[Federal Register: August 1, 2001 (Volume 66, Number 148)] [Rules and Regulations] [Page 39877-39926] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr01au01-19] [[pp. 39877-39926]] Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Rates and Costs of Graduate Medical Education: Fiscal Year 2002 Rates; Provisions of the Balanced Budget Refinement Act of 1999; and Provisions of the Medicare, Medicaid, and SC[[Page 39877]] [[Continued from page 39876]] [[Page 39877]] In addition, as discussed in 62 FR 45999 and 63 FR 26317, under section 4202 of Public Law 105-33, a hospital that was classified as a rural referral center for FY 1991 is to be classified as a rural referral center for FY 1998 and later years so long as that hospital continued to be located in a rural area and did not voluntarily terminate its rural referral center status. Otherwise, a hospital seeking rural referral center status must satisfy applicable criteria. One of the criteria under which a hospital may qualify as a rural referral center is to have 275 or more beds available for use. A rural hospital that does not meet the bed size requirement can qualify as a rural referral center if the hospital meets two mandatory prerequisites (specifying a minimum case-mix index and a minimum number of discharges) and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). With respect to the two mandatory prerequisites, a hospital may be classified as a rural referral center if its-- Case-mix index is at least equal to the lower of the median case-mix index for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median case-mix index for all urban hospitals nationally; and Number of discharges is at least 5,000 per year, or if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. (The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year.) 1. Case-Mix Index Section 412.96(c)(1) provides that CMS will establish updated national and regional case-mix index values in each year's annual notice of prospective payment rates for purposes of determining rural referral center status. The methodology we use to determine the national and regional case-mix index values is set forth in regulations at Sec. 412.96(c)(1)(ii). The proposed national case-mix index value for FY 2002 in the May 4 proposed rule included all urban hospitals nationwide, and the proposed regional values for FY 2002 were the median values of urban hospitals within each census region, excluding those with approved teaching programs (that is, those hospitals receiving indirect medical education payments as provided in Sec. 412.105). Those values were based on discharges occurring during FY 2000 (October 1, 1999 through September 30, 2000) and included bills posted to CMS's records through December 2000. (The proposed rule language erroneously cited the period as FY 1999 (October 1, 1998 through September 30, 1999.) We proposed that, in addition to meeting other criteria, hospitals with fewer than 275 beds, if they are to qualify for initial rural referral center status for cost reporting periods beginning on or after October 1, 2001, must have a case-mix index value for FY 2000 that is at least-- 1.3286; or The median case-mix index value for urban hospitals (excluding hospitals with approved teaching programs as identified in Sec. 412.105) calculated by CMS for the census region in which the hospital is located. (See the table set forth in the May 4, 2001 proposed rule at 66 FR 22687.)Based on the latest data available (FY 2000 bills received through March 31, 2001), in addition to meeting other criteria, hospitals with fewer than 275 beds, if they are to qualify for initial rural referral center status for cost reporting periods beginning on or after October 1, 2001, must have a case-mix index value for FY 2000 that is at least-- 1.3289; or The median case-mix index value for urban hospitals (excluding hospitals with approved teaching programs as identified in Sec. 412.105) calculated by CMS for the census region in which the hospital is located. The final median case-mix values by region are set forth in the following table: ------------------------------------------------------------------------ Case-Mix Region Index Value ------------------------------------------------------------------------ 1. New England (CT, ME, MA, NH, RI, VT).................... 1.2381 2. Middle Atlantic (PA, NJ, NY)............................ 1.2319 3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 1.3055 4. East North Central (IL, IN, MI, OH, WI)................. 1.2588 5. East South Central (AL, KY, MS, TN)..................... 1.2530 6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 1.1690 7. West South Central (AR, LA, OK, TX)..................... 1.2443 8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 1.3275 9. Pacific (AK, CA, HI, OR, WA)............................ 1.2991 ------------------------------------------------------------------------ Hospitals seeking to qualify as rural referral centers or those wishing to know how their case-mix index value compares to the criteria should obtain hospital-specific case-mix values from their fiscal intermediaries. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, these case-mix index values are computed based on all Medicare patient discharges subject to DRG-based payment. 2. Discharges Section 412.96(c)(2)(i) provides that CMS will set forth the national and regional numbers of discharges in each year's annual notice of prospective payment rates for purposes of determining rural referral center status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. However, in the May 4 proposed rule, we proposed to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2000 (that is, October 1, 1999 through September 30, 2000). (The proposed rule language erroneously cited the period as FY 1999 (October 1, 1998 through September 30, 1999.) That is the latest year for which we have complete discharge data available. Therefore, we proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial rural referral center status for cost reporting periods beginning on or after October 1, 2001, must have as the number of discharges for its cost reporting period that began during FY 2000 a figure that is at least-- 5,000; or The median number of discharges for urban hospitals in the census region in which the hospital is located. (See the table set forth in the May 4, 2001 proposed rule at 66 FR 22687.) [[Page 39878]] Based on the latest discharge data available for FY 2000, the final median number of discharges for urban hospitals by census region areas are as follows: ------------------------------------------------------------------------ Number of Region Discharges ------------------------------------------------------------------------ 1. New England (CT, ME, MA, NH, RI, VT)................. 7,064 2. Middle Atlantic (PA, NJ, NY)......................... 8,488 3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA,WV)... 8,562 4. East North Central (IL, IN, MI, OH, WI).............. 7,616 5. East South Central (AL, KY, MS, TN).................. 6,276 6. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 5,210 7. West South Central (AR, LA, OK, TX).................. 6,196 8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 8,878 9. Pacific (AK, CA, HI, OR, WA)......................... 