[Federal Register: May 11, 2007 (Volume 72, Number 91)]
[Rules and Regulations]
[Page 26869-27029]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11my07-8]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 412 and 413
Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2008: Annual Payment Rate Updates, and Policy Changes; and
Hospital Direct and Indirect Graduate Medical Education Policy Changes;
Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412 and 413
[CMS-1529-F]
RIN 0938-AO30
Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2008: Annual Payment Rate Updates, and Policy Changes; and
Hospital Direct and Indirect Graduate Medical Education Policy Changes
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final Rule.
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SUMMARY: This final rule updates the annual payment rates for the
Medicare prospective payment system (PPS) for inpatient hospital
services provided by long-term care hospitals (LTCHs). The final
payment amounts and factors used to determine the updated Federal rates
that are described in this final rule were determined based on the LTCH
PPS rate year July 1, 2007 through June 30, 2008. The annual update of
the long-term care diagnosis-related group (LTC-DRG) classifications
and relative weights remains linked to the annual adjustments of the
acute care hospital inpatient diagnosis-related group system, and
continue to be effective each October 1. The final outlier threshold
for July 1, 2007, through June 30, 2008, is derived from the LTCH PPS
rate year calculations. We are also finalizing policy changes which
include revisions to the GME and IME policies. In addition, we are
adding a technical amendment correcting the regulations text at Sec.
412.22.
EFFECTIVE DATE: These regulations are effective on July 1, 2007.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487 (General information).
Judy Richter, (410) 786-2590 (General information, payment adjustments
for special cases, and onsite discharges and readmissions, interrupted
stays, co-located providers, and short-stay outliers).
Michele Hudson, (410) 786-5490 (Calculation of the payment rates, LTC-
DRGs, relative weights and case-mix index, market basket, wage index,
budget neutrality, and other payment adjustments).
Ann Fagan, (410) 786-5662 (Patient classification system).
Miechal Lefkowitz, (410) 786-5316 (Graduate Medical Education
payments).
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted stay,
and transition period).
Renate Rockwell, (410) 786-4645 (Graduate Medical Education payments).
Elizabeth Truong, (410) 786-6005 (Federal rate update, budget
neutrality, other adjustments, and calculation of the payment rates).
Michael Treitel, (410) 786-4552 (High cost outliers and cost-to-charge
ratios).
Table of Contents
I. Background
A. Legislative and Regulatory Authority
B. Criteria for Classification as a LTCH
1. Classification as a LTCH
2. Hospitals Excluded from the LTCH PPS
C. Transition Period for Implementation of the LTCH PPS
D. Limitation on Charges to Beneficiaries
E. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
II. Summary of the Provisions of the Final Rule
A. Summary of Major Contents of this Final Rule
B. Responses to Comments
III. Long-Term Care Diagnosis-Related Group (LTC-DRG)
Classifications and Relative Weights
A. Background
B. Patient Classifications into DRGs
C. Organization of DRGs
D. Update of LTC-DRGs
1. Background
2. Method for Updating the LTC-DRG Relative Weights
3. Budget Neutrality (BN) Requirement for the Annual LTC-DRG
Update
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
2. Maintenance of the ICD-9-CM Coding System
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
IV. Changes to the LTCH PPS Payment Rates for the 2008 LTCH PPS Rate
Year
A. Overview of the Development of the Payment Rates
B. LTCH PPS Market Basket
1. Overview of the RPL Market Basket
2. Market Basket Estimate for the 2008 LTCH PPS Rate Year
C. Standard Federal Rate for the 2008 LTCH PPS Rate Year
1. Background
2. Update to the Standard Federal Rate for the 2008 LTCH PPS
Rate Year
3. Standard Federal Rate for the 2008 LTCH PPS Rate Year
D. Calculation of LTCH Prospective Payments for the 2008 LTCH
PPS Rate Year
1. Adjustment for Area Wage Levels
a. Background
b. Geographic Classifications/Labor Market Area Definitions
c. Labor-Related Share
d. Wage Index Data
2. Adjustment for Cost-of-Living in Alaska and Hawaii
3. Adjustment for High-Cost Outliers (HCOs)
a. Background
b. Cost-to-charge ratios (CCRs)
c. Establishment of the Fixed-Loss Amount
d. Reconciliation of Outlier Payments Upon Cost Report
Settlement
e. Application of Outlier Policy to Short-Stay Outlier (SSO)
Cases
4. Other Payment Adjustments
5. Budget Neutrality (BN) Offset to Account for the Transition
Methodology
6. One-time Prospective Adjustment to the Standard Federal Rate
V. Other Policy Changes for the 2008 LTCH PPS Rate Year
A. Short-Stay Outlier (SSO) Cases
1. Background
2. Additional Discussion of the SSO Payment Formula (Includes
Technical Correction)
3. Determination of Cost-to-Charge Ratios (CCRs)
4. Reconciliation of SSO Cases
B. Expansion of Special Payment Provisions for LTCH Hospitals
within Hospitals (HwHs) and LTCH Satellites: Expansion of the 25
Percent Rule to Certain Situations Not Currently Covered Under
Existing Sec. 412.534
VI. Computing the Adjusted Federal Prospective Payments for the 2008
LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. Monitoring
XI. MedPAC Recommendations: The RTI Contract
XII. Graduate Medical Education (GME)
A. GME Background
B. Resident Training in Nonhospital Settings
1. Background
2. Moratorium on Disallowances of Allopathic or Osteopathic
Family Practice Residents Training Time in Nonhospital Settings, and
Questions and Answers (Qs&As) on CMS Web site (Section 713 of the
MMA and Sec. 413.78)
3. Requirements for Written Agreements for Residency Training in
Nonhospital Settings (Sec. 413.78(e))
4. Modification of the Definition of ``All or Substantially All
of the Costs for the Training Program in the Nonhospital Setting''
5. Implementation of a 90 Percent Cost Threshold
C. Other Issues to be Considered
D. Summary of Final Provisions
XIII. Technical Amendment
XIV. Collection of Information Requirements
XV. Regulatory Impact Analysis
A. Introduction
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Impact on Rural Hospitals
4. Unfunded Mandates
5. Federalism
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6. Alternatives Considered
B. Anticipated Effects of Payment Rate Changes
1. Budgetary Impact
2. Impact on Providers
3. Calculation of Prospective Payments
4. Results
5. Effects on the Medicare Program
C. Impact of Other Policy Changes
1. Effects of Policy Expansion of the Special Payment Provisions
for LTCH HwHs and LTCH Satellites to Certain Situations Not
Presently Covered by Existing Sec. 412.534 for Subclause (I) LTCHs
2. Effects of Policy Change Relating to Payment for Direct
Graduate Medical Education (GME)
D. Accounting Statement
Addendum: Tables
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:
AAMC Association of American Medical Colleges
AFMAA Academic Family Medicine Advocacy Alliance
AHA American Hospital Association
AHIMA American Health Information Management Association
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMGA American Medical Group Association
AMPRA American Medical Peer Review Association
AOA American Osteopathic Association
APR All patient refined
ASCA Administrative Simplification Compliance Act of 2002 (Pub. L. 107-
105)
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)
BN Budget neutrality
CBSA Core-based statistical area
CCR Cost-to-charge ratio
C&M Coordination and maintenance
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
COLA Cost of living adjustment
CS Consolidated severity-adjusted
CY Calendar year
DSH Disproportionate share of low-income patients
DRGs Diagnosis-related groups
FI Fiscal intermediary
FMC Family Medicine Center
FTE Full-time equivalent
FY Federal fiscal year
GME Graduate medical education
HCO High-cost outlier
HCRIS Hospital cost report information system
HHA Home health agency
HHS (Department of) Health and Human Services
HIPAA Health Insurance Portability and Accountability Act (Pub. L. 104-
191)
HIPC Health Information Policy Council
HwHs Hospitals within hospitals
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification (codes)
IME Indirect medical education
I-O Input-Output
IPF Inpatient psychiatric facility
IPPS [Acute Care Hospital] Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare code editor
MDC Major diagnostic categories
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review
MMA Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (Pub. L. 108-173)
MSA Metropolitan statistical area
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCHS National Center for Health Statistics
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509)
OMB Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
OTN One-Time Notification
PIP Periodic interim payment
PLI Professional liability insurance
PMSA Primary metropolitan statistical area
PPI Producer Price Indexes
PPS Prospective payment system
PRA Per resident amount
PSF Provider specific file
QIO Quality Improvement Organization (formerly Peer Review organization
(PRO))
RIA Regulatory impact analysis
RPL Rehabilitation psychiatric long-term care (hospital)
RTI Research Triangle Institute, International
RY Rate year (begins July 1 and ends June 30)
SIC Standard industrial code
SNF Skilled nursing facility
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248)
TEP Technical expert panel
UHDDS Uniform hospital discharge data set
I. Background
A. Legislative and Regulatory Authority
Section 123 of the Medicare, Medicaid, and SCHIP [State Children's
Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals described in section 1886(d)(1)(B)(iv) of the Social
Security Act (the Act), effective for cost reporting periods beginning
on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: Specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (LOS) (as determined by the Secretary of
Health and Human Services (the Secretary)) of greater than 20 days and
has 80 percent or more of its annual Medicare inpatient discharges with
a principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in fiscal year (FY) 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs. It also requires that the ``per
discharge'' system maintain budget neutrality (BN). We believe the
statutory mandate for BN applies only to the first year of the
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implementation of the LTCH PPS such that estimated payments in the
first year of the PPS were projected to equal payments that would have
been paid for operating and capital-related costs of LTCHs had this new
payment system not been enacted.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002 Federal Register, we issued a final rule
that implemented the LTCH PPS authorized under BBRA and BIPA (67 FR
55954). This system uses information from LTCH patient records to
classify patients into distinct long-term care diagnosis-related groups
(LTC-DRGs) based on clinical characteristics and expected resource
needs. Payments are calculated for each LTC-DRG and provisions are made
for appropriate payment adjustments. Payment rates under the LTCH PPS
are updated annually and published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH
with a cost reporting period beginning on or after October 1, 2002.
(The regulations implementing the TEFRA reasonable cost-based payment
provisions are located at 42 CFR part 413.) With the implementation of
the PPS for acute care hospitals authorized by the Social Security
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the
Act, certain hospitals, including LTCHs, were excluded from the PPS for
acute care hospitals and were paid their reasonable costs for inpatient
services subject to a per discharge limitation or target amount under
the TEFRA system. For each cost reporting period, a hospital-specific
ceiling on payments was determined by multiplying the hospital's
updated target amount by the number of total current year Medicare
discharges. (Generally, in this document when we refer to discharges,
the intent is to describe Medicare discharges.) The August 30, 2002
final rule further details the payment policy under the TEFRA system
(67 FR 55954).
In the August 30, 2002 final rule, we also presented an in-depth
discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
BN requirements mandated by section 123 of the BBRA. The same final
rule that established regulations for the LTCH PPS under 42 CFR part
412, subpart O, also contained LTCH provisions related to covered
inpatient services, limitation on charges to beneficiaries, medical
review requirements, furnishing of inpatient hospital services directly
or under arrangement, and reporting and recordkeeping requirements. We
refer readers to the August 30, 2002 final rule for a comprehensive
discussion of the research and data that supported the establishment of
the LTCH PPS (67 FR 55954).
In the June 6, 2003 Federal Register, we published a final rule
that set forth the FY 2004 annual update of the payment rates for the
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR
34122). It also changed the annual period for which the payment rates
are effective. The annual updated rates are now effective from July 1
through June 30 instead of from October 1 through September 30. We
refer to the July through June time period as a ``long-term care
hospital rate year'' (LTCH PPS rate year). In addition, we changed the
publication schedule for the annual update to allow for an effective
date of July 1. The payment amounts and factors used to determine the
annual update of the LTCH PPS Federal rate is based on a LTCH PPS rate
year. While the LTCH payment rate update is effective July 1, the
annual update of the LTC-DRG classifications and relative weights are
linked to the annual adjustments of the acute care hospital inpatient
DRGs and are effective each October 1.
In the Prospective Payment System for Long-Term Care Hospitals RY
2007: Annual Payment Rate Updates, Policy Changes, and Clarifications
final rule (71 FR 27798) (hereinafter referred to as the RY 2007 LTCH
PPS final rule), we set forth the 2007 LTCH PPS rate year annual update
of the payment rates for the Medicare PPS for inpatient hospital
services provided by LTCHs. We also adopted the ``Rehabilitation,
Psychiatric, Long-Term Care (RPL)'' market basket under the LTCH PPS in
place of the excluded hospital with capital market basket. In addition,
we implemented a zero percent update to the LTCH PPS Federal rate for
RY 2007. We also revised the existing payment adjustment for short stay
outlier (SSO) cases by reducing part of the current payment formula and
adding a fourth component to that payment formula. In addition, we
sunsetted the surgical DRG exception to the payment policy established
under the 3-day or less interruption of stay policy. Finally, we
clarified the policy at Sec. 412.534(c) for adjusting the LTCH PPS
payment so that the LTCH PPS payment is equivalent to what would
otherwise be payable under Sec. 412.1(a).
B. Criteria for Classification as a LTCH
1. Classification as a LTCH
Under the existing regulations at Sec. 412.23(e)(1) and (e)(2)(i),
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to
be paid under the LTCH PPS, a hospital must have a provider agreement
with Medicare and must have an average Medicare inpatient LOS of
greater than 25 days. Alternatively, Sec. 412.23(e)(2)(ii) states that
for cost reporting periods beginning on or after August 5, 1997, a
hospital that was first excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of its annual Medicare inpatient
discharges in the 12-month cost reporting period ending in FY 1997 have
a principal diagnosis that reflects a finding of neoplastic disease
must have an average inpatient LOS for all patients, including both
Medicare and non-Medicare inpatients, of greater than 20 days.
Section 412.23(e)(3) provides that, subject to the provisions of
paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average
Medicare inpatient LOS, specified under Sec. 412.23(e)(2)(i) is
calculated by dividing the total number of covered and noncovered days
of stay for Medicare inpatients (less leave or pass days) by the number
of total Medicare discharges for the hospital's most recent complete
cost reporting period. Section 412.23 also provides that subject to the
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section,
the average inpatient LOS specified under Sec. 412.23(e)(2)(ii) is
calculated by dividing the total number of days for all patients,
including both Medicare and non-Medicare inpatients (less leave or pass
days) by the number of total discharges for the hospital's most recent
complete cost reporting period.
In the RY 2005 LTCH PPS final rule (69 FR 25674), we specified the
procedure for calculating a hospital's inpatient average length of stay
(ALOS) for purposes of classification as a LTCH. That is, if a
patient's stay includes days of care furnished during two or more
separate consecutive cost reporting periods, the total days of a
patient's stay would be reported in the cost reporting period during
which the patient is discharged (69 FR 25705). Therefore, we revised
Sec. 412.23(e)(3)(ii) to specify that,
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effective for cost reporting periods beginning on or after July 1,
2004, in calculating a hospital's ALOS, if the days of an inpatient
stay involve days of care furnished during two or more separate
consecutive cost reporting periods, the total number of days of the
stay are considered to have occurred in the cost reporting period
during which the inpatient was discharged.
Fiscal intermediaries (FIs) verify that LTCHs meet the ALOS
requirements. We note that the inpatient days of a patient who is
admitted to a LTCH without any remaining Medicare days of coverage,
regardless of the fact that the patient is a Medicare beneficiary, will
not be included in the above calculation. Because Medicare would not be
paying for any of the patient's treatment, data on the patient's stay
would not be included in the Medicare claims processing systems. As
described in Sec. 409.61, in order for both covered and noncovered
days of a LTCH hospitalization to be included, a patient admitted to
the LTCH must have at least one remaining benefit day (68 FR 34123).
The FI's determination of whether or not a hospital qualifies as an
LTCH is based on the hospital's discharge data from the hospital's most
recent complete cost reporting period as specified in Sec.
412.23(e)(3) and is effective at the start of the hospital's next cost
reporting period as specified in Sec. 412.22(d). However, if the
hospital does not meet the ALOS requirement as specified in Sec.
412.23(e)(2)(i) and (ii), the hospital may provide the FI with data
indicating a change in the ALOS by the same method for the period of at
least 5 months of the immediately preceding 6-month period (69 FR
25676). Our interpretation of Sec. 412.23(e)(3) was to allow hospitals
to submit data using a period of at least 5 months of the most recent
data from the immediately preceding 6-month period.
As we stated in the FY 2004 Inpatient Prospective Payment System
(IPPS) final rule, published in the August 1, 2003 Federal Register,
prior to the implementation of the LTCH PPS, we did rely on data from
the most recently submitted cost report for purposes of calculating the
ALOS (68 FR 45464). The calculation to determine whether an acute care
hospital qualifies for LTCH status was based on total days and
discharges for LTCH inpatients. However, with the implementation of the
LTCH PPS, for the ALOS specified under Sec. 412.23(e)(2)(i), we
revised Sec. 412.23(e)(3)(i) to only count total days and discharges
for Medicare inpatients (67 FR 55970 through 55974). In addition, the
ALOS specified under Sec. 412.23(e)(2)(ii) is calculated by dividing
the total number of days for all patients, including both Medicare and
non-Medicare inpatients (less leave or pass days) by the number of
total discharges for the hospital's most recent complete cost reporting
period. As we discussed in the FY 2004 IPPS final rule, we are unable
to capture the necessary data from our present cost reporting forms (68
FR 45464). Therefore, we have notified FIs and LTCHs that until the
cost reporting forms are revised, for purposes of calculating the ALOS,
we will be relying upon census data extracted from Medicare Provider
Analysis and Review (MedPAR) files that reflect each LTCH's cost
reporting period (68 FR 45464). Requirements for hospitals seeking
classification as LTCHs that have undergone a change in ownership, as
described in Sec. 489.18, are set forth in Sec. 412.23(e)(3)(iv).
2. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c) and, therefore, are not subject to the
LTCH PPS rules:
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 authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject
to the rate-of-increase test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.
C. Transition Period for Implementation of the LTCH PPS
In the August 30, 2002 final rule (67 FR 55954), we provided for a
5-year transition period. During this 5-year transition period, a
LTCH's total payment under the PPS was based on an increasing
percentage of the Federal rate with a corresponding decrease in the
percentage of the LTCH PPS payment that is based on reasonable cost
concepts. However, effective for cost reporting periods beginning on or
after October 1, 2006, total LTCH PPS payments are based on 100 percent
of the Federal rate.
D. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we
clarified that the discussion of beneficiary liability in the August
30, 2002 final rule was not meant to establish rates or payments for,
or define Medicare-eligible expenses. Under Sec. 412.507, if the
Medicare payment to the LTCH is the full LTC-DRG payment amount, as
consistent with other established hospital prospective payment systems,
a LTCH may not bill a Medicare beneficiary for more than the deductible
and coinsurance amounts as specified under Sec. 409.82, Sec. 409.83,
and Sec. 409.87 and for items and services as specified under Sec.
489.30(a). However, under the LTCH PPS, Medicare will only pay for days
for which the beneficiary has coverage until the SSO threshold is
exceeded. (See section V.A.1.a. of this preamble.) Therefore, if the
Medicare payment was for a SSO case (Sec. 412.529) that was less than
the full LTC-DRG payment amount because the beneficiary had
insufficient remaining Medicare days, the LTCH could also charge the
beneficiary for services delivered on those uncovered days (Sec.
412.507).
E. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance
Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and Health Insurance Portability and Accountability Act (HIPAA) (Pub.
L. 104-191). Section 3 of the ASCA requires that the Medicare Program
deny payment under Part A or Part B for any expenses incurred for items
or services ``for which a claim is submitted other than in an
electronic form specified by the Secretary.'' Section 1862(h) of the
Act (as added by section 3(a) of the ASCA) provides that the Secretary
shall waive such denial in two specific types of cases and may also
waive such denial ``in such unusual cases as the Secretary finds
appropriate'' (68 FR 48805). Section 3 of the ASCA operates in the
context of the ASCA provisions of HIPAA, which include, among other
provisions, the transactions and code sets standards requirements
codified as 45 CFR parts 160 and 162, subparts A and I through R
(generally known as the Transactions Rule). The Transactions Rule
requires covered entities, including covered health care
[[Page 26874]]
providers, to conduct the covered electronic transactions according to
the applicable transactions and code sets standards.
II. Summary of the Provisions of the Final Rule
A. Major Contents of This Final Rule
In this final rule, we are setting forth the annual update to the
payment rates for the Medicare LTCH PPS, as well as, other policy
changes. The following is a summary of the major areas that we have
addressed in this final rule.
In section III. of this preamble, we discuss the LTCH PPS patient
classification and the relative weights which remain linked to the
annual adjustments of the acute care hospital inpatient DRG system, and
are based on the annual revisions to the International Classification
of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes
effective each October 1.
Also, in section III. of this preamble, we have established a BN
requirement for the annual update of the LTC-DRG classifications and
relative weights to reflect changes in relative LTCH resource use. This
requirement ensures that estimated aggregate LTCH PPS payments will not
decrease or increase as a result of the annual update to the LTC-DRG
classifications and relative weights based on the most recent available
data. In this section, we also summarize the proposed severity adjusted
MS-LTC-DRGs and the development of the proposed relative weights for FY
2008 presented in the FY 2008 IPPS proposed rule.
As discussed in section IV.C. of this preamble, we are implementing
a 0.71 percent update to the LTCH PPS Federal rate for the 2008 LTCH
PPS rate year based on an adjustment to account for changes in coding
practices. Also in section IV. of this preamble, we discuss the
prospective payment rate for RY 2008, and in section VI., we discuss
the applicable adjustments to the payment rates, including the
revisions to the wage index, the labor-related share, the cost-of-
living adjustment (COLA) factors, and the outlier threshold, for the
2008 LTCH PPS rate year.
In section V.A. of this preamble, we discuss our change to the
current payment formula for certain SSO cases. That is, those cases
with a LOS that is less than or equal to one standard deviation of the
ALOS of an IPPS discharge that was grouped into the same DRG. However,
in situations where the SSO cases would exceed the IPPS discharge that
was grouped in the same DRG, payment would continue to be paid under
the existing formula.
In section V.B. of this preamble, we discuss the expansion of the
present 25 percent admission policy at Sec. 412.534(c) to those
certain situations not already affected by the existing policy.
Previously, this policy only applied to co-located LTCHs and LTCH
satellites whose percentage of discharges exceeded the 25 percent
threshold (or the applicable percentage). This is extended to include
an adjusted payment to LTCH discharges that were admitted from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH where those discharges exceed the 25 percent (or applicable
percentage) threshold. The final policy also applies to grandfathered
LTCHs and satellite facilities of LTCHs that have Medicare discharges
that were admitted from a hospital co-located with the LTCH or
satellite facility of the grandfathered LTCH.
In section X. of this preamble, we will discuss our on-going
monitoring protocols under the LTCH PPS.
In section XI. of this preamble, we discuss the recommendations
made by the Research Triangle Institute, International's (RTI)
evaluation of the feasibility of adopting recommendations made in the
June 2004 Medicare Payment Advisory Commission (MedPAC) Report.
In section XII. of this preamble, we discuss our revisions to
redefine the statutory term ``all or substantially all of the costs for
the training program in the nonhospital setting.'' The statute requires
that hospitals must pay ``all or substantially all'' of the costs for a
training program in a nonhospital setting in order to count FTE
residents training in the nonhospital setting for Medicare graduate
medical education (GME) payment purposes. We are revising Sec.
413.75(b) to introduce a new definition of ``all or substantially all
of the costs for the training program in the nonhospital setting'' to
mean, at least 90 percent of the total of the costs of the residents'
salaries and fringe benefits (including travel and lodging where
applicable) and the portion of the cost of teaching physicians'
salaries attributable to nonpatient care direct GME activities. In
addition, we are revising Sec. 412.105(f)(1)(ii)(C) for IME and Sec.
413.78 to reflect this new definition of ``all or substantially all''
of the GME costs in a nonhospital setting, effective for cost reporting
periods beginning on or after July 1, 2007.
In section XV. of this preamble, we analyze the impact of the
changes presented in this final rule on Medicare expenditures,
Medicare-participating LTCHs, and Medicare beneficiaries.
B. Responses to Comments
We received 270 comments on the RY 2007 LTCH PPS proposed rule.
Comments and responses follow the appropriate policy section in this
rule. The following is a comment we received regarding the schedule of
the LTCH PPS update.
Comment: One commenter urged CMS to consolidate the July 1 update
of the LTCH PPS rates and the October 1 development of the LTC-DRG
weights into one publication cycle, a step which the commenter states
would be very beneficial for the LTCH industry.
Response: We appreciate the commenter's suggestion and we will
evaluate whether such a consolidation is a workable alternative to our
present schedule.
III. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications
and Relative Weights
A. Background
Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a DRG-based patient
classification system reflecting the differences in patient resource
use and costs). Section 307(b)(1) of the BIPA modified the requirements
of section 123 of the BBRA by requiring that the Secretary examine
``the feasibility and the impact of basing payment under such a system
[the LTCH PPS] on the use of existing (or refined) hospital DRGs that
have been modified to account for different resource use of LTCH
patients, as well as the use of the most recently available hospital
discharge data.''
In accordance with section 123 of the BBRA as amended by section
307(b)(1) of the BIPA and Sec. 412.515, we use information derived
from LTCH PPS patient records to classify these cases into distinct
LTC-DRGs based on clinical characteristics and estimated resource
needs. The LTC-DRGs used as the patient classification component of the
LTCH PPS correspond to the hospital inpatient DRGs in the IPPS. (As
discussed in greater detail below in this section, in the FY 2008 IPPS
proposed rule, we have proposed to adopt the severity-weighted patient
classification system, the proposed MS-LTC-DRGs, for the LTCH PPS
beginning in FY 2008, which is the same patient classification system
proposed for use under the IPPS for FY 2008.) We assign an appropriate
weight to the LTC-DRGs to account for the difference in resource use by
patients exhibiting the case complexity and multiple medical problems
characteristic of LTCHs.
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In a departure from the IPPS, we use low volume LTC-DRGs (less than
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not
typically treat the full range of diagnoses as do acute care hospitals.
To manage the large number of low volume DRGs (all DRGs with fewer than
25 cases), we group low volume DRGs into 5 quintiles based on average
charge per discharge. (A listing of the current composition of low
volume quintiles used in determining the FY 2007 LTC-DRG relative
weights appears in the FY 2007 IPPS final rule (71 FR 47974 through
47978). A listing of the proposed composition of low volume quintiles
used in determining the proposed FY 2008 MS-LTC-DRG relative weights
appears in the FY 2008 IPPS proposed rule.) We also account for
adjustments to payments for cases in which the stay at the LTCH is less
than or equal to five-sixths of the geometric ALOS and classify these
cases as SSO cases. (A detailed discussion of the application of the
Lewin Group model that was used to develop the LTC-DRGs appears in the
August 30, 2002 LTCH PPS final rule (67 FR 55978).)
B. Patient Classifications Into DRGs
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge; that payment varies by
the LTC-DRG to which a beneficiary's stay is assigned. Consistent with
our historical practice of having LTC-DRGs correspond to the DRGs
applicable under the IPPS, we will continue to model the LTCH-DRGs
after their predecessor CMS DRGs. In addition, we are proposing to use
the FY 2008 GROUPER Version 25.0 to be effective for discharges
occurring on or after October 1, 2007 through September 30, 2008.
Cases are classified into LTC-DRGs for payment based on the
following six data elements:
(1) Principal diagnosis.
(2) Up to eight additional diagnoses.
(3) Up to six procedures performed.
(4) Age.
(5) Sex.
(6) Discharge status of the patient.
As indicated in the August 30, 2002 LTCH PPS final rule, upon the
discharge of the patient from a LTCH, the LTCH must assign appropriate
diagnosis and procedure codes from the most current version of the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM). HIPAA Transactions and Code Sets Standards
regulations at 45 CFR parts 160 and 162 require that no later than
October 16, 2003, all covered entities must comply with the applicable
requirements of subparts A and I through R of part 162. Among other
requirements, those provisions direct covered entities to use the ASC
X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, version
4010, and the applicable standard medical data code sets for the
institutional health care claim or equivalent encounter information
transaction (see 45 CFR 162.1002 and 45 CFR 162.1102).
Medicare FIs/MACs enter the clinical and demographic information
into their claims processing systems and subject this information to a
series of automated screening processes called the Medicare Code Editor
(MCE). These screens are designed to identify cases that require
further review before assignment into a DRG can be made. During this
process, the following types of cases, among others, are selected for
further development:
Cases that are improperly coded. (For example, diagnoses
are shown that are inappropriate, given the sex of the patient. Code
68.6, Radical abdominal hysterectomy, would be an inappropriate code
for a male.)
Cases including surgical procedures not covered under
Medicare. (For example, organ transplant in a non-approved transplant
center.)
Cases requiring more information. (For example, ICD-9-CM
codes are required to be entered at their highest level of specificity.
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262,
Other severe protein-calorie malnutrition, contains all appropriate
digits, but if it is reported with either fewer or more than 3 digits,
the claim will be rejected by the MCE as invalid.)
After screening through the MCE, each claim will be classified into
the appropriate LTC-DRG by the Medicare LTCH GROUPER software. As
indicated in the August 30, 2002 LTCH PPS final rule, the Medicare
GROUPER software, which is used under the LTCH PPS, is specialized
computer software, and is the same GROUPER software program used under
the IPPS. The GROUPER software was developed as a means of classifying
each case into a DRG on the basis of diagnosis and procedure codes and
other demographic information (age, sex, and discharge status).
Following the LTC-DRG assignment, the Medicare FI/MAC determines the
prospective payment by using the Medicare PRICER program, which
accounts for hospital-specific adjustments. Under the LTCH PPS, we
provide an opportunity for the LTCH to review the LTC-DRG assignments
made by the FI and to submit additional information within a specified
timeframe as specified in Sec. 412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the DRG weights and
to classify current cases for purposes of determining payment. The
records for all Medicare hospital inpatient discharges are maintained
in the MedPAR file. The data in this file are used to evaluate possible
DRG classification changes and to recalibrate the DRG weights during
our annual update under both the IPPS (Sec. 412.60(e)) and the LTCH
PPS (Sec. 412.517). As discussed in greater detail in sections III.D.
and E. of this preamble, with the implementation of section 503(a) of
the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA) (Pub. L. 108-173), there is the possibility that one feature
of the GROUPER software program may be updated twice during a Federal
FY (October 1 and April 1) as required by the statute for the IPPS (69
FR 48954 through 48957). Specifically, as we discussed in the FY 2007
IPPS final rule, diagnosis and procedure codes for new medical
technology may be created and added to existing CMS DRGs in the middle
of the Federal FY on April 1 (71 FR 47959 and 47971). However, this
policy change will have no effect on the LTC-DRG relative weights
during the FY, which will continue to be updated only once a year on
October 1, nor will there be any impact on Medicare payments under the
LTCH PPS during the FY as a result of this policy. The use of the ICD-
9-CM code set is also compliant with the current requirements of the
Transactions and Code Sets Standards regulations at 45 CFR parts 160
and 162, published in accordance with HIPAA.
In the IPPS proposed rule, we proposed to create and implement MS-
DRGs for FY 2008; that is, the proposed MS-DRGs would be effective
beginning with discharges on or after October 1, 2007 through September
30, 2008. The proposed MS-DRGs are a severity-based system of DRGs in
which all existing CMS DRGs were refined to better recognize severity
of illness among patients. The details of this proposal can be reviewed
online at http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/CMS-1533-P.pdf
.
Under the broad authority of section 123(a) of the BBRA as modified
by section 307(b) of the BIPA, we intend to model the proposed MS-LTC-
DRGs on the corresponding CMS DRGs as described in the FY 2008 IPPS
proposed rule if this DRG system is implemented for the IPPS in FY
2008. In addition, as
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stated above in this section, we intend to use the FY 2008 GROUPER
Version 25.0, effective for discharges occurring on or after October 1,
2007 through September 30, 2008 for the LTCH PPS if the IPPS system is
implemented for FY 2008.
To elaborate, if the proposed MS-DRGs are adopted for use by the
IPPS, the LTC-DRGs will use the same structure as the proposed MS-DRGs,
and will be referred to as the MS-LTC-DRGs. Cases will continue to be
classified into MS-LTC-DRGs using the six data elements listed above,
and will be subject to review by the MCE as they have in the past.
After screening through the MCE, claims will be classified into the
appropriate MS-LTC-DRG by the LTCH PPS GROUPER software. Following the
MS-LTC-DRG assignment, the Medicare FI/MAC determines the appropriate
payment using the Medicare PRICER program.
C. Organization of DRGs
The DRGs are organized into 25 major diagnostic categories (MDCs),
most of which are based on a particular organ system of the body; the
remainder involve multiple organ systems (such as MDC 22, Burns).
Accordingly, the principal diagnosis determines MDC assignment. Within
most MDCs, cases are then divided into surgical DRGs and medical DRGs.
Surgical DRGs are assigned based on a surgical hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. The GROUPER software program does not recognize all
ICD-9-CM procedure codes as procedures that affect DRG assignment, that
is, procedures which are not surgical (for example, EKG), or minor
surgical procedures (for example, 86.11, Biopsy of skin and
subcutaneous tissue).
The medical DRGs are generally differentiated on the basis of
diagnosis. Both medical and surgical DRGs may be further differentiated
based on age, sex, discharge status, and presence or absence of
complications or comorbidities (CC). The proposed MS-DRGs, as defined
in the FY 2008 IPPS proposed rule, and the MS-LTC-DRGs contain base
DRGs that have been subdivided into one, two, or three severity levels.
The most severe level has at least one code that is a major CC,
referred to as ``with MCC''. The next lower severity level contains
cases with at least one CC, referred to as ``with CC''. Those DRGs
without an MCC or a CC are referred to as ``without CC/MCC''. When data
did not support the creation of three severity levels, the base DRG was
divided into either two levels or the base was not subdivided. The
proposed two-level subdivisions consist of one of the following
subdivisions:
With CC/MCC.
Without CC/MCC.
In this type of subdivision, cases with at least one code that is
on the CC or MCC list are assigned to the ``with CC/MCC'' DRG. Cases
without a CC or an MCC are assigned to the ``without CC/MCC'' DRG.
The other type of proposed two-level subdivision is as follows:
With MCC.
Without MCC.
In this type of subdivision, cases with at least one code that is
on the MCC list are assigned to the ``with MCC'' DRG. Cases that do not
have an MCC are assigned to the ``without MCC'' DRG. This type of
subdivision could include cases with a CC code, but no MCC.
We note that CCs are defined by certain secondary diagnoses not
related to, or not inherently a part of, the disease process identified
by the principal diagnosis. (For example, the GROUPER software would
not recognize a code from the 800.0x series, Skull fracture, as a CC
when combined with principal diagnosis 850.4, Concussion with prolonged
loss of consciousness, without return to preexisting conscious level.)
In addition, we note that the presence of additional diagnoses does not
automatically generate a CC, as not all MS-DRGs or MS-LTC-DRGs
recognize comorbid or complicating conditions in their definition. (For
example, proposed MS-DRG 069, Transient Ischemia (formerly CMS DRG 524,
Transient Ischemia), is based solely on the principal diagnosis,
without consideration of additional diagnoses for DRG determination.)
As discussed in greater detail in the FY 2007 IPPS final rule (71
FR 47898 through 47912 and 47973), in its March 2005 Report to
Congress, ``Physician-Owned Specialty Hospitals,'' MedPAC recommended
that the Secretary improve payment accuracy in the hospital IPPS by,
among other things, ``refining the current DRGs to more fully capture
differences in severity of illness among patients.'' (Recommendation 1,
p. 93.) As we discussed in that same final rule (71 FR 47973), we did
not adopt a new severity-adjusted patient classification system under
the IPPS, for FY 2007, but we did refine the CMS DRG patient
classification system for Version 24.0 of the GROUPER software to
improve the CMS DRG system's recognition of severity of illness for FY
2007. The updates to the CMS DRG patient classification system used
under the IPPS for FY 2007 (GROUPER Version 24.0), were also applied to
the LTC-DRGs used under the LTCH PPS for FY 2007.
In the FY 2008 IPPS proposed rule, we presented the changes to the
proposed MS-DRG patient classification system for FY 2008. In that
rule, we proposed the IPPS GROUPER Version 25.0 for FY 2008 to process
LTCH PPS claims for LTCH discharges occurring from October 1, 2007
through September 30, 2008. As noted above in this section and as we
also discussed in the FY 2007 IPPS final rule, in its March 1, 2005
Report to Congress on Medicare Payment Policy (page 64) and in
Recommendation 1 of the 2005 Report to Congress on Physician-Owned
Specialty Hospitals, MedPAC recommended that CMS, among other things,
refine the current DRGs under the IPPS to more fully capture
differences in severity of illness among patients.
D. Update of LTC-DRGs
1. Background
We propose to modify the existing LTC-DRGs so that they reflect the
changes made to the CMS DRGs under the proposed IPPS notice. As
discussed in greater detail in the FY 2008 IPPS proposed rule, under
the LTCH PPS, relative weights for each proposed MS-LTC-DRG are a
primary element used to account for the variations in cost per
discharge and resource utilization among the payment groups (that is,
proposed MS-LTC-DRGs). To ensure that Medicare patients classified to
each proposed MS-LTC-DRG have access to an appropriate level of
services and to encourage efficiency, each year based on the best
available data, we calculate a relative weight for each proposed MS-
LTC-DRG that represents the resources needed by an average inpatient
LTCH case in that proposed MS-LTC-DRG. For example, cases in a proposed
MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as
much as cases in a proposed MS-LTC-DRG with a relative weight of 1.
Under Sec. 412.517, the proposed MS-LTC-DRG classifications and
weighting factors (that is, relative weights) are adjusted annually to
reflect changes in factors affecting the relative use of LTCH
resources, including treatment patterns, technology and number of
discharges.
For FY 2008, the proposed MS-LTC-DRG classifications and relative
weights were updated based on LTCH data from the FY 2005 MedPAR file,
which contained hospital bills data from the December 2006 update. The
proposed MS-LTC-DRG patient classification system is based upon 745 MS-
DRGs that formed the structure of the FY 2008
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LTCH PPS GROUPER program. The FY 2008 proposed MS-LTC-DRGs continues to
include two ``error DRGs.'' As in the IPPS, we included two error DRGs
in which cases that cannot be assigned to valid DRGs will be grouped.
These two proposed error MS-LTC-DRGs are MS-LTC-DRG 999 (Principal
Diagnosis Invalid as a Discharge Diagnosis) and MS-LTC-DRG 998
(Ungroupable). The other 743 proposed MS-LTC-DRGs are the same MS-DRGs
used in the IPPS GROUPER program for FY 2008 (Version 25.0).
For FY 2008, as discussed in greater detail in the FY 2008 IPPS
proposed rule, we proposed to adopt the MS-LTC-DRGs for the LTCH PPS
for RY 2008. (Additional information on the proposed MS-LTC-DRG
classifications and proposed MS-LTC-DRG relative weights can be found
in the FY 2008 IPPS proposed rule.)
In the past, the annual update to the CMS DRGs was based on the
annual revisions to the ICD-9-CM codes and was effective each October
1. The ICD-9-CM coding update process was revised as discussed in
greater detail in the FY 2005 IPPS final rule (69 FR 48953 through
48957). Specifically, section 503(a) of the MMA includes a requirement
for updating diagnosis and procedure codes twice a year instead of the
current process of annual updates on October 1 of each year. This
requirement is included as part of the amendments to the Act relating
to recognition of new medical technology under the IPPS. (For
additional information on this provision, including its implementation
and its impact on the LTCH PPS, refer to the FY 2005 IPPS final rule
(69 FR 48953 through 48957), the RY 2006 LTCH PPS final rule (70 FR
24172 through 24177), and the RY 2008 LTCH PPS proposed rule (72 FR
4783 through 4784).)
As discussed in the RY 2008 proposed rule (72 FR 4784), in
implementing section 503(a) of the MMA, there will only be an April 1
update if diagnosis and procedure codes are requested and approved. We
note that any new codes created for April 1 implementation will be
limited to those diagnosis and procedure code revisions primarily
needed to describe new technologies and medical services. However, we
reiterate that the process of discussing updates to the ICD-9-CM has
been an open process through the ICD-9-CM Coordination and Maintenance
(C&M) Committee since 1995. Requestors will be given the opportunity to
present the merits for a new code and make a clear and convincing case
for the need to update ICD-9-CM codes through an April 1 update.
At the September 2006 ICD-9-CM C&M Committee meeting, there were no
requests for an April 1, 2007 implementation of ICD-9-CM codes, and
therefore, the next update to the ICD-9-CM coding system will not occur
until October 1, 2007 (FY 2008). Presently, as there were no coding
changes suggested for an April 1, 2007 update, the ICD-9-CM coding set
implemented on October 1, 2006, will continue through September 30,
2007 (FY 2007). As discussed above in this section, the next update to
the proposed MS-LTC-DRGs and relative weights for proposed FY 2008 will
be presented in the FY 2008 IPPS proposed rule. Furthermore, we will
notify LTCHs of any revisions to the GROUPER software used under the
IPPS and LTCH PPS that would be implemented April 1, 2008. As noted
previously in this section, in the FY 2007 IPPS final rule (71 FR
47973), we established the use of Version 24.0 of the CMS GROUPER,
which is used under the IPPS for FY 2007, to classify cases for LTCH
PPS discharges that would occur on or after October 1, 2006 and on or
before September 30, 2007.
2. Method for Updating the LTC-DRG Relative Weights
As discussed in the August 30, 2002 LTCH PPS final rule that
implemented the LTCH PPS, under the LTCH PPS, each LTCH will receive a
payment that represents an appropriate amount for the efficient
delivery of care to Medicare patients (67 FR 55984). The system must be
able to account adequately for each LTCH's case-mix to ensure both a
fair distribution of Medicare payments and access to care for those
Medicare patients whose care is more costly. Therefore, in Sec.
412.523(c), we adjust the standard Federal PPS rate by the LTC-DRG
relative weights in determining payment to LTCHs for each case. As we
have noted above, we are proposing to adopt the MS-LTC-DRGs for the
LTCH PPS for FY 2008. However, as discussed in the FY 2008 IPPS
proposed rule, this proposed change in the patient classification
system does not affect the basic principles of the development of
relative weights under a DRG-based PPS. For purposes of clarity, in the
general discussion below in which we describe the basic methodology of
the patient classification system in use since the start of the LTCH
PPS, we use the acronym ``MS-LTC-DRG'' to specify the proposed DRG
patient classification system to be used by the LTCH PPS in FY 2008.
Although the proposed adoption of the MS-LTC-DRGs would result in some
modifications of existing procedures for assigning weights (for
example, in cases of zero volume and/or nonmonotonicity, as discussed
below), the basic methodology for developing the proposed FY 2008 MS-
LTC-DRG relative weights presented in the FY 2008 IPPS proposed rule
continued to be determined in accordance with the general methodology
established in the August 30, 2002 LTCH PPS final rule (67 FR 55989
through 55991), which is discussed below. Therefore, in the discussion
below, the term ``LTC-DRGs'' will be used in descriptions of the basic
methodology established at the beginning of the LTCH PPS that will
remain unchanged if we adopt the proposed MS-LTC-DRGs. The use of the
term ``MS-LTC-DRGs'' in the following discussion will indicate a
discussion of specifics aspects of our proposed adoption of the
severity-weighted patient classification system for FY 2008 as
presented in the FY 2008 IPPS proposed rule.)
Under the LTCH PPS, relative weights for each LTC-DRG are a primary
element used to account for the variations in cost per discharge and
resource utilization among the payment groups as described in Sec.
412.515. To ensure that Medicare patients who are classified to each
LTC-DRG have access to services and to encourage efficiency, we
calculate a relative weight for each LTC-DRG that represents the
resources needed by an average inpatient LTCH case in that LTC-DRG. For
example, cases in a LTC-DRG with a relative weight of 2 will, on
average, cost twice as much as cases in a LTC-DRG with a weight of 1.
As we discussed in the FY 2007 IPPS final rule, the LTC-DRG
relative weights effective under the LTCH PPS for FY 2007 were
calculated using the March 2006 update of FY 2005 MedPAR data and
Version 24.0 of the GROUPER software (71 FR 47973). We use total days
and total charges in the calculation of the LTC-DRG relative weights.
LTCHs often specialize in certain areas, such as ventilator-
dependent patients and rehabilitation or wound care. Some case types
(DRGs) may be treated, to a large extent, in hospitals that have (from
a perspective of charges) relatively high (or low) charges.
Distribution of cases with relatively high (or low) charges in specific
LTC-DRGs has the potential to inappropriately distort the measure of
average charges. To account for the fact that cases may not be randomly
distributed across LTCHs, we use a hospital-specific relative value
method to calculate relative weights. We believe this method removes
this hospital-specific source of bias in measuring
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average charges. Specifically, we reduce the impact of the variation in
charges across providers on any particular LTC-DRG relative weight by
converting each LTCH's charge for a case to a relative value based on
that LTCH's average charge. (See the FY 2007 IPPS final rule for
further information on the application of the hospital-specific
relative value methodology under the LTCH PPS (71 FR 47974 through
47975).)
To account for LTC-DRGs with low volume (that is, with fewer than
25 LTCH cases), we grouped those low volume LTC-DRGs into 1 of 5
categories (quintiles) based on average charges, for the purposes of
determining relative weights. For FY 2007 based on the FY 2005 MedPAR
data, we identified 180 LTC-DRGs that contained between 1 and 24 cases.
This list of low volume LTC-DRGs was then divided into 1 of the 5 low
volume quintiles, each containing 36 LTC-DRGs (180/5 = 36). Each of the
low volume LTC-DRGs grouped to a specific quintile received the same
relative weight and ALOS using the formula applied to the regular LTC-
DRGs (25 or more cases). (See the FY 2007 IPPS final rule for further
explanation of the development and composition of each of the 5 low
volume quintiles for FY 2007 and their composition (71 FR 47975 through
47978).)
After grouping the cases in the appropriate LTC-DRG, we calculated
the relative weights by first removing statistical outliers and cases
with a LOS of 7 days or less. Next, we adjusted the number of cases
remaining in each LTC-DRG for the effect of SSO cases under Sec.
412.529. The short-stay adjusted discharges and corresponding charges
were used to calculate ``relative adjusted weights'' in each LTC-DRG
using the hospital-specific relative value method. We also adjusted the
LTC-DRG relative weights to account for nonmonotonically increasing
relative weights. That is, we made an adjustment if cases classified to
the LTC-DRG ``with CCs'' of a ``with CC''/``without CC'' pair had a
lower average charge than the corresponding LTC-DRG ``without CCs'' by
assigning the same weight to both LTC-DRGs in the ``with CC''/``without
CC'' pair. (See the FY 2007 IPPS final rule for further details on the
steps for calculating the LTC-DRG relative weights (71 FR 47978 through
47984).)
In addition, of the 538 LTC-DRGs in the LTCH PPS for FY 2007, based
on LTCH cases in the FY 2005 MedPAR files, we identified 183 LTC-DRGs
for which there were no LTCH cases in the database. That is, no
patients who would have been classified to those DRGs were treated in
LTCHs during FY 2005, and therefore, no charge data were reported for
those DRGs. Thus, in the process of determining the relative weights of
LTC-DRGs, we were unable to determine weights for these 183 LTC-DRGs
using the method described in this section of the preamble. However,
since patients with a number of the diagnoses under these LTC-DRGs may
be treated at LTCHs beginning in FY 2007, we assigned relative weights
to each of the 183 ``no volume'' LTC-DRGs based on clinical similarity
and relative costliness to one of the remaining 355 (538-183 = 355)
LTC-DRGs for which we were able to determine relative weights, based on
the FY 2005 claims data. (A list of the current no-volume LTC-DRGs and
further explanation of their FY 2007 relative weight assignment can be
found in the FY 2007 IPPS final rule (71 FR 47980 through 47984).)
Furthermore, for FY 2007, we established LTC-DRG relative weights
of 0.0000 for heart, kidney, liver/intestinal, lung, simultaneous
pancreas/kidney, and pancreas transplants (LTC-DRGs 103, 302, 480, 495,
512 and 513, respectively) because presently no LTCH meets the
applicable requirements to perform Medicare covered transplant
procedures. However, if in the future, a LTCH seeks to meet such
requirements as a Medicare-approved transplant center to perform
Medicare-covered transplant procedures, we believe that the application
and approval procedure would allow sufficient time for us to propose
appropriate weights for the LTC-DRGs affected. At the present time, we
included these 6 transplant LTC-DRGs in the GROUPER software program
for administrative purposes. As the LTCH PPS uses the same GROUPER
software program for LTCHs as is used under the IPPS, removing these
DRGs would be administratively burdensome.
As we noted previously in this section, there were no new ICD-9-CM
code requests for an April 1, 2007 update. Therefore, Version 24.0 of
the DRG GROUPER software established in the FY 2007 IPPS final rule
will continue to be effective until October 1, 2007. Moreover, the LTC-
DRGs and relative weights for FY 2007 established in Table 11 of that
same IPPS final rule (71 FR 48321 through 48331) will continue to be
effective until October 1, 2007, (just as they would have been even if
there had been any new ICD-9-CM code requests for an April 1, 2007
update). Accordingly, Table 3 in the Addendum to this final rule lists
the LTC-DRGs and their respective relative weights, geometric ALOS, and
five-sixths of the geometric ALOS that we will continue to use for the
period of July 1, 2007 through September 30, 2007. (This table is the
same as Table 11 of the Addendum to the FY 2007 IPPS final rule.) The
next update to the ICD-9-CM coding system will be presented in the FY
2008 IPPS proposed rule (since there will be no April 1, 2007 updates
to the ICD-9-CM coding system).
In addition, the proposed DRGs and GROUPER for FY 2008 that would
be effective October 1, 2007, will be presented in the IPPS FY 2008
proposed rule. Below we provide a summary of the development of the
proposed LTC-DRG relative weights for FY 2008 presented in that same
proposed rule. To calculate the proposed MS-LTC-DRG relative weights
for FY 2008 in the FY 2008 IPPS proposed rule, we obtained total
Medicare allowable charges from FY 2006 Medicare LTCH bill data from
the December 2006 update of the MedPAR file, which are the best
available data at this time, and we used the proposed Version 25.0 of
the CMS GROUPER used under the IPPS (as discussed in section II.B. of
the preamble of that proposed rule) to classify cases. To calculate the
final MS-LTC-DRG relative weights for FY 2008, we proposed that, if
more recent data are available (for example, data from the March 2007
update of the MedPAR file), we would use those data and the finalized
Version 25.0 of the CMS GROUPER used under the IPPS. We continued to
use total days and total charges in the calculation of the proposed MS-
LTC-DRG relative weights. We also continued to use the hospital-
specific relative value methodology, described above, for determining
the proposed MS-LTC-DRG relative weights for FY 2008.
As noted above in this section, although the proposed adoption of
the MS-LTC-DRGs would result in some modifications of existing
procedures discussed above for assigning relative weights under the
current system (as discussed in detail below), the basic methodology
for developing the proposed FY 2008 MS-LTC-DRG relative weights in the
FY 2008 IPPS proposed rule continue to be determined in accordance with
the general methodology established in the August 30, 2002 LTCH PPS
final rule (67 FR 55989 through 55991) summarized above. With the
implementation of the LTCH PPS for FY 2003, we established a procedure
to address setting relative weights for LTC-DRG ``pairs'' that were
differentiated on the presence or
[[Page 26879]]
absence of CCs (71 FR 47979). As discussed in the FY 2008 IPPS proposed
rule, our proposal to adopt a severity-based patient classification
system for the LTCH PPS, the MS-LTC-DRGs described above, required us
to adapt our existing approach for setting relative weights for the
severity levels within a specific base DRG. We are also proposed to
modify our existing methodology for maintaining monotonicity when
setting relative weights for the proposed MS-LTC-DRGs.
