Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Notices 25709 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

[CMS–1401–N] 

RIN 0938–AO92 

Medicare Program; Inpatient 

Psychiatric Facilities Prospective 

Payment System Payment Update for 

Rate Year Beginning July 1, 2008 (RY 

2009) 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Notice. 

SUMMARY: This notice updates the 

prospective payment rates for Medicare 

inpatient psychiatric hospital services 

provided by inpatient psychiatric 

facilities (IPFs). These changes are 

applicable to IPF discharges occurring 

during the rate year beginning July 1, 

2008 through June 30, 2009. 

DATES: Effective Date: The updated IPF 

prospective payment rates are effective 

for discharges occurring on or after July 

1, 2008 through June 30, 2009. 

FOR FURTHER INFORMATION CONTACT:

Dorothy Myrick or Jana Lindquist, (410) 

786–4533 (for general information). 

Heidi Oumarou, (410) 786–7942 (for 

information regarding the market 

basket and labor-related share). 

Theresa Bean, (410) 786–2287 (for 

information regarding the regulatory 

impact analysis). 

Matthew Quarrick, (410) 786–9867 (for 

information on the wage index). 

SUPPLEMENTARY INFORMATION:

Table of Contents 

To assist readers in referencing 

sections contained in this document, we 

are providing the following table of 

contents. 

I. Background. 

A. Annual Requirements for Updating the 

IPF PPS. 

B. Overview of the Legislative 

Requirements of the IPF PPS. 

C. IPF PPS-General Overview. 

II. Transition Period for Implementation of 

the IPF PPS. 

III. Updates to the IPF PPS for RY Beginning 

July 1, 2008. 

A. Determining the Standardized BudgetNeutral Federal Per Diem Base Rate. 

1. Standardization of the Federal Per Diem 

Base Rate and Electroconvulsive Therapy 

Rate. 

2. Calculation of the Budget Neutrality 

Adjustment. 

a. Outlier Adjustment. 

b. Stop-Loss Provision Adjustment. 

c. Behavioral Offset. 

B. Update of the Federal Per Diem Base 

Rate and Electroconvulsive Therapy 

Rate. 

1. Market Basket for IPFs Reimbursed 

Under the IPF PPS. 

a. Market Basket Index for the IPF PPS. 

b. Overview of the RPL Market Basket. 

2. Labor-Related Share. 

3. IPFs Paid Based on a Blend of the 

Reasonable Cost-based Payments. 

IV. Update of the IPF PPS Adjustment 

Factors. 

A. Overview of the IPF PPS Adjustment 

Factors. 

B. Patient-Level Adjustments. 

1. Adjustment for MS–DRG Assignment. 

2. Payment for Comorbid Conditions. 

3. Patient Age Adjustments. 

4. Variable Per Diem Adjustments. 

C. Facility-Level Adjustments. 

1. Wage Index Adjustment. 

a. Clarification of New England Deemed 

Counties. 

b. Multi-campus-Wage Index Data 

Collection. 

c. OMB Bulletins. 

2. Adjustment for Rural Location. 

3. Teaching Adjustment. 

4. Cost of Living Adjustment for IPFs 

Located in Alaska and Hawaii. 

5. Adjustment for IPFs With a Qualifying 

Emergency Department (ED). 

D. Other Payment Adjustments and 

Policies. 

1. Outlier Payments. 

a. Update to the Outlier Fixed Dollar Loss 

Threshold Amount. 

b. Statistical Accuracy of Cost-to-Charge 

Ratios. 

2. Stop-Loss Provision. 

V. Waiver of Proposed Rulemaking. 

VI. Collection of Information Requirements. 

VII. Regulatory Impact Analysis. 

Addenda. 

Acronyms 

Because of the many terms to which 

we refer by acronym in this notice, we 

are listing the acronyms used and their 

corresponding terms in alphabetical 

order below: 

BBRA Medicare, Medicaid and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget 

Refinement Act of 1999, (Pub. L. 106–

113). 

CBSA Core-Based Statistical Area. 

CCR Cost-to-charge ratio. 

CMSA Consolidated Metropolitan 

Statistical Area. 

DSM–IV–TR Diagnostic and Statistical 

Manual of Mental Disorders Fourth 

Edition—Text Revision. 

DRGs Diagnosis-related groups. 

FY Federal fiscal year. 

ICD–9–CM International Classification 

of Diseases, 9th Revision, Clinical 

Modification. 

IPFs Inpatient psychiatric facilities. 

IRFs Inpatient rehabilitation facilities. 

LTCHs Long-term care hospitals. 

MedPAR Medicare provider analysis 

and review file. 

MSA Metropolitan Statistical Area. 

RY Rate Year. 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, (Pub. L. 

97–248). 

I. Background 

A. Annual Requirements for Updating 

the IPF PPS 

In November 2004, we implemented 

the IPF PPS in a final rule that appeared 

in the November 15, 2004 Federal 

Register (69 FR 66922). In developing 

the IPF PPS, in order to ensure that the 

IPF PPS is able to account adequately 

for each IPF’s case-mix, we performed 

an extensive regression analysis of the 

relationship between the per diem costs 

and certain patient and facility 

characteristics to determine those 

characteristics associated with 

statistically significant cost differences 

on a per diem basis. For characteristics 

with statistically significant cost 

differences, we used the regression 

coefficients of those variables to 

determine the size of the corresponding 

payment adjustments. 

In that final rule, we explained that 

we believe it is important to delay 

updating the adjustment factors derived 

from the regression analysis until we 

have IPF PPS data that includes as 

much information as possible regarding 

the patient-level characteristics of the 

population that each IPF serves. 

Therefore, we indicated that we did not 

intend to update the regression analysis 

and recalculate the Federal per diem 

base rate and the patient- and facilitylevel adjustments until we complete 

that analysis. Until that analysis is 

complete, we stated our intention to 

publish a notice in the Federal Register 

each spring to update the IPF PPS (71 

FR 27041). 

Updates to the IPF PPS as specified in 

42 CFR 412.428 include the following: 

• A description of the methodology 

and data used to calculate the updated 

Federal per diem base payment amount. 

• The rate of increase factor as 

described in § 412.424(a)(2)(iii), which 

is based on the excluded hospital with 

capital market basket under the update 

methodology of section 1886(b)(3)(B)(ii) 

of the Act for each year. 

• For discharges occurring on or after 

July 1, 2006, the rate of increase factor 

for the Federal portion of the IPF’s 

payment, which is based on the 

rehabilitation, psychiatric, and longterm care (RPL) market basket. 

• For discharges occurring on or after 

October 1, 2005, the rate of increase 

factor for the reasonable cost portion of 

the IPF’s payment, which is based on 

the 2002-based excluded hospital 

market basket. 

• The best available hospital wage 

index and information regarding 


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whether an adjustment to the Federal 

per diem base rate, is needed to 

maintain budget neutrality. 

• Updates to the fixed dollar loss 

threshold amount in order to maintain 

the appropriate outlier percentage. 

• Description of the ICD–9–CM 

coding and DRG classification changes 

discussed in the annual update to the 

hospital inpatient prospective payment 

system (IPPS) regulations. 

• Update to the electroconvulsive 

therapy (ECT) payment by a factor 

specified by CMS. 

• Update to the national urban and 

rural cost-to-charge ratio medians and 

ceilings. 

• Update to the cost of living 

adjustment factors for IPFs located in 

Alaska and Hawaii, if appropriate. 

Our most recent annual update 

occurred in the May 2007 IPF PPS 

notice (72 FR 25602) that set forth 

updates to the IPF PPS payment rates 

for RY 2008. 

This notice does not initiate any 

policy changes with regard to the IPF 

PPS; rather, it simply provides an 

update to the rates for RY 2009 (that is, 

the prospective payment rates 

applicable for discharges beginning July 

1, 2008 through June 30, 2009). In 

establishing these payment rates, we 

update the IPF per diem payment rates 

that were published in the May 2007 

IPF PPS notice in accordance with our 

established policies. 

B. Overview of the Legislative 

Requirements for the IPF PPS 

Section 124 of the Medicare, 

Medicaid, and SCHIP (State Children’s 

Health Insurance Program) Balanced 

Budget Refinement Act of 1999, (Pub. L. 

106–113) (BBRA) required 

implementation of the IPF PPS. 

Specifically, section 124 of the BBRA 

mandated that the Secretary develop a 

per diem PPS for inpatient hospital 

services furnished in psychiatric 

hospitals and psychiatric units that 

includes an adequate patient 

classification system that reflects the 

differences in patient resource use and 

costs among psychiatric hospitals and 

psychiatric units. 

Section 405(g)(2) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) extended the IPF PPS to 

distinct part psychiatric units of critical 

access hospitals (CAHs). 

To implement these provisions, we 

published various proposed and final 

rules in the Federal Register. For more 

information regarding these rules, see 

the CMS Web sites http:// 

www.cms.hhs.gov/ 

InpatientPsychFacilPPS/ and http:// 

www.cms.hhs.gov/ 

InpatientpsychfacilPPS/ 

02_regulations.asp. 

C. IPF PPS—General Overview 

The November 2004 IPF PPS final 

rule (69 FR 66922) established the IPF 

PPS, as authorized under section 124 of 

the BBRA and codified at subpart N of 

part 412 of the Medicare regulations. 

The November 2004 IPF PPS final rule 

set forth the per diem Federal rates for 

the implementation year (that is, the 18- 

month period from January 1, 2005 

through June 30, 2006) that provided 

payment for the inpatient operating and 

capital costs to IPFs for covered 

psychiatric services they furnish (that is, 

routine, ancillary, and capital costs), but 

not costs of approved educational 

activities, bad debts, and other services 

or items that are outside the scope of the 

IPF PPS. Covered psychiatric services 

include services for which benefits are 

provided under the fee-for-service Part 

A (Hospital Insurance Program) 

Medicare program. 

The IPF PPS established the Federal 

per diem base rate for each patient day 

in an IPF derived from the national 

average daily routine operating, 

ancillary, and capital costs in IPFs in FY 

2002. The average per diem cost was 

updated to the midpoint of the first year 

under the IPF PPS, standardized to 

account for the overall positive effects of 

the IPF PPS payment adjustments, and 

adjusted for budget neutrality. 

The Federal per diem payment under 

the IPF PPS is comprised of the Federal 

per diem base rate described above and 

certain patient- and facility-level 

payment adjustments that were found in 

the regression analysis to be associated 

with statistically significant per diem 

cost differences. 

The patient-level adjustments include 

age, DRG assignment, comorbidities, 

and variable per diem adjustments to 

reflect higher per diem costs in the early 

days of an IPF stay. Facility-level 

adjustments include adjustments for the 

IPF’s wage index, rural location, 

teaching status, a cost of living 

adjustment for IPFs located in Alaska 

and Hawaii, and presence of a 

qualifying emergency department (ED). 

The IPF PPS provides additional 

payments for: Outlier cases; stop-loss 

protection (which is applicable only 

during the IPF PPS transition period); 

interrupted stays; and a per treatment 

adjustment for patients who undergo 

ECT. 

A complete discussion of the 

regression analysis appears in the 

November 2004 IPF PPS final rule (69 

FR 66933 through 66936). 

Section 124 of BBRA does not specify 

an annual update rate strategy for the 

IPF PPS and is broadly written to give 

the Secretary discretion in establishing 

an update methodology. Therefore, in 

the November 2004 IPF PPS final rule 

(69 FR 66966), we implemented the IPF 

PPS using the following update 

strategy—(1) calculate the final Federal 

per diem base rate to be budget neutral 

for the 18-month period of January 1, 

2005 through June 30, 2006; (2) use a 

July 1 through June 30 annual update 

cycle; and (3) allow the IPF PPS first 

update to be effective for discharges on 

or after July 1, 2006 through June 30, 

2007. 

II. Transition Period for 

Implementation of the IPF PPS 

In the November 2004 IPF PPS final 

rule, we established § 412.426 to 

provide for a 3-year transition period 

from reasonable cost-based 

reimbursement to full prospective 

payment for IPFs. The purpose of the 

transition period is to allow existing 

IPFs time to adjust their cost structures 

and to integrate the effects of changing 

to the IPF PPS. 

New IPFs, as defined in § 412.426(c), 

are paid 100 percent of the Federal per 

diem payment amount. For those IPFs 

that are transitioning to the new system, 

payment is based on an increasing 

percentage of the PPS payment and a 

decreasing percentage of each IPF’s 

facility-specific Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

reimbursement rate. 

TABLE 1.—IPF PPS TRANSITION BLEND FACTORS

Transition Year Cost reporting periods 

beginning on or after 

TEFRA rate 

percentage 

IPF PPS 

federal rate 

percentage 

1 .................................................................................... January 1, 2005 ............................................................ 75 25 

2 .................................................................................... January 1, 2006 ............................................................ 50 50 

3 .................................................................................... January 1, 2007 ............................................................ 25 75 


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TABLE 1.—IPF PPS TRANSITION BLEND FACTORS—Continued 

Transition Year Cost reporting periods 

beginning on or after 

TEFRA rate 

percentage 

IPF PPS 

federal rate 

percentage 

January 1, 2008 ............................................................ 0 100 

Changes to the blend percentages 

occur at the beginning of an IPF’s cost 

reporting period. However, regardless of 

when an IPF’s cost reporting year 

begins, the payment update will be 

effective for discharges occurring on or 

after July 1, 2008 through June 30, 2009. 

IPFs with cost reporting periods 

beginning January 1, 2008 will have 

completed the transition period and will 

receive 100 percent IPF PPS payments. 

Other IPFs with cost reporting periods 

beginning after January 1, 2008, during 

2008, will also begin to receive 100 

percent IPF PPS payments. This means 

that beginning January 1, 2009, all IPFs 

will receive 100 percent IPF PPS 

payments and the IPF PPS transition 

period will have ended. 

For RY 2009, the transition period 

established in the November 2004 IPF 

PPS final rule will no longer be applied. 

III. Updates to the IPF PPS for RY 

Beginning July 1, 2008 

The Federal per diem base rate is used 

as the standard payment per day under 

the IPF PPS and is adjusted by the 

applicable wage index factor and the 

patient- and facility-level adjustments 

that are applicable to the IPF stay. A 

detailed explanation of how we 

calculated the average per diem cost 

appears in the November 2004 IPF PPS 

final rule (69 FR 66926). 

