Medicare Program; Inpatient Psychiatric Facilities Prospective Payment System-Update for Rate Year Beginning July 1, 2011 (RY 2012), 26432-26487 [2011-10562]
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Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Part 412
[CMS–1346–F]
RIN 0938–AQ23
Medicare Program; Inpatient
Psychiatric Facilities Prospective
Payment System—Update for Rate
Year Beginning July 1, 2011 (RY 2012)
Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Final rule.
AGENCY:
This final rule updates the
prospective payment rates for Medicare
inpatient hospital services provided by
inpatient psychiatric facilities (IPFs) for
discharges occurring during the rate
year (RY) beginning July 1, 2011
through September 30, 2012. The final
rule also changes the IPF prospective
payment system (PPS) payment rate
update period to a RY that coincides
with a fiscal year (FY). In addition, the
rule implements policy changes
affecting the IPF PPS teaching
adjustment. It also rebases and revises
the Rehabilitation, Psychiatric, and
Long-Term Care (RPL) market basket,
and makes some clarifications and
corrections to terminology and
regulations text.
DATES: These regulations are effective
on July 1, 2011.
FOR FURTHER INFORMATION CONTACT:
Dorothy Myrick or Jana Lindquist, (410)
786–4533 (for general information).
Mary Carol Barron, (410) 786–7943, or
Bridget Dickensheets, (410) 786–8670,
(for information regarding the market
basket and labor-related share).
Theresa Bean, (410) 786–2287 (for
information regarding the regulatory
impact analysis).
SUPPLEMENTARY INFORMATION:
SUMMARY:
Table of Contents
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To assist readers in referencing
sections contained in this document, we
are providing the following table of
contents.
I. Background
A. Annual Requirements for Updating the
IPF PPS
B. Overview of the Legislative
Requirements of the IPF PPS
C. General Overview of the IPF PPS
D. Transition Period for Implementation of
the IPF PPS
II. Provisions of the Proposed Rule and
Responses to Public Comments
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III. Changing the IPF PPS Payment Rate
Update Period From a Rate Year to a
Fiscal Year
IV. Rebasing and Revising of the
Rehabilitation, Psychiatric, and LongTerm Care (RPL) Market Basket for
Inpatient Psychiatric Facilities
A. Background
B. Overview of the FY 2008-Based RPL
Market Basket
C. Rebasing and Revising of the RPL
Market Basket
1. Development of Cost Categories and
Weights
a. Medicare Cost Reports
b. Other Data Sources
2. Final Cost Category Computation
3. Selection of Price Proxies
a. Wages and Salaries
b. Employee Benefits
c. Electricity
d. Fuel, Oil, and Gasoline
e. Water and Sewage
f. Professional Liability Insurance
g. Pharmaceuticals
h. Food: Direct Purchases
i. Food: Contract Services
j. Chemicals
k. Medical Instruments
l. Photographic Supplies
m. Rubber and Plastics
n. Paper and Printing Products
o. Apparel
p. Machinery and Equipment
q. Miscellaneous Products
r. Professional Fees: Labor-Related
s. Administrative and Business Support
Services
t. All Other: Labor-Related Services
u. Professional Fees: Nonlabor-Related
v. Financial Services
w. Telephone Services
x. Postage
y. All Other: Nonlabor-Related Services
4. Methodology for Capital Portion of the
RPL Market Basket
5. RY 2012 Market Basket Update
6. Labor-Related Share
V. Updates to the IPF PPS for RY Beginning
July 1, 2011
A. Determining the Standardized BudgetNeutral Federal Per Diem Base Rate
1. Standardization of the Federal Per Diem
Base Rate and Electroconvulsive Therapy
(ECT) Rate
2. Calculation of the Budget Neutrality
Adjustment
a. Outlier Adjustment
b. Stop-Loss Provision Adjustment
c. Behavioral Offset
B. Update of the Federal Per Diem Base
Rate and Electroconvulsive Therapy Rate
VI. Update of the IPF PPS Adjustment
Factors
A. Overview of the IPF PPS Adjustment
Factors
B. Patient-Level Adjustments
1. Adjustment for MS–DRG Assignment
2. Payment for Comorbid Conditions
3. Patient Age Adjustments
4. Variable Per Diem Adjustments
C. Facility-Level Adjustments
1. Wage Index Adjustment
a. Background
b. Wage Index for RY 2012
c. OMB Bulletins
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2. Adjustment for Rural Location
3. Teaching Adjustment
a. Temporary Adjustment to FTE Cap to
Reflect Residents Affected by Hospital
Closure
b. Temporary Adjustment to FTE Cap to
Reflect Residents Affected By Residency
Program Closure
4. Cost of Living Adjustment for IPFs
Located in Alaska and Hawaii
5. Adjustment for IPFs with a Qualifying
Emergency Department (ED)
D. Other Payment Adjustments and
Policies
1. Outlier Payments
a. Update to the Outlier Fixed Dollar Loss
Threshold Amount
b. Statistical Accuracy of Cost-to-Charge
Ratios
2. Expiration of the Stop-Loss Provision
3. Future Refinements
VII. Regulations Text Corrections
VIII. Collection of Information Requirements
IX. Regulatory Impact Analysis
Regulations Text
Addenda
Acronyms
Because of the many terms to which
we refer by acronym in this final rule,
we are listing the acronyms used and
their corresponding meanings in
alphabetical order below:
BBRA Medicare, Medicaid and SCHIP
[State Children’s Health Insurance
Program] Balanced Budget Refinement Act
of 1999, (Pub. L. 106–113)
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
CAH Critical access hospital
DSM–IV–TR Diagnostic and Statistical
Manual of Mental Disorders Fourth
Edition—Text Revision
DRGs Diagnosis-related groups
FY Federal fiscal year (October 1 through
September 30)
ICD–9–CM International Classification of
Diseases, 9th Revision, Clinical
Modification
IPFs Inpatient psychiatric facilities
IRFs Inpatient rehabilitation facilities
LTCHs Long-term care hospitals
MedPAR Medicare provider analysis and
review file
RPL Rehabilitation, Psychiatric, and LongTerm Care
RY Rate Year (July 1 through June 30)
TEFRA Tax Equity and Fiscal
Responsibility Act of 1982, (Pub. L. 97–
248)
I. Background
A. Annual Requirements for Updating
the IPF PPS
In November 2004, we implemented
the inpatient psychiatric facilities (IPF)
prospective payment system (PPS) in a
final rule that appeared in the
November 15, 2004 Federal Register (69
FR 66922). In developing the IPF PPS,
in order to ensure that the IPF PPS is
able to account adequately for each
IPF’s case-mix, we performed an
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extensive regression analysis of the
relationship between the per diem costs
and certain patient and facility
characteristics to determine those
characteristics associated with
statistically significant cost differences
on a per diem basis. For characteristics
with statistically significant cost
differences, we used the regression
coefficients of those variables to
determine the size of the corresponding
payment adjustments.
In that final rule, we explained that
we believe it is important to delay
updating the adjustment factors derived
from the regression analysis until we
have IPF PPS data that includes as
much information as possible regarding
the patient-level characteristics of the
population that each IPF serves.
Therefore, we indicated that we did not
intend to update the regression analysis
and recalculate the Federal per diem
base rate and the patient- and facilitylevel adjustments until we complete
that analysis. Until that analysis is
complete, we stated our intention to
publish a notice in the Federal Register
each spring to update the IPF PPS (71
FR 27041). However, in this final rule,
we are changing the payment rate
update period to a rate year (RY) that
coincides with a fiscal year (FY) update.
Therefore, future update notices will be
published in the Federal Register in the
summer. We discuss this change in
more detail in section III of this final
rule.
Updates to the IPF PPS as specified in
42 CFR § 412.428 include the following:
• A description of the methodology
and data used to calculate the updated
Federal per diem base payment amount.
• The rate of increase factor as
described in § 412.424(a)(2)(iii), which
is based on the Excluded Hospital With
Capital market basket under the update
methodology of section 1886(b)(3)(B)(ii)
of the Social Security Act (the Act) for
each year (effective from the
implementation period until June 30,
2006).
• For discharges occurring on or after
July 1, 2006, the rate of increase factor
for the Federal portion of the IPF’s
payment, which is based on the
Rehabilitation, Psychiatric, and LongTerm Care (RPL) market basket.
• The best available hospital wage
index and information regarding
whether an adjustment to the Federal
per diem base rate is needed to maintain
budget neutrality.
• Updates to the fixed dollar loss
threshold amount in order to maintain
the appropriate outlier percentage.
• Description of the International
Classification of Diseases, 9th Revision,
Clinical Modification (ICD–9–CM)
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coding and diagnosis-related groups
(DRGs) classification changes discussed
in the annual update to the hospital
inpatient prospective payment system
(IPPS) regulations.
• Update to the electroconvulsive
therapy (ECT) payment by a factor
specified by CMS.
• Update to the national urban and
rural cost-to-charge ratio medians and
ceilings.
• Update to the cost of living
adjustment factors for IPFs located in
Alaska and Hawaii, if appropriate.
Our most recent IPF PPS annual
update occurred in the April 30, 2010
Federal Register notice (75 FR 23106)
(hereinafter referred to as the April 2010
IPF PPS notice) that set forth updates to
the IPF PPS payment rates for RY 2011.
This notice updated the IPF PPS per
diem payment rates that were published
in the May 2009 IPF PPS notice in
accordance with our established
policies.
Since implementation of the IPF PPS,
we have explained that we believe it is
important to delay updating the
adjustment factors derived from the
regression analysis until we have IPF
PPS data that include as much
information as possible regarding the
patient-level characteristics of the
population that each IPF serves. Since
we are now approximately 5 years into
the system, we believe that we have
enough data to begin that process.
Therefore, we have begun the necessary
analysis in order to make future
refinements. While we did not propose
to make refinements in this rulemaking,
as explained in section V.D.3 below, we
believe that in the next rulemaking, for
FY 2013, we will be ready to propose
potential refinements.
B. Overview of the Legislative
Requirements of the IPF PPS
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distinct part psychiatric units of critical
access hospitals (CAHs).
To implement these provisions, we
published various proposed and final
rules in the Federal Register. For more
information regarding these rules, see
the CMS Web site https://
www.cms.hhs.gov/
InpatientPsychFacilPPS/.
Section 3401(f) of the Patient
Protection and Affordable Care Act
(Pub. L. 111–148) as amended by
section 10319(e) of that Act and by
section 1105(d) of the Health Care and
Education Reconciliation Act of 2010
(Pub. L. 111–152) (hereafter referred to
as ‘‘The Affordable Care Act’’) added
subsection (s) to section 1886 of the Act.
Section 1886(s)(1) is titled ‘‘Reference
to Establishment and Implementation of
System’’ and it refers to section 124 of
the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of
1999, which relates to the establishment
of the IPF PPS.
Section 1886(s)(2)(A)(i) of the Act
requires the application of the
productivity adjustment described in
section 1886(b)(3)(B)(xi)(II) of the Act to
the IPF PPS for the RY beginning in
2012 and each subsequent RY. Section
1886(s)(2)(A)(ii) of the Act requires the
application of an ‘‘other adjustment’’
that reduces any update to an IPF PPS
base rate by percentages specified in
section 1886(s)(3) of the Act for rate
years beginning in 2010 through the RY
beginning in 2019. For the RY beginning
in 2011, the reduction is 0.25 percentage
point. We are implementing that
provision for RY 2012 in this RY 2012
IPF PPS final rule.
Section 1886(s)(4) of the Act requires
the establishment of a quality data
reporting program for the IPF PPS
beginning in RY 2014.
C. General Overview of the IPF PPS
Section 124 of the Medicare,
Medicaid, and SCHIP (State Children’s
Health Insurance Program) Balanced
Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106–113) required
implementation of the IPF PPS.
Specifically, section 124 of the BBRA
mandated that the Secretary develop a
per diem PPS for inpatient hospital
services furnished in psychiatric
hospitals and psychiatric units that
includes an adequate patient
classification system that reflects the
differences in patient resource use and
costs among psychiatric hospitals and
psychiatric units.
Section 405(g)(2) of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub.
L. 108–173) extended the IPF PPS to
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The November 2004 IPF PPS final
rule (69 FR 66922) established the IPF
PPS, as authorized under section 124 of
the BBRA and codified at subpart N of
part 412 of the Medicare regulations.
The November 2004 IPF PPS final rule
set forth the per diem Federal rates for
the implementation year (the 18-month
period from January 1, 2005 through
June 30, 2006), and it provided payment
for the inpatient operating and capital
costs to IPFs for covered psychiatric
services they furnish (that is, routine,
ancillary, and capital costs, but not costs
of approved educational activities, bad
debts, and other services or items that
are outside the scope of the IPF PPS).
Covered psychiatric services include
services for which benefits are provided
under the fee-for-service Part A
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(Hospital Insurance Program) Medicare
program.
The IPF PPS established the Federal
per diem base rate for each patient day
in an IPF derived from the national
average daily routine operating,
ancillary, and capital costs in IPFs in FY
2002. The average per diem cost was
updated to the midpoint of the first year
under the IPF PPS, standardized to
account for the overall positive effects of
the IPF PPS payment adjustments, and
adjusted for budget neutrality.
The Federal per diem payment under
the IPF PPS is comprised of the Federal
per diem base rate described above and
certain patient- and facility-level
payment adjustments that were found in
the regression analysis to be associated
with statistically significant per diem
cost differences.
The patient-level adjustments include
age, DRG assignment, comorbidities,
and variable per diem adjustments to
reflect higher per diem costs in the early
days of an IPF stay. Facility-level
adjustments include adjustments for the
IPF’s wage index, rural location,
teaching status, a cost of living
adjustment for IPFs located in Alaska
and Hawaii, and presence of a
qualifying emergency department (ED).
The IPF PPS provides additional
payment policies for: Outlier cases;
stop-loss protection (which was
applicable only during the IPF PPS
transition period); interrupted stays; and
a per treatment adjustment for patients
who undergo ECT.
A complete discussion of the
regression analysis appears in the
November 2004 IPF PPS final rule
(69 FR 66933 through 66936).
Section 124 of BBRA does not specify
an annual update rate strategy for the
IPF PPS and is broadly written to give
the Secretary discretion in establishing
an update methodology. Therefore, in
the November 2004 IPF PPS final rule,
we implemented the IPF PPS using the
following update strategy:
• Calculate the final Federal per diem
base rate to be budget neutral for the
18-month period of January 1, 2005
through June 30, 2006.
• Use a July 1 through June 30 annual
update cycle.
• Allow the IPF PPS first update to be
effective for discharges on or after July
1, 2006 through June 30, 2007.
D. Transition Period for Implementation
of the IPF PPS
In the November 2004 IPF PPS final
rule, we provided for a 3-year transition
period. During this 3-year transition
period, an IPF’s total payment under the
PPS was based on an increasing
percentage of the Federal rate with a
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corresponding decreasing percentage of
the IPF PPS payment that is based on
reasonable cost concepts. However,
effective for cost reporting periods
beginning on or after January 1, 2008,
IPF PPS payments are based on 100
percent of the Federal rate.
II. Provisions of the Proposed Rule and
Responses to Public Comments
On January 27, 2011, we published a
proposed rule that appeared in the
Federal Register (76 FR 4998) entitled,
‘‘Inpatient Psychiatric Facilities
Prospective Payment System—Update
for Rate Year Beginning July 1, 2011 (RY
2012).’’ The January 2011 proposed rule
(hereinafter referred to as the RY 2012
IPF PPS proposed rule) set forth the
proposed annual update to the proposed
PPS for IPFs for discharges occurring
during the RY beginning July 1, 2011.
In addition to the annual rate update,
we proposed to—
• Switch the annual update period for
the IPF PPS from a RY that begins on
July 1 and goes through June 30 to one
that coincides with a FY, that is, that
begins on October 1 and goes through
September 30. For the update period
that begins in 2012, that is, FY 2013, we
would refer to the update period as a
FY. In order to make this switch, we
proposed that RY 2012 be a 15-month
period, from July 1, 2011 through
September 30, 2012.
• Rebase and revise the FY 2002based RPL market basket to a FY 2008based RPL market basket. Apply a 0.25
percentage point reduction to the
market basket update as required by
section 1886(s)(3) of the Act.
• Adopt IPF policies similar to such
IPPS graduate medical education (GME)
policies providing for temporary
adjustments to an IPF’s FTE cap to
reflect residents added due to the
closure of an IPF or an IPF’s residency
training program.
• Update the fixed dollar loss
threshold amount in order to maintain
the appropriate outlier percentage.
• Update the ECT adjustment by a
factor specified by CMS.
• Update the national urban and rural
cost-to-charge ratio medians and
ceilings.
• Update the cost of living adjustment
factors for IPFs located in Alaska and
Hawaii, if appropriate.
• Describe the ICD–9–CM and MS–
DRG classification changes discussed in
the annual update to the hospital
inpatient prospective payment system
regulations.
• Use the best available hospital wage
index and information regarding
whether an adjustment to the Federal
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per diem base rate is needed to maintain
budget neutrality.
• Retain the 17 percent adjustment
for IPFs located in rural areas, the 1.31
adjustment for IPFs with a qualifying
ED, the 0.5150 teaching adjustment to
the Federal per diem rate, and the MS–
DRG adjustment factor currently being
paid to IPFs for RY 2011.
• Update the MS–DRG listing and
comorbidity categories to reflect the
ICD–9–CM revisions effective October 1,
2010.
In addition, we proposed to make
clarifying changes to the regulations
text. We noted that these proposed
changes would not impact policy.
We provided for a 60 day comment
period on the RY 2012 IPF PPS
proposed rule. We received 12 public
comments from hospital associations
and psychiatric hospitals and units. In
general, many of the commenters
strongly supported our proposed policy
changes, including changes to the
payment rate update cycle and the
teaching policy. A few commenters
expressed concern regarding the
proposed decrease in the labor-related
share. Several commenters
recommended that we explore the
creation of an inpatient rehabilitation
and psychiatric facilities (RP) market
basket. Summaries of the public
comments received and our responses to
those comments are provided in the
appropriate sections in the preamble of
this final rule.
III. Changing the IPF PPS Payment Rate
Update Period From a Rate Year to a
Fiscal Year
In the RY 2012 IPF PPS proposed
rule, we proposed to change the current
period for the annual updates of the IPF
PPS Federal payment rates. Specifically,
we proposed to revise the IPF PPS
payment rate update period by
switching from a RY that begins on July
1 and goes through June 30 to a period
that coincides with a FY, that is,
October 1 through September 30. We
proposed to refer to the update period
as a FY beginning with the update
period that begins in 2012, that is, FY
2013. We specified that this change in
the annual update period would allow
us to consolidate Medicare publications
by aligning the IPF PPS update with the
annual update of the ICD–9–CM codes,
which are effective on October 1 of each
year. Currently, in addition to our
annual proposed and final rulemaking
documents, we publish a change request
transmittal every August updating the
ICD–9–CM codes related to the DRG and
comorbidity adjustments. By proposing
to align the IPF PPS with the same
update period as the ICD–9–CM codes,
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we aimed to eliminate the need to
publish a transmittal off-cycle.
We maintain the same diagnostic
coding and DRG classification for IPFs
that are used under the IPPS for
providing the psychiatric care. When
the IPF PPS was implemented, we
adopted the same diagnostic code set
and DRG patient classification systems
(that is, the CMS DRGs) that were
utilized at the time under the hospital
IPPS. Every year, changes to the ICD–9–
CM coding system are addressed in the
IPPS proposed and final rules. These
changes are effective October 1 of each
year and must be used by acute care
hospitals as well as other providers to
report diagnostic and procedure
information. The IPF PPS has always
incorporated ICD–9–CM coding changes
made in the annual IPPS update. This
proposed change to the annual payment
rate update period would allow the
annual update to the rates and the ICD–
9–CM coding update to occur on the
same schedule and appear in the same
Federal Register document.
Our intent in making the change in
the payment rate update schedule is to
place the IPF PPS on the same update
cycle as other PPSs, making it
administratively efficient. In order to
smoothly transition to a payment update
period that runs from October 1 through
September 30, we proposed that the RY
2012 period run from July 1, 2011 to
September 30, 2012 such that RY 2012
would be 15 months. As proposed and
for this final rule, after RY 2012, the rate
update period for the IPF PPS payment
rates and other policy changes will
begin on October 1 and go through
September 30. The next update to the
IPF PPS rates after RY 2012 would be
the FY 2013 update cycle, which will
begin on October 1, 2012 and go through
September 30, 2013. In addition, we
proposed to make a change to the
regulations at § 412.402 to add the term
‘‘IPF Prospective Payment System Rate
Year’’ which would mean October 1
through September 30. We proposed
that the RY would be referred to as a FY.
For a discussion of the proposed
15-month market basket update for the
proposed 2012 RY, we refer readers to
the RY 2012 IPF PPS proposed rule
(76 FR 4998).
Public comments and our responses
on the switch from a RY to a FY are
summarized below.
Comment: A few commenters
supported moving the payment rate
update period from a RY to a FY. They
supported a 15-month update for RY
2012 in order to transition to a FY
update period.
Response: We appreciate the
commenters’ support to move the IPF
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PPS payment rate update period to a
period that begins on October 1 and
goes through the following September,
with a 15-month update for RY 2012 in
order to transition to a FY. We are
adopting as final, without modification,
the proposal to revise the IPF PPS
payment period to a FY with a 15month update for RY 2012 in order to
transition to a FY update period.
Final Rule Action: In summary, for RY
2012, we are revising the IPF PPS
payment rate update period by
switching the RY period from July 1
through June 30 to a period that
coincides with a FY. In order to
transition to a FY update period, RY
2012 is a 15-month period. We are also
making a change to § 412.402 to add the
term ‘‘IPF Prospective Payment System
Rate Year’’ which means October 1
through September 30 will be referred to
as a Fiscal year.
IV. Rebasing and Revising of the
Rehabilitation, Psychiatric, and LongTerm Care (RPL) Market Basket for
Inpatient Psychiatric Facilities
A. Background
The input price index (that is, the
market basket) that was used to develop
the IPF PPS was the Excluded Hospital
with Capital market basket. This market
basket was based on 1997 Medicare cost
report data and included data for
Medicare participating IPFs, inpatient
rehabilitation facilities (IRFs), long-term
care hospitals (LTCHs), cancer
hospitals, and children’s hospitals.
Although ‘‘market basket’’ technically
describes the mix of goods and services
used in providing hospital care, this
term is also commonly used to denote
the input price index (that is, cost
category weights and price proxies
combined) derived from that market
basket. Accordingly, the term ‘‘market
basket’’ as used in this document refers
to a hospital input price index.
Beginning with the May 2006 IPF PPS
final rule (71 FR 27046 through 27054),
IPF PPS payments were updated using
a FY 2002-based market basket
reflecting the operating and capital cost
structures for IRFs, IPFs, and LTCHs
(hereafter referred to as the
Rehabilitation, Psychiatric, and LongTerm Care (RPL) market basket).
We excluded cancer and children’s
hospitals from the RPL market basket
because these hospitals are not
reimbursed through a PPS; rather, their
payments are based entirely on
reasonable costs subject to rate-ofincrease limits established under the
authority of section 1886(b) of the Act,
which are implemented in regulations at
§ 413.40. Moreover, the FY 2002 cost
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structures for cancer and children’s
hospitals are noticeably different than
the cost structures of the IRFs, IPFs, and
LTCHs. A complete discussion of the FY
2002-based RPL market basket appears
in the May 2006 IPF PPS final rule (71
FR 27046 through 27054).
In the May 1, 2009 IPF PPS notice (74
FR 20362), we expressed our interest in
exploring the possibility of creating a
stand-alone IPF market basket that
reflects the cost structures of only IPF
providers. We noted that, of the
available options, one would be to join
the Medicare cost report data from
freestanding IPF providers (presently
incorporated into the FY 2002-based
RPL market basket) with data from
hospital-based IPF providers. We
indicated that an examination of the
Medicare cost report data comparing
freestanding and hospital-based IPFs
revealed considerable differences
between the two with respect to cost
levels and cost structures. At that time,
we were unable to fully understand the
differences between these two types of
IPF providers. As a result, we felt that
further research was required and we
solicited public comment for additional
information that might help us to better
understand the reasons for the
variations in costs and cost structures,
as indicated by the cost report data,
between freestanding and hospitalbased IPFs (74 FR 20376).
We summarized the public comments
we received and our responses in the
April 2010 IPF PPS notice (75 FR 23111
through 23113). Despite receiving
comments from the public on this issue,
we remain unable to sufficiently
understand the observed differences in
costs and cost structures between
hospital-based and freestanding IPFs,
and therefore we do not feel it is
appropriate at this time to incorporate
data from hospital-based IPFs with
those of freestanding IPFs to create a
stand-alone IPF market basket.
Although we do not feel it would be
appropriate to propose a stand-alone IPF
market basket, we are currently
exploring the viability of creating two
separate market baskets from the current
RPL, one of which would include
freestanding IPFs and freestanding IRFs
and would be used to update payments
under both the IPF and IRF payment
systems. The other would be a standalone LTCH market basket. Depending
on the outcome of our research, we
anticipate the possibility of proposing a
rehabilitation and psychiatric (RP)
market basket in the next update cycle.
In the RY 2012 IPF PPS proposed rule,
we welcomed public comment on the
possibility of using this type of market
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jlentini on DSKJ8SOYB1PROD with RULES2
basket to update IPF payments in the
future.
For this update cycle, we proposed to
rebase and revise the FY 2002-based
RPL market basket by creating a
proposed FY 2008-based RPL market
basket. For this RY 2012 IPF PPS final
rule, we are finalizing the FY 2008based RPL market basket as proposed. In
the following section, we provide an
overview of the market basket and
describe the methodologies we
proposed to use, and are finalizing in
this final rule, for purposes of
determining the operating and capital
portions of the FY 2008-based RPL
market basket.
Public comments and our responses
on the rebasing and revising of the RPL
market basket for IPFs are summarized
below.
Comment: One commenter, while
generally supporting use of the RPL
market basket at the time of
implementation, stated that it has its
limitations, and recommended that CMS
explore the creation of an RP market
basket. Several commenters supported
CMS’ efforts to determine if a separate
market basket for inpatient psychiatric
and rehabilitation facilities is
appropriate.
Response: CMS will continue its
efforts to investigate the viability of an
alternative market basket to update IPF
providers. Any possible changes to the
market basket used to update IPF
payments would appear in a future
rulemaking and be subject to public
comment.
Comment: Several commenters
expressed concern regarding a recent
trend in facility closures of hospitalbased IPFs and stated that hospitalbased IPF facilities are a vital
component in preserving access to care
for patients suffering from mental
illness, particularly those who have
coexisting physical conditions or
experience a crisis and enter the
emergency department for treatment.
Therefore, the commenters
recommended that CMS continue
exploring reasons behind the differences
in costs and cost structures between
freestanding and hospital-based
providers.
Response: We are continuing to
analyze the Medicare cost report data in
order to better understand the
differences between freestanding and
hospital-based IPF providers.
B. Overview of the FY 2008-Based RPL
Market Basket
The FY 2008-based RPL market basket
is a fixed weight, Laspeyres-type price
index. A Laspeyres price index
measures the change in price, over time,
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of the same mix of goods and services
purchased in the base period. Any
changes in the quantity or mix of goods
and services (that is, intensity)
purchased over time are not measured.
The index itself is constructed in
three steps. First, a base period is
selected (in this final rule, the base
period is FY 2008) and total base period
expenditures are estimated for a set of
mutually exclusive and exhaustive
spending categories with the proportion
of total costs that each category
represents being calculated. These
proportions are called cost or
expenditure weights. Second, each
expenditure category is matched to an
appropriate price or wage variable,
referred to as a price proxy. In nearly
every instance, these price proxies are
derived from publicly available
statistical series that are published on a
consistent schedule (preferably at least
on a quarterly basis). Finally, the
expenditure weight for each cost
category is multiplied by the level of its
respective price proxy. The sum of these
products (that is, the expenditure
weights multiplied by their price levels)
for all cost categories yields the
composite index level of the market
basket in a given period. Repeating this
step for other periods produces a series
of market basket levels over time.
Dividing an index level for a given
period by an index level for an earlier
period produces a rate of growth in the
input price index over that timeframe.
As noted above, the market basket is
described as a fixed-weight index
because it represents the change in price
over time of a constant mix (quantity
and intensity) of goods and services
needed to furnish hospital services. The
effects on total expenditures resulting
from changes in the mix of goods and
services purchased subsequent to the
base period are not measured. For
example, a hospital hiring more nurses
to accommodate the needs of patients
would increase the volume of goods and
services purchased by the hospital, but
would not be factored into the price
change measured by a fixed-weight
hospital market basket. Only when the
index is rebased would changes in the
quantity and intensity be captured, with
those changes being reflected in the cost
weights. Therefore, we rebase the
market basket periodically so the cost
weights reflect recent changes in the
mix of goods and services that hospitals
purchase (hospital inputs) to furnish
inpatient care between base periods.
C. Rebasing and Revising of the RPL
Market Basket
In the RY 2012 IPF PPS proposed
rule, we proposed to rebase and revise
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the market basket used to update the IPF
PPS. We solicited public comments on
our proposed methodological changes to
the RPL market basket. We did not
receive any specific comments on these
proposed changes. Therefore, we are
finalizing the methodology for
calculating the rebased and revised FY
2008-based market basket as proposed.
The methodology is described in more
detail below.
The terms ‘‘rebasing’’ and ‘‘revising,’’
while often used interchangeably,
actually denote different activities.
‘‘Rebasing’’ means moving the base year
for the structure of costs of an input
price index (for example, in this final
rule, we are shifting the base year cost
structure for the RPL market basket from
FY 2002 to FY 2008). ‘‘Revising’’ means
changing data sources, price proxies, or
methods, used to derive the input price
index.
