[Federal Register Volume 73, Number 100 (Thursday, May 22, 2008)]
[Rules and Regulations]
[Pages 29699-29711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1285]



[[Page 29699]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1493-IFC2]
RIN 0938-AP33


Medicare Program; Changes for Long-Term Care Hospitals Required 
by Certain Provisions of the Medicare, Medicaid, SCHIP Extension Act of 
2007: 3-Year Moratorium on the Establishment of New Long-Term Care 
Hospitals and Long-Term Care Hospital Satellite Facilities and 
Increases in Beds in Existing Long-Term Care Hospitals and Long-Term 
Care Hospital Satellite Facilities; and 3-Year Delay in the Application 
of Certain Payment Adjustments

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements certain 
provisions of section 114 of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 relating to long-term care hospitals (LTCHs) and 
LTCH satellite facilities. It implements a 3-year moratorium on the 
establishment of new LTCHs and LTCH satellite facilities; and on 
increases in beds in existing LTCHs and LTCH satellite facilities. This 
interim final rule with comment period also implements a 3-year delay 
in the application of certain payment policies which apply payment 
adjustments for discharges from LTCHs and LTCH satellites that were 
admitted from certain referring hospitals in excess of various 
percentage thresholds.

DATES: Effective date: The provisions of this interim final rule with 
comment period are effective on December 29, 2007. In accordance with 
section 1871(e)(1)(A)(i) and (ii) of the Social Security Act (the Act), 
the Secretary has determined that retroactive application of the 
provisions of this interim final rule with comment period is necessary 
to comply with the statute and that failure to apply the changes 
retroactively would be contrary to public interest.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on July 21, 2008.

ADDRESSES: In commenting, please refer to file code CMS-1493-IFC2. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the filecode to find the document 
accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1493-IFC2, P.O. Box 8013, Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1493-IFC2, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201.

(Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop 
slots located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by 
stamping in and retaining an extra copy of the comments being 
filed.)

    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:  Tzvi Hefter, (410) 786-4487, General 
information Judy Richter, (410) 786-2590, Moratorium and 25 percent 
patient threshold adjustment.

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

I. Background

A. Legislative and Regulatory Authority

    Section 123 of the Medicare, Medicaid, and SCHIP [State Children's 
Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113), as amended by section 307(b) of the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554), provides for payment for both the operating 
and capital-related costs of hospital inpatient stays in long-term care 
hospitals (LTCHs) under Medicare Part A based on prospectively set 
rates. The Medicare prospective payment system (PPS) for LTCHs applies 
to hospitals described in section 1886(d)(1)(B)(iv) of the Social 
Security Act (the Act), effective for cost reporting periods beginning 
on or after October 1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days.'' Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: Specifically, a hospital that first

[[Page 29700]]

received payment under section 1886(d) of the Act in 1986 and has an 
average inpatient length of stay (LOS) (as determined by the Secretary 
of Health and Human Services (the Secretary)) of greater than 20 days 
and has 80 percent or more of its annual Medicare inpatient discharges 
with a principal diagnosis that reflects a finding of neoplastic 
disease in the 12-month cost reporting period ending in fiscal year 
(FY) 1997.
    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to diagnosis related 
group (DRG) weights, area wage adjustments, geographic 
reclassification, outliers, updates, and a disproportionate share 
adjustment.
    In the August 30, 2002 Federal Register, we issued a final rule 
that implemented the LTCH PPS authorized under BBRA and BIPA (67 FR 
55954). This system uses information from LTCH patient records to 
classify patients into distinct long-term care diagnosis-related groups 
(LTC-DRGs) based on clinical characteristics and expected resource 
needs. Payments are calculated for each LTC-DRG and provisions are made 
for appropriate payment adjustments. Payment rates under the LTCH PPS 
are updated annually and published in the Federal Register.
    In the August 30, 2002 final rule, we also presented an in-depth 
discussion of the LTCH PPS, including the patient classification 
system, relative weights, payment rates, additional payments (short-
stay outliers), and the budget neutrality requirements mandated by 
section 123 of the BBRA. The same final rule that established 
regulations for the LTCH PPS under 42 CFR part 412, subpart O, also 
contained LTCH provisions related to covered inpatient services, 
limitation on charges to beneficiaries, medical review requirements, 
furnishing of inpatient hospital services directly or under 
arrangement, and reporting and recordkeeping requirements. We refer 
readers to the August 30, 2002 final rule for a comprehensive 
discussion of the research and data that supported the establishment of 
the LTCH PPS (67 FR 55954).
    The most recent annual update to the LTCH PPS was presented in the 
RY 2009 LTCH PPS final rule (73 FR 26788). In that final rule, among 
other things, we established a 2.7 percent update to the Federal rate 
for RY 2009, and presented other payment rate and policy changes, 
including revising the rate year to a year beginning October 1 and 
ending on September 30. (The 2009 rate year will begin on July 1, 2008 
and end on September 30, 2009).
    On December 29, 2007 the Medicare, Medicaid, and SCHIP Extension 
Act (MMSEA) (Pub. L. 110-173) was enacted. Specifically, section 114 of 
MMSEA, entitled ``Long-term care hospitals,'' made a number of changes 
affecting payments to LTCHs for inpatient services. Two of the 
provisions of section 114 of MMSEA are discussed in this interim final 
rule with comment period.

B. Criteria for Classification as a LTCH

    Under the existing regulations at Sec.  412.23(e)(1) and (e)(2)(i), 
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to 
be paid as a LTCH, a hospital must have a provider agreement with 
Medicare and must have an average Medicare inpatient LOS of greater 
than 25 days. Alternatively, to be classified as a LTCH, a hospital 
must have a provider agreement with Medicare and meet the average LOS 
requirement in Sec.  412.23(e)(2)(ii). Section 412.23(e)(2)(ii) states 
that for cost reporting periods beginning on or after August 5, 1997, a 
hospital that was first excluded from the PPS in 1986 meets the LOS 
criteria if it has an average inpatient LOS for all patients, including 
both Medicare and non-Medicare inpatients, of greater than 20 days, and 
can also demonstrate that at least 80 percent of its annual Medicare 
inpatient discharges in the 12-month cost reporting period ending in FY 
1997 have a principal diagnosis that reflects a finding of neoplastic 
disease.
    Section 412.23(e)(3) currently provides that, subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average Medicare inpatient LOS, specified under Sec.  
412.23(e)(2)(i) is calculated by dividing the total number of covered 
and noncovered days of stay for Medicare inpatients (less leave or pass 
days; that is, days where the inpatient is not occupying a bed but has 
not been discharged) by the number of total Medicare discharges for the 
hospital's most recent complete cost reporting period. The fiscal 
intermediaries (FIs) or Medicare Administrative Contractors (MACs) 
verify that LTCHs meet the average LOS requirements. (For a more 
detailed explanation, see the June 6, 2003 final rule (68 FR 34123).)

II. Provisions of this Interim Final Rule with Comment Period

    Section 114 of MMSEA made a number of changes affecting payments to 
long-term care hospitals (LTCHs) for inpatient services. This interim 
final rule with comment period implements the following provisions 
affecting LTCH PPS payments:
    <bullet> Modification of payment adjustments to LTCHs and LTCH 
satellite discharges that were admitted from specific referring 
hospitals and that exceed various percentage thresholds. Sections 
114(c)(1) and (2) of MMSEA mandates specific changes for 3 years, 
beginning with cost reporting periods beginning on or after December 
29, 2007, with respect to existing Sec.  412.534, which governs the 
``25 percent threshold'' payment adjustment to LTCH hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for discharges that were 
admitted from their co-located hosts (established in the FY 2005 IPPS 
final rule and amended in the RY 2008 LTCH PPS final rule), and 
existing Sec.  412.536, which applies a payment adjustment policy (that 
was in transition to 25 percent prior to the enactment of this law) to 
LTCH and LTCH satellite facility discharges that were admitted from any 
individual hospital not co-located with the LTCH or LTCH satellite 
facility (established in the RY 2008 LTCH PPS final rule), as discussed 
in section II.B. of this interim final rule with comment period.
    <bullet> Moratorium on new LTCHs, LTCH satellite facilities, and 
increase in beds in existing LTCHs and LTCH satellite facilities. 
Section 114(d) of MMSEA established a 3-year moratorium beginning on 
December 29, 2007 on the establishment and classification of new LTCHs, 
LTCH satellite facilities, and on any increase in beds in existing 
LTCHs and LTCH satellite facilities, with certain exceptions.
    Section 114 of MMSEA made other changes affecting LTCH PPS 
payments. The following is a listing of the other rulemaking documents 
published and respective provisions of section 114 of MMSEA that were 
implemented:
    <bullet> In the May 1, 2008 interim final rule with comment period 
(73 FR 24871)--
    ++ Modification of payment adjustments to certain SSO cases. 
Section 114(c)(3) of MMSEA specifies that the refinement of the SSO 
policy implemented in RY 2008 (see Sec.  412.529(c)(3)(i)) shall not 
apply for a 3-year period beginning with discharges occurring on or 
after December 29, 2007. Specifically, the fourth SSO payment option in 
Sec.  412.529(c)(3)(i) as revised in the RY 2008 LTCH PPS final rule 
shall not apply for a 3-year period.
    ++ Revision to the RY 2008 rate provision. Section 114(e)(1) of 
MMSEA provides that the base rate for RY 2008 ``shall be the same as 
the base rate for discharges for the hospital occurring

[[Page 29701]]

during the rate year ending in 2007.'' Furthermore, in accordance with 
section 114(e)(2) of MMSEA, the revised rate will not be applicable to 
discharges occurring on or after July 1, 2007 and before April 1, 2008.
    <bullet> In the January 29, 2008 proposed rule and May 9, 2008 
final rule Section 114(c)(4) of MMSEA specifies that for a 3-year 
period beginning on December 29, 2007, the Secretary shall not make the 
one-time prospective adjustment to the LTCH PPS payment rates provided 
for in existing Sec.  412.523(d)(3).
    We also note that section 114 of MMSEA included additional 
provisions focusing on LTCHs but are not directly related to payment 
policy. The following is a list of those policies which are not 
included in this interim final rule with comment period:
    <bullet> Section 1861 of the Act is amended by adding a new 
paragraph (ccc) defining LTCHs.
    <bullet> The Secretary is directed to conduct a study and submit a 
report to the Congress within 18 months after the date of enactment of 
MMSEA. The Secretary will conduct a study on the establishment of 
national LTCH facility and patient criteria.
    <bullet> The Secretary is directed to provide an expanded review of 
medical necessity for LTCH admission and continued stay.

