Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2009, 22674-22714 [08-1174]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 73, Number 81 (Friday, April 25, 2008)]
[Proposed Rules]
[Pages 22674-22714]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1174]



[[Page 22673]]

-----------------------------------------------------------------------

Part IV





Department of Health and Human Services





-----------------------------------------------------------------------



Centers for Medicare & Medicaid



-----------------------------------------------------------------------



42 CFR Part 412



Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal Fiscal Year 2009; Proposed Rule

Federal Register / Vol. 73, No. 81 / Friday, April 25, 2008 / 
Proposed Rules

[[Page 22674]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1554-P]
RIN 0938-AP19


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2009

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would update the prospective payment rates 
for inpatient rehabilitation facilities (IRFs) for Federal fiscal year 
(FY) 2009 (for discharges occurring on or after October 1, 2008 and on 
or before September 30, 2009) as required under section 1886(j)(3)(C) 
of the Social Security Act (the Act). Section 1886(j)(5) of the Act 
requires the Secretary to publish in the Federal Register on or before 
the August 1 that precedes the start of each fiscal year, the 
classification and weighting factors for the IRF prospective payment 
system's (PPS) case-mix groups and a description of the methodology and 
data used in computing the prospective payment rates for that fiscal 
year.
    We are proposing to revise existing policies regarding the PPS 
within the authority granted under section 1886(j) of the Act.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 20, 2008.

ADDRESSES: In commenting, please refer to file code CMS-1554-P. 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 https://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the filecode to find the document 
accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1554-P, P.O. Box 8012, Baltimore, MD 21244-8012.
    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 (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1554-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-8012.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses.
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201 (Because access to the interior of 
the HHH 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. 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.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Susanne Seagrave, (410) 786-0044, for 
information regarding the payment policies. Jeanette Kranacs, (410) 
786-9385, for information regarding the wage index.

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: https://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.

Table of Contents

I. Background
    A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)
    B. Operational Overview of the Current IRF PPS
    C. Brief Summary of Proposed Revisions to the IRF PPS for 
Federal Fiscal Year (FY) 2009
II. Proposed Update to the Case-Mix Group (CMG) Relative Weights and 
Average Length of Stay Values for FY 2009
III. Proposed FY 2009 IRF PPS Federal Prospective Payment Rates
    A. Increase Factor for FY 2009 and Proposed FY 2009 Labor-
Related Share
    B. Proposed Area Wage Adjustment
    C. Description of the Proposed IRF Standard Payment Conversion 
Factor and Proposed Payment Rates for FY 2009
    D. Example of the Methodology for Adjusting the Proposed Federal 
Prospective Payment Rates
IV. Proposed Update to Payments for High-Cost Outliers Under the IRF 
PPS
    A. Proposed Update to the Outlier Threshold Amount for FY 2009
    B. Update to the IRF Cost-to-Charge Ratio Ceilings
V. Revisions to the Regulation Text in Response to the Medicare, 
Medicaid, and SCHIP Extension Act of 2007
VI. Post Acute Care Payment Reform
VII. Provisions of the Proposed Rule
VIII. Collection of Information Requirements
IX. Response to Public Comments
X. Regulatory Impact Statement
Regulation Text
Addendum
Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their 
corresponding terms in alphabetical order below.
ASCA Administrative Simplification Compliance Act, Pub. L. 107-105
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Pub. L. 106-554
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMG Case-Mix Group
DRA Deficit Reduction Act of 2005, Pub. L. 109-171

[[Page 22675]]

DSH Disproportionate Share Hospital
ECI Employment Cost Index
FI Fiscal Intermediary
FR Federal Register
FY Federal Fiscal Year
GDP Gross Domestic Product
HHH Hubert H. Humphrey Building
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 
104-191
IFMC Iowa Foundation for Medical Care
IPF Inpatient Psychiatric Facility
IPPS Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment 
Instrument
IRF PPS Inpatient Rehabilitation Facility Prospective Payment System
IRVEN Inpatient Rehabilitation Validation and Entry
LIP Low-Income Percentage
LTCH Long-Term Care Hospital
MAC Medicare Administrative Contractor
MEDPAR Medicare Provider Analysis and Review
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Pub. L. 108-173
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
OMB Office of Management and Budget
PAI Patient Assessment Instrument
PPS Prospective Payment System
RAND RAND Corporation
RFA Regulatory Flexibility Act, Pub. L. 96-354
RIA Regulatory Impact Analysis
RIC Rehabilitation Impairment Category
RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital Market 
Basket
SCHIP State Children's Health Insurance Program
SIC Standard Industrial Code
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248

I. Background

A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)

