Medicare Program; FY 2021 Inpatient Psychiatric Facilities Prospective Payment System (IPF PPS), 20625-20648 [2020-07870]

Agencies

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

[Federal Register Volume 85, Number 72 (Tuesday, April 14, 2020)]
[Proposed Rules]
[Pages 20625-20648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07870]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412 and 482

[CMS-1731-P]
RIN 0938-AU07


Medicare Program; FY 2021 Inpatient Psychiatric Facilities 
Prospective Payment System (IPF PPS)

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the prospective payment rates, 
the outlier threshold, and the wage index for Medicare inpatient 
hospital services provided by Inpatient Psychiatric Facilities (IPF), 
which include psychiatric hospitals and excluded psychiatric units of 
an Inpatient Prospective Payment System hospital or critical access 
hospital. In addition, this proposed rule would adopt the most recent 
Office of Management and Budget (OMB) statistical area delineations, 
and apply a 2-year transition for all providers negatively impacted by 
wage index changes. These changes would be effective for IPF discharges 
beginning during the FY from October 1, 2020 through September 30, 2021 
(FY 2021).

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 9, 2020.

ADDRESSES: In commenting, please refer to file code CMS-1731-P.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.

[[Page 20626]]

    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1731-P, P.O. Box 8010, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1731-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: The IPF Payment Policy mailbox at 
[email protected] for general information.
    Mollie Knight, (410) 786-7948 or Hudson Osgood, (410) 786-7897, for 
information regarding the market basket update, or the labor-related 
share.
    Theresa Bean, (410) 786-2287 or James Hardesty, (410) 786-2629, for 
information regarding the regulatory impact analysis.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following 
website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to 
view public comments.

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Website

    Addendum A to this proposed rule summarizes the FY 2021 IPF PPS 
payment rates, outlier threshold, cost of living adjustment factors for 
Alaska and Hawaii, national and upper limit cost-to-charge ratios, and 
adjustment factors. In addition, the B Addenda to this proposed rule 
shows the complete listing of ICD-10 Clinical Modification (CM) and 
Procedure Coding System codes underlying the Code First table, the FY 
2021 IPF PPS comorbidity adjustment, and electroconvulsive therapy 
(ECT) procedure codes. The A and B Addenda are available online at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    Tables setting forth the FY 2021 Wage Index for Urban Areas Based 
on Core-Based Statistical Area (CBSA) Labor Market Areas and the FY 
2021 Wage Index Based on CBSA Labor Market Areas for Rural Areas are 
available exclusively through the internet, on the CMS website at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/IPFPPS/WageIndex.html. In addition, Addendum C to this proposed rule is a 
provider-level file of the effects of the change to the wage index 
methodology, and is available at the same CMS website address.

I. Executive Summary

A. Purpose

    This proposed rule would update the prospective payment rates, the 
outlier threshold, and the wage index for Medicare inpatient hospital 
services provided by Inpatient Psychiatric Facilities (IPFs) for 
discharges occurring during the Fiscal Year (FY) beginning October 1, 
2020 through September 30, 2021. In addition, this proposed rule would 
update the IPF wage index, adopt the most recent Office of Management 
and Budget (OMB) statistical area delineations, and apply a 2-year 
transition for all providers negatively impacted by wage index changes.

B. Summary of the Major Provisions

1. Inpatient Psychiatric Facilities Prospective Payment System (IPF 
PPS)
    For the IPF PPS, we are proposing to--
     Adjust the 2016-based IPF market basket proposed update 
(3.0 percent) by a reduction for economy-wide productivity (0.4 
percentage point) as required by section 1886(s)(2)(A)(i) of the Social 
Security Act (the Act), resulting in a proposed IPF payment rate update 
of 2.6 percent for FY 2021.
     Make technical rate setting changes: The IPF PPS payment 
rates would be adjusted annually for inflation, as well as statutory 
and other policy factors. We are proposing to update:
    ++ The IPF PPS federal per diem base rate from $798.55 to $817.59.
    ++ The IPF PPS federal per diem base rate for providers who failed 
to report quality data to $801.65.
    ++ The Electroconvulsive therapy (ECT) payment per treatment from 
$343.79 to $351.99.
    ++ The ECT payment per treatment for providers who failed to report 
quality data to $345.13.
    ++ The labor-related share from 76.9 percent to 77.2 percent (based 
on the 2016-based IPF market basket).
    ++ The wage index budget-neutrality factor to 0.9979.
    ++ The fixed dollar loss threshold amount from $14,960 to $16,520 
to maintain estimated outlier payments at 2 percent of total estimated 
aggregate IPF PPS payments.
     Adopt the most recent OMB core-based statistical area 
(CBSA) delineations and apply a 2-year transition for all providers 
negatively impacted by wage index changes.
2. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program
    We are not proposing any changes to the IPFQR Program.

C. Summary of Impacts

------------------------------------------------------------------------
                                              Total transfers & cost
         Provision description                      reductions
------------------------------------------------------------------------
FY 2021 IPF PPS payment update.........  The overall economic impact of
                                          this proposed rule is an
                                          estimated $100 million in
                                          increased payments to IPFs
                                          during FY 2021.
------------------------------------------------------------------------

II. Background

A. Overview of the Legislative Requirements of the IPF PPS

    Section 124 of the Medicare, Medicaid, and State Children's Health 
Insurance Program Balanced Budget Refinement Act of 1999 (BBRA) (Pub. 
L. 106-113) required the establishment and implementation of an IPF 
PPS. Specifically, section 124 of the BBRA mandated that the Secretary 
of the Department of Health and Human Services (the Secretary) develop 
a per diem Prospective Payment System (PPS) for inpatient hospital 
services furnished in psychiatric hospitals and excluded psychiatric 
units including an adequate patient classification system that reflects 
the differences in patient resource use and costs among psychiatric 
hospitals and excluded psychiatric units. ``Excluded psychiatric unit'' 
means a psychiatric unit in an inpatient prospective payment system 
(IPPS) hospital that is excluded from the IPPS, or a psychiatric unit 
in a Critical Access Hospital (CAH) that is excluded from the CAH 
payment system. These excluded psychiatric units would be paid under 
the IPF PPS.
    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 psychiatric distinct part units of CAHs.
    Sections 3401(f) and 10322 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

[[Page 20627]]

Education Reconciliation Act of 2010 (Pub. L. 111-152) (hereafter 
referred to jointly as ``the Affordable Care Act'') added subsection 
(s) to section 1886 of the Act.
    Section 1886(s)(1) of the Act titled ``Reference to Establishment 
and Implementation of System,'' refers to section 124 of the BBRA, 
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 rate year (RY) beginning in 2012 (that 
is, a RY that coincides with a FY) and each subsequent RY. As noted in 
our FY 2020 IPF PPS final rule with comment period, published in the 
Federal Register on August 6, 2019 (84 FR 38424 through 38482), for the 
RY beginning in 2019, the productivity adjustment currently in place 
was equal to 0.4 percentage point.
    Section 1886(s)(2)(A)(ii) of the Act required the application of an 
``other adjustment'' that reduced any update to an IPF PPS base rate by 
a percentage point amount specified in section 1886(s)(3) of the Act 
for the RY beginning in 2010 through the RY beginning in 2019. As noted 
in the FY 2020 IPF PPS final rule, for the RY beginning in 2019, 
section 1886(s)(3)(E) of the Act required that the other adjustment 
reduction be equal to 0.75 percentage point. Because FY 2021, is a RY 
beginning in 2020, FY 2021 would be the first year section 
1886(s)(2)(A)(ii) does not apply since its enactment.
    Sections 1886(s)(4)(A) through (D) of the Act require that for RY 
2014 and each subsequent RY, IPFs that fail to report required quality 
data with respect to such a RY will have their annual update to a 
standard federal rate for discharges reduced by 2.0 percentage points. 
This may result in an annual update being less than 0.0 for a RY, and 
may result in payment rates for the upcoming RY being less than such 
payment rates for the preceding RY. Any reduction for failure to report 
required quality data will apply only to the RY involved, and the 
Secretary will not take into account such reduction in computing the 
payment amount for a subsequent RY. More information about the 
specifics of the current Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program is available in the FY 2020 IPF PPS and 
Quality Reporting Updates for Fiscal Year Beginning October 1, 2019 
final rule (84 FR 38459 through 38468).
    To implement and periodically update these provisions, we have 
published various proposed and final rules and notices in the Federal 
Register. For more information regarding these documents, see the 
Center for Medicare & Medicaid (CMS) website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/?redirect=/InpatientPsychFacilPPS/.

B. Overview of the IPF PPS

    The November 2004 IPF PPS final rule (69 FR 66922) established the 
IPF PPS, as required by section 124 of the BBRA and codified at 42 CFR 
part 412, subpart N. The November 2004 IPF PPS final rule set forth the 
federal per diem base rate for the implementation year (the 18-month 
period from January 1, 2005 through June 30, 2006), and 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 (Hospital 
Insurance Program) of the 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 previously and certain patient- 
and facility-level payment adjustments for characteristics that were 
found in the regression analysis to be associated with statistically 
significant per diem cost differences with statistical significance 
defined as p less than 0.05. A complete discussion of the regression 
analysis that established the IPF PPS adjustment factors can be found 
in the November 2004 IPF PPS final rule (69 FR 66933 through 66936).
    The patient-level adjustments include age, Diagnosis-Related Group 
(DRG) assignment, and comorbidities; additionally, there are 
adjustments to reflect higher per diem costs at the beginning of a 
patient's IPF stay and lower costs for later days of the 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 an adjustment for the presence 
of a qualifying emergency department (ED).
    The IPF PPS provides additional payment policies for outlier cases, 
interrupted stays, and a per treatment payment for patients who undergo 
electroconvulsive therapy (ECT). During the IPF PPS mandatory 3-year 
transition period, stop-loss payments were also provided; however, 
since the transition ended as of January 1, 2008, these payments are no 
longer available.