A. Payment Adjustment to LTCHs and LTCH Satellite Facilities

    The enactment of section 114(c) of MMSEA requires several 
modifications to payment provisions applicable to various types of 
LTCHs under the regulations at Sec.  412.534 and Sec.  412.536. 
(Throughout this section, ``LTCH'' or ``LTCH satellite facility'' 
refers exclusively to ``subclause (I)'' LTCHs and LTCH satellite 
facilities, that is, LTCHs defined by section 1886(d)(1)(B)(iv)(I) of 
the Act. This is the case because the policies established at Sec.  
412.534 and Sec.  412.536 do not apply to a ``subclause (II)'' LTCH 
defined under section 1886(d)(1)(B)(iv)(II) (69 FR 49205 and 72 FR 
26924). Currently, Sec.  412.534 provides for a payment adjustment for 
a co-located LTCH (HwH or satellite), based upon the percentage of the 
HwH's or satellite's Medicare discharges that had been admitted from a 
hospital with which it is co-located (typically, an acute care 
hospital).
    As specified in the RY 2008 LTCH PPS final rule (72 FR 26870), 
Sec.  412.534 also applies to a ``grandfathered'' LTCH HwH or LTCH 
satellite facility, that is not required to meet the ``separateness and 
control'' policies at Sec.  412.22(e) or (h)(2)(iii), respectively, 
regarding its relationship to the hospital with which it is co-located 
(see 72 FR 26926 through 26928). In the RY 2008 LTCH PPS final rule, we 
also established, at Sec.  412.536, an adjustment based on the 
percentage of Medicare discharges that had been admitted to a LTCH or 
LTCH satellite facility, from an individual referring hospital with 
which the LTCH or LTCH satellite facility is not co-located. When we 
extended the policy in Sec.  412.534 to grandfathered LTCH HwHs and 
LTCH satellite facilities in the RY 2008 LTCH PPS final rule, we 
provided for a parallel 3-year transition to the full percentage 
threshold for cost reporting periods beginning on or after July 1, 2007 
at Sec.  412.534(h) for ``grandfathered'' LTCHs and LTCH satellite 
facilities discharging patients admitted from their host hospitals and 
at Sec.  412.536(f) for discharges that were admitted to a LTCH or LTCH 
satellite facility from any referring hospital with which they were not 
co-located (72 FR 26944).
    In this interim final rule with comment period, we are revising our 
regulations at Sec.  412.534 and Sec.  412.536 to implement the 
requirements of sections 114(c)(1) and 114(c)(2) of MMSEA. 
Specifically, for cost reporting periods beginning on or after December 
29, 2007 and before December 29, 2010, section 114(c)(1) of MMSEA 
generally exempts ``freestanding'' LTCHs (that is, as newly defined in 
Sec.  412.23(e)(5), a LTCH that meets the requirements at Sec.  
412.23(e)(1) and (2), and does not occupy space in a building also used 
by another hospital or does not occupy space in one or more separate or 
entire buildings located on the same campus as buildings used by 
another hospital, and is not part of a hospital that provides inpatient 
services in a building also used by another hospital and 
``grandfathered'' LTCH HwHs (that is, ``a long-term care hospital 
identified by the amendment made by section 4417(a) of the Balanced 
Budget Act of 1997 (Pub. L. 105-33)'') from the applicable percentage 
threshold policy established at Sec.  412.536. The statutory provision 
also exempts grandfathered HwHs from the applicable percentage 
threshold at Sec.  412.534(h). Accordingly, for cost reporting periods 
beginning on or after December 29, 2007, for a 3-year period, the 
adjustments at Sec.  412.536 will not apply to ``freestanding'' LTCHs 
and the adjustments at Sec.  412.534 and Sec.  412.536 will not apply 
to ``grandfathered'' LTCH HwHs. Furthermore, the legislation prohibits 
the application of ``any similar provisions'' to either 
``freestanding'' LTCHs or to ``grandfathered'' LTCH HwHs for that same 
3-year period. Section 114(c)(2) of MMSEA also revises the current 
percentage thresholds at Sec.  412.534 for applicable LTCHs HwHs and 
LTCH satellite facilities. We are providing two tables to illustrate 
the statutory and regulatory changes for LTCHs and LTCHs satellite 
facilities associated with the implementation of section 114(c)(1) and 
(2) of MMSEA. Table 1 indicates the applicability of the specific 
provisions of section 114(c)(1) and (2) of MMSEA by type of LTCH or 
LTCH satellite facility. Table 2, indicates the applicability of Sec.  
412.534 and Sec.  412.536 by type of LTCH or LTCH satellite facility.

                   Table 1.--Applicability of Section 114(c)(1) and (2) of MMSEA by LTCH Type
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                                                                Applicability of
                              ----------------------------------------------------------------------------------
          LTCH type                   Section              Section              Section             Section
                                 114(c)(1)(A)  of     114(c)(1)(B)  of     114(c)(2)(A)  of    114(c)(2)(B)  of
                                      MMSEA                MMSEA                MMSEA                MMSEA
----------------------------------------------------------------------------------------------------------------
Freestanding LTCHs...........  Yes................  N/A................  N/A................  N/A.
 Grandfathered HwHs (under     N/A................  Yes................  N/A................  N/A.
 section 4417(a) of the BBA
 Sec.   412.22(f)) \1\.
 Nongrandfathered HwHs         N/A................  N/A................  Yes................  Yes.
 Subject to Transition at
 Sec.   412.534(g) \2\.
Nongrandfathered HwHs not      N/A................  N/A................  N/A................  N/A.
 Subject to Transition at
 Sec.   412.534(g) \3\.
Grandfathered LTCH Satellites  N/A................  N/A................  N/A................  N/A.
 (Sec.   412.22(h)(3)(i)) \4\.
 Nongrandfathered LTCH         N/A................  N/A................  Yes................  Yes.
 Satellites Subject to
 Transition at Sec.
 412.534(g) \5\.
 Nongrandfathered LTCH         N/A................  N/A................  N/A................  N/A.
 Satellites not Subject to
 Transition at Sec.
 412.534(g) \6\.
----------------------------------------------------------------------------------------------------------------
\1\ These are LTCH HwHs that were not required to meet the ``separateness and control'' policies at Sec.
  412.22(e) and were so classified by the Secretary on or before September 30, 1995.

[[Page 29702]]

 
\2\ These are LTCH HwHs subject to the separateness and control policies at Sec.   412.22(e) that were paid
  under the LTCH PPS as of October 1, 2004 or an LTCH HwH paid under the LTCH PPS as of October 1, 2005 whose
  qualifying period began on or before October 1, 2004.
\3\ These are LTCH HwHs subject to the separateness and control policies at Sec.   412.22(e) not paid under the
  LTCH PPS as of October 1, 2004, or October 1, 2005 with a qualifying period that began on or before October 1,
  2004.
\4\ These are LTCH satellites not subject to the separateness and control policies atSec.   412.22(h)(2)(iii)
  and that were structured as satellite facilities on September 30, 1999 and excluded from the IPPS on that
  date.
\5\ These are LTCH satellites subject to the separateness and control policies at Sec.   412.22(h)(2)(iii) that
  were paid under the LTCH PPS as of October 1, 2004.
\6\ These are LTCH satellites subject to the separateness and control policies at Sec.   412.22(h)(2)(iii) that
  were not paid under the LTCH PPS as of October 1, 2004.


     Table 2.--Revisions to Sec.   412.534 and Sec.   412.536 of the
  Regulations in Accordance With Section 114(c)(1) and (2) of MMSEA by
                                LTCH Type
------------------------------------------------------------------------
                                           Applicability of
         LTCH type*          -------------------------------------------
                                 Sec.   412.534        Sec.   412.536
------------------------------------------------------------------------
Freestanding (as described    N/A.................  3-year delay for
 Sec.   412.23(e)(5) of the                          cost reporting
 regulations).                                       periods beginning
                                                     on or after 12/29/
                                                     2007 and before 12/
                                                     29/2010. (Section
                                                     114(c)(1)(A) of
                                                     MMSEA).
Nongrandfathered HwH (as      (1) If subject to     No change.
 described Sec.                the transition at     Applicable subject
 412.23(e)(2)(i) that meet     Sec.   412.534(g)     to existing
 the criteria in Sec.          (including those      transition at Sec.
 412.22(e)).                   located in rural       412.536(f).
                               areas or co-located
                               with an MSA-
                               dominant hospital
                               or urban-single
                               hospital),
                               applicable but with
                               revised thresholds.
                              (2) If not subject
                               to the transition
                               at Sec.
                               412.534(g)
                               (including those
                               located in rural
                               areas or co-located
                               with an MSA-
                               dominant hospital
                               or urban-single
                               hospital), Sec.
                               412.534 is
                               applicable with no
                               change in
                               thresholds.
Grandfathered HwH (as         3-year delay for       3-year delay for
 described in section          cost reporting        cost reporting
 4417(a) of the BBA and        periods beginning     periods beginning
 described in Sec.             on or after 12/29/    on or after 12/29/
 412.23(e)(2)(i) and meets     2007 and before 12/   2007 and before 12/
 the criteria of Sec.          29/2010 (as           29/2010 (as
 412.22(f) of the              specified in          specified in
 regulations).                 section               section
                               114(c)(1)(B) of       114(c)(1)(B) of
                               MMSEA.                MMSEA).
Nongrandfathered LTCH         (1) If subject to     No change--
 Satellite Facility (as        the transition in     Applicable Subject
 described in Sec.             Sec.   412.534(g)     to existing
 412.23(e)(2)(i) and meets     (including those      transition at Sec.
 the criteria of Sec.          located in rural       412.536(f).
 412.22(h) of the              areas or co-located
 regulations).                 with an MSA-
                               dominant hospital
                               or urban-single
                               hospital), is
                               applicable but with
                               revised thresholds.
                              (2) If not subject
                               to the transition
                               in Sec.
                               412.534(g)
                               (including those
                               located in rural
                               areas or co-located
                               with an MSA-
                               dominant hospital
                               or urban-single
                               hospital), is
                               applicable with no
                               change in
                               thresholds.
Grandfathered LTCH Satellite  Applicable--subject   No change.
 Facility (as described in     to transition at      Applicable subject
 Sec.   412.23(e)(2)(i) that   Sec.   412.534(h).    to existing
 meets the criteria Sec.                             transition at Sec.
 412.22(h)(3)(i)).                                    412.536(f).
------------------------------------------------------------------------
* Neither Sec.   412.534 or Sec.   412.536 apply to a section
  1886(d)(1)(B)(iv)(II) of the Act ``subclause (II)'' LTCH or LTCH
  satellite facility.

