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/ Wednesday, May 07, 2008
[Federal Register: May 7, 2008 (Volume 73, Number 89)]
[Notices]
[Page 25709-25749]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07my08-83]
[[Page 25709]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
[CMS-1401-N]
RIN 0938-AO92
Medicare Program; Inpatient Psychiatric Facilities Prospective
Payment System Payment Update for Rate Year Beginning July 1, 2008 (RY
2009)
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Notice.
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SUMMARY: This notice updates the prospective payment rates for Medicare
inpatient psychiatric hospital services provided by inpatient
psychiatric facilities (IPFs). These changes are applicable to IPF
discharges occurring during the rate year beginning July 1, 2008
through June 30, 2009.
DATES: Effective Date: The updated IPF prospective payment rates are
effective for discharges occurring on or after July 1, 2008 through
June 30, 2009.
FOR FURTHER INFORMATION CONTACT:
Dorothy Myrick or Jana Lindquist, (410) 786-4533 (for general
information).
Heidi Oumarou, (410) 786-7942 (for information regarding the market
basket and labor-related share).
Theresa Bean, (410) 786-2287 (for information regarding the regulatory
impact analysis).
Matthew Quarrick, (410) 786-9867 (for information on the wage index).
SUPPLEMENTARY INFORMATION:
Table of Contents
To assist readers in referencing sections contained in this
document, we are providing the following table of contents.
I. Background.
A. Annual Requirements for Updating the IPF PPS.
B. Overview of the Legislative Requirements of the IPF PPS.
C. IPF PPS-General Overview.
II. Transition Period for Implementation of the IPF PPS.
III. Updates to the IPF PPS for RY Beginning July 1, 2008.
A. Determining the Standardized Budget-Neutral Federal Per Diem
Base Rate.
1. Standardization of the Federal Per Diem Base Rate and
Electroconvulsive Therapy Rate.
2. Calculation of the Budget Neutrality Adjustment.
a. Outlier Adjustment.
b. Stop-Loss Provision Adjustment.
c. Behavioral Offset.
B. Update of the Federal Per Diem Base Rate and
Electroconvulsive Therapy Rate.
1. Market Basket for IPFs Reimbursed Under the IPF PPS.
a. Market Basket Index for the IPF PPS.
b. Overview of the RPL Market Basket.
2. Labor-Related Share.
3. IPFs Paid Based on a Blend of the Reasonable Cost-based
Payments.
IV. Update of the IPF PPS Adjustment Factors.
A. Overview of the IPF PPS Adjustment Factors.
B. Patient-Level Adjustments.
1. Adjustment for MS-DRG Assignment.
2. Payment for Comorbid Conditions.
3. Patient Age Adjustments.
4. Variable Per Diem Adjustments.
C. Facility-Level Adjustments.
1. Wage Index Adjustment.
a. Clarification of New England Deemed Counties.
b. Multi-campus-Wage Index Data Collection.
c. OMB Bulletins.
2. Adjustment for Rural Location.
3. Teaching Adjustment.
4. Cost of Living Adjustment for IPFs Located in Alaska and
Hawaii.
5. Adjustment for IPFs With a Qualifying Emergency Department
(ED).
D. Other Payment Adjustments and Policies.
1. Outlier Payments.
a. Update to the Outlier Fixed Dollar Loss Threshold Amount.
b. Statistical Accuracy of Cost-to-Charge Ratios.
2. Stop-Loss Provision.
V. Waiver of Proposed Rulemaking.
VI. Collection of Information Requirements.
VII. Regulatory Impact Analysis.
Addenda.
Acronyms
Because of the many terms to which we refer by acronym in this
notice, we are listing the acronyms used and their corresponding terms
in alphabetical order below:
BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113).
CBSA Core-Based Statistical Area.
CCR Cost-to-charge ratio.
CMSA Consolidated Metropolitan Statistical Area.
DSM-IV-TR Diagnostic and Statistical Manual of Mental Disorders Fourth
Edition--Text Revision.
DRGs Diagnosis-related groups.
FY Federal fiscal year.
ICD-9-CM International Classification of Diseases, 9th Revision,
Clinical Modification.
IPFs Inpatient psychiatric facilities.
IRFs Inpatient rehabilitation facilities.
LTCHs Long-term care hospitals.
MedPAR Medicare provider analysis and review file.
MSA Metropolitan Statistical Area.
RY Rate Year.
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-
248).
I. Background
A. Annual Requirements for Updating the IPF PPS
In November 2004, we implemented the IPF PPS in a final rule that
appeared in the November 15, 2004 Federal Register (69 FR 66922). In
developing the IPF PPS, in order to ensure that the IPF PPS is able to
account adequately for each IPF's case-mix, we performed an extensive
regression analysis of the relationship between the per diem costs and
certain patient and facility characteristics to determine those
characteristics associated with statistically significant cost
differences on a per diem basis. For characteristics with statistically
significant cost differences, we used the regression coefficients of
those variables to determine the size of the corresponding payment
adjustments.
In that final rule, we explained that we believe it is important to
delay updating the adjustment factors derived from the regression
analysis until we have IPF PPS data that includes as much information
as possible regarding the patient-level characteristics of the
population that each IPF serves. Therefore, we indicated that we did
not intend to update the regression analysis and recalculate the
Federal per diem base rate and the patient- and facility-level
adjustments until we complete that analysis. Until that analysis is
complete, we stated our intention to publish a notice in the Federal
Register each spring to update the IPF PPS (71 FR 27041).
Updates to the IPF PPS as specified in 42 CFR 412.428 include the
following:
A description of the methodology and data used to
calculate the updated Federal per diem base payment amount.
The rate of increase factor as described in Sec.
412.424(a)(2)(iii), which is based on the excluded hospital with
capital market basket under the update methodology of section
1886(b)(3)(B)(ii) of the Act for each year.
For discharges occurring on or after July 1, 2006, the
rate of increase factor for the Federal portion of the IPF's payment,
which is based on the rehabilitation, psychiatric, and long-term care
(RPL) market basket.
For discharges occurring on or after October 1, 2005, the
rate of increase factor for the reasonable cost portion of the IPF's
payment, which is based on the 2002-based excluded hospital market
basket.
The best available hospital wage index and information
regarding
[[Page 25710]]
whether an adjustment to the Federal per diem base rate, is needed to
maintain budget neutrality.
Updates to the fixed dollar loss threshold amount in order
to maintain the appropriate outlier percentage.
Description of the ICD-9-CM coding and DRG classification
changes discussed in the annual update to the hospital inpatient
prospective payment system (IPPS) regulations.
Update to the electroconvulsive therapy (ECT) payment by a
factor specified by CMS.
Update to the national urban and rural cost-to-charge
ratio medians and ceilings.
Update to the cost of living adjustment factors for IPFs
located in Alaska and Hawaii, if appropriate.
Our most recent annual update occurred in the May 2007 IPF PPS
notice (72 FR 25602) that set forth updates to the IPF PPS payment
rates for RY 2008.
This notice does not initiate any policy changes with regard to the
IPF PPS; rather, it simply provides an update to the rates for RY 2009
(that is, the prospective payment rates applicable for discharges
beginning July 1, 2008 through June 30, 2009). In establishing these
payment rates, we update the IPF per diem payment rates that were
published in the May 2007 IPF PPS notice in accordance with our
established policies.
B. Overview of the Legislative Requirements for the IPF PPS
Section 124 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999, (Pub.
L. 106-113) (BBRA) required implementation of the IPF PPS.
Specifically, section 124 of the BBRA mandated that the Secretary
develop a per diem PPS for inpatient hospital services furnished in
psychiatric hospitals and psychiatric units that includes an adequate
patient classification system that reflects the differences in patient
resource use and costs among psychiatric hospitals and psychiatric
units.
Section 405(g)(2) of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF
PPS to distinct part psychiatric units of critical access hospitals
(CAHs).
To implement these provisions, we published various proposed and
final rules in the Federal Register. For more information regarding
these rules, see the CMS Web sites http://www.cms.hhs.gov/
InpatientPsychFacilPPS/ and http://www.cms.hhs.gov/
InpatientpsychfacilPPS/02_regulations.asp.
C. IPF PPS--General Overview
The November 2004 IPF PPS final rule (69 FR 66922) established the
IPF PPS, as authorized under section 124 of the BBRA and codified at
subpart N of part 412 of the Medicare regulations. The November 2004
IPF PPS final rule set forth the per diem Federal rates for the
implementation year (that is, the 18-month period from January 1, 2005
through June 30, 2006) that provided payment for the inpatient
operating and capital costs to IPFs for covered psychiatric services
they furnish (that is, routine, ancillary, and capital costs), but not
costs of approved educational activities, bad debts, and other services
or items that are outside the scope of the IPF PPS. Covered psychiatric
services include services for which benefits are provided under the
fee-for-service Part A (Hospital Insurance Program) Medicare program.
The IPF PPS established the Federal per diem base rate for each
patient day in an IPF derived from the national average daily routine
operating, ancillary, and capital costs in IPFs in FY 2002. The average
per diem cost was updated to the midpoint of the first year under the
IPF PPS, standardized to account for the overall positive effects of
the IPF PPS payment adjustments, and adjusted for budget neutrality.
The Federal per diem payment under the IPF PPS is comprised of the
Federal per diem base rate described above and certain patient- and
facility-level payment adjustments that were found in the regression
analysis to be associated with statistically significant per diem cost
differences.
The patient-level adjustments include age, DRG assignment,
comorbidities, and variable per diem adjustments to reflect higher per
diem costs in the early days of an IPF stay. Facility-level adjustments
include adjustments for the IPF's wage index, rural location, teaching
status, a cost of living adjustment for IPFs located in Alaska and
Hawaii, and presence of a qualifying emergency department (ED).
The IPF PPS provides additional payments for: Outlier cases; stop-
loss protection (which is applicable only during the IPF PPS transition
period); interrupted stays; and a per treatment adjustment for patients
who undergo ECT.
A complete discussion of the regression analysis appears in the
November 2004 IPF PPS final rule (69 FR 66933 through 66936).
Section 124 of BBRA does not specify an annual update rate strategy
for the IPF PPS and is broadly written to give the Secretary discretion
in establishing an update methodology. Therefore, in the November 2004
IPF PPS final rule (69 FR 66966), we implemented the IPF PPS using the
following update strategy--(1) calculate the final Federal per diem
base rate to be budget neutral for the 18-month period of January 1,
2005 through June 30, 2006; (2) use a July 1 through June 30 annual
update cycle; and (3) allow the IPF PPS first update to be effective
for discharges on or after July 1, 2006 through June 30, 2007.
II. Transition Period for Implementation of the IPF PPS
In the November 2004 IPF PPS final rule, we established Sec.
412.426 to provide for a 3-year transition period from reasonable cost-
based reimbursement to full prospective payment for IPFs. The purpose
of the transition period is to allow existing IPFs time to adjust their
cost structures and to integrate the effects of changing to the IPF
PPS.
New IPFs, as defined in Sec. 412.426(c), are paid 100 percent of
the Federal per diem payment amount. For those IPFs that are
transitioning to the new system, payment is based on an increasing
percentage of the PPS payment and a decreasing percentage of each IPF's
facility-specific Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) reimbursement rate.
Table 1.--IPF PPS Transition Blend Factors
----------------------------------------------------------------------------------------------------------------
IPF PPS
Transition Year Cost reporting periods TEFRA rate federal rate
beginning on or after percentage percentage
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1............................................. January 1, 2005................ 75 25
2............................................. January 1, 2006................ 50 50
3............................................. January 1, 2007................ 25 75
[[Page 25711]]
January 1, 2008................. 0 100
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Changes to the blend percentages occur at the beginning of an IPF's
cost reporting period. However, regardless of when an IPF's cost
reporting year begins, the payment update will be effective for
discharges occurring on or after July 1, 2008 through June 30, 2009.