C. Annual Requirements for Updating the IPF PPS

    Section 124 of the BBRA did not specify an annual rate update 
strategy for the IPF PPS and was 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.
    In RY 2012, we proposed and finalized switching the IPF PPS payment 
rate update from a RY that begins on July 1 and ends on June 30, to one 
that coincides with the federal FY that begins October 1 and ends on 
September 30. In order to transition from one timeframe to another, the 
RY 2012 IPF PPS covered a 15-month period from July 1, 2011 through 
September 30, 2012. Therefore, the IPF RY has been equivalent to the 
October 1 through September 30 federal FY since RY 2013. For further 
discussion of the 15-month market basket update for RY 2012 and 
changing the payment rate update period to coincide with a FY period, 
we refer readers to the RY 2012 IPF PPS proposed rule (76 FR 4998) and 
the RY 2012 IPF PPS final rule (76 FR 26432).
    In November 2004, we implemented the IPF PPS in a final rule that 
published on November 15, 2004 in the Federal Register (69 FR 66922). 
In developing the IPF PPS, and to ensure that the IPF PPS is able to 
account adequately for each IPF's case-mix, we performed an 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. That regression analysis is described 
in detail in our

[[Page 20628]]

November 28, 2003 IPF proposed rule (68 FR 66923; 66928 through 66933) 
and our November 15, 2004 IPF final rule (69 FR 66933 through 66960). 
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 the November 15, 2004 final rule, we explained the reasons for 
delaying an update to the adjustment factors, derived from the 
regression analysis, including waiting until we have IPF PPS data that 
yields as much information as possible regarding the patient-level 
characteristics of the population that each IPF serves. We indicated 
that we did not intend to update the regression analysis and the 
patient-level 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 (69 FR 66966).
    On May 6, 2011, we published a final rule in the Federal Register 
titled, ``Inpatient Psychiatric Facilities Prospective Payment System--
Update for Rate Year Beginning July 1, 2011 (RY 2012)'' (76 FR 26432), 
which changed the payment rate update period to a RY that coincides 
with a FY update. Therefore, final rules are now published in the 
Federal Register in the summer to be effective on October 1. When 
proposing changes in IPF payment policy, a proposed rule would be 
issued in the spring, and the final rule in the summer to be effective 
on October 1. For a detailed list of updates to the IPF PPS, we refer 
readers to our regulations at 42 CFR 412.428.
    The most recent IPF PPS annual update was published in a final rule 
on August 6, 2019 in the Federal Register titled, ``Medicare Program; 
FY 2020 Inpatient Psychiatric Facilities Prospective Payment System and 
Quality Reporting Updates for Fiscal Year Beginning October 1, 2019 (FY 
2020)'' (84 FR 38424), which updated the IPF PPS payment rates for FY 
2020. That final rule updated the IPF PPS federal per diem base rates 
that were published in the FY 2019 IPF PPS Rate Update final rule (83 
FR 38576) in accordance with our established policies.

III. Provisions of the FY 2021 IPF PPS Proposed Rule

A. Proposed Update to the FY 2021 Market Basket for the IPF PPS

1. Background
    Originally, the input price index 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 reports for Medicare 
participating inpatient rehabilitation facilities (IRFs), IPFs, 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 health care at a given point in 
time, this term is also commonly used to denote the input price index 
(that is, cost category weights and price proxies) derived from that 
market basket. Accordingly, the term market basket as used in this 
document, refers to an input price index.
    Since the IPF PPS inception, the market basket used to update IPF 
PPS payments has been rebased and revised to reflect more recent data 
on IPF cost structures. We last rebased and revised the IPF market 
basket in the FY 2020 IPF PPS rule, where we adopted a 2016-based IPF 
market basket, using Medicare cost report data for both Medicare 
participating freestanding psychiatric hospitals and psychiatric units. 
We refer readers to the FY 2020 IPF PPS final rule for a detailed 
discussion of the 2016-based IPF PPS market basket and its development 
(84 FR 38426 through 38447). References to the historical market 
baskets used to update IPF PPS payments are listed in the FY 2016 IPF 
PPS final rule (80 FR 46656).
2. Proposed FY 2021 IPF Market Basket Update
    For FY 2021 (beginning October 1, 2020 and ending September 30, 
2021), we are proposing to use an estimate of the 2016-based IPF market 
basket increase factor to update the IPF PPS base payment rate. 
Consistent with historical practice, we are proposing to estimate the 
market basket update for the IPF PPS based on IHS Global Inc.'s (IGI) 
forecast. IGI is a nationally recognized economic and financial 
forecasting firm that contracts with the CMS to forecast the components 
of the market baskets and multifactor productivity (MFP). For the 
proposed rule, based on IGI's fourth quarter 2019 forecast with 
historical data through the third quarter of 2019, the 2016-based IPF 
market basket increase factor for FY 2021 is 3.0 percent. Therefore, we 
are proposing that the 2016-based IPF market basket update for FY 2021 
would be 3.0 percent.
    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 (a RY that 
coincides with a FY) and each subsequent RY. For this FY 2021 IPF PPS 
proposed rule, based on IGI's fourth quarter 2019 forecast, the 
proposed MFP adjustment for FY 2021 (the 10-year moving average of MFP 
for the period ending FY 2021) is projected to be 0.4 percent. We are 
proposing to reduce the proposed 3.0 percent IPF market basket update 
by this 0.4 percentage point productivity adjustment, as mandated by 
the Act. This results in a proposed estimated FY 2021 IPF PPS payment 
rate update of 2.6 percent (3.0 - 0.4 = 2.6). We are also proposing 
that if more recent data become available, we would use such data, if 
appropriate, to determine the FY 2021 IPF market basket update and MFP 
adjustment for the final rule. For more information on the productivity 
adjustment, we refer readers to the discussion in the FY 2016 IPF PPS 
final rule (80 FR 46675).
3. Proposed FY 2021 IPF Labor-Related Share
    Due to variations in geographic wage levels and other labor-related 
costs, we believe that payment rates under the IPF PPS should continue 
to be adjusted by a geographic wage index, which would apply to the 
labor-related portion of the federal per diem base rate (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. We are proposing to continue to 
classify a cost category as labor-related if the costs are labor-
intensive and vary with the local labor market.
    Based on our definition of the labor-related share and the cost 
categories in the 2016-based IPF market basket, we are proposing to 
continue to include in the labor-related share the sum of the relative 
importance of Wages and Salaries; Employee Benefits; Professional Fees: 
Labor-Related; Administrative and Facilities Support Services; 
Installation, Maintenance, and Repair; All Other: Labor-related 
Services; and a portion of the Capital-Related cost weight (46 percent) 
from the 2016-based IPF market basket. The relative importance reflects 
the different rates of price change for these cost categories between 
the base year (FY 2016) and FY 2021. Using IGI's fourth quarter 2019 
forecast for the 2016-based IPF market basket, the proposed IPF labor-
related share for FY 2021 is the sum of the FY 2021 relative importance 
of each labor-related cost category. For more information on the labor-
related share and its calculation, we refer readers to the FY 2020 IPF 
PPS final

[[Page 20629]]

rule (84 FR 38445 through 38447). For FY 2021, the proposed labor-
related share based on IGI's fourth quarter 2019 forecast of the 2016-
based IPF PPS market basket is 77.2 percent. We are also proposing that 
if more recent data become available, we would use such data, if 
appropriate, to determine the FY 2021 labor-related share for the final 
rule.

B. Proposed Updates to the IPF PPS Rates for FY Beginning October 1, 
2020

    The IPF PPS is based on a standardized federal per diem base rate 
calculated from the 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-level 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).
1. Determining the Standardized Budget-Neutral Federal Per Diem Base 
Rate
    Section 124(a)(1) of the BBRA required that we implement the IPF 
PPS in a budget-neutral manner. In other 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 budget-neutrality 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. A step-by-step description of the methodology used to 
estimate payments under the TEFRA payment system appears in the 
November 2004 IPF PPS final rule (69 FR 66926).
    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 (October 1, 
2005), and this amount was used in the payment model to establish the 
budget-neutrality adjustment.
    Next, we standardized the IPF PPS federal per diem base rate to 
account for the overall positive effects of the IPF PPS payment 
adjustment factors by dividing total estimated payments under the TEFRA 
payment system by estimated payments under the IPF PPS. Additional 
information concerning this standardization can be found in the 
November 2004 IPF PPS final rule (69 FR 66932) and the RY 2006 IPF PPS 
final rule (71 FR 27045). We then reduced the standardized federal per 
diem base rate to account for the outlier policy, the stop loss 
provision, and anticipated behavioral changes. A complete discussion of 
how we calculated each component of the budget-neutrality adjustment 
appears in the November 2004 IPF PPS final rule (69 FR 66932 through 
66933) and in the RY 2007 IPF PPS final rule (71 FR 27044 through 
27046). The final standardized budget-neutral federal per diem base 
rate established for cost reporting periods beginning on or after 
January 1, 2005 was calculated to be $575.95.
    The federal per diem base rate has been updated in accordance with 
applicable statutory requirements and Sec.  412.428 through publication 
of annual notices or proposed and final rules. A detailed discussion on 
the standardized budget-neutral federal per diem base rate and the 
electroconvulsive therapy (ECT) payment per treatment appears in the FY 
2014 IPF PPS update notice (78 FR 46738 through 46740). These documents 
are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/.
    IPFs must include a valid procedure code for ECT services provided 
to IPF beneficiaries in order to bill for ECT services, as described in 
our Medicare Claims Processing Manual, Chapter 3, Section 190.7.3 
(available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.) There were no changes to the ECT 
procedure codes used on IPF claims as a result of the proposed update 
to the ICD-10-PCS code set for FY 2021. Addendum B to this proposed 
rule shows the ECT procedure codes for FY 2021 and is available on our 
website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
2. Proposed Update of the Federal Per Diem Base Rate and 
Electroconvulsive Therapy Payment Per Treatment
    The current (FY 2020) federal per diem base rate is $798.55 and the 
ECT payment per treatment is $343.79. For the proposed FY 2021 federal 
per diem base rate, we applied the payment rate update of 2.6 percent 
that is, the 2016-based IPF market basket increase for FY 2021 of 3.0 
percent less the productivity adjustment of 0.4 percentage point and 
the wage index budget-neutrality factor of 0.9979 (as discussed in 
section III.D.1 of this proposed rule) to the FY 2020 federal per diem 
base rate of $798.55, yielding a proposed federal per diem base rate of 
$817.59 for FY 2021. Similarly, we applied the 2.6 percent payment rate 
update and the 0.9979 wage index budget-neutrality factor to the FY 
2020 ECT payment per treatment of $343.79, yielding a proposed ECT 
payment per treatment of $351.99 for FY 2021.
    Section 1886(s)(4)(A)(i) of the Act requires that for RY 2014 and 
each subsequent RY, in the case of an IPF that fails to report required 
quality data with respect to such RY, the Secretary will reduce any 
annual update to a standard federal rate for discharges during the RY 
by 2.0 percentage points. Therefore, we are applying a 2.0 percentage 
point reduction to the federal per diem base rate and the ECT payment 
per treatment as follows:
     For IPFs that fail requirements under the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program, we applied a 
0.6 percent payment rate update (that is, the IPF market basket 
increase for FY 2021 of 3.0 percent less the productivity adjustment of 
0.4 percentage point for an update of 2.6 percent, and further reduced 
by 2 percentage points in accordance with section 1886(s)(4)(A)(i) of 
the Act, and the wage index budget-neutrality factor of 0.9979 to the 
FY 2020 federal per diem base rate of $798.55, yielding a federal per 
diem base rate of $801.65 for FY 2021.
     For IPFs that fail to meet requirements under the IPFQR 
Program, we applied the 0.6 percent annual payment rate update and the 
0.9979 wage index budget-neutrality factor to the FY 2020 ECT payment 
per treatment of $343.79, yielding an ECT payment per treatment of 
$345.13 for FY 2021.

