[Federal Register: May 9, 2008 (Volume 73, Number 91)]
[Rules and Regulations]
[Page 26787-26874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my08-17]
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Part III
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 412
Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2009: Annual Payment Rate Updates, Policy Changes, and
Clarifications; and Electronic Submission of Cost Reports: Revision to
Effective Date of Cost Reporting Period; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412
[CMS-1393-F and CMS-1199-F]
RINs 0938-AO94 and 0938-AN87
Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2009: Annual Payment Rate Updates, Policy Changes, and
Clarifications; and Electronic Submission of Cost Reports: Revision to
Effective Date of Cost Reporting Period
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). We are also
consolidating the annual July 1 update for payment rates and the
October 1 update for Medicare severity long-term care diagnosis-related
group (MS-LTC-DRG) weights to a single rulemaking cycle that coincides
with the Federal fiscal year (FFY). In addition, we are clarifying
various policy issues.
This final rule also finalizes the provisions from the Electronic
Submission of Cost Reports: Revision to Effective Date of Cost
Reporting Period interim final rule with comment period that was
published in the May 27, 2005 Federal Register which revises the
existing effective date by which all organ procurement organizations
(OPOs), rural health clinics (RHCs), Federally qualified health centers
(FQHCs), and community mental health centers (CMHCs) are required to
submit their Medicare cost reports in a standardized electronic format
from cost reporting periods ending on or after December 31, 2004 to
cost reporting periods ending on or after March 31, 2005. This final
rule does not affect the current cost reporting requirement for
hospices and end-stage renal disease (ESRD) facilities. Hospices and
ESRD facilities are required to continue to submit cost reports under
the Medicare regulations in a standardized electronic format for cost
reporting periods ending on or after December 31, 2004.
DATES: The provisions of this final rule are effective on July 8, 2008.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487 (General information).
Judy Richter, (410) 786-2590 (General information, payment adjustments
for special cases, onsite discharges and readmissions, interrupted
stays, co-located providers, and short-stay outliers).
Michele Hudson, (410) 786-5490 (Calculation of the payment rates, MS-
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).
Linda McKenna, (410) 786-4537 (Payment adjustments and interrupted
stay).
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).
Darryl E. Simms, (410) 786-4524 (Electronic Submission of Cost Reports:
Revision to Effective Date of Cost Reporting Period).
Table of Contents
I. Background of the LTCH PPS
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 This Final Rule
III. Medicare Severity Long-Term Care Diagnosis-Related Group (LTC-
DRG) Classifications and Relative Weights
A. Background
B. Patient Classifications Into MS-LTC-DRGs
C. Organization of MS-LTC-DRGs
D. Method for Updating the MS-LTC-DRG Classifications and
Relative Weights
1. Background
2. FY 2008 MS-LTC-DRG Relative Weights
IV. Changes to the LTCH PPS Payment Rates and other Changes for the
2009 LTCH PPS Rate Year
A. Overview of the Development of the Payment Rates
B. Consolidation of the Annual Updates for Payment and MS-LTC-
DRG Relative Weights to One Annual Update
C. LTCH PPS Market Basket
1. Overview of the Rehabilitation, Psychiatric and Long-Term
Care (RPL) Market Basket
2. Market Basket Estimate for the 2009 LTCH PPS Rate Year
D. One-time Prospective Adjustment to the Standard Federal Rate
E. Standard Federal Rate for the 2009 LTCH PPS Rate Year
1. Background
2. Standard Federal Rate for the 2009 LTCH PPS Rate Year
F. Calculation of LTCH Prospective Payments for the 2009 LTCH
PPS Rate Year
1. Adjustment for Area Wage Levels
a. Background
b. Updates to the Geographic Classifications/Labor Market Area
Definitions
(1) Background
(2) Update to the CBSA-Based Labor Market Area Definitions
(3) Clarification of New England Deemed Counties
(4) Codification of the Definitions of Urban and Rural Under 42
CFR Part 412, Subpart O
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 RY 2009 Fixed-Loss Amount
d. Application of Outlier Policy to Short-Stay Outlier (SSO)
Cases
4. Other Payment Adjustments
5. Technical Correction to the Budget Neutrality Requirement at
Sec. 412.523(d)(2)
G. Conforming Changes
V. Computing the Adjusted Federal Prospective Payments for the 2009
LTCH PPS Rate Year
VI. Monitoring
VII. Method of Payment
VIII. RTIs Research
IX. Electronic Submission of Cost Reports: Revision to Effective
Date of Cost Reporting Period
A. Background
B. Provisions of the Interim Final Rule with Comment Period
C. Analysis of and Responses to Public Comments
D. Provisions of the Final Regulations
X. Collection of Information Requirements
XI. Regulatory Impact Analysis
A. RY 2009 LTCH PPS
1. Introduction
a. Executive Order 12866
b. Regulatory Flexibility Act (RFA)
c. Impact on Rural Hospitals
d. Unfunded Mandates
e. Federalism
f. Alternatives Considered
2. Anticipated Effects of Payment Rate Changes
a. Budgetary Impact
b. Impact on Providers
c. Calculation of Prospective Payments
d. Results
(1) Location
(2) Participation Date
(3) Ownership Control
(4) Census Region
(5) Bed size
e. Effects on the Medicare Program
f. Effects on Medicare Beneficiaries
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3. Accounting Statement
B. Electronic Submission of Cost Reports: Revision to Effective
Date of Cost Reporting Period
Regulations Text
Addendum
Table 1: Long-Term Care Hospital Wage Index for Urban Areas for
Discharges Occurring From July 1, 2008 through September 30, 2009
Table 2: Long-Term Care Hospital Wage Index for Rural Areas for
Discharges Occurring from July 1, 2008 through September 30, 2009
Table 3: FY 2008 MS-LTC-DRG Relative Weights, Geometric Average
Length of Stay, Short-Stay Outlier Threshold and IPPS-Comparable
Threshold (for Short-Stay Outlier Cases)
Acronyms
Because of the many terms to which we refer by acronym in this
rule, we are listing the acronyms used and their corresponding terms
in alphabetical order below:
3M Health Information System
AHA American Hospital Association
AHIMA American Health Information Management Association
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
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)
BLS Bureau of Labor Statistics
BN Budget neutrality
CBSA Core-based statistical area
CC Complications and comorbidities
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
COP Condition of participation
CPI Consumer Price Index
CY Calendar year
DSH Disproportionate share of low-income patients
DRGs Diagnosis-related groups
ECI Employment Cost Index
FI Fiscal intermediary
FY Fiscal year
FFY Federal fiscal year
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
MAC Medicare Administrative Contractor
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)
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L.
110-173)
MSA Metropolitan statistical area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
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)
PIP Periodic interim payment
PLI Professional liability insurance
PMSA Primary metropolitan statistical area
PPI Producer Price Indexes
PPS Prospective payment system
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 of the LTCH PPS
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.
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 MS-long-term care diagnosis-related
groups (MS-LTC-DRGs) based on clinical characteristics and expected
resource needs. Payments are calculated for each MS-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
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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 are based on a LTCH PPS rate
year. While the LTCH payment rate update is effective July 1, the
annual update of the DRG classifications and relative weights for LTCHs
are linked to the annual adjustments of the acute care hospital
inpatient DRGs and are effective each October 1.
The Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA)
(Pub. L. 110-173) that was enacted on December 29, 2007 has various
effects on the LTCH PPS. The new law's provisions also have varying
timeframes of applicability. First, we note that certain provisions of
the MMSEA provided that Secretary shall not apply, for cost reporting
periods beginning on or after the date of the enactment of the MMSEA
(December 29, 2007) for a 3-year period: The extension of payment
adjustments at Sec. 412.534 to ``grandfathered LTCHs'' (a long term
care hospital identified by the amendment made by section 4417(a) of
Pub. L. 105-33); and the payment adjustment at Sec. 412.536 to
``freestanding'' LTCHs. In addition, the new law provides that the
Secretary shall not apply, for the 3-year period beginning on the date
of enactment of the Act the revision to the SSO policy that was
finalized in the rate year RY 2008 LTCH PPS final rule (72 FR 26904 and
26992) and the one-time adjustment to the payment rates provided for in
Sec. 412.523(d)(3). The statute also provides that the base rate for
RY 2008 be the same as the base rate for RY 2007 (the revised base
rate, however, does not apply to discharges occurring on or after July
1, 2007 and before April 1, 2008); for a 3-year moratorium (with
specified exceptions) on the establishment of new LTCHs, LTCH
satellites, and on the increase in the number of LTCH beds. The new law
also revises in the threshold percentages for certain co-located LTCHs
and LTCH satellites governed under Sec. 412.534. Finally, the MMSEA
provides for an expanded review of medical necessity for admission and
continued stay at LTCHs. In this final rule, we are establishing the
applicable Federal rates for RY 2009 consistent with section 1886(m)(2)
of the Act as amended by MMSEA. We are also revising the regulations at
Sec. 412.523(d)(3) to change the methodology for the one-time budget
neutrality adjustment and to comply with section 114(c)(4) of the
MMSEA. Other policy revisions necessitated by the statutory changes of
the MMSEA were addressed in separate rulemaking document and other
provisions required by this new law will be addressed in the future.
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, 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
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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. 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 1
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) or (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 Hospital 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
existing cost reporting forms (68 FR 45464). Therefore, we 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. 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 of 1996 (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 HIPAA regulations, 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 providers, to
conduct certain electronic healthcare transactions according to the
applicable transactions and code sets standards.
