275 
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 Federal 
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 per-
cent 
rule’’ 
means 
the 
requirement 
of 
section 
412.23(b)(2) of title 42, Code of Federal Regulations, 
that 75 percent of the patients of a rehabilitation hos-
pital or converted rehabilitation unit are in 1 or 
more of 13 listed treatment categories. 
(2) CONSIDERATIONS.—In developing the report 
described in paragraph (1), the Secretary shall in-
clude the following: 
(A) The potential effect of the 75 percent 
rule on access to rehabilitation care by Medicare 
beneficiaries for the treatment of a condition, 
whether or not such condition is described in sec-
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276 
tion 412.23(b)(2)(iii) of title 42, Code of Federal 
Regulations. 
(B) An analysis of the effectiveness of reha-
bilitation care for the treatment of conditions, 
whether or not such conditions are described in 
section 412.23(b)(2)(iii) of title 42, Code of Fed-
eral Regulations, available to Medicare bene-
ficiaries in various health care settings, taking 
into account variation in patient outcomes and 
costs across different settings of care, and which 
may include whether the Medicare program and 
Medicare beneficiaries may incur higher costs of 
care for the entire episode of illness due to re-
admissions, 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 Se-
curity Act (42 U.S.C. 1395ww) is amended by adding 
at the end the following new subsection: 
‘‘(m) PROSPECTIVE PAYMENT FOR LONG-TERM CARE 
HOSPITALS.— 
‘‘(1) REFERENCE TO ESTABLISHMENT AND IM-
PLEMENTATION OF SYSTEM.—For provisions related 
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277 
to the establishment and implementation of a prospec-
tive 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, Medicaid, 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 discharges 
for the hospital shall be the same as the base rate for 
discharges for the hospital occurring during the pre-
vious 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 discharges 
occurring on or after July 1, 2007, and before Janu-
ary 1, 2008. 
(b) PAYMENT FOR LONG-TERM CARE HOSPITAL SERV-
ICES; PATIENT AND FACILITY CRITERIA.— 
(1) DEFINITION
OF
LONG-TERM
CARE
HOS-
PITAL.— 
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278 
(A) DEFINITION.—Section 1861 of the So-
cial Security Act (42 U.S.C. 1395x), as amended 
by section 201(a)(2), is amended by adding at 
the end the following new subsection: 
‘‘Long-Term Care Hospital 
‘‘(ddd) 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 
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 pa-
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