Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2010, 39762-39838 [E9-18616]

Agencies

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

[Federal Register Volume 74, Number 151 (Friday, August 7, 2009)]
[Rules and Regulations]
[Pages 39762-39838]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-18616]



[[Page 39761]]

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

Part III





Department of Health and Human Services





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



Centers for Medicare & Medicaid Services



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



42 CFR Part 412



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

Federal Register / Vol. 74, No. 151 / Friday, August 7, 2009 / Rules 
and Regulations

[[Page 39762]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1538-F]
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: Final rule.

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

SUMMARY: This final rule updates 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 revising existing policies regarding the IRF PPS within the 
authority granted under section 1886(j) of the Act.

DATES: Effective Date. The provisions of the final rule are effective 
October 1, 2009, except for the amendments to Sec.  412.23, Sec.  
412.29, and Sec.  412.622 which are effective January 1, 2010.
    Applicability Date. The amendments to Sec.  412.23, Sec.  412.29, 
and Sec.  412.622 are applicable to IRF discharges occurring on or 
after January 1, 2010. The updated IRF prospective payment rates are 
applicable for IRF discharges occurring on or after October 1, 2009 and 
on or before September 30, 2010 (FY 2010).

FOR FURTHER INFORMATION CONTACT: Susanne Seagrave, (410) 786-0044, for 
information regarding the payment policies.
    Julie Stankivic, (410) 786-5725, for general information regarding 
the proposed rule.
    Jeanette Kranacs, (410) 786-9385, for information regarding the 
wage index.

SUPPLEMENTARY INFORMATION:

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. Analysis of and Responses to Public Comments
IV. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2010
V. Updates to the Facility-Level Adjustment Factors for FY 2010
    A. Updates to the Adjustment Factors for FY 2010
    B. Budget Neutrality Methodology for the Updates to the IRF 
Facility-Level Adjustment Factors
VI. FY 2010 IRF PPS Federal Prospective Payment Rates
    A. Market Basket Increase Factor and Labor-Related Share for FY 
2010
    B. Area Wage Adjustment
    C. Description of the Final IRF Standard Payment Conversion 
Factor and Payment Rates for FY 2010
    D. Example of the Methodology for Adjusting the Federal 
Prospective Payment Rates
VII. Update to Payments for High-Cost Outliers Under the IRF PPS
    A. Update to the Outlier Threshold Amount for FY 2010
    B. Update to the IRF Cost-to-Charge Ratio Ceilings
VIII. Inpatient Rehabilitation Facility (IRF) Coverage Requirements
    A. Requirements for the Preadmission Screening
    B. Requirement for a Post-Admission Physician Evaluation
    C. Requirement for an Individualized Overall Plan of Care
    D. Requirements for Evaluating the Appropriateness of an IRF 
Admission
    E. Requirements for the Interdisciplinary Team Meetings
    F. Requirement for Physician Supervision
    G. Requirement Regarding Initiation of Therapy Services
    H. Provision of Group Therapies in IRFs
    I. Clarifying and Conforming Amendments
    J. HCFAR 85-2 Ruling
IX. Revisions to the Regulation Text To Require IRFs To Submit 
Patient Assessments on Medicare Advantage Patients for Use in the 
``60 Percent Rule'' Calculations
    A. Background on the ``60 Percent Rule'' Calculations
    B. Requirement To Submit Assessment Data on Medicare Advantage 
Patients
X. Miscellaneous Comments
XI. Provisions of the Final Rule
    A. Payment Provision Changes
    B. Regulatory Text Changes
XII. Collection of Information Requirements
XIII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects of the Final 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 
final rule, we are listing the acronyms used and their corresponding 
terms in alphabetical order below.

ADC Average Daily Census
ASCA Administrative Simplification Compliance Act, Public Law 107-
105
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 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, Public 
Law 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, Public 
Law 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, Public Law 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

[[Page 39763]]

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), Public Law 
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), Public Law 106-113, and by section 305 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA), Public Law 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 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 would 
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, 
Public Law 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

[[Page 39764]]

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), Public Law 
104-191, compliant electronic claim or, if the Administrative 
Simplification Compliance Act (ASCA), Public Law 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 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

    As discussed in the FY 2010 IRF PPS proposed rule (74 FR 21052), we 
proposed 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 of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21055 
through 21059).
     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 of the FY 2010 IRF PPS proposed rule 
(74 FR 21052, 21059 through 21062).
     Update the FY 2010 IRF PPS payment rates by the proposed 
market basket, as discussed in section V.A of the FY 2010 IRF PPS 
proposed rule (74 FR 21052 at 21062).
     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 of the FY 2010 IRF PPS proposed rule 
(74 FR 21052, 21062 through 21063).
     Update the outlier threshold amount for FY 2010, as 
discussed in section VI.A of the FY 2010 IRF PPS proposed rule (74 FR 
21052 at 21066).

