic IRF 

prospective payments for cases 

incurring extraordinarily high costs. A 

case qualifies for an outlier payment if 

the estimated cost of the case exceeds 

the adjusted outlier threshold. We 

calculate the adjusted outlier threshold 

by adding the IRF PPS payment for the 

case (that is, the CMG payment adjusted 

by all of the relevant facility-level 

adjustments) and the adjusted threshold 

amount (also adjusted by all of the 

relevant facility-level adjustments). 

Then, we calculate the estimated cost of 

a case by multiplying the IRF’s overall 

CCR by the Medicare allowable covered 

charge. If the estimated cost of the case 

is higher than the adjusted outlier 

threshold, we make an outlier payment 

for the case equal to 80 percent of the 

difference between the estimated cost of 

the case and the outlier threshold. 

In the FY 2002 IRF PPS final rule (66 

FR 41316, 41362 through 41363), we 

discussed our rationale for setting the 

outlier threshold amount for the IRF 

PPS so that estimated outlier payments 

would equal 3 percent of total estimated 

payments. Subsequently, we updated 

the IRF outlier threshold amount in the 

FYs 2006, 2007, and 2008 IRF PPS final 

rules (70 FR 47880, 70 FR 57166, 71 FR 

48354, and 72 FR 44284) to maintain 

estimated outlier payments at 3 percent 

of total estimated payments, and we also 

stated that we would continue to 

analyze the estimated outlier payments 

for subsequent years and adjust the 

outlier threshold amount as appropriate 

to maintain the 3 percent target. 

For this proposed rule, we performed 

an updated analysis of FY 2006 claims 

and IRF–PAI data using the same 

methodology that we used to set the 

initial outlier threshold amount when 

we first implemented the IRF PPS in the 

FY 2002 IRF PPS final rule (66 FR 

41316), which is also the same 

methodology we used to update the 

outlier threshold amounts for FYs 2006, 

2007, and 2008. (Note that the 

methodology that we use to calculate 

the appropriate outlier threshold 

amount for each FY requires us to 

simulate Medicare payments for that 

FY, which requires the use of IRF–PAI 

data. The CMGs and tiers in effect for 

FY 2009 would be slightly different than 

those that were in effect for FY 2006, 

due to revisions that were implemented 

in the FY 2007 IRF PPS final rule (71 

FR 48354). Thus, we use the IRF–PAI 

data rather than the IRF claims data to 

classify the FY 2006 patients into the 

appropriate CMGs and tiers for FY 2009 

to simulate payments and thereby 

calculate the appropriate outlier 

threshold amount.) We did not update 

the outlier threshold amounts for FYs 

2003, 2004, and 2005 because data from 

the FYs immediately after we 

implemented the IRF PPS were not yet 

available to perform the analysis of the 

outlier threshold amount for these FYs. 

For FY 2009, based on an analysis of 

updated FY 2006 claims and IRF–PAI 

data, we estimate that IRF outlier 

payments as a percentage of total 

estimated payments would be 3.7 

percent without the proposed change to 

the outlier threshold amount. The 

reason for this change is discussed 

below. 

In the FY 2008 IRF PPS final rule (72 

FR 44284), we established an outlier 

threshold amount for FY 2008 that 

would maintain estimated IRF outlier 

payments equal to 3 percent of total 

estimated IRF payments. However, the 

estimate of the outlier threshold amount 

for a given FY is dependent upon the 

estimated total IRF PPS payments for 

that FY. If estimated total IRF PPS 

payments for a FY decrease, then the 

outlier threshold amount must increase 

to maintain estimated outlier payments 

at 3 percent of total estimated payments. 

Further, we use the IRF market basket 

estimate to project IRF cost increases for 

each FY. If we project IRF cost increases 

for a given FY that are larger than the 

projected increase in IRF PPS payments 

in that FY, then the outlier threshold 

amount must increase for that FY to 

maintain estimated outlier payments at 

3 percent of total estimated payments. 

