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Medicare Program; Hospital Inpatient Prospective Payment Systems and Fiscal Year 2007 Rates: Final Fiscal Year 2007 Wage Indices and Payment Rates After Application of Revised Occupational Mix Adjustment to Wage Index

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Start Preamble Start Printed Page 59886

AGENCY:

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

ACTION:

Notice.

SUMMARY:

This notice contains tables listing the final occupational mix adjusted wage indices, hospital reclassifications, payment rates, impacts, and other related tables as a result of the application of the occupational mix adjustment to 100 percent of the wage index effective for fiscal year (FY) 2007.

DATES:

Effective Date: This notice is effective on October 1, 2006.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Valerie Miller, (410) 786-4535, Wage Index Issues. Brian Slater, (410) 786-5229, Geographic Reclassification Issues. Marc Hartstein, (410) 786-4548, All Other Issues.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

I. Background

In the August 18, 2006 Federal Register (71 FR 47870) (hereinafter referred to as the FY 2007 IPPS final rule), we set forth our final rule for the Medicare inpatient prospective payment system (IPPS). Due to the decision in the case Bellevue Hosp. Center v. Leavitt, 443 F. 3d 163 (2nd Cir. 2006), we stated that we would publish the FY 2007 occupational mix adjusted wage index tables, rates, and impacts on our Web site and in a Federal Register document subsequent to the FY 2007 IPPS final rule. (See the FY 2007 IPPS final rule for a full explanation of the reasons for such subsequent publication.) This notice includes such wage index tables, rates, and impacts.

II. Final FY 2007 Occupational Mix Adjusted Wage Indices, Rates, and Impacts

A. Wage Index and Occupational Mix Adjustment

1. Implementation of the New Occupational Mix Adjustment for the FY 2007 Wage Index

The final wage index values for FY 2007 (except those for hospitals receiving wage index adjustments under section 505 of Pub. L. 108-173) are included in Tables 4A-1, 4A-2, 4B, 4C-1, 4C-2, and 4F of the Addendum to this notice and are posted on our Web site at http://www.cms.hhs.gov/​AcuteInpatientPPS/​. For hospitals that are receiving a wage index adjustment under section 505 of Pub. L. 108-173, the hospital's final wage index will reflect the adjustment shown in Table 4J of the Addendum to this notice. Tables 3A and 3B of the Addendum to this notice and on our Web site reflect the 3-year average of the average hourly wage for each labor market area before the redesignation of hospitals, used for FYs 2005, 2006, and 2007. Table 3A lists average hourly wages for urban areas and Table 3B lists these data for rural areas. In addition, Table 2 in the Addendum to this notice includes the occupational mix adjusted average hourly wage for each hospital from the FYs 2001, 2002, and 2003 cost reporting periods. The average hourly wages for FYs 2001 and 2002 reflect a 10 percent occupational mix adjustment using the survey data used to develop the FYs 2005 and 2006 wage indices, respectively. The FY 2003 average hourly wages reflect a 100 percent occupational mix adjustment using the recently collected survey data and were used to calculate the FY 2007 wage index.

2. Proxy Occupational Mix Adjustment for Hospitals With No Survey Data

As stated in the FY 2007 IPPS final rule (71 FR 48014), we have applied the average occupational mix adjustment for a hospital's labor market area to the wage data of hospitals that did not submit occupational mix survey data or that submitted survey data that could not be used because we determined it to be aberrant. For example, a hospital's individual nurse category average hourly wages were out of range (that is, unusually high or low), and the hospital did not provide sufficient documentation to explain the aberrancy, or the hospital did not submit any registered nurse staff salaries or hours data.

In calculating the average occupational mix adjustment factor for an area, we replicated Steps 1 through 6 of the calculation for the occupational mix adjustment (see 71 FR 48009). However, instead of performing these steps at the hospital level, we aggregated the data at the labor market area level. In following these steps, for example, for Core-Based Statistical Areas (CBSAs) that contain providers that did not submit occupational mix survey data, the occupational mix adjustment factor ranged from a low of 0.8944 (CBSA 39820, Redding, CA), to a high of 1.0924 (CBSA 38220, Pine Bluff, AR). Also, in computing a hospital's occupational mix adjusted salaries and wage-related costs for nursing employees (Step 7 of the calculation (see 71 FR 48010)) in the absence of occupational mix survey data, we multiplied the hospital's total salaries and wage-related costs by the percentage of the area's total workers attributable to the area's total nursing category. There were also two CBSAs in which none of the providers submitted the occupational mix survey (CBSA 49740, Yuma, AZ, and CBSA 25020, Guayama, P.R.). In the absence of any data in these labor market areas, we applied an occupational mix adjustment factor of 1.0 to all providers.

3. Analysis of the Final FY 2007 Wage Index

Using the new occupational mix survey data and applying the occupational mix adjustment to 100 percent of the FY 2007 wage index results in a national average hourly wage of $29.6529 and a Puerto-Rico specific average hourly wage of $13.0943. We calculated the FY 2007 wage index using the Worksheet S-3 cost report data of 3,570 hospitals and occupational mix survey data from 3,239 hospitals (90.7 percent response rate). Although more than 3,239 hospitals submitted occupational mix survey data for the January through March 2006 collection period, we excluded the data for 37 hospitals that did not have FY 2003 Worksheet S-3 cost report data for use in calculating the FY 2007 wage index. Also, we excluded the occupational mix survey data of another 30 hospitals because their data was incomplete or aberrant. Using the occupational mix data of 3,239 hospitals, the FY 2007 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows: Start Printed Page 59887

Occupational mix nursing subcategoryAverage hourly wage
National RN Management$38.5908
National RN Staff33.3739
National LPN19.2721
National Nurse Aides, Orderlies, and Attendants13.6906
National Medical Assistants15.6304
National Nurse Category28.7431

The national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $28.7431. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the January through March 2006 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) that the national percentage of hospital employees in the Nurse category is 42.9 percent, and the national percentage of hospital employees in the All Other Occupations category is 57.1 percent. At the CBSA level, the percentage of hospital employees in the Nurse category ranged from a low of 23.0 percent in one CBSA, to a high of 85.5 percent in another CBSA.

After adjusting the FY 2007 wage indices by 100 percent for occupational mix, the wage index values for a total of 250 hospitals in 73 labor market areas are assigned a statewide rural wage index value (“the rural floor”) according to section 4410 of Pub. L. 105-33, or an imputed floor, for hospitals located in all-urban States, according to § 412.64(h).

a. Effect of the 2006 Occupational Data on the FY 2007 Wage Index (Unadjusted Relative to Adjusted Wage Index). We compared the FY 2007 unadjusted wage indices for each CBSA to the FY 2007 wage indices adjusted for occupational mix. In implementing an occupational mix adjusted wage index based on the above calculation, the final wage index values for 14 rural areas (29.8 percent) and 201 urban areas (52.1 percent) would decrease as a result of the adjustment. Six rural areas (12.8 percent) and 108 urban areas (28.0 percent) would experience a decrease of 1 percent or greater in their wage index values. The largest negative impacts would be 2.7 percent and 6.0 percent. In addition, 33 rural areas (70.2 percent) and 181 urban areas (46.9 percent) would experience an increase in their wage index values. The largest increase for a rural area would be 3.16 percent and the largest increase for an urban area would be 8.39 percent. Four urban areas would be unaffected. These results indicate that a larger percentage of rural areas benefit from an occupational mix adjustment than do urban areas. However, as was the case with the previous occupational mix data, close to a third of rural CBSAs (29.8 percent) continue to experience a decrease in their wage indices as a result of the occupational mix adjustment.

b. Effect of the 2006 Occupational Mix Survey Data Relative to the 2003 Survey Data. We also analyzed the effect on the FY 2007 wage index of applying the January through March 2006 occupational mix survey data, relative to applying the 2003 occupational mix survey data. In this analysis, we compared the FY 2007 wage index adjusted 100 percent using 2003 and 2006 survey data. By controlling for changes in hospitals' wage data and geographic reclassification, we determined that the wage index values for 27 rural areas (57.4 percent) and 183 urban areas (47.4 percent) would decrease as a result of applying the 2006 survey data instead of the 2003 survey data. Ten rural areas (21.3 percent) and 96 urban areas (24.9 percent) would experience a decrease of 1 percent or greater in their wage index values. The largest negative impact for a rural area would be 3.6 percent. Six urban areas (1.2 percent) would be decreasing by greater than 5 percent; the largest urban decrease would be 20.9 percent, and the second largest decrease for an urban area would be 7.7 percent. One rural and one urban area would be unaffected by the change in the occupational mix data. In addition, 19 rural areas (40.4 percent) and 202 urban areas (52.3 percent) would experience an increase in their wage index values. The largest increase for a rural area would be 2.6 percent and the largest increase for an urban area would be 7.15 percent.

B. Final FY 2007 Hospital Reclassifications/Redesignations

1. Withdrawals and Terminations

As we stated in the FY 2007 IPPS final rule (71 FR 48020), for FY 2007, rather than hospitals withdrawing or terminating their 3-year reclassifications within 45 days of the publication of the IPPS proposed rule, hospitals would be subject to special procedures unique to FY 2007.

