Medicare Program; Supplemental Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Supplemental Proposed Fiscal Year 2011 Rates, 30918-31117 [2010-12567]
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Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Proposed Rules
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 412 and 413
[CMS–1498–P2]
RIN 0938–AP80
Medicare Program; Supplemental
Proposed Changes to the Hospital
Inpatient Prospective Payment
Systems for Acute Care Hospitals and
the Long-Term Care Hospital
Prospective Payment System and
Supplemental Proposed Fiscal Year
2011 Rates
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AGENCY: Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
SUMMARY: This proposed rule is a
supplement to the fiscal year (FY) 2011
hospital inpatient prospective payment
systems (IPPS) and long-term care
prospective payment system (LTCH
PPS) proposed rule published in the
May 4, 2010 Federal Register. This
supplemental proposed rule would
implement certain statutory provisions
relating to Medicare payments to
hospitals for inpatient services that are
contained in the Patient Protection and
Affordable Care Act and the Health Care
and Education Reconciliation Act of
2010 (collectively known as the
Affordable Care Act). It would also
specify statutorily required changes to
the amounts and factors used to
determine the rates for Medicare acute
care hospital inpatient services for
operating costs and capital-related costs,
and for long-term care hospital costs.
DATES: To be assured consideration,
comments must be received at one of
the addresses provided below, no later
than 5 p.m. on July 2, 2010.
ADDRESSES: In commenting, please refer
to file code CMS–1498–P2. 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 submitting a
comment.
2. By regular mail. You may mail
written comments to the following
address ONLY: Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, Attention:
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CMS–1498–P2, P.O. Box 8011,
Baltimore, MD 21244–1850.
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 to the
following address ONLY: Centers for
Medicare & Medicaid Services,
Department of Health and Human
Services, Attention: CMS–1498–P2,
Mail Stop C4–26–05, 7500 Security
Boulevard, Baltimore, MD 21244–1850.
4. By hand or courier. If you prefer,
you may deliver (by hand or courier)
your written comments before the close
of the comment period to either of the
following addresses:
a. For delivery in Washington, DC—
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, Room 445–G, Hubert
H. Humphrey Building, 200
Independence Avenue, SW.,
Washington, DC 20201.
(Because access to the interior of the
Hubert H. Humphrey 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. For delivery in Baltimore, MD—
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, 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.
Submission of comments on
paperwork requirements. You may
submit comments on this document’s
paperwork requirements by following
the instructions at the end of the
‘‘Collection of Information
Requirements’’ section in this document.
For information on viewing public
comments, see the beginning of the
SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Tzvi
Hefter, (410) 786–4487, and Ing-Jye
Cheng, (410) 786–4548, Operating
Prospective Payment, Wage Index,
Hospital Geographic Reclassifications,
Capital Prospective Payment, Critical
Access Hospital (CAH).
Michele Hudson, (410) 786–4487, and
Judith Richter, (410) 786–2590, Long-
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Term Care Hospital Prospective
Payment.
Siddhartha Mazumdar, (410) 786–
6673, Rural Community Hospital
Demonstration Program Issues.
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.
Electronic Access
This Federal Register document is
also available from the Federal Register
online database through GPO Access, a
service of the U.S. Government Printing
Office. Free public access is available on
a Wide Area Information Server (WAIS)
through the Internet and via
asynchronous dial-in. Internet users can
access the database by using the World
Wide Web, (the Superintendent of
Documents’ home Web page address is
https://www.gpoaccess.gov/), by using
local WAIS client software, or by telnet
to swais.access.gpo.gov, then login as
guest (no password required). Dial-in
users should use communications
software and modem to call (202) 512–
1661; type swais, then login as guest (no
password required).
I. Background
On March 23, 2010, the Patient
Protection and Affordable Care Act
(Pub. L. 111–148) was enacted.
Following the enactment of Public Law
111–148, the Health Care and Education
Reconciliation Act of 2010 Public Law
111–152 (enacted on March 30, 2010),
amended certain provisions of Public
Law 111–148. These public laws are
collectively known as the Affordable
Care Act. A number of the provisions of
Public Law 111–148, affect the IPPS and
the LTCH PPS and the providers and
suppliers addressed in this proposed
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rule. However, due to the timing of the
passage of the legislation, were unable
to address those provisions in the FY
2011 IPPS and LTCH PPS proposed rule
that appeared in the May 4, 2010
Federal Register (75 FR 23852).
Therefore, the proposed policies and
payment rates in that proposed rule did
not reflect the new legislation. We noted
in that proposed rule that we would
issue separate Federal Register
documents addressing the provisions of
Public Law 111–148 that affect our
proposed policies and payment rates for
FY 2010 and FY 2011 under the IPPS
and the LTCH PPS. This supplementary
proposed rule addresses the following
provisions of the new legislation that
affect the following FY 2011 proposed
policies:
• Hospital wage index improvement
related to geographic reclassification
criteria for FY 2011 (section 3137 of
Pub. L. 111–148).
• National budget neutrality in the
calculation of the rural floor for hospital
wage index (section 3141 of Pub. L.
111–148).
• Protections for frontier States
(section 10324 of Pub. L. 111–148).
• Revisions of certain market basket
updates (sections 3401 and 10319 of
Pub. L. 111–148 and section 1105 of
Pub. L. 111–152).
• Temporary improvements to the
low-volume hospital adjustment
(sections 3125 and 10314 of Pub. L.
111–148).
• Extension of Medicare-dependent
hospitals (MDHs) (section 3124 of Pub.
L. 111–148).
• Additional payments in FYs 2011
and 2012 for qualifying hospitals in the
lowest quartile of per capital Medicare
spending (section 1109 of Pub. L. 111–
152).
• Extension of the rural community
hospital demonstration (section 3123 of
Pub. L. 111–148).
• Technical correction related to
critical access hospital (CAH) services
(section 3128 of Pub. L. 111–148).
• Extension of certain payment rules
for long-term care hospital services and
of moratorium on the establishment of
certain hospitals and facilities (sections
3106 and 10312 of Pub. L. 111–148).
We also noted that we plan to issue
further instructions implementing the
provisions of Public Law 111–148 that
affect the policies and payment rates for
FY 2010 under the IPPS and for RY
2010 under the LTCH PPS in a separate
document published elsewhere in this
Federal Register.
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II. Provisions of the Proposed
Regulations
In this section of this supplementary
proposed rule, we address the
provisions of Public Law 111–148, that
affect our proposed policies and
payment rates for FY 2011 under the
IPPS and the LTCH PPS.
A. Changes to the Acute Care Hospital
Wage Index
1. Plan for Reforming the Wage Index
Section 3137(b) of Public Law 111–
148 requires the Secretary of Health and
Human Services to submit to Congress,
not later than December 31, 2011, a
report that includes a plan to reform the
Medicare wage index applied under the
Medicare IPPS. In developing the plan,
the Secretary of Health and Human
Services must take into consideration
the goals for reforming the wage index
that were set forth by the MedPAC in its
June 2007 report entitled, ‘‘Report to
Congress: Promoting Greater Efficiency
in Medicare’’, including establishing a
new system that —
• Uses Bureau of Labor of Statistics
(BLS) data, or other data or
methodologies, to calculate relative
wages for each geographic area;
• Minimizes wage index adjustments
between and within MSAs and
statewide rural areas;
• Includes methods to minimize the
volatility of wage index adjustments
while maintaining budget neutrality in
applying such adjustments;
• Takes into account the effect that
implementation of the system would
have on health care providers and on
each region of the country;
• Addresses issues related to
occupational mix, such as staffing
practices and ratios, and any evidence
on the effect on quality of care or patient
safety as a result of the implementation
of the system; and
• Provides for a transition.
In addition, section 3137(b)(3) of Public
Law 111–148 requires the Secretary of
Health and Human Services to consult
with relevant affected parties in
developing the plan. Although the
provisions of section 3137(b) of Public
Law 111–148 will not have an actual
impact on the FY 2011 wage, we are
notifying the public of the provisions so
that they may provide comments and
suggestions on how they may
participate in developing the plan.
2. Provisions on Wage Comparability
and Rural/Imputed Floor Budget
Neutrality
Sections 3137(c) and 3141 of Public
Law 111–148 affect reclassification
average hourly wage comparison criteria
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and rural and imputed floor budget
neutrality provisions for FY 2011.
a. Reclassification Average Hourly Wage
Comparison Criteria
In the FY 2009 IPPS final rule, we
adopted the policy to adjust the
reclassification average hourly wage
standard, comparing a reclassifying
hospital’s (or county hospital group’s)
average hourly wage relative to the
average hourly wage of the area to
which it seeks reclassification. (We refer
readers to the FY 2009 IPPS final rule
for a full discussion of the basis for the
proposals the public comments received
and the FY 2009 final policies.) We
provided for a phase-in of the
adjustment over 2 years. For
applications for reclassification for the
first transitional year, FY 2010, the
average hourly wage standards were set
at 86 percent for urban hospitals and
group reclassifications, and 84 percent
for rural hospitals. For applications for
reclassification for FY 2011 (for which
the application deadline was September
1, 2009) and for subsequent fiscal years,
the average hourly wage standards were
88 percent for urban and group
reclassifications and 86 percent for rural
hospitals. Sections 412.230, 412.232,
and 412.234 of the regulations were
revised accordingly. These policies were
adopted in the FY 2009 IPPS final rule
and were reflected in the wage index in
the Addendum to the FY 2011 IPPS
proposed rule, which appeared in the
Federal Register on May 4, 2010.
However, provisions of section
3137(c) of Public Law 111–148 recently
revised the average hourly wage
standards. Specifically, section 3137(c)
restores the average hourly wage
standards that were in place for FY 2008
(that is, 84 percent for urban hospitals,
85 percent for group reclassifications,
and 82 percent for rural hospitals) for
applications for reclassification for FY
2011 and for each subsequent fiscal year
until the first fiscal year beginning on or
after the date that is one year after the
Secretary of Health and Human Services
submits a report to Congress on a plan
for reforming the wage index under
3137(b) of Public Law 111–148. Section
3137(c) of Public Law 111–148 also
requires the revised average hourly
wage standards to be applied in a
budget neutral manner. We note that
section 3137(c) of Public Law 111–148
does not provide for the revised average
hourly wage standards to be applied
retroactively, nor does it change the
statutory deadline for applications for
reclassification for FY 2011. Under
section 1886(d)(10) of the Act, the
Medicare Geographic Classification
Review Board (MGCRB) considers
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applications by hospitals for geographic
reclassification for purposes of payment
under the IPPS. Hospitals must apply to
the MGCRB to reclassify 13 months
prior to the start of the fiscal year for
which reclassification is sought
(generally by September 1). For
reclassifications for the FY 2011 wage
index, the deadline for applications was
September 1, 2009 (74 FR 43838).
In implementing section 3137(c) of
Public Law 111–148, we requested the
assistance of the MGCRB in
determining, for applications received
by September 1, 2009, whether
additional hospitals would qualify for
reclassification for FY 2011 based on the
revised average hourly wage standards
of 84 percent for urban hospitals, 85
percent for group reclassifications, and
82 percent for rural hospitals. We
determined that 18 additional hospitals
would qualify for reclassification for FY
2011. Also, 5 hospitals, for which the
MGCRB granted reclassifications to their
secondary requested areas for FY 2011,
would qualify for reclassifications
instead to their primary requested areas
because they now meet the average
hourly wage criteria to reclassify to
those areas. Therefore, in accordance
with § 412.278 of the regulations, in
which paragraph (c) provides the
Administrator discretionary authority to
review any final decision of the
MGCRB, we submitted a letter to the
Administrator requesting that she
review and amend the MGCRB’s
decision and grant the 23 hospitals their
requested reclassifications (or primary
reclassifications) for FY 2011.
The wage index in the Addendum to
this supplemental FY 2011 IPPS
proposed rule reflects these changes in
hospital reclassifications, although the
Administrator had not issued all of her
decisions by the date of this proposed
rule. In calculating the wage index in
this proposed rule, we made
assumptions that the Administrator
would grant the 23 hospitals their
requested reclassifications (or primary
reclassifications) and that the hospitals
would not request the Administrator to
amend her decisions. Generally, these
reclassifications would result in the
highest possible wage index for the
hospitals. Any changes to the wage
index, as a result of the Administrator’s
actual decision issued under
§ 412.278(c), or an amendment of the
Administrator’s decision issued under
paragraph (g), will be reflected in the FY
2011 IPPS final rule.
In accordance with the requirements
in section 3137(c) of Affordable Care
Act, we are modifying § 412.230,
§ 412.232, and § 412.234 of the
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regulations to codify the revised average
hourly wage standards.
b. Budget Neutrality Adjustment for the
Rural and Imputed Floors
In the FY 2009 IPPS final rule (73 FR
48574 through 48575), we adopted State
level budget neutrality (rather than the
national budget neutrality adjustment)
for the rural and imputed floors,
effective beginning with the FY 2009
wage index and incorporated this policy
in our regulation at § 412.64(e)(4).
Specifically, the regulations specified
that CMS makes an adjustment to the
wage index to ensure that aggregate
payments after implementation of the
rural floor under section 4410 of the
Balanced Budget Act of 1997 (Pub. L.
105–33) and the imputed floor under
§ 412.64(h)(4) are made in a manner that
ensures that aggregate payments to
hospitals are not affected and that,
beginning October 1, 2008, we would
transition from a nationwide adjustment
to a statewide adjustment, with a
statewide adjustment fully in place by
October 1, 2010.
These policies for the rural and
imputed floors were adopted in the FY
2009 IPPS final rule and were reflected
in the wage index in the Addendum to
the FY 2011 IPPS/LTCH PPS proposed
rule, published in the Federal Register
on May 4, 2010. However, these policies
were recently changed by the provisions
of section 3141 of Public Law 111–148.
Specifically, section 3141 of Affordable
Care Act rescinds our policy
establishing a statewide budget
neutrality adjustment for the rural and
imputed floors and, instead, restores it
to a uniform, national adjustment,
beginning with the FY 2011 wage index.
Additionally, the imputed floor, is set to
expire on September 30, 2011. We do
not read section 3141 of Public Law
111–148 as altering this expiration date.
Section 3141 of Public Law 111–148
requires that we ‘‘administer subsection
(b) of such section 4410 and paragraph
(e) of * * * section 412.64 in the same
manner as the Secretary administered
such subsection (b) and paragraph (e)
for discharges occurring during fiscal
year 2008 (through a uniform, national
adjustment to the area wage index).’’
Thus, section 3141 of Public Law 111–
148 is governing how we apply budget
neutrality, under the authorities of
§ 412.64(e) and section 4410(b) of the
Balanced Budget Act, but it does not
alter § 412.64(h) of our regulations
(which includes the imputed floor and
its expiration date). To the extent there
is an imputed floor, section 3141 of
Public Law 111–148 governs budget
neutrality for that floor, but it does not
continue the imputed floor beyond the
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expiration date already included in our
regulations.
Therefore, the wage index in the
Addendum to this supplemental FY
2011 IPPS proposed rule reflects a
uniform, national budget neutrality
adjustment for the rural and imputed
floors, which is a factor of 0.995425.
3. Frontier States Floor (§ 412.64)
In accordance with section 10324(a)
of Affordable Care Act, beginning in FY
2011, the statute provides for
establishing an adjustment to create a
wage index floor of 1.00 for all hospitals
located in States determined to be
Frontier States. The statute defines any
State as a Frontier State if at least 50
percent of the State’s counties are
determined to be Frontier Counties. The
statute defines as counties that have a
population density less than 6 persons
per square mile. The law requires that
this provision shall not apply to
hospitals in Alaska or Hawaii receiving
a non-labor related share adjustment
under section 1886(d)(5)(H) of the Act.
To implement this provision, we
propose to identify Frontier Counties by
analyzing population data and county
definitions based upon the most recent
annual Population Estimates published
by the U.S. Census Bureau. We will
divide each county’s population total by
each county’s reported land area
(according to the decennial census) in
square miles to establish population
density. We also propose to update this
analysis from time to time, such as upon
publication of a subsequent decennial
census, and if necessary, add or remove
qualifying States from the list of
Frontier States based on the updated
analysis.
For a State that qualifies as a Frontier
State, in accordance with section
10324(a) of Public Law 111–148, all PPS
hospitals located within that State will
receive either the higher of its postreclassification wage index rate, or a
minimum value of 1.00. We propose
that, for a hospital that is geographically
located in a Frontier State and is
reclassified under section 1886(d)(10) of
the Act to a CBSA in a non-Frontier
State, the hospital will receive a wage
index that is the higher of the
reclassified area wage index or the
minimum wage index of 1.00. In
accordance with section 10324(a) of
Public Law 111–148, the Frontier State
adjustment will not be subject to budget
neutrality under section 1886(d)(3)(E) of
the Act, and will only be extended to
hospitals geographically located within
a Frontier State. We propose to calculate
and apply the Frontier State floor
adjustments after rural and imputed
floor budget neutrality adjustments are
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calculated for all labor market areas, so
as to ensure that no hospital in a
Frontier State will receive a wage index
lesser than 1.00 due to the rural and
imputed floor adjustment. We invite
public comment on these proposals
regarding our methods for determining
Frontier States, and for calculation and
application of the adjustment.
For the proposed FY 2011 IPPS wage
index, the Frontier States are the
following: Reflected in the following
table:
TABLE 1—FRONTIER STATES UNDER SECTION 10324(a)
Total
counties
State
Montana ...................................................................................................................................................
Wyoming ..................................................................................................................................................
North Dakota ............................................................................................................................................
Nevada .....................................................................................................................................................
South Dakota ...........................................................................................................................................
56
23
53
17
66
Frontier
counties
Percent
frontier
counties
45
17
36
11
34
80
74
68
65
52
Frontier States are identified by a footnote in Table 4D–2 of the Addendum to this supplemental proposed rule. Population Data set: https://
www.census.gov/popest/estimates.html (2009 County Total Population Estimates).
Land Area Dataset https://factfinder.census.gov/ (Decennial: Census Geographic Comparison Tables: ‘‘United States—County by State and for
Puerto Rico’’).
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4. Revised FY 2011 IPPS Proposed Rule
Wage Index Tables
The revised IPPS proposed wage
index values for FY 2011, reflecting the
provisions of sections 3137(c), 3141,
and 10324 of Public Law 111–148, are
included in Tables 2, 4A, 4B, 4C, and
4D–2 of the Addendum to this
supplemental FY 2011 IPPS/LTCH PPS
proposed rule.
Table 4D–1, which listed the
statewide rural and imputed floor
budget neutrality factors, is eliminated
from the Addendum to this
supplemental FY 2011 IPPS/LTCH PPS
proposed rule and is no longer
applicable for the wage index because
section 3141 of Public Law 111–148
instead requires the application of a
national adjustment.
Table 4J, which lists the out-migration
adjustment for a qualifying county, is
revised due to the above provisions of
Affordable Care Act. Additionally, Table
9A, the list of hospitals that are
reclassified or redesignated for FY 2011,
is revised according to section 3137(c)
of Public Law 111–148. Both revised
tables are included in the Addendum to
this supplemental FY 2011 IPPS/LTCH
PPS proposed rule.
Tables 3A and 3B, which list the 3year average hourly wage for each labor
market area before the redesignation or
reclassification of hospitals, Table 4E,
the list of urban CBSAs and constituent
counties, Table 4F, the Puerto Rico wage
index, and Table 9C, the list of hospitals
redesignated under section 1886(d)(8)(E)
of the Act, are unaffected by the above
provisions of Affordable Care Act.
Therefore, these tables are unchanged
from the initial FY 2011 IPPS/LTCH
PPS proposed rule and are not included
in the Addendum to this supplemental
FY 2011 IPPS/LTCH PPS proposed rule.
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5. Procedures for Withdrawing
Reclassifications in FY 2011
Section 1886(d)(10)(D)(v) of the Act
states that the Secretary should establish
procedures under which a subsection
(d) hospital may elect to terminate a
reclassification before the end of a 3year period, but does not contain any
other specifics regarding how such
termination should occur. Our rules at
42 CFR 412.273 state that hospitals that
have been reclassified by the MGCRB
are permitted to withdraw their
applications within 45 days of the
publication of CMS’s annual notice of
proposed rulemaking. For purposes of
this supplementary proposed rule, we
interpret our regulation as referring to
the initial FY 2011 IPPS/LTCH PPS
proposed rule (which appeared in the
May 4, 2010 Federal Register), and our
procedure for this supplementary
proposed rule is to start the time period
for requesting a withdrawal or
termination from publication of that
initial proposed rule. Were we not to
use such a time period, requests for
termination and withdrawal would be
received too late to include in our final
rule. Thus, all requests for withdrawal
of an application for reclassification or
termination of an existing 3-year
reclassification that would be effective
in FY 2011 must be received by the
MGCRB by June 18, 2010.
We note that wage index values in the
tables in the Addendum to this
supplemental FY 2011 IPPS/LTCH PPS
proposed rule may have changed
somewhat from the initial, more
comprehensive FY 2011 IPPS/LTCH
PPS proposed rule (which appeared in
the May 4, 2010 Federal Register) due
to the application of sections 3137(c),
3141, and 10324 of Affordable Care Act.
In addition, as a result of section 3137(c)
of Affordable Care Act, there may be
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additional hospitals listed as
reclassified in Table 9A in the
Addendum to this supplemental
proposed rule. Hospitals have sufficient
time between the display or publication
date of this supplemental FY 2011 IPPS/
LTCH PPS proposed rule in the Federal
Register and the June 18, 2010 deadline
for withdrawals and terminations to
evaluate and make determinations
regarding their reclassification for the
FY 2011 wage index. As noted in the
initial FY 2011 IPPS proposed rule, the
mailing address of the MGCRB is: 2520
Lord Baltimore Drive, Suite L,
Baltimore, MD 21244–2670.
B. Inpatient Hospital Market Basket
Update
Below we discuss the adjustments to
the FY 2010 and FY 2011 market basket
as required by the Affordable Care Act.
In this supplemental proposed rule we
are not proposing to address the
provisions of section 3401 of Public Law
111–148 providing for a productivity
adjustment for FY 2012 and subsequent
fiscal years; rather, this change will be
addressed in future rulemaking.
1. FY 2010 Inpatient Hospital Update
In accordance with section
1886(b)(3)(B)(i) of the Act, each year we
update the national standardized
amount for inpatient operating costs by
a factor called the ‘‘applicable
percentage increase.’’ Prior to enactment
of Public Law 111–148 and Public Law
111–152, section 1886(b)(3)(B)(i)(XX) of
the Act set the applicable percentage
increase equal to the rate-of-increase in
the hospital market basket for IPPS
hospitals in all areas, subject to the
hospital submitting quality information
under rules established by the Secretary
in accordance with section
1886(b)(3)(B)(viii) of the Act. For
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hospitals that do not provide these data,
the update is equal to the market basket
percentage increase less an additional
2.0 percentage points. In accordance
with these statutory provisions, in the
FY 2010 IPPS/LTCH PPS final rule (74
FR 43850), we finalized an applicable
percentage increase equal to the full
market basket update of 2.1 percent
based on IHS Global Insight, Inc.’s
second quarter 2009 forecast of the FY
2010 market basket increase, provided
the hospital submits quality data in
accordance with our rules. For hospitals
that do not submit quality data, in the
FY 2010 IPPS/LTCH PPS final rule we
finalized an applicable percentage
increase equal to 0.1 percent (that is, the
FY 2010 estimate of the market basket
rate-of-increase minus 2.0 percentage
points).
Sections 3401(a) and 10319 of Public
Law 111–148 amend section
1886(b)(3)(B)(i) of the Act. Specifically,
sections 3401(a) and 10319(a) of Public
Law 111–148 amend section
1886(b)(3)(B)(i) of the Act to set the FY
2010 applicable percentage increase for
IPPS hospitals equal to the rate-ofincrease in the hospital market basket
for IPPS hospitals in all areas minus a
0.25 percentage point, subject to the
hospital submitting quality information
under rules established by the Secretary
in accordance with section
1886(b)(3)(B)(viii) of the Act. For
hospitals that do not provide these data,
the update is equal to the market basket
percentage increase minus 0.25
percentage point less an additional 2.0
percentage points. Section 3401(a)(4) of
Public Law 111–148 further states that
these amendments may result in the
applicable percentage increase being
less than zero. Although these
amendments modify the applicable
percentage increase applicable to the FY
2010 rates under the IPPS, section
3401(p) of Public Law 111–148 states
that the amendments do not apply to
discharges occurring prior to April 1,
2010. In other words, for discharges
occurring on or after October 1, 2009
and prior to April 1, 2010, the rate for
a hospital’s inpatient operating costs
under the IPPS will be based on the
applicable percentage increase set forth
in the FY 2010 IPPS/LTCH PPS final
rule.
We are proposing to revise 42 CFR
412.64(d) to reflect current law.
Specifically, in accordance with section
1886(b)(3)(B)(i) of the Act as amended
by sections 3401(a) and 10319(a) of
Public Law 111–148, we are proposing
to revise § 412.64(d) to state that for the
first half of FY 2010 (that is, discharges
on or after October 1, 2009 through
March 30, 2010), the applicable
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percentage change equals the market
basket index for IPPS hospitals (which
is defined under § 413.40(a)) in all areas
for hospitals that submit quality data in
accordance with our rules, and the
market basket index for IPPS hospitals
in all areas less 2.0 percentage for
hospitals that fail to submit quality data
in accordance with our rules. As noted
above, in the FY 2010 IPPS/LTCH PPS
final rule, we calculated that the full
market basket update equals 2.1 percent
based on IHS Global Insight, Inc.’s
second quarter 2009 forecast of the FY
2010 market basket increase. In
addition, we are proposing to revise
§ 412.64(d) to state that for the second
half of FY 2010 (discharges on or after
April 1, 2010 through September 30,
2010), in accordance with section
3401(a), we are proposing to set the
applicable percentage change equal to
the market basket index for IPPS
hospitals in all areas reduced by 0.25
percentage points for hospitals that
submit quality data in accordance with
our rules. For those hospitals that fail to
submit quality data, in accordance with
our rules, we are proposing to reduce
the market basket index for IPPS
hospitals by an additional 2.0
percentage points (which is in addition
to the 0.25 percentage point reduction
required by section 1886(b)(3)(B)(i) of
the Act as amended by section 3401(a)
of Public Law 111–148 as amended by
section 10319(a) of Public Law 111–148.
Based on IHS Global Insight, Inc.’s
second quarter 2009 forecast of the FY
2010 market basket increase, the FY
2010 applicable percentage change that
applies to rates for inpatient hospital
operating costs under the IPPS for
discharges occurring in the second half
of FY 2010 is 1.85 percent (that is, the
FY 2010 estimate of the market basket
rate-of-increase of 2.1 percent minus
0.25 percentage points) for hospitals in
all areas, provided the hospital submits
quality data in accordance with our
rules. For hospitals that do not submit
quality data, the payment update to the
operating standardized amount is ¥0.15
percent (that is, the adjusted FY 2010
estimate of the market basket rate-ofincrease of 1.85 percent minus 2.0
percentage points).
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase applicable to the hospitalspecific rates for SCHs and MDHs
equals the applicable percentage
increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the
same update factor as for all other
hospitals subject to the IPPS). Because
the Act sets the update factor for SCHs
and MDHs equal to the update factor for
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all other IPPS hospitals, the update to
the hospital specific rates for SCHs and
MDHs is also subject to the amendments
to section 1886(b)(3)(B)(i) made by
section 3401(a) of Public Law 111–148.
Accordingly, for hospitals paid for their
inpatient operating costs on the basis of
a hospital-specific rate, the rates paid to
such hospitals for discharges occurring
during the first half of FY 2010 will be
based on an annual update estimated to
be 2.1 percent for hospitals submitting
quality data or 0.1 percent for hospitals
that fail to submit quality data; and the
rates paid to such hospitals for the
second half of FY 2010 will be based on
an update that is estimated to be 1.85
percent for hospitals submitting quality
data or ¥0.15 percent for hospitals that
fail to submit quality data. Similar to
that stated above, we are proposing to
update §§ 412.73(c)(15), 412.75(d),
412.77(e), 412.78(e), 412.79(d) to reflect
current law.
2. FY 2011 Inpatient Hospital Update
As with the FY 2010 applicable
percentage increase, section 3401(a) of
Public Law 111–148 as amended by
section 10319(a) of Public Law 111–148,
amends section 1886(b)(3)(B)(i) of the
Act to provide that the FY 2011
applicable percentage increase for IPPS
hospitals equals the rate-of-increase in
the hospital market basket for IPPS
hospitals in all areas reduced by 0.25
percentage point, subject to the hospital
submitting quality information under
rules established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act. For
hospitals that do not provide these data,
the update is equal to the market basket
percentage increase minus a 0.25
percentage point less an additional 2.0
percentage points. Section 3401(a)(4) of
Public Law 111–148 further states that
this amendment may result in the
applicable percentage increase being
less than zero.
In Appendix B of the FY 2011 IPPS/
LTCH PPS proposed rule, we
announced that due to the timing of the
passage of Public Law 111–148, we were
unable to address those provisions in
the proposed rule. In that proposed rule,
consistent with current law, based on
IHS Global Insight, Inc.’s first quarter
2010 forecast, with historical data
through the 2009 fourth quarter, of the
FY 2011 IPPS market basket increase,
we estimated that the FY 2011 update
to the operating standardized amount
would be 2.4 percent (that is, the
current estimate of the market basket
rate-of-increase) for hospitals in all
areas, provided the hospital submits
quality data in accordance with our
rules. For hospitals that do not submit
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quality data, we estimated that the
update to the operating standardized
amount would be 0.4 percent (that is,
the current estimate of the market basket
rate-of-increase minus 2.0 percentage
points). Since publication of the FY
2011 IPPS/LTCH PPS proposed rule our
estimate of the market basket for FY
2011 has not changed. However,
consistent with the amendments to
section 1886(b)(3)(B)(i) of the Act made
by section 3401 of Public Law 111–148,
for FY 2011 we are required to reduce
the hospital market basket update by
0.25 percentage points. Therefore, based
on IHS Global Insight, Inc.’s first quarter
2010 forecast of the FY 2011 market
basket increase, the estimated update to
the FY 2011 operating standardized
amount is 2.15 percent (that is, the FY
2011 estimate of the market basket rateof-increase of 2.4 percent minus 0.25
percentage points) for hospitals in all
areas, provided the hospital submits
quality data in accordance with our
rules. For hospitals that do not submit
quality data, the estimated update to the
operating standardized amount is 0.15
percent (that is, the adjusted FY 2011
estimate of the market basket rate-ofincrease of 2.15 percent minus 2.0
percentage points). We are proposing to
revise § 412.64(d) to reflect the
provisions of section 3401(a) of Public
Law 111–148.
Section 1886(b)(3)(B)(iv) of the Act
provides that the FY 2011 applicable
percentage increase in the hospitalspecific rates for SCHs and MDHs
equals the applicable percentage
increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the
same update factor as for all other
hospitals subject to the IPPS). Similar to
the FY 2010 applicable percentage
increase in the hospital-specific rates,
because the Act requires us to apply to
the hospital-specific rates the update
factor for all other IPPS hospitals, the
update to the hospital specific rates for
SCHs and MDHs is also subject to
section 1886(b)(3)(B)(i) as amended by
the Affordable Care Act. Accordingly,
the update to the hospital-specific rates
applicable to SCHs and MDHs is
estimated to be 2.15 for hospitals that
submit quality data or 0.15 percent for
hospitals that fail to submit quality data.
Similar to above, we are proposing to
update §§ 412.73(c)(15), 412.75(d),
412.77(e), 412.78(e), 412.79(d) to
implement this provision.
3. FY 2010 and FY 2011 Puerto Rico
Hospital Update
Puerto Rico hospitals are paid a
blended rate for their inpatient
operating costs based on 75 percent of
the national standardized amount and
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25 percent of the Puerto Rico-specific
standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis
for determining the applicable
percentage increase applied to the
Puerto Rico-specific standardized
amount. Section 1886(d)(9)(C)(i) of the
Act provides that the Puerto Rico
standardized amount shall be adjusted
in accordance with the final
determination of the Secretary under
section 1886(d)(4) of the Act. Section
1886(e)(4)(1) of the Act in turn directs
the Secretary to recommend an
appropriate change factor for Puerto
Rico hospitals taking into account
amounts necessary for the efficient and
effective delivery of medically
appropriate and necessary care of high
quality, as well as the recommendations
of MedPAC. In order to maintain
consistency between the portion of the
rates paid to Puerto Rico hospitals
under the IPPS based on the national
standardized amount and the portion
based on the Puerto Rico-specific
standardized rate, beginning in FY 2004
we have set the update to the Puerto
Rico-specific operating standardized
amount equal to the update to the
national operating standardized amount
for all IPPS hospitals. This policy is
reflected in our regulations at 42 CFR
412.211.
The amendments to section
1886(b)(3)(B)(i) of the Act by sections
3401(a) and section 10319(a) of Public
Law 111–148, affect only the update
factor applicable to the national
standardized rate for IPPS hospitals and
the hospital-specific rates; they do not
mandate any revisions to the update
factor applicable to the Puerto Ricospecific standardized amount. Rather, as
noted above, sections 1886(d)(9)(C)(i)
and (e)(4) of the Act direct us to adopt
an appropriate change factor for the FY
2010 Puerto Rico-specific standardized
amount, which we did in the FY 2010
IPPS/LTCH PPS final rule after notice
and consideration of public comments.
Therefore, we do not believe we have
the authority to now propose setting the
FY 2010 update factor for the Puerto
Rico-specific operating standardized
amount for the second half of FY 2010
equal to the update factor applicable to
the national standardized amount or the
hospital-specific rates (that is the market
basket minus 0.25 percentage points).
Accordingly, the FY 2010 update to the
Puerto Rico-specific operating
standardized amount is 2.1 percent (that
is, the FY 2010 estimate of the market
basket rate-of-increase) for the entire FY
2010.
For FY 2011, consistent with our past
practice of applying the same update
factor to the Puerto Rico-specific
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standardized amount as applied to the
national standardized amount, we are
proposing to revise § 412.211(c) to set
the update factor for the Puerto Ricospecific operating standardized amount
equal to the update factor applied to the
national standardized amount for all
IPPS hospitals. Therefore, we are
proposing an update factor for the
Puerto Rico-specific standardized
amount equal to the FY 2011 estimate
of the IPPS operating market basket rateof-increase of 2.4 percent minus 0.25
percentage points, or 2.15 percent, for
FY 2011.
C. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
Section 1886(d)(12) of the Act, as
added by section 406 of Public Law
108–173, provides for a payment
adjustment to account for the higher
costs per discharge for low-volume
hospitals under the IPPS, effective
beginning FY 2005. Sections 3215 and
10314 of Public Law 111–148 amend the
definition of a low-volume hospital
under section 1886(d)(12)(C) of the Act.
It also revises the methodology for
calculating the payment adjustment for
low-volume hospitals.
1. Background
Prior to being amended by the
Affordable Care Act, section
1886(d)(12)(C)(i) of the Act defined a
low-volume hospital as ‘‘a subsection (d)
hospital (as defined in paragraph (1)(B))
that the Secretary determines is located
more than 25 road miles from another
subsection (d) hospital and that has less
than 800 discharges during the fiscal
year.’’ Section 1886(d)(12)(C)(ii) of the
Act further stipulates that ‘‘the term
‘‘discharge’’ means an inpatient acute
care discharge of an individual
regardless of whether the individual is
entitled to benefits under Part A.’’
Therefore, the term refers to total
discharges, not merely Medicare
discharges. Finally, under section 406,
the provision requires the Secretary to
determine an applicable percentage
increase for these low-volume hospitals
based on the ‘‘empirical relationship’’
between ‘‘the standardized cost-per-case
for such hospitals and the total number
of discharges of such hospitals and the
amount of the additional incremental
costs (if any) that are associated with
such number of discharges.’’ The statute
thus mandates that the Secretary
develop an empirically justifiable
adjustment based on the relationship
between costs and discharges for these
low-volume hospitals. The statute also
limits the adjustment to no more than
25 percent.
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Based on an analysis we conducted
for the FY 2005 IPPS final rule (69 FR
49099 through 49102), a 25 percent lowvolume adjustment to all qualifying
hospitals with less than 200 discharges
was found to be most consistent with
the statutory requirement to provide
relief to low-volume hospitals where
there is empirical evidence that higher
incremental costs are associated with
low numbers of total discharges.
In the FY 2006 IPPS final rule (70 FR
47432 through 47434), we stated that a
multivariate analyses supported the
existing low-volume adjustment
implemented in FY 2005. Therefore, the
low-volume adjustment of an additional
25 percent would continue to be
provided for qualifying hospitals with
less than 200 discharges.
2. Temporary Changes for FYs 2011 and
2012
Section 1886(d)(12) of the Act was
amended by sections 3125 and 10314 of
Public Law 111–148. These changes are
effective only for FYs 2011 and 2012.
Beginning with FY 2013, the preexisting low-volume hospital payment
adjustment and qualifying criteria, as
implemented in FY 2005, will resume.
Section 3125(3) and 10314(1) of
Public Law 111–148 amend the
qualifying criteria for low-volume
hospitals under section 1886(d)(12)(C)
of the Act to make it easier for hospitals
to qualify for the low-volume
adjustment. Specifically, the revised
provision specifies that for FYs 2011
and 2012, a hospital qualifies as a lowvolume hospital if it is ‘‘more than 15
road miles from another subsection (d)
hospital and has less than 1,600
discharges of individuals entitled to, or
enrolled for, benefits under Part A
during the fiscal year.’’ In addition,
section 1886(d)(12)(C) of the Act, as
amended, provides that the payment
adjustment (the applicable percentage
increase) is to be determined ‘‘using a
continuous linear sliding scale ranging
from 25 percent for low-volume
hospitals with 200 or fewer discharges
of individuals entitled to, or enrolled
for, benefits under Part A in the fiscal
year to 0 percent for low-volume
hospitals with greater than 1,600
discharges of such individuals in the
fiscal year.’’
Section 3125(3)(A) of Public Law
111–148 revises the distance
requirement for FYs 2011 and 2012 from
‘‘25 road miles’’ to ‘‘15 road miles’’ such
that a low volume hospital is required
to be only more than 15 road miles,
rather than more than 25 road miles,
from another subsection (d) hospital for
purposes of qualifying for the lowvolume payment adjustment in FYs
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2011 and 2012. We therefore are
proposing to revise our regulations at 42
CFR 412.101(a)(2) to provide that to
qualify for the low volume adjustment
in FYs 2011 and 2012, a hospital must
be more than 15 road miles from the
nearest subsection (d) hospital. The
statute specifies the 15 mile distance in
‘‘road miles’’. The current regulations at
42 CFR 412.101 also specify the current
25 mile distance requirement in ‘‘road
miles,’’ but do not provide a definition
of the term ‘‘road miles.’’ We are
proposing to define the term ‘‘road
miles’’ consistent with the term ‘‘miles’’
as defined at § 412.92 for purposes of
determining whether a hospital qualifies
as a sole community hospital.
Specifically, the regulations at 42 CFR
412.92(c)(i) define ‘‘miles’’ as ‘‘the
shortest distance in miles measured
over improved roads. An improved road
for this purpose is any road that is
maintained by a local, State, or Federal
government entity and is available for
use by the general public. An improved
road includes the paved surface up to
the front entrance of the hospital.’’ We
note that while the proposed change in
the qualifying criteria from 25 to 15 road
miles is applicable only for FYs 2011
and 2012, the proposed definition of
‘‘road miles’’ would continue to apply
even after the distance requirement
reverts to 25 road miles beginning in FY
2013.
Sections 3125(3)(B) and (4)(D) and
10314(1) and (2) of Public Law 111–148,
revise the discharge requirement for FYs
2011 and 2012 to less than 1,600
discharges of individuals entitled to, or
enrolled for, benefits under Part A.
Based on section 406 of Public Law
108–173, the discharge requirement to
qualify as a low-volume hospital prior
to FY 2011 and subsequent to FY 2012
is less than 800 discharges annually. For
these fiscal years, the number of
discharges is determined based on total
discharges, which includes discharges
of both Medicare and non-Medicare
patients. However, under sections 3125
and 10314 of Public Law 111–148, for
FYs 2011 and 2012, the discharge
requirement has been increased to less
than 1,600 discharges of individuals
‘‘entitled to, or enrolled for, benefits
under Part A during the fiscal year.’’
Section 226(a) of the Act (42 U.S.C.
426(a)) provides that an individual is
automatically ‘‘entitled’’ to Medicare
Part A when the person reaches age 65
or becomes disabled, provided that the
individual is entitled to Social Security
benefits under section 202 of the Act (42
U.S.C. 402). Once a person becomes
entitled to Medicare Part A, the
individual does not lose such
entitlement simply because there is no
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Part A coverage of a specific inpatient
stay. For example, a patient does not
lose entitlement to Medicare Part A
simply because the individual’s Part A
hospital benefits have been exhausted;
other items and services (for example,
skilled nursing services) still might be
covered under Part A, and the patient
would qualify for an additional 90 days
of Part A hospital benefits if at least 60
days elapsed between the individual’s
first and second hospital stay. (See
§ 409.60(a) and (b)(1) and § 409.61(a)(1)
and (c).)
In addition, beneficiaries who are
enrolled in Medicare Advantage (MA)
plans provided under Medicare Part C
continue to meet all of the statutory
criteria for entitlement to Part A benefits
under section 226. First, in order to
enroll in Medicare Part C, a beneficiary
must be ‘‘entitled to benefits under Part
A and enrolled under Part B,’’ see
section 1852(a)(1)(B)(i) of the Act. There
is nothing in the Act that suggests
beneficiaries who enroll in Part C plan
forfeit their entitlement to Part A
benefits. Second, once a beneficiary
enrolls in Part C, the MA plan must
provide the beneficiary with the benefits
to which the enrollee is entitled under
Medicare Part A, even though it may
also provide for additional
supplemental benefits. See section
1852(a)(1)(A) of the Act. Third, under
certain circumstances, Medicare Part A
pays for care furnished to patients
enrolled in Part C plans. For example,
if, during the course of the year, the
scope of benefits provided under
Medicare Part A expands beyond a
certain cost threshold due to
Congressional action or a national
coverage determination, Medicare Part
A will pay the provider for the cost of
the services directly. (See section
1852(a)(5) of the Act.) Similarly,
Medicare Part A also pays for Federally
qualified health center services and
hospice care furnished to MA patients.
See 42 U.S.C. section 1853(a)(4), (h)(2)
of the Act. Thus, a patient enrolled in
a Part C plan remains entitled to
benefits under Medicare Part A.
Accordingly, for purposes of
determining the number of discharges
for ‘‘individuals entitled to, or enrolled
for, benefits under Part A,’’ we propose
to include all discharges associated with
individuals entitled to Part A, including
discharges associated with individuals
whose inpatient benefits are exhausted
or whose stay was not covered by
Medicare and discharges of individuals
enrolled in an MA plan under Medicare
Part C. Since a hospital may only
qualify for this adjustment if the
hospital has fewer than 1,600 discharges
for patients entitled to Part A, the
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hospital must submit a claim to
Medicare on behalf of all Part A entitled
individuals, including a no-pay claim
for patients who are enrolled in Part C,
in order for Medicare to assure that
these discharges are included in the
determination of whether the hospital
has fewer than 1,600 discharges for
patients entitled to Part A.
Currently, a prior cost reporting
period is used to determine if the
hospital meets the discharge criteria to
receive the low-volume payment
adjustment in the current year.
Finally, sections 3125(4) of Public
Law 111–148 and 10314(2), add a new
section 1886(d)(12)(D) of the Act that
modifies the methodology for
calculation of the payment adjustment
under section 1886(d)(12)(A) of the Act
for low-volume hospitals for discharges
occurring in FYs 2011 and 2012.
Currently, sections 1886(d)(12)(A) and
(B) of the Act require the Secretary to
determine an applicable percentage
increase for low-volume hospitals based
on the ‘‘empirical relationship’’ between
‘‘the standardized cost-per-case for such
hospitals and the total number of
discharges of such hospitals and the
amount of the additional incremental
costs (if any) that are associated with
such number of discharges.’’ The statute
thus mandates the Secretary to develop
an empirically justifiable adjustment
based on the relationship between costs
and discharges for these low-volume
hospitals. The statute also limits the
adjustment to no more than 25 percent.
Based on analyses, we conducted for the
FY 2005 IPPS final rule (69 FR 49099
through 49102) and the FY 2006 IPPS
final rule (70 FR 47432 through 47434),
a 25 percent low-volume adjustment to
all qualifying hospitals with less than
200 discharges was found to be most
consistent with the statutory
requirement to provide relief to lowvolume hospitals where there is
empirical evidence that higher
incremental costs are associated with
low numbers of total discharges.
However, section 1886(d)(12)(D) of the
Act, provides that for discharges
occurring in FYs 2011 and 2012, the
Secretary shall determine the applicable
percentage increase using a continuous,
linear sliding scale ranging from an
additional 25 percent payment
adjustment for hospitals with 200 or
fewer Medicare discharges to 0 percent
additional payment for hospitals with
more than 1,600 Medicare discharges.