    Section 4421 of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-
33), as amended by section 125 of the Medicare, Medicaid, and SCHIP 
(State Children's Health Insurance Program) Balanced Budget Refinement 
Act of 1999 (BBRA, Pub. L. 106-113), and by section 305 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554), provides for the implementation of a 
per discharge prospective payment system (PPS) under section 1886(j) of 
the Social Security Act (the Act) for inpatient rehabilitation 
hospitals and inpatient rehabilitation units of a hospital (hereinafter 
referred to as IRFs).
    Payments under the IRF PPS encompass inpatient operating and 
capital costs of furnishing covered rehabilitation services (that is, 
routine, ancillary, and capital costs) but not direct graduate medical 
education costs, costs of approved nursing and allied health education 
activities, bad debts, and other services or items outside the scope of 
the IRF PPS. Although a complete discussion of the IRF PPS provisions 
appears in the original, FY 2002 IRF PPS final rule (66 FR 41316) as 
revised in the FY 2006 IRF PPS final rule (70 FR 47880), we are 
providing below a general description of the IRF PPS for fiscal years 
(FYs) 2002 through 2005.
    Under the IRF PPS from FY 2002 through FY 2005, as described in the 
FY 2002 IRF PPS final rule (66 FR 41316), the Federal prospective 
payment rates were computed across 100 distinct case-mix groups (CMGs). 
We constructed 95 CMGs using rehabilitation impairment categories 
(RICs), functional status (both motor and cognitive), and age (in some 
cases, cognitive status and age may not be a factor in defining a CMG). 
In addition, we constructed five special CMGs to account for very short 
stays and for patients who expire in the IRF.
    For each of the CMGs, we developed relative weighting factors to 
account for a patient's clinical characteristics and expected resource 
needs. Thus, the weighting factors accounted for the relative 
difference in resource use across all CMGs. Within each CMG, we created 
tiers based on the estimated effects that certain comorbidities would 
have on resource use.
    We established the Federal PPS rates using a standardized payment 
conversion factor (formerly referred to as the budget neutral 
conversion factor). For a detailed discussion of the budget neutral 
conversion factor, please refer to our FY 2004 IRF PPS final rule (68 
FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 
47880), we discussed in detail the methodology for determining the 
standard payment conversion factor.
    We applied the relative weighting factors to the standard payment 
conversion factor to compute the unadjusted Federal prospective payment 
rates under the IRF PPS from FYs 2002 through 2005. We then applied 
adjustments for geographic variations in wages (wage index), the 
percentage of low-income patients, and location in a rural area (if 
applicable) to the IRF's unadjusted Federal prospective payment rates. 
In addition, we made adjustments to account for short-stay transfer 
cases, interrupted stays, and high cost outliers.
    For cost reporting periods that began on or after January 1, 2002 
and before October 1, 2002, we determined the final prospective payment 
amounts using the transition methodology prescribed in section 
1886(j)(1) of the Act. Under this provision, IRFs transitioning into 
the PPS were paid a blend of the Federal IRF PPS rate and the payment 
that the IRF would have received had the IRF PPS not been implemented. 
This provision also allowed IRFs to elect to bypass this blended 
payment and immediately be paid 100 percent of the Federal IRF PPS 
rate. The transition methodology expired as of cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and payments for all 
IRFs now consist of 100 percent of the Federal IRF PPS rate.
    We established a CMS Web site as a primary information resource for 
the IRF PPS. The Web site URL is https://www.cms.hhs.gov/
InpatientRehabFacPPS/ and may be accessed to download or view 
publications, software, data specifications, educational materials, and 
other information pertinent to the IRF PPS.
    Section 1886(j) of the Act confers broad statutory authority upon 
the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF 
PPS final rule (70 FR 47880) and in correcting amendments to the FY 
2006 IRF PPS final rule (70 FR 57166) that we published on September 
30, 2005, we finalized a number of refinements to the IRF PPS case-mix 
classification system (the CMGs and the corresponding relative weights) 
and the case-level and facility-level adjustments. Any reference to the 
FY 2006 IRF PPS final rule in this proposed rule also includes the 
provisions effective in the correcting amendments. For a detailed 
discussion of the final key policy changes for FY 2006, please refer to 
the FY 2006 IRF PPS final rule (70 FR 47880 and 70 FR 57166).
    In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined 
the IRF PPS case-mix classification system (the CMG relative weights) 
and the case-level adjustments, to ensure that IRF PPS payments 
continue to reflect as accurately as possible the costs of care. For a 
detailed discussion of the FY 2007 policy revisions, please refer to 
the FY 2007 IRF PPS final rule (71 FR 48354).
    In the FY 2008 IRF PPS final rule (72 FR 44284), we updated the 
Federal prospective payment rates and the outlier threshold, revised 
the IRF wage index policy, and clarified how we determine high-cost 
outlier payments for transfer cases. For more information on the policy 
changes implemented for FY 2008, please refer to the FY 2008 IRF PPS 
final rule (72 FR 44284), in which we published the final FY 2008 IRF 
Federal prospective payment rates.

[[Page 22676]]

    After publication of the FY 2008 IRF PPS final rule (72 FR 44284), 
section 115 of the Medicare, Medicaid, and SCHIP Extension Act of 2007, 
Public Law 110-173, amended section 1886(j)(3)(C) of the Act to apply a 
zero percent increase factor for FYs 2008 and 2009, effective for IRF 
discharges occurring on or after April 1, 2008. Section 1886(j)(3)(C) 
of the Act requires the Secretary to develop an increase factor to 
update the IRF Federal prospective payment rates for each FY. Based on 
the legislative change to the increase factor, we revised the FY 2008 
Federal prospective payment rates for IRF discharges occurring on or 
after April 1, 2008. Thus, the final FY 2008 IRF Federal prospective 
payment rates that were published in the FY 2008 IRF PPS final rule (72 
FR 44284) were effective for discharges occurring on or after October 
1, 2007 and on or before March 31, 2008; and the revised FY 2008 IRF 
Federal prospective payment rates will be effective for discharges 
occurring on or after April 1, 2008 and on or before September 30, 
2008. The revised FY 2008 Federal prospective payment rates are 
available on the CMS Web site at https://www.cms.hhs.gov/
InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.

B. Operational Overview of the Current IRF PPS

    As described in the FY 2002 IRF PPS final rule, upon the admission 
and discharge of a Medicare Part A fee-for-service patient, the IRF is 
required to complete the appropriate sections of a patient assessment 
instrument, the Inpatient Rehabilitation Facility-Patient Assessment 
Instrument (IRF-PAI). All required data must be electronically encoded 
into the IRF-PAI software product. Generally, the software product 
includes patient grouping programming called the GROUPER software. The 
GROUPER software uses specific IRF-PAI data elements to classify (or 
group) patients into distinct CMGs and account for the existence of any 
relevant comorbidities.
    The GROUPER software produces a five-digit CMG number. The first 
digit is an alpha-character that indicates the comorbidity tier. The 
last four digits represent the distinct CMG number. Free downloads of 
the Inpatient Rehabilitation Validation and Entry (IRVEN) software 
product, including the GROUPER software, are available on the CMS Web 
site at https://www.cms.hhs.gov/InpatientRehabFacPPS/06_Software.asp.
    Once a patient is discharged, the IRF submits a Medicare claim (a 
Health Insurance Portability and Accountability Act (HIPAA, Pub. L. 
104-191) compliant electronic claim or, if the Administrative 
Compliance Act (ASCA, Pub. L. 107-105,) permits a paper claim, a UB-04 
or a CMS-1450, as appropriate) using the five-digit CMG number and 
sends it to the appropriate Medicare fiscal intermediary (FI) or 
Medicare Administrative Contractor (MAC). Claims submitted to Medicare 
must comply with both ASCA and HIPAA. Section 3 of the ASCA amends 
section 1862(a) of the Act by adding paragraph (22) which requires the 
Medicare program, subject to section 1862(h) of the Act, to deny 
payment under Part A or Part B for any expenses for items or services 
``for which a claim is submitted other than in an electronic form 
specified by the Secretary.'' Section 1862(h) of the Act, in turn, 
provides that the Secretary shall waive such denial in situations in 
which there is no method available for the submission of claims in an 
electronic form or the entity submitting the claim is a small provider.
    In addition, the Secretary also has the authority to waive such 
denial ``in such unusual cases as the Secretary finds appropriate.'' 
See also the final rule, ``Medicare Program; Electronic Submission of 
Medicare Claims'' (70 FR 71008, November 25, 2005). Section 3 of the 
ASCA operates in the context of the administrative simplification 
provisions of HIPAA, which include, among others, the requirements for 
transaction standards and code sets codified in 45 CFR, parts 160 and 
162, subparts A and I through R (generally known as the Transactions 
Rule). The Transactions Rule requires covered entities, including 
covered healthcare providers, to conduct covered electronic 
transactions according to the applicable transaction standards. (See 
the program claim memoranda issued and published by CMS at: https://
www.cms.hhs.gov/ElectronicBillingEDITrans/ and listed in the addenda to 
the Medicare Intermediary Manual, Part 3, section 3600. CMS 
instructions for the limited number of Medicare claims submitted on 
paper are available at: https://www.cms.hhs.gov/manuals/downloads/
clm104c25.pdf.)
    The Medicare FI or MAC processes the claim through its software 
system. This software system includes pricing programming called the 
``PRICER'' software. The PRICER software uses the CMG number, along 
with other specific claim data elements and provider-specific data, to 
adjust the IRF's prospective payment for interrupted stays, transfers, 
short stays, and deaths, and then applies the applicable adjustments to 
account for the IRF's wage index, percentage of low-income patients, 
rural location, and outlier payments. For discharges occurring on or 
after October 1, 2005, the IRF PPS payment also reflects the new 
teaching status adjustment that became effective as of FY 2006, as 
discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

