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Notice

Medicare Program; Inpatient Psychiatric Facilities Prospective Payment System Payment Update for Rate Year Beginning July 1, 2009 (RY 2010)

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Information about this document as published in the Federal Register.

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AGENCY:

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

ACTION:

Notice; request for comments.

SUMMARY:

This notice updates the payment rates for the Medicare prospective payment system (PPS) for inpatient psychiatric hospital services provided by inpatient psychiatric facilities (IPFs). These changes are applicable to IPF discharges occurring during the rate year beginning July 1, 2009 through June 30, 2010. We are also requesting comments on the IPF PPS teaching adjustment and the market basket.

DATES:

Effective Date: The updated IPF prospective payment rates are effective for discharges occurring on or after July 1, 2009 through June 30, 2010.

Comment Date: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 30, 2009.

ADDRESSES:

In commenting, please refer to file code CMS-1495-NC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.regulations.gov. Follow the instructions for “Comment or Submission” and enter the file code to find the document accepting comments.

2. By regular mail. You may mail written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1495-NC, P.O. Box 8010, Baltimore, MD 21244-1850.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1495-NC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to either of the following addresses.

a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.

(Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

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FOR FURTHER INFORMATION CONTACT:

Dorothy Myrick or Jana Lindquist, (410) 786-4533 (for general information).

Bridget Dickensheets, (410) 786-8670 (for information regarding the market basket and labor-related share).

Theresa Bean, (410) 786-2287 (for information regarding the regulatory impact analysis).

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SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Table of Contents

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

I. Background

A. Annual Requirements for Updating the IPF PPS

B. Overview of the Legislative Requirements of the IPF PPS

C. IPF PPS—General Overview

II. Transition Period for Implementation of the IPF PPS

III. Updates to the IPF PPS for RY Beginning July 1, 2009

A. Determining the Standardized Budget-Neutral Federal Per Diem Base Rate

1. Standardization of the Federal Per Diem Base Rate and Electroconvulsive Therapy Rate

2. Calculation of the Budget Neutrality Adjustment

a. Outlier Adjustment

b. Stop-Loss Provision Adjustment

c. Behavioral Offset

B. Update of the Federal Per Diem Base Rate and Electroconvulsive Therapy Rate

1. Market Basket for IPFs Reimbursed Under the IPF PPS

a. Market Basket Index for the IPF PPS

b. Overview of the RPL Market Basket

2. Labor-Related Share

3. One-Time Prospective Adjustment to the Standard Federal Rate

IV. Update of the IPF PPS Adjustment Factors

A. Overview of the IPF PPS Adjustment Factors

B. Patient-Level Adjustments

1. Adjustment for MS-DRG Assignment

2. Payment for Comorbid Conditions

3. Patient Age Adjustments

4. Variable Per Diem Adjustments

C. Facility-Level Adjustments

1. Wage Index Adjustment

a. Background

b. Wage Index for RY 2010

c. OMB Bulletins

2. Adjustment for Rural Location

3. Teaching Adjustment

4. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii

5. Adjustment for IPFs With a Qualifying Emergency Department (ED)

D. Other Payment Adjustments and Policies

1. Outlier Payments

a. Update to the Outlier Fixed Dollar Loss Threshold Amount

b. Statistical Accuracy of Cost-to-Charge Ratios

2. Expiration of the Stop-Loss Provision

V. Request for Comments

VI. Waiver of Proposed RulemakingStart Printed Page 20363

VII. Collection of Information Requirements

VIII. Response to Comments

IX. Regulatory Impact Analysis

Addenda

Acronyms

Because of the many terms to which we refer by acronym in this notice, we are listing the acronyms used and their corresponding terms in alphabetical order below:

BBRA Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113)

CBSA Core-Based Statistical Area

CCR Cost-to-charge ratio

DSM-IV-TR Diagnostic and Statistical Manual of Mental Disorders Fourth Edition—Text Revision

DRGs Diagnosis-related groups

FY Federal fiscal year

ICD-9-CM International Classification of Diseases, 9th Revision, Clinical Modification

IPFs Inpatient psychiatric facilities

IRFs Inpatient rehabilitation facilities

LTCHs Long-term care hospitals

MedPAR Medicare provider analysis and review file

RY Rate Year

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-248)

I. Background

A. Annual Requirements for Updating the IPF PPS

In November 2004, we implemented the inpatient psychiatric facilities (IPF) prospective payment system (PPS) in a final rule that appeared in the November 15, 2004 Federal Register (69 FR 66922). In developing the IPF PPS, in order to ensure that the IPF PPS is able to account adequately for each IPF's case-mix, we performed an extensive regression analysis of the relationship between the per diem costs and certain patient and facility characteristics to determine those characteristics associated with statistically significant cost differences on a per diem basis. For characteristics with statistically significant cost differences, we used the regression coefficients of those variables to determine the size of the corresponding payment adjustments.

In that final rule, we explained that we believe it is important to delay updating the adjustment factors derived from the regression analysis until we have IPF PPS data that includes as much information as possible regarding the patient-level characteristics of the population that each IPF serves. Therefore, we indicated that we did not intend to update the regression analysis and recalculate the Federal per diem base rate and the patient- and facility-level adjustments until we complete that analysis. Until that analysis is complete, we stated our intention to publish a notice in the Federal Register each spring to update the IPF PPS (71 FR 27041).

Updates to the IPF PPS as specified in 42 CFR 412.428 include the following:

  • A description of the methodology and data used to calculate the updated Federal per diem base payment amount.
  • The rate of increase factor as described in § 412.424(a)(2)(iii), which is based on the excluded hospital with capital market basket under the update methodology of section 1886(b)(3)(B)(ii) of the Social Security Act (the Act) for each year (effective from the implementation period until June 30, 2006).
  • For discharges occurring on or after July 1, 2006, the rate of increase factor for the Federal portion of the IPF's payment, which is based on the rehabilitation, psychiatric, and long-term care (RPL) market basket.
  • The best available hospital wage index and information regarding whether an adjustment to the Federal per diem base rate is needed to maintain budget neutrality.
  • Updates to the fixed dollar loss threshold amount in order to maintain the appropriate outlier percentage.
  • Description of the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM) coding and diagnosis-related groups (DRGs) classification changes discussed in the annual update to the hospital inpatient prospective payment system (IPPS) regulations.
  • Update to the electroconvulsive therapy (ECT) payment by a factor specified by CMS.
  • Update to the national urban and rural cost-to-charge ratio medians and ceilings.
  • Update to the cost of living adjustment factors for IPFs located in Alaska and Hawaii, if appropriate.

Our most recent annual update occurred in the May 2008 IPF PPS notice (73 FR 25709) that set forth updates to the IPF PPS payment rates for RY 2009. This notice updates the IPF per diem payment rates that were published in the May 2008 IPF PPS notice in accordance with our established policies.

B. Overview of the Legislative Requirements for the IPF PPS

Section 124 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999, (Pub. L. 106-113) (BBRA) required implementation of the IPF PPS. Specifically, section 124 of the BBRA mandated that the Secretary develop a per diem PPS for inpatient hospital services furnished in psychiatric hospitals and psychiatric units that includes an adequate patient classification system that reflects the differences in patient resource use and costs among psychiatric hospitals and psychiatric units.

Section 405(g)(2) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF PPS to distinct part psychiatric units of critical access hospitals (CAHs).

To implement these provisions, we published various proposed and final rules in the Federal Register. For more information regarding these rules, see the CMS Web sites http://www.cms.hhs.gov/​InpatientPsychFacilPPS/​ and http://www.cms.hhs.gov/​InpatientpsychfacilPPS/​02_​regulations.asp.

C. IPF PPS—General Overview

The November 2004 IPF PPS final rule (69 FR 66922) established the IPF PPS, as authorized under section 124 of the BBRA and codified at subpart N of part 412 of the Medicare regulations. The November 2004 IPF PPS final rule set forth the per diem Federal rates for the implementation year (the 18-month period from January 1, 2005 through June 30, 2006), and it provided payment for the inpatient operating and capital costs to IPFs for covered psychiatric services they furnish (that is, routine, ancillary, and capital costs, but not costs of approved educational activities, bad debts, and other services or items that are outside the scope of the IPF PPS). Covered psychiatric services include services for which benefits are provided under the fee-for-service Part A (Hospital Insurance Program) Medicare program.

The IPF PPS established the Federal per diem base rate for each patient day in an IPF derived from the national average daily routine operating, ancillary, and capital costs in IPFs in FY 2002. The average per diem cost was updated to the midpoint of the first year under the IPF PPS, standardized to account for the overall positive effects of the IPF PPS payment adjustments, and adjusted for budget neutrality.

The Federal per diem payment under the IPF PPS is comprised of the Federal per diem base rate described above and certain patient- and facility-level payment adjustments that were found in the regression analysis to be associated with statistically significant per diem cost differences.Start Printed Page 20364

The patient-level adjustments include age, DRG assignment, comorbidities, and variable per diem adjustments to reflect higher per diem costs in the early days of an IPF stay. Facility-level adjustments include adjustments for the IPF's wage index, rural location, teaching status, a cost of living adjustment for IPFs located in Alaska and Hawaii, and presence of a qualifying emergency department (ED).

The IPF PPS provides additional payment policies for: Outlier cases; stop-loss protection (which was applicable only during the IPF PPS transition period); interrupted stays; and a per treatment adjustment for patients who undergo ECT.

A complete discussion of the regression analysis appears in the November 2004 IPF PPS final rule (69 FR 66933 through 66936).

Section 124 of BBRA does not specify an annual update rate strategy for the IPF PPS and is broadly written to give the Secretary discretion in establishing an update methodology. Therefore, in the November 2004 IPF PPS final rule, we implemented the IPF PPS using the following update strategy:

  • Calculate the final Federal per diem base rate to be budget neutral for the 18-month period of January 1, 2005 through June 30, 2006.
  • Use a July 1 through June 30 annual update cycle.
  • Allow the IPF PPS first update to be effective for discharges on or after July 1, 2006 through June 30, 2007.

II. Transition Period for Implementation of the IPF PPS

In the November 2004 IPF PPS final rule, we provided for a 3-year transition period. During this 3-year transition period, an IPF's total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decreasing percentage of the IPF PPS payment that is based on reasonable cost concepts. However, effective for cost reporting periods beginning on or after January 1, 2008, IPF PPS payments are based on 100 percent of the Federal rate.

III. Updates to the IPF PPS for RY Beginning July 1, 2009

The IPF PPS is based on a standardized Federal per diem base rate calculated from IPF average per diem costs and adjusted for budget-neutrality in the implementation year. The Federal per diem base rate is used as the standard payment per day under the IPF PPS and is adjusted by the applicable wage index factor and the patient-and facility-level adjustments that are applicable to the IPF stay. A detailed explanation of how we calculated the average per diem cost appears in the November 2004 IPF PPS final rule (69 FR 66926).

A. Determining the Standardized Budget-Neutral Federal Per Diem Base Rate

Section 124(a)(1) of the BBRA requires that we implement the IPF PPS in a budget neutral manner. In other words, the amount of total payments under the IPF PPS, including any payment adjustments, must be projected to be equal to the amount of total payments that would have been made if the IPF PPS were not implemented. Therefore, we calculated the budget-neutrality factor by setting the total estimated IPF PPS payments to be equal to the total estimated payments that would have been made under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) methodology had the IPF PPS not been implemented.