We propose to apply this payment
adjustment based on increments of 100
discharges (beginning with 200 or fewer
discharges), with the applicable
percentage increase decreasing linearly
in equal amounts by 1.6667 percent for
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every additional 100 Medicare
discharges, with no payment adjustment
for hospitals with more than 1,599
Medicare discharges. We have not
proposed an adjustment for a hospital
with exactly 1,600 discharges since, as
specified in statute at section
1886(d)(12)(C)(i) of the Act, as amended,
a hospital must have ‘‘less’’ than 1,600
discharges in order to qualify as a low
volume hospital. The proposed payment
adjustment would be as determined
below:
Medicare discharge range
1–200 ......................................
201–300 ..................................
301–400 ..................................
401–500 ..................................
501–600 ..................................
601–700 ..................................
701–800 ..................................
801–900 ..................................
901–1000 ................................
1001–1100 ..............................
1101–1200 ..............................
1201–1300 ..............................
1301–1400 ..............................
1401–1500 ..............................
1501–1599 ..............................
1600 or more ..........................
Payment adjustment
(percent
add-on)
25.0000
23.3333
21.6667
20.0000
18.3333
16.6667
15.0000
13.3333
11.6667
10.0000
8.3333
6.6667
5.0000
3.3333
1.6667
0.0000
While we are proposing to revise the
qualifying criteria and the payment
adjustment for low-volume hospitals for
FYs 2011 and 2012, consistent with the
amendments made by the Affordable
Care Act, we note that we are not
proposing to modify the process for
requesting and obtaining the lowvolume hospital payment adjustment. In
order to qualify, a hospital must provide
to its FI or MAC sufficient evidence to
document that it meets the number of
Medicare discharges and distance
requirements. The FI or MAC will
determine, based on the most recent
data available, if the hospital qualifies
as a low-volume hospital, so that the
hospital will know in advance whether
or not it will receive a payment
adjustment and, if so, the add-on
percentage. The FI or MAC and CMS
may review available data, in addition
to the data the hospital submits with its
request for low-volume status, in order
to determine whether or not the hospital
meets the qualifying criteria.
We also note that as compared to the
existing methodology for determining
the payment adjustment for low-volume
hospitals, no hospital would receive a
lower payment adjustment under our
proposed methodology for FYs 2011 and
2012. Although the statute specifies
that, for years other than FYs 2011 and
2012, a hospital is a low-volume
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hospital if it has less than 800
discharges, currently only hospitals
with fewer than 200 discharges receive
a payment adjustment, an additional 25
percent, because the statute requires
that the adjustment be empirically based
to provide relief to low-volume
hospitals where there is empirical
evidence that higher incremental costs
are associated with low numbers of total
discharges. Consistent with section
1886(d)(12)(D) of the Act, for FYs 2011
and 2012, we will continue to pay
hospitals with fewer than 200
discharges a payment adjustment
amount equal to an additional 25
percent.
We are proposing to revise our
regulations at 42 CFR 412.101 to reflect
our proposal outlined above.
Currently, 42 CFR 412.101(a)(3) states
that ‘‘The fiscal intermediary makes the
determination of the discharge count for
purposes of determining a hospital’s
qualification for the adjustment based
on the hospital’s most recent submitted
cost report.’’ This may mistakenly be
interpreted to mean that once a hospital
qualifies as a low-volume hospital, no
further qualification is needed. We,
therefore, are proposing to clarify that a
hospital must continue to qualify as a
low-volume hospital in order to receive
the payment adjustment in that year;
that is, it is not based on a one-time
qualification.
D. Medicare-Dependent, Small Rural
Hospitals (MDHs) (§ 412.108)
1. Background
Medicare-dependent, small rural
hospitals (MDHs) are eligible for the
higher of the Federal rate for their
inpatient hospital services or a blended
rate based in part on the Federal rate
and in part on the MDH’s hospitalspecific rate. Section 1886(d)(5)(G)(iv) of
the Act defines an MDH as a hospital
that is located in a rural area, has not
more than 100 beds, is not an SCH, and
has a high percentage of Medicare
discharges (that is, not less than 60
percent of its inpatient days or
discharges either in its 1987 cost
reporting year or in two of its most
recent three settled Medicare cost
reporting years). The regulations that set
forth the criteria that a hospital must
meet to be classified as an MDH are at
42 CFR 412.108.
Although MDHs are paid under an
adjusted payment methodology, they are
still IPPS hospitals paid under section
1886(d) of the Act. Like all IPPS
hospitals paid under section 1886(d) of
the Act, MDHs are paid for their
discharges based on the DRG weights
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calculated under section 1886(d)(4) of
the Act.
Through and including FY 2006,
under section 1886(d)(5)(G) of the Act,
MDHs are paid based on the Federal rate
or, if higher, the Federal rate plus 50
percent of the amount by which the
Federal rate is exceeded by the updated
hospital-specific rate based on the
hospital’s FY 1982 or FY 1987 costs per
discharge, whichever of these hospitalspecific rates is higher. Section 5003(b)
of Public Law 109–171 (DRA 2005)
amended section 1886(d)(5)(G) of the
Act to provide that, for discharges
occurring on or after October 1, 2006,
MDHs are paid based on the Federal rate
or, if higher, the Federal rate plus 75
percent of the amount by which the
Federal rate is exceeded by the updated
hospital-specific rate based on the
hospital’s FY 1982, FY 1987, or FY 2002
costs per discharge, whichever of these
hospital-specific rates is highest.
For each cost reporting period, the
fiscal intermediary or MAC determines
which of the payment options will yield
the highest aggregate payment. Interim
payments are automatically made at the
highest rate using the best data available
at the time the fiscal intermediary or
MAC makes the determination.
However, it may not be possible for the
fiscal intermediary or MAC to determine
in advance precisely which of the rates
will yield the highest aggregate payment
by year’s end. In many instances, it is
not possible to forecast the outlier
payments, the amount of the DSH
adjustment or the IME adjustment, all of
which are applicable only to payments
based on the Federal rate and not to
payments based on the hospital-specific
rate. The fiscal intermediary or MAC
makes a final adjustment at the
settlement of the cost report after it
determines precisely which of the
payment rates would yield the highest
aggregate payment to the hospital.
If a hospital disagrees with the fiscal
intermediary’s or the MAC’s
determination regarding the final
amount of program payment to which it
is entitled, it has the right to appeal the
determination in accordance with the
procedures set forth in 42 CFR Part 405,
Subpart R, which govern provider
payment determinations and appeals.
2. Extension of the MDH Program
Section 3124 of Public Law 111–148
extends the MDH program, from the end
of FY 2011 (that is, for discharges before
October 1, 2011) to the end of FY 2012
(that is, for discharges before October 1,
2012). Under prior law, as specified in
section 5003(a) of Public Law 109–171
(DRA of 2005), the MDH program was
to be in effect through the end of FY
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2011 only. Section 3124 (a) of Public
Law 111–148 amends sections
1886(d)(5)(G)(i) and (ii)(II) of the Act to
extend the MDH program and payment
methodology from the end of FY 2011
to the end of FY 2012, by ‘‘striking
‘‘October 1, 2011’’ and inserting ‘‘October
1, 2012’’.’’ Section 3125(b) of Public Law
111–148 also makes conforming
amendments to sections 1886(b)(3)(D)(i)
and (iv) of the Act. Section 3124(b)(2) of
Public Law 111–148 also amends
section 13501(e)(2) of OBRA 1993 (42
U.S.C. 1395ww note) to extend the
provision permitting hospitals to
decline reclassification as an MDH
through FY 2012.
E. Additional Payments for Qualifying
Hospitals With Lowest Per Capita
Medicare Spending
1. Background
Section 1109 of Public Law 111–152,
provides for additional payments for FY
2011 and 2012 for ‘‘qualifying
hospitals.’’ Section 1109(d) defines a
‘‘qualifying hospital’’ as a ‘‘subsection (d)
hospital * * * that is located in a
county that ranks, based upon its
ranking in age, sex and race adjusted
spending for benefits under parts A and
B * * * per enrollee within the lowest
quartile of such counties in the United
States.’’ Therefore, a ‘‘qualifying
hospital’’ is one that meets the following
conditions: (1) A ‘‘subsection (d)
hospital’’ as defined in section
1886(d)(1)(B) of the Act; and (2) located
in a county that ranks within the lowest
quartile of counties based upon its
spending for benefits under Medicare
Part A and Part B per enrollee adjusted
for age, sex, and race. Section 1109(b) of
Public Law 111–152 makes available
$400 million to qualifying hospitals for
FY 2011 and FY 2012. Section 1109(c)
of Public Law 111–152 requires the
$400 million to be divided among each
qualifying hospital in proportion to the
ratio of the individual qualifying
hospital’s FY 2009 IPPS operating
hospital payments to the sum of total FY
2009 IPPS operating hospital payments
made to all qualifying hospitals.
2. Eligible Counties
Section 1109 of Public Law 111–152
provides $400 million for FYs 2011 and
2012 for supplemental payments to
qualifying hospitals located in counties
that rank within the lowest quartile of
counties in the United States for
spending for benefits under Medicare
Part A and Part B. The provision
requires that the Medicare Part A and
Part B county-level spending per
enrollee to be adjusted by age, sex and
race. We are proposing our methodology
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for determining the bottom quartile of
counties with the lowest Medicare Part
A and Part B spending adjusted by age,
sex, and race and invite public comment
on the methodology we propose to use
to adjust for age, sex, and race described
below. We further propose that we will
determine this bottom quartile of
counties one time in the FY 2011 IPPS/
RY 2011 LTCH PPS final rule for the
purpose of disbursing the $400 million
as required by section 1109 of Public
Law 111–152.
We developed an adjustment model
by age, sex, and race, as required under
the provision. We then applied this
adjustment to the county Medicare Part
A and Part B spending data to account
for the demographics of the Medicare
beneficiaries in those counties. After
those adjustments are applied, we
determined the Medicare Part A and
Part B spending by county per enrollee.
Our proposed methodology to
determine the Medicare Part A and Part
B spending per enrollee by county
adjusted for age, sex, and race is similar
to how we calculate risk adjustment
models for Medicare Advantage (MA)
ratesetting. Risk adjustment for MA
ratesetting is discussed in the annual
announcement of calendar year MA
capitation rates and MA and Part D
payment policies. For more information
on the methodology for risk adjustment
used for MA ratesetting, we refer readers
to the CMS Web site where we
announce MA rates through our 45-day
notice (https://www.cms.gov/
MedicareAdvtgSpecRateStats/
Downloads/Announcement2010.pdf).
a. Development of Risk Adjustment
Model
As required by section 1109(d) of
Public Law 111–152, we are proposing
a risk adjustment model that accounts
for differentials in Medicare spending
by age, sex, and race. Consistent with
how we develop our risk adjustment
models for MA ratesetting as described
above, we developed a prospective risk
adjustment model using 2006 data for
beneficiary characteristics and 2007
data for Part A and Part B spending.
However, unlike the risk adjustment
mode used for MA which includes
diseases and demographic factors, the
only independent variables or
prospective factors in the model for
payments under section 1109 of Public
Law 111–152 are age, sex and race, as
required by the provision. The
dependent variable was annualized
Medicare Part A and B spending at the
beneficiary level for 2007 as it is the
most recent and complete data
available. The categorization of age, sex,
and race variables are described below.
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The age, sex, race (ASR) model(s) was
estimated using the Five Percent
Standard Analytic Denominator file, a
standard 5-percent sample from the
2007 Denominator file which is also
used to estimate CMS risk adjustment
models for payment to MA
organizations. We chose to use Five
Percent Standard Analytic Denominator
file from 2007 in order to optimize the
amount of time after the timely claim
submission deadlines and the latest
available data; in other words because it
is most complete data currently
available. This file has the demographic
and enrollment characteristics of all
Medicare beneficiaries. The
Denominator File is an abbreviated file
of the Enrollment Data Base (EDB). The
Denominator File contains data on all
Medicare beneficiaries enrolled and/or
entitled to be enrolled in Medicare in a
given year while the EDB is the source
of enrollment and entitlement
information for all people who are or
were ever entitled to Medicare. The
model was estimated using all
beneficiaries residing in the community
and long-term institutions. The sample
had 1,603,998 beneficiaries.
The Denominator File contains a sex
variable where the beneficiaries can
identify themselves as male or female.
The file also contains an age variable
which is defined as the beneficiary’s age
at the end of the prior year.
Beneficiaries with an age greater than 98
are coded as age 98. The race
demographic variable in the
Denominator File is populated by data
from the Social Security Administration
(SSA). The SSA’s data for this race
demographic variable are collected on
form SS–5. Prior to 1980, the SS–5 form
included 3 categories for race: White,
Black or Other. Since that time, Form
SS–5 instructed a beneficiary to
voluntarily select one of the following 5
categories: (1) Asian, Asian-American or
Pacific Islander; (2) Hispanic; (3) Black
(Not Hispanic); (4) North American
Indian or Alaskan Native; and (5) White
(Not Hispanic). Form SS–5 is completed
when an individual does the following:
(1) Applies for a social security number;
(2) requests a replacement of the social
security card; or (3) requests changes to
personal information on their record
such as a name change. (Social Security
Administration Web site instructions
https://ssa.gov/online/ss-5.pdf). Each
January, CMS obtains data from SSA to
update the EDB for beneficiaries who
were added during the previous
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calendar year as well as all living
beneficiaries whose race is identified as
‘‘Other’’ or ‘‘Unknown.’’
Discussed in the context of the ESRD
payment system in the ESRD proposed
rule on September 29, 2009 (74 FR
49962), we noted concerns with using
the EDB as a data source due to missing
data, and that racial and ethnic
categories are not well defined.
However, we believe that the current
EDB, particularly with respect to the
more recent and ongoing updates we
perform, remains a useful source of race
and ethnicity data on 46 million
Medicare beneficiaries. Additionally,
because this is our only currently
available data source on the racial and
ethnic demographics of Medicare
beneficiaries, we propose to use the EDB
as our data source for beneficiary race
so that we can fulfill the requirements
of section 1109(d) of Public Law 111–
152 to adjust county Medicare Part A
and Part B spending by race.
We used the MedPAR claims file as
the source to determine Medicare
inpatient spending. We used the
National Claims History File to
determine spending on DMEPOS and
supplies. The other spending under
Medicare Part A and Part B was
determined using the Standard Analytic
File. The Standard Analytic File and
MedPAR claims file are subsets of the
National Claims History File. These data
files are also used in the MA ratesetting
process and are our data source for
Medicare spending stored at the
beneficiary level.
In order to determine annual
spending (the dependent variable in the
risk adjustment model), we annualized
the Medicare Part A and Part B
spending for beneficiaries with less than
a full year of eligibility, and these
amounts were weighted in the analysis
by the fraction of the year they were in
the data.
We used a linear regression model to
determine the demographic
adjustments. This is consistent with
how we model our risk adjustment for
the MA rates. The linear regression used
24 age-sex regression categories, 12 age
categories each for males and females.
The age categories are as follows; 0–34,
35–44, 45–49, 50–54, 55–59, 60–64, 65–
69, 70–74, 75–79, 80–84, 85–89, and
90+. The age-sex coefficients displayed
in the table below reflect the difference
in Medicare Part A and Part B spending
per enrollee in those age-sex categories
relative to national average Part A and
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30927
Part B spending based on our linear
regression model.
In addition, we used the same linear
regression model to determine how to
adjust Medicare Part A and Part B
spending for race. In addition to the agesex regression categories described
above, we included variables to adjust
for race. We considered two methods to
adjust for race in county spending
because of the way that the SS–5 form
collects race information, which is then
reported in the same format in the EDB.
As discussed earlier, the EDB currently
categorizes race by the following five
categories, as reported by the Medicare
beneficiary: (1) Asian, Asian-American
or Pacific Islander; (2) Hispanic;
(3) Black (Not Hispanic); (4) North
American Indian or Alaskan Native; and
(5) White (Not Hispanic). One method
categorized race by White, Black,
Hispanic, and Other (WBHO). The
‘‘Other’’ category includes Asian/Pacific
Islander, American Indian/Alaska
Native, and all others. The second
method categorized race by White,
Black, and Other (WBO), where
beneficiaries who identified themselves
as Hispanic were categorized as Other.
The race/ethnicity categories are
mutually exclusive; if a beneficiary
identified themselves as Hispanic he or
she was not further classified as another
category, such as White or Black. In our
regression modeling we used the largest
group, White, as the reference group; the
coefficients on the difference in
spending by race, displayed in the table
below, are additive to the reference
group. In other words, the coefficients
for each race category represent the
difference in predicted Medicare Part A
and Part B spending relative to our
reference group. Where the coefficients
are positive, this implies that the
predicted spending for that category is
higher than that of the reference group.
Conversely, where the coefficients are
negative, this implies that the predicted
spending for that category is lower than
that of the reference group.
Below are two tables representing the
coefficients used to adjust Medicare Part
A and Part B spending by county. The
first table shows the coefficients for
each age and sex category. The second
table shows the coefficients for race.
These national coefficients are applied
to each counties’ relative demographic
for age, sex and race, so that each
county has a risk score by age, sex and
race.
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Age categories (in years)
Sex
0–34
Female ......................
Male ...........................
35–44
45–54
55–59
60–64
65–69
70–74
75–79
80–84
85–89
90–94
Greater
than 95
0.67896
0.52664
0.80089
0.70067
0.96917
0.82262
1.09810
0.93750
1.18855
1.03792
0.67358
0.71932
0.83818
0.90896
1.01599
1.11809
1.189727
1.32812
1.364575
1.50008
1.475495
1.68184
1.366515
1.77046
Race
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White ......................................
Black ......................................
Hispanic .................................
Other ......................................
Coefficient
Baseline.
0.17667.
0.229.
¥0.110.
We are proposing to adjust for race
using the WBHO method where we
separately account for cost differences
associated with Hispanic beneficiaries.
The Office of Management and Budget
(OMB) has promulgated standards for
the classification of Federal data on race
and ethnicity. Under OMB’s
classification standards, the category of
Hispanic is treated as an ethnic category
as opposed to a race category. The
current OMB Standards of 1997 require
collection of specific demographic data
using a total of five race categories, plus
other (62 FR 58782 through 58790). The
five race categories are—(1) American
Indian or Alaska Native; (2) Asian; (3)
Black or African American; (4) Native
Hawaiian or Other Pacific Islander; and
(5) White. In addition, OMB specified
two separate ethnic categories—
Hispanic or Latino, and not Hispanic or
Latino. However, as explained above,
Hispanic or Latino ethnicity is treated as
a race category by EDB, and
beneficiaries can self-identify as
Hispanic among mutually exclusive
racial categories. Despite the
inconsistency in reporting by the OMB
and the EDB, we propose to treat the
category of Hispanic as a separate
category for purposes of the race
adjustment required by section 1109 of
Public Law 111–152. We found that the
coefficient for the Hispanic category is
statistically significant, suggesting that
Medicare Part A and Part B spending
associated with this category of
beneficiaries is different from the
spending for our reference group and
that it should be a separate coefficient
to adjust county spending. In addition,
the EDB treats Hispanic as a separate
racial classification, consistent with our
WBHO method, therefore; we believe
that our proposal appropriately
interprets the required race adjustment.
Therefore, we propose to adjust for race
using the WBHO method.
For purposes of this supplemental
proposed rule, we also adjusted county
spending using the WBO methodology
to compare the two approaches. We
found minimal difference in the county
rankings under the two methodologies.
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We found that some counties would
qualify as an eligible county only under
the WBO methodology, and others
would no longer qualify as an eligible
county using this alternative. The
decision to use the WBHO methodology
affects whether 9 subsection (d)
hospitals, located in 5 counties, would
be eligible to receive a payment under
section 1109. In Table 3, we publish the
differences in counties, eligible
hospitals, and payments by State under
the two methodologies. This is the first
time we have developed an adjustment
for Medicare spending based on race,
and we welcome public comment on
our proposal to use the WBHO
methodology to adjust for race as
required by section 1109 of Public Law
111–152. We also welcome public
comment on the WBO methodology to
adjust for race though we note that we
are not proposing this methodology at
this time.
b. Calculation of County Level Part A
and Part B Spending
In order to rank counties by Medicare
Part A and B spending, we first
calculated Medicare Part A and Part B
county level spending for each county
in the 50 States and the District of
Columbia using a similar methodology
used to establish county level FFS rates
for MA payments. Using a 5 year
average of each county’s actual
spending (from 2002 to 2006), CMS’s
Office of the Actuary calculated an
average geographic adjuster (AGA),
which reflects the county’s expenditure
relative to the national expenditure. We
believe a 5-year average is appropriate,
as it accounts for fluctuations in year-toyear expenditures, which could distort
the counties’ historic level of spending
and is consistent with how MA rates are
calculated. The AGA was then applied
to the 2009 United States Per Capita
Cost estimate (USPCC), which is the
national average cost per Medicare
beneficiary, to determine 2009 Medicare
Part A and Part B spending for each
county. We welcome public comment
on this methodology to calculate
county-level Part A and Part B
spending.
3. Application of the Age/Sex/Race
Adjustment to Part A and Part B County
Spending
To estimate the county level risk
scores for 2009, beneficiary enrollment
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information was first extracted from the
EDB. We chose to calculate Medicare
Part A and Part B county spending for
2009 to be consistent with how we are
required to determine qualifying
hospitals’ payment amounts, under
section 1109(c) of Public Law 111–152.
That is, section 1109(c) of Public Law
111–152 requires that qualifying
hospitals located in the bottom quartile
of counties with the lowest Medicare
Part and Part B spending per enrollee
will receive a portion of the allotted
$400 million based on their FY 2009
operating payments. Therefore, we
propose to calculate Medicare Part A
and Part B County spending for 2009 as
well. We only include beneficiaries
enrolled in Medicare Part A and/or Part
B, consistent with the language of
section 1109(d) of Public Law 111–152,
which refers to spending under Part A
and B. Based on these criteria, there
were 30,666,295 beneficiaries included
in the adjustment process. To determine
the age, sex and race make-up of the
Part A and/or Part B beneficiaries for
each county, we used the EDB to
identify date of birth, sex, race, and
State/county of residence to create a
person level file with the data needed to
run the ASR model.
A county level average risk score was
developed for each county in the United
States by applying the ASR model to
each individual in the county enrolled
in Medicare Part A and/or Part B,
summing the resulting risk scores and
dividing by the number of beneficiaries
by county enrolled in Medicare Part A
and/or Part B. The county level
Medicare Part A and or Part B spending
was adjusted by dividing the county
level Medicare Part A and/or Part B
spending by the county level average
risk score. The resulting spending
distribution was then sorted lowest to
highest dollars the 786 counties in the
lowest quartile of spending (that is,
lowest adjusted spending per enrollee)
were determined to be eligible counties
under section 1109 of Public Law 111–
152.
We invite comment on our
methodology for determining the age,
sex, race adjustments for determining
adjusted Medicare Part A and B
spending by county for the purpose of
determining eligible counties under
section 1109 of Public Law 111–152.
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3. Qualifying Hospitals and Annual
Payment Amounts
We have developed a methodology to
identify the qualifying hospitals located
in our list of eligible counties.
Consistent with section 1109(d) of
Public Law 111–152, a qualifying
hospital is a ‘‘subsection (d) hospital’’ (as
defined for purposes of section 1886(d)
of the Act) that is ‘‘located in’’ an eligible
county (as identified using the
methodology proposed in section B). A
subsection (d) hospital is defined in
section 1886(d)(1)(B) of the Act in part
as a ‘‘hospital located in one of the fifty
States or the District of Columbia’’. The
term ‘‘subsection (d) hospital’’ does not
include hospitals located in the
territories or hospitals located in Puerto
Rico. Section 1886(d)(9)(A) of the Act
separately defines a ‘‘subsection (d)
Puerto Rico hospital’’ as a hospital that
is located in Puerto Rico and that
‘‘would be a subsection (d) hospital
* * * if it were located in one of the 50
States.’’ Therefore, Puerto Rico hospitals
are not eligible for these additional
payments. Indian Health Services
hospitals enrolled as a Medicare
provider meet the definition of a
subsection(d) hospital and can qualify
to receive this payment if they are
located in an eligible county. In
addition, hospitals that are MDHs and
sole community hospitals (SCHs),
though they can be paid under a
hospital-specific rate instead of under
the Federal standardized amount under
the IPPS, are ‘‘subsection (d)’’ hospitals.
The statutory definition of a ‘‘subsection
(d)’’ hospital in section 1886(d)(1)(B) of
the Act specifically excludes hospitals
and hospital units excluded from the
IPPS, such as psychiatric, rehabilitation,
long term care, children’s, and cancer
hospitals. In addition, critical access
hospitals (CAHs) are not considered
qualifying hospitals because they do not
meet the definition of a ‘‘subsection (d)
hospital’’ as they are paid under section
1814(l) of the Act. CAHs are not paid
under the IPPS; rather they are paid
under a reasonable cost methodology, so
they do not meet the definition of
‘‘qualifying hospital’’ under section
1109(d) of Public Law 111–152.
For the purposes of section 1109 of
Public Law 111–152, we are proposing
to identify ‘‘qualifying hospitals’’ based
on their Medicare Provider number or
Centers for Medicare and Medicaid
Services Certification Number (CCN),
because this is also how hospitals
identify themselves when they file their
Medicare cost reports. We also propose
that in order to meet the definition of a
‘‘qualifying hospital’’, the facility, as
identified by the Medicare Provider
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Number or CCN, must: (1) Have existed
as a subsection (d) hospital as of April
1, 2010; (2) be geographically located in
an eligible county; and (3) have received
IPPS operating payments (in accordance
with section 1886(d)) of the Act under
their Medicare provider number in FY
2009. We used the Online Survey,
Certification and Reporting (OSCAR)
database to determine a hospital’s
county location associated with that
CCN provider number. County data in
OSCAR is supplied by the U.S Postal
Service and is cross walked to the
address reported by the provider. Under
this proposal, the address listed for a
hospital’s Medicare provider number
must be currently located in a qualifying
county in order for a hospital to meet
the definition of ‘‘qualifying hospital.’’
We have published a list of the
qualifying IPPS hospitals that we have
identified based on the factors described
above in Table 3. We invite comment on
our methodology for identifying
qualifying hospitals. We also invite
comment on whether our list is accurate
and whether any providers are missing
from this list using the methodology
described above.
4. Payment Determination and
Distribution
As mentioned above, under section
1109(b), the total pool of payments
available to qualifying hospitals for FY
2011 and FY 2012 is $400 million. The
statute is not specific as to the timing of
these payments. Since Congress has
allocated a set amount—$400 million—
for hospitals for FYs 2011 and 2012
under this provision, we believe it is
consistent with the statute to spread
these payments over the 2-year period.
We are proposing to distribute $150
million for FY 2011 and $250 million
for FY 2012. Because this is a new
policy, we are proposing to distribute a
smaller amount of money for the first
year ($150 million for FY 2011 and $250
million for FY 2012) so that the public
will have an opportunity to review our
proposal and finalized policy in the FY
2011 IPPS/LTCH PPS final rule, and
notify us of any possible revisions to the
list of qualifying hospitals, so that we
can adjust payments for FY 2012. This
will ensure that we correctly identify
qualifying hospitals and their proper
payment amounts without exceeding
the program’s funding. We invite public
comment to give hospitals the
opportunity to request that we make
changes to the qualifying hospital list in
order to ensure the accuracy of the
qualifying hospital list based on the
methodology set forth in the final rule.
However, we are proposing to identify
eligible counties, qualifying hospitals
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and their payment amounts under
section 1109 of Public Law 111–152
only once. Because Congress has
allocated a specific amount of money,
we are proposing to identify eligible
counties, qualifying hospitals and their
payment amounts once in order to
ensure we do not exceed the fixed
amount of money and to ensure
predictability of payments.
We propose to distribute payments
through the individual hospital’s
Medicare contractor through an annual
one-time payment during each of FY
2011 and FY 2012. We believe that
annual payments made by the FI or
A/B MACs would be an expeditious
way to give the qualifying hospitals the
money allotted under section 1109 of
Public Law 111–152. Alternatively,
these payments could be distributed to
qualifying hospitals at the time of cost
report settlement for the qualifying
providers’ fiscal year end FY 2011 and
FY 2012 cost reports. However, cost
report settlement typically takes several
years beyond a hospital’s fiscal year
end. If we distributed these additional
payments at the time of cost report
settlement, it may take several years
until hospitals receive these additional
payments. Therefore, we believe our
proposal to give hospitals their section
1109 payments as annual payments
during FY 2011 and FY 2012 presents
the most expedient method to distribute
these payments to hospitals, and is in
the spirit of the intent of Congress. We
welcome public comment on our
proposal to distribute $150 million in
FY 2011 and $250 million in FY 2012
through an annual payment in each of
those years made to the qualifying
providers through their FI or A/B MAC.
We propose that qualifying hospitals
report these additional payments on
their Medicare hospital cost report
corresponding to the appropriate cost
reporting period that the hospitals have
received the payments. On the Medicare
Hospital Cost report, Form 2552 has an
‘‘other adjustment’’ line on Worksheet E,
Part A that can used by hospitals to
report the payments received under
section 1109 of Public Law 111–152. We
plan to issue additional cost reporting
instructions for qualifying hospitals to
report these additional payments on a
subscripted line of the ‘‘other
adjustment’’ line to identify this
payment. We note that we are requiring
these payments be reported on the cost
report for tracking purposes only; these
additional payments will not be
adjusted or settled by the FI or A/B
MAC on the cost report.
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5. Hospital Weighting Factors
Section 1109(c) of Public Law 111–
152 requires that the payment amount
for a qualifying hospital shall be
determined ‘‘in proportion to the portion
of the amount of the aggregate payments
under section 1886(d) of the Social
Security Act to the hospital for fiscal
year 2009 bears to the sum of all such
payments to all qualifying hospitals for
such fiscal year.’’ We are proposing that
the portion of a hospital’s payment
under section 1109 is based on the
proportion of their IPPS operating
payments made in FY 2009 relative to
the total IPPS operating payments made
to all qualifying hospitals in FY 2009.
These FY 2009 IPPS operating payments
made under section 1886(d) include
DRG and wage adjusted payments made
under the IPPS standardized amount
with add-on payments for operating
DSH, operating IME, operating outliers
and new technology (collectively
referred to in this proposed rule as the
IPPS operating payment amount). We
are proposing to include IME MA
payments made to IPPS hospitals
because these payments are made under
section 1886(d) of the Act. Under 42
CFR 412.105(g) of the regulations and as
implemented in Transmittal A–98–21
(Change Request 332), hospitals that are
paid under the IPPS and train residents
in approved GME programs may submit
claims associated with MA enrollees to
the FI/MAC for the purpose of receiving
an IME payment. No IPPS operating
payment or other add-on payment is
made for these MA enrollees. This is
consistent with how the IPPS includes
these IME MA payments when adjusting
for budget neutrality of the IPPS
standardized amounts.
In addition, we are including in the
FY 2009 IPPS operating payment
amount beneficiary liabilities
(coinsurance, copayments, and
deductibles) because the payments
made under section 1886(d) of the Act
‘‘are subject to the provisions of section
1813.’’ That is, the payment received by
the hospital includes the amount paid
by Medicare, as well as the amount for
which the beneficiary is responsible, as
set forth in section 1813 of the Act. We
propose to exclude IPPS capital
payments because they are payments
made under section 1886(g) of the Act.
We also propose to exclude payments
for organ acquisition costs because it is
a payment made under section 1881(d)
of the Act and we propose to exclude
payments for blood clotting factor
because they are payments made under
section 1886(a)(4) of the Act.
Consistent with our IPPS ratesetting
process, we are proposing to use the FY
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2009 MedPAR inpatient claims data to
determine the FY 2009 IPPS operating
payments amount made to qualifying
hospitals in order to set the ratio for
determining a qualifying hospital’s
share of the $400 million payment
under section 1109 of Public Law 111–
152. Though these claim payments may
be later changed and adjusted at cost
report settlement, this settlement
generally occurs after FY 2011 and FY
2012. Furthermore, we believe that use
of the FY 2009 MedPAR inpatient
claims data is consistent with our
proposal to make the payments under
section 1109 of Public Law 111–152 in
two annual payments in FY 2011 and
2012 instead of waiting for cost report
settlement. Furthermore, we use
MedPAR data in other areas of the IPPS,
including calculating IPPS relative
weights, budget neutrality factors,
outlier thresholds and the standardized
amount. The FY 2009 MedPAR data can
be ordered to allow the public to verify
qualifying hospitals’ FY 2009 IPPS
operating payments. Interested
individuals may order these files
through the Web site at: https://
www.cms.hhs.gov/LimitedDataSets/ by
clicking on MedPAR Limited Data Set
(LDS)-Hospital (National). This Web
page describes the file and provides
directions and further detailed
instructions for how to order.
Persons placing an order must send
the following: a Letter of Request, the
LDS Data Use Agreement and Research
Protocol (refer to the Web site for further
instructions), the LDS Form, and a
check for $3,655 to:
Mailing address if using the U.S. Postal
Service: Centers for Medicare &
Medicaid Services, RDDC Account,
Accounting Division, P.O. Box 7520,
Baltimore, MD 21207–0520.
Mailing address if using express mail:
Centers for Medicare & Medicaid
Services, OFM/Division of
Accounting—RDDC, Mailstop C3–07–
11, 7500 Security Boulevard,
Baltimore, MD 21244–1850.
For this proposed rule, we used the
December 2009 update to the FY 2009
MedPAR data (which is the latest
available update to the file) to determine
the proposed qualifying hospitals’ IPPS
operating payment amounts. For the FY
2011 IPPS/LTCH PPS final rule, we plan
on using the March 2010 update to the
FY 2009 MedPAR data to determine
qualifying hospitals’ IPPS operating
payment amounts which will then be
used to set the hospital weighting
factors for FYs 2011 and 2012
As discussed earlier in section II.E.3.
of the preamble to this supplemental
proposed rule, qualifying hospitals can
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include SCHs and MDHs as they meet
the definition of subsection (d)
hospitals. SCHs are paid in the interim
(prior to cost report settlement) on a
claim by claim basis at the amount that
is the higher of the payment based on
the hospital-specific rate or the IPPS
Federal rate based on the standardized
amount. At cost report settlement, the FI
or A/B MAC determines if the hospital
would receive higher IPPS payments in
the aggregate using the hospitals
specific rate (on all claims) or the
Federal rate (on all claims). The FI or
A/B MAC then assigns the hospital the
higher payment amount (either the
hospital specific rate for all claims or
the Federal rate amount for all claims)
for the cost reporting period. To
determine the FY 2009 operating
payment amount for SCHs that meet the
definition of a qualifying hospital, we
propose to use the IPPS operating
payment made on the Medicare IPPS
claim in the FY 2009 MedPAR rather
than the SCH’s final payment rate that
is determined at cost report settlement.
We believe this approach is consistent
with the treatment of other qualifying
hospitals under our proposal, and again
allows for the timely distribution of
funds in two annual payments, as
discussed above. MDHs are paid the
sum of the Federal payment amount
plus 75 percent of the amount by which
the hospital specific rate exceeds the
Federal payment amount. This amount
is considered their IPPS operating
payment reported on their Medicare
IPPS claim.
In order to calculate payment
amounts consistent with section 1109(c)
of Public Law 111–152, we propose to
use a weighting factor for each
qualifying hospital that is equal to the
qualifying hospital’s FY 2009 IPPS
operating payment amount (as described
above) divided by the sum of FY 2009
IPPS operating payment amounts for all
qualifying hospitals. We believe this
methodology is consistent with the
requirement of section 1109(c) of Public
Law 111–152, because qualifying
hospitals with a larger proportion of
operating payments would have a
proportionately higher weighting factor
and would receive the proportionately
larger share of the $400 million, while
hospitals with a smaller proportion of
operating payments would have
proportionately smaller weighting factor
and would receive proportionately
smaller shares of the $400 million. We
welcome public comment on our
methodology to determine the amount
of money distributed to qualifying
hospitals consistent with the language
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in section 1109(c) of Public Law 111–
152.
6. Results
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In calculating county-level Medicare
Part A and B spending, we have found
that there are 3,144 counties in the
United States. Therefore, there are 786
counties that rank in the lowest quartile
of counties with regards to adjusted
Medicare Part A and Part B spending
per beneficiary. We have listed the 786
eligible counties in Table 2. Of those
786 eligible counties, there are only 276
counties in which qualifying hospitals
are located, using the methodology we
proposed in section II.E.3. of the
preamble to this supplemental proposed
rule. Using Medicare provider numbers,
as proposed above in section II.E.3. of
the preamble to this supplemental
proposed rule, we have identified 415
IPPS hospitals that are currently located
in those eligible counties and received
IPPS operating payments in FY 2009.
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We have listed the qualifying IPPS
provider numbers, their counties and
their weighting factors in Table 2. We
invite public comment on our proposed
methodology for adjusting spending for
age, sex, and race as well as the
alternative methodology discussed in
section II.E.2.a. of the preamble to this
supplemental proposed rule. For these
two methodologies (WBHO and WBO),
we list the number of eligible counties,
the number of eligible counties in which
a qualifying hospital is located, the
payment amount, and the percentage of
the total payment under section 1109 of
Public Law 111–152 by State in Table 3.
We invite public comment on the
accuracy of the lists of eligible counties,
qualifying hospitals and qualifying
hospitals’ payment weighting factors
(based on the proposed methodologies
described above).
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7. Finalization of Eligible Counties,
Qualifying Hospitals and Qualifying
Hospitals’ Weighting Factors
Based on public comments, it is
possible that we will finalize a
methodology to determine the list of
eligible counties and hospitals that
differs from our current proposal. A
change in our methodology could, in
turn, result in changes to the list of
eligible counties or qualifying hospitals.
We note again that we are proposing to
identify eligible counties, qualifying
providers and their payments under
section 1109 of Public Law 111–152
only once in the FY 2011 IPPS/LTCH
PPS final rule. Based on this proposal,
the methodology for determining a final
list of eligible counties would produce
the actual list of eligible counties that
would be finalized in the FY 2011 IPPS
final rule and would not be updated in
a future fiscal year based on updated
data.
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BILLING CODE 4120–01–C
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F. Rural Community Hospital
Demonstration Program
1. Background
Section 410A(a) of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA),
Public Law 108–173, required the
Secretary to establish a demonstration
program to test the feasibility and
advisability of establishing ‘‘rural
community hospitals’’ to furnish
covered inpatient hospital services to
Medicare beneficiaries. The
demonstration pays rural community
hospitals for such services under cost
based methodology for Medicare
payment purposes for covered inpatient
hospital services furnished to Medicare
beneficiaries. A rural community
hospital, as defined in section
410A(f)(1) of MMA, is a hospital that—
• Is located in a rural area (as defined
in section 1886(d)(2)(D) of the Act) or is
treated as being located in a rural area
under section 1886(d)(8)(E) of the Act;
• Has fewer than 51 beds (excluding
beds in a distinct part psychiatric or
rehabilitation unit) as reported in its
most recent cost report;
• Provides 24-hour emergency care
services; and
• Is not designated or eligible for
designation as a CAH under section
1820 of the Act.
Subsection 410A(a)(4) of the MMA, in
conjunction with paragraphs (2) and (3)
of subsection 410A(a), provided that the
Secretary was to select for participation
no more than 15 rural community
hospitals in rural areas of States that the
Secretary identified as having low
population densities. Using 2002 data
from the U.S Census Bureau, we
identified the 10 States with the lowest
population density in which rural
community hospitals were to be located
in order to participate in the
demonstration: Alaska, Idaho, Montana,
Nebraska, Nevada, New Mexico, North
Dakota, South Dakota, Utah, and
Wyoming. (Source: U.S. Census Bureau,
Statistical Abstract of the United States:
2003).
We originally solicited applicants for
the demonstration in May 2004; 13
hospitals began participation with cost
report years beginning on or after
October 1, 2004. (Four of these 13
hospitals withdrew from the program
and became CAHs). In a notice
published in the Federal Register on
February 6, 2008 (73 FR 6971), we
announced a solicitation for up to 6
additional hospitals to participate in the
demonstration program. Four additional
hospitals were selected to participate
under this solicitation. These four
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additional hospitals began under the
demonstration payment methodology
with the hospital’s first cost reporting
period starting on or after July 1, 2008.
Three hospitals (two of the hospitals
were among the thirteen hospitals that
were original participants in the
demonstration and one of the hospitals
was among the four hospitals that began
the demonstration in 2008) withdrew
from the demonstration during CY 2009.
(Two of these hospitals indicated that
they will be paid more for Medicare
inpatient services under the rebasing
allowed under the SCH methodology
allowed by the Medicare Improvement
for Patients and Providers Act of 2008
(Pub. L. 110–275). The other hospital
restructured to become a CAH.) For
purposes of the analyses that follow in
section II.F.3 of the preamble, we make
the assumption that there are 10
currently participating hospitals (8
hospitals that are actively participating
since the initial demonstration period
had not yet concluded for them at the
time of the passage of Public Law 111–
148 and 2 hospitals that concluded the
demonstration in December 2009 upon
the conclusion of their initial
demonstration period). For the 2
hospitals that concluded the
demonstration in December 2009, we
assume that they will continue the
demonstration under the 5-year
extension provided by Affordable Care
Act since they participated in their
entire initial 5-year demonstration
period, which we believe indicates that
those hospitals favored the payment rate
provided in the demonstration and will
continue to avail themselves of such
reimbursement.
Section 410A(a)(5) of Public Law 108–
173 required a 5-year demonstration
period of participation. Prior to the
enactment of Public Law 111–148, for
the seven currently participating
hospitals that began the demonstration
during FY 2005 (‘‘originally
participating hospitals’’), the
demonstration was scheduled to end for
each of these hospitals on the last day
of its cost reporting period that ends in
FY 2010. The end of the participation
for the three participating hospitals that
began the demonstration in CY 2008
was scheduled to be September 30,
2010.
In addition, section 410A(c)(2) of
Public Law 108–173 requires that, ‘‘[i]n
conducting the demonstration program
under this section, the Secretary shall
ensure that the aggregate payments
made by the Secretary do not exceed the
amount which the Secretary would have
paid if the demonstration program
under this section was not
implemented.’’ This requirement is
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commonly referred to as ‘‘budget
neutrality’’.
Generally, when we implement a
demonstration program on a budget
neutral basis, the demonstration
program is budget neutral in its own
terms; in other words, the aggregate
payments to the participating hospitals
do not exceed the amount that would be
paid to those same hospitals in the
absence of the demonstration program.
Typically, this form of budget neutrality
is viable when, by changing payments
or aligning incentives to improve overall
efficiency, or both, a demonstration
program may reduce the use of some
services or eliminate the need for others,
resulting in reduced expenditures for
the demonstration program’s
participants. These reduced
expenditures offset increased payments
elsewhere under the demonstration
program, thus ensuring that the
demonstration program as a whole is
budget neutral or yields savings.
However, the small scale of this
demonstration program, in conjunction
with the payment methodology, makes
it extremely unlikely that this
demonstration program could be viable
under the usual form of budget
neutrality. Specifically, cost-based
payments to participating small rural
hospitals are likely to increase Medicare
outlays without producing any
offsetting reduction in Medicare
expenditures elsewhere. Therefore, a
rural community hospital’s
participation in this demonstration
program is unlikely to yield benefits to
the participant if budget neutrality were
to be implemented by reducing other
payments for these same hospitals.
In the past six IPPS final regulations,
spanning the period for which the
demonstration has been implemented,
we have adjusted the national inpatient
PPS rates by an amount sufficient to
account for the added costs of this
demonstration program, thus applying
budget neutrality across the payment
system as a whole rather than merely
across the participants in this
demonstration program. As we
discussed in the FY 2005, FY 2006, FY
2007, FY 2008, FY 2009, and FY 2010
IPPS final rules (69 FR 49183; (70 FR
47462); (71 FR 48100); (72 FR 47392);
(73 FR 48670); and (74 FR 43922)), we
believe that the language of the statutory
budget neutrality requirements permits
the agency to implement the budget
neutrality provision in this manner.
In light of the statute’s budget
neutrality requirement, we proposed in
the May 4, 2010 FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24012) a
methodology to calculate a budget
neutrality adjustment factor to the FY
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2011 national IPPS rates. In the May 4,
2010 FY 2011 IPPS/LTCH PPS proposed
rule, the only amount that was
identified to be offset for the FY 2011
IPPS/LTCH final rule was that by which
the costs of the demonstration program,
as indicated by settled cost reports
beginning in FY 2007 for hospitals
participating in the demonstration
during FY 2007, exceeded the amount
that was identified in the FY IPPS 2007
final rule as the budget neutrality offset
for FY 2007. No dollar amount was
specified for purpose of this offset,
because of a delay in the settlement
process of FY 2007 cost reports. Due to
the timing of the proposed rule in
relation to the passage of Public Law
111–148, we were unable to include in
the proposed budget neutrality
adjustment factor to the FY 2011
national IPPS rates an offset that would
accont for the estimated financial
impact that the demonstration would
have for certain time frames under the
extension required by such Act.