As under the existing procedure, under the proposed MS-LTC-DRGs,
for purposes of the annual setting of the relative weights, there
continue to be three different categories of DRGs based on volume of
cases within specific LTC-DRGs. LTC-DRGs with at least 25 cases are
each assigned a relative weight; low-volume proposed MS-LTC-DRGs (that
is, proposed MS-LTC-DRGs that contain between 1 and 24 cases annually)
are grouped into quintiles (described below) and assigned the weight of
the quintile. Cases with no-volume proposed MS-LTC-DRGs (that is, no
cases in the database were assigned to those proposed MS-LTC-DRGs) are
cross-walked to other proposed MS-LTC-DRGs based on the clinical
similarities and assigned the weight of the quintile that is closest to
the relative weight of the cross-walked proposed MS-LTC-DRG. (For in-
depth discussions of our proposals regarding proposed relative weight
setting for low-volume MS-LTC-DRGs and for no-volume MS-LTC-DRGs, see
the FY 2008 IPPS proposed rule.)
As noted above, for FY 2008, we are proposing to adopt the MS-DRGs
for use in both the LTCH PPS and the IPPS. While the LTCH PPS and the
IPPS use the same patient classification system, the methodology that
is used to set the DRG weights for use in each payment system differs
because the overall volume of cases in the LTCH PPS is much less than
in the IPPS. As a general rule, as described in the FY 2008 IPPS
proposed rule, we are proposing to set the weights for the proposed MS-
LTC-DRGs using the following steps: (1) If an MS-LTC-DRG has at least
25 cases, it is assigned its own relative weight; (2) if an MS-LTC-DRGs
has between 1 and 24 cases, it is assigned to a quintile to which we
will assign a relative weight; and (3) if an MS-LTC-DRG has no cases,
it is cross-walked to another DRG based upon clinical similarities and
assigned the appropriate relative weight. Theoretically, as with the
existing LTC-DRG system, cases under the proposed MS-LTC-DRG system
that are more severe require greater expenditure of medical care
resources and will result in higher average charges. Therefore, in the
three severity levels of the base MS-LTC-DRG, relative weights should
increase with severity, from lowest to highest. If the relative weights
do not increase (that is, if based on the relative weight calculation
using the most recent LTCH claims data, a proposed MS-LTC-DRG with MCC
would have a lower relative weight than one with CC, or the DRG without
CC/MCC would have a higher relative weight than either of the others),
there is a problem with monotonicity.
As discussed above in this section, to account for LTC-DRGs with
low volume (that is, with fewer than 25 LTCH cases), we group those
``low-volume LTC-DRGs'' (that is, DRGs that contained between 1 and 24
cases annually) into one of five categories (quintiles) based on
average charges, for the purposes of determining relative weights. As
discussed in the FY 2008 IPPS proposed rule, we proposed to continue to
employ this treatment of low-volume proposed MS-LTC-DRGs with a
modification to combine proposed MS-LTC-DRGs for the purpose of
computing a relative weight in cases where necessary to maintain
monotonicity in determining the proposed FY 2008 MS-LTC-DRG relative
weights using the best available LTCH data. In that proposed rule,
using LTCH cases from the December 2006 update of the FY 2006 MedPAR
file, we identified 307 proposed MS-LTC-DRGs that contained between 1
and 24 cases. This list of proposed MS-LTC-DRGs was then divided into
one of the 5 low-volume quintiles, each containing a minimum of 61
proposed MS-LTC-DRGs (307/5 = 61, with a remainder of 2 proposed MS-
LTC-DRGs). Consistent with our current methodology, we are proposing to
make an assignment to a specific low-volume quintile by sorting the
low-volume proposed MS-LTC-DRGs in ascending order by average charge.
(See the FY 2008 IPPS proposed rule for further explanation of the
development and composition of each of the 5 low volume quintiles for
FY 2007 and their proposed composition.)
As we noted previously, although the proposed adoption of the MS-
LTC-DRGs would result in some modifications of existing procedures for
assigning relative weights, the proposed FY 2008 MS-LTC-DRG relative
weights presented in Table 11 of the FY 2008 IPPS proposed rule are
based on the methodology established in the August 30, 2002 LTCH PPS
final rule (67 FR 55989 through 55991). In summary, as described in
greater detail in that same proposed rule, LTCH cases would be grouped
to the appropriate proposed MS-LTC-DRG, while taking into account the
low-volume proposed MS-LTC-DRGs as described above, before the proposed
FY 2008 MS-LTC-DRG relative weights can be determined. After grouping
the cases to the appropriate proposed MS-LTC-DRG, we proposed to
calculate the proposed relative weights for FY 2008 by first removing
statistical outliers and cases with a LOS of 7 days or less and to
adjust the number of cases in each proposed MS-LTC-DRG for the effect
of SSO cases under Sec. 412.529. The short-stay adjusted discharges
and corresponding charges are used to calculate ``relative adjusted
weights'' in each proposed MS-LTC-DRG using the HSRV method described
above.
Next we proposed to determine relative weights for the no-volume
proposed MS-LTC-DRGs. As discussed in the FY 2008 IPPS proposed rule,
of the 745 proposed MS-LTC-DRGs for FY 2008, we identified 124 proposed
MS-LTC-DRGs for which there were no LTCH cases in the database. That
is, no patients who would have been classified to those proposed MS-
LTC-DRGs were treated in LTCHs during FY 2006, and therefore, no charge
data were reported for those proposed MS-LTC-DRGs. Thus, in the process
of determining the proposed MS-LTC-DRG relative weights, we are unable
to determine weights for these 124 proposed MS-LTC-DRGs using the
methodology described above. However, because patients with a number of
the diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs
beginning in FY 2008, we are proposing to assign relative weights to
each of the 124 no-volume proposed MS-LTC-DRGs based on clinical
similarity and relative costliness to one of the remaining 621 (745-124
= 621) proposed MS-LTC-DRGs for which we are able to determine proposed
relative weights, based on FY 2006 LTCH claims data. In general, we
determined proposed relative weights for the 124 proposed MS-LTC-DRGs
with no LTCH cases in the FY 2006 MedPAR file used in this proposed
rule by cross-walking these proposed MS-LTC-DRGs to other proposed MS-
LTC-DRGs and then grouping them to the appropriate proposed low-volume
quintile. (A list of the proposed no-volume MS-LTC-DRGs and further
explanation of their proposed FY 2008 relative weight assignment can be
found in the FY 2008 IPPS proposed rule.) We also adjusted the proposed
MS-LTC-DRG relative weights to account for nonmonotonically increasing
relative weights, including any no volume
[[Page 26880]]
proposed MS-LTC-DRGs, where applicable, as described above.
Furthermore, for FY 2008 we proposed to establish proposed MS-LTC-
DRG relative weights of 0.0000 for the following transplant proposed
MS-LTC-DRGs: Heart transplant or implant of heart assist system w MCC
(proposed MS-LTC-DRG 1); Heart transplant or implant of heart assist
system w/o MCC (proposed MS-LTC-DRG 2); Liver transplant w MCC or
intestinal transplant (proposed MS-LTC-DRG 5); Liver transplant w/o MCC
(proposed MS-LTC-DRG 6); Lung transplant (proposed MS-LTC-DRG 7);
Simultaneous pancreas/kidney transplant (proposed MS-LTC-DRG 8); and
Pancreas transplant (proposed MS-LTC-DRG 10). As explained in the FY
2008 IPPS proposed rule, this is because Medicare will only cover these
procedures if they are performed at a hospital that has been certified
for the specific procedures by Medicare and presently no LTCH has been
so certified. If in the future a LTCH applies for certification as a
Medicare-approved transplant center, we believe that the application
and approval procedure would allow sufficient time for us to determine
appropriate weights for the proposed MS-LTC-DRGs affected. At the
present time, we would only include these seven proposed transplant MS-
LTC-DRGs in the GROUPER program for administrative purposes only.
Because we use the same GROUPER program for LTCHs as is used under the
IPPS, removing these proposed MS-LTC-DRGs would be administratively
burdensome. (See the FY 2008 IPPS proposed rule for further details on
the steps for calculating the proposed MS-LTC-DRG relative weights for
FY 2008.)
3. Budget Neutrality (BN) Requirement for the Annual LTC-DRG Update
As noted above in this section, currently under Sec. 412.517, the
LTC-DRG classifications and relative weights are adjusted annually to
reflect changes in factors affecting the relative use of LTCH
resources, such as treatment patterns, technology and number of
discharges. Currently, there are no statutory or regulatory
requirements that the annual update to the LTC-DRG classifications and
relative weights be done in a budget neutral manner. Historically,
since the initial implementation of the LTCH PPS in FY 2003, we have
updated the LTC-DRG relative weights each year without a BN adjustment
based on the most recent available LTCH claims data, which reflect
current LTCH patient mix and coding practices, and appropriately
reflected more or less resource use than the previous year's LTC-DRG
relative weights (71 FR 47991). When we proposed changes to the LTC-
DRGs for FY 2007 in the FY 2007 IPPS proposed rule, we estimated that
those proposed changes to the LTC-DRG classifications and relative
weights would result in about an estimated 1.4 percent decrease in
estimated aggregate LTCH PPS payments (71 FR 24413). As we discussed in
the FY 2007 IPPS final rule (71 FR 47991), several commenters,
including MedPAC, urged us to establish a BN requirement for the annual
reclassification and recalibration of the LTC-DRGs so that, in future
years, the LTCH PPS could avoid an estimated decrease in estimated
aggregate payments, such as the estimated 1.4 percent decrease that
resulted from the proposed update to the LTC-DRGs and relative weights
for FY 2007. In response to previous proposed annual updates to the
LTC-DRG relative weights, we also received comments recommending that a
BN adjustment be applied in determining the LTC-DRG relative weights to
mitigate LTCH PPS payment fluctuations. (See the FY 2005 IPPS final
rule (69 FR 48999 through 49000), and the FY 2006 IPPS final rule (70
FR 47333 through 47334).)
In response to those comments, we explained that we understood the
commenters' concern with the estimated decrease in payments under LTCH
PPS based upon the changes in the LTC-DRGs and relative weights
proposed for FY 2007. However, as we discussed in the FY 2007 IPPS
final rule, we did not postpone the proposed FY 2007 reclassification
and recalibration of the LTC-DRGs, nor did we implement those changes
in a budget neutral manner. We noted several reasons for the annual
fluctuations in LTC-DRG relative weights that have resulted in both
estimated increases and decreases in estimated aggregate LTCH PPS
payments in the 4 years since the implementation of the LTCH PPS in FY
2003. Specifically, we reiterated our belief that several factors have
affected the changes to the LTC-DRG relative weights over the past 4
years, including actual improvements in coding so that cases are
appropriately assigned to LTC-DRGs. We also explained that historically
we recalibrated the LTC-DRG relative weights each year based on the
most recent available LTCH claims data, which reflect current LTCH
patient mix and coding practices, and appropriately reflects more or
less resource use than the previous year's LTC-DRG relative weights.
The intended purpose of the annual recalibration of the LTC-DRG
relative weights is to reflect any variation in coding practices and
charges from the previous year and to help ensure that the LTC-DRG
relative weights in the upcoming fiscal year will result in appropriate
and accurate payments to LTCHs for the resources they expend to treat
their Medicare patients. (71 FR 47984 through 47989)
We also reminded the commenters that under the IPPS, there is a
statutory requirement that the annual DRG reclassification and
recalibration changes be made in a manner that assures that the
estimated aggregate payments are neither greater than nor less than the
estimated aggregate payments that would have been made without the
changes, but there is no corresponding statutory requirement under the
LTCH PPS. However, we noted that, given the considerable discretion
granted to the Secretary under section 123 of the BBRA and section
307(b) of the BIPA of 2000 to develop the LTCH PPS, it is possible
that, at some point, the Secretary would consider using this broad
authority to establish a BN policy for the annual update of the LTC-DRG
classifications and relative weights. We further stated that if we find
that it would be appropriate to propose making the updates to the LTC-
DRGs and relative weights in a budget neutral manner, the public would
have the opportunity to submit comments on any proposed change during
the rulemaking process.
As we discussed in the RY 2007 LTCH PPS proposed rule (72 FR 4784
through 4786), a LTCH's case-mix index (CMI) is defined as its case
weighted average LTC-DRG relative weight for all its discharges in a
given period. Changes in CMI consist of two components: ``real'' CMI
changes and ``apparent'' CMI changes. Real CMI increase is defined as
the increase in the average LTC-DRG relative weights resulting from the
hospital's treatment of more resource intensive patients. Apparent CMI
increase is defined as the increase in CMI due to changes in coding
practices. The computed (or observed) CMI increase is defined as real
CMI increase (due to an increase in patient severity) plus the increase
due to changes in coding practices (including better documentation of
the medical record by physicians and more complete coding of the
medical record by coders). If LTCH patients have more costly
impairments, lower functional status, or increased comorbidities, and
thus require more resources in the LTCH, we consider this a real change
in case-mix. Conversely, if LTCH patients have the same impairments,
functional status, and
[[Page 26881]]
comorbidities but are coded differently resulting in higher payment, we
consider this an apparent change in case-mix. We believe that changes
in payment rates, including the LTC-DRG relative weights, should
accurately reflect changes in LTCHs' true cost of treating patients
(real CMI increase), and should not be influenced by changes in coding
practices (apparent CMI increase).
As stated above in this section, apparent CMI increase results from
cases being grouped to a LTC-DRG with a higher weight than it would be
without such changes in coding practices. As we discussed in the FY
2007 IPPS final rule (71 FR 48343 through 48344), in discussing the
impact of the changes to the LTC-DRG classifications and relative
weights established for FY 2007 that were estimated to result in an
aggregate decrease in LTCH PPS payments of approximately 1.3 percent,
we explained that changes in coding practices (rather than patient
severity) primarily resulted in fluctuations in the LTC-DRG relative
weights in the past. Specifically, based on an analysis of FY 2005 LTCH
claims data, we continued to observe that the average LTC-DRG relative
weight decreases due to an increase of relatively lower charge cases
being assigned to LTC-DRGs with higher relative weights in the prior
year. Contributing to this increase in these relatively lower charge
cases being assigned to LTC-DRGs with higher relative weights in the
prior year are improvements in coding practices, which are typical when
moving from a reasonable cost-based payment system to a PPS. The impact
of including cases with relatively lower charges into LTC-DRGs that had
a relatively higher relative weight in the previous version of the
GROUPER software is a decrease in the average relative weight for those
LTC-DRGs in the updated version of the GROUPER software.
We noted in the RY 2008 LTCH PPS proposed rule (72 FR 4785) that
this same phenomenon of relatively lower charge cases being assigned to
LTC-DRGs with higher relative weights in the prior year was also
observed when we analyzed the LTCH claims data from FY 2003 and FY 2004
to update the LTC-DRG relative weights for FY 2005 and FY 2006,
respectively (see the FY 2005 IPPS final rule (69 FR 48999) and the FY
2006 IPPS final rule (70 FR 47701 through 47702).) However, this
phenomenon was more notable based on the FY 2004 LTCH claims data that
were used to update the LTC-DRG relative weights for FY 2006, where the
changes to the LTC-DRG weights established were estimated to result in
a decrease in aggregate LTCH PPS payments of 4.2 percent (as compared
to the estimated 1.3 percent decrease in aggregate LTCH PPS payments
based on the FY 2005 LTCH claims data used to determine the FY 2007
LTC-DRG relative weights). Because the estimated decrease in aggregate
LTCH PPS payments due to the update to the LTC-DRG relative weights
based on more recent (FY 2005) LTCH claims data was significantly lower
(1.3 percent estimated based on the LTC-DRG changes for FY 2007) than
it was based on FY 2004 LTCH claims data (4.2 percent estimated based
on the LTC-DRG changes for FY 2006), we believe that, as LTCHs have
become more familiar with the ICD-9-CM coding principles and guidelines
used under a DRG-based system, annual changes in LTCH CMI are
approaching the point where the observed CMI increase is primarily due
to changes in real CMI (that is, increased patient severity) rather
than apparent CMI (that is, changes in coding practices). In other
words, because we have observed that, over time as LTCHs have gained
more experience with ICD-9-CM coding, estimated changes in LTCH PPS
payments due to recalibration of the LTC-DRG relative weights based on
more recent claims data (for example, the FY 2007 LTC-DRG relative
weights calculated from FY 2005 LTCH claims data as compared to the FY
2006 LTC-DRG relative weights calculated from FY 2004 LTCH claims data)
have diminished over time. That is, we have estimated smaller
fluctuations in aggregate LTCH PPS payments as a result of the annual
recalibration of the LTC-DRG relative weights based on more recent LTCH
claims data generated after the implementation of the LTCH PPS (for
example, the 1.3 percent estimated decrease in aggregate LTCH PPS
payments for FY 2007 based on FY 2004 LTCH claims data as compared to
the 4.2 percent estimated decrease in aggregate LTCH PPS payments for
FY 2007 based on FY 2005 LTCH claims data).
For these reasons, as discussed in the RY 2008 LTCH PPS proposed
rule (72 FR 4785), we believe that LTCH coding practices have
stabilized such that the most recent available LTCH claims data now
primarily reflect changes in the resources used by the average LTCH
patient in a particular LTC-DRG (and not changes in coding practices).
Thus, we believe that the most recent available data (as described
below in this section) mainly reflect the true costs of treating LTCH
patients, and we believe changes in payment rates, including the LTC-
DRGs, should reflect such costs. Furthermore, in that same proposed
rule, we explained that a LTCH CMI analysis based on the most recent
available LTCH claims data, which is discussed in section IV.C. of this
preamble, also supports our belief that observed CMI increase is
primarily due to changes in real CMI (that is, increased patient
severity) rather than apparent CMI (that is, changes in coding
practices). Specifically, this CMI analysis indicates that changes in
LTCH coding practices, which resulted in fluctuations in the LTC-DRG
relative weights in the past, appear to be stabilizing as LTCHs have
become more familiar with a DRG-based system.
Specifically, this LTCH CMI analysis shows that the overall
observed change in LTCH CMI from FY 2003 compared to FY 2004 was an
increase of approximately 6.75 percent while the overall observed
change in LTCH CMI from FY 2004 compared to FY 2005 was an increase of
approximately 3.49 percent, which is only about half of the LTCH CMI
growth measured from the prior period (that is, the 6.75 percent from
FY 2003 to FY 2004). Furthermore, preliminary analysis of FY 2006 LTCH
claims data, which reflects over 3 full years of experience under the
LTCH PPS for most LTCHs, showed an even smaller overall observed CMI
increase of about 1.9 percent from FY 2005 compared to FY 2006. Again,
the observed CMI increase from FY 2005 to FY 2006 is only about half of
the LTCH CMI growth measured from the prior period (that is, the 3.49
percent from FY 2004 to FY 2005). Because this LTCH CMI analysis shows
that observed CMI is declining, we believe that LTCH coding practices
have stabilized such that changes in LTCH CMI are now primarily due to
changes in real CMI (that is, increased patient severity) rather than
apparent CMI (that is, changes in coding practices). In other words,
because we believe that the observed annual CMI increase is primarily
``real'' and not ``apparent,'' it is no longer necessary to update the
LTC-DRGs in a non-budget neutral manner (as discussed in greater detail
below in this section). As stated above in this section, we believe
that changes in payment rates, including the LTC-DRG relative weights,
should accurately reflect changes in LTCHs' true cost of treating
patients (real CMI increase) and should not be influenced by changes in
coding practices (apparent CMI increase).
In light of these facts, in order to mitigate estimated
fluctuations in estimated aggregate LTCH PPS
[[Page 26882]]
payments, as urged by past commenters, we stated in the RY 2008
proposed rule (72 FR 4785) that we had given further consideration to
the issue of establishing a BN requirement for annual LTC-DRG
reclassification and recalibration. Therefore, in that proposed rule,
under the broad authority conferred upon the Secretary under section
123 of the BBRA as amended by section 307(b) of the BIPA to develop the
LTCH PPS, we proposed that, beginning with the LTC-DRG update for FY
2008, the annual update to the LTC-DRG classifications and relative
weights would be done in a budget neutral manner such that estimated
aggregate LTCH PPS payments would be unaffected, that is, would be
neither greater than nor less than the estimated aggregate LTCH PPS
payments that would have been made without the LTC-DRG classification
and relative weight changes. Accordingly, we proposed to revise Sec.
412.517 to specify that annual changes to the LTC-DRG classifications
and the recalibration of the LTC-DRG relative weights would be made in
a budget neutral manner such that estimated aggregate LTCH PPS payments
are not affected.
Comment: Numerous commenters, including MedPAC, supported our
proposal to recalibrate the LTC-DRGs annually in a budget neutral
manner. Some commenters also recommended that we should monitor the
recalibration so that any reweighting of the LTC-DRGs is conducted in a
manner that does not result in a redistribution of payments from high
acuity DRGs to lower acuity DRGs, pending implementation of revised
certification criteria designed to screen out LTCH inappropriate
patients.
Response: We appreciate the commenters' support of our proposed BN
requirement for the annual LTC-DRG update. As discussed in the RY 2008
LTCH PPS proposed rule (72 FR 4785 through 4786), we explained that we
believe that it would be appropriate to update the LTC-DRG
classifications and relative weights in a budget neutral manner at this
time for the reasons discussed below. As noted above in this section,
the relative weight for each LTC-DRG represents the resources needed by
an average inpatient LTCH case in that LTC-DRG, such that LTCH cases in
a LTC-DRG with a relative weight of 2 will, on average, cost twice as
much as cases in a LTC-DRG with a relative weight of 1.
In the past when we recalibrated the LTC-DRG relative weights each
year without a BN adjustment based on the most recent available LTCH
claims data, we believe that the resulting LTC-DRG relative weights
appropriately reflected more or less resource use than the previous
year's LTC-DRG relative weights, and that the estimated aggregate
payment changes were appropriate given that the LTCH claims data used
to determine those LTC-DRG relative weights reflected changes in coding
practices, as well as changes in actual resource use. Historically, we
have not updated the LTC-DRGs in a budget neutral manner because we
believed that past fluctuations in the LTC-DRG relative weights were
primarily due to changes in LTCH coding practices, which included both
``real'' and ``apparent'' changes in LTCHs' case-mix (as discussed
above in this section). We believe that changes in the LTCH PPS payment
rates, including the LTC-DRG relative weights, should accurately
reflect changes in LTCHs' true cost of treating patients (real CMI
increase), and should not be influenced by changes in coding practices
(apparent CMI increase). Therefore, in the past we did not update the
LTC-DRGs in a budget neutral manner so that ``apparent'' CMI changes
were not permanently built into the LTCH PPS payment rates.
Because LTCH 2006 claims data does not appear to significantly
reflect changes in LTCH coding practices in response to the
implementation of the LTCH PPS (as explained above in this section), we
believe that it may be appropriate to update the LTC-DRGs so that
estimated aggregate LTCH PPS payments would neither increase or
decrease since we believe that changes in the LTC-DRG classifications
and relative weights should accurately reflect changes in LTCHs'
resource use (that is, true cost of treating patients) and should not
be influenced by changes in coding practices, and that the most recent
such LTCH claims data primarily reflects changes in the resources
needed by an average LTCH case in a particular LTC-DRG (and not changes
in coding practices).
Thus, we now believe it would be reasonable and appropriate to
update the LTC-DRGs in a budget neutral manner, beginning in FY 2008,
so that estimated aggregate payments under the LTCH PPS would be
unaffected (that is, estimated aggregate LTCH PPS payments would not be
greater than or less than they would have been without the proposed
LTC-DRG classification and relative weight changes) by any changes
resulting from the annual reclassification and recalibration of the
LTC-DRGs. Updating the LTC-DRGs in a budget neutral manner would result
in an annual update to the individual LTC-DRG classifications and
relative weights based on the most recent available data to reflect
changes in relative LTCH resource use; however, the LTC-DRG relative
weights would be uniformly adjusted to ensure that estimated aggregate
payments under the LTCH PPS would not be affected (that is, decreased
or increased).
In this final rule, under the broad authority conferred upon the
Secretary under section 123 of the BBRA as amended by section 307(b) of
the BIPA to develop the LTCH PPS, beginning with the LTC-DRG update for
FY 2008 (discussed in greater detail below), the annual update to the
LTC-DRG classifications and relative weights will be done in a budget
neutral manner such that estimated aggregate LTCH PPS payments will be
unaffected, that is, will be neither greater than nor less than the
estimated aggregate LTCH PPS payments that would have been made without
the LTC-DRG classification and relative weight changes. Accordingly, we
are revising Sec. 412.517 to specify that annual changes to the LTC-
DRG classifications and the recalibration of the LTC-DRG relative
weights are made in a budget neutral manner such that estimated
aggregate LTCH PPS payments are not affected.
As discussed above, we believe that the most recent available LTCH
claims data reflects the intensity of resource use of the treatment of
Medicare patients based on current LTCH coding and treatment practices.
Accordingly, we believe that annually updating the LTC-DRG relative
weights using the most recent available LTCH claims data reflects more
or less resource use than the previous year's LTC-DRG relative weights
based on the current LTCH practices. Therefore, we believe that any
redistribution in payments as a result of the annual recalibration of
the LTC-DRG relative weights based on this updated LTCH claims data
appropriately reflects LTCH resource use in the treatment of their
Medicare patients. While we will continue to monitor LTCH data,
including any redistribution of payments upon the annual update of the
LTC DRGs, for the reasons discussed above, we are not adopting the
commenters' suggestion to establish a requirement that the annual
recalibration of the relative weights be done in a manner that would
adjust for redistribution of payments from high acuity LTC-DRGs to
lower acuity LTC-DRGs.
As we explained in the RY 2008 LTCH PPS proposed rule (72 FR 4786),
we intend to update the LTC-DRG classifications and relative weights
for FY 2008 based on the best available data
[[Page 26883]]
at the time to allow for changes in factors affecting hospital resource
use, including but not limited to, practice patterns and new
technology. This will be done in a budget neutral manner, such that
estimated aggregate payments under the LTCH PPS would neither decrease
or increase as a result of the changes due to the annual
reclassification and recalibration of the LTC-DRGs. Because we will
continue to use the most recent available LTCH data, the updated LTC-
DRG relative weights will continue to reflect changes in LTCH resource
use (as is the case under the current (non-budget neutral) LTC-DRG
update methodology). Thus, for example, if the most recent LTCH claims
data showed that the resource use for hypothetical LTC-DRG ``ABC'' is
double the resource use for hypothetical LTC-DRG ``XYZ,'' then the
value of the relative weight for LTC-DRG ``ABC'' would be about twice
the value of relative weight for LTC-DRG ``XYZ.''
In addition to accounting for changes in relative resource use, to
include a BN requirement for the annual update to the LTC-DRGs, the
updated LTC-DRG relative weights will need to be uniformly adjusted to
ensure that estimated aggregate LTCH PPS payments will not be affected.
That is, a BN factor will need to be computed to ensure that the LTC-
DRG reclassification and recalibration process, by itself, neither
increases nor decreases estimated aggregate LTCH PPS payments.
As discussed in the FY 2008 IPPS proposed rule, to accomplish BN
when annually updating the LTC-DRG classifications and relative weights
under revised Sec. 412.517, we proposed to use a method that is
similar to the methodology used under the IPPS. (Information on the
IPPS DRG BN adjustment can be found in the FY 2007 IPPS final rule (71
FR 47970).) As noted above, we proposed to adopt the MS-LTC-DRGs for
the LTCH PPS for FY 2008. Therefore, in the discussion that follows, we
will refer to the development of the proposed budget neutrality factor
in terms of the proposed MS-LTC-DRG severity-weighted patient
classification system. Specifically, after recalibrating the proposed
MS-LTC-DRG relative weights, as we do under our existing methodology
(as described in detail in the FY 2007 IPPS final rule (71 FR 47978
through 47981)), as described in greater detail in the FY 2008 IPPS
proposed rule, we would calculate and apply a normalization factor
(which will be published annually in the IPPS proposed and final rules
when we update the LTC-DRGs and relative weights) to the proposed MS-
LTC-DRG relative weights to ensure that estimated aggregate LTCH PPS
payments are not influenced by changes in the composition of case types
or changes made to the classification system. That is, the
normalization adjustment is intended to ensure that the recalibration
of the proposed MS-LTC-DRG relative weights (that is, the process
itself) neither increases nor decreases total estimated payments. To
calculate the normalization factor, we proposed to use the most recent
available claims data (FY 2006) and apply the proposed GROUPER (Version
25.0) to calculate the proposed MS-LTC-DRG relative weights. (We also
proposed to use the most recent available claims data in the analysis
for this final rule.) These weights were determined such that the
average CMI value is 1.0. Then, we proposed to group the same claims
data (FY 2006) using the current GROUPER (Version 24.0) and current
LTC-DRG relative weights. The average CMI was calculated for the claims
data using the current GROUPER and relative weights. Finally, the ratio
of the average CMI of the claims data set under the current GROUPER and
the proposed GROUPER was calculated as the proposed normalization
factor.
For FY 2008, based on the latest available data, the proposed
normalization factor is estimated as 1.020302, which was applied to
each proposed MS-LTC-DRG relative weight. (We also stated that if more
current data become available prior to publication of the final rule,
we will use those data to determine the normalization factor.) That is,
each proposed MS-LTC-DRG relative weight was multiplied by 1.020302 in
the first step of the BN process.
We are also proposed to ensure that estimated aggregate LTCH PPS
payments (based on the most recent available LTCH claims data) after
recalibration (the proposed relative weights) would be equal to
estimated aggregate LTCH PPS payments (for the same most recent
available LTCH claims data) before recalibration (the existing relative
weights). Therefore, we proposed to calculate the BN adjustment factor
by simulating estimated payments under both sets of GROUPERs and
relative weights. We proposed to simulate total estimated payments
under the current payment policies (RY 2007) using the most recent
available claims data (FY 2006) and using the proposed GROUPER (Version
25.0), and normalized relative weights. Then, we proposed to simulate
estimated payments using the most recent available claims data (FY
2006) and apply the proposed GROUPER (Version 25.0). We next calculated
payments using the same claims data (FY 2006) with the current GROUPER
(Version 24.0). The ratio of the estimated average payment under the
current GROUPER and the proposed GROUPER was calculated as the proposed
BN factor. Then each of the proposed normalized relative weights was
multiplied by the proposed BN factor to determine the proposed budget
neutral relative weight for each proposed MS-LTC-DRG. Accordingly,
based on the most recent available data, we proposed to apply a BN
factor of 1.003924 to the relative weights after normalizing. To
calculate the proposed MS-LTC-DRG relative weights for FY 2008, we
obtained total Medicare allowable charges from FY 2006 Medicare LTCH
bill data from the December 2006 update of the MedPAR file, which are
the best available data at that time. We also proposed that if more
current data become available prior to publication of the final rule,
we will use those data to determine the budget neutrality factor. The
proposed FY 2008 MS-LTC-DRG relative weights are presented in Table 11
in the Addendum of the FY 2008 IPPS proposed rule, which reflect the
budget neutral adjustment described above.
In the recently issued FY 2008 IPPS proposed rule, we proposed
significant refinements to the DRGs used under both the IPPS and LTCH
PPS to better recognize severity of illness among patients. The
proposed refinements would be effective October 1, 2007. The proposed
new MS-DRG and MS-LTC-DRG systems present opportunities to acute care
hospitals and LTCHs, respectively, to improve documentation and coding
to receive higher payments without a real increase in patient severity
of illness. The Office of the Actuary estimates an adjustment of -2.4
percent to the IPPS rates for each of FY 2008 and FY 2009 will be
necessary to account for the anticipated improvements in coding and
documentation. In the FY 2008 IPPS proposed rule, we proposed to apply
this -2.4 percent adjustment for case mix increase in FY 2008 and in FY
2009 in both the IPPS and LTCH PPS systems to address the proposed
change to the refined severity DRGs. It should be noted that this
adjustment is not related to the finalized budget neutrality adjustment
included in this LTCH final rule and discussed above. The budget
neutrality adjustment in this rule is an annual requirement that is
needed to assure that annual recalibration of the DRG weights based on
the most recent available claims data, results in no
[[Page 26884]]
changes (increase or decrease) in estimated payments that stem from
updating the DRG weights, while the proposed -2.4 percent adjustment
for FYs 2008 and 2009 is tied solely to the proposed change to the MS-
LTC-DRGs. Accordingly, each of the proposed MS-LTC-DRG relative weights
in Table 11 of the Addendum to the FY 2008 IPPS proposed rule reflects
this proposed adjustment. That is, each proposed MS-LTC-DRG relative
weight was multiplied by a factor of 0.976 to account for changes in
coding or classification of discharges resulting from the proposed
adoption of the new patient classification system. This proposed
adjustment is consistent with the proposed adjustment applied to the
proposed IPPS rates for FYs 2008 and 2009 to eliminate the effect of
changes in coding or classification of discharges that do not reflect
real change in case-mix because we believe that adoption of the
proposed MS-LTC-DRGs would create a risk of increased aggregate levels
of payment as a result of increased documentation and coding.
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
Because the assignment of a case to a particular LTC-DRG or the
proposed MS-LTC-DRG will help determine the amount that will be paid
for the case, it is important that the coding is accurate.
Classifications and terminology used in the LTCH PPS are consistent
with the ICD-9-CM coding scheme and the UHDDS, as recommended to the
Secretary by the National Committee on Vital and Health Statistics
(``Uniform Hospital Discharge Data: Minimum Data Set, National Center
for Health Statistics (NCHS), April 1980'') and as revised in 1984 by
the Health Information Policy Council (HIPC) of the Department of
Health and Human Services (HHS).
We note that the ICD-9-CM coding terminology and the definitions of
principal and other diagnoses of the UHDDS are consistent with the
requirements of the HIPAA Administrative Simplification Act of 1996 (45
CFR part 162). Furthermore, the UHDDS was used as a standard for the
development of policies and programs related to hospital discharge
statistics by both governmental and nongovernmental sectors for over 30
years. In addition, the following definitions (as described in the 1984
Revision of the UHDDS, approved by the Secretary for use starting
January 1986) are requirements of the ICD-9-CM coding system, and have
been used as a standard for the development of the CMS-DRGs:
Diagnoses are defined to include all diagnoses that affect
the current hospital stay.
Principal diagnosis is defined as the condition
established after study to be chiefly responsible for occasioning the
admission of the patient to the hospital for care.
Other diagnoses (also called secondary diagnoses or
additional diagnoses) are defined as all conditions that coexist at the
time of admission, that develop subsequently, or that affect the
treatment received or the LOS or both. Diagnoses that relate to an
earlier episode of care that have no bearing on the current hospital
stay are excluded.
All procedures performed will be reported. This includes
those that are surgical in nature, carry a procedural risk, carry an
anesthetic risk, or require specialized training.
We provide LTCHs with a 60-day window after the date of the notice
of the initial LTC-DRG or proposed MS-LTC-DRG assignment to request
review of that assignment of the discharge to an LTC-DRG or MS-LTC-DRG.
Additional information may be provided by the LTCH to the FI as part of
that review.
2. Maintenance of the ICD-9-CM Coding System
The ICD-9-CM C&M Committee is a Federal interdepartmental
committee, co-chaired by the National Center for Health Statistics
(NCHS) and CMS, which is charged with maintaining and updating the ICD-
9-CM system. The C&M Committee is jointly responsible for approving
coding changes, and developing errata, addenda, and other modifications
to the ICD-9-CM to reflect newly developed procedures and technologies
and newly identified diseases. The C&M Committee is also responsible
for promoting the use of Federal and non-Federal educational programs
and other communication techniques with a view toward standardizing
coding applications and upgrading the quality of the classification
system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
CMS has the lead responsibility for the ICD-9-CM procedure codes
included in the Tabular List and Alphabetic Index for Procedures. The
C&M Committee encourages participation by health-related organizations
in this process and holds public meetings for discussion of educational
issues and proposed coding changes twice a year at the CMS Central
Office located in Baltimore, Maryland. The agenda and dates of the
meetings can be accessed on our Web site at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes
.
As discussed previously in this section, for the IPPS, section
503(a) of the MMA includes a requirement for updating diagnosis and
procedure codes twice a year instead of annual updates on October 1 of
each year. This requirement will improve the recognition of new
technologies under the IPPS by accounting for them in the GROUPER
software at an earlier date. Because this statutory requirement could
have a significant impact on health care providers, coding staff,
publishers, system maintainers, and software systems, among others, we
solicited comments on our proposed provisions to implement this
requirement as part of the FY 2005 IPPS proposed rule (69 FR 28220
through 28221). We responded to comments and published our new policy
regarding the updating of diagnosis and procedure codes (currently the
ICD-9-CM) in the FY 2005 IPPS final rule (69 FR 48953 through 48957).
In addition, we established a policy for the possibility of an April 1
ICD-9-CM diagnosis and procedure code update in the RY 2006 LTCH PPS
final rule (70 FR 24176) since LTCH systems would be expected to
recognize and report those new codes through the channels described in
this section even though no DRG additions or deletions or changes to
relative weights will occur prior to the usual October 1 update. (For
more detailed information on the affect of the statutory mandates
directed at the IPPS as amended by section 503(a) of the MMA, refer to
the FY 2005 IPPS final rule (69 FR 48954 through 48957) and the RY 2007
LTCH PPS final rule (71 FR 27806 through 27808)).
Current addendum and code title information is published on the CMS
Web site at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp.
Summary tables showing new, revised, and deleted code
titles are also posted on the CMS Web site at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/07_summarytables.asp.
Information on ICD-
9-CM diagnosis codes can be found at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/.
Information on new, revised, and deleted
ICD-9-CM codes is also available in the American Hospital Association
(AHA) publication, the Coding Clinic for ICD-9-CM. AHA also distributes
information to publishers and software vendors. We also send copies of
all ICD-9-CM coding changes to our contractors for use in updating
[[Page 26885]]
their systems and providing education to providers. In addition, of
particular note to LTCHs are the invalid diagnosis codes (Table 6C) and
the invalid procedure codes (Table 6D) located in the annual proposed
and final rules for the IPPS. Claims with invalid codes are not
processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
We continue to urge LTCHs to focus on improved coding practices.
Inappropriate coding of cases can adversely affect the uniformity of
cases in each LTC-DRG or proposed MS-LTC-DRG and produce inappropriate
weighting factors at the annual recalibration. Because of concerns
raised by LTCHs concerning correct coding, we have asked the AHA to
provide additional clarification and instruction on proper coding in
the LTCH setting. The AHA will provide this instruction via their
established process of addressing questions through their publication,
the Coding Clinic for ICD-9-CM. Written questions or requests for
clarification may be addressed to the Central Office on ICD-9-CM,
American Hospital Association, One North Franklin, Chicago, IL 60606. A
form for question(s) is available for download and can be mailed on
AHA's Web site at: http://www.ahacentraloffice.org. In addition, current
coding guidelines are available at the NCHS Web site: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm#conv
.
In conjunction with the cooperating parties (AHA, the American
Health Information Management Association (AHIMA), and NCHS), we
reviewed actual medical records and continue to emphasize the
importance of the quality of the documentation under the LTCH PPS.
Based on the LTCH claims data analysis described above in section
III.D.2. of this preamble, we fully believe that with some experience
under a PPS, the quality of the documentation and coding of LTCHs has
improved, as it did for the IPPS. However, because of the need for
proper coding by LTCHs, the cooperating parties will assist their
members with continued improvement in documentation and coding issues
for the LTCHs through specific questions and coding guidelines. The
importance of consistent and complete documentation is emphasized in
the revised ICD-9-CM Official Guidelines for Coding and Reporting: ``A
joint effort between the attending physician and coder is essential to
achieve complete and accurate documentation, code assignment, and
reporting of diagnoses and procedures. The importance of consistent,
complete documentation in the medical record cannot be overemphasized.
Without this documentation, the application of all coding guidelines is
a difficult, if not impossible task'' (Coding Clinic for ICD-9-CM,
Fourth Quarter 2002, page 115).
To improve medical record documentation, LTCHs should be aware that
if the patient is being admitted for continuation of treatment of an
acute or chronic condition, guidelines at Section I.B.10 of the Coding
Clinic for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable for
the selection of principal diagnosis. To clarify coding advice issued
in the August 30, 2002 LTCH PPS final rule (67 FR 55979), at Guideline
I.B.12, Late Effects, we state that a late effect is considered to be
the residual effect (condition produced) after the acute phase of an
illness or injury has terminated (Coding Clinic for ICD-9-CM, Fourth
Quarter 2002, page 129). Regarding whether a LTCH should report the
ICD-9-CM code(s) for an unresolved acute condition instead of the
code(s) for late effects of rehabilitation, we emphasize that each case
must be evaluated on its unique circumstances and coded appropriately.
Depending on the documentation in the medical record, either a code
reflecting the acute condition or rehabilitation could be appropriate
in a LTCH.
Since implementation of the LTCH PPS, our Medicare FIs have
conducted training and provided assistance to LTCHs in correct coding.
We have also issued manuals containing procedures, as well as coding
instructions to LTCHs and FIs. We will continue to conduct training and
provide guidance on an ``as needed'' basis. We also refer readers to
the detailed discussion on correct coding practices in the August 30,
2002 LTCH PPS final rule (67 FR 55981 through 55983). Additional coding
instructions and examples will be published in the Coding Clinic for
ICD-9-CM.
IV. Changes to the LTCH PPS Payment Rates for the 2008 LTCH PPS Rate
Year
A. Overview of the Development of the Payment Rates
The LTCH PPS was effective beginning with a LTCH's first cost
reporting period beginning on or after October 1, 2002. Effective with
that cost reporting period, LTCHs are paid, during a 5-year transition
period, a total LTCH prospective payment that is comprised of an
increasing proportion of the LTCH PPS Federal rate and a decreasing
proportion based on reasonable cost-based principles, unless the
hospital makes a one-time election to receive payment based on 100
percent of the Federal rate, as specified in Sec. 412.533. New LTCHs
(as defined at Sec. 412.23(e)(4)) are paid based on 100 percent of the
Federal rate, with no phase-in transition payments.
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth at Sec. 412.515 through Sec. 412.532. In
this section, we discuss the factors that will be used to update the
LTCH PPS standard Federal rate for the 2008 LTCH PPS rate year that
will be effective for LTCH discharges occurring on or after July 1,
2007 through June 30, 2008. When we implemented the LTCH PPS in the
August 30, 2002 LTCH PPS final rule (67 FR 56029 through 56031), we
computed the LTCH PPS standard Federal payment rate for FY 2003 by
updating the latest available (FY 1998 or FY 1999) Medicare inpatient
operating and capital cost data, using the excluded hospital market
basket.
Section 123(a)(1) of the BBRA requires that the PPS developed for
LTCHs be budget neutral for the initial year of implementation.
Therefore, in calculating the standard Federal rate under Sec.
412.523(d)(2), we set total estimated LTCH PPS payments equal to
estimated payments that would have been made under the reasonable cost-
based payment methodology had the PPS for LTCHs not been implemented.
Section 307(a) of the BIPA specified that the increases to the
hospital-specific target amounts and the cap on the target amounts for
LTCHs for FY 2002 provided for by section 307(a)(1) of the BIPA shall
not be considered in the development and implementation of the LTCH
PPS.
Furthermore, as specified at Sec. 412.523(d)(1), the standard
Federal rate is reduced by an adjustment factor to account for the
estimated proportion of outlier payments under the LTCH PPS to total
estimated LTCH PPS payments (8 percent). For further details on the
development of the FY 2003 standard Federal rate, see the August 30,
2002 LTCH PPS final rule (67 FR 56027 through 56037), and for
subsequent updates to the LTCH PPS Federal rate, refer to the following
final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140),
RY 2005 LTCH PPS final rule (69 FR 25682 through 25684), RY 2006 LTCH
PPS final rule (70 FR 24179 through 24180), and RY 2007 LTCH PPS final
rule (71 FR 27819 through 27827).
[[Page 26886]]
B. LTCH PPS Market Basket
1. Overview of the RPL Market Basket
Historically, the Medicare program has used a market basket to
account for price increases of the services furnished by providers. The
market basket used for the LTCH PPS includes both operating and
capital-related costs of LTCHs because the LTCH PPS uses a single
payment rate for both operating and capital-related costs. The
development of the LTCH PPS standard Federal rate, using the excluded
hospital with capital market basket, is discussed in further detail in
the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033).
In the August 30, 2002 final rule (67 FR 56016 through 56017 and
56030), which implemented the LTCH PPS, we established the use of the
excluded hospital with capital market basket as the LTCH PPS market
basket. The excluded hospital with capital market basket was also used
to update the limits on LTCHs' operating costs for inflation under the
TEFRA reasonable cost-based payment system. We explained that we
believe the use of the excluded hospital with capital market basket to
update LTCHs' costs for inflation was appropriate because the excluded
hospital market basket (with a capital component) measures price
increases of the services furnished by excluded hospitals, including
LTCHs. For further details on the development of the excluded hospital
with capital market basket, see the RY 2004 LTCH PPS final rule (68 FR
34134 through 34137).
In the RY 2007 LTCH PPS final rule (71 FR 27810), we noted that
based on our research, we did not develop a market basket specific to
LTCH services. We are still unable to create a separate market basket
specifically for LTCHs due to the small number of facilities and the
limited amount of data that is reported (for instance, only
approximately 15 percent of LTCHs reported contract labor cost data for
2002). In that same final rule, under the broad authority conferred
upon the Secretary by section 123 of the BBRA as amended by section
307(b) of the BIPA, we adopted the ``Rehabilitation, Psychiatric and
Long-Term Care (RPL) market basket'' as the appropriate market basket
of goods and services under the LTCH PPS for discharges occurring on or
after July 1, 2006. Specifically, beginning with the 2007 LTCH PPS rate
year, for the LTCH PPS, we adopted the use of the RPL market basket
based on FY 2002 cost report data as it was the best available data. We
choose to use the FY 2002 Medicare cost reports because these are the
most recent, relatively complete cost data for inpatient rehabilitation
facilities (IRFs), inpatient psychiatric facilities (IPF), and LTCHs.
The RPL market basket is determined based on the operating and
capital costs of IRFs, IPFs and LTCHs. Since all IRFs are now paid
under the IRF PPS Federal payment rate, nearly all LTCHs are paid 100
percent of the Federal rate under the LTCH PPS, and most IPFs are
transitioning to payment based on 100 percent of the Federal per diem
payment amount under the IPF PPS (payments to IPFs will be based
exclusively on 100 percent of the Federal rate for cost reporting
periods beginning on or after January 1, 2008), the RPL market basket
reflects changes in the operating and capital costs for these
hospitals. As we explained in that same final rule, we believe a market
basket based on the data of IRFs, IPFs and LTCHs is appropriate to use
under the LTCH PPS since it is the best available data that reflects
the cost structures of LTCHs.
For further details on the development of the RPL market basket,
including the methodology for determining the operating and capital
portions of the RPL market basket, see the RY 2007 LTCH PPS final rule
(71 FR 27810 through 27817).
2. Market Basket Estimate for the 2008 LTCH PPS Rate Year
Consistent with our historical practice, we estimate market basket
increase based on Global Insight's forecast using the most recent
available data. The most recent estimate of the RPL market basket for
July 1, 2007 through June 30, 2008 (the 2008 LTCH PPS rate year), based
on Global Insight's 1st quarter 2007 forecast with history through the
4th quarter of 2006, is 3.2 percent. Global Insight, Inc. is a
nationally recognized economic and financial forecasting firm that
contracts with CMS to forecast changes in the components of the market
baskets. Consistent with our historical practice of using market basket
estimates based on the most recent available data, we are finalizing
3.2 percent as the estimate of the RPL market basket for the 2008 LTCH
PPS rate year.
As discussed in greater detail in this section, for the 2008 LTCH
PPS rate year, we are updating the standard Federal rate by 0.71
percent. The update reflects an adjustment based on the most recent
market basket estimate (currently 3.2 percent) and an adjustment to
account for the increase in case-mix in the prior period (FY 2005) that
resulted from changes in coding practices rather than an increase in
patient severity.
C. Standard Federal Rate for the 2008 LTCH PPS Rate Year
1. Background
At Sec. 412.523(c)(3)(ii), for LTCH PPS rate years beginning RY
2004 through RY 2006, we updated the standard Federal rate to adjust
for the most recent estimate of the projected increases in prices for
LTCH inpatient hospital services. We established the policy of annually
updating the standard Federal rate by the increase factor described in
the RY 2004 LTCH PPS final rule (68 FR 34138) because at that time we
believed that was the most appropriate method for updating the LTCH PPS
standard Federal rate annually for years after FY 2003. When we moved
the date of the annual update of the LTCH PPS from October 1 to July 1
in the RY 2004 LTCH PPS final rule (68 FR 34138), we revised Sec.
412.523(c)(3) to specify that for LTCH PPS rate years beginning on or
after July 1, 2003, the annual update to the standard Federal rate for
the LTCH PPS would be equal to the previous rate year's Federal rate
updated by the most recent estimate of increases in the appropriate
market basket of goods and services included in covered inpatient LTCH
services. We believed that was the most appropriate method for updating
the LTCH PPS standard Federal rate annually for years after RY 2004. In
the RY 2007 LTCH PPS final rule (71 FR 27818), we established at Sec.
412.523(c)(3)(iii) that the update to the standard Federal rate for the
2007 LTCH PPS rate year is zero percent. As discussed in that same
final rule, we explained that rather than solely using the most recent
estimate of the LTCH PPS market basket as the basis of the update
factor for the Federal rate for RY 2007, we believed it was appropriate
to adjust the rate to account for the changes in coding practices
(rather than patient severity) as indicated by our ongoing monitoring
activities.
Accordingly, we established the LTCH PPS standard Federal rate,
effective from July 1, 2006 through June 30, 2007 (the 2007 LTCH PPS
rate year), at $38,086.04 (71 FR 27818). Additionally, in the RY 2007
LTCH PPS proposed rule (71 FR 4742 through 4747), we provided a
description of a preliminary model of an update framework under the
LTCH PPS. We received few comments on that update framework preliminary
model. As discussed in the RY 2007 LTCH PPS final rule (71 FR 27818
through 27819 and 27902 through 27906), although we did not propose to
adopt an analytical
[[Page 26887]]
update framework, we continued to solicit comments on the framework
based on the preliminary model, using the best available data and
concepts, and we may propose to adopt a framework at some time in the
future. While we did not receive any comments regarding the update
framework during the public comment period for the RY 2008 LTCH PPS
proposed rule, we continue to be interested in comments and suggestions
on the preliminary model of an update framework under the LTCH PPS that
was present in Appendix A of the RY 2007 LTCH PPS final rule (71 FR
27902 through 27906).
In the discussion that follows, we explain how we developed the
standard Federal rate for the 2008 LTCH PPS rate year. Specifically, we
explain our rationale, which is based on our ongoing monitoring
activities, for implementing an annual update to the standard Federal
rate for RY 2008 that reflects an adjustment for the most recent market
basket estimate and an adjustment to account for the increase in case-
mix in a prior period (FY 2005) that resulted from changes in coding
practices rather than an increase in patient severity.
2. Update to the Standard Federal Rate for the 2008 LTCH PPS Rate Year
Under Sec. 412.523(c)(3)(ii), for RY 2004 through RY 2006, the
annual update to the LTCH PPS standard Federal rate was equal to the
most recent estimate of increases in the prices of an appropriate
market basket of goods and services included in covered inpatient LTCH
services. As noted above in this section, in the RY 2007 LTCH PPS final
rule, under the broad authority conferred upon the Secretary by section
123 of the BBRA as amended by section 307(b) of BIPA to include
appropriate adjustments in the establishment of the LTCH PPS, for
discharges occurring on or after July 1, 2006 and on or before June 30,
2007 (RY 2007), we specified at Sec. 412.523(c)(3)(iii) that the
standard Federal rate from the previous year would be updated by a
factor of zero percent. That is, the standard Federal rate for the 2007
LTCH PPS rate year remained the same as the standard Federal rate in
effect during the 2006 LTCH PPS rate year (July 1, 2005 through June
30, 2006) (that is, $38,086.04).
As discussed in greater detail in the RY 2007 LTCH PPS final rule
(71 FR 27819 through 27827), the update to the standard Federal rate
for RY 2007 was determined based on the estimate of the LTCH PPS market
basket and an analysis of LTCH case-mix, in conjunction with a review
of LTCHs' margins and our ongoing LTCH monitoring activities.
