Federal Register, Volume 76 Issue 83 (Friday, April 29, 2011)

[Federal Register Volume 76, Number 83 (Friday, April 29, 2011)]
[Proposed Rules]
[Pages 24214-24289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-10159]

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Vol. 76

Friday,

No. 83

April 29, 2011

Part IV

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; Inpatient Rehabilitation Facility Prospective Payment
System for Federal Fiscal Year 2012; Changes in Size and Square Footage
of Inpatient Rehabilitation Units and Inpatient Psychiatric Units;
Proposed Rule

Federal Register / Vol. 76 , No. 83 / Friday, April 29, 2011 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1349-P]
RIN 0938-AQ28

Medicare Program; Inpatient Rehabilitation Facility Prospective
Payment System for Federal Fiscal Year 2012; Changes in Size and Square
Footage of Inpatient Rehabilitation Units and Inpatient Psychiatric
Units

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement section 3004 of the
Affordable Care Act, which establishes a new quality reporting program
that provides for a 2 percent reduction in the annual increase factor
beginning in 2014 for failure to report quality data to the Secretary
of Health and Human Services. This proposed rule would also update the
prospective payment rates for inpatient rehabilitation facilities
(IRFs) for Federal fiscal year 2012 (for discharges occurring on or
after October 1, 2011 and on or before September 30, 2012) as required
by the Social Security Act (the Act). The Act requires the Secretary to
publish in the Federal Register on or before the August 1 that precedes
the start of each FY the classification and weighting factors for the
IRF prospective payment system (PPS) case-mix groups and a description
of the methodology and data used in computing the prospective payment
rates for that fiscal year. We are also proposing to consolidate,
clarify, and revise existing policies regarding IRF hospitals and IRF
units of hospitals to eliminate unnecessary confusion and enhance
consistency. Furthermore, in accordance with the general principles of
the President's January 18, 2011 Executive Order entitled ``Improving
Regulation and Regulatory Review,'' we are proposing to amend existing
regulatory provisions regarding ``new'' facilities and changes in the
bed size and square footage of IRFs and inpatient psychiatric
facilities (IPFs) to improve clarity and remove obsolete material.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on June 21, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1349-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address only: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1349-P, P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address only: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1349-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses: a. For delivery in Washington,
DC--Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Room 445-G, Hubert H. Humphrey Building, 200
Independence Avenue, SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
Gwendolyn Johnson, (410) 786-6954, for general information about the
proposed rule.
Hillary Loeffler, (410) 786-0456, for information about the proposed
payment rates.
Stella R. Mandl, (410) 786-2547, for information about the proposed
quality reporting program.
Susanne Seagrave, (410) 786-0044, for information about the proposed
payment policies.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

To assist readers in referencing sections contained in this
document, we are providing the following table of contents.

I. Background
A. Historical Overview of the Inpatient Rehabilitation Facility
Prospective Payment System (IRF PPS)
B. Provisions of the Affordable Care Act Affecting the IRF PPS
in FY 2012 and Beyond
C. Operational Overview of the Current IRF PPS
II. Summary of Provisions of the Proposed Rule
A. Proposed Updates to the IRF Federal Prospective Payment Rates
for Federal Fiscal Year (FY) 2012
B. Proposed Revisions to Existing Regulation Text
III. Proposed Update to the Case-Mix Group (CMG) Relative Weights
and Average Length of Stay Values for FY 2012

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IV. Proposed Updates to the Facility-Level Adjustment Factors for FY
2012
A. Proposed Updates to the IRF Facility-Level Adjustment Factors
B. Budget Neutrality Methodology for the Proposed Updates to the
IRF Facility-Level Adjustment Factors
C. Proposed Policy for Temporary Cap Adjustments to Reflect
Interns and Residents Displaced Due to Closure of IRFs or IRF
Residency Training Programs
1. Background
2. Proposed FTE Intern and Resident Temporary Cap Adjustment
3. Proposed Temporary Adjustment to the FTE Cap to Reflect
Interns and Residents Displaced Due to IRF Closure
4. Proposed Temporary Adjustment to the FTE Cap to Reflect
Interns and Residents Displaced Due to a Residency Program Closure
V. Proposed FY 2012 IRF PPS Federal Prospective Payment Rates
A. Proposed Market Basket Increase Factor, Productivity
Adjustment, and Labor-Related Share for FY 2012
1. Proposed Rebasing of the RPL Market Basket for FY 2012
2. Proposed Productivity Adjustment
3. Proposed Calculation of the IRF PPS Market Basket Increase
Factor for FY 2012
4. Proposed Calculation of the Labor-Related Share for FY 2012
B. Proposed Area Wage Adjustment
C. Description of the Proposed IRF Standard Conversion Factor
and Payment Rates for FY 2012
D. Example of the Methodology for Adjusting the Proposed Federal
Prospective Payment Rates
VI. Proposed Update to Payments for High-Cost Outliers Under the IRF
PPS
A. Proposed Update to the Outlier Threshold Amount for FY 2012
B. Proposed Update to the IRF Cost-to-Charge Ratio Ceilings
VII. Impact of the IPPS Data Matching Process Changes on the IRF PPS
Calculation of the Low-Income Percentage Adjustment Factor
VIII. Proposed Updates to the Policies in 42 CFR 412
A. Proposed Consolidation of the Requirements for Rehabilitation
Hospitals and Rehabilitation Units
B. Proposed Revisions to the Regulations at Proposed Sec.
412.29
C. Proposed Revisions to the Requirements for Changes in Bed
Size and Square Footage
D. Proposed Revisions to Enhance Consistency Between the IRF
Coverage and Payment Requirements
IX. Proposed Quality Reporting Program for IRFs
A. Background and Statutory Authority
B. Quality Measures for IRF Quality Reporting Program for FY
2014
1. General
2. Considerations in the Selection of the Proposed Quality
Measures
3. FY 2014 Measure 1: Healthcare Associated Infection
Measure (HAI): Urinary Catheter-Associated Urinary Tract Infections
(CAUTI)
4. FY 2014 Measure 2: Percent of Patients with Pressure
Ulcers that are New or Worsened
5. Potential FY 2014 Measure 3: 30-Day Comprehensive
All Cause Risk Standardized Readmission Measure
C. Data Submission Requirements
1. Proposed Method of Data Submission for HAI Measure (CAUTI)
2. Proposed Method of Data Submission for the Percent of
Patients with New or Worsened Pressure Ulcer Measure
3. Potential Method of Data Submission for the 30-Day
Comprehensive All-Cause Risk-Standardized Readmission Measure
D. Public Reporting
E. Quality Measures for Future Consideration for Determination
of Increase Factors for Future Fiscal Year Payments
F. Proposed New Regulation Text for the IRF Quality Reporting
Program
X. Collection of Information Requirements
XI. Response to Public Comments
XII. Economic Analyses
A. Regulatory Impact Analysis
1. Introduction
2. Statement of Need
3. Overall Impacts
4. Detailed Economic Analysis
5. Alternatives Considered
6. Accounting Statement
7. Conclusion
B. Regulatory Flexibility Act Analysis
C. Unfunded Mandates Reform Act Analysis
XIII. Federalism Analysis
Regulation Text
Addendum

Acronyms

To assist the reader, we are listing the acronyms used and their
corresponding meaning in alphabetical order.

ADC Average Daily Census
AHA American Hospital Association
ASCA Administrative Simplification Compliance Act of 2002, Public
Law 107-105
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Public
Law 106-113
BEA Bureau of Economic Analysis
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical Access Hospital
CAUTI Catheter-Associated Urinary Tract Infection
CDC Centers for Disease Control and Prevention
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CIPI Capital Input Price Index
CMG Case-Mix Group
CMS Centers for Medicare & Medicaid Services
CPI Consumer Price Index
DSH Disproportionate Share Hospital
ECI Employment Cost Index
EHR Electronic Health Record
FI Fiscal Intermediary
FR Federal Register
FTE Full-time Equivalent
FY Federal Fiscal Year
GDP Gross Domestic Product
GME Graduate Medical Education
HAI Healthcare Associated Infection
HHH Hubert H. Humphrey Building
HHS Department of Health Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191
HOMER Home Office Medicare Records
IGI IHS Global Insight
IME Indirect Medical Education
I-O Input-Output
IPF Inpatient Psychiatric Facility
IPPS Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment
Instrument
IRF PPS Inpatient Rehabilitation Facility Prospective Payment System
IRVEN Inpatient Rehabilitation Validation and Entry
LTCH Long Term Care Hospital
LIP Low-Income Percentage
LOS Length of Stay
MA Medicare Advantage
MAC Medicare Administrative Contractor
MedPAR Medicare Provider Analysis and Review
MFP Multifactor Productivity
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public
Law 110-173
MSA Metropolitan Statistical Area
NAICS North American Industry Classification System
NHSN National Healthcare Safety Network
NQF National Quality Forum
OMB Office of Management and Budget
PLI Professional Liability Insurance
PPI Producer Price Indexes
PPS Prospective Payment System
QM Quality Measure
RFA Regulatory Flexibility Act of 1980, Public Law 96-354
RIA Regulatory Impact Analysis
RIC Rehabilitation Impairment Category
RO Regional Office
RP Rehabilitation and Psychiatric
RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital
SCHIP State Children's Health Insurance Program
SSI Supplemental Security Income
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law
97-248

I. Background

A. Historical Overview of the Inpatient Rehabilitation Facility
Prospective Payment System (IRF PPS)

Section 4421 of the Balanced Budget Act of 1997 (Pub. L. 105-33,
enacted on August 5, 1997) (BBA), as amended by section 125 of the
Medicare, Medicaid, State Children's Health Insurance Program (SCHIP)
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113, enacted on
November 29, 1999) (BBRA) and by section 305 of the

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Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (Pub. L. 106-554, enacted on December 21, 2000) (BIPA) provides
for the implementation of a per discharge prospective payment system
(PPS) under section 1886(j) of the Social Security Act (the Act) for
inpatient rehabilitation hospitals and inpatient rehabilitation units
of a hospital (hereinafter referred to as IRFs).
Payments under the IRF PPS encompass inpatient operating and
capital costs of furnishing covered rehabilitation services (that is,
routine, ancillary, and capital costs) but not direct graduate medical
education costs, costs of approved nursing and allied health education
activities, bad debts, and other services or items outside the scope of
the IRF PPS. Although a complete discussion of the IRF PPS provisions
appears in the original FY 2002 IRF PPS final rule (66 FR 41316) and
the FY 2006 IRF PPS final rule (70 FR 47880), we are providing below a
general description of the IRF PPS for fiscal years (FYs) 2002 through
2010.
Under the IRF PPS from FY 2002 through FY 2005, as described in the
FY 2002 IRF PPS final rule (66 FR 41316), the Federal prospective
payment rates were computed across 100 distinct case-mix groups (CMGs).
We constructed 95 CMGs using rehabilitation impairment categories
(RICs), functional status (both motor and cognitive), and age (in some
cases, cognitive status and age may not be a factor in defining a CMG).
In addition, we constructed five special CMGs to account for very short
stays and for patients who expire in the IRF.
For each of the CMGs, we developed relative weighting factors to
account for a patient's clinical characteristics and expected resource
needs. Thus, the weighting factors accounted for the relative
difference in resource use across all CMGs. Within each CMG, we created
tiers based on the estimated effects that certain comorbidities would
have on resource use.
We established the Federal PPS rates using a standardized payment
conversion factor (formerly referred to as the budget neutral
conversion factor). For a detailed discussion of the budget neutral
conversion factor, please refer to our FY 2004 IRF PPS final rule (68
FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR
47880), we discussed in detail the methodology for determining the
standard payment conversion factor.
We applied the relative weighting factors to the standard payment
conversion factor to compute the unadjusted Federal prospective payment
rates under the IRF PPS from FYs 2002 through 2005. Within the
structure of the payment system, we then made adjustments to account
for interrupted stays, transfers, short stays, and deaths. Finally, we
applied the applicable adjustments to account for geographic variations
in wages (wage index), the percentage of low-income patients, location
in a rural area (if applicable), and outlier payments (if applicable)
to the IRF's unadjusted Federal prospective payment rates.
For cost reporting periods that began on or after January 1, 2002
and before October 1, 2002, we determined the final prospective payment
amounts using the transition methodology prescribed in section
1886(j)(1) of the Act. Under this provision, IRFs transitioning into
the PPS were paid a blend of the Federal IRF PPS rate and the payment
that the IRF would have received had the IRF PPS not been implemented.
This provision also allowed IRFs to elect to bypass this blended
payment and immediately be paid 100 percent of the Federal IRF PPS
rate. The transition methodology expired as of cost reporting periods
beginning on or after October 1, 2002 (FY 2003), and payments for all
IRFs now consist of 100 percent of the Federal IRF PPS rate.
We established a CMS Website as a primary information resource for
the IRF PPS. The Web site URL is http://www.cms.gov/InpatientRehabFacPPS/ and may be accessed to download or view
publications, software, data specifications, educational materials, and
other information pertinent to the IRF PPS.
Section 1886(j) of the Act confers broad statutory authority upon
the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF
PPS final rule (70 FR 47880) and in correcting amendments to the FY
2006 IRF PPS final rule (70 FR 57166) that we published on September
30, 2005, we finalized a number of refinements to the IRF PPS case-mix
classification system (the CMGs and the corresponding relative weights)
and the case-level and facility-level adjustments. These refinements
included the adoption of the Office of Management and Budget's (OMB)
Core-Based Statistical Area (CBSA) market definitions, modifications to
the CMGs, tier comorbidities, and CMG relative weights, implementation
of a new teaching status adjustment for IRFs, revision and rebasing of
the market basket index used to update IRF payments, and updates to the
rural, low-income percentage (LIP), and high-cost outlier adjustments.
Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through
47917), the market basket index used to update IRF payments is a market
basket reflecting the operating and capital cost structures for
freestanding IRFs, freestanding inpatient psychiatric facilities
(IPFs), and long-term care hospitals (LTCHs) (hereafter referred to as
the rehabilitation, psychiatric, and long-term care (RPL) market
basket). Any reference to the FY 2006 IRF PPS final rule in this
proposed rule also includes the provisions effective in the correcting
amendments. For a detailed discussion of the final key policy changes
for FY 2006, please refer to the FY 2006 IRF PPS final rule (70 FR
47880 and 70 FR 57166).
In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined
the IRF PPS case-mix classification system (the CMG relative weights)
and the case-level adjustments, to ensure that IRF PPS payments would
continue to reflect as accurately as possible the costs of care. For a
detailed discussion of the FY 2007 policy revisions, please refer to
the FY 2007 IRF PPS final rule (71 FR 48354).
In the FY 2008 IRF PPS final rule (72 FR 44284), we updated the
Federal prospective payment rates and the outlier threshold, revised
the IRF wage index policy, and clarified how we determine high-cost
outlier payments for transfer cases. For more information on the policy
changes implemented for FY 2008, please refer to the FY 2008 IRF PPS
final rule (72 FR 44284), in which we published the final FY 2008 IRF
Federal prospective payment rates.
After publication of the FY 2008 IRF PPS final rule (72 FR 44284),
section 115 of the Medicare, Medicaid, and SCHIP Extension Act of 2007
(Pub. L. 110-173, enacted on December 29, 2007) (MMSEA), amended
section 1886(j)(3)(C) of the Act to apply a zero percent increase
factor for FYs 2008 and 2009, effective for IRF discharges occurring on
or after April 1, 2008. Section 1886(j)(3)(C) of the Act required the
Secretary to develop an increase factor to update the IRF Federal
prospective payment rates for each FY. Based on the legislative change
to the increase factor, we revised the FY 2008 Federal prospective
payment rates for IRF discharges occurring on or after April 1, 2008.
Thus, the final FY 2008 IRF Federal prospective payment rates that were
published in the FY 2008 IRF PPS final rule (72 FR 44284) were
effective for discharges occurring on or after October 1, 2007 and on
or before March 31, 2008; and the revised FY 2008 IRF Federal
prospective payment rates were effective for discharges occurring on or
after April 1, 2008 and on or before September 30, 2008. The

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revised FY 2008 Federal prospective payment rates are available on the
CMS Web site at http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.
In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG
relative weights, the average length of stay values, and the outlier
threshold; clarified IRF wage index policies regarding the treatment of
``New England deemed'' counties and multi-campus hospitals; and revised
the regulation text in response to section 115 of the MMSEA to set the
IRF compliance percentage at 60 percent (``the 60 percent rule'') and
continue the practice of including comorbidities in the calculation of
compliance percentages. We also applied a zero percent market basket
increase factor for FY 2009 in accordance with section 115 of the
MMSEA. For more information on the policy changes implemented for FY
2009, please refer to the FY 2009 IRF PPS final rule (73 FR 46370), in
which we published the final FY 2009 IRF Federal prospective payment
rates.
In the FY 2010 IRF PPS final rule (74 FR 39762) and in correcting
amendments to the FY 2010 IRF PPS final rule (74 FR 50712) that we
published on October 1, 2009, we updated the Federal prospective
payment rates, the CMG relative weights, the average length of stay
values, the rural, LIP, and teaching status adjustment factors, and the
outlier threshold; implemented new IRF coverage requirements for
determining whether an IRF claim is reasonable and necessary; and
revised the regulation text to require IRFs to submit patient
assessments on Medicare Advantage (MA) (Medicare Part C) patients for
use in the 60 percent rule calculations. Any reference to the FY 2010
IRF PPS final rule in this proposed rule also includes the provisions
effective in the correcting amendments. For more information on the
policy changes implemented for FY 2010, please refer to the FY 2010 IRF
PPS final rule (74 FR 39762 and 74 FR 50712), in which we published the
final FY 2010 IRF Federal prospective payment rates.
After publication of the FY 2010 IRF PPS final rule (74 FR 39762),
section 3401(d) of the Patient Protection and Affordable Care Act (Pub.
L. 111-148, enacted on March 23, 2010) as amended by section 10319 of
the same Act and by section 1105 of the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010)
(collectively, hereafter referred to as ``The Affordable Care Act''),
amended section 1886(j)(3)(C) of the Act and added section
1886(j)(3)(D) of the Act. Section 1886(j)(3)(C) of the Act requires the
Secretary to estimate a multi-factor productivity adjustment to the
market basket increase factor, and to apply other adjustments as
defined by the Act. The productivity adjustment applies to FYs from
2012 forward. The other adjustments apply to FYs 2010-2019.
Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(i) of the Act
defined the adjustments that were to be applied to the market basket
increase factors in FYs 2010 and 2011. Under these provisions, the
Secretary was required to reduce the market basket increase factor in
FY 2010 by a 0.25 percentage point adjustment. Notwithstanding this
provision, in accordance with section 3401(p) of the Affordable Care
Act, the adjusted FY 2010 rate was only to be applied to discharges
occurring on or after April 1, 2010. Based on the self-implementing
legislative changes to section 1886(j)(3) of the Act, we adjusted the
FY 2010 Federal prospective payment rates as required, and applied
these rates to IRF discharges occurring on or after April 1, 2010 and
on or before September 30, 2010. Thus, the final FY 2010 IRF Federal
prospective payment rates that were published in the FY 2010 IRF PPS
final rule (74 FR 39762) were used for discharges occurring on or after
October 1, 2009 and on or before March 31, 2010; and the adjusted FY
2010 IRF Federal prospective payment rates applied to discharges
occurring on or after April 1, 2010 and on or before September 30,
2010. The adjusted FY 2010 Federal prospective payment rates are
available on the CMS Web site at http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.
In addition, sections 1886(j)(3)(C) and (D) of the Act also
affected the FY 2010 IRF outlier threshold amount because they required
an adjustment to the FY 2010 RPL market basket increase factor, which
changed the standard payment conversion factor for FY 2010.
Specifically, the original FY 2010 IRF outlier threshold amount was
determined based on the original estimated FY 2010 RPL market basket
increase factor of 2.5 percent and the standard payment conversion
factor of $13,661. However, as adjusted, the IRF prospective payments
are based on the adjusted RPL market basket increase factor of 2.25
percent and the revised standard payment conversion factor of $13,627.
To maintain estimated outlier payments for FY 2010 equal to the
established standard of 3 percent of total estimated IRF PPS payments
for FY 2010, we revised the IRF outlier threshold amount for FY 2010
for discharges occurring on or after April 1, 2010 and on or before
September 30, 2010. The revised IRF outlier threshold amount for FY
2010 was $10,721.
Sections 1886(j)(3)(ii)(II) and 1886(j)(3)(D)(i) also required the
Secretary to reduce the market basket increase factor in FY 2011 by a
0.25 percentage point adjustment. The FY 2011 IRF PPS notice (75 FR
42836) and the correcting amendments to the FY 2011 IRF PPS notice (75
FR 70013, November 16, 2010) described the required adjustments to the
FY 2011 and FY 2010 IRF PPS Federal prospective payment rates and
outlier threshold amount for IRF discharges occurring on or after April
1, 2010 and on or before September 30, 2011. It also updated the FY
2011 Federal prospective payment rates, the CMG relative weights, and
the average length of stay values. Any reference to the FY 2011 IRF PPS
notice in this proposed rule also includes the provisions effective in
the correcting amendments. For more information on the FY 2010 and FY
2011 adjustments or the updates for FY 2011, please refer to the FY
2011 IRF PPS notice (75 FR 42836 and 75 FR 70013).

B. Provisions of the Affordable Care Act Affecting the IRF PPS in FY
2012 and Beyond

The Affordable Care Act included several provisions that affect IRF
PPS in FYs 2012 and beyond. In addition to what was discussed above,
section 3401(d) of the Affordable Care Act also added section
1886(j)(3)(C)(ii)(I) (providing for a ``productivity'' adjustment'' for
fiscal year 2012 and each subsequent fiscal year). The proposed
productivity adjustment for FY 2012 is discussed in section V.A.6. of
this proposed rule, and the 0.1 percentage point adjustment is
discussed in section V.A of this proposed rule. Section
1886(j)(3)(C)(ii)(II) of the Act notes that the application of these
adjustments to the market basket update may result in an update that is
less than 0.0 for a fiscal year and in payment rates for a fiscal year
being less than such payment rates for the preceding fiscal year.
Section 3004(b) of the Affordable Care Act also addressed the IRF
PPS program. It reassigned the previously-designated section 1886(j)(7)
of the Act to section 1886(j)(8) and inserted a new section 1886(j)(7),
which contains new requirements for the Secretary to establish a
quality reporting program for IRFs. Under that program, data must be
submitted in a form and manner, and at a time specified by the
Secretary. Beginning in FY 2014, section 1886(j)(7)(A)(i) will require
application

[[Page 24218]]

of a 2 percentage point reduction of the applicable market basket
increase factor for IRFs that fail to comply with the quality data
submission requirements. Application of the 2 percentage point
reduction may result in an update that is less than 0.0 for a fiscal
year and in payment rates for a fiscal year being less than such
payment rates for the preceding fiscal year. Reporting-based reductions
to the market basket increase factor will not be cumulative; they will
only apply for the FY involved.
Under section 1886(j)(7)(D)(i) and (ii) of the Act, the Secretary
is generally required to select quality measures for the IRF quality
reporting program from those that have been endorsed by the consensus-
based entity which holds a performance measurement contract under
section 1890(a) of the Act. This contract is currently held by the
National Quality Forum (NQF). So long as due consideration is given to
measures that have been endorsed or adopted by a consensus-based
organization, section 1886(j)(7)(D)(ii) of the Act authorizes the
Secretary to select non-endorsed measures for specified areas or
medical topics when there are no feasible or practical endorsed
measure(s). Under section 1886(j)(7)(D)(iii) of the Act, the Secretary
is required to publish the measures that will be used in FY 2014 no
later than October 1, 2012.
Section 1886(j)(7)(E) of the Act requires the Secretary to
establish procedures for making the IRF PPS quality reporting data
available to the public. In so doing, the Secretary must ensure that
IRFs have the opportunity to review any such data prior to its release
to the public. Future rulemaking will address these public reporting
obligations.
The proposed quality reporting program for IRFs, in accordance with
section 1886(j)(7) of the Act, is discussed in detail in section IX. of
this proposed rule.

C. Operational Overview of the Current IRF PPS

As described in the FY 2002 IRF PPS final rule, upon the admission
and discharge of a Medicare Part A fee-for-service patient, the IRF is
required to complete the appropriate sections of a patient assessment
instrument, designated as the Inpatient Rehabilitation Facility-Patient
Assessment Instrument (IRF-PAI). In addition, beginning with IRF
discharges occurring on or after October 1, 2009, the IRF is also
required to complete the appropriate sections of the IRF-PAI upon the
admission and discharge of each Medicare Part C (Medicare Advantage)
patient, as described in the FY 2010 IRF PPS final rule. All required
data must be electronically encoded into the IRF-PAI software product.
Generally, the software product includes patient classification
programming called the GROUPER software. The GROUPER software uses
specific IRF-PAI data elements to classify (or group) patients into
distinct CMGs and account for the existence of any relevant
comorbidities.
The GROUPER software produces a 5-digit CMG number. The first digit
is an alpha-character that indicates the comorbidity tier. The last 4
digits represent the distinct CMG number. Free downloads of the
Inpatient Rehabilitation Validation and Entry (IRVEN) software product,
including the GROUPER software, are available on the CMS Web site at
http://www.cms.gov/InpatientRehabFacPPS/06_Software.asp.
Once a patient is discharged, the IRF submits a Medicare claim as a
Health Insurance Portability and Accountability Act of 1996 (Pub. L.
104-191, enacted on August 21, 1996) (HIPAA), compliant electronic
claim or, if the Administrative Simplification Compliance Act of 2002
(Pub. L. 107-105, enacted on December 27, 2002) (ASCA) permits, a paper
claim (a UB-04 or a CMS-1450 as appropriate) using the five-digit CMG
number and sends it to the appropriate Medicare fiscal intermediary
(FI) or Medicare Administrative Contractor (MAC). Claims submitted to
Medicare must comply with both ASCA and HIPAA.
Section 3 of the ASCA amends section 1862(a) of the Act by adding
paragraph (22) which requires the Medicare program, subject to section
1862(h) of the Act, to deny payment under Part A or Part B for any
expenses 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, in turn, provides that the Secretary shall waive
such denial in situations in which there is no method available for the
submission of claims in an electronic form or the entity submitting the
claim is a small provider. In addition, the Secretary also has the
authority to waive such denial ``in such unusual cases as the Secretary
finds appropriate.'' For more information, see the ``Medicare Program;
Electronic Submission of Medicare Claims'' final rule (70 FR 71008,
November 25, 2005). CMS instructions for the limited number of Medicare
claims submitted on paper are available at http://www.cms.gov/manuals/downloads/clm104c25.pdf.
Section 3 of the ASCA operates in the context of the administrative
simplification provisions of HIPAA, which include, among others, the
requirements for transaction standards and code sets codified in 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 healthcare providers, to conduct covered
electronic transactions according to the applicable transaction
standards. (See the CMS program claim memoranda at http://www.cms.gov/ElectronicBillingEDITrans/ and listed in the addenda to the Medicare
Intermediary Manual, Part 3, section 3600).
The Medicare FI or MAC processes the claim through its software
system. This software system includes pricing programming called the
``PRICER'' software. The PRICER software uses the CMG number, along
with other specific claim data elements and provider-specific data, to
adjust the IRF's prospective payment for interrupted stays, transfers,
short stays, and deaths, and then applies the applicable adjustments to
account for the IRF's wage index, percentage of low-income patients,
rural location, and outlier payments. For discharges occurring on or
after October 1, 2005, the IRF PPS payment also reflects the new
teaching status adjustment that became effective as of FY 2006, as
discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

II. Summary of Provisions of the Proposed Rule

In this proposed rule, we are proposing to update the IRF Federal
prospective payment rates, to rebase and revise the RPL market basket,
to implement refinements to the methodologies for calculating the LIP
adjustment, and to establish a new quality reporting program for IRFs
in accordance with section 1886(j)(7) of the Act. We are also proposing
to revise existing regulations text for the purpose of updating and
providing greater clarity. These proposals are as follows:

A. Proposed Updates to the IRF Federal Prospective Payment Rates for
Federal Fiscal Year (FY) 2012

The proposed updates to the IRF Federal prospective payment rates
for FY 2012 are as follows:
Update the FY 2012 IRF PPS relative weights and average
length of stay values using the most current and complete Medicare
claims and cost report data in a budget neutral manner, as discussed in
section III. of this proposed rule.

