[Federal Register Volume 75, Number 105 (Wednesday, June 2, 2010)]
[Proposed Rules]
[Pages 30918-31117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12567]



[[Page 30917]]

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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 412 and 413



Medicare Program; Prospective Payment Systems; 2010 and 2011 Rates; 
Wage Indices; Proposed Rule and Notice

Federal Register / Vol. 75 , No. 105 / Wednesday, June 2, 2010 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412 and 413

[CMS-1498-P2]
RIN 0938-AP80


Medicare Program; Supplemental Proposed Changes to the Hospital 
Inpatient Prospective Payment Systems for Acute Care Hospitals and the 
Long-Term Care Hospital Prospective Payment System and Supplemental 
Proposed Fiscal Year 2011 Rates

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule is a supplement to the fiscal year (FY) 
2011 hospital inpatient prospective payment systems (IPPS) and long-
term care prospective payment system (LTCH PPS) proposed rule published 
in the May 4, 2010 Federal Register. This supplemental proposed rule 
would implement certain statutory provisions relating to Medicare 
payments to hospitals for inpatient services that are contained in the 
Patient Protection and Affordable Care Act and the Health Care and 
Education Reconciliation Act of 2010 (collectively known as the 
Affordable Care Act). It would also specify statutorily required 
changes to the amounts and factors used to determine the rates for 
Medicare acute care hospital inpatient services for operating costs and 
capital-related costs, and for long-term care hospital costs.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on July 2, 2010.

ADDRESSES: In commenting, please refer to file code CMS-1498-P2. 
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 
submitting a comment.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1498-P2, P.O. Box 8011, 
Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1498-P2, 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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 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 the 
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, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, Wage Index, 
Hospital Geographic Reclassifications, Capital Prospective Payment, 
Critical Access Hospital (CAH).
    Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.

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

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. Free public access is available on a Wide 
Area Information Server (WAIS) through the Internet and via 
asynchronous dial-in. Internet users can access the database by using 
the World Wide Web, (the Superintendent of Documents' home Web page 
address is http://www.gpoaccess.gov/), by using local WAIS client 
software, or by telnet to swais.access.gpo.gov, then login as guest (no 
password required). Dial-in users should use communications software 
and modem to call (202) 512-1661; type swais, then login as guest (no 
password required).

I. Background

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) was enacted. Following the enactment of Public Law 
111-148, the Health Care and Education Reconciliation Act of 2010 
Public Law 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. These public laws are collectively 
known as the Affordable Care Act. A number of the provisions of Public 
Law 111-148, affect the IPPS and the LTCH PPS and the providers and 
suppliers addressed in this proposed

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rule. However, due to the timing of the passage of the legislation, 
were unable to address those provisions in the FY 2011 IPPS and LTCH 
PPS proposed rule that appeared in the May 4, 2010 Federal Register (75 
FR 23852). Therefore, the proposed policies and payment rates in that 
proposed rule did not reflect the new legislation. We noted in that 
proposed rule that we would issue separate Federal Register documents 
addressing the provisions of Public Law 111-148 that affect our 
proposed policies and payment rates for FY 2010 and FY 2011 under the 
IPPS and the LTCH PPS. This supplementary proposed rule addresses the 
following provisions of the new legislation that affect the following 
FY 2011 proposed policies:
    <bullet> Hospital wage index improvement related to geographic 
reclassification criteria for FY 2011 (section 3137 of Pub. L. 111-
148).
    <bullet> National budget neutrality in the calculation of the rural 
floor for hospital wage index (section 3141 of Pub. L. 111-148).
    <bullet> Protections for frontier States (section 10324 of Pub. L. 
111-148).
    <bullet> Revisions of certain market basket updates (sections 3401 
and 10319 of Pub. L. 111-148 and section 1105 of Pub. L. 111-152).
    <bullet> Temporary improvements to the low-volume hospital 
adjustment (sections 3125 and 10314 of Pub. L. 111-148).
    <bullet> Extension of Medicare-dependent hospitals (MDHs) (section 
3124 of Pub. L. 111-148).
    <bullet> Additional payments in FYs 2011 and 2012 for qualifying 
hospitals in the lowest quartile of per capital Medicare spending 
(section 1109 of Pub. L. 111-152).
    <bullet> Extension of the rural community hospital demonstration 
(section 3123 of Pub. L. 111-148).
    <bullet> Technical correction related to critical access hospital 
(CAH) services (section 3128 of Pub. L. 111-148).
    <bullet> Extension of certain payment rules for long-term care 
hospital services and of moratorium on the establishment of certain 
hospitals and facilities (sections 3106 and 10312 of Pub. L. 111-148).
    We also noted that we plan to issue further instructions 
implementing the provisions of Public Law 111-148 that affect the 
policies and payment rates for FY 2010 under the IPPS and for RY 2010 
under the LTCH PPS in a separate document published elsewhere in this 
Federal Register.

II. Provisions of the Proposed Regulations

    In this section of this supplementary proposed rule, we address the 
provisions of Public Law 111-148, that affect our proposed policies and 
payment rates for FY 2011 under the IPPS and the LTCH PPS.

A. Changes to the Acute Care Hospital Wage Index

1. Plan for Reforming the Wage Index
    Section 3137(b) of Public Law 111-148 requires the Secretary of 
Health and Human Services to submit to Congress, not later than 
December 31, 2011, a report that includes a plan to reform the Medicare 
wage index applied under the Medicare IPPS. In developing the plan, the 
Secretary of Health and Human Services must take into consideration the 
goals for reforming the wage index that were set forth by the MedPAC in 
its June 2007 report entitled, ``Report to Congress: Promoting Greater 
Efficiency in Medicare'', including establishing a new system that --
    <bullet> Uses Bureau of Labor of Statistics (BLS) data, or other 
data or methodologies, to calculate relative wages for each geographic 
area;
    <bullet> Minimizes wage index adjustments between and within MSAs 
and statewide rural areas;
    <bullet> Includes methods to minimize the volatility of wage index 
adjustments while maintaining budget neutrality in applying such 
adjustments;
    <bullet> Takes into account the effect that implementation of the 
system would have on health care providers and on each region of the 
country;
    <bullet> Addresses issues related to occupational mix, such as 
staffing practices and ratios, and any evidence on the effect on 
quality of care or patient safety as a result of the implementation of 
the system; and
    <bullet> Provides for a transition.

In addition, section 3137(b)(3) of Public Law 111-148 requires the 
Secretary of Health and Human Services to consult with relevant 
affected parties in developing the plan. Although the provisions of 
section 3137(b) of Public Law 111-148 will not have an actual impact on 
the FY 2011 wage, we are notifying the public of the provisions so that 
they may provide comments and suggestions on how they may participate 
in developing the plan.
2. Provisions on Wage Comparability and Rural/Imputed Floor Budget 
Neutrality
    Sections 3137(c) and 3141 of Public Law 111-148 affect 
reclassification average hourly wage comparison criteria and rural and 
imputed floor budget neutrality provisions for FY 2011.
a. Reclassification Average Hourly Wage Comparison Criteria
    In the FY 2009 IPPS final rule, we adopted the policy to adjust the 
reclassification average hourly wage standard, comparing a 
reclassifying hospital's (or county hospital group's) average hourly 
wage relative to the average hourly wage of the area to which it seeks 
reclassification. (We refer readers to the FY 2009 IPPS final rule for 
a full discussion of the basis for the proposals the public comments 
received and the FY 2009 final policies.) We provided for a phase-in of 
the adjustment over 2 years. For applications for reclassification for 
the first transitional year, FY 2010, the average hourly wage standards 
were set at 86 percent for urban hospitals and group reclassifications, 
and 84 percent for rural hospitals. For applications for 
reclassification for FY 2011 (for which the application deadline was 
September 1, 2009) and for subsequent fiscal years, the average hourly 
wage standards were 88 percent for urban and group reclassifications 
and 86 percent for rural hospitals. Sections 412.230, 412.232, and 
412.234 of the regulations were revised accordingly. These policies 
were adopted in the FY 2009 IPPS final rule and were reflected in the 
wage index in the Addendum to the FY 2011 IPPS proposed rule, which 
appeared in the Federal Register on May 4, 2010.
    However, provisions of section 3137(c) of Public Law 111-148 
recently revised the average hourly wage standards. Specifically, 
section 3137(c) restores the average hourly wage standards that were in 
place for FY 2008 (that is, 84 percent for urban hospitals, 85 percent 
for group reclassifications, and 82 percent for rural hospitals) for 
applications for reclassification for FY 2011 and for each subsequent 
fiscal year until the first fiscal year beginning on or after the date 
that is one year after the Secretary of Health and Human Services 
submits a report to Congress on a plan for reforming the wage index 
under 3137(b) of Public Law 111-148. Section 3137(c) of Public Law 111-
148 also requires the revised average hourly wage standards to be 
applied in a budget neutral manner. We note that section 3137(c) of 
Public Law 111-148 does not provide for the revised average hourly wage 
standards to be applied retroactively, nor does it change the statutory 
deadline for applications for reclassification for FY 2011. Under 
section 1886(d)(10) of the Act, the Medicare Geographic Classification 
Review Board (MGCRB) considers

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applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. Hospitals must apply to the MGCRB to 
reclassify 13 months prior to the start of the fiscal year for which 
reclassification is sought (generally by September 1). For 
reclassifications for the FY 2011 wage index, the deadline for 
applications was September 1, 2009 (74 FR 43838).
    In implementing section 3137(c) of Public Law 111-148, we requested 
the assistance of the MGCRB in determining, for applications received 
by September 1, 2009, whether additional hospitals would qualify for 
reclassification for FY 2011 based on the revised average hourly wage 
standards of 84 percent for urban hospitals, 85 percent for group 
reclassifications, and 82 percent for rural hospitals. We determined 
that 18 additional hospitals would qualify for reclassification for FY 
2011. Also, 5 hospitals, for which the MGCRB granted reclassifications 
to their secondary requested areas for FY 2011, would qualify for 
reclassifications instead to their primary requested areas because they 
now meet the average hourly wage criteria to reclassify to those areas. 
Therefore, in accordance with Sec.  412.278 of the regulations, in 
which paragraph (c) provides the Administrator discretionary authority 
to review any final decision of the MGCRB, we submitted a letter to the 
Administrator requesting that she review and amend the MGCRB's decision 
and grant the 23 hospitals their requested reclassifications (or 
primary reclassifications) for FY 2011.
    The wage index in the Addendum to this supplemental FY 2011 IPPS 
proposed rule reflects these changes in hospital reclassifications, 
although the Administrator had not issued all of her decisions by the 
date of this proposed rule. In calculating the wage index in this 
proposed rule, we made assumptions that the Administrator would grant 
the 23 hospitals their requested reclassifications (or primary 
reclassifications) and that the hospitals would not request the 
Administrator to amend her decisions. Generally, these 
reclassifications would result in the highest possible wage index for 
the hospitals. Any changes to the wage index, as a result of the 
Administrator's actual decision issued under Sec.  412.278(c), or an 
amendment of the Administrator's decision issued under paragraph (g), 
will be reflected in the FY 2011 IPPS final rule.
    In accordance with the requirements in section 3137(c) of 
Affordable Care Act, we are modifying Sec.  412.230, Sec.  412.232, and 
Sec.  412.234 of the regulations to codify the revised average hourly 
wage standards.
b. Budget Neutrality Adjustment for the Rural and Imputed Floors
    In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we 
adopted State level budget neutrality (rather than the national budget 
neutrality adjustment) for the rural and imputed floors, effective 
beginning with the FY 2009 wage index and incorporated this policy in 
our regulation at Sec.  412.64(e)(4). Specifically, the regulations 
specified that CMS makes an adjustment to the wage index to ensure that 
aggregate payments after implementation of the rural floor under 
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and 
the imputed floor under Sec.  412.64(h)(4) are made in a manner that 
ensures that aggregate payments to hospitals are not affected and that, 
beginning October 1, 2008, we would transition from a nationwide 
adjustment to a statewide adjustment, with a statewide adjustment fully 
in place by October 1, 2010.
    These policies for the rural and imputed floors were adopted in the 
FY 2009 IPPS final rule and were reflected in the wage index in the 
Addendum to the FY 2011 IPPS/LTCH PPS proposed rule, published in the 
Federal Register on May 4, 2010. However, these policies were recently 
changed by the provisions of section 3141 of Public Law 111-148. 
Specifically, section 3141 of Affordable Care Act rescinds our policy 
establishing a statewide budget neutrality adjustment for the rural and 
imputed floors and, instead, restores it to a uniform, national 
adjustment, beginning with the FY 2011 wage index. Additionally, the 
imputed floor, is set to expire on September 30, 2011. We do not read 
section 3141 of Public Law 111-148 as altering this expiration date. 
Section 3141 of Public Law 111-148 requires that we ``administer 
subsection (b) of such section 4410 and paragraph (e) of * * * section 
412.64 in the same manner as the Secretary administered such subsection 
(b) and paragraph (e) for discharges occurring during fiscal year 2008 
(through a uniform, national adjustment to the area wage index).'' 
Thus, section 3141 of Public Law 111-148 is governing how we apply 
budget neutrality, under the authorities of Sec.  412.64(e) and section 
4410(b) of the Balanced Budget Act, but it does not alter Sec.  
412.64(h) of our regulations (which includes the imputed floor and its 
expiration date). To the extent there is an imputed floor, section 3141 
of Public Law 111-148 governs budget neutrality for that floor, but it 
does not continue the imputed floor beyond the expiration date already 
included in our regulations.
    Therefore, the wage index in the Addendum to this supplemental FY 
2011 IPPS proposed rule reflects a uniform, national budget neutrality 
adjustment for the rural and imputed floors, which is a factor of 
0.995425.
3. Frontier States Floor (Sec.  412.64)
    In accordance with section 10324(a) of Affordable Care Act, 
beginning in FY 2011, the statute provides for establishing an 
adjustment to create a wage index floor of 1.00 for all hospitals 
located in States determined to be Frontier States. The statute defines 
any State as a Frontier State if at least 50 percent of the State's 
counties are determined to be Frontier Counties. The statute defines as 
counties that have a population density less than 6 persons per square 
mile. The law requires that this provision shall not apply to hospitals 
in Alaska or Hawaii receiving a non-labor related share adjustment 
under section 1886(d)(5)(H) of the Act.
    To implement this provision, we propose to identify Frontier 
Counties by analyzing population data and county definitions based upon 
the most recent annual Population Estimates published by the U.S. 
Census Bureau. We will divide each county's population total by each 
county's reported land area (according to the decennial census) in 
square miles to establish population density. We also propose to update 
this analysis from time to time, such as upon publication of a 
subsequent decennial census, and if necessary, add or remove qualifying 
States from the list of Frontier States based on the updated analysis.
    For a State that qualifies as a Frontier State, in accordance with 
section 10324(a) of Public Law 111-148, all PPS hospitals located 
within that State will receive either the higher of its post-
reclassification wage index rate, or a minimum value of 1.00. We 
propose that, for a hospital that is geographically located in a 
Frontier State and is reclassified under section 1886(d)(10) of the Act 
to a CBSA in a non-Frontier State, the hospital will receive a wage 
index that is the higher of the reclassified area wage index or the 
minimum wage index of 1.00. In accordance with section 10324(a) of 
Public Law 111-148, the Frontier State adjustment will not be subject 
to budget neutrality under section 1886(d)(3)(E) of the Act, and will 
only be extended to hospitals geographically located within a Frontier 
State. We propose to calculate and apply the Frontier State floor 
adjustments after rural and imputed floor budget neutrality adjustments 
are

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calculated for all labor market areas, so as to ensure that no hospital 
in a Frontier State will receive a wage index lesser than 1.00 due to 
the rural and imputed floor adjustment. We invite public comment on 
these proposals regarding our methods for determining Frontier States, 
and for calculation and application of the adjustment.
    For the proposed FY 2011 IPPS wage index, the Frontier States are 
the following: Reflected in the following table:

             Table 1--Frontier States Under Section 10324(a)
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                                                               Percent
              State                   Total       Frontier     frontier
                                     counties     counties     counties
------------------------------------------------------------------------
Montana..........................           56           45           80
Wyoming..........................           23           17           74
North Dakota.....................           53           36           68
Nevada...........................           17           11           65
South Dakota.....................           66           34           52
------------------------------------------------------------------------
Frontier States are identified by a footnote in Table 4D-2 of the
  Addendum to this supplemental proposed rule. Population Data set:
  http://www.census.gov/popest/estimates.html (2009 County Total
  Population Estimates).
Land Area Dataset http://factfinder.census.gov/ (Decennial: Census
  Geographic Comparison Tables: ``United States--County by State and for
  Puerto Rico'').

4. Revised FY 2011 IPPS Proposed Rule Wage Index Tables
    The revised IPPS proposed wage index values for FY 2011, reflecting 
the provisions of sections 3137(c), 3141, and 10324 of Public Law 111-
148, are included in Tables 2, 4A, 4B, 4C, and 4D-2 of the Addendum to 
this supplemental FY 2011 IPPS/LTCH PPS proposed rule.
    Table 4D-1, which listed the statewide rural and imputed floor 
budget neutrality factors, is eliminated from the Addendum to this 
supplemental FY 2011 IPPS/LTCH PPS proposed rule and is no longer 
applicable for the wage index because section 3141 of Public Law 111-
148 instead requires the application of a national adjustment.
    Table 4J, which lists the out-migration adjustment for a qualifying 
county, is revised due to the above provisions of Affordable Care Act. 
Additionally, Table 9A, the list of hospitals that are reclassified or 
redesignated for FY 2011, is revised according to section 3137(c) of 
Public Law 111-148. Both revised tables are included in the Addendum to 
this supplemental FY 2011 IPPS/LTCH PPS proposed rule.
    Tables 3A and 3B, which list the 3-year average hourly wage for 
each labor market area before the redesignation or reclassification of 
hospitals, Table 4E, the list of urban CBSAs and constituent counties, 
Table 4F, the Puerto Rico wage index, and Table 9C, the list of 
hospitals redesignated under section 1886(d)(8)(E) of the Act, are 
unaffected by the above provisions of Affordable Care Act. Therefore, 
these tables are unchanged from the initial FY 2011 IPPS/LTCH PPS 
proposed rule and are not included in the Addendum to this supplemental 
FY 2011 IPPS/LTCH PPS proposed rule.
5. Procedures for Withdrawing Reclassifications in FY 2011
    Section 1886(d)(10)(D)(v) of the Act states that the Secretary 
should establish procedures under which a subsection (d) hospital may 
elect to terminate a reclassification before the end of a 3-year 
period, but does not contain any other specifics regarding how such 
termination should occur. Our rules at 42 CFR 412.273 state that 
hospitals that have been reclassified by the MGCRB are permitted to 
withdraw their applications within 45 days of the publication of CMS's 
annual notice of proposed rulemaking. For purposes of this 
supplementary proposed rule, we interpret our regulation as referring 
to the initial FY 2011 IPPS/LTCH PPS proposed rule (which appeared in 
the May 4, 2010 Federal Register), and our procedure for this 
supplementary proposed rule is to start the time period for requesting 
a withdrawal or termination from publication of that initial proposed 
rule. Were we not to use such a time period, requests for termination 
and withdrawal would be received too late to include in our final rule. 
Thus, all requests for withdrawal of an application for 
reclassification or termination of an existing 3-year reclassification 
that would be effective in FY 2011 must be received by the MGCRB by 
June 18, 2010.
    We note that wage index values in the tables in the Addendum to 
this supplemental FY 2011 IPPS/LTCH PPS proposed rule may have changed 
somewhat from the initial, more comprehensive FY 2011 IPPS/LTCH PPS 
proposed rule (which appeared in the May 4, 2010 Federal Register) due 
to the application of sections 3137(c), 3141, and 10324 of Affordable 
Care Act. In addition, as a result of section 3137(c) of Affordable 
Care Act, there may be additional hospitals listed as reclassified in 
Table 9A in the Addendum to this supplemental proposed rule. Hospitals 
have sufficient time between the display or publication date of this 
supplemental FY 2011 IPPS/LTCH PPS proposed rule in the Federal 
Register and the June 18, 2010 deadline for withdrawals and 
terminations to evaluate and make determinations regarding their 
reclassification for the FY 2011 wage index. As noted in the initial FY 
2011 IPPS proposed rule, the mailing address of the MGCRB is: 2520 Lord 
Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

B. Inpatient Hospital Market Basket Update

    Below we discuss the adjustments to the FY 2010 and FY 2011 market 
basket as required by the Affordable Care Act. In this supplemental 
proposed rule we are not proposing to address the provisions of section 
3401 of Public Law 111-148 providing for a productivity adjustment for 
FY 2012 and subsequent fiscal years; rather, this change will be 
addressed in future rulemaking.
1. FY 2010 Inpatient Hospital Update
    In accordance with section 1886(b)(3)(B)(i) of the Act, each year 
we update the national standardized amount for inpatient operating 
costs by a factor called the ``applicable percentage increase.'' Prior 
to enactment of Public Law 111-148 and Public Law 111-152, section 
1886(b)(3)(B)(i)(XX) of the Act set the applicable percentage increase 
equal to the rate-of-increase in the hospital market basket for IPPS 
hospitals in all areas, subject to the hospital submitting quality 
information under rules established by the Secretary in accordance with 
section 1886(b)(3)(B)(viii) of the Act. For

[[Page 30922]]

hospitals that do not provide these data, the update is equal to the 
market basket percentage increase less an additional 2.0 percentage 
points. In accordance with these statutory provisions, in the FY 2010 
IPPS/LTCH PPS final rule (74 FR 43850), we finalized an applicable 
percentage increase equal to the full market basket update of 2.1 
percent based on IHS Global Insight, Inc.'s second quarter 2009 
forecast of the FY 2010 market basket increase, provided the hospital 
submits quality data in accordance with our rules. For hospitals that 
do not submit quality data, in the FY 2010 IPPS/LTCH PPS final rule we 
finalized an applicable percentage increase equal to 0.1 percent (that 
is, the FY 2010 estimate of the market basket rate-of-increase minus 
2.0 percentage points).
    Sections 3401(a) and 10319 of Public Law 111-148 amend section 
1886(b)(3)(B)(i) of the Act. Specifically, sections 3401(a) and 
10319(a) of Public Law 111-148 amend section 1886(b)(3)(B)(i) of the 
Act to set the FY 2010 applicable percentage increase for IPPS 
hospitals equal to the rate-of-increase in the hospital market basket 
for IPPS hospitals in all areas minus a 0.25 percentage point, subject 
to the hospital submitting quality information under rules established 
by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the 
Act. For hospitals that do not provide these data, the update is equal 
to the market basket percentage increase minus 0.25 percentage point 
less an additional 2.0 percentage points. Section 3401(a)(4) of Public 
Law 111-148 further states that these amendments may result in the 
applicable percentage increase being less than zero. Although these 
amendments modify the applicable percentage increase applicable to the 
FY 2010 rates under the IPPS, section 3401(p) of Public Law 111-148 
states that the amendments do not apply to discharges occurring prior 
to April 1, 2010. In other words, for discharges occurring on or after 
October 1, 2009 and prior to April 1, 2010, the rate for a hospital's 
inpatient operating costs under the IPPS will be based on the 
applicable percentage increase set forth in the FY 2010 IPPS/LTCH PPS 
final rule.
    We are proposing to revise 42 CFR 412.64(d) to reflect current law. 
Specifically, in accordance with section 1886(b)(3)(B)(i) of the Act as 
amended by sections 3401(a) and 10319(a) of Public Law 111-148, we are 
proposing to revise Sec.  412.64(d) to state that for the first half of 
FY 2010 (that is, discharges on or after October 1, 2009 through March 
30, 2010), the applicable percentage change equals the market basket 
index for IPPS hospitals (which is defined under Sec.  413.40(a)) in 
all areas for hospitals that submit quality data in accordance with our 
rules, and the market basket index for IPPS hospitals in all areas less 
2.0 percentage for hospitals that fail to submit quality data in 
accordance with our rules. As noted above, in the FY 2010 IPPS/LTCH PPS 
final rule, we calculated that the full market basket update equals 2.1 
percent based on IHS Global Insight, Inc.'s second quarter 2009 
forecast of the FY 2010 market basket increase. In addition, we are 
proposing to revise Sec.  412.64(d) to state that for the second half 
of FY 2010 (discharges on or after April 1, 2010 through September 30, 
2010), in accordance with section 3401(a), we are proposing to set the 
applicable percentage change equal to the market basket index for IPPS 
hospitals in all areas reduced by 0.25 percentage points for hospitals 
that submit quality data in accordance with our rules. For those 
hospitals that fail to submit quality data, in accordance with our 
rules, we are proposing to reduce the market basket index for IPPS 
hospitals by an additional 2.0 percentage points (which is in addition 
to the 0.25 percentage point reduction required by section 
1886(b)(3)(B)(i) of the Act as amended by section 3401(a) of Public Law 
111-148 as amended by section 10319(a) of Public Law 111-148. Based on 
IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 
market basket increase, the FY 2010 applicable percentage change that 
applies to rates for inpatient hospital operating costs under the IPPS 
for discharges occurring in the second half of FY 2010 is 1.85 percent 
(that is, the FY 2010 estimate of the market basket rate-of-increase of 
2.1 percent minus 0.25 percentage points) for hospitals in all areas, 
provided the hospital submits quality data in accordance with our 
rules. For hospitals that do not submit quality data, the payment 
update to the operating standardized amount is -0.15 percent (that is, 
the adjusted FY 2010 estimate of the market basket rate-of-increase of 
1.85 percent minus 2.0 percentage points).
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase applicable to the hospital-specific rates for SCHs 
and MDHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Because the Act sets the update 
factor for SCHs and MDHs equal to the update factor for all other IPPS 
hospitals, the update to the hospital specific rates for SCHs and MDHs 
is also subject to the amendments to section 1886(b)(3)(B)(i) made by 
section 3401(a) of Public Law 111-148. Accordingly, for hospitals paid 
for their inpatient operating costs on the basis of a hospital-specific 
rate, the rates paid to such hospitals for discharges occurring during 
the first half of FY 2010 will be based on an annual update estimated 
to be 2.1 percent for hospitals submitting quality data or 0.1 percent 
for hospitals that fail to submit quality data; and the rates paid to 
such hospitals for the second half of FY 2010 will be based on an 
update that is estimated to be 1.85 percent for hospitals submitting 
quality data or -0.15 percent for hospitals that fail to submit quality 
data. Similar to that stated above, we are proposing to update 
Sec. Sec.  412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), 412.79(d) to 
reflect current law.
2. FY 2011 Inpatient Hospital Update
    As with the FY 2010 applicable percentage increase, section 3401(a) 
of Public Law 111-148 as amended by section 10319(a) of Public Law 111-
148, amends section 1886(b)(3)(B)(i) of the Act to provide that the FY 
2011 applicable percentage increase for IPPS hospitals equals the rate-
of-increase in the hospital market basket for IPPS hospitals in all 
areas reduced by 0.25 percentage point, subject to the hospital 
submitting quality information under rules established by the Secretary 
in accordance with section 1886(b)(3)(B)(viii) of the Act. For 
hospitals that do not provide these data, the update is equal to the 
market basket percentage increase minus a 0.25 percentage point less an 
additional 2.0 percentage points. Section 3401(a)(4) of Public Law 111-
148 further states that this amendment may result in the applicable 
percentage increase being less than zero.
    In Appendix B of the FY 2011 IPPS/LTCH PPS proposed rule, we 
announced that due to the timing of the passage of Public Law 111-148, 
we were unable to address those provisions in the proposed rule. In 
that proposed rule, consistent with current law, based on IHS Global 
Insight, Inc.'s first quarter 2010 forecast, with historical data 
through the 2009 fourth quarter, of the FY 2011 IPPS market basket 
increase, we estimated that the FY 2011 update to the operating 
standardized amount would be 2.4 percent (that is, the current estimate 
of the market basket rate-of-increase) for hospitals in all areas, 
provided the hospital submits quality data in accordance with our 
rules. For hospitals that do not submit

[[Page 30923]]

quality data, we estimated that the update to the operating 
standardized amount would be 0.4 percent (that is, the current estimate 
of the market basket rate-of-increase minus 2.0 percentage points). 
Since publication of the FY 2011 IPPS/LTCH PPS proposed rule our 
estimate of the market basket for FY 2011 has not changed. However, 
consistent with the amendments to section 1886(b)(3)(B)(i) of the Act 
made by section 3401 of Public Law 111-148, for FY 2011 we are required 
to reduce the hospital market basket update by 0.25 percentage points. 
Therefore, based on IHS Global Insight, Inc.'s first quarter 2010 
forecast of the FY 2011 market basket increase, the estimated update to 
the FY 2011 operating standardized amount is 2.15 percent (that is, the 
FY 2011 estimate of the market basket rate-of-increase of 2.4 percent 
minus 0.25 percentage points) for hospitals in all areas, provided the 
hospital submits quality data in accordance with our rules. For 
hospitals that do not submit quality data, the estimated update to the 
operating standardized amount is 0.15 percent (that is, the adjusted FY 
2011 estimate of the market basket rate-of-increase of 2.15 percent 
minus 2.0 percentage points). We are proposing to revise Sec.  
412.64(d) to reflect the provisions of section 3401(a) of Public Law 
111-148.
    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2011 
applicable percentage increase in the hospital-specific rates for SCHs 
and MDHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Similar to the FY 2010 applicable 
percentage increase in the hospital-specific rates, because the Act 
requires us to apply to the hospital-specific rates the update factor 
for all other IPPS hospitals, the update to the hospital specific rates 
for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) as 
amended by the Affordable Care Act. Accordingly, the update to the 
hospital-specific rates applicable to SCHs and MDHs is estimated to be 
2.15 for hospitals that submit quality data or 0.15 percent for 
hospitals that fail to submit quality data. Similar to above, we are 
proposing to update Sec. Sec.  412.73(c)(15), 412.75(d), 412.77(e), 
412.78(e), 412.79(d) to implement this provision.
3. FY 2010 and FY 2011 Puerto Rico Hospital Update
    Puerto Rico hospitals are paid a blended rate for their inpatient 
operating costs based on 75 percent of the national standardized amount 
and 25 percent of the Puerto Rico-specific standardized amount. Section 
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable 
percentage increase applied to the Puerto Rico-specific standardized 
amount. Section 1886(d)(9)(C)(i) of the Act provides that the Puerto 
Rico standardized amount shall be adjusted in accordance with the final 
determination of the Secretary under section 1886(d)(4) of the Act. 
Section 1886(e)(4)(1) of the Act in turn directs the Secretary to 
recommend an appropriate change factor for Puerto Rico hospitals taking 
into account amounts necessary for the efficient and effective delivery 
of medically appropriate and necessary care of high quality, as well as 
the recommendations of MedPAC. In order to maintain consistency between 
the portion of the rates paid to Puerto Rico hospitals under the IPPS 
based on the national standardized amount and the portion based on the 
Puerto Rico-specific standardized rate, beginning in FY 2004 we have 
set the update to the Puerto Rico-specific operating standardized 
amount equal to the update to the national operating standardized 
amount for all IPPS hospitals. This policy is reflected in our 
regulations at 42 CFR 412.211.
    The amendments to section 1886(b)(3)(B)(i) of the Act by sections 
3401(a) and section 10319(a) of Public Law 111-148, affect only the 
update factor applicable to the national standardized rate for IPPS 
hospitals and the hospital-specific rates; they do not mandate any 
revisions to the update factor applicable to the Puerto Rico-specific 
standardized amount. Rather, as noted above, sections 1886(d)(9)(C)(i) 
and (e)(4) of the Act direct us to adopt an appropriate change factor 
for the FY 2010 Puerto Rico-specific standardized amount, which we did 
in the FY 2010 IPPS/LTCH PPS final rule after notice and consideration 
of public comments. Therefore, we do not believe we have the authority 
to now propose setting the FY 2010 update factor for the Puerto Rico-
specific operating standardized amount for the second half of FY 2010 
equal to the update factor applicable to the national standardized 
amount or the hospital-specific rates (that is the market basket minus 
0.25 percentage points). Accordingly, the FY 2010 update to the Puerto 
Rico-specific operating standardized amount is 2.1 percent (that is, 
the FY 2010 estimate of the market basket rate-of-increase) for the 
entire FY 2010.
    For FY 2011, consistent with our past practice of applying the same 
update factor to the Puerto Rico-specific standardized amount as 
applied to the national standardized amount, we are proposing to revise 
Sec.  412.211(c) to set the update factor for the Puerto Rico-specific 
operating standardized amount equal to the update factor applied to the 
national standardized amount for all IPPS hospitals. Therefore, we are 
proposing an update factor for the Puerto Rico-specific standardized 
amount equal to the FY 2011 estimate of the IPPS operating market 
basket rate-of-increase of 2.4 percent minus 0.25 percentage points, or 
2.15 percent, for FY 2011.

C. Payment Adjustment for Low-Volume Hospitals (Sec.  412.101)

    Section 1886(d)(12) of the Act, as added by section 406 of Public 
Law 108-173, provides for a payment adjustment to account for the 
higher costs per discharge for low-volume hospitals under the IPPS, 
effective beginning FY 2005. Sections 3215 and 10314 of Public Law 111-
148 amend the definition of a low-volume hospital under section 
1886(d)(12)(C) of the Act. It also revises the methodology for 
calculating the payment adjustment for low-volume hospitals.
1. Background
    Prior to being amended by the Affordable Care Act, section 
1886(d)(12)(C)(i) of the Act defined a low-volume hospital as ``a 
subsection (d) hospital (as defined in paragraph (1)(B)) that the 
Secretary determines is located more than 25 road miles from another 
subsection (d) hospital and that has less than 800 discharges during 
the fiscal year.'' Section 1886(d)(12)(C)(ii) of the Act further 
stipulates that ``the term ``discharge'' means an inpatient acute care 
discharge of an individual regardless of whether the individual is 
entitled to benefits under Part A.'' Therefore, the term refers to 
total discharges, not merely Medicare discharges. Finally, under 
section 406, the provision requires the Secretary to determine an 
applicable percentage increase for these low-volume hospitals based on 
the ``empirical relationship'' between ``the standardized cost-per-case 
for such hospitals and the total number of discharges of such hospitals 
and the amount of the additional incremental costs (if any) that are 
associated with such number of discharges.'' The statute thus mandates 
that the Secretary develop an empirically justifiable adjustment based 
on the relationship between costs and discharges for these low-volume 
hospitals. The statute also limits the adjustment to no more than 25 
percent.