1. Development of Cost Categories and
Weights
a. Medicare Cost Reports
As proposed, and in this final rule,
the FY 2008-based RPL market basket
consists of several major cost categories
derived from the FY 2008 Medicare cost
reports for freestanding IRFs,
freestanding IPFs, and LTCHs, including
wages and salaries, pharmaceuticals,
professional liability insurance, capital,
and a residual. These FY 2008 cost
reports include providers whose cost
reporting periods began on or after
October 1, 2007 and before October 1,
2008. We choose to use FY 2008 as the
base year because we believe that the
Medicare cost reports for this year
represent the most recent, complete set
of Medicare cost report data available
for IRFs, IPFs, and LTCHs. However, for
the FY 2008 cost reports, IRFs, IPFs, and
LTCHs were not required to complete
the Medicare cost report worksheet for
benefits and contract labor (Worksheet
S–3, part II). As a result, less than 30
percent of providers reported data for
these categories, and we do not expect
these FY 2008 data to improve over
time. Furthermore, the issue of
incomplete Medicare cost report data for
benefits and contract labor also existed
when we finalized the FY 2002-based
RPL market basket, since, at that time,
IRFs, IPFs and LTCHs were not required
to submit data for Worksheet S–3, part
II in the FY 2002 cost reporting year.
Due to the incomplete benefits and
contract labor data for IRFs, IPFs, and
LTCHs, for these cost weights, rather
than using IRF/IPF/LTCH cost report
data, we instead used FY 2008 IPPS
hospital cost report data (similar to the
method that was used for the FY 2002-
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based RPL market basket, we used the
1997 Benchmark I–O data. Therefore,
we used the 2002 Benchmark I–O data
in the FY 2008-based RPL market
basket, and instead of using the less
detailed Annual I–O data, we aged the
2002 Benchmark I–O data forward to
FY 2008–
2008. The methodology we used to age
based
the data forward involves applying the
RPL
Major cost categories
market
annual price changes from the
basket
respective price proxies to the
(percent)
appropriate cost categories. We repeated
All other ........................................
36.959 this practice for each year.
The All Other cost category
expenditure shares are determined as
b. Other Data Sources
being equal to each category’s
In addition to the IRF, IPF and LTCH
proportion to total ‘‘all other’’ in the aged
Medicare cost reports for freestanding
2002 Benchmark I–O data. For instance,
IRFs and freestanding IPFs, and LTCHs, if the cost for telephone services
the other data sources we used to
represented 10 percent of the sum of the
develop the FY 2008-based RPL market
‘‘all other’’ Benchmark I–O hospital
basket cost weights were the FY 2008
expenditures, then telephone services
IPPS Medicare cost reports and the 2002 would represent 10 percent of the RPL
Benchmark Input-Output (I–O) Tables
market basket’s All Other cost category.
created by the Bureau of Economic
2. Final Cost Category Computation
Analysis (BEA), U.S. Department of
Commerce. The FY 2008 Medicare cost
As stated previously, for this rebasing
reports include providers whose cost
we used the FY 2008 Medicare cost
reporting periods began on or after
reports for IRFs, IPFs, and LTCHs to
October 1, 2007 and before October 1,
derive four major cost categories. The
2008.
FY 2008-based RPL market basket
As noted above, the FY 2008-based
includes two additional cost categories
RPL cost weights for benefits and
that were not broken out separately in
contract labor were derived using FY
the FY 2002-based RPL market basket:
2008-based IPPS Medicare cost reports.
‘‘Administrative and Business Support
We used these Medicare cost reports to
Services’’ and ‘‘Financial Services’’. The
calculate cost weights for Wages and
inclusion of these two additional cost
Salaries, Benefits, and Contract Labor
categories, which are derived using the
for IPPS hospitals for FY 2008. For the
Benchmark I–O data, is consistent with
Benefits cost weight for the FY 2008the addition of these two cost categories
based RPL market basket, the ratio of the to the FY 2006-based IPPS market
FY 2008 IPPS Benefits cost weight to the basket (74 FR 43845). We chose to break
FY 2008 IPPS Wages and Salaries cost
out both categories so we can better
weight was applied to the RPL Wages
match their respective expenses with
and Salaries cost weight. Similarly, the
more appropriate price proxies. Also,
ratio of the FY 2008 IPPS Contract Labor the FY 2008-based RPL market basket
cost weight to the FY 2008 IPPS Wages
excludes one cost category: Photo
and Salaries cost weight was applied to
Supplies. The 2002 Benchmark I–O
the RPL Wages and Salaries cost weight weight for this category is considerably
to derive a Contract Labor cost weight
smaller than the 1997 Benchmark I–O
for the FY 2008-based RPL market
weight, presently accounting for less
basket.
than one-tenth of one percentage point
The All Other cost category is divided of the RPL market basket. Therefore, we
TABLE 1—MAJOR COST CATEGORIES
into other hospital expenditure category included the photo supplies costs in the
AND
THEIR RESPECTIVE COST shares using the 2002 BEA Benchmark
Chemical cost category weight with
WEIGHTS AS CALCULATED DIRECTLY I–O data following the removal of the
other similar chemical products.
FROM FY 2008 MEDICARE COST portions of the All Other cost category
We did not change our definition of
REPORTS
provided in Table 1 that are attributable the labor-related share. However, we
to Benefits and Contract Labor. The BEA renamed our aggregate cost categories
FY 2008– Benchmark I–O data are scheduled for
from ‘‘labor-intensive’’ and ‘‘nonlaborbased
publication every 5 years. The most
intensive’’ services to ‘‘labor-related’’ and
RPL
Major cost categories
recent data available are for 2002. BEA
‘‘nonlabor-related’’ services. This is
market
basket
also produces Annual I–O estimates;
consistent with the FY 2006-based IPPS
(percent) however, the 2002 Benchmark I–O data
market basket (74 FR 43845). As
represent a much more comprehensive
discussed in more detail below and
Wages and salaries ......................
47.371
and complete set of data that are derived similar to the FY 2002-based RPL
Professional Liability Insurance
market basket, we classify a cost
(Malpractice) .............................
0.764 from the 2002 Economic Census. The
category as labor-related and include it
Pharmaceuticals ...........................
6.514 Annual I–O is simply an update of the
Capital ...........................................
8.392 Benchmark I–O tables. For the FY 2002- in the labor-related share if the cost
based RPL market basket). Additional
detail is provided later in this section.
Since our goal is to measure cost
shares that are reflective of case mix and
practice patterns associated with
providing services to Medicare
beneficiaries, we limited our selection
of Medicare cost reports to those from
hospitals that have a Medicare average
length of stay (LOS) that is within a
comparable range of their total facility
average LOS. We believe this provides
a more accurate reflection of the
structure of costs for Medicare covered
days. We used the cost reports of IRFs
and LTCHs with Medicare average LOS
within 15 percent (that is, 15 percent
higher or lower) of the total facility
average LOS for the hospital. This is the
same edit applied to derive the FY 2002based RPL market basket and generally
includes those LTCHs and IRFs with
Medicare LOS within approximately
5 days of the facility average LOS of the
hospital.
We used a less stringent measure of
Medicare LOS for IPFs. For this
provider-type, and in order to produce
a robust sample size, we used those
facilities’ Medicare cost reports whose
average LOS is within 30 or 50 percent
(depending on the total facility average
LOS) of the total facility average LOS.
This is the same edit applied to derive
the FY 2002-based RPL market basket.
We applied these LOS edits to first
obtain a set of cost reports for facilities
that have a Medicare LOS within a
comparable range of their total facility
LOS. Using this set of Medicare cost
reports, we then calculated cost weights
for four cost categories directly from the
FY 2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs (found in Table 1 below).
These Medicare cost report cost weights
were then supplemented with
information obtained from other data
sources (explained in more detail
below) to derive the final FY 2008-based
RPL market basket cost weights.
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TABLE 1—MAJOR COST CATEGORIES
AND
THEIR RESPECTIVE COST
WEIGHTS AS CALCULATED DIRECTLY
FROM FY 2008 MEDICARE COST
REPORTS—Continued
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category is defined as being laborintensive and its cost varies with the
local labor market. In previous
regulations, we grouped cost categories
that met both of these criteria into laborintensive services. We believe the new
labels more accurately reflect the
concepts that they are intended to
convey. Therefore, we did not change
our definition of the labor-related share
because we continue to classify a cost
category as labor-related if the costs are
labor-intensive and vary with the local
labor market.
3. Selection of Price Proxies
After computing the FY 2008 cost
weights for the rebased RPL market
basket, it was necessary to select
appropriate wage and price proxies to
reflect the rate of price change for each
expenditure category. With the
exception of the proxy for Professional
Liability Insurance, all of the proxies for
the operating portion of the FY 2008based RPL market basket are based on
Bureau of Labor Statistics (BLS) data
and are grouped into one of the
following BLS categories:
Producer Price Indexes—Producer
Price Indexes (PPIs) measure price
changes for goods sold in markets other
than the retail market. PPIs are
preferable price proxies for goods and
services that hospitals purchase as
inputs because these PPIs better reflect
the actual price changes faced by
hospitals. For example, we use a special
PPI for prescription drugs, rather than
the Consumer Price Index (CPI) for
prescription drugs, because hospitals
generally purchase drugs directly from a
wholesaler. The PPIs that we use
measure price changes at the final stage
of production.
Consumer Price Indexes—Consumer
Price Indexes (CPIs) measure change in
the prices of final goods and services
bought by the typical consumer.
Because they may not represent the
price faced by a producer, we used CPIs
only if an appropriate PPI was not
available, or if the expenditures were
more similar to those faced by retail
consumers in general rather than by
purchasers of goods at the wholesale
level. For example, the CPI for food
purchased away from home is used as
a proxy for contracted food services.
Employment Cost Indexes—
Employment Cost Indexes (ECIs)
measure the rate of change in employee
wage rates and employer costs for
employee benefits per hour worked.
These indexes are fixed-weight indexes
and strictly measure the change in wage
rates and employee benefits per hour.
Appropriately, they are not affected by
shifts in employment mix.
We evaluated the price proxies using
the criteria of reliability, timeliness,
availability, and relevance. Reliability
indicates that the index is based on
valid statistical methods and has low
sampling variability. Timeliness implies
that the proxy is published regularly,
preferably at least once a quarter.
Availability means that the proxy is
publicly available. Finally, relevance
means that the proxy is applicable and
representative of the cost category
weight to which it is applied. The CPIs,
PPIs, and ECIs selected meet these
criteria.
Table 2 sets forth the final FY 2008based RPL market basket including cost
categories, and their respective weights
and price proxies. For comparison
purposes, the corresponding FY 2002based RPL market basket cost weights
are listed, as well. For example, Wages
and Salaries are 49.447 percent of total
costs in the FY 2008-based RPL market
basket compared to 52.895 percent for
the FY 2002-based RPL market basket.
Employee Benefits are 12.831 percent in
the FY 2008-based RPL market basket
compared to 12.982 percent for the FY
2002-based RPL market basket. As a
result, compensation costs (Wages and
Salaries plus Employee Benefits) for the
FY 2008-based RPL market basket are
62.278 percent of total costs compared
to 65.877 percent for the FY 2002-based
RPL market basket.
Following Table 2 is a summary
outlining the choice of the proxies used
for the operating portion of the FY 2008based RPL market basket. The price
proxies used for the capital portion are
described in more detail in the capital
methodology section (see section IV.c.4
of this final rule).
We note that the proxies for the
operating portion of the FY 2008-based
RPL market basket are the same as those
used for the FY 2006-based IPPS
operating market basket. Because these
proxies meet our criteria of reliability,
timeliness, availability, and relevance,
we believe they are the best measures of
price changes for the cost categories. For
further discussion on the FY 2006-based
IPPS market basket, see the IPPS final
rule published in the Federal Register
on August 27, 2009 (74 FR 43843).
TABLE 2—FY 2008-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2002BASED RPL MARKET BASKET COST WEIGHTS INCLUDED FOR COMPARISON
FY 2002based RPL
market
basket
cost
weights
FY 2008based RPL
market
basket
cost
weights
1. Compensation .................................................................
A. Wages and Salaries 1 ..............................................
B. Employee Benefits 1 ................................................
2. Utilities .............................................................................
A. Electricity .................................................................
B. Fuel, Oil, and Gasoline ...........................................
C. Water and Sewage .................................................
3. Professional Liability Insurance ......................................
65.877
52.895
12.982
0.656
0.351
0.108
0.197
1.161
62.278
49.447
12.831
1.578
1.125
0.371
0.082
0.764
4. All Other Products and Services ....................................
A. All Other Products ...................................................
(1.) Pharmaceuticals .............................................
22.158
13.325
5.103
26.988
15.574
6.514
0.873
0.620
1.100
1.014
0.096
2.959
0.392
1.100
1.795
—
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Cost categories
(2.)
(3.)
(4.)
(5.)
(6.)
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Food: Direct Purchases .................................
Food: Contract Services ................................
Chemicals 2 ....................................................
Medical Instruments .......................................
Photographic Supplies ...................................
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FY 2008-based RPL market basket price proxies
ECI for Wages and Salaries, Civilian Hospital Workers.
ECI for Benefits, Civilian Hospital Workers.
PPI for Commercial Electric Power.
PPI for Petroleum Refineries.
CPI–U for Water & Sewerage Maintenance.
CMS Hospital Professional Liability Insurance Premium
Index.
PPI for Pharmaceutical Preparations for Human
Use(Prescriptions).
PPI for Processed Foods & Feeds.
CPI–U for Food Away From Home.
Blend of Chemical PPIs.
PPI for Medical, Surgical, and Personal Aid Devices.
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26439
TABLE 2—FY 2008-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2002BASED RPL MARKET BASKET COST WEIGHTS INCLUDED FOR COMPARISON—Continued
FY 2002based RPL
market
basket
cost
weights
FY 2008based RPL
market
basket
cost
weights
(7.) Rubber and Plastics .......................................
(8.) Paper and Printing Products ..........................
(9.) Apparel ...........................................................
(10.) Machinery and Equipment ...........................
(11.) Miscellaneous Products ...............................
B. All Other Services ...................................................
(1.) Labor-related Services ...................................
(a.) Professional Fees: Labor-related.3 ................
1.052
1.000
0.207
0.297
1.963
8.833
5.111
2.892
1.131
1.021
0.210
0.106
0.346
11.414
4.681
2.114
(b.) Administrative and Business Support Services.4
(c.) All Other: Labor-Related Services 4 ...............
(2.) Nonlabor-Related Services ............................
(a.) Professional Fees: Nonlabor-Related 3 ..........
n/a
0.422
2.219
3.722
n/a
2.145
6.733
4.211
(b.) Financial Services 5 ........................................
(c.) Telephone Services ........................................
(d.) Postage ..........................................................
(e.) All Other: Nonlabor-Related Services 5 ..........
5. Capital-Related Costs .....................................................
A. Depreciation ............................................................
(1.) Fixed Assets ...................................................
n/a
0.240
0.682
2.800
10.149
6.187
4.250
0.853
0.416
0.630
0.623
8.392
5.519
3.286
(2.) Movable Equipment .......................................
1.937
2.233
B. Interest Costs ..........................................................
(1.) Government/Nonprofit ....................................
2.775
2.081
1.954
0.653
(2.) For Profit ........................................................
0.694
1.301
C. Other Capital-Related Costs ...................................
1.187
0.919
Total ...............................................................
100.000
100.000
Cost categories
FY 2008-based RPL market basket price proxies
PPI
PPI
PPI
PPI
PPI
for
for
for
for
for
Rubber & Plastic Products.
Converted Paper & Paperboard Products.
Apparel.
Machinery & Equipment.
Finished Goods less Food and Energy.
ECI for Compensation for Professional and Related Occupations.
ECI for Compensation for Office and Administrative Services.
ECI for Compensation for Private Service Occupations.
ECI for Compensation for Professional and Related Occupations.
ECI for Compensation for Financial Activities.
CPI–U for Telephone Services.
CPI–U for Postage.
CPI–U for All Items less Food and Energy.
BEA chained price index for nonresidential construction
for hospitals and special care facilities—vintage
weighted (26 years).
PPI for Machinery and Equipment—vintage weighted (11
years).
Average yield on domestic municipal bonds (Bond Buyer
20 bonds)—vintage-weighted (26 years).
Average yield on Moody’s Aaa bonds—vintage-weighted
(26 years).
CPI–U for Residential Rent.
Note: Detail may not add to total due to rounding.
1 Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total compensation that each category
represents.
2 To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gases, the PPI for Other Basic Inorganic
Chemical Manufacturing, the PPI for Other Basic Organic Chemical Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this proxy, see section IV.C.3.j. of the preamble of this final rule.
3 The Professional Fees: Labor-related and Professional Fees: Nonlabor-related cost categories were included in one cost category called Professional Fees in the FY 2002-based RPL market basket. For more detail about how these new categories were derived, we refer readers to
sections IV.C.6. of the preamble of this final rule, on the labor-related share.
4 The Administrative and Business Support Services cost category was contained within All Other: Labor-intensive Services cost category in
the FY 2002-based RPL market basket. The All Other: Labor-intensive Services cost category is renamed the All Other: Labor-related Services
cost category for the FY 2008-based RPL market basket.
5 The Financial Services cost category was contained within the All Other: Non-labor Intensive Services cost category in the FY 2002-based
RPL market basket. The All Other: Non-labor Intensive Services cost category is renamed the All Other: Nonlabor-related Services cost category
for the FY 2008-based RPL market basket.
c. Electricity
We use the ECI for Wages and Salaries
for Hospital Workers (All Civilian) (BLS
series code CIU1026220000000I) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
jlentini on DSKJ8SOYB1PROD with RULES2
a. Wages and Salaries
We use the PPI for Commercial
Electric Power (BLS series code
WPU0542) to measure the price growth
of this cost category. This same proxy
was used in the FY 2002-based RPL
market basket.
b. Employee Benefits
d. Fuel, Oil, and Gasoline
We use the ECI for Employee Benefits
for Hospital Workers (All Civilian) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
For the FY 2002-based RPL market
basket, this category only included
expenses classified under North
American Industry Classification
System (NAICS) 21 (Mining). We
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proxied this category using the PPI for
Commercial Natural Gas (BLS series
code WPU0552). For the FY 2008-based
market basket, we added costs to this
category that had previously been
grouped in other categories. The added
costs include petroleum-related
expenses under NAICS 324110
(previously captured in the
miscellaneous category), as well as
petrochemical manufacturing classified
under NAICS 325110 (previously
captured in the chemicals category).
These added costs represent 80 percent
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of the hospital industry’s fuel, oil, and
gasoline expenses (or 80 percent of this
category). Because the majority of the
industry’s fuel, oil, and gasoline
expenses originate from petroleum
refineries (NAICS 324110), we use the
PPI for Petroleum Refineries (BLS series
code PCU324110324110) as the proxy
for this cost category.
e. Water and Sewage
We use the CPI for Water and
Sewerage Maintenance (All Urban
Consumers) (BLS series code
CUUR0000SEHG01) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
f. Professional Liability Insurance
We proxy price changes in hospital
professional liability insurance
premiums (PLI) using percentage
changes as estimated by the CMS
Hospital Professional Liability Index. To
generate these estimates, we collect
commercial insurance premiums for a
fixed level of coverage while holding
nonprice factors constant (such as a
change in the level of coverage). This
method is also used to proxy PLI price
changes in the Medicare Economic
Index (75 FR 73268). This same proxy
was used in the FY 2002-based RPL
market basket.
g. Pharmaceuticals
We use the PPI for Pharmaceuticals
for Human Use, Prescription (BLS series
code WPUSI07003) to measure the price
growth of this cost category. We note
that we are not making a change to the
PPI that is used to proxy this cost
category. There was a recent change to
the BLS naming convention for this
series; however this is the same proxy
that was used in the FY 2002-based RPL
market basket.
h. Food: Direct Purchases
We use the PPI for Processed Foods
and Feeds (BLS series code WPU02) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
i. Food: Contract Services
We use the CPI for Food Away From
Home (All Urban Consumers) (BLS
series code CUUR0000SEFV) to measure
the price growth of this cost category.
This same proxy was used in the FY
2002-based RPL market basket.
j. Chemicals
We use a blended PPI composed of
the PPI for Industrial Gas Manufacturing
(NAICS 325120) (BLS series code
PCU325120325120P), the PPI for Other
Basic Inorganic Chemical
Manufacturing (NAICS 325180) (BLS
series code PCU32518–32518–), the PPI
for Other Basic Organic Chemical
Manufacturing (NAICS 325190) (BLS
series code PCU32519–32519–), and the
PPI for Soap and Cleaning Compound
Manufacturing (NAICS 325610) (BLS
series code PCU32561–32561–). Using
the 2002 Benchmark I–O data, we found
that these NAICS industries accounted
for approximately 90 percent of the
hospital industry’s chemical expenses.
Therefore, we use this blended index
because we believe its composition
better reflects the composition of the
purchasing patterns of hospitals than
does the PPI for Industrial Chemicals
(BLS series code WPU061), the proxy
used in the FY 2002-based RPL market
basket. Table 3 below shows the weights
for each of the four PPIs used to create
the blended PPI, which we determined
using the 2002 Benchmark I–O data.
TABLE 3—BLENDED CHEMICAL PPI WEIGHTS
Weights
(in percent)
Name
PPI
PPI
PPI
PPI
for
for
for
for
Industrial Gas Manufacturing ......................................................................................................................
Other Basic Inorganic Chemical Manufacturing .........................................................................................
Other Basic Organic Chemical Manufacturing ............................................................................................
Soap and Cleaning Compound Manufacturing ...........................................................................................
jlentini on DSKJ8SOYB1PROD with RULES2
k. Medical Instruments
We use the PPI for Medical, Surgical,
and Personal Aid Devices (BLS series
code WPU156) to measure the price
growth of this cost category. In the 1997
Benchmark I–O data, approximately half
of the expenses classified in this
category were for surgical and medical
instruments. Therefore, we used the PPI
for Surgical and Medical Instruments
and Equipment (BLS series code
WPU1562) to proxy this category in the
FY 2002-based RPL market basket. The
2002 Benchmark I–O data show that
surgical and medical instruments now
represent only 33 percent of these
expenses and that the largest expense
category is surgical appliance and
supplies manufacturing (corresponding
to BLS series code WPU1563). Due to
this reallocation of costs over time, we
use as the price proxy for this cost
category the more aggregated PPI for
Medical, Surgical, and Personal Aid
Devices.
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l. Photographic Supplies
We eliminated the cost category
specific to photographic supplies for the
FY 2008-based RPL market basket.
These costs are now included in the
Chemicals cost category because the
costs are presently reported as all other
chemical products. Notably, although
we are eliminating the specific cost
category, these costs are still accounted
for within the RPL market basket.
m. Rubber and Plastics
We use the PPI for Rubber and Plastic
Products (BLS series code WPU07) to
measure price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
n. Paper and Printing Products
We use the PPI for Converted Paper
and Paperboard Products (BLS series
code WPU0915) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
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35
25
30
10
NAICS
325120
325180
325190
325610
o. Apparel
We use the PPI for Apparel (BLS
series code WPU0381) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
p. Machinery and Equipment
We use the PPI for Machinery and
Equipment (BLS series code WPU11) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
q. Miscellaneous Products
We use the PPI for Finished Goods
Less Food and Energy (BLS series code
WPUSOP3500) to measure the price
growth of this cost category. Using this
index removes the double-counting of
food and energy prices, which are
already captured elsewhere in the
market basket. This same proxy was
used in the FY 2002-based RPL market
basket.
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r. Professional Fees: Labor-Related
We use the ECI for Compensation for
Professional and Related Occupations
(Private Industry) (BLS series code
CIS2020000120000I) to measure the
price growth of this category. It includes
occupations such as legal, accounting,
and engineering services. This same
proxy was used in the FY 2002-based
RPL market basket.
s. Administrative and Business Support
Services
We use the ECI for Compensation for
Office and Administrative Support
Services (Private Industry) (BLS series
code CIU2010000220000I) to measure
the price growth of this category.
Previously these costs were included in
the All Other: Labor-intensive category
(now renamed the All Other: Laborrelated Services category), and were
proxied by the ECI for Compensation for
Service Occupations. We believe that
this compensation index better reflects
the changing price of labor associated
with the provision of administrative
services and its incorporation represents
a technical improvement to the market
basket.
t. All Other: Labor-Related Services
We use the ECI for Compensation for
Service Occupations (Private Industry)
(BLS series code CIU2010000300000I) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
jlentini on DSKJ8SOYB1PROD with RULES2
u. Professional Fees: Nonlabor-Related
We use the ECI for Compensation for
Professional and Related Occupations
(Private Industry) (BLS series code
CIS2020000120000I) to measure the
price growth of this category. This is the
same price proxy that we are using for
the Professional Fees: Labor-related cost
category.
v. Financial Services
We use the ECI for Compensation for
Financial Activities (Private Industry)
(BLS series code CIU201520A000000I)
to measure the price growth of this cost
category. Previously these costs were
included in the All Other: Nonlaborintensive category (now renamed the All
Other: Nonlabor-related Services
category), and were proxied by the CPI
for All Items. We believe that this
compensation index better reflects the
changing price of labor associated with
the provision of financial services and
its incorporation represents a technical
improvement to the market basket.
w. Telephone Services
We use the CPI for Telephone
Services (BLS series code
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CUUR0000SEED) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
x. Postage
We use the CPI for Postage (BLS series
code CUUR0000SEEC01) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
y. All Other: Nonlabor-Related Services
We use the CPI for All Items Less
Food and Energy (BLS series code
CUUR0000SA0L1E) to measure the
price growth of this cost category.
Previously these costs were proxied by
the CPI for All Items in the FY 2002based RPL market basket. We believe
that using the CPI for All Items Less
Food and Energy removes the double
counting of changes in food and energy
prices, as they are already captured
elsewhere in the market basket.
Consequently, we believe that the
incorporation of this proxy represents a
technical improvement to the market
basket.
4. Methodology for Capital Portion of
the RPL Market Basket
In the FY 2002-based RPL market
basket, we did not have IRF, IPF, and
LTCH 2002 Medicare cost report data
for the capital cost weights, due to a
change in the 2002 reporting
requirements. Therefore, we used these
hospitals’ 2001 expenditure data for the
capital cost categories of depreciation,
interest, and other capital expenses, and
aged the data to a 2002 base year using
relevant price proxies.
For the FY 2008-based RPL market
basket, we calculated weights for the
RPL market basket capital costs using
the same set of FY 2008 Medicare cost
reports used to develop the operating
share for IRFs, IPFs, and LTCHs. To
calculate the total capital cost weight,
we first apply the same LOS edits as
applied prior to calculating the
operating cost weights as described
above in section IV.C.3. The resulting
capital weight for the FY 2008 base year
is 8.392 percent.
Lease expenses are unique in that
they are not broken out as a separate
cost category in the RPL market basket,
but rather are proportionally distributed
amongst the cost categories of
Depreciation, Interest, and Other,
reflecting the assumption that the
underlying cost structure of leases is
similar to that of capital costs in general.
As was done in the FY 2002-based RPL
market basket, we first assumed 10
percent of lease expenses represents
overhead and assigned those costs to the
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26441
Other Capital-Related Costs category
accordingly. The remaining lease
expenses were distributed across the
three cost categories based on the
respective weights of depreciation,
interest, and other capital not including
lease expenses.
Depreciation contains two
subcategories: (1) Building & Fixed
Equipment; and (2) Movable Equipment.
The apportionment between building &
fixed equipment and movable
equipment was determined using the FY
2008 Medicare cost reports for
freestanding IRFs, IPFs, and LTCHs.
This methodology was also used to
compute the apportionment used in the
FY 2002-based RPL market basket (70
FR 47912).
The total Interest expense cost
category is split between government/
nonprofit interest and for-profit interest.
The FY 2002-based RPL market basket
allocated 75 percent of the total Interest
cost weight to government/nonprofit
interest and proxied that category by the
average yield on domestic municipal
bonds. The remaining 25 percent of the
Interest cost weight was allocated to forprofit interest and was proxied by the
average yield on Moody’s Aaa bonds (70
FR 47912). This was based on the FY
2002-based IPPS capital input price
index (70 FR 23406) due to insufficient
Medicare cost report data for IPFs, IRFs,
and LTCHs. For the FY 2008-based RPL
market basket, we derived the split
using the relative FY 2008 Medicare
cost report data on interest expenses for
government/nonprofit and for-profit
IRFs, IPFs, and LTCHs. Based on these
data, we calculated a 33/67 split
between government/nonprofit and forprofit interest. We believe it is
important that this split reflects the
latest relative cost structure of interest
expenses for RPL providers. As stated
above, we first apply the LOS edits (as
described in section IV.C.3.) prior to
calculating this split. Therefore, we are
using Medicare cost reports that are
reflective of case mix and practice
patterns associated with providing
services to Medicare beneficiaries.
Using data specific to government/
nonprofit and for-profit IRFs, IPFs, and
LTCHs as well as the application of
these LOS edits are the primary reasons
for the difference in this split relative to
the FY 2002-based RPL market basket.
Because capital is acquired and paid
for over time, capital expenses in any
given year are determined by both past
and present purchases of physical and
financial capital. The vintage-weighted
capital portion of the FY 2008-based
RPL market basket is intended to
capture the long-term consumption of
capital, using vintage weights for
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Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
depreciation (physical capital) and
interest (financial capital). These
vintage weights reflect the proportion of
capital purchases attributable to each
year of the expected life of building &
fixed equipment, movable equipment,
and interest. We use the vintage weights
to compute vintage-weighted price
changes associated with depreciation
and interest expense.
Vintage weights are an integral part of
the FY 2008-based RPL market basket.
Capital costs are inherently complicated
and are determined by complex capital
purchasing decisions, over time, based
on such factors as interest rates and debt
financing. In addition, capital is
depreciated over time instead of being
consumed in the same period it is
purchased. The capital portion of the FY
2008-based RPL market basket would
reflect the annual price changes
associated with capital costs, and would
be a useful simplification of the actual
capital investment process. By
accounting for the vintage nature of
capital, we are able to provide an
accurate and stable annual measure of
price changes. Annual nonvintage price
changes for capital are unstable due to
the volatility of interest rate changes
and, therefore, do not reflect the actual
annual price changes for Medicare
capital-related costs. The capital
component of the FY 2008-based RPL
market basket would reflect the
underlying stability of the capital
acquisition process and provides
hospitals with the ability to plan for
changes in capital payments.
To calculate the vintage weights for
depreciation and interest expenses, we
needed a time series of capital
purchases for building & fixed
equipment and movable equipment. We
found no single source that provides a
uniquely best time series of capital
purchases by hospitals for all of the
above components of capital purchases.
