I
104TH CONGRESS
2D SESSION
H. R. 3856
To amend title XVIII of the Social Security Act to provide for prospective
payment under the Medicare program for inpatient services of rehabilita-
tion hospitals and units based on discharges classified by functional-
related groups.
IN THE HOUSE OF REPRESENTATIVES
JULY 18, 1996
Mr. LOBIONDO (for himself, Mr. ZIMMER, Mr. SAXTON, and Mrs. ROUKEMA)
introduced the following bill; which was referred to the Committee on
Ways and Means
A BILL
To amend title XVIII of the Social Security Act to provide
for prospective payment under the Medicare program
for inpatient services of rehabilitation hospitals and units
based on discharges classified by functional-related
groups.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. PROSPECTIVE PAYMENT FOR INPATIENT RE-
HABILITATION HOSPITAL SERVICES BASED
ON 
DISCHARGES 
CLASSIFIED 
BY 
FUNC-
TIONAL-RELATED GROUPS.
(a) IN GENERAL.—Section 1886 of the Social Secu-
rity Act (42 U.S.C. 1395ww) is amended by adding at the
end the following new subsection:
‘‘(j) PROSPECTIVE PAYMENT FOR INPATIENT REHA-
BILITATION SERVICES.—
‘‘(1) IN
GENERAL.—Notwithstanding section
1814(b), but subject to the provisions of section
1813, the amount of the payment with respect to the
operating and capital costs of inpatient hospital
services of a rehabilitation hospital or a rehabilita-
tion unit (in this subsection referred to as a ‘reha-
bilitation facility’) for a discharge is equal to the per
discharge payment rate established under this sub-
section.
‘‘(2) FUNCTIONAL-RELATED GROUPS.—
‘‘(A) 
ESTABLISHMENT.—The 
Secretary
shall establish—
‘‘(i) classes of discharges of rehabilita-
tion facilities by functional-related groups
(each in this subsection referred to as a
‘functional-related group’ or ‘FRG’), based
on impairment, age, and functional capa-
bility of the discharged individual and such
other factors as the Secretary deems ap-
propriate, and
‘‘(ii) a method of classifying specific
discharges from rehabilitation facilities
within these groups.
‘‘(B) WEIGHTING
FACTORS.—For each
functional-related group the Secretary shall as-
sign an appropriate weighting which reflects the
relative facility resources used with respect to
discharges classified within that group com-
pared to discharges classified within other
groups.
‘‘(C) ADJUSTMENTS.—The Secretary shall
from time to time adjust the classifications and
weighting factors established under this para-
graph as appropriate to correct for forecast er-
rors and to reflect changes in treatment pat-
terns, technology, and other factors which may
affect the relative use of resources.
‘‘(3) PAYMENT RATE.—
‘‘(A) IN
GENERAL.—The Secretary shall
determine a prospective payment rate for each
rehabilitation facility discharge for which such
rehabilitation facility is entitled to receive pay-
ment under this title. Subject to subparagraph
(B), such rate for discharges during a fiscal
year shall be based on the average payment per
discharge under this title for inpatient operat-
ing and capital costs of rehabilitation facilities
in fiscal year 1995 (as estimated by the Sec-
retary) adjusted—
‘‘(i) by updating such per-discharge
amount to the fiscal year involved by the
applicable percentage increases provided
under subsection (b)(3)(B)(i) for each year
after fiscal year 1995 and up to the fiscal
year involved;
‘‘(ii) by reducing such rates by a fac-
tor equal to the proportion of payments
under this subsection (as estimated by the
Secretary) based on FRG prospective pay-
ment amounts which are additional pay-
ments described in paragraph (4) (relating
to outlier and related payments) or para-
graph (7);
‘‘(iii) for variations among rehabilita-
tion facilities by area under paragraph (6);
‘‘(iv) by the weighting factors estab-
lished under paragraph (2)(B); and
‘‘(v) by such other factors as the Sec-
retary determines are necessary to properly
reflect variations in necessary costs of
treatment among rehabilitation facilities.
‘‘(B) BUDGET NEUTRAL RATES.—The Sec-
retary shall establish the prospective payment
amounts under this subsection for discharges
during each of fiscal years 1998 through 2002
at levels such that, in the Secretary’s esti-
mation, the amount of total payments under
this subsection for each such fiscal year (includ-
ing any payment adjustments pursuant to para-
graph (7)) shall not exceed the amount of pay-
ments that would have been made under this
title during the fiscal year for operating and
capital costs of rehabilitation facilities had this
subsection not been enacted.