[[Page 30924]]

    Based on an analysis we conducted for the FY 2005 IPPS final rule 
(69 FR 49099 through 49102), a 25 percent low-volume adjustment to all 
qualifying hospitals with less than 200 discharges was found to be most 
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher 
incremental costs are associated with low numbers of total discharges.
    In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we 
stated that a multivariate analyses supported the existing low-volume 
adjustment implemented in FY 2005. Therefore, the low-volume adjustment 
of an additional 25 percent would continue to be provided for 
qualifying hospitals with less than 200 discharges.
2. Temporary Changes for FYs 2011 and 2012
    Section 1886(d)(12) of the Act was amended by sections 3125 and 
10314 of Public Law 111-148. These changes are effective only for FYs 
2011 and 2012. Beginning with FY 2013, the pre-existing low-volume 
hospital payment adjustment and qualifying criteria, as implemented in 
FY 2005, will resume.
    Section 3125(3) and 10314(1) of Public Law 111-148 amend the 
qualifying criteria for low-volume hospitals under section 
1886(d)(12)(C) of the Act to make it easier for hospitals to qualify 
for the low-volume adjustment. Specifically, the revised provision 
specifies that for FYs 2011 and 2012, a hospital qualifies as a low-
volume hospital if it is ``more than 15 road miles from another 
subsection (d) hospital and has less than 1,600 discharges of 
individuals entitled to, or enrolled for, benefits under Part A during 
the fiscal year.'' In addition, section 1886(d)(12)(C) of the Act, as 
amended, provides that the payment adjustment (the applicable 
percentage increase) is to be determined ``using a continuous linear 
sliding scale ranging from 25 percent for low-volume hospitals with 200 
or fewer discharges of individuals entitled to, or enrolled for, 
benefits under Part A in the fiscal year to 0 percent for low-volume 
hospitals with greater than 1,600 discharges of such individuals in the 
fiscal year.''
    Section 3125(3)(A) of Public Law 111-148 revises the distance 
requirement for FYs 2011 and 2012 from ``25 road miles'' to ``15 road 
miles'' such that a low volume hospital is required to be only more 
than 15 road miles, rather than more than 25 road miles, from another 
subsection (d) hospital for purposes of qualifying for the low-volume 
payment adjustment in FYs 2011 and 2012. We therefore are proposing to 
revise our regulations at 42 CFR 412.101(a)(2) to provide that to 
qualify for the low volume adjustment in FYs 2011 and 2012, a hospital 
must be more than 15 road miles from the nearest subsection (d) 
hospital. The statute specifies the 15 mile distance in ``road miles''. 
The current regulations at 42 CFR 412.101 also specify the current 25 
mile distance requirement in ``road miles,'' but do not provide a 
definition of the term ``road miles.'' We are proposing to define the 
term ``road miles'' consistent with the term ``miles'' as defined at 
Sec.  412.92 for purposes of determining whether a hospital qualifies 
as a sole community hospital. Specifically, the regulations at 42 CFR 
412.92(c)(i) define ``miles'' as ``the shortest distance in miles 
measured over improved roads. An improved road for this purpose is any 
road that is maintained by a local, State, or Federal government entity 
and is available for use by the general public. An improved road 
includes the paved surface up to the front entrance of the hospital.'' 
We note that while the proposed change in the qualifying criteria from 
25 to 15 road miles is applicable only for FYs 2011 and 2012, the 
proposed definition of ``road miles'' would continue to apply even 
after the distance requirement reverts to 25 road miles beginning in FY 
2013.
    Sections 3125(3)(B) and (4)(D) and 10314(1) and (2) of Public Law 
111-148, revise the discharge requirement for FYs 2011 and 2012 to less 
than 1,600 discharges of individuals entitled to, or enrolled for, 
benefits under Part A. Based on section 406 of Public Law 108-173, the 
discharge requirement to qualify as a low-volume hospital prior to FY 
2011 and subsequent to FY 2012 is less than 800 discharges annually. 
For these fiscal years, the number of discharges is determined based on 
total discharges, which includes discharges of both Medicare and non-
Medicare patients. However, under sections 3125 and 10314 of Public Law 
111-148, for FYs 2011 and 2012, the discharge requirement has been 
increased to less than 1,600 discharges of individuals ``entitled to, 
or enrolled for, benefits under Part A during the fiscal year.''
    Section 226(a) of the Act (42 U.S.C. 426(a)) provides that an 
individual is automatically ``entitled'' to Medicare Part A when the 
person reaches age 65 or becomes disabled, provided that the individual 
is entitled to Social Security benefits under section 202 of the Act 
(42 U.S.C. 402). Once a person becomes entitled to Medicare Part A, the 
individual does not lose such entitlement simply because there is no 
Part A coverage of a specific inpatient stay. For example, a patient 
does not lose entitlement to Medicare Part A simply because the 
individual's Part A hospital benefits have been exhausted; other items 
and services (for example, skilled nursing services) still might be 
covered under Part A, and the patient would qualify for an additional 
90 days of Part A hospital benefits if at least 60 days elapsed between 
the individual's first and second hospital stay. (See Sec.  409.60(a) 
and (b)(1) and Sec.  409.61(a)(1) and (c).)
    In addition, beneficiaries who are enrolled in Medicare Advantage 
(MA) plans provided under Medicare Part C continue to meet all of the 
statutory criteria for entitlement to Part A benefits under section 
226. First, in order to enroll in Medicare Part C, a beneficiary must 
be ``entitled to benefits under Part A and enrolled under Part B,'' see 
section 1852(a)(1)(B)(i) of the Act. There is nothing in the Act that 
suggests beneficiaries who enroll in Part C plan forfeit their 
entitlement to Part A benefits. Second, once a beneficiary enrolls in 
Part C, the MA plan must provide the beneficiary with the benefits to 
which the enrollee is entitled under Medicare Part A, even though it 
may also provide for additional supplemental benefits. See section 
1852(a)(1)(A) of the Act. Third, under certain circumstances, Medicare 
Part A pays for care furnished to patients enrolled in Part C plans. 
For example, if, during the course of the year, the scope of benefits 
provided under Medicare Part A expands beyond a certain cost threshold 
due to Congressional action or a national coverage determination, 
Medicare Part A will pay the provider for the cost of the services 
directly. (See section 1852(a)(5) of the Act.) Similarly, Medicare Part 
A also pays for Federally qualified health center services and hospice 
care furnished to MA patients. See 42 U.S.C. section 1853(a)(4), (h)(2) 
of the Act. Thus, a patient enrolled in a Part C plan remains entitled 
to benefits under Medicare Part A.
    Accordingly, for purposes of determining the number of discharges 
for ``individuals entitled to, or enrolled for, benefits under Part 
A,'' we propose to include all discharges associated with individuals 
entitled to Part A, including discharges associated with individuals 
whose inpatient benefits are exhausted or whose stay was not covered by 
Medicare and discharges of individuals enrolled in an MA plan under 
Medicare Part C. Since a hospital may only qualify for this adjustment 
if the hospital has fewer than 1,600 discharges for patients entitled 
to Part A, the

[[Page 30925]]

hospital must submit a claim to Medicare on behalf of all Part A 
entitled individuals, including a no-pay claim for patients who are 
enrolled in Part C, in order for Medicare to assure that these 
discharges are included in the determination of whether the hospital 
has fewer than 1,600 discharges for patients entitled to Part A.
    Currently, a prior cost reporting period is used to determine if 
the hospital meets the discharge criteria to receive the low-volume 
payment adjustment in the current year.
    Finally, sections 3125(4) of Public Law 111-148 and 10314(2), add a 
new section 1886(d)(12)(D) of the Act that modifies the methodology for 
calculation of the payment adjustment under section 1886(d)(12)(A) of 
the Act for low-volume hospitals for discharges occurring in FYs 2011 
and 2012. Currently, sections 1886(d)(12)(A) and (B) of the Act require 
the Secretary to determine an applicable percentage increase for low-
volume hospitals based on the ``empirical relationship'' between ``the 
standardized cost-per-case for such hospitals and the total number of 
discharges of such hospitals and the amount of the additional 
incremental costs (if any) that are associated with such number of 
discharges.'' The statute thus mandates the Secretary to develop an 
empirically justifiable adjustment based on the relationship between 
costs and discharges for these low-volume hospitals. The statute also 
limits the adjustment to no more than 25 percent. Based on analyses, we 
conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102) 
and the FY 2006 IPPS final rule (70 FR 47432 through 47434), a 25 
percent low-volume adjustment to all qualifying hospitals with less 
than 200 discharges was found to be most consistent with the statutory 
requirement to provide relief to low-volume hospitals where there is 
empirical evidence that higher incremental costs are associated with 
low numbers of total discharges. However, section 1886(d)(12)(D) of the 
Act, provides that for discharges occurring in FYs 2011 and 2012, the 
Secretary shall determine the applicable percentage increase using a 
continuous, linear sliding scale ranging from an additional 25 percent 
payment adjustment for hospitals with 200 or fewer Medicare discharges 
to 0 percent additional payment for hospitals with more than 1,600 
Medicare discharges. We propose to apply this payment adjustment based 
on increments of 100 discharges (beginning with 200 or fewer 
discharges), with the applicable percentage increase decreasing 
linearly in equal amounts by 1.6667 percent for every additional 100 
Medicare discharges, with no payment adjustment for hospitals with more 
than 1,599 Medicare discharges. We have not proposed an adjustment for 
a hospital with exactly 1,600 discharges since, as specified in statute 
at section 1886(d)(12)(C)(i) of the Act, as amended, a hospital must 
have ``less'' than 1,600 discharges in order to qualify as a low volume 
hospital. The proposed payment adjustment would be as determined below:

                                   --
------------------------------------------------------------------------
                                                               Payment
                                                             adjustment
                 Medicare discharge range                   (percent add-
                                                                 on)
------------------------------------------------------------------------
1-200.....................................................       25.0000
201-300...................................................       23.3333
301-400...................................................       21.6667
401-500...................................................       20.0000
501-600...................................................       18.3333
601-700...................................................       16.6667
701-800...................................................       15.0000
801-900...................................................       13.3333
901-1000..................................................       11.6667
1001-1100.................................................       10.0000
1101-1200.................................................        8.3333
1201-1300.................................................        6.6667
1301-1400.................................................        5.0000
1401-1500.................................................        3.3333
1501-1599.................................................        1.6667
1600 or more..............................................        0.0000
------------------------------------------------------------------------

    While we are proposing to revise the qualifying criteria and the 
payment adjustment for low-volume hospitals for FYs 2011 and 2012, 
consistent with the amendments made by the Affordable Care Act, we note 
that we are not proposing to modify the process for requesting and 
obtaining the low-volume hospital payment adjustment. In order to 
qualify, a hospital must provide to its FI or MAC sufficient evidence 
to document that it meets the number of Medicare discharges and 
distance requirements. The FI or MAC will determine, based on the most 
recent data available, if the hospital qualifies as a low-volume 
hospital, so that the hospital will know in advance whether or not it 
will receive a payment adjustment and, if so, the add-on percentage. 
The FI or MAC and CMS may review available data, in addition to the 
data the hospital submits with its request for low-volume status, in 
order to determine whether or not the hospital meets the qualifying 
criteria.
    We also note that as compared to the existing methodology for 
determining the payment adjustment for low-volume hospitals, no 
hospital would receive a lower payment adjustment under our proposed 
methodology for FYs 2011 and 2012. Although the statute specifies that, 
for years other than FYs 2011 and 2012, a hospital is a low-volume 
hospital if it has less than 800 discharges, currently only hospitals 
with fewer than 200 discharges receive a payment adjustment, an 
additional 25 percent, because the statute requires that the adjustment 
be empirically based to provide relief to low-volume hospitals where 
there is empirical evidence that higher incremental costs are 
associated with low numbers of total discharges. Consistent with 
section 1886(d)(12)(D) of the Act, for FYs 2011 and 2012, we will 
continue to pay hospitals with fewer than 200 discharges a payment 
adjustment amount equal to an additional 25 percent.
    We are proposing to revise our regulations at 42 CFR 412.101 to 
reflect our proposal outlined above.
    Currently, 42 CFR 412.101(a)(3) states that ``The fiscal 
intermediary makes the determination of the discharge count for 
purposes of determining a hospital's qualification for the adjustment 
based on the hospital's most recent submitted cost report.'' This may 
mistakenly be interpreted to mean that once a hospital qualifies as a 
low-volume hospital, no further qualification is needed. We, therefore, 
are proposing to clarify that a hospital must continue to qualify as a 
low-volume hospital in order to receive the payment adjustment in that 
year; that is, it is not based on a one-time qualification.

D. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec.  412.108)

1. Background
    Medicare-dependent, small rural hospitals (MDHs) are eligible for 
the higher of the Federal rate for their inpatient hospital services or 
a blended rate based in part on the Federal rate and in part on the 
MDH's hospital-specific rate. Section 1886(d)(5)(G)(iv) of the Act 
defines an MDH as a hospital that is located in a rural area, has not 
more than 100 beds, is not an SCH, and has a high percentage of 
Medicare discharges (that is, not less than 60 percent of its inpatient 
days or discharges either in its 1987 cost reporting year or in two of 
its most recent three settled Medicare cost reporting years). The 
regulations that set forth the criteria that a hospital must meet to be 
classified as an MDH are at 42 CFR 412.108.
    Although MDHs are paid under an adjusted payment methodology, they 
are still IPPS hospitals paid under section 1886(d) of the Act. Like 
all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid 
for their discharges based on the DRG weights

[[Page 30926]]

calculated under section 1886(d)(4) of the Act.
    Through and including FY 2006, under section 1886(d)(5)(G) of the 
Act, MDHs are paid based on the Federal rate or, if higher, the Federal 
rate plus 50 percent of the amount by which the Federal rate is 
exceeded by the updated hospital-specific rate based on the hospital's 
FY 1982 or FY 1987 costs per discharge, whichever of these hospital-
specific rates is higher. Section 5003(b) of Public Law 109-171 (DRA 
2005) amended section 1886(d)(5)(G) of the Act to provide that, for 
discharges occurring on or after October 1, 2006, MDHs are paid based 
on the Federal rate or, if higher, the Federal rate plus 75 percent of 
the amount by which the Federal rate is exceeded by the updated 
hospital-specific rate based on the hospital's FY 1982, FY 1987, or FY 
2002 costs per discharge, whichever of these hospital-specific rates is 
highest.
    For each cost reporting period, the fiscal intermediary or MAC 
determines which of the payment options will yield the highest 
aggregate payment. Interim payments are automatically made at the 
highest rate using the best data available at the time the fiscal 
intermediary or MAC makes the determination. However, it may not be 
possible for the fiscal intermediary or MAC to determine in advance 
precisely which of the rates will yield the highest aggregate payment 
by year's end. In many instances, it is not possible to forecast the 
outlier payments, the amount of the DSH adjustment or the IME 
adjustment, all of which are applicable only to payments based on the 
Federal rate and not to payments based on the hospital-specific rate. 
The fiscal intermediary or MAC makes a final adjustment at the 
settlement of the cost report after it determines precisely which of 
the payment rates would yield the highest aggregate payment to the 
hospital.
    If a hospital disagrees with the fiscal intermediary's or the MAC's 
determination regarding the final amount of program payment to which it 
is entitled, it has the right to appeal the determination in accordance 
with the procedures set forth in 42 CFR Part 405, Subpart R, which 
govern provider payment determinations and appeals.
2. Extension of the MDH Program
    Section 3124 of Public Law 111-148 extends the MDH program, from 
the end of FY 2011 (that is, for discharges before October 1, 2011) to 
the end of FY 2012 (that is, for discharges before October 1, 2012). 
Under prior law, as specified in section 5003(a) of Public Law 109-171 
(DRA of 2005), the MDH program was to be in effect through the end of 
FY 2011 only. Section 3124 (a) of Public Law 111-148 amends sections 
1886(d)(5)(G)(i) and (ii)(II) of the Act to extend the MDH program and 
payment methodology from the end of FY 2011 to the end of FY 2012, by 
``striking ``October 1, 2011'' and inserting ``October 1, 2012''.'' 
Section 3125(b) of Public Law 111-148 also makes conforming amendments 
to sections 1886(b)(3)(D)(i) and (iv) of the Act. Section 3124(b)(2) of 
Public Law 111-148 also amends section 13501(e)(2) of OBRA 1993 (42 
U.S.C. 1395ww note) to extend the provision permitting hospitals to 
decline reclassification as an MDH through FY 2012.

E. Additional Payments for Qualifying Hospitals With Lowest Per Capita 
Medicare Spending

1. Background
    Section 1109 of Public Law 111-152, provides for additional 
payments for FY 2011 and 2012 for ``qualifying hospitals.'' Section 
1109(d) defines a ``qualifying hospital'' as a ``subsection (d) 
hospital * * * that is located in a county that ranks, based upon its 
ranking in age, sex and race adjusted spending for benefits under parts 
A and B * * * per enrollee within the lowest quartile of such counties 
in the United States.'' Therefore, a ``qualifying hospital'' is one 
that meets the following conditions: (1) A ``subsection (d) hospital'' 
as defined in section 1886(d)(1)(B) of the Act; and (2) located in a 
county that ranks within the lowest quartile of counties based upon its 
spending for benefits under Medicare Part A and Part B per enrollee 
adjusted for age, sex, and race. Section 1109(b) of Public Law 111-152 
makes available $400 million to qualifying hospitals for FY 2011 and FY 
2012. Section 1109(c) of Public Law 111-152 requires the $400 million 
to be divided among each qualifying hospital in proportion to the ratio 
of the individual qualifying hospital's FY 2009 IPPS operating hospital 
payments to the sum of total FY 2009 IPPS operating hospital payments 
made to all qualifying hospitals.
2. Eligible Counties
    Section 1109 of Public Law 111-152 provides $400 million for FYs 
2011 and 2012 for supplemental payments to qualifying hospitals located 
in counties that rank within the lowest quartile of counties in the 
United States for spending for benefits under Medicare Part A and Part 
B. The provision requires that the Medicare Part A and Part B county-
level spending per enrollee to be adjusted by age, sex and race. We are 
proposing our methodology for determining the bottom quartile of 
counties with the lowest Medicare Part A and Part B spending adjusted 
by age, sex, and race and invite public comment on the methodology we 
propose to use to adjust for age, sex, and race described below. We 
further propose that we will determine this bottom quartile of counties 
one time in the FY 2011 IPPS/RY 2011 LTCH PPS final rule for the 
purpose of disbursing the $400 million as required by section 1109 of 
Public Law 111-152.
    We developed an adjustment model by age, sex, and race, as required 
under the provision. We then applied this adjustment to the county 
Medicare Part A and Part B spending data to account for the 
demographics of the Medicare beneficiaries in those counties. After 
those adjustments are applied, we determined the Medicare Part A and 
Part B spending by county per enrollee. Our proposed methodology to 
determine the Medicare Part A and Part B spending per enrollee by 
county adjusted for age, sex, and race is similar to how we calculate 
risk adjustment models for Medicare Advantage (MA) ratesetting. Risk 
adjustment for MA ratesetting is discussed in the annual announcement 
of calendar year MA capitation rates and MA and Part D payment 
policies. For more information on the methodology for risk adjustment 
used for MA ratesetting, we refer readers to the CMS Web site where we 
announce MA rates through our 45-day notice (http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2010.pdf).
a. Development of Risk Adjustment Model
    As required by section 1109(d) of Public Law 111-152, we are 
proposing a risk adjustment model that accounts for differentials in 
Medicare spending by age, sex, and race. Consistent with how we develop 
our risk adjustment models for MA ratesetting as described above, we 
developed a prospective risk adjustment model using 2006 data for 
beneficiary characteristics and 2007 data for Part A and Part B 
spending. However, unlike the risk adjustment mode used for MA which 
includes diseases and demographic factors, the only independent 
variables or prospective factors in the model for payments under 
section 1109 of Public Law 111-152 are age, sex and race, as required 
by the provision. The dependent variable was annualized Medicare Part A 
and B spending at the beneficiary level for 2007 as it is the most 
recent and complete data available. The categorization of age, sex, and 
race variables are described below.

[[Page 30927]]

    The age, sex, race (ASR) model(s) was estimated using the Five 
Percent Standard Analytic Denominator file, a standard 5-percent sample 
from the 2007 Denominator file which is also used to estimate CMS risk 
adjustment models for payment to MA organizations. We chose to use Five 
Percent Standard Analytic Denominator file from 2007 in order to 
optimize the amount of time after the timely claim submission deadlines 
and the latest available data; in other words because it is most 
complete data currently available. This file has the demographic and 
enrollment characteristics of all Medicare beneficiaries. The 
Denominator File is an abbreviated file of the Enrollment Data Base 
(EDB). The Denominator File contains data on all Medicare beneficiaries 
enrolled and/or entitled to be enrolled in Medicare in a given year 
while the EDB is the source of enrollment and entitlement information 
for all people who are or were ever entitled to Medicare. The model was 
estimated using all beneficiaries residing in the community and long-
term institutions. The sample had 1,603,998 beneficiaries.
    The Denominator File contains a sex variable where the 
beneficiaries can identify themselves as male or female. The file also 
contains an age variable which is defined as the beneficiary's age at 
the end of the prior year. Beneficiaries with an age greater than 98 
are coded as age 98. The race demographic variable in the Denominator 
File is populated by data from the Social Security Administration 
(SSA). The SSA's data for this race demographic variable are collected 
on form SS-5. Prior to 1980, the SS-5 form included 3 categories for 
race: White, Black or Other. Since that time, Form SS-5 instructed a 
beneficiary to voluntarily select one of the following 5 categories: 
(1) Asian, Asian-American or Pacific Islander; (2) Hispanic; (3) Black 
(Not Hispanic); (4) North American Indian or Alaskan Native; and (5) 
White (Not Hispanic). Form SS-5 is completed when an individual does 
the following: (1) Applies for a social security number; (2) requests a 
replacement of the social security card; or (3) requests changes to 
personal information on their record such as a name change. (Social 
Security Administration Web site instructions http://ssa.gov/online/ss-5.pdf). Each January, CMS obtains data from SSA to update the EDB for 
beneficiaries who were added during the previous calendar year as well 
as all living beneficiaries whose race is identified as ``Other'' or 
``Unknown.''
    Discussed in the context of the ESRD payment system in the ESRD 
proposed rule on September 29, 2009 (74 FR 49962), we noted concerns 
with using the EDB as a data source due to missing data, and that 
racial and ethnic categories are not well defined. However, we believe 
that the current EDB, particularly with respect to the more recent and 
ongoing updates we perform, remains a useful source of race and 
ethnicity data on 46 million Medicare beneficiaries. Additionally, 
because this is our only currently available data source on the racial 
and ethnic demographics of Medicare beneficiaries, we propose to use 
the EDB as our data source for beneficiary race so that we can fulfill 
the requirements of section 1109(d) of Public Law 111-152 to adjust 
county Medicare Part A and Part B spending by race.
    We used the MedPAR claims file as the source to determine Medicare 
inpatient spending. We used the National Claims History File to 
determine spending on DMEPOS and supplies. The other spending under 
Medicare Part A and Part B was determined using the Standard Analytic 
File. The Standard Analytic File and MedPAR claims file are subsets of 
the National Claims History File. These data files are also used in the 
MA ratesetting process and are our data source for Medicare spending 
stored at the beneficiary level.
    In order to determine annual spending (the dependent variable in 
the risk adjustment model), we annualized the Medicare Part A and Part 
B spending for beneficiaries with less than a full year of eligibility, 
and these amounts were weighted in the analysis by the fraction of the 
year they were in the data.
    We used a linear regression model to determine the demographic 
adjustments. This is consistent with how we model our risk adjustment 
for the MA rates. The linear regression used 24 age-sex regression 
categories, 12 age categories each for males and females. The age 
categories are as follows; 0-34, 35-44, 45-49, 50-54, 55-59, 60-64, 65-
69, 70-74, 75-79, 80-84, 85-89, and 90+. The age-sex coefficients 
displayed in the table below reflect the difference in Medicare Part A 
and Part B spending per enrollee in those age-sex categories relative 
to national average Part A and Part B spending based on our linear 
regression model.
    In addition, we used the same linear regression model to determine 
how to adjust Medicare Part A and Part B spending for race. In addition 
to the age-sex regression categories described above, we included 
variables to adjust for race. We considered two methods to adjust for 
race in county spending because of the way that the SS-5 form collects 
race information, which is then reported in the same format in the EDB. 
As discussed earlier, the EDB currently categorizes race by the 
following five categories, as reported by the Medicare beneficiary: (1) 
Asian, Asian-American or Pacific Islander; (2) Hispanic; (3) Black (Not 
Hispanic); (4) North American Indian or Alaskan Native; and (5) White 
(Not Hispanic). One method categorized race by White, Black, Hispanic, 
and Other (WBHO). The ``Other'' category includes Asian/Pacific 
Islander, American Indian/Alaska Native, and all others. The second 
method categorized race by White, Black, and Other (WBO), where 
beneficiaries who identified themselves as Hispanic were categorized as 
Other. The race/ethnicity categories are mutually exclusive; if a 
beneficiary identified themselves as Hispanic he or she was not further 
classified as another category, such as White or Black. In our 
regression modeling we used the largest group, White, as the reference 
group; the coefficients on the difference in spending by race, 
displayed in the table below, are additive to the reference group. In 
other words, the coefficients for each race category represent the 
difference in predicted Medicare Part A and Part B spending relative to 
our reference group. Where the coefficients are positive, this implies 
that the predicted spending for that category is higher than that of 
the reference group. Conversely, where the coefficients are negative, 
this implies that the predicted spending for that category is lower 
than that of the reference group.
    Below are two tables representing the coefficients used to adjust 
Medicare Part A and Part B spending by county. The first table shows 
the coefficients for each age and sex category. The second table shows 
the coefficients for race. These national coefficients are applied to 
each counties' relative demographic for age, sex and race, so that each 
county has a risk score by age, sex and race.

[[Page 30928]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Age categories (in years)
                             ---------------------------------------------------------------------------------------------------------------------------
             Sex                                                                                                                                Greater
                                0-34      35-44     45-54     55-59     60-64     65-69     70-74     75-79     80-84      85-89      90-94     than 95
--------------------------------------------------------------------------------------------------------------------------------------------------------
Female......................   0.67896   0.80089   0.96917   1.09810   1.18855   0.67358   0.83818   1.01599   1.189727   1.364575   1.475495   1.366515
Male........................   0.52664   0.70067   0.82262   0.93750   1.03792   0.71932   0.90896   1.11809   1.32812    1.50008    1.68184    1.77046
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                   Race                             Coefficient
------------------------------------------------------------------------
White....................................  Baseline.
Black....................................  0.17667.
Hispanic.................................  0.229.
Other....................................  -0.110.
------------------------------------------------------------------------

    We are proposing to adjust for race using the WBHO method where we 
separately account for cost differences associated with Hispanic 
beneficiaries. The Office of Management and Budget (OMB) has 
promulgated standards for the classification of Federal data on race 
and ethnicity. Under OMB's classification standards, the category of 
Hispanic is treated as an ethnic category as opposed to a race 
category. The current OMB Standards of 1997 require collection of 
specific demographic data using a total of five race categories, plus 
other (62 FR 58782 through 58790). The five race categories are--(1) 
American Indian or Alaska Native; (2) Asian; (3) Black or African 
American; (4) Native Hawaiian or Other Pacific Islander; and (5) White. 
In addition, OMB specified two separate ethnic categories--Hispanic or 
Latino, and not Hispanic or Latino. However, as explained above, 
Hispanic or Latino ethnicity is treated as a race category by EDB, and 
beneficiaries can self-identify as Hispanic among mutually exclusive 
racial categories. Despite the inconsistency in reporting by the OMB 
and the EDB, we propose to treat the category of Hispanic as a separate 
category for purposes of the race adjustment required by section 1109 
of Public Law 111-152. We found that the coefficient for the Hispanic 
category is statistically significant, suggesting that Medicare Part A 
and Part B spending associated with this category of beneficiaries is 
different from the spending for our reference group and that it should 
be a separate coefficient to adjust county spending. In addition, the 
EDB treats Hispanic as a separate racial classification, consistent 
with our WBHO method, therefore; we believe that our proposal 
appropriately interprets the required race adjustment. Therefore, we 
propose to adjust for race using the WBHO method.
    For purposes of this supplemental proposed rule, we also adjusted 
county spending using the WBO methodology to compare the two 
approaches. We found minimal difference in the county rankings under 
the two methodologies. We found that some counties would qualify as an 
eligible county only under the WBO methodology, and others would no 
longer qualify as an eligible county using this alternative. The 
decision to use the WBHO methodology affects whether 9 subsection (d) 
hospitals, located in 5 counties, would be eligible to receive a 
payment under section 1109. In Table 3, we publish the differences in 
counties, eligible hospitals, and payments by State under the two 
methodologies. This is the first time we have developed an adjustment 
for Medicare spending based on race, and we welcome public comment on 
our proposal to use the WBHO methodology to adjust for race as required 
by section 1109 of Public Law 111-152. We also welcome public comment 
on the WBO methodology to adjust for race though we note that we are 
not proposing this methodology at this time.
b. Calculation of County Level Part A and Part B Spending
    In order to rank counties by Medicare Part A and B spending, we 
first calculated Medicare Part A and Part B county level spending for 
each county in the 50 States and the District of Columbia using a 
similar methodology used to establish county level FFS rates for MA 
payments. Using a 5 year average of each county's actual spending (from 
2002 to 2006), CMS's Office of the Actuary calculated an average 
geographic adjuster (AGA), which reflects the county's expenditure 
relative to the national expenditure. We believe a 5-year average is 
appropriate, as it accounts for fluctuations in year-to-year 
expenditures, which could distort the counties' historic level of 
spending and is consistent with how MA rates are calculated. The AGA 
was then applied to the 2009 United States Per Capita Cost estimate 
(USPCC), which is the national average cost per Medicare beneficiary, 
to determine 2009 Medicare Part A and Part B spending for each county. 
We welcome public comment on this methodology to calculate county-level 
Part A and Part B spending.
3. Application of the Age/Sex/Race Adjustment to Part A and Part B 
County Spending
    To estimate the county level risk scores for 2009, beneficiary 
enrollment information was first extracted from the EDB. We chose to 
calculate Medicare Part A and Part B county spending for 2009 to be 
consistent with how we are required to determine qualifying hospitals' 
payment amounts, under section 1109(c) of Public Law 111-152. That is, 
section 1109(c) of Public Law 111-152 requires that qualifying 
hospitals located in the bottom quartile of counties with the lowest 
Medicare Part and Part B spending per enrollee will receive a portion 
of the allotted $400 million based on their FY 2009 operating payments. 
Therefore, we propose to calculate Medicare Part A and Part B County 
spending for 2009 as well. We only include beneficiaries enrolled in 
Medicare Part A and/or Part B, consistent with the language of section 
1109(d) of Public Law 111-152, which refers to spending under Part A 
and B. Based on these criteria, there were 30,666,295 beneficiaries 
included in the adjustment process. To determine the age, sex and race 
make-up of the Part A and/or Part B beneficiaries for each county, we 
used the EDB to identify date of birth, sex, race, and State/county of 
residence to create a person level file with the data needed to run the 
ASR model.
    A county level average risk score was developed for each county in 
the United States by applying the ASR model to each individual in the 
county enrolled in Medicare Part A and/or Part B, summing the resulting 
risk scores and dividing by the number of beneficiaries by county 
enrolled in Medicare Part A and/or Part B. The county level Medicare 
Part A and or Part B spending was adjusted by dividing the county level 
Medicare Part A and/or Part B spending by the county level average risk 
score. The resulting spending distribution was then sorted lowest to 
highest dollars the 786 counties in the lowest quartile of spending 
(that is, lowest adjusted spending per enrollee) were determined to be 
eligible counties under section 1109 of Public Law 111-152.
    We invite comment on our methodology for determining the age, sex, 
race adjustments for determining adjusted Medicare Part A and B 
spending by county for the purpose of determining eligible counties 
under section 1109 of Public Law 111-152.

[[Page 30929]]

3. Qualifying Hospitals and Annual Payment Amounts
    We have developed a methodology to identify the qualifying 
hospitals located in our list of eligible counties. Consistent with 
section 1109(d) of Public Law 111-152, a qualifying hospital is a 
``subsection (d) hospital'' (as defined for purposes of section 1886(d) 
of the Act) that is ``located in'' an eligible county (as identified 
using the methodology proposed in section B). A subsection (d) hospital 
is defined in section 1886(d)(1)(B) of the Act in part as a ``hospital 
located in one of the fifty States or the District of Columbia''. The 
term ``subsection (d) hospital'' does not include hospitals located in 
the territories or hospitals located in Puerto Rico. Section 
1886(d)(9)(A) of the Act separately defines a ``subsection (d) Puerto 
Rico hospital'' as a hospital that is located in Puerto Rico and that 
``would be a subsection (d) hospital * * * if it were located in one of 
the 50 States.'' Therefore, Puerto Rico hospitals are not eligible for 
these additional payments. Indian Health Services hospitals enrolled as 
a Medicare provider meet the definition of a subsection(d) hospital and 
can qualify to receive this payment if they are located in an eligible 
county. In addition, hospitals that are MDHs and sole community 
hospitals (SCHs), though they can be paid under a hospital-specific 
rate instead of under the Federal standardized amount under the IPPS, 
are ``subsection (d)'' hospitals. The statutory definition of a 
``subsection (d)'' hospital in section 1886(d)(1)(B) of the Act 
specifically excludes hospitals and hospital units excluded from the 
IPPS, such as psychiatric, rehabilitation, long term care, children's, 
and cancer hospitals. In addition, critical access hospitals (CAHs) are 
not considered qualifying hospitals because they do not meet the 
definition of a ``subsection (d) hospital'' as they are paid under 
section 1814(l) of the Act. CAHs are not paid under the IPPS; rather 
they are paid under a reasonable cost methodology, so they do not meet 
the definition of ``qualifying hospital'' under section 1109(d) of 
Public Law 111-152.
    For the purposes of section 1109 of Public Law 111-152, we are 
proposing to identify ``qualifying hospitals'' based on their Medicare 
Provider number or Centers for Medicare and Medicaid Services 
Certification Number (CCN), because this is also how hospitals identify 
themselves when they file their Medicare cost reports. We also propose 
that in order to meet the definition of a ``qualifying hospital'', the 
facility, as identified by the Medicare Provider Number or CCN, must: 
(1) Have existed as a subsection (d) hospital as of April 1, 2010; (2) 
be geographically located in an eligible county; and (3) have received 
IPPS operating payments (in accordance with section 1886(d)) of the Act 
under their Medicare provider number in FY 2009. We used the Online 
Survey, Certification and Reporting (OSCAR) database to determine a 
hospital's county location associated with that CCN provider number. 
County data in OSCAR is supplied by the U.S Postal Service and is cross 
walked to the address reported by the provider. Under this proposal, 
the address listed for a hospital's Medicare provider number must be 
currently located in a qualifying county in order for a hospital to 
meet the definition of ``qualifying hospital.''
    We have published a list of the qualifying IPPS hospitals that we 
have identified based on the factors described above in Table 3. We 
invite comment on our methodology for identifying qualifying hospitals. 
We also invite comment on whether our list is accurate and whether any 
providers are missing from this list using the methodology described 
above.
4. Payment Determination and Distribution
    As mentioned above, under section 1109(b), the total pool of 
payments available to qualifying hospitals for FY 2011 and FY 2012 is 
$400 million. The statute is not specific as to the timing of these 
payments. Since Congress has allocated a set amount--$400 million--for 
hospitals for FYs 2011 and 2012 under this provision, we believe it is 
consistent with the statute to spread these payments over the 2-year 
period. We are proposing to distribute $150 million for FY 2011 and 
$250 million for FY 2012. Because this is a new policy, we are 
proposing to distribute a smaller amount of money for the first year 
($150 million for FY 2011 and $250 million for FY 2012) so that the 
public will have an opportunity to review our proposal and finalized 
policy in the FY 2011 IPPS/LTCH PPS final rule, and notify us of any 
possible revisions to the list of qualifying hospitals, so that we can 
adjust payments for FY 2012. This will ensure that we correctly 
identify qualifying hospitals and their proper payment amounts without 
exceeding the program's funding. We invite public comment to give 
hospitals the opportunity to request that we make changes to the 
qualifying hospital list in order to ensure the accuracy of the 
qualifying hospital list based on the methodology set forth in the 
final rule. However, we are proposing to identify eligible counties, 
qualifying hospitals and their payment amounts under section 1109 of 
Public Law 111-152 only once. Because Congress has allocated a specific 
amount of money, we are proposing to identify eligible counties, 
qualifying hospitals and their payment amounts once in order to ensure 
we do not exceed the fixed amount of money and to ensure predictability 
of payments.
    We propose to distribute payments through the individual hospital's 
Medicare contractor through an annual one-time payment during each of 
FY 2011 and FY 2012. We believe that annual payments made by the FI or 
A/B MACs would be an expeditious way to give the qualifying hospitals 
the money allotted under section 1109 of Public Law 111-152. 
Alternatively, these payments could be distributed to qualifying 
hospitals at the time of cost report settlement for the qualifying 
providers' fiscal year end FY 2011 and FY 2012 cost reports. However, 
cost report settlement typically takes several years beyond a 
hospital's fiscal year end. If we distributed these additional payments 
at the time of cost report settlement, it may take several years until 
hospitals receive these additional payments. Therefore, we believe our 
proposal to give hospitals their section 1109 payments as annual 
payments during FY 2011 and FY 2012 presents the most expedient method 
to distribute these payments to hospitals, and is in the spirit of the 
intent of Congress. We welcome public comment on our proposal to 
distribute $150 million in FY 2011 and $250 million in FY 2012 through 
an annual payment in each of those years made to the qualifying 
providers through their FI or A/B MAC.
    We propose that qualifying hospitals report these additional 
payments on their Medicare hospital cost report corresponding to the 
appropriate cost reporting period that the hospitals have received the 
payments. On the Medicare Hospital Cost report, Form 2552 has an 
``other adjustment'' line on Worksheet E, Part A that can used by 
hospitals to report the payments received under section 1109 of Public 
Law 111-152. We plan to issue additional cost reporting instructions 
for qualifying hospitals to report these additional payments on a 
subscripted line of the ``other adjustment'' line to identify this 
payment. We note that we are requiring these payments be reported on 
the cost report for tracking purposes only; these additional payments 
will not be adjusted or settled by the FI or A/B MAC on the cost 
report.