7,106 ------------------------------------------------------------------------ We reiterate that an osteopathic hospital, if it is to qualify for rural referral center status for cost reporting periods beginning on or after October 1, 2001, must have at least 3,000 discharges for its cost reporting period that began during FY 2000. We did not receive any comments on the criteria for rural referral centers. C. Indirect Medical Education (IME) Adjustment (Sec. 412.105) 1. IME Adjustment Factor Formula Multiplier (Section 111 of Public Law 106-113 and section 302 of Public Law 106-554 and Sec. 412.105(d)(3)). Section 1886(d)(5)(B) of the Act provides that prospective payment hospitals that have residents in an approved graduate medical education (GME) program receive an additional payment to reflect the higher indirect operating costs associated with GME. The regulations regarding the calculation of this additional payment, known as the indirect medical education (IME) adjustment, are located at Sec. 412.105. The additional payment is based in part on the applicable IME adjustment factor. The IME adjustment factor is calculated using a hospital's ratio of residents to beds, which is represented as r, and a multiplier, which is represented as c, in the following equation: c x [(1 + r)\.405\-1]. The formula is traditionally described in terms of a certain percentage increase in payment for every 10-percent increase in the resident-to-bed ratio. Section 302 of Public Law 106-554 amended section 1886(d)(5)(B) of the Act to modify the transition for the IME formula multiplier, or c, that was first established by Public Law 105-33 and revised by Public Law 106-113. As discussed in the August 1, 2000 final rule and the June 13, 2001 interim final rule with comment period, section 111(a) of Public Law 106-113 revised the formula multiplier for discharges occurring during FY 2001 (established under Public Law 105-33 at 1.6) to 1.54. However, section 302(b) of Public Law 106-554 provides a special payment rule which states that, for discharges occurring on or after April 1, 2001 and before October 1, 2001, IME payments are to be made as if `c' equaled 1.66, rather than 1.54. The multiplier of 1.54 for the first 6 months of FY 2001 represents a 6.25 percent increase in the level of the IME adjustment for every 10 percent increase in the resident-to-bed ratio, and the multiplier for the second 6 months of FY 2001 represents a 6.75 percent increase in the level of the IME adjustment for every 10 percent increase in the resident-to-bed ratio. This results in an aggregate 6.5 percent increase for every 10 percent increase in the resident-to-bed ratio for FY 2001. Section 547(a)(2) of Public Law 106- 554 provides further clarification that these payment increases will not apply to discharges occurring after FY 2001 and will not be taken into account in calculating the payment amounts applicable for discharges occurring after FY 2001. In the June 13 interim final rule, we revised Sec. 412.105(d)(3)(v) to reflect the additional payment provided for discharges occurring during FY 2001 under section 302(b) of Public Law 106-554. As discussed in the May 4, 2001 proposed rule, section 302(a) of Public Law 106-554 provides that, for discharges occurring during FY 2002, the formula multiplier is 1.6. For discharges occurring during FY 2003 and thereafter, the formula multiplier is 1.35. As explained above, section 302(b) of Public Law 106-554 provides for a special payment rule which states that, for discharges occurring on or after April 1, 2001 and before October 1, 2001, IME payments are to be made as if ``c'' equaled 1.66 rather than 1.54. The multiplier of 1.6 for FY 2002 represents a 6.5 percent increase for every 10 percent increase in the resident-to-bed ratio. The multiplier for FY 2003 and thereafter (1.35) represents a 5.5-percent increase for every 10-percent increase in the resident-to-bed ratio. In the May 4 proposed rule, we proposed to revise Sec. 412.105(d)(3)(vi) to reflect the change in the formula multiplier for FY 2002 to 1.6 as made by section 302(a) of Public Law 106-554 for discharges occurring during FY 2002. We also proposed to add Sec. 412.105(d)(3)(vii) to incorporate the formula multiplier of 1.35 for discharges occurring on or after October 1, 2002. We did not receive any comments on the IME formula provisions of the June 13 interim final rule with comment period or the proposed amendments under the May 4 proposed rule. Therefore, we are adopting both changes to Sec. 412.105(d)(3) as final without change. 2. Resident-to-Bed Ratio Cap (Sec. 412.105(a)(1)) In the May 4, 2001 proposed rule, we indicated that it had come to our attention that there is some misunderstanding about Sec. 412.105(a)(1) regarding the determination of the resident-to-bed ratio that is used in calculating the IME adjustment. Section 4621(b)(1) of Public Law 105-33 amended section 1886(d)(5)(B) of the Act by adding a new clause (vi) to provide that, effective for cost reporting periods beginning on or after October 1, 1997, the resident- to-bed ratio may not exceed the ratio calculated during the prior cost reporting period (after accounting for the cap on the hospital's number of full-time equivalent (FTE) residents). We implemented this policy in the August 29, 1997 final rule with comment period (62 FR 46003) and the May 12, 1998 final rule (63 FR 26323) under regulations at Sec. 412.105(a)(1). Existing Sec. 412.105(a)(1) specifies that ``[e]xcept for the special circumstances for affiliated groups and new programs described in paragraphs (f)(1)(vi) and (f)(1)(vii) of this section, for a hospital's cost reporting periods beginning on or [[Page 39879]] after October 1, 1997, this ratio may not exceed the ratio for the hospital's most recent prior cost reporting period.'' In the May 4 proposed rule, we proposed to clarify Sec. 412.105(a)(1) to add a provision that this ratio may not exceed the ratio for the hospital's most recent prior cost reporting period after accounting for the cap on the number of FTE residents. In general, the resident-to-bed ratio from the prior cost reporting period, which is to be used as the cap on the resident-to-bed ratio for the current payment cost reporting period, should only include an FTE count subject to the FTE cap on the number of allopathic and osteopathic residents, but is not subject to the rolling average. (An explanation of rolling average appears in section IV.H.3. of this preamble.) The following illustrates the steps for determining the resident- to-bed ratio for the current payment year cost reporting period and the cap on the resident-to-bed ratio: Current payment year cost reporting period resident-to-bed ratio: Step 1. Determine the hospital's number of FTE residents in the current payment year cost reporting period. Step 2. Compare the number of allopathic and osteopathic FTEs from step 1 to the hospital's FTE cap (Sec. 412.105(f)(1)(iv)). If the number of allopathic and osteopathic FTEs from step 1 exceeds the FTE cap, replace it with the number of FTEs in the FTE cap. Add any dental and podiatry FTEs from step 1 to the capped allopathic and osteopathic FTE count. Step 3. Determine the 3-year rolling average of the FTE residents using the FTEs from the current payment year cost reporting period and the prior two cost reporting periods (subject to the FTE cap in each cost reporting period). (Include podiatry and dental residents, and exclude residents in new programs in accordance with Sec. 412.105(f)(1)(iv) and revised (f)(1)(v). Residents in new programs are added to the quotient of the rolling average.) Step 4. Determine the hospital's number of beds (see Sec. 412.105(b)) in the current payment year cost reporting period. Step 5. Determine the ratio of the number of FTEs from step 3 to the number of beds from step 4. The lower of this resident-to-bed ratio or the resident-to-bed ratio cap (calculated below) from the immediately preceding cost reporting period is used to calculate the hospital's IME adjustment factor for the current payment year cost reporting period. Resident-to-bed ratio cap: Step 1. Determine the hospital's number of FTE residents in its cost reporting period that immediately precedes the current payment year cost reporting period. Step 2. Compare the number of allopathic and osteopathic FTEs from step 1 to the hospital's FTE cap. If the number of allopathic and osteopathic FTEs from step 1 exceeds the FTE cap, replace it with the number of FTEs in the FTE cap. Add any dental and podiatry FTEs from step 1 to the capped allopathic and osteopathic FTE count. (If there is an increase in the number of FTEs in the current payment year cost reporting period due to a new program or an affiliation agreement, these FTEs are added to FTEs in the preceding cost reporting period after applying the FTE cap.) Step 3. Determine the hospital's number of beds (Sec. 412.105(b)) in its cost reporting period that immediately precedes the current payment year cost reporting period. Step 4. Determine the ratio of the number of FTEs in step 2 to the number of beds in step 3. This ratio is the resident-to-bed ratio cap for the current payment year cost reporting period. Step 5. Compare the resident-to-bed ratio cap in step 4 to the resident-to-bed ratio in the current payment year cost reporting period. The lower of the resident-to-bed ratio from the current payment year cost reporting period or the resident-to-bed ratio cap from the immediately preceding cost reporting period is used to calculate the hospital's IME adjustment factor for the current payment year cost reporting period. We note that the resident-to-bed ratio cap is a cap on the resident-to-bed ratio calculated for all residents, including allopathic, osteopathic, dental, and podiatry residents (63 FR 26324, May 12, 1998). However, as