IPFs with cost reporting periods beginning January 1, 2008 will have
completed the transition period and will receive 100 percent IPF PPS
payments. Other IPFs with cost reporting periods beginning after
January 1, 2008, during 2008, will also begin to receive 100 percent
IPF PPS payments. This means that beginning January 1, 2009, all IPFs
will receive 100 percent IPF PPS payments and the IPF PPS transition
period will have ended.
For RY 2009, the transition period established in the November 2004
IPF PPS final rule will no longer be applied.
III. Updates to the IPF PPS for RY Beginning July 1, 2008
The Federal per diem base rate is used as the standard payment per
day under the IPF PPS and is adjusted by the applicable wage index
factor and the patient- and facility-level adjustments that are
applicable to the IPF stay. A detailed explanation of how we calculated
the average per diem cost appears in the November 2004 IPF PPS final
rule (69 FR 66926).
A. Determining the Standardized Budget-Neutral Federal Per Diem Base
Rate
Section 124(a)(1) of the BBRA requires that we implement the IPF
PPS in a budget neutral manner. In other words, the amount of total
payments under the IPF PPS, including any payment adjustments, must be
projected to be equal to the amount of total payments that would have
been made if the IPF PPS were not implemented. Therefore, we calculated
the budget-neutrality factor by setting the total estimated IPF PPS
payments to be equal to the total estimated payments that would have
been made under the TEFRA methodology had the IPF PPS not been
implemented.
Under the IPF PPS methodology, we calculated the final Federal per
diem base rate to be budget neutral during the IPF PPS implementation
period (that is, the 18-month period from January 1, 2005 through June
30, 2006) using a July 1 update cycle. We updated the average cost per
day to the midpoint of the IPF PPS implementation period (that is,
October 1, 2005), and this amount was used in the payment model to
establish the budget-neutrality adjustment.
A step-by-step description of the methodology used to estimate
payments under the TEFRA payment system appears in the November 2004
IPF PPS final rule (69 FR 66926).
1. Standardization of the Federal Per Diem Base Rate and
Electroconvulsive Therapy Rate
In the November 2004 IPF PPS final rule, we describe how we
standardized the IPF PPS Federal per diem base rate in order to account
for the overall positive effects of the IPF PPS payment adjustment
factors. To standardize the IPF PPS payments, we compared the IPF PPS
payment amounts calculated from the FY 2002 Medicare Provider Analysis
and Review (MedPAR) file to the projected TEFRA payments from the FY
2002 cost report file updated to the midpoint of the IPF PPS
implementation period (that is, October 2005). The standardization
factor was calculated by dividing total estimated payments under the
TEFRA payment system by estimated payments under the IPF PPS. The
standardization factor was calculated to be 0.8367.
As described in detail in the May 2006 IPF PPS final rule (71 FR
27045), in reviewing the methodology used to simulate the IPF PPS
payments used for the November 2004 IPF PPS final rule, we discovered
that due to a computer code error, total IPF PPS payments were
underestimated by about 1.36 percent. Since the IPF PPS payment total
should have been larger than the estimated figure, the standardization
factor should have been smaller (0.8254 vs. 0.8367). In turn, the
Federal per diem base rate and the ECT rate should have been reduced by
0.8254 instead of 0.8367.
To resolve this issue, in RY 2007, we amended the Federal per diem
base rate and the ECT payment rate prospectively. Using the
standardization factor of 0.8254, the average cost per day was
effectively reduced by 17.46 percent (100 percent minus 82.54 percent =
17.46 percent).
2. Calculation of the Budget Neutrality Adjustment
To compute the budget neutrality adjustment for the IPF PPS, we
separately identified each component of the adjustment, that is, the
outlier adjustment, stop-loss adjustment, and behavioral offset.
A complete discussion of how we calculate each component of the
budget neutrality adjustment appears in the November 2004 IPF PPS final
rule (69 FR 66932 through 66933) and in the May 2006 IPF PPS final rule
(71 FR 27044 through 27046).
a. Outlier Adjustment
Since the IPF PPS payment amount for each IPF includes applicable
outlier amounts, we reduced the standardized Federal per diem base rate
to account for aggregate IPF PPS payments estimated to be made as
outlier payments. The outlier adjustment was calculated to be 2
percent. As a result, the standardized Federal per diem base rate was
reduced by 2 percent to account for projected outlier payments.
b. Stop-Loss Provision Adjustment
As explained in the November 2004 IPF PPS final rule, we provided a
stop-loss payment during the transition from cost-based reimbursement
to the per diem payment system to ensure that an IPF's total PPS
payments were no less than a minimum percentage of their TEFRA payment,
had the IPF PPS not been implemented. We reduced the standardized
Federal per diem base rate by the percentage of aggregate IPF PPS
payments estimated to be made for stop-loss payments. As a result, the
standardized Federal per diem base rate was reduced by 0.39 percent to
account for stop-loss payments. Since the transition will be completed
for RY 2009, for cost reporting periods beginning on or after January
1, 2008, IPFs will be paid 100 percent PPS and, therefore, the stop
loss provision will no longer be applicable. We indicated in the
November 2004 IPF PPS final rule that we would remove this 0.39 percent
adjustment to the Federal per diem base rate after the transition (69
FR 66932). Therefore, for RY 2009, the Federal per diem base rate and
ECT rates will be increased by 0.39 percent.
[[Page 25712]]
c. Behavioral Offset
As explained in the November 2004 IPF PPS final rule,
implementation of the IPF PPS may result in certain changes in IPF
practices especially with respect to coding for comorbid medical
conditions. As a result, Medicare may make higher payments than assumed
in our calculations. Accounting for these effects through an adjustment
is commonly known as a behavioral offset.
Based on accepted actuarial practices and consistent with the
assumptions made in other PPSs, we assumed in determining the
behavioral offset that IPFs would regain 15 percent of potential
``losses'' and augment payment increases by 5 percent. We applied this
actuarial assumption, which is based on our historical experience with
new payment systems, to the estimated ``losses'' and ``gains'' among
the IPFs. The behavioral offset for the IPF PPS was calculated to be
2.66 percent. As a result, we reduced the standardized Federal per diem
base rate by 2.66 percent to account for behavioral changes. As
indicated in the November 2004 IPF PPS final rule, we do not plan to
change adjustment factors or projections, including the behavioral
offset, until we analyze IPF PPS data. At that time, we will re-assess
the accuracy of the behavioral offset along with the other factors
impacting budget neutrality.
If we find that an adjustment is warranted, the percent difference
may be applied prospectively to the established PPS rates to ensure the
rates accurately reflect the payment level intended by the statute. In
conducting this analysis, we will be interested in the extent to which
improved documentation and coding of patients' principal and other
diagnoses, which may not reflect real increases in underlying resource
demands, has occurred under the PPS.
B. Update of the Federal Per Diem Base Rate and Electroconvulsive
Therapy Rate
1. Market Basket for IPFs Reimbursed Under the IPF PPS
As described in the November 2004 IPF PPS final rule, the average
per diem cost was updated to the midpoint of the implementation year
(69 FR 66931). This updated average per diem cost of $724.43 was
reduced by 17.46 percent to account for standardization to projected
TEFRA payments for the implementation period, by 2 percent to account
for outlier payments, by 0.39 percent to account for stop-loss
payments, and by 2.66 percent to account for the behavioral offset. The
Federal per diem base rate in the implementation year was $575.95, the
per diem base rate for RY 2007 was $595.09, and the per diem base rate
for RY 2008 was $614.99.
Applying the market basket increase of 3.2 percent, the stop-loss
adjustment of 0.39 percent, and the wage index budget neutrality factor
of 1.0010 yields a Federal per diem base rate of $637.78 for RY 2009.
Similarly, applying the market basket increase, stop-loss adjustment,
and wage index budget neutrality factor to the RY 2008 ECT rate yields
an ECT rate of $274.58 for RY 2009.
a. Market Basket Index for the IPF PPS
The market basket index that was used to develop the IPF PPS was
the excluded hospital with capital market basket. The market basket was
based on 1997 Medicare cost report data and included data for Medicare
participating IPFs, inpatient rehabilitation facilities (IRFs), long-
term care hospitals (LTCHs), cancer, and children's hospitals.
We are presently unable to create a separate market basket
specifically for psychiatric hospitals due to the following two
reasons: (1) There is a very small sample size for free-standing
psychiatric facilities; and (2) there are limited expense data for some
categories on the free-standing psychiatric cost reports (for example,
approximately 4 percent of free-standing psychiatric facilities
reported contract labor cost data for FY 2002). However, since all
IRFs, LTCHs, and IPFs are now paid under a PPS, we are updating PPS
payments made under the IRF PPS, the IPF PPS, and the LTCH PPS, using a
market basket reflecting the operating and capital cost structures for
IRFs, IPFs, and LTCHs (hereafter referred to as the rehabilitation,
psychiatric, long-term care (RPL) market basket).
We have 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 are implemented in
regulations at Sec. 413.40. They are not reimbursed under a PPS. Also,
the FY 2002 cost structures for cancer and children's hospitals are
noticeably different than the cost structures of the IRFs, IPFs, and
LTCHs.
The services offered in IRFs, IPFs, and LTCHs are typically more
labor-intensive than those offered in cancer and children's hospitals.
Therefore, the compensation cost weights for IRFs, IPFs, and LTCHs are
larger than those in cancer and children's hospitals. In addition, the
depreciation cost weights for IRFs, IPFs, and LTCHs are noticeably
smaller than those for cancer and children's hospitals.
A complete discussion of the RPL market basket appears in the May
2006 IPF PPS final rule (71 FR 27046 through 27054).
b. Overview of the RPL Market Basket
The RPL market basket is a fixed weight, Laspeyres-type price
index. A market basket is described as a fixed-weight index because it
answers the question of how much it would cost, at another time, to
purchase the same mix of goods and services purchased to provide
hospital services in a base period. The effects on total expenditures
resulting from changes in the quantity or mix of goods and services
(intensity) purchased subsequent to the base period are not measured.
In this manner, the market basket measures only pure price change. Only
when the index is rebased would the quantity and intensity effects be
captured in the cost weights. Therefore, we rebase the market basket
periodically so that cost weights reflect changes in the mix of goods
and services that hospitals purchase (hospital inputs) to furnish
patient care between base periods.
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,
shifting the base year cost structure from FY 1997 to FY 2002).
Revising means changing data sources, methodology, or price proxies
used in the input price index. In 2006, we rebased and revised the
market basket used to update the IPF PPS. Table 2 below sets forth the
completed FY 2002-based RPL market basket including the cost
categories, weights, and price proxies.
[[Page 25713]]
Table 2.--FY 2002-Based RPL Market Basket Cost Categories, Weights, and Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2002-based
RPL market
Expense categories basket cost FY 2002-based RPL market basket price proxies
weight
--------------------------------------------------------------------------------------------------------------------------------------------------------
TOTAL...................................... 100.000
Compensation............................... 65.877
Wages and Salaries *................... 52.895 ECI-Wages and Salaries, Civilian Hospital Workers.
Employee Benefits *.................... 12.982 ECI-Benefits, Civilian Hospital Workers.
Professional Fees, Non-Medical 1A*......... 2.892 ECI-Compensation for Professional & Related occupations.
Utilities.................................. 0.656
Electricity............................ 0.351 PPI-Commercial Electric Power.
Fuel Oil, Coal, etc.................... 0.108 PPI-Commercial Natural Gas.
Water and Sewage....................... 0.197 CPI-U--Water & Sewage Maintenance.
Professional Liability Insurance........... 1.161 CMS Professional Liability Premium Index.