C. Brief Summary of Proposed Revisions to the IRF PPS for FY 2009

    In this proposed rule, we are proposing to make the following 
updates to the IRF PPS:
     Update the FY 2009 IRF PPS relative weights and average 
length of stay values using the most current and complete Medicare 
claims and cost report data, as discussed in section II.
     Update the FY 2009 IRF PPS payment rates by the proposed 
wage index and labor related share in a budget neutral manner, as 
discussed in sections III.A and B.
     Update the outlier threshold amount for FY 2009, as 
discussed in section IV.A.
     Update the cost-to-charge ratio ceiling and the national 
average urban and rural cost-to-charge ratios for purposes of 
determining outlier payments under the IRF PPS, as discussed in section 
IV.B.

II. Proposed Update to the CMG Relative Weights and Average Length of 
Stay Values for FY 2009

    As specified in 42 CFR 412.620(b)(1), we calculate a relative 
weight for each CMG that is proportional to the resources needed by an 
average inpatient rehabilitation case in that CMG. For example, cases 
in a CMG with a relative weight of 2, on average, will cost twice as 
much as cases in a CMG with a relative weight of 1. Relative weights 
account for the variance in cost per discharge due to the variance in 
resource utilization among the payment groups, and their use helps to 
ensure that IRF PPS payments support beneficiary access to care as well 
as provider efficiency.
    In this proposed rule, we propose to update the CMG relative 
weights and average length of stay values using the most recent 
available data (FY 2006). We propose to do this using the same 
methodology, with one change, that was described in the original, FY 
2002 IRF PPS final rule (66 FR 41316) and the FY 2006 IRF PPS final 
rule (70 FR 47880, 47887 through 47888). The proposed change to the 
methodology involves using new, more detailed cost-to-charge ratio 
(CCR) data from the cost reports of IRF subprovider units of primary 
acute care hospitals, instead of CCR data from the associated primary 
acute care

[[Page 22677]]

hospitals, to calculate IRFs' average costs per case. For freestanding 
IRFs, we propose to continue using CCR data from the freestanding IRF's 
(that is, the primary hospital's) cost report. Previously, we were only 
able to use the CCR data from the cost reports of the primary acute 
care hospitals to estimate the relationship between costs and charges 
for the IRF subprovider units because those were the best data we had 
available. However, conceptually, the relationship between costs and 
charges in the primary acute care hospital could differ from the 
relationship between costs and charges in the IRF subprovider units. 
Since the two types of facilities provide a different range of services 
and treat different populations of patients, it might not be as precise 
to use the data from the primary acute care hospital to estimate the 
relationship between costs and charges in the IRF subprovider unit. 
When we analyzed the CMG relative weights for FY 2009, using both the 
primary acute care hospital CCRs and the IRF subprovider unit CCRs, we 
found that the CCRs we used made very little difference in the CMG 
relative weights. Since the data needed to calculate the IRF 
subprovider units' CCRs are now available in enough detail, and since 
conceptually it is more appropriate to use the cost report data from 
the IRF subprovider units to estimate the relationship between costs 
and charges in these IRF subprovider units, we are proposing this 
change to the methodology. As indicated previously, for freestanding 
IRFs, we propose to continue using CCR data from the freestanding IRF's 
(that is, the primary hospital's) cost report. In future years, we 
would continue to estimate the CMG relative weights using both the 
primary acute care hospital CCRs and the IRF subprovider unit CCRs to 
ensure that we continue to use the most appropriate data in updating 
the CMG relative weights.
    In calculating the CMG relative weights, we use a hospital-specific 
relative value method to estimate operating (routine and ancillary 
services) and capital costs of IRFs. To estimate these costs for FY 
2009, we propose to use the CCRs from the IRF subprovider units of 
primary acute care hospitals, except for the freestanding IRFs (for 
which we will continue to use the data from the cost report of the 
primary hospital, as discussed above). For FY 2009, we propose to use 
the same methodology we used to compute the CMG relative weights for 
FYs 2002 through 2008, with the one change described above, to update 
the CMG relative weights to reflect the most recent available data (FY 
2006). The process used to calculate the CMG relative weights for this 
proposed rule follows below:
    Step 1. We calculate the CMG relative weights by estimating the 
effects that comorbidities have on costs.
    Step 2. We adjust the cost of each Medicare discharge (case) to 
reflect the effects found in the first step.
    Step 3. We use the adjusted costs from the second step to calculate 
CMG relative weights, using the hospital-specific relative value 
method.
    Step 4. We normalize to the same average CMG relative weight from 
the CMG relative weights implemented in the FY 2002 IRF PPS final rule 
(66 FR 41316), the FY 2006 IRF PPS final rule (70 FR 47880), and the FY 
2007 IRF PPS final rule (71 FR 48354). (Note that we did not revise the 
CMG relative weights in the FY 2008 IRF PPS final rule (72 FR 44284)).
    Consistent with the way we implemented changes to the IRF 
classification system in the FY 2006 IRF PPS final rule (70 FR 47880 
and 70 FR 57166) and the FY 2007 IRF PPS final rule (71 FR 48354), we 
are proposing to make the revisions to the CMG relative weights for FY 
2009 in such a way that total estimated aggregate payments to IRFs for 
FY 2009 are the same with or without the proposed changes (that is, in 
a budget neutral manner) by applying a budget neutrality factor to the 
standard payment amount. To calculate the appropriate proposed budget 
neutrality factor to apply to the standard payment amount, we propose 
to use the following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2009 (with no proposed changes to the CMG relative weights).
    Step 2. Apply the proposed changes to the CMG relative weights (as 
discussed above) to calculate the estimated total amount of IRF PPS 
payments for FY 2009.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the proposed factor (0.9969) that 
would maintain the same total estimated aggregate payments in FY 2009 
with and without the proposed changes to the CMG relative weights.
    Step 4. Apply the proposed budget neutrality factor (0.9969) to the 
FY 2008 IRF PPS standard payment amount after the application of the 
budget-neutral wage adjustment factor.
    In section III.C of this proposed rule, we discuss the proposed 
methodology for calculating the standard payment conversion factor for 
FY 2009.
    Table 1 below, ``Proposed Relative Weights and Average Lengths of 
Stay for Case-Mix Groups,'' presents the CMGs, the comorbidity tiers, 
the proposed corresponding relative weights, and the proposed average 
length of stay values for each CMG and tier for FY 2009. The average 
length of stay for each CMG is used to determine when an IRF discharge 
meets the definition of a short-stay transfer, which results in a per 
diem case level adjustment. The proposed relative weights and average 
length of stay values shown in Table 1 are subject to change for the 
final rule based on analysis of updated data.

