Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2011, 42836-42884 [2010-17621]

Agencies

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

[Federal Register Volume 75, Number 140 (Thursday, July 22, 2010)]
[Notices]
[Pages 42836-42884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-17621]



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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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Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal Fiscal Year 2011; Notice

Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / 
Notices

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1344-N]
RIN 0938-AP89


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2011

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

ACTION: Notice.

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SUMMARY: This notice updates the payment rates for inpatient 
rehabilitation facilities (IRFs) for Federal fiscal year (FY) 2011 (for 
discharges occurring on or after October 1, 2010 and on or before 
September 30, 2011) as required under section 1886(j)(3)(C) of the 
Social Security Act (the Act). Section 1886(j)(5) of the Act requires 
the Secretary to publish in the Federal Register on or before the 
August 1 that precedes the start of each fiscal year, the 
classification and weighting factors for the IRF prospective payment 
system's (PPS) case-mix groups and a description of the methodology and 
data used in computing the prospective payment rates for that fiscal 
year.

DATES: Effective Date: The updated IRF prospective payment rates are 
effective for IRF discharges occurring on or after October 1, 2010 and 
on or before September 30, 2011 (FY 2011).

FOR FURTHER INFORMATION CONTACT:
Julie Stankivic, (410) 786-5725.
Susanne Seagrave, (410) 786-0044.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)
    B. Operational Overview of the Current IRF PPS
II. Summary of Provisions of the Notice
III. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2011
IV. Updates to the Facility-Level Adjustment Factors
V. FY 2011 IRF PPS Federal Prospective Payment Rates
    A. Adjustment to the FY 2010 IRF PPS Federal Prospective Payment 
Rates, Reflecting Adjustments to the Rehabilitation, Psychiatric, 
and Long-term Care Hospital (RPL) Market Basket Increase Factor in 
Accordance with Sections 3401(d) of the Patient Protection and 
Affordable Care Act (Affordable Care Act) as Amended by Section 
10319 of the Same Act and by Section 1105(c) of the Health Care and 
Education Reconciliation Act of 2010
    B. Market Basket Increase Factor and Labor-Related Share for FY 
2011
    C. Area Wage Adjustment
    D. Description of the IRF Standard Payment Conversion Factor and 
Payment Rates for FY 2011
    E. Example of the Methodology for Adjusting the Federal 
Prospective Payment Rates
VI. Update to Payments for High-Cost Outliers under the IRF PPS
    A. Adjustment to the Outlier Threshold Amount for FY 2010, 
Reflecting Adjustments to the RPL Market Basket Increase Factor in 
Accordance with Sections 3401(d) of the Patient Protection and 
Affordable Care Act (Affordable Care Act) as Amended by Section 
10319 of the Same Act and by Section 1105 of the Health Care and 
Education Reconciliation Act of 2010
    B. Update to the Outlier Threshold Amount for FY 2011
    C. Update to the IRF Cost-to-Charge Ratio Ceilings
VII. Collection of Information Requirements
VIII. Waiver of Proposed Rulemaking
IX. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects of the Notice
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
Addendum

Acronyms

    Because of the many terms to which we refer by acronym in this 
notice, we are listing the acronyms used and their corresponding terms 
in alphabetical order below.
    ADC Average Daily Census
    ASCA Administrative Simplification Compliance Act of 2002, 
Public Law 107-105
    BBA Balanced Budget Act of 1997, Public Law 105-33
    BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
    BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
    CBSA Core-Based Statistical Area
    CCR Cost-to-Charge Ratio
    CFR Code of Federal Regulations
    CMG Case-Mix Group
    DRG Diagnostic Related Group
    DSH Disproportionate Share Hospital
    FI Fiscal Intermediary
    FR Federal Register
    FTE Full-time Equivalent
    FY Federal Fiscal Year
    HCFA Health Care Financing Administration
    HHH Hubert H. Humphrey Building
    HIPAA Health Insurance Portability and Accountability Act of 
1996, Public Law 104-191
    IOM Internet Only Manual
    IPF Inpatient Psychiatric Facility
    IPPS Inpatient Prospective Payment System
    IRF Inpatient Rehabilitation Facility
    IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment 
Instrument
    IRF PPS Inpatient Rehabilitation Facility Prospective Payment 
System
    IRVEN Inpatient Rehabilitation Validation and Entry
    LTCH Long Term Care Hospital
    LIP Low-Income Percentage
    MA Medicare Advantage
    MAC Medicare Administrative Contractor
    MBPM Medicare Benefit Policy Manual
    MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, 
Public Law 110--173
    OMB Office of Management and Budget
    PAI Patient Assessment Instrument
    PPS Prospective Payment System
    QIC Qualified Independent Contractors
    RAC Recovery Audit Contractors
    RAND RAND Corporation
    RFA Regulatory Flexibility Act of 1980, Public Law 96-354
    RIA Regulatory Impact Analysis
    RIC Rehabilitation Impairment Category
    RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital
    SCHIP State Children's Health Insurance Program

I. Background

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

    Section 4421 of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-
33, enacted on August 5, 1997), as amended by section 125 of the 
Medicare, Medicaid, State Children's Health Insurance Program (SCHIP) 
Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113, enacted 
November 29, 1999) and by section 305 of the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 
106-554, enacted December 21, 2000) provides for the implementation of 
a per discharge prospective payment system (PPS) under section 1886(j) 
of the Social Security Act (the Act) for inpatient rehabilitation 
hospitals and inpatient rehabilitation units of a hospital (hereinafter 
referred to as IRFs).
    Payments under the IRF PPS encompass inpatient operating and 
capital costs of furnishing covered rehabilitation services (that is, 
routine, ancillary, and capital costs) but not direct graduate medical 
education costs, costs of approved nursing and allied health education 
activities, bad debts, and other services or items outside the scope of 
the IRF PPS. Although a complete discussion of the IRF PPS provisions 
appears in the original FY 2002 IRF PPS final rule (66 FR 41316) and 
the FY 2006 IRF PPS final rule (70 FR 47880), we are providing below a

