[Federal Register: July 30, 2004 (Volume 69, Number 146)]
[Notices]
[Page 45721-45775]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy04-110]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
[CMS-1360-N]
RIN 0938-AM82
Medicare Program; Inpatient Rehabilitation Facility Prospective
Payment System for Fiscal Year 2005
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: This notice updates prospective payment rates for inpatient
rehabilitation facilities for Federal fiscal year (FY) 2005 as
authorized under section 1886(j)(3)(C) of the Social Security Act (the
Act). Section 1886(j)(5) of the Act requires the Secretary to publish
in the Federal Register on or before August 1 before each fiscal year,
the classifications and weighting factors for the inpatient
rehabilitation facility (IRF) case-mix groups and a description of the
methodology and data used in computing the prospective payment rates
for that fiscal year.
DATES: Effective Date: The updated IRF prospective payment rates are
effective for discharges occurring on or after October 1, 2004, and on
or before September 30, 2005 (FY 2005).
FOR FURTHER INFORMATION CONTACT: Pete Diaz, (410) 786-1235, Jeanette
Kranacs, (410) 786-9385, or Robert Kuhl, (410) 786-4597.
SUPPLEMENTARY INFORMATION:
Availability of Copies and Electronic Access
To order copies of the Federal Register containing this document,
send your request to: New Orders, Superintendent of Documents, P.O. Box
371954, Pittsburgh, PA 15250-7954. Specify the date of the issue
requested and enclose a check or money order payable to the
Superintendent of Documents, or enclose your Visa or MasterCard number
and expiration date. Credit card orders can also be placed by calling
the order desk at (202) 512-1800 (or toll-free at 1-888-293-6498) or by
faxing to (202) 512-2250. The cost for each copy is $10. As an
alternative, you can view and photocopy the Federal Register document
at most libraries designated as Federal Depository Libraries and at
many other public and academic libraries throughout the country that
receive the Federal Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The Web site address is: http://www.access.gpo.gov/fr/index.html
.
Table of Contents
I. Background
A. Requirements of the Statute for Updating the Prospective
Payment System (PPS) for Inpatient Rehabilitation Facilities (IRFs)
B. Inpatient Rehabilitation Facility Prospective Payment--
General Overview
C. Classification System for the Inpatient Rehabilitation
Facility Prospective Payment System
D. Inpatient Rehabilitation Facility Market Basket Index
E. Area Wage Adjustment
F. Update of Payment Rates Under the Prospective Payment System
for Inpatient Rehabilitation Facilities for Fiscal Year 2005
G. Examples of Computing the Total Adjusted Inpatient
Rehabilitation Facility Prospective Payments
H. Outlier Payment Provision
II. Future Updates
III. Collection of Information Requirements
IV. Waiver of Proposed Rulemaking
V. Regulatory Impact Analysis
A. Introduction
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Impact on Rural Hospitals
1. Unfunded Mandates Reform Act
5. Executive Order 13132
6. Overall Impact
B. Anticipated Effects of the Notice
1. Budgetary Impact
2. Impact on Providers
3. Calculation of the Estimated FY 2004 IRF Prospective Payments
4. Calculation of the Estimated FY 2005 IRF Prospective Payments
I. Background
A. Requirements of the Statute for Updating the Prospective Payment
System (PPS) for Inpatient Rehabilitation Facilities (IRFs)
On August 7, 2001, we published a final rule entitled ``Medicare
Program; Prospective Payment System for Inpatient Rehabilitation
Facilities (CMS-1069-F)'' in the Federal Register (66 FR 41316), that
established a prospective payment system (PPS) for inpatient
rehabilitation facilities (IRFs) as authorized under section 1886(j) of
the Social Security Act (the Act) and codified at subpart P of part 412
of the Medicare regulations. In the August 7, 2001, final rule, we set
forth the per discharge Federal rates for fiscal year (FY) 2002 that
provided payment for the inpatient operating and capital costs to IRFs
for the covered rehabilitation services they furnished (that is,
routine, ancillary, and capital costs), but not costs of approved
educational activities, bad debts, and other services or items
[[Page 45722]]
that are outside the scope of the IRF PPS. Covered rehabilitation
services include services for which benefits are provided under the
fee-for-service Part A (Hospital Insurance Program) of the Medicare
program.
