Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2010, 21052-21133 [E9-10078]

Agencies

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

[Federal Register Volume 74, Number 86 (Wednesday, May 6, 2009)]
[Proposed Rules]
[Pages 21052-21133]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-10078]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 412



Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal Fiscal Year 2010; Proposed Rule

Federal Register / Vol. 74, No. 86 / Wednesday, May 6, 2009 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1538-P]
RIN 0938-AP56


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2010

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the payment rates for 
inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 
2010 (for discharges occurring on or after October 1, 2009 and on or 
before September 30, 2010) 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 IRF 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 29, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1538-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 file code to find the document 
accepting comments.
    2. By regular mail. You may send written comments by regular mail 
(one original and two copies) to the following address only: Centers 
for Medicare & Medicaid Services, Department of Health and Human 
Services, Attention: CMS-1538-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) by express or overnight mail to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1538-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: Julie Stankivic, (410) 786-5725, for 
general information regarding the proposed rule.
    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
II. Summary of Provisions of the Proposed Rule
    A. Proposed Updates to the IRF PPS for Federal Fiscal Year (FY) 
2010
    B. Proposed Revisions to Existing Regulation Text
    C. Proposed New Regulation Text
    D. Proposed Rescission of Outdated HCFAR-85-2-1
III. Proposed Update to the Case-Mix Group (CMG) Relative Weights 
and Average Length of Stay Values for FY 2010
IV. Proposed Updates to the Facility-Level Adjustment Factors for FY 
2010
    A. Background on Facility-Level Adjustments
    B. Proposed Updates to IRF Facility-Level Adjustment Factors
    C. Budget Neutrality Methodology for the Updates to the IRF 
Facility-Level Adjustment Factors
V. Proposed FY 2010 IRF PPS Federal Prospective Payment Rates
    A. Proposed Market Basket Increase Factor and Labor-Related 
Share for FY 2010
    B. Proposed Area Wage Adjustment
    C. Description of the Proposed IRF Standard Payment Conversion 
Factor and Payment Rates for FY 2010
    D. Example of the Methodology for Adjusting the Proposed Federal 
Prospective Payment Rates
VI. Proposed Update to Payments for High-Cost Outliers Under the IRF 
PPS
    A. Proposed Update to the Outlier Threshold Amount for FY 2010
    B. Proposed Update to the IRF Cost-to-Charge Ratio Ceilings
VII. Inpatient Rehabilitation Facility (IRF) Classification and 
Payment Requirements
    A. Analysis of Current IRF Classification and Payment 
Requirements
    B. Summary of the Major Proposed Revisions and New Requirements
    C. Proposed IRF Admission Requirements
    D. Proposed Post-Admission Requirements
    E. Proposed Changes to the Requirements for the 
Interdisciplinary Team Meeting
    F. Proposed Director of Rehabilitation Requirement
    G. Clarifying and Conforming Amendments

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    H. Proposed Introductory Paragraph at Sec.  412.30
    I. Proposed Rescission of the HCFAR 85-2 Ruling
    J. Proposed Change to the Requirement to Retain IRF-PAI Data
VIII. Proposed Revisions to the Regulation Text to Require IRFs to 
Submit Patient Assessments on Medicare Advantage Patients for Use in 
the ``60 Percent Rule'' Calculations
IX. Collection of Information Requirements
X. Response to Public Comments
XI. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects of the Proposed Rule
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
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.
ADC Average Daily Census
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
DRG Diagnostic Related Group
DSH Disproportionate Share Hospital
FI Fiscal Intermediary
FR Federal Register
FTE Full-time Equivalent
FY Federal Fiscal Year
HCFA Health Care Financing Administration
HHH Hubert H. Humphrey Building
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 
104-191
IOM Internet Only Manual
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
LTCH Long Term Care Hospital
LIP Low-Income Percentage
MA Medicare Advantage
MAC Medicare Administrative Contractor
MBPM Medicare Benefit Policy Manual
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 
110-173
OMB Office of Management and Budget
PAI Patient Assessment Instrument
PPS Prospective Payment System
QIC Qualified Independent Contractors
RAC Recovery Audit Contractors
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

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) and 
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 
2009.
    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. Within the 
structure of the payment system, we then made adjustments to account 
for interrupted stays, transfers, short stays, and deaths. Finally, we 
applied the applicable adjustments to account for geographic variations 
in wages (wage index), the percentage of low-income patients, location 
in a rural area (if applicable), and outlier payments (if applicable) 
to the IRF's unadjusted Federal prospective payment rates.
    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

