281 
graph (1)(C), shall apply for purposes of this 
subsection in the same manner as such para-
graph applies for purposes of paragraph (7) of 
such section 1886(j). 
(d) RECOMMENDATIONS
FOR CLASSIFYING INPA-
TIENT REHABILITATION HOSPITALS AND UNITS.— 
(1) REPORT TO CONGRESS.—Not later than 12 
months after the date of the enactment of this Act, 
the Secretary of Health and Human Services, in 
consultation with physicians (including geriatricians 
and physiatrists), administrators of inpatient reha-
bilitation, acute care hospitals, skilled nursing facili-
ties, and other settings providing rehabilitation serv-
ices, Medicare beneficiaries, trade organizations rep-
resenting inpatient rehabilitation hospitals and units 
and skilled nursing facilities, and the Medicare Pay-
ment Advisory Commission, shall submit to the 
Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of 
the Senate a report that includes— 
(A) an examination of Medicare bene-
ficiaries’ access to medically necessary rehabili-
tation services; 
(B) alternatives or refinements to the 75 
percent rule policy for determining exclusion 
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criteria for inpatient rehabilitation hospital and 
unit designation under the Medicare program, 
including determining clinical appropriateness 
of inpatient rehabilitation hospital and unit ad-
missions and alternative criteria which would 
consider a patient’s functional status, diagnosis, 
co-morbidities, and other relevant factors; and 
(C) an examination that identifies any con-
dition for which individuals are commonly ad-
mitted to inpatient rehabilitation hospitals that 
is not included as a condition described in sec-
tion 412.23(b)(2)(iii) of title 42, Code of Fed-
eral Regulations, to determine the appropriate 
setting of care, and any variation in patient 
outcomes and costs, across settings of care, for 
treatment of such conditions. 
For the purposes of this subsection, the term ‘‘75 
percent rule’’ means the requirement of section 
412.23(b)(2) of title 42, Code of Federal Regula-
tions, that 75 percent of the patients of a rehabilita-
tion hospital or converted rehabilitation unit are in 
1 or more of 13 listed treatment categories. 
(2) CONSIDERATIONS.—In developing the re-
port described in paragraph (1), the Secretary shall 
include the following: 
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(A) The potential effect of the 75 percent 
rule on access to rehabilitation care by Medi-
care beneficiaries for the treatment of a condi-
tion, whether or not such condition is described 
in section 412.23(b)(2)(iii) of title 42, Code of 
Federal Regulations. 
(B) An analysis of the effectiveness of re-
habilitation care for the treatment of condi-
tions, whether or not such conditions are de-
scribed in section 412.23(b)(2)(iii) of title 42, 
Code of Federal Regulations, available to Medi-
care beneficiaries in various health care set-
tings, taking into account variation in patient 
outcomes and costs across different settings of 
care, and which may include whether the Medi-
care program and Medicare beneficiaries may 
incur higher costs of care for the entire episode 
of illness due to readmissions, extended lengths 
of stay, and other factors. 
SEC. 503. LONG-TERM CARE HOSPITALS. 
(a) LONG-TERM CARE HOSPITAL PAYMENT UP-
DATE.— 
(1) IN GENERAL.—Section 1886 of the Social 
Security Act (42 U.S.C. 1395ww) is amended by 
adding at the end the following new subsection: 
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‘‘(m) PROSPECTIVE
PAYMENT
FOR
LONG-TERM 
CARE HOSPITALS.— 
‘‘(1) REFERENCE TO ESTABLISHMENT AND IM-
PLEMENTATION OF SYSTEM.—For provisions related 
to the establishment and implementation of a pro-
spective payment system for payments under this 
title for inpatient hospital services furnished by a 
long-term care hospital described in subsection 
(d)(1)(B)(iv), see section 123 of the Medicare, Med-
icaid, and SCHIP Balanced Budget Refinement Act 
of 1999 and section 307(b) of Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection 
Act of 2000. 