Annual updates to the IRF PPS rates are required by section
1886(j)(3)(C) of the Act. In the August 1, 2002, notice (67 FR 49928),
we set forth the per discharge Federal rates for FY 2003. In the August
1, 2003, final rule (68 FR 45674), we set forth the per discharge
Federal rates for FY 2004.
In this notice, we set forth the prospective payment rates
applicable for IRFs for discharges occurring during FY 2005. In
establishing these payment rates, we update the IRF per discharge
payment rates that were published in the August 1, 2003, final rule.
Section 1886(j)(5) of the Act requires the Secretary to publish in
the Federal Register, on or before August 1 of the preceding fiscal
year, the classifications and weighting factors for the IRF case-mix
groups (CMGs) and a description of the methodology and data used in
computing the prospective payment rates for the upcoming fiscal year.
The statute also permits the Secretary to adjust the classification and
weighting factors for the IRF CMGs from time to time. However, we
continue to perform research on potential improvements to the methods
used to establish the CMGs, facility adjustments (such as, teaching,
rural, and low-income adjustments), and comorbidities. Because
sufficient data from this research supporting potential improvements
are currently not available, we are not making any adjustments at this
time. Thus, in this notice, we are using the same classifications and
weighting factors for the IRF CMGs that were originally set forth in
the August 7, 2001, final rule and republished in the August 1, 2003,
final rule. Further, the case and facility level adjustments described
in the August 7, 2001, final rule will apply to the FY 2005 IRF PPS
payment rates described in this notice.
Accordingly, the CMGs, comorbidity tiers, and the corresponding
relative weights presented in the August 7, 2001, final rule will be
used as the basis for developing the FY 2005 IRF PPS payment rates set
forth in this notice.
Specifically, we multiply an increase factor, described in section
II.D of this notice, by the FY 2004 IRF standard payment amount. Then
we apply the budget neutral wage adjustment to develop the FY 2005
standard payment conversion factor. The FY 2005 standard payment
conversion factor is then multiplied by the relative weights presented
in Table 1 of this notice, and in the August 7, 2001, final rule, to
develop the FY 2005 Federal unadjusted IRF PPS payment rates.
B. Inpatient Rehabilitation Facility Prospective Payment--General
Overview
Section 4421 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-
33), as amended by section 125 of the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), and by
section 305 of the Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 (BIPA) (Pub. L. 106-554), provides for the
implementation of a per discharge PPS, through new section 1886(j) of
the Act, for IRFs--inpatient rehabilitation hospitals and
rehabilitation units. Although a complete discussion of the IRF PPS
provisions appears in the August 7, 2001, final rule, we provide below
a general description of the IRF PPS.
The IRF PPS uses information from the Inpatient Rehabilitation--
Patient Assessment Instrument (IRF-PAI), to classify patients into
distinct CMGs based on clinical characteristics and expected resource
needs. The CMGs were constructed using rehabilitation impairment
categories, functional status (both motor and cognitive), age,
comorbidities, and other factors that we deemed appropriate to improve
the explanatory power of the groups.
Payment for services furnished to a Medicare patient consists of a
predetermined, per-discharge amount for each CMG with applicable case
and facility level adjustments. Payments under the IRF PPS encompass
inpatient operating and capital costs of furnishing covered
rehabilitation services (that is, routine, ancillary, and capital
costs) but not costs of approved educational activities, bad debts, and
other services or items outside the scope of the IRF PPS.
The IRF PPS is comprised of 100 distinct CMGs, and each CMG is
associated with a specific payment rate. The existence of a comorbidity
may affect the calculation of the Federal prospective payment rate. In
general, Federal prospective payment rates are established using a
standard payment conversion factor. A set of relative payment weights
(which account for the relative difference in resource use across the
CMGs) are applied to the standard payment conversion factor. The
resulting payment rate may then be modified due to the application of a
number of facility level and case level adjustments. The facility level
adjustments include those that account for geographic variations in
wages (wage index), the percentage of low-income patients (LIPs), and
location in a rural area. Case level adjustments include those that
apply for transfers, short-stays, interrupted stays, outliers, and
cases in which the beneficiary expires.