Specifically, from our CMI analysis, we calculated the observed CMI
increase between FY 2003 and FY 2004 (6.75 percent) and determined that
a significant portion of the 6.75 percent increase in CMI between FY
2003 and FY 2004 is due to changes in coding practices, which we define
as ``apparent'' increase in case-mix, rather than the treatment of more
resource intensive patients. We also noted that the large observed
increase in LTCH case-mix was not accompanied by a corresponding
increase in Medicare costs. Finally, we noted in the RY 2007 LTCH PPS
final rule (71 FR 27826 through 27827) that although the most recent
update of the market basket discussed in that final rule is 0.2 percent
lower than the estimate of the market basket discussed in the RY 2007
LTCH PPS proposed rule, we believed that finalizing a zero percent
update to the Federal rate for RY 2007 was appropriate for several
reasons.
First, we did not believe that there was a significant difference
between the most recent estimates of the market basket for RY 2007 (3.4
percent) and the estimate used in the RY 2007 LTCH PPS proposed rule
(3.6 percent). Furthermore, there could be some minimal variation in
how much of the observed case-mix increase represents real case-mix
changes. Finally, because the proposed update for RY 2007 at Sec.
412.523(c)(3)(iii) explicitly specified that the RY 2007 standard
Federal rate would be the previous LTCH PPS rate year updated by an
update factor of zero percent, we believe some commenters may not have
been aware that the final update for RY 2007 could have been different
than (that is, greater than or less than) zero percent. Thus, we
believed that the best approach was to adopt an update factor of zero
percent in the final rule for RY 2007, which reflected both the market
basket estimate and an adjustment to account for the increase in case-
mix in a prior period (FY 2004) that resulted from changes in coding
practices rather than an increase in patient severity. In that same
final rule (71 FR 27821), we stated that the revision to Sec.
412.523(c)(3) only addressed an update to the LTCH PPS Federal rate for
the 2007 LTCH PPS rate year (Sec. 412.523(c)(3)(iii)), and that we
would propose future revisions to Sec. 412.523(c)(3) to address future
proposed updates to the LTCH PPS Federal rates in future rate years
based on an analysis of the most recent available LTCH data.
In determining the update to the standard Federal rate for the 2008
LTCH PPS rate year, we again performed a CMI analysis using the most
recent available LTCH claims data and found the observed CMI increase
between FY 2004 and FY 2005 to be 3.49 percent. We believe that there
is still some component of apparent CMI increase within the observed
CMI increase of 3.49 percent that is due to coding practices rather
than the treatment of more resource intensive patients (real CMI
increase). Therefore, we believe it is appropriate to apply an
adjustment to the market basket update for RY 2008 to account for the
apparent CMI increase for a subsequent prior period (that is, CMI
increase due to changes in coding practices during FY 2005).
Comment: Many commenters urged us to provide the full market basket
update rather than finalize the proposed update factor of 0.71 percent.
Several commenters maintained that market basket is a measure of the
expected increase in price inputs for the upcoming year that raise the
cost of resources used in providing care to Medicare patients.
Furthermore, some commenters believed that an increase of less than the
market basket would not account for the costs of goods and services
required to deliver LTCH services and will result in rates below the
cost of care.
Response: As we have discussed previously in the RY 2007 final rule
(71 FR 27798), as well as throughout this section of the preamble of
this final rule, while we continue to believe that an update to the
2008 LTCH PPS rate year should be based on the most recent estimate of
the LTCH PPS market basket, we also believe it appropriate that the
rate be adjusted by an adjustment to account for changes in coding
practices. In essence, we updated the standard Federal rate for the
2008 LTCH PPS rate year by a factor (+3.2 percent) for the full market
basket in addition to applying a factor (-2.49 percent) to eliminate
the effect of coding or classification changes that do not reflect real
changes in LTCHs' case-mix during FY 2005. This adjustment is necessary
in order to account for payments that were made based on improved
coding (rather than increased patient severity) in a prior year.
We note that MedPAC had recommended a zero percent update for RY
2008 (March 2007 MedPAC Report to Congress, MedPAC Payment Policy,
Recommendation 3D, p. 221) and that the proposed update factor of 0.71
percent is higher than what MedPAC had believed appropriate at the
time. Therefore, we disagree with the comment that an increase of less
than the market basket would not account for the costs of goods and
services required
[[Page 26888]]
to deliver LTCH services and will result in rates below the cost of
care.
Comment: Several commenters noted that in addition to case mix,
other elements that would affect the price of inputs include wages,
drugs, products, and supplies; therefore, the commenters question our
use of ``case-mix as determinative of an appropriate market basket
increase.'' A commenter also noted that ``the market basket update is a
prospective measure of price inflation, and CMS provides no data
suggesting that prices will not increase by 3.2 percent over RY 2008.
CMS also does not provide any data showing that prices from 2004 to
2005 and from 2005 to 2006 (years included in the agency's case-mix
analysis) increased less than the market basket update amount for those
years.'' Consequently, the commenter believed that we have not
explained adequately how case mix changes are related to the market
basket to warrant a reduction in the full market basket.
Response: We believe these commenters misunderstood our approach in
applying the findings from our case mix analysis. First, we do not
disagree that the estimated market basket is a prediction of the
increase in the costs of goods and services in the coming year.
Accordingly, we have based the update to the standard Federal rate each
year since RY 2004 on the most recent estimate of the market basket.
For RY 2004 through RY 2006, the annual update to the LTCH PPS standard
Federal rate was equal to the most recent estimate of the market
basket. Beginning in RY 2007, our monitoring activities and CMI
analysis determined that a significant portion of the observed increase
in CMI between FY 2003 and FY 2004 is due to changes in coding
practices, rather than the treatment of more resource intensive
patients. Accordingly, we updated the standard Federal rate for RY 2007
based both on the full estimate of market basket and an adjustment to
account for the excessive payments that were made based on improved
coding (rather than increased patient severity) in a prior period
(between FY 2003 and FY 2004) which consequently resulted in a zero
percent update. This approach was replicated for RY 2008 which resulted
in a net update to the rate for RY 2008 of 0.71 percent.
Comment: Some commenters believed there is no regulatory basis for
CMS to adjust the market basket update to account for apparent case-mix
increase in a previous year. Specifically, a commenter wrote, ``Other
than the availability of data, CMS provides no logical explanation as
to why an estimation of the ``apparent'' increase in case-mix derived
from FY 2004 and FY 2005 claims should be applied to the market basket
increase in RY 2008.'' Furthermore, some commenters believed the
proposed update factor of 0.71 percent is not based on verifiable or
relevant data.
Response: Section 123 of the BBRA as amended by section 307(b) of
the BIPA conferred upon the Secretary broad discretion to determine the
standard rate and make appropriate adjustments to the system. We note
that while Sec. 412.523(c)(3) specifies the update to the standard
rate for each year since FY 2003, the regulations do not specifically
require that the Secretary automatically apply a market basket increase
to prospective years. On the contrary, the regulations are to be
updated each year to reflect any update to the standard rate as a
result of rulemaking. Furthermore, we consistently use the most recent
available data to determine the appropriate update factor. Accordingly,
for this final rule we used the most recent available data, including
the most recent estimate of the RPL market basket for July 1, 2007
through June 30, 2008, based on Global Insight's 1st quarter 2007
forecast with history through the 4th quarter of 2006, and the case-mix
data from FY 2004 compared to FY 2005, to establish the 0.71 percent
update factor.
As discussed in detail in the RY 2007 LTCH PPS final rule (71 FR
27819 through 27827), in determining the update to the LTCH PPS Federal
rate for RY 2007, we used 2.75 percent as the proxy for ``real'' CMI
change during RY 2004. We noted in that same final rule (71 FR 27822)
that we were aware of a well-established RAND Corporation (RAND) study
[``Has DRG Creep Crept Up? Decomposing the Case-Mix Index Change
Between 1987 and 1988'' by G. M. Carter, J. P. Newhouse, and D. A.
Relles, R-4098-HCFA/ProPAC (1991)]. Based upon such study, we
determined that real case-mix change for IPPS hospitals was a fairly
steady 1.0 and 1.4 percent per year. We also noted that in updating
IPPS rates, we have consistently assumed that real case-mix change was
between 1.0 to 1.4 percent per year, which is a more conservative
estimate of real case-mix increase than the 2.75 percent used in
determining the update to the Federal rate for RY 2007 (71 FR 27822).
For further information on the update to the Federal rate for RY 2007,
see the RY 2007 final rule (71 FR 27819 through 27827).
For this final rule, the CMI analysis performed in determining the
Federal rate update for RY 2008 is based on the observed CMI increase
from FY 2004 to FY 2005 (the first and second full years of the LTCH
PPS, respectively). We believe that as the LTCH PPS matured and LTCHs
have become more familiar with the DRG-based payment system, it is more
appropriate to utilize the estimate of real case-mix increase (1.0
percent to 1.4 percent) based on the RAND study that is typically found
in acute care hospitals under the IPPS. Furthermore, an analysis of the
most recent available LTCH claims data (FY 2005 LTCH claims data from
the March 2006 update of the MedPAR files) show a steady decrease in
the observed CMI from year to year since FY 2003 (the observed CMI
change between FY 2003 and FY 2004 is 6.75 percent, between FY 2004 and
FY 2005 is 3.49 percent, and between FY 2005 and FY 2006 is estimated
to be 1.9 percent), which suggests that both apparent and real
components of CMI are decreasing as the LTCH PPS matures. Given the
estimated 1.9 percent observed CMI increase for FY 2006, it appears
that it is inappropriate to assume a constant annual real case mix of
2.75 percent.
Therefore, for periods beyond the first full year of the LTCH PPS,
we believe it is no longer appropriate to use such a generous estimate
of real CMI. (Many LTCHs have cost reporting periods beginning in
August and thus were not paid under the LTCH PPS until August 2003. For
those hospitals, the first full year of the LTCH PPS was during FY
2004.) While the well-established ``real'' case-mix parameters based on
the RAND study are based on IPPS data, we believe they are appropriate
to apply under the LTCH PPS for the reasons explained below in this
section. In the RY 2008 LTCH PPS proposed rule, we solicited comments
on other data sources that could be used to determine a proxy for real
LTCH PPS case-mix change other than the 1.0 to 1.4 percent per year
case-mix parameters based on the RAND study. Although we did not
receive any comments suggesting alternative data sources that could be
used to determine a proxy for real LTCH PPS case-mix change, we did
receive comments pertaining to using 1.0 as the proxy for real case
mix.
As we have discussed numerous times in previous LTCH PPS proposed
and final rules, acute care hospitals paid under the IPPS and LTCHs
paid under the LTCH PPS have much in common. Hospitals paid under both
systems are required to meet the same certification criteria set forth
in section 1861(e) of the Act to participate as a hospital in the
Medicare program. LTCHs are certified as acute care hospitals but are
classified as LTCHs for payment purposes solely because such hospitals
generally have
[[Page 26889]]
an inpatient ALOS of greater than 25 days (as set forth in section
1886(d)(1)(B)(iv)(I) of the Act). Furthermore, the LTCH PPS uses the
same patient classification system that is used under the IPPS, and
several LTCH PPS payment policies, such as the area wage adjustment
(Sec. 412.525(c)), COLA for Alaska and Hawaii (Sec. 412.525(b)), and
high cost outlier (HCO) policy (Sec. 412.525(a)) are modeled after the
similar IPPS policies.
Therefore, we believe it is appropriate to utilize the estimate of
real CMI increase based on the RAND study of 1.0 percent as the proxy
for the portion of the observed 3.49 percent CMI increase from FY 2004
to FY 2005 that represents real CMI changes for use in determining the
proposed RY 2008 Federal rate update. We are using the more
conservative 1.0 percent (rather than the 1.4 percent) as a proxy for
real CMI increase because it is consistent with what is used under the
IPPS and we believe the similarities between LTCHs and acute care
hospitals are significant as we explained previously. (For a more
detailed discussion on the 1.0 percent for real CMI increase utilized
in the IPPS, see the FY 2007 IPPS final rule (71 FR 48156 through
48158), and the FY 1994 IPPS proposed rule (58 FR 30444).) Accordingly,
since the observed CMI change for FY 2005 is estimated at 3.49 percent
(based on the most recent available LTCH case-mix data from FY 2004
compared to FY 2005), accounting for the real CMI change of 1.0
percent, we believe that 2.49 percent (3.49-1.0 = 2.49) of that
increase reflects CMI increase that is due to changes in coding
practices (rather than patient severity).
Comment: Some commenters disagreed with our estimate of real case
mix increase which is based on a study of acute care hospitals
conducted by RAND using claims data from 1987 to 1988. The commenters
did not believe the old data from acute care hospitals is relevant to
LTCHs.
Response: As we have discussed numerous times in previous LTCH PPS
proposed and final rules, as well as in the previous section of this
preamble, we continue to believe that acute care hospitals paid under
the IPPS and LTCHs paid under the LTCH PPS have much in common.
Hospitals paid under both systems are required to meet the same
certification criteria set forth in section 1861(e) of the Act to
participate as a hospital in the Medicare program. The commenters did
not provide any alternative data sources to determine real case mix for
LTCHs. Accordingly, we continue to believe that it is appropriate to
utilize the same 1.0 percent factor to project real case mix for both,
the IPPS and the LTCH PPS.
Comment: Some commenters believed we proposed to use the more
conservative estimate of real case-mix increase (1.0 percent) rather
than the upper bound based on the RAND study (1.4 percent) without
sufficient justification. However, commenters agreed that we requested
comments on other data sources that could be used to determine a proxy
for real LTCH PPS case-mix changes. While we did not receive any
comments providing alternative data sources to determine real case-mix
increase, several commenters suggested that the best proxy for real
case-mix increase is the observed case-mix increase adjusted to
eliminate any provider with atypical case mix changes.
Response: We continue to believe that using the more conservative
1.0 percent (rather than the 1.4 percent) as a proxy for real CMI
increase is appropriate because it is consistent with what is used
under the IPPS and we believe the similarities between LTCHs and acute
care hospitals are significant as we explained previously.
As we discussed in greater detail in the RY 2007 LTCH PPS final
rule (71 FR 27819 through 27827), while we continue to believe that an
update to the LTCH PPS Federal rate year should be based on the most
recent estimate of the LTCH PPS market basket, we believe it
appropriate that the rate be offset by an adjustment to account for
changes in coding practices that do not reflect increased patient
severity. Such an adjustment protects the integrity of the Medicare
Trust Funds by ensuring that the LTCH PPS payment rates better reflect
the true costs of treating LTCH patients (71 FR 27798 through 27820).
Therefore, in determining the RY 2008 update to the LTCH PPS Federal
rate, we believe it is appropriate to apply an adjustment to eliminate
the effect of coding or classification changes in a prior period (FY
2005) that do not reflect real changes in LTCHs' case-mix.
Specifically, the case-mix adjustment in determining the RY 2008
Federal rate is meant to reduce current payments to account for the
increase in payments in FY 2005 that resulted from the CMI increase
that was attributable to the apparent case-mix increase in that year.
As was the case when we determined the RY 2007 update factor, this
adjustment would be necessary to account for payments that were made
based on improved coding (rather than increased patient severity) in
prior years. Therefore, in this final rule, under the broad authority
conferred upon the Secretary by section 123 of the BBRA as amended by
section 307(b) of the BIPA to include appropriate adjustments,
including updates, in the establishment of the LTCH PPS, we are
revising Sec. 412.523(c)(3), to specify that, for discharges occurring
on or after July 1, 2007 and on or before June 30, 2008, the standard
Federal rate from the previous year will be updated by 0.71 percent,
which is based on the most recent market basket estimate (3.2 percent)
adjusted by the apparent CMI (2.49 percent) due to changes in coding
practice rather than an increase in patient severity. As explained
above in this section, the update factor for RY 2008 is based on the
most recent estimate of the LTCH PPS market basket offset by an
adjustment to account for changes in case-mix in prior periods due to
changes in coding practices rather than increased patient severity. We
note that the update factor of 0.71 percent is higher than the zero
percent update recommended by the MedPAC for RY 2008 (MedPAC Public
Meeting, January 9, 2007, Meeting Transcript pp. 225-226). In the RY
2008 LTCH PPS proposed rule, we solicited comments on a possible zero
percent update to the standard Federal rate for RY 2008. While most
commenters recommended a full market basket update, we did receive some
comments noting that in light of MedPAC's recommendation of a zero
percent update, the commenters were pleased that we did not propose to
implement a zero percent update and the commenters supported our
proposal of a 0.71 percent update.
Furthermore, since we are using the most recent estimates of the
market basket and CMI increase in the prior period (FY 2005) for
calculating the update factor to the LTCH PPS Federal rate, we noted in
the proposed rule that at the time the analysis must be performed for
the final rule, we would consider comments received on this proposed
rule and would also use the most recent estimates available at that
time, if appropriate, which may be different from the data used in the
proposed rule. Therefore, we explained that the proposed update factor
applied to the standard Federal rate may change in the final rule.
At this time, the most recent estimate of the LTCH PPS market
basket remains at 3.2 percent, and based on FY 2005 LTCH claims data
from the March 2006 update of the MedPAR files, the most recent
estimate of apparent CMI increase in the prior period (FY 2005), that
is, case-mix increase due to changes in coding practices, also remains
at 2.49 percent. Additionally, since we did not receive any comments
suggesting alternative data sources to use in
[[Page 26890]]
determining a proxy for real case mix and for the reasons stated
previously, we are continuing to use 1.0 percent as the proxy for the
real case mix. Therefore, the RY 2008 update factor to the LTCH PPS
Federal rate will be 0.71 percent (3.2-2.49 = 0.71), which reflects the
adjustment to the most recent market basket estimate and accounts for
the increase in case-mix in the prior period that resulted from changes
in coding practices rather than an increase in patient severity.
Accordingly, under the same broad authority conferred upon the
Secretary under the BBRA and the BIPA referenced above in this section,
we are specifying under Sec. 412.523(c)(3)(iv), that, for discharges
occurring on or after July 1, 2007 and on or before June 30, 2008, the
standard Federal rate from the previous year would be updated by 0.71
percent, determined based on an adjustment to the most recent estimate
of the market basket to account for case-mix increase in the prior
period (FY 2005) that is due to changes in coding practices rather than
patient severity.
Comment: Numerous commenters stated that we have made changes to
the LTCH PPS in the last several years that have slowed the growth in
the number of new LTCHs and has controlled margins. The commenters
believe that the cumulative effect of these payment changes, including
the reweighting of the DRGs in October 2005 and October 2006, the
adoption of the original 25 percent rule, the adjustments to the SSO
policy, and a zero percent update for RY 2007, has been to bring LTCH
margins close to zero. With the addition of the proposed payment
changes for RY 2008, the commenters believe that payment to LTCHs will
be inadequate. Using our impact analysis table from the proposed rule
and MedPAC's estimated margins for FY 2007 as a base for comparison,
two commenters attempted to estimate LTCHs' margins for RY 2008. The
commenters asserted that, according to their analyses, estimated
margins for RY 2008 could be as low as -3.7 percent to -5.7 percent.
Numerous commenters expressed concern that the combined effect of
changes to the LTCH PPS (from the last 2 years, as well as the proposed
changes for RY 2008) would reduce reimbursement below the estimates of
costs. Furthermore, one commenter wrote, ``A fundamental premise of the
Medicare program and its payment systems is that Medicare should not
knowingly reimburse providers and suppliers below the cost of care.''
Response: We acknowledge that the changes to the payment system
implemented in the last several years have affected the LTCH industry.
In fact, we have observed that LTCHs adapt to our regulatory changes by
modifying their business model to maximize profitability while
operating under the new changes. For example, when we implemented the
25 percent (or applicable percentage) threshold payment adjustment in
FY 2005 for co-located LTCHs and satellites, we are aware that LTCHs
shifted emphasis from developing co-located facilities to developing
freestanding LTCHs. With the proposed expansion of the 25 percent (or
applicable percentage) threshold payment adjustment to apply to LTCH or
satellite patients that were admitted from referring hospitals not co-
located with the LTCH or the satellite of a LTCH, we anticipate that
LTCHs could adapt by increasing the number of admissions of patients
that are HCOs from referring hospitals (exempt from the 25 percent
rule). In addition, since LTCHs on average get 20 percent of their
discharges from sources other than acute care hospitals, it will be
possible for LTCHs to adapt by admitting more of those types of
patients, thus making it easier for a LTCH to stay within the
applicable threshold. We have also been informed by members of the LTCH
industry that in places where there are multiple acute care hospitals,
the LTCHs will be able to plan their discharges to assure that they do
not exceed the threshold.
Consequently, while the commenters have conducted margins analyses
based on current LTCH behaviors and assert that our changes may result
in negative margins, we do not believe this will prove to be the case.
Indeed, commenters made similar allegations in their objection to the
changes for RY 2007, and predicted that we would see many LTCHs put out
of business due to our drastically-changed policies. In actuality, we
did not see a drastic reduction in either the number of LTCHs or the
overall number of LTCH cases. Furthermore, reports in trade journals
suggest that certain members of the LTCH industry believe they are well
situated to expand in the future. Similarly, we believe LTCHs have the
ability to screen patients coming to a LTCH to assure that they are
truly LTC patients. However, in the case of the revised SSO policy, we
believe that a payment, for those patients that have a LOS comparable
to an IPPS patient for that DRG (that is, the IPPS comparable
threshold) at a level comparable to the IPPS payment, is an appropriate
payment.
3. Standard Federal Rate for the 2008 LTCH PPS Rate Year
In the RY 2007 LTCH PPS final rule (71 FR 27827), we established a
standard Federal rate of $38,086.04 for the 2007 LTCH PPS rate year
that was based on the best available data and policies established in
that final rule. In this final rule, under the broad authority
conferred upon the Secretary by section 123 of the BBRA as amended by
section 307(b) of the BIPA, consistent with the proposed rule, we are
applying an annual update to the standard Federal rate for RY 2008 that
reflects an adjustment for the most recent market basket estimate and
an adjustment to account for the increase in case-mix in a prior period
(FY 2005) that resulted from changes in coding practices rather than an
increase in patient severity. Therefore, based on the update factor for
RY 2008 of 0.71 percent, the standard Federal rate for RY 2008 will be
$38,356.45. Since the standard Federal rate for the 2008 LTCH PPS rate
year has already been adjusted for differences in case-mix, wages,
COLAs, and HCO payments, we are not making any additional adjustments
in the standard Federal rate for these factors.
D. Calculation of LTCH Prospective Payments for the 2008 LTCH PPS Rate
Year
The basic methodology for determining prospective payment rates for
LTCH inpatient operating and capital-related costs is set forth in
Sec. 412.515 through Sec. 412.532. In accordance with Sec. 412.515,
we assign appropriate weighting factors to each LTC-DRG to reflect the
estimated relative cost of hospital resources used for discharges
within that group as compared to discharges classified within other
groups. The amount of the prospective payment is based on the standard
Federal rate, established under Sec. 412.523, and adjusted for the
LTC-DRG relative weights, differences in area wage levels, COLA in
Alaska and Hawaii, HCOs, and other special payment provisions (SSOs
under Sec. 412.529 and interrupted stays under Sec. 412.531).
In accordance with Sec. 412.533, during the 5-year transition
period, which is currently in its final year for LTCH cost reporting
periods beginning on or after October 1, 2006 (FY 2007), a total LTCH
PPS payment was based on the applicable transition blend percentage of
the adjusted Federal rate and a percentage based on reasonable cost
principles, unless the LTCH made a one-time election to receive payment
based on 100 percent of the Federal rate.
[[Page 26891]]
In the final year of the 5-year transition period, which began with
LTCH cost reporting periods beginning on or after October 1, 2006, as
specified at Sec. 412.533, a total LTCH PPS payment is based on 100
percent of the Federal rate. An LTCH defined as ``new'' under Sec.
412.23(e)(4) is paid based on 100 percent of the Federal rate with no
blended transition payments as specified in Sec. 412.533(d). As
discussed in the August 30, 2002 LTCH PPS final rule (67 FR 56038), the
applicable transition blends are set forth in Sec. 412.533(a).
Accordingly, for cost reporting periods that began during FY 2006
(that is, on or after October 1, 2005 and on or before September 30,
2006), blended payments under the transition methodology were based on
20 percent of the LTCH's rate based on reasonable cost principles and
80 percent of the adjusted LTCH PPS Federal rate. For cost reporting
periods beginning on or after October 1, 2006 (FY 2007), Medicare
payment to LTCHs are determined entirely (100 percent) under the LTCH
PPS Federal rate.
1. Adjustment for Area Wage Levels
a. Background
Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS Federal rate to account for differences in LTCH area wage levels at
Sec. 412.525(c). The labor-related share of the LTCH PPS Federal rate,
currently estimated by the FY 2002-based RPL market basket (as
discussed in greater detail in section IV.D.1.c. of this preamble), is
adjusted to account for geographic differences in area wage levels by
applying the applicable LTCH PPS wage index. The applicable LTCH PPS
wage index is computed using wage data from inpatient acute care
hospitals without regard to reclassification under sections 1886(d)(8)
or 1886(d)(10) of the Act. Furthermore, as we discussed in the August
30, 2002 LTCH PPS final rule (67 FR 56015), we established a 5-year
transition to the full wage adjustment. The applicable wage index
phase-in percentages are based on the start of an LTCH's cost reporting
period as shown in Table 1.
Table 1
------------------------------------------------------------------------
Cost reporting periods beginning on or Phase-in percentage of the
after full wage index
------------------------------------------------------------------------
October 1, 2002........................... 1/5th (20 percent).
October 1, 2003........................... 2/5ths (40 percent).
October 1, 2004........................... 3/5ths (60 percent).
October 1, 2005........................... 4/5ths (80 percent).
October 1, 2006........................... 5/5ths (100 percent).
------------------------------------------------------------------------
For example, for cost reporting periods beginning on or after
October 1, 2005 and on or before September 30, 2006 (FY 2006), the
applicable LTCH wage index value is four-fifths of the applicable full
LTCH PPS wage index value. The wage index adjustment will be completely
phased-in beginning with cost reporting periods beginning in FY 2007,
that is, for cost reporting periods beginning on or after October 1,
2006, the applicable LTCH wage index value will be the full (five-
fifths) LTCH PPS wage index value. Therefore, the majority of LTCHs are
currently receiving either the four-fifths or full (five-fifths) LTCH
PPS wage index value. As we established in the August 30, 2002 LTCH PPS
final rule (67 FR 56018), the applicable full LTCH PPS wage index value
is calculated from acute-care hospital inpatient wage index data
without taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act.
b. Geographic Classifications/Labor Market Area Definitions
As discussed in the August 30, 2002 LTCH PPS final rule, which
implemented the LTCH PPS (67 FR 56015 through 56019), in establishing
an adjustment for area wage levels under Sec. 412.525(c), the labor-
related portion of a LTCH's Federal prospective payment is adjusted by
using an appropriate wage index based on the labor market area in which
the LTCH is located. In the 2006 LTCH PPS rate year final rule (70 FR
24184 through 24185), in Sec. 412.525(c), we revised the labor market
area definitions used under the LTCH PPS effective for discharges
occurring on or after July 1, 2005 based on the Office of Management
and Budget's (OMB's) Core Based Statistical Area (CBSA) designations
based on 2000 Census data because we believe that those new labor
market area definitions will ensure that the LTCH PPS wage index
adjustment most appropriately accounts for and reflects the relative
hospital wage levels in the geographic area of the hospital as compared
to the national average hospital wage level. As set forth in Sec.
412.525(c)(2), a LTCH's wage index is determined based on the location
of the LTCH in an urban or rural area as defined in Sec.
412.64(b)(1)(ii)(A) through (C). An urban area under the LTCH PPS is
defined at Sec. 412.64(b)(1)(ii)(A) and (B). In general, an urban area
is defined as a Metropolitan Statistical Area (MSA) as defined by the
OMB. (In addition, a few counties located outside of MSAs are
considered urban as specified at Sec. 412.64(b)(1)(ii)(B).) Under
Sec. 412.64(b)(1)(ii)(C), a rural area is defined as any area outside
of an urban area.
We note that these are the same CBSA-based designations implemented
for acute care inpatient hospitals under the IPPS at Sec. 412.64(b)
effective October 1, 2004 (69 FR 49026 through 49034). For further
discussion of the labor market area (geographic classification)
definitions used under the LTCH PPS, see the 2006 LTCH PPS rate year
final rule (70 FR 24182 through 24191).
c. Labor-Related Share
In the August 30, 2002 LTCH PPS final rule (67 FR 56016), we
established a labor-related share of 72.885 percent based on the
relative importance of the labor-related share of operating costs
(wages and salaries, employee benefits, professional fees, postal
services, and all other labor-intensive services) and capital costs of
the excluded hospital with capital market basket based on FY 1992 data.
As we discussed in LTCH PPS final rules subsequent to the FY 2003
LTCH PPS final rule in which we established the original LTCH PPS
labor-related share (68 FR 34142, 69 FR 25685 through 25686, and 70 FR
24182), once our research into the labor-related share methodology was
complete, we would update the IPPS and excluded hospital labor-related
shares based on that research and the best available data if necessary.
Accordingly, we conducted analysis of our labor share methodology,
which was completed prior to the development of the RY 2007 LTCH PPS
proposed and final rules. In the RY 2007 LTCH PPS final rule (71 FR
27829), we updated the LTCH PPS labor-related share based on the FY
2002-based RPL market basket (discussed in section IV.B. of this
preamble) because we believe that this market basket was developed
based on the best available data that reflect the cost structures of
LTCHs.
Consistent with our historical practice, the labor-related share
currently used under the LTCH PPS is determined by identifying the
national average proportion of operating costs and capital costs that
are related to, influenced by, or vary with the local labor market.
Specifically, in the RY 2007 LTCH PPS final rule (71 FR 27829 through
27832), we revised the LTCH PPS labor-related share from 72.885
[[Page 26892]]
percent (as established in the August 30, 2002 final rule (67 FR 56016)
based on the FY 1997-based excluded hospital with capital market
basket) to 75.665 percent based on the relative importance of the
labor-related share of operating costs (wages and salaries, employee
benefits, professional fees, and all other labor-intensive services)
and capital costs of the proposed RPL market basket based on FY 2002
data from the first quarter of 2006.
In the RY 2008 LTCH PPS proposed rule (72 FR 4794), under the broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA, consistent with our historical
practice of determining the labor-related share by identifying the
national average proportion of operating costs and capital costs that
are related to, influenced by, or varies with the local labor market,
and consistent with our historical practice of using the best data
available, we proposed to update the LTCH PPS labor-related share from
75.665 percent to 75.511 percent based on the relative importance of
the labor-related share of operating costs (wages and salaries,
employee benefits, professional fees, and all other labor-intensive
services) and capital costs of the FY 2002-based RPL market basket from
the 3rd quarter of 2006. The labor-related share is the sum of the
relative importance of wages and salaries, fringe benefits,
professional fees, labor-intensive services, and a portion of the
capital share from an appropriate market basket. We received no
comments on our proposal to update the LTCH PPS labor-related share.
Consistent with our historical practice of using the best data
available, we also proposed that if more recent data were available to
determine the labor-related share of the RPL market basket (used under
the LTCH PPS), we would use such data for determining the labor-related
share for the 2008 LTCH PPS rate year in the final rule. As discussed
above in section IV.B.2. of this preamble, we now have data from the
1st quarter of 2007 (with history through the 4th quarter of 2006).
Therefore, in this final rule, for RY 2008, we are using the FY 2002-
based RPL market basket costs based on data from the 1st quarter of
2007 to determine the labor-related share for the LTCH PPS effective
for discharges occurring on or after July 1, 2007, as this is the most
recent available data. The labor-related share for the 2008 LTCH PPS
rate year will continue to be the sum of the relative importance of
each labor-related cost category, and will reflect the different rates
of price change for these cost categories between the base year (FY
2002) and the 2008 LTCH PPS rate year. Accordingly, under the broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA, consistent with our historical
practice of determining the labor-related share by identifying the
national average proportion of operating costs and capital costs that
are related to, influenced by, or varies with the local labor market,
we are revising the LTCH PPS labor-related share from 75.665 percent to
75.788 percent based on the relative importance of the labor-related
share of operating costs (wages and salaries, employee benefits,
professional fees, and all other labor-intensive services) and capital
costs of the FY 2002-based RPL market basket from the 1st quarter of
2007, as discussed below and shown below in Table 2.
Based on the most recent available data, the sum of the relative
importance for 2008 LTCH PPS rate year for operating costs (wages and
salaries, employee benefits, professional fees, and labor-intensive
services) is 71.767, as shown in Table 2. The portion of capital that
is influenced by the local labor market is still estimated to be 46
percent, which is the same percentage used when we established the
current labor-related share in the RY 2007 LTCH PPS final rule. Since,
based on the most recent available data, the relative importance for
capital is 8.742 percent of the FY 2002-based RPL market basket for the
2008 LTCH PPS rate year, we are multiplying the estimated portion of
capital influenced by the local labor market (46 percent) by the
relative importance for capital (8.742 percent) to determine the labor-
related share of capital for the 2008 LTCH PPS rate year. The result is
4.021 percent (0.46 x 8.742 percent), which we add to the 71.767
percent for the operating cost amount to determine the total labor-
related share for the 2008 LTCH PPS rate year. Thus, based on the
latest available data, we are establishing a labor-related share of
75.788 percent (71.767 percent + 4.021 percent) under the LTCH PPS for
the 2008 LTCH PPS rate year. As noted above in this section, this
labor-related share is determined using the same methodology as
employed in calculating the current LTCH labor-related share (71 FR
27830) and the labor-related shares used under the IRF PPS and IPF PPS,
which also use the RPL market basket.
Table 2 shows the 2007 LTCH PPS rate year relative importance
labor-related share of the FY 2002-based RPL market basket (established
in the RY 2007 LTCH PPS final rule) and the 2008 LTCH PPS rate year
relative importance labor-related share of the FY 2002-based RPL market
basket.
Table 2.--RY 2007 Labor-Related Share Relative Importance and RY 2008
Labor-Related Share Relative Importance of the FY 2002-Based RPL Market
Basket
------------------------------------------------------------------------
RY 2007 RY 2008
Cost category relative relative
importance* importance
------------------------------------------------------------------------
Wages and Salaries...................... 52.506 52.588
Employee Benefits....................... 14.042 14.127
Professional fees....................... 2.886 2.907
All other labor intensive services...... 2.152 2.145
-------------------------------
Subtotal............................ 71.586 71.767
Labor share of capital costs............ 4.079 4.021
-------------------------------
Total Labor-related share........... 75.665 75.788
------------------------------------------------------------------------
* As established in the RY 2007 LTCH PPS final rule (71 FR 27830).
** Other labor intensive services includes landscaping services,
services to buildings, detective and protective services, repair
services, laundry services, advertising, auto parking and repairs,
physical fitness facilities, and other government enterprises.
[[Page 26893]]
d. Wage Index Data
In the RY 2007 LTCH PPS final rule (71 FR 27830 through 27831), we
established LTCH PPS wage index values for the 2007 LTCH PPS rate year
calculated from the same data (generated in cost reporting periods
beginning during FY 2002) used to compute the FY 2006 acute care
hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act because that was the best available data at that time. The LTCH
wage index values applicable for discharges occurring on or after July
1, 2006 through June 30, 2007 are shown in Table 1 (for urban areas)
and Table 2 (for rural areas) in the Addendum to the RY 2007 LTCH PPS
final rule (71 FR 27906 through 27930). Acute care hospital inpatient
wage index data are also used to establish the wage index adjustment
used in the IRF PPS, HHA PPS, and SNF PPS. As we discussed in the
August 30, 2002 LTCH PPS final rule (67 FR 56019), since hospitals that
are excluded from the IPPS are not required to provide wage-related
information on the Medicare cost report and because we would need to
establish instructions for the collection of this LTCH data to
establish a geographic reclassification adjustment under the LTCH PPS,
the wage adjustment established under the LTCH PPS is based on a LTCH's
actual location without regard to the urban or rural designation of any
related or affiliated provider.
In the RY 2008 proposed rule (72 FR 4795-4796), under the broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of BIPA to determine appropriate adjustments
under the LTCH PPS, for the 2008 LTCH PPS rate year, we proposed to use
the same data (generated in cost reporting periods beginning during FY
2003) used to compute the FY 2007 acute care hospital inpatient wage
index data without taking into account geographic reclassification
under sections 1886(d)(8) and (d)(10) of the Act to determine the
applicable wage index values under the LTCH PPS because these data (FY
2003) are the most recent complete data. We proposed to continue to use
IPPS wage data as a proxy to determine the LTCH wage index values for
the 2008 LTCH PPS rate year because both LTCHs and acute-care hospitals
are required to meet the same certification criteria set forth in
section 1861(e) of the Act to participate as a hospital in the Medicare
program and they both compete in the same labor markets, and,
therefore, experience similar wage-related costs. These data are the
same FY 2003 acute care hospital inpatient wage data that were used to
compute the FY 2007 wage indices currently used under the IPPS, skilled
nursing facility (SNF) PPS and home health agency (HHA) PPS. The LTCH
wage index values that would be applicable for discharges occurring on
or after July 1, 2007 through June 30, 2008, are shown in Table 1 (for
urban areas) and Table 2 (for rural areas) in Addendum A to the RY 2008
proposed rule (72 FR 4849 through 4872).
We received no comments on the proposed LTCH wage index values that
would be applicable for discharges occurring on or after July 1, 2007
through June 30, 2008. Therefore, in this final rule, under the broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of BIPA to determine appropriate adjustments
under the LTCH PPS, for the 2008 LTCH PPS rate year, we are using the
same data (generated in cost reporting periods beginning during FY
2003) used to compute the FY 2007 acute care hospital inpatient wage
index data without taking into account geographic reclassification
under sections 1886(d)(8) and (d)(10) of the Act to determine the
applicable wage index values under the LTCH PPS because these data (FY
2003) are the most recent complete data. We are continuing to use IPPS
wage data as a proxy to determine the LTCH wage index values for the
2008 LTCH PPS rate year for the reasons stated in the RY 2008 proposed
rule (as noted above). The LTCH wage index values that will be
applicable for discharges occurring on or after July 1, 2007 through
June 30, 2008, are shown in Table 1 (for urban areas) and Table 2 (for
rural areas) in the Addendum to this final rule.
As discussed in section IV.D.1.a. of this preamble, the applicable
wage index phase-in percentages are based on the start of a LTCH's cost
reporting period beginning on or after October 1st of each year during
the 5-year transition period. Thus, cost reporting periods beginning on
or after October 1, 2005 and before October 1, 2006 (FY 2006), the
labor-related portion of the standard Federal rate is adjusted by four-
fifths of the applicable LTCH wage index value. The wage index
adjustment will be completely phased-in beginning with cost reporting
periods beginning in FY 2007. That is, for cost reporting periods
beginning on or after October 1, 2006, the labor-related portion of the
standard Federal rate is adjusted by the full (five-fifths) applicable
LTCH wage index value.
Because the phase-in of the wage index does not coincide with the
LTCH PPS rate year (July 1st through June 30th), most LTCHs will
experience a change in the wage index phase-in percentages during the
LTCH PPS rate year. For example, during the 2008 LTCH PPS rate year,
for a LTCH with a September 1st fiscal year, the four-fifths wage index
will be applicable for the first 2 months of the 2007 LTCH PPS rate
year (July 1, 2007 through August 31, 2007) and the full (five-fifths)
wage index will be applicable for the next 10 months of the 2008 LTCH
PPS rate year (September 1, 2007 through June 30, 2008). For the
remainder of such a LTCH's FY 2006 cost reporting periods, which
coincides with the first 2 months of RY 2008, the applicable wage index
value would be four-fifths of the full FY 2007 acute-care hospital
inpatient wage index data, without taking into account geographic
reclassification under sections 1886(d)(8) and (d)(10) of the Act (as
shown in Tables 1 and 2 in the Addendum to this final rule). Beginning
with this LTCH's FY 2007 cost reporting period that will begin during
RY 2008, the applicable wage index value would be the full (five-
fifths) FY 2007 acute care hospital inpatient wage index data, without
taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act (as shown in Tables 1 and 2 in the
Addendum to this final rule). We note that since there are no longer
any LTCHs in their cost reporting periods that began during FY 2003
through FY 2005 (the first three years of the 5-year wage index phase-
in), we are no longer showing the \1/5\\th\, \2/5\\ths\ and \3/5\\ths\
wage index values in Tables 1 and 2 in the Addendum to this final rule.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
In the August 30, 2002 final rule (67 FR 56022), we established,
under Sec. 412.525(b), a COLA for LTCHs located in Alaska and Hawaii
to account for the higher costs incurred in those States. In the RY
2007 LTCH PPS final rule (71 FR 27832), for the 2007 LTCH PPS rate
year, we established a COLA to payments for LTCHs located in Alaska and
Hawaii by multiplying the standard Federal payment rate by the
appropriate factor listed in Table 8 of that same final rule.
Similarly, in the RY 2008 proposed rule (72 FR 4796), under the
broad authority conferred upon the Secretary by section 123 of the BBRA
as amended by section 307(b) of BIPA to determine appropriate
adjustments under the
[[Page 26894]]
LTCH PPS, for the 2008 LTCH PPS rate year we proposed to apply a COLA
to payments to LTCHs located in Alaska and Hawaii by multiplying the
proposed standard Federal payment rate by the factors listed in Table 3
of that proposed rule because those were the most recent available data
at that time. Those factors were obtained from the U.S. Office of
Personnel Management (OPM) and are currently used under the IPPS. In
addition, we proposed that if OPM released revised COLA factors before
March 1, 2007, we would use them for the development of the payments
for the 2008 LTCH rate year and publish them in the LTCH PPS final
rule.
We received no comments on our proposed COLA factors for LTCHs
located in Alaska and Hawaii for RY 2008. However, we note that OPM
released revised COLA factors for certain areas in Alaska prior to
March 1, 2007. Specifically, OPM released revised COLA factors for the
city of Anchorage and 80-kilometer (50-mile) radius by road, the city
of Fairbanks and 80-kilometer (50-mile) radius by road, and the city of
Juneau and 80-kilometer (50-mile) radius by road. The COLA factors for
all other areas of Alaska were not revised from their current values.
(We note that currently there are no LTCHs located in Alaska.)
Therefore, in this final rule were are adopting the revised COLA
factors for those areas in Alaska, along with the proposed COLA factors
for the other areas of Alaska and Hawaii, for use under the LTCH PPS in
RY 2008. We note that the revised COLA factors for certain areas of
Alaska have been proposed for use under the IPPS for FY 2008, as
discussed in the FY 2008 IPPS proposed rule.
In this final rule, under the broad authority conferred upon the
Secretary by section 123 of the BBRA as amended by section 307(b) of
BIPA to determine appropriate adjustments under the LTCH PPS, for the
2008 LTCH PPS rate year we are applying a COLA to payments to LTCHs
located in Alaska and Hawaii by multiplying the standard Federal
payment rate by the factors listed below in Table 3 because these are
currently the most recent available data from OPM (as noted above).
Table 3.--Cost-of-Living Adjustment Factors for Alaska and Hawaii
Hospitals for the 2008 LTCH PPS Rate Year
------------------------------------------------------------------------
------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by 1.24
road....................................................
City of Fairbanks and 80-kilometer (50-mile) radius by 1.24
road....................................................
City of Juneau and 80-kilometer (50-mile) radius by road. 1.24
All other areas of Alaska................................ 1.25
Hawaii:
Honolulu County.......................................... 1.25
Hawaii County............................................ 1.165
Kauai County............................................. 1.2325
Maui County.............................................. 1.2375
Kalawao County........................................... 1.2375
------------------------------------------------------------------------
3. Adjustment for High-Cost Outliers (HCOs)
a. Background
Under the broad authority conferred upon the Secretary by section
123 of the BBRA as amended by section 307(b) of BIPA, in the
regulations at Sec. 412.525(a), we established an adjustment for
additional payments for outlier cases that have extraordinarily high
costs relative to the costs of most discharges. Providing additional
payments for outliers strongly improves the accuracy of the LTCH PPS in
determining resource costs at the patient and hospital level. These
additional payments reduce the financial losses that would otherwise be
incurred when treating patients who require more costly care and,
therefore, reduce the incentives to underserve these patients. We set
the outlier threshold before the beginning of the applicable rate year
so that total estimated outlier payments are projected to equal 8
percent of total estimated payments under the LTCH PPS. Outlier
payments under the LTCH PPS are determined consistent with the IPPS
outlier policy.
Under Sec. 412.525(a), we make outlier payments for any discharges
if the estimated cost of a case exceeds the adjusted LTCH PPS payment
for the LTC-DRG plus a fixed-loss amount. The fixed-loss amount is the
amount used to limit the loss that a hospital will incur under the
outlier policy for a case with unusually high costs. This results in
Medicare and the LTCH sharing financial risk in the treatment of
extraordinarily costly cases. Under the LTCH PPS HCO policy, the LTCH's
loss is limited to the fixed-loss amount and a fixed percentage of
costs above the outlier threshold (LTCH DRG payment plus the fixed-loss
amount) determined by the marginal cost factor. We calculate the
estimated cost of a case by multiplying the overall hospital cost-to-
charge ratio (CCR) by the Medicare allowable covered charge. In
accordance with Sec. 412.525(a)(3), we pay outlier cases 80 percent of
the difference between the estimated cost of the patient case and the
outlier threshold (the sum of the adjusted Federal prospective payment
for the LTC-DRG and the fixed-loss amount).
Under the LTCH PPS, we determine a fixed-loss amount, that is, the
maximum loss that a LTCH can incur under the LTCH PPS for a case with
unusually high costs before the LTCH will receive any additional
payments. We calculate the fixed-loss amount by estimating aggregate
payments with and without an outlier policy. The fixed-loss amount will
result in estimated total outlier payments being projected to be equal
to 8 percent of projected total LTCH PPS payments. Currently, MedPAR
claims data and CCRs based on data from the most recent provider
specific file (PSF) (or to the applicable Statewide average CCR if a
LTCH's CCR data are faulty or unavailable) are used to establish a
fixed-loss threshold amount under the LTCH PPS.
b. Cost-to-Charge Ratios (CCRs)
In determining outlier payments, we calculate the estimated cost of
the case by multiplying the LTCH's overall CCR by the Medicare
allowable charges for the case. As we discussed in greater detail in
the June 9, 2003 IPPS HCO final rule (68 FR 34506 through 34516),
because the LTCH PPS HCO policy at Sec. 412.525 is modeled after the
IPPS outlier policy, we believed that it and the SSO policy at Sec.
412.529 are susceptible to the same payment vulnerabilities that became
evident under the IPPS and, therefore, merited revision. Thus, we
revised the HCO policy at Sec. 412.525(a) and the SSO policy at Sec.
412.529 in that same final rule for the determination of LTCHs' CCRs
and the reconciliation of outlier payments.
Under the LTCH PPS, a single prospective payment per discharge is
made for both inpatient operating and capital-related costs, and,
therefore, we compute a single ``overall'' or ``total'' CCR for LTCHs
based on the sum of their operating and capital costs (as described in
Chapter 3, section 150.24, of the Medicare Claims Processing Manual
(CMS Pub. 100-4)) as compared to total charges. Specifically, a LTCH's
CCR is calculated by dividing a LTCH's total Medicare costs (that is,
the sum of its operating and capital inpatient routine and ancillary
costs) by its total Medicare charges (that is, the sum of its operating
and capital inpatient routine and ancillary charges). (Instructions
regarding the changes established in the
[[Page 26895]]
June 9, 2003 IPPS HCO final rule for both LTCHs and IPPS hospitals can
be found in Transmittal A-03-058 (Change Request 2785; July 3, 2003).)
As a result of the changes established in the June 9, 2003 IPPS HCO
final rule, as we discussed in the RY 2007 LTCH PPS final rule (71 FR
27832 through 27833) and the FY 2007 IPPS final rule (71 FR 48119
through 48121), a LTCH is assigned the applicable Statewide average CCR
if, among other things, a LTCH's CCR is found to be in excess of the
applicable maximum CCR threshold (that is, the LTCH CCR ceiling). As we
explained in the FY 2007 IPPS final rule (71 FR 48117), CCRs above this
threshold are most likely due to faulty data reporting or entry, and,
therefore, these CCRs should not be used to identify and make payments
for outlier cases. Such data are clearly errors and should not be
relied upon. Thus, under our established policy, if a LTCH's CCR is
above the applicable ceiling, the applicable LTCH PPS Statewide average
CCR is assigned to the LTCH instead of the CCR computed from its most
recent (settled or tentatively settled) cost report data.
Under Sec. 412.525(a)(4)(ii), for discharges occurring on or after
August 8, 2003, and before October 1, 2006, we determined the
applicable LTCH PPS Statewide average CCRs using the ``combined'' IPPS
operating and capital Statewide average CCRs (that is, adding the
separate IPPS operating and capital CCRs together to determine the LTCH
PPS Statewide average CCRs). Also, under Sec. 412.525(a)(4)(ii), for
discharges occurring on or after August 8, 2003, and before October 1,
2006, if a LTCH's CCR is above the applicable ``combined'' IPPS
operating and capital ceiling (that is, adding the separate IPPS
operating and capital CCR ceiling together), the applicable Statewide
average CCR may be assigned to the LTCH.
As we explained in the FY 2007 IPPS final rule (71 FR 48117 through
48121), we revised our methodology for determining the annual CCR
ceiling and Statewide average CCRs under the LTCH PPS because we
believe that those changes are consistent with the LTCH PPS single
payment rate for inpatient operating and capital costs. Therefore,
under the broad authority of section 123 of the BBRA and section
307(b)(1) of BIPA, in that same final rule, we revised our methodology
used to determine the LTCH CCR ceiling. For discharges occurring on or
after October 1, 2006, we established that the LTCH CCR ceiling
specified under Sec. 412.525(a)(4)(iv)(C)(2) is calculated as three
standard deviations above the corresponding national geometric mean
total CCR (established and published annually by CMS). (The fiscal
intermediary (FI) may use a Statewide average CCR if, among other
things, a LTCH's CCR is in excess of the LTCH CCR ceiling.) The LTCH
total CCR ceiling is determined based on IPPS CCR data, by first
calculating the ``total'' (that is, operating and capital) IPPS CCR for
each hospital and then determining the average ``total'' IPPS CCR for
all IPPS hospitals. (Our rationale for using IPPS hospital data is
discussed in the FY 2007 IPPS final rule (71 FR 48117) and reiterated
below in this section.) The LTCH CCR ceiling is then established at 3
standard deviations from the corresponding national geometric mean
total CCR. (For further detail on our methodology for annually
determining the LTCH CCR ceiling, refer to the FY 2007 IPPS final rule
(71 FR 48117 through 48119).) We also established that the LTCH
``total'' CCR ceiling used under the LTCH PPS will continue to be
published annually in the IPPS proposed and final rules, and the public
should continue to consult the annual IPPS proposed and final rules for
changes to the LTCH total CCR ceiling that would be effective for
discharges occurring on or after October 1 each year. Accordingly, in
the FY 2007 IPPS final rule (71 FR 48119), we established a FY 2007
LTCH PPS total CCR ceiling of 1.321, effective for discharges occurring
on or after October 1, 2006. (We note that the proposed FY 2008 LTCH
PPS total CCR ceiling, that would be effective for discharges occurring
on or after October 1, 2007, was presented in the FY 2008 IPPS proposed
rule.)
In addition, under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, we revised our methodology to determine
the Statewide average CCRs under Sec. 412.525(a)(4)(iv)(C) for use
under the LTCH PPS in a manner similar to the way we compute the
``total'' CCR ceiling using IPPS CCR data (71 FR 48120). Specifically,
under this revised methodology we first calculate the total (that is,
operating and capital) CCR for each IPPS hospital. We then calculate
the weighted average ``total'' CCR for all IPPS hospitals in the rural
areas of the State and the weighted average ``total'' CCR for all IPPS
hospitals in the urban areas of the State. (For further detail on our
methodology for annually determining the LTCH urban and rural Statewide
average CCRs, refer to the FY 2007 IPPS final rule (71 FR 48119 through
48121).) We also established that the applicable Statewide average
``total'' (operating and capital) CCRs used under the LTCH PPS will
continue to be published annually in the IPPS proposed and final rules,
and the public should continue to consult the annual IPPS proposed and
final rules for changes to the applicable Statewide average total CCRs
that would be effective for discharges occurring on or after October 1
each year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48122),
the FY 2007 LTCH PPS Statewide average total CCRs for urban and rural
hospitals, effective for discharges occurring on or after October 1,
2006, were presented in Table 8C of the Addendum of that final rule (71
FR 48303.) (We note that the proposed FY 2007 LTCH PPS Statewide
average total CCRs for urban and rural hospitals, that would be
effective for discharges occurring on or after October 1, 2007, were
presented in Table 8C of the FY 2008 IPPS proposed rule.)