A. Determining the Standardized 

Budget-Neutral Federal Per Diem Base 

Rate 

Section 124(a)(1) of the BBRA 

requires that we implement the IPF PPS 

in a budget neutral manner. In other 

words, the amount of total payments 

under the IPF PPS, including any 

payment adjustments, must be projected 

to be equal to the amount of total 

payments that would have been made if 

the IPF PPS were not implemented. 

Therefore, we calculated the budgetneutrality factor by setting the total 

estimated IPF PPS payments to be equal 

to the total estimated payments that 

would have been made under the 

TEFRA methodology had the IPF PPS 

not been implemented. 

Under the IPF PPS methodology, we 

calculated the final Federal per diem 

base rate to be budget neutral during the 

IPF PPS implementation period (that is, 

the 18-month period from January 1, 

2005 through June 30, 2006) using a July 

1 update cycle. We updated the average 

cost per day to the midpoint of the IPF 

PPS implementation period (that is, 

October 1, 2005), and this amount was 

used in the payment model to establish 

the budget-neutrality adjustment. 

A step-by-step description of the 

methodology used to estimate payments 

under the TEFRA payment system 

appears in the November 2004 IPF PPS 

final rule (69 FR 66926). 

1. Standardization of the Federal Per 

Diem Base Rate and Electroconvulsive 

Therapy Rate 

In the November 2004 IPF PPS final 

rule, we describe how we standardized 

the IPF PPS Federal per diem base rate 

in order to account for the overall 

positive effects of the IPF PPS payment 

adjustment factors. To standardize the 

IPF PPS payments, we compared the IPF 

PPS payment amounts calculated from 

the FY 2002 Medicare Provider Analysis 

and Review (MedPAR) file to the 

projected TEFRA payments from the FY 

2002 cost report file updated to the 

midpoint of the IPF PPS 

implementation period (that is, October 

2005). The standardization factor was 

calculated by dividing total estimated 

payments under the TEFRA payment 

system by estimated payments under 

the IPF PPS. The standardization factor 

was calculated to be 0.8367. 

As described in detail in the May 

2006 IPF PPS final rule (71 FR 27045), 

in reviewing the methodology used to 

simulate the IPF PPS payments used for 

the November 2004 IPF PPS final rule, 

we discovered that due to a computer 

code error, total IPF PPS payments were 

underestimated by about 1.36 percent. 

Since the IPF PPS payment total should 

have been larger than the estimated 

figure, the standardization factor should 

have been smaller (0.8254 vs. 0.8367). In 

turn, the Federal per diem base rate and 

the ECT rate should have been reduced 

by 0.8254 instead of 0.8367. 

To resolve this issue, in RY 2007, we 

amended the Federal per diem base rate 

and the ECT payment rate 

prospectively. Using the standardization 

factor of 0.8254, the average cost per day 

was effectively reduced by 17.46 

percent (100 percent minus 82.54 

percent = 17.46 percent). 

2. Calculation of the Budget Neutrality 

Adjustment 

To compute the budget neutrality 

adjustment for the IPF PPS, we 

separately identified each component of 

the adjustment, that is, the outlier 

adjustment, stop-loss adjustment, and 

behavioral offset. 

A complete discussion of how we 

calculate each component of the budget 

neutrality adjustment appears in the 

November 2004 IPF PPS final rule (69 

FR 66932 through 66933) and in the 

May 2006 IPF PPS final rule (71 FR 

27044 through 27046). 

a. Outlier Adjustment 

Since the IPF PPS payment amount 

for each IPF includes applicable outlier 

amounts, we reduced the standardized 

Federal per diem base rate to account 

for aggregate IPF PPS payments 

estimated to be made as outlier 

payments. The outlier adjustment was 

calculated to be 2 percent. As a result, 

the standardized Federal per diem base 

rate was reduced by 2 percent to 

account for projected outlier payments. 

b. Stop-Loss Provision Adjustment 

As explained in the November 2004 

IPF PPS final rule, we provided a stoploss payment during the transition from 

cost-based reimbursement to the per 

diem payment system to ensure that an 

IPF’s total PPS payments were no less 

than a minimum percentage of their 

TEFRA payment, had the IPF PPS not 

been implemented. We reduced the 

standardized Federal per diem base rate 

by the percentage of aggregate IPF PPS 

payments estimated to be made for stoploss payments. As a result, the 

standardized Federal per diem base rate 

was reduced by 0.39 percent to account 

for stop-loss payments. Since the 

transition will be completed for RY 

2009, for cost reporting periods 

beginning on or after January 1, 2008, 

IPFs will be paid 100 percent PPS and, 

therefore, the stop loss provision will no 

longer be applicable. We indicated in 

the November 2004 IPF PPS final rule 

that we would remove this 0.39 percent 

adjustment to the Federal per diem base 

rate after the transition (69 FR 66932). 

Therefore, for RY 2009, the Federal per 

diem base rate and ECT rates will be 

increased by 0.39 percent. 


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c. Behavioral Offset 

As explained in the November 2004 

IPF PPS final rule, implementation of 

the IPF PPS may result in certain 

changes in IPF practices especially with 

respect to coding for comorbid medical 

conditions. As a result, Medicare may 

make higher payments than assumed in 

our calculations. Accounting for these 

effects through an adjustment is 

commonly known as a behavioral offset. 

Based on accepted actuarial practices 

and consistent with the assumptions 

made in other PPSs, we assumed in 

determining the behavioral offset that 

IPFs would regain 15 percent of 

potential ‘‘losses’’ and augment 

payment increases by 5 percent. We 

applied this actuarial assumption, 

which is based on our historical 

experience with new payment systems, 

to the estimated ‘‘losses’’ and ‘‘gains’’

among the IPFs. The behavioral offset 

for the IPF PPS was calculated to be 

2.66 percent. As a result, we reduced 

the standardized Federal per diem base 

rate by 2.66 percent to account for 

behavioral changes. As indicated in the 

November 2004 IPF PPS final rule, we 

do not plan to change adjustment factors 

or projections, including the behavioral 

offset, until we analyze IPF PPS data. At 

that time, we will re-assess the accuracy 

of the behavioral offset along with the 

other factors impacting budget 

neutrality. 

If we find that an adjustment is 

warranted, the percent difference may 

be applied prospectively to the 

established PPS rates to ensure the rates 

accurately reflect the payment level 

intended by the statute. In conducting 

this analysis, we will be interested in 

the extent to which improved 

documentation and coding of patients’

principal and other diagnoses, which 

may not reflect real increases in 

underlying resource demands, has 

occurred under the PPS. 

B. Update of the Federal Per Diem Base 

Rate and Electroconvulsive Therapy 

Rate 

1. Market Basket for IPFs Reimbursed 

Under the IPF PPS 

As described in the November 2004 

IPF PPS final rule, the average per diem 

cost was updated to the midpoint of the 

implementation year (69 FR 66931). 

This updated average per diem cost of 

$724.43 was reduced by 17.46 percent 

to account for standardization to 

projected TEFRA payments for the 

implementation period, by 2 percent to 

account for outlier payments, by 0.39 

percent to account for stop-loss 

payments, and by 2.66 percent to 

account for the behavioral offset. The 

Federal per diem base rate in the 

implementation year was $575.95, the 

per diem base rate for RY 2007 was 

$595.09, and the per diem base rate for 

RY 2008 was $614.99. 

Applying the market basket increase 

of 3.2 percent, the stop-loss adjustment 

of 0.39 percent, and the wage index 

budget neutrality factor of 1.0010 yields 

a Federal per diem base rate of $637.78 

for RY 2009. Similarly, applying the 

market basket increase, stop-loss 

adjustment, and wage index budget 

neutrality factor to the RY 2008 ECT rate 

yields an ECT rate of $274.58 for RY 

2009. 

a. Market Basket Index for the IPF PPS 

The market basket index that was 

used to develop the IPF PPS was the 

excluded hospital with capital market 

basket. The market basket was based on 

1997 Medicare cost report data and 

included data for Medicare participating 

IPFs, inpatient rehabilitation facilities 

(IRFs), long-term care hospitals 

(LTCHs), cancer, and children’s 

hospitals. 

We are presently unable to create a 

separate market basket specifically for 

psychiatric hospitals due to the 

following two reasons: (1) There is a 

very small sample size for free-standing 

psychiatric facilities; and (2) there are 

limited expense data for some categories 

on the free-standing psychiatric cost 

reports (for example, approximately 4 

percent of free-standing psychiatric 

facilities reported contract labor cost 

data for FY 2002). However, since all 

IRFs, LTCHs, and IPFs are now paid 

under a PPS, we are updating PPS 

payments made under the IRF PPS, the 

IPF PPS, and the LTCH PPS, using a 

market basket reflecting the operating 

and capital cost structures for IRFs, 

IPFs, and LTCHs (hereafter referred to as 

the rehabilitation, psychiatric, long-term 

care (RPL) market basket). 

We have excluded cancer and 

children’s hospitals from the RPL 

market basket because their payments 

are based entirely on reasonable costs 

subject to rate-of-increase limits 

established under the authority of 

section 1886(b) of the Act, which are 

implemented in regulations at § 413.40. 

They are not reimbursed under a PPS. 

Also, the FY 2002 cost structures for 

cancer and children’s hospitals are 

noticeably different than the cost 

structures of the IRFs, IPFs, and LTCHs. 

The services offered in IRFs, IPFs, and 

LTCHs are typically more laborintensive than those offered in cancer 

and children’s hospitals. Therefore, the 

compensation cost weights for IRFs, 

IPFs, and LTCHs are larger than those in 

cancer and children’s hospitals. In 

addition, the depreciation cost weights 

for IRFs, IPFs, and LTCHs are noticeably 

smaller than those for cancer and 

children’s hospitals. 

A complete discussion of the RPL 

market basket appears in the May 2006 

IPF PPS final rule (71 FR 27046 through 

27054). 

b. Overview of the RPL Market Basket 

The RPL market basket is a fixed 

weight, Laspeyres-type price index. A 

market basket is described as a fixedweight index because it answers the 

question of how much it would cost, at 

another time, to purchase the same mix 

of goods and services purchased to 

provide hospital services in a base 

period. The effects on total expenditures 

resulting from changes in the quantity 

or mix of goods and services (intensity) 

purchased subsequent to the base period 

are not measured. In this manner, the 

market basket measures only pure price 

change. Only when the index is rebased 

would the quantity and intensity effects 

be captured in the cost weights. 

Therefore, we rebase the market basket 

periodically so that cost weights reflect 

changes in the mix of goods and 

services that hospitals purchase 

(hospital inputs) to furnish patient care 

between base periods. 

The terms rebasing and revising, 

while often used interchangeably, 

actually denote different activities. 

Rebasing means moving the base year 

for the structure of costs of an input 

price index (for example, shifting the 

base year cost structure from FY 1997 to 

FY 2002). Revising means changing data 

sources, methodology, or price proxies 

used in the input price index. In 2006, 

we rebased and revised the market 

basket used to update the IPF PPS. 

Table 2 below sets forth the completed 

FY 2002-based RPL market basket 

including the cost categories, weights, 

and price proxies. 


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TABLE 2.—FY 2002-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PROXIES

Expense categories 

FY 2002-based 

RPL market 

basket cost 

weight 

FY 2002-based RPL market basket price proxies 

TOTAL ...................................................................................... 100.000 

Compensation ........................................................................... 65.877 

Wages and Salaries * ........................................................ 52.895 ECI-Wages and Salaries, Civilian Hospital Workers. 

Employee Benefits * .......................................................... 12.982 ECI-Benefits, Civilian Hospital Workers. 

Professional Fees, Non-Medical 1A* ....................................... 2.892 ECI-Compensation for Professional & Related occupations. 

Utilities ...................................................................................... 0.656 

Electricity ........................................................................... 0.351 PPI-Commercial Electric Power. 

Fuel Oil, Coal, etc. ............................................................ 0.108 PPI-Commercial Natural Gas. 

Water and Sewage ............................................................ 0.197 CPI–U—Water & Sewage Maintenance. 

Professional Liability Insurance ................................................ 1.161 CMS Professional Liability Premium Index.

All Other Products and Services 19.265 

All Other Products 13.323 

Pharmaceuticals ......................................................... 5.103 PPI Prescription Drugs. 

Food: Direct Purchases ............................................. 0.873 PPI Processed Foods & Feeds. 

Food: Contract Service .............................................. 0.620 CPI–U Food Away From Home. 

Chemicals ................................................................... 1.100 PPI Industrial Chemicals. 

Medical Instruments ................................................... 1.014 PPI Medical Instruments & Equipment. 

Photographic Supplies ............................................... 0.096 PPI Photographic Supplies. 

Rubber and Plastics ................................................... 1.052 PPI Rubber & Plastic Products. 

Paper Products .......................................................... 1.000 PPI Converted Paper & Paperboard Products. 

Apparel ....................................................................... 0.207 PPI Apparel. 

Machinery and Equipment ......................................... 0.297 PPI Machinery & Equipment. 

Miscellaneous Products ** .......................................... 1.963 PPI Finished Goods less Food & Energy. 

All Other Services 5.942 

Telephone .................................................................. 0.240 CPI–U Telephone Services. 

Postage ...................................................................... 0.682 CPI–U Postage. 

All Other: Labor Intensive * ........................................ 2.219 ECI-Compensation for Private Service Occupations. 

All Other: Non-labor Intensive .................................... 2.800 CPI–U All Items. 

Capital-Related Costs *** 10.149 

Depreciation 6.186 

Fixed Assets ............................................................... 4.250 Boeckh Institutional Construction 23-year useful life. 

Movable Equipment ................................................... 1.937 WPI Machinery & Equipment 11-year useful life. 

Interest Costs 2.775 

Nonprofit ............................................................................ 2.081 Average yield on domestic municipal bonds (Bond Buyer 20 

bonds) vintage-weighted (23 years). 

For Profit ............................................................................ 0.694 Average yield on Moody’s Aaa bond vintage-weighted (23 

years). 

Other Capital-Related Costs .................................................... 1.187 CPI–U Residential Rent. 

* Labor-related. 

** Blood and blood-related products is included in miscellaneous products. 

*** A portion of capital costs (0.46) are labor-related. 

Note: Due to rounding, weights may not sum to total. 

For RY 2009, we evaluated the price 

proxies using the criteria of reliability, 

timeliness, availability, and relevance. 

Reliability indicates that the index is 

based on valid statistical methods and 

has low sampling variability. Timeliness 

implies that the proxy is published 

regularly, preferably at least once a 

quarter. Availability means that the 

proxy is publicly available. Finally, 

relevance means that the proxy is 

applicable and representative of the cost 

category weight to which it is applied. 