Under the IPF PPS methodology, we calculated the final Federal per diem base rate to be budget neutral during the IPF PPS implementation period (that is, the 18-month period from January 1, 2005 through June 30, 2006) using a July 1 update cycle. We updated the average cost per day to the midpoint of the IPF PPS implementation period (that is, October 1, 2005), and this amount was used in the payment model to establish the budget-neutrality adjustment.

A step-by-step description of the methodology used to estimate payments under the TEFRA payment system appears in the November 2004 IPF PPS final rule (69 FR 66926).

1. Standardization of the Federal Per Diem Base Rate and Electroconvulsive Therapy (ECT) Rate

In the November 2004 IPF PPS final rule, we describe how we standardized the IPF PPS Federal per diem base rate in order to account for the overall positive effects of the IPF PPS payment adjustment factors. To standardize the IPF PPS payments, we compared the IPF PPS payment amounts calculated from the FY 2002 Medicare Provider Analysis and Review (MedPAR) file to the projected TEFRA payments from the FY 2002 cost report file updated to the midpoint of the IPF PPS implementation period (that is, October 2005). The standardization factor was calculated by dividing total estimated payments under the TEFRA payment system by estimated payments under the IPF PPS. The standardization factor was calculated to be 0.8367.

As described in detail in the May 2006 IPF PPS final rule (71 FR 27045), in reviewing the methodology used to simulate the IPF PPS payments used for the November 2004 IPF PPS final rule, we discovered that due to a computer code error, total IPF PPS payments were underestimated by about 1.36 percent. Since the IPF PPS payment total should have been larger than the estimated figure, the standardization factor should have been smaller (0.8254 vs. 0.8367). In turn, the Federal per diem base rate and the ECT rate should have been reduced by 0.8254 instead of 0.8367.

To resolve this issue, in RY 2007, we amended the Federal per diem base rate and the ECT payment rate prospectively. Using the standardization factor of 0.8254, the average cost per day was effectively reduced by 17.46 percent (100 percent minus 82.54 percent = 17.46 percent).

2. Calculation of the Budget Neutrality Adjustment

To compute the budget neutrality adjustment for the IPF PPS, we separately identified each component of the adjustment, that is, the outlier adjustment, stop-loss adjustment, and behavioral offset.

A complete discussion of how we calculate each component of the budget neutrality adjustment appears in the November 2004 IPF PPS final rule (69 FR 66932 through 66933) and in the May 2006 IPF PPS final rule (71 FR 27044 through 27046).

a. Outlier Adjustment

Since the IPF PPS payment amount for each IPF includes applicable outlier amounts, we reduced the standardized Federal per diem base rate to account for aggregate IPF PPS payments estimated to be made as outlier payments. The outlier adjustment was calculated to be 2 percent. As a result, the standardized Federal per diem base rate was reduced by 2 percent to account for projected outlier payments.

b. Stop-Loss Provision Adjustment

As explained in the November 2004 IPF PPS final rule, we provided a stop-loss payment during the transition from cost-based reimbursement to the per diem payment system to ensure that an IPF's total PPS payments were no less than a minimum percentage of their TEFRA payment, had the IPF PPS not been implemented. We reduced the standardized Federal per diem base rate by the percentage of aggregate IPF PPS payments estimated to be made for stop-loss payments. As a result, the standardized Federal per diem base rate was reduced by 0.39 percent to account for stop-loss payments. Since the transition was completed in RY 2009, Start Printed Page 20365the stop-loss provision is no longer applicable, and for cost reporting periods beginning on or after January 1, 2008, IPFs were paid 100 percent PPS.

c. Behavioral Offset

As explained in the November 2004 IPF PPS final rule, implementation of the IPF PPS may result in certain changes in IPF practices, especially with respect to coding for comorbid medical conditions. As a result, Medicare may make higher payments than assumed in our calculations. Accounting for these effects through an adjustment is commonly known as a behavioral offset.

Based on accepted actuarial practices and consistent with the assumptions made in other PPSs, we assumed in determining the behavioral offset that IPFs would regain 15 percent of potential “losses” and augment payment increases by 5 percent. We applied this actuarial assumption, which is based on our historical experience with new payment systems, to the estimated “losses” and “gains” among the IPFs. The behavioral offset for the IPF PPS was calculated to be 2.66 percent. As a result, we reduced the standardized Federal per diem base rate by 2.66 percent to account for behavioral changes. As indicated in the November 2004 IPF PPS final rule, we do not plan to change adjustment factors or projections until we analyze IPF PPS data.

If we find that an adjustment is warranted, the percent difference may be applied prospectively to the established PPS rates to ensure the rates accurately reflect the payment level intended by the statute. In conducting this analysis, we will be interested in the extent to which improved coding of patients' principal and other diagnoses, which may not reflect real increases in underlying resource demands, has occurred under the PPS.

B. Update of the Federal Per Diem Base Rate and Electroconvulsive Therapy Rate

1. Market Basket for IPFs Reimbursed Under the IPF PPS

As described in the November 2004 IPF PPS final rule (69 FR 66931), the average per diem cost was updated to the midpoint of the implementation year. This updated average per diem cost of $724.43 was reduced by 17.46 percent to account for standardization to projected TEFRA payments for the implementation period, by 2 percent to account for outlier payments, by 0.39 percent to account for stop-loss payments, and by 2.66 percent to account for the behavioral offset. The Federal per diem base rate in the implementation year was $575.95. The increase in the per diem base rate for RY 2009 included the 0.39 percent increase due to the removal of the stop-loss provision. We indicated in the November 2004 IPF PPS final rule (69 FR 66932) that we would remove this 0.39 percent reduction to the Federal per diem base rate after the transition. For RY 2009 and beyond, the stop-loss provision has ended and is therefore no longer a part of budget neutrality.

Applying the market basket increase of 2.1 percent and the wage index budget neutrality factor of 1.0009 to the RY 2009 Federal per diem base rate of $637.78 yields a Federal per diem base rate of $651.76 for RY 2010. Similarly, applying the market basket increase and wage index budget neutrality factor to the RY 2009 ECT rate yields an ECT rate of $280.60 for RY 2010.

a. Market Basket Index for the IPF PPS

The market basket index that was used to develop the IPF PPS was the excluded hospital with capital market basket. This market basket was based on 1997 Medicare cost report data and included data for Medicare-participating IPFs, inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), cancer, and children's hospitals.

Beginning with the May 2006 IPF PPS final rule (71 FR 27046 through 27054), IPF PPS payments were updated using a 2002-based market basket reflecting the operating and capital cost structures for IRFs, IPFs, and LTCHs (hereafter referred to as the rehabilitation, psychiatric, long-term care (RPL) market basket).

We excluded cancer and children's hospitals from the RPL market basket because their payments are based entirely on reasonable costs subject to rate-of-increase limits established under the authority of section 1886(b) of the Act, which are implemented in regulations at § 413.40. They are not reimbursed through a PPS. Also, the FY 2002 cost structures for cancer and children's hospitals are noticeably different than the cost structures of the IRFs, IPFs, and LTCHs. A complete discussion of the RPL market basket appears in the May 2006 IPF PPS final rule (71 FR 27046 through 27054).

We seek comments below on the possibility of creating a stand-alone IPF market basket.

b. Overview of the RPL Market Basket

The RPL market basket is a fixed weight, Laspeyres-type price index. A market basket is described as a fixed-weight index because it answers the question of how much it would cost, at another time, to purchase the same mix (quantity and intensity) of goods and services needed to provide hospital services in a base period. The effects on total expenditures resulting from changes in the mix of goods and services purchased subsequent to the base period are not measured. In this manner, the market basket measures pure price change only. Only when the index is rebased would changes in the quantity and intensity be captured in the cost weights. Therefore, we rebase the market basket periodically so that cost weights reflect recent changes in the mix of goods and services that hospitals purchase to furnish patient care between base periods.

The terms “rebasing” and “revising,” while often used interchangeably, actually denote different activities. Rebasing means moving the base year for the structure of costs of an input price index (for example, shifting the base year cost structure from FY 1997 to FY 2002). Revising means changing data sources, methodology, or price proxies used in the input price index. In 2006, we rebased and revised the market basket used to update the IPF PPS.

Table 1 below sets forth the completed FY 2002-based RPL market basket including the cost categories, weights, and price proxies.

Table 1—FY 2002-Based RPL Market Basket Cost Categories, Weights, and Price Proxies

Cost categoriesFY 2002-based RPL market basket cost weightFY 2002-based RPL market basket price proxies
Total100.000
Compensation65.877
Wages and Salaries*52.895ECI-Wages and Salaries, Civilian Hospital Workers.
Employee Benefits*12.982ECI-Benefits, Civilian Hospital Workers.
Professional Fees, Non-Medical*2.892ECI-Compensation for Professional & Related occupations.
Start Printed Page 20366
Utilities0.656
Electricity0.351PPI-Commercial Electric Power.
Fuel Oil, Coal, etc.0.108PPI-Commercial Natural Gas.
Water and Sewage0.197CPI-U—Water & Sewage Maintenance.
Professional Liability Insurance1.161CMS Professional Liability Premium Index.
All Other Products and Services19.265
All Other Products13.323
Pharmaceuticals5.103PPI Prescription Drugs.
Food: Direct Purchase0.873PPI Processed Foods & Feeds.
Food: Contract Service0.620CPI-U Food Away From Home.
Chemicals1.100PPI Industrial Chemicals.
Medical Instruments1.014PPI Medical Instruments & Equipment.
Photographic Supplies0.096PPI Photographic Supplies.
Rubber and Plastics1.052PPI Rubber & Plastic Products.
Paper Products1.000PPI Converted Paper & Paperboard Products.
Apparel0.207PPI Apparel.
Machinery and Equipment0.297PPI Machinery & Equipment
Miscellaneous Products**1.963PPI Finished Goods less Food & Energy.
All Other Services5.942
Telephone0.240CPI-U Telephone Services.
Postage0.682CPI-U Postage.
All Other: Labor Intensive*2.219ECI-Compensation for Private Service Occupations.
All Other: Non-labor Intensive2.800CPI-U All Items.
Capital-Related Costs***10.149
Depreciation6.186
Fixed Assets4.250Boeckh Institutional Construction 23-year useful life.
Movable Equipment1.937WPI Machinery & Equipment 11-year useful life.
Interest Costs2.775
Nonprofit2.081Average yield on domestic municipal bonds (Bond Buyer 20 bonds) vintage-weighted (23 years).
For Profit0.694Average yield on Moody's Aaa bond vintage-weighted (23 years).
Other Capital-Related Costs1.187CPI-U Residential Rent.
* Labor-related.
** Blood and blood-related products is included in miscellaneous products.
*** A portion of capital costs (0.46) are labor-related.
Note: Due to rounding, weights may not sum to total.

We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Timeliness implies that the proxy is published regularly (preferably at least once a quarter). Availability means that the proxy is publicly available. Finally, relevance means that the proxy is applicable and representative of the cost category weight to which it is applied. The Consumer Price Indexes (CPIs), Producer Price Indexes (PPIs), and Employment Cost Indexes (ECIs) used as proxies in this market basket meet these criteria.

We note that the proxies are the same as those used for the FY 1997-based excluded hospital with capital market basket. Because these proxies meet our criteria of reliability, timeliness, availability, and relevance, we believe they continue to be the best measure of price changes for the cost categories. For further discussion on the FY 1997-based excluded hospital with capital market basket, see the August 1, 2002 hospital inpatient prospective payment system (IPPS) final rule (67 FR at 50042).

The RY 2010 (that is, beginning July 1, 2009) update for the IPF PPS using the FY 2002-based RPL market basket and Information Handling Services (IHS) Global Insight's 1st quarter 2009 forecast for the market basket components is 2.1 percent. This includes increases in both the operating section and the capital section for the 12-month RY period (that is, July 1, 2009 through June 30, 2010). IHS Global Insight, Inc. is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of the market baskets.