For cost reporting periods beginning on or after January 1, 2002,
and before October 1, 2002, section 1886(j)(1) of the Act and 42 CFR
412.626 of the regulations provided that IRFs transition into the PPS
by receiving a ``blended payment.'' For cost reporting periods
beginning on or after January 1, 2002, and before October 1, 2002,
these blended payments consisted of 66\2/3\ percent of the Federal IRF
PPS rate and 33\1/3\ percent of the payment the IRF would have been
paid had the IRF PPS not been implemented. However, during the
transition period, an IRF with a cost reporting period beginning on or
after January 1, 2002, and before October 1, 2002, could elect to
bypass this blended payment and be paid 100 percent of the Federal IRF
PPS rate. For cost reporting periods beginning on or after October 1,
2002 (FY 2003), payments for all IRFs consist of 100 percent of the
Federal IRF PPS payment rate.
C. Classification System for the Inpatient Rehabilitation Facility
Prospective Payment System
As previously stated, in this notice, we are using the same case-
mix classification system that was set forth in the August 7, 2001,
final rule. It is our intention to pursue the development of
refinements to the case-mix classification system that will improve the
ability of the PPS to more accurately pay IRFs. We awarded a contract
to the Rand Corporation (RAND) to conduct additional research that will
provide us with the data necessary to address the feasibility of
developing and implementing refinements. When the study has been
completed, we plan to review various approaches so that we can propose
an appropriate methodology to develop and apply refinements. Any
specific refinement proposal resulting from this research will be
published in the Federal Register for public review and comment.
Below Table 1, Relative Weights for Case-Mix Groups (CMGs),
presents the CMGs, comorbidity tiers, and the corresponding Federal
relative weights. We also present the average length of stay for each
CMG. As we discussed in the August 7, 2001, final rule, the average
length of stay for each CMG is used to determine when an IRF discharge
meets the definition of a transfer, which results in a per diem
[[Page 45723]]
case level adjustment. Because these data elements are not changing as
a result of this notice, Table 1 shown below is identical to Table 1
that was published in the August 7, 2001, final rule (66 FR 41394-
41396), and the August 1, 2003, final rule (68 FR 45704-45708). The
relative weights reflect the inclusion of cases with an interruption of
stay (patient returns on day of discharge or either of the next 2
days). The methodology we used to construct the data elements in Table
1 is described in detail in the August 7, 2001, final rule (66 FR
41350-41353).
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TN30JY04.002
[[Page 45724]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.003
[[Page 45725]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.004
[[Page 45726]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.005
[[Page 45727]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.006
BILLING CODE 4120-01-P
D. Inpatient Rehabilitation Facility Market Basket Index and Labor-
Related Share
Section 1886(j)(3)(C) of the Act requires the Secretary to
establish an increase factor that reflects changes over time in the
prices of an appropriate mix of goods and services included in the
covered IRF services, which is referred to as a market basket index.
Accordingly, in updating the FY 2005 payment rates set forth in this
notice, we apply an appropriate increase factor to the FY 2004 IRF PPS
payment rates that is equal to the IRF market basket. In constructing
the IRF market basket, we use the methodology set forth in the August
1, 2003 final rule (68 FR 45685-45688). For this notice, the projected
FY 2005 IRF market basket increase factor is 3.1 percent.
In addition, we have used the methodology described in the August
1, 2003 final rule (68 FR 45688-45689) to update the labor-related
share for FY 2005. In FY 2004, we updated the 1992 market basket data
to 1997. We believe that the 1997 market basket data is still the most
accurate base year data available. Therefore, for FY 2005, we continue
to use the 1997-based excluded hospital market basket with capital
costs to determine the FY 2005 labor-related share. As shown in Table 2
the total FY 2005 labor-related share is 72.359 percent.