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general description of the IRF PPS for fiscal years (FYs) 2002 through 
2010.
    Under the IRF PPS from FY 2002 through FY 2005, as described in the 
FY 2002 IRF PPS final rule (66 FR 41316), the Federal prospective 
payment rates were computed across 100 distinct (Case-Mix Group) CMGs. 
We constructed 95 CMGs using rehabilitation impairment categories 
(RICs), functional status (both motor and cognitive), and age (in some 
cases, cognitive status and age may not be a factor in defining a CMG). 
In addition, we constructed five special CMGs to account for very short 
stays and for patients who expire in the IRF.
    For each of the CMGs, we developed relative weighting factors to 
account for a patient's clinical characteristics and expected resource 
needs. Thus, the weighting factors accounted for the relative 
difference in resource use across all CMGs. Within each CMG, we created 
tiers based on the estimated effects that certain comorbidities would 
have on resource use.
    We established the Federal PPS rates using a standardized payment 
conversion factor (formerly referred to as the budget neutral 
conversion factor). For a detailed discussion of the budget neutral 
conversion factor, please refer to our FY 2004 IRF PPS final rule (68 
FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 
47880), we discussed in detail the methodology for determining the 
standard payment conversion factor.
    We applied the relative weighting factors to the standard payment 
conversion factor to compute the unadjusted Federal prospective payment 
rates under the IRF PPS from FYs 2002 through 2005. Within the 
structure of the payment system, we then made adjustments to account 
for interrupted stays, transfers, short stays, and deaths. Finally, we 
applied the applicable adjustments to account for geographic variations 
in wages (wage index), the percentage of low-income patients, location 
in a rural area (if applicable), and outlier payments (if applicable) 
to the IRF's unadjusted Federal prospective payment rates.
    For cost reporting periods that began on or after January 1, 2002 
and before October 1, 2002, we determined the final prospective payment 
amounts using the transition methodology prescribed in section 
1886(j)(1) of the Act. Under this provision, IRFs transitioning into 
the PPS were paid a blend of the Federal IRF PPS rate and the payment 
that the IRF would have received had the IRF PPS not been implemented. 
This provision also allowed IRFs to elect to bypass this blended 
payment and immediately be paid 100 percent of the Federal IRF PPS 
rate. The transition methodology expired as of cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and payments for all 
IRFs now consist of 100 percent of the Federal IRF PPS rate.
    We established a CMS Web site as a primary information resource for 
the IRF PPS. The Web site URL is https://www.cms. gov/
InpatientRehabFacPPS/ and may be accessed to download or view 
publications, software, data specifications, educational materials, and 
other information pertinent to the IRF PPS.
    Section 1886(j) of the Act confers broad statutory authority upon 
the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF 
PPS final rule (70 FR 47880) and in correcting amendments to the FY 
2006 IRF PPS final rule (70 FR 57166) that we published on September 
30, 2005, we finalized a number of refinements to the IRF PPS case-mix 
classification system (the CMGs and the corresponding relative weights) 
and the case-level and facility-level adjustments. These refinements 
included the adoption of the Office of Management and Budget's (OMB) 
Core-Based Statistical Area (CBSA) market definitions, modifications to 
the CMGs, tier comorbidities, and CMG relative weights, implementation 
of a new teaching status adjustment for IRFs, revision and rebasing of 
the market basket index used to update IRF payments, and updates to the 
rural, low-income percentage (LIP), and high-cost outlier adjustments. 
Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 
47917), the market basket index used to update IRF payments is a 2002-
based market basket reflecting the operating and capital cost 
structures for freestanding IRFs and long-term care hospitals (LTCHs) 
(hereafter referred to as the rehabilitation, psychiatric, and long-
term care (RPL) market basket). Any reference to the FY 2006 IRF PPS 
final rule in this notice also includes the provisions effective in the 
correcting amendments. For a detailed discussion of the final key 
policy changes for FY 2006, please refer to the FY 2006 IRF PPS final 
rule (70 FR 47880 and 70 FR 57166).
    In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined 
the IRF PPS case-mix classification system (the CMG relative weights) 
and the case-level adjustments, to ensure that IRF PPS payments would 
continue to reflect as accurately as possible the costs of care. For a 
detailed discussion of the FY 2007 policy revisions, please refer to 
the FY 2007 IRF PPS final rule (71 FR 48354).
    In the FY 2008 IRF PPS final rule (72 FR 44284), we updated the 
Federal prospective payment rates and the outlier threshold, revised 
the IRF wage index policy, and clarified how we determine high-cost 
outlier payments for transfer cases. For more information on the policy 
changes implemented for FY 2008, please refer to the FY 2008 IRF PPS 
final rule (72 FR 44284), in which we published the final FY 2008 IRF 
Federal prospective payment rates.
    After publication of the FY 2008 IRF PPS final rule (72 FR 44284), 
section 115 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 
(MMSEA, Pub. L. 110-173, enacted December 29, 2007), amended section 
1886(j)(3)(C) of the Act to apply a zero percent increase factor for 
FYs 2008 and 2009, effective for IRF discharges occurring on or after 
April 1, 2008. Section 1886(j)(3)(C) of the Act required the Secretary 
to develop an increase factor to update the IRF Federal prospective 
payment rates for each FY. Based on the legislative change to the 
increase factor, we revised the FY 2008 Federal prospective payment 
rates for IRF discharges occurring on or after April 1, 2008. Thus, the 
final FY 2008 IRF Federal prospective payment rates that were published 
in the FY 2008 IRF PPS final rule (72 FR 44284) were effective for 
discharges occurring on or after October 1, 2007 and on or before March 
31, 2008; and the revised FY 2008 IRF Federal prospective payment rates 
were effective for discharges occurring on or after April 1, 2008 and 
on or before September 30, 2008. The revised FY 2008 Federal 
prospective payment rates are available on the CMS Web site at https://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.
    In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG 
relative weights, the average length of stay values, and the outlier 
threshold; clarified IRF wage index policies regarding the treatment of 
``New England deemed''counties and multi-campus hospitals; and revised 
the regulation text in response to section 115 of the MMSEA to set the 
IRF compliance percentage at 60 percent (``the 60 percent rule'') and 
continue the practice of including comorbidities in the calculation of 
compliance percentages. We also applied a zero percent market basket 
increase factor for FY 2009 in accordance with section 115 of the 
MMSEA. For more information on the policy changes implemented for FY 
2009, please refer to the FY 2009 IRF PPS final rule (73 FR 46370), in 
which

