[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR412.23]

[Page 505-510]
 
                         TITLE 42--PUBLIC HEALTH
 
                             HUMAN SERVICES
 
PART 412_PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL SERVICES--
Table of Contents
 
Subpart B_Hospital Services Subject to and Excluded From the Prospective 
  Payment Systems for Inpatient Operating Costs and Inpatient Capital-
                              Related Costs
 
Sec.  412.23  Excluded hospitals: Classifications.

    Hospitals that meet the requirements for the classifications set 
forth in this section are not reimbursed under the prospective payment 
systems specified in Sec.  412.1(a)(1):
    (a) Psychiatric hospitals. A psychiatric hospital must--
    (1) Meet the following requirements to be excluded from the 
prospective payment system as specified in Sec.  412.1(a)(1) and to be 
paid under the prospective payment system as specified in Sec.  
412.1(a)(2) and in subpart N of this part;
    (2) Be primarily engaged in providing, by or under the supervision 
of a psychiatrist, psychiatric services for the diagnosis and treatment 
of mentally ill persons; and
    (3) Meet the conditions of participation for hospitals and special 
conditions of participation for psychiatric hospitals set forth in part 
482 of this chapter.
    (b) Rehabilitation hospitals. A rehabilitation hospital must meet 
the following requirements 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:
    (1) Have a provider agreement under part 489 of this chapter to 
participate as a hospital.
    (2) Except in the case of a newly participating hospital seeking 
classification under this paragraph as a rehabilitation hospital for its 
first 12-month cost reporting period, as described in paragraph (b)(8) 
of this section, a hospital must show that during its most recent, 
consecutive, and appropriate 12-month time period (as defined by CMS or 
the fiscal intermediary), it served an inpatient population that meets 
the criteria under paragraph (b)(2)(i) or (b)(2)(ii) of this section.
    (i) For cost reporting periods beginning on or after July 1, 2004 
and before July 1, 2005, the hospital has served an inpatient population 
of whom at least 50 percent, and for cost reporting periods beginning on 
or after July 1, 2005 and before July 1, 2007, the hospital has served 
an inpatient population of whom at least 60 percent, and for cost 
reporting periods beginning on or after July 1, 2007 and before July 1, 
2008, the hospital has served an inpatient population of whom at least 
65 percent required intensive rehabilitative services for treatment of 
one or more of the conditions specified at paragraph

[[Page 506]]

(b)(2)(iii) of this section. A patient with a comorbidity, as defined at 
Sec.  412.602, may be included in the inpatient population that counts 
toward the required applicable percentage if--
    (A) The patient is admitted for inpatient rehabilitation for a 
condition that is not one of the conditions specified in paragraph 
(b)(2)(iii) of this section;
    (B) The patient has a comorbidity that falls in one of the 
conditions specified in paragraph (b)(2)(iii) of this section; and
    (C) The comorbidity has caused significant decline in functional 
ability in the individual such 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.
    (ii) For cost reporting periods beginning on or after July 1, 2008, 
the hospital has served an inpatient population of whom at least 75 
percent required intensive rehabilitative services for treatment of one 
or more of the conditions specified in paragraph (b)(2)(iii) of this 
section. A patient with a comorbidity as described in paragraph 
(b)(2)(i) of this section is not included in the inpatient population 
that counts toward the required 75 percent.
    (iii) List of conditions. (A) Stroke.
    (B) Spinal cord injury.
    (C) Congenital deformity.
    (D) Amputation.
    (E) Major multiple trauma.
    (F) Fracture of femur (hip fracture).
    (G) Brain injury.
    (H) Neurological disorders, including multiple sclerosis, motor 
neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's 
disease.
    (I) Burns.
    (J) 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 
improve with more intensive rehabilitation.
    (K) 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.
    (L) 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.)
    (M) 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:
    (1) The patient underwent bilateral knee or bilateral hip joint 
replacement surgery during the acute hospital admission immediately 
preceding the IRF admission.
    (2) The patient is extremely obese with a Body Mass Index of at 
least 50 at the time of admission to the IRF.