As we explained in the FY 2007 IPPS final rule (71 FR 48117), we
continue to believe it is appropriate to use IPPS operating and capital
CCRs to compute the LTCH total CCR ceiling and the Statewide average
CCRs because LTCHs' cost and charge structures are similar to that of
IPPS acute-care hospitals. For instance, LTCHs are certified as acute
care hospitals, as set forth in section 1861(e) of the Act to
participate as a hospital in the Medicare program, and these hospitals,
in general, are paid as LTCHs only because their Medicare ALOS is
greater than 25 days as specified in Sec. 412.23(e). Furthermore,
prior to qualifying as a LTCH under Sec. 412.23(e)(2)(i), a hospital
generally is paid as an acute-care hospital under the IPPS during the
period in which it demonstrates that it has an ALOS of greater than 25
days. In addition, since there are less than 400 LTCHs, which are
unevenly geographically distributed throughout the United States, there
may not be sufficient LTCH CCR data to determine an appropriate LTCH
PPS CCR ceiling using LTCH data.
In the FY 2007 IPPS final rule, in addition to revising our
methodology for determining the annual CCR ceiling and Statewide
average CCRs under the LTCH PPS for discharges occurring on or after
October 1, 2006, under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, we revised Sec. 412.525(a)(4)(iv) for
discharges occurring on or after October 1, 2006, to codify in 42 CFR
part 412, subpart O the remaining LTCH PPS outlier policy changes that
were established in the June 9, 2003 IPPS HCO final rule (68 FR 34506
through 34513), including modifications and editorial clarifications to
those existing policies
[[Page 26896]]
established in that final rule. We made these revisions because we
believe that they more precisely describe the application of those
policies as they relate to the determination of LTCH CCRs because these
changes are consistent with the changes to the calculation of the LTCH
CCR ceiling.
Specifically, in the FY 2007 IPPS final rule (71 FR 48119), under
the broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we established under the LTCH PPS HCO policy at Sec.
412.525(a)(4)(iv)(C) that the FI may use a Statewide average CCR, which
is established annually by CMS, if it is unable to determine an
accurate CCR for a LTCH in one of the following three circumstances:
(1) New LTCHs that have not yet submitted their first Medicare cost
report (for this purpose, consistent with current policy, a new LTCH
would be defined as an entity that has not accepted assignment of an
existing hospital's provider agreement in accordance with Sec.
489.18); (2) LTCHs whose CCR is in excess of the LTCH CCR ceiling; and
(3) other LTCHs for whom data with which to calculate a CCR are not
available (for example, missing or faulty data). (Other sources of data
that the FI may consider in determining a LTCH's CCR included data from
a different cost reporting period for the LTCH, data from the cost
reporting period preceding the period in which the hospital began to be
paid as a LTCH (that is, the period of at least 6 months that it was
paid as a short-term acute care hospital), or data from other
comparable LTCHs, such as LTCHs in the same chain or in the same
region.)
Additionally, in the FY 2007 IPPS final rule (71 FR 48121), we
established under Sec. 412.525(a)(4)(iv)(B) and Sec.
412.529(c)(3)(iv)(B) that, for discharges occurring on or after October
1, 2006, the CCR applied at the time a claim is processed will be based
on either the most recently settled cost report or the most recent
tentatively settled cost report, whichever is from the latest cost
reporting period. Under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, in that same final rule, we also
established at Sec. 412.525(a)(4)(iv)(A) that, for discharges
occurring on or after October 1, 2006, we may specify an alternative to
the CCR computed under Sec. 412.525(a)(4)(iv)(B) (that is, computed
from the most recently settled cost report or the most recent
tentatively settled cost report, whichever is later), or a hospital may
also request that the FI use a different (higher or lower) CCR based on
substantial evidence presented by the hospital. In addition, under the
broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we revised Sec. 412.525(a)(3) to change the plural reference
from cost-to-charge ``ratios'' to the singular reference to a cost-to-
charge ``ratio'' in that final rule. For a complete discussion on all
these revisions to our methodology for determining a LTCH's CCR, refer
to the FY 2007 IPPS final rule (71 FR 48119 through 48121). We note
that in that same FY 2007 IPPS final rule, we made similar revisions to
the SSO policy at Sec. 412.529(c)(3), as discussed in V.A.1.b. of the
preamble of this proposed rule.
Comment: A commenter asked that we consider making an exception to
the outlier payment reconciliation requirements for the affected
hospitals by Hurricane Katrina because they would have experienced an
aberrant change in their CCR during the first and second cost reporting
periods that began on or after August 29, 2005.
Response: In order for a hospital to meet the requirements of
outlier reconciliation, a 10 percentage point change in a LTCHs CCRs
from the time of payment to the time of cost report settlement is
required in addition to SSO and HCO payment being greater then $500,000
for the cost reporting period being settled. Without further
explanation from the commenter, it is not clear what type of aberrant
changes to the CCR the commenter is referring. Changes to costs or
charges can either result in reducing or increasing a CCR in any given
cost reporting period. Based on the events of Katrina, we would
anticipate an increase in costs and a reduction in total charges as
effected hospitals probably experienced fewer discharges in the period
after Katrina. These types of changes would increase a hospital's CCR,
and therefore, a hospital would not owe CMS additional funds if a
hospital met the criteria for reconciliation. We also note that even if
a unique circumstance arose as a result of Hurricane Katrina and
resulted in a situation where a hospital would be required to pay CMS
as a result of a reconciliation, we believe the existing regulation may
allow us to consider the unique needs of this hospital, and no changes
to the existing regulations at Sec. 412.525(a)(4)(ii), Sec.
412.525(a)(4)(iv)(D), Sec. 412.529(c)(3)(ii), or Sec.
412.529(c)(3)(iv)(E).
c. Establishment of the Fixed-Loss Amount
When we implemented the LTCH PPS, as discussed in the August 30,
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the broad
authority of section 123 of the BBRA as amended by section 307(b) of
BIPA, we established a fixed-loss amount so that total estimated
outlier payments are projected to equal 8 percent of total estimated
payments under the LTCH PPS. To determine the fixed-loss amount, we
estimate outlier payments and total LTCH PPS payments for each case
using claims data from the MedPAR files. Specifically, to determine the
outlier payment for each case, we estimate the cost of the case by
multiplying the Medicare covered charges from the claim by the LTCH's
hospital specific CCR. Under Sec. 412.525(a)(3), if the estimated cost
of the case exceeds the outlier threshold (the sum of the adjusted
Federal prospective payment for the LTC-DRG and the fixed-loss amount),
we pay an outlier payment equal to 80 percent of the difference between
the estimated cost of the case and the outlier threshold (the sum of
the adjusted Federal prospective payment for the LTC-DRG and the fixed-
loss amount).
In the RY 2007 LTCH PPS final rule (71 FR 27838), in calculating
the fixed-loss amount that would result in estimated outlier payments
projected to be equal to 8 percent of total estimated payments for the
2007 LTCH PPS rate year, we used claims data from the December 2005
update of the FY 2005 MedPAR files and CCRs from the December 2005
update of the PSF, as that was the best available data at that time. We
believe that CCRs from the PSF are the best available CCR data for
determining estimated LTCH PPS payments for a given LTCH PPS rate year
because they are the most recently available CCRs actually used to make
LTCH PPS payments.
As we also discussed in the RY 2007 LTCH PPS rate year final rule
(71 FR 27838), we calculated a single fixed-loss amount for the 2007
LTCH PPS rate year based on the version 23.0 of the GROUPER, which was
the version in effect as of the beginning of the LTCH PPS rate year
(that is, July 1, 2006 for the 2007 LTCH PPS rate year). In addition,
we applied the outlier policy under Sec. 412.525(a) in determining the
fixed-loss amount for the 2007 LTCH PPS rate year; that is, we assigned
the applicable Statewide average CCR only to LTCHs whose CCRs exceeded
the ceiling (and not when they fell below the floor). Accordingly, we
used the FY 2006 LTCH PPS CCR ceiling of 1.423 (71 FR 27838). As noted
in that same final rule, in determining the fixed-loss amount for the
2007 LTCH PPS rate year using the CCRs from the PSF, there were no
LTCHs with missing CCRs or with CCRs in excess of the current ceiling
and, therefore, there was no need for us to independently assign the
applicable Statewide average CCR to any LTCHs in
[[Page 26897]]
determining the fixed-loss amount for the 2007 LTCH PPS rate year (as
this may have already been done by the FI in the PSF in accordance with
the established policy).
Accordingly, in 2007 LTCH PPS rate year final rule (71 FR 27838),
we established a fixed-loss amount of $14,887 for the 2007 LTCH PPS
rate year. Thus, we pay an outlier case 80 percent of the difference
between the estimated cost of the case and the outlier threshold (the
sum of the adjusted Federal LTCH PPS payment for the LTC-DRG and the
fixed-loss amount of $14,887).
In the RY 2008 LTCH PPS proposed rule (72 FR 4798 through 4799),
for the 2008 LTCH PPS rate year, we used the March 2006 update of the
FY 2005 MedPAR claims data to determine a fixed-loss amount that would
result in estimated outlier payments projected to be equal to 8 percent
of total estimated payments, based on the policies described in that
proposed rule, because those data are the most recent complete LTCH
data available. Consistent with our historical practice of using the
best data available, we also proposed that if more recent LTCH claims
data become available, we would to use it for determining the fixed-
loss amount for the 2008 LTCH PPS rate year in the final rule. In
addition, we determined the proposed fixed-loss amount based on the
version of the GROUPER that would be in effect as of the beginning of
the 2008 LTCH PPS rate year (July 1, 2007), that is, Version 24.0 of
the GROUPER (as established in the FY 2007 IPPS final rule (71 FR
47973)).
In the RY 2008 LTCH PPS proposed rule (72 FR 4799), we proposed to
use CCRs from the June 2006 update of the PSF for determining the
proposed fixed-loss amount for the 2008 LTCH PPS rate year as they are
currently the most recent complete available data. Consistent with our
historical practice of using the best data available, we also proposed
that if more recent CCR data are available, we would use it for
determining the fixed-loss amount for the 2008 LTCH PPS rate year in
the final rule. As we discussed in that same proposed rule, in
determining the proposed fixed-loss amount for the 2008 LTCH PPS rate
year, we used the current FY 2007 applicable LTCH ``total'' CCR ceiling
of 1.321 and LTCH Statewide average ``total'' CCRs established under
our revised methodology in the FY 2007 IPPS final rule (71 FR 48118 and
48121) such that the current applicable Statewide average CCR would be
assigned if, among other things, a LTCH's CCR exceeded the current
ceiling (1.321). We noted that in determining the proposed fixed-loss
amount for the 2008 LTCH PPS rate year using the CCRs from the June
2006 update of the PSF, there was no need for us to independently
assign the applicable Statewide average CCR to any LTCHs (as this may
have already been done by the FI in the PSF in accordance with our
established policy).
Accordingly, based on the data and policies described in the RY
2008 LTCH PPS proposed rule, we proposed to apply a fixed-loss amount
of $18,774 for the 2008 LTCH PPS rate year. Thus, we proposed to pay an
outlier case 80 percent of the difference between the estimated cost of
the case and the proposed outlier threshold (the sum of the adjusted
proposed Federal LTCH payment for the LTC-DRG and the proposed fixed-
loss amount of $18,774).
In the RY 2008 LTCH PPS proposed rule (72 FR 4799 through 4800), we
noted that the fixed-loss amount for the 2008 LTCH PPS rate year is
higher than the current fixed-loss amount of $14,887. We also discussed
that we were not proposing to adjust the existing 8 percent outlier
target or 80 percent marginal cost factor under the current LTCH PPS
HCO policy at that time. However, we explained that we continue to be
interested in any comments that would support revisiting the analysis
that was used to establish the existing 8 percent outlier target and
the existing 80 percent marginal cost factor, using the most recent
available data to evaluate whether any changes to the current HCO
policy should be made, and therefore, may result in less of an increase
in the fixed-loss amount for RY 2008.
Comment: While we received no comments in support of revisiting the
analysis that was used to establish the existing 8 percent outlier
target and the existing 80 percent marginal cost factor, using the most
recent available data, to evaluate whether any changes to the current
HCO policy should be made, some commenters expressed concern over the
impact of raising the fixed-loss threshold for HCOs to $18,774, an
increase of $3,887 over the RY 2007 threshold. According to one
commenter's analysis, the proposed fixed-loss threshold would mean that
26 percent of cases would no longer meet the HCO threshold for
receiving additional payments. Specifically, a commenter wrote,
``reducing access to HCO payments for this many cases is not
warranted.''
Response: As we explained in the RY 2008 LTCH PPS proposed rule (72
FR 4799), in addition to being based on the most recent available LTCH
data to estimate the cost of each LTCH case, the proposed change in the
fixed-loss amount is primarily due to the projected decrease in
estimated aggregate LTCH PPS payments that is expected to result from
the approach discussed for the SSO policy under Sec. 412.529, in
conjunction with the proposed changes to the area wage adjustment and
the proposed changes to the LTC-DRG relative weights for FY 2007. In
that same proposed rule, we also explained that we believe that an
increase in the fixed-loss amount is appropriate and necessary to
maintain the requirement that estimated outlier payments would be
projected to be equal to 8 percent of estimated total LTCH PPS
payments, as required under Sec. 412.525(a), because of the estimated
decrease in aggregate LTCH PPS payments for the 2008 LTCH PPS rate
year. Based on the regression analysis that was performed when we
implemented the LTCH PPS, we established the outlier target at 8
percent of estimated total LTCH PPS payments to allow us to achieve a
balance between the ``conflicting considerations of the need to protect
hospitals with costly cases, while maintaining incentives to improve
overall efficiency'' (67 FR 56024). That regression analysis also
showed that additional increments of outlier payments over 8 percent
(that is, raising the outlier target to a larger percentage than 8
percent) would reduce financial risk, but by successively smaller
amounts. Outlier payments are budget neutral, and therefore, outlier
payments are funded by prospectively reducing the non-outlier PPS
payment rates by projected total outlier payments. The higher the
outlier target, the greater the (prospective) reduction to the base
payment would need to be applied to the Federal rate to maintain budget
neutrality.
Maintaining the fixed-loss amount at the current level would result
in HCO payments that exceed the current regulatory requirement that
estimated outlier payments would be projected to equal 8 percent of
estimated total LTCH PPS payments. In fact, our analysis shows that if
we were to keep the fixed-loss amount at the current amount of $14,887,
we project that estimated outlier payments would be over 10 percent of
total estimated LTCH PPS payments in RY 2008. As noted above, the
results of our regression analysis concluded that an outlier target in
excess of 8 percent would not allow us to achieve our stated goal of
the HCO policy of balancing the need to protect hospitals with costly
cases, while providing an incentive for hospitals to operate
efficiently.
[[Page 26898]]
We also note that we received no comments in support of revisiting
the regression analysis to evaluate whether current LTCH data would
support a change in the current HCO policy, such as increasing (or
decreasing) the outlier target. While we understand the commenter's
concern that raising the fixed-loss threshold would mean that fewer
cases would qualify to receive additional payments for extraordinarily
high cost, as discussed above, we would have to reduce the standard
Federal rate to account for the additional estimated outlier payments
that exceed the current 8 percent outlier target since outlier payments
are budget neutral. This would reduce payments to all LTCH cases, not
just those that would receive a HCO payment based on the amount of the
current fixed-loss threshold, which could result in inappropriately low
payment amounts for typical LTCH cases (as shown by our analysis of
payment-to-cost ratios when we developed the existing HCO policy when
we implemented the LTCH PPS (67 FR 56022 through 56027)).
In the RY 2008 LTCH PPS proposed rule (72 FR 4799 through 4800) as
an alternative to the proposal to raise the fixed-loss amount, we
discussed adjusting the marginal cost factor (that is, the percentage
that Medicare will pay of the estimated cost of a case that exceeds the
sum of the adjusted Federal prospective payment for the LTC-DRG and the
fixed-loss amount for LTCH PPS outlier cases as specified in Sec.
412.525(a)(3)), which is currently equal to 80 percent, as a means of
ensuring that estimated outlier payments would be projected to equal 8
percent of estimated total LTCH PPS payments. We explained that when we
initially established the 80 percent marginal cost factor, our analysis
of payment-to-cost ratios for HCO cases showed that a marginal cost
factor of 80 percent appropriately addresses outlier cases that are
significantly more expensive than nonoutlier cases, while
simultaneously maintaining the integrity of the LTCH PPS (67 FR 56022
through 56027).
In that same proposed rule, we also discussed that although
proposing to raise the fixed-loss amount from $14,887 to $18,774 would
increase the amount of the ``loss'' that a LTCH must incur under the
LTCH PPS for a case with unusually high costs before the LTCH would
receive any additional Medicare payments, we continue to believe that
the existing 8 percent outlier target and 80 percent marginal cost
factor continue to adequately maintain the LTCHs' share of the
financial risk in treating the most costly patients and ensure the
efficient delivery of services. Accordingly, we did not propose to
adjust the existing 8 percent outlier target or 80 percent marginal
cost factor under the LTCH PPS HCO policy at this time. We also noted
that the proposed fixed-loss amount of $18,774 is lower than the FY
2003 fixed-loss amount of $24,450 (67 FR 56023) and the 2004 LTCH PPS
rate year fixed-loss amount of $19,590 (68 FR 34144), and only slightly
higher than the 2005 LTCH PPS rate year fixed-loss amount of $17,864
(69 FR 25688), all of which were in effect during the time period that
we estimate positive Medicare margins (as discussed in the RY 2007 LTCH
PPS final rule (71 FR 27820 through 27825)).
In conclusion, for the reasons discussed above in this section, we
continue to believe a marginal cost factor of 80 percent and an outlier
target of 8 percent best identifies LTCH patients that are truly
unusually costly cases. Furthermore, we still believe that such a
policy appropriately addresses LTCH HCO cases that are significantly
more expensive than non-outlier cases, which is consistent with our
intent of the LTCH HCO policy as stated when we implemented the LTCH
PPS. Therefore, we are not making any changes to the marginal cost
factor or outlier target in that final rule. Consequently, in order to
maintain that estimated outlier payments are projected to be equal to 8
percent of estimated total LTCH PPS payments, as required under Sec.
412.525(a), under the broad authority of section 123(a)(1) of the BBRA
and section 307(b)(1) of BIPA, we are establishing a fixed-loss amount
of $22,954 based on the best available LTCH data and the policies
presented in this final rule (as described in greater detail below).
For the reasons discussed above, we believe a fixed-loss amount of
$22,954 would appropriately identify unusually costly LTCH cases while
maintaining the integrity of the LTCH PPS. We note that, as discussed
in the RY 2008 proposed rule (72 FR 4800), we intend to revisit a
budget neutral policy change in the outlier policy (among other
things), which would affect future LTCH PPS payment rates, after the
conclusion of the 5-year transition period when we expect to have
several years of data generated after the implementation of the LTCH
PPS.
In this final rule, as we proposed and consistent with our
historical practice of using the best data available (as noted above),
for the 2008 LTCH PPS rate year, we used the December 2006 update of
the FY 2006 MedPAR claims data to determine a fixed-loss amount that
would result in estimated outlier payments projected to be equal to 8
percent of total estimated payments, based on the policies described in
this final rule, because these data are the most recent complete LTCH
data available. Furthermore, as noted previously, we determined the
fixed-loss amount based on the version of the GROUPER that would be in
effect as of the beginning of the 2008 LTCH PPS rate year (July 1,
2007), that is, Version 24.0 of the GROUPER (as established in the FY
2007 IPPS final rule (71 FR 47973)).
In addition, as we proposed and consistent with our historical
practice of using the best data available (as noted above), we used
CCRs from the December 2006 update of the PSF for determining the
fixed-loss amount for the 2008 LTCH PPS rate year as they are currently
the most recent complete available data. As we discussed above in this
section, we revised our methodology for our annual determination of the
applicable LTCH CCR ceiling and applicable Statewide average CCRs in
determining a LTCH's CCR effective for discharges occurring on or after
October 1, 2006 in the FY 2007 IPPS final rule (71 FR 48117 through
48122). Accordingly, as proposed, in determining the fixed-loss amount
for the 2008 LTCH PPS rate year, we used the current FY 2007 applicable
LTCH ``total'' CCR ceiling of 1.321 and LTCH Statewide average
``total'' CCRs established under our revised methodology in the FY 2007
IPPS final rule (71 FR 48118 and 48121) such that the current
applicable Statewide average CCR would be assigned if, among other
things, a LTCH's CCR exceeded the current ceiling (1.321). We note that
in determining the fixed-loss amount for the 2008 LTCH PPS rate year
using the CCRs from the December 2006 update of the PSF, there was no
need for us to independently assign the applicable Statewide average
CCR to any LTCHs (as this may have already been done by the FI in the
PSF in accordance with our established policy). (Currently, the
applicable FY 2007 LTCH Statewide average CCRs can be found in Table 8C
of the FY 2007 IPPS final rule (71 FR 48303).)
Accordingly, based on the data and policies described in this final
rule, we are applying a fixed-loss amount of $22,954 for the 2008 LTCH
PPS rate year. Thus, we will pay an outlier case 80 percent of the
difference between the estimated cost of the case and the outlier
threshold (the sum of the adjusted Federal LTCH payment for the LTC-DRG
and the fixed-loss amount of $22,954). As discussed above, the fixed-
[[Page 26899]]
loss amount for the 2008 LTCH PPS rate year is higher than the current
fixed-loss amount of $14,887. In addition to being based on the most
recent available LTCH data to estimate the cost of each LTCH case (as
discussed in detail below in this section), this change in the fixed-
loss amount is due to the projected decrease in estimated aggregate
LTCH PPS payments that is expected to result from the revision to the
SSO policy under Sec. 412.529 (discussed in greater detail in section
V.A.2. of this preamble), in conjunction with the changes to the area
wage adjustment (discussed in greater detail in section IV.D.1. of this
preamble) and the changes to the LTC-DRG relative weights for FY 2007
(as discussed in the FY 2007 IPPS final rule (71 FR 47971 through
47994)). Specifically, as discussed in greater detail in the impact
analysis presented in section XV.B.4. of this final rule, we are
projecting that the changes presented in this final rule will result in
an estimated 3.8 percent decrease in estimated payments per discharge
in RY 2008 as compared to RY 2007, on average, for all LTCHs. While we
are projecting that the 0.71 percent update to the Federal rate
(discussed in section IV.C. of this preamble) will result in an
increase in estimated payments per discharge in RY 2008 as compared to
RY 2007, this increase will be offset by the projected decrease in
estimated payments per discharge from RY 2007 to RY 2008 of 0.9 percent
due to the revision to the SSO policy and a projected decrease in
estimated payments per discharge from RY 2007 to RY 2008 of 1.0 percent
due to the changes to the area wage adjustment (including the
progression of the established phase-in of that adjustment). We also
project an estimated 2.5 percent decrease in estimated payments per
discharge from RY 2007 to RY 2008 due to the changes in the fixed-loss
amount resulting from the use of more recent LTCH data to estimate the
cost of each LTCH case.
We also note that the final fixed-loss amount for RY 2008 of
$22,954 is higher than the proposed fixed-loss amount for RY 2008 of
$18,778. This change in the fixed-loss amount is primarily due to the
updated LTCH data (that is, LTCH claims data and CCR data) used in
determining the fixed-loss amount. That is, to determine the proposed
fixed-loss amount for RY 2008, we used claims data from the March 2006
update of the FY 2005 MedPAR file and CCRs from the July 2006 update of
the PSF, as that was the best available data at that time.
However, to determine the fixed-loss amount for RY 2008 in this
final rule, the most recent available data are the December 2006 update
of the FY 2006 MedPAR claims data and the CCRs from the December 2006
update of the PSF. Our analysis of the data showed that, in general,
the average cost per case has increased in the FY 2006 claim data as
compared to the FY 2005 claims data, which if we had kept the fixed-
loss amount at $18,778 would have caused the HCO target to exceed 8
percent. In fact, our analysis shows that if we were to keep the
proposed fixed-loss amount of $18,774, we project that estimated
outlier payments would be over 10 percent of total estimated LTCH PPS
payments in RY 2008. As discussed at length above, when we implemented
the LTCH PPS, under the HCO policy we established the outlier target at
8 percent of estimated total LTCH PPS payments to allow us to achieve a
balance between the need to protect hospitals with costly cases, while
providing an incentive for hospitals to operate efficiently, and an
outlier target in excess of 8 percent would not allow us to achieve
this goal. In fact, our analysis shows that if we were to keep the
proposed fixed-loss amount of $18,774, we project that estimated
outlier payments would be over 10 percent of total estimated LTCH PPS
payments in RY 2008. As discussed at length above in this section, when
we implemented the LTCH PPS, under the HCO policy we established the
outlier target at 8 percent of estimated total LTCH PPS payments to
allow us to achieve a balance between the need to protect hospitals
with costly cases, while providing an incentive for hospitals to
operate efficiently, and an outlier target in excess of 8 percent would
not allow us to achieve this goal. Consequently, the fixed-loss amount
is increased to maintain the HCO target at 8 percent. Furthermore,
although in the past we have found LTCHs' CCRs have been relatively
stable, in establishing the fixed-loss amount for RY 2008, we noticed
that the CCRs used to estimate cost per case are more volatile in
recent years. This causes us concern, and therefore, we intend to
monitor LTCHs' CCRs in the future. As specified at Sec.
412.525(a)(4)(iv)(D), HCO payments are subject to the outlier
reconciliation process described below in this section.
d. Reconciliation of Outlier Payments Upon Cost Report Settlement
In the June 9, 2003 HCO final rule (68 FR 34508 through 34512), we
established our policy for LTCHs that provided that effective for LTCH
PPS discharges occurring on or after August 8, 2003, any reconciliation
of outlier payments will be based upon the actual CCR computed from the
costs and charges incurred in the period during which the discharge
occurs. In that same final rule, we also established that, for
discharges occurring on or after August 8, 2003, at the time of any
reconciliation, outlier payments may be adjusted to account for the
time value of any underpayments or overpayments 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. (Additional information on the administration of the
reconciliation process under the IPPS is provided in CMS Program
Transmittal 707 (October 12, 2005; Change Request 3966). We note that
we are currently developing additional instructions on the
administration of the reconciliation process under the LTCH PPS that
would be similar to the IPPS reconciliation process.)
In the FY 2007 IPPS final rule (71 FR 48121 through 48122), for
discharges occurring on or after October 1, 2006, we codified into the
LTCH PPS section of the regulations (42 CFR part 412, subpart O) the
provisions governing the determination of LTCHs' CCRs, including
modifications and editorial clarifications to our existing methodology
for determining the annual LTCH CCR ceiling and applicable Statewide
average CCRs under the LTCH PPS. (We note that we also made the same
changes under the SSO policy at Sec. 412.529(c)(3), as discussed in
section V.A.1.c. of this preamble).
In the FY 2007 IPPS final rule (71 FR 48122), under the broad
authority of section 123 of the BBRA and section 307(b)(1) of BIPA, we
revised Sec. 412.525(a)(4)(iv)(D) through (E), for discharges
occurring on or after October 1, 2006, to codify in subpart O of 42 CFR
part 412 the provisions discussed concerning the reconciliation of LTCH
PPS outlier payments, including editorial clarifications discussed in
greater detail in this section, that would more precisely describe the
application of those policies. Specifically, at Sec.
412.525(a)(4)(iv)(D), we specified that for discharges occurring on or
after October 1, 2006, any reconciliation of outlier payments will be
based on the CCR calculated 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. In
addition, at Sec. 412.525(a)(4)(iv)(E), we specified that for
discharges occurring on or after October 1, 2006, at the time of any
reconciliation, outlier payments may be adjusted to account for the
time value of any underpayments or overpayments. We also specified that
[[Page 26900]]
such an 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
made these additional revisions to Sec. 412.525(a)(4) because we
believe that these changes are more consistent with the LTCH PPS single
payment rate for inpatient operating and capital costs (as discussed in
greater detail previously), and because we believe it is more
appropriate and administratively simpler to include all of the
regulatory provisions concerning the determination of LTCH PPS outlier
payments applicable under the LTCH PPS regulations in subpart O of 42
CFR part 412 of the CFR.
Comment: One commenter requested that we clarify how we interpret
the 10 percentage point criterion of the SSO and HCO reconciliation
policy.
Response: We did not propose any changes to the current
reconciliation policy. Therefore, we do not believe this final rule is
the appropriate vehicle to address this comment. As we have stated, we
intend to issue subregulatory guidance on LTCH reconciliation that
would be similar to the IPPS reconciliation process and would address
the commenters question at that time.
e. Application of Outlier Policy to Short-Stay Outlier (SSO) Cases
As we discussed in the August 30, 2002 final rule (67 FR 56026),
under some rare circumstances, a LTCH discharge could qualify as a SSO
case (as defined under Sec. 412.529 and discussed in section V.A.1.a.
of this preamble) and also as a HCO case. In this scenario, a patient
could be hospitalized for less than five-sixths of the geometric ALOS
for the specific LTC-DRG, and yet incur extraordinarily high treatment
costs. If the costs exceeded the outlier threshold (that is, the SSO
payment plus the fixed-loss amount), the discharge would be eligible
for payment as a HCO. Thus, for a SSO case in the 2008 LTCH PPS rate
year, the HCO payment will be 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
fixed-loss amount of $22,954 and the amount paid under the SSO policy).
4. Other Payment Adjustments
As indicated earlier, we have broad authority under section
123(a)(1) of the BBRA as amended by section 307(b) of BIPA to determine
appropriate adjustments under the LTCH PPS, including whether (and how)
to provide for adjustments to reflect variations in the necessary costs
of treatment among LTCHs. Thus, in the August 30, 2002 LTCH PPS final
rule (67 FR 56014 through 56027), we discussed our extensive data
analysis and rationale for not implementing an adjustment for
geographic reclassification, rural location, treating a
disproportionate share of low-income patients (DSH), or indirect
medical education (IME) costs. In that same final rule, we stated that
we would collect data and reevaluate the appropriateness of these
adjustments in the future once more LTCH data become available after
the LTCH PPS is implemented.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27839),
we now believe that after the completion of the 5-year transition,
sufficient new data that will have been generated while LTCHs are
subject to the LTCH PPS may be available for a comprehensive
reevaluation of payment adjustments such as geographic
reclassification, rural location, DSH, and IME. The end of the 5-year
transition occurs with cost reporting periods beginning on or after
October 1, 2007. Therefore, in the RY 2008 LTCH PPPS proposed rule (72
FR 4801), we did not propose to make any adjustments for geographic
reclassification, rural location, DSH, or IME. However, we noted that
we will continue to collect and interpret new data as they become
available in the future to determine if these data support proposing
any additional payment adjustments. We also reiterated our belief that
it is appropriate to wait for the conclusion of the 5-year transition
to 100 percent of the Federal rate under the LTCH PPS, to maximize the
availability of data that are reflective of LTCH behavior in response
to the implementation of the LTCH PPS to be used to conduct a
comprehensive evaluation of the potential payment adjustment policies
(such as rural location, DSH and IME) in conjunction with our
evaluation of the possibility of making a one-time prospective
adjustment to the LTCH PPS rates provided for at Sec. 412.523(d)(3).
Therefore, in this final rule, we are not making any adjustments
for geographic reclassification, rural location, DSH, or IME under the
LTCH PPS for RY 2008. As noted above, we will continue to collect and
interpret new data as they become available in the future to determine
if these data support proposing any additional payment adjustments. We
plan to conduct a comprehensive evaluation of the potential payment
adjustment policies (such as rural location, DSH and IME) in
conjunction with our evaluation of the possibility of making a one-time
prospective adjustment to the LTCH PPS rates provided for at Sec.
412.523(d)(3) after the conclusion of the 5-year transition to 100
percent of the Federal rate under the LTCH PPS.
5. Budget Neutrality (BN) Offset To Account for the Transition
Methodology
Under Sec. 412.533, we implemented a 5-year transition, during
which a LTCH is paid a total LTCH PPS payment that is comprised of an
increasing percentage of the LTCH PPS Federal prospective payment rate
and a decreasing percentage of its payments based on the reasonable
cost-based payment principles for each discharge. Furthermore, we allow
a LTCH (other than those defined as ``new'' under Sec. 412.23(e)(4))
to elect to be paid based on 100 percent of the standard Federal rate
in lieu of the blended methodology.
The standard Federal rate was determined as if all LTCHs will be
paid based on 100 percent of the standard Federal rate. As stated
earlier, we provided for a 5-year transition period that allows LTCHs
to receive LTCH PPS payments in which a component incorporates
reasonable cost principles. To maintain BN for FY 2003 as required by
section 123(a)(1) of the BBRA during the 5-year transition period, we
reduce all LTCH Medicare payments (whether a LTCH elects payment based
on 100 percent of the Federal rate or whether a LTCH is being paid
under the transition blend methodology) to account for the cost of the
applicable transition period methodology in a given LTCH PPS rate year.
Specifically, during the LTCH PPS rate years governed under the 5-
year transition policy at Sec. 412.533(a), we reduce all LTCH Medicare
payments during the 5-year transition by a factor that is equal to 1
minus the ratio of the estimated TEFRA reasonable cost-based payments
that would be made if the LTCH PPS was not implemented, to the
projected total Medicare program PPS payments (that is, payments made
under the transition methodology and the option to elect payment based
on 100 percent of the Federal rate).
In the RY 2007 LTCH PPS final rule (71 FR 27841), based on the best
available data at that time, we projected that approximately 98 percent
of LTCHs will be paid based on 100 percent of the standard Federal rate
rather than receive payment under the transition blend methodology for
the 2006 LTCH PPS rate year. Using the same methodology described in
the August 30, 2002 LTCH PPS final rule (67 FR 56034), this projection,
which used updated data and inflation factors, was based on our
[[Page 26901]]
estimate that either: (1) A LTCH has already elected payment based on
100 percent of the Federal rate prior to the start of the 2007 LTCH PPS
rate year (July 1, 2006); or (2) a LTCH would receive higher payments
based on 100 percent of the 2007 LTCH PPS rate year standard Federal
rate compared to the payments it would receive under the transition
blend methodology. Similarly, we projected that the remaining 2 percent
of LTCHs would choose to be paid based on the applicable transition
blend methodology (as set forth under Sec. 412.533(a)) because they
would receive higher payments than if they were paid based on 100
percent of the 2007 LTCH PPS rate year standard Federal rate.
Also in the RY 2007 LTCH PPS final rule (71 FR 24202), based on the
best available data at that time and policy revisions described in that
same rule, we projected that in absence of a transition BN offset, the
full effect of the final full year of the transition period (including
the election option) as compared to payments as if all LTCHs would be
paid based on 100 percent of the Federal rate would result in a
negligible cost to the Medicare program (that is, less than $1 million
in RY 2007). Because the $1 million in estimated costs to the Medicare
program was such a small percentage of the estimated total LTCH
payments for RY 2007 (over $5 billion), the formula that we use to
establish the BN offset resulted in a factor, which we reduce all
Medicare payments by to account for the additional costs of the
transition methodology of zero (due to rounding). Therefore, we
established a zero percent transition period BN offset to all LTCH PPS
payments for discharge occurring on or after July 1, 2006 through June
30, 2007, to account for the estimated cost of the transition period
methodology (including the option to elect payment based on 100 percent
of the Federal rate) in RY 2007. Furthermore, in that same final rule
(71 FR 27841), we explained that we are no longer projecting a small
cost for the 2008 LTCH PPS rate year (July 1, 2007 through June 30,
2008) even though some LTCHs will have a cost reporting period for the
5th year of the transition period which will be concluding in the first
3 months of the 2008 LTCH PPS rate year. This is because, based on the
most available data, we are projecting that the vast majority of LTCHs
would have made the election to be paid based on 100 percent of the
Federal rate rather than the transition blend which would result in a
negligible cost to the Medicare program. In fact, as discussed in the
RY 2008 LTCH PPS proposed rule (72 FR 4802), based on the most recent
available data at that time from the July 2006 update of the PSF, we
continue to estimate that nearly all (over 98 percent) LTCHs are
currently being paid based on 100 percent of the Federal rate (rather
than the transition blend methodology). Even for those few remaining
LTCHs paid under the transition blend methodology set forth at Sec.
412.533(a), the majority of their LTCH PPS payments are now based on at
least 80 percent of the Federal rate and 20 percent of the reasonable
cost amount (for cost reporting periods beginning during FY 2006) since
there are no longer any LTCHs in their cost reporting periods that
began during FY 2003 through FY 2005 (the first three years of the 5-
year transition period). Therefore, in that same proposed rule, we
explained that we continue to believe that there would be no measurable
estimated cost to the Medicare program due to the transition period
methodology (including the option to elect payment based on 100 percent
of the Federal rate) in RY 2008. Accordingly, we did not propose a
transition BN offset to all LTCH PPS payments for discharges occurring
on or after July 1, 2007 through June 30, 2008, to account for the
estimated cost of the transition period methodology (including the
option to elect payment based on 100 percent of the Federal rate, since
some LTCHs may still be paid under the 4th year of the transition blend
methodology, specified at Sec. 412.533, for the first 3 months of RY
2008) in RY 2008.
We received no comments on this proposal, and based on the most
recent available data from the December 2006 update of the PSF, we
continue to estimate that nearly all (over 98 percent) LTCHs are
currently being paid based on 100 percent of the Federal rate (rather
than the transition blend methodology). Therefore, we continue to
believe that there would be no measurable estimated cost to the
Medicare program due to the transition period methodology (including
the option to elect payment based on 100 percent of the Federal rate)
in RY 2008. Accordingly, in this final rule, based on updated data and
using the same methodology established in the August 30, 2002 final
rule (67 FR 56034), we are not implementing a transition BN offset to
all LTCH PPS payments for discharges occurring on or after July 1, 2007
through June 30, 2008, to account for the estimated cost of the
transition period methodology (including the option to elect payment
based on 100 percent of the Federal rate, since some LTCHs may still be
paid under the 4th year of the transition blend methodology, specified
at Sec. 412.533, for the first 3 months of RY 2008) in RY 2008.
6. One-Time Prospective Adjustment to the Standard Federal Rate.
As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR
56036), consistent with the statutory requirement for BN in section
123(a)(1) of the BBRA, we estimated aggregate payments under the LTCH
PPS for FY 2003 to be equal to the estimated aggregate payments that
would be made if the LTCH PPS were not implemented. Our methodology for
estimating payments for purposes of the BN calculations used the best
available data at the time and necessarily reflected assumptions. As
the LTCH PPS progresses, we are monitoring payment data and will
evaluate the ultimate accuracy of the assumptions used in the BN
calculations (for example, inflation factors, intensity of services
provided, or behavioral response to the implementation of the LTCH PPS)
described in the August 30, 2002 LTCH PPS final rule (67 FR 56027
through 56037). To the extent these assumptions significantly differ
from actual experience, the aggregate amount of actual payments may
turn out to be significantly higher or lower than the estimates on
which the BN calculations were based.
Section 123(a)(1) of the BBRA as amended by section 307(b) of BIPA
provides broad authority to the Secretary in developing the LTCH PPS,
including the authority for establishing appropriate adjustments. Under
this broad authority to make appropriate adjustments, as implemented in
the existing Sec. 412.523(d)(3) (as revised in the RY 2007 LTCH PPS
final rule), we have provided for the possibility of making a one-time
prospective adjustment to the LTCH PPS rates by July 1, 2008, so that
the effect of any significant difference between actual payments and
estimated payments for the first year of the LTCH PPS would not be
perpetuated in the LTCH PPS rates for future years.
In the RY 2007 LTCH PPS final rule (71 FR 27842), based on the best
available data at that time, we estimated that total Medicare program
payments for LTCH services over the next 5 LTCH PPS rate years would be
$5.27 billion for the 2007 LTCH PPS rate year; $5.43 billion for the
2008 LTCH PPS rate year; $5.63 billion for the 2009 LTCH PPS rate year;
$5.86 billion for the 2010 LTCH PPS rate year; and $6.13 billion
[[Page 26902]]
for the 2011 LTCH PPS rate year. In the RY 2008 LTCH PPS proposed rule
(72 FR 4802 through 4803), based on the best available data at that
time, we estimated that total Medicare program payments for LTCH
services over the next 5 LTCH PPS rate years would be $4.65 billion for
the 2008 LTCH PPS rate year; $4.84 billion for the 2009 LTCH PPS rate
year; $5.02 billion for the 2010 LTCH PPS rate year; $5.24 billion for
the 2011 LTCH PPS rate year; and $5.48 billion for the 2012 LTCH PPS
rate year.
In this final rule, consistent with the methodology established in
the August 30, 2002 final rule (67 FR 56036), based on the most recent
available data, we estimate that total Medicare program payments for
LTCH services for the next 5 LTCH PPS rate years would be as shown in
Table 4.
Table 4
------------------------------------------------------------------------
Estimated payments ($ in
LTCH PPS rate year billions)
------------------------------------------------------------------------
2008...................................... $4.65
2009...................................... 4.85
2010...................................... 5.04
2011...................................... 5.25
2012...................................... 5.50
------------------------------------------------------------------------
In accordance with the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 56037), these estimates are based on
the most recent available data, including the projection that nearly
all LTCHs will be paid based on 100 percent of the LTCH PPS standard
Federal rate during the majority of RY 2008 (in accordance with the
transition blend percentages set forth at Sec. 412.533(a)). These
estimates are also based on our estimate of LTCH PPS rate year payments
to LTCHs using CMS's Office of the Actuary's (OACT) most recent
estimate of the RPL market basket of 3.2 percent for the 2008 LTCH PPS
rate year, 3.2 percent for the 2009 LTCH PPS rate year, 2.8 percent for
the 2010 LTCH PPS rate year, 3.1 percent for the 2011 LTCH PPS rate
year, and 3.2 percent for the 2012 LTCH PPS rate year. (We note that
OACT develops its spending projections based on existing policy.
Therefore, changes that have not yet been implemented are not reflected
in the spending projections shown in this section.) We also considered
OACT's most recent projections of changes in Medicare beneficiary
enrollment that estimate a change in Medicare fee-for-service
beneficiary enrollment of -0.1 percent in the 2008 LTCH PPS rate year,
0.7 percent in the 2009 LTCH PPS rate year, 0.3 percent in the 2010
LTCH PPS rate year, 0.6 percent in the 2011 LTCH PPS rate year, and 1.1
percent in the 2012 LTCH PPS rate year.
In the August 30, 2002 LTCH PPS final rule implementing the LTCH
PPS (67 FR 55954), we set forth the implementing regulations, based
upon the broad authority granted to the Secretary, under section 123 of
the BBRA as amended by section 307(b) of the BIPA. Section 123(a)(1) of
the BBRA required that the system ``maintain budget neutrality'' for FY
2003, that is, that estimated aggregate payments under the LTCH PPS
would be projected to be equal to the estimated aggregate payments that
would be made if the LTCH PPS would not be implemented for FY 2003. The
methodology for determining the LTCH PPS standard Federal rate for FY
2003 that would ``maintain budget neutrality'' is described in
considerable detail in the August 30, 2002 final rule (67 FR 56027
through 56037). As we discussed in that same final rule, our
methodology for estimating payments for the purposes of BN calculations
used the best available data and necessarily reflects assumptions in
estimating aggregate payments that would be made if the LTCH PPS was
not implemented. We also stated our intentions to monitor LTCH PPS
payment data to evaluate the ultimate accuracy of the assumptions used
in the BN calculations (for example, inflation factors, intensity of
services provided, or behavioral response to the implementation of the
LTCH PPS). To the extent that those assumptions significantly differ
from actual experience, the estimated aggregate amount of actual
payments during FY 2003 may result in significantly higher or lower
estimated payments than the estimates upon which the BN calculations
were based. In that same final rule, the Secretary exercised his broad
authority in establishing the LTCH PPS and provided for the possibility
of a one-time prospective adjustment to the LTCH PPS rates by October
1, 2006, in Sec. 412.523(d)(3) (this deadline was revised to July 1,
2008, in the RY 2007 LTCH PPS final rule). The purpose of that
provision was to prevent any significant difference between actual
payments and estimated payments for the 1st year of the LTCH PPS, when
we established the budget neutral Federal rate as required by the
statute (discussed previously), from being perpetuated in the PPS rates
for future years.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27842
through 27844), because the LTCH PPS was only recently implemented,
sufficient new data had not been generated that would enable us to
conduct a comprehensive reevaluation of our BN calculations. Therefore,
in that same final rule, we did not implement a one-time adjustment
under Sec. 412.523(d)(3) so that the effect of any significant
difference between actual payments and estimated payments for the 1st
year of the LTCH PPS would not be perpetuated in the PPS rates for
future years. However, we stated that we will continue to collect and
interpret new data as it becomes available in the future to determine
if this adjustment should be proposed. Therefore, in the RY 2007 LTCH
PPS final rule (71 FR 27842), we revised Sec. 412.523(d)(3) by
changing the original October 1, 2006 deadline (established in the
August 30, 2002 final rule that implemented the LTCH PPS) to July 1,
2008, to postpone the requirement due to the time lag in the
availability of Medicare data upon which this adjustment would be
based.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27843
through 27844), we now believe that after the conclusion of the 5-year
transition period, sufficient new data will be generated by the LTCH
PPS for a comprehensive reevaluation of our FY 2003 BN calculations.
Specifically, we explained that the final year of the 5-year transition
to LTCH PPS payments based on 100 percent of the Federal rate for all
LTCHs will begin for cost reporting periods beginning on or after
October 1, 2006 (FY 2007), and end with cost reporting periods
beginning before October 1, 2007 (FY 2008). After the conclusion of the
5-year transition period (October 1, 2007), we expect to have between 3
and 4 years (FY 2003 through FY 2006) of LTCH data generated since the
implementation of the LTCH PPS. We note that there is a lag time
between the submission of claims data and cost report data, and the
availability of that data in the MedPAR files and HCRIS, respectively.
Based on a comprehensive analysis of that data, we may then propose to
make a one-time prospective adjustment to the LTCH PPS rates as
provided for in Sec. 412.523(d)(3). As also explained in that same
final rule, we believe that postponing the deadline of the possible
one-time prospective adjustment to the LTCH PPS rates provided for in
Sec. 412.523(d)(3) to July 1, 2008, would result in the availability
of additional data generated under the LTCH PPS and, therefore, our
decisions regarding a possible adjustment would be based on more
complete and up-to-date data. This data would be reflective of LTCH
behavior in response to the implementation of the LTCH PPS.
Evaluating the appropriateness of the possible one-time prospective
[[Page 26903]]
adjustment will entail a thorough review of the actual Medicare costs
incurred by LTCHs during the first year of the LTCH PPS, that is, for
LTCH cost reporting periods beginning on or after October 1, 2002
through September 30, 2003. When we established the FY 2003 standard
Federal rate to be budget neutral, we used the most recent LTCH cost
data available at that time, and trended that data forward to estimate
what Medicare would have paid to LTCHs under the TEFRA payment system
if the PPS were not implemented (67 FR 56033). Our methodology for
estimating payments for the purposes of BN calculations, utilized the
best available data and necessarily reflected assumptions in estimating
aggregate payments that would have been made had the LTCH PPS not been
implemented. (The methodology for determining the LTCH PPS standard
Federal rate for FY 2003 that would ``maintain budget neutrality'' is
described in considerable detail in the August 30, 2002 LTCH PPS final
rule (67 FR 56027 through 56037).) In that same final rule (67 FR
56036), we also stated our intentions to monitor LTCH PPS data to
evaluate the ultimate accuracy of the assumptions used in the BN
calculations (for example, inflation factors, intensity of services
provided, or behavioral response to the implementation of the LTCH
PPS). To the extent that those assumptions significantly differed from
actual experience, the aggregate amount of actual payments during FY
2003 could be significantly higher or lower than the estimates upon
which the BN calculations were based.
At the outset of the LTCH PPS, we provided for the possibility of a
one-time prospective adjustment at Sec. 412.523(d)(3). Among other
things, we wanted the opportunity to adjust the LTCH PPS Federal
payment rate once data were available that reflected the actual cost-
based payments that would have been made under the Medicare program
during FY 2003 if the LTCH PPS had not been implemented, rather than
perpetuate any significant difference between actual payments and
estimated payments in the 1st year of the LTCH PPS used in determining
the Federal rate into future years. Therefore, in the RY 2007 LTCH PPS
final rule, we revised Sec. 412.523(d)(3) to postpone the adjustment
until July 1, 2008, because by that time, given the lag time typically
involved in the entire cost report settlement procedure, we believe we
will be able to utilize the most accurate data reflecting the actual
costs incurred by LTCHs for cost reporting periods beginning during FY
2003.
As we discussed in the RY 2008 LTCH PPS proposed rule (72 FR 4804),
we continue to believe that collecting and evaluating new data as it
becomes available will allow us to have the best data from the first
year of the LTCH PPS upon which to base an adjustment such as this. As
we explained in the RY 2007 LTCH PPS final rule (71 FR 27844), there
are many LTCHs with cost reporting periods from September 1 through
August 30 which first became subject to the LTCH PPS on September 1,
2003. Given the lag time required for typical cost report settlement
involving submission, desk review, and in some cases an audit, which
can take approximately 2 additional years to complete (and we expect to
audit a number of LTCH cost reports for the purpose of this analysis),
we explained that the October 1, 2006 deadline established Sec.
412.523(d)(3) was no longer reasonable or realistic. In fact, we
believe that for cost reports for providers on August 2004 fiscal year
ending date, we would be in possession of the most reliable cost report
data, indicating the actual costs of the Medicare program of the LTCH
PPS during the year in which we established the Federal payment rate by
July 2007. Any proposed adjustment under Sec. 412.523(d)(3), if
finalized could then be implemented on July 1, 2008. Therefore, in the
RY 2008 LTCH PPS proposed rule, we did not propose to make a one-time
adjustment under Sec. 412.523(d)(3) since we believe that we still do
not have sufficient new data to enable us to conduct a comprehensive
reevaluation of our FY 2003 BN calculations (as discussed in greater
detail above in this section).
Comment: We received a few comments in support of waiting another
year (that is, until RY 2009) to make the one-time BN adjustment to
benefit from the availability of better data. However, some other
commenters noted that considering all of the payment adjustments we
have made to the LTCH PPS since it was implemented on October 1, 2002,
there is no need for a one-time BN adjustment to ensure that aggregate
payments under the LTCH PPS would equal approximately the amount that
would have been paid to LTCHs under TEFRA had the LTCH PPS not been
implemented.
Response: We agree with the commenters that any one-time adjustment
under Sec. 412.523(d)(3) should be based on the most complete and up-
to-date data available for a comprehensive analysis of the actual
Medicare costs incurred by LTCHs during the first year of the LTCH PPS.
As discussed in greater detail above, given the lag time required for
typical cost report settlement and the lag time in data availability,
after the conclusion of the 5-year transition period (October 1, 2007),
we expect to have between 3 and 4 years (FY 2003 through FY 2006) of
LTCH data generated since the implementation of the LTCH PPS.
Specifically, we expect that we will be in possession of the most
reliable cost report data, indicating the actual costs of the Medicare
program of the LTCH PPS during the year in which we established the
standard Federal base payment rate by July 2007, and any proposed
adjustment under Sec. 412.523(d)(3), if finalized could then be
implemented on July 1, 2008.