As discussed previously in this 

proposed rule, section 115 of the 

Medicare, Medicaid, and SCHIP 

Extension Act of 2007 (Pub. L. 110–

173), which amended section 

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

required the Secretary to apply a zero 

percent increase factor for FYs 2008 and 

2009, effective for discharges occurring 

on or after April 1, 2008. The effect of 

this change was to decrease projected 

IRF PPS payments after we 

implemented what would have been the 

appropriate outlier threshold amount for 

FY 2008 if the increase factor had not 

been adjusted mid-year. We estimate 

that total IRF PPS payments for FY 2008 

decreased from approximately $6.5 

billion to approximately $6.4 billion as 

a result of the changes codified in 

section 115 of the Medicare, Medicaid, 

and SCHIP Extension Act of 2007 (Pub. 

L. 110–173). This reduction in estimated 

total payments for FY 2008, and lack of 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22687 

increase to estimated total payments for 

FY 2009 that is an effect of the 

legislative adjustment to the increase 

factor for FY 2009 (described above), 

had the indirect effect of increasing our 

estimates of outlier payments as a 

percentage of total estimated payments 

for FYs 2008 and 2009. We estimate that 

IRF outlier payments as a percentage of 

total estimated payments for FY 2008 

would exceed 3 percent, because of the 

change in estimated aggregate IRF PPS 

payments for FY 2008 that is described 

above. 

In addition, we estimate that IRF costs 

would increase by 3.0 percent (the FY 

2009 IRF market basket estimate) 

between FY 2008 and FY 2009. The 

combined effect of the estimated 

decrease in IRF PPS payments for FY 

2008, the lack of increase to IRF PPS 

payments for FY 2009 that is an effect 

of the legislative adjustment to the 

increase factor for FY 2009 (described 

above), and the projected 3.0 percent 

increase in IRF costs for FY 2009 is to 

increase estimated IRF outlier payments 

to 3.7 percent of total estimated 

payments for FY 2009. This increase in 

estimated IRF outlier payments as a 

percentage of total estimated payments 

for FY 2009 results in a larger than 

anticipated increase in the outlier 

threshold amount for FY 2009 to 

maintain estimated outlier payments at 

3 percent of total estimated payments. 

Based on the updated analysis of FY 

2006 claims and IRF–PAI data and the 

revised estimates of total IRF PPS 

payments for FYs 2008 and 2009 (as 

discussed above), we propose to update 

the outlier threshold amount to $9,191 

to maintain estimated outlier payments 

at 3 percent of total estimated aggregate 

IRF payments for FY 2009. 

The outlier threshold amount for FY 

2009 is subject to change in the final 

rule based on analysis of updated data. 

B. Update to the IRF Cost-to-Charge 

Ratio Ceilings 

In accordance with the methodology 

stated in the FY 2004 IRF PPS final rule 

(68 FR 45692 through 45694), we apply 

a ceiling to IRFs’ CCRs. Using the 

methodology described in that final 

rule, we propose to update the national 

urban and rural CCRs for IRFs. We 

apply the national urban and rural CCRs 

in the following situations: 

• New IRFs that have not yet 

submitted their first Medicare cost 

report. 

• IRFs whose overall CCR is in excess 

of the proposed national CCR ceiling for 

FY 2009, as discussed below. 

• Other IRFs accurate data which to 

calculate an overall CCR are not 

available. 

Specifically, for FY 2009, we estimate 

a proposed national average CCR of 

0.616 for rural IRFs, which we calculate 

by taking an average of the CCRs for all 

rural IRFs for which we have sufficient 

cost report data. Similarly, we estimate 

a proposed national CCR of 0.486 for 

urban IRFs, which we calculate by 

taking an average of the CCRs for all 

urban IRFs for which we have sufficient 

cost report data. We weight both of 

these averages by the IRFs’ estimated 

costs, meaning that the CCRs of IRFs 

with higher costs factor more heavily 

into the averages than the CCRs of IRFs 

with lower costs. For new IRFs, we use 

these national CCRs until the facility’s 

actual CCR can be computed using the 

first settled cost report (either tentative 

or final, whichever is earlier). 