                                  Table 1.-- Proposed Relative Weights and Average Lengths of Stay for Case-Mix Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Proposed relative weight                 Proposed average length of stay
              CMG                CMG Description (M = motor, C = ---------------------------------------------------------------------------------------
                                       cognitive, A = age)          Tier 1     Tier 2     Tier 3      None      Tier 1     Tier 2     Tier 3      None
--------------------------------------------------------------------------------------------------------------------------------------------------------
0101..........................  Stroke M>51.05..................     0.7741     0.7243     0.6463     0.6222          8          9          9          9
0102..........................  Stroke M>44.45 and M<51.05 and       0.9569     0.8953     0.7989     0.7691         11         11         11         10
                                 C>18.5.
0103..........................  Stroke M>44.45 and M<51.05 and       1.1184     1.0465     0.9338     0.8990         13         15         12         12
                                 C<18.5.
0104..........................  Stroke M>38.85 and M<44.45......     1.2008     1.1235     1.0025     0.9651         14         15         13         13
0105..........................  Stroke M>34.25 and M<38.85......     1.4207     1.3293     1.1861     1.1419         16         17         15         15
0106..........................  Stroke M>30.05 and M<34.25......     1.6395     1.5341     1.3688     1.3178         17         19         17         17
0107..........................  Stroke M>26.15 and M<30.05......     1.8826     1.7615     1.5718     1.5132         19         22         20         19
0108..........................  Stroke M<26.15 and A>84.5.......     2.2430     2.0987     1.8726     1.8028         29         27         24         23
0109..........................  Stroke M>22.35 and M<26.15 and       2.1639     2.0247     1.8066     1.7393         22         25         22         22
                                 A<84.5.
0110..........................  Stroke M<22.35 and A<84.5.......     2.6983     2.5247     2.2528     2.1688         30         31         27         27

[[Page 22678]]