‘‘(2) UPDATE FOR RATE YEAR 2008.—In imple-
menting the system described in paragraph (1) for 
discharges occurring during the rate year ending in 
2008 for a hospital, the base rate for such dis-
charges for the hospital shall be the same as the 
base rate for discharges for the hospital occurring 
during the previous rate year.’’. 
(2) DELAYED
EFFECTIVE
DATE.—Subsection 
(m)(2) of section 1886 of the Social Security Act, as 
added by paragraph (1), shall not apply to dis-
charges occurring on or after July 1, 2007, and be-
fore January 1, 2008. 
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(b) PAYMENT
FOR LONG-TERM CARE HOSPITAL 
SERVICES; PATIENT AND FACILITY CRITERIA.— 
(1) DEFINITION
OF
LONG-TERM
CARE
HOS-
PITAL.— 
(A) DEFINITION.—Section 1861 of the So-
cial Security Act (42 U.S.C. 1395x) is amended 
by adding at the end the following new sub-
section: 
‘‘Long-Term Care Hospital 
‘‘(ccc) The term ‘long-term care hospital’ means an 
institution which— 
‘‘(1) is primarily engaged in providing inpatient 
services, by or under the supervision of a physician, 
to Medicare beneficiaries whose medically complex 
conditions require a long hospital stay and programs 
of care provided by a long-term care hospital; 
‘‘(2) has an average inpatient length of stay (as 
determined by the Secretary) for Medicare bene-
ficiaries of greater than 25 days, or as otherwise de-
fined in section 1886(d)(1)(B)(iv); 
‘‘(3) satisfies the requirements of subsection 
(e); 
‘‘(4) meets the following facility criteria: 
‘‘(A) the institution has a patient review 
process, documented in the patient medical 
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record, that screens patients prior to admission 
for appropriateness of admission to a long-term 
care hospital, validates within 48 hours of ad-
mission that patients meet admission criteria 
for long-term care hospitals, regularly evaluates 
patients throughout their stay for continuation 
of care in a long-term care hospital, and as-
sesses the available discharge options when pa-
tients no longer meet such continued stay cri-
teria; 
‘‘(B) the institution has active physician 
involvement with patients during their treat-
ment through an organized medical staff, physi-
cian-directed treatment with physician on-site 
availability on a daily basis to review patient 
progress, and consulting physicians on call and 
capable of being at the patient’s side within a 
moderate period of time, as determined by the 
Secretary; 
‘‘(C) the institution has interdisciplinary 
team treatment for patients, requiring inter-
disciplinary teams of health care professionals, 
including physicians, to prepare and carry out 
an individualized treatment plan for each pa-
tient; and 
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‘‘(5) meets patient criteria relating to patient 
mix and severity appropriate to the medically com-
plex cases that long-term care hospitals are designed 
to treat, as measured under section 1886(m).’’. 
(B) NEW PATIENT CRITERIA FOR LONG- 
TERM
CARE
HOSPITAL
PROSPECTIVE
PAY-
MENT.—Section 1886 of such Act (42 U.S.C. 
1395ww), as amended by subsection (a), is fur-
ther amended by adding at the end the fol-
lowing new subsection: 
‘‘(n) PATIENT CRITERIA
FOR PROSPECTIVE PAY-
MENT TO LONG-TERM CARE HOSPITALS.— 
‘‘(1) IN GENERAL.—To be eligible for prospec-
tive payment under this section as a long-term care 
hospital, a long-term care hospital must admit not 
less than a majority of patients who have a high 
level of severity, as defined by the Secretary, and 
who are assigned to one or more of the following 
major diagnostic categories: 
‘‘(A) Circulatory diagnoses. 
‘‘(B) Digestive, endocrine, and metabolic 
diagnoses. 
‘‘(C) Infection disease diagnoses. 
‘‘(D) Neurological diagnoses. 
‘‘(E) Renal diagnoses. 
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‘‘(F) Respiratory diagnoses. 
‘‘(G) Skin diagnoses. 
‘‘(H) Other major diagnostic categories as 
selected by the Secretary. 
