[Federal Register: November 15, 2004 (Volume 69, Number 219)]
[Rules and Regulations]
[Page 66921-67015]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15no04-43]
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Part V
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 412 and 413
Medicare Program; Prospective Payment System for Inpatient Psychiatric
Facilities; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412 and 413
[CMS-1213-F]
RIN 0938-AL50
Medicare Program; Prospective Payment System for Inpatient
Psychiatric Facilities
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule establishes a prospective payment system for
Medicare payment of inpatient hospital services furnished in
psychiatric hospitals and psychiatric units of acute care hospitals and
critical access hospitals. It implements section 124 of the Medicare,
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA). The
prospective payment system described in this final rule will replace
the reasonable cost-based payment system under which psychiatric
hospitals and psychiatric units are paid under Medicare.
DATES: This rule is effective for cost reporting periods beginning on
or after January 1, 2005.
FOR FURTHER INFORMATION CONTACT: Janet Samen, (410) 786-9161 (General
information.) Phillip Cotterill, (410) 786-6598 and Fred Thomas (410)
786-6675, (For information regarding the regression analysis).
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This Federal Register document is also available from the Federal
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Government Printing Office. The Website address is http://www.access.gpo.gov/nara/index.html
.
To assist readers in referencing sections contained in this
document, we are providing he following table of contents.
Table of Contents
I. Background
A. General and Legislative History
B. Overview of the Payment System for Inpatient Psychiatric
Hospitals and Psychiatric Units Before the BBRA
1. Description of the TEFRA Payment Methodology
2. BBA Amendments to TEFRA
3. BBRA Amendments to TEFRA
4. BIPA Amendments to TEFRA
II. Provisions of the Proposed Regulations
III. Analysis of and Responses to Public Comments
IV. Overview of the IPF PPS Proposed Payment Methodology
V. Development of the Budget-Neutral Federal Per Diem Base Rate.
A. Calculation of the Federal Per Diem Base Rate
B. Determining the Update Factors for the Budget-Neutrality
Calculation
1. The 1997-Based Excluded Hospital with Capital Market Basket
2. Calculating the Budget-Neutrality Adjustment Factor
a. Cost Report Data for January 1, 2005 through June 30, 2006
b. Estimate of Total Payments Under the TEFRA Payment System
c. Payments Under the IPF PPS without a Budget-Neutrality
Adjustment
C. Standardization and Budget-Neutrality Adjustments
D. Calculation of the Budget Neutrality Adjustments
1. Outlier Adjustment
2. Stop Loss Adjustment
3. Behavioral Offset
VI. Cost Regression Used To Develop Payment Adjustment Factors
A. Final Regression Analysis
B. Patient-Level Adjustments
1. Adjustment for DRG Assignment
2. Comorbidities
3. Other Coding Issues
4. Patient Age
5. Variable Per Diem Adjustments
6. Other Patient-Level Adjustments
a. Gender
b. Patients admitted through the Hospital's Emergency Department
(ED)
c. Patients who Receive Electroconvulsive Therapy (ECT)
d. Patient's Involuntarily Committed to the IPF
e. Administrative Necessary Days
C. Facility-Level Adjustments
1. Wage Index
2. Rural Location
3. Teaching Status Adjustments
4. Other Facility-Level Adjustments
a. Adjustment for Psychiatric Units
b. Cost of Living Adjustment
i. IPFs Located in Alaska and Hawaii
ii. IPFs Located in California
c. Disproportionate Share Intensity
d. IPFs with Full-Service Emergency Departments
D. Other Proposed Adjustments and Policy Changes
1. Outlier Policy
a. Statistical Accuracy of Cost-for-Change Ratios
b. Adjustments of IPF Outlier Payments
2. Interrupted Stays
3. Stop-Loss Provision
4. Physician Recertification Requirements
VII. Implementation of the IPF PPS
A. Transition Period
1. Existing Providers
2. New Providers
B. Claims Processing
C. Annual Update
VIII. Future Refinements
IX. Comments Beyond the Scope of the Final Rule
X. Provisions of the Final Rule
XI. Collection of Information Requirements
XII. Regulatory Impact Analysis
A. Overall Impact
B. Anticipated Effects
1. Budgetary Impacts
2. Impacts on Providers
3. Results
a. Facility Type
b. Location
c. Teaching Status Adjustment
d. Census Region
e. Size
4. Effect on the Medicare Program
5. Effect on Beneficiaries
6. Computer Hardware and Software
C. Alternatives Considered
Regulation Text
Addendum A: Proposed Inpatient PPS Adjustments
Addendum B: Wages
Addendum C: ``Code First'' List
Acronyms
Because of the many terms to which we refer by acronym in this
final rule, we are listing the acronyms used and their corresponding
terms in alphabetical order below:
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000
(Pub. L. 106-554)
CMS Centers for Medicare & Medicaid Services
DSM-IV-TR Diagnostic and Statistical Manual of Mental Disorders
Fourth Edition--Text Revision
DRGs Diagnosis-related groups
FY Federal fiscal year
HCRIS Hospital Cost Report Information System
ICD-9-CM International Classification of Diseases, 9th Revision,
Clinical Modification
IPFs Inpatient psychiatric facilities
IPPS Hospital Inpatient Prospective Payment System
IRFs Inpatient rehabilitation facilities
LTCHs Long-term care hospitals
MedPAR Medicare provider analysis and review file
[[Page 66923]]
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (Pub. L. 108-173)
PIP Periodic interim payments
PPS Prospective Payment System
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-
248)
I. Background
A. General and Legislative History
When the Medicare statute was originally enacted in 1965, Medicare
payment for inpatient hospital services was based on the reasonable
costs incurred in furnishing services to Medicare beneficiaries.
Section 223 of the Social Security Act Amendments of 1972 (Pub. L. 92-
603) amended section 1861(v)(1) of the Social Security Act (the Act) to
set forth limits on reasonable costs for inpatient hospital services.
The statute was later amended by section 101(a) of the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) to limit
payment by placing a limit on allowable costs per discharge.
The Congress directed implementation of a prospective payment
system (PPS) for acute care hospitals in 1983, with the enactment of
Public Law 98-21. Section 601 of the Social Security Amendments of 1983
(Pub. L. 98-21) added a new section 1886(d) to the Act that replaced
the reasonable cost-based payment system for most inpatient hospital
services with a PPS.
Although most inpatient hospital services became subject to the
PPS, certain specialty hospitals were excluded from the PPS and
continued to be paid reasonable costs subject to limits imposed by
TEFRA. These hospitals included psychiatric hospitals and psychiatric
units in acute care hospitals, long-term care hospitals (LTCH),
children's hospitals, and rehabilitation hospitals and rehabilitation
units in acute care hospitals. Cancer hospitals were added to the list
of excluded hospitals by section 6004(a) of the Omnibus Budget
Reconciliation Act of 1989 (Pub. L. 101-239).
The Congress enacted various provisions in the Balanced Budget Act
of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid, and SCHIP
[State Children's Health Insurance Program] Balanced Budget Refinement
Act (BBRA) (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-
554) to replace the cost-based methods of reimbursement with a PPS for
the following excluded hospitals:
Rehabilitation hospitals and rehabilitation units in acute
care hospitals.
Psychiatric hospitals and psychiatric units in acute care
hospitals.
Long term care hospitals.
The BBA also imposed national limits (or caps) on hospital-specific
target amounts (that is, annual per discharge limits) for these
hospitals until cost reporting periods beginning on or after October 1,
2002. A detailed description of the TEFRA payment methodology is
provided in section B.1. of this final rule.
Section 124 of the BBRA mandated that the Secretary--(1) develop a
per diem PPS for inpatient hospital services furnished in psychiatric
hospitals and psychiatric units (hereinafter referred to as inpatient
psychiatric facilities (IPFs)); (2) include in the PPS an adequate
patient classification system that reflects the differences in patient
resource use and costs among psychiatric hospitals and psychiatric
units; (3) maintain budget neutrality; (4) permit the Secretary to
require psychiatric hospitals and psychiatric units to submit
information necessary for the development of the PPS; and (5) submit a
report to the Congress describing the development of the PPS.
Section 124 of the BBRA also required that the PPS for IPFs be
implemented for cost reporting periods beginning on or after October 1,
2002. In general, the creation of a prospective payment system requires
an extraordinary amount of lead-time in order to conduct the research
that is required to create a completely new payment system. For
example, we must create data files, develop models to test individual
variables and those variables' ability to explain costs, as well as
perform extensive empirical analysis of the collected data.
With respect to the creation of the IPF PPS, more lead time than
usual was necessary. This is because the research we had conducted
before the passage of the BBRA dated back to the 1980s and was focused
on developing a per discharge IPF PPS. The research efforts to develop
a discharged-based IPF PPS, however, failed to adequately explain cost
variation among psychiatric cases. Because diagnosis in psychiatry is
complicated and the criteria for diagnosis and treatment are less well
defined in psychiatry than in general medicine and surgery, developing
an IPF PPS was more elusive. Moreover, there have been significant
changes in mental health treatment, for example, new medications and
outpatient treatment options. Thus, to develop an adequate patient
classification system that reflects the differences in patient resource
use and costs, we had to embark on numerous courses of research that
could be used as a possible foundation for the proposed IPF PPS.
When we began the process of developing a proposed IPF PPS, we
believed pursuing an assessment instrument, incorporating key
indicators of functional status, was the most logical place to begin.
This approach is consistent with the approach we followed in developing
patient classification systems for other Medicare prospective payment
systems (for example., home health agencies, skilled nursing
facilities, and inpatient rehabilitation facilities). Our
administrative data was inadequate to develop other patient
classification systems because, although it provides useful information
on diagnoses, services, and procedures, it does not include many
patient and clinical characteristics and functional status indicators,
which have been established as key components of a patient
classification system. Therefore, to obtain the patient-level data we
needed to develop an assessment-based patient classification system, we
contracted with the University of Michigan's Public Health Institute in
September 2002. We selected this contractor because it had developed a
protocol assessment instrument, precursors of which had shown promise
in explaining variation in resource utilization among psychiatric
patients. Although there continues to be progress in completing the
initial phase of this research, that is, adoption of an initial
assessment instrument for pilot testing, we are unable to delay
implementation of the IPF PPS until the draft assessment instrument is
completed.
Also, in our effort to meet the requirements of section 124 of the
BBRA, we also pursued a second research project with the Health,
Economics, Research, Inc. (now known as RTI
International[reg]). RTI International[reg]
embarked on a research project to identify patient characteristics and
modes of practice believed to account for variation in per diem cost.
It became apparent that, despite everyone's best efforts, the ongoing
research projects being conducted by the University of Michigan and RTI
International[reg], could not be completed in time for us to
engage in notice and comment rulemaking and achieve implementation of
the IPF PPS by October 1, 2002.
In addition, shortly before October 1, 2002, the American
Psychiatric Association (APA) informed us that The Health Economics and
Outcomes
[[Page 66924]]
Research Institute (THEORI) of the Greater New York Hospital
Association had developed a potential IPF PPS classification model that
was based on our currently available administrative data. Based on the
model presented to us by the APA, we immediately began our own vigorous
review of the ``APA'' model. We note, however, that although the
information shared with us by the APA was extremely valuable in our
formulation of a proposed IPF PPS, it came too late for us to be able
to do the following: (1) Perform the analysis required to ensure that a
system based on our administrative data would fulfill the statutory
mandate of section 124 of the BBRA; and (2) engage in notice-and-
comment rulemaking and implement the IPF PPS by October 1, 2002. As
soon as we completed an analysis of the information presented by the
APA and of our administrative data, we published the proposed IPF PPS
regulation.
Initially, the proposed rule provided for a 60-day comment period.
However, due to the complexity and scope of the proposed rule and
because the public requested additional time to examine the rule so
that it could provide meaningful comments, we extended the public
comment period. The intricacy and complexity of the issues presented in
the public comments required us to perform further substantial analysis
to adequately address the issues raised by commenters, as well as our
duty to satisfy section 124 of the BBRA. We have made every effort to
complete this final rule as quickly as possible.
(We note that, even though the IPF PPS described in this final rule
is effective for cost reporting periods beginning on or after January
1, 2005 and compliance with the IPF PPS requirements is required for
cost reporting periods beginning on or after January 1, 2005, we will
not have computer system changes in place that are necessary to
accommodate claims processing under the IPF PPS until April 4, 2005
(claims processing updates will occur on the first Monday following
April 1, 2005). Therefore, claims submitted after January 1, 2005, but
before April 4, 2005, will be paid as if the TEFRA rate was still in
effect. Payments will be reconciled with the appropriate IPF PPS
amount. We have instructed the fiscal intermediaries (FIs) to reconcile
the payments that are made to IPFs for covered inpatient hospital
services furnished to Medicare beneficiaries for cost reporting periods
beginning on or after January 1, 2005, until the date of the systems
implementation on April 4, 2005, with the amounts that are payable
under the IPF PPS system by May 1, 2005.
Since IPFs will receive payment under the IPF PPS starting with
their first cost reporting period beginning on or after January 1,
2005, only those IPFs with cost reporting periods beginning on or after
January 1, 2005 but before April 1, 2005 will experience payment
reconciliation.
Requirements for Issuance of Regulations
Section 902 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and
requires the Secretary, in consultation with the Director of the Office
of Management and Budget, to establish and publish timelines for the
publication of Medicare final regulations based on the previous
publication of a Medicare proposed or interim final regulation. Section
902 of the MMA also states that the timelines for these regulations may
vary but will not exceed 3 years after publication of the preceding
proposed or interim final regulation except under exceptional
circumstances.
This rule finalizes provisions set forth in the November 28, 2003
proposed rule (68 FR 66920). In addition, this final rule has been
published within the 3-year time limit imposed by section 902 of the
MMA. Therefore, we believe that the final rule is in accordance with
the Congress' intent to ensure timely publication of final regulations.
B. Overview of the Payment System for Inpatient Psychiatric Hospitals
and Psychiatric Units Before the BBRA
1. Description of the TEFRA Payment Methodology
Hospitals and units that are excluded from the hospital inpatient
prospective payment system (IPPS) under section 1886(d)(1)(B) of the
Act are paid for their inpatient operating costs under the provisions
of the TEFRA (Pub. L. 97-248).
The TEFRA provisions are found in section 1886(b) of the Act and
implemented in regulations at 42 CFR 413. TEFRA established payments
based on hospital-specific limits for inpatient operating costs. As
specified in Sec. 413.40, TEFRA established a ceiling on payments for
hospitals excluded from the IPPS. The ceiling on payments is determined
by calculating the product of a facility's base year costs (the year in
which its target reimbursement limit is based) per discharge, updated
to the current year by a rate-of-increase percentage, and multiplied by
the number of total current year discharges. A detailed discussion of
target amount payment limits under TEFRA can be found in the final rule
concerning the IPPS published in the Federal Register on September 1,
1983 (48 FR 39746).
The base year for a facility varied, depending on when the facility
was initially determined to be an IPPS excluded provider. The base year
for facilities that were established before the implementation of the
TEFRA provision was 1982. For facilities established after the
implementation of the TEFRA provision, facilities were allowed to
choose which of their first 3 cost reporting years would be used in the
future to determine their target limit. In 1992, the ``new provider''
period was shortened to 2 full years of cost reporting periods (Sec.
413.40(f)(1)).
Excluded facilities whose costs were below their target amounts
would receive bonus payments equal to the lesser of half of the
difference between costs and the target amount, up to a maximum of 5
percent of the target amount, or the hospital's costs. For excluded
hospitals whose costs exceeded their target amounts, Medicare provided
relief payments equal to half of the amount by which the hospital's
costs exceeded the target amount up to 10 percent of the target amount.
Excluded facilities that experienced a more significant increase in
patient acuity could also apply for an additional amount as specified
in Sec. 413.40(d) for Medicare exception payments.
2. BBA Amendments to TEFRA
The BBA amendments to section 1886 of the Act significantly altered
the payment provisions for hospitals and units paid under the TEFRA
provisions and added other qualifying criteria for certain hospitals
excluded from the IPPS. A complete explanation of these amendments can
be found in the final rule concerning the IPPS we published in the
Federal Register on August 29, 1997 (62 FR 45966).
The BBA made the following changes to section 1886 of the Act for
TEFRA hospitals:
Section 4411 of the BBA amended section 1886(b)(3)(B) of
the Act and restricted the rate-of-increase percentages that are
applied to each provider's target amount so that excluded hospitals and
units experiencing lower inpatient operating costs relative to their
target amounts receive lower rates of increase.
Section 4412 of the BBA amended section 1886(g) of the Act
to establish a 15-percent reduction in capital payments for excluded
psychiatric and rehabilitation hospitals and units and LTCHs, for
portions of cost reporting periods occurring during the period of
[[Page 66925]]
October 1, 1997, through September 30, 2002.
Section 4414 of the BBA amended section 1886(b)(3) of the
Act to establish caps on the target amounts for excluded hospitals and
units at the 75th percentile of target amounts for similar facilities
for cost reporting periods beginning on or after October 1, 1997,
through September 30, 2002. The caps on these target amounts apply only
to psychiatric hospitals and rehabilitation hospital units and LTCHs.
Payments for these excluded hospitals and units are based on the lesser
of a provider's cost per discharge or its hospital-specific cost per
discharge, subject to this cap.
Section 4415 of the BBA amended section 1886(b)(1) of the
Act by revising the percentage factors used to determine the amount of
bonus and relief payments and establishing continuous improvement bonus
payments for excluded hospitals and units for cost reporting periods
beginning on or after October 1, 1997. If a hospital is eligible for
the continuous improvement bonus, the bonus payment is equal to the
lesser of: (1) 50 percent of the amount by which operating costs are
less than expected costs; or (2) 1 percent of the target amount.
Sections 4416 and 4419 of the BBA amended sections 1886(b)
of the Act to establish a new framework for payments for new excluded
providers. Section 4416 of the BBA added a new section 1886(b)(7) to
the Act that established a new statutory methodology for new
psychiatric and rehabilitation hospitals and units, and LTCHs. Under
section 4416 of the BBA, payment to these providers for their first two
cost reporting periods is limited to the lesser of the operating costs
per case, or 110 percent of the national median of target amounts. This
is adjusted for differences in wage levels, for the same class of
hospital for cost reporting periods ending during FY 1996, updated to
the applicable period.
3. BBRA Amendments to TEFRA
The BBRA of 1999 refined some of the policies mandated by the BBA
for hospitals and units paid under the TEFRA provisions. The provisions
of the BBRA, amending section 1886(b)(3)(H) of the Act, were explained
in detail and implemented in the IPPS interim final rule published in
the Federal Register on August 1, 2000 (65 FR 47026) and in the IPPS
final rule also published on August 1, 2000 (65 FR 47054).
With respect to the TEFRA payment methodology, section 4414 of the
BBA had provided for caps on target amounts for excluded hospitals and
units for cost reporting periods beginning on or after October 1, 1997.
Section 121 of the BBRA amended section 1886(b)(3)(H) of the Act to
provide for an appropriate wage adjustment to these caps on the target
amounts for certain hospitals and units paid under the TEFRA
provisions, effective for cost reporting periods beginning on or after
October 1, 1999 through September 30, 2002.
4. BIPA Amendments to TEFRA
Section 306 of BIPA amended section 1886 of the Act by increasing
the incentive payments for psychiatric hospitals and psychiatric units
to 3 percent for cost reporting periods beginning on or after October
1, 2000 and before October 1, 2001.
II. Provisions of the Proposed Regulations
On November 28, 2003, we published a proposed rule in the Federal
Register (68 FR 66920) as required by section 124 of the BBRA that
proposed a PPS for Medicare payment of inpatient hospital services
furnished in IPFs. The IPF PPS would replace the current reasonable
cost-based payment system under the TEFRA provisions.
We proposed to base the IPF PPS on data from the fiscal year (FY)
1999 Medicare Provider Analysis and Review (MedPAR) file, which
includes patient characteristics (for example, patients' diagnoses and
age), and data from the FY 1999 Hospital Cost Report Information System
(HCRIS), which includes facility characteristics (for example, location
and teaching status). We proposed the following policies and
methodology for the IPF PPS. We proposed to:
Add a new subpart N in 42 CFR 412 for the IPF PPS, and
make conforming changes to parts 412 and 413 regarding the
implementation of the IPF PPS.
Compute a standardized Federal per diem payment to be paid
to all IPFs based on the sum of the national average routine operating,
ancillary, and capital costs for each patient day of psychiatric care
in an IPF adjusted for budget neutrality.
Adjust the Federal per diem payment to reflect certain
patient and facility characteristics that were found in the regression
analysis to be associated with statistically significant cost
differences.
Provide patient-level adjustments for age, specified
diagnosis-related groups (DRGs), and selected comorbidity categories.
Provide facility adjustments that include a wage index
adjustment, rural location adjustment, and a teaching status
adjustment.
Recognize variable per diem adjustments to account for the
higher costs incurred in the early days of a psychiatric stay.
Adopt an outlier policy to target greater payment to the
high cost cases.
Provide an interrupted stay policy for the purpose of
applying the variable per diem adjustment and the outlier policy.
Implement the IPF PPS for IPF cost reporting periods
beginning on or after April 1, 2004, with a 3-year transition period.
We proposed that the first update would occur on July 1, 2005.
Include a coding policy that would require IPFs to report
patient diagnoses using the International Classification of Diseases-
9th Revision, Clinical Modification (ICD-9-CM) code set.
Update a regulatory reference to the Diagnostic and
Statistical Manual of Mental Disorders (DSM) from the Third Edition to
the Fourth Edition, Text Revision (DSM-IV-TR).
Use the 1997-based excluded hospital with capital market
basket to establish the labor-related share of the Federal per diem
base rate, to calculate the budget neutrality adjustment, and to update
the Federal per diem base rate.
Provide the annual update strategy for the IPF PPS.
Include research information for future refinement of the
patient classification system.
III. Analysis of and Responses to Public Comments
In the November 28, 2003 Federal Register (68 FR 66920), we
published the proposed IPF PPS and provided for a 60-day comment
period. On January 30, 2004, we published a notice in the Federal
Register (68 FR 4464) extending the comment period for an additional 30
days in response to public requests. The comment period that would have
closed on January 27, 2004, was extended 30 days. Thus, the comment
period for the proposed rule closed on February 26, 2004.
We received 273 comments from hospital associations, psychiatric
hospitals, providers, acute care hospitals, health research
organizations, patient advocacy organizations, State associations, and
physicians. We reviewed each commenter's letter and grouped related
comments. Some comments were identical. After associating like
comments, we placed them in categories based on subject matter or based
on the section(s) of the regulation affected. Summaries of the public
comments received and our responses to those comments are set forth
below.
[[Page 66926]]
IV. Overview of the IPF PPS Proposed Payment Methodology
In the November 2003 proposed rule, we proposed to establish a
Federal payment for each patient day in an IPF derived from the
national average daily routine operating, ancillary, and capital costs
in IPFs. The Federal per diem payment would comprise a Federal per diem
base rate adjusted by factors for patient and facility characteristics
that account for variation in patient resource use. The Federal per
diem base rate would be 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.
We proposed that psychiatric hospitals and psychiatric units paid
under section 1886(b) of the Act would be paid under the IPF PPS for
cost reporting periods beginning on or after April 1, 2004. We proposed
that the IPF PPS would apply to inpatient hospital services furnished
by Medicare participating entities in the United States that are
classified as psychiatric hospitals or psychiatric units as specified
in Sec. 412.22, Sec. 412.23, Sec. 412.25, and Sec. 412.27. As
specified in Sec. 400.200, the United States means the 50 States, the
District of Columbia, the Commonwealth of Puerto Rico, the Virgin
Islands, Guam, American Samoa, and the Northern Mariana Islands.
However, the following hospitals are paid under special payment
provisions specified in Sec. 412.22(c) and, therefore, would not be
paid under the IPF PPS:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
Hospitals that are reimbursed in accordance with
demonstration projects specified in section 402(a) of Public Law 90-248
(42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42 U.S.C.
1395b-1(note)).
Non-participating hospitals furnishing emergency services
to Medicare beneficiaries.
We received a variety of comments on the proposed applicability
requirements of the IPF PPS. In this final rule, we are adopting the
proposed policies regarding applicability of the IPF PPS.
Comment: One commenter recommended that CMS develop a separate
payment system for government-operated IPFs. The commenter believes
that these hospitals provide a different service than other psychiatric
hospitals and psychiatric units.
Several commenters requested that psychiatric units be excluded
from the IPF PPS until a more equitable system can be created.
Response: Section 124 of Public Law 106-113 requires the Secretary
to implement a prospective payment system for psychiatric hospitals
described in clause (i) of section 1886(d)(1)(B) of the Act and
psychiatric units described in clause (v) of this section. Government-
operated psychiatric hospitals and psychiatric units fall within the
definition of a psychiatric hospital and unit outlined in section 124
of the BBRA to which this IPF PPS applies. Consequently, these
entities, like all other psychiatric hospitals and units, must be paid
under this system effective with the start of the implementation of the
IPF PPS.
With regard to the equity of the payment system, we believe that we
are implementing an equitable prospective payment system based on the
best data available.
We also believe it is important to note that a per diem approach
explains a significant percentage of the cost variation among inpatient
psychiatric patients. We estimate that the final IPF PPS explains the
33 percent variation in per diem cost among IPF cases. A commenter
indicated that the combination of the explanatory power of a per diem
system and the proposed adjustments on case level costs is
approximately 80 percent. Our analysis confirmed the commenter's
findings, however, we found the explanatory power of a per diem system
and the final adjustment factors to be approximately 85 percent,
solidifying our belief that the payment model combination we are using,
a per diem system with adjustments based on case level costs, is
equitable.
Comment: One commenter questioned whether psychiatric units that
are currently paid under the IPPS and do not meet the requirements of
Sec. 412.22, Sec. 412.25, and Sec. 412.27 would be excluded from the
IPF PPS. The commenter also asked whether these providers would be paid
under the IPF PPS if they would meet the requirements of Sec. 412.22,
Sec. 412.25, and Sec. 412.27. A few commenters asked if ``DRG-exempt
status'' for psychiatric units would continue to be an option after the
effective date of the IPF PPS.
Response: If a hospital has a psychiatric unit that meets the
requirements specified in Sec. 412.22, Sec. 412.25, and Sec. 412.27,
the psychiatric unit is excluded from the IPPS (that is, DRG-exempt).
The IPF PPS will replace the reasonable cost-based payments currently
paid to excluded psychiatric hospitals and units for cost reporting
periods beginning on or after January 1, 2005. Once the IPF PPS is
implemented, hospitals will be paid under the IPF PPS for all patients
admitted to the excluded psychiatric unit.
Comment: One commenter recommended that critical access hospitals
(CAHs) be allowed cost-based reimbursement for services in their
psychiatric units. If a hospital or unit treats psychiatric patients
but it does not meet the statutory definition of a psychiatric hospital
or unit, then the IPF PPS would not apply.
Response: Section 405(g)(2) of the MMA specifies that the amount of
payment for services in psychiatric units of a CAH described in section
1820(c)(2)(E) of the Act shall be equal to the amount that would
otherwise be made if the services were inpatient hospital services
provided in a distinct part psychiatric unit. Therefore, we have
amended Sec. 413.70(e) to clarify that, effective for cost reporting
periods beginning on or after January 1, 2005, certified psychiatric
units in CAHs will be paid under the IPF PPS. We believe the statute is
very clear concerning methodology.
Comment: Several commenters requested an exceptions process through
which an IPF could seek additional payment.
Response: We believe that the final IPF PPS explains a sufficient
amount of the cost variation among IPF patients and that an exceptions
process is not necessary.
More importantly, when we become aware of patient or facility
characteristics that lead to higher per diem costs, we would propose to
establish an adjustment factor to the IPF PPS so that all IPFs that
qualify could benefit from the adjustment as part of routine claims
processing rather than through an exceptions process through which an
individual IPF could request additional payment. Therefore, we will be
accounting for their differences in costs.
V. Development of the Budget-Neutral Federal Per Diem Base Rate
In the proposed rule, we proposed that the IPF PPS be based on a
standardized Federal per diem base rate calculated from IPF average per
diem costs and adjusted for budget-neutrality. We proposed that the
Federal per diem base rate would be used as the standard payment per
day for the IPF PPS. In addition, the Federal per diem base rate would
be adjusted by the applicable wage index factor and the patient-level
and facility-level adjustments that are applicable to the stay.
[[Page 66927]]
A. Calculation of the Average Per Diem Cost
To calculate the proposed Federal per diem base rate, we estimated
the cost per day for--(1) routine services from FY 1999 cost reports
(supplemented with FY 1998 cost reports if the FY 1999 cost report is
missing); and (2) ancillary costs per day using data from the FY 1999
Medicare claims and corresponding data from facility cost reports.
For routine services, the per diem operating and capital costs were
used to develop the base for the psychiatric per diem amount. The per
diem routine costs were obtained from each facility's Medicare cost
report. To estimate the costs for routine services included in the
proposed Federal per diem base rate calculation, we added the total
routine costs (including costs for capital) submitted on the cost
report for each provider and divided it by the total Medicare days.
Some average routine costs per day were determined to be aberrant,
that is, the costs were extraordinarily high or low and most likely
contained data errors. The following method was used to trim
extraordinarily high or low cost values in order to improve the
accuracy of our results.
First, the average and standard deviations of the total per diem
cost (routine and ancillary costs) were computed separately for cases
from psychiatric hospitals and psychiatric units. Separate statistics
were computed because we did not want to systematically exclude a
larger proportion of cases from the higher cost psychiatric units.
Before calculating the means, we trimmed cases from the file when
covered days were zero or routine costs were less than $100 or greater
than $3,000. We selected these amounts because we believe this range
captured the grossly aberrant cases. Elimination of the grossly
aberrant cases would prevent the means from being distorted.
Second, we trimmed cases when the provider's total cost per day was
outside the generally-accepted statistical trim points of plus or minus
3.00 standard deviations from the respective means for each facility
type (psychiatric hospitals and psychiatric units). If the total cost
per day was outside the trim value, we deleted the data for that
provider from the per diem rate development file because it helped
eliminate skewing of the data. After trimming the data, the average
routine cost per day in FY 1999 was calculated to be $495.
For ancillary services, we calculated the costs by converting
charges from the FY 1999 Medicare claims into costs using facility-
specific, cost-center specific cost-to-charge ratios obtained from each
provider's applicable cost reports. We matched each provider's
departmental cost-to-charge ratios from their Medicare cost report to
each charge on their claims reported in the MedPAR file. Multiplying
the total charges for each type of ancillary service by the
corresponding cost-to-charge ratio provided an estimate of the costs
for all ancillary services received by the patient during the stay.
For those departmental cost-to-charge ratios that we considered to
be aberrant because they were outside the generally-accepted
statistical trim points of plus or minus 3.00 standard deviations from
the facility-type mean, we replaced the individual cost-to-charge
ratios for each department with the median department cost-to-charge
ratio by facility type (psychiatric hospital or psychiatric unit). We
considered using the mean of the cost to-charge ratio as the
substitution value, but because the distribution of ratios of cost-to-
charges is not normally distributed and there is no limit to the upper
ceiling of the ratio, the mean ratio would be overstated due to the
higher values on the upper tail of the bell curve. Therefore, we chose
the median by facility type as a better measure for the substitution
value when the facility's actual cost-to-charge ratio was outside the
trim values.
After computing the estimated costs of applying the applicable
cost-to-charge ratios, and, when appropriate, the median cost-to charge
ratio, to the total ancillary charges for each patient stay, we
determined the average ancillary amount per day by dividing the total
ancillary costs for all stays by the total number of covered Medicare
days. Using this methodology, the average ancillary cost per day in FY
1999 was calculated to be $67.
Adding the average ancillary costs per day ($67) and the average
routine costs per day including capital costs ($495) provides the
estimated average per diem cost for each patient day of inpatient
psychiatric care in FY 1999 ($562). We used the above described
procedures to calculate the average per diem cost in this final rule as
well.
Comment: Several commenters recommended that CMS use more current
data for the final IPF PPS. The commenters suggested that CMS use the
FY 2002 MedPAR data and the FY 2002 HCRIS data, supplemented with FY
2001 cost report data when necessary.
A few commenters indicated it would be preferable to use the most
current cost report data, with an appropriate audit adjustment factor,
if necessary.
Response: We used the best available data when we developed the
proposed rule. We are continuing to use the best data available for
this final rule. Specifically, we calculated the average cost per day
using FY 2002 claims and cost report data supplemented with FY 2001
cost report data if the FY 2002 cost report was missing. Using FY 2002
data and the methodology described above, we calculated the per diem
cost for each patient day of inpatient psychiatric care in an IPF in FY
2002. We note that currently, less than 50 percent of the hospitals
have filed their FY 2003 cost reports. Therefore, we believe that FY
2002 cost report data provides the best available information for this
final rule.
B. Determining the Update Factors for the Budget-Neutrality Calculation
Section 124(a)(1) of the BBRA requires that the IPF PPS be budget
neutral. 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, in the proposed rule as well as in
this final rule, we have calculated the budget-neutrality factor by
setting the total estimated PPS payments to be equal to the total
estimated payments that would have been made under the TEFRA
methodology had the IPF PPS not been implemented.
In the proposed rule, we based the rate setting calculations and
estimated impacts on an April 1, 2004 implementation date. However, in
order to create a more efficient process of updates for the various
Medicare payment systems, we proposed to establish a July 1 annual
update cycle for the IPF PPS. We also indicated we would not update the
rates on July 1, 2004 because we believed there would be an
insufficient time under the new IPF PPS to generate data that would be
useful in updating the IPF PPS. As a result, we calculated the proposed
Federal per diem base rate to be budget neutral for the 15-month period
April 1, 2004 through June 30, 2005.
In this final rule, we calculated the final Federal per diem base
rate to be budget neutral during the implementation period under the
IPF PPS. As in the proposed rule, we will use a July 1 update cycle.
Similar to the proposed rule, we will not update the IPF PPS during the
first year of implementation because we believe there would be an
insufficient amount of time under the IPF PPS to generate data useful
in updating the system. Thus, the implementation period for the
[[Page 66928]]
final IPF PPS is the 18-month period January 1, 2005 through June 30,
2006. As a result, we updated the Federal per diem base rate to the
midpoint of the January 1, 2005 through June 30, 2006, implementation
period (that is, October 1, 2005).
1. The 1997-Based Excluded Hospital with Capital Market Basket
Since FY 2003, the 1997-based excluded hospital with capital market
basket has been used to establish the rates-of-increase for excluded
hospitals and units paid under TEFRA. As a result, in the proposed
rule, we proposed to use the 1997-based excluded hospital capital
market basket to update the Federal per diem base rate to the midpoint
of the implementation period under the IPF PPS, to establish the labor-
related share for applying the wage index (see section V. of this final
rule), and to update the Federal per diem base rate after the
implementation period (see section V. of this final rule).
In the proposed rule, we explained that we periodically rebase
(moving the base year for the structure of costs), and revise (changing
data sources, cost categories, or price proxies used) the market basket
to reflect more current cost data. We provided a detailed comparison of
the 1992-based excluded hospital with capital market basket that had
been in effect prior to October 1, 2002 to the rebased and revised
1997-based excluded hospital with capital market basket.
In the proposed rule, we explained that the operating portion of
the 1997-based excluded hospital with capital market basket is derived
from the 1997-based excluded hospital market basket. The methodology
used to develop the operating portion was described in the IPPS final
rule published in the Federal Register on August 1, 2002 (67 FR 50042
through 50044). In brief, the operating cost category weights in the
1997-based excluded hospital market basket were determined from the
1997 Medicare cost reports, the 1997 Business Expenditure Survey from
the Bureau of the Census and the 1997 Annual Input-Output data from the
Bureau of Economic Analysis. As was discussed in the IPPS final rule,
we made two methodological revisions in developing the 1997-based
excluded hospital market basket: (1) Changing the wage and benefit
price proxies to use the Employment Cost Index (ECI) wage and benefit
data for hospital workers; and (2) adding a cost category for blood and
blood products.
As we indicated in the proposed rule (68 FR 66926), when we add the
weight for capital costs to the excluded hospital market basket, the
sum of the operating and capital weights must still equal 100.0.
Because capital costs account for 8.968 percent of total costs for
excluded hospitals in 1997, operating costs must account for 91.032
percent. Each operating cost category weight in the 1997-based excluded
hospital market basket was multiplied by 0.91032 to determine its
weight in the 1997-based excluded hospital with capital market basket.
The aggregate capital component of the 1997-based excluded hospital
market basket (8.968 percent) was determined from the same set of
Medicare cost reports used to derive the operating component. The
detailed capital cost categories of depreciation, interest, and other
capital expenses were also determined using the Medicare cost reports.
There are two sets of weights for the capital portion of the market
basket. The first set of weights identifies the proportion of capital
expenditures attributable to each capital cost category, while the
second set represents relative vintage weights for depreciation and
interest. The vintage weights identify the proportion of capital
expenditures that is attributable to each year over the useful life of
capital assets within a cost category (see the IPPS final rule on
August 1, 2002 (67 FR 50045 through 50047), for a discussion on how
vintage weights are determined).
The cost categories, price proxies, and base-year FY 1997 weights
for the excluded hospital with capital market basket are presented in
Table 1 below. The vintage weights for the 1997-based excluded hospital
with capital market basket are presented in Table 1(A) below.