In this supplemental proposed rule,
we propose that such an adjustment
would incorporate the following 4
components: (1) The estimated costs
that would be incurred in FY 2011 for
the 10 currently participating hospitals
as a result of the demonstration’s
continuation in FY 2011; (2) the
estimated cost incurred in FY 2010 for
the 7 ‘‘originally participating hospitals’’
that were not accounted for in the FY
2010 IPPS final rule but that now must
be accounted for as a result of the
demonstration being continued by the
Affordable Care Act’s 5-year extension
for such hospitals; (3) the estimated FY
2011 demonstration costs associated
with the participation of up to 20 new
hospitals; and (4) a factor by which the
cost of the demonstration program in
2007, as indicated by settled cost reports
beginning in FY 2007, exceeded the
amount that was identified in the FY
IPPS 2007 final rule as the budget
neutrality offset for FY 2007.
2. Section 410A of the MMA as
Amended by Section 3123 of the Public
Law 111–148 and as Further Amended
by Section 10313 of Public Law 111–
148.
Section 410Aof the MMA as amended
by section 3123 of Public Law 111–148,
and as further amended by section
10313 of Public Law 111–148, affects
this demonstration in several ways.
First, the Secretary is required to
conduct the demonstration for an
additional 5-year period that begins on
the date immediately following the last
day of the initial 5-year period under
section 410A(a)(5) of the MMA as
amended. (Section 410A(g)(1) of the
MMA as added by section 3123(a) of
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Public Law 111–148 and as further
amended by section 10313 of Public
Law 111–148). Further, the Affordable
Care Act requires that in the case of a
rural community hospital that is
participating in the demonstration
program as of the last day of the initial
5-year period, the Secretary shall
provide for the continued participation
of such rural hospital in the
demonstration program during the
5-year extension unless the hospital
makes an election, in such form and
manner as the Secretary may specify, to
discontinue such participation. (Section
410A(g)(4)(A) of MMA as added by
section 3123(a) of Public Law 111–148
and as amended by section 10313 of
Public Law 111–148). In addition, it
provides that during the 5-year
extension period, the Secretary shall
expand the number of States with low
population densities determined by the
Secretary to 20. (Section 410A(g)(2) of
MMA as added by section 3123(a) of
Public Law 111–148 and as amended by
section 10313 of Public Law 111–148.)
Further, the Secretary is required to use
the same criteria and data that the
Secretary used to determine the States
under section 410A(a)(2) of MMA for
purposes of the initial 5-year period. It
also allows not more than 30 rural
community hospitals in such States to
participate in the demonstration during
the 5-year extension period. (Section
410A(g)(3) of MMA as added by section
3123(a) of Public Law 111–148 and as
amended by section 10313 of Public
Law 111–148.) Additionally, it provides
that the amount of payment under the
demonstration program for covered
inpatient hospital services furnished in
a rural community hospital, other than
services furnished in a psychiatric or
rehabilitation unit of the hospital which
is a distinct part, is the reasonable costs
of providing such services for
discharges occurring in the first cost
reporting period beginning on or after
the first day of the 5-year extension
period. (Section 410A(g)(4)(b) of MMA
as added by section 3123(a) of Public
Law 111–148 and as amended by
section 10313 of Public Law 111–148.)
For discharges occurring in a
subsequent cost reporting period paid
under the demonstration, the formula in
section 410A(b)(1)(B) of MMA as
amended would apply. In addition,
various other technical and conforming
changes were made to section 410A of
MMA, as amended by section 3123(a) of
Public Law 111–148 and as amended by
section 10313 of Public Law 111–148.
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3. Proposed FY 2011 Budget Neutrality
Adjustment
In order to ensure that the
demonstration is budget neutral as is
required by the statute, we are
proposing to adjust the national IPPS
rates in the FY 2011 IPPS final rule to
account for any added costs attributable
to the demonstration. Specifically, the
proposed budget neutrality adjustment
would account for: (1) The estimated
costs of the demonstration in FY 2011
for the 10 currently participating
hospitals; (2) the estimated FY 2010
costs of the demonstration that were not
accounted for in the FY 2010 IPPS/RY
2010 LTCH PPS final rule for the seven
‘‘originally participating hospitals’’
because we estimated those hospitals’
FY 2010 costs under the assumption
that the demonstration would be
concluding before the end of FY 2010
for those hospitals; (3) the estimated FY
2011 costs for up to 20 new hospitals
selected to participate in the
demonstration; and (4) the amount by
which the costs of the demonstration
program, as indicated by settled cost
reports beginning in FY 2007 for
hospitals participating in the
demonstration during FY 2007,
exceeded the amount that was identified
in the FY 2007 IPPS final rule as the
budget neutrality offset for FY 2007.
a. Component of the Proposed FY 2011
Budget Neutrality Adjustment That
Accounts for Estimated FY 2011 Costs
of the Demonstration of the Ten
Currently Participating Hospitals
The component of the proposed FY
2011 budget neutrality adjustment to the
national IPPS rates that accounts for the
estimated cost of the demonstration in
FY 2011 for the ten currently
participating hospitals would be
calculated by utilizing separate
methodologies for the 7 hospitals that
have participated in the demonstration
since its inception and that, as
explained previously, we consider to be
continuing to participate in the
demonstration (‘‘originally participating
hospitals’’), and the 3 hospitals that are
currently participating in the
demonstration that were among the 4
hospitals that joined the demonstration
in 2008. Different methods are used
because fiscal intermediaries’ most
recent final settlements of cost reports
are for periods beginning in FY 2006 for
the ‘‘originally participating hospitals,’’
whereas we are relying on available
submitted documentation for the
hospitals that began participation in the
demonstration in 2008. Because the
hospitals that began the demonstration
in 2008 have no settled cost reports for
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the demonstration, we are using as
submitted cost documents. The budget
neutrality analysis is based on the
assumption that all 10 of these hospitals
will continue the demonstration under
the 5-year extension period provided by
the Affordable Care Act. We believe that
this assumption is warranted since they
have participated in the initial 5 year
demonstration period so far, which we
believe indicates that they will choose
to continue to avail themselves of the
levels of reimbursement under the
demonstration.
The estimate of the portion of the
proposed budget neutrality adjustment
that accounts for the estimated costs of
the demonstration in FY 2011 for the 7
‘‘originally participating hospitals’’ is
based on data from their second year
cost reports—that is, cost reporting
periods beginning in FY 2006. We
propose to use these cost reports
because they are the most recent
complete cost reports and thus we
believe they enable us to estimate FY
2011 costs as accurately as possible. In
addition, we estimate the cost of the
demonstration in FY 2011 for 2 of the
4 hospitals that joined the
demonstration in 2008 based on data
from each of their cost reporting periods
beginning January 1, 2008. Similarly, we
propose to use these cost reports
because they are the most recent cost
reports and thus we believe they enable
us to estimate FY 2011 costs for these
2 hospitals as accurately as possible.
Since one of the 4 hospitals that began
in 2008 has withdrawn, there is one
hospital remaining among those that
began in that year. The remaining
hospital of the 4 that began in 2008 is
an Indian Health Service provider.
Historically, the hospital has not filed
standard Medicare cost reports. In order
to estimate its costs, we are proposing
to use an analysis of Medicare inpatient
costs and payments submitted by the
hospital for the cost reporting period
October 1, 2005 through September 30,
2006. We are proposing to use this data
because it represents a detailed analysis
of the hospital’s cost-payment profile,
and we expect that such an account will
not change appreciably from year to
year because it is a relatively small
provider serving a limited population.
When we add together the estimated
costs of the demonstration in FY 2011
for the 7 ‘‘originally participating
hospitals’’ that have participated in the
demonstration since its inception and
the 3 hospitals selected in 2008 that are
still participating, the total estimated
cost is $20,930,484. This estimated
amount reflects the difference between
these 10 participating hospitals’
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estimated costs in FY 2011 under the
methodology set forth in Public Law
108–173 as amended by Public Law
111–148 and the estimated amount the
hospitals would have been paid under
the IPPS in FY 2011. With the exception
of the Indian Health Service provider,
the estimated costs under the
demonstration are derived from data on
the hospitals’ cost reports. The cost
reports state the dollar amount
attributable to Medicare inpatient costs
for the cost report year. They also state
the dollar amount that would be paid if
the inpatient prospective payment
system were in effect. For each hospital,
the difference between these two
amounts is updated according to the
market basket update factors for
inpatient hospital costs reported by the
CMS Office of the Actuary for the years
between the cost report year and FY
2011. In accordance with guidance from
the Office of the Actuary, we also
assume a 2 percent annual volume
increase. In the FY 2011 final rule, we
may revise this estimate if updated cost
report data becomes available.
b. Portion of the Proposed FY 2011
Budget Neutrality Adjustment That
Accounts for Estimated FY 2010 Costs
of the Demonstration That Were Not
Accounted for in the FY 2010 IPPS
Final Rule for the Seven ‘‘Originally
Participating Hospitals’’
As explained above, subsection
(g)(4)(A) of 410A of the MMA as added
by section 3123(a) of Public Law 111–
148 as amended by section 10313 of
Public Law 111–148, provided for the
continued participation of rural
community hospitals that were
participating in the demonstration as of
the last day of the initial 5-year
[demonstration] period. One of the
effects of this extension is that the seven
‘‘originally participating hospitals’’
(those hospitals that have participated
in the demonstration since its inception
and that continue to participate in the
demonstration or were participating in
the demonstration as of the last day of
its initial 5-year demonstration period
(that, is the 2 rural community hospitals
that concluded their period of
performance in December 2009)) which
were scheduled to end their
participation in the demonstration
before the conclusion of FY 2010 would
continue to participate for the
remainder of FY 2010 and beyond as
applicable. Section II.F.3. of the
preamble, we are assuming for purposes
of our budget neutrality analysis in
section II. F.3.a. of the preamble that the
seven ‘‘originally participating
hospitals’’ are also currently
participating hospitals. See for our
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explanation). However, we note that the
portion of the FY 2010 budget neutrality
adjustment to the national IPPS rates
that was included in the FY 2010 IPPS
final rule that accounted for the
estimated costs of the demonstration in
FY 2010 did not take into account costs
of the demonstration for those hospitals
beyond the anticipated end date of their
initial demonstration period. (For
example, for a hospital whose cost
report ended in June 30, 2010, we
counted only nine months for the
budget neutrality adjustment for the FY
2010 IPPS/LTCH PPS final rule. Under
this proposal, we would also adjust the
national IPPS rates to account for the
estimated costs for this hospital for the
remaining three months of FY 2010.) We
are proposing to include a component in
the FY 2011 budget neutrality
adjustment to account for the estimated
costs of the demonstration in FY 2010
that were not accounted for in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
for the seven ‘‘originally participating
hospitals’’ because we calculated the FY
2010 cost estimate for that year’s final
rule assuming that the demonstration
would end before the end of that fiscal
year for those hospitals. We are
proposing the following methodology to
account for such estimated costs: Step
one, for each of the seven ‘‘originally
participating hospitals,’’ we divide the
number of months that were not
included in the estimate of the FY 2010
demonstration costs included in the
final IPPS FY 2010 rule by 12. This step
is necessary to determine for each of the
seven ‘‘originally participating
hospitals’’ the fraction of FY 2010 for
which the estimate of the FY 2010
demonstration was not included. Step
two, for each of the seven ‘‘originally
participating hospitals,’’ the percentage
that results in step one is multiplied by
the estimate of the cost attributable to
the demonstration in FY 2010 for the
hospital. The estimate for the fraction of
the hospital’s cost for fiscal year 2010
not included in the estimate in the FY
2010 IPPS rule is arrived at by
multiplying this fraction by the estimate
of costs for the entire year. The estimate
of the costs of the demonstration for FY
2010 for the seven ‘‘originally
participating’’ hospitals is derived from
data found in their cost reports for cost
report years beginning in FY 2006.
These cost reports show dollar amounts
for costs for Medicare inpatient services
(that is, the Medicare payment amount
in that cost report year for Medicare
inpatient services) and the dollar
amount that would have been paid
under the IPPS. Since these cost report
years all ended during FY 2007, this
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difference, respective to each of the
seven ‘‘originally participating
hospitals’’, is updated according to the
market basket updates for inpatient
hospital costs reported by the CMS
Office of the Actuary for the years from
FY 2008 through FY 2011. In
accordance with guidance from the
Office of the Actuary, we also assume an
annual two percent volume increase.
(This calculation is not necessary for the
hospitals that began participating in the
demonstration in 2008 because the
portion of the FY 2010 budget neutrality
adjustment that accounts for estimated
FY 2010 demonstration costs in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
incorporates a cost estimate for each of
these hospitals based on the entirety of
the Federal fiscal year.) The estimate of
additional costs attributable to the
demonstration in FY 2010 for the 7
‘‘originally participating hospitals’’ that
were not accounted for in the FY 2010
final rule is $6,488,221. Similar to
above, this estimate is based on the
assumption that the seven ‘‘originally
participating hospitals’’ will choose to
continue participating in the
demonstration past the end of their
original 5-year demonstration periods.
We believe that this assumption is valid,
because they are participating in the
demonstration to this date, or, for the
case of the two hospitals that ended
active participation in the
demonstration program in December
2009, they were participating as of the
last day of their initial 5-year period.
c. Portion of the Proposed FY 2011
Budget Neutrality Adjustment That
Accounts for Estimated FY 2011 Costs
for Hospitals Newly Selected To
Participate in the Demonstration
Section 410A(g)(3) of MMA, as added
by section 3123 of Public Law 111–148,
and as amended by section 10313 of
Public Law 111–148, provides that
‘‘[n]otwithstanding subsection (a)(4),
during the 5-year extension period, not
more than 30 rural community hospitals
may participate in the demonstration
program under this section.’’
Consequently, up to 20 additional
hospitals may be added to the
demonstration (30 hospitals minus the
10 currently participating hospitals). In
order to ensure budget neutrality for 20
new participating hospitals, we are
proposing to include a component in
the budget neutrality adjustment factor
to the FY 2011 national IPPS rates to
account for the estimated FY 2011 costs
of those new hospitals. For purposes of
estimating the FY 2011 costs of the
demonstration for 20 new hospitals, we
are proposing to estimate such costs
from the average annual cost per
hospital derived from the estimate of the
10 currently participating hospitals’
costs attributable to the demonstration
for FY 2011. Because the statute allows
the potential for 20 additional hospitals
for the demonstration, we are basing
this estimate on the assumption that 20
hospitals will join. Our experience
analyzing the cost reports so far for
demonstration hospitals shows a wide
variation in costs among the hospitals.
Given the wide variation in cost profiles
that might occur for additional
hospitals, we believe that estimating the
total demonstration cost for FY 2011 for
20 additional hospitals from the average
annual cost of the currently existing
hospitals yields the most accurate
prediction because it is reflective of the
historical trend of participant behavior
under the demonstration and should
give an accurate as possible prediction
of future participant behavior. We
believe that, although there is variation
in costs, formulating an estimate from
the average costs of as many as 10
hospitals gives as good as possible a
prediction of what the demonstration
costs for each of 20 additional hospitals.
We are estimating the average cost for
each of the 20 additional hospitals not
on a range of costs, but on an estimate
of this average cost per hospital,
obtained by dividing $20,930,484, the
estimated cost amount for FY 2011
identified for the 10 participating
hospitals in subsection (a), by 10. The
estimate for costs attributable to the
demonstration for 20 additional
hospitals in FY 2011 is $41,860,968.
d. Portion of the Proposed FY 2011
Budget Neutrality Adjustment That
Offsets the Amount by Which the Costs
of the Demonstration in FY 2007
Exceeded the Amount That Was
Identified in the Final FY 2007 IPPS
Final Rule as the Budget Neutrality
Offset for FY 2007
In addition, in order to ensure that the
demonstration in FY 2007 was budget
neutral, we are proposing to incorporate
a component into the budget neutrality
adjustment factor to the FY 2011
national IPPS rates, which would offset
the amount by which the costs of the
demonstration program as indicated by
settled cost reports beginning in FY
2007 for hospitals participating in the
demonstration during FY 2007 exceeded
the amount that was identified in the FY
2007 IPPS final rule as the budget
neutrality offset for FY 2007.
Specifically, we are proposing the
following methodology:
• Step One: Calculate the FY 2007
costs of the demonstration program
according to the settled cost reports that
began in FY 2007 for the then
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participating hospitals (which represent
the third year of the demonstration for
each of the then participating hospitals).
(We propose to use these settled cost
reports, which represent the third year
of the demonstration for each of the
then participating hospitals because
they correspond most precisely to FY
2007 and we therefore believe correctly
represent FY 2007 inpatient costs for the
demonstration during that period).
• Step Two: Subtract the amount that
was offset by the budget neutrality
adjustment for FY 2007 ($9,197,870)
from the costs of the demonstration in
FY 2007 as calculated in step one; and
• Step Three: The result of step two
is a dollar amount, for which we would
calculate a factor that would offset such
amounts and would be incorporated
into the proposed overall budget
neutrality adjustment to national IPPS
rates for FY 2011. This specific
component to the overall budget
neutrality adjustment for FY 2011
would account for the difference
between the costs of the demonstration
in FY 2007 and the amount of the
budget neutrality adjustment published
in the FY 2007 IPPS final rule and
therefore ensures that the demonstration
is budget neutral for FY 2007.
Because the settlement process for the
demonstration hospitals’ third year cost
reports, that is, cost reporting periods
starting in FY 2007, has experienced a
delay, for this FY 2011 IPPS proposed
rule, we are unable to state the costs of
the demonstration corresponding to FY
2007 and as a result are unable to
propose the specific numeric
adjustment representing this offsetting
process that would be applied to the
national IPPS rates. However, we expect
the cost reports beginning in FY 2007
for hospitals that participated during FY
2007 to be settled before the FY 2011
IPPS/LTCH final rule is published.
Therefore, for the FY 2011 IPPS/LTCH
PPS final rule, we expect to be able to
calculate the amount by which the costs
corresponding to FY 2007 exceeded the
amount offset by the budget neutrality
adjustment for FY 2007. Consequently,
by adding this proposed amount to the
above proposed amounts estimated in
subsections (a) through (c) of section
II.F.3.a. of the preamble, we arrive at a
proposed amount, from which we
would be able to calculate the proposed
budget neutrality factor which we
would use to adjust the FY 2011
national IPPS rates in the FY 2011 IPPS/
LTCH PPS final rule.
For this supplemental proposed FY
2011/LTCH PPS rule, the estimated
amount for the adjustment to the
national IPPS rates is the sum of the
amounts specified in subsections (a)
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through (c) above or $69,279,673 and
the amount resulting from the proposed
method in subsection (d) that we expect
to be calculated in the FY 2011 IPPS/
LTCHPPS final rule. Subsections (a)
through (c) state dollar amounts, which
represent estimated costs attributable to
the demonstration for the respective
component of the overall estimated
calculation of the budget neutrality
factor for FY 2011. This estimated
amount is based on the specific
assumptions identified, as well as from
data sources that are used because they
represent either the most recently
finalized or, if as submitted, the most
recent available cost reports. The overall
budget neutrality change in the final FY
2011 IPPS/LTCH PPS rule, if any of
these factors were to change.
G. Proposed Changes to Payment Rates
for IPPS for Capital-Related Costs for FY
2011
Although the provisions of Public
Law 111–148, do not directly affect the
payment rates and policies for the IPPS
for capital-related costs, in section II. of
the Addendum of this supplemental
proposed rule we are proposing the
capital IPPS standard Federal rates for
FY 2011. This is necessary because the
wage index changes required by the
provisions of Public Law 111–148
(discussed above in section II.A. of this
preamble) affect the proposed budget
neutrality adjustment factor for changes
in DRG classifications and weights and
the geographic adjustment factor (GAF)
since the GAF values are derived from
the wage index values (see § 412.316(a)).
In addition, the provisions of Public
Law 111–148, (discussed above in this
preamble) also necessitate a revision to
the proposed outlier payment
adjustment factor since a single set of
thresholds is used to identify outlier
cases for both inpatient operating and
inpatient capital-related payments (see
§ 412.312(c)). The outlier thresholds are
set so that operating outlier payments
are projected to be 5.1 percent of total
operating IPPS DRG payments. Section
412.308(c)(2) provides that the standard
Federal rate for inpatient capital-related
costs be reduced by an adjustment factor
equal to the estimated proportion of
capital-related outlier payments to total
inpatient capital-related PPS payments.
The proposed capital IPPS standard
Federal rates for FY 2011 are discussed
in section II. of the Addendum of this
supplemental proposed rule.
H. Payment for Critical Access Hospital
Outpatient Services and Ambulance
Services
Section 1834(g) of the Act establishes
the payment rules for outpatient
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services furnished by a critical access
hospital (CAH). Section 403(d) of Public
Law 106–113 (BBRA) amended section
1834(g) of the Act to provide for two
methods of payment for outpatient
services furnished by a CAH.
Specifically, section 1834(g)(1) of the
Act, as amended by Public Law 106–
113, provided that the amount of
payment for outpatient services
furnished by a CAH is equal to the
reasonable costs of the CAH in
providing such services (the physician
or other practitioner providing the
professional service receives payment
under the Medicare Physician Fee
Schedule). In the alternative, the CAH
may make an election, under section
1834(g)(2) of the Act, to receive amounts
that are equal to ‘‘the reasonable costs’’
of the CAH for facility services plus,
with respect to the professional services,
the amount otherwise paid for
professional services under Medicare,
less the applicable Medicare deductible
and coinsurance amount. The election
made under section 1834(g)(2) of the
Act is sometimes referred to as ‘‘method
II’’ or ‘‘the optional method.’’
Throughout this section of this
preamble, we refer to this election as
‘‘the optional method.’’ Section 202 of
Public Law 106–554 (BIPA) amended
section 1834(g)(2)(B) of the Act to
increase the payment for professional
services under the optional method to
115 percent of the amount otherwise
paid for professional services under
Medicare. In addition, section 405(a)(1)
of Public Law 108–173 (MMA) amended
section 1834(g)(l) of the Act by inserting
the phrase ‘‘equal to 101 percent of’’
before the phrase ‘‘the reasonable costs.’’
However, the MMA did not make a
corresponding change to section
1834(g)(2)(A) of the Act regarding the
amount of payment for facility services
under the optional method.
Section 1834(l)(8), as added by
section 205 of Public Law 106–554,
establishes the payment methodology
for ambulance services furnished by a
CAH or by an entity that is owned and
operated by a CAH. This provision
states that payment is made at ‘‘the
reasonable costs incurred in furnishing
ambulance services if such services are
furnished by a critical access hospital
(as defined in section 1861(mm)(1) of
the Act), or by an entity that is owned
and operated by a critical access
hospital, but only if the critical access
hospital or entity is the only provider or
supplier of ambulance services that is
located within a 35-mile drive of such
critical access hospital.’’
Section 3128(a) of Public Law 111–
148 amended sections 1834(g)(2)(A) and
1834(l)(8) of the Act by inserting ‘‘101
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percent of’’ before ‘‘the reasonable costs.’’
As such, section 3128(a) increases
payment for outpatient facility services
under the optional method and payment
for ambulance services furnished by a
CAH or an entity owned and operated
by a CAH, to 101 percent of reasonable
costs. Section 3128(b) states that the
amendments made under section
3128(a) shall take effect as if they were
included in the enactment of section
405(a) of Public Law 108–173. Section
405(a) of Public Law 108–173, which
provided that, in general, inpatient,
outpatient, and covered SNF services
provided by a CAH would be
reimbursed at 101 percent of reasonable
cost, was applicable to payments for
services furnished during cost reporting
periods beginning on or after January 1,
2004.
In order to implement section 3128 of
Public Law 111–148, we are proposing
to amend the regulations at
§ 413.70(b)(3)(ii)(A) to state that,
effective for cost reporting periods
beginning on or after January 1, 2004,
under the optional method, payment for
facility services will be made at 101
percent of reasonable cost. Accordingly,
regardless of whether a physician/
practitioner has reassigned his/her
billing rights to the CAH, payment for
CAH facility services will be made at
101 percent of reasonable costs. In
addition, we are proposing to
implement the change in payment for
ambulance services provided by section
3128 of Public Law 111–148 by
amending the regulations at
§ 413.70(b)(5)(i) to state that effective for
cost reporting periods beginning on or
after January 1, 2004, payment for
ambulance services furnished by a CAH
or an entity that is owned and operated
by a CAH is 101 percent of the
reasonable costs of the CAH or the
entity in furnishing those services, but
only if the CAH or the entity is the only
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH or the entity. We note that
we do not believe these proposals will
result in additional payments to CAHs
for prior periods because we believe in
fact that CMS has paid CAHs for these
services at 101 percent of reasonable
costs during these prior periods.
I. Extension of Certain Payment Rules
for Long-Term Care Hospital Services
and Moratorium on the Establishment of
Certain Hospitals and Facilities
1. Background
On December 29, 2007 the Medicare,
Medicaid, and SCHIP Extension Act of
2007 (MMSEA) (Pub. L. 110–173) was
enacted. Section 114 of MMSEA,
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entitled ‘‘Long-term care hospitals,’’
made a number of changes affecting
payments to LTCHs for inpatient
services. In May 6, 2008 and May 22,
2008 Federal Register (73 FR 24871 and
73 FR 29699, respectively), we issued
two interim final rules (IFCs),
implementing provisions of section 114
of the MMSEA. The May 6, 2008 IFC
implemented section 114(c)(3) of the
MMSEA which required a 3-year delay
in the application of certain provisions
of the payment adjustment for short-stay
outliers (SSOs), and section 114(e)(4)(1)
and (2) which specified revisions to the
RY 2008 standard Federal rate for
LTCHs. The May 22, 2008 IFC
implemented section 114(c)(1) and
(c)(2), providing for a 3-year delay in the
application of the 25 percent threshold
payment adjustment for discharges from
LTCHs and LTCH satellite facilities that
were admitted from certain referring
hospitals in excess of various percentage
thresholds. The May 22, 2008 IFC also
implemented section 114(d) of the
MMSEA relating to the 3-year
moratorium on the establishment of new
LTCHs and LTCH satellite facilities and
on increases in beds in existing LTCHs
and LTCH satellite facilities.
In addition, we revised regulations at
§ 412.523(d)(3) implementing section
114(c)(4) of MMSEA. Our regulations
provided that for a 3-year period
beginning on December 29, 2007, the
Secretary shall not make the one-time
prospective adjustment to the LTCH
PPS payment rates earlier than
December 29, 2010 and later than
December 29, 2012 (73 FR 26804).
Section 4302 of the American Recovery
and Reinvestment Act of 2009 (ARRA)
( Pub. L. 111–5) enacted on February 17,
2009, included several amendments to
section 114(c) and (d) of the MMSEA.
The provisions of section 4302 of the
ARRA were implemented in an IFC
which was published with the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74
FR 43990 through 43994). In that same
final rule, we responded to comments
and finalized the MMSEA provisions in
the May 6, 2008 and the May 22, 2008
IFCs that had not otherwise modified by
the ARRA. We intend to finalize the
ARRA provisions and respond to
comments on the ARRA IFC, in the FY
2011 IPPS/LTCH PPS final rule.
The discussion in section XX pertain
to the specific changes to the LTCH PPS
policies that are mandated by
amendments to section 114(c) and (d) of
the MMSEA, as amended by section
4302 of the ARRA and further amended
by section 3106 of Public Law 111–148
as amended by section 10312 of Public
Law 111–148.
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Section 114(c) and (d) of the MMSEA
as amended by section 4302 of ARRA as
amended by section 3106 of the Public
Law 111–148 and as further amended by
section 10312 of Public Law 111–148
provides for a 2-year extension to
payment policies relating to long-term
care hospitals (LTCHs) and LTCH
satellite facilities. Specifically, these
provisions affect payment adjustments
for short stay outliers (SSOs), the onetime prospective adjustment to the
standard Federal rate, the 25 percent
payment threshold policy, and the
moratorium on the establishment of new
LTCHs and LTCH satellite facilities. In
this supplementary proposed rule for
the LTCH PPS, we are implementing the
policies mandated by the amendments
to section 114(c) and (d) of the MMSEA
as amended by section 4302 of the
ARRA and as further amended by
section 3106 of Public Law 111–148,
and section 10312 of Public Law 111–
148, and are proposing to revise the
regulations accordingly to incorporate
those changes. In the sections below, we
will briefly describe each of these
policies and propose to incorporate into
the regulations their 2-year extension.
2. Short-Stay Outlier Policy
In the FY 2003 LTCH PPS final rule
(67 FR 55995), we established a special
payment policy for SSO cases at
§ 412.529. SSO cases are cases with a
covered LOS that is less than or equal
to five-sixths of the geometric average
LOS for each LTC–DRG. When we
established the SSO policy, we
explained that ‘‘[a] short stay outlier
case may occur when a beneficiary
receives less than the full course of
treatment at the LTCH before being
discharged’’ (67 FR 55995).
We later refined the SSO policy in the
RY 2008 LTCH PPS final rule.
Specifically, the RY 2008 LTCH PPS
final rule added an additional payment
methodology at § 412.529(c)(3)(i) for a
SSO case with a covered length of stay
(LOS) that is less than or equal to one
standard deviation from the geometric
ALOS of the same DRG under the IPPS
as the LTC–DRG to which the case had
been assigned (referred to as the ‘‘IPPS
comparable threshold’’). The Medicare
payment for that SSO case where the
covered LOS is less than or equal to the
‘‘IPPS comparable threshold’’ would be
based on the least of the following:
• 100 percent of the estimated cost of
the case.
• 120 percent of the LTC–DRG
specific per diem amount multiplied by
the covered LOS of the particular case.
• The full LTC–DRG.
++ An amount comparable to the
hospital IPPS per diem amount
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determined under § 412.529(d)(4).
Under that SSO payment formula, cases
where the covered LOS is greater than
the ‘‘IPPS comparable threshold,’’ the
fourth payment option would be
replaced with the blend of the 120
percent of the LTC–DRG specific per
diem amount and an amount
comparable to the IPPS per diem
amount determined under
§ 412.529(d)(4). (See (72 FR 26905
through 26918).)
Section 114(c)(3) of MMSEA
established a 3-year delay of the
application of the methodology at
§ 412.529(c)(3)(i) that was added in the
RY 2008 LTCH PPS final rule. It
specified that the Secretary shall not
apply the amendments finalized on May
11, 2007 (72 FR 26992) made to the
short-stay outlier payment provision for
long-term care hospitals contained in
§ 412.529(c)(3)(i) or any similar
provisions for the 3-year period
beginning on the date of enactment of
this Act [December 29, 2007]. Section
114(c)((3) of the MMSEA as amended by
section 3106(a) of the Public Law 111–
148, and as amended by section
10312(a) of Public Law 111–148, adds
an additional 2 years to the 3-year delay
of the application of § 412.529(c)(3)(i).
Specifically, these provisions together
result in the phrase ‘‘3-year period’’
being replaced with the phrase ‘‘5-year
period’’ each place it appears in 114(c)
of MMSEA as amended by the ARRA.
Thus, the reference to the 3-year period
in delay of application of
§ 412.529(c)(3)(i) is changed to be 5-year
period of delay. Consequently, the
Secretary will not apply for the 5-year
period beginning on the date of
enactment of MMSEA (December 29,
2007) the policy at § 412.529(c)(3)(i). We
note that this provision of the law is
self-implementing and in this
supplementary proposed rule, we are
proposing to incorporate existing law
regarding the additional 2 year delay
into the regulations at § 412.529(c)(3)(i)
to reflect this policy change.
3. The One-time Adjustment of the
Standard Federal Rate
In the August 30, 2002 LTCH PPS
final rule (67 FR 56027), we provided in
§ 412.523(d)(3) of the regulations, for the
possibility of making a one-time
prospective adjustment to the LTCH
PPS rates by July 1, 2008, so that the
effect of any significant difference
between actual payments and estimated
payments for the first year of the LTCH
PPS would not be perpetuated in the
LTCH PPS rates for future years.
Later, section 114(c)(4) of MMSEA
was enacted which provided a 3-year
delay in the application of
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§ 412.523(d)(3). Specifically, section
114(c)(4) of MMSEA provides that the
’’Secretary shall not, for the 3-year
period beginning on the date of the
enactment of this Act, make the one
time prospective adjustment to longterm care hospital prospective payment
rates provided for in section
412.523(d)(3) of title 42, Code of Federal
Regulations, or any similar provision.’’
The effect of this provision was that no
one-time budget neutrality adjustment
could be made earlier than December
29, 2010. (Following the enactment of
MMSEA, we modified the regulations at
§ 412.523(d)(3) to capture the 3-year
delay required by section
114(c)(4)MMSEA and our proposal to
conform our regulation to more
accurately reflect the purpose of
providing for a possible one-time budget
neutrality adjustment.) (See 73 FR
26800 through 26805). Now, section
3106(a) of Public Law 111–148, together
with section 10312 of Public Law 111–
148 results in, an additional 2 years
being added to the existing 3-year delay
of § 412.523(d)(3). Specifically, these
amendments together result in the
phrase ‘‘3-year period’’ being replaced
with the phrase ‘‘5-year period’’ each
place it appears in 114(c) of MMSEA as
amended by the ARRA. Thus, the
reference to the 3-year period in delay
of application § 412.523(d)(3) is changed
to be a 5-year period of delay.
Consequently, the Secretary shall not
apply for the 5-year period beginning on
the date of the enactment of MMSEA
(December 29, 2007) the one-time
prospective adjustment provided for in
§ 412.523(d)(3). We note that this
provision of the law is selfimplementing and we are proposing to
incorporate existing law regarding this
additional 2-year delay of the one-time
budget neutrality adjustment into the
regulations at § 412.523(d)(3) to reflect
this policy. Thus, we are proposing to
revise § 412.523(d)(3) to specify that the
Secretary is precluded from making the
one-time adjustment until December 29,
2012.
4. Modification of Certain Payment
Adjustments to Certain LTCHs and
LTCH Satellite Discharges
The timeframes outlined in section
114(c)(1) and (2) of MMSEA are
amended by ARRA and section 3106(a)
of Public Law 111–148, and as further
amended by section 10312(a) of Public
Law 111–148 are increased from 3 years
to 5 years, thereby extending for an
additional 2 years the delay in
application of the 25 percent patient
threshold amount under § 412.534 and
§ 412.536 for certain LTCHS and LTCH
satellite facilities and the increases in
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the patient thresholds outlined in
section 114(c)(2) of MMSEA as they
apply to an ‘‘applicable’’ long-term care
hospital or satellite facility as set forth
in section 114(c)(2)(A) and (B) of
MMSEA as amended. Specifically,
§ 3106(a) of Public Law 111–148
together with section 10312 of Public
Law 111–148, results in the substituting
of the phrase ‘‘5-year period’’ for the
phrase ‘‘3-year period’’ each time it
appears in section 114(c) of MMSEA as
amended by ARRA. This provision of
the law is self-implementing.
With respect to section 114(c)(1) of
MMSEA as amended by ARRA (Delay in
Application of [the] 25 Percent Patient
Threshold Payment Adjustment),
section 3106(a) of the Public Law 111–
148 and as further amended by section
10312(a) of Public Law 111–148 results
in an additional 2-year delay being
added to the existing 3-year delay in
application of the 25 percent threshold
amount under § 412.534 and § 412.536.
Specifically, under § 114(c)(1)(A) and
(B) of MMSEA as amended by the ARRA
and the Affordable Care Act, the
Secretary shall not apply, for cost
reporting periods beginning on or after
July 1, 2007 for a 5-year period—(A)
§ 412.536 of title 42, Code of Federal
Regulations, or any similar provision, to
free standing long-term care hospitals or
to a long-term care hospital, or satellite
facility, that as of December 29, 2007,
was co-located with an entity that is a
provider-based, off-campus location of a
subsection (d) hospital which did not
provide services payable under section
1886(d) of the Act at the off-campus
location; and (B) such section or
§ 412.534 of title 42, Code of Federal
Regulations, or any similar provisions,
to a long-term care hospital identified
by the amendment made by section
4417(a) of the BBA. In order to
incorporate existing law requiring that
application of the above provisions will
not be applied prior to cost reporting
periods beginning on July 1, 2012, we
are proposing to modify our regulations
at § 412.534(h)(4) and § 412.536(a)(1).
With respect to section 114(c)(2) of
MMSEA as amended by ARRA and
section 3106(a) of Public Law 111–148
and as amended by section 10312 of
Public Law 111–148 the effective date
provided in section 114(c)(2)(C) of
MMSEA is amended such that the
provision specifies that subparagraphs
A and B [of section 114(c)(2)] shall
apply to cost reporting periods
beginning on or after October 1, 2007 (or
July 1, 2007, in the case of a satellite
facility described in § 412.22(h)(3)(i) of
title 42, Code of Federal Regulations) for
a 5-year period.) The effect of this selfimplementing effective date change is
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that under section 114(c)(2)(A) of
MMSEA the time period during which
the increased percentage thresholds
apply to an ‘‘applicable long-term care
hospital or satellite facility’’ which is
located in a rural area or which is colocated with an urban single or MSAdominant hospital, under 42 CFR
412.534(d) and (e) is increased from a
3-year period to a 5-year period. Thus,
for the 5-year period beginning on or
after October 1, 2007, payment to an
‘‘applicable LTCH hospital or LTCH
satellite that is located in a rural area or
is co-located with a MSA-dominant
hospital or urban single hospital under
paragraphs (d) and (e), of 42 CFR
412.534, shall not be subject to any
payment adjustment under such section
if no more than 75 percent of the
hospital’s Medicare discharges (other
than discharges described in paragraph
(d)(2) or (e)(3) of such section are
admitted from a co-located hospital. We
are proposing to incorporate into our
regulations at 412.534(d)(1) through
(d)(3) and (e)(1) through (e)(3); the
above-described self-implementing the
Affordable Care Act changes by
extending the sunsetting of the
threshold percentage increase an
additional 2 years, to cost reporting
periods beginning on or after October 1,
2012, as applicable, July 1, 2007 for a
satellite facility described in 42 CFR
412.22(h)(3)(i).)
In addition, the change in the
effective date change required in section
114(c)(2)(C) of MMSEA, as amended by
ARRA and the Affordable Care Act, is
that the time period during which the
increased percentage threshold
applicable to an ‘‘applicable’’ LTCH or
satellite, as defined in section
114(c)(2)(ii) of the MMSEA as amended
by section 4302(a)(2)(A) of the ARRA,
which is co-located with another
hospital is increased from a 3-year
period to a 5-year period. Thus, for the
5-year period beginning on or after
October 1, 2007, payment to an
‘‘applicable’’ LTCH or LTCH satellite
facility that is co-located with another
hospital shall not be subject to any
payment adjustment under § 412.534 if
no more than 50 percent of the
hospital’s Medicare discharges (other
than discharges described in paragraph
(c)(3) of such section) are admitted from
a co-located hospital. We are proposing
to incorporate this self-implementing
Affordable Care Act change into our
regulations at § 412.534(c)(1), (2) and (3)
by extending the sunsetting of the
threshold percentage increase an
additional 2 years, to cost reporting
periods beginning on or after October 1,
2012 or July 1, 2012, as applicable.
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5. Moratorium on the Increase in
Number of Beds in Existing Long-Term
Care Hospitals or Long-Term Care
Hospital Satellite Facilities
Section 114(d) of MMSEA provides
for a 3-year moratorium with two
distinct aspects, one for the
establishment and classification of a
LTCH or a LTCH satellite facility, other
than an existing LTCH or facility, and
the other for the increase of hospital
beds in existing LTCHs and LTCH
satellite facilities. Specifically, section
114(d)(1)(A) of MMSEA provides that,
during the 3-year period beginning on
the date of enactment of this Act on
December 29, 2007, the Secretary shall
impose a moratorium ‘‘subject to
paragraph (2), on the establishment and
classification of a long-term care
hospital or satellite facility, other than
an existing long-term care hospital or
facility.’’ Section 114(d)(1)(B) of
MMSEA unamended, provides that,
during the 3-year period beginning of
the date of enactment of this Act, the
Secretary shall impose a moratorium
‘‘subject to paragraph (3), on an increase
of long-term care hospital beds in
existing long-term care hospitals or
satellite facilities.’’
Sections 114(d)(2) of MMSEA
unamended provides for exceptions to
the moratorium on the development of
a LTCH or LTCH satellite facility, other
than an existing LTCH or LTCH satellite
facility, imposed by section 114(d)(1)(A)
of MMSEA. (The definition of an
existing LTCH and satellite facility for
purposes of this policy is codified at
§ 412.23(e)(7)(i).) Specifically, under
this MMSEA provision, the moratorium,
is effective from December 29, 2007
through December 28, 2010 unless one
of the following three exceptions has
been met:
• The LTCH began ‘‘its qualifying
period for payment as a long-term care
hospital under section 412.23(e) of title
42, Code of Federal Regulations, on or
before the date of enactment of this
Act.’’ (See section 114(d)(2)(A) of
MMSEA).
• The LTCH has a binding written
agreement with an outside, unrelated
party for the actual construction,
renovation, lease, or demolition for a
LTCH and has expended before
December 29, 2007 at least 10 percent of
the estimated cost of the project or, if
less, $2,500,000. (See section
114(d)(2)(B) of MMSEA).
• The LTCH has obtained an
approved certificate of need in a State
where one is required on or before
December 29, 2007 (see section
114(d)(2)(C) of MMSEA). (See 73 FR
29705 through 29707 and 74 FR 43985).
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The moratorium on an increase of
beds is subject to the exception at
section 114(d)(3) of MMSEA.
Specifically, section 114(d)(3) of the
MMSEA unamended stated that the
moratorium on an increase in beds shall
not apply if an existing LTCH or LTCH
satellite facility is ‘‘located in a State
where there is only one other long-term
care hospital; and requests an increase
in beds following the closure or the
decrease in the number of beds of
another long-term care hospital in the
State.’’ We implemented section 114(d)
in the May 22, 2008 IFC (73 FR 29704
through 29707); the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43985
through 43990) and § 412.23(e)(5)
through (e)(7).
Section 4302 of the ARRA added
another exception to the moratorium on
increases in the number of beds at
existing LTCHs and LTCH satellite
facilities. Specifically, section 4302(b) of
the ARRA, added an additional
exception to the bed-increase
moratorium in an existing hospital or
satellite facility ‘‘* * * if the hospital or
facility obtained a certificate of need for
an increase in beds that is in a State for
which such certificate of need is
required and that was issued on or after
April 1, 2005, and before December 29,
2007, * * *.’’ Accordingly, we revised
our regulations at § 412.23(e)(7)(B) to
include this new exception to the
moratorium on an increase in the
number of beds in existence in an
existing LTCH or LTCH satellite facility
beyond those in existence on December
29, 2007. (See 74 FR 43991 and 43992)
Section 114(d) of MMSEA as
amended by section 4302(b) of ARRA
and section 3106(b) of Public Law 111–
148 and section 10312(b) of Public Law
111–148 adds an additional 2 years to
the 3-year moratorium on the
development of new LTCHs and LTCH
satellite facilities and on the increase in
the number of beds in existing LTCHs
and LTCH satellites promulgated by
MMSEA. Specifically, it raises the
length of the moratorium specified in
section 114(d) of MMSEA as amended
by ARRA from a 3-year period to a 5year period. Therefore, the moratorium
will be in effect until December 28,
2012. In this supplementary proposed
rule, we are proposing to revise
§ 412.23(e)(6)(i) and (e)(7)(ii) by
changing the ending date of the
moratorium provisions from December
28, 2010 to December 28, 2012 to reflect
these self-implementing Affordable Care
Act changes.
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J. Long-Term Care Hospital Proposed
Market Basket Update and Other
Proposed Changes
1. Background
In section VII. of the preamble of the
May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule, we discuss our proposed
changes to the payment rates, factors,
and specific policies under the LTCH
PPS for FY 2011. Although a number of
the provisions of Public Law 111–148
and Public Law 111–152 affect the
LTCH PPS, due to the timing of the
passage of the legislation, we were
unable to address those provisions in
the May 4, 2010 FY 2011 IPPS/LTCH
PPS proposed rule. Therefore, the
proposed policies and payment rates in
that proposed rule do not reflect the
new legislation.
Below we address the provisions of
Public Law 111–148 and Public Law
111–152 that affect our proposed
policies and payment rates for FY 2011
under the LTCH PPS. In addition, we
have issued further instructions
implementing the provisions of Public
Law 111–148, as amended, that affect
the policies and payment rates for RY
2010 under the LTCH PPS. Specifically,
we have established revised RY 2010
rates and factors elsewhere is this
Federal Register consistent with the
provisions of sections 3401(c) and (p)
and 10319(b) of Pub L. 111–148 and
section 1105(b) of Public Law 111–152,
as amended.
2. Revision of Certain Market Basket
Updates as Required by Public Law
111–148 and Public Law 111–152
Section 1886(m)(3)(A)(ii) of the Act,
as added by section 3401(c) of Public
Law 111–148, specifies that for each of
rate years 2010 through 2019, any
annual update to the standard Federal
rate shall be reduced by the other
adjustment specified in new section
1886(m)(4) of the Act. Furthermore,
section 1886(m)(3)(A)(i) of the Act
specifies that for rate year 2012 and
subsequent rate years, any annual
update to the standard Federal rate shall
be reduced by the productivity
adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. Section
1886(m)(3)(A)(ii) and sections
1886(m)(4)(A) and (B) of the Act, require
a 0.25 percentage point reduction for
rate year 2010 and a 0.50 percentage
point reduction for rate year 2011.