The Consumer Price Indexes (CPIs), 

Producer Price Indexes (PPIs), and 

Employment Cost Indexes (ECIs) used as 

proxies in this market basket meet these 

criteria. 

We note that the proxies are the same 

as those used for the FY 1997-based 

excluded hospital with capital market 

basket. Because these proxies meet our 

criteria of reliability, timeliness, 

availability, and relevance, we believe 

they continue to be the best measure of 

price changes for the cost categories. For 

further discussion on the FY 1997-based 

excluded hospital with capital market 

basket, see the August 1, 2002 IPPS final 

rule (67 FR at 50042). 

The RY 2009 (that is, beginning July 

1, 2008) update for the IPF PPS using 

the FY 2002-based RPL market basket 

and Global Insight’s 1st quarter 2008 

forecast for the market basket 

components is 3.2 percent. This 

includes increases in both the operating 

section and the capital section for the 

12-month RY period (that is, July 1, 

2008 through June 30, 2009). Global 

Insight, Inc. is a nationally recognized 

economic and financial forecasting firm 

that contracts with CMS to forecast the 

components of the market baskets. 

2. Labor-Related Share 

Due to the variations in costs and 

geographic wage levels, we believe that 

payment rates under the IPF PPS should 

continue to be adjusted by a geographic 

wage index. This wage index applies to 

the labor-related portion of the Federal 

per diem base rate, hereafter referred to 

as the labor-related share. 

The labor-related share is determined 

by identifying the national average 

proportion of operating costs that are 

related to, influenced by, or vary with 

the local labor market. Using our current 

definition of labor-related, the laborrelated share is the sum of the relative 

importance of wages and salaries, fringe 

benefits, professional fees, laborintensive services, and a portion of the 

capital share from an appropriate 

market basket. We used the FY 2002- 

based RPL market basket cost weights 


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relative importance to determine the 

labor-related share for the IPF PPS. 

The labor-related share for RY 2009 is 

the sum of the RY 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 RY 

2009. The sum of the relative 

importance for the RY 2009 operating 

costs (wages and salaries, employee 

benefits, professional fees, and laborintensive services) is 71.681, as shown 

in Table 3 below. The portion of capital 

that is influenced by the local labor 

market is estimated to be 46 percent, 

which is the same percentage used in 

the FY 1997-based IRF and IPF payment 

systems. 

Since the relative importance for 

capital is 8.586 percent of the FY 2002- 

based RPL market basket in RY 2009, we 

are taking 46 percent of 8.586 percent to 

determine the labor-related share of 

capital for RY 2009. The result is 3.950 

percent, which we added to 71.681 

percent for the operating cost amount to 

determine the total labor-related share 

for RY 2009. Thus, the labor-related 

share that we are using for IPF PPS in 

RY 2009 is 75.631 percent. Table 3 

below shows the RY 2009 labor-related 

share using the FY 2002-based RPL 

market basket. We note that this laborrelated share is determined by using the 

same methodology as employed in 

calculating all previous IPF laborrelated shares. 

A complete discussion of the IPF 

labor-related share methodology appears 

in the November 2004 IPF PPS final rule 

(69 FR 66952 through 66954). 

TABLE 3.—TOTAL LABOR-RELATED SHARE—RELATIVE IMPORTANCE FOR RY 2009 

Cost category 

FY 2002-based 

RPL Market 

Basket Relative 

Importance 

(Percent) 

RY 2008 * 

FY 2002-based 

RPL Market 

Basket Relative 

Importance 

(Percent) 

RY 2009 ** 

Wages and salaries ............................................................................................................................................. 52.588 52.645 

Employee benefits ............................................................................................................................................... 14.127 14.004 

Professional fees ................................................................................................................................................. 2.907 2.895 

All other labor-intensive services ......................................................................................................................... 2.145 2.137 

SUBTOTAL ................................................................................................................................................... 71.767 71.681 

Labor-related share of capital costs (0.46) ......................................................................................................... 4.021 3.950 

TOTAL .......................................................................................................................................................... 75.788 75.631 

* Based on 2007 1st Quarter forecast. 

** Based on 2008 1st Quarter forecast. 

3. IPFs Paid Based on a Blend of the 

Reasonable Cost-Based Payments 

As stated in the FY 2006 IPPS final 

rule (70 FR 47399), for IPFs that are 

transitioning to the fully Federal 

prospective payment rate, we will 

continue using the rebased and revised 

FY 2002-based excluded hospital 

market basket to update the reasonable 

cost-based portion of their payments. 

For RY 2009, all IPFs will have fully 

transitioned to PPS payment and 

therefore, be paid based on 100 percent 

IPF PPS. The reasonable cost-based 

payment which is subject to TEFRA 

limits will no longer be applied. 

IV. Update of the IPF PPS Adjustment 

Factors 

A. Overview of the IPF PPS Adjustment 

Factors 

The IPF PPS payment adjustments 

were derived from a regression analysis 

of 100 percent of the FY 2002 MedPAR 

data file, which contained 483,038 

cases. We used the same results of this 

regression analysis to implement the 

November 2004 and May 2006 IPF PPS 

final rules. While we have since used 

more recent claims data to set the fixed 

dollar loss threshold amount, we use the 

same results of this regression analysis 

to update the IPF PPS for RY 2008 as 

well as RY 2009. 

As previously stated, we do not plan 

to update the regression analysis until 

we analyze IPF PPS data. We plan to 

monitor claims and payment data 

independently from cost report data to 

assess issues, or whether changes in 

case-mix or payment shifts have 

occurred between free standing 

governmental, non-profit and private 

psychiatric hospitals, and psychiatric 

units of general hospitals, and other 

issues of importance to psychiatric 

facilities. 

A complete discussion of the data file 

used for the regression analysis appears 

in the November 2004 IPF PPS final rule 

(69 FR 66935 through 66936). 

B. Patient-Level Adjustments 

In the May 2006 IPF PPS final rule (71 

FR 27040) for RY 2007 and in the May 

2007 IPF PPS notice (72 FR 25602) for 

RY 2008, we provided payment 

adjustments for the following patientlevel characteristics: DRG assignment of 

the patient’s principal diagnosis; 

selected comorbidities; patient age; and 

the variable per diem adjustments. As 

previously stated in the November 2004 

IPF PPS final rule, we do not intend to 

update the adjustment factors derived 

from the regression analysis until we 

analyze IPF PPS data that include as 

much information as possible regarding 

the patient-level characteristics of the 

population that each IPF serves. 

1. Adjustment for MS–DRG Assignment 

The IPF PPS includes payment 

adjustments for the psychiatric DRG 

assigned to the claim based on each 

patient’s principal diagnosis. In the May 

4, 2007 IPF PPS update notice (72 FR 

25602), we explained that the IPF PPS 

includes 15 diagnosis-related group 

(DRG) adjustment factors. The 

adjustment factors were expressed 

relative to the most frequently reported 

psychiatric DRG in FY 2002, that is, 

DRG 430 (psychoses). The coefficient 

values and adjustment factors were 

derived from the regression analysis. 

In accordance with § 412.27(a), 

payment under the IPF PPS is 

conditioned on IPFs admitting ‘‘only 

patients whose admission to the unit is 

required for active treatment, of an 

intensity that can be provided 

appropriately only in an inpatient 

hospital setting, of a psychiatric 

principal diagnosis that is listed in the 

Fourth Edition, Text Revision of the 

American Psychiatric Association’s 

Diagnostic and Statistical Manual, 

(DSM–IV–TR) or in Chapter Five 

(‘‘Mental Disorders’’) of the 


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International Classification of Diseases, 

Ninth Revision, Clinical Modification 

[(ICD–9–CM)].’’ IPF claims with a 

principal diagnosis included in Chapter 

Five of the ICD–9–CM or the DSM–IV–

TR will be paid the Federal per diem 

base rate under the IPF PPS, and all 

other applicable adjustments, including 

any applicable DRG adjustment. 

Psychiatric principal diagnoses that do 

not group to one of the 15 designated 

DRGs still receive the Federal per diem 

base rate and all other applicable 

adjustments, but the payment would not 

include a DRG adjustment. 

The Standards for Electronic 

Transaction final rule published in the 

Federal Register on August 17, 2000 (65 

FR 50312) adopted the ICD–9–CM as the 

designated code set for reporting 

diseases, injuries, impairments, other 

health related problems, their 

manifestations, and causes of injury, 

disease, impairment, or other health 

related problems. Therefore, we use the 

ICD–9–CM as the designated code set 

for the IPF PPS. 

We believe that it is important to 

maintain the same diagnostic coding 

and DRG classification for IPFs that are 

used under the IPPS for providing the 

same psychiatric care. Therefore, when 

the IPF PPS was implemented for cost 

reporting periods beginning on or after 

January 1, 2005, we adopted the same 

diagnostic code set and DRG patient 

classification system (that is, the CMS 

DRGs) that was utilized at the time 

under the hospital inpatient prospective 

payment system (IPPS). Since the 

inception of the IPF PPS, the DRGs used 

as the patient classification system 

under the IPF PPS have corresponded 

exactly with the CMS DRGs applicable 

under the IPPS for acute care hospitals. 

Every year, changes to the ICD–9–CM 

coding system are addressed in the IPPS 

proposed and final rules. The changes to 

the codes are effective October 1 of each 

year and must be used by acute care 

hospitals under the IPPS to report 

diagnostic and procedure information. 

The IPF PPS has always incorporated 

those ICD–9–CM coding changes made 

in the annual IPPS update. The IPF PPS 

announces the changes in a change 

request, at the same time the coding 

changes to IPPS and LTCH PPS are 

announced. Those ICD–9–CM coding 

changes are also published in the next 

IPF PPS RY update, in either the 

proposed and final rules, or in an 

update notice. 

As part of CMS’ effort to better 

recognize resource use and the severity 

of illness among patients, CMS adopted 

the new Medicare Severity diagnosis 

related groups (MS–DRGs) for the IPPS 

in the FY 2008 IPPS final rule with 

comment period (72 FR 47130). By 

better accounting for patients’ severity 

of illness in Medicare payment rates, the 

MS–DRGs encourage hospitals to 

improve their coding and 

documentation of patient diagnoses. 

The MS–DRGs, which are based on the 

CMS DRGs, represent a significant 

increase in the number of DRGs (from 

538 to 745, an increase of 207). For a 

full description of the development and 

implementation of the MS–DRGs, see 

the FY 2008 IPPS final rule with 

comment period (72 FR 47141 through 

47175). Also see Transmittal 1374 

(change request 5748), dated November 

7, 2007, for the ICD–9–CM coding 

changes. 

All of the ICD–9–CM coding changes 

are reflected in the FY 2008 GROUPER, 

Version 25.0, effective for IPPS 

discharges occurring on or after October 

1, 2007 through September 30, 2008. 

The GROUPER Version 25.0 software 

package assigns each case to a DRG on 

the basis of the diagnosis and procedure 

codes and demographic information 

(that is age, sex, and discharge status). 

The Medicare Code Editor (MCE) 24.0 

uses the new ICD–9–CM codes to 

validate coding for IPPS discharges on 

or after October 1, 2007. For additional 

information on the GROUPER Version 

25.0 and MCE 24.0, see Transmittal 

1374, dated November 7, 2007. The IPF 

PPS has always used the same 

GROUPER and Code Editor as the IPPS. 

Therefore, the ICD–9–CM changes, 

which were reflected in the GROUPER 

Version 25.0 and MCE 24.0 on October 

1, 2007, also became effective for the 

IPF PPS for discharges occurring on or 

after October 1, 2007. 

The impact of the new MS–DRGs on 

the IPF PPS is negligible. Mapping the 

current DRGs to the MS–DRGs, there are 

now 17 MS–DRGs, instead of the 

original 15, for which the IPF PPS 

provides an adjustment. In addition, 

although the code set is updated, the 

same associated adjustment factors 

apply now that have been in place since 

implementation of the IPF PPS, with 

one exception that is unrelated to the 

update to the codes. When DRGs 521 

and 522 were consolidated into MS–

DRG 895, we carried over the 

adjustment factor of 1.02 from DRG 521 

to the newly consolidated MS–DRG. 

This was done to reflect the higher 

claims volume under DRG 521, with 

more than eight times the number of 

claims than billed under DRG 522. The 

updated codes, which were effective 

October 1, 2007, must be used to report 

diagnostic or procedure information on 

IPF PPS claims. These updates are 

reflected in Table 4. 

The official version of the ICD–9–CM 

is available on CD–ROM from the U.S. 

Government Printing Office. The FY 

2008 version can be ordered by 

contacting the Superintendent of 

Documents, U.S. Government Printing 

Office, Department 50, Washington, DC 

20402–9329, telephone number (202) 

512–1800. Questions concerning the 

ICD–9–CM should be directed to 

Patricia E. Brooks, Co-Chairperson, 

ICD–9–CM Coordination and 

Maintenance Committee, CMS, Center 

for Medicare Management, Hospital and 

Ambulatory Policy Group, Division of 

Acute Care, Mailstop C4–08–06, 7500 

Security Boulevard, Baltimore, 

Maryland 21244–1850. 

Further information concerning the 

official version of the ICD–9–CM can be 

found in the IPPS final rule with 

comment period, ‘‘Changes to Hospital 

Inpatient Prospective Payment System 

and Fiscal Year 2008 Rates’’ in the 

August 22, 2007 Federal Register (72 FR 

47130) and at http://www.cms.hhs.gov/ 

QuarterlyProviderUpdates/downloads/ 

cms1533fc.pdf. 

Table 4 below lists the FY 2008 new 

ICD–9–CM diagnosis codes that group to 

one of the 17 MS–DRGs for which the 

IPF PPS provides an adjustment. This 

table is only a listing of FY 2008 

changes and does not reflect all of the 

currently valid and applicable ICD–9–

CM codes classified in the MS–DRGs. 

When coded as a principal code or 

diagnosis, these codes receive the 

correlating MS–DRG adjustment. 

TABLE 4.—FY 2008 NEW DIAGNOSIS

CODES

Diagnosis 

code Description MS–DRG 

315.34 ........... Speech and 

language 

developmental 

delay due to 

hearing loss.

886 

331.5 ............. Idiopathic normal pressure hydrocephalus 

(INPH).

056, 057 

Since we do not plan to update the 

regression analysis until we analyze IPF 

PPS data, the MS–DRG adjustment 

factors, shown in Table 5 below, will 

continue to be paid for RY 2009. Table 

5 reflects the changes that were made to 

the DRGs under the IPF PPS in a 

crosswalk of DRGs prior to October 1, 

2007 to the new MS–DRGs, which were 

effective October 1, 2007. 