BILLING CODE 4120-03-P
[[Page 66929]]
[GRAPHIC] [TIFF OMITTED] TR15NO04.439
[[Page 66930]]
[GRAPHIC] [TIFF OMITTED] TR15NO04.440
BILLING CODE 4120-03-C
In the proposed rule (68 FR 66928) we described an analysis we
conducted to ensure that the excluded hospital with capital market
basket provides a reasonable measure of the price changes facing IPFs.
We conducted an analysis of annual percent changes in the market basket
when the weights for wages, pharmaceuticals, and capital in IPFs were
substituted into the 1997-based excluded hospital with capital market
basket. Other cost categories were recalibrated using ratios available
from the IPPS market basket. Our analysis found that on average between
1995 and 2002, the excluded hospital with capital market basket
increased at nearly the same average annual rate (3.4 percent) as the
market basket with IPF weights for wages, pharmaceuticals, and capital
(3.5 percent). This difference is less than the 0.25 percentage point
criterion that determines whether a forecast error adjustment is
warranted under the IPPS update framework.
Based on this analysis, we believe that the excluded hospital with
capital market basket is doing an adequate job of reflecting the price
changes facing IPFs. For this reason, in this final rule we are
adopting the 1997-based excluded hospital with capital market basket to
update the Federal per diem base rate to the midpoint of the IPF PPS
implementation period, to establish the labor-related share of the
Federal per diem base rate, and to update the IPF PPS after the
implementation period.
2. Calculating the Budget-Neutrality Adjustment Factor
Many commenters stated that they were concerned that the data used
in the proposed rule were not current and did not reflect an accurate
view of the services provided to Medicare psychiatric patients. The
data sources we used to calculate the proposed budget-neutrality factor
were the best data available for IPFs at that time and included FY 1999
cost report data and FY 1999 Medicare claims data from the June 2001
update of the MedPAR files. We updated the data for each IPF to the
midpoint of the proposed 15-month implementation period (April 1, 2004
through June 30, 2005) and used the projected market basket update
factors for each applicable year. For this final rule, we used FY 2002
data, the best data available.
a. Cost Report Data for January 1, 2005 Through June 30, 2006
In the proposed rule, we proposed to update each IPF's cost to the
midpoint of the proposed implementation period April 1, 2004 through
June 30, 2005. We explained that to calculate the operating costs, we
would use the applicable percentage increases to the TEFRA target
amounts for FY 1999 through FY 2002 in accordance with Sec.
413.40(c)(3)(vii) and the full excluded hospital market-basket
percentage increase for FY 2003 and later in accordance with Sec.
413.40(c)(3)(viii).
In this final rule, in order to determine each provider's projected
operating cost for the IPF PPS implementation period adopted in this
final rule, we updated each IPF's per diem cost in FY 2002 to the
midpoint of the implementation period January 1, 2005 through June 30,
2006. We used the most recent projection of the full percentage
increase in the 1997-based excluded hospital market basket index for FY
2003 and later in accordance with Sec. 413.40(c)(3)(viii).
Comment: A few commenters recommended that CMS project IPF
[[Page 66931]]
operating and capital costs using the full TEFRA market basket indexes.
Response: We used FY 1999 data in the proposed rule. In order to
update the data to the midpoint of the proposed implementation period,
we applied the cap imposed by section 4414 of the BBA in accordance
with Sec. 413.40(c)(3)(vii). The BBA caps sunset after FY 2002. Since
we used the FY 2002 cost reports to project TEFRA costs and payments in
this final rule, we used the full excluded hospital market basket
indexes to project the costs and payments to the midpoint of the IPF
PPS implementation period in accordance with Sec. 413.40(c)(3)(viii).
Since the IPF PPS includes both the operating and capital-related
costs, we projected the capital-related cost under the TEFRA system as
well. We used the excluded capital market basket to project the
capital-related costs under the TEFRA system. Table 2 below summarizes
the excluded hospital market basket (without capital) and the excluded
capital market basket indexes.
[GRAPHIC] [TIFF OMITTED] TR15NO04.441
b. Estimate of Total Payments Under the TEFRA Payment System
Consistent with the proposed rule, in this final rule, we estimated
payments for inpatient operating and capital costs under the current
TEFRA system using the following methodology:
Step 1: IPF's Facility-Specific Target Amount
The facility-specific target amount for an IPF was calculated based
on the IPF's allowable inpatient operating cost per discharge for the
base period, excluding capital-related, non-physician anesthetist, and
graduate medical education costs. We updated the target amount using
the rate-of-increase percentages specified in Sec. 413.40(c)(3)(viii).
Step 2: Calculating Each IPF's TEFRA Payments for Inpatient Operating
Services
Under the TEFRA system, an IPF's payment amount for inpatient
operating services is the lower of--
The hospital-specific target amount multiplied by the
number of Medicare discharges (the ceiling); or
The hospital's average inpatient operating cost per case
multiplied by the number of Medicare discharges.
In addition, under the TEFRA system, payments may include a bonus
or relief payment, as follows:
IPFs whose net inpatient operating costs are lower than or
equal to the ceiling would receive the lower payment of--(1) the net
inpatient operating costs plus 15 percent of the difference between the
inpatient operating costs and the ceiling; or (2) the net inpatient
operating costs plus 2 percent of the ceiling.
IPFs whose net inpatient operating costs are greater than
the ceiling, but less than 110 percent of the ceiling, would receive
the ceiling payment.
IPFs whose net inpatient operating costs are greater than
110 percent of the ceiling would receive the ceiling payment plus the
lower of--(1) 50 percent of the difference between the 110 percent of
the ceiling and the net inpatient operating costs; or (2) 10 percent of
the ceiling payment.
Step 3: IPF Payments for Capital-Related Costs
Under the TEFRA system, in accordance with section 1886(g) of the
Act, Medicare allowable capital-related costs are paid on a reasonable
cost basis. Each IPF's payment for capital-related costs is taken
directly from the cost report and updated for inflation using the
excluded capital market basket.
Step 4: IPF Total Operating and Capital-Related Costs Under the TEFRA
Payment System
Once estimated payments for inpatient operating costs were
determined (including bonus and relief payments, as appropriate), we
added the TEFRA adjusted operating payments and capital-related cost
payments together to determine each IPF's total payments under the
TEFRA payment system.
c. Payments Under the IPF PPS Without a Budget-Neutrality Adjustment
Consistent with the proposed rule, in this final rule, we used the
1997-based excluded hospital with capital market basket to trend the FY
2002 base year data to the midpoint of the IPF PPS implementation
period and, for the purpose of applying a wage index adjustment, to
establish the labor-related portion of the Federal per diem base rate.
In this final rule, by trending the cost using the applicable
market basket increase factors, we updated the average per diem cost to
the midpoint of the January 1, 2005 through June 30, 2006
implementation period. The updated average cost per day of $724.43 was
then used in the payment model to project future payments under the IPF
PPS.
The next step is to apply the associated wage index and all
applicable patient-level and facility-level adjustments to determine
the appropriate IPF PPS payment amount for each stay in the final
payment model file.
C. Standardization of the Federal Per Diem Base Rate
We must standardize the IPF PPS payments in order to account for
the overall positive effects of the final IPF PPS payment adjustment
factors. The proposed standardization factor was calculated to be 17
percent. However, in the proposed rule, we included a 19-percent
budget-neutrality adjustment and a 2-percent outlier adjustment, and
[[Page 66932]]
did not identify the percentage of the overall budget-neutrality
adjustment that was attributable to standardization.
As was done in the proposed rule and in this final rule, to
standardize the IPF PPS payments, we compared the IPF PPS payment
amounts calculated from the psychiatric stays in the FY 2002 MedPAR
file to the projected TEFRA payments from the FY 2002 cost report file
updated to the midpoint of the IPF PPS implementation period. The
standardization factor was calculated by dividing total estimated
payments under the TEFRA payment system by estimated payments under the
IPF PPS. The standardization factor was calculated to be 0.8367. As a
result, the $724.43 Federal per diem base rate was reduced by 16.33
percent.
D. Calculation of the Budget Neutrality Adjustment
As we noted above, in the proposed rule we identified a 19-percent
budget-neutrality factor, but did not break it out into separate
components. In this final rule, we are identifying each component of
the budget neutrality adjustment, that is, the outlier adjustment,
stop-loss adjustment, and behavioral offset.
1. Outlier Adjustment
Since the IPF PPS payment amount for each IPF includes applicable
outlier amounts, using an approach consistent with the proposed rule,
we reduced the standardized Federal per diem base rate to account for
aggregate IPF PPS payments estimated to be made as outlier payments.
The appropriate outlier amount was determined by comparing the adjusted
prospective payment for the entire stay to the computed cost per case.
If costs were above the prospective payment plus the adjusted fixed
dollar loss threshold, an outlier payment was computed using the
applicable risk-sharing percentages, as explained in greater detail in
section VI.D.1. of this final rule. The outlier amount was computed for
all stays, and the total outlier amount was added to the final IPF PPS
payment. The outlier adjustment was calculated to be 2 percent. As a
result, the Federal per diem base rate includes a reduction of 2
percent.
2. Stop-Loss Provision Adjustment
As explained in detail in section VI.D.3. of this final rule, we
will provide stop-loss payments to ensure that an IPF's total PPS
payments are no less than a minimum percentage of their TEFRA payment,
had the IPF PPS not been implemented. As with outlier payments, in this
final rule, we reduced the standardized Federal per diem base rate by
the percentage of aggregate IPF PPS payments estimated to be made for
stop-loss payments.
The stop-loss payment amount was determined by comparing aggregate
prospective payments that the provider would receive under the IPF PPS
to aggregate TEFRA payments that the provider would have otherwise
received without implementation of the IPF PPS. If an IPF's aggregate
IPF PPS payments are less than 70 percent of its aggregate payments
under TEFRA, a stop-loss payment was computed for that IPF. The stop-
loss payment amounts were computed for those IPFs that were projected
to receive the payments, and the total amount was added to the final
IPF PPS payment amount. In our calculation, we needed to include a
reduction of 0.39 percent in the standardized Federal per diem base
rate to maintain budget neutrality in the final IPF PPS.
We note that the 0.39 percent adjustment due to the stop-loss
provision is temporary in nature. This adjustment will be removed after
the transition because, as explained in section IV.D.3. of this final
rule, the stop-loss provision is applicable only during the transition
period.
3. Behavioral Offset
As explained in the proposed rule, we expect that once the IPF PPS
is implemented, IPFs may experience usage patterns that are
significantly different from those they currently experience. For
example, since the IPF PPS is a per diem system, IPFs might have an
incentive to keep patients in the facility longer to maximize their use
of beds or to receive outlier payments. In addition, the current TEFRA
payment system does not depend on coding a principal diagnosis;
however, payment will depend on properly coding the principal diagnosis
under the IPF PPS. Therefore, we expect that IPFs will have an
incentive to comprehensively code for the presence of comorbidities and
ultimately the coding practice of IPFs should improve once the IPF PPS
is implemented.
As a result of these behavioral changes, Medicare may incur higher
payments than assumed in our calculations. These effects were taken
into account when we calculated the proposed budget-neutral Federal per
diem base rate. Accounting for these effects through an adjustment is
commonly known as a behavioral offset.
Based on accepted actuarial practices and consistent with the
assumptions made under the Inpatient Rehabilitation Facility PPS, we
assumed in determining the behavioral offset, that IPFs would regain 15
percent of potential ``losses'' and augment payment increases by 5
percent. We applied this actuarial assumption, which is based on our
historical experience with new payment systems, to the estimated
``losses'' and ``gains'' among the IPFs.
Comment: A few commenters disagreed with CMS's concern that the IPF
PPS would provide an incentive for IPFs to increase length of stay.
They stated that the incentive to increase length of stay already
exists under the current TEFRA payment system. The commenters stated
that under TEFRA, the longer the stay, the higher the payment as long
as the hospital stays under its TEFRA limit.
Commenters stated that despite this incentive, length of stay has
continuously declined over the last decade. One commenter mentioned
that IPFs use clinical practice guidelines used by Quality Improvement
Organizations, rather than Medicare reimbursement standards, to
determine when a patient is ready for discharge.
Several commenters stated that they do not foresee any significant
increase in length of stay for psychiatric admissions and recommended
that CMS adopt a smaller behavioral offset initially. They suggested
that the length of stay could easily be monitored by CMS and adjusted
in the future, if necessary.
Response: Since per diem payment systems pay on a per day basis
rather than a per discharge basis, there is an incentive to keep
patients more days. Therefore, we believe that including a behavioral
offset will make our calculations and impact analysis more accurate. We
will monitor the extent to which current practice in IPFs changes such
as how the average length of stay is affected by implementation of a
per diem payment system and may propose adjustments to the behavioral
assumptions, accordingly.
In addition to the length of stay, the final IPF PPS payment model
depends on the accurate coding of diagnoses for the DRG and comorbidity
adjustments. We expect that IPFs will try to code diagnoses for each
stay more accurately after the implementation of the IPF PPS in order
to receive payment adjustments. This behavior change could result in
significantly higher Medicare payments to IPFs than we assumed when we
calculated the final Federal per diem base amount.
The behavioral offset for the final IPF PPS was calculated to be
2.66 percent. As a result, we reduced the standardized Federal per diem
base rate
[[Page 66933]]
by 2.66 percent to maintain budget neutrality.
To summarize, the proposed Federal per diem base rate with an
outlier adjustment and budget neutrality with a behavioral offset was
calculated to be $530. This amount included a 2-percent reduction to
account for proposed outlier payments and a 19 percent reduction to
account for budget neutrality and the behavioral offset to the Federal
per diem base rate otherwise calculated under the methodology as
described above. Of that 19-percent reduction, 17 percent is
attributable to standardization, and 2 percent is attributable to the
behavioral offset (see section V.C. of this final rule for an
explanation of standardization).
Using the FY 2002 data for this final rule, the final budget-
neutral Federal per diem base rate with an outlier adjustment, a stop
loss provision with a behavioral offset is calculated to be $575.95.
This amount includes a 16.33-percent reduction from $724.43 to account
for standardization to the projected TEFRA per diem payment for the
implementation period, a 2-percent reduction to account for outlier
payments, a 0.39-percent reduction to account for stop-loss payments
and a 2.66-percent reduction to account for the behavioral offset.
VI. Cost Regression Used To Develop Payment Adjustment Factors
In the proposed rule, we provided a detailed description of the
data file used for the regression analysis, our trimming methods, and
the limitations associated with IPFs reporting routine per diem costs
as an average. As a result of the regression analysis, we proposed
patient-level payment adjustments for age, DRG assignment based on
patients' principal diagnoses, selected comorbidities, and a day of
stay adjustment (the variable per diem adjustments) to reflect higher
resource use in the early days of an IPF stay. We also proposed
facility-level payment adjustments for wage area and rural location,
and a teaching status adjustment.
Comment: One commenter stated that the regression models used in
the proposed rule may not have appropriately modeled the data. The
commenter believes that data entered into the regression model(s) are
of a hierarchical nature, namely patients within facilities. Therefore,
within a facility they cannot be considered independent observations, a
requirement of simple regression models. To account for the fact that
patients are nested within hospitals, hierarchical linear models need
to be used. This will allow the covariance structure to be modeled. The
commenter also believes that this will allow facility level variables
to be modeled in the appropriate place. The commenter stated that
although this would have to be explored, a model might estimate average
facility costs while individual variability attributable to the
patients and their covariates would be estimated separately.
Response: There are two parts to our response to this comment. The
first part addresses why our data are not well-suited for the use of
hierarchical linear models. The second part addresses the potential
consequences for the payment adjustment factors of using ordinary least
squares to estimate the cost regression instead of a method applicable
for hierarchical linear models. We use ordinary least squares in the
proposed rule as well as in this final rule.
First, the commenter is correct that, in principle, multi-level or
hierarchical linear models would be appropriate for cost data that
varied among patients within psychiatric facilities (commonly referred
to as within group variation) and among psychiatric facilities
(commonly called between group variation). However, in our cost data,
each facility assigns the same per diem routine cost to all of its
patients. As a result, there is no per diem routine cost variation
among patients within the same facility, and, since routine costs are a
large proportion of total cost, our measure of routine cost contains
relatively little within group variation. In our data, ancillary cost
differences are the only source of within group variation in per diem
cost. This constraint substantially limits our ability to model patient
effects within facilities. We concluded that under these circumstances,
we are not able to meaningfully estimate a hierarchical linear model
and that the data could be appropriately modeled using ordinary least
squares.
Second, there are two potential consequences of using ordinary
least squares to estimate the cost regression rather than a statistical
method applicable for hierarchical models. According to statistical
theory, the first consequence is that the standard errors of the
regression coefficients may differ in the 2 cases. These differences
could influence the conclusions drawn from tests of statistical
inference about the role of the regression's independent variables (for
example, patient age and length of stay) in explaining variation in per
diem costs. The significance of this problem is that, potentially, we
might develop a payment adjustment based on a variable that we believe
to be a significant determinant of per diem cost, when we would not
have developed a payment adjustment for that variable if we had
estimated the cost regression using a statistical technique that would
yield more accurate standard errors. To test whether this problem
applies to our cost regression, we estimated the regression using a
method applicable to hierarchical models.
As noted by the commenter, the advantage of hierarchical linear
models is that they allow modeling of the covariance structure. The
method we used (the SAS procedure named Proc Mixed) allows the user to
select among alternative models of the data's covariance structure.
Among the options in Proc Mixed, we used a random effects model with
``compound symmetry'' as a compromise between the assumptions of
ordinary least squares and the completely unstructured case, which
imposes no assumptions on the covariance structure. The results of this
test were, as predicted by statistical theory, that the standard errors
from Proc Mixed often differed from those estimated using ordinary
least squares. However, there was no change in the conclusions drawn
from statistical inference tests because the variables that were
significant using ordinary least squares remained highly significant
using Proc Mixed. As a result, both statistical techniques imply that
the same variables are important determinants of per diem cost and,
hence, potential candidates for payment adjustment factors.
The second potential statistical consequence of using ordinary
least squares rather than a hierarchical model method to estimate the
cost regression is that the size of the regression coefficients of the
independent variables may be different. In turn, differences in
regression coefficients will produce differences in sizes of the
payment adjustment factors. However, statistical theory does not
predict that the ordinary least squares estimates are subject to
statistical bias. Furthermore, statistical theory implies that very
large sample sizes such as ours will improve the accuracy of ordinary
least squares estimates. Therefore, statistical theory does not imply
that the regression coefficients estimated using ordinary least squares
are necessarily less accurate than those estimated with Proc Mixed or a
similar method.
Based on the three considerations just described, we believe that
the statistical methods we used in the proposed and final rule enabled
us to model the data appropriately. That is, although in principle our
data is hierarchical, in
[[Page 66934]]
practice, it does not contain the full extent of variation at the
patient and facility levels that would yield meaningful hierarchical
modeling. In addition, our conclusions about which variables are
important in explaining cost variation are not affected by our use of
ordinary least squares. Finally, statistical theory of hierarchical
modeling does not imply that there is necessarily a problem with the
size of the regression coefficients obtained from ordinary least
squares.
Comment: A commenter stated that CMS estimated a ``structural
model'' rather than a ``payment model'' by including variables in the
regression that were not used as payment adjustors (size and the
occupancy rate). The commenter acknowledged that there is some debate
about which type of model is most appropriate in constructing payment
systems, but expressed the opinion that the ``research and policy
community'' believes that payment models are preferred to structural
models.
Response: This commenter is referring to two different approaches
in using cost regressions to develop payment adjustments. In the
``payment model'' approach, the only independent variables included in
the cost regression are those variables that are used as payment
adjustments. In the ``structural model'' approach, all variables that
are hypothesized to be important determinants of cost are included in
the cost regression, whether or not they are going to be used as
payment adjustments. Omitting ``structural'' variables from the cost
regression will affect the sizes of the regression coefficients for
``payment'' variables if the omitted variables are correlated with some
or all of the payment variables, which will in turn affect the
magnitude of the payment adjustment factors. If omitted structural
variables are completely uncorrelated with any of the payment
variables, omission of the structural variables from the cost
regression will lower the overall explanatory power of the regression,
but will not affect the sizes of the regression coefficients for the
payment variables. Debate over whether the payment or the structural
approach is preferred generally centers on the case when one or more
structural variables are positively correlated with one or more payment
variables. In this case, the payment approach will result in paying for
some of the effects of the omitted structural variable(s) via the
payment adjustments of some of the payment variables. That is, the
payment adjustment factors for some payment variables will be greater
than they would have been had the structural model been used. The
structural approach will result in smaller payment adjustment factors
for some payment variables because the effects of the omitted
structural variables are not reflected in the regression coefficients
of those payment variables, but rather are captured by the regression
coefficients of the structural variables included in the cost
regression.
We believe the commenter is questioning whether CMS included
variables in the cost regression that were not used as payment
adjustors. The two variables cited in the comment are measures of
facility size and occupancy. In fact, in neither the proposed nor the
final rule did we include facility size in our cost regression. We
followed the payment model approach with respect to the size variable
because facility size has never been regarded as an acceptable payment
variable in any of our prospective payment systems since it is a
variable over which a facility has a substantial degree of control.
However, in adopting the payment model approach for the size variable,
we are allowing the effects of size to increase payment adjustment
factors to the extent that facility size is positively correlated with
acceptable payment variables. For example, small facilities that are
small because of other factors such as rural location will be
compensated for their higher costs due to those factors. Therefore,
adopting a structural payment model approach would have adversely
penalized small facilities and we recognize that small facilities may
be important providers of psychiatric services in many circumstances.
In the case of the occupancy rate, we adopted the structural approach
and included the variable in the regression. Whether a facility is
large or small, we think that it is appropriate to control for
variations in the occupancy rate in estimating the effects of the
payment variables on per diem cost to avoid compensating facilities for
inefficiency associated with underutilized fixed costs.
Comment: A commenter asked whether the age and comorbidity
variables identified the same groups of patients, and as a result,
whether by including both variables in our regression, we were making
the same adjustment twice.
Response: Although the presence of comorbidities is more common
among the elderly, the age and comorbidity variables do not identify
exactly the same groups of patients. In the proposed rule, the age
variable grouped all patients over age 65 in the same category and the
comorbidity variables identified 17 different conditions. Comorbidities
were present for patients under age 65 as well as those over age 65.
Further, since we identified 17 separate comorbid categories, some
elderly patients have no comorbidities, others have a single
comorbidity, and still others may have multiple comorbidities.
Including the age and comorbidity variables in the regression does not
measure the same adjustment twice, but rather utilizes the fact that
the variables are not perfectly correlated to measure separate effects
for age and comorbidities.
Comment: One commenter recommended that CMS compare the
relationship between costs per day among the various types of IPFs to
the same relationship among types of SNFs.
The commenter stated that hospital-based SNFs have higher per diem
costs than freestanding SNFs, but the shorter lengths of stay for
hospital-based SNFs result in approximately equal per case costs for
freestanding and hospital-based SNFs.
Response: The government-operated psychiatric hospitals have
relatively low per diem costs, relatively long lengths of stay, and
relatively high per case costs. However, among the other main types of
psychiatric facilities (non-profit hospitals, for-profit hospitals, and
psychiatric units), there is a direct relationship between per diem and
per case costs because lengths of stay are very similar for these types
of facilities. Psychiatric units have the highest per diem and per case
costs, followed by non-profit hospitals, and last by for-profit
hospitals.
Comment: A few commenters suggested that CMS adopt the DRG
methodology used under the IPPS instead of utilizing adjustment factors
for age, comorbidities, and DRG assignment. The commenters believe that
by using this method, the DRGs would be established for cases with and
without the presence of comorbidities and for various age categories.
Response: As we discussed in the proposed rule, adopting a patient
classification system based on diagnosis alone may not explain the wide
variation in resource use among IPF patients. There is no indication
that regrouping the psychiatric DRGs as the commenter suggests will
explain more of the variation in per diem cost than the methodology we
are adopting.
Since the DRGs are also used to pay inpatient psychiatric cases
treated outside the distinct part psychiatric unit, we believe that
before any basic changes to the DRG structure could be proposed, we
would first need to conduct a thorough examination of the
[[Page 66935]]
potential effects on both the IPPS and the IPF PPS. We have not
conducted such an approach because there was insufficient time, and we
did not want to delay implementing the IPF PPS.
Comment: Several commenters described a recent study in which the
researchers regrouped psychiatric diagnoses and comorbidities and
included variables for certain activity of daily living deficits
(toileting, transferring, and personal hygiene), patient dangerousness
(strong suicide or assaultive tendencies), and patients who undergo
electroconvulsive therapy (ECT). The commenters recommended that we
adopt the study findings in the final IPF PPS.
Response: Although the commenters did not explicitly identify the
study, we believe that they are referring to the CMS funded RTI
International[reg] (trade name of Research Triangle
Institute) study of inpatient psychiatric care that was designed to
complement the development of the IPF PPS. RTI
International[reg] addressed two major limitations of the
administrative claims and cost report data available to CMS for the IPF
PPS.
First, the administrative data only captures the uniform routine
daily cost assigned to each patient treated in the same facility, so
that no variation in routine daily cost can be observed for patients in
the same facility, but who have different resource requirements. This
artificial reduction in cost variation may impede efforts to accurately
identify and measure the effects of certain patient characteristics.
Second, the patient characteristics collected on the claims are limited
to demographic and diagnostic information and do not include other
characteristics that may be more important in explaining resource use.
The RTI International[reg] study is noteworthy for its
success in dealing with these two issues. First, RTI
International[reg] developed a measure of cost per patient
day that captured variations in patients' daily resource use both
within and across facilities. This task was accomplished by collecting
information on the time spent in various activities by patients and
facility staff over the course of a 3-shift day for a period of 7 days.
After converting the staff time data to daily patient costs, RTI
International[reg] was able to go beyond the potential
constraints of administrative data to study differences among patients
across days of the stay.
Second, RTI International[reg] collected a small set of
patient characteristics that are not in CMS administrative data. They
were able to test the importance of these variables in explaining cost
variation. Most important among these factors were certain activities
of daily living (toileting, transferring, and personal hygiene) and
patient dangerousness (strong suicidal or assaultive tendencies).
Like virtually all studies that collect primary data for a sample
population, RTI International[reg] faced choices about how
to obtain the most useful information possible with the limited funds
available. RTI International[reg] collected information for
4,149 Medicare patient days of care delivered to 834 unique Medicare
patients in 40 facilities. We believe that RTI's sample is large enough
to provide reliable information about the types of patients treated in
all psychiatric facilities. However, the sample is small compared to
even the typical 10 or 20 percent samples of the MedPAR data, and data
collection costs made it uneconomical to sample all types of IPFs. In
particular, rural facilities and small and government-operated
hospitals could not be represented as robustly as other types of IPF
providers.
In addition, although they collected data for 7 days in each
facility, it was uneconomical to collect information for entire stays
in a large number of cases. Also, in order to limit the costs of data
collection, RTI International[reg] did not collect ancillary
service use, but instead relied on claims data for this information.
The findings of the RTI International[reg] study have
played an important role in the development of the IPF PPS in several
ways. First, RTI International[reg] analysis of its daily
cost variable supports the use of the administrative data in developing
the IPF PPS without being seriously misled about the relative
importance of different variables. For example, both sets of analysis
found age to be very important in explaining per diem cost variation.
Although RTI International[reg] elected to group diagnoses
differently than using DRGs, both analyses supported prior findings
that diagnosis plays a limited role in explaining cost variation. RTI
International[reg] also found ECT to be an important cost
factor.
However, many other variables commonly thought to affect cost
either produced inconsistent results or were found to have a minor
effect, once more important factors were taken into account. Among
these variables were cognitive impairment, risk of falls, Global
Assessment of Function (GAF) score, gender, dual diagnosis, and number
of medications.
Second, RTI International[reg]'s analysis of cost
variation by day of stay proved a very useful point of comparison for
the variable per diem adjustment factors that we present in this rule.
Third, the RTI International[reg] study provides us with a
starting point for future refinements of the IPF PPS. As noted above,
RTI International[reg]'s identification of certain patient
characteristics not currently collected in the administrative data is
very helpful for starting the process of considering whether we might
want to collect some or all of these data items in the future. As a
result of this research, we did not choose to adopt adjustment
variables for activity of daily living deficits or patient
dangerousness. We discuss the adjustment for patients who undergo ECT
in section VI.B.6.of this final rule.
Comment: One commenter expressed the opinion that the regression
results for the age and diagnosis variables would not be skewed by the
inability of CMS routine cost variable to capture cost variations among
patients within the same facility. The commenter further predicted that
the research conducted by RTI International[reg] would find
that elderly psychiatric patients use fewer resources than younger
patients.
Response: The commenter's prediction that RTI
International[reg] would find that elderly psychiatric
patients use fewer resources than younger patients was not supported.
RTI International[reg] found, as we did in our cost
regressions, that elderly patients are more costly than younger
patients. There is no way to directly test the commenter's assertion
that our regression results are not affected by the limitations of our
routine cost variable. In addition, since the RTI
International[reg] data was able to capture cost variations
among patients within the same facility and RTI
International[reg] had results similar to ours about the
effects of diagnosis and age on per diem costs, this consistency in
results leads us to believe our regression were accurate.
A. Final Regression Analysis
In this final rule, in order to ensure that the IPF PPS would be
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 both patient and facility characteristics to determine those
characteristics associated with statistically significant cost
differences. For characteristics with statistically significant cost
differences, we used the regression coefficients of those variables to
determine the size of the corresponding payment adjustments.
The final IPF PPS payment adjustments were derived from a
regression analysis of 100 percent of the
[[Page 66936]]
FY 2002 MedPAR data file because this was the best data available. The
MedPAR data file used for the final regression analysis contains
483,038 cases that have a LOS of 1 day or more. We deleted 8,012 (1.66
percent) from this file because cost report or reasonable routine cost
data for certain IPFs were not available. In order to include as many
IPFs as possible in the regression, we substituted the FY 2001 Medicare
cost report data for routine cost and ancillary cost-to-charge ratios
(using the FY 2001 Medicare cost report data).
For the remaining 475,026 cases, we used the same method to trim
extraordinarily high or low cost values that we used for the per diem
rate development file and in the proposed regression analysis (see
section V.A. of this final rule).
The trimming criteria eliminated another 3,490 cases, leaving
471,536 cases that were used in the final regression.
We computed a per diem cost for each Medicare inpatient psychiatric
stay, including routine operating, ancillary, and capital components
using information from the FY 2002 MedPAR file and data from the FY
2002 Medicare cost reports.
To calculate the cost per day for each inpatient psychiatric stay,
routine costs were estimated by multiplying the routine cost per day
from the IPF's FY 2002 Medicare cost report by the number of Medicare
covered days on the FY 2002 MedPAR stay record. Ancillary costs were
estimated by multiplying each departmental cost-to-charge ratio by the
corresponding ancillary charges on the MedPAR stay record. The total
cost per day was calculated by summing routine and ancillary costs for
the stay and dividing it by the number of Medicare covered days for
each day of the stay.
Since we will pay for emergency department (ED) costs of IPFs with
qualifying EDs and IPFs that are part of hospitals with qualifying EDs,
as described in section VI.B.5.b. of this final rule, through a
specific adjustment to the day one variable per diem adjustment factor,
ED costs were excluded from the dependent variable used in the cost
regression. ED costs were excluded in order to remove the effects of ED
costs from other payment adjustment factors with which ED costs may be
correlated. We need to remove the effects on other payment adjustments
to avoid overpaying ED costs. Removing ED costs from the regression has
no effect on the calculation of the Federal per diem base rate or on
budget neutrality because ED costs were not excluded from those
calculations.
The log of per diem cost, like most health care cost measures,
appears to be normally distributed. Therefore, the natural logarithm of
the per diem cost was the dependent variable in the regression
analysis. We included variables in the regression to control for
psychiatric hospitals that do not bill ancillary costs and for ECT
costs that we will pay separately (see the section VI.A. of this final
rule).
The per diem cost was adjusted for differences in labor cost across
geographic areas using the FY 2005 hospital wage index unadjusted for
geographic reclassifications, in order to be consistent with our use of
the market basket labor share in applying the wage index adjustment.
We computed a wage adjustment factor for each case by multiplying
the Medicare 2005 hospital wage index based on MSA definitions defined
by OMB in 1993 for each facility by the labor-related share (.72528)
and adding the non-labor share (.27472). We used the 1997-based
excluded hospital with capital market basket to determine the labor-
related share. The per diem cost for each case was divided by this
factor before taking the natural logarithm (that is, a standard
mathematical practice accepted by the scientific community). The
payment adjustment for the wage index was computed consistently with
the wage adjustment factor, which is equivalent to separating the per
diem cost into a labor portion and a non-labor portion and adjusting
the labor portion by the wage index.
With the exception of the teaching adjustment, the independent
variables were specified as one or more categorical variables. Once the
regression model was finalized based on the log normal variables, the
regression coefficients for these variables were converted to payment
adjustment factors by treating each coefficient as an exponent of the
base e for natural logarithms, which is approximately equal to 2.718.
The payment adjustment factors represent the proportional effect of
each variable relative to a reference variable.
B. Patient-Level Adjustments
We proposed adjustments for the DRG assignment of the patient's
principal diagnosis, selected comorbidities, and patient age. The
proposed rule included a discussion regarding a gender variable,
however, we did not propose a gender adjustment.
1. Adjustment for DRG Assignment
In the proposed rule, we proposed adjustment factors for 15
diagnosis-related groups (DRGs). The adjustment factors were expressed
relative to the most frequently reported DRG (DRG 430) and were derived
from the proposed regression analysis. We did not propose payments
under the IPF PPS for all DRGs that contain a psychiatric ICD-9-CM code
because for some DRGs, there were too few psychiatric cases to obtain a
reliable adjustment factor.
In this final rule, we are providing payment under the IPF PPS for
all DRGs that contain a psychiatric ICD-9-CM code. However, as
discussed later in this section, we are not providing a DRG adjustment
for these cases.
We proposed that IPFs would continue to report diagnoses using the
ICD-9-CM coding system. In addition, we specified that current
regulations at Sec. 412.27 require that a psychiatric unit admit only
those patients who have a principal diagnosis that is listed in the
Diagnostic and Statistical Manual of Mental Disorders (DSM) or
classified in Chapter Five (``Mental Disorders'') of the ICD-9-CM. We
requested public comment on whether we should continue to reference the
DSM. The DSM is currently in its fourth edition, text revision (DSM-IV-
TR).
We received a significant number of public comments expressing
support for the DSM, including several requesting that we permit IPFs
to report diagnoses using DSM codes. Many comments asserted that the
DSM provides a common language for psychiatrists and other health care
professionals and sets forth diagnostic criteria for mental disorders
and ways of measuring and reporting severity. Others agreed that the
DSM established validity and provides standardized definitions.
Comment: One commenter indicated that Chapter Five of the ICD-9-CM
is too limited to be the only diagnostic codes considered and that
symptoms that are commonly treated in inpatient psychiatry include DSM
codes that are not in the ICD-9-CM. Another commenter suggested that
CMS use a combination or subset of diagnostic codes that includes codes
that appear in both Chapter Five of the ICD-9-CM and the DSM-IV-TR.
One commenter expressed concern that misalignment between the DSM-
IV-TR and the ICD-9-CM codes would cause underpayment of certain cases.
The commenter recommended that CMS develop a modifier to the ICD-9-CM
code to ensure that DSM codes
[[Page 66937]]
crosswalk to the most appropriate case mix weight.
Response: We agree that the DSM serves an essential function in the
diagnosis and treatment of mental illness. For this reason, we are
retaining the reference to the DSM in Sec. 412.27 and updating the
reference of the DSM-III-TR to the DSM-IV-TR. As explained in the
proposed rule, we acknowledge that the DSM is routinely used by
clinical staff to diagnose patients and plan treatment, while the ICD-
9-CM coding system is currently used for reporting diagnostic
information for payment purposes. However, the Standards for Electronic
Transaction final rule published in the Federal Register on August 17,
2000 (65 FR 50312), identifies the ICD-9-CM as the designated code set
for reporting diseases, injuries, impairments, other health related
problems, their manifestations, and causes of injury, disease,
impairment, or other health-related problems. As a result, the DSM
codes may not be reported on Medicare claims.
Several commenters included examples of ICD-9-CM codes that do not
crosswalk to the DSM-IV-TR, as well as DSM-IV-TR definitions and codes
that do not crosswalk to the ICD-9-CM. Preliminary analysis of the
codes confirmed the commenters' findings. We considered the possibility
of using a modifier to crosswalk certain ICD-9-CM codes to their
respective DSM-IV-TR counterpart, but found this method to be too
complex and cumbersome for the purposes of billing since each ICD-9-CM
code would require a modifier.
More importantly, as we previously explained in section VI of this
final rule, we believe it is essential to maintain the same diagnostic
coding for IPFs that is used under the IPPS for providing the same
psychiatric care. For these reasons, we are not limiting the Chapter
Five ICD-9-CM diagnosis codes that may be reported by IPFs under the
IPF PPS at this time. We intend to continue our analysis as we
implement the IPF PPS to ensure that we identify the appropriate ICD-9-
CM codes for coding of patients' principal diagnoses.
We will reconsider these coding issues as we develop the FY 2006
hospital IPPS proposed rule in order to maintain consistent coding
rules for all psychiatric cases.
Comment: One commenter asked why CMS used the existing DRGs, rather
than developing new groupings for the DRG classification system based
on current data. This commenter also asked whether the DRGs would
change if they were designed to explain differences in cost per day,
rather than cost per case.
Response: We did not attempt to modify the DRG classifications.