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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. These refinements included the adoption of OMB's 
Core-Based Statistical Area (CBSA) market definitions, modifications to 
the CMGs, tier comorbidities, and CMG relative weights, implementation 
of a new teaching status adjustment for IRFs, revision and rebasing of 
the IRF market basket, and updates to the rural, low-income percentage 
(LIP), and high-cost outlier 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.
    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, 
Pub. L. 110-173 (MMSEA), 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 were 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.
    In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG 
relative weights, the average length of stay values, and the outlier 
threshold; clarified IRF wage index policies regarding the treatment of 
``New England deemed'' counties and multi-campus hospitals; and revised 
the regulation text in response to section 115 of the MMSEA to set the 
IRF compliance percentage at 60 percent (``the 60 percent rule'') and 
continue the practice of including comorbidities in the calculation of 
compliance percentages. We also applied a zero percent increase factor 
for FY 2009. For more information on the policy changes implemented for 
FY 2009, please refer to the FY 2009 IRF PPS final rule (73 FR 46370), 
in which we published the final FY 2009 IRF Federal prospective payment 
rates.

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 (PAI), 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 classification 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 as 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.'' For more information we refer the reader to the 
final rule, ``Medicare Program; Electronic Submission of Medicare 
Claims'' (70 FR 71008, November 25, 2005). CMS instructions for the 
limited number of Medicare claims submitted on paper are available at: 
(https://www.cms.hhs.gov/manuals/downloads/clm104c25.pdf.)
    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).
    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

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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).

II. Summary of Provisions of the Proposed Rule

    In this proposed rule, we are proposing updates to the IRF PPS, 
revisions to existing regulations text for the purpose of providing 
greater clarity, new regulations text to improve calculation of 
compliance with the ``60 percent'' rule, and rescission of an outdated 
Health Care Financing Administration (HFCA) Ruling (HCFAR 85-2-1). 
These proposals are as follows:

A. Proposed Updates to the IRF PPS for Federal Fiscal Year (FY) 2010

     Update the FY 2010 IRF PPS relative weights and average 
length of stay values using the most current and complete Medicare 
claims and cost report data in a budget neutral manner, as discussed in 
section III.
     Update the FY 2010 IRF facility-level adjustments (rural, 
LIP, and teaching status adjustments) using the most current and 
complete Medicare claims and cost report data in a budget neutral 
manner, as discussed in section IV.
     Update the FY 2010 IRF PPS payment rates by the proposed 
market basket, as discussed in section V.A.
     Update the FY 2010 IRF PPS payment rates by the proposed 
wage index and the labor-related share in a budget neutral manner, as 
discussed in section V.A and V.B.
     Update the outlier threshold amount for FY 2010, as 
discussed in section VI.A.

B. Proposed Revisions to Existing Regulation Text

     Relocate and revise the criteria to be classified as an 
inpatient rehabilitation hospital found at existing Sec.  412.23(b)(3) 
through (b)(7) that describe requirements relating to preadmission 
screening, close medical supervision, a director of rehabilitation, the 
plan of care, and a coordinated multidisciplinary team approach. 
Redesignate paragraphs (b)(8) and (b)(9) of Sec.  412.23 as paragraphs 
(b)(3) and (b)(4) and revise newly redesignated paragraph (b)(4), as 
described in section VII.
     Revise the section heading at Sec.  412.29 that describes 
the additional requirements applicable to inpatient rehabilitation 
units to include inpatient rehabilitation hospitals, as described in 
section VII.
     Relocate and revise the existing requirements at Sec.  
412.29(b) through (f) that describe the requirements relating to 
preadmission screening, close medical supervision, a director of 
rehabilitation, the plan of care, and a coordinated multidisciplinary 
team approach, as described in section VII.
     Revise the section heading at Sec.  412.30 that describes 
the requirements applicable to new and converted rehabilitation units, 
as described in section VII.
     Revise the regulation text in Sec.  412.604, Sec.  
412.606, Sec.  412.610. Sec.  412.614 and Sec.  412.618 to require the 
collection of inpatient rehabilitation facility patient assessment 
instrument data on Medicare Part C (Medicare Advantage) patients in 
IRFs for use in the 60 percent rule compliance percentage calculations, 
as described in section VIII.
     Remove Sec.  412.614(a)(3) that provides for an exception 
in the transmission of IRF-PAI data to CMS, as described in section 
VIII.
     Revise the heading at Sec.  412.614(d) to ``Consequences 
of failure to submit complete and timely IRF-PAI data, as required 
under paragraph (c) of this section,'' as described in section VIII.
     Revise the heading at Sec.  412.614(d)(1) to ``Medicare 
Part A fee-for-service data,'' as described in section VIII.
     Redesignate existing subsection (1) as (1)(a) and correct 
a technical error in the new subsection (1)(a), as described in section 
VIII.
     Redesignate existing subsection (2) as (1)(b), as 
described in section VIII.

