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###### Department of Health and Human Services

###### Centers for Medicare & Medicaid Services

          - 42 CFR Part 412
          - [CMS-1337-IFC]
          - RIN 0938-AP76

# AGENCY:

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

# ACTION:

Interim final rule with comment period.

# SUMMARY:

This interim final rule with comment period implements revised Medicare severity long-term care diagnosis-related group (MS-LTC-DRG) relative weights for payment under the long-term care hospital (LTCH) prospective payment system (PPS) for federal fiscal year (FY) 2009. We are revising the MS-LTC-DRG relative weights for FY 2009 due to the misapplication of our established methodology in the calculation of the budget neutrality factor. The revised FY 2009 MS-LTC-DRG relative weights are effective for the remainder of FY 2009 (that is, from June 3, 2009 through September 30, 2009).

# DATES:

*Effective date:*                         These regulations are effective on June 3, 2009.                    

*Comment date:*                         To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m., June 29, 2009.                    

# ADDRESSES:

In commenting, please refer to file code CMS-1337-IFC. 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 under the “More Search Options” tab.                    

                        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-1337-IFC, P.O. Box 8011, Baltimore, MD 21244-8011.                    

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-1337-IFC, 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) 786-9994 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 has ended.

                        For information on viewing public comments, see the beginning of the                         **SUPPLEMENTARY INFORMATION**                         section.                    

# FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, (410) 786-4487.

# 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                           ( print page 26547)                        comment period on the following Web site as soon as possible after they have been received:                     *http://regulations.gov.*                     Follow the search instructions on that Web site to view public comments.                

Comments received timely will be also available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

## I. Background of the LTCH PPS

### A. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the Social Security Act (the Act), effective for cost reporting periods beginning on or after October 1, 2002.

                    In the August 30, 2002 (67 FR 55954)                     **Federal Register**                    , we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA. The same final rule established regulations for the LTCH PPS under 42 CFR Part 412, Subpart O. This system currently uses information from LTCH patient records to classify patients into distinct Medicare Severity-long-term care diagnosis-related groups (MS-LTC-DRGs) based on clinical characteristics and expected resource needs. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the                     **Federal Register**                    . We refer readers to the August 30, 2002 (67 FR 55954) final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS.                

### B. Annual Updates to the LTCH PPS

For rate years (RYs) 2004 through 2009, annual payment rate update and policy changes under the LTCH PPS were effective beginning on July 1 of each year (RY 2009 is the 15-month rate period July 1, 2008 through September 30, 2009 (see § 412.503)). However, the annual updates of the LTC-DRG (and, beginning in FY 2008, the MS-LTC-DRG) classifications and relative weights for LTCHs are linked to the annual update of the acute care hospital inpatient prospective payment system (IPPS) DRGs and are effective each October 1.

The most recent annual update to the payment rates and policy changes under the LTCH PPS was established in the RY 2009 LTCH PPS final rule (73 FR 26788 through 26874), and is currently effective for the 15-month rate year of July 1, 2008 through September 30, 2009. The most recent annual update to the MS-LTC-DRGs was established in the FY 2009 IPPS final rule (73 FR 48528 through 48551), and is currently effective October 1, 2008 through September 30, 2009.

Beginning with October 1, 2009, the annual updates to the LTCH PPS rates and factors, including the relative weights, and other payment policy changes are effective on October 1.

## II. Provisions of This Interim Final Rule With Comment Period

### A. FY 2009 MS-LTC-DRG Relative Weights

Beginning with the FY 2008 update, we established a budget neutrality requirement for the annual update to the MS-LTC-DRG classifications and relative weights at § 412.517(b) (in conjunction with § 412.503), such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the classification and relative weight changes. (See the May 11, 2007 LTCH PPS final rule (72 FR 26882 through 26884).)