In addition, we propose to set the 

national CCR ceiling at 1.58 for FY 

2009. This means that, if an individual 

IRF’s CCR exceeds this ceiling of 1.58 

for FY 2009, we would replace the IRF’s 

CCR with the appropriate national 

average CCR (either rural or urban, 

depending on the geographic location of 

the IRF). We estimate the national CCR 

ceiling by: 

Step 1. Taking the national average 

CCR of all IRFs for which we have 

sufficient cost report data (both rural 

and urban IRFs combined); 

Step 2. Estimating the standard 

deviation of the national average CCR 

computed in step 1; 

Step 3. Multiplying the standard 

deviation of the national average CCR 

computed in step 2 by a factor of 3; and 

Step 4. Adding the result from step 3 

to the national average CCR of all IRFs 

for which we have sufficient cost report 

data, from step 1. 

We note that the proposed national 

average rural and urban CCRs and our 

estimate of the national CCR ceiling in 

this section are subject to change in the 

final rule based on analysis of updated 

data. 

V. Revisions to the Regulation Text in 

Response to the Medicare, Medicaid, 

and SCHIP Extension Act of 2007 

Section 115 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007 (Pub. L. 110–173) amended section 

5005 of the Deficit Reduction Act of 

2005 (DRA, Pub. L. 109–171) to revise 

the following elements of the 75 percent 

rule that are used to classify IRFs: 

• The compliance rate that IRFs must 

meet to be excluded from the IPPS and 

to be paid under the IRF PPS shall be 

no greater than the 60 percent 

compliance rate that became effective 

for cost reporting periods beginning on 

or after July 1, 2006. 

• Patient comorbidities that satisfy 

the criteria specified in 42 CFR 

412.23(b)(2)(i) shall be included in the 

calculations used to determine whether 

an IRF meets the 60 percent compliance 

percentage for cost reporting periods 

beginning on or after July 1, 2007. 

Although section 115 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007 (Pub. L. 110–173) grants the 

Secretary broad discretion to implement 

compliance criteria up to 60 percent, we 

are setting the compliance rate at 60 

percent, the highest level possible 

within current statutory authority, for 

the reasons discussed below. In 

addition, we will monitor the impact of 

the new compliance criteria to ensure 

that IRFs predominantly treat patients 

who benefit most from this level of care. 

We believe that a 60 percent 

compliance rate implements the 

provisions of the statute with minimal 

disruption to IRF operations. The 60 

percent compliance rate has been in 

effect for cost reporting periods 

beginning on or after July 1, 2005, and 

the overwhelming majority of IRFs have 

already adjusted operations to meet or 

exceed the 60 percent compliance rate. 

Fewer than 20 IRFs out of 

approximately 1,250 IRFs nationwide 

have been declassified since the May 7, 

2004 final rule (69 FR 25752) became 

effective. Thus, a conservative estimate 

is that over 98 percent of IRFs have been 

able to meet or exceed the 60 percent 

compliance rate. 

Maintaining the 60 percent 

compliance rate also allows us to more 

effectively analyze changes in IRF 

operations and admissions patterns that 

would be needed to comply with the 

current statutory requirement to analyze 

IRF utilization and issue a report to 

Congress. 

Finally, we believe that setting the 

compliance rate at 60 percent, the 

highest level possible within current 

statutory authority, will help to ensure 

that IRFs predominantly treat patients 

who benefit most from this level of care. 

Prior to the implementation of section 

115 of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (Pub. L. 

110–173), the Medicare regulations in 

42 CFR § 412.23(b)(2) specified that a 75 

percent compliance rate would become 

effective, and that comorbidities would 

no longer be used to determine whether 

an IRF met the 75 percent rule 

requirements, for cost reporting periods 

beginning on or after July 1, 2008. 