(see section VI of this final rule for a detailed explanation). Our
rationale for proposing to use the existing DRGs to group IPF PPS cases
is that the DRGs are currently used to pay inpatient psychiatric cases
under the hospital IPPS.
Instead of explicitly attempting to adapt the DRGs to a per diem
system by changing the DRG definitions, we analyzed whether there was
empirical support for using the existing DRGs. Specifically, we tested
whether the DRGs contributed explanatory power to the explanation of
differences in per diem costs. Although previous research indicates
that diagnosis plays a limited role in explaining cost variation for
psychiatric care, existing DRGs provide an acceptable degree of
explanatory power.
Additional research will be needed to determine how the DRG
classification system or payment weights under the IPPS would change if
they were redesigned to measure cost per day.
Comment: One commenter requested that CMS delay implementation of
the IPF PPS until the ICD-10-CM is adopted for Medicare billing
purposes.
Response: The National Committee on Vital and Health Statistics
(NCVHS) has recommended that HHS, under its HIPAA responsibilities,
prepare a proposed regulation to require that the ICD-10-CM be adopted
as the HIPAA standard code set to replace the ICD-9-CM. HHS is
assessing the NCVHS recommendation. We do not believe it is appropriate
to tie implementation of the IPF PPS to another initiative that has not
been developed.
Comment: Many commenters requested that CMS adopt the clinical
structure of the DSM (the DSM diagnostic categories) to classify IPF
cases rather than the DRG classification system. A few commenters
suggested that CMS use a modified version of the DSM diagnostic
categories.
Response: We tested various groupings of diagnoses. Our data
analysis indicated that regrouping the ICD-9-CM codes into the DSM
diagnostic categories or other similar categories raised the
explanatory power of the payment model by less than one-half of one
percent. Thus, the DRGs and the DSM diagnostic categories explain the
same amount of per diem cost differences. Moreover, the research
conducted by THEORI, a research component of the Greater New York
Hospital Association, confirmed our results. Therefore, since we were
unable to detect a measurable difference in the explanatory power of
the DSM and DRGs with respect to the grouping of the ICD-9-CM codes, we
are finalizing the DRG approach.
As mentioned earlier, we are concerned about establishing a
different classification scheme for IPF PPS than is used for
psychiatric discharges under IPPS. We are also concerned about the
fiscal burden associated with establishing a separate classification
system for the IPF PPS.
As a result, this final rule includes adjustment factors for the
DRG assigned to the claim. The coefficient values and adjustment
factors were derived from the final regression analysis. The adjustment
factors are expressed relative to DRG 430. See Table 3 at the end of
this section and Addendum A.
Comment: Commenters overwhelmingly disagreed with the proposed
policy to only pay for a limited selection of psychiatric diagnoses
under the IPF PPS. The commenters indicated that all DRGs containing
psychiatric codes should be recognized in the final IPF PPS. Other
commenters recommended that CMS add a new DRG ``Other Psychiatric
Diagnosis'' to include the ICD-9-CM diagnosis codes that are excluded
when crosswalked to the DSM-IV-TR.
Response: As we explained earlier in this section, we agree that
the IPF PPS should recognize all ICD-9-CM psychiatric codes regardless
of their DRG assignment. Therefore, we will provide the Federal per
diem base rate payment under the IPF PPS for claims with a principal
diagnosis included in Chapter Five of the ICD-9-CM or the DSM-IV-TR.
However, only those claims with diagnoses that group to a psychiatric
DRG will receive a DRG adjustment. Although the IPF will not receive a
DRG adjustment for a principal diagnosis not found in one of our
identified 15 psychiatric DRGs, the IPF will still receive the Federal
per diem base rate and all other applicable adjustments. Since there
are only a few non-psychiatric DRGs that contain one or two rarely used
psychiatric codes, whose frequencies were so low that we were unable to
calculate an adjustment, we believe this is an equitable way to pay for
these cases.
We have not established a new DRG for these psychiatric ICD-9-CM
codes that are assigned to non-psychiatric DRGs. Rather, we plan to
monitor the data from these other codes and, if indicated through data
analysis, may consider proposing revisions to this policy in the
future.
Comment: One commenter requested that we revise the DRG adjustment
factor to 1.00 for DRG 433 Alchohol/Drug Abuse or Dependence, Left
Against
[[Page 66938]]
Medical Advise. The commenter indicated that the 0.88 proposed
adjustment factor would be insufficient to cover the extensive
diagnostic procedures, complex treatment, and monitoring these patients
often needed.
The commenter also indicated that since the total reimbursement for
these patients is directly related to their length of stay, there
should be no penalty attached to the DRG assignment.
Response: Our analysis did not indicate or reflect that a 1.00
adjustment was appropriate. The analysis, a cost regression analysis
that used hospital claims data resulted in 0.88 adjustment factor for
DRG 433 Alchohol/Drug Abuse or Dependence, Left Against Medical Advise.
Unlike IPPS that uses DRG weights as the basis for payment, the IPF PPS
payment is based on a Federal per diem base rate and numerous
additional payment adjustments. In addition to DRG adjustments, the IPF
PPS payment includes payment adjusters to accommodate differing lengths
of stays (the variable per diem adjustment) that is intended to account
for the increased cost in the early days of an inpatient stay. For more
information on the variable per diem adjustments, see section VI.B.5 of
this preamble.
Comment: A commenter asked for clarification as to the
classification of substance abuse as a psychiatric condition.
Response: Substance abuse is not only included in Chapter Five
(Mental Disorders) of the ICD-9-CM and defined in the DSM-IV-TR
(Substance-Related Disorders) but is also included in the Psychiatric
Boards, which physicians take to become Board Certified in the field of
psychiatry. However, substance abuse is rarely the primary diagnosis
for inpatient psychiatric treatment, and in those rare cases, there are
generally mitigating factors to justify why the patient cannot be
treated in an outpatient setting. To be covered as an inpatient
hospital service, it must meet the criteria for being medically
necessary.
[GRAPHIC] [TIFF OMITTED] TR15NO04.442
2. Comorbidities
In the proposed rule, we proposed 17 comorbidity categories and
identified specific ICD-9-CM codes that would generate a payment
adjustment. Our intent was to identify conditions that would require
comparatively more costly treatment during an IPF stay than other
comorbid conditions.
We specifically solicited comments on other conditions that may be
expected to increase the per diem cost of care in IPFs. In response, we
received a number of comments regarding our proposed comobidity
adjustments. A number of commenters expressed support that the proposed
IPF PPS recognized the increased cost associated with comorbid medical
conditions. Others identified what they believe to be flaws in the
analysis used to develop the proposed comorbidity adjustments. A
majority of the commenters indicated that hospitals design specialized
programs with highly trained staff to treat Medicare beneficiaries who
are disabled or geriatric psychiatric patients. The commenters stated
that the proposed comorbidity adjustments are inadequate to capture
these coexisting medical and psychiatric conditions requiring treatment
during a hospital stay.
We also received comments offering suggestions on how we could
improve the comorbidity list. The suggestions ranged from a request for
addition of a single ICD-9-CM code to a request for comorbidity
categories to account for every ICD-9-CM and DSM-IV-TR diagnosis.
Comment: Commenters expressed concern that payment for treating
complex cases would decrease because the proposed comorbidity list does
not include the conditions seen in their patient populations. Several
comments stated that most psychiatric patients are treated for multiple
common conditions and illnesses (for example, heart conditions,
stroke), none of which would trigger a payment adjustment under the
proposed IPF PPS.
Other commenters stated that the proposed comorbidity list includes
mostly acute medical conditions that would require transfer to an acute
care hospital. One commenter indicated that the adjustment proposed for
renal failure should be much higher. Many commenters stated that the
range of diagnostic codes proposed for adjustment often did not include
all the ICD-9-CM codes within a diagnostic category. For example, the
list of codes under diabetes did not include all the diabetes codes.
Response: We have reconsidered our approach to the comorbidity
adjustments and have revised the comorbidity list. We analyzed the FY
2002 data to determine the prevalence of the diagnoses suggested most
often in the public comments (for example,
[[Page 66939]]
hypertension, chronic constructive pulmonary disease, and urinary tract
infection). In an attempt to address the commenters concerns, we had
CMS staff physicians and FI Medical Directors who are psychiatrists
review the list of proposed comorbidities and cost and frequency data
on all ICD-9-CM diagnoses codes that had been submitted on the FY 2002
claims.
We explained to the CMS staff physicians and FI Medical Directors
that the data used in calculating the Federal per diem base rate for
both the proposed rule and the final rule included all the costs for
comorbid diagnoses submitted in the FY 2002 claims. Therefore, the cost
for providing patient care (for example, medications, and routine
nursing care required for the common conditions seen in the psychiatric
population and recommended for comorbidity adjustment by the commenters
(that is, heart conditions or strokes) are included already in the
Federal per diem base rate and a comorbidity adjustment for their
presence was unnecessary.
One significant issue raised by the CMS physician and FI Medical
Director panel was the extent of medical treatment permitted in a
psychiatric unit. In the secure environment of a psychiatric unit,
common treatments such as IV antibiotics therapy would not be permitted
as they could compromise patient safety. The prohibition of items that
present a potential risk as a mechanism to inflict injury on oneself or
others is strictly enforced. Thus, for many medical treatments for the
more complex and costly comorbid, medical, or surgical conditions the
psychiatric patient would be required to be moved to a medical floor
for treatment with one-on-one staff observation. Consequently, since
the patient would no longer be a patient of the IPF, it would be
unnecessary to give the IPF an adjustment for such a case.
The intent of the comorbidity adjustments is to provide additional
payments for a concurrent medical or psychiatric condition that is
expensive to treat. The physicians determined that the high cost of
certain diagnoses is related to the cost of the therapy to treat the
diagnoses. For example, the cost to treat a patient with a malignant
neoplasm is related primarily to the cost of the therapy to treat the
tumor, whether it is chemotherapy or radiation therapy, or both. As a
result, we have added two ICD-9-CM V codes, one for chemotherapy
(V58.0) and for one radiation treatment (V58.1). We are also requiring
that, in order to receive the comorbidity adjustment for malignant
neoplasm, IPFs will need to code the ICD-9-CM code for the specific
malignant neoplasm from the ICD-9-CM chapter 2 codes (140-239) and one
of the two ICD-9-CM procedures codes (chemotherapy ((V58.0)) or
radiation treatment ((V58.1)) to indicate the treatment modality the
patient received.
Based on the clinical expertise of the CMS physicians and FI
Medical Directors, we made numerous changes to the list of ICD-9-CM
codes eligible for a comorbidity adjustment. These changes include
adding one new category entitled, ``Developmental Disabilities,''
deleting the ``HIV'' category and moving it into the ``Infectious
Diseases'' category, and changing the titles of two categories from
``Malignant Neoplasms'' to ``Oncology Treatments'' and for
``Atherosclerosis of extremity with Gangrene'' to ``Gangrene.''
In response to comments requesting adjustment for Developmental
Disabilities and the results of the regression analysis on the FY 2002
data, the higher cost of caring for patients with developmental
disabilities indicated a comorbidity adjustment of 1.04 was
appropriate. The regression analysis of FY 2002 data would have
provided the same adjustment for the ``HIV'' category as for the
``Infectious Disease'' category. Therefore, we merged the two
categories under the ``Infectious Disease'' category with an adjustment
factor of 1.07. The ``Malignant Neoplasm'' category was modified to
``Onocology Treatments'' since the CMS staff physicians and FI Medical
Directors believed the higher cost was related to the treatment of the
neoplasms rather than the presence of the tumor. We are also requiring
that the treatment code be included on the claim form to receive the
1.07 comorbidity adjustment. The last category change was in the title
of ``Atheroscleosis of Extremity with Gangrene to ``Gangrene'' to
account for the higher cost of a patient with gangrene regardless of
the cause.
The design of the IPF PPS with Federal per diem base rate, together
with the numerous available adjustments, outlier policy, and stop loss
policy during the 3-year transition should prevent the facility from
being disadvantaged by decrease in payment for their more complex
patients.
We are providing below a table that compares the proposed
comorbidity categories to the categories we are adopting in this final
rule.
BILLING CODE 4120-03-P
[[Page 66940]]
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BILLING CODE 4120-03-C
[[Page 66941]]
Comment: Several commenters suggested that CMS include all
psychiatric and non-psychiatric diagnoses submitted on the claim,
whether they are designated as the primary or secondary.
Response: Billing instructions require hospitals to enter the ICD-
9-CM code for the patient's principal diagnosis. The code must be the
full ICD-9-CM diagnosis code, including all five digits when
applicable. The principal diagnosis is the condition established after
study to be chiefly responsible for this admission. Even though another
diagnosis may be more severe than the principal diagnosis, the hospital
enters the principal diagnosis. Entering any other diagnosis as
principal on the claim form may result in incorrect DRG assignment and
cause the hospital to be incorrectly paid. The hospital is also
instructed to enter the full ICD-9-CM codes for up to 8 additional
conditions if they co-existed at the time of admission or develope
subsequently, and which had an effect upon the treatment or the length
of stay. These codes may not duplicate the principal diagnosis.
The regression analysis established the DRG adjustment factors
based on the principal diagnoses reported by hospitals and the
comorbidity category adjustments based on the all the diagnoses
reported by hospitals as other diagnoses. The principal diagnoses were
used to establish the DRG adjustment and were not accounted for in
establishing the comorbidity category adjustments, except where ICD-9-
CM ``code first'' instructions apply. A description of the ``code
first'' instructions appears in the next section of this final rule.
Comment: Several commenters indicated that the comorbidity
adjustment factors did not take into account the extensive workup their
patients require, such as the need for additional ancillary services
(for example, specific medical or neurological examinations,
specialized laboratory and radiological tests, supplies, medications,
and consultations). In many instances, the commenter stated that these
additional services are needed to identify the numerous physical
conditions that exacerbate or first present as psychiatric symptoms.
Response: The adjustment factors for the proposed comorbidity
categories were derived from the proposed regression analysis.
Similarly, the final adjustment factors for the final comorbidity
categories were derived from the final regression analysis. With regard
to the additional ancillary services the commenters' patients require
to establish their principal diagnoses, the variable per diem
adjustments discussed in section VI.B. 5. of this final rule are
intended to account for higher per diem costs early in an inpatient
stay.
Comment: Commenters expressed concern that the comorbidity policy
does not account for the costs associated with social issues (for
example, poverty, lack of housing, poor nutrition, lack of primary
medical care, and the cost of involuntary commitments and guardianship
hearings). The commenters also expressed concern that the comorbidity
policy does not account for the costs of patients with hearing, sight,
and mobility disabilities or when English is not the patient's primary
language.
Response: Most of the social issues identified by the commenters
are not captured in the FY 2002 IPF claims data. As a result, we are
not able to determine whether the psychiatric hospitalizations of
patients with various social issues are more costly on a per diem basis
than other psychiatric patients. Because we lack data that indicates
IPFs that treat patients with various social issues are more costly on
a per diem basis, we are not providing an adjustment in these cases.
We note that codes are currently available that describe some of
the social issues that impact care delivery and management. For
example, there are V codes to indicate that the patient has problems
with sight (V41.0), problems with hearing (V41.2), or lack of housing
(V60.0). Even though we have codes for problems with sight, hearing, or
lack of housing, we had too few cases to be able to extrapolate any
valuable empirical data that the presence of these codes correlated to
higher per diem costs. We encourage IPFs to code all relevant diagnoses
that impact the resources associated with their patient population for
future analysis.
We note that one of the fields on the claim form indicates if
patients were referred to the IPF by law enforcement or if the
commitment were court ordered (FL 20 item 8, court/law enforcement). As
a result, we were able to analyze the impact on per diem cost. The
results of our analysis are included in section VI of this rule with
other patient variables considered.
Comment: One commenter stated that diagnostic data alone may not be
descriptive enough to supply the information CMS is seeking regarding
comorbidities.
Response: Section 124 of the BBRA provides authority for CMS to
require IPFs to submit additional data. We are not mandating new
reporting requirements at this time, however, we may establish new
reporting requirements based on results of the research underway to
refine the IPF PPS.
Comment: One commenter asked how the comorbidity adjustment would
be applied if a patient has multiple diagnoses within the same
comorbidity category.
Response: IPFs may only receive one adjustment factor for each
comorbidity category. However, if a patient has multiple diagnoses in
several categories, the adjustment factors for each applicable category
are multiplied by the Federal per diem base rate. The following is an
example illustrating how payment would be made under the IPF PPS for a
patient with multiple comorbidities
.Example: A 68 year old Female Caucasian presents at a qualified
ED and is subsequently admitted to a non-teaching inpatient
psychiatric facility within the ``I'll Feel Better Hospital'' in
rural Smalltown, North Dakota. The ED is determined to be full-
service and the patient had not been discharged from an IPPS stay.
The patient had a primary diagnosis of Neurotic Depression (IDC-9-CM
code 3004) DRG 426 Depressive Neuroses, and comorbid conditions of
Obstructive Chronic Bronchitis without exacerbation 491.20, and
mechanical complication of Tracheostomy ICD-9-CM code (ICD-9-CM code
519.02), Diabetes with ophthalmic manifestations (ICD-9-CM code
250.53), and Diabetes with peripheral circulatory manifestations
(ICD-9-CM code 250.73). The patient length of stay was 10 days. In
addition, the patient did not receive ECT during her inpatient stay.
[[Page 66942]]
[GRAPHIC] [TIFF OMITTED] TR15NO04.444
Calculate Total Wage Adjusted Rate:
Step 1: Multiply the Wage Index Factor (for North Dakota) by the
Labor Portion of the Federal base rate to get the Adjusted Labor
Portion of the Federal per diem base rate = (0.7743 x 417.73 =
$323.45).
Step 2: Add the Adjusted Labor Portion of the Federal Base Rate to
the Non-Labor Portion of the Federal per diem base rate to get the
Total Wage Adjusted Rate = (323.45 + 158.22 = $481.67).
Apply Facility- and Patient-Level Adjusters
Step 1: Using the information in Addendum A, determine which
facility- and patient-level adjustment factors are applicable.
1. Teaching Adjustment: None.
2. Rural Adjustment: North Dakota--1.17.
3. COLA: None.
4. DRG Adjustment: DRG 426--Depressive Neuroses--0.99.
5. Age Adjustment: Age 68--1.10.
6. Comorbidity (All comorbidity codes are cited as presented in the
ICD-9-CM text)
Comorbidity 491.20--Obstructive Chronic Bronchitis without
exacerbation--None.
Comorbidity 519.02: Mechanical complication of Tracheostomy--1.06.
Comorbidity 250.53: Diabetes with ophthalmic--manifestations (Use
additional code to identify manifestation as 362.02)--1.05.
Proliferative Diabetic Retinopathy [not allowed as principal Dx-
``CODE FIRST'' underlying disease as DIABETES 250.5) and Comorbidity--
250.73--Diabetes with peripheral Circulatory--None 2nd in Category
manifestations, (Use additional code to identify manifestation as
443.81--Diabetic Peripheral angiopathy [not allowed as principal Dx-
``CODE FIRST'' underlying disease as DIABETES MELLITUS 250.7).
7. ECT Treatments--None.
Step 2. Multiply the applicable adjustment factors to determine the
PPS Adjustment Factor. = (1.17 x 0.99 x 1.10 x 1.06 x 1.05 = 1.4181).
Step 3. Calculate the Adjusted Per Diem.
Multiply the Total Wage Adjusted Rate by the PPS Adjustment Factor.
= ($481.67 x 1.4181 = 683.06).
Calculate the variable per diem adjustment.
Step 1. Determine the number of days in the stay.
Length of Stay: 10 days and the facility has a qualifying ED.
Day 1--1.31
Day 2--1.12
Day 3--1.08
Day 4--1.05
Day 5--1.04
Day 6--1.02
[[Page 66943]]
Day 7--1.01
Day 8--1.01
Day 9--1.00
Day 10--1.00
Step 2. Multiply the Variable Per Diem Adjustment Factors by the
Total Wage and PPS-Adjusted Per Diem for each day of the stay to get
the Total Variable Per Diem Amounts for each day of the stay. (See
multiplication in step 3 below.)
Step 3. Add the Adjusted Variable Per Diem Amounts to get the Total
Inpatient Psychiatric Facility PPS Payment.
Day 1 (adjustment factor 1.31) x 683.06 = $894.81
Day 2 (adjustment factor 1.12) x 683.06 = $765.03
Day 3 (adjustment factor 1.08) x 683.06 = $737.70
Day 4 (adjustment factor 1.05) x 683.06 = $717.21
Day 5 (adjustment factor 1.04) x 683.06 = $710.38
Day 6 (adjustment factor 1.02) x 683.06 = $696.72
Day 7 (adjustment factor 1.01) x 683.06 = $689.89
Day 8 (adjustment factor 1.01) x 683.06 = $689.89
Day 9 (adjustment factor 1.00) x 683.06 = $683.06
Day 10 (adjustment factor 1.00) x 683.06 = $683.06
Federal per diem payment amount $7,267.75
Comment: A commenter asked if the comorbidity adjustments would be
applied to each day of the stay regardless of the patient's length of
stay. For example, poisoning and arteriosclerosis of the extremity with
gangrene may have higher cost only for the early days of a stay.
Response: The comorbidity adjustments are applied to each day of
the stay. In estimating the cost impact of the comorbidity conditions,
our dependent variable reflects the average cost per day over the
entire stay. A significant effect on this cost variable for a
comorbidity condition means that the average cost per day was higher
for cases with the specific condition. Therefore, it is appropriate to
apply the estimated effect to each day of the stay.
We would be especially concerned if data analysis began to show
longer lengths of stay for DRG 424 stays or significantly more DRG 424
stays, with DRG 424 being the surgical DRG. We intend to monitor for
changes in length of stay and the distribution of IPF cases across DRGs
to ensure that the decision to pay all applicable adjustments
throughout the stay does not lead to inappropriate increases in the
length of stay or frequency of those cases.
Comment: One commenter indicated that the comorbidity policy does
not distinguish between dormant serious medical conditions and labor-
intensive procedures requiring additional behavioral and medical
treatments during the IPF stay. Another commenter stated that when a
non-psychiatric diagnosis exists in addition to a psychiatric
diagnosis, the ICD-9-CM code for the non-psychiatric diagnosis should
also be reported on the claim.
Response: In Sec. 412.402 definitions, we proposed the following
definition of comorbidity: ``Comorbidity means all specific patient
conditions that are secondary to the patient's primary diagnosis and
that coexist at the time of admission, develop subsequently, or affect
the treatment received or the length of stay or both. Diagnoses that
relate to an earlier episode of care that have no bearing on the
current hospital stay are excluded.'' A serious medical condition that
does not require treatment during the hospital stay must not be
reported as a secondary or tertiary diagnosis and will not qualify for
a comorbidity adjustment. We are retaining the proposed comorbidity
definition in this final rule.
Comment: One commenter recommended that we provide an adjustment to
reflect the increased staffing, greater frequency of comorbid
conditions, and longer length of stay for developmentally disabled
patients.
Response: We analyzed the frequency and costs in the FY 2002 claims
data associated with developmentally disabled patients. We identified
relevant claims by the presence of an ICD-9-CM code in the 317 through
319 range entered as a diagnosis in addition to a psychiatric principal
diagnosis. We found that per diem costs associated with inpatient
psychiatric stays of developmentally disabled mentally ill patients,
are approximately 4 percent higher than stays for other patients. As a
result of this analysis, we are establishing a new comorbidity category
to reflect the higher per diem costs of developmentally disabled
patients. The final IPF PPS comorbidity categories and adjustment
factors are presented in the table below and Addendum A.
BILLING CODE 4120-03-P
[[Page 66944]]
[GRAPHIC] [TIFF OMITTED] TR15NO04.445
BILLING CODE 4120-03-C
3. Other Coding Issues
We received several comments related to discrepancies with
established coding conventions.
Comment: One commenter requested that CMS specify that hospitals
must follow the ICD-9-CM Official Guidelines for Coding and Reporting
and the Coding Clinic for ICD-9-CM. In addition, the commenter
advocated the use of certified coding professionals to assign and
validate codes and assist in the development of hospital coding policy.
Response: We agree with the commenter about the value of certified
coding professionals. The ICD-9-CM Official Guidelines for Coding and
Reporting was developed and approved by the Cooperating Parties for
ICD-9-CM: The American Hospital Association, the American Health
Information Management Association, the Centers for Medicare & Medicaid
Services (formerly the Health Care Financing Administration or HCFA)
and the National Center for Health Statistics to be used as a companion
document to the official version of the ICD-9-CM as
[[Page 66945]]
published by the Department of Health and Human Services and the Coding
Clinic for ICD-9-CM, published by the American Hospital Association. In
addition, this decision is consistent with the Standards for Electronic
Transaction final rule (65 FR 50312). The ICD-9-CM Official Guidelines
for Coding and Reporting can be found at http://www.cdc.gov/nchs/data/ics9/icdguide.pdf
.
Comment: Several commenters requested that CMS provide detailed
information about medical necessity requirements to support an IPF
stay. The commenters expressed concern that IPFs are not experienced
with medical review and the need to document medical necessity to
support the stay. The commenters believe that in the absence of clear
national standards for determining medical necessity, IPFs will be
subject to various local coverage decisions promulgated by FIs.
Other commenters were concerned about the potential of differential
access to inpatient psychiatric care depending on the geographic
location of the IPF and how each FI interprets medical necessity. These
commenters suggested that CMS incorporate safeguards against clinically
unrealistic, inefficient, or inappropriate medical review practices by
FIs. The commenters recommended that CMS include a mechanism for
impartial appeal of FI decisions to ensure appropriate payment of IPF
claims.
Response: Inpatient psychiatric services are intended for patients
that require more intense services than can be provided in an
outpatient setting. As a result, the patients admitted to an IPF must
require intensive, comprehensive, multimodal treatment including 24
hours per day of medical supervision and coordination because of the
mental disorder. The need for 24 hours of supervision may be due to the
need for patient safety, psychiatric diagnostic evaluation, potential
severe side effects of psychotropic medication associated with medical
or psychiatric comorbidities, or evaluation of behaviors consistent
with an acute psychiatric disorder for which a medical cause has not
been ruled out.
The acute psychiatric condition being evaluated or treated by
inpatient psychiatric hospitalization must require active treatment,
including a combination of services (for example, intensive nursing and
medical interventions, psychotherapy, occupational and patient
education). Patients must require inpatient psychiatric hospitalization
services at levels of intensity and frequency exceeding what may be
rendered in an outpatient setting including partial hospitalization
programs.
If a provider receives a medical necessity denial, they have the
right to appeal the FI's determination that the inpatient hospital
services were not reasonable and necessary. A request for
reconsideration must be in writing and filed with the FI. The provider
should contact their FI for additional information on the appeal
process. The prescribed form to request an FI reconsideration ``MCS-
2649, Request for Reconsideration of Part A Health Insurance Benefits''
is located on the CMS web site at http://www.cms.hhs.gov/forms.
Comment: Several commenters indicated that the proposed rule
included coding policies that were inconsistent with the ICD-9-CM
Official Guidelines for Coding and Reporting with respect to the
designation of primary and secondary diagnoses (the ``code first''
policy).
Response: In the proposed rule, we inadvertently failed to include
the ICD-9-CM instructions pertaining to the code first diagnosis codes.
The introduction of the ICD-9-CM text includes ``Instructional
Notations'' in which ``code first'' underlying disease is explained.
This instruction is for codes that are not intended to be used as a
principal diagnosis or for those codes that are not to be sequenced
before the underlying disease. The note requires that the underlying
disease (etiology) be coded first (identified as the principal and
diagnosis) with the code the note is applied to being coded second.
This note appears only in the Tabular List (Volume 1).
The ICD-9-CM Official Guidelines for Coding and Reporting includes
the following instructional guidance regarding the code first policy:
``(1) The guidelines identify codes that have both an underlying
etiology and multiple body system manifestations due to the underlying
etiology. The coding convention requires the underlying condition be
sequenced first followed by the manifestation. Whenever a combination
exists, there is a ``use additional code'' note at the etiology code,
and a ``code first'' note at the manifestation code. These
instructional notes indicate the proper sequencing order of the codes,
that is, etiology followed by manifestation.
(2) ``Code first'' notes are also under certain codes that are not
specifically manifestation codes but may be due to an underlying cause.
When a ``code first'' note is present and an underlying condition is
present, the underlying condition should be sequenced first.
(3) Code, if applicable any causal condition first, notes indicate
that this code may be assigned as a principal diagnosis when the causal
condition is unknown or not applicable. If a causal condition is known,
then the code for that condition should be sequenced as the principal
or first-listed diagnosis.
(4) Multiple codes may be needed for late effects, complications
and obstetrics to more fully describe a condition. See the specific
guidelines for these conditions for further instruction.''
For example, diagnosis code 294.1 Dementia in Conditions Classified
Elsewhere is designated as a code first diagnosis and appears in the
ICD-9-CM as follows:
294.1 Dementia in Conditions Classified Elsewhere
Code first any underlying physical condition, as:
Dementia in:
Alzheimer's disease (331.0)
Cerebral lipidosis (330.1)
Dementia with Lewy bodies (33.82)
Dementia with Parkinsonism (331.81)
Epilepsy (345.0-345.9)
Frontal dementia (331.19)
Frontotemporal dementia (331.19)
General paresis [syphilis] (094.1)
Hepatolenticular degeneration (275.1)
Huntington's chorea (333.4)
Jacob-Creutzfeldt disease (046.1)
Multiple sclerosis (340)
Pick's disease of the brain (331.11)
Polyarteritis nodosa (446.0)
Syphilis (094.1)
In accordance with the ICD-9-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-9-
CM text. For example, 294.1, Dementia in conditions classified
elsewhere states ``code first any underlying physical condition as:''
the provider would then code the appropriate physical condition, for
example, 333.4 Huntington's chorea as the primary diagnosis and 294.1
as the secondary diagnosis. The submitted claim goes through the CMS
processing system that 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.
A list of ICD-9-CM codes identified as code first is provided in
Addendum C.
Comment: A commenter questioned whether IPFs would be required to
report ICD-9-CM procedure codes.
[[Page 66946]]
Response: IPFs will be required to report those ICD-9-CM codes
indicated in the billing instructions. As mentioned above, the only
unique coding will be for oncology treatment which requires the ICD for
the specific neoplasm and the appropriate treatment V code V580
chemotherapy or V581 radiation. In addition, as discussed in section
VI.B.5.C. of this final rule, we are providing additional payments for
patients who undergo ECT treatments. In order to receive the additional
payments, IPFs will have to report the ICD-9-CM procedure code for ECT
(code 90870) and indicate the number of ECT treatments the patient
received during the IPF stay. We encourage IPFs to provide as much
information on the claim form to describe the services furnished to
validate the principal diagnosis for payment purposes.
Comment: One commenter asked if delirium is considered a primary,
secondary, or medical condition. The commenter also asked if delirium
should be considered an adjustment disorder.
Response: Coding decisions are based on how the physician describes
the diagnosis. The physician needs to indicate the type or cause of the
delirium, which will determine whether the delirium is psychiatric
diagnosis, a psychiatric secondary diagnosis (comorbidity), or a
medical comorbid condition. According to the ICD-9-CM, delirium is
listed as caused by medical conditions, substance or alcohol abuses, or
with psychosis. Delirium is primarily located in the 290 series of ICD
codes. If the physician indicates that the patient's diagnosis is
``delirium, delirious'' the ICD-9-CM index would refer to ICD-9-CM code
780.09--Alteration in consciouusness--Other. However, if the physician
specifies that the delirium is acute, then the ICD-9-CM code is 293.0--
Delirium Due to Condition Classified Elsewhere, and if the Delirium is
caused by alcohol abuse, the ICD-9-CM code is 291.0--Alcohol withdrawal
delirium. We recommend that the commenter review the ICD-9-CM index
under the term delirium (to determine the different types of
diagnosis).
We are not responsible for the determination of clinical definition
and criteria. To establish how a condition is defined or identified,
providers should review a text of psychiatric diagnoses. We are
providing the definition for delirium and adjustment reaction or
disorder as defined in the ICD-9-CM (2004) for the convenience of the
reader.
Delirium is defined as ``Transient organic psychotic condition with
a short course in which there is a rapidly developing onset of
disorganization of higher mental processes manifested by some degree of
impairment of information processing, impaired or abnormal attention,
perception, memory, and thinking. Clouded consciousness, confusion,
disorientation, delusions, illusions, and often vivid hallucination
predominate in the clinical picture.''
Adjustment reaction or disorder is defined as ``Mild or transient
disorders lasting longer than acute stress reactions which occur in
individuals of any age without any apparent preexisting mental
disorder. Such disorders are often relatively circumscribed or
situation-specific, are generally reversible, and usually last only a
few months. They are usually closely related in time and in content to
stresses such as bereavement, migration, or other experiences.
Reactions to major stress that last longer than a few days are also
included. In children, such disorders are associated with no
significant distortion of development.''
In review of the DSM diagnostic criteria, delirium is not included
in the ``Adjustment Disorder'' category. Based on the ICD-9-CM
definition and the DSM diagnostic criteria, we would not expect
delirium to be identified as an adjustment disorder.
Comment: One commenter asked how to code multiple addictions, for
example, drug and alcohol, or two drug diagnoses.
Response: We encourage IPFs to code all diagnoses requiring active
treatment during the IPF stay. The ICD-9-CM index entry for addiction
provides several sub-terms to direct the coder to the most appropriate
ICD-9-CM code. The ICD-9-CM code for alcohol dependence is 303.9.
However, the ICD-9-CM indicates under code 303.9 that a fifth digit is
required based on whether the physician inidicates that the dependence
is continuous, episodic, in remission, or there is no information, that
is, unspecified.
Separate codes are listed for drug addiction. The index refers
coders to ``see dependence''. Under dependence, there are a variety of
codes depending upon the specific addiction. The coder would enter as
many codes as required to cover all the patient's dependencies (drug
and alcohol). However, as noted above, only one comorbidity adjustment
per comorbidity category will be paid under the IPF PPS.
Comment: Several commenters requested clarification of specific
ICD-9-CM codes they suspected were erroneous.
Response: We agree with the commenters and acknowledge that we made
the following typographical errors in the proposed rule:
In Table 3 (68 FR 66931), in the Infectious Disease
category, the correct range of codes is 07950 through 07959.
In table 7 (68 FR 66941), the correct adjustment for
Diabetes is 1.10 and the correct adjustment factor for Chronic Renal
Failure is 1.14.
4. Patient Age
We proposed a 13 percent payment adjustment for patients 65 years
of age and over to reflect the additional costs associated with
treating elderly patients. We received a wide range of comments about
the proposed age adjustment. In general, the comments favored the
creation of additional age groups and payment adjustments.
Comment: Commenters requested clarification on how the proposed 13
percent differential between age groups was calculated. The commenters
stated that the proposed adjustment factor is too low and does not
reflect the current cost required to treat the elderly.
Several commenters recommended that CMS revise the age groupings to
include a payment adjustment for patients under 14 years of age, under
40 years of age, 55 to 64 years of age, and 75 years of age and over.
Other commenters suggested a payment adjustment for patients 65 years
of age and over with increments added for each additional 5 years in
age.
Response: As indicated in the proposed rule (68 FR 66931), the 13
percent differential was calculated using the same cost regression that
was used to estimate the payment adjustments for the other variables
included in the proposed payment system. The dependent variable was the
natural logarithm of average cost per day for each inpatient stay. The
regression included a single variable for persons 65 years of age and
over to estimate the relative cost per day of persons 65 years of age
and over compared to persons less than 65 years of age. Since the cost
variable was in logarithms, the age coefficient in the cost regression
was then raised to the power of the base e to convert it to the
relative payment factor, 1.13.
In response to the public comments to create additional age payment
adjustments (under 14 years of age and under 40 years of age, 55 to 64
years of age, and over 75 years of age), we updated our analysis of the
impact of age on per diem cost by expanding the age variable (that is,
the range of ages for payment adjustments). Since we have relatively
few cases for persons under 40 years of age (and virtually no cases for
persons under 14 years of age), we
[[Page 66947]]
combined all persons under 40 years of age into a single category.
Similarly, all persons over 80 years of age were placed in a single
category. For patients in between 40 and 80 years of age, we
categorized cases into 5-year intervals. As indicated in the proposed
rule, the cost per day increases with increasing age. With the
exception of the 40 through 44 age group, all the older age groups are
more costly than the under 40 years of age group, the differences
increase for each successive age group, the differences among the age
groups increase for each successive age group, and the differences are
statistically significant.
Based on these results, in this final rule we are expanding the
relative adjustment factor for age from the single factor for patients
65 years of age and over to 8 adjustment factors beginning with age
groupings 45 and under 50 years of age to patients 80 years of age and
over. The magnitudes of these factors are shown in Table 6 below and in
Addendum A. We are also adopting as final the same methodology we used
in the proposed rule (that is, cost regression analysis) except we are
using an updated and revised regression based on FY 2002 data and the
age groupings described above (that is, 5 year intervals and 8
adjustment factors).
[GRAPHIC] [TIFF OMITTED] TR15NO04.446
5. Variable Per Diem Adjustments
Cost regressions indicate that the per diem cost declines as the
length of stay increases. Therefore, we proposed adjustments to account
for ancillary and certain administrative costs that occur
disproportionately in the first days after admission to an IPF. As we
explained in the proposed rule, we examined the per diem cost over a
range of 1 to 14 days. According to the FY 1999 MedPAR data file, the
per diem costs were highest on day 1 and declined for days 2 through 8
as follows. Per diem costs for days 9 and thereafter remained
relatively constant. The proposed cost regression analysis was used to
determine the proposed payment adjustment factors. Relative to a stay
of 9 or more days, we proposed a variable per diem adjustment of 26
percent for day 1, a 12-percent adjustment for days 2 through 4, and a
5-percent adjustment for days 4 through 8. No variable per diem
adjustments would be made after the 8th day.