[[Page 507]]

    (3) The patient is age 85 or older at the time of admission to the 
IRF.
    (3) 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 or assessment.
    (4) Ensure that the patients receive close medical supervision and 
furnish, through the use of qualified personnel, rehabilitation nursing, 
physical therapy, and occupational therapy, plus, as needed, speech 
therapy, social or psychological services, and orthotic and prosthetic 
services.
    (5) Have a director of rehabilitation who--
    (i) Provides services to the hospital and its inpatients on a full-
time basis;
    (ii) Is a doctor of medicine or osteopathy;
    (iii) Is licensed under State law to practice medicine or surgery; 
and
    (iv) Has had, after completing a one-year hospital internship, at 
least two years of training or experience in the medical-management of 
inpatients requiring rehabilitation services.
    (6) 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.
    (7) Use a coordinated multidisciplinary team approach in the 
rehabilitation of each inpatient, as documented by periodic clinical 
entries made in the patient's medical record to note the patient's 
status in relationship to goal attainment, and that team conferences are 
held at least every two weeks to determine the appropriateness of 
treatment.
    (8) A hospital that seeks classification under this paragraph as a 
rehabilitation hospital for the first full 12-month cost reporting 
period that occurs after it becomes a Medicare-participating hospital 
may provide a written certification that the inpatient population it 
intends to serve meets the requirements of paragraph (b)(2) of this 
section, instead of showing that it has treated that population during 
its most recent 12-month cost reporting period. The written 
certification is also effective for any cost reporting period of not 
less than one month and not more than 11 months occurring between the 
date the hospital began participating in Medicare and the start of the 
hospital's regular 12-month cost reporting period.
    (9) For cost reporting periods beginning on or after October 1, 
1991, if a hospital is excluded from the prospective payment systems 
specified in Sec.  412.1(a)(1) or is paid under the prospective payment 
system specified in Sec.  412.1(a)(3) for a cost reporting period under 
paragraph (b)(8) of this section, but the inpatient population it 
actually treated during that period does not meet the requirements of 
paragraph (b)(2) of this section, we adjust payments to the hospital 
retroactively in accordance with the provisions in Sec.  412.130.
    (c) [Reserved]
    (d) Children's hospitals. A children's hospital must--
    (1) Have a provider agreement under part 489 of this chapter to 
participate as a hospital; and
    (2) Be engaged in furnishing services to inpatients who are 
predominantly individuals under the age of 18.
    (e) Long-term care hospitals. A long-term care hospital must meet 
the requirements of paragraph (e)(1) and (e)(2) of this section and, 
when applicable, the additional requirement of Sec.  412.22(e), to be 
excluded from the prospective payment system specified in Sec.  
412.1(a)(1) and to be paid under the prospective payment system 
specified in Sec.  412.1(a)(4) and in Subpart O of this part.
    (1) Provider agreements. The hospital must have a provider agreement 
under Part 489 of this chapter to participate as a hospital; and
    (2) Average length of stay. (i) The hospital must have an average 
Medicare inpatient length of stay of greater than 25 days (which 
includes all covered and noncovered days of stay of Medicare patients) 
as calculated under paragraph (e)(3) of this section; or
    (ii) For cost reporting periods beginning on or after August 5, 
1997, a hospital that was first excluded from the prospective payment 
system under this section in 1986 meets the length of stay