Consistent with § 412.517(b), in the FY 2009 IPPS final rule (August 19, 2008, (73 FR 48550 through 48551)), using the most recent data available at that time (FY 2007 LTCH claims data from the March 2008 update of the MedPAR files), we established the MS-LTC-DRG classifications and relative weights for FY 2009 based on the application of budget neutrality adjustment factors determined using the two-step methodology of calculating and applying a normalization factor and a budget neutrality factor, as initially established in the FY 2008 IPPS final rule (August 22, 2007, (72 FR 47295 through 47296)). Specifically, for FY 2009, under the first step of the established two-step budget neutrality methodology, after recalibrating the MS-LTC-DRG relative weights, we calculated and applied a normalization factor of 1.03887 to those relative weights to ensure that the average case-mix index (CMI) is not influenced by changes in the composition of case types or the changes to the classification system, such that the recalibration process itself neither increases nor decreases the average CMI. In doing so, each (recalibrated) MS-LTC-DRG relative weight was multiplied by 1.03887 to produce “normalized relative weights”.

Under the second step of the established two-step budget neutrality methodology, we calculated and applied a “budget neutrality adjustment factor” to ensure that estimated aggregate LTCH PPS payments after reclassification and recalibration would be equal to estimated aggregate LTCH PPS payments before reclassification and recalibration. Specifically, as described in the FY 2009 IPPS final rule (73 FR 48551), we calculated a budget neutrality factor of 1.04186 by comparing estimated total payments using the normalized FY 2009 relative weights under GROUPER Version 26.0 to estimated total payments using the FY 2008 GROUPER (Version 25.0) and FY 2008 MS-LTC-DRG relative weights. Then, each of the normalized relative weights was multiplied by that budget neutrality factor to determine the budget neutral relative weight for each MS-LTC-DRG for FY 2009. Thus, the FY 2009 MS-LTC-DRG relative weights established in Table 11 of the Addendum of the FY 2009 IPPS final rule reflect the application of both the normalization factor of 1.03887 and the budget neutrality factor of 1.04186.

                    We have discovered that, in determining the published FY 2009 MS-LTC-DRG relative weights, we did not properly apply the established methodology for calculating the budget neutrality factor (the second step of the budget neutrality methodology, as set forth in the FY 2009 IPPS final rule (73 FR 48550 through 48551). Specifically, upon recent review of the calculation of the budget neutrality factor of 1.04186, we found that it was determined using the unadjusted recalibrated relative weights rather than using the normalized relative weights. This is inconsistent with our stated methodology for the calculation of the FY 2009 budget neutrality factor (that is, the second step of the budget neutrality methodology). As described above and as we stated in the FY 2009 IPPS final rule (73 FR 48551), the FY 2009 budget                           ( print page 26548)                        neutrality factor is to be determined based on estimated total payments using the normalized (recalibrated) relative weights under GROUPER Version 26.0 (not the unadjusted recalibrated relative weights as were used in calculating the budget neutrality factor of 1.04186 published in the FY 2009 IPPS final rule). This misapplication of the rule's established methodology for calculating the budget neutrality factors resulted in relative weights that are higher, by approximately 3.9 percent. We estimate aggregate annualized LTCH PPS payments in FY 2009 (that is, for discharges occurring on or after October 1, 2008 through September 30, 2009) based on the MS-LTC-DRG relative weights published in the FY 2009 IPPS final rule to be approximately $130 million greater than what the increase would have been had the FY 2009 budget neutrality factor been calculated consistent with the established methodology described in that final rule. Thus, the FY 2009 MS-LTC-DRG relative weights shown in Table 11 of the FY 2009 IPPS final rule (73 FR 49041 through 49062) are inconsistent with the established budget neutrality methodology used for the annual update to the MS-LTC-DRG classifications and relative weights.                

Consistent with our general and longstanding policy in PPS contexts, we do not make retroactive changes to correct past errors in PPS rate-setting, regardless of whether an error resulted in higher payments to providers (as in this situation) or lower payments to providers; we also do not make prospective adjustments to PPS rates to account for errors that occurred in prior periods, regardless of whether an error resulted in higher payments or lower payments to providers. In this instance, we are, revising the FY 2009 MS-LTC-DRG relative weights to ensure proper application of the established budget neutrality methodology in updating the FY 2008 MS-LTC-DRG relative weights to FY 2009 during the fiscal year that will be effective for the remainder of the fiscal year. We note that this prospective revision to the FY 2009 MS-LTC-DRG relative weights does not reflect a change in the established budget neutrality methodology itself, but rather, reflects the proper calculation of the relative weights under the rule's stated methodology.