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TABLE 5.—FY 2008 CROSSWALK OF CURRENT DRGS TO NEW MS–DRGS APPLICABLE FOR THE PRINCIPAL DIAGNOSIS

ADJUSTMENT

(v24) DRG prior to 

10/01/07 

(v25) MS–

DRG 

after 10/01/07 

MS–DRG descriptions Adjustment 

factor 

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

12 ..................................................... 057 Degenerative nervous system disorders w/o MCC .................................. 1.05 

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

023 ................................................... 081 Nontraumatic stupor & coma w/o MCC .................................................... 1.07 

424 ................................................... 876 O.R. procedure w principal diagnoses of mental illness .......................... 1.22 

425 ................................................... 880 Acute adjustment reaction & psychosocial dysfunction ............................ 1.05 

426 ................................................... 881 Depressive neuroses ................................................................................. 0.99 

427 ................................................... 882 Neuroses except depressive ..................................................................... 1.02 

428 ................................................... 883 Disorders of personality & impulse control ............................................... 1.02 

429 ................................................... 884 Organic disturbances & mental retardation .............................................. 1.03 

430 ................................................... 885 Psychoses ................................................................................................. 1.00 

431 ................................................... 886 Behavioral & developmental disorders ..................................................... 0.99 

432 ................................................... 887 Other mental disorder diagnoses .............................................................. 0.92 

433 ................................................... 894 Alcohol/drug abuse or dependence, left AMA .......................................... 0.97 

521 ................................................... 895 Alcohol/drug abuse or dependence w rehabilitation therapy .................... 1.02 

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

523 ................................................... 897 Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC 0.88 

2. Payment for Comorbid Conditions 

The intent of the comorbidity 

adjustment is to recognize the increased 

costs associated with comorbid 

conditions by providing additional 

payments for certain concurrent medical 

or psychiatric conditions that are 

expensive to treat. In the May 2007 IPF 

PPS update notice (72 FR 25602), we 

explained that the IPF PPS includes 17 

comorbidity categories and identified 

the new, revised and deleted ICD–9–CM 

diagnosis codes that generate a 

comborbid condition payment 

adjustment under the IPF PPS for RY 

2008 (72 FR 25609–13). 

Comorbidities are specific patient 

conditions that are secondary to the 

patient’s principal diagnosis, and that 

require treatment during the stay. 

Diagnoses that relate to an earlier 

episode of care and have no bearing on 

the current hospital stay are excluded 

and should not be reported on IPF 

claims. Comorbid conditions must exist 

at the time of admission or develop 

subsequently, and affect the treatment 

received, affect the length of stay (LOS) 

or affect both treatment and LOS. 

For each claim, an IPF may receive 

only one comorbidity adjustment per 

comorbidity category, but it may receive 

an adjustment for more than one 

comorbidity category. Billing 

instructions require that IPFs must enter 

the full ICD–9–CM codes for up to 8 

additional diagnoses if they co-exist at 

the time of admission or develop 

subsequently. 

The comorbidity adjustments were 

determined based on the regression 

analysis using the diagnoses reported by 

hospitals in FY 2002. The principal 

diagnoses were used to establish the 

DRG adjustment and were not 

accounted for in establishing the 

comorbidity category adjustments, 

except where ICD–9–CM ‘‘code first’’

instructions apply. As we explained in 

the May 2007 IPF PPS notice (72 FR 

25602), the code first rule applies when 

a condition has both an underlying 

etiology and a manifestation due to the 

underlying etiology. For these 

conditions, the ICD–9–CM has a coding 

convention that requires the underlying 

conditions to be sequenced first 

followed by the manifestation. 

Whenever a combination exists, there is 

a ‘‘use additional code’’ note at the 

etiology code and a ‘‘code first’’ note at 

the manifestation code. 

As discussed in the DRG section, it is 

our policy to maintain the same 

diagnostic coding set for IPFs that is 

used under the IPPS for providing the 

same psychiatric care. Although the 

ICD–9–CM code set has been updated, 

the same adjustment factors have been 

in place since the implementation of the 

IPF PPS. Table 6 below lists the FY 2008 

new ICD diagnosis codes that impact the 

comorbidity adjustments under the IPF 

PPS. Table 6 is not a list of all currently 

valid ICD codes applicable for the IPF 

PPS comorbidity adjustments. 

TABLE 6.—FY 2008 NEW ICD CODES APPLICABLE FOR THE COMORBIDITY ADJUSTMENTS DIAGNOSIS

Diagnosis code Description Comorbidity category 

040.41 ....................................... Infant botulism ........................................................................... Infectious Diseases. 

040.42 ....................................... Wound botulism ........................................................................ Infectious Diseases. 

058.10 ....................................... Roseola infantum, unspecified .................................................. Infectious Diseases. 

058.11 ....................................... Roseola infantum due to human herpesvirus 6 ........................ Infectious Diseases. 

058.12 ....................................... Roseola infantum due to human herpesvirus 7 ........................ Infectious Diseases. 

058.21 ....................................... Human herpesvirus 6 encephalitis ............................................ Infectious Diseases. 

058.29 ....................................... Other human herpesvirus encephalitis ..................................... Infectious Diseases. 

058.81 ....................................... Human herpesvirus 6 infection ................................................. Infectious Diseases. 

058.82 ....................................... Human herpesvirus 7 infection ................................................. Infectious Diseases. 

058.89 ....................................... Other human herpesvirus infection ........................................... Infectious Diseases. 

200.30 ....................................... Marginal zone lymphoma, unspecified site, extranodal and 

solid organ sites.

Oncology Treatment. 

200.31 ....................................... Marginal zone lymphoma, lymph nodes of head, face, and 

neck.

Oncology Treatment. 

200.32 ....................................... Marginal zone lymphoma, intrathoracic lymph nodes .............. Oncology Treatment.


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TABLE 6.—FY 2008 NEW ICD CODES APPLICABLE FOR THE COMORBIDITY ADJUSTMENTS DIAGNOSIS—Continued 

Diagnosis code Description Comorbidity category 

200.33 ....................................... Marginal zone lymphoma, intraabdominal lymph nodes .......... Oncology Treatment. 

200.34 ....................................... Marginal zone lymphoma, lymph nodes of axilla and upper 

limb.

Oncology Treatment. 

200.35 ....................................... Marginal zone lymphoma, lymph nodes of inguinal region and 

lower limb.

Oncology Treatment. 

200.36 ....................................... Marginal zone lymphoma, intrapelvic lymph nodes .................. Oncology Treatment. 

200.37 ....................................... Marginal zone lymphoma, spleen ............................................. Oncology Treatment. 

200.38 ....................................... Marginal zone lymphoma, lymph nodes of multiple sites ......... Oncology Treatment. 

200.40 ....................................... Mantle cell lymphoma, unspecified site, extranodal and solid 

organ sites.

Oncology Treatment. 

200.41 ....................................... Mantle cell lymphoma, lymph nodes of head, face, and neck Oncology Treatment. 

200.42 ....................................... Mantle cell lymphoma, intrathoracic lymph nodes .................... Oncology Treatment. 

200.43 ....................................... Mantle cell lymphoma, intra-abdominal lymph nodes .............. Oncology Treatment.

200.44 ....................................... Mantle cell lymphoma, lymph nodes of axilla and upper limb Oncology Treatment. 

200.45 ....................................... Mantle cell lymphoma, lymph nodes of inguinal region and 

lower limb.

Oncology Treatment. 

200.46 ....................................... Mantle cell lymphoma, intrapelvic lymph nodes ....................... Oncology Treatment. 

200.47 ....................................... Mantle cell lymphoma, spleen .................................................. Oncology Treatment. 

200.48 ....................................... Mantle cell lymphoma, lymph nodes of multiple sites .............. Oncology Treatment. 

200.50 ....................................... Primary central nervous system lymphoma, unspecified site, 

extranodal and solid organ sites.

Oncology Treatment. 

200.51 ....................................... Primary central nervous system lymphoma, lymph nodes of 

head, face, and neck.

Oncology Treatment. 

200.52 ....................................... Primary central nervous system lymphoma, intrathoracic 

lymph nodes.

Oncology Treatment. 

200.53 ....................................... Primary central nervous system lymphoma, intra-abdominal 

lymph nodes.

Oncology Treatment. 

200.54 ....................................... Primary central nervous system lymphoma, lymph nodes of 

axilla and upper limb.

Oncology Treatment. 

200.55 ....................................... Primary central nervous system lymphoma, lymph nodes of 

inguinal region and lower limb.

Oncology Treatment. 

200.56 ....................................... Primary central nervous system lymphoma, intrapelvic lymph 

nodes.

Oncology Treatment. 

200.57 ....................................... Primary central nervous system lymphoma, spleen ................. Oncology Treatment. 

200.58 ....................................... Primary central nervous system lymphoma, lymph nodes of 

multiple sites.

Oncology Treatment. 

200.60 ....................................... Anaplastic large cell lymphoma, unspecified site, extranodal 

and solid organ sites.

Oncology Treatment. 

200.61 ....................................... Anaplastic large cell lymphoma, lymph nodes of head, face, 

and neck.

Oncology Treatment. 

200.62 ....................................... Anaplastic large cell lymphoma, intrathoracic lymph nodes ..... Oncology Treatment. 

200.63 ....................................... Anaplastic large cell lymphoma, intra-abdominal lymph nodes Oncology Treatment. 

200.64 ....................................... Anaplastic large cell lymphoma, lymph nodes of axilla and 

upper limb.

Oncology Treatment. 

200.65 ....................................... Anaplastic large cell lymphoma, lymph nodes of inguinal region and lower limb.Oncology Treatment. 

200.66 ....................................... Anaplastic large cell lymphoma, intrapelvic lymph nodes ........ Oncology Treatment.

200.67 ....................................... Anaplastic large cell lymphoma, spleen ................................... Oncology Treatment. 

200.68 ....................................... Anaplastic large cell lymphoma, lymph nodes of multiple sites Oncology Treatment. 

200.70 ....................................... Large cell lymphoma, unspecified site, extranodal and solid 

organ sites.

Oncology Treatment. 

200.71 ....................................... Large cell lymphoma, lymph nodes of head, face, and neck ... Oncology Treatment. 

200.72 ....................................... Large cell lymphoma, intrathoracic lymph nodes ..................... Oncology Treatment. 

200.73 ....................................... Large cell lymphoma, intra-abdominal lymph nodes ................ Oncology Treatment. 

200.74 ....................................... Large cell lymphoma, lymph nodes of axilla and upper limb ... Oncology Treatment. 

200.75 ....................................... Large cell lymphoma, lymph nodes of inguinal region and 

lower limb.

Oncology Treatment. 

200.76 ....................................... Large cell lymphoma, intrapelvic lymph nodes ......................... Oncology Treatment. 

200.77 ....................................... Large cell lymphoma, spleen .................................................... Oncology Treatment. 

200.78 ....................................... Large cell lymphoma, lymph nodes of multiple sites ................ Oncology Treatment. 

202.70 ....................................... Peripheral T cell lymphoma, unspecified site, extranodal and 

solid organ sites.

Oncology Treatment. 

202.71 ....................................... Peripheral T cell lymphoma, lymph nodes of head, face, and 

neck.

Oncology Treatment. 

202.72 ....................................... Peripheral T cell lymphoma, intrathoracic lymph nodes ........... Oncology Treatment. 

202.73 ....................................... Peripheral T cell lymphoma, intra-abdominal lymph nodes ..... Oncology Treatment. 

202.74 ....................................... Peripheral T cell lymphoma, lymph nodes of axilla and upper 

limb.

Oncology Treatment. 

202.75 ....................................... Peripheral T cell lymphoma, lymph nodes of inguinal region 

and lower limb.

Oncology Treatment. 

202.76 ....................................... Peripheral T cell lymphoma, intrapelvic lymph nodes .............. Oncology Treatment. 

202.77 ....................................... Peripheral T cell lymphoma, spleen ......................................... Oncology Treatment. 


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TABLE 6.—FY 2008 NEW ICD CODES APPLICABLE FOR THE COMORBIDITY ADJUSTMENTS DIAGNOSIS—Continued 

Diagnosis code Description Comorbidity category 

202.78 ....................................... Peripheral T cell lymphoma, lymph nodes of multiple sites ..... Oncology Treatment. 

233.30 ....................................... Carcinoma in situ, unspecified female genital organ ................ Oncology Treatment. 

233.31 ....................................... Carcinoma in situ, vagina ......................................................... Oncology Treatment. 

233.32 ....................................... Carcinoma in situ, vulva ............................................................ Oncology Treatment. 

233.39 ....................................... Carcinoma in situ, other female genital organ .......................... Oncology Treatment. 

Table 7 lists the invalid ICD–9–CM 

codes no longer applicable for the 

comorbidity adjustment. . 

TABLE 7.—FY 2008 INVALID ICD CODES NO LONGER APPLICABLE FOR THE COMORBIDITY ADJUSTMENT

Diagnosis code Description Comorbidity category. 

233.3 ......................................... Carcinoma in situ, other and unspecified female genital organs.Oncology Treatment. 

The seventeen comorbidity categories 

for which we are providing an 

adjustment, their respective codes, 

including the new FY 2008 ICD codes, 

and their respective adjustment factors, 

are listed below in Table 8. . 

TABLE 8.—RY 2009 DIAGNOSIS CODES AND ADJUSTMENT FACTORS FOR COMORBIDITY CATEGORIES

Description of comorbidity ICD–9CM code Adjustment 

factor 

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

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

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

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

66932, 66934, 9585.

1.11 

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

5856, 5859, 586, V451, V560, V561, and V562.

1.11 

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

code 99.25.

1.07 

Uncontrolled Diabetes-Mellitus with or 

without complications.

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

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

1.05 

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

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

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

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

1.07 

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

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

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

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

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

Severe Musculoskeletal and Connective 

Tissue Diseases.

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

73029.

1.09 

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

through 9839, 986, 9890 through 9897.

1.11 

3. Patient Age Adjustments 

As explained in the November 2004 

IPF PPS final rule, we analyzed the 

impact of age on per diem cost by 

examining the age variable (that is, the 

range of ages) for payment adjustments. 

In general, we found that the cost per 

day increases with increasing age. The 

older age groups are more costly than 

the under 45 age group, the differences 

in per diem cost increase for each 

successive age group, and the 

differences are statistically significant. 