    For purposes of the requirements of section 114(c) of MMSEA, the 
distinction between a freestanding LTCH and a LTCH that is co-located 
as either an HwH or a LTCH satellite facility is significant. A 
``freestanding'' LTCH is a LTCH which is not co-located with another 
hospital-level provider as either a HwH, defined at Sec.  412.22(e), or 
as a satellite of a hospital as defined at Sec.  412.22(h)(1). A HwH is 
defined at Sec.  412.22(e) as ``* * * a hospital that occupies space in 
a building also used by another hospital, or in one or more separate 
buildings located on the same campus as buildings used by another 
hospital * * *'' At Sec.  412.22(f) we describe ``grandfathered'' HwHs 
which meet the definition at Sec.  412.22(e) but are exempt from the 
``separateness and control'' policies at Sec.  412.22(e)(1). The term 
``satellite facilities'' defined at Sec.  412.22(h) which addresses 
satellites of hospitals; is ``* * * a part of a hospital that provides 
inpatient services in a building also used by another hospital, or in 
one or more entire buildings located on the same campus as buildings 
used by another hospital * * *'' For purposes of the HwH regulations at 
Sec.  412.22(e) and the satellite regulations at Sec.  412.22(h), we 
utilize the definition of ``campus'' in the provider-based regulations 
at Sec.  413.65(a)(2). Section 413.65 defines a campus as ``the 
physical area immediately adjacent to the provider's main buildings, 
other areas and structures that are not strictly contiguous to the main 
buildings but are located within 250 yards of the main buildings, and 
any other areas determined on an individual basis, by the CMS regional 
office, to be part of the provider's campus.''
    Section 114(c) of MMSEA employs the term ``freestanding'' in 
identifying one group of LTCHs which the provision exempted from the 25 
percent patient threshold adjustment for 3 years. The statute did not 
define the term freestanding LTCHs in section 114(c)(1)(A) of MMSEA 
which pertains to the adjustment policy in Sec.  412.536 or any similar 
provision. In order to minimize confusion and ensure the MMSEA is 
implemented consistently, we are adding a definition for freestanding 
LTCH to our regulations at Sec.  412.23(e)(5). The definition is 
consistent with our application of the concept under Sec.  412.534 and 
Sec.  412.536. For purposes of section 114(c) of

[[Page 29703]]

MMSEA, therefore, we are establishing a regulatory definition of a 
``freestanding LTCH'' at Sec.  412.23(e)(5), as a hospital that meets 
the requirements of Sec.  412.23(e)(1) and (2) that does not occupy 
space in a building also used by another hospital, or in one or more 
separate or entire buildings located on the same campus as buildings 
used by another hospital or is not part of a hospital that provides 
inpatient services in a building also used by another hospital.
    As noted above, section 114(c)(1)(B) of MMSEA specifies a 3-year 
delay, effective with cost reporting periods beginning on or after the 
date of enactment of MMSEA (that is, December 29, 2007), in the 
application of ``such section, or Sec.  412.534 of title 42, Code of 
Federal Regulations, or any similar provisions to a long-term care 
hospital identified by the amendment made by section 4417(a) of the 
Balance Budget Act (BBA) of 1997 (Pub. L. 105-33).'' We believe that 
the phrase ``such section'' refers to Sec.  412.536 because this 
provision is the main topic of the preceding subparagraph (A). We 
further believe that the inclusion of the phrase ``or any similar 
provisions'' after specifying Sec.  412.534, in section 114(c)(1)(B) of 
MMSEA exempts ``grandfathered'' LTCHs from any regulatory scheme which 
would apply a percentage patient payment adjustment similar to that in 
Sec.  412.534 or Sec.  412.536 for a 3-year period. As noted above, the 
type of LTCH identified by section 4417(a) of the BBA is limited to a 
``grandfathered'' LTCH HwH. Section 4417(a) of the BBA (which amended 
section 1886(d)(1)(B) of the Act) specifies that ``[a] hospital that 
was classified by the Secretary on or before September 30, 1995, as a 
hospital described in clause (iv) shall continue to be so classified 
notwithstanding that it is located in the same building as, or on the 
same campus as, another hospital.'' (Section 1886(d)(1)(B)(iv) of the 
Act sets forth the definition of LTCHs.) Section 4417(a) of BBA 
effectively exempted this particular group of LTCH HwHs from the 
``separateness and control'' policies at Sec.  412.22(e)(2) which 
govern the relationship between a HwH and the hospital with which it is 
co-located. These ``grandfathered'' LTCHs are allowed to maintain their 
IPPS-exclusions so long as they continue to comply with applicable 
Medicare requirements. As noted above, section 114(c)(1)(B) of MMSEA 
provides that the Secretary shall not apply the percentage thresholds 
established at Sec.  412.536 and Sec.  412.534 (or any similar 
provisions) for a 3-year period, for cost reporting periods beginning 
on or after the date of enactment, December 29, 2007, to 
``grandfathered'' LTCH HwHs. Section 114(c)(1)(A) of MMSEA also 
specifies that the Secretary shall not apply the provisions at Sec.  
412.536 (or any similar provision) to ``freestanding'' LTCHs for the 3-
year period for cost-reporting periods beginning on or after December 
29, 2007. However, it is important to note that both ``grandfathered'' 
LTCH HwHs and ``freestanding'' LTCHs for cost reporting periods 
beginning before December 29, 2007, remain subject to the applicable 
payment adjustments specified in Sec.  412.534(h) and Sec.  412.536, 
for that particular cost reporting period. Section 412.534(h), with 
respect to ``grandfathered'' LTCHs, and Sec.  412.536 with respect to 
all LTCHs were implemented for cost-reporting period beginning on or 
after July 1, 2007. The policy modifications mandated by section 114(c) 
of MMSEA are effective'' * * * for cost reporting periods beginning on 
or after the date of enactment of this Act for a 3-year period.'' 
Therefore, a ``grandfathered'' or a ``freestanding'' LTCH with a cost 
reporting period that begins on or after July 1, 2007 but before 
December 29, 2007, would be subject to the provisions of Sec.  412.534 
and Sec.  412.536, as appropriate, until the start of its next cost 
reporting period. For example, for a LTCH with a cost reporting period 
beginning on July 1, 2007, the changes required by section 114(c) of 
MMSEA would only apply beginning on or after July 1, 2008. The 3 years 
of relief available to such a facility would continue until the end of 
its cost reporting period that began before December 29, 2010 (that is, 
the LTCH's last cost reporting period affected by this provision would 
begin July 1, 2010 and end June 30, 2011). In another example, for a 
LTCH that had a September 1 through August 31 cost reporting period, 
the first cost reporting period for which it would be granted the 
relief specified in section 114(c) of MMSEA, would be its cost 
reporting period beginning on September 1, 2008 and the last cost 
reporting period would be the period beginning on September 1, 2010 and 
ending on August 31, 2011.
    Although section 114(c)(1) of MMSEA exempts ``grandfathered'' LTCH 
HwHs from the ``25 percent patient threshold payment adjustment'' at 
Sec.  412.534 and Sec.  412.536, a ``grandfathered'' satellite of a 
LTCH, under Sec.  412.22(h)(3) continues to be subject to the 
applicable percentage thresholds outlined in Sec.  412.536 for patients 
admitted from any individual hospital with which it is not co-located 
because there are no exceptions under the MMSEA for such entities for 
purposes of Sec.  412.536. Also, grandfathered LTCH satellites continue 
to be subject to the applicable existing percentage thresholds in Sec.  
412.534(h) for patients admitted from their co-located hospital because 
there are no exceptions for these entities under the MMSEA for purposes 
of Sec.  412.534. The existing transitions to the full payment 
adjustments for ``grandfathered'' LTCH satellites at Sec.  
412.534(h)(2) also continue to apply. The revision to the percentages 
made by section 114(c)(2) of MMSEA were limited to a hospital a LTCH 
satellite subject to the transition rules at Sec.  412.534(g). 
Grandfathered LTCH satellites are subject to the transition at Sec.  
412.534(h), not to those at Sec.  412.534(g). Specifically, in the case 
of a satellite of a LTCH that is described under paragraph (h)(1), the 
thresholds applied at (c), (d), and (e) will not be less than the 
percentage specific below:
    <bullet> For cost reporting periods beginning on or after July 1, 
2007 and before July 1, 2008 a threshold of the lesser of 75 percent of 
the total number of Medicare discharges that were admitted to the LTCH 
satellite facility from its co-located hospital during the cost 
reporting period or the percentage of Medicare discharges that had been 
admitted to the LTCH satellite facility from that co-located hospital 
during the satellite's RY 2005 cost reporting period.
    <bullet> For cost reporting periods beginning on or after July 1, 
2008 and before July 1, 2009, we use the formula in the paragraph above 
except that we substitute 50 percent for 75 percent; and
    <bullet> For cost reporting periods beginning on or after July 1, 
2009, the 25 percent adjustment is applied.
    Similarly, the transition to the full 25 percent threshold or 
applicable threshold provided at Sec.  412.536(f) continues to be 
applicable for discharges that were admitted to a nongrandfathered HwH 
or a nongrandfathered LTCH satellite facility or grandfathered 
satellite facility from any hospital with which the HwH or LTCH 
satellite facility is not co-located, because section 114(c)(1) of 
MMSEA provides no exceptions for such entities. This transition at 
Sec.  412.536 parallels the transition at Sec.  412.534(h)(2).
    With respect to LTCH HwHs and LTCH satellite facilities that are 
not grandfathered, the applicable percentage thresholds established at 
Sec.  412.536, continue to apply because the MMSEA provides no 
exceptions for such entities. In addition, nongrandfathered HwHs and 
both grandfathered and nongrandfatered LTCH satellite facilities 
continue to be subject to Sec.  412.534.