The early Medicare cost reports did not
have sufficient capital data to meet this
need. Data we obtained from the
American Hospital Association (AHA)
do not include annual capital
purchases. However, AHA does provide
a consistent database back to 1963. We
used data from the AHA Panel Survey
and the AHA Annual Survey to obtain
a time series of total expenses for
hospitals. We then used data from the
AHA Panel Survey supplemented with
the ratio of depreciation to total hospital
expenses obtained from the Medicare
cost reports to derive a trend of annual
depreciation expenses for 1963 through
2008.
In order to estimate capital purchases
using data on depreciation expenses, the
expected life for each cost category
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(building & fixed equipment, movable
equipment, and interest) is needed to
calculate vintage weights. For the FY
2002-based RPL market basket, due to
insufficient Medicare cost report data
for IRFs, IPFs, and LTCHs, we used
2001 Medicare Cost Reports for IPPS
hospitals to determine the expected life
of building & fixed equipment and
movable equipment (70 FR 47913). The
FY 2002-based RPL market basket was
based on an expected life of building &
fixed equipment of 23 years. It used 11
years as the expected life for movable
equipment. We believed that this data
source reflected the latest relative cost
structure of depreciation expenses for
hospitals at the time and was analogous
to IRFs, IPFs, and LTCHs.
The expected life of any piece of
equipment can be determined by
dividing the value of the asset
(excluding fully depreciated assets) by
its current year depreciation amount.
This calculation yields the estimated
useful life of an asset if depreciation
were to continue at current year levels,
assuming straight-line depreciation.
Following a similar method to what was
applied for the FY 2002-based RPL
market basket, we use an expected life
of building & fixed equipment equal to
26 years, and an expected life of
movable equipment of 11 years for the
FY 2008-based RPL market basket.
These expected lives are calculated
using FY 2008 Medicare cost reports for
IPPS hospitals since we are currently
unable to obtain robust measures of the
expected lives for building & fixed
equipment and movable equipment
using the Medicare cost reports from
IRFs, IPFs, and LTCHs.
We used the building & fixed
equipment and movable equipment
weights derived from FY 2008 Medicare
cost reports for IRFs, IPFs, and LTCHs
to separate the depreciation expenses
into annual amounts of building & fixed
equipment depreciation and movable
equipment depreciation. Year-end asset
costs for building & fixed equipment
and movable equipment were
determined by multiplying the annual
depreciation amounts by the expected
life calculations. We then calculated a
time series, back to 1963, of annual
capital purchases by subtracting the
previous year asset costs from the
current year asset costs. From this
capital purchase time series, we were
able to calculate the vintage weights for
building & fixed equipment and for
movable equipment. Each of these sets
of vintage weights is explained in more
detail below.
For the building & fixed equipment
vintage weights, we used the real annual
capital purchase amounts for building &
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fixed equipment to capture the actual
amount of the physical acquisition, net
of the effect of price inflation. This real
annual purchase amount for building &
fixed equipment was produced by
deflating the nominal annual purchase
amount by the building & fixed
equipment price proxy, BEA’s chained
price index for nonresidential
construction for hospitals and special
care facilities. Because building & fixed
equipment have an expected life of 26
years, the vintage weights for building &
fixed equipment are deemed to
represent the average purchase pattern
of building & fixed equipment over 26year periods. With real building & fixed
equipment purchase estimates available
from 2008 back to 1963, we averaged
twenty 26-year periods to determine the
average vintage weights for building &
fixed equipment that are representative
of average building & fixed equipment
purchase patterns over time. Vintage
weights for each 26-year period are
calculated by dividing the real building
& fixed capital purchase amount in any
given year by the total amount of
purchases in the 26-year period. This
calculation is done for each year in the
26-year period, and for each of the
twenty 26-year periods. We used the
average of each year across the twenty
26-year periods to determine the average
building & fixed equipment vintage
weights for the FY 2008-based RPL
market basket.
For the movable equipment vintage
weights, the real annual capital
purchase amounts for movable
equipment were used to capture the
actual amount of the physical
acquisition, net of price inflation. This
real annual purchase amount for
movable equipment was calculated by
deflating the nominal annual purchase
amounts by the movable equipment
price proxy, the PPI for Machinery and
Equipment. This is the same proxy used
for the FY 2002-based RPL market
basket. Based on our determination that
movable equipment has an expected life
of 11 years, the vintage weights for
movable equipment represent the
average expenditure for movable
equipment over an 11-year period. With
real movable equipment purchase
estimates available from 2008 back to
1963, thirty-five 11-year periods were
averaged to determine the average
vintage weights for movable equipment
that are representative of average
movable equipment purchase patterns
over time. Vintage weights for each
11-year period are calculated by
dividing the real movable capital
purchase amount for any given year by
the total amount of purchases in the 11-
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year period. This calculation was done
for each year in the 11-year period and
for each of the thirty-five 11-year
periods. We used the average of each
year across the thirty-five 11-year
periods to determine the average
movable equipment vintage weights for
the FY 2008-based RPL market basket.
For the interest vintage weights, the
nominal annual capital purchase
amounts for total equipment (building &
fixed, and movable) were used to
capture the value of the debt
instrument. Because we have
determined that hospital debt
instruments have an expected life of 26
years, the vintage weights for interest
are deemed to represent the average
purchase pattern of total equipment
over 26-year periods. With nominal total
equipment purchase estimates available
from 2008 back to 1963, twenty 26-year
periods were averaged to determine the
average vintage weights for interest that
are representative of average capital
purchase patterns over time. Vintage
weights for each 26-year period are
calculated by dividing the nominal total
capital purchase amount for any given
year by the total amount of purchases in
the 26-year period. This calculation is
done for each year in the 26-year period
and for each of the twenty 26-year
periods. We used the average of each
year across the twenty 26-year periods
to determine the average interest vintage
weights for the FY 2008-based RPL
market basket. The vintage weights for
the capital portion of the FY 2002-based
RPL market basket and the FY 2008based RPL market basket are presented
in Table 4.
TABLE 4—FY 2002 AND FY 2008 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES
Building & fixed
equipment
Year
Movable equipment
Interest
FY 2002
23 years
FY 2008
26 years
FY 2002
11 years
FY 2008
11 years
FY 2002
23 years
FY 2008
26 years
1 ...............................................................................................................
2 ...............................................................................................................
3 ...............................................................................................................
4 ...............................................................................................................
5 ...............................................................................................................
6 ...............................................................................................................
7 ...............................................................................................................
8 ...............................................................................................................
9 ...............................................................................................................
10 .............................................................................................................
11 .............................................................................................................
12 .............................................................................................................
13 .............................................................................................................
14 .............................................................................................................
15 .............................................................................................................
16 .............................................................................................................
17 .............................................................................................................
18 .............................................................................................................
19 .............................................................................................................
20 .............................................................................................................
21 .............................................................................................................
22 .............................................................................................................
23 .............................................................................................................
24 .............................................................................................................
25 .............................................................................................................
26 .............................................................................................................
0.021
0.022
0.025
0.027
0.029
0.031
0.033
0.035
0.038
0.040
0.042
0.045
0.047
0.049
0.051
0.053
0.056
0.057
0.058
0.060
0.060
0.061
0.061
................
................
................
0.021
0.023
0.025
0.027
0.028
0.030
0.031
0.033
0.035
0.037
0.039
0.041
0.042
0.043
0.044
0.045
0.046
0.047
0.047
0.045
0.045
0.045
0.046
0.046
0.045
0.046
0.065
0.071
0.077
0.082
0.086
0.091
0.095
0.100
0.106
0.112
0.117
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
0.071
0.075
0.080
0.083
0.085
0.089
0.092
0.098
0.103
0.109
0.116
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
0.010
0.012
0.014
0.016
0.019
0.023
0.026
0.029
0.033
0.036
0.039
0.043
0.048
0.053
0.056
0.059
0.062
0.064
0.066
0.070
0.071
0.074
0.076
................
................
................
0.010
0.012
0.014
0.016
0.018
0.020
0.021
0.024
0.026
0.029
0.033
0.035
0.038
0.041
0.043
0.046
0.049
0.052
0.053
0.053
0.055
0.056
0.060
0.063
0.064
0.068
Total ..................................................................................................
1.000
1.000
1.000
1.000
1.000
1.000
jlentini on DSKJ8SOYB1PROD with RULES2
Note: Numbers may not add to total due to rounding.
After the capital cost category weights
were computed, it was necessary to
select appropriate price proxies to
reflect the rate-of-increase for each
expenditure category. As proposed, and
in this final rule, we use the same price
proxies for the capital portion of the FY
2008-based RPL market basket that were
used in the FY 2002-based RPL market
basket, with the exception of the Boeckh
Construction Index. We replaced the
Boeckh Construction Index with BEA’s
chained price index for nonresidential
construction for hospitals and special
care facilities. The BEA index represents
construction of facilities such as
hospitals, nursing homes, hospices, and
rehabilitation centers. Although these
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price indices move similarly over time,
we believe that it is more technically
appropriate to use an index that is more
specific to the hospital industry. We
believe these are the most appropriate
proxies for hospital capital costs that
meet our selection criteria of relevance,
timeliness, availability, and reliability.
The price proxies (prior to any vintage
weighting) for each of the capital cost
categories are the same as those used for
the FY 2006-based Capital Input Price
Index as described in the IPPS FY 2010
final rule (74 FR at 43857).
5. RY 2012 Market Basket Update
As proposed, and in this final rule, for
RY 2012 (that is, beginning July 1, 2011
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through September 30, 2012), we
derived a 15-month estimate of the FY
2008-based RPL market basket based on
the best available data. To determine a
15-month market basket update for RY
2012, we calculate the 5-quarter moving
average index level for July 1, 2011
through September 30, 2012 and the 4quarter moving average index level for
July 1, 2010 through June 30, 2011. The
percent change in these two values
represents the 15-month market basket
update.
Consistent with historical practice, we
estimate the RPL market basket update
for the IPF PPS based on IHS Global
Insight’s forecast using the most recent
available data. IHS Global Insight, Inc.
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is a nationally recognized economic and
financial forecasting firm that contracts
with CMS to forecast the components of
the market baskets. In the RY 2012 IPF
PPS proposed rule, we proposed a
market basket update based on the 4th
quarter 2010 forecast with history
through the 3rd quarter of 2010. We also
proposed that if more recent data
subsequently became available (for
example, a more recent estimate of the
market basket) we would use such data,
if appropriate, to determine the RY 2012
update in the final rule. Based on IHS
Global Insight’s 1st quarter 2011 forecast
with history through the 4th quarter of
2010, the projected 15-month market
basket update for the 15-month RY 2012
(July 1, 2011 through September 30,
2012) is 3.2 percent.
The most recent estimate of the FY
2008-based RPL market basket update
for July 1, 2011 through June 30, 2012,
based on IHS Global Insight’s 1st quarter
2011 forecast with history through the
4th quarter of 2010, is 2.8 percent. We
determined this 12-month market basket
update by calculating the 4-quarter
moving average index level for July 1,
2011 through June 30, 2012 and the 4quarter moving average index level for
July 1, 2010 through June 30, 2011. The
percent change in these two values
represents the 12-month market basket
update. Consistent with our historical
practice of using market basket
estimates based on the most recent
available data, if we were not extending
the 2012 IPF PPS RY by 3 months, the
market basket update for a 12-month RY
2012 would be 2.8 percent, based on the
most recent estimate of the 12-month
RPL market basket update for July 1,
2011 through June 30, 2012.
Using the FY 2002-based RPL market
basket and IHS Global Insight’s 1st
quarter 2011 forecast for the market
basket components, the 15-month RY
2012 update would be 3.3 percent. The
12-month RY 2012 update would be 2.9
percent.
As proposed, for this RY 2012 IPF
PPS final rule we have determined the
RY 2012 update based on the most
recent market basket estimate for the 15month period. The current estimates of
the FY 2002-based and FY 2008-based
RPL market baskets are based on IHS
Global Insight’s first quarter 2011
forecast with historical data through
fourth quarter 2010. Table 5 below
compares the FY 2008-based RPL
market basket and the FY 2002-based
RPL market basket percent changes.
TABLE 5—FY 2002-BASED AND FY 2008-BASED RPL MARKET BASKET PERCENT CHANGES, RY 2006 THROUGH FY
2014
FY 2002-based
RPL market basket
index percent
change
FY 2008-based
RPL market basket
index percent
change
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
3.8
3.5
3.5
3.1
2.2
3.7
3.5
3.6
3.3
2.1
Average 2006–2010 ..................................................................................................................
Forecast:
RY 2011 1 .........................................................................................................................................
RY 2012 2 .........................................................................................................................................
FY 2013 3 ..........................................................................................................................................
FY 2014 3 ..........................................................................................................................................
3.2
3.2
2.4
3.3
2.9
3.0
2.5
3.2
2.9
3.0
Average 2011–2014 ..................................................................................................................
2.9
2.9
Rate year (RY) or fiscal year (FY)
Historical data:
RY 2006 1
RY 2007 1
RY 2008 1
RY 2009 1
RY 2010 1
1 RY
jlentini on DSKJ8SOYB1PROD with RULES2
2006 through RY 2011 represent 12-month updates, which include July 1 through June 30.
2 RY 2012 represents a 15-month update, which includes July 1, 2011 through September 30, 2012.
3 FY 2013 through FY 2014 represent 12-month updates, which include October 1 through September 30.
Note that these market basket percent changes do not include any further adjustments as may be statutorily required.
Source: IHS Global Insight, Inc. 1st quarter 2011 forecast.
The 15-month RY 2012 market basket
update using the FY 2008-based RPL
market basket is 0.1 percentage point
lower than the market basket update
using the FY 2002-based RPL market
basket. This is due to slightly offsetting
factors. The lower total compensation
weight in the FY 2008-based RPL
market basket (62.278 percent) relative
to the FY 2002-based RPL market basket
(65.877 percent), absent other factors,
would have resulted in a slightly lower
market basket update using the FY
2008-based RPL market basket. This
impact, however, is partially offset by
the larger weight associated with the
Professional Fees category. In both
market baskets, these expenditures are
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proxied by the ECI for Compensation for
Professional and Related Services. The
weight for Professional Fees in the FY
2002-based RPL market basket is 2.892
percent compared to 6.325 percent in
the FY 2008-based RPL market basket.
We did not receive any public
comments on the market basket updates
in the RY 2012 IPF PPS proposed rule.
6. Labor-Related Share
As described in section VI.C.1. of this
final rule, due to the variations in costs
and geographic wage levels, we
proposed that payment rates under the
IPF PPS continue to be adjusted by a
geographic wage index. This wage index
would apply to the labor-related portion
of the Federal per diem base rate,
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hereafter referred to as the labor-related
share.
The labor-related share is determined
by identifying the national average
proportion of total costs that are related
to, influenced by, or vary with the local
labor market. As proposed, and for this
final rule, we continue to classify a cost
category as labor-related if the costs are
labor-intensive and vary with the local
labor market. Given this, based on our
definition of the labor-related share, we
proposed to include in the labor-related
share the sum of the relative importance
of Wages and Salaries, Employee
Benefits, Professional Fees: Laborrelated, Administrative and Business
Support Services, All Other: Labor-
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Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
related Services (previously referred to
in the FY 2002-based RPL market basket
as labor-intensive), and a portion of the
Capital-Related cost weight.
Consistent with previous rebasings,
the All Other: Labor-related Services
cost category is mostly comprised of
building maintenance and security
services (including, but not limited to,
commercial and industrial machinery
and equipment repair, nonresidential
maintenance and repair, and
investigation and security services).
Because these services tend to be laborintensive and are mostly performed at
the hospital facility (and, therefore,
unlikely to be purchased in the national
market), we believe that they meet our
definition of labor-related services.
As stated in the April 2010 IPF PPS
notice (75 FR 23110), the labor-related
share was defined as the sum of the
relative importance of Wages and
Salaries, Fringe Benefits, Professional
Fees, Labor-intensive Services, and a
portion of the capital share from an
appropriate market basket. Therefore, to
determine the labor-related share for the
IPF PPS for RY 2011, we used the FY
2002-based RPL market basket cost
weights relative importance to
determine the labor-related share for the
IPF PPS.
For the proposed FY 2008-based RPL
market basket rebasing, the proposed
inclusion of the Administrative and
Business Support Services cost category
into the labor-related share remained
consistent with the current labor-related
share because this cost category was
previously included in the Laborintensive cost category. As previously
stated, we established a separate
Administrative and Business Support
Service cost category so that we can use
the ECI for Compensation for Office and
Administrative Support Services to
more precisely proxy these specific
expenses.
For the FY 2002-based RPL market
basket, we assumed that all nonmedical
professional services (including
accounting and auditing services,
engineering services, legal services, and
management and consulting services)
were purchased in the local labor
market and, therefore, all of their
associated fees varied with the local
labor market. As a result, we previously
included 100 percent of these costs in
the labor-related share. In an effort to
more accurately determine the share of
professional fees that should be
included in the labor-related share, we
surveyed hospitals regarding the
proportion of those fees that go to
companies that are located beyond their
own local labor market (the results are
discussed below).
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We continue to look for ways to refine
our market basket approach to more
accurately account for the proportion of
costs influenced by the local labor
market. To that end, we conducted a
survey of hospitals to empirically
determine the proportion of contracted
professional services purchased by the
industry that are attributable to local
firms and the proportion that are
purchased from national firms. We
notified the public of our intent to
conduct this survey on December 9,
2005 (70 FR 73250) and received no
comments (71 FR 8588).
With approval from the Office of
Management and Budget (OMB), we
contacted a sample of IPPS hospitals
and received responses to our survey
from 108 hospitals. We believe that
these data serve as an appropriate proxy
for the purchasing patterns of
professional services for IPFs as they are
also institutional providers of health
care services. Using data on FTEs to
allocate responding hospitals across
strata (region of the country and urban/
rural status), we calculated
poststratification weights. Based on
these weighted results, we determined
that hospitals purchase, on average, the
following portions of contracted
professional services outside of their
local labor market:
• 34 percent of accounting and
auditing services.
• 30 percent of engineering services.
• 33 percent of legal services.
• 42 percent of management
consulting services.
We applied each of these percentages
to its respective Benchmark I–O cost
category underlying the professional
fees cost category. This is the
methodology that we used to separate
the FY 2008-based RPL market basket
professional fees category into
Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost
categories. In addition to the
professional services listed above, we
also classified expenses under NAICS
55, Management of Companies and
Enterprises, into the Professional Fees
cost category as was done in previous
rebasings. The NAICS 55 data are
mostly comprised of corporate,
subsidiary, and regional managing
offices, or otherwise referred to as home
offices. Formerly, all of the expenses
within this category were considered to
vary with, or be influenced by, the local
labor market and were thus included in
the labor-related share. Because many
hospitals are not located in the same
geographic area as their home office, we
analyzed data from a variety of sources
in order to determine what proportion
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26445
of these costs should be appropriately
included in the labor-related share.
Using data primarily from the
Medicare cost reports and a CMS
database of Home Office Medicare
Records (HOMER) (a database that
provides city and state information
(addresses) for home offices), we were
able to determine that 19 percent of the
total number of freestanding IRFs,
freestanding IPFs, and LTCHs that had
home offices had those home offices
located in their respective local labor
markets—defined as being in the same
Metropolitan Statistical Area (MSA).
The Medicare cost report requires
hospitals to report their home office
provider numbers. Using the HOMER
database to determine the home office
location for each home office provider
number, we compared the location of
the provider with the location of the
hospital’s home office. We then placed
providers into one of the following three
groups:
• Group 1—Provider and home office
are located in different States.
• Group 2—Provider and home office
are located in the same State and same
city.
• Group 3—Provider and home office
are located in the same State and
different city.
We found that 63 percent of the
providers with home offices were
classified into Group 1 (that is, different
State) and, thus, these providers were
determined to not be located in the
same local labor market as their home
office. Although there were a very
limited number of exceptions (that is,
providers located in different States but
the same MSA as their home office), the
63 percent estimate was unchanged.
We found that 9 percent of all
providers with home offices were
classified into Group 2 (that is, same
State and same city and, therefore, the
same MSA). Consequently, these
providers were determined to be located
in the same local labor market as their
home offices.
We found that 27 percent of all
providers with home offices were
classified into Group 3 (that is, same
State and different city). Using data
from the Census Bureau to determine
the specific MSA for both the provider
and its home office, we found that 10
percent of all providers with home
offices were identified as being in the
same State, a different city, but the same
MSA.
Pooling these results, we were able to
determine that approximately 19
percent of providers with home offices
had home offices located within their
local labor market (that is, 9 percent of
providers with home offices had their
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06MYR2
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Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
home offices in the same State and city
(and, thus, the same MSA), and 10
percent of providers with home offices
had their home offices in the same State,
a different city, but the same MSA). We
proposed to apportion the NAICS 55
expense data by this percentage. Thus,
we proposed to classify 19 percent of
these costs into the Professional Fees:
Labor-related cost category and the
remaining 81 percent into the
Professional Fees: Nonlabor-related
Services cost category.
We received several comments on our
proposal to revise the labor-related
share. These comments and our
responses are provided below.
Comment: One commenter
recommended that CMS move forward
with this proposal, and stated a belief
that the labor-related share has been
overstated in the past, resulting in
reduced payments to facilities in areas
with low wage indices.
Response: We thank the commenter
for this comment. We believe comments
on prior years’ labor-related shares
would have been addressed in those
rulemakings.
Comment: Several commenters
objected to the proposed change in the
treatment of professional fees in the
calculation of the labor-related share,
and recommended maintaining the
current methodology. One commenter
questioned the sample size (108
hospitals) for estimating the allocation
of professional fees. Several commenters
believed that professional services,
whether purchased within or outside
the local labor market, are substitutes
for hospital-employed staff and should
be included as labor costs.
Response: We disagree with the
request to reject the proposed change in
the calculation of the labor-related
share. A method that distributes
professional fees based on empirical
research and data represents a technical
improvement to the construction of the
market basket, where previously all
professional fees were assumed to vary
with the local labor market. In response
to the concern about the sample of 108
hospitals, we provided more detail on
that survey conducted below. We note
that these same survey results were used
in the IPPS market basket rebasing for
the FY 2010 IPPS final rule (74 FR
43853).
The survey’s methods unfolded in the
following manner: Through an
independent contractor, a small sample
of 12 hospitals were initially pre-tested
in order to ensure the understandability
of the survey questions. The survey
prompted sample institutions to select
from multiple choice answers the
proportions of their professional fees
that are purchased from firms located
outside of their respective local labor
market. The multiple choice answers for
each type of professional service
included the following options: 0
percent of fees; 1–20 percent of fees; 21–
40 percent of fees; 41–60 percent of fees;
61–80 percent of fees; 81–99 percent of
fees; and 100 percent of fees. All
respondents were assured that the
information they provided would be
kept strictly confidential.
Understanding that larger, urbanbased hospitals (and those located in
areas with area wage indexes greater
than 1.0) are most likely to be impacted
by the survey’s results, we used data on
full-time equivalents (FTEs) to represent
the sizes of hospitals and selected
hospitals with probability proportional
to their sizes across strata when drawing
the full sample. Strata were formed by
Census Region and Urban/Rural Status.
The distributions of the hospital
population, as well as weighted
distributions for the responders, by
Urban/Rural Status (including data on
hospital size) and Census Region were
as follows:
All hospitals
percent
distribution &
average FTE size
jlentini on DSKJ8SOYB1PROD with RULES2
Total
Total
Total
Total
Total
Total
Total
.........................................................................................................................................................
Rurals .............................................................................................................................................
Urbans ............................................................................................................................................
Northeast Region ............................................................................................................................
Mid-West Region ............................................................................................................................
South Region ..................................................................................................................................
West Region ...................................................................................................................................
Sample weights were calculated as
the inverse of the selection probability
and were subsequently adjusted for
nonresponse bias by strata and poststratified to derive final weights. This
type of application represents a
common survey approach and is based
on valid and widely-accepted statistical
techniques.
For the estimates of the nationwide
proportion of nonmedical professional
services fees purchased outside of the
local labor market, we first examined
the data on multiple levels. First, we
found that fewer than 30 percent of the
responding hospitals paid 100 percent
of their professional fees to vendors
located within their local labor market.
Conversely, we found that roughly 20
percent of responding hospitals reported
81 percent or more of their professional
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services fees are paid to vendors located
outside of their local labor market.
In determining the specific and
appropriate proportions of professional
fees to consider labor-related and
nonlabor-related, we generated
weighted averages from the data in the
following manner:
• For any multiple choice answer
where the standard error associated
with the weighted counts for that
answer was less than 30 percent, we
multiplied the weighted counts
associated with that answer by the
midpoint of the range within that
answer. For example, for Accounting
and Auditing services, if a weighted
count of 500 hospitals responded that
they pay ‘‘1 to 20 percent’’ of their
professional fees for these services to
firms located outside of their local labor
market, we would multiply 500 times 10
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Fmt 4701
Sfmt 4700
100%/994
30%/388
70%/1,255
15%/1,442
23%/1,062
42%/843
20%/899
Responding
hospitals percent
distribution &
average FTE size
100%/1,156
25%/449
75%/1,460
20%/1,078
24%/1,656
37%/944
19%/1,081
percent. We repeat this for each possible
multiple choice answer.
• For any multiple choice answer
where the standard error associated
with the weighted counts for that
answer exceeded 30 percent, we
multiplied the weighted hospital counts
by the low point of the range. Using a
similar example as above, if a weighted
count of 300 hospitals responded that
they pay ‘‘1 to 20 percent’’ of their
professional fees for these services to
firms located outside of their local labor
market, and the standard error on that
estimate was greater than 30 percent, we
would multiply 300 times 1 percent.
• After applying one of these two
techniques to each answer, dependent
on its associated standard error, we took
a weighted average of the results to
determine the final proportion to be
excluded from the labor-related share
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06MYR2
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
for each of the four types of professional
services surveyed.
Given the information provided
above, we believe that the estimates
based on this survey are valid. In
response to the commenters’ statement
that professional services should be
included as labor-related costs no matter
where they are purchased, we again
note that the purpose of the laborrelated share is to determine the
national average proportion of total
costs that are related to, influenced by,
or vary with the local labor market. We
define the labor-related share as not
only those expenses that are laborintensive but those that also vary with,
or are influenced by, the local labor
market. By application of this
definition, it is relevant where these
professional services are purchased. To
the extent these services are not
purchased in the local labor market,
they are not included in the laborrelated share.
After consideration of the public
comments received, in this final rule we
are finalizing our methodology for
calculating the labor-related share for
RY 2012. Using the same methodology
26447
that was proposed in the RY 2012 IPF
PPS proposed rule, we calculated a
labor-related share for RY 2012 using
the most recent data available at the
time of this final rule. This estimate of
the RY 2012 labor-related share is based
on IHS Global Insight Inc.’s first quarter
2011 forecast, which is the same
forecast used to derive the RY 2012
market basket update.
Table 6 below shows the RY 2012
relative importance labor-related share
using the FY 2008-based RPL market
basket and the FY 2002-based RPL
market basket.
TABLE 6—COMPARISON OF THE RY 2011 (12-MONTH) RELATIVE IMPORTANCE LABOR-RELATED SHARE BASED ON THE
FY 2002-BASED RPL MARKET BASKET AND THE RY 2012 (15-MONTH) RELATIVE IMPORTANCE LABOR-RELATED
SHARE BASED ON THE FY 2008-BASED RPL MARKET BASKET
RY 2011 relative
importance laborrelated share 1
Final RY 2012
relative importance
labor-related
share 2
Wages and Salaries ................................................................................................................................
Employee Benefits ...................................................................................................................................
Professional Fees: Labor-Related ...........................................................................................................
Administrative and Business Support Services .......................................................................................
All Other: Labor-Related Services ...........................................................................................................
52.600
13.935
2.853
................................
2.118
49.049
13.036
2.073
0.416
2.094
Subtotal .............................................................................................................................................
Labor-Related Portion of Capital Costs (46%) ........................................................................................
71.506
3.894
66.668
3.649
Total Labor-Related Share ...............................................................................................................
75.400
70.317
1 Published
jlentini on DSKJ8SOYB1PROD with RULES2
in the RY 2011 IPF PPS notice (75FR 23110–23111) and based on the IHS Global Insight, Inc. first quarter 2010 forecast of the
2002-based RPL market basket.
2 Based on IHS Global Insight, Inc. first quarter 2011 forecast of the 2008-based RPL market basket.
The labor-related share for RY 2012 is
the sum of the RY 2012 relative
importance of each labor-related cost
category, and would reflect the different
rates of price change for these cost
categories between the base year (FY
2008) and RY 2012. The sum of the
relative importance for RY 2012 for
operating costs (Wages and Salaries,
Employee Benefits, Professional Fees:
Labor-Related, Administrative and
Business Support Services, and All
Other: Labor-related Services) is 66.668
percent, as shown in Table 6 above. The
portion of Capital that is influenced by
the local labor market is estimated to be
46 percent, which is the same
percentage applied to the FY 2002-based
RPL market basket. Since the relative
importance for Capital-Related Costs is
7.932 percent of the FY 2008-based RPL
market basket in RY 2012, we take 46
percent of 7.932 percent to determine
the labor-related share of Capital for RY
2012. The result is 3.649 percent, which
we add to 66.668 percent for the
operating cost amount to determine the
total labor-related share for RY 2012.
Therefore, the labor-related share for the
IPF PPS in RY 2012 is 70.317 percent.
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This labor-related share is determined
using the same methodology as
employed in calculating all previous IPF
labor-related shares (69 FR 66952). The
wage index and the labor-related share
are reflected in budget neutrality
adjustments.
V. Updates to the IPF PPS for RY
Beginning July 1, 2011
The IPF PPS is based on a
standardized Federal per diem base rate
calculated from IPF average per diem
costs and adjusted for budget-neutrality
in the implementation year. The Federal
per diem base rate is used as the
standard payment per day under the IPF
PPS and is adjusted by the patient- and
facility-level adjustments that are
applicable to the IPF stay. A detailed
explanation of how we calculated the
average per diem cost appears in the
November 2004 IPF PPS final rule (69
FR 66926).