These procedures are as follows:

  • Hospitals had 15 days from the display date of the FY 2007 IPPS final rule to notify us of whether, in the absence of viewing the final 100 percent occupational mix-adjusted wage index data, they wish to choose a particular wage index for which they are eligible (such as to definitively maintain, terminate, or withdraw from a reclassification that they received ).
  • If we did not receive notice from the hospital within the 15-day timeframe, we made our best efforts to give the hospital the highest wage index among its available options. We made reclassification withdrawal and termination decisions based on what we perceived would be most advantageous to the hospital. (See 71 FR 48020 for an explanation of the reclassifications and adjustment we chose among.) Please note that in some cases we terminated a hospital's Lugar reclassification under section 1886(d)(8)(B) of the Act in order to receive the out-migration adjustment. Because this termination would result in the hospital losing urban status, we published a separate table (Table 9D) identifying these hospitals that move from Lugar/urban status to rural status with the out-migration adjustment. Also, in some cases, we may have made half-year terminations/withdrawals on behalf of section 508 hospitals (or groups containing section 508 hospitals) using the procedures identified in the FY 2007 IPPS final rule. (See 71 FR 48021 for an explanation of the half-year reclassifications that could occur for section 508 hospitals and groups containing section 508 hospitals.
  • We have posted the final occupational mix-adjusted wage indices, out-migration adjustments, and our decisions on hospital reclassification on the CMS Web site at http://www.cms.hhs.gov/​AcuteInpatientPPS/​WIFN/​list.asp. We have posted the same table on the CMS Web site that appeared in the Federal Register final notice of the occupational mix-adjusted wage indices.
  • In the FY 2007 IPPS final rule, we acknowledged that hospitals may base termination/withdrawal decisions on factors other than simply what results in the highest wage index for the upcoming fiscal year. For this reason, we allowed a hospital to change a decision that is made by CMS on its behalf. Hospitals now have a 30-day period from the date these final data and our final decisions appear on the CMS Web site to notify CMS in writing, with a copy to the MGCRB, of whether they wish to reverse the reclassification decision made by CMS or to choose another reclassification for which they are eligible. Hospitals are able to Start Printed Page 59888determine the reclassification decision applied on their behalf by reviewing Tables 9A through 9C for hospitals that are reclassified under section 1886(d)(8)(B) of the Act, section 508 of Pub. L. 108-173, or section 1886(d)(10) of the Act. The applicable wage index for these hospitals will be found on Table 2. If a hospital is not listed in Tables 9A through 9C, CMS has made a decision not to reclassify the hospital and its home wage index will apply, including the effect of any out-migration adjustment (if applicable). Again, the wage index that will apply to the hospital is found in Table 2. Any applicable out-migration adjustment for the hospital is found in Table 4J. As indicated above in this section, we are publishing a separate table identifying hospitals that we move from Lugar/urban status to rural status with the out-migration adjustment in Table 9D.
  • Requests to reverse a decision made on behalf of a hospital by CMS and to choose another reclassification or adjustment for which the hospital is otherwise eligible must be received by CMS no later than 5 p.m., e.s.t., with a copy sent to the MGCRB by October 30, 2006 (or within 30 days from the date the information appears on the CMS Web site at http://www.cms.hhs.gov/​AcuteInpatientPPS/​WIFN/​list.asp at the following addresses: Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244, Attn: Marianne Myers; and a copy to Medicare Geographic Classification Review Board, 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

As required under § 412.273(c), requests by groups of hospitals must be made by all hospitals that are a party to the application or reclassification. The reclassification or adjustment chosen by the hospital must be one for which the hospital would otherwise be eligible had CMS not made the withdrawal or termination decision on the hospital's behalf.

  • If a hospital (or group of hospitals) fails to notify CMS that it is revising a determination made on its behalf within 30 days from the date the information appears on the CMS Web site, the decision made by CMS on the hospital's behalf will be final for FY 2007. Therefore, if CMS made a decision on a hospital's (or group of hospitals) behalf to terminate or withdraw a reclassification and the hospital does not reverse or modify CMS's decision within 30 days of posting the decision on the CMS Web site, we will deem the hospital's reclassification is withdrawn or terminated. If the hospital does not reverse or modify CMS's decision within 30 days of posting of the decision on the CMS Web site, once CMS's decision on the hospital's behalf is in effect, it will be treated in the same manner as if the hospital(s) had made the reclassification decision on its own. Thus, for example, because a hospital cannot have overlapping reclassifications, if we decide a hospital should accept a FY 2007 through 2009 reclassification and the hospital does not modify or reverse CMS's decision within 30 days of posting the decision on the CMS Web site, any reclassification the hospital previously had for FY 2006 through 2008 would be permanently terminated.

Hospitals should note that we will not recalculate the wage indices or budget neutrality factors now that CMS has made their decisions regarding what is most advantageous to each hospital using the 100 percent occupational mix-adjusted wage data. That is, we will not further recalculate the wage indices (including any rural floors or imputed rural floors) or standardized amounts based on hospital decisions that further revise decisions made by CMS on the hospitals' behalf.

In addition, we note that rural areas that include a section 508 hospital (specifically a hospital with wages relatively higher than the wages of other hospitals) may experience a decrease in their wage index for the second half of FY 2007. This is because section 508 hospitals are not considered reclassified under section 1886(d)(10) of the Act, and therefore, are not subject to the rule in section 1886(d)(8)(C)(ii) of the Act requiring rural area wage indices to be calculated exclusive of hospitals reclassified under section 1886(d)(10) of the Act, if doing so would increase the rural wage index. Thus, for the first half of the year, a section 508 hospital may be included in the home wage index of a rural area, while the hospitals reclassified under section 1886(d)(10) of the Act are excluded, since such exclusion increases the wage index of the rural area. However, for the second half of the year, the hospital is no longer a section 508 hospital. If the former section 508 hospital is reclassified under section 1886(d)(10) of the Act, it is grouped with other hospitals so reclassified. The high wages of the section 508 hospital may operate such that, for the second half of the year, it is more advantageous for all of the reclassified hospitals to be included in the wage index of the rural area (rather than excluded as they were in the first half of the year). However, because the other reclassified hospitals are now included in the wage index, and not just the sole section 508 hospital with high wages, the area may see a decline in the wage index. We view this scenario as arising due to the rural area's higher than expected wage index during the first half of the year from including only the section 508 hospital and not any reclassified hospitals. If we did not establish special rules that allowed for one-half year reclassifications, the section 508 hospital likely would have reclassified for the entire year under section 1886(d)(10) of the Act. In that case, the wage index for the second-half of FY 2007 would have applied for the entire year.

2. MGCRB Applications for FY 2008

Section 1886(d)(10)(C)(ii) of the Act indicates that a hospital requesting a change in geographic classification for a fiscal year must submit its application to the MGCRB no later than the first day of the 13-month period ending on September 30 of the preceding fiscal year. Thus, the statute requires that FY 2008 reclassification applications be submitted to the MGCRB no later than September 1, 2006. For this reason, hospitals must have filed a FY 2008 reclassification application by the September 1, 2006 deadline even though the average hourly wage data used to develop the final FY 2007 wage indices was not available.

The MGCRB, in evaluating a hospital's request for reclassification for FY 2008 for the wage index, must utilize the official data used to develop the FY 2007 wage index. The wage data used to support the hospital's wage comparisons must be from the CMS hospital wage survey. Generally, the source for these data is the IPPS final rule. However, the wage tables identifying the 3-year average hourly wages of hospitals were not available in time to include them in the FY 2007 IPPS final rule and by the September 1, 2006 deadline for submitting FY 2008 geographic reclassification applications.

As outlined in § 412.256(c)(2), hospitals with incomplete applications have the opportunity to request that the MGCRB grant a hospital that has submitted an application by September 1, 2006, an extension beyond September 1, 2006, to complete its application. Thus, while hospitals must file an application for reclassification to the MGCRB by September 1, 2006, they are able to supplement the reclassification application with official data used to develop the FY 2007 wage index after filing their initial application.

Therefore, as we stated in the FY 2007 IPPS final rule (71 FR 48022 through 48023), we are allowing hospitals 30 days after the final wage data is posted on the CMS Web site or by October 30, Start Printed Page 598892006 to file a supplement to the reclassification application they filed by September 1, 2006. The supplement would include the official data (Attachment H in the MGCRB Application) used to develop the FY 2007 wage index. Supplements must be received within 30 days this final data is posted on the CMS Web site or by October 30, 2006. The 3-year average hourly wage information necessary for FY 2008 reclassification applications appears in Tables 2, 3A, and 3B of the Addendum to this notice. The information also is available on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​WIFN/​list.asp and then by accessing the page titled “MGCRB Reclassification Data for FY 2008 Applications.” Applications and other information about MGCRB reclassifications may be obtained via the CMS Internet Web site at: http://www.cms.hhs.gov/​mgcrb/​, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

3. Cancellations of Previous Withdrawals or Terminations for FY 2008 and Subsequent Fiscal Years

We are also allowing a 30-day period from the date the final wage data is posted on the CMS Web site to cancel a previous withdrawal or termination in order for a hospital to reinstate its reclassification for FY 2008 (for a FY 2006-2008 reclassification) or FY 2008 and FY 2009 (for a FY 2007-2009 reclassification). Because we have made termination or withdrawal decisions on behalf of hospitals, hospitals should look carefully at these decisions and determine whether they want to cancel such withdrawals or terminations for FY 2008 or FY 2009 if the reclassification time period includes these years. Hospitals must request to reinstate a reclassification that includes FY 2008 within 30 days of posting the Web site data for the reclassification to continue in that year even if they agree with the decision we made on their behalf for FY 2007.

Hospitals must request to reinstate a reclassification that includes FY 2008 within 30 days of when the data are posted to the CMS Web site or by October 30, 2006.

Requests to cancel a withdrawal or termination in order to reinstate a hospital's reclassification for FY 2008 or FY 2009, or both fiscal years, should be forwarded to the following addresses: Medicare Geographic Classification Review Board, 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670; and a copy to Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244, Attn: Marianne Myers.

All requests must be received within 30 days of this posting of CMS final wage data and final reclassification decisions on the CMS Web site or by October 30, 2006.

C. Final FY 2007 Prospective Payment Systems Payment Rates for Hospital Operating and Capital Related Costs

As discussed in the FY 2007 IPPS final rule, due to the unusual circumstances imposed by the order of the Court of Appeals for the Second Circuit in the decision in Bellevue Hospital Center v. Leavitt, we did not publish the final FY 2007 budget neutrality factors, standardized amounts, fixed-loss cost threshold, outlier offset factor, DRG weights, or wage indices in the FY 2007 IPPS final rule. Because the occupational mix adjustment affects the calculation of the outlier threshold as well as the outlier offset and budget neutrality factors that are applied to the standardized amounts, we were only able to provide tentative figures in that final rule. As discussed above in this notice, we are publishing final occupation mix-adjusted wage indices. Accordingly, in this section of this notice, we are discussing the final FY 2007 prospective payment rates for Medicare hospital inpatient operating costs and Medicare hospital inpatient capital-related costs. We calculated these final rates using the methodology we adopted in the FY 2007 IPPS final rule.

We note that, because hospitals excluded from the IPPS are paid on a cost basis (and not by the IPPS), these hospitals were not affected by the tentative figures for standardized amounts, offsets, and budget neutrality factors. Therefore, the rate-of-increase percentages for updating the target amounts for hospitals and hospital units excluded from the IPPS that are effective October 1, 2006 were finalized in the FY 2007 IPPS final rule (71 FR 48164) and are not included in this notice.

1. Final FY 2007 Prospective Payment Rates for Hospital Inpatient Operating Costs

a. Final FY 2007 Standardized Amount. We calculated the final FY 2007 standardized amounts using the methodology we adopted in the FY 2007 IPPS final rule. For a complete description of this methodology, please see the FY 2007 IPPS final rule (71 FR 48145 through 48155). Tables 1A and 1B in the Addendum to this notice contain the final national standardized amount that we are applying to all hospitals, except hospitals in Puerto Rico. The final Puerto Rico-specific amounts are shown in Table 1C. The final amounts shown in Tables 1A and 1B differ only in that the labor-related share applied to the final standardized amounts in Table 1A is 69.7 percent, and the labor-related share applied to the final standardized amounts in Table 1B is 62 percent. (The labor-related share is 62 percent for all hospitals (other than those in Puerto Rico) whose wage indices are less than or equal to 1.0000.)