We received multiple comments on the proposed variable per diem
adjustments, primarily dealing with the amount of the proposed payment
adjustments and the breakpoints for the adjustments.
Comment: One commenter asked how CMS determined the cost per day
for the different lengths of stay. Another commenter recommended more
justification of the method used to control for length of stay.
Specifically, this commenter asked whether CMS tested alternative
breakpoints for the length of stay categories and whether CMS
considered other approaches for estimating the relationship between per
diem cost and length of stay. One commenter objected to the proposed
length of stays blocks, in which days 2 through 4 and days 5 through 8
would be paid at the same rate rather than declining smoothly for each
successive day. The commenter believes that the proposed approach
creates incentives to terminate or unnecessarily extend the length of
stay.
Response: As indicated in the proposed rule, the relationship
between cost per day and length of stay was estimated within the same
cost regression used to derive other payment adjustments. First, we
defined variables for each stay's length of stay (from 1 to 14 days).
The effects of the first 14 days on cost were measured relative to
stays of more than 14 days. Based on the results of this regression, we
considered payment breakpoints for each day up through 14 days. Based
on the size and pattern of variation of the regression coefficients for
the individual day coefficients (that is, the magnitude of decline), we
decided to group the days into the categories presented in the proposed
rule (that is, day 1, days 2 through 4, days 5 through 8, and days 9
and thereafter). We then re-estimated the cost regression including the
first 3 of these groups and stays of more than 8 days as the reference
group.
As a result of converting the regression coefficients to payment
factors, we proposed to pay the first day of each stay 26 percent more
than the Federal per diem base rate. Similarly, we proposed to pay days
2 through 4 of each stay 12 percent more than the Federal per diem base
rate and days 5 through 8 about 5 percent more than the Federal per
diem base rate. The Federal per diem base rate implicitly reflects the
cost of stays with more than 8 days.
We used regression analysis to estimate the average differences in
per diem cost among stays of different length. Regression analysis
simultaneously controls for cost differences associated with the other
variables (for example, age, DRG, and presence of specific
comorbidities). The regression coefficients measure the relative
average cost per day for stays of differing lengths compared to a
reference group's length of stay. In the proposed rule, the variable
per diem adjustment factors derived from the regression coefficients
were applied to specific days within the stay. As indicated above, we
proposed to pay all stays 26 percent more than the Federal per diem
base rate for day 1, 12 percent more than the base payment amount for
days 2 through 4, and 5 percent more than the base payment amount for
days 5 through 8.
To accurately measure the relative cost of specific days within the
stay, we need estimates of the additional or marginal (not average)
cost of those
[[Page 66948]]
days. Using the relative average cost differences as if they were
marginal cost differences will result in overpayment for the days with
payment factors greater than 1.00. The reason for the overpayment is
that, using a 4-day stay as an example, the average cost per day over
the 4 days already contains the higher marginal costs of the preceding
3 days. In paying more than the 4-day average cost per day for days 1
through 3, we would be paying more than the total cost of the stay.
In reconsidering the variable per diem adjustments for this final
rule, we re-evaluated the length of stay breakpoints in the regression
and the method of applying the regression results for payment. Using
the FY 2002 MedPAR data, we re-estimated the cost regression, expanding
the number of length of stay categorical variables from 1 through 14 to
1 through 30 days in order to potentially allow payments to decline in
smaller, more increments over a wider range of days. From the
regression, we derived factors indicating the average cost per day, for
example, a 1-day stay, a 2-day stay, and a 3-day stay, relative to a
stay of more than 22 days.
Since the variable per diem adjustments are applied to all IPFs
stays, the adjustments should reflect daily cost differences
experienced by all types of IPFs, and not cost differences among
different types of IPFs with different lengths of stay. Therefore, we
also tested the sensitivity of the regression coefficients to the
inclusion of the government-operated IPF stays, which tend to have
longer lengths of stay than the other types of IPFs. For example, about
one-third of all government-operated IPF stays are longer than 22 days,
compared to only 10 to 13 percent of stays in for-profit or non-profit
hospitals or in psychiatric units. We found that our coefficients
varied little depending on whether cases from government-operated IPFs
were included or excluded.
CMS-funded research by RTI International[reg], which was
not available for the proposed rule, provides additional information
about the variation in relative marginal costs by day of the stay. RTI
International[reg] examined the variation in routine
resource use across days within stays in its study of a sample of
patients from 40 facilities. RTI International[reg]
constructed a measure of a patient's routine cost for each of 7 days
during which they were collecting data within a facility.
As a result, RTI International[reg] data has a
significant advantage compared to the MedPAR data that was available at
the time of the proposed rule for examining cost variation by day-of-
stay. Specifically, RTI International[reg] data enabled them
to estimate a relationship between per diem cost and the day-of-stay
that is consistent with the way we used the variable per diem
adjustment factors for payment. In addition, since RTI
International[reg] did not average daily routine costs over
the entire length of stay, its estimates should provide a better
approximation of the relationship of marginal cost than we were able to
construct. RTI International[reg] did not collect
information on ancillary usage by day-of-stay. In constructing its
measure of daily total cost, RTI International[reg]
allocated 1 day of average ancillary costs from the matching MedPAR
stay record. RTI International[reg] used the same
breakpoints that we used for the proposed rule.
In the table below, we compare the revised CMS adjustment factors
with the RTI International[reg] day-of-stay relative
weights. Both sets of factors were scaled to set the day-9 (the median
length of stay) factor equal to 1.00. The two series of factors are
very similar, with the biggest differences occurring for days 2 to 4
and for day 19 and beyond. The differences for days 2 to 4 may be due
to how the two methods handle ancillary costs, especially our exclusion
of ED costs from the cost variable used in our regression analysis. The
differences for day 19 and beyond probably are a result of the fact
that RTI International[reg] only estimated specific day
effects for the first 14 days.
Overall, the similarity of the adjustment factors gives us
confidence that our variable per diem adjustment factors are reasonably
accurate. The revised factors are also responsive to the comment that
the variable per diem adjustments should decline more continuously than
those presented in the proposed rule. Therefore, in this final rule we
are using the updated variable per diem adjustment factors in adjusting
per diem payments by day-of-stay. We note that the variable per diem
adjustment are made in a budget-neutral manner.
[[Page 66949]]
[GRAPHIC] [TIFF OMITTED] TR15NO04.447
Comment: Several commenters recommended that CMS re-evaluate the
decision to have no variable per diem adjustment paid after the 8th
day. The commenters requested that we re-examine the analysis
supporting the conclusion that ``per diem costs for days 9 and
thereafter remain relatively consistent with the median length of
stay.''
A few commenters expressed concern that averages were used in all
analyses except for the proposed variable per diem adjustments that
were based on the median length of stay. The commenters believe use of
the median creates distortions and requested that CMS analyze the
impact if the variable per diem adjustments were based on the average
length of stay.
Response: We re-evaluated the decision to make no variable per diem
adjustments to the Federal per diem base rate beyond the eighth day. We
examined the per diem cost relationship for the first 30 days of the
stay and found that beyond day 22, there was no consistent continuing
pattern of decline. In addition, since the proportion of stays longer
than 21 days is relatively small, there is relatively high statistical
variability in the estimates of declining cost increases beyond day 22,
which makes the estimates less reliable. As a result of that analysis,
we found that the average per diem cost continued to decline until the
twenty second day. Therefore, in this final rule we are extending the
variable per diem adjustments through day 22. The adjustment for day 22
would be applied to any days after day 21.
We believe the commenter misunderstood the role of the median
length of stay in the variable per diem adjustment factors. As
indicated in the proposed rule, the median length of stay serves only
as a point of reference for the variable per diem adjustment factors
relative to the Federal per diem base rate (the day for which the
factor equals the base amount). In addition, the actual magnitudes of
the variable adjustment factors were not affected by using the median
in this manner because the median had no impact on the cost regression
from which the variable per diem adjustment factors are derived. The
Federal per diem payment would be the same no matter which day of the
stay (the median, the mean, or some other day) was used as the
reference point. In this final rule, we are adopting as final the same
methodology proposed to calculate the variable per diem adjustments.
Comment: A few commenters expressed concern that the lack of
variability in average daily charges results in understating the effect
of the length of stay variable.
Response: We disagree with the commenters. The RTI
International[reg] research evaluated the variation of per
diem cost by day of the stay using a measure of routine cost that
varied according to the day of the stay. In addition, the comparison of
RTI International[reg] results and our results did not
support the commenters' concerns that the variable per diem adjustment
factors are understated.
Comment: Many commenters recommended increasing the per diem
adjustment factor for day 1, or for the first several days of care.
One commenter recommended that in order to avoid the significant
impact the proposed rule would have on high cost per discharge-short
length of stay providers, the variable per diem adjustments for the
first days of the stay should be weighted higher. The commenter
recommended that CMS double the adjustments to 52 percent for day 1, 24
percent for days 2 through 4, and 10 percent for days 5 through 8.
Other commenters recommended that days 2 and 3 receive the same
adjustment factor as day 1. However, some commenters recommended that
the per diem payment be uniform rather than variable throughout the
patient's stay. They suggested that a higher per diem base payment
amount for each day
[[Page 66950]]
of stay would be preferable and more in line with the distribution of
costs over an inpatient episode.
Response: These comments reflect a wide range of opinion about the
appropriate range and magnitude of the variable per diem adjustment
factors. We have updated and revised our variable per diem adjustment
policy on the basis of our analysis of FY 2002 data and in response to
public comments. In arriving at the final variable per diem
adjustments, we have relied upon our empirical analysis, as previously
described earlier in this section, to better approximate the additional
costs of each successive day of the stay. We have also compared our
results with the results of CMS-funded research by the RTI
International[reg]. We believe that the outcome of the
process we undertook to improve the variable per diem adjustment
factors is a reasonably accurate, empirically-based set of adjustment
factors.
Comment: Several commenters expressed concern that the length of
stay assumptions in the proposed rule did not take into consideration
that certain interventions necessitate longer stays. A particular
commenter indicated that medical safety standards for ECT dictate stays
of more than 9 days.
One commenter stated that the elderly and younger chronically
mentally ill adults represent two groups with longer than average
lengths of stay. Another commenter stated that length of stay might be
increased by the inclusion of trainees in a patient's care.
Response: We are not sure that we understand these comments. As
required by the BBRA, the IPF PPS is a per diem system. As a result,
the IPF PPS recognizes differences in length of stay and will pay the
Federal per diem base rate and applicable adjustments for each day of
the inpatient stay. Therefore, the IPF PPS accounts for differences in
length of stay regardless of cause (including providing ECT or other
factors).
Comment: A few commenters recommended that CMS undertake a research
inquiry into the added staffing costs for the first few days of a stay
at an inpatient psychiatric unit or develop two per diems, one for
routine patients and another for ``clinically determined critical
patients.''
Response: The RTI International[reg] study addressed the
issue raised by this comment because it examined the variation in
routine cost by day of the stay. RTI International[reg]
studied this relationship for all the patients in its sample, which
included the full range of patients treated in IPFs. In addition, we
are not sure how we could define ``clinically determined critical''
patients, especially considering the common practice of admitting to
psychiatric facilities only those patients whose medical needs have
either been resolved or are sufficiently controlled as to require
limited attention for the period of the psychiatric admission.
Comment: One commenter expressed concern that CMS would
misinterpret increases in IPF admissions that result from the planned
transition of inpatient psychiatric care from government-operated
facilities to community-based resources such as private hospitals.
Response: Under the IPF PPS, both admissions referred to in the
comment would be paid on a per diem basis, so that each facility (the
government-operated facility and the private hospital) would be paid
for the days of care it provides.
Comment: One commenter recommended that CMS more accurately reflect
the MedPAR data by using a variable Patient Day adjustment equal to the
median value of 9 days, rather than limit the adjustments to days 1
through 8.
Response: By extending our analysis through 30 days, we more fully
modeled the shape of the relationship between average per diem costs
and length of stay and did not truncate the adjustments at either the
median or the mean length of stay. As a result, the revised variable
per diem adjustment factors presented in this final rule more
accurately reflect the cost-day relationship than those we presented in
the proposed rule.
Comment: One commenter recommended that CMS provide more
justification for the method used to control for length of stay.
A few commenters expressed concern that use of the median length of
stay significantly understates the length of stay for an IPF that
accepts chronic psychiatric patients (for example, a government-
operated psychiatric hospital). The commenters believe that the
proposed IPF PPS rewards acute psychiatric facilities for discharging
patients quickly and provides an incentive for those facilities to
discharge patients into government-operated IPFs.
Response: We believe the commenter misunderstood the intent of the
variable per diem adjustment policy, which is not to control for length
of stay, but to better align the payment of each day of the say with
its corresponding cost. Therefore, the facilities would have no
incentive to either shorten or extend a patient's length of stay beyond
what is clinically needed.
We agree with the commenters that certain types of IPFs have
lengths of stay greater than the median length of stay. The variable
per diem adjustment factors are intended to track the relative costs an
IPF needs to spend on a case throughout the days of a stay. Thus, a
facility with a length of stay greater than the median, or the mean for
that matter, should be adequately reimbursed for the cost of care
provided to a Medicare beneficiary. As explained above, we do not
believe that the final IPF PPS provides an incentive for early
discharge from one type of IPF to a government-operated facility. In
addition, our use of the median length of stay has no effect on the
actual payment amounts for each day of the stay.
6. Other Patient-Level Adjustments
Although we proposed specific patient-level adjustments, we
recognized that there were other variables not collected on the claim
form. Therefore, we requested public comments on other patient-level
adjustments for the IPF PPS. In response to our request for public
comments, we received numerous comments recommending that we consider
the following other types of adjustments:
a. Gender
We invited public comments on the appropriateness of including a
gender variable as a payment adjustment.
Comment: Several commenters stated that elderly female patients
represent 68 to 70 percent of the population they serve and recommended
that CMS recognize the cost differential in treating female patients.
Response: We analyzed the FY 2002 data and found that the cost
regression continues to imply that female patients are approximately 2
percent more costly than male patients. However, as we found in the
proposed regression analysis, adding an adjustment for gender increases
the explanatory power of the patient model by less than one half of 1
percent, which means that the addition of gender does very little to
improve explanatory power of the overall model. In addition, we are
unable to determine the extent to which the interaction of psychiatric
unit status with age and gender indicates higher direct costs of
treating the elderly and women, as opposed to other reasons for the
higher costs of psychiatric units. However, to the extent that gender
is correlated with age and DRGs, facilities will be partially
reimbursed for gender-related costs, since gender was not included as a
variable in the regression. Therefore, we are not adopting a patient-
level adjustment for gender.
[[Page 66951]]
b. Patients Admitted Through the Hospital's ED
We received many comments recommending that we recognize the cost
of ED services and provide a patient-level adjustment for patients who
were admitted to a distinct part psychiatric unit through the
hospital's ED.
Comment: Many commenters recommended that CMS add a patient-level
adjustment for patients who are admitted through the ED of the same
hospital for inpatient psychiatric care.
Response: Our analysis indicated these cases were more costly on a
per diem basis than cases without an ED admission. However, we are not
including an adjustment for patients admitted through the ED. We are
concerned about creating an incentive for psychiatric units in acute
care hospitals with EDs to ensure that all psychiatric patients are
admitted through the ED. However, we are providing a facility-level
adjustment for psychiatric hospitals, or psychiatric units of acute
care hospitals, with qualifying ED. Additional information regarding
the analysis of ED costs is included in section VI.B.5.b. of this final
rule.
c. Patients Who Receive Electroconvulsive Therapy (ECT)
We received numerous comments recommending that we include ECT as a
patient-level adjustment because furnishing ECT treatment adds
significantly to the cost of these IPF stays.
Comment: Several commenters recommended that CMS include ECT
(procedure code 90870) under DRG 424 (Operating room procedure with
principal diagnosis of mental illness) that has an adjustment factor of
1.22. One commenter suggested that DRG 430, ``Psychosis'' be
disaggregated into two DRGs, ``Psychosis with ECT,'' incorporating the
added costs for ECT treatment and ``Psychosis without ECT.''
Other commenters recommended that CMS provide as an alternative, an
add-on payment to the DRG for those patients who receive ECT
treatments.
Many commenters recommended modifying the payment structure to
include a separate payment adjustment for ECT, which should be higher
than the payment adjustment for DRG 424.
Response: After reviewing the public comments, we analyzed cases
with ECT using the FY 2002 MedPAR data. We were able to identify ECT
cases by the presence of procedure code 90870. Our analysis indicated
that ECT cases comprised about 6 percent of all cases, and that almost
95 percent of ECT cases were treated in psychiatric units. Even among
psychiatric units, ECT cases are concentrated among a relatively small
number of facilities.
Overall, approximately 450 facilities had cases with ECT. Among
these facilities, we estimate the mean number of ECT cases per facility
to be approximately 25. In addition, approximately one-half of the IPFs
providing ECT had no more than 15 cases in FY 2002.
Consistent with the comments we received about ECT, our analysis
and review indicated that cases with ECT are substantially more costly
than cases without ECT. On a per case basis, ECT cases are
approximately twice as expensive as non-ECT cases ($16,287 vs. $7,684).
Most of this difference is due to differences in length of stay (20.5
days for ECT cases vs. 11.6 days for non-ECT cases). The ancillary
costs per case for ECT cases are $2,740 higher than those for non-ECT
cases.
Based on this analysis, in this final rule we are providing an
adjustment for each ECT treatment furnished during the IPF stay. In
order to receive the payment adjustment, IPFs must indicate on their
claims the revenue code and procedure code for ECT (Rev Code 901;
procedure code 90870) and the number of units of ECT, that is, the
number of ECT treatments the patient received during the IPF stay.
Providing this data will ensure that facilities are appropriately
reimbursed for the treatments they provided.
After careful review and analysis of IPF claims, we were unable to
separate out the cost of a single ECT treatment. Therefore, we are
using the pre-scaled and pre-adjusted median cost for procedure code
90870--developed for the hospital OPPS, based on hospital claims data.
We used unadjusted hospital claims data under the OPPS, that is,
the pre-scaled and pre-adjusted median hospital cost per treatment, to
establish the ECT payment because we did not want the ECT payment under
the IPF PPS to be affected by factors that are relevant to OPPS but not
specifically applicable to IPFs. The median cost is then standardized
and adjusted for budget neutrality. We will adjust the ECT rate for
wage differences in the same manner that we adjust the per diem rate.
The median cost for all hospital OPPS services are posted after
publication of the hospital OPPS proposed and final rules at the
following address: http://www.cms.hhs.gov/providers/hopps.
As explained above, we decided to pay the median cost for an ECT
treatment, posted as part of the calendar year (CY) 2005 OPPS update,
which is based on CY 2003 outpatient hospital claims. The amount is
$311.88. Using the same OPPS CY 2003 claims that were used to calculate
the aforementioned ECT median, we were able to calculate the average
number of ECT treatments for a given patient to be approximately 9. A
rate of $311.88 per ECT treatment multiplied by 9 is very close to the
$2740 difference in ancillary costs observed for ECT and non-ECT cases.
Accordingly, we believe that the payment adjustments for ECT will
appropriately and adequately provide payment for ETC services provided
to IPF patients. After applying the standardization factor, behavioral
offset, stop-loss adjustment, and outlier adjustment (as described in
section V.C. of this final rule), the adjusted ECT payment is $247.96.
We have established the ECT adjustment as a distinct payment under
the PPS methodology, our preferred approach would be to include a
patient level adjustment as a component of the model (for example,
determined through the regression analyses) to account for the higher
costs associated with ECT. We believe the approach will better control
incentives towards over-utilization and be more consistent with the
approach used for other patient level adjustments under the PPS. During
the transition period we expect to collect more data on the number of
ECT treatments per stay, and associated costs. We will utilize these
data to evaluate alternative approaches for incorporating an adjustment
for ECT in the payment system. We expect to complete this analysis
during the first year of the transition and potentially propose changes
at the time of the first annual update of the payment system.
ECT is an intensive procedure. Therefore, we are concerned that
including a payment adjustment for ECT treatments in the final IPF PPS
could result in a rise in the use of ECT treatment. We will monitor
this area to ensure that the increased payments do not lead to changes
in the frequency of utilization.
d. Patients Involuntarily Committed to the IPF
We did not proposed to provide a payment adjustment for patients
who are involuntarily committed to an IPF. However, we received
multiple comments encouraging us to recognize the additional costs
associated with these patients.
Comment: Several commenters indicated that patients involuntarily
committed to an IPF often require costly court proceedings before
treatment can
[[Page 66952]]
begin and that the hospital my incur cost for caring for these patients
while awaiting the court decision.
Other commenters identified patient management issues, for example,
more frequent one-on-one staff attention and more complex discharge
planning. A few commenters indicated that involuntarily committed
patients are often uncooperative and difficult to treat. One commenter
reported a 27 percent longer length of stay for involuntarily committed
patients.
Response: One of the fields on the claim form indicates if patients
were referred to the IPF by law enforcement or if the commitment were
court ordered (FL 20, item 8, court/law enforcement). As a result, we
were able to analyze the FY 2002 claims data to determine if the costs
identified by the commenters are evident in the claims. The data did
not indicate that patients involuntarily committed to the IPF are more
costly on a per diem basis. We note that many of the costs associated
with involuntary commitments (for example, legal fees, staff time to
accompany the patient to court, and transportation costs) are part of
the hospital's average routine per diem cost.
In addition, there are certain costs that are the responsibility of
the court system or law enforcement, for example, where a court orders
a 3-day psychiatric evaluation for a patient or where discharge is
delayed pending court action. Thus, IPFs should be adequately
reimbursed for patients involuntarily committed, even in the absence of
a specific payment adjustment.
Therefore, at this time we are not providing an adjustment for
involuntarily committed patients.
e. Administrative Necessary Days
We received several comments recommending that we recognize the
cost of administrative necessary days for continued inpatient care when
discharge is delayed due to a lack of community resources.
Comment: Commenters indicated that hospitals would be unable to
discharge a patient without an appropriate discharge plan. The
commenters requested that CMS provide reimbursement for this type of
situation.
Response: Current hospital discharge planning requirements in Sec.
482.43(a) and (b) require the discharge planning evaluation to include
the likelihood of a patient needing post-hospitalization services and
the availability of those services. Hospital personnel must complete
the evaluation on a timely basis so that appropriate arrangements for
post-hospital care are made before discharge, and to avoid unnecessary
delays in discharge.
In addition, Sec. 482.43(c)(4) requires that the hospital must
reassess the patient's discharge plan if there are factors that may
affect continuing care needs or the appropriateness of the discharge
plan.
Moreover, Sec. 412.27(c)(5) states, ``the record of each patient
who has been discharged must have a discharge summary that includes a
recapitulation of the inpatient's hospitalization in the unit and
recommendations from appropriate services concerning follow-up or
aftercare as well as a brief summary of the patient's condition on
discharge.''
Consequently, if an IPF determines that a patient needs post-
hospitalization placement, then a statement to this effect is expected
to be included in their discharge plan. Furthermore, if a patient
cannot be safely discharged without this post-hospitalization placement
and this placement is not available, then the patient has not met their
discharge objectives and requires continued active treatment.
After careful review, we have decided not to provide additional
payment for administrative necessary days for several reasons. Since
claim data does not include coding or documentation for administrative
data, we are unable to identify and discern the cost of these days.
Therefore, we are unable to determine the extent to which the costs of
administrative necessary days are included in the Federal per diem base
payment amount.
Finally, since the IPF PPS is a per diem payment methodology, we
are concerned about inadvertently creating an incentive to
unnecessarily delay discharge in order to receive additional payment
for administrative necessary days.
C. Facility-Level Adjustments
In the proposed rule, we proposed adjustments for the IPF's wage
area, rural location, and teaching status.
1. Wage Index
Due to the variation in costs and because of the differences in
geographic wage levels, we proposed that payment rates under the IPF
PPS be adjusted by a geographic wage index. We proposed to use the
unadjusted, pre-reclassified hospital wage index to account for
geographic differences in labor costs. In the proposed rule, we
proposed to use the inpatient acute care hospital wage data to compute
the IPF wage since there is not an IPF-specific wage index available.
We believe that IPFs generally compete in the same labor market as
acute care hospitals since the inpatient acute care hospital wage data
should be reflective of labor costs of IPFs. We believe this to be the
best available data to use as proxy for an IPF specific wage index. We
proposed to adjust the labor-related portion of the proposed Federal
per diem base rate for area differences in wage levels by a factor
reflecting the relative facility wage level in the geographic area of
the IPF compared to the national average wage level for these
hospitals. We believe that the actual location of the IPF as opposed to
the location of affiliated providers is most appropriate for
determining the wage adjustment because the data support the premise
that the prevailing wages in the area in which the IPF is located
influence the cost of a case. Thus, in the proposed rule and in this
rule, we are using the inpatient acute care hospital wage data without
regard to any approved geographic reclassification as specified in
section 1886(d)(8) or 1886(d)(10) of the Act. Specifically, in this
rule, we are using the FY 2005 hospital wage index (unadjusted, pre-
reclassified) based on MSA definitions defined by OMB in 1993 (as
opposed to the new MSA definitions that were used to define labor
markets for the FY 2005 IPPS). Once we implement the IPF PPS, we will
assess the implications of the new MSA definitions on IPFs. At the time
of the proposed rule, the 2003 MSA definition had not been implemented
for any medicare programs and consequently, were not proposed. We note
that, after the publication of the IPF PPS proposed rule, new MSA
definitions have been adopted for use in the IPPS. We, however, are not
adopting those new definitions in this final rule. We expect that use
of the new MSA (or labor market) definitions may have a significant
impact on the wage index applied to IPFs and associated payments. Thus,
before their use could be proposed, we would have to conduct a thorough
analysis of their impact on the IPF PPS. Moreover, and most
importantly, we believe it is appropriate to provide an opportunity for
IPFs and other interested parties to comment on the use of the new
definitions before proceeding with their possible application. We plan
to publish in a proposed rule any changes that we consider for new
labor market definitions, in order to provide the public with an
opportunity to comment.
Comment: Several commenters recommended that CMS apply the hospital
wage index with geographic reclassifications in the same way that other
hospital PPS adjust payments to reflect wage differences. Commenters
[[Page 66953]]
believe that the reclassification process ensures that areas that are
geographically close to an MSA may compete to employ a sufficient
amount of skilled healthcare workers. Other commenters believe that the
pre-reclassified wage index may result in a potential decrease in
payment, especially for psychiatric units within hospitals that draw
from the same workforce as acute care hospitals.
Response: The statute does not require geographic reclassification
of other hospitals paid under TEFRA (for example, freestanding
psychiatric hospitals) or other hospitals paid under different
prospective payment systems. Geographic reclassifications are not
recognized under the IRF or LTCH payment systems, and are not
recognized under the final IPF PPS.
Comment: A few commenters requested a modification to the portion
of the payment that is adjusted by the wage index. The commenters
stated that the proposed wage index should be applied to 72.8 percent
of the Federal per diem base rate, as reflected in the proposed 1997-
based excluded hospital with capital market basket. Generally,
commenters in wage areas with a wage index above 1.0 indicated that the
proposed labor portion of the payment was too low and commenters in
wage areas with a proposed wage index less than 1.0 indicated that the
labor portion was too high.
One commenter indicated that psychiatric care is more labor
intensive than other modes of inpatient care, thus the commenter
recommended that CMS research the costs of providing psychiatric care,
and develop a labor adjustment that adequately compensates for the
increased intensity of care for psychiatric patients.
Response: In both the proposed rule and in this final rule, to
account for wage differences, we first identified the proportion of
labor and non-labor components of costs. We used the 1997-based
excluded hospital market basket with capital to determine the labor-
related share of cost. We calculated the labor-related share as the sum
of the weights for those cost categories contained in the 1997-based
excluded hospital with capital market basket that are influenced by
local labor markets. These cost categories include wages and salaries,
employee benefits, professional fees, labor-intensive services, and a
share of capital-related expenses.
The labor-related share for the implementation period of the final
IPF PPS (January 1, 2005 through June 30, 2006) is the sum of the
relative shares which measure the relative importance of each labor-
related cost category for this period. It also reflects the different
rates of price change for these cost categories between the base year
(FY 1997) and this period. 0 labor-related components of operating
costs (wages and salaries, employee benefits, professional fees, and
labor-intensive services) is 68.818 percent, as shown below in Table 8.
Since capital cost also contains a significant component of labor-
related cost, the labor-related share of total cost will be greater
than the labor-related share of operating costs alone. The portion of
capital cost that is influenced by local labor markets is estimated to
be 46 percent. Because the capital accounts for 7.323 percent of the
1997-based excluded hospital with capital market basket for the period
January 1, 2005 through June 30, 2006, the labor-related share of
capital cost is 46 percent of 7.323 percent. The result, 3.369 percent,
is then added to the 68.818 percent calculated for operating costs to
determine the labor-related share of total cost. The resulting labor-
related share that we are using in this IPF PPS rule is 72.247 percent.
The table below shows that the labor-related share would have been
72.571 percent if we had not rebased the excluded hospital with capital
market basket using more recent 1997 data rather than using 1992 data.
As shown in Table 8, rebasing results in a lowering of the labor-
related share by 0.324 percentage points.
The base methodology used to calculate the labor-related share for
IPFs is the same as that used for calculating the labor-rated share for
IPPS, SNFs, HHAs, LTCH, and IRFs PPS. The difference is that except for
the IPPS, we use the relative importance for the effective period in
developing this share, which changes annually. For IPPS, the labor
share remains constant until the market basket is rebased.
CMS agrees with the commenter that it is important to have a market
basket and labor share appropriate for use under the IPF PPS. We
believe that using the excluded hospital with capital market basket
accomplishes this goal. However, we indicated in the proposed rule that
we plan to continue to study the feasibility of developing a market
basket specific to IPF services. We hope that we may eventually be able
to develop a market basket and labor-related share based primarily on
IPF data (see 68 FR 66928).
[GRAPHIC] [TIFF OMITTED] TR15NO04.448
The labor-related relative share of total cost in this rule changed
from that in the proposed rule for two reasons. First, the labor-
related share of 72.247 in this rule comes from Global Insight's 2004:
quarter 3 forecast, with historical data through 2004: quarter 2, while
the proposed rule used data from the 2002: quarter 4 forecast, with
historical data through 2002: quarter 3, to calculate the proposed
labor share of 72.828. Second, in addition to using more historical
data in a more recent forecast, there is a different implementation
period in this final rule, meaning that different periods of data were
used to calculate the labor-related relative importance in this rule.
[[Page 66954]]
Comment: Several commenters requested that CMS establish a floor
for the urban wage index so that an urban wage index would not fall
below the wage index in a rural area in the same state. Another
commenter requested that CMS apply the section of the MMA to the IPF
PPS, which would limit an IPF's wage index to a minimum of 1.
Response: We did not propose a wage index floor. We are unclear of
what the commenter is referring to because there is no MMA provision
that limits the hospital wage index to a minimum of 1.0. In order to be
consistent with the wage area adjustments used in the PPS developed for
other excluded hospitals, we did not apply a floor wage index under the
IPF PPS.
Comment: Many commenters suggested that CMS use more recent
hospital wage data for the final IPF PPS.
Response: We are also using the best available hospital wage index
data in this final rule (that is, the wage data used to establish the
FY 2005 IPPS wage index for the October 1, 2004). We will continue to
use the best data available for future updates to the IPF PPS.
2. Rural Location
We proposed a 16 percent payment adjustment for those IPFs located
in a rural area. This adjustment was based on the proposed regression
analysis, which indicated that the per diem cost of rural facilities
was 16 percent higher than that of urban facilities after accounting
for the influence of the other variables included in the regression.
Many rural IPFs are small psychiatric units within small general acute
care hospitals. In the proposed rule, we stated that small-scale
facilities are more costly on a per diem basis because there are
minimum levels of fixed costs that cannot be avoided, and they do not
have the economies of size advantage.
We received several comments regarding the proposed rural
adjustment. Most commenters supported the rural adjustment and
encouraged us to recognize the higher cost incurred in rural settings.
Comment: Commenters expressed concern that despite the 16 percent
adjustment to the Federal per diem base rate for IPFs located in rural
areas Medicare payment would decrease for rural psychiatric units.
Response: In implementing this rule, we updated our cost regression
analysis using the most recent complete data available (that is, FY
2002 data). Based on the results of our regression analysis, we are now
providing a payment adjustment for IPFs located in rural areas of 17
percent instead of the proposed 16 percent. The small change in the
rural payment adjustment is largely the result of the adjustment we
made to the cost data to account for the ED adjustment. A full
description of the ED policy appears later in this section.
As is the case with implementing any prospective payment system,
since the payment rates are not directly tied to the costs of each
individual facility, relatively high cost facilities may experience
reductions in Medicare payments. However, our analysis of the impact of
this rule during the first year of implementation (see section VIII of
this final rule) show that on average rural facilities are expected to
have a payment to cost ratio of 1.00. This means that Medicare payments
during the first year of the IPF PPS transition are expected to be the
same as they would have been had the IPF PPS not been implemented and
IPFs continued to be paid 100 percent.
Comment: Several commenters specifically expressed concern that the
multipliers used for urban and rural facilities are inappropriate and
do not adequately adjust for higher per bed cost in smaller facilities.
In addition, several commenters encouraged CMS to add a reasonable
payment adjustment for urban psychiatric units.
Other commenters stated that if the proposed rules are adopted,
hospitals may choose to close their psychiatric units.
Response: We did not include an explicit payment adjustment for
urban facilities in the proposed rule and we are not adopting one in
this final rule. We are not including this type of adjustment factor
since our adjustment for rural facilities is based on an explicit
comparison of the relative per diem costs of rural and urban facilities
after accounting for the effects of the other variables included in the
regression as previously explained in the cost regression section of
this final rule. The result of that comparison (as reflected in our
cost regression) was that rural facilities are more costly than urban
facilities, largely because rural facilities are smaller on average
than urban facilities. In addition, because a variable reflecting
facility size was not included in the cost regression, the rural
payment adjustment factor may partially reflect the influence of size
on per diem cost.
As previously stated, we have not included an explicit payment
adjustment factor to account for the higher per diem costs of small
facilities, because we think that to do so is counter to the basic
principle of prospective payment systems that payment adjustments
should be based on characteristics that are not under the control of
the facility. Specifically in the case of psychiatric units where a
facility can choose how much of its inpatient psychiatric care it
wishes to include in its Medicare certified unit, we would be concerned
that a facility could reduce the size of its Medicare-certified unit in
order to increase Medicare payments.
We plan to monitor the impact of the IPF PPS on the financial
status of psychiatric facilities. We are particularly concerned about
potential effects of facility closures on beneficiaries' access to
inpatient psychiatric care. As a result of this issue, we are adopting
a stop-loss provision as part of the transition to assist all IPFs with
revenue shortfalls during the transition period (see section V.C.3. of
this final rule for a discussion of the stop-loss provision).
3. Teaching Adjustment
We proposed to establish a facility level adjustment to the Federal
per diem base rate for IPFs that are teaching institutions. In the
past, we have made direct graduate medical education (GME) payments
(for direct costs such as resident and faculty physician salaries, and
other direct teaching costs) to teaching hospitals including those paid
under the IPPS and those paid under the TEFRA rate of increase limits.
However, we did not make separate indirect medical education (IME)
payments to teaching hospitals paid under the TEFRA rate-of-increase
limits because payments to these hospitals are based on the hospitals'
reasonable costs. IME payments are authorized under the IPPS statute to
be paid as an add-on to the IPPS per case payment, and there are no per
case payments under the TEFRA system. In this final rule, we are
establishing a facility-level adjustment for IPFs that are, or are part
of, teaching institutions. The facility-level adjustment we are
providing for teaching hospitals under the new IPF PPS parallels the
IME payments paid under the IPPS. Both payments are add-on adjustments
to the amount per case (there is now a per case payment to which the
IPF teaching adjustment will be added) and both are based in part on
the number of full-time equivalent (FTE) residents training at the
facility.
In the proposed rule, we proposed to calculate a teaching
adjustment based on the IPF's ``teaching variable,'' which is one plus
the ratio of the number of FTE residents training in the IPF divided by
the IPF's average daily census (ADC). Based on our initial regression
analysis, we proposed to raise the teaching variable to the .5215
power. We also requested suggestions from the public regarding how to
estimate IPFs' indirect teaching costs
[[Page 66955]]
and alternative methodologies to recognize the higher costs of teaching
IPFs. However, we did not receive any suggestions on this issue.
Accordingly, we are adopting our proposed formula for calculating
the adjustment in this final rule. Based on the final regression
analysis using FY 2002 data, we are raising the teaching variable from
.5215 power to the .5150 power.
We also indicated we were considering alternatives to limit the
incentives for IPFs to add FTE residents for the purpose of increasing
their teaching adjustment. We indicated that we were considering
imposing a cap, similar to that established by sections 4621 and 4623
of the BBA for the IPPS, and noted that these caps already apply to
teaching hospitals, including IPFs, for purposes of direct GME payments
according to regulations at Sec. 413.75 through Sec. 413.83.