We note that the FY 2009 President’s 

budget proposes a repeal of the 

provisions in section 115 of the 

Medicare, Medicaid, and SCHIP 

Extension Act of 2007 (Pub. L. 110–173) 

that require that the compliance rate be 


rwilkins on PROD1PC63 with PROPOSALS2
22688 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

set no higher than 60 percent for cost 

reporting periods beginning on or after 

July 1, 2006 and that patient 

comorbidities continue to be used in the 

calculations for determining whether an 

IRF meets the compliance percentage for 

cost reporting periods beginning on or 

after July 1, 2007. 

For these reasons, we propose the 

following revisions to the regulation text 

in § 412.23(b). Specifically, we propose 

to remove the following phrases from 

the first sentence of § 412.23(b)(2)(i): 

• ‘‘and before July 1, 2007;’’ and 

• ‘‘and for cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2008, the hospital has 

served an inpatient population of whom 

at least 65 percent,’’

We also propose to remove 

§ 412.23(b)(2)(ii) in its entirety, 

redesignate the existing 

§ 412.23(b)(2)(iii) to § 412.23(b)(2)(ii), 

and revise all references to the 

previously numbered § 412.23(b)(2)(iii) 

accordingly. 

As noted above, we will continue to 

monitor trends in IRF utilization and 

spending to ensure that IRFs are treating 

the types of patients who benefit most 

from the intensive rehabilitation 

therapies provided in IRFs. In this 

regard, we will also continue to work 

with the Medicare contractors to review 

the medical necessity of IRF claims. 

With the IRF compliance rate set below 

75 percent, it is particularly important 

for the Medicare contractors to review 

the medical necessity of IRF stays, 

regardless of whether the primary 

reason for admission is 1 or more of the 

13 conditions listed in § 412.23(b)(2)(iii) 

(which is being redesignated as 

§ 412.23(b)(2)(ii) in this proposed rule). 

We also believe that it is important for 

us to work with stakeholders to review 

the IRF medical necessity criteria to 

ensure that they reflect the current 

practice of medicine, and that they are 

consistently interpreted and applied by 

the stakeholders. 

VI. Post Acute Care Payment Reform 

Under current law, Medicare covers 

post-acute care (PAC) services in 

various care settings, including skilled 

nursing facilities (SNFs), home health 

agencies (HHAs), long-term care 

hospitals (LTCHs), and IRFs. Each of the 

PAC sites has a separate payment 

system that relies on different patient 

assessment instruments, although there 

is no mandated assessment instrument 

for LTCHs. The current model is based 

on provider-oriented ‘‘silos’’ with 

significant payment differentials 

existing between provider types that 

treat similar patients and provide 

similar services. 

In the FY 2007 IRF PPS proposed rule 

(71 FR at 28134), we described our 

plans to explore refinements to the 

existing PAC payment methodologies to 

create a more seamless system for the 

delivery and payment of PAC services 

under Medicare. The new model will 

focus on beneficiary needs rather than 

provider type and will be characterized 

by more consistent payments for the 

same type of care across different sites 

of service, quality driven pay-forperformance incentives, and collection 

of uniform clinical assessment 

information to support quality and 

discharge planning functions. 