[[Page 30930]]

5. Hospital Weighting Factors
    Section 1109(c) of Public Law 111-152 requires that the payment 
amount for a qualifying hospital shall be determined ``in proportion to 
the portion of the amount of the aggregate payments under section 
1886(d) of the Social Security Act to the hospital for fiscal year 2009 
bears to the sum of all such payments to all qualifying hospitals for 
such fiscal year.'' We are proposing that the portion of a hospital's 
payment under section 1109 is based on the proportion of their IPPS 
operating payments made in FY 2009 relative to the total IPPS operating 
payments made to all qualifying hospitals in FY 2009. These FY 2009 
IPPS operating payments made under section 1886(d) include DRG and wage 
adjusted payments made under the IPPS standardized amount with add-on 
payments for operating DSH, operating IME, operating outliers and new 
technology (collectively referred to in this proposed rule as the IPPS 
operating payment amount). We are proposing to include IME MA payments 
made to IPPS hospitals because these payments are made under section 
1886(d) of the Act. Under 42 CFR 412.105(g) of the regulations and as 
implemented in Transmittal A-98-21 (Change Request 332), hospitals that 
are paid under the IPPS and train residents in approved GME programs 
may submit claims associated with MA enrollees to the FI/MAC for the 
purpose of receiving an IME payment. No IPPS operating payment or other 
add-on payment is made for these MA enrollees. This is consistent with 
how the IPPS includes these IME MA payments when adjusting for budget 
neutrality of the IPPS standardized amounts.
    In addition, we are including in the FY 2009 IPPS operating payment 
amount beneficiary liabilities (coinsurance, copayments, and 
deductibles) because the payments made under section 1886(d) of the Act 
``are subject to the provisions of section 1813.'' That is, the payment 
received by the hospital includes the amount paid by Medicare, as well 
as the amount for which the beneficiary is responsible, as set forth in 
section 1813 of the Act. We propose to exclude IPPS capital payments 
because they are payments made under section 1886(g) of the Act. We 
also propose to exclude payments for organ acquisition costs because it 
is a payment made under section 1881(d) of the Act and we propose to 
exclude payments for blood clotting factor because they are payments 
made under section 1886(a)(4) of the Act.
    Consistent with our IPPS ratesetting process, we are proposing to 
use the FY 2009 MedPAR inpatient claims data to determine the FY 2009 
IPPS operating payments amount made to qualifying hospitals in order to 
set the ratio for determining a qualifying hospital's share of the $400 
million payment under section 1109 of Public Law 111-152. Though these 
claim payments may be later changed and adjusted at cost report 
settlement, this settlement generally occurs after FY 2011 and FY 2012. 
Furthermore, we believe that use of the FY 2009 MedPAR inpatient claims 
data is consistent with our proposal to make the payments under section 
1109 of Public Law 111-152 in two annual payments in FY 2011 and 2012 
instead of waiting for cost report settlement. Furthermore, we use 
MedPAR data in other areas of the IPPS, including calculating IPPS 
relative weights, budget neutrality factors, outlier thresholds and the 
standardized amount. The FY 2009 MedPAR data can be ordered to allow 
the public to verify qualifying hospitals' FY 2009 IPPS operating 
payments. Interested individuals may order these files through the Web 
site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR 
Limited Data Set (LDS)-Hospital (National). This Web page describes the 
file and provides directions and further detailed instructions for how 
to order.
    Persons placing an order must send the following: a Letter of 
Request, the LDS Data Use Agreement and Research Protocol (refer to the 
Web site for further instructions), the LDS Form, and a check for 
$3,655 to:

Mailing address if using the U.S. Postal Service: Centers for Medicare 
& Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, 
Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare & Medicaid 
Services, OFM/Division of Accounting--RDDC, Mailstop C3-07-11, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    For this proposed rule, we used the December 2009 update to the FY 
2009 MedPAR data (which is the latest available update to the file) to 
determine the proposed qualifying hospitals' IPPS operating payment 
amounts. For the FY 2011 IPPS/LTCH PPS final rule, we plan on using the 
March 2010 update to the FY 2009 MedPAR data to determine qualifying 
hospitals' IPPS operating payment amounts which will then be used to 
set the hospital weighting factors for FYs 2011 and 2012
    As discussed earlier in section II.E.3. of the preamble to this 
supplemental proposed rule, qualifying hospitals can include SCHs and 
MDHs as they meet the definition of subsection (d) hospitals. SCHs are 
paid in the interim (prior to cost report settlement) on a claim by 
claim basis at the amount that is the higher of the payment based on 
the hospital-specific rate or the IPPS Federal rate based on the 
standardized amount. At cost report settlement, the FI or A/B MAC 
determines if the hospital would receive higher IPPS payments in the 
aggregate using the hospitals specific rate (on all claims) or the 
Federal rate (on all claims). The FI or A/B MAC then assigns the 
hospital the higher payment amount (either the hospital specific rate 
for all claims or the Federal rate amount for all claims) for the cost 
reporting period. To determine the FY 2009 operating payment amount for 
SCHs that meet the definition of a qualifying hospital, we propose to 
use the IPPS operating payment made on the Medicare IPPS claim in the 
FY 2009 MedPAR rather than the SCH's final payment rate that is 
determined at cost report settlement. We believe this approach is 
consistent with the treatment of other qualifying hospitals under our 
proposal, and again allows for the timely distribution of funds in two 
annual payments, as discussed above. MDHs are paid the sum of the 
Federal payment amount plus 75 percent of the amount by which the 
hospital specific rate exceeds the Federal payment amount. This amount 
is considered their IPPS operating payment reported on their Medicare 
IPPS claim.
    In order to calculate payment amounts consistent with section 
1109(c) of Public Law 111-152, we propose to use a weighting factor for 
each qualifying hospital that is equal to the qualifying hospital's FY 
2009 IPPS operating payment amount (as described above) divided by the 
sum of FY 2009 IPPS operating payment amounts for all qualifying 
hospitals. We believe this methodology is consistent with the 
requirement of section 1109(c) of Public Law 111-152, because 
qualifying hospitals with a larger proportion of operating payments 
would have a proportionately higher weighting factor and would receive 
the proportionately larger share of the $400 million, while hospitals 
with a smaller proportion of operating payments would have 
proportionately smaller weighting factor and would receive 
proportionately smaller shares of the $400 million. We welcome public 
comment on our methodology to determine the amount of money distributed 
to qualifying hospitals consistent with the language

[[Page 30931]]

in section 1109(c) of Public Law 111-152.
6. Results
    In calculating county-level Medicare Part A and B spending, we have 
found that there are 3,144 counties in the United States. Therefore, 
there are 786 counties that rank in the lowest quartile of counties 
with regards to adjusted Medicare Part A and Part B spending per 
beneficiary. We have listed the 786 eligible counties in Table 2. Of 
those 786 eligible counties, there are only 276 counties in which 
qualifying hospitals are located, using the methodology we proposed in 
section II.E.3. of the preamble to this supplemental proposed rule. 
Using Medicare provider numbers, as proposed above in section II.E.3. 
of the preamble to this supplemental proposed rule, we have identified 
415 IPPS hospitals that are currently located in those eligible 
counties and received IPPS operating payments in FY 2009. We have 
listed the qualifying IPPS provider numbers, their counties and their 
weighting factors in Table 2. We invite public comment on our proposed 
methodology for adjusting spending for age, sex, and race as well as 
the alternative methodology discussed in section II.E.2.a. of the 
preamble to this supplemental proposed rule. For these two 
methodologies (WBHO and WBO), we list the number of eligible counties, 
the number of eligible counties in which a qualifying hospital is 
located, the payment amount, and the percentage of the total payment 
under section 1109 of Public Law 111-152 by State in Table 3.
    We invite public comment on the accuracy of the lists of eligible 
counties, qualifying hospitals and qualifying hospitals' payment 
weighting factors (based on the proposed methodologies described 
above).
7. Finalization of Eligible Counties, Qualifying Hospitals and 
Qualifying Hospitals' Weighting Factors
    Based on public comments, it is possible that we will finalize a 
methodology to determine the list of eligible counties and hospitals 
that differs from our current proposal. A change in our methodology 
could, in turn, result in changes to the list of eligible counties or 
qualifying hospitals. We note again that we are proposing to identify 
eligible counties, qualifying providers and their payments under 
section 1109 of Public Law 111-152 only once in the FY 2011 IPPS/LTCH 
PPS final rule. Based on this proposal, the methodology for determining 
a final list of eligible counties would produce the actual list of 
eligible counties that would be finalized in the FY 2011 IPPS final 
rule and would not be updated in a future fiscal year based on updated 
data.
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[[Page 30961]]


BILLING CODE 4120-01-C

F. Rural Community Hospital Demonstration Program

1. Background
    Section 410A(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, required the 
Secretary to establish a demonstration program to test the feasibility 
and advisability of establishing ``rural community hospitals'' to 
furnish covered inpatient hospital services to Medicare beneficiaries. 
The demonstration pays rural community hospitals for such services 
under cost based methodology for Medicare payment purposes for covered 
inpatient hospital services furnished to Medicare beneficiaries. A 
rural community hospital, as defined in section 410A(f)(1) of MMA, is a 
hospital that--
    <bullet> Is located in a rural area (as defined in section 
1886(d)(2)(D) of the Act) or is treated as being located in a rural 
area under section 1886(d)(8)(E) of the Act;
    <bullet> Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or rehabilitation unit) as reported in its most recent cost 
report;
    <bullet> Provides 24-hour emergency care services; and
    <bullet> Is not designated or eligible for designation as a CAH 
under section 1820 of the Act.
    Subsection 410A(a)(4) of the MMA, in conjunction with paragraphs 
(2) and (3) of subsection 410A(a), provided that the Secretary was to 
select for participation no more than 15 rural community hospitals in 
rural areas of States that the Secretary identified as having low 
population densities. Using 2002 data from the U.S Census Bureau, we 
identified the 10 States with the lowest population density in which 
rural community hospitals were to be located in order to participate in 
the demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New 
Mexico, North Dakota, South Dakota, Utah, and Wyoming. (Source: U.S. 
Census Bureau, Statistical Abstract of the United States: 2003).
    We originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost report years beginning 
on or after October 1, 2004. (Four of these 13 hospitals withdrew from 
the program and became CAHs). In a notice published in the Federal 
Register on February 6, 2008 (73 FR 6971), we announced a solicitation 
for up to 6 additional hospitals to participate in the demonstration 
program. Four additional hospitals were selected to participate under 
this solicitation. These four additional hospitals began under the 
demonstration payment methodology with the hospital's first cost 
reporting period starting on or after July 1, 2008. Three hospitals 
(two of the hospitals were among the thirteen hospitals that were 
original participants in the demonstration and one of the hospitals was 
among the four hospitals that began the demonstration in 2008) withdrew 
from the demonstration during CY 2009. (Two of these hospitals 
indicated that they will be paid more for Medicare inpatient services 
under the rebasing allowed under the SCH methodology allowed by the 
Medicare Improvement for Patients and Providers Act of 2008 (Pub. L. 
110-275). The other hospital restructured to become a CAH.) For 
purposes of the analyses that follow in section II.F.3 of the preamble, 
we make the assumption that there are 10 currently participating 
hospitals (8 hospitals that are actively participating since the 
initial demonstration period had not yet concluded for them at the time 
of the passage of Public Law 111-148 and 2 hospitals that concluded the 
demonstration in December 2009 upon the conclusion of their initial 
demonstration period). For the 2 hospitals that concluded the 
demonstration in December 2009, we assume that they will continue the 
demonstration under the 5-year extension provided by Affordable Care 
Act since they participated in their entire initial 5-year 
demonstration period, which we believe indicates that those hospitals 
favored the payment rate provided in the demonstration and will 
continue to avail themselves of such reimbursement.
    Section 410A(a)(5) of Public Law 108-173 required a 5-year 
demonstration period of participation. Prior to the enactment of Public 
Law 111-148, for the seven currently participating hospitals that began 
the demonstration during FY 2005 (``originally participating 
hospitals''), the demonstration was scheduled to end for each of these 
hospitals on the last day of its cost reporting period that ends in FY 
2010. The end of the participation for the three participating 
hospitals that began the demonstration in CY 2008 was scheduled to be 
September 30, 2010.
    In addition, section 410A(c)(2) of Public Law 108-173 requires 
that, ``[i]n conducting the demonstration program under this section, 
the Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have paid 
if the demonstration program under this section was not implemented.'' 
This requirement is commonly referred to as ``budget neutrality''.
    Generally, when we implement a demonstration program on a budget 
neutral basis, the demonstration program is budget neutral in its own 
terms; in other words, the aggregate payments to the participating 
hospitals do not exceed the amount that would be paid to those same 
hospitals in the absence of the demonstration program. Typically, this 
form of budget neutrality is viable when, by changing payments or 
aligning incentives to improve overall efficiency, or both, a 
demonstration program may reduce the use of some services or eliminate 
the need for others, resulting in reduced expenditures for the 
demonstration program's participants. These reduced expenditures offset 
increased payments elsewhere under the demonstration program, thus 
ensuring that the demonstration program as a whole is budget neutral or 
yields savings. However, the small scale of this demonstration program, 
in conjunction with the payment methodology, makes it extremely 
unlikely that this demonstration program could be viable under the 
usual form of budget neutrality. Specifically, cost-based payments to 
participating small rural hospitals are likely to increase Medicare 
outlays without producing any offsetting reduction in Medicare 
expenditures elsewhere. Therefore, a rural community hospital's 
participation in this demonstration program is unlikely to yield 
benefits to the participant if budget neutrality were to be implemented 
by reducing other payments for these same hospitals.
    In the past six IPPS final regulations, spanning the period for 
which the demonstration has been implemented, we have adjusted the 
national inpatient PPS rates by an amount sufficient to account for the 
added costs of this demonstration program, thus applying budget 
neutrality across the payment system as a whole rather than merely 
across the participants in this demonstration program. As we discussed 
in the FY 2005, FY 2006, FY 2007, FY 2008, FY 2009, and FY 2010 IPPS 
final rules (69 FR 49183; (70 FR 47462); (71 FR 48100); (72 FR 47392); 
(73 FR 48670); and (74 FR 43922)), we believe that the language of the 
statutory budget neutrality requirements permits the agency to 
implement the budget neutrality provision in this manner.
    In light of the statute's budget neutrality requirement, we 
proposed in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24012) a methodology to calculate a budget neutrality adjustment factor 
to the FY

[[Page 30962]]

2011 national IPPS rates. In the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule, the only amount that was identified to be offset for the 
FY 2011 IPPS/LTCH final rule was that by which the costs of the 
demonstration program, as indicated by settled cost reports beginning 
in FY 2007 for hospitals participating in the demonstration during FY 
2007, exceeded the amount that was identified in the FY IPPS 2007 final 
rule as the budget neutrality offset for FY 2007. No dollar amount was 
specified for purpose of this offset, because of a delay in the 
settlement process of FY 2007 cost reports. Due to the timing of the 
proposed rule in relation to the passage of Public Law 111-148, we were 
unable to include in the proposed budget neutrality adjustment factor 
to the FY 2011 national IPPS rates an offset that would accont for the 
estimated financial impact that the demonstration would have for 
certain time frames under the extension required by such Act.
    In this supplemental proposed rule, we propose that such an 
adjustment would incorporate the following 4 components: (1) The 
estimated costs that would be incurred in FY 2011 for the 10 currently 
participating hospitals as a result of the demonstration's continuation 
in FY 2011; (2) the estimated cost incurred in FY 2010 for the 7 
``originally participating hospitals'' that were not accounted for in 
the FY 2010 IPPS final rule but that now must be accounted for as a 
result of the demonstration being continued by the Affordable Care 
Act's 5-year extension for such hospitals; (3) the estimated FY 2011 
demonstration costs associated with the participation of up to 20 new 
hospitals; and (4) a factor by which the cost of the demonstration 
program in 2007, as indicated by settled cost reports beginning in FY 
2007, exceeded the amount that was identified in the FY IPPS 2007 final 
rule as the budget neutrality offset for FY 2007.
    2. Section 410A of the MMA as Amended by Section 3123 of the Public 
Law 111-148 and as Further Amended by Section 10313 of Public Law 111-
148.
    Section 410Aof the MMA as amended by section 3123 of Public Law 
111-148, and as further amended by section 10313 of Public Law 111-148, 
affects this demonstration in several ways. First, the Secretary is 
required to conduct the demonstration for an additional 5-year period 
that begins on the date immediately following the last day of the 
initial 5-year period under section 410A(a)(5) of the MMA as amended. 
(Section 410A(g)(1) of the MMA as added by section 3123(a) of Public 
Law 111-148 and as further amended by section 10313 of Public Law 111-
148). Further, the Affordable Care Act requires that in the case of a 
rural community hospital that is participating in the demonstration 
program as of the last day of the initial 5-year period, the Secretary 
shall provide for the continued participation of such rural hospital in 
the demonstration program during the 5-year extension unless the 
hospital makes an election, in such form and manner as the Secretary 
may specify, to discontinue such participation. (Section 410A(g)(4)(A) 
of MMA as added by section 3123(a) of Public Law 111-148 and as amended 
by section 10313 of Public Law 111-148). In addition, it provides that 
during the 5-year extension period, the Secretary shall expand the 
number of States with low population densities determined by the 
Secretary to 20. (Section 410A(g)(2) of MMA as added by section 3123(a) 
of Public Law 111-148 and as amended by section 10313 of Public Law 
111-148.) Further, the Secretary is required to use the same criteria 
and data that the Secretary used to determine the States under section 
410A(a)(2) of MMA for purposes of the initial 5-year period. It also 
allows not more than 30 rural community hospitals in such States to 
participate in the demonstration during the 5-year extension period. 
(Section 410A(g)(3) of MMA as added by section 3123(a) of Public Law 
111-148 and as amended by section 10313 of Public Law 111-148.) 
Additionally, it provides that the amount of payment under the 
demonstration program for covered inpatient hospital services furnished 
in a rural community hospital, other than services furnished in a 
psychiatric or rehabilitation unit of the hospital which is a distinct 
part, is the reasonable costs of providing such services for discharges 
occurring in the first cost reporting period beginning on or after the 
first day of the 5-year extension period. (Section 410A(g)(4)(b) of MMA 
as added by section 3123(a) of Public Law 111-148 and as amended by 
section 10313 of Public Law 111-148.) For discharges occurring in a 
subsequent cost reporting period paid under the demonstration, the 
formula in section 410A(b)(1)(B) of MMA as amended would apply. In 
addition, various other technical and conforming changes were made to 
section 410A of MMA, as amended by section 3123(a) of Public Law 111-
148 and as amended by section 10313 of Public Law 111-148.
3. Proposed FY 2011 Budget Neutrality Adjustment
    In order to ensure that the demonstration is budget neutral as is 
required by the statute, we are proposing to adjust the national IPPS 
rates in the FY 2011 IPPS final rule to account for any added costs 
attributable to the demonstration. Specifically, the proposed budget 
neutrality adjustment would account for: (1) The estimated costs of the 
demonstration in FY 2011 for the 10 currently participating hospitals; 
(2) the estimated FY 2010 costs of the demonstration that were not 
accounted for in the FY 2010 IPPS/RY 2010 LTCH PPS final rule for the 
seven ``originally participating hospitals'' because we estimated those 
hospitals' FY 2010 costs under the assumption that the demonstration 
would be concluding before the end of FY 2010 for those hospitals; (3) 
the estimated FY 2011 costs for up to 20 new hospitals selected to 
participate in the demonstration; and (4) the amount by which the costs 
of the demonstration program, as indicated by settled cost reports 
beginning in FY 2007 for hospitals participating in the demonstration 
during FY 2007, exceeded the amount that was identified in the FY 2007 
IPPS final rule as the budget neutrality offset for FY 2007.
a. Component of the Proposed FY 2011 Budget Neutrality Adjustment That 
Accounts for Estimated FY 2011 Costs of the Demonstration of the Ten 
Currently Participating Hospitals
    The component of the proposed FY 2011 budget neutrality adjustment 
to the national IPPS rates that accounts for the estimated cost of the 
demonstration in FY 2011 for the ten currently participating hospitals 
would be calculated by utilizing separate methodologies for the 7 
hospitals that have participated in the demonstration since its 
inception and that, as explained previously, we consider to be 
continuing to participate in the demonstration (``originally 
participating hospitals''), and the 3 hospitals that are currently 
participating in the demonstration that were among the 4 hospitals that 
joined the demonstration in 2008. Different methods are used because 
fiscal intermediaries' most recent final settlements of cost reports 
are for periods beginning in FY 2006 for the ``originally participating 
hospitals,'' whereas we are relying on available submitted 
documentation for the hospitals that began participation in the 
demonstration in 2008. Because the hospitals that began the 
demonstration in 2008 have no settled cost reports for

[[Page 30963]]

the demonstration, we are using as submitted cost documents. The budget 
neutrality analysis is based on the assumption that all 10 of these 
hospitals will continue the demonstration under the 5-year extension 
period provided by the Affordable Care Act. We believe that this 
assumption is warranted since they have participated in the initial 5 
year demonstration period so far, which we believe indicates that they 
will choose to continue to avail themselves of the levels of 
reimbursement under the demonstration.
    The estimate of the portion of the proposed budget neutrality 
adjustment that accounts for the estimated costs of the demonstration 
in FY 2011 for the 7 ``originally participating hospitals'' is based on 
data from their second year cost reports--that is, cost reporting 
periods beginning in FY 2006. We propose to use these cost reports 
because they are the most recent complete cost reports and thus we 
believe they enable us to estimate FY 2011 costs as accurately as 
possible. In addition, we estimate the cost of the demonstration in FY 
2011 for 2 of the 4 hospitals that joined the demonstration in 2008 
based on data from each of their cost reporting periods beginning 
January 1, 2008. Similarly, we propose to use these cost reports 
because they are the most recent cost reports and thus we believe they 
enable us to estimate FY 2011 costs for these 2 hospitals as accurately 
as possible. Since one of the 4 hospitals that began in 2008 has 
withdrawn, there is one hospital remaining among those that began in 
that year. The remaining hospital of the 4 that began in 2008 is an 
Indian Health Service provider. Historically, the hospital has not 
filed standard Medicare cost reports. In order to estimate its costs, 
we are proposing to use an analysis of Medicare inpatient costs and 
payments submitted by the hospital for the cost reporting period 
October 1, 2005 through September 30, 2006. We are proposing to use 
this data because it represents a detailed analysis of the hospital's 
cost-payment profile, and we expect that such an account will not 
change appreciably from year to year because it is a relatively small 
provider serving a limited population. When we add together the 
estimated costs of the demonstration in FY 2011 for the 7 ``originally 
participating hospitals'' that have participated in the demonstration 
since its inception and the 3 hospitals selected in 2008 that are still 
participating, the total estimated cost is $20,930,484. This estimated 
amount reflects the difference between these 10 participating 
hospitals' estimated costs in FY 2011 under the methodology set forth 
in Public Law 108-173 as amended by Public Law 111-148 and the 
estimated amount the hospitals would have been paid under the IPPS in 
FY 2011. With the exception of the Indian Health Service provider, the 
estimated costs under the demonstration are derived from data on the 
hospitals' cost reports. The cost reports state the dollar amount 
attributable to Medicare inpatient costs for the cost report year. They 
also state the dollar amount that would be paid if the inpatient 
prospective payment system were in effect. For each hospital, the 
difference between these two amounts is updated according to the market 
basket update factors for inpatient hospital costs reported by the CMS 
Office of the Actuary for the years between the cost report year and FY 
2011. In accordance with guidance from the Office of the Actuary, we 
also assume a 2 percent annual volume increase. In the FY 2011 final 
rule, we may revise this estimate if updated cost report data becomes 
available.
b. Portion of the Proposed FY 2011 Budget Neutrality Adjustment That 
Accounts for Estimated FY 2010 Costs of the Demonstration That Were Not 
Accounted for in the FY 2010 IPPS Final Rule for the Seven ``Originally 
Participating Hospitals''
    As explained above, subsection (g)(4)(A) of 410A of the MMA as 
added by section 3123(a) of Public Law 111-148 as amended by section 
10313 of Public Law 111-148, provided for the continued participation 
of rural community hospitals that were participating in the 
demonstration as of the last day of the initial 5-year [demonstration] 
period. One of the effects of this extension is that the seven 
``originally participating hospitals'' (those hospitals that have 
participated in the demonstration since its inception and that continue 
to participate in the demonstration or were participating in the 
demonstration as of the last day of its initial 5-year demonstration 
period (that, is the 2 rural community hospitals that concluded their 
period of performance in December 2009)) which were scheduled to end 
their participation in the demonstration before the conclusion of FY 
2010 would continue to participate for the remainder of FY 2010 and 
beyond as applicable. Section II.F.3. of the preamble, we are assuming 
for purposes of our budget neutrality analysis in section II. F.3.a. of 
the preamble that the seven ``originally participating hospitals'' are 
also currently participating hospitals. See for our explanation). 
However, we note that the portion of the FY 2010 budget neutrality 
adjustment to the national IPPS rates that was included in the FY 2010 
IPPS final rule that accounted for the estimated costs of the 
demonstration in FY 2010 did not take into account costs of the 
demonstration for those hospitals beyond the anticipated end date of 
their initial demonstration period. (For example, for a hospital whose 
cost report ended in June 30, 2010, we counted only nine months for the 
budget neutrality adjustment for the FY 2010 IPPS/LTCH PPS final rule. 
Under this proposal, we would also adjust the national IPPS rates to 
account for the estimated costs for this hospital for the remaining 
three months of FY 2010.) We are proposing to include a component in 
the FY 2011 budget neutrality adjustment to account for the estimated 
costs of the demonstration in FY 2010 that were not accounted for in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule for the seven ``originally 
participating hospitals'' because we calculated the FY 2010 cost 
estimate for that year's final rule assuming that the demonstration 
would end before the end of that fiscal year for those hospitals. We 
are proposing the following methodology to account for such estimated 
costs: Step one, for each of the seven ``originally participating 
hospitals,'' we divide the number of months that were not included in 
the estimate of the FY 2010 demonstration costs included in the final 
IPPS FY 2010 rule by 12. This step is necessary to determine for each 
of the seven ``originally participating hospitals'' the fraction of FY 
2010 for which the estimate of the FY 2010 demonstration was not 
included. Step two, for each of the seven ``originally participating 
hospitals,'' the percentage that results in step one is multiplied by 
the estimate of the cost attributable to the demonstration in FY 2010 
for the hospital. The estimate for the fraction of the hospital's cost 
for fiscal year 2010 not included in the estimate in the FY 2010 IPPS 
rule is arrived at by multiplying this fraction by the estimate of 
costs for the entire year. The estimate of the costs of the 
demonstration for FY 2010 for the seven ``originally participating'' 
hospitals is derived from data found in their cost reports for cost 
report years beginning in FY 2006. These cost reports show dollar 
amounts for costs for Medicare inpatient services (that is, the 
Medicare payment amount in that cost report year for Medicare inpatient 
services) and the dollar amount that would have been paid under the 
IPPS. Since these cost report years all ended during FY 2007, this

[[Page 30964]]

difference, respective to each of the seven ``originally participating 
hospitals'', is updated according to the market basket updates for 
inpatient hospital costs reported by the CMS Office of the Actuary for 
the years from FY 2008 through FY 2011. In accordance with guidance 
from the Office of the Actuary, we also assume an annual two percent 
volume increase. (This calculation is not necessary for the hospitals 
that began participating in the demonstration in 2008 because the 
portion of the FY 2010 budget neutrality adjustment that accounts for 
estimated FY 2010 demonstration costs in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule incorporates a cost estimate for each of these hospitals 
based on the entirety of the Federal fiscal year.) The estimate of 
additional costs attributable to the demonstration in FY 2010 for the 7 
``originally participating hospitals'' that were not accounted for in 
the FY 2010 final rule is $6,488,221. Similar to above, this estimate 
is based on the assumption that the seven ``originally participating 
hospitals'' will choose to continue participating in the demonstration 
past the end of their original 5-year demonstration periods. We believe 
that this assumption is valid, because they are participating in the 
demonstration to this date, or, for the case of the two hospitals that 
ended active participation in the demonstration program in December 
2009, they were participating as of the last day of their initial 5-
year period.
c. Portion of the Proposed FY 2011 Budget Neutrality Adjustment That 
Accounts for Estimated FY 2011 Costs for Hospitals Newly Selected To 
Participate in the Demonstration
    Section 410A(g)(3) of MMA, as added by section 3123 of Public Law 
111-148, and as amended by section 10313 of Public Law 111-148, 
provides that ``[n]otwithstanding subsection (a)(4), during the 5-year 
extension period, not more than 30 rural community hospitals may 
participate in the demonstration program under this section.'' 
Consequently, up to 20 additional hospitals may be added to the 
demonstration (30 hospitals minus the 10 currently participating 
hospitals). In order to ensure budget neutrality for 20 new 
participating hospitals, we are proposing to include a component in the 
budget neutrality adjustment factor to the FY 2011 national IPPS rates 
to account for the estimated FY 2011 costs of those new hospitals. For 
purposes of estimating the FY 2011 costs of the demonstration for 20 
new hospitals, we are proposing to estimate such costs from the average 
annual cost per hospital derived from the estimate of the 10 currently 
participating hospitals' costs attributable to the demonstration for FY 
2011. Because the statute allows the potential for 20 additional 
hospitals for the demonstration, we are basing this estimate on the 
assumption that 20 hospitals will join. Our experience analyzing the 
cost reports so far for demonstration hospitals shows a wide variation 
in costs among the hospitals. Given the wide variation in cost profiles 
that might occur for additional hospitals, we believe that estimating 
the total demonstration cost for FY 2011 for 20 additional hospitals 
from the average annual cost of the currently existing hospitals yields 
the most accurate prediction because it is reflective of the historical 
trend of participant behavior under the demonstration and should give 
an accurate as possible prediction of future participant behavior. We 
believe that, although there is variation in costs, formulating an 
estimate from the average costs of as many as 10 hospitals gives as 
good as possible a prediction of what the demonstration costs for each 
of 20 additional hospitals. We are estimating the average cost for each 
of the 20 additional hospitals not on a range of costs, but on an 
estimate of this average cost per hospital, obtained by dividing 
$20,930,484, the estimated cost amount for FY 2011 identified for the 
10 participating hospitals in subsection (a), by 10. The estimate for 
costs attributable to the demonstration for 20 additional hospitals in 
FY 2011 is $41,860,968.
d. Portion of the Proposed FY 2011 Budget Neutrality Adjustment That 
Offsets the Amount by Which the Costs of the Demonstration in FY 2007 
Exceeded the Amount That Was Identified in the Final FY 2007 IPPS Final 
Rule as the Budget Neutrality Offset for FY 2007
    In addition, in order to ensure that the demonstration in FY 2007 
was budget neutral, we are proposing to incorporate a component into 
the budget neutrality adjustment factor to the FY 2011 national IPPS 
rates, which would offset the amount by which the costs of the 
demonstration program as indicated by settled cost reports beginning in 
FY 2007 for hospitals participating in the demonstration during FY 2007 
exceeded the amount that was identified in the FY 2007 IPPS final rule 
as the budget neutrality offset for FY 2007. Specifically, we are 
proposing the following methodology:
    <bullet> Step One: Calculate the FY 2007 costs of the demonstration 
program according to the settled cost reports that began in FY 2007 for 
the then participating hospitals (which represent the third year of the 
demonstration for each of the then participating hospitals). (We 
propose to use these settled cost reports, which represent the third 
year of the demonstration for each of the then participating hospitals 
because they correspond most precisely to FY 2007 and we therefore 
believe correctly represent FY 2007 inpatient costs for the 
demonstration during that period).
    <bullet> Step Two: Subtract the amount that was offset by the 
budget neutrality adjustment for FY 2007 ($9,197,870) from the costs of 
the demonstration in FY 2007 as calculated in step one; and
    <bullet> Step Three: The result of step two is a dollar amount, for 
which we would calculate a factor that would offset such amounts and 
would be incorporated into the proposed overall budget neutrality 
adjustment to national IPPS rates for FY 2011. This specific component 
to the overall budget neutrality adjustment for FY 2011 would account 
for the difference between the costs of the demonstration in FY 2007 
and the amount of the budget neutrality adjustment published in the FY 
2007 IPPS final rule and therefore ensures that the demonstration is 
budget neutral for FY 2007.
    Because the settlement process for the demonstration hospitals' 
third year cost reports, that is, cost reporting periods starting in FY 
2007, has experienced a delay, for this FY 2011 IPPS proposed rule, we 
are unable to state the costs of the demonstration corresponding to FY 
2007 and as a result are unable to propose the specific numeric 
adjustment representing this offsetting process that would be applied 
to the national IPPS rates. However, we expect the cost reports 
beginning in FY 2007 for hospitals that participated during FY 2007 to 
be settled before the FY 2011 IPPS/LTCH final rule is published. 
Therefore, for the FY 2011 IPPS/LTCH PPS final rule, we expect to be 
able to calculate the amount by which the costs corresponding to FY 
2007 exceeded the amount offset by the budget neutrality adjustment for 
FY 2007. Consequently, by adding this proposed amount to the above 
proposed amounts estimated in subsections (a) through (c) of section 
II.F.3.a. of the preamble, we arrive at a proposed amount, from which 
we would be able to calculate the proposed budget neutrality factor 
which we would use to adjust the FY 2011 national IPPS rates in the FY 
2011 IPPS/LTCH PPS final rule.
    For this supplemental proposed FY 2011/LTCH PPS rule, the estimated 
amount for the adjustment to the national IPPS rates is the sum of the 
amounts specified in subsections (a)

[[Page 30965]]

through (c) above or $69,279,673 and the amount resulting from the 
proposed method in subsection (d) that we expect to be calculated in 
the FY 2011 IPPS/LTCHPPS final rule. Subsections (a) through (c) state 
dollar amounts, which represent estimated costs attributable to the 
demonstration for the respective component of the overall estimated 
calculation of the budget neutrality factor for FY 2011. This estimated 
amount is based on the specific assumptions identified, as well as from 
data sources that are used because they represent either the most 
recently finalized or, if as submitted, the most recent available cost 
reports. The overall budget neutrality change in the final FY 2011 
IPPS/LTCH PPS rule, if any of these factors were to change.

G. Proposed Changes to Payment Rates for IPPS for Capital-Related Costs 
for FY 2011

    Although the provisions of Public Law 111-148, do not directly 
affect the payment rates and policies for the IPPS for capital-related 
costs, in section II. of the Addendum of this supplemental proposed 
rule we are proposing the capital IPPS standard Federal rates for FY 
2011. This is necessary because the wage index changes required by the 
provisions of Public Law 111-148 (discussed above in section II.A. of 
this preamble) affect the proposed budget neutrality adjustment factor 
for changes in DRG classifications and weights and the geographic 
adjustment factor (GAF) since the GAF values are derived from the wage 
index values (see Sec.  412.316(a)). In addition, the provisions of 
Public Law 111-148, (discussed above in this preamble) also necessitate 
a revision to the proposed outlier payment adjustment factor since a 
single set of thresholds is used to identify outlier cases for both 
inpatient operating and inpatient capital-related payments (see Sec.  
412.312(c)). The outlier thresholds are set so that operating outlier 
payments are projected to be 5.1 percent of total operating IPPS DRG 
payments. Section 412.308(c)(2) provides that the standard Federal rate 
for inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of capital-related outlier payments 
to total inpatient capital-related PPS payments. The proposed capital 
IPPS standard Federal rates for FY 2011 are discussed in section II. of 
the Addendum of this supplemental proposed rule.

H. Payment for Critical Access Hospital Outpatient Services and 
Ambulance Services

    Section 1834(g) of the Act establishes the payment rules for 
outpatient services furnished by a critical access hospital (CAH). 
Section 403(d) of Public Law 106-113 (BBRA) amended section 1834(g) of 
the Act to provide for two methods of payment for outpatient services 
furnished by a CAH. Specifically, section 1834(g)(1) of the Act, as 
amended by Public Law 106-113, provided that the amount of payment for 
outpatient services furnished by a CAH is equal to the reasonable costs 
of the CAH in providing such services (the physician or other 
practitioner providing the professional service receives payment under 
the Medicare Physician Fee Schedule). In the alternative, the CAH may 
make an election, under section 1834(g)(2) of the Act, to receive 
amounts that are equal to ``the reasonable costs'' of the CAH for 
facility services plus, with respect to the professional services, the 
amount otherwise paid for professional services under Medicare, less 
the applicable Medicare deductible and coinsurance amount. The election 
made under section 1834(g)(2) of the Act is sometimes referred to as 
``method II'' or ``the optional method.'' Throughout this section of 
this preamble, we refer to this election as ``the optional method.'' 
Section 202 of Public Law 106-554 (BIPA) amended section 1834(g)(2)(B) 
of the Act to increase the payment for professional services under the 
optional method to 115 percent of the amount otherwise paid for 
professional services under Medicare. In addition, section 405(a)(1) of 
Public Law 108-173 (MMA) amended section 1834(g)(l) of the Act by 
inserting the phrase ``equal to 101 percent of'' before the phrase 
``the reasonable costs.'' However, the MMA did not make a corresponding 
change to section 1834(g)(2)(A) of the Act regarding the amount of 
payment for facility services under the optional method.
    Section 1834(l)(8), as added by section 205 of Public Law 106-554, 
establishes the payment methodology for ambulance services furnished by 
a CAH or by an entity that is owned and operated by a CAH. This 
provision states that payment is made at ``the reasonable costs 
incurred in furnishing ambulance services if such services are 
furnished by a critical access hospital (as defined in section 
1861(mm)(1) of the Act), or by an entity that is owned and operated by 
a critical access hospital, but only if the critical access hospital or 
entity is the only provider or supplier of ambulance services that is 
located within a 35-mile drive of such critical access hospital.''
    Section 3128(a) of Public Law 111-148 amended sections 
1834(g)(2)(A) and 1834(l)(8) of the Act by inserting ``101 percent of'' 
before ``the reasonable costs.'' As such, section 3128(a) increases 
payment for outpatient facility services under the optional method and 
payment for ambulance services furnished by a CAH or an entity owned 
and operated by a CAH, to 101 percent of reasonable costs. Section 
3128(b) states that the amendments made under section 3128(a) shall 
take effect as if they were included in the enactment of section 405(a) 
of Public Law 108-173. Section 405(a) of Public Law 108-173, which 
provided that, in general, inpatient, outpatient, and covered SNF 
services provided by a CAH would be reimbursed at 101 percent of 
reasonable cost, was applicable to payments for services furnished 
during cost reporting periods beginning on or after January 1, 2004.
    In order to implement section 3128 of Public Law 111-148, we are 
proposing to amend the regulations at Sec.  413.70(b)(3)(ii)(A) to 
state that, effective for cost reporting periods beginning on or after 
January 1, 2004, under the optional method, payment for facility 
services will be made at 101 percent of reasonable cost. Accordingly, 
regardless of whether a physician/practitioner has reassigned his/her 
billing rights to the CAH, payment for CAH facility services will be 
made at 101 percent of reasonable costs. In addition, we are proposing 
to implement the change in payment for ambulance services provided by 
section 3128 of Public Law 111-148 by amending the regulations at Sec.  
413.70(b)(5)(i) to state that effective for cost reporting periods 
beginning on or after January 1, 2004, payment for ambulance services 
furnished by a CAH or an entity that is owned and operated by a CAH is 
101 percent of the reasonable costs of the CAH or the entity in 
furnishing those services, but only if the CAH or the entity is the 
only provider or supplier of ambulance services located within a 35-
mile drive of the CAH or the entity. We note that we do not believe 
these proposals will result in additional payments to CAHs for prior 
periods because we believe in fact that CMS has paid CAHs for these 
services at 101 percent of reasonable costs during these prior periods.