C. Proposed New Regulation Text

     Revise Sec.  412.29, as described in section VII, to 
include the additional requirements to be met by inpatient 
rehabilitation hospitals and units and the requirements for coverage in 
an IRF.
     Add a new introductory paragraph at Sec.  412.30 that 
includes the requirements previously found in Sec.  412.29(a) 
(describing the requirements for new and converted rehabilitation 
units), as described in section VII.
     Revise Sec.  412.610(f) to require that the IRF provide a 
copy of the electronic computer file format of the IRF-PAI to the 
contractor upon request, as described in section VII.
     Add a new paragraph Sec.  412.614(d)(2) to indicate that 
failure of an IRF to submit IRF-PAI data on all of its Medicare Part C 
(Medicare Advantage) patients will result in forfeiture of the IRF's 
ability to have any of its Medicare Part C (Medicare Advantage) data 
used in the compliance calculations, as described in section VIII.

D. Proposed Rescission of Outdated HCFAR-85-2-1

    Rescind HCFA Ruling 85-2-1 entitled ``Medicare Criteria for 
Medicare Coverage of Inpatient Hospital Rehabilitation Services'' and 
set forth new coverage criteria applicable to care provided by IRFs, as 
described in section VIII.
Proposed Update to the Case-Mix Group (CMG) Relative Weights and 
Average Length of Stay Values for FY 2010
    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 for FY 2010. Comments on the 
FY 2009 IRF PPS proposed rule (73 FR 46373) suggested that the data 
that we used for FY 2009 to update the CMG relative weights and average 
length of stay values did not fully reflect recent changes in IRF 
utilization that have occurred because of changes in the IRF compliance 
percentage and the consequences of recent IRF medical necessity 
reviews. In light of recently available data and our desire to ensure 
that the CMG relative weights and average length of stay values are as 
reflective as possible of these recent changes and that IRF PPS 
payments continue to reflect as accurately as possible the current 
costs of care in IRFs, we believe that it is appropriate to update the 
CMG relative weights and average length of stay values at this time.
    As required by statute, we always use the most recent available 
data to update the CMG relative weights and average length of stay 
values. For FY 2009,

[[Page 21056]]

however, those data were the FY 2006 IRF cost report data. As noted 
above, many commenters on the FY 2009 IRF PPS proposed rule (73 FR 
46373) suggested that the FY 2006 IRF cost report data were not fully 
reflective of the recent IRF utilization changes and that the FY 2007 
IRF cost report data would be more reflective of these changes. We were 
unable to use the FY 2007 IRF cost report data for the FY 2009 final 
rule (73 FR 46370) because, as we indicated in that rule, only a small 
portion of the FY 2007 IRF cost reports were available for analysis at 
that time. Thus, we used the most current and complete IRF cost report 
data available at that time.
    At this time, the majority of FY 2007 IRF cost reports are 
available for use in analyses in this proposed rule. Thus, we are using 
FY 2007 cost report data to update the proposed FY 2010 CMG relative 
weights and average length of stay values in this proposed rule.
    In this proposed rule, we propose to use the same methodology that 
we used to update the CMG relative weights and average length of stay 
values in the FY 2009 IRF PPS final rule (73 FR 46370). 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. 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 the FY 2010 CMG relative weight to the same 
average CMG relative weight from the CMG relative weights implemented 
in the FY 2009 IRF PPS final rule (73 FR 46370).
    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), the FY 2007 IRF PPS final rule (71 FR 48354), and the 
FY 2009 IRF PPS final rule (73 FR 46370), we propose to make changes to 
the CMG relative weights for FY 2010 in such a way that total estimated 
aggregate payments to IRFs for FY 2010 would be 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 for use in 
updating the FY 2010 CMG relative weights, we propose to use the 
following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2010 (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 2010.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the proposed budget neutrality factor 
(1.0004) that would maintain the same total estimated aggregate 
payments in FY 2010 with and without the proposed changes to the CMG 
relative weights.
    Step 4. Apply the proposed budget neutrality factor (1.0004) to the 
FY 2009 IRF PPS standard payment amount after the application of the 
budget-neutral wage adjustment factor.
    In section V.C of this proposed rule, we discuss the proposed 
methodology for calculating the standard payment conversion factor for 
FY 2010.
    Table 1 below, ``Proposed Relative Weights and Average Length of 
Stay Values 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 2010. 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 if more recent data become available for use in 
these analyses.