[[Page 508]]

criterion if it has an average inpatient length of stay for all 
patients, including both Medicare and non-Medicare inpatients, of 
greater than 20 days and demonstrates that at least 80 percent of its 
annual Medicare inpatient discharges in the 12-month cost reporting 
period ending in fiscal year 1997 have a principal diagnosis that 
reflects a finding of neoplastic disease as defined in paragraph 
(f)(1)(iv) of this section.
    (3) Calculation of average length of stay. (i) Subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average Medicare inpatient length of stay specified under paragraph 
(e)(2)(i) of this section is calculated by dividing the total number of 
covered and noncovered days of stay of Medicare inpatients (less leave 
or pass days) by the number of total Medicare discharges for the 
hospital's most recent complete cost reporting period. Subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average inpatient length of stay specified under paragraph 
(e)(2)(ii) of this section is calculated by dividing the total number of 
days for all patients, including both Medicare and non-Medicare 
inpatients (less leave or pass days) by the number of total discharges 
for the hospital's most recent complete cost reporting period.
    (ii) Effective for cost reporting periods beginning on or after July 
1, 2004, in calculating the hospital's average length of stay, if the 
days of a stay of an inpatient involves days of care furnished during 
two or more separate consecutive cost reporting periods, that is, an 
admission during one cost reporting period and a discharge during a 
future consecutive cost reporting period, the total number of days of 
the stay are considered to have occurred in the cost reporting period 
during which the inpatient was discharged. However, if after application 
of this provision, a hospital fails to meet the average length of stay 
specified under paragraphs (e)(2)(i) and (ii) of this section, Medicare 
will determine the hospital's average inpatient length of stay for cost 
reporting periods beginning on or after July 1, 2004, but before July 1, 
2005, by dividing the applicable total days for Medicare inpatients 
under paragraph (e)(2)(i) of this section or the total days for all 
inpatients under paragraph (e)(2)(ii) of this section, during the cost 
reporting period when they occur, by the number of discharges occurring 
during the same cost reporting period.
    (iii) If a change in a hospital's average length of stay specified 
under paragraph (e)(2)(i) or paragraph (e)(2)(ii) of this section is 
indicated, the calculation is made by the same method for the period of 
at least 5 months of the immediately preceding 6-month period.
    (iv) If a hospital has undergone a change of ownership (as described 
in Sec.  489.18 of this chapter) at the start of a cost reporting period 
or at any time within the period of at least 5 months of the preceding 
6-month period, the hospital may be excluded from the prospective 
payment system as a long-term care hospital for a cost reporting period 
if, for the period of at least 5 months of the 6 months immediately 
preceding the start of the period (including time before the change of 
ownership), the hospital has the required average length of stay, 
continuously operated as a hospital, and continuously participated as a 
hospital in Medicare.
    (4) Rules applicable to new long-term care hospitals--(i) 
Definition. For purposes of payment under the long-term care hospital 
prospective payment system under subpart O of this part, a new long-term 
care hospital is a provider of inpatient hospital services that meets 
the qualifying criteria in paragraphs (e)(1) and (e)(2) of this section 
and, under present or previous ownership (or both), its first cost 
reporting period as a LTCH begins on or after October 1, 2002.
    (ii) Satellite facilities and remote locations of hospitals seeking 
to become new long-term care hospitals. Except as specified in paragraph 
(e)(4)(iii) of this section, a satellite facility (as defined in Sec.  
412.22(h)) or a remote location of a hospital (as defined in Sec.  
413.65(a)(2) of this chapter) that voluntarily reorganizes as a separate 
Medicare participating hospital, with or without a concurrent change in 
ownership, and that seeks to qualify as a new long-term care hospital 
for Medicare payment purposes must demonstrate through

[[Page 509]]