B. Proposed Revisions to Existing Regulation Text

     Relocate and revise the criteria for admission to 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

[[Page 39765]]

(b)(4) and revise newly redesignated paragraph (b)(4), as described in 
section VII of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21067 
through 21071).
     Revise the section heading at Sec.  412.29 to include 
inpatient rehabilitation hospitals, as described in section VII of the 
FY 2010 IRF PPS proposed rule (74 FR 21052, 21067 through 21071).
     Relocate and revise the existing requirements at Sec.  
412.29(b) through (f) that describe the admission 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 of the FY 2010 IRF PPS 
proposed rule (74 FR 21052, 21067 through 21071).
     Revise the section heading at Sec.  412.30, as described 
in section VII of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21067 
through 21071).
     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 of the FY 2010 IRF PPS proposed rule (74 
FR 21052, 21071 through 21073).
     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 of the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 
21073).
     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 of 
the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).
     Revise the heading at Sec.  412.614(d)(1) to ``Medicare 
Part A fee-for-service data,'' as described in section VIII of the FY 
2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).
     Make a technical correction to the paragraph formerly 
designated as Sec.  412.614(d)(1) and assign the revised language to a 
new paragraph Sec.  412.614(d)(1)(a), as described in section VIII of 
the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).
     Redesignate paragraph Sec.  412.614(d)(2) as Sec.  
412.614(d)(1)(b), as described in section VIII of the FY 2010 IRF PPS 
proposed rule (74 FR 21052, 21071 through 21073).

C. Proposed New Regulation Text

     Revise Sec.  412.29, as described in section VII of the FY 
2010 IRF PPS proposed rule (74 FR 21052, 21067 through 21071), to 
include the requirements for admission to an IRF.
     Add a new introductory paragraph at Sec.  412.30 that 
includes the requirements previously found in Sec.  412.29(a) 
(describing the admission requirements for new and converted 
rehabilitation units), as described in section VII of the FY 2010 IRF 
PPS proposed rule (74 FR 21052, 21067 through 21071).
     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 of the FY 2010 IRF 
PPS proposed rule (74 FR 21052, 21067 through 21071).
     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 of 
the FY 2010 IRF PPS proposed rule (74 FR 21052, 21071 through 21073).

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 guidance to implement the new regulations 
adopted under this final rule, as described in section VII of the FY 
2010 IRF PPS proposed rule (74 FR 21052 at 21071).

III. Analysis of and Responses to Public Comments

    We received approximately 686 timely responses, many of which 
contained multiple comments on the FY 2010 IRF PPS proposed rule (74 FR 
21052) from the public. We received comments from various trade 
associations, inpatient rehabilitation facilities, individual 
physicians, therapists, clinicians, health care industry organizations, 
and health care consulting firms. The following section, arranged by 
subject area, includes a summary of the public comments that we 
received, and our responses.

IV. 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 the FY 2010 IRF PPS proposed rule (74 FR 21052, 21055 through 
21059), we proposed to update the CMG relative weights and average 
length of stay values for FY 2010 using the most recent available data 
(at that time, FY 2007 IRF claims and cost report data) to ensure that 
IRF PPS payments fully reflect recent changes in IRF utilization due to 
the 60 percent rule and medical review activities. To ensure that IRF 
PPS payments continue to reflect as accurately as possible the current 
costs of care in IRFs, we are updating the CMG relative weights and 
average length of stay values for FY 2010 in this final rule using FY 
2008 IRF claims and FY 2007 IRF cost report data. These data are the 
most current and complete data available at this time. At this time, 
only about 20 percent of the FY 2008 IRF cost report data are available 
for analysis, but the majority of the FY 2008 IRF claims data are 
available for analysis.
    We have used 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 final 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 weights to the same 
average CMG relative weight from the

[[Page 39766]]