A. Determining the Standardized
Budget-Neutral Federal Per Diem Base
Rate
Section 124(a)(1) of the BBRA
requires that we implement the IPF PPS
in a budget neutral manner. In other
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words, the amount of total payments
under the IPF PPS, including any
payment adjustments, must be projected
to be equal to the amount of total
payments that would have been made if
the IPF PPS were not implemented.
Therefore, we calculated the budgetneutrality factor by setting the total
estimated IPF PPS payments to be equal
to the total estimated payments that
would have been made under the Tax
Equity and Fiscal Responsibility Act of
1982 (TEFRA) (Pub. L. 97–248)
methodology had the IPF PPS not been
implemented.
Under the IPF PPS methodology, we
calculated the final Federal per diem
base rate to be budget neutral during the
IPF PPS implementation period (that is,
the 18-month period from January 1,
2005 through June 30, 2006) using a July
1 update cycle. We updated the average
cost per day to the midpoint of the IPF
PPS implementation period (that is,
October 1, 2005), and this amount was
used in the payment model to establish
the budget-neutrality adjustment.
A step-by-step description of the
methodology used to estimate payments
under the TEFRA payment system
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appears in the November 2004 IPF PPS
final rule (69 FR 66926).
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1. Standardization of the Federal Per
Diem Base Rate and Electroconvulsive
Therapy (ECT) Rate
In the November 2004 IPF PPS final
rule, we describe how we standardized
the IPF PPS Federal per diem base rate
in order to account for the overall
positive effects of the IPF PPS payment
adjustment factors. To standardize the
IPF PPS payments, we compared the IPF
PPS payment amounts calculated from
the FY 2002 Medicare Provider Analysis
and Review (MedPAR) file to the
projected TEFRA payments from the FY
2002 cost report file updated to the
midpoint of the IPF PPS
implementation period (that is, October
2005). The standardization factor was
calculated by dividing total estimated
payments under the TEFRA payment
system by estimated payments under
the IPF PPS. The standardization factor
was calculated to be 0.8367.
As described in detail in the May
2006 IPF PPS final rule (71 FR 27045),
in reviewing the methodology used to
simulate the IPF PPS payments used for
the November 2004 IPF PPS final rule,
we discovered that due to a computer
code error, total IPF PPS payments were
underestimated by about 1.36 percent.
Since the IPF PPS payment total should
have been larger than the estimated
figure, the standardization factor should
have been smaller (0.8254 vs. 0.8367). In
turn, the Federal per diem base rate and
the ECT rate should have been reduced
by 0.8254 instead of 0.8367.
To resolve this issue, in RY 2007, we
amended the Federal per diem base rate
and the ECT payment rate
prospectively. Using the standardization
factor of 0.8254, the average cost per day
was effectively reduced by 17.46
percent (100 percent minus 82.54
percent = 17.46 percent).
2. Calculation of the Budget Neutrality
Adjustment
To compute the budget neutrality
adjustment for the IPF PPS, we
separately identified each component of
the adjustment, that is, the outlier
adjustment, stop-loss adjustment, and
behavioral offset.
A complete discussion of how we
calculate each component of the budget
neutrality adjustment appears in the
November 2004 IPF PPS final rule (69
FR 66932 through 66933) and in the
May 2006 IPF PPS final rule (71 FR
27044 through 27046).
a. Outlier Adjustment
Since the IPF PPS payment amount
for each IPF includes applicable outlier
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amounts, we reduced the standardized
Federal per diem base rate to account
for aggregate IPF PPS payments
estimated to be made as outlier
payments. The outlier adjustment was
calculated to be 2 percent. As a result,
the standardized Federal per diem base
rate was reduced by 2 percent to
account for projected outlier payments.
b. Stop-Loss Provision Adjustment
As explained in the November 2004
IPF PPS final rule, we provided a stoploss payment during the transition from
cost-based reimbursement to the per
diem payment system to ensure that an
IPF’s total PPS payments were no less
than a minimum percentage of their
TEFRA payment, had the IPF PPS not
been implemented. We reduced the
standardized Federal per diem base rate
by the percentage of aggregate IPF PPS
payments estimated to be made for stoploss payments. As a result, the
standardized Federal per diem base rate
was reduced by 0.39 percent to account
for stop-loss payments. Since the
transition was completed in RY 2009,
the stop-loss provision is no longer
applicable, and for cost reporting
periods beginning on or after January 1,
2008, IPFs were paid 100 percent PPS.
c. Behavioral Offset
As explained in the November 2004
IPF PPS final rule, implementation of
the IPF PPS may result in certain
changes in IPF practices, especially with
respect to coding for comorbid medical
conditions. As a result, Medicare may
make higher payments than assumed in
our calculations. Accounting for these
effects through an adjustment is
commonly known as a behavioral offset.
Based on accepted actuarial practices
and consistent with the assumptions
made in other PPSs, we assumed in
determining the behavioral offset that
IPFs would regain 15 percent of
potential ‘‘losses’’ and augment payment
increases by 5 percent. We applied this
actuarial assumption, which is based on
our historical experience with new
payment systems, to the estimated
‘‘losses’’ and ‘‘gains’’ among the IPFs. The
behavioral offset for the IPF PPS was
calculated to be 2.66 percent. As a
result, we reduced the standardized
Federal per diem base rate by 2.66
percent to account for behavioral
changes. As indicated in the November
2004 IPF PPS final rule, we do not plan
to change adjustment factors or
projections until we analyze IPF PPS
data.
If we find that an adjustment is
warranted, the percent difference may
be applied prospectively to the
established PPS rates to ensure the rates
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accurately reflect the payment level
intended by the statute. In conducting
this analysis, we will be interested in
the extent to which improved coding of
patients’ principal and other diagnoses,
which may not reflect real increases in
underlying resource demands, has
occurred under the PPS.
B. Update of the Federal Per Diem Base
Rate and Electroconvulsive Therapy
Rate
As described in the November 2004
IPF PPS final rule (69 FR 66931), the
average per diem cost was updated to
the midpoint of the implementation
year. This updated average per diem
cost of $724.43 was reduced by 17.46
percent to account for standardization to
projected TEFRA payments for the
implementation period, by 2 percent to
account for outlier payments, by 0.39
percent to account for stop-loss
payments, and by 2.66 percent to
account for the behavioral offset. The
Federal per diem base rate in the
implementation year was $575.95. The
increase in the per diem base rate for RY
2009 included the 0.39 percent increase
due to the removal of the stop-loss
provision. We indicated in the
November 2004 IPF PPS final rule (69
FR 66932) that we would remove this
0.39 percent reduction to the Federal
per diem base rate after the transition.
As discussed in section IV.D.2. of the
May 2008 IPF PPS notice, we increased
the Federal per diem base rate and the
ECT base rate by 0.39 percent in RY
2009. Therefore for RY 2009 and
beyond, the stop-loss provision has
ended and is no longer a part of budget
neutrality.
In accordance with section
1886(s)(2)(A)(ii) of the Act, which
requires the application of an ‘‘other
adjustment,’’ described in section
1886(s)(3) of the Act (specifically,
section 1886(s)(3)(A) for RYs 2011 and
2012) that reduces the update to the IPF
PPS base rate for the RY beginning in
Calendar Year (CY) 2011, we are
adjusting the IPF PPS update by a 0.25
percentage point reduction for RY 2012.
For this final rule, we are applying the
15-month 2008-based RPL market basket
increase for RY 2012 of 3.2 percent, as
adjusted by the ‘‘other adjustment’’ of
¥0.25 percentage point, and the wage
index budget neutrality factor of 0.9995
to the RY 2011 Federal per diem base
rate of $665.71 yielding a Federal per
diem base rate of $685.01 for RY 2012.
Similarly, we are applying the market
basket increase, as adjusted by the
‘‘other adjustment’’, and the wage index
budget neutrality factor to the RY 2011
ECT base rate, yielding an ECT base rate
of $294.91 for RY 2012.
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Final Rule Action: In summary, for
the RY 2012, we received no public
comments concerning the ‘‘other
adjustment’’; therefore, we will apply
the 15-month FY 2008-based RPL
market basket increase of 3.2 percent
with the ‘‘other adjustment’’ of ¥0.25
percent and the wage index budget
neutrality factor to the RY 2011 ECT and
Federal per diem base rates to yield the
RY 2012 ECT base rate of $294.91 and
Federal per diem base rate of $685.01.
VI. Update of the IPF PPS Adjustment
Factors
A. Overview of the IPF PPS Adjustment
Factors
The IPF PPS payment adjustments
were derived from a regression analysis
of 100 percent of the FY 2002 MedPAR
data file, which contained 483,038
cases. For the proposed rule, we used
the same results of the regression
analysis used to implement the
November 2004 IPF PPS final rule. For
a more detailed description of the data
file used for the regression analysis, see
the November 2004 IPF PPS final rule
(69 FR 66935 through 66936). While we
have since used more recent claims data
to set the fixed dollar loss threshold
amount, we used the same results of this
regression analysis to update the IPF
PPS for RY 2011 and we proposed to
use these same results for RY 2012. Now
that we are approximately 5 years into
the IPF PPS, we believe that we have
enough data to begin looking at the
process of refining the IPF PPS as
appropriate. We believe that in the next
rulemaking, for FY 2013, we will be
ready to propose potential refinements
to the system.
As we stated previously, we do not
plan to update the regression analysis
until we are able to analyze IPF PPS
claims and cost report data. However,
we continue to monitor claims and
payment data independently from cost
report data to assess issues, to determine
whether changes in case-mix or
payment shifts have occurred among
freestanding governmental, non-profit
and private psychiatric hospitals, and
psychiatric units of general hospitals,
and CAHs and other issues of
importance to IPFs.
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B. Patient-Level Adjustments
In the April 2010 IPF PPS notice (75
FR 23113 through 23117), we
announced payment adjustments for the
following patient-level characteristics:
Medicare Severity diagnosis related
groups (MS–DRGs) assignment of the
patient’s principal diagnosis, selected
comorbidities, patient age, and the
variable per diem adjustments.
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1. Adjustment for MS–DRG Assignment
The IPF PPS includes payment
adjustments for the psychiatric DRG
assigned to the claim based on each
patient’s principal diagnosis. The IPF
PPS recognizes the MS–DRGs. The DRG
adjustment factors were expressed
relative to the most frequently reported
psychiatric DRG in FY 2002, that is,
DRG 430 (psychoses). The coefficient
values and adjustment factors were
derived from the regression analysis.
In accordance with § 412.27(a),
payment under the IPF PPS is
conditioned on IPFs admitting ‘‘only
patients whose admission to the unit is
required for active treatment, of an
intensity that can be provided
appropriately only in an inpatient
hospital setting, of a psychiatric
principal diagnosis that is listed in
Chapter Five (‘‘Mental Disorders’’) of the
International Classification of Diseases,
Ninth Revision, Clinical Modification
(ICD–9–CM)’’ or in the Fourth Edition,
Text Revision of the American
Psychiatric Association’s Diagnostic and
Statistical Manual, (DSM–IV–TR). IPF
claims with a principal diagnosis
included in Chapter Five of the ICD–9–
CM or the DSM–IV–TR are paid the
Federal per diem base rate under the IPF
PPS and all other applicable
adjustments, including any applicable
DRG adjustment. Psychiatric principal
diagnoses that do not group to one of
the designated DRGs still receive the
Federal per diem base rate and all other
applicable adjustments, but the payment
would not include a DRG adjustment.
The Standards for Electronic
Transaction final rule published in the
Federal Register on August 17, 2000 (65
FR 50312), adopted the ICD–9–CM as
the designated code set for reporting
diseases, injuries, impairments, other
health related problems, their
manifestations, and causes of injury,
disease, impairment, or other health
related problems. Therefore, we use the
ICD–9–CM as the designated code set
for the IPF PPS.
We believe that it is important to
maintain the same diagnostic coding
and DRG classification for IPFs that are
used under the IPPS for providing
psychiatric care. Therefore, when the
IPF PPS was implemented for cost
reporting periods beginning on or after
January 1, 2005, we adopted the same
diagnostic code set and DRG patient
classification system (that is, the CMS
DRGs) that were utilized at the time
under the hospital inpatient prospective
payment system (IPPS). Since the
inception of the IPF PPS, the DRGs used
as the patient classification system
under the IPF PPS have corresponded
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26449
exactly with the CMS DRGs applicable
under the IPPS for acute care hospitals.
Every year, changes to the ICD–9–CM
coding system are addressed in the IPPS
proposed and final rules. The changes to
the codes are effective October 1 of each
year and must be used by acute care
hospitals as well as other providers to
report diagnostic and procedure
information. The IPF PPS has always
incorporated ICD–9–CM coding changes
made in the annual IPPS update. We
publish coding changes in a
Transmittal/Change Request, similar to
how coding changes are announced by
the IPPS and LTCH PPS. Those ICD–9–
CM coding changes are also published
in the following IPF PPS RY update, in
either the IPF PPS proposed and final
rules, or in an IPF PPS update notice.
In the May 2008 IPF PPS notice (73
FR 25709), we discussed CMS’ effort to
better recognize resource use and the
severity of illness among patients. CMS
adopted the new MS–DRGs for the IPPS
in the FY 2008 IPPS final rule with
comment period (72 FR 47130). We
believe by better accounting for patients’
severity of illness in Medicare payment
rates, the MS–DRGs encourage hospitals
to improve their coding and
documentation of patient diagnoses.
The MS–DRGs, which are based on the
CMS DRGs, represent a significant
increase in the number of DRGs (from
538 to 745, an increase of 207). For a
full description of the development and
implementation of the MS–DRGs, see
the FY 2008 IPPS final rule with
comment period (72 FR 47141 through
47175).
In the May 2008 IPF PPS notice, the
IPF PPS recognized the MS–DRGs. A
crosswalk, to reflect changes that were
made to the DRGs under the IPF PPS to
the new MS–DRGs was provided (73 FR
25716). Since then, we have referred to
the IPF PPS DRGs as MS–DRGs. In the
RY 2012 IPF PPS proposed rule, we
proposed that all references to the MS–
DRGs used for the IPF PPS would be to
MS–IPF–DRGs. This would only be a
change in terminology. We proposed to
revise § 412.402 to add the definition of
MS–IPF–DRG.
Comment: One Commenter suggested
for consistency sake, that the DRG name
of MS–DRG should remain the same in
this rule as it is in the IPPS rule. The
commenter believes that the name
change to MS–IPF–DRGs suggest that
there are two separate and distinct DRG
classification systems.
Response: We understand the
commenter’s concern that the name
change from MS–DRG to MS–IPF–DRG
could suggest that there are two separate
DRG classification systems. Although
we proposed to simply change the
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terminology only and this change does
not mean two separate and distinct DRG
classification systems, we will retain the
MS–DRG name for consistency sake and
to avoid confusion. Therefore, we will
not finalize the revision of § 412.402 to
add the definition of MS–IPF–DRG. All
references to the DRG name of MS–
DRGs for the IPF PPS will remain the
same.
All of the ICD–9–CM coding changes
are reflected in the FY 2011 GROUPER,
Version 28.0, effective for IPPS
discharges occurring on or after October
1, 2010 through September 30, 2011.
The GROUPER Version 28.0 software
package assigns each case to an MS–
DRG on the basis of the diagnosis and
procedure codes and demographic
information (that is, age, sex, and
discharge status). The Medicare Code
Editor (MCE) 27.0 uses the new ICD–9–
CM codes to validate coding for IPPS
discharges on or after October 1, 2010.
For additional information on the
GROUPER Version 28.0 and MCE 27.0,
see Transmittal 2060 (Change Request
7134), dated October 1, 2010. The IPF
PPS has always used the same
GROUPER and Code Editor as the IPPS.
Therefore, the ICD–9–CM changes,
which were reflected in the GROUPER
Version 28.0 and MCE 27.0 on October
1, 2010, also became effective for the
IPF PPS for discharges occurring on or
after October 1, 2010.
The impact of the new MS–DRGs on
the IPF PPS was negligible. Mapping to
the MS–DRGs resulted in the current 17
MS–DRGs, instead of the original 15, for
which the IPF PPS provides an
adjustment. Although the code set is
updated, the same associated
adjustment factors apply now that have
been in place since implementation of
the IPF PPS, with one exception that is
unrelated to the update to the codes.
When DRGs 521 and 522 were
consolidated into MS–DRG 895, we
carried over the adjustment factor of
1.02 from DRG 521 to the newly
consolidated MS–DRG. This was done
to reflect the higher claims volume
under DRG 521, with more than eight
times the number of claims than billed
under DRG 522. The updates are
reflected in Tables 7 and 8. For a
detailed description of the mapping
changes from the original DRG
adjustment categories to the current
MS–DRG adjustment categories we refer
readers to the May 2008 IPF PPS notice
(73 FR 25714).
The official version of the ICD–9–CM
is available on CD–ROM from the U.S.
Government Printing Office. The FY
2009 version can be ordered by
contacting the Superintendent of
Documents, U.S. Government Printing
Office, Department 50, Washington, DC
20402–9329, telephone number (202)
512–1800. Questions concerning the
ICD–9–CM should be directed to
Patricia E. Brooks, Co-Chairperson, ICD–
9–CM Coordination and Maintenance
Committee, CMS, Center for Medicare
Management, Hospital and Ambulatory
Policy Group, Division of Acute Care,
Mailstop C4–08–06, 7500 Security
Boulevard, Baltimore, Maryland 21244–
1850.
Further information concerning the
official version of the ICD–9–CM can be
found in the IPPS final rule with
comment period, ‘‘Changes to Hospital
Inpatient Prospective Payment System
and Fiscal Year 2011 Rates’’ in the
August 16, 2010 Federal Register (75 FR
50042) and at Tables 7 and 8 below list
the FY 2011 new and revised ICD–9–CM
diagnosis codes that group to one of the
17 MS–DRGs for which the IPF PPS
provides an adjustment. These tables are
only a listing of FY 2011 changes and
do not reflect all of the currently valid
and applicable ICD–9–CM codes
classified in the MS–DRGs. When coded
as a principal code or diagnosis, these
codes receive the correlating MS–DRG
adjustment.
TABLE 7—FY 2011 NEW DIAGNOSIS CODES
Diagnosis code
799.51
799.52
799.54
799.55
799.59
MS–DRG descriptions
...................................................
...................................................
...................................................
...................................................
...................................................
MS–DRG
Attention or concentration deficit ..........................................................................................
Cognitive communication deficit ...........................................................................................
Psychomotor deficit ..............................................................................................................
Frontal lobe and executive function deficit ...........................................................................
Other signs and symptoms involving cognition ....................................................................
886
884
884
884
884
TABLE 8—FY 2011 REVISED DIAGNOSIS CODE
Diagnosis code
MS–DRG description
307.0 .....................................................
Adult onset fluency disorder .................................................................................................
Because we do not plan to update the
regression analysis until we are able to
analyze IPF PPS data, we proposed that
the MS–IPF–DRG adjustment factors (as
shown in Table 9) would continue to be
MS–DRG
887
paid for discharges occurring in RY
2012.
TABLE 9—RY 2012 CURRENT MS–IPF–DRGS APPLICABLE FOR THE PRINCIPAL DIAGNOSIS ADJUSTMENT
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MS–DRG
056
057
080
081
876
880
881
882
883
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
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Adjustment
factor
MS–DRG descriptions
Degenerative nervous system disorders w/MCC .................................................................
Degenerative nervous system disorders w/o MCC ..............................................................
Nontraumatic stupor & coma w/MCC ...................................................................................
Nontraumatic stupor & coma w/o MCC ...............................................................................
O.R. procedure w/principal diagnoses of mental illness ......................................................
Acute adjustment reaction & psychosocial dysfunction .......................................................
Depressive neuroses ............................................................................................................
Neuroses except depressive ................................................................................................
Disorders of personality & impulse control ..........................................................................
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1.05
1.07
1.07
1.22
1.05
0.99
1.02
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Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
26451
TABLE 9—RY 2012 CURRENT MS–IPF–DRGS APPLICABLE FOR THE PRINCIPAL DIAGNOSIS ADJUSTMENT—Continued
MS–DRG
884
885
886
887
894
895
896
897
Adjustment
factor
MS–DRG descriptions
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Organic disturbances & mental retardation ..........................................................................
Psychoses ............................................................................................................................
Behavioral & developmental disorders .................................................................................
Other mental disorder diagnoses .........................................................................................
Alcohol/drug abuse or dependence, left AMA .....................................................................
Alcohol/drug abuse or dependence w/rehabilitation therapy ...............................................
Alcohol/drug abuse or dependence w/o rehabilitation therapy w/MCC ...............................
Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC ............................
Final Rule Action: In summary, we
received one public comment objecting
to our proposed change to § 412.402 to
change the terminology from MS–DRG
to MS–IPF–DRG. Therefore, we will not
revise § 412.402 to add the definition of
MS–IPF–DRG. Instead, we will retain
the MS–DRG name for consistency sake
and in order to avoid confusion. All
references to the DRG name of MS–DRG
for the IPF PPS will remain the same. In
addition, we are adopting the MS–DRG
adjustments currently in effect and as
shown in Table 9.
2. Payment for Comorbid Conditions
The intent of the comorbidity
adjustments is to recognize the
increased costs associated with
comorbid conditions by providing
additional payments for certain
concurrent medical or psychiatric
conditions that are expensive to treat. In
the April 2010 IPF PPS notice (75 FR
23114), we explained that the IPF PPS
includes 17 comorbidity categories and
identified the new, revised, and deleted
ICD–9–CM diagnosis codes that generate
a comorbid condition payment
adjustment under the IPF PPS for RY
2011 (75 FR 23115).
Comorbidities are specific patient
conditions that are secondary to the
patient’s principal diagnosis and that
require treatment during the stay.
Diagnoses that relate to an earlier
episode of care and have no bearing on
the current hospital stay are excluded
and must not be reported on IPF claims.
Comorbid conditions must exist at the
time of admission or develop
subsequently, and affect the treatment
received, length of stay (LOS), or both
treatment and LOS.
For each claim, an IPF may receive
only one comorbidity adjustment per
comorbidity category, but it may receive
an adjustment for more than one
comorbidity category. Billing
instructions require that IPFs must enter
the full ICD–9–CM codes for up to 8
additional diagnoses if they co-exist at
the time of admission or develop
subsequently and impact the treatment
provided.
The comorbidity adjustments were
determined based on the regression
analysis using the diagnoses reported by
IPFs in FY 2002. The principal
diagnoses were used to establish the
DRG adjustments and were not
accounted for in establishing the
comorbidity category adjustments,
except where ICD–9–CM ‘‘code first’’
instructions apply. As we explained in
1.03
1.00
0.99
0.92
0.97
1.02
0.88
0.88
the April 2010 IPF PPS notice (75 FR
23115), the code first rule applies when
a condition has both an underlying
etiology and a manifestation due to the
underlying etiology. For these
conditions, the ICD–9–CM has a coding
convention that requires the underlying
conditions to be sequenced first
followed by the manifestation.
Whenever a combination exists, there is
a ‘‘use additional code’’ note at the
etiology code and a code first note at the
manifestation code.
As discussed in the MS–DRG section,
where we proposed that all references to
MS–DRGs used for the IPF PPS be to
MS–IPF–DRGs (as previously stated, we
are not finalizing that proposal), it is our
policy to maintain the same diagnostic
coding set for IPFs that is used under
the IPPS for providing the same
psychiatric care. Although the ICD–9–
CM code set has been updated, the same
adjustment factors have been in place
since the implementation of the IPF
PPS.
Table 10 below lists the FY 2011 new
ICD diagnosis codes that impact the
comorbidity adjustments under the IPF
PPS. Table 10 is not a list of all
currently valid ICD codes applicable for
the IPF PPS comorbidity adjustments.
TABLE 10—FY 2011 NEW ICD CODES APPLICABLE FOR THE COMORBIDITY ADJUSTMENT
Diagnosis
code
Description
Comorbidity
category
237.73 ...................................................
237.79 ...................................................
Schwannomatosis ..................................................................................................................
Other neurofibromatosis .........................................................................................................
Oncology.
Oncology.
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For RY 2012, we are applying the
seventeen comorbidity categories for
which we are providing an adjustment,
their respective codes, including the
new FY 2011 ICD–9–CM codes, and
their respective adjustment factors in
Table 11 below.
TABLE 11—RY 2012 DIAGNOSIS CODES AND ADJUSTMENT FACTORS FOR COMORBIDITY CATEGORIES
Adjustment
factor
Description of comorbidity
Diagnoses codes
Developmental Disabilities ...................
Coagulation Factor Deficits ..................
Tracheostomy .......................................
317, 3180, 3181, 3182, and 319 ..........................................................................................
2860 through 2864. ..............................................................................................................
51900 through 51909 and V440 ..........................................................................................
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TABLE 11—RY 2012 DIAGNOSIS CODES AND ADJUSTMENT FACTORS FOR COMORBIDITY CATEGORIES—Continued
Adjustment
factor
Description of comorbidity
Diagnoses codes
Renal Failure, Acute .............................
5845 through 5849, 63630, 63631, 63632, 63730, 63731, 63732, 6383, 6393, 66932,
66934, 9585.
40301, 40311, 40391, 40402, 40412, 40413, 40492, 40493, 5853, 5854, 5855, 5856,
5859,586, V451, V560, V561, and V562.
1400 through 2399 with a radiation therapy code 92.21–92.29 or chemotherapy code
99.25.
25002, 25003, 25012, 25013, 25022, 25023, 25032, 25033, 25042, 25043, 25052,
25053, 25062, 25063, 25072, 25073, 25082, 25083, 25092, and 25093.
260 through 262 ...................................................................................................................
3071, 30750, 31203, 31233, and 31234 ..............................................................................
01000 through 04110, 042, 04500 through 05319, 05440 through 05449, 0550 through
0770, 0782 through 07889, and 07950 through 07959.
2910, 2920, 29212, 2922, 30300, and 30400 ......................................................................
Renal Failure, Chronic ..........................
Oncology Treatment .............................
Uncontrolled Diabetes-Mellitus with or
without complications.
Severe Protein Calorie Malnutrition .....
Eating and Conduct Disorders .............
Infectious Disease ................................
Drug and/or Alcohol Induced Mental
Disorders.
Cardiac Conditions ...............................
Gangrene ..............................................
Chronic Obstructive Pulmonary Disease.
Artificial Openings—Digestive and Urinary.
Severe Musculoskeletal and Connective Tissue Diseases.
Poisoning ..............................................
1.13
1.12
1.07
1.03
1.08
6960, 7100, 73000 through 73009, 73010 through 73019, and 73020 through 73029 ......
1.09
96500 through 96509, 9654, 9670 through 9699, 9770, 9800 through 9809, 9830
through 9839, 986, 9890 through 9897.
1.11
Adjustment
factor
Under 45 ...................................
45 and under 50 .......................
50 and under 55 .......................
55 and under 60 .......................
60 and under 65 .......................
65 and under 70 .......................
70 and under 75 .......................
75 and under 80 .......................
1.00
1.01
1.02
1.04
1.07
1.10
1.13
1.15
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1 of each stay. If an IPF does not have
a qualifying ED, it receives a 1.19
adjustment factor for day 1 of the stay.
Adjustment The ED adjustment is explained in more
Age
factor
detail in section V.C.5 of this final rule.
For RY 2012, we proposed to continue
80 and over ..............................
1.17 to use the variable per diem adjustment
factors currently in effect as shown in
Final Rule Action: We received no
Table 13 below. A complete discussion
comments on the RY 2012 IPF PPS
of the variable per diem adjustments
proposed rule concerning the age
appears in the November 2004 IPF PPS
adjustment. We are adopting the age
final rule (69 FR 66946).
adjustment currently in effect and as
shown in Table 12 above for RY 2012.
TABLE 13—VARIABLE PER DIEM
TABLE 12—AGE GROUPINGS AND
ADJUSTMENT FACTORS—Continued
TABLE 12—AGE GROUPINGS AND
ADJUSTMENT FACTORS
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1.05
56960 through 56969, 9975, and V441 through V446 ........................................................
As explained in the November 2004
IPF PPS final rule (69 FR 66922), we
analyzed the impact of age on per diem
cost by examining the age variable (that
is, the range of ages) for payment
adjustments.
In general, we found that the cost per
day increases with age. The older age
groups are more costly than the under
45 age group, the differences in per
diem cost increase for each successive
age group, and the differences are
statistically significant.
We do not plan to update the
regression analysis until we are able to
analyze IPF PPS data. Therefore, for RY
2012, we proposed to continue to use
the patient age adjustments currently in
effect as shown in Table 12 below.
17:47 May 05, 2011
1.07
1.11
1.10
1.12
3. Patient Age Adjustments
VerDate Mar<15>2010
1.11
3910, 3911, 3912, 40201, 40403, 4160, 4210, 4211, and 4219 .........................................
44024 and 7854. ..................................................................................................................
49121, 4941, 5100, 51883, 51884, V4611 and V4612, V4613 and V4614 ........................
Final Rule Action: In summary, we
are adopting the comorbidity
adjustments currently in effect and as
shown in Table 11 above for RY 2012
beginning on July 1, 2011.
Age
1.11
ADJUSTMENTS
4. Variable Per Diem Adjustments
We explained in the November 2004
IPF PPS final rule (69 FR 66946) that the
regression analysis indicated that per
diem cost declines as the LOS increases.
The variable per diem adjustments to
the Federal per diem base rate account
for ancillary and administrative costs
that occur disproportionately in the first
days after admission to an IPF.
We used a regression analysis to
estimate the average differences in per
diem cost among stays of different
lengths. As a result of this analysis, we
established variable per diem
adjustments that begin on day 1 and
decline gradually until day 21 of a
patient’s stay. For day 22 and thereafter,
the variable per diem adjustment
remains the same each day for the
remainder of the stay. However, the
adjustment applied to day 1 depends
upon whether the IPF has a qualifying
ED. If an IPF has a qualifying ED, it
receives a 1.31 adjustment factor for day
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Day-of-stay
Day 1—IPF Without a Qualifying ED ................................
Day 1—IPF With a Qualifying
ED .........................................
Day 2 ........................................
Day 3 ........................................
Day 4 ........................................
Day 5 ........................................
Day 6 ........................................
Day 7 ........................................
Day 8 ........................................
Day 9 ........................................
Day 10 ......................................
Day 11 ......................................
Day 12 ......................................
Day 13 ......................................
Day 14 ......................................
Day 15 ......................................