 
0201..........................  Traumatic brain injury M>53.35       0.7957     0.6567     0.5947     0.5509         10          9          8          8
                                 and C>23.5.
0202..........................  Traumatic brain injury M>44.25       1.0090     0.8327     0.7541     0.6985         13         12         10         10
                                 and M<53.35 and C>23.5.
0203..........................  Traumatic brain injury M>44.25       1.2165     1.0040     0.9092     0.8422         14         13         12         12
                                 and C<23.5.
0204..........................  Traumatic brain injury M>40.65       1.3278     1.0959     0.9924     0.9193         15         15         13         13
                                 and M<44.25.
0205..........................  Traumatic brain injury M>28.75       1.6060     1.3255     1.2004     1.1119         17         17         16         15
                                 and M<40.65.
0206..........................  Traumatic brain injury M>22.05       2.0505     1.6923     1.5326     1.4197         21         21         20         19
                                 and M<28.75.
0207..........................  Traumatic brain injury M<22.05..     2.6905     2.2205     2.0109     1.8627         36         27         25         23
0301..........................  Non-traumatic brain injury           1.0947     0.9303     0.8501     0.7640         12         12         11         10
                                 M>41.05.
0302..........................  Non-traumatic brain injury           1.4084     1.1969     1.0937     0.9829         14         15         14         13
                                 M>35.05 and M<41.05.
0303..........................  Non-traumatic brain injury           1.6925     1.4384     1.3144     1.1812         17         18         16         15
                                 M>26.15 and M<35.05.
0304..........................  Non-traumatic brain injury           2.3001     1.9548     1.7862     1.6053         28         24         21         20
                                 M<26.15.
0401..........................  Traumatic spinal cord injury         0.9524     0.8236     0.7692     0.7107         12         11         10         10
                                 M>48.45.
0402..........................  Traumatic spinal cord injury         1.3448     1.1629     1.0862     1.0035         17         16         15         13
                                 M>30.35 and M<48.45.
0403..........................  Traumatic spinal cord injury         2.2969     1.9863     1.8552     1.7140         30         25         23         22
                                 M>16.05 and M<30.35.
0404..........................  Traumatic spinal cord injury         4.1471     3.5864     3.3497     3.0946         66         44         38         36
                                 M<16.05 and A>63.5.
0405..........................  Traumatic spinal cord injury         3.3687     2.9132     2.7209     2.5138         42         30         30         32
                                 M<16.05 and A<63.5.
0501..........................  Non-traumatic spinal cord injury     0.7485     0.6643     0.5859     0.5236          9          9          8          8
                                 M>51.35.
0502..........................  Non-traumatic spinal cord injury     1.0121     0.8982     0.7922     0.7080         12         12         11         10
                                 M>40.15 and M<51.35.
0503..........................  Non-traumatic spinal cord injury     1.3269     1.1777     1.0387     0.9282         15         15         14         12
                                 M>31.25 and M<40.15.
0504..........................  Non-traumatic spinal cord injury     1.6143     1.4327     1.2637     1.1293         19         19         17         15
                                 M>29.25 and M<31.25.
0505..........................  Non-traumatic spinal cord injury     1.9083     1.6936     1.4938     1.3349         21         19         19         17
                                 M>23.75 and M<29.25.
0506..........................  Non-traumatic spinal cord injury     2.6059     2.3127     2.0399     1.8229         30         29         24         23
                                 M<23.75.
0601..........................  Neurological M>47.75............     0.9507     0.7701     0.7182     0.6558         11         11          9          9
0602..........................  Neurological M>37.35 and M<47.75     1.2627     1.0228     0.9539     0.8710         14         13         12         12
0603..........................  Neurological M>25.85 and M<37.35     1.6055     1.3005     1.2129     1.1075         16         16         15         15
0604..........................  Neurological M<25.85............     2.1200     1.7172     1.6016     1.4624         25         21         20         18
0701..........................  Fracture of lower extremity          0.9081     0.7815     0.7372     0.6629         10         10         10          9
                                 M>42.15.
0702..........................  Fracture of lower extremity          1.1867     1.0212     0.9633     0.8662         14         14         13         12
                                 M>34.15 and M<42.15.
0703..........................  Fracture of lower extremity          1.4492     1.2471     1.1765     1.0579         16         16         15         14
                                 M>28.15 and M<34.15.
0704..........................  Fracture of lower extremity          1.8522     1.5939     1.5037     1.3520         19         20         19         18
                                 M<28.15.
0801..........................  Replacement of lower extremity       0.6786     0.5637     0.5166     0.4690          8          8          7          7
                                 joint M>49.55.
0802..........................  Replacement of lower extremity       0.9002     0.7477     0.6853     0.6221         10         10          9          9
                                 joint M>37.05 and M<49.55.
0803..........................  Replacement of lower extremity       1.2808     1.0639     0.9750     0.8851         13         13         13         12
                                 joint M>28.65 and M<37.05 and
                                 A>83.5.
0804..........................  Replacement of lower extremity       1.1331     0.9412     0.8625     0.7830         13         12         11         11
                                 joint M>28.65 and M<37.05 and
                                 A<83.5.
0805..........................  Replacement of lower extremity       1.4300     1.1879     1.0886     0.9882         16         15         14         13
                                 joint M>22.05 and M<28.65.

[[Page 22679]]

 
0806..........................  Replacement of lower extremity       1.7498     1.4535     1.3320     1.2092         21         19         16         15
                                 joint M<22.05.
0901..........................  Other orthopedic M>44.75........     0.8724     0.7428     0.6672     0.5950         12          9         10          9
0902..........................  Other orthopedic M>34.35 and         1.1764     1.0016     0.8997     0.8023         13         13         12         11
                                 M<44.75.
0903..........................  Other orthopedic M>24.15 and         1.5455     1.3159     1.1821     1.0541         16         17         15         14
                                 M<34.35.
0904..........................  Other orthopedic M<24.15........     1.9922     1.6963     1.5238     1.3588         23         21         20         18
1001..........................  Amputation, lower extremity          0.9530     0.9074     0.7850     0.7218         11         16         10         10
                                 M>47.65.
1002..........................  Amputation, lower extremity          1.2690     1.2083     1.0452     0.9611         14         15         13         13
                                 M>36.25 and M<47.65.
1003..........................  Amputation, lower extremity          1.8511     1.7625     1.5246     1.4019         19         21         19         18
                                 M<36.25.
1101..........................  Amputation, non-lower extremity      1.1511     1.0159     0.9562     0.8734         12         13         12         12
                                 M>36.35.
1102..........................  Amputation, non-lower extremity      1.7909     1.5805     1.4877     1.3589         19         21         18         16
                                 M<36.35.
1201..........................  Osteoarthritis M>37.65..........     1.0383     0.8996     0.8403     0.7356         12         11         11         10
1202..........................  Osteoarthritis M>30.75 and           1.3069     1.1323     1.0576     0.9258         13         15         13         12
                                 M<37.65.
1203..........................  Osteoarthritis M<30.75..........     1.6806     1.4561     1.3600     1.1906         16         18         17         16
1301..........................  Rheumatoid, other arthritis          1.2933     0.9197     0.8468     0.7603         13         12         11         10
                                 M>36.35.
1302..........................  Rheumatoid, other arthritis          1.7330     1.2324     1.1347     1.0188         18         15         14         14
                                 M>26.15 and M<36.35.
1303..........................  Rheumatoid, other arthritis          2.2338     1.5885     1.4625     1.3132         18         21         19         17
                                 M<26.15.
1401..........................  Cardiac M>48.85.................     0.8468     0.7331     0.6541     0.5895         10         10         10          9
1402..........................  Cardiac M>38.55 and M<48.85.....     1.1260     0.9748     0.8697     0.7838         13         13         12         11
1403..........................  Cardiac M>31.15 and M<38.55.....     1.4026     1.2142     1.0833     0.9764         14         15         14         13
1404..........................  Cardiac M<31.15.................     1.7824     1.5430     1.3767     1.2407         19         19         17         16
1501..........................  Pulmonary M>49.25...............     0.8979     0.8644     0.7627     0.7277         10         11         10         10
1502..........................  Pulmonary M>39.05 and M<49.25...     1.1288     1.0867     0.9588     0.9149         12         14         12         12
1503..........................  Pulmonary M>29.15 and M<39.05...     1.3885     1.3367     1.1795     1.1254         16         15         15         14
1504..........................  Pulmonary M<29.15...............     1.7937     1.7267     1.5236     1.4537         22         20         19         17
1601..........................  Pain syndrome M>37.15...........     0.9517     0.8382     0.7807     0.6881         13         11         11         10
1602..........................  Pain syndrome M>26.75 and            1.3184     1.1611     1.0815     0.9532         15         15         13         13
                                 M<37.15.
1603..........................  Pain syndrome M<26.75...........     1.6571     1.4593     1.3593     1.1981         15         19         17         16
1701..........................  Major multiple trauma without        1.0571     0.9515     0.8114     0.7336         12         14         12         10
                                 brain or spinal cord injury
                                 M>39.25.
1702..........................  Major multiple trauma without        1.4300     1.2870     1.0976     0.9924         16         15         14         13
                                 brain or spinal cord injury
                                 M>31.05 and M<39.25.
1703..........................  Major multiple trauma without        1.6793     1.5114     1.2889     1.1654         20         19         16         15
                                 brain or spinal cord injury
                                 M>25.55 and M<31.05.
1704..........................  Major multiple trauma without        2.1809     1.9629     1.6740     1.5135         25         23         20         20
                                 brain or spinal cord injury
                                 M<25.55.
1801..........................  Major multiple trauma with brain     0.9865     0.9494     0.7674     0.7313         14         13         11         10
                                 or spinal cord injury M>40.85.
1802..........................  Major multiple trauma with brain     1.6484     1.5864     1.2823     1.2221         20         19         17         16
                                 or spinal cord injury M>23.05
                                 and M<40.85.
1803..........................  Major multiple trauma with brain     2.8473     2.7401     2.2149     2.1108         38         33         27         25
                                 or spinal cord injury M<23.05.
1901..........................  Guillain Barre M>35.95..........     1.1894     0.8847     0.8847     0.8847         18         11         13         12
1902..........................  Guillain Barre M>18.05 and           2.3954     1.7817     1.7817     1.7817         30         23         21         22
                                 M<35.95.
1903..........................  Guillain Barre M<18.05..........     3.8382     2.8549     2.8549     2.8549         40         36         34         36
2001..........................  Miscellaneous M>49.15...........     0.8681     0.7274     0.6556     0.5908         10         10          9          8
2002..........................  Miscellaneous M>38.75 and            1.1547     0.9676     0.8721     0.7859         12         12         11         11
                                 M<49.15.
2003..........................  Miscellaneous M>27.85 and            1.4947     1.2525     1.1288     1.0173         16         15         14         13
                                 M<38.75.