[[Page 24219]]

Update the FY 2012 IRF facility-level adjustments (rural,
LIP, and teaching status adjustments) in a budget neutral manner using
the most current and complete Medicare claims and cost report data and
by removing the weighting methodology previously used to analyze such
data, and propose a temporary cap adjustment policy for the teaching
status adjustment to reflect interns and residents displaced due to
closure of IRFs or IRF residency training programs, as discussed in
section IV. of this proposed rule.
Update the FY 2012 IRF PPS payment rates by the proposed
market basket increase factor, based upon the most current data
available, with a 0.1 percentage point reduction as required by
sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act and a
productivity adjustment required by section 1886(j)(3)(C)(ii)(I) of the
Act, as described in section V. of this proposed rule.
Update the wage index and the labor-related share of the
FY 2012 IRF PPS payment rates in a budget neutral manner, as discussed
in section V. of this proposed rule.
Calculate the IRF Standard Payment Conversion Factor for
FY 2012, as discussed in section V. of this proposed rule.
Update the outlier threshold amount for FY 2012, as
discussed in section VI. of this proposed rule.
Update the cost-to-charge ratio (CCR) ceiling and urban/
rural average CCRs for FY 2012, as discussed in section VI. of this
proposed rule.
Discuss the impact of the IPPS data matching process
changes on the IRF PPS calculation of the Supplemental Security Income
(SSI) ratios used to compute the IRF LIP adjustment factor, as
discussed in section VII. of this proposed rule.
Implement the IRF quality reporting program provisions of
section 1886(j)(7) of the Act, as discussed in section IX. of this
proposed rule.

B. Proposed Revisions to Existing Regulation Text

In this proposed rule, we are proposing to revise the existing
requirements at Sec. 412.25(b), Sec. 412.25(b)(1), Sec.
412.25(b)(2), Sec. 412.25(b)(3), and Sec. 412.25(e)(2)(ii)(A) that
apply to all units that are excluded from the inpatient prospective
payment system (IPPS), as described in section VIII. of this proposed
rule. These proposed revisions would affect IRFs and inpatient
psychiatric facilities (IPFs).
We are also proposing to relocate and revise the existing
requirements at Sec. 412.23(b), Sec. 412.29, and Sec. 412.30 that
describe the requirements for facilities to qualify to receive payment
under the IRF PPS, as described in section VIII. of this proposed rule.
Finally, we are proposing to re-designate the existing paragraph
Sec. 412.624(c)(4) as Sec. 412.624(c)(5) and add a new paragraph
Sec. 412.624(c)(4) to implement the IRF quality reporting program.

III. Proposed Update to the Case-Mix Group (CMG) Relative Weights and
Average Length of Stay Values for FY 2012

As specified in Sec. 412.620(b)(1), we calculate a relative weight
for each CMG that is proportional to the resources needed by an average
inpatient rehabilitation case in that CMG. For example, cases in a CMG
with a relative weight of 2, on average, will cost twice as much as
cases in a CMG with a relative weight of 1. Relative weights account
for the variance in cost per discharge due to the variance in resource
utilization among the payment groups, and their use helps to ensure
that IRF PPS payments support beneficiary access to care, as well as
provider efficiency.
In this proposed rule, we propose to update the CMG relative
weights and average length of stay values for FY 2012. As required by
statute, we always use the most recent available data to update the CMG
relative weights and average lengths of stay. This ensures that the CMG
relative weights and average length of stay values reflect as
accurately as possible the current costs of care in IRFs. For FY 2012,
we are proposing to use the FY 2010 IRF claims and FY 2009 IRF cost
report data. These data are the most current and complete data
available at this time. Currently, only a small portion of the FY 2010
IRF cost report data are available for analysis, but the majority of
the FY 2010 IRF claims data are available for analysis.
In this proposed rule, we propose to use the same methodology that
we used to update the CMG relative weights and average length of stay
values in the FY 2009 IRF PPS final rule (73 FR 46370), which we also
used to update the CMG relative weights and average length of stay
values in the FY 2010 IRF PPS final rule (74 FR 39762) and the FY 2011
notice (75 FR 42836).
In calculating the CMG relative weights, we use a hospital-specific
relative value method to estimate operating (routine and ancillary
services) and capital costs of IRFs. The process used to calculate the
CMG relative weights for this proposed rule is as follows:
Step 1. We estimate the effects that comorbidities have on costs.
Step 2. We adjust the cost of each Medicare discharge (case) to
reflect the effects found in the first step.
Step 3. We use the adjusted costs from the second step to calculate
CMG relative weights, using the hospital-specific relative value
method.
Step 4. We normalize the FY 2012 CMG relative weights to the same
average CMG relative weight from the CMG relative weights implemented
in the FY 2011 IRF PPS notice (75 FR 42836).
Consistent with the methodology that we have used to update the IRF
classification system in each instance in the past, we are proposing to
update the CMG relative weights for FY 2012 in such a way that total
estimated aggregate payments to IRFs for FY 2012 are the same with or
without the changes (that is, in a budget neutral manner) by applying a
budget neutrality factor to the standard payment amount. To calculate
the appropriate proposed budget neutrality factor for use in updating
the FY 2012 CMG relative weights, we propose to use the following
steps:
Step 1. Calculate the estimated total amount of IRF PPS payments
for FY 2012 (with no proposed changes to the CMG relative weights).
Step 2. Calculate the estimated total amount of IRF PPS payments
for FY 2012 by applying the proposed changes to the CMG relative
weights (as discussed above).
Step 3. Divide the amount calculated in step 1 by the amount
calculated in step 2 to determine the proposed budget neutrality factor
(0.9989) that would maintain the same total estimated aggregate
payments in FY 2012 with and without the proposed changes to the CMG
relative weights.
Step 4. Apply the proposed budget neutrality factor (0.9989) to the
FY 2011 IRF PPS standard payment amount after the application of the
budget-neutral wage adjustment factor.
In section V.C. of this proposed rule, we discuss the proposed use
of the existing methodology to calculate the standard payment
conversion factor for FY 2012.
Table 1, ``Proposed Relative Weights and Average Length of Stay
Values for Case-Mix Groups,'' presents the CMGs, the comorbidity tiers,
the proposed corresponding relative weights, and the proposed average
length of stay values for each CMG and tier for FY 2012. The average
length of stay for each CMG is used to determine when an IRF

[[Page 24220]]

discharge meets the definition of a short-stay transfer, which results
in a per diem case level adjustment. The proposed relative weights and
average length of stay values shown in Table 1 are subject to change
for the final rule if more recent data become available for use in
these analyses.

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Generally, updates to the CMG relative weights result in some
increases and some decreases to the CMG relative weight values. Table 2
shows how the application of the proposed revisions for FY 2012 would
affect particular CMG relative weight values, which affect the overall
distribution of payments within CMGs and tiers. Note that, because we
propose to implement the CMG relative weight revisions in a budget
neutral manner (as described above), total estimated aggregate payments
to IRFs for FY 2012 would not be affected as a result of the CMG
relative weight revisions. However, the proposed revisions would affect
the distribution of payments within CMGs and tiers.
[GRAPHIC] [TIFF OMITTED] TP29AP11.007

As Table 2 shows, 97 percent of all IRF cases are in CMGs and tiers
that would experience less than a 5 percent change (either increase or
decrease) in the CMG relative weight value as a result of the proposed
revisions for FY 2012. The largest increase in the proposed CMG
relative weight values that affects a particularly large number of IRF
discharges is a 1.7 percent increase in the CMG relative weight value
for CMG A0704--Fracture of Lower Extremity with a motor score of less
than 28.15--in the ``no comorbidity'' tier. In the FY 2010 data, 24,162
IRF discharges were classified into this CMG and tier. The largest
decrease in a CMG relative weight value that affects a particularly
large number of IRF discharges is a 0.7 percent decrease in the CMG
relative weight for CMG A0110--Stroke, with a motor score of less than
22.35 and a patient age of less than 84.5 years in the ``no
comorbidity'' tier. In the FY 2010 IRF claims data, this change affects
16,975 cases.

[[Page 24225]]

Given the changes in IRFs' case mix over time, we believe that it
is important to update the CMG relative weights and average length of
stay (LOS) values periodically to continue to reflect the trends in IRF
patient populations. As we have more recent data that better reflect
IRFs' case mix at this time, we propose the updates described in this
section.

IV. Proposed Updates to the Facility-Level Adjustment Factors for FY
2012

A. Proposed Updates to the IRF Facility-Level Adjustment Factors

Section 1886(j)(3)(A)(v) of the Act confers broad authority upon
the Secretary to adjust the per unit payment rate ``by such * * *
factors as the Secretary determines are necessary to properly reflect
variations in necessary costs of treatment among rehabilitation
facilities.'' For example, we adjust the Federal prospective payment
amount associated with a CMG to account for facility-level
characteristics such as an IRF's LIP, teaching status, and location in
a rural area, if applicable, as described in Sec. 412.624(e).
In the FY 2010 IRF PPS final rule (74 FR 39762), we updated the
adjustment factors for calculating the rural, LIP, and teaching status
adjustments based on the most recent three consecutive years worth of
IRF claims data (at that time, FY 2006, FY 2007, and FY 2008) and the
most recent available corresponding IRF cost report data. As discussed
in the FY 2010 IRF PPS proposed rule (74 FR 21060 through 21061), we
observed relatively large year-to-year fluctuations in the underlying
data used to compute the adjustment factors, especially the teaching
status adjustment factor. Therefore, we implemented a three-year moving
average approach to updating the facility-level adjustment factors in
the FY 2010 IRF PPS final rule (74 FR 39762) to provide greater
stability and predictability of Medicare payments for IRFs.
Though the 3-year moving average approach that we implemented in FY
2010 improves the year-to-year stability and predictability of the
facility-level adjustment factors, we have continued to estimate
unusually large year-to-year fluctuations in the teaching status
adjustment factor. To determine the underlying reasons for these large
year-to-year fluctuations in the teaching status adjustment factor, we
analyzed the data and reviewed the methodology that we were using to
estimate all three of the facility-level adjustment factors (that is,
the rural, the LIP, and the teaching status adjustment factors). We
found that the unusually large year-to-year fluctuations in the
teaching status adjustment factors were the result of a weighting
methodology that we have been applying to the regression analysis used
to estimate the facility-level adjustment factors since the
implementation of the IRF PPS. This weighted regression methodology
assigns greater weight to some facilities than to others and, in
effect, exaggerates the differences among different types of IRF
facilities. While this weighted regression methodology was appropriate
when the IRF PPS was first being developed because we had limited data
on which to base the initial facility-level adjustment factors, we
believe that a more appropriate and conservative approach for the
current IRF PPS is to assign equal weight to all facilities in the
regression analysis that is used to estimate all of the IRF facility-
level adjustment factors (that is, the rural, LIP, and teaching status
adjustment factors). Thus, we propose to remove the weighting
methodology from our analysis of the facility-level adjustment factors
and update the IRF facility-level adjustment factors for FY 2012 using
an unweighted regression analysis. The primary effect of the proposed
change in methodology is to stabilize all three of the facility-level
adjustment factors (that is, the rural, the LIP, and the teaching
status adjustment factor) over time. However, the proposed change in
the methodology also has a relatively large effect on our estimate of
the LIP adjustment factor that we discuss in this section.
To update the facility-level adjustment factors for FY 2012, we
propose using updated data (FY 2008, FY 2009, and 2010 IRF claims data
and the corresponding year's cost report data or, if unavailable, the
most recent available cost report data). To analyze the updated data,
we propose to use a revised methodology from the methodology that we
used to update the facility-level adjustment factors in the FY 2010 IRF
PPS final rule (74 FR 39762). The revised methodology would remove a
weighting factor from the regression analysis and, instead, assign
equal weight to all facilities in the regression analysis. Based on
analysis of the updated data using the proposed unweighted regression
analysis and the 3-year moving average approach, we estimate that IRF
PPS payments to IRFs in rural areas would be increased by 18.7 percent
for FY 2012. In addition, to account for the percentage of low-income
patients that an IRF treats, we estimate that IRF PPS payments for FY
2012 would be adjusted using an updated LIP adjustment formula of (1 +
disproportionate share hospital (DSH) patient percentage) raised to the
power of (0.1897), where the--
[GRAPHIC] [TIFF OMITTED] TP29AP11.008

Note that the proposed LIP adjustment factor of 0.1897 is
substantially lower than the current LIP adjustment factor of 0.4613
due to the use of updated data and the proposed use of the unweighted
regression methodology, which would give equal weight to all facilities
in the regression. Finally, we estimate that IRF PPS payments to
eligible IRFs that qualify for the teaching status adjustment will be
adjusted by the following updated formula for FY 2012: (1 + full-time
equivalent (FTE) interns and residents/average daily census) raised to
the power of (0.4888). To calculate the proposed updates to the rural,
LIP, and teaching status adjustment factors for FY 2012, we used the
following steps:

[Steps 1 and 2 are performed independently for each of 3 years of IRF
claims data: FY 2008, FY 2009, and FY 2010]

Step 1. Calculate the average cost per case for each IRF in the IRF
claims data.
Step 2. Use logarithmic regression analysis on average cost per
case to compute the coefficients for the rural, LIP, and teaching
status adjustments. For FY 2012, we are proposing to update the
logarithmic regression analysis so that we no longer apply weights to
the analysis. The proposed unweighted regression analysis gives equal
weight to all facilities in the regression analysis.
Step 3. Calculate a simple mean for each of the coefficients across
the 3 years of data using logarithms for the LIP and teaching status
adjustment coefficients (because they are continuous variables), but
not for the rural adjustment coefficient (because the rural variable is
either zero (if not rural) or 1 (if rural)). To compute the proposed

[[Page 24226]]

LIP and teaching status adjustment factors, we convert these factors
back out of the logarithmic form.
The proposed adjustment factors are subject to change for the final
rule if more recent data become available for use in these analyses.

B. Budget Neutrality Methodology for the Proposed Updates to the IRF
Facility-Level Adjustment Factors

Consistent with the way that we implemented changes to the IRF
facility-level adjustment factors (the rural, LIP, and teaching status
adjustment factors) in the FY 2006 and FY 2010 IRF PPS final rules (70
FR 47880, 70 FR 57166, and 74 FR 39762), we propose to make changes to
the rural, LIP, and teaching status adjustment factors for FY 2012 in
such a way that total estimated aggregate payments to IRFs for FY 2012
would be the same with or without the proposed changes (that is, in a
budget neutral manner) by applying budget neutrality factors for each
of these three changes to the standard payment amount. To calculate the
proposed budget neutrality factors used to update the rural, LIP, and
teaching status adjustment factors, we propose to use the following
steps:
Step 1. Using the most recent available data (currently FY 2010),
calculate the estimated total amount of IRF PPS payments that would be
made in FY 2012 (without applying the proposed changes to the rural,
LIP, or teaching status adjustment factors).
Step 2. Calculate the estimated total amount of IRF PPS payments
that would be made in FY 2012 if the proposed update to the rural
adjustment factor were applied.
Step 3. Divide the amount calculated in step 1 by the amount
calculated in step 2 to determine the proposed budget neutrality factor
(0.9998) that would maintain the same total estimated aggregate
payments in FY 2012 with and without the proposed change to the rural
adjustment factor.
Step 4. Calculate the estimated total amount of IRF PPS payments
that would be made in FY 2012 if the proposed update to the LIP
adjustment factor were applied.
Step 5. Divide the amount calculated in step 1 by the amount
calculated in step 4 to determine the proposed budget neutrality factor
(1.0327) that would maintain the same total estimated aggregate
payments in FY 2012 with and without the proposed change to the LIP
adjustment factor.
Step 6. Calculate the estimated total amount of IRF PPS payments
that would be made in FY 2012 if the proposed update to the teaching
status adjustment factor were applied.
Step 7. Divide the amount calculated in step 1 by the amount
calculated in step 6 to determine the proposed budget neutrality factor
(1.0024) that would maintain the same total estimated aggregate
payments in FY 2012 with and without the proposed change to the
teaching status adjustment factor.
Step 8. Apply the proposed budget neutrality factors for the
updates to the rural, LIP, and teaching status adjustment factors to
the FY 2011 IRF PPS standard payment amount after the application of
the proposed budget neutrality factors for the wage adjustment and the
CMG relative weights.
The proposed budget neutrality factors for the proposed changes to
the rural, LIP, and teaching status adjustment factors are subject to
change for the final rule if more recent data become available for use
in these analyses or if the proposed payment policies associated with
the proposed budget neutrality factors change.
In section V.C. of this proposed rule, we discuss the proposed
methodology for calculating the standard payment conversion factor for
FY 2012.

C. Proposed Policy for Temporary Cap Adjustments To Reflect Interns and
Residents Displaced Due to Closure of IRFs or IRF Residency Training
Programs

1. Background
In the FY 2006 IRF PPS final rule (70 FR 47880 at 47928 through
47932), we implemented regulations at Sec. 412.624(e)(4) to establish
a facility-level adjustment for IRFs that are, or are part of, teaching
hospitals. The teaching status adjustment accounts for the higher
indirect operating costs experienced by hospitals that participate in
graduate medical education (GME) programs. The payment adjustments are
made based on the number of FTE interns and residents training in the
IRF and the IRF's average daily census.
We established the IRF teaching status adjustment in a manner that
limited the incentives for IRFs to add FTE interns and residents for
the purpose of increasing their teaching status adjustment. We imposed
a cap on the number of FTE interns and residents that may be counted
for purposes of calculating the teaching status adjustment. The cap
limits the number of FTE interns and residents that teaching IRFs may
count for the purpose of calculating the IRF PPS teaching status
adjustment, not the number of interns and residents teaching
institutions can hire or train. We calculated the number of FTE interns
and residents that trained in the IRF during a ``base year'' and used
that FTE intern and resident number as the cap. An IRF's FTE intern and
resident cap is ultimately determined based on the final settlement of
the IRF's most recent cost reporting period ending on or before
November 15, 2004. A complete discussion of how the IRF teaching status
adjustment was calculated appears in the FY 2006 IRF PPS final rule (70
FR 47880, 47928 through 47932).
2. Proposed Temporary FTE Intern and Resident Cap Adjustment
Sometimes, interns and residents that are training in an IRF find
themselves unable to complete their training in the IRF, either because
the IRF closes or closes a residency training program (we refer to
these interns and residents as ``displaced''). Although we have not
heard of any instances where IRFs did not accept displaced interns and
residents because the additional interns and residents would put the
facility over the facility's FTE intern and resident cap, we believe
that it is important to maintain consistent policies with other
Medicare PPS systems, to the extent feasible. The IPPS indirect medical
education (IME) adjustment and the direct GME policies contain
provisions that allow for temporary adjustments to the IME/GME caps for
IPPS hospitals that train interns and residents that are displaced
because a hospital closes or closes a medical residency training
program. CMS has recently proposed to include a similar temporary cap
adjustment policy for the inpatient psychiatric facility (IPF) PPS
teaching status adjustment outlined in the rate year 2012 IPF PPS
proposed rule (76 FR 4998 at 5018 through 5020). Consistent with the
IPPS and the IPF PPS, in this proposed rule, we propose to permit a
temporary increase in the FTE intern and resident cap when an IRF
increases the number of FTE interns and residents it trains in order to
accept displaced interns and residents because another IRF closes or
closes a medical residency training program.
When an IRF temporarily takes on interns and residents that are
displaced because another IRF closes or closes a residency training
program, we believe that a temporary adjustment to the cap would be
appropriate. In these situations, interns and residents may have
partially completed a residency training program at the IRF that has
closed or closed a training program and may be unable to complete their
training

[[Page 24227]]

at another IRF that is already training interns and residents up to or
in excess of its FTE intern and resident cap. We believe that it is
appropriate to allow temporary adjustments to the FTE caps for an IRF
that provides residency training to medical interns and residents who
have partially completed a residency training program at an IRF that
closes or at an IRF that discontinues training interns and residents in
a residency training program(s). For this reason, we are proposing to
adopt the following temporary intern and resident cap adjustment
policies, similar to the temporary adjustments to the FTE cap used for
acute care hospitals and the proposed temporary adjustments to the FTE
caps for IPFs.
We are proposing that the cap adjustment would be temporary because
it is intern and resident specific and would only apply to the
displaced intern(s) or resident(s) until those intern(s) or resident(s)
have completed their training in the program in which they were
training at the time of the IRF closure or the closure of the program.
We propose that, as under the IPPS policy for displaced interns and
residents, the IRF PPS temporary cap adjustment would apply only to
interns and residents that were still training at the IRF at the time
the IRF closed or at the time the IRF ceased training interns and
residents in the residency training program(s). Interns and residents
who leave the IRF, for whatever reason, before the closure of the IRF
or the closure of the residency training program would not be
considered displaced interns and residents for purposes of the IRF
temporary cap adjustment policy. We are proposing to adopt the same
definition of ``closure of a hospital residency training program'' as
it is currently defined at Sec. 413.79(h)(1)(ii); that is, the
hospital ceases to offer training for residents in a particular
approved medical residency training program. Similarly, as under the
IPPS policy, we are proposing that medical students who are accepted
into a program at an IRF but the IRF or residency training program
closes before the individual begins training at that IRF are also not
considered displaced interns and residents for purposes of the IRF
temporary cap adjustments. We note that although we are proposing to
adopt a policy under the IRF PPS that is consistent with the policy
applicable under the IPPS, the actual caps under the two payment
systems are separate and distinct. This means, for example, if a
program closes at an IPPS hospital that has an IRF unit, but the
interns and residents from that closed program were not rotating into
the IRF unit when the program closed, then there would be no temporary
FTE cap adjustment under the IRF PPS, since the interns and residents
were not displaced from the IRF. However, if an IPPS hospital that has
an IRF unit closes a training program and interns and residents from
that program were rotating into the IRF unit when the program closed,
an IRF hospital or IRF unit may temporarily adjust their FTE intern and
resident cap if they train the displaced interns and residents, but
only for the portion of the training that has to be completed in the
IRF setting and only if all of the requirements specified in section
IV.C. of this proposed rule are met.
3. Proposed Temporary Adjustment to the FTE Cap To Reflect Interns and
Residents Displaced Due to an IRF Closure
We are proposing to allow an IRF to receive a temporary adjustment
to the FTE cap to reflect interns and residents added because of
another IRF's closure. The temporary cap adjustment is intended to
account for medical interns and residents who have partially completed
a medical residency training program at the IRF that has closed and may
be unable to complete their training at another IRF because that IRF is
already training interns and residents up to or in excess of its cap.
We are proposing this change because IRFs may be reluctant to accept
additional interns and residents from a closed IRF without a temporary
adjustment to their caps. For purposes of this policy, we are proposing
to adopt the IPPS definition of ``closure of a hospital'' in Sec.
413.79(h)(1)(i) to mean the IRF terminates its Medicare provider
agreement as specified in Sec. 489.52. Therefore, we are proposing to
allow a temporary adjustment to an IRF's FTE cap to reflect interns and
residents added because of an IRF's closure. The proposed policy would
be effective for cost reporting periods beginning on or after October
1, 2011, when an IRF trains an intern or resident from an IRF that
closed on or after October 1, 2011. We would allow an adjustment to an
IRF's FTE cap if the IRF meets the following criteria:
(a) The IRF is training displaced interns and residents from an IRF
that closed on or after October 1, 2011.
(b) The IRF that is training the displaced interns and residents
from the closed IRF submits a request for a temporary adjustment to its
FTE cap to its Medicare contractor no later than 60 days after the
hospital first begins training the displaced interns and residents, and
documents that the IRF is eligible for this temporary adjustment to its
FTE cap by identifying the interns and residents who have come from the
closed IRF and have caused the IRF to exceed its cap, (or the IRF may
already be over its cap), and specifies the length of time that the
adjustment is needed.
After the displaced interns and residents leave the IRF's training
program or complete their residency program, the IRF's cap would revert
to its original level. This means that the temporary adjustment to the
FTE cap would be available to the IRF only for the period of time
necessary for the displaced interns and residents to complete their
training. Further, as under the IPPS policy, we are also proposing that
the total amount of temporary cap adjustment that can be allotted to
all receiving IRFs cannot exceed the cap amount of the IRF that closed.
We also note that section 5506 of the Affordable Care Act,
``Preservation of Resident Cap Positions from Closed Hospitals,'' does
not apply to IRFs that closed. Section 5506 of the Affordable Care Act
only amends sections 1886(d) and (h) of the Act for direct GME and IPPS
IME payments. Therefore, the IME FTE cap redistributions under section
5506 of the Affordable Care Act only apply to ``subsection (d)'' IPPS
hospitals. Section 5506 of the Affordable Care Act has no applicability
to the teaching status adjustments under the IRF PPS (or the IPF PPS,
for that matter).
4. Proposed Temporary Adjustment to FTE Cap To Reflect Interns and
Residents Displaced Due to a Residency Program Closure
We are proposing that if an IRF ceases training interns and
residents in a residency training program(s) and agrees to temporarily
reduce its FTE cap, another IRF may receive a temporary adjustment to
its FTE cap to reflect the addition of the displaced interns and
residents. For purposes of this policy on closed residency programs, we
are proposing to adopt the IPPS definition of ``closure of a hospital
residency training program'' as specified in Sec. 413.79(h)(1)(ii)
which means that the hospital ceases to offer training for interns and
residents in a particular approved medical residency training program.
The methodology for adjusting the caps for the ``receiving IRF'' and
the ``IRF that closed its program'' is described below.
a. Receiving IRF
We are proposing that an IRF may receive a temporary adjustment to
its FTE cap to reflect interns and residents added because of the
closure of another

[[Page 24228]]

IRF's residency training program for cost reporting periods beginning
on or after October 1, 2011 if--
The IRF is training additional interns and residents from
the residency training program of an IRF that closed its program on or
after October 1, 2011; and
No later than 60 days after the IRF begins to train the
interns and residents, the IRF submits to its Medicare contractor a
request for a temporary adjustment to its FTE cap, documents that the
IRF is eligible for this temporary adjustment by identifying the
interns and residents who have come from another IRF's closed program
and have caused the IRF to exceed its cap (or the IRF may already be in
excess of its cap), specifies the length of time the adjustment is
needed, and, as explained in more detail below, submits to its Medicare
contractor a copy of the FTE cap reduction statement by the IRF closing
the residency training program.
In general, the proposed temporary adjustment criteria established
for closed medical residency training programs at IRFs is similar to
the criteria established for closed IRFs. We are proposing that more
than 1 IRF may be eligible to apply for the temporary adjustment
because interns and residents from one closed program may rotate to
different IRFs, or they may complete their training at more than one
IRF. Also, only to the extent to which an IRF would exceed its FTE cap
by training displaced interns and residents would it be eligible for
the temporary adjustment. Thus, for example, if the IRF has room below
its cap to take 1 additional displaced FTE intern or resident but
taking a second displaced FTE intern or resident would cause the IRF to
exceed its FTE intern and resident cap, then the IRF would potentially
qualify for a temporary cap adjustment for 1 FTE intern or resident,
not 2.
b. IRF That Closed Its Program(s)
We are proposing that an IRF that agrees to train interns and
residents who have been displaced by the closure of another IRF's
residency training program may receive a temporary FTE cap adjustment
only if the IRF that closed its program meets the following criteria--
Temporarily reduces its FTE cap by the number of FTE
interns and residents in each program year training and in the program
at the time of the program's closure. The yearly reduction would be
determined by deducting the number of those interns and residents who
would have been training in the program up to the IRF's cap during the
year of the closure, had the program not closed; and
No later than 60 days after the interns and residents who
were in the closed program begin training at another IRF, submits to
its Medicare contractor a statement signed and dated by its
representative that specifies that it agrees to the temporary reduction
in its FTE cap to allow the IRF training the displaced interns and
residents to obtain a temporary adjustment to its cap; identifies the
interns and residents who were training at the time of the program's
closure; identifies the IRFs to which the interns and residents are
transferring once the program closes; and specifies the reduction for
the applicable program years.
In addition, we propose under this closed program policy that in
order for the receiving IRF(s) to qualify for a temporary adjustment to
their FTE cap, the IRFs that are closing their programs would need to
reduce their FTE cap for the expected duration of time the displaced
interns and residents would need to finish their training. We are
proposing this because the IRF that closes the program still retains
the FTE slots in its cap, even if the IRF chooses not to fill the slots
with interns and residents. We believe that it is inappropriate to
allow an increase to the receiving IRF's cap without an attendant
decrease to the cap of the IRF with the closed program, because the IRF
that ceased training the interns and residents could fill these slots
with interns and residents from other programs even if the increase and
related decrease is only temporary.
We are proposing that the cap reduction for the IRF with the closed
program would be based on the number of FTE interns and residents in
each program year that were in the program at the IRF at the time of
the program's closure, and who begin training at another IRF.
In summary, we are proposing new IRF policies related to temporary
adjustments to FTE caps to reflect interns and residents added due to
closure of an IRF or closure of a residency training program. Finally,
we are proposing that the IRFs that meet the proposed criteria would be
eligible to receive temporary adjustments to their FTE caps for cost
reporting periods beginning on or after October 1, 2011.