II. Summary of the Provisions of This Final Rule
The RY 2009 proposed rule appeared in the Federal Register (73 FR
5342) on January 29, 2008. We received 18 timely items of
correspondence on the proposed rule that we respond to in the
appropriate sections of this final rule. We also received one comment
that
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addressed our policy on satellites of LTCHs that is beyond the scope of
this regulation. Also beyond the scope of this regulation was a comment
directed to our interpretation of the ``25 percent threshold policy''
revisions, one of the requirements specified in 114 of the MMSEA,
provisions of which will be addressed in a future rulemaking.
In this final rule, we are revising the LTCH PPS payment rate
update cycle and making other policy changes and clarifications. The
following is a summary of the major areas that we are addressing in
this final rule.
In section III. of this final rule, we discuss the LTCH PPS patient
classification and the relative weights which are 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. In this section, we also summarize the
severity adjusted MS-LTC-DRGs and the development of the relative
weights for FY 2008 as established in the FY 2008 IPPS final rule with
comment period as well as the proposed update to the MS-LTC-DRGs and
relative weights for FY 2009 presented in the FY 2009 IPPS proposed
rule.
In section IV.B. of this final rule, we are extending the rate year
cycle for RY 2009 to a 15-month period, from July 1, 2008 through
September 30, 2009. We will continue to have an update to the MS-LTC-
DRG classifications and weights effective for October 1, 2008. We are
consolidating the annual update to the payment rates and the update of
the MS-LTC classifications and weights beginning October 1, 2009.
As discussed in section IV.E.2. of this final rule, we are
establishing a 2.7 percent update to the LTCH PPS Federal rate for the
2009 LTCH PPS rate year based on the most recent market basket estimate
for the 15-month 2009 LTCH PPS rate year and an adjustment to account
for improvements in coding and documentation. Also in section IV. of
this final rule, we discuss the prospective payment rate for RY 2009.
In section IV. D. of this final rule, we discuss the possible one-
time adjustment to the Federal payment rate under Sec. 412.523(d)(3).
Consistent with section 114(c)(4) of MMSEA, we did not propose any
adjustment under Sec. 412.523(d)(3). However, at this time, we are
revising the regulations to clarify the objectives of the possible one-
time adjustment, to more precisely reflect the methodology, and to
reflect the requirements of section 114(c)(4) of the MMSEA to the
regulatory text.
In section V. of this final rule, we discuss the updates 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 2009 LTCH PPS rate year.
In section VI. of this final rule, we discuss our on-going
monitoring protocols under the LTCH PPS.
In section VIII. of this final rule, we discuss Research Triangle
Institute's (RTI) analysis relating to the development of LTCH patient-
and facility-level criteria.
In section IX. of this final rule, we are finalizing the revision
to the effective date of cost reporting periods for electronic
submission of cost reports for certain entities.
In section XI. of this final rule, we analyze the impact of the
changes established in this final rule on Medicare expenditures,
Medicare-participating LTCHs, and Medicare beneficiaries.
III. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-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 resources
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.''
When the LTCH PPS was implemented for cost reporting periods
beginning on or after October 1, 2002, we adopted the same DRG patient
classification system (that is, the CMS DRGs) that was utilized at that
time under the hospital inpatient prospective payment system (IPPS). As
a component of the LTCH PPS, we refer to the patient classification
system as the ``LTC-DRGs.'' As discussed in greater detail below,
although the patient classification system used under both the LTCH PPS
and the IPPS are the same, the relative weights are different. The
established relative weight methodology and data used under the LTCH
PPS result in LTC-DRG relative weights that reflect ``the different
resource use of long-term care hospital patients consistent with the
statute.''
As part of our efforts to better recognize severity of illness
among patients, in the FY 2008 IPPS final rule with comment period (72
FR 47130), the Medicare Severity diagnosis related groups (MS-DRGs) and
the Medicare Severity long-term care diagnosis related groups (MS-LTC-
DRGs) were adopted for the IPPS and the LTCH PPS, respectively,
effective October 1, 2007 (FY 2008). For a full description of the
development and implementation of the MS-DRGs and MS-LTC-DRGs, see the
FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175
and 47277 through 47299). (We note that in that same final rule, we
revised the regulations at Sec. 412.503 to specify that for LTCH
discharges occurring on or after October 1, 2007, when applying the
provisions of this subpart for policy descriptions and payment
calculations, all references to LTC-DRGs would be considered a
reference to MS-LTC-DRGs. For the remainder of this section, we present
the discussion in terms of the current MS-LTC-DRG patient
classification unless specifically referring to the previous LTC-DRG
patient classification system (that was in effect before October 1,
2007).) We believe the MS-DRGs (and by extension, the MS-LTC-DRGs)
represent a substantial improvement over the previous CMS DRGs in their
ability to differentiate cases based on severity of illness and
resource consumption.
The MS-DRGs represent an increase in the number of DRGs by 207
(that is, from 538 to 745) (72 FR 47171). In addition to improving the
DRG system's recognition of severity of illness, we believe the MS-DRGs
are responsive to the public comments that were made on the FY 2007
IPPS proposed rule with respect to how we should undertake further DRG
reform. The MS-DRGs use the CMS DRGs as the starting point for revising
the DRG system to better recognize resource complexity and severity of
illness. We have generally retained all of the refinements and
improvements that have been made to the base DRGs over the years that
recognize the significant advancements in medical technology and
changes to medical practice.
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 LTCH discharges into distinct
MS-LTC-DRGs based on clinical characteristics and estimated resource
needs. As stated above, the MS-LTC-DRGs used as the patient
classification component of the
[[Page 26793]]
LTCH PPS correspond to the hospital inpatient MS-DRGs in the IPPS. We
assign an appropriate weight to the MS-LTC-DRGs to account for the
difference in resource use by patients exhibiting the case complexity
and multiple medical problems characteristic of LTCHs.
In a departure from the IPPS, we use low-volume MS-LTC-DRGs (less
than 25 LTCH cases) in determining the MS-LTC-DRG relative 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 MS-LTC-
DRGs (all MS-LTC-DRGs with fewer than 25 LTCH cases), for purposes of
determining the relative weights, we group low-volume MS-LTC-DRGs into
5 quintiles based on average charge per discharge. (A detailed
discussion of the application of the Lewin Group ``quintile'' model
that was used to develop the LTC-DRGs appears in the August 30, 2002,
LTCH PPS final rule (67 FR 55978).) We also account for adjustments to
payments for short-stay outlier (SSO) cases (that is, cases where the
covered length of stay (LOS) at the LTCH is less than or equal to five-
sixths of the geometric ALOS for the MS-LTC-DRG). Furthermore, we make
adjustments to account for nonmonotonically increasing weights, when
necessary (as described below in this section). That is, theoretically,
cases under the 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, weights should
increase monotonically with severity, from the lowest to highest
severity level.
B. Patient Classifications Into MS-LTC-DRGs
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge; that payment varies by
the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis.
Up to eight additional diagnoses.
Up to six procedures performed.
Age.
Sex.
Discharge status of the patient.
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). For additional
information on the ICD-9-CM Coding System, refer to the FY 2008 IPPS
final rule with comment period (72 FR 47241 through 47243 and 47277
through 47281). 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 are published in the Coding Clinic for ICD-9-CM.
Medicare contractors (that is, fiscal intermediaries (FIs), now
called Medicare Administrative Contractors (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 MS-
LTC-DRG can be made. During this process, the following types of cases
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
68.69, Other and unspecified 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 nonapproved 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 is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software. 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 MS-LTC-DRG on the basis of diagnosis and
procedure codes and other demographic information (age, sex, and
discharge status). Following the MS-LTC-DRG assignment, the Medicare
contractor (FI or MAC) determines the prospective payment amount 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 MS-LTC-DRG assignments made by the Medicare contractor
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
MS-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-
DRG relative weights during CMS' annual update under both the IPPS
(Sec. 412.60(e)) and the LTCH PPS (Sec. 412.517), respectively. As
discussed in greater detail in section III.D. of this preamble, with
the implementation of section 503(a) of the MMA, there is the
possibility that one feature of the GROUPER software program may be
updated twice during a Federal FY (FFY) (October 1 and April 1) as
required by the statute for the IPPS (69 FR 48954 through 48957). 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.
C. Organization of the MS-LTC-DRGs
The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under
the LTCH PPS) are based on the CMS DRG structure. As noted above in
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs
although they are structurally identical to the DRGs used under the
IPPS. The MS-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). 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
[[Page 26794]]
GROUPER software program does not recognize all ICD-9-CM procedure
codes as procedures affecting 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).
In developing Version 25.0 of the GROUPER program (the FY 2008 MS-
DRGs), the diagnoses comprising the CC list were completely redefined.
The revised CC list is primarily comprised of significant acute
disease, acute exacerbations of significant chronic diseases, advanced
or end stage chronic diseases, and chronic diseases associated with
extensive debility. In general, most chronic diseases were not included
on the revised CC list. For a patient with a chronic disease, a
significant acute manifestation of the chronic disease was required to
be present and coded for the patient to be assigned a CC.
In addition to the revision of the CC list, each CC was also
categorized as a major CC (MCC) or a CC based on relative resource use.
Approximately 12 percent of all diagnoses codes were classified as a
major CC (MCC), 24 percent as a CC, and 64 percent as a non CC.
Diagnoses closely associated with mortality (ventricular fibrillation,
cardiac arrest, shock, and respiratory arrest) were assigned as an MCC
if the patient lived but as a non CC if the patient died.
The MCC, CC, and non CC categorization was used to subdivide the
surgical and medical DRGs into up to three levels, with a case being
assigned to the most resource intensive level (for example, a case with
two secondary diagnoses that are categorized as an MCC and a CC is
assigned to the MCC level). To create the MS-DRGs (and by extension,
the MS-LTC-DRGs) individual DRGs were subdivided into three, two, or
one level, depending on the CC impact on resources used for those
cases.