[[Page 22680]]

 
2004..........................  Miscellaneous M<27.85...........     1.9862     1.6644     1.5000     1.3518         23         20         19         17
2101..........................  Burns M>0.......................     2.0633     1.8370     1.8370     1.3345         33         23         18         16
5001..........................  Short-stay cases, length of stay  .........  .........  .........     0.1503  .........  .........  .........          3
                                 is 3 days or fewer.
5101..........................  Expired, orthopedic, length of    .........  .........  .........     0.6577  .........  .........  .........          8
                                 stay is 13 days or fewer.
5102..........................  Expired, orthopedic, length of    .........  .........  .........     1.6370  .........  .........  .........         20
                                 stay is 14 days or more.
5103..........................  Expired, not orthopedic, length   .........  .........  .........     0.6924  .........  .........  .........          8
                                 of stay is 15 days or fewer.
5104..........................  Expired, not orthopedic, length   .........  .........  .........     1.9305  .........  .........  .........         23
                                 of stay is 16 days or more.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Generally, updates to the CMG relative weights result in some 
increases and some decreases to the CMG relative weight values. Table 2 
shows, overall, how the proposed revisions in this proposed rule would 
affect particular CMG relative weight values, which affect the overall 
distribution of payments within CMGs and tiers. Note that, because we 
propose to implement the CMG relative weight revisions in a budget 
neutral manner, total estimated aggregate payments to IRFs for FY 2009 
would not be affected. However, the proposed revisions would affect the 
distribution of payments within CMGs and tiers.

   Table 2.--Distributional Effects of the Proposed Changes to the CMG
     Relative Weights (FY 2008 Values Compared With FY 2009 Values)
------------------------------------------------------------------------
                                             Number of     Percentage of
            Percentage change             cases affected  cases affected
------------------------------------------------------------------------
Increased by 15% or more................              65             0.0
Increased by between 5% and 15%.........           4,979             1.2
Changed by less than 5%.................         390,600            96.1
Decreased by between 5% and 15%.........           1,706             0.4
Decreased by 15% or more................           2,531             2.3
------------------------------------------------------------------------

    As Table 2 shows, over 96 percent of all IRF cases are in CMGs and 
tiers that would experience less than a 5 percent change (either 
increase or decrease) in the CMG relative weight value as a result of 
the proposed revisions. The most significant increase in the proposed 
CMG relative weight values, in terms of the largest number of cases 
affected, would be a 3.3 percent increase in the CMG relative weight 
value for CMG A0802--Replacement of lower extremity joint, motor score 
greater than 37.05 and motor score less than 49.55--in the ``no-
comorbidity'' tier. In the FY 2006 data, 25,822 IRF discharges were 
classified into this CMG and tier. We believe that the higher costs 
reported in this CMG and tier in FY 2006, compared with those reported 
for this CMG and tier in FY 2003, may reflect recent IRF case mix 
changes caused, at least in part, by the phase-in of the ``75 percent'' 
rule and increased medical review of IRF discharges. These changes to 
the system have likely increased the complexity of patients being 
admitted to IRFs, especially among the lower-extremity joint 
replacement cases with no comorbidities, which do not meet the 75 
percent rule criteria and have been the focus of a lot of the medical 
review activities.
    These same trends explain the most significant decrease in the 
proposed CMG relative weight values, in terms of the largest number of 
cases affected. The proposed revisions would reduce the CMG relative 
weight value for CMG 5001--Short-stay cases, length of stay is 3 days 
or fewer--by 31.7 percent. This decrease is associated with a 
substantial decrease in the number of cases classified into this 
extremely short-stay CMG, from 10,222 IRF discharges in FY 2003 to 
2,376 IRF discharges in FY 2006. We believe that increases in the 
complexity of IRF patients resulting from the ``75 percent'' rule and 
the IRF medical review activities may mean that fewer IRF patients can 
effectively be treated in IRFs for 3 days or fewer.
    The changes in the proposed average length of stay values in this 
proposed rule, compared with the current (FY 2008) average length of 
stay values, are small and primarily distributional. Some values 
increase and some decrease, compared with the FY 2008 values. The only 
notable changes are in 3 of the CMGs for traumatic spinal cord 
injuries, B0403, B0404, and B0405 (all in tier 1), for which the 
proposed average length of stay values increased by 8.55 days, 14.92 
days, and 9.72 days, respectively. This may, again, be due to increases 
in the complexity of IRF patients resulting from the ``75 percent'' 
rule and the IRF medical review activities. The overall average length 
of stay in IRFs also increased from 12.8 days in FY 2003 to 13.9 days 
in FY 2006, which may be attributable to increases in IRFs' case mix 
over this period.
    Given the recent changes in IRFs' case mix, we believe that it is 
especially important to update the CMG relative weights and average 
length of stay values at this time to reflect these changes.