All Other Products and Services 19.265
All Other Products 13.323
Pharmaceuticals.................... 5.103 PPI Prescription Drugs.
Food: Direct Purchases............. 0.873 PPI Processed Foods & Feeds.
Food: Contract Service............. 0.620 CPI-U Food Away From Home.
Chemicals.......................... 1.100 PPI Industrial Chemicals.
Medical Instruments................ 1.014 PPI Medical Instruments & Equipment.
Photographic Supplies.............. 0.096 PPI Photographic Supplies.
Rubber and Plastics................ 1.052 PPI Rubber & Plastic Products.
Paper Products..................... 1.000 PPI Converted Paper & Paperboard Products.
Apparel............................ 0.207 PPI Apparel.
Machinery and Equipment............ 0.297 PPI Machinery & Equipment.
Miscellaneous Products **.......... 1.963 PPI Finished Goods less Food & Energy.
All Other Services 5.942
Telephone.......................... 0.240 CPI-U Telephone Services.
Postage............................ 0.682 CPI-U Postage.
All Other: Labor Intensive *....... 2.219 ECI-Compensation for Private Service Occupations.
All Other: Non-labor Intensive..... 2.800 CPI-U All Items.
Capital-Related Costs *** 10.149
Depreciation 6.186
Fixed Assets....................... 4.250 Boeckh Institutional Construction 23-year useful life.
Movable Equipment.................. 1.937 WPI Machinery & Equipment 11-year useful life.
Interest Costs 2.775
Nonprofit.............................. 2.081 Average yield on domestic municipal bonds (Bond Buyer 20 bonds) vintage-weighted (23
years).
For Profit............................. 0.694 Average yield on Moody's Aaa bond vintage-weighted (23 years).
Other Capital-Related Costs................ 1.187 CPI-U Residential Rent.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Labor-related.
** Blood and blood-related products is included in miscellaneous products.
*** A portion of capital costs (0.46) are labor-related.
Note: Due to rounding, weights may not sum to total.
For RY 2009, 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 Consumer Price Indexes (CPIs),
Producer Price Indexes (PPIs), and Employment Cost Indexes (ECIs) used
as proxies in this market basket meet these criteria.
We note that the proxies are the same as those used for the FY
1997-based excluded hospital with capital market basket. Because these
proxies meet our criteria of reliability, timeliness, availability, and
relevance, we believe they continue to be the best measure of price
changes for the cost categories. For further discussion on the FY 1997-
based excluded hospital with capital market basket, see the August 1,
2002 IPPS final rule (67 FR at 50042).
The RY 2009 (that is, beginning July 1, 2008) update for the IPF
PPS using the FY 2002-based RPL market basket and Global Insight's 1st
quarter 2008 forecast for the market basket components is 3.2 percent.
This includes increases in both the operating section and the capital
section for the 12-month RY period (that is, July 1, 2008 through June
30, 2009). Global Insight, Inc. is a nationally recognized economic and
financial forecasting firm that contracts with CMS to forecast the
components of the market baskets.
2. Labor-Related Share
Due to the variations in costs and geographic wage levels, we
believe that payment rates under the IPF PPS should continue to be
adjusted by a geographic wage index. This wage index applies to the
labor-related portion of the Federal per diem base rate, hereafter
referred to as the labor-related share.
The labor-related share is determined by identifying the national
average proportion of operating costs that are related to, influenced
by, or vary with the local labor market. Using our current definition
of labor-related, the labor-related share is the sum of the relative
importance of wages and salaries, fringe benefits, professional fees,
labor-intensive services, and a portion of the capital share from an
appropriate market basket. We used the FY 2002-based RPL market basket
cost weights
[[Page 25714]]
relative importance to determine the labor-related share for the IPF
PPS.
The labor-related share for RY 2009 is the sum of the RY 2009
relative importance of each labor-related cost category, and reflects
the different rates of price change for these cost categories between
the base year (FY 2002) and RY 2009. The sum of the relative importance
for the RY 2009 operating costs (wages and salaries, employee benefits,
professional fees, and labor-intensive services) is 71.681, as shown in
Table 3 below. The portion of capital that is influenced by the local
labor market is estimated to be 46 percent, which is the same
percentage used in the FY 1997-based IRF and IPF payment systems.
Since the relative importance for capital is 8.586 percent of the
FY 2002-based RPL market basket in RY 2009, we are taking 46 percent of
8.586 percent to determine the labor-related share of capital for RY
2009. The result is 3.950 percent, which we added to 71.681 percent for
the operating cost amount to determine the total labor-related share
for RY 2009. Thus, the labor-related share that we are using for IPF
PPS in RY 2009 is 75.631 percent. Table 3 below shows the RY 2009
labor-related share using the FY 2002-based RPL market basket. We note
that this labor-related share is determined by using the same
methodology as employed in calculating all previous IPF labor-related
shares.
A complete discussion of the IPF labor-related share methodology
appears in the November 2004 IPF PPS final rule (69 FR 66952 through
66954).
Table 3.--Total Labor-Related Share--Relative Importance for RY 2009
------------------------------------------------------------------------
FY 2002-based FY 2002-based
RPL Market RPL Market
Basket Relative Basket Relative
Cost category Importance Importance
(Percent) RY (Percent) RY
2008 * 2009 **
------------------------------------------------------------------------
Wages and salaries.................... 52.588 52.645
Employee benefits..................... 14.127 14.004
Professional fees..................... 2.907 2.895
All other labor-intensive services.... 2.145 2.137
SUBTOTAL.......................... 71.767 71.681
---------------------------------
Labor-related share of capital costs 4.021 3.950
(0.46)...............................
=================================
TOTAL............................. 75.788 75.631
------------------------------------------------------------------------
* Based on 2007 1st Quarter forecast.
** Based on 2008 1st Quarter forecast.
3. IPFs Paid Based on a Blend of the Reasonable Cost-Based Payments
As stated in the FY 2006 IPPS final rule (70 FR 47399), for IPFs
that are transitioning to the fully Federal prospective payment rate,
we will continue using the rebased and revised FY 2002-based excluded
hospital market basket to update the reasonable cost-based portion of
their payments.
For RY 2009, all IPFs will have fully transitioned to PPS payment
and therefore, be paid based on 100 percent IPF PPS. The reasonable
cost-based payment which is subject to TEFRA limits will no longer be
applied.
IV. Update of the IPF PPS Adjustment Factors
A. Overview of the IPF PPS Adjustment Factors
The IPF PPS payment adjustments were derived from a regression
analysis of 100 percent of the FY 2002 MedPAR data file, which
contained 483,038 cases. We used the same results of this regression
analysis to implement the November 2004 and May 2006 IPF PPS final
rules. While we have since used more recent claims data to set the
fixed dollar loss threshold amount, we use the same results of this
regression analysis to update the IPF PPS for RY 2008 as well as RY
2009.
As previously stated, we do not plan to update the regression
analysis until we analyze IPF PPS data. We plan to monitor claims and
payment data independently from cost report data to assess issues, or
whether changes in case-mix or payment shifts have occurred between
free standing governmental, non-profit and private psychiatric
hospitals, and psychiatric units of general hospitals, and other issues
of importance to psychiatric facilities.
A complete discussion of the data file used for the regression
analysis appears in the November 2004 IPF PPS final rule (69 FR 66935
through 66936).
B. Patient-Level Adjustments
In the May 2006 IPF PPS final rule (71 FR 27040) for RY 2007 and in
the May 2007 IPF PPS notice (72 FR 25602) for RY 2008, we provided
payment adjustments for the following patient-level characteristics:
DRG assignment of the patient's principal diagnosis; selected
comorbidities; patient age; and the variable per diem adjustments. As
previously stated in the November 2004 IPF PPS final rule, we do not
intend to update the adjustment factors derived from the regression
analysis until we analyze IPF PPS data that include as much information
as possible regarding the patient-level characteristics of the
population that each IPF serves.
1. Adjustment for MS-DRG Assignment
The IPF PPS includes payment adjustments for the psychiatric DRG
assigned to the claim based on each patient's principal diagnosis. In
the May 4, 2007 IPF PPS update notice (72 FR 25602), we explained that
the IPF PPS includes 15 diagnosis-related group (DRG) adjustment
factors. The adjustment factors were expressed relative to the most
frequently reported psychiatric DRG in FY 2002, that is, DRG 430
(psychoses). The coefficient values and adjustment factors were derived
from the regression analysis.
In accordance with Sec. 412.27(a), payment under the IPF PPS is
conditioned on IPFs admitting ``only patients whose admission to the
unit is required for active treatment, of an intensity that can be
provided appropriately only in an inpatient hospital setting, of a
psychiatric principal diagnosis that is listed in the Fourth Edition,
Text Revision of the American Psychiatric Association's Diagnostic and
Statistical Manual, (DSM-IV-TR) or in Chapter Five (``Mental
Disorders'') of the
[[Page 25715]]
International Classification of Diseases, Ninth Revision, Clinical
Modification [(ICD-9-CM)].'' IPF claims with a principal diagnosis
included in Chapter Five of the ICD-9-CM or the DSM-IV-TR will be paid
the Federal per diem base rate under the IPF PPS, and all other
applicable adjustments, including any applicable DRG adjustment.
Psychiatric principal diagnoses that do not group to one of the 15
designated DRGs still receive the Federal per diem base rate and all
other applicable adjustments, but the payment would not include a DRG
adjustment.
The Standards for Electronic Transaction final rule published in
the Federal Register on August 17, 2000 (65 FR 50312) adopted the ICD-
9-CM as the designated code set for reporting diseases, injuries,
impairments, other health related problems, their manifestations, and
causes of injury, disease, impairment, or other health related
problems. Therefore, we use the ICD-9-CM as the designated code set for
the IPF PPS.
We believe that it is important to maintain the same diagnostic
coding and DRG classification for IPFs that are used under the IPPS for
providing the same psychiatric care. Therefore, when the IPF PPS was
implemented for cost reporting periods beginning on or after January 1,
2005, we adopted the same diagnostic code set and DRG patient
classification system (that is, the CMS DRGs) that was utilized at the
time under the hospital inpatient prospective payment system (IPPS).
Since the inception of the IPF PPS, the DRGs used as the patient
classification system under the IPF PPS have corresponded exactly with
the CMS DRGs applicable under the IPPS for acute care hospitals.
Every year, changes to the ICD-9-CM coding system are addressed in
the IPPS proposed and final rules. The changes to the codes are
effective October 1 of each year and must be used by acute care
hospitals under the IPPS to report diagnostic and procedure
information. The IPF PPS has always incorporated those ICD-9-CM coding
changes made in the annual IPPS update. The IPF PPS announces the
changes in a change request, at the same time the coding changes to
IPPS and LTCH PPS are announced. Those ICD-9-CM coding changes are also
published in the next IPF PPS RY update, in either the proposed and
final rules, or in an update notice.
As part of CMS' effort to better recognize resource use and the
severity of illness among patients, CMS adopted the new Medicare
Severity diagnosis related groups (MS-DRGs) for the IPPS in the FY 2008
IPPS final rule with comment period (72 FR 47130). By better accounting
for patients' severity of illness in Medicare payment rates, the MS-
DRGs encourage hospitals to improve their coding and documentation of
patient diagnoses. The MS-DRGs, which are based on the CMS DRGs,
represent a significant increase in the number of DRGs (from 538 to
745, an increase of 207). For a full description of the development and
implementation of the MS-DRGs, see the FY 2008 IPPS final rule with
comment period (72 FR 47141 through 47175). Also see Transmittal 1374
(change request 5748), dated November 7, 2007, for the ICD-9-CM coding
changes.