described in existing Sec. 412.105(a)(1), the resident-to-bed ratio cap may be adjusted to reflect an increase in the current cost reporting period's resident-to-bed ratio due to residents in a new GME program or an affiliation agreement. While an exception does not apply if the resident-to-bed ratio increases because of an increase in the number of podiatry or dentistry residents or because of a change in the number of beds, the ratio could increase after a one-year delay. An increase in the current cost reporting period's ratio (while subject to the FTE cap on the overall number of allopathic and osteopathic residents) thereby establishes a higher cap for the following cost reporting period. The following is an example of the application of the cap on the resident-to-bed ratio: Example--Part 1: Assume Hospital A has 50 FTEs in its cost reporting period ending September 30, 1996, thereby establishing an IME FTE resident cap of 50 FTEs. In its cost reporting period of October 1, 1996 to September 30, 1997 (the prior year), it has 50 FTEs and 200 beds, so that its resident-to-bed ratio for this period is 50/200 = .25. In the (current year) cost reporting period of October 1, 1997 to September 30, 1998 (the first cost reporting period in which the FTE resident cap, the resident-to-bed ratio cap, and the rolling average apply), Hospital A has 50 FTEs and 200 beds. Hospital A's FTEs do not exceed its FTE cap, so its current number of FTEs (50) is used to calculate the 2-year rolling average: (50 + 50)/2 = 50. The result of the rolling average is used as the numerator of the resident-to-bed ratio. Thus, the resident-to-bed ratio is 50/200 = .25. .25 is compared to the resident-to-bed ratio from the prior period of October 1, 1996 to September 30, 1997. Because the FTE resident cap and the rolling average were not yet effective in the period of October 1, 1996 to September 30, 1997, that period s resident-to-bed ratio does not have to be recalculated to account for the FTE resident cap. Accordingly, the resident-to-bed ratio cap for October 1, 1997 to September 30, 1998 is .25. Because the resident-to-bed ratio does not exceed the prior year ratio, Hospital A would use the resident-to-bed ratio of .25 to determine the IME adjustment in its cost reporting period of October 1, 1997 to September 30, 1998. Example--Part 2: In the (current year) cost reporting period of October 1, 1998 to September 30, 1999, Hospital A adds 1 podiatric and 1 dental resident, so that it has a total of 52 FTEs and 200 beds. Since the FTE resident cap only includes allopathic and osteopathic residents, Hospital A has not exceeded its FTE resident cap with the addition of a podiatric and a dental resident. Accordingly, the (now) 3-year rolling average would be (52 + 50 + 50)/3 = 50.67. 50.67 is used in the numerator of the current payment year's resident-to-bed ratio, so that the resident-to-bed ratio is 50.67/200 = .253. .253 is compared to the resident-to-bed ratio from the prior year's cost reporting period of October 1, 1997 to September 30, 1998 that is recalculated to account for the FTE resident cap. Because Hospital A did not exceed its FTE resident cap of 50 FTEs in this period of October 1, 1997 to September 30, 1998, the recalculated resident-to-bed ratio would be 50/200 = .25. Compare the current year resident-to-bed ratio (.253) to the resident-to-bed ratio cap (.25); .253 does exceed .25. Therefore, the resident-to-bed ratio in the period of October 1, 1998 to September 30, 1999 is capped at .25, which is to be used in calculating Hospital A s IME adjustment for October 1, 1998 to September 30, 1999. Example--Part 3: In the cost reporting period of October 1, 1999 to September 30, 2000, Hospital A adds [[Page 39880]] 2 internal medicine residents so that it has a total of 54 FTEs and 200 beds. While podiatric and dental residents are not included in the FTE resident cap, internal medicine residents are included. Hospital A has exceeded its IME FTE resident cap of 50 by 2 FTEs. Thus, 2 FTEs are excluded from the FTE count. Accordingly, the rolling average would be (52 + 52 + 50)/3 = 51.33. 51.33 is used in the numerator of the resident-to-bed ratio, so that the resident-to-bed ratio is 51.33/200 = .257. .257 is compared to the resident-to-bed ratio from October 1, 1998 to September 30, 1999 that is recalculated to only account for the FTE resident cap. The recalculated resident-to-bed ratio would be 50 allopathic or osteopathic FTEs plus 1 podiatric and 1 dental resident, which is 52/200 = .26. .26 is the resident-to-bed ratio cap for October 1, 1999 to September 30, 2000. .257 does not exceed .26. Therefore, the resident-to-bed ratio in the period of October 1, 1998 to September 30, 1999 is .257, which is to be used in calculating this period s IME adjustment. If a hospital starts a new GME program, the adjustment to the resident-to-bed ratio cap applies for the period of years equal to the minimum accredited length for each new program started. (For example, for a new internal medicine program, the period of years equals 3; for a new surgery program, the period of years equals 5.) Within these program years, the number of new FTE residents in the current cost reporting period is added to the FTE resident count used in the numerator of the resident-to-bed ratio from the previous cost reporting period. The lower of the resident-to-bed ratio from the current cost reporting period or the adjusted resident-to-bed ratio from the preceding cost reporting period is used to calculate the hospital's IME adjustment for the current cost reporting period. If a hospital subsequently continues to expand its program, the numerator of the resident-to-bed ratio from the preceding cost reporting period would not be adjusted to reflect these additional residents. However, an increase in the ratio of the current cost reporting period would establish a higher cap for the following cost reporting period. We also proposed to add a provision that the exception for new programs described in Sec. 412.105(f)(1)(vii) applies for the period of years equal to the minimum accredited length for each new program. Similarly, if a hospital increases the number of FTE residents in the current cost reporting period because of an affiliation agreement, the number of additional FTEs is added to the FTE resident count used in the numerator of the resident-to-bed ratio from the previous cost reporting period. The lower of the resident-to-bed ratio from the current cost reporting period or the adjusted resident-to-bed ratio from the preceding cost reporting period is used to calculate the hospital's IME adjustment for the current cost reporting period. Comment: Several commenters addressed our clarifications to the regulations at Sec. 412.105(a)(1) regarding the cap on the resident-to- bed ratio. One commenter stated that the explanation in the proposed rule regarding the resident-to-bed ratio was thorough. Another commenter expressed appreciation for the inclusion of examples in the proposed rule's preamble. One commenter noted that, in the proposed rule under step 2 of the example of the calculation of the resident-to- bed ratio cap, we indicate that the lesser of the prior year FTEs or the FTE cap is used in the numerator of the resident-to-bed ratio. The commenter noted that we do not specify that, while the FTE cap only applies to allopathic and osteopathic FTEs, dentistry and podiatry FTEs should be included in the numerator of the resident-to-bed ratio. The commenter asked that we specify that the prior year podiatry and dentistry FTEs must be added to the FTE count used in the resident-to- bed ratio after the FTE cap has been applied. Response: We agree with the commenter concerning the inclusion of dental and podiatry FTEs in step 2, and we have clarified the language in step 2 of the examples of both the current year resident-to-bed ratio and the resident-to-bed ratio cap calculation in the preamble of this final rule. Specifically, we state, ``Compare the number of allopathic and osteopathic FTEs from step 1 to the hospital's FTE cap. If the number of allopathic and osteopathic FTEs from step 1 exceeds the FTE cap, replace it with the FTE cap. Add any dental or podiatry FTEs from step 1 to the capped allopathic and osteopathic FTE count.'' Furthermore, we are revising the proposed changes to the regulations text at Sec. 412.105(a)(1) to state that ``. . . this ratio may not exceed the ratio for the hospital's most recent prior cost reporting period after accounting for the cap on the number of allopathic and osteopathic residents