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we published the final FY 2009 IRF Federal prospective payment rates.
    In the FY 2010 IRF PPS final rule (74 FR 39762) and in correcting 
amendments to the FY 2010 IRF PPS final rule (74 FR 50712) that we 
published on October 1, 2009, we updated the Federal prospective 
payment rates, the CMG relative weights, the average length of stay 
values, the rural, LIP, and teaching status adjustment factors, and the 
outlier threshold; implemented new IRF coverage requirements for 
determining whether an IRF claim is reasonable and necessary; and 
revised the regulation text to require IRFs to submit patient 
assessments on Medicare Advantage (Medicare Part C) patients for use in 
the 60 percent rule calculations. Any reference to the FY 2010 IRF PPS 
final rule in this notice also includes the provisions effective in the 
correcting amendments. For more information on the policy changes 
implemented for FY 2010, please refer to the FY 2010 IRF PPS final rule 
(74 FR 39762 and 74 FR 50712), in which we published the final FY 2010 
IRF Federal prospective payment rates.
    After publication of the FY 2010 IRF PPS final rule (74 FR 39762), 
section 3401(d) of the Patient Protection and Affordable Care Act 
(Affordable Care Act, Pub. L. 111-148, enacted March 23, 2010), as 
amended by section 10319 of the same act and by section 1105 of the 
Health Care and Education Reconciliation Act of 2010, amended section 
1886(j)(3)(C) of the Act and added section 1886(j)(3)(D). Section 
1886(j)(3)(C) of the Act requires the Secretary to develop an adjusted 
market basket increase factor using applicable productivity and other 
adjustments as defined by the Act. This adjusted market basket increase 
factor is to be used to update the IRF Federal prospective payment 
rates for each FY from 2012 forward. Section 1886(j)(3)(D)(i)(1) 
defines the adjustment that is to be applied to the market basket 
increase factor in FYs 2010 and 2011. The Secretary is to reduce the 
market basket increase factor by 0.25 percentage point for FY 2010. 
Notwithstanding these provisions, in accordance with paragraph (p) of 
section 3401 of the Affordable Care Act, the adjusted FY 2010 rate is 
only to be applied to discharges occurring on or after April 1, 2010. 
Section 1886(j)(3)(D)(i)(I) of the Act also requires the Secretary to 
reduce the market basket increase factor by 0.25 percentage point for 
FY 2011. Based on these legislative changes to section 1886(j)(3), we 
adjust the FY 2010 Federal prospective payment rates, and apply these 
rates to IRF discharges occurring on or after April 1, 2010. Thus, the 
final FY 2010 IRF Federal prospective payment rates that were published 
in the FY 2010 IRF PPS final rule (74 FR 39762) were used for 
discharges occurring on or after October 1, 2009 and on or before March 
31, 2010; and the adjusted FY 2010 IRF Federal prospective payment 
rates apply to discharges occurring on or after April 1, 2010. The 
adjusted FY 2010 Federal prospective payment rates are available on the 
CMS Web site at https://www.cms.gov/InpatientRehabFacPPS/07_
DataFiles.asp#TopOfPage.
    In addition, sections 1886(j)(3)(C) and (D) of the Act also 
affected the FY 2010 IRF outlier threshold amount because they required 
an adjustment to the FY 2010 RPL market basket increase factor, which 
changed the standard payment conversion factor for FY 2010. 
Specifically, the original FY 2010 IRF outlier threshold amount was 
determined based on the original estimated FY 2010 RPL market basket 
increase factor of 2.5 percent and the standard payment conversion 
factor of $13,661. However, as adjusted, the IRF prospective payments 
are based on the adjusted RPL market basket increase factor of 2.25 
percent and the revised standard payment conversion factor of $13,627. 
In order to maintain estimated outlier payments for FY 2010 equal to 
the established standard of 3 percent of total estimated IRF PPS 
payments for FY 2010, we revised the IRF outlier threshold amount for 
FY 2010 for discharges occurring on or after April 1, 2010. The revised 
IRF outlier threshold amount for FY 2010 is discussed in more detail in 
section VI.A of this notice.

B. Operational Overview of the Current IRF PPS

    As described in the FY 2002 IRF PPS final rule, upon the admission 
and discharge of a Medicare Part A fee-for-service patient, the IRF is 
required to complete the appropriate sections of a patient assessment 
instrument (PAI), designated as the Inpatient Rehabilitation Facility-
Patient Assessment Instrument (IRF-PAI). In addition, beginning with 
IRF discharges occurring on or after October 1, 2009, the IRF is also 
required to complete the appropriate sections of the IRF-PAI upon the 
admission and discharge of each Medicare Part C (Medicare Advantage) 
patient, as described in the FY 2010 IRF PPS final rule. All required 
data must be electronically encoded into the IRF-PAI software product. 
Generally, the software product includes patient classification 
programming called the GROUPER software. The GROUPER software uses 
specific IRF-PAI data elements to classify (or group) patients into 
distinct CMGs and account for the existence of any relevant 
comorbidities.
    The GROUPER software produces a five-digit CMG number. The first 
digit is an alpha-character that indicates the comorbidity tier. The 
last four digits represent the distinct CMG number. Free downloads of 
the Inpatient Rehabilitation Validation and Entry (IRVEN) software 
product, including the GROUPER software, are available on the CMS Web 
site at https://www.cms.gov/InpatientRehabFacPPS/06_Software.asp.
    Once a patient is discharged, the IRF submits a Medicare claim as a 
Health Insurance Portability and Accountability Act of 1996 (HIPAA, 
Pub. L. 104-191, enacted August 21, 1996), compliant electronic claim 
or, if the Administrative Simplification Compliance Act of 2002 (ASCA, 
Pub. L. 107-105, enacted December 27, 2002) permits, a paper claim (a 
UB-04 or a CMS-1450 as appropriate) using the five-digit CMG number and 
sends it to the appropriate Medicare fiscal intermediary (FI) or 
Medicare Administrative Contractor (MAC). Claims submitted to Medicare 
must comply with both ASCA and HIPAA.
    Section 3 of the ASCA amends section 1862(a) of the Act by adding 
paragraph (22) which requires the Medicare program, subject to section 
1862(h) of the Act, to deny payment under Part A or Part B for any 
expenses for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act, in turn, provides that the Secretary shall waive 
such denial in situations in which there is no method available for the 
submission of claims in an electronic form or the entity submitting the 
claim is a small provider. In addition, the Secretary also has the 
authority to waive such denial ``in such unusual cases as the Secretary 
finds appropriate.'' For more information we refer the reader to the 
final rule, ``Medicare Program; Electronic Submission of Medicare 
Claims'' (70 FR 71008, November 25, 2005). CMS instructions for the 
limited number of Medicare claims submitted on paper are available at: 
https://www.cms.gov/manuals/downloads/clm104c25.pdf.)
    Section 3 of the ASCA operates in the context of the administrative 
simplification provisions of HIPAA, which include, among others, the 
requirements for transaction standards and code sets codified in 45 
CFR, parts 160 and 162, subparts A and I through

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R (generally known as the Transactions Rule). The Transactions Rule 
requires covered entities, including covered healthcare providers, to 
conduct covered electronic transactions according to the applicable 
transaction standards. (See the program claim memoranda issued and 
published by CMS at: https://www.cms.gov/ElectronicBillingEDITrans/ and 
listed in the addenda to the Medicare Intermediary Manual, Part 3, 
section 3600).
    The Medicare FI or MAC processes the claim through its software 
system. This software system includes pricing programming called the 
``PRICER'' software. The PRICER software uses the CMG number, along 
with other specific claim data elements and provider-specific data, to 
adjust the IRF's prospective payment for interrupted stays, transfers, 
short stays, and deaths, and then applies the applicable adjustments to 
account for the IRF's wage index, percentage of low-income patients, 
rural location, and outlier payments. For discharges occurring on or 
after October 1, 2005, the IRF PPS payment also reflects the new 
teaching status adjustment that became effective as of FY 2006, as 
discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