All of the ICD-9-CM coding changes are reflected in the FY 2008
GROUPER, Version 25.0, effective for IPPS discharges occurring on or
after October 1, 2007 through September 30, 2008. The GROUPER Version
25.0 software package assigns each case to a DRG on the basis of the
diagnosis and procedure codes and demographic information (that is age,
sex, and discharge status). The Medicare Code Editor (MCE) 24.0 uses
the new ICD-9-CM codes to validate coding for IPPS discharges on or
after October 1, 2007. For additional information on the GROUPER
Version 25.0 and MCE 24.0, see Transmittal 1374, dated November 7,
2007. The IPF PPS has always used the same GROUPER and Code Editor as
the IPPS. Therefore, the ICD-9-CM changes, which were reflected in the
GROUPER Version 25.0 and MCE 24.0 on October 1, 2007, also became
effective for the IPF PPS for discharges occurring on or after October
1, 2007.
The impact of the new MS-DRGs on the IPF PPS is negligible. Mapping
the current DRGs to the MS-DRGs, there are now 17 MS-DRGs, instead of
the original 15, for which the IPF PPS provides an adjustment. In
addition, although the code set is updated, the same associated
adjustment factors apply now that have been in place since
implementation of the IPF PPS, with one exception that is unrelated to
the update to the codes. When DRGs 521 and 522 were consolidated into
MS-DRG 895, we carried over the adjustment factor of 1.02 from DRG 521
to the newly consolidated MS-DRG. This was done to reflect the higher
claims volume under DRG 521, with more than eight times the number of
claims than billed under DRG 522. The updated codes, which were
effective October 1, 2007, must be used to report diagnostic or
procedure information on IPF PPS claims. These updates are reflected in
Table 4.
The official version of the ICD-9-CM is available on CD-ROM from
the U.S. Government Printing Office. The FY 2008 version can be ordered
by contacting the Superintendent of Documents, U.S. Government Printing
Office, Department 50, Washington, DC 20402-9329, telephone number
(202) 512-1800. Questions concerning the ICD-9-CM should be directed to
Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and
Maintenance Committee, CMS, Center for Medicare Management, Hospital
and Ambulatory Policy Group, Division of Acute Care, Mailstop C4-08-06,
7500 Security Boulevard, Baltimore, Maryland 21244-1850.
Further information concerning the official version of the ICD-9-CM
can be found in the IPPS final rule with comment period, ``Changes to
Hospital Inpatient Prospective Payment System and Fiscal Year 2008
Rates'' in the August 22, 2007 Federal Register (72 FR 47130) and at
http://www.cms.hhs.gov/QuarterlyProviderUpdates/downloads/
cms1533fc.pdf.
Table 4 below lists the FY 2008 new ICD-9-CM diagnosis codes that
group to one of the 17 MS-DRGs for which the IPF PPS provides an
adjustment. This table is only a listing of FY 2008 changes and does
not reflect all of the currently valid and applicable ICD-9-CM codes
classified in the MS-DRGs. When coded as a principal code or diagnosis,
these codes receive the correlating MS-DRG adjustment.
Table 4.--FY 2008 New Diagnosis Codes
------------------------------------------------------------------------
Diagnosis code Description MS-DRG
------------------------------------------------------------------------
315.34............................. Speech and language 886
developmental delay
due to hearing loss.
331.5.............................. Idiopathic normal 056, 057
pressure
hydrocephalus (INPH).
------------------------------------------------------------------------
Since we do not plan to update the regression analysis until we
analyze IPF PPS data, the MS-DRG adjustment factors, shown in Table 5
below, will continue to be paid for RY 2009. Table 5 reflects the
changes that were made to the DRGs under the IPF PPS in a crosswalk of
DRGs prior to October 1, 2007 to the new MS-DRGs, which were effective
October 1, 2007.
[[Page 25716]]
Table 5.--FY 2008 Crosswalk of Current DRGs to New MS-DRGs Applicable for the Principal Diagnosis Adjustment
----------------------------------------------------------------------------------------------------------------
(v25) MS-DRG Adjustment
(v24) DRG prior to 10/01/07 after 10/01/07 MS-DRG descriptions factor
----------------------------------------------------------------------------------------------------------------
056 Degenerative nervous system ..............
disorders w MCC.
12......................................... 057 Degenerative nervous system 1.05
disorders w/o MCC.
080 Nontraumatic stupor & coma w MCC... ..............
023........................................ 081 Nontraumatic stupor & coma w/o MCC. 1.07
424........................................ 876 O.R. procedure w principal 1.22
diagnoses of mental illness.
425........................................ 880 Acute adjustment reaction & 1.05
psychosocial dysfunction.
426........................................ 881 Depressive neuroses................ 0.99
427........................................ 882 Neuroses except depressive......... 1.02
428........................................ 883 Disorders of personality & impulse 1.02
control.
429........................................ 884 Organic disturbances & mental 1.03
retardation.
430........................................ 885 Psychoses.......................... 1.00
431........................................ 886 Behavioral & developmental 0.99
disorders.
432........................................ 887 Other mental disorder diagnoses.... 0.92
433........................................ 894 Alcohol/drug abuse or dependence, 0.97
left AMA.
521........................................ 895 Alcohol/drug abuse or dependence w 1.02
rehabilitation therapy.
896 Alcohol/drug abuse or dependence w/ ..............
o rehabilitation therapy w MCC.
523........................................ 897 Alcohol/drug abuse or dependence w/ 0.88
o rehabilitation therapy w/o MCC.
----------------------------------------------------------------------------------------------------------------
2. Payment for Comorbid Conditions
The intent of the comorbidity adjustment is to recognize the
increased costs associated with comorbid conditions by providing
additional payments for certain concurrent medical or psychiatric
conditions that are expensive to treat. In the May 2007 IPF PPS update
notice (72 FR 25602), we explained that the IPF PPS includes 17
comorbidity categories and identified the new, revised and deleted ICD-
9-CM diagnosis codes that generate a comborbid condition payment
adjustment under the IPF PPS for RY 2008 (72 FR 25609-13).
Comorbidities are specific patient conditions that are secondary to
the patient's principal diagnosis, and that require treatment during
the stay. Diagnoses that relate to an earlier episode of care and have
no bearing on the current hospital stay are excluded and should not be
reported on IPF claims. Comorbid conditions must exist at the time of
admission or develop subsequently, and affect the treatment received,
affect the length of stay (LOS) or affect both treatment and LOS.
For each claim, an IPF may receive only one comorbidity adjustment
per comorbidity category, but it may receive an adjustment for more
than one comorbidity category. Billing instructions require that IPFs
must enter the full ICD-9-CM codes for up to 8 additional diagnoses if
they co-exist at the time of admission or develop subsequently.
The comorbidity adjustments were determined based on the regression
analysis using the diagnoses reported by hospitals in FY 2002. The
principal diagnoses were used to establish the DRG adjustment and were
not accounted for in establishing the comorbidity category adjustments,
except where ICD-9-CM ``code first'' instructions apply. As we
explained in the May 2007 IPF PPS notice (72 FR 25602), the code first
rule applies when a condition has both an underlying etiology and a
manifestation due to the underlying etiology. For these conditions, the
ICD-9-CM has a coding convention that requires the underlying
conditions to be sequenced first followed by the manifestation.
Whenever a combination exists, there is a ``use additional code'' note
at the etiology code and a ``code first'' note at the manifestation
code.
As discussed in the DRG section, it is our policy to maintain the
same diagnostic coding set for IPFs that is used under the IPPS for
providing the same psychiatric care. Although the ICD-9-CM code set has
been updated, the same adjustment factors have been in place since the
implementation of the IPF PPS. Table 6 below lists the FY 2008 new ICD
diagnosis codes that impact the comorbidity adjustments under the IPF
PPS. Table 6 is not a list of all currently valid ICD codes applicable
for the IPF PPS comorbidity adjustments.
Table 6.--FY 2008 New ICD Codes Applicable for the Comorbidity
Adjustments Diagnosis
------------------------------------------------------------------------
Comorbidity
Diagnosis code Description category
------------------------------------------------------------------------
040.41........................ Infant botulism....... Infectious
Diseases.
040.42........................ Wound botulism........ Infectious
Diseases.
058.10........................ Roseola infantum, Infectious
unspecified. Diseases.
058.11........................ Roseola infantum due Infectious
to human herpesvirus Diseases.
6.
058.12........................ Roseola infantum due Infectious
to human herpesvirus Diseases.
7.
058.21........................ Human herpesvirus 6 Infectious
encephalitis. Diseases.
058.29........................ Other human Infectious
herpesvirus Diseases.
encephalitis.
058.81........................ Human herpesvirus 6 Infectious
infection. Diseases.
058.82........................ Human herpesvirus 7 Infectious
infection. Diseases.
058.89........................ Other human Infectious
herpesvirus infection. Diseases.
200.30........................ Marginal zone Oncology
lymphoma, unspecified Treatment.
site, extranodal and
solid organ sites.
200.31........................ Marginal zone Oncology
lymphoma, lymph nodes Treatment.
of head, face, and
neck.
200.32........................ Marginal zone Oncology
lymphoma, Treatment.
intrathoracic lymph
nodes.
[[Page 25717]]
200.33........................ Marginal zone Oncology
lymphoma, Treatment.
intraabdominal lymph
nodes.
200.34........................ Marginal zone Oncology
lymphoma, lymph nodes Treatment.
of axilla and upper
limb.
200.35........................ Marginal zone Oncology
lymphoma, lymph nodes Treatment.
of inguinal region
and lower limb.
200.36........................ Marginal zone Oncology
lymphoma, intrapelvic Treatment.
lymph nodes.
200.37........................ Marginal zone Oncology
lymphoma, spleen. Treatment.
200.38........................ Marginal zone Oncology
lymphoma, lymph nodes Treatment.
of multiple sites.
200.40........................ Mantle cell lymphoma, Oncology
unspecified site, Treatment.
extranodal and solid
organ sites.
200.41........................ Mantle cell lymphoma, Oncology
lymph nodes of head, Treatment.
face, and neck.
200.42........................ Mantle cell lymphoma, Oncology
intrathoracic lymph Treatment.
nodes.
200.43........................ Mantle cell lymphoma, Oncology
intra-abdominal lymph Treatment.
nodes.
200.44........................ Mantle cell lymphoma, Oncology
lymph nodes of axilla Treatment.
and upper limb.
200.45........................ Mantle cell lymphoma, Oncology
lymph nodes of Treatment.
inguinal region and
lower limb.
200.46........................ Mantle cell lymphoma, Oncology
intrapelvic lymph Treatment.
nodes.
200.47........................ Mantle cell lymphoma, Oncology
spleen. Treatment.
200.48........................ Mantle cell lymphoma, Oncology
lymph nodes of Treatment.
multiple sites.
200.50........................ Primary central Oncology
nervous system Treatment.
lymphoma, unspecified
site, extranodal and
solid organ sites.
200.51........................ Primary central Oncology
nervous system Treatment.
lymphoma, lymph nodes
of head, face, and
neck.
200.52........................ Primary central Oncology
nervous system Treatment.
lymphoma,
intrathoracic lymph
nodes.
200.53........................ Primary central Oncology
nervous system Treatment.
lymphoma, intra-
abdominal lymph nodes.
200.54........................ Primary central Oncology
nervous system Treatment.
lymphoma, lymph nodes
of axilla and upper
limb.
200.55........................ Primary central Oncology
nervous system Treatment.
lymphoma, lymph nodes
of inguinal region
and lower limb.
200.56........................ Primary central Oncology
nervous system Treatment.
lymphoma, intrapelvic
lymph nodes.
200.57........................ Primary central Oncology
nervous system Treatment.
lymphoma, spleen.
200.58........................ Primary central Oncology
nervous system Treatment.
lymphoma, lymph nodes
of multiple sites.
200.60........................ Anaplastic large cell Oncology
lymphoma, unspecified Treatment.
site, extranodal and
solid organ sites.