As indicated in the proposed rule (68 FR 66932), we were concerned
about establishing an open-ended payment for the teaching adjustment
because the BBA froze the number of residents that hospitals may count
for both direct and indirect GME payments in order to reduce incentives
for teaching institutions to add residents. We recognized that if we
imposed no limits on the teaching adjustment under the IPF PPS,
teaching programs in those facilities could grow and receive payments
in a manner that is inconsistent with that in teaching hospitals paid
under the IPPS. In addition, we were concerned that if a teaching
hospital had a distinct part psychiatric unit and had a number of FTE
residents above the amount recognized for reimbursement under the BBA
limits, the hospital could potentially circumvent those limits by
assigning residents to train in the IPF. For example, if a teaching
hospital has 110 FTE residents of which only 100 are recognized for
purposes of Medicare IME reimbursement under the BBA limits, the
hospital could assign the excess 10 residents to its distinct part
psychiatric unit where those FTE residents would be included for
purposes of the teaching adjustment to the IPF PPS payments, which is
similar in amount to IPPS IME payments. As a result, the hospital would
be able to count all 110 FTE residents for purposes of calculating a
teaching adjustment, in contradiction to the Congress' intent in
establishing the BBA limits.
We considered imposing a cap that would operate in a substantially
similar manner to the BBA limits on the number of FTE residents that
may be counted for purposes of making IPPS IME payments. The BBA cap
operates by limiting the number of allopathic and osteopathic FTE
residents that Medicare will recognize for the purposes of calculating
IPPS IME payments to no more than the number of FTE residents in a
teaching hospital's most recent cost reporting period ending on or
before December 31, 1996. In addition, the BBA placed a cap on the
entire resident-to-bed ratio used to calculate the IPPS IME payment so
that a hospital's ratio in its current cost reporting period could not
exceed the ratio from its previous cost reporting period.
In response to public comments on the teaching adjustment, only one
commenter agreed with the appropriateness of establishing a cap on the
number of FTE residents that may be counted for purposes of the
teaching adjustment under the IPF PPS. The majority of commenters was
opposed to imposition of any resident cap and indicated that a cap
would be arbitrary and burdensome.
After carefully reviewing the public comments, we have decided to
adopt a cap on the number of FTE residents that may be counted under
the IPF PPS for the teaching adjustment. We made this decision in order
to--(1) exercise our statutory responsibility under the BBA to prevent
any erosion of the resident caps established under the IPPS that could
result from the perverse incentives created by the facility adjustment
for teaching under the IPF PPS; and (2) avoid creating incentives to
artificially expand residency training in IPFs, and ensure that the
resident base used to determine payments is related to the care needs
in IPF institutions.
In adopting the FTE resident cap for purposes of the IPF PPS
teaching adjustment, we wish to emphasize that we are not limiting the
number of residents teaching institutions can hire or train; we are
limiting the number of residents that may be counted for purposes of
calculating the IPF PPS teaching adjustment, and thus, the amount
Medicare will pay for the teaching adjustment under the new IPF PPS.
The FTE resident cap we are establishing will work identically in
freestanding teaching psychiatric hospitals and in distinct part
psychiatric units with GME programs. In order to establish the cap on
the number of residents used in calculating the IPF PPS teaching
adjustment, the following policies will apply.
Similar to the regulations for counting FTE residents
under the IPPS as described in Sec. 412.105(f), we will calculate the
``base year'' number of FTE residents that trained in the IPF based on
the hospital's most recently filed cost report before November 15,
2004. Residents with less than full-time status and residents rotating
through the psychiatric hospital or unit for less than a full year will
be counted in proportion to the time they spend in their assignment
with the IPF (for example, a resident on a full-time, 3-month rotation
to the IPF will be counted as 0.25 FTEs for purposes of counting
residents to calculate the ratio). Hospitals can file adjusted cost
report data with their FIs until the cost report is settled if they
believe the resident counts as submitted on that cost report are
incorrect. For purposes of determining an IPF's teaching adjustment
under the IPF PPS, the number of FTE residents in the numerator cannot
exceed the number of FTE residents in the hospital's most recently
filed cost report.
The denominator used to calculate the teaching adjustment
under the IPF PPS is the IPF's average daily census (ADC) from the
current cost reporting period. As we indicated in the proposed rule,
although a hospital's number of available beds is used in the
denominator of the IPPS IME adjustment, the ADC is used in the
denominator of the ratio used to compute the IME adjustment under the
capital PPS as specified at Sec. 412.322. We are using the ADC for the
teaching adjustment under the IPF PPS rather than the number of beds
because the ADC is more closely related to the IPF's patient load, and
thus, its need for interns and residents. As we stated in the proposed
rule, we also believe the ADC is easier to define precisely and less
subject to manipulation.
Thus, under the IPF PPS, we are placing a cap on the number of FTE
residents (that is, the numerator) used for purposes of computing the
teaching adjustment, and not on the ADC (the denominator), or on the
entire ratio. An IPF's FTE resident cap will ultimately be determined
based on the final settlement of the hospital's cost report filed most
recently before November 15, 2004. If a change is made to the base year
cost report, the intermediary will reconcile any changes in IPF PPS
teaching payments as appropriate.
If a psychiatric hospital or unit has fewer FTE residents in a
given year than in the base year, payments in that year will be based
on the lower number. This approach is consistent with the IME
adjustment under the IPPS. The hospital will be free to add FTE
residents and count them for purposes of calculating the teaching
adjustment until it returns to its base year FTE resident count.
In this final rule, we are adopting the policy currently applied
under the BBA
[[Page 66956]]
for IPPS teaching hospitals that start new teaching programs as
specified in Sec. 413.79 (1) for new teaching IPFS and for teaching
IPFs that start new programs. We note that under Sec.
412.105(f)(1)(vi) concerning IME payments under the IPPS, hospitals
that have shared residency rotational relationships may elect to apply
their respective IME resident caps on an aggregate basis via a Medicare
GME affiliation agreement. Our intent is not to affect affiliation
agreements and rotational arrangements for hospitals that have
residents that train in more than one hospital. We are not implementing
a provision concerning affiliation agreements specifically pertaining
to the FTE caps used in the teaching adjustment under the IPF PPS at
this time. This is an area we expect to closely monitor, and we will
consider allowing IPFs to aggregate and adjust their FTE caps through
affiliation agreements in the future.
We believe these policies fairly balance our responsibilities under
the statute to assure appropriate enforcement of the BBA and the
overall limits on payment adjustments for teaching hospitals with the
greater precision that can be achieved by adjusting payments for
teaching IPFs. We also believe that we have designed a cap that
balances the need for limits with the unique conditions of teaching
programs in freestanding psychiatric hospitals and in distinct part
psychiatric units. We will, however, monitor the impact of these
policies closely and consider changes in the future when appropriate.
Comment: Several commenters indicated that a cap amounts to an
absolute freeze on the number of residents that Medicare will recognize
for payment purposes. In addition, the commenters stated that a cap
allows only decreases and no increases in established resident counts
at any time.
Response: We acknowledge that the number of FTE residents will be
frozen under the IPF PPS. As discussed above, we are adopting a cap on
the number of FTE residents that may be counted under the IPF PPS
teaching adjustment. This policy is to exercise our statutory
responsibility under the BBA to prevent any erosion of the resident
caps established under the IPPS that could result from the perverse
incentives created by the facility adjustment for teaching hospitals
under the IPF PPS. In addition, we wish to avoid creating incentives to
artificially expand residency training in IPFs, and ensure that the
resident base used to determine payments is related to the care needs
in IPF institutions. Again, we will monitor the impact of these
policies closely and consider changes in the future when appropriate.
Comment: Several commenters were concerned that the administrative
burden in reviewing resident counts back to 1996 cost reports would be
excessive and recommended not imposing an FTE resident cap for the IPF
PPS teaching adjustment for this reason.
Response: The resident cap under the IPPS is based on the
hospital's 1996 cost report. However, the resident cap we are
establishing under the IPF PPS relies on the number of residents
training in the IPF for the most recently filed cost report before
November 15, 2004. In addition, establishing the IPF PPS resident cap
does not require the hospitals to submit information not currently
included in their cost reports. As a result, we do not believe there is
a significant burden associated with establishing the IPF PPS resident
cap.
Comment: Several commenters asked if the teaching adjustment would
be limited to those hospitals with a dedicated psychiatric teaching
program. In addition, the commenters asked if the adjustment would also
apply to hospitals that schedule rotations to the psychiatric unit from
a non-psychiatric teaching program.
Response: Under the IPPS, Medicare makes IME payments only for
costs associated with residents in approved graduate medical education
(GME) programs as defined in Sec. 412.105(f)(1)(i) that are approved
by one of the organizations listed in Sec. 415.152, not residents in
other types of teaching programs. Thus, IPFs that have residents in
approved GME programs will receive the IME adjustment. The GME program
could be a psychiatric teaching program or scheduled rotations to the
IPF unit from a non-psychiatric teaching program.
Comment: One commenter urged CMS to consider applying any cap on
the number of interns and residents in a manner that is less sensitive
to rapid declines in patient census. The commenter believes the use of
the ratio of residents to ADC will negatively affect government-
operated IPFs.
Response: Although we are unsure of the commenter's point, the
commenter seems to be implying that the teaching adjustment would
decline if there were a reduction in the IPF's ADC. However, a decrease
in the ADC would result in an increase in the teaching adjustment.
Comment: One commenter requested that CMS provide an example to
show how the calculation of the teaching adjustment would be computed.
The commenter requested that the example use a hypothetical resident
count and ADC and the final teaching adjustment factor.
Response: We were not able to present a single proportional factor
that represents the payment adjustment for teaching as we did for most
of the other payment variables (for example, age and rural location).
The reason is because the teaching adjustment varies among teaching
hospitals depending on the degree of their teaching intensity as
measured by the ratio of interns and residents to the ADC.
The following example shows a step-by-step calculation of the
teaching adjustment for 2 teaching hospitals. Hospital A has an interns
and residents to ADC ratio of 0.10. Hospital B has an interns and
residents to ADC ratio of 0.20.
Step 1: Add 1.0 to the interns and residents to ADC ratio:
Hospital A: 1.0 + 0.1 = 1.1
Hospital B: 1.0 + 0.2 = 1.2
Step 2: Raise the factors in Step 1 to the power given by the
regression coefficient for the teaching variable (.5150).
Hospital A: 1.1 x exp (.5150) = 1.050
Hospital B: 1.2 x exp (.5150) = 1.098
The Step 2 results indicate that Hospital A's payment will be 5.1
percent higher than the comparable payment for a non-teaching hospital
and the Hospital B's payment will be 9.9 percent higher than the
comparable payment for a non-teaching hospital.
Step 3: Multiply the factors obtained in Step 2 by the appropriate
per diem payment adjusted by all other relevant payment factors. For
purpose of this example, the per diem payment is assumed to be $625 for
both Hospital A and Hospital B.
Hospital A: $625 x 1.050 = $656.25
Hospital B: $625 x 1.098 = $686.25
The step 3 results indicate that Hospital A's per diem payment
would be $656.25 compared to $686.25 for Hospital B.
Comment: A commenter questioned why CMS used the ratio of interns
and residents to the ADC, rather than the ratio of interns and
residents to the number of beds.
Response: Using the ADC rather than the number of beds as the
denominator of the teaching variable has two main advantages: Whereas
there are many different and frequently imprecise ways of counting beds
(licensed beds, available beds, staffed beds), the ADC is a single
standard measure that hospitals know how to calculate. It is just the
total number of patients days of care divided by 365, the number of
days in the year.
[[Page 66957]]
Average daily census, which reflects the number of occupied beds in
a year, is a readily available, more consistent measure than the number
of beds because patient days are more accurately measured than are
beds. Because it is directly measured by patient days, ADC is also less
subject to understatement in an effort to increase the value of the
teaching variable and in turn, teaching payments.
4. Other Facility-Level Adjustments
In the proposed rule, we indicated that we considered facility-
level adjustments for IPFs located in Alaska and Hawaii and an IPF's
disproportionate share intensity. Other adjustment factors discussed in
this section were requested in public comments.
a. Adjustment for Psychiatric Units
In the proposed rule, we did not propose an adjustment for
psychiatric units. We received a significant number of public comments
expressing concern that the proposed IPF PPS is biased towards
psychiatric hospitals and detrimental to psychiatric units. Therefore,
the commenters requested that we provide an adjustment specifically for
psychiatric units. We are not adopting an adjustment for psychiatric
units in this final rule.
Comment: Several commenters stated that the data analysis indicated
that the average per diem cost in psychiatric units ($615) was 37
percent higher than the average per diem cost in psychiatric hospitals
($444). Although the proposed patient and facility adjustments account
for 19 percent of the difference in average per diem costs, the
commenters expressed concern that the proposed rule did not propose a
specific adjustment for psychiatric units to account for the remaining
18 percent difference in average per diem costs.
Many commenters attribute the difference in average per diem cost
to the types of patients admitted to psychiatric units and psychiatric
hospitals. The commenters stated that patients admitted to psychiatric
units generally present with multiple medical conditions in addition to
severe or multiple psychiatric symptoms. In addition, EDs in acute care
hospitals with psychiatric units serve as the portal for almost all
psychiatric emergency patients, who usually are admitted to the
psychiatric unit. As a result, psychiatric units have different
patterns of care and staffing in order to treat patients with emergency
psychiatric needs as well as comorbid medical conditions.
The commenters stated that freestanding psychiatric hospitals are
not equipped or staffed to treat patients with complex comorbid medical
conditions and generally do not admit patients who require treatment of
chronic physical illnesses or who are not medically stable. As a
result, freestanding psychiatric hospitals have lower average per diem
costs than psychiatric units.
Many commenters recommended that we provide a Medicare-dependent
IPF designation that would be applied to any IPF with at least an 80
percent Medicare share of admissions. An organization representing
small, rural IPFs provided information describing rural psychiatric
units and the patients generally treated in these units. The commenter
indicated that rural psychiatric units usually have 12 or fewer beds
and treat a high proportion (at least 80 percent of total patient days)
of Medicare beneficiaries. The material furnished by the organization
indicated that approximately 54 percent of these hospitals are located
in areas not adjacent to a metropolitan area and 15 percent are in
``completely rural'' areas.
The organization indicated that these small rural Medicare-
dependent units generally have average costs per day that are 27
percent higher than the national average due to the acuity of the
patients they serve. In addition, an analysis conducted by the
organization indicates an 11.9 percent negative impact between current
TEFRA payments and estimated payments under the proposed IPF PPS.
Commenters also indicated that many of the psychiatric units are
small, Medicare-dependent, and located in underserved rural and urban
areas where they are the sole mental health provider. These commenters
were concerned that inadequate Medicare payment would cause hospitals
to close these units, resulting in diminished access to mental health
services. The commenters stated that the proposed adjustments were
insufficient and requested a specific adjustment for psychiatric units
or, as an alternative, a temporary adjustment until we are able to
refine the IPF PPS and account for more of the difference in average
per diem cost.
Response: As we discussed in the November 2003 proposed rule, we do
not believe it is appropriate to pay an adjustment to all psychiatric
units for all cases, regardless of the unit's cost, efficiency, or
case-mix.
With respect to providing an adjustment for psychiatric units, as
explained previously in this final rule, the payment model we are
adopting for IPFs explains approximately 33 percent of the variation in
per diem cost among IPFs. As a result, we believe the IPF PPS will
generate payments that are reasonably related to the per diem cost in
psychiatric units. In addition, IPFs located in rural areas will
receive an adjustment to account for higher per diem costs.
Commenters stated that IPFs have many patients with longer stays or
multiple co-morbidities. The IPF PPS provides a base payment amount and
adjustments for each day of the stay and multiple co-morbidity
categories as well as a variety of other adjustments, we believe IPF
PPS payments to psychiatric units will adequate meet their costs.
In addition, we are providing a stop-loss provision during the 3-
year transition period during which a stop-loss policy will be in place
to ensure that small rural, Medicare-dependent, and urban psychiatric
units get an IPF PPS payment amount that is no less than 70 percent of
what they would have otherwise been paid under TEFRA had the IPF PPS
not been implemented. This ``safety net'' will prevent an IPF from
sustaining a significant financial ``loss'' by converting to the IPF
PPS. Simultaneously, these providers will learn how to adjust their
business structures efficiently under the IPF PPS framework. See
section V.C. of this final rule.
b. Cost of Living Adjustment
i. IPFs Located in Alaska and Hawaii
As indicated in the proposed rule, we did not propose a cost-of-
living adjustment (COLA) for IPFs located in Alaska and Hawaii. Based
on the FY 1999 data, there were two psychiatric hospitals and no
psychiatric units in Alaska and one psychiatric hospital and one
psychiatric unit in Hawaii. Our analysis indicated that some IPFs in
Alaska and Hawaii would ``profit'' from the proposed IPF PPS and other
IPFs would experience a ``loss.'' Based on the limited number of cases
in the analysis, we determined that the results were inconclusive and
therefore we did not propose a COLA for IPFs located in Alaska and
Hawaii.
We received several comments requesting a COLA for IPFs located in
Alaska and Hawaii. In response to the public comments, we analyzed the
FY 2002 data. The FY 2002 data, unlike the FY 1999 data, demonstrated
that IPFs in Alaska and Hawaii had costs disproportionately higher than
IPFs across the nation. In the absence of a COLA, IPFs located in
Alaska and Hawaii would receive payments under the IPF PPS that were
far below their
[[Page 66958]]
cost. Thus, the results of our analysis conclusively demonstrate that a
COLA for IPFs located in Alaska and Hawaii would improve payment equity
for these facilities. As a result of this analysis, we are providing a
COLA adjustment in this final IPF PPS based on the higher costs found
in Alaska and Hawaii IPFs.
Comment: A few commenters recommended that CMS provide a facility-
specific adjustment to the per diem payment amount to reflect the
higher cost-of-living in Alaska.
One commenter recommended using the 25 percent Alaska COLA used
under hospital IPPS for non-labor costs as a proxy adjustment for IPFs
located in Alaska. The commenter stated that, despite the lack of IPF
cases to study, CMS recognizes the need for a COLA adjustment for
hospitals in Alaska under the hospital IPPS. The commenter indicated
that MedPAC recently recommended that CMS provide an adjustment to the
non-labor costs of skilled SNFs located in Alaska and Hawaii.
Response: As indicated above, we analyzed the cases in the FY 2002
data and found that there are two IPFs in Alaska and four in Hawaii.
Based on our analysis of the FY 2002 stays for these IPFs, we find that
a COLA adjustment is warranted. However, the small number of cases from
each IPF would make development of a facility-specific adjustment
erroneous because, with few cases, a small number of extremely high-
cost or low-cost cases could easily overstate or understate the IPF's
per diem cost. In general, the COLA would account for the higher costs
in the IPF and will eliminate the projected loss that IPFs in Alaska
and Hawaii would experience absent the COLA. We will make a COLA
adjustment for IPFs located in Alaska and Hawaii by multiplying the
non-labor share of the Federal per diem base rate by the applicable
COLA factor based on the county in which the IPF is located. The COLA
factors were obtained from the U.S. Office of Personnel Management and
used in other PPS system. For the convenience of the reader, Table 8
below lists the specific COLA for Alaska and Hawaii IPFs.
TABLE 9--COLA Factors for Alaska and Hawaii IPFS
[GRAPHIC] [TIFF OMITTED] TR15NO04.449
ii. IPFs located in California
Although we did not propose a cost-of-living adjustment for a
specific State, we received a comment requesting that we provide an
adjustment for California. We are not making a COLA to IPFs located in
California as detailed below.
Comment: One comment recommended that CMS establish a facility-
specific adjustment for psychiatric units located in California to
reflect the higher resource costs associated with mandatory staffing
ratios.
Response: Although recently imposed State staffing ratios would not
be evident in the FY 2002 data, we analyzed the FY 2002 MedPAR data to
assess whether IPFs located in California have higher per diem cost
than IPFs located in other States. We determined that after adjustment
for facility mix, IPF per diem costs in California are slightly higher
(1.6 percent). While we did not assess the variation for each State, we
acknowledge that every State will have some variation from the average
cost per day under the IPF PPS. We do not believe the slightly higher
per diem cost in California warrants a special adjustment. There may be
laws in other States that could create a cost difference greater or
lower than California and it is not practical to account for all of the
cost differences in every State resulting from State and local laws.
c. Disproportionate Share Intensity
As indicated in the proposed rule, we did not propose an adjustment
for disproportionate share hospital (DSH) status because the proposed
regression analysis did not support an increase in payments. If we had
proposed a payment adjustment for DSH facilities based on our empirical
analysis, we would have proposed a reduction to the Federal per diem
base rate paid to DSH facilities. Based on our analysis, we found a
statistically significant negative relationship between per diem cost
and DSH status. We did not believe that negative payment adjustment
would be consistent with the intent of a DSH adjustment, which is
intended to provide additional payments to providers to account for the
costs of treating low-income patients. Therefore, we proposed no DSH
adjustment.
We received numerous comments regarding the DSH adjustments. Most
of the commenters disagreed with the proposed rule and stated that our
reason for not providing a DSH adjustment was inadequate. A significant
number of comments recommended that we re-examine the regression
analysis and include a favorable DSH adjustment in the IPF PPS final
rule. Based on the analysis discussed below, we are not providing a DSH
adjustment in this final rule.
Comment: Several commenters stated that hospitals providing large
amounts of care to low-income individuals often serve as key access
points for low-income Medicare beneficiaries and other low-income
patients requiring psychiatric care.
Response: In the proposed rule, we indicated that we would continue
to monitor whether we could find empirical evidence to indicate a
relationship between disproportionate patient percentages and higher
per diem costs to support the establishment of a DSH adjustments. We
re-examined our regression analysis, as commenters requested, but did
not find any relationship between DSH intensity and higher per diem
costs. Our analysis of the FY 2002 data yielded the same results as our
analysis of the FY 1999. Therefore in this final rule we are not making
a DSH adjustment.
Comment: One commenter stated that since CMS provided for a DSH
adjustment in both the hospital IPPS and IRF PPS, IPFs should also
receive this additional payment.
Another commenter indicated that the reluctance to allow
psychiatric hospitals to participate in DSH payments is
[[Page 66959]]
related to the belief that the DSH hospitals are low cost providers.
Response: Consistent with the approach we have taken in the
proposed rule and in this final rule, we believe that any IPF PPS DSH
payment adjustment should be supported by data showing that DSH
facilities experience higher per diem costs than other IPFs. Our data
failed to demonstrate that the IPFs who serve a disproportionate number
of low income patients have higher per diem costs. Therefore, we do not
see a justification to make a DSH adjustment in the IPF PPS. Unlike
IPFs, the IPPS and IRF PPS had data supporting the need for a DSH
adjustment. IPPS and IRF PPS data showed that serving a
disproportionate share of low income patients has a direct connection
to higher facility costs.
Comment: A commenter suggested that if government-operated
hospitals bias the result, the analysis should be redone excluding
those hospitals.
Response: We believe the commenter misunderstood our statements in
the proposed rule about the impact of government-operated hospitals in
our analysis. Our intention was not that the government-operated
hospitals might be responsible for the finding of a negative
relationship between per diem cost and the DSH variable. Instead, we
were emphasizing that many observers might think that the limitations
of measuring DSH for government-operated hospitals (too low a value for
their DSH variable) might explain why we found higher DSH intensity
associated with lower cost. However, our finding was not attributable
to the government-operated hospitals because we found the same negative
relationship when we excluded them from the regression.
Comment: Some commenters indicated that because Medicaid does not
pay for services to certain individuals in an institution for mental
diseases (IMD), low-income beneficiaries in psychiatric hospitals
cannot be identified as Medicaid beneficiaries. In addition, the
commenters believe that the Medicaid proportion will be biased
downwards smaller than it should be.
Response: In the proposed rule and in this rule, the basis for the
decision not to provide a DSH adjustment is our inability to find a
correlation between available measures of low-income patient
percentages and higher per diem costs. As previously indicated,
potential measurement error in the Medicaid proportion did not explain
the lack of a positive correlation between per diem cost and DSH
status. We recognize that inpatients in institutions for mental
diseases may still be eligible for Medicaid for purposes of the
calculation of the DSH percentage (although there might be little
incentive for facilities to establish a patient's Medicaid eligibility
when there is no Medicaid payment available). The fact remains that,
with currently available data, we found no basis for a DSH adjustment.
Comment: Several commenters asked how section 402 of the MMA would
impact payments under the IPF PPS.
One commenter recommended that CMS wait until after December 8,
2004, to develop the IPF DSH factors (when the MMA is implemented and
CMS begins to furnish DSH data to all hospitals). The commenter
indicated that they expect the data to be a viable source of
information that could be used to establish an appropriate DSH
adjustment factor for the IPF PPS.
Response: Section 402 of the MMA has no effect on the IPF PPS as it
only applies to DSH under the IPPS. The commenter is apparently
referring to section 951 of the MMA, which requires that the Secretary
arrange to furnish subsection (d) hospitals (those hospitals subject to
the hospital IPPS) with the data necessary to compute the number of
patient days used in computing the disproportionate patient percentage.
We acknowledge that it is possible for this requirement to improve the
accuracy of the disproportionate patient percentages for hospitals at
some future point in time. However, we are making our decision not to
include a DSH adjustment based on the best available data. If better
data becomes available that indicates a need for a DSH adjustment, and
an appropriate methodology for such an adjustment, the issue can be
addressed in a future rulemaking.
d. IPFs With Full-Service Emergency Departments (EDs)
We did not propose an adjustment for IPFs with a qualifying ED.
However, we received many comments requesting a facility adjustment for
hospitals that maintain an ED and provide crisis management services.
Several commenters recommended that IPFs with an ED should receive a
facility-level adjustment empirically determined through the regression
model. One commenter recommended a 20 percent adjustment factor for
IPFs in hospitals with an ED.
In this final rule, we are providing an adjustment to the Federal
per diem base rate to account for the costs associated with maintaining
a full-service ED. We conducted an analysis, as described below, to
develop an appropriate payment adjustment to account for ED costs and
to define the subset of IPFs that have, or are part of acute care
hospitals that have, a full-service ED.
The overhead costs associated with maintaining an ED are included
in each IPF's routine cost amount, but since routine costs are reported
as a average, we are unable to determine the portion of the routine
cost directly attributable to ED costs. As an alternative, we analyzed
cases admitted through the ED using FY 2002 claims data. ED cases were
identified by the presence of ED or ambulance charges on the MedPAR
record. We found that about one-third of all cases were admitted
through the ED, and that 98 percent of the cases were treated in
psychiatric units. Among the psychiatric hospitals and units with at
least one admission from an ED, the ED admissions comprise about 43
percent of all admissions.
In analyzing the relative cost of ED and other admissions, we
limited the comparison to IPFs with ED admissions to avoid attributing
cost differences to ED admissions that are due to other unrelated
factors. On a per case basis, ED admissions are actually slightly less
expensive than other admissions ($7,672 versus $8,036). Most of the
difference results from the fact that ED stays are about one day
shorter than other psychiatric stays (10.6 days versus 11.5 days). The
ED costs average about $198 per case, and the mean difference in
ancillary costs per case (which includes ED costs) is about $196. Thus,
the ED costs effectively account for all of the difference in ancillary
costs per case between the ED and other admissions. On average,
admissions through the ED do not appear to require any more ancillary
services than other admissions except for the ED costs themselves.
Although this analysis indicated that patients admitted through the
ED were more costly on a per diem basis than cases without an ED
admission, we are not including an adjustment for patients admitted
through the ED. As explained previously, we are concerned about
creating an incentive for psychiatric units in acute care hospitals
with EDs to inappropriately admit all psychiatric patients through the
ED of the acute care hospital in which it is located in order to
receive a patient-level ED adjustment. An ED adjustment at the patient
level would be approximately $200. To the extent a psychiatric unit
ensured that all of its patients were admitted for inpatient
psychiatric care through the ED of the acute care hospital in which it
is located, even though admission through the ED was unnecessary and
inappropriate, Medicare would be substantially overpaying for these
cases.
[[Page 66960]]
As an alternative, we have decided to provide a facility-level
adjustment for IPFs, for both psychiatric hospitals and acute care
hospitals with a distinct part psychiatric unit, that maintain a
qualifying ED. We are providing the adjustment to psychiatric units in
acute care hospitals because the costs of the ED are allocated to all
hospital departments, including the psychiatric units. We intend that
the adjustment only be provided to hospitals with EDs that are staffed
and equipped to furnish a comprehensive array of emergency services and
that meet the definition of a ``dedicated emergency department'' in
Sec. 489.24 and the definition of ``provider-based entity'' in Sec.
413.65. We are defining a full-service ED in order to avoid providing
an ED adjustment to an intake unit that is not comparable to a full-
service ED with respect to the array of emergency services available or
cost.
However, where a psychiatric unit would otherwise qualify for the
ED adjustment, but an individual patient is discharged from that acute
care hospital, we would not apply the ED adjustment. The reason we
would not give an ED adjustment in this case is that the costs
associated with maintaining the ED would have already been paid through
the DRG payment paid to the acute care hospital. Thus, if we provided
an ED adjustment in this case, the hospital would be paid twice for the
overhead costs of the ED.
The ED adjustment will be incorporated into the variable per diem
adjustment for the first day of each stay. That is, IPFs with
qualifying EDs, will receive a higher variable per diem adjustment for
the first day of each stay than will other IPFs.
Three steps were involved in the calculation of the ED adjustment
factor. First, we estimated of the proportion by which the ED costs of
a case would increase the cost of the first day of the stay. Using the
IPFs with ED admissions in 2002, we divided their average ED cost per
stay admitted through the ED ($198) by their average cost per day
($715), which equals 0.28. Second, we adjusted the factor estimated in
step 1 to account for the fact that we will pay the higher first day
adjustment for all cases in the qualifying IPFs, not just the cases
admitted through the ED. Since on average, 44 percent of the cases in
IPFs with ED admissions are admitted through the ED, we multiplied 0.28
by 0.44, which equals 0.12. Third, we added the adjusted factor
calculated in the previous 2 steps to the variable per diem adjustment
derived from the regression equation that we used to derive our other
payment adjustment factors. The first day payment factor from this
regression is 1.19. Adding the 0.12, we obtained a first day variable
per diem adjustment for IPFs with a qualifying ED equal to 1.31.
D. Other Proposed Adjustments and Policy Changes
1. Outlier Policy
We proposed a 2 percent outlier policy to promote access to IPFs
for those patients who require expensive care and to limit the
financial risk of IPFs treating unusually costly cases. As explained in
the proposed rule, we believe that it is appropriate to include an
outlier policy in order to ensure that IPFs treating unusually costly
cases do not incur substantial ``losses'' and promote access to care
for patients requiring expensive care. Providing these additional
payments to IPFs for costs that are beyond the IPF's control will also
improve the accuracy of the payment system. Similar to the proposed
rule, our payment simulations continue to support establishment of the
outlier policy at 2 percent of total payments because it affords
protection for vulnerable IPFs (and patients) while providing
appropriate levels of payment for all other cases that are not outlier
cases. The 2 percent target continues to provide an appropriate balance
between patient access, IPF financial risk, and the payment rate
reduction required for all cases to offset the cost of the policy.
We proposed to make outlier payments on a per case basis rather
than on a per diem basis because it is the overall financial ``gain''
or ``loss'' of the case, and not of individual days, that determines an
IPF's financial risk and, as a result, access for unusually costly
cases. In addition, because patient level charges (from which costs are
estimated) are typically aggregated for the entire IPF stay, they are
not reported in a manner that would permit accurate accounting on a
daily basis.
Thus, we proposed to make outlier payment for discharges in which
estimated costs exceed an adjusted threshold amount ($4,200 multiplied
by the IPF's facility adjustments, that is, wage area, rural location,
teaching, and cost of living adjustment for IPFs located in Alaska and
Hawaii) plus the total IPF adjusted payment amount for the stay. Where
the case qualifies for an outlier payment, we proposed to pay 80
percent of the difference between the estimated IPF's cost for the case
and the adjusted threshold amount for days 1 through 8 of the stay, and
60 percent of the difference for day 9 and thereafter. We established
80 percent and 60 percent to lost sharing ratios because we were
concerned that a single ratio established at 80 percent (like other
Medicare hospital prospective payment systems) might provide an
incentive under the IPF per diem system to increase length of stay in
order to receive additional payments. After establishing the ratios, we
determined the threshold amount of $4,200 through payment simulations
designed to compute a dollar loss beyond which payments are estimated
to meet the 2 percent outlier spending target. In this final rule, we
adopted this proposed outlier policy methodology, with an adjusted
threshold amount of $5700. The revised amount is based on updated
simulations using more recent data (from FY 2002) and the modified
policy for the loss sharing ratios (see below).
In this final rule, we modified application of the loss-sharing
provision of the outlier policy to pay 80 percent of the difference
between the IPF's estimated cost for the case and the adjusted
threshold amount for days 1 through 9 of the stay ( including median
length of stay instead of days 1 through 8 up to the median length of
stay) and 60 percent thereafter. As we explain above, we decided to
reduce the 80 percent loss-sharing ratio by an additional 20 percent,
resulting in a 60 percent loss sharing ratio for day 10 and thereafter.
With this modification, we will pay 80 percent of the costs eligible
for outlier payments for all cases whose length of stay is no greater
than the median length of stay (9 days) of all Medicare inpatient
psychiatric cases.
In the proposed rule, we proposed a number of policies to ensure
the accuracy and integrity of our outlier payments. We are adopting
these policies in this final rule, as decribed below.
Referring back to the payment calculation example in Section VI.B.2
of this final rule, the total estimated payment for the case is
$7267.75. The adjusted threshold amount is calculated below:
Step 1: Multiply threshold by labor share and the wage area.
$5700 x 0.72528 (labor share) x 0.7743 (area wage index) = $3201.03
Step 2: Add this number to the non-labor share threshold amount.
$5700 x 0.27472 (non-labor share) = $1565.90
$1565.90 + $3201.03 = $4766.93
Step 3: Apply the other facility-level adjustments.
$4766.96 x 1.17 (rural adjustment) x 1.0 (teaching adjustment) =
$5577.31
Step 4: Calculate the adjusted threshold amount by adding the
estimated payment amount to the amount above.
[[Page 66961]]
$5577.31 + $7267.75 = $12,845.06
If estimated costs exceed the adjusted threshold amount
($12,845.06), then the case will qualify for an outlier payment. If the
IPF in the example reports charges of $21,000 and they have a cost-to-
charge ratio of 0.8, then the estimated cost of the case would be
$16,800. The outlier amount is calculated below:
Step 1: Calculate the difference between the estimated cost and the
adjusted threshold amount.
$16,800--$12.845.06 = $3954.94
Step 2: Divide by the length of stay (in our example, 10 days).
$3594.94 / 10 = $395.49
Step 3: For days 1 through 9 of the stay, the IPF receives 80% of
this difference.
$395.49 x 0.80 = $316.40
$316.40 x 9 days = $2847.60
Step 4: For days 10 and beyond, the IPF receives 60% of the
difference.
395 x 0.60 = $237.30 (in the example, the patient stays for 10 days, so
the IPF receives the above amount for day 10 only).
Therefore, the IPF in the example would receive a total outlier
payment of $3084.90.
($2847.60 + $237.30).
a. Statistical Accuracy of Cost-to-Charge Ratios
We believe that there is a need to ensure that the cost-to-charge
ratio used to compute an IPF's estimated costs should be subject to a
statistical measure of accuracy. Removing aberrant data from the
calculation of outlier payments will allow us to enhance the extent to
which outlier payments are equitably distributed and continue to reduce
incentives for IPFs to under serve patients who require more costly
care. Further, using a statistical measure of accuracy to address
aberrant cost-to-charge ratios would also allow us to be consistent
with the outlier policy under the hospital inpatient prospective
payment system. Therefore, we are making the following two proposals:
We will calculate two national ceilings, one for IPFs
located in rural areas and one for facilities located in urban areas.
We will compute the ceiling by first calculating the national average
and the standard deviation of the cost-to-charge ratios for both urban
and rural IPFs.
To determine the rural and urban ceilings, we will multiply each of
the standard deviations by 3 and add the result to the appropriate
national cost-to-charge ratio average (either rural or urban). We
believe that the method explained above results in statistically valid
ceilings. If an IPF's cost-to-charge ratio is above the applicable
ceiling, the ratio is considered to be statistically inaccurate.
Therefore, we will assign the national (either rural or urban) median
cost-to-charge ratio to the IPF. Due to the small number of IPFs
compared to the number of acute care hospitals, we believe that
statewide averages used in the hospital inpatient prospective payment
system, would not be statistically valid in the IPF context.
In addition, the distribution of cost-to-charge ratios for IPFs is
not normally distributed and there is no limit to the upper ceiling of
the ratio. For these reasons, the average value tends to be overstated
due to the higher values on the upper tail of the distribution of cost-
to-charge ratios. Therefore, we will use the national median by urban
and rural type as the substitution value when the facility's actual
cost-to-charge ratio is outside the trim values. Cost-to-charge ratios
above this ceiling are probably due to faulty data reporting or entry,
and, therefore, should not be used to identify and make payments for
outlier cases because these data are clearly erroneous and should not
be relied upon. In addition, we will update and announce the ceiling
and averages using this methodology every year.
We will not apply the applicable national median cost-to-
charge ratio when an IPF's cost-to-charge ratio falls below a floor. We
are adopting this policy because we believe IPFs could arbitrarily
increase their charges in order to maximize outlier payments.
Even though this arbitrary increase in charges should result in a
lower cost-to-charge ratio in the future (due to the lag time in cost
report settlement), if we propose a floor on cost-to-charge ratios, we
will apply the applicable national median for the IPFs actual cost-to-
charge ratio. Using the national median cost-to-charge ratio in place
of the provider's actual cost-to-charge ratio would estimate the IPF's
costs higher than they actually are and may allow the IPF to
inappropriately qualify for outlier payments.