Day 16 ......................................
Day 17 ......................................
Day 18 ......................................
Day 19 ......................................
Day 20 ......................................
Day 21 ......................................
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Adjustment
factor
1.19
1.31
1.12
1.08
1.05
1.04
1.02
1.01
1.01
1.00
1.00
0.99
0.99
0.99
0.99
0.98
0.97
0.97
0.96
0.95
0.95
0.95
Federal Register / Vol. 76, No. 88 / Friday, May 6, 2011 / Rules and Regulations
with our budget neutrality policy. This
policy requires us to estimate the total
amount of IPF PPS payments in RY
Adjustment 2011 using the applicable wage index
Day-of-stay
factor
value divided by the total estimated IPF
PPS payments in RY 2012 using the
After Day 21 .............................
0.92 most recent wage index. The estimated
payments are based on FY 2009 IPF
Final Rule Action: In response to the
claims, inflated to the appropriate RY.
RY 2012 IPF PPS proposed rule, we
This quotient is the wage index budget
received no public comments
neutrality factor, and it is applied in the
concerning the variable per diem
update of the Federal per diem base rate
adjustment. We are adopting the
for RY 2012 in addition to the market
variable per diem adjustment currently
basket described in section IV.C.5 of this
in effect and as shown in Table 13
final rule. The wage index budget
above.
neutrality factor for RY 2012 is 0.9995.
The wage index applicable for RY
C. Facility-Level Adjustments
2012 appears in Table 1 and Table 2 in
The IPF PPS includes facility-level
Addendum B of this final rule. As
adjustments for the wage index, IPFs
explained in the May 2006 IPF PPS final
located in rural areas, teaching IPFs,
rule for RY 2007 (71 FR 27061), the IPF
cost of living adjustments for IPFs
PPS applies the hospital wage index
located in Alaska and Hawaii, and IPFs
without a hold-harmless policy, and
with a qualifying ED.
without an out-commuting adjustment
or out-migration adjustment because the
1. Wage Index Adjustment
statutory authority for these policies
a. Background
applies only to the IPPS.
As discussed in the May 2006 IPF PPS
Also in the May 2006 IPF PPS final
final rule and in the May 2008 and May rule for RY 2007 (71 FR 27061), we
2009 IPF PPS notices, in providing an
adopted the changes discussed in the
adjustment for geographic wage levels,
Office of Management and Budget
the labor-related portion of an IPF’s
(OMB) Bulletin No. 03–04 (June 6,
payment is adjusted using an
2003), which announced revised
appropriate wage index. Currently, an
definitions for Metropolitan Statistical
IPF’s geographic wage index value is
Areas (MSAs), and the creation of
determined based on the actual location Micropolitan Statistical Areas and
of the IPF in an urban or rural area as
Combined Statistical Areas. In adopting
defined in § 412.64(b)(1)(ii)(A) through
the OMB Core-Based Statistical Area
§ 412.64(C).
(CBSA) geographic designations, since
the IPF PPS was already in a transition
b. Wage Index for RY 2012
period from TEFRA payments to PPS
Since the inception of the IPF PPS, we payments, we did not provide a separate
have used hospital wage data in
transition for the CBSA-based wage
developing a wage index to be applied
index.
to IPFs. We are continuing that practice
As was the case in RY 2011, for RY
for RY 2012. We apply the wage index
2012 we proposed to continue to use the
adjustment to the labor-related portion
CBSA-based wage index values as
of the Federal rate, which is 70.317
presented in Tables 1 and 2 in
percent. This percentage reflects the
Addendum B of this final rule. A
labor-related relative importance of the
complete discussion of the CBSA labor
FY 2008-based RPL market basket for
market definitions appears in the May
RY 2012 (see section IV.C.6 of this final
2006 IPF PPS final rule (71 FR 27061
rule). The IPF PPS uses the pre-floor,
through 27067).
pre-reclassified hospital wage index.
In summary, for RY 2012 we proposed
Changes to the wage index are made in
to use the FY 2011 wage index data
a budget neutral manner so that updates (collected from cost reports submitted
do not increase expenditures.
by hospitals for cost reporting periods
For RY 2012, we proposed to apply
beginning during FY 2007) to adjust IPF
the most recent hospital wage index
PPS payments beginning July 1, 2011.
(that is, the FY 2011 pre-floor, prereclassified hospital wage index because c. OMB Bulletins
this is the most appropriate index as it
The Office of Management and Budget
best reflects the variation in local labor
(OMB) publishes bulletins regarding
costs of IPFs in the various geographic
CBSA changes, including changes to
areas) using the most recent hospital
CBSA numbers and titles. In the May
wage data (that is, data from hospital
2008 IPF PPS notice, we incorporated
cost reports for the cost reporting period the CBSA nomenclature changes
beginning during FY 2007), and
published in the most recent OMB
applying an adjustment in accordance
bulletin that applies to the hospital
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TABLE 13—VARIABLE PER DIEM
ADJUSTMENTS—Continued
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26453
wage data used to determine the current
IPF PPS wage index (73 FR 25721). We
will continue to do the same for all such
OMB CBSA nomenclature changes in
future IPF PPS rules and notices, as
necessary. The OMB bulletins may be
accessed online at https://
www.whitehouse.gov/omb/bulletins/
index.html.
Final Rule Action: We are finalizing
our proposal to use FY 2011 wage index
data to adjust IPF PPS payments
beginning July 1, 2011.
2. Adjustment for Rural Location
In the November 2004 IPF PPS final
rule, we provided a 17 percent payment
adjustment for IPFs located in a rural
area. This adjustment was based on the
regression analysis, which indicated
that the per diem cost of rural facilities
was 17 percent higher than that of urban
facilities after accounting for the
influence of the other variables included
in the regression. For RY 2012, we
proposed to apply a 17 percent payment
adjustment for IPFs located in a rural
area as defined at § 412.64(b)(1)(ii)(C).
As stated in the November 2004 IPF PPS
final rule, we do not intend to update
the adjustment factors derived from the
regression analysis until we are able to
analyze IPF PPS data. A complete
discussion of the adjustment for rural
locations appears in the November 2004
IPF PPS final rule (69 FR 66954).
Final Rule Action: In summary, we
are adopting the 17 percent rural
adjustment in effect for RY 2012.
3. Teaching Adjustment
In the November 2004 IPF PPS final
rule, we implemented regulations at
§ 412.424(d)(1)(iii) to establish a facilitylevel adjustment for IPFs that are, or are
part of, teaching hospitals. The teaching
adjustment accounts for the higher
indirect operating costs experienced by
hospitals that participate in GME
programs. The payment adjustments are
made based on the number of full-time
equivalent (FTE) interns and residents
training in the IPF and the IPF’s average
daily census.
Medicare makes direct GME payments
(for direct costs such as resident and
teaching physician salaries, and other
direct teaching costs) to all teaching
hospitals including those paid under a
PPS, and those paid under the TEFRA
rate-of-increase limits. These direct
GME payments are made separately
from payments for hospital operating
costs and are not part of the PPSs. The
direct GME payments do not address the
estimated higher indirect operating
costs teaching hospitals may face.
For teaching hospitals paid under the
TEFRA rate-of- increase limits,
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Medicare does not make separate
payments for indirect medical education
costs because payments to these
hospitals are based on the hospitals’
reasonable costs which already include
these higher indirect costs that may be
associated with teaching programs.
The results of the regression analysis
of FY 2002 IPF data established the
basis for the payment adjustments
included in the November 2004 IPF PPS
final rule. The results showed that the
indirect teaching cost variable is
significant in explaining the higher
costs of IPFs that have teaching
programs. We calculated the teaching
adjustment based on the IPF’s ‘‘teaching
variable,’’ which is one plus the ratio of
the number of FTE residents training in
the IPF (subject to limitations described
below) to the IPF’s average daily census
(ADC).
We established the teaching
adjustment in a manner that limited the
incentives for IPFs to add FTE residents
for the purpose of increasing their
teaching adjustment. We imposed a cap
on the number of FTE residents that
may be counted for purposes of
calculating the teaching adjustment. The
cap limits the number of FTE residents
that teaching IPFs may count for the
purpose of calculating the IPF PPS
teaching adjustment, not the number of
residents teaching institutions can hire
or train. We calculated the number of
FTE residents that trained in the IPF
during a ‘‘base year’’ and used that FTE
resident number as the cap. An IPF’s
FTE resident cap is ultimately
determined based on the final
settlement of the IPF’s most recent cost
report filed before November 15, 2004
(that is, the publication date of the IPF
PPS final rule).
In the regression analysis, the
logarithm of the teaching variable had a
coefficient value of 0.5150. We
converted this cost effect to a teaching
payment adjustment by treating the
regression coefficient as an exponent
and raising the teaching variable to a
power equal to the coefficient value. We
note that the coefficient value of 0.5150
was based on the regression analysis
holding all other components of the
payment system constant.
As with other adjustment factors
derived through the regression analysis,
we do not plan to rerun the regression
analysis until we analyze IPF PPS data.
Therefore, in this final rule, for RY
2012, we are retaining the coefficient
value of 0.5150 for the teaching
adjustment to the Federal per diem base
rate.
A complete discussion of how the
teaching adjustment was calculated
appears in the November 2004 IPF PPS
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17:47 May 05, 2011
Jkt 223001
final rule (69 FR 66954 through 66957)
and the May 2008 IPF PPS notice (73 FR
25721).
FTE Intern and Resident Cap
Adjustment
CMS has been asked to reconsider the
current IPF teaching policy and permit
a temporary increase in the FTE resident
cap when the IPF increases the number
of FTE residents it trains due to the
acceptance of displaced residents
(residents that are training in an IPF or
a program before the IPF or program
closed) when another IPF closes or
closes its medical residency training
program.
To help us assess how many IPFs
have been, or expect to be adversely
affected by their inability to adjust their
caps under § 412.424(d)(1) and under
these situations, we specifically
requested public comment from IPFs in
the May 1, 2009 IPF PPS notice (74 FR
20376 through 20377). A summary of
the comments and our response can be
reviewed in the April 30, 2010 IPF PPS
notice (75 FR 23106, 23117). All of the
commenters recommended that CMS
modify the IPF PPS teaching adjustment
policy, supporting a policy change that
would permit the IPF PPS residency cap
to be temporarily adjusted when that
IPF trains displaced residents due to
closure of an IPF or closure of an IPF’s
medical residency training program(s).
The commenters recommended a
temporary resident cap adjustment
policy similar to such policies applied
in similar contexts for acute care
hospitals.
We agree with the commenters that,
when a hospital temporarily takes on
residents because another hospital
closes or discontinues its program, a
temporary adjustment to the cap would
be appropriate for rotation that occurs in
an IPF setting (freestanding or units). In
these situations, residents may have
partially completed a medical residency
training program at the hospital that has
closed its training program and may be
unable to complete their training at
another hospital that is already training
residents up to or in excess of its cap.
We believe that it is appropriate to
allow temporary adjustments to the FTE
caps for an IPF that provides residency
training to medical residents who have
partially completed a residency training
program at an IPF that closes or at an
IPF that discontinues training residents
in a residency training program(s) (also
referred to as a ‘‘closed’’ program
throughout this preamble). For this
reason, we proposed to adopt the
following temporary resident cap
adjustment policies, similar to the
temporary adjustments to the FTE cap
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used for acute care hospitals. We
proposed that the cap adjustment would
be temporary because it is resident
specific and would only apply to the
displaced resident(s) until the
resident(s) completes training in that
specialty. We proposed that, as under
the IPPS policy for displaced residents,
the IPF PPS temporary cap adjustment
would apply only to residents that were
still training at the IPF at the time the
IPF closed or at the time the IPF ceased
training residents in the residency
training program(s). Residents who
leave the IPF, for whatever reason,
before the closure of the IPF hospital or
medical residency training program
would not be considered displaced
residents for purposes of the IPF
temporary cap adjustment policy.
Similarly, as under the IPPS policy, we
proposed that medical students who
match to a program at an IPF but the IPF
or medical residency training program
closes before the individual begins
training at that IPF are also not
considered displaced residents for
purposes of the IPF temporary cap
adjustments. For detailed information
on these acute care hospital GME/IME
payment policies, see 66 FR 39899
(August 1, 2001), 64 FR 41522 (July 30
1999), and 64 FR 24736 (May 7 1999).
We note that although we proposed to
adopt a policy under the IPF PPS that
is consistent with the policy applicable
under the IPPS, the actual caps under
the two payment systems may not be
commingled.
a. Temporary Adjustment to the FTE
Cap To Reflect Residents Added Due to
Hospital Closure
We proposed to allow an IPF to
receive a temporary adjustment to the
FTE cap to reflect residents added
because of another IPF’s closure. This
adjustment is intended to account for
medical residents who would have
partially completed a medical residency
training program at the hospital that has
closed and may be unable to complete
their training at another hospital
because that hospital is already training
residents up to or in excess of its cap.
We proposed this change because IPFs
have indicated a reluctance to accept
additional residents from a closed IPF
without a temporary adjustment to their
caps. For purposes of this policy on IPF
closure, we proposed to adopt the IPPS
definition of ‘‘closure of a hospital’’ in 42
CFR 413.79(h) to mean the IPF
terminates its Medicare provider
agreement as specified in 42 CFR
489.52. Therefore, we proposed to add
a new § 412.424(d)(1)(iii)(F)(1) to allow
a temporary adjustment to an IPF’s FTE
cap to reflect residents added because of
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an IPF’s closure on or after July 1, 2011
to be effective for cost reporting periods
beginning on or after July 1, 2011. We
would allow an adjustment to an IPF’s
FTE cap if the IPF meets the following
criteria: (a) The IPF is training displaced
residents from an IPF that closed on or
after July 1, 2011; and (b) the IPF that
is training the displaced residents from
the closed IPF submits a request for a
temporary adjustment to its FTE cap to
its Medicare contractor no later than 60
days after the hospital first begins
training the displaced residents, and
documents that the IPF is eligible for
this temporary adjustment to its FTE
cap by identifying the residents who
have come from the closed IPF and have
caused the IPF to exceed its cap, (or the
IPF may already be over its cap), and
specifies the length of time that the
adjustment is needed. After the
displaced residents leave the IPF’s
training program or complete their
residency program, the IPF’s cap would
revert to its original level. This means
that the temporary adjustment to the
FTE cap would be available to the IPF
only for the period of time necessary for
the displaced residents to complete
their training. Further, as under the
IPPS policy, we also proposed that the
total amount of temporary cap
adjustment that can be distributed to all
receiving hospitals cannot exceed the
cap amount of the IPF that closed.
We also note that section 5506 of the
Affordable Care Act, ‘‘Preservation of
Resident Cap Positions from Closed
Hospitals,’’ does not apply to IPFs that
closed. Section 5506 only amends
sections 1886(d) and (h) of the Act with
respect to direct GME and IPPS IME
payments. Therefore, the IME FTE cap
redistributions under section 5506 only
apply to ‘‘subsection (d)’’ IPPS hospitals.
Section 5506 has no applicability to the
IME teaching adjustments under the IPF
PPS (or the IRF PPS, for that matter).
b. Temporary Adjustment to FTE Cap
To Reflect Residents Affected by
Residency Program Closure
We proposed that if an IPF that ceases
training residents in a residency training
program(s) agrees to temporarily reduce
its FTE cap, another IPF may receive a
temporary adjustment to its FTE cap to
reflect residents added because of the
closure of another IPF’s residency
training program. For purposes of this
policy on closed residency programs,
we proposed to adopt the IPPS
definition of ‘‘closure of a hospital
residency training program’’ to mean
that the hospital ceases to offer training
for residents in a particular approved
medical residency training program as
specified in § 413.79(h). The
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methodology for adjusting the caps for
the ‘‘receiving IPF’’ and the ‘‘IPF that
closed its program’’ is described below.
i. Receiving IPF
We proposed that an IPF(s) may
receive a temporary adjustment to its
FTE cap to reflect residents added
because of the closure of another IPF’s
residency training program for cost
reporting periods beginning on or after
July 1, 2011 if—
• The IPF is training additional
residents from the residency training
program of an IPF that closed its
program on or after July 1, 2011; and
• No later than 60 days after the IPF
begins to train the residents, the IPF
submits to its Medicare Contractor a
request for a temporary adjustment to its
FTE cap, documents that the IPF is
eligible for this temporary adjustment
by identifying the residents who have
come from another IPF’s closed program
and have caused the IPF to exceed its
cap,(or the IPF may already be in excess
of its cap), specifies the length of time
the adjustment is needed, and, as
explained in more detail below, submits
to its Medicare contractor a copy of the
FTE cap reduction statement by the IPF
closing the residency training program.
In general, the temporary adjustment
criteria established for closed medical
residency training programs at IPFs is
similar to the criteria established for
closed IPFs. More than one IPF may be
eligible to apply for the temporary
adjustment because residents from one
closed program may migrate to different
IPFs, or they may complete their
training at more than one IPF. Also,
only to the extent to which an IPF
would exceed its FTE cap by training
displaced residents would it be eligible
for the temporary adjustment.
Finally, we proposed that IPFs that
meet the proposed criteria would be
eligible to receive temporary
adjustments to their FTE caps for cost
reporting periods beginning on or after
July 1, 2011.
ii. IPF That Closed Its Program(s)
We proposed that an IPF that agrees
to train residents who have been
displaced by the closure of another IPF’s
resident teaching program may receive a
temporary FTE cap adjustment only if
the IPF with the closed program meets
the following criteria—
• Temporarily reduces its FTE cap by
the number of FTE residents in each
program year, training in the program at
the time of the program’s closure. The
yearly reduction would be determined
by deducting the number of those
residents who would have been training
in the program during the year of the
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26455
closure, had the program not closed;
and
• No later than 60 days after the
residents who were in the closed
program begin training at another IPF,
submits to its Medicare contractor a
statement signed and dated by its
representative that specifies that it
agrees to the temporary reduction in its
FTE cap to allow the IPF training the
displaced residents to obtain a
temporary adjustment to its cap;
identifies the residents who were
training at the time of the program’s
closure; identifies the IPFs to which the
residents are transferring once the
program closes; and specifies the
reduction for the applicable program
years.
Unlike the proposed closed IPF policy
at § 412.424(d) (1)(iii)(F)(1), we
proposed under this closed program
policy that in order for the receiving
IPF(s) to qualify for a temporary
adjustment to their FTE cap, the IPFs
that are closing their programs would
need to reduce their FTE cap for the
duration of time the displaced residents
would need to finish their training. We
proposed this because the IPF that
closes the program still retains the FTE
slots in its cap, even if the IPF chooses
not to fill the slots with residents. We
believe it is inappropriate to allow an
increase to the receiving IPF’s cap
without an attendant decrease to the cap
of the IPF with the closed program,
because the IPF that closed a program(s)
could fill these slots with residents from
other programs even if the increase and
related decrease is only temporary.
We proposed that the cap reduction
for the IPF with the closed program
would be based on the number of FTE
residents in each program year who
were in the program at the IPF at the
time of the program’s closure, and who
begin training at another IPF.
Comment: The majority of the
commenters strongly supported the
proposed policy to allow a temporary
adjustment to the resident cap when an
IPF closes or closes its residency
teaching program. However, a few of the
commenters urged CMS to modify the
regulations to allow IPFs to receive the
temporary cap adjustment if they are
training displaced residents as of July 1,
2011. One commenter requested the
amendment at § 412.424(d)(1)(iii)(F)(l)(i)
be modified to state, ‘‘The IPF is training
additional residents as of July 1, 2011
from an IPF that closed.’’ The
commenter also requested that we
modify § 412.424(d)(1)(iii)(l)(ii) to state,
‘‘No later than 60 days after the IPF
begins to train the resident or in the case
where an IPF is training the residents as
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of July 1,2011, by August 31, 2011, the
IPF submits. * * * ’’
Response: We share the commenters’
concern for those FTE residents who
have been displaced before July 1, 2011
due to closure of an IPF. We carefully
considered the commenters’ request that
CMS modify the IPF temporary cap
adjustment policy to allow IPFs that
volunteered to train displaced residents
before July 1, 2011, to receive the
temporary cap adjustment. We realize
that at present, IPFs provide this
important service to displaced residents
without extra compensation. However,
this is a new policy that was proposed
rather than a correction to an existing
policy, and as such the effective date of
the IPF closure policy must be applied
prospectively. Therefore, as proposed,
we are finalizing the IPF PPS temporary
cap adjustment to apply where an IPF
is training additional residents from an
IPF that closed or closed its’ residency
program on or after July 1, 2011. The
policy is effective for cost reporting
periods beginning on or after July 1,
2011. We appreciate the support for the
proposed policies to allow a temporary
adjustment to the resident cap when an
IPF closes or closes its residency
teaching program. We are finalizing
these policies as proposed.
Comment: Several commenters
expressed concern about the caps on the
number of FTE residents that can be
used to calculate the teaching
adjustment. These commenters believe
that the current cap is based on a
snapshot of activity freezing the status
of residency education at a random
point in time-2004. The commenters
stated that they continue to advocate for
a substantial increase in the total
number of residency training positions
supported by the Federal Government.
One commenter expressed concern
about having caps in general since the
current cap is based on 2004 data.
Several commenters pointed out that the
demand for health care services will
continue with the growing needs of 78
million ‘‘baby boomers’’ that started
retirement in 2010 and with the passage
of Paul Wellstone and Pete Domenici
Mental Health Parity and Addiction
Equality Act of 2008. These commenters
stated that the U.S. already faces a
shortage of psychiatrist, and these
factors could potentially elevate what is
now a problem to what could be a crisis.
Response: We established the
teaching adjustment in a manner that
limited the incentives for IPFs to add
FTE residents for the purpose of
increasing their teaching adjustment.
We imposed a cap on the number of
FTE residents that may be counted for
purposes of calculating the teaching
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adjustment, similar to that established
by sections 4621 (IME FTE cap for IPPS
hospitals) and 4623 (direct GME FTE
cap for all hospitals) of the BBA. The
cap limits the number of residents that
teaching IPFs may count for purposes of
calculating the teaching adjustment, not
the number of residents that teaching
institutions can hire or train.
We acknowledge that the cap on the
number of FTE residents that may be
counted under the IPF PPS teaching
adjustment is based on 2004 data and
the cap freezes the number of residents
that Medicare will recognize for
payment under the IPF PPS teaching
adjustment to that year. This policy is
intended to exercise our statutory
responsibility under the BBA to prevent
any erosion of the resident caps
established under the IPPS that could
result from incentives created by the
facility adjustment for teaching
hospitals under the IPF PPS. In
addition, we wanted to avoid creating
incentives to artificially expand
residency training in IPFs, and ensure
that the resident base used to determine
payments is related to the care needs in
IPF institutions. We provided a detailed
discussion in the November 15, 2004
Federal Register (69 FR 66954–66955)
of the BBA cap. We are continually
monitoring the impact of our policies to
assess the appropriateness of the
policies and will continue to monitor
the impact of this policy closely and
consider the appropriateness of our FTE
cap for future refinements for the RY
2013.
Comment: One commenter
recommended that CMS work with the
Congress to provide a permanent
distribution of the resident cap for IPFs
that close, similar to the Affordable Care
Act for acute care hospital closures.
Response: We believe the commenter
is referring to section 5506 of the
Affordable Care Act, ‘‘Preservation of
Resident Cap Positions from Closed
Hospitals,’’ which does not apply to IPFs
that closed. In the absence of such
authority, we are finalizing the
temporary adjustment to the FTE
resident caps for when an IPF closes or
closes its residency teaching program, as
described above.
Final Rule Action: In summary, we
are adding § 412.424(d)(1)(iii)(F)(1) and
§ 412.424(d)(1)(iii)(F)(2) to implement
policies related to temporary
adjustments to FTE caps to reflect
residents added due to closure of an IPF
or an IPFs medical residency training
program respectfully.
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4. Cost of Living Adjustment for IPFs
Located in Alaska and Hawaii
The IPF PPS includes a payment
adjustment for IPFs located in Alaska
and Hawaii based upon the county in
which the IPF is located. As we
explained in the November 2004 IPF
PPS final rule, the FY 2002 data
demonstrated that IPFs in Alaska and
Hawaii had per diem costs that were
disproportionately higher than other
IPFs. Other Medicare PPSs (for example,
the IPPS and LTCH PPS) have adopted
a cost of living adjustment (COLA) to
account for the cost differential of care
furnished in Alaska and Hawaii.
We analyzed the effect of applying a
COLA to payments for IPFs located in
Alaska and Hawaii. The results of our
analysis demonstrated that a COLA for
IPFs located in Alaska and Hawaii
would improve payment equity for
these facilities. As a result of this
analysis, we provided a COLA in the
November 2004 IPF PPS final rule.
A COLA adjustment for IPFs located
in Alaska and Hawaii is made by
multiplying the nonlabor-related
portion of the Federal per diem base rate
by the applicable COLA factor based on
the COLA area in which the IPF is
located.
The COLA factors are published on
the OPM Web site at (https://
www.opm.gov/oca/cola/rates.asp).
We note that the COLA areas for
Alaska are not defined by county as are
the COLA areas for Hawaii. In 5 CFR
591.207, the OPM established the
following COLA areas:
(a) City of Anchorage, and 80kilometer (50-mile) radius by road, as
measured from the Federal courthouse;
(b) City of Fairbanks, and 80kilometer (50-mile) radius by road, as
measured from the Federal courthouse;
(c) City of Juneau, and 80-kilometer
(50-mile) radius by road, as measured
from the Federal courthouse;
(d) Rest of the State of Alaska.
As previously stated in the November
2004 IPF PPS final rule, we update the
COLA factors according to updates
established by the U.S. Office of
Personnel Management (OPM).
Sections 1911 through 1919 of the
Nonforeign Area Retirement Equity
Assurance Act, as contained in subtitle
B of title XIX of the National Defense
Authorization Act (NDAA) for Fiscal
Year 2010 (Pub. L. 111–84, October 28,
2009), transitions the Alaska and Hawaii
COLAs to locality pay. Under section
1914 of Public Law 111–84, locality pay
is being phased in over a 3-year period
beginning in January 2010, with COLA
rates frozen as of the date of enactment,
October 28, 2009, and then
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proportionately reduced to reflect the
phase-in of locality pay.
When we published the proposed
COLA adjustment factors in the January
2011 proposed rule, we inadvertently
selected the FY 2010 COLA rates. The
FY 2010 COLA rates were reduced rates
to account for the phase-in of locality
pay. We did not intend to propose
reduced COLA rates, and we do not
believe it is appropriate to finalize the
reduced COLAs that we showed in our
proposed rule. The 2009 COLA rates do
not reflect the phase-in of locality pay.
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Therefore, we are finalizing the FY 2009
COLA rates, which are the same rates
that were in effect for both RY 2010 and
RY 2011. We plan to address COLA in
the future refinement process in FY
2013.
TABLE 14—COLA FACTORS FOR ALASKA AND HAWAII IPFS
Cost of living
adjustment
factor
Area
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by road .................................................................................................
City of Fairbanks and 80-kilometer (50-mile) radius by road ..................................................................................................
City of Juneau and 80-kilometer (50-mile) radius by road ......................................................................................................
Rest of Alaska ..........................................................................................................................................................................
Hawaii:
City and County of Honolulu ....................................................................................................................................................
County of Hawaii ......................................................................................................................................................................
County of Kauai ........................................................................................................................................................................
County of Maui and County of Kalawao ..................................................................................................................................
............................
1.23
1.23
1.23
1.25
1.25
1.18
1.25
1.25
(The above factors are based on data obtained from the U.S. Office of Personnel Management Web site at: https://www.opm.gov/oca/cola/
rates.asp.)
Final Rule Action: In summary,
although we did not propose the FY
2009 COLAs, in order to provide a full
COLA, we are adopting the FY 2009
COLA rates obtained from the OPM Web
site and as shown in Table 14 above.
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5. Adjustment for IPFs With a
Qualifying Emergency Department (ED)
Currently, the IPF PPS includes a
facility-level adjustment for IPFs with
qualifying EDs. We provide an
adjustment to the Federal per diem base
rate to account for the costs associated
with maintaining a full-service ED. The
adjustment is intended to account for
ED costs incurred by a freestanding
psychiatric hospital with a qualifying
ED or a distinct part psychiatric unit of
an acute hospital or a CAH for
preadmission services otherwise
payable under the Medicare Outpatient
Prospective Payment System (OPPS)
furnished to a beneficiary during the
day immediately preceding the date of
admission to the IPF (see § 413.40(c)(2))
and the overhead cost of maintaining
the ED. This payment is a facility-level
adjustment that applies to all IPF
admissions (with one exception
described below), regardless of whether
a particular patient receives
preadmission services in the hospital’s
ED.
The ED adjustment is incorporated
into the variable per diem adjustment
for the first day of each stay for IPFs
with a qualifying ED. That is, IPFs with
a qualifying ED receive an adjustment
factor of 1.31 as the variable per diem
adjustment for day 1 of each stay. If an
IPF does not have a qualifying ED, it
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receives an adjustment factor of 1.19 as
the variable per diem adjustment for day
1 of each patient stay.
The ED adjustment is made on every
qualifying claim except as described
below. As specified in
§ 412.424(d)(1)(v)(B), the ED adjustment
is not made where a patient is
discharged from an acute care hospital
or critical access hospital (CAH) and
admitted to the same hospital’s or
CAH’s psychiatric unit. An ED
adjustment is not made in this case
because the costs associated with ED
services are reflected in the DRG
payment to the acute care hospital or
through the reasonable cost payment
made to the CAH. If we provided the ED
adjustment in these cases, the hospital
would be paid twice for the overhead
costs of the ED, as stated in the
November 2004 IPF PPS final rule (69
FR 66960).
Therefore, when patients are
discharged from an acute care hospital
or CAH and admitted to the same
hospital’s or CAH’s psychiatric unit, the
IPF receives the 1.19 adjustment factor
as the variable per diem adjustment for
the first day of the patient’s stay in the
IPF.
For RY 2012, we proposed to retain
the 1.31 adjustment factor for IPFs with
qualifying EDs. A complete discussion
of the steps involved in the calculation
of the ED adjustment factor appears in
the November 2004 IPF PPS final rule
(69 FR 66959 through 66960) and the
May 2006 IPF PPS final rule (71 FR
27070 through 27072).