200.61........................ Anaplastic large cell Oncology
lymphoma, lymph nodes Treatment.
of head, face, and
neck.
200.62........................ Anaplastic large cell Oncology
lymphoma, Treatment.
intrathoracic lymph
nodes.
200.63........................ Anaplastic large cell Oncology
lymphoma, intra- Treatment.
abdominal lymph nodes.
200.64........................ Anaplastic large cell Oncology
lymphoma, lymph nodes Treatment.
of axilla and upper
limb.
200.65........................ Anaplastic large cell Oncology
lymphoma, lymph nodes Treatment.
of inguinal region
and lower limb.
200.66........................ Anaplastic large cell Oncology
lymphoma, intrapelvic Treatment.
lymph nodes.
200.67........................ Anaplastic large cell Oncology
lymphoma, spleen. Treatment.
200.68........................ Anaplastic large cell Oncology
lymphoma, lymph nodes Treatment.
of multiple sites.
200.70........................ Large cell lymphoma, Oncology
unspecified site, Treatment.
extranodal and solid
organ sites.
200.71........................ Large cell lymphoma, Oncology
lymph nodes of head, Treatment.
face, and neck.
200.72........................ Large cell lymphoma, Oncology
intrathoracic lymph Treatment.
nodes.
200.73........................ Large cell lymphoma, Oncology
intra-abdominal lymph Treatment.
nodes.
200.74........................ Large cell lymphoma, Oncology
lymph nodes of axilla Treatment.
and upper limb.
200.75........................ Large cell lymphoma, Oncology
lymph nodes of Treatment.
inguinal region and
lower limb.
200.76........................ Large cell lymphoma, Oncology
intrapelvic lymph Treatment.
nodes.
200.77........................ Large cell lymphoma, Oncology
spleen. Treatment.
200.78........................ Large cell lymphoma, Oncology
lymph nodes of Treatment.
multiple sites.
202.70........................ Peripheral T cell Oncology
lymphoma, unspecified Treatment.
site, extranodal and
solid organ sites.
202.71........................ Peripheral T cell Oncology
lymphoma, lymph nodes Treatment.
of head, face, and
neck.
202.72........................ Peripheral T cell Oncology
lymphoma, Treatment.
intrathoracic lymph
nodes.
202.73........................ Peripheral T cell Oncology
lymphoma, intra- Treatment.
abdominal lymph nodes.
202.74........................ Peripheral T cell Oncology
lymphoma, lymph nodes Treatment.
of axilla and upper
limb.
202.75........................ Peripheral T cell Oncology
lymphoma, lymph nodes Treatment.
of inguinal region
and lower limb.
202.76........................ Peripheral T cell Oncology
lymphoma, intrapelvic Treatment.
lymph nodes.
202.77........................ Peripheral T cell Oncology
lymphoma, spleen. Treatment.
[[Page 25718]]
202.78........................ Peripheral T cell Oncology
lymphoma, lymph nodes Treatment.
of multiple sites.
233.30........................ Carcinoma in situ, Oncology
unspecified female Treatment.
genital organ.
233.31........................ Carcinoma in situ, Oncology
vagina. Treatment.
233.32........................ Carcinoma in situ, Oncology
vulva. Treatment.
233.39........................ Carcinoma in situ, Oncology
other female genital Treatment.
organ.
------------------------------------------------------------------------
.Table 7 lists the invalid ICD-9-CM codes no longer applicable for
the comorbidity adjustment. .
Table 7.--FY 2008 Invalid ICD Codes No Longer Applicable for the
Comorbidity Adjustment
------------------------------------------------------------------------
Comorbidity
Diagnosis code Description category.
------------------------------------------------------------------------
233.3......................... Carcinoma in situ, Oncology
other and unspecified Treatment.
female genital organs.
------------------------------------------------------------------------
The seventeen comorbidity categories for which we are providing an
adjustment, their respective codes, including the new FY 2008 ICD
codes, and their respective adjustment factors, are listed below in
Table 8. .
Table 8.--RY 2009 Diagnosis Codes and Adjustment Factors for Comorbidity
Categories
------------------------------------------------------------------------
Adjustment
Description of comorbidity ICD-9CM code factor
------------------------------------------------------------------------
Developmental Disabilities..... 317, 3180, 3181, 3182, 1.04
and 319.
Coagulation Factor Deficits.... 2860 through 2864...... 1.13
Tracheostomy................... 51900--through 51909 1.06
and V440.
Renal Failure, Acute........... 5845 through 5849, 1.11
63630, 63631, 63632,
63730, 63731, 63732,
6383, 6393, 66932,
66934, 9585.
Renal Failure, Chronic......... 40301, 40311, 40391, 1.11
40402, 40412, 40413,
40492, 40493, 5853,
5854, 5855, 5856,
5859, 586, V451, V560,
V561, and V562.
Oncology Treatment............. 1400 through 2399 with 1.07
a radiation therapy
code 92.21-92.29 or
chemotherapy code
99.25.
Uncontrolled Diabetes-Mellitus 25002, 25003, 25012, 1.05
with or without complications. 25013, 25022, 25023,
25032, 25033, 25042,
25043, 25052, 25053,
25062, 25063, 25072,
25073, 25082, 25083,
25092, and 25093.
Severe Protein Calorie 260 through 262........ 1.13
Malnutrition.
Eating and Conduct Disorders... 3071, 30750, 31203, 1.12
31233, and 31234.
Infectious Disease............. 01000 through 04110, 1.07
042, 04500 through
05319, 05440 through
05449, 0550 through
0770, 0782 through
07889, and 07950
through 07959.
Drug and/or Alcohol Induced 2910, 2920, 29212, 1.03
Mental Disorders. 2922, 30300, and 30400.
Cardiac Conditions............. 3910, 3911, 3912, 1.11
40201, 40403, 4160,
4210, 4211, and 4219.
Gangrene....................... 44024 and 7854......... 1.10
Chronic Obstructive Pulmonary 49121, 4941, 5100, 1.12
Disease. 51883, 51884, V4611
and V4612, V4613 and
V4614.
Artificial Openings-Digestive 56960 through 56969, 1.08
and Urinary. 9975, and V441 through
V446.
Severe Musculoskeletal and 6960, 7100, 73000 1.09
Connective Tissue Diseases. through 73009, 73010
through 73019, and
73020 through 73029.
Poisoning...................... 96500 through 96509, 1.11
9654, 9670 through
9699, 9770, 9800
through 9809, 9830
through 9839, 986,
9890 through 9897.
------------------------------------------------------------------------
3. Patient Age Adjustments
As explained in the November 2004 IPF PPS final rule, we analyzed
the impact of age on per diem cost by examining the age variable (that
is, the range of ages) for payment adjustments.
In general, we found that the cost per day increases with
increasing age. The older age groups are more costly than the under 45
age group, the differences in per diem cost increase for each
successive age group, and the differences are statistically
significant.
For RY 2009, we are continuing to use the patient age adjustments
currently in effect and shown in Table 9 below.
Table 9.--Age Groupings and Adjustment Factors
------------------------------------------------------------------------
Adjustment
Age factor
------------------------------------------------------------------------
Under 45................................................ 1.00
45 and under 50......................................... 1.01
50 and under 55......................................... 1.02
55 and under 60......................................... 1.04
60 and under 65......................................... 1.07
65 and under 70......................................... 1.10
70 and under 75......................................... 1.13
75 and under 80......................................... 1.15
80 and over............................................. 1.17
------------------------------------------------------------------------
[[Page 25719]]
4. Variable Per Diem Adjustments
We explained in the November 2004 IPF PPS final rule that a
regression analysis indicated that per diem cost declines as the LOS
increases (69 FR 66946). The variable per diem adjustments to the
Federal per diem base rate account for ancillary and administrative
costs that occur disproportionately in the first days after admission
to an IPF.
We used a regression analysis to estimate the average differences
in per diem cost among stays of different lengths. As a result of this
analysis, we established variable per diem adjustments that begin on
day 1 and decline gradually until day 21 of a patient's stay. For day
22 and thereafter, the variable per diem adjustment remains the same
each day for the remainder of the stay. However, the adjustment applied
to day 1 depends upon whether the IPF has a qualifying ED. If an IPF
has a qualifying ED, it receives a 1.31 adjustment factor for day 1 of
each patient stay. If an IPF does not have a qualifying ED, it receives
a 1.19 adjustment factor for day 1 of the stay. The ED adjustment is
explained in more detail in section IV.C.5 of this notice.
For RY 2009, we are continuing to use the variable per diem
adjustment factors currently in effect as shown in Table 10 below.
A complete discussion of the variable per diem adjustments appears
in the November 2004 IPF PPS final rule (69 FR 66946).
Table 10.--Variable Per Diem Adjustments
------------------------------------------------------------------------
Adjustment
Day-of-stay factor
------------------------------------------------------------------------
Day 1--IPF Without a Qualified ED....................... 1.19
Day 1--IPF With a Qualified ED.......................... 1.31
Day 2................................................... 1.12
Day 3................................................... 1.08
Day 4................................................... 1.05
Day 5................................................... 1.04
Day 6................................................... 1.02
Day 7................................................... 1.01
Day 8................................................... 1.01
Day 9................................................... 1.00
Day 10.................................................. 1.00
Day 11.................................................. 0.99
Day 12.................................................. 0.99
Day 13.................................................. 0.99
Day 14.................................................. 0.99
Day 15.................................................. 0.98
Day 16.................................................. 0.97
Day 17.................................................. 0.97
Day 18.................................................. 0.96
Day 19.................................................. 0.95
Day 20.................................................. 0.95
Day 21.................................................. 0.95
After Day 21............................................ 0.92
------------------------------------------------------------------------
C. Facility-Level Adjustments
The IPF PPS includes facility-level adjustments for the wage index,
IPFs located in rural areas, teaching IPFs, cost of living adjustments
for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.
1. Wage Index Adjustment
As discussed in the May 2006 IPF PPS final rule, and in the May
2007 notice, in providing an adjustment for area wage levels, the
labor-related portion of an IPF's Federal prospective payment is
adjusted using an appropriate wage index. An IPF's area wage index
value is determined based on the actual location of the IPF in an urban
or rural area as defined in Sec. 412.64(b)(1)(ii)(A) through (C).
Since the inception of the IPF PPS, we have used hospital wage data
in developing a wage index to be applied to IPFs. We are continuing
that practice for RY 2009. We apply the wage index adjustment to the
labor-related portion of the Federal rate, which is 75.631 percent.
This percentage reflects the labor-related relative importance of the
RPL market basket for RY 2009. The IPF PPS uses the pre-floor, pre-
reclassified hospital wage index. Changes to the wage index are made in
a budget neutral manner, so that updates do not increase expenditures.
For RY 2009, we are applying the most recent hospital wage index
using the most recent hospital wage data, and applying an adjustment in
accordance with our budget neutrality policy. This policy requires us
to estimate the total amount of IPF PPS payments in RY 2008 and divide
that amount by the total estimated IPF PPS payments in RY 2009. The
estimated payments are based on FY 2006 IPF claims, inflated to the
appropriate RY. This quotient is the wage index budget neutrality
factor, and it is applied in the update of the Federal per diem base
rate for RY 2009. The wage index budget neutrality factor for RY 2009
is 1.0010.
The wage index applicable for RY 2009 appears in Table 1 and Table
2 in Addendum B of this notice. As explained in the May 2006 IPF PPS
final rule for RY 2007 (71 FR 27061), and in the IPF PPS May 2007
notice for RY 2008 (72 FR 25602), the IPF PPS applies the hospital wage
index without a hold-harmless policy, and without an out-commuting
adjustment or out-migration adjustment because we feel these policies
apply only to the IPPS.