[[Page 29704]]

However, to the extent a nongrandfathered LTCH HwH or LTCH satellite 
facility meets the definition of an ``applicable long-term care 
hospital or satellite facility,'' the revised percentage thresholds in 
section 114(c)(2)(A) and (B)(i) of MMSEA apply for cost reporting 
periods beginning on or after December 29, 2007 and before December 29, 
2010.
    Specifically, section 114(c)(2)(B)(i) of MMSEA of 2007 modifies the 
percentage thresholds specified in existing Sec.  412.534(c) from 25 
percent to 50 percent for ``an applicable'' LTCH HwH or LTCH satellite 
facility described below, for 3 years, for cost reporting periods 
beginning on or after December 29, 2007. Therefore, payment to an 
applicable LTCH or LTCH satellite facility which is co-located with 
another hospital shall not be subject to any payment adjustment under 
Sec.  412.534 if no more than 50 percent of the hospital's Medicare 
discharges during the hospital's fiscal year (other than discharges 
described in Sec.  412.534(c)(3)) are admitted from the co-located 
hospital. (We note that Sec.  412.534(c)(3) expressly excludes patients 
who had achieved high cost outlier status at the discharging co-located 
hospital.) Section 114(c)(2)(B)(ii) of MMSEA defines ``an applicable 
long-term care hospital or satellite facility'' as ``* * * a hospital 
or satellite facility that is subject to the transition rules under 
Sec.  412.534(g) * * *'' The transition rules in Sec.  412.534(g) apply 
to LTCH HwH and satellites that had been paid under the LTCH PPS as of 
October 1, 2004 or a LTCH HwH that is paid under the LTCH PPS on 
October 1, 2005 whose qualifying period under Sec.  412.23(e) began on 
or before October 1, 2004 (see 69 FR 49206). Accordingly, an applicable 
LTCH HwH and LTCH satellite facility for purposes of section 
114(c)(2)(ii) of the MMSEA is ``* * * a long-term care hospital or a 
satellite facility that is paid under the provisions of subpart O on 
October 1, 2004 or of a hospital that is paid under the provisions of 
subpart O and whose qualifying period under Sec.  412.23(e) began on or 
before October 1, 2004 * * *'' (Sec.  412.534(g)). (For a more detailed 
explanation, see the FY 2005 IPPS final rule.)
    Therefore, if a nongrandfathered LTCH or LTCH satellite facility 
does not meet the definition of an ``applicable long-term care hospital 
or satellite facility'', the thresholds established under existing 
Sec.  412.534 are not modified by section 114(c)(2) of MMSEA.
    The revised thresholds under section 114(c)(2)(A) of MMSEA for 
``applicable'' LTCH HwHs and LTCH satellite facilities are as follows: 
The provision raises the existing 50 percent ceiling on percentage 
thresholds for ``applicable'' LTCH HwHs or LTCH satellite facilities 
that are located either in rural areas or that are co-located with an 
urban single or metropolitan statistical area (MSA-dominant) hospital 
(under Sec.  412.534 (d)(1), (e)(1), and (e)(4) of the regulations) to 
75 percent. (We note that Sec.  412.534(d)(2) and (e)(3), which 
expressly excludes patients who had achieved high cost outlier status 
at the discharging co-located hospital prior to admission to the LTCH 
or LTCH satellite from being counted towards the threshold has not been 
modified.) In other words, payment to an applicable LTCH or satellite 
facility which is located in a rural area or which is co-located with 
an urban single or MSA dominant hospital under Sec.  412.534(d)(1), 
(e)(1), and (e)(4) is not subject to any payment adjustment under such 
section if no more than 75 percent of the hospital's Medicare 
discharges (other than discharges described in Sec.  412.534(d)(2) or 
(e)(3)) are admitted from a co-located hospital. Section 114(c)(2) of 
MMSEA also raises the existing 25 percent patient threshold payment 
adjustment to ``applicable'' LTCH HwHs and LTCH satellites, defined 
previously, from 25 percent to 50 percent. Furthermore, we would also 
emphasize that since this modification only applies to ``applicable'' 
LTCHs and LTCH satellites, as defined in paragraph section 
114(c)(2)(B)(ii) of MMSEA, those LTCH HwHs and LTCH satellites that 
were not subject to the transition policy set forth at Sec.  
412.534(g), will continue to have the existing patient percentage 
threshold applied.
    In accordance with the transition policy specified at Sec.  
412.534(g), for cost reporting periods beginning on or after October 1, 
2007, the percentage threshold even for ``applicable'' LTCH HwHs and 
LTCH satellite facilities decreased from 50 percent to 25 percent for 
LTCH HwHs and LTCH satellite facilities and the thresholds for rural, 
MSA-dominant, and urban single LTCHs and LTCH satellite facilities were 
held at 50 percent (see Sec.  412.534(d) and (e)). Since the percentage 
threshold modifications established under section 114(c)(2) of MMSEA 
are implemented for cost reporting periods beginning on or after 
December 29, 2007, if an ``applicable'' LTCH HwH and LTCH satellite had 
a cost reporting period beginning before that date (specifically, a 
cost reporting period beginning on or after October 1, 2007 and before 
December 29, 2007), the facility would be subject to the 25 percent 
threshold that was in effect at the start of that cost reporting period 
or a 50 percent threshold if the facility was located in a rural area 
or is co-located with an MSA-dominant or urban single hospital. 
However, for 3 years, beginning with the ``applicable'' HwH's or LTCH 
satellite's first cost reporting period beginning on or after December 
29, 2007 the percentage thresholds increase to 50 percent and for an 
``applicable'' LTCH HwHs and satellites located in a rural area, or co-
located with an MSA-dominant, or urban single hospital for that 3-year 
period, the 50 percent threshold increases to 75 percent.
    In compliance with section 114(c) of MMSEA, we have revised Sec.  
412.534 and Sec.  412.536 to implement the 3-year delay in the 
application of the percentage patient threshold payment adjustment to 
``freestanding and grandfathered LTCHs'' and the 3-year revision in the 
percentage payment thresholds adjustments for ``applicable'' LTCHs and 
satellite facilities. We have also made technical corrections to Sec.  
412.534(b) in order to clarify the effective dates of the percentage 
patient threshold policy for discharges from a LTCH HwH or from a LTCH 
satellite that were admitted from the hospital with which it is co-
located.

B. Moratorium on the Establishment of Long-Term Care Hospitals, Long-
Term Care Hospital Satellite Facilities, and on the Increase in Number 
of Beds in Existing Long-Term Care Hospitals or Long-Term Care Hospital 
Satellite Facilities

1. Overview
    Section 114(d) of MMSEA provides a 3-year moratorium with two 
distinct aspects, one for the establishment of new LTCHs and LTCH 
satellite facilities, and the other for the increase of hospital beds 
in existing LTCHs and LTCH satellite facilities. Specifically, section 
114(d)(1)(A) of MMSEA provides that the Secretary shall impose a 
moratorium ``subject to paragraph (2), on the establishment and 
classification of a long-term care hospital or satellite facility, 
other than an existing long-term care hospital or facility.'' Section 
114 (d)(1)(B) of MMSEA provides that, the Secretary shall impose a 
moratorium ``subject to paragraph (3), on an increase of long-term care 
hospital beds in existing long-term care hospitals or satellite 
facilities.''
    Sections 114(d)(2) and (d)(3) of MMSEA provide for exceptions to 
the moratorium imposed by section 114(d)(1) of MMSEA. It is important 
to

[[Page 29705]]