V. Proposed FY 2012 IRF PPS Federal Prospective Payment Rates

A. Proposed Market Basket Increase Factor, Productivity Adjustment, and
Labor-Related Share for FY 2012

Section 1886(j)(3)(C) of the Act requires the Secretary to
establish an increase factor that reflects changes over time in the
prices of an appropriate mix of goods and services included in the
covered IRF services, which is referred to as a market basket index.
According to section 1886(j)(3)(A)(i) of the Act, the increase factor
shall be used to update the IRF Federal prospective payment rates for
each FY. Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the
Act require the application of a 0.1 percentage point reduction to the
market basket increase factor for FYs 2012 and 2013. In addition,
section 1886(j)(3)(C)(ii)(I) of the Act requires the application of a
productivity adjustment, as described below. Thus, in this proposed
rule, we are proposing to update the IRF PPS payments for FY 2012 by a
market basket increase factor based upon the most current data
available, with a productivity adjustment as required by section
1886(j)(3)(C)(ii)(I) of the Act as described below and a 0.1 percentage
point reduction as required by sections 1886(j)(3)(C)(ii)(II) and
1886(j)(3)(D)(ii) of the Act. Further, we are proposing to rebase the
RPL market basket from a 2002-based market basket to a 2008-based
market basket. We typically rebase the RPL market basket every 5 to 7
years to ensure that it continues to reflect the most accurate account
of the cost of relevant goods and services.
Thus, in this proposed rule, we propose to start with a rebased RPL
market basket (updated from a 2002 base year to a 2008 base year) and
then apply a productivity adjustment as required by section
1886(j)(3)(C)(ii)(I) of the Act and a 0.1 percentage point reduction as
required by sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the
Act. In section V.A.1 of this proposed rule, we describe the proposed
methodology for rebasing the RPL market basket from a 2002 base year to
a 2008 base year, and then in section V.A.2 of this proposed rule, we
describe the proposed methodology for calculating the productivity
adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act.
Finally, in section V.A.3 of this proposed rule, we describe the
proposed calculation of the market basket increase factor to be used to
adjust IRF PPS payments for FY 2012.

[[Page 24229]]

1. Proposed Rebasing of the RPL Market Basket for FY 2012
a. Background
The input price index (that is, the market basket) that was used to
develop the IRF PPS was the Excluded Hospital with Capital market
basket. This market basket was based on 1997 Medicare cost report data
and included data for Medicare participating IRFs, IPFs, LTCHs, cancer
hospitals, and children's hospitals. Although ``market basket''
technically describes the mix of goods and services used in providing
hospital care, this term is also commonly used to denote the input
price index (that is, cost category weights and price proxies combined)
derived from that market basket. Accordingly, the term ``market
basket'', as used in this document, refers to an input price index.
Beginning with the FY 2006 IRF PPS final rule (70 FR 47908), IRF
PPS payments were updated using a FY 2002-based RPL market basket
reflecting the operating and capital cost structures for freestanding
IRFs, freestanding IPFs, and LTCHs.
We excluded cancer and children's hospitals from the RPL market
basket because their payments are based entirely on reasonable costs
subject to rate-of-increase limits established under the authority of
section 1886(b) of the Act, which is implemented at Sec. 413.40.
Cancer and children's hospitals are not reimbursed through a PPS. Also,
the FY 2002 cost structures for cancer and children's hospitals are
noticeably different than the cost structures of freestanding IRFs,
freestanding IPFs, and LTCHs. See the FY 2006 IRF PPS final rule (70 FR
47908) for a complete discussion of the FY 2002-based RPL market
basket.
In the FY 2010 IRF proposed rule (74 FR 21062), we expressed our
interest in exploring the possibility of creating a stand-alone IRF
market basket that reflects the cost structures of only IRF providers.
We noted that, of the available options, one is to combine the Medicare
cost report data from freestanding IRF providers (presently
incorporated into the FY 2002-based RPL market basket) with data from
hospital-based IRF providers. We indicated that an examination of the
Medicare cost report data comparing freestanding and hospital-based
IRFs revealed considerable differences between the two with respect to
cost levels and cost structures. At that time, we were unable to fully
understand the differences between these two types of IRF providers. As
a result, we believed that further research was required and we
solicited public comment for additional information that might help us
to better understand the reasons for the variations in costs and cost
structures, as indicated by the cost report data, between freestanding
and hospital-based IRFs (74 FR 21062).
We summarized the public comments we received and our responses in
the FY 2010 IRF PPS final rule (74 FR 39762, 39776 through 39777).
Despite receiving comments from the public on this issue, we remain
unable to sufficiently understand the observed differences in costs and
cost structures between hospital-based and freestanding IRFs, and
therefore we do not believe it is appropriate at this time to
incorporate data from hospital-based IRFs with those of freestanding
IRFs to create a stand-alone IRF market basket.
Although we do not believe it would be appropriate to propose a
stand-alone IRF market basket, we are currently exploring the viability
of creating two separate market baskets from the current RPL, one of
which would include freestanding IRFs and freestanding IPFs and would
be used to update payments under both the IPF and IRF payment systems.
The other would be a stand-alone LTCH market basket. Depending on the
outcome of our research, we anticipate the possibility of proposing a
rehabilitation and psychiatric (RP) market basket in the next update
cycle. We welcome public comment on the possibility of using this type
of market basket to update IRF payments in the future.
For this update cycle, we are proposing to rebase and revise the FY
2002-based RPL market basket by creating a proposed FY 2008-based RPL
market basket. In the following discussion, we provide an overview of
the market basket and describe the methodologies we propose to use for
purposes of determining the operating and capital portions of the
proposed FY 2008-based RPL market basket.
b. Overview of the Proposed FY 2008-Based RPL Market Basket
The proposed FY 2008-based RPL market basket is a fixed-weight,
Laspeyres-type price index. A Laspeyres price index measures the change
in price, over time, of the same mix of goods and services purchased in
the base period. Any changes in the quantity or mix of goods and
services (that is, intensity) purchased over time relative to a base
period are not measured.
The index itself is constructed in three steps. First, a base
period is selected (in this proposed rule, the base period is FY 2008)
and total base period expenditures are estimated for a set of mutually
exclusive and exhaustive spending categories with the proportion of
total costs that each category represents being calculated. These
proportions are called cost or expenditure weights. Second, each
expenditure category is matched to an appropriate price or wage
variable, referred to as a price proxy. In nearly every instance, these
price proxies are derived from publicly available statistical series
that are published on a consistent schedule (preferably at least on a
quarterly basis). Finally, the expenditure weight for each cost
category is multiplied by the level of its respective price proxy. The
sum of these products (that is, the expenditure weights multiplied by
their price levels) for all cost categories yields the composite index
level of the market basket in a given period. Repeating this step for
other periods produces a series of market basket levels over time.
Dividing an index level for a given period by an index level for an
earlier period produces a rate of growth in the input price index over
that timeframe.
As noted above, the market basket is described as a fixed-weight
index because it represents the change in price over time of a constant
mix (quantity and intensity) of goods and services needed to furnish
hospital services. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, a hospital hiring more
nurses to accommodate the needs of patients would increase the volume
of goods and services purchased by the hospital, but would not be
factored into the price change measured by a fixed-weight hospital
market basket. Only when the index is rebased would changes in the
quantity and intensity be captured, with those changes being reflected
in the cost weights. Therefore, we rebase the market basket
periodically so the cost weights reflect recent changes in the mix of
goods and services that hospitals purchase (hospital inputs) to furnish
inpatient care between base periods.
c. Proposed Rebasing and Revising of the RPL Market Basket
We are inviting public comments on our proposed methodological
changes to the RPL market basket. The terms ``rebasing'' and
``revising,'' while often used interchangeably, actually denote
different activities. ``Rebasing'' means moving the base year for the
structure of costs of an input price index (for example, in this
proposed rule, we are proposing to shift the base year cost structure
for the RPL market basket from FY 2002 to FY 2008). ``Revising'' means

[[Page 24230]]

changing data sources, price proxies, or methods, used to derive the
input price index. For FY 2012, we are proposing to rebase and revise
the market basket used to update the IRF PPS.
(1) Development of Cost Categories and Weights
(a) Medicare Cost Reports
The proposed FY 2008-based RPL market basket consists of several
major cost categories derived from the FY 2008 Medicare cost reports
for freestanding IRFs, freestanding IPFs, and LTCHs including wages and
salaries, pharmaceuticals, professional liability insurance (PLI),
capital, and a residual. This residual reflects all remaining costs
that are not captured in the four cost categories listed above. The FY
2008 cost reports include providers whose cost report begin date is on
or between October 1, 2007, and September 30, 2008. We choose to use FY
2008 as the base year because we believe that the Medicare cost reports
for this year represent the most recent, complete set of Medicare cost
report data available for IRFs, IPFs, and LTCHs. However, there is an
issue with obtaining data specifically for benefits and contract labor
from this set of FY 2008 Medicare cost reports since IRFs, IPFs, and
LTCHs were not required to complete the Medicare cost report worksheet
from which these data were collected (Worksheet S-3, part II). As a
result, only a small number of providers (less than 30 percent)
reported data for these categories, and we do not expect these data to
improve over time. Furthermore, since IRFs, IPFs, and LTCHs were not
required to submit data for Worksheet S-3, part II in previous cost
reporting years, we have always had this issue of incomplete Medicare
cost report data for benefits and contract labor (including when we
finalized the FY 2002-based RPL market basket). Due to the incomplete
benefits and contract labor data for IRFs, IPFs, and LTCHs, we propose
to develop these cost weights using FY 2008 Medicare cost report data
for IPPS hospitals (similar to the method that was used for the FY
2002-based RPL market basket). Additional detail is provided later in
this section.
Since our goal is to measure cost shares that are reflective of
case mix and practice patterns associated with providing services to
Medicare beneficiaries, we are proposing to limit our selection of
Medicare cost reports to those from hospitals that have a Medicare
average length of stay (LOS) that is within a comparable range of their
total facility average LOS. We believe this provides a more accurate
reflection of the structure of costs for Medicare covered days. We
propose to use the cost reports of IRFs and LTCHs with Medicare average
LOS within 15 percent (that is, 15 percent higher or lower) of the
total facility average LOS for the hospital. This is the same edit
applied to derive the FY 2002-based RPL market basket and generally
includes those LTCHs and IRFs with Medicare LOS within approximately 5
days of the facility average LOS of the hospital.
We are proposing to use a less stringent measure of Medicare LOS
for IPFs. For this provider-type, and in order to produce a robust
sample size, we propose to use those facilities' Medicare cost reports
whose average LOS is within 30 or 50 percent (depending on the total
facility average LOS) of the total facility average LOS. This is the
same edit applied to derive the FY 2002-based RPL market basket.
We applied these LOS edits to first obtain a set of cost reports
for facilities that have a Medicare LOS within a comparable range of
their total facility LOS. Using this set of Medicare cost reports, we
then calculated cost weights for four cost categories and a residual as
represented by all other costs directly from the FY 2008 Medicare cost
reports for freestanding IRFs, freestanding IPFs, and LTCHs (see Table
3 for these four cost categories and their associated weights). These
Medicare cost report cost weights were then supplemented with
information obtained from other data sources (explained in more detail
below) to derive the proposed FY 2008-based RPL market basket cost
weights.
[GRAPHIC] [TIFF OMITTED] TP29AP11.009

(b) Other Data Sources
In addition to the IRF, IPF and LTCH Medicare cost reports for
freestanding IRFs and freestanding IPFs, and LTCHs, the other data
sources we used to develop the proposed FY 2008-based RPL market basket
cost weights were the FY 2008 IPPS Medicare cost reports and the
Benchmark Input-Output (I-O) Tables created by the Bureau of Economic
Analysis (BEA), U.S. Department of Commerce. The FY 2008 Medicare cost
reports include providers whose cost report begin date is on or between
October 1, 2007 and September 30, 2008.
As noted above, the proposed FY 2008-based RPL cost weights for
benefits and contract labor were derived using FY 2008-based IPPS
Medicare cost reports. We used these Medicare cost reports to calculate
cost weights for Wages and Salaries, Benefits, and Contract Labor for
IPPS hospitals for FY 2008. For the proposed Benefits cost weight for
the FY 2008-based RPL market basket, the ratio of the FY 2008 IPPS
Benefits cost weight to the FY 2008 IPPS Wages and Salaries cost weight
was applied to the RPL Wages and Salaries cost weight. Similarly, the
ratio of the FY 2008 IPPS Contract Labor cost weight to the FY 2008
IPPS Wages and Salaries cost weight was applied to the RPL Wages and
Salaries cost weight to derive a Contract Labor cost weight for the
proposed FY 2008-based RPL market basket.

[[Page 24231]]

The All Other cost category is divided into other hospital
expenditure category shares using the 2002 BEA Benchmark I-O data
following the removal of the portions of the All Other cost category
provided in Table 3 that are attributable to Benefits and Contract
Labor. The BEA Benchmark I-O data are scheduled for publication every 5
years. The most recent data available are for 2002. BEA also produces
Annual I-O estimates; however, the 2002 Benchmark I-O data represent a
much more comprehensive and complete set of data that are derived from
the 2002 Economic Census. The Annual I-O is simply an update of the
Benchmark I-O tables. For the FY 2002-based RPL market basket, we used
the 1997 Benchmark I-O data. We are proposing to use the 2002 Benchmark
I-O data in the FY 2008-based RPL market basket. Instead of using the
less detailed Annual I-O data, we inflated the 2002 Benchmark I-O data
forward to 2008. The methodology we used to inflate the data forward
involves applying the annual price changes from the respective price
proxies to the appropriate cost categories. We repeat this practice for
each year.
The ``All Other'' cost category expenditure shares are determined
as being equal to each category's proportion to total ``all other''
based on the inflated 2002 Benchmark I-O data. For instance, if the
cost for telephone services represented 10 percent of the sum of the
``all other'' Benchmark I-O hospital expenditures, then telephone
services would represent 10 percent of the RPL market basket's All
Other cost category.
(2) Final Cost Category Computation
As stated previously, for this rebasing we are proposing to use the
Medicare cost reports for IRFs, IPFs, and LTCHs to derive four major
cost categories. The proposed FY 2008-based RPL market basket includes
two additional cost categories that were not broken out separately in
the FY 2002-based RPL market basket: ``Administrative and Business
Support Services'' and ``Financial Services''. The inclusion of these
two additional cost categories, which are derived using the Benchmark
I-O data, is consistent with the addition of these two cost categories
to the FY 2006-based IPPS market basket (74 FR 43845). We are proposing
to break out both categories so we can better match their respective
expenses with more appropriate price proxies. A thorough discussion of
our rationale for each of these cost categories is provided in the
section V.A.1.c.(3) of this proposed rule. Also, the proposed FY 2008-
based RPL market basket excludes 1 cost category: Photo Supplies. The
2002 Benchmark I-O weight for this category is considerably smaller
than the 1997 Benchmark I-O weight, presently accounting for less than
one-tenth of one percentage point of the RPL market basket. Therefore,
we are proposing to include the photo supplies costs in the Chemical
cost category weight with other similar chemical products.
We are not proposing to change our definition of the labor-related
share. However, we are proposing to rename our aggregate cost
categories from ``labor-intensive'' and ``nonlabor-intensive'' services
to ``labor-related'' and ``nonlabor-related'' services. This is
consistent with the FY 2006-based IPPS market basket (74 FR 43845). As
discussed in more detail below and similar to the FY 2002-based RPL
market basket, we classify a cost category as labor-related and include
it in the labor-related share if the cost category is defined as being
labor-intensive and its cost varies with the local labor market. In
previous regulations, we grouped cost categories that met both of these
criteria into labor-intensive services. We believe the proposed new
labels more accurately reflect the concepts that they are intended to
convey. We are not proposing to change our definition of the labor-
related share because we continue to classify a cost category as labor-
related if the costs are labor-intensive and vary with the local labor
market.
(3) Selection of Price Proxies
After computing the FY 2008 cost weights for the proposed rebased
RPL market basket, it was necessary to select appropriate wage and
price proxies to reflect the rate of price change for each expenditure
category. With the exception of the proxy for PLI, all of the proxies
for the operating portion of the proposed FY 2008-based RPL market
basket are based on Bureau of Labor Statistics (BLS) data and are
grouped into one of the following BLS categories:
(a) Producer Price Indexes--Producer Price Indexes (PPIs) measure
price changes for goods sold in markets other than the retail market.
PPIs are preferable price proxies for goods and services that hospitals
purchase as inputs because these PPIs better reflect the actual price
changes faced by hospitals. For example, we use a special PPI for
prescription drugs, rather than the Consumer Price Index (CPI) for
prescription drugs, because hospitals generally purchase drugs directly
from a wholesaler. The PPIs that we use measure price changes at the
final stage of production.
(b) Consumer Price Indexes--CPIs measure change in the prices of
final goods and services bought by the typical consumer. Because they
may not represent the price faced by a producer, we used CPIs only if
an appropriate PPI was not available, or if the expenditures were more
similar to those faced by retail consumers in general rather than by
purchasers of goods at the wholesale level. For example, the CPI for
food purchased away from home is used as a proxy for contracted food
services.
(c) Employment Cost Indexes--Employment Cost Indexes (ECIs) measure
the rate of change in employee wage rates and employer costs for
employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. Appropriately, these indexes are not affected by
shifts in employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
preferably at least once a quarter. Availability means that the proxy
is publicly available. Finally, relevance means that the proxy is
applicable and representative of the cost category weight to which it
is applied. The proposed CPIs, PPIs, and ECIs selected meet these
criteria.
Table 4 sets forth the proposed FY 2008-based RPL market basket
including cost categories, and their respective weights and price
proxies. For comparison purposes, the corresponding FY 2002-based RPL
market basket cost weights are listed, as well. For example, Wages and
Salaries are 49.447 percent of total costs in the proposed FY 2008-
based RPL market basket compared to 52.895 percent for the FY 2002-
based RPL market basket. Employee Benefits are 12.831 percent in the
proposed FY 2008-based RPL market basket compared to 12.982 percent for
the FY 2002-based RPL market basket. As a result, compensation costs
(Wages and Salaries plus Employee Benefits) for the proposed FY 2008-
based RPL market basket are 62.278 percent of total costs compared to
65.877 percent for the FY 2002-based RPL market basket.
Following Table 4 is a summary outlining the choice of the proxies
we propose to use for the operating portion of the FY 2008-based RPL
market basket. The price proxies proposed for the capital portion are
described in more detail in the capital methodology section (see
section V.A.1.c.(4) of this proposed rule).

[[Page 24232]]

We note that the proxies for the operating portion of the FY 2008-
based RPL market basket are the same as those used for the FY 2006-
based IPPS operating market basket. Because these proxies meet our
criteria of reliability, timeliness, availability, and relevance, we
believe they are the best measures of price changes for the cost
categories. For further discussion on the FY 2006-based IPPS market
basket, see the IPPS final rule published in the August 27, 2009
Federal Register (74 FR 43843).

[[Page 24233]]

[GRAPHIC] [TIFF OMITTED] TP29AP11.010

[[Page 24234]]

[GRAPHIC] [TIFF OMITTED] TP29AP11.011

(i) Wages and Salaries
We are proposing to use the ECI for Wages and Salaries for Hospital
Workers (All Civilian) (BLS series code CIU1026220000000I) to measure
the price growth of this cost category. This same proxy was used in the
FY 2002-based RPL market basket.
(ii) Employee Benefits
We are proposing to use the ECI for Employee Benefits for Hospital
Workers (All Civilian) to measure the price growth of this cost
category. This same proxy was used in the FY 2002-based RPL market
basket.
(iii) Electricity
We are proposing to use the PPI for Commercial Electric Power (BLS
series code WPU0542). This same proxy was used in the FY 2002-based RPL
market basket.
(iv) Fuel, Oil, and Gasoline
For the FY 2002-based RPL market basket, this category only
included expenses classified under North American Industry
Classification System (NAICS) 21 (Mining). We proxied this category
using the PPI for Commercial Natural Gas (BLS series code WPU0552). For
the proposed FY 2008-based market basket, we are proposing to add costs
to this category that had previously been grouped in other categories.
The added costs include petroleum-related expenses under NAICS 324110
(previously captured in the miscellaneous category), as well as
petrochemical manufacturing classified under NAICS 325110 (previously
captured in the chemicals category). These added costs represent 80
percent of the hospital industry's fuel, oil, and gasoline expenses (or
80 percent of this category). Because the majority of the industry's
fuel, oil, and gasoline expenses originate from petroleum refineries
(NAICS 324110), we are proposing to use the PPI for Petroleum
Refineries (BLS series code PCU324110324110) as the proxy for this cost
category.
(v) Water and Sewage
We are proposing to use the CPI for Water and Sewerage Maintenance
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the
price growth of this cost category. This same proxy was used in the FY
2002-based RPL market basket.
(vi) Professional Liability Insurance
We are proposing to proxy price changes in hospital PLI premiums
using percentage changes as estimated by the CMS Hospital Professional
Liability Index. To generate these estimates, we collect commercial
insurance premiums for a fixed level of coverage while holding non-
price factors constant (such as a change in the level of coverage).
This method is also used to proxy PLI price changes in the Medicare
Economic Index (75 FR 73268). This same proxy was used in the FY 2002-
based RPL market basket.
(vii) Pharmaceuticals
We are proposing to use the PPI for Pharmaceuticals for Human Use,
Prescription (BLS series code WPUSI07003) to measure the price growth
of this cost category. We note that we are not making a change to the
PPI that is used to proxy this cost category. There was a recent change
to the BLS naming convention for this

[[Page 24235]]

series; however, this is the same proxy that was used in the FY 2002-
based RPL market basket.
(viii) Food: Direct Purchases
We are proposing to use the PPI for Processed Foods and Feeds (BLS
series code WPU02) to measure the price growth of this cost category.
This same proxy was used in the FY 2002-based RPL market basket.
(ix) Food: Contract Services
We are proposing to use the CPI for Food Away From Home (All Urban
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth
of this cost category. This same proxy was used in the FY 2002-based
RPL market basket.
(x) Chemicals
We are proposing to use a blended PPI composed of the PPI for
Industrial Gas Manufacturing (NAICS 325120) (BLS series code
PCU325120325120P), the PPI for Other Basic Inorganic Chemical
Manufacturing (NAICS 325180) (BLS series code PCU32518-32518-), the PPI
for Other Basic Organic Chemical Manufacturing (NAICS 325190) (BLS
series code PCU32519-32519-), and the PPI for Soap and Cleaning
Compound Manufacturing (NAICS 325610) (BLS series code PCU32561-32561-
). Using the 2002 Benchmark I-O data, we found that these NAICS
industries accounted for approximately 90 percent of the hospital
industry's chemical expenses.
Therefore, we are proposing to use this blended index because we
believe its composition better reflects the composition of the
purchasing patterns of hospitals than does the PPI for Industrial
Chemicals (BLS series code WPU061), the proxy used in the FY 2002-based
RPL market basket. Table 5 below shows the weights for each of the four
PPIs used to create the blended PPI, which we determined using the 2002
Benchmark I-O data.
[GRAPHIC] [TIFF OMITTED] TP29AP11.012

(xi) Medical Instruments
We are proposing to use the PPI for Medical, Surgical, and Personal
Aid Devices (BLS series code WPU156) to measure the price growth of
this cost category. In the 1997 Benchmark I-O data, approximately half
of the expenses classified in this category were for surgical and
medical instruments. Therefore, we used the PPI for Surgical and
Medical Instruments and Equipment (BLS series code WPU1562) to proxy
this category in the FY 2002-based RPL market basket. The 2002
Benchmark I-O data show that surgical and medical instruments now
represent only 33 percent of these expenses and that the largest
expense category is surgical appliance and supplies manufacturing
(corresponding to BLS series code WPU1563). Due to this reallocation of
costs over time, we are proposing to change the price proxy for this
cost category to the more aggregated PPI for Medical, Surgical, and
Personal Aid Devices.
(xii) Photographic Supplies
We are proposing to eliminate the cost category specific to
photographic supplies for the proposed FY 2008 based RPL market basket.
These costs would now be included in the Chemicals cost category
because the costs are presently reported as all other chemical
products. Notably, although we would be eliminating the specific cost
category, these costs would still be accounted for within the RPL
market basket.
(xiii) Rubber and Plastics
We are proposing to use the PPI for Rubber and Plastic Products
(BLS series code WPU07) to measure price growth of this cost category.
This same proxy was used in the FY 2002-based RPL market basket.
(xiv) Paper and Printing Products
We are proposing to use the PPI for Converted Paper and Paperboard
Products (BLS series code WPU0915) to measure the price growth of this
cost category. This same proxy was used in the FY 2002-based RPL market
basket.
(xv) Apparel
We are proposing to use the PPI for Apparel (BLS series code
WPU0381) to measure the price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
(xvi) Machinery and Equipment
We are proposing to use the PPI for Machinery and Equipment (BLS
series code WPU11) to measure the price growth of this cost category.
This same proxy was used in the FY 2002-based RPL market basket.
(xvii) Miscellaneous Products
We are proposing to use the PPI for Finished Goods Less Food and
Energy (BLS series code WPUSOP3500) to measure the price growth of this
cost category. Using this index would remove the double-counting of
food and energy prices, which would already be captured elsewhere in
the market basket. This same proxy was used in the FY 2002-based RPL
market basket.
(xviii) Professional Fees: Labor-Related
We are proposing to use the ECI for Compensation for Professional
and Related Occupations (Private Industry) (BLS series code
CIS2020000120000I) to measure the price growth of this category. It
includes occupations such as legal, accounting, and engineering
services. This same proxy was used in the FY 2002-based RPL market
basket.
(xix) Administrative and Business Support Services
We are proposing to use the ECI for Compensation for Office and
Administrative Support Services (Private Industry) (BLS series code
CIU2010000220000I) to measure the price growth of this category.
Previously these costs were included in the All Other: Labor-intensive
category (now renamed the All Other: Labor-related Services category),
and were proxied by the ECI for Compensation for Service