For RY 2009, we are continuing to use 

the patient age adjustments currently in 

effect and shown in Table 9 below. 

TABLE 9.—AGE GROUPINGS AND

ADJUSTMENT FACTORS

Age Adjustment 

factor 

Under 45 ............................... 1.00 

45 and under 50 ................... 1.01 

50 and under 55 ................... 1.02 

55 and under 60 ................... 1.04 

TABLE 9.—AGE GROUPINGS AND

ADJUSTMENT FACTORS—Continued 

Age Adjustment 

factor 

60 and under 65 ................... 1.07 

65 and under 70 ................... 1.10 

70 and under 75 ................... 1.13 

75 and under 80 ................... 1.15 

80 and over .......................... 1.17 


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4. Variable Per Diem Adjustments 

We explained in the November 2004 

IPF PPS final rule that a regression 

analysis indicated that per diem cost 

declines as the LOS increases (69 FR 

66946). The variable per diem 

adjustments to the Federal per diem 

base rate account for ancillary and 

administrative costs that occur 

disproportionately in the first days after 

admission to an IPF. 

We used a regression analysis to 

estimate the average differences in per 

diem cost among stays of different 

lengths. As a result of this analysis, we 

established variable per diem 

adjustments that begin on day 1 and 

decline gradually until day 21 of a 

patient’s stay. For day 22 and thereafter, 

the variable per diem adjustment 

remains the same each day for the 

remainder of the stay. However, the 

adjustment applied to day 1 depends 

upon whether the IPF has a qualifying 

ED. If an IPF has a qualifying ED, it 

receives a 1.31 adjustment factor for day 

1 of each patient stay. If an IPF does not 

have a qualifying ED, it receives a 1.19 

adjustment factor for day 1 of the stay. 

The ED adjustment is explained in more 

detail in section IV.C.5 of this notice. 

For RY 2009, we are continuing to use 

the variable per diem adjustment factors 

currently in effect as shown in Table 10 

below. 

A complete discussion of the variable 

per diem adjustments appears in the 

November 2004 IPF PPS final rule (69 

FR 66946). 

TABLE 10.—VARIABLE PER DIEM

ADJUSTMENTS

Day-of-stay Adjustment 

factor 

Day 1—IPF Without a Qualified ED .............................. 1.19 

Day 1—IPF With a Qualified 

ED ..................................... 1.31 

Day 2 .................................... 1.12 

Day 3 .................................... 1.08 

Day 4 .................................... 1.05 

Day 5 .................................... 1.04 

Day 6 .................................... 1.02 

Day 7 .................................... 1.01 

Day 8 .................................... 1.01 

Day 9 .................................... 1.00 

Day 10 .................................. 1.00 

Day 11 .................................. 0.99 

Day 12 .................................. 0.99 

Day 13 .................................. 0.99 

Day 14 .................................. 0.99 

Day 15 .................................. 0.98 

Day 16 .................................. 0.97 

Day 17 .................................. 0.97 

Day 18 .................................. 0.96 

Day 19 .................................. 0.95 

Day 20 .................................. 0.95 

Day 21 .................................. 0.95 

After Day 21 ......................... 0.92 

C. Facility-Level Adjustments 

The IPF PPS includes facility-level 

adjustments for the wage index, IPFs 

located in rural areas, teaching IPFs, 

cost of living adjustments for IPFs 

located in Alaska and Hawaii, and IPFs 

with a qualifying ED. 

1. Wage Index Adjustment 

As discussed in the May 2006 IPF PPS 

final rule, and in the May 2007 notice, 

in providing an adjustment for area 

wage levels, the labor-related portion of 

an IPF’s Federal prospective payment is 

adjusted using an appropriate wage 

index. An IPF’s area wage index value 

is determined based on the actual 

location of the IPF in an urban or rural 

area as defined in § 412.64(b)(1)(ii)(A) 

through (C). 

Since the inception of the IPF PPS, we 

have used hospital wage data in 

developing a wage index to be applied 

to IPFs. We are continuing that practice 

for RY 2009. We apply the wage index 

adjustment to the labor-related portion 

of the Federal rate, which is 75.631 

percent. This percentage reflects the 

labor-related relative importance of the 

RPL market basket for RY 2009. The IPF 

PPS uses the pre-floor, pre-reclassified 

hospital wage index. Changes to the 

wage index are made in a budget neutral 

manner, so that updates do not increase 

expenditures. 

For RY 2009, we are applying the 

most recent hospital wage index using 

the most recent hospital wage data, and 

applying an adjustment in accordance 

with our budget neutrality policy. This 

policy requires us to estimate the total 

amount of IPF PPS payments in RY 

2008 and divide that amount by the 

total estimated IPF PPS payments in RY 

2009. The estimated payments are based 

on FY 2006 IPF claims, inflated to the 

appropriate RY. This quotient is the 

wage index budget neutrality factor, and 

it is applied in the update of the Federal 

per diem base rate for RY 2009. The 

wage index budget neutrality factor for 

RY 2009 is 1.0010. 

The wage index applicable for RY 

2009 appears in Table 1 and Table 2 in 

Addendum B of this notice. As 

explained in the May 2006 IPF PPS final 

rule for RY 2007 (71 FR 27061), and in 

the IPF PPS May 2007 notice for RY 

2008 (72 FR 25602), the IPF PPS applies 

the hospital wage index without a holdharmless policy, and without an outcommuting adjustment or out-migration 

adjustment because we feel these 

policies apply only to the IPPS. 

In the May 2006 IPF PPS final rule for 

RY 2007 (71 FR 27061), we adopted the 

changes discussed in the Office of 

Management and Budget (OMB) 

Bulletin No. 03–04 (June 6, 2003), 

which announced revised definitions 

for Metropolitan Statistical Areas 

(MSAs), and the creation of 

Micropolitan Statistical Areas and 

Combined Statistical Areas. In adopting 

the OMB Core-Based Statistical Area 

(CBSA) geographic designations, since 

the IPF PPS was already in a transition 

period from TEFRA payments to PPS 

payments, we did not provide a separate 

transition for the wage index. 

As was the case in RY 2008, for RY 

2009, we will be using the full CBSAbased wage index values as presented in 

Tables 1 and 2 in Addendum B of this 

notice. 

Finally, we continue to use the same 

methodology discussed in the IPF PPS 

proposed rule for RY 2007 (71 FR 3633), 

and finalized in the May 2006 IPF PPS 

final rule for RY 2007 (71 FR 27061) 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 RY 2009 IPF 

PPS wage index. For RY 2009, those 

areas consist of rural Massachusetts, 

rural Puerto Rico and urban CBSA 

(25980) Hinesville-Fort Stewart, GA. 

A complete discussion of the CBSA 

labor market definitions appears in the 

May 2006 IPF PPS final rule (71 FR 

27061 through 27067). 

a. Clarification of New England Deemed 

Counties 

We are also 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 

to be parts of urban areas under section 

601(g) of the Social Security 

Amendments of 1983) that was made in 

the FY 2008 IPPS final rule with 

comment period. These counties 

include the following: Litchfield 

County, Connecticut; York County, 

Maine; Sagadahoc County, Maine; 

Merrimack County, New Hampshire; 

and Newport County, Rhode Island. Of 

these five ‘‘New England deemed 

counties,’’ three (York County, 

Sagadahoc County, and Newport 

County) are also included in 

metropolitan statistical areas defined by 

OMB and are considered urban under 

both the current IPPS and IPF PPS labor 

market area definitions in 

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

Litchfield County and Merrimack 

County, are geographically located in 

areas that are considered rural under the 

current IPPS (and IPF PPS) labor market 

area definitions (however, they have 

been previously deemed urban under 

the IPPS in certain circumstances as 

discussed below). 


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In the FY 2008 IPPS final rule with 

comment period (72 FR 47337 through 

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

such 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 IPF 

PPS does not provide for such 

geographic reclassification (71 FR 27061 

through 27067). 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 indices would be 

addressed in the respective payment 

system rules. 

Accordingly, as stated above, we are 

taking the opportunity to clarify the 

treatment of ‘‘New England deemed 

counties’’ under the IPF PPS in this 

notice. As discussed above, under 

existing § 412.402 and § 412.424(d)(1)(i), 

an IPF’s wage index is determined based 

on the location of the IPF in an urban 

or rural area as defined in 

§ 412.64(b)(1)(ii)(A) through (C). Under 

existing § 412.402, an urban area under 

the IPF PPS is currently defined at 

§ 412.64(b)(1)(ii)(A) and (B), and a rural 

area is defined at § 412.64(b)(1)(ii)(C) as 

any area outside of an urban area. 

Historical changes to the labor market 

area/geographic classifications and 

annual updates to the wage index values 

under the IPF PPS are made effective 

July 1 each year. When we established 

the most recent IPF PPS payment rate 

update, effective for IPF discharges 

occurring on or after July 1, 2007 

through June 30, 2008, we considered 

the ‘‘New England deemed counties’’

(including Litchfield County, CT and 

Merrimack County, NH) as urban for RY 

2008 (in accordance with the definitions 

of urban and rural stated in the RY 2008 

IPF PPS notice (72 FR 25602) and as 

evidenced by the inclusion of Litchfield 

County as one of the constituent 

counties of urban CBSA 25540 

(Hartford-West Hartford-East Hartford, 

CT), and the inclusion of Merrimack 

County as one of the constituent 

counties of urban CBSA 31700 

(Manchester-Nashua, NH)). (See 72 FR 

25643 and 25651, respectively). 

As noted above, existing § 412.402 

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). 

Effective for discharges on or after July 

1, 2008, § 412.64(b)(1)(ii)(B) is no longer 

applicable under the IPF PPS. 

Therefore, as Litchfield County, CT and 

Merrimack County, NH would be 

considered rural areas in accordance 

with our regulations at § 412.402, these 

two counties will be ‘‘rural’’ under the 

IPF PPS effective with the next update 

of the IPF PPS payment rates, which 

will be July 1, 2008 (under the IPF PPS 

effective for discharges on or after July 

1, 2008, Litchfield County, CT and 

Merrimack County, NH are not urban 

under § 412.64(b)(1)(ii)(A) through (B), 

as revised under the RY 2008 IPPS final 

rule with comment period, and 

therefore are rural under 

§ 412.64(b)(1)(ii)(C)). Litchfield County, 

CT and Merrimack County, NH will be 

considered ‘‘rural’’ effective for IPF PPS 

discharges occurring on or after July 1, 

2008, and will no longer be considered 

as being part of urban CBSA 25540 

(Hartford-West Hartford-East Hartford, 

CT) and urban CBSA 31700 

(Manchester-Nashua, NH), respectively. 

We do not need to make any changes to 

our regulations to effectuate this change. 

We note that this policy is consistent 

with our policy of not taking into 

account IPPS geographic 

reclassifications in determining 

payments under the IPF PPS. 

Four IPFs (two in Litchfield County, 

CT, and two in Merrimack County, NH) 

greatly benefit from treating the counties 

in which they are located as rural. These 

IPFs will begin to receive the rural 

facility adjustment and see an 

approximate 17 percent increase in 

payments. Five IPFs in NH that are 

currently treated as rural will 

experience an approximate 3 percent 

decrease in payments because the rural 

NH wage index value decreases when 

this change is made. One IPF in CT that 

is currently treated as rural will 

experience an approximate 4 percent 

decrease in payments because the rural 

CT wage index value is lower when this 

change is made. 

The area wage index values for CBSAs 

31700 and 25540 increase with the 

change. No other IPFs in CT or NH are 

affected by treating Litchfield and 

Merrimack Counties as rural. 

b. Multi-Campus—Wage Index Data 

Collection 

Historically, under the IPF PPS, we 

have established IPF PPS wage index 

values calculated from acute care IPPS 

hospital wage data without taking into 

account geographic reclassification 

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

the Act. As we discussed in the May 

2006 IPF PPS final rule (71 FR 27040), 

hospitals that are excluded from the 

IPPS are not required to provide wagerelated information on the Medicare 

cost report (which is needed in order to 

make geographic reclassifications). 

Thus, the wage adjustment established 

under the IPF PPS is based on an IPF’s 

actual location without regard to the 

urban or rural designation of any related 

or affiliated provider. 

In the RY 2008 IPF PPS notice (72 FR 

25602), we established IPF PPS wage 

index values for the RY 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 

data without taking into account 

geographic reclassification under 

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

Act because that was the best available 

data at that time. The IPF PPS wage 

index values applicable for discharges 

occurring on or after July 1, 2007 

through June 30, 2008 are shown in 

Table 1 (for urban areas) and Table 2 

(for rural areas) in the Addendum to the 

RY 2008 IPF PPS final rule (72 FR 25627 

through 25673). 

For RY 2009, the same data (collected 

from cost reports submitted by hospitals 

for cost reporting periods beginning 

during FY 2004) used to compute the 

FY 2008 acute care hospital inpatient 

wage index data without taking into 

account geographic reclassification 

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

the Act was used to determine the 

applicable wage index values under the 

IPF PPS because these data (FY 2004) 

are the most recent complete data. (For 

information on the data used to 

compute the FY 2008 IPPS wage index, 

refer to the FY 2008 IPPS final rule with 

comment period (72 FR 47308 through 

47309, 47315)). We are continuing to 

use IPPS wage data as a proxy to 

determine the IPF wage index values for 

RY 2009 because both IPFs and acutecare hospitals are required to meet the 

same certification criteria set forth in 

section 1861(e) of the Act to participate 

as a hospital in the Medicare program 

and they both compete in the same labor 

markets, and therefore, experience 

similar wage-related costs. We note that 

the IPPS wage data used to determine 

the RY 2009 IPF wage index values 

reflects our policy that was adopted 

under the IPPS beginning in FY 2008 

that apportions the wage data for multicampus hospitals located in different 


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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)). The RY 2009 IPF PPS wage 

index values presented in this notice 

were computed consistent with our prereclassified IPPS wage index policy 

(that is, our historical policy of not 

taking into account IPPS geographic 

reclassifications in determining 

payments under the IPF PPS). 

For the RY 2009 IPF PPS, the wage 

index was computed from IPPS wage 

data (submitted by hospitals for cost 

reporting periods beginning in FY 2004 

(just like 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 RY 2009 IPF 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), Chicago-Naperville-Joliet, IL 

(CBSA 16974) and Lake CountyKenosha County, IL–WI (CBSA 29404) 

(refer to Table 1 in the Addendum of 

this notice). 