In this interim final rule with comment period, we have calculated revised FY 2009 MS-LTC-DRG relative weights (effective prospectively for the remainder of FY 2009) based on the proper application of the established budget neutrality methodology. Specifically, using the same data (FY 2007 LTCH claims data from the March 2008 update of the MedPAR files) and methodology presented in the FY 2009 IPPS final rule (73 FR 48551) described above, we have determined a budget neutrality factor of 1.0030401, which was applied to the normalized relative weights (that is, the recalibrated relative weights adjusted by the normalization factor of 1.03887, as described above). As a result, we are establishing revised FY 2009 MS-LTC-DRG relative weights (shown in Table 11 of this interim final rule with comment period) that are effective for LTCH PPS discharges occurring on or after June 3, 2009 through September 30, 2009. The revised FY 2009 MS-LTC-DRG relative weights in Table 11 of this interim final rule with comment period reflect the application of the revised FY 2009 budget neutrality factor 1.0030401 and the FY 2009 normalization factor of 1.03887 (established in the FY 2009 IPPS final rule (73 FR 48551)). (For the convenience of the reader, in addition to the revised budget neutral FY 2009 MS-LTC-DRG relative weights effective June 3, 2009 through September 30, 2009, Table 11 also includes the geometric mean length of stay and five-sixths of the geometric mean length of stay (Short-Stay Outlier (SSO) Threshold for payments under § 412.529) for each MS-LTC-DRG for FY 2009. The revision to the FY 2009 budget neutrality factor did not affect the calculation of the geometric mean length of stay and the SSO threshold for FY 2009 that were presented in Table 11 of the FY 2009 IPPS final rule.)

### B. Effect on the Proposed RY 2010 MS-LTC-DRG Relative Weights and Fixed-Loss Amount

                    As discussed above in section II.A. of this interim final rule with comment period, we are revising the published FY 2009 MS-LTC-DRG relative weights (73 FR 49041 through 49062), based on the appropriate application of the FY 2009 budget neutrality factor, consistent with the description of our established methodology. Because the proposed RY 2010 MS-LTC-DRG relative weights published in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule on May 22, 2009 (74 FR 24589 through 24608) were determined based on the published FY 2009 MS-LTC-DRG relative weights, the revisions to the published FY 2009 MS-LTC-DRG relative weights discussed in section II.A. of this interim final rule with comment period affect the determination of the proposed RY 2010 MS-LTC-DRG relative weights. Therefore, we are also presenting proposed RY 2010 MS-LTC-DRG relative weights in a supplemental proposed rule published elsewhere in this                     **Federal Register**                    . The proposed RY 2010 MS-LTC-DRG relative weights were determined consistent with the proposed two-step budget neutrality methodology discussed in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24226 through 24227).                

                    We also note that the proposed RY 2010 HCO fixed-loss amount presented in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24268) was determined based on the proposed RY 2010 MS-LTC-DRG relative weights presented in Table 11 of that proposed rule. Thus, the supplemental proposed rule published elsewhere in this                     **Federal Register**                     also determines a proposed RY 2010 HCO fixed-loss amount based on the proposed RY 2010 MS-LTC-DRG relative weights presented in that same supplemental proposed rule.                

## III. Response to Comments

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

## IV. Waiver of Proposed Rulemaking, Delay of Effective Date, and 60-Day Comment Period

                    We ordinarily publish a notice of proposed rulemaking in the                     **Federal Register**                     to provide a period for public comment before provisions of a rule such as this take effect. We also ordinarily provide a 30-day delay in effective date of a rule in accordance with section 553(d) of the Administrative Procedure Act (APA) (5 U.S.C. 553(d)), and section 1871 of the Act. However, we can waive both the prior notice-and-comment procedure or the delay in effective date, if the Secretary for good cause finds that it is impracticable, unnecessary, or contrary to the public interest and incorporates a statement of the finding and its reasons in the notice issued.                