II. Summary of Provisions of the Notice

    In this notice, we use the methods described in the FY 2010 IRF PPS 
final rule (74 FR 39762) to update the Federal prospective payment 
rates for FY 2011 using updated FY 2009 IRF claims and FY 2008 IRF cost 
report data. No policy changes are being proposed in this notice. 
Furthermore, we explain the self-implementing changes resulting from 
the provisions in section 1886(j)(3)(C) and (D) of the Act, as 
described above.
    In summary, this notice:
     Describes the adjustments to the FY 2010 IRF PPS Federal 
prospective payment rates and outlier threshold amount for IRF 
discharges occurring on or after April 1, 2010, in accordance with 
Section 3401(d) of the Affordable Care Act as amended by Section 10319 
of the Same Act and by section 1105(c) of the Health Care and Education 
Reconciliation Act of 2010, as discussed in more detail in sections V.A 
and VI.A of this notice.
     Updates the FY 2011 IRF PPS relative weights and average 
length of stay values using the most current and complete Medicare 
claims and cost report data in a budget neutral manner, as discussed in 
section III of this notice.
     Updates the FY 2011 IRF PPS payments rates by a market 
basket increase factor, based upon the most current data available, 
with a 0.25 percentage point reduction as required by section 
1886(j)(3)(D)(i)(I) of the Act, as described in section V.B of this 
notice.
     Updates the FY 2011 IRF PPS payment rates by the FY 2011 
wage index and the labor-related share in a budget neutral manner, as 
discussed in sections V.B and V.C of this notice.
     Describes the calculation of the IRF Standard Payment 
Conversion Factor for FY 2011, as discussed in section V.D of this 
notice.
     Updates the outlier threshold amount for FY 2011, as 
discussed in section VI.B of this notice.
     Updates the cost-to-charge ratio (CCR) ceilings for FY 
2011, as discussed in section VI.C of this notice.
    This notice does not contain any revisions to existing regulation 
text.

III. Update to the Case-Mix Group (CMG) Relative Weights and Average 
Length of Stay Values for FY 2011

    As specified in 42 CFR 412.620(b)(1), we calculate a relative 
weight for each CMG that is proportional to the resources needed by an 
average inpatient rehabilitation case in that CMG. For example, cases 
in a CMG with a relative weight of 2, on average, will cost twice as 
much as cases in a CMG with a relative weight of 1. Relative weights 
account for the variance in cost per discharge due to the variance in 
resource utilization among the payment groups, and their use helps to 
ensure that IRF PPS payments support beneficiary access to care as well 
as provider efficiency.
    As required by statute, we always use the most recent available 
data to update the CMG relative weights and average lengths of stay. 
For FY 2011, we used FY 2009 IRF claims and FY 2008 IRF cost report 
data. These data are the most current and complete data available at 
this time. Currently, less than 20 percent of the FY 2009 IRF cost 
report data are available for analysis, but the majority of the FY 2009 
IRF claims data are available for analysis.
    We will apply these data using the methodologies that were 
established in the FY 2002 IRF PPS final rule (66 FR 41316). In 
calculating the CMG relative weights, we use a hospital-specific 
relative value method to estimate operating (routine and ancillary 
services) and capital costs of IRFs. The process used to calculate the 
CMG relative weights for this notice is as follows:
    Step 1. We calculate the CMG relative weights by estimating the 
effects that comorbidities have on costs.
    Step 2. We adjust the cost of each Medicare discharge (case) to 
reflect the effects found in the first step.
    Step 3. We use the adjusted costs from the second step to calculate 
CMG relative weights, using the hospital-specific relative value 
method.
    Step 4. We normalize the FY 2011 CMG relative weights to the same 
average CMG relative weight from the CMG relative weights implemented 
in the FY 2010 IRF PPS final rule (74 FR 39762).
    Consistent with the methodology that we have used to update the IRF 
classification system in each instance in the past, we are updating the 
CMG relative weights for FY 2011 in such a way that total estimated 
aggregate payments to IRFs for FY 2011 are the same with or without the 
changes (that is, in a budget neutral manner) by applying a budget 
neutrality factor to the standard payment amount. To calculate the 
appropriate budget neutrality factor for use in updating the FY 2011 
CMG relative weights, we use the following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2011 (with no updates to the CMG relative weights).
    Step 2. Apply the updates to the CMG relative weights (as discussed 
above) to calculate the estimated total amount of IRF PPS payments for 
FY 2011.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the budget neutrality factor (0.9942) 
that maintains the same total estimated aggregate payments in FY 2011 
with and without the updates to the CMG relative weights.
    Step 4. Apply the budget neutrality factor (0.9942) to the FY 2010 
IRF PPS standard payment amount after the application of the budget-
neutral wage adjustment factor.
    In section V.D of this notice, we discuss the use of the existing 
methodology to calculate the standard payment conversion factor for FY 
2011.
    The CMG relative weights and average length of stay values for FY 
2011 are presented below in Table 1.
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BILLING CODE 4120-01-C
    Generally, updates to the CMG relative weights result in some 
increases and some decreases to the CMG relative weight values. Table 2 
shows how the application of the revisions for FY 2011 will affect 
particular CMG relative weight values, which affect the overall 
distribution of payments within CMGs and tiers. Note that, because we 
are implementing the CMG relative weight revisions in a budget neutral 
manner (as described above), total estimated aggregate payments to IRFs 
for FY 2011 will not be affected as a result of the CMG relative weight 
revisions. However, the revisions will affect the distribution of 
payments within CMGs and tiers.
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    As Table 2 shows, over 98 percent of all IRF cases are in CMGs and 
tiers that will experience less than a 5 percent change (either 
increase or decrease) in the CMG relative weight value as a result of 
the revisions for FY 2011. The largest increase in the CMG relative 
weight values affecting the most cases is a 3.0 percent increase in the 
CMG relative weight value for CMG 0802--Replacement of Lower Extremity 
Joint, with a motor score between 37.05 and 49.55--in the ``no 
comorbidity'' tier. In the FY 2009 data, 12,149 IRF discharges were 
classified into this CMG and tier. We believe that the higher costs 
reported by IRFs for this CMG and tier in FY 2009, compared with the 
costs reported in FY 2008, may continue to reflect the IRF trend away 
from admitting lower-severity joint replacement cases in favor of 
higher-severity joint replacement cases. We believe that this may be 
evidence of a response, at least in part, to Medicare's ``60 percent'' 
rule, and the increased focus on the medical review of IRF cases. As we 
said in the FY 2009 IRF PPS proposed rule (73 FR 22680), these policies 
likely increase the complexity of patients being admitted to IRFs, 
especially among the lower-extremity joint replacement cases with no 
comorbidities, which often do not meet the 60 percent rule criteria and 
have been the focus of a lot of the medical review activities.
    The largest decrease in a CMG relative weight value affecting the 
most cases is a 0.5 percent decrease in the CMG relative weight for CMG 
A0110--Stroke, with motor score less than 22.35 and patient age less 
than 84.5 years--in the ``no comorbidity'' tier. In the FY 2009 IRF 
claims data, this change affects 16,829 cases. The decrease in the 
relative weight for CMG A0110 follows the same trend that is occurring 
in all 10 of the CMGs for stroke in the FY 2008 IRF cost report data 
and the FY 2009 IRF claims data that were used to update the CMG 
relative weights in this notice. That is, IRFs are reporting slightly 
lower costs for stroke patients that are classified into the ``no 
comorbidity'' tier and the next-lowest paying tier 3, with the relative 
weight values for CMG 0110 for FY 2011 decreasing by 0.5 percent in the 
``no comorbidity'' tier and decreasing by 0.4 percent in tier 3, 
compared with FY 2010. At the same time, however, IRFs are reporting 
higher costs for stroke patients that are classified into the 2 
highest-paying tiers--tiers 1 and 2--with the relative weight values 
for CMG 0110 for FY 2011 increasing by 6.5 percent and 1.8 percent in 
tiers 1 and 2, respectively, compared with FY 2010.
    The changes in the average length of stay values for FY 2011, 
compared with the FY 2010 average length of stay values, are small and 
do not show any particular trends in IRF length of stay patterns.