C. Proposed Updates to the IPF PPS Patient-Level Adjustment Factors

1. 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 Medicare Provider and Analysis 
Review (MedPAR) data file, which contained 483,038 cases. 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). 
We continue to use the existing regression-derived adjustment

[[Page 20630]]

factors established in 2005 for FY 2021. However, we have used more 
recent claims data to simulate payments to finalize the outlier fixed 
dollar loss threshold amount and to assess the impact of the IPF PPS 
updates.
2. IPF PPS Patient-Level Adjustments
    The IPF PPS includes 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.
a. Proposed Update to MS-DRG Assignment
    We believe it is important to maintain for IPFs the same diagnostic 
coding and Diagnosis Related Group (DRG) classification used under the 
(IPPS) for providing psychiatric care. For this reason, when the IPF 
PPS was implemented for cost reporting periods beginning on or after 
January 1, 2005, we adopted the same diagnostic code set (ICD-9-CM) and 
DRG patient classification system (MS-DRGs) that were utilized at the 
time under the IPPS. In the RY 2009 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). In the 
RY 2009 IPF PPS notice (73 FR 25716), we provided a crosswalk to 
reflect changes that were made under the IPF PPS to adopt the new MS-
DRGs. 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 RY 2009 IPF PPS notice (73 FR 
25714).
    The IPF PPS includes payment adjustments for designated psychiatric 
DRGs assigned to the claim based on the patient's principal diagnosis. 
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 discussed in detail in the November 28, 
2003 IPF proposed rule (68 FR 66923; 66928 through 66933) and the 
November 15, 2004 IPF final rule (69 FR 66933 through 66960). Mapping 
the DRGs to the MS-DRGs resulted in the current 17 IPF MS-DRGs, instead 
of the original 15 DRGs, for which the IPF PPS provides an adjustment. 
For FY 2021, we are not proposing any changes to the IPF MS-DRG 
adjustment factors.
    In the FY 2015 IPF PPS final rule published August 6, 2014 in the 
Federal Register titled, ``Inpatient Psychiatric Facilities Prospective 
Payment System--Update for FY Beginning October 1, 2014 (FY 2015)'' (79 
FR 45945 through 45947), we finalized conversions of the ICD-9-CM-based 
MS-DRGs to ICD-10-CM/PCS-based MS-DRGs, which were implemented on 
October 1, 2015. Further information on the ICD-10-CM/PCS MS-DRG 
conversion project can be found on the CMS ICD-10-CM website at https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html.
    For FY 2021, we are proposing to continue to make the existing 
payment adjustment for psychiatric diagnoses that group to one of the 
existing 17 IPF MS-DRGs listed in Addendum A. Addendum A is available 
on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html. Psychiatric 
principal diagnoses that do not group to one of the 17 designated MS-
DRGs would still receive the federal per diem base rate and all other 
applicable adjustments, but the payment would not include an MS-DRG 
adjustment.
    The diagnoses for each IPF MS-DRG would be updated as of October 1, 
2020, using the final IPPS FY 2021 ICD-10-CM/PCS code sets. The FY 2021 
IPPS proposed rule includes tables of the proposed changes to the ICD-
10-CM/PCS code sets, which underlie the FY 2021 IPF MS-DRGs. Both the 
FY 2021 IPPS proposed rule and the tables of proposed changes to the 
ICD-10-CM/PCS code sets, which underlie the FY 2021 MS-DRGs are 
available on the IPPS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/.
Code First
    As discussed in the ICD-10-CM Official Guidelines for Coding and 
Reporting, certain conditions have both an underlying etiology and 
multiple body system manifestations due to the underlying etiology. For 
such conditions, the ICD-10-CM has a coding convention that requires 
the underlying condition be sequenced first followed by the 
manifestation. Wherever such a combination exists, there is a ``use 
additional code'' note at the etiology code, and a ``code first'' note 
at the manifestation code. These instructional notes indicate the 
proper sequencing order of the codes (etiology followed by 
manifestation). In accordance with the ICD-10-CM Official Guidelines 
for Coding and Reporting, when a primary (psychiatric) diagnosis code 
has a ``code first'' note, the provider would follow the instructions 
in the ICD-10-CM text. The submitted claim goes through the CMS 
processing system, which will identify the primary diagnosis code as 
non-psychiatric and search the secondary codes for a psychiatric code 
to assign a DRG code for adjustment. The system will continue to search 
the secondary codes for those that are appropriate for comorbidity 
adjustment.
    For more information on the code first policy, we refer our readers 
to the November 2004 IPF PPS final rule (69 FR 66945) and see sections 
I.A.13 and I.B.7 of the FY 2020 ICD-10-CM Coding Guidelines, available 
at https://www.cdc.gov/nchs/icd/data/10cmguidelines-FY2019-final.pdf. 
In the FY 2015 IPF PPS final rule, we provided a code first table for 
reference that highlights the same or similar manifestation codes where 
the code first instructions apply in ICD-10-CM that were present in 
ICD-9-CM (79 FR 46009). In FY 2018, FY 2019 and FY 2020, there were no 
changes to the final ICD-10-CM/PCS codes in the IPF Code First table. 
For FY 2021, there were 18 ICD-10-PCS codes deleted from the proposed 
IPF Code First table. The proposed FY 2021 Code First table is shown in 
Addendum B on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
b. Proposed 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 existing medical or psychiatric 
conditions that are expensive to treat. In our RY 2012 IPF PPS final 
rule (76 FR 26451 through 26452), 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 2012 (76 FR 26451).
    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

[[Page 20631]]

received, length of stay (LOS), or both treatment and LOS.
    For each claim, an IPF may receive only one comorbidity adjustment 
within a comorbidity category, but it may receive an adjustment for 
more than one comorbidity category. Current billing instructions for 
discharge claims, on or after October 1, 2015, require IPFs to enter 
the complete ICD-10-CM codes for up to 24 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 applied. In a code first 
situation, the submitted claim goes through the CMS processing system, 
which will identify the principal diagnosis code as non-psychiatric and 
search the secondary codes for a psychiatric code to assign an MS-DRG 
code for adjustment. The system will continue to search the secondary 
codes for those that are appropriate for comorbidity adjustment.
    As noted previously, 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. The 17 comorbidity categories 
formerly defined using ICD-9-CM codes were converted to ICD-10-CM/PCS 
in our FY 2015 IPF PPS final rule (79 FR 45947 through 45955). The goal 
for converting the comorbidity categories is referred to as 
replication, meaning that the payment adjustment for a given patient 
encounter is the same after ICD-10-CM implementation as it would be if 
the same record had been coded in ICD-9-CM and submitted prior to ICD-
10-CM/PCS implementation on October 1, 2015. All conversion efforts 
were made with the intent of achieving this goal. For FY 2021, we are 
proposing to continue to use the same comorbidity adjustment factors in 
effect in FY 2020, which are found in Addendum A, available on our 
website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    We have updated the ICD-10-CM/PCS codes, which are associated with 
the existing IPF PPS comorbidity categories, based upon the proposed FY 
2021 update to the ICD-10-CM/PCS code set. The proposed FY 2021 ICD-10-
CM/PCS updates include ICD-10 updates: 21 ICD-10-CM diagnosis codes 
added to the Drug and/or Alcohol Induced Mental Disorders comorbidity 
category, 8 ICD-10-CM diagnosis codes added to the Infectious Disease 
comorbidity category and 1 deleted, 12 ICD-10-CM diagnosis codes added 
to the Poisoning comorbidity category and 4 deleted, 3 ICD-10-CM 
diagnosis codes added to the Renal Failure comorbidity category and 1 
deleted and 64 ICD-10-PCS codes added to the Oncology Procedures 
comorbidity category. In addition, 18 ICD-10-PCS codes were deleted 
from the Code First Table. These updates are detailed in Addenda B of 
this proposed rule, which are available on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    In accordance with the policy established in the FY 2015 IPF PPS 
final rule (79 FR 45949 through 45952), we reviewed all new FY 2021 
ICD-10-CM codes to remove codes that were site ``unspecified'' in terms 
of laterality from the FY 2020 ICD-10-CM/PCS codes in instances where 
more specific codes are available. As we stated in the FY 2015 IPF PPS 
final rule, we believe that specific diagnosis codes that narrowly 
identify anatomical sites where disease, injury, or a condition exists 
should be used when coding patients' diagnoses whenever these codes are 
available. We finalized in the FY 2015 IPF PPS rule, that we would 
remove site ``unspecified'' codes from the IPF PPS ICD-10-CM/PCS codes 
in instances when laterality codes (site specified codes) are 
available, as the clinician should be able to identify a more specific 
diagnosis based on clinical assessment at the medical encounter. None 
of the proposed additions to the FY 2021 ICD-10-CM/PCS codes were site 
``unspecified'' by laterality, therefore we are not removing any of the 
new codes.
c. Proposed Patient Age Adjustments
    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 (range of ages) for payment adjustments. In general, we found 
that the cost per day increases with age. The older age groups are 
costlier than the under 45 age group, the differences in per diem cost 
increase for each successive age group, and the differences are 
statistically significant. For FY 2021, we are proposing to continue to 
use the patient age adjustments currently in effect in FY 2020, as 
shown in Addendum A of this rule (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html).
d. Proposed 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. 
As discussed in the November 2004 IPF PPS final rule, we used a 
regression analysis to estimate the average differences in per diem 
cost among stays of different lengths (69 FR 66947 through 66950). 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 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. The ED adjustment is explained in more detail in section III.D.4 
of this rule.
    For FY 2021, we are proposing to continue to use the variable per 
diem adjustment factors currently in effect, as shown in Addendum A of 
this rule (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html). A complete 
discussion of the variable per diem adjustments appears in the November 
2004 IPF PPS final rule (69 FR 66946).