We also noted in the FY 2007 IRF PPS 

proposed rule (71 FR at 28134) that 

section 5008 of the Deficit Reduction 

Act (DRA) of 2005 mandates a PAC 

payment reform demonstration for 

purposes of understanding costs and 

outcomes across different PAC sites. To 

meet this mandate, CMS implemented 

the PAC Payment Reform 

Demonstration (PAC–PRD) to examine 

differences in costs and outcomes for 

PAC patients of similar case mix who 

use different types of PAC providers and 

to develop a standardized patient 

assessment tool for use at acute care 

hospital discharge and at PAC 

admission and discharge. This tool, the 

Continuity Assessment Record and 

Evaluation (CARE) tool, will measure 

the health and functional status of 

Medicare acute discharges. During the 

demonstration, CARE will be completed 

upon a patient’s discharge from the 

acute care hospital and upon admission 

and discharge from a PAC setting. The 

CARE instrument consists of a core set 

of assessment items that are common to 

all patients and care settings and are 

organized under several major domains: 

Medical, Functional, Cognitive, Social, 

and Continuity of Care, in addition to 

supplemental items for specific 

conditions and care settings. 

Additional information on the PAC–

PRD is available at: http:// 

www.cms.hhs.gov/DemoProjectsEval

Rpts/MD/itemdetail.asp?filter

Type=dual,%20keyword&filter

Value=post%20acute%20care&

filterByDID=0&sortByDID=3&sort

Order=descending&item

ID=CMS1201325&intNumPerPage=10. 

We are interested in receiving public 

comments on the CARE instrument, and 

specifically invite comments on how 

CARE might advance the use of Health 

Information Technology (HIT) in 

automating the process for collecting 

and submitting quality data. The CARE 

tool is available at http:// 

www.cms.hhs.gov/ 

paperworkreductionactof1995/pral/ 

list.asp. Viewers should scroll down to 

the entry for CMS–10243, ‘‘Data 

Collection for Administering the 

Medicare Continuity Assessment Record 

and Evaluation (CARE) Instrument.’’

Viewers can then click on the link to 

CMS–10243, click on the link to 

‘‘Downloads,’’ and open Appendix A 

(‘‘CARE Tool Item Matrix,’’ a .pdf file) 

and Appendix B (‘‘CARE Tool Master 

Document,’’ in Microsoft Word). 

In addition, we wish to take this 

opportunity to discuss recent 

developments in the related area of 

value-based purchasing (VBP). VBP ties 

payment to performance through the use 

of incentives based on measures of 

quality and cost of care. The 

implementation of VBP is rapidly 

transforming CMS from being a passive 

payer of claims to an active purchaser 

of higher quality, more efficient health 

care for Medicare beneficiaries. Our 

VBP initiatives include hospital pay for 

reporting (the Reporting Hospital 

Quality Data for the Annual Payment 

Update Program), physician pay for 

reporting (the Physician Quality 

Reporting Initiative), home health pay 

for reporting, the Hospital VBP Plan 

Report to Congress, and various VBP 

demonstration programs across payment 

settings, including the Premier Hospital 

Quality Incentive Demonstration and 

the Physician Group Practice 

Demonstration. 

The preventable hospital-acquired 

conditions (HAC) payment provision for 

IPPS hospitals is another of CMS’ valuebased purchasing initiatives. Section 

1886(d)(4)(D) of the Act required the 

Secretary to select for the HAC IPPS 

payment provision conditions that: (a) 

Are high cost, high volume, or both; (b) 

are assigned to a higher-paying 

diagnosis-related group (DRG) when 

present as a secondary diagnosis; and (c) 

could reasonably have been prevented 

through the application of evidencebased guidelines. Beginning October 1, 

2008, Medicare can no longer assign an 

inpatient hospital discharge to a higherpaying MS–DRG if a selected HAC 

condition was not present on admission. 

That is, the case will be paid as though 

the preventable condition that becomes 

a secondary diagnosis were not present. 

(Medicare will continue to assign a 

discharge to a higher-paying MS–DRG 

in those instances where the selected 

condition was, in fact, present on 

admission). 

The broad principle articulated in the 

HAC payment provision for IPPS 

hospitals—of Medicare not paying for 

these types of preventable conditions—

could potentially be applied to other 

Medicare payment systems for similar 

conditions that occur in settings other 

than IPPS hospitals. Other possible 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22689 

settings of care might include hospital 

outpatient departments, SNFs, HHAs, 

end-stage renal disease facilities, and 

physician practices. The 

implementation would be different for 

each setting, as each payment system is 

different and the reasonable 

preventability through the application 

of evidence-based guidelines would 

vary for candidate conditions over the 

different settings. However, alignment 

of incentives across settings of care is an 

important goal for all of CMS’ VBP 

initiatives, including the HAC 

provision. 