In addition, Tables 1A and 1B include final standardized amounts reflecting the full 3.4 percent update for FY 2007, and final standardized amounts reflecting the 2.0 percentage point reduction to the update (a 1.4 percent update) applicable for hospitals that fail to submit quality data consistent with section 1886(b)(3)(B)(viii) of the Act.

In the FY 2007 IPPS final rule, we did not supply a table that illustrated the changes from the FY 2006 national average standardized amount because we were only setting the standardized amounts tentatively, but we stated that we would provide the table in the subsequent Federal Register notice. Therefore, in this notice, we include below a table that details the calculation of the final standardized amounts.

Comparison of FY 2006 Standardized Amounts to Final FY 2007 Single Standardized Amount With Full Update and Reduced Update

Full update (3.4 percent)Reduced update (1.4 percent)
FY 2006 Base Rate, after removing reclassification budget neutrality, demonstration budget neutrality, wage index transition budget neutrality factors and outlier offset (based on the proposed labor and nonlabor market share percentage for FY 2007)Labor: $3,505.76 Nonlabor: $1,524.03Labor: $3,505.76. Nonlabor: $1,524.03.
Final FY 2007 Update Factor1.034.1.014.
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Final FY 2007 DRG Recalibrations and Wage Index Budget Neutrality Factor0.995662.0.995662.
Final FY 2007 Reclassification Budget Neutrality Factor0.992355.0.992355.
Adjusted for Blend of FY 2006 DRG Recalibration and Wage Index Budget Neutrality FactorsLabor: $3,581.64 Nonlabor: $1,557.01Labor: $3,512.37. Nonlabor: $1,526.90.
Final FY 2007 Outlier Factor0.948968.0.948968.
Final FY 2007 Labor Market Wage Index Transition Budget Neutrality Factor0.999700.0.999700.
Final Rural Demonstration Budget Neutrality Factor0.999905.0.999905.
Final Rate for FY 2007 (after multiplying FY 2006 base rate by above factors) where the wage index is less than or equal to 1.0000Labor: $3,022.18 Nonlabor: $1,852.31Labor: $2,963.73. Nonlabor: $1,816.48.
Final Rate for FY 2007 (after multiplying FY 2006 base rate by above factors) where the wage index is greater than 1.0000Labor: $3,397.52 Nonlabor: $1,476.97Labor: $3,331.80. Nonlabor: $1,448.40.

The final labor-related and nonlabor-related portions of the national average standardized amounts for Puerto Rico hospitals for FY 2007 are set forth in Table 1C in the Addendum to this notice. (The labor-related share applied to the Puerto Rico-specific standardized amount is 58.7 percent, or 62 percent, depending on which is more advantageous to the hospital.

b. Final Adjustments for Area Wage Levels. The final occupational mix adjusted wage indices by geographic area are listed in Tables 4A-1, 4A-2, 4B, 4C-1, 4C-2, and 4F in the Addendum to this notice. (These tables are also available on the CMS Web site.)

c. FY 2007 Final Outlier Fixed-Loss Cost Threshold. Using the methodology we adopted in the FY 2007 IPPS final rule, we are establishing a final outlier fixed-loss cost threshold for FY 2007 equal to the prospective payment rate for the DRG, plus any IME and DSH payments, and any add-on payments for new technology, plus $24,485.

d. DRG Weights. Because we rely on the wage index data as one of the standardizing factors that we use in calculating both the charge-based and the cost-based relative weights that we are blending to set the FY 2007 transitional relative weights, we have recalculated the FY 2007 relative weights. We list the final DRG weights in Table 5 of the Addendum to this notice.

2. Final FY 2007 Prospective Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs

We have calculated the final FY 2007 capital Federal rates, offsets, and budget neutrality factors using the methodology we adopted in the FY 2007 IPPS final rule. For a complete description of this methodology, please see the FY 2007 IPPS final rule (71 FR 48155 through 48156).

a. Inpatient Hospital Capital-Related Prospective Payment Rate Update. The factors used in the update framework are not affected by the occupational mix information used to adjust the wage index. Therefore, the update factor for FY 2007 was not revised from the capital PPS standard Federal rate update factor published in the FY 2007 IPPS final rule and remains at 1.10 percent for FY 2007. A full discussion of the update framework is provided in the FY 2007 IPPS final rule (71 FR 48156 through 48158).

b. Outlier Payment Adjustment Factor. Based on the final thresholds as set forth in section II.C. of this notice, we estimate that final outlier payments for capital-related costs will equal 4.32 percent for inpatient capital-related payments based on the final Federal rate in FY 2007. Therefore, we are applying a final outlier adjustment factor of 0.9568 to the final capital Federal rate. Thus, we estimate that the percentage of capital outlier payments to total capital standard payments for FY 2007 will be slightly lower than the percentages for FY 2006.

The outlier thresholds for FY 2007 are in section II.C.1. of this notice. For FY 2007, a case qualifies as a cost outlier if the cost for the case plus the IME and DSH payments are greater than the prospective payment rate for the DRG plus $24,485.

c. Budget Neutrality Adjustment Factor for Changes in DRG Classifications and Weights and the GAF. Using the methodology discussed in the FY 2007 IPPS final rule (71 FR 48158 through 48161), for FY 2007, we are establishing a final GAF/DRG budget neutrality factor of 0.9986. The GAF/DRG budget neutrality factors are built permanently into the capital rates; that is, they are applied cumulatively in determining the capital Federal rate. This follows from the requirement that estimated aggregate payments each year be no more or less than they would have been in the absence of the annual DRG reclassification and recalibration and changes in the GAF. The final incremental change in the adjustment from FY 2006 to FY 2007 is 0.9986. The final cumulative change in the capital Federal rate due to this adjustment is 0.9906 (the product of the incremental factors for FYs 1993 though 2006 and the final incremental factor of 0.9986 for FY 2007). (We note that averages of the incremental factors that were in effect during FYs 2005 and 2006, respectively, were used in the calculation of the final cumulative adjustment of 0.9986 for FY 2007.)

This factor accounts for DRG reclassifications and recalibration and for changes in the GAF as well as the revised wage index as adjusted by occupational mix data. It also incorporates the effects on the final GAF of FY 2007 geographic reclassification decisions made by the MGCRB compared to FY 2006 decisions. However, it does not account for changes in payments due to changes in the DSH and IME adjustment factors or in the large urban add-on.

d. Exceptions Payment Adjustment Factor. The adjustments made to the wage index as a result of the application of occupational mix data had no effect on capital exceptions payments. Therefore, the special exceptions adjustment factor remains at 0.9997 as discussed in section III.A.4. of FY 2007 IPPS final rule (71 FR 48161). We also explained that the adjustments for regular exception payments are no longer necessary as they were only applicable during the capital transition period (cost reporting periods beginning on or after October 1, 1991 and before October 1, 2001).

e. Capital Standard Federal Rate for FY 2007. We are providing a chart that shows how each of the factors and adjustments for FY 2007 affected the computation of the final FY 2007 capital Federal rate in comparison to the FY Start Printed Page 598912006 capital Federal rate. The FY 2007 update factor has the effect of increasing the final capital Federal rate by 1.1 percent compared to the average FY 2006 Federal rate. The final GAF/DRG budget neutrality factor has the effect of decreasing the final capital Federal rate by 0.14 percent. The final FY 2007 outlier adjustment factor has the effect of increasing the final capital Federal rate by 0.56 percent compared to the average FY 2006 capital Federal rate. The FY 2007 exceptions payment adjustment factor remains unchanged from the FY 2006 exceptions payment adjustment factor, and therefore, has a 0.0 percent net effect on the final FY 2007 capital Federal rate. The combined effect of all the changes is to increase the capital Federal rate by 1.52 percent compared to the average FY 2006 capital Federal rate.

Comparison of Factors and Adjustments: FY 2006 Capital Federal Rate and FY 2007 Capital Federal Rate

FY 2006FY 2007ChangePercent change
Update Factor 11.00801.01101.01101.10
GAF/DRG Adjustment Factor 11.00083 0.99860.9986−0.14
Outlier Adjustment Factor 20.95153 0.95681.00560.56
Exceptions Adjustment Factor 20.99970.99970.00000.00
Capital Federal Rate$420.653 $427. 031.01521.52
1 The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental change from FY 2006 to FY 2007 resulting from the application of the final GAF/DRG budget neutrality factor for FY 2007 is 0.9986.
2 The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not applied cumulatively in determining the capital rates. Thus, for example, the net change resulting from the application of the final FY 2007 outlier adjustment factor would be 0.9568/0.9515, or 1.0056.
3 Final factors for FY 2007, as discussed in section II.E. of this notice.

We provided a chart in the FY 2007 IPPS final rule (71 FR 48162) that compared the tentative FY 2007 capital Federal rate to the proposed FY 2007 capital Federal rate (71 FR 24158 through 24159). We are now providing a chart that shows how the final FY 2007 capital Federal rate differs from the tentative FY 2007 capital Federal rate as presented in the FY 2007 IPPS final rule.

Comparison of Factors and Adjustments: FY 2007 Tentative Capital Federal Rate and FY 2007 Final Capital Federal Rate

Tentative FY 2007 1Final FY 2007 2ChangePercent change
Update Factor 11.01101.011000
GAF/DRG Adjustment Factor 10.99940.99860.0008−0.08
Outlier Adjustment Factor 20.95680.956800
Exceptions Adjustment Factor 20.99970.99970.00000.00
Capital Federal Rate$427.38$427.030.00080.08
1 As published in the FY 2007 IPPS final rule without the application of occupational mix data to the wage index.
2 Final capital inpatient factors and rates after occupational mix adjustment to wage index in accordance with the order of the Second Circuit Court.

As a final comparison, we are providing a chart that shows how the final FY 2007 capital Federal rate differs from the proposed FY 2007 capital Federal rate presented in the FY 2007 IPPS proposed rule (71 FR 24158 through 24159).