[[Page 24236]]

Occupations. We believe that this compensation index better reflects
the changing price of labor associated with the provision of
administrative services and its incorporation represents a technical
improvement to the market basket.
(xx) All Other: Labor-Related Services
We are proposing to use the ECI for Compensation for Service
Occupations (Private Industry) (BLS series code CIU2010000300000I) to
measure the price growth of this cost category. This same proxy was
used in the FY 2002-based RPL market basket.
(xxi) Professional Fees: Nonlabor-Related
We are proposing to use the ECI for Compensation for Professional
and Related Occupations (Private Industry) (BLS series code
CIS2020000120000I) to measure the price growth of this category. This
is the same price proxy that we are proposing to use for the
Professional Fees: Labor-related cost category.
(xxii) Financial Services
We are proposing to use the ECI for Compensation for Financial
Activities (Private Industry) (BLS series code CIU201520A000000I) to
measure the price growth of this cost category. Previously these costs
were included in the All Other: Nonlabor-intensive category (now
renamed the All Other: Nonlabor-related Services category), and were
proxied by the CPI for All Items. We believe that this compensation
index better reflects the changing price of labor associated with the
provision of financial services and its incorporation represents a
technical improvement to the market basket.
(xxiii) Telephone Services
We are proposing to use the CPI for Telephone Services (BLS series
code CUUR0000SEED) to measure the price growth of this cost category.
This same proxy was used in the FY 2002-based RPL market basket.
(xxiv) Postage
We are proposing to use the CPI for Postage (BLS series code
CUUR0000SEEC01) to measure the price growth of this cost category. This
same proxy was used in the FY 2002-based RPL market basket.
(xxv) All Other: Nonlabor-Related Services
We are proposing to use the CPI for All Items Less Food and Energy
(BLS series code CUUR0000SA0L1E) to measure the price growth of this
cost category. Previously these costs were proxied by the CPI for All
Items in the FY 2002-based RPL market basket. We believe that using the
CPI for All Items Less Food and Energy would remove the double counting
of changes in food and energy prices, as they are already captured
elsewhere in the market basket. Consequently, we believe that the
incorporation of this proxy would represent a technical improvement to
the market basket.
(4) Proposed Methodology for Capital Portion of the RPL Market Basket
In the FY 2002-based RPL market basket, we did not have
freestanding IRF, freestanding IPF, and LTCH 2002 Medicare cost report
data for the capital cost weights, due to a change in the 2002
reporting requirements. Therefore, we used these hospitals' 2001
expenditure data for the capital cost categories of depreciation,
interest, and other capital expenses, and inflated the data to a 2002
base year using relevant price proxies.
For the proposed FY 2008-based RPL market basket, we are proposing
to calculate weights for the proposed RPL market basket capital costs
using the same set of FY 2008 Medicare cost reports used to develop the
operating share for IRFs, IPFs, and LTCHs. To calculate the proposed
total capital cost weight, we first apply the same LOS edits as applied
when calculating the operating cost weights as described above in
section V.A.1.c.(1)(a) of this proposed rule. The resulting proposed
capital weight for the FY 2008 base year is 8.392 percent.
Lease expenses are unique in that they are not broken out as a
separate cost category in the RPL market basket, but rather are
proportionally distributed amongst the cost categories of Depreciation,
Interest, and Other, reflecting the assumption that the underlying cost
structure of leases is similar to that of capital costs in general. As
was done in the FY 2002-based RPL market basket, we first assumed 10
percent of lease expenses represents overhead and assigned those costs
to the ``Other Capital-Related Costs'' category accordingly. The
remaining lease expenses were distributed across the three cost
categories based on the respective weights of depreciation, interest,
and other capital not including lease expenses.
Depreciation contains two subcategories: (1) Building and Fixed
Equipment; and (2) Movable Equipment. The apportionment between
building and fixed equipment and movable equipment was determined using
the FY 2008 Medicare cost reports for freestanding IRFs, freestanding
IPFs, and LTCHs. This methodology was also used to compute the
apportionment used in the FY 2002-based RPL market basket (70 FR
47912).
The total Interest expense cost category is split between
government/nonprofit interest and for-profit interest. The FY 2002-
based RPL market basket allocated 75 percent of the total Interest cost
weight to government/nonprofit interest and proxied that category by
the average yield on domestic municipal bonds. The remaining 25 percent
of the Interest cost weight was allocated to for-profit interest and
was proxied by the average yield on Moody's Aaa bonds (70 FR 47912).
This was based on the FY 2002-based IPPS Capital input price index
(CIPI) (70 FR 23406) due to insufficient Medicare cost report data for
freestanding IRFs, freestanding IPFs, and LTCHs. For the proposed FY
2008-based RPL market basket, we are proposing to derive the split
using the FY 2008 Medicare cost report data on interest expenses for
government/nonprofit and for-profit freestanding IRFs, freestanding
IPFs, and LTCHs. Based on these data, we calculated a proposed 33/67
split between government/nonprofit and for-profit interest. We believe
it is important that this split reflects the latest relative cost
structure of interest expenses for RPL providers. As stated above, we
first apply the LOS edits (as described in section V.A.1.c.(1)(a) of
this proposed rule) prior to calculating this split. Therefore, we are
using cost reports that are reflective of case mix and practice
patterns associated with providing services to Medicare beneficiaries.
Using data specific to government/nonprofit and for-profit freestanding
IRFs, freestanding IPFs, and LTCHs as well as the application of these
LOS edits are the primary reasons for the difference in this split
relative to the FY 2002-based RPL market basket.
Because capital is acquired and paid for over time, capital
expenses in any given year are determined by both past and present
purchases of physical and financial capital. The vintage-weighted
capital portion of the FY 2008-based RPL market basket is intended to
capture the long-term consumption of capital, using vintage weights for
depreciation (physical capital) and interest (financial capital). These
vintage weights reflect the proportion of capital purchases
attributable to each year of the expected life of building and fixed
equipment, movable equipment, and interest. We are proposing to use the
vintage weights to compute vintage-weighted price changes associated
with depreciation and interest expense.

[[Page 24237]]

Vintage weights are an integral part of the proposed FY 2008-based
RPL market basket. Capital costs are inherently complicated and are
determined by complex capital purchasing decisions, over time, based on
such factors as interest rates and debt financing. In addition, capital
is depreciated over time instead of being consumed in the same period
it is purchased. The capital portion of the proposed FY 2008-based RPL
market basket would reflect the annual price changes associated with
capital costs, and would be a useful simplification of the actual
capital investment process. By accounting for the vintage nature of
capital, we are able to provide an accurate and stable annual measure
of price changes. Annual nonvintage price changes for capital are
unstable due to the volatility of interest rate changes and, therefore,
do not reflect the actual annual price changes for Medicare capital-
related costs. The capital component of the proposed FY 2008-based RPL
market basket would reflect the underlying stability of the capital
acquisition process and provides hospitals with the ability to plan for
changes in capital payments.
To calculate the vintage weights for depreciation and interest
expenses, we needed a time series of capital purchases for building and
fixed equipment and movable equipment. We found no single source that
provides an appropriate time series of capital purchases by hospitals
for all of the above components of capital purchases. The early
Medicare cost reports did not have sufficient capital data to meet this
need. Data we obtained from the American Hospital Association (AHA) do
not include annual capital purchases. However, AHA does provide a
consistent database back to 1963. We used data from the AHA Panel
Survey and the AHA Annual Survey to obtain a time series of total
expenses for hospitals. We then used data from the AHA Panel Survey
supplemented with the ratio of depreciation to total hospital expenses
obtained from the Medicare cost reports to derive a trend of annual
depreciation expenses for 1963 through 2008.
To estimate capital purchases using data on depreciation expenses,
the expected life for each cost category (building and fixed equipment,
movable equipment, and interest) is needed to calculate vintage
weights. For the FY 2002-based RPL market basket, due to insufficient
Medicare cost report data for freestanding IRFs, freestanding IPFs, and
LTCHs, we used 2001 Medicare Cost Reports for IPPS hospitals to
determine the expected life of building and fixed equipment and movable
equipment (70 FR 47913). The FY 2002-based RPL market basket was based
on an expected life of building and fixed equipment of 23 years. It
used 11 years as the expected life for movable equipment. We believed
that this data source reflected the latest relative cost structure of
depreciation expenses for hospitals at the time and was analogous to
freestanding IRFs, freestanding IPFs, and LTCHs.
The expected life of any piece of equipment can be determined by
dividing the value of the asset (excluding fully depreciated assets) by
its current year depreciation amount. This calculation yields the
estimated useful life of an asset if depreciation were to continue at
current year levels, assuming straight-line depreciation. Following a
similar method to what was applied for the FY 2002-based RPL market
basket, we are proposing to use the expected life of building and fixed
equipment to be equal to 26 years, and the expected life of movable
equipment to be 11 years. These expected lives are calculated using FY
2008 Medicare cost reports for IPPS hospitals since we are currently
unable to obtain robust measures of the expected lives for building and
fixed equipment and movable equipment using the Medicare cost reports
from freestanding IRFs, freestanding IPFs, and LTCHs.
We also propose to use the building and fixed equipment and movable
equipment weights derived from FY 2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs, and LTCHs to separate the
depreciation expenses into annual amounts of building and fixed
equipment depreciation and movable equipment depreciation. Year-end
asset costs for building and fixed equipment and movable equipment were
determined by multiplying the annual depreciation amounts by the
expected life calculations. We then calculated a time series, back to
1963, of annual capital purchases by subtracting the previous year
asset costs from the current year asset costs. From this capital
purchase time series, we were able to calculate the vintage weights for
building and fixed equipment and for movable equipment. Each of these
sets of vintage weights is explained in more detail below.
For the proposed building and fixed equipment vintage weights, we
used the real annual capital purchase amounts for building and fixed
equipment to capture the actual amount of the physical acquisition, net
of the effect of price inflation. This real annual purchase amount for
building and fixed equipment was produced by deflating the nominal
annual purchase amount by the building and fixed equipment price proxy,
BEA's chained price index for nonresidential construction for hospitals
and special care facilities. Because building and fixed equipment have
an expected life of 26 years, the vintage weights for building and
fixed equipment are deemed to represent the average purchase pattern of
building and fixed equipment over 26-year periods. With real building
and fixed equipment purchase estimates available from 2008 back to
1963, we averaged twenty 26-year periods to determine the average
vintage weights for building and fixed equipment that are
representative of average building and fixed equipment purchase
patterns over time. Vintage weights for each 26-year period are
calculated by dividing the real building and fixed capital purchase
amount in any given year by the total amount of purchases in the 26-
year period. This calculation is done for each year in the 26-year
period, and for each of the twenty 26-year periods. We used the average
of each year across the twenty 26-year periods to determine the average
building and fixed equipment vintage weights for the FY 2008-based RPL
market basket.
For the proposed movable equipment vintage weights, the real annual
capital purchase amounts for movable equipment were used to capture the
actual amount of the physical acquisition, net of price inflation. This
real annual purchase amount for movable equipment was calculated by
deflating the nominal annual purchase amounts by the movable equipment
price proxy, the PPI for Machinery and Equipment. This is the same
proxy used for the FY 2002-based RPL market basket. Based on our
determination that movable equipment has an expected life of 11 years,
the vintage weights for movable equipment represent the average
expenditure for movable equipment over an 11-year period. With real
movable equipment purchase estimates available from 2008 back to 1963,
thirty-five 11-year periods were averaged to determine the average
vintage weights for movable equipment that are representative of
average movable equipment purchase patterns over time. Vintage weights
for each 11-year period are calculated by dividing the real movable
capital purchase amount for any given year by the total amount of
purchases in the 11-year period. This calculation was done for each
year in the 11-year period and for each of the thirty-five 11-year
periods. We used the average of each year across the thirty-five 11-
year periods to

[[Page 24238]]

determine the average movable equipment vintage weights for the FY
2008-based RPL market basket.
For the proposed interest vintage weights, the nominal annual
capital purchase amounts for total equipment (building and fixed, and
movable) were used to capture the value of the debt instrument. Because
we have determined that hospital debt instruments have an expected life
of 26 years, the vintage weights for interest are deemed to represent
the average purchase pattern of total equipment over 26-year periods.
With nominal total equipment purchase estimates available from 2008
back to 1963, twenty 26-year periods were averaged to determine the
average vintage weights for interest that are representative of average
capital purchase patterns over time. Vintage weights for each 26-year
period are calculated by dividing the nominal total capital purchase
amount for any given year by the total amount of purchases in the 26-
year period. This calculation is done for each year in the 26-year
period and for each of the twenty 26-year periods. We used the average
of each year across the twenty 26-year periods to determine the average
interest vintage weights for the FY 2008-based RPL market basket. The
vintage weights for the capital portion of the FY 2002-based RPL market
basket and the FY 2008-based RPL market basket are presented in Table
6.
[GRAPHIC] [TIFF OMITTED] TP29AP11.013

[[Page 24239]]

After the capital cost category weights were computed, it was
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. We are proposing to use the
same price proxies for the capital portion of the proposed FY 2008-
based RPL market basket that were used in the FY 2002-based RPL market
basket with the exception of the Boeckh Construction Index. We replaced
the Boeckh Construction Index with BEA's chained price index for
nonresidential construction for hospitals and special care facilities.
The BEA index represents construction of facilities such as hospitals,
nursing homes, hospices, and rehabilitation centers. Although these
price indices move similarly over time, we believe that it is more
technically appropriate to use an index that is more specific to the
hospital industry. We believe these are the most appropriate proxies
for hospital capital costs that meet our selection criteria of
relevance, timeliness, availability, and reliability.
The price proxies (prior to any vintage weighting) for each of the
capital cost categories are the same as those used for the FY 2006-
based CIPI as described in the IPPS FY 2010 final rule (74 FR at
43857).
(5) Proposed FY 2012 Market Basket Increase Factor
For FY 2012 (that is, beginning October 1, 2011 and ending
September 30, 2012), we are proposing to use an estimate of the
proposed FY 2008-based RPL market basket increase factor based on the
best available data. Consistent with historical practice, we estimate
the RPL market basket update for the IRF PPS based on IHS Global
Insight's forecast using the most recent available data. IHS Global
Insight (IGI), Inc. is a nationally recognized economic and financial
forecasting firm that contracts with CMS to forecast the components of
the market baskets.
Based on IGI's 1st quarter 2011 forecast with historical data
through the 4th quarter of 2010, the projected market basket increase
factor for FY 2012 is 2.8 percent. Therefore, consistent with our
historical practice of estimating market basket increases based on the
best available data, we are proposing a market basket increase factor
of 2.8 percent for FY 2012. Furthermore, because the proposed FY 2012
update is based on the most recent market basket estimate for the 12-
month period (currently 2.8 percent), we are also proposing that if
more recent data are subsequently available (for example, a more recent
estimate of the market basket), we would use such data, if appropriate,
to determine the FY 2012 update in the final rule.
Using the current FY 2002-based RPL market basket and IGI's 1st
quarter 2011 forecast for the market basket components, the FY 2012
update would be 2.8 percent. Table 7 compares the proposed FY 2008-
based RPL market basket and the FY 2002-based RPL market basket percent
changes.
[GRAPHIC] [TIFF OMITTED] TP29AP11.014

For FY 2012, the proposed FY 2008-based RPL market basket update is
the same as the FY 2002-based RPL market basket (2.8 percent). The
lower total compensation weight in the proposed FY 2008-based RPL
market basket (62.278 percent) relative to the FY 2002-based RPL market
basket (65.877 percent), absent other factors, would have resulted in a
slightly lower market basket update using the FY 2008-based RPL market
basket. This impact, however, is partially offset by the larger weight
associated with the Professional Fees category. In both market baskets,
these expenditures are proxied by the ECI for Compensation for
Professional and Related Services. The weight for Professional Fees in
the FY 2002-based RPL market basket is 2.892 percent compared to 6.325
percent in the proposed FY 2008-based RPL market basket. The net effect
is that the updates are the same for FY 2012 based on the current 2002-
based RPL market basket and the proposed FY 2008-based RPL market
basket.
2. Proposed Productivity Adjustment
According to Section 1886(j)(3)(C)(i) of the Act, the Secretary
shall establish an increase factor ``based on an appropriate percentage
increase in a market basket of goods and services.'' As described in
section V.A.1 of this proposed rule, we are proposing to estimate the
IRF PPS increase factor for FY 2012 based on the proposed FY

[[Page 24240]]

2008-based RPL market basket. Section 1886(j)(3)(C)(ii) of the Act then
requires that, after establishing the increase factor for a FY, ``the
Secretary shall reduce such increase factor for FY 2012 and each
subsequent FY, by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II)'' of the Act. Section 1886(b)(3)(B)(xi)(II) of
the Act sets forth the definition of this productivity adjustment. The
statute defines the productivity adjustment to be equal to the 10-year
moving average of changes in annual economy-wide private nonfarm
business multifactor productivity (MFP) (as projected by the Secretary
for the 10-year period ending with the applicable FY, year, cost
reporting period, or other annual period) (the ``MFP adjustment''). The
BLS is the agency that publishes the official measure of private
nonfarm business MFP. Please see http://www.bls.gov/mfp to obtain the
historical BLS-published MFP data.
The projection of MFP is currently produced by IGI, an economic
forecasting firm. In order to generate a forecast of MFP, IGI
replicated the MFP measure calculated by the BLS using a series of
proxy variables derived from IGI's U.S. macroeconomic models. These
models take into account a very broad range of factors that influence
the total U.S. economy. IGI forecasts the underlying proxy components
such as Gross Domestic Product (GDP), capital, and labor inputs
required to estimate MFP and then combines those projections according
to the BLS methodology. In Table 8, we identify each of the major MFP
component series employed by the BLS to measure MFP. We also provide
the corresponding concepts forecasted by IGI and determined to be the
best available proxies for the BLS series.
[GRAPHIC] [TIFF OMITTED] TP29AP11.015

IGI found that the historical growth rates of the BLS components
used to calculate MFP and the IGI components identified are consistent
across all series and therefore suitable proxies for calculating MFP.
We have included below a more detailed description of the methodology
used by IGI to construct a forecast of MFP, which is aligned closely
with the methodology employed by the BLS. For more information
regarding the BLS method for estimating productivity, see the BLS Web
site at http://www.bls.gov/mfp/mprtech.pdf.
At the time of this proposed rule, the BLS has published a
historical time series of private nonfarm business MFP for 1987 through
2009, with 2009 being a preliminary value. Using this historical MFP
series and the IGI forecasted series, IGI has developed a forecast of
MFP for 2010 through 2021, as described below.
To create a forecast of BLS' MFP index, the forecasted annual
growth rates of the ``non-housing, non-government, non-farm, real
GDP'', ``hours of all persons in private nonfarm establishments
adjusted for labor composition,'' and ``real effective capital stock''
series (ranging from 2010 to 2021) are used to ``grow'' the levels of
the ``real value-added output,'' ``private non-farm business sector
labor input,'' and ``aggregate capital input'' series published by the
BLS. Projections of the ``hours of all persons'' measure are calculated
using the difference between projections of the BLS index of output per
hour and real GDP. This difference is then adjusted to account for
changes in labor composition in the forecast interval.
Using these three key concepts, MFP is derived by subtracting the
contribution of labor and capital inputs from output growth. However,
in order to estimate MFP, we need to understand the relative
contributions of labor and capital to total output growth. Therefore,
two additional measures are needed to operationalize the estimation of
the IGI MFP projection: Labor compensation and capital income. The sum
of labor compensation and capital income represents total income. The
BLS calculates labor compensation and capital income (in current dollar
terms) to derive the nominal values of labor and capital inputs. IGI
uses the ``non-government total compensation'' and ``flow of capital
services from the total private non-residential capital stock'' series
as proxies for the BLS' income measures. These two proxy measures for
income are divided by total income to obtain the shares of labor
compensation and capital income to total income. To estimate labor's
contribution and capital's contribution to the growth in total output,
the growth rates of the proxy variables for labor and capital inputs
are multiplied by their respective shares of total income. These
contributions of labor and capital to output growth are subtracted from
total output growth to calculate the ``change in the growth rates of
multifactor productivity'':

MFP = Total output growth--((labor input growth * labor compensation
share) + (capital input growth * capital income share))

The change in the growth rates (also referred to as the compound
growth rates) of the IGI MFP are multiplied by 100 in order to
calculate the percent

[[Page 24241]]

change in growth rates (the percent change in growth rates are
published by the BLS for its historical MFP measure). Finally, the
growth rates of the IGI MFP are converted to index levels based to 2005
to be consistent with the BLS' methodology. For benchmarking purposes,
the historical growth rates of IGI's proxy variables were used to
estimate a historical measure of MFP, which was compared to the
historical MFP estimate published by the BLS. The comparison revealed
that the growth rates of the components were consistent across all
series, and therefore validated the use of the proxy variables in
generating the IGI MFP projections. The resulting MFP index was then
interpolated to a quarterly frequency using the Bassie method for
temporal disaggregation. The Bassie technique utilizes an indicator
(pattern) series for its calculations. IGI uses the index of output per
hour (published by the BLS) as an indicator when interpolating the MFP
index.
3. Proposed Calculation of the IRF PPS Market Basket Increase Factor
for FY 2012
To calculate the MFP-adjusted IRF PPS increase factor for FY 2012,
in accordance with section 1886(j)(3)(C) of the Act, we propose to
start with the FY 2008-based RPL market basket increase factor
described above in section V.A.1. of this proposed rule and subtract
from that the MFP percentage adjustment described in section V.A.2.of
this proposed rule. Additionally, in accordance with sections
1886(j)(3)(C)(ii)(II) and (D)(ii) of the Act, we propose to further
reduce the MFP-adjusted IRF PPS increase factor by 0.1 percentage point
for FY 2012.
Specifically, in calculating the MFP percentage adjustment, we
propose that the end of the 10-year moving average of changes in the
MFP should coincide with the end of the appropriate FY update period.
Since the market basket update is reduced by the MFP adjustment to
determine the annual update for the IRF PPS, we believe it is
appropriate for the numbers associated with both components of the
calculation (the market basket and the productivity adjustment) to line
up so that changes in market conditions are aligned. Therefore, for the
FY 2012 update, the MFP adjustment is calculated as the 10-year moving
average of changes in MFP for the period ending September 30, 2012. We
propose to round the final annual adjustment to the one-tenth of 1
percentage point level up or down as applicable according to
conventional rounding rules (that is, if the number we are rounding is
followed by 5, 6, 7, 8, or 9, we will round the number up; if the
number we are rounding is followed by 0, 1, 2, 3, or 4, we will round
the number down).
Thus, in accordance with section 1886(j)(3)(C) of the Act, the
proposed IRF PPS increase factor for FY 2012 is based on the 1st
quarter 2011 forecast of the proposed FY 2008-based RPL market basket
update, which is estimated to be 2.8 percent. This proposed increase
factor is then reduced by the MFP adjustment (the 10-year moving
average of MFP for the period ending FY 2012) of 1.2 percentage points,
based on the proposed methodology described above and IHS Global
Insight's 1st quarter 2011 forecast. The proposed increase factor for
FY 2012 is then further reduced by 0.1 percentage point in accordance
with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act.
The resulting proposed IRF PPS increase factor reduced by the
productivity adjustment and the ``other adjustment'' for FY 2012 is
equal to 1.5 percent, or 2.8 percent less 1.2 percentage points for the
MFP less 0.1 percentage point in accordance with sections
1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the Act. Consistent with
historical practice, we propose to update the market basket increase
factor estimate and the MFP adjustment in the final rule to reflect the
most recent available data.
4. Proposed Calculation of the Labor-Related Share for FY 2012
Section 1886(j)(6) of the Act specifies that ``[t]he Secretary
shall adjust the proportion (as estimated by the Secretary from time to
time) of rehabilitation facilities' costs which are attributable to
wages and wage-related costs, of the prospective payment rates computed
under paragraph (3) for area differences in wage levels by a factor
(established by the Secretary) reflecting the relative hospital wage
level in the geographic area of the rehabilitation facility compared to
the national average wage level for such facilities. Not later than
October 1, 2001 (and at least every 36 months thereafter), the
Secretary shall update the factor under the preceding sentence on the
basis of information available to the Secretary (and updated as
appropriate) of the wages and wage-related costs incurred in furnishing
rehabilitation services. Any adjustments or updates made under this
paragraph for a fiscal year shall be made in a manner that assures that
the aggregated payments under this subsection in the fiscal year are
not greater or less than those that would have been made in the year
without such adjustment.''
The labor-related share is determined by identifying the national
average proportion of total costs that are related to, influenced by,
or vary with the local labor market. We continue to classify a cost
category as labor-related if the costs are labor-intensive and vary
with the local labor market. Given this, based on our definition of the
labor-related share, we are proposing to include in the labor-related
share the sum of the relative importance of Wages and Salaries,
Employee Benefits, Professional Fees: Labor-related, Administrative and
Business Support Services, All Other: Labor-related Services
(previously referred to in the FY 2002-based RPL market basket as
labor-intensive), and a portion of the Capital-Related cost weight.
Consistent with previous rebasings, the ``All Other'' Labor-related
Services cost category is mostly comprised of building maintenance and
security services (including, but not limited to, commercial and
industrial machinery and equipment repair, nonresidential maintenance
and repair, and investigation and security services). Because these
services tend to be labor-intensive and are mostly performed at the
hospital facility (and therefore, unlikely to be purchased in the
national market), we believe that they meet our definition of labor-
related services.
As stated in the FY 2006 IRF PPS final rule (70 FR 47880, 47915),
the labor-related share was defined as the sum of the relative
importance of Wages and Salaries, Fringe Benefits, Professional Fees,
Labor-intensive Services, and a portion of the capital share from an
appropriate market basket. Therefore, to determine the labor-related
share for the IRF PPS for FY 2011, we used the FY 2002-based RPL market
basket cost weights relative importance to determine the labor-related
share for the IRF PPS.
For the proposed FY 2008-based RPL market basket rebasing, the
proposed inclusion of the Administrative and Business Support Services
cost category into the labor-related share remains consistent with the
current labor-related share because this cost category was previously
included in the Labor-intensive cost category. As previously stated, we
are proposing to establish a separate Administrative and Business
Support Service cost category so that we can use the ECI for
Compensation for Office and Administrative Support Services to more
precisely proxy these specific expenses.
For the FY 2002-based RPL market basket, we assumed that all
nonmedical professional services (including accounting and auditing
services,