In the May 2006 IPF PPS final rule for RY 2007 (71 FR 27061), we
adopted the changes discussed in the Office of Management and Budget
(OMB) Bulletin No. 03-04 (June 6, 2003), which announced revised
definitions for Metropolitan Statistical Areas (MSAs), and the creation
of Micropolitan Statistical Areas and Combined Statistical Areas. In
adopting the OMB Core-Based Statistical Area (CBSA) geographic
designations, since the IPF PPS was already in a transition period from
TEFRA payments to PPS payments, we did not provide a separate
transition for the wage index.
As was the case in RY 2008, for RY 2009, we will be using the full
CBSA-based wage index values as presented in Tables 1 and 2 in Addendum
B of this notice.
Finally, we continue to use the same methodology discussed in the
IPF PPS proposed rule for RY 2007 (71 FR 3633), and finalized in the
May 2006 IPF PPS final rule for RY 2007 (71 FR 27061) to address those
geographic areas where there are no hospitals and, thus, no hospital
wage index data on which to base the calculation of the RY 2009 IPF PPS
wage index. For RY 2009, those areas consist of rural Massachusetts,
rural Puerto Rico and urban CBSA (25980) Hinesville-Fort Stewart, GA.
A complete discussion of the CBSA labor market definitions appears
in the May 2006 IPF PPS final rule (71 FR 27061 through 27067).
a. Clarification of New England Deemed Counties
We are also taking this opportunity to address the change in the
treatment of ``New England deemed counties'' (that is, those counties
in New England listed in Sec. 412.64(b)(1)(ii)(B) that were deemed to
be parts of urban areas under section 601(g) of the Social Security
Amendments of 1983) that was made in the FY 2008 IPPS final rule with
comment period. These counties include the following: Litchfield
County, Connecticut; York County, Maine; Sagadahoc County, Maine;
Merrimack County, New Hampshire; and Newport County, Rhode Island. Of
these five ``New England deemed counties,'' three (York County,
Sagadahoc County, and Newport County) are also included in metropolitan
statistical areas defined by OMB and are considered urban under both
the current IPPS and IPF PPS labor market area definitions in Sec.
412.64(b)(1)(ii)(A). The remaining two, Litchfield County and Merrimack
County, are geographically located in areas that are considered rural
under the current IPPS (and IPF PPS) labor market area definitions
(however, they have been previously deemed urban under the IPPS in
certain circumstances as discussed below).
[[Page 25720]]
In the FY 2008 IPPS final rule with comment period (72 FR 47337
through 47338), Sec. 412.64(b)(1)(ii)(B) was revised such that the two
``New England deemed counties'' that are still considered rural under
the OMB definitions (Litchfield County, CT and Merrimack County, NH),
are no longer considered urban effective for discharges occurring on or
after October 1, 2007, and therefore, are considered rural in
accordance with Sec. 412.64(b)(1)(ii)(C). However, for purposes of
payment under the IPPS, acute-care hospitals located within those areas
are treated as being reclassified to their deemed urban area effective
for discharges occurring on or after October 1, 2007 (see 72 FR 47337
through 47338). We note that the IPF PPS does not provide for such
geographic reclassification (71 FR 27061 through 27067). Also in the FY
2008 IPPS final rule with comment period (72 FR 47338), we explained
that we limited this policy change for the ``New England deemed
counties'' only to IPPS hospitals, and any change to non-IPPS provider
wage indices would be addressed in the respective payment system rules.
Accordingly, as stated above, we are taking the opportunity to
clarify the treatment of ``New England deemed counties'' under the IPF
PPS in this notice. As discussed above, under existing Sec. 412.402
and Sec. 412.424(d)(1)(i), an IPF's wage index is determined based on
the location of the IPF in an urban or rural area as defined in Sec.
412.64(b)(1)(ii)(A) through (C). Under existing Sec. 412.402, an urban
area under the IPF PPS is currently defined at Sec.
412.64(b)(1)(ii)(A) and (B), and a rural area is defined at Sec.
412.64(b)(1)(ii)(C) as any area outside of an urban area.
Historical changes to the labor market area/geographic
classifications and annual updates to the wage index values under the
IPF PPS are made effective July 1 each year. When we established the
most recent IPF PPS payment rate update, effective for IPF discharges
occurring on or after July 1, 2007 through June 30, 2008, we considered
the ``New England deemed counties'' (including Litchfield County, CT
and Merrimack County, NH) as urban for RY 2008 (in accordance with the
definitions of urban and rural stated in the RY 2008 IPF PPS notice (72
FR 25602) and as evidenced by the inclusion of Litchfield County as one
of the constituent counties of urban CBSA 25540 (Hartford-West
Hartford-East Hartford, CT), and the inclusion of Merrimack County as
one of the constituent counties of urban CBSA 31700 (Manchester-Nashua,
NH)). (See 72 FR 25643 and 25651, respectively).
As noted above, existing Sec. 412.402 indicates that the terms
``rural'' and ``urban'' are defined according to the definitions of
those terms in Sec. 412.64(b)(1)(ii)(A) through (C). Effective for
discharges on or after July 1, 2008, Sec. 412.64(b)(1)(ii)(B) is no
longer applicable under the IPF PPS. Therefore, as Litchfield County,
CT and Merrimack County, NH would be considered rural areas in
accordance with our regulations at Sec. 412.402, these two counties
will be ``rural'' under the IPF PPS effective with the next update of
the IPF PPS payment rates, which will be July 1, 2008 (under the IPF
PPS effective for discharges on or after July 1, 2008, Litchfield
County, CT and Merrimack County, NH are not urban under Sec.
412.64(b)(1)(ii)(A) through (B), as revised under the RY 2008 IPPS
final rule with comment period, and therefore are rural under Sec.
412.64(b)(1)(ii)(C)). Litchfield County, CT and Merrimack County, NH
will be considered ``rural'' effective for IPF PPS discharges occurring
on or after July 1, 2008, and will no longer be considered as being
part of urban CBSA 25540 (Hartford-West Hartford-East Hartford, CT) and
urban CBSA 31700 (Manchester-Nashua, NH), respectively. We do not need
to make any changes to our regulations to effectuate this change. We
note that this policy is consistent with our policy of not taking into
account IPPS geographic reclassifications in determining payments under
the IPF PPS.
Four IPFs (two in Litchfield County, CT, and two in Merrimack
County, NH) greatly benefit from treating the counties in which they
are located as rural. These IPFs will begin to receive the rural
facility adjustment and see an approximate 17 percent increase in
payments. Five IPFs in NH that are currently treated as rural will
experience an approximate 3 percent decrease in payments because the
rural NH wage index value decreases when this change is made. One IPF
in CT that is currently treated as rural will experience an approximate
4 percent decrease in payments because the rural CT wage index value is
lower when this change is made.
The area wage index values for CBSAs 31700 and 25540 increase with
the change. No other IPFs in CT or NH are affected by treating
Litchfield and Merrimack Counties as rural.
b. Multi-Campus--Wage Index Data Collection
Historically, under the IPF PPS, we have established IPF PPS wage
index values calculated from acute care IPPS hospital wage data without
taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act. As we discussed in the May 2006 IPF
PPS final rule (71 FR 27040), hospitals that are excluded from the IPPS
are not required to provide wage-related information on the Medicare
cost report (which is needed in order to make geographic
reclassifications). Thus, the wage adjustment established under the IPF
PPS is based on an IPF's actual location without regard to the urban or
rural designation of any related or affiliated provider.
In the RY 2008 IPF PPS notice (72 FR 25602), we established IPF PPS
wage index values for the RY 2008 calculated from the same data
(collected from cost reports submitted by hospitals for cost reporting
periods beginning during FY 2003) used to compute the FY 2007 acute
care hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act because that was the best available data at that time. The IPF
PPS wage index values applicable for discharges occurring on or after
July 1, 2007 through June 30, 2008 are shown in Table 1 (for urban
areas) and Table 2 (for rural areas) in the Addendum to the RY 2008 IPF
PPS final rule (72 FR 25627 through 25673).
For RY 2009, the same data (collected from cost reports submitted
by hospitals for cost reporting periods beginning during FY 2004) used
to compute the FY 2008 acute care hospital inpatient wage index data
without taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act was used to determine the applicable
wage index values under the IPF PPS because these data (FY 2004) are
the most recent complete data. (For information on the data used to
compute the FY 2008 IPPS wage index, refer to the FY 2008 IPPS final
rule with comment period (72 FR 47308 through 47309, 47315)). We are
continuing to use IPPS wage data as a proxy to determine the IPF wage
index values for RY 2009 because both IPFs and acute-care hospitals are
required to meet the same certification criteria set forth in section
1861(e) of the Act to participate as a hospital in the Medicare program
and they both compete in the same labor markets, and therefore,
experience similar wage-related costs. We note that the IPPS wage data
used to determine the RY 2009 IPF wage index values reflects our policy
that was adopted under the IPPS beginning in FY 2008 that apportions
the wage data for multi-campus hospitals located in different
[[Page 25721]]
labor market areas (CBSAs) to each CBSA where the campuses are located
(see the FY 2008 IPPS final rule with comment period (72 FR 47317
through 47320)). The RY 2009 IPF PPS wage index values presented in
this notice were computed consistent with our pre-reclassified IPPS
wage index policy (that is, our historical policy of not taking into
account IPPS geographic reclassifications in determining payments under
the IPF PPS).
For the RY 2009 IPF PPS, the wage index was computed from IPPS wage
data (submitted by hospitals for cost reporting periods beginning in FY
2004 (just like the FY 2008 IPPS wage index)), which allocated salaries
and hours to the campuses of two multi-campus hospitals with campuses
that are located in different labor areas, one in Massachusetts and
another in Illinois. Thus, the RY 2009 IPF PPS wage index values for
the following CBSAs are affected by this policy: Boston-Quincy, MA
(CBSA 14484), Providence-New Bedford-Falls River, RI-MA (CBSA 39300),
Chicago-Naperville-Joliet, IL (CBSA 16974) and Lake County-Kenosha
County, IL-WI (CBSA 29404) (refer to Table 1 in the Addendum of this
notice).
The table below describes the change in wage index value and the
number of IPFs affected by the multi-campus hospital policy change:
Table 11.--IPFs Affected by the Multi-Campus Hospital Policy Change
------------------------------------------------------------------------
No. of Wage index
CBSA IPFs value change
------------------------------------------------------------------------
14484 (Boston-Quincy, MA).................... 17 0.0153
16974 (Chicago-Naperville-Joliet, IL)........ 47 -0.002
29404 (Lake County-Kenosha County, IL-WI).... 2 0.0288
39300 (Providence-New Bedford-Falls River, RI- 12 -0.0111
MA).........................................
------------------------------------------------------------------------
c. OMB Bulletins
The Office of Management and Budget (OMB) publishes bulletins
regarding CBSA changes, including changes to CBSA numbers and titles.
In the May 2006 IPF PPS final rule for FY 2006 (71 FR 27040), we
adopted the changes discussed in the OMB Bulletin No. 03-04 (June 6,
2003), available online at http://www.whitehouse.gov/omb/bulletins/b03-
04.html. Those changes were strictly nomenclature changes and did not
represent substantive changes to the CBSA-based designations. In this
notice, we incorporate the CBSA nomenclature changes published in the
most recent OMB bulletin that applies to the hospital wage data used to
determine the current IPF PPS wage index, and we expect to do the same
for all such OMB CBSA nomenclature changes in future IPF PPS rules and
notices, as necessary. The OMB bulletins may be accessed online at
http://www.whitehouse.gov/omb/bulletins/index.html.