Comparison of Factors and Adjustments: Proposed FY 2007 Capital Federal Rate and Final FY 2007 Capital Federal Rate

Proposed FY 2007Final FY 2007ChangePercent change
Update Factor1.00801.01101.00300.30
GAF/DRG Adjustment Factor1.0012* 0.99860.9974−0.26
Outlier Adjustment Factor0.9513* 0.95681.00580.58
Exceptions Adjustment Factor0.99970.99970.00000.00
Capital Federal Rate$424.42* $427.031.00610.61
* Final factors for FY 2007, as discussed in section II.C.2 of this notice.
Start Printed Page 59892

g. Special Capital Rate for Puerto Rico Hospitals. Using the methodology discussed in the FY 2007 IPPS final rule (71 FR 48104), the final FY 2007 special capital rate for Puerto Rico is $203.06. (See the FY 2007 IPPS final rule (71 FR 48163) for additional information on the calculation of FY 2007 capital PPS payments.)

D. Final FY 2007 Inpatient Operating and Capital-Related Impacts

1. Final FY 2007 Inpatient Operating Impacts (Quantitative Effects of the Final Occupational Mix Adjusted Wage Indices)

The impact analysis for policy changes under the IPPS for operating costs was included in the FY 2007 IPPS final rule. As stated in that impact section (71 FR 48332), we were unable to provide final occupational mix adjusted wage indices because of our obligation to collect new occupational mix survey data consistent with the order of the Court of Appeals in the Second Circuit. We were also unable to provide final relative weights, budget neutrality calculations, the outlier threshold and outlier offsets to the standardized amounts because these figures are all dependent on final wage indices. However, we also indicated that when 100 percent occupational mix adjusted wage data were available, we would recalculate the impacts and provide them in a subsequent Federal Register notice prior to October 1, 2006. Now that the new occupational mix survey data are available and the final 100 percent occupational mix adjusted wage data have been prepared, we are providing the final impacts for FY 2007 including the effect of the occupational mix adjusted wage data. Since there are statutory budget neutrality requirements applied to changes in DRGs and recalibration, wage index and geographic reclassifications, our payment estimates for hospitals overall are consistent with our estimate from the FY 2007 IPPS final rule (71 FR 48331). That is, the revisions to these figures do not increase or decrease aggregate total IPPS payments relative to those we earlier calculated. We continue to estimate that the changes in the FY 2007 IPPS final rule, in conjunction with the final IPPS rates included in this notice, will result in an approximate $3.4 billion increase in operating and capital payments. (See the FY 2007 IPPS final rule (71 FR 48331) for a more detailed explanation of how we estimated this $3.4 billion increase).

a. Analysis of Impact Table I. Table I displays the results of our analysis of the payment changes for FY 2007 that are affected by use of the 100 percent occupational-mix adjusted wage data using occupational-mix survey data from January through March. These impacts update the tentative ones that were shown in the FY 2007 IPPS final rule. As explained in the FY 2007 IPPS final rule and this notice, the FY 2006 occupational-mix survey data were unavailable in time for the completion of the IPPS final rule that was made available to the public on August 1. In this notice, we are only displaying the columns that were affected by the change to the 100 percent occupational-mix adjusted wage data and therefore we are not reprinting the impacts to the quality data rate difference or the MDH changes from section 5003 of the Deficit Reduction Act that were published in the FY 2007 IPPS final rule. (See the FY 2007 IPPS final rule (71 FR 48333 through 48341) for a full discussion of the FY 2007 regulatory impact analysis.)

Table I categorizes hospitals by various geographic and special payment consideration groups to illustrate the varying impacts on different types of hospitals. The top row of the table shows the overall impact on the 3,595 hospitals included in the analysis. The next four rows of Table I contain hospitals categorized according to their geographic location: all urban, which is further divided into large urban and other urban; and rural. There are 2,590 hospitals located in urban areas included in our analysis. Among these, there are 1,441 hospitals located in large urban areas (populations over 1 million), and 1,149 hospitals in other urban areas (populations of 1 million or fewer). In addition, there are 1,005 hospitals in rural areas. The next two groupings are by bed-size categories, shown separately for urban and rural hospitals. The final groupings by geographic location are by census divisions, also shown separately for urban and rural hospitals.

The second part of Table I shows hospital groups based on hospitals' FY 2007 payment classifications, including any reclassifications under section 1886(d)(10) of the Act. For example, the rows labeled urban, large urban, other urban, and rural show that the number of hospitals paid based on these categorizations after consideration of geographic reclassifications (including reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of the Act, which have implications for capital payments) are 2,607, 1,448, 1,159, and 988, respectively.

The next three groupings examine the impacts of the changes on hospitals grouped by whether or not they have GME residency programs (teaching hospitals that receive an IME adjustment) or receive DSH payments, or some combination of these two adjustments. There are 2,511 non-teaching hospitals in our analysis, 843 teaching hospitals with fewer than 100 residents, and 241 teaching hospitals with 100 or more residents.

In the DSH categories, hospitals are grouped according to their DSH payment status, and whether they are considered urban or rural for DSH purposes. The next category groups hospitals considered urban after geographic reclassification, in terms of whether they receive the IME adjustment, the DSH adjustment, both, or neither.

The next five rows examine the impacts of the changes on rural hospitals by special payment groups (sole community hospitals (SCHs), rural referral centers (RRCs), and Medicare dependent hospitals (MDHs)), as well as rural hospitals not receiving a special payment designation. There were 187 RRCs, 376 SCHs, 146 MDHs, 98 hospitals that are both SCHs and RRCs, and 8 hospitals that are both MDHs and RRCs.

The next two groupings are based on type of ownership and the hospital's Medicare utilization expressed as a percent of total patient days. These data are taken primarily from the FY 2004 Medicare cost reports, if available, (otherwise FY 2003 data are used).

The next series of groupings concern the geographic reclassification status of hospitals. The first grouping displays all urban hospitals that were reclassified by the MGCRB for FY 2007. The next grouping shows the MGCRB rural reclassifications. The final three rows in Table I contain hospitals located in urban counties, but deemed to be rural under section 1886(d)(8)(E) of the Act, hospitals located in rural counties but deemed to be urban under section 1886(d)(8)(B) of the Act, and hospitals currently reclassified under section 508 of Pub. L. 108-173, which expires on March 31, 2007. Start Printed Page 59893

Table I.—Impact Analysis of Changes for FY 2007

Number of hospitals 1 (1)FY 2007 Transitional1/3 Cost2/3 charge weights & DRG changes 2 (2)FY 2007 wage data 3 (3)FY 2007 DRG, Rel. Wts. and Wage index changes 4 (4)FY 2007 wage index transition for hospitals moving from urban to rural 5 (5)FY 2007 MGCRB reclassifications 6 (6)FY 2007 out-migration adjustment 7 (7)All FY 2007 changes 8 (8)
All Hospitals3,5950.30.20.00.00.00.13.5
By Geographic Location:
Urban hospitals2,5900.20.10.00.0−0.30.13.4
Large urban areas (populations over 1 million)1,4410.40.0−0.10.0−0.40.03.5
Other urban areas (populations of 1 million or fewer)1,1490.10.30.00.0−0.10.23.4
Rural hospitals1,0050.30.30.40.32.10.13.9
Bed Size (Urban):
0-99 beds6510.40.10.00.0−0.50.13.5
100-199 beds8670.60.20.30.0−0.10.13.8
200-299 beds4920.30.10.00.0−0.30.13.6
300-499 beds4130.10.2−0.20.0−0.30.13.3
500 or more beds1670.00.1−0.30.0−0.30.03.2
Bed Size (Rural):
0-49 beds3480.50.20.60.10.80.24.7
50-99 beds3700.50.20.40.21.10.24.9
100-149 beds1740.40.40.50.52.50.13.6
150-199 beds680.30.40.30.43.40.13.3
200 or more beds450.00.3−0.10.03.10.03.0
Urban by Region:
New England1280.41.11.00.00.30.13.5
Middle Atlantic3570.50.60.70.0−0.10.23.9
South Atlantic3880.1−0.2−0.50.0−0.40.03.2
East North Central3950.20.30.10.0−0.30.03.4
East South Central165−0.1−0.6−1.00.0−0.40.12.7
West North Central1570.0−0.4−0.80.0−0.60.02.8
West South Central3740.2−0.1−0.30.0−0.50.03.4
Mountain1490.20.20.00.0−0.20.03.7
Pacific4240.40.10.10.0−0.30.13.7
Puerto Rico530.3−1.4−1.50.0−0.60.02.0
Rural by Region:
New England190.5−0.20.10.02.00.16.0
Middle Atlantic720.50.20.50.12.30.05.2
South Atlantic1760.40.40.50.22.20.23.8
East North Central1250.2−0.2−0.10.11.60.03.8
East South Central1800.30.60.50.22.50.13.5
West North Central1160.20.20.20.02.00.14.3
West South Central1930.40.90.90.52.80.24.1
Mountain810.3−0.2−0.12.10.80.12.7
Pacific430.3−0.3−0.20.01.80.13.2
By Payment Classification:
Urban hospitals2,6070.20.10.00.0−0.30.13.4
Large urban areas (populations over 1 million)1,4480.40.0−0.10.0−0.40.03.5
Other urban areas (populations of 1 million or fewer)1,1590.10.30.00.0−0.10.23.4
Rural areas9880.30.30.40.32.00.14.0
Teaching Status:
Nonteaching2,5110.40.10.10.00.20.13.8
Fewer than 100 residents8430.20.1−0.10.0−0.20.13.4
100 or more residents2410.10.3−0.10.0−0.30.03.1
Urban DSH:
Non−DSH9060.20.1−0.10.0−0.10.13.6
100 or more beds1,5200.20.10.00.0−0.30.13.4
Less than 100 beds3460.60.00.20.0−0.30.13.6
Rural DSH:
SCH3860.30.20.40.20.60.14.6
Start Printed Page 59894
RRC1990.20.40.30.23.40.03.5
Other Rural:
100 or more beds550.60.70.90.90.70.23.5
Less than 100 beds1830.60.50.70.40.90.43.8
Urban teaching and DSH:
Both teaching and DSH8150.20.1−0.10.0−0.30.03.3
Teaching and no DSH2010.10.30.00.0−0.10.23.3
No teaching and DSH1,0510.50.10.10.0−0.10.13.7
No teaching and no DSH5400.30.0−0.20.0−0.30.03.5
Special Hospital Types:
RRC1870.20.50.30.23.10.13.5
SCH3760.30.10.30.20.40.13.6
MDH1460.50.20.50.00.70.19.0
SCH and RRC980.1−0.1−0.10.01.90.03.1
MDH and RRC80.3−0.10.30.01.00.014.0
Type of Ownership:
Voluntary2,1020.20.20.10.00.00.13.5
Proprietary8800.4−0.1−0.20.1−0.10.03.5
Government6030.30.0−0.20.00.10.13.4
Unknown102.20.11.70.0−0.30.27.6
Medicare Utilization as a Percent of Inpatient Days:
0-252430.6−0.10.10.0−0.30.03.6
25-501,3280.20.0−0.20.0−0.40.03.3
50-651,4780.30.30.20.00.40.13.7
Over 654620.20.30.10.00.50.13.8
Unknown841.0−0.40.10.0−0.50.14.4
Urban Hospitals Reclassified by the Medicare Geographic Classification Review Board: First Half FY 2007 Reclassifications2810.30.30.10.02.40.03.7
Urban Nonreclassified, First Half FY 2007:2,2840.20.1−0.10.0−0.60.13.4
All Urban Hospitals Reclassified Second Half FY 2007:3410.30.40.20.01.80.03.5
Urban Nonreclassified Hospitals Second Half FY 2007:2,2240.20.1−0.10.0−0.60.13.4
All Rural Hospitals Reclassified Full Year FY 2007:3690.20.30.20.13.60.03.6
Rural Nonreclassified Hospitals Full Year FY 2007:5780.50.30.50.6−0.30.34.4
All Section 401 Reclassified Hospitals:300.20.80.80.0−0.10.05.4
Other Reclassified Hospitals (Section 1886(d)(8)(B))570.60.30.60.03.60.04.4
Section 508 Hospitals1080.20.60.40.0−0.20.01.9
Specialty Hospitals
Cardiac Specialty Hospitals21−2.00.0−2.40.0−0.60.01.2
1 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 2005, and hospital cost report data are from reporting periods beginning in FY 2004 and FY 2003.
2 This column displays the final payment impact of the changes to the V24 GROUPER and the recalibration of the DRG cost weights based on FY 2005 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act.
3 This column displays the final payment impact of updating the wage index data with the 100 percent occupational mix adjustment applied to the FY 2003 cost report data. Start Printed Page 59895
4 This column displays the final payment impact of the 0.995662 budget neutrality factor for DRG and wage index changes (with a 100 percent occupational mix adjustment applied to the wage index) data in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act.
5 Shown here are the final effects of providing rural hospitals formerly located in urban areas with urban wage index values in FY 2007. The effects reflected here are budget neutral: this column therefore includes the effect of the 0.999700 adjustment that we have applied to the rates to ensure budget neutrality.
6 Shown here are the final effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB) and CMS decisions made on behalf of the hospital for FY 2007. The effects demonstrate the FY 2007 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2007. Reclassification for prior years has no bearing on the payment impacts shown here. This column reflects the geographic budget neutrality factor of 0.992355.
7 This column displays the final impact of the FY 2007 implementation of section 505 of Pub. L. 108-173, which provides for an increase in a hospital's wage index if the hospital qualifies by meeting a threshold percentage of residents of the county where the hospital is located who commute to work at hospitals in counties with higher wage indices.
8 This column shows final changes in payments from FY 2006 to FY 2007. It incorporates all of the changes displayed in Columns 2, 3, 4,5, and 6 (the changes displayed in Columns 2 and 3 are included in Column 4), as well as those displayed in columns 2 and 3 (related to the quality data differential in the IPPS update and implementation of the MDH DRA provisions) of the FY 2007 IPPS final rule. It also reflects the impact of the FY 2007 update, changes in hospitals' reclassification status in FY 2007 compared to FY 2006, and the changes in payments as a result of continuing the reclassifications under section 508 of Pub. L. 108-173. The product of these impacts may be different from the percentage changes shown here due to rounding and interactive effects.