III. Proposed FY 2009 IRF PPS Federal Prospective Payment Rates

A. Increase Factor for FY 2009 and Proposed FY 2009 Labor-Related Share

    Section 1886(j)(3)(C) of the Act requires the Secretary to 
establish an increase factor that reflects changes over time in the 
prices of an appropriate mix

[[Page 22681]]

of goods and services included in the covered IRF services, which is 
referred to as a market basket index. According to section 
1886(j)(3)(A)(i) of the Act, the increase factor shall be used to 
update the IRF Federal prospective payment rates for each FY. However, 
section 115 of the Medicare, Medicaid, and SCHIP Extension Act of 2007, 
Public Law 110-173, amended section 1886(j)(3)(C) of the Act to apply a 
zero percent increase factor for FYs 2008 and 2009, effective for IRF 
discharges occurring on or after April 1, 2008. In accordance with 
section 1886(j)(3)(C) of the Act, as amended by the legislation, we are 
applying an increase factor of zero percent to update the proposed IRF 
Federal prospective payment rates for FY 2009 in this proposed rule.
    We continue to use the methodology described in the FY 2006 IRF PPS 
final rule to update the labor-related share for FY 2009. In FY 2004, 
we updated the 1992 market basket data to 1997 based on the methodology 
described in the FY 2004 IRF PPS final rule (68 FR 45688 through 
45689). As discussed in the FY 2006 IRF PPS final rule (70 FR 47915 
through 47917), we rebased and revised the market basket for FY 2006 
using the 2002-based cost structures for IRFs, inpatient psychiatric 
facilities (IPFs), and long-term care hospitals (LTCHs) to determine 
the FY 2006 labor-related share. For FYs 2007 and 2008, we used the 
same methodology discussed in the FY 2006 IRF PPS final rule (70 FR at 
47908 through 47917) to determine the IRF labor-related share. For FY 
2009, we continue to use the same methodology discussed in the FY 2006 
IRF PPS final rule. The labor-related share for FY 2009 is the sum of 
the FY 2009 relative importance of each labor-related cost category, 
and reflects the different rates of price change for these cost 
categories between the base year (FY 2002) and FY 2009. For this 
proposed rule, the labor-related share reflects Global Insight's first 
quarter 2008 forecast. As shown in Table 3, the total FY 2009 
Rehabilitation, Psychiatric, and Long-Term Care Hospital Market Basket 
(RPL) labor-related share in this proposed rule is 75.691 percent. We 
propose to update the labor-related share with the most recent 
available data for the final rule.

     Table 3.--Proposed FY 2009 IRF RPL Labor-Related Share Relative
                               Importance
------------------------------------------------------------------------
                                                   Proposed FY 2009 IRF
                 Cost category                     labor-related share
                                                   relative importance
------------------------------------------------------------------------
Wages and salaries.............................                   52.683
Employee benefits..............................                   14.039
Professional fees..............................                    2.896
All other labor intensive services.............                    2.137
                                                ------------------------
    Subtotal:..................................                   71.755
                                                ========================
Labor-related share of capital costs (.46).....                    3.936
                                                ------------------------
    Total:.....................................                  75.691
------------------------------------------------------------------------
Source: GLOBAL INSIGHT, INC, 1st QTR, 2008; @USMACRO/CONTROL0308 @CISSIM/
  TL0208.SIM Historical Data through 4th QTR, 2007.

B. Proposed Area Wage Adjustment

    Section 1886(j)(6) of the Act requires the Secretary to adjust the 
proportion (as estimated by the Secretary from time to time) of 
rehabilitation facilities' costs attributable to wages and wage-related 
costs by a factor (established by the Secretary) reflecting the 
relative hospital wage level in the geographic area of the 
rehabilitation facility compared to the national average wage level for 
those facilities. The Secretary is required to update the IRF PPS wage 
index on the basis of information available to the Secretary on the 
wages and wage-related costs to furnish rehabilitation services. Any 
adjustments or updates made under section 1886(j)(6) of the Act for a 
FY are made in a budget neutral manner.
    In the FY 2008 IRF PPS final rule (72 FR 44299), we maintained the 
methodology described in the FY 2006 IRF PPS final rule to determine 
the wage index, labor market area definitions, and hold harmless policy 
consistent with the rationale outlined in the FY 2006 IRF PPS final 
rule (70 FR 47917 through 47933).
    For FY 2009, we propose to maintain the policies and methodologies 
described in the FY 2008 IRF PPS final rule relating to the labor 
market area definitions and the wage index methodology for areas with 
wage data. Therefore, this proposed rule continues to use the Core-
Based Statistical Area (CBSA) labor market area definitions and the 
pre-reclassification and pre-floor hospital wage index data based on 
2004 cost report data.
    When adopting new labor market designations made by the Office of 
Management and Budget (OMB), we identified some geographic areas where 
there were no hospitals and, thus, no hospital wage index data on which 
to base the calculation of the IRF PPS wage index. We continue to use 
the same methodology discussed in the FY 2008 IRF PPS final rule (72 FR 
44299) to address those geographic areas where there are no hospitals 
and, thus, no hospital wage index data on which to base the calculation 
of the FY 2009 IRF PPS wage index.
    Additionally, this proposed rule incorporates the CBSA changes 
published in the most recent OMB bulletin that applies to the hospital 
wage data used to determine the current IRF PPS wage index. The changes 
were nomenclature and did not represent substantive changes to the 
CBSA-based designations. Specifically, OMB added or deleted certain 
CBSA numbers and revised certain titles. The OMB bulletins are 
available online at https://www.whitehouse.gov/omb/bulletins/.
    Finally, as discussed in the FY 2008 IRF PPS final rule (72 FR 
44298), FY 2008 was the third and final year of the 3-year phase-out of 
the budget neutral hold harmless policy. For FY 2008 and beyond, we no 
longer apply an adjustment for IRFs that meet the criteria described in 
the FY 2006 final rule (70 FR 47923 through 47926).
1. Clarification of New England Deemed Counties
    We are taking this opportunity to address the change in the 
treatment of ``New England deemed counties'' (that is, those counties 
in New England listed in Sec.  412.64(b)(1)(ii)(B) that were deemed