2. Labor-Related Share

Due to the variations in costs and geographic wage levels, we believe that payment rates under the IPF PPS should continue to be adjusted by a geographic wage index. This wage index applies to the labor-related portion of the Federal per diem base rate, hereafter referred to as the labor-related share.

The labor-related share is determined by identifying the national average proportion of operating costs that are related to, influenced by, or vary with the local labor market. Using our current definition of labor-related, the labor-related share is the sum of the relative importance of wages and salaries, fringe benefits, professional fees, labor-intensive services, and a portion of the capital share from an appropriate market basket. We used the FY 2002-based RPL market basket cost weights relative importance to determine the labor-related share for the IPF PPS.

The labor-related share for RY 2010 is the sum of the RY 2010 relative importance of each labor-related cost category, and reflects the different rates of price change for these cost categories between the base year (FY 2002) and RY 2010. The sum of the relative importance for the RY 2010 operating costs (wages and salaries, employee benefits, professional fees, and labor-Start Printed Page 20367intensive services) is 71.935, as shown in below. The portion of capital that is influenced by the local labor market is estimated to be 46 percent, which is the same percentage used in the FY 1997-based IRF and IPF payment systems.

Since the relative importance for capital is 8.596 percent of the FY 2002-based RPL market basket in RY 2010, we are taking 46 percent of 8.596 percent to determine the labor-related share of capital for RY 2010. The result is 3.954 percent, which we added to 71.935 percent for the operating cost amount to determine the total labor-related share for RY 2010. Thus, the labor-related share that we are using for IPF PPS in RY 2010 is 75.889 percent. Table 2 below shows the RY 2010 labor-related share using the FY 2002-based RPL market basket. We note that this labor-related share is determined by using the same methodology as employed in calculating all previous IPF labor-related shares.

A complete discussion of the IPF labor-related share methodology appears in the November 2004 IPF PPS final rule (69 FR 66952 through 66954).

Table 2—Total Labor-Related Share—Relative Importance for RY 2010

Cost categoryFY 2002-based RPL market basket labor-related share relative importance (percent) RY 2009*FY 2002-based RPL market basket labor-related share relative importance (percent) RY 2010**
Wages and salaries52.64553.062
Employee benefits14.00413.852
Professional fees2.8952.895
All other labor-intensive services2.1372.126
Subtotal71.68171.935
Labor-related share of capital costs (0.46)3.9503.954
Total75.63175.889
* Based on 2008 1st Quarter forecast.
** Based on 2009 1st Quarter forecast.

3. One-time Prospective Adjustment to the Standard Federal Rate

As we discussed in the November 2004 IPF PPS final rule, consistent with the statutory requirement for budget neutrality in section 124 of the BBRA, we estimated aggregate payments under the IPF PPS for the IPF PPS implementation year (that is, the 18-month period from January 1, 2005 through June 30, 2006) to be equal to the estimated aggregate payments that would be made if the IPF PPS had not been implemented. Our methodology for estimating payments for purposes of the budget neutrality calculations used the best available data at the time and necessarily reflected several assumptions (for example, costs, inflation factors and intensity of services provided).

We indicated from the inception of the IPF PPS that it was possible for the aggregate amount of actual payments in the implementation year to be significantly higher or lower than the estimates on which the budget neutrality calculations were based to the extent that later, more complete data differ significantly from the data that were available at the time of the original calculations.

Section 124 of the BBRA provides broad authority to the Secretary in developing the IPF PPS, including the authority for establishing appropriate adjustments. Under this broad authority to make appropriate adjustments, we provided in § 412.424(c)(3)(ii) for the possibility of making a one-time prospective adjustment to the IPF PPS rates, so that the effect of any significant difference between actual payments and estimated payments for the first year of the IPF PPS would not be perpetuated in the IPF PPS rates for future years.

The November 2004 IPF PPS final rule implementing the IPF PPS (69 FR 66922), was based upon the broad authority granted to the Secretary under section 124 of the BBRA. In that same final rule, we discussed our authority to make a one-time prospective adjustment to the IPF PPS rates, which was reflected in § 412.424(c)(3)(ii).

Evaluating the appropriateness of the possible one-time prospective adjustment under § 412.424(c)(3)(ii) requires a thorough review of the relevant IPF data. When we established the IPF PPS Federal per diem base rate in a budget neutral manner, we used the most recent IPF cost report data available at that time (that is, FY 2002 data), and trended that data forward to estimate what CMS would have paid to IPFs in the implementation year under the TEFRA payment system if the PPS were not implemented (69 FR 66927). We have since conducted a review of the relevant data. From the cost reports, we have TEFRA and PPS payment data for January 1, 2005 through June 30, 2006, the 18-month period for the implementation of the IPF PPS. These data are drawn from reports with cost reporting periods beginning in FY 2005 and FY 2006. More than 70 percent of the cost reports from FY 2005 were settled. However, only approximately 33 percent of the cost reports from FY 2006 have been settled. The remaining 67 percent from FY 2006 are either as-submitted or have been reopened. Therefore, because we lack a complete set of final cost report data from the IPF PPS 18-month implementation period, we are not making a one-time adjustment to the IPF PPS rates for RY 2010.

We plan to revisit the possibility of making a one-time prospective adjustment to the IPF PPS rates as more cost report data becomes available.

IV. Update of the IPF PPS Adjustment Factors

A. Overview of the IPF PPS Adjustment Factors

The IPF PPS payment adjustments were derived from a regression analysis of 100 percent of the FY 2002 MedPAR data file, which contained 483,038 cases. For this notice, we used the same results of the regression analysis used to implement the November 2004 IPF PPS final rule. For a more detailed description of the data file used for the regression analysis, see the November 2004 IPF PPS final rule (69 FR 66935 through 66936). While we have since used more recent claims data to set the fixed dollar loss threshold amount, we use the same results of this regression Start Printed Page 20368analysis to update the IPF PPS for RY 2009 as well as RY 2010.

As previously stated, we do not plan to update the regression analysis until we are able to analyze IPF PPS claims and cost report data. However, we continue to monitor claims and payment data independently from cost report data to assess issues, to determine whether changes in case-mix or payment shifts have occurred among freestanding governmental, non-profit and private psychiatric hospitals, and psychiatric units of general hospitals, and CAHs and other issues of importance to IPFs.

B. Patient-Level Adjustments

In the May 2008 IPF PPS notice (73 FR 25709), we provided payment adjustments for the following patient-level characteristics: Medicare Severity diagnosis related groups (MS-DRGs) assignment of the patient's principal diagnosis, selected comorbidities, patient age, and the variable per diem adjustments.

1. Adjustment for MS-DRG Assignment

The IPF PPS includes payment adjustments for the psychiatric DRG assigned to the claim based on each patient's principal diagnosis. The IPF PPS recognizes the MS-DRGs. The DRG adjustment factors were expressed relative to the most frequently reported psychiatric DRG in FY 2002, that is, DRG 430 (psychoses). The coefficient values and adjustment factors were derived from the regression analysis.

In accordance with § 412.27(a), payment under the IPF PPS is conditioned on IPFs admitting “only patients whose admission to the unit is required for active treatment, of an intensity that can be provided appropriately only in an inpatient hospital setting, of a psychiatric principal diagnosis that is listed in Chapter Five (“Mental Disorders”) of the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM)]” or in the Fourth Edition, Text Revision of the American Psychiatric Association's Diagnostic and Statistical Manual, (DSM-IV-TR). IPF claims with a principal diagnosis included in Chapter Five of the ICD-9-CM or the DSM-IV-TR are paid the Federal per diem base rate under the IPF PPS and all other applicable adjustments, including any applicable DRG adjustment. Psychiatric principal diagnoses that do not group to one of the designated DRGs still receive the Federal per diem base rate and all other applicable adjustments, but the payment would not include a DRG adjustment.

The Standards for Electronic Transaction final rule published in the Federal Register on August 17, 2000 (65 FR 50312), adopted the ICD-9-CM as the designated code set for reporting diseases, injuries, impairments, other health related problems, their manifestations, and causes of injury, disease, impairment, or other health related problems. Therefore, we use the ICD-9-CM as the designated code set for the IPF PPS.

We believe that it is important to maintain the same diagnostic coding and DRG classification for IPFs that are used under the IPPS for providing the psychiatric care. Therefore, when the IPF PPS was implemented for cost reporting periods beginning on or after January 1, 2005, we adopted the same diagnostic code set and DRG patient classification system (that is, the CMS DRGs) that were utilized at the time under the hospital inpatient prospective payment system (IPPS). Since the inception of the IPF PPS, the DRGs used as the patient classification system under the IPF PPS have corresponded exactly with the CMS DRGs applicable under the IPPS for acute care hospitals.

Every year, changes to the ICD-9-CM coding system are addressed in the IPPS proposed and final rules. The changes to the codes are effective October 1 of each year and must be used by acute care hospitals as well as other providers to report diagnostic and procedure information. The IPF PPS has always incorporated ICD-9-CM coding changes made in the annual IPPS update. We publish coding changes in a Transmittal/Change Request, similar to how coding changes are announced by the IPPS and LTCH PPS. Those ICD-9-CM coding changes are also published in the following IPF PPS RY update, in either the IPF PPS proposed and final rules, or in an IPF PPS update notice.

In the May 2008 IPF PPS notice (73 FR 25714), we discussed CMS' effort to better recognize resource use and the severity of illness among patients. CMS adopted the new MS-DRGs for the IPPS in the FY 2008 IPPS final rule with comment period (72 FR 47130). We believe by better accounting for patients' severity of illness in Medicare payment rates, the MS-DRGs encourage hospitals to improve their coding and documentation of patient diagnoses. The MS-DRGs, which are based on the CMS DRGs, represent a significant increase in the number of DRGs (from 538 to 745, an increase of 207). For a full description of the development and implementation of the MS-DRGs, see the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175).

All of the ICD-9-CM coding changes are reflected in the FY 2009 GROUPER, Version 26.0, effective for IPPS discharges occurring on or after October 1, 2008 through September 30, 2009. The GROUPER Version 26.0 software package assigns each case to an MS-DRG on the basis of the diagnosis and procedure codes and demographic information (that is, age, sex, and discharge status). The Medicare Code Editor (MCE) 25.0 uses the new ICD-9-CM codes to validate coding for IPPS discharges on or after October 1, 2008. For additional information on the GROUPER Version 26.0 and MCE 25.0, see Transmittal 1610 (Change Request 6189), dated October 3, 2008. The IPF PPS has always used the same GROUPER and Code Editor as the IPPS. Therefore, the ICD-9-CM changes, which were reflected in the GROUPER Version 26.0 and MCE 25.0 on October 1, 2008, also became effective for the IPF PPS for discharges occurring on or after October 1, 2008.

The impact of the new MS-DRGs on the IPF PPS was negligible. Mapping to the MS-DRGs resulted in the current 17 MS-DRGs, instead of the original 15, for which the IPF PPS provides an adjustment. Although the code set is updated, the same associated adjustment factors apply now that have been in place since implementation of the IPF PPS, with one exception that is unrelated to the update to the codes. When DRGs 521 and 522 were consolidated into MS-DRG 895, we carried over the adjustment factor of 1.02 from DRG 521 to the newly consolidated MS-DRG. This was done to reflect the higher claims volume under DRG 521, with more than eight times the number of claims than billed under DRG 522. The updates are reflected in Table 5. For a detailed description of the mapping changes from the original DRG adjustment categories to the current MS-DRG adjustment categories we refer readers to the May 2008 IPF PPS notice (73 FR 25714).