As noted above in this section, further information on the
development and implementation of the MS-DRGs and MS-LTC-DRGs can be
found in the FY 2008 IPPS final rule with comment period (72 FR 47138
through 47175 and 47277 through 47299).
D. Method for Updating the MS-LTC-DRG Classifications and Relative
Weights
1. Background
Under the LTCH PPS, relative weights for each 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,
the MS-LTC-DRGs). To ensure that Medicare patients classified to each
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 MS-LTC-DRG that represents the
resources needed by an average inpatient LTCH case in that MS-LTC-DRG.
For example, cases in a MS-LTC-DRG with a relative weight of 2 will, on
average, cost twice as much as cases in a MS-LTC-DRG with a relative
weight of 1. Under Sec. 412.517, the 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.
In the June 6, 2003 LTCH PPS final rule (68 FR 34122 through
34125), we changed the LTCH PPS annual payment rate update cycle to be
effective July 1 through June 30 instead of October 1 through September
30. In addition, because the patient classification system utilized
under the LTCH PPS is the same DRG system that is used under the IPPS,
in that same final rule, we explained that the annual update of the
LTC-DRG classifications and relative weights will continue to remain
linked to the annual reclassification and recalibration of the CMS DRGs
used under the IPPS (as is the case with the MS-DRGs effective for
discharges occurring on or after October 1, 2007 (see Sec. 412.503)).
Therefore, we specified that we will continue to update the LTC-DRG
classifications and relative weights to be effective for discharges
occurring on or after October 1 through September 30 each year. We
further stated at that time that we will publish the annual proposed
and final update of the LTC-DRGs in the same notice as the proposed and
final update for the IPPS (69 FR 34125). (We note that in section IV.B.
of this preamble, we are proposing to revise Sec. 412.535 in order to
consolidate the annual July 1 and October 1 LTCH PPS update cycles, so
that beginning with FY 2010, both the annual update to the standard
Federal rate (and other rate and policy changes) and the annual update
to the MS-LTC-DRGs would be presented in a single Federal Register
publication to be effective on October 1 each year.) Under existing
Sec. 412.535(b), the FY 2008 update of the LTCH PPS patient
classification system and relative weights was presented in the FY 2008
IPPS final rule with comment (72 FR 47277 through 47299). For the
reader's benefit, we are providing a summary of the discussion
presented in that final rule with comment in section III.D.2. of this
preamble.
For FY 2008, the MS-LTC-DRG classifications and relative weights
were updated based on LTCH data from the FY 2006 MedPAR file, which
contained hospital bills data from the March 2007 update. The MS-LTC-
DRG patient classification system for FY 2008 consists of 745 DRGs that
formed the basis of the Version 25.0 GROUPER program utilized under the
LTCH PPS. The 745 MS-LTC-DRGs included 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 error DRGs are MS-LTC-DRG 998
(Principal Diagnosis Invalid as a Discharge Diagnosis) and MS-LTC-DRG
999 (Ungroupable). The other 743 MS-LTC-DRGs are the same DRGs used in
the IPPS GROUPER program for FY 2008 (Version 25.0).
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
former 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) and the RY 2006 LTCH PPS final rule (70 FR
24172 through 24177).) As noted above in this section, with the
implementation of section 503(a) of the MMA, there is the possibility
that one feature of the GROUPER software program may be updated twice
during a FFY (October 1 and April 1) as required by the statute for the
IPPS. Specifically, diagnosis and procedure codes for new medical
technology may be created and added to existing DRGs in the middle of
the FFY on April 1. No new MS-LTC-DRGs will be created or deleted.
Consistent with our current practice, any changes to the MS-DRGs or
relative weights will be made at the beginning of the next FFY (October
1). Therefore, there will not be any impact on MS-LTC-DRG payments
under the LTCH PPS until the following October 1 (although the new ICD-
9-CM diagnosis
[[Page 26795]]
and procedure codes would be recognized April 1).
As we explained in the FY 2008 IPPS final rule with comment period
(72 FR 47277), annual changes to the ICD-9-CM codes historically were
effective for discharges occurring on or after October 1 each year.
Thus, the manual and electronic versions of the GROUPER software, which
are based on the ICD-9-CM codes, were also revised annually and
effective for discharges occurring on or after October 1 each year. The
patient classification system used under the LTCH PPS (MS-LTC-DRGs) is
the same DRG patient classification system used under the IPPS, which
historically had been updated annually and was effective for discharges
occurring on or after October 1 through September 30 each year. We have
also explained that since we do not publish a mid-year IPPS rule, we
will assign any new diagnosis or procedure codes implemented on April 1
to the same DRG in which its predecessor code was assigned, so that
there will be no impact on the DRG assignments until the following
October 1. Any coding updates will be available through the Web sites
provided in section II.G.10. of the preamble of the FY 2008 IPPS final
rule with comment period (72 FR 47241 through 47243) and through the
Coding Clinic for ICD-9-CM. Publishers and software vendors currently
obtain code changes through these sources to update their code books
and software system. If new codes are implemented on April 1, revised
code books and software systems, including the GROUPER software
program, will be necessary because we must use current ICD-9-CM codes.
Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code
must be included in the GROUPER algorithm to classify each case into a
MS-LTC-DRG, the GROUPER software program used under the LTCH PPS would
need to be revised to accommodate any new codes.
At the September 2007 ICD-9-CM C&M Committee meeting, there were no
compelling requests for an April 1, 2008 implementation of new ICD-9-CM
codes, and therefore, we expect that the next update to the ICD-9-CM
coding system will not occur until October 1, 2008 (FY 2009).
Therefore, we expect that the ICD-9-CM coding set implemented on
October 1, 2007, will continue through September 30, 2008 (FY 2008).
The next update to the MS-LTC-DRGs and relative weights for FY 2009
will be presented in the FY 2009 IPPS proposed and final rules.
2. FY 2008 MS-LTC-DRG Relative Weights
In accordance with Sec. 412.523(c), we adjust the LTCH PPS
standard Federal rate by the MS-LTC-DRG relative weights in determining
payment to LTCHs for each case. Relative weights for each MS-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 MS-LTC-DRG have access to services and to encourage
efficiency, we calculate a relative weight for each MS-LTC-DRG that
represents the resources needed by an average inpatient LTCH case in
that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a relative
weight of 2 will, on average, cost twice as much as cases in a MS-LTC-
DRG with a weight of 1.
As we discussed in the FY 2008 IPPS final rule with comment period
(72 FR 47282), the MS-LTC-DRG relative weights effective under the LTCH
PPS for Federal FY 2008 were calculated using the March 2007 update of
FY 2006 MedPAR data which contains hospital bills received through
March 31, 2007, and Version 25.0 of the GROUPER software.
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
relatively high or relatively low charges. Distribution of cases with
relatively high (or low) charges in specific MS-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 (HSRV) method to
calculate relative weights. We believe this method removes this
hospital-specific source of bias in measuring average charges.
Specifically, we reduce the impact of the variation in charges across
providers on any particular MS-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 2008 IPPS final rule with comment period
for further information on the application of the HSRV methodology
under the LTCH PPS (72 FR 47282).)
To account for MS-LTC-DRGs with low volume (that is, with fewer
than 25 LTCH cases), we grouped those ``low volume'' MS-LTC-DRGs into 1
of 5 categories (quintiles) based on average charges for the purposes
of determining relative weights. Each of the low volume MS-LTC-DRGs
grouped to a specific quintile received the same relative weight and
ALOS using the formula applied to the regular MS-LTC-DRGs (25 or more
cases). (See the FY 2008 IPPS final rule with comment period for
further explanation of the development and composition of each of the 5
low volume quintiles for FY 2008 (72 FR 47283 through 47288).)
After grouping the cases in the appropriate MS-LTC-DRG, generally,
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 MS-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 MS-LTC-DRG using the HSRV method. In determining the
FY 2008 MS-LTC-DRG relative weights, we also made adjustments, as
necessary, to adjust for nonmonotonicity for the severity levels within
a specific base MS-LTC-DRG. (Refer to the FY 2008 IPPS final rule with
comment period for further information on the treatment of severity
levels and adjustments for nonmonotonically increasing relative weights
for FY 2008 (72 FR 47282 through 47283 and 47293 through 47295).)
Furthermore, we determined FY 2008 MS-LTC-DRG relative weights for the
185 MS-LTC-DRGs for which there were no LTCH cases in the database
(that is, LTCH claims from the FY 2006 LTCH MedPAR files). (A list of
the FY 2008 ``no-volume'' MS-LTC-DRGs and further explanation of their
FY 2008 relative weight assignment can be found in the FY 2008 IPPS
final rule with comment period (72 FR 47289 through 47293).)
In adopting the MS-LTC-DRGs beginning in FY 2008, we established a
2-year transition. Specifically, for FY 2008, the first year of the
transition, 50 percent of the relative weight for a MS-LTC-DRG is based
on the average LTC-DRG relative weight under Version 24.0 of the LTC-
DRG GROUPER. The remaining 50 percent of the relative weight is based
on the MS-LTC-DRG relative weight under Version 25.0 of the MS-LTC-DRG
GROUPER. (See the FY 2008 IPPS final rule with comment period (72 FR
47295) for additional details on the methodology used to determine the
transition blended MS-LTC-DRG relative weights for FY 2008.)
In the RY 2008 LTCH PPS final rule (72 FR 26882), under the broad
authority conferred upon the Secretary under section 123 of Pub. L.
106-113 as amended by section 307(b) of Pub. L.