BILLING CODE 4120-01-P
[[Page 45728]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.007
E. Area Wage Adjustment
Section 1886(j)(6) of the Act requires the Secretary to adjust the
proportion (as estimated by the Secretary from time to time) of
rehabilitation facilities' costs that are attributable to wages and
wage-related costs for area differences in wage levels by a factor
(established by the Secretary) reflecting the relative hospital wage
level in the geographic area of the rehabilitation facility compared to
the national average wage level for those facilities. Not later than
October 1, 2001, and at least every 36 months thereafter, the Secretary
is required to update the factor under the preceding sentence on the
basis of information available to the Secretary (and updated as
appropriate) of the wages and wage-related costs incurred in furnishing
rehabilitation services. Any adjustments or updates made under section
1886(j)(6) of the Act must be made in a budget neutral manner.
In the August 1, 2003, final rule, we established an IRF wage index
based on FY 1999 acute care hospital wage data to adjust the FY 2004
IRF payment rates. For the FY 2005 IRF PPS payment rates set forth in
this notice, we are using an IRF wage index based on more recent FY
2000 acute care hospital wage data. The methodology for calculating the
wage index remains the same and can be found at 66 FR 41358.
To calculate the wage-adjusted facility payments for the payment
rates set forth in this notice, the Federal prospective payment is
multiplied by the labor-related share (72.359 percent) to determine the
labor-related portion of the Federal prospective payments. This labor-
related portion is then multiplied by the applicable IRF wage index
shown in Table 3A for urban areas and Table 3B for rural areas.
[[Page 45729]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.008
[[Page 45730]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.009
[[Page 45731]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.010
[[Page 45732]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.011
[[Page 45733]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.012
[[Page 45734]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.013
[[Page 45735]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.014
[[Page 45736]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.015
[[Page 45737]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.016
[[Page 45738]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.017
[[Page 45739]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.018
[[Page 45740]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.019
[[Page 45741]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.020
[[Page 45742]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.021
[[Page 45743]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.022
[[Page 45744]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.023
[[Page 45745]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.024
[[Page 45746]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.025
[[Page 45747]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.026
[[Page 45748]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.027
[[Page 45749]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.028
[[Page 45750]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.029
[[Page 45751]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.030
[[Page 45752]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.031
[[Page 45753]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.032
[[Page 45754]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.033
[[Page 45755]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.034
[[Page 45756]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.035
[[Page 45757]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.036
[[Page 45758]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.037
[[Page 45759]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.038
[[Page 45760]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.039
[[Page 45761]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.040
[[Page 45762]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.041
[[Page 45763]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.042
[[Page 45764]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.043
[[Page 45765]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.044
[[Page 45766]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.045
BILLING CODE 4120-01-C
In addition, because any adjustment or update to the IRF wage index
made under section 1886(j)(6) of the Act must be made in a budget
neutral manner, we have calculated a budget neutral wage adjustment
factor as established in the August 1, 2003 final rule and codified at
42 CFR 412.624(e)(1). We use the following steps to ensure that the FY
2005 IRF standard payment conversion factor reflects the update to the
wage indices and to the labor-related share in a budget neutral manner:
Step 1. We determine the total amount of the FY 2004 IRF PPS rates
using the FY 2004 standard payment conversion factor and the labor-
related share and the wage indices from FY 2004 (as published in the
August 1, 2003 final rule).
Step 2. We then calculate the total amount of IRF PPS payments
using the FY 2004 standard payment conversion factor and the updated FY
2005 labor-related share and wage indices described above.
Step 3. We divide the amount calculated in step 1 by the amount
calculated in step 2, which equals the FY 2005 budget neutral wage
adjustment factor of 1.0035.
Step 4. We then apply the FY 2005 budget neutral wage adjustment
factor from step 3 to the FY 2004 IRF PPS standard payment conversion
factor after the application of the market basket update, described
above, to determine the FY 2005 standard payment conversion factor.
F. Update of Payment Rates Under the Prospective Payment System for
Inpatient Rehabilitation Facilities for Fiscal Year 2005
Once we calculate the IRF market basket increase factor and
determine the budget neutral wage adjustment factor, this calculation
enables us to determine the updated Federal prospective payments for FY
2005. In accordance with Sec. 412.624(c)(3)(ii), we apply the market
basket increase factor (3.1 percent) to the standard payment conversion
factor for FY 2004 ($12,525) which equals $12,913. Then, we apply the
budget neutral wage adjustment of 1.0035 to $12,913, which results in a
final updated standard payment conversion factor for FY 2005 of
$12,958. The FY 2005 standard payment conversion factor is applied to
each CMG weight shown in Table 1, Relative Weights for Case-Mix Groups
(CMGs), to compute the unadjusted IRF prospective payment rates for FY
2005 shown in Table 4.