(1) Effects of the Changes to the DRG Reclassifications and Relative Cost-Based Weights (Column 2). In Column 2 of Table I, we present the combined effects of the DRG reclassifications and recalibration, as discussed in section II. of the preamble to the FY 2007 IPPS final rule (71 FR 47879 through 47979). Section 1886(d)(4)(C)(i) of the Act requires us annually to make appropriate classification changes in order to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

As discussed in the preamble of the FY 2007 IPPS final rule (71 FR 47882 through 47898), we are changing the relative weight calculation methodology from a charge-based to a cost-based method. Further, we are implementing the new methodology under a 3-year transition such that weights in FY 2007 are 1/3 cost-based and 2/3 charge-based. As part of the methodology for determining cost weights, we standardize hospital charges by the wage index to remove the effect of area wage differences. Since the wage index data has been updated to reflect a 100 percent occupational mix adjustment based on the latest survey data available, we recalculated the relative weights for the FY 2007 by standardizing charges using the 100 percent occupational mix adjusted wage indices. The use of occupational mix adjusted wage indices to standardize hospital charges resulted in very small changes to the DRG relative weights. No DRG weight changed by greater or less than 1 percent from those shown in Table 5 of the FY 2007 IPPS final rule. The revised and final FY 2007 DRG relative weights are shown in Table 5 of the Addendum to this notice.

In column 2, we compare aggregate payments using the FY 2007 blended relative weights (GROUPER Version 24) to the FY 2006 DRG relative charge weights (GROUPER Version 23.0) so the percentages shown here illustrate the effect of changes to the DRGs and relative weights. The method of calculating the relative weights and the reclassification changes to the GROUPER are described in more detail in section II. of the preamble to the FY 2007 IPPS final rule. The impacts shown in this column are generally very consistent by hospital category with those shown in column 4 of Table I of the FY 2007 IPPS final rule (71 FR 48335). With the exception of using occupational mix adjusted wage indices to standardize hospital charges, the data and methodology that we modeled in this column are identical to the FY 2007 IPPS final rule. Therefore, any differences in the impacts shown in this column from column 6 of Table I of the FY 2007 IPPS final rule and column 4 of the table above are due to the use of occupational mix adjusted wage data. We note that this column reflects the impact of changes to the DRG classifications and relative weights only and is not budget neutral. Consistent with section 1886(d)(4)(C)(iii) of the Act, we apply a single budget neutrality factor to ensure that the combined overall payment impact of changes to the DRG classification, relative weights, and wage index is budget neutral. The budget neutrality factor for the combined changes to the DRGs, relative weights, and wage index are shown in the table above entitled, “Comparison of FY 2006 Standardized Amounts to Final FY 2007 Single Standardized Amount with Full Update and Reduced Update.”

(2) Effects of Wage Index Changes (Column 3). Section 1886(d)(3)(E) of the Act requires that, beginning October 1, 1993, we annually update the wage data used to calculate the wage index. In accordance with this requirement, the wage index for FY 2007 is based on data submitted for hospital cost reporting periods beginning on or after October 1, 2002 and before October 1, 2003. In the IPPS FY 2007 IPPS final rule, due to the decision in Bellevue Hosp. Center v. Leavitt, in which the Court of Appeals for the Second Circuit ordered CMS to apply the occupational mix adjustment to 100 percent of the wage index effective for FY 2007 (see section III.C. of the FY 2007 IPPS final rule for more details of this Court decision (71 FR 48006)), we were unable to show the impact of the 100 percent occupational mix adjustment as the necessary data were unavailable in time for making the final IPPS rule available to the public on August 1. This column now shows the final estimated effect of updating the wage index with wage data from FY 2003 hospital cost reports and moving to a 100 percent occupational mix adjusted wage index using occupational mix survey data for January through March of this year.

The estimated impact on hospital payments of the new wage data with the 100 percent occupational mix adjustment applied using the new survey data is isolated in Column 3 by holding the other payment parameters constant. That is, Column 3 shows the percentage changes in payments when going from a model using the FY 2006 wage index, based on FY 2002 wage data and having a 10-percent occupational mix adjustment applied, to a model using the FY 2007 pre-reclassification wage index, based on FY 2003 wage data with a 100 percent occupational mix adjustment based on the latest occupational mix survey data. The wage data collected on the FY 2003 cost report are the same as the FY 2002 wage data that were used to calculate the FY 2006 wage index.

Hospitals located in urban New England are estimated to receive the greatest benefit from the new wage and occupational mix data. Payments to hospitals in urban New England are estimated to increase 1.1 percent while rural hospitals located in the West South Central region experience an increase of 0.9 percent from these data. Start Printed Page 59896Puerto Rico hospitals see the least benefit from the change to the wage and occupational mix data with a 1.4 percent estimated decrease in payments.

The national average hourly wage increased 5.9 percent compared to FY 2006 from the new wage data. Therefore, the only manner in which to maintain or exceed the previous year's wage index was to match the national 5.9 increase in average hourly wage. Of the 3,491 hospitals with wage data for both FYs 2006 and 2007, 1,706, or 48.9 percent, also experienced an average hourly wage increase of 5.9 percent or more.

The following chart compares the shifts in wage index values for hospitals for FY 2007 relative to FY 2006. Among urban hospitals, 40 will experience an increase of between 5 percent and 10 percent and 15 will experience an increase of more than 10 percent. No rural hospitals will experience an increase greater than 5 percent, but 790 will experience increases between 0 and 5 percent. On the negative side, 79 urban hospitals will experience decreases in their wage index values of at least 5 percent, but less than 10 percent. Eight urban hospitals will experience decreases in their wage index values greater than 10 percent.

The following chart shows the projected impact for urban and rural hospitals:

Percentage change in area wage index valuesNumber of hospitals
UrbanRural
Increase more than 10 percent150
Increase more than 5 percent and less than 10 percent400
Increase or decrease less than 5 percent2,354986
Decrease more than 5 percent and less than 10 percent795
Decrease more than 10 percent84

(3) Combined Effects of DRG and Wage Index Changes, Including Budget Neutrality Adjustment (Column 4). Section 1886(d)(4)(C)(iii) of the Act requires that changes to DRG reclassifications and the relative weights cannot increase or decrease aggregate payments. In addition, section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to the wage index are to be budget neutral. As noted in the Addendum to this final rule, in determining the budget neutrality factor, we equated simulated aggregate payments for FY 2006 and FY 2007 using the FY 2005 Medicare utilization data after applying the changes to the DRG relative weights and the wage index.

We computed a wage and DRG recalibration budget neutrality factor of 0.995662. The 0.0 percent impact for all hospitals demonstrates that these changes, in combination with the budget neutrality factor, are budget neutral. In Table I, the combined overall impacts of the effects of both the DRG reclassifications and the updated wage index are shown in Column 4. The changes in this column are the sum of the changes in Columns 2 and 3, combined with the budget neutrality factor for the wage index, including the wage index floor for urban areas required by section 4410 of Pub. L. 105-33. There also may be some variation of plus or minus 0.1 percentage point due to rounding. As indicated above, the changes in the relative weights are generally consistent with those we showed in Table I of the FY 2007 IPPS final rule while the impacts due to the wage data may be somewhat different than those shown there because of the new occupational mix survey and a 100 percent adjustment to the wage index. Any changes between column 6 of Table I of the FY 2007 IPPS final rule and column 4 of Table I of this notice are due to use of a 100 percent adjustment for occupational mix and the new survey data.