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 are revising the CMG 
relative weights for FY 2010 in such a way that total estimated 
aggregate payments to IRFs for FY 2010 are estimated to be the same 
with or without the changes (that is, in a budget neutral manner) by 
applying a budget neutrality factor to the standard payment amount. To 
calculate the appropriate budget neutrality factor for use in updating 
the FY 2010 CMG relative weights, we use the following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2010 (with no changes to the CMG relative weights).
    Step 2. Apply the 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 budget neutrality factor (1.0020) 
that maintains the same total estimated aggregate payments in FY 2010 
with and without the changes to the CMG relative weights.
    Step 4. Apply the budget neutrality factor (1.0020) to the FY 2009 
IRF PPS standard payment amount after the application of the budget-
neutral wage adjustment factor.
    In section VI.C of this final rule, we discuss the methodology for 
calculating the standard payment conversion factor for FY 2010.
    Note that the budget neutrality factor that we use to update the 
CMG relative weights for FY 2010 changed from 1.0004 in the proposed 
rule to 1.0020 in this final rule due to the use of updated FY 2008 IRF 
claims data in this final rule.
    We received 7 comments on the proposed updates to the CMG relative 
weights and average length of stay values, which are summarized below.
    Comment: The vast majority of commenters supported the proposed 
update to the CMG relative weights and average length of stay values. 
However, most suggested that CMS use FY 2008 IRF claims and cost report 
data in updating the CMG relative weights and average length of stay 
values for the final rule, saying that the effects of recent changes in 
the 60 percent rule and the IRF medical necessity review activities are 
continuing to be realized through FY 2008 and early FY 2009. Several 
commenters said that we should continue to update the CMG relative 
weights and average length of stay values annually to reflect changes 
in IRF costs and utilization that occur over time.
    Response: We appreciate the commenters' suggestions for updating 
the data used in the analysis of the CMG relative weights for FY 2010, 
and we agree that we should continue to use the most recent available 
data for our analyses of the CMG relative weights. However, only about 
20 percent of the FY 2008 IRF cost reports are available for analysis 
at this time, and we do not believe that 20 percent is a large enough 
or representative enough sample of all IRFs on which to base our 
updates. Thus, for this final rule, we have continued to use the most 
recent available data, which are the FY 2008 IRF claims and FY 2007 IRF 
cost report data. We will continue to update the CMG relative weights 
and average length of stay values in the future, as appropriate, using 
the most recent available data.
    Comment: One commenter requested that CMS seek additional sources 
of cost information, such as the Cost Resource Utilization (CRU) Tool 
data from the Post Acute Care Payment Reform Demonstration (PAC PRD), 
to address issues of relative weight compression in future updates to 
the CMG relative weights.
    Response: We appreciate the commenter's suggestion, and will 
consider this suggestion for future analyses once the CRU data are 
complete and available for analysis.
    Comment: One commenter stated a concern that the proposed update to 
the CMG relative weights for FY 2010 would result in a slight decrease 
in the average payment per case for IRFs and would increase payments 
for certain diagnoses while decreasing payments for other diagnoses.
    Response: Consistent with the way that we applied updates to the 
CMG relative weights and average length of stay values 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 are updating the CMG relative weights and average length of 
stay values in this final rule in a budget-neutral manner, so that 
estimated aggregate payments to IRFs do not increase or decrease as a 
result of these updates. Thus, we apply a budget-neutrality factor of 
1.0020 to increase the standard payment conversion factor (as described 
in section VI.C of this final rule) to counteract any estimated 
decrease in aggregate IRF payments as a result of the updates to the 
CMG relative weights and average length of stay values.
    Further, as we stated in the FY 2010 IRF PPS proposed rule (74 FR 
21052 at 21059), the updates are generally expected to result in some 
increases and some decreases to the CMG relative weight values. Changes 
in the relative weights are, by definition, distributional and, 
therefore, the fact that the updates shown in Table 1 increase IRF 
payments to some diagnoses and decrease IRF payments to other diagnoses 
is to be expected. The intent of these changes is to ensure that the 
relative payments assigned to the CMGs and tiers continue to reflect 
the relative costs of caring for different types of patients in IRFs.
    Comment: Several commenters requested that we reiterate that the 
average length of stay values are not intended to be used as clinical 
guidelines for patient care, but are only used to determine when an IRF 
discharge meets the definition of a short-stay transfer, which results 
in a per diem case level adjustment.
    Response: We agree with this comment, and we already stated that 
the purpose of the average length of stay values is to determine when 
an IRF discharge meets the definition of a short-stay transfer in the 
FY 2010 IRF PPS proposed rule (74 FR 21052 at 21056). As the commenter 
notes, the average length of stay values are not intended to be used as 
clinical guidelines for patient care.
    Comment: One commenter suggested that we consider alternative 
methodologies for updating the CMG relative weights in the future to 
improve their ability to predict IRFs' cost per case, and expressed a 
concern about the need to update the weighted motor score methodology 
used to classify IRF patients into CMGs that was finalized in the FY 
2006 IRF PPS final rule (70 FR 47880 at 47900).
    Response: We appreciate the commenter's suggestions regarding 
alternative methodologies for analyzing future updates to the CMG 
relative weights, and will review them carefully. We will also take 
into account the commenter's suggestion that we update the weights used 
in the motor score calculation in the future.
    Final Decision: After carefully considering all of the comments 
that we received on the proposed updates to the CMG relative weights 
and average length of stay values, we are implementing the FY 2010 
updates to the CMG relative weights and average length of stay values 
presented in Table