                                Table 1--Proposed Relative Weights and Average Length of Stay Values 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..............     0.7687     0.7091     0.6360     0.6046          9         10          9          8
0102............................  Stroke M > 44.45 and M < 51.05     0.9676     0.8926     0.8006     0.7611         11         11         11         10
                                   and C > 18.5.
0103............................  Stroke M > 44.45 and M < 51.05     1.1434     1.0548     0.9461     0.8994         14         14         12         12
                                   and C < 18.5.
0104............................  Stroke M > 38.85 and M < 44.45     1.2167     1.1225     1.0068     0.9570         13         14         13         13
0105............................  Stroke M > 34.25 and M < 38.85     1.4313     1.3205     1.1843     1.1258         16         18         15         15
0106............................  Stroke M > 30.05 and M < 34.25     1.6634     1.5345     1.3763     1.3083         19         19         17         17
0107............................  Stroke M > 26.15 and M < 30.05     1.8955     1.7486     1.5684     1.4909         20         21         19         19
0108............................  Stroke M < 26.15 and A > 84.5.     2.2786     2.1021     1.8854     1.7922         28         26         23         22
0109............................  Stroke M > 22.35 and M < 26.15     2.1740     2.0057     1.7989     1.7100         22         23         21         22
                                   and A < 84.5.
0110............................  Stroke M < 22.35 and A < 84.5.     2.7212     2.5104     2.2516     2.1404         30         30         27         26
0201............................  Traumatic brain injury M >         0.7736     0.6581     0.5909     0.5368         11         10          8          8
                                   53.35 and C > 23.5.
0202............................  Traumatic brain injury M >         1.0344     0.8800     0.7901     0.7177         14         11         10         10
                                   44.25 and M < 53.35 and C >
                                   23.5.

[[Page 21057]]

 
0203............................  Traumatic brain injury M >         1.1675     0.9933     0.8918     0.8101         12         13         12         11
                                   44.25 and C < 23.5.
0204............................  Traumatic brain injury M >         1.2977     1.1040     0.9913     0.9005         15         14         13         12
                                   40.65 and M < 44.25.
0205............................  Traumatic brain injury M >         1.5866     1.3498     1.2120     1.1009         20         17         16         14
                                   28.75 and M < 40.65.
0206............................  Traumatic brain injury M >         1.9678     1.6741     1.5032     1.3655         21         21         18         18
                                   22.05 and M < 28.75.
0207............................  Traumatic brain injury M <         2.6606     2.2636     2.0324     1.8462         36         28         25         22
                                   22.05.
0301............................  Non-traumatic brain injury M >     1.1006     0.9303     0.8372     0.7664         12         12         11         10
                                   41.05.
0302............................  Non-traumatic brain injury M >     1.3956     1.1797     1.0615     0.9719         14         15         13         13
                                   35.05 and M < 41.05.
0303............................  Non-traumatic brain injury M >     1.6795     1.4197     1.2775     1.1696         17         18         16         15
                                   26.15 and M < 35.05.
0304............................  Non-traumatic brain injury M <     2.3029     1.9466     1.7517     1.6037         28         23         21         20
                                   26.15.
0401............................  Traumatic spinal cord injury M     0.9262     0.7974     0.7669     0.6573         12         12         11          9
                                   > 48.45.
0402............................  Traumatic spinal cord injury M     1.3955     1.2013     1.1554     0.9903         17         15         16         13
                                   > 30.35 and M < 48.45.
0403............................  Traumatic spinal cord injury M     2.2854     1.9675     1.8922     1.6218         27         23         23         21
                                   > 16.05 and M < 30.35.
0404............................  Traumatic spinal cord injury M     4.0113     3.4532     3.3211     2.8464         52         40         37         35
                                   < 16.05 and A > 63.5.
0405............................  Traumatic spinal cord injury M     3.0911     2.6610     2.5592     2.1935         45         30         29         27
                                   < 16.05 and A < 63.5.
0501............................  Non-traumatic spinal cord          0.8120     0.6408     0.5930     0.5226          9         10          8          8
                                   injury M > 51.35.
0502............................  Non-traumatic spinal cord          1.1022     0.8698     0.8049     0.7094         13         11         11         10
                                   injury M > 40.15 and M <
                                   51.35.
0503............................  Non-traumatic spinal cord          1.4364     1.1336     1.0491     0.9245         16         14         13         13
                                   injury M > 31.25 and M <
                                   40.15.
0504............................  Non-traumatic spinal cord          1.7306     1.3658     1.2639     1.1139         21         17         16         15
                                   injury M > 29.25 and M <
                                   31.25.
0505............................  Non-traumatic spinal cord          2.0466     1.6151     1.4947     1.3172         23         21         19         17
                                   injury M > 23.75 and M <
                                   29.25.
0506............................  Non-traumatic spinal cord          2.8482     2.2478     2.0801     1.8332         32         27         26         23
                                   injury M < 23.75.
0601............................  Neurological M > 47.75........     0.9213     0.7561     0.7165     0.6517         11          9         10          9
0602............................  Neurological M > 37.35 and M <     1.2343     1.0130     0.9598     0.8730         12         13         12         12
                                   47.75.
0603............................  Neurological M > 25.85 and M <     1.5714     1.2897     1.2220     1.1115         16         16         15         15
                                   37.35.
0604............................  Neurological M < 25.85........     2.0876     1.7133     1.6235     1.4766         24         21         20         18
0701............................  Fracture of lower extremity M      0.9097     0.7723     0.7302     0.6542         11         11         10          9
                                   > 42.15.
0702............................  Fracture of lower extremity M      1.2047     1.0228     0.9671     0.8664         14         14         12         12
                                   > 34.15 and M < 42.15.
0703............................  Fracture of lower extremity M      1.4750     1.2523     1.1841     1.0609         16         16         15         14
                                   > 28.15 and M < 34.15.
0704............................  Fracture of lower extremity M      1.8842     1.5997     1.5126     1.3552         20         20         19         17
                                   < 28.15.
0801............................  Replacement of lower extremity     0.6950     0.5693     0.5176     0.4707          8          7          8          7
                                   joint M > 49.55.
0802............................  Replacement of lower extremity     0.9315     0.7631     0.6938     0.6309         10         10          9          9
                                   joint M > 37.05 and M < 49.55.
0803............................  Replacement of lower extremity     1.3298     1.0894     0.9904     0.9007         13         13         13         12
                                   joint M > 28.65 and M < 37.05
                                   and A > 83.5.
0804............................  Replacement of lower extremity     1.1654     0.9547     0.8680     0.7893         13         12         11         11
                                   joint M > 28.65 and M < 37.05
                                   and A < 83.5.