I. Extension of Certain Payment Rules for Long-Term Care Hospital 
Services and Moratorium on the Establishment of Certain Hospitals and 
Facilities

1. Background
    On December 29, 2007 the Medicare, Medicaid, and SCHIP Extension 
Act of 2007 (MMSEA) (Pub. L. 110-173) was enacted. Section 114 of 
MMSEA,

[[Page 30966]]

entitled ``Long-term care hospitals,'' made a number of changes 
affecting payments to LTCHs for inpatient services. In May 6, 2008 and 
May 22, 2008 Federal Register (73 FR 24871 and 73 FR 29699, 
respectively), we issued two interim final rules (IFCs), implementing 
provisions of section 114 of the MMSEA. The May 6, 2008 IFC implemented 
section 114(c)(3) of the MMSEA which required a 3-year delay in the 
application of certain provisions of the payment adjustment for short-
stay outliers (SSOs), and section 114(e)(4)(1) and (2) which specified 
revisions to the RY 2008 standard Federal rate for LTCHs. The May 22, 
2008 IFC implemented section 114(c)(1) and (c)(2), providing for a 3-
year delay in the application of the 25 percent threshold payment 
adjustment for discharges from LTCHs and LTCH satellite facilities that 
were admitted from certain referring hospitals in excess of various 
percentage thresholds. The May 22, 2008 IFC also implemented section 
114(d) of the MMSEA relating to the 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.
    In addition, we revised regulations at Sec.  412.523(d)(3) 
implementing section 114(c)(4) of MMSEA. Our regulations provided 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 earlier than December 29, 2010 and later than December 29, 2012 
(73 FR 26804). Section 4302 of the American Recovery and Reinvestment 
Act of 2009 (ARRA) ( Pub. L. 111-5) enacted on February 17, 2009, 
included several amendments to section 114(c) and (d) of the MMSEA. The 
provisions of section 4302 of the ARRA were implemented in an IFC which 
was published with the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43990 through 43994). In that same final rule, we responded to comments 
and finalized the MMSEA provisions in the May 6, 2008 and the May 22, 
2008 IFCs that had not otherwise modified by the ARRA. We intend to 
finalize the ARRA provisions and respond to comments on the ARRA IFC, 
in the FY 2011 IPPS/LTCH PPS final rule.
    The discussion in section XX pertain to the specific changes to the 
LTCH PPS policies that are mandated by amendments to section 114(c) and 
(d) of the MMSEA, as amended by section 4302 of the ARRA and further 
amended by section 3106 of Public Law 111-148 as amended by section 
10312 of Public Law 111-148.
    Section 114(c) and (d) of the MMSEA as amended by section 4302 of 
ARRA as amended by section 3106 of the Public Law 111-148 and as 
further amended by section 10312 of Public Law 111-148 provides for a 
2-year extension to payment policies relating to long-term care 
hospitals (LTCHs) and LTCH satellite facilities. Specifically, these 
provisions affect payment adjustments for short stay outliers (SSOs), 
the one-time prospective adjustment to the standard Federal rate, the 
25 percent payment threshold policy, and the moratorium on the 
establishment of new LTCHs and LTCH satellite facilities. In this 
supplementary proposed rule for the LTCH PPS, we are implementing the 
policies mandated by the amendments to section 114(c) and (d) of the 
MMSEA as amended by section 4302 of the ARRA and as further amended by 
section 3106 of Public Law 111-148, and section 10312 of Public Law 
111-148, and are proposing to revise the regulations accordingly to 
incorporate those changes. In the sections below, we will briefly 
describe each of these policies and propose to incorporate into the 
regulations their 2-year extension.
2. Short-Stay Outlier Policy
    In the FY 2003 LTCH PPS final rule (67 FR 55995), we established a 
special payment policy for SSO cases at Sec.  412.529. SSO cases are 
cases with a covered LOS that is less than or equal to five-sixths of 
the geometric average LOS for each LTC-DRG. When we established the SSO 
policy, we explained that ``[a] short stay outlier case may occur when 
a beneficiary receives less than the full course of treatment at the 
LTCH before being discharged'' (67 FR 55995).
    We later refined the SSO policy in the RY 2008 LTCH PPS final rule. 
Specifically, the RY 2008 LTCH PPS final rule added an additional 
payment methodology at Sec.  412.529(c)(3)(i) for a SSO case with a 
covered length of stay (LOS) that is less than or equal to one standard 
deviation from the geometric ALOS of the same DRG under the IPPS as the 
LTC-DRG to which the case had been assigned (referred to as the ``IPPS 
comparable threshold''). The Medicare payment for that SSO case where 
the covered LOS is less than or equal to the ``IPPS comparable 
threshold'' would be based on the least of the following:
    <bullet> 100 percent of the estimated cost of the case.
    <bullet> 120 percent of the LTC-DRG specific per diem amount 
multiplied by the covered LOS of the particular case.
    <bullet> The full LTC-DRG.
    ++ An amount comparable to the hospital IPPS per diem amount 
determined under Sec.  412.529(d)(4). Under that SSO payment formula, 
cases where the covered LOS is greater than the ``IPPS comparable 
threshold,'' the fourth payment option would be replaced with the blend 
of the 120 percent of the LTC-DRG specific per diem amount and an 
amount comparable to the IPPS per diem amount determined under Sec.  
412.529(d)(4). (See (72 FR 26905 through 26918).)
    Section 114(c)(3) of MMSEA established a 3-year delay of the 
application of the methodology at Sec.  412.529(c)(3)(i) that was added 
in the RY 2008 LTCH PPS final rule. It specified that the Secretary 
shall not apply the amendments finalized on May 11, 2007 (72 FR 26992) 
made to the short-stay outlier payment provision for long-term care 
hospitals contained in Sec.  412.529(c)(3)(i) or any similar provisions 
for the 3-year period beginning on the date of enactment of this Act 
[December 29, 2007]. Section 114(c)((3) of the MMSEA as amended by 
section 3106(a) of the Public Law 111-148, and as amended by section 
10312(a) of Public Law 111-148, adds an additional 2 years to the 3-
year delay of the application of Sec.  412.529(c)(3)(i). Specifically, 
these provisions together result in the phrase ``3-year period'' being 
replaced with the phrase ``5-year period'' each place it appears in 
114(c) of MMSEA as amended by the ARRA. Thus, the reference to the 3-
year period in delay of application of Sec.  412.529(c)(3)(i) is 
changed to be 5-year period of delay. Consequently, the Secretary will 
not apply for the 5-year period beginning on the date of enactment of 
MMSEA (December 29, 2007) the policy at Sec.  412.529(c)(3)(i). We note 
that this provision of the law is self-implementing and in this 
supplementary proposed rule, we are proposing to incorporate existing 
law regarding the additional 2 year delay into the regulations at Sec.  
412.529(c)(3)(i) to reflect this policy change.
3. The One-time Adjustment of the Standard Federal Rate
    In the August 30, 2002 LTCH PPS final rule (67 FR 56027), we 
provided in Sec.  412.523(d)(3) of the regulations, for the possibility 
of making a one-time prospective adjustment to the LTCH PPS rates by 
July 1, 2008, so that the effect of any significant difference between 
actual payments and estimated payments for the first year of the LTCH 
PPS would not be perpetuated in the LTCH PPS rates for future years.
    Later, section 114(c)(4) of MMSEA was enacted which provided a 3-
year delay in the application of

[[Page 30967]]

Sec.  412.523(d)(3). Specifically, section 114(c)(4) of MMSEA provides 
that the ''Secretary shall not, for the 3-year period beginning on the 
date of the enactment of this Act, make the one time prospective 
adjustment to long-term care hospital prospective payment rates 
provided for in section 412.523(d)(3) of title 42, Code of Federal 
Regulations, or any similar provision.'' The effect of this provision 
was that no one-time budget neutrality adjustment could be made earlier 
than December 29, 2010. (Following the enactment of MMSEA, we modified 
the regulations at Sec.  412.523(d)(3) to capture the 3-year delay 
required by section 114(c)(4)MMSEA and our proposal to conform our 
regulation to more accurately reflect the purpose of providing for a 
possible one-time budget neutrality adjustment.) (See 73 FR 26800 
through 26805). Now, section 3106(a) of Public Law 111-148, together 
with section 10312 of Public Law 111-148 results in, an additional 2 
years being added to the existing 3-year delay of Sec.  412.523(d)(3). 
Specifically, these amendments together result in the phrase ``3-year 
period'' being replaced with the phrase ``5-year period'' each place it 
appears in 114(c) of MMSEA as amended by the ARRA. Thus, the reference 
to the 3-year period in delay of application Sec.  412.523(d)(3) is 
changed to be a 5-year period of delay. Consequently, the Secretary 
shall not apply for the 5-year period beginning on the date of the 
enactment of MMSEA (December 29, 2007) the one-time prospective 
adjustment provided for in Sec.  412.523(d)(3). We note that this 
provision of the law is self-implementing and we are proposing to 
incorporate existing law regarding this additional 2-year delay of the 
one-time budget neutrality adjustment into the regulations at Sec.  
412.523(d)(3) to reflect this policy. Thus, we are proposing to revise 
Sec.  412.523(d)(3) to specify that the Secretary is precluded from 
making the one-time adjustment until December 29, 2012.
4. Modification of Certain Payment Adjustments to Certain LTCHs and 
LTCH Satellite Discharges
    The timeframes outlined in section 114(c)(1) and (2) of MMSEA are 
amended by ARRA and section 3106(a) of Public Law 111-148, and as 
further amended by section 10312(a) of Public Law 111-148 are increased 
from 3 years to 5 years, thereby extending for an additional 2 years 
the delay in application of the 25 percent patient threshold amount 
under Sec.  412.534 and Sec.  412.536 for certain LTCHS and LTCH 
satellite facilities and the increases in the patient thresholds 
outlined in section 114(c)(2) of MMSEA as they apply to an 
``applicable'' long-term care hospital or satellite facility as set 
forth in section 114(c)(2)(A) and (B) of MMSEA as amended. 
Specifically, Sec.  3106(a) of Public Law 111-148 together with section 
10312 of Public Law 111-148, results in the substituting of the phrase 
``5-year period'' for the phrase ``3-year period'' each time it appears 
in section 114(c) of MMSEA as amended by ARRA. This provision of the 
law is self-implementing.
    With respect to section 114(c)(1) of MMSEA as amended by ARRA 
(Delay in Application of [the] 25 Percent Patient Threshold Payment 
Adjustment), section 3106(a) of the Public Law 111-148 and as further 
amended by section 10312(a) of Public Law 111-148 results in an 
additional 2-year delay being added to the existing 3-year delay in 
application of the 25 percent threshold amount under Sec.  412.534 and 
Sec.  412.536. Specifically, under Sec.  114(c)(1)(A) and (B) of MMSEA 
as amended by the ARRA and the Affordable Care Act, the Secretary shall 
not apply, for cost reporting periods beginning on or after July 1, 
2007 for a 5-year period--(A) Sec.  412.536 of title 42, Code of 
Federal Regulations, or any similar provision, to free standing long-
term care hospitals or to a long-term care hospital, or satellite 
facility, that as of December 29, 2007, was co-located with an entity 
that is a provider-based, off-campus location of a subsection (d) 
hospital which did not provide services payable under section 1886(d) 
of the Act at the off-campus location; and (B) 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 BBA. In order to incorporate existing 
law requiring that application of the above provisions will not be 
applied prior to cost reporting periods beginning on July 1, 2012, we 
are proposing to modify our regulations at Sec.  412.534(h)(4) and 
Sec.  412.536(a)(1).
    With respect to section 114(c)(2) of MMSEA as amended by ARRA and 
section 3106(a) of Public Law 111-148 and as amended by section 10312 
of Public Law 111-148 the effective date provided in section 
114(c)(2)(C) of MMSEA is amended such that the provision specifies that 
subparagraphs A and B [of section 114(c)(2)] shall apply to cost 
reporting periods beginning on or after October 1, 2007 (or July 1, 
2007, in the case of a satellite facility described in Sec.  
412.22(h)(3)(i) of title 42, Code of Federal Regulations) for a 5-year 
period.) The effect of this self-implementing effective date change is 
that under section 114(c)(2)(A) of MMSEA the time period during which 
the increased percentage thresholds apply to an ``applicable long-term 
care hospital or satellite facility'' which is located in a rural area 
or which is co-located with an urban single or MSA-dominant hospital, 
under 42 CFR 412.534(d) and (e) is increased from a 3-year period to a 
5-year period. Thus, for the 5-year period beginning on or after 
October 1, 2007, payment to an ``applicable LTCH hospital or LTCH 
satellite that is located in a rural area or is co-located with a MSA-
dominant hospital or urban single hospital under paragraphs (d) and 
(e), of 42 CFR 412.534, shall not be 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 paragraph 
(d)(2) or (e)(3) of such section are admitted from a co-located 
hospital. We are proposing to incorporate into our regulations at 
412.534(d)(1) through (d)(3) and (e)(1) through (e)(3); the above-
described self-implementing the Affordable Care Act changes by 
extending the sunsetting of the threshold percentage increase an 
additional 2 years, to cost reporting periods beginning on or after 
October 1, 2012, as applicable, July 1, 2007 for a satellite facility 
described in 42 CFR 412.22(h)(3)(i).)
    In addition, the change in the effective date change required in 
section 114(c)(2)(C) of MMSEA, as amended by ARRA and the Affordable 
Care Act, is that the time period during which the increased percentage 
threshold applicable to an ``applicable'' LTCH or satellite, as defined 
in section 114(c)(2)(ii) of the MMSEA as amended by section 
4302(a)(2)(A) of the ARRA, which is co-located with another hospital is 
increased from a 3-year period to a 5-year period. Thus, for the 5-year 
period beginning on or after October 1, 2007, payment to an 
``applicable'' LTCH or LTCH satellite facility that 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 (other than discharges described in paragraph (c)(3) of such 
section) are admitted from a co-located hospital. We are proposing to 
incorporate this self-implementing Affordable Care Act change into our 
regulations at Sec.  412.534(c)(1), (2) and (3) by extending the 
sunsetting of the threshold percentage increase an additional 2 years, 
to cost reporting periods beginning on or after October 1, 2012 or July 
1, 2012, as applicable.

[[Page 30968]]

5. Moratorium on the Increase in Number of Beds in Existing Long-Term 
Care Hospitals or Long-Term Care Hospital Satellite Facilities
    Section 114(d) of MMSEA provides for a 3-year moratorium with two 
distinct aspects, one for the establishment and classification of a 
LTCH or a LTCH satellite facility, other than an existing LTCH or 
facility, 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, during the 3-year period beginning on the date 
of enactment of this Act on December 29, 2007, 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 unamended, provides that, during the 3-year 
period beginning of the date of enactment of this Act, 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) of MMSEA unamended provides for exceptions to 
the moratorium on the development of a LTCH or LTCH satellite facility, 
other than an existing LTCH or LTCH satellite facility, imposed by 
section 114(d)(1)(A) of MMSEA. (The definition of an existing LTCH and 
satellite facility for purposes of this policy is codified at Sec.  
412.23(e)(7)(i).) Specifically, under this MMSEA provision, the 
moratorium, is effective from December 29, 2007 through December 28, 
2010 unless one of the following three exceptions has been met:
    <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.'' 
(See section 114(d)(2)(A) of MMSEA).
    <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. (See section 114(d)(2)(B) of MMSEA).
    <bullet> The LTCH has obtained an approved certificate of need in a 
State where one is required on or before December 29, 2007 (see section 
114(d)(2)(C) of MMSEA). (See 73 FR 29705 through 29707 and 74 FR 
43985).
    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 unamended stated 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.'' 
We implemented section 114(d) in the May 22, 2008 IFC (73 FR 29704 
through 29707); the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43985 through 43990) and Sec.  412.23(e)(5) through (e)(7).
    Section 4302 of the ARRA added another exception to the moratorium 
on increases in the number of beds at existing LTCHs and LTCH satellite 
facilities. Specifically, section 4302(b) of the ARRA, added an 
additional exception to the bed-increase moratorium in an existing 
hospital or satellite facility ``* * * if the hospital or facility 
obtained a certificate of need for an increase in beds that is in a 
State for which such certificate of need is required and that was 
issued on or after April 1, 2005, and before December 29, 2007, * * 
*.'' Accordingly, we revised our regulations at Sec.  412.23(e)(7)(B) 
to include this new exception to the moratorium on an increase in the 
number of beds in existence in an existing LTCH or LTCH satellite 
facility beyond those in existence on December 29, 2007. (See 74 FR 
43991 and 43992)
    Section 114(d) of MMSEA as amended by section 4302(b) of ARRA and 
section 3106(b) of Public Law 111-148 and section 10312(b) of Public 
Law 111-148 adds an additional 2 years to the 3-year moratorium on the 
development of new LTCHs and LTCH satellite facilities and on the 
increase in the number of beds in existing LTCHs and LTCH satellites 
promulgated by MMSEA. Specifically, it raises the length of the 
moratorium specified in section 114(d) of MMSEA as amended by ARRA from 
a 3-year period to a 5-year period. Therefore, the moratorium will be 
in effect until December 28, 2012. In this supplementary proposed rule, 
we are proposing to revise Sec.  412.23(e)(6)(i) and (e)(7)(ii) by 
changing the ending date of the moratorium provisions from December 28, 
2010 to December 28, 2012 to reflect these self-implementing Affordable 
Care Act changes.

J. Long-Term Care Hospital Proposed Market Basket Update and Other 
Proposed Changes

1. Background
    In section VII. of the preamble of the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule, we discuss our proposed changes to the payment 
rates, factors, and specific policies under the LTCH PPS for FY 2011. 
Although a number of the provisions of Public Law 111-148 and Public 
Law 111-152 affect the LTCH PPS, due to the timing of the passage of 
the legislation, we were unable to address those provisions in the May 
4, 2010 FY 2011 IPPS/LTCH PPS proposed rule. Therefore, the proposed 
policies and payment rates in that proposed rule do not reflect the new 
legislation.
    Below we address the provisions of Public Law 111-148 and Public 
Law 111-152 that affect our proposed policies and payment rates for FY 
2011 under the LTCH PPS. In addition, we have issued further 
instructions implementing the provisions of Public Law 111-148, as 
amended, that affect the policies and payment rates for RY 2010 under 
the LTCH PPS. Specifically, we have established revised RY 2010 rates 
and factors elsewhere is this Federal Register consistent with the 
provisions of sections 3401(c) and (p) and 10319(b) of Pub L. 111-148 
and section 1105(b) of Public Law 111-152, as amended.
2. Revision of Certain Market Basket Updates as Required by Public Law 
111-148 and Public Law 111-152
    Section 1886(m)(3)(A)(ii) of the Act, as added by section 3401(c) 
of Public Law 111-148, specifies that for each of rate years 2010 
through 2019, any annual update to the standard Federal rate shall be 
reduced by the other adjustment specified in new section 1886(m)(4) of 
the Act. Furthermore, section 1886(m)(3)(A)(i) of the Act specifies 
that for rate year 2012 and subsequent rate years, any annual update to 
the standard Federal rate shall be reduced by the productivity 
adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. 
Section 1886(m)(3)(A)(ii) and sections 1886(m)(4)(A) and (B) of the 
Act, require a 0.25 percentage point reduction for rate year 2010 and a 
0.50 percentage point reduction for rate year 2011. Section 
1886(m)(3)(B) of the Act provides that the application of paragraph 3 
of 1886(m) of the Act may result in the annual update being less than 
zero for a rate year, and may result in payment rates for a rate year 
being less than such payment rates for the

[[Page 30969]]

preceding rate year. Furthermore, section 3401(p) of Public Law 111-148 
specifies that the amendments made by section 3401(c) of Public Law 
111-148 shall not apply to discharges occurring before April 1, 2010.
    We note that in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed 
rule, since the annual update to the LTCH PPS policies, rates and 
factors now occurs on October 1st, we proposed to adopt the term 
``fiscal year'' (FY) rather than ``rate year'' (RY) under the LTCH PPS 
beginning October 1, 2010 to conform with the standard definition of 
the Federal fiscal year (October 1 through September 30) used by other 
PPSs, such as the IPPS (see 75 FR 24046 through 24027). Consequently, 
in that proposed rule and in this supplemental proposed rule, for 
purposes of clarity, when discussing the annual update for the LTCH 
PPS, we employed ``FY'' rather than ``RY'' because it is our intent 
that the phrase ``FY'' be used prospectively in all circumstances 
dealing with the LTCH PPS. Similarly, although the language of section 
3401(c) of Public Law 111-148 and section 10319 of Public Law 111-148, 
and section 1105(b) of Public Law 111-152 refer to years 2010 and 
thereafter under the LTCH PPS as ``rate year,'' consistent with our 
proposal to change the terminology used under the LTCH PPS from ``rate 
year'' to ``fiscal year,'' for purposes of clarity, in this 
supplemental proposed rule, when discussing the annual update for the 
LTCH PPS, including the provisions of the Affordable Care Act, we will 
continue to employ ``FY'' rather than ``RY'' for 2011 and subsequent 
years because it is our intent that ``FY'' be used prospectively in all 
circumstances dealing with the LTCH PPS.
3. Proposed Change to Reflect the Market Basket Update for LTCHs for RY 
2010 (Sec.  412.523(c)(vi))
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule appearing in the 
Federal Register on August 27, 2009 (74 FR 43754), we established 
policies, payment rates and factors for determining payments under the 
LTCH PPS for RY 2010 (October 1, 2009 through September 30, 2010). The 
provisions of the Affordable Care Act affect some of the policies, 
payment rates and factors for determining payments under the LTCH PPS 
for RY 2010 (some of which are discussed elsewhere in this supplemental 
proposed rule). In a separate notice published elsewhere in this 
Federal Register, we establish revised RY 2010 LTCH PPS rates and 
factors consistent with the provisions of section 1886(m)(3) of the Act 
as added by section 3401(c) of Public Law 111-148, and section 
1886(m)(4) of the Act as added by section 3401(c) of Public Law 111-148 
and amended by section 10319(b) of Public Law 111-148, as further 
amended by section 1105(b) of Public Law 111-152, as well as section 
3401(p) of the Public Law 111-148. Section 1886(m)(3)(A)(ii) of the Act 
provides for each of RYs 2010 through 2019, the annual update to the 
standard Federal rate is reduced by the ``other adjustment'' described 
in section 1886(m)(4) of the Act. Specifically, sections 
1886(m)(3)(A)(ii) and (4)(A) of the Act require a 0.25 percentage point 
reduction to the annual update to the standard Federal rate for RY 
2010. Section 1886(m)(3)(A) of the Act on its face explicitly provides 
for a revised annual update to the standard Federal rate beginning RY 
2010, thus resulting in a single revised RY 2010 standard Federal rate. 
Section 3401(p) of the Public Law 111-148 provides that, 
notwithstanding the previous provisions of this section, the amendments 
made by subsections (a), (c) and (d) shall not apply to discharges 
occurring before April 1, 2010. When read in conjunction we believe 
section 1886(m)(3)(A) of the Act and section 3401(p) of Public Law 111-
148 provide for a single revised RY 2010 standard Federal rate; 
however, for payment purposes, discharges occurring on or after October 
1, 2009 and before April 1, 2010, simply will not be based on the 
revised RY 2010 standard Federal rate.
    As discussed in a separate notice published elsewhere in this 
Federal Register, consistent with our historical practice and the 
methodology used in the FY 2010 IPPS/RY 2010 final rule, we establish 
an update to the LTCH PPS standard Federal rate for RY 2010 of 1.74 
percent. This annual update for RY 2010 is based on the full forecasted 
estimated increase in the LTCH PPS market basket for RY 2010 of 2.5 
percent, adjusted by the 0.25 percentage point reduction required by 
sections 1886(m)(3)(A)(ii) and (4)(A) of the Act, and an adjustment to 
account for the increase in case-mix in a prior period (FY 2007) 
resulting from changes in documentation and coding practices of -0.5 
percent. Therefore, in this supplemental proposed rule, under the 
authority of sections 1886(m)(3)(A)(ii) and (4)(A) of the Act, we are 
proposing to amend Sec.  412.523(c)(3)(vi) to specify that the standard 
Federal rate for the LTCH PPS rate year beginning October 1, 2009 and 
ending September 30, 2010, is the standard Federal rate for the 
previous rate year updated by 1.74 percent. Furthermore, consistent 
with section 3401(p) of Public Law 111-148, we are also proposing to 
revise Sec.  412.523(c)(3)(vi) to specify that with respect to 
discharges occurring on or after October 1, 2009 and before April 1, 
2010, payments are based on the standard Federal rate in Sec.  
412.523(c)(v) updated by 2.0 percent (that is, a standard Federal rate 
of $39,896.65 (see 74 FR 44022)). We note that the provisions of the 
law that add sections 1886(m)(3) and (4) of the Act are self-
implementing and in this supplemental proposed rule, we are proposing 
to incorporate existing law regarding the 0.25 percentage point 
reduction to the annual update to the standard Federal rate for RY 2010 
(including the application of the revised standard Federal rate that 
reflects that 0.25 percentage point reduction in making payments for 
discharges on or after April 1, 2010) into the regulations at Sec.  
412.529(c)(3)(vi) to reflect this required policy change.
4. Proposed Market Basket Update for LTCHs for FY 2011
    As discussed in section VII.C.2. of the preamble of the May 4, 2010 
FY 2011 IPPS/LTCH PPS proposed rule, we are proposing to continue to 
use the FY 2002-based rehabilitation, psychiatric, long-term care (RPL) 
hospital market basket under the LTCH PPS for FY 2011. Also, in that 
proposed rule, we stated that at this time, the most recent estimate of 
the increase in the proposed LTCH PPS market basket (that is, the FY 
2002-based RPL market basket) for FY 2011 is 2.4 percent. This increase 
is based on IHS Global Insight, Inc.'s first quarter 2010 forecast, 
with historical data through the 2009 fourth quarter, of the FY 2002-
based RPL market basket increase. Since publication of the May 4, 2010 
FY 2011 IPPS/LTCH PPS proposed rule our estimate of the FY 2002-based 
RPL market basket for FY 2011 has not changed. Furthermore, as also 
stated in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, 
consistent with our historical practice of using market basket 
estimates based on the most recent available data, we propose that if 
more recent data are available when we develop the final rule, we would 
use such data, if appropriate.
    Section 1886(m)(3)(A)(ii) of the Act as added by section 3401(c) of 
Public Law 111-148 specifies that for each of RYs 2010 through 2019, 
any annual update to the standard Federal rate shall be reduced by the 
other adjustment specified in new section 1886(m)(4) of the Act. 
Furthermore, section 1886(m)(3)(A)(i) of the Act specifies that

[[Page 30970]]

for rate year 2012 and each subsequent rate year, any annual update to 
the standard Federal rate shall be reduced by the productivity 
adjustment described in section 1866(b)(3)(B)(xi)(II) of the Act.
    For FY 2011, section 1886(m)(4)(B) of the Act as added by section 
3401(c) of Public Law 111-148, as amended by section 10319 of Public 
Law 111-148 and as further amended by section 1105(b) of Public Law 
111-152, requires a 0.50 percentage point reduction to the annual 
update to the standard Federal rate for rate year 2011. Consequently, 
the proposed market basket update under the LTCH PPS for FY 2011 is 1.9 
percent (that is, the most recent estimate of the LTCH PPS market 
basket of 2.4 percent minus the 0.50 percentage points required in 
section 1886(m)(4)(B) of the Act. Again, we note that consistent with 
our historical practice of using market basket estimates based on the 
most recent available data, we propose that if more recent data are 
available when we develop the final rule, we would use such data, if 
appropriate, in determining the final market basket update under the 
LTCH PPS for FY 2011. (We note that in section III.A. of the Addendum 
to this supplemental proposed rule, for FY 2011, we are proposing to 
update the LTCH PPS standard Federal rate by -0.59 percent. This 
proposed update reflects proposed market basket update under the LTCH 
PPS for FY 2011 (of 1.9 percent as discussed above) and a proposed 
adjustment to account for the increase in case-mix in the prior periods 
that resulted from changes in documentation and coding practices rather 
than increases in patients' severity of illness (discussed in section 
VII.C.3. of the preamble of the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule).)
5. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 
(MS-LTC-DRG) Relative Weights
    As discussed above, the proposed LTCH PPS policies and payment 
rates in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule do not 
reflect the provisions of the Affordable Care Act. The revised proposed 
standard Federal rate for FY 2011 that incorporates the ``other 
adjustment'' required in section 1886(m)(3)(A)(ii) as amended and 
described in section 1886(m)(4) as amended is discussed in section 
III.A. of the Addendum of this supplemental proposed rule. This 
revision to the proposed standard Federal rate for FY 2011 requires us 
to revise the proposed relative weights for the MS-LTC-DRGs for FY 
2011. This is the case since our established methodology for updating 
the annual update to the MS-LTC-DRG classifications and relative 
weights in a budget neutral manner requires that estimated aggregate 
LTCH PPS payments would be unaffected. That is, under the budget 
neutrality requirement estimated aggregate LTCH PPS payments would be 
neither greater than nor less than the estimated aggregate LTCH PPS 
payments that would have been made without the MS-LTC-DRG 
classification and relative weight changes.
    As discussed in section VII.B.3.g. (step 7) of the preamble of the 
May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24042 through 
24043), we proposed to use our established two-step budget neutrality 
methodology. In the first step of our MS-LTC-DRG budget neutrality 
methodology, we calculate and apply a normalization factor to the 
proposed recalibrated relative weights to ensure that estimated 
payments are not influenced by changes in the composition of case types 
or the changes to the classification system. That is, the normalization 
adjustment is intended to ensure that the recalibration of the proposed 
MS-LTC-DRG relative weights (that is, the process itself) neither 
increases nor decreases the average case-mix index (CMI). The 
normalization factor is calculated using the ratio average CMIs (that 
is, the average MS-LTC-DRG relative weight) and is independent of the 
standard Federal rate. (We refer readers to the FY 2011 IPPS/LTCH PPS 
proposed rule for additional details on the proposed calculation of the 
normalization factor applied used in determining the proposed FY 2011 
MS-LTC-DRG relative weights (75 FR 24042 through 24043).) Therefore, 
this step was not revised for this supplemental proposed rule. However, 
in the second step of our established two-step budget neutrality 
methodology (described in section VII.B.3.g. (step 7) of the preamble 
of the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule), for FY 2011 we 
proposed to determine a budget neutrality adjustment factor based on 
simulating estimated total LTCH PPS payments. Consequently, revising 
the standard Federal rate to reflect the provisions of newly added 
sections 1886(m)(3)(A)(ii) and (4) of the Act would impact the 
estimated aggregated LTCH PPS payments upon which we determine the 
proposed budget neutrality factor applied in determining the proposed 
FY 2011 MS-LTC-DRG relative weights.
    For this supplemental proposed rule, consistent with the proposed 
methodology described in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 24042 through 24043), we are proposing to apply a budget 
neutrality adjustment factor of 0.987632 in determining the proposed FY 
2011 MS-LTC-DRG relative weights, which was determined based on 
payments simulations after using the proposed FY 2011 standard Federal 
rate that reflects the reductions required by sections 
1886(m)(3)(A)(ii) and (4)(A) and (B) of the Act (discussed above) and 
LTCH claims from the December 2009 update of the FY 2009 MedPAR files 
(that is the same data used in the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule). Specifically, we determined the proposed FY 2011 budget 
neutrality adjustment factor using the following three steps: (2.a.) we 
simulate estimated total LTCH PPS payments using the normalized 
proposed relative weights for FY 2011 and GROUPER Version 28.0 (as 
described above); (2.b.) we simulate estimated total LTCH PPS payments 
using the FY 2010 GROUPER (Version 27.0) and the FY 2010 MS-LTC-DRG 
relative weights shown in Table 11 of the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 44183 through 44192); and (2.c.) we calculate the 
ratio of these estimated total LTCH PPS payments by dividing the 
estimated total LTCH PPS payments using the FY 2010 GROUPER (Version 
27.0) and the FY 2010 MS-LTC-DRG relative weights (determined in step 
2.b.) by the estimated total LTCH PPS payments using the proposed FY 
2011 GROUPER (Version 28.0) and the normalized proposed MS-LTC-DRG 
relative weights for FY 2011 (determined in Step 2.a.).
    Therefore, under our established two-step budget neutrality 
methodology, in determining the proposed FY 2011 MS-LTC-DRG relative 
weights, each normalized proposed relative weight (determined as 
described in section VII.C.3.g.(step 7) of the preamble of the May 4, 
2010 FY 2011 IPPS/LTCH PPS proposed rule) is multiplied by a budget 
neutrality factor of 0.987632 in the second step of the budget 
neutrality methodology to determine the proposed budget neutral FY 
2011. (We note that in determining the proposed FY 2011 budget neutral 
MS-LTC-DRG relative weights for this supplemental proposed rule, with 
the exception of the proposed budget neutrality adjustment factor of 
0.987632 discussed above, we used the proposed methodology as presented 
in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24042 
through 24043).) Consistent with our historical policy of using the 
best available data, we are proposing to use the most recent available 
data for

[[Page 30971]]

determining the budget neutrality adjustment factor in the final rule.
    Accordingly, in determining the proposed FY 2011 MS-LTC-DRG 
relative weights in Table 11 in the Addendum to this supplemental 
proposed rule, consistent with our existing methodology, we are 
proposing to apply a normalization factor of 1.10362 (computed as 
described in section VII.C.3.g. (step 7) of the preamble to the May 4, 
2010 FY 2011 IPPS/LTCH PPS proposed rule) and a budget neutrality 
factor of 0.987632 (computed as described above). Table 11 in the 
Addendum to this supplemental proposed rule lists the proposed MS-LTC-
DRGs and their respective proposed relative weights, geometric mean 
length of stay, and five-sixths of the geometric mean length of stay 
(used in determining SSO payments under Sec.  412.529) for FY 2011. (We 
note that there are no changes to the geometric mean length of stay and 
five-sixths of the geometric mean length of stay that were published in 
Table 11 of the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule as the 
calculation of these statistics is independent of the standard Federal 
rate.)

III. Other Required Information

A. 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 (44 U.S.C. Chapter 35).

B. Waiver of 60-Day Comment Period

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and permit a 60-day comment period, as provided in 
section 1871(b)(1) of the Act. This period, however, may be shortened, 
as provided under section 1871(b)(2)(C) of the Act, when the Secretary 
finds good cause that a 60-day comment period would be impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. For this 
supplemental proposed rule, we are waiving the 60-day comment period 
for good cause and allowing a comment period that coincides with the 
comment period provided for on the FY 2011 IPPS/LTCH PPS proposed rule 
(75 FR 23852).
    As we explained in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23859), due to the timing of the enactment of Public Law 111-148 and 
Public Law 111-152, the policies and payment rates outlined in the 
proposed rule did not reflect the changes made by either law to the 
IPPS and LTCH PPS. This supplemental proposed rule addresses the 
changes that affect our proposed policies and payment rates for FY 2011 
under the IPPS and the LTCH PPS.
    A 60-day comment period on this supplemental proposed rule would be 
both impracticable and contrary to the public interest because it would 
not allow for coordinated consideration of the comments on this 
supplemental proposed rule with those on the FY 2011 IPPS/LTCH PPS 
proposed rule. Because the issues raised in this supplemental proposed 
rule are integral to our consideration of comments on certain proposals 
in the FY 2011 IPPS/LTCH PPS proposed rule, we do not believe it would 
be appropriate to review comments on the issues raised in this 
supplemental proposed rule in isolation from the comments received on 
the FY 2011 IPPS/LTCH PPS proposed rule. We further note that a full 
60-day comment period would end on a date that would not allow the 
agency sufficient time to process the comments and respond to them in a 
meaningful manner by the August 1, 2010 date for issuing the final 
rule. If we allowed for a full 60-day comment period, timely filed 
comments would receive a shorter period of time for consideration by 
the agency, and the agency would be left with insufficient time to 
properly respond to comments and appropriately resolve whether any of 
the proposed policies should be modified in light of comments received. 
For all of these reasons, we find good cause to waive the 60-day 
comment period for this rule of proposed rulemaking, and we are instead 
providing for a comment period that coincides with the comment period 
provided for the FY 2011 IPPS/LTCH PPS proposed rule that appeared in 
the May 4, 2010 Federal Register.

IV. 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.

List of Subjects

42 CFR Part 412

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

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

    For the reasons stated in the preamble of this proposed rule, the 
Centers for Medicare & Medicaid Services is proposing to amend 42 CFR 
chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for part 412 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), and sec. 124 of Public Law 106-113 (113 
Stat. 1501A-332).


Sec.  412.23  [Amended]

    2. In Sec.  412.23, paragraphs (e)(6)(i) and (e)(7)(ii) are amended 
by removing the date ``December 28, 2010'' and adding the date 
``December 28, 2012'' in its place.
    3. Section 412.64 is amended by--
    A. Revising paragraphs (d)(1) and (e)(4).
    B. Adding a new paragraph (m).


Sec.  412.64  Federal rates for inpatient operating costs for Federal 
fiscal year 2005 and subsequent fiscal years.

* * * * *
    (d) Applicable percentage change for fiscal year 2005 and for 
subsequent fiscal years.
    (1) Subject to the provisions of paragraph (d)(2) of this section, 
the applicable percentage change for updating the standardized amount 
is--
    (i) For fiscal year 2005 through fiscal year 2009, the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec.  413.40(a) of this subchapter) for hospitals in all 
areas.
    (ii) For fiscal year 2010, for discharges--
    (A) On or after October 1, 2009 and before April 1, 2010, the 
percentage increase in the market basket index for prospective payment 
hospitals (as defined in Sec.  413.40(a) of this subchapter) for 
hospitals in all areas; and
    (B) On or after April 1, 2010 and before October 1, 2010, the 
percentage increase in the market basket index minus 0.25 percentage 
points for

[[Page 30972]]

prospective payment hospitals (as defined in Sec.  413.40(a) of this 
subchapter) for hospitals in all areas.
    (iii) For fiscal year 2011, the percentage increase in the market 
basket index minus 0.25 percentage points for prospective payment 
hospitals (as defined in Sec.  413.40(a) of this subchapter) for 
hospitals in all areas.
* * * * *
    (e) * * *
    (4) CMS makes an adjustment to the wage index to ensure that 
aggregate payments after implementation of the rural floor under 
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and 
the imputed floor under paragraph (h)(4) of this section are equal to 
the aggregate prospective payments that would have been made in the 
absence of such provisions as follows:
    (i) Beginning October 1, 2008, such adjustment is transitioned from 
a nationwide to a statewide adjustment as follows:
    (A) From October 1, 2008 through September 30, 2009, the wage index 
is a blend of 20 percent of a wage index with a statewide adjustment 
and 80 percent of a wage index with a nationwide adjustment.
    (B) From October 1, 2009 through September 30, 2010, the wage index 
is a blend of 50 percent of a wage index with a statewide adjustment 
and 50 percent of a wage index with a nationwide adjustment.
    (ii) Beginning October 1, 2010, such adjustment is a full 
nationwide adjustment.
* * * * *
    (m) Adjusting the wage index to account for the Frontier State 
floor.
    (1) General criteria. For discharges occurring on or after October 
1, 2010, CMS adjusts the hospital wage index for hospitals located in 
qualifying States to recognize the wage index floor established for 
frontier States. A qualifying frontier State meets both of the 
following criteria:
    (i) At least 50 percent of counties located within the State have a 
reported population density less than 6 persons per square mile.
    (ii) The State does not receive a non-labor related share 
adjustment determined by the Secretary to take into account the unique 
circumstances of hospitals located in Alaska and Hawaii.
    (2) Amount of wage index adjustment. A hospital located in a 
qualifying State will receive a wage index value not less than 1.00.
    (3) Process for determining and posting wage index adjustments. (i) 
CMS uses the most recent Population Estimate data published by the U.S. 
Census Bureau to determine county definitions and population density. 
This analysis will be periodically revised, such as for updates to the 
decennial census data.
    (ii) CMS will include a listing of qualifying Frontier States and 
denote the hospitals receiving a wage index increase attributable to 
this provision in its annual updates to the hospital inpatient 
prospective payment system published in the Federal Register.
    4. Section 412.73 is amended by--
    A. Revising paragraph (c)(15).
    B. Adding a new paragraph (c)(16).
    The revision and addition read as follows:


Sec.  412.73  Determination of the hospital specific rate based on a 
Federal fiscal year 1982 base period.