D. Proposed Updates to the IPF PPS Facility-Level Adjustments

    The IPF PPS includes facility-level adjustments for the wage index, 
IPFs located in rural areas, teaching IPFs, cost of living adjustments 
for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.
1. Wage Index Adjustment
a. Background
    As discussed in the RY 2007 IPF PPS final rule (71 FR 27061), RY 
2009 IPF PPS (73 FR 25719) and the RY 2010 IPF PPS notices (74 FR 
20373), in order to provide an adjustment for geographic wage levels, 
the labor-related portion of an IPF's payment is adjusted using an 
appropriate wage index. Currently, an IPF's geographic wage index value 
is determined based on the actual location

[[Page 20632]]

of the IPF in an urban or rural area, as defined in Sec.  
412.64(b)(1)(ii)(A) and (C).
    Due to the variation in costs and because of the differences in 
geographic wage levels, in the November 15, 2004 IPF PPS final rule, we 
required that payment rates under the IPF PPS be adjusted by a 
geographic wage index. We proposed and finalized a policy to use the 
unadjusted, pre-floor, pre-reclassified IPPS hospital wage index to 
account for geographic differences in IPF labor costs. We implemented 
use of the pre-floor, pre-reclassified IPPS hospital wage data to 
compute the IPF wage index since there was not an IPF-specific wage 
index available. We believe that IPFs generally compete in the same 
labor market as IPPS hospitals so the pre-floor, pre-reclassified IPPS 
hospital wage data should be reflective of labor costs of IPFs. We 
believe this pre-floor, pre-reclassified IPPS hospital wage index to be 
the best available data to use as proxy for an IPF specific wage index. 
As discussed in the RY 2007 IPF PPS final rule (71 FR 27061 through 
27067), under the IPF PPS, the wage index is calculated using the IPPS 
wage index for the labor market area in which the IPF is located, 
without taking into account geographic reclassifications, floors, and 
other adjustments made to the wage index under the IPPS. For a complete 
description of these IPPS wage index adjustments, we refer readers to 
the FY 2019 IPPS/LTCH PPS final rule (83 FR 41362 through 41390). Our 
wage index policy at Sec.  412.424(a)(2), requires us to use the best 
Medicare data available to estimate costs per day, including an 
appropriate wage index to adjust for wage differences.
    When the IPF PPS was implemented in the November 15, 2004 IPF PPS 
final rule, with an effective date of January 1, 2005, the pre-floor, 
pre-reclassified IPPS hospital wage index that was available at the 
time was the FY 2005 pre-floor, pre-reclassified IPPS hospital wage 
index. Historically, the IPF wage index for a given RY has used the 
pre-floor, pre-reclassified IPPS hospital wage index from the prior FY 
as its basis. This has been due in part to the pre-floor, pre-
reclassified IPPS hospital wage index data that were available during 
the IPF rulemaking cycle, where an annual IPF notice or IPF final rule 
was usually published in early May. This publication timeframe was 
relatively early compared to other Medicare payment rules because the 
IPF PPS follows a RY, which was defined in the implementation of the 
IPF PPS as the 12-month period from July 1 to June 30 (69 FR 66927). 
Therefore, the best available data at the time the IPF PPS was 
implemented was the pre-floor, pre-reclassified IPPS hospital wage 
index from the prior FY (for example, the RY 2006 IPF wage index was 
based on the FY 2005 pre-floor, pre-reclassified IPPS hospital wage 
index).
    In the RY 2012 IPF PPS final rule, we changed the reporting year 
timeframe for IPFs from a RY to the FY, which begins October 1 and ends 
September 30 (76 FR 26434 through 26435). In that FY 2012 IPF PPS final 
rule, we continued our established policy of using the pre-floor, pre-
reclassified IPPS hospital wage index from the prior year (that is, 
from FY 2011) as the basis for the FY 2012 IPF wage index. This policy 
of basing a wage index on the prior year's pre-floor, pre-reclassified 
IPPS hospital wage index has been followed by other Medicare payment 
systems, such as hospice and inpatient rehabilitation facilities. By 
continuing with our established policy, we remained consistent with 
other Medicare payment systems.
    In FY 2020 we finalized the IPF wage index methodology to align the 
IPF PPS wage index with the same wage data timeframe used by the IPPS 
for FY 2020 and subsequent years. Specifically, we finalized to use the 
pre-floor, pre-reclassified IPPS hospital wage index from the FY 
concurrent with the IPF FY as the basis for the IPF wage index. For 
example, the FY 2020 IPF wage index would be based on the FY 2020 pre-
floor, pre-reclassified IPPS hospital wage index rather than on the FY 
2019 pre-floor, pre-reclassified IPPS hospital wage index.
    We explained in the FY 2020 proposed rule (84 FR 16973), that using 
the concurrent pre-floor, pre-reclassified IPPS hospital wage index 
would result in the most up-to-date wage data being the basis for the 
IPF wage index. It would also result in more consistency and parity in 
the wage index methodology used by other Medicare payment systems. The 
Medicare SNF PPS already used the concurrent IPPS hospital wage index 
data as the basis for the SNF PPS wage index. Thus, the wage adjusted 
Medicare payments of various provider types would be based upon wage 
index data from the same timeframe. CMS proposed similar policies to 
use the concurrent pre-floor, pre-reclassified IPPS hospital wage index 
data in other Medicare payment systems, such as hospice and inpatient 
rehabilitation facilities. For FY 2021, we are proposing to continue to 
use the concurrent pre-floor, pre-reclassified IPPS hospital wage index 
as the basis for the IPF wage index.
    We would apply the IPF wage index adjustment to the labor-related 
share of the national base rate and ECT payment per treatment. The 
labor-related share of the national rate and ECT payment per treatment 
would change from 76.9 percent in FY 2020 to 77.2 percent in FY 2021. 
This percentage reflects the labor-related share of the 2016-based IPF 
market basket for FY 2021 (see section III.A of this rule).
b. Office of Management and Budget (OMB) Bulletins
(i.) Background
    The wage index used for the IPF PPS is calculated using the 
unadjusted, pre-reclassified and pre-floor inpatient PPS (IPPS) wage 
index data and is assigned to the IPF on the basis of the labor market 
area in which the IPF is geographically located. IPF labor market areas 
are delineated based on the CBSAs established by the OMB.
    Generally, OMB issues major revisions to statistical areas every 10 
years, based on the results of the decennial census. However, OMB 
occasionally issues minor updates and revisions to statistical areas in 
the years between the decennial censuses through OMB Bulletins. These 
bulletins contain information regarding CBSA changes, including changes 
to CBSA numbers and titles. OMB bulletins may be accessed online at 
https://www.whitehouse.gov/omb/information-for-agencies/bulletins/. In 
accordance with our established methodology, the IPF PPS has 
historically adopted any CBSA changes that are published in the OMB 
bulletin that corresponds with the IPPS hospital wage index used to 
determine the IPF wage index.
    In the RY 2007 IPF PPS final rule (71 FR 27061 through 27067), we 
adopted the changes discussed in the OMB Bulletin No. 03-04 (June 6, 
2003), which announced revised definitions for MSAs, and the creation 
of Micropolitan Statistical Areas and Combined Statistical Areas. In 
adopting the OMB CBSA geographic designations in RY 2007, we did not 
provide a separate transition for the CBSA-based wage index since the 
IPF PPS was already in a transition period from TEFRA payments to PPS 
payments.
    In the RY 2009 IPF PPS notice, we incorporated the CBSA 
nomenclature changes published in the most recent OMB bulletin that 
applied to the IPPS hospital wage index used to determine the current 
IPF wage index and stated that we expected to continue to do the same 
for all the OMB CBSA nomenclature changes in future IPF PPS rules and 
notices, as necessary (73 FR 25721).
    On February 28, 2013, OMB issued OMB Bulletin No. 13-01 which

[[Page 20633]]