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Final Rule Action: We are retaining
the 1.31 adjustment factor for IPFs with
qualifying EDs for RY 2012.
D. Other Payment Adjustments and
Policies
For RY 2012, the IPF PPS includes an
outlier adjustment to promote access to
IPF care for those patients who require
expensive care and to limit the financial
risk of IPFs treating unusually costly
patients. In this section, we also explain
the reason for ending the stop-loss
provision that was applicable during the
transition period.
1. Outlier Payments
In the November 2004 IPF PPS final
rule, we implemented regulations at
§ 412.424(d)(3)(i) to provide a per-case
payment for IPF stays that are
extraordinarily costly. Providing
additional payments to IPFs for
extremely costly cases strongly
improves the accuracy of the IPF PPS in
determining resource costs at the patient
and facility level. These additional
payments reduce the financial losses
that would otherwise be incurred in
treating patients who require more
costly care and, therefore, reduce the
incentives for IPFs to under-serve these
patients.
We make outlier payments for
discharges in which an IPF’s estimated
total cost for a case exceeds a fixed
dollar loss threshold amount
(multiplied by the IPF’s facility-level
adjustments) plus the Federal per diem
payment amount for the case.
In instances when the case qualifies
for an outlier payment, we pay 80
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percent of the difference between the
estimated cost for the case and the
adjusted threshold amount for days 1
through 9 of the stay (consistent with
the median LOS for IPFs in FY 2002),
and 60 percent of the difference for day
10 and thereafter. We established the 80
percent and 60 percent loss sharing
ratios because we were concerned that
a single ratio established at 80 percent
(like other Medicare PPSs) might
provide an incentive under the IPF per
diem payment system to increase LOS
in order to receive additional payments.
After establishing the loss sharing ratios,
we determined the current fixed dollar
loss threshold amount of $6,372 through
payment simulations designed to
compute a dollar loss beyond which
payments are estimated to meet the 2
percent outlier spending target.
a. Update to the Outlier Fixed Dollar
Loss Threshold Amount
In accordance with the update
methodology described in § 412.428(d),
we proposed to update the fixed dollar
loss threshold amount used under the
IPF PPS outlier policy. Based on the
regression analysis and payment
simulations used to develop the IPF
PPS, we established a 2 percent outlier
policy which strikes an appropriate
balance between protecting IPFs from
extraordinarily costly cases while
ensuring the adequacy of the Federal
per diem base rate for all other cases
that are not outlier cases.
We believe it is necessary to update
the fixed dollar loss threshold amount
because an analysis of the latest
available data (that is, FY 2009 IPF
claims) and rate increases indicates that
adjusting the fixed dollar loss amount is
necessary in order to maintain an outlier
percentage that equals 2 percent of total
estimated IPF PPS payments.
In the May 2006 IPF PPS final rule (71
FR 27072), we describe the process by
which we calculate the outlier fixed
dollar loss threshold amount. We will
continue to use this process for RY
2012. We begin by simulating aggregate
payments with and without an outlier
policy, and applying an iterative process
to determine an outlier fixed dollar loss
threshold amount that will result in
outlier payments being equal to 2
percent of total estimated payments
under the simulation. Based on this
process, using the FY 2009 claims data,
we estimate that IPF outlier payments as
a percentage of total estimated payments
are approximately 2.2 percent in RY
2011. Thus, for this final rule, we are
updating the RY 2012 IPF outlier
threshold amount to ensure that
estimated RY 2012 outlier payments are
approximately 2 percent of total
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estimated IPF payments. The outlier
fixed dollar loss threshold amount of
$6,372 for RY 2011 will be changed to
$7,340 for RY 2012 to reduce estimated
outlier payments and thereby maintain
estimated outlier payments at 2 percent
of total estimated aggregate IPF
payments for RY 2012.
Final Rule Action: In this final rule,
we are adopting $7,340 as the fixed
dollar loss threshold for RY 2012.
b. Statistical Accuracy of Cost-to-Charge
Ratios
As previously stated, under the IPF
PPS, an outlier payment is made if an
IPF’s cost for a stay exceeds a fixed
dollar loss threshold amount. In order to
establish an IPF’s cost for a particular
case, we multiply the IPF’s reported
charges on the discharge bill by its
overall cost-to-charge ratio (CCR). This
approach to determining an IPF’s cost is
consistent with the approach used
under the IPPS and other PPSs. In FY
2004, we implemented changes to the
IPPS outlier policy used to determine
CCRs for acute care hospitals because
we became aware that payment
vulnerabilities resulted in inappropriate
outlier payments. Under the IPPS, we
established a statistical measure of
accuracy for CCRs in order to ensure
that aberrant CCR data did not result in
inappropriate outlier payments.
As we indicated in the November
2004 IPF PPS final rule, because we
believe that the IPF outlier policy is
susceptible to the same payment
vulnerabilities as the IPPS, we adopted
an approach to ensure the statistical
accuracy of CCRs under the IPF PPS (69
FR 66961). Therefore, we adopted the
following procedure in the November
2004 IPF PPS final rule:
• We calculated two national ceilings,
one for IPFs located in rural areas and
one for IPFs located in urban areas. We
computed the ceilings by first
calculating the national average and the
standard deviation of the CCR for both
urban and rural IPFs.
To determine the rural and urban
ceilings, we multiplied each of the
standard deviations by 3 and added the
result to the appropriate national CCR
average (either rural or urban). The
upper threshold CCR for IPFs in RY
2012 is 1.8199 for rural IPFs, and 1.7643
for urban IPFs, based on CBSA-based
geographic designations. If an IPF’s CCR
is above the applicable ceiling, the ratio
is considered statistically inaccurate
and we assign the appropriate national
(either rural or urban) median CCR to
the IPF.
We apply the national CCRs to the
following situations:
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++ New IPFs that have not yet
submitted their first Medicare cost
report.
++ IPFs whose overall CCR is in
excess of 3 standard deviations above
the corresponding national geometric
mean (that is, above the ceiling).
++ Other IPFs for which the Medicare
contractor obtains inaccurate or
incomplete data with which to calculate
a CCR.
For new IPFs, we are using these
national CCRs until the facility’s actual
CCR can be computed using the first
tentatively or final settled cost report.
We are not making any changes to the
procedures for ensuring the statistical
accuracy of CCRs in RY 2012. However,
we are updating the national urban and
rural CCRs (ceilings and medians) for
IPFs for RY 2012 based on the CCRs
entered in the latest available IPF PPS
Provider Specific File.
Specifically, for RY 2012, and to be
used in each of the three situations
listed above, we estimate the national
average CCR to be 0.6435 for rural IPFs
and the national average CCR of 0.5055
for urban IPFs. These calculations are
based on the IPF’s location (either urban
or rural) using the CBSA-based
geographic designations.
A complete discussion regarding the
national median CCRs appears in the
November 2004 IPF PPS final rule (69
FR 66961 through 66964).
2. Expiration of the Stop-Loss Provision
In the November 2004 IPF PPS final
rule, we implemented a stop-loss policy
that reduced financial risk to IPFs
projected to experience substantial
reductions in Medicare payments
during the period of transition to the IPF
PPS. This stop-loss policy guaranteed
that each facility received total IPF PPS
payments that were no less than 70
percent of its TEFRA payments had the
IPF PPS not been implemented. This
policy was applied to the IPF PPS
portion of Medicare payments during
the 3-year transition.
In the implementation year, the 70
percent of TEFRA payment stop-loss
policy required a reduction in the
standardized Federal per diem and ECT
base rates of 0.39 percent in order to
make the stop-loss payments budget
neutral. As described in the May 2008
IPF PPS notice for RY 2009, we
increased the Federal per diem base rate
and ECT rate by 0.39 percent because
these rates were reduced by 0.39 percent
in the implementation year to ensure
stop-loss payments were budget neutral.
The stop-loss provision ended during
RY 2009 (that is for discharges occurring
on or after July 1, 2008 through June 30,
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2009). The stop-loss policy is no longer
applicable under the IPF PPS.
3. Future Refinements
As we have noted throughout the RY
2012 IPF PPS proposed rule as well as
in this final rule, we have delayed
making refinements to the IPF PPS until
we have adequate IPF PPS data on
which to base those decisions. Now that
we are approximately 5 years into the
system, we believe that we have enough
data to begin that process. We have
begun the necessary analysis to better
understand IPF industry practices so
that we may refine the IPF PPS as
appropriate. While we did not propose
to make the following refinements in the
RY 2012 IPF PPS proposed rulemaking,
we believe that in the rulemaking for FY
2013 we will be ready to present the
results of our analysis.
Specifically, with the change from
ICD–9–CM to ICD–10–CM coming in FY
2013, we are analyzing the comorbidity
categories and related codes for
utilization and continued suitability.
While we would continue to provide for
comorbidity adjustments, we are
analyzing whether the current groupings
and codes continue to be warranted and
whether other appropriate codes should
be added. Also, we are analyzing our
current policies for interrupted stays,
readmissions, same-day transfers, and
length of stays in order to assess
whether these policies continue to be
appropriate. Additionally, in
accordance with section 1886(s)(4) of
the Act, which was added by section
10322 of the Affordable Care Act, IPFs
must submit data on quality measures,
as specified by the Secretary, for each
RY beginning in RY 2014. If data is not
submitted, any annual update to a
Federal base rate for discharges for the
payments shall be reduced by 2
percentage points. Quality measures are
currently being developed to effectuate
this requirement. Lastly, for the first
time MedPAC will become involved in
evaluating facility margins and will
likely make recommendations regarding
the appropriate payment update to IPFs
based on their findings. CMS is
interested in gaining feedback on these
areas for future refinements and
therefore we invite comments on these
issues described in this section at this
time.
Comment: A few commenters strongly
supported the need to develop and
implement quality measures for the IPF
PPS. They strongly encouraged CMS to
review and consider the Hospital-Based
Inpatient Psychiatric Services (HBIPS)
core measures as a foundation for
quality measures for the IPF PPS. They
pointed out that these quality measures
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are now in effect for all Joint
Commission-accredited psychiatric
hospitals and are available for use by
psychiatric units in acute care hospitals.
Response: We appreciate the support
for the development and
implementation of quality measures, as
well as the recommendation regarding
the Hospital-Based Inpatient Psychiatric
Services (HBIPS) core measures for IPFs.
In accordance with section 1886(s)(4) of
the SSA (the Act), which was added by
section 10322 of the Affordable Care
Act, IPFs must submit data on quality
measures as specified by the Secretary,
for each RY (that coincides with a FY)
beginning in FY 2014. Quality measures
are currently being developed to
effectuate this requirement. To
implement this, a Technical Expert
Panel (TEP) has been assembled to
develop quality measures for inpatient
psychiatric hospitals and psychiatric
units. The TEP consists of a wide crosssection of today’s learned scholars and
experts in the field including the Joint
Commission on Hospital and
Accreditation (formerly Joint
Commission on Accreditation of
Healthcare Organizations), to provide
valued input on quality measure
development. The TEP is charged with
identifying measures that reflect current
knowledge regarding effective,
evidenced-based treatments for
psychiatric disorders; addressing the
range of treatments and care processes
provided at IPFs; and identifying
measures applicable to all Medicare
beneficiaries treated in IPFs. Therefore,
consistent with the views of these
commenters, CMS is reviewing and
taking into consideration those HBIPS
core measures to help form a foundation
for quality measures as directed under
the Act.
Comment: A few commenters stated
that although the core adjustments to
the system, such as age, length of stay,
and comorbidities have been effective in
addressing the variability in the costs of
treating Medicare patients with
psychiatric disorders, they recommend
that the key adjustments (such as age,
comorbidities, and length of stays) be
analyzed to determine if any changes
are warranted.
Response: We agree with the
commenters on the need to analyze
patient characteristics such as age,
comorbidities, and length of stays when
we refine the IPF PPS system. As
explained in the RY 2012 IPF PPS
proposed rule, in preparation for the
migration from ICD–9–CM to ICD–10–
CM in FY 2013, we plan to analyze the
comorbidity categories and related
codes for utilization and continued
suitability. We will make
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26459
determinations as to whether the
current groupings and codes continue to
be warranted and whether other
appropriate codes should also be added.
We are also analyzing our current
policies on interrupted stays,
readmissions, same-day transfers, and
length of stays in order to assess
whether these policies continue to be
appropriate. We welcome the support
by these commenters for such future
refinements.
VII. Regulations Text Corrections
We proposed several minor
corrections to the regulations text to
address typographical errors. We noted
that these proposed changes do not
impact policy. We proposed to correct
typographical errors at § 412.404,
‘‘Conditions for payment’’ under the
prospective payment system for
inpatient hospital services of psychiatric
facilities; § 412.422, ‘‘Basis of payment;’’
and § 412.426, ‘‘Transition period.’’ In
addition to these corrections, we
proposed to add clarifying language at
§ 412.426 and § 412.432(d), ‘‘Method of
payment under the inpatient psychiatric
facility prospective payment system.’’
The proposed revisions are described
below.
Section 412.404(a)(1)
Under § 412.404, in paragraph (a)(1),
‘‘General requirements,’’ we proposed to
delete the word ‘‘in’’ between the words
‘‘furnished’’ and ‘‘to Medicare’’.
Section 412.422(b)(2)
Under § 412.422, in paragraph (b)(2),
we proposed to correct the reference to
§ 413.80 to § 413.89. The regulations
covered at § 413.89 include bad debts,
charity, and courtesy allowances.
Section 412.426(a)
Under § 412.426, in paragraph (a),
‘‘Duration of transition period and
composition of the blended transition
payment,’’ we proposed to replace
‘‘Except as provided in paragraph (d) of
this section’’ with ‘‘Except as provided
in paragraph (c) of this section.’’ There
is no paragraph (d); this exception
should refer to paragraph (c),
‘‘Treatment of new inpatient psychiatric
facilities.’’
Also in paragraph (a), we proposed to
add the words ‘‘of this part’’ after ‘‘as
specified in § 412.424(d)’’ and ‘‘of this
section’’ after ‘‘as specified under
paragraph (b).’’ This regulatory language
is required by the Federal Register.
In each of paragraphs § 412.426(a)(1)
through (a)(3), we proposed to delete the
words ‘‘on or’’ directly before the words
‘‘before January’’. For example,
paragraph (a)(1) currently states, ‘‘For
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cost reporting periods beginning on or
after January 1, 2005 and on or before
January 1, 2006 * * *’’ We proposed
that this statement read: ‘‘For cost
reporting periods beginning on or after
January 1, 2005 and before January 1,
2006 * * *’’ This correction does not
represent a change in policy. Rather, it
is a correction to conform the regulation
text to our policy, which was
established in our final rule that
appeared in the Federal Register on
November 15, 2004 (69 FR 66980)
(which was subsequently corrected on
April 1, 2005 (70 FR 16729)). It is clear
that the current regulation text is
incorrect. The same January date (for
example, January 1, 2007) cannot be
both the date on which a new transition
period begins and the date on which the
previous transition period ends. Our
policy, since we established the
transition, has been to begin a transition
period on or after a January 1 date and
to end that transition period before the
next transition period begins. Because
our regulation text does not accurately
reflect our actual policy, we proposed
this correction.
At § 412.426(a)(4), we proposed to
replace the statement, ‘‘For cost
reporting periods beginning on or after
July 1, 2008, payment is based entirely
on the Federal per diem payment
amount’’ with the following statement:
‘‘For cost reporting periods beginning on
or after January 1, 2008, payment is
based entirely on the Federal per diem
payment amount.’’ The transition period
during which payment was based on a
combination of the Federal per diem
payment amount and TEFRA payments,
ended on January 1, 2008, not July 1,
2008.
Comment: Two commenters
expressed serious concern that CMS is
making retroactive policy changes to the
regulations text for the 3-year transition
period for the IPF PPS rather than minor
corrections to address typographical
errors.
Response: We disagree with the
commenters. We are simply making
minor corrections to the regulations at
§ 412.426 covering the transition period
to address typographical errors to the
IPF PPS. In the November 2004 IPF PPS
final rule, we provided for a 3-year
transition period. During this 3-year
transition period, an IPF’s total payment
under the PPS was based on an
increasing percentage of the Federal rate
with a corresponding decreasing
percentage of the IPF PPS payment that
was based on reasonable cost concepts.
However, effective for cost reporting
periods beginning on or after January 1,
2008, IPF PPS payments are based on
100 percent of the Federal rate. This
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correction does not represent a policy
change, and therefore is not a retroactive
change. Rather, it is a correction to
conform the regulation text to our
policy, which was established in our
final rule that appeared in the Federal
Register on November 15, 2004 (69 FR
66980) (which was subsequently
corrected on April 1, 2005 (70 FR
16729)). It is clear that the current
regulation text is incorrect. The same
January date (for example, January 1,
2007) cannot be both the date on which
a new transition period begins and the
date on which the previous transition
period ends. Our policy, since we
established the transition, has been to
begin a transition period on or after a
January 1 date and to end that transition
period before the next transition period
begins. Because our regulation text does
not accurately reflect our actual policy,
we proposed this correction.
In addition for § 412.426, in paragraph
(a), ‘‘Duration of transition period and
composition of the blended transition
payment,’’ we intended to propose, but
did not, to replace ‘‘on or after January
1, 2005 through January 1, 2008’’ with
‘‘on or after January 1, 2005 through
December 31,2007’’. Here again, this
correction does not represent a policy
change; it is merely a correction to
conform the regulation text to our
policy, and it is consistent with the
other typographical errors we are
correcting in § 412.426.
Section 412.432(d)
Under § 412.432, in paragraph (d),
‘‘Outlier payments,’’ we proposed to add
the words ‘‘of this part’’ after ‘‘subject to
the cost report settlement specified in
§ 412.84(i) and § 412.84(m).’’ This
regulatory language is required by the
Federal Register and clarifies that
§ 412.84(i) and § 412.84(m) refer to 42
CFR part 412, ‘‘Prospective Payment
Systems for Inpatient Hospital
Services.’’
VIII. Collection of Information
Requirements
This document does not impose any
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. 35).
IX. Regulatory Impact Analysis
A. Statement of Need
This final rule will update the
prospective payment rates for Medicare
inpatient hospital services provided by
inpatient psychiatric facilities for
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discharges occurring during the RY
beginning July 1, 2011 through
September 30, 2012. We are applying
the 15-month FY 2008-based RPL
market basket increase of 3.2 percent,
adjusted by the 0.25 percentage point
reduction, as required by section
1886(s)(3)(A) of the Act. In addition, the
rule implements policy changes
affecting the IPF PPS teaching
adjustment, as well as makes some
clarifications and corrections to
terminology and regulations text.
B. Overall Impact
We have examined the impact of this
rule as required by Executive Order
12866 on Regulatory Planning and
Review (September 30, 1993), Executive
Order 13563 on Improving Regulation
and Regulatory Review (January 18,
2011), 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
(March 22, 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 Orders 12866 and 13563
direct 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).
This final rule has been designated an
‘‘economically’’ significant rule, under
section 3(f) (1) of Executive Order 12866
and a major rule under the
Congressional Review Act. Accordingly,
the rule has been reviewed by the Office
of Management and Budget.
We estimate that the total impact of
these changes for estimated RY 2012
payments compared to estimated RY
2011 payments would be an increase of
approximately $120 million (this
reflects a $130 million increase from the
update to the payment rates and a $10
million decrease due to the update to
the outlier threshold amount to decrease
outlier payments from approximately
2.2 percent in RY 2011 to 2.0 percent in
RY 2012).
The 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
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governmental jurisdictions. Most IPFs
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, refer to the SBA Small
Business Size Standards found at
https://ecfr.gpoaccess.gov/cgi/t/text/textidx?c=ecfr&sid=2465b064
ba6965cc1fbd2eae60854b11&rgn=
div8&view=text&node=13:1.0.1.
1.16.1.266.9&idno=13). Because we lack
data on individual hospital receipts, we
cannot determine the number of small
proprietary IPFs or the proportion of
IPFs’ revenue that is derived from
Medicare payments. Therefore, we
assume that all IPFs are considered
small entities. 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 15, we estimate
that the revenue impact of this final rule
on all IPFs is to increase estimated
Medicare payments by about 2.74
percent, with rural IPFs estimated to
receive an increase in estimated
Medicare payments greater than 3
percent (an aggregate 3.80 percent). As
a result, the Secretary has determined
that this final rule will not 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. We
solicited comment on the above
analysis.
In addition, section 1102(b) of the
Social Security 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 detail below, the
rates and policies set forth in this final
rule will not have an adverse impact on
the rural hospitals based on the data of
the 320 rural units and 67 rural
hospitals in our database of 1,653 IPFs
for which data were available.
Therefore, the Secretary has determined
that this final rule will not have a
significant impact on the operations of
a substantial number of small rural
hospitals.
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
also requires that agencies assess
anticipated costs and benefits before
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issuing any rule whose mandates
require spending in any 1 year of $100
million in 1995 dollars, updated
annually for inflation. In 2011, that
threshold is approximately $136
million. This final rule will not impose
spending costs on State, local, or Tribal
governments in the aggregate, or by the
private sector, of $136 million.
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 final rule would
not have a substantial effect on State
and local governments.
basket update for RY 2012 of 3.2 percent
(see section IV.C.5 of this final rule) as
adjusted by the ‘‘other adjustment’’ of
¥0.25 percentage point according to
section 1886(s)(3)(A) of the Act, and the
update to the outlier fixed dollar loss
threshold amount.
We estimate that the RY 2012 impact
would be a net increase of $120 million
in payments to IPF providers. This
reflects an estimated $130 million
increase from the update to the payment
rates and a $10 million decrease due to
the update to the outlier threshold
amount to decrease estimated outlier
payments from approximately 2.2
percent in RY 2011 to 2.0 percent in RY
2012.
C. Anticipated Effects of the Final Rule
We discuss below the historical
background of the IPF PPS and the
impact of this final rule on the Federal
Medicare budget and on IPFs.
To understand the impact of the
changes to the IPF PPS on providers,
discussed in this final rule, it is
necessary to compare estimated
payments under the IPF PPS rates and
factors for RY 2012 versus those under
RY 2011. The estimated payments for
RY 2011 and RY 2012 will be 100
percent of the IPF PPS payment, since
the transition period has ended and
stop-loss payments are no longer paid.
We determined the percent change of
estimated RY 2012 IPF PPS payments to
RY 2011 IPF PPS payments for each
category of IPFs. In addition, for each
category of IPFs, we have included the
estimated percent change in payments
resulting from the update to the outlier
fixed dollar loss threshold amount, the
labor-related share and wage index
changes for the RY 2012 IPF PPS, and
the 15-month market basket update for
RY 2012, as adjusted by the ‘‘other
adjustment’’ according to section
1886(s)(3)(A) of the Act.
To illustrate the impacts of the RY
2012 changes in this final rule, our
analysis begins with a RY 2011 baseline
simulation model based on FY 2009 IPF
payments inflated to the midpoint of RY
2011 using IHS Global Insight’s most
recent forecast of the market basket
update (see section IV.C.5 of this final
rule); the estimated outlier payments in
RY 2011; the CBSA designations for
IPFs based on OMB’s MSA definitions
after June 2003; the FY 2010 pre-floor,
pre-reclassified hospital wage index; the
RY 2011 labor-related share; and the RY
2011 percentage amount of the rural
adjustment. During the simulation, the
total estimated outlier payments are
maintained at 2 percent of total IPF PPS
payments.
Each of the following changes is
added incrementally to this baseline
model in order for us to isolate the
effects of each change:
1. Budgetary Impact
As discussed in the November 2004
and May 2006 IPF PPS final rules, we
applied a budget neutrality factor to the
Federal per diem and ECT base rates to
ensure that total estimated payments
under the IPF PPS in the
implementation period would equal the
amount that would have been paid if the
IPF PPS had not been implemented. The
budget neutrality factor includes the
following components: Outlier
adjustment, stop-loss adjustment, and
the behavioral offset. As discussed in
the May 2008 IPF PPS notice (73 FR
25711), the stop-loss adjustment is no
longer applicable under the IPF PPS.
In accordance with § 412.424(c)(3)(ii),
we indicated that we would evaluate the
accuracy of the budget neutrality
adjustment within the first 5 years after
implementation of the payment system.
We may make a one-time prospective
adjustment to the Federal per diem and
ECT base rates to account for differences
between the historical data on costbased TEFRA payments (the basis of the
budget neutrality adjustment) and
estimates of TEFRA payments based on
actual data from the first year of the IPF
PPS. As part of that process, we will
reassess the accuracy of all of the factors
impacting budget neutrality. In
addition, as discussed in section IV.C.6
of this final rule, we are using the wage
index and labor-related share in a
budget neutral manner by applying a
wage index budget neutrality factor to
the Federal per diem and ECT base
rates. Therefore, the budgetary impact to
the Medicare program of this final rule
will be due to the 15-month market
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2. Impact on Providers
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• The update to the outlier fixed
dollar loss threshold amount.
• The FY 2011 pre-floor, prereclassified hospital wage index and RY
2012 labor-related share.
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• The 15-month market basket update
for RY 2012 of 3.2 percent adjusted by
the 0.25 percentage point reduction in
accordance with section 1886(s)(3)(A) of
the Act.
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Our final comparison illustrates the
percent change in payments from RY
2011 (that is, July 1, 2010 to June 30,
2011) to RY 2012 (that is, July 1, 2011
to September 30, 2012) including all the
changes in this final rule.
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3. Results
Table 15 above displays the results of
our analysis. The table groups IPFs into
the categories listed below based on
characteristics provided in the Provider
of Services (POS) file, the IPF provider
specific file, and cost report data from
HCRIS:
• Facility Type
• Location
• Teaching Status Adjustment
• Census Region
• Size
The top row of the table shows the
overall impact on the 1,653 IPFs
included in this analysis.
In column 3, we present the effects of
the update to the outlier fixed dollar
loss threshold amount. We estimate that
IPF outlier payments as a percentage of
total IPF payments are 2.2 percent in RY
2011. Therefore, we are adjusting the
outlier threshold amount from $6,372 in
RY 2011 to $7,340 in RY 2012 in order
to set total estimated outlier payments
equal to 2 percent of total payments in
RY 2012. The estimated change in total
IPF payments for RY 2012, therefore,
includes an approximate 0.2 percent
decrease in payments because the
outlier portion of total payments is
expected to decrease from
approximately 2.2 percent to 2 percent.
The overall aggregate effect of this
outlier adjustment update (as shown in
column 3 of table 15), across all hospital
groups, is to decrease total estimated
payments to IPFs by 0.21 percent. We
do not estimate that any group of IPFs
will experience an increase in payments
from this update. The largest decrease in
payments is estimated to reflect a 1.57
percent decrease in payments to urban
government IPF units located in CAHs
which is due to the small number of
IPFs of that type and the high volume
of outlier payments made to those IPFs.
In column 4, we present the effects of
the budget-neutral update to the laborrelated share and the wage index
adjustment under the CBSA geographic
area definitions announced by OMB in
June 2003. This is a comparison of the
simulated RY 2012 payments under the
FY 2011 hospital wage index under
CBSA classification and associated
labor-related share to the simulated RY
2011 payments under the FY 2010
hospital wage index under CBSA
classifications and associated laborrelated share. We note that there is no
projected change in aggregate payments
to IPFs, as indicated in the first row of
column 4. However, there will be
distributional effects among different
categories of IPFs. For example, we
estimate a 1.02 percent increase in
overall payments to rural IPFs, with the
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largest increase in payments of 2.25
percent for rural, for-profit freestanding
psychiatric hospitals. In addition, we
estimate the largest decrease in
payments to be a 0.91 percent decrease
for IPFs in the New England region.
Column 5 shows the estimated effect
of the update to the IPF PPS payment
rates, which includes a 3.2 percent 15month market basket update adjusted by
the 0.25 percentage point reduction in
accordance with section 1886(s)(3)(A).
Column 6 compares our estimates of
the changes reflected in this final rule
for RY 2012, to our payments for RY
2011 (without these changes). This
column reflects all RY 2012 changes
relative to RY 2011. The average
estimated increase for all IPFs is
approximately 2.74 percent. This
estimated net increase includes the
effects of the 3.2 percent 15-month
market basket update adjusted by the
‘‘other adjustment’’ of ¥0.25 percentage
point, as required by section
1886(s)(3)(A) of the Act. It also includes
the overall estimated 0.2 percent
decrease in estimated IPF outlier
payments from the update to the outlier
fixed dollar loss threshold amount.
Since we are making the updates to the
IPF labor-related share and wage index
in a budget-neutral manner, they will
not affect total estimated IPF payments
in the aggregate. However, they will
affect the estimated distribution of
payments among providers.
Overall, no IPFs are estimated to
experience a net decrease in payments
as a result of the updates in this rule.
IPFs in urban areas will experience a
2.57 percent increase and IPFs in rural
areas will experience a 3.80 percent
increase. The largest payment increase
is estimated at 5.23 percent for rural,
for-profit freestanding psychiatric
hospitals. This is due to the larger than
average positive effect of the FY 2011
CBSA wage index and labor-related
share updates for rural IPFs in this
category.
4. Effect on the Medicare Program
Based on actuarial projections
resulting from our experience with other
PPSs, we estimate that Medicare
spending (total Medicare program
payments) for IPF services over the next
5 years would be as shown in Table 16
below.
TABLE 16—ESTIMATED PAYMENTS
Dollars in
millions
Rate year
July
July
July
July
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1,
1,
1,
1,
2011
2012
2013
2014
to
to
to
to
Frm 00034
June
June
June
June
30,
30,
30,
30,
Fmt 4701
2012
2013
2014
2015
Sfmt 4700
$4,615
4,945
5,330
5,775
TABLE 16—ESTIMATED PAYMENTS—
Continued
Rate year
July 1, 2015 to June 30, 2016
Dollars in
millions
6,273
These estimates are based on the
current forecast of the increases in the
RPL market basket, including an
adjustment for productivity, for the RY
beginning in 2012 and each subsequent
RY, as required by section 1886(s)(3)(A)
of the Act, as follows:
• 2.8 percent for rate years beginning
in 2011 (RY 2012).
• 1.7 percent for rate years beginning
in 2012 (RY 2013).
• 2.0 percent for rate years beginning
in 2013 (RY 2014).
• 2.2 percent for rate years beginning
in 2014 (RY 2015).