Section 1886(m)(3)(B) of the Act
provides that the application of
paragraph 3 of 1886(m) of the Act may
result in the annual update being less
than zero for a rate year, and may result
in payment rates for a rate year being
less than such payment rates for the
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preceding rate year. Furthermore,
section 3401(p) of Public Law 111–148
specifies that the amendments made by
section 3401(c) of Public Law 111–148
shall not apply to discharges occurring
before April 1, 2010.
We note that in the May 4, 2010 FY
2011 IPPS/LTCH PPS proposed rule,
since the annual update to the LTCH
PPS policies, rates and factors now
occurs on October 1st, we proposed to
adopt the term ‘‘fiscal year’’ (FY) rather
than ‘‘rate year’’ (RY) under the LTCH
PPS beginning October 1, 2010 to
conform with the standard definition of
the Federal fiscal year (October 1
through September 30) used by other
PPSs, such as the IPPS (see 75 FR 24046
through 24027). Consequently, in that
proposed rule and in this supplemental
proposed rule, for purposes of clarity,
when discussing the annual update for
the LTCH PPS, we employed ‘‘FY’’
rather than ‘‘RY’’ because it is our intent
that the phrase ‘‘FY’’ be used
prospectively in all circumstances
dealing with the LTCH PPS. Similarly,
although the language of section 3401(c)
of Public Law 111–148 and section
10319 of Public Law 111–148, and
section 1105(b) of Public Law 111–152
refer to years 2010 and thereafter under
the LTCH PPS as ‘‘rate year,’’ consistent
with our proposal to change the
terminology used under the LTCH PPS
from ‘‘rate year’’ to ‘‘fiscal year,’’ for
purposes of clarity, in this supplemental
proposed rule, when discussing the
annual update for the LTCH PPS,
including the provisions of the
Affordable Care Act, we will continue to
employ ‘‘FY’’ rather than ‘‘RY’’ for 2011
and subsequent years because it is our
intent that ‘‘FY’’ be used prospectively in
all circumstances dealing with the
LTCH PPS.
3. Proposed Change to Reflect the
Market Basket Update for LTCHs for RY
2010 (§ 412.523(c)(vi))
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule appearing in the Federal
Register on August 27, 2009 (74 FR
43754), we established policies,
payment rates and factors for
determining payments under the LTCH
PPS for RY 2010 (October 1, 2009
through September 30, 2010). The
provisions of the Affordable Care Act
affect some of the policies, payment
rates and factors for determining
payments under the LTCH PPS for RY
2010 (some of which are discussed
elsewhere in this supplemental
proposed rule). In a separate notice
published elsewhere in this Federal
Register, we establish revised RY 2010
LTCH PPS rates and factors consistent
with the provisions of section
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1886(m)(3) of the Act as added by
section 3401(c) of Public Law 111–148,
and section 1886(m)(4) of the Act as
added by section 3401(c) of Public Law
111–148 and amended by section
10319(b) of Public Law 111–148, as
further amended by section 1105(b) of
Public Law 111–152, as well as section
3401(p) of the Public Law 111–148.
Section 1886(m)(3)(A)(ii) of the Act
provides for each of RYs 2010 through
2019, the annual update to the standard
Federal rate is reduced by the ‘‘other
adjustment’’ described in section
1886(m)(4) of the Act. Specifically,
sections 1886(m)(3)(A)(ii) and (4)(A) of
the Act require a 0.25 percentage point
reduction to the annual update to the
standard Federal rate for RY 2010.
Section 1886(m)(3)(A) of the Act on its
face explicitly provides for a revised
annual update to the standard Federal
rate beginning RY 2010, thus resulting
in a single revised RY 2010 standard
Federal rate. Section 3401(p) of the
Public Law 111–148 provides that,
notwithstanding the previous provisions
of this section, the amendments made
by subsections (a), (c) and (d) shall not
apply to discharges occurring before
April 1, 2010. When read in conjunction
we believe section 1886(m)(3)(A) of the
Act and section 3401(p) of Public Law
111–148 provide for a single revised RY
2010 standard Federal rate; however, for
payment purposes, discharges occurring
on or after October 1, 2009 and before
April 1, 2010, simply will not be based
on the revised RY 2010 standard Federal
rate.
As discussed in a separate notice
published elsewhere in this Federal
Register, consistent with our historical
practice and the methodology used in
the FY 2010 IPPS/RY 2010 final rule, we
establish an update to the LTCH PPS
standard Federal rate for RY 2010 of
1.74 percent. This annual update for RY
2010 is based on the full forecasted
estimated increase in the LTCH PPS
market basket for RY 2010 of 2.5
percent, adjusted by the 0.25 percentage
point reduction required by sections
1886(m)(3)(A)(ii) and (4)(A) of the Act,
and an adjustment to account for the
increase in case-mix in a prior period
(FY 2007) resulting from changes in
documentation and coding practices of
¥0.5 percent. Therefore, in this
supplemental proposed rule, under the
authority of sections 1886(m)(3)(A)(ii)
and (4)(A) of the Act, we are proposing
to amend § 412.523(c)(3)(vi) to specify
that the standard Federal rate for the
LTCH PPS rate year beginning October
1, 2009 and ending September 30, 2010,
is the standard Federal rate for the
previous rate year updated by 1.74
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percent. Furthermore, consistent with
section 3401(p) of Public Law 111–148,
we are also proposing to revise
§ 412.523(c)(3)(vi) to specify that with
respect to discharges occurring on or
after October 1, 2009 and before April
1, 2010, payments are based on the
standard Federal rate in § 412.523(c)(v)
updated by 2.0 percent (that is, a
standard Federal rate of $39,896.65 (see
74 FR 44022)). We note that the
provisions of the law that add sections
1886(m)(3) and (4) of the Act are selfimplementing and in this supplemental
proposed rule, we are proposing to
incorporate existing law regarding the
0.25 percentage point reduction to the
annual update to the standard Federal
rate for RY 2010 (including the
application of the revised standard
Federal rate that reflects that 0.25
percentage point reduction in making
payments for discharges on or after
April 1, 2010) into the regulations at
§ 412.529(c)(3)(vi) to reflect this
required policy change.
4. Proposed Market Basket Update for
LTCHs for FY 2011
As discussed in section VII.C.2. of the
preamble of the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule, we are
proposing to continue to use the FY
2002-based rehabilitation, psychiatric,
long-term care (RPL) hospital market
basket under the LTCH PPS for FY 2011.
Also, in that proposed rule, we stated
that at this time, the most recent
estimate of the increase in the proposed
LTCH PPS market basket (that is, the FY
2002-based RPL market basket) for FY
2011 is 2.4 percent. This increase is
based on IHS Global Insight, Inc.’s first
quarter 2010 forecast, with historical
data through the 2009 fourth quarter, of
the FY 2002-based RPL market basket
increase. Since publication of the May
4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule our estimate of the FY
2002-based RPL market basket for FY
2011 has not changed. Furthermore, as
also stated in the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule,
consistent with our historical practice of
using market basket estimates based on
the most recent available data, we
propose that if more recent data are
available when we develop the final
rule, we would use such data, if
appropriate.
Section 1886(m)(3)(A)(ii) of the Act as
added by section 3401(c) of Public Law
111–148 specifies that for each of RYs
2010 through 2019, any annual update
to the standard Federal rate shall be
reduced by the other adjustment
specified in new section 1886(m)(4) of
the Act. Furthermore, section
1886(m)(3)(A)(i) of the Act specifies that
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for rate year 2012 and each subsequent
rate year, any annual update to the
standard Federal rate shall be reduced
by the productivity adjustment
described in section 1866(b)(3)(B)(xi)(II)
of the Act.
For FY 2011, section 1886(m)(4)(B) of
the Act as added by section 3401(c) of
Public Law 111–148, as amended by
section 10319 of Public Law 111–148
and as further amended by section
1105(b) of Public Law 111–152, requires
a 0.50 percentage point reduction to the
annual update to the standard Federal
rate for rate year 2011. Consequently,
the proposed market basket update
under the LTCH PPS for FY 2011 is 1.9
percent (that is, the most recent estimate
of the LTCH PPS market basket of 2.4
percent minus the 0.50 percentage
points required in section 1886(m)(4)(B)
of the Act. Again, we note that
consistent with our historical practice of
using market basket estimates based on
the most recent available data, we
propose that if more recent data are
available when we develop the final
rule, we would use such data, if
appropriate, in determining the final
market basket update under the LTCH
PPS for FY 2011. (We note that in
section III.A. of the Addendum to this
supplemental proposed rule, for FY
2011, we are proposing to update the
LTCH PPS standard Federal rate by
¥0.59 percent. This proposed update
reflects proposed market basket update
under the LTCH PPS for FY 2011 (of 1.9
percent as discussed above) and a
proposed adjustment to account for the
increase in case-mix in the prior periods
that resulted from changes in
documentation and coding practices
rather than increases in patients’
severity of illness (discussed in section
VII.C.3. of the preamble of the May 4,
2010 FY 2011 IPPS/LTCH PPS proposed
rule).)
5. Proposed Medicare Severity LongTerm Care Diagnosis-Related Group
(MS–LTC–DRG) Relative Weights
As discussed above, the proposed
LTCH PPS policies and payment rates in
the May 4, 2010 FY 2011 IPPS/LTCH
PPS proposed rule do not reflect the
provisions of the Affordable Care Act.
The revised proposed standard Federal
rate for FY 2011 that incorporates the
‘‘other adjustment’’ required in section
1886(m)(3)(A)(ii) as amended and
described in section 1886(m)(4) as
amended is discussed in section III.A. of
the Addendum of this supplemental
proposed rule. This revision to the
proposed standard Federal rate for FY
2011 requires us to revise the proposed
relative weights for the MS–LTC–DRGs
for FY 2011. This is the case since our
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established methodology for updating
the annual update to the MS–LTC–DRG
classifications and relative weights in a
budget neutral manner requires that
estimated aggregate LTCH PPS
payments would be unaffected. That is,
under the budget neutrality requirement
estimated aggregate LTCH PPS
payments would be neither greater than
nor less than the estimated aggregate
LTCH PPS payments that would have
been made without the MS–LTC–DRG
classification and relative weight
changes.
As discussed in section VII.B.3.g.
(step 7) of the preamble of the May 4,
2010 FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 24042 through 24043), we
proposed to use our established twostep budget neutrality methodology. In
the first step of our MS–LTC–DRG
budget neutrality methodology, we
calculate and apply a normalization
factor to the proposed recalibrated
relative weights to ensure that estimated
payments are not influenced by changes
in the composition of case types or the
changes to the classification system.
That is, the normalization adjustment is
intended to ensure that the recalibration
of the proposed MS–LTC–DRG relative
weights (that is, the process itself)
neither increases nor decreases the
average case-mix index (CMI). The
normalization factor is calculated using
the ratio average CMIs (that is, the
average MS–LTC–DRG relative weight)
and is independent of the standard
Federal rate. (We refer readers to the FY
2011 IPPS/LTCH PPS proposed rule for
additional details on the proposed
calculation of the normalization factor
applied used in determining the
proposed FY 2011 MS–LTC–DRG
relative weights (75 FR 24042 through
24043).) Therefore, this step was not
revised for this supplemental proposed
rule. However, in the second step of our
established two-step budget neutrality
methodology (described in section
VII.B.3.g. (step 7) of the preamble of the
May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule), for FY 2011 we
proposed to determine a budget
neutrality adjustment factor based on
simulating estimated total LTCH PPS
payments. Consequently, revising the
standard Federal rate to reflect the
provisions of newly added sections
1886(m)(3)(A)(ii) and (4) of the Act
would impact the estimated aggregated
LTCH PPS payments upon which we
determine the proposed budget
neutrality factor applied in determining
the proposed FY 2011 MS–LTC–DRG
relative weights.
For this supplemental proposed rule,
consistent with the proposed
methodology described in the May 4,
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2010 FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 24042 through 24043), we
are proposing to apply a budget
neutrality adjustment factor of 0.987632
in determining the proposed FY 2011
MS–LTC–DRG relative weights, which
was determined based on payments
simulations after using the proposed FY
2011 standard Federal rate that reflects
the reductions required by sections
1886(m)(3)(A)(ii) and (4)(A) and (B) of
the Act (discussed above) and LTCH
claims from the December 2009 update
of the FY 2009 MedPAR files (that is the
same data used in the May 4, 2010 FY
2011 IPPS/LTCH PPS proposed rule).
Specifically, we determined the
proposed FY 2011 budget neutrality
adjustment factor using the following
three steps: (2.a.) we simulate estimated
total LTCH PPS payments using the
normalized proposed relative weights
for FY 2011 and GROUPER Version 28.0
(as described above); (2.b.) we simulate
estimated total LTCH PPS payments
using the FY 2010 GROUPER (Version
27.0) and the FY 2010 MS–LTC–DRG
relative weights shown in Table 11 of
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 44183 through 44192);
and (2.c.) we calculate the ratio of these
estimated total LTCH PPS payments by
dividing the estimated total LTCH PPS
payments using the FY 2010 GROUPER
(Version 27.0) and the FY 2010 MS–
LTC–DRG relative weights (determined
in step 2.b.) by the estimated total LTCH
PPS payments using the proposed FY
2011 GROUPER (Version 28.0) and the
normalized proposed MS–LTC–DRG
relative weights for FY 2011
(determined in Step 2.a.).
Therefore, under our established twostep budget neutrality methodology, in
determining the proposed FY 2011 MS–
LTC–DRG relative weights, each
normalized proposed relative weight
(determined as described in section
VII.C.3.g.(step 7) of the preamble of the
May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule) is multiplied by a budget
neutrality factor of 0.987632 in the
second step of the budget neutrality
methodology to determine the proposed
budget neutral FY 2011. (We note that
in determining the proposed FY 2011
budget neutral MS–LTC–DRG relative
weights for this supplemental proposed
rule, with the exception of the proposed
budget neutrality adjustment factor of
0.987632 discussed above, we used the
proposed methodology as presented in
the May 4, 2010 FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24042
through 24043).) Consistent with our
historical policy of using the best
available data, we are proposing to use
the most recent available data for
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determining the budget neutrality
adjustment factor in the final rule.
Accordingly, in determining the
proposed FY 2011 MS–LTC–DRG
relative weights in Table 11 in the
Addendum to this supplemental
proposed rule, consistent with our
existing methodology, we are proposing
to apply a normalization factor of
1.10362 (computed as described in
section VII.C.3.g. (step 7) of the
preamble to the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule) and a
budget neutrality factor of 0.987632
(computed as described above). Table 11
in the Addendum to this supplemental
proposed rule lists the proposed MS–
LTC–DRGs and their respective
proposed relative weights, geometric
mean length of stay, and five-sixths of
the geometric mean length of stay (used
in determining SSO payments under
§ 412.529) for FY 2011. (We note that
there are no changes to the geometric
mean length of stay and five-sixths of
the geometric mean length of stay that
were published in Table 11 of the May
4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule as the calculation of these
statistics is independent of the standard
Federal rate.)
III. Other Required Information
A. Collection of Information
Requirements
This document does not impose
information collection and
recordkeeping requirements.
Consequently, it need not be reviewed
by the Office of Management and
Budget under the authority of the
Paperwork Reduction Act of 1995 (44
U.S.C. Chapter 35).
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B. Waiver of 60-Day Comment Period
We ordinarily publish a notice of
proposed rulemaking in the Federal
Register and permit a 60-day comment
period, as provided in section 1871(b)(1)
of the Act. This period, however, may
be shortened, as provided under section
1871(b)(2)(C) of the Act, when the
Secretary finds good cause that a 60-day
comment period would be
impracticable, unnecessary, or contrary
to the public interest and incorporates a
statement of the finding and its reasons
in the rule issued. For this supplemental
proposed rule, we are waiving the 60day comment period for good cause and
allowing a comment period that
coincides with the comment period
provided for on the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 23852).
As we explained in the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 23859),
due to the timing of the enactment of
Public Law 111–148 and Public Law
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111–152, the policies and payment rates
outlined in the proposed rule did not
reflect the changes made by either law
to the IPPS and LTCH PPS. This
supplemental proposed rule addresses
the changes that affect our proposed
policies and payment rates for FY 2011
under the IPPS and the LTCH PPS.
A 60-day comment period on this
supplemental proposed rule would be
both impracticable and contrary to the
public interest because it would not
allow for coordinated consideration of
the comments on this supplemental
proposed rule with those on the FY
2011 IPPS/LTCH PPS proposed rule.
Because the issues raised in this
supplemental proposed rule are integral
to our consideration of comments on
certain proposals in the FY 2011 IPPS/
LTCH PPS proposed rule, we do not
believe it would be appropriate to
review comments on the issues raised in
this supplemental proposed rule in
isolation from the comments received
on the FY 2011 IPPS/LTCH PPS
proposed rule. We further note that a
full 60-day comment period would end
on a date that would not allow the
agency sufficient time to process the
comments and respond to them in a
meaningful manner by the August 1,
2010 date for issuing the final rule. If we
allowed for a full 60-day comment
period, timely filed comments would
receive a shorter period of time for
consideration by the agency, and the
agency would be left with insufficient
time to properly respond to comments
and appropriately resolve whether any
of the proposed policies should be
modified in light of comments received.
For all of these reasons, we find good
cause to waive the 60-day comment
period for this rule of proposed
rulemaking, and we are instead
providing for a comment period that
coincides with the comment period
provided for the FY 2011 IPPS/LTCH
PPS proposed rule that appeared in the
May 4, 2010 Federal Register.
IV. Response to Comments
Because of the large number of public
comments we normally receive on
Federal Register documents, we are not
able to acknowledge or respond to them
individually. We will consider all
comments we receive by the date and
time specified in the DATES section of
this preamble, and, when we proceed
with a subsequent document, we will
respond to the comments in the
preamble to that document.
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List of Subjects
42 CFR Part 412
Administrative practice and
procedure, Health facilities, Medicare,
Puerto Rico, Reporting and
recordkeeping requirements.
42 CFR Part 413
Health facilities, Kidney diseases,
Medicare, Puerto Rico, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble
of this proposed rule, the Centers for
Medicare & Medicaid Services is
proposing to amend 42 CFR chapter IV
as follows:
PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
1. The authority citation for part 412
continues to read as follows:
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh), and sec. 124 of Public Law 106–113
(113 Stat. 1501A–332).
§ 412.23
[Amended]
2. In § 412.23, paragraphs (e)(6)(i) and
(e)(7)(ii) are amended by removing the
date ‘‘December 28, 2010’’ and adding
the date ‘‘December 28, 2012’’ in its
place.
3. Section 412.64 is amended by—
A. Revising paragraphs (d)(1) and
(e)(4).
B. Adding a new paragraph (m).
§ 412.64 Federal rates for inpatient
operating costs for Federal fiscal year 2005
and subsequent fiscal years.
*
*
*
*
*
(d) Applicable percentage change for
fiscal year 2005 and for subsequent
fiscal years.
(1) Subject to the provisions of
paragraph (d)(2) of this section, the
applicable percentage change for
updating the standardized amount is—
(i) For fiscal year 2005 through fiscal
year 2009, the percentage increase in the
market basket index for prospective
payment hospitals (as defined in
§ 413.40(a) of this subchapter) for
hospitals in all areas.
(ii) For fiscal year 2010, for
discharges—
(A) On or after October 1, 2009 and
before April 1, 2010, the percentage
increase in the market basket index for
prospective payment hospitals (as
defined in § 413.40(a) of this
subchapter) for hospitals in all areas;
and
(B) On or after April 1, 2010 and
before October 1, 2010, the percentage
increase in the market basket index
minus 0.25 percentage points for
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prospective payment hospitals (as
defined in § 413.40(a) of this
subchapter) for hospitals in all areas.
(iii) For fiscal year 2011, the
percentage increase in the market basket
index minus 0.25 percentage points for
prospective payment hospitals (as
defined in § 413.40(a) of this
subchapter) for hospitals in all areas.
*
*
*
*
*
(e) * * *
(4) CMS makes an adjustment to the
wage index to ensure that aggregate
payments after implementation of the
rural floor under section 4410 of the
Balanced Budget Act of 1997 (Pub. L.
105–33) and the imputed floor under
paragraph (h)(4) of this section are equal
to the aggregate prospective payments
that would have been made in the
absence of such provisions as follows:
(i) Beginning October 1, 2008, such
adjustment is transitioned from a
nationwide to a statewide adjustment as
follows:
(A) From October 1, 2008 through
September 30, 2009, the wage index is
a blend of 20 percent of a wage index
with a statewide adjustment and 80
percent of a wage index with a
nationwide adjustment.
(B) From October 1, 2009 through
September 30, 2010, the wage index is
a blend of 50 percent of a wage index
with a statewide adjustment and 50
percent of a wage index with a
nationwide adjustment.
(ii) Beginning October 1, 2010, such
adjustment is a full nationwide
adjustment.
*
*
*
*
*
(m) Adjusting the wage index to
account for the Frontier State floor.
(1) General criteria. For discharges
occurring on or after October 1, 2010,
CMS adjusts the hospital wage index for
hospitals located in qualifying States to
recognize the wage index floor
established for frontier States. A
qualifying frontier State meets both of
the following criteria:
(i) At least 50 percent of counties
located within the State have a reported
population density less than 6 persons
per square mile.
(ii) The State does not receive a nonlabor related share adjustment
determined by the Secretary to take into
account the unique circumstances of
hospitals located in Alaska and Hawaii.
(2) Amount of wage index adjustment.
A hospital located in a qualifying State
will receive a wage index value not less
than 1.00.
(3) Process for determining and
posting wage index adjustments. (i)
CMS uses the most recent Population
Estimate data published by the U.S.
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Census Bureau to determine county
definitions and population density. This
analysis will be periodically revised,
such as for updates to the decennial
census data.
(ii) CMS will include a listing of
qualifying Frontier States and denote
the hospitals receiving a wage index
increase attributable to this provision in
its annual updates to the hospital
inpatient prospective payment system
published in the Federal Register.
4. Section 412.73 is amended by—
A. Revising paragraph (c)(15).
B. Adding a new paragraph (c)(16).
The revision and addition read as
follows:
§ 412.73 Determination of the hospital
specific rate based on a Federal fiscal year
1982 base period.
*
*
*
*
*
(c) * * *
(15) For Federal fiscal year 2003
through Federal fiscal year 2009. For
Federal fiscal year 2003 through Federal
fiscal year 2009, the update factor is the
percentage increase in the market basket
index for prospective payment hospitals
(as defined in § 413.40(a) of this
chapter).
(16) For Federal fiscal year 2010 and
subsequent years. For Federal fiscal year
2010 and subsequent years, the update
factor is the percentage increase
specified in § 412.64(d).
*
*
*
*
*
§ 412.75
[Amended]
5. In § 412.75, paragraph (d) is
amended by removing the citation
‘‘§ 412.73(c)(15)’’ and adding the citation
‘‘§ 412.73(c)(15) and § 412.73(c)(16)’’ in
its place.
§ 412.77
[Amended]
6. In § 412.77, paragraph (e) is
amended by removing the reference
‘‘(c)(15)’’ and adding the reference
‘‘(c)(16)’’ in its place.
§ 412.78
[Amended]
7. In § 412.78, paragraph (e) is
amended by removing the citation
‘‘§ 412.73(c)(15)’’ and adding the citation
‘‘§ 412.73(c)(15) and § 412.73(c)(16)’’ in
its place.
§ 412.79
[Amended]
8. In § 412.79, paragraph (d) is
amended by removing the phrase ‘‘and
(c)(15)’’ and adding the phrase ‘‘through
(c)(16)’’ in its place.
9. Section 412.101 is revised to read
as follows:
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Sfmt 4702
§ 412.101 Special treatment: Inpatient
hospital payment adjustment for lowvolume hospitals.
(a) Definitions. Beginning in FY 2011,
the terms used in this section are
defined as follows:
Medicare discharges means discharge
of inpatients entitled to Medicare Part
A, including discharges associated with
individuals whose inpatient benefits are
exhausted or whose stay was not
covered by Medicare and also
discharges of individuals enrolled in a
MA organization under Medicare Part C.
Road miles means ‘‘miles’’ as defined
in § 412.92(c)(1).
(b) General considerations. (1) CMS
provides an additional payment to a
qualifying hospital for the higher
incremental costs associated with a low
volume of discharges. The amount of
any additional payment for a qualifying
hospital is calculated in accordance
with paragraph (c) of this section.
(2) In order to qualify for this
adjustment a hospital must meet the
following criteria:
(i) For FY 2005 through FY 2010, a
hospital must have less than 200 total
discharges, which includes Medicare
and non-Medicare discharges, during
the fiscal year, as reflected in its cost
report specified in paragraph (b)(3) of
this section, and be located more than
25 road miles (as defined in paragraph
(a) of this section from the nearest
‘‘subsection (d)’’ (section 1886(d) of the
Act) hospital.
(ii) For FY 2011 and FY 2012, a
hospital must have less than 1,600
Medicare discharges, as defined in
paragraph (a) of this section, during the
fiscal year, as reflected in its cost report
specified in paragraph (b)(3) of this
section, and be located more than 15
road miles, as defined in paragraph (a)
of this section, from the nearest
‘‘subsection (d)’’ (section 1886(d) of the
Act) hospital.
(iii) For FY 2013 and subsequent
fiscal years, a hospital must have less
than 200 total discharges, which
includes Medicare and non-Medicare,
during the fiscal year, as reflected in its
cost report specified in paragraph (b)(3)
of this section, and be located more than
25 road miles as defined in paragraph
(a) of this section from the nearest
‘‘subsection (d)’’ (section 1886(d) of the
Act) hospital.
(3) The fiscal intermediary or
Medicare administrative contractor
makes the determination of the
discharge count for purposes of
determining a hospital’s qualification
for the adjustment based on the
hospital’s most recently submitted cost
report and for qualification for FYs 2011
and 2012 other documentation of
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Medicare discharges (as defined in
paragraph (a) of this section).
(4) In order to qualify for the
adjustment, a hospital must provide its
fiscal intermediary or Medicare
administrative contractor with sufficient
evidence that it meets the distance
requirement specified under paragraph
(b)(2) of this section. The fiscal
intermediary or Medicare administrative
contractor will base its determination of
whether the distance requirement is
satisfied upon the evidence presented
by the hospital and other relevant
evidence, such as maps, mapping
software, and inquiries to State and
local police, transportation officials, or
other government officials.
(c) Determination of the adjustment
amount. The low-volume adjustment for
hospitals that qualify under paragraph
(b) of this section are as follows for the
applicable fiscal year:
(1) For FY 2005 through FY 2010, the
adjustment is 25 percent for each
Medicare discharge.
(2) For FY 2011 and FY 2012, the
adjustment is as follows:
Medicare discharge range
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1–200 ......................................
201–301 ..................................
301–400 ..................................
401–500 ..................................
501–600 ..................................
601–700 ..................................
701–800 ..................................
801–900 ..................................
901–1,000 ...............................
1,001–1,100 ............................
1,101–1,200 ............................
1,201–1,300 ............................
1,301–1,400 ............................
1,401–1,500 ............................
1,501–1,599 ............................
1,600 or more .........................
21.6667
20.0000
18.3333
16.6667
15.0000
13.3333
11.6667
10.0000
8.3333
6.6667
5.0000
3.3333
1.6667
0.0000
[Amended]
10. Section 412.108 is amended as
follows:
VerDate Mar<15>2010
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§ 412.211 Puerto Rico rates for Federal
fiscal year 2004 and subsequent fiscal
years.
*
*
*
*
(c) Computing the standardized
amount. CMS computes a Puerto Rico
standardized amount that is applicable
to all hospitals located in all areas. The
applicable percentage change for
updating the Puerto Rico specific
standardized amount is as follows:
(1) For fiscal year 2004 through fiscal
year 2009, increased by the applicable
percentage change specified in
§ 412.64(d)(1)(ii)(A).
(2) For fiscal year 2010, increased by
the market basket index for prospective
payment hospitals (as defined in
§ 413.40(a) of this subchapter) for
Payment
hospitals in all areas.
adjustment
(3) For fiscal year 2011, increased by
(percent
add-on)
the applicable percentage change
specified in § 412.64(d)(1)(iii).
25.0000
*
*
*
*
23.3333 *
(3) For FY 2013 and subsequent years,
the adjustment is 25 percent for each
Medicare discharge.
(d) Eligibility of new hospitals for the
adjustment. A new hospital will be
eligible for a low-volume adjustment
under this section once it has submitted
a cost report for a cost reporting period
that indicates that it meets discharge
requirements during the applicable
fiscal year and has provided its fiscal
intermediary or Medicare administrative
contractor with sufficient evidence that
it meets the distance requirement, as
specified under paragraph (b)(2) of this
section.
§ 412.108
A. In paragraph (a)(1) introductory
text the phrase ‘‘before October 1, 2011’’
is removed and the phrase ‘‘before
October 1, 2012’’ is added in its place.
B. In paragraph (c)(2)(iii) introductory
text the phrase ‘‘before October 1, 2010’’
is removed and the phrase ‘‘before
October 1, 2012’’ is added in its place.
11. Section 412.211 is amended by
revising paragraph (c) to read as follows:
Jkt 220001
*
§ 412.230
[Amended]
12. In § 412.230 paragraph
(d)(1)(iv)(E) is amended by removing the
figures ‘‘86’’ and ‘‘88’’ adding the figures
‘‘82’’ and ‘‘84’’ in their place,
respectively.
30973
(3) * * *
(vi) For long-term care hospital
prospective payment system rate year
beginning October 1, 2009 and ending
September 30, 2010. (A) The standard
Federal rate for long-term care hospital
prospective payment system rate year
beginning October 1, 2009 and ending
September 30, 2010 is the standard
Federal rate for the previous long-term
care hospital prospective payment
system rate year updated by 1.74
percent. The standard Federal rate is
adjusted, as appropriate, as described in
paragraph (d) of this section.
(B) With respect to discharges
occurring on or after October 1, 2009
and before April 1, 2010, payments are
based on the standard Federal rate in
paragraph (c)(3)(v) of this section
updated by 2.0 percent.
(vii) For long-term care hospital
prospective payment system fiscal year
beginning October 1, 2010, and ending
September 30, 2011. The standard
Federal rate for the long-term care
hospital prospective payment system
fiscal year beginning October 1, 2010,
and ending September 30, 2011, is the
standard Federal rate for the previous
long-term care hospital prospective
payment system rate year updated by
¥0.59 percent. The standard Federal
rate is adjusted, as appropriate, as
described in paragraph (d) of this
section.
*
*
*
*
*
§ 412.529
[Amended]
13. In § 412.232, paragraph (c)(3) is
amended by removing the figure ‘‘88’’
and adding the figure ‘‘85’’ in its place.
16. In § 412.529, paragraphs (c)(2)
introductory text and (c)(3) introductory
text are amended by removing the date
‘‘December 29, 2010’’ and adding in its
place the date ‘‘December 29, 2012’’ each
time it appears.
§ 412.234
§ 412.534
§ 412.232
[Amended]
[Amended]
14. In § 412.234, paragraph (b)(3) is
amended by removing the figure ‘‘88’’
and adding the figure ‘‘85’’ in its place.
§ 412.523
[Amended]
15. Section 412.523 is amended as
follows:
A. Revise paragraph (c)(3)(vi).
B. Add paragraph (c)(3)(vii).
C. Paragraph (d)(3) is amended by
removing the phrase ‘‘December 29,
2010, and by no later than October 1,
2012’’ and adding the phrase ‘‘December
29, 2012,’’ in its place.
The revision and addition read as
follows:
§ 412.523 Methodology for calculating the
Federal prospective payment rates.
*
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*
*
(c) * * *
Frm 00057
*
Fmt 4701
*
Sfmt 4702
[Amended]
17. Section 412.534 is amended as
follows:
A. Paragraphs (c)(1), (c)(2), (d)(1),
(d)(2), (e)(1), (e)(2) are amended by
removing the date ‘‘October 1, 2010’’ and
adding in its place the date ‘‘October 1,
2012’’ each time it appears.
B. Paragraphs (c)(3), (d)(3), (e)(3),
(h)(4), and (h)(5) are amended by
removing the date ‘‘July 1, 2010’’ and
adding in its place the date ‘‘July 1,
2012’’ each time it appears.
§ 412.536
[Amended]
18. In § 412.536, paragraph (a)(2)
introductory text is amended by
removing the date ‘‘July 1, 2010’’ and
adding the date ‘‘July 1, 2012’’ in its
place.
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30974
Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Proposed Rules
Dated: May 13, 2010.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare
& Medicaid Services.
Approved: May 18, 2010.
Kathleen Sebelius,
Secretary.
PART 413—PRINCIPLES OF
REASONABLE COST
REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE
SERVICES; OPTIONAL
PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED
NURSING FACILITIES
19. The authority citation for part 413
continues to read as follows:
Note: The following Addendum and
Appendix will not appear in the Code of
Federal Regulations.
Authority: Secs. 1102, 1812(d), 1814(b),
1815, 1833(a), (i), and (n), 1861(v), 1871,
1881, 1883, and 1886 of the Social Security
Act (42 U.S.C. 1302, 1395d(d), 1395f(b),
1395g, 1395l(a), (i), and (n), 1395x(v),
1395hh, 1395rr, 1395tt, and 1395ww); and
sec. 124 of Public Law 106–133 (113 Stat.
1501A–332).
Addendum: FY 2011 Supplemental
Proposed Payment Rates
20. Section 413.70 is amended as
follows:
A. Revise paragraph (b)(3)(ii)(A).
B. Redesignate paragraph (b)(5)(i) as
(b)(5)(i)(A).
C. In newly redesignated paragraph
(b)(5)(i)(A), the phrase ‘‘on or after
December 21, 2000,’’ is removed and the
phrase ‘‘on or after December 21, 2000
and on or before December 31, 2003,’’ is
added in its place.
D. Add a new paragraph (b)(5)(i)(B).
The revision and addition read as
follows:
As discussed in section II.B. of the
preamble to this supplemental proposed rule,
changes to the applicable percentage
increase, wage index, and rural community
hospital demonstration mandated by the
Affordable Care Act necessitate the
recalculation of the FY 2011 proposed budget
neutrality factors, outlier threshold and
standardized amounts. In the FY 2011 IPPS/
LTCH PPS proposed rule we explained our
methodology for calculating the FY 2011
proposed budget neutrality factors (75 FR
24062 through 24073). Except as explained
below, we apply this same methodology in
recalculating these budget neutrality
adjustments to reflect the changes to the
standardized amount required by the
Affordable Care Act. A complete discussion
of our computation of the FY 2011 proposed
budget neutrality factors, outlier threshold
and standardized amounts is found below.
§ 413.70
Payment for services of a CAH.
jlentini on DSKJ8SOYB1PROD with PROPOSALS2
*
*
*
*
*
(b) * * *
(3) * * *
(ii) * * *
(A) Effective for cost reporting periods
beginning on or after January 1, 2004,
for facility services not including any
services for which payment may be
made under paragraph (b)(3)(ii)(B) of
this section, 101 percent of the
reasonable costs of the services as
determined under paragraph (b)(2)(i) of
this section; and
*
*
*
*
*
(5) * * *
(i) * * *
(B) Effective for cost reporting periods
beginning on or after January 1, 2004,
payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a 35mile drive of the CAH or the entity.
*
*
*
*
*
Authority:
(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—Hospital
Insurance; and Program No. 93.774,
Medicare—Supplementary Medical
Insurance Program)
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Jkt 220001
I. Supplemental Proposed FY 2011
Prospective Payment Systems Payment
Rates for Hospital Inpatient Operating
and Capital Related Costs
A. Updating the Average Standardized
Amounts
As discussed section II.B. of the preamble
to this supplemental proposed rule, sections
3401(a) and section 10319(a) of Public Law
111–148, amends section 1886(b)(3)(B)(i) of
the Act to provide that the FY 2011
applicable percentage increase for IPPS
hospitals equals the rate-of-increase in the
hospital market basket for IPPS hospitals in
all areas minus a 0.25 percentage point,
subject to the hospital submitting quality
information under rules established by the
Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act. For hospitals
that fail to submit quality data consistent
with section 1886(b)(3)(B)(viii) of the Act, the
update is equal to the market basket
percentage increase minus a 0.25 percentage
point less an additional 2.0 percentage
points. Therefore, for this supplemental
proposed rule, based on IHS Global Insight,
Inc.’s first quarter 2010 forecast of the FY
2011 market basket increase, the estimated
update to the FY 2011 operating standardized
amount is 2.15 percent (that is, the FY 2011
estimate of the market basket rate-of-increase
of 2.4 percent minus 0.25 percentage points)
for hospitals in all areas, provided the
hospital submits quality data in accordance
with our rules. For hospitals that do not
submit quality data, the estimated update to
the operating standardized amount is 0.15
percent (that is, the adjusted FY 2011
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estimate of the market basket rate-of-increase
of 2.15 percent minus 2.0 percentage points).
B. Proposed Budget Neutrality Adjustments
Factors for Recalibration of DRG Weights and
Updated Wage Index
In the FY 2011 IPPS/LTCH PPS proposed
rule we explained our methodology for
calculating the FY 2011 proposed DRG
reclassification and recalibration and
updated wage index budget neutrality factor
(75 FR 24064). Except as explained below,
we apply this same methodology in
recalculating this budget neutrality
adjustment to reflect the changes to the
standardized amount required by the
Affordable Care Act.
As discussed above, sections 3401(a) and
section 10319(a) of Public Law 111–148
amends section 1886(b)(3)(B)(i) of the Act,
which defines the applicable percentage
increase. Although these amendments
modify the applicable percentage increase
applicable to the FY 2010 rates under the
IPPS, section 3401(p) of Public Law 111–148
states that the amendments do not apply to
discharges occurring prior to April 1, 2010.
Accordingly, for purposes of determining
payment amounts for discharges occurring on
or after April 1, 2010, in order to comply
with the statute in section 3401(p) of Public
Law 111–148, we applied the revised FY
2010 rates effective with discharges on or
after April 1, 2010 until the end of FY 2010.
However, for purposes of determining the
budget neutrality adjustments for FY 2011,
the statute requires us to simulate the FY
2010 hospital as if hospitals were paid for all
of FY 2010 based on the FY 2010 rates that
are effective for payments for discharges
occurring on or after April 1, 2010.
For FY 2011 we are proposing a proposed
DRG reclassification and recalibration factor
of 0.996867 and a proposed budget neutrality
factor of 1.000070 for changes to the wage
index. We multiplied the proposed DRG
reclassification and recalibration budget
neutrality factor of 0.996867 by the proposed
budget neutrality factor of 1.000070 for
changes to the wage index to determine the
proposed DRG reclassification and
recalibration and updated wage index budget
neutrality factor of 0.996937 (as required by
sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E)(i)
of the Act).
C. Reclassified Hospitals—Budget Neutrality
Adjustment
Due to the Affordable Care Act, it is also
necessary to revise the reclassification budget
neutrality factor. As discussed in section II.A.
of the preamble to this supplemental
proposed rule, section 3137(c) of Public Law
111–148 revised the average hourly wage
standards resulting in our estimate that 23
additional hospitals will be reclassified (or
receive their primary reclassifications. Using
the methodology proposed in the FY 2011
IPPS proposed rule, and incorporating the
provision above, we computed a factor of
0.991476 for reclassification budget
neutrality, as required by section
1886(d)(8)(D) of the Act.
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D. Rural and Imputed Floor Budget
Neutrality
We make an adjustment to the wage index
to ensure that aggregate payments after
implementation of the rural floor under
section 4410 of the BBA (Pub. L. 105–33) and
the imputed floor under § 412.64(h)(4) of the
regulations are made in a manner that
ensures that aggregate payments to hospitals
are not affected. As discussed in section III.B.
of the preamble of the FY 2009 IPPS final
rule (73 FR 48570 through 48574), we
adopted as final State level budget neutrality
for the rural and imputed floors, effective
beginning with the FY 2009 wage index. In
response to the public’s concerns and taking
into account the potentially significant
payment cuts that could occur to hospitals in
some States if we implemented this change
with no transition, we decided to phase in,
over a 3-year period, the transition from the
national rural floor budget neutrality
adjustment on the wage index to the State
level rural floor budget neutrality adjustment
on the wage index. In FY 2011 IPPS/LTCH
PPS proposed rule, in the absence of
provisions of Public Law 111–148, the
proposed adjustment would have been
completely transitioned to the State level
methodology, such that the wage index that
was proposed in the FY 2011 IPPS/LTCH
PPS proposed rule was determined by
applying 100 percent of the State level
budget neutrality adjustment. However,
section 3141 of Public Law 111–148 restores
the budget neutrality adjustment for the rural
and imputed floors to a uniform, national
adjustment, beginning with the FY 2011
wage index.
Using the same methodology in prior final
rules to calculate the national rural and
imputed floor budget neutrality adjustment
factor (which was part of the methodology to
calculate the blended rural and imputed floor
budget neutrality adjustment factors), to
determine the proposed wage index adjusted
by the national rural and imputed floor
budget neutrality adjustment, we used FY
2009 discharge data and proposed FY 2011
wage indices to simulate IPPS payments.
First, we compared the national simulated
payments without the rural and imputed
floors applied to national simulated
payments with the rural and imputed floors
applied to determine the national rural and
imputed floor budget neutrality adjustment
factor of 0.995425. This national adjustment
was then applied to the wage indices to
produce a national rural and imputed floor
budget neutral wage index.
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E. Proposed Rural Community Hospital
Demonstration Program Adjustment
As discussed in section II.F. of the
preamble to this supplemental proposed rule,
section 410A of Public Law 108–173 requires
the Secretary to establish a demonstration
that will modify reimbursement for inpatient
services for up to 15 small rural hospitals.
Section 410A(c)(2) of Public Law 108–173
requires that ‘‘in conducting the
demonstration program under this section,
the Secretary shall ensure that the aggregate
payments made by the Secretary do not
exceed the amount which the Secretary
would have paid if the demonstration
program under this section was not
implemented.’’ In the proposed rule we did
not apply an adjustment to the standardized
amount to ensure the effects of the rural
community hospital demonstration are
budget neutral. However, section 450(a) of
the MMA as amended by sections 3123 and
10313 of Public Law 111–148 extends the
demonstration for an additional 5 years, and
allows not more than 30 hospitals to
participate in the 20 least densely populated
States.
In order to achieve budget neutrality, we
are proposing to adjust the national IPPS
rates by an amount sufficient to account for
the added costs of this demonstration. In
other words, we are proposing to apply
budget neutrality across the payment system
as a whole rather than merely across the
participants of this demonstration, consistent
with past practice. We believe that the
language of the statutory budget neutrality
requirement permits the agency to implement
the budget neutrality provision in this
manner. The statutory language requires that
‘‘aggregate payments made by the Secretary
do not exceed the amount which the
Secretary would have paid if the
demonstration * * * was not implemented,’’
but does not identify the range across which
aggregate payments must be held equal. As
mentioned section II.F. of the preamble to
this supplemental proposed rule, the
proposed estimated amount for the
adjustment to the national IPPS rates for FY
2011 is $69,279,673. Accordingly to account
for the changes in the Affordable Care Act,
we computed a proposed factor of 0.999313
for the rural community hospital
demonstration program adjustment. We note
that because the settlement process for the
demonstration hospitals’ third year cost
reports, that is, cost reporting periods starting
in FY 2007, has experienced a delay, for this
FY 2011 IPPS proposed rule, we are unable
to state the costs of the demonstration
corresponding to FY 2007 and as a result are
unable to propose the specific numeric
adjustment representing this offsetting
process that would be applied to the national
IPPS rates (as discussed above). However, we
expect the cost reports beginning in FY 2007
for hospitals that participated during FY
2007 to be settled before the FY 2011 IPPS/
LTCH final rule is published. Therefore, for
the FY 2011 IPPS/LTCH PPS final rule, we
expect to be able to calculate the amount by
which the costs corresponding to FY 2007
exceeded the amount offset by the budget
neutrality adjustment for FY 2007.
F. Proposed FY 2011 Outlier Fixed-Loss Cost
Threshold
In order to compute the FY 2011 proposed
outlier threshold, we used the same
methodology in this supplemental proposed
rule that we used in the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24068 through
24069; and incorporated the provisions of
Pub. L. 111–148 and Pub. L. 111–152 as
discussed above). However, as discussed in
section II.A. of the preamble to this
supplemental proposed rule, in accordance
with section 10324(a) of Public Law 111–148,
beginning in FY 2011, we are proposing to
create a wage index floor of 1.00 for all
hospitals located in States determined to be
Frontier States. We noted that the Frontier
State floor adjustments will be calculated and
applied after rural and imputed floor budget
neutrality adjustments are calculated for all
labor market areas, so as to ensure that no
hospital in a Frontier State will receive a
wage index lesser than 1.00 due to the rural
and imputed floor adjustment. In accordance
with section 10324(a) of Public Law 111–148,
the Frontier State adjustment will not be
subject to budget neutrality, and will only be
extended to hospitals geographically located
within a Frontier State. However, for
purposes of estimating the proposed outlier
threshold for FY 2011, it is necessary to
apply this provision by adjusting the wage
index of those eligible hospitals in a Frontier
State when calculating the outlier threshold
that results in outlier payments being 5.1
percent of total payments for FY 2011. If we
did not take into account this provision, our
estimate of total FY 2011 payments would be
too low, and as a result, our proposed outlier
threshold would be too high, such that
estimated outlier payments would be less
than our projected 5.1 percent of total
payments.