IV. Updates to the Facility-Level Adjustment Factors

    Section 1886(j)(3)(A)(v) of the Act confers broad authority upon 
the Secretary to adjust the per unit payment rate ``by such * * * 
factors as the Secretary determines are necessary to properly reflect 
variations in necessary costs of treatment among rehabilitation 
facilities.'' For example, we adjust the Federal prospective payment 
amount associated with a CMG to account for facility-level 
characteristics such as an IRF's LIP percentage, teaching status, and 
location in a rural area, if applicable, as described in Sec.  
412.624(e). In the FY 2010 IRF PPS final rule (74 FR 39762), we updated 
the adjustment factors for calculating the rural, LIP, and teaching 
status adjustments based on the most recent three years worth of IRF 
claims data (at that time, FY 2006, FY 2007, and FY 2008) and the most 
recent available corresponding IRF cost report data. As discussed in 
the FY 2010 IRF PPS proposed rule (74 FR 21060 through 21061), we 
observed relatively large year-to-year fluctuations in the underlying 
data used to compute the adjustment factors, especially the teaching 
status adjustment factor. Therefore, we implemented a three-year moving 
average approach to updating the facility-level adjustment factors in 
the FY 2010 IRF PPS final rule (74 FR 39762) to provide greater 
stability and predictability of Medicare payments for IRFs. Each year, 
we review the major components of the IRF PPS to maintain and enhance 
the accuracy of the payment system. For FY 2010, we implemented a 
change to our methodology that was designed to decrease the IRF PPS 
volatility by using a three-year moving average to calculate the 
facility-level adjustment factors. This year, we are evaluating the 
effectiveness of the new methodology in stabilizing the IRF PPS rate 
structure. We plan to then, if necessary, propose further adjustments 
through a future rulemaking process.

V. FY 2011 IRF PPS Federal Prospective Payment Rates

A. Adjustment to the FY 2010 IRF PPS Federal Prospective Payment Rates, 
Reflecting Adjustments to the Rehabilitation, Psychiatric, and Long-
Term Care Hospital (RPL) Market Basket Increase Factor in Accordance 
With Sections 3401(d) of the Patient Protection and Affordable Care Act 
(Affordable Care Act) as Amended by Section 10319 of the Same Act and 
by Section 1105(c) of the Health Care and Education Reconciliation Act 
of 2010

    As discussed previously in this notice, sections 1886(j)(3)(C) and 
(D) of the Act require the increase factor to be reduced by 0.25 
percentage point for FY 2010 and FY 2011. In accordance with paragraph 
(p) of section 3401 of the Affordable Care Act, the adjusted FY 2010 
market basket increase factor is only applied to discharges on or after 
April 1, 2010. Thus, we revised the FY 2010 IRF Federal prospective 
payment rates for all IRF discharges occurring on or after April 1, 
2010 to reflect an adjusted market basket increase factor of 2.25 
percent, instead of the 2.5 percent market basket increase factor for 
FY 2010 that was published in the FY 2010 IRF PPS final rule (74 FR 
39778). Revising the market basket increase factor for FY 2010 from 2.5 
percent to 2.25 percent changes the FY 2010 standard payment conversion 
factor from the $13,661 that was published in the FY 2010 IRF PPS final 
rule (74 FR 39780) to $13,627. This change also affects the outlier 
threshold amount for FY 2010, as discussed further in section VI.A of 
this notice. The revised FY 2010 Federal prospective payment rates are 
available on the CMS Web site at https://www.cms.gov/
InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.

B. Market Basket Increase Factor and Labor-Related Share for FY 2011

    Section 1886(j)(3)(C) of the Act requires the Secretary to 
establish an increase factor that reflects changes over time in the 
prices of an appropriate mix of goods and services included in the 
covered IRF services, which is referred to as a market basket index. 
According to section 1886(j)(3)(A)(i) of the Act, the increase factor 
shall be used to update the IRF Federal prospective payment rates for 
each FY. Sections 1886(j)(3)(C) and (D) of the Act require the 
application of a 0.25 percentage point reduction to the market basket 
increase factor for FYs 2010 and 2011. Thus, in this notice, we are 
updating the IRF PPS payments for FY 2011 by a market basket increase 
factor based upon the

[[Page 42849]]

most current data available, with a 0.25 percentage point reduction as 
required by section 1886(j)(3)(D)(i)(I) of the Act.
    For this notice, we have used the same methodology described in the 
FY 2006 IRF PPS final rule (70 FR 47880 at 47908 through 47917) to 
compute the FY 2011 market basket increase factor and labor-related 
share. Using this method and the IHS Global Insight, Inc. forecast for 
the second quarter of 2010 of the 2002-based RPL market basket, the FY 
2011 RPL market basket increase factor is 2.5 percent. IHS Global 
Insight is an economic and financial forecasting firm that contracts 
with CMS to forecast the components of providers' market baskets.
    In accordance with sections 1886(j)(3)(C) and (D) of the Act, a 
reduction of 0.25 percentage point is then applied to the FY 2011 RPL 
market basket increase factor of 2.5 percent. Thus, the adjusted RPL 
market basket increase factor is 2.25 percent for FY 2011.
    Also, using the methodology described in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47908 through 47917), we are updating the IRF labor-
related share for FY 2011. Using this method and the IHS Global 
Insight, Inc. forecast for the second quarter of 2010 of the 2002-based 
RPL market basket, the IRF labor-related share for FY 2011 is the sum 
of the FY 2011 relative importance of each labor-related cost category. 
This figure reflects the different rates of price change for these cost 
categories between the base year (FY 2002) and FY 2011. As shown in 
Table 3, the FY 2011 labor-related share is 75.271 percent.
[GRAPHIC] [TIFF OMITTED] TN22JY10.020