‘‘(2) 
MAJOR
DIAGNOSTIC
CATEGORY
DE-
FINED.—In paragraph (1), the term ‘major diag-
nostic category’ means the medical categories formed 
by dividing all possible principle diagnosis into mu-
tually exclusive diagnosis areas which are referred to 
in 67 Federal Register 49985 (August 1, 2002).’’. 
(C) ESTABLISHMENT OF REHABILITATION 
UNITS WITHIN CERTAIN LONG-TERM CARE HOS-
PITALS.—If the Secretary of Health and 
Human Services does not include rehabilitation 
services within a major diagnostic category 
under section 1886(n)(2) of the Social Security 
Act, as added by subparagraph (B), the Sec-
retary shall approve for purposes of title XVIII 
of such Act distinct part inpatient rehabilitation 
hospital units in long-term care hospitals con-
sistent with the following: 
(i) A hospital that, on or before Octo-
ber 1, 2004, was classified by the Sec-
retary as a long-term care hospital, as de-
scribed in section 1886(d)(1)(B)(iv)(I) of 
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289 
such 
Act 
(42 
U.S.C. 
1395ww(d)(1)(V)(iv)(I)), and was accred-
ited by the Commission on Accreditation of 
Rehabilitation Facilities, may establish a 
hospital rehabilitation unit that is a dis-
tinct part of the long-term care hospital, if 
the distinct part meets the requirements 
(including conditions of participation) that 
would otherwise apply to a distinct-part re-
habilitation unit if the distinct part were 
established by a subsection (d) hospital in 
accordance with the matter following 
clause (v) of section 1886(d)(1)(B) of such 
Act, including any regulations adopted by 
the Secretary in accordance with this sec-
tion, except that the one-year waiting pe-
riod described in section 412.30(c) of title 
42, Code of Federal Regulations, applica-
ble to the conversion of hospital beds into 
a distinct-part rehabilitation unit shall not 
apply to such units. 
(ii) Services provided in inpatient re-
habilitation units established under clause 
(i) shall not be reimbursed as long-term 
care hospital services under section 1886 
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of such Act and shall be subject to pay-
ment policies established by the Secretary 
to reimburse services provided by inpatient 
hospital rehabilitation units. 
(D) EFFECTIVE DATE.—The amendments 
made by subparagraphs (A) and (B), and the 
provisions of subparagraph (C), shall apply to 
discharges occurring on or after January 1, 
2008. 
(2) IMPLEMENTATION
OF
FACILITY
AND
PA-
TIENT CRITERIA.— 
(A) REPORT.—No later than 1 year after 
the date of the enactment of this Act, the Sec-
retary of Health and Human Services (in this 
section referred to as the ‘‘Secretary’’) shall 
submit to the appropriate committees of Con-
gress a report containing recommendations re-
garding the promulgation of the national long- 
term care hospital facility and patient criteria 
for application under paragraphs (4) and (5) of 
section 1861(ccc) and section 1886(n) of the 
Social Security Act, as added by subparagraphs 
(A) and (B), respectively, of paragraph (1). In 
the report, the Secretary shall consider rec-
ommendations contained in a report to Con-
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gress by the Medicare Payment Advisory Com-
mission in June 2004 for long-term care hos-
pital-specific facility and patient criteria to en-
sure that patients admitted to long-term care 
hospitals are medically complex and appropriate 
to receive long-term care hospital services. 
(B) IMPLEMENTATION.—No later than 1 
year after the date of submittal of the report 
under subparagraph (A), the Secretary shall, 
after rulemaking, implement the national long- 
term care hospital facility and patient criteria 
referred to in such subparagraph. Such long- 
term care hospital facility and patient criteria 
shall be used to screen patients in determining 
the medical necessity and appropriateness of a 
Medicare beneficiary’s admission to, continued 
stay at, and discharge from, long-term care hos-
pitals under the Medicare program and shall 
take into account the medical judgment of the 
patient’s physician, as provided for under sec-
tions 1814(a)(3) and 1835(a)(2)(B) of the So-
cial Security Act (42 U.S.C. 1395f(a)(3), 
1395n(a)(2)(B)). 