• 2.4 percent for rate years beginning
in 2015 (RY 2016).
The estimates in Table 16 also include
the application of the ‘‘other
adjustment,’’ as required by section
1886(s)(3)(A) of the Act, as follows:
• ¥0.25 percentage point for rate
years beginning in 2011.
• ¥0.1 percentage point for rate years
beginning in 2012.
• ¥0.1 percentage point for rate years
beginning in 2013.
• ¥0.3 percentage point for rate years
beginning in 2014.
• ¥0.2 percentage point for rate years
beginning in 2015.
We estimate that there would be a
change in fee-for-service Medicare
beneficiary enrollment as follows:
• 3.3 percent in RY 2012.
• 3.7 percent in RY 2013.
• 4.3 percent in RY 2014.
• 4.9 percent in RY 2015.
• 5.6 percent in RY 2016.
5. Effect on Beneficiaries
Under the IPF PPS, IPFs would
receive payment based on the average
resources consumed by patients for each
day. We do not expect changes in the
quality of care or access to services for
Medicare beneficiaries under the RY
2012 IPF PPS. In fact, we believe that
access to IPF services will be enhanced
due to the patient- and facility-level
adjustment factors, all of which are
intended to adequately reimburse IPFs
for expensive cases. Finally, the outlier
policy is intended to assist IPFs that
experience high-cost cases.
D. Alternatives Considered
The statute does not specify an update
strategy for the IPF PPS and is broadly
written to give the Secretary discretion
in establishing an update methodology.
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Therefore, we are updating the IPF PPS
using the methodology published in the
November 2004 IPF PPS final rule.
We note that this final rule initiates
policy changes with regard to the IPF
PPS, and it also provides an update to
the rates for RY 2012. We considered
making refinements to the IPF PPS in
this final rule. However, more time is
required to assess the data and will
therefore once again delay running the
regression analysis until we have
adequate IPF PPS data. We have
initiated the necessary analysis to better
understand IPF industry practices. We
did not consider rebasing the IPF PPS
for concerns that rebasing would be too
costly (re-calculate the cost-per-day) and
time consuming.
E. Accounting Statement
TABLE 17—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM THE 2011 IPF
PPS RY TO THE 2012 IPF PPS RY
[In millions]
Annualized Monetized
Transfers.
From Whom To
Whom?
Transfers
$120.
Federal Government
to IPF Medicare
Providers.
In accordance with the provisions of
Executive Order 12866, this regulation
was reviewed by the Office of
Management and Budget.
jlentini on DSKJ8SOYB1PROD with RULES2
Authority: Secs 1102, 1862, and 1871 of
the Social Security Act (42 U.S.C. 1302,
1395y, and 1395hh).
Subpart N—Prospective Payment
System for Inpatient Hospital Services
of Inpatient Psychiatric Facilities
2. In § 412.402, the definition of
‘‘Inpatient psychiatric facilities
prospective payment system rate year’’
is added in alphabetical order to read as
follows:
■
§ 412.402
Definitions.
Administrative practice and
procedure, Health facilities, Medicare,
Puerto Rico, Reporting and
recordkeeping requirements.
For the reasons set forth in the
preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR
chapter IV as set forth below:
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*
*
*
*
Inpatient psychiatric facilities
prospective payment system rate year
means—
(1) Through June 30, 2011, the 12month period of July 1 through June 30.
(2) Beginning July 1, 2011, the 15month period of July 1, 2011 through
September 30, 2012.
(3) Beginning October 1, 2012, the 12month period of October 1 through
September 30, referred to as Fiscal Year
(FY).
*
*
*
*
*
■ 3. Section 412.404 is amended by
revising paragraph (a)(1) to read as
follows:
§ 412.404 Conditions for payment under
the prospective payment system for
inpatient hospital services of psychiatric
facilities.
(a) * * *
(1) Effective for cost reporting periods
beginning on or after January 1, 2005, an
inpatient psychiatric facility must meet
the conditions of this section to receive
payment under the prospective payment
system described in this subpart for
inpatient hospital services furnished to
Medicare Part A fee-for-service
beneficiaries.
*
*
*
*
*
■ 4. Section 412.422 is amended by
revising paragraph (b)(2) to read as
follows:
§ 412.422
Basis of payment.
*
List of Subjects in 42 CFR Part 412
VerDate Mar<15>2010
1. The authority citation for part 412
continues to read as follows:
■
*
As required by OMB Circular A–4
(available at https://
www.whitehouse.gov/omb/circulars/
a004/a-4.pdf), in Table 17 below, we
have prepared an accounting statement
showing the classification of the
expenditures associated with the
provisions of this final rule. This table
provides our best estimate of the
increase in Medicare payments under
the IPF PPS as a result of the proposed
changes presented in this final rule and
based on the data for 1,653 IPFs in our
database. All expenditures are classified
as transfers to IPF Medicare providers.
Category
PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
*
*
*
*
(b) * * *
(2) In addition to the Federal per diem
payment amounts, inpatient psychiatric
facilities receive payment for bad debts
of Medicare beneficiaries, as specified
in § 413.89 of this chapter.
■ 5. Section 412.424 is amended by
adding a new paragraph (d)(1)(iii)(F) to
read as follows:
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26465
§ 412.424 Methodology for calculating the
Federal per diem payment amount.
*
*
*
*
*
(d) * * *
(1) * * *
(iii) * * *
(F) Closure of an IPF. (1) For cost
reporting periods beginning on or after
July 1, 2011, an IPF may receive a
temporary adjustment to its FTE cap to
reflect residents added because of
another IPF’s closure if the IPF meets
the following criteria:
(i) The IPF is training additional
residents from an IPF that closed on or
after July 1, 2011.
(ii) No later than 60 days after the IPF
begins to train the residents, the IPF
submits a request to its Medicare
contractor for a temporary adjustment to
its cap, documents that the IPF is
eligible for this temporary adjustment
by identifying the residents who have
come from the closed IPF and have
caused the IPF to exceed its cap, and
specifies the length of time the
adjustment is needed.
(2) Closure of an IPF’s residency
training program. If an IPF that closes
its residency training program on or
after July 1, 2011, agrees to temporarily
reduce its FTE cap according to the
criteria specified in paragraph
(d)(1)(iii)(F)(2)(ii) of this section,
another IPF(s) may receive a temporary
adjustment to its FTE cap to reflect
residents added because of the closure
of the residency training program if the
criteria specified in paragraph
(d)(1)(iii)(F)(2)(i) of this section are met.
(i) Receiving IPF(s). For cost reporting
periods beginning on or after July 1,
2011, an IPF may receive a temporary
adjustment to its FTE cap to reflect
residents added because of the closure
of another IPF’s residency training
program if the IPF is training additional
residents from the residency training
program of an IPF that closed a program;
and if no later than 60 days after the IPF
begins to train the residents, the IPF
submits to its Medicare Contractor a
request for a temporary adjustment to its
FTE cap, documents that it is eligible for
this temporary adjustment by
identifying the residents who have come
from another IPF’s closed program and
have caused the IPF to exceed its cap,
specifies the length of time the
adjustment is needed, and submits to its
Medicare contractor a copy of the FTE
reduction statement by the hospital that
closed its program, as specified in
paragraph (d)(1)(iii)(F)(2)(ii) of this
section.
(ii) IPF that closed its program. An
IPF that agrees to train residents who
have been displaced by the closure of
another IPF’s program may receive a
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temporary FTE cap adjustment only if
the hospital with the closed program
temporarily reduces its FTE cap based
on the FTE residents in each program
year training in the program at the time
of the program’s closure. This yearly
reduction in the FTE cap will be
determined based on the number of
those residents who would have been
training in the program during that year
had the program not closed. No later
than 60 days after the residents who
were in the closed program begin
training at another hospital, the hospital
with the closed program must submit to
its Medicare contractor a statement
signed and dated by its representative
that specifies that it agrees to the
temporary reduction in its FTE cap to
allow the IPF training the displaced
residents to obtain a temporary
adjustment to its cap; identifies the
residents who were in training at the
time of the program’s closure; identifies
the IPFs to which the residents are
transferring once the program closes;
and specifies the reduction for the
applicable program years.
*
*
*
*
*
■ 6. Section 412.426 is amended by
revising paragraph (a) to read as follows:
§ 412.426
Transition period.
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(a) Duration of transition period and
composition of the blended transition
payment. Except as provided in
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paragraph (c) of this section, for cost
reporting periods beginning on or after
January 1, 2005 through December 31,
2007, an inpatient psychiatric facility
receives a payment comprised of a
blend of the estimated Federal per diem
payment amount, as specified in
§ 412.424(d) of this subpart and a
facility-specific payment as specified
under paragraph (b) of this section.
(1) For cost reporting periods
beginning on or after January 1, 2005
and before January 1, 2006, payment is
based on 75 percent of the facilityspecific payment and 25 percent is
based on the Federal per diem payment
amount.
(2) For cost reporting periods
beginning on or after January 1, 2006
and before January 1, 2007, payment is
based on 50 percent of the facilityspecific payment and 50 percent is
based on the Federal per diem payment
amount.
(3) For cost reporting periods
beginning on or after January 1, 2007
and before January 1, 2008, payment is
based on 25 percent of the facilityspecific payment and 75 percent is
based on the Federal per diem payment
amount.
(4) For cost reporting periods
beginning on or after January 1, 2008,
payment is based entirely on the Federal
per diem payment amount.
*
*
*
*
*
PO 00000
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7. Section 412.432 is amended by
revising paragraph (d) to read as
follows:
■
§ 412.432 Method of payment under the
inpatient psychiatric facility prospective
payment system.
*
*
*
*
*
(d) Outlier payments. Additional
payments for outliers are not made on
an interim basis. Outlier payments are
made based on the submission of a
discharge bill and represents final
payment subject to the cost report
settlement specified in § 412.84(i) and
§ 412.84(m) of this part.
*
*
*
*
*
(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—Hospital
Insurance; and Program No. 93.774,
Medicare—Supplementary Medical
Insurance Program)
Dated: April 21, 2011.
Donald Berwick,
Administrator, Centers for Medicare &
Medicaid Services.
Approved: April 26, 2011.
Kathleen Sebelius,
Secretary.
Note: The following Addendums will not
appear in the Code of Federal Regulations.
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]]>Agencies
[Federal Register Volume 76, Number 88 (Friday, May 6, 2011)]
[Rules and Regulations]
[Pages 26432-26487]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10562]
[[Page 26431]]
Vol. 76
Friday,
No. 88
May 6, 2011
Part IV
Department of Health and Human Services
-----------------------------------------------------------------------
Centers for Medicare & Medicaid Services
-----------------------------------------------------------------------
42 CFR Part 412
Medicare Program; Inpatient Psychiatric Facilities Prospective Payment
System--Update for Rate Year Beginning July 1, 2011 (RY 2012); Final
Rule
Federal Register / Vol. 76 , No. 88 / Friday, May 6, 2011 / Rules and
Regulations
[[Page 26432]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412
[CMS-1346-F]
RIN 0938-AQ23
Medicare Program; Inpatient Psychiatric Facilities Prospective
Payment System--Update for Rate Year Beginning July 1, 2011 (RY 2012)
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule updates the prospective payment rates for
Medicare inpatient hospital services provided by inpatient psychiatric
facilities (IPFs) for discharges occurring during the rate year (RY)
beginning July 1, 2011 through September 30, 2012. The final rule also
changes the IPF prospective payment system (PPS) payment rate update
period to a RY that coincides with a fiscal year (FY). In addition, the
rule implements policy changes affecting the IPF PPS teaching
adjustment. It also rebases and revises the Rehabilitation,
Psychiatric, and Long-Term Care (RPL) market basket, and makes some
clarifications and corrections to terminology and regulations text.
DATES: These regulations are effective on July 1, 2011.
FOR FURTHER INFORMATION CONTACT:
Dorothy Myrick or Jana Lindquist, (410) 786-4533 (for general
information).
Mary Carol Barron, (410) 786-7943, or Bridget Dickensheets, (410) 786-
8670, (for information regarding the market basket and labor-related
share).
Theresa Bean, (410) 786-2287 (for information regarding the regulatory
impact analysis).
SUPPLEMENTARY INFORMATION:
Table of Contents
To assist readers in referencing sections contained in this
document, we are providing the following table of contents.
I. Background
A. Annual Requirements for Updating the IPF PPS
B. Overview of the Legislative Requirements of the IPF PPS
C. General Overview of the IPF PPS
D. Transition Period for Implementation of the IPF PPS
II. Provisions of the Proposed Rule and Responses to Public Comments
III. Changing the IPF PPS Payment Rate Update Period From a Rate
Year to a Fiscal Year
IV. Rebasing and Revising of the Rehabilitation, Psychiatric, and
Long-Term Care (RPL) Market Basket for Inpatient Psychiatric
Facilities
A. Background
B. Overview of the FY 2008-Based RPL Market Basket
C. Rebasing and Revising of the RPL Market Basket
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
b. Other Data Sources
2. Final Cost Category Computation
3. Selection of Price Proxies
a. Wages and Salaries
b. Employee Benefits
c. Electricity
d. Fuel, Oil, and Gasoline
e. Water and Sewage
f. Professional Liability Insurance
g. Pharmaceuticals
h. Food: Direct Purchases
i. Food: Contract Services
j. Chemicals
k. Medical Instruments
l. Photographic Supplies
m. Rubber and Plastics
n. Paper and Printing Products
o. Apparel
p. Machinery and Equipment
q. Miscellaneous Products
r. Professional Fees: Labor-Related
s. Administrative and Business Support Services
t. All Other: Labor-Related Services
u. Professional Fees: Nonlabor-Related
v. Financial Services
w. Telephone Services
x. Postage
y. All Other: Nonlabor-Related Services
4. Methodology for Capital Portion of the RPL Market Basket
5. RY 2012 Market Basket Update
6. Labor-Related Share
V. Updates to the IPF PPS for RY Beginning July 1, 2011
A. Determining the Standardized Budget-Neutral Federal Per Diem
Base Rate
1. Standardization of the Federal Per Diem Base Rate and
Electroconvulsive Therapy (ECT) Rate
2. Calculation of the Budget Neutrality Adjustment
a. Outlier Adjustment
b. Stop-Loss Provision Adjustment
c. Behavioral Offset
B. Update of the Federal Per Diem Base Rate and
Electroconvulsive Therapy Rate
VI. Update of the IPF PPS Adjustment Factors
A. Overview of the IPF PPS Adjustment Factors
B. Patient-Level Adjustments
1. Adjustment for MS-DRG Assignment
2. Payment for Comorbid Conditions
3. Patient Age Adjustments
4. Variable Per Diem Adjustments
C. Facility-Level Adjustments
1. Wage Index Adjustment
a. Background
b. Wage Index for RY 2012
c. OMB Bulletins
2. Adjustment for Rural Location
3. Teaching Adjustment
a. Temporary Adjustment to FTE Cap to Reflect Residents Affected
by Hospital Closure
b. Temporary Adjustment to FTE Cap to Reflect Residents Affected
By Residency Program Closure
4. Cost of Living Adjustment for IPFs Located in Alaska and
Hawaii
5. Adjustment for IPFs with a Qualifying Emergency Department
(ED)
D. Other Payment Adjustments and Policies
1. Outlier Payments
a. Update to the Outlier Fixed Dollar Loss Threshold Amount
b. Statistical Accuracy of Cost-to-Charge Ratios
2. Expiration of the Stop-Loss Provision
3. Future Refinements
VII. Regulations Text Corrections
VIII. Collection of Information Requirements
IX. Regulatory Impact Analysis
Regulations Text
Addenda
Acronyms
Because of the many terms to which we refer by acronym in this
final rule, we are listing the acronyms used and their corresponding
meanings in alphabetical order below:
BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113)
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
CAH Critical access hospital
DSM-IV-TR Diagnostic and Statistical Manual of Mental Disorders
Fourth Edition--Text Revision
DRGs Diagnosis-related groups
FY Federal fiscal year (October 1 through September 30)
ICD-9-CM International Classification of Diseases, 9th Revision,
Clinical Modification
IPFs Inpatient psychiatric facilities
IRFs Inpatient rehabilitation facilities
LTCHs Long-term care hospitals
MedPAR Medicare provider analysis and review file
RPL Rehabilitation, Psychiatric, and Long-Term Care
RY Rate Year (July 1 through June 30)
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-
248)
I. Background
A. Annual Requirements for Updating the IPF PPS
In November 2004, we implemented the inpatient psychiatric
facilities (IPF) prospective payment system (PPS) in a final rule that
appeared in the November 15, 2004 Federal Register (69 FR 66922). In
developing the IPF PPS, in order to ensure that the IPF PPS is able to
account adequately for each IPF's case-mix, we performed an
[[Page 26433]]
extensive regression analysis of the relationship between the per diem
costs and certain patient and facility characteristics to determine
those characteristics associated with statistically significant cost
differences on a per diem basis. For characteristics with statistically
significant cost differences, we used the regression coefficients of
those variables to determine the size of the corresponding payment
adjustments.
In that final rule, we explained that we believe it is important to
delay updating the adjustment factors derived from the regression
analysis until we have IPF PPS data that includes as much information
as possible regarding the patient-level characteristics of the
population that each IPF serves. Therefore, we indicated that we did
not intend to update the regression analysis and recalculate the
Federal per diem base rate and the patient- and facility-level
adjustments until we complete that analysis. Until that analysis is
complete, we stated our intention to publish a notice in the Federal
Register each spring to update the IPF PPS (71 FR 27041). However, in
this final rule, we are changing the payment rate update period to a
rate year (RY) that coincides with a fiscal year (FY) update.
Therefore, future update notices will be published in the Federal
Register in the summer. We discuss this change in more detail in
section III of this final rule.
Updates to the IPF PPS as specified in 42 CFR Sec. 412.428 include
the following:
A description of the methodology and data used to
calculate the updated Federal per diem base payment amount.
The rate of increase factor as described in Sec.
412.424(a)(2)(iii), which is based on the Excluded Hospital With
Capital market basket under the update methodology of section
1886(b)(3)(B)(ii) of the Social Security Act (the Act) for each year
(effective from the implementation period until June 30, 2006).
For discharges occurring on or after July 1, 2006, the
rate of increase factor for the Federal portion of the IPF's payment,
which is based on the Rehabilitation, Psychiatric, and Long-Term Care
(RPL) market basket.
The best available hospital wage index and information
regarding whether an adjustment to the Federal per diem base rate is
needed to maintain budget neutrality.
Updates to the fixed dollar loss threshold amount in order
to maintain the appropriate outlier percentage.
Description of the International Classification of
Diseases, 9th Revision, Clinical Modification (ICD-9-CM) coding and
diagnosis-related groups (DRGs) classification changes discussed in the
annual update to the hospital inpatient prospective payment system
(IPPS) regulations.
Update to the electroconvulsive therapy (ECT) payment by a
factor specified by CMS.
Update to the national urban and rural cost-to-charge
ratio medians and ceilings.
Update to the cost of living adjustment factors for IPFs
located in Alaska and Hawaii, if appropriate.
Our most recent IPF PPS annual update occurred in the April 30,
2010 Federal Register notice (75 FR 23106) (hereinafter referred to as
the April 2010 IPF PPS notice) that set forth updates to the IPF PPS
payment rates for RY 2011. This notice updated the IPF PPS per diem
payment rates that were published in the May 2009 IPF PPS notice in
accordance with our established policies.
Since implementation of the IPF PPS, we have explained that we
believe it is important to delay updating the adjustment factors
derived from the regression analysis until we have IPF PPS data that
include as much information as possible regarding the patient-level
characteristics of the population that each IPF serves. Since we are
now approximately 5 years into the system, we believe that we have
enough data to begin that process. Therefore, we have begun the
necessary analysis in order to make future refinements. While we did
not propose to make refinements in this rulemaking, as explained in
section V.D.3 below, we believe that in the next rulemaking, for FY
2013, we will be ready to propose potential refinements.
B. Overview of the Legislative Requirements of the IPF PPS
Section 124 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) required implementation of the IPF PPS. Specifically,
section 124 of the BBRA mandated that the Secretary develop a per diem
PPS for inpatient hospital services furnished in psychiatric hospitals
and psychiatric units that includes an adequate patient classification
system that reflects the differences in patient resource use and costs
among psychiatric hospitals and psychiatric units.
Section 405(g)(2) of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF
PPS to distinct part psychiatric units of critical access hospitals
(CAHs).
To implement these provisions, we published various proposed and
final rules in the Federal Register. For more information regarding
these rules, see the CMS Web site https://www.cms.hhs.gov/InpatientPsychFacilPPS/.
Section 3401(f) of the Patient Protection and Affordable Care Act
(Pub. L. 111-148) as amended by section 10319(e) of that Act and by
section 1105(d) of the Health Care and Education Reconciliation Act of
2010 (Pub. L. 111-152) (hereafter referred to as ``The Affordable Care
Act'') added subsection (s) to section 1886 of the Act.
Section 1886(s)(1) is titled ``Reference to Establishment and
Implementation of System'' and it refers to section 124 of the
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999,
which relates to the establishment of the IPF PPS.
Section 1886(s)(2)(A)(i) of the Act requires the application of the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act to the IPF PPS for the RY beginning in 2012 and each subsequent
RY. Section 1886(s)(2)(A)(ii) of the Act requires the application of an
``other adjustment'' that reduces any update to an IPF PPS base rate by
percentages specified in section 1886(s)(3) of the Act for rate years
beginning in 2010 through the RY beginning in 2019. For the RY
beginning in 2011, the reduction is 0.25 percentage point. We are
implementing that provision for RY 2012 in this RY 2012 IPF PPS final
rule.
Section 1886(s)(4) of the Act requires the establishment of a
quality data reporting program for the IPF PPS beginning in RY 2014.
C. General Overview of the IPF PPS
The November 2004 IPF PPS final rule (69 FR 66922) established the
IPF PPS, as authorized under section 124 of the BBRA and codified at
subpart N of part 412 of the Medicare regulations. The November 2004
IPF PPS final rule set forth the per diem Federal rates for the
implementation year (the 18-month period from January 1, 2005 through
June 30, 2006), and it provided payment for the inpatient operating and
capital costs to IPFs for covered psychiatric services they furnish
(that is, routine, ancillary, and capital costs, but not costs of
approved educational activities, bad debts, and other services or items
that are outside the scope of the IPF PPS). Covered psychiatric
services include services for which benefits are provided under the
fee-for-service Part A
[[Page 26434]]
(Hospital Insurance Program) Medicare program.
The IPF PPS established the Federal per diem base rate for each
patient day in an IPF derived from the national average daily routine
operating, ancillary, and capital costs in IPFs in FY 2002. The average
per diem cost was updated to the midpoint of the first year under the
IPF PPS, standardized to account for the overall positive effects of
the IPF PPS payment adjustments, and adjusted for budget neutrality.
The Federal per diem payment under the IPF PPS is comprised of the
Federal per diem base rate described above and certain patient- and
facility-level payment adjustments that were found in the regression
analysis to be associated with statistically significant per diem cost
differences.
The patient-level adjustments include age, DRG assignment,
comorbidities, and variable per diem adjustments to reflect higher per
diem costs in the early days of an IPF stay. Facility-level adjustments
include adjustments for the IPF's wage index, rural location, teaching
status, a cost of living adjustment for IPFs located in Alaska and
Hawaii, and presence of a qualifying emergency department (ED).
The IPF PPS provides additional payment policies for: Outlier
cases; stop-loss protection (which was applicable only during the IPF
PPS transition period); interrupted stays; and a per treatment
adjustment for patients who undergo ECT.
A complete discussion of the regression analysis appears in the
November 2004 IPF PPS final rule (69 FR 66933 through 66936).
Section 124 of BBRA does not specify an annual update rate strategy
for the IPF PPS and is broadly written to give the Secretary discretion
in establishing an update methodology. Therefore, in the November 2004
IPF PPS final rule, we implemented the IPF PPS using the following
update strategy:
Calculate the final Federal per diem base rate to be
budget neutral for the 18-month period of January 1, 2005 through June
30, 2006.
Use a July 1 through June 30 annual update cycle.
Allow the IPF PPS first update to be effective for
discharges on or after July 1, 2006 through June 30, 2007.
D. Transition Period for Implementation of the IPF PPS
In the November 2004 IPF PPS final rule, we provided for a 3-year
transition period. During this 3-year transition period, an IPF's total
payment under the PPS was based on an increasing percentage of the
Federal rate with a corresponding decreasing percentage of the IPF PPS
payment that is based on reasonable cost concepts. However, effective
for cost reporting periods beginning on or after January 1, 2008, IPF
PPS payments are based on 100 percent of the Federal rate.
II. Provisions of the Proposed Rule and Responses to Public Comments
On January 27, 2011, we published a proposed rule that appeared in
the Federal Register (76 FR 4998) entitled, ``Inpatient Psychiatric
Facilities Prospective Payment System--Update for Rate Year Beginning
July 1, 2011 (RY 2012).'' The January 2011 proposed rule (hereinafter
referred to as the RY 2012 IPF PPS proposed rule) set forth the
proposed annual update to the proposed PPS for IPFs for discharges
occurring during the RY beginning July 1, 2011.
In addition to the annual rate update, we proposed to--
Switch the annual update period for the IPF PPS from a RY
that begins on July 1 and goes through June 30 to one that coincides
with a FY, that is, that begins on October 1 and goes through September
30. For the update period that begins in 2012, that is, FY 2013, we
would refer to the update period as a FY. In order to make this switch,
we proposed that RY 2012 be a 15-month period, from July 1, 2011
through September 30, 2012.
Rebase and revise the FY 2002-based RPL market basket to a
FY 2008-based RPL market basket. Apply a 0.25 percentage point
reduction to the market basket update as required by section 1886(s)(3)
of the Act.
Adopt IPF policies similar to such IPPS graduate medical
education (GME) policies providing for temporary adjustments to an
IPF's FTE cap to reflect residents added due to the closure of an IPF
or an IPF's residency training program.
Update the fixed dollar loss threshold amount in order to
maintain the appropriate outlier percentage.
Update the ECT adjustment by a factor specified by CMS.
Update the national urban and rural cost-to-charge ratio
medians and ceilings.
Update the cost of living adjustment factors for IPFs
located in Alaska and Hawaii, if appropriate.
Describe the ICD-9-CM and MS-DRG classification changes
discussed in the annual update to the hospital inpatient prospective
payment system regulations.
Use the best available hospital wage index and information
regarding whether an adjustment to the Federal per diem base rate is
needed to maintain budget neutrality.
Retain the 17 percent adjustment for IPFs located in rural
areas, the 1.31 adjustment for IPFs with a qualifying ED, the 0.5150
teaching adjustment to the Federal per diem rate, and the MS-DRG
adjustment factor currently being paid to IPFs for RY 2011.
Update the MS-DRG listing and comorbidity categories to
reflect the ICD-9-CM revisions effective October 1, 2010.
In addition, we proposed to make clarifying changes to the
regulations text. We noted that these proposed changes would not impact
policy.
We provided for a 60 day comment period on the RY 2012 IPF PPS
proposed rule. We received 12 public comments from hospital
associations and psychiatric hospitals and units. In general, many of
the commenters strongly supported our proposed policy changes,
including changes to the payment rate update cycle and the teaching
policy. A few commenters expressed concern regarding the proposed
decrease in the labor-related share. Several commenters recommended
that we explore the creation of an inpatient rehabilitation and
psychiatric facilities (RP) market basket. Summaries of the public
comments received and our responses to those comments are provided in
the appropriate sections in the preamble of this final rule.
III. Changing the IPF PPS Payment Rate Update Period From a Rate Year
to a Fiscal Year
In the RY 2012 IPF PPS proposed rule, we proposed to change the
current period for the annual updates of the IPF PPS Federal payment
rates. Specifically, we proposed to revise the IPF PPS payment rate
update period by switching from a RY that begins on July 1 and goes
through June 30 to a period that coincides with a FY, that is, October
1 through September 30. We proposed to refer to the update period as a
FY beginning with the update period that begins in 2012, that is, FY
2013. We specified that this change in the annual update period would
allow us to consolidate Medicare publications by aligning the IPF PPS
update with the annual update of the ICD-9-CM codes, which are
effective on October 1 of each year. Currently, in addition to our
annual proposed and final rulemaking documents, we publish a change
request transmittal every August updating the ICD-9-CM codes related to
the DRG and comorbidity adjustments. By proposing to align the IPF PPS
with the same update period as the ICD-9-CM codes,
[[Page 26435]]
we aimed to eliminate the need to publish a transmittal off-cycle.
We maintain the same diagnostic coding and DRG classification for
IPFs that are used under the IPPS for providing the psychiatric care.
When the IPF PPS was implemented, we adopted the same diagnostic code
set and DRG patient classification systems (that is, the CMS DRGs) that
were utilized at the time under the hospital IPPS. Every year, changes
to the ICD-9-CM coding system are addressed in the IPPS proposed and
final rules. These changes are effective October 1 of each year and
must be used by acute care hospitals as well as other providers to
report diagnostic and procedure information. The IPF PPS has always
incorporated ICD-9-CM coding changes made in the annual IPPS update.
This proposed change to the annual payment rate update period would
allow the annual update to the rates and the ICD-9-CM coding update to
occur on the same schedule and appear in the same Federal Register
document.
Our intent in making the change in the payment rate update schedule
is to place the IPF PPS on the same update cycle as other PPSs, making
it administratively efficient. In order to smoothly transition to a
payment update period that runs from October 1 through September 30, we
proposed that the RY 2012 period run from July 1, 2011 to September 30,
2012 such that RY 2012 would be 15 months. As proposed and for this
final rule, after RY 2012, the rate update period for the IPF PPS
payment rates and other policy changes will begin on October 1 and go
through September 30. The next update to the IPF PPS rates after RY
2012 would be the FY 2013 update cycle, which will begin on October 1,
2012 and go through September 30, 2013. In addition, we proposed to
make a change to the regulations at Sec. 412.402 to add the term ``IPF
Prospective Payment System Rate Year'' which would mean October 1
through September 30. We proposed that the RY would be referred to as a
FY. For a discussion of the proposed 15-month market basket update for
the proposed 2012 RY, we refer readers to the RY 2012 IPF PPS proposed
rule (76 FR 4998).
Public comments and our responses on the switch from a RY to a FY
are summarized below.