as described in paragraph (f)(1)(iv) of this section, and adding to the capped numerator any dental and podiatric full-time equivalent residents. . . .'' Comment: One commenter noted that, in clarifying the regulations at Sec. 412.105(a)(1) regarding the resident-to-bed ratio cap, we added that the exception to the resident-to-bed ratio cap ``. . . for new programs . . . applies for the period of years equal to the minimum accredited length for that type of program'' (emphasis added). The commenter asked how we would apply the exception to the resident-to-bed ratio cap in a situation where a hospital has started several new programs with varying minimum accredited lengths. Response: The exception at proposed Sec. 412.105(a)(1) for new programs allows a hospital to add a full complement of residents and complete the initial cycle of a program before residents in the new programs are included in the application of the resident-to-bed ratio cap. In a situation where a hospital has started several new programs under Sec. 412.105(f)(1)(vii), we would apply the exception to the resident-to-bed ratio cap to each new program individually based on each program's minimum accredited length. For example, if a hospital simultaneously starts a new internal medicine program (which has a minimum accredited length of 3 years) and an anesthesiology program (which has a minimum accredited length of 4 years), the FTE residents in the new internal medicine program will be subject to the resident- to-bed ratio cap in the fourth program year of the internal medicine program, while the anesthesiology FTE residents would still be excluded from the resident-to-bed ratio cap in the fourth program year of the anesthesiology programs. However, in subsequent program years, the anesthesiology FTE residents would be subject to the resident-to-bed ratio cap, as well. The rules regarding the exception from the rolling average calculation for IME are the same for direct GME. The proposed revised regulations at Sec. 412.105(f)(1)(v) and Sec. 413.86(g)(5) in the May 4, 2001 proposed rule state that FTE residents in a new program are excluded from the rolling average calculation for the period of years equal to the minimum accredited length for the type of program. In this final rule, we are revising the regulations regarding the exceptions to the resident-to-bed ratio cap and the rolling average calculation for both IME and direct GME to clarify that these exceptions apply to each new program individually for which the FTE cap may be adjusted based on each program's minimum accredited length (Sec. 412.105(a)(1), 412.105(f)(1)(v), and 413.86(g)(5)(v)). Comment: One commenter asserted that, in the proposed rule, it is inconsistent to account for both the FTE cap and the rolling average count of residents in the current year resident-to-bed ratio, but account for only the FTE cap in the resident-to-bed ratio cap [[Page 39881]] (which is the prior year's ratio). The commenter stated that their willingness to support the proposed rule depended on whether the residency program is increasing or decreasing its FTEs every year. Response: Section 1886(d)(5)(B)(v)(I) of the Act, as amended by Public Law 105-33, states that the resident-to-bed ratio ``may not exceed the ratio of the number of interns and residents, subject to the limit under clause (v), with respect to the hospital for its most recent cost reporting period to the hospital's available beds . . . during that cost reporting period . . .'' (emphasis added). Clause (v) is the FTE cap requirement; the statute does not specify clause (vi)(II), which is the rolling average requirement, in relation to the resident-to-bed ratio cap. Accordingly, the implementing regulations require that the resident-to-bed ratio cap should only account for the cap on the number of FTEs. In addition, we note that the commenter is mistaken in indicating that the rules regarding the determination of the resident-to-bed ratio and the resident-to-bed ratio cap are proposed rules. These rules have been in place based on the statute since the effective date of Public Law 105-33. We simply took the opportunity in the proposed rule published on May 4, 2001 to further clarify our existing policy because we realized that there was some confusion surrounding these rules. Comment: One commenter noted that, since under the provisions of Sec. 413.86(g)(6)(i), the FTE cap for new programs is established based on the number of residents in the third year of the first program's existence, it follows that the FTE cap on the residents in the new programs is effective in the fourth program year. The commenter asked if the application of the cap is delayed until the expiration of the minimum accredited length of the new programs. Response: The application of the FTE adjusted caps for new programs under Sec. 413.86(g)(6)(i) and (g)(6)(ii) are not delayed until the expiration of the minimum accredited length of the new programs. Only the application of the resident-to-bed ratio cap for IME and the rolling average for both IME and direct GME are dependent upon the minimum accredited length of each new program. The regulations at Sec. 413.86(g)(6)(i) state that the cap for new programs will be adjusted based on ``the product of the highest number of residents in any program year during the third year of the first program's existence for all new residency training programs and the number of years in which residents are expected to complete the program based on the minimum accredited length for the type of program'' (emphasis added). In general, when a hospital qualifies for a cap adjustment under Sec. 413.86(g)(6)(i), the hospital has three years from the time that a resident first begins training in the first new program to establish its FTE cap. The first day of the fourth program year, the FTE cap on that first program, and any other programs that may have been started within the initial three years of that first program, is permanently established and takes effect. For example, if a hospital that qualifies for a cap adjustment under Sec. 413.86(g)(6)(i) starts a newly accredited dermatology program on July 1, 2001, and then starts a newly accredited anesthesiology program on July 1, 2002, the cap for both programs, and for the hospital as a whole, will be adjusted as of July 1, 2004, the first day of the fourth program year of dermatology, which is the first program that the hospital started. The hospital's cap will be based on the sum of: (a) The product of the highest number of residents in either PGY1, PGY2, or PGY3 in the third year of the dermatology program and 4 years (the minimum accredited length of dermatology); and (b) the product of the highest number of residents in either PGY1 or PGY2 for the anesthesiology program and 4 years (the minimum accredited length for anesthesiology). Any programs begun after the first program's start date but before the fourth program year of the first program will not have a full 3 years before the hospital's cap is permanently adjusted. The rules under Sec. 413.86(g)(6)(ii) differ for hospitals that qualify for an FTE cap adjustment for new programs started on or after January 1, 1995 and on or before August 5, 1997. Section 413.86(g)(6)(ii) states that the FTE cap adjustment is ``based on the product of the highest number of residents in any program year during the third year of the newly established program and the number of years in which residents are expected to complete the program based on the minimum accredited length for the type of program'' (emphasis added). In contrast to hospitals that qualify for a cap adjustment under Sec. 413.86(g)(6)(i), where the cap for the hospital takes effect for all programs in the fourth program year of the first program that was started by the hospital, hospitals that qualify for an FTE cap adjustment under Sec. 413.86(g)(6)(ii) have a full 3 years to grow each new program, as long as those programs all started training residents or received accreditation between January 1, 1995 and on or before August 5, 1997. The adjustment to the cap for each of those new programs would be applied individually, beginning with the first day of the fourth program year of each new program. (We note that rural hospitals that qualify for a cap adjustment under Sec. 413.86(g)(6)(iii) may receive an FTE cap adjustment in the same manner as hospitals that qualify for the cap adjustment under Sec. 413.86(g)(6)(ii), except that rural hospitals may receive this adjustment for programs started after August 5, 1997). For example, assume a hospital