[[Page 24242]]

engineering services, legal services, and management and consulting
services) were purchased in the local labor market and, therefore, all
of their associated fees varied with the local labor market. As a
result, we previously included 100 percent of these costs in the labor-
related share. In an effort to more accurately determine the share of
professional fees that should be included in the labor-related share,
we surveyed hospitals regarding the proportion of those fees that go to
companies that are located beyond their own local labor market (the
results are discussed below).
We continue to look for ways to refine our market basket approach
to more accurately account for the proportion of costs influenced by
the local labor market. To that end, we conducted a survey of hospitals
to empirically determine the proportion of contracted professional
services purchased by the industry that are attributable to local firms
and the proportion that are purchased from national firms. We notified
the public of our intent to conduct this survey on December 9, 2005 (70
FR 73250) and received no comments.
With approval from the OMB (Control Number 0938-1036), we contacted
a sample of IPPS hospitals and received responses to our survey from
108 hospitals. We believe that these data serve as an appropriate proxy
for the purchasing patterns of professional services for IRFs as they
are also institutional providers of health care services. Using data on
FTEs to allocate responding hospitals across strata (region of the
country and urban/rural status), we calculated post-stratification
weights. Based on these weighted results, we determined that hospitals
purchase, on average, the following portions of contracted professional
services outside of their local labor market:
34 percent of accounting and auditing services.
30 percent of engineering services.
33 percent of legal services.
42 percent of management consulting services.
We applied each of these percentages to its respective Benchmark I-
O cost category underlying the professional fees cost category to
determine the Professional Fees: Nonlabor-related costs. The
Professional Fees: Labor-related costs were determined to be the
difference between the total costs for each Benchmark I-O category and
the Professional Fees: Nonlabor-related costs. This is the methodology
that we used to separate the FY 2008-based RPL market basket
professional fees category into Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost categories. In addition to the
professional services listed above, we also classified expenses under
NAICS 55, Management of Companies and Enterprises, into the
Professional Fees cost category as was done in previous rebasings. The
NAICS 55 data are mostly comprised of corporate, subsidiary, and
regional managing offices, or otherwise referred to as home offices.
Formerly, all of the expenses within this category were considered to
vary with, or be influenced by, the local labor market and were thus
included in the labor-related share. Because many hospitals are not
located in the same geographic area as their home office, we analyzed
data from a variety of sources in order to determine what proportion of
these costs should be appropriately included in the labor-related
share.
Using data primarily from the Medicare cost reports and a CMS
database of Home Office Medicare Records (HOMER) (a database that
provides city and state information (addresses) for home offices), we
were able to determine that 19 percent of the total number of
freestanding IRFs, IPFs, and LTCHs that had home offices had those home
offices located in their respective local labor markets--defined as
being in the same Metropolitan Statistical Area (MSA).
The Medicare cost report requires hospitals to report their home
office provider numbers. Using the HOMER database to determine the home
office location for each home office provider number, we compared the
location of the provider with the location of the hospital's home
office. We then placed providers into one of the following three
groups:
Group 1--Provider and home office are located in different
States.
Group 2--Provider and home office are located in the same
State and same city.
Group 3--Provider and home office are located in the same
State and different city.
We found that 63 percent of the providers with home offices were
classified into Group 1 (that is, different State) and, thus, these
providers were determined to not be located in the same local labor
market as their home office. Although there were a very limited number
of exceptions (that is, providers located in different States but the
same MSA as their home office), the 63 percent estimate was unchanged.
We found that 9 percent of all providers with home offices were
classified into Group 2 (that is, same State and same city and,
therefore, the same MSA). Consequently, these providers were determined
to be located in the same local labor market as their home offices.
We found that 27 percent of all providers with home offices were
classified into Group 3 (that is, same State and different city). Using
data from the Census Bureau to determine the specific MSA for both the
provider and its home office, we found that 10 percent of all providers
with home offices were identified as being in the same State, a
different city, but the same MSA.
Pooling these results, we were able to determine that approximately
19 percent of providers with home offices had home offices located
within their local labor market (that is, 9 percent of providers with
home offices had their home offices in the same State and city (and,
thus, the same MSA), and 10 percent of providers with home offices had
their home offices in the same State, a different city, but the same
MSA). We are proposing to apportion the NAICS 55 expense data by this
percentage. Thus, we are proposing to classify 19 percent of these
costs into the Professional Fees: Labor-related cost category and the
remaining 81 percent into the Professional Fees: Nonlabor-related
Services cost category.
Using this proposed method and the IHS Global Insight, Inc.
forecast for the 1st quarter 2011 of the proposed FY 2008-based RPL
market basket, the IRF labor-related share for FY 2012 is the sum of
the FY 2012 relative importance of each labor-related cost category.
Consistent with our proposal to update the labor-related share with the
most recent available data, the labor-related share for this proposed
rule reflects IHS Global Insight's 1st quarter 2011 forecast of the
proposed FY 2008-based RPL market basket. Table 9 shows the proposed FY
2012 relative importance labor-related share using the proposed FY
2008-based RPL market basket and the FY 2002-based RPL market basket.

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The proposed labor-related share for FY 2012 is the sum of the
proposed FY 2012 relative importance of each labor-related cost
category, and would reflect the different rates of price change for
these cost categories between the base year (FY 2008) and FY 2012. The
sum of the proposed relative importance for FY 2012 for operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All Other:
Labor-related Services) would be 66.689 percent, as shown in Table 9.
We are proposing that the portion of Capital that is influenced by
the local labor market is estimated to be 46 percent, which is the same
percentage applied to the FY 2002-based RPL market basket. Since the
relative importance for Capital-Related Costs would be 7.923 percent of
the proposed FY 2008-based RPL market basket in FY 2012, we are
proposing to take 46 percent of 7.923 percent to determine the proposed
labor-related share of Capital for FY 2012. The result would be 3.645
percent, which we propose to add to 66.689 percent for the operating
cost amount to determine the total proposed labor-related share for FY
2012. Thus, the labor-related share that we propose to use for IRF PPS
in FY 2012 would be 70.334 percent. This proposed labor-related share
is determined using the same methodology as employed in calculating all
previous IRF labor-related shares. The wage index and the labor-related
share are adjusted for budget neutrality.

B. Proposed Area Wage Adjustment

Section 1886(j)(6) of the Act requires the Secretary to adjust the
proportion of rehabilitation facilities' costs attributable to wages
and wage related costs (as estimated by the Secretary from time to
time) by a factor (established by the Secretary) reflecting the
relative hospital wage level in the geographic area of the
rehabilitation facility compared to the national average wage level for
those facilities. The Secretary is required to update the IRF PPS wage
index on the basis of information available to the Secretary on the
wages and wage-related costs to furnish rehabilitation services. Any
adjustment or updates made under section 1886(j)(6) of the Act for a FY
are made in a budget neutral manner.
In the FY 2009 IRF PPS final rule (73 FR 46378), we maintained the
methodology described in the FY 2006 IRF PPS final rule to determine
the wage index, labor market area definitions and hold harmless policy
consistent with the rationale outlined in the FY 2006 IRF PPS final
rule (70 FR 47880, 47917 through 47926).
For FY 2012, we are maintaining the policies and methodologies
described in the FY 2009 IRF PPS final rule (73 FR 46378) relating to
the labor market area definitions and the wage index methodology for
areas with wage data. Thus, we are using the CBSA labor market area
definitions and the FY 2011 pre-reclassification and pre-floor hospital
wage index data. In accordance with section 1886(d)(3)(E) of the Act,
the FY 2011 pre-reclassification and pre-floor hospital wage index is
based on data submitted for hospital cost reporting periods beginning
on or after October 1, 2006, and ending September 30, 2007 (that is, FY
2007 cost report data).
The labor market designations made by the OMB include some
geographic areas where there are no hospitals and, thus, no hospital
wage index data on which to base the calculation of the IRF PPS wage
index. We propose to continue to use the same methodology discussed in
the FY 2008 IRF PPS final rule (72 FR 44299) to address those
geographic areas where there are no hospitals and, thus, no hospital
wage index data in which to base the calculation for the FY 2012 IRF
PPS wage index.

[[Page 24244]]

Additionally, we propose to incorporate the CBSA changes published
in the most recent OMB bulletin that applies to the hospital wage data
used to determine the current IRF PPS wage index. The changes were
nominal and did not represent substantive changes to the CBSA-based
designations. Specifically, OMB added or deleted certain CBSA numbers
and revised certain titles. The OMB bulletins are available at http://www.whitehouse.gov/omb/bulletins/index.html.
To calculate the wage-adjusted facility payment for the payment
rates set forth in this proposed rule, we multiply the unadjusted
Federal payment rate for IRFs by the proposed FY 2012 labor-related
share based on the FY 2008-based RPL market basket (70.334 percent) to
determine the labor-related portion of the standard payment amount. We
then multiply the labor-related portion by the applicable IRF wage
index from the tables in the addendum to this proposed rule. Table A is
for urban areas and Table B is for rural areas.
Adjustments or updates to the IRF wage index made under section
1886(j)(6) of the Act must be made in a budget neutral manner. We
calculate a proposed budget neutral wage adjustment factor as
established in the FY 2004 IRF PPS final rule (68 FR 45689), codified
at Sec. 412.624(e)(1), as described in the steps below. We use the
listed steps to ensure that the proposed FY 2012 IRF standard payment
conversion factor reflects the update to the wage indexes (based on the
FY 2007 hospital cost report data) and the proposed labor-related share
in a budget neutral manner:
Step 1. Determine the total amount of the estimated FY 2011 IRF PPS
rates, using the FY 2011 standard payment conversion factor and the
labor-related share and the wage indexes from FY 2011 (as published in
the FY 2011 IRF PPS final rule (75 FR 42836)).
Step 2. Calculate the total amount of estimated IRF PPS payments
using the FY 2011 standard payment conversion factor and the proposed
FY 2012 labor-related share and CBSA urban and rural wage indexes.
Step 3. Divide the amount calculated in step 1 by the amount
calculated in step 2. The resulting quotient is the proposed FY 2012
budget neutral wage adjustment factor of 0.9989.
Step 4. Apply the proposed FY 2012 budget neutral wage adjustment
factor from step 3 to the FY 2011 IRF PPS standard payment conversion
factor after the application of the adjusted market basket update to
determine the proposed FY 2012 standard payment conversion factor.
We discuss the calculation of the proposed standard payment
conversion factor for FY 2012 in section V.C. of this proposed rule.

C. Description of the Proposed IRF Standard Conversion Factor and
Payment Rates for FY 2012

To calculate the proposed standard payment conversion factor for FY
2012, as illustrated in Table 10, we begin by applying the proposed
adjusted market basket increase factor for FY 2012 that was adjusted in
accordance with sections 1886(j)(3)(C) and (D) of the Act (1.5 percent,
or 2.8 percent less a cumulative total adjustment of 1.3 percentage
points, as described in section V.A.3. of this proposed rule), to the
standard payment conversion factor for FY 2011 ($13,860). Applying the
proposed 1.5 percent adjusted market basket increase factor for FY 2012
to the standard payment conversion factor for FY 2011 of $13,860 yields
a standard payment amount of $14,068. Then, we apply the proposed
budget neutrality factor for the FY 2012 wage index and labor-related
share of 0.9989, which results in a standard payment amount of $14,052.
Then we apply the proposed budget neutrality factor for the revised CMG
relative weights of 0.9989, which results in a proposed standard
payment amount of $14,037. Finally, we apply the proposed budget
neutrality factors for the updates to the rural, LIP and IRF teaching
status adjustments of 0.9998, 1.0327, and 1.0024, respectively, which
results in a proposed standard payment amount of $14,528 for FY 2012.

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BILLING CODE 4120-01-P
After the application of the CMG relative weights described in Section
III of this proposed rule, to the proposed FY 2012 standard payment
conversion factor ($14,528), the resulting proposed unadjusted IRF
prospective payment rates for FY 2012 are shown in Table 11, ``Proposed
FY 2012 Payment Rates.''

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[GRAPHIC] [TIFF OMITTED] TP29AP11.018

[[Page 24247]]

BILLING CODE 4120-01-C

D. Example of the Methodology for Adjusting the Proposed Federal
Prospective Payment Rates

Table 12 illustrates the methodology for adjusting the proposed
Federal prospective payments (as described in sections V.A. through
V.C. of this proposed rule). The following examples are based on two
hypothetical Medicare beneficiaries, both classified into CMG 0110
(without comorbidities). The proposed unadjusted Federal prospective
payment rate for CMG 0110 (without comorbidities) appears in Table 11.

Example: One beneficiary is in Facility A, an IRF located in
rural Spencer County, Indiana, and another beneficiary is in
Facility B, an IRF located in urban Harrison County, Indiana.
Facility A, a rural non-teaching hospital has a DSH percentage of 5
percent (which would result in a LIP adjustment of 1.0093), a wage
index of 0.8391, and a rural adjustment of 18.7 percent. Facility B,
an urban teaching hospital, has a DSH percentage of 15 percent
(which would result in a LIP adjustment of 1.0269 percent), a wage
index of 0.8896, and a teaching status adjustment of 0.0610.

To calculate each IRF's labor and non-labor portion of the proposed
Federal prospective payment, we begin by taking the proposed unadjusted
Federal prospective payment rate for CMG 0110 (without comorbidities)
from Table 11. Then, we multiply the proposed labor-related share for
FY 2012 (70.334 percent) described in section V.A.4 of this proposed
rule by the proposed unadjusted Federal prospective payment rate. To
determine the non-labor portion of the proposed Federal prospective
payment rate, we subtract the labor portion of the proposed Federal
payment from the proposed unadjusted Federal prospective payment.
To compute the proposed wage-adjusted Federal prospective payment,
we multiply the labor portion of the proposed Federal payment by the
appropriate wage index found in the addendum in Tables A and B. The
resulting figure is the wage-adjusted labor amount. Next, we compute
the proposed wage-adjusted Federal payment by adding the wage-adjusted
labor amount to the non-labor portion.
Adjusting the proposed wage-adjusted Federal payment by the
facility-level adjustments involves several steps. First, we take the
wage-adjusted Federal prospective payment and multiply it by the
appropriate rural and LIP adjustments (if applicable). Second, to
determine the appropriate amount of additional payment for the teaching
status adjustment (if applicable), we multiply the teaching status
adjustment (0.0610, in this example) by the wage-adjusted and rural-
adjusted amount (if applicable). Finally, we add the additional
teaching status payments (if applicable) to the wage, rural, and LIP-
adjusted Federal prospective payment rates. Table 12 illustrates the
components of the adjusted payment calculation.

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Thus, the proposed adjusted payment for Facility A would be $32,392.77
and the proposed adjusted payment for Facility B would be $30,592.91.

VI. Proposed Update to Payments for High-Cost Outliers Under the IRF
PPS

A. Proposed Update to the Outlier Threshold Amount for FY 2012

Section 1886(j)(4) of the Act provides the Secretary with the
authority to make payments in addition to the basic IRF prospective
payments for cases incurring extraordinarily high costs. A case
qualifies for an outlier payment if the estimated cost of the case
exceeds the adjusted outlier threshold. We calculate the adjusted
outlier threshold by adding the IRF PPS payment for the case (that is,
the CMG payment adjusted by all of the relevant facility-level
adjustments) and the adjusted threshold amount (also adjusted by all of
the relevant facility-level adjustments). Then, we calculate the
estimated cost of a case by multiplying the IRF's overall CCR by the
Medicare allowable covered charge. If the estimated cost of the case is
higher than the adjusted outlier threshold, we make an outlier payment
for the case equal to 80 percent of the difference between the
estimated cost of the case and the outlier threshold.
In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we
discussed our rationale for setting the outlier threshold amount for
the IRF PPS so that estimated outlier payments would equal 3 percent of
total estimated payments. For the 2002 IRF PPS final rule, we analyzed
various outlier policies using 3, 4, and 5 percent of the total
estimated payments, and we concluded that an outlier policy set at 3
percent of total estimated payments would optimize the extent to which
we could reduce the financial risk to IRFs of caring for high-cost
patients, while

[[Page 24249]]

still providing for adequate payments for all other (non-high cost
outlier) cases.
Subsequently, we updated the IRF outlier threshold amount in the
FYs 2006 through 2010 IRF PPS final rules and the FY 2011 notice (70 FR
47880, 71 FR 48354, 72 FR 44284, 73 FR 46370, 74 FR 39762, and 75 FR
42836, respectively) to maintain estimated outlier payments at 3
percent of total estimated payments. We also stated in the FY 2009
final rule (73 FR 46370 at 46385) that we would continue to analyze the
estimated outlier payments for subsequent years and adjust the outlier
threshold amount as appropriate to maintain the 3 percent target.
To update the IRF outlier threshold amount for FY 2012, we propose
to use FY 2010 claims data and the same methodology that we used to set
the initial outlier threshold amount in the FY 2002 IRF PPS final rule
(66 FR 41316 and 41362 through 41363), which is also the same
methodology that we used to update the outlier threshold amounts for
FYs 2006 through 2011. Based on an analysis of this updated data, we
estimate that IRF outlier payments as a percentage of total estimated
payments are approximately 2.7 percent in FY 2011. Based on the updated
analysis, we propose to update the outlier threshold amount to $11,822
to maintain estimated outlier payments at approximately 3 percent of
total estimated aggregate IRF payments for FY 2012.
The proposed outlier threshold amount of $11,822 for FY 2012 is
subject to change in the final rule if more recent data become
available for analysis or if any changes are made to any of the other
proposed payment policies set forth in this proposed rule.

B. Proposed Update to the IRF Cost-to-Charge Ratio Ceilings

In accordance with the methodology stated in the FY 2004 IRF PPS
final rule (68 FR 45674, 45692 through 45694), we apply a ceiling to
IRFs' CCRs. Using the methodology described in that final rule, we
propose to update the national urban and rural CCRs for IRFs, as well
as the national CCR ceiling for FY 2012, based on analysis of the most
recent data that is available. We apply the national urban and rural
CCRs in the following situations:
New IRFs that have not yet submitted their first Medicare
cost report.
IRFs whose overall CCR is in excess of the national CCR
ceiling for FY 2012, as discussed below.
Other IRFs for which accurate data to calculate an overall
CCR are not available.
Specifically, for FY 2012, we estimate a proposed national average
CCR of 0.669 for rural IRFs, which we calculate by taking an average of
the CCRs for all rural IRFs using their most recently submitted cost
report data. Similarly, we estimate a national average CCR of 0.520 for
urban IRFs, which we calculate by taking an average of the CCRs for all
urban IRFs using their most recently submitted cost report data. We
apply weights to both of these averages using the IRFs' estimated
costs, meaning that the CCRs of IRFs with higher costs factor more
heavily into the averages than the CCRs of IRFs with lower costs. For
this proposed rule, we have used the most recent available cost report
data (FY 2009). This includes all IRFs whose cost reporting periods
begin on or after October 1, 2008, and before October 1, 2009. If, for
any IRF, the FY 2009 cost report was missing or had an ``as submitted''
status, we used data from a previous fiscal year's (that is, FY 2004
through FY 2008) settled cost report for that IRF. We do not use cost
report data from before FY 2004 for any IRF because changes in IRF
utilization since FY 2004 resulting from the 60 percent rule and IRF
medical review activities suggest that these older data do not
adequately reflect the current cost of care.
In addition, in accordance with past practice, we propose to set
the national CCR ceiling at 3 standard deviations above the mean CCR.
Using this method, the national CCR ceiling is set at 1.55 for FY 2012.
This means that, if an individual IRF's CCR exceeds this ceiling of
1.55 for FY 2012, we would replace the IRF's CCR with the appropriate
national average CCR (either rural or urban, depending on the
geographic location of the IRF). We estimate the national CCR ceiling
by:
Step 1. Taking the national average CCR (weighted by each IRF's
total costs, as discussed above) of all IRFs for which we have
sufficient cost report data (both rural and urban IRFs combined).
Step 2. Estimating the standard deviation of the national average
CCR computed in step 1.
Step 3. Multiplying the standard deviation of the national average
CCR computed in step 2 by a factor of 3 to compute a statistically
significant reliable ceiling.
Step 4. Adding the result from step 3 to the national average CCR
of all IRFs for which we have sufficient cost report data, from step 1.
We note that the proposed national average rural and urban CCRs and
our estimate of the national CCR ceiling in this section are subject to
change in the final rule if more recent data become available for use
in these analyses.

VII. Impact of the IPPS Data Matching Process Changes on the IRF PPS
Calculation of the Low-Income Percentage Adjustment Factor

[[Page 24250]]

as IPPS for calculating the SSI fractions for FYs 2011 and beyond. This
process is described in the FY 2011 IPPS final rule, and will be used
to calculate IRFs' SSI fractions for FY 2011. The FY 2011 IPPS final
rule (75 FR 50277 through 50286) gives information on this revised data
matching process.

VIII. Proposed Updates to the Policies in 42 CFR Part 412

Prior to the implementation of the IRF PPS on January 1, 2002, IRFs
were paid based on the costs that they reported on their Medicare cost
reports, subject to some limits. To simplify the cost reporting
process, both for providers and for CMS and the Medicare contractors
that monitored the cost reports, regulations were put into place that
carefully defined, for example, when and how providers could be
considered ``new'' and when and how they could expand their bed size
and square footage. Under the IRF PPS, however, Medicare pays IRFs
according to Federal prospective payment rates that are no longer tied
to an individual IRF's Medicare cost reports. This new payment
methodology has made some of the requirements regarding new IRFs and
IRF expansions obsolete.
In addition, prior to 2002, the regulations distinguished between
freestanding rehabilitation hospitals and rehabilitation units of acute
care hospitals, with separate regulatory sections for the two types of
facilities even though many of the same requirements applied to both.
Under the IRF PPS, the distinctions between freestanding IRFs and IRF
units are no longer relevant because both types of facilities are paid
the same and are subject to the same rules and requirements. The
current separation of the regulatory sections results in unnecessary
repetition and confusion about which regulations apply to which types
of facilities.
In addition, we added new IRF coverage requirements to Sec.
412.622(a)(3), (4), and (5) in the FY 2010 IRF PPS final rule (74 FR
39762 at 39811 through 39812) for IRF discharges occurring on or after
January 1, 2010. Several of the IRF conditions of payment in the
existing Sec. 412.23(b) and Sec. 412.29, including the requirements
for preadmission screenings to be conducted on all prospective
patients, the requirements for IRF patients to receive close medical
supervision, the requirements for plans of care to be developed for all
IRF patients, and the requirements for patients to receive an
interdisciplinary approach to care in the IRF, mirror some of the IRF
coverage requirements in Sec. 412.622(a)(3), (4), and (5).
Finally, in recent years, we have observed an increase in the
number and complexity of acquisitions and mergers occurring in this
industry. In some cases, the current Medicare rules and requirements
for IRFs do not adequately address the number and complexity of
acquisitions and mergers because they simply did not occur when the
regulations were written. In other cases, regulations were written to
address issues that do not exist today.
For all of these reasons, in this proposed rule we propose to
consolidate, clarify, and revise the regulations for inpatient
rehabilitation facilities at Sec. 412.23(b), Sec. 412.25(b), Sec.
412.29, and Sec. 412.30 to update and simplify the policies, to
eliminate unnecessary repetition and confusion, and to enhance the
consistency with the IRF coverage requirements in Sec. 412.622(a)(3),
(4), and (5). Since the proposed modifications would eliminate
regulations that may no longer be strictly necessary under the IRF PPS,
they would enable IRFs to more easily adjust to beneficiary changes in
demand for IRF services, which would improve beneficiary access to
these services. The proposed modifications would also reduce costs for
providers and for the government by reducing the amount of time and
expenditures devoted to adhering to (for providers) and enforcing (for
the government) regulations that may no longer be strictly necessary.
Since we have no way of determining how many IRFs might take advantage
of the added flexibility these regulations afford to expand or change
their operations, we are not able to quantify the savings. However, for
example, each time an IRF unit submits a request to add beds to its
facility under the current regulations, the Medicare contractor must
determine whether or not the added IRF beds will be considered ``new.''
To be considered ``new,'' the beds must be added at the start of a cost
reporting period, and the hospital must have ``obtained approval, under
State licensure and Medicare certification, for an increase in its
hospital bed capacity that is greater than 50 percent of the number of
beds it seeks to add to the unit.'' We believe that the first
requirement (that beds can only be added at the start of a cost
reporting period) is difficult, and potentially costly, for IRFs that
are expanding through new construction because the exact timing of the
end of a construction project is often difficult to predict.
Construction delays can hamper an IRF's ability to have the
construction completed exactly at the start of a cost reporting period,
which can lead to significant revenue loss for the facility if the IRF
is unable to add beds until the next cost reporting period. We believe
that it is no longer necessary to require IRF beds to be added at the
start of a cost reporting period. Further, the current regulations
require Medicare contractors to expend unnecessary resources
determining whether the IRF has met the second criteria, which requires
the hospital to have ``obtained approval, under State licensure and
Medicare certification, for an increase in its hospital bed capacity
that is greater than 50 percent of the number of beds it seeks to add
to the unit.'' The proposed modifications to the regulations are
designed to simplify the regulations in order to minimize the amount of
effort that Medicare contractors would need to spend enforcing them.
Finally, the proposed modifications would enhance the consistency
between the IRF coverage and payment requirements.
We note that Sec. 412.25(b) applies to both IRFs and inpatient
psychiatric facilities (IPFs), so the proposed revisions to Sec.
412.25(b) would also affect IPFs in similar ways.

A. Proposed Consolidation of the Requirements for Rehabilitation
Hospitals and Rehabilitation Units

Under the IRF PPS, rehabilitation hospitals and rehabilitation
units of acute care hospitals (and critical access hospitals (CAHs))
are paid the same and, with very few exceptions, are subject to the
same Medicare rules and requirements. For this reason, we believe that
it is no longer necessary to have separate sections in 42 CFR part 412
that define the requirements for rehabilitation hospitals and
rehabilitation units of acute care hospitals (and CAHs). This leads to
excessive repetition and potential confusion about which rules apply to
which types of facilities.
Thus, we propose to revise and consolidate the regulations for
rehabilitation facilities that are currently in Sec. 412.23(b) (for
rehabilitation hospitals), Sec. 412.29 (for rehabilitation units), and
Sec. 412.30 (for rehabilitation units) into a revised Sec. 412.29
that would contain the requirements for all IRFs, whether they be
freestanding rehabilitation hospitals or rehabilitation units of acute
care hospitals (or CAHs). We believe that this would simplify the
regulations by consolidating the majority of the requirements for IRFs
into just one sub-section of part 412.
Although we are proposing slight modifications to the regulations
in Sec. 412.25(b), as discussed in section

[[Page 24251]]

VII.C. of this proposed rule, we are not proposing to move the IRF
regulations in Sec. 412.25 to Sec. 412.29 in this proposed rule. The
regulations in Sec. 412.25, such as the requirement to have beds that
are physically separate from the rest of the hospital, the requirement
that the unit be serviced by the same Medicare contractor as the rest
of the hospital, and the requirement that the unit be treated as a
separate cost center for cost finding and apportionment purposes, by
their nature apply uniquely to units that are part of another hospital.
Since these requirements are not applicable to freestanding IRFs, we do
not believe that it would be appropriate to include them with the rest
of the IRF regulations in Sec. 412.29 that are intended to apply to
both freestanding IRF hospitals and to IRF units of hospitals. Further,
we are not proposing modifications to Sec. 412.25, other than the
proposed changes to Sec. 412.25(b) as discussed in section VII.C. of
this proposed rule, because the regulations in Sec. 412.25(a) through
(g) (excluding (b)) remain relevant and important for defining IRF
units of hospitals for payment purposes.
However, we propose to replace the text that is currently located
at Sec. 412.23(b) with text that simply refers the reader to the
requirements in Sec. 412.29, and move the rest of Sec. 412.23(b) and
all of Sec. 412.30 to Sec. 412.29. We propose to leave text in Sec.
412.23(b) that refers IRFs to the requirements they must meet in Sec.
412.29 only so that we do not disturb the ordering of the rest of Sec.
412.23 that contain the Medicare regulations for inpatient psychiatric
facilities, children's hospitals, and long-term care hospitals.
Specifically, we propose to move all of the text in Sec. 412.23(b) to
Sec. 412.29 except for a new paragraph that refers to the requirements
in Sec. 412.29, which would read as follows: ``(b) Rehabilitation
hospitals. A rehabilitation hospital must meet the requirements
specified in Sec. 412.29 to be excluded from the prospective payment
systems specified in Sec. 412.1(a)(1) and to be paid under the
prospective payment system specified in Sec. 412.1(a)(3) and in
subpart P of this part.''