established revised delineations for Metropolitan Statistical Areas, 
Micropolitan Statistical Areas, and Combined Statistical Areas in the 
United States and Puerto Rico based on the 2010 Census, and provided 
guidance on the use of the delineations of these statistical areas 
using standards published in the June 28, 2010 Federal Register (75 FR 
37246 through 37252). These OMB Bulletin changes were reflected in the 
FY 2015 pre-floor, pre-reclassified IPPS hospital wage index, upon 
which the FY 2016 IPF wage index was based. We adopted these new OMB 
CBSA delineations in the FY 2016 IPF wage index and subsequent IPF wage 
indexes. We refer readers to the FY 2016 IPF PPS final rule (80 FR 
46682 through 46689) for a full discussion of our implementation of the 
OMB labor market area delineations beginning with the FY 2016 wage 
index.
    On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which provided 
updates to and superseded OMB Bulletin No. 13-01 that was issued on 
February 28, 2013. The attachment to OMB Bulletin No. 15-01 provided 
detailed information on the update to statistical areas since February 
28, 2013. The updates provided in OMB Bulletin No. 15-01 were based on 
the application of the 2010 Standards for Delineating Metropolitan and 
Micropolitan Statistical Areas to Census Bureau population estimates 
for July 1, 2012 and July 1, 2013. The complete list of statistical 
areas incorporating these changes is provided in OMB Bulletin No. 15-
01. A copy of this bulletin may be obtained at https://www.whitehouse.gov/omb/information-for-agencies/bulletins/.
    OMB Bulletin No. 15-01 established revised delineations for the 
Nation's Metropolitan Statistical Areas, Micropolitan Statistical 
Areas, and Combined Statistical Areas. The bulletin also provided 
delineations of Metropolitan Divisions as well as delineations of New 
England City and Town Areas. As discussed in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56913), the updated labor market area definitions 
from OMB Bulletin 15-01 were implemented under the IPPS beginning on 
October 1, 2016 (FY 2017). Therefore, we implemented these revisions 
for the IPF PPS beginning October 1, 2017 (FY 2018), consistent with 
our historical practice of modeling IPF PPS adoption of the labor 
market area delineations after IPPS adoption of these delineations 
(historically the IPF wage index has been based upon the pre-floor, 
pre-reclassified IPPS hospital wage index from the prior year).
    On August 15, 2017, OMB issued OMB Bulletin No. 17-01, which 
provided updates to and superseded OMB Bulletin No. 15-01 that was 
issued on July 15, 2015. The attachments to OMB Bulletin No. 17-01 
provide detailed information on the update to statistical areas since 
July 15, 2015, and are based on the application of the 2010 Standards 
for Delineating Metropolitan and Micropolitan Statistical Areas to 
Census Bureau population estimates for July 1, 2014 and July 1, 2015. 
In the FY 2020 IPF PPS final rule (84 FR 38453 through 38454), we 
adopted the updates set forth in OMB Bulletin No. 17-01 effective 
October 1, 2019, beginning with the FY 2020 IPF wage index. Given that 
the loss of the rural adjustment was mitigated in part by the increase 
in wage index value, and that only a single IPF was affected by this 
change, we did not believe it was necessary to transition this provider 
from its rural to newly urban status. We refer readers to the FY 2020 
IPF PPS final rule (84 FR 38453 through 38454) for a more detailed 
discussion about the decision to forego a transition plan in FY 2020.
    On April 10, 2018, OMB issued OMB Bulletin No. 18-03, which 
superseded the August 15, 2017 OMB Bulletin No. 17-01, and on September 
14, 2018, OMB issued, OMB Bulletin No. 18-04, which superseded the 
April 10, 2018 OMB Bulletin No. 18-03. These bulletins established 
revised delineations for Metropolitan Statistical Areas, Micropolitan 
Statistical Areas, and Combined Statistical Areas, and provided 
guidance on the use of the delineations of these statistical areas. A 
copy of the most recent bulletin may be obtained at https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf. 
According to OMB, ``[t]his bulletin provides the delineations of all 
Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan 
Statistical Areas, Combined Statistical Areas, and New England City and 
Town Areas in the United States and Puerto Rico based on the standards 
published on June 28, 2010, in the Federal Register [75 FR 37246], and 
Census Bureau data.'' (We note, on March 6, 2020 OMB issued OMB 
Bulletin 20-01 (available on the web at https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf), and as discussed below was 
not issued in time for development of this proposed rule.)
    While OMB Bulletin No. 18-04 is not based on new census data, it 
includes some material changes to the OMB statistical area delineations 
that we believe are necessary to incorporate into the IPF PPS. These 
changes include new some CBSAs, urban counties that would become rural, 
rural counties that would become urban, and existing CBSAs that would 
be split apart. We discuss these changes in more detail in the sections 
below.
(ii.) Proposed Implementation of New Labor Market Area Delineations
    We believe it is important for the IPF PPS to use, as soon as is 
reasonably possible, the latest available labor market area 
delineations in order to maintain a more accurate and up-to-date 
payment system that reflects the reality of population shifts and labor 
market conditions. We believe that using the most current delineations 
will increase the integrity of the IPF PPS wage index system by 
creating a more accurate representation of geographic variations in 
wage levels. We have carefully analyzed the impacts of adopting the new 
OMB delineations, and find no compelling reason to further delay 
implementation. Therefore, we are proposing to implement the new OMB 
delineations as described in the September 14, 2018 OMB Bulletin No. 
18-04, effective beginning with the FY 2021 IPF PPS wage index. We are 
proposing to adopt the updates to the OMB delineations announced in OMB 
Bulletin No. 18-04 effective for FY 2021 under the IPF PPS. As noted 
above, the March 6, 2020 OMB Bulletin 20-01 was not issued in time for 
development of this proposed rule. While we do not believe that the 
minor updates included in OMB Bulletin 20-01 would impact our proposed 
updates to the CBSA-based labor market area delineations, if needed we 
would include any updates from this bulletin in any changes that would 
be adopted in the FY 2021 IPF PPS final rule. We also are proposing to 
implement a wage index transition policy that would be applicable to 
all IPFs that may experience negative impacts due to the proposed 
implementation of the revised OMB delineations. This proposed 
transition is discussed in more detail below.
(a.) Micropolitan Statistical Areas
    OMB defines a ``Micropolitan Statistical Area'' as a CBSA 
associated with at least one urban cluster that has a population of at 
least 10,000, but less than 50,000 (75 FR 37252). We refer to these as 
Micropolitan Areas. After extensive impact analysis, consistent with 
the treatment of these areas under the IPPS as discussed in the FY 2005 
IPPS final rule (69 FR 49029 through 49032), we determined the best 
course of action would be to treat Micropolitan Areas as ``rural'' and 
include them in

[[Page 20634]]

the calculation of each state's IPF PPS rural wage index. We refer the 
reader to the FY 2007 IPF PPS final rule (71 FR 27064 through 27065) 
for a complete discussion regarding treating Micropolitan Areas as 
rural.
(b.) Urban Counties That Would Become Rural Under the Revised OMB 
Delineations
    As previously discussed, we are proposing to implement the new OMB 
labor market area delineations (based upon OMB Bulletin No. 18-04) 
beginning in FY 2021. Our analysis shows that a total of 34 counties 
(and county equivalents) and 5 providers are located in areas that were 
previously considered part of an urban CBSA but would be considered 
rural beginning in FY 2021 under these revised OMB delineations. Table 
1 lists the 34 urban counties that would be rural if we finalize our 
proposal to implement the revised OMB delineations.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP20.004

    We are proposing that the wage data for all providers located in 
the counties listed above would now be considered rural, beginning in 
FY 2021, when calculating their respective state's rural wage index. 
This rural wage index value would also be used under the IPF PPS. We 
recognize that rural areas typically have lower area wage index values 
than urban areas, and providers located in these counties may 
experience a negative impact in their IPF payment due to the proposed 
adoption of the revised OMB delineations. We refer readers to section 
iii of this proposed rule for a discussion of the proposed wage index 
transition policy, particularly, the discussion of the

[[Page 20635]]

proposed wage index transition policy regarding the 5 percent cap for 
providers that may experience a decrease in their wage index from the 
prior FY.
(c.) Rural Counties That Would Become Urban Under the Revised OMB 
Delineations
    As previously discussed, we are proposing to implement the new OMB 
labor market area delineations (based upon OMB Bulletin No. 18-04) 
beginning in FY 2021. Analysis of these OMB labor market area 
delineations shows that a total of 47 counties (and county equivalents) 
and 4 providers are located in areas that were previously considered 
rural but would now be considered urban under the revised OMB 
delineations. Table 2 lists the 47 rural counties that would be urban 
if we finalize our proposal to implement the revised OMB delineations.
[GRAPHIC] [TIFF OMITTED] TP14AP20.005


[[Page 20636]]


[GRAPHIC] [TIFF OMITTED] TP14AP20.006

    We are proposing that when calculating the area wage index, 
beginning with FY 2021, the wage data for providers located in these 
counties would be included in their new respective urban CBSAs. 
Typically, providers located in an urban area receive a wage index 
value higher than or equal to providers located in their state's rural 
area. We refer readers to section iii of this proposed rule for a 
discussion of the proposed wage index transition policy.
(d.) Urban Counties That Would Move to a Different Urban CBSA Under the 
New OMB Delineations
    In certain cases, adopting the new OMB delineations would involve a 
change only in CBSA name and/or number, while the CBSA continues to 
encompass the same constituent counties. For example, CBSA 19380 
(Dayton, OH) would experience both a change to its number and its name, 
and become CBSA 19430 (Dayton-Kettering, OH), while all of its three 
constituent counties would remain the same. In other cases, only the 
name of the CBSA would be modified, and none of the currently assigned 
counties would be reassigned to a different urban CBSA. Table 3 shows 
the current CBSA code and our proposed CBSA code where we are proposing 
to change either the name or CBSA number only. We are not discussing 
further in this section these proposed changes because they are 
inconsequential changes with respect to the IPF PPS wage index.

[[Page 20637]]

[GRAPHIC] [TIFF OMITTED] TP14AP20.007

    In some cases, if we adopt the new OMB delineations, counties would 
shift between existing and new CBSAs, changing the constituent makeup 
of the CBSAs. We consider this type of change, where CBSAs are split 
into multiple new CBSAs, or a CBSA loses one or more counties to 
another urban CBSA to be significant modifications.
    Table 4 lists the urban counties that would move from one urban 
CBSA to another newly proposed or modified CBSA if we adopted the new 
OMB delineations.

[[Page 20638]]

[GRAPHIC] [TIFF OMITTED] TP14AP20.008

BILLING CODE 4120-01-C
    We have identified 49 IPF providers located in the affected 
counties listed in Table 4. If providers located in these counties move 
from one CBSA to another under the revised OMB delineations, there may 
be impacts, both negative and positive, upon their specific wage index 
values.
(iii.) Proposed Transition Policy for Providers Negatively Impacted by 
Wage Index Changes
    Overall, we believe implementing updated wage index values along 
with the revised OMB delineations would result in wage index values 
being more representative of the actual costs of labor in a given area. 
However, we recognize that implementing these wage index changes will 
have distributional effects among IPF providers, and that some 
providers would experience decreases in wage index values as a result 
of our proposals. Therefore, we believe it would be appropriate to 
consider, as we have in the past, whether or not a transition period 
should be used to implement these proposed changes to the wage index.
    We considered having no transition period and fully implementing 
the proposed updated wage index values and new OMB delineations 
beginning in FY 2021. This would mean that we would adopt the updated 
wage index and revised OMB delineations for all providers on October 1, 
2020. However, this would not provide any time for providers to adapt 
to the new OMB delineations or wage index values. As previously stated, 
some providers would experience a decrease in wage index due to 
implementation of the proposed new OMB delineations and wage index 
updates. Thus, we believe that it would be appropriate to provide for a 
transition period to mitigate the resulting short-term instability and 
negative impacts on these providers to provide time for them to adjust 
to their new labor market area delineations and wage index values. 
Furthermore, in light of the comments received during the RY 2007 and 
FY 2016 rulemaking cycles on our proposals to adopt revised CBSA 
definitions without a transition period, we believe that a transition 
period is appropriate for FY 2021.