(3) EXPANDED
REVIEW
OF
MEDICAL
NECES-
SITY.— 
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(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services shall provide, 
under contracts with one or more appropriate 
fiscal intermediaries or medicare administrative 
contractors under section 1874A(a)(4)(G) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395kk(a)(4)(G)), for reviews of the medical 
necessity of admissions to long-term care hos-
pitals (described in section 1886(d)(1)(B)(iv) of 
such Act) and continued stay at such hospitals, 
of individuals entitled to, or enrolled for, bene-
fits under part A of title XVIII of such Act on 
a hospital-specific basis consistent with this 
paragraph. Such reviews shall be made for dis-
charges occurring on or after October 1, 2007. 
(B) REVIEW METHODOLOGY.—The medical 
necessity reviews under paragraph (A) shall be 
conducted for each such long-term care hospital 
on an annual basis in accordance with rules (in-
cluding a sample methodology) specified by the 
Secretary. Such sample methodology shall— 
(i) provide for a statistically valid and 
representative sample of admissions of 
such individuals sufficient to provide re-
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293 
sults at a 95 percent confidence interval; 
and 
(ii) guarantee that at least 75 percent 
of overpayments received by long-term care 
hospitals for medically unnecessary admis-
sions and continued stays of individuals in 
long-term care hospitals will be identified 
and recovered and that related days of care 
will not be counted toward the length of 
stay requirement contained in section 
1886(d)(1)(B)(iv) of the Social Security 
Act (42 U.S.C. 1395ww(d)(1)(B)(iv)). 
(C) CONTINUATION OF REVIEWS.—Under 
contracts under this paragraph, the Secretary 
shall establish a denial rate with respect to such 
reviews that, if exceeded, could require further 
review of the medical necessity of admissions 
and continued stay in the hospital involved. 
(D) TERMINATION
OF
REQUIRED
RE-
VIEWS.— 
(i) IN
GENERAL.—Subject to clause 
(iii), the previous provisions of this sub-
section shall cease to apply as of the date 
specified in clause (ii). 
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(ii) DATE SPECIFIED.—The date spec-
ified in this clause is the later of January 
1, 2013, or the date of implementation of 
national long-term care hospital facility 
and patient criteria under section para-
graph (2)(B). 
(iii) CONTINUATION.—As of the date 
specified in clause (ii), the Secretary shall 
determine whether to continue to guar-
antee, through continued medical review 
and sampling under this paragraph, recov-
ery of at least 75 percent of overpayments 
received by long-term care hospitals due to 
medically unnecessary admissions and con-
tinued stays. 
(4) LIMITED, 
QUALIFIED
MORATORIUM
OF 
LONG-TERM CARE HOSPITALS.— 
(A) IN
GENERAL.—Subject to subpara-
graph (B), the Secretary shall impose a tem-
porary moratorium on the certification of new 
long-term care hospitals (and satellite facilities), 
and new long-term care hospital and satellite 
facility beds, for purposes of the Medicare pro-
gram under title XVIII of the Social Security 
Act. The moratorium shall terminate at the end 
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295 
of the 4-year period beginning on the date of 
the enactment of this Act. 
(B) EXCEPTIONS.— 
(i) IN
GENERAL.—The moratorium 
under subparagraph (A) shall not apply as 
follows: 
(I) To a long-term care hospital, 
satellite facility, or additional beds 
under development as of the date of 
the enactment of this Act. 
(II) To a new long-term care hos-
pital in an area in which there is not 
a long-term care hospital, if the Sec-
retary determines it to be in the best 
interest to provide access to long-term 
care hospital services to Medicare 
beneficiaries residing in such area. 
There shall be a presumption in favor 
of the moratorium, which may be re-
butted by evidence the Secretary 
deems sufficient to show the need for 
long-term care hospital services in 
that area. 
(III) To an existing long-term 
care hospital that requests to increase 
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its number of long-term care hospital 
beds, if the Secretary determines 
there is a need at the long-term care 
hospital for additional beds to accom-
modate— 
(aa) infectious disease issues 
for isolation of patients; 
(bb) bedside dialysis serv-
ices; 
(cc) single-sex accommoda-
tion issues; 
(dd) behavioral issues; 
(ee) any requirements of 
State or local law; or 
(ff) other clinical issues the 
Secretary determines warrant ad-
ditional beds, in the best interest 
of Medicare beneficiaries. 