[[Page 39767]]

1 below (which are different from the relative weights and average 
length of stay values that we had proposed because these final values 
are based on analysis of updated FY 2008 data).
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR07AU09.001


[[Page 39768]]


[GRAPHIC] [TIFF OMITTED] TR07AU09.002


[[Page 39769]]


[GRAPHIC] [TIFF OMITTED] TR07AU09.003


[[Page 39770]]


[GRAPHIC] [TIFF OMITTED] TR07AU09.004


[[Page 39771]]


[GRAPHIC] [TIFF OMITTED] TR07AU09.005


[[Page 39772]]


[GRAPHIC] [TIFF OMITTED] TR07AU09.006


[[Page 39773]]


[GRAPHIC] [TIFF OMITTED] TR07AU09.007

BILLING CODE 4120-01-C

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

A. Updates to the Adjustment Factors for FY 2010

    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 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 2010 IRF PPS proposed rule (74 FR 21052, 21059 through 
21062), we proposed to update the adjustment factors for calculating 
the rural, LIP, and teaching status adjustments based on the most 
recent three years worth of IRF claims data (at that time, FY 2005, FY 
2006, and FY 2007) and the most recent available corresponding IRF cost 
report data. Note that, for each IRF claim, we used the corresponding 
year's cost report data, when available. In the rare instances in which 
the corresponding year's cost report data were not available, we used 
the most recent available cost report data. For example, since cost 
report years are determined by the start date of the cost report, a 
hypothetical IRF's cost reporting period from July 1, 2007 through June 
30, 2008 would be referred to as an ``FY 2007'' cost report. However, 
the data from this FY 2007 cost report would appropriately be matched 
to IRF discharges occurring from October 1, 2007 through June 30, 2008 
(i.e., during FY 2008) because these claims would fall during the 
period of time covered by the IRF's ``FY 2007'' cost report year. In 
the case of FY 2008 claims that would appropriately match to an IRF's 
FY 2008 cost report year, we used the FY 2008 cost report data when 
available. In instances in which the matching FY 2008 cost report data 
were not available, we used the most recent available data, which in 
these cases was the FY 2007 cost report data.
    For this final rule, as many commenters suggested, we are updating 
the rural, LIP, and teaching status adjustment factors using more 
recent data (FY 2006, FY 2007, and FY 2008 claims data and the 
corresponding year's cost report data or, if unavailable, the most 
recent available cost report data). We note, however, that we only have 
about 20 percent of the IRF cost reports from FY 2008 available for 
analysis at this time, so although we did use the FY 2008 cost report 
data that we had available, in some cases we had to use a prior year's 
cost report data to match to some of the FY 2008 IRF claims, as 
discussed above. Although the adjustment factors for the rural and LIP 
adjustments that we estimate in this final rule using updated data 
(18.4 percent and 0.4613, respectively) do not differ substantially 
from the adjustment factors that we calculated using the methods set 
forth in the proposed rule (18.27 percent and 0.4372, respectively), 
the teaching status adjustment factor that we calculate in this final 
rule using updated data (0.6876) is significantly lower than the 
teaching status adjustment factor that we calculated in the proposed 
rule (1.0494). This is due to the relatively large year-to-year 
fluctuations in the teaching status adjustment factor noted in the 
proposed rule (74 FR 21052 at 21061).
    We believe that it is necessary to update these adjustment factors 
at this time because the adjustment factors that are being used 
currently to calculate the rural, LIP, and teaching status adjustments 
are based on FY 2003 data (as finalized in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47928 through 47934)), and the FY 2003 data do not 
reflect recent changes in IRF patient populations resulting from the 60 
percent rule and medical review activities.
    The current adjustment factors for the rural, LIP, and teaching 
status adjustments in the FY 2006 IRF PPS final rule (70 FR 47928 
through 47934) are based on regression analysis by the RAND Corporation 
(RAND) using FY 2003 IRF claims and cost report data. In the FY 2010 
IRF PPS proposed rule (74 FR 21052, 21059 through 21062), we proposed 
to use the same methodology RAND used in computing these