[[Page 26796]]
106-554 to develop the LTCH PPS, we established that beginning with the
update for FY 2008, the annual update to the MS-LTC-DRG classifications
and relative weights will 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 MS-LTC-DRG
classification and relative weight changes. Historically, we had not
updated the LTC-DRGs in a budget neutral manner because we believed
that past fluctuations in the relative weights were primarily due to
changes in LTCH coding practices rather than changes in patient
severity. In light of the most recently available LTCH claims data at
that time, which indicated that LTCH claims data no longer appeared to
significantly reflect changes in LTCH coding practices in response to
the implementation of the LTCH PPS, we believed that, beginning with FY
2008, it is appropriate to update the MS-LTC-DRGs in a budget neutral
manner (that is, so that estimated aggregate LTCH PPS payments will
neither increase nor decrease). Accordingly, in that same final rule
with comment period, we established under Sec. 412.517(b) that the
annual update to the MS-LTC-DRG classifications and relative weights be
done in a budget neutral manner. (As noted above in section III.A. of
this preamble, we revised the regulations at Sec. 412.503 to specify
that ``MS-LTC-DRG'' is used in place of ``LTC-DRG'' for discharges
occurring on or after October 1, 2007.) Consistent with that provision,
we updated the MS-LTC-DRG classifications and relative weights for FY
2008 based on the most recent available data and included a budget
neutrality adjustment. For further details on the methodology and
calculation of the FY 2008 MS-LTC-DRG budget neutrality factor, refer
to the FY 2008 IPPS final rule with comment period (72 FR 47295 through
47296).
Table 11 of the Addendum to the FY 2008 IPPS final rule with
comment period lists the MS-LTC-DRGs and their respective transition
blended budget neutral relative weights, geometric mean LOS, ``short-
stay outlier threshold'' (that is, five-sixths of the geometric mean
LOS), and the ``IPPS Comparable Threshold'' (that is, the IPPS
geometric average length of stay plus one standard deviation) for each
MS-LTC-DRG for FY 2008 (see (72 FR 48143 through 48157), and the
technical correction made in the October 10, 2007 correction notice (72
FR 57733), which has been reprinted in Table 3 of the Addendum of this
final rule for convenience).
As we noted previously in this section, there were no new ICD-9-CM
code requests for an April 1, 2008 update. Therefore, Version 25.0 of
the MS-DRG GROUPER software established in the FY 2008 IPPS final rule
with comment period will continue to be effective until October 1,
2008. Moreover, the MS-LTC-DRGs and relative weights for FY 2008
established in Table 11 of that same IPPS final rule with comment
period (78 FR 48143 through 48157) will continue to be effective until
October 1, 2008 (just as they would have been even if there had been
any new ICD-9-CM code requests for an April 1, 2008 update). We note
that Table 11 was corrected in the FY 2008 IPPS correction notice that
appeared in the October 10, 2007 Federal Register (72 FR 57733) and is
hereinafter referred to as the second FY 2008 IPPS correction notice.
Accordingly, Table 3 in the Addendum of this final rule lists the MS-
LTC-DRGs and their respective relative weights, geometric ALOS and
``Short-Stay Outlier Threshold'' that we will continue to use for the
period of July 1, 2008 through September 30, 2009. (As noted above,
this table is the same as Table 11 of the Addendum to the FY 2008 IPPS
final rule with comment period, including the technical correction made
in the second FY 2008 IPPS correction notice (72 FR 57733), which has
been reprinted in Table 3 of the Addendum of this final rule for the
reader's convenience.)
The next proposed update to the ICD-9-CM coding system was
presented in the FY 2009 IPPS proposed rule (and there were no April 1,
2008 updates to the ICD-9-CM coding system). In addition, the proposed
MS-DRGs and GROUPER for FY 2009 that would be used for the IPPS and the
LTCH PPS, effective October 1, 2008, and the proposed update to the MS-
LTC-DRG relative weights for FY 2009 were presented in the recently
published IPPS FY 2009 proposed rule (see 73 FR 23590 through 23608).
The proposed MS-LTC-DRGs and their respective proposed relative
weights, geometric ALOS and ``Short-Stay Outlier Threshold'' that would
be effective October 1, 2008 through September 30, 2009 are presented
in Table 11 to the Addendum of the FY 2009 IPPS proposed rule (73 FR
23891 through 23905).
IV. Changes to the LTCH PPS Payment Rates and Other Changes for the
2009 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. 412.536. In
this section, we discuss the factors that would be used to update the
LTCH PPS standard Federal rate for the 2009 LTCH PPS rate year that
would be effective for LTCH discharges occurring on or after July 1,
2008 through September 30, 2009. 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 LTCH PPS not been implemented.
Section 307(a)(2) of the BIPA specified that the increases to the
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. Section
307(a)(2) of the BIPA also specified that enhanced bonus payments for
LTCHs provided for by section 122 of BBRA were not to be taken into
account in the development and implementation of the LTCH PPS.
Furthermore, as specified at Sec. 412.523(d)(1), the initial
standard
[[Page 26797]]
Federal rate was 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), RY 2007 LTCH PPS final rule
(71 FR 27819 through 27827), and RY 2008 LTCH PPS final rule (72 FR
26870 through 27029).
B. Consolidation of the Annual Updates for Payment and MS-LTC-DRG
Relative Weights to One Annual Update
In the August 30, 2002 final rule implementing the LTCH PPS, we
established a schedule at Sec. 412.535 for publishing information
pertaining to the LTCH PPS. That schedule set a publication date of
``on or before August 1 prior to the beginning of each Federal Fiscal
Year (FFY),'' which coincided with the statutorily mandated publication
schedule for the IPPS (67 FR 55954). In the June 6, 2003 LTCH PPS final
rule, we revised this schedule in Sec. 412.535 to provide that
``(a) Information on the unadjusted Federal payment rates and a
description of the methodology and data used to calculate the
payment rates are published on or before May 1 prior to the start of
each long-term care hospital prospective payment system rate year
which begins July 1, unless for good cause it is published after May
1, but before June 1.
(b) Information on the LTC-DRG classification and associated
weighting factors is published on or before August 1 prior to the
beginning of each Federal fiscal year.''
At the time, we explained that the LTC-DRG patient classifications
used by the LTCH PPS for FY 2003 are based directly on the same version
of DRGs used by the IPPS, that is, Grouper 20 (68 FR 34126). As
discussed above in section III of this final rule, effective for LTCH
PPS discharges occurring on or after October 1, 2007, all references to
LTC-DRGs and DRGs in the existing regulations are understood to
represent MS-LTC-DRGs. This is addressed in the regulations at Sec.
412.503. Therefore, we did not make any changes to the timing for the
annual update for LTC-DRG classifications and relative weights. The
annual update to the DRG classifications and relative weights continues
to be published on a FFY cycle, as is the update of the acute care
hospital IPPS DRG system. In changing the payment rate update schedule
for the LTCH PPS, it was our intent to avoid concurrent publications of
the annual updates for these two significant payment systems for
purposes of administrative feasibility and efficiency. With this in
mind, we changed the effective date for the annual update of the LTCH
PPS payment rate from October 1 to July 1 of each year beginning with
July 1, 2003. We believed this change would help use our limited
resources effectively and facilitate a timely publication of both the
IPPS and LTCH PPS proposed and final rules. Thus, currently the annual
update of the LTCH PPS Federal rates does not coincide with the start
of the FFY, but rather, are effective prior to the Federal FY.
In the RY 2009 LTCH PPS proposed rule (73 FR 5351 through 5352), we
proposed a change to the current schedule for the annual updates of the
LTCH PPS Federal payment rates to consolidate the rulemaking cycle for
the annual update of the LTCH PPS. Under our proposed policy, the
annual update to the LTCH PPS Federal payment rates along with the
description of the methodology and data used to calculate these payment
rates, and the annual updating of the MS-LTC-DRG classifications and
associated weighting factors for LTCHs would occur on the same schedule
and appear in the same publication. Therefore, under our proposed
policy, the updates to the rates and the weights would both be
effective on October 1 (on a Federal fiscal year schedule).
Consequently, under this proposal the annual updates to the LTCH PPS
Federal rates would no longer be published with a July 1 effective
date.
We received several comments on our proposal to consolidate the
annual payment rate and MS-LTC-DRG update schedules of the LTCH PPS to
an October 1 through September 30 cycle, which are summarized below.
Comment: A large number of commenters, including MedPAC, agree with
and strongly support our proposal to consolidate the LTCH rulemaking
cycle to a single, annual rulemaking that corresponds with the IPPS
annual update effective October 1 each year. In addition, many of these
same commenters endorsed our proposal to extend the 2009 rate year by 3
months, allowing for a 15-month rate period (July 1, 2008 through
September 30, 2009), rather than having a 3-month period followed by a
12-month rate year to transition from a July 1 to an October 1 update
cycle. Commenters considered this proposal to be a reasonable one, and
that a 15-month rate year would create an appropriate transition to an
October 1 update by allowing for stability in the LTCH PPS payment
rates. Commenters noted that a 3-month rate year followed by a 12-month
rate year would be unduly burdensome. We received no comments in
opposition to our proposal to consolidate the LTCH rulemaking cycles.
However, we received many comments on our proposed update to the
Federal rate for the 15-month RY 2009. One commenter suggested that CMS
should include an inflationary update to address the 3 additional
months.
Although supportive of the proposal to consolidate the LTCH
rulemaking cycles to be effective October 1, two commenters expressed
concern that CMS had not provided a description of how this combined
rulemaking would be accomplished. Other commenters believe that there
could be confusion between LTCH PPS payment policy changes and IPPS
payment policy changes if the annual rulemaking for the LTCH PPS were
to be combined with the annual IPPS rulemaking. Consequently, these
commenters recommended that the LTCH PPS rule be issued either
separately from the IPPS rule or as a separate component within the
IPPS rule to allow for easier accessibility and the ability to more
accurately assess policy impacts on the LTCH PPS.