C. Area Wage Adjustment

    Section 1886(j)(6) of the Act requires the Secretary to adjust the 
proportion of rehabilitation facilities' costs attributable to wages 
and wage-related costs (as estimated by the Secretary from time to 
time) by a factor (established by the Secretary) reflecting the 
relative hospital wage level in the geographic area of the 
rehabilitation facility compared to the national average wage level for 
those facilities. The Secretary is required to update the IRF PPS wage 
index on the basis of information available to the Secretary on the 
wages and wage-related costs to furnish rehabilitation services. Any 
adjustments or updates made under section 1886(j)(6) of the Act for a 
FY are made in a budget neutral manner.
    In the FY 2009 IRF PPS final rule (73 FR 46378), we maintained the 
methodology described in the FY 2006 IRF PPS final rule to determine 
the wage index, labor market area definitions, and hold harmless policy 
consistent with the rationale outlined in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47917 through 47933).
    For FY 2011, we are maintaining the policies and methodologies 
described in the FY 2009 IRF PPS final rule relating to the labor 
market area definitions and the wage index methodology for areas with 
wage data. Thus, we are using the Core-Based Statistical area (CBSA) 
labor market area definitions and the FY 2010 pre-reclassification and 
pre-floor hospital wage index data. In accordance with section 
1886(d)(3)(E) of the Act, the FY 2010 pre-reclassification and pre-
floor hospital wage index is based on data submitted for hospital cost 
reporting periods beginning on or after October 1, 2005 and before 
October 1, 2006 (that is, 2006 cost report data).
    The labor market designations made by the OMB include some 
geographic areas where there are no hospitals and, thus, no hospital 
wage index data on which to base the calculation of the IRF PPS wage 
index. We have used the same methodology discussed in the FY 2008 IRF 
PPS final rule (72 FR 44299) to address those geographic areas where 
there are no hospitals and, thus, no hospital wage index data on which 
to base the calculation of the FY 2011 IRF PPS wage index.
    Additionally, we are incorporating the CBSA changes published in 
the most recent OMB bulletin that applies to the hospital wage data 
used to determine the current IRF PPS wage index. The changes were 
nominal and did not represent substantive changes to the CBSA-based 
designations. Specifically, OMB added or deleted certain CBSA numbers 
and revised certain titles. The OMB bulletins are available online at 
https://www.whitehouse.gov/omb/bulletins/.
    To calculate the wage-adjusted facility payment for the payment 
rates set forth in this notice, we multiply the unadjusted Federal 
payment rate for IRFs by the FY 2011 RPL labor-related share (75.271 
percent) to determine the labor-related portion of the standard payment 
amount. We then multiply the labor-related portion by the applicable 
IRF wage index from the tables in the addendum to this notice. Table 1 
is for urban areas, and Table 2 is for rural areas.
    Adjustments or updates to the IRF wage index made under section 
1886(j)(6) of the Act must be made in a budget neutral manner. We 
calculate a

[[Page 42850]]

budget neutral wage adjustment factor as established in the FY 2004 IRF 
PPS final rule (68 FR 45689), codified at Sec.  412.624(e)(1), as 
described in the steps below. We use the listed steps to ensure that 
the FY 2011 IRF standard payment conversion factor reflects the update 
to the wage indexes (based on the FY 2006 hospital cost report data) 
and the labor-related share in a budget neutral manner:
    Step 1. Determine the total amount of the estimated FY 2010 IRF PPS 
rates, using the FY 2010 standard payment conversion factor and the 
labor-related share and the wage indexes from FY 2010 (as published in 
the FY 2010 IRF PPS final rule (74 FR 39762)).
    Step 2. Calculate the total amount of estimated IRF PPS payments 
using the FY 2010 standard payment conversion factor and the FY 2011 
labor-related share and CBSA urban and rural wage indexes.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2. The resulting quotient is the FY 2011 budget 
neutral wage adjustment factor of 1.0005.
    Step 4. Apply the FY 2011 budget neutral wage adjustment factor 
from step 3 to the FY 2010 IRF PPS standard payment conversion factor 
after the application of the adjusted market basket update to determine 
the FY 2011 standard payment conversion factor.
    We discuss the calculation of the standard payment conversion 
factor for FY 2011 in section V.D. of this notice.

D. Description of the IRF Standard Payment Conversion Factor and 
Payment Rates for FY 2011

    To calculate the standard payment conversion factor for FY 2011, as 
illustrated in Table 4 below, we begin by applying the adjusted market 
basket increase factor for FY 2011 that was adjusted in accordance with 
sections 1886(j)(3)(C) and (D) of the Act (2.25 percent, or 2.5 percent 
less 0.25 percentage point), to the standard payment conversion factor 
for FY 2010 ($13,627). As described in section V.A of this notice, the 
adjusted standard payment conversion factor of $13,627 for FY 2010 
differs from the original FY 2010 standard payment conversion factor 
that was published in the FY 2010 IRF PPS final rule (74 FR 39778) 
because of the requirements of sections 1886(j)(3)(C) and (D) of the 
Act. Applying the 2.25 percent adjusted market basket increase factor 
for FY 2011 to the revised standard payment conversion factor for FY 
2010 of $13,627 yields a standard payment amount of $13,934. Then, we 
apply the budget neutrality factor for the FY 2011 wage index and labor 
related share of 1.0005, which results in a standard payment amount of 
$13,941. Then, we apply the budget neutrality factor for the revised 
CMG relative weights of 0.9942, which results in a standard payment 
amount of $13,860 for FY 2011.
[GRAPHIC] [TIFF OMITTED] TN22JY10.021

    After the application of the CMG relative weights described in 
section III of this notice, the resulting unadjusted IRF prospective 
payment rates for FY 2011 are shown below in Table 5, ``FY 2011 Payment 
Rates.''

[[Page 42851]]

[GRAPHIC] [TIFF OMITTED] TN22JY10.022


[[Page 42852]]


[GRAPHIC] [TIFF OMITTED] TN22JY10.023


[[Page 42853]]


[GRAPHIC] [TIFF OMITTED] TN22JY10.024

E. Example of the Methodology for Adjusting the Federal Prospective 
Payment Rates

    Table 6 illustrates the methodology for adjusting the Federal 
prospective payments (as described in sections V.B through V.D of this 
notice). The examples below are based on two hypothetical Medicare 
beneficiaries, both classified into CMG 0110 (without comorbidities). 
The unadjusted Federal prospective payment rate for CMG 0110 (without 
comorbidities) appears in Table 5 above.
    One beneficiary is in Facility A, an IRF located in rural Spencer 
County, Indiana, and another beneficiary is in Facility B, an IRF 
located in urban Harrison County, Indiana. Facility A, a rural non-
teaching hospital has a disproportionate share hospital (DSH) 
percentage of 5 percent (which would result in a LIP adjustment of 
1.0228), a wage index of 0.8529, and a rural adjustment of 18.4 
percent. Facility B, an urban teaching hospital, has a DSH percentage 
of 15 percent (which would result in a LIP adjustment of 1.0666), a 
wage index of 0.8964, and a teaching status adjustment of 0.0610.
    To calculate each IRF's labor and non-labor portion of the Federal 
prospective payment, we begin by taking the unadjusted Federal 
prospective payment rate for CMG 0110 (without comorbidities) from 
Table 5 above. Then, we multiply the estimated labor-related share 
(75.271) described in section V.B of this notice by the unadjusted 
Federal prospective payment rate. To determine the non-labor portion of 
the Federal prospective payment rate, we subtract the labor portion of 
the Federal payment from the