[[Page 20639]]

    We considered transitioning the proposed wage index changes over a 
number of years to minimize their impact in a given year. However, as 
discussed in the FY 2016 IPF PPS final rule (80 FR 46689), we continue 
to believe that a longer transition period would reduce the accuracy of 
the overall labor market area wage index system. The wage index is a 
relative measure of the value of labor in prescribed labor market 
areas; therefore, we believe it is important to implement the new 
delineations with as minimal a transition as is reasonably possible. As 
such, we believe that utilizing a 2-year (rather than a multiple year) 
transition period would strike the most appropriate balance between 
giving providers time to adapt to the new wage index changes while 
maintaining the accuracy of the overall labor market area wage index 
system.
    We considered a transition methodology similar to that used to 
address past decreases in the wage index, as in FY 2016 (80 FR 46689) 
when major changed to CBSA delineations were introduced. Under that 
methodology, all IPF providers would receive a 1-year blended wage 
index using 50 percent of their FY 2021 wage index based on the 
proposed new OMB delineations and 50 percent of their FY 2021 wage 
index based on the OMB delineations used in FY 2020. However, if we 
were to propose a similar blended adjustment for FY 2021, we would have 
to calculate wage indexes for all providers using both old and new 
labor market definitions even though the blended wage index would only 
apply to providers that experienced a decrease in wage index values due 
to a change in labor market area definitions.
    Because of the administrative complexity involved in implementing a 
blended adjustment, we decided to consider alternative transition 
methodologies that might provide greater transparency. Moreover, for FY 
2021, we are not proposing the same transition policy we established in 
FY 2016 when we adopted new OMB delineations based on the decennial 
census data. However, consistent with our past practice of using 
transition policies to help mitigate negative impacts on hospitals of 
certain wage index proposals, we do believe it is appropriate to 
propose a transition policy for our proposed implementation of the 
revised OMB delineations.
    We believe adopting a transition of the 5-percent cap on a decrease 
in an IPFs wage index from the IPF's final wage index from the prior FY 
is an appropriate transition for FY 2021 for the revised OMB 
delineations as it provides greater transparency and consistency with 
other payment systems. This 2-year transition would allow the proposed 
adoption of the revised CBSA delineations to be phased in over 2 years, 
where the estimated reduction in an IPF's wage index would be capped at 
5 percent in FY 2021. This approach strikes an appropriate balance by 
providing for a transition period to mitigate the resulting short-term 
instability and negative impacts on these providers and provide time 
for them to adjust to their new labor market area delineations and wage 
index values. No cap would be applied to the reduction in the wage 
index for the second year, that is, FY 2022.
    Following the rationale outlined in the FY 2020 IPPS/LTCH PPS final 
rule (84 FR 42336), we continue to we believe 5 percent is a reasonable 
level for the cap because it would effectively mitigate any significant 
decreases in the wage index for FY 2021. Therefore, for FY 2021, we are 
proposing to provide for a transition of a 5-percent cap on any 
decrease in an IPF's wage index from the IPF's final wage index from 
the prior FY, which would be FY 2020. Consistent with the application 
of the 5 percent cap transition provided in FY 2020 for the IPPS, this 
5-percent cap on wage index decreases would be applied to all IPF 
providers that have any decrease in their wage indexes, regardless of 
the circumstance causing the decline, so that an IPF's final wage index 
for FY 2021 would not be less than 95 percent of its final wage index 
for FY 2020, regardless of whether the IPF is part of an updated CBSA.
    We invite comments on our proposed implementation of the new OMB 
delineations and our proposed transition methodology.
e. Proposed Adjustment for Rural Location
    In the November 2004 IPF PPS final rule, (69 FR 66954) 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. This 17 percent adjustment has 
been part of the IPF PPS each year since the inception of the IPF PPS. 
For FY 2021, we are proposing to continue to apply a 17 percent payment 
adjustment for IPFs located in a rural area as defined at Sec.  
412.64(b)(1)(ii)(C) (see 69 FR 66954) for a complete discussion of the 
adjustment for rural locations.
f. Proposed Budget Neutrality Adjustment
    Changes to the wage index are made in a budget-neutral manner so 
that updates do not increase expenditures. Therefore, for FY 2021, we 
are proposing to continue to apply a budget-neutrality adjustment in 
accordance with our existing budget-neutrality policy. This policy 
requires us to update the wage index in such a way that total estimated 
payments to IPFs for FY 2021 are the same with or without the changes 
(that is, in a budget-neutral manner) by applying a budget neutrality 
factor to the IPF PPS rates. We use the following steps to ensure that 
the rates reflect the update to the wage indexes (based on the FY 2016 
hospital cost report data) and the labor-related share in a budget-
neutral manner:
    Step 1. Simulate estimated IPF PPS payments, using the FY 2020 IPF 
wage index values (available on the CMS website) and labor-related 
share (as published in the FY 2020 IPF PPS final rule (84 FR 38424).
    Step 2. Simulate estimated IPF PPS payments using the proposed FY 
2021 IPF wage index values (available on the CMS website) and proposed 
FY 2021 labor-related share (based on the latest available data as 
discussed previously).
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2. The resulting quotient is the FY 2021 budget-
neutral wage adjustment factor of 0.9979.
    Step 4. Apply the FY 2021 budget-neutral wage adjustment factor 
from step 3 to the FY 2020 IPF PPS federal per diem base rate after the 
application of the market basket update described in section III.A of 
this rule, to determine the FY 2021 IPF PPS federal per diem base rate.
2. Proposed Teaching Adjustment
    In the November 2004 IPF PPS final rule, we implemented regulations 
at Sec.  412.424(d)(1)(iii) to establish a facility-level 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 graduate medical education (GME) 
programs. The payment adjustments are made based on the ratio of the 
number of full-time equivalent (FTE) interns and residents training in 
the IPF and the IPF's average daily census (ADC).
    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

[[Page 20640]]

rate-of-increase limits. These direct GME payments are made separately 
from payments for hospital operating costs and are not part of the IPF 
PPS. The direct GME payments do not address the estimated higher 
indirect operating costs teaching hospitals may face.
    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 (1 + (the number of 
FTE residents training in the IPF/the IPF's ADC)). The teaching 
variable is then raised to 0.5150 power to result in the teaching 
adjustment. This formula is subject to the limitations on the number of 
FTE residents, which are described in this section of this rule.
    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 (publication date of the IPF PPS final rule). A 
complete discussion of the temporary adjustment to the FTE cap to 
reflect residents due to hospital closure or residency program closure 
appears in the RY 2012 IPF PPS proposed rule (76 FR 5018 through 5020) 
and the RY 2012 IPF PPS final rule (76 FR 26453 through 26456).
    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. A complete discussion of how the teaching 
adjustment was calculated appears in the November 2004 IPF PPS final 
rule (69 FR 66954 through 66957) and the RY 2009 IPF PPS notice (73 FR 
25721). As with other adjustment factors derived through the regression 
analysis, we do not plan to rerun the teaching adjustment factors in 
the regression analysis until we more fully analyze IPF PPS data as 
part of the IPF PPS refinement we discuss in section IV of this rule. 
Therefore, in this FY 2021 proposed rule, we are proposing to continue 
to retain the coefficient value of 0.5150 for the teaching adjustment 
to the federal per diem base rate.
3. Proposed 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 area 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 
prospective payment systems (for example: The IPPS and LTCH PPS) 
adopted a 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 for IPFs located in Alaska and Hawaii is made by multiplying 
the non-labor-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 through 2009 were published by the Office of 
Personnel Management (OPM), and the OPM memo showing the 2009 COLA 
factors is available at https://www.chcoc.gov/content/nonforeign-area-retirement-equity-assurance-act.
    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:
     City of Anchorage, and 80-kilometer (50-mile) radius by 
road, as measured from the federal courthouse.
     City of Fairbanks, and 80-kilometer (50-mile) radius by 
road, as measured from the federal courthouse.
     City of Juneau, and 80-kilometer (50-mile) radius by road, 
as measured from the federal courthouse.
     Rest of the state of Alaska.
    As stated in the November 2004 IPF PPS final rule, we update the 
COLA factors according to updates established by the OPM. However, 
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 FY 2010 (Pub. L. 111-84, October 
28, 2009), transitions the Alaska and Hawaii COLAs to locality pay. 
Under section 1914 of NDAA, locality pay was 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 proportionately reduced to 
reflect the phase-in of locality pay.
    When we published the proposed COLA factors in the RY 2012 IPF PPS 
proposed rule (76 FR 4998), we inadvertently selected the FY 2010 COLA 
rates, which had been reduced to account for the phase-in of locality 
pay. We did not intend to propose the reduced COLA rates because that 
would have understated the adjustment. Since the 2009 COLA rates did 
not reflect the phase-in of locality pay, we finalized the FY 2009 COLA 
rates for RY 2010 through RY 2014.
    In the FY 2013 IPPS/LTCH final rule (77 FR 53700 through 53701), we 
established a new methodology to update the COLA factors for Alaska and 
Hawaii, and adopted this methodology for the IPF PPS in the FY 2015 IPF 
final rule (79 FR 45958 through 45960). We adopted this new COLA 
methodology for the IPF PPS because IPFs are hospitals with a similar 
mix of commodities and services. We think it is appropriate to have a 
consistent policy approach with that of other hospitals in Alaska and 
Hawaii. Therefore, the IPF COLAs for FY 2015 through FY 2017 were the 
same as those applied under the IPPS in those years. As finalized in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53700 and 53701), the COLA 
updates are determined every 4 years, when the IPPS market basket 
labor-related share is updated. Because the labor-related share of the 
IPPS market basket was updated for FY 2018, the COLA factors were 
updated in FY 2018 IPPS/LTCH rulemaking (82 FR 38529). As such, we also 
updated the IPF PPS COLA factors for FY 2018 (82 FR 36780 through 
36782) to reflect the updated COLA factors finalized in the FY 2018 
IPPS/LTCH rulemaking. We are proposing to continue to apply the same 
COLA factors in FY 2021 that were used in FY 2018 and FY 2019.

[[Page 20641]]

[GRAPHIC] [TIFF OMITTED] TP14AP20.009

    The proposed IPF PPS COLA factors for FY 2021 are also shown in 
Addendum A to this proposed rule, and is available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
4. Proposed Adjustment for IPFs With a Qualifying Emergency Department 
(ED)
    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 psychiatric hospital with a qualifying ED or an excluded 
psychiatric unit of an IPPS hospital or a CAH, for preadmission 
services otherwise payable under the Medicare Hospital Outpatient 
Prospective Payment System (OPPS), furnished to a beneficiary on the 
date of the beneficiary's admission to the hospital and during the day 
immediately preceding the date of admission to the IPF (see Sec.  
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 which we described), 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. Those IPFs with a qualifying ED receive an adjustment factor of 
1.31 as the variable per diem adjustment for day 1 of each patient 
stay. If an IPF does not have a qualifying ED, it 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 in this section of the proposed rule. As specified in Sec.  
412.424(d)(1)(v)(B), the ED adjustment is not made when a patient is 
discharged from an IPPS hospital or CAH and admitted to the same IPPS 
hospital's or CAH's excluded psychiatric unit. We clarified in the 
November 2004 IPF PPS final rule (69 FR 66960) that an ED adjustment is 
not made in this case because the costs associated with ED services are 
reflected in the DRG payment to the IPPS hospital or through the 
reasonable cost payment made to the CAH.
    Therefore, when patients are discharged from an IPPS hospital or 
CAH and admitted to the same hospital's or CAH's excluded 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 
FY 2021, we are proposing to continue 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 factors are in the 
November 2004 IPF PPS final rule (69 FR 66959 through 66960) and the RY 
2007 IPF PPS final rule (71 FR 27070 through 27072).

E. Other Proposed Payment Adjustments and Policies

1. Outlier Payment Overview
    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 the 
November 2004 IPF PPS final rule, we implemented regulations at Sec.  
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 costlier 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 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. The adjusted threshold amount 
is equal to the outlier threshold amount adjusted for wage area, 
teaching status, rural area, and the COLA adjustment (if applicable), 
plus the amount of the Medicare IPF payment for the case. 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.