* * * * *
    (c) * * *
    (15) For Federal fiscal year 2003 through Federal fiscal year 2009. 
For Federal fiscal year 2003 through Federal fiscal year 2009, the 
update factor is the percentage increase in the market basket index for 
prospective payment hospitals (as defined in Sec.  413.40(a) of this 
chapter).
    (16) For Federal fiscal year 2010 and subsequent years. For Federal 
fiscal year 2010 and subsequent years, the update factor is the 
percentage increase specified in Sec.  412.64(d).
* * * * *


Sec.  412.75  [Amended]

    5. In Sec.  412.75, paragraph (d) is amended by removing the 
citation ``Sec.  412.73(c)(15)'' and adding the citation ``Sec.  
412.73(c)(15) and Sec.  412.73(c)(16)'' in its place.


Sec.  412.77  [Amended]

    6. In Sec.  412.77, paragraph (e) is amended by removing the 
reference ``(c)(15)'' and adding the reference ``(c)(16)'' in its 
place.


Sec.  412.78  [Amended]

    7. In Sec.  412.78, paragraph (e) is amended by removing the 
citation ``Sec.  412.73(c)(15)'' and adding the citation ``Sec.  
412.73(c)(15) and Sec.  412.73(c)(16)'' in its place.


Sec.  412.79  [Amended]

    8. In Sec.  412.79, paragraph (d) is amended by removing the phrase 
``and (c)(15)'' and adding the phrase ``through (c)(16)'' in its place.
    9. Section 412.101 is revised to read as follows:


Sec.  412.101  Special treatment: Inpatient hospital payment adjustment 
for low-volume hospitals.

    (a) Definitions. Beginning in FY 2011, the terms used in this 
section are defined as follows:
    Medicare discharges means discharge of inpatients entitled to 
Medicare Part A, including discharges associated with individuals whose 
inpatient benefits are exhausted or whose stay was not covered by 
Medicare and also discharges of individuals enrolled in a MA 
organization under Medicare Part C.
    Road miles means ``miles'' as defined in Sec.  412.92(c)(1).
    (b) General considerations. (1) CMS provides an additional payment 
to a qualifying hospital for the higher incremental costs associated 
with a low volume of discharges. The amount of any additional payment 
for a qualifying hospital is calculated in accordance with paragraph 
(c) of this section.
    (2) In order to qualify for this adjustment a hospital must meet 
the following criteria:
    (i) For FY 2005 through FY 2010, a hospital must have less than 200 
total discharges, which includes Medicare and non-Medicare discharges, 
during the fiscal year, as reflected in its cost report specified in 
paragraph (b)(3) of this section, and be located more than 25 road 
miles (as defined in paragraph (a) of this section from the nearest 
``subsection (d)'' (section 1886(d) of the Act) hospital.
    (ii) For FY 2011 and FY 2012, a hospital must have less than 1,600 
Medicare discharges, as defined in paragraph (a) of this section, 
during the fiscal year, as reflected in its cost report specified in 
paragraph (b)(3) of this section, and be located more than 15 road 
miles, as defined in paragraph (a) of this section, from the nearest 
``subsection (d)'' (section 1886(d) of the Act) hospital.
    (iii) For FY 2013 and subsequent fiscal years, a hospital must have 
less than 200 total discharges, which includes Medicare and non-
Medicare, during the fiscal year, as reflected in its cost report 
specified in paragraph (b)(3) of this section, and be located more than 
25 road miles as defined in paragraph (a) of this section from the 
nearest ``subsection (d)'' (section 1886(d) of the Act) hospital.
    (3) The fiscal intermediary or Medicare administrative contractor 
makes the determination of the discharge count for purposes of 
determining a hospital's qualification for the adjustment based on the 
hospital's most recently submitted cost report and for qualification 
for FYs 2011 and 2012 other documentation of

[[Page 30973]]

Medicare discharges (as defined in paragraph (a) of this section).
    (4) In order to qualify for the adjustment, a hospital must provide 
its fiscal intermediary or Medicare administrative contractor with 
sufficient evidence that it meets the distance requirement specified 
under paragraph (b)(2) of this section. The fiscal intermediary or 
Medicare administrative contractor will base its determination of 
whether the distance requirement is satisfied upon the evidence 
presented by the hospital and other relevant evidence, such as maps, 
mapping software, and inquiries to State and local police, 
transportation officials, or other government officials.
    (c) Determination of the adjustment amount. The low-volume 
adjustment for hospitals that qualify under paragraph (b) of this 
section are as follows for the applicable fiscal year:
    (1) For FY 2005 through FY 2010, the adjustment is 25 percent for 
each Medicare discharge.
    (2) For FY 2011 and FY 2012, the adjustment is as follows:

 
------------------------------------------------------------------------
                                                               Payment
                                                             adjustment
                 Medicare discharge range                   (percent add-
                                                                 on)
------------------------------------------------------------------------
1-200.....................................................       25.0000
201-301...................................................       23.3333
301-400...................................................       21.6667
401-500...................................................       20.0000
501-600...................................................       18.3333
601-700...................................................       16.6667
701-800...................................................       15.0000
801-900...................................................       13.3333
901-1,000.................................................       11.6667
1,001-1,100...............................................       10.0000
1,101-1,200...............................................        8.3333
1,201-1,300...............................................        6.6667
1,301-1,400...............................................        5.0000
1,401-1,500...............................................        3.3333
1,501-1,599...............................................        1.6667
1,600 or more.............................................        0.0000
------------------------------------------------------------------------

     (3) For FY 2013 and subsequent years, the adjustment is 25 percent 
for each Medicare discharge.
    (d) Eligibility of new hospitals for the adjustment. A new hospital 
will be eligible for a low-volume adjustment under this section once it 
has submitted a cost report for a cost reporting period that indicates 
that it meets discharge requirements during the applicable fiscal year 
and has provided its fiscal intermediary or Medicare administrative 
contractor with sufficient evidence that it meets the distance 
requirement, as specified under paragraph (b)(2) of this section.


Sec.  412.108  [Amended]

    10. Section 412.108 is amended as follows:
    A. In paragraph (a)(1) introductory text the phrase ``before 
October 1, 2011'' is removed and the phrase ``before October 1, 2012'' 
is added in its place.
    B. In paragraph (c)(2)(iii) introductory text the phrase ``before 
October 1, 2010'' is removed and the phrase ``before October 1, 2012'' 
is added in its place.
    11. Section 412.211 is amended by revising paragraph (c) to read as 
follows:


Sec.  412.211  Puerto Rico rates for Federal fiscal year 2004 and 
subsequent fiscal years.

* * * * *
    (c) Computing the standardized amount. CMS computes a Puerto Rico 
standardized amount that is applicable to all hospitals located in all 
areas. The applicable percentage change for updating the Puerto Rico 
specific standardized amount is as follows:
    (1) For fiscal year 2004 through fiscal year 2009, increased by the 
applicable percentage change specified in Sec.  412.64(d)(1)(ii)(A).
    (2) For fiscal year 2010, increased by the market basket index for 
prospective payment hospitals (as defined in Sec.  413.40(a) of this 
subchapter) for hospitals in all areas.
    (3) For fiscal year 2011, increased by the applicable percentage 
change specified in Sec.  412.64(d)(1)(iii).
* * * * *


Sec.  412.230  [Amended]

    12. In Sec.  412.230 paragraph (d)(1)(iv)(E) is amended by removing 
the figures ``86'' and ``88'' adding the figures ``82'' and ``84'' in 
their place, respectively.


Sec.  412.232  [Amended]

    13. In Sec.  412.232, paragraph (c)(3) is amended by removing the 
figure ``88'' and adding the figure ``85'' in its place.


Sec.  412.234  [Amended]

    14. In Sec.  412.234, paragraph (b)(3) is amended by removing the 
figure ``88'' and adding the figure ``85'' in its place.


Sec.  412.523  [Amended]

    15. Section 412.523 is amended as follows:
    A. Revise paragraph (c)(3)(vi).
    B. Add paragraph (c)(3)(vii).
    C. Paragraph (d)(3) is amended by removing the phrase ``December 
29, 2010, and by no later than October 1, 2012'' and adding the phrase 
``December 29, 2012,'' in its place.
    The revision and addition read as follows:


Sec.  412.523  Methodology for calculating the Federal prospective 
payment rates.

* * * * *
    (c) * * *
    (3) * * *
    (vi) For long-term care hospital prospective payment system rate 
year beginning October 1, 2009 and ending September 30, 2010. (A) The 
standard Federal rate for long-term care hospital prospective payment 
system rate year beginning October 1, 2009 and ending September 30, 
2010 is the standard Federal rate for the previous long-term care 
hospital prospective payment system rate year updated by 1.74 percent. 
The standard Federal rate is adjusted, as appropriate, as described in 
paragraph (d) of this section.
    (B) With respect to discharges occurring on or after October 1, 
2009 and before April 1, 2010, payments are based on the standard 
Federal rate in paragraph (c)(3)(v) of this section updated by 2.0 
percent.
    (vii) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2010, and ending September 30, 2011. The 
standard Federal rate for the long-term care hospital prospective 
payment system fiscal year beginning October 1, 2010, and ending 
September 30, 2011, is the standard Federal rate for the previous long-
term care hospital prospective payment system rate year updated by -
0.59 percent. The standard Federal rate is adjusted, as appropriate, as 
described in paragraph (d) of this section.
* * * * *


Sec.  412.529  [Amended]

    16. In Sec.  412.529, paragraphs (c)(2) introductory text and 
(c)(3) introductory text are amended by removing the date ``December 
29, 2010'' and adding in its place the date ``December 29, 2012'' each 
time it appears.


Sec.  412.534  [Amended]

    17. Section 412.534 is amended as follows:
    A. Paragraphs (c)(1), (c)(2), (d)(1), (d)(2), (e)(1), (e)(2) are 
amended by removing the date ``October 1, 2010'' and adding in its 
place the date ``October 1, 2012'' each time it appears.
    B. Paragraphs (c)(3), (d)(3), (e)(3), (h)(4), and (h)(5) are 
amended by removing the date ``July 1, 2010'' and adding in its place 
the date ``July 1, 2012'' each time it appears.


Sec.  412.536  [Amended]

    18. In Sec.  412.536, paragraph (a)(2) introductory text is amended 
by removing the date ``July 1, 2010'' and adding the date ``July 1, 
2012'' in its place.

[[Page 30974]]

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

    19. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Public Law 106-133 (113 Stat. 1501A-332).

    20. Section 413.70 is amended as follows:
    A. Revise paragraph (b)(3)(ii)(A).
    B. Redesignate paragraph (b)(5)(i) as (b)(5)(i)(A).
    C. In newly redesignated paragraph (b)(5)(i)(A), the phrase ``on or 
after December 21, 2000,'' is removed and the phrase ``on or after 
December 21, 2000 and on or before December 31, 2003,'' is added in its 
place.
    D. Add a new paragraph (b)(5)(i)(B).
    The revision and addition read as follows:


Sec.  413.70  Payment for services of a CAH.

* * * * *
    (b) * * *
    (3) * * *
    (ii) * * *
    (A) Effective for cost reporting periods beginning on or after 
January 1, 2004, for facility services not including any services for 
which payment may be made under paragraph (b)(3)(ii)(B) of this 
section, 101 percent of the reasonable costs of the services as 
determined under paragraph (b)(2)(i) of this section; and
* * * * *
    (5) * * *
    (i) * * *
    (B) Effective for cost reporting periods beginning on or after 
January 1, 2004, payment for ambulance services furnished by a CAH or 
an entity that is owned and operated by a CAH is 101 percent of the 
reasonable costs of the CAH or the entity in furnishing those services, 
but only if the CAH or the entity is the only provider or supplier of 
ambulance services located within a 35-mile drive of the CAH or the 
entity.
* * * * *

    Authority: 
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: May 13, 2010.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: May 18, 2010.
Kathleen Sebelius,
Secretary.

    Note: The following Addendum and Appendix will not appear in the 
Code of Federal Regulations.

Addendum: FY 2011 Supplemental Proposed Payment Rates

I. Supplemental Proposed FY 2011 Prospective Payment Systems Payment 
Rates for Hospital Inpatient Operating and Capital Related Costs

    As discussed in section II.B. of the preamble to this 
supplemental proposed rule, changes to the applicable percentage 
increase, wage index, and rural community hospital demonstration 
mandated by the Affordable Care Act necessitate the recalculation of 
the FY 2011 proposed budget neutrality factors, outlier threshold 
and standardized amounts. In the FY 2011 IPPS/LTCH PPS proposed rule 
we explained our methodology for calculating the FY 2011 proposed 
budget neutrality factors (75 FR 24062 through 24073). Except as 
explained below, we apply this same methodology in recalculating 
these budget neutrality adjustments to reflect the changes to the 
standardized amount required by the Affordable Care Act. A complete 
discussion of our computation of the FY 2011 proposed budget 
neutrality factors, outlier threshold and standardized amounts is 
found below.

A. Updating the Average Standardized Amounts

    As discussed section II.B. of the preamble to this supplemental 
proposed rule, sections 3401(a) and section 10319(a) of Public Law 
111-148, amends section 1886(b)(3)(B)(i) of the Act to provide that 
the FY 2011 applicable percentage increase for IPPS hospitals equals 
the rate-of-increase in the hospital market basket for IPPS 
hospitals in all areas minus a 0.25 percentage point, subject to the 
hospital submitting quality information under rules established by 
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the 
Act. For hospitals that fail to submit quality data consistent with 
section 1886(b)(3)(B)(viii) of the Act, the update is equal to the 
market basket percentage increase minus a 0.25 percentage point less 
an additional 2.0 percentage points. Therefore, for this 
supplemental proposed rule, based on IHS Global Insight, Inc.'s 
first quarter 2010 forecast of the FY 2011 market basket increase, 
the estimated update to the FY 2011 operating standardized amount is 
2.15 percent (that is, the FY 2011 estimate of the market basket 
rate-of-increase of 2.4 percent minus 0.25 percentage points) for 
hospitals in all areas, provided the hospital submits quality data 
in accordance with our rules. For hospitals that do not submit 
quality data, the estimated update to the operating standardized 
amount is 0.15 percent (that is, the adjusted FY 2011 estimate of 
the market basket rate-of-increase of 2.15 percent minus 2.0 
percentage points).

B. Proposed Budget Neutrality Adjustments Factors for Recalibration 
of DRG Weights and Updated Wage Index

    In the FY 2011 IPPS/LTCH PPS proposed rule we explained our 
methodology for calculating the FY 2011 proposed DRG 
reclassification and recalibration and updated wage index budget 
neutrality factor (75 FR 24064). Except as explained below, we apply 
this same methodology in recalculating this budget neutrality 
adjustment to reflect the changes to the standardized amount 
required by the Affordable Care Act.
    As discussed above, sections 3401(a) and section 10319(a) of 
Public Law 111-148 amends section 1886(b)(3)(B)(i) of the Act, which 
defines the applicable percentage increase. Although these 
amendments modify the applicable percentage increase applicable to 
the FY 2010 rates under the IPPS, section 3401(p) of Public Law 111-
148 states that the amendments do not apply to discharges occurring 
prior to April 1, 2010. Accordingly, for purposes of determining 
payment amounts for discharges occurring on or after April 1, 2010, 
in order to comply with the statute in section 3401(p) of Public Law 
111-148, we applied the revised FY 2010 rates effective with 
discharges on or after April 1, 2010 until the end of FY 2010. 
However, for purposes of determining the budget neutrality 
adjustments for FY 2011, the statute requires us to simulate the FY 
2010 hospital as if hospitals were paid for all of FY 2010 based on 
the FY 2010 rates that are effective for payments for discharges 
occurring on or after April 1, 2010.
    For FY 2011 we are proposing a proposed DRG reclassification and 
recalibration factor of 0.996867 and a proposed budget neutrality 
factor of 1.000070 for changes to the wage index. We multiplied the 
proposed DRG reclassification and recalibration budget neutrality 
factor of 0.996867 by the proposed budget neutrality factor of 
1.000070 for changes to the wage index to determine the proposed DRG 
reclassification and recalibration and updated wage index budget 
neutrality factor of 0.996937 (as required by sections 
1886(d)(4)(C)(iii) and 1886(d)(3)(E)(i) of the Act).

C. Reclassified Hospitals--Budget Neutrality Adjustment

    Due to the Affordable Care Act, it is also necessary to revise 
the reclassification budget neutrality factor. As discussed in 
section II.A. of the preamble to this supplemental proposed rule, 
section 3137(c) of Public Law 111-148 revised the average hourly 
wage standards resulting in our estimate that 23 additional 
hospitals will be reclassified (or receive their primary 
reclassifications. Using the methodology proposed in the FY 2011 
IPPS proposed rule, and incorporating the provision above, we 
computed a factor of 0.991476 for reclassification budget 
neutrality, as required by section 1886(d)(8)(D) of the Act.

[[Page 30975]]

D. Rural and Imputed Floor Budget Neutrality

    We make an adjustment to the wage index to ensure that aggregate 
payments after implementation of the rural floor under section 4410 
of the BBA (Pub. L. 105-33) and the imputed floor under Sec.  
412.64(h)(4) of the regulations are made in a manner that ensures 
that aggregate payments to hospitals are not affected. As discussed 
in section III.B. of the preamble of the FY 2009 IPPS final rule (73 
FR 48570 through 48574), we adopted as final State level budget 
neutrality for the rural and imputed floors, effective beginning 
with the FY 2009 wage index. In response to the public's concerns 
and taking into account the potentially significant payment cuts 
that could occur to hospitals in some States if we implemented this 
change with no transition, we decided to phase in, over a 3-year 
period, the transition from the national rural floor budget 
neutrality adjustment on the wage index to the State level rural 
floor budget neutrality adjustment on the wage index. In FY 2011 
IPPS/LTCH PPS proposed rule, in the absence of provisions of Public 
Law 111-148, the proposed adjustment would have been completely 
transitioned to the State level methodology, such that the wage 
index that was proposed in the FY 2011 IPPS/LTCH PPS proposed rule 
was determined by applying 100 percent of the State level budget 
neutrality adjustment. However, section 3141 of Public Law 111-148 
restores the budget neutrality adjustment for the rural and imputed 
floors to a uniform, national adjustment, beginning with the FY 2011 
wage index.
    Using the same methodology in prior final rules to calculate the 
national rural and imputed floor budget neutrality adjustment factor 
(which was part of the methodology to calculate the blended rural 
and imputed floor budget neutrality adjustment factors), to 
determine the proposed wage index adjusted by the national rural and 
imputed floor budget neutrality adjustment, we used FY 2009 
discharge data and proposed FY 2011 wage indices to simulate IPPS 
payments. First, we compared the national simulated payments without 
the rural and imputed floors applied to national simulated payments 
with the rural and imputed floors applied to determine the national 
rural and imputed floor budget neutrality adjustment factor of 
0.995425. This national adjustment was then applied to the wage 
indices to produce a national rural and imputed floor budget neutral 
wage index.

E. Proposed Rural Community Hospital Demonstration Program 
Adjustment

    As discussed in section II.F. of the preamble to this 
supplemental proposed rule, section 410A of Public Law 108-173 
requires the Secretary to establish a demonstration that will modify 
reimbursement for inpatient services for up to 15 small rural 
hospitals. Section 410A(c)(2) of Public Law 108-173 requires that 
``in conducting the demonstration program under this section, the 
Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have 
paid if the demonstration program under this section was not 
implemented.'' In the proposed rule we did not apply an adjustment 
to the standardized amount to ensure the effects of the rural 
community hospital demonstration are budget neutral. However, 
section 450(a) of the MMA as amended by sections 3123 and 10313 of 
Public Law 111-148 extends the demonstration for an additional 5 
years, and allows not more than 30 hospitals to participate in the 
20 least densely populated States.
    In order to achieve budget neutrality, we are proposing to 
adjust the national IPPS rates by an amount sufficient to account 
for the added costs of this demonstration. In other words, we are 
proposing to apply budget neutrality across the payment system as a 
whole rather than merely across the participants of this 
demonstration, consistent with past practice. We believe that the 
language of the statutory budget neutrality requirement permits the 
agency to implement the budget neutrality provision in this manner. 
The statutory language requires that ``aggregate payments made by 
the Secretary do not exceed the amount which the Secretary would 
have paid if the demonstration * * * was not implemented,'' but does 
not identify the range across which aggregate payments must be held 
equal. As mentioned section II.F. of the preamble to this 
supplemental proposed rule, the proposed estimated amount for the 
adjustment to the national IPPS rates for FY 2011 is $69,279,673. 
Accordingly to account for the changes in the Affordable Care Act, 
we computed a proposed factor of 0.999313 for the rural community 
hospital demonstration program adjustment. We note that because the 
settlement process for the demonstration hospitals' third year cost 
reports, that is, cost reporting periods starting in FY 2007, has 
experienced a delay, for this FY 2011 IPPS proposed rule, we are 
unable to state the costs of the demonstration corresponding to FY 
2007 and as a result are unable to propose the specific numeric 
adjustment representing this offsetting process that would be 
applied to the national IPPS rates (as discussed above). However, we 
expect the cost reports beginning in FY 2007 for hospitals that 
participated during FY 2007 to be settled before the FY 2011 IPPS/
LTCH final rule is published. Therefore, for the FY 2011 IPPS/LTCH 
PPS final rule, we expect to be able to calculate the amount by 
which the costs corresponding to FY 2007 exceeded the amount offset 
by the budget neutrality adjustment for FY 2007.

F. Proposed FY 2011 Outlier Fixed-Loss Cost Threshold

    In order to compute the FY 2011 proposed outlier threshold, we 
used the same methodology in this supplemental proposed rule that we 
used in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24068 through 
24069; and incorporated the provisions of Pub. L. 111-148 and Pub. 
L. 111-152 as discussed above). However, as discussed in section 
II.A. of the preamble to this supplemental proposed rule, in 
accordance with section 10324(a) of Public Law 111-148, beginning in 
FY 2011, we are proposing to create a wage index floor of 1.00 for 
all hospitals located in States determined to be Frontier States. We 
noted that the Frontier State floor adjustments will be calculated 
and applied after rural and imputed floor budget neutrality 
adjustments are calculated for all labor market areas, so as to 
ensure that no hospital in a Frontier State will receive a wage 
index lesser than 1.00 due to the rural and imputed floor 
adjustment. In accordance with section 10324(a) of Public Law 111-
148, the Frontier State adjustment will not be subject to budget 
neutrality, and will only be extended to hospitals geographically 
located within a Frontier State. However, for purposes of estimating 
the proposed outlier threshold for FY 2011, it is necessary to apply 
this provision by adjusting the wage index of those eligible 
hospitals in a Frontier State when calculating the outlier threshold 
that results in outlier payments being 5.1 percent of total payments 
for FY 2011. If we did not take into account this provision, our 
estimate of total FY 2011 payments would be too low, and as a 
result, our proposed outlier threshold would be too high, such that 
estimated outlier payments would be less than our projected 5.1 
percent of total payments.
    We are proposing an outlier fixed-loss cost threshold for FY 
2011 equal to the prospective payment rate for the DRG, plus any IME 
and DSH payments, and any add-on payments for new technology, plus 
$24,165.

G. FY 2011 Proposed Outlier Adjustment Factors

    Using the same methodology in this supplemental proposed rule 
that we used in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24069; and incorporating the provisions of the Affordable Care Act 
as discussed above), we computed the following proposed FY 2011 
outlier adjustment factors that are applied to the proposed FY 2011 
standardized amount for the proposed FY 2011 outlier threshold:

----------------------------------------------------------------------------------------------------------------
                                                              Operating standardized
                                                                     amounts              Capital federal rate
----------------------------------------------------------------------------------------------------------------
National..................................................                   0.948995                   0.943217
Puerto Rico...............................................                   0.951459                   0.925238
----------------------------------------------------------------------------------------------------------------


[[Page 30976]]

H. Proposed FY 2011 Standardized Amount

    We calculated the proposed FY 2011 standardized amounts using 
the methodology proposed in the FY 2011 IPPS proposed rule taking 
into account the changes required by the provisions of Public Law 
111-148. Tables 1A and 1B in this supplemental proposed rule contain 
the proposed national standardized amount that we are applying to 
all hospitals, except hospitals in Puerto Rico. The proposed Puerto 
Rico-specific amounts are shown in Table 1C. The proposed amounts 
shown in Tables 1A and 1B differ only in that the labor-related 
share applied to the proposed standardized amounts in Table 1A is 
68.8 percent, and the labor-related share applied to the proposed 
standardized amounts in Table 1B is 62 percent.
    In addition, Tables 1A and 1B include the proposed standardized 
amounts reflecting the adjusted marker basket update of 2.15 percent 
update for FY 2011, and proposed standardized amounts reflecting the 
2.0 percentage point reduction to the update (a 0.15 percent update) 
applicable for hospitals that fail to submit quality data consistent 
with section 1886(b)(3)(B)(viii) of the Act. Below is a revised 
table reflecting the changes required by the provisions of the 
Affordable Care Act that details the calculation of the proposed FY 
2011 standardized amounts. We note that our proposed adjustment for 
documentation and coding discussed at (75 FR 24065 through 24067) 
has not changed since publication of the FY 2011 IPPS/LTCH proposed 
rule. Similar to the FY 2011 IPPS/LTCH PPS proposed rule, the 
adjustment of 0.957 is reflected within the table below.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP02JN10.029

    The proposed labor-related and nonlabor-related portions of the 
national average standardized amounts for Puerto Rico hospitals for 
FY 2011 are set forth in Table 1C in this supplemental proposed 
rule. (The labor-related share applied to the Puerto Rico-specific 
standardized amount is either 62.1 percent or 62 percent, depending 
on which is more advantageous to the hospital.)

[[Page 30977]]

I. Proposed Adjustments for Area Wage Levels

    The following wage index tables were revised in this 
supplemental proposed rule as a result of the provisions of Public 
Law 111-148: Tables 2, 4A, 4B, 4C, 4D-2, 4J, and 9A. (These tables 
are also available on the CMS Web site.)

II. Supplemental Proposed FY 2011 Prospective Payment Systems Payment 
Rates for Capital Related Costs

    Although the provisions of Public Law 111-148, do not directly 
affect the payment rates and policies for the IPPS for capital-
related costs, as discussed in section II.G. of the preamble of this 
supplemental proposed rule, we are proposing the capital IPPS 
standard Federal rates for FY 2011. This is necessary because the 
wage index changes required by the provisions of Public Law 111-148 
(discussed above in section II.A. of preamble to this supplemental 
proposed rule) affect the proposed budget neutrality adjustment 
factor for changes in DRG classifications and weights and the 
geographic adjustment factor (GAF) since the GAF values are derived 
from the wage index values (see Sec.  412.316(a)). In addition, the 
provisions of Public Law 111-148, also necessitate a revision to the 
proposed outlier payment adjustment factor since a single set of 
thresholds is used to identify outlier cases for both inpatient 
operating and inpatient capital-related payments (see Sec.  
412.312(c)).
    In this supplemental proposed rule, we have calculated the 
proposed FY 2011 capital Federal rates, offsets, and budget 
neutrality factors using the same methodology we proposed in the May 
4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (CMS-1498-P) that was 
used to calculate the proposed rates included in that rule which did 
not reflect the provision of Public Law 111-148. For a complete 
description of this methodology, please see the May 4, 2010 FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 24073 through 24082).

A. Proposed Capital Standard Federal Rate Update for FY 2011

    The proposed factors used in the update framework are not 
affected by the provisions of the Affordable Care Act. Therefore, 
the proposed update factor for FY 2011 is not being revised from the 
proposed capital IPPS standard Federal rate update factor discussed 
in section III.A.1. of the Addendum to the May 4, 2010 FY 2011 IPPS 
proposed rule and remains at 1.5 percent for FY 2011.
    A full discussion of the proposed update framework is provided 
in that proposed rule (75 FR 24074 through 24076).

B. Proposed Outlier Payment Adjustment Factor

    Based on the thresholds as set forth in section III.A.6. of this 
Addendum, we estimate that outlier payments for capital-related 
costs would equal 5.68 percent for inpatient capital-related 
payments based on the proposed capital Federal rate in FY 2011. 
Therefore, we are proposing to apply an outlier adjustment factor of 
0.9432 in determining the capital Federal rate. For FY 2010, after 
taking into account the provisions of the Affordable Care Act, we 
estimated that outlier payments for capital would equal 5.22 percent 
of inpatient capital-related payments (which required an outlier 
adjustment factor of 0.9478) based on the capital Federal rate in FY 
2010 (as discussed elsewhere in this Federal Register). Thus, we 
estimate that the percentage of capital outlier payments to total 
capital standard payments for FY 2011 would be higher than the 
percentage for FY 2010. This increase in capital outlier payments is 
primarily due to the estimated decrease in capital IPPS payments per 
discharge. That is, because capital payments per discharge are 
projected to be slightly lower in FY 2011 compared to FY 2010, as 
shown in Table III. in section VIII. of the Appendix to this 
supplemental proposed rule, more cases would qualify for outlier 
payments.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The proposed FY 2011 outlier 
adjustment of 0.9432 is a -0.49 percent change from the FY 2010 
outlier adjustment of 0.9478. Therefore, the net change in the 
outlier adjustment to the proposed capital Federal rate for FY 2011 
is 0.9951 (0.9432/0.9478). Thus, the proposed outlier adjustment 
decreases the proposed FY 2011 capital Federal rate by 0.49 percent 
compared with the FY 2010 outlier adjustment.
    A single set of thresholds is used to identify outlier cases for 
both inpatient operating and inpatient capital-related payments (see 
Sec.  412.312(c)). The outlier thresholds are set so that operating 
outlier payments are projected to be 5.1 percent of total operating 
IPPS DRG payments. The proposed outlier thresholds for FY 2011 are 
in section III.A.6. of this Addendum. For FY 2011, a case would 
qualify as a cost outlier if the cost for the case plus the IME and 
DSH payments is greater than the prospective payment rate for the 
MS-DRG plus the fixed-loss amount of $24,165.

C. Proposed Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the GAF

    Using the methodology discussed in section III.A.3. of the 
Addendum to the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 24077 through 24079), for FY 2011, we are proposing a GAF/DRG 
budget neutrality factor of 1.0015, which is the product of the 
proposed incremental GAF budget neutrality factor of 1.0023 and the 
proposed DRG budget neutrality factor of 0.9992 (the proposed DRG 
budget neutrality factor remains unchanged from the May 4, 2010 FY 
2011 IPPS proposed rule). The GAF/DRG budget neutrality factors are 
built permanently into the capital rates; that is, they are applied 
cumulatively in determining the capital Federal rate. This follows 
the requirement that estimated aggregate payments each year be no 
more or less than they would have been in the absence of the annual 
DRG reclassification and recalibration and changes in the GAFs. The 
incremental change in the proposed adjustment from FY 2010 to FY 
2011 is 1.0015. The cumulative change in the proposed capital 
Federal rate due to this adjustment is 0.9926 (the product of the 
incremental factors for FYs 1995 though 2010 and the proposed 
incremental factor of 1.0015 for FY 2011). (We note that averages of 
the incremental factors that were in effect during FYs 2005 and 
2006, respectively, and the revised FY 2010 factor of 0.9994 that 
reflect the effect of the provisions of the Affordable Care Act (as 
discussed elsewhere in this Federal Register) were used in the 
calculation of the cumulative adjustment of 0.9926 for FY 2011.) The 
proposed cumulative adjustments for MS-DRG classifications and 
proposed changes in relative weights and for proposed changes in the 
national GAFs through FY 2011 is 0.9926. The following table 
summarizes the adjustment factors for each fiscal year:
BILLING CODE 4120-01-P

[[Page 30978]]

[GRAPHIC] [TIFF OMITTED] TP02JN10.030

BILLING CODE 4120-01-C
    The proposed factor accounts for the proposed MS-DRG 
reclassifications and recalibration and for proposed changes in the 
GAFs, which include the changes to the wage

[[Page 30979]]

index as required by the provisions of Public Law 111-148, as 
amended (as discussed in section II.A. of the preamble of this 
supplemental proposed rule). It also incorporates the effects on the 
proposed GAFs of FY 2011 geographic reclassification decisions made 
by the MGCRB compared to FY 2010 decisions. However, it does not 
account for changes in payments due to changes in the DSH and IME 
adjustment factors.

D. Exceptions Payment Adjustment Factor

    The provisions of Public Law 111-148, as amended, have no effect 
on capital exceptions payments. Therefore, the special exceptions 
adjustment factor remains at 0.9997 as discussed in section III.A.4. 
of the May 4, 2010 FY 2011 IPPS proposed rule (75 FR 24079).

E. Prospective MS-DRG Documentation and Coding Adjustment to the 
Capital Federal Rates for FY 2011 and Subsequent Years

    The provisions of Public Law 111-148, as amended, have no effect 
on the proposed prospective documentation and coding adjustment to 
the capital Federal rates. Therefore, as discussed in greater detail 
in section V.E. of the preamble of the May 4, 2010 FY 2011 IPPS 
proposed rule (75 FR 24013 through 24015), proposed an additional 
2.9 percent reduction to the national capital Federal payment rate 
in FY 2011, resulting in a cumulative documentation and coding 
adjustment factor of 0.957 for the proposed FY 2011 national capital 
Federal rate percent (that is, the existing -0.6 percent adjustment 
in FY 2008 plus the -0.9 percent adjustment in FY 2009 plus the 
proposed additional -2.9 percent adjustment, computed as 1 divided 
by (1.006 x 1.009 x 1.029).

F. Proposed Capital Standard Federal Rate for FY 2011

    As a result of the proposed 1.5 percent update and other 
proposed budget neutrality factors discussed above, we are proposing 
to establish a national capital Federal rate of $422.18 for FY 2011. 
We are providing the following chart that shows how each of the 
proposed factors and adjustments for FY 2011 affects the computation 
of the proposed FY 2011 national capital Federal rate in comparison 
to the FY 2010 national capital Federal rate (revised to reflect the 
effect of the provisions of the Affordable Care Act (as discussed 
elsewhere in this Federal Register). The proposed FY 2011 update 
factor has the effect of increasing the proposed capital Federal 
rate by 1.5 percent compared to the FY 2010 capital Federal rate. 
The proposed GAF/DRG budget neutrality factor of 1.0015 has the 
effect of increasing the proposed capital Federal rate by 0.15 
percent compared to the FY 2010 capital Federal rate. The proposed 
FY 2011 outlier adjustment factor has the effect of decreasing the 
proposed capital Federal rate by 0.49 percent compared to the FY 
2010 capital Federal rate. The proposed FY 2011 exceptions payment 
adjustment factor has the effect of decreasing the proposed capital 
Federal rate by 0.01 percent compared to the FY 2010 capital Federal 
rate. Furthermore, as shown in the chart below, the resulting 
cumulative adjustment for changes in documentation and coding that 
do not reflect real changes in patients' severity of illness (that 
is, the proposed cumulative adjustment factor of 0.957 has the net 
effect of decreasing the proposed FY 2011 national capital Federal 
rate by 2.8 percent as compared to the FY 2010 national capital 
Federal rate. The combined effect of all the proposed changes would 
decrease the proposed national capital Federal rate by approximately 
1.72 percent compared to the FY 2010 national capital Federal rate.

  Comparison of Factors and Adjustments: FY 2010 Capital Federal Rate and Proposed FY 2011 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                                               Proposed                 Percent
                                                                   FY 2010 *    FY 2011     Change      change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...............................................      1.0120      1.0150      1.0150        1.50
GAF/DRG Adjustment Factor \1\...................................      0.9994      1.0015      1.0015        0.15
Outlier Adjustment Factor \2\...................................      0.9478      0.9432      0.9951       -0.49
Exceptions Adjustment Factor \2\................................      0.9998      0.9997      0.9999       -0.01
MS-DRG Documentation and Coding Adjustment Factor...............  \3\ 0.9850  \4\ 0.9570  \5\ 0.9716       -2.84
Capital Federal Rate............................................     $429.56     $422.18      0.9828       -1.72
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates.
  Thus, for example, the incremental change from FY 2010 to FY 2011 resulting from the application of the
  proposed 1.0015 GAF/DRG budget neutrality factor for FY 2011 is a net change of 1.0015.
\2\ The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital
  rates; that is, these factors are not applied cumulatively in determining the capital rates. Thus, for
  example, the proposed net change resulting from the application of the proposed FY 2011 outlier adjustment
  factor is 0.9432/0.9478, or 0.9951.
\3\ The documentation and coding adjustment factor includes the -0.6 percent in FY 2008, -0.9 percent in FY
  2009, and no additional reduction in FY 2010.
\4\ The documentation and coding adjustment factor includes the -0.6 percent in FY 2008, -0.9 percent in FY
  2009, no additional reduction in FY 2010 and the proposed -2.9 percent reduction in FY 2011.
\5\ The change is measured from the FY 2009 cumulative factor of 0.9850.
* The revised FY 2010 capital Federal rate, which reflects the effect of the provisions of the Affordable Care
  Act (as discussed elsewhere in this Federal Register).

G. Proposed Special Capital Rate for Puerto Rico Hospitals

    Using the methodology discussed in the May 4, 2010 FY 2011 IPPS 
proposed rule (75 FR 24081), with the changes we are proposing to 
make to the factors used to determine the capital rate, the proposed 
FY 2011 special capital rate for hospitals in Puerto Rico is 
$199.49. (See the May 4, 2010 FY 2011 IPPS proposed rule (75 FR 
24015 through 24016 and 24081) for additional information on the 
calculation of the proposed FY 2011 capital Puerto Rico specific 
rate.)