We recognize that there have been many changes to the payment rates
and policies under the LTCH PPS since its implementation over 5 years
ago. Many of these changes have been implemented as a result of our on-
going monitoring of LTCH data and changes in LTCHs' behavior in
response to the implementation of the LTCH PPS. As discussed above, the
purpose of the one-time adjustment under Sec. 412.523(d)(3) is to
prevent any significant difference between actual payments and
estimated payments from the first year of the LTCH PPS, when we
established the budget neutral Federal rate as required by the statute,
from being perpetuated in the PPS rates for future years. As discussed
above, our methodology for estimating payments for the purposes of BN
calculations when the LTCH PPS was implemented used the best available
data and necessarily reflects assumptions in estimating aggregate
payments that would be made if the LTCH PPS was not implemented. To the
extent that those assumptions significantly differ from actual
experience, the aggregate amount of actual payments may result in
significantly higher or lower payments than the estimates upon which
the BN calculations were based. Therefore, we established in
regulations at Sec. 412.523(d)(3) the possibility of a one-time
prospective adjustment to the LTCH PPS rates to prevent any significant
difference between actual payments and estimated payments from being
perpetuated in the LTCH PPS rates for future years (as described in
greater detail above in this section). Among the changes that have been
made to the LTCH PPS since its implementation include updates to the
standard Federal rate as set forth under Sec. 412.523(c)(3). We note
that we will take into consideration such changes
[[Page 26904]]
when we evaluate the most recent complete available data for the
purposes of determining whether to propose a one-time prospective
adjustment to the LTCH PPS rates under Sec. 412.523(d)(3) in the RY
2009 proposed rule.
For the reasons discussed in this section, we believe that we still
do not have sufficient new data to enable us to conduct a comprehensive
reevaluation of our FY 2003 BN calculations. Accordingly, in this final
rule, we are not making a one-time adjustment under Sec. 412.523(d)(3)
at this time.
V. Other Policy Changes for the 2008 LTCH PPS Rate Year
A. Short Stay Outlier (SSO) Cases
1. Background
In the Prospective Payment System for LTCHs: Implementation and FY
2003 Rates final rule (67 FR 55954, August 30, 2002) (hereinafter
referred to as the FY 2003 LTCH PPS final rule), under Sec. 412.529,
we established a special payment policy for SSO cases, that is cases
with a covered LOS that is less than or equal to five-sixths of the
geometric average LOS for each LTC-DRG. When we established the SSO
policy, we explained in the FY 2003 LTCH PPS final rule that ``[a]
short-stay outlier case may occur when a beneficiary receives less than
the full course of treatment at the LTCH before being discharged.'' (67
FR 55995) Also in the FY 2003 LTCH PPS final rule, we stated that when
we first described the policy, in the Prospective Payment System for
LTCHs: Implementation and FY 2003 Rates proposed rule (67 FR 55995,
March 27, 2002), ``* * * we based the proposed policy on the belief
that many of these patients could have been treated more appropriately
in an acute hospital subject to the acute care hospital inpatient
prospective payment system''. Therefore, under the LTCH PPS, we
implemented a special payment adjustment for SSO cases. Under the
original SSO policy, for LTCH PPS discharges with a covered LOS of up
to and including five-sixths the geometric average LOS for the LTC-DRG,
we adjusted the per discharge payment under the LTCH PPS by the least
of 120 percent of the estimated cost of the case, 120 percent of the
LTC-DRG specific per diem amount multiplied by the covered LOS of that
discharge, or the full LTC-DRG payment 67 FR 55995 through 56000).
As noted previously, generally LTCHs are defined by statute as
having an ALOS of greater than 25 days. We stated that we believed that
the SSO payment adjustment results in more appropriate payments, since
these cases most likely did not receive a full course of a LTCH-level
of treatment in such a short period of time and the full LTC-DRG
payment would generally not be appropriate. Payment-to-cost ratio
analyses indicated that if LTCHs received a full LTC-DRG payment for
those cases, they would have been significantly ``overpaid'' for the
resources they have actually expended in treating those patients (67 FR
55995 through 56000).
Furthermore, in establishing the SSO policy, we stated that we
believed that providing a reduced payment for SSO cases would
discourage hospitals from admitting these patients. We also believed
that the policy did not severely penalize providers that, in good
faith, had admitted a patient and provided some services before
realizing that the beneficiary could receive more appropriate treatment
at another site of care. As we explained in the FY 2003 LTCH PPS final
rule, establishing a SSO payment for these types of cases addresses the
incentives inherent in a discharge-based PPS for LTCHs for treating
patients with a short LOS (67 FR 55995 through 56000).
2. Additional Discussion of the SSO Payment Formula
In the FY 2003 LTCH PPS final rule, when we first presented our
rationale for establishing the SSO policy, we had proposed an
adjustment to ensure appropriate payment for cases that we believed may
have been transferred from an acute hospital prematurely. Even if a
patient was an appropriate admission to the LTCH, we also believed that
a short stay case at a LTCH most likely did not receive a full course
of medical treatment during the short stay and that a full LTC-DRG
payment would therefore, be inappropriate (67 FR 55995 through 56000).
In keeping with these concerns, and based on an evaluation of data
from more than 3 years of the LTCH PPS, which revealed that a large
percentage of SSOs had a covered LOS of 14 days or less, we revised our
payment policy for SSO cases in the RY 2007 LTCH PPS final rule for
subclause (I) LTCHs (71 FR 27845 through 27870).
Consistent with the Secretary's broad authority ``to provide for
appropriate adjustments to the long-term hospital payment system * *
*'' established under section 123 of the BBRA as amended by section
307(b)(1) of BIPA, for RY 2007, we reduced the cost-based option of the
SSO policy adjustment to 100 percent of the estimated costs of the case
for discharges occurring on or after July 1, 2006. We believed that by
reducing the Medicare payment to a LTCH for a specific SSO case so that
it would not exceed the estimated costs incurred for that case, we
would be removing what we believed could be a financial incentive to
admit and treat SSO cases that the then existing policy had established
for LTCHs. We did not change the payment option of 120 percent of the
per diem for a specific LTC-DRG multiplied by the covered LOS for that
case because as described in detail in the FY 2003 final rule LTCH PPS,
when we first established the SSO policy, we found that by adjusting
the per discharge payment by paying at 120 percent of the per diem LTC-
DRG payment, once a stay reaches five-sixths of the geometric average
LOS for the LTC-DRG, the full LTC-DRG payment will have been made (67
FR 55999). We continue to believe that this specific methodology, which
results in a gradual increase in payment as the LOS increases without
producing a significant payment ``cliff'' at any one point, provides a
reasonable payment option under the SSO policy.
However, an analysis of the FY 2004 MedPAR data indicated that even
under the existing SSO policy, LTCHs were admitting short stay patients
that we believe could have continued treatment at the acute care
hospitals (paid for under the IPPS) but could have been actually being
prematurely discharged to LTCHs. Therefore, in the RY 2007 LTCH PPS
final rule, we added a fourth payment option. This fourth payment
alternative, a blend of an LTCH PPS amount that is comparable to the
IPPS per diem payment amount, and 120 percent of the LTC-DRG per diem
payment amount, as described below in this section, reflects our belief
that as the length of a SSO stay increases, the case begins to resemble
a more ``typical'' LTCH stay and, therefore, it is appropriate that
incrementally, payment should be based more on what would otherwise be
payable under the LTCH PPS and less on the IPPS-comparable amount.
(Specifics of calculating the IPPS-comparable amount are set forth in
considerable detail in the RY 2007 LTCH PPS final rule (71 FR 27852
through 27853).
We noted at the outset of the LTCH PPS for FY 2003, that the LTCH
standard rate was calibrated based on LTCH resources expended in
treating a patient population requiring long stays. Therefore, in
establishing the SSO policy at the beginning of the LTCH PPS, we
determined that it was appropriate that we not pay a full LTC-DRG
payment for a patient stay not requiring those resources (67 FR 55995
through 56000). Our revision of the payment formula for SSOs for RY
2007 reflected our belief that where a case
[[Page 26905]]
met our definition of a SSO at Sec. 412.529(a), as the covered LOS
increased, the case began to more closely resemble a characteristic
LTCH case (and less like a short term acute care hospital case).
Therefore, it was appropriate to base an increasing percentage of
payment for SSOs on the LTC-DRG payment amount and a decreasing
percentage of the LTCH PPS payment amount based upon the IPPS-
comparable amount.
We continue to believe that in defining a LTCH as a hospital with
an inpatient ALOS of greater than 25 days in section
1886(d)(1)(B)(iv)(I) of the Act, that the Congress was focusing on LOS
as the essential characteristic of this provider category. Furthermore,
we believe that the statutory change requiring the establishment of the
LTCH PPS emphasized that the payment system should reflect the
different resource use related to inpatient hospital services provided
by hospitals specified by section 1886(d)(1)(B)(iv) of the Act, that
is, by LTCHs (71 FR 27865). Specifically, we believe that the language
of the statute indicates that the Congress believed that LTCHs treat or
should be treating patients with different medical needs which results
in those patients having a significantly longer LOS than those acute
care hospital patients that we pay for under the IPPS.
In section 4422 of the BBA of 1997, which required that the
Secretary develop a legislative proposal for the establishment of a PPS
for LTCHs, the Congress specified that the system ``shall include an
adequate patient classification system that reflects the differences in
patient resource use and costs among such hospitals.'' Section 123 of
the BBRA of 1999, which required implementation of a PPS for LTCHs for
cost reporting periods beginning on or after October 1, 2002,
specified, among other things, that the system be a per discharge
payment system, based on diagnosis-related groups (DRGs), and
``reflects the differences in patient resource use and costs'' of LTCH
patients. Section 307(b) of the BIPA of 2000 required the Secretary
``to examine the feasibility and the impact of basing payment under
such a system on the use of existing (or refined) hospital DRGs that
have been modified to account for different resource use of LTCH
patients.''
When we developed the LTCH PPS for FY 2003, the most recently
available MedPAR data (generally, for FYs 1998 and 1999) revealed that
52 percent of the Medicare patients at LTCHs nationwide had a LOS of
less than two-thirds of the ALOS for the LTC-DRG to which they were
grouped. Of these cases, 20 percent had stays of less than 8 days.
Since payments under the LTCH PPS were based on the resources necessary
for treatment requiring long term hospital-level stays, beginning with
the start of the LTCH PPS, we established the SSO policy, to provide
appropriate payment for stays that were significantly shorter than the
ALOS for each specific LTC-DRG.
The original SSO policy focused on our concerns that a SSO patient
would generally receive less than the full course of treatment at the
LTCH before being discharged and a full LTC-DRG payment would not be
appropriate (67 FR 55943, 55995 through 55996). As we noted in the RY
2007 LTCH PPS final rule, when we revised the SSO policy based on our
analysis of the nearly 3 years of data since we designed the LTCH PPS,
we believed that our SSO policy should reflect our conviction that many
SSO patients could otherwise have continued to receive appropriate care
in the acute care hospital from which they were admitted. Had these
patients not been discharged from the acute care hospital, the
additional days of treatment would have continued to have been paid for
under the IPPS (71 FR 27845 through 27865).
Section 123 of the BBRA, as amended by section 307(b) of the BIPA,
confers broad authority on the Secretary to implement a PPS for LTCHs,
including provisions for appropriate adjustments to the payment system.
This broad authority gives the Secretary flexibility to fashion a LTCH
PPS based on both original policies, as well as concepts borrowed from
other payment systems that are adapted, where appropriate to the LTCH
context. In the RY 2007 LTCH PPS final rule, we formulated a payment
adjustment under the LTCH PPS that we believed would result in an
appropriate payment adjustment for those inpatient stays that we
believe are not characteristic of LTCHs but could more appropriately be
treated in another setting.
Subsequent to the RY 2007 LTCH PPS final rule, we have performed
additional analysis of more recent data FY 2005 MedPAR data, and have
determined that 42 percent of LTCH SSO discharges, or approximately
19,750 cases, had lengths of stay that were less than or equal to the
average LOS plus one standard deviation of an IPPS discharge that is
the same DRG as the LTC-DRG to which the case was assigned. (One
standard deviation is a statistical test which measures the certainty
of the average of a set of measurements for the purpose of data
analysis. The standard deviation is the quantity commonly used by
statisticians to measure the variation in a data set.) We believe that
it is appropriate to compare the covered LOS of a LTCH case grouped to
a particular LTC-DRG to the ALOS plus one standard deviation for the
corresponding DRG under the IPPS. At one standard deviation, we have
identified approximately 68 percent of the IPPS cases within that DRG
that were discharged from acute care hospitals and paid for under the
IPPS. Using the statistical test of one standard deviation of the ALOS
for each DRG under the IPPS, identifies the majority of IPPS discharges
in any DRG.
We believe that the 42 percent of LTCH SSO cases in the RY 2005
MedPAR files with lengths of stay that are equal to or less than the
IPPS ALOS plus one standard deviation for the same DRGs under the IPPS
appear to be comparable to typical stays at acute care hospitals.
Although LTCHs are certified by Medicare as acute care hospitals,
we believe that the Congress intended for the higher LTCH PPS payments
to be made to LTCHs that treat patients requiring prolonged hospital-
level care. Payments under the LTCH PPS, in compliance with the
statutory mandates, have been calibrated based on ``the different
resource use'' of LTCHs. We believe that we are ``overpaying,'' under
the LTCH PPS, for those SSO cases in LTCHs with covered lengths of stay
that are equal to or less than the typical IPPS ALOS (that is, a LOS
that is less than or equal to the average IPPS LOS plus one standard
deviation for the same DRG under the IPPS).
We further believe that in excluding LTCHs from being paid under
the IPPS, the Congress also recognized several types of hospital-level
providers that offered a different type of treatment than could
reasonably be paid for under the IPPS. Specifically, in the FY 2002
LTCH PPS final rule, we reviewed the history of LTCHs as hospitals
excluded from the IPPS. At that time we quoted the legislative history
of the 1983 Social Security Amendments which stated, with regard to
LTCHs, that the ``DRG system was developed for short-term acute care
general hospitals and as currently constructed does not adequately
account for special circumstances of diagnoses requiring long stays''
(Report of the Committee on Ways and Means, U.S. House of
Representatives, to Accompany HR 1900, H.R. Rept. No. 98025, at 141
(1983) (67 FR 55957)). Therefore, from the very outset of the IPPS, the
Congress distinguished LTCHs from short term acute care hospitals by
patients' lengths
[[Page 26906]]
of stay. The PPS for LTCHs that we implemented in FY 2003, complied
with the statutory mandate, cited above in this section, that payments
under the LTCH PPS be calibrated based on ``the different resource
use'' of these long-stay LTCH patients. Consequently, as we stated in
the RY 2007 LTCH PPS final rule, we believe that ``LTCHs that admit SSO
patients with lengths of stay more typical of an acute care hospital
may be, in fact, behaving like acute care hospitals'' (71 FR 27847),
and we also believe that it is reasonable for payments under the LTCH
PPS for such cases to reflect this behavior.
MedPAR data indicate that for the approximately 350 LTCHs in
existence during FY 2005 that discharged approximately 130,000 cases,
46,600 discharges were SSO patients. During that same period, the
approximately 3,600 acute care hospitals throughout the United States
discharged approximately 12.7 million Medicare beneficiaries. At the
approximately 3,600 acute care hospitals, treatment for Medicare
patients is paid for under the IPPS, including those cases with a LOS
that is the same as the LOS for SSO treated at a LTCH. However at a
LTCH, even under the blend payment option of the SSO policy that we
established for RY 2007, a percentage of the payment for those short
stay patients at LTCHs may be based on a payment rate that was
calculated to reflect the ``different resource use'' at LTCHs as
compared to payment based on DRGs at acute care hospitals paid for
under the IPPS. We believe that based on this analysis under the
existing SSO policy for short stay patients where the patient's LOS is
less than or equal to the average LOS plus one standard deviation for
the same DRG at an acute care hospital, paid for under the IPPS, our
blended payment methodology could result in an excessive payment.
Our data further indicates that typically LTCHs admit approximately
80 percent of their patients from acute care hospitals where their
urgent conditions have been diagnosed, treated, and stabilized. We
believe that when these patients are admitted to a LTCH for an
extremely short stay, the LTCH appears to be serving as a step-down
unit of the acute care hospital (71 FR 27857 through 27858). (Section
1886(d)(1)(B) of the Act, provides for the establishment of
rehabilitation and psychiatric units of section 1886(d) hospitals (that
is, acute care hospitals paid for under the IPPS) but not LTCH units.)
As we stated in the RY 2007 LTCH PPS final rule, ``* * * an
analysis of the CY 2004 MedPAR files revealed that for specified DRGs
for acute care cases following ICU/CCU days, there were significantly
fewer `recuperative' days (nearly 50 percent) for acute care outlier
patients that were discharged from the acute care hospital and then
admitted to a LTCH than for those patients that were discharged from
the acute care hospital and not subsequently admitted to a LTCH. For
example, under the IPPS for DRG 475 (Respiratory system diagnosis with
ventilator support) and DRG 483 (Trach with mechanical vent 96+ hours
or PDX except face, mouth and neck diagnosis), the number of
`recuperative' days were considerably shorter at the acute care
hospital if there was a discharge at the acute care hospital followed
by an admission to a LTCH.'' (71 FR 27857) The data in Table 5 is
consistent with our belief that many LTCHs appear to be admitting some
SSO patients that could have received the care at the acute care
hospital.
Table 5.--HCO LOS, ICU/CCU LOS, and Post-ICU/CCU LOS for Selected Inpatient DRGs by Post-discharge Status
[Live discharges only]
----------------------------------------------------------------------------------------------------------------
Outlier
DRG Cases LOS ICU/CCU Post ICU/
days CCU days
----------------------------------------------------------------------------------------------------------------
475 (no LTCH)..................................................... 3,887 32.5 20.5 12
475 (with LTCH)................................................... 515 29.6 22.6 7
483 (no LTCH)..................................................... 3,257 73.6 53.6 20
483 (with LTCH)................................................... 2,353 45.7 41 4.7
----------------------------------------------------------------------------------------------------------------
In our analysis of what we believe are excessive payments under the
existing LTCH PPS for the shortest SSOs, we focused on those SSO cases
where a LTCH patient's covered LOS at the LTCH is less than or equal to
the ALOS plus one standard deviation for the same DRG at acute care
hospitals (the ``IPPS comparable threshold'') and distinguishing
between those SSO cases with lengths of stay that are less than or
equal to the ``IPPS comparable threshold'' from those that exceed that
threshold.
For the purposes of this discussion, whether the LTCH SSO case is
within the ``IPPS comparable threshold'' is determined by comparing the
covered LOS of that SSO case which has been assigned to a particular
LTC-DRG to the ALOS for the same DRG under the IPPS. For example, if
the covered LOS of the LTCH SSO case is equal to or less than the
average LOS plus one standard deviation for the same DRG under the
IPPS, the LTCH SSO case would be within the ``IPPS comparable
threshold.'' In the RY 2008 LTCH PPS proposed rule, we stated that an
alternative payment option would be appropriate for such a case. We
indicated that we were considering the following approach: in cases
where the covered LOS was equal to or less than the ``IPPS comparable
threshold'' (defined above in this section) of the same DRG under the
IPPS, the SSO payment methodology could be revised so that payment
would be based upon the least of 100 percent of estimated costs of the
case as determined under Sec. 412.529(d)(2); 120 percent of the LTC-
DRG per diem multiplied by the covered LOS of the case as determined
under Sec. 412.529(d)(1); the Federal prospective payment for the LTC-
DRG as determined under Sec. 412.529(d)(3); or an LTCH PPS amount
comparable to the IPPS per diem amount as defined at Sec.
412.529(d)(4), not to exceed the full IPPS comparable amount.
We noted that the RTI Report discussed in Section XI. of the RY
2008 LTCH PPS proposed rule (72 FR 4818) included an RTI recommendation
that ``* * * for LTCH cases whose LOS is within 1 standard deviation of
the IPPS average LOS, LTCHs should be paid the IPPS rate. When this
occurs, it suggests that LTCH is providing general acute care for these
patients. This will allow LTCHs to treat these cases but be paid on an
equitable basis with other acute hospitals since the shorter length
stay would suggest general acute treatment is being provided.''
(Recommendation 11, p. 139) (We also included the Executive Summary of
the RTI Report as
[[Page 26907]]
Addendum B in the RY 2008 LTCH PPS proposed rule (72 FR 4884).)
Under the approach that we discussed in the RY 2008 LTCH PPS
proposed rule, SSO cases with covered lengths of stay exceeding the
``IPPS comparable threshold'' would continue to be paid under the
existing SSO payment policy at Sec. 412.529(c)(2) which is the least
of: 100 percent of the estimate cost of the case as determined under
Sec. 412.529 (d)(2); 120 percent of the per diem of the LTC-DRG
multiplied by the covered LOS of the case as determined under Sec.
412.529(d)(1); the Federal prospective payment for the LTC-DRG as
determined under Sec. 412.529(d)(3); or a blend of the 120 percent of
the LTC-DRG specific per diem amount and an amount comparable to the
IPPS per diem amount as set forth in Sec. 412.529 (c)(2)(iv). (The
methodology for the calculation of these amounts is specified at Sec.
412.529(d).)
However, for the shortest SSO cases (that is, if the LTCH patient's
covered LOS is less than or equal to the ``IPPS-comparable
threshold''), the IPPS comparable per diem amount, capped at the full
IPPS comparable amount that is used under the blend option of the
current SSO policy, could be the fourth payment option in the SSO
payment formula, replacing the blend option in the adjusted LTCH PPS
payment formula at existing Sec. 412.529(c)(2)(iv). We indicated that
we believed this approach to be appropriate because it would continue
to ensure that the LTCH PPS payments are appropriate for all cases;
including those with a LOS that resemble cases typically treated at
acute care hospitals.
However, we also indicated that, in considering this policy
direction, we did not believe that this approach for SSOs would be
appropriate for the specific situation of a subsection (II) LTCH (that
is, a LTCH meeting the definition specified in section
1886(d)(1)(B)(iv)(II) of the Act). We have addressed the uniqueness of
this type of LTCH in several notices ((62 FR 45966, 46016, and 46026),
(67 FR 55954 and 55974), (68 FR 34147 through 34148) (71 FR 27863)). We
believe that subclause (II) LTCHs operate under a unique Congressional
mandate which, as set forth in section 1886(d)(1)(B)(iv)(II) of the
Act, circumscribes such a LTCHs' admission policies to the extent that
it is being identified as a LTCH in order to provide a particular type
of service (for which the ALOS is greater than 20 days) to a particular
population (at least 80 percent have a principal diagnosis of
neoplastic disease) (68 FR 34147). Therefore, in the RY 2008 LTCH PPS
proposed rule (72 FR 4807), we indicated that exempting subsection (II)
LTCHs under this approach is consistent with positions regarding the
application of SSO policies to subclause (II) LTCHs. For example, in RY
2004, we provided a distinctive phase-in formula for subclause (II)
LTCHs (Sec. 412.529(e)), and in the RY 2007 LTCH PPS final rule, we
did not apply SSO policy revisions for subclause (I) LTCHs (Sec.
412.529(c)(2)) to subclause (II) LTCHs ((68 FR 34122, 34147 through
34148) (71 FR 27798, 27863)).
To encourage a thorough and accurate evaluation of this approach,
we included a column in Table 3 of Addendum A of the RY 2008 LTCH PPS
proposed rule (72 FR 4872 through 4884), which set forth the IPPS-
comparable threshold for each LTC-DRG. We noted that to determine the
``IPPS Comparable Threshold'' for some DRGs it was sometimes necessary
to supplement IPPS hospital statistical data due to a low volume of
IPPS cases grouped to those DRGs. In addition, although IPPS hospital
statistical data for the six transplant DRGs (103, 302, 480, 495, 512
and 513) and two error DRGs (469 and 470) may be available, we noted
that we could assign a value of zero for the ``IPPS Comparable
Threshold'' for these LTC-DRGs. This approach was consistent with our
on-going policy under the LTCH PPS to assign a value of 0.0000 to the
relative weights for these LTC-DRGs, as discussed in section III.D of
this final rule.
As we detailed in this discussion, we are concerned as to whether
it is appropriate to pay cases that have a covered LOS in the LTCH that
is less than or equal to the IPPS ALOS plus one standard deviation for
the same DRG more than would be paid under the IPPS for a similar case.
In the RY 2008 LTCH PPS proposed rule, we solicited comments on the
approach described above, as well as suggestions as to alternative ways
in which to address our concerns.
We received many comments on the possible revision to the SSO
policy that we discussed in the proposed rule. The commenters expressed
the views of trade associations representing LTCHs, both for-profit and
not-for-profit LTCH groups, medical corporations that include LTCHs,
State medical societies, a Chamber of Commerce, legislators, physicians
and other hospital staff, and several interested citizens. In general,
commenters did not support the policy approach that we discussed and
the payment effects that would result for LTCHs if the policy were
adopted.
Comment: A number of commenters stated that the IPPS-comparable
option that we discussed for payment under the SSO policy would be a
violation of the express will of the Congress in establishing the
category of hospitals that were excluded from the IPPS under section
1886(d)(1)(B) of the Act. In addition, these commenters stated that
under that provision the Congress acknowledged that these excluded
hospitals (that is, LTCHs, IRFs, IPFs, childrens hospitals, and cancer
hospitals) could not reasonably be paid under a PPS system that had
been designed to pay for treatment in acute care hospitals. Further,
these commenters stated that the approach we discussed would violate
the intent of the Congress (that is, as expressed in the BBRA of 1999
and the BIPA of 2000) to establish a unique PPS that is specific to
LTCHs.
Some of these commenters claimed that the proposed IPPS-comparable
option to the SSO payment policy would be forbidden under the statute
because such a payment option would ignore the ``differences in patient
resource use and cost'' at LTCHs. Some commenters criticized our use of
the phrase ``a payment otherwise comparable to what would have been
paid under the IPPS'' as a disingenuous attempt to ``side-step'' the
Congressional mandate that the LTCHs not be paid based on the acute
care IPPS. Generally, commenters expressed the view that, if we adopted
the approach described in the RY 2008 LTCH PPS proposed rule, we would
be violating the statutory intent that LTCHs be excluded from the IPPS
in adopting the proposed IPPS-comparable payment adjustment under the
revised SSO policy.
Some commenters specifically cited the Court's two-prong test for
validity of a regulation established under Chevron U.S.A., Inc. v.
Natural Resources Defense Counsel, Inc. 467 U.S. 837, 842-843 (1984),
and asserted that the policy we discussed would fail to pass that test.
Under the ruling, the Court asks whether the Congress addressed, in
clear language, the issue in question and, if the answer is
affirmative, the effect is given to the ``unambiguously expressed
intent of the Congress.'' If the ``statute is silent or ambiguous with
respect to the specific issue,'' the Agency's interpretation is allowed
to stand as long as it is based on a permissible construction of the
statute.'' Id. at 843. Deference to the Agency's interpretation is
``only appropriate when the agency has exercised its own judgment'' and
is not based upon an erroneous view of the statute. Commenters asserted
that the adoption
[[Page 26908]]
of the revised SSO policy that we discussed would clearly violate the
statutory requirement to pay LTCHs under a PPS separate and distinct
from the IPPS.
Response: We disagree with commenters' contention that the LTCH PPS
SSO policy that we described in the RY 2008 LTCH PPS proposed rule,
based on an IPPS comparable payment amount, constitutes payment under
the IPPS. Rather, the policy that we discussed adapts methodologies and
approximate payment amounts from the IPPS to specific cases under the
LTCH PPS. We have adapted many different features originally developed
under the IPPS for use in the LTCH PPS, including the DRG structure,
wage index adjustments (and wage index values), outlier payments, and
many others. We believe that none of these adaptations constitute
establishment of payment under the IPPS for LTCH hospitals.
In addition, section 123 of the BBRA, as amended by section
307(b)(1) of the BIPA, confers broad discretionary authority on the
Secretary to develop and implement a PPS for LTCHs, specifically
mandating a few specific features of the new system including ``a per
discharge prospective payment system'' that includes an ``adequate
payment classification system'' based on diagnosis-related groups
(DRGS) that reflects the differences in patient resource use and costs,
and shall maintain budget neutrality.'' Section 307(b)(1) of the BIPA
further provides that the Secretary ``may provide for appropriate
adjustments to the long-term hospital payment system, including * * *
outliers * * * '' We believe that these statutory provisions provide
broad authority and allow the Secretary great flexibility to fashion a
LTCH PPS based on both original policies, as well as concepts borrowed
from other payment systems that are adapted, where appropriate, to the
LTCH context. In the instant case, the SSO policy that we discussed in
the RY 2008 LTCH PPS proposed rule utilizes principles from the IPPS
payment methodology and builds upon those concepts to create a LTCH PPS
payment adjustment that results in an appropriate payment for those
inpatient stays that we believe do not necessarily belong in LTCHs but
could be treated in another setting. In this final rule, we are
adopting the approach we discussed to supplement our existing SSO
policy. Therefore, we disagree with commenters that the Secretary is
acting in contradiction of the statute and inconsistently with the
Chevron doctrine. On the contrary, we believe that this policy is
consistent with the direction given to the Secretary by the Congress in
the BBRA. The Congress specifically provided for the adoption of
appropriate adjustments to the LTCH PPS.
Comment: Several commenters similarly objected that adopting the
policy we discussed in the proposed rule would constitute a violation
of the Administrative Procedures Act (APA). Specifically, these
commenters objected that our discussion of the policy failed to satisfy
the APA's requirement that a notice of proposed rulemaking include
``the terms or substance of the proposed rule'' because we did not
provide ``specific regulatory language to implement'' the policy.
Commenters contended that, in the absence of this specific regulatory
language, interested parties are ``improperly limited in the degree to
which they are able to participate in the rulemaking process,'' even if
CMS receives comments on the policy discussed.
Response: We do not agree that adopting the policy approach
discussed in the proposed rule, in this final rule, would constitute a
violation of the APA. Specifically, we believe that we have complied
with all the applicable requirements in 5 U.S.C. 553. Among the
requirements of section 553, the notice shall include the terms or
substance of the proposed rule, or a description of the subjects or
issues involved. Our comprehensive discussion in the proposed rule set
forth the substance of the final SSO policy we are adopting in this
final rule and provided a complete description of the subject and
issues involved. Therefore, we believe we satisfied this and all other
applicable APA requirements. Our discussion of the policy in the RY
2008 LTCH PPS proposed rule that we are adopting in this final rule was
detailed and specific, and even detailed the impact the change would
have on payments to LTCHs, despite the absence of regulatory language.
We received 270 comments on the RY 2008 LTCH PPS proposed rule. As is
evident in our detailed discussion of these comments, commenters were
able to provide complex, specific, and pertinent discussion of ``the
terms or substance'' and ``description of the subjects and issues
involved'' of the policy that we discussed.
It may be worth noting that, despite the absence of proposed,
formal regulatory text, a number of commenters (including some who
raised this objection) referred to the revised SSO policy that we
discussed in the proposed rule with terms such as ``proposal,''
``proposed change,'' ``proposed SSO payment methodology,'' and
``proposed policy.'' We believe that commenters clearly understood both
the substance of the possible revised policy, and the fact that we
might adopt the revised policy in the final rule after review of the
comments.
Comment: Several commenters stated that adopting the policy
discussed in the RY 2008 LTCH PPS proposed rule would be premature,
since the existing SSO policy only became fully effective on October 1,
2006. Specifically, the commenters believe that there has not been
sufficient time to evaluate the impact and effectiveness of the policy
change adopted last year to provide for a blend of unadjusted LTCH
payment rates and IPPS-comparable LTCH PPS payment rates as one of the
formulas for determining payment of SSOs. Some commenters stated that,
as a result of last year's change, LTCHs no longer have an incentive to
knowingly admit these kinds of patients.
Response: While we understand the concerns of the commenters, we
believe that it is not premature to implement this revision to the SSO
policy. We have been studying these cases intensively since the
implementation of the LTCH PPS (which was fully effective for cost
reporting periods on or after October 1, 2002, contrary to the
implications of some commenters) and remain concerned that, in a
considerable number of cases, LTCHs may be receiving higher payment
than is warranted for cases that are also treated with similar lengths
of stay at IPPS hospitals. We have a responsibility to ensure that
Medicare trust fund is appropriately spent, and therefore, we do not
believe that we should delay adoption of a provision to preserve the
program's resources. However, if the commenters are indeed correct that
last year's policy change removed any incentive to admit these kinds of
SSO patients, the actual effect of the policy that we are now adopting
may be relatively small and we believe that it is the CMS's
responsibility to conserve the Medicare program's resources to the
maximum extent that is appropriate. Therefore, we are finalizing the
policy in this final rule.
Comment: Several commenters supported our goal of analyzing the
role of LTCHs as one of several treatment settings among post-acute
providers for Medicare beneficiaries. However, they urged us not to
finalize the SSO policy that we discussed in the proposed rule that
would include the alternative payment option for an SSO payment
comparable to the IPPS payment amount. These commenters believe that
finalizing this policy would result in drastic payment reductions and
[[Page 26909]]
consequential losses to the LTCHs. These commenters noted that our
discussion related to serious issues about the proper place for LTCHs
along the continuum of care for Medicare beneficiaries. The commenters
urged us not to address these issues through payment mechanisms, but to
arrive at ``clinically-based'' answers to these issues. Commenters also
recommended that we wait until Research Triangle Institute (RTI)
completes the next phase of its work, which includes a review of
proposed and existing criteria to restrict admission to LTCHs to
medically complex cases.
Response: The commenters are correct that the issue involves the
role of LTCHs in the continuum of beneficiary care. As a provider
category, LTCHs were created by section 1886(d)(1)(B)(iv)(I) of the Act
and defined by the statute as ``a hospital which has an average
inpatient length of stay (as determined by the Secretary) of greater
than 25 days.'' (Subclause (II) LTCHs, discussed below in these
responses, which were established under the BBA of 1997, qualify as
LTCHs under highly specific requirements.) As a ``prudent purchaser of
care,'' we believe that we have the mandate to pay appropriately for
the hospital-level services provided to Medicare beneficiaries. The RTI
study, as discussed in section XI. of the preamble to this final rule,
represents a highly significant step in evaluating the clinical role
for LTCHs. In addition to the RTI study, there is considerable
attention being focused by CMS on issues of substitution of services
among provider types, and the potential for the development of a
uniform assessment tool across post-acute providers. As RTI evaluates
the feasibility of identifying clinically-based criteria for LTCH
patients, we are concerned that patients with the same general medical
profile as the same types of patients that constitute some SSO cases in
the LTCH setting are also being treated at acute care hospitals, often
as HCO cases. Therefore, we are finalizing this specific revision to
the SSO policy, as discussed in the RY 2008 LTCH PPS proposed rule,
because we are concerned about the significant number of very short
stay patients currently receiving treatment at LTCHs. These are
patients with a LOS that is comparable to the LOS for many patients
(under the same DRG) treated in acute care hospitals and paid under the
IPPS. LTCHs in actuality are also acute care hospitals, they are a
provider type that is distinguished solely by its focus on long-stay
hospital-level care as compared to patients paid under the IPPS.
Comment: We received numerous comments that praised the quality
care given to Medicare beneficiaries by the LTCHs in their areas and
commenters urged us not to make significant cuts in Medicare payments
which they fear would result in reduced services. The commenters
asserted that the revision of the payment adjustment for SSO patients
as discussed in the RY 2008 LTCH PPS proposed rule will be detrimental
to the industry as costs of providing care will exceed payment.
Further, the commenters stated that underpayment to LTCHs will cause
patients with complex medical conditions to lose access to appropriate
care and increase costs to acute care hospitals which will be forced to
continue caring for these sicker patients. The commenters believed that
the proposed revisions to the SSO payment policy would have a profound
impact on the entire health care system of their communities since
their LTCHs are a critical component of the State health care delivery
system. They stated that since LTCHs offer specialized services not
available elsewhere, severe cutbacks for LTCHs could resonate
throughout the entire health care system.
One commenter noted that CMS made a statement that it does not
expect any changes in quality of care or access to services for
Medicare beneficiaries under the LTCH PPS based on proposed rule
policies. However, one of the commenters stated that a decrease in
payments will have pervasive effects on LTCHs. Moreover, the commenter
stated that the impact of changes in our payments to LTCHs because of
the proposed SSO policy revisions will not only affect services offered
to ``the most vulnerable patients,'' but also will have an impact on
the staff of the LTCHs. Several of the commenters specified that they
envision that acute care hospitals will be overtaxed and incur
additional costs without being able to provide ICU beds for patients
requiring short-term acute care services. They also stated that the
acute care hospitals in their communities may not be able to meet
patient needs for those needing LTCH services.
One commenter cited the experience of a local faith-based, not-for-
profit LTCH system that admits only very high acuity, long-term
patients and realizes exceptional quality, outcomes, and cost
effectiveness. But other LTCHs within the industry admit low acuity
patients. The commenter stated, ``* * * many LTCH providers seek to
admit chronically ill `slow-recovery' patients as a primary target
population. These patients have little difficulty meeting the 25-day
LTCH ALOS criteria, and while these patients may meet continued stay
criteria, we believe many could be cared for in a less acute setting.''
Response: We understand the serious concerns expressed by the
commenters and, although we are finalizing the SSO policy revisions as
were discussed in the RY 2008 LTCH PPS proposed rule, we want to assure
the commenters that we are aware of their concerns. We agree that if a
Medicare beneficiary is appropriately referred, and admitted, to one of
the approximately 400 LTCHs in the United States for a complex medical
condition, the beneficiary could receive excellent medical care from a
highly-trained and committed professional staff. However, we do not
believe that the revisions to the SSO policy that we are finalizing
will result in LTCHs going out of business or that significant services
would have to be curtailed with dire consequences for beneficiaries,
staff or the local medical care system. As noted elsewhere, our data
indicates the aggregate margins for LTCHs were 7.8 percent for FY 2003
and 12.7 percent for 2004. When we proposed the RY 2007 change to the
SSO policy, commenters also warned that the policy would result in the
closure of LTCHs with disastrous effects on the health care delivery
system in those areas of the country. However, after implementing the
proposed changes, we have not observed any significant reduction in the
number of available LTCH beds in the country. On the contrary, we
continue to observe that LTCHs are opening new LTCHs. Therefore, we
believe that even with decreased Medicare payments for SSO patients,
such as we are envisioning based on this finalized payment policy and
detailed in the Impact (see section XV. to this final rule), we believe
that LTCHs will generally be able to continue delivering high quality
medical care to their patients. However, we continue to believe that
acute care hospitals should not be discharging patients to LTCHs
without having provided a full episode of care and we also continue to
have concerns about LTCHs admitting those relatively short stay
patients who could otherwise be treated in acute care hospitals.
Comment: Many commenters stated that our proposed IPPS-comparable
payment option under the SSO policy could discourage physicians from
discharging patients from acute care hospitals and admitting them to
LTCHs. Thus, they charged that we were establishing a system in which
clinical judgment is trumped by determinations based solely on payment.
The commenters further stated that since
[[Page 26910]]
physicians discharge patients to LTCHs because it is in the patients'
best interests, we would be substituting our judgment for a physician,
setting a very dangerous precedent. The commenters also noted that
there is available data supporting the medical determination that
physicians are discharging patients to the LTCH setting because the
patient's needs are better served in the LTCH setting than in an acute
care hospital setting.
Response: Our objective for the revised SSO policy discussed in the
RY 2008 LTCH PPS proposed is to preclude LTCHs and physicians from
taking advantage of a system that significantly ``overpays'' (that is,
relative to what would be paid for the same DRG under the IPPS) for
patients that do not require the extensive resources that such high
payments are intended to support. As discussed subsequently in this
final rule, we recognize that some SSO cases are unavoidable due to
death or an unexpected clinical improvement and early discharge.
However, we have noted that in a community where both acute care and
LTCH beds are available, patients are routinely transferred from the
acute care hospital to the LTCH for the remainder of care because the
LTCH resource is available.
As we discuss below in this section, we further compared MedPAR
data on acute care hospitals regarding their LOS during CY 2003 to
their LOS during CY 2005 in markets where LTCHs opened in CY 2004. We
compared 304,650 acute care cases in CY 2004 to 316,816 cases in CY
2005. In CY 2003, there were 7,586 outliers, and in CY 2005, there were
5,858. The percentage of outliers in the acute care hospitals decreased
from 2.5 percent to 1.8 percent and the numbers of patients that were
admitted to LTCHs in those communities increased from 2,128 in CY 2003
to 6,597 in CY 2005. Furthermore, the percentage of acute care hospital
discharges to LTCHs increased from 0.7 percent in CY 2003 to 2.1
percent in CY 2005. The percentage decline in total outliers between
the CY 2003 and CY 2005 was -25.7 percent. The increase in LTCH
discharges from CY 2003 to CY 2005 was 198.1 percent.
We are concerned that this trend has increased exponentially
because it provides an acceptable disposition of the patient for the
physician, and because it is an expeditious means of lowering the acute
hospital's LOS and costs. We understand that the multidisciplinary
approach for certain complex patients (for example, ventilator weaning)
is appropriate. However, we are very concerned that the LTCH is
assuming the role of the acute care hospital for many patients, at a
far higher cost, which it is possible to do as long as the LTCH
continues to maintain an ALOS of 25 days for purposes of qualifying for
payments under the LTCH. Moreover, we do not believe that the payment
policy option that we are finalizing for SSO discharges will deter
physicians from delivering appropriate care to beneficiaries or from
making appropriate referrals in the interests of their patients to
LTCHs. Furthermore, LTCHs remain free to accept these patients. In
finalizing this payment policy, we are seeking to remove any financial
incentive that could encourage a LTCH to admit a patient from an acute
care hospital prior to that patient having received a full episode of
care at the acute care hospital.
Comment: Several commenters cited a study centered at Barlow
Respiratory Hospital that charted the course of ventilator weaning
treatment for 1419 medically unstable patients at 23 LTCHs from March
2002 through February 2003. The study reported that more than 50
percent of this group of patients were weaned from the ventilators and
showed improvement, both neurologically and functionally. The
commenters asserted that this study exemplifies the excellent level of
care for such patients at LTCHs.
Response: We agree with the commenters that the results of the
``Barlow'' study indicate a significant rate of very positive outcomes
for the very sick LTCH patients who were included in the study. In the
late 1990s, we sponsored a ventilator demonstration study which
included, among other acute care settings the Mayo Clinic and Temple
University Hospital that also reported impressive results. Furthermore,
we understand that the results of the Barlow study were used for the
establishment of national ventilator-weaning protocols issued by the
National Institutes of Health (NIH) and utilized by all acute care
hospitals. We also understand that input from the Temple University
program continues to be critical in formulating national standards. We
believe that these programs established a level of excellence that
should be emulated by all hospital-level facilities that treat
ventilator-dependent patients, including acute care hospitals, LTCHs,
and IRFs. Accordingly, we believe it is not simply the fact that the
patient is treated at a LTCH that is critical to predicting positive
results. Rather, it is the type of clinical intervention that is
furnished to the patient at the hospital. In many cases that
intervention is currently exemplified at acute care IPPS hospitals, as
well as at LTCHs.
Comment: Several commenters claimed that even for what we would
term ``appropriate'' admissions, our proposed payment option under the
SSO policy that could generate an IPPS-comparable payment will erect
barriers to the use of LTCHs. One commenter asserted that typical LTCH
patients (described by the commenter as elderly patients with
persistent multiple-system failures who are de-conditioned and
protocol-resistant) respond impressively to the aggressive blending of
therapeutic interventions, interdisciplinary teams, and medical
intervention that is not otherwise available in the community or
tertiary hospital setting. The commenter stated that from ``a case rate
reimbursement perspective,'' grouping such a ``treatment-resistant''
population with the rest of the general acute care population is highly
inappropriate. Some commenters asserted that even when adjusted for
HCOs, acute care hospitals are not designed or intended to provide
service to long-term care-type patients. The commenters emphasized that
acute care hospitals are not designed to provide extended care
services, unlike LTCHs, with their specially-trained expert staff and
clinicians and multi-disciplinary approaches. One commenter noted that
LTCHs are like acute care hospitals but must sustain a high level of
care for longer periods.
Response: We disagree with the contention that acute care hospitals
are not capable of providing extended hospital level care services such
as the care provided in LTCHs. Although there may be communities with
LTCHs where the acute care hospitals may have functionally
``restricted'' their services because of the presence of these LTCHs,
as well as because of the financial advantages and clinical niche that
they have sought to fill, acute care hospitals are equipped to provide
services to the same population, and the IPPS under which they are
paid, is calibrated based on the resources needed to treat those
patients. Moreover, because there are over 3,500 acute care hospitals
and approximately only 400 LTCHs, which are not distributed uniformly
throughout the U.S. (for example, few are located in California),
currently many acute care hospitals are providing care for the vast
majority of Medicare beneficiaries requiring the type of care described
by the these commenters. Our FY 2005 MedPAR files indicate that 20
percent of cases treated at acute care hospitals nationwide have
lengths of stay between 7 and 14 days (that is, 2,386,057 out of a
total of 11,855,205
[[Page 26911]]
cases). Additionally, 5.2 percent of acute care hospital cases
(617,219) or have LOS greater than 14 days. In those acute care
hospitals, we believe that during these longer periods those patients
are receiving the same high level of care in an acute care hospital
paid under the IPPS as they would receive as patients at a LTCH.
Comment: Several commenters claimed that we based our proposed
revision of the SSO policy that could have resulted in an IPPS-
comparable payment for a particular SSO case, on the incorrect
assumption that ``short stay'' LTCH patients are clinically similar to
short term acute care hospital patients. They stated that the SSO
thresholds (\5/6\ of the geometric ALOS for each LTC-DRG) were never
intended to be a measure of the appropriateness of a LTCH admission,
but rather, were mathematically-derived from the per diem payment
amounts, which were based on a methodology that would produce a
payment-to-cost ratio for SSO cases close to one. Furthermore, a
commenter stated the presence of a SSO patient does not indicate a
premature discharge from an acute care hospital, and cited that 11
percent of the patients had previously qualified as HCOs at the
referring acute care hospital.
Additionally, the commenters asserted that we are mistaken in our
claim that LTCHs can foresee the LOS for patients admitted to LTCHs or
predict likely deaths, where in actuality, upon admission, there is
generally no substantial clinical difference between long stay and
``short stay'' patients. Commenters found it to be incongruous that a
patient in LTC-DRG 475 (Respiratory System Diagnosis with Ventilator
Support) would still be an SSO patient (for example, 28 days for LTC-
DRG 475) and could be hospitalized in a LTCH for greater than 25 days
(the definition of a LTCH). A case such as this could be appropriately
treated in a LTCH. The commenters noted that physicians cannot and
should not be asked to predict the LOS or the likely death of severely
ill patients.
Commenters further asserted that we have made an erroneous
assumption that LOS equates to ``severity of illness'' (SOI) and is a
proxy for the appropriateness of an admission. However, the commenters
assert that this is not the case. They outlined another incorrect
belief in the proposed rule that LTCHs function like acute care
hospitals when they have patients for the same LOS. On the contrary,
the commenters asserted that SSO patients are being admitted because
they look just like ``inliers,'' and we have proposed that LTCHs absorb
payment rates that bear no relationship to the costs of furnishing
patient care at the LTCH level.
Furthermore, based on claims analysis, using the APR-DRGs, the
medical complexity and mortality rates of SSO patients, as measured by
the SOI and ``risk of mortality'' (ROM) standards are very similar to
that of the LTCH ``inlier'' patient population. The commenters further
presented comparisons between these measures for SSO patients and for
patients with the same DRGs in acute care hospitals, indicating that 52
percent of all patients admitted to LTCHs were in the highest APR-DRG
ROM categories, whereas only 24 percent of acute care patients are in
those same categories, resulting in a total percentage of APR-DRGs 3
and 4 at LTCHs among the SSO population that is approximately double
that of acute care hospitals. The commenters noted that higher patient
acuity correlates to higher utilization of facility resources, and
hence, higher costs, which argues against our proposed policy that
would significantly lower reimbursements for SSO cases. Several
commenters also provided a comparison of case mix indices (CMI) for
LTCH SSO cases and cases at acute care hospitals. The commenters
asserted that SSOs at LTCHs have a relative CMI that parallels the CMI
of LTCH ``inlier'' cases at LTCHs and which is 72 percent higher than
the comparable CMI at acute care hospitals.
Response: We understand that not every SSO patient can be so
identified at the time of admission to a LTCH. Further, we recognize
that many patients who will eventually be defined as SSO patients
because their LTCH stay is equal to or less than \5/6\ of the geometric
ALOS for their particular LTC-DRG, may, upon admission, present the
same severity of illness and risk of mortality as ``inlier'' LTCH
patients. As we discuss subsequently in this final rule, we selected
the threshold of one standard deviation above the average LOS of an
IPPS discharge as an appropriate measure to select the subset of SSO
cases that are typically treated in acute care hospitals. We agree that
the general SSO threshold (\5/6\ of the geometric ALOS for each LTC-
DRG) was never meant to be a measure of the appropriateness of a LTCH
admission, but rather, was mathematically-derived from the per diem
payment amounts. We believe this enabled us to arrive at a reasonable
payment policy at the outset of the LTCH PPS for cases that had lengths
of stay significantly shorter than those patients fitting the typical
profile of those who are treated at LTCHs. We recognize that a LTCH
admission could be a medically-complex admission (an appropriate LTCH
admission) with a relatively long LOS and still be considered an SSO
case. We also acknowledge that, in some cases, LTCH admissions could
also have qualified as HCOs at the referring acute care hospital.
However, we still have concerns that patients in LTC-DRGs with
significantly shorter stays than the ALOS for that particular DRG might
have been unnecessarily admitted to the LTCH rather than receiving
their care at an acute care hospital. In addition, we are adjusting the
LTCH PPS to appropriately pay for those SSO stays that have a LOS that
is comparable to the LOS for that DRG under the IPPS and consume far
less than a full array of services in the LTCH for the particular LTC-
DRG.
We believe this policy is appropriate since our data indicates a
correlation between the LOS at an acute care hospital for a patient
following treatment at the highest level of intensity (ICU or CCU),
that is, the number of ``recuperative'' days, and whether or not the
patient was admitted to a LTCH upon discharge from the acute care
hospital. An analysis of the CY 2004 MedPAR files revealed that for the
specified DRGs for acute care cases following ICU/CCU days, there were
significantly fewer ``recuperative'' days for acute care HCO patients
that were discharged and admitted to a LTCH than for those patients
that were discharged directly from the acute care hospital. For
example, for acute care cases in DRGs 475 (Respiratory system diagnosis
with ventilator support) and DRG 483 (Trach with mechanical vent 96+
hours or PDX except face, mouth and neck diagnosis), the number of
``recuperative'' days were considerably shorter at the acute care
hospital if there was a discharge followed by an admission to a LTCH.
We believe that this data confirms MedPAC's assertion in the June 2004
Report to Congress that ``patients who use LTCHs have shorter acute
hospital lengths of stay than similar patients'' (p. 125).
Furthermore, we agree that some SSO patients become so by virtue of
death or a faster than expected recovery and early discharge, and that
in certain LTC-DRGs, the SSO threshold still requires a relatively long
hospital stay (for example, DRG 475, Respiratory System Diagnosis with
Ventilator Support). However, in the absence of better admission
criteria, we are concerned that LTCHs are admitting some SSO patients
that could have received their full care at the acute care hospital or
SNF-level facility.
[[Page 26912]]
We disagree with comparisons made by some commenters concerning the
SOI and ROM of LTCH SSO patients to those of acute care patients based
on similar lengths of stay and case-mix indices. Generally, LTCH
patients that had been previously hospitalized in an acute care
hospital received the diagnostic work up and major interventional
treatment during that initial stay. Assuming that the patient continued
to need hospital-level care after being somewhat stabilized and was
discharged to a LTCH, the discharge to a LTCH could have been
determined as clinically appropriate. The clinical status of this
patient at this point cannot be reasonably compared to a typical
patient who is treated in the acute care hospital and who is grouped to
the same DRG. This is the case because the original patient has already
been treated at that initial level and has required additional
hospital-level care either by remaining at the acute care hospital,
which would be paid for under the IPPS (perhaps as a HCO), or by being
admitted to a LTCH where the stay could either be a SSO or an
``inlier.'' The only valid comparison of the SOIs and ROMs of two such
patients in the context of the commenter's concerns would be to
contrast the SOI and ROMs of the patient at the LTCH with the patient
who, following the same initial intervention at the acute care
hospital, continued treatment at the acute care hospital. In addition,
it is not appropriate to compare the average CMI at acute care
hospitals to the average CMI at LTCHs. The acute care hospital CMI is
affected by a broad range of cases, so that the only appropriate
comparison is between DRGs in acute care settings and DRGs in LTCHs,
which is the approach we have adopted in the revised SSO policy we are
finalizing in this final rule. In regions of the country where LTCHs
are scarce, acute care hospitals treat the same cases that are treated
in LTCHs where those facilities are available. In those areas, acute
care hospitals do indeed treat the most severe cases, and the
calibration of the DRG weights takes into account the resource
requirements for such cases. In the light of this fact, we do not
believe that it is necessary or appropriate to pay LTCHs more for cases
that can be successfully treated in acute care hospitals. We understand
that the option that we are finalizing, paying for some SSO stays based
on the IPPS-comparable amount, will result in significant payment
reductions to LTCHs for some SSO cases. However, we still believe that
this modification to the SSO policy is appropriate since it ensures
that payments to the LTCH are not greater than the program would pay in
a different setting of care, where these patients can also be
successfully treated. At the outset of the LTCH PPS, we established the
SSO payment adjustment to address this distinction which we continue to
believe is a valid and reasonable consideration for Medicare payments
to LTCHs (67 FR 55995, August 30, 2002).