[[Page 39774]]

adjustment factors. However, we proposed to compute the adjustment 
factors using three consecutive years of claims data and the 
corresponding year's cost report data or, when not available, the most 
recent available cost report data and to average the calculated 
adjustment factors for all three years to develop the proposed rural, 
LIP, and teaching status adjustment factors for FY 2010. As discussed 
in the FY 2010 IRF PPS proposed rule (74 FR 21052, 21059 through 
21061), 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 provide a more stable adjustment factor, 
enabling IRFs to project their future Medicare payments more 
accurately. We analyzed the suggestion and agree that a three year 
average of the adjustment factors would promote more stability in the 
adjustment factors over time, which we believe will benefit IRFs by 
ensuring reduced variation from year to year and facilitating IRFs' 
long-term budgetary planning processes.
    We received 12 comments on the proposed updates to the rural, LIP, 
and teaching status adjustment factors for FY 2010, which are 
summarized below.
    Comment: The commenters overwhelmingly supported the proposed 
three-year moving average approach to updating the rural, LIP, and 
teaching status adjustment factors, saying that this approach makes 
payments to IRFs more stable and predictable over time. The commenters 
further requested that CMS continue to use this methodology to update 
these facility-level adjustment factors annually in the future to 
ensure that they continue to reflect the costs of care in IRFs.
    Response: We agree that using the three-year moving average 
approach will provide greater stability and predictability of Medicare 
payments for IRFs, and will finalize this methodology to update the 
facility-level adjustment factors for FY 2010 and future years.
    Comment: One commenter expressed concerns about the proposed 
decrease in the rural adjustment factor for FY 2010 and asked us to 
explain what cost factors we believe may have caused the estimated 
decrease in the rural adjustment factor.
    Response: We believe that it is important to adjust payments for 
rural IRFs to reflect the higher costs that IRFs in rural areas incur 
for providing services in these areas. However, the results of our 
analysis using the most recent available data and the three-year moving 
average approach indicate that a rural adjustment factor of 18.4 
percent more accurately reflects the current costs of providing IRF 
services in rural areas.
    Further, we believe that the estimated decrease in the rural 
adjustment factor for FY 2010 (from 21.3 percent to 18.4 percent) is, 
in part, the result of improvements we made to the IRF classification 
system in the FY 2006 and FY 2007 IRF PPS final rules (70 FR 47880, 
47886 through 47904 and 71 FR 48354, 48373 through 48374). Those 
improvements were designed to account more appropriately for the 
variation in costs among different types of IRF patients. To the extent 
that some of the differences in costs that we previously observed 
between rural and urban IRFs were the result of differences in patient 
populations, better accounting for the variations in costs among 
patients may have reduced the need to account for differences in costs 
between rural and urban IRFs.
    Comment: The Medicare Payment Advisory Commission (MedPAC) 
suggested that CMS conduct research on the IRF teaching status 
adjustment to determine why the teaching status adjustment factor 
appears to vary so much from year to year, and to evaluate the accuracy 
and reliability of the adjustment. In the meantime, MedPAC suggested 
that CMS consider alternatives to the 3-year moving average approach, 
such as maintaining the IRF teaching adjustment at its FY 2009 level, 
capping the adjustment at the level currently in place for IPPS 
hospitals or inpatient psychiatric facilities (IPFs), or capping the 
adjustment at a level equal to MedPAC's estimate of the empirically 
justified IME adjustment for IPPS hospitals. MedPAC notes that the 
purpose of these alternatives would be to either maintain the teaching 
status adjustment at its current level or reduce the adjustment.
    Response: As we reported in the FY 2010 IRF PPS proposed rule (74 
FR 21052 at 21061), we estimate that the teaching status adjustment 
factors would be 1.5155, 0.6732, and 1.0451 using FY 2005, FY 2006, and 
FY 2007 data, respectively. In addition, for this final rule, we 
estimate that the teaching status adjustment factor would be 0.4045 
using FY 2008 data. We are still analyzing the reasons for such large 
fluctuations in the teaching status adjustment factors from year to 
year. However, we believe that it may be due, in part, to relatively 
large fluctuations in the teaching variable (number of interns and 
residents divided by the average daily census) that we observe in the 
data between FY 2005 and FY 2008. On average, the teaching variable for 
all teaching IRFs was 0.1164, 0.1207, 0.1160, and 0.1295 in FYs 2005, 
2006, 2007, and 2008, respectively. We believe that this variation may 
reflect provider responses to the implementation of the IRF teaching 
status adjustment in FY 2006, and that we may see less variation over 
time as IRFs adjust to this new payment adjustment.
    However, to mitigate the impact on payments of annual fluctuations 
in the facility-level adjustment factors, we have proposed to use and, 
by this rule, adopt a three-year moving average approach instead of 
using only one year's worth of data to calculate the rural, LIP, and 
teaching status adjustment factors for FY 2010. Using the 3-year moving 
average approach and updated IRF claims data from FYs 2006 through 
2008, we calculate a teaching status adjustment factor for this final 
rule of 0.6876, which is less than the factor 0.9012 that was applied 
to IRF PPS payments from FY 2006 through FY 2009. Since the teaching 
status adjustment factor for this final rule is lower than the current 
factor, we do not believe that it is necessary to consider the 
alternative ``capping'' methodologies suggested by MedPAC at this time. 
However, we will continue to monitor the data and work with MedPAC to 
analyze the reasons for the year-to-year fluctuations.
    Comment: Several commenters requested that we use FY 2008 IRF 
claims and cost report data to update the facility-level adjustment 
factors for FY 2010.
    Response: We appreciate the commenters' suggestions for updating 
the data used in the analysis of the IRF facility-level adjustment 
factors for FY 2010, and we agree that we should continue to use the 
most recent available data for these analyses. However, only about 20 
percent of the FY 2008 IRF cost reports are available for analysis at 
this time. Thus, for this final rule, we have continued to use the most 
recent available data, which are the FY 2006, FY 2007, and FY 2008 IRF 
claims data and the corresponding year's cost report data or, if 
unavailable, the most recent available cost report data.
    Final Decision: After carefully considering all of the comments 
that we received on the proposed updates to the rural, LIP, and 
teaching status adjustment factors for FY 2010, including the 
overwhelming support for the proposed use of a three-year moving 
average approach to calculating these adjustment factors, we are 
finalizing the following updates to the rural, LIP, and teaching status 
adjustment factors for FY 2010. Note that these updated