III. Supplemental Proposed Changes to the Payment Rates for the LTCH 
PPS for FY 2011

A. Proposed LTCH PPS Standard Federal Rate for FY 2011

1. Background

    In section VII. of the preamble of the May 4, 2011 FY 2011 
proposed rule, we discuss our proposed changes to the payment rates, 
factors, and specific policies under the LTCH PPS for FY 2011. As 
noted previously, on March 23, 2010, the Patient Protection and 
Affordable Care Act, Public Law 111-148, was enacted, and the Health 
Care and Education Reconciliation Act of 2010, Public Law 111-152, 
which amended certain provisions of Public Law 111-148, was enacted 
on March 30, 2010. Although a number of the provisions of Public Law 
111-148 and Public Law 111-152 affect the LTCH PPS, due to the 
timing of the passage of the legislation, we were unable to address 
those provisions in the May 4, 2011 FY 2011 IPPS/LTCH PPS proposed 
rule. Therefore, the proposed policies and payment rates in that 
proposed rule do not reflect the new legislation. Below we address 
the provisions of the Affordable Care Act that affect our proposed 
policies and payment rates for FY 2011 under the LTCH PPS. In 
addition, we have issued further instructions implementing the 
provisions of the Affordable Care Act, that affect the policies and 
payment rates for RY 2010 under the LTCH PPS. Specifically, we have 
established

[[Page 30980]]

revised RY 2010 rates and factors in a separate notice elsewhere is 
this Federal Register consistent with the provisions of sections 
1886(m)(3) and (4) of the Act and section 3401(p) of Public Law 111-
148.

2. Revision of Certain Market Basket Updates Incorporating the 
Provisions of the Affordable Care Act

    New section 1886(m)(3)(A)(ii) of the Act by specifies that for 
each of the rate years 2010 through 2019, any annual update to the 
standard Federal rate, for discharges for the hospital for the rate 
year, shall be reduced by the other adjustment specified in new 
section 1886(m)(4) of the Act. Additionally, new 1886(m)(3)(A)(i) of 
the Act provides that any annual update to the standard Federal 
rate, for discharges occurring during the rate year, shall be 
reduced for rate year 2012 and each subsequent rate year by the 
productivity adjustment described in section 1866(b)(3)(B)(xi)(II) 
of the Act. Sections 1886(m)(3)(A)(ii) and (4)(A)-(B) require a 0.25 
percentage point reduction for rate year 2010 and a 0.50 percentage 
point reduction for rate year 2011. In addition, section 
1886(m)(3)(B) of the Act provides that the application of section 
1886(m)(3) may result in the annual update being less than zero for 
a rate year, and may result in payment rates for a rate year being 
less than such payment rates for the preceding rate year. 
Furthermore, section 3401(p) of Public Law 111-148 specifies that 
the amendments made by section 3401(c) of Public Law 111-148 shall 
not apply to discharges occurring before April 1, 2010.
    We note that in the May 4, 2010 FY 2011 proposed rule, since the 
annual update to the LTCH PPS policies, rates and factors now occurs 
on October 1st, we proposed to adopt the term ``fiscal year'' (FY) 
rather than ``rate year'' (RY) under the LTCH PPS beginning October 
1, 2010 to conform with the standard definition of the Federal 
fiscal year (October 1 through September 30) used by other PPSs, 
such as the IPPS (see 75 FR 24146 through 24147). Consequently, in 
that proposed rule and this supplemental proposed rule, for purposes 
of clarity, when discussing the annual update for the LTCH PPS, we 
employed ``FY'' rather than ``RY'' because it is our intent that the 
phrase ``FY'' be used prospectively in all circumstances dealing 
with the LTCH PPS. Similarly, although the language of sections 
3401(c) and 10319 of Public Law 111-148, and section 1105(b) of 
Public Law 111-152 refers to years 2010 and thereafter under the 
LTCH PPS as ``rate year,'' consistent with our proposal to change 
the terminology used under the LTCH PPS from ``rate year'' to 
``fiscal year,'' for purposes of clarity, in this supplemental 
proposed rule, when discussing the annual update for the LTCH PPS, 
including the provisions of the Affordable Care Act, we will 
continue to employed ``FY'' rather than ``RY'' for 2011 and 
subsequent years because it is our intent that ``FY'' be used 
prospectively in all circumstances dealing with the LTCH PPS.
    The proposed FY 2011 LTCH PPS standard Federal rate, discussed 
below in section III.A.3. of this supplemental proposed rule, would 
be calculated by applying the required 0.50 percentage point 
reduction to the proposed FY 2011 market basket update consistent 
with sections 1886(m)(3)(A)(ii) and (4)(B) of the Act (that is, 1.9 
percent) in addition to the proposed adjustment to account for any 
changes in documentation and coding practices that do not reflect 
increased patient severity of illness discussed in section VII.C.3. 
of the preamble of the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed 
rule (that is, 2.5 percent).

3. Development of the Proposed FY 2011 LTCH PPS Standard Federal Rate

    As discussed in the May 4, 2010 FY 2011 proposed rule, while we 
continue to believe that an update to the LTCH PPS standard Federal 
rate should be based on the most recent estimate of the increase in 
the LTCH PPS market basket, we also believe it is appropriate that 
the standard Federal rate be offset by an adjustment to account for 
any changes in documentation and coding practices that do not 
reflect increased patient severity of illness. Such an adjustment 
protects the integrity of the Medicare Trust Funds by ensuring that 
the LTCH PPS payment rates better reflect the true costs of treating 
LTCH patients.
    For FY 2011, as discussed in section II.J.4. of the preamble of 
this proposed rule, the proposed market basket update under the LTCH 
PPS for FY 2011 is 1.9 percent (that is, the most recent estimate of 
the LTCH PPS market basket of 2.4 percent minus the 0.50 percentage 
points required by sections 1886(m)(3)(A)(ii) and (4)(B) of the Act. 
Furthermore, as discussed in greater detail in section VII.C.3. of 
the preamble of the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, 
we performed a CMI analysis using the most recent available LTCH 
claims data (FY 2009) under both the current MS-LTC-DRG and the 
former CMS LTC-DRG patient classification systems. Based on this 
evaluation, we determined that there was a cumulative increase in 
LTCH CMI of 2.5 percent due to changes in documentation and coding 
that did not reflect real changes in patient severity of illness for 
LTCH discharges occurring in FY 2008 and FY 2009.
    In this supplemental proposed rule, consistent with our 
historical practice, we are proposing to update the LTCH PPS 
standard Federal rate for FY 2011 based on the full proposed LTCH 
PPS market basket increase estimate of 2.4 percent, adjusted by the 
0.50 percentage point reduction required by sections 
1886(m)(3)(A)(ii) and (4)(B) of the Act, and an adjustment to 
account for the increase in case-mix in a prior periods (FYs 2008 
and 2009) that resulted from changes in documentation and coding 
practices of -2.5 percent. Consequently, the proposed update factor 
to the standard Federal rate for FY 2011 is -0.59 percent (that is, 
we are proposing to apply a factor of 0.9941 in determining the LTCH 
PPS standard Federal rate for FY 2011, calculated as 1.019 x 1 
divided by 1.025 = 0.9941 or -0.59 percent (0.9941 minus 1 equals 
0.59 percent)). Furthermore, consistent with our historical practice 
of updating the standard Federal rate for the previous rate year, in 
determining the proposed standard Federal rate for FY 2011 in this 
supplemental proposed rule, we are applying the proposed update 
factor of 0.9941 to the revised RY 2010 standard Federal rate that 
is being established in accordance with the provisions of sections 
1886(m)(3)(A)(ii) and (4)(A) of the Act, as implemented in a 
separate notice published elsewhere in this Federal Register.
    Therefore, in this supplemental proposed rule, under the 
authority of sections 1886(m)(3)(A)(ii) and (4)(B) of the Act, we 
are proposing to amend Sec.  412.523 to add a new paragraph 
(c)(3)(vii) to specify that the standard Federal rate for discharges 
occurring on or after October 1, 2010, through September 30, 2011, 
is the standard Federal rate for the previous rate year updated by -
0.59 percent. In determining the proposed standard Federal rate for 
FY 2011, we are applying the proposed 0.9941 update factor to the RY 
2010 Federal rate of $39,794.95 (as established elsewhere in this 
Federal Register). Consequently, the proposed standard Federal rate 
for FY 2011 is $39,560.16. We also are proposing that if more recent 
data become available, we would use those data, if appropriate, to 
determine the update to the standard Federal rate for FY 2011 in the 
final rule, and, thus, the standard Federal rate update specified in 
the proposed regulation text at Sec.  412.523(c)(3)(vii) could 
change accordingly.

B. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

1. Background

    When we implemented the LTCH PPS in the FY 2003 LTCH PPS final 
rule, in the regulations at Sec.  412.525(a), we established an 
adjustment for additional payments for outlier cases that have 
extraordinarily high costs relative to the costs of most discharges 
(see (67 FR 56022 through 56027)). We refer to these cases as high 
cost outliers (HCOs). Providing additional payments for outliers 
strongly improves the accuracy of the LTCH PPS in determining 
resource costs at the patient and hospital level. These additional 
payments reduce the financial losses that would otherwise be 
incurred when treating patients who require more costly care and, 
therefore, reduce the incentives to underserve these patients. We 
set the outlier threshold before the beginning of the applicable 
rate year so that total estimated outlier payments are projected to 
equal 8 percent of total estimated payments under the LTCH PPS.
    Under Sec.  412.525(a) in the regulations (in conjunction with 
Sec.  412.503), we make outlier payments for any discharges if the 
estimated cost of a case exceeds the adjusted LTCH PPS payment for 
the MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance 
with Sec.  412.525(a)(3) (in conjunction with Sec.  412.503), we pay 
outlier cases 80 percent of the difference between the estimated 
cost of the patient case and the outlier threshold, which is the sum 
of the adjusted Federal prospective payment for the MS-LTC-DRG and 
the fixed-loss amount. The fixed-loss amount is the amount used to 
limit the loss that a hospital will incur under the outlier policy 
for a case with unusually high costs. This results in Medicare and 
the LTCH sharing financial risk in the treatment of extraordinarily 
costly cases. Under the LTCH PPS HCO policy, the LTCH's loss is 
limited to the fixed-loss amount and a fixed

[[Page 30981]]

percentage of costs above the outlier threshold (MS-LTC-DRG payment 
plus the fixed-loss amount). The fixed percentage of costs is called 
the marginal cost factor. We calculate the estimated cost of a case 
by multiplying the Medicare allowable covered charge by the 
hospital's overall hospital cost-to-charge ratio (CCR).
    Under the LTCH PPS, we determine a fixed-loss amount, that is, 
the maximum loss that a LTCH can incur under the LTCH PPS for a case 
with unusually high costs before the LTCH will receive any 
additional payments. We calculate the fixed-loss amount by 
estimating aggregate payments with and without an outlier policy. 
The fixed-loss amount results in estimated total outlier payments 
being projected to be equal to 8 percent of projected total LTCH PPS 
payments. Currently, MedPAR claims data and CCRs based on data from 
the most recent provider specific file (PSF) (or from the applicable 
statewide average CCR if a LTCH's CCR data are faulty or 
unavailable) are used to establish a fixed-loss threshold amount 
under the LTCH PPS.
    As discussed previously in this section, the proposed policies 
and payment rates in the May 4, 2011 FY 2011 proposed rule do not 
reflect the provisions of the Affordable Care Act that affect LTCH 
PPS payments. The revised proposed standard Federal rate for FY 2011 
that was developed consistent with the provisions of sections 
1886(m)(3)(A)(ii) and (4)(B) of the Act is discussed above in 
section III.A.3. of the Addendum of this supplemental proposed rule. 
This revision to the proposed standard Federal rate for FY 2011 
requires us to revise the proposed high cost outlier fixed-loss 
amount for FY 2011. This is necessary in order to maintain the 
requirement that the fixed-loss amount results in estimated total 
outlier payments being projected to be equal to 8 percent of 
projected total LTCH PPS payments.

2. The Proposed LTCH PPS Fixed-Loss Amount for FY 2011

    When we implemented the LTCH PPS, as discussed in the August 30, 
2002 LTCH PPS final rule (67 FR 56022 through 56026), we established 
a fixed-loss amount so that total estimated outlier payments are 
projected to equal 8 percent of total estimated payments under the 
LTCH PPS. To determine the fixed-loss amount, we estimate outlier 
payments and total LTCH PPS payments for each case using claims data 
from the MedPAR files. Specifically, to determine the outlier 
payment for each case, we estimate the cost of the case by 
multiplying the Medicare covered charges from the claim by the 
applicable CCR. Under Sec.  412.525(a)(3) (in conjunction with Sec.  
412.503), if the estimated cost of the case exceeds the outlier 
threshold (the sum of the adjusted Federal prospective payment for 
the MS-LTC-DRG and the fixed-loss amount), we pay an outlier payment 
equal to 80 percent of the difference between the estimated cost of 
the case and the outlier threshold (the sum of the adjusted Federal 
prospective payment for the MS-LTC-DRG and the fixed-loss amount).
    As discussed in the May 4, 2010 FY 2011 proposed rule, we are 
proposing to continue to use our existing methodology to calculate 
the proposed fixed-loss amount for FY 2011 in order to maintain 
estimated HCO payments at the projected 8 percent of total estimated 
LTCH PPS payments. (For an explanation of our rationale for 
establishing an HCO payment ``target'' of 8 percent of total 
estimated LTCH payments, we refer readers to the August 30, 2002 
LTCH PPS final rule (67 FR 56022 through 56024).) Consistent with 
our historical practice of using the best data available, in 
determining the proposed fixed-loss amount for FY 2011, we use the 
most recent available LTCH claims data and CCR data. Specifically, 
for this proposed rule, we used LTCH claims data from the December 
2009 update of the FY 2009 MedPAR files and CCRs from the December 
2009 update of the PSF to determine a fixed-loss amount that would 
result in estimated outlier payments projected to be equal to 8 
percent of total estimated payments in FY 2011 because these data 
are the most recent complete LTCH data currently available. (We note 
that these are the same data used to determine the proposed FY 2011 
fixed-loss amount in the May 4, 2010 FY 2011 proposed rule.) 
Consistent with the historical practice of using the best available 
data, we are proposing that if more recent LTCH claims data become 
available, we will use them for determining the fixed-loss amount 
for FY 2011 in the final rule. Furthermore, we are proposing to 
determine the proposed FY 2011 fixed-loss amount based on the MS-
LTC-DRG classifications and relative weights from the version of the 
GROUPER that will be in effect as of the beginning of FY 2011, that 
is, proposed Version 28.0 of the GROUPER (discussed in section 
VII.D. of the preamble of this supplemental proposed rule).
    In this proposed rule, we are proposing to establish a fixed-
loss amount of $19,254 for FY 2011. Thus, we would pay an outlier 
case 80 percent of the difference between the estimated cost of the 
case and the outlier threshold (the sum of the adjusted Federal LTCH 
payment for the MS-LTC-DRG and the fixed-loss amount of $19,254).
    The proposed fixed-loss amount for FY 2011 of $19,254 is 
slightly higher than the revised RY 2010 fixed-loss amount of 
$18,615 (established elsewhere in this Federal Register). Based on 
our payment simulations using the most recent available data and the 
proposed 0.59 percent reduction to the standard Federal rate for FY 
2011, the proposed increase in the fixed-loss amount for FY 2011 
would be necessary to maintain the existing requirement that 
estimated outlier payments would equal 8 percent of estimated total 
LTCH PPS payments. (For further information on and our rationale for 
the existing 8 percent HCO ``target'' requirement, we refer readers 
to the August 30, 2002 LTCH PPS final rule (67 FR 56022 through 
56024.) Maintaining the fixed-loss amount at the current level would 
result in HCO payments that are greater than the current 8 percent 
regulatory requirement because a higher fixed-loss amount would 
result in fewer cases qualifying as outlier cases as well as 
decreases the amount of the additional payment for a HCO case 
because the maximum loss that a LTCH must incur before receiving an 
HCO payment (that is, the fixed-loss amount) would be larger. For 
these reasons, we believe that proposing to raise the fixed-loss 
amount is appropriate and necessary to maintain that estimated 
outlier payments would equal 8 percent of estimated total LTCH PPS 
payments as required under Sec.  412.525(a).
    As we noted in the May 4, 2010 FY 2011 proposed rule (75 FR 
24089), under some rare circumstances, a LTCH discharge could 
qualify as a SSO case (as defined in the regulations at Sec.  
412.529 in conjunction with Sec.  412.503) and also as a HCO case. 
In this scenario, a patient could be hospitalized for less than 
five-sixths of the geometric average length of stay for the specific 
MS-LTC-DRG, and yet incur extraordinarily high treatment costs. If 
the costs exceeded the HCO threshold (that is, the SSO payment plus 
the fixed-loss amount), the discharge is eligible for payment as a 
HCO. Thus, for a SSO case in FY 2011, the HCO payment would be 80 
percent of the difference between the estimated cost of the case and 
the outlier threshold (the sum of the proposed fixed-loss amount of 
$19,254 and the amount paid under the SSO policy as specified in 
Sec.  412.529).

C. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2011

    In accordance with Sec.  412.525, the proposed standard Federal 
rate is adjusted to account for differences in area wages by 
multiplying the proposed labor-related share of the proposed 
standard Federal rate by the appropriate proposed LTCH PPS wage 
index (as shown in Tables 12A and 12B of the Addendum of this 
proposed rule). The proposed standard Federal rate is also adjusted 
to account for the higher costs of hospitals in Alaska and Hawaii by 
multiplying the proposed nonlabor-related share of the proposed 
standard Federal rate by the appropriate cost-of-living factor 
(shown in the chart in section V.C.5. of the Addendum of the May 4, 
2010 FY 2011 IPPS/LTCH PPS proposed rule). In this proposed rule, we 
are proposing to establish a standard Federal rate for FY 2011 of 
$39,560.16, as discussed in section V.A.3. of the Addendum of this 
supplemental proposed rule. We illustrate the methodology to adjust 
the proposed LTCH PPS Federal rate for FY 2011 in the following 
example:
    Example: During FY 2011, a Medicare patient is in a LTCH located 
in Chicago, Illinois (CBSA 16974). The proposed FY 2011 LTCH PPS 
wage index value for CBSA 16974 is 1.0573 (Table 12A of the Addendum 
of this proposed rule). The Medicare patient is classified into MS-
LTC-DRG 28 (Spinal Procedures with MCC), which has a proposed 
relative weight for FY 2011 of 1.0834 (Table 11 of the Addendum of 
this supplemental proposed rule).
    To calculate the LTCH's total adjusted Federal prospective 
payment for this Medicare patient, we compute the wage-adjusted 
proposed Federal prospective payment amount by multiplying the 
unadjusted proposed standard Federal rate ($39,560.16) by the 
proposed labor-related share (75.407 percent) and the proposed wage 
index value (1.0573). This wage-adjusted amount is then added to the

[[Page 30982]]

proposed nonlabor-related portion of the unadjusted proposed 
standard Federal rate (24.593 percent; adjusted for cost of living, 
if applicable) to determine the adjusted proposed Federal rate, 
which is then multiplied by the proposed MS-LTC-DRG relative weight 
(1.0834) to calculate the total adjusted proposed Federal LTCH PPS 
prospective payment for FY 2011 ($45,046.57). The table below 
illustrates the components of the calculations in this example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Proposed Standard Federal                          $39,560.16
 Prospective Payment Rate......................
Proposed Labor-Related Share...................                x 0.75407
Labor-Related Portion of the Proposed Federal               = $29,831.13
 Rate..........................................
Proposed Wage Index (CBSA 16974)...............                 x 1.0573
Proposed Wage-Adjusted Labor Share of Federal               = $31,540.45
 Rate..........................................
Proposed Nonlabor-Related Portion of the                     + $9,729.03
 Federal Rate ($39,560.16 x 0.24593)...........
Adjusted Proposed Federal Rate Amount..........             = $41,269.48
Proposed MS-LTC-DRG 28 Relative Weight.........                 x 1.0834
                                                ------------------------
    Total Adjusted Federal Prospective Payment.             = $44,711.36
------------------------------------------------------------------------

IV. Tables

    This section contains the tables referred to throughout the 
preamble to this proposed rule and in this Addendum. Tables 1A, 1B, 
1C, 1D, 1E, 2, 4A, 4B, 4C, 4D-2, 4J, 9A, 10, and 11 are presented 
below. The tables presented below are as follows:

Table 1A.--Supplemental Proposed National Adjusted Operating 
Standardized Amounts, Labor/Nonlabor (68.8 Percent Labor Share/31.2 
Percent Nonlabor Share If Wage Index Is Greater Than 1).
Table 1B.--Supplemental Proposed National Adjusted Operating 
Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 
Percent Nonlabor Share If Wage Index Is Less Than or Equal To 1).
Table 1C.--Supplemental Proposed Adjusted Operating Standardized 
Amounts for Puerto Rico, Labor/Nonlabor.
Table 1D.--Supplemental Proposed Capital Standard Federal Payment 
Rate.
Table 1E.--Supplemental Proposed LTCH Standard Federal Prospective 
Payment Rate.
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2009; Proposed Hospital Wage 
Indexes for Federal Fiscal Year 2011; Hospital Average Hourly Wages 
for Federal Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage 
Data), and 2011 (2007 Wage Data); and 3-Year Average of Hospital 
Average Hourly Wages.
Table 4A.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by 
State--FY 2011.
Table 4B.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by 
State--FY 2011.
Table 4C.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA 
and by State--FY 2011.
Table 4D-2.--Urban Areas with Acute Care Hospitals Receiving the 
Statewide Rural Floor or Imputed Floor Wage Index--FY 2011.
Table 4J.--Proposed Out-Migration Adjustment for Acute Care 
Hospitals--FY 2011.
Table 9A.--Hospital Reclassifications and Redesignations--FY 2011.
Table 10.--Geometric Mean Plus the Lesser of .75 of the National 
Adjusted Operating Standardized Payment Amount (Increased to Reflect 
the Difference Between Costs and Charges) or .75 of One Standard 
Deviation of Mean Charges by Medicare Severity Diagnosis-Related 
Group (MS-DRG)--April 2010.
Table 11.--Supplemental Proposed MS-LTC-DRGs, Relative Weights, 
Geometric Average Length of Stay, and Short-Stay Outlier (SSO) 
Threshold for Discharges Occurring from October 1, 2010 through 
September 30, 2011 under the LTCH PPS.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

[[Page 31093]]

Appendix: Regulatory Impact Analysis

I. Overall Impact

    We have examined the impacts of this proposed rule as required 
by Executive Order 12866 (September 1993, Regulatory Planning and 
Review) and 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 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).
    We have determined that this proposed rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the proposed changes 
for FY 2011 acute care hospital operating and capital payments will 
redistribute in excess of $100 million among different types of 
inpatient cases. The proposed applicable percentage increase to the 
IPPS rates required by the statute, in conjunction with other 
proposed payment changes in this proposed rule, would result in an 
estimated $929 million decrease in FY 2011 operating payments (or -
0.9 percent increase), and an estimated $20 million decrease in FY 
2011 capital payments (or -0.2 percent change). The impact analysis 
of the capital payments can be found in section VIII. of this 
Appendix. In addition, as described in section IX. of this Appendix, 
LTCHs are expected to experience an increase in payments by $12.9 
million (or 0.3 percent).
    Our operating impact estimate includes the proposed -2.9 percent 
documentation and coding adjustment applied to the hospital-specific 
rates, the proposed -2.4 percent documentation and coding adjustment 
applied to the Puerto Rico-specific rates and the proposed -2.9 
percent adjustment for documentation and coding changes to the IPPS 
standardized amounts, which was discussed in the May 4, 2010 FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 24288). In addition, our 
operating impact estimate includes the proposed 2.15 percent market 
basket update to the standardized amount (which includes the 
proposed 2.4 percent update with the 0.25 reduction required under 
the Affordable Care Act). The estimates of IPPS operating payments 
to acute care hospitals do not reflect any changes in hospital 
admissions or real case-mix intensity, which would also affect 
overall payment changes.
    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 
government jurisdictions. Most hospitals and most other providers 
and suppliers are considered to be small entities, either by being 
nonprofit organizations or by meeting the Small Business 
Administration definition of a small business (having revenues of 
$34.5 million or less in any 1 year). (For details on the latest 
standards for health care providers, we refer readers to the Table 
of Small Business Size Standards for NAIC 622 found on the Small 
Business Administration Office of Size Standards Web site at: http://www.sba.gov/contractingopportunities/officials/size/GC-SMALL-BUS-SIZE-STANDARDS.html.) For purposes of the RFA, all hospitals and 
other providers and suppliers are considered to be small entities. 
Individuals and States are not included in the definition of a small 
entity. We believe that the provisions of this proposed rule 
relating to acute care hospitals would have a significant impact on 
small entities as explained in this Appendix. Because we lack data 
on individual hospital receipts, we cannot determine the number of 
small proprietary LTCHs. Therefore, we are assuming that all LTCHs 
are considered small entities for the purpose of the analysis in 
section IX. of this Appendix. Medicare fiscal intermediaries and 
MACs are not considered to be small entities. Because we acknowledge 
that many of the affected entities are small entities, the analysis 
discussed throughout the preamble of this proposed rule constitutes 
our proposed regulatory flexibility analysis. Therefore, we are 
soliciting public comments on our estimates and analysis of the 
impact of this proposed rule on those small entities.
    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), Public Law 104-121, as amended by section 8302 of Public 
Law 110-28, requires an agency to provide compliance guides for each 
rule or group of related rules for which an agency is required to 
prepare a final regulatory flexibility analysis. The compliance 
guides associated with this proposed rule are available on the CMS 
IPPS Web page at http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. We also note that the Hospital Center Web page at 
http://www.cms.hhs.gov/center/hospital.asp was developed to assist 
hospitals in understanding and adapting to changes in Medicare 
regulations and in billing and payment procedures. This Web page 
provides hospitals with substantial downloadable explanatory 
materials.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any proposed or final rule that 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 603 of the RFA. With the exception of 
hospitals located in certain New England counties, for purposes of 
section 1102(b) of the Act, we now define a small rural hospital as 
a hospital that is located outside of an urban area and has fewer 
than 100 beds. Section 601(g) of the Social Security Amendments of 
1983 (Pub. L. 98-21) designated hospitals in certain New England 
counties as belonging to the adjacent urban area. Thus, for purposes 
of the IPPS and the LTCH PPS, we continue to classify these 
hospitals as urban hospitals. (We refer readers to Table 1 and 
section VI. of this Appendix for the quantitative effects of the 
proposed policy changes under the IPPS for operating costs.)
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) 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. That threshold level is currently approximately $133 
million. This proposed rule would not mandate any requirements for 
State, local, or Tribal governments, nor would it affect private 
sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on 
State and local governments, preempts State law, or otherwise has 
Federalism implications. As stated above, this proposed rule would 
not have a substantial effect on State and local governments.
    The following analysis, in conjunction with the remainder of 
this document, demonstrates that this proposed rule is consistent 
with the regulatory philosophy and principles identified in 
Executive Order 12866, the RFA, and section 1102(b) of the Act. The 
proposed rule would affect payments to a substantial number of small 
rural hospitals, as well as other classes of hospitals, and the 
effects on some hospitals may be significant.

II. Objectives of the IPPS

    The primary objective of the IPPS is to create incentives for 
hospitals to operate efficiently and minimize unnecessary costs 
while at the same time ensuring that payments are sufficient to 
adequately compensate hospitals for their legitimate costs. In 
addition, we share national goals of preserving the Medicare 
Hospital Insurance Trust Fund.
    We believe the proposed changes in this proposed rule would 
further each of these goals while maintaining the financial 
viability of the hospital industry and ensuring access to high 
quality health care for Medicare beneficiaries. We expect that these 
proposed changes would ensure that the outcomes of the prospective 
payment systems are reasonable and equitable while avoiding or 
minimizing unintended adverse consequences.

III. Limitations of Our Analysis

    The following quantitative analysis presents the projected 
effects of our proposed policy changes, as well as statutory changes 
effective for FY 2011, on various hospital groups. We estimate the 
effects of individual policy changes by estimating payments per case 
while holding all other payment policies constant. We use the best 
data available, but, generally, we do not attempt to make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix.

IV. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals

[[Page 31094]]

encompass most general short-term, acute care hospitals that 
participate in the Medicare program. There were 33 Indian Health 
Service hospitals in our database, which we excluded from the 
analysis due to the special characteristics of the prospective 
payment methodology for these hospitals. Among other short-term, 
acute care hospitals, only the 46 such hospitals in Maryland remain 
excluded from the IPPS pursuant to the waiver under section 
1814(b)(3) of the Act.
    As of March 2010, there are 3,472 IPPS acute care hospitals to 
be included in our analysis. This represents about 64 percent of all 
Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There are also 
approximately 1,338 CAHs. These small, limited service hospitals are 
paid on the basis of reasonable costs rather than under the IPPS. 
(We refer readers to section VII. of this Appendix for a further 
description of the impact of CAH-related proposed policy changes.) 
There are also 1,270 IPPS-excluded hospitals and 2,169 IPPS-excluded 
hospital units. These IPPS-excluded hospitals and units include 
IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and cancer 
hospitals, which are paid under separate payment systems. Changes in 
the prospective payment systems for IPFs and IRFs are made through 
separate rulemaking. Payment impacts for these IPPS-excluded 
hospitals and units are not included in this proposed rule. The 
impact of the proposed update and policy changes to the LTCH PPS for 
FY 2011 are discussed in section IX. of this Appendix.

V. Effects on Hospitals and Hospital Units Excluded From the IPPS

    As of March 2010, there were 3,439 hospitals and hospital units 
excluded from the IPPS. Of these, 78 children's hospitals, 11 cancer 
hospitals, and 17 RNHCIs are being paid on a reasonable cost basis 
subject to the rate-of-increase ceiling under Sec.  413.40. The 
remaining providers, 228 rehabilitation hospitals and 961 
rehabilitation units, and 429 LTCHs, are paid the Federal 
prospective per discharge rate under the IRF PPS and the LTCH PPS, 
respectively, and 507 psychiatric hospitals and 1,208 psychiatric 
units are paid the Federal per diem amount under the IPF PPS. As 
stated above, IRFs and IPFs are not affected by rate updates 
discussed in this proposed rule. The impacts of the changes to LTCHs 
are discussed in section IX. of this Appendix.
    In the past, certain hospitals and units excluded from the IPPS 
have been paid based on their reasonable costs subject to limits as 
established by the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA). Cancer and children's hospitals continue to be paid on a 
reasonable cost basis subject to TEFRA limits for FY 2011. For these 
hospitals (cancer and children's hospitals), consistent with the 
authority provided in section 1886(b)(3)(B)(ii) of the Act, the 
update is the percentage increase in the FY 2011 IPPS operating 
market basket. In compliance with section 404 of the MMA, in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43930), we replaced the 
FY 2002-based IPPS operating and capital market baskets with the 
revised and rebased FY 2006-based IPPS operating and capital market 
baskets. Therefore, consistent with current law, based on IHS Global 
Insight, Inc.'s 2010 first quarter forecast, with historical data 
through the 2009 fourth quarter, we are estimating that the proposed 
FY 2011 update to the IPPS operating market basket would be 2.4 
percent (that is, the current estimate of the market basket rate-of-
increase) which was included in the May 4, 2010 FY 2011 IPPS/LTCH 
PPS proposed rule. However, the Affordable Care Act requires a 0.25 
reduction to the market basket update resulting in a proposed 2.15 
percent applicable percentage increase for IPPS hospitals. RNCHIs, 
children's hospitals and cancer hospitals are not subject to the 
reduction in the applicable percentage increase required under the 
Affordable Care Act. In accordance with Sec.  403.752(a) of the 
regulations, RNHCIs are paid under Sec.  413.40. Therefore, for 
RNHCIs, the proposed update is the same as for children's and cancer 
hospitals, which is the percentage increase in the FY 2011 IPPS 
operating market basket increase (which was included in the May 4, 
2010 FY 2011 IPPS/LTCH PPS proposed rule) without the reductions 
required under the Affordable Care Act, estimated to be 2.4 percent.
    The impact of the proposed update in the rate-of-increase limit 
on those excluded hospitals depends on the cumulative cost increases 
experienced by each excluded hospital since its applicable base 
period. For excluded hospitals that have maintained their cost 
increases at a level below the rate-of-increase limits since their 
base period, the major effect is on the level of incentive payments 
these excluded hospitals receive. Conversely, for excluded hospitals 
with per-case cost increases above the cumulative update in their 
rate-of-increase limits, the major effect is the amount of excess 
costs that will not be reimbursed.
    We note that, under Sec.  413.40(d)(3), an excluded hospital 
that continues to be paid under the TEFRA system, whose costs exceed 
110 percent of its rate-of-increase limit receives its rate-of-
increase limit plus 50 percent of the difference between its 
reasonable costs and 110 percent of the limit, not to exceed 110 
percent of its limit. In addition, under the various provisions set 
forth in Sec.  413.40, cancer and children's hospitals can obtain 
payment adjustments for justifiable increases in operating costs 
that exceed the limit.

VI. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs

A. Basis and Methodology of Estimates

    In this proposed rule, we are announcing proposed policy changes 
and payment rate updates for the IPPS for operating costs of acute 
care hospitals. Updates to the capital payments to acute care 
hospitals are discussed in section VIII. of this Appendix. Based on 
the overall percentage change in payments per case estimated using 
our payment simulation model, we estimate that total FY 2011 
operating payments would decrease by 0.9 percent compared to FY 
2010, largely due to the documentation and coding adjustments and 
the applicable percentage increase applied to the IPPS rates. This 
amount reflects the proposed FY 2011 documentation and coding 
adjustments described in the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule: -2.9 percent for the IPPS national standardized 
amounts, -2.9 percent for the IPPS hospital-specific rates, and -2.4 
percent for the IPPS Puerto Rico-specific standardized amount. The 
impacts do not illustrate changes in hospital admissions or real 
case-mix intensity, which will also affect overall payment changes.
    We have prepared separate impact analyses of the proposed 
changes to each system. This section deals with changes to the 
operating prospective payment system for acute care hospitals. Our 
payment simulation model relies on the most recent available data to 
enable us to estimate the impacts on payments per case of certain 
proposed changes in this proposed rule. However, there are other 
proposed changes for which we do not have data available that would 
allow us to estimate the payment impacts using this model. For those 
proposed changes, we have attempted to predict the payment impacts 
based upon our experience and other more limited data.
    The data used in developing the quantitative analyses of changes 
in payments per case presented below are taken from the FY 2009 
MedPAR file and the most current Provider-Specific File that is used 
for payment purposes. Although the analyses of the proposed changes 
to the operating PPS do not incorporate cost data, data from the 
most recently available hospital cost report were used to categorize 
hospitals. Our analysis has several qualifications. First, in this 
analysis, we do not make adjustments for future changes in such 
variables as admissions, lengths of stay, or underlying growth in 
real case-mix. Second, due to the interdependent nature of the IPPS 
payment components, it is very difficult to precisely quantify the 
impact associated with each change. Third, we use various sources 
for the data used to categorize hospitals in the tables. In some 
cases, particularly the number of beds, there is a fair degree of 
variation in the data from different sources. We have attempted to 
construct these variables with the best available source overall. 
However, for individual hospitals, some miscategorizations are 
possible.
    Using cases from the FY 2009 MedPAR file, we simulated payments 
under the operating IPPS given various combinations of payment 
parameters. Any short-term, acute care hospitals not paid under the 
IPPS (Indian Health Service hospitals and hospitals in Maryland) 
were excluded from the simulations. The impact of payments under the 
capital IPPS, or the impact of payments for costs other than 
inpatient operating costs, are not analyzed in this section. 
Estimated payment impacts of the capital IPPS for FY 2011 are 
discussed in section VIII. of this Appendix.
    The changes discussed separately below are the following:
    <bullet> The effects of the proposed annual reclassification of 
diagnoses and procedures, full implementation of the MS-DRG system 
and 100 percent cost-based MS-DRG relative weights.
    <bullet> The effects of the proposed changes in hospitals' wage 
index values reflecting wage

[[Page 31095]]

data from hospitals' cost reporting periods beginning during FY 
2007, compared to the FY 2006 wage data.
    <bullet> The effects of the recalibration of the MS-DRG relative 
weights as required by section 1886(d)(4)(C) of the Act, including 
the proposed wage and recalibration budget neutrality factors.
    <bullet> The effects of geographic reclassifications by the 
MGCRB that will be effective in FY 2011.
    <bullet> The effects of the Frontier wage index provision that 
requires that hospitals located in States that qualify as frontier 
States cannot have a wage index less than 1.0. This is a nonbudget 
neutral provision.
    <bullet> The effects of the rural floor and imputed floor with a 
national budget neutrality applied to the wage index, as required by 
the Affordable Care Act the Affordable Care Act.
    <bullet> The effects of section 505 of Public Law 108-173, which 
provides for an increase in a hospital's wage index if the hospital 
qualifies by meeting a threshold percentage of residents of the 
county where the hospital is located who commute to work at 
hospitals in counties with higher wage indexes.
    <bullet> The total estimated change in payments based on the 
proposed FY 2011 policies relative to payments based on FY 2010 
policies that include the applicable percentage increase of 2.15 (or 
2.4 percent market basket with a 0.25 percentage reduction, as 
required under the Affordable Care Act). The FY 2010 operating 
payments also account for provisions under the Affordable Care Act 
that were effective for FY 2010.
    To illustrate the impacts of the proposed FY 2011 changes, our 
analysis begins with a FY 2010 baseline simulation model using: the 
proposed FY 2011 applicable percentage increase of 2.15 percent; the 
FY 2010 MS-DRG GROUPER (Version 27.0); the most current CBSA 
designations for hospitals based on OMB's MSA definitions; the FY 
2010 wage index; and no MGCRB reclassifications. Outlier payments 
are set at 5.1 percent of total operating MS-DRG and outlier 
payments.
    Section 1886(b)(3)(B)(viii) of the Act, as added by section 
5001(a) of Public Law 109-171, provides that, for FY 2007 and 
subsequent years, the update factor will be reduced by 2.0 
percentage points for any hospital that does not submit quality data 
in a form and manner and at a time specified by the Secretary. At 
the time that this impact was prepared, 104 hospitals did not 
receive the full market basket rate-of-increase for FY 2010 because 
they failed the quality data submission process or did not choose to 
participate. For purposes of the simulations shown below, we modeled 
the proposed payment changes for FY 2011 using a reduced update for 
these 104 hospitals. However, we do not have enough information at 
this time to determine which hospitals will not receive the full 
market basket rate-of-increase for FY 2011.
    Each policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2011 model 
incorporating all of the changes. This simulation allows us to 
isolate the effects of each proposed change.
    Our final comparison illustrates the proposed percent change in 
payments per case from FY 2010 to FY 2011. Three factors not 
discussed separately have significant impacts here. The first factor 
is the update to the standardized amount. In accordance with section 
1886(b)(3)(B)(i) of the Act, we are proposing to update the 
standardized amounts for FY 2011 using an applicable percentage 
increase of 2.15 percent. In addition, we are updating the Puerto 
Rico specific amount by an applicable percentage increase of 2.15 
percent. This includes our forecasted hospital market basket 
increase of 2.4 percent with a 0.25 percentage reduction as required 
under the Affordable Care Act. (Hospitals that fail to comply with 
the quality data submission requirements to receive the full update 
will receive an update reduced by 2.0 percentage points from 2.15 
percent to 0.15 percent.) Under section 1886(b)(3)(B)(iv) of the 
Act, the updates to the hospital-specific amounts for SCHs and for 
MDHs are also equal to the market basket percentage increase, or 
2.15 percent.
    A second significant factor that affects the changes in 
hospitals' payments per case from FY 2010 to FY 2011 is the change 
in a hospital's geographic reclassification status from one year to 
the next. That is, payments may be reduced for hospitals 
reclassified in FY 2010 that are no longer reclassified in FY 2011. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2010 that are reclassified in FY 2011.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2010 will be 4.9 percent of total 
MS-DRG payments. Our FY 2010 outlier estimate accounts for changes 
to the FY 2010 IPPS payments required under the Affordable Care Act. 
When the FY 2010 final rule was published, we projected FY 2010 
outlier payments would be 5.1 percent of total MS-DRG plus outlier 
payments; the average standardized amounts were offset 
correspondingly. The effects of the lower than expected outlier 
payments during FY 2010 (as discussed in the Addendum to this 
proposed rule) are reflected in the analyses below comparing our 
current estimates of FY 2010 payments per case to estimated FY 2011 
payments per case (with outlier payments projected to equal 5.1 
percent of total MS-DRG payments).