2. Adjustment for Rural Location
In the November 2004 IPF PPS final rule, we provided a 17 percent
payment adjustment for IPFs located in a rural area. This adjustment
was based on the regression analysis, which indicated that the per diem
cost of rural facilities was 17 percent higher than that of urban
facilities after accounting for the influence of the other variables
included in the regression. For RY 2009, we are applying a 17 percent
payment adjustment for IPFs located in a rural area as defined at Sec.
412.64(b)(1)(ii)(C). A complete discussion of the adjustment for rural
locations appears in the November 2004 IPF PPS final rule (69 FR
66954).
3. Teaching Adjustment
In the November 2004 IPF PPS final rule, we implemented regulations
at Sec. 412.424(d)(1)(iii) to establish a facility-level adjustment
for IPFs that are, or are part of, teaching institutions. The teaching
adjustment accounts for the higher indirect operating costs experienced
by facilities that participate in graduate medical education (GME)
programs. Payments are made based on the number of full-time equivalent
interns and residents training in the IPF.
Medicare makes direct GME payments (for direct costs such as
resident and teaching physician salaries, and other direct teaching
costs) to all teaching hospitals including those paid under the IPPS,
and those that were once paid under the TEFRA rate-of-increase limits
but are now paid under other PPSs. These direct GME payments are made
separately from payments for hospital operating costs and are not part
of the PPSs. The direct GME payments do not address the estimated
higher indirect operating costs teaching hospitals may face.
For teaching hospitals paid under the TEFRA rate of increase
limits, Medicare did not make separate medical education payments
because payments to these hospitals were based on the hospitals'
reasonable costs. Since payments under TEFRA were based on hospitals'
reasonable costs, the higher indirect costs that might be associated
with teaching programs would automatically have been factored into the
TEFRA payments.
The results of the regression analysis of FY 2002 IPF data
established the basis for the payment adjustments included in the
November 2004 IPF PPS final rule. The results showed that the indirect
teaching cost variable is significant in explaining the higher costs of
IPFs that have teaching programs. We calculated the teaching adjustment
based on the IPF's ``teaching variable,'' which is one plus the ratio
of the number of full-time equivalent (FTE) residents training in the
IPF (subject to limitations described below) to the IPF's average daily
census (ADC).
In the regression analysis, the logarithm of the teaching variable
had a coefficient value of 0.5150. We converted this cost effect to a
teaching payment adjustment by treating the regression coefficient as
an exponent and raising the teaching variable to a power equal to the
coefficient value. We note that the coefficient value of 0.5150 was
based on the regression analysis holding all other components of the
payment system constant.
As with other adjustment factors derived through the regression
analysis, we do not plan to rerun the regression analysis until we
analyze IPF PPS data. Therefore, for RY 2009, we are retaining the
coefficient value of 0.5150 for the teaching adjustment to the Federal
per diem base rate.
A complete discussion of how the teaching adjustment was calculated
appears in the November 2004 IPF PPS final rule (69 FR 66954 through
66957) and the May 2006 IPF PPS final rule (71 FR 27067 through 27070).
4. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii
The IPF PPS includes a payment adjustment for IPFs located in
Alaska and Hawaii based upon the county in which the IPF is located. As
we explained in the November 2004 IPF PPS final rule, the FY 2002 data
[[Page 25722]]
demonstrated that IPFs in Alaska and Hawaii had per diem costs that
were disproportionately higher than other IPFs. Other Medicare PPSs
(for example, the IPPS and LTCH PPS) have adopted a cost of living
adjustment (COLA) to account for the cost differential of care
furnished in Alaska and Hawaii.
We analyzed the effect of applying a COLA to payments for IPFs
located in Alaska and Hawaii. The results of our analysis demonstrated
that a COLA for IPFs located in Alaska and Hawaii would improve payment
equity for these facilities. As a result of this analysis, we provided
a COLA in the November 2004 IPF PPS final rule.
In general, the COLA accounts for the higher costs in the IPF and
eliminates the projected loss that IPFs in Alaska and Hawaii would
experience absent the COLA. A COLA factor for IPFs located in Alaska
and Hawaii is made by multiplying the non-labor share of the Federal
per diem base rate by the applicable COLA factor based on the COLA area
in which the IPF is located.
As previously stated, we will update the COLA factors according to
updates established by the U.S. Office of Personnel Management (OPM),
which issued a final rule to change COLA rates effective September 1,
2006.
The COLA factors are published on the OPM Web site at http://
www.opm.gov/oca/cola/rates.asp.
We note that the COLA areas for Alaska are not defined by county as
are the COLA areas for Hawaii. In 5 CFR 591.207, the OPM established
the following COLA areas:
(a) City of Anchorage, and 80-kilometer (50-mile) radius by road,
as measured from the Federal courthouse;
(b) City of Fairbanks, and 80-kilometer (50-mile) radius by road,
as measured from the Federal courthouse;
(c) City of Juneau, and 80-kilometer (50-mile) radius by road, as
measured from the Federal courthouse;
(d) Rest of the State of Alaska.
In the November 2004 and May 2006 IPF PPS final rules, we showed
only one COLA for Alaska because all four areas were the same amount
(1.25). Effective September 1, 2006, the OPM updated the COLA amounts
and there are now two different amounts for the Alaska COLA areas (1.24
and 1.25).
For RY 2009, IPFs located in Alaska and Hawaii will receive the
updated COLA factors based on the COLA area in which the IPF is located
and as shown in Table 12 below.
Table 12.-- COLA Factors for Alaska and Hawaii IPFs
------------------------------------------------------------------------
Location COLA
------------------------------------------------------------------------
Alaska............................... Anchorage............... 1.24
Fairbanks............... 1.24
Juneau.................. 1.24
Rest of Alaska.......... 1.25
Hawaii............................... Honolulu County......... 1.25
Hawaii County........... 1.17
Kauai County............ 1.25
Maui County............. 1.25
Kalawao County.......... 1.25
------------------------------------------------------------------------
5. Adjustment for IPFs With a Qualifying Emergency Department (ED)
Currently, the IPF PPS includes a facility-level adjustment for
IPFs with qualifying EDs. We provide an adjustment to the standardized
Federal per diem base rate to account for the costs associated with
maintaining a full-service ED. The adjustment is intended to account
for ED costs allocated to the hospital's distinct part psychiatric unit
for preadmission services otherwise payable under the Medicare
Outpatient Prospective Payment System (OPPS) furnished to a beneficiary
during the day immediately preceding the date of admission to the IPF
(see Sec. 413.40(c)) and the overhead cost of maintaining the ED. This
payment is a facility-level adjustment that applies to all IPF
admissions (with the one exception as described below), regardless of
whether a particular patient receives preadmission services in the
hospital's ED.
The ED adjustment is incorporated into the variable per diem
adjustment for the first day of each stay for IPFs with a qualifying
ED. That is, IPFs with a qualifying ED receive an adjustment factor of
1.31 as the variable per diem adjustment for day 1 of each stay. If an
IPF does not have a qualifying ED, it receives an adjustment factor of
1.19 as the variable per diem adjustment for day 1 of each patient
stay.
The ED adjustment is made on every qualifying claim except as
described below. As specified in Sec. 412.424(d)(1)(v)(B), the ED
adjustment is not made where a patient is discharged from an acute care
hospital or CAH and admitted to the same hospital's or CAH's
psychiatric unit. An ED adjustment is not made in this case because the
costs associated with ED services are reflected in the DRG payment to
the acute care hospital or through the reasonable cost payment made to
the CAH. If we provided the ED adjustment in these cases, the hospital
would be paid twice for the overhead costs of the ED (69 FR 66960).
Therefore, when patients are discharged from an acute care hospital
or CAH and admitted to the same hospital's or CAH's psychiatric unit,
the IPF receives the 1.19 adjustment factor as the variable per diem
adjustment for the first day of the patient's stay in the IPF.
For RY 2009, we are retaining the 1.31 adjustment factor for IPFs
with qualifying EDs. A complete discussion of the steps involved in the
calculation of the ED adjustment factor appears in the November 2004
IPF PPS final rule (69 FR 66959 through 66960) and the May 2006 IPF PPS
final rule (71 FR 27070 through 27072).
D. Other Payment Adjustments and Policies
For RY 2009, the IPF PPS includes the following payment
adjustments: An outlier adjustment to promote access to IPF care for
those patients who require expensive care and to limit the financial
risk of IPFs treating unusually costly patients. In this section, we
also explain the reason for ending the stop-loss provision that was
applicable during the transition period.
1. Outlier Payments
In the November 2004 IPF PPS final rule, we implemented regulations
at Sec. 412.424(d)(3)(i) to provide a per-case payment for IPF stays
that are extraordinarily costly. Providing additional payments to IPFs
for extremely costly cases strongly improves the accuracy of the IPF
PPS in determining resource costs at the patient and facility level.
These additional
[[Page 25723]]
payments reduce the financial losses that would otherwise be incurred
in treating patients who require more costly care and, therefore,
reduce the incentives for IPFs to under-serve these patients.
We make outlier payments for discharges in which an IPF's estimated
total cost for a case exceeds a fixed dollar loss threshold amount
(multiplied by the IPF's facility-level adjustments) plus the Federal
per diem payment amount for the case.
In instances when the case qualifies for an outlier payment, we pay
80 percent of the difference between the estimated cost for the case
and the adjusted threshold amount for days 1 through 9 of the stay
(consistent with the median LOS for IPFs in FY 2002), and 60 percent of
the difference for day 10 and thereafter. We established the 80 percent
and 60 percent loss sharing ratios because we were concerned that a
single ratio established at 80 percent (like other Medicare PPSs) might
provide an incentive under the IPF per diem payment system to increase
LOS in order to receive additional payments. After establishing the
loss sharing ratios, we determined the current fixed dollar loss
threshold amount of $6,488 through payment simulations designed to
compute a dollar loss beyond which payments are estimated to meet the 2
percent outlier spending target.
a. Update to the Outlier Fixed Dollar Loss Threshold Amount
In accordance with the update methodology described in Sec.
412.428(d), we are updating the fixed dollar loss threshold amount used
under the IPF PPS outlier policy. Based on the regression analysis and
payment simulations used to develop the IPF PPS, we established a 2
percent outlier policy which strikes an appropriate balance between
protecting IPFs from extraordinarily costly cases while ensuring the
adequacy of the Federal per diem base rate for all other cases that are
not outlier cases.
We believe it is necessary to update the fixed dollar loss
threshold amount because analysis of the latest available data (that
is, FY 2006 IPF claims) and rate increases indicates adjusting the
fixed dollar loss amount is necessary in order to maintain an outlier
percentage that equals 2 percent of total estimated IPF PPS payments.
In the May 2006 IPF PPS Final Rule (71 FR 27072), we describe the
process by which we calculate the outlier fixed dollar loss threshold
amount. We continue to use this process for RY 2009. We begin by
simulating aggregate payments with and without an outlier policy, and
applying an iterative process to a fixed dollar loss amount that will
result in outlier payments being equal to 2 percent of total estimated
payments under the simulation. Based on this process, for RY 2009, the
IPF PPS will use $6,113 as the fixed dollar loss threshold amount in
the outlier calculation in order to maintain the 2 percent outlier
policy.
b. Statistical Accuracy of Cost-to-Charge Ratios
As previously stated, under the IPF PPS, an outlier payment is made
if an IPF's cost for a stay exceeds a fixed dollar loss threshold
amount. In order to establish an IPF's cost for a particular case, we
multiply the IPF's reported charges on the discharge bill by its
overall cost to charge ratio (CCR). This approach to determining an
IPF's cost is consistent with the approach used under the IPPS and
other PPSs. In FY 2004, we implemented changes to the IPPS outlier
policy used to determine CCRs for acute care hospitals because we
became aware that payment vulnerabilities resulted in inappropriate
outlier payments. Under the IPPS, we established a statistical measure
of accuracy for CCRs in order to ensure that aberrant CCR data did not
result in inappropriate outlier payments.