(4) Effects of the 3-Year Provision Allowing Urban Hospitals that Were Converted to Rural as a Result of the FY 2005 Labor Market Area Changes to Maintain the Wage Index of the Urban Labor Market Area in Which They Were Formerly Located (Column 5). To help alleviate the decreased payments for urban hospitals that became rural under the new labor market area definitions, for purposes of the wage index, we adopted a policy in FY 2005 to allow them to maintain the wage index assignment of the MSA where they were located for the 3-year period FY 2005, FY 2006, and FY 2007. Column 5 shows the impact of the remaining labor market area transition, for those hospitals that were urban under the old labor market area designations and are now considered rural hospitals. Section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to the wage index are to be budget neutral. Therefore, we applied a adjustment of 0.999700 to ensure that the effects of reclassification are budget neutral as indicated by the zero effect on payments to hospitals overall. The rural hospital row shows a 0.3 percent benefit from this provision as these hold-harmless hospitals are now classified as geographically rural.

(5) Effects of MGCRB Reclassifications (Column 6). Our impact analysis up to this point has assumed hospitals are paid on the basis of their actual geographic location (with the exception of ongoing policies that provide that certain hospitals receive payments on other bases than where they are geographically located, such as hospitals in rural counties that are deemed urban under section 1886(d)(8)(B) of the Act). The changes in Column 6 reflect the per case payment impact of moving from this baseline to a simulation incorporating the MGCRB decisions for FY 2007 which affect hospitals' wage index area assignments.

By February 28 of each year, the MGCRB makes reclassification determinations that will be effective for the next fiscal year, which begins on October 1. The MGCRB may approve a hospital's reclassification request for the purpose of using another area's wage index value. The FY 2007 wage index values incorporate all of the MGCRB's reclassification decisions for FY 2007 as well as any decisions made by the CMS Administrator through the appeals and review process.

For FY 2007, as stated in the FY 2006 IPPS final rule (70 FR 47382, August 12, 2005), we established procedural rules under section 1886(d)(10)(D)(v) of the Act to address specific circumstances where individual and group reclassifications involve a section 508 hospital. The rules were designed to recognize the special circumstances of section 508 hospital reclassifications ending midyear during FY 2007 and were intended to allow previously approved reclassifications to continue through March 31, 2007, and new section 1886(d)(10) reclassifications to begin April 1, 2007, upon the conclusion of the section 508 reclassifications. Under these procedural rules, some section 1886(d)(10) hospital reclassifications are only in effect for the second half of the fiscal year.

The first and second half fiscal year section 1886(d)(10) reclassifications permitted under these procedural rules have implications for the calculation of the reclassified wage indices and the reclassification budget neutrality factor. Section 1886(d)(8)(c) of the Act provides requirements for determining the wage index values for hospitals that were reclassified as a result of the MGCRB decisions under 1886(d)(10) of the Act. As provided in the statute, we are required to calculate a separate wage index for hospitals reclassified to an area if including the wage data for the reclassified hospitals would reduce the area wage index by more than 1 percent. Start Printed Page 59897

Because of the half-year reclassifications permitted under the procedural rules, in this final rule, we are issuing two separate wage indices for affected areas (one effective from October 1, 2006, through March 31, 2007 and a second reclassified wage index effective April 1, 2007, through September 30, 2007). The FY 2007 wage index values are calculated based on the wage data for hospitals reclassified to the area in the respective half of the fiscal year. The impact of this policy is modeled in Column 6 of Table I of this notice.

The overall effect of geographic reclassification is required by section 1886(d)(8)(D) of the Act to be budget neutral. In this final rule, we are calculating one budget neutrality adjustment that reflects the average of the adjustments required for first and second half fiscal year reclassifications, respectively. Therefore, we applied an adjustment of 0.992355 to ensure that the effects of the section 1886(d)(10) reclassifications are budget neutral. (See section II.A. of the Addendum to FY 2007 IPPS final rule (71 48146).) As noted in section II.B. of this notice, CMS applied reclassification decisions for FY 2007 on behalf of hospitals to give them the highest wage index. Hospitals have 30 days from the date of the posting of these data on the CMS Web site to revise the decision that CMS made on their behalf.

The impacts shown in Column 6 of Table 1 above reflect the CMS reclassification decisions on behalf of hospitals, which reflect the area that would give the hospital the highest wage index using a 100 percent occupational-mix adjustment and the most recent survey data. As a group, rural hospitals benefit most from reclassification. We estimate that their payments will rise 2.1 percent in FY 2007. Payments to urban hospitals will decline by 0.3 percent. Hospitals in other urban areas will experience an overall decrease in payments of 0.1 percent, while hospitals in large urban areas will lose 0.4 percent. Among urban hospital groups (that is, bed size, census division and IME/DSH status), payments generally would decline.

A positive impact is evident among all of the rural hospital groups. The smallest increase among rural census divisions is 0.8 percent for the Mountain region. The largest increases are in the rural West South Central and rural East South Central regions with 2.8 and 2.5 percent, respectively. Urban hospitals reclassified for FY 2007 are expected to receive an increase of 2.4 percent, while rural reclassified hospitals are expected to benefit from the MGCRB changes with a 3.6 percent increase in payments. Payments to urban and rural hospitals that did not reclassify are expected to decrease slightly due to the MGCRB changes, decreasing by 0.6 percent for urban hospitals and 0.3 percent for rural hospitals.

(6) Effects of the Wage Index Adjustment for Out-Migration (Column 7). Section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 108-173, provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county, but work in a different area with a higher wage index. Hospitals located in counties that qualify for the payment adjustment are to receive an increase in the wage index that is equal to a weighted average of the difference between the wage index of the resident county and the higher wage index work area(s), weighted by the overall percentage of workers who are employed in an area with a higher wage index.

Using our established criteria, 583 providers in 282 counties are eligible for this adjustment. Due to the statutory formula to calculate the adjustment and the small number of counties that qualify, the impact on hospitals is minimal, with an overall impact on all hospitals of 0.1 percent.

(7) Effects of All Changes (Column 8). Column 8 compares our estimate of payments per case between FY 2006 and FY 2007, incorporating all changes reflected in the FY 2007 IPPS final rule and in this notice (including statutory changes). This column reflects the impact of all FY 2007 changes relative to FY 2006, including the impact of the quality data changes and the MDH changes from section 5003 of the DRA (see 70 FR 48335) and the impacts shown in Columns 2 through 8 as well as other factors that are not applied until the final rates are calculated. The average increase for all hospitals is approximately 3.5 percent. This increase includes the effects of the 3.4 percent market basket update. It also reflects the 0.5 percentage point difference between the projected outlier payments in FY 2006 (5.1 percent of total DRG payments) and the current estimate of the percentage of actual outlier payments in FY 2006 (4.6 percent), as described in the introduction to this Appendix and the Addendum to this final rule. As a result, payments are projected to be 0.5 percentage points lower in FY 2006 than originally estimated, resulting in a 0.5 percentage point greater increase for FY 2007 than would otherwise occur. In addition, the impact of section 505 adjustments accounted for a 0.1 percent increase. Indirect medical education formula changes for teaching hospitals under section 502 of Pub. L. 108-173, changes in payments due to the difference between the FY 2006 and FY 2007 wage index values assigned to providers reclassified under section 508 of Pub. L. 108-173, and changes in the incremental increase in payments from section 505 of Pub. L. 108-173 out-migration adjustments account for the remaining −0.6 percent.

There might also be interactive effects among the various factors comprising the payment system that we are not able to isolate. For these reasons, the values in Column 8 may not equal the product of the percentage changes described above. We estimate that payments will increase across all hospitals in each category shown in column 8.

We estimate that the average payment per case will increase in FY 2007 by 3.5 percent across all hospitals, 3.4 percent for hospitals in urban areas, 3.5 percent for hospitals in large urban areas, 3.4 percent for hospitals in other urban areas and 3.9 percent for hospitals in rural areas.

Among urban census divisions, we estimate the largest payment increases would be 3.9 percent in the Mid Atlantic region and 3.7 percent in the Pacific and Mountain regions. We estimate that the smallest urban increase will be 2.0 percent in Puerto Rico.

Among rural areas, the New England and Middle Atlantic regions would benefit the most from changes in the FY 2007 IPPS final rule, with 6.0 and 5.2 percent increases, respectively. The smallest increase would occur in the Mountain region, with a 2.7 percent increase in payments.

Among special categories of rural hospitals in Column 8, MDH/RRC providers receive an increase in payments of 14.0 percent and MDH providers receive an increase of 9.0 percent, primarily due to the changes to MDH payments set forth in section 5003 of Pub. L. 109-171 (see 70 FR 48062).

Urban hospitals reclassified for the first half of FY 2007 are anticipated to receive an increase of 3.7 percent, while urban hospitals that reclassified for the second half of FY 2007 are expected to receive an increase of 3.5 percent. The same set of rural hospitals is reclassified for the first and second half of FY 2007. Rural hospitals reclassifying for the entire year of FY 2007 are anticipated to receive a 3.6 percent payment increase. Those hospitals located in rural counties, but deemed to be urban under section 1886(d)(8)(B) of the Act are expected to receive an increase in Start Printed Page 59898payments of 4.4 percent. Hospitals that were reclassified under section 508 of Pub. L. 108-173, which is only effective through March 31, 2007, are expected to receive an increase of 1.9 percent. This lower estimated increase in payment than the average for all hospitals is due to the expiration of the higher section 508 wage indices in effect for 6 months of FY 2007.

b. Analysis of Impact Table II. Table II presents the projected impact of the changes for FY 2007 for urban and rural hospitals and for the different categories of hospitals shown in Table I. It compares the estimated payments per case for FY 2006 with the average estimated per case payments for FY 2007, as calculated under our models. Thus, this table presents, in terms of the average dollar amounts paid per discharge, the combined effects of the changes presented in Table I. The percentage changes shown in the last column of Table II equal the percentage changes in average payments from Column 8 of Table I.