The official version of the ICD-9-CM is available on CD-ROM from the U.S. Government Printing Office. The FY 2009 version can be ordered by contacting the Superintendent of Documents, U.S. Government Printing Office, Department 50, Washington, DC 20402-9329, telephone number (202) 512-1800. Questions concerning the ICD-9-CM should be directed to Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, Mailstop C4-08-06, 7500 Security Start Printed Page 20369Boulevard, Baltimore, Maryland 21244-1850.

Further information concerning the official version of the ICD-9-CM can be found in the IPPS final rule with comment period, “Changes to Hospital Inpatient Prospective Payment System and Fiscal Year 2009 Rates” in the August 19, 2008 Federal Register (73 FR 48434) and at http://www.cms.hhs.gov/​AcuteInpatientPPS/​IPPS/​list.asp#TopOfPage.

Tables 3 and 4 below list the FY 2009 new and invalid ICD-9-CM diagnosis codes that group to one of the 17 MS-DRGs for which the IPF PPS provides an adjustment. These tables are only a listing of FY 2009 changes and do not reflect all of the currently valid and applicable ICD-9-CM codes classified in the MS-DRGs. When coded as a principal code or diagnosis, these codes receive the correlating MS-DRG adjustment.

Table 3—FY 2009 New Diagnosis Codes

Diagnosis codeDescriptionMS-DRG
046.11Variant Creutzfeldt-Jakob disease056, 057
046.19Other and unspecified Creutzfeldt-Jakob disease056, 057
046.71Gerstmann-Sträussler-Scheinker syndrome056, 057
046.72Fatal familial insomnia056, 057
046.79Other and unspecified prion disease of central nervous system056, 057

Table 4—FY 2009 Invalid Diagnosis Codes

Diagnosis codeDescriptionMS-DRG
046.1Jakob-Creutzfeldt056, 057

We do not plan to update the regression analysis until we are able to analyze IPF PPS data. The MS-DRG adjustment factors (as shown in Table 5) will continue to be paid for discharges occurring in RY 2010.

Table 5—RY 2010 Current MS-DRGs Applicable for the Principal Diagnosis Adjustment

MS-DRGMS-DRG descriptionsAdjustment factor
056Degenerative nervous system disorders w MCC1.05
057Degenerative nervous system disorders w/o MCC1.05
080Nontraumatic stupor & coma w MCC1.07
081Nontraumatic stupor & coma w/o MCC1.07
876O.R. procedure w principal diagnoses of mental illness1.22
880Acute adjustment reaction & psychosocial dysfunction1.05
881Depressive neuroses0.99
882Neuroses except depressive1.02
883Disorders of personality & impulse control1.02
884Organic disturbances & mental retardation1.03
885Psychoses1.00
886Behavioral & developmental disorders0.99
887Other mental disorder diagnoses0.92
894Alcohol/drug abuse or dependence, left AMA0.97
895Alcohol/drug abuse or dependence w rehabilitation therapy1.02
896Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC0.88
897Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC0.88

2. Payment for Comorbid Conditions

The intent of the comorbidity adjustments is to recognize the increased costs associated with comorbid conditions by providing additional payments for certain concurrent medical or psychiatric conditions that are expensive to treat. In the May 2008 IPF PPS notice (73 FR 25716), we explained that the IPF PPS includes 17 comorbidity categories and identified the new, revised, and deleted ICD-9-CM diagnosis codes that generate a comorbid condition payment adjustment under the IPF PPS for RY 2009 (73 FR 25718).

Comorbidities are specific patient conditions that are secondary to the patient's principal diagnosis and that require treatment during the stay. Diagnoses that relate to an earlier episode of care and have no bearing on the current hospital stay are excluded and must not be reported on IPF claims. Comorbid conditions must exist at the time of admission or develop subsequently, and affect the treatment received, length of stay (LOS), or both treatment and LOS.

For each claim, an IPF may receive only one comorbidity adjustment per comorbidity category, but it may receive an adjustment for more than one comorbidity category. Billing instructions require that IPFs must enter the full ICD-9-CM codes for up to 8 additional diagnoses if they co-exist at the time of admission or develop subsequently and impact the treatment provided.

The comorbidity adjustments were determined based on the regression analysis using the diagnoses reported by IPFs in FY 2002. The principal diagnoses were used to establish the DRG adjustments and were not accounted for in establishing the comorbidity category adjustments, except where ICD-9-CM “code first” instructions apply. As we explained in Start Printed Page 20370the May 2008 IPF PPS notice (73 FR 25716), the code first rule applies when a condition has both an underlying etiology and a manifestation due to the underlying etiology. For these conditions, the ICD-9-CM has a coding convention that requires the underlying conditions to be sequenced first followed by the manifestation. Whenever a combination exists, there is a “use additional code” note at the etiology code and a code first note at the manifestation code.

As discussed in the MS-DRG section, it is our policy to maintain the same diagnostic coding set for IPFs that is used under the IPPS for providing the same psychiatric care. Although the ICD-9-CM code set has been updated, the same adjustment factors have been in place since the implementation of the IPF PPS. Table 6 below lists the FY 2009 new ICD diagnosis codes that impact the comorbidity adjustments under the IPF PPS. Table 6 is not a list of all currently valid ICD codes applicable for the IPF PPS comorbidity adjustments.

Table 6—FY 2009 New ICD Codes Applicable for the Comorbidity Adjustment

Diagnosis codeDescriptionComorbidity category
038.12Methicillin resistant Staphylococcus aureus septicemiaInfectious Disease.
046.11Variant Creutzfeldt-Jakob diseaseInfectious Disease.
046.19Other and unspecified Creutzfeldt-Jakob diseaseInfectious Disease.
046.71Gerstmann-Sträussler-Scheinker syndromeInfectious Disease.
046.72Fatal familial insomniaInfectious Disease.
046.79Other and unspecified prion disease of central nervous systemInfectious Disease.
051.01CowpoxInfectious Disease.
051.02Vaccinia not from vaccinationInfectious Disease.
059.00Orthopoxvirus infection, unspecifiedInfectious Disease.
059.01MonkeypoxInfectious Disease.
059.09Other orthopoxvirus infectionsInfectious Disease.
059.10Parapoxvirus infection, unspecifiedInfectious Disease.
059.11Bovine stomatitisInfectious Disease.
059.12SealpoxInfectious Disease.
059.19Other parapoxvirus infectionsInfectious Disease.
059.20Yatapoxvirus infection, unspecifiedInfectious Disease.
059.21TanapoxInfectious Disease.
059.22Yaba monkey tumor virusInfectious Disease.
059.8Other poxvirus infectionsInfectious Disease.
059.9Poxvirus infections, unspecifiedInfectious Disease.
199.2Malignant neoplasm associated with transplant organOncology Treatment.
203.02Multiple myeloma, in relapseOncology Treatment.
203.12Plasma cell leukemia, in relapseOncology Treatment.
203.82Other immunoproliferative neoplasms, in relapseOncology Treatment.
204.02Acute lymphoid leukemia, in relapseOncology Treatment.
204.12Chronic lymphoid leukemia, in relapseOncology Treatment.
204.22Subacute lymphoid leukemia, in relapseOncology Treatment.
204.82Other lymphoid leukemia, in relapseOncology Treatment.
204.92Unspecified lymphoid leukemia, in relapseOncology Treatment.
205.02Acute myeloid leukemia, in relapseOncology Treatment.
205.12Chronic myeloid leukemia, in relapseOncology Treatment.
205.22Subacute myeloid leukemia, in relapseOncology Treatment.
205.32Myeloid sarcoma, in relapseOncology Treatment.
205.82Other myeloid leukemia, in relapseOncology Treatment.
205.92Unspecified myeloid leukemia, in relapseOncology Treatment.
206.02Acute monocytic leukemia, in relapseOncology Treatment.
206.12Chronic monocytic leukemia, in relapseOncology Treatment.
206.22Subacute monocytic leukemia, in relapseOncology Treatment.
206.82Other monocytic leukemia, in relapseOncology Treatment.
206.92Unspecified monocytic leukemia, in relapseOncology Treatment.
207.02Acute erythremia and erythroleukemia, in relapseOncology Treatment.
207.12Chronic erythremia, in relapseOncology Treatment.
207.22Megakaryocytic leukemia, in relapseOncology Treatment.
207.82Other specified leukemia, in relapseOncology Treatment.
208.02Acute leukemia of unspecified cell type, in relapseOncology Treatment.
208.12Chronic leukemia of unspecified cell type, in relapseOncology Treatment.
208.22Subacute leukemia of unspecified cell type, in relapseOncology Treatment.
208.82Other leukemia of unspecified cell type, in relapseOncology Treatment.
208.92Unspecified leukemia, in relapseOncology Treatment.
209.00Malignant carcinoid tumor of the small intestine, unspecified portionOncology Treatment.
209.01Malignant carcinoid tumor of the duodenumOncology Treatment.
209.02Malignant carcinoid tumor of the jejunumOncology Treatment.
209.03Malignant carcinoid tumor of the ileumOncology Treatment.
209.10Malignant carcinoid tumor of the large intestine, unspecified portionOncology Treatment.
209.11Malignant carcinoid tumor of the appendixOncology Treatment.
209.12Malignant carcinoid tumor of the cecumOncology Treatment.
209.13Malignant carcinoid tumor of the ascending colonOncology Treatment.
209.14Malignant carcinoid tumor of the transverse colonOncology Treatment.
209.15Malignant carcinoid tumor of the descending colonOncology Treatment.
209.16Malignant carcinoid tumor of the sigmoid colonOncology Treatment.
209.17Malignant carcinoid tumor of the rectumOncology Treatment.
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209.20Malignant carcinoid tumor of unknown primary siteOncology Treatment.
209.21Malignant carcinoid tumor of the bronchus and lungOncology Treatment.
209.22Malignant carcinoid tumor of the thymusOncology Treatment.
209.23Malignant carcinoid tumor of the stomachOncology Treatment.
209.24Malignant carcinoid tumor of the kidneyOncology Treatment.
209.25Malignant carcinoid tumor of foregut, not otherwise specifiedOncology Treatment.
209.26Malignant carcinoid tumor of midgut, not otherwise specifiedOncology Treatment.
209.27Malignant carcinoid tumor of hindgut, not otherwise specifiedOncology Treatment.
209.29Malignant carcinoid tumor of other sitesOncology Treatment.
209.30Malignant poorly differentiated neuroendocrine carcinoma, any siteOncology Treatment.
209.40Benign carcinoid tumor of the small intestine, unspecified portionOncology Treatment.
209.41Benign carcinoid tumor of the duodenumOncology Treatment.
209.42Benign carcinoid tumor of the jejunumOncology Treatment.
209.43Benign carcinoid tumor of the ileumOncology Treatment.
209.50Benign carcinoid tumor of the large intestine, unspecified portionOncology Treatment.
209.51Benign carcinoid tumor of the appendixOncology Treatment.
209.52Benign carcinoid tumor of the cecumOncology Treatment.
209.53Benign carcinoid tumor of the ascending colonOncology Treatment.
209.54Benign carcinoid tumor of the transverse colonOncology Treatment.
209.55Benign carcinoid tumor of the descending colonOncology Treatment.
209.56Benign carcinoid tumor of the sigmoid colonOncology Treatment.
209.57Benign carcinoid tumor of the rectumOncology Treatment.
209.60Benign carcinoid tumor of unknown primary siteOncology Treatment.
209.61Benign carcinoid tumor of the bronchus and lungOncology Treatment.
209.62Benign carcinoid tumor of the thymusOncology Treatment.
209.63Benign carcinoid tumor of the stomachOncology Treatment.
209.64Benign carcinoid tumor of the kidneyOncology Treatment.
209.65Benign carcinoid tumor of foregut, not otherwise specifiedOncology Treatment.
209.66Benign carcinoid tumor of midgut, not otherwise specifiedOncology Treatment.
209.67Benign carcinoid tumor of hindgut, not otherwise specifiedOncology Treatment.
209.69Benign carcinoid tumor of other sitesOncology Treatment.
238.77Post-transplant lymphoproliferative disorder (PTLD)Oncology Treatment.
V45.11Renal dialysis statusChronic Renal Failure.
V45.12Noncompliance with renal dialysisChronic Renal Failure.