that qualifies for a cap adjustment under Sec. 413.86(g)(6)(ii) started a newly accredited internal medicine program on July 1, 1996, and a newly accredited dermatology program on July 1, 1997. The adjustment to the hospital's FTE cap because of the internal medicine program was effective July 1, 1999 (the first day of the fourth program year of internal medicine), and the cap adjustment resulting from the dermatology program was effective July 1, 2000 (the first day of the fourth program year for dermatology). The hospital's ultimate FTE cap is the sum of the FTE cap based on FTEs in the hospital's most recent cost reporting period ending on or before December 31, 1996, and the cap adjustments for the internal medicine and dermatology programs. (We note that since the internal medicine program began in 1996, depending on the hospital's cost reporting period, a portion of those FTEs may have already been included in the hospital's FTE cap. That portion that was included in the FTE cap must be subtracted from the cap adjustment that was calculated for the internal medicine program to avoid any double counting of the FTEs). The hospital's adjusted cap will be based on the sum of: (a) the product of the highest number of internal medicine residents in either PGY1, PGY2, or PGY3 in the third year of the internal medicine program and three (the minimum accredited length of internal medicine); and (b) the product of the highest number of dermatology residents in either PGY1, PGY2, or PGY3 for the dermatology program and four (the minimum accredited length for dermatology). In summary, we reiterate that the application of the FTE cap adjustments for new programs is not delayed until the program year in which the minimum accredited length of each program expires. This would even apply to a new program with a minimum accredited length that exceeds 3 years. The FTE cap adjustment takes effect on the first day of the fourth program year of the first new program that was started [[Page 39882]] by hospitals qualifying for a cap adjustment under Sec. 413.86(g)(6)(i). For hospitals qualifying for a cap adjustment under Sec. 413.86(g)(6)(ii) and (g)(6)(iii), the cap adjustments take effect on the first day of the fourth program year of each new program. However, the application of the resident-to-bed ratio cap for IME and the rolling average for both IME and direct GME are dependent upon the minimum accredited length of each new program. Comment: With regard to the counting of residents for IME payment purposes in nonhospital sites, one commenter stated that although time spent in nonhospital sites may be included in the IME FTE count effective for discharges occurring on or after October 1, 1997, the application of the 1996 FTE cap effectively disallows the current year's FTEs training in the nonhospital site, because the 1996 FTE cap was based on residents training only in the hospital. The commenter added that only those hospitals that are in a position to elect a Medicare affiliation agreement are able to ``circumvent'' the 1996 FTE limit; those that cannot are ``penalized.'' The commenter further stated that the regulatory intent of allowing nonhospital training time to be counted is not fully met by having only certain hospitals able to affiliate. The commenter recommended that we should allow hospitals to recalculate the 1996 IME FTE cap to include those FTEs training in nonhospital sites, so that hospitals will effectively be able to count residents currently training in nonhospital sites for IME purposes. Response: The commenter is addressing a provision in Public Law 105-33 that was implemented in regulations at Sec. 412.105(f)(1)(ii)(C). We did not propose any substantive changes to this policy; we simply were correcting an oversight in the regulations text for IME. (Comments on regulations implementing this provision were addressed in the May 12, 1998 final rule (63 FR 26323) and the July 31, 1998 final rule (63 FR 40954).) 3. Conforming Changes (Sec. 412.105(f)(1)(ii)(C) and (f)(1)(v)) In the August 29, 1997 final rule with comment period (62 FR 46003), the May 12, 1998 final rule (63 FR 26323), and the July 31, 1998 final rule (63 FR 40986), to implement the provisions of Public Law 105-33, we set forth certain policies that affected payment for both direct and indirect GME. Some of these policies related to the FTE cap on allopathic and osteopathic residents, the rolling average, and payment for residents training in nonhospital settings. In the May 4 proposed rule, we indicated that when we amended the regulations under Sec. 413.86 for direct GME, we inadvertently did not make certain conforming changes in Sec. 412.105 for IME. We proposed to make the following conforming changes: To revise Sec. 412.105(f)(1)(ii)(C) to specify that, effective for discharges occurring on or after October 1, 1997, the time residents spend training in a nonhospital setting in patient care activities under an approved medical residency training program may be counted towards the determination of full-time equivalency if the criteria set forth at Sec. 413.86(f)(3) or Sec. 413.86(f)(4), as applicable, are met. To revise Sec. 412.105(f)(1)(v) to specify that residents in new residency programs are not included in the rolling average for a period of years equal to the minimum accredited length for the type of program. In addition, we proposed to revise Sec. 412.105(f)(1)(ix) to specify, for IME purposes, a temporary adjustment to a hospital's FTE cap to reflect residents added because of another hospital's closure of its medical residency program (to conform to the May 4, 2001 proposed change for GME discussed in section IV.H.5. of this preamble). We did not receive any comments on these conforming changes and are adopting them as final. D. Payments to Disproportionate Share Hospitals (DSH) (Sections 211 and 303 of Public Law 106-554 and Sec. 412.106) Effective for discharges beginning on or after May 1, 1986, hospitals that serve a disproportionate number of low-income patients (the DSH patient percentage as defined in section 1886(d)(5)(F) of the Act) receive additional payments through the DSH adjustment. Hospitals that meet the DSH patient percentage criteria are entitled to the DSH payment adjustment. 1. Qualifying Thresholds for DSHs In the June 13, 2001 interim final rule with comment period, we discussed the provisions of section 1886(d)(5)(F)(v) of the Act, as it existed prior to enactment of Public Law 106-554 and under Sec. 412.106(c) of the existing regulations, which provided that a hospital qualified for DSH if the hospital had a DSH patient percentage equal to: At least 15 percent for an urban hospital with 100 or more beds or a rural hospital with 500 or more beds; At least 40 percent for an urban hospital with fewer than 100 beds; At least 45 percent for a rural hospital with 100 beds or fewer, if it is not also classified as an SCH; At least 30 percent for a rural hospital with more than 100 beds and fewer than 500 beds or which is classified as an SCH; or The hospital has 100 or more beds, is located in an urban area, and receives more than 30 percent of its net inpatient revenues from State and local government sources for the care of indigent patients not eligible for Medicare or Medicaid. Section 211(a) of Public Law 106-554 amended section 1886(d)(5)(F)(v) to provide that, beginning with discharges occurring on or after April 1, 2001, the qualifying threshold is reduced to 15 percent for all hospitals. Therefore, in the June 13 interim final rule, we revised Sec. 412.106(c) to reflect the change in DSH qualifying threshold percentages. Comment: Several commenters responded on the subject of the calculation of the DSH payment adjustment. These commenters were concerned about how to apply the threshold changes as of April 1, 2000. They were also concerned about counting days in the calculation when a stay crosses over two cost reporting periods. Finally, these commenters were concerned about counting section 1115 expansion waiver days in the DSH payment adjustment calculation. Response: Section 211(a) of Public Law 106-554 amended section 1886(d)(5)(F) of the Act to change the qualifying thresholds for the DSH payment adjustment to 15 percent for all hospital types, effective with discharges occurring on or after April 1, 2001. This means that the legislation is effective with discharges occurring on or after April 1, 2001, but not before. Therefore, fiscal intermediaries are required to determine whether a hospital meets the thresholds in place either before or after April 1, 2001, by