The table below describes the change 

in wage index value and the number of 

IPFs affected by the multi-campus 

hospital policy change: 

TABLE 11.—IPFS AFFECTED BY THE MULTI-CAMPUS HOSPITAL POLICY CHANGE

CBSA No. of 

IPFs 

Wage index 

value change 

14484 (Boston-Quincy, MA) ............................................................................................................................................ 17 0.0153 

16974 (Chicago-Naperville-Joliet, IL) .............................................................................................................................. 47 ¥0.002 

29404 (Lake County-Kenosha County, IL–WI) ............................................................................................................... 2 0.0288 

39300 (Providence-New Bedford-Falls River, RI–MA) .................................................................................................... 12 ¥0.0111 

c. OMB Bulletins 

The Office of Management and Budget 

(OMB) publishes bulletins regarding 

CBSA changes, including changes to 

CBSA numbers and titles. In the May 

2006 IPF PPS final rule for FY 2006 (71 

FR 27040), we adopted the changes 

discussed in the OMB Bulletin No. 

03–04 (June 6, 2003), available online at 

http://www.whitehouse.gov/omb/ 

bulletins/b03-04.html. Those changes 

were strictly nomenclature changes and 

did not represent substantive changes to 

the CBSA-based designations. In this 

notice, we incorporate the CBSA 

nomenclature changes published in the 

most recent OMB bulletin that applies 

to the hospital wage data used to 

determine the current IPF PPS wage 

index, and we expect to do the same for 

all such OMB CBSA nomenclature 

changes in future IPF PPS rules and 

notices, as necessary. The OMB 

bulletins may be accessed online at 

http://www.whitehouse.gov/omb/ 

bulletins/index.html. 

2. Adjustment for Rural Location 

In the November 2004 IPF PPS final 

rule, we provided a 17 percent payment 

adjustment for IPFs located in a rural 

area. This adjustment was based on the 

regression analysis, which indicated 

that the per diem cost of rural facilities 

was 17 percent higher than that of urban 

facilities after accounting for the 

influence of the other variables included 

in the regression. For RY 2009, we are 

applying a 17 percent payment 

adjustment for IPFs located in a rural 

area as defined at § 412.64(b)(1)(ii)(C). A 

complete discussion of the adjustment 

for rural locations appears in the 

November 2004 IPF PPS final rule (69 

FR 66954). 

3. Teaching Adjustment 

In the November 2004 IPF PPS final 

rule, we implemented regulations at 

§ 412.424(d)(1)(iii) to establish a facilitylevel adjustment for IPFs that are, or are 

part of, teaching institutions. The 

teaching adjustment accounts for the 

higher indirect operating costs 

experienced by facilities that participate 

in graduate medical education (GME) 

programs. Payments are made based on 

the number of full-time equivalent 

interns and residents training in the IPF. 

Medicare makes direct GME payments 

(for direct costs such as resident and 

teaching physician salaries, and other 

direct teaching costs) to all teaching 

hospitals including those paid under the 

IPPS, and those that were once paid 

under the TEFRA rate-of-increase limits 

but are now paid under other PPSs. 

These direct GME payments are made 

separately from payments for hospital 

operating costs and are not part of the 

PPSs. The direct GME payments do not 

address the estimated higher indirect 

operating costs teaching hospitals may 

face. 

For teaching hospitals paid under the 

TEFRA rate of increase limits, Medicare 

did not make separate medical 

education payments because payments 

to these hospitals were based on the 

hospitals’ reasonable costs. Since 

payments under TEFRA were based on 

hospitals’ reasonable costs, the higher 

indirect costs that might be associated 

with teaching programs would 

automatically have been factored into 

the TEFRA payments. 

The results of the regression analysis 

of FY 2002 IPF data established the 

basis for the payment adjustments 

included in the November 2004 IPF PPS 

final rule. The results showed that the 

indirect teaching cost variable is 

significant in explaining the higher 

costs of IPFs that have teaching 

programs. We calculated the teaching 

adjustment based on the IPF’s ‘‘teaching 

variable,’’ which is one plus the ratio of 

the number of full-time equivalent (FTE) 

residents training in the IPF (subject to 

limitations described below) to the IPF’s 

average daily census (ADC). 

In the regression analysis, the 

logarithm of the teaching variable had a 

coefficient value of 0.5150. We 

converted this cost effect to a teaching 

payment adjustment by treating the 

regression coefficient as an exponent 

and raising the teaching variable to a 

power equal to the coefficient value. We 

note that the coefficient value of 0.5150 

was based on the regression analysis 

holding all other components of the 

payment system constant. 

As with other adjustment factors 

derived through the regression analysis, 

we do not plan to rerun the regression 

analysis until we analyze IPF PPS data. 

Therefore, for RY 2009, we are retaining 

the coefficient value of 0.5150 for the 

teaching adjustment to the Federal per 

diem base rate. 

A complete discussion of how the 

teaching adjustment was calculated 

appears in the November 2004 IPF PPS 

final rule (69 FR 66954 through 66957) 

and the May 2006 IPF PPS final rule (71 

FR 27067 through 27070). 

4. Cost of Living Adjustment for IPFs 

Located in Alaska and Hawaii 

The IPF PPS includes a payment 

adjustment for IPFs located in Alaska 

and Hawaii based upon the county in 

which the IPF is located. As we 

explained in the November 2004 IPF 

PPS final rule, the FY 2002 data 


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demonstrated that IPFs in Alaska and 

Hawaii had per diem costs that were 

disproportionately higher than other 

IPFs. Other Medicare PPSs (for example, 

the IPPS and LTCH PPS) have adopted 

a cost of living adjustment (COLA) to 

account for the cost differential of care 

furnished in Alaska and Hawaii. 

We analyzed the effect of applying a 

COLA to payments for IPFs located in 

Alaska and Hawaii. The results of our 

analysis demonstrated that a COLA for 

IPFs located in Alaska and Hawaii 

would improve payment equity for 

these facilities. As a result of this 

analysis, we provided a COLA in the 

November 2004 IPF PPS final rule. 

In general, the COLA accounts for the 

higher costs in the IPF and eliminates 

the projected loss that IPFs in Alaska 

and Hawaii would experience absent 

the COLA. A COLA factor for IPFs 

located in Alaska and Hawaii is made 

by multiplying the non-labor share of 

the Federal per diem base rate by the 

applicable COLA factor based on the 

COLA area in which the IPF is located. 

As previously stated, we will update 

the COLA factors according to updates 

established by the U.S. Office of 

Personnel Management (OPM), which 

issued a final rule to change COLA rates 

effective September 1, 2006. 

The COLA factors are published on 

the OPM Web site at http:// 

www.opm.gov/oca/cola/rates.asp. 

We note that the COLA areas for 

Alaska are not defined by county as are 

the COLA areas for Hawaii. In 5 CFR 

591.207, the OPM established the 

following COLA areas: 

(a) City of Anchorage, and 80- 

kilometer (50-mile) radius by road, as 

measured from the Federal courthouse; 

(b) City of Fairbanks, and 80- 

kilometer (50-mile) radius by road, as 

measured from the Federal courthouse; 

(c) City of Juneau, and 80-kilometer 

(50-mile) radius by road, as measured 

from the Federal courthouse; 

(d) Rest of the State of Alaska. 

In the November 2004 and May 2006 

IPF PPS final rules, we showed only one 

COLA for Alaska because all four areas 

were the same amount (1.25). Effective 

September 1, 2006, the OPM updated 

the COLA amounts and there are now 

two different amounts for the Alaska 

COLA areas (1.24 and 1.25). 

For RY 2009, IPFs located in Alaska 

and Hawaii will receive the updated 

COLA factors based on the COLA area 

in which the IPF is located and as 

shown in Table 12 below. 

TABLE 12.— COLA FACTORS FOR ALASKA AND HAWAII IPFS

Location COLA 

Alaska .......................................................................... Anchorage ............................................................................................................. 1.24 

Fairbanks ............................................................................................................... 1.24 

Juneau ................................................................................................................... 1.24 

Rest of Alaska ....................................................................................................... 1.25 

Hawaii .......................................................................... Honolulu County .................................................................................................... 1.25 

Hawaii County ....................................................................................................... 1.17 

Kauai County ......................................................................................................... 1.25 

Maui County .......................................................................................................... 1.25 

Kalawao County .................................................................................................... 1.25 

5. Adjustment for IPFs With a 

Qualifying Emergency Department (ED) 

Currently, the IPF PPS includes a 

facility-level adjustment for IPFs with 

qualifying EDs. We provide an 

adjustment to the standardized Federal 

per diem base rate to account for the 

costs associated with maintaining a fullservice ED. The adjustment is intended 

to account for ED costs allocated to the 

hospital’s distinct part psychiatric unit 

for preadmission services otherwise 

payable under the Medicare Outpatient 

Prospective Payment System (OPPS) 

furnished to a beneficiary during the 

day immediately preceding the date of 

admission to the IPF (see § 413.40(c)) 

and the overhead cost of maintaining 

the ED. This payment is a facility-level 

adjustment that applies to all IPF 

admissions (with the one exception as 

described below), regardless of whether 

a particular patient receives 

preadmission services in the hospital’s 

ED. 

The ED adjustment is incorporated 

into the variable per diem adjustment 

for the first day of each stay for IPFs 

with a qualifying ED. That is, IPFs with 

a qualifying ED receive an adjustment 

factor of 1.31 as the variable per diem 

adjustment for day 1 of each stay. If an 

IPF does not have a qualifying ED, it 

receives an adjustment factor of 1.19 as 

the variable per diem adjustment for day 

1 of each patient stay. 

The ED adjustment is made on every 

qualifying claim except as described 

below. As specified in 

§ 412.424(d)(1)(v)(B), the ED adjustment 

is not made where a patient is 

discharged from an acute care hospital 

or CAH and admitted to the same 

hospital’s or CAH’s psychiatric unit. An 

ED adjustment is not made in this case 

because the costs associated with ED 

services are reflected in the DRG 

payment to the acute care hospital or 

through the reasonable cost payment 

made to the CAH. If we provided the ED 

adjustment in these cases, the hospital 

would be paid twice for the overhead 

costs of the ED (69 FR 66960). 

Therefore, when patients are 

discharged from an acute care hospital 

or CAH and admitted to the same 

hospital’s or CAH’s psychiatric unit, the 

IPF receives the 1.19 adjustment factor 

as the variable per diem adjustment for 

the first day of the patient’s stay in the 

IPF. 

For RY 2009, we are retaining the 1.31 

adjustment factor for IPFs with 

qualifying EDs. A complete discussion 

of the steps involved in the calculation 

of the ED adjustment factor appears in 

the November 2004 IPF PPS final rule 

(69 FR 66959 through 66960) and the 

May 2006 IPF PPS final rule (71 FR 

27070 through 27072). 

D. Other Payment Adjustments and 

Policies 

For RY 2009, the IPF PPS includes the 

following payment adjustments: An 

outlier adjustment to promote access to 

IPF care for those patients who require 

expensive care and to limit the financial 

risk of IPFs treating unusually costly 

patients. In this section, we also explain 

the reason for ending the stop-loss 

provision that was applicable during the 

transition period. 

1. Outlier Payments 

In the November 2004 IPF PPS final 

rule, we implemented regulations at 

§ 412.424(d)(3)(i) to provide a per-case 

payment for IPF stays that are 

extraordinarily costly. Providing 

additional payments to IPFs for 

extremely costly cases strongly 

improves the accuracy of the IPF PPS in 

determining resource costs at the patient 

and facility level. These additional 


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payments reduce the financial losses 

that would otherwise be incurred in 

treating patients who require more 

costly care and, therefore, reduce the 

incentives for IPFs to under-serve these 

patients. 

We make outlier payments for 

discharges in which an IPF’s estimated 

total cost for a case exceeds a fixed 

dollar loss threshold amount 

(multiplied by the IPF’s facility-level 

adjustments) plus the Federal per diem 

payment amount for the case. 

In instances when the case qualifies 

for an outlier payment, we pay 80 

percent of the difference between the 

estimated cost for the case and the 

adjusted threshold amount for days 1 

through 9 of the stay (consistent with 

the median LOS for IPFs in FY 2002), 

and 60 percent of the difference for day 

10 and thereafter. We established the 80 

percent and 60 percent loss sharing 

ratios because we were concerned that 

a single ratio established at 80 percent 

(like other Medicare PPSs) might 

provide an incentive under the IPF per 

diem payment system to increase LOS 

in order to receive additional payments. 

After establishing the loss sharing ratios, 

we determined the current fixed dollar 

loss threshold amount of $6,488 through 

payment simulations designed to 

compute a dollar loss beyond which 

payments are estimated to meet the 2 

percent outlier spending target. 

a. Update to the Outlier Fixed Dollar 

Loss Threshold Amount 

In accordance with the update 

methodology described in § 412.428(d), 

we are updating the fixed dollar loss 

threshold amount used under the IPF 

PPS outlier policy. Based on the 

regression analysis and payment 

simulations used to develop the IPF 

PPS, we established a 2 percent outlier 

policy which strikes an appropriate 

balance between protecting IPFs from 

extraordinarily costly cases while 

ensuring the adequacy of the Federal 

per diem base rate for all other cases 

that are not outlier cases. 

We believe it is necessary to update 

the fixed dollar loss threshold amount 

because analysis of the latest available 

data (that is, FY 2006 IPF claims) and 

rate increases indicates adjusting the 

fixed dollar loss amount is necessary in 

order to maintain an outlier percentage 

that equals 2 percent of total estimated 

IPF PPS payments. 

In the May 2006 IPF PPS Final Rule 

(71 FR 27072), we describe the process 

by which we calculate the outlier fixed 

dollar loss threshold amount. We 

continue to use this process for RY 

2009. We begin by simulating aggregate 

payments with and without an outlier 

policy, and applying an iterative process 

to a fixed dollar loss amount that will 

result in outlier payments being equal to 

2 percent of total estimated payments 

under the simulation. Based on this 

process, for RY 2009, the IPF PPS will 

use $6,113 as the fixed dollar loss 

threshold amount in the outlier 

calculation in order to maintain the 2 

percent outlier policy. 

b. Statistical Accuracy of Cost-to-Charge 

Ratios 

As previously stated, under the IPF 

PPS, an outlier payment is made if an 

IPF’s cost for a stay exceeds a fixed 

dollar loss threshold amount. In order to 

establish an IPF’s cost for a particular 

case, we multiply the IPF’s reported 

charges on the discharge bill by its 

overall cost to charge ratio (CCR). This 

approach to determining an IPF’s cost is 

consistent with the approach used 

under the IPPS and other PPSs. In FY 

2004, we implemented changes to the 

IPPS outlier policy used to determine 

CCRs for acute care hospitals because 

we became aware that payment 

vulnerabilities resulted in inappropriate 

outlier payments. Under the IPPS, we 

established a statistical measure of 

accuracy for CCRs in order to ensure 

that aberrant CCR data did not result in 

inappropriate outlier payments. 