We are proposing an outlier fixed-loss cost
threshold for FY 2011 equal to the
prospective payment rate for the DRG, plus
any IME and DSH payments, and any addon payments for new technology, plus
$24,165.
G. FY 2011 Proposed Outlier Adjustment
Factors
Using the same methodology in this
supplemental proposed rule that we used in
the FY 2011 IPPS/LTCH PPS proposed rule
(75 FR 24069; and incorporating the
provisions of the Affordable Care Act as
discussed above), we computed the following
proposed FY 2011 outlier adjustment factors
that are applied to the proposed FY 2011
standardized amount for the proposed FY
2011 outlier threshold:
Operating
standardized amounts
National ............................................................................................................................
Puerto Rico ......................................................................................................................
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30975
E:\FR\FM\02JNP2.SGM
0.948995
0.951459
02JNP2
Capital federal rate
0.943217
0.925238
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Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Proposed Rules
We calculated the proposed FY 2011
standardized amounts using the methodology
proposed in the FY 2011 IPPS proposed rule
taking into account the changes required by
the provisions of Public Law 111–148. Tables
1A and 1B in this supplemental proposed
rule contain the proposed national
standardized amount that we are applying to
all hospitals, except hospitals in Puerto Rico.
The proposed Puerto Rico-specific amounts
are shown in Table 1C. The proposed
amounts shown in Tables 1A and 1B differ
only in that the labor-related share applied to
the proposed standardized amounts in Table
1A is 68.8 percent, and the labor-related
share applied to the proposed standardized
amounts in Table 1B is 62 percent.
In addition, Tables 1A and 1B include the
proposed standardized amounts reflecting
the adjusted marker basket update of 2.15
percent update for FY 2011, and proposed
standardized amounts reflecting the 2.0
percentage point reduction to the update (a
0.15 percent update) applicable for hospitals
that fail to submit quality data consistent
with section 1886(b)(3)(B)(viii) of the Act.
Below is a revised table reflecting the
changes required by the provisions of the
Affordable Care Act that details the
calculation of the proposed FY 2011
standardized amounts. We note that our
proposed adjustment for documentation and
coding discussed at (75 FR 24065 through
24067) has not changed since publication of
the FY 2011 IPPS/LTCH proposed rule.
Similar to the FY 2011 IPPS/LTCH PPS
proposed rule, the adjustment of 0.957 is
reflected within the table below.
The proposed labor-related and nonlaborrelated portions of the national average
standardized amounts for Puerto Rico
hospitals for FY 2011 are set forth in Table
1C in this supplemental proposed rule. (The
labor-related share applied to the Puerto
Rico-specific standardized amount is either
62.1 percent or 62 percent, depending on
which is more advantageous to the hospital.)
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H. Proposed FY 2011 Standardized Amount
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I. Proposed Adjustments for Area Wage
Levels
The following wage index tables were
revised in this supplemental proposed rule as
a result of the provisions of Public Law 111–
148: Tables 2, 4A, 4B, 4C, 4D–2, 4J, and 9A.
(These tables are also available on the CMS
Web site.)
II. Supplemental Proposed FY 2011
Prospective Payment Systems Payment Rates
for Capital Related Costs
Although the provisions of Public Law
111–148, do not directly affect the payment
rates and policies for the IPPS for capitalrelated costs, as discussed in section II.G. of
the preamble of this supplemental proposed
rule, we are proposing the capital IPPS
standard Federal rates for FY 2011. This is
necessary because the wage index changes
required by the provisions of Public Law
111–148 (discussed above in section II.A. of
preamble to this supplemental proposed rule)
affect the proposed budget neutrality
adjustment factor for changes in DRG
classifications and weights and the
geographic adjustment factor (GAF) since the
GAF values are derived from the wage index
values (see § 412.316(a)). In addition, the
provisions of Public Law 111–148, also
necessitate a revision to the proposed outlier
payment adjustment factor since a single set
of thresholds is used to identify outlier cases
for both inpatient operating and inpatient
capital-related payments (see § 412.312(c)).
In this supplemental proposed rule, we
have calculated the proposed FY 2011 capital
Federal rates, offsets, and budget neutrality
factors using the same methodology we
proposed in the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule (CMS–1498–P) that
was used to calculate the proposed rates
included in that rule which did not reflect
the provision of Public Law 111–148. For a
complete description of this methodology,
please see the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24073
through 24082).
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A. Proposed Capital Standard Federal Rate
Update for FY 2011
The proposed factors used in the update
framework are not affected by the provisions
of the Affordable Care Act. Therefore, the
proposed update factor for FY 2011 is not
being revised from the proposed capital IPPS
standard Federal rate update factor discussed
in section III.A.1. of the Addendum to the
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May 4, 2010 FY 2011 IPPS proposed rule and
remains at 1.5 percent for FY 2011.
A full discussion of the proposed update
framework is provided in that proposed rule
(75 FR 24074 through 24076).
B. Proposed Outlier Payment Adjustment
Factor
Based on the thresholds as set forth in
section III.A.6. of this Addendum, we
estimate that outlier payments for capitalrelated costs would equal 5.68 percent for
inpatient capital-related payments based on
the proposed capital Federal rate in FY 2011.
Therefore, we are proposing to apply an
outlier adjustment factor of 0.9432 in
determining the capital Federal rate. For FY
2010, after taking into account the provisions
of the Affordable Care Act, we estimated that
outlier payments for capital would equal 5.22
percent of inpatient capital-related payments
(which required an outlier adjustment factor
of 0.9478) based on the capital Federal rate
in FY 2010 (as discussed elsewhere in this
Federal Register). Thus, we estimate that the
percentage of capital outlier payments to
total capital standard payments for FY 2011
would be higher than the percentage for FY
2010. This increase in capital outlier
payments is primarily due to the estimated
decrease in capital IPPS payments per
discharge. That is, because capital payments
per discharge are projected to be slightly
lower in FY 2011 compared to FY 2010, as
shown in Table III. in section VIII. of the
Appendix to this supplemental proposed
rule, more cases would qualify for outlier
payments.
The outlier reduction factors are not built
permanently into the capital rates; that is,
they are not applied cumulatively in
determining the capital Federal rate. The
proposed FY 2011 outlier adjustment of
0.9432 is a -0.49 percent change from the FY
2010 outlier adjustment of 0.9478. Therefore,
the net change in the outlier adjustment to
the proposed capital Federal rate for FY 2011
is 0.9951 (0.9432/0.9478). Thus, the proposed
outlier adjustment decreases the proposed FY
2011 capital Federal rate by 0.49 percent
compared with the FY 2010 outlier
adjustment.
A single set of thresholds is used to
identify outlier cases for both inpatient
operating and inpatient capital-related
payments (see § 412.312(c)). The outlier
thresholds are set so that operating outlier
payments are projected to be 5.1 percent of
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total operating IPPS DRG payments. The
proposed outlier thresholds for FY 2011 are
in section III.A.6. of this Addendum. For FY
2011, a case would qualify as a cost outlier
if the cost for the case plus the IME and DSH
payments is greater than the prospective
payment rate for the MS–DRG plus the fixedloss amount of $24,165.
C. Proposed Budget Neutrality Adjustment
Factor for Changes in DRG Classifications
and Weights and the GAF
Using the methodology discussed in
section III.A.3. of the Addendum to the May
4, 2010 FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 24077 through 24079), for FY
2011, we are proposing a GAF/DRG budget
neutrality factor of 1.0015, which is the
product of the proposed incremental GAF
budget neutrality factor of 1.0023 and the
proposed DRG budget neutrality factor of
0.9992 (the proposed DRG budget neutrality
factor remains unchanged from the May 4,
2010 FY 2011 IPPS proposed rule). The GAF/
DRG budget neutrality factors are built
permanently into the capital rates; that is,
they are applied cumulatively in determining
the capital Federal rate. This follows the
requirement that estimated aggregate
payments each year be no more or less than
they would have been in the absence of the
annual DRG reclassification and recalibration
and changes in the GAFs. The incremental
change in the proposed adjustment from FY
2010 to FY 2011 is 1.0015. The cumulative
change in the proposed capital Federal rate
due to this adjustment is 0.9926 (the product
of the incremental factors for FYs 1995
though 2010 and the proposed incremental
factor of 1.0015 for FY 2011). (We note that
averages of the incremental factors that were
in effect during FYs 2005 and 2006,
respectively, and the revised FY 2010 factor
of 0.9994 that reflect the effect of the
provisions of the Affordable Care Act (as
discussed elsewhere in this Federal Register)
were used in the calculation of the
cumulative adjustment of 0.9926 for FY
2011.) The proposed cumulative adjustments
for MS–DRG classifications and proposed
changes in relative weights and for proposed
changes in the national GAFs through FY
2011 is 0.9926. The following table
summarizes the adjustment factors for each
fiscal year:
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The proposed factor accounts for the
proposed MS–DRG reclassifications and
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recalibration and for proposed changes in the
GAFs, which include the changes to the wage
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index as required by the provisions of Public
Law 111–148, as amended (as discussed in
section II.A. of the preamble of this
supplemental proposed rule). It also
incorporates the effects on the proposed
GAFs of FY 2011 geographic reclassification
decisions made by the MGCRB compared to
FY 2010 decisions. However, it does not
account for changes in payments due to
changes in the DSH and IME adjustment
factors.
D. Exceptions Payment Adjustment Factor
The provisions of Public Law 111–148, as
amended, have no effect on capital
exceptions payments. Therefore, the special
exceptions adjustment factor remains at
0.9997 as discussed in section III.A.4. of the
May 4, 2010 FY 2011 IPPS proposed rule (75
FR 24079).
E. Prospective MS–DRG Documentation and
Coding Adjustment to the Capital Federal
Rates for FY 2011 and Subsequent Years
The provisions of Public Law 111–148, as
amended, have no effect on the proposed
prospective documentation and coding
adjustment to the capital Federal rates.
Therefore, as discussed in greater detail in
section V.E. of the preamble of the May 4,
2010 FY 2011 IPPS proposed rule (75 FR
24013 through 24015), proposed an
additional 2.9 percent reduction to the
national capital Federal payment rate in FY
2011, resulting in a cumulative
documentation and coding adjustment factor
of 0.957 for the proposed FY 2011 national
capital Federal rate percent (that is, the
existing ¥0.6 percent adjustment in FY 2008
plus the ¥0.9 percent adjustment in FY 2009
plus the proposed additional ¥2.9 percent
adjustment, computed as 1 divided by (1.006
× 1.009 × 1.029).
F. Proposed Capital Standard Federal Rate
for FY 2011
As a result of the proposed 1.5 percent
update and other proposed budget neutrality
factors discussed above, we are proposing to
establish a national capital Federal rate of
$422.18 for FY 2011. We are providing the
following chart that shows how each of the
proposed factors and adjustments for FY
2011 affects the computation of the proposed
FY 2011 national capital Federal rate in
comparison to the FY 2010 national capital
Federal rate (revised to reflect the effect of
the provisions of the Affordable Care Act (as
discussed elsewhere in this Federal
Register). The proposed FY 2011 update
30979
factor has the effect of increasing the
proposed capital Federal rate by 1.5 percent
compared to the FY 2010 capital Federal rate.
The proposed GAF/DRG budget neutrality
factor of 1.0015 has the effect of increasing
the proposed capital Federal rate by 0.15
percent compared to the FY 2010 capital
Federal rate. The proposed FY 2011 outlier
adjustment factor has the effect of decreasing
the proposed capital Federal rate by 0.49
percent compared to the FY 2010 capital
Federal rate. The proposed FY 2011
exceptions payment adjustment factor has
the effect of decreasing the proposed capital
Federal rate by 0.01 percent compared to the
FY 2010 capital Federal rate. Furthermore, as
shown in the chart below, the resulting
cumulative adjustment for changes in
documentation and coding that do not reflect
real changes in patients’ severity of illness
(that is, the proposed cumulative adjustment
factor of 0.957 has the net effect of decreasing
the proposed FY 2011 national capital
Federal rate by 2.8 percent as compared to
the FY 2010 national capital Federal rate.
The combined effect of all the proposed
changes would decrease the proposed
national capital Federal rate by
approximately 1.72 percent compared to the
FY 2010 national capital Federal rate.
COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2010 CAPITAL FEDERAL RATE AND PROPOSED FY 2011 CAPITAL
FEDERAL RATE
FY 2010 *
Update Factor 1 ........................................................................................................................
GAF/DRG Adjustment Factor 1 ................................................................................................
Outlier Adjustment Factor 2 ......................................................................................................
Exceptions Adjustment Factor 2 ...............................................................................................
MS–DRG Documentation and Coding Adjustment Factor ......................................................
Capital Federal Rate ................................................................................................................
1.0120
0.9994
0.9478
0.9998
3 0.9850
$429.56
Proposed
FY 2011
1.0150
1.0015
0.9432
0.9997
4 0.9570
$422.18
Change
1.0150
1.0015
0.9951
0.9999
5 0.9716
0.9828
Percent
change
1.50
0.15
¥0.49
¥0.01
¥2.84
¥1.72
1 The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental
change from FY 2010 to FY 2011 resulting from the application of the proposed 1.0015 GAF/DRG budget neutrality factor for FY 2011 is a net
change of 1.0015.
2 The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not
applied cumulatively in determining the capital rates. Thus, for example, the proposed net change resulting from the application of the proposed
FY 2011 outlier adjustment factor is 0.9432/0.9478, or 0.9951.
3 The documentation and coding adjustment factor includes the ¥0.6 percent in FY 2008, ¥0.9 percent in FY 2009, and no additional reduction in FY 2010.
4 The documentation and coding adjustment factor includes the ¥0.6 percent in FY 2008, ¥0.9 percent in FY 2009, no additional reduction in
FY 2010 and the proposed ¥2.9 percent reduction in FY 2011.
5 The change is measured from the FY 2009 cumulative factor of 0.9850.
* The revised FY 2010 capital Federal rate, which reflects the effect of the provisions of the Affordable Care Act (as discussed elsewhere in
this Federal Register).
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G. Proposed Special Capital Rate for Puerto
Rico Hospitals
Using the methodology discussed in the
May 4, 2010 FY 2011 IPPS proposed rule (75
FR 24081), with the changes we are
proposing to make to the factors used to
determine the capital rate, the proposed FY
2011 special capital rate for hospitals in
Puerto Rico is $199.49. (See the May 4, 2010
FY 2011 IPPS proposed rule (75 FR 24015
through 24016 and 24081) for additional
information on the calculation of the
proposed FY 2011 capital Puerto Rico
specific rate.)
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III. Supplemental Proposed Changes to the
Payment Rates for the LTCH PPS for FY
2011
A. Proposed LTCH PPS Standard Federal
Rate for FY 2011
1. Background
In section VII. of the preamble of the May
4, 2011 FY 2011 proposed rule, we discuss
our proposed changes to the payment rates,
factors, and specific policies under the LTCH
PPS for FY 2011. As noted previously, on
March 23, 2010, the Patient Protection and
Affordable Care Act, Public Law 111–148,
was enacted, and the Health Care and
Education Reconciliation Act of 2010, Public
Law 111–152, which amended certain
provisions of Public Law 111–148, was
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enacted on March 30, 2010. Although a
number of the provisions of Public Law 111–
148 and Public Law 111–152 affect the LTCH
PPS, due to the timing of the passage of the
legislation, we were unable to address those
provisions in the May 4, 2011 FY 2011 IPPS/
LTCH PPS proposed rule. Therefore, the
proposed policies and payment rates in that
proposed rule do not reflect the new
legislation. Below we address the provisions
of the Affordable Care Act that affect our
proposed policies and payment rates for FY
2011 under the LTCH PPS. In addition, we
have issued further instructions
implementing the provisions of the
Affordable Care Act, that affect the policies
and payment rates for RY 2010 under the
LTCH PPS. Specifically, we have established
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revised RY 2010 rates and factors in a
separate notice elsewhere is this Federal
Register consistent with the provisions of
sections 1886(m)(3) and (4) of the Act and
section 3401(p) of Public Law 111–148.
2. Revision of Certain Market Basket Updates
Incorporating the Provisions of the
Affordable Care Act
New section 1886(m)(3)(A)(ii) of the Act by
specifies that for each of the rate years 2010
through 2019, any annual update to the
standard Federal rate, for discharges for the
hospital for the rate year, shall be reduced by
the other adjustment specified in new section
1886(m)(4) of the Act. Additionally, new
1886(m)(3)(A)(i) of the Act provides that any
annual update to the standard Federal rate,
for discharges occurring during the rate year,
shall be reduced for rate year 2012 and each
subsequent rate year by the productivity
adjustment described in section
1866(b)(3)(B)(xi)(II) of the Act. Sections
1886(m)(3)(A)(ii) and (4)(A)–(B) require a
0.25 percentage point reduction for rate year
2010 and a 0.50 percentage point reduction
for rate year 2011. In addition, section
1886(m)(3)(B) of the Act provides that the
application of section 1886(m)(3) may result
in the annual update being less than zero for
a rate year, and may result in payment rates
for a rate year being less than such payment
rates for the preceding rate year.
Furthermore, section 3401(p) of Public Law
111–148 specifies that the amendments made
by section 3401(c) of Public Law 111–148
shall not apply to discharges occurring before
April 1, 2010.
We note that in the May 4, 2010 FY 2011
proposed rule, since the annual update to the
LTCH PPS policies, rates and factors now
occurs on October 1st, we proposed to adopt
the term ‘‘fiscal year’’ (FY) rather than ‘‘rate
year’’ (RY) under the LTCH PPS beginning
October 1, 2010 to conform with the standard
definition of the Federal fiscal year (October
1 through September 30) used by other PPSs,
such as the IPPS (see 75 FR 24146 through
24147). Consequently, in that proposed rule
and this supplemental proposed rule, for
purposes of clarity, when discussing the
annual update for the LTCH PPS, we
employed ‘‘FY’’ rather than ‘‘RY’’ because it is
our intent that the phrase ‘‘FY’’ be used
prospectively in all circumstances dealing
with the LTCH PPS. Similarly, although the
language of sections 3401(c) and 10319 of
Public Law 111–148, and section 1105(b) of
Public Law 111–152 refers to years 2010 and
thereafter under the LTCH PPS as ‘‘rate year,’’
consistent with our proposal to change the
terminology used under the LTCH PPS from
‘‘rate year’’ to ‘‘fiscal year,’’ for purposes of
clarity, in this supplemental proposed rule,
when discussing the annual update for the
LTCH PPS, including the provisions of the
Affordable Care Act, we will continue to
employed ‘‘FY’’ rather than ‘‘RY’’ for 2011 and
subsequent years because it is our intent that
‘‘FY’’ be used prospectively in all
circumstances dealing with the LTCH PPS.
The proposed FY 2011 LTCH PPS standard
Federal rate, discussed below in section
III.A.3. of this supplemental proposed rule,
would be calculated by applying the required
0.50 percentage point reduction to the
proposed FY 2011 market basket update
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consistent with sections 1886(m)(3)(A)(ii)
and (4)(B) of the Act (that is, 1.9 percent) in
addition to the proposed adjustment to
account for any changes in documentation
and coding practices that do not reflect
increased patient severity of illness discussed
in section VII.C.3. of the preamble of the May
4, 2010 FY 2011 IPPS/LTCH PPS proposed
rule (that is, 2.5 percent).
3. Development of the Proposed FY 2011
LTCH PPS Standard Federal Rate
As discussed in the May 4, 2010 FY 2011
proposed rule, while we continue to believe
that an update to the LTCH PPS standard
Federal rate should be based on the most
recent estimate of the increase in the LTCH
PPS market basket, we also believe it is
appropriate that the standard Federal rate be
offset by an adjustment to account for any
changes in documentation and coding
practices that do not reflect increased patient
severity of illness. Such an adjustment
protects the integrity of the Medicare Trust
Funds by ensuring that the LTCH PPS
payment rates better reflect the true costs of
treating LTCH patients.
For FY 2011, as discussed in section II.J.4.
of the preamble of this proposed rule, the
proposed market basket update under the
LTCH PPS for FY 2011 is 1.9 percent (that
is, the most recent estimate of the LTCH PPS
market basket of 2.4 percent minus the 0.50
percentage points required by sections
1886(m)(3)(A)(ii) and (4)(B) of the Act.
Furthermore, as discussed in greater detail in
section VII.C.3. of the preamble of the May
4, 2010 FY 2011 IPPS/LTCH PPS proposed
rule, we performed a CMI analysis using the
most recent available LTCH claims data (FY
2009) under both the current MS–LTC–DRG
and the former CMS LTC–DRG patient
classification systems. Based on this
evaluation, we determined that there was a
cumulative increase in LTCH CMI of 2.5
percent due to changes in documentation and
coding that did not reflect real changes in
patient severity of illness for LTCH
discharges occurring in FY 2008 and FY
2009.
In this supplemental proposed rule,
consistent with our historical practice, we are
proposing to update the LTCH PPS standard
Federal rate for FY 2011 based on the full
proposed LTCH PPS market basket increase
estimate of 2.4 percent, adjusted by the 0.50
percentage point reduction required by
sections 1886(m)(3)(A)(ii) and (4)(B) of the
Act, and an adjustment to account for the
increase in case-mix in a prior periods (FYs
2008 and 2009) that resulted from changes in
documentation and coding practices of ¥2.5
percent. Consequently, the proposed update
factor to the standard Federal rate for FY
2011 is ¥0.59 percent (that is, we are
proposing to apply a factor of 0.9941 in
determining the LTCH PPS standard Federal
rate for FY 2011, calculated as 1.019 × 1
divided by 1.025 = 0.9941 or ¥0.59 percent
(0.9941 minus 1 equals 0.59 percent)).
Furthermore, consistent with our historical
practice of updating the standard Federal rate
for the previous rate year, in determining the
proposed standard Federal rate for FY 2011
in this supplemental proposed rule, we are
applying the proposed update factor of
0.9941 to the revised RY 2010 standard
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Federal rate that is being established in
accordance with the provisions of sections
1886(m)(3)(A)(ii) and (4)(A) of the Act, as
implemented in a separate notice published
elsewhere in this Federal Register.
Therefore, in this supplemental proposed
rule, under the authority of sections
1886(m)(3)(A)(ii) and (4)(B) of the Act, we are
proposing to amend § 412.523 to add a new
paragraph (c)(3)(vii) to specify that the
standard Federal rate for discharges
occurring on or after October 1, 2010,
through September 30, 2011, is the standard
Federal rate for the previous rate year
updated by ¥0.59 percent. In determining
the proposed standard Federal rate for FY
2011, we are applying the proposed 0.9941
update factor to the RY 2010 Federal rate of
$39,794.95 (as established elsewhere in this
Federal Register). Consequently, the
proposed standard Federal rate for FY 2011
is $39,560.16. We also are proposing that if
more recent data become available, we would
use those data, if appropriate, to determine
the update to the standard Federal rate for FY
2011 in the final rule, and, thus, the standard
Federal rate update specified in the proposed
regulation text at § 412.523(c)(3)(vii) could
change accordingly.
B. Proposed Adjustment for LTCH PPS HighCost Outlier (HCO) Cases
1. Background
When we implemented the LTCH PPS in
the FY 2003 LTCH PPS final rule, in the
regulations at § 412.525(a), we established an
adjustment for additional payments for
outlier cases that have extraordinarily high
costs relative to the costs of most discharges
(see (67 FR 56022 through 56027)). We refer
to these cases as high cost outliers (HCOs).
Providing additional payments for outliers
strongly improves the accuracy of the LTCH
PPS in determining resource costs at the
patient and hospital level. These additional
payments reduce the financial losses that
would otherwise be incurred when treating
patients who require more costly care and,
therefore, reduce the incentives to
underserve these patients. We set the outlier
threshold before the beginning of the
applicable rate year so that total estimated
outlier payments are projected to equal 8
percent of total estimated payments under
the LTCH PPS.
Under § 412.525(a) in the regulations (in
conjunction with § 412.503), we make outlier
payments for any discharges if the estimated
cost of a case exceeds the adjusted LTCH PPS
payment for the MS–LTC–DRG plus a fixedloss amount. Specifically, in accordance with
§ 412.525(a)(3) (in conjunction with
§ 412.503), we pay outlier cases 80 percent of
the difference between the estimated cost of
the patient case and the outlier threshold,
which is the sum of the adjusted Federal
prospective payment for the MS–LTC–DRG
and the fixed-loss amount. The fixed-loss
amount is the amount used to limit the loss
that a hospital will incur under the outlier
policy for a case with unusually high costs.
This results in Medicare and the LTCH
sharing financial risk in the treatment of
extraordinarily costly cases. Under the LTCH
PPS HCO policy, the LTCH’s loss is limited
to the fixed-loss amount and a fixed
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percentage of costs above the outlier
threshold (MS–LTC–DRG payment plus the
fixed-loss amount). The fixed percentage of
costs is called the marginal cost factor. We
calculate the estimated cost of a case by
multiplying the Medicare allowable covered
charge by the hospital’s overall hospital costto-charge ratio (CCR).
Under the LTCH PPS, we determine a
fixed-loss amount, that is, the maximum loss
that a LTCH can incur under the LTCH PPS
for a case with unusually high costs before
the LTCH will receive any additional
payments. We calculate the fixed-loss
amount by estimating aggregate payments
with and without an outlier policy. The
fixed-loss amount results in estimated total
outlier payments being projected to be equal
to 8 percent of projected total LTCH PPS
payments. Currently, MedPAR claims data
and CCRs based on data from the most recent
provider specific file (PSF) (or from the
applicable statewide average CCR if a LTCH’s
CCR data are faulty or unavailable) are used
to establish a fixed-loss threshold amount
under the LTCH PPS.
As discussed previously in this section, the
proposed policies and payment rates in the
May 4, 2011 FY 2011 proposed rule do not
reflect the provisions of the Affordable Care
Act that affect LTCH PPS payments. The
revised proposed standard Federal rate for
FY 2011 that was developed consistent with
the provisions of sections 1886(m)(3)(A)(ii)
and (4)(B) of the Act is discussed above in
section III.A.3. of the Addendum of this
supplemental proposed rule. This revision to
the proposed standard Federal rate for FY
2011 requires us to revise the proposed high
cost outlier fixed-loss amount for FY 2011.
This is necessary in order to maintain the
requirement that the fixed-loss amount
results in estimated total outlier payments
being projected to be equal to 8 percent of
projected total LTCH PPS payments.
2. The Proposed LTCH PPS Fixed-Loss
Amount for FY 2011
When we implemented the LTCH PPS, as
discussed in the August 30, 2002 LTCH PPS
final rule (67 FR 56022 through 56026), we
established a fixed-loss amount so that total
estimated outlier payments are projected to
equal 8 percent of total estimated payments
under the LTCH PPS. To determine the fixedloss amount, we estimate outlier payments
and total LTCH PPS payments for each case
using claims data from the MedPAR files.
Specifically, to determine the outlier
payment for each case, we estimate the cost
of the case by multiplying the Medicare
covered charges from the claim by the
applicable CCR. Under § 412.525(a)(3) (in
conjunction with § 412.503), if the estimated
cost of the case exceeds the outlier threshold
(the sum of the adjusted Federal prospective
payment for the MS–LTC–DRG and the fixedloss amount), we pay an outlier payment
equal to 80 percent of the difference between
the estimated cost of the case and the outlier
threshold (the sum of the adjusted Federal
prospective payment for the MS–LTC–DRG
and the fixed-loss amount).
As discussed in the May 4, 2010 FY 2011
proposed rule, we are proposing to continue
to use our existing methodology to calculate
the proposed fixed-loss amount for FY 2011
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in order to maintain estimated HCO
payments at the projected 8 percent of total
estimated LTCH PPS payments. (For an
explanation of our rationale for establishing
an HCO payment ‘‘target’’ of 8 percent of total
estimated LTCH payments, we refer readers
to the August 30, 2002 LTCH PPS final rule
(67 FR 56022 through 56024).) Consistent
with our historical practice of using the best
data available, in determining the proposed
fixed-loss amount for FY 2011, we use the
most recent available LTCH claims data and
CCR data. Specifically, for this proposed rule,
we used LTCH claims data from the
December 2009 update of the FY 2009
MedPAR files and CCRs from the December
2009 update of the PSF to determine a fixedloss amount that would result in estimated
outlier payments projected to be equal to 8
percent of total estimated payments in FY
2011 because these data are the most recent
complete LTCH data currently available. (We
note that these are the same data used to
determine the proposed FY 2011 fixed-loss
amount in the May 4, 2010 FY 2011 proposed
rule.) Consistent with the historical practice
of using the best available data, we are
proposing that if more recent LTCH claims
data become available, we will use them for
determining the fixed-loss amount for FY
2011 in the final rule. Furthermore, we are
proposing to determine the proposed FY
2011 fixed-loss amount based on the MS–
LTC–DRG classifications and relative weights
from the version of the GROUPER that will
be in effect as of the beginning of FY 2011,
that is, proposed Version 28.0 of the
GROUPER (discussed in section VII.D. of the
preamble of this supplemental proposed
rule).
In this proposed rule, we are proposing to
establish a fixed-loss amount of $19,254 for
FY 2011. Thus, we would pay an outlier case
80 percent of the difference between the
estimated cost of the case and the outlier
threshold (the sum of the adjusted Federal
LTCH payment for the MS–LTC–DRG and the
fixed-loss amount of $19,254).
The proposed fixed-loss amount for FY
2011 of $19,254 is slightly higher than the
revised RY 2010 fixed-loss amount of
$18,615 (established elsewhere in this
Federal Register). Based on our payment
simulations using the most recent available
data and the proposed 0.59 percent reduction
to the standard Federal rate for FY 2011, the
proposed increase in the fixed-loss amount
for FY 2011 would be necessary to maintain
the existing requirement that estimated
outlier payments would equal 8 percent of
estimated total LTCH PPS payments. (For
further information on and our rationale for
the existing 8 percent HCO ‘‘target’’
requirement, we refer readers to the August
30, 2002 LTCH PPS final rule (67 FR 56022
through 56024.) Maintaining the fixed-loss
amount at the current level would result in
HCO payments that are greater than the
current 8 percent regulatory requirement
because a higher fixed-loss amount would
result in fewer cases qualifying as outlier
cases as well as decreases the amount of the
additional payment for a HCO case because
the maximum loss that a LTCH must incur
before receiving an HCO payment (that is, the
fixed-loss amount) would be larger. For these
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reasons, we believe that proposing to raise
the fixed-loss amount is appropriate and
necessary to maintain that estimated outlier
payments would equal 8 percent of estimated
total LTCH PPS payments as required under
§ 412.525(a).
As we noted in the May 4, 2010 FY 2011
proposed rule (75 FR 24089), under some
rare circumstances, a LTCH discharge could
qualify as a SSO case (as defined in the
regulations at § 412.529 in conjunction with
§ 412.503) and also as a HCO case. In this
scenario, a patient could be hospitalized for
less than five-sixths of the geometric average
length of stay for the specific MS–LTC–DRG,
and yet incur extraordinarily high treatment
costs. If the costs exceeded the HCO
threshold (that is, the SSO payment plus the
fixed-loss amount), the discharge is eligible
for payment as a HCO. Thus, for a SSO case
in FY 2011, the HCO payment would be 80
percent of the difference between the
estimated cost of the case and the outlier
threshold (the sum of the proposed fixed-loss
amount of $19,254 and the amount paid
under the SSO policy as specified in
§ 412.529).
C. Computing the Proposed Adjusted LTCH
PPS Federal Prospective Payments for FY
2011
In accordance with § 412.525, the proposed
standard Federal rate is adjusted to account
for differences in area wages by multiplying
the proposed labor-related share of the
proposed standard Federal rate by the
appropriate proposed LTCH PPS wage index
(as shown in Tables 12A and 12B of the
Addendum of this proposed rule). The
proposed standard Federal rate is also
adjusted to account for the higher costs of
hospitals in Alaska and Hawaii by
multiplying the proposed nonlabor-related
share of the proposed standard Federal rate
by the appropriate cost-of-living factor
(shown in the chart in section V.C.5. of the
Addendum of the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule). In this proposed
rule, we are proposing to establish a standard
Federal rate for FY 2011 of $39,560.16, as
discussed in section V.A.3. of the Addendum
of this supplemental proposed rule. We
illustrate the methodology to adjust the
proposed LTCH PPS Federal rate for FY 2011
in the following example:
Example: During FY 2011, a Medicare
patient is in a LTCH located in Chicago,
Illinois (CBSA 16974). The proposed FY 2011
LTCH PPS wage index value for CBSA 16974
is 1.0573 (Table 12A of the Addendum of this
proposed rule). The Medicare patient is
classified into MS–LTC–DRG 28 (Spinal
Procedures with MCC), which has a proposed
relative weight for FY 2011 of 1.0834 (Table
11 of the Addendum of this supplemental
proposed rule).
To calculate the LTCH’s total adjusted
Federal prospective payment for this
Medicare patient, we compute the wageadjusted proposed Federal prospective
payment amount by multiplying the
unadjusted proposed standard Federal rate
($39,560.16) by the proposed labor-related
share (75.407 percent) and the proposed
wage index value (1.0573). This wageadjusted amount is then added to the
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proposed nonlabor-related portion of the
unadjusted proposed standard Federal rate
(24.593 percent; adjusted for cost of living, if
applicable) to determine the adjusted
proposed Federal rate, which is then
multiplied by the proposed MS–LTC–DRG
relative weight (1.0834) to calculate the total
adjusted proposed Federal LTCH PPS
prospective payment for FY 2011
($45,046.57). The table below illustrates the
components of the calculations in this
example.
Unadjusted Proposed Standard Federal Prospective Payment Rate .................................................................................
Proposed Labor-Related Share ...........................................................................................................................................
Labor-Related Portion of the Proposed Federal Rate ........................................................................................................
Proposed Wage Index (CBSA 16974) ................................................................................................................................
Proposed Wage-Adjusted Labor Share of Federal Rate ....................................................................................................
Proposed Nonlabor-Related Portion of the Federal Rate ($39,560.16 × 0.24593) ............................................................
Adjusted Proposed Federal Rate Amount ...........................................................................................................................
Proposed MS–LTC–DRG 28 Relative Weight ....................................................................................................................
$39,560.16
× 0.75407
= $29,831.13
× 1.0573
= $31,540.45
+ $9,729.03
= $41,269.48
× 1.0834
Total Adjusted Federal Prospective Payment ..............................................................................................................
= $44,711.36
IV. Tables
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This section contains the tables referred to
throughout the preamble to this proposed
rule and in this Addendum. Tables 1A, 1B,
1C, 1D, 1E, 2, 4A, 4B, 4C, 4D–2, 4J, 9A, 10,
and 11 are presented below. The tables
presented below are as follows:
Table 1A.—Supplemental Proposed National
Adjusted Operating Standardized
Amounts, Labor/Nonlabor (68.8 Percent
Labor Share/31.2 Percent Nonlabor Share If
Wage Index Is Greater Than 1).
Table 1B.—Supplemental Proposed National
Adjusted Operating Standardized
Amounts, Labor/Nonlabor (62 Percent
Labor Share/38 Percent Nonlabor Share If
Wage Index Is Less Than or Equal To 1).
Table 1C.—Supplemental Proposed Adjusted
Operating Standardized Amounts for
Puerto Rico, Labor/Nonlabor.
Table 1D.—Supplemental Proposed Capital
Standard Federal Payment Rate.
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Table 1E.—Supplemental Proposed LTCH
Standard Federal Prospective Payment
Rate.
Table 2.—Acute Care Hospitals Case-Mix
Indexes for Discharges Occurring in
Federal Fiscal Year 2009; Proposed
Hospital Wage Indexes for Federal Fiscal
Year 2011; Hospital Average Hourly Wages
for Federal Fiscal Years 2009 (2005 Wage
Data), 2010 (2006 Wage Data), and 2011
(2007 Wage Data); and 3-Year Average of
Hospital Average Hourly Wages.
Table 4A.—Proposed Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Urban Areas by
CBSA and by State—FY 2011.
Table 4B.—Proposed Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Rural Areas by
CBSA and by State—FY 2011.
Table 4C.—Proposed Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals That Are Reclassified
by CBSA and by State—FY 2011.
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Table 4D–2.—Urban Areas with Acute Care
Hospitals Receiving the Statewide Rural
Floor or Imputed Floor Wage Index—FY
2011.
Table 4J.—Proposed Out-Migration
Adjustment for Acute Care Hospitals—FY
2011.
Table 9A.—Hospital Reclassifications and
Redesignations—FY 2011.
Table 10.—Geometric Mean Plus the Lesser
of .75 of the National Adjusted Operating
Standardized Payment Amount (Increased
to Reflect the Difference Between Costs and
Charges) or .75 of One Standard Deviation
of Mean Charges by Medicare Severity
Diagnosis-Related Group (MS–DRG)—April
2010.
Table 11.—Supplemental Proposed MS–
LTC–DRGs, Relative Weights, Geometric
Average Length of Stay, and Short-Stay
Outlier (SSO) Threshold for Discharges
Occurring from October 1, 2010 through
September 30, 2011 under the LTCH PPS.
BILLING CODE 4120–01–P
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Appendix: Regulatory Impact Analysis
I. Overall Impact
We have examined the impacts of this
proposed rule as required by Executive Order
12866 (September 1993, Regulatory Planning
and Review) and the Regulatory Flexibility
Act (RFA) (September 19, 1980, Pub. L. 96–
354), section 1102(b) of the Social Security
Act, the Unfunded Mandates Reform Act of
1995 (Pub. L. 104–4), Executive Order 13132
on Federalism, and the Congressional Review
Act (5 U.S.C. 804(2)).
Executive Order 12866 directs agencies to
assess all costs and benefits of available
regulatory alternatives and, if regulation is
necessary, to select regulatory approaches
that maximize net benefits (including
potential economic, environmental, public
health and safety effects, distributive
impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major
rules with economically significant effects
($100 million or more in any 1 year).
We have determined that this proposed
rule is a major rule as defined in 5 U.S.C.
804(2). We estimate that the proposed
changes for FY 2011 acute care hospital
operating and capital payments will
redistribute in excess of $100 million among
different types of inpatient cases. The
proposed applicable percentage increase to
the IPPS rates required by the statute, in
conjunction with other proposed payment
changes in this proposed rule, would result
in an estimated $929 million decrease in FY
2011 operating payments (or ¥0.9 percent
increase), and an estimated $20 million
decrease in FY 2011 capital payments (or
¥0.2 percent change). The impact analysis of
the capital payments can be found in section
VIII. of this Appendix. In addition, as
described in section IX. of this Appendix,
LTCHs are expected to experience an
increase in payments by $12.9 million (or 0.3
percent).
Our operating impact estimate includes the
proposed ¥2.9 percent documentation and
coding adjustment applied to the hospitalspecific rates, the proposed ¥2.4 percent
documentation and coding adjustment
applied to the Puerto Rico-specific rates and
the proposed ¥2.9 percent adjustment for
documentation and coding changes to the
IPPS standardized amounts, which was
discussed in the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24288). In
addition, our operating impact estimate
includes the proposed 2.15 percent market
basket update to the standardized amount
(which includes the proposed 2.4 percent
update with the 0.25 reduction required
under the Affordable Care Act). The
estimates of IPPS operating payments to
acute care hospitals do not reflect any
changes in hospital admissions or real casemix intensity, which would also affect
overall payment changes.
The RFA requires agencies to analyze
options for regulatory relief of small
businesses. For purposes of the RFA, small
entities include small businesses, nonprofit
organizations, and small government
jurisdictions. Most hospitals and most other
providers and suppliers are considered to be
small entities, either by being nonprofit
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organizations or by meeting the Small
Business Administration definition of a small
business (having revenues of $34.5 million or
less in any 1 year). (For details on the latest
standards for health care providers, we refer
readers to the Table of Small Business Size
Standards for NAIC 622 found on the Small
Business Administration Office of Size
Standards Web site at: https://www.sba.gov/
contractingopportunities/officials/size/GCSMALL-BUS-SIZE-STANDARDS.html.) For
purposes of the RFA, all hospitals and other
providers and suppliers are considered to be
small entities. Individuals and States are not
included in the definition of a small entity.
We believe that the provisions of this
proposed rule relating to acute care hospitals
would have a significant impact on small
entities as explained in this Appendix.
Because we lack data on individual hospital
receipts, we cannot determine the number of
small proprietary LTCHs. Therefore, we are
assuming that all LTCHs are considered
small entities for the purpose of the analysis
in section IX. of this Appendix. Medicare
fiscal intermediaries and MACs are not
considered to be small entities. Because we
acknowledge that many of the affected
entities are small entities, the analysis
discussed throughout the preamble of this
proposed rule constitutes our proposed
regulatory flexibility analysis. Therefore, we
are soliciting public comments on our
estimates and analysis of the impact of this
proposed rule on those small entities.
The Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA),
Public Law 104–121, as amended by section
8302 of Public Law 110–28, requires an
agency to provide compliance guides for each
rule or group of related rules for which an
agency is required to prepare a final
regulatory flexibility analysis. The
compliance guides associated with this
proposed rule are available on the CMS IPPS
Web page at https://www.cms.hhs.gov/
AcuteInpatientPPS/01_overview.asp. We also
note that the Hospital Center Web page at
https://www.cms.hhs.gov/center/hospital.asp
was developed to assist hospitals in
understanding and adapting to changes in
Medicare regulations and in billing and
payment procedures. This Web page provides
hospitals with substantial downloadable
explanatory materials.
In addition, section 1102(b) of the Act
requires us to prepare a regulatory impact
analysis for any proposed or final rule that
may have a significant impact on the
operations of a substantial number of small
rural hospitals. This analysis must conform
to the provisions of section 603 of the RFA.
With the exception of hospitals located in
certain New England counties, for purposes
of section 1102(b) of the Act, we now define
a small rural hospital as a hospital that is
located outside of an urban area and has
fewer than 100 beds. Section 601(g) of the
Social Security Amendments of 1983 (Pub. L.
98–21) designated hospitals in certain New
England counties as belonging to the adjacent
urban area. Thus, for purposes of the IPPS
and the LTCH PPS, we continue to classify
these hospitals as urban hospitals. (We refer
readers to Table 1 and section VI. of this
Appendix for the quantitative effects of the
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proposed policy changes under the IPPS for
operating costs.)
Section 202 of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104–4) also
requires that agencies assess anticipated costs
and benefits before issuing any rule whose
mandates require spending in any 1 year of
$100 million in 1995 dollars, updated
annually for inflation. That threshold level is
currently approximately $133 million. This
proposed rule would not mandate any
requirements for State, local, or Tribal
governments, nor would it affect private
sector costs.
Executive Order 13132 establishes certain
requirements that an agency must meet when
it promulgates a proposed rule (and
subsequent final rule) that imposes
substantial direct requirement costs on State
and local governments, preempts State law,
or otherwise has Federalism implications. As
stated above, this proposed rule would not
have a substantial effect on State and local
governments.
The following analysis, in conjunction
with the remainder of this document,
demonstrates that this proposed rule is
consistent with the regulatory philosophy
and principles identified in Executive Order
12866, the RFA, and section 1102(b) of the
Act. The proposed rule would affect
payments to a substantial number of small
rural hospitals, as well as other classes of
hospitals, and the effects on some hospitals
may be significant.
II. Objectives of the IPPS
The primary objective of the IPPS is to
create incentives for hospitals to operate
efficiently and minimize unnecessary costs
while at the same time ensuring that
payments are sufficient to adequately
compensate hospitals for their legitimate
costs. In addition, we share national goals of
preserving the Medicare Hospital Insurance
Trust Fund.
We believe the proposed changes in this
proposed rule would further each of these
goals while maintaining the financial
viability of the hospital industry and
ensuring access to high quality health care
for Medicare beneficiaries. We expect that
these proposed changes would ensure that
the outcomes of the prospective payment
systems are reasonable and equitable while
avoiding or minimizing unintended adverse
consequences.
III. Limitations of Our Analysis
The following quantitative analysis
presents the projected effects of our proposed
policy changes, as well as statutory changes
effective for FY 2011, on various hospital
groups. We estimate the effects of individual
policy changes by estimating payments per
case while holding all other payment policies
constant. We use the best data available, but,
generally, we do not attempt to make
adjustments for future changes in such
variables as admissions, lengths of stay, or
case-mix.
IV. Hospitals Included in and Excluded
From the IPPS
The prospective payment systems for
hospital inpatient operating and capitalrelated costs of acute care hospitals
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encompass most general short-term, acute
care hospitals that participate in the
Medicare program. There were 33 Indian
Health Service hospitals in our database,
which we excluded from the analysis due to
the special characteristics of the prospective
payment methodology for these hospitals.
Among other short-term, acute care hospitals,
only the 46 such hospitals in Maryland
remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the
Act.