[[Page 42854]]

unadjusted Federal prospective payment.
    To compute the wage-adjusted Federal prospective payment, we 
multiply the labor portion of the Federal payment by the appropriate 
wage index found in the addendum in Tables 1 and 2. The resulting 
figure is the wage-adjusted labor amount. Next, we compute the wage-
adjusted Federal payment by adding the wage-adjusted labor amount to 
the non-labor portion.
    Adjusting the wage-adjusted Federal payment by the facility-level 
adjustments involves several steps. First, we take the wage-adjusted 
Federal prospective payment and multiply it by the appropriate rural 
and LIP adjustments (if applicable). Second, to determine the 
appropriate amount of additional payment for the teaching status 
adjustment (if applicable), we multiply the teaching status adjustment 
(0.0610, in this example) by the wage-adjusted and rural-adjusted 
amount (if applicable). Finally, we add the additional teaching status 
payments (if applicable) to the wage, rural, and LIP-adjusted Federal 
prospective payment rates. Table 6 illustrates the components of the 
adjusted payment calculation.
[GRAPHIC] [TIFF OMITTED] TN22JY10.025


[[Page 42855]]


    Thus, the adjusted payment for Facility A would be $31,532.60 and 
the adjusted payment for Facility B would be $30,442.17.

VI. Update to Payments for High-Cost Outliers Under the IRF PPS

A. Adjustment to the Outlier Threshold Amount for FY 2010, Reflecting 
the Adjustment to the FY 2010 RPL Market Basket in Accordance With 
Sections 3401(d) of the Patient Protection and Affordable Care Act 
(Affordable Care Act), as Amended by Section 10319 of the Same Act and 
by Section 1105(c) of the Health Care and Education Reconciliation Act 
of 2010

    As discussed in section I.A of this notice, after publication of 
the FY 2010 IRF PPS final rule (74 FR 39762), Affordable Care Act 
amended section 1886(j)(3)(C) of the Act and added section 
1886(j)(3)(D) which, in concert, required the application of a 0.25 
percentage point reduction to the market basket increase factor for FY 
2010. Notwithstanding these provisions, paragraph (p) of section 3401 
of the Affordable Care Act provides that the adjusted FY 2010 rate is 
only to be applied to discharges occurring on or after April 1, 2010. 
Thus, based on the legislative change to the increase factor, we 
revised the FY 2010 Federal prospective payment rates for IRF 
discharges occurring on or after April 1, 2010.
    In addition, the legislative change to the market basket increase 
factor for FY 2010 also affects the FY 2010 IRF outlier threshold 
amount because it reduces the FY 2010 RPL market basket increase 
factor, which changes the standard payment conversion factor for FY 
2010. Specifically, the FY 2010 IRF outlier threshold amount was 
determined based on the estimated FY 2010 RPL market basket increase 
factor of 2.5 percent and the standard payment conversion factor of 
$13,661. However, for FY 2010 IRF discharges occurring on or after 
April 1, 2010, IRF prospective payments are based on the adjusted RPL 
market basket increase factor of 2.25 percent and the revised standard 
payment conversion factor of $13,627. In order to maintain estimated 
outlier payments in FY 2010 at the percentage adopted in our FY 2010 
final rule, we revise the IRF outlier threshold amount for FY 2010 from 
$10,652 that was published in the FY 2010 IRF PPS final rule (74 FR 
39788) to $10,721 for FY 2010 IRF discharges occurring on or after 
April 1, 2010. The outlier threshold amount of $10,652 continues to 
apply for IRF discharges occurring on or after October 1, 2009 through 
March 31, 2010. The revised IRF outlier threshold amount was computed 
using the same data and the same methodology as was used to compute the 
FY 2010 outlier threshold amount for the FY 2010 IRF PPS final rule (74 
FR 39762).

B. Update to the Outlier Threshold Amount for FY 2011

    Section 1886(j)(4) of the Act provides the Secretary with the 
authority to make payments in addition to the basic IRF prospective 
payments for cases incurring extraordinarily high costs. A case 
qualifies for an outlier payment if the estimated cost of the case 
exceeds the adjusted outlier threshold. We calculate the adjusted 
outlier threshold by adding the IRF PPS payment for the case (that is, 
the CMG payment adjusted by all of the relevant facility-level 
adjustments) and the adjusted threshold amount (also, adjusted by all 
of the relevant facility-level adjustments). Then, we calculate the 
estimated cost of a case by multiplying the IRF's overall cost-to-
charge (CCR) by the Medicare allowable covered charge. If the estimated 
cost of the case is higher than the adjusted outlier threshold, we make 
an outlier payment for the case equal to 80 percent of the difference 
between the estimated cost of the case and the outlier threshold.
    In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we 
discussed our rationale for setting the outlier threshold amount for 
the IRF PPS so that estimated outlier payments would equal 3 percent of 
total estimated payments. For the 2002 IRF PPS final rule, we analyzed 
various outlier policies using 3, 4, and 5 percent of the total 
estimated payments, and we concluded that an outlier policy set at 3 
percent of total estimated payments would optimize the extent to which 
we could reduce the financial risk to IRFs of caring for high-cost 
patients, while still providing for adequate payments for all other 
(non-high cost outlier) cases.
    Subsequently, we updated the IRF outlier threshold amount in the 
FYs 2006 through 2010 IRF PPS final rules (70 FR 47880, 70 FR 57166, 71 
FR 48354, 72 FR 44284, 73 FR 46370, 74 FR 39762, respectively) to 
maintain estimated outlier payments at 3 percent of total estimated 
payments. We also stated in the FY 2009 final rule (FR 73 46287) that 
we would continue to analyze the estimated outlier payments for 
subsequent years and adjust the outlier threshold amount as appropriate 
to maintain the 3 percent target.
    To update the IRF outlier threshold amount for FY 2011 in this 
notice, we are using FY 2009 claims data and the same methodology that 
we used to set the initial outlier threshold amount in the FY 2002 IRF 
PPS final rule (66 FR 41362 through 41363), which is also the same 
methodology that we used to update the outlier threshold amounts for 
FYs 2006 through 2010. Based on an analysis of this updated data, we 
estimate that IRF outlier payments as a percentage of total estimated 
payments are approximately 3.1 percent in FY 2010. Although we are 
still analyzing the reasons for this unexpected increase in outlier 
payments in the FY 2009 IRF claims data, we note that IPPS hospitals 
experienced about the same magnitude increase in outlier payments in FY 
2009 (from 5.1 percent to 5.3 percent). Based on this updated analysis, 
we will update the FY 2011 outlier threshold amount to ensure that 
estimated FY 2011 outlier payments are approximately 3 percent of total 
estimated IRF payments. The outlier threshold amount of $10,721 for 
discharges occurring on or after April 1, 2010 will be changed to 
$11,410 in FY 2011 to reduce estimated outlier payments and thereby 
maintain estimated outlier payments at 3 percent of total estimated 
aggregate IRF payments for FY 2011.