[[Page 21058]]

 
0805............................  Replacement of lower extremity     1.4552     1.1921     1.0838     0.9856         16         16         13         13
                                   joint M > 22.05 and M < 28.65.
0806............................  Replacement of lower extremity     1.8041     1.4779     1.3436     1.2219         18         18         17         15
                                   joint M < 22.05.
0901............................  Other orthopedic M > 44.75....     0.8415     0.7586     0.6834     0.6029         10         10          9          9
0902............................  Other orthopedic M > 34.35 and     1.1248     1.0140     0.9135     0.8059         13         13         12         11
                                   M < 44.75.
0903............................  Other orthopedic M > 24.15 and     1.4546     1.3113     1.1813     1.0422         16         16         15         14
                                   M < 34.35.
0904............................  Other orthopedic M < 24.15....     1.9249     1.7352     1.5633     1.3791         22         22         19         18
1001............................  Amputation, lower extremity M      0.9396     0.9140     0.7841     0.7190         11         12         11         10
                                   > 47.65.
1002............................  Amputation, lower extremity M      1.2481     1.2141     1.0416     0.9550         14         15         13         12
                                   > 36.25 and M < 47.65.
1003............................  Amputation, lower extremity M      1.8120     1.7627     1.5122     1.3865         19         22         19         17
                                   < 36.25.
1101............................  Amputation, non-lower              1.1979     0.9863     0.9863     0.8490         12         12         13         11
                                   extremity M > 36.35.
1102............................  Amputation, non-lower              1.7482     1.4394     1.4394     1.2389         18         18         17         15
                                   extremity M < 36.35.
1201............................  Osteoarthritis M > 37.65......     1.0475     0.9619     0.8526     0.7588         11         12         11         10
1202............................  Osteoarthritis M > 30.75 and M     1.3064     1.1998     1.0634     0.9464         14         15         13         13
                                   < 37.65.
1203............................  Osteoarthritis M < 30.75......     1.6446     1.5103     1.3387     1.1914         16         18         17         15
1301............................  Rheumatoid, other arthritis M      1.1050     0.9958     0.8482     0.7584         12         12         11         10
                                   > 36.35.
1302............................  Rheumatoid, other arthritis M      1.4925     1.3451     1.1456     1.0243         15         16         14         14
                                   > 26.15 and M < 36.35.
1303............................  Rheumatoid, other arthritis M      1.9358     1.7445     1.4858     1.3285         24         22         19         17
                                   < 26.15.
1401............................  Cardiac M > 48.85.............     0.8086     0.7359     0.6488     0.5737         10         10          9          8
1402............................  Cardiac M > 38.55 and M <          1.1101     1.0104     0.8907     0.7877         13         13         12         11
                                   48.85.
1403............................  Cardiac M > 31.15 and M <          1.3542     1.2325     1.0866     0.9609         15         15         14         13
                                   38.55.
1404............................  Cardiac M < 31.15.............     1.7581     1.6002     1.4107     1.2475         20         20         17         16
1501............................  Pulmonary M > 49.25...........     0.9737     0.8538     0.7507     0.7139         11         12         10         10
1502............................  Pulmonary M > 39.05 and M <        1.2407     1.0879     0.9565     0.9097         13         13         12         11
                                   49.25.
1503............................  Pulmonary M > 29.15 and M <        1.5710     1.3776     1.2112     1.1519         16         17         14         14
                                   39.05.
1504............................  Pulmonary M < 29.15...........     1.9666     1.7245     1.5162     1.4419         22         19         17         17
1601............................  Pain syndrome M > 37.15.......     1.0995     0.8921     0.7628     0.7055         13         13         10         10
1602............................  Pain syndrome M > 26.75 and M      1.4832     1.2034     1.0290     0.9518         16         16         13         13
                                   < 37.15.
1603............................  Pain syndrome M < 26.75.......     1.9071     1.5473     1.3231     1.2238         21         19         17         16