Accordingly, we will apply the IPF's actual cost-to-charge ratio to
determine the cost of the case rather than creating and applying a
floor. In such cases as described above, applying an IPF's actual cost-
to-charge ratio to charges in the future to determine the cost of the
case will result in more appropriate outlier payments.
Consistent with the policy change under the hospital inpatient
prospective payment system, IPFs will receive their actual cost-to-
charge ratios no matter how low their ratios fall. We are still
assessing the procedural changes that would be necessary to implement
this change. For this final rule, we are finalizing the above described
policies.
b. Adjustment of IPF Outlier Payments
As discussed in the hospital inpatient prospective payment system
final rule for outliers, we have implemented changes to the IPPS
outlier policy used to determine cost-to-charge ratios for acute care
hospitals, because we became aware that payment vulnerabilities exist
in the current outlier policy. Because we believe the IPF outlier
payment methodology is likewise susceptible to the same payment
vulnerabilities, we are adopting the following changes:
Include in Sec. 412.424(c)(2)(v) a cross-reference to
Sec. 412.84(i) that was included in the final rule published in the
Federal Register on June 9, 2003 (68 FR 34515). Through this cross-
reference, FIs will use more recent data when determining an IPF's
cost-to-charge ratio. Specifically, as provided in Sec. 412.84(i), FIs
will use either the most recent settled IPF cost report or the most
recent tentatively settled IPF cost report, whichever is later to
obtain the applicable IPF cost-to-charge ratio. In addition, as
provided under Sec. 412.84(i), any reconciliation of outlier payments
will be based on a ratio of costs to charges computed from the relevant
cost report and charge data determined at the time the cost report
coinciding with the discharge is settled.
Include in proposed Sec. 412.424(c)(2)(v) a cross reference to
Sec. 412.84(m) (that was included in the final rule published in the
Federal Register on June 9, 2003 (68 FR 34415) to revise the outlier
policy under the hospital inpatient prospective payment system).
Through this cross-reference, IPF outlier payments may be adjusted to
account for the time value of money during the time period it was
inappropriately held by the IPF as an ``overpayment.'' We also may
adjust outlier payments for the time value of money for cases that are
``underpaid'' to the IPF. In these cases, the adjustment will result in
additional payments to the IPF. Any adjustment will be based upon a
widely available index to be established in advance by the Secretary,
and will be applied from the midpoint of the cost reporting period to
the date of reconciliation.
We received several comments on the proposed outlier policy. Most
of the comments expressed support for the proposed outlier policy.
Comment: Many commenters indicated that the outlier level is too
low and that there should be a mechanism to appeal an outlier payment.
The commenters
[[Page 66962]]
recommended establishing the outlier policy at 5 percent of the total
IPF PPS.
Response: We are maintaining a 2 percent outlier policy in the
final IPF PPS. The 2 percent outlier target percentage is lower than
the target outlier percentage of other prospective payment systems that
contain outlier polices, which range from 3 percent in the inpatient
rehabilitation PPS to 8 percent in the LTCH PPS. The target outlier
percentage in IPPS is about 5 percent. However, these other systems are
per case or per episode payment systems in which Medicare's payment
does not automatically account for the higher costs associated with
longer lengths of stay. In a per diem system, such as the IPF PPS,
there is less of a need for outlier payments because it automatically
adjusts payments for length of stay. Therefore, we believe that 2
percent of total IPF PPS payment is appropriate. We estimate that
approximately 5 percent of IPF cases would meet the fixed dollar loss
threshold amount and qualify for an average outlier payment of $3,248.
If the provider is dissatisfied with the amount of payment, they
can invoke existing appeal rights.
Comment: Several commenters recommended modifying the outlier
calculation so that the proposed risk sharing percentage of 60 percent
for the ninth and subsequent days is increased to 80 percent.
Response: We proposed to reduce the risk sharing percentage from 80
percent to 60 percent after the 8th day of the stay. The choice of the
8th day was based on the fact that a single variable per diem
adjustment was proposed for days 5 through 8, and we thought it
appropriate to make the change in the risk sharing percentage change
coincide with the change in the variable per diem adjustment factor.
After analyzing new data and based on public comments, we have revised
the variable per diem adjustment factors so that they vary continuously
over the first 22 days of the stay. As a result, there is no longer any
reason to make the change in the risk sharing percentage coincide with
the variable per diem adjustment factors. In this final rule, we are
changing the risk sharing percentage from 80 percent to 60 percent
after the 9th day of the stay. We chose to include the 9th day in the
80 percent risk sharing category because 9 days is the median length of
stay. The median implies that one-half of the cases have a length of
stay greater than 9 days, and the other half have a length of stay less
than 9 days, which also can be interpreted as implying that the
``typical'' case has a length of stay of 9 days. We will pay the 80
percent risk sharing percentage for all cases whose length of stay is
less than or equal to the length of stay of the typical case. We are
reducing the risk sharing percentage for cases whose length of stay
exceeds that of the typical case, because as we noted in the proposed
rule (68 FR 66934), we are concerned that a single risk sharing
percentage at 80 percent might provide an incentive to increase length
of stay in order to received additional outlier payments. Reducing the
amount Medicare shares in the loss of high cost cases provides an
incentive for an IPF to contain costs once a case qualifies for outlier
payments. The reduction from 80 percent to 60 percent is adequate to
provide such an incentive, while maintaining a significant degree of
risk sharing.
Comment: Many commenters requested that CMS provide additional
information to the sample calculation presented in the proposed rule.
The commenters also recommended that CMS explain the circumstances
under which an outlier would be paid (interim billing or at the time of
discharge).
Response: Since outlier payments will be made on a per-case basis,
a determination as to whether a case qualifies for an outlier payment
cannot be made until discharge. We are concerned about the potential
for overpayments associated with IPF stays that may appear to qualify
for outlier payments early in the stay, but do not meet the fixed
dollar loss threshold once all costs and IPF PPS payments are
considered. To avoid this situation, we proposed in Sec. 412.432(d),
that additional payments for outliers are not made on an interim basis.
Rather, outlier payments are made based on the submission of a
discharge bill. We are adopting this provision in this final rule.
Comment: Several commenters recommended clarification on the
methodology for determining the cost-to-charge ratio, a clear
definition of the numerator and denominator in the ratio, identifying
the applicable worksheet location for data on costs and charges, as
well as the appeal or comments that might be available when the
national cost-to-charge ratios are published.
Response: We intend to follow similar procedures as outlined in the
IPPS final rule published in the Federal Register on June 9, 2003 (68
FR 34498). IPF PPS outlier methodology requires the FI to calculate the
provider's overall Medicare cost-to-charge ratio using the facility's
latest settled cost report or tentatively settled cost report
(whichever is from the later period), and associated data. Cost-to-
charge ratios will be updated each time a subsequent cost report is
settled or tentatively settled. Total Medicare charges will consist of
the sum of inpatient routine charges and the sum of inpatient ancillary
charges including capital. Total Medicare costs will consist of the sum
of inpatient routine costs (net of private room differential and swing
bed cost) plus the sum of ancillary costs plus capital-related pass-
through cost only. Based on current Medicare cost reports and
worksheet, specific FI instructions are described below.
For freestanding IPFs, Medicare charges will be obtained from
Worksheet D-4, column 2, lines 25 through 30, plus line 103 from the
cost report. For freestanding IPFS, total Medicare costs will be
obtained from worksheet D-1, Part II, line 49 minus (Worksheet D, Part
III, column 8, lines 25 through 30, plus Worksheet D, Part IV, column
7, line 101). Divide the Medicare costs by the Medicare charges to
compute the cost-to-charge ratio.
For IPFs that are distinct part psychiatric units, total Medicare
inpatient routine charges will be estimated by dividing Medicare
routine costs on Worksheet D-1, Part II, line 41, by the result of
Worksheet C, Part I, line 31, column 3 divided by line 31, column 6.
Add this amount to Medicare ancillary charges on Worksheet D-4, column
2, line 103 to arrive at total Medicare charges. To calculate the total
Medicare costs for distinct part units, data will be obtained from
Worksheet D-1, Part II, line 49 minus (Worksheet D, part III, column 8,
line 31 plus Worksheet D, Part IV, column 7, line 101). All references
to Worksheet and specific line numbers should correspond with the
subprovider identified as the IPF unit, that is the letter ``S'' is the
third position of the Medicare provider number. Divide the total
Medicare costs by the total Medicare charges to compute the cost-to-
charge ratio.
If the provider is dissatisfied with the FI's cost-to-charge ratio
determination, they can invoke their applicable appeal rights.
2. Interrupted Stays
In the proposed rule, we proposed an interrupted stay policy based
on our concern that IPFs could maximize inappropriate Medicare payment
by prematurely discharging patients after they receive the higher
variable per diem adjustments and then readmitting the same patient.
Under the proposed policy, if a patient is discharged from an IPF and
returns to the same IPF before midnight on the fifth consecutive day
following discharge, the case is
[[Page 66963]]
considered to be continuous for applying the variable per diem
adjustments and determining whether the case qualifies for outlier
payments. Therefore, we would not apply the variable per diem
adjustments for the second admission and would combine the costs of
both admissions for the purpose of outlier payments. We proposed this
policy in order to lower the incentive for a hospital to move patients
among Medicare-covered sites in order to maximize Medicare payments. We
received many public comments regarding the proposed interrupted stay
policy. Most of the commenters requested that we delete the interrupted
stay policy, provide an exception for discharges to an acute care
hospital in order to receive medical or surgical services, for
readmissions due to psychiatric decompensation, or shorten the duration
of the interrupted stay policy. In this final rule, we are retaining
the interrupted stay policy, but we are shortening the duration to 3
days.
Therefore, if a patient is discharged from an IPF and admitted to
any IPF within 3 consecutive days of the discharge from the original
IPF stay, the stay would be treated as continuous for purposes of the
variable per diem adjustment and any applicable outlier payment.
For example a patient is discharged from an IPF on March 10 after
an initial stay of 7 days and is admitted to another IPF on March 12
(before midnight of the 3rd consecutive day). The ``readmission'' is
considered a continuation of the initial stay. Therefore day 1 of the
readmission will be considered day 8 of the combined stay for purposes
of the variable per diem stay and any applicable outlier payment.
Comment: A few commenters stated that after a 5-day interruption,
the patient would need a full workup similar to the admission process
on the first day. One commenter stated that the proposed 5-day
interrupted stay policy financially penalizes IPFs for ensuring that
their patients receive necessary emergency medical care.
Most commenters requested that we shorten the duration of the
interrupted stay policy. Other commenters stated that a 5-day
interrupted stay policy would require IPFs to hold claims and not bill
Medicare until after the fifth day of discharge and that a 5-day
interrupted stay policy could cause IPFs to delay readmissions to avoid
the policy.
Several commenters recommended that we reduce the duration of the
interrupted stay policy to 3 days to coincide with the 72-hour rule for
bundling of outpatient charges under IPPS. Other commenters suggested a
3-day interrupted stay policy in order to be consistent with the
interrupted stay policy in the IRF prospective payment system. However,
a few commenters suggested that we extend the interrupted stay policy
to readmissions to the IPF within 15 or 30 days of the patients
discharge that would prompt a readmission review by the hospital's
Quality Improvement Organization.
Response: In the proposed rule, we indicated that an absence from
the IPF of less than 5 days would not necessitate repeating many of the
admission-related services such as psychiatric evaluations and the
patient's medical history. After receiving public comments we
reanalyzed the duration of the interrupted stay policy. We now agree
that after a 5-day absence from the IPF there are psychiatric and
laboratory tests that would need to be repeated. As a result, we have
revised the duration of the interrupted stay policy in this final rule
from 5 days to 3 days.
Comment: Several commenters did not believe an interrupted stay
policy was necessary to avoid inappropriate transfers and readmissions
to the IPF. One commenter stated that adequate safeguards already
exist, such as the physician certification and recertification
requirements, significant medical malpractice risk of premature
discharge, periodic review of practice patterns by local licensing and
national accreditation bodies, and FI audits.
Response: Despite the safeguards identified by the commenters,
inappropriate transfers and readmissions of psychiatric patients
continue to occur. For this reason, we continue to believe an
interrupted stay policy is necessary to discourage inappropriate
discharges and readmissions to IPFs.
Comment: The majority of commenters requested that we provide an
exception to the interrupted stay policy when a patient is discharged
to an acute care hospital for medical care. The commenters maintain
that the resources required to treat the patient at the time of
readmission are of similar intensity to those required at the point of
first admission. All assessments (including history and physical and
psychiatric assessment) as well as the comprehensive treatment plan
need to be reviewed and revised. In addition, the medical condition
that required treatment must be addressed and incorporated into the
ongoing treatment. One commenter suggested that discharges and
subsequent readmissions to the IPF due to psychiatric decompensation
should not be subject to the interrupted stay policy as well.
Response: Although we agree that some additional resources will be
expended by IPFs when a patient is readmitted, we believe the resources
required to reassess a patient upon readmission would be greatly
reduced after a 3-day interrupted stay compared to the proposed 5-day
interrupted stay policy. In addition, since almost three fourths of
IPFs are distinct part psychiatric units in acute care hospitals, we
remain concerned about hospitals inappropriately shifting patients
between the psychiatric unit and the medical unit, thus receiving both
the full DRG payment for the admission to the acute care hospital, and
IPF payment for the admission to the excluded psychiatric unit.
Comment: One commenter asked if the interrupted stay policy applies
if a patient is discharged to receive acute care and is readmitted to a
different IPF than the IPF that originally discharged and transferred
the patient. The commenter indicated that the shuffling of psychiatric
patients from hospital to hospital is an abusive practice that the
interrupted stay policy should address.
Response: We share the commenter's concern about the ``shuffling''
of psychiatric patients from hospital to hospital. We believe adopting
an interrupted stay policy will address this concern from the viewpoint
of the IPF PPS.
One example is when a patient is discharged from a psychiatric unit
to receive acute care and discharged at the completion of the hospital
IPPS stay, then transferred to a freestanding psychiatric hospital
rather than returning to the psychiatric unit. Under the interrupted
stay policy, if the readmission to the psychiatric hospital occurs
within the 3-day interrupted stay timeframe, of the initial psychiatric
unit stay, we would not pay the psychiatric hospital the variable per
diem adjustments for the initial days of the original psychiatric unit
stay otherwise applicable to the stay. The transferring hospital would
send the psychiatric hospital the patient's medical record that will
include information regarding the prior psychiatric stay in accordance
with the hospital condition of participation for discharge planning
(Sec. 482.43).
As a result, we have revised Sec. 412.424(d) to clarify that if a
patient is discharged from an IPF and is readmitted to the same or
another IPF before midnight on the third consecutive day following the
discharge from the original IPF stay, the case is considered to be
continuous for
[[Page 66964]]
applying the variable per diem adjustments and determining whether the
case qualifies for outlier payments.
Comment: Several commenters asked if the interrupted stay policy
would apply if a patient is transferred from a distinct part
psychiatric unit to the hospital's medical unit and is readmitted to
the IPF within the 5-day interrupted stay timeframe, but with a
different principal diagnosis.
Response: In the situation described by the commenter, the
interrupted stay policy would apply. A psychiatric patient whose
illness is severe enough to require inpatient psychiatric treatment,
should be receiving care for all of their psychiatric conditions.
Therefore, if this psychiatric patient was discharged for acute medical
care, and upon discharge from the acute medical hospital the patient
still required inpatient psychiatric treatment, that treatment should
be considered a continuation of the original stay. Thus, the principal
diagnosis upon readmission is not relevant to the interrupted stay
policy.
Comment: One commenter asked if the interrupted stay policy would
apply when a patient is discharged to a partial hospitalization
program, decompensates while in that program, necessitating a
readmission to the IPF within 5 days of the discharge from the IPF.
Response: Under this final rule, if a patient was in an IPF and was
discharged to a partial hospitalization program but then required
readmission to an IPF within the 3-day timeframe, the stay is
considered an interrupted stay. The interrupted stay policy applies to
all discharges and subsequent readmissions to an IPF within 3
consecutive days.
3. Stop-Loss Provision
Many commenters who believed that they would be disadvantaged by
implementation of the IPF PPS, requested that we provide additional
payments through a risk sharing arrangement. We considered alternatives
that would reduce financial risk to facilities expected to experience
substantial reductions in Medicare payments during the period of
transition to the IPF PPS.
Specifically, we considered stop-loss policies that would guarantee
each facility, total IPF PPS payments no less than a minimum percent of
its TEFRA payments, had the IPF PPS not been implemented. The two
values for the minimum percent of TEFRA payments we examined were 70
percent and 80 percent. The 80 percent option was considered because 80
percent is a commonly used rate of risk-sharing in Medicare programs.
We pay 80 percent of the estimated costs of outlier cases beyond the
outlier threshold, and 80 percent is similarly used in other Medicare
PPS's, as well as in many other insurance arrangements. The 70 percent
option was assessed as an alternative, because it more narrowly targets
stop-loss payments to facilities with greater financial risk.
Each of these policies was applied to the IPF PPS portion of
Medicare payments during the transition. Hence, during year 1, three-
quarters of the payment would be based on TEFRA and one-quarter on the
IPF PPS. In year 2, one-half of the payment would be based on TEFRA and
one-half on the IPF PPS. In year 3, one-quarter of the payment would be
based on TEFRA and three-quarters on the IPF PPS. In year 4 of the IPF
PPS, Medicare payments are based 100 percent on the IPF PPS.
The combined effects of the transition and the stop-loss policies
would be to ensure that the total estimated IPF PPS payments would be
no less than 92.5 or 95 percent in year 1, 85 or 90 percent in year 2,
and 77.5 or 85 percent in year 3, depending upon whether the 70 percent
or the 80 percent stop-loss option were implemented. Under the 70
percent policy, 75 percent of total payment would be TEFRA payments,
and the 25 percent would be IPF PPS payments, which would be guaranteed
to be at least 70 percent of the TEFRA payments. The resulting 92.5
percent of TEFRA payments is the sum of 75 percent and 25 percent times
70 percent (which equals 17.5 percent).
The 70 percent of TEFRA payment stop-loss policy would require a
reduction in the Federal per diem and ECT base rates of 0.39 percent in
order to make the stop-loss payments budget neutral. We estimate that
about 10 percent of IPFs would receive stop-loss payments under the 70
percent policy.
The 80 percent of TEFRA stop-loss policy would require a reduction
in the Federal per diem rate of almost 2 percent in order to make the
stop-loss policy budget neutral. We estimate that almost 27 percent of
all facilities would receive additional payments under the 80 percent
stop-loss policy.
We also considered a risk-sharing policy modeled on the same
principles as the case-level outlier policy, but applied at the
facility level. Under this approach, we considered the case in which an
IPF would have to incur a 12 percent loss in IPF PPS payments relative
to TEFRA and then we would pay 80 percent of additional losses. This
approach was estimated to require a reduction in the Federal per diem
and ECT base rates of about 12 percent.
In order to target the stop-loss policy to the IPFs that may
experience the greatest impact relative to current payments and to
limit the size of the reductions to the Federal per diem and ECT base
rates required to maintain budget neutrality, we are adopting the 70
percent stop-loss provision. We have added a new paragraph (d) to Sec.
412.426 to include the 70 percent stop-loss provision as part of the 3-
year transition to the IPF PPS. We will monitor expenditures under this
policy to evaluate its effectiveness in targeting stop-loss payments to
IPFs facing the greatest financial risk.
4. Physician Recertification Requirements
In the proposed rule, we proposed to modify the timing of the first
physician recertification after admission to the IPF. We proposed to
revise Sec. 424.14(d) to require that a physician recertify a
patient's continued need for inpatient psychiatric care on the tenth
day following admission to the IPF rather than the 18th day following
admission to the IPF.
Also, we proposed to amend Sec. 424.14 by adding a new paragraph
(c)(3) to require that, in recertifying a patient's need for continued
inpatient care, a physician must indicate that the patient continues to
need, on a daily basis, inpatient psychiatric care (furnished directly
by or requiring the supervision of IPF personnel) or other professional
services that, as a practical matter, can be provided only on an
inpatient basis. We received a few comments supporting the proposed
change. However, most of the commenters did not support the proposed
changes and indicated inconsistencies in the timeframes currently
required for IPFs that warrant additional analysis. As a result, we are
not including the proposed physician re-certification requirements in
this final rule. We will continue to require that a physician recertify
a patient's continued need for inpatient psychiatric care on the 18th
day following admission to the IPF.
VII. Implementation of the IPF PPS
A. Transition Period
1. Existing Providers
We proposed a 3-year transition period during which IPFs would
receive a blended payment of the Federal per diem payment amount and
the facility-specific payment amount the IPF would receive under the
TEFRA payment methodology. We proposed that the first year of the
transition would be 15 months. Thus the first year of transition is for
cost reporting periods beginning
[[Page 66965]]
on or after April 1, 2004 and before July 1, 2005. The proposed total
payment for this period would consist of 75 percent based on the TEFRA
payment system and 25 percent based on the proposed IPF prospective
payment amount.
We also proposed that for cost reporting periods beginning on or
after July 1, 2005 and before July 1, 2006, the total payment would
consist of 50 percent based on the TEFRA payment system, and 50 percent
based on the proposed IPF prospective payment amount. In addition, we
also proposed that for cost reporting periods beginning on or after
July 1, 2006 and before July 1, 2007, the total payment would consist
of 25 percent based on the TEFRA payment system and 75 percent based on
the proposed IPF prospective payment amount. Thus, we proposed that
payments to IPFs would be at 100 percent of the proposed IPF
prospective payment amount for cost reporting periods beginning on or
after July 1, 2007.
We proposed this transition period so existing IPFs would have time
to adjust their cost structures and integrate the effects of changing
to the IPF PPS payment system. We specified that we would not allow
IPFs the option to be paid at 100 percent of the IPF PPS payment amount
in the first year of the transition, but would require all IPFs to
receive the blended IPF payments during the 3-year transition period.
However, new IPFs would be paid the full Federal per diem payment
amount rather than a blended payment amount. This is because the
transition period is intended to provide currently existing IPFs time
to adjust to payment under the new system. A new IPF would not have
received payment under TEFRA for delivery of IPF services before the
effective date of the IPF PPS. Therefore, we believe new IPFs do not
need a transition to adjust their operating or capital financing that
IPFs that have been paid under the TEFRA payment methodology would
need.
In the proposed rule (68 FR 66920), we defined new IPFs as those
IPFs that, under current or previous ownership or both, have their
first cost reporting period as an IPF beginning on or after April 1,
2004. In this final rule, we define a new provider as those IPFs that,
under current or previous ownership or both, have their first cost
reporting period as an IPF beginning on or after January 1, 2005 to
coincide with the effective date of the final IPF PPS.
Comment: The majority of commenters requested that we provide an
option for IPFs to forego the transition and be paid at 100 percent of
the IPF PPS payment amount in the first year of the transition. The
commenters stated that other PPSs, specifically IRF PPS and LTCH PPS,
included that option.
The commenters also stated that a mandatory transition period
causes IPFs to continue to be paid under the outdated TEFRA payment
system. The commenters requested that IPFs that are substantially
underpaid under TEFRA or those that would be last to begin the
transition to the IPF PPS because of the timing of their cost reporting
year should be permitted to receive 100 percent of the Federal per diem
payment amount.
One commenter stated that failure to provide for a 100 percent IPF
PPS payment option disadvantages efficient providers. The commenter
indicated IPFs that choose this option would strive to become more cost
efficient more quickly. In addition, the blended payment methodology
during the transition period could lead to payments that are less than
current cost-based payments and would penalize IPFs that have a low
TEFRA rate. Several commenters indicated that a 100 percent IPF PPS
payment option would avoid the complications and financial burden of a
blended payment process due to accounting difficulties caused by being
paid under two payment systems.
One commenter indicated that the protection offered by the
transition is short-lived and that psychiatric units suffering the
greatest losses will experience significant financial hardship until
the IPF PPS is refined to account for more of the variation in the per
diem costs of psychiatric units and psychiatric hospitals.
Another commenter indicated that hospitals would be unable to
offset Medicare ``losses'' under the IPF PPS with gains in other
services. The commenter indicated that it would be very difficult for
many of these hospitals to support ``losses'' in their psychiatric
units for the long term and that some hospitals may decide to close
their psychiatric units, which would result in diminished access for
beneficiaries.
However, several commenters specifically requested that CMS retain
the proposed 3-year transition period. The commenters stated that the
IPF PPS could have unexpected financial consequences for IPFs and the
full transition period is needed to enable IPFs to adapt to the new
payment system. The commenters are concerned that allowing immediate
implementation of the IPF PPS would dilute the Federal per diem base
rate and exacerbate the redistributive effect of the new payment
system. Several commenters indicated that the availability of new
funding, a 100 percent of the Federal per diem payment amount option
would result in further reductions to the Federal per diem base rate.
As a result, these commenters would support a 100 percent option, but
only if there is new funding available.
Other commenters requested that CMS phase-in the new IPF PPS more
slowly, to allow corrections to any serious errors in the IPF PPS
before full implementaion. Commenters recommended that CMS lengthen the
transition to 5 or 6 years and perhaps for as long as 10 years to
enable CMS to refine the IPF PPS before the full implementation.
Response: We have retained the transition period in the final IPF
PPS. We believe this approach strikes an appropriate balance between
IPFs that are prepared immediately to move to full implementation of
the IPF PPS and those IPFs that need time to make the changes before
the full implementation of the new PPS.
Section 305(b)(10)(c) of BIPA allowed IRFs to elect to be paid 100
percent of the adjusted facility Federal prospective payment for each
cost reporting period to which the blended payment methodology would
other wise have been applied. In implementing LTCHs 5-year transition
period of the PPS, one of the goals was to transition hospitals to full
prospective payments as soon as appropriate. Due to the longer length
of the transition period, under the LTCH PPS, we allowed LTCHs to elect
payment based on 100 percent of the Federal rate at the start of any of
its cost reporting periods during the 5-year transition period. Once
the election to be paid 100 percent of the Federal per diem base rate
was made, the LTCH was not able to revert to the transition blend.
The IPF statute does not mandate that IPFs be given the option to
elect to be paid 100 percent of IPF PPS payment amount immediately
Federal rate. The shorter timeframe of a 3-year transition period was
to provide all IPFs adequate time to make the most prudent adjustments
to their operations and capital financing to secure the maximum
benefits of the new PPS.
Absent the availability of additional funds, the reallocation of
existing funds in budget neutral payment systems cause shifts in
facility payments. The aim of having an IPF PPS payment amount that is
a blend of an ever-decreasing TEFRA portion and ever increasing IPF PPS
portion is to mitigate dramatic negative effects of converting too
quickly to a new payment system. Every budget neutral payment system
will impact different provider groups
[[Page 66966]]
differently. Some providers believe that they will ``gain'' under the
new IPF PPS while others believe they will do less well compared to the
payments they have received under TEFRA.
To provide the impartial treatment to all IPFs, in the final IPF
PPS, we have required all IPFs to participate in the 3-year transition
period. Therefore, prolonging the transitional period to 5 or 10 years
would not help providers who believe they have been disadvantaged under
TEFRA as well as those who feel they are not being helped under IPF PPS
for a an even longer period of time.
However, we share the commenter's concern about the ability of IPFs
to adjust to the IPF PPS so that access to inpatient mental health care
is maintained. Thus, we have tried to ensure continued access to mental
health care by accounting for the complexity of patients with
concurrent psychiatric and medical health conditions. We have created a
PPS with numerous patient and facility level adjustments, an outlier
policy, as well as a stop-loss policy that when used in combination
with the transition period should ensure that an IPF PPS payment
adequately reflects the costs of furnishing inpatient psychiatric care
to Medicare beneficiaries.
2. New Providers
We proposed a definition of a new IPF because new IPFs will not
participate in the 3-year transition from cost-based reimbursement
under TEFRA to the IPF PPS. The transition period is intended to
provide existing IPFs time to adjust to payment under the IPF PPS. A
new IPF would not have received payment under TEFRA for the delivery of
IPF services before the effective date of the IPF PPS. Therefore, we do
not believe that new IPFs require a transition period in order to make
adjustments to their operating and capital financing, as will IPFs that
have been paid under TEFRA, or need to otherwise integrate the effects
of changing from one payment system to another payment system.
For purposes of applying the IPF PPS 3-year transition period, we
proposed to define a new IPF as a provider of inpatient hospital
psychiatric services that otherwise meets the qualifying criteria for
IPFs, set forth in Sec. 412.22, Sec. 412.23, Sec. 412.25, and Sec.
412.27 under present or previous ownership (or both), and its first
cost reporting period as an IPF begins on or after April 1, 2004, the
effective date of the proposed IPF PPS. In this final rule, we are
finalizing the definition, except we are replacing April 1, 2004 with
January 1, 2005 in order to account for the revised effective date of
the final IPF PPS. In other words, we are finalizing the definition of
a new IPF as a provider of inpatient hospital psychiatric services that
otherwise meets the qualifying criteria for IPFs, set forth in Sec.
412.22, Sec. 412.23, Sec. 412.25, and Sec. 412.27 under present or
previous ownership (or both), and its first cost reporting period as an
IPF begins on or after January 1, 2005.
B. Claims Processing
We proposed to continue processing claims in a manner similar to
the current claims processing system. Hospitals would continue to
report diagnostic information on the claim form and the FIs would
continue to enter clinical and demographic information in their claims
processing systems for review by the Medicare Code Editor (MCE).
Comment: We received a variety of comments from all-inclusive rate
and nominal cost hospitals regarding specific billing issues.
Response: We are issuing operational instructions to address the
specific billing issues raised by the commenters.
C. Annual Update
In the proposed rule, we indicated that section 124 of Public Law
106-113 does not specify an update strategy for the IPF PPS and is
broadly written to give the Secretary discretion in proposing an update
methodology. Therefore, we reviewed the update approach used in other
hospital prospective payment systems (specifically, the IRF and LTCH
PPS update methodologies).
As a result of this analysis, we proposed the following strategy
for updating the IPF PPS: (1) use the FY 2000 bills and cost report
data and the most current ICD-9-CM codes and DRGs when we issue the IPF
prospective payment system final rule; (2) implement the system
effective for cost reporting periods beginning on or after April 1,
2004; and (3) update the Federal per diem base rate on July 1, 2005,
since a July 1 update coincides with more hospital cost reporting
cycles and would be administratively easier to manage. As a result, the
implementation period for the proposed IPF PPS was the 15-month period
April 1, 2004 to June 30, 2005.
In this final rule, we calculated the final Federal per diem base
rate to be budget neutral during the implementation period of the final
IPF PPS. As in the proposed rule, for future updates, we will use a
July 1 through June 30 annual update cycle. Similar to the proposed
rule, we will not update the IPF PPS during the first year of
implementation because we believe there would be an insufficient amount
of time under the IPF PPS to generate data useful in updating the
system. Thus, the implementation period for the final IPF PPS is the
18-month period January 1, 2005 through June 30, 2006. As a result, the
first update to the IPF PPS will occur on July 1, 2006, and updated for
each subsequent 12-month period thereafter.
As we noted in the proposed rule, we believe it is important to
delay updating the adjustment factors derived from the regression
analysis until we have IPF PPS data that includes as much information
as possible regarding the patient-level characteristics of the
population that each IPF serves. For this reason, we do not intend to
update the regression and recalculate the Federal per diem base rate
until we have analyzed one complete year of data under the IPF PPS.
Until that analysis is complete, we proposed to publish a notice in the
Federal Register each spring to update the IPF PPS and identified the
various elements of the IPF PPS that we would update.
In this final rule, we are adopting the proposed annual update with
minor modifications to reflect the policies contained in this final
rule. For example, we did not include an adjustment for ECT in the
proposed rule and as a result, the proposed update strategy did not
address how we would update that payment amount.
We will publish a notice in the spring of CY 2006 to update the IPF
PPS effective July 1, 2006 and will publish a update notice for each
12-month period thereafter. In the notice, we will:
Update the Federal per diem base rate using the excluded
hospital with capital market basket increase in order to reflect the
price of goods and services used by IPFs.
Apply the best available hospital wage index with an
adjustment factor to the Federal per diem base rate to ensure that
aggregate payments to IPFs are not affected by an updated wage index.
Update the fixed dollar loss threshold to maintain an
outlier policy that is 2 percent of total estimated IPF PPS payments.
Describe relevant ICD-9-CM coding and DRG classification
changes discussed in the IPPS that would affect IPF PPS coding and
payment.
Update the payment amount for ECT based on the best
available OPPS data.
Finally, as we indicated in the proposed rule, we may propose an
update methodology for the IPF PPS in the future. We anticipate that
the update methodology would be based on the
[[Page 66967]]
excluded hospital with capital market basket index along with other
appropriate factors relevant to psychiatric service delivery such as
productivity, intensity, new technology, and changes in practice
patterns.
Comment: Several commenters requested that we delay the proposed
April 1, 2004 implementation date until October 1, 2004 in order to be
consistent with the October 1 update cycle for the IPPS. The commenters
believe that an October 1 update cycle for the IPF PPS would avoid
confusion and coding errors that would occur because of the
introduction of ICD-9-CM and DRG changes mid-cycle. In addition, the
commenters believe adopting an update cycle consistent with the IPPS
would facilitate cost efficiency by also allowing educational efforts
for coding and DRG changes to occur once per year.
Response: While we appreciate the commenter's concerns, it is
important that CMS retain the flexibility to develop administratively
feasible update schedules for the various prospective payment systems
that must be updated annually. Therefore, we are retaining a July 1
through June 30 cycle for annual updating of the IPF PPS.
Comment: A few commenters requested clarification regarding the
timing of implementation since hospitals have different cost reporting
year start dates.
Response: IPFs will begin the first transition year of the IPF PPS
at the beginning of their next cost reporting period after January 1,
2005. For example, if an IPF's cost reporting year begins on March 1,
the IPF would begin to receive a blended payment amount consisting of
75 percent based on TEFRA payments and 25 percent based on IPF PPS
payments for all discharges that occur after March 1, 2005.
VIII. Future Refinements
In the proposed rule, we described research efforts by RTI
International[reg] and the University of Michigan that were
underway at the time the proposed rule was published. Section VI. of
this final rule describes the outcome of the RTI
International[reg] project to study modes of practice and
patient characteristics to analyze the components of the routine cost
category of the Medicare cost report.
The University of Michigan project would assist us in developing a
patient classification system based on a standard assessment tool, the
Case Mix Assessment Tool (CMAT). We attached a draft of the assessment
tool and explained that it had not been submitted to the Office of
Management and Budget (OMB) for review in order to obtain approval to
pilot test the draft assessment tool. We indicated that a public
comment period would be available as part of the OMB review process.
We received multiple comments on the CMAT instrument.
Most of the comments received focused on the overall content of the
instrument. There were several commenters that opposed the potential
implements of the instrument.
Comment: One commenter indicated that CMAT appeared to address the
primary diagnostic needs of the mentally ill, but fell short on the
collection of information on functional status. The commenters
recommended that variables be added to CMAT instrument to collect
information on social integration and the recreational use of time. The
commenter also indicated that it was not clear how the functionality
section would affect payment. Other commenters recommended that the
instrument be revised to capture better information on patient
conditions and resources needed to provide care. One commenter
indicated that while the CMAT, as proposed, was an excellent tool for
describing psychiatric signs and symptoms, it fails to assess active
comorbid medical conditions. Another commenter recommended that the
CMAT instrument be expanded to collect information on the use of
seclusion and restraints. Another commenter also indicated that the
CMAT should contain sections that specifically address the assessment
reference date, common observational periods, and multiaxial
assessments.
Response: We are aware that the current draft CMAT instrument would
not collect extensive information on patient conditions and comorbid
conditions. However, if the instrument is pilot tested, and ultimately
fielded for refinement purposes, we are planning to match the CMAT with
CMS administrative files. This comparison will augment the collection
capacity of the CMAT and provide detailed information of medical
conditions. The draft CMAT instrument, which has not been proposed, is
currently undergoing OMB review. Following this review, the instrument
is to be pilot tested. The variables suggested in these comments (for
example, seclusion and restraints, assessment dates, observational
periods, and multi-axial assessments) are being evaluated for potential
inclusion in the pilot test.
Comment: One commenter recommended that because the CMAT is
controversial, any pilot test findings should be made available to the
public.
Response: The results of the pilot test will be made available to
the public. We plan to test the feasibility of administration,
reliability and validity of the instrument, and recommendations
regarding potential modifications to the draft CMAT. A report from the
pilot test will be available, and CMS will use this report and
experience garnered from the pilot test to determine next steps for the
instrument. We will then decide whether to propose the use of the CMAT
instrument to assist us in developing a patient classification system.
Comment: Several commenters expressed support for development of a
standardized instrument to collect patient level information to augment
CMS administrative data. One commenter stated that the costs for an
instrument would be outweighed by the benefits of creating a tool that
collects information on patient conditions and necessary resources, so
long as the tool is easy to use and complete.
Another commenter was pleased with the development of the CMAT and
indicated that only when information from the refined variables in CMAT
are available would it be appropriate to implement the IPF PPS.
Response: We will implement the IPF PPS before the CMAT is pilot
tested because once the instrument has been pilot tested and the
instrument reflects changes resulting from the testing, the instrument
will have to be cleared by the Office of Management and Budget (OMB).