Table 4, Federal Prospective Payments for Case-Mix Groups (CMGs)
for FY 2005, displays the CMGs, and the comorbidity tiers, for FY 2005.
BILLING CODE 4120-01-P
[[Page 45767]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.046
[[Page 45768]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.047
[[Page 45769]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.048
[[Page 45770]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.049
G. Examples of Computing the Total Adjusted Inpatient Rehabilitation
Facility Prospective Payments
We will adjust the Federal prospective payments, described above,
to account for geographic wage variation, low-income patients and, if
applicable, facilities located in rural areas.
To illustrate the methodology that we will use for adjusting the
Federal prospective payments, we provide the following example. One
beneficiary is in rehabilitation facility A and another beneficiary is
in rehabilitation facility B.
Rehabilitation facility A's disproportionate share hospital (DSH)
adjustment is 5 percent, with a low-income patient (LIP) adjustment of
1.0239 and a wage index of 0.8946, and the facility is located in a
rural area with an adjustment of 1.1914 percent.
Rehabilitation facility B's DSH is 15 percent, with a LIP
adjustment of 1.0700 and a wage index of 1.4414, and the facility is
located in an urban area. Both Medicare beneficiaries are classified to
CMG 0111 (without comorbidities). This CMG represents a stroke with
motor scores in the 27 to 33 range and the patient is between 82 and 88
years old. To calculate each IRF's total adjusted Federal prospective
payment, we compute the wage-adjusted Federal prospective payment and
multiply the result by the appropriate LIP adjustment and the rural
adjustment (if applicable). The following table illustrates the
components of the adjusted payment calculation.
[[Page 45771]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.050
BILLING CODE 4120-01-C
Thus, the adjusted payment for facility A will be $ 24,634.33, and
the adjusted payment for facility B will be $ 30,862.89.
The FY 2005 IRF PPS rates set forth in this notice will apply to
all discharges on or after October 1, 2004 and on or before September
30, 2005.
H. Outlier Payment Provision
Section 1886(j)(4) of the Act provides the Secretary with the
authority to make payments in addition to the basic IRF prospective
payments for cases incurring extraordinarily high costs. In the August
7, 2001 IRF PPS final rule, we codified at Sec. 412.624(e)(4) of the
regulations the provision to make an adjustment for additional payments
for outlier cases that have extraordinarily high costs relative to the
costs of most discharges. Providing additional payments for outliers
strongly improves the accuracy of the IRF PPS in determining resource
costs at the patient and facility level. These additional payments
reduce the financial losses that would otherwise be caused by treating
patients who require more costly care and, therefore, reduce the
incentives to underserve these patients.
Under Sec. 412.624(e)(4), we make outlier payments for any
discharges if the estimated cost of a case exceeds the adjusted IRF PPS
payment for the CMG plus the adjusted threshold amount ($11,211 which
is then adjusted for each IRF by the facility's wage adjustment, its
low-income patient adjustment, and its rural adjustment, if
applicable). We calculate the estimated cost of a case by multiplying
the IRF's overall cost-to-charge ratio by the Medicare allowable
covered charge. In accordance with Sec. 412.624(e)(4), we pay outlier
cases 80 percent of the difference between the estimated cost of the
case and the outlier threshold (the sum of the adjusted IRF PPS payment
for the CMG and the adjusted threshold amount).
In the August 1, 2003, final rule, we stated that we will continue
to pay outlier cases at 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
adjusted IRF PPS payment for the CMG and the adjusted threshold amount)
(68 FR 45692). However, using the methodology stated in the August 1,
2003, final rule (68 FR 45692-45693), we will apply a ceiling to an
IRF's cost-to-charge ratios (CCR). Also, in the August 1, 2003, final
rule (68 FR 45693-45694), we stated the methodology we will use to
adjust IRF outlier payments and the methodology we will use to make
these adjustments. We indicated that the methodology is codified in
Sec. 412.624(e)(4) and Sec. 412.84(i)(3).