1701............................  Major multiple trauma without      1.0471     0.9262     0.8483     0.7476         11         12         11         10
                                   brain or spinal cord injury M
                                   > 39.25.
1702............................  Major multiple trauma without      1.3692     1.2110     1.1092     0.9776         14         15         14         13
                                   brain or spinal cord injury M
                                   > 31.05 and M < 39.25.
1703............................  Major multiple trauma without      1.6479     1.4575     1.3350     1.1765         18         17         16         15
                                   brain or spinal cord injury M
                                   > 25.55 and M < 31.05.
1704............................  Major multiple trauma without      2.0704     1.8312     1.6773     1.4782         23         24         21         19
                                   brain or spinal cord injury M
                                   < 25.55.
1801............................  Major multiple trauma with         1.2289     0.9679     0.9097     0.7838         16         13         13         11
                                   brain or spinal cord injury M
                                   > 40.85.
1802............................  Major multiple trauma with         1.8447     1.4528     1.3655     1.1766         19         18         16         15
                                   brain or spinal cord injury M
                                   > 23.05 and M < 40.85.
1803............................  Major multiple trauma with         3.1568     2.4862     2.3367     2.0135         41         31         27         24
                                   brain or spinal cord injury M
                                   < 23.05.
1901............................  Guillain Barre M > 35.95......     1.1168     0.9120     0.9120     0.8640         14         11         11         12

[[Page 21059]]

 
1902............................  Guillain Barre M > 18.05 and M     2.2757     1.8585     1.8585     1.7607         25         23         25         22
                                   < 35.95.
1903............................  Guillain Barre M < 18.05......     3.6152     2.9523     2.9523     2.7970         33         39         41         32
2001............................  Miscellaneous M > 49.15.......     0.8798     0.7281     0.6613     0.5922         11         10          9          8
2002............................  Miscellaneous M > 38.75 and M      1.1850     0.9807     0.8907     0.7977         12         13         12         11
                                   < 49.15.
2003............................  Miscellaneous M > 27.85 and M      1.5208     1.2585     1.1431     1.0236         16         16         14         13
                                   < 38.75.
2004............................  Miscellaneous M < 27.85.......     2.0336     1.6829     1.5286     1.3688         22         20         19         17
2101............................  Burns M > 0...................     2.2605     2.2605     1.9566     1.6843         25         25         25         17
5001............................  Short-stay cases, length of     .........  .........  .........     0.1465  .........  .........  .........          3
                                   stay is 3 days or fewer.
5101............................  Expired, orthopedic, length of  .........  .........  .........     0.6748  .........  .........  .........          8
                                   stay is 13 days or fewer.
5102............................  Expired, orthopedic, length of  .........  .........  .........     1.5299  .........  .........  .........         19
                                   stay is 14 days or more.
5103............................  Expired, not orthopedic,        .........  .........  .........     0.7087  .........  .........  .........          9
                                   length of stay is 15 days or
                                   fewer.
5104............................  Expired, not orthopedic,        .........  .........  .........     1.9990  .........  .........  .........         24
                                   length 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 2010 
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 2009 Values Compared With FY 2010 Values)
------------------------------------------------------------------------
                                      Number of  cases    Percentage of
          Percentage change               affected       cases affected
------------------------------------------------------------------------
Increased by 5% or more.............                 0                 0
Increased by between 0% and 5%......           121,702                33
Changed by 0%.......................            72,205                19
Decreased by between 0% and 5%......           180,032                48
Decreased by 5% or more.............                76                 0
------------------------------------------------------------------------