We do not want to further delay implementation of the IPF PPS while the
CMAT is tested and approved. However, a detailed OMB information
collection package will be prepared and made available to the public.
In addition, there are a number of steps that are necessary to
insure that assessment instruments collect the most useful information.
Pending the pilot test results and a national fielding of the CMAT
instrument following the pilot test, and OMB clearance of a final
instrument, we would potentially use these variables to propose future
refinements to the IPF PPS.
Comment: Many of the comments focused on the burden associated with
completion of the CMAT instrument. Commenters stated that completion of
the CMAT instrument for each discharged patient would require
additional staff. The commenters recommended that CMS consider
providing an adjustment to the Federal per diem base rate payment
amount for the additional staff resources that would be required to
complete the CMAT instrument.
[[Page 66968]]
One commenter indicated that IPFs are already faced with funding
and management challenges and should not be asked to allocate resources
away from direct patient care to fulfill a reporting requirement.
Response: The CMAT instrument and supporting materials is currently
undergoing OMB review for potential fielding of the pilot test. One of
the considerations of OMB review is to assess the potential burden on
providers to complete the pilot test. One of the areas that will be
assessed in administering the pilot test is the direct burden on the
facilities to complete the instrument. CMS will assess the results of
the pilot test to determine the feasibility of administering this
instrument on a national basis, and the overall resources required to
complete the instrument.
If the pilot test is implemented, we have proposed approaches that
could lessen the burden for administration, such as, automation of the
instrument. In addition, we would allow the treatment team members
providing patient care to complete the form, rather than to request
that only nurses complete the form. CMS will monitor the experience in
administering the form throughout the pilot test. Finally, the report
on the pilot test will address the burden on staff of completing the
CMAT instrument.
Comment: One commenter indicated that the CMAT instrument, as
currently drafted, would collect excessive and duplicative (to the
medical record) information. Other commenters stressed that the
instrument was time-consuming to complete and the potential use of the
information proposed for collection was not clear. These commenters
indicated that the relationship of the proposed data collection to case
mix and reimbursement was not described.
Some commenters referred to their experiences in implementing the
assessment instruments currently in use for SNFs and IRFs, and
indicated that the instruments used in those payment systems do not
adequately collect information on the resources needed to provide
patient care.
One commenter recommended that all research regarding the
development of the CMAT instrument cease. Another commenter indicated
that the tool, as currently drafted, requested superfluous data with
too many gameable variables. Commenters also indicated that collection
of the information contained on the CMAT instrument was not necessary
for refinement purposes. Instead, they recommended expanding the
variables that are collected as part of either the cost reports or the
claims.
Response: We are aware that some of the variables proposed to be
pilot tested in the draft CMAT instrument (which we did not propose to
use in the proposed IPF PPS) may appear to be duplicative of the
medical record. The availability in the medical record of the potential
variables to be collected by the CMAT instrument are expected to
facilitate the completion of the instrument and reduce completion time.
The number of steps to pilot test and implement an instrument on a
national basis are many. When data is available on a national basis, we
will be in a better position to test the predictability and usefulness
of the variables and determine whether its use should be proposed as a
refinement to the IPF PPS.
We are aware of the option of adding variables to the cost reports
or claims. We have explored this option in developing other payment
systems. Pending decisions on the implementation of the pilot test, we
will explore either supplementing material from the CMAT or collecting
stand alone variables using the cost reports or claims. In addition, we
disagree with the commenters that suggest research for the development
of the CMAT cease. Not only might continued development of the CMAT
provide possible new useful information on patient resource needs and
staffing utilization, it might ascertain whether our case mix is
correct or need refinements. Furthermore, we believe the best way to
ensure that our IPF PPS continues to be an adequate payment system is
to continue research on all fronts so that we have the best available
information to us when we must make policy decisions.
Comment: Commenters raised concerns regarding the limitation of the
draft CMAT instrument for collecting staffing information.
Response: We note that other CMS research studies are currently
working towards providing information on staffing resources needed to
provide patient care. We will review the findings from the studies and
consider incorporating them in any proposed refinements to the IPF PPS.
Comment: A few commenters recommended that CMS engage in additional
research to acquire a greater understanding of the payment dynamics
between comorbidities and resource utilization before implementing the
IPF PPS.
Many commenters suggested that further analysis is needed to
explain the difference in average per diem costs between psychiatric
units and freestanding psychiatric hospitals. One commenter suggested
an approach that would mirror a swing-bed methodology for patients
needing both psychiatric and non-psychiatric inpatient services.
Response: Additional research is planned that will address many
outstanding questions regarding differences among IPFs, unit
characteristics, patient characteristics, discharge and transfer
criteria, and economic incentives.
The current research agenda includes a project to assess the
relationship between facilities that have scatter bed and organized DRG
units and the IPF PPS. In addition, this research project will examine
the role played by smaller psychiatric inpatient units and facilities,
the continued use of partial hospitalizations and outpatient programs
and their role in complementing and substituting for inpatient care.
This project will further monitor the relationship between the IPF PPS,
the OPPS, and IPPS payment systems over time.
Comment: One commenter indicated that if there was any future
research in support of the IPF PPS it should focus only on costs and
payment, and build off existing facility and payment variables. The
commenter did not support the creation of a new set of variables
requiring additional data collection unless there was evidence that it
would dramatically increase the predictability of the models. The
commenter recommended research that focused on mode of practice and
staffing patterns across different types of inpatient psychiatric
facilities.
Another commenter specifically questioned the need for the CMAT
instrument in collecting new variables. The commenter also recommended
that CMS consolidate all research efforts regarding payment for
inpatient psychiatric services.
Response: In general, the majority of the prospective payment
systems focus on data that predict the cost and/or payment for the
provision of services. While this is the current focus, it is our
position that costs and payments may be influenced by a number of
variables that are beyond those currently used for payment. We
anticipate that in the future, quality and outcome measures may be
useful in determining payments. In addition, in most of the prospective
payment systems that rely on patient assessment data, additional
variables are collected that may not be directly or significantly
related, at that time, to the payment system, but could nonetheless be
useful at some future time.
We believe that relying only on those variables that are currently
perceived as directly or significantly influencing payment, may
preclude potential
[[Page 66969]]
refinements to the IPF PPS, limit research in the area, and prohibit
the future inclusion of variables that could significantly predict
payment, outcome, and quality. Therefore, we are reluctant to restrict
further research and scientific excellence by building only on existing
and available facility and payment variables.
Comment: For patient characteristics, a commenter recommended
adding two statistical parameters to the RTI
International[reg] study, length of the IPF stay and length
of time since their last psychiatric hospitalization.
Response: We agree that it would be useful to investigate the
potential relationship between the frequency of an individual's
hospitalizations, their length of stay, and the per diem cost of their
care. In addition, we believe that the issue is relevant as a topic for
our monitoring and evaluation activities.
IX. Comments Beyond the Scope of the Final Rule
In response to the proposed rule, many commenters chose to raise
issues that are beyond the scope of our proposals. In this final rule,
we are not summarizing or responding to those comments in this
document. However, we will review the comments and consider whether to
take other actions, such as revising or clarifying CMS program
operating instructions or procedures, based on the information or
recommendations in the comments.
X. Provisions of the Final Rule
We are making a number of revisions to the regulations in order to
implement the IPF PPS. Specifically, we are making conforming changes
in 42 CFR parts 412 and 413. We are establishing a new subpart N in
part 412, ``Prospective Payment System for Hospital Inpatient Services
of Inpatient Psychiatric Facilities.'' We have reorganized the
regulations text to make it easier to follow.
This subpart implements section 124 of the BBRA, which requires the
implementation of a per diem prospective payment system for IPFs.
Subpart N sets forth the framework for the IPF PPS, including the
methodology used for the development of the Federal per diem base
payment amount and related rules. These revisions and others are
discussed in detail below.
Section 412.1 Scope of Part
We are revising the authority citation to include ``Section 124 of
Public Law 106-113'' and ``Section 405 of Public Law 108-173.''
We are revising Sec. 412.1 by redesignating paragraphs (a)(2) and
(a)(3) as paragraphs (a)(3) and (a)(4).
We are adding a new paragraph (a)(2) that specifies that this part
implements section 124 of Public Law 106-113 by establishing a per diem
based prospective payment system for inpatient operating and capital
costs of hospital inpatient services furnished to Medicare
beneficiaries by an inpatient psychiatric facility that meets the
conditions of subpart N.
We are revising Sec. 412.1 by redesignating paragraphs (b)(12) and
(b)(13) as paragraphs (b)(13) and (b)(14).
We are revising newly redesignated paragraph (b)(13) by removing
reference ``paragraph (a)(3)'' and adding the reference ``paragraph
(a)(4)'' in its place.
We are revising newly redesignated paragraph (b)(14) by removing
reference ``paragraph (a)(2)'' and adding the reference ``paragraph
(a)(3)'' in its place.
We are adding a new paragraph (b)(12) that summarizes the content
of the new subpart N and sets forth the general methodology for paying
operating and capital costs for inpatient psychiatric facilities
effective with cost reporting periods beginning on or after January 1,
2005.
Section 412.20 Hospital Services Subject to the Prospective Payment
Systems
We are amending Sec. 412.20(a) by adding a reference to IPFs.
We are revising Sec. 412.20 by redesignating paragraphs (b), (c),
and (d), as paragraphs (c), (d), and (e).
We are adding a new paragraph (b) that indicates that effective for
cost reporting periods beginning on or after January 1, 2005, covered
inpatient hospital inpatient services furnished by an IPF as specified
in Sec. 412.404 of subpart N are paid under the IPF PPS.
Section 412.22 Excluded Hospitals and Hospital Units: General Rules
We are amending Sec. 412.22(b) by revising paragraph (b) to state
that except for those hospitals specified in paragraph (c) of this
section, and Sec. 412.20(b), (c), and (d), all excluded hospitals (and
excluded hospital units, as described in Sec. 412.23 through Sec.
412.29) are reimbursed under the cost reimbursement rules set forth in
part 413 of this chapter, and are subject to the ceiling on the rate of
hospital cost increases as specified in Sec. 413.40.
Section 412.23 Excluded Hospitals: Classifications
We are revising Sec. 412.23 by redesignating paragraphs (a)(1) and
(a)(2) as paragraphs (a)(2) and (a)(3).
We are adding a new paragraph (a)(1) that specifies the
requirements a psychiatric hospital must meet in order to be excluded
from reimbursement under the hospital IPPS as specified in Sec.
412.1(a)(1) and to be paid under the IPF PPS as specified in Sec.
412.1(a)(2).
We are revising paragraph (b) by removing the reference ``Sec.
412.1(a)(2)'' and adding the reference to ``412.1(a)(3).''
We are revising paragraph (b)(9) by removing the reference to
``Sec. 412.2(a)(2)'' and adding the reference to ``412.1(a)(3)'' in
its place.
We are revising paragraph (e) by removing the reference to ``Sec.
412.1(a)(3)'' and adding ``Sec. 412.1(a)(4)'' in its place.
Section 412.25 Excluded Hospital Units: Common Requirements
We are amending Sec. 412.25(a) by adding a reference to Sec.
412.1(a)(2).
Section 412.27 Excluded Psychiatric Units: Additional Requirements
We are amending the introductory text of Sec. 412.27 by adding
reference to Sec. 412.1(a)(1) and (a)(2).
We are amending Sec. 412.27(a) by removing the words the ``Third
Edition,'' and adding in its place, ``Fourth Edition, Text Revision.''
Section 412.429 Excluded Rehabilitation Units: Additional Requirements
We are revising the introductory text by removing the reference
``Sec. 412.1(a)(2)'' and adding ``Sec. 412.1(a)(3)'' in its place.
Section 412.116 Method of Payment
We are revising Sec. 412.116 by redesignating paragraphs (a)(3)
and (a)(4) as paragraphs (a)(4) and (a)(5).
We are adding a new paragraph (a)(3) that specifies the cost-
reporting period to which the IPF PPS applies and how payments for
inpatient psychiatric services are made to a qualified IPF.
Section 412.130 Exclusion of New Rehabilitation Units and Expansion of
Units Already Excluded
Subpart N--Prospective Payment System for Hospital Inpatient Services
of Inpatient Psychiatric Facilities
We are revising paragraph (a)(1) and paragraph (a)(2) by removing
reference to ``Sec. 412.1(a)(2)'' and adding reference ``Sec.
412.1(a)(3)'' in its place.
We are adding a new subpart N as follows:
[[Page 66970]]
Section 412.400 Basis and Scope of Subpart
We are adding a new Sec. 412.400. In Sec. 412.400(a), we provide
the requirements for the implementation of a PPS for IPFs.
In Sec. 412.400(b), we specify that this subpart sets forth the
framework for the IPF PPS, including the methodology used for the
development of payment rates and associated adjustments, the
application of a transition period, and related rules for IPFs for cost
reporting periods beginning on or after January 1, 2005.
Section 412.402 Definitions
In Sec. 412.402, we are defining the following terms for purposes
of this new subpart:
Comorbidity
Federal per diem base rate
Federal per diem payment amount
Federal per diem
Fixed dollar loss threshold
Inpatient psychiatric facilities
Interrupted stay
Outlier payment
Principal diagnosis
Rural area
Urban area
Section 412.404 Conditions for Payment Under the Prospective Payment
System for Hospital Inpatient Services of Psychiatric Facilities
In Sec. 412.404(a), we specify that IPFs must meet the following
general requirements to receive payment under the IPF PPS:
The IPF must meet the conditions as specified in this
subpart.
If the IPF fails to comply fully with the provisions of
this part, then CMS may, as appropriate--
++ Withhold (in full or in part) or reduce payment to the IPF until
the facility provides adequate assurances of compliance; or
++ Classify the IPF as a hospital subject to the IPPS.
In paragraph (b), we specify that, subject to the special payment
provisions of Sec. 412.22(c), an IPF must meet the general criteria
set forth in Sec. 412.22 for exclusion from the hospital IPPS as
specified in Sec. 412.1(a)(1). Additionally, a psychiatric hospital
must meet the criteria set forth in Sec. 412.23(a), Sec. 482.60,
Sec. 482.61, and Sec. 482.62 and psychiatric units must meet the
criteria set forth in Sec. 412.25 and Sec. 412.27.
In paragraph (c), we specify the prohibited and permitted charges
that may be imposed on Medicare beneficiaries.
In paragraph (c)(1), we specify that except as permitted in
paragraph (c)(2), an IPF may not charge the beneficiary for any
services for which payment is made by Medicare, except as permitted in
paragraph (c)(2), even if the IPFs costs are greater than the amount
the facility is paid under the IPF PPS.
In paragraph (c)(2), we specify that an IPF receiving payment for a
covered stay may charge the Medicare beneficiary or other person for
only the applicable deductible and coinsurance amounts under Sec.
409.82, Sec. 409.83, and Sec. 409.87.
In paragraph (d), we specify the following provisions for
furnishing IPF services directly or under arrangement:
Applicable payments made under the IPF PPS are considered payment
in full for all inpatient hospital services (as defined in Sec.
409.10(a)). In addition, we specify the following--
Inpatient hospital services do not include physician,
physician assistant, nurse practitioner, clinical nurse specialist,
certified nurse midwives, qualified psychologist, and certified
registered nurse anesthetist services.
Payment is not made to a provider or supplier other than
the IPF, except for services provided by a physician, physician
assistant, nurse practitioner, clinical nurse specialist, certified
nurse midwives, qualified psychologist, and certified registered nurse
anesthetist.
The IPF must furnish all necessary covered services to the
Medicare beneficiary directly or under arrangement (as defined in Sec.
409.3).
In paragraph (e), we specify that IPFs must meet the recordkeeping
and cost reporting requirements of Sec. 412.27(c), Sec. 413.20, and
Sec. 413.24.
Section 412.422 Basis of Payment
In Sec. 412.422(a), we specify that under the IPF PPS, IPFs will
receive a predetermined per diem amount, adjusted for patient
characteristics and facility characteristics, for inpatient hospital
services furnished to Medicare Part A fee-for-service beneficiaries. In
addition, we specify that during the transition period, payment is
based on a blend of the Federal per diem payment amount and the
facility-specific payment rate as specified in Sec. 412.426.
In Sec. 412.422(b), we specify that payments made under the IPF
PPS represent payment in full for inpatient operating and capital-
related costs associated with furnishing Medicare covered service in an
IPF, but not for the cost of an approved medical education program
described in Sec. 413.85 and Sec. 413.86 and for bad debts of
Medicare beneficiaries as specified in Sec. 413.80.
Section 412.424 Methodology for Calculating the Federal Per Diem
Payment Amount
In Sec. 412.424, we specify the methodology for calculating the
Federal per diem base rate for IPFs.
In paragraph (a), we specify the data sources used to calculate the
Federal per diem base rate.
In paragraph (b), we specify that we determine the average
inpatient operating, ancillary, and capital related per diem cost for
which payment is made to IPF as described in paragraph (a)(1).
In paragraph (c), we specify that the methodology used for
determining the Federal per diem base rate for cost reporting periods
beginning on or after January 5, 2005 through June 30, 2006 includes
the following:
The updated average per diem amount
The budget-neutrality adjustment factor
Outlier payments
Standardization
Computation of the Federal per diem base rate
In paragraph (d), we specify that the Federal per diem payment
amount for IPFs is the product of the Federal per diem base rate, the
facility-level adjustments applicable to the IPF and the patient-level
adjustments applicable to the case as described below:
Facility-level adjustments include:
++ Adjustment for wages
++ Rural location
++ Teaching adjustments
++ Cost of living adjustments for IPFs in Alaska and Hawaii
++ IPFs with qualifying emergency departments
Patient-level adjustments include:
++ Age
++ Diagnosis-related group assignment
++ Principal diagnosis
++ Comorbodities
++ Variable per diem adjustments
Other payment adjustments include:
++ Outlier payments
++ Stop-loss payments
++ Special payment provision for interrupted stay
++ Patients who receive ECT treatments
++ Adjustment for high-cost outlier cases
In paragraph (d), we specify the special payment provisions for
interrupted stays.
Section 412.426 Transition Period
In Sec. 412.426(a), we specify the duration of the transition
period to the IPF PPS. In addition, we specify that IPFs receive a
payment that is a blend of the Federal per diem payment
[[Page 66971]]
amount and the facility-specific payment amount the IPF would receive
under the TEFRA payment methodology.
In paragraph (b), we specify how the facility-specific payment
amount is calculated.
In paragraph (c), we specify that a new IPF, that is, a facility
that under present or previous ownership, or both, has its first cost
reporting period as an IPF beginning on or after January 1, 2005, is
paid based on 100 percent of the full Federal per diem payment.
Section 412.428 Publication of Updated to the IPF PPS
In Sec. 412.428, we specify how we plan to publish information
each year in the Federal Register to update the IPF PPS.
Section 412.432 Method of Payment Under the IPF PPS
In Sec. 412.432, we specify the following method of payment used
under the IPF PPS:
General rules for receiving payment
Periodic interim payments including--
++ Criteria for receiving periodic interim payments
++ Frequency of payments
++ Termination of periodic interim payments
Interim payment for Medicare bad debts and for costs of an
approved education program and other costs paid outside the PPS
Outlier payments
Accelerated payments including--
++ General rule for requesting accelerated payments
++ Approval of accelerated payments
++ Amount of the accelerated payment
++ Recovery of the accelerated payment
Section 413.1 Introduction
We are revising the authority citation to include ``Section 124 of
Public Law 106-113.''
We are amending Sec. 413.1(d)(2)(ii) by removing the words
``psychiatric hospitals (as well as separate psychiatric units
(distinct parts) of short-term general hospitals).''
We are revising Sec. 413.1 by redesignating paragraphs (d)(2)(iv),
(d)(2)(v), (d)(2)(vi), and (d)(2)(vii) as paragraphs (d)(2)(vi),
(d)(2)(vii), (d)(2)(viii), and (d)(2)(ix).
We are adding a new paragraph (iv) to specify that for cost
reporting periods beginning before January 1, 2005, payment to
psychiatric hospitals (as well as separate psychiatric units of short-
term general hospitals) that are excluded under subpart B of part 412
of this chapter from the PPS is on a reasonable cost basis, subject to
the provisions of Sec. 413.40.
We are adding a new paragraph (v) to specify that for cost
reporting periods beginning on or after January 1, 2005, payment to
psychiatric hospitals that meet the conditions of Sec. 412.404 of this
chapter is made under the PPS as described in subpart N of part 412.
Section 413.40 Ceiling on the Rate of Increase in Hospital Costs
Section 413.40(a)(2)(i) specifies the types of facilities to which
the ceiling on the rate of increase in hospital inpatient costs is not
applicable.
We are revising Sec. 413.40(a)(2)(i) by redesignating paragraphs
(a)(2)(i)(C) and (a)(2)(i)(D) as paragraphs (a)(2)(i)(D) and
(a)(2)(i)(E).
We are adding a new paragraph (a)(2)(i)(C) to Sec. 413.40 to
clarify that Sec. 413.40 is not applicable to psychiatric hospitals
and psychiatric units under subpart N of part 412 of this chapter for
cost reporting periods beginning on or after January 1, 2005.
We are republishing paragraph (a)(2)(ii).
We are revising paragraph (a)(2)(ii)(B) to include reference to
psychiatric hospitals and psychiatric units as specified in Sec.
412.22, Sec. 412.23, Sec. 412.25, Sec. 412.27, Sec. 412.29, and
Sec. 412.30 of this chapter.
We are revising paragraph (a)(2)(iii) by redesignating paragraphs
(a)(2)(iii) and (a)(2)(iv) as paragraphs (a)(2)(iv) and (a)(2)(v).
We are revising paragraph (a)(2)(ii)(C) by removing reference to
``paragraph (a)(2)(iv)'' and adding the reference to ``paragraph
(a)(2)(v)'' in its place.
We are adding a new paragraph (a)(2)(iii) to specify psychiatric
facilities are excluded from the prospective payment system as
specified in Sec. 412.1(a)(1) and paid under Sec. 412.1(a)(2) for
cost reporting periods beginning on or after January 1, 2005.
Section 413.64 Payment to Providers: Special Rules
We are amending Sec. 413.64(h)(2)(i) to add a reference to
hospitals paid under the IPF PPS.
Section 413.70 Payment for Services of a CAH
We are revising paragraph (e) to specify that for cost reporting
periods beginning before January 1, 2005, payment is made on a
reasonable cost basis, subject to the provisions of Sec. 413.40. For
cost reporting periods beginning on or after January 1, 2005, payment
is based on prospectively determined rates under subpart N Sec.
412.400 through Sec. 412.432) of part 412 of this subchapter.
XI. Collection of Information Requirements
These regulations do not impose any new information collection
requirements. The burden of the requirements in Sec. 412.404(e),
reporting and recordkeeping requirements, are captured in the burden
for the cross-referenced Sec. 412.27(c), Sec. 413.20, and Sec.
413.24 under OMB approval numbers 0938-0301, 0938-0050, 0938-0358, and
0938-0600.
XII. Regulatory Impact Analysis
A. Overall Impact
We have examined the impact of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Act, the Unfunded Mandates Reform Act of
1995 (UMRA) (Pub. L. 104-4), and Executive Order 13132).
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).
Based on analysis of the aggregate dollar impacts for each of the
different facility types, we have determined that the re-distributive
impact of the IPF PPS among facility types is $96 million in the first
year the system is fully implemented. In addition, our analysis showed
that an estimated payment ``reduction'' of almost $48 million would
occur for psychiatric units and an estimated payment ``increase'' of
$18 million would occur for for-profit hospitals, $27 million for
government-operated hospitals, and slightly more than $3 million for
non-profit hospitals. Although this final rule does not meet the $100
million threshold established by Executive Order 12866 in its first
year of implementation, we have determined that this final rule is a
major rule within the meaning of Executive Order 12866 in its first
year of implementation, because the re-distributive effects are
estimated to be close to constituting a shift of $100 million in the
first year of implementation. In addition, although we have not
estimated the distributional
[[Page 66972]]
impact of this rule in subsequent years, because of the trends in
medical expenditure discussed below, we believe it is likely that the
rule would have distributional impacts greater than $100 million in
subsequent years, relative to TEFRA payments. In addition, because the
IPF PPS must be budget neutral in accordance with section 124(a)(1) of
Public Law 106-113, we estimate that there will be no budgetary impact
for the Medicare program as discussed later in this analysis.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small government
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$29 million or less in any 1 year. Medicare fiscal intermediaries are
not considered to be small entities. Individuals and States are not
included in the definition of a small entity.
HHS considers that a substantial number of entities are affected if
the rule impacts more than 5 percent of the total number of small
entities as it does in this rule. We included all freestanding
psychiatric hospitals (79 are non-profit hospitals) in the analysis
since their total revenues do not exceed the $29 million threshold. We
also included psychiatric units of small hospitals, that is, fewer than
100 beds. We did not include psychiatric units within larger hospitals
in the analysis because we believe this final rule would not
significantly impact total revenues of the entire hospital that
supports the unit. We have provided the following RFA analysis in
section B, to emphasize that although the final rule would impact a
substantial number of IPFs that were identified as small entities, we
do not believe it would have a significant economic impact. Based on
the analysis of the 1063 psychiatric facilities that were classified as
small entities by the definitions described above, we estimate the
combined impact of the IPF PPS will be a 5-percent increase in payments
relative to their payments under TEFRA. We have prepared the following
analysis to describe the impact of the final rule in order to provide a
factual basis for our conclusions regarding small business impact.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of an MSA and has fewer
than 100 beds. We have determined that this final rule would have a
substantial impact on hospitals classified as located in rural areas.
As discussed earlier in this preamble, we are providing a payment
adjustment of 17 percent for IPFs located in rural areas. In addition,
we are establishing a 3-year transition to the new system to allow IPFs
an opportunity to adjust to the new system. Therefore, the impacts
shown in Table 10 below reflect the adjustments that are designed to
minimize or eliminate any potentially significant negative impact that
the IPF PPS may otherwise have on small rural IPFs.
Section 202 of the UMRA also requires that agencies assess
anticipated costs and benefits before issuing any final rule that may
result in expenditures in any 1 year by State, local, or tribal
governments, in the aggregate, or by the private sector, of $110
million or more. This final rule does not mandate any requirements for
State, local, or tribal governments nor would it result in expenditures
by the private sector of $110 million or more in any 1 year.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has Federalism implications.
We have examined this final rule under the criteria set forth in
Executive Order 13132 and have determined that the final rule will not
have any negative impact on the rights, roles, and responsibilities of
State, local, or tribal governments or preempt State law.
B. Anticipated Effects
Below, we discuss the impact of this final rule on the Federal
Medicare budget and on IPFs.
1. Budgetary Impact
Section 124(a)(1) of Public Law 106-113 requires us to set the
payment rates contained in this final rule to ensure that total
payments under the IPF PPS are projected to equal the amount that would
have been paid if the IPF PPS had not been implemented. As a result of
this analysis, which is discussed in section V.B.2.b. of this final
rule, we are establishing a budget-neutrality adjustment to the Federal
per diem base rate. Thus, there will be no budgetary impact to the
Medicare program by implementation of the IPF PPS.
2. Impacts on Providers
To understand the impact of the IPF PPS on providers, it is
necessary to compare estimated payments that would be made under the
current TEFRA payment methodology (current payments) to estimated
payments under the IPF PPS. The IPFs were grouped into the categories
listed below based on characteristics provided in the Online Survey and
Certification and Reporting (OSCAR) file and the 2002 cost report data
from HCRIS:
Facility Type
Location
Teaching Status Adjustment
Census Region
Size
To estimate the impacts among the various categories of IPFs, we
had to compare estimated future payments that would have been made
under the TEFRA payment methodology to estimated payments under the IPF
PPS. We estimated the impacts using the same set of providers (1,806
IPFs) that was used for the regression analysis to calculate the
budget-neutral Federal per diem base rate, and to determine the
appropriateness of various adjustments to the Federal per diem base
rate. A detailed explanation of the methods we used to simulate TEFRA
payments and estimate payments under the IPF PPS is provided in section
V. of this final rule.
The impacts reflect the estimated ``losses'' or ``gains'' among the
various classifications of IPF providers for the first year of the IPF
PPS. Prospective payments were based on the budget-neutral Federal per
diem base rate of $572 adjusted by the IPFs' estimated patient-level,
facility-level adjustments, and simulated outlier amounts. This
simulated PPS payment was compared to the IPF's payments based on its
cost from the cost report inflated to the midpoint of the
implementation period (January 1, 2005 through June 30, 2006) and
subject to the updated per discharge target amount. Table 10 below
illustrates the aggregate impact of the IPF PPS on various
classifications of IPFs. The first column identifies the type of IPF,
the second column indicates the number of IPFs for each type of IPF,
and the third column indicates the ratio of IPF PPS payments to the
current TEFRA payments in the first period of the transition.
BILLING CODE 4120-03-P
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BILLING CODE 4120-03-C
3. Results
We measured the impact of the IPF PPS by comparing estimated
payments under the IPF PPS relative to current TEFRA payments. This was
computed as a ratio of IPF PPS payment to current TEFRA payment for
each classification of IPF. We have prepared the following summary of
the impact of the IPF PPS set forth in this final rule.
a. Facility type
We grouped the IPFs into the following four categories: (1)
Psychiatric units; (2) government-operated hospitals; (3) for-profit
hospitals; and (4) non-profit hospitals. Roughly 77 percent of all IPFs
are psychiatric units. The impact analysis in Table 10 indicates that
under the IPF PPS, freestanding psychiatric hospitals receive an
estimated ``increase'' relative to the current payment. Psychiatric
units have an estimated IPF PPS payment to current TEFRA payment ratio
of 0.98, the government-operated hospitals have an estimated IPF PPS
payment to current TEFRA payment ratio of 1.13, and the non-profit and
for-profit hospitals have an estimated IPF PPS payment to current TEFRA
payment ratio of 1.02 and 1.05, respectively.
b. Location
Approximately 24 percent of all IPFs are located in rural areas.
The impact analysis in Table 10 indicates that under the IPF PPS, the
estimated IPF PPS payment to current TEFRA payment ratio is
approximately 1.00 for rural and urban IPFs. When we group all of the
IPFs by facility type within urban and rural locations, the impact
analysis indicates that the estimated IPF PPS payment to current TEFRA
payment ratios would be between approximately 0.98 and 1.05 for all
IPFs except government-operated hospitals. Under the IPF PPS, the
payment ratios for rural and urban government-operated hospitals are
estimated to be 1.14 and 1.12, respectively.
c. Teaching Status Adjustment
Using the ratio of interns and residents to the average daily
census for each facility as a measure of the magnitude of the teaching
status, we grouped facilities into the following four major categories:
(1) Non teaching; (2) less than 0.10 (it is not a percent) ratio of
interns and residents to average daily census; (3) 0.10 to 0.30 ratio
of interns and residents to average daily census; and (4) more than
0.30 ratio of interns and residents to average daily census. Facilities
with a teaching ratio greater than 0.10, have payment ratios less than
1.00.
d. Census Region
Under the IPF PPS, IPFs in the Mid-Atlantic region receive a
payment ratio of approximately 1.03 when compared to IPFs in other
regions that receive payment ratios between approximately 0.98 and
1.01. Specifically, the New England States, the West North Central
States, and the Mountain States receive payment ratios of 1.00. The
South Atlantic States, East North Central States, and the Pacific
States, receive payments ratios of approximately 0.99. The East South
Central States have a payment ratio of 1.01, and the West South Central
States have a ratio of 0.98.
e. Size
We grouped the IPFs into 5 categories for each group of psychiatric
facilities based on bed size: (1) Under 12 beds; (2) 12 to 25 beds; (3)
25 to 50 beds; (4) 50 to 75 beds; and (5) over 75 beds. Under the IPF
PPS, the majority of IPFs' bed sizes were categories in which the
payment ratio would be greater than 0.98. Under the IPF PPS, large IPFs
with over 75 beds receive the highest payment ratio (1.10 for
psychiatric hospitals and 1.01 for psychiatric units), while
psychiatric units with less than 10 beds receive the lowest payment
ratio of 0.96.
4. Effect on the Medicare Program
Based on actuarial projections resulting from our experience with
other prospective payment systems, we estimate that Medicare spending
(total Medicare program payments) for IPF services over the next 5
years would be as follows:
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[[Page 66975]]
These estimates are based on the current estimate of increases in the
number of proposed excluded hospitals with capital market basket as
follows:
3.4 percent for FY 2005;
3.0 percent for FY 2006;
2.8 percent for FY 2007;
2.7 percent for FY 2008;
3.0 percent for FY 2009; and
3.0 percent for FY 2010.
We estimate that there would be a change in fee-for-service
Medicare beneficiary enrollment as follows:
0.5 percent in FY 2005;
-7.3 percent in FY 2006;
-4.7 percent in FY 2007;
-0.2 percent in FY 2008;
-0.1 percent in FY 2009; and
1.4 percent in FY 2010.
Consistent with the statutory requirement for budget neutrality in
the initial implementation period, we intend for estimated aggregate
payments under the IPF PPS to equal the estimated aggregate payments
that would be made if the IPF PPS were not implemented. Our methodology
for estimating payments for purposes of the budget-neutrality
calculations uses the best available data.
After the IPF PPS is implemented, we will evaluate the accuracy of
the assumptions used to compute the budget-neutrality calculation. We
intend to analyze claims and cost report data from the first year of
the IPF PPS to determine whether the factors used to develop the
Federal per diem base rate are not significantly different from the
actual results experienced in that year. We are planning to compare
payments under the final IPF PPS (which relies on an estimate of cost-
based TEFRA payments using historical data from a base year and
assumptions that trend the data to the initial implementation period)
to estimated cost-based TEFRA payments based on actual data from the
first year of the IPF PPS. The percent difference (either positive or
negative) would be applied prospectively to the established prospective
payment rates to ensure the rates accurately reflect the payment levels
intended by the statute. We intend to perform this analysis within the
first 5 years of the implementation of the IPF PPS.
Section 124 of Public Law 106-113 provides the Secretary broad
authority in developing the IPF PPS, including the authority for
appropriate adjustments. In accordance with this authority, as stated
above, we may make a one-time prospective adjustment to the Federal per
diem base rate in an effort to ensure that the best historical data
available forms the foundation of the prospective payment rates in
future years.
5. 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 IPF PPS. In fact, we believe that access to IPF services
would be enhanced due to the patient and facility level adjustment
factors, all of which are intended to adequately reimburse IPFs for
expensive cases. Finally, the stop-loss policy is intended to assist
IPFs during the transition. In addition, we expect that paying
prospectively for IPF services will enhance the efficiency of the
Medicare program.
6. Computer Hardware and Software
We do not anticipate that IPFs will incur additional systems
operating costs in order to effectively participate in the IPF PPS. We
believe that IPFs possess the computer hardware capability to handle
the billing requirements under the IPF PPS. Our belief is based on
indications that approximately 99 percent of hospital inpatient claims
are submitted electronically. In addition, we are not adopting
significant changes in claims processing (see section IV. C. of this
final rule).
C. Alternatives Considered
We considered the following alternatives in developing the IPF PPS:
One option we considered incorporated not only the patient-level and
facility-level variables described previously, but also a site-of-
service distinction. Under this approach, psychiatric units would have
received a higher per diem payment, all other factors being equal,
based on the assumption that psychiatric units on average treat a more
complex and costly case-mix. A psychiatric unit adjustment to the
otherwise applicable per diem payment rate would reflect the absence of
a more sophisticated patient classification system specifically linked
to resource use. Our analysis of the FY 2002 cost report and billing
data used to develop the final IPF PPS reveals that an adjustment would
have increased the otherwise applicable per diem payment to psychiatric
units by approximately 33 percent. The average 2002 IPF per diem costs
was $615 for psychiatric units, $534 for non-profit hospitals, $448 for
proprietary providers, and $378 for governmental-operated facilities.
While some of the higher than average per diem cost in psychiatric
units may be due to a greater medical and surgical acuity among
patients treated in psychiatric units, part of the difference is likely
attributable to economy of scale inefficiencies associated with
operating small units, including higher overhead expenses, and
generally lower occupancy rates. A psychiatric unit site-of-service
distinction in payment rates would represent a proxy adjuster in lieu
of a more sophisticated patient classification system.
We considered alternative policies in order to reduce financial
risk to facilities in the event that they experience substantial
reductions in Medicare payments during the period of transition to the
IPF PPS. As discussed previously in this final rule, we have adopted a
provision that would guarantee each facility an average payment per
case under the IPF PPS that is estimated to be no less than a minimum
proportion of its average payment per case under TEFRA. We analyzed the
impact on losses if we were to make a payment adjustment to ensure that
the minimum IPF PPS per case payment to an IPF is at least 70 percent
of its TEFRA payment.
The stop-loss adjustment will be applied to the IPF PPS portion of
Medicare payments during the transition. For example, during year 1 of
the 3-year transition period, three-quarters of the payment is based on
TEFRA, and one-quarter of the payment is based on the Federal rate. We
would apply the stop-loss adjustment to the portion of the IPF's
payments during the transition based on the Federal rate. We estimate
that the combined effects of the transition and the stop-loss policies
will ensure that per case payments relative to pre-IPF PPS TEFRA per
case payments are no less than 92.5 percent in year 1, 85 percent in
year 2, and 77.5 percent in year 3. We estimate that about 10 percent
of IPFs will receive additional payments under the stop-loss policy.
The 70 percent of TEFRA stop-loss policy would require a reduction
in the per diem rate to make the stop-loss policy budget neutral. As a
result, we made a reduction to the Federal per diem base rate of 0.4
percent in order to maintain budget neutrality.