Response: We appreciate the positive responses to our proposal to
consolidate the annual July 1 update for payment rates and the October
1 update for MS-LTC-DRG weights to a single annual update effective
October 1, as well as the positive responses with regard to our
proposal to extend the 2009 rate year for another 3 months; that is,
from July 1, 2008 to September 30, 2009. We are finalizing these
provisions in this final rule.
In response to several commenters' concerns that we had not
provided sufficient details concerning the consolidation; that is, the
manner in which we actually plan to produce the documents for the
annual rulemaking for the LTCH PPS relative to the annual IPPS
rulemaking, we are continuing to evaluate the commenters' suggestions
concerning whether the LTCH PPS proposed and final rules should be
included as part of the proposed and final IPPS publications or whether
it would be more appropriate for there to be two separate
publications--one for the proposed and final IPPS rules and the other
for the proposed and final LTCH PPS rules. Any decision that we make
must take into consideration many
[[Page 26798]]
factors, including administrative feasibility and budgetary impact,
that would affect the development and production of the annual
rulemaking for the LTCH PPS and the IPPS. We do want to emphasize,
however, that if the decision is made to produce the LTCH PPS
rulemaking and the IPPS rulemaking in the same ``package,'' we would
make every effort to clearly identify the LTCH PPS sections and
differentiate those from the sections that only deal with the IPPS to
avoid any confusion between LTCH PPS payment policy changes and IPPS
payment policy changes. (We note that each of our regulations includes
a title and a summary of its contents so the public can easily identify
the material that applicable to LTCHs, including any material in a
combined IPPS/LTCH PPS package. We also note that presently we publish
the annual update to the MS-LTC-DRG classifications and relative
weights as well as other payment policy changes to excluded IPPS
hospitals (such as HwHs) in the IPPS proposed and final rules with no
discernible confusion on the part of the public. Therefore, we believe
the public would be able to easily recognize those portions of a
combined package that pertain to the LTCH PPS.
In response to the commenter who suggested that we include an
inflationary update to address the 3 additional months for purposes of
the consolidation, we would note that this issue is discussed in the
summary of the comments and responses on the proposed 15-month RY 2009
market basket estimate in section IV.C. of the preamble of this final
rule. The summary of the comments and responses on our proposed update
to the Federal rate for the 15-month RY 2009 can be found in section
IV.E.2. of this preamble.
After reviewing the public comments, we are finalizing our proposal
to change the current schedule for the annual updates of the LTCH PPS
Federal payment rates in this final rule. We are consolidating the
rulemaking cycle for the annual update of the LTCH PPS Federal payment
rates and description of the methodology and data used to calculate
these payment rates, with the annual updating of the MS-LTC-DRG
classifications and associated weighting factors for LTCHs so that the
updates to the rates and the weights would both be effective on October
1 each Federal fiscal year. Under this change, the annual updates to
the LTCH PPS Federal rates would no longer be published with a July 1
effective date.
We believe that it is important to note that our revision to the
existing rulemaking cycle is a result of comments on prior rules, as
well as recent input from the LTCH industry, as well as consideration
of our resources. After further consideration of those comments and
concerns, we agree that having the effective date of the annual update
of the LTCH PPS Federal payment rates on July 1 of each year while
retaining the October 1 effective date for updating LTC-DRG
classifications and weights has proved both burdensome and time-
consuming for all parties involved. We are aware that a consolidated
update that we are finalizing will be resource intensive, but it will
eliminate some duplicative resource use. For example, some of our
resources used for the payment simulations that are used to estimate
LTCH PPS payments for purposes of the respective impact analyses are
duplicated for the annual LTCH PPS rate update and the annual MS-LTC-
DRG update. Furthermore, the data used for LTCH PPS payment rate update
impact analysis are also used in the annual MS-LTC-DRG. This
consolidation of the rulemaking cycle will allow us to use the same
information simultaneously for both these analyses. Moreover, we
understand the concern that there are increased costs involved in
updating the billing systems of LTCHs to accommodate two separate
updates, one for the Federal rate and one for the DRG weights, in the
same cost reporting period. We also considered the possibility that two
separate updates could increase the potential for calculating payment
errors under the LTCH PPS.
In order to revise the payment rate update to an October 1 through
September 30 period, as proposed, we will extend the 2009 rate period
to September 30, 2009 such that RY 2009 will be 15 months. This 15-
month rate period will extend from July 1, 2008 through September 30,
2009. We believe that the additional 3 months to RY 2009 (July, August,
and September) will provide for a smooth transition to a consolidated
annual update for both the LTCH PPS payment rates and the LTCH PPS MS-
LTC-DRG classifications and weighting factors. (When we developed this
proposed policy, we considered the alternative of revising the payment
rate update to an October 1 through September 30 period by shortening
RY 2009 such that it would only be 3 months (that is, July 1, 2008
through September 30, 2008). We decided that this option would prove to
be both burdensome and time consuming resulting in two payment rate
changes within a very short (3-month) period of time.)
After the 2009 rate period, the rate period for the LTCH PPS
payment rate and other policy changes will be October 1 through
September 30, and the annual update to the MS-LTC-DRG classifications
and relative weights will continue to be effective on October 1. The
October through September rate period will first begin on October 1,
2009, therefore, the next update to the LTCH PPS Federal rates after
the 15-month RY 2009 will be for RY 2010. We note that, once the annual
LTCH PPS rate update cycle moves to October 1 effective October 1,
2009, the LTCH PPS rate year will coincide with Federal FY beginning in
2010.
In this final rule, we are finalizing our proposed revisions to
Sec. 412.503 to redefine the LTCH PPS' rate year to mean October 1
through September 30, rather than from July 1 through June 30. We are
also revising Sec. 412.535 to reflect the change to the annual payment
rate update cycle described above. The discussion of the 15-month
market basket update for the 2009 rate year can be found below in
sections IV.C.2.of this final rule.
C. LTCH PPS Market Basket
1. Overview of the Rehabilitation, Psychiatric and Long-Term Care (RPL)
Market Basket
Historically, the Medicare program has used a market basket to
account for price increases in 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 initial LTCH PPS standard Federal rate for FY 2003,
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
[[Page 26799]]
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 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 which is based on FY 2002 cost report data. We choose
to use the FY 2002 Medicare cost report data because it was the most
recent, relatively complete cost data for inpatient rehabilitation
facilities (IRFs), inpatient psychiatric facilities (IPFs), and LTCHs
available at the time of rebasing.
The RPL market basket is determined based on the operating and
capital costs of IRFs, IPFs and LTCHs. All IRFs are currently paid
under the IRF PPS Federal payment rate, all LTCHs are currently paid
100 percent of the standard 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. 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 2009 LTCH PPS Rate Year
As discussed in greater detail above in this section, for the 2009
LTCH PPS rate year, we are consolidating the current LTCH PPS rate year
(payment rates and other policy changes) update and fiscal year MS-LTC-
DRG update into one annual update cycle. Therefore, the next payment
rate update cycle would be effective July 1, 2008 through September 30,
2009 extending the next rate year update by 3 months representing a 15-
month period for the RY 2009 rate. Accordingly, for the 2009 LTCH PPS
rate year, we proposed to use a 15-month (that is, July 1, 2008 through
September 30, 2009) estimate of the RPL market basket based on the best
available data.
Consistent with our historical practice, we estimate the RPL market
basket update based on Global Insight, Inc.'s forecast using the most
recent available data. Global Insight, Inc. is a nationally recognized
economic and financial forecasting firm that contracts with CMS to
forecast the components of CMS' market baskets. To determine a 15-month
market basket update for RY 2009, as we discussed in the proposed rule,
we calculate the 5-quarter moving average index level for July 1, 2008
through September 30, 2009 and the 4-quarter moving average index level
for July 1, 2007 through June 30, 2008. The percent change in these two
values represents the 15-month market basket update.
In the RY 2009 proposed rule (73 FR 5352), based on Global
Insight's 4th quarter 2007 forecast with history through the 3rd
quarter of 2007, we proposed a 15-month market basket estimate of 3.5
percent for the proposed 15-month 2009 LTCH PPS rate year. In that same
proposed rule, we also proposed that if more recent data were
available, we would use it to determine the RY 2009 market basket
update in the final rule. Consistent with our historical practice to
use the most recent estimate of the RPL market basket available for the
final rule, the most recent estimate of the RPL market basket for July
1, 2008 through September 30, 2009, based on Global Insight's 1st
quarter 2008 forecast with history through the 4th quarter of 2007, is
3.6 percent. As we proposed and as noted above, we determine this 15-
month market basket update by calculating the 5-quarter moving average
index level for July 1, 2008 through September 30, 2009 and the 4-
quarter moving average index level for July 1, 2007 through June 30,
2008. The percent change in these two values represents the 15-month
market basket update for RY 2009. We note that, based on the most
recent available data, if we were not consolidating the two annual LTCH
PPS payment system updates by extending the 2009 LTCH PPS rate year by
3 months, the market basket estimate for a 12-month RY 2009 is 3.2
percent, based on the most recent estimate of the 12-month RPL market
basket for July 1, 2008 through June 30, 2009. We determined this 12-
month market basket estimate based on the method stated in the proposed
rule (see 73 FR 5353).
Comment: We received one comment on the 15-month market basket
estimate for RY 2009 that we presented in the proposed rule, which
suggested that the proposed market basket update for RY 2009 does not
include an inflationary update factor to address the additional 3
months that would result from the proposal to extend the 2009 rate year
through September 30, 2009.