B. Proposed Revisions to the Regulations at Proposed Sec. 412.29

As described in section VIII.A. of this proposed rule, we propose
to replace the text that is currently located at Sec. 412.23(b) with
text that simply refers the reader to the requirements in Sec. 412.29,
and move the rest of Sec. 412.23(b) and all of Sec. 412.30 to Sec.
412.29. To eliminate any unnecessary repetition, and to update and
clarify the regulations, we are also proposing revisions to the
language from all three of the current sections, Sec. 412.23(b), Sec.
412.29, and Sec. 412.30. As stated in current Sec. 412.30, a
rehabilitation unit can only be considered ``new'' if the hospital has
never had a rehabilitation unit before. We have encountered
circumstances in which a hospital closed a rehabilitation unit over 20
years ago and is now seeking to re-open the rehabilitation unit, and we
believe that it would be reasonable to consider the rehabilitation unit
to be ``new.'' Thus, we are proposing to revise the requirements for an
IRF to be considered ``new'' to indicate that an IRF can be considered
``new'' if it has not been paid under the IRF PPS in 42 CFR part 412,
subpart P for at least 5 calendar years. These proposed requirements
would now apply equally to both rehabilitation hospitals and
rehabilitation units of acute care hospitals (or CAHs), and would be
located in proposed Sec. 412.29(c)(1). We believe that 5 calendar
years would allow a sufficient amount of time between an IRF closing
and an IRF reopening to prevent IRFs from closing and reopening
annually to avoid meeting certain requirements, while allowing IRFs
more flexibility to meet changing demand for IRF services.
In addition, we propose to clarify and simplify the rules regarding
change of ownership (including mergers) or leasing, as defined in Sec.
489.18. Changes of ownership or leasing, as defined in Sec. 489.18,
and mergers in which the new owner(s) accept assignment of the previous
owner's provider agreements are transfers of the provider agreement.
Therefore, we propose that IRFs in these situations would retain their
excluded status and would continue to be paid under the IRF PPS before
and after the change, as long as the IRF continues to meet all of the
requirements specified in Sec. 412.29. However, we propose to clarify
that a change of ownership (including merger) or leasing in which the
new owner(s) do not accept assignment of the previous owner's provider
agreement would be considered a voluntary termination of the provider
agreement, and the new owner(s) would need to reapply to the Medicare
program as an initial applicant to operate a new IRF. In the case of
changes of ownership (including mergers) or leasing, we propose that
the new owner(s) would not be required to wait for 5 calendar years to
reapply to operate a new IRF, but would be required to complete the
initial hospital or critical access hospital certification process to
participate in Medicare as a new IRF.
Further, we also propose to revise the regulations regarding new
IRF beds. The regulations currently in Sec. 412.30(d), which require
an IRF to obtain ``approval, under State licensure and Medicare
certification, for an increase in its hospital bed capacity that is
greater than 50 percent of the number of beds it seeks to add to the
unit,'' have become less and less relevant under a prospective payment
system in which payments are no longer based on IRFs' reported costs.
Thus, we propose to eliminate these requirements and, instead, propose
in Sec. 412.29(c)(2) that IRF beds would be considered ``new'' if they
meet all applicable State Certificate of Need and State licensure laws
and if they get written approval from the appropriate CMS regional
office (RO), as described below. We propose that new IRF beds can be
added one time at any point during a cost reporting period (instead of
at the start of a cost reporting period), but we propose to require
that a full 12-month cost reporting period elapse before an IRF that
has had beds delicensed or decertified can add new beds. The reason for
this proposed requirement is to prevent IRFs from decreasing and
increasing bed size every year to avoid having to meet certain
requirements. We propose to require the IRF to obtain written approval
from the appropriate CMS RO for the addition of the new beds in order
to allow the CMS RO to verify that a full 12-month cost reporting
period has elapsed before an IRF that has had beds delicensed or
decertified can add new beds.

C. Proposed Revisions to the Requirements for Changes in Bed Size and
Square Footage

Prior to the IRF PPS and the IPF PPS, excluded units (IRFs and
IPFs) were paid based on their costs, as reported on their Medicare
cost reports, subject to certain facility-specific cost limits. These
cost-based payments were determined separately for operating and
capital costs. Thus, under cost-based payments, the facilities' capital
costs were determined, in part, by their bed size and square footage.
Changes in the bed size and square footage would complicate the
facilities' capital cost allocation. Thus, the Medicare regulations at
Sec. 412.25 limited the situations under which an IRF or IPF could
change its bed size and square footage.
Under the IRF PPS and IPF PPS, however, a facility's bed size and
square footage is not relevant for determining the individual
facility's Medicare payment. Thus, we believe it is appropriate to
modify some of the restrictions on a facility's ability to

[[Page 24252]]

change its bed size and square footage. We are therefore proposing in
this proposed rule to relax the restrictions on a facility's ability to
increase its bed size and square footage. Under the proposed
requirements in Sec. 412.25, an IRF or IPF could change (either
increase or decrease) its bed size or square footage one time at any
point in a given cost reporting period as long as it notifies the CMS
RO within 30 days of the proposed change and maintains the required
documentation. We note that any IRF beds that are added to an existing
IRF during the IRF's cost reporting period would only be considered new
through the end of that cost reporting period. Further, the new IRF
beds would be included in the IRF's compliance review calculations
under the 60 percent rule specified in Sec. 412.29(b) beginning on the
date that they are first added to the IRF.

D. Proposed Revisions To Enhance Consistency Between the IRF Coverage
and Payment Requirements

In the FY 2010 IRF PPS final rule (74 FR 39762 at 39788 through
39798), CMS implemented new IRF coverage requirements in Sec.
412.622(a)(3),(4), and (5). These new IRF coverage requirements
replaced coverage requirements that were 25 years old and no longer
reflected current medical practice. In updating these coverage
requirements, we added further specificity to some of the terms that
had been discussed in the old coverage requirements. For example, we
more clearly defined in the new IRF coverage requirements what we mean
by an IRF preadmission screening, care planning, and close medical
supervision. In the proposed revisions to Sec. 412.23(b) and Sec.
412.29, we propose to enhance the consistency between the IRF coverage
and payment requirements by incorporating some of the added specificity
from the coverage requirements into the same requirements for payment.
Specifically, we propose to clarify that, as in the IRF coverage
requirements, IRF preadmission screenings must be reviewed and approved
by a rehabilitation physician prior to each prospective patient's
admission to an IRF. As we said in the FY 2010 IRF PPS final rule (74
FR 39791), we believe that it is important to require that a
rehabilitation physician document the reasoning behind the decision to
admit a patient to an IRF, to enable medical reviewers to understand
the rationale for the decision.
Further, we propose to clarify, as we did in the coverage
requirements at Sec. 412.622(a)(3)(iv), that close medical supervision
in an IRF means that the patient receives at least 3 face-to-face
visits per week by a licensed physician with specialized training and
experience in inpatient rehabilitation to assess the patient both
medically and functionally, as well as to modify the course of
treatment as needed to maximize the patient's capacity to benefit from
the rehabilitation process. As we stated in the FY 2010 IRF PPS final
rule (74 FR 39796), we believe that at least 3 face-to-face
rehabilitation physician visits per week are necessary to coordinate
the patient's medical needs with his or her functional rehabilitation
needs while in the facility.
Finally, we propose to clarify that we believe that discharge
planning, in addition to assessment of the patient's goals and progress
toward those goals, is an integral part of the interdisciplinary team
approach to care that is provided in IRFs.
The specific proposed changes to the regulations at part 412 are
shown in the ``Regulation Text'' of this proposed rule of this proposed
rule. We encourage stakeholder comment on these proposed changes.

IX. Quality Reporting for Inpatient Rehabilitation Hospitals

A. Background and Statutory Authority

CMS seeks to promote higher quality and more efficient health care
for Medicare beneficiaries. Our efforts are, in part, effectuated by
quality reporting programs coupled with the public reporting of data
collected under those programs. The quality reporting programs exist
for various settings such as hospital inpatient services (the Hospital
Inpatient Quality Reporting (Hospital IQR) Program), hospital
outpatient services (the Hospital Outpatient Quality Data Reporting
Program (HOP QDRP)), and for physicians and other eligible
professionals the Physician Quality Reporting System (formerly called
the Physician Quality Reporting Initiative, or PQRI). We have also
implemented quality reporting programs for home health agencies and
skilled nursing facilities that are based on conditions of
participation, and an end-stage renal disease quality incentive program
(ESRD QIP) that links payment to performance.
Section 3004(b) of the Affordable Care Act added section 1886(j)(7)
to the Act, which requires the Secretary to implement a quality
reporting program for Inpatient Rehabilitation Facilities (IRFs),
including freestanding IRF hospitals and IRF units within hospitals.
Beginning in FY 2014, section 1886(j)(7)(A)(i) of the Act requires the
Secretary to reduce the increase factor with respect to a fiscal year
by 2 percentage points for any IRFs that do not submit data to the
Secretary in accordance with requirements established by the Secretary
for that fiscal year. Section 1886(j)(7)(A)(ii) of the Act notes that
this reduction may result in the increase factor being less than 0.0
for a fiscal year, and in payment rates under this subsection for a
fiscal year being less than the payment rates for the preceding fiscal
year. Any reduction based on failure to comply with the reporting
requirements is, in accordance with section 1886(j)(7)(B) of the Act,
limited to the particular fiscal year involved. The reductions are not
to be cumulative and will not be taken into account in computing the
payment amount under subsection (j) for a subsequent fiscal year.
Section 1886(j)(7)(C) of the Act requires that each IRF submit data
to the Secretary on quality measures specified by the Secretary. The
data must be submitted in a form and manner, and at a time, specified
by the Secretary. The Secretary is generally required to specify
measures that have been endorsed by the entity with a contract under
section 1890(a) of the Act. This contract is currently held by the
National Quality Forum (NQF). The NQF is a voluntary consensus
standard-setting organization with a diverse representation of
consumer, purchaser, provider, academic, clinical, and other health
care stakeholder organizations. The NQF was established to standardize
health care quality measurement and reporting through its consensus
development process. We have generally adopted NQF-endorsed measures in
our reporting programs. However, section 1886(j)(7)(D)(ii)of the Act
provides that ``in the case of a specified area or medical topic
determined appropriate by the Secretary for which a feasible and
practical measure has not been endorsed by the entity with a contract
under section 1890(a) of the Act, the Secretary may specify a measure
that is not so endorsed as long as due consideration is given to
measures that have been endorsed or adopted by a consensus-based
organization identified by the Secretary.'' Under section
1886(j)(7)(D)(iii) of the Act, the Secretary must publish the selected
measures that will be applicable with respect to FY 2014 no later than
October 1, 2012.
Section 1886(j)(7)(E) of the Act requires the Secretary to
establish procedures for making data submitted

[[Page 24253]]

under the IRF quality reporting program available to the public. The
Secretary must ensure that an IRF is given the opportunity to review
the data that is to be made public prior to the data being made public.
The Secretary must report quality measures that relate to services
furnished in inpatient settings in rehabilitation facilities on the CMS
Web site.

B. Quality Measures for IRF Quality Reporting Program for FY 2014

1. General
We propose to adopt 2 quality measures for FY 2014. These quality
measures are: (1) Urinary Catheter-Associated Urinary Tract Infections
(CAUTI), and (2) Pressure Ulcers that are New or Have Worsened. We also
discuss below a third measure that we are currently developing and
intend to propose to adopt for FY 2014 in future rulemaking. That
measure will be the 30-day Comprehensive All-Cause Risk-Standardized
Readmission Measure.
2. Considerations in the Selection of the Proposed Quality Measures
In implementing the IRF Quality Reporting Program, we seek to
collect data on measures that will provide information on the full
spectrum of the quality of care being furnished by IRFs while imposing
as little burden as possible on IRFs. We seek to collect data on valid,
reliable, and relevant quality measures and to make that data available
to the public in accordance with applicable law.
We also seek to align new Affordable Care Act reporting
requirements for IRFs with HHS high priority conditions and topics, as
reflected in the National Quality Strategy released by the Secretary
(http://www.healthcare.gov/center/reports/quality03212011a.html#es) and
to ultimately provide a comprehensive assessment of the quality of
healthcare delivered. We note that adopting a comprehensive set of
measures may take multiple years because of the time, effort and
resources required by IRFs and CMS to develop and implement the data
collection and reporting infrastructure needed to support an expanded
quality reporting program. Current areas of high priority for HHS
include patient safety, healthcare associated infections, and reduction
of avoidable readmissions. These priorities are consistent with the aim
of providing safe, sound care for all patients receiving services in
any healthcare setting including IRFs.
In our consideration and selection of a comprehensive set of
quality measures, we have several objectives. First, the measures
should align with CMS' three-part aim for better care for individuals,
better health for populations, and lower cost through improvement.
Second, the measures should relate to specific priorities in the care
setting for which they are adopted. For IRFs, these include improving
patient safety (such as avoiding healthcare associated infections
(HAI)), reducing adverse events, and encouraging better coordination of
care and person-and-family-centered care. Third, the measures should
address improved quality for the primary role of IRFs, which is to
address the rehabilitation needs of the individual including improved
functional status and achievement of successful return to the community
post-discharge.
Other considerations in proposing quality measures include
alignment with other Medicare quality reporting programs and other
private sector initiatives; suggestions and input received from
multiple stakeholders and national subject matter experts; seeking
measures that have a low probability of causing unintended adverse
consequences; and considering measures that are feasible, that is,
measures that can be technically implemented within the capacity of the
CMS infrastructure for data collection, analyses, and calculation of
reporting and performance rates as applicable.
3. FY 2014 Measure 1: Healthcare Associated Infection Measure
(HAI): Urinary Catheter-Associated Urinary Tract Infections (CAUTI)
The first measure we propose for IRFs for purposes of calculating
the FY 2014 Increase Factor is an application of the NQF-endorsed
measure developed by the Centers for Disease Control (CDC) for
hospitals entitled (NQF 0138) ``Urinary Catheter-Associated
Urinary Tract Infection [CAUTI] for Intensive Care Unit Patients'' to
the IRF setting. This measure was developed by the CDC to measure the
percentage of patients with urinary catheter associated urinary tract
infections in the ICU context. At the time of this proposed rule, the
measure we are applying (NQF 0138) is undergoing measure
maintenance review by NQF which may result in a change in how the CDC
calculates the aggregated data from using a standard rate for CAUTI, to
the use of a standardized infection ratio (SIR) of healthcare
associated urinary catheter-associated urinary tract infections. We
propose to adopt the current measure in this rulemaking cycle. However,
we intend to propose the adoption of any modifications to this measure
that may result from the NQF review process in future rulemaking. We
recognize that the NQF has endorsed this measure for the hospital
setting, but believe that this measure is highly relevant to IRFs in
that urinary catheters are commonly used in the IRF setting. Section
1886(j)(7)(D)(ii) provides that ``in the case of a specified area or
medical topic determined appropriate by the Secretary for which a
feasible and practical measure has not been endorsed by the entity with
a contract under section 1890(a), the Secretary may specify a measure
that is not so endorsed as long as due consideration is given to
measures that have been endorsed or adopted by a consensus-based
organization identified by the Secretary.'' We reviewed the NQF's
consensus endorsed measures, and were unable to identify any NQF-
endorsed measures for urinary catheter-associated urinary tract
infections for the IRF setting. We are unaware of any other measures of
urinary tract infections that have been approved by voluntary consensus
standards bodies.
Having given due consideration to other measures that have been
endorsed or adopted by a consensus entity, we propose to adopt an
application of the NQF-endorsed CAUTI measure under the Secretary's
authority to select non-NQF endorsed measures where NQF-endorsed
measures do not exist for a specified area or medical topic. While we
are proposing to adopt the measure under the exception authority
provided in section 1886(j)(7)(D)(ii), we note that we intend to ask
NQF to formally extend its endorsement of the existing CAUTI measure to
the IRF setting.
Urinary tract infections (UTIs) are a common cause of morbidity and
mortality. The urinary tract is the most common site of healthcare-
associated infection, accounting for more than 30 percent of infections
reported by acute care hospitals.\1\ Healthcare-associated UTIs are
commonly attributed to catheterization of the urinary tract.
---------------------------------------------------------------------------

\1\ Klevens RM, Edward JR, et al. Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public
Health Reports 2007;122:160-166.
---------------------------------------------------------------------------

CAUTI can lead to complications as cystitis, pyelonephritis, gram-
negative bacteremia, prostatitis, epididymitis, and orchitis in males
and, less commonly, endocarditis, vertebral osteomyelitis, septic
arthritis, endophthalmitis, and meningitis in all patients.
Complications associated with CAUTI include discomfort to the patient,
prolonged hospital stay, and increased cost and mortality. Each year,
more than 13,000 deaths are associated

[[Page 24254]]

with UTIs.¹ Prevention of CAUTIs is discussed in the CDC/
HICPAC document, Guideline for Prevention of Catheter-associated
Urinary Tract Infections.\2\ The NQF endorsed CAUTI measure we are
proposing is currently collected by the CDC's National Healthcare
Safety Network (NHSN), a secure Internet-based health surveillance
system, and we note that the CDC is also collecting data on this
measure from IRFs. NHSN is currently used, in part, as one means by
which certain State-mandated reporting and surveillance data are
collected.
---------------------------------------------------------------------------

\2\ Wong ES. Guideline for prevention of catheter-associated
urinary tract infections. Infect Control 1981; 2:126-30.
---------------------------------------------------------------------------

The HHS National Action Plan to Prevent HAI (http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html) identified catheter-
associated urinary tract infections as the leading type of HAI that is
largely preventable. The technical expert panel (TEP) convened by the
CMS measure-developer-contractor on February 4, 2011 (https://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/) also identified CAUTI
as a high priority quality issue for IRFs.
4. FY 2014 Measure 2: Percent of Patients With Pressure Ulcers
That are New or Worsened
The second measure we propose for IRFs for purposes of calculating
the FY 2014 increase factor is an application of a CMS developed NQF-
endorsed measure for short-stay nursing home patients; (NQF
NH-012-10) ``Percent of Residents with Pressure Ulcers that Are New or
Worsened.'' This is the percentage of patients who have one or more
stage 2-4 pressure ulcers that are new or worsened, when assessed at
the time of discharge as compared with the patient's condition when it
was assessed at admission. We recognize NQF endorsement of this measure
is limited to short-stay nursing home patients, but believe that this
measure is highly relevant and a high priority quality issue in the
care of IRF patients. Currently, there are no other NQF-endorsed
pressure ulcer measures that are applicable to IRFs and we were unable
to identify other measures for pressure ulcers that have been endorsed
or adopted for the IRF context by a consensus organization. We are also
unaware of any other measures of pressure ulcers that have been
approved by voluntary consensus standards bodies. For these reasons, we
propose to adopt an application of this NQF-endorsed measure under the
Secretary's authority to select non-NQF endorsed measures where
measures do not exist for a specified area or medical topic. We also
intend to ask NQF to extend its endorsement of the existing short-stay
nursing home pressure ulcer measure to the IRF setting.
Pressure ulcers are high-volume and high-cost adverse events across
the spectrum of health care settings from acute hospitals to home
health. Patients in the IRF setting may have medically complex
conditions and severe functional limitations, and are therefore at high
risk for the development, or worsening, of pressure ulcers. Pressure
ulcers are serious medical conditions and an important measure of
quality. Pressure ulcers can lead to serious, life-threatening
infections, which substantially increase the total cost of care. As
reported in the August 22, 2007, Inpatient Hospital PPS Final Rule for
FY 2008 (72 FR 47205) in 2006 there were 322,946 reported cases of
Medicare patients with a pressure ulcer as a secondary diagnosis in
acute care hospitals.
5. Potential FY 2014 measure 3: 30-day Comprehensive All-Cause
Risk-Standardized Readmission Measure
Avoidable hospital readmissions are a high priority for HHS and
CMS. We are currently developing setting-specific risk adjusted 30-day
all-condition all-cause risk-standardized readmission measures for
hospitals, IRFs, long term care hospitals and nursing homes. The main
features of the measure methodology will be consistent with that of the
NQF-endorsed CMS hospital risk-adjusted 30-day readmission measures for
the Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia
and Percutaneous Coronary Intervention (PCI). We plan to cover the
maximum number of patient conditions possible in the all-condition
measures. We will consult literature and national experts and conduct
analyses on the types and comorbidities of the patients of each setting
in order to establish appropriate risk-adjustment of the measures as
well as the meaning/definition of readmission and the appropriate time-
window for readmission for each care setting. To expand beyond the
condition-specific measures to an all-condition readmission measure for
each setting, we will conduct analyses to determine whether it is
statistically and clinically sound to derive the all-condition measures
from one single risk adjustment model, or if it would be better to form
a composite of multiple models for multiple conditions. We plan to use
hierarchical logistic regression modeling to take into account the
effects of the clustering of patients and the sample size in the IRF
setting. This measure is expected to be completed in late 2011, at
which time it will be submitted to the entity with a contract under
section 1890(a) of the Act for endorsement.
We invite public comments on the proposed quality measures for FY
2014: (1) Urinary Catheter-Associated Urinary Tract Infections (CAUTI);
(2) Pressure Ulcers that are New or Have Worsened. We also invite
public comment on our intent to propose a 30-day Comprehensive All-
Cause Risk-Standardized Readmission Measure.

C. Data Submission Requirements

1. Proposed Method of Data Submission for HAI Measure (CAUTI)
We propose to require that IRFs submit data on the Urinary
Catheter-Associated Urinary Tract Infection (CAUTI) measure through the
Centers for Disease Control (CDC)/National Healthcare Safety Network
(NHSN). As we noted above, the NHSN is a secure, Internet-based
surveillance system maintained by the CDC that can be utilized by all
types of healthcare facilities in the United States, including acute
care hospitals, long term acute care hospitals, psychiatric hospitals,
rehabilitation hospitals, outpatient dialysis centers, ambulatory
surgery centers, and long term care facilities. The NHSN enables
healthcare facilities to collect and use data about HAIs, including
information on clinical practices known to prevent HAIs, information on
the incidence or prevalence of multidrug-resistant organisms within
their organizations, and information on other adverse events. Some
States use the NHSN as a means of collecting state law mandated HAI
reporting. NHSN collects data via a Web-based tool hosted by the CDC
(http://www.cdc.gov/). This reporting service is provided free of
charge to healthcare facilities. Additionally, the ability of the CDC
to receive NHSN measures data from electronic health records (EHR) may
be possible in the near future. Currently, more than 20 States require
hospitals to report HAIs using NHSN, and the CDC supports more 4,000
hospitals that are using the NHSN.
We propose for IRFs to submit the data elements needed to calculate
the Urinary Catheter-Associated Urinary Tract Infection measure using
the NHSN's standard data submission requirements which requires
submission of data on HAI events on all patients. Collecting data on
all patients will provide CMS with the most robust,

[[Page 24255]]

accurate reflection of the quality of care delivered to Medicare
beneficiaries as compared with non-Medicare patients. Therefore, to
measure the quality of care that is delivered to Medicare beneficiaries
in the IRF setting, we are proposing to collect quality data related to
HAI events on all patients regardless of payor.
CDC/NHSN requirements may include adherence to training
requirements, use of CDC measure specifications, data element
definitions, data submission requirements and instructions, data
reporting timeframes, as well as NHSN participation forms and
indications to CDC allowing CMS to access data for this measure for the
IRF quality reporting program purposes. Detailed requirements for NHSN
participation, measure specifications, and data collection can be found
at http://www.cdc.gov/nhsn/. We propose to require IRFs to use the
specifications and data collection tools for the proposed Urinary
Catheter-Associated Urinary Tract Infections as required by CDC as of
the time that the data is submitted.
For purposes of calculating the FY 2014 increase factor we propose
to collect data on CAUTI events that occur from October 1, 2012 through
December 31, 2012, the final fiscal quarter of FY 2013. We propose that
all subsequent IRF quality reporting cycles would be based on a full
calendar year (CY) cycle (that is January 1 through December 31 of the
applicable year). For example, the FY 2015 payment determinations will
be made based on CY 2013 data submitted to CDC. We welcome comments on
the proposed reporting cycle for IRFs.
Should this proposed measure be finalized, further details
regarding data submission and reporting requirements for this measure
will be posted on the CMS Web site http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ by no later than January 31, 2012.
IRFs are also encouraged to visit the CDC Web site http://www.cdc.gov/nhsn/ in order to review the NHSN enrollment and reporting
requirements.
2. Proposed Method of Data Submission for the Percent of Patients With
New or Worsened Pressure Ulcer Measure
We seek to implement the IRF Quality Reporting Program in a manner
that imposes as little burden as possible. IRFs already are required to
submit certain data for purposes of determining payment via the current
Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-
PAI). The IRF-PAI also includes currently optional ``quality
indicators'' (QI). To support the standardized collection and
calculation of quality measures specifically focused on IRF services,
we propose to modify the current IRF-PAI by replacing the current
optional pressure ulcer items in the QI section of the IRF-PAI with
mandatory pressure ulcer data elements for the proposed measure.
We propose for IRFs to submit the data needed to calculate the
measure ``Percent of Patients with New or Worsened Pressure Ulcers'' on
all Medicare patients. Therefore, to measure the quality of care that
is delivered to Medicare beneficiaries in the IRF setting, we are
proposing to collect quality data related to new or worsening pressure
ulcers on all Medicare patients.
We propose to use the IRF-PAI to collect pressure ulcer data
elements that would be similar to those collected through the Minimum
Data Set 3.0 (MDS 3.0), which is a reporting instrument that is used in
nursing homes. A draft of the proposed IRF-PAI revisions with the new
pressure ulcer elements is available on the CMS Web site at http://www.cms.gov/InpatientRehabFacPPS/04_IRFPAI.asp#TopOfPage. The current
MDS 3.0 pressure ulcer items evolved as an outgrowth of CMS' work to
develop a standardized patient assessment instrument, now referred to
as CARE (Continuity Assessment Record & Evaluation).
The CARE assessment instrument was developed and tested in the
post-acute care payment reform demonstration (PAC-PRD) which included
IRFs as required by section 5008 of the 2005 Deficit Reduction Act
(DRA) (Pub. L. 109-171, enacted February 8, 2006) (more information may
be found at http://www.pacdemo.rti.org). We note that the MDS data
elements were supported by the National Pressure Ulcer Advisory Panel
(NPUAP). We believe that modifying the current IRF-PAI pressure ulcer
items to be consistent with the standardized data elements now used in
the MDS 3.0, will drive uniformity across settings that will lead to
better quality of care in IRFs and ultimately, across the continuum of
care settings. If this proposal is finalized, additional details
regarding the use of modified IRF-PAI data elements to calculate this
measure will be published on the CMS Web site at http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ by no later than January 31, 2012.
We invite comments on these proposals for the submission of data on the
proposed quality measure for pressure ulcers.
3. Potential Method of Data Submission for the 30-day Comprehensive
All-Cause Risk-Standardized Readmission Measure
In the FY 2013 rule cycle we anticipate being able to propose using
claims data otherwise submitted by the IRF as the data to calculate
this measure. As such, we anticipate not needing additional reporting
to fulfill the data needs if this measure is proposed and adopted. We
generally anticipate calculating the measure based on 3 years of claims
data in order to provide a sufficient number of discharges to calculate
this measure.