In accordance with the provisions of Executive Order 12866, this
rule was reviewed by OMB.
List of Subjects
42 CFR Part 412
Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.
[[Page 66976]]
42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as follows:
PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT PSYCHIATRIC
SERVICES
0
1. The authority citation for part 412 is revised to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), Sec. 124 of Pub. L. 106-113, 113 Stat.
1515, and Sec. 405 of Pub. L. of 108-173, 117 Stat. 2266, 42 U.S.C.
1305, 1395.
Subpart A--General Provisions
0
2. Section 412.1 is amended as follows:
0
a. Redesignating paragraphs (a)(2) and (a)(3) as paragraphs (a)(3) and
(a)(4).
0
b. Adding a new paragraph (a)(2).
0
c. Redesignating paragraphs (b)(12) and (b)(13) as paragraphs (b)(13)
and (b)(14).
0
d. Adding a new paragraph (b)(12).
0
e. Amending newly redesignated paragraph (b)(13) by removing the
reference ``paragraph (a)(3)'' and adding the reference ``paragraph
(a)(4)'' in its place.
0
f. Amending newly redesignted paragraph (b)(14) by removing the
reference ``paragraph (a)(2)'' and adding the reference ``paragraph
(a)(3)'' in its place.
The additions read as follows:
Sec. 412.1 Scope of part.
(a) * * *
(2) This part implements section 124 of Public Law 106-113 by
establishing a per diem prospective payment system for the inpatient
operating and capital costs of hospital inpatient services furnished to
Medicare beneficiaries by a psychiatric facility that meets the
conditions of subpart N of this part.
* * * * *
(b) * * *
(12) Subpart N describes the prospective payment system specified
in paragraph (a)(2) of this section for inpatient psychiatric
facilities and sets forth the general methodology for paying the
operating and capital-related costs of inpatient hospital services
furnished by inpatient psychiatric facilities effective with cost
reporting periods beginning on or after January 1, 2005.
* * * * *
Subpart B--Hospital Services Subject to and Excluded From the
Prospective Payment Systems for Inpatient Operating Costs and
Inpatient Capital Related Costs
0
3. Section 412.20 is amended as follows:
0
a. Revising paragraph (a).
0
b. Redesignating paragraphs (b), (c), and (d) as paragraphs (c), (d),
and (e).
0
c. Adding a new paragraph (b).
The revision and addition read as follows:
Sec. 412.20 Hospital services subject to the prospective payment
systems.
(a) Except for services described in paragraphs (b), (c), (d), and
(e) of this section, all covered hospital inpatient services furnished
to beneficiaries during the subject cost reporting periods are paid
under the prospective payment system as specified in Sec. 412.1(a)(1).
(b) Effective for cost reporting periods beginning on or after
January 1, 2005, covered inpatient hospital services furnished to
Medicare beneficiaries by a inpatient psychiatric facility that meets
the conditions of Sec. 412.404 are paid under the prospective payment
system described in subpart N of this part.
* * * * *
0
4. Section 412.22 is amended by revising paragraph (b).
Sec. 412.22 Excluded hospitals and hospital units: General rules.
* * * * *
(b) Cost reimbursement. Except for those hospitals specified in
paragraph (c) of this section, and Sec. 412.20(b), (c), and (d), all
excluded hospitals (and excluded hospital units, as described in Sec.
412.23 through Sec. 412.29) are reimbursed under the cost
reimbursement rules set forth in part 413 of this chapter, and are
subject to the ceiling on the rate of hospital cost increases as
specified in Sec. 413.40 of this chapter.
* * * * *
0
5. Section 412.23 is amended as follows:
0
a. Republishing paragraph (a) introductory text.
0
b. Redesignating paragraphs (a)(1) and (a)(2) as paragraphs (a)(2) and
(a)(3).
0
c. Adding a new paragraph (a)(1).
0
d. Amending the introductory text to paragraph (b) by removing the
reference ``Sec. 412.1(a)(2)'' and adding the reference to ``Sec.
412.1(a)(3)'' in its place.
0
e. Amending paragraph (b)(9) by removing the reference to ``Sec.
412.2(a)(2)'' and adding the reference to ``Sec. 412.1(a)(3)'' in its
place.
0
f. Revising the introductory text to paragraph (e).
The republication and addition read a follows:
Sec. 412.23 Excluded hospitals: Classifications.
* * * * *
(a) Psychiatric hospitals. A psychiatric hospital must--
(1) Meet the following requirements to be excluded from the
prospective payment system as specified in Sec. 412.1(a)(1) and to be
paid under the prospective payment system as specified in Sec.
412.1(a)(2) and in subpart N of this part;
* * * * *
(e) Long-term care hospitals. A long-term care hospital must meet
the requirements of paragraph (e)(1) and (e)(2) of this section and,
when applicable, the additional requirement of Sec. 412.22(e), to be
excluded from the prospective payment system specified in Sec.
412.1(a)(1) and to be paid under the prospective payment system
specified in Sec. 412.1(a)(4) and in Subpart O of this part.
* * * * *
0
6. Section 412.25 is amended by revising the paragraph (a) introductory
text to read as follows:
Sec. 412.25 Excluded hospital units: Common requirements.
(a) Basis for exclusion. In order to be excluded from the
prospective payment systems as specified in Sec. 412.1(a)(1) and to be
paid under the prospective payment system as specified in 412.1(a)(2),
a psychiatric unit must meet the following requirements.
* * * * *
0
7. Section 412.27 is amended as follows:
0
a. Revising the introductory text.
0
b. Amending paragraph (a) by removing the words ``Third Edition'', and
adding in its place, ``Fourth Edition, Text Revision''.
The revision reads as follows:
Sec. 412.27 Excluded psychiatric units: Additional requirements.
In order to be excluded from the prospective payment system as
specified in Sec. 412.1(a)(1), and paid under the prospective payment
system as specified in Sec. 412.1(a)(2), a psychiatric unit must meet
the following requirements:
* * * * *
Sec. 412.29 [Amended]
0
8. In Sec. 412.29, the introductory text is amended by removing the
reference ``Sec. 412.1(a)(2)'' and adding the reference ``Sec.
412.1(a)(3)'' in its place.
0
9. Section 412.116 is amended as follows:
[[Page 66977]]
0
a. Redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4) and
(a)(5).
0
b. Adding a new paragraph (a)(3).
The addition reads as follows:
Sec. 412.116 Method of payment.
(a) * * *
(3) For cost reporting periods beginning on or after January 1,
2005, payments for inpatient hospital services furnished by an
inpatient psychiatric facility that meets the conditions of Sec.
412.404 are made as described in Sec. 412.432.
* * * * *
Sec. 412.130 [Amended]
0
10. In Sec. 412.130, paragraphs (a)(1) and (a)(2) are amended by
removing the reference ``Sec. 412.1(a)(2)'' and adding the reference
``Sec. 412.1(a)(3)'' in its place.
0
11. A new subpart N is added to read as follows:
Subpart N--Prospective Payment System for Hospital Inpatient
Services of Inpatient Psychiatric Facilities
Sec.
412.400 Basis and scope of subpart.
412.402 Definitions.
412.404 Conditions for payment under the prospective payment system
for inpatient hospital services of psychiatric facilities.
412.422 Basis of payment.
412.424 Methodology for calculating the Federal per diem payment
amount.
412.426 Transition period.
412.428 Publication of Updates to the inpatient psychiatric facility
prospective payment system.
412.432 Method of payment under the inpatient psychiatric facility
prospective payment system.
Subpart N--Prospective Payment System for Inpatient Hospital
Services of Inpatient Psychiatric Facilities
Sec. 412.400 Basis and scope of subpart.
(a) Basis. This subpart implements section 124 of Public Law 106-
113, which provides for the implementation of a per diem-based
prospective payment system for inpatient hospital services of inpatient
psychiatric facilities.
(b) Scope. This subpart sets forth the framework for the
prospective payment system for the inpatient hospital services of
inpatient psychiatric facilities, including the methodology used for
the development of the Federal per diem rate, payment adjustments,
implementation issues, and related rules. Under this system, for cost
reporting periods beginning on or after January 1, 2005, payment for
the operating and capital-related costs of inpatient hospital services
furnished by inpatient psychiatric facilities to Medicare Part A fee-
for-service beneficiaries is made on the basis of prospectively
determined payment amount applied on a per diem basis.
Sec. 412.402 Definitions.
As used in this subpart--
Comorbidity means all specific patient conditions that are
secondary to the patient's primary diagnosis and that coexist at the
time of admission, develop subsequently, or that affect the treatment
received or the length of stay or both. Diagnoses that relate to an
earlier episode of care that have no bearing on the current hospital
stay are excluded.
Federal per diem base rate means the payment based on the average
routine operating, ancillary, and capital-related cost of 1 day of
hospital inpatient services in an inpatient psychiatric facility.
Federal per diem payment amount means the Federal per diem base
rate with all applicable adjustments.
Fixed dollar loss threshold means a dollar amount by which the
costs of a case exceed payment in order to qualify for an outlier
payment.
Inpatient psychiatric facilities means hospitals that meet the
requirements as specified in Sec. 412.22, Sec. 412.23(a), Sec.
482.60, Sec. 482.61, and Sec. 482.62, and units that meet the
requirements as specified in Sec. 412.22, Sec. 412.25, and Sec.
412.27.
Interrupted stay means a Medicare inpatient is discharged from an
inpatient psychiatric facility and is admitted to any inpatient
psychiatric facility within 3 consecutive calendar days following
discharge. The 3 consecutive calendar days begins with the day of
discharge from the inpatient psychiatric facility and ends on midnight
of the third day.
Outlier payment means an additional payment beyond the Federal per
diem payment amount for cases with unusually high costs.
Principal diagnosis means the condition established after study to
be chiefly responsible for occasioning the admission of the patient to
the inpatient psychiatric facility also referred to as primary
diagnosis. Principal diagnosis is also referred to as primary
diagnosis.
Qualifying emergency department means an emergency department that
is staffed and equipped to furnish a comprehensive array of emergency
services and meting the definitions of a dedicated emergency department
as specified in Sec. 489.24(b).
Rural area means any area outside an urban area.
Urban area means an area as defined in Sec. 412.62(f)(1)(ii).
Sec. 412.404 Conditions for payment under the prospective payment
system for inpatient hospital services of psychiatric facilities.
(a) General requirements. (1) Effective for cost reporting periods
beginning on or after January 1, 2005, an inpatient psychiatric
facility must meet the conditions of this section to receive payment
under the prospective payment system described in this subpart for
inpatient hospital services furnished in to Medicare Part A fee-for-
service beneficiaries.
(2) If an inpatient psychiatric facility fails to comply fully with
these conditions, CMS may, as appropriate--
(i) Withhold (in full or in part) or reduce Medicare payment to the
inpatient psychiatric facility until the facility provides adequate
assurances of compliance; or
(ii) Classify the inpatient psychiatric facility as an inpatient
hospital that is subject to the conditions of subpart C of this part
and is paid under the prospective payment system as specified in Sec.
412.1(a)(1).
(b) Inpatient psychiatric facilities subject to the prospective
payment system. Subject to the special payment provisions of Sec.
412.22(c), an inpatient psychiatric facility must meet the general
criteria set forth in Sec. 412.22. In order to be excluded from the
hospital inpatient prospective payment system as specified in Sec.
412.1(a)(1), a psychiatric hospital must meet the criteria set forth in
Sec. 412.23(a), Sec. 482.60, Sec. 482.61, and Sec. 482.62 and
psychiatric units must meet the criteria set forth in Sec. 412.25 and
Sec. 412.27.
(c) Limitations on charges to beneficiaries--(1) Prohibited
charges. Except as permitted in paragraph (c)(2) of this section, an
inpatient psychiatric facility may not charge a beneficiary for any
services for which payment is made by Medicare, even if the facility's
cost of furnishing services to that beneficiary are greater than the
amount the facility is paid under the prospective payment system.
(2) Permitted charges. An inpatient psychiatric facility receiving
payment under this subpart for a covered hospital stay (that is, a stay
that included at least one covered day) may charge the Medicare
beneficiary or other person only the applicable deductible and
coinsurance amounts under Sec. 409.82, Sec. 409.83, and Sec. 409.87
of this chapter and for items or services as specified under Sec.
489.20(a) of this chapter.
(d) Furnishing of inpatient hospital services directly or under
arrangement.
[[Page 66978]]
(1) Subject to the provisions of Sec. 412.422, the applicable payments
made under this subpart are payment in full for all inpatient hospital
services, as specified in Sec. 409.10 of this chapter. Hospital
inpatient services do not include the following:
(i) Physicians' services that meet the requirements of Sec.
415.102(a) of this chapter for payment on a fee schedule basis.
(ii) Physician assistant services, as specified in section
1861(s)(2)(K)(i) of the Act.
(iii) Nurse practitioners and clinical nurse specialist services,
as specified in section 1861(s)(2)(K)(ii) of the Act.
(iv) Certified nurse midwife services, as specified in section
1861(gg) of the Act.
(v) Qualified psychologist services, as specified in section
1861(ii) of the Act.
(vi) Services of a certified registered nurse anesthetist, as
specified in section 1861(bb) of the Act and defined in Sec. 410.69 of
this subchapter.
(2) CMS does not pay providers or suppliers other than inpatient
psychiatric facilities for services furnished to a Medicare beneficiary
who is an inpatient of the inpatient psychiatric facility, except for
services described in paragraphs (d)(1)(i) through (d)(1)(vi) of this
section
(3) The inpatient psychiatric facility must furnish all necessary
covered services to a Medicare beneficiary who is an inpatient of the
inpatient psychiatric facility, either directly or under arrangements
(as specified in Sec. 409.3 of this chapter).
(e) Reporting and recordkeeping requirements. All inpatient
psychiatric facilities participating in the prospective payment system
under this subpart must meet the recordkeeping and cost reporting
requirements as specified in Sec. 412.27(c), Sec. 413.20, Sec.
413.24, and Sec. 482.61 of this chapter.
Sec. 412.422 Basis of payment.
(a) Method of Payment. (1) Under the inpatient psychiatric facility
prospective payment system, inpatient psychiatric facilities receive a
predetermined Federal per diem base rate for inpatient hospital
services furnished to Medicare Part A fee-for-service beneficiaries.
(2) The Federal per diem payment amount is based on the Federal per
diem base rate plus applicable adjustments as specified in Sec.
412.424.
(3) During the transition period, payment is based on a blend of
the Federal per diem payment amount as specified in Sec. 412.424, and
the facility-specific payment rate as specified in Sec. 412.426.
(b) Payment in full. (1) The payment made under this subpart
represents payment in full (subject to applicable deductibles and
coinsurance as specified in subpart G of part 409 of this chapter) for
inpatient operating and capital-related costs associated with
furnishing Medicare covered services in an inpatient psychiatric
facility, but not the cost of an approved medical education program as
specified in Sec. 413.79 through Sec. 413.75 of this chapter.
(2) In addition to the Federal per diem payment amounts, inpatient
psychiatric facilities receive payment for bad debts of Medicare
beneficiaries, as specified in Sec. 413.80 of this chapter.
Sec. 412.424 Methodology for calculating the Federal per diem payment
amount.
(a) Data sources. (1) To calculate the Federal per diem base rate
(as specified in paragraph (b) of this section for inpatient
psychiatric facilities, as specified in paragraph (b) of this section,
CMS uses the following data sources:
(2) The best Medicare data available to estimate the average
inpatient operating and capital-related costs per day made as specified
in part 413 of this chapter.
(i) Patient and facility cost report data capturing routine and
ancillary costs.
(ii) An appropriate wage index to adjust for wage differences.
(iii) An increase factor to adjust for the most recent estimate of
increases in the prices of an appropriate market basket of goods and
services provided by inpatient psychiatric facilities.
(b) Determining the average per diem cost of inpatient psychiatric
facilities for FY 2002. CMS determines the average inpatient operating,
ancillary, and capital-related per diem cost for which payment is made
to each inpatient psychiatric facility, using the available data
described in paragraph (a) of this section.
(c) Determining the Federal per diem base rate for cost reporting
periods beginning on or after January 1, 2005 through June 30, 2006.
(1) General. Payment under the inpatient psychiatric facility
prospective payment system is based on a standardized per diem payment
referred to as the Federal per diem base rate. The Federal per diem
base rate is the unadjusted cost for 1 day of inpatient hospital
services in an inpatient psychiatric facility in a base year as
described in paragraph (b) of this section. The unadjusted cost per day
is adjusted in accordance with paragraphs (c)(2) through (c)(5) of this
section.
(2) Update of the average per diem cost. CMS applies the increase
factor described in paragraph (a)(2)(iii) of this section to the
updated average per diem cost to the midpoint of the January 1, 2005
through June 30, 2006, under the update methodology described in
section 1886(b)(3)(B)(ii) of the Act.
(3) Budget neutrality. (i) CMS adjusts the updated average per diem
cost so that the aggregate payments in the first 18 months (for January
1, 2005 through June 30, 2006) under the inpatient psychiatric facility
prospective payment system are estimated to equal the amount that would
have been made to the inpatient psychiatric facilities under part 413
of this chapter if the inpatient psychiatric facility prospective
payment system described in this subpart were not implemented.
(ii) CMS evaluates the accuracy of the budget-neutrality adjustment
within the first 5 years after implementation of the inpatient
psychiatric facility prospective payment system. CMS may make a one-
time prospective adjustment to the Federal per diem base rate to
account for significant differences between the historical data on
cost-based TEFRA payments (the basis of the budget-neutrality
adjustment at the time of implementation) and estimates of TEFRA
payments based on actual data from the first year of the prospective
payment system.
(4) Outlier payments. CMS determines a reduction factor equal to
the estimated proportion of outlier payments described in paragraph
(d)(3)(i) of this section.
(5) Standardization. CMS determines a reduction factor to reflect
estimated increases in the Federal per diem base rate as defined in
Sec. 412.402 resulting from the facility-level and patient-level
adjustments described in paragraph (d) of this section.
(6) Computation of the Federal per diem base rate. The Federal per
diem base rate is computed as follows:
(i) For cost reporting periods beginning on or after January 1,
2005 and on or before June 30, 2006, the Federal per diem base rate is
computed in accordance with paragraph (c) of this section.
(ii) For inpatient psychiatric facilities beginning on or after
July 1, 2006, the Federal per diem base rate will be the Federal per
diem base rate for the previous year, updated by an increase factor
described in paragraph (a)(2)(iii) of this section.
(d) Determining the Federal per diem payment amount. The Federal
per diem payment amount is the product of the Federal per diem base
rate established under paragraph (c) of this section, the facility-
level adjustments applicable to the inpatient psychiatric facility, and
the patient-level adjustments applicable to the case.
[[Page 66979]]
(1) Facility-level adjustments. (i) Adjustment for wages. CMS
adjusts the labor portion of the Federal per diem base rate to account
for geographic differences in the area wage levels using an appropriate
wage index. The application of the wage index is made on the basis of
the location of the inpatient psychiatric facility in an urban or rural
area as defined in Sec. 412.402.
(ii) Rural location. CMS adjusts the Federal per diem base rate for
inpatient psychiatric facilities located in a rural area as defined in
Sec. 412.402.
(iii) Teaching adjustment. CMS adjusts the Federal per diem base
rate by a factor to account for indirect medical education costs.
(A) An inpatient psychiatric facility's teaching adjustment is
based on the ratio of the number of residents training in the inpatient
psychiatric facility divided by the facility's average daily census.
(B) The number of full-time equivalent residents used in
calculating the teaching adjustment cannot exceed the number of full-
time equivalent residents in a base year.
(1) The base year is the inpatient psychiatric facility's most
recently filed cost report filed with its fiscal intermediary before
November 15, 2004. Residents with less than full-time status and
residents rotating through the inpatient psychiatric facility for less
than a full year will be counted in proportion to the time they spend
in the inpatient psychiatric facility.
(2) The teaching status adjustment for new inpatient psychiatric
facilities as defined in Sec. 412.426 is made in accordance with Sec.
413.79(e)(1)(i) and (ii).
(C) If an inpatient psychiatric facility has fewer full-time
equivalent residents than in its base year payment of the teaching
adjustment will be based on the actual number of full-time equivalent
residents. The inpatient psychiatric facility may add residents in
subsequent years up to its resident cap established under section
(1)(iii)(B) of this paragraph.
(iv) Inpatient psychiatric facilities located in Alaska and Hawaii.
CMS adjusts the non-labor portion of the Federal per diem base rate to
reflect the higher cost of living of inpatient psychiatric facilities
located in Alaska and Hawaii.
(v) Adjustment for IPF with qualifying emergency departments. (A)
CMS adjusts the Federal per diem base rate to account for the costs
associated with maintaining a qualifying emergency department. A
qualifying emergency department is staffed and equipped to furnish a
comprehensive array of emergency services and meets the requirements of
Sec. 489.24(b) and Sec. 413.65.
(B) Where the inpatient psychiatric facility is part of an acute
care hospital that has a qualifying emergency department as described
in paragraph (d)(1)(v)(A) of this section and an individual patient is
discharged to the inpatient psychiatric facility from that acute care
hospital, CMS would not apply the emergency adjustment.
(2) Patient-level adjustments. (i) Age. CMS adjusts the Federal per
diem base rate to account for patient age based on age groupings
specified by CMS.
(ii) Diagnosis-related group assignment. The inpatient psychiatric
facility must identify a principal diagnosis as specified in Sec.
412.27(a) for each patient. CMS adjusts the Federal per diem base rate
by a factor to account for the CMS inpatient psychiatric facility
prospective payment system recognized diagnosis-related group
assignment associated with each patient's principal diagnosis.
(iii) Principal diagnosis. The inpatient psychiatric facility must
identify a principal psychiatric diagnosis as specified in Sec.
412.27(a) for each patient. CMS adjusts the Federal per diem base rate
by a factor to account for the diagnosis-related group assignment
associated with the principal diagnosis, as specified by CMS.
(iv) Comorbidities. CMS adjusts the Federal per diem base rate by a
factor to account for certain comorbidities as specified by CMS.
(v) Variable per diem adjustments. CMS adjusts the Federal per diem
base rate by factors as specified by CMS to account for the cost of
each day of inpatient psychiatric care relative to the cost of the
median length of stay.
(3) Other adjustments. (i) Outlier payments. CMS provides an
additional payment if an inpatient psychiatric facility's estimated
total cost for a case exceeds a fixed dollar loss threshold as defined
in Sec. 412.402 plus the Federal per diem payment amount for the case.
(A) The fixed dollar loss threshold is adjusted for the inpatient
psychiatric facility's adjustments for wage area, teaching, rural
location, and cost of living adjustment for facilities located in
Alaska and Hawaii.
(B) The outlier payment equals 80 percent of the difference between
the IPF's estimated cost for the case and the adjusted threshold amount
for days 1 through 9, and 60 percent for day 10 and thereafter.
(C) For discharges occurring in cost reporting periods beginning on
or after January 1, 2005, outlier payments are subject to the
adjustments specified at Sec. 412.84(i) and Sec. 412.84(m) of this
part, except that national urban and rural median cost-to-charge ratios
would be used instead of statewide average cost-to-charge ratios.
(ii) Stop-loss payments. CMS will provide additional payments
during the transition period, specified in Sec. 412.426(a)(1) through
(3), to an inpatient psychiatric facility to ensure that aggregate
payments under the prospective payment system are at least 70 percent
of the amount the inpatient psychiatric facility would have received
under reasonable cost reimbursement had the prospective payment system
not been implemented.
(iii) Special payment provision for interrupted stays. If a patient
is discharged from an inpatient psychiatric facility and is admitted to
the same or another inpatient psychiatric facility within 3 consecutive
calendar days following the discharge, the case is considered to be
continuous for the purposes listed below. The 3 consecutive calendar
days begins with the day of discharge from the inpatient psychiatric
facility and ends on midnight of day 3.
(A) Determining the appropriate variable per diem adjustment, as
specified in paragraph (d)(2)(v) of this section, applicable to the
case.
(B) Determining whether the total cost for a case meets the
criteria for outlier payments, as specified in paragraph (d)(3)(i)(C)
of this section.
(iv) Payment for electroconvulsive therapy treatments. CMS provides
an additional payment to reflect the cost of electroconvulsive therapy
treatments received by a patient during an inpatient psychiatric
facility stay in a manner specified by CMS.
(v) Adjustment for high-cost cases. CMS provides for an additional
payment if the estimated total cost for a case exceeds a fixed dollar
loss threshold plus the total per diem payment amount for the case.
(A) The fixed dollar loss threshold is adjusted for area wage
levels, teaching status, and rural location.
(B) The additional payment equals 80 percent of the difference
between the estimated cost of the case and the Federal per diem payment
amount for days 1 through 9, and 60 percent for days 10 and beyond.
(C) Effective for discharges occurring in cost reporting periods
beginning on or after January 1, 2005, additional payments made under
this section would be subject to the adjustments at Sec. 412.84(i) and
Sec. 412.84(m) of this part, except that the national urban and rural
median cost-to-charge ratios would be
[[Page 66980]]
used instead of statewide averages, and at Sec. 412.84(m) of this
part.
Sec. 412.426 Transition period.
(a) Duration of transition period and composition of the blended
transition payment. Except as provided in paragraph (c) of this
section, for cost reporting periods beginning on or after January 1,
2005 through June 30, 2008, an inpatient psychiatric facility receives
a payment comprised of a blend of the estimated Federal per diem
payment amount, as specified in Sec. 412.424(c) and a facility-
specific payment as specified under paragraph (b).
(1) For cost reporting periods beginning on or after January 1,
2005 and on or before June 30, 2006, payment is based on 75 percent of
the facility-specific payment and 25 percent is based on the Federal
per diem payment amount.
(2) For cost reporting periods beginning on or after July 1, 2006
and on or before June 30, 2007, payment is based on 50 percent of the
facility-specific payment and 50 percent is based on the Federal per
diem payment amount.
(3) For cost reporting periods beginning on or after July 1, 2007
and on or before June 30, 2008, payment is based on 25 percent of the
facility-specific payment and 75 percent is based on the Federal per
diem payment amount.
(4) For cost reporting periods beginning on or after July 1, 2008,
payment is based entirely on the Federal per diem payment amount.
(b) Calculation of the facility-specific payment. The facility-
specific payment is equal to the estimated payment for each cost
reporting period in the transition period that would have been made
without regard to this subpart. The facility's Medicare fiscal
intermediary calculates the facility-specific payment for inpatient
operating costs and capital costs in accordance with part 413 of this
chapter.
(c) Treatment of new inpatient psychiatric facilities. New
inpatient psychiatric facilities, are facilities that under present or
previous ownership or both have their first cost reporting period as an
IPF beginning on or after January 1, 2005. New IPFs are paid based on
100 percent of the Federal per diem payment amount.
Sec. 412.428 Publication of Updates to the inpatient psychiatric
facility prospective payment system.
CMS will publish annually in the Federal Register information
pertaining to updates to the inpatient psychiatric facility prospective
payment system. This information includes:
(a) A description of the methodology and data used to calculate the
updated Federal per diem base payment amount.
(b) The rate of increase factor as described in 412.424(a)(2)(iii),
which is based on the excluded hospital with capital market basket
under the update methodology of 1886(b)(3)(B)(ii) of the Act for each
year.
(c) The best available hospital wage index and information
regarding whether an adjustment to the Federal per diem base rate is
needed to maintain budget neutrality.
(d) Updates to the fixed dollar loss threshold in order to maintain
the appropriate outlier percentage.
(e) Describe the ICD-9-CM coding changes and DRG classification
changes discussed in the annual update to the hospital inpatient
prospective payment system regulations.
(f) Update the electroconvulsive therapy adjustment by a factor
specified by CMS.
Sec. 412.432 Method of payment under the inpatient psychiatric
facility prospective payment system.
(a) General rule. Subject to the exceptions in paragraphs (b) and
(c) of this section, an inpatient psychiatric facility receives payment
under this subpart for inpatient operating cost and capital-related
costs for each inpatient stay following submission of a bill.
(b) Periodic interim payments (PIP). (1) Criteria for receiving
PIP.
(i) An inpatient psychiatric facility receiving payment under this
subpart may receive PIP for Part A services under the PIP method
subject to the provisions of Sec. 413.64(h) of this chapter.
(ii) To be approved for PIP, the inpatient psychiatric facility
must meet the qualifying requirements in Sec. 413.64(h)(3) of this
chapter.
(iii) A hospital that is receiving periodic interim payments also
receives payment under this subpart for applicable services furnished
by its excluded psychiatric unit.
(iv) As provided in Sec. 413.64(h)(5) of this chapter,
intermediary approval is conditioned upon the intermediary's best
judgment as to whether payment can be made under the PIP method without
undue risk of resulting in an overpayment to the provider.
(2) Frequency of payment. For facilities approved for PIP, the
intermediary estimates the annual inpatient psychiatric facility's
Federal per diem prospective payments, net of estimated beneficiary
deductibles and coinsurance, and makes biweekly payments equal to \1/
26\ of the total estimated amount of payment for the year. If the
inpatient psychiatric facility has payment experience under the
prospective payment system, the intermediary estimates PIP based on
that payment experience, adjusted for projected changes supported by
substantiated information for the current year. Each payment is made 2
weeks after the end of a biweekly period of service as specified in
Sec. 413.64(h)(6) of this chapter. The interim payments are reviewed
at least twice during the reporting period and adjusted if necessary.
Fewer reviews may be necessary if an inpatient psychiatric facility
receives interim payments for less than a full reporting period. These
payments are subject to final settlement.
(3) Termination of PIP. (i) Request by the inpatient psychiatric
facility. Subject to the provisions of paragraph (b)(1)(iii) of this
section, an inpatient psychiatric facility receiving PIP may convert to
receiving prospective payments on a non-PIP basis at any time.
(ii) Removal by the intermediary. An intermediary terminates PIP if
the inpatient psychiatric facility no longer meets the requirements of
Sec. 413.64(h) of this chapter.
(c) Interim payments for Medicare bad debts and for costs of an
approved education program and other costs paid outside the prospective
payment system. For Medicare bad debts and for costs of an approved
education program and other costs paid outside the prospective payment
system, the intermediary determines the interim payments by estimating
the reimbursable amount for the year based on the previous year's
experience, adjusted for projected changes supported by substantiated
information for the current year, and makes biweekly payments equal to
1/26 of the total estimated amount. Each payment is made 2 weeks after
the end of the biweekly period of service as specified in Sec.
413.64(h)(6) of this chapter. The interim payments are reviewed at
least twice during the reporting period and adjusted if necessary.
Fewer reviews may be necessary if an inpatient psychiatric facility
receives interim payments for less than a full reporting period. These
payments are subject to final cost settlement.
(d) Outlier payments. Additional payments for outliers are not made
on an interim basis. Outlier payments are made based on the submission
of a discharge bill and represents final payment subject to the cost
report settlement specified in Sec. 412.84(i) and Sec. 412.84(m).
(e) Accelerated payments. (1) General rule. Upon request, an
accelerated payment may be made to an inpatient psychiatric facility
that is receiving
[[Page 66981]]
payment under this subpart and is not receiving PIP under paragraph (b)
of this section if the inpatient psychiatric facility is experiencing
financial difficulties because of the following:
(i) There is a delay by the intermediary in making payment to the
inpatient psychiatric facility.
(ii) Due to an exceptional situation, there is a temporary delay in
the inpatient psychiatric facility's preparation and submittal of bills
to the intermediary beyond the normal billing cycle.
(2) Approval of accelerated payment. An inpatient psychiatric
facility's request for an accelerated payment must be approved by the
intermediary and CMS.
(3) Amount of accelerated payment. The amount of the accelerated
payment is computed as a percent of the net payment for unbilled or
unpaid covered services.
(4) Recovery of accelerated payment. Recovery of the accelerated
payment is made by recoupment as inpatient psychiatric facility bills
are processed or by direct payment by the inpatient psychiatric
facility.
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT
FOR SKILLED NURSING FACILITIES
0
1. The authority citation for part 413 is revised to read as follows:
Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and
(n), 1861 (v), 1871, 1881, 1883, and 1886 of the Social Security Act
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n),
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww) Sec 124 of Pub. L.
106-113, 113 Stat. 1515.
0
2. Section 413.1 is amended as follows:
0
a. Revising paragraph (d)(2)(ii).
0
b. Redesignating paragraphs (d)(2)(iv), (d)(2)(v), (d)(2)(vi), and
(d)(2)(vii) as paragraphs (d)(2)(vi), (d)(2)(vii), (d)(2)(viii), and
(d)(2)(ix).
0
(c) Adding new paragraphs (d)(2)(iv) and (d)(2)(v).
The revision and additions read as follows:
Sec. 413.1 Introduction.
* * * * *
(d) * * *
(2) * * *
(ii) Payment to children's hospitals that are excluded from the
prospective payment systems under subpart B of part 412 of this
chapter, and hospitals outside the 50 States and the District of
Columbia is on a reasonable cost basis, subject to the provisions of
Sec. 413.40.
* * * * *
(iv) For cost reporting periods beginning before January 1, 2005,
payment to psychiatric hospitals (as well as separate psychiatric units
(distinct parts) of short-term general hospitals) that are excluded
under subpart B of part 412 of this chapter from the prospective
payment system is on a reasonable cost basis, subject to the provisions
of Sec. 413.40.
(v) For cost reporting periods beginning on or after January 1,
2005, payment to inpatient psychiatric facilities that meet the
conditions of Sec. 412.404 of this chapter, is made under the
prospective payment system described in subpart N of part 412 of this
chapter.
* * * * *
0
3. Section 413.40 is amended as follows:
0
a. Redesignating paragraphs (a)(2)(i)(C) and (a)(2)(i)(D) as paragraphs
(a)(2)(i)(D) and (a)(2)(i)(E).
0
b. Adding a new paragraph (a)(2)(i)(C).
0
c. Republishing paragraph (a)(2)(ii) introductory text.
0
d. Revising paragraph (a)(2)(ii)(B).
0
e. Amending paragraph (a)(2)(ii)(C) by removing reference to
``paragraph (a)(2)(iv)'' and adding the reference ``paragraph
(a)(2)(v)'' in its place.
0
f. Redesignating paragraphs (a)(2)(iii) and (a)(2)(iv) as paragraphs
(a)(2)(iv) and (a)(2)(v).
0
g. Adding a new paragraph (a)(2)(iii).
The revision and additions read as follows:
Sec. 413.40 Ceiling on the rate of increase in hospital inpatient
costs.
(a) * * *
(2) * * *
(i) * * *
(C) Psychiatric hospitals and psychiatric units that are paid under
the prospective payment system for inpatient psychiatric facilities
described in subpart N of part 412 of this chapter for cost reporting
periods beginning on or after January 1, 2005.
* * * * *
(ii) For cost reporting periods beginning on or after October 1,
1983, this section applies to--
* * * * *
(B) Psychiatric and rehabilitation units excluded from the
prospective payment systems, as specified in Sec. 412.1(a)(1) of this
chapter and in accordance with Sec. 412.25 through Sec. 412.30 of
this chapter, except as limited by paragraphs (a)(2)(iii) and
(a)(2)(iv) of this section with respect to psychiatric and
rehabilitation hospitals and psychiatric and rehabilitation units as
specified in Sec. 412.22, Sec. 412.23, Sec. 412.25, Sec. 412.27,
Sec. 412.29 and Sec. 412.30 of this chapter.
* * * * *
(iii) For cost reporting periods beginning on or after October 1,
1983 and before January 1, 2005 this section applies to psychiatric
hospitals and psychiatric units that are excluded from the prospective
payment systems as specified in Sec. 412.1(a)(1) of this chapter and
paid under the prospective payment system as specified in Sec.
412.1(a)(2) of this chapter.
* * * * *
0
4. Section 413.64 is amended by revising paragraph (h)(2)(i) to read as
follows:
Sec. 413.64 Payment to providers: Specific rules.
* * * * *
(h) * * *
(2) * * *
(i) Part A inpatient services furnished in hospitals that are
excluded from the prospective payment systems, as specified in Sec.
412.1(a)(1) of this chapter under subpart B of part 412 of this
subchapter, or are paid under the prospective payment systems described
in subpart N, O, and P of part 412 of this chapter.
* * * * *
0
5. Section 413.70 is amended by revising paragraph (e) to read as
follows:
Sec. 413.70 Payment for services of a CAH.
* * * * *
(e) Payment for service of distinct part psychiatric and
rehabilitation units of CAHS. Payment for inpatient services of
distinct part psychiatric units of CAHs--
(1) For cost reporting periods beginning before January 1, 2005,
payment is made on a reasonable cost basis, subject to the provisions
of Sec. 413.40.
(2) For cost reporting periods beginning on or after January 1,
2005, payment is made in accordance with regulations governing
inpatient psychiatric facilities at subpart N (Sec. 412.400 through
Sec. 412.432) of Part 412 of this subchapter.
(3) Payment for inpatient services of distinct part rehabilitation
units of CAHs is made in accordance with regulations governing the
inpatient rehabilitation facilities prospective payment system at
Subpart P (Sec. 412.600 through Sec. 412.632) of Part 412 of this
subchapter.
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
[[Page 66982]]
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: October 26, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: November 2, 2004.
Tommy G. Thompson,
Secretary.
Note: The following Addenda will not appear in the Code of
Federal Regulations
Addendum A--Psychiatric Prospective Payment Adjustment Rate and
Adjustment Factors
BILLING CODE 4120-01-P
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[FR Doc. 04-24787 Filed 11-2-04; 4:47 pm]
BILLING CODE 4120-03-C