Response: We disagree with the comment that the proposed market
basket update of 3.5 percent does not reflect the entire 15-month
period. The proposed RY 2009 3.5 percent market basket estimate as well
as the RY 2009 3.6 percent market basket estimate we are establishing
in this final rule as based on the forecasted increase in the LTCH PPS
market basket (that is, the RPL market basket) to account for projected
inflation for the entire 15-month RY 2009, which includes the
additional 3 months that results from extending RY 2009 to move the
annual rate update period from July 1 to October 1. As discussed in the
proposed rule (73 FR 5352) and as reiterated above, we determined the
15-month market basket by calculating two average index levels: (1) the
5-quarter moving average index level for July 1, 2008 through September
30, 2009; and (2) the 4-quarter moving average index level for July 1,
2007 through June 30, 2008. The percent change in these two values
represents the 15-month market basket estimate. By including the 3-
month period of July 1, 2009 through September 30, 2009 in the first
average index level calculated, we are capturing inflationary pressures
for these 3 months. In comparison, if we were calculating only a 12-
month market basket estimate for the period July 1, 2008 through June
30, 2009, we instead would calculate the 4-quarter moving average index
level for July 1, 2008 through June 30, 2009 and the 4-quarter moving
average index level for July 1, 2007 through June 30, 2008. The percent
change in these two values represents the 12-month market basket
estimate. Therefore, after our review of the public comments, we are
finalizing the 15-month RPL market basket update of 3.6
[[Page 26800]]
percent for RY 2009, based on Global Insight's 1st quarter 2008
forecast. The update to the standard Federal rate for RY 2009 is
discussed below in section IV.E. of this preamble.
D. One-time Prospective Adjustment to the Standard Federal Rate
As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR
56027), consistent with the statutory requirement for budget neutrality
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 budget
neutrality calculations used the best available data at the time and
necessarily reflected several assumptions including costs, inflation
factors and intensity of services provided. In conducting our budget
neutrality calculations, we took into account the statutory requirement
that certain statutory provisions that affect the level of payments to
LTCHs in years prior to the implementation of the LTCH PPS shall not be
taken into account in the development and implementation of the LTCH
PPS. Specifically, section 307(a)(2) of the BIPA requires that the
increases to the target amounts and the increases to the cap on the
target amounts for LTCHs provided for by section 307(a)(1) of the BIPA
(as set forth in section 1886(b)(3)(J) of the Act) and the enhanced
bonus payments for LTCHs provided for by section 122 of the BBRA (as
set forth in section 1886(b)(2)(E) of the Act) are not to be taken into
account in the development and implementation of the LTCH PPS.
We have been monitoring payment data in order to evaluate whether
there is a significant difference between the payments estimated on the
basis of the data available at the time of the August 30, 2002 LTCH PPS
final rule (67 FR 56027 through 56037) and payment estimates based on
more complete data that have become available since that time. We
indicated from the inception of the LTCH PPS that it was possible for
the aggregate amount of actual payments in FY 2003 to be significantly
higher or lower than the estimates on which the budget neutrality
calculations were based to the extent that later, more complete data
differ significantly from the data that were available at the time of
the original calculations.
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, we provided
in Sec. 412.523(d)(3) of the regulations, 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 2009 LTCH PPS proposed rule (72 FR 5353), 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 $4.67 billion for the 2009 LTCH PPS rate year; $4.82 billion
for the 2010 LTCH PPS rate year; $5.06 billion for the 2011 LTCH PPS
rate year; $5.36 billion for the 2012 LTCH PPS rate year; and $5.73
billion for the 2013 LTCH PPS rate year.
In this final rule, consistent with the methodology established in
the August 30, 2002 final rule (67 FR 56036), and based on the most
recent available data, for the readers benefit, we are providing an
estimate of total Medicare program payments for LTCH services for the
next 5 LTCH PPS rate years in Table I. These estimates take into
account the effects of changes as a result of the recent Medicare,
Medicaid, and SCHIP Extension Act of 2007.
Table I
------------------------------------------------------------------------
Estimated
LTCH PPS rate year payments ($
in billions)
------------------------------------------------------------------------
2009.................................................... 4.78
2010.................................................... 4.99
2011.................................................... 5.14
2012.................................................... 5.36
2013.................................................... 5.67
------------------------------------------------------------------------
In accordance with the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 56027 through 56037), these estimates
are based on the most recent available data. These estimates are also
based on our estimate of LTCH PPS rate year payments to LTCHs using
CMS' Office of the Actuary's (OACT) most recent estimate of the RPL
market basket, which is based on information from Global Insight, Inc.,
of 3.2 percent for the 2009 LTCH PPS rate year, 2.9 percent for the
2010 LTCH PPS rate year, 3.0 percent for the 2011 LTCH PPS rate year,
and 3.2 percent for the 2012 and 2013 LTCH PPS rate years. We note that
while the provisions in the MMSEA are current law and OACT develops its
spending projections based on existing policy, changes that are being
adopted in this final rule, are not considered to be existing policy
and therefore, are not shown in Table I. We also considered OACT's most
recent projections of changes in Medicare beneficiary enrollment of -
0.3 percent in the 2009 LTCH PPS rate year, 0.2 percent in the 2010
LTCH PPS rate year, 0.5 percent in the 2011 LTCH PPS rate year, 1.5
percent in the 2012 LTCH PPS rate year and, 2.5 percent in the 2013
LTCH PPS rate year. It is important to note that, while we provide
these estimates of future payments under the LTCH PPS in order to
provide the public with a projected estimate of payments to LTCHs,
these estimates will be neither the basis for determining whether the
one-time budget neutrality adjustment available under Sec.
412.523(d)(3) of the regulations should be proposed, nor are these
estimates the basis for any of the policy changes adopted in this final
rule. It is also important to note that any proposal regarding the one-
time budget neutrality adjustment would be based solely on the data
that would be available at the time of the proposal, rather than on
projections of payments under LTCH PPS for future years.
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.''
The statute requires the LTCH PPS to be budget neutral in FY 2003, so
that estimated aggregate payments under the LTCH PPS for FY 2003 should
be equal to the estimated aggregate payments that would be made if the
LTCH PPS were not 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 previously in this section, our methodology for estimating
payments for the purposes of budget neutrality calculations used the
best available data, and necessarily reflected assumptions in
estimating aggregate payments that would be made if the LTCH PPS was
not implemented. In the August 30, 2002 final rule, we also stated our
intention to monitor LTCH PPS payment data to evaluate whether later
data varied significantly from the data available at the time of the
original budget neutrality calculations (for example, data related to
inflation
[[Page 26801]]
factors, intensity of services provided, or behavioral response to the
implementation of the LTCH PPS). To the extent the later data
significantly differ from the data employed in the original
calculations, the aggregate amount of payments during FY 2003 based on
later data may be higher or lower than the estimates upon which the
budget neutrality 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. 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 yet been generated that would enable us to
conduct a comprehensive reevaluation of our budget neutrality
calculations. Therefore, in that same final rule, we did not implement
the one-time adjustment provided under Sec. 412.523(d)(3) 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 PPS rates for future years. However, we stated that
we would continue to collect and interpret new data as it became
available in order to determine whether we should propose such an
adjustment in the future. Therefore, 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 possible one-time adjustment due to the time lag
in the availability of Medicare data upon which a proposed adjustment
would be based. We noted 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. As also
explained in that same final rule, we believed 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
allow our decisions regarding a possible adjustment to be based on more
complete and up-to-date data. It should be noted that, in the years
following the initial implementation of the LTCH PPS, we have already
adopted some revised policies and adjustments to LTCH PPS payment
levels. However, none of these revised policies and payment adjustments
have addressed the intended purpose of the adjustment allowed under
Sec. 412.523(d)(3) of the regulations, to ensure that any significant
difference between the original estimates and calculations based on
more recent data are not perpetuated in the LTCH PPS rates for future
years. For example, the adjustments that we have made to account for
coding changes in excess of real severity increases in RY 2007 and RY
2008 were made to account for changes in coding behavior in the years
following the implementation of the LTCH PPS, and not to address any
issue regarding the budget neutrality calculations that were used to
establish the base rate for the LTCH PPS.
Section 114(c)(4) of MMSEA provides that the ``Secretary shall not,
for the 3-year period beginning on the date of the enactment of this
Act, make the one-time prospective adjustment to long-term care
hospital prospective payment rates provided for in Sec. 412.523(d)(3)
of title 42, Code of Federal Regulations, or any similar provision.''
That provision delays the effective date of any one-time budget
neutrality adjustment until no earlier than December 29, 2010.
Therefore, we proposed to revise Sec. 412.523(d)(3) of the regulations
to conform with this requirement.
Comment: Several commenters supported the proposed change in Sec.
412.523(d)(3) of regulations to conform with the requirements of
section 114(c)(4) of MMSEA, delaying the effective date of any one-time
budget neutrality adjustment until no earlier than December 29, 2010. A
few commenter disagreed with the proposed change to Sec. 412.523(d)(3)
because it did not include a specific date after which time CMS would
no longer be able to implement a one-time budget neutrality as is
currently specified in the regulations (that is, July 1, 2008). These
commenters believe that the lack of an ``end date'' in the proposed
change to Sec. 412.523(d)(3) leaves LTCHs in a perpetual state of
uncertainty, and therefore, recommend that CMS should specify in the
regulations a reasonable date beyond which this adjustment can be made.
Response: We appreciate the commenters support of the proposed
change in Sec. 412.523(d)(3) to conform with the requirements of
section 114(c)(4) of MMSEA, delaying the effective date of any one-time
budget neutrality adjustment until no earlier than December 29, 2010.
We understand commenters' concerns and agree that it is reasonable to
include a date by which the one-time budget neutrality adjustment must
be implemented in order to provide predictability in LTCH PPS payments.
In taking into account the statutory requirement that any one-time
budget neutrality adjustment can be effective no earlier than December
29, 2010, and that annual updates to the LTCH PPS will be effective
October 1 each year (beginning October 1, 2009, as discussed above in
section IV.B. of this preamble), we believe that October 1, 2012 would
allow us sufficient time after the statutorily required 3-year delay to
develop, propose and finalize any one-time budget neutrality
adjustment. Therefore, we are revising the regulations at Sec.