On February 6, 2004, CMS issued manual instructions in Change
Request 2998 stating that we would set forth the upper threshold
(ceiling) and the national CCRs applicable to IRFs in each year's
annual notice of prospective payment rates published in the Federal
Register. The upper threshold CCR for IRFs for FY 2005 is 1.461.
In addition, we are updating the national urban and rural CCRs for
IRFs. Pursuant to Sec. 412.624(e)(4) and Sec. 412.84(i)(3), the
national CCR is applied to the following situations:
New IRFs that have not yet submitted their first Medicare
cost report.
IRFs whose operating or capital CCR is in excess of 3
standard deviations above the corresponding national geometric mean.
Other IRFs for whom the fiscal intermediary obtains
accurate data with which to calculate either an operating or capital
CCR (or both) are not available.
The national CCR based on the facility location of either urban or
rural will be
[[Page 45772]]
used in each of the three situations cited above. Specifically, for FY
2005, we have estimated a national CCR of 0.636 for rural IRFs and
0.531 for urban IRFs. For new facilities, these national ratios will be
used until the facility's actual CCR can be computed using the first
tentative settled or final settled cost report data, which will then be
used for the subsequent cost report period.
II. Future Updates
Medicare payments to IRFs are based on a predetermined national
payment rate per discharge. Annual updates to these payment rates are
required by section 1886(j)(3)(C) of the Act. These updates are based
on increases to the IRF market basket amount. For FY 2005, the update
is established at the market basket amount. The IRF market basket, or
input price index, developed by our Office of the Actuary (OACT), is
just one component in determining a change to the IRF cost per
discharge amount. It captures only the pure price change of inputs
(labor, materials, and capital) used by an IRF to produce a constant
quantity and quality of care. Other factors also contribute to the
change in costs per discharge, which include changes in case-mix,
intensity, and productivity.
An update framework, used in combination with the market basket,
seeks to enhance the system for updating payments by addressing factors
beyond changes in pure input price. Such a framework has been used
under the inpatient hospital PPS for years by both CMS and the Medicare
Payment Advisory Commission (MedPAC).
In general, an update framework in the context of the IRF PPS would
provide a tool for measuring and understanding changes in cost per
discharge. This has the potential to support the continued accuracy of
IRF payments and ensure that the IRF PPS keeps pace with changing
economic and health care market trends. Accordingly, we are examining
the potential for developing and using an update framework under the
IRF PPS. It has the potential to provide information useful to policy
makers in determining the magnitude of the annual updates.
III. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
IV. Waiver of Proposed Rulemaking
We ordinarily publish a proposed notice in the Federal Register to
provide a period for public comment before the provisions of a notice
such as this take effect. We can waive this procedure, however, if we
find good cause that a notice-and-comment procedure is impracticable,
unnecessary, or contrary to the public interest and we incorporate a
statement of finding and its reasons in the notice issued. We find it
is unnecessary to undertake notice and comment rulemaking as the
statute requires annual updates, and this notice does not make any
substantive changes in policy, but merely reflects the application of
previously established methodologies. Therefore, under 5 U.S.C.
553(b)(B), for good cause, we waive notice and comment procedures.
V. Regulatory Impact Analysis
A. Introduction
The August 7, 2001 final rule established the IRF PPS for the
payment of Medicare services for cost reporting periods beginning on or
after January 1, 2002. We incorporated a number of elements into the
IRF PPS, such as case-level adjustments, a wage adjustment, an
adjustment for the percentage of low-income patients, a rural
adjustment, and outlier payments. This notice sets forth updates of the
IRF PPS rates contained in the August 7, 2001 final rule.
The purpose of this notice is not to initiate policy changes with
regard to the IRF PPS; rather, it is to provide an update to the IRF
payment rates for discharges during FY 2005. We note that some
individual providers may experience larger increases in payments than
others due to the distributional impact of the FY 2005 wage indices.