D. Public Reporting

Under section 1886(j)(7)(E) of the Act, the Secretary is required
to establish procedures for making data submitted by IRFs under the IRF
quality reporting program available to the public. In accordance with
this provision, we propose to establish procedures to make the data
available to the public. We do not intend to make individual patient
data public. We believe that existing laws governing access to agency
records will adequately address requests for such data. We will adopt
procedures that will ensure that an IRF has the opportunity to review
the data to be made public prior to the data being made public.
Additionally, as required under section 1886(j)(7)(E) of the Act, we
will report quality measures that relate to services furnished in IRFs
on CMS Web site.

E. Quality Measures for Future Consideration for Determination of
Increase Factors for Future Fiscal Year Payments

As indicated previously in this section, we ultimately seek to
adopt a comprehensive set of quality measures to be available for
widespread use for informed decision making and quality improvement.
While we are beginning with a limited set of measures in the IRF
context, we expect to expand the measure set through rulemaking which
will allow us, for example, to assess an IRF patient's functional
status and whether he/she has achieved his or her rehabilitation goals
and potential. As noted above, IRFs are currently required to submit
certain data for purposes of determining payment via the IRF-PAI. The
IRF-PAI currently includes optional QIs, and, if finalized, it would
include mandatory data elements for use in the calculation of the
pressure ulcer measure. Only a small number of IRFs are currently
submitting data on the optional QI data elements.

[[Page 24256]]

We intend to propose a more robust set of measures for the IRF
quality reporting program in the FY 2013 rulemaking cycle for the
determination of the FY 2015 payment increase factor. We are
considering the measures listed in Table 13 which include, but are not
limited to, measure topics reported by providers of skilled nursing
facility (SNF) services for short stay nursing home patients. We invite
public comment on which quality measures would be considered most
feasible and useful for IRFs to report for purposes of the FY 2015
payment update.
The quality data on short stay nursing home patients, which
generates the short stay nursing home measures, are generated from the
MDS 3.0 data collection vehicle. We are currently analyzing the quality
data collected by nursing homes through the 3.0 version of the MDS
which was implemented nationally in nursing homes in October 2010.
Nursing homes are reporting data for long stay residents as well as
short stay residents. We will be analyzing the performance of these
nursing home measures through the end of 2011 and expect to have
findings on their performance in the nursing home setting by early
2012. Next steps would include analyzing whether any of these measures
would be appropriate for application in the IRF setting. We would
invite public comment on the application of some or all of the short
stay nursing home measures listed below. We are seeking NQF endorsement
of these measures by August 2011. These measures may also be found at
the NQF Web site http://www.qualityforum.org/. CMS' short stay nursing
home measures undergoing NQF endorsement include NH-010-10 percent of
residents who self-report moderate to severe pain; NH-014-10 percent of
residents assessed and appropriately given the seasonal influenza
vaccine; NH-016-10 percent of residents assessed and appropriately
given the seasonal pneumococcal vaccine and NH-009-10 percentage of
residents on a scheduled pain medication regimen on admission who self-
report a decrease in pain intensity or frequency.
If any of the short stay nursing home measures are appropriate for
application to the IRF setting we would intend to propose some or all
of those measures in the FY 2013 rulemaking cycle. Any added measures
proposed through the FY 2013 rulemaking cycle would apply to the
payment determination for FY 2015. We expect that any measures proposed
through the FY 2013 rulemaking cycle would require changes to the IRF-
PAI as a data collection vehicle and changes to the supporting
information technology (IT) infrastructure. We expect that it would
take providers, vendors, and CMS approximately one year to make the
necessary changes to their IT systems to support the collection and
reporting of new or modified IRF-PAI data elements. We would expect
providers, vendors, and CMS to complete any needed changes to their IT
systems by August 2013. We would intend to propose IRFs submit any
additional or revised IRF-PAI data elements starting October 1, 2013
through December 31, 2013 for the FY 2015 payment update.
Alternatively, we are considering and invite public comment on the
possibility of basing future quality measures on data sources or
assessment instruments other than the IRF-PAI. As stated earlier, we
developed and tested the CARE assessment instrument for the post-acute
demonstration under section 5008 of the DRA. We intend to submit a
report to Congress by the end of 2011 with findings from the three year
Post Acute Care-Payment Reform Demonstration (PAC-PRD) and its use of
the CARE patient assessment instrument as a data collection vehicle.
More details on the PAC-PRD which concluded in late 2010 are available
at http://www.pacdemo.rti.org. We believe that the data elements that
were collected using this CARE standardized assessment instrument could
be used across all post-acute care sites to measure functional status
and other factors during treatment and at discharge which are key
indicators of quality in IRFs and in nursing homes treating short stay
patients requiring rehabilitative services. We believe the instrument
could be beneficial in supporting the submission of data on quality
measures by IRFs and other care settings by ensuring standardized data
collection. We invite comments on the use of a standardized assessment
instrument such as the CARE assessment instrument in IRFs to collect
data that would generate additional quality measures for the IRF
quality reporting program in the future.
We also invite public comment on the measures and measures topics
in Table 13, as well as potential methods for collecting quality data
on the percent of patients whose individually stated goals were met and
the percent of patients for whom care delivered was consistent with
patient stated care preferences. During the NQF endorsement process for
nursing home quality measures mentioned above, the NQF steering
committee pointed to the need for CMS to consider pairing pain measures
with a measure or measures that reflect patients' preferences for how
their care, treatment and symptoms are managed by healthcare providers.
These items, and other items in Table 13, are under consideration for
future years. We also invite other suggestions regarding our
implementation of the IRF quality measures program.
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP29AP11.020

BILLING CODE 4120-01-C

F. Proposed New Regulation Text for the IRF Quality Reporting Program

To implement the new IRF quality reporting program, we propose to
re-designate the existing paragraph Sec. 412.624(c)(4) as Sec.
412.624(c)(5) and add a new paragraph Sec. 412.624(c)(4). The specific
proposed changes to the regulations at part 412 are shown in the
``Regulation Text'' of this proposed rule of this proposed rule. We
encourage stakeholder comment on these proposed changes.

[[Page 24258]]

X. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
This proposed rule does not impose any new information collection
requirements as outlined in the regulation text. However, this proposed
rule does make reference to associated information collections that are
not discussed in the regulation text contained in this document. The
following is a discussion of these information collections, some of
which have already received OMB approval.
As stated in Section IX.B. of the preamble of this proposed rule,
for purposes of calculating the FY 2014 IRF PPS increase factor, we
propose that IRFs submit data on 2 quality measures. These quality
measures are: (1) Catheter Associated Urinary Tract Infections; and (2)
Pressure Ulcers that are New or Have Worsened. The aforementioned
measures will be collected via the following respective means.

Catheter Associated Urinary Tract Infections (CAUTI)

Regarding the collection of data on the first quality measure,
Catheter Associated Urinary Tract Infections, we propose to require as
the form and manner of submission for the measure, CAUTI rate per 1000
urinary catheter days, to be through the Centers for Disease Control
(CDC)/National Health Safety Network (NHSN). Data collection by the
NHSN occurs via a Web-based tool hosted by the CDC. This reporting
service is provided free of charge to healthcare facilities. In fact,
some IRFs are already using the NHSN to collect and submit this data.
With this proposed rule, CMS seeks to impose an information collection
requirement for the CAUTI measure. It should be noted that information
collection activities associated with the CDC/NHSN are currently
approved under OMB control number 0920-0666. Detailed requirements for
NHSN participation, measure specifications, and data collection can be
found at http://www.cdc.gov/nhsn/. IRFs must use the current
specifications and data collection tools for Catheter Associated
Urinary Tract Infections.
CMS does not currently require IRFs to report data to NHSN;
however, according to the CDC, there are 26 IRFs that already submit
data to NHSN either voluntarily or per state mandate. In order to
report data to NHSN, the CDC requires the facility to enroll into the
NHSN and take specified training. As per the NHSN Web site, we estimate
that it will take 240 minutes (4 hours) to register and complete the
necessary training provided by the CDC. The estimated annual burden
associated with this requirement is 268,800 minutes/4,480 hours (240
minutes x 1,120 IRFs) at an estimated cost of $186,323. This cost is
estimated using the average hourly wage of a Registered Nurse which is
reported by the U.S. Bureau of Statistics to be $41.59. Once each
facility has been properly registered into NHSN and trained, they will
need to submit two types of forms in order for CDC to calculate the
CAUTI rate per 1,000 urinary catheter days. The first form, the Urinary
Tract Infection (UTI) form, is submitted by facilities for each patient
with a CAUTI. We estimate that it will take 15 minutes per form per
IRF. This time estimate consists of 5 minutes of nursing time needed to
collect the clinical data and 10 minutes of clerical time necessary to
enter the data into NHSN. We further anticipate that there will be
approximately 2.25 forms submitted per IRF per month. Based on this
estimate, we expect for each IRF to expend 33.75 minutes (0.5625 hours)
per month and 405 minutes (6.75 hours) per year reporting to NHSN. The
estimated annual burden to all IRFs in the U.S. for reporting to NHSN
is 7,735.5 hours. The estimated cost per IRF is $186.14 per year.
Similarly, the estimated total yearly cost across all IRFs is $213,322.
These costs are estimated using an hourly wage for a Registered Nurse
of $41.59 and a Medical Billing Clerk/Data Entry person of $20.57 as
stated by the U.S. Bureau of Labor Statistics. The second form, the
denominator form, is used to count daily the number of patients with an
indwelling catheter device. These daily counts are summed and only the
total for each month is submitted to NHSN. While CDC estimates that the
denominator form takes 5 hours per month to complete, we estimate that
it will take 2.5 hours per form per IRF per month, as the number of
patients with an indwelling catheter is the only part of this form that
IRFs will be required to complete. We anticipate that there will be one
form submitted per IRF per month. Based on this estimate, we expect for
each IRF to expend 150 minutes (2.5 hours) per month and 1,800 minutes
(30 hours) per year reporting to NHSN. The estimated annual burden to
all IRFs in the U.S. for reporting to NHSN is 34,380 hours. The
estimated cost per IRF is $1,247.70 per year. Similarly, the estimated
total yearly cost across all IRFs is $1,429,864. These costs are
estimated using an hourly wage for a Registered Nurse of $41.59.

Pressure Ulcers That Are New or Have Worsened

As stated in Section IX.C.2 of this preamble, to support the
standardized collection and calculation of quality measures
specifically focused on IRF services, we propose to modify the current
Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-
PAI) by replacing and harmonizing the pressure ulcer items with data
elements similar to those collected through the Minimum Data Set 3.0
(MDS 3.0) used in nursing homes. Additionally, the MDS 3.0 pressure
ulcer items have been harmonized with the Continuity Assessment Record
and Evaluation (CARE) data set, which was developed for and broadly
tested in the post-acute demonstration as required by section 5008 of
the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171, enacted on
February 8, 2006). We believe modifying the IRF-PAI pressure ulcer
items to be consistent with the standardized data elements now used in
the MDS 3.0, and supported by the National Pressure Ulcer Advisory
Panel (NPUAP), would provide better informed decision making and
quality improvement in IRFs and ultimately, across the continuum of
care settings.
Since all IRFs are already required to complete and transmit IRF-
PAIs on all Medicare Part A fee-for-service and Medicare Part C
(Medicare Advantage) patients in order to receive payment from
Medicare, and the number of IRFs submitting claims to Medicare has
remained stable over the past several years, we do not estimate that
there are any IRFs that would need to conduct additional training or
set-up for completing and transmitting the IRF-PAI. Thus, we do not
estimate any additional burden on IRFs for these

[[Page 24259]]

activities. In addition, we do not estimate any additional burden for
IRFs to complete the IRF-PAI with the mandatory quality measures as the
IRF-PAI currently contains a voluntary ``Quality Indicators'' section.
If finalized, the voluntary data items will be replaced with the
proposed pressure ulcer question set. When the original burden
estimates were completed for the IRF-PAI, we estimated that the
``Quality Indicators'' section of the IRF-PAI would take about 10
minutes to complete, and we assumed that all IRFs would complete the
Quality Indicators items, even though completion of this section was
voluntary. Thus, removing the Quality Indicators items from the IRF-PAI
would decrease the total estimated burden of completing each IRF-PAI by
about 10 minutes. However, we estimate that it will take about 10
minutes to complete the new pressure ulcer item that we are proposing
to require IRFs to complete as part of the new IRF quality reporting
program. Since the time to complete the items that we are proposing to
remove from the IRF-PAI is the same as the time to complete the new
items we are proposing to add, we estimate no net change in the amount
of time associated with completing each IRF-PAI and no net change in
burden.
We will be submitting a revision to the IRF-PAI information
collection request currently approved under OMB control number 0938-
0842 for OMB review and approval.
If you comment on these information collection and recordkeeping
requirements, please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget; Attention: CMS Desk Officer,
CMS-1349-P; Fax: (202) 395-6974; or E-mail: [email protected].

XI. Response to Public Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the data and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

XII. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction
We have examined the impacts of this proposed rule as required by
Executive Order 12866 (September 30, 1993, Regulatory Planning and
Review), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 2011), the Regulatory Flexibility Act (September
19, 1980, Pub. L. 96-354) (RFA), section 1102(b) of the Social Security
Act, section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), Executive Order 13132 on Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has been designated an ``economically''
significant rule, under section 3(f)(1) of Executive Order 12866.
Accordingly, the rule has been reviewed by the Office of Management and
Budget.
2. Statement of Need
This proposed rule updates the IRF prospective payment rates for FY
2012 as required under section 1886(j)(3)(C) of the Act. It responds to
Section 1886(j)(5) of the Act, which requires the Secretary to publish
in the Federal Register on or before the August 1 that precedes the
start of each fiscal year, the classification and weighting factors for
the IRF PPS's case-mix groups and a description of the methodology and
data used in computing the prospective payment rates for that fiscal
year.
This rule also proposes some policy changes within the statutory
discretion afforded to the Secretary under section 1886(j) of the Act.
We believe that the proposed policy changes would better align IRF PPS
policies with those of other Medicare payment systems and would clarify
the current IRF payment regulations. Further, many of the proposed
policy changes are designed to promote greater flexibility in the IRF
PPS policies.
This proposed rule also implements section 3401(d) of the
Affordable Care Act, which amended section 1886(j)(3)(C) of the Act and
added section 1886(j)(3)(D) of the Act. Section 1886(j)(3)(C) of the
Act requires the Secretary to estimate a multi-factor productivity
adjustment to the market basket increase factor, and to apply other
adjustments as defined by the Act. The productivity adjustment applies
to FYs from 2012 forward. The other adjustments apply to FYs 2010-2019.
Finally, this proposed rule discusses the IRF quality measures that
we are proposing to adopt for the first year of implementation of a new
IRF quality reporting program, as required by section 3004(b) of the
Affordable Care Act.
3. Overall Impacts
We estimate that the total impact of these proposed changes for
estimated FY 2012 payments compared to estimated FY 2011 payments would
be an increase of approximately $120 million (this reflects a $100
million increase from the update to the payment rates and a $20 million
increase due to the proposed update to the outlier threshold amount to
increase estimated outlier payments from approximately 2.7 percent in
FY 2011 to 3 percent in FY 2012).
4. Detailed Economic Analysis
i. Basis and Methodology of Estimates
This proposed rule sets forth updates of the IRF PPS rates
contained in the FY 2011 notice and proposes updates to the CMG
relative weights and average length of stay values, the facility-level
adjustments, the wage index, and the outlier threshold for high-cost
cases. This proposed rule also implements a 0.1 percentage point
reduction to the proposed FY 2012 rebased RPL market basket increase
factor (updated from a 2002 base year to a 2008 base year) in
accordance with sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of
the Act and a 1.2 percent productivity adjustment to the proposed FY
2012 rebased RPL market basket increase factor as required by section
1886(j)(3)(C)(ii)(I) of the Act.
We estimate that the FY 2012 impact would be a net increase of $120
million in payments to IRF providers (this reflects a $100 million
estimated increase from the proposed update to the payment rates and a
$20 million estimated increase due to the proposed update to the
outlier threshold amount to increase the estimated outlier payments
from approximately 2.7 percent in FY 2011 to 3.0 percent in FY 2012).
The impact analysis in Table 14 of this proposed rule represents the
projected effects of the proposed policy

[[Page 24260]]

changes in the IRF PPS for FY 2012 compared with estimated IRF PPS
payments in FY 2011 without the proposed policy changes. We estimate
the effects by estimating payments while holding all other payment
variables constant. We use the best data available, but we do not
attempt to predict behavioral responses to these proposed changes, and
we do not make adjustments for future changes in such variables as
number of discharges or case-mix.
We note that certain events may combine to limit the scope or
accuracy of our impact analysis, because such an analysis is future-
oriented and, thus, susceptible to forecasting errors because of other
changes in the forecasted impact time period. Some examples could be
legislative changes made by the Congress to the Medicare program that
would impact program funding, or changes specifically related to IRFs.
Although some of these changes may not necessarily be specific to the
IRF PPS, the nature of the Medicare program is such that the changes
may interact, and the complexity of the interaction of these changes
could make it difficult to predict accurately the full scope of the
impact upon IRFs.
In updating the rates for FY 2012, we are proposing a number of
standard annual revisions and clarifications mentioned elsewhere in
this proposed rule (for example, the proposed update to the wage index
and market basket increase factor used to adjust the Federal rates). We
estimate that these proposed revisions would increase payments to IRFs
by approximately $100 million (all due to the update to the market
basket increase factor, since the update to the wage index is done in a
budget neutral manner--as required by statute--and therefore neither
increases nor decreases aggregate payments to IRFs).
The aggregate change in estimated payments associated with this
proposed rule is estimated to be an increase in payments to IRFs of
$120 million for FY 2012. The market basket increase of $100 million
and the $20 million increase due to the proposed update to the outlier
threshold amount to increase estimated outlier payments from
approximately 2.7 percent in FY 2011 to 3.0 percent in FY 2012 would
result in a net change in estimated payments from FY 2011 to FY 2012 of
$120 million.
The effects of the proposed changes that impact IRF PPS payment
rates are shown in Table 14. The following proposed changes that affect
the IRF PPS payment rates are discussed separately below:
The effects of the proposed update to the outlier
threshold amount, from approximately 2.7 to 3.0 percent of total
estimated payments for FY 2012, consistent with section 1886(j)(4) of
the Act.
The effects of the 2.8 percent annual market basket update
for FY 2012 (using the proposed rebased RPL market basket) to IRF PPS
payment rates, as required by section 1886(j)(3)(A)(i) and section
1886(j)(3)(C) of the Act, including a 0.1 percentage point reduction
for FY 2012 in accordance with sections 1886(j)(3)(C)(ii)(II) and
1886(j)(3)(D)(ii) of the Act and a 1.2 percent productivity adjustment
as required by section 1886(j)(3)(C)(ii)(I) of the Act.
The effects of applying the budget-neutral labor-related
share and wage index adjustment, as required under section 1886(j)(6)
of the Act.
The effects of the proposed budget-neutral changes to the
CMG relative weights and average length of stay values, under the
authority of section 1886(j)(2)(C)(i) of the Act.
The effects of the proposed budget-neutral changes to the
facility-level adjustment factors, as permitted under section
1886(j)(3)(A)(v) of the Act.
The effect of the data matching process to compute the DSH
patient percentage used in the IPPS DSH adjustment that is also used by
IRF PPS to compute the low-income percentage adjustment factor.
The effect of the proposed IRF quality reporting program,
Beginning in FY 2013.
The total proposed change in estimated payments based on
the FY 2012 proposed policies relative to estimated FY 2011 payments
without the proposed policies.
ii. Description of Table 14
The table below categorizes IRFs by geographic location, including
urban or rural location, and location with respect to CMS's nine census
divisions (as defined on the cost report) of the country. In addition,
the table divides IRFs into those that are separate rehabilitation
hospitals (otherwise called freestanding hospitals in this section),
those that are rehabilitation units of a hospital (otherwise called
hospital units in this section), rural or urban facilities, ownership
(otherwise called for-profit, non-profit, and government), and by
teaching status. The top row of the table shows the overall impact on
the 1,146 IRFs included in the analysis.
The next 12 rows of Table 14 contain IRFs categorized according to
their geographic location, designation as either a freestanding
hospital or a unit of a hospital, and by type of ownership; all urban,
which is further divided into urban units of a hospital, urban
freestanding hospitals, and by type of ownership; and all rural, which
is further divided into rural units of a hospital, rural freestanding
hospitals, and by type of ownership. There are 952 IRFs located in
urban areas included in our analysis. Among these, there are 749 IRF
units of hospitals located in urban areas and 203 freestanding IRF
hospitals located in urban areas. There are 194 IRFs located in rural
areas included in our analysis. Among these, there are 174 IRF units of
hospitals located in rural areas and 20 freestanding IRF hospitals
located in rural areas. There are 376 for-profit IRFs. Among these,
there are 314 IRFs in urban areas and 62 IRFs in rural areas. There are
710 non-profit IRFs. Among these, there are 589 urban IRFs and 121
rural IRFs. There are 60 government-owned IRFs. Among these, there are
49 urban IRFs and 11 rural IRFs.
The remaining three parts of Table 14 show IRFs grouped by their
geographic location within a region and by teaching status. First, IRFs
located in urban areas are categorized with respect to their location
within a particular one of the nine CMS geographic regions. Second,
IRFs located in rural areas are categorized with respect to their
location within a particular one of the nine CMS geographic regions. In
some cases, especially for rural IRFs located in the New England,
Mountain, and Pacific regions, the number of IRFs represented is small.
Finally, IRFs are grouped by teaching status, including non-teaching
IRFs, IRFs with an intern and resident to ADC ratio less than 10
percent, IRFs with an intern and resident to ADC ratio greater than or
equal to 10 percent and less than or equal to 19 percent, and IRFs with
an intern and resident to ADC ratio greater than 19 percent.
The estimated impacts of each proposed change to the facility
categories listed above are shown in the columns of Table 14. The
description of each column is as follows:
Column (1) shows the facility classification categories described
above.
Column (2) shows the number of IRFs in each category in our FY 2010
analysis file.
Column (3) shows the number of cases in each category in our FY
2010 analysis file.
Column (4) shows the estimated effect of the proposed adjustment to
the outlier threshold amount so that estimated outlier payments
increase

[[Page 24261]]

from approximately 2.7 percent in FY 2011 to 3.0 percent of total
estimated payments for FY 2012.
Column (5) shows the estimated effect of the rebased market basket
update to the IRF PPS payment rates.
Column (6) shows the estimated effect of the update to the IRF
labor-related share and wage index, in a budget neutral manner.
Column (7) shows the estimated effect of the update to the CMG
relative weights and average length of stay values, in a budget neutral
manner.
Column (8) shows the estimated effects of the updates to the
facility-level adjustment factors (rural, LIP, and teaching status), in
a budget neutral manner.
Column (9) compares our estimates of the payments per discharge,
incorporating all of the proposed changes reflected in this proposed
rule for FY 2012, to our estimates of payments per discharge in FY 2011
(without these proposed changes).
The average estimated increase for all IRFs is approximately 1.8
percent. This estimated increase includes the effects of the 1.5
percent market basket update, which is derived from a 2.8 percent
rebased market basket update that is reduced by 0.1 percentage point
for FY 2012 in accordance with sections 1886(j)(3)(C)(ii)(II) and
1886(j)(3)(D)(ii) of the Act and by a 1.2 percentage point productivity
adjustment as required by section 1886 (j)(3)(C)(ii)(I) of the Act. It
also includes the 0.3 percent overall estimated increase (the
difference between 2.7 percent in FY 2011 and 3.0 percent in FY 2012)
in estimated IRF outlier payments from the proposed update to the
outlier threshold amount. Because we are making the remainder of the
proposed changes outlined in this proposed rule in a budget-neutral
manner, they would not affect total estimated IRF payments in the
aggregate. However, as described in more detail in each section, they
would affect the estimated distribution of payments among providers.

[[Page 24262]]

[GRAPHIC] [TIFF OMITTED] TP29AP11.021

[[Page 24263]]

iii. Impact of the Proposed Update to the Outlier Threshold Amount
In the FY 2011 IRF PPS notice (75 FR 42836), we used FY 2009
patient-level claims data (the best, most complete data available at
that time) to set the outlier threshold amount for FY 2011 so that
estimated outlier payments would equal 3 percent of total estimated
payments for FY 2011. For this proposed rule, we are proposing to
update our analysis using more current FY 2010 data. Using the updated
FY 2010 data, we now estimate that IRF outlier payments, as a
percentage of total estimated payments for FY 2011, decreased from 3
percent using the FY 2009 data to approximately 2.7 percent using the
updated FY 2010 data. As a result, we are proposing to adjust the
outlier threshold amount for FY 2012 to $11,822, reflecting total
estimated outlier payments equal to 3 percent of total estimated
payments in FY 2012.
The impact of the proposed update to the outlier threshold amount
(as shown in column 4 of Table 14) is to increase estimated overall
payments to IRFs by 0.3 percent. We do not estimate that any group of
IRFs would experience a decrease in payments from this proposed update.
We estimate the largest increase in payments to be a 1.1 percent
increase in estimated payments to rural IRFs in the Pacific region.
iv. Impact of the Proposed Market Basket Update to the IRF PPS Payment
Rates
The proposed adjusted market basket update to the IRF PPS payment
rates is presented in column 5 of Table 14. The proposed FY 2008-based
RPL market basket update is the same as the FY 2002-based RPL market
basket (2.8 percent). In the aggregate the proposed update would result
in a net 1.5 percent increase in overall estimated payments to IRFs.
This net increase reflects the estimated rebased RPL market basket
increase factor for FY 2012 of 2.8 percent, reduced by 0.1 percentage
point in accordance with sections 1886(j)(3)(C)(ii)(II) and
1886(j)(3)(D)(ii) of the Act and a 1.2 percent productivity adjustment
as required by section 1886(j)(3)(C)(ii)(I) of the Act.
v. Impact of the Proposed CBSA Wage Index and Labor-Related Share
In column 6 of Table 14, we present the effects of the proposed
budget neutral update of the wage index and labor-related share. The
changes to the wage index and the labor-related share are discussed
together because the wage index is applied to the labor-related share
portion of payments, so the changes in the two have a combined effect
on payments to providers. As discussed in section V.A.4 of this
proposed rule, the labor-related share decreased from 75.271 percent in
FY 2011 to 70.334 percent in FY 2012.
In the aggregate, since these updates to the wage index and the
labor-related share are applied in a budget-neutral manner as required
under section 1886(j)(6) of the Act, we do not estimate that these
updates will affect overall estimated payments to IRFs. However, we
estimate that these proposed changes would have small distributional
effects. For example, we estimate a 0.9 percent increase in payments to
rural IRFs, with the largest increase in payments of 1.8 percent for
rural IRFs in the Mid-Atlantic region. We estimate the largest decrease
in payments from the proposed update to the CBSA wage index and labor-
related share to be a 1.1 percent decrease for urban IRFs in the New
England region.
vi. Impact of the Proposed Update to the CMG Relative Weights and
Average Length of Stay Values
In column 7 of Table 14, we present the effects of the proposed
budget neutral update of the CMG relative weights and average length of
stay values. In the aggregate we do not estimate that these proposed
updates will affect overall estimated payments to IRFs. However, we
estimate that these proposed updates will have small distributional
effects, with the largest increase in payments as a result of these
updates being a 0.2 percent increase to rural government IRFs. The
largest estimated decrease in payments as a result of these proposed
updates is a 0.1 percent decrease to urban for-profit IRFs and urban
IRFs in the Mountain region and East South Central region.
vii. Impact of the Proposed Update to the Rural, LIP, and Teaching
Status Adjustment Factors
In column 8 of Table 14, we present the effects of the proposed
budget neutral update to the rural, LIP, and teaching status adjustment
factors. In the aggregate, we do not estimate that these proposed
changes would affect overall estimated payments to IRFs. However, we
estimate that these proposed changes would have small distributional
effects. We estimate the largest increase in payments to be a 1.9
percent increase for IRFs in the rural Mid-Atlantic region. We estimate
the largest decrease in payments to be a 5.3 percent decrease for
teaching IRFs with resident to ADC ratios of greater than 19 percent.
viii. Impact of the IPPS Data Matching Process Changes on the IRF PPS
Calculation of the Low-Income Percentage Adjustment Factor
In section VII of this proposed rule, we note the recent revision
of the data matching process that is used to calculate the
disproportionate share hospital (DSH) patient percentage used in the
acute IPPS DSH adjustment. As we have stated previously, it is our
policy in calculating the LIP adjustment factor to use the same
disproportionate share hospital (DSH) patient percentage used in the
acute IPPS DSH adjustment. This would include the data matching
process. We are not able to provide a detailed analysis of the impact
of the revised data matching process. That is, it is not possible to
determine whether IRF LIP adjustment payments will generally increase
or decrease, because IRFs' SSI fractions will vary depending on various
factors, including the use of a more updated MedPAR claims data file,
use of a more updated SSI eligibility data file, and the other features
of the revised data matching process. See the FY 2011 IPPS final rule
(75 FR 50663 through 50664) for more information on the revised data
matching process.
ix. Impact of the Proposed IRF Quality Reporting Program Beginning in
FY 2013
As discussed in section IX.B. of this proposed rule, we propose to
begin collecting data on 2 quality measures from October 1, 2012
through December 31, 2012 (FY 2013). These quality measures are: (1)
Catheter Associated Urinary Tract Infections; and (2) Pressure Ulcers
that are New or Have Worsened. As discussed in section X. of this
proposed rule, we estimate that IRFs would incur costs associated with
the collection of these data, which we detail below.