Table 7 lists the FY 2009 revised ICD diagnosis codes that are applicable for the comorbidity adjustment.

Table 7—FY 2009 Revised ICD Codes Applicable for the Comorbidity Adjustment

Diagnosis codeDescriptionComorbidity category
038.11Methicillin susceptible Staphylococcus aureus septicemiaInfectious Disease.
203.00Multiple myeloma, without mention of having achieved remissionOncology Treatment.
203.10Plasma cell leukemia, without mention of having achieved remissionOncology Treatment.
203.80Other immunoproliferative neoplasms, without mention of having achieved remissionOncology Treatment.
204.00Acute lymphoid leukemia, without mention of having achieved remissionOncology Treatment.
204.10Chronic lymphoid leukemia, without mention of having achieved remissionOncology Treatment.
204.20Subacute lymphoid leukemia, without mention of having achieved remissionOncology Treatment.
204.80Other lymphoid leukemia, without mention of having achieved remissionOncology Treatment.
204.90Unspecified lymphoid leukemia, without mention of having achieved remissionOncology Treatment.
205.00Acute myeloid leukemia, without mention of having achieved remissionOncology Treatment.
205.10Chronic myeloid leukemia, without mention of having achieved remissionOncology Treatment.
205.20Subacute myeloid leukemia, without mention of having achieved remissionOncology Treatment.
205.30Myeloid sarcoma, without mention of having achieved remissionOncology Treatment.
205.80Other myeloid leukemia, without mention of having achieved remissionOncology Treatment.
205.90Unspecified myeloid leukemia, without mention of having achieved remissionOncology Treatment.
206.00Acute monocytic leukemia, without mention of having achieved remissionOncology Treatment.
206.10Chronic monocytic leukemia, without mention of having achieved remissionOncology Treatment.
206.20Subacute monocytic leukemia, without mention of having achieved remissionOncology Treatment.
206.80Other monocytic leukemia, without mention of having achieved remissionOncology Treatment.
206.90Unspecified monocytic leukemia, without mention of having achieved remissionOncology Treatment.
207.00Acute erythremia and erythroleukemia, without mention of having achieved remissionOncology Treatment.
207.10Chronic erythremia, without mention of having achieved remissionOncology Treatment.
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207.20Megakaryocytic leukemia, without mention of having achieved remissionOncology Treatment.
207.80Other specified leukemia, without mention of having achieved remissionOncology Treatment.
208.00Acute leukemia of unspecified cell type, without mention of having achieved remissionOncology Treatment.
208.10Chronic leukemia of unspecified cell type, without mention of having achieved remissionOncology Treatment.
208.20Subacute leukemia of unspecified cell type, without mention of having achieved remissionOncology Treatment.
208.80Other leukemia of unspecified cell type, without mention of having achieved remissionOncology Treatment.
208.90Unspecified leukemia, without mention of having achieved remissionOncology Treatment.

Table 8 lists the invalid FY 2009 ICD-9-CM codes no longer applicable for the comorbidity adjustment.

Table 8—FY 2009 Invalid ICD Codes No Longer Applicable for the Comorbidity Adjustment

Diagnosis CodeDescriptionComorbidity category
046.1Jakob-Creutzfeldt diseaseInfectious Disease.
051.0CowpoxInfectious Disease.
V45.1Renal dialysis statusChronic Renal Failure.

For RY 2010, we are applying the seventeen comorbidity categories for which we are providing an adjustment, their respective codes, including the new FY 2009 ICD-9-CM codes, and their respective adjustment factors in Table 9 below.

Table 9—RY 2010 Diagnosis Codes and Adjustment Factors for Comorbidity Categories

Description of comorbidityICD-9CM CodeAdjustment factor
Developmental Disabilities317, 3180, 3181, 3182, and 3191.04
Coagulation Factor Deficits2860 through 28641.13
Tracheostomy51900 through 51909 and V4401.06
Renal Failure, Acute5845 through 5849, 63630, 63631, 63632, 63730, 63731, 63732, 6383, 6393, 66932, 66934, 95851.11
Renal Failure, Chronic40301, 40311, 40391, 40402, 40412, 40413, 40492, 40493, 5853, 5854, 5855, 5856, 5859, 586, V451, V560, V561, and V5621.11
Oncology Treatment1400 through 2399 with a radiation therapy code 92.21-92.29 or chemotherapy code 99.251.07
Uncontrolled Diabetes-Mellitus with or without complications25002, 25003, 25012, 25013, 25022, 25023, 25032, 25033, 25042, 25043, 25052, 25053, 25062, 25063, 25072, 25073, 25082, 25083, 25092, and 250931.05
Severe Protein Calorie Malnutrition260 through 2621.13
Eating and Conduct Disorders3071, 30750, 31203, 31233, and 312341.12
Infectious Disease01000 through 04110, 042, 04500 through 05319, 05440 through 05449, 0550 through 0770, 0782 through 07889, and 07950 through 079591.07
Drug and/or Alcohol Induced Mental Disorders2910, 2920, 29212, 2922, 30300, and 304001.03
Cardiac Conditions3910, 3911, 3912, 40201, 40403, 4160, 4210, 4211, and 42191.11
Gangrene44024 and 78541.10
Chronic Obstructive Pulmonary Disease49121, 4941, 5100, 51883, 51884, V4611 and V4612, V4613 and V46141.12
Artificial Openings—Digestive and Urinary56960 through 56969, 9975, and V441 through V4461.08
Severe Musculoskeletal and Connective Tissue Diseases6960, 7100, 73000 through 73009, 73010 through 73019, and 73020 through 730291.09
Poisoning96500 through 96509, 9654, 9670 through 9699, 9770, 9800 through 9809, 9830 through 9839, 986, 9890 through 98971.11

3. Patient Age Adjustments

As explained in the November 2004 IPF PPS final rule (69 FR 66922), we analyzed the impact of age on per diem cost by examining the age variable (that is, the range of ages) for payment adjustments.

In general, we found that the cost per day increases with age. The older age groups are more costly than the under 45 age group, the differences in per diem cost increase for each successive age group, and the differences are statistically significant.Start Printed Page 20373

For RY 2010, we are continuing to use the patient age adjustments currently in effect as shown in Table 10 below.

Table 10—Age Groupings and Adjustment Factors

AgeAdjustment factor
Under 451.00
45 and under 501.01
50 and under 551.02
55 and under 601.04
60 and under 651.07
65 and under 701.10
70 and under 751.13
75 and under 801.15
80 and over1.17

4. Variable Per Diem Adjustments

We explained in the November 2004 IPF PPS final rule (69 FR 66946) that the regression analysis indicated that per diem cost declines as the LOS increases. The variable per diem adjustments to the Federal per diem base rate account for ancillary and administrative costs that occur disproportionately in the first days after admission to an IPF.

We used a regression analysis to estimate the average differences in per diem cost among stays of different lengths. As a result of this analysis, we established variable per diem adjustments that begin on day 1 and decline gradually until day 21 of a patient's stay. For day 22 and thereafter, the variable per diem adjustment remains the same each day for the remainder of the stay. However, the adjustment applied to day 1 depends upon whether the IPF has a qualifying ED. If an IPF has a qualifying ED, it receives a 1.31 adjustment factor for day 1 of each stay. If an IPF does not have a qualifying ED, it receives a 1.19 adjustment factor for day 1 of the stay. The ED adjustment is explained in more detail in section IV.C.5 of this notice.

For RY 2010, we are to continuing to use the variable per diem adjustment factors currently in effect as shown in Table 11 below. A complete discussion of the variable per diem adjustments appears in the November 2004 IPF PPS final rule (69 FR 66946).

Table 11—Variable Per Diem Adjustments

Day-of-StayAdjustment factor
Day 1—IPF Without a Qualifying ED1.19
Day 1—IPF With a Qualifying ED1.31
Day 21.12
Day 31.08
Day 41.05
Day 51.04
Day 61.02
Day 71.01
Day 81.01
Day 91.00
Day 101.00
Day 110.99
Day 120.99
Day 130.99
Day 140.99
Day 150.98
Day 160.97
Day 170.97
Day 180.96
Day 190.95
Day 200.95
Day 210.95
After Day 210.92

C. Facility-Level Adjustments

The IPF PPS includes facility-level adjustments for the wage index, IPFs located in rural areas, teaching IPFs, cost of living adjustments for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.

1. Wage Index Adjustment

a. Background

As discussed in the May 2006 IPF PPS final rule and in the May 2007 and May 2008 update notices, in providing an adjustment for geographic wage levels, the labor-related portion of an IPF's payment is adjusted using an appropriate wage index. Currently, an IPF's geographic wage index value is determined based on the actual location of the IPF in an urban or rural area as defined in § 412.64(b)(1)(ii)(A) through § 412.64(C).

b. Wage Index for RY 2010

Since the inception of the IPF PPS, we have used hospital wage data in developing a wage index to be applied to IPFs. We are continuing that practice for RY 2010. We apply the wage index adjustment to the labor-related portion of the Federal rate, which is 75.889 percent. This percentage reflects the labor-related relative importance of the RPL market basket for RY 2010 (see section III.B.2 of this notice). The IPF PPS uses the pre-floor, pre-reclassified hospital wage index. Changes to the wage index are made in a budget neutral manner so that updates do not increase expenditures.

For RY 2010, we are applying the most recent hospital wage index (that is, the FY 2009 pre-floor, pre-reclassified hospital wage index because this is the most appropriate index as it best reflects the variation in local labor costs of IPFs in the various geographic areas) using the most recent hospital wage data (that is, data from FY 2005 hospital cost reports), and applying an adjustment in accordance with our budget neutrality policy. This policy requires us to estimate the total amount of IPF PPS payments in RY 2009 using the applicable wage index value divided by the total estimated IPF PPS payments in RY 2010 using the most recent wage index. The estimated payments are based on FY 2007 IPF claims, inflated to the appropriate RY. This quotient is the wage index budget neutrality factor, and it is applied in the update of the Federal per diem base rate for RY 2010 in addition to the market basket described in section III.B.1 of this notice. The wage index budget neutrality factor for RY 2010 is 1.0009.

The wage index applicable for RY 2010 appears in Table 1 and Table 2 in Addendum B of this notice. As explained in the May 2006 IPF PPS final rule for RY 2007 (71 FR 27061), the IPF PPS applies the hospital wage index without a hold-harmless policy, and without an out-commuting adjustment or out-migration adjustment because the statutory authority for these policies applies only to the IPPS.