In constructing these impacts, we do not attempt to predict
behavioral responses, and we do not make adjustments for future changes
in such variables as discharges or case-mix. We note that certain
events may combine to limit the scope or accuracy of our impact
analysis, because such an analysis is future-oriented and, thus,
susceptible to forecasting errors due to other changes in the
forecasted impact time period. Some examples of such possible events
are newly legislated general Medicare program funding changes by the
Congress, or changes specifically related to IRFs. In addition, changes
to the Medicare program may continue to be made as a result of the BBA,
the BBRA, the BIPA, or new statutory provisions. Although these changes
may not be specific to the IRF PPS, the nature of the Medicare program
is such that the changes may interact, and the complexity of the
interaction of these changes could make it difficult to predict
accurately the full scope of the impact upon IRFs.
We have examined the impacts of this notice as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA) and Impact on Small Hospitals
(September 16, 1980, Pub. L. 96-354), section 1102(b) of the Social
Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4),
and Executive Order 13132.
1. Executive Order 12866
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
We estimate that the cost to the Medicare program for IRF services
in FY 2005 will increase by $170 million over FY 2004 levels. The
updates to the IRF labor-related share and wage indices are made in a
budget neutral manner. Thus, updating the IRF labor-related share and
the wage indices to FY 2005 have no overall effect on estimated costs
to the Medicare program. Therefore, this estimated cost to the Medicare
program is due to the application of the updated IRF market basket of
3.1 percent. Because the combined distributional effects and the cost
to the Medicare program are greater than $100 million, this update
notice is considered a major rule as defined above.
2. Regulatory Flexibility Act (RFA)
The RFA requires agencies to analyze the economic impact of our
regulations on small entities. If we determine that the regulation will
impose a significant burden on a substantial number of small entities,
we must examine options for reducing the burden. For purposes of the
RFA, small entities include small businesses, nonprofit organizations,
and governmental agencies. Most hospitals are considered small
entities, either by nonprofit status or by having receipts of $6
million to $29 million in any 1 year. (For details, see the Small
Business Administration's regulation that set forth size standards for
health care industries at 65 FR 69432.) Because we lack data on
individual hospital
[[Page 45773]]
receipts, we cannot determine the number of small proprietary IRFs.
Therefore, we assume that all IRFs (approximate total of 1,200 IRFs of
which approximately 60 percent are nonprofit facilities) are considered
small entities for the purpose of the analysis that follows. Medicare
fiscal intermediaries and carriers are not considered to be small
entities. Individuals and States are not included in the definition of
a small entity.
This notice establishes a 3.1 percent increase to the Federal PPS
rates. We do not expect an incremental increase of 3.1 percent to the
Medicare Federal rates to have a significant effect on the overall
revenues of IRFs. Most IRFs are units of hospitals that provide many
different types of services (for example, acute care, outpatient
services) and the rehabilitation component of their business is
relatively minor in comparison. In addition, IRFs provide services to
(and generate revenues from) patients other than Medicare
beneficiaries.
3. Impact on Rural Hospitals
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis for any notice that will have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area (MSA) and has fewer than 100 beds.
As indicated above, this notice establishes a 3.1 percent increase
to the Federal PPS rates. We do not expect an incremental increase of
3.1 percent to the Federal rates to have a significant effect on
overall revenues or operations since most rural hospitals provide many
different types of services (for example, acute care, outpatient
services) and we believe that the rehabilitation component of their
business is relatively minor in comparison.
4. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in an expenditure in any 1 year by
State, local, or tribal governments, in the aggregate, or by the
private sector, of at least $110 million. This notice will not have an
effect on the governments mentioned nor will it affect private sector
costs.
5. Executive Order 13132
We examined this notice in accordance with Executive Order 13132
and determined that it will not have any negative impact on the rights,
roles, or responsibilities of State, local, or tribal governments.
6. Overall Impact
For the reasons stated above, we have not prepared an analysis
under the RFA and section 1102(b) of the Act because we believe that
the effect of this notice will not increase burden but will benefit
most IRFs through the increase in the payment rates as shown in the
regulatory impact analysis below.
B. Anticipated Effects of the Notice
We discuss below the impacts of this notice on the Federal budget
and on IRFs.