412.523(d)(3) to delay the effective date of any one-time budget
neutrality adjustment so that any such adjustment would be made no
earlier than December 29, 2010, and no later than October 1, 2012. We
believe that this date will allow adequate time to consider any
additional comments that may arise after the MMSEA 3-year delay
concerning the potential methodology we presented in the RY 2009
proposed rule without postponing indefinitely into the future any
proposal for making an adjustment.
Prior to the enactment of the MMSEA, we had developed a methodology
for evaluating whether to propose a one-time budget neutrality
adjustment under Sec. 412.523(d)(3) of the regulations. In order to
inform the public of our thinking, and to stimulate comments for our
consideration during the 3-year delay in implementing any one-time
budget neutrality adjustment under the law referenced above, we
discussed our analysis and its results in the proposed rule (73 FR 5356
through 5360). Evaluating the appropriateness of a possible future
proposal for a one-time prospective adjustment under Sec.
412.523(d)(3) required a thorough review of the relevant LTCH data, as
we discussed in the proposed rule. When we established the FY 2003
standard Federal rate in a budget neutral manner, we used the most
recent LTCH cost data available at that time (that is, FY 1999 data),
and trended that data forward to estimate what Medicare would have paid
to LTCHs in FY 2003 under the TEFRA payment system if the PPS were not
implemented for FY 2003 (67 FR 56033). We subsequently conducted a
thorough review of the most recent relevant data and discussed those
findings in the RY 2009 proposed rule. At the time we drafted the
proposed rule, cost data from FY 2002, representing the final year
LTCHs were paid under the TEFRA payment system, had become available.
The cost report data for FY 2002 is comprised of a high proportion of
settled and audited cost reports submitted by LTCHs. We also
[[Page 26802]]
have acquired payment data on the first year of the LTCH PPS (that is,
FY 2003). On the basis of our review of these data sources, we
developed a potential methodology for determining whether the one-time
adjustment available under Sec. 412.523(d)(3) of the regulations
should be proposed. On the basis of this methodology, we also presented
a potential method for computing an adjustment, if appropriate.
Employing that methodology, our analysis indicated that a permanent
budget neutrality adjustment factor of 0.9625 to the LTCH PPS standard
Federal rate could be warranted. Consistent with the requirements of
section 114(c)(4) of the recently enacted MMSEA, we did not propose any
adjustment for the upcoming rate year. However, we invited public
comment on the analysis which we presented in the proposed rule. We
noted that we would consider these comments if and when we decide to
propose an actual adjustment. We also noted that in the final rule, we
would respond to any comments on the proposed changes to Sec.
412.523(d)(3) of the regulations that would: (1) Specify the
methodology for the one-time budget neutrality adjustment; and (2)
implement the requirements of section 114(c)(4) of Pub. L. 110-173, in
the final rule.
In order to determine whether a one-time budget neutrality
adjustment could be warranted, it is necessary to estimate both
aggregate payments under the LTCH PPS for FY 2003 and the estimated
aggregate payments that would have been made under the TEFRA system in
FY 2003 if the LTCH PPS were not implemented. While we know actual
TEFRA payments to LTCHs for FY 2002, the last year of payment under
that methodology, it is necessary to estimate what TEFRA payments would
have been in FY 2003 if the new LTCH PPS had not been implemented. In
developing the methodology for evaluating a one-time adjustment that we
presented in the proposed rule, we considered whether we should employ
actual FY 2003 costs to calculate estimated TEFRA payments for FY 2003
or employ costs for FY 2002 trended forward to FY 2003 as the basis for
the calculation. We noted that basing the estimate on actual FY 2003
costs would avoid the need to employ any factor to update costs from FY
2002 to FY 2003. However, since FY 2003 was the first year of payment
under the LTCH PPS, the cost experience of LTCHs in that year would
reflect their response to the incentives provided by the new payment
system, instead of reflecting behavior under the reasonable cost
payment system. Indeed, implementation of an LTCH PPS should directly
affect the behavior of LTCHs, and therefore, the level of costs in
LTCHs. One of the incentives of a PPS is to improve efficiency in the
delivery of care, which generally results in decreased cost per
discharge. For this reason, employing FY 2003 costs directly could be a
poor basis for estimating payments that ``would have been made if the
LTCH PPS were not implemented.'' We indicated in the proposed rule that
trending forward for 1 year the costs incurred under the last year of
the TEFRA payment system poses a smaller prospect for distortion than
using costs incurred during the subsequent year, when the incentives
faced by LTCHs to reduce costs could have had a significant effect.
Therefore, we indicated that we believed it may be preferable to base
our calculation of the estimated aggregate payments that would have
been made if the LTCH PPS were not implemented (that is, estimated FY
2003 TEFRA payments) on FY 2002 costs, trended forward to FY 2003 using
the excluded hospital with capital market basket. And we noted in this
context that some representatives of LTCHs had expressed concern that
employing FY 2003 costs directly would provide a poor basis upon which
to estimate payments that ``would have been made if the LTCH PPS were
not implemented'' for precisely the reasons we have just discussed. We
also noted that basing the estimate of FY 2003 TEFRA payments on FY
2002 costs trended forward should satisfy these concerns.
In determining whether a one-time budget neutrality adjustment
could be warranted, we believe the estimate of the payments that would
have been made in FY 2003 under the TEFRA methodology should be
compared to estimated payments under the new LTCH PPS in FY 2003. The
most direct way to determine payments under the new LTCH PPS, of
course, is simply to aggregate the actual payments calculated under the
LTCH PPS methodology for the discharges that occurred during the first
year of the LTCH PPS (FY 2003). However, that approach raises an issue
of consistency in the use of data. The discharges for which we paid
under the LTCH PPS during FY 2003 are obviously not the same as the
discharges for which costs were incurred during the last year of
payment under the TEFRA methodology, FY 2002. For the reasons that we
have just discussed, we stated in the proposed rule that we believed
that the best way to estimate the TEFRA payments that would have been
made to LTCHs during FY 2003 is to use inflated FY 2002 costs as a
proxy for FY 2003 costs. Comparing actual FY 2003 LTCH PPS payments to
FY 2003 TEFRA payments estimated on the basis of FY 2002 discharges
would amount to a comparison between payments related to two different
sets of discharges, potentially skewing the results. Therefore
consistency suggests that, rather than comparing TEFRA payments based
on FY 2002 costs updated to FY 2003, to aggregate LTCH PPS payments for
discharges that actually occurred in FY 2003, it would be preferable to
compare estimated TEFRA payments based on updated FY 2002 costs to the
estimated payments that would have been made under LTCH PPS methodology
in FY 2003 for those same FY 2002 discharges. In other words, we
believe that the best approach would be to compare--
Estimated aggregate FY 2003 TEFRA payments calculated on
the basis of FY 2002 costs updated to FY 2003; to
Estimated aggregate payments that would have been made in
FY 2003 under the LTCH PPS methodology, by applying the FY 2003 LTCH
payment rules to the discharges that occurred in FY 2002.
In this way, we would ensure that we are comparing the estimated FY
2003 TEFRA payments, which are based on updated costs incurred for FY
2002 discharges to the estimated PPS payments that would have been made
for those same FY 2002 discharges under the new LTCH PPS payment
methodology.
Therefore, in the absence of the MMSEA, we stated in the proposed
rule that we would have proposed to employ the general methodology we
have just described to determine: (1) Whether the one-time adjustment
available under Sec. 412.523(d)(3) of the regulations should be
proposed for RY 2009, and (2) if such adjustment should be proposed,
the actual proposed adjustment factor. In the proposed rule, we did
propose to revise the current language of Sec. 412.523(d)(3) of the
regulations to conform more accurately reflect the purpose of providing
for a possible one-time budget neutrality adjustment. At the time of
the final LTCH PPS rule in 2002, we described the nature of the one-
time adjustment in very general terms. Specifically, that section
currently provides the following:
The Secretary reviews payments under this prospective payment
system and may make a one-time prospective adjustment to the long-
term care hospital prospective payment system rates on or before
July 1, 2008 so that
[[Page 26803]]
the effect of any significant difference between actual payments and
estimated payments for the first year of the long term care hospital
prospective payment system is not perpetuated in the prospective
payment rates for future years.
As we stated in the proposed rule, our policy objective in
providing for this one-time budget neutrality adjustment has always
been to ensure that computations based on the earlier, necessarily
limited (but at that time best available) data available at the
inception of the LTCH PPS would not be built permanently into the rates
if data available at a later date could provide more accurate results.
Prior to the thorough analysis we conducted in preparation for the RY
2009 proposed rule, we had believed that the appropriate method for
meeting this policy objective involved comparing actual payment data
from the first year of payment under the LTCH PPS to our earlier
estimate of payments in the first year of the LTCH PPS. As we have just
discussed, we determined that the most appropriate methodology for
evaluating an adjustment to the original budget neutrality adjustment
did not involve comparing the payments estimated in the original
calculations against the ``actual payments * * * for the first year,''
strictly speaking. Rather, as we discussed in the proposed rule, we
believe that it is more appropriate to compare payments in the first
year under the LTCH PPS to what payments would have been under the
prior TEFRA rules for that year based on the best available data. As a
result, under the broad authority of section 123 of the BBRA, as
amended by section 307(b) of BIPA, to make appropriate adjustments to
the LTCH PPS, we proposed to revise Sec. 412.523(d)(3) of the
regulations. Furthermore, as discussed in the proposed rule,
considerations of consistency and other factors suggest that the most
appropriate comparison would employ an estimate of FY 2003 LTCH PPS
payments based on discharges from FY 2002. The cost incurred by LTCHs
for those discharges would also be the basis for the best estimate of
what would have been paid in FY 2003 under the TEFRA system. As we have
discussed previously, we also proposed to revise that section of the
regulations to correspond with the requirements of section 114(c)(4) of
the Medicare, Medicaid, and SCHIP Extension Act of 2007. Specifically,
we proposed to revise Sec. 412.523(d)(3) of the regulations to read as
follows:
The Secretary reviews payments under this prospective payment
system and may make a one-time prospective adjustment to the long-
term care hospital prospective payment system rates no earlier than
December 29, 2010, so that the effect of any significant difference
between the data used in the original computations and more recent
data to determine budget neutrality is not perpetuated in the
prospective payment rates for future years.