As we indicated in the November 2004 IPF PPS final rule, because we
believe that the IPF outlier policy is susceptible to the same payment
vulnerabilities as the IPPS, we adopted an approach to ensure the
statistical accuracy of CCRs under the IPF PPS (69 FR 66961).
Therefore, we adopted the following procedure in the November 2004 IPF
PPS final rule:
We calculated two national ceilings, one for IPFs located
in rural areas and one for IPFs located in urban areas. We computed the
ceilings by first calculating the national average and the standard
deviation of the CCR for both urban and rural IPFs.
To determine the rural and urban ceilings, we multiplied each of
the standard deviations by 3 and added the result to the appropriate
national CCR average (either rural or urban). The upper threshold CCR
for IPFs in RY 2009 is 1.8041 for rural IPFs, and 1.6724 for urban
IPFs, based on CBSA-based geographic designations. If an IPF's CCR is
above the applicable ceiling, the ratio is considered statistically
inaccurate and we assign the appropriate national (either rural or
urban) median CCR to the IPF.
We are applying the national CCRs to the following situations:
++ New IPFs that have not yet submitted their first Medicare cost
report.
++ IPFs whose CCR is in excess of 3 standard deviations above the
corresponding national geometric mean (that is, above the ceiling).
++ Other IPFs for whom the Medicare contractor obtains inaccurate
or incomplete data with which to calculate a CCR.
For new IPFs, we are using these national CCRs until the facility's
actual CCR can be computed using the first tentatively settled or final
settled cost report, which will then be used for the subsequent cost
report period.
We are not making any changes to the procedures for ensuring the
statistical accuracy of CCRs in RY 2009. However, we are updating the
national urban and rural CCRs (ceilings and medians) for IPFs for RY
2009 based on the CCRs entered in the latest available IPF PPS Provider
Specific File.
The national CCRs for RY 2009 are 0.686 for rural IPFs and 0.5370
for urban IPFs and will be used in each of the three situations listed
above. These calculations are based on the IPF's location (either urban
or rural) using the CBSA-based geographic designations.
A complete discussion regarding the national median CCRs appears in
the November 2004 IPF PPS final rule (69 FR 66961 through 66964).
2. Stop-Loss Provision
In the November 2004 IPF PPS final rule, we implemented a stop-loss
policy that reduces financial risk to IPFs expected to experience
substantial reductions in Medicare payments during the period of
transition to the IPF PPS. This stop-loss policy guarantees that each
facility receives total IPF PPS payments that are no less than 70
percent of its TEFRA payments had the IPF PPS not been implemented.
This policy is applied to the IPF PPS portion of Medicare payments
during the 3-year transition. During the first year, for transitioning
IPFs, three-quarters of the payment was based on TEFRA and one-quarter
on the IPF PPS payment amount. In the second year, one-half of the
payment was based on TEFRA and one-half on the IPF PPS payment amount.
In the third year, one-quarter of the payment was based on TEFRA and
three-quarters on the IPF PPS. For cost report periods beginning on or
after January 1, 2008, payments are based 100 percent on the IPF PPS.
The combined effects of the transition and the stop-loss policies
ensure that the total estimated IPF PPS payments were no less than 92.5
percent in the first year, 85 percent in the second year,
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and 77.5 percent in the third year. Under the 70 percent policy, in the
third year, 25 percent of an IPF's payment is TEFRA payments, and 75
percent is IPF PPS payments, which are guaranteed to be at least 70
percent of the TEFRA payments. The resulting 77.5 percent of TEFRA
payments is the sum of 25 percent and 75 percent times 70 percent
(which equals 52.5 percent).
In the implementation year, the 70 percent of TEFRA payment stop-
loss policy required a reduction in the standardized Federal per diem
and ECT base rates of 0.39 percent in order to make the stop-loss
payments budget neutral.
For the RY 2009 (that is for discharges occurring on or after July
1, 2008 through June 30, 2009), we are not making any changes to the
stop-loss policy for IPFs continuing to transition. However, beginning
January 1, 2009, the stop-loss provision will have ended for all IPFs
because it was implemented to be effective for the duration of the
transition period, and the transition period will be completed
beginning January 1, 2009. As indicated in ``Section III. A.2.6 of this
notice for RY 2009, we are increasing the Federal per diem base rate
and ECT rate by 0.39 percent because these rates were reduced by 0.39
percent in the implementation year to ensure stop-loss payments were
budget neutral.
V. Waiver of Proposed Rulemaking
We ordinarily publish a notice of proposed rulemaking in the
Federal Register to provide a period for public comment before the
provisions of a rule take effect. We can waive this procedure, however,
if we find good cause that notice and comment procedures are
impracticable, unnecessary, or contrary to the public interest and we
incorporate a statement of finding and its reasons in the notice.
We find it is unnecessary to undertake notice and comment
rulemaking for the update in this notice because the update does not
make any substantive changes in policy, but merely reflects the
application of previously established methodologies. Therefore, under 5
U.S.C 553(b)(3)(B), for good cause, we waive notice and comment
procedures.
VI. Collection of Information Requirement
This document does not impose any information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995 (44 U.S.C. 35).
VII. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 (as amended) directs agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
For purposes of Title 5, United States Code, section 804(2), we
estimate that this rulemaking is ``economically significant'' as
measured by the $100 million threshold, and hence also a major rule
under the Congressional Review Act. Accordingly, we have prepared a
Regulatory Impact Analysis that to the best of our ability presents the
costs and benefits of the rulemaking on the 1,669 IPFs.
The updates to the IPF labor-related share and wage indices are
made in a budget neutral manner and thus have no effect on estimated
costs to the Medicare program. Therefore, the estimated increased cost
to the Medicare program is due to the updated IPF payment rates, which
results in a $140 million increase in payments, and the transition from
75 percent PPS/25 percent TEFRA payments to 100 percent PPS payments,
which results in a $20 million decrease in payments. The sunset of the
stop-loss provision has a minimal impact on IPF payments in RY 2009.
The distribution of these impacts is summarized in Table 13. The effect
of the updates described in this notice result in an overall $120
million increase in payments from RY 2008 to RY 2009.
The RFA requires agencies to analyze options for regulatory relief
of small businesses, if a rule has a significant impact on a
substantial number of small entities. For purposes of the RFA, we
estimate that the great majority of IPFs are small entities as that
term is used in the RFA (include small businesses, nonprofit
organizations, and small governmental jurisdictions). The great
majority of hospitals and most other health care providers and
suppliers are small entities, either by being nonprofit organizations
or by meeting the SBA definition of a small business (having revenues
of less than $6.5 million to $31.5 million in any 1 year) (For details,
see the Small Business Administration's Interim final rule that set
forth size standards at 70 FR 72577, December 6, 2005.) Because we lack
data on individual hospital receipts, we cannot determine the number of
small proprietary IPFs or the proportion of IPFs' revenue that is
derived from Medicare payments. Therefore, we assume that all IPFs are
considered small entities. As shown in Table 13, we estimate that the
net revenue impact of this notice on all IPFs is to increase payments
by about 2.5 percent. Thus, we anticipate that this notice will not
have a significant impact on a substantial number of small entities.
Medicare contractors are not considered to be small entities.
Individuals and States are not included in the definition of a small
entity.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. With the exception of
hospitals located in certain New England counties, for purposes of
section 1102(b) of the Act, we previously defined a small rural
hospital as a hospital with fewer than 100 beds that is located outside
of a Metropolitan Statistical Area (MSA) or New England County
Metropolitan Area (NECMA). However, under the new labor market
definitions, we no longer employ NECMAs to define urban areas in New
England. For purposes of this analysis, we now define a small rural
hospital as a hospital with fewer than 100 beds that is located outside
of an MSA. Therefore, the Secretary certifies that this notice has a
significant impact on the operations of a substantial number of small
rural hospitals.
We have determined that this notice will have a significant and
positive impact on substantial number of hospitals classified as
located in rural areas. Since the impact on rural hospitals is
positive, we did not consider alternatives to reduce burden on these
IPFs.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess
[[Page 25725]]
anticipated costs and benefits before issuing any rule whose mandates
require spending in any 1 year of $100 million in 1995 dollars, updated
annually for inflation. In 2008, that threshold is approximately $130
million. This notice will not impose spending costs on State, local, or
tribal governments in the aggregate, or by the private sector, of $130
million 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. We have reviewed this notice under the criteria set forth
in Executive Order 13132 and have determined that the notice will not
have any substantial impact on the rights, roles, and responsibilities
of State, local, or tribal governments.
B. Anticipated Effects
We discuss below the historical background of the IPF PPS and the
impact of this notice on the Federal Medicare budget and on IPFs.
1. Budgetary Impact
As discussed in the November 2004 and May 2006 IPF PPS final rules,
we applied a budget neutrality factor to the Federal per diem and ECT
base rates to ensure that total estimated payments under the IPF PPS in
the implementation period would equal the amount that would have been
paid if the IPF PPS had not been implemented. The budget neutrality
factor includes the following components: Outlier adjustment, stop-loss
adjustment, and the behavioral offset. In accordance with Sec.
412.424(c)(3)(ii), we will evaluate the accuracy of the budget
neutrality adjustment within the first 5 years after implementation of
the payment system. We may make a one-time prospective adjustment to
the Federal per diem and ECT base rates to account for differences
between the historical data on cost-based TEFRA payments (the basis of
the budget neutrality adjustment) and estimates of TEFRA payments based
on actual data from the first year of the IPF PPS. As part of that
process, we will re-assess the accuracy of all of the factors impacting
budget neutrality.
In addition, as discussed in section IV.C.1. of this notice, we are
using the wage index and labor market share in a budget neutral manner
by applying a wage index budget neutrality factor to the Federal per
diem and ECT base rates. Thus, the budgetary impact to the Medicare
program by the update of the IPF PPS will be due to the market basket
updates (see section III.B. of this notice) and the planned update of
the payment blend discussed below.
2. Impacts on Providers
To understand the impact of the changes to the IPF PPS discussed in
this notice on providers, it is necessary to compare estimated payments
under the IPF PPS rates and factors for RY 2009 to estimated payments
under the IPF PPS rates and factors for RY 2008. The estimated payments
for RY 2008 are a blend of: 25 percent of the facility-specific TEFRA
payment and 75 percent of the IPF PPS payment with stop-loss payment.
The estimated payments for the RY 2009 IPF PPS will be 100 percent of
the IPF PPS payment and the stop-loss payment will no longer be
applied. We determined the percent change of estimated RY 2009 IPF PPS
payments to estimated RY 2008 IPF PPS payments for each category of
IPFs. In addition, for each category of IPFs, we have included the
estimated percent change in payments resulting from the wage index
changes for the RY 2009 IPF PPS, the market basket update to IPF PPS
payments, and the transition blend for the RY 2009 IPF PPS payment and
the facility-specific TEFRA payment.
To illustrate the impacts of the final RY 2009 changes in this
update notice, our analysis begins with a RY 2008 baseline simulation
model based on FY 2006 IPF payments inflated to the midpoint of RY 2008
using Global Insight's most recent forecast of the market basket update
(see section III.B. of this notice); the estimated outlier payments in
RY 2008; the estimated stop-loss payments in RY 2008; the CBSA
designations for IPFs based on OMB's MSA definitions after June 2003;
the FY 2007 pre-floor, pre-reclassified hospital wage index; the RY
2008 labor-market share; and the RY 2008 percentage amount of the rural
adjustment. During the simulation, the outlier payment is maintained at
the target of 2 percent of total PPS payments.
Each of the following changes is added incrementally to this
baseline model in order for us to isolate the effects of each change:
The FY 2008 pre-floor, pre-reclassified hospital wage
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