    As Table 2 shows, virtually 100 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 largest increase in the proposed 
CMG relative weight values would be a 2.9 percent increase in the CMG 
relative weight value for CMG C0405--Traumatic spinal cord injury, 
motor score less than 16.05 and age less than 63.5--in tier 2. However, 
based on our analysis of the FY 2007 IRF claims data, this proposed 
change would only affect 25 cases. The proposed increase affecting the 
largest number of cases would be a 0.1 percent increase in the CMG 
relative weight value for CMG A0110--Stroke, motor score less than 
22.35 and age less than 84.5--in the ``no comorbidity'' tier. Based on 
our analysis of the FY 2007 IRF claims data, this change would affect 
15,426 cases. The largest percent decrease that would be anticipated 
from the proposed CMG relative weight values would be an estimated 8.9 
percent decrease in the CMG relative weight for CMG D2101--Burns, motor 
score greater than zero--in tier 3. However, based on our analysis of 
the FY 2007 IRF claims data, this proposed change would only affect 76 
cases. The proposed decrease affecting the largest number of cases 
would be a 0.1 percent decrease in the CMG relative weight value for 
CMG A0704--Fracture of lower extremity, motor score less than 28.15--in 
the ``no comorbidity'' tier. Based on our analysis of the FY 2007 IRF 
claims data, this change would affect 24,541 cases.
    Given the changes in IRFs' case mix over time, we believe that it 
is important to update the CMG relative weights and average length of 
stay values periodically to continue to reflect the trends in IRF 
patient populations. As we have data that better reflect the recent IRF 
utilization changes at this time, we propose the updates described in 
this section.

IV. Proposed Updates to the Facility-Level Adjustment Factors for FY 
2010

A. Background on Facility-Level Adjustments

    Section 1886(j)(3)(A)(v) of the Act confers broad authority upon 
the Secretary to adjust the per unit payment rate by ``such factors as 
the Secretary determines are necessary to properly reflect variations 
in necessary costs of

[[Page 21060]]

treatment among rehabilitation facilities.'' For example, we adjust the 
Federal prospective payment amount associated with a CMG to account for 
facility-level characteristics such as an IRF's LIP percentage, 
teaching status, and location in a rural area, if applicable, as 
described in Sec.  412.624(e).
    In the FY 2002 IRF PPS final rule (66 FR at 41359), we published 
the original adjustment factors that were used to calculate an IRF's 
LIP percentage, and location in a rural area, if applicable. These 
original adjustment factors were computed by the RAND Corporation 
(RAND) under contract with CMS. As discussed in the FY 2002 IRF PPS 
proposed rule (65 FR 66356), RAND used regression analysis to establish 
these adjustment factors by examining the effects of various facility-
level characteristics, including rural location and percentage of low-
income patients, on an IRF's average cost per case. Based on RAND's 
analysis, in the FY 2002 IRF PPS final rule (66 FR at 41359 through 
41360) we finalized a rural adjustment factor of 19.14 percent and a 
LIP adjustment formula of (1 + disproportionate share hospital (DSH) 
patient percentage) raised to the power of (0.4838), where the DSH 
patient percentage for each IRF =
[GRAPHIC] [TIFF OMITTED] TP06MY09.051

    (From this point forward when we refer to the ``LIP adjustment 
factor'', we mean the number to which the standard formula (1 + DSH 
patient percentage) is raised [in this case, 0.4838].)
    In the FY 2006 IRF PPS final rule (70 FR 47880, 47928 through 
47934), we updated the adjustment factors for the rural and LIP 
adjustments and added a new teaching status adjustment. The FY 2006 
adjustment factors were based on updated regression analysis by RAND 
using the same methodology used to develop the rural and LIP adjustment 
factors for the FY 2002 IRF PPS final rule (66 FR at 41359) and the 
most current and complete IRF claims and cost report data available at 
that time (FY 2003). (RAND's analysis for FY 2006 is included in a 
November 2005 RAND report titled ``Possible Refinements to the 
Facility-Level Payment Adjustments for the Inpatient Rehabilitation 
Facility Prospective Payment System,'' which can be downloaded from 
RAND's Web site at https://www.rand.org/pubs/technical_reports/TR219/.) 
Based on RAND's 2005 analysis, we finalized a rural adjustment factor 
of 21.3 percent and a LIP adjustment factor of 0.6229 in the FY 2006 
IRF PPS final rule (70 FR 47880, 47928 through 47934).
    We also described our rationale for implementing a teaching status 
adjustment for IRFs based on RAND's 2005 analysis in the FY 2006 IRF 
PPS final rule (70 FR 47880, 47928 through 47932). The IRF teaching 
status adjustment that was finalized in the FY 2006 IRF PPS final rule 
(70 FR 47880, 47928 through 47932) was calculated using the following 
formula for each IRF: (1 + full-time equivalent (FTE) residents/average 
daily census) raised to the power of (0.9012). (From this point forward 
when we refer to the ``teaching status adjustment factor'', we mean the 
number to which the standard formula (1 + FTE residents/average daily 
census) is raised [in this case, 0.9012]).