[[Page 39775]]

adjustment factors were calculated using the same methodology RAND used 
in calculating the current adjustment factors but using updated FY 
2006, FY 2007, and 2008 IRF claims data and the corresponding year's 
cost report data or, if unavailable, the most recent available cost 
report data. IRF PPS payments to IRFs in rural areas will be increased 
by 18.4 percent for FY 2010. IRF PPS payments will be adjusted for FY 
2010 to account for the percentage of low-income patients that an IRF 
treats using the updated LIP adjustment formula of (1 + 
disproportionate share hospital (DSH) patient percentage) raised to the 
power of (0.4613), where the DSH patient percentage for each IRF =
[GRAPHIC] [TIFF OMITTED] TR07AU09.000

Finally, IRF PPS payments to eligible IRFs that qualify for the 
teaching status adjustment will be adjusted by the following updated 
formula for FY 2010: (1 + full-time equivalent (FTE) residents/average 
daily census) raised to the power of (0.6876). Note that the rural, 
LIP, and teaching status adjustment factors for FY 2010 differ from 
those proposed in the FY 2010 IRF PPS proposed rule (74 FR 21052, 21060 
through 21061) due to the use of updated data in this final rule.
To calculate the updates to the rural, LIP, and teaching status 
adjustment factors for FY 2010, we used the following steps:
    [Steps 1 and 2 are performed independently for each of three years 
of IRF claims data: FY 2006, FY 2007, and FY 2008]
    Step 1. Calculate the average cost per case for each IRF in the IRF 
claims data using the corresponding year's cost report data or, if 
unavailable, the most recent available cost report data, as described 
above.
    Step 2. Use logarithmic regression analysis on average cost per 
case to compute the coefficients for the rural, LIP, and teaching 
status adjustments.
    Step 3. Calculate a simple mean for each of the coefficients across 
the three years of data using logarithms for the LIP and teaching 
status adjustment coefficients (because they are continuous variables) 
but not using logarithms for the rural adjustment coefficient (because 
the rural variable is 1 if the facility is rural and zero otherwise). 
To compute the LIP and teaching status adjustment factors, we convert 
these factors back out of the logarithmic form.