As of March 2010, there are 3,472 IPPS
acute care hospitals to be included in our
analysis. This represents about 64 percent of
all Medicare-participating hospitals. The
majority of this impact analysis focuses on
this set of hospitals. There are also
approximately 1,338 CAHs. These small,
limited service hospitals are paid on the basis
of reasonable costs rather than under the
IPPS. (We refer readers to section VII. of this
Appendix for a further description of the
impact of CAH-related proposed policy
changes.) There are also 1,270 IPPS-excluded
hospitals and 2,169 IPPS-excluded hospital
units. These IPPS-excluded hospitals and
units include IPFs, IRFs, LTCHs, RNHCIs,
children’s hospitals, and cancer hospitals,
which are paid under separate payment
systems. Changes in the prospective payment
systems for IPFs and IRFs are made through
separate rulemaking. Payment impacts for
these IPPS-excluded hospitals and units are
not included in this proposed rule. The
impact of the proposed update and policy
changes to the LTCH PPS for FY 2011 are
discussed in section IX. of this Appendix.
V. Effects on Hospitals and Hospital Units
Excluded From the IPPS
As of March 2010, there were 3,439
hospitals and hospital units excluded from
the IPPS. Of these, 78 children’s hospitals, 11
cancer hospitals, and 17 RNHCIs are being
paid on a reasonable cost basis subject to the
rate-of-increase ceiling under § 413.40. The
remaining providers, 228 rehabilitation
hospitals and 961 rehabilitation units, and
429 LTCHs, are paid the Federal prospective
per discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 507 psychiatric
hospitals and 1,208 psychiatric units are paid
the Federal per diem amount under the IPF
PPS. As stated above, IRFs and IPFs are not
affected by rate updates discussed in this
proposed rule. The impacts of the changes to
LTCHs are discussed in section IX. of this
Appendix.
In the past, certain hospitals and units
excluded from the IPPS have been paid based
on their reasonable costs subject to limits as
established by the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA). Cancer
and children’s hospitals continue to be paid
on a reasonable cost basis subject to TEFRA
limits for FY 2011. For these hospitals
(cancer and children’s hospitals), consistent
with the authority provided in section
1886(b)(3)(B)(ii) of the Act, the update is the
percentage increase in the FY 2011 IPPS
operating market basket. In compliance with
section 404 of the MMA, in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR
43930), we replaced the FY 2002-based IPPS
operating and capital market baskets with the
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revised and rebased FY 2006-based IPPS
operating and capital market baskets.
Therefore, consistent with current law, based
on IHS Global Insight, Inc.’s 2010 first
quarter forecast, with historical data through
the 2009 fourth quarter, we are estimating
that the proposed FY 2011 update to the IPPS
operating market basket would be 2.4 percent
(that is, the current estimate of the market
basket rate-of-increase) which was included
in the May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule. However, the Affordable Care
Act requires a 0.25 reduction to the market
basket update resulting in a proposed 2.15
percent applicable percentage increase for
IPPS hospitals. RNCHIs, children’s hospitals
and cancer hospitals are not subject to the
reduction in the applicable percentage
increase required under the Affordable Care
Act. In accordance with § 403.752(a) of the
regulations, RNHCIs are paid under § 413.40.
Therefore, for RNHCIs, the proposed update
is the same as for children’s and cancer
hospitals, which is the percentage increase in
the FY 2011 IPPS operating market basket
increase (which was included in the May 4,
2010 FY 2011 IPPS/LTCH PPS proposed rule)
without the reductions required under the
Affordable Care Act, estimated to be 2.4
percent.
The impact of the proposed update in the
rate-of-increase limit on those excluded
hospitals depends on the cumulative cost
increases experienced by each excluded
hospital since its applicable base period. For
excluded hospitals that have maintained
their cost increases at a level below the rateof-increase limits since their base period, the
major effect is on the level of incentive
payments these excluded hospitals receive.
Conversely, for excluded hospitals with percase cost increases above the cumulative
update in their rate-of-increase limits, the
major effect is the amount of excess costs that
will not be reimbursed.
We note that, under § 413.40(d)(3), an
excluded hospital that continues to be paid
under the TEFRA system, whose costs exceed
110 percent of its rate-of-increase limit
receives its rate-of-increase limit plus 50
percent of the difference between its
reasonable costs and 110 percent of the limit,
not to exceed 110 percent of its limit. In
addition, under the various provisions set
forth in § 413.40, cancer and children’s
hospitals can obtain payment adjustments for
justifiable increases in operating costs that
exceed the limit.
VI. Quantitative Effects of the Policy
Changes Under the IPPS for Operating Costs
A. Basis and Methodology of Estimates
In this proposed rule, we are announcing
proposed policy changes and payment rate
updates for the IPPS for operating costs of
acute care hospitals. Updates to the capital
payments to acute care hospitals are
discussed in section VIII. of this Appendix.
Based on the overall percentage change in
payments per case estimated using our
payment simulation model, we estimate that
total FY 2011 operating payments would
decrease by 0.9 percent compared to FY
2010, largely due to the documentation and
coding adjustments and the applicable
percentage increase applied to the IPPS rates.
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This amount reflects the proposed FY 2011
documentation and coding adjustments
described in the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule: ¥2.9 percent for
the IPPS national standardized amounts,
¥2.9 percent for the IPPS hospital-specific
rates, and ¥2.4 percent for the IPPS Puerto
Rico-specific standardized amount. The
impacts do not illustrate changes in hospital
admissions or real case-mix intensity, which
will also affect overall payment changes.
We have prepared separate impact analyses
of the proposed changes to each system. This
section deals with changes to the operating
prospective payment system for acute care
hospitals. Our payment simulation model
relies on the most recent available data to
enable us to estimate the impacts on
payments per case of certain proposed
changes in this proposed rule. However,
there are other proposed changes for which
we do not have data available that would
allow us to estimate the payment impacts
using this model. For those proposed
changes, we have attempted to predict the
payment impacts based upon our experience
and other more limited data.
The data used in developing the
quantitative analyses of changes in payments
per case presented below are taken from the
FY 2009 MedPAR file and the most current
Provider-Specific File that is used for
payment purposes. Although the analyses of
the proposed changes to the operating PPS do
not incorporate cost data, data from the most
recently available hospital cost report were
used to categorize hospitals. Our analysis has
several qualifications. First, in this analysis,
we do not make adjustments for future
changes in such variables as admissions,
lengths of stay, or underlying growth in real
case-mix. Second, due to the interdependent
nature of the IPPS payment components, it is
very difficult to precisely quantify the impact
associated with each change. Third, we use
various sources for the data used to
categorize hospitals in the tables. In some
cases, particularly the number of beds, there
is a fair degree of variation in the data from
different sources. We have attempted to
construct these variables with the best
available source overall. However, for
individual hospitals, some
miscategorizations are possible.
Using cases from the FY 2009 MedPAR
file, we simulated payments under the
operating IPPS given various combinations of
payment parameters. Any short-term, acute
care hospitals not paid under the IPPS
(Indian Health Service hospitals and
hospitals in Maryland) were excluded from
the simulations. The impact of payments
under the capital IPPS, or the impact of
payments for costs other than inpatient
operating costs, are not analyzed in this
section. Estimated payment impacts of the
capital IPPS for FY 2011 are discussed in
section VIII. of this Appendix.
The changes discussed separately below
are the following:
• The effects of the proposed annual
reclassification of diagnoses and procedures,
full implementation of the MS–DRG system
and 100 percent cost-based MS–DRG relative
weights.
• The effects of the proposed changes in
hospitals’ wage index values reflecting wage
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data from hospitals’ cost reporting periods
beginning during FY 2007, compared to the
FY 2006 wage data.
• The effects of the recalibration of the
MS–DRG relative weights as required by
section 1886(d)(4)(C) of the Act, including
the proposed wage and recalibration budget
neutrality factors.
• The effects of geographic
reclassifications by the MGCRB that will be
effective in FY 2011.
• The effects of the Frontier wage index
provision that requires that hospitals located
in States that qualify as frontier States cannot
have a wage index less than 1.0. This is a
nonbudget neutral provision.
• The effects of the rural floor and imputed
floor with a national budget neutrality
applied to the wage index, as required by the
Affordable Care Act the Affordable Care Act.
• The effects of section 505 of Public Law
108–173, which provides for an increase in
a hospital’s wage index if the hospital
qualifies by meeting a threshold percentage
of residents of the county where the hospital
is located who commute to work at hospitals
in counties with higher wage indexes.
• The total estimated change in payments
based on the proposed FY 2011 policies
relative to payments based on FY 2010
policies that include the applicable
percentage increase of 2.15 (or 2.4 percent
market basket with a 0.25 percentage
reduction, as required under the Affordable
Care Act). The FY 2010 operating payments
also account for provisions under the
Affordable Care Act that were effective for FY
2010.
To illustrate the impacts of the proposed
FY 2011 changes, our analysis begins with a
FY 2010 baseline simulation model using:
the proposed FY 2011 applicable percentage
increase of 2.15 percent; the FY 2010 MS–
DRG GROUPER (Version 27.0); the most
current CBSA designations for hospitals
based on OMB’s MSA definitions; the FY
2010 wage index; and no MGCRB
reclassifications. Outlier payments are set at
5.1 percent of total operating MS–DRG and
outlier payments.
Section 1886(b)(3)(B)(viii) of the Act, as
added by section 5001(a) of Public Law 109–
171, provides that, for FY 2007 and
subsequent years, the update factor will be
reduced by 2.0 percentage points for any
hospital that does not submit quality data in
a form and manner and at a time specified
by the Secretary. At the time that this impact
was prepared, 104 hospitals did not receive
the full market basket rate-of-increase for FY
2010 because they failed the quality data
submission process or did not choose to
participate. For purposes of the simulations
shown below, we modeled the proposed
payment changes for FY 2011 using a
reduced update for these 104 hospitals.
However, we do not have enough
information at this time to determine which
hospitals will not receive the full market
basket rate-of-increase for FY 2011.
Each policy change, statutory or otherwise,
is then added incrementally to this baseline,
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finally arriving at an FY 2011 model
incorporating all of the changes. This
simulation allows us to isolate the effects of
each proposed change.
Our final comparison illustrates the
proposed percent change in payments per
case from FY 2010 to FY 2011. Three factors
not discussed separately have significant
impacts here. The first factor is the update to
the standardized amount. In accordance with
section 1886(b)(3)(B)(i) of the Act, we are
proposing to update the standardized
amounts for FY 2011 using an applicable
percentage increase of 2.15 percent. In
addition, we are updating the Puerto Rico
specific amount by an applicable percentage
increase of 2.15 percent. This includes our
forecasted hospital market basket increase of
2.4 percent with a 0.25 percentage reduction
as required under the Affordable Care Act.
(Hospitals that fail to comply with the quality
data submission requirements to receive the
full update will receive an update reduced by
2.0 percentage points from 2.15 percent to
0.15 percent.) Under section 1886(b)(3)(B)(iv)
of the Act, the updates to the hospitalspecific amounts for SCHs and for MDHs are
also equal to the market basket percentage
increase, or 2.15 percent.
A second significant factor that affects the
changes in hospitals’ payments per case from
FY 2010 to FY 2011 is the change in a
hospital’s geographic reclassification status
from one year to the next. That is, payments
may be reduced for hospitals reclassified in
FY 2010 that are no longer reclassified in FY
2011. Conversely, payments may increase for
hospitals not reclassified in FY 2010 that are
reclassified in FY 2011.
A third significant factor is that we
currently estimate that actual outlier
payments during FY 2010 will be 4.9 percent
of total MS–DRG payments. Our FY 2010
outlier estimate accounts for changes to the
FY 2010 IPPS payments required under the
Affordable Care Act. When the FY 2010 final
rule was published, we projected FY 2010
outlier payments would be 5.1 percent of
total MS–DRG plus outlier payments; the
average standardized amounts were offset
correspondingly. The effects of the lower
than expected outlier payments during FY
2010 (as discussed in the Addendum to this
proposed rule) are reflected in the analyses
below comparing our current estimates of FY
2010 payments per case to estimated FY 2011
payments per case (with outlier payments
projected to equal 5.1 percent of total MS–
DRG payments).
B. Analysis of Table I
Table I displays the results of our analysis
of the proposed changes for FY 2011. The
table categorizes hospitals by various
geographic and special payment
consideration groups to illustrate the varying
impacts on different types of hospitals. The
top row of the table shows the overall impact
on the 3,472 acute care hospitals included in
the analysis.
The next four rows of Table I contain
hospitals categorized according to their
geographic location: all urban, which is
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further divided into large urban and other
urban; and rural. There are 2,502 hospitals
located in urban areas included in our
analysis. Among these, there are 1,365
hospitals located in large urban areas
(populations over 1 million), and 1,137
hospitals in other urban areas (populations of
1 million or fewer). In addition, there are 970
hospitals in rural areas. The next two
groupings are by bed-size categories, shown
separately for urban and rural hospitals. The
final groupings by geographic location are by
census divisions, also shown separately for
urban and rural hospitals.
The second part of Table I shows hospital
groups based on hospitals’ FY 2011 payment
classifications, including any
reclassifications under section 1886(d)(10) of
the Act. For example, the rows labeled urban,
large urban, other urban, and rural show that
the numbers of hospitals paid based on these
categorizations after consideration of
geographic reclassifications (including
reclassifications under sections 1886(d)(8)(B)
and 1886(d)(8)(E) of the Act that have
implications for capital payments) are 2,555;
1,403; 1,152; and 917, respectively.
The next three groupings examine the
impacts of the changes on hospitals grouped
by whether or not they have GME residency
programs (teaching hospitals that receive an
IME adjustment) or receive DSH payments, or
some combination of these two adjustments.
There are 2,434 nonteaching hospitals in our
analysis, 798 teaching hospitals with fewer
than 100 residents, and 240 teaching
hospitals with 100 or more residents.
In the DSH categories, hospitals are
grouped according to their DSH payment
status, and whether they are considered
urban or rural for DSH purposes. The next
category groups together hospitals considered
urban or rural, in terms of whether they
receive the IME adjustment, the DSH
adjustment, both, or neither.
The next five rows examine the impacts of
the changes on rural hospitals by special
payment groups (SCHs, RRCs, and MDHs).
There were 183 RRCs, 340 SCHs, 187 MDHs,
and 108 hospitals that are both SCHs and
RRCs, and 13 hospitals that are both an MDH
and an RRC.
The next series of groupings are based on
the type of ownership and the hospital’s
Medicare utilization expressed as a percent
of total patient days. These data were taken
from the FY 2008 or FY 2007 Medicare cost
reports.
The next two groupings concern the
geographic reclassification status of
hospitals. The first grouping displays all
urban hospitals that were reclassified by the
MGCRB for FY 2011. The second grouping
shows the MGCRB rural reclassifications.
These groupings account for the change in
the MGCRB reclassification policy as
required under the Affordable Care Act.
The final category shows the impact of the
proposed policy changes on the 19 cardiac
hospitals in our analysis.
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C. Effects of the Proposed Changes to the
MS–DRG Reclassifications and Relative CostBased Weights (Column 1)
In Column 1 of Table I, we present the
effects of the proposed MS–DRG
reclassifications, as discussed in section II. of
the preamble to this supplemental proposed
rule. Section 1886(d)(4)(C)(i) of the Act
requires us annually to make appropriate
classification changes in order to reflect
changes in treatment patterns, technology,
and any other factors that may change the
relative use of hospital resources.
As discussed in the preamble of the May
4, 2010 FY 2011 IPPS/LTCH PPS proposed
rule, the proposed FY 2011 MS–DRG relative
weights will be 100 percent cost-based and
100 percent MS–DRGs. For FY 2011, the MS–
DRGs are calculated using the FY 2009
MedPAR data grouped to the Version 28.0
(FY 2011) MS–DRGs. The methods of
calculating the proposed relative weights and
the reclassification changes to the grouper are
described in more detail in the May 4, 2010
FY 2011 IPPS/LTCH PPS proposed rule. The
proposed changes to the relative weights and
MS–DRGs shown in Column 2 are prior to
any offset for budget neutrality. Overall,
hospitals will experience a 0.3 percent
increase in payments due to the changes in
the MS–DRGs and relative weights prior to
budget neutrality. Urban hospitals and rural
hospitals will experience a 0.3 percent
increase in payments under the updates to
the relative weights and MS–DRGs.
D. Effects of the Application of Recalibration
Budget Neutrality (Column 2)
Column 2 shows the effects of the changes
to the MS–DRGs and relative weights with
the application of the recalibration budget
neutrality factor to the standardized amounts.
Consistent with section 1886(d)(4)(C)(iii) of
the Act, we are calculating a recalibration
budget neutrality factor to account for the
changes in MS–DRGs and relative weights to
ensure that the overall payment impact is
budget neutral. We revised the recalibration
budget neutrality factor in this notice because
we applied a 0.25 reduction to the market
basket update to the standardized amount as
required under the Affordable Care Act.
The ‘‘All Hospitals’’ line in Column 1
indicates that proposed changes due to MS–
DRGs and relative weights will increase
payments by 0.3 percent before application of
the budget neutrality factor. The proposed
recalibration budget neutrality factor is
0.996867, which is applied to the
standardized amount. Thus, the impact after
accounting only for budget neutrality for
changes to the MS–DRG relative weights and
classification is somewhat lower than the
figures shown in Column 1 (approximately
0.3 percent). Consequentially, urban and
rural hospitals will not experience a change
in payments when recalibration budget
neutrality is applied.
E. Effects of Proposed Wage Index Changes
(Column 3)
Section 1886(d)(3)(E) of the Act requires
that, beginning October 1, 1993, we annually
update the wage data used to calculate the
wage index. In accordance with this
requirement, the proposed wage index for
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acute care hospitals for FY 2011 is based on
data submitted for hospital cost reporting
periods beginning on or after October 1, 2006
and before October 1, 2007. The estimated
impact of the updated wage data on hospital
payments is isolated in Column 3 by holding
the other payment parameters constant in
this simulation. That is, Column 3 shows the
percentage change in payments when going
from a model using the FY 2010 wage index,
based on FY 2006 wage data, and having a
100-percent occupational mix adjustment
applied, to a model using the FY 2011 prereclassification wage index, also having a
100-percent occupational mix adjustment
applied, based on FY 2007 wage data (while
holding other payment parameters such as
use of the Version 28.0 MS–DRG GROUPER
constant). The occupational mix adjustment
is based on the FY 2008/2009 occupational
mix survey. The wage data was not affected
by any of the provisions under the Affordable
Care Act for FY 2011.
Column 3 shows the impacts of updating
the wage data using FY 2007 cost reports.
Overall, the new wage data will lead to a 0.0
percent change for all hospitals before being
combined with the wage budget neutrality
adjustment shown in Column 5. Among the
regions, the largest increase is in the rural
Middle Atlantic region, which experiences a
0.4 percent increase before applying an
adjustment for budget neutrality. The largest
decline from updating the wage data is seen
in Urban East South Central (0.5 percent
decrease).
F. Application of the Wage Budget Neutrality
Factor (Column 4)
Column 4 shows the impact of the new
wage data with the application of the wage
budget neutrality factor. In FY 2010, we
began calculating separate wage budget
neutrality and recalibration budget neutrality
factors, in accordance with section
1886(d)(3)(E) of the Act, which specifies that
budget neutrality to account for wage
changes or updates made under that
subparagraph must be made without regard
to the 62 percent labor-related share
guaranteed under section 1886(d)(3)(E)(ii) of
the Act. Therefore, for FY 2011, we are
calculating the wage budget neutrality factor
to ensure that payments under updated wage
data are budget neutral without regard to the
lower labor-related share of 62 percent
applied to hospitals with a wage index less
than or equal to 1. In other words, the wage
budget neutrality is calculated under the
assumption that all hospitals receive the
higher labor-related share of the standardized
amount. The wage budget neutrality factor is
revised because the market basket update to
the standardized amount was reduced by
0.25 percent under the Affordable Care Act.
Because the wage data changes did not
change overall payments (displayed in
Column 3), the revised wage budget
neutrality factor is 1.00007, and the overall
payment change is 0.0 percent.
G. Combined Effects of Proposed MS–DRG
and Wage Index Changes (Column 5)
Section 1886(d)(4)(C)(iii) of the Act
requires that changes to MS–DRG
reclassifications and the relative weights
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cannot increase or decrease aggregate
payments. In addition, section 1886(d)(3)(E)
of the Act specifies that any updates or
adjustments to the wage index are to be
budget neutral. We computed a proposed
wage budget neutrality factor of 1.00007, and
a proposed recalibration budget neutrality
factor of 0.996867 (which is applied to the
Puerto Rico specific standardized amount
and the hospital-specific rates). The product
of the two budget neutrality factors is the
cumulative wage and recalibration budget
neutrality factor. The proposed cumulative
wage and recalibration budget neutrality
adjustment is 0.996937, or approximately
¥0.3 percent, which is applied to the
national standardized amounts. Because the
wage budget neutrality and the recalibration
budget neutrality are calculated under
different methodologies according to the
statute, when the two budget neutralities are
combined and applied to the standardized
amount, the overall payment impact is not
necessarily budget neutral. However, in this
proposed rule, we are estimating that the
proposed changes in the MS–DRG relative
weights and updated wage data with wage
and budget neutrality applied will result in
a 0.0 change in payments.
We estimate that the combined impact of
the proposed changes to the relative weights
and MS–DRGs and the proposed updated
wage data with budget neutrality applied will
result in no change in payments for urban or
rural hospitals. Urban New England would
experience a 0.6 decrease in payments due to
reductions in their case-mix and wages
compared to the national average, while the
urban Pacific area would experience a 0.5
percent increase in payments because of
above average increases in wages and casemix. Among the rural hospital categories,
rural South Atlantic hospitals would
experience the greatest decline in payment
(¥0.9 percent) primarily due to the changes
to MS–DRGs and the relative cost weights.
H. Effects of MGCRB Reclassifications
(Column 6)
Our impact analysis to this point has
assumed acute care hospitals are paid on the
basis of their actual geographic location (with
the exception of ongoing policies that
provide that certain hospitals receive
payments on other bases than where they are
geographically located). The changes in
Column 6 reflect the per case payment
impact of moving from this baseline to a
simulation incorporating the MGCRB
decisions for FY 2011 which affect hospitals’
wage index area assignments.
By spring of each year, the MGCRB makes
reclassification determinations that will be
effective for the next fiscal year, which
begins on October 1. The MGCRB may
approve a hospital’s reclassification request
for the purpose of using another area’s wage
index value. Hospitals may appeal denials of
MGCRB decisions to the CMS Administrator.
Further, hospitals have 45 days from
publication of the IPPS rule in the Federal
Register to decide whether to withdraw or
terminate an approved geographic
reclassification for the following year.
Provisions in the Affordable Care Act
required us to revert to FY 2008 average
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hourly wage reclassification criteria for
reclassifications effective in FY 2011.
Therefore, additional hospitals will qualify
for MGCRB reclassification compared to the
FY 2011 IPPS/LTCH PPS proposed rule (or
will qualify for their primary
reclassification), published on May 4, 2010.
This column reflects an expectation that
these additional hospitals will qualify for
geographic reclassification.
The overall effect of geographic
reclassification is required by section
1886(d)(8)(D) of the Act to be budget neutral.
Therefore, for the purposes of this impact
analysis, we are applying an adjustment of
0.995425 to ensure that the effects of the
section 1886(d)(10) reclassifications are
budget neutral (section II.A. of the
Addendum to this supplemental proposed
rule). Geographic reclassification generally
benefits hospitals in rural areas. We estimate
that geographic reclassification will increase
payments to rural hospitals by an average of
1.6 percent. By region, all the rural hospital
categories will experience increases in
payments due to MGCRB reclassification
where rural hospitals in the Mountain region
will experience a 0.1 percent increase in
payments and rural hospitals in the East
South Central region will experience a 2.4
percent increase in payments.
Table 9A of the Addendum to this
proposed rule reflects the approved
reclassifications for FY 2011.
I. Effects of the Rural Floor and Imputed
Floor, Including Application of National
Budget Neutrality (Column 7)
As discussed in section III.B. of the
preamble of the FY 2009 IPPS final rule, the
FY 2010 IPPS/RY 2010 LTCH final rule and
this proposed rule, section 4410 of Public
Law 105–33 established the rural floor by
requiring that the wage index for a hospital
in any urban area cannot be less than the
wage index received by rural hospitals in the
same State. In FY 2008, we changed how we
applied budget neutrality to the rural floor.
Rather than applying a budget neutrality
adjustment to the standardized amount, a
uniform budget neutrality adjustment is
applied to the wage index. In the FY 2009
final rule, we finalized the policy to apply
the rural floor budget neutrality at the State
level with a 3-year transition. In FY 2009,
hospitals received a blended wage index that
is 20 percent of a wage index with the State
level rural and imputed floor budget
neutrality adjustment and 80 percent of a
wage index with the national budget
neutrality adjustment. In FY 2010, hospitals
received a blended wage index that is 50
percent of a wage index with the State level
rural and imputed floor budget neutrality and
50 percent of a wage index with the national
budget neutrality adjustment. For FY 2011,
the Affordable Care Act requires that we
apply one rural floor budget neutrality to the
wage index, nationally. The proposed FY
2011 rural floor budget neutrality factor
applied to the wage index is 0.995425.
Furthermore, the FY 2005 IPPS final rule
(69 FR 49109) established a temporary
imputed floor for all urban States from FY
2005 to FY 2007. The rural floor requires that
an urban wage index cannot be lower than
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the wage index for any rural hospital in that
State. Therefore, an imputed floor was
established for States that do not have rural
areas or rural IPPS hospitals. In the FY 2008
IPPS final rule with comment period (72 FR
47321), we finalized our proposal to extend
the imputed floor for 1 additional year. In the
FY 2009 IPPS final rule (73 FR 48573), we
extended the imputed floor for an additional
3 years through FY 2011. In the FY 2011
IPPS/LTCH PPS proposed rule published on
May 4, 2010, we applied rural floor budget
neutrality at the State-level. However, the
Affordable Care Act requires that, effective
for FY 2011, we apply rural floor and
imputed floor budget neutrality at the
national level, as we did in FY 2008.
Column 7 shows the projected impact of
the rural floor and the imputed floor with the
national rural and imputed floor budget
neutrality factor applied to the wage index.
The column compares the proposed postreclassification FY 2011 wage index of
providers before the rural floor adjustment
and the post-reclassification FY 2011 wage
index of providers with the rural floor and
imputed floor adjustment. Only urban
hospitals can benefit from the rural floor
provision. Because the provision is budget
neutral, all other hospitals (that is, all rural
hospitals and those urban hospitals to which
the adjustment is not made) experience a
decrease in payments due to the budget
neutrality adjustment applied nationally to
their wage index.
We project that, in aggregate, rural
hospitals will experience a 0.1 percent
decrease in payments as a result of the
application of rural floor budget neutrality
because the rural hospitals located in States
with a rural floor do not benefit from the
rural floor, but have their wage indexes
downwardly adjusted to ensure that the
application of the rural floor is budget
neutral overall within the State. We project
hospitals located in other urban areas
(populations of 1 million or fewer) will
experience a 0.1 percent increase in
payments because those providers benefit
from the rural floor. Urban hospitals in the
Pacific region can expect 0.9 percent increase
in payments because a large percentage of
hospitals in this region receive the rural
floor. Urban hospitals in the Middle Atlantic
can expect a 0.1 percent increase in
payments because New Jersey hospitals
receive the imputed floor with a national
budget neutrality adjustment. Rural hospitals
in all regions can expect a 0.1 to 0.2 percent
decrease in payments because the rural and
imputed floors only benefit urban hospitals.
J. Effects of the Proposed Application of the
Frontier Wage Index (Column 8)
Section 10324(a) of Affordable Care Act
requires that we establish a minimum postreclassified wage-index of 1.00 for all
hospitals located in Frontier States. Frontier
States are defined in the statute as States
with at least 50 percent of its counties with
a population density lesser than 6 persons
per square mile. Based on these criteria, five
States (Montana, North Dakota, Nevada,
South Dakota, and Wyoming) are considered
Frontier States and 51 hospitals located in
those States would receive a frontier wage
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index of 1.0. This provision is not budget
neutral and is estimated to increase IPPS
operating payments by approximately $48
million.
Urban hospitals located in the West North
Central region and urban hospitals located in
the Mountain region will experience an
increase in payments by 0.5 percent and 0.2,
respectively, because many of the hospitals
located in this region are frontier hospitals.
Similarly, rural hospitals located in the West
North Central and rural hospitals in the
Mountain region will experience an increase
in payments by 0.1 and 0.5, respectively.
K. Effects of the Proposed Wage Index
Adjustment for Out-Migration (Column 9)
Section 1886(d)(13) of the Act, as added by
section 505 of Public Law 108–173, provides
for an increase in the wage index for
hospitals located in certain counties that
have a relatively high percentage of hospital
employees who reside in the county, but
work in a different area with a higher wage
index. Hospitals located in counties that
qualify for the payment adjustment are to
receive an increase in the wage index that is
equal to a weighted average of the difference
between the wage index of the resident
county, post-reclassification and the higher
wage index work area(s), weighted by the
overall percentage of workers who are
employed in an area with a higher wage
index. With the out-migration adjustment,
small rural providers with less than 100 beds
will experience a 0.5 percent increase in
payments in FY 2011 relative to no
adjustment at all. We included these
additional payments to providers in the
impact table shown above, and we estimate
the impact of these providers receiving the
out-migration increase to be approximately
$20 million.
L. Effects of All Proposed Changes Prior to
Documentation and Coding (or CMI)
Adjustment (Column 10)
Column 10 shows our estimate of the
changes in payments per discharge from FY
2010 and FY 2011, resulting from all
proposed changes reflected in this
supplemental rule and the May 4, 2010 IPPS/
LTCH PPS proposed rule for FY 2011
(including statutory changes), other than the
proposed documentation and coding
adjustment. Column 10 reflects the impact of
all other FY 2011 changes relative to FY
2010, including those shown in Columns 1
through 9. We note that our baseline FY 2010
operating estimates account for the
provisions under the Affordable Care Act that
affected the FY 2010 operating payments.
The average increase in payments under the
IPPS for all hospitals is approximately 2.0
percent. This includes the 2.15 percent
applicable percentage increase (including the
¥0.25 reduction to the market basket
increase required under the Affordable Care
Act). In addition, it reflects the estimated 0.2
percentage point difference between the
projected outlier payments in FY 2010 (5.1
percent of total MS–DRG payments), the
current estimate of the percentage of actual
outlier payments in FY 2010 (4.9 percent) as
described in the introduction to this
Appendix and the Addendum to this
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proposed rule. Finally, it accounts for ¥0.2
percent decrease in payments due to the
expiration of Section 508 reclassifications
that had been extended for FY 2010 under
the Affordable Care Act.
There might also be interactive effects
among the various factors comprising the
payment system that we are not able to
isolate. For these reasons, the values in
Column 10 may not equal the sum of the
percentage changes described above.
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M. Effects of All FY 2011 Proposed Changes
With CMI Adjustment (Column 11)
Column 11 shows our estimate of the
changes in payments per discharge from FY
2010 and FY 2011, resulting from all
proposed changes reflected in the May 4,
2010 IPPS/LTCH PPS proposed rule for FY
2011 and provisions described in this
supplemental proposed rule required under
the Affordable Care (including statutory
changes). The FY 2010 baseline estimates
account for the provisions under the
Affordable Care Act that affected the FY 2010
operating payments. Specifically, the FY
2010 baseline payment estimates account for
the additional ¥0.25 reduction in the
applicable percentage increase applied to
discharges for FY 2010 discharges occurring
on or after April 1, 2010 and accounts for the
extension of Section 508 reclassifications for
FY 2010. As discussed in the FY 2011 IPPS/
LTCH PPS proposed rule, this column
includes the proposed FY 2011
documentation and coding adjustment of
¥2.9 percent on the national standardized
amount, ¥2.9 percent on the hospitalspecific rates, and ¥2.4 percent on the
Puerto Rico-specific standardized amount,
which overall accounts for a 2.9 percent
decrease in payments.
The average decrease in payments under
the IPPS for all hospitals is approximately
¥0.9 percent. As described in Column 10,
this average decrease includes the effects of
the 2.15 percent market basket update
(including the ¥0.25 reduction in the
applicable percentage increase required
under the Affordable Care Act), the 0.2
percentage point difference between the
projected outlier payments in FY 2011 (5.1
percent of total MS–DRG payments), and the
current estimate of the percentage of actual
outlier payments in FY 2010 (4.9 percent). In
addition, it includes a ¥0.2 percent decrease
in payments due to the expiration of Section
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508 reclassifications that had been extended
for FY 2010 under the Affordable Care Act.
Section 508 reclassification was not a budgetneutral provision. There might also be
interactive effects among the various factors
comprising the payment system that we are
not able to isolate. For these reasons, the
values in Column 11 may not equal the sum
of the percentage changes described above.
The overall proposed change in payments
per discharge for hospitals paid under the
IPPS in FY 2011 is estimated to decrease by
0.9 percent. The payment decreases among
the hospital categories are largely attributed
to the proposed documentation and coding
adjustments. Hospitals in urban areas would
experience an estimated 0.8 percent decrease
in payments per discharge in FY 2011
compared to FY 2010. Hospital payments per
discharge in rural areas are estimated to
decrease by 1.4 percent in FY 2011 as
compared to FY 2010. The decreases larger
than the national average for rural areas are
largely attributed to the differential impact of
the MS–DRGs and wage data and due to the
¥2.9 percent documentation and coding
adjustment applied to the national
standardized amount and the ¥2.9 percent
documentation and coding adjustment to the
hospital-specific rate applied to SCHs and
MDHs, which generally are classified as rural
hospitals.
Among urban census divisions, the largest
estimated payment decreases will be 2.0
percent in the New England region and 1.4
percent in the Middle Atlantic region
because many of the urban providers in these
regions had benefited from Section 508
reclassification in FY 2010 that has expired
for FY 2011. Urban hospitals in the Pacific
will see the largest payment increases (0.6
percent) because urban providers in this
region will benefit from the rural floor and
application of a national rural floor budget
neutrality factor. Among the rural regions,
the providers in the New England region will
experience the largest decrease in payments
(2.3 percent) because of the expiration of
Section 508 reclassifications while rural
hospitals in the Mountain region will
experience the smallest decreases in
payments by 0.4 percent because the rural
providers in this region benefit from MGCRB
reclassification and the Frontier wage index
provision, required under the Affordable
Care Act.
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Among special categories of rural
hospitals, MDHs will receive an estimated
payment decrease of 1.1 percent. MDHs are
paid the higher of the IPPS rate based on the
national standardized amount, that is, the
Federal rate, or, if the hospital-specific rate
exceeds the Federal rate, the Federal rate
plus 75 percent of the difference between the
Federal rate and the hospital-specific rate.
MDHs will experience a decrease in
payments because of the proposed
documentation and coding adjustments
applied to both the hospital-specific rate and
the Federal rate. SCHs are also paid the
higher of their hospital-specific rate or the
Federal rate. Overall, SCHs will experience
an estimated decrease in payments by 1.8
percent due to the proposed documentation
and coding adjustments to the national
standardized amount and the hospitalspecific rates.
Rural hospitals reclassified for FY 2011 are
anticipated to receive a 1.0 percent payment
decrease, and rural hospitals that are not
reclassifying are estimated to receive a
payment decrease of 1.9 percent.
Cardiac hospitals are expected to
experience a payment increase of 0.3 percent
in FY 2011 relative to FY 2010 due to
increases in payments attributable to changes
in the MS–DRGs and relative weights.
N. Impact Analysis of Table II
Table II presents the projected impact of
the proposed changes for FY 2011 as
published in the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule and the provisions
required under the Affordable Care Act in
this notice for urban and rural hospitals and
for the different categories of hospitals shown
in Table I. It compares the estimated average
payments per discharge for FY 2010 with the
proposed payments per discharge for FY
2011, as calculated under our models. The
estimated FY 2010 payments per discharge
incorporate the provisions in the Affordable
Care Act. Thus, this table presents, in terms
of the average dollar amounts paid per
discharge, the combined effects of the
proposed changes presented in Table I. The
estimated percentage changes shown in the
last column of Table II equal the estimated
percentage changes in average payments per
discharge from Column 11 of Table I.
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VII. Effects of Other Supplemental Proposed
Policy Changes
In addition to those supplemental
proposed policy changes discussed above
that we are able to model using our IPPS
payment simulation model, we are proposing
to make various other changes in this
supplemental proposed rule. Generally, we
have limited or no specific data available
with which to estimate the impacts of these
changes. Our estimates of the likely impacts
associated with these other supplemental
proposed changes are discussed below.
A. Effects of the Supplemental Proposed
Low-Volume Hospital Payment Adjustment:
Changes for FYs 2011 and 2012
The low-volume hospital payment
adjustment changes for FYs 2011 and 2012,
as discussed in section II.C. of the preamble
to this supplemental proposed rule, expands
eligibility for the low-volume hospital
payment adjustment to hospitals with less
than 1,600 Medicare discharges (instead of
the prior requirement of less than 800 total,
Medicare and non-Medicare, discharges) and
more than 15 miles from other IPPS hospitals
(rather than the prior requirement of more
than 25 miles). The payment adjustment is
changed also, from an empirically
determined (69 FR 49099 through 49102 and
70 FR 47432 through 47434) additional 25
percent payment adjustment to qualifying
hospitals with less than 200 total discharges,
to a continuous, linear sliding scale
adjustment ranging from an additional 25
percent payment adjustment to hospitals
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with 200 or less Medicare discharges to no
additional payment to hospitals with 1,600 or
more Medicare discharges.
We estimate, based on FY 2009 claims
(MedPAR) data, an additional 1,524 hospitals
would meet the Medicare discharges
criterion to qualify as a low-volume hospital.
However, we are not able to estimate the
number of these 1,524 hospitals that would
also meet the distance criterion. The actual
number of hospitals that would also meet the
distance criterion to qualify as a low-volume
hospital would be less, very likely much less,
than the estimated 1,524 maximum number
of potential low-volume hospitals for FY
2011. If all 1,524 hospitals that meet the
Medicare discharge requirement also meet
the distance requirement, the additional
Medicare IPPS dollars the temporary change
to the low-volume hospital payment
adjustment would require, at most, based on
each hospital’s number of Medicare
discharges and the corresponding payment
adjustment amount, an estimated $877
million for FY 2011. At this time, we are not
able to estimate the impact of the change for
FY 2012.
B. Effects of the Supplemental Proposed
Change for Medicare-Dependent, Small Rural
Hospitals
As discussed in section II.D. of the
preamble to this supplemental proposed rule,
section 3124 of Public Law 111–148 extends
the MDH program for 1 additional year, from
the end of FY 2011 (that is, for discharges
before October 1, 2011) to the end of FY 2012
(that is, for discharges before October 1,
2012). The extension has no impact on FY
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2011. For FY 2012, the extension allows the
continuation of MDH status and the payment
methodology, for an MDH to be paid its
hospital-specific rate, based on its FY 1982,
1987, or 2002 costs per discharge, rather than
the Federal rate, if this results in a greater
aggregate payment (section II.D. of the
preamble to this supplemental proposed
rule). Therefore, the impact of the extension
is one additional year of hospital-specific rate
payments for MDHs rather than Federal rate
payments for IPPS hospitals without special
treatment as an MDH.
C. Effects of the Supplemental Proposed
Additional Payments to Qualifying Hospitals
in Low Medicare Spending Counties
Under section 1109 of Public Law 111–152,
Congress has allocated $400 million to be
spent for FYs 2011 and 2012 to qualifying
hospitals located in the bottom quartile of
counties with the lowest Medicare Part A and
Part B spending per enrollee. In our proposal
described in section II.E. of the preamble to
this supplemental proposed rule, we have
identified the list of eligible counties and the
qualifying hospitals located in those counties
that would receive the $400 million. We are
proposing to spend $200 million in FY 2011
and $200 million in FY 2012. This money
will be given to the qualifying hospitals by
the FI or A/B MAC through a one-time
annual payment. In section II.E. of the
preamble to this supplemental proposed rule,
Table 2 lists the distribution of payments
among the proposed list of qualifying
hospitals. In addition, Table 3 in section II.E.
of the preamble to this supplemental
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proposed rule lists the distribution of
payment by State for FY 2011.
D. Effects of the Supplemental Proposed
Implementation of the Rural Community
Hospital Demonstration Program
In section II.F. of the preamble of this
supplemental rule, we discuss our
implementation of section 410A of Public
Law 108–173, which required the Secretary
to establish a demonstration that would
modify reimbursement for inpatient services
for up to 15 small rural hospitals. Section
410A(c)(2) Public Law 108–173 requires that
‘‘[i]n conducting the demonstration program
under this section, the Secretary shall ensure
that the aggregate payments made by the
Secretary do not exceed the amount which
the Secretary would have paid if the
demonstration program under this section
was not implemented.’’ As discussed in
section II.F. of the preamble of this
supplemental rule, in the IPPS final rule for
each of the previous 6 fiscal years, we have
estimated the additional payments as a result
of the demonstration for each of the
participating hospitals. In order to achieve
budget neutrality, we are proposing to adjust
the national IPPS rates by an amount
sufficient to account for the added costs of
this demonstration. In other words, we are
proposing to apply budget neutrality across
the payment system as a whole rather than
merely across the participants of this
demonstration. We believe that the language
of the statutory budget neutrality requirement
permits the agency to implement the budget
neutrality provision in this manner. The
statutory language requires that ‘‘aggregate
payments made by the Secretary do not
exceed the amount which the Secretary
would have paid if the demonstration * * *
was not implemented’’ but does not identify
the range across which aggregate payments
must be held equal.
An extension of this demonstration has
been mandated by the Affordable Care Act.
The demonstration will be extended for an
additional 5 years and expanded to up to 30
hospitals. We are proposing to make an
adjustment in the FY 2011 IPPS/LTCH PPS
final rule of $69,279,673 to the national IPPS
rates. This amount ($69,279,673) accounts for
the following: (1) An estimate of the
demonstration cost for FY 2011 for the 10
hospitals that are currently participating in
the demonstration; (2) an estimate of the cost
of the continuation of the 7 hospitals that
have participated in the demonstration since
its inception and that are still participating—
for the portions of their cost reporting
periods in FY 2010 that are not covered in
the estimated cost of the demonstration in
the FY 2010 IPPS final rule because we
formulated these estimates under the
assumption that the demonstration would
end in FY 2010; and (3) an estimate of the
cost of participation in the demonstration for
20 additional hospitals in FY 2011. Not
included in this amount is an adjustment that
we proposed to make in addition for the FY
2011 IPPS/LTCH PPS final rule to account for
any differences between the cost of the
demonstration program for hospitals
participating in the demonstration during FY
2007, as indicated by their settled cost
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reports beginning in FY 2007, and the
amount that was offset by the budget
neutrality adjustment for FY 2007. The
specific numeric value associated with this
component of the proposed adjustment to the
national IPPS rates cannot be known until
cost reports beginning in FY 2007 for the
hospitals participating during FY 2007 in the
demonstration are settled. We expect those
cost reports to be settled prior to the
publication of the FY 2011 IPPS/LTCH PPS
final rule, and that we will be able to
incorporate the estimated amount in the FY
2011 IPPS/LTCH PPS final rule.
E. Effects of the Supplemental Proposed
Payment for Critical Access Hospital
Outpatient Services and Ambulance Services
In section II.H. of the preamble of this
supplemental proposed rule, we discuss our
proposal to implement section 3128 of Public
Law 111–148 by amending the regulations at
§ 413.70(b)(3)(ii)(A) to state that, effective for
cost reporting periods beginning on or after
January 1, 2004, payment for outpatient
facility services under the optional method
will also be made at 101 percent of
reasonable costs. We are also proposing to
amend the regulations at § 413.70(b)(5)(i) to
state that effective for cost reporting periods
beginning on or after January 1, 2004,
payment for ambulance services furnished by
a CAH or an entity that is owned and
operated by a CAH is 101 percent of the
reasonable costs of the CAH or the entity in
furnishing those services, but only if the CAH
or the entity is the only provider or supplier
of ambulance services located within a 35mile drive of the CAH or the entity. We do
not believe these proposals will result in
additional payments to CAHs for prior
periods because we believe that in fact we
have paid CAHs for these services at 101
percent of reasonable costs during these prior
periods.
VIII. Effects of Proposed Changes in the
Capital IPPS
A. General Considerations
Provisions of Public Law 111–148
necessitated revising the May 4, 2010 FY
2011 IPPS/LTCH PPS proposed rule. While
the proposed IPPS payment rates for capitalrelated costs were not directly affected by
provisions of Public Law 111–148, changes to
the wage index as well as to the outlier
payment adjustment factor were required by
the law. Changes to the wage index affect the
geographic adjustment factor (GAF) under
the capital IPPS which is used in conjunction
with a factor for changes in DRG
classifications and weights to determine a
proposed budget neutrality adjustment factor
in calculating the proposed capital IPPS rate.
A revision of the proposed outlier payment
adjustment factor was required because both
inpatient operating and inpatient capitalrelated payments use a single set of
thresholds to identify outlier cases. Changes
resulting from the provisions of Public Law
111–148 are discussed in more detail in
section II.A. of the preamble of this
supplemental proposed rule.