TABLE II.—Impact Analysis of Changes for FY 2007 Operating Prospective Payment System

[Payments per case]

Number of hospitals (1)Average FY 2006 payment per case 1 (2)Average FY 2007 payment per case 1 (3)All FY 2007 changes (4)
All hospitals3,5958,5408,8383.5
By Geographic Location:
Urban hospitals2,5908,9519,2583.4
Large urban areas (populations over 1 million)1,4419,3689,6923.5
Other urban areas (populations of 1 million or fewer)1,1498,4468,7313.4
Rural hospitals1,0056,2286,4743.9
Bed Size (Urban):
0-99 beds6516,7306,9643.5
100-199 beds8677,4907,7723.8
200-299 beds4928,4038,7023.6
300-499 beds4139,4059,7193.3
500 or more beds16711,38811,7483.2
Bed Size (Rural):
0-49 beds3485,2225,4664.7
50-99 beds3705,6225,8974.9
100-149 beds1746,1996,4253.6
150-199 beds686,9337,1633.3
200 or more beds457,8988,1343.0
Urban by Region:
New England1289,3919,7173.5
Middle Atlantic3579,83310,2173.9
South Atlantic3888,4768,7473.2
East North Central3958,5618,8543.4
East South Central1658,2098,4332.7
West North Central1578,6898,9292.8
West South Central3748,4478,7373.4
Mountain1498,8129,1403.7
Pacific42410,74211,1443.7
Puerto Rico534,1904,2722.0
Rural by Region:
New England198,1378,6276.0
Middle Atlantic726,2916,6165.2
South Atlantic1766,0336,2643.8
East North Central1256,4576,7003.8
East South Central1805,9736,1813.5
West North Central1166,4226,6964.3
West South Central1935,6695,9024.1
Mountain816,5896,7682.7
Pacific437,6087,8503.2
By Payment Classification:
Urban hospitals2,6078,9399,2453.4
Large urban areas (populations over 1 million)1,4489,3579,6823.5
Other urban areas (populations of 1 million or fewer)1,1598,4318,7143.4
Rural areas9886,2786,5304.0
Teaching Status:
Non-teaching2,5117,1247,3933.8
Fewer than 100 Residents8438,6408,9323.4
100 or more Residents24112,60513,0013.1
Urban DSH:
Non-DSH9067,7258,0013.6
100 or more beds1,5209,4249,7463.4
Less than 100 beds3466,1596,3833.6
Rural DSH:
SCH3865,8166,0804.6
RRC1996,9467,1863.5
Start Printed Page 59899
Other Rural:
100 or more beds555,7375,9363.5
Less than 100 beds1835,1045,3013.8
Urban teaching and DSH:
Both teaching and DSH81510,36710,7073.3
Teaching and no DSH2018,6018,8893.3
No teaching and DSH1,0517,6177,8993.7
No teaching and no DSH5407,2837,5393.5
Rural Hospital Types:
RRC1877,2777,5293.5
SCH3766,2166,4393.6
MDH1465,1905,6579.0
SCH and RRC987,4087,6373.1
MDH and RRC86,4397,34114.0
Unknown
Type of Ownership:
Voluntary2,1028,6808,9843.5
Proprietary8807,7147,9843.5
Government6038,7799,0783.4
Unknown1013,19614,1947.6
Medicare Utilization as a Percent of Inpatient Days:
0-2524312,18212,6203.6
25-501,3289,73910,0573.3
50-651,4787,4387,7143.7
Over 654626,6626,9153.8
Unknown849,92010,3544.4
Hospitals Reclassified by the Medicare Geographic Classification Review Board: FY 2005 Reclassifications:
Urban Hospitals Reclassified by the Medicare Geographic Classification Review Board: First Half FY 2007 Reclassifications:2818,7789,0993.7
Urban Nonreclassified, First Half FY 2007:2,2848,9839,2883.4
All Urban Hospitals Reclassified Second Half FY 2007:3419,0389,3513.5
Urban Nonreclassified Hospitals Second Half FY 2007:2,2248,9479,2533.4
All Rural Hospitals Reclassified Second Half FY 2007:3696,7597,0043.6
Rural Nonreclassified Hospitals Second Half FY 2007:5785,5595,8064.4
All Section 401 Reclassified Hospitals:307,0307,4085.4
Other Reclassified Hospitals (Section 1886(d)(8)(B))575,8396,0974.4
Section 508 Hospitals1089,2689,4461.9
Specialty Hospitals
Cardiac Specialty Hospitals2111,36311,4971.2
1 These payment amounts per case do not reflect any estimates of annual case-mix increase.

2. Final FY 2007 Capital-Related Impacts (Quantitative Effects of the Final Occupational Mix Adjusted Wage Indices)

(a) General Considerations. In accordance with § 412.312, the basic methodology for determining a capital PPS payment is:

(Standard Federal Rate) × (DRG weight) × (Geographic Adjustment Factor (GAF)) × (Large Urban Add-on, if applicable) × (COLA for hospitals located in Alaska and Hawaii) × (1 + Disproportionate Share (DSH) Adjustment Factor + Indirect Medical Education (IME) Adjustment Factor, if applicable).

In addition, hospitals may also receive outlier payments for those cases that qualify under the threshold established for each fiscal year.

The data used in developing the impact analysis presented below are taken from the March 2006 update of the FY 2005 MedPAR file and the March 2006 update of the Provider-Specific File that is used for payment purposes. Although the analyses of the changes to the capital prospective payment system do not incorporate cost data, we used the March 2006 update of the most recently available hospital cost report data (FYs 2003 and 2004) to categorize hospitals. Our analysis has several qualifications. First, we do not make adjustments for behavioral changes that hospitals may adopt in response to policy changes. Second, due to the interdependent nature of the IPPS, it is very difficult to precisely quantify the impact associated with each change. Third, we draw upon various sources for the data used to categorize hospitals in the tables. In some cases (for instance, the number of beds), there is a fair degree of variation in the data from different sources. We have attempted to construct these variables with the best available sources overall. However, for individual hospitals, some miscategorizations are possible.

Using cases from the March 2006 update of the FY 2005 MedPAR file, we simulated payments under the capital PPS for FY 2006 and FY 2007 for a comparison of total payments per case. Any short-term, acute care hospitals not paid under the general IPPS (Indian Health Service hospitals and hospitals in Maryland) are excluded from the simulations. Start Printed Page 59900

We modeled payments for each hospital by multiplying the capital Federal rate by the GAF and the hospital's case-mix. We then added estimated payments for indirect medical education, disproportionate share, large urban add-on, and outliers, if applicable. For purposes of this impact analysis, the model includes the following assumptions:

  • We estimate that the Medicare case-mix index will increase by 1.0 percent in both FYs 2006 and 2007.
  • We estimate that the Medicare discharges will be 13.5 million in FY 2006 and 13.1 million in FY 2007 for a 3.0 percent decrease from FY 2006 to FY 2007.
  • The capital Federal rate was updated beginning in FY 1996 by an analytical framework that considers changes in the prices associated with capital-related costs and adjustments to account for forecast error, changes in the case-mix index, allowable changes in intensity, and other factors. The FY 2007 update is 1.1 percent (see section II.E.2. of this notice).
  • In addition to the FY 2007 update factor, the FY 2007 capital Federal rate was calculated based on a GAF/DRG budget neutrality factor of 0.9986, an outlier adjustment factor of 0.9568, and an exceptions adjustment factor of 0.9997.

(b) Results. We used the actuarial model described above to estimate the potential impact of our changes for FY 2007 on total capital payments per case, using a universe of 3,595 hospitals. As described above, the individual hospital payment parameters are taken from the best available data, including the March 2006 update of the FY 2005 MedPAR file, the March 2006 update to the Provider-Specific File, and the most recent cost report data from the March 2006 update of HCRIS. In Table III, we present a comparison of total payments per case for FY 2006 compared to FY 2007 based on the FY 2007 payment policies. Column 2 shows estimates of payments per case under our model for FY 2006. Column 3 shows estimates of payments per case under our model for FY 2007. Column 4 shows the total percentage change in payments from FY 2006 to FY 2007. The change represented in Column 4 includes the 1.1 percent update to the capital Federal rate, a 0.0 percent increase in case-mix, changes in the adjustments to the capital Federal rate (for example, the effect of the hospital wage index on the GAF), and reclassifications by the MGCRB. The comparisons are provided by: (1) Geographic location; (2) region; and (3) payment classification.

The simulation results show that, on average, capital payments per case can be expected to increase 2.4 percent in FY 2007. In addition to the 1.1 percent increase due to the capital market basket update, this projected increase in capital payments per case is largely attributable to the change in the DRG recalibration process methodology for FY 2007 as discussed in section II.C. of the preamble of the FY 2007 IPPS final rule (71 FR 48006). To a lesser extent, the final outlier factor also contributes to the increase in capital payments per case, while the final GAF has the opposite effect on capital payments (0.2 percent and −0.1 percent, respectively).

The results of our comparisons by geographic location and by region are consistent with the results we expected after applying the changes to the DRG recalibration methodology. The geographic comparison shows that urban hospitals are expected to experience a 2.3 percent increase in IPPS capital payments per case, while rural hospitals are expected to experience a 2.4 percent increase in capital payments per case. This difference is mostly due to the changes to the methodology used to recalibrate DRGs discussed in the FY 2007 IPPS final rule (71 FR 47882). The capital impact is largely consistent with the impacts in the FY 2007 IPPS final rule (71 FR 48348). However the capital GAF is somewhat affected by the wage index changes resulting from using the revised occupational mix survey data and applying a 100 percent occupational mix adjustment. Any changes from the impact presented in the FY 2007 IPPS final rule would be due to the revised wage indices and the new occupational mix adjustment. Due to circumstances described in the FY 2007 IPPS final rule (71 FR 48005), the wage index used in these calculations is final.

All regions are estimated to receive an increase in total capital payments per case from FY 2006 to FY 2007. Changes vary by region from a minimum increase of 0.14 percent in Puerto Rico for (urban) to a maximum increase of 3.1 percent in the West South Central rural region and the Middle Atlantic rural region. The change in payments per case for all hospitals is 2.4 percent and is the same as indicated in the FY 2007 IPPS final rule.

Section 1886(d)(10) of the Act established the MGCRB. Before FY 2005, hospitals could apply to the MGCRB for reclassification for purposes of the standardized amount, wage index, or both. Section 401(c) of Pub. L. 108-173 equalized the standardized amounts under the operating IPPS. Therefore, beginning in FY 2005, there is no longer reclassification for the purposes of the standardized amounts; however, hospitals still may apply for reclassification for purposes of the wage index for FY 2007. Reclassification for wage index purposes also affects the GAF because that factor is constructed from the hospital wage index.

As discussed in the FY 2007 IPPS final rule (71 FR 48067), procedural rules were established in the FY 2006 IPPS final rule (70 FR 47382) to recognize the special circumstances of section 508 hospital reclassifications ending midyear during FY 2007. Under these procedural rules, some section 1886(d)(10) hospital reclassifications are only in effect for the second half of the fiscal year. These half fiscal year reclassifications have implications for the calculation of reclassified wage indices and therefore, affect capital payments because GAF values are calculated from the hospital wage index.