(IV) To an existing long-term 
care hospital that requests an increase 
in beds because of the closure of a 
long-term care hospital or significant 
decrease in the number of long-term 
care hospital beds, in a State where 
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297 
there is only one other long-term care 
hospital. 
There shall be no administrative or judicial 
review from a decision of the Secretary 
under this subparagraph. 
(ii) ‘‘UNDER
DEVELOPMENT’’ 
DE-
FINED.—For purposes of clause (i)(I), a 
long-term care hospital or satellite facility 
is considered to be ‘‘under development’’ as 
of a date if any of the following have oc-
curred on or before such date: 
(I) The hospital or a related 
party has a binding written agreement 
with an outside, unrelated party for 
the construction, reconstruction, lease, 
rental, or financing of the long-term 
care hospital. 
(II) Actual construction, renova-
tion or demolition for the long-term 
care hospital has begun. 
(III) A certificate of need has 
been approved in a State where one is 
required or other necessary approvals 
from appropriate State agencies have 
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298 
been received for the operation of the 
hospital. 
(IV) The hospital documents that 
it is within a 6-month long-term care 
hospital 
demonstration 
period 
re-
quired by section 412.23(e)(1)–(3) of 
title 42, Code of Federal Regulations, 
to demonstrate that it has a greater 
than 25 day average length of stay. 
(V) There is other evidence pre-
sented that the Secretary determines 
would indicate that the hospital or 
satellite is under development. 
(5) NO APPLICATION OF 25 PERCENT PATIENT 
THRESHOLD
PAYMENT
ADJUSTMENT
TO
FREE-
STANDING AND GRANDFATHERED LTCHS.—The Sec-
retary shall not apply, during the 5-year period be-
ginning on the date of the enactment of this Act, 
section 412.536 of title 42, Code of Federal Regula-
tions, or any similar provision, to freestanding long- 
term care hospitals and the Secretary shall not apply 
such section or section 412.534 of title 42, Code of 
Federal Regulations, or any similar provisions, to a 
long-term care hospital identified by section 4417(a) 
of the Balanced Budget Act of 1997 (Public Law 
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299 
105–33). A long-term care hospital identified by 
such section 4417(a) shall be deemed to be a free-
standing long-term care hospital for the purpose of 
this section. Section 412.536 of title 42, Code of 
Federal Regulations, shall be void and of no effect. 
(6) PAYMENT
FOR
HOSPITALS-WITHIN-HOS-
PITALS.— 
(A) IN GENERAL.—Payments to an appli-
cable 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 paragraphs (d)(1), (e)(1), and 
(e)(4) of section 412.534 of title 42, Code of 
Federal Regulations, 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 
paragraphs (d)(2) or (e)(3) of such section) are 
admitted from a co-located hospital. 
(B) CO-LOCATED LONG-TERM CARE HOS-
PITALS AND SATELLITE FACILITIES.— 
(i) IN GENERAL.—Payment to an ap-
plicable long-term care hospital or satellite 
facility which is co-located with another 
hospital shall not be subject to any pay-
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300 
ment adjustment under section 412.534 of 
title 42, Code of Federal Regulations, if no 
more than 50 percent of the hospital’s 
Medicare discharges (other than discharges 
described in section 412.534(c)(3) of such 
title) are admitted from a co-located hos-
pital. 
(ii) APPLICABLE
LONG-TERM
CARE 
HOSPITAL
OR
SATELLITE
FACILITY
DE-
FINED.—In this paragraph, the term ‘‘ap-
plicable long-term care hospital or satellite 
facility’’ means a hospital or satellite facil-
ity that is subject to the transition rules 
under section 412.534(g) of title 42, Code 
of Federal Regulations. 
(C) 
EFFECTIVE
DATE.—Subparagraphs 
(A) and (B) shall apply to discharges occurring 
on or after October 1, 2007, and before October 
1, 2012. 