applying the DSH patient percentage in the formula to each separate period. Days are counted based on the date of discharge. In other words, a hospital stay would be counted in the cost reporting year during which the patient was discharged. Finally, counting section 1115 expansion waiver days in the DSH payment adjustment calculation was discussed in the August 1, 2000 Federal Register (65 FR 47086). This policy became effective for discharges occurring on or after January 20, 2000. Therefore, it is possible that a hospital will qualify for DSH payments as of January 20, 2000, whereas it did not qualify before January 20, 2000, and it should be paid accordingly. In other words, a hospital in that situation would receive Medicare DSH payments beginning January 20, 2000. [[Page 39883]] 2. Calculation of the DSH Payment Adjustment Section 211(b) of Public Law 106-554 further amended section 1886(d)(5)(F) to revise the calculation of the DSH payment adjustment for hospitals affected by the revised thresholds as specified in section 211(a) of the Act. In the June 13 interim final rule with comment period, we discussed these adjustments, which are effective for discharges occurring on or after April 1, 2001, as follows: Urban hospitals with fewer than 100 beds and whose DSH patient percentage is equal to or greater than 15 percent and less than 19.3 percent receive the DSH payment adjustment determined using the following formula: (DSH patient percentage - 15) (.65) + 2.5. Urban hospitals with fewer than 100 beds and whose DSH patient percentage is equal to or greater than 19.3 percent receive a flat add-on of 5.25 percent. Rural hospitals that are both rural referral centers and SCHs receive the DSH payment adjustment determined using the higher of the SCH adjustment or the rural referral center adjustment. Rural hospitals that are SCHs and are not rural referral centers and whose DSH patient percentage is equal to or greater than 15 percent and less than 19.3 percent receive the DSH payment adjustment determined using the following formula: (DSH patient percentage - 15) (.65) + 2.5. Rural hospitals that are SCHs and are not rural referral centers and whose DSH patient percentage is equal to or greater than 19.3 percent and less than 30 percent receive a flat add-on of 5.25 percent. Rural hospitals that are SCHs and are not rural referral centers and whose DSH patient percentage is equal to or greater than 30 percent receive 10 percent. Rural referral centers whose DSH patient percentage is greater than or equal to 15 percent and less than 19.3 percent receive the DSH payment adjustment determined using the following formula: (DSH patient percentage - 15) (.65) + 2.5. Rural referral centers whose DSH patient percentage is equal to or greater than 19.3 percent but less than 30 percent receive a flat add-on of 5.25 percent. Rural referral centers whose DSH patient percentage is equal to or greater than 30 percent receive the DSH payment adjustment determined using the following formula: (DSH patient percentage--30) (.6) + 5.25. Rural hospitals with fewer than 500 beds and whose DSH patient percentage is equal to or greater than 15 percent and less than 19.3 percent receive the DSH payment adjustment using the following formula: (DSH patient percentage--15) (.65) + 2.5. Rural hospitals with fewer than 500 beds and whose DSH patient percentage is equal to or greater than 19.3 percent receive a flat add-on of 5.25 percent. If we calcqulate DSH patient percentages to the hundredth place (our current practice), these payment formulas result in an anomaly for some DSH patient percentages just below 19.3 percent (but greater than 19.2 percent). That is, as the percentage values approach 19.3, the DSH payment adjustment resulting from the formula exceeds 5.25 percent. This would result in a higher DSH payment adjustment for DSH patient percentages just below 19.3 than for percentages of 19.3 and above. We stated in the June 13 interim final rule that, because we believe it would be contrary to the Congress' intent for hospitals with a DSH patient percentage of less than 19.3 percent to receive a greater payment than those hospitals of the same class that have a DSH patient percentage of 19.3 or greater, we were implementing this provision so that, for DSH patient percentages below 19.3 for affected hospitals, the DSH payment adjustment will not exceed 5.25 percent. In the June 13 interim final rule with comment period, we revised Sec. 412.106(d) to reflect the changes in the disproportionate share adjustment. 3. Percentage Reduction to the DSH Payment Adjustment Section 1886(d)(5)(F)(ix) of the Act, as amended by section 112 of Public Law 106-113, specifies a percentage reduction in the payments a hospital would otherwise receive under the DSH payment adjustment formula. Prior to enactment of section 303 of Public Law 106-554, the reduction percentages were as follows: 3 percent for FY 2001, 4 percent for FY 2002, and 0 percent for FY 2003 and each subsequent fiscal year. Section 303 of Public Law 106-554 revised the amount of the percent reductions to 2 percent for discharges occurring in FY 2001, and to 3 percent for discharges occurring in FY 2002. The reduction continues to be 0 percent for FY 2003 and each subsequent fiscal year. Section 303 of Public Law 106-554 contains a special rule for FY 2001: For discharges occurring on or after October 1, 2000 and before April 1, 2001, the reduction is to be 3 percent, and for discharges occurring on or after April 1, 2001 and before October 1, 2001, the reduction is to be 1 percent. Changes made by section 303 with respect to FY 2001 discharges were implemented in the June 13, 2001 interim final rule with comment period. We are adopting as final the revisions to Sec. 412.106(e) to reflect the change in the percentages made by section 303 of Public Law 106-554 that were included in the May 4, 2001 proposed rule and in the June 13, 2001 interim final rule with comment period. We also are making a technical change in the heading of paragraph (e). E. Medicare-Dependent, Small Rural Hospitals (Section 404 of Public Law 106-113 and section 212 of Public Law 106-554 and 42 CFR 412.90(j) and 412.108) Section 6003(f) of the Omnibus Budget Reconciliation Act of 1989 (Public Law 101-239) added section 1886(d)(5)(G) to the Act and created the category of Medicare-dependent, small rural hospital (MDH) that are eligible for a special payment adjustment under the hospital inpatient prospective payment system. Section 1886(d)(5)(G) of the Act define an MDH as any hospital that meets all of the following criteria: The hospital is located in a rural area. The hospital has 100 or fewer beds. The hospital is not classified as an SCH (as defined at Sec. 412.92). In the hospital's cost reporting period that began during FY 1987, not less than 60 percent of its inpatient days or discharges were attributable to inpatients entitled to Medicare Part A benefits. If the cost reporting period is for less than 12 months, the hospital's most recent 12-month or longer cost reporting period before the short period is used. (For a more detailed discussion, see the April 20, 1990 Federal Register (55 FR 15154)). As provided by the law, MDHs were eligible for a special payment adjustment under the prospective payment system, effective for cost reporting periods beginning on or after April 1, 1990 and ending on or before March 31, 1993. Hospitals classified as MDHs were paid using the same methodology applicable to SCHs, that is, based on whichever of the following rates yielded the greatest aggregate payment for the cost reporting period: The national Federal rate applicable to the hospital. The updated hospital-specific rate using FY 1982 cost per discharge. [[Page 39884]] The updated hospital-specific rate using FY 1987 cost per discharge. Section 13501(e)(1) of the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66) extended the MDH provision through FY 1994 and provided that, after the hospital's first three 12-month cost reporting periods beginning on or after April 1, 1990, the additional payment to an MDH whose applicable hospital-specific rate exceeded the Federal rate was limited to 50 percent of the amount by which the hospital- specific rate exceeded the Federal rate. Section 4204(a)(3) of Public Law 105-33 reinstated the MDH special payment for discharges occurring on or after October 1, 1997 and before October 1, 2001, but did not revise the qualifying criteria for these hospitals or the payment methodology. Section 404(a) of Public Law 106-113 extended the MDH