Catheter Associated Urinary Tract Infections

As stated in section IX.C.1. of this proposed rule, we propose to
collect data on the first quality measure, Catheter Associated Urinary
Tract Infections, through the Centers for Disease Control (CDC)/
National Health Safety Network (NHSN). CMS does not currently require
IRFs to report data to NHSN. However, some IRFs submit data to NHSN
either voluntarily or per state mandate. According to the CDC, 26 IRFs
already report data to NHSN. We estimate that 1,120 IRFs (1146 minus
the 26 IRFs that are already reporting data to NHSN) would incur costs
for registering and completing the

[[Page 24264]]

necessary training provided by the CDC in FY 2012 in preparation for
submitting the data beginning on October 1, 2012 (FY 2013). We estimate
that registering and completing the necessary training of the required
personnel at each IRF would take 4 hours at a cost of $41.59 per hour,
at an estimated cost per IRF of $166.36 per IRF and a total estimated
cost across all IRFs of $186,323.
Once IRFs begin submitting data to the NHSN on Catheter Associated
Urinary Tract Infections by October 1, 2012 (FY 2013), they will need
to submit two types of forms in order for CDC to calculate the CAUTI
rate per 1000 urinary catheter days. We estimate that the first form,
the Urinary Tract Infection (UTI) form, will take 15 minutes per
reporting episode per IRF and that there will be approximately 2.25
NHSN submissions per IRF per month. Based on this estimate, we expect
for each IRF to expend 33.75 minutes (0.5625) hours per month and 405
minutes (6.75) hours per year reporting to NHSN. The estimated annual
burden to all IRFs in the U.S. for reporting to NHSN is 7,735.5 hours.
The estimated yearly cost per IRF is $186.14 and the estimated total
yearly cost across all IRFs is $213,322. While CDC estimates that the
second form, the denominator form used to count daily the number of
patients with an indwelling catheter device, will take 5 hours per
month to complete, we estimate that it will take 2.5 hours per form per
IRF per month as the number of patients with an indwelling catheter is
the only part of this form that IRFs will be required to complete. We
anticipate that there will be one form submitted per IRF per month and
each IRF will expend 150 minutes (2.5 hours) per month and 1,800
minutes (30 hours) per year reporting to NHSN. The estimated annual
burden to all IRFs in the U.S. for reporting to NHSN is 34,380 hours.
The estimated cost per IRF is $1,247.70 per year and the estimated
total yearly cost across all IRFs is $1,429,864. These costs are
estimated using an hourly wage for a Registered Nurse of $41.59 and a
Medical Billing Clerk/Data Entry person of $20.57.

Pressure Ulcers That Are New or Have Worsened

As stated in Section IX.C.2 of this proposed rule, we propose to
modify the current IRF-PAI by removing the items currently in the
``Quality Indicators'' section and replacing them with pressure ulcer
items similar to elements from the Minimum Data Set 3.0 (MDS 3.0)
nursing home instrument. Since all IRFs are already required to
complete and transmit IRF-PAIs on all Medicare Part A fee-for-service
and Medicare Part C (Medicare Advantage) patients in order to receive
payment from Medicare, and since the number of IRFs submitting claims
to Medicare has remained stable over the past several years, we do not
estimate that there are any IRFs that would need to conduct additional
training or set-up for completing and transmitting the IRF-PAI. Thus,
we do not estimate any additional cost to IRFs in FY 2012 for these
activities. In addition, since IRFs are already transmitting the IRF-
PAI form to CMS, we do not estimate any additional transmission costs
associated with the proposed IRF quality reporting program. Further, we
do not estimate any additional burden for IRFs to complete an IRF-PAI
with mandatory quality measures as the IRF-PAI currently contains a
voluntary ``Quality Indicators'' section, which will be replaced with
the proposed pressure ulcer question set. When the original burden
estimates were completed for the IRF-PAI, we estimated that the
``Quality Indicators'' section of the IRF-PAI would take about 10
minutes to complete, and we assumed that all IRFs would complete the
Quality Indicators items, even though completion of this section was
voluntary. Thus, removing the Quality Indicators items from the IRF-PAI
would decrease the total estimated burden of completing each IRF-PAI by
about 10 minutes. However, we estimate that it will take about 10
minutes to complete the new pressure ulcer item that we are proposing
to require IRFs to complete as part of the new IRF quality reporting
program. Since the time to complete the items that we are proposing to
remove from the IRF-PAI is the same as the time to complete the new
items we are proposing to add, we estimate no net change in the amount
of time or the costs associated with completing each IRF-PAI.
5. Alternatives Considered
Although we have determined that this proposed rule will not have a
significant economic impact on a substantial number of small entities,
we have voluntarily prepared a discussion on the alternatives
considered to the IRF PPS.
Section 1886(j)(3)(C) of the Act requires the Secretary to update
the IRF PPS payment rates by an increase factor that reflects changes
over time in the prices of an appropriate mix of goods and services
included in the covered IRF services. Thus, we did not consider
alternatives to updating payments using the estimated RPL market basket
increase factor for FY 2012. In this proposed rule, we are proposing to
rebase the RPL market basket for FY 2012, as we typically do every 5 to
7 years, from a 2002 base year to a 2008 base year. We considered not
proposing this rebasing of the RPL market basket for FY 2012; however,
periodically rebasing the RPL market basket ensures that it continues
to reflect the most accurate account of the cost of relevant goods and
services. For FY 2012, the proposed update on the FY 2008-based RPL
market basket is the same as the FY 2002-based RPL market basket (2.8
percent). In accordance with the recently amended section 1886(j)(3)(C)
of the Act, we are proposing to update IRF Federal prospective payments
in this proposed rule by 1.5 percent (which equals the 2.8 percent
estimated rebased RPL market basket increase factor for FY 2012 reduced
by 0.1 percentage point, as required by sections 1886(j)(3)(C)(ii)(II)
and 1886(j)(3)(D)(ii) of the Act and reduced by a 1.2 percent
productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of
the Act).
We considered maintaining the existing CMG relative weights and
average length of stay values for FY 2012. However, in light of
recently available data and our desire to ensure that the CMG relative
weights and average length of stay values are as reflective as possible
of recent changes in IRF utilization and case mix, we believe that it
is appropriate to update the CMG relative weights and average length of
stay values at this time to ensure that IRF PPS payments continue to
reflect as accurately as possible the current costs of care in IRFs.
We also considered maintaining the existing rural, LIP, and
teaching status adjustment factors for FY 2012. However, as a result of
recent changes in IRF utilization that have occurred because of changes
in the IRF compliance percentage and the consequences of recent IRF
medical necessity reviews, we believe that it is important to update
these adjustment factors at this time to ensure that payments to IRFs
reflect as accurately as possible the current costs of care in IRFs. In
estimating the proposed updates to the rural, LIP, and teaching status
adjustment factors, we implemented a 3-year moving average approach to
updating the facility-level adjustment factors in the FY 2010 IRF PPS
final rule (74 FR 39762) to provide greater stability and
predictability of Medicare payments for IRFs.
We considered maintaining the existing outlier threshold amount for
FY 2012. However, the proposed update to the outlier threshold amount
would have a positive impact on IRF providers

[[Page 24265]]

and, therefore, on small entities (as shown in Table 14, column 4). If
we were to maintain the FY 2011 outlier threshold amount, less outlier
cases would qualify for the additional outlier payments in FY 2012.
Analysis of updated FY 2010 data indicates that estimated outlier
payments would not equal 3 percent of estimated total payments for FY
2012 unless we proposed to update the outlier threshold amount. Thus,
we believe that this update is appropriate for FY 2012.
6. Accounting Statement
As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 15 below, we
have prepared an accounting statement showing the classification of the
transfers associated with the provisions of this proposed rule. This
table provides our best estimate of the increase in Medicare payments
under the IRF PPS as a result of the proposed changes presented in this
proposed rule based on the data for 1,146 IRFs in our database.
[GRAPHIC] [TIFF OMITTED] TP29AP11.022

7. Conclusion
Overall, the estimated payments per discharge for IRFs in FY 2012
are projected to increase by 1.8 percent, compared with those in FY
2011, as reflected in column 9 of Table 14. IRF payments are estimated
to increase 1.6 percent in urban areas and 3.4 percent in rural areas,
per discharge, compared with FY 2011. Payments to rehabilitation units
in urban areas are estimated to increase 1.4 percent per discharge.
Payments to rehabilitation freestanding hospitals in urban areas are
estimated to increase 1.8 percent per discharge. Payments to
rehabilitation units in rural areas are estimated to increase 3.3
percent per discharge, while payments to freestanding rehabilitation
hospitals in rural areas are estimated to increase 3.9 percent per
discharge.
Overall, the largest payment increase is estimated at 5.4 percent
for rural IRFs in the Mid-Atlantic region. The only payment decreases
we estimate are a 0.5 percent decrease, a 1.9 percent decrease, and a
3.9 percent decrease for teaching IRFs with resident to ADC ratios less
than 10 percent, 10 to 19 percent, and greater than 19 percent,
respectively.

B. Regulatory Flexibility Act Analysis

The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
governmental jurisdictions. Most IRFs and most other providers and
suppliers are small entities, either by nonprofit status or by having
revenues of $34.5 million in any one year. (For details, see the Small
Business Administration's Web site at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=text&node=13:1.0.1.1.16.1.266.9&idno=13) (refer to subsector 622). Because we
lack data on individual hospital receipts, we cannot determine the
number of small proprietary IRFs or the proportion of IRFs' revenue
that is derived from Medicare payments. Therefore, we assume that all
IRFs (an estimated 1,146 IRFs that are in our analysis file by virtue
of having submitted at least one IRF claim to Medicare in FY 2010 that
we are able to match to an IRF-PAI, of which approximately 60 percent
are nonprofit facilities) are considered small entities and that
Medicare payment constitutes the majority of their revenues. The
Department of Health and Human Services generally uses a revenue or
cost impact of 3 to 5 percent as a significance threshold under the
RFA. There is no negative estimated impact as a result of this proposed
rule that is within the significance threshold of 3 to 5 percent. As
shown in Table 14, we estimate that the net revenue impact, of this
proposed rule, on all IRFs is to increase estimated payments by about
1.8 percent, with an estimated increase in payments of 3 percent or
higher for some categories of IRFs (such as rural IRFs in the New
England, Mid-Atlantic, South Atlantic, East North Central, West North
Central, West South Central, and Mountain) and an estimated decrease in
payments of 3 percent or more for 15 teaching IRFs with resident to ADC
ratios greater than 19 percent. Therefore, the majority of IRFs will
experience a net positive increase in payments. As a result, the
Secretary has determined that this proposed rule would not have a
significant impact on a substantial number of small entities. We
present, in the Alternatives Considered section (XII.A.5) above, an
analysis of the alternatives we considered for this proposed IRF PPS
rule. Medicare fiscal intermediaries and carriers are not considered to
be small entities. Individuals and States are not included in the
definition of a small entity. We solicit comment on the RFA analysis.
In addition, section 1102(b) of the Act requires us to prepare a
RIA if a rule may have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must conform
to the provisions of section 603 of the RFA. For purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital that
is located outside of a MSA and has fewer than 100 beds. Based on the
data of the 174 rural units and 20 rural hospitals in our database of
1,146 IRFs, we estimate that small rural IRF hospitals would receive
between 2.6 percent and 5.4 percent higher net payments in FY 2012 due
to the provisions in this proposed rule, with no rural IRF hospitals
estimated to receive negative net payments. Thus, the Secretary has
determined that the rates and policies set forth in this proposed rule
would not have a significant impact on the operations of a substantial
number of small rural hospitals.

[[Page 24266]]

C. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any one year of
$100 million in 1995 dollars, updated annually for inflation. In 2011,
that threshold level is approximately $136 million. This proposed rule
will not impose spending costs on State, local, or tribal governments,
in the aggregate, or by the private sector, of $136 million.

XIII. Federalism Analysis

Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. This proposed rule would have no substantial direct
effect on State and local governments, preempt State law, or otherwise
have Federalism implications.

List of Subjects in 42 CFR 412

Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

1. The authority citation for part 412 continues to read as
follows:

Authority: Sections 1102, 1862, and 1871 of the Social Security
Act (42 U.S.C. 1302, 1395y, and 1395hh).

Subpart B--Hospital Services Subject to and Excluded From the
Prospective Payment Systems for Inpatient Operating Costs and
Inpatient Capital-Related Costs

2. Section 412.23 is amended by revising paragraph (b) to read as
follows:

Sec. 412.23 Excluded hospitals: Classifications.

* * * * *
(b) Rehabilitation hospitals. A rehabilitation hospital or unit
must meet the requirements specified in Sec. 412.29 of this subpart to
be excluded from the prospective payment systems specified in Sec.
412.1(a)(1) of this subpart and to be paid under the prospective
payment system specified in Sec. 412.1(a)(3) of this subpart and in
subpart P of this part.
* * * * *
3. Section 412.25 is amended by revising paragraphs (b) and
(e)(2)(ii)(A) to read as follows:

Sec. 412.25 Excluded hospital units: Common requirements.

* * * * *
(b) Changes in the size of excluded units. Except in the special
cases noted at the end of this paragraph, changes in the number of beds
or square footage considered to be part of an excluded unit under this
section are allowed one time during a cost reporting period if the
hospital notifies its Medicare contractor and the CMS RO in writing of
the planned change at least 30 days before the date of the change. The
hospital must maintain the information needed to accurately determine
costs that are attributable to the excluded unit. A change in bed size
or a change in square footage may occur at any time during a cost
reporting period and must remain in effect for the rest of that cost
reporting period. Changes in bed size or square footage may be made at
any time if these changes are made necessary by relocation of a unit to
permit construction or renovation necessary for compliance with changes
in Federal, State, or local law affecting the physical facility or
because of catastrophic events such as fires, floods, earthquakes, or
tornadoes.
* * * * *
(e) * * *
(2) * * *
(ii) * * *
(A) For a rehabilitation unit, the requirements under Sec. 412.29
of this subpart; or
* * * * *
4. Section 412.29 is revised to read as follows:

Sec. 412.29 Classification criteria for payment Under the Inpatient
Rehabilitation Facility Prospective Payment System.

To be excluded from the prospective payment systems described in
Sec. 412.1(a)(1) of this subpart and to be paid under the prospective
payment system specified in Sec. 412.1(a)(3) of this subpart, an
inpatient rehabilitation hospital or an inpatient rehabilitation unit
of a hospital (otherwise referred to as an IRF) must meet the following
requirements:
(a) Have (or be part of a hospital that has) a provider agreement
under part 489 of this chapter to participate as a hospital.
(b) Except in the case of a ``new'' IRF or ``new'' IRF beds, as
defined in paragraph (c) of this section, an IRF must show that, during
its most recent, consecutive, and appropriate 12-month time period (as
defined by CMS or the Medicare contractor), it served an inpatient
population that meets the following criteria:
(1) For cost reporting periods beginning on or after July 1, 2004,
and before July 1, 2005, the IRF served an inpatient population of whom
at least 50 percent, and for cost reporting periods beginning on or
after July 1, 2005, the IRF served an inpatient population of whom at
least 60 percent required intensive rehabilitation services for
treatment of one or more of the conditions specified at paragraph
(b)(2) of this section. A patient with a comorbidity, as defined at
Sec. 412.602 of this part, may be included in the inpatient population
that counts toward the required applicable percentage if--
(i) The patient is admitted for inpatient rehabilitation for a
condition that is not one of the conditions specified in paragraph
(b)(2) of this section;
(ii) The patient has a comorbidity that falls in one of the
conditions specified in paragraph (b)(2) of this section; and
(iii) The comorbidity has caused significant decline in functional
ability in the individual that, even in the absence of the admitting
condition, the individual would require the intensive rehabilitation
treatment that is unique to inpatient rehabilitation facilities paid
under subpart P of this part and that cannot be appropriately performed
in another care setting covered under this title.
(2) List of conditions.
(i) Stroke.
(ii) Spinal cord injury.
(iii) Congenital deformity.
(iv) Amputation.
(v) Major multiple trauma.
(vi) Fracture of femur (hip fracture).
(vii) Brain injury.
(viii) Neurological disorders, including multiple sclerosis, motor
neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's
disease.
(ix) Burns.
(x) Active, polyarticular rheumatoid arthritis, psoriatic
arthritis, and seronegative arthropathies resulting in significant
functional impairment of ambulation and other activities of daily
living that have not improved after an appropriate, aggressive, and
sustained course of outpatient therapy services or services in other
less intensive rehabilitation settings immediately preceding the
inpatient rehabilitation admission or that result from a systemic
disease activation immediately before admission, but have the potential
to

[[Page 24267]]

improve with more intensive rehabilitation.
(xi) Systemic vasculidities with joint inflammation, resulting in
significant functional impairment of ambulation and other activities of
daily living that have not improved after an appropriate, aggressive,
and sustained course of outpatient therapy services or services in
other less intensive rehabilitation settings immediately preceding the
inpatient rehabilitation admission or that result from a systemic
disease activation immediately before admission, but have the potential
to improve with more intensive rehabilitation.
(xii) Severe or advanced osteoarthritis (osteoarthrosis or
degenerative joint disease) involving two or more major weight bearing
joints (elbow, shoulders, hips, or knees, but not counting a joint with
a prosthesis) with joint deformity and substantial loss of range of
motion, atrophy of muscles surrounding the joint, significant
functional impairment of ambulation and other activities of daily
living that have not improved after the patient has participated in an
appropriate, aggressive, and sustained course of outpatient therapy
services or services in other less intensive rehabilitation settings
immediately preceding the inpatient rehabilitation admission but have
the potential to improve with more intensive rehabilitation. (A joint
replaced by a prosthesis no longer is considered to have
osteoarthritis, or other arthritis, even though this condition was the
reason for the joint replacement.)
(xiii) Knee or hip joint replacement, or both, during an acute
hospitalization immediately preceding the inpatient rehabilitation stay
and also meet one or more of the following specific criteria:
(A) The patient underwent bilateral knee or bilateral hip joint
replacement surgery during the acute hospital admission immediately
preceding the IRF admission.
(B) The patient is extremely obese with a Body Mass Index of at
least 50 at the time of admission to the IRF.
(C) The patient is age 85 or older at the time of admission to the
IRF.
(c) In the case of new IRFs (as defined in paragraph (c)(1) of this
section) or new IRF beds (as defined in paragraph (c)(2)of this
section), the IRF must provide a written certification that the
inpatient population it intends to serve meets the requirements of
paragraph (b) of this section. This written certification will apply
until the end of the IRF's first full 12-month cost reporting period
or, in the case of new IRF beds, until the end of the cost reporting
period during which the new beds are added to the IRF.
(1) New IRFs. An IRF hospital or IRF unit is considered new if it
has not been paid under the IRF PPS in subpart P of this part for at
least 5 calendar years. A new IRF will be considered new from the point
that it first participates in Medicare as an IRF until the end of its
first full 12-month cost reporting period.
(2) New IRF beds. Any IRF beds that are added to an existing IRF
must meet all applicable State Certificate of Need and State licensure
laws. New IRF beds may be added one time at any point during a cost
reporting period and will be considered new for the rest of that cost
reporting period. A full 12-month cost reporting period must elapse
between the delicensing or decertification of IRF beds in an IRF
hospital or IRF unit and the addition of new IRF beds to that IRF
hospital or IRF unit. Before an IRF can add new beds, it must receive
written approval from the appropriate CMS RO, so that the CMS RO can
verify that a full 12-month cost reporting period has elapsed since the
IRF has had beds delicensed or decertified. New IRF beds are included
in the compliance review calculations under paragraph (b) of this
section from the time that they are added to the IRF.
(3) Change of Ownership or Leasing. An IRF hospital or IRF unit
that undergoes a change of ownership or leasing, as defined in Sec.
489.18 of this chapter, retains its excluded status and will continue
to be paid under the prospective payment system specified in Sec.
412.1(a)(3) of this subpart before and after the change of ownership or
leasing if the new owner(s) of the IRF accept assignment of the
previous owners' Medicare provider agreement and the IRF continues to
meet all of the requirements for payment under the IRF prospective
payment system. If the new owner(s) do not accept assignment of the
previous owners' Medicare provider agreement, the IRF is considered to
be voluntarily terminated and the new owner(s) may re-apply to
participate in the Medicare program. If the IRF does not continue to
meet all of the requirements for payment under the IRF prospective
payment system, then the IRF loses its excluded status and is paid
according to the prospective payment systems described in Sec.
412.1(a)(1).
(4) Mergers. If an IRF hospital (or a hospital with an IRF unit)
merges with another hospital and the owner(s) of the merged hospital
accept assignment of the IRF hospital's provider agreement (or the
provider agreement of the hospital with the IRF unit), then the IRF
hospital or IRF unit retains its excluded status and will continue to
be paid under the prospective payment system specified in Sec.
412.1(a)(3) of this subpart before and after the merger, as long as the
IRF hospital or IRF unit continues to meet all of the requirements for
payment under the IRF prospective payment system. If the owner(s) of
the merged hospital do not accept assignment of the IRF hospital's
provider agreement (or the provider agreement of the hospital with the
IRF unit), then the IRF hospital or IRF unit is considered voluntarily
terminated and the owner(s) of the merged hospital may reapply to the
Medicare program to operate a new IRF.
(d) Have in effect a preadmission screening procedure under which
each prospective patient's condition and medical history are reviewed
to determine whether the patient is likely to benefit significantly
from an intensive inpatient hospital program. Each prospective
patient's preadmission screening must be reviewed and approved by a
rehabilitation physician prior to the patient's admission to the IRF.
(e) Ensure that the patients receive close medical supervision, as
evidenced by at least 3 face-to-face visits per week by a licensed
physician with specialized training and experience in inpatient
rehabilitation to assess the patient both medically and functionally,
as well as to modify the course of treatment as needed to maximize the
patient's capacity to benefit from the rehabilitation process.
(f) Furnish, through the use of qualified personnel, rehabilitation
nursing, physical therapy, and occupational therapy, plus, as needed,
speech-language pathology, social services, psychological services
(including neuropsychological services), and orthotic and prosthetic
services.
(g) Have a director of rehabilitation who--
(1) Provides services to the IRF hospital and its inpatients on a
full-time basis or, in the case of a rehabilitation unit, at least 20
hours per week;
(2) Is a doctor of medicine or osteopathy;
(3) Is licensed under State law to practice medicine or surgery;
and
(4) Has had, after completing a one-year hospital internship, at
least 2 years of training or experience in the medical-management of
inpatients requiring rehabilitation services.
(h) Have a plan of treatment for each inpatient that is
established, reviewed, and revised as needed by a physician in
consultation with other professional personnel who provide services to
the patient.

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(i) Use a coordinated interdisciplinary team approach in the
rehabilitation of each inpatient, as documented by the periodic
clinical entries made in the patient's medical record to note the
patient's status in relationship to goal attainment and discharge
plans, and that team conferences are held at least once per week to
determine the appropriateness of treatment.
(j) Retroactive adjustments. If a new IRF (or new beds that are
added to an existing IRF) are excluded from the prospective payment
systems specified in Sec. 412.1(a)(1) of this subpart and paid under
the prospective payment system specified in Sec. 412.1(a)(3) of this
subpart for a cost reporting period under paragraph (c) of this
section, but the inpatient population actually treated during that
period does not meet the requirements of paragraph (b) of this section,
we adjust payments to the IRF retroactively in accordance with the
provisions in Sec. 412.130 of this subpart.

Sec. 412.30 [Removed and Reserved]

5. Section 412.30 is removed and reserved.

Subpart P--Prospective payment for inpatient rehabilitation
hospitals and rehabilitation units

6. Section 412.624 is amended by:
A. Re-designating paragraph (c)(4) as (c)(5).
B. Adding a new paragraph (c)(4).
The addition reads as follows:

Sec. 412.624 Methodology for calculating the Federal prospective
payment rates.

* * * * *
(c) * * *
(4) Applicable increase factor for fiscal year 2014 and for
subsequent fiscal years. Subject to the provisions of paragraphs
(c)(4)(i) and (c)(4)(ii) of this section, the applicable increase
factor for fiscal year 2014 and for subsequent years for updating the
standard payment conversion factor is the increase factor described in
paragraph (a)(3) of this section, including adjustments described in
paragraph (d) of this section as appropriate.
(i) In the case of an IRF that is paid under the prospective
payment system specified in Sec. 412.1(a)(3) of this part that does
not submit quality data to CMS, in the form and manner specified by
CMS, the applicable increase factor specified in paragraph (a)(3) of
this section is reduced by 2 percentage points.
(ii) Any reduction of the increase factor will apply only to the
fiscal year involved and will not be taken into account in computing
the applicable increase factor for a subsequent fiscal year.
* * * * *

Authority: (Catalog of Federal Domestic Assistance Program No.
93.773, Medicare--Hospital Insurance; and Program No. 93.774,
Medicare--Supplementary Medical Insurance Program)

Dated: March 18, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Approved: April 18, 2011.
Kathleen Sebelius,
Secretary.
The following addendum will not appear in the Code of Federal
Regulations.

Addendum

In this addendum, we provide the wage index tables referred to
throughout the preamble to this proposed rule. The tables presented
below are as follows:
Table A.--Proposed Inpatient Rehabilitation Facility Wage Index
for Urban Areas for Discharges Occurring from October 1, 2011
through September 30, 2012.
Table B--Proposed Inpatient Rehabilitation Facility Wage Index
for Rural Areas for Discharges Occurring from October 1, 2011
through September 30, 2012.
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[FR Doc. 2011-10159 Filed 4-22-11; 4:15 pm]
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