note that the two categories of exceptions are mutually exclusive. The 
three exceptions specified in section 114(d)(2) of MMSEA, discussed 
below, are only applicable to the moratorium provision at section 
114(d)(1)(A) of MMSEA, which applies exclusively to the establishment 
and classification of a LTCH or LTCH satellite facility. The three 
exceptions in section 114(d)(2) do not apply to the moratorium on an 
increase in beds at section 114(d)(1)(B) of MMSEA. Similarly, the 
exception at section 114(d)(3)(A) of MMSEA only applies to the 
moratorium on increases in beds at existing LTCHs or LTCH satellites 
facilities, and not to the moratorium on the establishment of LTCHs and 
LTCH satellite facilities.
2. Analysis of Exceptions to the Moratorium on the Establishment of New 
LTCHs and LTCH Satellite Facilities
    In section 114(d)(1)(A) of MMSEA, the statute specifically provides 
for a 3-year moratorium effective on the date of enactment of the MMSEA 
on the establishment and classification of a long-term care hospital or 
satellite facility, other than an existing LTCH or facility. (The term 
``existing,'' with respect to a hospital or satellite facility, is 
defined in the legislation at section 114(d)(4) of MMSEA as ``a 
hospital or satellite facility that received payment under the 
provisions of subpart O of part 412 of title 42, Code of Federal 
Regulations, as of the date of the enactment of this Act.'') The MMSEA 
was enacted on December 29, 2007. Therefore, the moratorium will be 
effective from December 29, 2007 through December 28, 2010. Section 
114(d)(2) of MMSEA specifies that the moratorium on the establishment 
and classification of a LTCH or LTCH satellite facility does not apply 
to a LTCH that, as of December 29, 2007, met one of the following three 
exceptions:
    <bullet> The LTCH began ``its qualifying period for payment as a 
long-term care hospital under section 412.23(e) of title 42, Code of 
Federal regulations, on or before the date of enactment of this Act'' 
(section 114(d)(2)(A)).
    <bullet> The LTCH has a binding written agreement with an outside, 
unrelated party for the actual construction, renovation, lease, or 
demolition for a LTCH and has expended before December 29, 2007 at 
least 10 percent of the estimated cost of the project or, if less, 
$2,500,000 (section 114(d)(2)(B)).
    <bullet> The LTCH has obtained an approved certificate of need in a 
State where one is required on or before December 29, 2007 (section 
114(d)(2)(C)).
    In implementing the provisions of section 114(d) of MMSEA, we found 
that, in light of the unique nature of LTCHs as a category of Medicare 
provider, some of the terminology in the provision is internally 
inconsistent. Therefore, we were required to interpret the provisions 
in the way we believe reasonably reconciles seemingly inconsistent 
provisions and that results in an application of the provisions that is 
logical and workable. We discuss our interpretations below.
    Specifically, section 114(d)(1)(A) of MMSEA indicates that the 
moratorium on the establishment and classification of a LTCH or 
satellite facility, other than an existing LTCH or satellite facility, 
is ``subject to paragraph (2).'' In contrast paragraph (2) is titled, 
``Exception for Certain Long-Term Care Hospitals'' and it begins with 
``[t]he moratorium under paragraph (1)(A) shall not apply to a long-
term care hospital that as of the date of the enactment of this Act.'' 
We note that the term ``satellite'' is omitted in paragraph (2) even 
though satellites are entities subject to the moratorium provision. 
Because section 114(d)(1)(A) of MMSEA appears to contemplate an 
exception to the moratorium for both qualifying LTCHs and qualifying 
satellite facilities, we believe that it is appropriate to apply 
paragraph (2) to new LTCH satellite facilities just as it applies to 
LTCHs. Our interpretation of the statute is premised on this 
presumption.
    An additional problem with paragraph (2) of section 114(d) of MMSEA 
is that a strictly literal reading of the statutory language in that 
paragraph presents practical challenges for implementation in light of 
the established LTCH classification criteria in section 412.23(e).
    Below, we examine the exceptions to the moratorium on the 
establishment and classification of a long-term care hospital or 
satellite facility in light of the classification criteria for LTCHs at 
Sec.  412.23(e) and the presumption that the provision allows, where 
practicable in limited situations, a new LTCH satellite facility to 
qualify for an exception under section 114(d)(2) of MMSEA. The first 
exception in section 114(d)(2)(A) of MMSEA applies to ``a long-term 
care hospital that as of the date of the enactment of this Act* * * 
began its qualifying period for payment as a long-term care hospital 
under section 412.23(e) of title 42, Code of Federal Regulations, on or 
before the date of the enactment of this Act.'' We believe this 
exception regarding the qualifying period refers to the period 
established in our regulations at Sec.  412.23(e)(3) during which the 
predecessor hospital is collecting LOS data to be used to demonstrate 
that the hospital meets the LOS requirements (explained in more detail 
below) to be classified as a LTCH. Specifically in order for a hospital 
to be designated as a LTCH, the LTCH classification criteria 
regulations at Sec.  412.23(e) stipulate the following:

    (e) Long-term care hospitals. A long-term care hospital must 
meet the requirements of paragraph (e)(1) and (e)(2) of this section 
and, when applicable, the additional requirement of Sec.  412.22(e), 
to be excluded from the prospective payment system specified in 
Sec.  412.1(a)(1) and to be paid under the prospective payment 
system specified in Sec.  412.1(a)(4) and in Subpart O of this part.
    (1) Provider agreements. The hospital must have a provider 
agreement under Part 489 of this chapter to participate as a 
hospital; and
    (2) Average length of stay. (i) The hospital must have an 
average Medicare inpatient length of stay of greater than 25 days; * 
* *

    As provided by Sec.  412.23(e)(1), the qualifying period for a 
``new'' or ``planned'' LTCH may not begin before the facility has 
obtained a provider agreement, under 42 CFR part 489, to participate in 
the Medicare program as a hospital. Typically, when a new hospital is 
established, after operating as a hospital, such a facility could 
present patient LOS data from a short (6 months) cost report using data 
from at least 5 months of the 6-month period immediately preceding the 
start of the cost reporting period for which the hospital is seeking 
LTCH designation.
    In light of how we view the qualifying period under section 
412.23(e), we note that it is not possible for a LTCH, as of the date 
of enactment of MMSEA, to begin its qualifying period as a LTCH. 
Technically, under the LTCH classification criteria regulations at 
412.23(e), it is an existing hospital, not a LTCH, that has a 
qualifying period for LTCH status. Therefore, we believe that the 
exception specified at section 114(c)(2)(A) of MMSEA applies to an 
existing hospital that began its qualifying period on or before 
December 29, 2007 for LTCH status. To qualify for the exception to the 
moratorium, the LOS data used to demonstrate that the hospital has an 
average LOS greater than 25 days must be from its cost reporting period 
that began on or before December 29, 2007. In addition, we note that 
the exception at section 114(d)(2)(A) of MMSEA would not be applicable 
to satellite facilities since there is no ``qualifying period'' for the 
establishment of a satellite facility for payment as a LTCH under Sec.  
412.23(e).
    Next, under section 114(d)(2)(B) of MMSEA, an exception to the

[[Page 29706]]

moratorium is made for a long-term care hospital that, as of the date 
of the enactment of the MMSEA (December 29, 2007), satisfies the two 
prongs of the exception: (1) it has a binding written agreement with an 
outside, unrelated party for the actual construction, renovation, 
lease, or demolition for a long-term care hospital; and (2) It has 
expended, before the date of enactment of this Act, at least 10 percent 
of the estimated cost of the project (or, if less, $2,500,000). As 
drafted, this provision is problematic in light of Sec.  412.23(e). For 
example, where a hospital has not even been built, but there is a 
binding written agreement for the actual construction of a hospital 
that intends to be classified as a LTCH, technically it is not a LTCH 
that is party to the binding written agreement. In such a situation, no 
LTCH would yet exist. Prior to the existence of a LTCH, a hospital must 
first be established, certified, and complete the procedures specified 
in Sec.  412.23(e) in order to qualify as a LTCH, at which point the 
hospital would be classified as a LTCH.
    In light of the LTCH classification criteria in Sec.  412.23(e), 
and our presumption that new LTCH satellite facilities are included in 
the exceptions in section 114(d)(2) of MMSEA, the exception in section 
114(d)(2)(B) of MMSEA applies in the following three circumstances: (1) 
As of the date of enactment of the MMSEA, an existing hospital (that 
is, one that was certified as a hospital as of December 29, 2007) that 
will become an LTCH has a binding written agreement with an outside 
unrelated party for the actual construction, renovation, lease, or 
demolition for converting the hospital to a LTCH and has expended, 
before December 29, 2007, at least 10 percent of the estimated cost of 
the project (or, if less, $2,500,000); (2) as of the date of enactment 
of the MMSEA, an entity that will develop a hospital that will 
ultimately become a LTCH has a binding written agreement with an 
outside unrelated party for the actual construction, renovation, lease, 
or demolition for a hospital and that entity has expended, before 
December 29, 2007, at least 10 percent of the estimated cost of the 
project (or, if less, $2,500,000); and (3) an existing LTCH, as of 
December 29, 2007, has a binding written agreement with an outside 
unrelated party for the actual construction, renovation, lease or 
demolition for a new LTCH satellite facility and the LTCH has expended 
before December 29, 2007 at least 10 percent of the estimated cost of 
the project (or, if less, $2,500,000).
    With regard to the first prong, we believe that the use of the term 
``actual'' in the context of the ``actual construction, renovation, 
lease, or demolition,'' indicates that the the provision focuses only 
on the specific accomplishments cited in the statute and does not 
include those that are contemplated or have not yet been executed. 
Although we are aware that a hospital or entity may enter into binding 
written agreements regarding services and items (for example, 
feasibility studies or land purchase) and incur costs for those 
services and items prior to actual construction, renovation, lease or 
demolition, we believe those services or items are not included in the 
statute as a basis for the exception.
    With respect to the second prong, the statute specifies that the 
hospital or entity must have expended before December 29, 2007, at 
least 10 percent of the estimated cost of the project (or, if less, 
$2.5 million). By ``cost of the project,'' we believe the statute 
refers to the activities enumerated in the first prong: ``The actual 
construction, renovation, lease, or demolition for a long-term care 
hospital.'' The statute requires that the hospital or entity has spent 
the amount specified in the statute on the actual construction, 
renovation, lease, or demolition for the contemplated LTCH. 
Furthermore, because the statute uses the phrase ``has expended'' we 
believe that the statute requires that hospital or entity would have 
actually transferred funds as payment for the project as opposed to 
merely obligating capital and posting the cost of the project on its 
books as of December 29, 2007. We believe that the provision addressed 
the concept of ``obligate'' in the first prong of the test where the 
statute specifies ``a binding written agreement * * * for the actual 
construction, renovation, lease, or demolition of the long-term care 
hospital. . .'' and there is no reason to believe that the second prong 
of the test, which requires the ``expenditure'' of 10 percent of the 
project or if less, $2,500,000, was intended as a redundancy. The 
ability to post the expense on the hospital's or entity's books could 
be satisfied by merely having a binding written agreement under the 
first prong of section 114(d)(2)(B) of MMSEA. The fact that a second 
requirement is included that involves an expenditure indicates that an 
additional threshold must be met.
    Finally, section 114(d)(2)(C) of MMSEA provides an exception for a 
long-term care hospital that, as of the date of the enactment of the 
Act, ``has obtained an approved certificate of need in a State where 
one is required on or before the date of the enactment of this Act.'' 
We do not believe that the provision limits the exception to only an 
existing long-term care hospital that has obtained an approved 
certificate of need to create a new satellite of the LTCH. We note that 
in many instances, prior to being classified as a LTCH, a hospital is 
to be built by an entity with the express intention of making it into a 
LTCH as soon as possible. In those instances, it is not uncommon for 
the entity to obtain a certificate of need from the State prior to the 
development of the hospital.
    We believe that the certificate of need exception applies to a 
hospital or entity that was actively engaged in developing a LTCH, as 
evidenced by the fact that either an entity that wanted to create a 
LTCH but did not exist as a hospital as of December 29, 2007, had 
obtained a certificate of need for a hospital by the date of enactment, 
or an existing hospital had obtained a certificate of need to convert 
the hospital into a new LTCH by that date. However, this exception 
would not apply to a hospital that was already in existence prior to 
the date of enactment and that had previously obtained an approved 
certificate of need for a hospital (other than a LTCH) on or before 
December 29, 2007. The fact that a hospital may have had a certificate 
of need issued to it years before December 29, 2007, to operate a 
hospital (other than a LTCH) would not be a reason to grant it an 
exception, unless that certificate of need was specifically for a LTCH. 
Since the certificate of need process is controlled at the State level, 
in determining whether the hospital or entity has obtained an approved 
certificate of need on or before December 29, 2007, we will look to the 
State for that determination.
2. Analysis of Exception to the Moratorium on the Increase in Number of 
Long-Term Care Hospital Beds in Existing Long-Term Care Hospitals and 
Satellite Facilities
    In section 114(d)(1)(B) of MMSEA, a moratorium is also imposed on 
existing LTCHs or LTCH satellite facilities for the 3-year period 
beginning December 29, 2007 through December 28, 2010. The moratorium 
is on an increase of LTCH beds in existing LTCHs or LTCH satellite 
facilities. Therefore, during the 3-year moratorium, an existing LTCH 
or LTCH satellite facility may not increase the number of beds in 
excess of the number of Medicare-certified beds at the hospital on 
December 29, 2007. We are using the number of beds certified by 
Medicare, because this number can be verified by CMS and its 
contractors and this is currently referenced in our