‘‘(4) OUTLIER AND SPECIAL PAYMENTS.—
‘‘(A) OUTLIERS.—
‘‘(i) DAY
OUTLIERS.—The Secretary
shall provide for an additional payment to
a rehabilitation facility for discharges in a
functional-related group, the lengths of
stay of which exceeded the mean length of
stay for discharges within that group by a
fixed number of days or exceeds such mean
length of stay by some fixed number of de-
viations, whichever is the fewer number of
days.
‘‘(ii) REQUESTING
ADDITIONAL
PAY-
MENTS.—For cases not included in clause
(i), a rehabilitation facility may request ad-
ditional payments in any case in which
charges, adjusted to cost, exceed a fixed
multiple of the applicable prospective pay-
ment rate, or exceed such other fixed dol-
lar amount, whichever is greater, or exceed
the prospective payment rate plus a fixed
dollar amount determined by the Sec-
retary.
‘‘(iii) PAYMENT BASED ON MARGINAL
COST OF CARE.—The amount of such addi-
tional payment under clauses (i) and (ii)
shall be determined by the Secretary and
shall approximate the marginal cost of care
beyond the cutoff point applicable under
clause (i) or (ii).
‘‘(iv) TOTAL
PAYMENTS.—The total
amount of the additional payments made
under this subparagraph for discharges in
a fiscal year may not be less than 5 per-
cent nor more than 6 percent of the total
payments projected or estimated to be
made based on FRG prospective payment
rates for discharges in that year.
‘‘(B) ADJUSTMENT.—The Secretary may
provide for such adjustments to the payment
amounts under this subsection as the Secretary
deems appropriate to take into account the
unique circumstances of rehabilitation facilities
located in Alaska and Hawaii.
‘‘(5) PUBLICATION.—The Secretary shall pro-
vide for publication in the Federal Register, on or
before September 1 before each fiscal year (begin-
ning with fiscal year 1998), of the classification and
weighting factors for FRGs under paragraph (2) for
such fiscal year and a description of the methodol-
ogy and data used in computing the prospective pay-
ment rates under this subsection for that fiscal year.
‘‘(6) AREA WAGE ADJUSTMENT.—The Secretary
shall adjust the proportion (as estimated by the Sec-
retary from time to time) of rehabilitation facilities’
costs which are attributable to wages and wage-re-
lated costs, of the prospective payment rates com-
puted under paragraph (3) for area differences in
wage levels by a factor (established by the Sec-
retary) reflecting the relative hospital wage level in
the geographic area of the rehabilitation facility
compared to the national average wage level for such
facilities. Not later than October 1, 1998 (and at
least every 12 months thereafter), the Secretary
shall update the factor under the preceding sentence
on the basis of a survey conducted by the Secretary
(and updated as appropriate) of the wages and
wage-related costs incurred in furnishing rehabilita-
tion services. Any adjustments or updates made
under this paragraph for a fiscal year shall be made
in a manner that assures that the aggregated pay-
ments under this subsection in the fiscal year are
not greater or less than those that would have been
made in the year without such adjustment.
‘‘(7) ADDITIONAL
ADJUSTMENTS.—The Sec-
retary shall provide by regulation for—
‘‘(A) an additional payment to take into
account indirect costs of medical education and
the special circumstances of hospitals that serve
a significantly disproportionate number of low-
income patients in a manner similar to that
provided under subparagraphs (B) and (F), re-
spectively, of subsection (d)(5); and
‘‘(B) such other exceptions and adjust-
ments to payment amounts under this sub-
section in a manner similar to that provided
under subsection (d)(5)(I) in relation to pay-
ments under subsection (d).
‘‘(8) LIMITATION ON REVIEW.—There shall be
no administrative or judicial review under section
1878 or otherwise of—
‘‘(A) the establishment of FRGs, of the
methodology for the classification of discharges
within such groups, and of the appropriate
weighting factors thereof under paragraph (2),
and
(B) the establishment of the prospective
payment rates under paragraph (3).’’.
(b) CONFORMING AMENDMENTS.—Section 1886(b)
of such Act (42 U.S.C. 1395ww(b)) is amended—
(1) in paragraph (1), by inserting ‘‘and other
than a rehabilitation facility described in subsection
(j)(1)’’ after ‘‘subsection (d)(1)(B)’’, and
(2) in paragraph (3)(B)(i), by inserting ‘‘and
subsection (j)’’ after ‘‘For purposes of subsection
(d)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to cost reporting periods beginning
on or after October 1, 1997.
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