B. Analysis of Table I

    Table I displays the results of our analysis of the proposed 
changes for FY 2011. The table categorizes hospitals by various 
geographic and special payment consideration groups to illustrate 
the varying impacts on different types of hospitals. The top row of 
the table shows the overall impact on the 3,472 acute care hospitals 
included in the analysis.
    The next four rows of Table I contain hospitals categorized 
according to their geographic location: all urban, which is further 
divided into large urban and other urban; and rural. There are 2,502 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,365 hospitals located in large urban areas 
(populations over 1 million), and 1,137 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
970 hospitals in rural areas. The next two groupings are by bed-size 
categories, shown separately for urban and rural hospitals. The 
final groupings by geographic location are by census divisions, also 
shown separately for urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 2011 payment classifications, including any 
reclassifications under section 1886(d)(10) of the Act. For example, 
the rows labeled urban, large urban, other urban, and rural show 
that the numbers of hospitals paid based on these categorizations 
after consideration of geographic reclassifications (including 
reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of 
the Act that have implications for capital payments) are 2,555; 
1,403; 1,152; and 917, respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive DSH 
payments, or some combination of these two adjustments. There are 
2,434 nonteaching hospitals in our analysis, 798 teaching hospitals 
with fewer than 100 residents, and 240 teaching hospitals with 100 
or more residents.
    In the DSH categories, hospitals are grouped according to their 
DSH payment status, and whether they are considered urban or rural 
for DSH purposes. The next category groups together hospitals 
considered urban or rural, in terms of whether they receive the IME 
adjustment, the DSH adjustment, both, or neither.
    The next five rows examine the impacts of the changes on rural 
hospitals by special payment groups (SCHs, RRCs, and MDHs). There 
were 183 RRCs, 340 SCHs, 187 MDHs, and 108 hospitals that are both 
SCHs and RRCs, and 13 hospitals that are both an MDH and an RRC.
    The next series of groupings are based on the type of ownership 
and the hospital's Medicare utilization expressed as a percent of 
total patient days. These data were taken from the FY 2008 or FY 
2007 Medicare cost reports.
    The next two groupings concern the geographic reclassification 
status of hospitals. The first grouping displays all urban hospitals 
that were reclassified by the MGCRB for FY 2011. The second grouping 
shows the MGCRB rural reclassifications. These groupings account for 
the change in the MGCRB reclassification policy as required under 
the Affordable Care Act.
    The final category shows the impact of the proposed policy 
changes on the 19 cardiac hospitals in our analysis.
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C. Effects of the Proposed Changes to the MS-DRG Reclassifications 
and Relative Cost-Based Weights (Column 1)

    In Column 1 of Table I, we present the effects of the proposed 
MS-DRG reclassifications, as discussed in section II. of the 
preamble to this supplemental proposed rule. Section 
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate 
classification changes in order to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources.
    As discussed in the preamble of the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule, the proposed FY 2011 MS-DRG relative weights 
will be 100 percent cost-based and 100 percent MS-DRGs. For FY 2011, 
the MS-DRGs are calculated using the FY 2009 MedPAR data grouped to 
the Version 28.0 (FY 2011) MS-DRGs. The methods of calculating the 
proposed relative weights and the reclassification changes to the 
grouper are described in more detail in the May 4, 2010 FY 2011 
IPPS/LTCH PPS proposed rule. The proposed changes to the relative 
weights and MS-DRGs shown in Column 2 are prior to any offset for 
budget neutrality. Overall, hospitals will experience a 0.3 percent 
increase in payments due to the changes in the MS-DRGs and relative 
weights prior to budget neutrality. Urban hospitals and rural 
hospitals will experience a 0.3 percent increase in payments under 
the updates to the relative weights and MS-DRGs.

D. Effects of the Application of Recalibration Budget Neutrality 
(Column 2)

    Column 2 shows the effects of the changes to the MS-DRGs and 
relative weights with the application of the recalibration budget 
neutrality factor to the standardized amounts. Consistent with 
section 1886(d)(4)(C)(iii) of the Act, we are calculating a 
recalibration budget neutrality factor to account for the changes in 
MS-DRGs and relative weights to ensure that the overall payment 
impact is budget neutral. We revised the recalibration budget 
neutrality factor in this notice because we applied a 0.25 reduction 
to the market basket update to the standardized amount as required 
under the Affordable Care Act.
    The ``All Hospitals'' line in Column 1 indicates that proposed 
changes due to MS-DRGs and relative weights will increase payments 
by 0.3 percent before application of the budget neutrality factor. 
The proposed recalibration budget neutrality factor is 0.996867, 
which is applied to the standardized amount. Thus, the impact after 
accounting only for budget neutrality for changes to the MS-DRG 
relative weights and classification is somewhat lower than the 
figures shown in Column 1 (approximately 0.3 percent). 
Consequentially, urban and rural hospitals will not experience a 
change in payments when recalibration budget neutrality is applied.

E. Effects of Proposed Wage Index Changes (Column 3)

    Section 1886(d)(3)(E) of the Act requires that, beginning 
October 1, 1993, we annually update the wage data used to calculate 
the wage index. In accordance with this requirement, the proposed 
wage index for acute care hospitals for FY 2011 is based on data 
submitted for hospital cost reporting periods beginning on or after 
October 1, 2006 and before October 1, 2007. The estimated impact of 
the updated wage data on hospital payments is isolated in Column 3 
by holding the other payment parameters constant in this simulation. 
That is, Column 3 shows the percentage change in payments when going 
from a model using the FY 2010 wage index, based on FY 2006 wage 
data, and having a 100-percent occupational mix adjustment applied, 
to a model using the FY 2011 pre-reclassification wage index, also 
having a 100-percent occupational mix adjustment applied, based on 
FY 2007 wage data (while holding other payment parameters such as 
use of the Version 28.0 MS-DRG GROUPER constant). The occupational 
mix adjustment is based on the FY 2008/2009 occupational mix survey. 
The wage data was not affected by any of the provisions under the 
Affordable Care Act for FY 2011.
    Column 3 shows the impacts of updating the wage data using FY 
2007 cost reports. Overall, the new wage data will lead to a 0.0 
percent change for all hospitals before being combined with the wage 
budget neutrality adjustment shown in Column 5. Among the regions, 
the largest increase is in the rural Middle Atlantic region, which 
experiences a 0.4 percent increase before applying an adjustment for 
budget neutrality. The largest decline from updating the wage data 
is seen in Urban East South Central (0.5 percent decrease).

F. Application of the Wage Budget Neutrality Factor (Column 4)

    Column 4 shows the impact of the new wage data with the 
application of the wage budget neutrality factor. In FY 2010, we 
began calculating separate wage budget neutrality and recalibration 
budget neutrality factors, in accordance with section 1886(d)(3)(E) 
of the Act, which specifies that budget neutrality to account for 
wage changes or updates made under that subparagraph must be made 
without regard to the 62 percent labor-related share guaranteed 
under section 1886(d)(3)(E)(ii) of the Act. Therefore, for FY 2011, 
we are calculating the wage budget neutrality factor to ensure that 
payments under updated wage data are budget neutral without regard 
to the lower labor-related share of 62 percent applied to hospitals 
with a wage index less than or equal to 1. In other words, the wage 
budget neutrality is calculated under the assumption that all 
hospitals receive the higher labor-related share of the standardized 
amount. The wage budget neutrality factor is revised because the 
market basket update to the standardized amount was reduced by 0.25 
percent under the Affordable Care Act. Because the wage data changes 
did not change overall payments (displayed in Column 3), the revised 
wage budget neutrality factor is 1.00007, and the overall payment 
change is 0.0 percent.

G. Combined Effects of Proposed MS-DRG and Wage Index Changes 
(Column 5)

    Section 1886(d)(4)(C)(iii) of the Act requires that changes to 
MS-DRG reclassifications and the relative weights cannot increase or 
decrease aggregate payments. In addition, section 1886(d)(3)(E) of 
the Act specifies that any updates or adjustments to the wage index 
are to be budget neutral. We computed a proposed wage budget 
neutrality factor of 1.00007, and a proposed recalibration budget 
neutrality factor of 0.996867 (which is applied to the Puerto Rico 
specific standardized amount and the hospital-specific rates). The 
product of the two budget neutrality factors is the cumulative wage 
and recalibration budget neutrality factor. The proposed cumulative 
wage and recalibration budget neutrality adjustment is 0.996937, or 
approximately -0.3 percent, which is applied to the national 
standardized amounts. Because the wage budget neutrality and the 
recalibration budget neutrality are calculated under different 
methodologies according to the statute, when the two budget 
neutralities are combined and applied to the standardized amount, 
the overall payment impact is not necessarily budget neutral. 
However, in this proposed rule, we are estimating that the proposed 
changes in the MS-DRG relative weights and updated wage data with 
wage and budget neutrality applied will result in a 0.0 change in 
payments.
    We estimate that the combined impact of the proposed changes to 
the relative weights and MS-DRGs and the proposed updated wage data 
with budget neutrality applied will result in no change in payments 
for urban or rural hospitals. Urban New England would experience a 
0.6 decrease in payments due to reductions in their case-mix and 
wages compared to the national average, while the urban Pacific area 
would experience a 0.5 percent increase in payments because of above 
average increases in wages and case-mix. Among the rural hospital 
categories, rural South Atlantic hospitals would experience the 
greatest decline in payment (-0.9 percent) primarily due to the 
changes to MS-DRGs and the relative cost weights.

H. Effects of MGCRB Reclassifications (Column 6)

    Our impact analysis to this point has assumed acute care 
hospitals are paid on the basis of their actual geographic location 
(with the exception of ongoing policies that provide that certain 
hospitals receive payments on other bases than where they are 
geographically located). The changes in Column 6 reflect the per 
case payment impact of moving from this baseline to a simulation 
incorporating the MGCRB decisions for FY 2011 which affect 
hospitals' wage index area assignments.
    By spring of each year, the MGCRB makes reclassification 
determinations that will be effective for the next fiscal year, 
which begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's 
wage index value. Hospitals may appeal denials of MGCRB decisions to 
the CMS Administrator. Further, hospitals have 45 days from 
publication of the IPPS rule in the Federal Register to decide 
whether to withdraw or terminate an approved geographic 
reclassification for the following year. Provisions in the 
Affordable Care Act required us to revert to FY 2008 average

[[Page 31103]]

hourly wage reclassification criteria for reclassifications 
effective in FY 2011. Therefore, additional hospitals will qualify 
for MGCRB reclassification compared to the FY 2011 IPPS/LTCH PPS 
proposed rule (or will qualify for their primary reclassification), 
published on May 4, 2010. This column reflects an expectation that 
these additional hospitals will qualify for geographic 
reclassification.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, 
for the purposes of this impact analysis, we are applying an 
adjustment of 0.995425 to ensure that the effects of the section 
1886(d)(10) reclassifications are budget neutral (section II.A. of 
the Addendum to this supplemental proposed rule). Geographic 
reclassification generally benefits hospitals in rural areas. We 
estimate that geographic reclassification will increase payments to 
rural hospitals by an average of 1.6 percent. By region, all the 
rural hospital categories will experience increases in payments due 
to MGCRB reclassification where rural hospitals in the Mountain 
region will experience a 0.1 percent increase in payments and rural 
hospitals in the East South Central region will experience a 2.4 
percent increase in payments.
    Table 9A of the Addendum to this proposed rule reflects the 
approved reclassifications for FY 2011.

I. Effects of the Rural Floor and Imputed Floor, Including 
Application of National Budget Neutrality (Column 7)

    As discussed in section III.B. of the preamble of the FY 2009 
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH final rule and this 
proposed rule, section 4410 of Public Law 105-33 established the 
rural floor by requiring that the wage index for a hospital in any 
urban area cannot be less than the wage index received by rural 
hospitals in the same State. In FY 2008, we changed how we applied 
budget neutrality to the rural floor. Rather than applying a budget 
neutrality adjustment to the standardized amount, a uniform budget 
neutrality adjustment is applied to the wage index. In the FY 2009 
final rule, we finalized the policy to apply the rural floor budget 
neutrality at the State level with a 3-year transition. In FY 2009, 
hospitals received a blended wage index that is 20 percent of a wage 
index with the State level rural and imputed floor budget neutrality 
adjustment and 80 percent of a wage index with the national budget 
neutrality adjustment. In FY 2010, hospitals received a blended wage 
index that is 50 percent of a wage index with the State level rural 
and imputed floor budget neutrality and 50 percent of a wage index 
with the national budget neutrality adjustment. For FY 2011, the 
Affordable Care Act requires that we apply one rural floor budget 
neutrality to the wage index, nationally. The proposed FY 2011 rural 
floor budget neutrality factor applied to the wage index is 
0.995425.
    Furthermore, the FY 2005 IPPS final rule (69 FR 49109) 
established a temporary imputed floor for all urban States from FY 
2005 to FY 2007. The rural floor requires that an urban wage index 
cannot be lower than the wage index for any rural hospital in that 
State. Therefore, an imputed floor was established for States that 
do not have rural areas or rural IPPS hospitals. In the FY 2008 IPPS 
final rule with comment period (72 FR 47321), we finalized our 
proposal to extend the imputed floor for 1 additional year. In the 
FY 2009 IPPS final rule (73 FR 48573), we extended the imputed floor 
for an additional 3 years through FY 2011. In the FY 2011 IPPS/LTCH 
PPS proposed rule published on May 4, 2010, we applied rural floor 
budget neutrality at the State-level. However, the Affordable Care 
Act requires that, effective for FY 2011, we apply rural floor and 
imputed floor budget neutrality at the national level, as we did in 
FY 2008.
    Column 7 shows the projected impact of the rural floor and the 
imputed floor with the national rural and imputed floor budget 
neutrality factor applied to the wage index. The column compares the 
proposed post-reclassification FY 2011 wage index of providers 
before the rural floor adjustment and the post-reclassification FY 
2011 wage index of providers with the rural floor and imputed floor 
adjustment. Only urban hospitals can benefit from the rural floor 
provision. Because the provision is budget neutral, all other 
hospitals (that is, all rural hospitals and those urban hospitals to 
which the adjustment is not made) experience a decrease in payments 
due to the budget neutrality adjustment applied nationally to their 
wage index.
    We project that, in aggregate, rural hospitals will experience a 
0.1 percent decrease in payments as a result of the application of 
rural floor budget neutrality because the rural hospitals located in 
States with a rural floor do not benefit from the rural floor, but 
have their wage indexes downwardly adjusted to ensure that the 
application of the rural floor is budget neutral overall within the 
State. We project hospitals located in other urban areas 
(populations of 1 million or fewer) will experience a 0.1 percent 
increase in payments because those providers benefit from the rural 
floor. Urban hospitals in the Pacific region can expect 0.9 percent 
increase in payments because a large percentage of hospitals in this 
region receive the rural floor. Urban hospitals in the Middle 
Atlantic can expect a 0.1 percent increase in payments because New 
Jersey hospitals receive the imputed floor with a national budget 
neutrality adjustment. Rural hospitals in all regions can expect a 
0.1 to 0.2 percent decrease in payments because the rural and 
imputed floors only benefit urban hospitals.

J. Effects of the Proposed Application of the Frontier Wage Index 
(Column 8)

    Section 10324(a) of Affordable Care Act requires that we 
establish a minimum post-reclassified wage-index of 1.00 for all 
hospitals located in Frontier States. Frontier States are defined in 
the statute as States with at least 50 percent of its counties with 
a population density lesser than 6 persons per square mile. Based on 
these criteria, five States (Montana, North Dakota, Nevada, South 
Dakota, and Wyoming) are considered Frontier States and 51 hospitals 
located in those States would receive a frontier wage index of 1.0. 
This provision is not budget neutral and is estimated to increase 
IPPS operating payments by approximately $48 million.
    Urban hospitals located in the West North Central region and 
urban hospitals located in the Mountain region will experience an 
increase in payments by 0.5 percent and 0.2, respectively, because 
many of the hospitals located in this region are frontier hospitals. 
Similarly, rural hospitals located in the West North Central and 
rural hospitals in the Mountain region will experience an increase 
in payments by 0.1 and 0.5, respectively.

K. Effects of the Proposed Wage Index Adjustment for Out-Migration 
(Column 9)

    Section 1886(d)(13) of the Act, as added by section 505 of 
Public Law 108-173, provides for an increase in the wage index for 
hospitals located in certain counties that have a relatively high 
percentage of hospital employees who reside in the county, but work 
in a different area with a higher wage index. Hospitals located in 
counties that qualify for the payment adjustment are to receive an 
increase in the wage index that is equal to a weighted average of 
the difference between the wage index of the resident county, post-
reclassification and the higher wage index work area(s), weighted by 
the overall percentage of workers who are employed in an area with a 
higher wage index. With the out-migration adjustment, small rural 
providers with less than 100 beds will experience a 0.5 percent 
increase in payments in FY 2011 relative to no adjustment at all. We 
included these additional payments to providers in the impact table 
shown above, and we estimate the impact of these providers receiving 
the out-migration increase to be approximately $20 million.

L. Effects of All Proposed Changes Prior to Documentation and 
Coding (or CMI) Adjustment (Column 10)

    Column 10 shows our estimate of the changes in payments per 
discharge from FY 2010 and FY 2011, resulting from all proposed 
changes reflected in this supplemental rule and the May 4, 2010 
IPPS/LTCH PPS proposed rule for FY 2011 (including statutory 
changes), other than the proposed documentation and coding 
adjustment. Column 10 reflects the impact of all other FY 2011 
changes relative to FY 2010, including those shown in Columns 1 
through 9. We note that our baseline FY 2010 operating estimates 
account for the provisions under the Affordable Care Act that 
affected the FY 2010 operating payments. The average increase in 
payments under the IPPS for all hospitals is approximately 2.0 
percent. This includes the 2.15 percent applicable percentage 
increase (including the -0.25 reduction to the market basket 
increase required under the Affordable Care Act). In addition, it 
reflects the estimated 0.2 percentage point difference between the 
projected outlier payments in FY 2010 (5.1 percent of total MS-DRG 
payments), the current estimate of the percentage of actual outlier 
payments in FY 2010 (4.9 percent) as described in the introduction 
to this Appendix and the Addendum to this

[[Page 31104]]

proposed rule. Finally, it accounts for -0.2 percent decrease in 
payments due to the expiration of Section 508 reclassifications that 
had been extended for FY 2010 under the Affordable Care Act.
    There might also be interactive effects among the various 
factors comprising the payment system that we are not able to 
isolate. For these reasons, the values in Column 10 may not equal 
the sum of the percentage changes described above.

M. Effects of All FY 2011 Proposed Changes With CMI Adjustment 
(Column 11)

    Column 11 shows our estimate of the changes in payments per 
discharge from FY 2010 and FY 2011, resulting from all proposed 
changes reflected in the May 4, 2010 IPPS/LTCH PPS proposed rule for 
FY 2011 and provisions described in this supplemental proposed rule 
required under the Affordable Care (including statutory changes). 
The FY 2010 baseline estimates account for the provisions under the 
Affordable Care Act that affected the FY 2010 operating payments. 
Specifically, the FY 2010 baseline payment estimates account for the 
additional -0.25 reduction in the applicable percentage increase 
applied to discharges for FY 2010 discharges occurring on or after 
April 1, 2010 and accounts for the extension of Section 508 
reclassifications for FY 2010. As discussed in the FY 2011 IPPS/LTCH 
PPS proposed rule, this column includes the proposed FY 2011 
documentation and coding adjustment of -2.9 percent on the national 
standardized amount, -2.9 percent on the hospital-specific rates, 
and -2.4 percent on the Puerto Rico-specific standardized amount, 
which overall accounts for a 2.9 percent decrease in payments.
    The average decrease in payments under the IPPS for all 
hospitals is approximately -0.9 percent. As described in Column 10, 
this average decrease includes the effects of the 2.15 percent 
market basket update (including the -0.25 reduction in the 
applicable percentage increase required under the Affordable Care 
Act), the 0.2 percentage point difference between the projected 
outlier payments in FY 2011 (5.1 percent of total MS-DRG payments), 
and the current estimate of the percentage of actual outlier 
payments in FY 2010 (4.9 percent). In addition, it includes a -0.2 
percent decrease in payments due to the expiration of Section 508 
reclassifications that had been extended for FY 2010 under the 
Affordable Care Act. Section 508 reclassification was not a budget-
neutral provision. There might also be interactive effects among the 
various factors comprising the payment system that we are not able 
to isolate. For these reasons, the values in Column 11 may not equal 
the sum of the percentage changes described above.
    The overall proposed change in payments per discharge for 
hospitals paid under the IPPS in FY 2011 is estimated to decrease by 
0.9 percent. The payment decreases among the hospital categories are 
largely attributed to the proposed documentation and coding 
adjustments. Hospitals in urban areas would experience an estimated 
0.8 percent decrease in payments per discharge in FY 2011 compared 
to FY 2010. Hospital payments per discharge in rural areas are 
estimated to decrease by 1.4 percent in FY 2011 as compared to FY 
2010. The decreases larger than the national average for rural areas 
are largely attributed to the differential impact of the MS-DRGs and 
wage data and due to the -2.9 percent documentation and coding 
adjustment applied to the national standardized amount and the -2.9 
percent documentation and coding adjustment to the hospital-specific 
rate applied to SCHs and MDHs, which generally are classified as 
rural hospitals.
    Among urban census divisions, the largest estimated payment 
decreases will be 2.0 percent in the New England region and 1.4 
percent in the Middle Atlantic region because many of the urban 
providers in these regions had benefited from Section 508 
reclassification in FY 2010 that has expired for FY 2011. Urban 
hospitals in the Pacific will see the largest payment increases (0.6 
percent) because urban providers in this region will benefit from 
the rural floor and application of a national rural floor budget 
neutrality factor. Among the rural regions, the providers in the New 
England region will experience the largest decrease in payments (2.3 
percent) because of the expiration of Section 508 reclassifications 
while rural hospitals in the Mountain region will experience the 
smallest decreases in payments by 0.4 percent because the rural 
providers in this region benefit from MGCRB reclassification and the 
Frontier wage index provision, required under the Affordable Care 
Act.
    Among special categories of rural hospitals, MDHs will receive 
an estimated payment decrease of 1.1 percent. MDHs are paid the 
higher of the IPPS rate based on the national standardized amount, 
that is, the Federal rate, or, if the hospital-specific rate exceeds 
the Federal rate, the Federal rate plus 75 percent of the difference 
between the Federal rate and the hospital-specific rate. MDHs will 
experience a decrease in payments because of the proposed 
documentation and coding adjustments applied to both the hospital-
specific rate and the Federal rate. SCHs are also paid the higher of 
their hospital-specific rate or the Federal rate. Overall, SCHs will 
experience an estimated decrease in payments by 1.8 percent due to 
the proposed documentation and coding adjustments to the national 
standardized amount and the hospital-specific rates.
    Rural hospitals reclassified for FY 2011 are anticipated to 
receive a 1.0 percent payment decrease, and rural hospitals that are 
not reclassifying are estimated to receive a payment decrease of 1.9 
percent.
    Cardiac hospitals are expected to experience a payment increase 
of 0.3 percent in FY 2011 relative to FY 2010 due to increases in 
payments attributable to changes in the MS-DRGs and relative 
weights.

N. Impact Analysis of Table II

    Table II presents the projected impact of the proposed changes 
for FY 2011 as published in the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule and the provisions required under the Affordable Care 
Act in this notice for urban and rural hospitals and for the 
different categories of hospitals shown in Table I. It compares the 
estimated average payments per discharge for FY 2010 with the 
proposed payments per discharge for FY 2011, as calculated under our 
models. The estimated FY 2010 payments per discharge incorporate the 
provisions in the Affordable Care Act. Thus, this table presents, in 
terms of the average dollar amounts paid per discharge, the combined 
effects of the proposed changes presented in Table I. The estimated 
percentage changes shown in the last column of Table II equal the 
estimated percentage changes in average payments per discharge from 
Column 11 of Table I.
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VII. Effects of Other Supplemental Proposed Policy Changes

    In addition to those supplemental proposed policy changes 
discussed above that we are able to model using our IPPS payment 
simulation model, we are proposing to make various other changes in 
this supplemental proposed rule. Generally, we have limited or no 
specific data available with which to estimate the impacts of these 
changes. Our estimates of the likely impacts associated with these 
other supplemental proposed changes are discussed below.

A. Effects of the Supplemental Proposed Low-Volume Hospital Payment 
Adjustment: Changes for FYs 2011 and 2012

    The low-volume hospital payment adjustment changes for FYs 2011 
and 2012, as discussed in section II.C. of the preamble to this 
supplemental proposed rule, expands eligibility for the low-volume 
hospital payment adjustment to hospitals with less than 1,600 
Medicare discharges (instead of the prior requirement of less than 
800 total, Medicare and non-Medicare, discharges) and more than 15 
miles from other IPPS hospitals (rather than the prior requirement 
of more than 25 miles). The payment adjustment is changed also, from 
an empirically determined (69 FR 49099 through 49102 and 70 FR 47432 
through 47434) additional 25 percent payment adjustment to 
qualifying hospitals with less than 200 total discharges, to a 
continuous, linear sliding scale adjustment ranging from an 
additional 25 percent payment adjustment to hospitals with 200 or 
less Medicare discharges to no additional payment to hospitals with 
1,600 or more Medicare discharges.
    We estimate, based on FY 2009 claims (MedPAR) data, an 
additional 1,524 hospitals would meet the Medicare discharges 
criterion to qualify as a low-volume hospital. However, we are not 
able to estimate the number of these 1,524 hospitals that would also 
meet the distance criterion. The actual number of hospitals that 
would also meet the distance criterion to qualify as a low-volume 
hospital would be less, very likely much less, than the estimated 
1,524 maximum number of potential low-volume hospitals for FY 2011. 
If all 1,524 hospitals that meet the Medicare discharge requirement 
also meet the distance requirement, the additional Medicare IPPS 
dollars the temporary change to the low-volume hospital payment 
adjustment would require, at most, based on each hospital's number 
of Medicare discharges and the corresponding payment adjustment 
amount, an estimated $877 million for FY 2011. At this time, we are 
not able to estimate the impact of the change for FY 2012.

B. Effects of the Supplemental Proposed Change for Medicare-
Dependent, Small Rural Hospitals

    As discussed in section II.D. of the preamble to this 
supplemental proposed rule, section 3124 of Public Law 111-148 
extends the MDH program for 1 additional year, from the end of FY 
2011 (that is, for discharges before October 1, 2011) to the end of 
FY 2012 (that is, for discharges before October 1, 2012). The 
extension has no impact on FY 2011. For FY 2012, the extension 
allows the continuation of MDH status and the payment methodology, 
for an MDH to be paid its hospital-specific rate, based on its FY 
1982, 1987, or 2002 costs per discharge, rather than the Federal 
rate, if this results in a greater aggregate payment (section II.D. 
of the preamble to this supplemental proposed rule). Therefore, the 
impact of the extension is one additional year of hospital-specific 
rate payments for MDHs rather than Federal rate payments for IPPS 
hospitals without special treatment as an MDH.

C. Effects of the Supplemental Proposed Additional Payments to 
Qualifying Hospitals in Low Medicare Spending Counties

    Under section 1109 of Public Law 111-152, Congress has allocated 
$400 million to be spent for FYs 2011 and 2012 to qualifying 
hospitals located in the bottom quartile of counties with the lowest 
Medicare Part A and Part B spending per enrollee. In our proposal 
described in section II.E. of the preamble to this supplemental 
proposed rule, we have identified the list of eligible counties and 
the qualifying hospitals located in those counties that would 
receive the $400 million. We are proposing to spend $200 million in 
FY 2011 and $200 million in FY 2012. This money will be given to the 
qualifying hospitals by the FI or A/B MAC through a one-time annual 
payment. In section II.E. of the preamble to this supplemental 
proposed rule, Table 2 lists the distribution of payments among the 
proposed list of qualifying hospitals. In addition, Table 3 in 
section II.E. of the preamble to this supplemental

[[Page 31108]]

proposed rule lists the distribution of payment by State for FY 
2011.

D. Effects of the Supplemental Proposed Implementation of the Rural 
Community Hospital Demonstration Program

    In section II.F. of the preamble of this supplemental rule, we 
discuss our implementation of section 410A of Public Law 108-173, 
which required the Secretary to establish a demonstration that would 
modify reimbursement for inpatient services for up to 15 small rural 
hospitals. Section 410A(c)(2) Public Law 108-173 requires that 
``[i]n conducting the demonstration program under this section, the 
Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have 
paid if the demonstration program under this section was not 
implemented.'' As discussed in section II.F. of the preamble of this 
supplemental rule, in the IPPS final rule for each of the previous 6 
fiscal years, we have estimated the additional payments as a result 
of the demonstration for each of the participating hospitals. In 
order to achieve budget neutrality, we are proposing to adjust the 
national IPPS rates by an amount sufficient to account for the added 
costs of this demonstration. In other words, we are proposing to 
apply budget neutrality across the payment system as a whole rather 
than merely across the participants of this demonstration. We 
believe that the language of the statutory budget neutrality 
requirement permits the agency to implement the budget neutrality 
provision in this manner. The statutory language requires that 
``aggregate payments made by the Secretary do not exceed the amount 
which the Secretary would have paid if the demonstration * * * was 
not implemented'' but does not identify the range across which 
aggregate payments must be held equal.
    An extension of this demonstration has been mandated by the 
Affordable Care Act. The demonstration will be extended for an 
additional 5 years and expanded to up to 30 hospitals. We are 
proposing to make an adjustment in the FY 2011 IPPS/LTCH PPS final 
rule of $69,279,673 to the national IPPS rates. This amount 
($69,279,673) accounts for the following: (1) An estimate of the 
demonstration cost for FY 2011 for the 10 hospitals that are 
currently participating in the demonstration; (2) an estimate of the 
cost of the continuation of the 7 hospitals that have participated 
in the demonstration since its inception and that are still 
participating--for the portions of their cost reporting periods in 
FY 2010 that are not covered in the estimated cost of the 
demonstration in the FY 2010 IPPS final rule because we formulated 
these estimates under the assumption that the demonstration would 
end in FY 2010; and (3) an estimate of the cost of participation in 
the demonstration for 20 additional hospitals in FY 2011. Not 
included in this amount is an adjustment that we proposed to make in 
addition for the FY 2011 IPPS/LTCH PPS final rule to account for any 
differences between the cost of the demonstration program for 
hospitals participating in the demonstration during FY 2007, as 
indicated by their settled cost reports beginning in FY 2007, and 
the amount that was offset by the budget neutrality adjustment for 
FY 2007. The specific numeric value associated with this component 
of the proposed adjustment to the national IPPS rates cannot be 
known until cost reports beginning in FY 2007 for the hospitals 
participating during FY 2007 in the demonstration are settled. We 
expect those cost reports to be settled prior to the publication of 
the FY 2011 IPPS/LTCH PPS final rule, and that we will be able to 
incorporate the estimated amount in the FY 2011 IPPS/LTCH PPS final 
rule.

E. Effects of the Supplemental Proposed Payment for Critical Access 
Hospital Outpatient Services and Ambulance Services

    In section II.H. of the preamble of this supplemental proposed 
rule, we discuss our proposal to implement section 3128 of Public 
Law 111-148 by amending the regulations at Sec.  413.70(b)(3)(ii)(A) 
to state that, effective for cost reporting periods beginning on or 
after January 1, 2004, payment for outpatient facility services 
under the optional method will also be made at 101 percent of 
reasonable costs. We are also proposing to amend the regulations at 
Sec.  413.70(b)(5)(i) to state that effective for cost reporting 
periods beginning on or after January 1, 2004, payment for ambulance 
services furnished by a CAH or an entity that is owned and operated 
by a CAH is 101 percent of the reasonable costs of the CAH or the 
entity in furnishing those services, but only if the CAH or the 
entity is the only provider or supplier of ambulance services 
located within a 35-mile drive of the CAH or the entity. We do not 
believe these proposals will result in additional payments to CAHs 
for prior periods because we believe that in fact we have paid CAHs 
for these services at 101 percent of reasonable costs during these 
prior periods.

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

    Provisions of Public Law 111-148 necessitated revising the May 
4, 2010 FY 2011 IPPS/LTCH PPS proposed rule. While the proposed IPPS 
payment rates for capital-related costs were not directly affected 
by provisions of Public Law 111-148, changes to the wage index as 
well as to the outlier payment adjustment factor were required by 
the law. Changes to the wage index affect the geographic adjustment 
factor (GAF) under the capital IPPS which is used in conjunction 
with a factor for changes in DRG classifications and weights to 
determine a proposed budget neutrality adjustment factor in 
calculating the proposed capital IPPS rate. A revision of the 
proposed outlier payment adjustment factor was required because both 
inpatient operating and inpatient capital-related payments use a 
single set of thresholds to identify outlier cases. Changes 
resulting from the provisions of Public Law 111-148 are discussed in 
more detail in section II.A. of the preamble of this supplemental 
proposed rule.
    The data used in developing the impact analysis presented below 
are the same as that used for the impact analysis in the May 4, 2010 
FY 2011 IPPS/LTCH PPS proposed rule--the December 2009 update of the 
FY 2009 MedPAR file and the December 2009 update of the Provider-
Specific File (PSF) that is used for payment purposes. Although the 
analyses of the changes to the capital prospective payment system do 
not incorporate cost data, we used the December 2009 update of the 
most recently available hospital cost report data (FYs 2006 and 
2007) to categorize hospitals. Our analysis has several 
qualifications. We use the best data available and make assumptions 
about case-mix and beneficiary enrollment as described below. In 
addition, as discussed in section V.E. of the Preamble to the May 4, 
2010 FY 2011 IPPS/LTCH PPS proposed rule, we are proposing a -2.9 
percent documentation and coding adjustment to the national capital 
rate for FY 2011 in addition to the -0.6 percent adjustment 
established for FY 2008, and the -0.9 percent adjustment for FY 
2009. This results in a cumulative adjustment factor of 0.957 that 
we are proposing to apply to the national capital rate to account 
for improvements in documentation and coding under the MS-DRGs in FY 
2011. We also are proposing to adjust the Puerto Rico-specific 
capital rate in FY 2011 to account for changes in documentation and 
coding resulting from the adoption of the MS-DRGs.
    Due to the interdependent nature of the IPPS, it is very 
difficult to precisely quantify the impact associated with each 
change. In addition, we draw upon various sources for the data used 
to categorize hospitals in the tables. In some cases (for instance, 
the number of beds), there is a fair degree of variation in the data 
from different sources. We have attempted to construct these 
variables with the best available sources overall. However, for 
individual hospitals, some miscategorizations are possible.
    Using cases from the December 2009 update of the FY 2009 MedPAR 
file, we simulated payments under the capital IPPS for revised FY 
2010 and revised FY 2011 (both years have been revised to account 
for provisions in the Affordable Care Act that required changes to 
the wage index and outlier threshold, as discussed above in this 
section) for a comparison of total payments per case. Any short-
term, acute care hospitals not paid under the general IPPS (Indian 
Health Service hospitals and hospitals in Maryland) are excluded 
from the simulations.
    The basic methodology for determining a capital IPPS payment is 
set forth at Sec.  412.312. The basic methodology for calculating 
capital IPPS payments in FY 2011 is as follows:
    (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for 
hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment Factor 
+ IME adjustment factor, if applicable).
    In addition to the other adjustments, hospitals may also receive 
outlier payments for those cases that qualify under the threshold 
established for each fiscal year. We modeled payments for each 
hospital by multiplying the capital Federal rate by the GAF and the 
hospital's case-mix. We then added estimated payments for indirect 
medical education, disproportionate share, and outliers, if 
applicable. For purposes of

[[Page 31109]]

this impact analysis, the model includes the following assumptions 
(we note that these are the same assumptions used for the impact 
analysis in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24310):
    <bullet> We estimate that the Medicare case-mix index will 
increase by 1.0 percent in both FYs 2010 and 2011.
    <bullet> We estimate that the Medicare discharges will be 
approximately 11.8 million in FY 2010 and 12 million FY 2011.
    <bullet> The capital Federal rate was updated beginning in FY 
1996 by an analytical framework that considers changes in the prices 
associated with capital-related costs and adjustments to account for 
forecast error, changes in the case-mix index, allowable changes in 
intensity, and other factors. The proposed factors used in the 
update framework are not affected by the provisions of Pub. L. 111-
148, as amended, and therefore, remains at the proposed 1.5 percent 
for FY 2011, as discussed in section III.A.1. of the May 4, 2010 FY 
2011 I PPS/LTCH PPS proposed rule.
    <bullet> In addition to the proposed FY 2011 update factor, the 
proposed FY 2011 capital Federal rate was calculated based on a 
proposed GAF/DRG budget neutrality factor of 1.0015, a proposed 
outlier adjustment factor of 0.9432, and a proposed (special) 
exceptions adjustment factor of 0.9997.
    <bullet> For FY 2011, as discussed above and in section V.E. of 
the preamble to the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, 
we are proposing to apply a 0.957 adjustment to the proposed FY 2011 
national capital rate for changes in documentation and coding that 
are expected to increase case-mix under the MS-DRGs.