As we indicated in the November 

2004 IPF PPS final rule, because we 

believe that the IPF outlier policy is 

susceptible to the same payment 

vulnerabilities as the IPPS, we adopted 

an approach to ensure the statistical 

accuracy of CCRs under the IPF PPS (69 

FR 66961). Therefore, we adopted the 

following procedure in the November 

2004 IPF PPS final rule: 

• We calculated two national ceilings, 

one for IPFs located in rural areas and 

one for IPFs located in urban areas. We 

computed the ceilings by first 

calculating the national average and the 

standard deviation of the CCR for both 

urban and rural IPFs. 

To determine the rural and urban 

ceilings, we multiplied each of the 

standard deviations by 3 and added the 

result to the appropriate national CCR 

average (either rural or urban). The 

upper threshold CCR for IPFs in RY 

2009 is 1.8041 for rural IPFs, and 1.6724 

for urban IPFs, based on CBSA-based 

geographic designations. If an IPF’s CCR 

is above the applicable ceiling, the ratio 

is considered statistically inaccurate 

and we assign the appropriate national 

(either rural or urban) median CCR to 

the IPF. 

We are applying the national CCRs to 

the following situations: 

++ New IPFs that have not yet 

submitted their first Medicare cost 

report. 

++ IPFs whose CCR is in excess of 3 

standard deviations above the 

corresponding national geometric mean 

(that is, above the ceiling). 

++ Other IPFs for whom the Medicare 

contractor obtains inaccurate or 

incomplete data with which to calculate 

a CCR. 

For new IPFs, we are using these 

national CCRs until the facility’s actual 

CCR can be computed using the first 

tentatively settled or final settled cost 

report, which will then be used for the 

subsequent cost report period. 

We are not making any changes to the 

procedures for ensuring the statistical 

accuracy of CCRs in RY 2009. However, 

we are updating the national urban and 

rural CCRs (ceilings and medians) for 

IPFs for RY 2009 based on the CCRs 

entered in the latest available IPF PPS 

Provider Specific File. 

The national CCRs for RY 2009 are 

0.686 for rural IPFs and 0.5370 for urban 

IPFs and will be used in each of the 

three situations listed above. These 

calculations are based on the IPF’s 

location (either urban or rural) using the 

CBSA-based geographic designations. 

A complete discussion regarding the 

national median CCRs appears in the 

November 2004 IPF PPS final rule (69 

FR 66961 through 66964). 

2. Stop-Loss Provision 

In the November 2004 IPF PPS final 

rule, we implemented a stop-loss policy 

that reduces financial risk to IPFs 

expected to experience substantial 

reductions in Medicare payments 

during the period of transition to the IPF 

PPS. This stop-loss policy guarantees 

that each facility receives total IPF PPS 

payments that are no less than 70 

percent of its TEFRA payments had the 

IPF PPS not been implemented. 

This policy is applied to the IPF PPS 

portion of Medicare payments during 

the 3-year transition. During the first 

year, for transitioning IPFs, threequarters of the payment was based on 

TEFRA and one-quarter on the IPF PPS 

payment amount. In the second year, 

one-half of the payment was based on 

TEFRA and one-half on the IPF PPS 

payment amount. In the third year, onequarter of the payment was based on 

TEFRA and three-quarters on the IPF 

PPS. For cost report periods beginning 

on or after January 1, 2008, payments 

are based 100 percent on the IPF PPS. 

The combined effects of the transition 

and the stop-loss policies ensure that 

the total estimated IPF PPS payments 

were no less than 92.5 percent in the 

first year, 85 percent in the second year, 


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and 77.5 percent in the third year. 

Under the 70 percent policy, in the third 

year, 25 percent of an IPF’s payment is 

TEFRA payments, and 75 percent is IPF 

PPS payments, which are guaranteed to 

be at least 70 percent of the TEFRA 

payments. The resulting 77.5 percent of 

TEFRA payments is the sum of 25 

percent and 75 percent times 70 percent 

(which equals 52.5 percent). 

In the implementation year, the 70 

percent of TEFRA payment stop-loss 

policy required a reduction in the 

standardized Federal per diem and ECT 

base rates of 0.39 percent in order to 

make the stop-loss payments budget 

neutral. 

For the RY 2009 (that is for discharges 

occurring on or after July 1, 2008 

through June 30, 2009), we are not 

making any changes to the stop-loss 

policy for IPFs continuing to transition. 

However, beginning January 1, 2009, the 

stop-loss provision will have ended for 

all IPFs because it was implemented to 

be effective for the duration of the 

transition period, and the transition 

period will be completed beginning 

January 1, 2009. As indicated in 

‘‘Section III. A.2.6 of this notice for RY 

2009, we are increasing the Federal per 

diem base rate and ECT rate by 0.39 

percent because these rates were 

reduced by 0.39 percent in the 

implementation year to ensure stop-loss 

payments were budget neutral. 

V. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register to provide a period for public 

comment before the provisions of a rule 

take effect. We can waive this 

procedure, however, if we find good 

cause that notice and comment 

procedures are impracticable, 

unnecessary, or contrary to the public 

interest and we incorporate a statement 

of finding and its reasons in the notice. 

We find it is unnecessary to undertake 

notice and comment rulemaking for the 

update in this notice because the update 

does not make any substantive changes 

in policy, but merely reflects the 

application of previously established 

methodologies. Therefore, under 5 

U.S.C 553(b)(3)(B), for good cause, we 

waive notice and comment procedures. 

VI. Collection of Information 

Requirement 

This document does not impose any 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 35). 

VII. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

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) 

directs agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

For purposes of Title 5, United States 

Code, section 804(2), we estimate that 

this rulemaking is ‘‘economically 

significant’’ as measured by the $100 

million threshold, and hence also a 

major rule under the Congressional 

Review Act. Accordingly, we have 

prepared a Regulatory Impact Analysis 

that to the best of our ability presents 

the costs and benefits of the rulemaking 

on the 1,669 IPFs. 

The updates to the IPF labor-related 

share and wage indices are made in a 

budget neutral manner and thus have no 

effect on estimated costs to the Medicare 

program. Therefore, the estimated 

increased cost to the Medicare program 

is due to the updated IPF payment rates, 

which results in a $140 million increase 

in payments, and the transition from 75 

percent PPS/25 percent TEFRA 

payments to 100 percent PPS payments, 

which results in a $20 million decrease 

in payments. The sunset of the stop-loss 

provision has a minimal impact on IPF 

payments in RY 2009. The distribution 

of these impacts is summarized in Table 

13. The effect of the updates described 

in this notice result in an overall $120 

million increase in payments from RY 

2008 to RY 2009. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, if a rule has a significant 

impact on a substantial number of small 

entities. For purposes of the RFA, we 

estimate that the great majority of IPFs 

are small entities as that term is used in 

the RFA (include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions). The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $6.5 million to 

$31.5 million in any 1 year) (For details, 

see the Small Business Administration’s 

Interim final rule that set forth size 

standards at 70 FR 72577, December 6, 

2005.) Because we lack data on 

individual hospital receipts, we cannot 

determine the number of small 

proprietary IPFs or the proportion of 

IPFs’ revenue that is derived from 

Medicare payments. Therefore, we 

assume that all IPFs are considered 

small entities. As shown in Table 13, we 

estimate that the net revenue impact of 

this notice on all IPFs is to increase 

payments by about 2.5 percent. Thus, 

we anticipate that this notice will not 

have a significant impact on a 

substantial number of small entities. 

Medicare contractors are not considered 

to be small entities. Individuals and 

States are not included in the definition 

of a small entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a metropolitan statistical area and has 

fewer than 100 beds. With the exception 

of hospitals located in certain New 

England counties, for purposes of 

section 1102(b) of the Act, we 

previously defined a small rural 

hospital as a hospital with fewer than 

100 beds that is located outside of a 

Metropolitan Statistical Area (MSA) or 

New England County Metropolitan Area 

(NECMA). However, under the new 

labor market definitions, we no longer 

employ NECMAs to define urban areas 

in New England. For purposes of this 

analysis, we now define a small rural 

hospital as a hospital with fewer than 

100 beds that is located outside of an 

MSA. Therefore, the Secretary certifies 

that this notice has a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

We have determined that this notice 

will have a significant and positive 

impact on substantial number of 

hospitals classified as located in rural 

areas. Since the impact on rural 

hospitals is positive, we did not 

consider alternatives to reduce burden 

on these IPFs. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 


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anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2008, that 

threshold is approximately $130 

million. This notice will not impose 

spending costs on State, local, or tribal 

governments in the aggregate, or by the 

private sector, of $130 million Executive 

Order 13132 establishes certain 

requirements that an agency must meet 

when it promulgates a proposed rule 

(and subsequent final rule) that imposes 

substantial direct requirement costs on 

State and local governments, preempts 

State law, or otherwise has Federalism 

implications. We have reviewed this 

notice under the criteria set forth in 

Executive Order 13132 and have 

determined that the notice will not have 

any substantial impact on the rights, 

roles, and responsibilities of State, local, 

or tribal governments. 

B. Anticipated Effects 

We discuss below the historical 

background of the IPF PPS and the 

impact of this notice on the Federal 

Medicare budget and on IPFs. 

1. Budgetary Impact 

As discussed in the November 2004 

and May 2006 IPF PPS final rules, we 

applied a budget neutrality factor to the 

Federal per diem and ECT base rates to 

ensure that total estimated payments 

under the IPF PPS in the 

implementation period would equal the 

amount that would have been paid if the 

IPF PPS had not been implemented. The 

budget neutrality factor includes the 

following components: Outlier 

adjustment, stop-loss adjustment, and 

the behavioral offset. In accordance with 

§ 412.424(c)(3)(ii), we will evaluate the 

accuracy of the budget neutrality 

adjustment within the first 5 years after 

implementation of the payment system. 

We may make a one-time prospective 

adjustment to the Federal per diem and 

ECT base rates to account for differences 

between the historical data on costbased TEFRA payments (the basis of the 

budget neutrality adjustment) and 

estimates of TEFRA payments based on 

actual data from the first year of the IPF 

PPS. As part of that process, we will reassess the accuracy of all of the factors 

impacting budget neutrality. 

In addition, as discussed in section 

IV.C.1. of this notice, we are using the 

wage index and labor market share in a 

budget neutral manner by applying a 

wage index budget neutrality factor to 

the Federal per diem and ECT base 

rates. Thus, the budgetary impact to the 

Medicare program by the update of the 

IPF PPS will be due to the market basket 

updates (see section III.B. of this notice) 

and the planned update of the payment 

blend discussed below. 

2. Impacts on Providers 

To understand the impact of the 

changes to the IPF PPS discussed in this 

notice on providers, it is necessary to 

compare estimated payments under the 

IPF PPS rates and factors for RY 2009 to 

estimated payments under the IPF PPS 

rates and factors for RY 2008. The 

estimated payments for RY 2008 are a 

blend of: 25 percent of the facilityspecific TEFRA payment and 75 percent 

of the IPF PPS payment with stop-loss 

payment. The estimated payments for 

the RY 2009 IPF PPS will be 100 percent 

of the IPF PPS payment and the stoploss payment will no longer be applied. 

We determined the percent change of 

estimated RY 2009 IPF PPS payments to 

estimated RY 2008 IPF PPS payments 

for each category of IPFs. In addition, 

for each category of IPFs, we have 

included the estimated percent change 

in payments resulting from the wage 

index changes for the RY 2009 IPF PPS, 

the market basket update to IPF PPS 

payments, and the transition blend for 

the RY 2009 IPF PPS payment and the 

facility-specific TEFRA payment. 

To illustrate the impacts of the final 

RY 2009 changes in this update notice, 

our analysis begins with a RY 2008 

baseline simulation model based on FY 

2006 IPF payments inflated to the 

midpoint of RY 2008 using Global 

Insight’s most recent forecast of the 

market basket update (see section III.B. 

of this notice); the estimated outlier 

payments in RY 2008; the estimated 

stop-loss payments in RY 2008; the 

CBSA designations for IPFs based on 

OMB’s MSA definitions after June 2003; 

the FY 2007 pre-floor, pre-reclassified 

hospital wage index; the RY 2008 labormarket share; and the RY 2008 

percentage amount of the rural 

adjustment. During the simulation, the 

outlier payment is maintained at the 

target of 2 percent of total PPS 

payments. 

Each of the following changes is 

added incrementally to this baseline 

model in order for us to isolate the 

effects of each change: 

• The FY 2008 pre-floor, prereclassified hospital wage index and RY 

2009 final labor-related share. 

• A market basket update of 3.2 

percent resulting in an update to the IPF 

PPS base rates. 

• The transition to 100 percent IPF 

PPS payments. 

• The removal of the stop-loss 

provision. 

• Our final comparison illustrates the 

percent change in payments from RY 

2008 (that is, July 1, 2007 to June 30, 

2008) to RY 2009 (that is, July 1, 2008 

to June 30, 2009). 