Comment: A few commenters supported moving the payment rate update
period from a RY to a FY. They supported a 15-month update for RY 2012
in order to transition to a FY update period.
Response: We appreciate the commenters' support to move the IPF PPS
payment rate update period to a period that begins on October 1 and
goes through the following September, with a 15-month update for RY
2012 in order to transition to a FY. We are adopting as final, without
modification, the proposal to revise the IPF PPS payment period to a FY
with a 15-month update for RY 2012 in order to transition to a FY
update period.
Final Rule Action: In summary, for RY 2012, we are revising the IPF
PPS payment rate update period by switching the RY period from July 1
through June 30 to a period that coincides with a FY. In order to
transition to a FY update period, RY 2012 is a 15-month period. We are
also making a change to Sec. 412.402 to add the term ``IPF Prospective
Payment System Rate Year'' which means October 1 through September 30
will be referred to as a Fiscal year.
IV. Rebasing and Revising of the Rehabilitation, Psychiatric, and Long-
Term Care (RPL) Market Basket for Inpatient Psychiatric Facilities
A. Background
The input price index (that is, the market basket) that was used to
develop the IPF PPS was the Excluded Hospital with Capital market
basket. This market basket was based on 1997 Medicare cost report data
and included data for Medicare participating IPFs, inpatient
rehabilitation facilities (IRFs), long-term care hospitals (LTCHs),
cancer hospitals, and children's hospitals. Although ``market basket''
technically describes the mix of goods and services used in providing
hospital care, this term is also commonly used to denote the input
price index (that is, cost category weights and price proxies combined)
derived from that market basket. Accordingly, the term ``market
basket'' as used in this document refers to a hospital input price
index.
Beginning with the May 2006 IPF PPS final rule (71 FR 27046 through
27054), IPF PPS payments were updated using a FY 2002-based market
basket reflecting the operating and capital cost structures for IRFs,
IPFs, and LTCHs (hereafter referred to as the Rehabilitation,
Psychiatric, and Long-Term Care (RPL) market basket).
We excluded cancer and children's hospitals from the RPL market
basket because these hospitals are not reimbursed through a PPS;
rather, their payments are based entirely on reasonable costs subject
to rate-of-increase limits established under the authority of section
1886(b) of the Act, which are implemented in regulations at Sec.
413.40. Moreover, the FY 2002 cost structures for cancer and children's
hospitals are noticeably different than the cost structures of the
IRFs, IPFs, and LTCHs. A complete discussion of the FY 2002-based RPL
market basket appears in the May 2006 IPF PPS final rule (71 FR 27046
through 27054).
In the May 1, 2009 IPF PPS notice (74 FR 20362), we expressed our
interest in exploring the possibility of creating a stand-alone IPF
market basket that reflects the cost structures of only IPF providers.
We noted that, of the available options, one would be to join the
Medicare cost report data from freestanding IPF providers (presently
incorporated into the FY 2002-based RPL market basket) with data from
hospital-based IPF providers. We indicated that an examination of the
Medicare cost report data comparing freestanding and hospital-based
IPFs revealed considerable differences between the two with respect to
cost levels and cost structures. At that time, we were unable to fully
understand the differences between these two types of IPF providers. As
a result, we felt that further research was required and we solicited
public comment for additional information that might help us to better
understand the reasons for the variations in costs and cost structures,
as indicated by the cost report data, between freestanding and
hospital-based IPFs (74 FR 20376).
We summarized the public comments we received and our responses in
the April 2010 IPF PPS notice (75 FR 23111 through 23113). Despite
receiving comments from the public on this issue, we remain unable to
sufficiently understand the observed differences in costs and cost
structures between hospital-based and freestanding IPFs, and therefore
we do not feel it is appropriate at this time to incorporate data from
hospital-based IPFs with those of freestanding IPFs to create a stand-
alone IPF market basket.
Although we do not feel it would be appropriate to propose a stand-
alone IPF market basket, we are currently exploring the viability of
creating two separate market baskets from the current RPL, one of which
would include freestanding IPFs and freestanding IRFs and would be used
to update payments under both the IPF and IRF payment systems. The
other would be a stand-alone LTCH market basket. Depending on the
outcome of our research, we anticipate the possibility of proposing a
rehabilitation and psychiatric (RP) market basket in the next update
cycle. In the RY 2012 IPF PPS proposed rule, we welcomed public comment
on the possibility of using this type of market
[[Page 26436]]
basket to update IPF payments in the future.
For this update cycle, we proposed to rebase and revise the FY
2002-based RPL market basket by creating a proposed FY 2008-based RPL
market basket. For this RY 2012 IPF PPS final rule, we are finalizing
the FY 2008-based RPL market basket as proposed. In the following
section, we provide an overview of the market basket and describe the
methodologies we proposed to use, and are finalizing in this final
rule, for purposes of determining the operating and capital portions of
the FY 2008-based RPL market basket.
Public comments and our responses on the rebasing and revising of
the RPL market basket for IPFs are summarized below.
Comment: One commenter, while generally supporting use of the RPL
market basket at the time of implementation, stated that it has its
limitations, and recommended that CMS explore the creation of an RP
market basket. Several commenters supported CMS' efforts to determine
if a separate market basket for inpatient psychiatric and
rehabilitation facilities is appropriate.
Response: CMS will continue its efforts to investigate the
viability of an alternative market basket to update IPF providers. Any
possible changes to the market basket used to update IPF payments would
appear in a future rulemaking and be subject to public comment.
Comment: Several commenters expressed concern regarding a recent
trend in facility closures of hospital-based IPFs and stated that
hospital-based IPF facilities are a vital component in preserving
access to care for patients suffering from mental illness, particularly
those who have coexisting physical conditions or experience a crisis
and enter the emergency department for treatment. Therefore, the
commenters recommended that CMS continue exploring reasons behind the
differences in costs and cost structures between freestanding and
hospital-based providers.
Response: We are continuing to analyze the Medicare cost report
data in order to better understand the differences between freestanding
and hospital-based IPF providers.
B. Overview of the FY 2008-Based RPL Market Basket
The FY 2008-based RPL market basket is a fixed weight, Laspeyres-
type price index. A Laspeyres price index measures the change in price,
over time, of the same mix of goods and services purchased in the base
period. Any changes in the quantity or mix of goods and services (that
is, intensity) purchased over time are not measured.
The index itself is constructed in three steps. First, a base
period is selected (in this final rule, the base period is FY 2008) and
total base period expenditures are estimated for a set of mutually
exclusive and exhaustive spending categories with the proportion of
total costs that each category represents being calculated. These
proportions are called cost or expenditure weights. Second, each
expenditure category is matched to an appropriate price or wage
variable, referred to as a price proxy. In nearly every instance, these
price proxies are derived from publicly available statistical series
that are published on a consistent schedule (preferably at least on a
quarterly basis). Finally, the expenditure weight for each cost
category is multiplied by the level of its respective price proxy. The
sum of these products (that is, the expenditure weights multiplied by
their price levels) for all cost categories yields the composite index
level of the market basket in a given period. Repeating this step for
other periods produces a series of market basket levels over time.
Dividing an index level for a given period by an index level for an
earlier period produces a rate of growth in the input price index over
that timeframe.
As noted above, the market basket is described as a fixed-weight
index because it represents the change in price over time of a constant
mix (quantity and intensity) of goods and services needed to furnish
hospital services. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, a hospital hiring more
nurses to accommodate the needs of patients would increase the volume
of goods and services purchased by the hospital, but would not be
factored into the price change measured by a fixed-weight hospital
market basket. Only when the index is rebased would changes in the
quantity and intensity be captured, with those changes being reflected
in the cost weights. Therefore, we rebase the market basket
periodically so the cost weights reflect recent changes in the mix of
goods and services that hospitals purchase (hospital inputs) to furnish
inpatient care between base periods.
C. Rebasing and Revising of the RPL Market Basket
In the RY 2012 IPF PPS proposed rule, we proposed to rebase and
revise the market basket used to update the IPF PPS. We solicited
public comments on our proposed methodological changes to the RPL
market basket. We did not receive any specific comments on these
proposed changes. Therefore, we are finalizing the methodology for
calculating the rebased and revised FY 2008-based market basket as
proposed. The methodology is described in more detail below.
The terms ``rebasing'' and ``revising,'' while often used
interchangeably, actually denote different activities. ``Rebasing''
means moving the base year for the structure of costs of an input price
index (for example, in this final rule, we are shifting the base year
cost structure for the RPL market basket from FY 2002 to FY 2008).
``Revising'' means changing data sources, price proxies, or methods,
used to derive the input price index.
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
As proposed, and in this final rule, the FY 2008-based RPL market
basket consists of several major cost categories derived from the FY
2008 Medicare cost reports for freestanding IRFs, freestanding IPFs,
and LTCHs, including wages and salaries, pharmaceuticals, professional
liability insurance, capital, and a residual. These FY 2008 cost
reports include providers whose cost reporting periods began on or
after October 1, 2007 and before October 1, 2008. We choose to use FY
2008 as the base year because we believe that the Medicare cost reports
for this year represent the most recent, complete set of Medicare cost
report data available for IRFs, IPFs, and LTCHs. However, for the FY
2008 cost reports, IRFs, IPFs, and LTCHs were not required to complete
the Medicare cost report worksheet for benefits and contract labor
(Worksheet S-3, part II). As a result, less than 30 percent of
providers reported data for these categories, and we do not expect
these FY 2008 data to improve over time. Furthermore, the issue of
incomplete Medicare cost report data for benefits and contract labor
also existed when we finalized the FY 2002-based RPL market basket,
since, at that time, IRFs, IPFs and LTCHs were not required to submit
data for Worksheet S-3, part II in the FY 2002 cost reporting year. Due
to the incomplete benefits and contract labor data for IRFs, IPFs, and
LTCHs, for these cost weights, rather than using IRF/IPF/LTCH cost
report data, we instead used FY 2008 IPPS hospital cost report data
(similar to the method that was used for the FY 2002-
[[Page 26437]]
based RPL market basket). Additional detail is provided later in this
section.
Since our goal is to measure cost shares that are reflective of
case mix and practice patterns associated with providing services to
Medicare beneficiaries, we limited our selection of Medicare cost
reports to those from hospitals that have a Medicare average length of
stay (LOS) that is within a comparable range of their total facility
average LOS. We believe this provides a more accurate reflection of the
structure of costs for Medicare covered days. We used the cost reports
of IRFs and LTCHs with Medicare average LOS within 15 percent (that is,
15 percent higher or lower) of the total facility average LOS for the
hospital. This is the same edit applied to derive the FY 2002-based RPL
market basket and generally includes those LTCHs and IRFs with Medicare
LOS within approximately 5 days of the facility average LOS of the
hospital.
We used a less stringent measure of Medicare LOS for IPFs. For this
provider-type, and in order to produce a robust sample size, we used
those facilities' Medicare cost reports whose average LOS is within 30
or 50 percent (depending on the total facility average LOS) of the
total facility average LOS. This is the same edit applied to derive the
FY 2002-based RPL market basket.
We applied these LOS edits to first obtain a set of cost reports
for facilities that have a Medicare LOS within a comparable range of
their total facility LOS. Using this set of Medicare cost reports, we
then calculated cost weights for four cost categories directly from the
FY 2008 Medicare cost reports for freestanding IRFs, freestanding IPFs,
and LTCHs (found in Table 1 below). These Medicare cost report cost
weights were then supplemented with information obtained from other
data sources (explained in more detail below) to derive the final FY
2008-based RPL market basket cost weights.
Table 1--Major Cost Categories and Their Respective Cost Weights as
Calculated Directly From FY 2008 Medicare Cost Reports
------------------------------------------------------------------------
FY 2008-
based RPL
Major cost categories market
basket
(percent)
------------------------------------------------------------------------
Wages and salaries.......................................... 47.371
Professional Liability Insurance (Malpractice).............. 0.764
Pharmaceuticals............................................. 6.514
Capital..................................................... 8.392
All other................................................... 36.959
------------------------------------------------------------------------
b. Other Data Sources
In addition to the IRF, IPF and LTCH Medicare cost reports for
freestanding IRFs and freestanding IPFs, and LTCHs, the other data
sources we used to develop the FY 2008-based RPL market basket cost
weights were the FY 2008 IPPS Medicare cost reports and the 2002
Benchmark Input-Output (I-O) Tables created by the Bureau of Economic
Analysis (BEA), U.S. Department of Commerce. The FY 2008 Medicare cost
reports include providers whose cost reporting periods began on or
after October 1, 2007 and before October 1, 2008.
As noted above, the FY 2008-based RPL cost weights for benefits and
contract labor were derived using FY 2008-based IPPS Medicare cost
reports. We used these Medicare cost reports to calculate cost weights
for Wages and Salaries, Benefits, and Contract Labor for IPPS hospitals
for FY 2008. For the Benefits cost weight for the FY 2008-based RPL
market basket, the ratio of the FY 2008 IPPS Benefits cost weight to
the FY 2008 IPPS Wages and Salaries cost weight was applied to the RPL
Wages and Salaries cost weight. Similarly, the ratio of the FY 2008
IPPS Contract Labor cost weight to the FY 2008 IPPS Wages and Salaries
cost weight was applied to the RPL Wages and Salaries cost weight to
derive a Contract Labor cost weight for the FY 2008-based RPL market
basket.
The All Other cost category is divided into other hospital
expenditure category shares using the 2002 BEA Benchmark I-O data
following the removal of the portions of the All Other cost category
provided in Table 1 that are attributable to Benefits and Contract
Labor. The BEA Benchmark I-O data are scheduled for publication every 5
years. The most recent data available are for 2002. BEA also produces
Annual I-O estimates; however, the 2002 Benchmark I-O data represent a
much more comprehensive and complete set of data that are derived from
the 2002 Economic Census. The Annual I-O is simply an update of the
Benchmark I-O tables. For the FY 2002-based RPL market basket, we used
the 1997 Benchmark I-O data. Therefore, we used the 2002 Benchmark I-O
data in the FY 2008-based RPL market basket, and instead of using the
less detailed Annual I-O data, we aged the 2002 Benchmark I-O data
forward to 2008. The methodology we used to age the data forward
involves applying the annual price changes from the respective price
proxies to the appropriate cost categories. We repeated this practice
for each year.
The All Other cost category expenditure shares are determined as
being equal to each category's proportion to total ``all other'' in the
aged 2002 Benchmark I-O data. For instance, if the cost for telephone
services represented 10 percent of the sum of the ``all other''
Benchmark I-O hospital expenditures, then telephone services would
represent 10 percent of the RPL market basket's All Other cost
category.
2. Final Cost Category Computation
As stated previously, for this rebasing we used the FY 2008
Medicare cost reports for IRFs, IPFs, and LTCHs to derive four major
cost categories. The FY 2008-based RPL market basket includes two
additional cost categories that were not broken out separately in the
FY 2002-based RPL market basket: ``Administrative and Business Support
Services'' and ``Financial Services''. The inclusion of these two
additional cost categories, which are derived using the Benchmark I-O
data, is consistent with the addition of these two cost categories to
the FY 2006-based IPPS market basket (74 FR 43845). We chose to break
out both categories so we can better match their respective expenses
with more appropriate price proxies. Also, the FY 2008-based RPL market
basket excludes one cost category: Photo Supplies. The 2002 Benchmark
I-O weight for this category is considerably smaller than the 1997
Benchmark I-O weight, presently accounting for less than one-tenth of
one percentage point of the RPL market basket. Therefore, we included
the photo supplies costs in the Chemical cost category weight with
other similar chemical products.
We did not change our definition of the labor-related share.
However, we renamed our aggregate cost categories from ``labor-
intensive'' and ``nonlabor-intensive'' services to ``labor-related''
and ``nonlabor-related'' services. This is consistent with the FY 2006-
based IPPS market basket (74 FR 43845). As discussed in more detail
below and similar to the FY 2002-based RPL market basket, we classify a
cost category as labor-related and include it in the labor-related
share if the cost
[[Page 26438]]
category is defined as being labor-intensive and its cost varies with
the local labor market. In previous regulations, we grouped cost
categories that met both of these criteria into labor-intensive
services. We believe the new labels more accurately reflect the
concepts that they are intended to convey. Therefore, we did not change
our definition of the labor-related share because we continue to
classify a cost category as labor-related if the costs are labor-
intensive and vary with the local labor market.
3. Selection of Price Proxies
After computing the FY 2008 cost weights for the rebased RPL market
basket, it was necessary to select appropriate wage and price proxies
to reflect the rate of price change for each expenditure category. With
the exception of the proxy for Professional Liability Insurance, all of
the proxies for the operating portion of the FY 2008-based RPL market
basket are based on Bureau of Labor Statistics (BLS) data and are
grouped into one of the following BLS categories:
Producer Price Indexes--Producer Price Indexes (PPIs) measure price
changes for goods sold in markets other than the retail market. PPIs
are preferable price proxies for goods and services that hospitals
purchase as inputs because these PPIs better reflect the actual price
changes faced by hospitals. For example, we use a special PPI for
prescription drugs, rather than the Consumer Price Index (CPI) for
prescription drugs, because hospitals generally purchase drugs directly
from a wholesaler. The PPIs that we use measure price changes at the
final stage of production.
Consumer Price Indexes--Consumer Price Indexes (CPIs) measure
change in the prices of final goods and services bought by the typical
consumer. Because they may not represent the price faced by a producer,
we used CPIs only if an appropriate PPI was not available, or if the
expenditures were more similar to those faced by retail consumers in
general rather than by purchasers of goods at the wholesale level. For
example, the CPI for food purchased away from home is used as a proxy
for contracted food services.
Employment Cost Indexes--Employment Cost Indexes (ECIs) measure the
rate of change in employee wage rates and employer costs for employee
benefits per hour worked. These indexes are fixed-weight indexes and
strictly measure the change in wage rates and employee benefits per
hour. Appropriately, they are not affected by shifts in employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
preferably at least once a quarter. Availability means that the proxy
is publicly available. Finally, relevance means that the proxy is
applicable and representative of the cost category weight to which it
is applied. The CPIs, PPIs, and ECIs selected meet these criteria.
Table 2 sets forth the final FY 2008-based RPL market basket
including cost categories, and their respective weights and price
proxies. For comparison purposes, the corresponding FY 2002-based RPL
market basket cost weights are listed, as well. For example, Wages and
Salaries are 49.447 percent of total costs in the FY 2008-based RPL
market basket compared to 52.895 percent for the FY 2002-based RPL
market basket. Employee Benefits are 12.831 percent in the FY 2008-
based RPL market basket compared to 12.982 percent for the FY 2002-
based RPL market basket. As a result, compensation costs (Wages and
Salaries plus Employee Benefits) for the FY 2008-based RPL market
basket are 62.278 percent of total costs compared to 65.877 percent for
the FY 2002-based RPL market basket.
Following Table 2 is a summary outlining the choice of the proxies
used for the operating portion of the FY 2008-based RPL market basket.
The price proxies used for the capital portion are described in more
detail in the capital methodology section (see section IV.c.4 of this
final rule).
We note that the proxies for the operating portion of the FY 2008-
based RPL market basket are the same as those used for the FY 2006-
based IPPS operating market basket. Because these proxies meet our
criteria of reliability, timeliness, availability, and relevance, we
believe they are the best measures of price changes for the cost
categories. For further discussion on the FY 2006-based IPPS market
basket, see the IPPS final rule published in the Federal Register on
August 27, 2009 (74 FR 43843).
Table 2--FY 2008-Based RPL Market Basket Cost Categories, Weights, and Price Proxies With FY 2002-Based RPL
Market Basket Cost Weights Included for Comparison
----------------------------------------------------------------------------------------------------------------
FY 2002- FY 2008-
based RPL based RPL
market market FY 2008-based RPL market basket price
Cost categories basket basket proxies
cost cost
weights weights
----------------------------------------------------------------------------------------------------------------
1. Compensation................................ 65.877 62.278 .......................................
A. Wages and Salaries \1\.................. 52.895 49.447 ECI for Wages and Salaries, Civilian
Hospital Workers.
B. Employee Benefits \1\................... 12.982 12.831 ECI for Benefits, Civilian Hospital
Workers.
2. Utilities................................... 0.656 1.578 .......................................
A. Electricity............................. 0.351 1.125 PPI for Commercial Electric Power.
B. Fuel, Oil, and Gasoline................. 0.108 0.371 PPI for Petroleum Refineries.
C. Water and Sewage........................ 0.197 0.082 CPI-U for Water & Sewerage Maintenance.
3. Professional Liability Insurance............ 1.161 0.764 CMS Hospital Professional Liability
Insurance Premium Index.
4. All Other Products and Services............. 22.158 26.988 .......................................
A. All Other Products...................... 13.325 15.574 .......................................
(1.) Pharmaceuticals................... 5.103 6.514 PPI for Pharmaceutical Preparations for
Human Use(Prescriptions).
(2.) Food: Direct Purchases............ 0.873 2.959 PPI for Processed Foods & Feeds.
(3.) Food: Contract Services........... 0.620 0.392 CPI-U for Food Away From Home.
(4.) Chemicals \2\..................... 1.100 1.100 Blend of Chemical PPIs.
(5.) Medical Instruments............... 1.014 1.795 PPI for Medical, Surgical, and Personal
Aid Devices.
(6.) Photographic Supplies............. 0.096 -- .......................................
[[Page 26439]]
(7.) Rubber and Plastics............... 1.052 1.131 PPI for Rubber & Plastic Products.
(8.) Paper and Printing Products....... 1.000 1.021 PPI for Converted Paper & Paperboard
Products.
(9.) Apparel........................... 0.207 0.210 PPI for Apparel.
(10.) Machinery and Equipment.......... 0.297 0.106 PPI for Machinery & Equipment.
(11.) Miscellaneous Products........... 1.963 0.346 PPI for Finished Goods less Food and
Energy.
B. All Other Services...................... 8.833 11.414 .......................................
(1.) Labor-related Services............ 5.111 4.681 .......................................
(a.) Professional Fees: Labor- 2.892 2.114 ECI for Compensation for Professional
related.\3\. and Related Occupations.
(b.) Administrative and Business n/a 0.422 ECI for Compensation for Office and
Support Services.\4\ Administrative Services.
(c.) All Other: Labor-Related Services 2.219 2.145 ECI for Compensation for Private
\4\. Service Occupations.
(2.) Nonlabor-Related Services......... 3.722 6.733 .......................................
(a.) Professional Fees: Nonlabor- n/a 4.211 ECI for Compensation for Professional
Related \3\. and Related Occupations.
(b.) Financial Services \5\............ n/a 0.853 ECI for Compensation for Financial
Activities.
(c.) Telephone Services................ 0.240 0.416 CPI-U for Telephone Services.
(d.) Postage........................... 0.682 0.630 CPI-U for Postage.
(e.) All Other: Nonlabor-Related 2.800 0.623 CPI-U for All Items less Food and
Services \5\. Energy.
5. Capital-Related Costs....................... 10.149 8.392 .......................................
A. Depreciation............................ 6.187 5.519 .......................................
(1.) Fixed Assets...................... 4.250 3.286 BEA chained price index for
nonresidential construction for
hospitals and special care facilities--
vintage weighted (26 years).
(2.) Movable Equipment................. 1.937 2.233 PPI for Machinery and Equipment--
vintage weighted (11 years).
B. Interest Costs.......................... 2.775 1.954 .......................................
(1.) Government/Nonprofit.............. 2.081 0.653 Average yield on domestic municipal
bonds (Bond Buyer 20 bonds)--vintage-
weighted (26 years).
(2.) For Profit........................ 0.694 1.301 Average yield on Moody's Aaa bonds--
vintage-weighted (26 years).
C. Other Capital-Related Costs............. 1.187 0.919 CPI-U for Residential Rent.
----------------------------------------------------------------
Total.............................. 100.000 100.000 .......................................
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total
compensation that each category represents.
\2\ To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gases, the
PPI for Other Basic Inorganic Chemical Manufacturing, the PPI for Other Basic Organic Chemical Manufacturing,
and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this proxy, see section
IV.C.3.j. of the preamble of this final rule.
\3\ The Professional Fees: Labor-related and Professional Fees: Nonlabor-related cost categories were included
in one cost category called Professional Fees in the FY 2002-based RPL market basket. For more detail about
how these new categories were derived, we refer readers to sections IV.C.6. of the preamble of this final
rule, on the labor-related share.
\4\ The Administrative and Business Support Services cost category was contained within All Other: Labor-
intensive Services cost category in the FY 2002-based RPL market basket. The All Other: Labor-intensive
Services cost category is renamed the All Other: Labor-related Services cost category for the FY 2008-based
RPL market basket.
\5\ The Financial Services cost category was contained within the All Other: Non-labor Intensive Services cost
category in the FY 2002-based RPL market basket. The All Other: Non-labor Intensive Services cost category is
renamed the All Other: Nonlabor-related Services cost category for the FY 2008-based RPL market basket.
a. Wages and Salaries
We use the ECI for Wages and Salaries for Hospital Workers (All
Civilian) (BLS series code CIU1026220000000I) to measure the price
growth of this cost category. This same proxy was used in the FY 2002-
based RPL market basket.
b. Employee Benefits
We use the ECI for Employee Benefits for Hospital Workers (All
Civilian) to measure the price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
c. Electricity
We use the PPI for Commercial Electric Power (BLS series code
WPU0542) to measure the price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
d. Fuel, Oil, and Gasoline
For the FY 2002-based RPL market basket, this category only
included expenses classified under North American Industry
Classification System (NAICS) 21 (Mining). We proxied this category
using the PPI for Commercial Natural Gas (BLS series code WPU0552). For
the FY 2008-based market basket, we added costs to this category that
had previously been grouped in other categories. The added costs
include petroleum-related expenses under NAICS 324110 (previously
captured in the miscellaneous category), as well as petrochemical
manufacturing classified under NAICS 325110 (previously captured in the
chemicals category). These added costs represent 80 percent
[[Page 26440]]
of the hospital industry's fuel, oil, and gasoline expenses (or 80
percent of this category). Because the majority of the industry's fuel,
oil, and gasoline expenses originate from petroleum refineries (NAICS
324110), we use the PPI for Petroleum Refineries (BLS series code
PCU324110324110) as the proxy for this cost category.
e. Water and Sewage
We use the CPI for Water and Sewerage Maintenance (All Urban
Consumers) (BLS series code CUUR0000SEHG01) to measure the price growth
of this cost category. This same proxy was used in the FY 2002-based
RPL market basket.
f. Professional Liability Insurance
We proxy price changes in hospital professional liability insurance
premiums (PLI) using percentage changes as estimated by the CMS
Hospital Professional Liability Index. To generate these estimates, we
collect commercial insurance premiums for a fixed level of coverage
while holding nonprice factors constant (such as a change in the level
of coverage). This method is also used to proxy PLI price changes in
the Medicare Economic Index (75 FR 73268). This same proxy was used in
the FY 2002-based RPL market basket.
g. Pharmaceuticals
We use the PPI for Pharmaceuticals for Human Use, Prescription (BLS
series code WPUSI07003) to measure the price growth of this cost
category. We note that we are not making a change to the PPI that is
used to proxy this cost category. There was a recent change to the BLS
naming convention for this series; however this is the same proxy that
was used in the FY 2002-based RPL market basket.
h. Food: Direct Purchases
We use the PPI for Processed Foods and Feeds (BLS series code
WPU02) to measure the price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
i. Food: Contract Services
We use the CPI for Food Away From Home (All Urban Consumers) (BLS
series code CUUR0000SEFV) to measure the price growth of this cost
category. This same proxy was used in the FY 2002-based RPL market
basket.
j. Chemicals
We use a blended PPI composed of the PPI for Industrial Gas
Manufacturing (NAICS 325120) (BLS series code PCU325120325120P), the
PPI for Other Basic Inorganic Chemical Manufacturing (NAICS 325180)
(BLS series code PCU32518-32518-), the PPI for Other Basic Organic
Chemical Manufacturing (NAICS 325190) (BLS series code PCU32519-32519-
), and the PPI for Soap and Cleaning Compound Manufacturing (NAICS
325610) (BLS series code PCU32561-32561-). Using the 2002 Benchmark I-O
data, we found that these NAICS industries accounted for approximately
90 percent of the hospital industry's chemical expenses.
Therefore, we use this blended index because we believe its
composition better reflects the composition of the purchasing patterns
of hospitals than does the PPI for Industrial Chemicals (BLS series
code WPU061), the proxy used in the FY 2002-based RPL market basket.
Table 3 below shows the weights for each of the four PPIs used to
create the blended PPI, which we determined using the 2002 Benchmark I-
O data.
Table 3--Blended Chemical PPI Weights
------------------------------------------------------------------------
Weights (in
Name percent) NAICS
------------------------------------------------------------------------
PPI for Industrial Gas Manufacturing.... 35 325120
PPI for Other Basic Inorganic Chemical 25 325180
Manufacturing..........................
PPI for Other Basic Organic Chemical 30 325190
Manufacturing..........................
PPI for Soap and Cleaning Compound 10 325610
Manufacturing..........................
------------------------------------------------------------------------
k. Medical Instruments
We use the PPI for Medical, Surgical, and Personal Aid Devices (BLS
series code WPU156) to measure the price growth of this cost category.
In the 1997 Benchmark I-O data, approximately half of the expenses
classified in this category were for surgical and medical instruments.
Therefore, we used the PPI for Surgical and Medical Instruments and
Equipment (BLS series code WPU1562) to proxy this category in the FY
2002-based RPL market basket. The 2002 Benchmark I-O data show that
surgical and medical instruments now represent only 33 percent of these
expenses and that the largest expense category is surgical appliance
and supplies manufacturing (corresponding to BLS series code WPU1563).
Due to this reallocation of costs over time, we use as the price proxy
for this cost category the more aggregated PPI for Medical, Surgical,
and Personal Aid Devices.
l. Photographic Supplies
We eliminated the cost category specific to photographic supplies
for the FY 2008-based RPL market basket. These costs are now included
in the Chemicals cost category because the costs are presently reported
as all other chemical products. Notably, although we are eliminating
the specific cost category, these costs are still accounted for within
the RPL market basket.
m. Rubber and Plastics
We use the PPI for Rubber and Plastic Products (BLS series code
WPU07) to measure price growth of this cost