[[Page 20642]]

    After establishing the loss sharing ratios, we determined the 
current fixed dollar loss threshold amount through payment simulations 
designed to compute a dollar loss beyond which payments are estimated 
to meet the 2 percent outlier spending target. Each year when we update 
the IPF PPS, we simulate payments using the latest available data to 
compute the fixed dollar loss threshold so that outlier payments 
represent 2 percent of total estimated IPF PPS payments.
2. Proposed Update to the Outlier Fixed Dollar Loss Threshold Amount
    In accordance with the update methodology described in Sec.  
412.428(d), we are proposing 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.
    Based on an analysis of the latest available data (the December 
2019 update of FY 2019 IPF claims) and rate increases, we believe it is 
necessary to update the fixed dollar loss threshold amount to maintain 
an outlier percentage that equals 2 percent of total estimated IPF PPS 
payments. We are proposing to update the IPF outlier threshold amount 
for FY 2021 using FY 2019 claims data and the same methodology that we 
used to set the initial outlier threshold amount in the RY 2007 IPF PPS 
final rule (71 FR 27072 and 27073), which is also the same methodology 
that we used to update the outlier threshold amounts for years 2008 
through 2020. Based on an analysis of these updated data, we estimate 
that IPF outlier payments as a percentage of total estimated payments 
are approximately 2.2 percent in FY 2020. Therefore, we are proposing 
to update the outlier threshold amount to $16,520 to maintain estimated 
outlier payments at 2 percent of total estimated aggregate IPF payments 
for FY 2021. This proposed rule update is an increase from the FY 2020 
threshold of $14,960.
3. Proposed Update to IPF Cost-to-Charge Ratio Ceilings
    Under the IPF PPS, an outlier payment is made if an IPF's cost for 
a stay exceeds a fixed dollar loss threshold amount plus the IPF PPS 
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 the FY 2004 IPPS final rule (68 FR 34494), we 
implemented changes to the IPPS policy used to determine CCRs for IPPS 
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 to ensure that 
aberrant CCR data did not result in inappropriate outlier payments.
    As we indicated in the November 2004 IPF PPS final rule (69 FR 
66961), we believe that the IPF outlier policy is susceptible to the 
same payment vulnerabilities as the IPPS; therefore, we adopted a 
method to ensure the statistical accuracy of CCRs under the IPF PPS. 
Specifically, we adopted the following procedure in the November 2004 
IPF PPS final rule:
     Calculated two national ceilings, one for IPFs located in 
rural areas and one for IPFs located in urban areas.
     Computed the ceilings by first calculating the national 
average and the standard deviation of the CCR for both urban and rural 
IPFs using the most recent CCRs entered in the most recent Provider 
Specific File available.
    For FY 2021, we are proposing to continue to follow this 
methodology.
    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 FY 2021 is 1.9572 for rural IPFs, and 1.7387 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 median CCRs to the following situations:
     New IPFs that have not yet submitted their first Medicare 
cost report. We continue to use these national median CCRs until the 
facility's actual CCR can be computed using the first tentatively or 
final settled cost report.
     IPFs whose overall CCR is in excess of three standard 
deviations above the corresponding national geometric mean (that is, 
above the ceiling).
     Other IPFs for which the Medicare Administrative 
Contractor (MAC) obtains inaccurate or incomplete data with which to 
calculate a CCR.
    We are proposing to continue to update the FY 2021 national median 
and ceiling CCRs for urban and rural IPFs based on the CCRs entered in 
the latest available IPF PPS Provider Specific File. Specifically, for 
FY 2021, to be used in each of the three situations listed previously, 
using the most recent CCRs entered in the CY 2020 Provider Specific 
File, we provide an estimated national median CCR of 0.5720 for rural 
IPFs and a national median CCR of 0.4280 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).

IV. Update on IPF PPS Refinements

    For RY 2012, we identified several areas of concern for future 
refinement, and we invited comments on these issues in the RY 2012 IPF 
PPS proposed and final rules. For further discussion of these issues 
and to review the public comments, we refer readers to the RY 2012 IPF 
PPS proposed rule (76 FR 4998) and final rule (76 FR 26432).
    We have delayed making refinements to the IPF PPS until we have 
completed a thorough analysis of IPF PPS data on which to base those 
refinements. Specifically, we would 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. We have 
begun and will continue the necessary analysis to better understand IPF 
industry practices so that we may refine the IPF PPS in the future, as 
appropriate. Our preliminary analysis has also revealed variation in 
cost and claim data, particularly related to labor costs, drugs costs, 
and laboratory services. Some providers have very low labor costs, or 
very low or missing drug or laboratory costs or charges, relative to 
other providers. As we noted in the FY 2016 IPF PPS final rule (80 FR 
46693 through 46694), our preliminary analysis of 2012 to 2013 IPF data 
found that over 20 percent of IPF stays reported no ancillary costs, 
such as laboratory and drug costs, in their cost reports, or laboratory 
or drug charges on their claims. Because we expect that most patients 
requiring hospitalization for active psychiatric treatment would need 
drugs and laboratory services, we again remind providers that the IPF 
PPS federal per diem base rate includes the cost of all ancillary 
services, including drugs and laboratory services.
    On November 17, 2017, we issued Transmittal 12, which made changes 
to

[[Page 20643]]

the hospital cost report form CMS-2552-10 (OMB No. 0938-0050), and 
included the requirement that cost reports from psychiatric hospitals 
include certain ancillary costs, or the cost report will be rejected. 
On January 30, 2018, we issued Transmittal 13, which changed the 
implementation date for Transmittal 12 to be for cost reporting periods 
ending on or after September 30, 2017. For details, we refer readers to 
see these Transmittals, which are available on the CMS website at 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/. CMS suspended the requirement that cost reports from 
psychiatric hospitals include certain ancillary costs effective April 
27, 2018, in order to consider excluding all-inclusive rate providers 
from this requirement. CMS issued Transmittal 15 on October 19, 2018, 
reinstating the requirement that cost reports from psychiatric 
hospitals, except all-inclusive rate providers, include certain 
ancillary costs.
    We only pay the IPF for services furnished to a Medicare 
beneficiary who is an inpatient of that IPF (except for certain 
professional services), and payments are considered to be payments in 
full for all inpatient hospital services provided directly or under 
arrangement (see 42 CFR 412.404(d)), as specified in 42 CFR 409.10.

V. Collection of Information Requirements

    This rule proposes to update the prospective payment rates, the 
outlier threshold, and the wage index for Medicare inpatient hospital 
services provided by IPFs. It also proposes to expand the IPPS wage 
index disparities policy and revise CBSA delineations. With regard to 
the Paperwork Reduction Act of 1995 (PRA; 44 U.S.C. 3501 et seq.), the 
rule's proposed changes would not impose any new or revised 
``collection of information'' requirements or burden. While discussed 
in section IV (Update on IPF PPS Refinements) of this preamble, the 
active requirements and burden associated with our hospital cost report 
form CMS-2552-10 (OMB control number 0938-0050) are unaffected by this 
rule. Since this rule would not impose any new or revised collection of 
information requirements/burden, the rule is not subject to the PRA and 
OMB review under the authority of the PRA. With respect to the PRA and 
this section of the preamble, collection of information is defined 
under 5 CFR 1320.3(c) of the PRA's implementing regulations.

VI. Regulatory Impact Analysis

A. Statement of Need

    This rule proposes updates to the prospective payment rates for 
Medicare inpatient hospital services provided by IPFs for discharges 
occurring during FY 2021 (October 1, 2020 through September 30, 2021). 
We are proposing to apply the 2016-based IPF market basket increase of 
3.0 percent, less the productivity adjustment of 0.4 percentage point 
as required by 1886(s)(2)(A)(i) of the Act for a proposed total FY 2021 
payment rate update of 2.6 percent. In this proposed rule, we are 
proposing to update the IPF labor-related share and update the IPF wage 
index to reflect the FY 2021 hospital inpatient wage index, and adopt 
the most recent Office of Management and Budget (OMB) statistical area 
delineations.

B. Overall Impact

    We have examined the impacts of this proposed 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 (the 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 Executive Order 13771 on Reducing 
Regulation and Controlling Regulatory Costs (January 30, 2017).
    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). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order. In accordance with the 
provisions of Executive Order 12866, this regulation was reviewed by 
the Office of Management and Budget.
    We estimate that this rulemaking is economically significant as 
measured by the $100 million threshold. Accordingly, we have prepared a 
Regulatory Impact Analysis that to the best of our ability presents the 
costs and benefits of the rulemaking.
    We estimate that the total impact of these changes for FY 2021 
payments compared to FY 2020 payments will be a net increase of 
approximately $100 million. This reflects an $110 million increase from 
the update to the payment rates (+$125 million from the 4th quarter 
2019 IGI forecast of the 2016-based IPF market basket of 3.0 percent, 
and -$15 million for the productivity adjustment of 0.4 percentage 
point), as well as a -$10 million decrease as a result of the update to 
the outlier threshold amount. Outlier payments are estimated to change 
from 2.2 percent in FY 2020 to 2.0 percent of total estimated IPF 
payments in FY 2021.