A related application of the broad 

principle behind the HAC payment 

provision for IPPS hospitals could be 

considered through Medicare secondary 

payer policy by requiring the provider 

that failed to prevent the occurrence of 

a preventable condition in one setting to 

pay for all or part of the necessary 

follow-up care in a second setting. This 

would help shield the Medicare 

program from inappropriately paying for 

the downstream effects of a preventable 

condition acquired in the first setting 

but treated in the second setting. 

We note that we are not proposing 

new Medicare policy in this discussion 

of the possible application of HACs 

payment policy for IPPS hospitals to 

other settings, as some of these 

approaches may require new statutory 

authority. Rather, we are seeking public 

comment on the application of the 

preventable HACs payment provision 

for IPPS hospitals to other Medicare 

payment systems and settings. We look 

forward to working with stakeholders in 

the fight against these preventable 

conditions. 

VII. Provisions of the Proposed Rule 

We are proposing to make revisions to 

the regulation text in response to section 

115 of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (Pub. L. 

110–173). Specifically, we are proposing 

to revise 42 CFR part 412. We discuss 

these proposed revisions and others in 

detail below. 

A. Section 412.23 Excluded Hospitals: 

Classifications 

As discussed in section V of this 

proposed rule, we propose to revise the 

regulation text in paragraph (b)(2)(i) and 

remove paragraph (b)(2)(ii) in response 

to section 115 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007. To summarize, for cost reporting 

periods—

(1) Beginning on or after July 1, 2005, 

the hospital has served an inpatient 

population of whom at least 60 percent 

require intensive rehabilitation services 

for treatment of one or more of the 

conditions specified at paragraph 

(b)(2)(ii) of this section. 

(2) A comorbidity that meets the 

criteria as specified in § 412.23(b)(2)(i) 

(as amended by removing former 

(b)(2)(ii) and redesignating former 

(b)(2)(iii) as the new (b)(2)(ii)) may 

continue to be used to determine the 

compliance threshold. 

B. Additional Proposed Changes 

• Update the FY 2009 IRF PPS 

relative weights and average length of 

stay values using the most current and 

complete Medicare claims and cost 

report data, as discussed in section II. 

• Update the FY 2009 IRF PPS 

payment rates by the proposed wage 

index and labor related share in a 

budget neutral manner, as discussed in 

section III.A and B. 

• Update the outlier threshold 

amount for FY 2009, as discussed in 

section IV.A. 

• Update the cost-to-charge ratio 

ceiling and the national average urban 

and rural cost-to-charge ratios for 

purposes of determining outlier 

payments under the IRF PPS, as 

discussed in section IV.B. 

VIII. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

IX. Response to Public Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

X. Regulatory Impact Statement 

We have examined the impact of this 

proposed rule as required by Executive 

Order 12866 (September 1993, 

Regulatory Planning and Review), the 

Regulatory Flexibility Act (RFA, 

September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), Executive 

Order 13132 on Federalism, and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any one year). 

This proposed rule does not reach the 

$100 million economic threshold and 

thus is not considered a major rule. We 

estimate that the total impact of the 

proposed changes in this proposed rule 

would be a decrease of approximately 

$20 million (this reflects a $20 million 

decrease due to the proposed update to 

the outlier threshold amount to decrease 

estimated outlier payments from 

approximately 3.3 percent in FY 2008 to 

3 percent in FY 2009). 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most IRFs 

and most other providers and suppliers 

are small entities, either by nonprofit 

status or by having revenues of $6.5 

million to $31.5 million in any one year. 