[[Page 29707]]

regulations at Sec.  412.22(h)(2)(i), and similarly referenced in Sec.  
412.22(f)(1). The moratorium on an increase of beds is subject to the 
exception at section 114(d)(3) of MMSEA. Specifically, section 
114(d)(3) of the MMSEA states that the moratorium on an increase in 
beds shall not apply if an existing LTCH or LTCH satellite facility is 
``located in a State where there is only one other long-term care 
hospital; and requests an increase in beds following the closure or the 
decrease in the number of beds of another long-term care hospital in 
the State.'' Section 114 (d)(3)(B) of the MMSEA also provides that the 
exception to the moratorium on the increase in bed numbers for existing 
LTCHs or LTCH satellite facilities does not apply to the limit on the 
number of beds in ``grandfathered'' LTCH HwHs as specified at Sec.  
412.22(f) and LTCH satellite facilities as specified at Sec.  
412.22(h)(3). Under Sec.  412.22(f) and Sec.  412.22(h)(3), 
respectively, ``grandfathered'' LTCH HwHs and LTCH satellite facilities 
(that is, HwHs that were in existence on or before September 30, 1995 
and LTCH satellite facilities that were in existence on or before 
September 30, 1999 and that meet certain specified conditions) are 
exempted from compliance with ``separateness and control'' policies as 
long as they do not increase their bed numbers. (See the FY 2007 IPPS 
final rule (71 FR 48106 through 48115).) Therefore, even if a 
``grandfathered'' LTCH HwH or LTCH satellite facility is located in a 
State where there is only one other LTCH and it requests an increase in 
beds following the closure or the decrease in the number of beds of 
another long-term care hospital in the State, it would not be able to 
maintain its grandfathered status if it would increase the number of 
beds at the LTCH under this exception.
    Decisions regarding whether a specific situation will be considered 
to meet the exceptions to the establishment and classification of new 
LTCHs or new LTCH satellite facilities or the exceptions on increasing 
the number of beds in existing LTCHs or LTCH satellite facilities will 
be determined on a case-by-case basis by the applicant's FI/MAC and the 
CMS Regional Office (RO).
    In compliance with section 114(d) of MMSEA, we are revising our 
regulations at Sec.  412.23 to include a description of the moratorium 
on the establishment of new LTCHs and LTCH satellites and the 
moratorium on increasing the number of beds in existing LTCHs and 
existing LTCH satellites. Additionally, in Sec.  412.23(e)(5) we have 
established a definition of a freestanding LTCH.

III. Response to Comments

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

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking and invite 
public comment on a proposed rule in accordance with 5 U.S.C. 553(b) of 
the Administrative Procedure Act (APA). In addition, section 1871(b)(1) 
of the Act provides that the Secretary shall provide for notice of the 
proposed regulation in the Federal Register and a period of not less 
than 60 days for public comment thereon. Section 1871(b)(2) of the Act 
provides for an exception to the requirement that the Secretary provide 
for notice of a proposed rulemaking and a period of not less than 60 
days for public comment. Specifically, section 1871(b)(2)(B) of the Act 
provides an exception to these requirements when a law establishes a 
specific deadline for the implementation of a provision and the 
deadline is less than 150 days after the date of the enactment of the 
statute in which the deadline is contained. Several provisions of the 
MMSEA changed existing LTCH PPS policies (it affected the adjustment 
policies in Sec.  412.534 and Sec.  412.536; and placed a moratorium on 
new LTCHs and LTCH satellite facilities, as well as a moratorium on bed 
increases in existing LTCHs and LTCH satellite facilities). These 
changes were required to be implemented: (1) Beginning December 29, 
2007 (section 114(d) of MMSEA); or (2) beginning with cost reporting 
periods beginning on or after December 29, 2007 (section 114(c)(1) and 
(2) of MMSEA). Thus, the statute's deadline for implementation of the 
MMSEA-related policies contained in this interim final regulation was 
less than 150 days after the date of the enactment of the statute in 
which the deadline was contained. We also note that we established a 
definition of ``freestanding LTCH'' at Sec.  412.23(e)(5) consistent 
with our application of Sec.  412.534 and Sec.  412.536 in order to 
ensure consistent implementation of section 114(c)(1) of the MMSEA. 
Therefore, under the authority of section 1871(b)(2)(B) of the Act, we 
are waiving notice and comment procedures for the MMSEA policy changes 
pertaining to Sec.  412.534 and Sec.  412.536 (including the addition 
of the definition of freestanding LTCH at Sec.  412.23(e)(5)) as well 
as the moratorium on new LTCHs and LTCH satellite facilities, and the 
moratorium on increasing beds at an existing LTCH and an existing 
satellite facility of a LTCH.
    Moreover, we also find good cause to waive the requirement for 
publication of a notice of proposed rulemaking and comment on the 
grounds that it is unnecessary, impracticable and contrary to the 
public interest under the authority of 5 U.S.C. 553(b)(B). In general, 
this interim final rule with comment period sets forth nondiscretionary 
provisions of the MMSEA with respect to a moratorium on the 
establishment of new long-term care hospitals and long-term care 
satellite facilities and on the increase of long-term care hospital 
beds in existing LTCHs or LTCH satellite facilities, and payment 
policies pertaining to Sec.  412.534 and Sec.  412.536. Therefore, we 
believe pursuing notice and comment is unnecessary. Moreover, because 
that process would prevent timely implementation of congressionally 
mandated policy changes that are to be effective, as described 
previously in this section, we believe notice and comment procedures 
are impracticable and contrary to the public interest. In addition, 
notice and comment would delay significantly the issuance of essential 
guidance to the public which is necessary to assist them in making 
complex, time-sensitive business decisions of significant financial 
consequence with respect to their efforts to comply with section 114 of 
the MMSEA. Failure to provide this guidance would impede such business 
decisions.
    Section 1871(e)(1)(A) of the Act provides that a substantive change 
in regulations, manual instructions, interpretative rules, statements 
of policy, or guidelines of general applicability under this title 
shall not be applied (by extrapolation or otherwise) retroactively to 
items and services furnished before the effective date of the change 
unless the Secretary determines that (i) such retroactive application 
is necessary to comply with statutory requirements; or (ii) failure to 
apply the change retroactively would be contrary to the public 
interest. As explained in the paragraph above, the MMSEA requires the 
Secretary to implement various policy changes either contemporaneously 
with the enactment of the MMSEA on December 29, 2007 or beginning with 
cost reporting periods beginning on or after December 29, 2007 as 
applicable. Therefore, under the authority of section 1871(e)(1)(A)(i) 
of

[[Page 29708]]

the Act, we are making the provisions of this interim final rule with 
comment period that implement sections 114(d) of MMSEA retroactive to 
December 29, 2007. The statute also requires that section 114(c)(1) and 
(2) be implemented beginning with cost reporting periods beginning on 
or after December 29, 2007. Therefore, under the authority of section 
1871(e)(1)(A)(i) of the Act, we are making the provisions of this 
interim final rule with comment period that implement section 114(c)(1) 
and (2) effective for cost reporting periods beginning on or after 
December 29, 2007. Additionally, as explained previously, the Secretary 
also finds that it would be contrary to the public interest if these 
provisions were not made effective on December 29, 2007 or for cost 
reporting periods beginning on or after December 29, 2007, as indicated 
above. Therefore, under the authority of section 1871(e)(1)(A)(ii) of 
the Act, we are making these changes effective under the timeframe 
noted above.
    For the same reasons noted above, we find good cause under section 
553(d)(3) of the APA to waive the 30-day delay in effective date.

V. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

VI. Regulatory Impact Analysis

    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 by Executive Order 13258) 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).
    The enactment of section 114(c) of MMSEA requires several 
modifications to the regulations at Sec.  412.534 and Sec.  412.536, 
which, as discussed in section II.A of this interim final rule with 
comment period, address the percentage thresholds between referring 
hospitals (typically acute care hospitals) and LTCHs and satellites of 
LTCHs. We estimate that the implementation of MMSEA provisions 
pertaining to Sec.  412.534 and Sec.  412.536 will result in a 
projected increase of approximately $30 million in estimated aggregate 
LTCH PPS payments for RY 2008. We note that at this time, we are unable 
to quantify the impact of the provision at section 114(d) of MMSEA 
which provides for a moratorium on the establishment of LTCHs, LTCH 
satellite facilities, and on the increase of LTCH beds in existing 
LTCHs or satellite facilities for a period of 3 years. We are unable to 
provide an estimate of the impact of the moratorium provisions in 
section II.B. of this interim final rule with comment period because we 
have no way of determining how many LTCHs would have opened in the 
absence of the moratorium, nor do we have sufficient information at 
this time to determine how many new LTCHs will meet the exceptions 
criteria provided for in the statute. Because the distributional 
effects and estimated changes to the Medicare program payments would 
not be greater than $100 million, this interim final rule with comment 
period would not be considered a major economic rule, as defined in 
this section.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $31.5 million in any 1 year. (For further information, 
see the Small Business Administration's regulation at 70 FR 72577, 
December 6, 2005.) Individuals and States are not included in the 
definition of a small entity. Because we lack data on individual 
hospital receipts, we cannot determine the number of small proprietary 
LTCHs. Therefore, we assume that all LTCHs are considered small 
entities for the purpose of this impact discussion. Medicare FIs and 
MACs are not considered to be small entities. As we discuss in detail 
throughout the preamble of this interim final rule with comment period, 
we believe that the provisions specified by the MMSEA presented in this 
rule would result in an increase in estimated aggregate LTCH PPS 
payments. Accordingly, the Secretary certifies that this interim final 
rule with comment period would not have a significant economic impact 
on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural 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 for Medicare payment regulations and has fewer than 
100 beds. As stated above, implementing the provisions specified by the 
MMSEA that are discussed in this interim final rule with comment period 
will result in an increase in estimated aggregate LTCH PPS payments. 
Therefore, we believe this rule will not have a significant impact on 
small rural hospitals. Accordingly, the Secretary certifies that this 
interim final rule with comment period would not have a significant 
economic impact on the operations of a substantial number of small 
rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2008, that 
threshold level is currently approximately $130 million. This interim 
final rule with comment period would not mandate any requirements for 
State, local, or tribal governments, nor would it result in 
expenditures by the private sector of $130 million or more in any 1 
year.
    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. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.


[[Page 29709]]



0
For the reasons stated in the preamble of this interim final rule with 
comment period, the Centers for Medicare & Medicaid Services is 
amending 42 CFR Chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
1. The authority citation for part 412 is revised to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).


0
2. Section 412.23 is amended by adding new paragraphs (e)(5) through 
(e)(7) to read as follows:


Sec.  412.23  Excluded hospitals: Classifications.

* * * * *
    (e) * * *
    (5) Freestanding long-term care hospital. For purposes of this 
paragraph, a freestanding long-term care hospital means a hospital that 
meets the requirements of paragraph (e)(1) and (2) of this section and 
all of the following:
    (i) Does not occupy space in a building also used by another 
hospital.
    (ii) Does not occupy space in one or more separate or entire 
buildings located on the same campus as buildings used by another 
hospital.
    (iii) Is not part of a hospital that provides inpatient services in 
a building also used by another hospital.
    (6) Moratorium on the establishment of new long-term care hospitals 
and long-term care hospital satellite facilities.
    (i) General rule. Except as specified in paragraph (e)(6)(ii) of 
this paragraph, for the period beginning December 29, 2007 and ending 
December 28, 2010, a moratorium applies to the establishment and 
classification of a long-term care hospital or long-term care hospital 
satellite facility as described in Sec.  412.23(e).
    (ii) Exception. The moratorium specified in paragraph (e)(6)(i) of 
this section is not applicable to the establishment and classification 
of a long-term care hospital that meets the requirements in paragraph 
(e) of this section or a long-term care hospital satellite facility 
that meets the requirements in Sec.  412.22(h), if the long-term care 
hospital met one of the following criteria on or before December 29, 
2007:
    (A) Began its qualifying period for payment in accordance with 
paragraph (e) of this section.
    (B)(1) Has a binding written agreement with an outside, unrelated 
party for the actual construction, renovation, lease or demolition for 
a long-term care hospital; and
    (2) Has expended, before December 29, 2007, at least 10 percent 
(or, if less, $2.5 million) of the estimated cost of the project 
specified in paragraph (ii)(B)(1) of this paragraph.
    (C) Had obtained an approved certificate of need from the State, 
when required by State law.
    (7) Moratorium on increasing the number of beds in existing long-
term care hospitals and existing long-term care hospital satellite 
facilities.
    (i) For purposes of this paragraph, an existing long-term care 
hospital or long-term care hospital satellite facility means a long-
term care hospital that meets the requirements of paragraph (e) of this 
section or long-term care hospital satellite facility that meets the 
requirements of Sec.  412.22(h) of this part and received payment under 
the provisions of subpart O of this part on or before December 29, 
2007.
    (ii) Effective for the period beginning December 29, 2007 and 
ending December 28, 2010--
    (A) Except as specified in paragraph (e)(7)(ii)(B) of this section, 
the number of Medicare-certified beds in an existing long-term care 
hospital or an existing long-term care hospital satellite facility as 
defined in paragraph (e)(7)(i) of this section must not be increased 
beyond the number of Medicare-certified beds on December 29, 2007.
    (B) Except as specified in paragraph (e)(7)(ii)(C) of this section, 
the moratorium specified in paragraph (e)(7)(ii)(A) of this section is 
not applicable to an existing long-term care hospital or existing long-
term care hospital satellite facility as defined in paragraph (e)(7)(i) 
of this section that meets both of the following requirements:
    (1) Is located in a State where there is only one other long-term 
care hospital that meets the criteria specified in Sec.  412.23(e) of 
this subpart.
    (2) Requests an increase in the number of Medicare-certified beds 
after the closure or decrease in the number of Medicare-certified beds 
of another long-term care hospital in the State.
    (C) The exception specified in paragraph (e)(7)(ii)(B) of this 
section does not effect the limitation on increasing beds under Sec.  
412.22(f) and Sec.  412.22(h)(3) of subpart.
* * * * *

0
4. Section 412.534 is amended by revising paragraphs (b) through (e), 
and (h) to read as follows.


Sec.  412.534  Special payment provisions for long-term care hospitals 
within hospitals and satellites of long-term care hospitals.

* * * * *
    (b) Patients admitted from hospitals not located in the same 
building or on the same campus as the long-term care hospital or long-
term care hospital satellite.
    (1) For cost reporting periods beginning on or after October 1, 
2004 and before July 1, 2007. Payments to the long-term care hospital 
as described in Sec.  412.23(e)(2)(i) meeting the criteria in Sec.  
412.22(e)(2) for patients admitted to the long-term care hospital or to 
a long-term care hospital satellite facility as described in Sec.  
412.23(e)(2)(i) that meets the criteria of Sec.  412.22(h) from another 
hospital that is not the co-located hospital are made under the rules 
in this subpart with no adjustment under this section.
    (2) For cost reporting periods beginning on or after July 1, 2007. 
For cost reporting periods beginning on or after July 1, 2007, payments 
to one of the following long-term care hospitals or long-term care 
hospital satellites are subject to the provisions of Sec.  412.536 of 
this subpart:
    (i) A long-term care hospital as described in Sec.  412.23(e)(2)(i) 
of this part that meets the criteria of Sec.  412.22(e) of this part.
    (ii) Except as provided in paragraph (h) of this section, a long-
term care hospital as described in Sec.  412.23(e)(2)(i) of this part 
that meets the criteria of Sec.  412.22(f) of this part.
    (iii) A long-term care hospital satellite facility as described in 
Sec.  412.23(e)(2)(i) of this part that meets the criteria in Sec.  
412.22(h) or Sec.  412.22(h)(3)(i) of this part.
    (c) Patients admitted from the hospital located in the same 
building or on the same campus as the long-term care hospital or 
satellite facility. Except for a long-term care hospital or a long-term 
care hospital satellite facility that meets the requirements of 
paragraphs (d) or (e) of this section, payments to the long-term care 
hospital for patients admitted to it or to its long-term care hospital 
satellite facility from the co-located hospital are made under either 
of the following:
    (1) For cost reporting periods beginning on or after October 1, 
2004 and before December 29, 2007 and for cost reporting periods 
beginning on or after December 29, 2010.
    (i) Except as provided in paragraphs (g) and (h) of this section, 
for any cost reporting period beginning on or after October 1, 2004 and 
before December 29, 2007 and for cost reporting periods beginning on or 
after December 29, 2010