C. Detailed Economic Analysis

    In this section, we discuss the historical background of the IPF 
PPS and the impact of this proposed rule on the Federal Medicare budget 
and on IPFs.
1. Budgetary Impact
    As discussed in the November 2004 and RY 2007 IPF PPS final rules, 
we applied a budget neutrality factor to the federal per diem base rate 
and ECT payment per treatment 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 RY 2009 IPF PPS notice (73 FR 25711), the stop-loss 
adjustment is no longer applicable under the IPF PPS.
    As discussed in section III.D.1 of this proposed rule, we are 
updating 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 base rate and ECT payment per treatment. Therefore, the 
budgetary impact to the Medicare program of this proposed rule will be 
due to the market basket update for FY

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2021 of 3.0 percent (see section III.A.4 of this proposed rule) less 
the productivity adjustment of 0.4 percentage point required by section 
1886(s)(2)(A)(i) of the Act and the update to the outlier fixed dollar 
loss threshold amount.
    We estimate that the FY 2021 impact will be a net increase of $100 
million in payments to IPF providers. This reflects an estimated $110 
million increase from the update to the payment rates and a -$10 
million decrease due to the update to the outlier threshold amount to 
set total estimated outlier payments at 2.0 percent of total estimated 
payments in FY 2021. This estimate does not include the implementation 
of the required 2.0 percentage point reduction of the market basket 
increase factor for any IPF that fails to meet the IPF quality 
reporting requirements (as discussed in section V.A. of this proposed 
rule).
2. Impact on Providers
    To show the impact on providers of the changes to the IPF PPS 
discussed in this proposed rule, we compare estimated payments under 
the IPF PPS rates and factors for FY 2021 versus those under FY 2020. 
We determined the percent change in the estimated FY 2021 IPF PPS 
payments compared to the estimated FY 2020 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 updated 
wage index data including the updated labor-related share; the adoption 
of the revised CBSA delineations based on the OMB Bulletin No. 18-04 
published September 14, 2018; the implementation of the proposed low 
wage index policy and 5 percent cap on decreases to providers' wage 
index values; and the market basket update for FY 2021, as adjusted by 
the productivity adjustment according to section 1886(s)(2)(A)(i) of 
the Act.
    To illustrate the impacts of the FY 2021 changes in this proposed 
rule, our analysis begins with FY 2019 IPF PPS claims (based on the 
2019 MedPAR claims, December 2019 update). We estimate FY 2020 IPF PPS 
payments using these 2019 claims and the finalized FY 2020 IPF PPS 
federal per diem base rates and the finalized FY 2020 IPF PPS patient 
and facility level adjustment factors (as published in the FY 2020 IPF 
PPS final rule (84 FR 38424 through 38482)). We then estimate the FY 
2020 outlier payments based on these simulated FY 2020 IPF PPS payments 
using the same methodology as finalized in the FY 2020 IPF PPS final 
rule (84 FR 38457) where total outlier payments are maintained at 2 
percent of total estimated FY 2020 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:
     The proposed update to the outlier fixed dollar loss 
threshold amount.
     The proposed FY 2021 IPF wage index and the FY 2021 labor-
related share.
     The proposed adoption of the revised CBSAs based on OMB 
Bulletin No. 18-04.
     The 5 percent cap on decreases to the wage index for 
providers whose wage index decreases from FY 2020.
     The proposed market basket update for FY 2021 of 3.0 
percent less the productivity adjustment of 0.4 percentage point in 
accordance with section 1886(s)(2)(A)(i) of the Act for a payment rate 
update of 2.6 percent.
    Our proposed column comparison in Table 6 illustrates the percent 
change in payments from FY 2020 (that is, October 1, 2019, to September 
30, 2020) to FY 2021 (that is, October 1, 2020, to September 30, 2021) 
including all the payment policy changes in this proposed rule.
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3. Impact Results
    Table 6 displays the results of our analysis. The table groups IPFs 
into the categories listed here based on characteristics provided in 
the Provider of Services (POS) file, the IPF provider specific file, 
and cost report data from the Healthcare Cost Report Information 
System:
     Facility Type.
     Location.
     Teaching Status Adjustment.

[[Page 20647]]

     Census Region.
     Size.
    The top row of the table shows the overall impact on the 1,565 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 FY 2020. Thus, we are adjusting the outlier threshold amount 
in this proposed rule to set total estimated outlier payments equal to 
2.0 percent of total payments in FY 2021. The estimated change in total 
IPF payments for FY 2021, 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 2.0 
percent.
    The overall impact of this outlier adjustment update (as shown in 
column 3 of Table 6), across all hospital groups, is to decrease total 
estimated payments to IPFs by 0.2 percent. The largest decrease in 
payments due to this change is estimated to be 0.7 percent for teaching 
IPFs with more than 30 percent interns and residents to beds.
    In column 4, we present the effects of the budget-neutral update to 
the IPF wage index and the Labor-Related Share (LRS). This represents 
the effect of using the concurrent hospital wage data without taking 
into account the updated OMB delineations, or the 5 percent cap on 
decreases to providers' wage index values for providers whose wage 
index decreases from FY 2020 as discussed in section III.D.1.b.iii of 
this proposed rule. That is, the impact represented in this column 
reflects the update from the FY 2020 IPF wage index to the proposed FY 
2021 IPF wage index, which includes basing the FY 2021 IPF wage index 
on the FY 2021 pre-floor, pre-reclassified IPPS hospital wage index 
data and updating the LRS from 76.9 percent in FY 2020 to 77.2 percent 
in FY 2021. 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 the largest increase in payments to be 
0.5 percent for Mid-Atlantic IPFs, and the largest decrease in payments 
to be 1.0 percent for New England IPFs.
    Next, column 5 shows the effect of the proposed update to the 
delineations used to identify providers as urban or rural providers and 
the CBSAs into which urban providers are classified. Additionally, 
column 5 shows the effect of the proposed five percent cap on wage 
index decreases in FY 2021 as discussed in section III.D.1.b.iii of 
this proposed rule. The new delineations would be based on the 
September 14, 2018 OMB Bulletin No. 18-04. In the aggregate, we do not 
estimate that these proposed updates will affect overall estimated 
payments of IPFs since these changes were implemented in a budget 
neutral manner. We observe that urban providers would experience no 
change in payments and rural providers would see a 0.1 percent increase 
in payments.
    Finally, column 6 compares the total proposed changes reflected in 
this proposed rule for FY 2021 to the estimates for FY 2020 (without 
these changes). The average estimated increase for all IPFs is 
approximately 2.4 percent. This estimated net increase includes the 
effects of the 2016-based market basket update of 3.0 percent reduced 
by the productivity adjustment of 0.4 percentage point, as required by 
section 1886(s)(2)(A)(i) of the Act. It also includes the overall 
estimated 0.2 percent decrease in estimated IPF outlier payments as a 
percent of total payments from the proposed update to the outlier fixed 
dollar loss threshold amount. Column 6 also includes the distributional 
effects of the proposed updates to the IPF wage index and the labor-
related share whose impacts are displayed in columns 4 and 5.
    IPF payments are estimated to increase by 2.4 percent in urban 
areas and 2.5 percent in rural areas. Overall, IPFs are estimated to 
experience a net increase in payments as a result of the updates in 
this proposed rule. The largest payment increase is estimated at 3.3 
percent for IPFs in the Mid-Atlantic region.
4. Effect on Beneficiaries
    Under the IPF PPS, IPFs will 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 FY 2021 IPF PPS, but we continue to expect that paying 
prospectively for IPF services will enhance the efficiency of the 
Medicare program.
5. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will be directly impacted and will review this proposed rule, we 
assume that the total number of unique commenters on the most recent 
IPF proposed rule from FY 2020 (84 FR 16948) will be the number of 
reviewers of this proposed rule. We acknowledge that this assumption 
may understate or overstate the costs of reviewing this proposed rule. 
It is possible that not all commenters reviewed the FY 2020 IPF 
proposed rule in detail, and it is also possible that some reviewers 
chose not to comment on that proposed rule. For these reasons, we 
thought that the number of commenters would be a fair estimate of the 
number of reviewers who are directly impacted by this proposed rule. We 
solicited comments on this assumption.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this proposed rule; 
therefore, for the purposes of our estimate, we assume that each 
reviewer reads approximately 50 percent of this proposed rule.
    Using the May, 2018 mean (average) wage information from the BLS 
for medical and health service managers (Code 11-9111), we estimate 
that the cost of reviewing this proposed rule is $61.54 per hour, 
including overhead and fringe benefits (https://www.bls.gov/oes/current/oes119111.htm). Assuming an average reading speed of 250 words 
per minute, we estimate that it would take approximately 1\1/2\ hours 
for the staff to review half of this proposed rule. For each IPF that 
reviews the proposed rule, the estimated cost is (1 hour and 35 mins x 
$61.54) or $83.05. Therefore, we estimate that the total cost of 
reviewing this proposed rule is $1993.31 ($83.05 x 24 reviewers).

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. Therefore, we are updating the IPF PPS using the 
methodology published in the November 2004 IPF PPS final rule; applying 
the 2016-based IPF PPS market basket update for FY 2021 of 3.0 percent, 
reduced by the statutorily required multifactor productivity adjustment 
of 0.4 percentage point along with the wage index budget neutrality 
adjustment to update the payment rates; proposing a FY 2021 IPF wage 
index which is fully based upon the OMB CBSA designations from Bulletin 
18-04 and which uses the FY 2021 pre-floor, pre-reclassified IPPS 
hospital wage index as its basis.

E. Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf), in Table 7, we 
have prepared an accounting statement showing the

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classification of the expenditures associated with the updates to the 
IPF wage index and payment rates in this proposed rule. Table 7 
provides our best estimate of the increase in Medicare payments under 
the IPF PPS as a result of the changes presented in this proposed rule 
and based on the data for 1,565 IPFs in our database.
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F. Regulatory Flexibility Act

    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 
governmental jurisdictions. Most IPFs and most other providers and 
suppliers are small entities, either by nonprofit status or having 
revenues of $8 million to $41.5 million or less in any 1 year. 
Individuals and states are not included in the definition of a small 
entity.
    Because we lack data on individual hospital receipts, we cannot 
determine the number of small proprietary IPFs or the proportion of 
IPFs' revenue 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 6, we estimate that the overall revenue impact 
of this proposed rule on all IPFs is to increase estimated Medicare 
payments by approximately 2.4 percent. As a result, since the estimated 
impact of this proposed rule is a net increase in revenue across almost 
all categories of IPFs, the Secretary has determined that this proposed 
rule will have a positive revenue impact on a substantial number of 
small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 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 section 
V.C.1 of this proposed rule, the rates and policies set forth in this 
proposed rule will not have an adverse impact on the rural hospitals 
based on the data of the 246 rural excluded psychiatric units and 64 
rural psychiatric hospitals in our database of 1,565 IPFs for which 
data were available. Therefore, the Secretary has determined that this 
proposed rule will not have a significant impact on the operations of a 
substantial number of small rural hospitals.

G. Unfunded Mandate Reform Act (UMRA)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2020, that 
threshold is approximately $156 million. This proposed rule does not 
mandate any requirements for state, local, or tribal governments, or 
for the private sector. This proposed rule would not impose a mandate 
that will result in the expenditure by state, local, and Tribal 
Governments, in the aggregate, or by the private sector, of more than 
$156 million in any one year.

H. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct requirement costs on state and local governments, 
preempts state law, or otherwise has Federalism implications. This 
proposed rule does not impose substantial direct costs on state or 
local governments or preempt state law.

I. Regulatory Reform Analysis Under Executive Order 13771

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017 and 
requires that the costs associated with significant new regulations 
``shall, to the extent permitted by law, be offset by the elimination 
of existing costs associated with at least two prior regulations. It 
has been determined that this proposed rule is an action that primarily 
results in transfers and does not impose more than de minimis costs as 
described above and thus is not a regulatory or deregulatory action for 
the purposes of Executive Order 13771.

    Dated: March 24, 2020.
Seema Verma
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 9, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-07870 Filed 4-10-20; 4:15 pm]
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