(For details, see the Small Business 

Administration’s final rule that set forth 

size standards for health care industries, 

at 65 FR 69432, November 17, 2000.) 

Because we lack data on individual 

hospital receipts, we cannot determine 

the number of small proprietary IRFs or 

the proportion of IRFs’ revenue that is 

derived from Medicare payments. 

Therefore, we assume that all IRFs (an 

approximate total of 1,200 IRFs, of 

which approximately 60 percent are 

nonprofit facilities) are considered small 

entities and that Medicare payment 

constitutes the majority of their 

revenues. The Department of Health and 

Human Services generally uses a 

revenue impact of 3 to 5 percent as a 

significance threshold under the RFA. 

Medicare fiscal intermediaries and 

carriers are not considered to be small 

entities. Individuals and States are not 

included in the definition of a small 

entity. We are not preparing an analysis 

for the RFA because we have 

determined, and the Secretary certifies, 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 


rwilkins on PROD1PC63 with PROPOSALS2
22690 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any one year of 

$100 million in 1995 dollars, updated 

annually for inflation. That threshold 

level is currently approximately $130 

million. This proposed rule would not 

mandate any requirements for State, 

local, or tribal governments, nor would 

it affect private sector costs. 

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. 

As stated above, this proposed rule 

would not have a substantial effect on 

State and local governments. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as follows: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

1. The authority citation for part 412 

continues to read as follows: 

Authority: Sections 1102 and 1871 of the 

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

1395hh). 

Subpart B—Hospital Services Subject 

to and Excluded From the Prospective 

Payment Systems for Inpatient 

Operating Costs and Inpatient 

Capital—Related Costs 

2. Section 412.23 is amended by—

A. Revising paragraph (b)(2)(i). 

B. Removing paragraph (b)(2)(ii). 

C. Redesignating paragraph (b)(2)(iii) 

as (b)(2)(ii). 

The revision reads as follows: 

§ 412.23 Excluded hospitals: 

Classifications. 

* * * * * 

(b) * * * 

(2) * * * 

(i) For cost reporting periods 

beginning on or after July 1, 2004 and 

before July 1, 2005, the hospital has 

served an inpatient population of whom 

at least 50 percent, and for cost 

reporting periods beginning on or after 

July 1, 2005, the hospital has served an 

inpatient population of whom at least 

60 percent required intensive 

rehabilitation services for treatment of 

one or more of the conditions specified 

at paragraph (b)(2)(ii) of this section. A 

patient with a comorbidity, as defined at 

§ 412.602, may be included in the 

inpatient population that counts toward 

the required applicable percentage if—

(A) The patient is admitted for 

inpatient rehabilitation for a condition 

that is not one of the conditions 

specified in paragraph (b)(2)(ii) of this 

section; 

(B) The patient has a comorbidity that 

falls in one of the conditions specified 

in paragraph (b)(2)(ii) of this section; 

and 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplemental Medical Insurance 

Program) 

Dated: March 20, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: April 10, 2008. 

Michael O. Leavitt, 

Secretary. 

BILLING CODE 4120–01–P 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22691 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.182</GPH>
22692 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.183</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22693 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.184</GPH>
22694 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.185</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22695 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.186</GPH>
22696 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.187</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22697 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.188</GPH>
22698 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.189</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22699 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.190</GPH>
22700 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.191</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22701 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.192</GPH>
22702 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.193</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22703 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.194</GPH>
22704 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.195</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22705 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.196</GPH>
22706 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.197</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22707 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.198</GPH>
22708 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.199</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22709 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.200</GPH>
22710 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.201</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22711 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.202</GPH>
22712 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.203</GPH>
Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 22713 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.204</GPH>
22714 Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / Proposed Rules 

[FR Doc. 08–1174 Filed 4–21–08; 8:45 am] 

BILLING CODE 4120–01–C 


rwilkins on PROD1PC63 with PROPOSALS2EP25AP08.205</GPH>