Also in the May 2006 IPF PPS final rule for RY 2007 (71 FR 27061), we adopted the changes discussed in the Office of Management and Budget (OMB) Bulletin No. 03-04 (June 6, 2003), which announced revised definitions for Metropolitan Statistical Areas (MSAs), and the creation of Micropolitan Statistical Areas and Combined Statistical Areas. In adopting the OMB Core-Based Statistical Area (CBSA) geographic designations, since the IPF PPS was already in a transition period from TEFRA payments to PPS payments, we did not provide a separate transition for the CBSA-based wage index.

As was the case in RY 2009, for RY 2010 we will continue to use the CBSA-based wage index values as presented in Tables 1 and 2 in Addendum B of this notice. A complete discussion of the CBSA labor market definitions appears in the May 2006 IPF PPS final rule (71 FR 27061 through 27067).

c. OMB Bulletins

The Office of Management and Budget (OMB) publishes bulletins regarding CBSA changes, including changes to CBSA numbers and titles. In the May 2008 IPF PPS notice, we incorporated the CBSA nomenclature changes published in the most recent OMB bulletin that applies to the hospital Start Printed Page 20374wage data used to determine the current IPF PPS wage index (73 FR 25721). We will continue to do the same for all such OMB CBSA nomenclature changes in future IPF PPS rules and notices, as necessary. The OMB bulletins may be accessed Online at http://www.whitehouse.gov/​omb/​bulletins/​index.html.

In summary, for RY 2010 we will use the FY 2009 wage index data (collected from cost reports submitted by hospitals for cost reporting periods beginning during FY 2005) to adjust IPF PPS payments beginning July 1, 2009.

2. Adjustment for Rural Location

In the November 2004 IPF PPS final rule, we provided a 17 percent payment adjustment for IPFs located in a rural area. This adjustment was based on the regression analysis, which indicated that the per diem cost of rural facilities was 17 percent higher than that of urban facilities after accounting for the influence of the other variables included in the regression. For RY 2010, we are applying a 17 percent payment adjustment for IPFs located in a rural area as defined at § 412.64(b)(1)(ii)(C). As stated in the November 2004 IPF PPS final rule, we do not intend to update the adjustment factors derived from the regression analysis until we are able to analyze IPF PPS data. A complete discussion of the adjustment for rural locations appears in the November 2004 IPF PPS final rule (69 FR 66954).

3. Teaching Adjustment

In the November 2004 IPF PPS final rule, we implemented regulations at § 412.424(d)(1)(iii) to establish a facility-level adjustment for IPFs that are, or are part of, teaching institutions. The teaching adjustment accounts for the higher indirect operating costs experienced by facilities that participate in graduate medical education (GME) programs. The payment adjustments are made based on the number of full-time equivalent (FTE) interns and residents training in the IPF and the IPF's average daily census.

Medicare makes direct GME payments (for direct costs such as resident and teaching physician salaries, and other direct teaching costs) to all teaching hospitals including those paid under the IPPS, and those that were once paid under the TEFRA rate-of-increase limits but are now paid under other PPSs. These direct GME payments are made separately from payments for hospital operating costs and are not part of the PPSs. The direct GME payments do not address the estimated higher indirect operating costs teaching hospitals may face.

For teaching hospitals paid under the TEFRA rate-of-increase limits, Medicare did not make separate medical education payments because payments to these hospitals were based on the hospitals' reasonable costs. Since payments under TEFRA were based on hospitals' reasonable costs, the higher indirect costs that may be associated with teaching programs were factored automatically into the TEFRA payments.

The results of the regression analysis of FY 2002 IPF data established the basis for the payment adjustments included in the November 2004 IPF PPS final rule. The results showed that the indirect teaching cost variable is significant in explaining the higher costs of IPFs that have teaching programs. We calculated the teaching adjustment based on the IPF's “teaching variable,” which is one plus the ratio of the number of FTE residents training in the IPF (subject to limitations described below) to the IPF's average daily census (ADC).

We established the teaching adjustment in a manner that limited the incentives for IPFs to add FTE residents for the purpose of increasing their teaching adjustment. We imposed a cap on the number of FTE residents that may be counted for purposes of calculating the teaching adjustment. We emphasize that the cap limits the number of FTE residents that teaching IPFs may count for the purposes of calculating the IPF PPS teaching adjustment, not the number of residents teaching institutions can hire or train. We calculated the number of FTE residents that trained in the IPF during a “base year” and used that FTE resident number as the cap. An IPF's FTE resident cap is ultimately determined based on the final settlement of the IPF's most recent cost report filed before November 15, 2004 (that is, the publication date of the IPF PPS final rule).

In the regression analysis, the logarithm of the teaching variable had a coefficient value of 0.5150. We converted this cost effect to a teaching payment adjustment by treating the regression coefficient as an exponent and raising the teaching variable to a power equal to the coefficient value. We note that the coefficient value of 0.5150 was based on the regression analysis holding all other components of the payment system constant.

As with other adjustment factors derived through the regression analysis, we do not plan to rerun the regression analysis until we analyze IPF PPS data. Therefore, for RY 2010, we are retaining the coefficient value of 0.5150 for the teaching adjustment to the Federal per diem base rate.

A complete discussion of how the teaching adjustment was calculated appears in the November 2004 IPF PPS final rule (69 FR 66954 through 66957) and the May 2008 IPF PPS notice (73 FR 25721). Below, in the “Request for Comments” section of this notice, we are seeking public input on the FTE Intern and Resident Cap Adjustment.

4. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii

The IPF PPS includes a payment adjustment for IPFs located in Alaska and Hawaii based upon the county in which the IPF is located. As we explained in the November 2004 IPF PPS final rule, the FY 2002 data demonstrated that IPFs in Alaska and Hawaii had per diem costs that were disproportionately higher than other IPFs. Other Medicare PPSs (for example, the IPPS and LTCH PPS) have adopted a cost of living adjustment (COLA) to account for the cost differential of care furnished in Alaska and Hawaii.

We analyzed the effect of applying a COLA to payments for IPFs located in Alaska and Hawaii. The results of our analysis demonstrated that a COLA for IPFs located in Alaska and Hawaii would improve payment equity for these facilities. As a result of this analysis, we provided a COLA in the November 2004 IPF PPS final rule.

A COLA adjustment for IPFs located in Alaska and Hawaii is made by multiplying the non-labor share of the Federal per diem base rate by the applicable COLA factor based on the COLA area in which the IPF is located.

As previously stated in the November 2004 IPF PPS final rule, we will update the COLA factors according to updates established by the U.S. Office of Personnel Management (OPM), which issued a final rule, May 28, 2008 to change COLA rates.

The COLA factors are published on the OPM Web site at (http://www.opm.gov/​oca/​cola/​rates.asp).

We note that the COLA areas for Alaska are not defined by county as are the COLA areas for Hawaii. In 5 CFR 591.207, the OPM established the following COLA areas:

(a) City of Anchorage, and 80-kilometer (50-mile) radius by road, as measured from the Federal courthouse;

(b) City of Fairbanks, and 80-kilometer (50-mile) radius by road, as measured from the Federal courthouse;

(c) City of Juneau, and 80-kilometer (50-mile) radius by road, as measured from the Federal courthouse;

(d) Rest of the State of Alaska.Start Printed Page 20375

For RY 2010, IPFs located in Alaska and Hawaii will continue to receive the updated COLA factors based on the COLA area in which the IPF is located as shown in Table 12 below.

Table 12—COLA Factors for Alaska and Hawaii IPFs

LocationCOLA
AlaskaAnchorage Fairbanks Juneau Rest of Alaska1.23 1.23 1.23 1.25
HawaiiHonolulu County1.25
Hawaii County1.18
Kauai County1.25
Maui County1.25
Kalawao County1.25

5. Adjustment for IPFs With a Qualifying Emergency Department (ED)

Currently, the IPF PPS includes a facility-level adjustment for IPFs with qualifying EDs. We provide an adjustment to the Federal per diem base rate to account for the costs associated with maintaining a full-service ED. The adjustment is intended to account for ED costs incurred by a freestanding psychiatric hospital with a qualifying ED or a distinct part psychiatric unit of an acute hospital or a CAH for preadmission services otherwise payable under the Medicare Outpatient Prospective Payment System (OPPS) furnished to a beneficiary during the day immediately preceding the date of admission to the IPF (see § 413.40(c)(2)) and the overhead cost of maintaining the ED. This payment is a facility-level adjustment that applies to all IPF admissions (with one exception described below), regardless of whether a particular patient receives preadmission services in the hospital's ED.

The ED adjustment is incorporated into the variable per diem adjustment for the first day of each stay for IPFs with a qualifying ED. That is, IPFs with a qualifying ED receive an adjustment factor of 1.31 as the variable per diem adjustment for day 1 of each stay. If an IPF does not have a qualifying ED, it receives an adjustment factor of 1.19 as the variable per diem adjustment for day 1 of each patient stay.

The ED adjustment is made on every qualifying claim except as described below. As specified in § 412.424(d)(1)(v)(B), the ED adjustment is not made where a patient is discharged from an acute care hospital or critical access hospital (CAH) and admitted to the same hospital's or CAH's psychiatric unit. An ED adjustment is not made in this case because the costs associated with ED services are reflected in the DRG payment to the acute care hospital or through the reasonable cost payment made to the CAH. If we provided the ED adjustment in these cases, the hospital would be paid twice for the overhead costs of the ED, as stated in the November 2004 IPF PPS final rule (69 FR 66960).

Therefore, when patients are discharged from an acute care hospital or CAH and admitted to the same hospital's or CAH's psychiatric unit, the IPF receives the 1.19 adjustment factor as the variable per diem adjustment for the first day of the patient's stay in the IPF.

For RY 2010, we are retaining the 1.31 adjustment factor for IPFs with qualifying EDs. A complete discussion of the steps involved in the calculation of the ED adjustment factor appears in the November 2004 IPF PPS final rule (69 FR 66959 through 66960) and the May 2006 IPF PPS final rule (71 FR 27070 through 27072).

D. Other Payment Adjustments and Policies

For RY 2010, the IPF PPS includes: An outlier adjustment to promote access to IPF care for those patients who require expensive care and to limit the financial risk of IPFs treating unusually costly patients. In this section, we also explain the reason for ending the stop-loss provision that was applicable during the transition period.

1. Outlier Payments

In the November 2004 IPF PPS final rule, we implemented regulations at § 412.424(d)(3)(i) to provide a per-case payment for IPF stays that are extraordinarily costly. Providing additional payments to IPFs for extremely costly cases strongly improves the accuracy of the IPF PPS in determining resource costs at the patient and facility level. These additional payments reduce the financial losses that would otherwise be incurred in treating patients who require more costly care and, therefore, reduce the incentives for IPFs to under-serve these patients.

We make outlier payments for discharges in which an IPF's estimated total cost for a case exceeds a fixed dollar loss threshold amount (multiplied by the IPF's facility-level adjustments) plus the Federal per diem payment amount for the case.

In instances when the case qualifies for an outlier payment, we pay 80 percent of the difference between the estimated cost for the case and the adjusted threshold amount for days 1 through 9 of the stay (consistent with the median LOS for IPFs in FY 2002), and 60 percent of the difference for day 10 and thereafter. We established the 80 percent and 60 percent loss sharing ratios because we were concerned that a single ratio established at 80 percent (like other Medicare PPSs) might provide an incentive under the IPF per diem payment system to increase LOS in order to receive additional payments. After establishing the loss sharing ratios, we determined the current fixed dollar loss threshold amount of $6,113 through payment simulations designed to compute a dollar loss beyond which payments are estimated to meet the 2 percent outlier spending target.

a. Update to the Outlier Fixed Dollar Loss Threshold Amount:

In accordance with the update methodology described in § 412.428(d), we are updating the fixed dollar loss threshold amount used under the IPF PPS outlier policy. Based on the regression analysis and payment simulations used to develop the IPF PPS, we established a 2 percent outlier policy which strikes an appropriate balance between protecting IPFs from extraordinarily costly cases while ensuring the adequacy of the Federal per diem base rate for all other cases that are not outlier cases.