provision to discharges occurring on or after October 1, 2002 and before October 1, 2006. In the August 1, 2000 interim final rule with comment period, we revised Secs. 412.90(j) and 412.108 to reflect the extension of the MDH program through FY 2006. As specified in the June 13, 2001 interim final rule with comment period, section 212 of Public Law 106-554 provided that, effective with cost reporting periods beginning on or after April 1, 2001, hospitals have the option to base MDH eligibility on two of the three most recently audited cost reporting periods for which the Secretary has a settled cost report, rather than on the cost reporting period that began during FY 1987. According to section 212, the criteria for at least 60 percent Medicare utilization will be met if in at least ``2 of the 3 most recently audited cost reporting periods for which the Secretary has a settled cost report'', at least 60 percent of the hospital's inpatient days or discharges were attributable to individuals receiving Medicare Part A benefits. Hospitals that qualify under this provision are subject to the other provisions already in place for MDHs, that is, the payment methodology as defined in Sec. 412.108(c) and the volume decrease provision as defined in Sec. 412.108(d). A hospital must notify its fiscal intermediary to be considered for MDH status under this new provision. Any hospital that believes it meets the criteria to qualify as an MDH, based on at least two of its three most recently settled cost reports, must submit a written request to its intermediary. The hospital's request must be submitted within 180 days from the date of the notice of amount of program reimbursement for the cost reporting period in question. The intermediary will make its determination and notify the hospital within 180 days from the date it receives the hospital's request and all of the required documentation. In the June 13 interim final rule with comment period, we revised Sec. 412.108(a)(1)(iii) to reflect the additional option provided by section 212 of Public Law 106-554. We received one comment on the proposed regulation change. Comment: One commenter representing a state hospital association expressed concern regarding the MDH qualifying process outlined in the interim final rule. The commenter questioned the timing of the process, especially that the hospital would be required to apply within 180 days from the date of the notice of program reimbursement and that the fiscal intermediary would have up to 180 days in which to make its decision. The commenter believed that this would not allow hospitals to qualify by the first cost reporting period beginning on or after the April 1, 2001, effective date of the new provision. The commenter also believed that this process would result in a lengthy period of time, perhaps 2-4 years while the cost report settlement and this process plays out. The commenter also believed the determination of whether or not a hospital meets the requirements to become an MDH under this new provision should be handled in manner consistent with that already in place. That is, fiscal intermediaries should automatically determine, using the cost report information they have, whether or not any additional hospitals would now qualify as an MDH under this new criteria, rather than putting the burden on the hospitals to apply for MDH status. The commenter also stated that the fiscal intermediaries require instruction regarding the calculation of the payment rates in order to determine which would most benefit the MDHs. The commenter also believed that the impact analysis understates the number of newly eligible hospitals under the new MDH provision. Response: We disagree with the commenter that the process for approval of new MDHs could take as long as 2 to 4 years. We do agree with this commenter that hospitals' requests for consideration under this provision need not be limited to requests submitted within 180 days of the issuance of a notice of amount of program reimbursement, and we are deleting this requirement from Sec. 412.108(b). This will eliminate any unintended delay in the time when hospitals could request MDH status. Therefore, hospitals are free to request MDH status at any time. We also are revising the time provided for fiscal intermediaries to make their determination, from 180 days to 90 days. We believe this will provide sufficient time for review while being responsive to the commenter's concern that the process not be too lengthy. Similar to the approval period for SCHs as described above, MDH status and the associated payment adjustment are effective 30 days after written notification to the MDH. We believe it is most appropriate, and consistent with procedures for SCH and rural referral center designation, to require hospitals to request consideration as a MDH, rather than placing this requirement with the fiscal intermediaries. We will further clarify the MDH policy and process, including the change noted above, through future Program Memoranda. With respect to the commenter's concern that our impact analysis underestimates the number of newly eligible hospitals under the new provision, we noted in the June 13, 2001 interim final rule with comment period that our most recent data available were 1998, and we were, therefore, unable to estimate the impacts using more recent data. Therefore, the actual impact of this provision may be different as the fiscal intermediaries evaluated hospitals' requests using more recent data. F. Reclassification of Certain Urban Hospitals as Rural Hospitals (Sections 401(a) and (b) of Public Law 106-113 and 42 CFR 412.63(b), 412.90(e), 412.102, and 412.103) 1. Permitting Reclassification of Certain Urban Hospitals as Rural Hospitals Under Medicare law, the location of a hospital can affect its payment methodology as well as whether the facility qualifies for special treatment both for operating and for capital payments. Whether a facility is situated in an urban or a rural area will, for example, affect payments based on the wage index values and Federal standardized amounts specific to the area. Similarly, the percentage increase in payments made to hospitals that treat a disproportionate share of low- income patients is based, in part, on its urban/rural status, as are determinations regarding a hospital's qualification as an SCH, rural referral center, critical access hospital (CAH), or other special category of facility. Section 1886(d)(2)(D) of the Act defines an ``urban area'' as an area within a MSA as defined by the Office of Management and Budget. The same [[Page 39885]] provision defines a ``large urban area,'' with respect to any fiscal year, as an urban area that the Secretary determines (in the publications described in section 1886(e)(5) of the Act before the fiscal year) has a population of more than 1 million as determined based on the most recent available published Census Bureau data. Section 1886(d)(2)(D) of the Act further defines a ``rural area'' as an area that is outside of a ``large'' urban area or ``other'' urban area. Since FY 1995, the average standardized amount for hospitals located in rural areas and ``other'' urban areas has been equal, as provided for in section 1886(b)(3)(B)(i)(X) of the Act. Several provisions of the Act provide procedures under which a hospital can apply for reclassification from one geographic area to another. Section 1886(d)(8)(B) of the Act, which provides that if certain conditions are met, the Secretary shall treat a hospital located in a rural county adjacent to one or more urban areas as being located in the urban area to which the greatest number of workers in the county commute. Also, section 1886(d)(10) of the Act established the MGCRB to permit hospitals that are disadvantaged by their geographic classification to obtain a more appropriate classification to the area with which they have the most economic interaction. In the August 1, 2000 interim final rule with comment period (65 FR 47029), we implemented section 401(a) of Public Law 106-113. Section 401(a) of Public Law 106-113, which amended section 1886(d)(8) by adding a new paragraph (E), directs the Secretary to treat any subsection (d) hospital located in an urban area as being located in the rural area of the State in which the hospital is located if the hospital files an application (in the form and manner determined by the Secretary) and meets one of the following criteria: The hospital is located in a rural census tract of an MSA (as determined under the most recent modification of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 