TABLE 13.—PROJECTED IMPACTS

Facility by type Number of 

facilities 

CBSA wage 

index and 

labor share 

(percent) 

Market 

basket 

(percent) 

Transition 

blend 

(percent) 

Stop-loss 

(percent) 

Total 

(percent) 

(1) (2) (3) (4) (5) (6) (7) 

All Facilities ...................................................................... 1,669 0.0 3.2 ¥0.5 ¥0.1 2.5 

Urban ........................................................................ 1,301 0.0 3.2 ¥0.5 0.0 2.6 

Rural ......................................................................... 368 0.0 3.2 ¥0.6 ¥0.3 2.1 

Urban unit ................................................................. 931 0.0 3.2 ¥2.6 ¥0.1 0.4 

Rural unit .................................................................. 308 0.0 3.2 ¥2.4 ¥0.5 0.1 

Freestanding IPF By Type of Ownership: 

Urban Psychiatric Hospitals: 

Government .............................................................. 141 0.1 3.2 6.7 0.3 10.5 

Non-Profit .................................................................. 83 0.0 3.2 0.2 ¥0.1 3.3 

For-Profit ................................................................... 145 ¥0.1 3.2 5.6 0.1 9.0 

Rural Psychiatric Hospitals: 

Government .............................................................. 40 ¥0.1 3.2 8.3 0.4 12.1 

Non-Profit .................................................................. 7 0.2 3.2 0.9 0.4 4.5 

For-Profit ................................................................... 14 ¥0.4 3.2 5.5 0.4 8.4 


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TABLE 13.—PROJECTED IMPACTS

Facility by type Number of 

facilities 

CBSA wage 

index and 

labor share 

(percent) 

Market 

basket 

(percent) 

Transition 

blend 

(percent) 

Stop-loss 

(percent) 

Total 

(percent) 

(1) (2) (3) (4) (5) (6) (7) 

By Teaching Status: 

Non-teaching .................................................................... 1,424 0.0 3.2 ¥0.4 ¥0.1 2.6 

Less than 10% interns and residents to beds .......... 137 0.0 3.2 ¥0.4 0.3 3.1 

10% to 30% interns and residents to beds .............. 73 0.0 3.2 ¥2.0 ¥0.1 1.0 

More than 30% interns and residents to beds ......... 35 0.0 3.2 ¥1.6 ¥0.5 1.1 

By Region: 

New England ............................................................ 121 0.4 3.2 ¥2.4 0.0 1.2 

Mid-Atlantic ............................................................... 284 ¥0.1 3.2 1.9 0.2 5.2 

South Atlantic ............................................................ 226 0.0 3.2 ¥0.5 0.1 2.8 

East North Central .................................................... 292 ¥0.2 3.2 ¥2.3 ¥0.3 0.3 

East South Central ................................................... 164 ¥0.4 3.2 ¥0.2 0.0 2.5 

West North Central ................................................... 141 0.1 3.2 ¥1.7 ¥0.2 1.4 

West South Central .................................................. 228 ¥0.1 3.2 ¥1.1 ¥0.5 1.3 

Mountain ................................................................... 74 ¥0.3 3.2 ¥1.7 ¥0.7 0.5 

Pacific ....................................................................... 132 0.5 3.2 0.4 0.0 4.2 

By Bed Size: 

Psychiatric Hospitals: 

Less than 12 beds ............................................. 24 ¥0.1 3.2 ¥1.9 0.0 1.1 

12 to 25 beds .................................................... 62 ¥0.1 3.2 1.2 0.1 4.2 

25 to 50 beds .................................................... 94 ¥0.2 3.2 2.4 ¥0.5 4.9 

50 to 75 beds .................................................... 77 0.0 3.2 5.1 0.2 8.6 

More than 75 beds ............................................ 174 0.1 3.2 6.5 0.4 10.4 

Psychiatric Units: 

Less than 12 beds ............................................. 489 0.0 3.2 ¥4.6 ¥0.7 ¥2.4 

12 to 25 beds .................................................... 430 0.1 3.2 ¥2.9 ¥0.3 0.0 

25 to 50 beds .................................................... 217 0.0 3.2 ¥2.0 0.2 1.3 

50 to 75 beds .................................................... 55 ¥0.1 3.2 ¥1.8 0.3 1.4 

More than 75 beds ............................................ 47 0.0 3.2 0.7 0.3 4.2 

3. Results 

Table 1 above displays the results of 

our analysis. The table groups IPFs into 

the categories listed below based on 

characteristics provided in the Provider 

of Services (POS) file, the IPF provider 

specific file, and cost report data from 

HCRIS: 

• Facility Type 

• Location 

• Teaching Status Adjustment 

• Census Region 

• Size 

The top row of the table shows the 

overall impact on the 1,669 IPFs 

included in the analysis. 

In column 3, we present the effects of 

the budget-neutral update to the laborrelated share and the wage index 

adjustment under the CBSA geographic 

area definitions announced by OMB in 

June 2003. This is a comparison of the 

simulated RY 2009 payments under the 

FY 2008 hospital wage index under 

CBSA classification and associated 

labor-related share to the simulated RY 

2008 payments under the FY 2007 

hospital wage index under CBSA 

classifications and associated laborrelated share. There is no projected 

change in aggregate payments to IPFs, as 

indicated in the first row of column 3. 

There would, however, be small 

distributional effects among different 

categories of IPFs. For example, rural 

for-profit IPFs and IPFs located in the 

East South Central region will 

experience a 0.4 percent decrease in 

payments. IPFs located in the Pacific 

region will receive the largest increase 

of 0.5 percent. 

In column 4, we present the effects of 

the market basket update to the IPF PPS 

payments by applying the TEFRA and 

PPS updates to payments under the 

revised budget neutrality factor and 

labor-related share and wage index 

under CBSA classification. In the 

aggregate this update is projected to be 

a 3.2 percent increase in overall 

payments to IPFs. 

In column 5, we present the effects of 

the payment change in transition blend 

percentages to the final year of the 

transition (TEFRA Rate Percentage = 0 

percent, IPF PPS Federal Rate 

Percentage = 100 percent) from the third 

year of the transition (TEFRA Rate 

Percentage = 25 percent, IPF PPS 

Federal Rate Percentage = 75 percent) of 

the IPF PPS under the revised budget 

neutrality factor, labor-related share and 

wage index under CBSA classification, 

and TEFRA and PPS updates to RY 

2008. The overall aggregate effect, across 

all hospital groups, is projected to be a 

0.5 percent decrease in payments to 

IPFs. There are distributional effects of 

these changes among different 

categories of IPFs. Government 

psychiatric hospitals will receive the 

largest increase, with rural government 

hospitals receiving an 8.3 percent 

increase and urban government 

hospitals receiving a 6.7 percent 

increase. In addition, psychiatric 

hospitals with more than 75 beds will 

receive a 6.5 percent increase. 

Alternatively, psychiatric units with 

fewer than 12 beds will receive the 

largest decrease of 4.6 percent. 

In column 6, we present the effects of 

the removal of the stop-loss provision. 

Stop-loss payments are no longer 

applicable when payments are 100 

percent IPF PPS payments. However, all 

IPFs will receive an increase in the rates 

of 0.39 percent. The overall aggregate 

effect, across all hospital groups, is 

projected to be a 0.1 percent decrease in 

payments to IPFs. While stop-loss 

payments were intended to be budget 

neutral, we slightly underestimated the 

percentage by which we needed to 

decrease the Federal per diem base rate 

in the implementation year. Therefore, 


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the aggregate impact of removing the 

stop-loss provision is a 0.1 percent 

decrease in payments instead of 0.0 

percent. There are distributional effects 

of these changes among different 

categories of IPFs. Rural freestanding 

psychiatric hospitals will receive the 

largest increases, with rural government 

hospitals, rural non-profit hospitals, and 

rural for-profit hospitals each receiving 

a 0.4 percent increase. Alternatively, 

psychiatric units with fewer than 12 

beds and IPFs located in the Mountain 

region will receive the largest decrease 

of 0.7 percent. 

Column 7 compares our estimates of 

the changes reflected in this notice for 

RY 2009, to our estimates of payments 

for RY 2008 (without these changes). 

This column reflects all RY 2009 

changes relative to RY 2008 (as shown 

in columns 3 through 6). The average 

increase for all IPFs is approximately 

2.5 percent. This increase includes the 

effects of the market basket update 

resulting in a 3.2 percent increase in 

total RY 2009 payments, a 0.5 percent 

decrease in RY 2009 payments for the 

transition blend, and a 0.1 percent 

decrease in RY 2009 payments for the 

removal of the stop-loss provision. 

Overall, the largest payment increase 

is projected to be among government 

IPFs. Rural government psychiatric 

hospitals will receive a 12.1 percent 

increase and urban government 

psychiatric hospitals will receive a 10.5 

percent increase. In addition, 

psychiatric hospitals with more than 75 

beds will receive a 10.4 percent 

increase. Psychiatric units with fewer 

than 12 beds will receive a 2.4 percent 

decrease. 

4. Effect on the Medicare Program 

Based on actuarial projections 

resulting from our experience with other 

PPSs, we estimate that Medicare 

spending (total Medicare program 

payments) for IPF services over the next 

5 years would be as follows: 

TABLE 14.—ESTIMATED PAYMENTS

Rate year Dollars in 

millions 

July 1, 2008 to June 30, 2009 $4,584 

TABLE 14.—ESTIMATED PAYMENTS—

Continued 

Rate year Dollars in 

millions 

July 1, 2009 to June 30, 2010 4,799 

July 1, 2010 to June 30, 2011 5,055 

July 1, 2011 to June 30, 2012 5,373 

July 1, 2012 to June 30, 2013 5,722 

These estimates are based on the 

current estimate of increases in the RPL 

market basket as follows: 

• 3.2 percent for RY 2009; 

• 2.9 percent for RY 2010; 

• 3.0 percent for RY 2011; 

• 3.2 percent for RY 2012; and 

• 3.2 percent for RY 2013. 

We estimate that there would be a 

change in fee-for-service Medicare 

beneficiary enrollment as follows: 

• ¥0.3 percent in RY 2009; 

• 0.2 percent in RY 2010; 

• 0.5 percent in RY 2011; 

• 1.5 percent in RY 2012; and 

• 2.5 percent in RY 2013. 

5. Effect on Beneficiaries 

Under the IPF PPS, IPFs will receive 

payment based on the average resources 

consumed by patients for each day. We 

do not expect changes in the quality of 

care or access to services for Medicare 

beneficiaries under the RY 2009 IPF 

PPS. In fact, we believe that access to 

IPF services will be enhanced due to the 

patient and facility level adjustment 

factors, all of which are intended to 

adequately reimburse IPFs for expensive 

cases. Finally, the outlier policy is 

intended to assist IPFs that experience 

high-cost cases. 

C. Alternatives Considered 

The statute does not specify an update 

strategy for the IPF PPS and is broadly 

written to give the Secretary discretion 

in establishing an update methodology. 

Therefore, we are updating the IPF PPS 

similar to the update approach used in 

other hospital PPSs and as published in 

the November 15, 2004, final rule. We 

note that this notice does not initiate 

any policy changes with regard to the 

IPF PPS; rather, it simply provides an 

update to the rates for RY 2009. 

Therefore, no other options were 

considered. 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at: http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 15 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this notice. This table 

provides our best estimate of the 

increase in Medicare payments under 

the IPF PPS as a result of the changes 

presented in this notice based on the 

data for 1,669 IPFs in our database. All 

expenditures are classified as transfers 

to Medicare providers (that is, IPFs). 

TABLE 15.—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2008 IPF 

PPS RY TO THE 2009 IPF PPS RY 

[in Millions] 

Category Transfers 

Annualized Monetized 

Transfers.

$120. 

From Whom To 

Whom? 

Federal Government 

To IPFs Medicare 

Providers. 

E. Conclusion 

This notice does not initiate any 

policy changes with regard to the IPF 

PPS; rather, it simply provides an 

update to the rates for RY 2009 using 

established methodologies. In 

accordance with the provisions of 

Executive Order 12866, this rule was 

previously reviewed by OMB. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: March 14, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: April 4, 2008. 

Michael O. Leavitt, 

Secretary. 


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[FR Doc. 08–1213 Filed 5–1–08; 4:00 pm] 

BILLING CODE 4120–01–C 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Food and Drug Administration 

[Docket No. FDA–2008–N–0272] 

Agency Information Collection 

Activities; Proposed Collection; 

Comment Request; Guidance for 

Industry: Notification of a Health Claim 

or Nutrient Content Claim Based on an 

Authoritative Statement of a Scientific 

Body 

AGENCY: Food and Drug Administration, 

HHS. 

ACTION: Notice. 

SUMMARY: The Food and Drug 

Administration (FDA) is announcing an 

opportunity for public comment on the 

proposed collection of certain 

information by the agency. Under the 

Paperwork Reduction Act of 1995 (the 

PRA), Federal agencies are required to 

publish notice in the Federal Register 

concerning each proposed collection of 

information, including each proposed 

extension of an existing collection of 

information, and to allow 60 days for 

public comment in response to the 

notice. This notice solicits comments on 

the collection of information associated 

with the submission of notifications of 

health claims or nutrient content claims 

based on authoritative statements of 

scientific bodies of the U.S. 

Government. 

DATES: Submit written or electronic 

comments on the collection of 

information by July 7, 2008. 

ADDRESSES: Submit electronic 

comments on the collection of 

information to http:// 

www.regulations.gov. Submit written 

comments on the collection of 

information to the Division of Dockets 

Management (HFA–305), Food and Drug 

Administration, 5630 Fishers Lane, rm. 

1061, Rockville, MD 20852. All 

comments should be identified with the 

docket number found in brackets in the 

heading of this document. 

FOR FURTHER INFORMATION CONTACT: 

Jonna Capezzuto, Office of the Chief 

Information Officer (HFA–250), Food 

and Drug Administration,5600 Fishers 

Lane, Rockville, MD 20857, 301–827–

4659. 

SUPPLEMENTARY INFORMATION: Under the 

PRA (44 U.S.C. 3501–3520), Federal 

agencies must obtain approval from the 

Office of Management and Budget 

(OMB) for each collection of 

information they conduct or sponsor. 

‘‘Collection of information’’ is defined 

in 44 U.S.C. 3502(3) and 5 CFR 

1320.3(c) and includes agency requests 

or requirements that members of the 

public submit reports, keep records, or 

provide information to a third party. 

Section 3506(c)(2)(A) of the PRA (44 

U.S.C. 3506(c)(2)(A)) requires Federal 

agencies to provide a 60-day notice in 

the Federal Register concerning each 

proposed collection of information, 

including each proposed extension of an 

existing collection of information, 

before submitting the collection to OMB 

for approval. To comply with this 

requirement, FDA is publishing notice 

of the proposed collection of 

information set forth in this document. 

With respect to the following 

collection of information, FDA invites 

comments on these topics: (1) Whether 

the proposed collection of information 

is necessary for the proper performance 

of FDA’s functions, including whether 

the information will have practical 

utility; (2) the accuracy of FDA’s 

estimate of the burden of the proposed 

collection of information, including the 

validity of the methodology and 

assumptions used; (3) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques, 

when appropriate, and other forms of 

information technology. 

Guidance for Industry: Notification of a 

Health Claim or Nutrient Content Claim 

Based on an Authoritative Statement of 

a Scientific Body (OMB Control 

Number 0910–0374)—Extension 

Section 403(r)(2)(G) and (r)(3)(C) of 

the Federal Food, Drug and Cosmetic 

Act (the act) (21 U.S.C. 343(r)(2)(G) and 

(r)(3)(C)), as amended by the FDA 


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