The data used in developing the impact
analysis presented below are the same as that
used for the impact analysis in the May 4,
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2010 FY 2011 IPPS/LTCH PPS proposed
rule—the December 2009 update of the FY
2009 MedPAR file and the December 2009
update of the Provider-Specific File (PSF)
that is used for payment purposes. Although
the analyses of the changes to the capital
prospective payment system do not
incorporate cost data, we used the December
2009 update of the most recently available
hospital cost report data (FYs 2006 and 2007)
to categorize hospitals. Our analysis has
several qualifications. We use the best data
available and make assumptions about casemix and beneficiary enrollment as described
below. In addition, as discussed in section
V.E. of the Preamble to the May 4, 2010 FY
2011 IPPS/LTCH PPS proposed rule, we are
proposing a ¥2.9 percent documentation and
coding adjustment to the national capital rate
for FY 2011 in addition to the ¥0.6 percent
adjustment established for FY 2008, and the
¥0.9 percent adjustment for FY 2009. This
results in a cumulative adjustment factor of
0.957 that we are proposing to apply to the
national capital rate to account for
improvements in documentation and coding
under the MS–DRGs in FY 2011. We also are
proposing to adjust the Puerto Rico-specific
capital rate in FY 2011 to account for changes
in documentation and coding resulting from
the adoption of the MS–DRGs.
Due to the interdependent nature of the
IPPS, it is very difficult to precisely quantify
the impact associated with each change. In
addition, we draw upon various sources for
the data used to categorize hospitals in the
tables. In some cases (for instance, the
number of beds), there is a fair degree of
variation in the data from different sources.
We have attempted to construct these
variables with the best available sources
overall. However, for individual hospitals,
some miscategorizations are possible.
Using cases from the December 2009
update of the FY 2009 MedPAR file, we
simulated payments under the capital IPPS
for revised FY 2010 and revised FY 2011
(both years have been revised to account for
provisions in the Affordable Care Act that
required changes to the wage index and
outlier threshold, as discussed above in this
section) for a comparison of total payments
per case. Any short-term, acute care hospitals
not paid under the general IPPS (Indian
Health Service hospitals and hospitals in
Maryland) are excluded from the
simulations.
The basic methodology for determining a
capital IPPS payment is set forth at § 412.312.
The basic methodology for calculating capital
IPPS payments in FY 2011 is as follows:
(Standard Federal Rate) × (DRG weight) ×
(GAF) × (COLA for hospitals located in
Alaska and Hawaii) × (1 + DSH Adjustment
Factor + IME adjustment factor, if
applicable).
In addition to the other adjustments,
hospitals may also receive outlier payments
for those cases that qualify under the
threshold established for each fiscal year. We
modeled payments for each hospital by
multiplying the capital Federal rate by the
GAF and the hospital’s case-mix. We then
added estimated payments for indirect
medical education, disproportionate share,
and outliers, if applicable. For purposes of
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this impact analysis, the model includes the
following assumptions (we note that these
are the same assumptions used for the impact
analysis in the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24310):
• We estimate that the Medicare case-mix
index will increase by 1.0 percent in both
FYs 2010 and 2011.
• We estimate that the Medicare
discharges will be approximately 11.8
million in FY 2010 and 12 million FY 2011.
• The capital Federal rate was updated
beginning in FY 1996 by an analytical
framework that considers changes in the
prices associated with capital-related costs
and adjustments to account for forecast error,
changes in the case-mix index, allowable
changes in intensity, and other factors. The
proposed factors used in the update
framework are not affected by the provisions
of Pub. L. 111–148, as amended, and
therefore, remains at the proposed 1.5
percent for FY 2011, as discussed in section
III.A.1. of the May 4, 2010 FY 2011 I PPS/
LTCH PPS proposed rule.
• In addition to the proposed FY 2011
update factor, the proposed FY 2011 capital
Federal rate was calculated based on a
proposed GAF/DRG budget neutrality factor
of 1.0015, a proposed outlier adjustment
factor of 0.9432, and a proposed (special)
exceptions adjustment factor of 0.9997.
• For FY 2011, as discussed above and in
section V.E. of the preamble to the May 4,
2010 FY 2011 IPPS/LTCH PPS proposed rule,
we are proposing to apply a 0.957 adjustment
to the proposed FY 2011 national capital rate
for changes in documentation and coding
that are expected to increase case-mix under
the MS–DRGs.
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B. Results
We used the actuarial model described
above to estimate the potential impact of our
proposed changes for FY 2011 on total
capital payments per case, using a universe
of 3,472 hospitals. As described above, the
individual hospital payment parameters are
taken from the best available data, including
the December 2009 update of the FY 2009
MedPAR file, the December 2009 update to
the PSF, and the most recent cost report data
from the December 2009 update of HCRIS. In
Table III, we present a comparison of
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estimated total payments per case for FY
2010, as revised per the Affordable Care Act,
compared to FY 2011 based on the proposed
FY 2011 payment policies. Column 2 shows
estimates of payments per case under our
model for FY 2010 (as revised). Column 3
shows estimates of payments per case under
our model for FY 2011. Column 4 shows the
total percentage change in payments from
revised FY 2010 to FY 2011. The change
represented in Column 4 includes the
proposed 1.5 percent update to the capital
Federal rate and other proposed changes in
the adjustments to the capital Federal rate.
The comparisons are provided by: (1)
Geographic location; (2) region; and (3)
payment classification.
The simulation results show that, on
average, capital payments per case in FY
2011 are expected to decrease as compared
to capital payments per case in FY 2010. The
proposed capital rate for FY 2011 would
increase 1.5 percent as compared to the FY
2010 capital rate. The proposed changes to
the GAFs are expected to result, on average,
in a slight decrease in capital payments,
although, for rural regions, it is more of a
contributing factor to the overall decrease in
capital payments than to urban areas mostly
due to the application of the rural floor to the
wage index. We also are estimating an
increase in outlier payments from FY 2010 to
FY 2011 due primarily to an estimated
decrease in capital IPPS payments per
discharge. Since capital payments per
discharge are projected to be slightly lower
in FY 2011 compared to FY 2010, more cases
would qualify for outlier payments. Because
our impact analysis includes actuarial
assumptions of growth from FY 2010 to FY
2011, the analysis shows a slight increase in
capital payments. However, the net impact of
these proposed changes is an estimated ¥0.2
percent change in capital payments per
discharge from FY 2010 to FY 2011 for all
hospitals (as shown below in Table III).
The geographic comparison shows that, on
average, all urban hospitals, as well as
hospitals in large urban areas, are expected
to experience a 0.1 percent decrease in
capital IPPS payments per case in FY 2011
as compared to FY 2010. Capital IPPS
payments per case for rural hospitals are
expected to decrease 0.6 percent.
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The change comparisons by regions show
some regions experiencing slight increases in
total capital payments, while other regions
are estimated to experience slight decreases
in capital payments from FY 2010 to FY
2011. For the urban regions, changes in
capital payments range from a ¥1.6 percent
in the New England region to an increase of
1.4 percent for the Pacific region. The rural
regions show estimates of a ¥2.4 percent
change in capital payments from FY 2010 to
FY 2011 in the New England rural region to
a 2.1 percent increase for the Mountain rural
region.
By type of ownership, proprietary hospitals
are estimated to experience a 0.2 percent
change in capital payments, voluntary
hospitals are estimated to experience a 0.3
percent decrease in capital payments per
case, while there is no change estimated for
government hospitals in capital payments per
case from FY 2010 to FY 2011.
Section 1886(d)(10) of the Act established
the MGCRB. Hospitals may apply for
reclassification for purposes of the wage
index for FY 2011. Reclassification for wage
index purposes also affects the GAFs because
that factor is constructed from the hospital
wage index.
To present the effects of the hospitals being
reclassified for FY 2011, we show the average
capital payments per case for reclassified
hospitals for FY 2010, as revised per the
Affordable Care Act. All classifications of
reclassified hospitals are expected to
experience a decrease in capital payments in
FY 2011 as compared to FY 2010. Urban
reclassified and rural reclassified hospitals
are expected to have a decrease in capital
payments of ¥0.4 percent and ¥0.3 percent,
respectively. No change is estimated in
capital payments for urban non-reclassified
hospitals, while rural non-reclassified
hospital capital payments are estimated to
decrease 0.9 percent. Other reclassified
hospitals (that is, hospitals reclassified under
section 1886(d)(8)(B) of the Act) are expected
to experience a decrease of 1.6 percent in
capital payments from FY 2010 to FY 2011.
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IX. Effects of Supplemental Proposed
Payment Rate Changes and Policy Changes
Under the LTCH PPS
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A. Introduction and General Considerations
In section II.J. of the preamble and section
III. of the Addendum of this proposed rule,
we are setting forth the proposed annual
update to the payment rates for the LTCH
PPS for FY 2011. In the preamble, we specify
the statutory authority for the proposed
provisions that are presented, identify those
proposed policies and present rationale for
our decisions as well as alternatives that
were considered. In this section IX. of
Appendix to this supplemental proposed
rule, we discuss the impact of the proposed
changes to the payment rates, factors, and
other payment rate policies related to the
LTCH PPS that are presented in the preamble
of this proposed rule in terms of their
estimated fiscal impact on the Medicare
budget and on LTCHs.
A number of the provisions of the
Affordable Care Act affect the IPPS and the
LTCH PPS and the providers and suppliers
addressed in the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule and this
supplemental proposed rule. The impacts of
the Appendix to this supplemental proposed
rule include the provisions from these laws
effective for FY 2011.
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Currently, our database of 421 LTCHs
includes the data for 77 nonprofit (voluntary
ownership control) LTCHs and 301
proprietary LTCHs. Of the remaining 43
LTCHs, 12 LTCHs are government-owned
and operated and the ownership type of the
other 31 LTCHs is unknown. In the impact
analysis, we are using the proposed rates,
factors, and policies presented in this
supplemental proposed rule, including the
0.50 percentage point reduction to the market
basket update required by sections
1886(m)(3) and (4) of the Act and the
proposed updated wage index values and the
labor-related share (presented in the May 4,
2010 FY 2010 IPPS/LTCH PPS proposed
rule), and the best available claims and CCR
data to estimate the change in payments for
FY 2011. The standard Federal rate for RY
2010 is $39,794.95, which reflects the 0.25
percentage point reduction applied to the RY
2010 market basket update required under
sections 1886(m)(3) and (4) of the Act (as
established in a separate notice published
elsewhere in this Federal Register).
Discharges in RY 2010 occurring on or after
April 1, 2010 are aid under the revised RY
2010 standard Federal rate consistent with
section 3401(p) of Public Law 111–148.
Discharges in RY 2010 occurring on or after
October 1, 2009 and on or before March 31,
2010 are paid under the standard Federal rate
of $39,896.65 (see 74 FR 44022).
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31111
As discussed in section III.A.3. of the
Addendum to this proposed rule, consistent
with our historical practice, we are proposing
to update the standard Federal rate for FY
2011 by ¥0.59 percent in order to establish
the proposed FY 2011 standard Federal rate
at $39,560.16. This includes a proposed
market basket update of 2.4 percent with a
0.50 percentage point reduction as required
under sections 1886(m)(3) and (4) of the Act,
and a proposed documentation and coding
adjustment of ¥2.5 percent to account for
increases in case-mix associated with the
adoption of the MS–LTC–DRGs. Based on the
best available data for the 421 LTCHs in our
database, we estimate that the proposed
update to the standard Federal rate for FY
2011 (discussed in section III.A.3. of the
Addendum of this supplemental proposed
rule) and the proposed changes to the area
wage adjustment for FY 2011 (discussed in
section V.B. of the Addendum to the May 4,
2010 IPPS/LTCH PPS FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24085 through
24086)), in addition to an estimated increase
in HCO payments and an estimated increase
in SSO payments, would result in an increase
in estimated payments from RY 2010 of
approximately $12.9 million (or about 0.3
percent). Based on the 421 LTCHs in our
database, we estimate RY 2011 LTCH PPS
payments to be approximately $4.913 billion,
an increase from FY 2010 LTCH PPS
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payments of approximately $4.901 billion.
Because the combined distributional effects
and estimated changes to the Medicare
program payments would be greater than
$100 million, this proposed rule, in
conjunction with the May 4, 2010 IPPS/
LTCH PPS FY 2011 IPPS/LTCH PPS
proposed rule, is considered a major
economic rule, as defined in this section. We
note the approximately $12.9 million for the
projected increase in estimated aggregate
LTCH PPS payments from RY 2010 to FY
2011 does not reflect changes in LTCH
admissions or case-mix intensity in estimated
LTCH PPS payments, which also would
affect overall payment changes.
The projected 0.3 percent increase in
estimated payments per discharge from RY
2010 to FY 2011 is attributable to several
factors, including the proposed ¥0.59
percent decrease to the standard Federal rate,
proposed changes in the wage index values
(including the proposed change to the laborrelated share) presented in the May 4, 2010
FY 2011 IPPS/LTCH PPS proposed rule (75
FR 24085 through 24086) and projected
increases in estimated HCO and SSO
payments. As Table IV shows, the proposed
change attributable solely to the standard
Federal rate is projected to result in a
decrease of 0.5 percent in estimated
payments per discharge from RY 2010 to FY
2011, on average, for all LTCHs, while the
proposed changes to the area wage
adjustment are projected to result in an
increase in estimated payments of 0.1
percent, on average, for all LTCHs.
As discussed in the May 4, 2010 FY 2011
IPPS/LTCH proposed rule (75 FR 24085
through 24086), we are proposing to update
the wage index values for FY 2011 based on
the most recent available data. In addition,
we are proposing to decrease the laborrelated share slightly from 75.779 percent to
75.407 percent under the LTCH PPS for FY
2011 based on the most recent available data
on the relative importance of the laborrelated share of operating and capital costs of
the RPL market basket. Consistent with the
May 4, 2010 FY 2011 IPPS/LTCH proposed
rule, the wage data and the labor-related
share is expected to increase LTCH PPS
payments by 0.1 percent (75 FR 24317
through 27318).
Table IV below shows the impact of the
proposed payment rate and proposed policy
changes on LTCH PPS payments for FY 2011
presented in this supplemental proposed
rule, in conjunction with the May 4, 2010 FY
2011 IPPS/LTCH PPS proposed rule, by
comparing RY 2010 estimated payments to
FY 2011 estimated payments. The projected
increase in payments per discharge from RY
2010 to FY 2011 is 0.3 percent (shown in
Column 8). This projected increase in
payments is attributable to the impacts of the
proposed change to the standard Federal rate
(¥0.5 percent in Column 6) and the
proposed change due to the area wage
adjustment (0. percent in Column 7), as well
as the effect of the estimated increase in
payments for HCO cases and SSO cases in FY
2011 as compared to RY 2010 (0.5 percent
and 0.3 percent, respectively). That is,
estimated total HCO payments are projected
to increase from RY 2010 to FY 2011 in order
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to ensure that estimated HCO payments will
be 8 percent of total estimated LTCH PPS
payments in FY 2011. An analysis of the
most recent available LTCH PPS claims data
(that is, FY 2009 claims from the December
2009 update of the MedPAR files) indicates
that the RY 2010 HCO threshold of $18,615
(as established in a separate notice published
elsewhere in this Federal Register) may
result in HCO payments in RY 2010 that fall
below the estimated 8 percent. Specifically,
we currently estimate that HCO payments
will be approximately 7.5 percent of
estimated total LTCH PPS payments in RY
2010. We note that the RY 2010 outlier
payment estimate in this impact analysis
takes into account for the revised RY 2010
rate and outlier threshold determined
consistent with sections 1886(m)(3) and (4) of
the Act and section 3401(p) of Public Law
111–148 that are used to make payments for
discharges in RY 2010 that occur on or after
April 1, 2010. Consistent with our estimate
in the May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule, we estimate that the impact of
the increase in HCO payments would result
in approximately a 0.5 percent increase in
estimated payments from RY 2010 to FY
2011 on average for all LTCHs. Furthermore,
in calculating the estimated increase in
payments from RY 2010 to FY 2011 for HCO
and SSO cases, we increased estimated costs
by the applicable market basket percentage
increase as projected by our actuaries, which
increases payments by 0.3 percent relative to
last year. We note that estimated payments
for all SSO cases comprise approximately 14
percent of estimated total LTCH PPS
payments, and estimated payments for HCO
cases comprise approximately 8 percent of
estimated total LTCH PPS payments.
Payments for HCO cases are based on 80
percent of the estimated cost of the case
above the HCO threshold, while the majority
of the payments for SSO cases (over 65
percent) are based on the estimated cost of
the SSO case.
As we discuss in detail throughout this
supplemental proposed rule, based on the
most recent available data, we believe that
the provisions of this supplemental proposed
rule in conjunction with the provisions of the
May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule, relating to the LTCH PPS will
result in an increase in estimated aggregate
LTCH PPS payments and that the resulting
LTCH PPS payment amounts result in
appropriate Medicare payments.
B. Impact on Rural Hospitals
For purposes of section 1102(b) of the Act,
we define a small rural hospital as a hospital
that is located outside of an urban area and
has fewer than 100 beds. As shown in Table
IV, we are projecting a 0.7 percent increase
in estimated payments per discharge for FY
2011 as compared to RY 2010 for rural
LTCHs that would result from the proposed
changes presented in this supplemental
proposed rule and those changes in the May
4, 2010 FY 2011 IPPS/LTCH PPS proposed
rule as well as the effect of estimated changes
to HCO and SSO payments. This estimated
impact is based on the data for the 26 rural
LTCHs in our database of 421 LTCHs, for
which complete data were available. The RY
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2010 average payment per case in Table IV
accounts for the changes required by sections
1886(m)(3) and (4) of the Act and section
3401(p) of Public Law 111–148 which affects
payments for discharges occurring on or after
April 1, 2010, as described below in section
IX.C.3. of the Appendix to this supplemental
proposed rule.
Consistent with the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule, the estimated
increase in LTCH PPS payments from RY
2010 to FY 2011 for rural LTCHs is primarily
due to the higher than average impacts from
the proposed changes to the area wage
adjustment and the proposed reduction in
the labor-related share from 75.779 to 75.407,
which results in a estimated 0.6 percent
increase in payments.
C. Anticipated Effects of Proposed LTCH PPS
Payment Rate Change and Policy Changes
We discuss the impact of the proposed
changes to the payment rates, factors, and
other payment rate policies under the LTCH
PPS for FY 2011 (in terms of their estimated
fiscal impact on the Medicare budget and on
LTCHs) in section II.I. of the preamble of this
supplemental proposed rule.
1. Budgetary Impact
Section 123(a)(1) of the BBRA requires that
the PPS developed for LTCHs ‘‘maintain
budget neutrality.’’ We believe that the
statute’s mandate for budget neutrality
applies only to the first year of the
implementation of the LTCH PPS (that is, FY
2003). Therefore, in calculating the FY 2003
standard Federal rate under § 412.523(d)(2),
we set total estimated payments for FY 2003
under the LTCH PPS so that estimated
aggregate payments under the LTCH PPS
were estimated to equal the amount that
would have been paid if the LTCH PPS had
not been implemented.
As discussed in section IX.A. of this
Appendix, we project an increase in
aggregate LTCH PPS payments in FY 2011 of
approximately $12.9 million (or 0.3 percent)
based on the 421 LTCHs in our database.
2. Impact of Moratorium and Other
Provisions
Section 114(c) and (d) of the Medicare,
Medicaid, and SCHIP Extension Act of 2007
(MMSEA) as amended by section 4302 of the
American Recovery and Reinvestment Act of
2009 (ARRA) provided for a 3-year delay in
certain payment policies relating to LTCHs
and LTCH satellite facilities. Section 3106 of
Public Law 111–148 and section 10312 of
Public Law 111–148 together provide for a
2-year extension of the 3-year delay in
implementation of certain payment policies
relating to LTCHs and LTCH satellite
facilities. Specifically, these provisions affect
payment adjustments for ‘‘very’’ short stay
outliers (SSOs), the one-time adjustment to
the standard Federal rate, the 25 percent
payment threshold policy, and the
moratorium on the establishment of new
LTCHs and LTCH satellite facilities and the
moratorium on the increase on LTCH beds in
existing LTCHs or satellite facilities.
Sections 3106 and 10312 of Public Law
111–148 together provide for a 2-year
extension of the 3-year delay in
implementation of the revision to the SSO
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policy at § 412.529(c)(3)(i) that was finalized
in the RY 2008 final rule. We estimate that
the extension of the SSO provision will result
in a projected increase in estimated aggregate
LTCH PPS payments of approximately $20
million in FY 2011. Sections 3106 and 10312
of Public Law 111–148 together provide for
a 2-year extension to several modifications to
the regulations at § 412.534 and § 412.536
required by section 114(c) of MMSEA as
amended by section 4302 of the ARRA,
which addressed the percentage thresholds
between referring hospitals and LTCHs and
satellites of LTCHs. We estimate that the
implementation of this extension of the
MMSEA provisions, as amended by the
ARRA, pertaining to § 412.534 and § 412.536
will result in a projected increase in
estimated aggregate LTCH PPS payments of
approximately $20 million for FY 2011.
Regarding the 2-year extension of the
moratorium on the development of new
LTCHs and LTCH satellites and the increase
in beds in existing LTCHs and LTCH
satellites, as we noted in the May 22, 2008
interim final rule with comment period when
the original 3-year delay required by section
114(d) of the MMSEA as amended by the
ARRA, was implemented, we are unable to
quantify the impact of the additional 2 year
moratorium on the establishment of LTCHs,
LTCH satellite facilities, and on the increase
of LTCH beds in existing LTCHs or satellite
facilities with limited exceptions. We are
unable to provide an estimate of the impact
of the 2-year extension of this provision
because we have no way of determining how
many LTCHs would have opened in the
absence of the moratorium, nor do we have
sufficient information at this time to
determine how many new LTCHs will meet
the exceptions criteria provided for in the
statute.
3. Impact on Providers
The basic methodology for determining a
per discharge LTCH PPS payment is set forth
in § 412.515 through § 412.536. In addition to
the basic MS–LTC–DRG payment (standard
Federal rate multiplied by the MS–LTC–DRG
relative weight), we make adjustments for
differences in area wage levels, COLA for
Alaska and Hawaii, and SSOs. Furthermore,
LTCHs may also receive HCO payments for
those cases that qualify based on the
threshold established each year.
To understand the impact of the proposed
changes to the LTCH PPS payments
presented in this supplemental proposed rule
on different categories of LTCHs for FY 2011,
it is necessary to estimate payments per
discharge for RY 2010 using the rates, factors,
including the FY 2010 GROUPER (Version
27.0) and relative weights, and policies
established in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43945 through
43994 and 44021 through 44030) and to
include any changes to payments due to the
provisions under sections 1886(m)(3) and (4)
of the Act and section 3401(p) of Public Law
111–148 which affects payments for
discharges occurring on or after April 1, 2010
in RY 2010 (as established in a separate
notice published elsewhere in this Federal
Register). It is also necessary to estimate the
payments per discharge that would be made
under the proposed revised LTCH PPS rates,
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factors, policies, and GROUPER (Version
28.0) for FY 2011 (as discussed in II.J. of the
preamble and section III.A. of the Addendum
to this supplemental proposed rule and
section VII. of the preamble and section V.
of the Addendum of the May 4, 2011 IPPS/
LTCH PPS FY 2011 proposed rule). These
estimates of RY 2010 and FY 2011 LTCH PPS
payments are based on the best available
LTCH claims data and other factors, such as
the application of inflation factors to estimate
costs for SSO and HCO cases in each year.
We also evaluated the change in estimated
RY 2010 payments to estimated FY 2011
payments (on a per discharge basis) for each
category of LTCHs.
Hospital groups were based on
characteristics provided in the OSCAR data,
FY 2006 through FY 2007 cost report data in
HCRIS, and PSF data. Hospitals with
incomplete characteristics were grouped into
the ‘‘unknown’’ category. Hospital groups
include the following:
• Location: Large urban/other urban/rural.
• Participation date.
• Ownership control.
• Census region.
• Bed size.
To estimate the impacts of the payment
rates and policy changes among the various
categories of existing providers, we used
LTCH cases from the FY 2009 MedPAR file
to estimate payments for RY 2010 and to
estimate payments for FY 2011 for 421
LTCHs. We believe that the discharges based
on the FY 2009 MedPAR data for the 421
LTCHs in our database, which includes 301
proprietary LTCHs, provide sufficient
representation in the MS–LTC–DRGs
containing discharges for patients who
received LTCH care for the most commonly
treated LTCH patients’ diagnoses.
4. Calculation of Prospective Payments
For purposes of this impact analysis, to
estimate per discharge payments under the
LTCH PPS, we simulated payments on a
case-by-case basis using LTCH claims from
the FY 2009 MedPAR files. For modeling
estimated LTCH PPS payments for RY 2010,
we calculated a blended RY 2010 payment to
account for changes in the rate in accordance
with sections 1886(m)(3) and (4) of the Act
and section 3401(p) of Public Law 111–148.
Specifically, we applied the RY 2010
standard Federal rate (that is, $39,896.65,
under which LTCH discharges occurring on
or after October 1, 2009, and through March
31, 2010 are paid, and $39,794.95, under
which LTCH discharges occurring on or after
April 1, 2010 to September 30, 2010 are
paid). For modeling estimated LTCH PPS
payments for FY 2011, we applied the
proposed FY 2011 standard Federal rate of
$39,560.16, which would be effective for
LTCH discharges occurring on or after
October 1, 2010, and through September 30,
2011.
Furthermore, in modeling estimated LTCH
PPS payments for both RY 2010 and FY 2011
in this impact analysis, we applied the RY
2010 and proposed FY 2011 adjustments for
area wage differences and the COLA for
Alaska and Hawaii. Specifically, we adjusted
for area wage differences for estimated RY
2010 payments using the current LTCH PPS
labor-related share of 75.779 percent (74 FR
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43968), the wage index values established in
the Tables 12A and 12B of the Addendum to
the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 44192 through 44213) and the RY
2010 COLA factors shown in the table in
section V. of the Addendum to that final rule
(74 FR 44026). Similarly, we adjusted for area
wage differences for estimated FY 2011
payments using the proposed LTCH PPS FY
2011 labor-related share of 75.407 percent
(section VII.C.2.d. in the May 4, 2010 FY
2011 IPPS/LTCH PPS proposed rule), the FY
2011 proposed wage index values presented
in Tables 12A and 12B of the Addendum to
this proposed rule, and the FY 2011 COLA
factors shown in the table in section V.B.5.
of the Addendum to the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule.
As discussed above, our impact analysis
reflects an estimated change in payments for
SSO cases as well as an estimated increase
in payments for HCO cases (as described in
section V.C. of the Addendum to this
proposed rule). In modeling proposed
payments for SSO and HCO cases in RY
2010, we applied an inflation factor of 1.024
percent (determined by OACT) to the
estimated costs of each case determined from
the charges reported on the claims in the FY
2009 MedPAR files and the best available
CCRs from the December 2009 update of the
PSF. In modeling proposed payments for
SSO and HCO cases in FY 2011, we applied
an inflation factor of 1.049 (determined by
OACT) to the estimated costs of each case
determined from the charges reported on the
claims in the FY 2009 MedPAR files and the
best available CCRs from the December 2009
update of the PSF. Furthermore, in modeling
estimated LTCH PPS payments for both RY
2010 and FY 2011 in this impact analysis, we
applied the RY 2010 HCO fixed-loss amount
of $18,425 (74 FR 44029) for the first half of
RY 2010, the revised RY 2010 HCO fixed-loss
amount of $18,615 established in conjunction
with implementing the provisions of sections
1886(m)(3) and (4) of the Act and section
3401(p) of Public Law 111–148 for the
second half of RY 2010, and the proposed FY
2011 fixed loss amount of $19,254 (as
discussed in section III.A. of the Addendum
of this supplemental proposed rule).
These impacts reflect the estimated
‘‘losses’’ or ‘‘gains’’ among the various
classifications of LTCHs from the RY 2010 to
FY 2011 based on the proposed payment
rates and policy changes presented in this
proposed rule. Table IV illustrates the
estimated aggregate impact of the LTCH PPS
among various classifications of LTCHs.
• The first column, LTCH Classification,
identifies the type of LTCH.
• The second column lists the number of
LTCHs of each classification type.
• The third column identifies the number
of LTCH cases.
• The fourth column shows the estimated
payment per discharge for RY 2010 (as
described above).
• The fifth column shows the estimated
payment per discharge for FY 2011 (as
described above).
• The sixth column shows the percentage
change in estimated payments per discharge
from RY 2010 to FY 2011 for proposed
changes to the standard Federal rate (as
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discussed in section III.A.3. of the
Addendum to this supplemental proposed
rule).
• The seventh column shows the
percentage change in estimated payments per
discharge from RY 2010 to FY 2011 for
proposed changes to the area wage
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adjustment at § 412.525(c) (as discussed in
section V.B. of the Addendum to the May 4,
2010 FY 2011 IPPS/LTCH PPS proposed
rule).
• The eighth column shows the percentage
change in estimated payments per discharge
from RY 2010 (Column 4) to FY 2011
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(Column 5) for all proposed and statutory
changes (and includes the effect of estimated
changes to HCO and SSO payments).
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5. Results
Based on the most recent available data (as
described previously for 421 LTCHs, we have
prepared the following summary of the
impact (as shown in Table IV) of the
proposed LTCH PPS payment rate and policy
changes presented in this supplemental
proposed rule. The impact analysis in Table
IV shows that estimated payments per
discharge are expected to increase
approximately 0.3 percent, on average, for all
LTCHs from RY 2010 to FY 2011 as a result
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of the proposed payment rate and policy
changes presented in this supplemental
proposed rule and the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule, as well as
estimated increases in HCO and SSO
payments. We note that we are proposing a
¥0.59 percent increase to the standard
Federal rate for FY 2011, based on the latest
proposed market basket estimate (2.4
percent), the ¥0.50 percent reduction to the
annual update required under of sections
1886(m)(3) and (4) of the Act, and the
proposed adjustment for the cumulative
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31115
effect of changes in documentation and
coding in FYs 2008 and 2009 (¥2.5 percent).
We noted earlier in this section that for most
categories of LTCHs, as shown in Table IV
(Column 6), the impact of the proposed
decrease of approximately ¥0.6 percent to
the standard Federal rate is projected to
result in approximately a ¥0.5 percent
decrease in estimated payments per
discharge for all LTCHs from RY 2010 to FY
2011. Because payments to cost-based SSO
cases and a portion of payments to SSO cases
that are paid based on the ‘‘blend’’ option of
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the SSO payment formula at
§ 412.529(c)(2)(iv) are not affected by the
proposed update to the standard Federal rate,
we estimate that the effect of the proposed
0.59 percent reduction to the standard
Federal rate would result in a 0.5 percent
reduction on estimated aggregate LTCH PPS
payments to all LTCH PPS cases, including
SSO cases. Furthermore, as discussed
previously in this regulatory impact analysis,
the average increase in estimated payments
per discharge from the RY 2010 to FY 2011
for all LTCHs of approximately 0.3 percent
(as shown in Table IV) was determined by
comparing estimated FY 2011 LTCH PPS
payments (using the proposed rates,
proposed policies and statutory changes
discussed in this supplemental proposed rule
and in the May 4, 2010 FY 2011 IPPS/LTCH
PPS proposed rule) to estimated RY 2010
LTCH PPS payments (as described above in
section IX.C.3. of this Appendix).
a. Location
Based on the most recent available data,
the vast majority of LTCHs are located in
urban areas. Only approximately 6 percent of
the LTCHs are identified as being located in
a rural area, and approximately 4 percent of
all LTCH cases are treated in these rural
hospitals. The impact analysis presented in
Table IV shows that the average percent
increase in estimated payments per discharge
from RY 2010 to FY 2011 for all hospitals is
0.3 percent for all proposed changes. For
rural LTCHs, the percent change for all
proposed changes is estimated to be 0.7
percent, while for urban LTCHs, we estimate
the increase to be 0.2 percent. Large urban
LTCHs are projected to experience an
increase of 0.3 percent in estimated payments
per discharge from RY 2010 to FY 2011,
while other urban LTCHs are projected to
experience an increase of 0.1 percent in
estimated payments per discharge from RY
2010 to FY 2011, as shown in Table IV.
b. Participation Date
LTCHs are grouped by participation date
into four categories: (1) Before October 1983;
(2) between October 1983 and September
1993; (3) between October 1993 and
September 2002; and (4) after October 2002.
Based on the most recent available data, the
majority (approximately 49 percent) of the
LTCH cases are in hospitals that began
participating between October 1993 and
September 2002, and are projected to
experience nearly the average increase (0.2
percent) in estimated payments per discharge
from RY 2010 to FY 2011, as shown in Table
IV.
In the participation category where LTCHs
began participating in Medicare before
October 1983, LTCHs are projected to
experience a higher than average percent
increase (0.6 percent) in estimated payments
per discharge from RY 2010 to FY 2011, as
shown in Table IV. Approximately 4 percent
of LTCHs began participating in Medicare
before October 1983. The LTCHs in this
category are projected to experience a higher
than average increase in estimated payments
because of increases in their wage data,
increase under the proposed MS–LTC–DRG
GROUPER (Version 28) and relative weights,
and also because of estimated increases in
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their SSO payments relative to last year.
Approximately 10 percent of LTCHs began
participating in Medicare between October
1983 and September 1993. These LTCHs are
projected to experience a slightly above
average increase (0.4 percent) in estimated
payments from RY 2010 to FY 2011. LTCHs
that began participating in Medicare after
October 2002 currently represent
approximately 38 percent of all LTCHs, and
are projected to experience an average
increase (0.3 percent) in estimated payments
from RY 2010 to FY 2011.
c. Ownership Control
Other than LTCHs whose ownership
control type is unknown, LTCHs are grouped
into three categories based on ownership
control type: voluntary, proprietary, and
government. Based on the most recent
available data, approximately 18 percent of
LTCHs are identified as voluntary (Table IV).
We expect that, for these LTCHs in the
voluntary category, estimated FY 2011 LTCH
payments per discharge will increase higher
than the average (0.6 percent) in comparison
to estimated payments in RY 2010 primarily
because we project an increase in estimated
HCO payments and SSO payments to be
higher than the average for these LTCHs. The
majority (71 percent) of LTCHs are identified
as proprietary and these LTCHs are projected
to experience an average increase (0.2
percent) in estimated payments per discharge
from RY 2010 to FY 2011. Finally,
government-owned and operated LTCHs (3
percent) are expected to experience a higher
than the average increase (0.7 percent) in
estimated payments primarily due to a larger
than the average increase in estimated HCO
payments and increases under the proposed
MS–LTC–DRG GROUPER (Version 28) and
relative weights.
d. Census Region
Estimated payments per discharge for FY
2011 are projected to increase for LTCHs
located in all regions in comparison to RY
2010. Of the 9 census regions, we project that
the increase in estimated payments per
discharge will have the largest positive
impact on LTCHs in the New England region
(0.6 percent, as shown in Table IV). The
estimated percent increase in payments per
discharge from RY 2010 to FY 2011 for New
England is largely attributable to the
projected increase in estimated HCO and
SSO payments (explained in greater detail
above in section IX.A. of this Appendix).
In contrast, LTCHs located in the East
South Central region are projected to
experience a slight decrease in estimated
payments per discharge from RY 2010 to FY
2011. The average estimated decrease in
payments of 0.1 percent for LTCHs in the
East South Central region is primarily due to
estimated decreases in payments associated
with the proposed wage index because 50
percent of LTCHs located in this region will
have a proposed FY 2011 wage index value
that is less than their RY 2010 wage index
value. Similarly, LTCHs in the South Atlantic
and West North Central are expect to
experience no change in payments primarily
due to an estimated decrease in payment
because of the proposed FY 2011 wage index
changes and the decrease in the Federal rate.
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e. Bed Size
LTCHs were grouped into six categories
based on bed size: 0–24 beds; 25–49 beds;
50–74 beds; 75–124 beds; 125–199 beds; and
greater than 200 beds.
We project that payments for small LTCHs
(0–24 beds) would experience a 0.8 percent
increase in payments due to increases in
their wage index while large LTCHs (200+
beds) would experience no change in
payments. LTCHs with between 75 and 124
beds and between 125 and 199 beds are
expected to experience an above average
increase in payments per discharge from RY
2010 to FY 2011 (0.6 percent and 0.5 percent,
respectively) primarily due to a larger than
average estimated increase in payments from
the proposed FY 2011 changes to the area
wage adjustment.
D. Effect on the Medicare Program
As noted previously, we project that the
provisions of this supplemental proposed
rule would result in an increase in estimated
aggregate LTCH PPS payments in FY 2011 of
approximately $12.9 million (or about 0.3
percent) for the 421 LTCHs in our database.
E. Effect on Medicare Beneficiaries
Under the LTCH PPS, hospitals receive
payment based on the average resources
consumed by patients for each diagnosis. We
do not expect any changes in the quality of
care or access to services for Medicare
beneficiaries under the LTCH PPS, but we
expect that paying prospectively for LTCH
services would enhance the efficiency of the
Medicare program.
X. Alternatives Considered
This supplemental proposed rule contains
a range of policies. The preamble of this
supplemental proposed rule provides
descriptions of the statutory provisions that
are addressed, identifies policies and
presents rationales for our decisions and,
where relevant, alternatives that were
considered.
XI. Overall Conclusion
A. Acute Care Hospitals
Table I of section VI. of this Appendix
demonstrates the estimated distributional
impact of the IPPS budget neutrality
requirements for the proposed MS–DRG and
wage index changes, and for the wage index
reclassifications under the MGCRB. Table I
also shows an overall decrease of 0.9 percent
in operating payments. We estimate that
operating payments will decrease by
approximately $929 million in FY 2011. In
addition, we estimates the reporting of
hospital quality data program costs at $2.4
million, a savings of $23 million associated
with the proposed HACs policies discussed
in the May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule, an additional $150 million to
hospitals that qualify for an additional
payment as provided under section 1109 of
Public Law 111–152, and all other proposed
operating payment policies described in
section VII. of this Appendix . These
estimates added to our FY 2011 operating
estimate of ¥$929 million results in a
decrease of $800 million for FY 2011. We
estimate that capital payments will
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experience ¥0.2 percent change in payments
per case, as shown in Table III of section VIII.
of this Appendix. We project that there will
be a $20 million decrease in capital payments
in FY 2011 compared to FY 2010. The
proposed cumulative operating and capital
payments should result in a net decrease of
$820 million to IPPS providers. The
discussions presented in the previous pages,
in combination with the rest of this proposed
rule and the May 10, 2010 FY 2011 IPPS/
LTCH PPS proposed rule, constitute a
regulatory impact analysis.
B. LTCHs
Overall, LTCHs are projected to experience
an increase in estimated payments per
discharge in FY 2011. In the impact analysis,
we are using the proposed rates, factors, and
policies presented in this supplemental
proposed rule, including proposed updated
wage index values and relative weights, and
the best available claims and CCR data to
estimate the change in payments under the
LTCH PPS for FY 2011. Accordingly, based
on the best available data for the 421 LTCHs
in our database, we estimate that FY 2011
LTCH PPS payments will increase
approximately $13 million (or about 0.3
percent).
XII. Accounting Statements
31117
circulars/a004/a-4.pdf), in Table V below, we
have prepared an accounting statement
showing the classification of the
expenditures associated with the provisions
of this proposed rule as they relate to acute
care hospitals. This table provides our best
estimate of the change in Medicare payments
to providers as a result of the proposed
changes to the IPPS presented in this
supplemental proposed rule and the May 10,
2010 FY 2011 IPPS/LTCH PPS proposed rule.
All expenditures are classified as transfers to
Medicare providers.
A. Acute Care Hospitals
As required by OMB Circular A–4
(available at https://www.whitehousegov/omb/
TABLE V—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE IPPS FROM FY 2010
TO FY 2011
Category
Transfers
Annualized Monetized Transfers ..............................................................
From Whom to Whom ..............................................................................
Total ...................................................................................................
B. LTCHs
As discussed in section IX. of this
Appendix, the impact analysis for the
proposed changes under the LTCH PPS for
this proposed rule projects an increase in
estimated aggregate payments of
approximately $13 million (or about 0.3
percent) for the 421 LTCHs in our database
¥$820 million.
Federal Government to IPPS Medicare Providers.
¥$820 million.
that are subject to payment under the LTCH
PPS. Therefore, as required by OMB Circular
A–4 (available at https://www.whitehouse.gov/
omb/circulars/a004/a-4.pdf), in Table VI
below, we have prepared an accounting
statement showing the classification of the
expenditures associated with the provisions
of this supplemental proposed rule and the
May 10, 2010 FY 2011 IPPS/LTCH PPS
proposed rule as they relate to changes to the
LTCH PPS. Table VI provides our best
estimate of the proposed increase in
Medicare payments under the LTCH PPS as
a result of the proposed provisions presented
in this proposed rule based on the data for
the 421 LTCHs in our database. All
expenditures are classified as transfers to
Medicare providers (that is, LTCHs).
TABLE VI—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE 2010 LTCH PPS RATE
YEAR TO THE FY 2011 LTCH PPS
Category
Transfers
Annualized Monetized Transfers ..............................................................
From Whom to Whom ..............................................................................
Total ...................................................................................................
XIII. Executive Order 12866
In accordance with the provisions of
Executive Order 12866, the Executive Office
Positive transfer—Estimated increase in expenditures: $13 million.
Federal Government to LTCH PPS Medicare Providers.
$13 million.
of Management and Budget reviewed this
proposed rule.
[FR Doc. 2010–12567 Filed 5–21–10; 4:15 pm]
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Agencies
[Federal Register Volume 75, Number 105 (Wednesday, June 2, 2010)]
[Proposed Rules]
[Pages 30918-31117]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-12567]
[[Page 30917]]
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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 Parts 412 and 413
Medicare Program; Prospective Payment Systems; 2010 and 2011 Rates;
Wage Indices; Proposed Rule and Notice
Federal Register / Vol. 75 , No. 105 / Wednesday, June 2, 2010 /
Proposed Rules
[[Page 30918]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412 and 413
[CMS-1498-P2]
RIN 0938-AP80
Medicare Program; Supplemental Proposed Changes to the Hospital
Inpatient Prospective Payment Systems for Acute Care Hospitals and the
Long-Term Care Hospital Prospective Payment System and Supplemental
Proposed Fiscal Year 2011 Rates
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule is a supplement to the fiscal year (FY)
2011 hospital inpatient prospective payment systems (IPPS) and long-
term care prospective payment system (LTCH PPS) proposed rule published
in the May 4, 2010 Federal Register. This supplemental proposed rule
would implement certain statutory provisions relating to Medicare
payments to hospitals for inpatient services that are contained in the
Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010 (collectively known as the
Affordable Care Act). It would also specify statutorily required
changes to the amounts and factors used to determine the rates for
Medicare acute care hospital inpatient services for operating costs and
capital-related costs, and for long-term care hospital costs.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on July 2, 2010.
ADDRESSES: In commenting, please refer to file code CMS-1498-P2.
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
submitting a comment.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1498-P2, P.O. Box 8011,
Baltimore, MD 21244-1850.
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 to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1498-P2, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 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.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, Wage Index,
Hospital Geographic Reclassifications, Capital Prospective Payment,
Critical Access Hospital (CAH).
Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590,
Long-Term Care Hospital Prospective Payment.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
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.
Electronic Access
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web, (the Superintendent of Documents' home Web page
address is https://www.gpoaccess.gov/), by using local WAIS client
software, or by telnet to swais.access.gpo.gov, then login as guest (no
password required). Dial-in users should use communications software
and modem to call (202) 512-1661; type swais, then login as guest (no
password required).
I. Background
On March 23, 2010, the Patient Protection and Affordable Care Act
(Pub. L. 111-148) was enacted. Following the enactment of Public Law
111-148, the Health Care and Education Reconciliation Act of 2010
Public Law 111-152 (enacted on March 30, 2010), amended certain
provisions of Public Law 111-148. These public laws are collectively
known as the Affordable Care Act. A number of the provisions of Public
Law 111-148, affect the IPPS and the LTCH PPS and the providers and
suppliers addressed in this proposed
[[Page 30919]]
rule. However, due to the timing of the passage of the legislation,
were unable to address those provisions in the FY 2011 IPPS and LTCH
PPS proposed rule that appeared in the May 4, 2010 Federal Register (75
FR 23852). Therefore, the proposed policies and payment rates in that
proposed rule did not reflect the new legislation. We noted in that
proposed rule that we would issue separate Federal Register documents
addressing the provisions of Public Law 111-148 that affect our
proposed policies and payment rates for FY 2010 and FY 2011 under the
IPPS and the LTCH PPS. This supplementary proposed rule addresses the
following provisions of the new legislation that affect the following
FY 2011 proposed policies:
Hospital wage index improvement related to geographic
reclassification criteria for FY 2011 (section 3137 of Pub. L. 111-
148).
National budget neutrality in the calculation of the rural
floor for hospital wage index (section 3141 of Pub. L. 111-148).
Protections for frontier States (section 10324 of Pub. L.
111-148).
Revisions of certain market basket updates (sections 3401
and 10319 of Pub. L. 111-148 and section 1105 of Pub. L. 111-152).
Temporary improvements to the low-volume hospital
adjustment (sections 3125 and 10314 of Pub. L. 111-148).
Extension of Medicare-dependent hospitals (MDHs) (section
3124 of Pub. L. 111-148).
Additional payments in FYs 2011 and 2012 for qualifying
hospitals in the lowest quartile of per capital Medicare spending
(section 1109 of Pub. L. 111-152).