B. Proposed Updates to the IRF Facility-Level Adjustment Factors

    In this rule, we propose to update the rural, LIP, and teaching 
status adjustment factors for the IRF PPS based on updated regression 
analysis using the same regression analysis methodology that was used 
by RAND to compute the rural and LIP adjustment factors for the FY 2002 
IRF PPS final rule (66 FR at 41359) and the rural, LIP, and teaching 
status adjustment factors for the FY 2006 IRF PPS final rule (70 FR 
47880, 47928 through 47934). However, for the reasons discussed below, 
we are proposing to compute the adjustment factors using three 
consecutive years of cost report data (FY 2005, FY 2006, and FY 2007) 
and average the adjustment factors for all three years to develop the 
proposed rural, LIP, and teaching status adjustment factors for FY 
2010.
    We received a comment on the FY 2009 IRF PPS proposed rule (73 FR 
22674) suggesting that we consider a three-year moving average approach 
because it would enable IRFs to plan their future Medicare payments 
more accurately. We analyzed the suggestion and believe that a three 
year average of the adjustment factors would promote more stability in 
the adjustment factors over time, which we believe would benefit IRFs 
by ensuring reduced variation from year to year, thus enabling them to 
better project future Medicare payments and thereby facilitate IRFs' 
long-term budgetary planning processes. If, instead, we were to 
continue to compute the adjustment factors based on only a single 
year's worth of data (as was done in the FY 2002 and FY 2006 IRF PPS 
final rules (66 FR at 41359 and 70 FR 47880, 47928 through 47934)), we 
believe that IRFs would experience unnecessarily large fluctuations in 
the adjustment factors from year to year. These large fluctuations 
would reduce the consistency and predictability of IRF PPS payments 
over time, and could be detrimental to IRFs' long-term planning 
processes. For this reason, we are proposing the use of a three-year 
moving average in computing the proposed rural, LIP, and teaching 
status adjustment factors in this proposed rule.
    To study the effects of this proposal over time, we examined the 
magnitude of changes in the rural, LIP, and teaching status adjustment 
factors that would occur if we were to compute the proposed adjustment 
factors based on a single year's worth of data (FY 2007) compared with 
computing the proposed adjustment factors based on an average of three 
year's worth of data (FY 2005, FY 2006, and FY 2007). In 2002 the rural 
adjustment factor was set at 19.14 percent. It was updated in FY 2006 
to 21.3 percent based on RAND's regression analysis of FY 2003 Medicare 
claims and cost report data, as described above. If we were to update 
the rural adjustment factor for FY 2010 using a single year's worth of 
data (FY 2007), it would decrease to 17.65 percent. If instead we were 
to calculate an average adjustment factor by using the most recent 
three years worth of data (FY 2005, FY 2006, and FY 2007), the rural 
adjustment factor would instead decrease to 18.27 percent. That is, 
computing the adjustment factors based on an average of three year's 
worth of data (FY 2005 through FY 2007) instead of a single year's 
worth of data (FY 2007) would lead to a smaller decrease in the rural 
adjustment factor and would thereby mitigate the impact of this change 
on IRF payments to rural providers, which would benefit rural IRFs in 
conducting their long-term budgetary planning processes.
    Similarly, we examined the effects of the proposed three-year 
moving average methodology on the magnitude of the LIP adjustment 
factor for FY 2010. The LIP adjustment factor was 0.4838 in FY 2002. It 
was updated in FY 2006 to 0.6229 based on RAND's regression

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analysis of FY 2003 Medicare claims and cost report data, as described 
above. If we were to update the LIP adjustment factor for FY 2010 using 
FY 2007 data, it would decrease to 0.3865. If instead we were to 
average the adjustment factors derived by using the most recent thr