[[Page 29710]]

in which the long-term care hospital or its satellite facility has a 
discharged Medicare inpatient population of whom no more than 25 
percent were admitted to the hospital or its satellite facility from 
the co-located hospital, payments are made under the rules at 
Sec. Sec.  412.500 through 412.541 in this subpart with no adjustment 
under this section.
    (ii) Except as provided in paragraph (g) or (h) of this section, 
for any cost reporting period beginning on or after October 1, 2004 and 
before December 29, 2007 and for cost reporting periods beginning on or 
after December 29, 2010 in which the long-term care hospital or 
satellite facility has a discharged Medicare inpatient population of 
whom more than 25 percent were admitted to the hospital or satellite 
facility from the co-located hospital, payments for the patients who 
are admitted from the co-located hospital and who cause the long-term 
care hospital or satellite facility to exceed the 25 percent threshold 
for discharged patients who have been admitted from the co-located 
hospital are the lesser of the amount otherwise payable under this 
subpart or the amount payable under this subpart that is equivalent, as 
set forth in paragraph (f) of this section, to the amount that would be 
determined under the rules at Sec.  412.1(a). Payments for the 
remainder of the long-term care hospital's or satellite facility's 
patients are made under the rules in this subpart at Sec. Sec.  412.500 
through 412.541 with no adjustment under this section.
    (iii) In determining the percentage of patients admitted to the 
long-term care hospital or its satellite from the co-located hospital 
under paragraphs (c)(1)(i) and (c)(1)(ii) of this section, patients on 
whose behalf an outlier payment was made to the co-located hospital are 
not counted towards the 25 percent threshold.
    (2) For cost reporting periods beginning on or after December 29, 
2007 and before December 29, 2010.
    (i) Except for a long-term care hospital and long-term care 
hospital satellite facility subject to paragraphs (g) or (h) of this 
section, payments are determined using the methodology specified in 
paragraph (c)(1) of this section.
    (ii) Payments for a long-term care hospital and long-term care 
hospital satellite facility subject to paragraph (g) of this section 
are determined using the methodology specified in paragraph (c)(1) of 
this section except that 25 percent is substituted with 50 percent.
    (d) Special treatment of rural hospitals.
    (1) For cost reporting periods beginning on or after October 1, 
2004 and before December 29, 2007 and for cost reporting periods 
beginning on or after December 29, 2010.
    (i) Subject to paragraphs (g) and (h) of this section, in the case 
of a long-term care hospital or satellite facility that is located in a 
rural area as defined in Sec.  412.503 and is co-located with another 
hospital for any cost reporting period beginning on or after October 1, 
2004 and before December 29, 2007 and for any cost reporting period 
beginning on or after December 29, 2010 in which the long-term care 
hospital or long-term care satellite facility has a discharged Medicare 
inpatient population of whom more than 50 percent were admitted to the 
long-term care hospital or satellite facility from the co-located 
hospital, payments for the patients who are admitted from the co-
located hospital and who cause the long-term care hospital or satellite 
facility to exceed the 50 percent threshold for discharged patients who 
were admitted from the co-located hospital are the lesser of the amount 
otherwise payable under this subpart or the amount payable under this 
subpart that is equivalent, as set forth in paragraph (f) of this 
section, to the amount that were otherwise payable under Sec.  
412.1(a). Payments for the remainder of the long-term care hospital's 
or long-term care hospital satellite facility's patients are made under 
the rules in this subpart at Sec. Sec.  412.500 through 412.541 with no 
adjustment under this section.
    (ii) In determining the percentage of patients admitted from the 
co-located hospital under paragraph (d)(1)(i) of this section, patients 
on whose behalf outlier payment was made at the co-located hospital are 
not counted toward the 50 percent threshold.
    (2) For cost reporting periods beginning on or after December 29, 
2007 and before December 29, 2010.
    (i) Except for long-term care hospitals and long-term care hospital 
satellite facilities subject to paragraphs (g) or (h) of this section, 
payments are determined using the methodology specified in paragraph 
(d)(1) of this paragraph.
    (ii) Payments for long-term care hospitals and long-term care 
hospital satellite facilities subject to paragraph (g) of this section 
are determined using the methodology specified in paragraph (d)(1) of 
this section except that 50 percent is substituted with 75 percent.
    (e) Special treatment of urban single or MSA-dominant hospitals.
    (1) For cost reporting periods beginning on or after October 1, 
2004 and before December 29, 2007 and for cost reporting periods 
beginning on or after December 29, 2010.
    (i) Subject to paragraphs (g) and (h) of this section, in the case 
of a long-term care hospital or a long-term care hospital satellite 
facility that is co-located with the only other hospital in the MSA or 
with a MSA-dominant hospital as defined in paragraph (e)(1)(iv) of this 
paragraph, for any cost reporting period beginning on or after October 
1, 2004 and before December 29, 2007 and for any cost reporting periods 
beginning on or after December 29, 2010 in which the long-term care 
hospital or long-term care hospital satellite facility has a discharged 
Medicare inpatient population of whom more than the percentage 
calculated under paragraph (e)(1)(ii) of this paragraph were admitted 
to the hospital from the co-located hospital, payments for the patients 
who are admitted from the co-located hospital and who cause the long-
term care hospital to exceed the applicable threshold for discharged 
patients who have been admitted from the co-located hospital are the 
lesser of the amount otherwise payable under this subpart or the amount 
under this subpart that is equivalent, as set forth in paragraph (f) of 
this section, to the amount that otherwise would be determined under 
Sec.  412.1(a). Payments for the remainder of the long-term care 
hospital's or satellite facility's patients are made under the rules in 
this subpart with no adjustment under this section.
    (ii) For purposes of paragraph (e)(1)(i) of this paragraph, the 
percentage used is the percentage of total Medicare discharges in the 
Metropolitan Statistical Area in which the hospital is located that are 
from the co-located hospital for the cost reporting period for which 
the adjustment was made, but in no case is less than 25 percent or more 
than 50 percent.
    (iii) In determining the percentage of patients admitted from the 
co-located hospital under paragraph (e)(1)(i) of this section, patients 
on whose behalf outlier payment was made at the co-located hospital are 
not counted toward the applicable threshold.
    (iv) For purposes of this paragraph, an ``MSA-dominant hospital'' 
is a hospital that has discharged more than 25 percent of the total 
hospital Medicare discharges in the MSA in which the hospital is 
located.
    (2) For cost reporting periods beginning on or after December 29, 
2007 and before December 29, 2010.
    (i) Except for long-term care hospitals and long-term care hospital 
satellite facilities subject to paragraphs (g) or (h) of this section, 
payments are determined using the methodology specified in paragraph 
(e)(1) of this section.
    (ii) Payments for long-term care hospitals and long-term care 
hospital satellite facilities subject to paragraph

[[Page 29711]]

(g) of this section are determined using the methodology specified in 
paragraph (e)(1) of this section except that 75 percent is substituted 
for 50 percent.
* * * * *
    (h) Effective date of policies in this section for certain co-
located LTCH hospitals and satellites of LTCHs. The policies set forth 
in this section apply to Medicare patient discharges that were admitted 
from a hospital located in the same building or on the same campus as a 
long-term care hospital described in Sec.  412.23(e)(2)(i) that meets 
the criteria in Sec.  412.22(f) and a satellite facility of a long-term 
care hospital as described at Sec.  412.22(h)(3)(i) for discharges 
occurring in cost reporting periods beginning on or after July 1, 2007.
    (1) Except as specified in paragraph (h)(4) of this section, in the 
case of a long-term care hospital or long-term care hospital satellite 
facility that is described under paragraph (h) of this section, the 
thresholds applied at paragraphs (c), (d), and (e) of this section are 
not less than the following percentages:
    (i) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2008, the lesser of 75 percent of the total number 
of Medicare discharges that were admitted to the long-term care 
hospital or long-term care hospital satellite facility from its co-
located hospital during the cost reporting period or the percentage of 
Medicare discharges that had been admitted to the long-term care 
hospital or satellite from that co-located hospital during the long-
term care hospital's or satellite's RY 2005 cost reporting period.
    (ii) For cost reporting periods beginning on or after July 1, 2008 
and before July 1, 2009, the lesser of 50 percent of the total number 
of Medicare discharges that were admitted to the long-term care 
hospital or the long-term care hospital satellite facility from its co-
located hospital or the percentage of Medicare discharges that had been 
admitted from that co-located hospital during the long-term care 
hospital's or satellite's RY 2005 cost reporting period.
    (iii) For cost reporting periods beginning on or after July 1, 
2009, 25 percent of the total number of Medicare discharges that were 
admitted to the long-term care hospital or satellite from its co-
located hospital during the cost reporting period.
    (2) In determining the percentage of Medicare discharges admitted 
from the co-located hospital under this paragraph, patients on whose 
behalf a Medicare high cost outlier payment was made at the co-located 
referring hospital are not counted toward this threshold.
    (3) Except as specified in paragraph (h)(4) of this section, for 
cost reporting periods beginning on or after July 1, 2007, payments to 
long term care hospitals described in Sec.  412.23(e)(2)(i) that meet 
the criteria in Sec.  412.22(f) and satellite facilities of long-term 
care hospitals described at Sec.  412.22(h)(3)(i) are subject to the 
provisions of Sec.  412.536 for discharges of Medicare patients who are 
admitted from a hospital not located in the same building or on the 
same campus as the LTCH or LTCH satellite facility.
    (4) For a long-term care hospital described in Sec.  
412.23(e)(2)(i) that meets the criteria in Sec.  412.22(f), the 
policies set forth in this paragraph and in Sec.  412.536 of this part 
do not apply for discharges occurring in cost reporting periods 
beginning on or after December 29, 2007 and before December 29, 2010.

0
5. Section 412.536 is amended by revising paragraph (a) to read as 
follows:


Sec.  412.536  Special payment provisions for long-term care hospitals 
and satellites of long-term care hospitals that discharged Medicare 
patients admitted from a hospital not located in the same building or 
on the same campus as the long-term care hospital or satellite of the 
long-term care hospital.

    (a) Scope. (1) Except as specified in paragraph (a)(2) of this 
section, for cost reporting periods beginning on or after July 1, 2007, 
the policies set forth in this section apply to discharges from the 
following:
    (i) Long-term care hospitals as described in Sec.  412.23(e)(2)(i) 
that meet the criteria in Sec.  412.22(e).
    (ii) Long-term care hospitals as described in Sec.  412.23(e)(2)(i) 
and that meet the criteria in Sec.  412.22(f).
    (iii) Long-term care hospital satellite facilities as described in 
Sec.  412.23(e)(2)(i) and that meet the criteria in Sec.  412.22(h).
    (iv) Long-term care hospitals as described in Sec.  412.23(e)(5).
    (2) For cost reporting periods beginning on or after December 29, 
2007 and before December 29, 2010, the policies set forth in this 
section are not applicable to discharges from a long-term care hospital 
described in Sec.  412.23(e)(5) of this part or described in Sec.  
412.23(e)(2)(i) of this part and that meet the criteria specified in 
Sec.  412.22(f) of this part.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: May 8, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: May 15, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. 08-1285 Filed 5-16-08; 4:00 pm]
BILLING CODE 4120-01-P