[[Page 22682]]

to be parts of urban areas under section 601(g) of the Social Security 
Amendments of 1983) that was made in the FY 2008 Inpatient Prospective 
Payment System (IPPS) final rule with comment period (72 FR 47337). 
These counties include the following: Litchfield County, CT; York 
County, ME; Sagadahoc County, ME; Merrimack County, NH; and Newport 
County, RI. Of these five ``New England deemed counties,'' three (York 
County, ME, Sagadahoc County, ME, and Newport County, RI) are also 
included in metropolitan statistical areas (MSAs) defined by OMB and 
are considered urban under both the current IPPS and IRF PPS labor 
market area definitions in Sec.  412.64(b)(1)(ii)(A). The remaining 
two, Litchfield County, CT and Merrimack County, NH, are geographically 
located in areas that are considered rural under the current IPPS (and 
IRF PPS) labor market area definitions, but have been previously deemed 
urban under the IPPS in certain circumstances, as discussed below.
    In the FY 2008 IPPS final rule with comment period, (72 FR 47337 
through 47338), Sec.  412.64(b)(1)(ii)(B) was revised that the two 
``New England deemed counties'' that are still considered rural under 
the OMB definitions (Litchfield County, CT and Merrimack County, NH), 
are no longer considered urban, effective for discharges occurring on 
or after October 1, 2007, and, therefore, are considered rural in 
accordance with Sec.  412.64(b)(1)(ii)(C). However, for purposes of 
payment under the IPPS, acute care hospitals located within those areas 
are treated as being reclassified to their deemed urban area effective 
for discharges occurring on or after October 1, 2007 (see 72 FR 47337 
through 47338). We note that the IRF PPS does not provide for 
geographic reclassification. Also, in the FY 2008 IPPS final rule with 
comment period (72 FR 47338), we explained that we limited this policy 
change for the ``New England deemed counties'' only to IPPS hospitals, 
and any change to non-IPPS provider wage indexes would be addressed in 
the respective payment system rules.
    Accordingly, as stated above, we are taking this opportunity to 
clarify the treatment of ``New England deemed counties'' under the IRF 
PPS in this proposed rule.
    As discussed above, the IRF PPS has consistently used the IPPS 
definition of ``urban'' and ``rural'' with regard to the wage index 
used in the IRF PPS. Under existing Sec.  412.602, an IRF's wage index 
is determined based on the location of the IRF in an urban or rural 
area as defined in Sec. Sec.  412.64(b)(1)(ii)(A) through (C).
    Historical changes to the labor market area/geographic 
classifications and annual updates to the wage index values under the 
IRF PPS are made effective October 1 each year. When we established the 
most recent IRF PPS payment rate update, effective for discharges 
occurring on or after October 1, 2007 through September 30, 2008, we 
considered the ``New England deemed counties'' (including Litchfield 
County, CT and Merrimack County, NH) as urban for FY 2008, as evidenced 
by the inclusion of Litchfield County, CT as one of the constituent 
counties of urban CBSA 25540 (Hartford-West Hartford-East Hartford, 
CT), and the inclusion of Merrimack County, NH as one of the 
constituent counties of urban CBSA 31700 (Manchester-Nashua, NH).
    As noted above, Sec.  412.602 indicates that the terms ``rural'' 
and ``urban'' are defined according to the definitions of those terms 
in Sec. Sec.  412.64(b)(1)(ii)(A) through (C). Applying the IPPS 
definitions, Litchfield County, CT and Merrimack County, NH are not 
considered ``urban'' under Sec. Sec.  412.64(b)(1)(ii)(A) and (B) as 
revised under the FY 2008 IPPS final rule and, therefore, are 
considered ``rural'' under Sec.  412.64(b)(1)(ii)(C). Accordingly, 
reflecting our policy to use the IPPS definitions of ``urban'' and 
``rural'', these two counties would be considered ``rural'' under the 
IRF PPS effective with the next update of the IRF PPS payment rates, 
October 1, 2008, and would no longer be included in urban CBSA 25540 
(Hartford-West Hartford-East Hartford, CT) and urban CBSA 31700 
(Manchester-Nashua, NH), respectively. We note that this policy is 
consistent with our policy of not taking into account IPPS geographic 
reclassifications in determining payments under the IRF PPS. We do not 
need to make any changes to our regulations to effectuate this change.
    There is one IRF (in Merrimack County, NH) that greatly benefits 
from treating these counties as rural. This IRF would begin to receive 
a higher wage index value and the 21.3 percent adjustment that is 
applied to IRF PPS payments for rural facilities. Currently, there are 
no IRFs in the following areas: Litchfield County, CT; rural 
Connecticut; or rural New Hampshire.
2. Multi-Campus Hospital Wage Index Data
    In the FY 2008 IRF PPS final rule (72 FR 44284, August 7, 2007), we 
established IRF PPS wage index values for FY 2008 calculated from the 
same data (collected from cost reports submitted by hospitals for cost 
reporting periods beginning during FY 2003) used to compute the FY 2007 
acute care hospital inpatient wage index, without taking into account 
geographic reclassification under sections 1886(d)(8) and (d)(10) of 
the Act. The IRF PPS wage index values applicable for discharges 
occurring on or after October 1, 2007 through September 30, 2008 are 
shown in Table 1 (for urban areas) and Table 2 (for rural areas) in the 
addendum to the FY 2008 IRF PPS final rule (72 FR 44312 through 44335).
    We are continuing to use IPPS wage data for the FY 2009 IRF PPS 
Wage Index, because we believe that using the hospital inpatient wage 
data is appropriate and reasonable for the IRF PPS. We note that the 
IPPS wage data used to determine the FY 2009 IRF wage index values 
reflect our policy that was adopted under the IPPS beginning in FY 
2008, which apportions the wage data for multi-campus hospitals located 
in different labor market areas (CBSAs) to each CBSA where the campuses 
are located (see the FY 2008 IPPS final rule with comment period (72 FR 
47317 through 47320)). We computed the FY 2009 IRF PPS wage index 
values presented in this notice consistent with our pre-reclassified 
IPPS