To present the effects of the hospitals being reclassified for FY 2007, we show the average payments per case for reclassified hospitals for each half of FY 2007 compared to the average payments per case for the same time period in FY 2006. The reclassified groups are compared to all other nonreclassified hospitals for the same time period. These categories are further identified by urban and rural designation. In general, the average payments per case in the first half of FY 2007 is the same or 0.1 percent less as the average payments per case in the second half of FY 2007 for each category of reclassified hospitals shown in Table III . The exception to that generalization is rural nonreclassified hospitals, which are expected to have the largest increases in payments, as well as the largest increase from the first half to the second half of FY 2007, that is, 2.7 percent in the first half of FY 2007, and 3.0 percent in the second half of FY 2007. Urban reclassified hospitals are expected to increase 2.6 percent and 2.5 percent in the first and second halves of FY 2007, respectively. Reclassified rural hospitals and nonreclassified urban hospitals are projected to have the same increase of 2.3 percent in the first half, while in the second half, the increase in payments per discharge to urban nonreclassified hospitals will remain at 2.3 percent but payments per discharge to rural reclassified hospitals are expected to decrease by 0.1 percent to 2.2 percent from the first half of FY 2007 to the second half of FY 2007. Start Printed Page 59901

Table III.—Comparison of Total Payments Per Case

[FY 2006 payments compared to FY 2007 payments]

Number of hospitalsAverage FY 2006 payments/ caseAverage FY 2007 payments/ caseChange
By Geographic Location:
All hospitals3,5957537712.4
Large urban areas (populations over 1 million)1,4418498692.4
Other urban areas (populations of 1 million or fewer)1,1497317472.3
Rural areas1,0055135262.4
Urban hospitals2,5907968142.3
0-99 beds6516176312.3
100-199 beds8676736902.6
200-299 beds4927517692.4
300-499 beds4138278452.2
500 or more beds1671,0051,0272.2
Rural hospitals1,0055135262.4
0-49 beds3484224353.1
50-99 beds3704694822.8
100-149 beds1745165282.3
150-199 beds685645762.2
200 or more beds456426541.9
By Region:
Urban by Region2,5907968142.3
New England1288538742.5
Middle Atlantic3578738982.9
South Atlantic3887557712.0
East North Central3957828012.5
East South Central1657207311.6
West North Central1577837951.6
West South Central3747407582.4
Mountain1497878082.6
Pacific4249209422.4
Puerto Rico533473480.1
Rural by Region1,0055135262.4
New England196866961.5
Middle Atlantic725185343.1
South Atlantic1764975112.7
East North Central1255475602.2
East South Central1804764872.3
West North Central1165405512.2
West South Central1934644793.1
Mountain815355421.3
Pacific436166271.7
By Payment Classification:
All hospitals3,5957537712.4
Large urban areas (populations over 1 million)1,4488488692.4
Other urban areas (populations of 1 million or fewer)1,1597307462.3
Rural areas9885155272.4
Teaching Status:
Non-teaching2,5116306452.5
Fewer than 100 Residents8437657822.2
100 or more Residents2411,1001,1252.3
Urban DSH:
100 or more beds1,5208218402.4
Less than 100 beds3465435572.5
Rural DSH:
Sole Community (SCH/EACH)3864644772.7
Referral Center (RRC/EACH)1995705822.1
Other Rural:
100 or more beds554754862.3
Less than 100 beds1834234353.0
Urban teaching and DSH:
Both teaching and DSH8159029222.3
Teaching and no DSH2018168352.3
No teaching and DSH1,0516676832.5
No teaching and no DSH5407007162.3
Rural Hospital Types:
Non special status hospitals2,4907998182.3
RRC/EACH447077222.2
SCH/EACH396276402.1
Medicare-dependent hospitals (MDH)184214332.8
SCH, RRC and EACH167367562.7
Start Printed Page 59902
Hospitals Reclassified by the Medicare Geographic Classification Review Board: FY2007 Reclassifications:
All Urban Reclassified 1st Half2817777972.6
All Urban Non-Reclassified 1st Half2,2847998182.3
All Rural Reclassified 1st Half3585555682.3
All Rural Non-Reclassified 1st Half5894604732.7
All Urban Reclassified 2nd Half3418078262.5
All Urban Non-Reclassified 2nd Half2,2247958142.3
ALL Rural Reclassified 2nd Half3695595712.2
All Rural Non-Reclassified 2nd Half5784514643.0
All Section 401 Reclassified Hospitals305535652.3
Other Reclassified Hospitals (Section 1886(d)(8)(B))535165282.2
Type of Ownership:
Voluntary2,1027717902.4
Proprietary8806796952.3
Government6037407572.3
Medicare Utilization as a Percent of Inpatient Days:
0-252439991,0262.7
25-501,3288558742.2
50-651,4786636802.5
Over 654625976112.4

III. Collection of Information Requirements

This document does not impose 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.

Start Authority

Authority: Program; No. 93.773 Medicare—Hospital Insurance Program; and No. 93.774, Medicare—Supplementary Medical Insurance Program)

End Authority Start Signature

Dated: September 21, 2006.

Mark B. McClellan,

Administrator, , Centers for Medicare & Medicaid Services.

Approved: September 27, 2006.

Michael O. Leavitt,

Secretary.

End Signature

Addendum

This addendum includes tables referred to throughout the notice which contain data relating to the FY 2007 wage indices and the hospital reclassifications and payment amounts for operating and capital-related costs that are affected by the new occupational mix survey data discussed in section II. of this notice.

Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Is Greater Than 1)

Table 1B—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal To 1)

Table 1C—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor

Table 1D—Capital Standard Federal Payment Rate

Table 2—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2005; Hospital Wage Indexes for Federal Fiscal Year 2007; Hospital Average Hourly Wage for Federal Fiscal Years 2005 (2001 Wage Data), 2006 (2002 Wage Data), and 2007 (2003 Wage Data); Wage Indexes and 3-Year Average of Hospital Average Hourly Wages

Table 3A—FY 2007 and 3-Year Average Hourly Wage for Urban Areas by CBSA

Table 3B—FY 2007 and 3-Year Average Hourly Wage for Rural Areas by CBSA

Table 4A—1—Wage Index and Capital Geographic Adjustment Factor (GAF) for Urban Areas by CBSA—FY 2007

Table 4A—2—Wage Index and Capital Geographic Adjustment Factor (GAF) for Certain Urban Areas by CBSA for the Period April 1 through September 30, 2007

Table 4B—1—Wage Index and Capital Geographic Adjustment Factor (GAF) for Rural Areas by CBSA—FY 2007

Table 4B—2—Wage Index and Capital Geographic Adjustment Factor (GAF) for Certain Rural Areas by CBSA for the Period April 1 through September 30, 2007*

Table 4C—1—Wage Index and Capital Geographic Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA—FY 2007

Table 4C—2—Wage Index and Capital Geographic Adjustment Factor (GAF) for Certain Hospitals That Are Reclassified by CBSA for the Period April 1 through September 30, 2007

Table 4F—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) by CBSA—FY 2007

Table 4J—Out-Migration Adjustment—FY 2007

Table 5—List of Diagnosis-Related Groups (DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay (LOS)

Table 9A—Hospital Reclassifications and Redesignations by Individual Hospitals and CBSA for FY 2007

Table 9B—Hospital Reclassifications and Redesignations by Individual Hospital Under Section 508 of Pub. L. 108-173 for FY 2007

Table 9C—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act for FY 2007

Table 9D—Hospitals who waived Lugar status to receive Out-migration Adjustment

Table 10—Geometric Mean Plus the Lesser of 0.75 of the National Adjusted Operating Standardized Payment Amount (Increased to Reflect the Difference Between Costs and Charges) or 0.75 of One Standard Deviation of Mean Charges by Diagnosis-Related Group (DRG)—September 2006

Start Printed Page 59903

Table 1A.—National Adjusted Operating Standardized; Labor/Nonlabor

[69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Greater Than 1]

Full Update (3.4 Percent)Reduced Update (1.4 Percent)
Labor-relatedNonlabor-relatedLabor-relatedNonlabor-related
$3,397.52$1,476.97$3,331.80$1,448.40

Table 1B.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor

[62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Less Than or Equal to 1]

Full Update (3.4 Percent)Reduced Update (1.4 Percent)
Labor-relatedNonlabor-relatedLabor-relatedNonlabor-related
$3,022.18$1,852.31$2,963.73$1,816.48

Table 1C.—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor

Rates If Wage Index Greater Than 1Rates If Wage Index Less Than or Equal to 1
LaborNonlaborLaborNonlabor
National$3,397.52$1,476.97$3,022.18$1,852.31
Puerto Rico1,436.12880.201,359.68956.64

Table 1D.—Capital Standard Federal Payment Rate

Rate
National$427.03
Puerto Rico203.03

Table 2.—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2005; Hospital Wage Indexes for Federal Fiscal Year 2007; Hospital Average Hourly Wages for Federal Fiscal Years 2005 (2001 Wage Data), 2006 (2002 Wage Data), and 2007 (2003 Wage Data); Wage Indexes and 3-Year Average of Hospital Average Hourly Wages

Provider No.Case-mix index 2FY 2007 wage indexAverage hourly wage FY 2005Average hourly wage FY 2006Average hourly wage FY 2007 1Average hourly wage** (3 years)
0100011.49130.766420.656321.654622.198921.5314
010004****22.7585**22.7585
010005 h1.12620.888920.493722.490623.602222.2289
0100061.45960.787621.024123.482323.497522.6401
0100071.07070.766416.881118.243019.932818.3636
0100080.98200.793323.833320.459117.953320.5783
0100090.96680.875621.642223.222923.562622.8435
010010 h1.04640.922622.302121.497427.038623.4333
0100111.59300.888924.816627.485027.665826.6785
0100121.23760.882221.762222.702024.405922.9524
0100151.02000.766420.473221.511122.338321.4818
0100161.51940.888923.041425.150224.648824.2708
0100181.46810.888920.588822.299023.704822.1788
0100191.23150.787620.133622.090622.876621.7323
010021 h1.21600.766420.710818.678519.736719.6613
0100220.98180.969925.879724.567025.840325.4393
0100231.90610.793323.779127.617425.427225.5461
0100241.67330.793320.006720.726522.081920.8864
0100251.27640.837119.856121.267422.763521.2709
0100270.77730.766414.958515.370416.468115.5470
0100291.57900.837121.672422.697623.900722.7914
010031****20.9463**20.9463
0100320.89620.766418.507319.155519.331119.0281
0100332.06680.888925.516526.378427.418126.4464
0100340.99850.793317.162516.968617.745717.3133
0100351.26450.888923.131922.287024.242523.2085
0100361.12370.766420.512522.974721.579621.7075
Start Printed Page 59904
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