Comment: One commenter objected to the proposed change in the
regulation on the grounds that it does not truly reflect the
methodology we discussed more clearly, especially since the proposed
text of the regulation makes no mention of FY 2003, the first year of
payments under the LTCH PPS. The commenter further objected that the
phrases ``data used in the original computations'' and ``more recent
data to determine budget neutrality'' in the proposed regulation text
are imprecise.
Response: We do not agree that the phrases ``data used in the
original computations'' and ``more recent data to determine budget
neutrality'' in the proposed regulation text are imprecise. The
meanings of these terms are fully explained in the detailed account
presented in the preamble to the proposed rule (73 FR 5354 through
5360) of the methodology that we could employ in a proposal. We also
clearly indicated in the preamble text that if we had proposed a one-
time adjustment in the RY 2009 proposed rule, we would have used more
recent data to estimate budget neutrality for the first year of the
LTCH PPS, FY 2003. As we have also discussed, we indicated that we
believe it is appropriate to use certain data elements from FY 2002,
specifically FY 2002 TEFRA costs and FY 2002 LTCH discharges, as the
most effective and consistent way to estimate budget neutrality for FY
2003 while avoiding the potentially distorting effects of factors such
as behavioral changes in the first year of the new payment system.
However, we often avoid specifying precise data elements and other
details of methodology in regulations text, and instead provide for the
regulations to reflect in general but accurate terms the methodology to
be employed. (Instead, we typically include a discussion of specific
data elements and complex details of our methodology in the preamble
where we can flesh out in greater detail the nuances of our policies.)
The current regulations text is not consistent with the methodology we
had developed as the best means to evaluate whether to propose an
adjustment. Our proposed regulation text captured the concepts in
general, but more accurate, terms. In response to this comment we are,
however, revising the proposed regulation text to specify that the
estimates of budget neutrality do indeed pertain to FY 2003, the first
year of the LTCH PPS. As also discussed above, we are also revising the
proposed regulations text to include a specific end date after which
CMS would no longer consider implementing a one-time budget neutrality
adjustment (that is, on or before October 1, 2012). In addition, the
structure of the regulations text we are finalizing would work if we
ultimately proposed to use FY 2002 data to estimate FY 2003 payments or
if we would propose to use FY 2003 data. The final regulation text that
we are adopting in this final rule will therefore read:
The Secretary reviews payments under this prospective payment
system and may make a one-time prospective adjustment to the long-
term care hospital prospective payment system rates no earlier than
December 29, 2010 and by no later than October 1, 2012, so that the
effect of any significant difference between the data used in the
original computations of budget neutrality for FY 2003 and more
recent data to determine budget neutrality for FY 2003 is not
perpetuated in the prospective payment rates for future years.
Comment: Two commenters alleged that we had failed to provide data
supporting the proposal of making a one-time prospective adjustment to
the LTCH rates no earlier than December 29, 2010. The commenters added
that, without the ability to review the applicable data, the public
cannot provide meaningful comment on this aspect of the proposed rule.
Response: We did not actually propose to make a one-time
prospective adjustment to the LTCH rates under Sec. 412.523(d)(3) in
the proposed rule. As noted above, in the proposed rule we presented a
potential methodology for determining whether the one-time adjustment
available under Sec. 412.523(d)(3), could be warranted if we presented
our analysis based on employing that method, and invited public comment
on that analysis indicating that we would take such comments into
account ``if and when we decide to propose an actual adjustment'' (see
73 FR 5354 and 5360). We did, however, propose to revise the
regulations to provide that such an adjustment will not be made prior
to December 29, 2010, as required by the MMSEA. We also described the
potential methodology that we had developed prior to the passage of the
MMSEA and revised the regulations text to be more consistent with the
purpose of a one-time budget neutrality adjustment.
We do not agree that the data we used in developing our estimate of
a potential adjustment presented in the proposed
[[Page 26804]]
rule has been unavailable to commenters. We clearly identified our data
sources in the proposed rule, for example, cost report data from the
Hospital Cost Reporting Information System for FYs 1999 through 2003,
and FY 2002 LTCH MedPAR data (see 73 FR 5357 and 5359). We also
described in great detail how we employed those data, including
assumptions and adjustments that were necessary in developing a
reasonable estimate. These data are readily available through our
standard data request procedures that can be obtained by communication
with our Office of Information Services (OIS). Information about
obtaining MedPAR files and other Medicare data files is posted on the
CMS Web page at: http://www.cms.hhs.gov/FilesForOrderGenInfo/.
Furthermore, we point out that other commenters were able to employ
these and similar data sources to comment on the methodology that we
discussed (in fact, one commenter commissioned an entire report on the
``Assessment of the Proposed One-time Adjustment for Long Term Care
Hospitals''). Therefore, we disagree that the public lack the necessary
data to provide meaningful comment on that informational aspect of the
proposed rule.
Our revision to Sec. 412.523(d)(3) of the regulations would
continue to provide that the Secretary may make a one-time adjustment
to the LTCH PPS rates in order to ensure that any ``significant''
difference is not perpetuated in the LTCH PPS rates for future years.
The regulation does not specifically define what constitutes a
significant difference for this purpose. In the absence of section
114(c)(4) of the MMSEA, we would have proposed to consider as
``significant'' any difference greater than or equal to a 0.25
percentage point difference between the original budget neutrality
calculations and budget neutrality calculations based on the more
recent data now available. This threshold avoids making an adjustment
to account for very minor deviations between earlier and later
estimates of budget neutrality. It is also consistent with thresholds
that we have employed for similar purposes in prospective payment
systems. For example, under the capital IPPS, we make a forecast error
correction in the framework used to update the capital Federal rate if
a previous forecast of input prices varies by at least a 0.25
percentage point from actual input price changes (72 FR 47425). We do
not believe that we should treat differences greater than or equal to
0.25 percent as not ``significant,'' since the effect of any difference
will be magnified as the rates are updated each year.
As discussed previously, absent the requirement of section
114(c)(4) of the Medicare, Medicaid and SCHIP Extension Act of 2007, we
would have proposed to use FY 2002 LTCH costs as a basis for estimating
FY 2003 LTCH TEFRA payments in evaluating whether to propose a one-time
prospective adjustment under Sec. 412.523(d)(3). We also would have
proposed to update the FY 2002 costs for inflation to FY 2003 by our
Office of the Actuary's current estimate of the actual increase in the
excluded hospital market basket from FY 2002 to FY 2003 of 4.2 percent.
This updated amount would serve as the proxy for actual FY 2003 TEFRA
costs in the proposed budget neutrality computation for purposes of
Sec. 412.523(d)(3). We estimated FY 2003 LTCH TEFRA payments using a
methodology that is similar in concept to the methodology we used to
estimate FY 2003 LTCH total payments under the TEFRA system when we
determined the initial standard Federal rate in the August 30, 2002
final rule (67 FR 56030 through 56033). We also made modifications to
the methodology we initially used to estimate FY 2003 LTCH TEFRA
payments because we are using data from a later period, as discussed in
greater detail below. In general, we estimated total payments under the
TEFRA payment system using the following steps:
Estimate each LTCH's payment per discharge for inpatient
operating costs under the TEFRA system for FY 2003;
Estimate each LTCH's payment per discharge for capital-
related costs for FY 2003; and
Sum each LTCH's estimated operating and capital payment
per case to determine its estimated total FY 2003 TEFRA payment system
payment per discharge. In the proposed rule, we discussed each of these
steps in detail (73 FR 5356-5359).
Once we have estimated total TEFRA payments as the sum of each
LTCH's estimated operating and capital payment per case, it is also
necessary to estimate FY 2003 payments under the LTCH PPS. We also
discussed the method for making this estimate in the proposed rule (73
FR 5359 through 5360). As the discussion in the proposed rule
indicated, our analysis suggests that an adjustment of 3.75 percent to
the standard Federal rate may have been warranted. We expect to address
the issue again when it is closer to the time section 114(c)(4) of the
MMSEA permits us to implement a one-time adjustment under Sec.
412.523(d)(3). In the meantime, we received a number of comments on the
methodology that we have described. We also received a number of
comments addressing the merits of implementing any one-time budget
neutrality adjustment. As we stated in the proposed rule (73 FR 5360),
we will take these comments into account prior to proceeding with any
proposal for a one-time budget neutrality adjustment on or after
December 29, 2010, and we will consider them at the time when we
develop such a proposal.
E. Standard Federal Rate for the 2008 LTCH PPS Rate Year
1. Background
At Sec. 412.523(c)(3)(ii) of the regulations, for LTCH PPS rate
years beginning RY 2004 through RY 2006, we updated the standard
Federal rate by a rate increase factor to adjust for the most recent
estimate of the increases in prices of an appropriate market basket of
goods and services for LTCHs. We established the policy of annually
updating the standard Federal rate 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. At that
time, 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 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 that based on our ongoing monitoring activity,
it was appropriate to adjust the Federal rate to account for the
changes in coding practices (rather than patient severity). We