1. Budgetary Impact
Section 1886(j)(3)(C) of the Act requires annual updates to the IRF
PPS payment rates. We project that updating the IRF PPS for discharges
occurring on or after October 1, 2004 and on or before September 30,
2005 will cost the Medicare program $170 million. The budgetary impact
is the result of the application of the updated IRF market basket of
3.1 percent.
2. Impact on Providers
For the impact analyses shown in the August 7, 2001 final rule, we
simulate payments for 1,024 facilities. To construct the impact
analyses set forth in this notice, we use the latest available data.
For FY 2005, we used 1999 and 2000 Medicare claims and Functional
Independence Measure (FIM) data for the same facilities that were used
in constructing the impact analyses provided in the August 7, 2001 IRF
PPS final rule (66 FR 41364-41365, and 41372) which was effective for
cost reporting periods beginning on or after January 1, 2002. We still
do not have enough post-IRF PPS data to determine the distributional
impact on providers. Further, we will need a sufficient amount of these
data to be able to rely on them as the basis for the impact analysis.
Because IRFs began to be paid under the IRF PPS based on their cost
report start date that occurred on or after January 1, 2002, sufficient
Medicare claims data will not be available for those facilities whose
cost report start date occurs later in the calendar year. The estimated
distributional impacts among the various classification of IRFs for
discharges occurring on or after October 1, 2004 and on or before
September 30, 2005 is reflected in Table 6, Projected Impact of FY 2005
Update to the IRF PPS, of this notice. These impacts reflect the
updated IRF wage adjustment and the application of the 3.1 percent IRF
market basket increase.
3. Calculation of the Estimated FY 2004 IRF Prospective Payments
To estimate payments under the IRF PPS for FY 2004, we multiplied
each facility's case-mix index by the facility's number of Medicare
discharges, the FY 2004 standard payment conversion factor, the
applicable wage index, a low-income patient adjustment, and a rural
adjustment (if applicable). The adjustments include the following:
The wage adjustment, calculated as follows:
((1-Labor Share) + (Labor Share x Wage Index)) = (.27641 + (.72359 x
Wage Index))
The disproportionate share adjustment, calculated as follows:
(1 + Disproportionate Share Percentage) raised to the power of .4838)
The rural adjustment, if applicable, calculated by multiplying
payments by 1.1914.
4. Calculation of the Estimated FY 2005 IRF Prospective Payments
To calculate FY 2005 payments, we use the payment rates described
in this notice that reflect the 3.1 percent market basket increase
factor. Further, we use the same facility level adjustments described
above.
Table 6 illustrates the aggregate impact of the estimated FY 2005
updated payments among the various classifications of facilities
compared to the estimated IRF PPS payment rates applicable for FY 2004.
The first column, Facility Classification, identifies the type of
facility. The second column identifies the number of facilities for
each classification type, and the third column lists the number of
cases. The fourth column indicates the impact of the budget neutral
wage adjustment. The last column reflects the combined changes
including the update to the FY 2004 payment rates by 3.1 percent and
the budget neutral wage adjustment (including the FY 2005 labor-related
share and the FY 2005 wage indices).
BILLING CODE 4120--1-P
[[Page 45774]]
[GRAPHIC] [TIFF OMITTED] TN30JY04.051
As Table 6 illustrates, all IRFs will benefit from the 3.1 percent
market basket increase that is applied to FY 2004 IRF PPS payment rates
to develop the FY 2005 rates. However, there may be distributional
impacts among various IRFs due to the application of the updates to the
labor-related share and wage indices in a budget neutral manner.
To summarize, all facilities will receive a 3.1 percent increase in
their unadjusted IRF PPS payments. The estimated positive impact for
all IRFs reflected in Table 6 is due to the effect of the update to the
IRF market basket index.
[[Page 45775]]
In accordance with the provisions of Executive Order 12866, this
notice was reviewed by the Office of Management and Budget (OMB).
Authority: Section 1886 (j) of the Social Security Act (42
U.S.C. 1395ww(j)) (Catalog of Federal Domestic Assistance Program
No. 93.773, Medicare--Hospital Insurance Program; and No. 93.774,
Medicare--Supplementary Medical Insurance Program)
Dated: June 24, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: July 27, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-17444 Filed 7-29-04; 8:45 am]
BILLING CODE 4120-01-C