Comment: Many commenters asked that we not finalize the proposed
SSO policy revisions, stating that the SSO payment option that could
pay the LTCH based on an amount comparable to what would otherwise have
been paid under the IPPS was not based on solid data analysis and
supportable conclusions. In fact, a number of commenters asserted that
the proposed policy was not based on data but rather on ``erroneous and
unsubstantiated assumptions'' that all SSO patients are inappropriately
admitted to LTCHs and inappropriately discharged from acute care
hospitals. The commenters noted that, because of the way in which the
policy was formulated, the percentage of LTCH cases that are paid under
the SSO payment policy was a function of the SSO threshold and the
dispersion of cases above and below the ALOS for the LTC-DRGs. That is,
statistically, the SSO definition at \5/6\ of the geometric ALOS would
necessarily produce approximately 37 percent of cases as SSOs.
Therefore, under the commenters belief that given the regulatory \5/6\
definition of SSOs, which we had not proposed to change, the percentage
of SSO cases was not amenable to change just based upon LTCHs admission
policies. One commenter noted that for a significant number of patients
to fall below \5/6\ ALOS for a LTC-DRG is expected in a LTCH.
Additionally, commenters noted that a case may qualify as a SSO because
the patient has run out of covered days, regardless of the actual LOS
in the LTCH and that in establishing our policy for qualifying as a
LTCH (that is, meeting the average greater than 25-day LOS for a
particular cost reporting period), we have recognized the
``appropriateness'' of including ``total'' rather than just ``covered''
days of a stay, since regardless of the payer, if the patient is still
receiving hospital-level care, the facility is functioning like a LTCH.
For this reason, these commenters urged us to remove such cases from
the calculations we used to develop a SSO payment policy. Some
commenters expressed concerns about the reliability of the data that
underlay our policy proposals and asserted that our proposals are based
on faulty assumptions, insufficient data, and a fundamental lack of
understanding of the valuable care LTCHs provide. Moreover, the
commenters asserted that LTCH patients are just not the same type of
patients as acute patients; they believe that our proposed policies
indicate that we are unaware of the distinction between acute care
patients and patients at LTCHs. They further stated that they did not
believe that the public was able to submit meaningful comments to our
proposed policies because of our data flaws, our biases, and the
resulting policies that we proposed.
Response: As we have stated previously, we are aware that the vast
majority of LTCH patients are admitted following treatment at acute
care hospitals. The patient's stay at the acute care hospital generated
a Medicare payment under the IPPS, and the subsequent admission to a
LTCH, an acute care hospital with an ALOS of greater than 25 days, will
generate an additional Medicare payment. To protect the Medicare Trust
Fund from what may be inappropriate and unnecessary payments, and to
ensure that the program is not paying twice for the same episode of
care, we believe it is essential that we evaluate those cases that are
admitted for an unusually short stay following an initial treatment at
another acute care hospital to acute care hospitals that specialize in
long-stay care, since that second stay will generate another Medicare
payment. In MedPAC's June 2004 Report to the Congress, the Commission
stated that, ``* * * Living near a LTCH increases a beneficiary's
probability of using such a facility. For example, living in a market
area with a LTCH quadruples the probability of LTCH use. Being
hospitalized in an acute hospital with a LTCH located within the
hospital also quadruples the probability that a beneficiary will use a
long-term care hospital'' (page 125).
Although we acknowledge that our establishment of the \5/6\th of
the geometric ALOS threshold, from a statistical standpoint, will
result in approximately 37 percent of LTCH cases being defined as SSOs,
we are extremely concerned with the number of cases that are being
treated in LTCHs that fall considerably below the geometric ALOS for
any given LTC-DRG. In fact, as stated previously, in the commenters'
specific suggestions for how to reasonably and fairly pay SSOs, the
commenters themselves drew a distinction between those cases that fall
within the definition of a SSO but are more in keeping with the LOS
generally
[[Page 26913]]
associated with a LTCH (for example, a case assigned to LTC-DRG 482
with SSO threshold of 32.1 days, would still be paid as a SSO if the
patient was treated in the LTCH for 25 days) and those cases that many
commenters referred to as ``very short stay outliers (VSSO)'' or ``very
short stay discharges (VSSD).'' In our revised SSO policy, the payment
formula particularly takes into account our very strong belief that
LTCHs are acute care hospitals that specialize in treating patients
requiring ``long-stay'' hospital-level care.
The LTCH PPS has been designed and calibrated to pay specifically
for that type of care. Since the inception of the LTCH PPS, when we
established the SSO adjustment (67 FR 5594 through 55995, August 30,
2002) at Sec. 412.529, we have provided that if a LTCH treats patients
not requiring a long stay for that DRG, Medicare pays the LTCH based on
the applicable payment adjustment option. Furthermore, as we revise the
payment options in this final rule for the SSO policy, we continue to
believe that such a payment adjustment is reasonable for all short stay
patients, including those that die shortly after their admission to the
LTCH. The FY 2004 MedPAR data indicates that 43 percent of all patients
that die in LTCHs are deaths that occur within the first 14 days of the
stay, with 35 percent of SSO deaths occurring within the first 7 days
following admission. As we have since the inception of the LTCH PPS, we
continue to believe that Medicare payments for those death cases
occurring within the SSO threshold should be determined under the SSO
policy since the length of the patient's treatment in the LTCH did not
utilize the full measure of hospital resources for which the full LTC-
DRG payment was calibrated.
Conversely, MedPAR data indicate that of all SSO cases,
approximately 60 percent of the discharges are 14 days or less and also
that acute care hospitals treat a significant percentage of patients
for longer than the 5-day ALOS. (In acute care hospitals, paid under
the IPPS, over 20 percent, in the aggregate, of patients that are
treated have a LOS of between 14 and 7 days.) Therefore, as described
below, we believe that the SSO policy that we are finalizing under the
LTCH PPS provides a fair and reasonable payment, in light of our stated
concerns that the short-term hospital-level care that LTCHs provide for
many SSO cases may be substituting for care that could otherwise be
delivered at acute care hospitals and for which at best, Medicare would
otherwise pay under the IPPS.
Under Sec. 412.507(b), Medicare will pay for inpatient care
delivered only on those days that the beneficiary has coverage until
the LOS exceeds the SSO threshold and becomes an inlier stay.
Therefore, since the inception of the LTCH PPS, we established the
distinction between ``covered days'' and ``total days'' of a LTCH stay.
At the point when a patient's benefits exhaust, the patient is
``discharged for payment purposes'' and even though the patient may
continue to be hospitalized at the LTCH, Medicare will pay only for the
covered days, with the patient (or the patient's secondary insurance)
being responsible for the remaining days' LTCH costs. For example, even
though a patient could have been treated in an LTCH for 40 days, if
upon admission, the patient only had 20 covered days remaining, for
Medicare payment purposes, the stay could qualify as a SSO, unless the
20 covered days exceeded the \5/6\th threshold for the LTC-DRG to which
the case was grouped, at which point, the stay would become an inlier
stay and a full LTC-DRG payment would be generated. Several commenters
urged us to remove SSO cases occurring as a result of such lapses of
Medicare coverage from our revised SSO policy but based on our data
analysis, we will not be excluding benefit exhausted cases from the
policy. According to FY 2005 MedPAR data, these cases constitute only
3.31 percent of SSO cases. It has been our policy since the beginning
of the LTCH PPS to count those stays during which benefits are
exhausted as SSOs if the covered portion of the stay is less than \5/
6\th of the geometric ALOS for the DRG. In this way, we appropriately
determine payment based on the part A-covered stay. At the same time,
we continue counting the total days of the stay for purposes of
qualification as a LTCH, because that calculation is intended to
reflect the length of care provided to Medicare beneficiaries. However,
our policy of including total days for Medicare patients to identify
hospitals qualifying (or continuing to qualify) as LTCHs indicates our
recognition that conceivably, a beneficiary may be appropriately
treated in a LTCH for example, for 40 days; and yet because the
beneficiary had only 5 remaining benefit days, would be reported in our
claims data as a 5-day SSO case. We may revisit this issue in the
future and, at that time, would solicit comments to that end. However,
at present, since a very small percentage of SSO cases are caused by
beneficiaries exhausting benefits, the ``short'' SSO cases discussed
above in this section, will continue to be governed by the SSO policy
finalized in this rule.
Comment: One commenter expressed concern that the SSO policy would
penalize LTCH providers in a situation where a patient developed a new
or unexpected complication during his or her LTCH stay and required
treatment that can only be provided by the referring acute care
hospital.
Response: The situation to which the commenter is referring is
possible and may result in a sudden discharge from a LTCH and a
readmission to the acute care hospital. In such a case, if the total
covered length of stay at the LTCH is less than \5/6\ of the LOS for
the LTC-DRG to which the case is assigned, payment would be made under
the SSO policy. Consequentially, the additional payment option that we
are finalizing could also be applicable if the covered LOS at the LTCH
fell within the IPPS-comparable threshold prior to discharge. Such
payment would be appropriate because the patient would have received
less than a full episode of care at the LTCH prior to being discharged
back to the acute care hospital. We note that should the patient
subsequently be discharged from the acute and readmitted to the LTCH to
continue treatment begun before the acute episode, Medicare payment to
the LTCH would be governed under our interrupted stay policy at Sec.
412.531. We would also note that this stay could also be subject to
adjustment under the SSO policy (including the payment option that we
are finalizing) depending upon the total covered length of stay (both
prior to and following the acute episode).
Comment: Many commenters stated that their objections to the policy
discussed in the proposed rule extended to the existing SSO payment
policy with which they have expressed disagreement in the past. Several
of these commenters asserted that the current SSO threshold (\5/6\ of
the geometric ALOS for each LTC-DRG) is not statistically justifiable.
These commenters recommended that, if we are going to employ LOS as the
only criterion for determining SSOs, we should logically select a
threshold that better identifies cases that are dissimilar to the
median or average, such as the 5th percentile through 10th percentile.
Response: We believe that the policy we are adopting in this final
rule is a consistent extension of the principles that we have employed
in developing the SSO payment policy. In this rulemaking cycle, we have
not introduced any discussion or proposals concerning the existing SSO
threshold, and therefore, we are not implementing
[[Page 26914]]
the commenters' recommendation that we establish a dramatically-revised
threshold level. However, we did provide an exhaustive discussion of
the reasons for adopting this threshold in the FY 2003 LTCH PPS final
rule (67 FR 55995), which included statistical analysis, various
simulations, regressions, and consideration of various options.
Comment: Several commenters stated that the objective of the SSO
policy that we discussed in the RY 2008 LTCH PPS proposed rule is to
establish a de facto exclusionary policy, prohibiting the admission of
these patients to LTCHs by means of a payment mechanism rather than
careful clinical review.
Response: We disagree that we are establishing an exclusionary
policy. On the basis of analysis that we presented in the RY 2008 LTCH
PPS proposed rule and previously in this final rule, we believe that
many of these cases may represent ``premature and inappropriate
discharge from the acute care hospital and inappropriate admission to
the LTCH'' (72 FR 4840). The intent of this policy is to establish an
appropriate payment level for this class of cases. Hospitals remain
free to accept these patients. As we stated in the RY 2008 LTCH PPS
proposed rule, * * * a short stay case at a LTCH most likely did not
receive a full course of medical treatment during the short stay and* *
* a full LTC-DRG payment would therefore, be inappropriate'' (72 FR
4804).
Comment: Several commenters objected that the policy we discussed
could apply to cases whose length of stay exceeds 25 days, the ALOS
required for a hospital to qualify as an LTCH. Commenters indicated
that at least 9 IPPS DRGs have an ALOS plus one standard deviation that
is greater than 25 days, and at least 26 other IPPS DRGs have an ALOS
plus one standard deviation that exceed 20 days. Commenters contended
that cases exceeding the 25-day threshold for qualifying as an LTCH
should not be considered short stay cases.
Response: We do not believe that it is inappropriate for individual
cases that exceed the ALOS threshold for LTCH status to be considered
SSOs. In fact, we have treated some such cases as SSOs since the
establishment of the SSO policy. For a number of LTC-DRGs, the SSO
threshold, \5/6\ of the geometric ALOS, significantly exceeds 25 days.
These include DRGs 498, 499, 520, and others. Similarly, a number of
IPPS DRGs have an ALOS plus one standard deviation that is greater than
25 days. As a result, many cases with lengths of stay shorter than 25
days receive payment under the SSO methodology, and a subset of those
cases will be paid specifically under the formula that we are adopting
in this final rule for certain cases: For SSO cases with a length of
stay less than ALOS plus one standard deviation of the IPPS DRG,
payment will be no greater than the IPPS comparable amount that we have
defined. These results are appropriate because the respective
thresholds serve different purposes. The 25-day threshold defines an
ALOS established by the statute to define a LTCH. The respective
outlier thresholds (the basic SSO threshold of \5/6\ of the geometric
LTC-DRG ALOS, and the threshold that we are now adopting to identify
every SSOs) serve to identify subsets of LTCH cases for appropriate
payment treatment, based on comparisons to relevantly similar cases. We
have explained the basis for adopting the SSO threshold in the FY 2003
LTCH PPS final rule (67 FR 55995). The threshold that we are adopting
in this final rule, the geometric ALOS plus one standard deviation of
the IPPS DRG, selects a subset of SSOs that are similar to cases
successfully treated in short-stay acute care hospitals. Since these
cases have received a course of treatment similar to the typical course
of treatment in an IPPS hospital, we are limiting payment for them to
an amount no greater than the comparable payment under the IPPS.
Comment: Several commenters stated that we had not presented any
conclusive financial or clinical evidence to support the policy
discussed in the RY 2008 LTCH PPS proposed rule, but that we instead
rely merely on statements such as: ``many LTCHs appear to be admitting
some SSO patients that could have received the care at the acute care
hospital.'' (72 FR 4806) (Emphasis supplied by commenter.) Furthermore,
a commenter stated that our own expert consultant, RTI, had failed to
find evidence conclusively illustrating that the typical LTCH SSO
patient could be treated as effectively in an acute care hospital. Some
of these commenters also maintained that, contrary to our suggestions,
the care received by patients at LTCHs is often unique and not
available at acute care hospitals. Commenters cited physicians who were
consulted on the clinical aspects of transfer from an acute care
hospital to a LTCH. These physicians provided numerous explanations and
scenarios detailing how LTCHs provide different kinds of services even
if the DRG for a case is nominally the same.
Response: As we have discussed elsewhere in this final rule, LTCHs
are certified as acute care hospitals and acute care hospitals paid
under the IPPS are throughout the country treating beneficiaries
requiring hospital-level care lengths of stay comparable to those that
are typical of LTCHs. We disagree with commenters who imply that there
is a clear distinction between the patients that are appropriate for
successful treatment at LTCHs and patients that are appropriately and
successfully treated at acute care hospitals. Across the United States,
the nearly 3,600 acute care hospitals that discharge approximately 12.7
million Medicare beneficiaries treat the full range of medical issues
that the commenters identify as LTCH cases. We do not question that
many LTCHs have highly regarded reputations for their success in
treating respiratory and ventilator cases (MS-LTC-DRGs 207 and 208).
However, as detailed in the RTI report, the 2004 MedPAR files indicate
that where LTCHs treated 13,394 cases assigned to DRG 475 in 2004,
acute care hospitals treated 18,727 Medicare patients with an
additional 7,072 HCOs in DRG 475. For DRG 88, Chronic obstructive
pulmonary disease (COPD), LTCHs treated 4,894 cases where acute care
hospitals treated 37,523 cases. Data on other common DRGs treated in
LTCHs as compared to the same DRGs treated in acute care hospitals
reflect a similar pattern, particularly among the DRGs that could fall
into the broad category of ``medically complex'' patients, which are
the majority of LTCH patients (Table 3-2, RTI report, p. 35. We
understand that MedPAC and RTI have noted that many LTCHs deliver a
high level of care to very sick Medicare beneficiaries, with fine
doctors, exemplary nursing care, and top-notch rehabilitation
therapists, but we also know that many acute care hospitals throughout
the nation are treating the same patients and similarly delivering
excellent care, especially where there are few LTCHs. We also know that
some LTCHs specialize in a particular subset of patients and achieve a
noteworthy success in their treatment (for example, of patients
requiring ventilator weaning or wound care). However, similar patients
are also receiving care in acute care hospitals. Therefore, we cannot
agree with commenters implying that acute care hospitals are incapable
of competently treating Medicare beneficiaries that happen to fall
within the DRGs that LTCH identify as their specialties and that any
patients falling into such categories would receive ``substandard''
care at an acute care hospital.
[[Page 26915]]
Comment: Several commenters stated that our proposed policy should
not apply to cases that were HCOs at an acute care hospital prior to
transfer to a LTCH. Since such cases received the full complement of
services at the acute care hospital, and the acute care hospital
actually incurred significant losses before receiving an outlier
payment from the Medicare program, it cannot be stated that any
discharge and transfer to a LTCH was premature and inappropriate.
Response: We agree that, in such cases, the transfer to a LTCH is
unlikely to be premature and inappropriate. In fact, typically, HCO
cases in the acute care setting represent a full course of treatment in
that setting. However, as our discussion in the RY 2008 LTCH PPS
proposed rule indicates, this is not the only, or even the primary,
factor that deserves consideration in determining an appropriate SSO
payment level. Regardless of whether a case had reached outlier status
in an acute care hospital prior to transfer to a LTCH, the course of
treatment at the LTCH could more closely resemble the normal course of
treatment at an acute care hospital than the normal course of treatment
for cases at a LTCH. We stated in the RY 2008 LTCH PPS proposed rule
that cases ``with lengths of stay that are equal to or less than the
IPPS ALOS plus one standard deviation for the same DRGs under the IPPS
appear to be comparable to typical stays at acute care hospitals'' and
``LTCHs that admit SSO patients with lengths of stay more typical of an
acute care hospital may be, in fact, behaving like acute care
hospitals'' (72 FR 4806 citing 71 FR 27847). For purposes of the SSO
policy discussed in the RY 2008 LTCH PPS proposed rule, the issue is
primarily the course of treatment actually received at the LTCH, rather
than the course of treatment at the acute care hospital prior to
transfer to a LTCH. Of course, one reason the course of treatment at a
LTCH may resemble the normal course of treatment at an acute care
hospital may be that an acute care hospital has prematurely and
inappropriately transferred a patient to a LTCH. However, in cases
where a patient has received a high level of treatment at an acute care
hospital, including levels of treatment that qualify for outlier
payments, a subsequent stay in an LTCH may still ``be comparable to
typical stays at acute care hospitals.'' (72 FR 4806) In these cases,
since we believe the Congress excluded LTCHs from the IPPS because
cases with longer lengths of stay (as compared to acute care hospitals
paid under the IPPS) tend to be costlier than cases with shorter stays,
we do not believe that it would be appropriate for the program to pay
an LTCH an unadjusted LTCH PPS payment for case with such an
abbreviated stay that it did not receive the full course of treatment
particularly when we would pay a much lower amount in to an acute care
hospital for a similar course of treatment.
Comment: Several commenters urged us not to apply the policy we
discussed to cases in which patients die in the hospital. These
commenters noted that physicians and hospitals are not able to predict
which patients will die subsequent to admission to an LTCH. In
addition, many of these patients are high cost, requiring significant
medical resources in the last days of life. One LTCH commenter
determined that about 50 percent of its extreme SSOs were discharged
due to death. The commenter notes that it may not be appropriate for
these cases to receive a full LTCH payment, but that it is equally
unfair for CMS to assume ``sinister intent'' and to financially
penalize LTCHs operating in good faith. Some commenters emphasized
generally that adoption of the revised SSO policy that we discussed
would be unfair to LTCHs because they cannot predict in advance who
will become SSO cases. There are several reasons why a patient could
become an SSO including the patient dying or leaving against medical
advice. Many of these commenters noted that if this policy is adopted,
LTCHs will only receive, at best, costs for SSO cases. Other commenters
recommended that, if we adopt this policy, it should incorporate
outlier payments when determining an equivalent IPPS payment amount in
the SSO payment methodology.
Response: We certainly acknowledge that hospitals and physicians
are not able to predict with certainty at admission which patients will
die during an inpatient stay in a LTCH, or whether a patient will leave
against medical advice. However, the issue with regard to these cases,
as with the cases discussed in the previous comment, is that ``lengths
of stay that are equal to or less than the IPPS ALOS plus one standard
deviation for the same DRGs under the IPPS appear to be comparable to
typical stays at acute care hospitals.'' The point is not to penalize
LTCHs, but rather, to pay appropriately for cases that receive less
than the full course of treatment at a LTCH. Even when a patient dies
in a LTCH, whether unexpectedly or not, cases with lengths of stay more
typical of an acute care hospital are not receiving the full course of
treatment in a LTCH, and resemble more the course of treatment in acute
care hospitals. It is therefore appropriate to limit the payment for
such cases accordingly. We would also like to note that where a LTCH is
finding that nearly half of its patients are discharged due to death,
if in fact many of these patients are SSO cases, the LTCH may need to
consider whether those patients were too fragile to be transferred from
the acute care hospital to the LTCH. Transfer trauma is a serious issue
that must be considered whenever a hospital considers transferring a
patient to another facility.
With respect to the recommendation that we take outlier payments
into account when determining the equivalent IPPS payment amount in the
SSO payment methodology, under existing LTCH PPS policy, a SSO case
that meets the criteria for a LTCH PPS HCO payment at Sec.
412.525(a)(1) (that is, if the estimated costs of the case exceed the
adjusted LTC-DRG SSO payment plus the fixed loss amount) would receive
an additional payment under the LTCH PPS HCO policy at Sec. 412.525(a)
(67 FR 56026, August 30, 2002). For purposes of HCOs under the proposed
SSO policy, we would continue to use a fixed-loss amount calculated
under Sec. 412.525(a), and not a fixed-loss amount based on Sec.
412.80(a). Medicare would pay the LTCH 80 percent of the costs of the
case that exceed the sum of the applicable option of the least of the
four proposed payment options, described above, and the fixed-loss
amount determined under Sec. 412.525(a).
Comment: Several commenters stated that the payment reductions
associated with the very short SSO policy discussed in the RY 2008 LTCH
PPS proposed rule violate the principles of a PPS in which some cases
are expected to cost less than others.
Response: We disagree that these policies violate the principles of
averaging found in a PPS. As we stated in the RY 2007 LTCH PPS final
rule, ``* * *we believe it is very important to evaluate the adjustment
in light of the fact that in a PPS there are numerous principles that
we try to balance simultaneously when making policy decisions. Among
these principles are appropriate payment, predictability, averaging,
beneficiary access to appropriate care, and equity so that while the
averaging principle is an important one in PPSs, it is not the only
principle that guides our policy decisions. For example, in the case of
SSOs and HCOs, we must determine how to appropriately to pay for
aberrant cases that are much shorter (that is, SSOs) and much costlier
(that is, HCOs) when compared to typical cases in the
[[Page 26916]]
relevant LTC-DRG. In the case of short stays, if we failed to adjust
the payment to reflect that the case did not receive the full resources
of a typical LTCH stay for the particular DRG, the PPS would be greatly
``overpaying'' for the stay, could serve as an incentive to game the
system, and would also waste valuable Medicare Trust Fund dollars.
Similarly, in the case of HCOs, if we did not adjust the payment to
reflect the extraordinary high costs that LTCH was incurring for
treating a particular patient when compared to a typical case in the
respective LTC-DRG, we would be ``underpaying'' significantly for the
case. We have stated that providing additional money for HCOs strongly
improves the accuracy of the payment system as well as reduces the
incentive to under serve these patients. Since we do not pay SSOs or
HCOs an amount paid to ``inliers'/cases that have length of stays or
costs commensurate with other cases in the respective but instead make
payment adjustments to reflect the unique circumstances of these cases,
the averaging principle is less heavily emphasized under these
circumstances to achieve equity, appropriate payments that accurately
reflect resource costs at the patient and hospital level, and
beneficiary access to medical care.''
We believe that, given that LTCHs are defined as acute care
hospitals that have an average inpatient LOS of greater than 25 days,
the payment policies under the LTCH PPS appropriately reflect the
averaging principle. That is, where some cases, within the ``inlier''
range will have generated relatively lower costs, other cases will
generate higher costs and Medicare will pay a LTCH the same for both
less and more costly cases. The SSO policy, along with the HCO policy
addresses payments for cases that fall outside of the normal types of
averaging in the inlier range in the PPS and ensures that payment for
SSO cases is not greatly in excess of the resources required to treat
those cases. (71 FR 27866 through 27867)
Comment: Some commenters asked that we comment on why the IPPS
post-acute transfer policy does not appropriately adjust for payment
when transferred cases ultimately become SSO discharges in the LTCH
setting. Another commenter suggested that, we provide policies under
the acute IPPS side to address inappropriate, or early discharges and
asked that post-acute transfer rules, readmission rules and DRGs for
acute care hospitals should be used to minimize the issue instead of
penalizing LTCHs.
Response: We note that we addressed the effect of the post-acute
transfer policy on SSOs previously in the RY 2003 LTCH PPS final rule,
but will reiterate that the IPPS post-acute transfer provision was
created to address cases in which the transferring acute hospital
provides less than the full spectrum of care for the qualified DRG and
to avoid providing an incentive for a hospital to transfer a patient to
another hospital early in the patient's stay to minimize costs while
still receiving the full DRG payment. The post-acute transfer policy
only addresses the appropriate level of payments for the course of
treatment received in an acute care hospital. It does not address the
appropriate level of payments at the facility to which the patients are
then transferred.
We note that the post-acute care transfer policy only affects DRGs
that meet the criteria at Sec. 412.4. Although we expect the post-
acute transfer policy to have some impact on the discharge behavior of
acute care hospitals because of the reduced payments that they will
receive for qualified discharges, the post-acute transfer policy does
not necessarily affect the issues being addressed by the SSO policy
change. Both the IPPS post-acute transfer policy and the revised SSO
policy being finalized in this rule are designed to ensure that
Medicare payments are appropriate given the types of treatment provided
in each setting; we note that in the instance of an acute transfer
(that is subject to the post-acute transfer policy) to an LTCH that
discharges the patient as an SSO, neither the acute nor the LTCH
facility provided the full episode of care to the patient and it would
not be appropriate to pay either facility a full DRG payment. We
believe that the revised payment formula for SSO patients that we are
finalizing will appropriately pay LTCHs for delivering services to
patients who do not otherwise require the lengths of stay that are
characteristic of LTCHs. The SSO policy will address payments to LTCHs
for patients discharged from the acute care hospital even after the
IPPS geometric ALOS, who are subsequently discharged from the LTCH as a
short SSO.
Comment: Two commenters suggested that rather than challenging the
cases that are admitted from acute care hospitals, we should be more
concerned about inappropriate admittances from nonhospital settings
such as SNFs or elsewhere.
Response: After analyzing recent data, we note that approximately
80 percent of the patients admitted to the LTCHs come from the short
term acute care hospitals and only 20 percent are admitted from other
nonhospital settings. Since SNFs do not offer hospital-level care but
are still serving patients with compromised health, we believe that a
decision to transport a SNF patient to a hospital would generally be
made because the patient appears to the medical professionals at the
SNF to be in need of a higher level of medical treatment or care than
is available at the SNF. (In fact, such patients would typically be
admitted to the acute care hospital rather than to a LTCH.) However,
both an acute care hospital and a LTCH offer acute hospital-level care.
As discussed previously in this final rule, we are very concerned about
the treatment of a short-stay patient who could reasonably and
effectively continue to be treated in an acute care hospital and paid
for under the IPPS, being admitted unnecessarily to a LTCH, which
specializes in treating patients requiring long-term hospital-level
care and paid for under a PPS which has been calibrated based upon the
high resource use associated with long patient stays. Furthermore,
admission of such a patient could also result in an unnecessary and
inappropriate LTCH hospitalization, which would also result in a second
Medicare payment under the LTCH PPS for what was essentially, one
episode of care.
Comment: Several commenters believe that we are incorrect that
LTCHs could be admitting patients not requiring long stays, noting that
LTCHs actually have a disincentive to admit short stay patients because
LTCH certification status can be at risk if the hospital does not
maintain an ALOS of more than 25 days.
Response: Under the TEFRA system, all inpatient days (whether
covered by Medicare or not) were included in the LOS computation, and
the mathematical determination was based upon the number of patient
days, during the cost reporting period when they occurred, divided by
discharges occurring during that same period of time (67 FR 55954,
55971). With the establishment of the per discharge LTCH PPS, we
restricted the patient count for purposes of qualifying as a LTCH
solely to Medicare patients (67 FR 55971), and we implemented the
policy of `days following the discharges,' under which, if a patient's
stay crosses two cost reporting periods, the total days of that stay
(both covered and non-covered days) would be included in the
computation during the cost-reporting period that the discharge
occurred (69 FR 25706).
LTCH cost report data reveal that the general ALOS of most LTCHs
varies only slightly. Generally, LTCHs maintain an ALOS that is just
over 25
[[Page 26917]]
days, meeting the statutory definition of a LTCH, that is, having an
ALOS of greater than 25 days. Furthermore, we understand that LTCHs
closely monitor their yearly ALOS and that one extremely long-stay case
can mathematically offset for a number of short-stay cases. After
studying the hospital-specific data, we believe that this is indeed the
case for many LTCHs. We also believe that the payment policy that has
been utilized since the start of the LTCH PPS for FY 2003 has not
operated as a financial disincentive for the admission of patients who
will not ultimately require long-stay hospital-level care. In fact, we
note that MedPAR data show approximately 27,000 SSO cases with a LOS of
14 days or less. This indicates that even with over 20 percent of their
discharges having such a short ALOS, LTCHs have maintained their
greater than 25-day statutory ALOS. Therefore, we believe that it is
both possible for a LTCH to maintain its designation and also admit
many very short stay cases.
Comment: Several commenters maintained that the SSO policy we
discussed would have unintended effect of lengthening patients stay.
Some of these commenters specifically noted that this effect could be
the result of a payment ``cliff'' where payments rise abruptly once the
threshold for the application of this policy (the ALOS of the IPPS DRG
plus one standard deviation) is reached. The commenters believe that
the proposed rule introduced ``backwards'' incentives associated with
the old ``cost-based'' system. Policies will result in encouraging a
profit for longer stays, which could raise costs to the Medicare
program.
Response: We acknowledge that there could be such a cliff effect in
some cases as a result of the policy that we are adopting. However, we
believe that the merits of adopting this limitation on outlier payments
in certain cases outweighs the risks of some possible, unintended
consequences. We will monitor experience under the new policy to detect
whether there is an inappropriate increase in lengths of stay that are
slightly greater than the ALOS plus one standard deviation of the
comparable IPPS DRGs. As part of our program integrity
responsibilities, we may ask the FIs to review the medical necessity of
the last few days of a LTCH stay that just exceeds the threshold, and
if some days are determined not to be ``medically necessary,'' then if
the remaining days result in a LOS lower than the threshold, the stay
may be paid at the IPPS comparable rate.
Comment: Some commenters contended that the concerns behind the
possible revision to the SSO policy could be more appropriately
addressed by establishing patient criteria and QIO review of medical
necessity for admissions, as has been recommended by MedPAC and RTI.
Response: Under our QIO program, QIOs review services to determine
whether services are reasonable and medically-necessary, whether the
quality of services meets professionally-recognized standards, and
whether services in an inpatient hospital or other inpatient health
care facility could, consistent with the provision of appropriate
medical care, be effectively provided more economically on an
outpatient basis or in an inpatient facility of a different type. We
have not historically interpreted any of these areas of review to
involve determinations of which kind of acute care facility would be
appropriate, and QIOs do not regard short term acute care hospitals and
LTCHs as facilities ``of a different type.'' A QIO uses criteria, based
on typical patterns of practice. The QIOs also consult with (a)
physician(s) and practitioner(s) actively engaged in practice in that
State and to the extent possible, in the same specialty, when making
the determination that care was or was not medically-necessary.
Although a QIO review can detect whether or not the patient requires an
acute level of care or whether care in a SNF would have been
appropriate, since both acute care hospitals and LTCHs are certified as
acute care hospitals, QIOs do not make the distinction between whether
a patient should be hospitalized at an acute care hospital or at a
LTCH, so long as the patient requires an acute level of care.
QIOs are authorized by statute to determine whether, in case such
services and items are proposed to be provided in a hospital or other
health care facility on an inpatient basis, such services and items
could, consistent with the provision of appropriate medical care, be
effectively provided more economically on an outpatient basis or in an
inpatient health care facility of a different type as specified in
section 1154(a)(1)(C) of the Act. Therefore, QIOs have authority to
determine the appropriate hospital-level setting in the face of
objective criteria. But there is no objective criteria distinguishing
between settings where acute care is delivered. Since the statute
states ``a facility of a different type,'' and because short term acute
care hospitals and LTCHs are very similar and provide the same level of
care, we have at no time interpreted ``a facility of a different type''
in section 1154(a)(1)(C) of the Act to mean that QIOs must distinguish
between them.
In a memorandum issued to the Regional Offices, Chief Executive
Officers, and all QIOs, from the Director of the Quality Improvement
Group of the CMS Office of Clinical Standards on October 28, 2004,
among other matters, the following policy was further clarified:
Note: there are different provider types that may offer the same
level of intensity of inpatient care. QIOs do not specify which
provider type should be used when the level of intensity is the
same. For example, a patient requires an acute level of care that
could be delivered in a short--term acute care PPS hospital, a long-
term care hospital or an acute rehabilitation hospital. The QIO
determines what intensity of care is appropriate (that is, the
patient requires an acute level of care) but would not specify as a
matter of admission necessity which provider type the patient should
be admitted to. If the QIO determines that there is a quality of
care concern implicated, that issue should be addressed through the
quality review process.
Under current contracts, QIOs review LTCH cases under the following
circumstances: When a claim is selected for purposes of determining or
lowering the payment error rate; if there is a QIO-identified need to
perform additional review based on their contractual responsibilities;
if there is an immediate appeal of certain beneficiary notices; as a
result of the referral of a case or cases; or when there is a
beneficiary complaint or other quality of care concern.
Since one of the recommendations made by MedPAC in their June 2004
Report to Congress was for an increased role for the QIOs in monitoring
criteria to assure that LTCHs are treating appropriate patients,
researchers from RTI have been in contact with several QIOs nationwide
in order to evaluate their role. However, involving QIOs in the on-
going determination of the appropriateness of admissions, continuing
stay or discharge for a significant proportion of LTCH patients was
never envisioned when the QIO program was established. There will not
be a reassignment of Medicare funds to QIOs from the LTCH PPS. However,
we are currently developing the next Quality Improvement Organization
Scope of Work. These comments will be considered in that process.
After consideration of the numerous comments submitted on this
issue, we are finalizing the policy that we discussed in the proposed
rule. That is, in SSO cases where the covered LOS is equal to or less
than the ``IPPS
[[Page 26918]]
comparable threshold'' (defined above in this section) of the same DRG
under the IPPS, the SSO payment methodology will be based upon the
least of the following: 100 Percent of estimated costs of the case as
determined under Sec. 412.529(d)(2); 120 percent of the LTC-DRG per
diem multiplied by the covered LOS of the case as determined under
Sec. 412.529(d)(1); the Federal prospective payment for the LTC-DRG as
determined under Sec. 412.529(d)(3); or an LTCH PPS amount comparable
to the IPPS per diem.
Technical Correction
We are making a technical correction to existing Sec. 412.529(a)
which would add the term ``covered'' immediately before the phrase
``length of stay'' in the initial definition of a SSO case. This
technical correction is not a substantive policy change but rather
corrects the regulatory definition of a SSO case so that it is
consistent with policy determinations that we have made since the FY
2003 implementation of the LTCH PPS. We would note that utilizing only
Medicare covered days for payment purposes has been our policy from the
outset of the LTCH PPS, as is specified at Sec. 412.503 where we
defined ``discharge'' for purposes of payment, as ``* * * when the
patient stops receiving Medicare-covered long-term care services * *
*.'' Furthermore, in subsequent revisions of our SSO policy, we
included the term ``covered'' at Sec. 412.529(c)(2)(iv)(A), Sec.
412.529(d)(1) and Sec. 412.529(d)(4)(i)(B). We are making this
technical correction to conform all references at Sec. 412.529 to our
existing policy regarding a SSO discharge which is determined based on
the number of ``covered'' days in the patient stay.
3. Determination of Cost-to-Charge Ratios (CCRs)
In the FY 2007 IPPS final rule (71 FR 48117 through 48121), similar
to the revisions to the HCO policy as discussed in IV.D.3.d. of the
preamble of this final rule, we revised our methodology for determining
the annual CCR ceiling and Statewide average CCRs under the LTCH PPS
because we believe that those changes are more consistent with the LTCH
PPS single payment rate for inpatient operating and capital costs.
Under the broad authority of section 123 of the BBRA and section
307(b)(1) of BIPA, for discharges occurring on or after October 1,
2006, the LTCH CCR ceiling specified under Sec.
412.529(c)(3)(iv)(C)(2) is calculated as three standard deviations
above the corresponding national geometric mean total CCR (established
and published annually by CMS). (As discussed in greater detail in this
section, the fiscal intermediary (FI) may use a Statewide average CCR
if, among other things, a LTCH's CCR is in excess of the LTCH CCR
ceiling.) The LTCH total CCR ceiling is determined based on IPPS CCR
data, by first calculating the ``total'' (that is, operating and
capital) IPPS CCR for each IPPS hospital and then determining the
average ``total'' IPPS CCR for all hospitals. The LTCH CCR ceiling is
then established at 3 standard deviations from the corresponding
national geometric mean total CCR. (For further detail on our
methodology for annually determining the LTCH CCR ceiling, refer to the
FY 2007 IPPS final rule (71 FR 48117 through 48119).) We also
established that the LTCH ``total'' CCR ceiling used under the LTCH PPS
will continue to be published annually in the IPPS proposed and final
rules, and the public should continue to consult the annual IPPS
proposed and final rules for changes to the LTCH total CCR ceiling that
would be effective for discharges occurring on or after October 1 each
year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48119), we
established a FY 2007 LTCH total CCR ceiling of 1.321, effective for
discharges occurring on or after October 1, 2006.
In addition, under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, for discharges on or after October 1,
2006, we revised our methodology to determine the Statewide average
CCRs under Sec. 412.529(c)(3)(iv)(C) for use under the LTCH PPS in a
manner similar to the way we compute the ``total'' LTCH CCR ceiling
using IPPS CCR data (71 FR 48120). Specifically, under this revised
methodology, we first calculate the total (that is, operating and
capital) CCR for each IPPS hospital. We would then calculate a weighted
average ``total'' CCR for all IPPS hospitals in the rural areas of the
State and weighted average ``total'' CCR for all IPPS hospitals in the
urban areas of the State. (For further detail on our methodology for
annually determining the LTCH urban and rural Statewide average CCRs,
refer to the FY 2007 IPPS final rule (71 FR 48119 through 48121).) We
also established that the applicable Statewide average ``total''
(operating and capital) CCRs used under the LTCH PPS will continue to
be published annually in the IPPS proposed and final rules, and the
public should continue to consult the annual IPPS proposed and final
rules for changes to the applicable Statewide average total CCRs that
would be effective for discharges occurring on or after October 1 each
year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48122), the FY
2007 LTCH PPS Statewide average total CCRs for urban and rural
hospitals, effective for discharges occurring on or after October 1,
2006, were presented in Table 8C of the Addendum of that final rule (71
FR 48303).
Additionally, in the FY 2007 IPPS final rule (71 FR 48119), under
the broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we established under the LTCH PPS SSO policy at Sec.
412.529(c)(3)(iv)(C) that the FI may use a Statewide average CCR, which
is established annually by CMS, if it is unable to determine an
accurate CCR for a LTCH in one of the following three circumstances:
(1) New LTCHs that have not yet submitted their first Medicare cost
report (for this purpose, a new LTCH would be defined as an entity that
has not accepted assignment of an existing hospital's provider
agreement in accordance with Sec. 489.18); (2) LTCHs whose CCR is in
excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data with
which to calculate a CCR are not available (for example, missing or
faulty data). Other sources of data that the FI may consider in
determining a LTCH's CCR included data from a different cost reporting
period for the LTCH, data from the cost reporting period preceding the
period in which the hospital began to be paid as a LTCH (that is, the
period of at least 6 months that it was paid as a short-term acute care
hospital), or data from other comparable LTCHs, such as LTCHs in the
same chain or in the same region.
Furthermore, in the FY 2007 IPPS final rule (71 FR 48121), we
established under Sec. 412.529(c)(3)(iv)(B) that, for discharges
occurring on or after October 1, 2006, the CCR applied at the time a
claim is processed will be based on either the most recently settled
cost report or the most recent tentatively settled cost report,
whichever is from the latest cost reporting period. Under the broad
authority of section 123 of the BBRA and section 307(b)(1) of BIPA, in
that same final rule, we also established at Sec. 412.529(c)(3)(iv)(A)
that, for discharges occurring on or after October 1, 2006, we may
specify an alternative to the CCR computed under Sec.
412.529(c)(3)(iv)(B) (that is, computed from the most recently settled
cost report or the most recent tentatively settled cost report,
whichever is later), or a hospital may also request that the FI use a
different (higher or lower) CCR based on substantial evidence presented
by the hospital. A complete discussion of these revisions to our
methodology for determining a LTCH's CCR is
[[Continued on page 26919]]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]
[[pp. 26919-26968]] Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2008: Annual Payment Rate Updates, and Policy Changes; and
Hospital Direct and Indirect Graduate Medical Education Policy Changes
[[Continued from page 26918]]
[[Page 26919]]
discussed in the FY 2007 IPPS final rule (71 FR 48119 through 48121).
4. Reconciliation of SSO Cases
In the FY 2007 IPPS final rule (71 FR 48121 through 48122), under
the broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we revised Sec. 412.529(c)(3)(iv) (D) through (E), for
discharges occurring on or after October 1, 2006, to codify in subpart
O of 42 CFR part 412 the provisions concerning the reconciliation of
LTCH PPS outlier payments, including editorial clarifications discussed
in greater detail below in this section, that would more precisely
describe the application of those policies.
Specifically, at Sec. 412.529(c)(3)(iv)(D), similar to our current
policy, we specified that for discharges occurring on or after October
1, 2006, any reconciliation of outlier payments will be based on the
CCR calculated 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. In addition, at Sec.
412.529(c)(3)(iv)(E), we specified that for discharges occurring on or
after October 1, 2006, at the time of any reconciliation, outlier
payments may be adjusted to account for the time value of any
underpayments or overpayments. Such an 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 made these additional revisions to Sec.
412.529(c)(3) because we believe that these changes would be more
consistent with the LTCH PPS single payment rate, and because we
believe it would be more appropriate and administratively simpler to
include all of the regulatory provisions concerning the determination
of LTCH PPS outlier payments applicable under the LTCH PPS regulations
at subpart O of 42 CFR part 412. (For a complete discussion on the
revisions made to the SSO reconciliation policy, refer to the FY 2007
IPPS final rule (71 FR 48121 through 48122).)
Comment: One commenter requested that we clarify how we interpret
the 10 percentage point criterion of the SSO and HCO reconciliation
policy.
Response: We did not propose any changes to the current
reconciliation policy. Therefore, we do not believe this final rule is
the appropriate vehicle to address this comment. As we have stated, we
intend to issue subregulatory guidance on LTCH reconciliation that
would be similar to the IPPS reconciliation process and would address
the commenter's question.
B. Expansion of Special Payment Provisions for LTCH Hospitals Within
Hospitals (HwHs) and LTCH Satellites: Expansion of the 25 Percent Rule
to Certain Situations Not Currently Covered Under Existing Sec.
412.534
In the FY 2005 IPPS final rule, we established the special payment
provisions at Sec. 412.534 for LTCHs that are HwHs and for satellites
of LTCHs that are co-located with host hospitals. In developing that
policy, we were particularly concerned with patient shifting between
the host acute care hospitals and the co-located LTCH HwH or satellite
for financial rather than for medical reasons, a scenario that we
believed was encouraged by physical proximity, and that resulted in
inappropriate increased cost to the Medicare program (69 FR 49191). We
specified that the payment adjustment for co-located LTCHs at Sec.
412.534 was also applicable to host hospitals other than acute care
hospitals that served as hosts to LTCH HwHs or satellites of LTCHs
since we had similar concerns to those stated above regarding patient
shifting between such hosts and their co-located LTCHs. However, the
vast majority of host hospitals continue to be acute care hospitals (69
FR 49198).
In the FY 2005 IPPS final rule, we quoted the FY 1995 IPPS final
rule where we first discussed our concern that LTCH HwHs were, in
effect, operating as step-down units of acute care hospitals. We
explained that this was inconsistent with the statutory framework and
that such a configuration could lead to Medicare making one payment to
the acute care hospital and another under LTCH PPS for what was
essentially one episode of care (69 FR 49191 through 49192, and 59 FR
45389).
When we first established the separateness and control criteria for
LTCH HwHs at Sec. 412.22(e) in the FY 1995 IPPS final rule, our main
objective was to address the shifting of costly, long-stay patients
from the host to the on-site LTCH, resulting in two hospital stays
which would result in a financial windfall for both providers. We
sought to protect the integrity of the IPPS by ensuring that those
costly, long-stay patients who could reasonably continue treatment in
an acute care hospital would not be unnecessarily discharged to an
onsite LTCH, a behavior that would undermine the Medicare IPPS DRG
payment system for acute care hospitals. We explained that the Federal
standardized payment amount for the IPPS was based on the average cost
of an acute care patient across all acute care hospitals for the base
year. This is premised on the assumption that, on average, both high-
cost and low-cost patients are treated at hospitals. Although Medicare
may pay a hospital less than was expended by the hospital for a
particular costly case, the hospital could also receive more than it
expended for other, less costly cases. However, an acute care hospital
that consistently discharges higher cost patients to a post-acute care
setting for the purpose of lowering its costs, undercuts the foundation
of the IPPS DRG payment system which is based on averages, as noted
above. Because the course of acute treatment had not been completed,
the hospital inappropriately would have incurred lower costs under the
IPPS. It did not incur additional costs for what would have been the
remainder of the patient's stay at the IPPS acute care hospital. We
were concerned that once that patient was discharged from the IPPS
acute care hospital, the patient, still under active treatment for the
same condition, would be admitted to a LTCH, thereby generating a
second admission and Medicare payment that often would not have taken
place but for the availability of the LTCH (59 FR 45389 through 45393).
With the growth of satellites of excluded hospitals, another
category of co-located facilities, we established ``separateness and
control'' policies applicable to satellites, which we defined at Sec.
412.22(h) as ``a part of a hospital that provides inpatient services in
a building also used by another hospital or in one or more entire
buildings located on the same campus as buildings used by another
hospital.'' In the FY 2003 IPPS final rule at Sec. 412.22(h), we
finalized additional regulations governing the satellites of hospitals
(64 FR 41532 through 41535 and 67 FR 50105 through 50106).
As detailed in the FY 2005 proposed and final rules for the IPPS
(69 FR 28323 through 28327, 69 FR 49191 through 49214), with the
explosive growth in the number of LTCH HwHs and concomitant cost to the
Medicare program, we reevaluated the effectiveness of existing policies
regarding HwHs. (OSCAR data showed that there were 105 LTCHs in 1993 of
which 10 were HwHs. By October 2005, there were 373 LTCHs of the
majority which were HwHs.) We considered whether our regulations
sufficiently protected the Medicare program from the problems that we
envisioned in the FY 1995 IPPS final rule. We also questioned the
effectiveness of the ``performance of basic hospital functions'' aspect
of the ``separateness
[[Page 26920]]
and control'' requirements alone because we were aware that some co-
located providers had been establishing complex arrangements among
corporate affiliates, and had obtained services from those affiliates,
masking true corporate identities, and therein, diluting or impairing
the effectiveness of the separateness criteria in determining whether
both hospitals were interrelated. While technically remaining within
the parameters of the rule, these arrangements intermingled corporate
interests so that the corporate distinctness was lost, thus side-
stepping the intent of our regulations. (Although we have had similar
concerns regarding patient movement between host hospitals and their
satellites, there had never been any ``performance of basic hospital
functions'' criteria established in Sec. 412.22(h) because satellites
are part of another hospital, and therefore, share a Medicare provider
number with ``the hospital of which they are a part'' thus making it
administratively burdensome to distinguish between the inpatient
operating costs of the main hospital and its satellite(s).)
In the FY 2005 IPPS final rule, following serious consideration of
the public comments that we received on our proposed policy revisions
for LTCH HwHs and satellites (69 FR 28323 through 28327) and further
evaluation of the issues, regulatory changes were finalized for HwH
separateness and control policies at Sec. 412.22(e) and a new payment
adjustment was established for LTCH HwHs and satellites of LTCHs, at
Sec. 412.534. (We wish to note that the term ``satellite facility'' in
this section refers to satellites of excluded hospitals, in particular,
LTCHs, and does not include satellites of excluded units at Sec.
412.25.)
Specifically, in the FY 2005 IPPS final rule (69 FR 49091 through
49214), effective for cost reporting periods beginning on or after
October 1, 2004, for LTCHs we eliminated the performance of basic
hospital functions test under Sec. 412.22(e)(5)(i), the 15 percent
test under existing Sec. 412.22(e)(5)(ii), and the 75 percent of
admissions from other than the host criteria at Sec.
412.22(e)(5)(iii). A LTCH that met administrative separateness and
control requirements at Sec. 412.22(e)(1)(i) through (e)(1)(iv), under
our finalized policy, satisfied the LTCH HwH requirements. (As noted
above in this section, the performance of basic hospital functions test
does not exist for satellites; therefore, we did not similarly revise
Sec. 412.22(h).) However, we established a new payment adjustment at
Sec. 412.534 based upon annual threshold criteria for LTCH HwHs or
LTCH satellites of 25 percent (or an applicable percentage) for LTCH
discharges who were admitted from their host hospitals.
Section 412.534, Special payment provisions for long-term care
hospitals within hospitals and satellites of long-term care hospitals,
provides that if a LTCH HwH or LTCH satellite's discharges that were
admitted from its host hospital exceed 25 percent (or the applicable
percentage) of its total Medicare discharges for the LTCH HwH or LTCH
satellite's cost reporting period, an adjusted payment would be made at
the lesser of the otherwise payable amount under the LTCH PPS or the
amount payable under the LTCH PPS that would be equivalent to what
Medicare would otherwise pay under the IPPS. In determining whether a
hospital met the 25 percent (or applicable percentage) criterion,
patients transferred from the host hospital that had already qualified
for outlier payments at the host would not count as a discharge that
had been admitted from the host. (We commonly refer to this throughout
the preamble and regulations text as the discharge not being counted
towards the applicable threshold.)
It is important to note that if the hospital exceeds its threshold,
LTCH discharges admitted from the host before the LTCH exceeds the 25
percent threshold would be paid an otherwise unadjusted payment under
the LTCH PPS.
We also finalized additional adjustments to the 25 percent policy
for specific circumstances. For an LTCH HwH or LTCH satellite located
in a rural area, there is no payment adjustment applied under Sec.
412.534 if no more than 50 percent, rather than 25 percent, of the
Medicare patients discharged from the LTCH or satellite were admitted
from the host. In addition, in determining the percentage of patients
admitted from the host, any patients that had been Medicare outliers at
the host and then discharged to the rural LTCH HwH or LTCH satellite
would be considered as if they were admitted to the LTCH or satellite
from a non-host hospital. In addition, in the case of a LTCH or LTCH
satellite facility that was co-located with the only other hospital in
the MSA or with an MSA-dominant hospital, as defined at Sec.