(7) NO
APPLICATION
OF
VERY
SHORT-STAY 
OUTLIER POLICY.—The Secretary shall not apply, 
during the 5-year period beginning on the date of 
the enactment of this Act, the amendments finalized 
on May 11, 2007 (72 Federal Register 26904) made 
to the short-stay outlier payment provision for long- 
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301 
term 
care 
hospitals 
contained 
in 
section 
412.529(c)(3)(i) of title 42, Code of Federal Regula-
tions, or any similar provision. 
(8) NO APPLICATION OF ONE TIME ADJUST-
MENT TO STANDARD AMOUNT.—The Secretary shall 
not, during the 5-year period beginning on the date 
of the enactment of this Act, make the one-time pro-
spective adjustment to long-term care hospital pro-
spective payment rates provided for in section 
412.523(d)(3) of title 42, Code of Federal Regula-
tions, or any similar provision. 
(c) SEPARATE CLASSIFICATION FOR CERTAIN LONG- 
STAY CANCER HOSPITALS.— 
(1) IN GENERAL.—Subsection (d)(1)(B) of sec-
tion 1886 of the Social Security Act (42 U.S.C. 
1395ww) is amended— 
(A) in clause (iv)— 
(i) in subclause (I), by striking 
‘‘(iv)(I)’’ and inserting ‘‘(iv)’’ and by strik-
ing ‘‘or’’ at the end; and 
(ii) in subclause (II)— 
(I) by striking ‘‘, or’’ at the end 
and inserting a semicolon; and 
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(II) by redesignating such sub-
clause as clause (vi) and by moving it 
to immediately follow clause (v); and 
(B) in clause (v), by striking the semicolon 
at the end and inserting ‘‘, or’’. 
(2) CONFORMING
PAYMENT
REFERENCES.— 
Subsection (b) of such section is amended— 
(A) in paragraph (2)(E)(ii), by adding at 
the end the following new subclause: 
‘‘(III) Hospitals described in 
clause (vi) of such subsection.’’; 
(B) in paragraph (3)(F)(iii), by adding at 
the end the following new subclause: 
‘‘(VI) 
Hospitals 
described 
in 
clause (vi) of such subsection.’’; 
(C) in paragraphs (3)(G)(ii), (3)(H)(i), 
and (3)(H)(ii)(I), by inserting ‘‘or (vi)’’ after 
‘‘clause (iv)’’ each place it appears; 
(D) in paragraph (3)(H)(iv), by adding at 
the end the following new subclause: 
‘‘(IV) 
Hospitals 
described 
in 
clause (vi) of such subsection.’’; 
(E) in paragraph (3)(J), by striking ‘‘sub-
section (d)(1)(B)(iv)’’ and inserting ‘‘clause (iv) 
or (vi) of subsection (d)(1)(B)’’; and 
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303 
(F) in paragraph (7)(B), by adding at the 
end the following new clause: 
‘‘(iv) Hospitals described in clause (vi) 
of such subsection.’’. 
(3) ADDITIONAL CONFORMING AMENDMENTS.— 
The second sentence of subsection (d)(1)(B) of such 
section is amended— 
(A) by inserting ‘‘(as in effect as of such 
date)’’ after ‘‘clause (iv)’’; and 
(B) by inserting ‘‘(or, in the case of a hos-
pital classified under clause (iv)(II), as so in ef-
fect, shall be classified under clause (vi) on and 
after the effective date of such clause)’’ after 
‘‘so classified’’. 
(4) TRANSITION RULE.—In the case of a hos-
pital that is classified under clause (iv)(II) of section 
1886(d)(1)(B) of the Social Security Act imme-
diately before the date of the enactment of this Act 
and which is classified under clause (vi) of such sec-
tion after such date of enactment, payments under 
section 1886 of such Act for cost reporting periods 
beginning after the date of the enactment of this Act 
shall be based upon payment rates in effect for the 
cost reporting period for such hospital beginning 
during fiscal year 2001, increased for each suc-
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