Extension of the rural community hospital demonstration
(section 3123 of Pub. L. 111-148).
Technical correction related to critical access hospital
(CAH) services (section 3128 of Pub. L. 111-148).
Extension of certain payment rules for long-term care
hospital services and of moratorium on the establishment of certain
hospitals and facilities (sections 3106 and 10312 of Pub. L. 111-148).
We also noted that we plan to issue further instructions
implementing the provisions of Public Law 111-148 that affect the
policies and payment rates for FY 2010 under the IPPS and for RY 2010
under the LTCH PPS in a separate document published elsewhere in this
Federal Register.
II. Provisions of the Proposed Regulations
In this section of this supplementary proposed rule, we address the
provisions of Public Law 111-148, that affect our proposed policies and
payment rates for FY 2011 under the IPPS and the LTCH PPS.
A. Changes to the Acute Care Hospital Wage Index
1. Plan for Reforming the Wage Index
Section 3137(b) of Public Law 111-148 requires the Secretary of
Health and Human Services to submit to Congress, not later than
December 31, 2011, a report that includes a plan to reform the Medicare
wage index applied under the Medicare IPPS. In developing the plan, the
Secretary of Health and Human Services must take into consideration the
goals for reforming the wage index that were set forth by the MedPAC in
its June 2007 report entitled, ``Report to Congress: Promoting Greater
Efficiency in Medicare'', including establishing a new system that --
Uses Bureau of Labor of Statistics (BLS) data, or other
data or methodologies, to calculate relative wages for each geographic
area;
Minimizes wage index adjustments between and within MSAs
and statewide rural areas;
Includes methods to minimize the volatility of wage index
adjustments while maintaining budget neutrality in applying such
adjustments;
Takes into account the effect that implementation of the
system would have on health care providers and on each region of the
country;
Addresses issues related to occupational mix, such as
staffing practices and ratios, and any evidence on the effect on
quality of care or patient safety as a result of the implementation of
the system; and
Provides for a transition.
In addition, section 3137(b)(3) of Public Law 111-148 requires the
Secretary of Health and Human Services to consult with relevant
affected parties in developing the plan. Although the provisions of
section 3137(b) of Public Law 111-148 will not have an actual impact on
the FY 2011 wage, we are notifying the public of the provisions so that
they may provide comments and suggestions on how they may participate
in developing the plan.
2. Provisions on Wage Comparability and Rural/Imputed Floor Budget
Neutrality
Sections 3137(c) and 3141 of Public Law 111-148 affect
reclassification average hourly wage comparison criteria and rural and
imputed floor budget neutrality provisions for FY 2011.
a. Reclassification Average Hourly Wage Comparison Criteria
In the FY 2009 IPPS final rule, we adopted the policy to adjust the
reclassification average hourly wage standard, comparing a
reclassifying hospital's (or county hospital group's) average hourly
wage relative to the average hourly wage of the area to which it seeks
reclassification. (We refer readers to the FY 2009 IPPS final rule for
a full discussion of the basis for the proposals the public comments
received and the FY 2009 final policies.) We provided for a phase-in of
the adjustment over 2 years. For applications for reclassification for
the first transitional year, FY 2010, the average hourly wage standards
were set at 86 percent for urban hospitals and group reclassifications,
and 84 percent for rural hospitals. For applications for
reclassification for FY 2011 (for which the application deadline was
September 1, 2009) and for subsequent fiscal years, the average hourly
wage standards were 88 percent for urban and group reclassifications
and 86 percent for rural hospitals. Sections 412.230, 412.232, and
412.234 of the regulations were revised accordingly. These policies
were adopted in the FY 2009 IPPS final rule and were reflected in the
wage index in the Addendum to the FY 2011 IPPS proposed rule, which
appeared in the Federal Register on May 4, 2010.
However, provisions of section 3137(c) of Public Law 111-148
recently revised the average hourly wage standards. Specifically,
section 3137(c) restores the average hourly wage standards that were in
place for FY 2008 (that is, 84 percent for urban hospitals, 85 percent
for group reclassifications, and 82 percent for rural hospitals) for
applications for reclassification for FY 2011 and for each subsequent
fiscal year until the first fiscal year beginning on or after the date
that is one year after the Secretary of Health and Human Services
submits a report to Congress on a plan for reforming the wage index
under 3137(b) of Public Law 111-148. Section 3137(c) of Public Law 111-
148 also requires the revised average hourly wage standards to be
applied in a budget neutral manner. We note that section 3137(c) of
Public Law 111-148 does not provide for the revised average hourly wage
standards to be applied retroactively, nor does it change the statutory
deadline for applications for reclassification for FY 2011. Under
section 1886(d)(10) of the Act, the Medicare Geographic Classification
Review Board (MGCRB) considers
[[Page 30920]]
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of the fiscal year for which
reclassification is sought (generally by September 1). For
reclassifications for the FY 2011 wage index, the deadline for
applications was September 1, 2009 (74 FR 43838).
In implementing section 3137(c) of Public Law 111-148, we requested
the assistance of the MGCRB in determining, for applications received
by September 1, 2009, whether additional hospitals would qualify for
reclassification for FY 2011 based on the revised average hourly wage
standards of 84 percent for urban hospitals, 85 percent for group
reclassifications, and 82 percent for rural hospitals. We determined
that 18 additional hospitals would qualify for reclassification for FY
2011. Also, 5 hospitals, for which the MGCRB granted reclassifications
to their secondary requested areas for FY 2011, would qualify for
reclassifications instead to their primary requested areas because they
now meet the average hourly wage criteria to reclassify to those areas.
Therefore, in accordance with Sec. 412.278 of the regulations, in
which paragraph (c) provides the Administrator discretionary authority
to review any final decision of the MGCRB, we submitted a letter to the
Administrator requesting that she review and amend the MGCRB's decision
and grant the 23 hospitals their requested reclassifications (or
primary reclassifications) for FY 2011.
The wage index in the Addendum to this supplemental FY 2011 IPPS
proposed rule reflects these changes in hospital reclassifications,
although the Administrator had not issued all of her decisions by the
date of this proposed rule. In calculating the wage index in this
proposed rule, we made assumptions that the Administrator would grant
the 23 hospitals their requested reclassifications (or primary
reclassifications) and that the hospitals would not request the
Administrator to amend her decisions. Generally, these
reclassifications would result in the highest possible wage index for
the hospitals. Any changes to the wage index, as a result of the
Administrator's actual decision issued under Sec. 412.278(c), or an
amendment of the Administrator's decision issued under paragraph (g),
will be reflected in the FY 2011 IPPS final rule.
In accordance with the requirements in section 3137(c) of
Affordable Care Act, we are modifying Sec. 412.230, Sec. 412.232, and
Sec. 412.234 of the regulations to codify the revised average hourly
wage standards.
b. Budget Neutrality Adjustment for the Rural and Imputed Floors
In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we
adopted State level budget neutrality (rather than the national budget
neutrality adjustment) for the rural and imputed floors, effective
beginning with the FY 2009 wage index and incorporated this policy in
our regulation at Sec. 412.64(e)(4). Specifically, the regulations
specified that CMS makes an adjustment to the wage index to ensure that
aggregate payments after implementation of the rural floor under
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and
the imputed floor under Sec. 412.64(h)(4) are made in a manner that
ensures that aggregate payments to hospitals are not affected and that,
beginning October 1, 2008, we would transition from a nationwide
adjustment to a statewide adjustment, with a statewide adjustment fully
in place by October 1, 2010.
These policies for the rural and imputed floors were adopted in the
FY 2009 IPPS final rule and were reflected in the wage index in the
Addendum to the FY 2011 IPPS/LTCH PPS proposed rule, published in the
Federal Register on May 4, 2010. However, these policies were recently
changed by the provisions of section 3141 of Public Law 111-148.
Specifically, section 3141 of Affordable Care Act rescinds our policy
establishing a statewide budget neutrality adjustment for the rural and
imputed floors and, instead, restores it to a uniform, national
adjustment, beginning with the FY 2011 wage index. Additionally, the
imputed floor, is set to expire on September 30, 2011. We do not read
section 3141 of Public Law 111-148 as altering this expiration date.
Section 3141 of Public Law 111-148 requires that we ``administer
subsection (b) of such section 4410 and paragraph (e) of * * * section
412.64 in the same manner as the Secretary administered such subsection
(b) and paragraph (e) for discharges occurring during fiscal year 2008
(through a uniform, national adjustment to the area wage index).''
Thus, section 3141 of Public Law 111-148 is governing how we apply
budget neutrality, under the authorities of Sec. 412.64(e) and section
4410(b) of the Balanced Budget Act, but it does not alter Sec.
412.64(h) of our regulations (which includes the imputed floor and its
expiration date). To the extent there is an imputed floor, section 3141
of Public Law 111-148 governs budget neutrality for that floor, but it
does not continue the imputed floor beyond the expiration date already
included in our regulations.
Therefore, the wage index in the Addendum to this supplemental FY
2011 IPPS proposed rule reflects a uniform, national budget neutrality
adjustment for the rural and imputed floors, which is a factor of
0.995425.
3. Frontier States Floor (Sec. 412.64)
In accordance with section 10324(a) of Affordable Care Act,
beginning in FY 2011, the statute provides for establishing an
adjustment to create a wage index floor of 1.00 for all hospitals
located in States determined to be Frontier States. The statute defines
any State as a Frontier State if at least 50 percent of the State's
counties are determined to be Frontier Counties. The statute defines as
counties that have a population density less than 6 persons per square
mile. The law requires that this provision shall not apply to hospitals
in Alaska or Hawaii receiving a non-labor related share adjustment
under section 1886(d)(5)(H) of the Act.
To implement this provision, we propose to identify Frontier
Counties by analyzing population data and county definitions based upon
the most recent annual Population Estimates published by the U.S.
Census Bureau. We will divide each county's population total by each
county's reported land area (according to the decennial census) in
square miles to establish population density. We also propose to update
this analysis from time to time, such as upon publication of a
subsequent decennial census, and if necessary, add or remove qualifying
States from the list of Frontier States based on the updated analysis.
For a State that qualifies as a Frontier State, in accordance with
section 10324(a) of Public Law 111-148, all PPS hospitals located
within that State will receive either the higher of its post-
reclassification wage index rate, or a minimum value of 1.00. We
propose that, for a hospital that is geographically located in a
Frontier State and is reclassified under section 1886(d)(10) of the Act
to a CBSA in a non-Frontier State, the hospital will receive a wage
index that is the higher of the reclassified area wage index or the
minimum wage index of 1.00. In accordance with section 10324(a) of
Public Law 111-148, the Frontier State adjustment will not be subject
to budget neutrality under section 1886(d)(3)(E) of the Act, and will
only be extended to hospitals geographically located within a Frontier
State. We propose to calculate and apply the Frontier State floor
adjustments after rural and imputed floor budget neutrality adjustments
are
[[Page 30921]]
calculated for all labor market areas, so as to ensure that no hospital
in a Frontier State will receive a wage index lesser than 1.00 due to
the rural and imputed floor adjustment. We invite public comment on
these proposals regarding our methods for determining Frontier States,
and for calculation and application of the adjustment.
For the proposed FY 2011 IPPS wage index, the Frontier States are
the following: Reflected in the following table:
Table 1--Frontier States Under Section 10324(a)
------------------------------------------------------------------------
Percent
State Total Frontier frontier
counties counties counties
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Montana.......................... 56 45 80
Wyoming.......................... 23 17 74
North Dakota..................... 53 36 68
Nevada........................... 17 11 65
South Dakota..................... 66 34 52
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Frontier States are identified by a footnote in Table 4D-2 of the
Addendum to this supplemental proposed rule. Population Data set:
https://www.census.gov/popest/estimates.html (2009 County Total
Population Estimates).
Land Area Dataset https://factfinder.census.gov/ (Decennial: Census
Geographic Comparison Tables: ``United States--County by State and for
Puerto Rico'').
4. Revised FY 2011 IPPS Proposed Rule Wage Index Tables
The revised IPPS proposed wage index values for FY 2011, reflecting
the provisions of sections 3137(c), 3141, and 10324 of Public Law 111-
148, are included in Tables 2, 4A, 4B, 4C, and 4D-2 of the Addendum to
this supplemental FY 2011 IPPS/LTCH PPS proposed rule.
Table 4D-1, which listed the statewide rural and imputed floor
budget neutrality factors, is eliminated from the Addendum to this
supplemental FY 2011 IPPS/LTCH PPS proposed rule and is no longer
applicable for the wage index because section 3141 of Public Law 111-
148 instead requires the application of a national adjustment.
Table 4J, which lists the out-migration adjustment for a qualifying
county, is revised due to the above provisions of Affordable Care Act.
Additionally, Table 9A, the list of hospitals that are reclassified or
redesignated for FY 2011, is revised according to section 3137(c) of
Public Law 111-148. Both revised tables are included in the Addendum to
this supplemental FY 2011 IPPS/LTCH PPS proposed rule.
Tables 3A and 3B, which list the 3-year average hourly wage for
each labor market area before the redesignation or reclassification of
hospitals, Table 4E, the list of urban CBSAs and constituent counties,
Table 4F, the Puerto Rico wage index, and Table 9C, the list of
hospitals redesignated under section 1886(d)(8)(E) of the Act, are
unaffected by the above provisions of Affordable Care Act. Therefore,
these tables are unchanged from the initial FY 2011 IPPS/LTCH PPS
proposed rule and are not included in the Addendum to this supplemental
FY 2011 IPPS/LTCH PPS proposed rule.
5. Procedures for Withdrawing Reclassifications in FY 2011
Section 1886(d)(10)(D)(v) of the Act states that the Secretary
should establish procedures under which a subsection (d) hospital may
elect to terminate a reclassification before the end of a 3-year
period, but does not contain any other specifics regarding how such
termination should occur. Our rules at 42 CFR 412.273 state that
hospitals that have been reclassified by the MGCRB are permitted to
withdraw their applications within 45 days of the publication of CMS's
annual notice of proposed rulemaking. For purposes of this
supplementary proposed rule, we interpret our regulation as referring
to the initial FY 2011 IPPS/LTCH PPS proposed rule (which appeared in
the May 4, 2010 Federal Register), and our procedure for this
supplementary proposed rule is to start the time period for requesting
a withdrawal or termination from publication of that initial proposed
rule. Were we not to use such a time period, requests for termination
and withdrawal would be received too late to include in our final rule.
Thus, all requests for withdrawal of an application for
reclassification or termination of an existing 3-year reclassification
that would be effective in FY 2011 must be received by the MGCRB by
June 18, 2010.
We note that wage index values in the tables in the Addendum to
this supplemental FY 2011 IPPS/LTCH PPS proposed rule may have changed
somewhat from the initial, more comprehensive FY 2011 IPPS/LTCH PPS
proposed rule (which appeared in the May 4, 2010 Federal Register) due
to the application of sections 3137(c), 3141, and 10324 of Affordable
Care Act. In addition, as a result of section 3137(c) of Affordable
Care Act, there may be additional hospitals listed as reclassified in
Table 9A in the Addendum to this supplemental proposed rule. Hospitals
have sufficient time between the display or publication date of this
supplemental FY 2011 IPPS/LTCH PPS proposed rule in the Federal
Register and the June 18, 2010 deadline for withdrawals and
terminations to evaluate and make determinations regarding their
reclassification for the FY 2011 wage index. As noted in the initial FY
2011 IPPS proposed rule, the mailing address of the MGCRB is: 2520 Lord
Baltimore Drive, Suite L, Baltimore, MD 21244-2670.
B. Inpatient Hospital Market Basket Update
Below we discuss the adjustments to the FY 2010 and FY 2011 market
basket as required by the Affordable Care Act. In this supplemental
proposed rule we are not proposing to address the provisions of section
3401 of Public Law 111-148 providing for a productivity adjustment for
FY 2012 and subsequent fiscal years; rather, this change will be
addressed in future rulemaking.
1. FY 2010 Inpatient Hospital Update
In accordance with section 1886(b)(3)(B)(i) of the Act, each year
we update the national standardized amount for inpatient operating
costs by a factor called the ``applicable percentage increase.'' Prior
to enactment of Public Law 111-148 and Public Law 111-152, section
1886(b)(3)(B)(i)(XX) of the Act set the applicable percentage increase
equal to the rate-of-increase in the hospital market basket for IPPS
hospitals in all areas, subject to the hospital submitting quality
information under rules established by the Secretary in accordance with
section 1886(b)(3)(B)(viii) of the Act. For
[[Page 30922]]
hospitals that do not provide these data, the update is equal to the
market basket percentage increase less an additional 2.0 percentage
points. In accordance with these statutory provisions, in the FY 2010
IPPS/LTCH PPS final rule (74 FR 43850), we finalized an applicable
percentage increase equal to the full market basket update of 2.1
percent based on IHS Global Insight, Inc.'s second quarter 2009
forecast of the FY 2010 market basket increase, provided the hospital
submits quality data in accordance with our rules. For hospitals that
do not submit quality data, in the FY 2010 IPPS/LTCH PPS final rule we
finalized an applicable percentage increase equal to 0.1 percent (that
is, the FY 2010 estimate of the market basket rate-of-increase minus
2.0 percentage points).
Sections 3401(a) and 10319 of Public Law 111-148 amend section
1886(b)(3)(B)(i) of the Act. Specifically, sections 3401(a) and
10319(a) of Public Law 111-148 amend section 1886(b)(3)(B)(i) of the
Act to set the FY 2010 applicable percentage increase for IPPS
hospitals equal to the rate-of-increase in the hospital market basket
for IPPS hospitals in all areas minus a 0.25 percentage point, subject
to the hospital submitting quality information under rules established
by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the
Act. For hospitals that do not provide these data, the update is equal
to the market basket percentage increase minus 0.25 percentage point
less an additional 2.0 percentage points. Section 3401(a)(4) of Public
Law 111-148 further states that these amendments may result in the
applicable percentage increase being less than zero. Although these
amendments modify the applicable percentage increase applicable to the
FY 2010 rates under the IPPS, section 3401(p) of Public Law 111-148
states that the amendments do not apply to discharges occurring prior
to April 1, 2010. In other words, for discharges occurring on or after
October 1, 2009 and prior to April 1, 2010, the rate for a hospital's
inpatient operating costs under the IPPS will be based on the
applicable percentage increase set forth in the FY 2010 IPPS/LTCH PPS
final rule.
We are proposing to revise 42 CFR 412.64(d) to reflect current law.
Specifically, in accordance with section 1886(b)(3)(B)(i) of the Act as
amended by sections 3401(a) and 10319(a) of Public Law 111-148, we are
proposing to revise Sec. 412.64(d) to state that for the first half of
FY 2010 (that is, discharges on or after October 1, 2009 through March
30, 2010), the applicable percentage change equals the market basket
index for IPPS hospitals (which is defined under Sec. 413.40(a)) in
all areas for hospitals that submit quality data in accordance with our
rules, and the market basket index for IPPS hospitals in all areas less
2.0 percentage for hospitals that fail to submit quality data in
accordance with our rules. As noted above, in the FY 2010 IPPS/LTCH PPS
final rule, we calculated that the full market basket update equals 2.1
percent based on IHS Global Insight, Inc.'s second quarter 2009
forecast of the FY 2010 market basket increase. In addition, we are
proposing to revise Sec. 412.64(d) to state that for the second half
of FY 2010 (discharges on or after April 1, 2010 through September 30,
2010), in accordance with section 3401(a), we are proposing to set the
applicable percentage change equal to the market basket index for IPPS
hospitals in all areas reduced by 0.25 percentage points for hospitals
that submit quality data in accordance with our rules. For those
hospitals that fail to submit quality data, in accordance with our
rules, we are proposing to reduce the market basket index for IPPS
hospitals by an additional 2.0 percentage points (which is in addition
to the 0.25 percentage point reduction required by section
1886(b)(3)(B)(i) of the Act as amended by section 3401(a) of Public Law
111-148 as amended by section 10319(a) of Public Law 111-148. Based on
IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010
market basket increase, the FY 2010 applicable percentage change that
applies to rates for inpatient hospital operating costs under the IPPS
for discharges occurring in the second half of FY 2010 is 1.85 percent
(that is, the FY 2010 estimate of the market basket rate-of-increase of
2.1 percent minus 0.25 percentage points) for hospitals in all areas,
provided the hospital submits quality data in accordance with our
rules. For hospitals that do not submit quality data, the payment
update to the operating standardized amount is -0.15 percent (that is,
the adjusted FY 2010 estimate of the market basket rate-of-increase of
1.85 percent minus 2.0 percentage points).
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase applicable to the hospital-specific rates for SCHs
and MDHs equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Because the Act sets the update
factor for SCHs and MDHs equal to the update factor for all other IPPS
hospitals, the update to the hospital specific rates for SCHs and MDHs
is also subject to the amendments to section 1886(b)(3)(B)(i) made by
section 3401(a) of Public Law 111-148. Accordingly, for hospitals paid
for their inpatient operating costs on the basis of a hospital-specific
rate, the rates paid to such hospitals for discharges occurring during
the first half of FY 2010 will be based on an annual update estimated
to be 2.1 percent for hospitals submitting quality data or 0.1 percent
for hospitals that fail to submit quality data; and the rates paid to
such hospitals for the second half of FY 2010 will be based on an
update that is estimated to be 1.85 percent for hospitals submitting
quality data or -0.15 percent for hospitals that fail to submit quality
data. Similar to that stated above, we are proposing to update
Sec. Sec. 412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), 412.79(d) to
reflect current law.
2. FY 2011 Inpatient Hospital Update
As with the FY 2010 applicable percentage increase, section 3401(a)
of Public Law 111-148 as amended by section 10319(a) of Public Law 111-
148, amends section 1886(b)(3)(B)(i) of the Act to provide that the FY
2011 applicable percentage increase for IPPS hospitals equals the rate-
of-increase in the hospital market basket for IPPS hospitals in all
areas reduced by 0.25 percentage point, subject to the hospital
submitting quality information under rules established by the Secretary
in accordance with section 1886(b)(3)(B)(viii) of the Act. For
hospitals that do not provide these data, the update is equal to the
market basket percentage increase minus a 0.25 percentage point less an
additional 2.0 percentage points. Section 3401(a)(4) of Public Law 111-
148 further states that this amendment may result in the applicable
percentage increase being less than zero.
In Appendix B of the FY 2011 IPPS/LTCH PPS proposed rule, we
announced that due to the timing of the passage of Public Law 111-148,
we were unable to address those provisions in the proposed rule. In
that proposed rule, consistent with current law, based on IHS Global
Insight, Inc.'s first quarter 2010 forecast, with historical data
through the 2009 fourth quarter, of the FY 2011 IPPS market basket
increase, we estimated that the FY 2011 update to the operating
standardized amount would be 2.4 percent (that is, the current estimate
of the market basket rate-of-increase) for hospitals in all areas,
provided the hospital submits quality data in accordance with our
rules. For hospitals that do not submit
[[Page 30923]]
quality data, we estimated that the update to the operating
standardized amount would be 0.4 percent (that is, the current estimate
of the market basket rate-of-increase minus 2.0 percentage points).
Since publication of the FY 2011 IPPS/LTCH PPS proposed rule our
estimate of the market basket for FY 2011 has not changed. However,
consistent with the amendments to section 1886(b)(3)(B)(i) of the Act
made by section 3401 of Public Law 111-148, for FY 2011 we are required
to reduce the hospital market basket update by 0.25 percentage points.
Therefore, based on IHS Global Insight, Inc.'s first quarter 2010
forecast of the FY 2011 market basket increase, the estimated update to
the FY 2011 operating standardized amount is 2.15 percent (that is, the
FY 2011 estimate of the market basket rate-of-increase of 2.4 percent
minus 0.25 percentage points) for hospitals in all areas, provided the
hospital submits quality data in accordance with our rules. For
hospitals that do not submit quality data, the estimated update to the
operating standardized amount is 0.15 percent (that is, the adjusted FY
2011 estimate of the market basket rate-of-increase of 2.15 percent
minus 2.0 percentage points). We are proposing to revise Sec.
412.64(d) to reflect the provisions of section 3401(a) of Public Law
111-148.
Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2011
applicable percentage increase in the hospital-specific rates for SCHs
and MDHs equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Similar to the FY 2010 applicable
percentage increase in the hospital-specific rates, because the Act
requires us to apply to the hospital-specific rates the update factor
for all other IPPS hospitals, the update to the hospital specific rates
for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) as
amended by the Affordable Care Act. Accordingly, the update to the
hospital-specific rates applicable to SCHs and MDHs is estimated to be
2.15 for hospitals that submit quality data or 0.15 percent for
hospitals that fail to submit quality data. Similar to above, we are
proposing to update Sec. Sec. 412.73(c)(15), 412.75(d), 412.77(e),
412.78(e), 412.79(d) to implement this provision.
3. FY 2010 and FY 2011 Puerto Rico Hospital Update
Puerto Rico hospitals are paid a blended rate for their inpatient
operating costs based on 75 percent of the national standardized amount
and 25 percent of the Puerto Rico-specific standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable
percentage increase applied to the Puerto Rico-specific standardized
amount. Section 1886(d)(9)(C)(i) of the Act provides that the Puerto
Rico standardized amount shall be adjusted in accordance with the final
determination of the Secretary under section 1886(d)(4) of the Act.
Section 1886(e)(4)(1) of the Act in turn directs the Secretary to
recommend an appropriate change factor for Puerto Rico hospitals taking
into account amounts necessary for the efficient and effective delivery
of medically appropriate and necessary care of high quality, as well as
the recommendations of MedPAC. In order to maintain consistency between
the portion of the rates paid to Puerto Rico hospitals under the IPPS
based on the national standardized amount and the portion based on the
Puerto Rico-specific standardized rate, beginning in FY 2004 we have
set the update to the Puerto Rico-specific operating standardized
amount equal to the update to the national operating standardized
amount for all IPPS hospitals. This policy is reflected in our
regulations at 42 CFR 412.211.
The amendments to section 1886(b)(3)(B)(i) of the Act by sections
3401(a) and section 10319(a) of Public Law 111-148, affect only the
update factor applicable to the national standardized rate for IPPS
hospitals and the hospital-specific rates; they do not mandate any
revisions to the update factor applicable to the Puerto Rico-specific
standardized amount. Rather, as noted above, sections 1886(d)(9)(C)(i)
and (e)(4) of the Act direct us to adopt an appropriate change factor
for the FY 2010 Puerto Rico-specific standardized amount, which we did
in the FY 2010 IPPS/LTCH PPS final rule after notice and consideration
of public comments. Therefore, we do not believe we have the authority
to now propose setting the FY 2010 update factor for the Puerto Rico-
specific operating standardized amount for the second half of FY 2010
equal to the update factor applicable to the national standardized
amount or the hospital-specific rates (that is the market basket minus
0.25 percentage points). Accordingly, the FY 2010 update to the Puerto
Rico-specific operating standardized amount is 2.1 percent (that is,
the FY 2010 estimate of the market basket rate-of-increase) for the
entire FY 2010.
For FY 2011, consistent with our past practice of applying the same
update factor to the Puerto Rico-specific standardized amount as
applied to the national standardized amount, we are proposing to revise
Sec. 412.211(c) to set the update factor for the Puerto Rico-specific
operating standardized amount equal to the update factor applied to the
national standardized amount for all IPPS hospitals. Therefore, we are
proposing an update factor for the Puerto Rico-specific standardized
amount equal to the FY 2011 estimate of the IPPS operating market
basket rate-of-increase of 2.4 percent minus 0.25 percentage points, or
2.15 percent, for FY 2011.
C. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)
Section 1886(d)(12) of the Act, as added by section 406 of Public
Law 108-173, provides for a payment adjustment to account for the
higher costs per discharge for low-volume hospitals under the IPPS,
effective beginning FY 2005. Sections 3215 and 10314 of Public Law 111-
148 amend the definition of a low-volume hospital under section
1886(d)(12)(C) of the Act. It also revises the methodology for
calculating the payment adjustment for low-volume hospitals.
1. Background
Prior to being amended by the Affordable Care Act, section
1886(d)(12)(C)(i) of the Act defined a low-volume hospital as ``a
subsection (d) hospital (as defined in paragraph (1)(B)) that the
Secretary determines is located more than 25 road miles from another
subsection (d) hospital and that has less than 800 discharges during
the fiscal year.'' Section 1886(d)(12)(C)(ii) of the Act further
stipulates that ``the term ``discharge'' means an inpatient acute care
discharge of an individual regardless of whether the individual is
entitled to benefits under Part A.'' Therefore, the term refers to
total discharges, not merely Medicare discharges. Finally, under
section 406, the provision requires the Secretary to determine an
applicable percentage increase for these low-volume hospitals based on
the ``empirical relationship'' between ``the standardized cost-per-case
for such hospitals and the total number of discharges of such hospitals
and the amount of the additional incremental costs (if any) that are
associated with such number of discharges.'' The statute thus mandates
that the Secretary develop an empirically justifiable adjustment based
on the relationship between costs and discharges for these low-volume
hospitals. The statute also limits the adjustment to no more than 25
percent.
[[Page 30924]]
Based on an analysis we conducted for the FY 2005 IPPS final rule
(69 FR 49099 through 49102), a 25 percent low-volume adjustment to all
qualifying hospitals with less than 200 discharges was found to be most
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher
incremental costs are associated with low numbers of total discharges.
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we
stated that a multivariate analyses supported the existing low-volume
adjustment implemented in FY 2005. Therefore, the low-volume adjustment
of an additional 25 percent would continue to be provided for
qualifying hospitals with less than 200 discharges.
2. Temporary Changes for FYs 2011 and 2012
Section 1886(d)(12) of the Act was amended by sections 3125 and
10314 of Public Law 111-148. These changes are effective only for FYs
2011 and 2012. Beginning with FY 2013, the pre-existing low-volume
hospital payment adjustment and qualifying criteria, as implemented in
FY 2005, will resume.
Section 3125(3) and 10314(1) of Public Law 111-148 amend the
qualifying criteria for low-volume hospitals under section
1886(d)(12)(C) of the Act to make it easier for hospitals to qualify
for the low-volume adjustment. Specifically, the revised provision
specifies that for FYs 2011 and 2012, a hospital qualifies as a low-
volume hospital if it is ``more than 15 road miles from another
subsection (d) hospital and has less than 1,600 discharges of
individuals entitled to, or enrolled for, benefits under Part A during
the fiscal year.'' In addition, section 1886(d)(12)(C) of the Act, as
amended, provides that the payment adjustment (the applicable
percentage increase) is to be determined ``using a continuous linear
sliding scale ranging from 25 percent for low-volume hospitals with 200
or fewer discharges of individuals entitled to, or enrolled for,
benefits under Part A in the fiscal year to 0 percent for low-volume
hospitals with greater than 1,600 discharges of such individuals in the
fiscal year.''
Section 3125(3)(A) of Public Law 111-148 revises the distance
requirement for FYs 2011 and 2012 from ``25 road miles'' to ``15 road
miles'' such that a low volume hospital is required to be only more
than 15 road miles, rather than more than 25 road miles, from another
subsection (d) hospital for purposes of qualifying for the low-volume
payment adjustment in FYs 2011 and 2012. We therefore are proposing to
revise our regulations at 42 CFR 412.101(a)(2) to provide that to
qualify for the low volume adjustment in FYs 2011 and 2012, a hospital
must be more than 15 road miles from the nearest subsection (d)
hospital. The statute specifies the 15 mile distance in ``road miles''.
The current regulations at 42 CFR 412.101 also specify the current 25
mile distance requirement in ``road miles,'' but do not provide a
definition of the term ``road miles.'' We are proposing to define the
term ``road miles'' consistent with the term ``miles'' as defined at
Sec. 412.92 for purposes of determining whether a hospital qualifies
as a sole community hospital. Specifically, the regulations at 42 CFR
412.92(c)(i) define ``miles'' as ``the shortest distance in miles
measured over improved roads. An improved road for this purpose is any
road that is maintained by a local, State, or Federal government entity
and is available for use by the general public. An improved road
includes the paved surface up to the front entrance of the hospital.''
We note that while the proposed change in the qualifying criteria from
25 to 15 road miles is applicable only for FYs 2011 and 2012, the
proposed definition of ``road miles'' would continue to apply even
after the distance requirement reverts to 25 road miles beginning in FY
2013.
Sections 3125(3)(B) and (4)(D) and 10314(1) and (2) of Public Law
111-148, revise the discharge requirement for FYs 2011 and 2012 to less
than 1,600 discharges of individuals entitled to, or enrolled for,
benefits under Part A. Based on section 406 of Public Law 108-173, the
discharge requirement to qualify as a low-volume hospital prior to FY
2011 and subsequent to FY 2012 is less than 800 discharges annually.
For these fiscal years, the number of discharges is determined based on
total discharges, which includes discharges of both Medicare and non-
Medicare patients. However, under sections 3125 and 10314 of Public Law
111-148, for FYs 2011 and 2012, the discharge requirement has been
increased to less than 1,600 discharges of individuals ``entitled to,
or enrolled for, benefits under Part A during the fiscal year.''
Section 226(a) of the Act (42 U.S.C. 426(a)) provides that an
individual is automatically ``entitled'' to Medicare Part A when the
person reaches age 65 or becomes disabled, provided that the individual
is entitled to Social Security benefits under section 202 of the Act
(42 U.S.C. 402). Once a person becomes entitled to Medicare Part A, the
individual does not lose such entitlement simply because there is no
Part A coverage of a specific inpatient stay. For example, a patient
does not lose entitlement to Medicare Part A simply because the
individual's Part A hospital benefits have been exhausted; other items
and services (for example, skilled nursing services) still might be
covered under Part A, and the patient would qualify for an additional
90 days of Part A hospital benefits if at least 60 days elapsed between
the individual's first and second hospital stay. (See Sec. 409.60(a)
and (b)(1) and Sec. 409.61(a)(1) and (c).)
In addition, beneficiaries who are enrolled in Medicare Advantage
(MA) plans provided under Medicare Part C continue to meet all of the
statutory criteria for entitlement to Part A benefits under section
226. First, in order to enroll in Medicare Part C, a beneficiary must
be ``entitled to benefits under Part A and enrolled under Part B,'' see
section 1852(a)(1)(B)(i) of the Act. There is nothing in the Act that
suggests beneficiaries who enroll in Part C plan forfeit their
entitlement to Part A benefits. Second, once a beneficiary enrolls in
Part C, the MA plan must provide the beneficiary with the benefits to
which the enrollee is entitled under Medicare Part A, even though it
may also provide for additional supplemental benefits. See section
1852(a)(1)(A) of the Act. Third, under certain circumstances, Medicare
Part A pays for care furnished to patients enrolled in Part C plans.
For example, if, during the course of the year, the scope of benefits
provided under Medicare Part A expands beyond a certain cost threshold
due to Congressional action or a national coverage determination,
Medicare Part A will pay the provider for the cost of the services
directly. (See section 1852(a)(5) of the Act.) Similarly, Medicare Part
A also pays for Federally qualified health center services and hospice
care furnished to MA patients. See 42 U.S.C. section 1853(a)(4), (h)(2)
of the Act. Thus, a patient enrolled in a Part C plan remains entitled
to benefits under Medicare Part A.
Accordingly, for purposes of determining the number of discharges
for ``individuals entitled to, or enrolled for, benefits under Part
A,'' we propose to include all discharges associated with individuals
entitled to Part A, including discharges associated with individuals
whose inpatient benefits are exhausted or whose stay was not covered by
Medicare and discharges of individuals enrolled in an MA plan under
Medicare Part C. Since a hospital may only qualify for this adjustment
if the hospital has fewer than 1,600 discharges for patients entitled
to Part A, the
[[Page 30925]]
hospital must submit a claim to Medicare on behalf of all Part A
entitled individuals, including a no-pay claim for patients who are
enrolled in Part C, in order for Medicare to assure that these
discharges are included in the determination of whether the hospital
has fewer than 1,600 discharges for patients entitled to Part A.
Currently, a prior cost reporting period is used to determine if
the hospital meets the discharge criteria to receive the low-volume
payment adjustment in the current year.
Finally, sections 3125(4) of Public Law 111-148 and 10314(2), add a
new section 1886(d)(12)(D) of the Act that modifies the methodology for
calculation of the payment adjustment under section 1886(d)(12)(A) of
the Act for low-volume hospitals for discharges occurring in FYs 2011
and 2012. Currently, sections 1886(d)(12)(A) and (B) of the Act require
the Secretary to determine an applicable percentage increase for low-
volume hospitals based on the ``empirical relationship'' between ``the
standardized cost-per-case for such hospitals and the total number of
discharges of such hospitals and the amount of the additional
incremental costs (if any) that are associated with such number of
discharges.'' The statute thus mandates the Secretary to develop an
empirically justifiable adjustment based on the relationship between
costs and discharges for these low-volume hospitals. The statute also
limits the adjustment to no more than 25 percent. Based on analyses, we
conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102)
and the FY 2006 IPPS final rule (70 FR 47432 through 47434), a 25
percent low-volume adjustment to all qualifying hospitals with less
than 200 discharges was found to be most consistent with the statutory
requirement to provide relief to low-volume hospitals where there is
empirical evidence that higher incremental costs are associated with
low numbers of total discharges. However, section 1886(d)(12)(D) of the
Act, provides that for discharges occurring in FYs 2011 and 2012, the
Secretary shall determine the applicable percentage increase using a
continuous, linear sliding scale ranging from an additional 25 percent
payment adjustment for hospitals with 200 or fewer Medicare discharges
to 0 percent additional payment for hospitals with more than 1,600
Medicare discharges. We propose to apply this payment adjustment based
on increments of 100 discharges (beginning with 200 or fewer
discharges), with the applicable percentage increase decreasing
linearly in equal amounts by 1.6667 percent for every additional 100
Medicare discharges, with no payment adjustment for hospitals with more
than 1,599 Medicare discharges. We have not proposed an adjustment for
a hospital with exactly 1,600 discharges since, as specified in statute
at section 1886(d)(12)(C)(i) of the Act, as amended, a hospital must
have ``less'' than 1,600 discharges in order to qualify as a low volume
hospital. The proposed payment adjustment would be as determined below:
--
------------------------------------------------------------------------
Payment
adjustment
Medicare discharge range (percent add-
on)
------------------------------------------------------------------------
1-200..................................................... 25.0000
201-300................................................... 23.3333
301-400................................................... 21.6667
401-500................................................... 20.0000
501-600................................................... 18.3333
601-700................................................... 16.6667
701-800................................................... 15.0000
801-900................................................... 13.3333
901-1000.................................................. 11.6667
1001-1100................................................. 10.0000
1101-1200................................................. 8.3333
1201-1300................................................. 6.6667
1301-1400................................................. 5.0000
1401-1500................................................. 3.3333
1501-1599................................................. 1.6667
1600 or more.............................................. 0.0000
------------------------------------------------------------------------
While we are proposing to revise the qualifying criteria and the
payment adjustment for low-volume hospitals for FYs 2011 and 2012,
consistent with the amendments made by the Affordable Care Act, we note
that we are not proposing to modify the process for requesting and
obtaining the low-volume hospital payment adjustment. In order to
qualify, a hospital must provide to its FI or MAC sufficient evidence
to document that it meets the number of Medicare discharges and
distance requirements. The FI or MAC will determine, based on the most
recent data available, if the hospital qualifies as a low-volume
hospital, so that the hospital will know in advance whether or not it
will receive a payment adjustment and, if so, the add-on percentage.
The FI or MAC and CMS may review available data, in addition to the
data the hospital submits with its request for low-volume status, in
order to determine whether or not the hospital meets the qualifying
criteria.
We also note that as compared to the existing methodology for
determining the payment adjustment for low-volume hospitals, no
hospital would receive a lower payment adjustment under our proposed
methodology for FYs 2011 and 2012. Although the statute specifies that,
for years other than FYs 2011 and 2012, a hospital is a low-volume
hospital if it has less than 800 discharges, currently only hospitals
with fewer than 200 discharges receive a payment adjustment, an
additional 25 percent, because the statute requires that the adjustment
be empirically based to provide relief to low-volume hospitals where
there is empirical evidence that higher incremental costs are
associated with low numbers of total discharges. Consistent with
section 1886(d)(12)(D) of the Act, for FYs 2011 and 2012, we will
continue to pay hospitals with fewer than 200 discharges a payment
adjustment amount equal to an additional 25 percent.
We are proposing to revise our regulations at 42 CFR 412.101 to
reflect our proposal outlined above.
Currently, 42 CFR 412.101(a)(3) states that ``The fiscal
intermediary makes the determination of the discharge count for
purposes of determining a hospital's qualification for the adjustment
based on the hospital's most recent submitted cost report.'' This may
mistakenly be interpreted to mean that once a hospital qualifies as a
low-volume hospital, no further qualification is needed. We, therefore,
are proposing to clarify that a hospital must continue to qualify as a
low-volume hospital in order to receive the payment adjustment in that
year; that is, it is not based on a one-time qualification.
D. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec. 412.108)
1. Background
Medicare-dependent, small rural hospitals (MDHs) are eligible for
the higher of the Federal rate for their inpatient hospital services or
a blended rate based in part on the Federal rate and in part on the
MDH's hospital-specific rate. Section 1886(d)(5)(G)(iv) of the Act
defines an MDH as a hospital that is located in a rural area, has not
more than 100 beds, is not an SCH, and has a high percentage of
Medicare discharges (that is, not less than 60 percent of its inpatient
days or discharges either in its 1987 cost reporting year or in two of
its most recent three settled Medicare cost reporting years). The
regulations that set forth the criteria that a hospital must meet to be
classified as an MDH are at 42 CFR 412.108.
Although MDHs are paid under an adjusted payment methodology, they
are still IPPS hospitals paid under section 1886(d) of the Act. Like
all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid
for their discharges based on the DRG weights
[[Page 30926]]
calculated under section 1886(d)(4) of the Act.
Through and including FY 2006, under section 1886(d)(5)(G) of the
Act, MDHs are paid based on the Federal rate or, if higher, the Federal
rate plus 50 percent of the amount by which the Federal rate is
exceeded by the updated hospital-specific rate based on the hospital's
FY 1982 or FY 1987 costs per discharge, whichever of these hospital-
specific rates is higher. Section 5003(b) of Public Law 109-171 (DRA
2005) amended section 1886(d)(5)(G) of the Act to provide that, for
discharges occurring on or after October 1, 2006, MDHs are paid based
on the Federal rate or, if higher, the Federal rate plus 75 percent of
the amount by which the Federal rate is exceeded by the updated
hospital-specific rate based on the hospital's FY 1982, FY 1987, or FY
2002 costs per discharge, whichever of these hospital-specific rates is
highest.
For each cost reporting period, the fiscal intermediary or MAC
determines which of the payment options will yield the highest
aggregate payment. Interim payments are automatically made at the
highest rate using the best data available at the time the fiscal
intermediary or MAC makes the determination. However, it may not be
possible for the fiscal intermediary or MAC to determine in advance
precisely which of the rates will yield the highest aggregate payment
by year's end. In many instances, it is not possible to forecast the
outlier payments, the amount of the DSH adjustment or the IME
adjustment, all of which are applicable only to payments based on the
Federal rate and not to payments based on the hospital-specific rate.
The fiscal intermediary or MAC makes a final adjustment at the
settlement of the cost report after it determines precisely which of
the payment rates would yield the highest aggregate payment to the
hospital.
If a hospital disagrees with the fiscal intermediary's or the MAC's
determination regarding the final amount of program payment to which it
is entitled, it has the right to appeal the determination in accordance
with the procedures set forth in 42 CFR Part 405, Subpart R, which
govern provider payment determinations and appeals.
2. Extension of the MDH Program
Section 3124 of Public Law 111-148 extends the MDH program, from
the end of FY 2011 (that is, for discharges before October 1, 2011) to
the end of FY 2012 (that is, for discharges before October 1, 2012).
Under prior law, as specified in section 5003(a) of Public Law 109-171
(DRA of 2005), the MDH program was to be in effect through the end of
FY 2011 only. Section 3124 (a) of Public Law 111-148 amends sections
1886(d)(5)(G)(i) and (ii)(II) of the Act to extend the MDH program and
payment methodology from the end of FY 2011 to the end of FY 2012, by
``striking ``October 1, 2011'' and inserting ``October 1, 2012''.''
Section 3125(b) of Public Law 111-148 also makes conforming amendments
to sections 1886(b)(3)(D)(i) and (iv) of the Act. Section 3124(b)(2) of
Public Law 111-148 also amends section 13501(e)(2) of OBRA 1993 (42
U.S.C. 1395ww note) to extend the provision permitting hospitals to
decline reclassification as an MDH through FY 2012.
E. Additional Payments for Qualifying Hospitals With Lowest Per Capita
Medicare Spending
1. Background
Section 1109 of Public Law 111-152, provides for additional
payments for FY 2011 and 2012 for ``qualifying hospitals.'' Section
1109(d) defines a ``qualifying hospital'' as a ``subsection (d)
hospital * * * that is located in a county that ranks, based upon its
ranking in age, sex and race adjusted spending for benefits under parts
A and B * * * per enrollee within the lowest quartile of such counties
in the United States.'' Therefore, a ``qualifying hospital'' is one
that meets th