412.534(e)(4), a payment threshold was established that we believed
responded to ``the unique needs of these communities'' (69 FR 49207).
Under Sec. 412.534(e)(2), we do not adjust payments to those LTCH HwHs
or LTCH satellite facilities as long as the percentage of Medicare
patients discharged from the LTCH HwH or LTCH satellite that were
admitted from the urban single or MSA dominant host hospital, did not
exceed the percentage of the total Medicare discharges in the MSA in
which the hospital is located that were discharged from the host
hospital, for the cost reporting period for which the adjustment would
be made, but in no case is the percentage less than 25 percent or more
than 50 percent. In addition, in determining the percentage of patients
admitted to the LTCH from the urban single or MSA dominant host
hospital, any patients that had been Medicare outliers at the host and
then transferred to the LTCH HwH or LTCH satellite would be considered
as if they were admitted to the LTCH from a non-host hospital. (When we
refer to ``the 25 percent (or applicable percentage)'' patient
threshold throughout this final rule, the ``applicable percentage''
refers to these special adjustments that we have provided for the
special circumstances of rural, urban-single, or MSA-dominant LTCHs or
to the percentage associated with the transition policy, discussed
below in this section.)
When implementing this policy, we also provided for a 4-year
transition for existing LTCH HwHs or LTCH satellites that met the
applicable criteria outlined in the regulations to allow these LTCHs a
reasonable period during which hosts and co-located LTCH HwH or LTCH
satellites and specific ``LTCHs under formation'' would be able to
adapt to the requirements of the new policy. For cost reporting periods
beginning on or after October 1, 2004, through September 30, 2005,
these transitioned hospitals were to be grandfathered, with the first
year as a ``hold harmless'' year. However, even for facilities that
were being phased-in to the full payment adjustment, in the first cost
reporting period, the hold harmless year, the percentage of discharges
admitted from the host hospital to the LTCH could not exceed the
percentage of discharges admitted from the host hospital to the LTCH
HwH or LTCH satellite in its FY 2004 cost reporting period. (For the
purposes of Sec. 412.534, the hospital's cost reporting period during
FY 2004, the last cost reporting period prior to the implementation of
Sec. 412.534, is the ``base period'' for purposes of establishing the
gradual phase-in of the full payment threshold adjustment (69 FR
49196).)
After the first grandfathered cost reporting period, these LTCH
HwHs and LTCH satellite facilities were required to meet a percentage
transition over the 3-year period beginning in FY 2006. For cost
reporting periods beginning on or after October 1, 2005, but before
October
[[Page 26921]]
1, 2006, the percentage of Medicare discharges that may be admitted
from the host with no adjustment may not exceed the lesser of the
percentage of their discharges admitted from their host during its FY
2004 cost reporting period or 75 percent. For cost reporting periods
beginning on or after October 1, 2006 but before October 1, 2007, the
percentage of Medicare discharges that may be admitted from the host
with no adjustment may not exceed the lesser of the percentage of its
Medicare discharges admitted from its host during its FY 2004 cost
reporting period or 50 percent, and finally, 25 percent (or other
applicable percentage) beginning with cost reporting periods beginning
on or after October 1, 2007. Additionally, the 25 percent policy for
co-located LTCHs is currently implemented in a location-specific
manner. That is, the computation of the percentage of LTCH HwH or LTCH
satellite discharges admitted from a host is based solely on the
admissions from the physically co-located host and not from other
campuses or remote locations which may share a common Medicare provider
number with the host.
Although the payment adjustment at Sec. 412.534 focused on LTCH
HwHs and satellites of LTCHs and its host hospitals, the relationship
between a receiving provider and any referring hospital has been an
issue of concern for the Medicare program, even in the absence of co-
location. Under section 1886(d)(5)(J) of the Act, added by section 4407
of the BBA of 1997, the Congress provided for a post-acute transfer
policy which addressed certain patient discharges from acute care
hospitals that subsequently received additional treatment delivered by
a second Medicare provider. We believe that the Congress enacted this
legislation to discourage acute care hospitals from prematurely
discharging patients to another treatment setting in order to increase
Medicare payment.
The Congress' enactment of the legislation authorizing the post-
acute transfer policy is indicative of its serious concerns about
patient shifting between acute and post-acute providers. In the case of
the post-acute transfer policy, described above in this section, we
focused on overpayment, under the IPPS, to the transferring hospital
when a patient is prematurely discharged to another provider during the
same episode of illness.
The payment adjustment for co-located LTCHs at Sec. 412.534 was
based on concerns similar to those underlying the post-acute transfer
policy at Sec. 412.4, that is, an inappropriately truncated
hospitalization at a host facility and an admission to another
provider, specifically a LTCH, for which an additional Medicare payment
would be generated. However, the payment adjustment at Sec. 412.534 is
not applied to the transferring hospital but rather, to discharges from
the co-located LTCH to which the presumably prematurely discharged
patient has been admitted. Moreover, although the referring hospital
under the post-acute transfer policy must be an acute care hospital,
for the purposes of the payment adjustment at Sec. 412.534, any
hospital is a potential host if it is co-located with a LTCH HwH or
LTCH satellite.
When we proposed the 25 percent (or applicable percentage) payment
adjustment for co-located LTCHs in the FY 2005 IPPS proposed rule,
MedPAC expressed concern that the 25 percent patient threshold policy
would have a significant impact and could possibly lead to an
inequitable situation for co-located LTCHs, as compared to freestanding
LTCHs. Among their concerns were the following: Freestanding LTCHs also
have strong relationships with acute care hospitals, and that where on
average LTCH HwHs receive 61 percent of their patients from their
hosts, on average freestanding LTCHs receive 42 percent of their
patients from their primary referring hospital; a 25 percent rule that
only applied to LTCH HwHs and not to freestanding LTCHs could be
inequitable; and if this policy approach applied the adjustment only to
HwHs and satellites it could be circumvented by an increase in the
number of freestanding LTCHs instead of LTCH HwHs (69 FR 49211).
In the RY 2007 LTCH PPS final rule, we also stated that according
to a commenter, the data indicated ``* * * that it is common practice
for LTCHs * * * to admit patients from a single-source acute care
hospitals'' and that 71.2 percent of freestanding LTCHs admit more than
25 percent of their patients from a single source acute-care hospital
(71 FR 27878).
Additionally, in comments received on the FY 2005 IPPS proposed
rule to preclude common ownership of a host and a HwH (which was not
finalized), two commenters asserted that the financial incentive to
accept inappropriate patients from an acute care hospital could exist
only when the acute care hospital and the LTCH were commonly owned and
when there was common governance, a situation that ``can exist even
without co-location, that is, a freestanding LTCH, exempt from the
requirements of Sec. 412.22(e) could be owned and governed by the
hospital from which it receives the majority of its referrals' (69 FR
49202). Despite the commenters' assertions, we do not believe that
either common ownership or co-location are the only circumstances under
which financial incentives exist for acute care hospitals to
prematurely discharge Medicare patients to LTCHs for additional
treatment during the same episode of patient care. In fact, we are
aware of the existence of ``arrangements'' between Medicare acute and
post-acute hospital-level providers that may not have any ties of
ownership or governance relating to patient shifting that appear to be
based on mutual financial gain rather than on significant medical
benefits for the patient. This could be the case if an acute care
hospital discharges a Medicare beneficiary who continues to require
hospital-level care primarily to preclude that patient's case from
reaching outlier status at the acute care hospital, to an LTCH for
additional treatment. Under this scenario, Medicare would pay the acute
care hospital under the IPPS for the beneficiary's care but the
hospital would be able to avoid both losing the ``fixed loss'' amount
and absorbing 20 percent of the remaining costs for the outlier
patient's care, as established under the IPPS outlier policy at subpart
F of part 412. Medicare would also be responsible for a payment, to the
LTCH, under the LTCH PPS upon the patient's discharge from the LTCH.
Accordingly, we believe that additional regulation in this area is both
necessary and appropriate to protect the Medicare Trust Fund when
generating two payments under two different payment systems for what
was essentially one episode of beneficiary care.
When we finalized the payment adjustment at Sec. 412.534, which
focused solely on co-located LTCHs, that is, LTCH HwHs and satellites
of LTCHs, and as we subsequently noted in the RY 2007 LTCH PPS final
rule, we took considerable note of these comments and we have continued
since that time to monitor the relationships between referring
hospitals and LTCHs (71 FR 27878). Specifically, at that time we also
analyzed patient claims data from the FY 2004 MedPAR files for acute
care patients who are admitted to freestanding LTCHs. We have analyzed
the discharge and LOS information from this data to evaluate whether
there was a significant difference in patient shifting behavior between
co-located LTCHs and their host acute care hospitals and those
freestanding LTCHs that admit a majority of their patients from
particular referring acute care hospitals. (As stated previously, for
the
[[Page 26922]]
purposes of the payment adjustment at existing Sec. 412.534, any
inpatient hospital-level provider is a potential host if it is co-
located with a LTCH HwH or LTCH satellite (69 FR 49198). Similarly,
freestanding LTCHs also admit patients from sources other than acute
care hospitals. However, our data reveals that approximately 80 percent
of all LTCH admissions are from acute care hospitals. Therefore, our
data analysis discussed below in this section, focuses on the
relationship between a referring acute care hospitals and LTCHs.)
We also analyzed more recent data on relationships between LTCHs
and acute care hospitals from which they received a significant
percentage of referrals. The RY 2005 MedPAR files indicate that only 73
of the then 200 freestanding LTCHs admitted 25 percent or less of their
Medicare discharges from an individual acute care hospital; for 82 of
those freestanding LTCHs, the percentage was between 25 and 50 percent;
for 33 it was between 50 and 75 percent, and for 6 percent of those
freestanding LTCHs it was between 75 and 100 percent of their Medicare
discharges that were admitted from one acute care hospital. Thus, the
data indicates that for over 60 percent of all freestanding LTCHs, over
25 percent of their discharges were for patients admitted from an
individual acute care hospital.
Generally, the data reveals minimal differences for cases grouped
to the same DRG between the ALOS at the acute care hospital prior to an
admission to a co-located LTCH and the ALOS at a referring acute
hospital prior to admission to a freestanding LTCH. For example, when
we finalized the 25 percent threshold payment adjustment for co-located
LTCHs at Sec. 412.534, we evaluated data from CY 2004 MedPAR files
regarding LTC-DRG 475, Respiratory System Diagnosis with Ventilator
Support, for both LTCH HwHs with more than 25 percent of their
discharges admitted from their host hospital and freestanding LTCHs
with more than 25 percent of their discharges admitted from an
individual referring hospital. The ALOS for patients stays that have
not reached outlier status at the host prior to being discharged to the
co-located LTCH was 12.7 days and for freestanding LTCHs, the average
LOS at their individual referring hospital was 12.9 days. Similarly,
for LTC-DRG 416, Septicemia, the ALOS at the host acute care hospital
was 9.8 days prior to admission to the co-located LTCH and the prior
ALOS at the individual referring acute care hospital was 9.6 days prior
to admission to the freestanding LTCH. Even though we finalized the
percentage threshold payment adjustment only for co-located LTCH HwHs
and satellites at that time, we believed that this data indicates
considerable similarity between the patient-shifting behavior at acute
care hospitals with co-located LTCHs and acute care hospitals with
LTCHs with which they are not co-located. We would have expected the
LOS at the acute care hospital that discharged patients to non-co-
located LTCHs to be longer.
Furthermore, as noted above in this section, we have concentrated
on the relationships between acute care hospitals and non-co-located
LTCHs in this discussion, because approximately 80 percent of Medicare
patients in LTCHs are admitted from acute care hospitals. However, we
believe that the same concerns, articulated above, would also exist
when the patient source is not an acute care hospital. There could
still be a financial incentive on the part of the referring hospital
(for example, an IRF, to prematurely discharge a beneficiary to a LTCH
for additional post-acute treatment in order to avoid absorbing high
treatment costs under the IRF outlier policy at Sec. 412.624(e)(5))
that would result in two Medicare payments, one to the initial provider
and the other under the LTCH PPS for, what is actually, a single
episode of beneficiary care. (We recognize that a patient could
experience a medical crisis while an inpatient at an IRF, but
typically, the most appropriate setting for such urgent care would be a
general acute care hospital, rather than a LTCH.)
We believe that this data gives further credence to concerns
articulated by MedPAC and the assertions made by the Lewin Group in
their comments on our FY 2005 IPPS proposed rule regarding the ``strong
relationships'' for referral purposes that exist between many acute
care hospitals and freestanding LTCHs. Although, our decade-old
concerns, about LTCHs functioning as long-stay or step-down ``units''
of acute care hospitals, focused on co-located LTCHs (HwHs and LTCH
satellites), we believe that this data indicates that many freestanding
LTCHs may also be serving the same purpose as those that are co-
located, that is, as functional step-down units of their primary
referring acute care hospital.
We are also concerned about other attempts to evade our regulations
at Sec. 412.534. In implementing the HwH regulations at Sec.
412.22(e) and the satellite regulations at Sec. 412.22(h), we have
consistently utilized the definition of ``campus'' that was established
in the provider-based regulations at Sec. 413.65(a)(2) which specifies
that a campus is ``the physical area immediately adjacent to the
provider's main buildings, other areas and structures that are not
strictly contiguous to the main buildings but are located within 250
yards of the main buildings, and any other areas determined on an
individual basis, by the CMS regional office, to be part of the
provider's campus.'' We have become aware of certain LTCH companies
that have both established new LTCHs and are considering relocating
existing HwHs or LTCH satellites so that they are at least 300 yards
from the acute care hospital, thus side-stepping the intent of existing
Sec. 412.534. We believe that extending the existing payment policy
will also address the type of ``gaming,'' described above in this
section.
We first noted in the RY 2006 LTCH PPS final rule (71 FR 27878) our
concern that in many cases that the line of ``functional separateness''
between freestanding LTCHs and their major referral sources appears to
have been erased. We believe that our analysis of patient movement
between these facilities supports these concerns.
Therefore, under the broad authority conferred on the Secretary by
section 123 of the BBRA, as amended by section 307(b) of the BIPA to
implement a prospective payment system for LTCHs, including authority
to provide for appropriate adjustments to the payment system, we
proposed the extension of the payment adjustment at Sec. 412.534,
presently applicable to co-located subclause (I) LTCHs, to all
subclause (I) LTCHs (section 1886(d)(1)(B)(iv)(I) of the Act), as
explained below in this section. (For the purposes of the discussion of
this policy, a ``subclause (I) LTCH'' is also intended to include
satellites of these LTCHs. Our proposal regarding subclause (II) LTCHs,
that is those LTCHs that meet the definition at section
1886(d)(1)(B)(iv)(II) of the Act, is discussed below in this section.)
Specifically, at Sec. 412.536, we proposed regulations that govern
payments under the LTCH PPS for LTCH and LTCH satellite Medicare
discharges admitted from referring hospitals not co-located with the
LTCH or the satellite of a LTCH.
The proposed policy provisions of the 25 percent (or applicable
percentage) payment adjustment apply to any subclause (I) LTCH or LTCH
satellite regardless of the physical proximity to the hospital from
which it is accepting admissions. In order to apply this policy at all
subclause (I) LTCHs and LTCH satellites, we proposed to additionally
revise existing Sec. 412.534 to include a new provision at Sec.
412.534(h) that
[[Page 26923]]
would extend the 25 percent (or applicable percentage) payment
threshold to those grandfathered co-located subclause (I) LTCH HwHs and
LTCH satellites at Sec. 412.22(f) and Sec. 412.22(h)(3)(i),
respectively, for Medicare discharges that had been admitted from the
grandfathered LTCH or LTCH satellite facility's host for cost reporting
periods beginning on or after July 1, 2007. (We address the issue of
satellites of subclause (II) LTCHs below in this section.) We proposed
adding Sec. 412.536 that applies a comparable payment adjustment
governing Medicare discharges from subclause (I) LTCHs and LTCH
satellites that were admitted from referring hospitals not co-located
with the LTCH or the satellite of a LTCH.
The proposed payment adjustment at Sec. 412.536 applies to those
Medicare discharges from co-located subclause (I) LTCHs (HwHs and LTCH
satellite facilities) that have been admitted from hospitals other than
those with which they are co-located. We believe that this policy
addresses our concerns with LTCHs and LTCH satellites that in many
cases appear to be functioning like step-down units of acute care
hospitals.
Furthermore, we believe it is appropriate that the same analytical
standards and payment policies be applied by Medicare to all subclause
(I) LTCHs. Therefore, we proposed amending existing Sec. 412.534 to
include subclause (I) grandfathered LTCH HwHs and LTCH satellite
facilities, as well as using the same thresholds applicable to co-
located LTCH HwHs and LTCH satellite facilities for subclause (I) LTCHs
and LTCH satellite facilities that admit Medicare patients from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH, under Sec. 412.536.
Specifically under the proposed policy, for cost reporting periods
beginning on or after July 1, 2007, as we specified in revised Sec.
412.534(h), this proposed payment adjustment would have included those
subclause (I) LTCH HwHs and satellites that had been ``grandfathered''
under Sec. 412.22(f) and Sec. 412.22(h)(3)(i), respectively, and that
are presently exempted from the existing payment adjustment for co-
located LTCHs. As noted previously, both grandfathered HwHs at Sec.
412.22(f) and satellite facilities at Sec. 412.22(h)(3)(i) would be
permitted to retain their exclusions from the IPPS despite not meeting
``separateness and control'' policies with regard to their
relationships with their host hospitals, as long as they continued to
comply with applicable Medicare requirements. This inclusion of
grandfathered LTCH HwHs and LTCH satellites in the proposed 25 percent
(or applicable percentage) threshold policy would not effect their
ability to continue to be ``grandfathered'' and excluded from the IPPS.
Moreover, as noted above, the 25 percent (or the applicable percentage)
threshold policy governing discharges from subclause (I) LTCHs that had
been admitted from any individual referring hospital not co-located
with the LTCH or the satellite of a LTCH, at Sec. 412.536, would also
apply in determining payments under the LTCH PPS for Medicare
discharges from LTCH HwHs and LTCH satellites, including grandfathered
HwHs and LTCH satellites, that had been admitted from referring
hospitals not co-located with the LTCH or the satellite of a LTCH (that
is, referring hospitals other than their hosts).
Under the policies applicable to grandfathered subclause (I) LTCH
HwHs and LTCH satellites, we proposed to pay an adjusted amount for
those discharged Medicare patients that were admitted from their co-
located host, under Sec. 412.534(h) or from any other referring
hospital under Sec. 412.536, in excess of the applicable percentage
threshold. The grandfathered LTCHs and LTCH satellite facility's
Medicare discharges that reached outlier status at the host, at Sec.
412.534(h), or at the referring hospital not co-located with the LTCH
or the satellite of a LTCH, at Sec. 412.536, would not count towards
the applicable threshold.
We believed that since we proposed expanding the 25 percent policy
to all subclause (I) LTCHs and LTCH satellite facilities it was
appropriate to include LTCH HwHs and LTCH satellites grandfathered
respectively under Sec. 412.22(f) and Sec. 412.22(h)(3)(i). We
proposed that the provisions at Sec. 412.534(h) would apply for
Medicare discharges from grandfathered LTCH and LTCH satellite
facilities admitted from co-located hospitals and the provisions at
Sec. 412.536 would apply for discharges admitted from the referring
hospital not co-located with the LTCH or the satellite of a LTCH. As we
noted in our RY 2007 LTCH PPS final rule regarding grandfathered HwHs,
``[W]e do not believe that it is reasonable to assume that by creating
a limited exception for these hospitals, the Congress was immunizing
these facilities from any further regulation by the Secretary as to
their growth and financial impact on the Medicare program. We do not
believe the Congress was establishing a separate class of providers''
(71 FR 48109).
As noted in the proposed rule, when we implemented the existing 25
percent (or applicable percentage) for cost reporting periods beginning
on or after October 1, 2004, we opted to implement on a ``location-
specific'' basis rather than based on Medicare provider numbers. That
is, we applied the percentage threshold payment adjustment only to
discharges from a specific location of a LTCH HwH or LTCH satellite
that was admitted from the host hospital with which they share a
building or campus. However, since implementing this policy, we have
been contacted by numerous representatives of LTCH chains whose
questions appear to indicate that the site-specific implementation of
the threshold percentage had resulted in patient-shifting between
hospital locations that shared a Medicare provider number and even
between separately owned LTCHs (for their mutual advantage) that side-
stepped the intent of our policy. Specifically, we offer the following
example of a situation that was occurring: a host hospital at Location
A was discharging patients to a LTCH HwH or satellite at Location B
while the host hospital at Location B discharged patients to the LTCH
HwH or satellite at Location A.
We also proposed that for those co-located LTCHs already subject to
the 25 percent (or applicable percentage) payment adjustment at
existing Sec. 412.534, the policy expansion at Sec. 412.536 would
apply to payments under the LTCH PPS for patients discharged from co-
located LTCHs (HwHs and satellites) that were admitted from referral
sources other than their host hospital(s).
Therefore, under the proposed policy, for cost reporting periods
beginning on or after July 1, 2007, a subclause (I) LTCH or LTCH
satellite that discharges more than 25 percent (or applicable
percentage) of Medicare patients admitted from any individual referring
hospital not co-located with the LTCH or the satellite of a LTCH. (that
had not already reached outlier status, as discussed above) would be
subject to the payment adjustment at Sec. 412.536 for Medicare
discharges from that hospital in excess of the applicable threshold.
Furthermore, we believe that with the application of our proposed
policy at Sec. 412.536 to Medicare discharges from subclause (I) LTCH
HwHs and LTCH satellites that were admitted from any individual
referring hospital not co-located with the LTCH or the satellite of a
LTCH., we are closing the ``location-specific loophole'' established by
the implementation of Sec. 412.534. The change would affect all LTCHs
or LTCH satellite Medicare discharges that were
[[Page 26924]]
admitted from hospitals that are located on a different campus.
We proposed that the payment adjustment at Sec. 412.534(h) for
grandfathered LTCH HwHs and LTCH satellite facilities, discussed above
in this section, would track the applicable provisions of the existing
payment adjustment at Sec. 412.534. Therefore, we proposed, at Sec.
412.534(h), for cost reporting periods beginning on or after July 1,
2007, the provisions of Sec. 412.534 will also apply to grandfathered
subclause (I) LTCH HwHs and LTCH satellite facilities. Accordingly,
under revised Sec. 412.534, if the percentage of the grandfathered
LTCH or LTCH satellite's discharged Medicare inpatient population that
were admitted from its co-located host exceeds the applicable
percentage of the LTCH's Medicare discharges for that cost reporting
period, an adjusted payment will be made for those discharges that were
admitted from that hospital beyond the applicable percent threshold, at
the lesser of the otherwise payable amount under 42 CFR part 412,
subpart O or the amount payable under subpart O that would be
equivalent to what Medicare would otherwise pay under the rules at
subpart A, Sec. 412.1(a). (The specifics of this payment formula are
explained in considerable detail in the RY 2007 LTCH PPS final rule (71
FR 27879).) Furthermore, as with our initial payment adjustment at
Sec. 412.534, we proposed additional adjustments for LTCHs and LTCH
satellites that would be affected by the new regulations and that are
located in rural areas, or that admit Medicare patients from urban
single or MSA-dominant referring hospitals (discussed below).
We did not propose extending the payment adjustment in Sec.
412.534(h) and Sec. 412.536 to those LTCHs and LTCH satellite
facilities that we refer to as subclause (II) LTCHs and LTCH
satellites, established by section 1886(d)(1)(B)(iv)(II) of the Act.
The policy for subclause (I) LTCHs and LTCH satellites would be based
on a calculation of the percentage of Medicare discharges that a LTCH
admits from an individual hospital during a cost reporting period as
compared to the LTCH's total Medicare discharges during that cost
reporting period. Because of a significant policy distinction that we
made at the start of the LTCH PPS for FY 2003, at this time we do not
believe that this policy should be applied to subclause (II) LTCHs and
LTCH satellite facilities. With the implementation of the LTCH PPS, we
revised the Sec. 412.23(e)(2)(i) and (e)(3)(i) to calculate the ALOS
based solely on Medicare patients who required long-stay
hospitalizations at subclause (I) LTCHs defined by section
1886(d)(1)(B)(iv)(I) of the Act; however, we did not change the formula
for calculating the ALOS for a LTCH governed by section
1886(d)(1)(B)(iv)(II) of the Act, implemented at Sec.
412.23(e)(2)(ii), for a ``subclause (II)'' LTCH. We believed that in
establishing a ``subclause (II)'' LTCH, the Congress provided an
exception to the general definition of LTCHs under subclause (I). We
had no reason to believe that the change in methodology for determining
the average inpatient LOS would better identify the hospitals that the
Congress intended to exclude under subclause (II) (67 FR 55974).
Similarly, when we established the existing 25 percent or applicable
percentage payment adjustment at Sec. 412.534, we determined that its
application to subclause (II) LTCHs was inappropriate because the
designation of a subclause (II) LTCH was not solely dependent upon
Medicare discharges (69 FR 49205). Therefore, we are not applying the
expansion of the 25 percent policy at Sec. 412.536 and amended Sec.
412.534 to LTCHs and LTCH satellite facilities defined under section
1886(d)(1)(B)(iv)(II) of the Act. The existing and amended payment
threshold adjustments at Sec. 412.534 and at Sec. 412.536 for
subclause (I) LTCHs and LTCH satellites are based solely on percentages
of LTCH Medicare discharges. As stated above in this section, we
continue to believe that since we include both Medicare and non-
Medicare discharges in our calculations for defining a subclause (II)
LTCH at Sec. 412.23(e)(2)(ii) that applying a payment adjustment that
is based solely on Medicare discharges may not be appropriate.
Furthermore, consistent with our policy not to include satellites of
subclause (II) LTCHs which were specifically grandfathered at Sec.
412.22(h)(3)(ii) in Sec. 412.536, we have excluded subclause (II) LTCH
satellites in the application of the 25 percent payment adjustment for
co-located grandfathered LTCHs at Sec. 412.534(h).
We received 270 comments on the RY 2008 LTCH PPS proposed rule.
Several of these comments pertained to the extension of the expansion
of the 25 percent rule to certain situations not currently covered
under existing Sec. 412.534. The following is a summary of these
comments and our responses.
Comment: One commenter expressed concern about the President's
budget that has submitted to the Congress the savings to be affected by
this proposed rule are already ``scored'' and claimed as savings. In
light of this, the commenter questioned the legitimacy of the comment
process.
Response: We disagree with the commenter that the inclusion of
anticipated savings from the LTCH PPS in the President's Budget
invalidates the legitimacy of notice and comment rulemaking.
Projections for expenditures and savings are a necessary and expected
step in the budgetary process for the Federal Government. The budget
only represents the President's expectations or projections of what may
happen in the future. It may make assumptions as to policies that have
been proposed (or are being evaluated for this purpose) as a
representation of will happen. But at most, the Budget should not be
viewed as a final blueprint because the Administration cannot
anticipate policy modifications in response to public comments. We
fully consider all comments received during the comment period and
modify proposed policies in response to public comment. Furthermore, we
would urge the commenter to review the last several years of LTCH PPS
and IPPS proposed and final rules and focus on the differences between
the policies that we proposed and those that we finalized (for example,
the interrupted stay policy (67 FR 13416, 13455 through 13462, and 67
FR 55954, 56003 through 56006); qualifications for LTCH HwH status (69
FR 23306, 28323 through 28327, and 69 FR 48916, 49191 through 49214);
and revisions in the grandfathering of HwHs and satellites (71 FR
23996, 24124 through 24126 and 71 FR 47870, 48106 through 48117)) in
order to more clearly appreciate the impact that comments have on the
development of our final policies.
Comment: Several commenters questioned our authority in proposing a
payment adjustment for LTCHs that is based on an IPPS payment. These
commenters assert that the Congress excluded LTCHs from the IPPS in
1983 and enacted legislation that mandated a separate PPS for LTCHs
that specifically required that payments to LTCHs should reflect the
resource use and costs of treating LTCH patients. The commenters
believe we are violating the statutory requirement that payments to
LTCHs be on a per discharge basis ``that reflects the reasonable and
necessary cost of providing services in a hospital having an average
LOS of greater than 25 days.'' The commenters assert that a payment
``equivalent to'' or ``comparable to'' payments under the IPPS are
actually payments under the IPPS, violating Congressional intent.
Several commenters acknowledge our belief that the IPPS-equivalent is
not a
[[Page 26925]]
payment under the IPPS but the ``thrust of the rationale'' for imposing
the rule is that these cases still belong in the acute care hospital
and payment should mirror payment under the IPPS. One commenter stated
that the Congress ``established LTCHs as a distinct and separate level
of care.''
Several commenters believe we are violating section 1801 of the Act
(``Nothing in this title shall be construed to authorize any Federal
Officer or employee to exercise supervision or control over the
practice of medicine or the manner in which medical services are
provided'') and section 1802(a) of the Act (``Any individual entitled
to insurance benefits under [Medicare] * * * may obtain health services
from any institution, agency, or person qualified to participate * * *
[in the Medicare program] if such institution, agency, or person
undertakes to provide him such services''). These commenters stated
that we have no authority to pay for services provided at a LTCH under
the IPPS. Statutory authority for the establishment of the LTCH PPS
indicates the Congress believed that LTCH care is more costly than
acute because it requires the Secretary ``to account for different
resource use of LTCH patients.'' The commenters believe that the
policies in the RY 2008 LTCH PPS proposed rule would strip away the
special status given by the Congress to LTCHs, thus undermining the
purpose of the LTCH PPS because a significant portion of payments would
be reimbursed under the IPPS.
Response: Following further data and policy analysis, we believe
that the policies that we are finalizing in this rule fairly address
circumstances that we have become aware of as the LTCH PPS matures. We
do not believe that we violated Congressional intent in either the BBRA
of 1999 or the BIPA of 2000 in establishing a payment adjustment under
the LTCH PPS that addresses our concerns about paying for a substantial
number of short stay patients, particularly those with extremely short
stays, under a payment system designed to treat long stay patients.
As indicated previously, section 123 of the BBRA, as amended by
section 307(b)(1) of the BIPA, confers broad discretionary authority on
the Secretary to implement a PPS for LTCHs, including providing for
appropriate adjustments to the payment system. This broad authority
gives the Secretary great flexibility to fashion a LTCH PPS based on
both original policies, as well as concepts borrowed from other payment
systems that are adapted, where appropriate, to the LTCH context. In
the instant case, our finalized policy utilizes, in large part,
principles from the IPPS payment methodology and builds upon those
concepts to create a LTCH PPS payment adjustment that results in an
appropriate payment under the LTCH PPS for those inpatient stays that
we believe could be more appropriately treated in another setting.
We disagree with commenters that our proposed expansion of the 25
percent policy that provides for a payment based on an ``IPPS
comparable payment amount'' is a payment under the IPPS. We want to
emphasize that such a payment is not an IPPS payment, but rather, given
the fact that these patients are comparable to patients treated in
acute care hospitals and that the statute precludes the existence of
LTCH units, it is an appropriate payment adjustment under the LTCH PPS
that is equivalent to a payment that would be derived from the IPPS
payment methodology. Moreover, the authority extended to the Secretary
by the BIPA included the discretion to ``provide for appropriate
adjustments to the long-term hospital payment system.'' Our final
policy is one such adjustment made within the authority conferred under
the statute. From the inception of the LTCH PPS for FY 2003, we have
interpreted the above cited statutory provision to authorize the
establishment of payment adjustment policies including short stay
outliers (Sec. 412.529), interrupted stays (Sec. 412.531), and
discharges from LTCHs. We also believe that the authority extended to
the Secretary by the BIPA includes the discretion to develop a payment
adjustment based upon establishing a percentage threshold for LTCH
discharges that we believe are comparable to discharges from acute care
hospitals under circumstances where we believe that a full episode of
care has not been delivered at the referring hospital and that the LTCH
is functioning like a step-down unit of the referring hospital.
We believe that further refining the 25 percent policy actually
captures Congressional intent since it addresses the situation of a
LTCH which by all appearances is serving as a unit of another hospital.
Comment: Some commenters maintain that we have no authority to
restrict admissions through payment reductions to LTCHs that have no
relationship to the referring acute care hospitals. One commenter
stated that in proposing the extension of the 25 percent policy to non-
co-located LTCHs, we have violated the Court's two-prong test for
validity of a regulation established under Chevron U.S.A., Inc. v.
Natural Resources Defense Counsel, Inc., 467 U.S. 837, 842-843 (1984).
Under the ruling, the Court asks whether the Congress addressed, in
clear language, the issue in question and, if the answer is
affirmative, the effect is given to the ``unambiguously expressed
intent of Congress.'' If the ``statute is silent or ambiguous with
respect to the specific issue,'' ``the Agency's interpretation is
allowed to stand as long as it is based on a permissible construction
of the statute.'' Id. at 843. Deference to the Agency's interpretation
is ``only appropriate when the agency has exercised its own judgment''
and is not based upon an erroneous view of the law. Id.
Response: We disagree that we have imposed criteria that would
restrict admissions through payment reductions to LTCHs that have no
relationship to the referring acute care hospitals. The payment
adjustment we are implementing is not the equivalent to setting
``admissions criteria'' for treatment at a LTCH. An LTCH may admit as
many hospital-level patients as it can safely treat and from whatever
source(s) it chooses. However, we believe that LTCHs that discharge
greater than the applicable percentage of patients admitted from a
particular source that had not reached high cost outlier status, may be
understood to be functioning similarly to a co-located LTCH (HwH or
satellite), and therefore, more like a step-down unit of the acute care
hospital. Under such a circumstance, we believe that the Medicare
program would be generating a second payment under the LTCH PPS for a
single episode of care for patient who, had not completed his or her
episode of care and, is discharged to a LTCH for the remaining portion
of the original episode of care. Thus, we believe that it is
appropriate to adjust the payment to be made to the LTCH under the LTCH
PPS.
Section 123 of the BBRA, as amended by section 307 (b) of the BIPA,
confers upon the Secretary tremendous discretion in creating the LTCH
PPS. We believe that the expansion of the 25 percent policy is in
accordance with the authority granted to the Secretary under 123 of the
BBRA as amended by section 307 of the BIPA to make adjustments under
the LTCH PPS and is consistent with the statute which precludes the
establishment of LTCH units at section 1886(d)(1)(B) of the Act and is
also consistent with the Secretary's authority under sections 1102 and
1871 of the Act. Therefore, we disagree with commenters that the
Secretary is acting in contradiction of the statute and inconsistently
with the Chevron doctrine.
[[Page 26926]]
As a result of our monitoring efforts, we have become increasingly
aware that the intent of our existing payment adjustment policy at
Sec. 412.534 aimed at combating LTCHs functioning as long-stay
``units'' of the referring hospitals is being circumvented by creative
patient-shifting and admission practices, in addition to, a spiked
increase in the number of freestanding LTCHs. We have been monitoring
the patient shifting patterns of LTCHs and referring hospitals that are
not co-located with one another and have detected behavior that is not
significantly different from that of co-located LTCHs and their host
hospitals. Therefore, we do not believe that co-location is a
prerequisite to inappropriate patient-shifting between an acute care
hospital and a LTCH.
We believe that the danger of LTCHs functioning as ``units''
appears to be occurring not only in LTCH HwHs and LTCH satellites, but
also with freestanding LTCHs, and that in many cases, these non-co-
located LTCHs and their referral sources may be functioning in ways
that appear to have erased the line of ``functional separateness''
between these LTCHs and their referring acute care hospitals. If
patient-shifting between the referring hospital and a LTCH exceeds a
specific threshold prior to the patient reaching outlier status at the
referring hospital (that is, prior to receiving a full episode of care)
the LTCH appears to be functioning as a de facto step down unit of the
acute care hospital, a configuration not permitted by section
1886(d)(1)(B) of the Act, which authorizes rehabilitation and
psychiatric units but not LTCH units of acute care hospitals. We
believe that if the patient is in effect, being treated in a ``unit''
of the acute care hospital, it is reasonable to revise the payment
methodology and take this into account.
Comment: We received several comments supporting our inclusion of
grandfathered LTCH HwHs in the 25 percent threshold payment adjustment.
These commenters stated that such inclusion would ``level the playing
field'' among LTCHs. A number of commenters disagreed with applying the
25 percent threshold payment adjustment for co-located LTCH HwHs and
satellites. Other commenters urged us to ``continue the grandfathering
exemption.'' Several commenters stated that including grandfathered
LTCH HwHs with other LTCHs ``evades the Congressional mandate for
grandfathering'' and also contradicts regulatory statements that we
have made since the start of the LTCH PPS. One commenter stated that
grandfathered LTCHs HwHs have ``operated in reasonable reliance on CMS
statements that it [would] not apply the HwH requirements to
[grandfathered LTCHs]'' and requested that we continue to exempt
grandfathered LTCHs from the proposed 25 percent rule. The commenter
noted that since grandfathered LTCH HwHs were exempt from the original
25 percent policy that had been codified at Sec. 412.22(e)(5)(iii) and
since Sec. 412.534 is based on that requirement, we should continue to
exempt grandfathered LTCH HwHs from this policy. One commenter noted
that grandfathered LTCH HwHs were protected against being paid under
the IPPS even though they did not comply with the ``separateness and
control'' regulations but if they are required to comply with the 25
percent threshold payment adjustment, the ``result will be the same''
because the grandfathered LTCH HwH would be paid under the IPPS.
Another commenter cited that LTCH HwHs are precluded from growing under
our regulations, and therefore, they should be exempted from the 25
percent policy. One commenter agreed that HwH, freestanding, and
grandfathered LTCHs should be subject to the extension of the 25
percent threshold rule, but believes that the threshold should be 35
percent for this group of LTCHs instead of 25 percent because it would
still allow CMS to achieve its stated goal and would also be more
realistic for LTCH providers that operate in small urban markets which
are very similar to rural areas.
Response: We appreciate those commenters who endorsed our inclusion
of grandfathered LTCH HwHs in the 25 percent threshold payment
adjustment. (We would also note that satellites of LTCHs at Sec.
412.22(h)(4) will also be affected by the policy change.) The payment
adjustment that we are finalizing, will affect all subpart (I) LTCHs,
including those LTCHs and LTCH HwHs and satellites that were already
regulated under Sec. 412.534 for discharges that had been admitted
from their co-located hosts. It addresses our concern regarding
Medicare patients who are discharged from referring hospitals prior to
the delivery of a full episode of care, to LTCHs. In keeping with our
fiduciary responsibility to protect the Medicare program against
duplicative and inappropriate payments, we are finalizing the proposed
policy at Sec. 412.534(h) under which all subclause (I) LTCHs,
including grandfathered LTCH HwHs and satellites, will be subject to
the 25 percent (or applicable percentage) threshold payment adjustment
with regard to Medicare discharges that they admit from their co-
located host. (We are also providing for conforming changes to Sec.
412.534(a), (c)(1), (c)(2), (d)(1), and (e)(1) to include grandfathered
HwHs and satellites, in existing provisions.) Furthermore, under new
Sec. 412.536, Medicare discharges from grandfathered LTCH HwHs and
satellites that were admitted from referring hospitals not co-located
with the LTCH or the satellite of a LTCH that exceed the applicable
threshold, will be subject to the payment adjustment described in
detail above in this section. (Elsewhere in these responses, we discuss
the 3-year transition period to the full threshold adjustment that we
are also providing for all LTCHs and LTCH satellites including
grandfathered LTCHs and satellites affected under Sec. 412.536.)
We disagree with commenters who stated that we are ``evading
Congress' mandate, and contradicting regulatory statements that we have
formerly made.'' Section 4417(a) of the BBA of 1997 amended
1886(d)(1)(B) of the Act to provide that ``[a] hospital that was
classified by the Secretary on or before September 30, 1995 as a
hospital described in clause (iv) [a LTCH] shall continue to be so
classified notwithstanding that it is located in the same building as
or on the same campus as another hospital.'' We believe this provision
was intended to prevent grandfathered LTCHs that were unable to satisfy
our HwH regulations from losing their LTCH status. By finalizing the 25
percent (or applicable percentage) payment threshold policy to include
grandfathered LTCHs HwHs, in no way are we countermanding their
exemption from the separateness and control regulations at Sec.
412.22(e). LTCHs that exceed the applicable threshold do not lose their
LTCH status. Rather, the new policy only affects the payment level for
all LTCHs that exceed the threshold. We further believe that including
grandfathered LTCH HwHs (and satellites) within the scope of the
percentage payment threshold that we have established to ensure that
Medicare is not generating two full payments one under the IPPS and
another under the LTCH PPS for one episode of care, is well within the
authority of section 123 of the BBRA, as amended by section 307(b)(1)
of the BIPA, which confers broad discretionary authority on the
Secretary to develop and implement a PPS for LTCHs and further provides
that the Secretary ``may provide for appropriate adjustments to the
long-term hospital payment system.''
We do not believe that it is reasonable to assume that by creating
a limited
[[Page 26927]]
exception for these hospitals that the Congress intended to immunize
these facilities from any further regulation by the Secretary as to
their growth and financial impact on the Medicare program. ``We do not
believe Congress was establishing a separate class of providers'' (71
FR 48109). Grandfathered LTCHs and LTCH satellite facilities are paid
under the LTCH PPS and the revised payment adjustment under Sec.
412.534 and new Sec. 412.536 is merely another feature of the LTCH
PPS.
One commenter believes we contradicted our own statements by
including a partial quote from the FY 2007 IPPS final rule about
grandfathered LTCH HwHs' ``reasonable reliance'' on the fact that we
would not apply the HwH requirements. In that final rule, we explained
that ``[t]he purposes of our grandfathering certain existing HwHs and
satellites was to reflect reliance interests and settled expectations
that existed on the part of these facilities at the time the
separateness and control requirements were created'' (71 FR 48107). We
believe this statement is consistent with our belief that including
grandfathered HwHs in the extension of the 25 percent (or applicable
percentage) payment threshold policy does not violate the Congress'
intent. The expansion of the 25 percent policy will not affect the
``reliance interests and settled expectations'' of grandfathered HwHs
(and also on LTCH satellites) since they will continue to be exempt
from meeting the separateness and control requirements that are
required by non-grandfathered co-located LTCHs. Moreover, the concerns
that we hold regarding premature patient shifting from host hospitals
or referring hospitals to LTCHs and the consequences of such patterns
for Medicare payment purpose, may even be more relevant with regards to
grandfathered LTCH HwHs because since they are exempted from the
separateness and control policies they may even more closely resemble
step-down units of their host hospitals.
Several commenters noted that the 25 percent threshold payment
adjustment originated as one of the three options (the 75/25 test) with
which HwHs could comply to meet the separateness and control
requirements at (then) Sec. 412.22(e)(v)(C). They stated that since
grandfathered LTCH HwHs were exempted from this requirement when it was
a ``certification issue,'' or ``control requirement,'' these facilities
should similarly be exempted from the policy when it is a payment
adjustment. We note that even though the percentages in these policies
are the same, there is a critical difference between them. Because the
effect of section 1886(d)(1)(B) is that grandfathered LTCH HwHs may
continue to be classified as LTCHs even if they fail to meet with the
``separateness and control'' requirements that we had established at
Sec. 412.22(e), among which was the 75/25 test as one of the three
options for indicating independent ``performance of basic hospital
functions'' between the host and the LTCH HwHs, grandfathered HwHs
continued to be excluded from the IPPS despite their unquestioned
organizational and functional linkage to their host hospitals. A non-
grandfathered LTCH HwH that was not in compliance with the separateness
and control requirements would have lost its IPPS exclusion. Therefore,
since loss of IPPS-excluded status is not a feature of the payment
adjustments that we are finalizing at revised Sec. 412.534 and Sec.
412.536, we would disagree with the commenter that the ``result will be
the same because the grandfathered LTCH HwH would be paid under the
IPPS.'' Under Sec. 412.534(h), which makes grandfathered LTCH HwHs
(and LTCH satellites) subject to revised Sec. 412.534(h) and to Sec.
412.536, for cost reporting periods beginning on or after July 1, 2007,
there is no risk of losing IPPS-excluded status. Grandfathered LTCHs
would continue to be paid under the LTCH PPS, albeit, an adjusted
payment amount, even if they exceed the applicable percentage threshold
under our finalized policy.
As with all other subclause (I) LTCHs, Medicare payments to
grandfathered LTCH HwHs (and satellites) for discharges in excess of
the applicable threshold that were admitted from an individual
referring hospital will be based on a payment under the LTCH PPS at the
lesser of the otherwise unadjusted amount under the LTCH PPS or a
payment equivalent to what would otherwise have been paid under the
IPPS. As with all LTCHs and LTCH satellites that are subject to this
payment policy, discharges that exceed the applicable threshold that
had reached outlier status at the referring (or host) hospital, will
not be subject to the payment adjustment and will therefore be eligible
for otherwise unadjusted payment under subpart O.
Since we are applying the 25 percent policy even to freestanding
LTCHs, it would be inconceivable to treat grandfathered HwHs as being
in a unique class that exempts them from the policy while applying the
policy to LTCHs that are totally separate from the referring hospital.
We believe that the Congress intended to allow grandfathered HwHs to
maintain their LTCH status but in no way intended for this group of
LTCHs to receive an exclusion from payment policies applicable to
freestanding LTCHs.
We further disagree with the commenters that since grandfathered
LTCH HwHs (and satellites) are precluded from ``growth'' under our
existing regulations, that they should not be subject to the 25 percent
(or applicable percentage) payment adjustment. We have allowed
grandfathered LTCH HwHs and satellites to modernize their facilities as
necessary and appropriate even if modernization required an increase in
square footage. Specifically, in the FY 2007 IPPS final rule, we
revisited previous policies that limited grandfathered LTCH HwHs (and
satellite facilities, including satellite units) from changing the
``terms and conditions'' under which they operated at the time of their
grandfathering and we revised Sec. 412.22((f)(3) (and Sec.
412.22(h)(4) for satellites), and finalized a policy which would allow
them to increase or decrease their square footage or decrease their
number of beds without risking their grandfathered status. In that same
final rule, we revised this policy for all HwHs, satellites, and
satellite units of all excluded hospitals, not only LTCHs, because we
were persuaded by comments received on our FY 2007 IPPS proposed rule
(71 FR 23996) that these facilities needed to be able to expand in
order to modernize (for example, to accommodate new medical equipment,
record requirements, and new Federal, State, and local safety
requirements). However, we did not allow grandfathered facilities to
increase their number of beds because we believed that all
grandfathered co-located facilities already held a significant
advantage over such facilities that were not grandfathered, because
they were not required to comply with separateness and control rules.
Therefore, we believed that not only would allowing them to increase
their bed count convey an additional unfair advantage to these
facilities, but also that such an increase would lead to additional
costs for the Medicare program (71 FR 48106 through 48115). We
similarly believe that continued exemption of grandfathered LTCH HwHs
and satellites from the payment threshold adjustment to which all other
subclause (I) LTCHs are subject is both fair and appropriate, and in
the words of our commenter, helps to ``level the playing field'' among
LTCHs.
Regarding the commenter's suggestion that even as we extend the 25
percent
[[Page 26928]]
threshold payment adjustment to all LTCHs including grandfathered HwHs,
we should raise the threshold to 35 percent as a more reasonable goal,
particularly for small urban and rural areas, we would call the
commenter's attention to the 3-year transition to the full threshold
adjustment that we are providing (described in greater detail in the
next response) which establishes a 75 percent threshold but not to
exceed the percentage in the base year at Sec. 412.536(f)(1) for all
impacted LTCHs and LTCH satellites for cost reporting periods beginning
on or after July 1, 2007, through June 30, 2008 and a 50 percent but
not to exceed the percentage in the base year threshold for all
impacted LTCHs and LTCH satellites for cost reporting periods beginning
on or after July 1, 2008, through June 30, 2009. For cost reporting
periods beginning on or after July 1, 2009, the threshold will be 25
percent (or the applicable percentage.) We have responded to comments
regarding single urban and rural LTCHs elsewhere in these responses. We
believe that establishing this policy will result in hospitalized
patients who continue to need acute care hospital treatment to not be
shifted to another acute care hospital setting before the end of a full
episode of care, but rather to complete appropriate treatment at the
referring hospital.
Comment: Several commenters contend that the relationship between a
referring hospital and a freestanding LTCH should not be subject to the
same regulatory standards as should a co-located LTCH and its host
hospital. Furthermore, the commenters assert that when we finalized the
25 percent payment threshold for co-located hospitals, we provided a 4-
year phase-in to the full 25 percent (or applicable percentage)
threshold but in our proposed rule, we have not proposed any such
phase-in for those LTCHs who would be affected under the proposed
policy at proposed Sec. 412.536. The commenters request that if we
finalized the proposed extension of the 25 percent payment adjustment
to non-co-located LTCHs and LTCH satellites, that we provide a similar
transition period to allow LTCHs the opportunity to adapt to the full
impact of the policy. In addition, commenters requested that we also
provide for implementation on a site-specific basis, as we had under
the existing Sec. 412.534 provision rather than based on admissions to
the provider in its entirety. One commenter stated that for purposes of
implementation, using a provider number definition on the LTCH side
would be simpler to track and control and would be less subject to
manipulation.
Response: We have expressed our concerns regarding patient-shifting
between host hospitals and co-located LTCHs (HwHs and satellites) since
we originally established the separateness and control requirements at
Sec. 412.22(e) for FY 2005 (59 FR 45389 through 45393). Upon
finalizing the 25 percent (or applicable percentage) threshold policy
for co-located LTCHs for FY 2005, we received comments indicating that
we should be aware of similar patient shifting patterns between non-co-
located LTCHs and their primary referring hospitals (69 FR 49211).
Specifically, MedPAC noted that ``freestanding LTCHs also have strong
relationships with acute care hospitals, and that where on average LTCH
HwHs receive 61 percent of their patients from their hosts,
freestanding LTCHs receive 42 percent from their a primary referring
hospital * * * [that] there are some risks in our proposed 25 percent
policy; (a) the 25 percent rule that only applies to LTCH HwHs and not
to freestanding LTCHs and may therefore be inequitable; (b) it does not
ensure that patients go to the most appropriate post-acute setting; (c)
this approach may be circumvented by an increase in the number of
freestanding LTCHs instead of LTCH HwH.'' As we stated in the FY 2005
IPPS final rule, we believe that ``MedPAC shares our concern that the
LTCH payment system creates an incentive for unbundling of the IPPS in
addition to overpayment for the care provided by LTCHs and that this
concern is great, particularly, in the case of a LTCH HwH * * * '' (69
FR 49211). We also provided an in-depth discussion of our growing
concerns in the RY 2007 LTCH PPS final rule (71 FR 27874 through
27881). As we have stated, when we evaluate patient discharges from a
host or a referring hospital (typically, an acute care hospital) and
admission to a LTCH, we are particularly concerned that the acute care
hospital has not provided a full episode of care for a patient who
continues to need hospitalization, but instead, is discharging this
patient to another acute care hospital, one that is paid under the LTCH
PPS. Consequently, two Medicare claims are submitted; one from the
acute care hospital and the other for payment under the LTCH PPS for
what was essentially one episode of care.
In this final rule, while we continue to believe that the expansion
of the 25 percent payment threshold policy for at Sec. 412.536 and
revised Sec. 412.534 are appropriate, in response to the commenters,
we have revisited our original proposal and will provide for a 3-year
phase-in of the final payment threshold adjustment at Sec. 412.536 and
revised Sec. 412.534. Specifically, in this final rule, we have
established a 3-year transition period under Sec. 412.536 for LTCHs
that will be governed by the expansion of the 25 percent threshold
policy for LTCH discharges admitted from referring hospitals not co-
located with the LTCH or the satellite of a LTCH and also for those
grandfathered co-located LTCHs that we included under this policy at
revised Sec. 412.534(h).