B. Results

    We used the actuarial model described above to estimate the 
potential impact of our proposed changes for FY 2011 on total 
capital payments per case, using a universe of 3,472 hospitals. As 
described above, the individual hospital payment parameters are 
taken from the best available data, including the December 2009 
update of the FY 2009 MedPAR file, the December 2009 update to the 
PSF, and the most recent cost report data from the December 2009 
update of HCRIS. In Table III, we present a comparison of estimated 
total payments per case for FY 2010, as revised per the Affordable 
Care Act, compared to FY 2011 based on the proposed FY 2011 payment 
policies. Column 2 shows estimates of payments per case under our 
model for FY 2010 (as revised). Column 3 shows estimates of payments 
per case under our model for FY 2011. Column 4 shows the total 
percentage change in payments from revised FY 2010 to FY 2011. The 
change represented in Column 4 includes the proposed 1.5 percent 
update to the capital Federal rate and other proposed changes in the 
adjustments to the capital Federal rate. The comparisons are 
provided by: (1) Geographic location; (2) region; and (3) payment 
classification.
    The simulation results show that, on average, capital payments 
per case in FY 2011 are expected to decrease as compared to capital 
payments per case in FY 2010. The proposed capital rate for FY 2011 
would increase 1.5 percent as compared to the FY 2010 capital rate. 
The proposed changes to the GAFs are expected to result, on average, 
in a slight decrease in capital payments, although, for rural 
regions, it is more of a contributing factor to the overall decrease 
in capital payments than to urban areas mostly due to the 
application of the rural floor to the wage index. We also are 
estimating an increase in outlier payments from FY 2010 to FY 2011 
due primarily to an estimated decrease in capital IPPS payments per 
discharge. Since capital payments per discharge are projected to be 
slightly lower in FY 2011 compared to FY 2010, more cases would 
qualify for outlier payments. Because our impact analysis includes 
actuarial assumptions of growth from FY 2010 to FY 2011, the 
analysis shows a slight increase in capital payments. However, the 
net impact of these proposed changes is an estimated -0.2 percent 
change in capital payments per discharge from FY 2010 to FY 2011 for 
all hospitals (as shown below in Table III).
    The geographic comparison shows that, on average, all urban 
hospitals, as well as hospitals in large urban areas, are expected 
to experience a 0.1 percent decrease in capital IPPS payments per 
case in FY 2011 as compared to FY 2010. Capital IPPS payments per 
case for rural hospitals are expected to decrease 0.6 percent.
    The change comparisons by regions show some regions experiencing 
slight increases in total capital payments, while other regions are 
estimated to experience slight decreases in capital payments from FY 
2010 to FY 2011. For the urban regions, changes in capital payments 
range from a -1.6 percent in the New England region to an increase 
of 1.4 percent for the Pacific region. The rural regions show 
estimates of a -2.4 percent change in capital payments from FY 2010 
to FY 2011 in the New England rural region to a 2.1 percent increase 
for the Mountain rural region.
    By type of ownership, proprietary hospitals are estimated to 
experience a 0.2 percent change in capital payments, voluntary 
hospitals are estimated to experience a 0.3 percent decrease in 
capital payments per case, while there is no change estimated for 
government hospitals in capital payments per case from FY 2010 to FY 
2011.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2011. Reclassification for wage index purposes also affects the GAFs 
because that factor is constructed from the hospital wage index.
    To present the effects of the hospitals being reclassified for 
FY 2011, we show the average capital payments per case for 
reclassified hospitals for FY 2010, as revised per the Affordable 
Care Act. All classifications of reclassified hospitals are expected 
to experience a decrease in capital payments in FY 2011 as compared 
to FY 2010. Urban reclassified and rural reclassified hospitals are 
expected to have a decrease in capital payments of -0.4 percent and 
-0.3 percent, respectively. No change is estimated in capital 
payments for urban non-reclassified hospitals, while rural non-
reclassified hospital capital payments are estimated to decrease 0.9 
percent. Other reclassified hospitals (that is, hospitals 
reclassified under section 1886(d)(8)(B) of the Act) are expected to 
experience a decrease of 1.6 percent in capital payments from FY 
2010 to FY 2011.
BILLING CODE 4120-01-P


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IX. Effects of Supplemental Proposed Payment Rate Changes and Policy 
Changes Under the LTCH PPS

A. Introduction and General Considerations

    In section II.J. of the preamble and section III. of the 
Addendum of this proposed rule, we are setting forth the proposed 
annual update to the payment rates for the LTCH PPS for FY 2011. In 
the preamble, we specify the statutory authority for the proposed 
provisions that are presented, identify those proposed policies and 
present rationale for our decisions as well as alternatives that 
were considered. In this section IX. of Appendix to this 
supplemental proposed rule, we discuss the impact of the proposed 
changes to the payment rates, factors, and other payment rate 
policies related to the LTCH PPS that are presented in the preamble 
of this proposed rule in terms of their estimated fiscal impact on 
the Medicare budget and on LTCHs.
    A number of the provisions of the Affordable Care Act affect the 
IPPS and the LTCH PPS and the providers and suppliers addressed in 
the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule and this 
supplemental proposed rule. The impacts of the Appendix to this 
supplemental proposed rule include the provisions from these laws 
effective for FY 2011.
    Currently, our database of 421 LTCHs includes the data for 77 
nonprofit (voluntary ownership control) LTCHs and 301 proprietary 
LTCHs. Of the remaining 43 LTCHs, 12 LTCHs are government-owned and 
operated and the ownership type of the other 31 LTCHs is unknown. In 
the impact analysis, we are using the proposed rates, factors, and 
policies presented in this supplemental proposed rule, including the 
0.50 percentage point reduction to the market basket update required 
by sections 1886(m)(3) and (4) of the Act and the proposed updated 
wage index values and the labor-related share (presented in the May 
4, 2010 FY 2010 IPPS/LTCH PPS proposed rule), and the best available 
claims and CCR data to estimate the change in payments for FY 2011. 
The standard Federal rate for RY 2010 is $39,794.95, which reflects 
the 0.25 percentage point reduction applied to the RY 2010 market 
basket update required under sections 1886(m)(3) and (4) of the Act 
(as established in a separate notice published elsewhere in this 
Federal Register). Discharges in RY 2010 occurring on or after April 
1, 2010 are aid under the revised RY 2010 standard Federal rate 
consistent with section 3401(p) of Public Law 111-148. Discharges in 
RY 2010 occurring on or after October 1, 2009 and on or before March 
31, 2010 are paid under the standard Federal rate of $39,896.65 (see 
74 FR 44022).
    As discussed in section III.A.3. of the Addendum to this 
proposed rule, consistent with our historical practice, we are 
proposing to update the standard Federal rate for FY 2011 by -0.59 
percent in order to establish the proposed FY 2011 standard Federal 
rate at $39,560.16. This includes a proposed market basket update of 
2.4 percent with a 0.50 percentage point reduction as required under 
sections 1886(m)(3) and (4) of the Act, and a proposed documentation 
and coding adjustment of -2.5 percent to account for increases in 
case-mix associated with the adoption of the MS-LTC-DRGs. Based on 
the best available data for the 421 LTCHs in our database, we 
estimate that the proposed update to the standard Federal rate for 
FY 2011 (discussed in section III.A.3. of the Addendum of this 
supplemental proposed rule) and the proposed changes to the area 
wage adjustment for FY 2011 (discussed in section V.B. of the 
Addendum to the May 4, 2010 IPPS/LTCH PPS FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24085 through 24086)), in addition to an 
estimated increase in HCO payments and an estimated increase in SSO 
payments, would result in an increase in estimated payments from RY 
2010 of approximately $12.9 million (or about 0.3 percent). Based on 
the 421 LTCHs in our database, we estimate RY 2011 LTCH PPS payments 
to be approximately $4.913 billion, an increase from FY 2010 LTCH 
PPS

[[Page 31112]]

payments of approximately $4.901 billion. Because the combined 
distributional effects and estimated changes to the Medicare program 
payments would be greater than $100 million, this proposed rule, in 
conjunction with the May 4, 2010 IPPS/LTCH PPS FY 2011 IPPS/LTCH PPS 
proposed rule, is considered a major economic rule, as defined in 
this section. We note the approximately $12.9 million for the 
projected increase in estimated aggregate LTCH PPS payments from RY 
2010 to FY 2011 does not reflect changes in LTCH admissions or case-
mix intensity in estimated LTCH PPS payments, which also would 
affect overall payment changes.
    The projected 0.3 percent increase in estimated payments per 
discharge from RY 2010 to FY 2011 is attributable to several 
factors, including the proposed -0.59 percent decrease to the 
standard Federal rate, proposed changes in the wage index values 
(including the proposed change to the labor-related share) presented 
in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24085 
through 24086) and projected increases in estimated HCO and SSO 
payments. As Table IV shows, the proposed change attributable solely 
to the standard Federal rate is projected to result in a decrease of 
0.5 percent in estimated payments per discharge from RY 2010 to FY 
2011, on average, for all LTCHs, while the proposed changes to the 
area wage adjustment are projected to result in an increase in 
estimated payments of 0.1 percent, on average, for all LTCHs.
    As discussed in the May 4, 2010 FY 2011 IPPS/LTCH proposed rule 
(75 FR 24085 through 24086), we are proposing to update the wage 
index values for FY 2011 based on the most recent available data. In 
addition, we are proposing to decrease the labor-related share 
slightly from 75.779 percent to 75.407 percent under the LTCH PPS 
for FY 2011 based on the most recent available data on the relative 
importance of the labor-related share of operating and capital costs 
of the RPL market basket. Consistent with the May 4, 2010 FY 2011 
IPPS/LTCH proposed rule, the wage data and the labor-related share 
is expected to increase LTCH PPS payments by 0.1 percent (75 FR 
24317 through 27318).
    Table IV below shows the impact of the proposed payment rate and 
proposed policy changes on LTCH PPS payments for FY 2011 presented 
in this supplemental proposed rule, in conjunction with the May 4, 
2010 FY 2011 IPPS/LTCH PPS proposed rule, by comparing RY 2010 
estimated payments to FY 2011 estimated payments. The projected 
increase in payments per discharge from RY 2010 to FY 2011 is 0.3 
percent (shown in Column 8). This projected increase in payments is 
attributable to the impacts of the proposed change to the standard 
Federal rate (-0.5 percent in Column 6) and the proposed change due 
to the area wage adjustment (0. percent in Column 7), as well as the 
effect of the estimated increase in payments for HCO cases and SSO 
cases in FY 2011 as compared to RY 2010 (0.5 percent and 0.3 
percent, respectively). That is, estimated total HCO payments are 
projected to increase from RY 2010 to FY 2011 in order to ensure 
that estimated HCO payments will be 8 percent of total estimated 
LTCH PPS payments in FY 2011. An analysis of the most recent 
available LTCH PPS claims data (that is, FY 2009 claims from the 
December 2009 update of the MedPAR files) indicates that the RY 2010 
HCO threshold of $18,615 (as established in a separate notice 
published elsewhere in this Federal Register) may result in HCO 
payments in RY 2010 that fall below the estimated 8 percent. 
Specifically, we currently estimate that HCO payments will be 
approximately 7.5 percent of estimated total LTCH PPS payments in RY 
2010. We note that the RY 2010 outlier payment estimate in this 
impact analysis takes into account for the revised RY 2010 rate and 
outlier threshold determined consistent with sections 1886(m)(3) and 
(4) of the Act and section 3401(p) of Public Law 111-148 that are 
used to make payments for discharges in RY 2010 that occur on or 
after April 1, 2010. Consistent with our estimate in the May 4, 2010 
FY 2011 IPPS/LTCH PPS proposed rule, we estimate that the impact of 
the increase in HCO payments would result in approximately a 0.5 
percent increase in estimated payments from RY 2010 to FY 2011 on 
average for all LTCHs. Furthermore, in calculating the estimated 
increase in payments from RY 2010 to FY 2011 for HCO and SSO cases, 
we increased estimated costs by the applicable market basket 
percentage increase as projected by our actuaries, which increases 
payments by 0.3 percent relative to last year. We note that 
estimated payments for all SSO cases comprise approximately 14 
percent of estimated total LTCH PPS payments, and estimated payments 
for HCO cases comprise approximately 8 percent of estimated total 
LTCH PPS payments. Payments for HCO cases are based on 80 percent of 
the estimated cost of the case above the HCO threshold, while the 
majority of the payments for SSO cases (over 65 percent) are based 
on the estimated cost of the SSO case.
    As we discuss in detail throughout this supplemental proposed 
rule, based on the most recent available data, we believe that the 
provisions of this supplemental proposed rule in conjunction with 
the provisions of the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed 
rule, relating to the LTCH PPS will result in an increase in 
estimated aggregate LTCH PPS payments and that the resulting LTCH 
PPS payment amounts result in appropriate Medicare payments.

B. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small 
rural hospital as a hospital that is located outside of an urban 
area and has fewer than 100 beds. As shown in Table IV, we are 
projecting a 0.7 percent increase in estimated payments per 
discharge for FY 2011 as compared to RY 2010 for rural LTCHs that 
would result from the proposed changes presented in this 
supplemental proposed rule and those changes in the May 4, 2010 FY 
2011 IPPS/LTCH PPS proposed rule as well as the effect of estimated 
changes to HCO and SSO payments. This estimated impact is based on 
the data for the 26 rural LTCHs in our database of 421 LTCHs, for 
which complete data were available. The RY 2010 average payment per 
case in Table IV accounts for the changes required by sections 
1886(m)(3) and (4) of the Act and section 3401(p) of Public Law 111-
148 which affects payments for discharges occurring on or after 
April 1, 2010, as described below in section IX.C.3. of the Appendix 
to this supplemental proposed rule.
    Consistent with the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed 
rule, the estimated increase in LTCH PPS payments from RY 2010 to FY 
2011 for rural LTCHs is primarily due to the higher than average 
impacts from the proposed changes to the area wage adjustment and 
the proposed reduction in the labor-related share from 75.779 to 
75.407, which results in a estimated 0.6 percent increase in 
payments.

C. Anticipated Effects of Proposed LTCH PPS Payment Rate Change and 
Policy Changes

    We discuss the impact of the proposed changes to the payment 
rates, factors, and other payment rate policies under the LTCH PPS 
for FY 2011 (in terms of their estimated fiscal impact on the 
Medicare budget and on LTCHs) in section II.I. of the preamble of 
this supplemental proposed rule.

1. Budgetary Impact

    Section 123(a)(1) of the BBRA requires that the PPS developed 
for LTCHs ``maintain budget neutrality.'' We believe that the 
statute's mandate for budget neutrality applies only to the first 
year of the implementation of the LTCH PPS (that is, FY 2003). 
Therefore, in calculating the FY 2003 standard Federal rate under 
Sec.  412.523(d)(2), we set total estimated payments for FY 2003 
under the LTCH PPS so that estimated aggregate payments under the 
LTCH PPS were estimated to equal the amount that would have been 
paid if the LTCH PPS had not been implemented.
    As discussed in section IX.A. of this Appendix, we project an 
increase in aggregate LTCH PPS payments in FY 2011 of approximately 
$12.9 million (or 0.3 percent) based on the 421 LTCHs in our 
database.

2. Impact of Moratorium and Other Provisions

    Section 114(c) and (d) of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 (MMSEA) as amended by section 4302 of the 
American Recovery and Reinvestment Act of 2009 (ARRA) provided for a 
3-year delay in certain payment policies relating to LTCHs and LTCH 
satellite facilities. Section 3106 of Public Law 111-148 and section 
10312 of Public Law 111-148 together provide for a 2-year extension 
of the 3-year delay in implementation of certain payment policies 
relating to LTCHs and LTCH satellite facilities. Specifically, these 
provisions affect payment adjustments for ``very'' short stay 
outliers (SSOs), the one-time adjustment to the standard Federal 
rate, the 25 percent payment threshold policy, and the moratorium on 
the establishment of new LTCHs and LTCH satellite facilities and the 
moratorium on the increase on LTCH beds in existing LTCHs or 
satellite facilities.
    Sections 3106 and 10312 of Public Law 111-148 together provide 
for a 2-year extension of the 3-year delay in implementation of the 
revision to the SSO

[[Page 31113]]

policy at Sec.  412.529(c)(3)(i) that was finalized in the RY 2008 
final rule. We estimate that the extension of the SSO provision will 
result in a projected increase in estimated aggregate LTCH PPS 
payments of approximately $20 million in FY 2011. Sections 3106 and 
10312 of Public Law 111-148 together provide for a 2-year extension 
to several modifications to the regulations at Sec.  412.534 and 
Sec.  412.536 required by section 114(c) of MMSEA as amended by 
section 4302 of the ARRA, which addressed the percentage thresholds 
between referring hospitals and LTCHs and satellites of LTCHs. We 
estimate that the implementation of this extension of the MMSEA 
provisions, as amended by the ARRA, pertaining to Sec.  412.534 and 
Sec.  412.536 will result in a projected increase in estimated 
aggregate LTCH PPS payments of approximately $20 million for FY 
2011.
    Regarding the 2-year extension of the moratorium on the 
development of new LTCHs and LTCH satellites and the increase in 
beds in existing LTCHs and LTCH satellites, as we noted in the May 
22, 2008 interim final rule with comment period when the original 3-
year delay required by section 114(d) of the MMSEA as amended by the 
ARRA, was implemented, we are unable to quantify the impact of the 
additional 2 year moratorium on the establishment of LTCHs, LTCH 
satellite facilities, and on the increase of LTCH beds in existing 
LTCHs or satellite facilities with limited exceptions. We are unable 
to provide an estimate of the impact of the 2-year extension of this 
provision 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.

3. Impact on Providers

    The basic methodology for determining a per discharge LTCH PPS 
payment is set forth in Sec.  412.515 through Sec.  412.536. In 
addition to the basic MS-LTC-DRG payment (standard Federal rate 
multiplied by the MS-LTC-DRG relative weight), we make adjustments 
for differences in area wage levels, COLA for Alaska and Hawaii, and 
SSOs. Furthermore, LTCHs may also receive HCO payments for those 
cases that qualify based on the threshold established each year.
    To understand the impact of the proposed changes to the LTCH PPS 
payments presented in this supplemental proposed rule on different 
categories of LTCHs for FY 2011, it is necessary to estimate 
payments per discharge for RY 2010 using the rates, factors, 
including the FY 2010 GROUPER (Version 27.0) and relative weights, 
and policies established in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43945 through 43994 and 44021 through 44030) and to 
include any changes to payments due to the provisions under sections 
1886(m)(3) and (4) of the Act and section 3401(p) of Public Law 111-
148 which affects payments for discharges occurring on or after 
April 1, 2010 in RY 2010 (as established in a separate notice 
published elsewhere in this Federal Register). It is also necessary 
to estimate the payments per discharge that would be made under the 
proposed revised LTCH PPS rates, factors, policies, and GROUPER 
(Version 28.0) for FY 2011 (as discussed in II.J. of the preamble 
and section III.A. of the Addendum to this supplemental proposed 
rule and section VII. of the preamble and section V. of the Addendum 
of the May 4, 2011 IPPS/LTCH PPS FY 2011 proposed rule). These 
estimates of RY 2010 and FY 2011 LTCH PPS payments are based on the 
best available LTCH claims data and other factors, such as the 
application of inflation factors to estimate costs for SSO and HCO 
cases in each year. We also evaluated the change in estimated RY 
2010 payments to estimated FY 2011 payments (on a per discharge 
basis) for each category of LTCHs.
    Hospital groups were based on characteristics provided in the 
OSCAR data, FY 2006 through FY 2007 cost report data in HCRIS, and 
PSF data. Hospitals with incomplete characteristics were grouped 
into the ``unknown'' category. Hospital groups include the 
following:
    <bullet> Location: Large urban/other urban/rural.
    <bullet> Participation date.
    <bullet> Ownership control.
    <bullet> Census region.
    <bullet> Bed size.
    To estimate the impacts of the payment rates and policy changes 
among the various categories of existing providers, we used LTCH 
cases from the FY 2009 MedPAR file to estimate payments for RY 2010 
and to estimate payments for FY 2011 for 421 LTCHs. We believe that 
the discharges based on the FY 2009 MedPAR data for the 421 LTCHs in 
our database, which includes 301 proprietary LTCHs, provide 
sufficient representation in the MS-LTC-DRGs containing discharges 
for patients who received LTCH care for the most commonly treated 
LTCH patients' diagnoses.

4. Calculation of Prospective Payments

    For purposes of this impact analysis, to estimate per discharge 
payments under the LTCH PPS, we simulated payments on a case-by-case 
basis using LTCH claims from the FY 2009 MedPAR files. For modeling 
estimated LTCH PPS payments for RY 2010, we calculated a blended RY 
2010 payment to account for changes in the rate in accordance with 
sections 1886(m)(3) and (4) of the Act and section 3401(p) of Public 
Law 111-148. Specifically, we applied the RY 2010 standard Federal 
rate (that is, $39,896.65, under which LTCH discharges occurring on 
or after October 1, 2009, and through March 31, 2010 are paid, and 
$39,794.95, under which LTCH discharges occurring on or after April 
1, 2010 to September 30, 2010 are paid). For modeling estimated LTCH 
PPS payments for FY 2011, we applied the proposed FY 2011 standard 
Federal rate of $39,560.16, which would be effective for LTCH 
discharges occurring on or after October 1, 2010, and through 
September 30, 2011.
    Furthermore, in modeling estimated LTCH PPS payments for both RY 
2010 and FY 2011 in this impact analysis, we applied the RY 2010 and 
proposed FY 2011 adjustments for area wage differences and the COLA 
for Alaska and Hawaii. Specifically, we adjusted for area wage 
differences for estimated RY 2010 payments using the current LTCH 
PPS labor-related share of 75.779 percent (74 FR 43968), the wage 
index values established in the Tables 12A and 12B of the Addendum 
to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44192 through 
44213) and the RY 2010 COLA factors shown in the table in section V. 
of the Addendum to that final rule (74 FR 44026). Similarly, we 
adjusted for area wage differences for estimated FY 2011 payments 
using the proposed LTCH PPS FY 2011 labor-related share of 75.407 
percent (section VII.C.2.d. in the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule), the FY 2011 proposed wage index values presented in 
Tables 12A and 12B of the Addendum to this proposed rule, and the FY 
2011 COLA factors shown in the table in section V.B.5. of the 
Addendum to the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule.
    As discussed above, our impact analysis reflects an estimated 
change in payments for SSO cases as well as an estimated increase in 
payments for HCO cases (as described in section V.C. of the Addendum 
to this proposed rule). In modeling proposed payments for SSO and 
HCO cases in RY 2010, we applied an inflation factor of 1.024 
percent (determined by OACT) to the estimated costs of each case 
determined from the charges reported on the claims in the FY 2009 
MedPAR files and the best available CCRs from the December 2009 
update of the PSF. In modeling proposed payments for SSO and HCO 
cases in FY 2011, we applied an inflation factor of 1.049 
(determined by OACT) to the estimated costs of each case determined 
from the charges reported on the claims in the FY 2009 MedPAR files 
and the best available CCRs from the December 2009 update of the 
PSF. Furthermore, in modeling estimated LTCH PPS payments for both 
RY 2010 and FY 2011 in this impact analysis, we applied the RY 2010 
HCO fixed-loss amount of $18,425 (74 FR 44029) for the first half of 
RY 2010, the revised RY 2010 HCO fixed-loss amount of $18,615 
established in conjunction with implementing the provisions of 
sections 1886(m)(3) and (4) of the Act and section 3401(p) of Public 
Law 111-148 for the second half of RY 2010, and the proposed FY 2011 
fixed loss amount of $19,254 (as discussed in section III.A. of the 
Addendum of this supplemental proposed rule).
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from the RY 2010 to FY 
2011 based on the proposed payment rates and policy changes 
presented in this proposed rule. Table IV illustrates the estimated 
aggregate impact of the LTCH PPS among various classifications of 
LTCHs.
    <bullet> The first column, LTCH Classification, identifies the 
type of LTCH.
    <bullet> The second column lists the number of LTCHs of each 
classification type.
    <bullet> The third column identifies the number of LTCH cases.
    <bullet> The fourth column shows the estimated payment per 
discharge for RY 2010 (as described above).
    <bullet> The fifth column shows the estimated payment per 
discharge for FY 2011 (as described above).
    <bullet> The sixth column shows the percentage change in 
estimated payments per discharge from RY 2010 to FY 2011 for 
proposed changes to the standard Federal rate (as

[[Page 31114]]

discussed in section III.A.3. of the Addendum to this supplemental 
proposed rule).
    <bullet> The seventh column shows the percentage change in 
estimated payments per discharge from RY 2010 to FY 2011 for 
proposed changes to the area wage adjustment at Sec.  412.525(c) (as 
discussed in section V.B. of the Addendum to the May 4, 2010 FY 2011 
IPPS/LTCH PPS proposed rule).
    <bullet> The eighth column shows the percentage change in 
estimated payments per discharge from RY 2010 (Column 4) to FY 2011 
(Column 5) for all proposed and statutory changes (and includes the 
effect of estimated changes to HCO and SSO payments).
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5. Results

    Based on the most recent available data (as described previously 
for 421 LTCHs, we have prepared the following summary of the impact 
(as shown in Table IV) of the proposed LTCH PPS payment rate and 
policy changes presented in this supplemental proposed rule. The 
impact analysis in Table IV shows that estimated payments per 
discharge are expected to increase approximately 0.3 percent, on 
average, for all LTCHs from RY 2010 to FY 2011 as a result of the 
proposed payment rate and policy changes presented in this 
supplemental proposed rule and the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule, as well as estimated increases in HCO and SSO 
payments. We note that we are proposing a -0.59 percent increase to 
the standard Federal rate for FY 2011, based on the latest proposed 
market basket estimate (2.4 percent), the -0.50 percent reduction to 
the annual update required under of sections 1886(m)(3) and (4) of 
the Act, and the proposed adjustment for the cumulative effect of 
changes in documentation and coding in FYs 2008 and 2009 (-2.5 
percent). We noted earlier in this section that for most categories 
of LTCHs, as shown in Table IV (Column 6), the impact of the 
proposed decrease of approximately -0.6 percent to the standard 
Federal rate is projected to result in approximately a -0.5 percent 
decrease in estimated payments per discharge for all LTCHs from RY 
2010 to FY 2011. Because payments to cost-based SSO cases and a 
portion of payments to SSO cases that are paid based on the 
``blend'' option of

[[Page 31116]]

the SSO payment formula at Sec.  412.529(c)(2)(iv) are not affected 
by the proposed update to the standard Federal rate, we estimate 
that the effect of the proposed 0.59 percent reduction to the 
standard Federal rate would result in a 0.5 percent reduction on 
estimated aggregate LTCH PPS payments to all LTCH PPS cases, 
including SSO cases. Furthermore, as discussed previously in this 
regulatory impact analysis, the average increase in estimated 
payments per discharge from the RY 2010 to FY 2011 for all LTCHs of 
approximately 0.3 percent (as shown in Table IV) was determined by 
comparing estimated FY 2011 LTCH PPS payments (using the proposed 
rates, proposed policies and statutory changes discussed in this 
supplemental proposed rule and in the May 4, 2010 FY 2011 IPPS/LTCH 
PPS proposed rule) to estimated RY 2010 LTCH PPS payments (as 
described above in section IX.C.3. of this Appendix).

a. Location

    Based on the most recent available data, the vast majority of 
LTCHs are located in urban areas. Only approximately 6 percent of 
the LTCHs are identified as being located in a rural area, and 
approximately 4 percent of all LTCH cases are treated in these rural 
hospitals. The impact analysis presented in Table IV shows that the 
average percent increase in estimated payments per discharge from RY 
2010 to FY 2011 for all hospitals is 0.3 percent for all proposed 
changes. For rural LTCHs, the percent change for all proposed 
changes is estimated to be 0.7 percent, while for urban LTCHs, we 
estimate the increase to be 0.2 percent. Large urban LTCHs are 
projected to experience an increase of 0.3 percent in estimated 
payments per discharge from RY 2010 to FY 2011, while other urban 
LTCHs are projected to experience an increase of 0.1 percent in 
estimated payments per discharge from RY 2010 to FY 2011, as shown 
in Table IV.

b. Participation Date

    LTCHs are grouped by participation date into four categories: 
(1) Before October 1983; (2) between October 1983 and September 
1993; (3) between October 1993 and September 2002; and (4) after 
October 2002. Based on the most recent available data, the majority 
(approximately 49 percent) of the LTCH cases are in hospitals that 
began participating between October 1993 and September 2002, and are 
projected to experience nearly the average increase (0.2 percent) in 
estimated payments per discharge from RY 2010 to FY 2011, as shown 
in Table IV.
    In the participation category where LTCHs began participating in 
Medicare before October 1983, LTCHs are projected to experience a 
higher than average percent increase (0.6 percent) in estimated 
payments per discharge from RY 2010 to FY 2011, as shown in Table 
IV. Approximately 4 percent of LTCHs began participating in Medicare 
before October 1983. The LTCHs in this category are projected to 
experience a higher than average increase in estimated payments 
because of increases in their wage data, increase under the proposed 
MS-LTC-DRG GROUPER (Version 28) and relative weights, and also 
because of estimated increases in their SSO payments relative to 
last year. Approximately 10 percent of LTCHs began participating in 
Medicare between October 1983 and September 1993. These LTCHs are 
projected to experience a slightly above average increase (0.4 
percent) in estimated payments from RY 2010 to FY 2011. LTCHs that 
began participating in Medicare after October 2002 currently 
represent approximately 38 percent of all LTCHs, and are projected 
to experience an average increase (0.3 percent) in estimated 
payments from RY 2010 to FY 2011.

c. Ownership Control

    Other than LTCHs whose ownership control type is unknown, LTCHs 
are grouped into three categories based on ownership control type: 
voluntary, proprietary, and government. Based on the most recent 
available data, approximately 18 percent of LTCHs are identified as 
voluntary (Table IV). We expect that, for these LTCHs in the 
voluntary category, estimated FY 2011 LTCH payments per discharge 
will increase higher than the average (0.6 percent) in comparison to 
estimated payments in RY 2010 primarily because we project an 
increase in estimated HCO payments and SSO payments to be higher 
than the average for these LTCHs. The majority (71 percent) of LTCHs 
are identified as proprietary and these LTCHs are projected to 
experience an average increase (0.2 percent) in estimated payments 
per discharge from RY 2010 to FY 2011. Finally, government-owned and 
operated LTCHs (3 percent) are expected to experience a higher than 
the average increase (0.7 percent) in estimated payments primarily 
due to a larger than the average increase in estimated HCO payments 
and increases under the proposed MS-LTC-DRG GROUPER (Version 28) and 
relative weights.

d. Census Region

    Estimated payments per discharge for FY 2011 are projected to 
increase for LTCHs located in all regions in comparison to RY 2010. 
Of the 9 census regions, we project that the increase in estimated 
payments per discharge will have the largest positive impact on 
LTCHs in the New England region (0.6 percent, as shown in Table IV). 
The estimated percent increase in payments per discharge from RY 
2010 to FY 2011 for New England is largely attributable to the 
projected increase in estimated HCO and SSO payments (explained in 
greater detail above in section IX.A. of this Appendix).
    In contrast, LTCHs located in the East South Central region are 
projected to experience a slight decrease in estimated payments per 
discharge from RY 2010 to FY 2011. The average estimated decrease in 
payments of 0.1 percent for LTCHs in the East South Central region 
is primarily due to estimated decreases in payments associated with 
the proposed wage index because 50 percent of LTCHs located in this 
region will have a proposed FY 2011 wage index value that is less 
than their RY 2010 wage index value. Similarly, LTCHs in the South 
Atlantic and West North Central are expect to experience no change 
in payments primarily due to an estimated decrease in payment 
because of the proposed FY 2011 wage index changes and the decrease 
in the Federal rate.

e. Bed Size

    LTCHs were grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds.
    We project that payments for small LTCHs (0-24 beds) would 
experience a 0.8 percent increase in payments due to increases in 
their wage index while large LTCHs (200+ beds) would experience no 
change in payments. LTCHs with between 75 and 124 beds and between 
125 and 199 beds are expected to experience an above average 
increase in payments per discharge from RY 2010 to FY 2011 (0.6 
percent and 0.5 percent, respectively) primarily due to a larger 
than average estimated increase in payments from the proposed FY 
2011 changes to the area wage adjustment.

D. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
supplemental proposed rule would result in an increase in estimated 
aggregate LTCH PPS payments in FY 2011 of approximately $12.9 
million (or about 0.3 percent) for the 421 LTCHs in our database.

E. Effect on Medicare Beneficiaries

    Under the LTCH PPS, hospitals receive payment based on the 
average resources consumed by patients for each diagnosis. We do not 
expect any changes in the quality of care or access to services for 
Medicare beneficiaries under the LTCH PPS, but we expect that paying 
prospectively for LTCH services would enhance the efficiency of the 
Medicare program.

X. Alternatives Considered

    This supplemental proposed rule contains a range of policies. 
The preamble of this supplemental proposed rule provides 
descriptions of the statutory provisions that are addressed, 
identifies policies and presents rationales for our decisions and, 
where relevant, alternatives that were considered.

XI. Overall Conclusion

A. Acute Care Hospitals

    Table I of section VI. of this Appendix demonstrates the 
estimated distributional impact of the IPPS budget neutrality 
requirements for the proposed MS-DRG and wage index changes, and for 
the wage index reclassifications under the MGCRB. Table I also shows 
an overall decrease of 0.9 percent in operating payments. We 
estimate that operating payments will decrease by approximately $929 
million in FY 2011. In addition, we estimates the reporting of 
hospital quality data program costs at $2.4 million, a savings of 
$23 million associated with the proposed HACs policies discussed in 
the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, an additional 
$150 million to hospitals that qualify for an additional payment as 
provided under section 1109 of Public Law 111-152, and all other 
proposed operating payment policies described in section VII. of 
this Appendix . These estimates added to our FY 2011 operating 
estimate of -$929 million results in a decrease of $800 million for 
FY 2011. We estimate that capital payments will

[[Page 31117]]

experience -0.2 percent change in payments per case, as shown in 
Table III of section VIII. of this Appendix. We project that there 
will be a $20 million decrease in capital payments in FY 2011 
compared to FY 2010. The proposed cumulative operating and capital 
payments should result in a net decrease of $820 million to IPPS 
providers. The discussions presented in the previous pages, in 
combination with the rest of this proposed rule and the May 10, 2010 
FY 2011 IPPS/LTCH PPS proposed rule, constitute a regulatory impact 
analysis.

B. LTCHs

    Overall, LTCHs are projected to experience an increase in 
estimated payments per discharge in FY 2011. In the impact analysis, 
we are using the proposed rates, factors, and policies presented in 
this supplemental proposed rule, including proposed updated wage 
index values and relative weights, and the best available claims and 
CCR data to estimate the change in payments under the LTCH PPS for 
FY 2011. Accordingly, based on the best available data for the 421 
LTCHs in our database, we estimate that FY 2011 LTCH PPS payments 
will increase approximately $13 million (or about 0.3 percent).

XII. Accounting Statements

A. Acute Care Hospitals

    As required by OMB Circular A-4 (available at http://www.whitehousegov/omb/circulars/a004/a-4.pdf), in Table V below, we 
have prepared an accounting statement showing the classification of 
the expenditures associated with the provisions of this proposed 
rule as they relate to acute care hospitals. This table provides our 
best estimate of the change in Medicare payments to providers as a 
result of the proposed changes to the IPPS presented in this 
supplemental proposed rule and the May 10, 2010 FY 2011 IPPS/LTCH 
PPS proposed rule. All expenditures are classified as transfers to 
Medicare providers.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2010 to FY 2011
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$820 million.
From Whom to Whom......................  Federal Government to IPPS
                                          Medicare Providers.
                                        --------------------------------
    Total..............................  -$820 million.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section IX. of this Appendix, the impact 
analysis for the proposed changes under the LTCH PPS for this 
proposed rule projects an increase in estimated aggregate payments 
of approximately $13 million (or about 0.3 percent) for the 421 
LTCHs in our database that are subject to payment under the LTCH 
PPS. Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below, 
we have prepared an accounting statement showing the classification 
of the expenditures associated with the provisions of this 
supplemental proposed rule and the May 10, 2010 FY 2011 IPPS/LTCH 
PPS proposed rule as they relate to changes to the LTCH PPS. Table 
VI provides our best estimate of the proposed increase in Medicare 
payments under the LTCH PPS as a result of the proposed provisions 
presented in this proposed rule based on the data for the 421 LTCHs 
in our database. All expenditures are classified as transfers to 
Medicare providers (that is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated Expenditures
        From the 2010 LTCH PPS Rate Year to the FY 2011 LTCH PPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  Positive transfer--Estimated
                                          increase in expenditures: $13
                                          million.
From Whom to Whom......................  Federal Government to LTCH PPS
                                          Medicare Providers.
                                        --------------------------------
    Total..............................  $13 million.
------------------------------------------------------------------------

XIII. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this proposed 
rule.

[FR Doc. 2010-12567 Filed 5-21-10; 4:15 pm]
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