C. Update to the IRF Cost-to-Charge Ratio Ceilings

    In accordance with the methodology stated in the FY 2004 IRF PPS 
final rule (68 FR 45674, 45692 through 45694), we apply a ceiling to 
IRFs' CCRs. Using the methodology described in that final rule, we are 
updating the national urban and rural CCRs for IRFs, as well as the 
national CCR ceiling for FY 2011, in this notice based on analysis of 
the most recent data that is available. We apply the national urban and 
rural CCRs in the following situations:
     New IRFs that have not yet submitted their first Medicare 
cost report.
     IRFs whose overall CCR is in excess of the national CCR 
ceiling for FY 2011, as discussed below.
     Other IRFs for which accurate data to calculate an overall 
CCR are not available.
    Specifically, for FY 2011, we estimate a national average CCR of 
0.620 for rural IRFs, which we calculate by taking an average of the 
CCRs for all rural IRFs using their most recently submitted cost report 
data. Similarly, we estimate a national average CCR of 0.489 for urban 
IRFs, which we calculate by taking an average of the CCRs for all urban 
IRFs using their most recently submitted cost report data. We apply 
weights to both of these averages using the IRFs' estimated costs, 
meaning that the CCRs of IRFs with higher costs factor more heavily

[[Page 42856]]

into the averages than the CCRs of IRFs with lower costs. For this 
notice, we have used the most recent available cost report data (FY 
2008). This includes all IRFs whose cost reporting periods began on or 
after October 1, 2007, and before October 1, 2008. If, for any IRF, the 
FY 2008 cost report was missing or had an ``as submitted'' status, we 
used data from a previous fiscal year's (that is, FY 2004 through FY 
2007) settled cost report for that IRF. We do not use cost report data 
from before FY 2004 for any IRF because changes in IRF utilization 
since FY 2004 resulting from the 60 percent rule and IRF medical review 
activities suggest that these older data do not adequately reflect the 
current cost of care.
    In addition, in accordance with past practice, we set the national 
CCR ceiling at 3 standard deviations above the mean CCR. Using this 
method, the national CCR ceiling is set at 2.94 for FY 2011. This means 
that, if an individual IRF's CCR exceeds this ceiling of 2.94 for FY 
2011, we would replace the IRF's CCR with the appropriate national 
average CCR (either rural or urban, depending on the geographic 
location of the IRF). We calculate the national CCR ceiling by:
    Step 1. Taking the national average CCR (weighted by each IRF's 
total costs, as discussed above) of all IRFs for which we have 
sufficient cost report data (both rural and urban IRFs combined).
    Step 2. Estimating the standard deviation of the national average 
CCR computed in step 1.
    Step 3. Multiplying the standard deviation of the national average 
CCR computed in step 2 by a factor of 3 to compute a statistically 
significant reliable ceiling.
    Step 4. Adding the result from step 3 to the national average CCR 
of all IRFs for which we have sufficient cost report data, from step 1.

VII. 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.

VIII. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect. We can waive this procedure, however, 
if we find good cause that notice and comment procedures are 
impracticable, unnecessary, or contrary to the public interest and we 
incorporate a statement of finding and its reasons in the notice. We 
find that it is unnecessary to undertake notice and comment rulemaking 
for the updates in this notice because the update does not make any 
substantive changes in policy, but merely reflects the application of 
previously established methodologies. In addition, new sections 
1886(j)(3)(C) and (D) of the Act require the application of an ``Other 
Adjustment'' to the update to the IRF PPS increase factor in FYs 2010 
and 2011. We applied the statutorily-required adjustments in this 
notice. We find that notice and comment rulemaking is unnecessary to 
implement those statutory provisions because they are self-implementing 
provisions of law, not requiring the exercise of any discretion on the 
part of the Secretary. Therefore, under 5 U.S.C. 553(b)(3)(B), for good 
cause, we waive notice and comment procedures.

IX. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 30, 1993, Regulatory Planning and 
Review), the Regulatory Flexibility Act (RFA, September 19, 1980, Pub. 
L. 96-354), section 1102(b) of the Social Security Act, section 202 of 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999), 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 a major notice with economically 
significant effects ($100 million or more in any one year). We estimate 
that this notice is economically significant, as measured by the $100 
million threshold and hence also a major rule under the Congressional 
Review Act. To estimate the total impact of the updates described in 
this notice, we compare the FY 2011 estimated payments with the revised 
FY 2010 estimated payments. The revised FY 2010 estimated payments 
reflect the revised Federal prospective payment rates and outlier 
threshold amount that applied to IRF discharges occurring on or after 
April 1, 2010, in accordance with sections 1886(j)(3)(C) and (D) of the 
Act, as described in sections V.A and VI.A of this notice. Based on 
this analysis, we estimate that the total impact of these updates on FY 
2011 IRF PPS payments will be an increase of approximately $135 
million.
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
options for regulatory relief of small entities, if a rule has a 
significant impact on a substantial number of small entities. For 
purposes of the RFA, small entities include small businesses, nonprofit 
organizations, and small governmental jurisdictions. Most IRFs and most 
other providers and suppliers are small entities, either by nonprofit 
status or by having revenues of $7 million to $34.5 million in any one 
year. (For details, see the Small Business Administration's final rule 
that set forth size standards for health care industries, at 65 FR 
69432 at https://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf, November 17, 2000.) Because we lack data on 
individual hospital receipts, we cannot determine the number of small 
proprietary IRFs or the proportion of IRFs' revenue that is derived 
from Medicare payments. Therefore, we assume that all IRFs (an 
approximate total of 1,200 IRFs, of which approximately 60 percent are 
nonprofit facilities) are considered small entities and that Medicare 
payment constitutes the majority of their revenues. The Department of 
Health and Human Services generally uses a revenue impact of 3 to 5 
percent as a significance threshold under the RFA. As shown in Table 7, 
we estimate that the net revenue impact of this notice on all IRFs is 
to increase estimated payments by approximately 2.16 percent, with only 
one category of IRFs (32 urban IRFs in the New England region) 
estimated to receive an increase in estimated payments of greater than 
3 percent (3.19 percent). Thus, we do not anticipate that this notice 
would have a significant impact on a substantial number of small 
entities. Medicare fiscal intermediaries, Medicare Administrative 
Contractors, and carriers are not considered to be small entities. 
Individuals and States are not included in the definition of a small 
entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule 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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As discussed in

[[Page 42857]]

detail below, the rates and policies set forth in this notice will not 
have an adverse impact on rural hospitals based on the data of the 182 
rural units and 21 rural hospitals in our database of 1,171 IRFs for 
which data were available.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-04, enacted on March 22, 1995) also requires that agencies assess 
anticipated costs and benefits before issuing any rule whose mandate