Under the policy that we are finalizing for cost reporting periods
beginning on or after July 1, 2007 and before July 1, 2008, the
threshold will be no less than the lesser of 75 percent or the
percentage that the LTCH or LTCH satellite discharged from the
referring hospital during its RY 2005 cost reporting period. For cost
reporting periods on or after July 1, 2008 and before July 1, 2009, the
threshold will be no less than the lesser of 50 percent or the
percentage that the LTCH or LTCH satellite discharged from the
referring hospital, during its RY 2005 cost reporting period. For cost
reporting periods beginning on or after July 1, 2009, all LTCHs and
LTCH satellites under Sec. 412.536 and grandfathered LTCHs and LTCH
satellites under Sec. 412.534 will be subject to the applicable
percentage threshold. (We note that for cost reporting periods
beginning on or after October 1, 2007, non-grandfathered co-located
subclause (I) LTCHs, under Sec. 412.534, are fully phased-in to the
full 25 percent (or applicable percentage threshold) for discharges
admitted from their co-located hosts. However, payments for LTCH
discharges admitted from referring hospitals not co-located with the
LTCH or the satellite of a LTCH, are governed under Sec. 412.536.)
Furthermore, under our finalized policy, grandfathered LTCH HwHs
and satellites, under Sec. 412.534(h) and Sec. 412.536 will now be
subject to the 3-year transition that we are finalizing under this new
policy for all their discharges, both admitted from their co-located
host and from referring hospitals not co-located with the LTCH or the
satellite of a LTCH hospital.
We believe that a 3-year transition is sufficient time for those
affected LTCHs to adapt to this payment adjustment. Since the
implementation of the existing payment adjustment for co-located LTCHs
at Sec. 412.534 for FY 2005, we have clearly articulated our
continuing concerns about patient-shifting between non-co-located LTCHs
and referring hospitals (69 FR 49213, 71 FR 27878 through 27879).
Therefore, we believe
[[Page 26929]]
that we have provided ample notice to the LTCH industry of potential
impending regulation in this area and that therefore we believe that
the industry had time to adjust its behavior. We have also seen
articles in trade association newsletters over the past several years
indicating that the LTCH industry was well aware of our focus on this
issue. However, in response to comments, we have adopted a 3-year
transition policy that we believe will provide additional time for
LTCHs to adjust to the new regulations.
However, we also want to reiterate, that just as we provided under
Sec. 412.534, the payment adjustment specified at Sec. 412.536 will
not be applied to discharges (admitted to LTCHs or LTCH satellites from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH) that reached HCO status at the referring hospital prior to
admission to the LTCH or LTCH satellite.
Regarding implementation of the new payment adjustments, we will be
implementing the percentage threshold at Sec. 412.536 on the provider
as a whole for multi-campus referring sources and also for multi-campus
LTCHs or LTCH satellites in contrast to our location-specific
implementation of the 25 percent payment adjustment for co-located
LTCHs under Sec. 412.534. We agree with the commenter that location-
specific implementation was consistent with our policy goals in
addressing patient movement between co-located LTCHs and LTCH
satellites and their hosts. However, we believe that our goals
regarding LTCH discharges admitted from referring hospitals not co-
located with the LTCH or the satellite of a LTCH are more logically
served by basing implementation on the provider as a whole (that is,
based on discharge data for the entire provider under its provider
number). Discharges from a co-located LTCH or LTCH satellite that were
admitted from remote locations of the host hospital not co-located with
the LTCH or the satellite of a LTCH would also be held to the expanded
25 percent policy by aggregating the discharges from those locations
and determining if they exceeded the applicable threshold. Patients
that are admitted from the hospital that is co-located with the LTCH or
LTCH satellite facility will continue to be governed by the location-
specific implementation of Sec. 412.534.
We have revised our proposed policy regarding transitioning to the
full 25 percent threshold adjustment and under our finalized policy,
for all subclause (I) co-located HwHs and satellites, including
grandfathered subclause (I) LTCH HwHs and LTCH satellites under the
extension of the 25 percent (or the applicable percentage) threshold
policy that we are finalizing, at revised Sec. 412.534(h) and Sec.
412.536, and we are providing for a 3-year transition period.
Accordingly, for cost reporting periods beginning on or after July 1,
2007, and before July 1, 2008, the percentage threshold applied would
be no less than the lesser of 75 percent of the total number of
Medicare discharges that were admitted from all referring hospitals not
co-located with the LTCH or the satellite of a LTCH during that cost
reporting period or the percentage of Medicare discharges that had been
admitted to the LTCH or LTCH satellite from that referring hospital
during the long-term care hospital's or satellite's RY 2005 cost
reporting period. Although we proposed to use FY 2005 as the base year
for this group of LTCHs in the RY 2008 LTCH PPS proposed rule (72 FR
4815), we will use RY 2005 rather than FY 2005 as the base year since
we have revised the transition period under Sec. 412.536 to be
effective and applicable for cost reporting periods on a rate year
cycle (That is, beginning on or after July 1. We originally chose 2005
because when we published our proposed rule, FY 2005 was our most
recent full year of MedPAR data. For cost reporting periods beginning
on or after July 1, 2008 and before July 1, 2009, the percentage
threshold applied would be no less than the lesser of 50 percent of the
total number of Medicare discharges that were admitted from all
referring hospitals not co-located with the LTCH or the satellite of a
LTCH during that cost reporting period or the percentage of Medicare
discharges that had been admitted to the LTCH or LTCH satellite from
that referring hospital during the long-term care hospital's or
satellite's RY 2005 cost reporting period. For cost reporting periods
beginning on or after July 1, 2009, the threshold will be 25 percent
(or the applicable percentage.) A 3-year transition period is
applicable for all subclause (I) LTCHs and LTCH satellites governed
under Sec. 412.536 and to grandfathered LTCHs and LTCH satellites now
subject to the threshold under Sec. 412.534. For co-located LTCHs
(that is, LTCH HwHs and LTCH satellites) it is important to note that
under existing Sec. 412.534(g)(4), for cost reporting periods
beginning on or after October 1, 2007, LTCH HwHs and LTCH satellites
being phased-in to the full adjustment would enter year 4 and be would
be required to meet the 25 percent (or applicable percentage) threshold
regarding their percentage of discharges from their co-located hosts.
However, these LTCH HwHs or LTCH satellites are governed by Sec.
412.536 regarding discharges that they admitted from any other referral
source (that is, other than its co-located host hospital) and would be
subject to the 3-year transition beginning with cost reporting periods
beginning on or after July 1, 2007.
We also believe that it is important that we note that the 3-year
transition to the full 25 percent threshold payment adjustment will
coincide with our continuing work on the MedPAC recommendations to
attempt to develop facility and patient level criteria for LTCHs. We
hope that the LTCH industry will work closely with CMS to pursue this
endeavor during the transition period.
Comment: Several commenters maintained that we did not present
convincing data-based evidence in the RY 2008 LTCH PPS proposed rule
and that in the absence of meaningful data no meaningful comments can
be made. Several commenters questioned why we are seeking to expand the
25 percent threshold policy to non-co-located LTCHs when we have not
yet evaluated data from the FY 2005 implementation of the same payment
adjustment for co-located LTCHs and LTCH satellites. Some commenters
included data analyses that they believe refutes the policies that we
proposed in the RY 2008 LTCH PPS proposed rule. The commenters urged
CMS to review the most current hard data from LTCHs and to base all
policy formulations on the conclusions that can reasonably be drawn
from such data. Several commenters contended that we proposed policy
based on anecdotes rather than on hard data and that we have accused
the LTCH industry based on this anecdotal evidence. The commenters
requested that we provide data, rather than anecdotal evidence of the
purported ``gaming'' that we believe is occurring between the acute
hospitals and LTCHs. The commenters further contended that the research
produced by RTI should be the foundation of future CMS rulemaking.
Commenters also maintained that rather than continuing to increase,
the absolute number of LTCHs has decreased by one during 2006, and
therefore, we should not continue to be concerned about industry
growth.
Response: We disagree with the commenters' assertions regarding
both our analyses and provision of the best available data evidence for
the policies that we proposed and that this lack resulted in LTCH
stakeholders being unable to submit ``meaningful comments.'' In fact,
we received 270 comments in response to the RY 2008
[[Page 26930]]
LTCH PPS proposed rule (some of which were very lengthy). We believe
that the concerns expressed in these comments, which we present in
appropriate sections of this final rule by topic, are indicative that
meaningful comments were made. In determining our final policy, we are
fully aware of the serious attention that our commenters invested in
their policy recommendations, as well as in the challenges that they
have articulated presented. Moreover, regarding assertions that we have
not provided data that indicates our policy rationale, we note that in
December 2006 we posted the RTI report in its entirety on the CMS Web
site at http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage.
This report contains detailed data analyses
which were the bases of RTI's findings and significantly impacted our
decisions to propose specific policies.
With regard to the data analyses that some commenters submitted
challenging the correlation that we proffered, between the discharges
to LTCHs and fewer high cost outlier cases at referring acute care
hospitals we would assert that our data analyses (described below)
support this theory.
An analysis of our MedPAR data from acute care hospitals regarding
their LOS during CY 2003 to their LOS during CY 2005 in markets where
LTCHs opened in CY 2004. Our data analysis focused on acute care
hospitals that had been the source of at least 25 percent of the LTCH
discharges. (Our data indicated that these communities already had some
LTCHs at the time when these additional LTCHs opened.) We compared
304,650 acute care cases in CY 2004 to 316,816 cases in CY 2005. In CY
2003, there were 7,586 outliers and in CY 2005, there were 5,858. The
percentage of outliers in the acute care hospitals decreased from 2.5
percent to 1.8 percent and the numbers of patients that were admitted
to LTCHs in those communities increased from 2,128 in CY 2003 to 6,597
in CY 2005. Furthermore, the percentage of acute care hospital
discharges to LTCHs increased from 0.7 percent in CY 2003 to 2.1
percent in CY 2005. The percentage decline in total outliers between
the CY 2003 and CY 2005 was -25.7 percent. The increase in LTCH
discharges from CY 2003 to CY 2005 was 198.1 percent.
We would also quote section 3.3 ``the RTI report which summarizes
its detailed data analyses (which are included in the Report) by noting
that LTCH admissions were less likely to have had an outlier payment
during the prior acute stay (8 percent compared to 12 percent for non-
LTCH admissions). The ALOS in the acute hospital [prior to discharge to
the LTCH] tended to be longer for the LTCH admissions, averaging 13.5
days compared to only 11 days for the other acute admissions.'' (p. 51)
This statement indicates that those patients that were admitted to the
LTCH before achieving outlier status at the acute care hospital were
``sicker'' than other patients in those DRGs, which is logical since
they continued to need acute hospital-level treatment. (Elsewhere in
these responses, we respond, in greater detail, to comments that we
received that challenge our benchmark assumption that reaching outlier
status signifies the delivery of a full episode of care. To briefly
summarize, it is our belief that a patient at an acute care hospital
who still is in need of acute hospital-level care upon discharge from
that setting, may not have completed the treatment for which the
Medicare is paying) and is using the LTCH as a unit to treat those
patients.
In particular, we suggest that commenters revisit Table 3-7 in the
RTI Report which indicates that while most patients constituting LTCH
admissions were previously hospitalized, only a small proportion of
those in the acute hospital generated an outlier payment (less than 20
percent) except for the DRG 452: Complications of Treatment with CC
(21.3 percent) and DRG 204: Disorders of the Pancreas Except Malignancy
(26.2 percent). About one-fourth of the top 50 LTCH conditions had 15
to 20 percent of their admissions qualifying for an acute outlier
payment before being admitted to the LTCH. These included many of the
medically complex conditions such as: DRG 475: Ventilator Support 16.9
percent); DRG 316: Renal Failure (19.3 percent); DRG 076: Other
Respiratory System OR Procedures with CC (19.2 percent); DRG 188: Other
Digestive System (19.5 percent); DRG 483: Tracheostomy (17.8 percent);
DRG 461: OR Procedures (17.8 percent); DRG 331: Other Kidney and
Urinary Tract Diagnoses with CC (17.1 percent); and DRG 440: Wound
Debridements for Injuries (19.4 percent). Still, the majority of LTCH
admissions were admitted before reaching outlier status in the acute
hospital'' (p. 48).
We believe that the above data supports our extension of the 25
percent threshold payment adjustment which distinguishes between
patients in need of further acute level care who were admitted to a
LTCH or satellite after receiving a full episode of care at the
referring acute (that is, they reached outlier status at that hospital)
and those needing further acute treatment that were admitted to the
LTCH following what appears to be a truncated stay at the acute care
hospital.
In response to the comments that suggested that our extension of
the 25 percent payment threshold policy was premature since as yet, we
had no data on the impact of the 25 percent policy on co-located LTCHs,
because the policy is not yet fully phased-in, we reiterate that
regulating inappropriate patient shifting to LTCH HwHs and satellites
from their co-located hosts does not negate the need to address the
same issue between LTCHs and referring hospitals with which they are
not co-located. We remain concerned about LTCHs with a pattern of
patients who need acute hospital-level care after having received
treatment for which Medicare has paid under the IPPS that are
immediately admitted for additional hospital-level treatment to other
acute care hospitals (LTCHs) for another Medicare payment under the
LTCH PPS.
In response to commenters who found fault with our attention to
anecdotal information regarding the behavior of some LTCHs, we note
that determinations are based on our policy on a variety of factors,
including information from our FIs, questions and comments from LTCH
consultants and attorneys, LTCH advertisements in both print media and
the internet that provided us with irrefutable information about LTCH
behavior. We believe that it is our fiduciary responsibility to guard
the Medicare Trust Fund from inappropriate and unnecessary
expenditures. Therefore, we believe that any and all information
regarding the LTCH industry is pertinent to our responsibility to be
proactive in the regulatory process. For example, we are aware of a
growing trend by some LTCHs to establish ``units dedicated to mental
health,'' identified as a ``Mental Health Unit'' or ``Medical-
Behavioral Unit.'' Assuming that the LTCH organization is cognizant of
the preclusion against the establishment of excluded units (for
example, psychiatric or rehabilitation) in a hospital that is excluded
from the IPPS (see Sec. 412.25((a)(1)(ii)) establishment of such
titular ``units'' would be reimbursed by Medicare under the LTCH PPS.
Clearly patients in any acute care hospital setting (and LTCHs are
acute care hospitals) may need psychiatric intervention, but given our
regulations governing excluded psychiatric units at Sec. 412.27 and
the specific COPs for psychiatric facilities at Sec. 482.62, we are
very interested in LTCHs that are advertising mental health care as a
primary patient service.
[[Page 26931]]
Regarding the comments that note an absolute decrease in the number
of LTCHs that were established in FY 2006, we note that we are well
aware of continuing growth in the LTCH industry, which in some part,
takes the form of large LTCH companies purchasing existing LTCHs and
expanding the facilities, as well as the shifting landscape of the LTCH
industry brought about by continuing corporate mergers. (Our
information in this regard comes to us from FIs, corporate press
releases from LTCHs, newsletters from LTCH trade associations,
corporate Web sites, and investment newsletters. For example, one Web
newsletter announced, ``Private Equity Firms Target Long-Term Acute
Care Hospitals.'' The article continued, ``Two operators of long-term
acute care hospitals, or LTACS, agreed to be bought by private equity
firms, but for very different reasons. Two notable deals were announced
this month targeting companies that manage long-term acute care
hospitals, or LTACs. In both cases, leveraged buyout firms initiated
transactions to buy out operators of multiple LTACs. The rationale for
each, however, is different, reflecting different business plans and
different stages in the growth cycles of the two companies.''
With respect to the commenter's suggestion that we have alluded to
gaming of the Medicare program by the LTCH industry and that we have
provided no substantiation for these beliefs, we would note that we
have participated in meetings, conference calls, correspondence,
evaluated currently-used patient criteria, arranged site visits with
LTCHs (and other providers that treat ``long-term care hospital-type''
patients), and participated in the Technical Expert Panel (TEP) that
was held in January 2007. While we have met and worked with highly
skilled physicians and administrators of a number of LTCHs and we are
aware that many LTCHs provide high quality services to their patients,
we are contemporaneously aware of activity by the LTCHs that appear to
be directed towards both evading the intent of Medicare policy and also
maximizing Medicare payments.
We are also aware that the dynamic of patient shifting from acute
care hospitals to LTCHs are well understood throughout the health care
industry. In the February 28, 2000 issue of Critical Care Medicine, an
abstract of an article entitled, ``The impact of long-term acute-care
facilities on the outcome and cost of care for patients undergoing
prolonged mechanical ventilation'' concluded that ``Patients undergoing
prolonged ventilation have high hospital and 6-month mortality rates,
and 6-month outcomes are not significantly different for those
transferred to long-term acute care facilities * * *. Acute care
hospitals can reduce the amount of uncompensated care by earlier
transfer of appropriate patients to a long-term acute care facility.''
(Seneff MG, Wagner D, Thompson D, Honeycutt, C, Silver MR, Department
of Anesthesiology and Critical Care Medicine, The George Washington
University Medical Center).
Lastly, we note that we believe that the policies that we are
finalizing in this final rule are built on solid data analysis,
reasonable interpretation of information that has come to our attention
from the TEPs and the LTCH industry, and our obligation to propose
proactive policy initiatives for the long-term benefit of the Medicare
program.
Comment: Several commenters offered data indicating that patients
admitted to LTCHs following an acute care hospital stay are generally
grouped into a different DRG at the LTCH from the one to which they
were grouped in the acute care hospital. The commenter used the example
of ventilator dependent patients, who typically fall into a
tracheostomy DRG (561/562) upon discharge from the acute care hospital
but fall under the respiratory failure DRG (475) upon discharge from
the LTCH, suggesting that therefore the two episodes of care are
distinct and separate. The commenters also claimed that even those
patients with the same DRG in each setting do not constitute a single
episode of care because of the nature of the institutions and the
differences between them. Therefore, the commenters asserted, there can
be no actual claim that there is double payment for the same services
for LTCH patients coming from IPPS hospitals. In focusing on the
appropriate lengths of stay at acute care hospitals preceding a LTCH
admission, many commenters quoted the RTI study that notes that,
``Understanding whether acute hospitals are already paid for these
services or whether LTCHs are providing specialized services not
available in the acute hospitals is poorly understood'' (p. 55). The
commenters believe that a CMS contractor has contradicted statements
that we made. Therefore, the commenters state that the extension of the
25 percent threshold payment adjustment to discharges of patients
admitted from referring hospital not co-located with the LTCH or the
satellite of a LTCH should not be finalized. Several commenters
suggested that if we did finalize this payment adjustment, it should be
limited only to those situations where the same DRGs were assigned to
both the acute care stay and the LTCH stay.
Response: Our data analysis of the 2005 MedPAR files indicates
that, generally, when a patient is admitted to a LTCH immediately upon
discharge from an acute care hospital, Medicare is paying for treatment
under different DRGs for each submitted claim. However, we disagree
with the commenters' assertions that there are clear distinctions
between ``episodes of care'' for a patient who is originally treated at
an acute care hospital and eventually admitted to a LTCH, whether or
not the same DRG is assigned to each stay. Patients being cared for in
both the acute care hospital and LTCH settings are very ill,
complicated patients with multiple comorbidities, and typically there
is not one clear or distinctive principle diagnosis that is the cause
of the patient's failure to get well, but rather a constellation of
problems that necessitate further treatment. Nor will one ``magic''
intervention or procedure necessarily cure the patient's problems. DRG
assignment is based on software that attempts to group patients
according to individual principal diagnoses and surgical procedures,
but the clinical reality is that, especially in the case of complex
patients with multiple medical problems, DRG assignment can be a
limited way of defining or characterizing the nature of a particular
episode of care for a given patient.
The example of respiratory failure that the commenter provides is
especially illustrative of this point. A patient who suffers from
respiratory failure in the acute care hospital, if it does not resolve,
will eventually require a tracheostomy, which will then group the
patient to the tracheostomy DRG. The tracheostomy itself is a procedure
that is usually done on a semi-elective basis when it becomes apparent
that the patient will require prolonged mechanical ventilation. If that
patient subsequently is admitted to an LTCH, that discharge will
necessarily group to the respiratory failure DRG, because the
tracheostomy has already been performed during the acute care
hospitalization. However, the clinical characteristics of the patient
and the type of care that is required, have not materially changed, and
the LTCH stay can hardly be viewed as a separate or unique clinical
episode from the immediately preceding acute care hospital stay. From a
clinical perspective, in the absence of a sharp line of distinction, or
a consistent characterization, of exactly which
[[Page 26932]]
patient is appropriate for admission to the LTCH, as well as when that
patient should be transferred from the acute care hospital setting to
the LTCH setting, we have difficulty understanding when, for example,
the patient with respiratory failure stops being appropriately cared
for in the acute care hospital and paid for under the IPPS and begins
to require care in the LTCH. Recognizing that both settings provide
acute hospital level care, and also noting that in areas where LTCHs
are not available this level of care is provided exclusively in the
acute care hospital until the time of discharge to a nonacute setting,
it is therefore appropriate to expand the 25 percent policy to all
instances in which a referring hospital is discharging so many patients
to the LTCH or satellite that it appears to have created a virtual unit
of the referring hospital at the LTCH or LTCH satellite.
To those commenters who quoted a sentence (out of context) from the
RTI report, we note that a thorough reading of that page indicates that
RTI's purpose does not contradict, but rather reinforces the above
stated concerns. RTI's full intent may be best understood from the
following paragraphs, which includes the quoted sentence:
``Examining the acute length of stay differences was also useful
for understanding the relative role of general acute and LTCHs in
treating these severely ill populations. The multivariate work
showed that LTCH users have a shorter acute inpatient length of
stay. Understanding whether acute hospitals are already paid for
these services or whether LTCHs are providing specialized services
not available in the acute hospital is poorly understood.
Better measures of acuity are needed to gauge the differences in
medical or functional impairments between patients using LTCHs and
those using other settings. Additional work in Phase 3 of this
project will examine the discharge transitions for acute hospital
discharges in areas that lack LTCHs. Using propensity score methods
to match patients on diagnosis, severity, and additional factors, as
well as control for differences in the availability of services will
be important for understanding the potential overlap between acute
and LTCH admissions.'' (p. 55)
Therefore, we continue to believe that clinical insight offers a
significant challenge to the commenters' assertions regarding the
alleged existence of some ``bright line'' which clearly indicates when
it is no longer appropriate for a patient to continue treatment in an
acute care hospital. Particularly in the case of patients whose
conditions fall into the broad category of ``medically complex,''
clinicians from different provider settings from throughout the country
have evaluated existing instruments (that is, Interqual, or MassPRO)
and although there appears to be no difficulty in defining a
``hospital-level long-term care type patient'' there has been
considerable difficulty in determining the assignment of such patients
to particular provider settings (acute versus LTCH) for purposes of
Medicare payment policy.
Accordingly, we are finalizing the extension of the 25 percent (or
applicable percentage) threshold policy so that the payment adjustment
applies to all subclause (I) LTCHs. We believe it is our responsibility
to protect the Medicare Trust Fund from making excessive payments for a
single episode of care.
Comment: Many commenters suggested alternatives to specific aspects
of the proposed expansion of the proposed 25 percent threshold payment
adjustment in the event that we decided to finalize it. A number of
commenters suggested that we grandfather existing ``freestanding''
LTCHs from compliance with the policy because of the significant shift
in operation that our policy would mean to their on-going operations.
Similarly, these commenters also suggested grandfathering those LTCHs
that were already under development (that is, hospitals that were in
their 5 of 6 month qualification period for LTCH designation as set
forth in Sec. 412.23(e)(3)). Several commenters further suggested that
we set a 50 percent threshold for all existing LTCHs and those under
development and apply a 25 percent threshold for new LTCHs beginning on
July 1, 2007. Other commenters asked us to set the percentage threshold
permanently at 50 percent for non-co-located LTCHs in light of our
``lesser policy concerns'' than we have with LTCH HwHs and satellites.
Several commenters urged us to set the threshold for LTCHs in
``underserved areas'' at 75 percent because of the disparate impact
that could be anticipated from implementing this policy. Commenters
suggested that we establish a 50 percent threshold for urban LTCHs and
a 75 threshold for rural or market dominant LTCHs. We also were
requested to apply ``temporary, limited'' expansion of the threshold
while patient and facility level characteristics are being developed
and implemented for LTCHs over a 3-year period with the following
percentage thresholds: year 1-75 percent; year 2-62.5 percent; year 3-
50 percent. According to the commenter, this policy would sunset after
year 3 and be replaced by facility and patient criteria.
Response: We appreciate each of the recommendations made by the
commenters as to alternatives to extending the 25 percent threshold
payment adjustment policy to all subclause (I) LTCHs effective July 1,
2007. We have considered the commenters concerns as we noted earlier,
we are finalizing the payment adjustment policy but (as describe
elsewhere in these responses), we have provided for a 3-year transition
period for all LTCHs and LTCH satellites that will be affected by these
changes. Commenters suggested that we exempt currently existing and
``under development'' LTCHs from the policy because it would require a
substantial change in the way that these facilities currently operate.
In response to the commenter's question regarding ``under development''
LTCHs, we are applying the transition to these hospitals as applicable,
once they become LTCHs (for example, if a hospital has its first cost
reporting period as a LTCH beginning on July 1, 2008, it will be
subject to the 50 percent threshold.) We are aware that these new
regulations will impact on admission policies at LTCHs (as well as
discharge practices at acute care hospitals for patients that continue
to need hospital-level care) but such changes are our stated purpose in
establishing the original 25 percent threshold payment adjustment
policy for co-located LTCHs at Sec. 412.534 and it continues to be our
goal for all LTCHs and satellites as we finalize Sec. 412.536. We
believe that it is essential that LTCHs reevaluate their existing
practices for admittances from referring hospitals. As specified
elsewhere in these responses, our data indicates that referring
hospitals, primarily acute care hospitals, are discharging patients to
LTCHs for continued acute level care when many of these patients could
continue to be treated in the acute care hospital. This is particularly
true in cases where patient care falls into the broad category of
``medically complex.'' We believe that Medicare should not be
generating two full payments, one under the IPPS and one under the LTCH
PPS for what is essentially one episode of care. Although we have had
historic concerns with patient-shifting between co-located hospitals,
we also believe that it is appropriate to apply the 25 percent (or
applicable percentage) threshold payment adjustment to those LTCHs and
LTCH satellites that had previously been unaffected by Sec. 412.534,
but have similar behavior patterns as co-located HwHs and satellites.
(We have responded to concerns about rural, single urban, and
[[Page 26933]]
MSA dominant LTCHs elsewhere in these responses.) We would once again
remind commenters that the payment adjustment is only applicable for
Medicare discharges in excess of the applicable threshold from an
individual referring hospital for cases that have not reached outlier
status at the referring hospital. We believe that an appropriate and
judicious admission policy, on the part each LTCH, could still enable
it to admit a specific subset of patients from a referring hospital,
prior to the patients' reaching outlier status, and prior to exceeding
the applicable threshold. Therefore, even though we continue our work
with RTI in Phase 3 of their project to see if we can identify
appropriate patient and facility-level criteria for LTCHs, we do not
see the development of those criteria and the development of those
regulations as contradictory aspects of our fiduciary responsibility
for the Medicare program. We further believe that it may be appropriate
to establish policies under the LTCH PPS that guard the Medicare Trust
Fund from duplicative payments for one episode of patient care even if
we are able to develop criteria that identify LTCHs and LTCH-
appropriate patients.
Comment: Several commenters expressed concern that the proposed
expansion of the 25 percent policy would have a negative impact on
Medicare beneficiary access to care, physician choice and authority,
and on families of patients who would benefit from LTCH care.
Specifically, the commenters noted that LTCHs would be ``forced to use
a flat 25 percent for each referring hospital, thereby limiting access
for Medicare beneficiaries to the level of care deemed most appropriate
by their physician.'' Another commenter stated that the implementation
of the 25 percent rule would force acute care hospitals to keep
patients beyond the period for which is medically-appropriate because
LTCHs would not be able to accept patients once they met the 25 percent
threshold and that overcrowding of acute hospital beds would be the
result of the 25 percent policy. Another commenter stated that this
policy may result in some patients being transferred to skilled nursing
facilities (SNFs) instead of LTCHs, even in cases in which LTCH care
would be more appropriate.
Response: We do not believe that the 25 percent policy is
unnecessarily ``burdensome'' or ``onerous'' to LTCHs for several
reasons. The 25 percent policy does not preclude the transfer of any
patients from short term acute care hospitals to LTCHs when such
transfer is deemed medically necessary and appropriate by the treating
physician; rather, it adjusts the payment methodology that is applied
to the LTCH for discharges that exceed the applicable threshold. Also,
as we noted in the RY 2007 LTCH PPS proposed rule, the payment policy
linked to the 25 percent rule helps to remove the perverse incentive
that may exist between acute care hospital and LTCH facilities to evade
Sec. 412.534 and to prevent both the acute and LTCH from receiving two
full Medicare payments for what is essentially one episode of care.
Furthermore, this policy also helps to ensure that appropriate
transfers from acute to LTCH facilities are occurring based on medical
considerations, rather than on the basis of maximizing Medicare
payments. We believe that the preexisting relationship between LTCHs
and their referring hospitals can be utilized to maximize quality
patient care while also making it feasible for LTCHs to comply with the
25 percent policy.
With respect to the commenter's concern that the 25 percent policy
would result in transfers to SNFs when LTCH care would be more
appropriate, we note that since we are only dealing with patients who
require hospital level of care, it would not be appropriate for
physicians to transfer these patients to a SNF. However, we do note
that it may be appropriate for a subset of LTCH patients, after their
condition has stabilized to be transferred to a lower level of care,
such as a SNF.
Comment: One commenter noted that Michigan is a ``certificate of
need'' State and that the number of LTCH beds is determined and
approved by the State. The commenter further noted that Michigan FIs
require that Michigan LTCHs use InterQual admissions standards and
recommends that we exempt States who have programs similar to the
``certificate of need'' because they already adhere to InterQual
admissions standards, and therefore, are only treating appropriate
``LTCH'' patients.
Response: With respect to some LTCHs using InterQual criteria as
the standard for admitting a patient, we note that as we stated in the
RY 2007 LTCH PPS final rule, InterQual standards focus on the
distinction between acute care and sub-acute care, that is, SNF-level
of care, and determinations of ``medical necessity'' or ``inappropriate
admission'' are based only on whether the patient should be
hospitalized, rather than on whether the hospitalization should occur
at an LTCH or at a general acute care hospital'' (71 FR 27869).
Furthermore, we recognize and assume that all LTCHs should be using
some form of clinical assessment or screening tool to identify
appropriate admission candidates; the InterQual is just one model of
such a tool that LTCHs may choose to use if they determine that those
standards sufficiently identify appropriate patients for their
facility. However, we note that the choice of which screening tool an
LTCH chooses to use should have no bearing on the percentage of
patients being admitted from a particular referring hospital because
even under the expansion of the 25 percent policy, it is assumed that
all LTCH admissions are hospital-level patients. As explained
previously in this section, the expansion of the 25 percent policy is
intended to address the situation of an LTCH or satellite that is
treating hospital-level patients since it has exceeded the applicable
threshold for discharging patients that were admitted from any
individual referring hospital and is serving as a unit of the referring
hospital. Therefore, we are not exempting LTCHs in ``certificate of
need'' States from the 25 percent policy, but again note that they,
along with all other affected LTCH and LTCH satellites will be given a
3-year transition period with respect to implementation of this policy.
Comment: One commenter supported the proposed 25 percent rule and
believes that the SSO provision should not apply to subclause II and
satellite LTCHs.
Response: We are finalizing our proposal to exempt subclause II and
satellite LTCHs from both the 25 percent rule expansion and the SSO
policy that we are finalizing in this rule.
Comment: One commenter stated that implementation of the 25 percent
rule would result in the following: (1) The loss of local LTCH services
in all areas except large metropolitan areas; (2) Patients having to
endure long ambulance rides to access LTCH care and possibly being
driven past LTCHs with available beds; (3) Families having to drive
longer distances to visit their loved ones who may be in LTCHs for
extended periods of time; and (4) Some companies, who have already
invested in building new LTCHs, possibly being faced with bankruptcy
because of the reduced payment associated with the 25 percent rule.
Response: We disagree with the commenter and we do not expect that
the 25 percent policy will result in a loss of local LTCH services (in
all but large metropolitan areas). Instead, we expect that clinical
appropriateness will continue to be used as the standard for LTCH
admissions. Since we do not believe that access to LTCH services will
be negatively affected by this rule,
[[Page 26934]]
we do not believe that beneficiaries will need to endure long ambulance
rides to reach an LTCH, nor will families of Medicare beneficiaries
have to drive long distances to visit their loved ones. We also remind
the commenter that LTCHs will continue to be paid full LTC-DRG payments
as long as the 25 percent threshold is not exceeded by any one referral
source. In addition, any patients that reach HCO status prior to being
transferred to the LTCH would not count towards the 25 percent policy.
With regard to the commenter's concern about companies being faced with
a financial loss in light of the 25 percent policy expansion, we note
that we continue to believe that the LTCH industry can adapt their
admission practices to assure that payments will not be reduced, except
in rare circumstances. The LTCHs would do this by targeting those
patients at referring hospitals that had reached outlier status.
Comment: Some commenters expressed concern that the proposed 25
percent rule would override physician authority and limit physician
choice in deciding the most appropriate level of care for his or her
patients.
Response: We disagree that this policy overrides physician
authority and choice. Rather we believe that this policy appropriately
adjusts payments to LTCHs so that the payments reflect the amount of
care that is actually provided in the LTCH setting. Furthermore, this
policy does not require a change in physician clinical decision-making;
rather, it simply seeks to remove any financial incentive that could
encourage an LTCH to admit a patient from an acute care hospital prior
to that patient receiving a full episode of care at the acute care
hospital. Additionally, we would expect that physicians would continue
to use their clinical expertise in assessing the level and type of care
that is most appropriate for their patients and that the physicians'
clinical standards would not be affected by hospital payment policies.
We do not expect that the payment policies implemented in this
final rule will deter physicians from making referrals to LTCHs when it
is clinically appropriate to do so. We also believe that appropriate
clinical care, not payment, should drive physicians' decisions with
respect to patients' length of stay and level of care. Additionally, we
note that physicians' clinical decisions do not negate the fact that
payments should be aligned with the care and resource utilization given
in each provider setting.
Comment: Several commenters stated that the payment reductions
associated with the proposed 25 percent rule expansion and the proposed
``very SSO'' policy violate the principles of a PPS in which some cases
are expected to cost less than others.
Response: We disagree that these policies violate the principles of
averaging found in a PPS. We note that a fundamental premise of the PPS
system is that where the costs of some cases may exceed their payment,
the opposite is also likely to happen (that is that the costs of some
cases will be lower than their payment). As we stated in last year's
LTCH PPS final rule, ``* * * while some types of cases are always
expensive for a hospital to treat, others are, in general, less costly,
so it is assumed that hospitals under a DRG-based system, therefore,
can typically exercise some influence over their case-mix and their
services to achieve fiscal stability'' (71 FR 27863). The principles of
a PPS begin to break down when there are extreme outliers that are not
consistent with the averages calculated, especially when the extreme
outliers constitute a disproportionate amount of cases. Additionally,
we are attempting to maintain appropriate payment weights for the DRGs
by adjusting the LTC-DRG weights for SSO cases. (For a full description
of this process, see 71 FR 47978 through 47985). We note that the
effect of this adjustment allows the LTC-DRGs to be recalibrated at a
weight that is truly representative of average cases instead of at a
weight that is skewed towards shorter than average (and presumably,
less costly) cases. We also believe that applying the 25 percent (or
applicable percentage) threshold payment adjustment to discharges from
LTCHs that were admitted from any referring hospital is not a
contradiction of the averaging principle intrinsic to PPSs. In fact,
one of our rationales for establishing the percentage threshold payment
adjustment is to preserve the integrity of the averaging principle
under the IPPS because of our concern regarding premature discharges of
patients still requiring acute hospital-level care to another acute
care provider (and generating another Medicare payment) prior to that
case reaching outlier status. Moreover, if LTCHs adjust their
procedures so that patients beyond the applicable threshold that are
discharged from referring acute care hospitals prior to their LTCH
admission have received a full episode of care at the discharging acute
(that is, they reach outlier status), Medicare payment for LTCH
discharges will be based on the otherwise unadjusted LTCH PPS payment,
which has been developed based upon averaging principles.
Comment: Some commenters said that the proposed 25 percent rule
would be duplicative of the payment adjustment made under the IPPS
post-acute transfer policy. One commenter noted that ``* * * 85 percent
of DRGs applicable to short-term acute care hospital discharges to
LTCHs are subject to [the post-acute transfer] policy.'' Another
commenter asked CMS to comment on why the IPPS post-acute transfer
policy does not appropriately adjust for payment when cases transferred
from the acute care hospital ultimately become SSO discharges in the
LTCH setting.
Another commenter suggested that we provide policies under the
acute IPPS to address inappropriate or early discharges and requested
that we use post-acute transfer rules, re-admission rules, and DRGs for
acute care hospitals to address the issue of inappropriate transfers
instead of penalizing LTCHs.
Response: As we have discussed in the previous LTCH final rules,
the IPPS post-acute transfer lessens the incentive for an IPPS hospital
to transfer a patient to another hospital early in the patient's stay
to minimize its costs while still receiving the full DRG payment from
Medicare. Although the post-acute care transfer policy only affects
DRGs that meet the criteria specified under Sec. 412.4, we continue to
monitor trends in post-acute transfers. In addition, we may make
additional DRGs subject to the IPPS post-acute transfer policy if the
data demonstrate that it is appropriate to do so. Although we expect
the post-acute transfer policy to have an impact on the discharge
behavior of acute care hospitals because of the reduced payments that
they will receive for qualified discharges, the post-acute transfer
policy does not necessarily affect the issues being addressed by the
SSO policy change. Both, the IPPS post-acute transfer policy and the
proposed RY 2008 SSO policy, help to ensure that Medicare payments are
appropriate given the types of treatment provided in each setting.
We believe that the revised payment formula for SSO patients that
we are finalizing will appropriately pay LTCHs for delivering services
to patients who do not otherwise require the lengths of stay that are
characteristic of LTCHs. The SSO policy will address payments to LTCHs
for patients discharged from the acute care hospital even after the
geometric ALOS.
With respect to the comment about the 25 percent policy being
duplicative of the IPPS post-acute transfer provision, we would note
that the post
[[Page 26935]]
acute transfer policy focuses on a truncated length of stay at an acute
care hospital that will be paid for under the IPPS, prior to the case
reaching the geometric mean LOS for that DRG as specified in Sec.
412.4(c) and (f). The policy that we are finalizing focuses on
determining the appropriate payment to the LTCH, where the patient who
has already been treated at the acute care hospital (up to the
geometric mean LOS) has been ``transferred'' to the LTCH care prior to
receiving full treatment at the ``transferring'' hospital. We believe
such a stay is a continuation of the patient's original stay at the
first hospital, and therefore, that Medicare should pay for such care
based on a LTCH PPS payment adjusted to what would otherwise be
equivalent to what would have been paid under the IPPS.
Comment: Some commenters wrote in support of extending the comment
period from 60 days to 6 months to allow commenters additional time to
collaborate for the good of the industry.
Response: We do not believe that a 6-month comment period is
warranted or necessary. Consistent with section 1871 of the Act, we
provide for a 60-day comment period. This deadline is necessary in
order to implement and establish policy changes and payment updates
under the LTCH PPS for an effective date of July 1.
We received 270 comments during the comment period and we believe
that both the number and the nature of the comments received
demonstrate that the comment period was sufficient for commenters to
submit relevant and meaningful comments.
Comment: We received many comments that challenged the IPPS-
equivalent payment adjustment that we proposed to extend to LTCHs and
LTCH satellites for Medicare discharges in excess of the 25 percent (or
applicable percentage) threshold that had been admitted from referring
hospital not co-located with the LTCH or the satellite of a LTCH.
One commenter maintained that we have determined a payment penalty
for freestanding LTCHs for every patient over a 25 percent threshold
requiring long term care who is admitted from any single acute care
hospital referral source. Another commenter stated that an LTCH could
not have more than 25 percent of its patients referred from any one
general hospital. Many commenters claimed that our proposal to pay
``under the IPPS'' for LTCH cases ignores data indicating that LTCHs
sustain higher costs than IPPS hospitals in treating Medicare
inpatients that are grouped to the same DRG. The commenters stated that
costs are higher than they are at acute care hospitals because patients
are much sicker than at acute care hospitals. Several commenters
included data that indicated that they would sustain substantial
financial losses under this policy.
Response: We disagree with the commenters who asserted that under
Sec. 412.536 and also the revised Sec. 412.534 we have proposed to
pay all LTCHs ``under the IPPS'' for discharges in excess of 25 percent
or the applicable percentage) from an individual referring hospital. As
we have noted elsewhere in these responses, if a Medicare beneficiary
is treated at an acute care hospital and continues to need further
acute hospital-level care, the patient could remain at the acute care
hospital. A discharge from the acute care hospital and admission to a
LTCH (which is also certified as an acute care hospital) could be
appropriately seen as an extension of the stay at the discharging acute
care hospital and as such, should not require Medicare to pay for
``different resource use''. We further disagree with the commenters who
call the extension of the 25 percent threshold a ``payment penalty for
freestanding LTCHs for every patient over a 25 percent threshold who
comes from any single acute care hospital'' and the commenter that
stated that ``an LTCH could not have more than 25 percent of its
patients referred from any one general hospital.'' As we have noted
elsewhere in these responses, the 25 percent threshold is not a patient
quota system. By virtue of the fact that more than 25 percent of the
LTCH's discharges had been admitted from an individual referring
hospital, it is apparent that the LTCH has an ongoing, working
relationship with the referring hospital. This policy should lead LTCHs
to carefully determine which patients should be admitted from the
referring hospital. A patient who is hospitalized in an acute care
hospital continues to require acute hospital-level care, generally
should not be discharged before the referring hospital has provided the
patient with a full episode of care. As discussed elsewhere in these
responses, we believe that a patient stay that reaches the HCO
threshold at an acute care hospital would be considered to have
received a complete episode of care and for such a patient who has
received a full episode of care at an acute care hospital, should that
patient require further acute level care at a LTCH, Medicare will make
an unadjusted additional payment to the LTCH.
Our concern is that many patients that are admitted to LTCHs could
have completed this care at the referring hospital to which they were
originally admitted. As we have detailed previously in this preamble,
in the FY 2005 IPPS final rule (69 FR 48916) we finalized a payment
adjustment for co-located LTCHs (that is, HwHs and satellites at Sec.
412.534), which provides that if a LTCH's or satellite's discharges
admitted from its host hospital exceed 25 percent (or the applicable
percentage) of its discharges for the LTCH HwHs or satellite's cost
reporting period, an adjusted payment will be made at the lesser of the
otherwise full payment under the LTCH PPS and an adjusted amount under
the LTCH PPS that would be equivalent to what Medicare would otherwise
pay under the IPPS. In determining whether a hospital meets this
percent test, patients transferred from the host hospital that have
already qualified for outlier payments at the host would not count as
part of the host 25 percent (or the applicable percentage) and the
payment for those patients would also not be subject to the adjustment.
Those patients would be eligible for an unadjusted payment under the
LTCH PPS. (Discharges admitted from the host before the LTCH crosses
the 25 percent (or the applicable percentage) threshold would also be
paid without the adjustment under the LTCH PPS (69 FR 49213). MedPAC
submitted a comment that addressed its concerns with the 25 percent
threshold policy for co-located LTCHs in the FY 2005 IPPS final rule.
Specifically, the Commission noted that ``freestanding LTCHs also
have strong relationships with acute care hospitals, and that where on
average LTCH HwHs receive 61 percent of their patients from their
hosts, freestanding LTCHs receive 42 percent from their primary
referring hospital * * * [that] there are some risks in our proposed 25
percent policy; (a) the 25 percent rule that only applies to LTCH HwHs
and not to freestanding LTCHs and may therefore be inequitable; (b) it
does not ensure that patients go to the most appropriate post-acute
setting; (c) this approach may be circumvented by an increase in the
number of freestanding LTCHs instead of LTCH HwH.'' As we stated in the
FY 2005 IPPS final rule, ``MedPAC shares our concern that the LTCH
payment system creates an incentive for unbundling of the IPPS in
addition to overpayment for the care provided by LTCHs and that this
concern is great, particularly, in the case of a LTCH HwH * * *'' (69
FR 49211).
In establishing the concept of ``functional separateness,'' in the
FY 1995 IPPS final rule, we were identifying a broader phenomenon than
just the relationship between a host
[[Page 26936]]
acute care hospital and a LTCH HwH or satellite of a LTCH. We also
reviewed MedPAC's comment (discussed previously in this section) on
non-co-located LTCH referral patterns and noted that despite the fact
that we limited the payment adjustment established in FY 2005 to LTCH
HwHs and satellites, ``* * * [w]e took considerable note of these
comments and the specific information that they included'' (59 FR
45391).
We further stated that ``* * * [s]ince the October 1, 2004
implementation of the payment adjustment for LTCH HwHs and satellites
of LTCHs at Sec. 412.534, through our LTCH PPS monitoring initiative
(see section X. of this preamble), we have become aware that the growth
in the LTCH universe is now occurring through the development of
freestanding LTCHs'' and that [r]eviews of public documents posted at
the corporate Web site and analysis of the expected consequences of the
policy at other investor-oriented sites describe a focus on building
freestanding LTCHs, which we believe may imply a response to the
payment adjustment for co-located LTCHs established under Sec.
412.534.'' At that time, we noted data analyses from FY 2004 and FY
2005 MedPAR files of sole-source (for example, one hospital referring
to one LTCH) relationships between acute care hospitals and non-co-
located LTCHs and we stated that we believed that the danger of LTCHs
functioning as ``units'' appears to be occurring not only in LTCH HwHs
and LTCH satellites but also with freestanding LTCHs (71 FR 27877
through 27879).
We stated that, in many cases, these non-co-located LTCHs and their
sole referral source may be functioning in ways that appear to have
erased the line of ``functional separateness'' between these LTCHs and
their referring acute care hospitals ((71 FR 27877 through 27879, 59 FR
45391).
Many commenters noted that they would experience considerable
financial losses if we implemented the extension of the 25 percent
threshold policy. We believe that our finalized policy will result in a
behavioral change for LTCHs, and LTCHs will take steps to assure that
no more than 25 percent (or the applicable percentage) of the
hospital's discharges are patients that had not already reached outlier
status at the referring hospital, to assure that all Medicare payments
to LTCHs will be made, without adjustment under this policy.
In response to the commenters that asserted LTCH patients are much
sicker than acute care patients, we note that it is our understanding
from our own data analyses, as well as work done by RTI that costs at
LTCHs on a per diem basis are lower than costs for the same DRG at
acute care hospitals. For example, RTI performed an analysis of the
2005 MedPAR files and determined the per diem payment for the 20 most
common LTC-DRGs treated in LTCHs as outlined in Table 6.
Table 6.--Average Payment per Day for the Top 20 DRGs on LTCH Admissions, LTCH Versus Acute, 2005 MedPAR
----------------------------------------------------------------------------------------------------------------
LTCH Acute
-----------------------------------------------------------------
Top 20 LTCH DRGs Average Average Average Average
Average length of payment Average length of payment
payment stay per day payment stay per day
----------------------------------------------------------------------------------------------------------------
475: Respiratory System Diagnosis With $58,828 37.6 $1,815 $21,696 10.4 $4,187
Ventilator Support...........................
271: Skin Ulcers.............................. 26,652 28.8 1,009 5,525 6.6 1,298
087: Pulmonary Edema & Respiratory Failure.... 36,552 26.6 1,498 7,211 6.3 1,893
079: Respiratory Infections & Inflammations 26,545 23.7 1,235 8,654 8.0 1,690
Age >17 w CC.................................
088: Chronic Obstructive Pulmonary Disease.... 20,822 19.4 1,156 4,441 4.8 1,369
089: Simple Pneumonia & Pleurisy Age >17 w CC. 22,356 20.8 1,167 5,189 5.5 1,355
249: Aftercare, Musculoskeletal System & 21,601 25.2 914 3,816 3.9 1,701
Connective Tissue............................
416: Septicemia Age >17....................... 25,962 23.5 1,189 9,309 7.4 2,192
466: Aftercare w/o History of Malignancy as 20,962 22.3 1,018 4,637 4.7 1,919
Secondary Diagnosis..........................
012: Degenerative Nervous System Disorders.... 23,804 27.3 976 4,651 5.3 1,298
462: Rehabilitation........................... 19,149 22.6 903 9,621 9.3 1,125
263: Skin Graft &/or Debrid for Skin Ulcer or 41,006 42.0 1,054 11,929 10.3 1,930
Cellulitis w CC..............................
127: Heart Failure & Shock.................... 21,252 20.8 1,088 5,425 5.0 1,641
316: Renal Failure............................ 25,420 23.3 1,190 7,114 6.1 1,936
418: Postoperative & Post-Traumatic Infections 25,766 25.6 1,090 6,348 6.0 1,633
430: Psychoses................................ 15,019 27.0 651 3,955 7.6 869
238: Osteomyelitis............................ 27,639 30.4 973 7,934 7.7 1,584
277: Cellulitis Age >17 w CC.................. 20,005 21.7 980 4,464 5.3 1,182
144: Other Circulatory System Diagnoses w CC.. 22,990 22.3 1,112 7,282 5.7 2,290
320: Kidney & Urinary Tract Infections Age >17 21,491 22.5 1,027 4,369 4.9 1,266
w CC.........................................
----------------------------------------------------------------------------------------------------------------
Source: \\rtimas04\hser\Project\08686\006 IPPS\001 LTCH\common\jpotelle\programs\gage030.log.
Furthermore, LTCHs utilize such information regarding their lower
costs for treating patients in their advertising. We refer commenters
to the following question and answer from the Internet site of a large
LTCH chain: The question: ``How can a long term acute care hospital be
less expensive than a short term acute care hospital?'' The answer:
``Patients transferred to a long term acute care hospital are medically
stable and do not require the critical care resources found in short
term acute care hospitals, which are typically the most costly to a
patient.''
Comment: Many commenters challenged the basis of the proposed
payment adjustment that would result if we finalized our proposed
expansion of the 25 percent (or applicable percentage) payment
threshold to LTCH and LTCH satellite discharges that were admitted from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH. According to these commenters, in section 123(a)(1) of the BBRA,
the Congress specified that the payment policies under the LTCH PPS
should ``reflect differences in patient resource use and cost.'' These
commenters asserted that payment adjustments under the LTCH PPS should
not be based upon referral sources but rather on the ``costs of
treatment'' and ``costs of care'' at LTCHs.
[[Page 26937]]
Response: There is considerable precedent regarding our concerns
with the financial implications to the Medicare Trust Fund from
patient-shifting between acute and post acute settings that could
result in two Medicare payments, one to the acute care hospital and
another under the LTCH PPS for one episode of care. As noted elsewhere
in these responses, this concern was first addressed by the Congress in
establishing the post-acute transfer policy at section 1886(d)(5)(J) of
the Act, which we subsequently implemented at Sec. 412.4. Furthermore,
in the FY 1995 IPPS final rule, we addressed the financial consequences
to the Medicare program of the patient-shifting that was occurring
between acute care hospitals and co-located LTCHs. At that time, we
noted that the ``effect of this process is to extend the [LTCH]
exclusion to what is for all practical purposes a [LTCH] unit'' (59 FR
45389).
We further stated that paying the co-located LTCH as a hospital
excluded from the IPPS ``may not be appropriate'' under these
circumstances because ``[e]xclusion of long-term care units could
inadvertently encourage hospitals to try to abuse the prospective
payment systems, by diverting all long-stay cases to the excluded unit,
leaving only the shorter, less costly cases to be paid for under the
prospective payment systems' (59 FR 45389). Therefore, in accordance
with sections 1102 and 1871 of the Act which ``confer authority on the
Secretary to establish rules and regulations as may be necessary to
administer the Medicare program'' (59 FR 45390), we established
separateness and control criteria at then Sec. 412.23(e)(3)(i) which a
co-located LTCH would have to meet to be paid as a hospital excluded
from the IPPS. We believed at that time that ``the extent to which a
facility accepts patients from outside sources can be an important
indicator of its status as a separate facility'' (59 FR 45392).
Therefore, at that time, among other indications of separateness, we
adopted a ``75 percent referral standard'' which required that no more
than 25 percent of the LTCHs discharges be admitted from its host to be
paid as a hospital excluded from the IPPS. Accordingly, the source of
an LTCH's patients as one potential variable since FY 2005 as to
whether or not a LTCH receives Medicare payment under