documentation that it meets the average length of stay requirement as 
specified under paragraphs (e)(2)(i) or (e)(2)(ii) of this section based 
on discharges that occur on or after the effective date of its 
participation under Medicare as a separate hospital.
    (iii) Provider-based facility or organization identified as a 
satellite facility and remote location of a hospital prior to July 1, 
2003. Satellite facilities and remote locations of hospitals that became 
subject to the provider-based status rules under Sec.  413.65 as of July 
1, 2003, that become separately participating hospitals, and that seek 
to qualify as long-term care hospitals for Medicare payment purposes may 
submit to the fiscal intermediary discharge data gathered during 5 
months of the immediate 6 months preceding the facility's separation 
from the main hospital for calculation of the average length of stay 
specified under paragraph (e)(2)(i) or paragraph (e)(2)(ii) of this 
section.
    (f) Cancer hospitals--(1) General rule. Except as provided in 
paragraph (f)(2) of this section, if a hospital meets the following 
criteria, it is classified as a cancer hospital and is excluded from the 
prospective payment systems beginning with its first cost reporting 
period beginning on or after October 1, 1989. A hospital classified 
after December 19, 1989, is excluded beginning with its first cost 
reporting period beginning after the date of its classification.
    (i) It was recognized as a comprehensive cancer center or clinical 
cancer research center by the National Cancer Institute of the National 
Institutes of Health as of April 20, 1983.
    (ii) It is classified on or before December 31, 1990, or, if on 
December 19, 1989, the hospital was located in a State operating a 
demonstration project under section 1814(b) of the Act, the 
classification is made on or before December 31, 1991.
    (iii) It demonstrates that the entire facility is organized 
primarily for treatment of and research on cancer (that is, the facility 
is not a subunit of an acute general hospital or university-based 
medical center).
    (iv) It shows that at least 50 percent of its total discharges have 
a principal diagnosis that reflects a finding of neoplastic disease. 
(The principal diagnosis for this purpose is defined as the condition 
established after study to be chiefly responsible for occasioning the 
admission of the patient to the hospital. For the purposes of meeting 
this definition, only discharges with ICD-9-CM principal diagnosis codes 
of 140 through 239, V58.0, V58.1, V66.1, V66.2, or 990 will be 
considered to reflect neoplastic disease.)
    (2) Alternative. A hospital that applied for and was denied, on or 
before December 31, 1990, classification as a cancer hospital under the 
criteria set forth in paragraph (f)(1) of this section is classified as 
a cancer hospital and is excluded from the prospective payment systems 
beginning with its first cost reporting period beginning on or after 
January 1, 1991, if it meets the criterion set forth in paragraph 
(f)(1)(i) of this section and the hospital is--
    (i) Licensed for fewer than 50 acute care beds as of August 5, 1997;
    (ii) Is located in a State that as of December 19, 1989, was not 
operating a demonstration project under section 1814(b) of the Act; and
    (iii) Demonstrates that, for the 4-year period ending on December 
31, 1996, at least 50 percent of its total discharges have a principal 
diagnosis that reflects a finding of neoplastic disease as defined in 
paragraph (f)(1)(iv) of this section.
    (g) Hospitals outside the 50 States, the District of Columbia, or 
Puerto Rico. A hospital is excluded from the prospective payment systems 
if it is not located in one of the fifty States, the District of 
Columbia, or Puerto Rico.
    (h) Hospitals reimbursed under special arrangements. A hospital must 
be excluded from prospective payment for inpatient hospital services if 
it is reimbursed under special arrangement as provided in Sec.  
412.22(c).
    (i) Changes in classification of hospitals. For purposes of 
exclusions from the prospective payment system, the classification of a 
hospital is effective for the hospital's entire cost reporting

[[Page 510]]

period. Any changes in the classification of a hospital are made only at 
the start of a cost reporting period.

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 35688, Sept. 3, 1985; 
51 FR 22041, June 17, 1986; 51 FR 31496, Sept. 3, 1986; 52 FR 33057, 
Sept. 1, 1987; 55 FR 36068, Sept. 4, 1990; 55 FR 46887, Nov. 7, 1990; 56 
FR 43240, Aug. 30, 1991; 57 FR 39820, Sept. 1, 1992; 59 FR 45396, Sept. 
1, 1994; 60 FR 45846, Sept. 1, 1995; 62 FR 46026, Aug. 29, 1997; 66 FR 
39933, Aug. 1, 2001; 66 FR 41386, Aug. 7, 2001; 67 FR 56048, Aug. 30, 
2002; 68 FR 45469, Aug. 1, 2003; 69 FR 25720, May 7, 2004; 69 FR 25775, 
May 7, 2004; 69 FR 66976, Nov. 15, 2004; 71 FR 48408, Aug. 18, 2006]