B. Budget Neutrality Methodology for the Updates to the IRF Facility-
Level Adjustment Factors

    Consistent with the way that we implemented changes to the IRF 
facility-level adjustment factors (the rural, LIP, and teaching status 
adjustment factors) in the FY 2006 IRF PPS final rule (70 FR 47880 and 
70 FR 57166), which was the only year in which we updated these 
adjustment factors, we are updating the rural, LIP, and teaching status 
adjustment factors for FY 2010 in such a way that total estimated 
aggregate payments to IRFs for FY 2010 will be the same with or without 
the updates (that is, in a budget neutral manner) by applying budget 
neutrality factors for each of these three changes to the standard 
payment amount. To calculate the budget neutrality factors used to 
update the rural, LIP, and teaching status adjustment factors, we used 
the following steps:
    Step 1. Using the most recent available data (currently FY 2008), 
calculate the estimated total amount of IRF PPS payments that would be 
made in FY 2010 (without applying the update to the rural, LIP, or 
teaching status adjustment factors).
    Step 2. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the update to the rural adjustment 
factor were applied.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the budget neutrality factor (1.0023) 
that would maintain the same total estimated aggregate payments in FY 
2010 with and without the update to the rural adjustment factor.
    Step 4. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the update to the LIP adjustment 
factor were applied.
    Step 5. Divide the amount calculated in step 1 by the amount 
calculated in step 4 to determine the budget neutrality factor (1.0192) 
that would maintain the same total estimated aggregate payments in FY 
2010 with and without the update to the LIP adjustment factor.
    Step 6. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the update to the teaching status 
adjustment factor were applied.
    Step 7. Divide the amount calculated in step 1 by the amount 
calculated in step 6 to determine the budget neutrality factor (1.0037) 
that would maintain the same total estimated aggregate payments in FY 
2010 with and without the update to the teaching status adjustment 
factor.
    Step 8. Apply the budget neutrality factors for the updates to the 
rural, LIP, and teaching status adjustment factors to the FY 2009 IRF 
PPS standard payment amount after the application of the budget 
neutrality factors for the wage adjustment and the CMG relative 
weights.
    The budget neutrality factors for the updates to the rural, LIP, 
and teaching status adjustment factors in this final rule differ from 
those described in the proposed rule (74 FR 21052, 21061 through 21062) 
due to the use of updated data for the analysis in this final rule.
    In section VI.C of this final rule, we discuss the methodology for 
calculating the final standard payment conversion factor for FY 2010.

VI. FY 2010 IRF PPS Federal Prospective Payment Rates

A. Market Basket Increase Factor and Labor-Related Share for FY 2010

    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 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. Section 115 of the 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. In 
the absence of any such amendment for FY 2010, we are updating IRF PPS 
payments by a market basket increase factor based upon the most current 
data available in accordance with section 1886(j)(3)(A)(i) of the Act.
    Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 
47917), the market basket index used to update IRF payments is a 2002-
based market basket reflecting the operating and

[[Page 39776]]

capital cost structures for freestanding IRFs, freestanding inpatient 
psychiatric facilities (IPFs), and long-term care hospitals (LTCHs) 
(hereafter referred to as the rehabilitation, psychiatric, and long-
term care (RPL) market basket).
    For this final rule, we have used the same methodology described in 
the FY 2006 IRF PPS Final Rule (70 FR 47908 through 47917) to compute 
the FY 2010 market basket increase factor and labor-related share. 
Using this method and the IHS Global Insight, Inc. forecast for the 
second quarter of 2009 of the 2002-based RPL market basket, the FY 2010 
IRF market basket increase factor is 2.5 percent. IHS Global Insight is 
an economic and financial forecasting firm that contracts with CMS to 
forecast the components of providers' market baskets.
    Also, using the methodology described in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47908 through 47917), we are updating the IRF labor-
related share for FY 2010. Using this method and the IHS Global 
Insight, Inc. forecast for the second quarter of 2009 of the 2002-based 
RPL market basket, the IRF labor-related share for FY 2010 is the sum 
of the FY 2010 relative importance of each labor-related cost category. 
This figure reflects the different rates of price change for these cost 
categories between the base year (FY 2002) and FY 2010. Consistent with 
our proposal to update the labor-related share with the most recent 
available data, the labor-related share for this final rule reflects 
IHS Global Insight's second quarter 2009 forecast of the 2002-based RPL 
market basket. As shown in Table 2, the FY 2010 labor-related share is 
75.779 percent.

    Table 2--FY 2010 IRF RPL Labor-Related Share Relative Importance
------------------------------------------------------------------------
                                                             FY 2010 IRF
                                                                labor-
                                                               related
                       Cost category                            share
                                                               relative
                                                              importance
------------------------------------------------------------------------
Wages and salaries.........................................       52.892
Employee benefits..........................................       13.949
Professional fees..........................................        2.873
All other labor intensive services.........................        2.127
                                                            ------------
    Subtotal...............................................       71.841
Labor-related share of capital costs (.46).................        3.938
                                                            ------------
    Total..................................................       75.779
------------------------------------------------------------------------
Source: IHS GLOBAL INSIGHT, INC, 2nd QTR, 2009; @USMACRO/CONTROL0609
  @CISSIM/TL0509.SIM Historical Data through 1st QTR, 2009.