                    We believe it is unnecessary to undertake prior notice and comment rulemaking or provide a delay in effective date because this interim final rule with comment period simply reflects the appropriate application of the established methodology set forth in the FY 2009 IPPS final rule (73 FR 48550 through 48551). The LTCH statute provides for annual updates to the LTCH PPS MS-LTC-DRG relative                           ( print page 26549)                        weights, and the methodologies used to update the MS-LTC-DRG relative weights have been previously subject to public comment, and therefore, additional comment would be unnecessary.                

Moreover, we believe that it is impracticable to undertake prior notice and comment rulemaking or provide a delay in effective date because this interim final rule with comment period is making a prospective revision to the FY 2009 MS-LTC-DRG relative weights to reflect proper application of the applicable established methodology, and therefore should be applied in as timely a manner as possible. For the reasons set forth above, we find good cause to waive notice-and-comment procedures, as well as the 30-day delay in effective date.

                    In addition, we ordinarily publish an interim final rule with comment period 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), when the agency 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 the reasons set forth above, and because we plan to finalize the provisions of this interim final rule with comment period at the same time that the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule is finalized, we are waiving the 60-day comment period for good cause and allowing a 30-day comment period instead.                

## V. Collection of Information Requirements

This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

## VI. Regulatory Impact Analysis

We have examined the impacts of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any one year).

The revision to the FY 2009 MS-LTC-DRG relative weights presented in section II.A. of this interim final rule with comment period will affect LTCH PPS payments for discharges occurring for approximately the last 4 months of FY 2009. Specifically, we estimate that the impact of the revision to the FY 2009 MS-LTC-DRG relative weights effective from June 3, 2009 through September 30, 2009 would result in an aggregate decrease in FY 2009 LTCH PPS payments of approximately $43 million (or approximately 0.9 percent of estimated FY 2009 LTCH PPS payments). Because the distributional effects and estimated changes to the Medicare program payments would not be greater than $100 million, this interim final rule with comment period would not be considered a major economic rule, as defined in this section.

                    The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small 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 heath 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. 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 this section. Because we acknowledge that many of the affected entities are small entities, the analysis discussed in this section constitutes our regulatory flexibility analysis. Therefore, we are soliciting public comments on our estimates and analysis of the impact of the provisions of this interim final rule with comment period on those small entities.                

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area for Medicare payment regulations and has fewer than 100 beds. In our database of 399 LTCHs, we have identified 26 small rural hospitals that account for less than 5 percent of all LTCH cases. As stated above, the provisions of this interim final rule with comment period will result in a decrease in estimated aggregate LTCH PPS payments in FY 2009 of approximately $43 million (or approximately 0.9 percent) for all LTCHs. Similarly, for the 26 rural LTCHs for which data is available, we estimate that the provisions of this interim final rule with comment period will result in a decrease in estimated aggregate LTCH PPS payments to rural LTCHs in FY 2009 of approximately 0.9 percent (or about $1.6 million). Therefore, we believe this rule will not have a significant impact on small rural hospitals. Accordingly, the Secretary certifies that this interim final rule with comment period would not have a significant economic impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2009, that threshold level is currently approximately $133 million. This interim final rule with comment period would not mandate any requirements for State, local, or tribal governments, nor would it result in expenditures by the private sector of $133 million or more in any one year.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation does not impose                           ( print page 26550)                        any costs on State or local governments, the requirements of Executive Order 13132 are not applicable.                

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

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

                        Dated: May 21, 2009                        *.*

Charlene Frizzera,

Acting Administrator, Centers for Medicare & Medicaid Services.

Approved: May 27, 2009.

Kathleen Sebelius,

Secretary.

                        [                        **Editorial Note:**                         The following table will not appear in the Code of Federal Regulations.]                    
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[FR Doc. E9-12911 Filed 5-29-09; 4:15 pm]

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