We believe it is necessary to update the fixed dollar loss threshold amount because analysis of the latest available data (that is, FY 2007 IPF claims) and rate increases indicates adjusting the fixed dollar loss amount is necessary in order to maintain an outlier percentage that equals 2 percent of total estimated IPF PPS payments.

In the May 2006 IPF PPS final rule (71 FR 27072), we describe the process by which we calculate the outlier fixed dollar loss threshold amount. We continue to use this process for RY 2010. We begin by simulating aggregate payments with and without an outlier policy, and applying an iterative process to a fixed dollar loss amount that will result in outlier payments being equal to 2 percent of total estimated payments under the simulation. Based on this process, for RY 2010, the IPF PPS will use $6,565 as the fixed dollar loss threshold amount in the outlier calculation in order to maintain the 2 percent outlier policy.

b. Statistical Accuracy of Cost-to-Charge Ratios

As previously stated, under the IPF PPS, an outlier payment is made if an IPF's cost for a stay exceeds a fixed dollar loss threshold amount. In order to establish an IPF's cost for a particular case, we multiply the IPF's reported Start Printed Page 20376charges on the discharge bill by its overall cost-to-charge ratio (CCR). This approach to determining an IPF's cost is consistent with the approach used under the IPPS and other PPSs. In FY 2004, we implemented changes to the IPPS outlier policy used to determine CCRs for acute care hospitals because we became aware that payment vulnerabilities resulted in inappropriate outlier payments. Under the IPPS, we established a statistical measure of accuracy for CCRs in order to ensure that aberrant CCR data did not result in inappropriate outlier payments.

As we indicated in the November 2004 IPF PPS final rule, because we believe that the IPF outlier policy is susceptible to the same payment vulnerabilities as the IPPS, we adopted an approach to ensure the statistical accuracy of CCRs under the IPF PPS (69 FR 66961). Therefore, we adopted the following procedure in the November 2004 IPF PPS final rule:

  • We calculated two national ceilings, one for IPFs located in rural areas and one for IPFs located in urban areas. We computed the ceilings by first calculating the national average and the standard deviation of the CCR for both urban and rural IPFs.

To determine the rural and urban ceilings, we multiplied each of the standard deviations by 3 and added the result to the appropriate national CCR average (either rural or urban). The upper threshold CCR for IPFs in RY 2010 is 1.7381 for rural IPFs, and 1.7647 for urban IPFs, based on CBSA-based geographic designations. If an IPF's CCR is above the applicable ceiling, the ratio is considered statistically inaccurate and we assign the appropriate national (either rural or urban) median CCR to the IPF.

We are applying the national CCRs to the following situations:

++ New IPFs that have not yet submitted their first Medicare cost report.

++ IPFs whose overall CCR is in excess of 3 standard deviations above the corresponding national geometric mean (that is, above the ceiling).

++ Other IPFs for which the Medicare contractor obtains inaccurate or incomplete data with which to calculate a CCR.

For new IPFs, we are using these national CCRs until the facility's actual CCR can be computed using the first tentatively or final settled cost report.

We are not making any changes to the procedures for ensuring the statistical accuracy of CCRs in RY 2010. However, we are updating the national urban and rural CCRs (ceilings and medians) for IPFs for RY 2010 based on the CCRs entered in the latest available IPF PPS Provider Specific File.

The national CCRs for RY 2010 are 0.6515 for rural IPFs and 0.5300 for urban IPFs and will be used in each of the three situations listed above. These calculations are based on the IPF's location (either urban or rural) using the CBSA-based geographic designations.

A complete discussion regarding the national median CCRs appears in the November 2004 IPF PPS final rule (69 FR 66961 through 66964).

2. Expiration of the Stop-Loss Provision

In the November 2004 IPF PPS final rule, we implemented a stop-loss policy that reduced financial risk to IPFs projected to experience substantial reductions in Medicare payments during the period of transition to the IPF PPS. This stop-loss policy guaranteed that each facility received total IPF PPS payments that were no less than 70 percent of its TEFRA payments had the IPF PPS not been implemented. This policy was applied to the IPF PPS portion of Medicare payments during the 3-year transition.

In the implementation year, the 70 percent of TEFRA payment stop-loss policy required a reduction in the standardized Federal per diem and ECT base rates of 0.39 percent in order to make the stop-loss payments budget neutral. As described in the May 2008 IPF PPS notice for RY 2009, we increased the Federal per diem base rate and ECT rate by 0.39 percent because these rates were reduced by 0.39 percent in the implementation year to ensure stop-loss payments were budget neutral.

The stop-loss provision ended during RY 2009 (that is for discharges occurring on or after July 1, 2008 through June 30, 2009). The stop-loss policy is no longer applicable under the IPF PPS.

V. Request for Comments

A. Market Basket Index for the IPF PPS; Costs and Cost Structures of IPF Providers

We are interested in exploring the possibility of creating a stand-alone IPF market basket that reflects the cost structures of only IPF providers. The intent would be to join the Medicare cost report data from freestanding IPF providers (presently incorporated into the RPL market basket) with data from hospital-based IPF providers.

An examination of the Medicare cost report data comparing freestanding and hospital-based IPFs reveals considerable differences in both cost levels and cost structure. We have reviewed several explanatory variables such as geographic variation, case mix (including DRG, comorbidity, and age), urban or rural status, length of stay, teaching status, and presence of a qualifying emergency department; however, we are currently unable to fully understand the differences between these two types of IPF providers. As a result, we feel that further research is required. Having examined the relevant data that is internal to CMS, we welcome any help from the public in the form of additional information, data, or suggested data sources that may help us to better understand the underlying reasons for the variations in cost structures between freestanding and hospital-based IPFs.

B. FTE Intern and Resident Cap Adjustment

As previously mentioned, the IPF PPS imposed a cap on the number of full-time equivalent (FTE) residents that may be used to calculate the teaching status adjustment. The cap is based on the number of FTE residents reported in the IPF's most recent cost report filed before November 15, 2004.

CMS has been asked to reconsider its position under the IPF PPS regulations regarding application of the FTE resident cap when residents in a psychiatry residency program must be relocated from one IPF to another. Specifically, we have been asked to reconsider our current policy and permit an increase in the FTE resident cap when the IPF increases the number of FTE residents it trains due to the acceptance of relocated residents when another IPF closes or closes its psychiatry residency program.

Currently, if an IPF with a psychiatry residency training program agrees to accept residents relocated from another IPF after November 2004, the IPF's FTE resident count would continue to be capped at the number of FTE residents included in the cost report filed before November 15, 2004. Furthermore, according to § 412.424(d)(1)(iii)(D), an adjustment to the FTE resident cap can only be made for those IPFs that begin training residents in a new approved psychiatric residency program after November 15, 2004. For a new program adjustment, the IPF's FTE cap would be revised beginning with the fourth year of the new training program. We included these policies because we believe it is important to limit the total pool of FTE resident cap positions within the IPF community and avoid incentives for IPFs to add FTE residents in order to increase their payments.

We are now assessing how many IPFs have been, or expect to be, adversely affected by their inability to adjust their caps under § 412.424(d)(1) in situations Start Printed Page 20377where residents from a hospital that closed or from a program that closed at a hospital are moved to another hospital to complete their training. To help us access this situation, we specifically request public comment from IPFs to help us understand the impact of this issue on IPFs. At a minimum, we need to know the following information:

1. How many IPFs currently training additional residents from a closed residency program have exceeded their caps because of those residents?

2. How many IPFs have been asked to train additional residents from a closed residency program but have not currently agreed because these additional residents would cause them to exceed the caps?

We will take all comments into consideration as we assess the IPF PPS regulations with respect to the FTE resident cap and the relocation of FTE residents from one IPF to another due to closure of an IPF or an IPF's psychiatry residency training program.

VI. Waiver of Proposed Rulemaking

We ordinarily publish a notice of proposed rulemaking in the Federal Register to provide a period for public comment before the provisions of a rule take effect. We can waive this procedure, however, if we find good cause that notice and comment procedures are impracticable, unnecessary, or contrary to the public interest and we incorporate a statement of finding and its reasons in the notice. We find it is unnecessary to undertake notice and comment rulemaking for the update in this notice because the update does not make any substantive changes in policy, but merely reflects the application of previously established methodologies. Therefore, under 5 U.S.C. 553(b)(3)(B), for good cause, we waive notice and comment procedures.

VII. Collection of Information Requirement

This document does not impose any information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 35).

VIII. Response to Comments

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

IX. Regulatory Impact Analysis

A. Overall Impact

We have examined the impacts of this notice as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the September 19, 1980 Regulatory Flexibility Act (RFA) (Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). Although this notice does not meet the $100 million threshold established by Executive Order 12866, we are considering this notice to be “economically significant” because the redistributive effects are estimated to be close to constituting a shift of $100 million. For purposes of Title 5, United States Code, section 804(2), we estimate that this rulemaking is “economically significant”, and is also a major rule under the Congressional Review Act. Accordingly, we have prepared a Regulatory Impact Analysis that to the best of our ability presents the costs and benefits of the rulemaking on the 1,706 IPFs.

The updates to the IPF labor-related share and wage indices are made in a budget neutral manner and thus have no effect on estimated costs to the Medicare program. Therefore, the estimated increased cost to the Medicare program is due to the updated IPF payment rates, which results in an approximate $91 million increase in payments, and the increase to the outlier fixed dollar loss threshold amount, which results in about a $4 million decrease in payments. The distribution of these impacts is summarized in Table 13. The net effect of the updates described in this notice results in an overall estimated $87 million increase in payments from RY 2009 to RY 2010.

The RFA requires agencies to analyze options for regulatory relief of small businesses, if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, we estimate that the great majority of IPFs are small entities as that term is used in the RFA (include small businesses, nonprofit organizations, and small governmental jurisdictions). The majority of hospitals and most other health care providers and suppliers are small entities, either by being nonprofit organizations or by meeting the SBA definition of a small business (having revenues of $7 million to $34.5 million in any 1 year). (For details, see the Small Business Administration's Interim final rule that set forth size standards at 70 FR 72577, December 6, 2005.) Because we lack data on individual hospital receipts, we cannot determine the number of small proprietary IPFs or the proportion of IPFs' revenue that is derived from Medicare payments. Therefore, we assume that all IPFs are considered small entities. The Department of Health and Human Services generally uses a revenue impact of 3 to 5 percent as a significance threshold under the RFA. As shown in Table 13, we estimate that the net revenue impact of this notice on all IPFs is to increase payments by about 2.0 percent. Since the estimated impact of this notice is a net increase in revenue across all categories of IPFs, we believe that this notice would not impose a significant burden on small entities. Medicare contractors are not considered to be small entities. Individuals and States are not included in the definition of a small entity.

Although section 1102(b) of the Act applies to regulations for which a proposed rule is published, the HHS policy is to prepare an analysis of the impact on small rural hospitals for any regulation published. As a result, we are voluntarily determining whether this notice will have a significant impact on the operations of a substantial number of small rural hospitals. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital with fewer than 100 beds that is located outside of an MSA. As discussed in detail below, the rates and policies set forth in this notice will not have an adverse impact on the rural hospitals based on the data of the 317 rural units and 68 rural hospitals in our database of 1,706 IPFs for which data were available.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2009, that threshold is approximately $133 Start Printed Page 20378million. This notice will not impose spending costs on State, local, or tribal governments in the aggregate, or by the private sector, of $133 million.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. We have reviewed this notice under the criteria set forth in Executive Order 13132 and have determined that the notice will not have any substantial direct impact on State, or local governments, preempt States, or otherwise have a Federalism implication.