    We received 10 comments on the proposed updates to the IRF market 
basket increase factor and labor-related share for FY 2010, which are 
summarized below.
    Comment: One commenter supported the creation of a stand-alone IRF 
market basket based on both freestanding and hospital-based cost report 
data. The commenter offered the following suggestions that CMS could 
pursue in order to account for the differences in costs between the two 
facility types.
    Those suggestions included:
    1. To survey a random sample of facilities to assess the presence 
of the array of rehabilitation services that may be available through 
the freestanding IRF as compared to a hospital-based IRF.
    2. To conduct detailed interviews of the Chief Financial Officers 
(CFOs) of freestanding versus hospital based units to understand the 
differences in the ways IRF costs are accounted for in cost reports.
    Response: We appreciate the commenter's response concerning the 
stand-alone IRF market basket and the suggestions that were provided. 
CMS will take the suggestions into consideration as we continue to 
research the differences between hospital-based and freestanding 
facilities.
    Comment: Several commenters noted that the use of 2002 data is 
inappropriate because of major changes to IRF case mix and patient 
severity and requested CMS update the cost weights of the existing RPL 
market basket to a more recent base year.
    Response: We recognize the commenters' concerns regarding the 
continued use of 2002 data in the RPL market basket. We have focused 
our recent efforts on comparing and contrasting the costs and cost 
structures of freestanding and hospital-based IRFs, including the 
effects of changes to case mix and patient severity over the last 
several years. We will consider the suggestions that we received during 
the comment period to better understand those differences (and further 
investigate the appropriateness of creating a stand-alone IRF market 
basket), as well as examine the appropriateness of rebasing and 
revising the RPL market basket.
    Comment: One commenter noted that the data used to calculate the 
RPL market basket are obtained from freestanding IRFs, freestanding 
IPFs, and LTCHs. The commenter expressed the concern that each facility 
type requires different resources and thus combining the three types of 
facilities distorts the cost structures of IRFs. This commenter also 
suggested incorporating the most recent available data into the market 
basket.
    Response: CMS recognizes the existence of differences in cost 
structures across freestanding IPFs, freestanding IRFs, and LTCHs. 
However, pending further research into the viability of creating a 
stand-alone IRF market basket, we feel that it is appropriate to 
continue to use the current 2002-based RPL market basket to update IRF 
payments. We will examine the appropriateness of rebasing and revising 
the RPL market basket for the future.
    Comment: Several commenters offered that one reason for the 
difference between freestanding and hospital-based IRFs cost structures 
is that most hospital-based units are smaller than freestanding IRFs. 
For example, one commenter indicated that hospital-based IRFs have 
nearly two-thirds fewer discharges than freestanding IRFs. Thus, the 
commenters claimed that hospital-based IRFs may be unable to achieve 
the same level of economies of scale as freestanding IRFs can.
    Response: We have noted that cost differences between hospital-
based and freestanding IRFs may be due to the volume of care that 
hospital-based facilities provide relative to freestanding facilities. 
In an attempt to control for differences in the volume of services, we 
have compared costs per discharge and costs per day between the two 
facility types and continue to find differences in their overall cost 
levels. Notably, CMS feels that, all other things held constant, 
differing volumes may not necessarily explain differing cost structures 
as the cost weights reflect the relative expense of one category to 
another within a facility. We will continue to evaluate our findings 
related to these metrics with new data as it becomes available.
    Comment: One commenter mentioned that one contributing cause of the 
difference in cost structures between freestanding and hospital-based 
IRFs is the issue of costs being allocated down from the IPPS hospital 
to the hospital-based IRF unit.
    Response: We share the commenter's concern that overhead costs from 
the host hospital may be skewing the hospital-based unit's costs and 
cost structure. One of the main reasons why CMS has historically relied 
on Medicare cost report data from freestanding facilities to construct 
the market baskets is our concern over the distribution of the host 
hospital's overhead costs to the sub-provider units. We will continue 
to investigate the allocation of overhead

[[Page 39777]]

costs from the host hospital to the hospital-based IRF unit.
    Comment: One commenter acknowledged that seeking outside input 
regarding differences in cost structures between hospital-based and 
freestanding IRFs is appropriate. However, the commenter urged CMS to 
proceed with caution as it may be difficult for CMS to confir