B. Anticipated Effects

We discuss below the historical background of the IPF PPS and the impact of this notice on the Federal Medicare budget and on IPFs.

1. Budgetary Impact

As discussed in the November 2004 and May 2006 IPF PPS final rules, we applied a budget neutrality factor to the Federal per diem and ECT base rates to ensure that total estimated payments under the IPF PPS in the implementation period would equal the amount that would have been paid if the IPF PPS had not been implemented. The budget neutrality factor includes the following components: Outlier adjustment, stop-loss adjustment, and the behavioral offset. As discussed in the May 2008 IPF PPS notice (73 FR 25711), the stop-loss adjustment is no longer applicable under the IPF PPS.

In accordance with § 412.424(c)(3)(ii), we indicated that we would evaluate the accuracy of the budget neutrality adjustment within the first 5 years after implementation of the payment system. We may make a one-time prospective adjustment to the Federal per diem and ECT base rates to account for differences between the historical data on cost-based TEFRA payments (the basis of the budget neutrality adjustment) and estimates of TEFRA payments based on actual data from the first year of the IPF PPS. As part of that process, we will reassess the accuracy of all of the factors impacting budget neutrality.

In addition, as discussed in section III.B.2 of this notice, we are using the wage index and labor market share in a budget neutral manner by applying a wage index budget neutrality factor to the Federal per diem and ECT base rates. Thus, the budgetary impact to the Medicare program by the update of the IPF PPS will be due to the market basket update (see section III.B.2.a of this notice) and the increase in the fixed dollar loss threshold amount.

2. Impacts on Providers

To understand the impact of the changes to the IPF PPS on providers, discussed in this notice, it is necessary to compare estimated payments under the IPF PPS rates and factors for RY 2010 versus those under RY 2009. The estimated payments for RY 2009 and RY 2010 will be 100 percent of the IPF PPS payment, since the transition period has ended and stop-loss payments are no longer paid. We determined the percent change of estimated RY 2010 IPF PPS payments to estimated RY 2009 IPF PPS payments for each category of IPFs. In addition, for each category of IPFs, we have included the estimated percent change in payments resulting from the increase to the fixed dollar loss threshold amount, the wage index changes for the RY 2010 IPF PPS, and the market basket update to IPF PPS payments.

To illustrate the impacts of the final RY 2010 changes in this notice, our analysis begins with a RY 2009 baseline simulation model based on FY 2007 IPF payments inflated to the midpoint of RY 2009 using IHS Global Insight's most recent forecast of the market basket update (see section III.2.b of this notice); the estimated outlier payments in RY 2009; the CBSA designations for IPFs based on OMB's MSA definitions after June 2003; the FY 2008 pre-floor, pre-reclassified hospital wage index; the RY 2009 labor-market share; and the RY 2009 percentage amount of the rural adjustment. During the simulation, the outlier payment is maintained at the target of 2 percent of total PPS payments.

Each of the following changes is added incrementally to this baseline model in order for us to isolate the effects of each change:

  • The increase to the outlier fixed dollar loss threshold amount.
  • The FY 2009 pre-floor, pre-reclassified hospital wage index and RY 2010 final labor-related share. Our final comparison illustrates the percent change in payments from RY 2009 (that is, July 1, 2008 to June 30, 2009) to RY 2010 (that is, July 1, 2009 to June 30, 2010) and includes a 2.1 percent market basket update to the IPF PPS base rates.

Table 13—Projected Impacts

Facility by typeNumber of facilitiesOutlier (percent)CBSA wage index & labor share (percent)Total with 2.1 market basket (percent)
(1)(2)(3)(4)(5)
All Facilities1,706−0.10.02.0
Total Urban1,321−0.10.01.9
Total Rural385−0.20.12.0
Urban DPU924−0.2−0.11.8
Urban CAH Unit14−0.40.32.1
Urban hospital3830.00.12.2
Rural DPU264−0.20.12.0
Rural CAH Unit53−0.2−0.11.8
Rural hospital68−0.10.32.3
Freestanding IPF by Type of Ownership:
Urban Psychiatric Hospitals:
Government149−0.10.22.2
Non-Profit86−0.1−0.11.9
For-Profit1480.00.22.3
Rural Psychiatric Hospitals:
Government43−0.10.22.2
Non-Profit9−0.10.52.5
For-Profit16−0.20.62.5
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IPF Units by Type of Ownership:
Urban DPU:
Government158−0.2−0.11.8
Non-Profit636−0.2−0.11.8
For-Profit130−0.10.01.9
Urban CAH:
Government7−0.30.82.5
Non-Profit6−0.5−0.11.5
For-Profit10.0−0.31.8
Rural DPU:
Government63−0.30.01.8
Non-Profit154−0.10.01.9
For-Profit47−0.20.42.4
Rural CAH:
Government23−0.20.01.9
Non-Profit27−0.2−0.21.7
For-Profit3−0.1−0.21.9
By Teaching Status:
Non-teaching1,458−0.10.12.0
Less than 10 interns and residents to beds140−0.2−0.31.6
10 to 30 interns and residents to beds73−0.2−0.21.7
More than 30 interns and residents to beds35−0.10.22.2
By Region:
New England119−0.20.22.1
Mid-Atlantic287−0.1−0.61.4
South Atlantic238−0.1−0.31.7
East North Central289−0.2−0.51.4
East South Central164−0.1−0.21.8
West North Central151−0.20.32.2
West South Central236−0.20.42.3
Mountain85−0.20.12.0
Pacific130−0.21.53.4
By Bed Size:
Psychiatric Hospitals:
Less than 12 beds25−0.20.22.1
12 to 25 beds67−0.10.52.4
25 to 50 beds980.00.02.1
50 to 75 beds830.00.52.6
More than 75 beds1780.00.02.1
Psychiatric Units:
Less than 12 beds487−0.30.11.9
12 to 25 beds438−0.20.12.0
25 to 50 beds219−0.2−0.11.8
50 to 75 beds59−0.2−0.21.7
More than 75 beds52−0.1−0.51.5

3. Results

Table 13 above displays the results of our analysis. The table groups IPFs into the categories listed below based on characteristics provided in the Provider of Services (POS) file, the IPF provider specific file, and cost report data from HCRIS:

  • Facility Type.
  • Location.
  • Teaching Status Adjustment.
  • Census Region.
  • Size.

The top row of the table shows the overall impact on the 1,706 IPFs included in the analysis.

In column 3, we present the effects of the increase in the fixed dollar loss threshold amount. The overall aggregate effect, across all hospital groups, is projected to be a 0.1 percent decrease in payments to IPFs. All categories of IPFs are projected to receive either a decrease or no change in payments. There are distributional effects of this change among different categories of IPFs. Urban, for-profit freestanding psychiatric hospitals; urban, for-profit IPF units located in CAHs; and psychiatric hospitals with 25 beds or more will experience no changes in their payments. Alternatively, urban, non-profit psychiatric units in CAHs will receive the largest decrease of 0.5 percent.

In column 4, we present the effects of the budget-neutral update to the labor-related share and the wage index adjustment under the CBSA geographic area definitions announced by OMB in June 2003. This is a comparison of the simulated RY 2010 payments under the FY 2009 hospital wage index under CBSA classification and associated labor-related share to the simulated RY 2009 payments under the FY 2008 hospital wage index under CBSA classifications and associated labor-related share. We note that there is no projected change in aggregate payments Start Printed Page 20380to IPFs, as indicated in the first row of column 4. However, there would be small distributional effects among different categories of IPFs. For example, IPFs located in the Mid-Atlantic region will experience a 0.6 percent decrease in payments. IPFs located in the Pacific region will receive the largest increase of 1.5 percent.

Column 5 compares our estimates of the changes reflected in this notice for RY 2010, to our estimates of payments for RY 2009 (without these changes). This column reflects all RY 2010 changes relative to RY 2009 (as shown in columns 3 and 4). The average increase for all IPFs is approximately 2.0 percent. This increase includes the effects of the market basket update resulting in a 2.1 percent increase in total RY 2010 payments, and an approximate 0.1 percent decrease in RY 2009 payments for the fixed dollar loss threshold amount.

Overall, the largest payment increase is projected to be among IPFs located in the Pacific region, which will receive a 3.4 percent increase. IPFs located in the East North Central and Mid-Atlantic regions will receive the smallest increase of 1.4 percent.

4. Effect on the Medicare Program

Based on actuarial projections resulting from our experience with other PPSs, we estimate that Medicare spending (total Medicare program payments) for IPF services over the next 5 years would be as shown in Table 14 below.

Table 14—Estimated Payments

Rate yearDollars in millions
July 1, 2009 to June 30, 20104,531
July 1, 2010 to June 30, 20114,745
July 1, 2011 to June 30, 20125,005
July 1, 2012 to June 30, 20135,320
July 1, 2013 to June 30, 20145,656

These estimates are based on the current estimate of increases in the RPL market basket as follows:

  • 2.1 percent for RY 2010.
  • 2.8 percent for RY 2011.
  • 2.9 percent for RY 2012.
  • 3.1 percent for RY 2013.
  • 3.2 percent for RY 2014.

We estimate that there would be a change in fee-for-service Medicare beneficiary enrollment as follows:

  • 0.1 percent in RY 2010.
  • 1.8 percent in RY 2011.
  • 2.9 percent in RY 2012.
  • 3.1 percent in RY 2013.
  • 3.0 percent in RY 2014.

5. Effect on Beneficiaries

Under the IPF PPS, IPFs will receive payment based on the average resources consumed by patients for each day. We do not expect changes in the quality of care or access to services for Medicare beneficiaries under the RY 2010 IPF PPS. In fact, we believe that access to IPF services will be enhanced due to the patient- and facility-level adjustment factors, all of which are intended to adequately reimburse IPFs for expensive cases. Finally, the outlier policy is intended to assist IPFs that experience high-cost cases.

C. Alternatives Considered

The statute does not specify an update strategy for the IPF PPS and is broadly written to give the Secretary discretion in establishing an update methodology. Therefore, we are updating the IPF PPS using the methodology published in the November 2004 IPF PPS final rule.

We note that this notice does not initiate any policy changes with regard to the IPF PPS; rather, it simply provides an update to the rates for RY 2010. Therefore, no options were considered.

D. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/​omb/​circulars/​a004/​a-4.pdf), in Table 15 below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this notice. This table provides our best estimate of the increase in Medicare payments under the IPF PPS notice, as a result of the changes presented in this notice, and based on the data for 1,706 IPFs in our database. All expenditures are classified as transfers to Medicare providers (that is, IPFs).

Table 15—Accounting Statement: Classification of Estimated Expenditures, From the 2009 IPF PPS RY to the 2010 IPF PPS RY

[In millions]

CategoryTransfers
Annualized Monetized Transfers$87.
From Whom To Whom?Federal Government To IPF Medicare Providers.

In accordance with the provisions of Executive Order 12866, this notice was reviewed by OMB.

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

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Dated: March 6, 2009.

Charlene Frizzera,

Acting Administrator, Centers for Medicare & Medicaid Services.

Approved: March 20, 2009.

Charles E. Johnson,

Acting Secretary.

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End Supplemental Information

BILLING CODE P

[FR Doc. E9-9962 Filed 4-30-09; 8:45 am]

BILLING CODE C