FR 6725)); The hospital is located in an area designated by any law or regulation of the State as a rural area (or is designated by the State as a rural hospital); The hospital would qualify as a rural referral center, or as an SCH if the hospital were located in a rural area; or The hospital meets any other criteria specified by the Secretary. The statutory effective date of this provision is January 1, 2000. In the August 1, 2000 interim final rule with comment period, we provided a detailed discussion of the development of the Goldsmith Modifications (65 FR 47029). The Goldsmith Modification evolved from an outreach grant program sponsored by the Office of Rural Health Policy of the Health Resources and Services Administration (HRSA) in order to establish an operational definition of rural populations lacking easy geographic access to health services. Using 1980 census data, Dr. Harold F. Goldsmith and his associates created a methodology for identification of rural census tracts that were located within a large metropolitan county of at least 1,225 miles but were so isolated from the metropolitan core by distance or physical features so as to be more rural than urban in character. We utilize data based on 1990 census data, reflecting the most recent Goldsmith modification. We also included Appendix A of that interim final rule with comment period a listing of the identified urban counties with census tracts that may qualify as rural under the most recent Goldsmith Modification (January 1, 2000). The amendments made by section 401 of Public Law 106-113 enable a hospital located in one of the areas listed in Appendix A of the August 1, 2000 interim final rule with comment period to be treated as if it were situated in the rural area of the State in which it is located. Additionally, section 401(a) of Public Law 106-113 includes hospitals ``* * * located in an area designated by any law or regulation of such State as a rural area (or is designated by such State as a rural hospital).'' Since the concept of State ``designation'' referred to in the parenthetical clause was not explicit enough to provide a clear-cut rule for purposes of implementation, we required that a hospital's designation as rural be in the form of either State law or regulation if it is the basis for a hospital's request for urban to rural reclassification. We believe this will help ensure that the provision is implemented consistently among States. Finally, a hospital also may seek to qualify for reclassification premised on the fact that, had it been located in a rural area, it would have qualified as a rural referral center or as an SCH. The hospital would need to satisfy the criteria set forth in section 1886(d)(5)(C) of the Act (as implemented in regulations at Sec. 412.96) as a rural referral center, or the criteria set forth in section 1886(d)(5)(D) of the Act (as implemented in regulations at Sec. 412.92) as an SCH. Although the statute authorizes the Secretary to specify further qualifying criteria for a section 401 reclassification, we did not believe that additional criteria were warranted at the time the August 1, 2002 interim final rule was published. However, we invited comment specifically on whether the criteria in the interim final rule are sufficient at this time, and if not, what additional criteria should be incorporated. A hospital that is reclassified as rural under section 1886(d)(8)(E) of the Act, as added by section 401(a) of Public Law 106- 113, is treated as rural for all purposes of payment under the Medicare inpatient hospital prospective payment system (section 1886(d) of the Act), including standardized amount (Secs. 412.60 et seq.), wage index (Sec. 412.63), and the DSH payment adjustment calculations (Sec. 412.106) as of the effective date of the reclassification. Comment: One commenter addressed policies discussed in the August 1, 2000 interim final rule with comment period. Other commenters addressed our policy to not permit hospitals that are redesignated as rural under section 1886(d)(8)(E) of the Act to be eligible for subsequent reclassifications by the MGCRB. Response: These policies were addressed in the May 5, 2000 proposed rule (65 FR 26308) and the August 1, 2000 final rule (65 FR 47087) implementing the updates and policy changes to the prospective payment system for FY 2001. We responded to comments on the May 5, 2000 proposed rule in the August 1, 2000 final rule. Because we addressed these concerns in that final rule, we are not readdressing those comments in this final rule. Comment: An association of physicians commented that the interim final rule with comment period stated that a hospital that is reclassified as rural under this provision must be treated as rural for all purposes of payment under the Medicare inpatient hospital prospective payment system, including standardized amount, wage index, and the DSH payment adjustment. However, the commenter pointed out, graduate medical education is not listed. The commenter urged that these hospitals also be considered rural for purposes of graduate medical education. Response: Section 1886(d)(8)(E) of the Act provides that affected hospitals are considered rural for purposes of section 1886(d). Therefore, these reclassifications affect payments to a hospital under the IME adjustment, which are made under section 1886(d)(5)(B) of the Act, but not payments for direct GME, which are made under section 1886(h) of the Act. [[Page 39886]] 2. Conforming Changes under Section 401(b) of Public Law 106-113 Section 401(b) of Public Law 106-113 sets forth conforming statutory changes relating to urban to rural reclassifications under section 401(a) of Public Law 106-113: Section 401(b)(1) provided that if a hospital is being treated as being located in a rural area under section 1886(d)(8)(E) of the Act (for purposes of section 1886(d) of the Act), the hospital will also be treated under section 1833(t) of the Act as being located in a rural area. This provision was addressed in the final rule for the hospital inpatient prospective payment system published in the Federal Register on August 1, 2000 (65 FR 47087). Section 401(b)(2) amended section 1820(c)(2)(B)(i) of the Act by extending the reclassification provisions of section 401(a) to the CAH program. A hospital that otherwise would have fulfilled the requirements for designation as a CAH had it been located in a rural area is now eligible for consideration as a CAH if it is treated as being located in a rural area under section 1886(d)(8)(E) of the Act, as added by section 401(a) of Public Law 106-113. (A list of certain existing hospitals that were identified as being located in Goldsmith areas was included in Appendix B of the August 1, 2000 interim final rule with comment period.) A more detailed discussion of the effect on the CAH program of this provision, as well as additional amendments to section 1820(c)(2)(B)(i) of the Act included in Public Law 106-113, is provided in section VI.B. of this preamble. 3. Application Procedures The statute provides that a hospital seeking reclassification from urban to rural under section 1886(d)(8)(E) of the Act must submit an application ``in a form and manner determined by the Secretary.'' In the August 1, 2000 interim final rule with comment period, we set forth procedures and requirements for the application for rural reclassification, including application submittal requirements, the filing and effective dates for the application, the procedures for withdrawal of applications, and cancellation of rural reclassification; and the qualifications through the Goldsmith Modification Criteria, by State designation and qualifications as a rural referral center or as an SCH. (See 65 FR 47030 through 47031 for a full discussion of these procedures and requirements.) As of early July 2001, 19 hospitals had taken advantage of this provision. 4. Changes in the Regulations In the August 1, 2000 interim final rule with comment period, we added a new Sec. 412.103 to incorporate the provisions on the urban to rural reclassification options set forth in section 1886(d)(8)(E) of the Act, as added by section 401(a) of Public Law 106-113, and the application procedures for requesting reclassification. A formula for transition payments to hospitals located in an area that has undergone geographic reclassification from urban to rural is set forth in section 1886(d)(8)(A) of the Act and implemented in regulations at Secs. 412.90 and 412.102. In the interim final rule with comment period, we revised existing Secs. 412.63(b)(1) and 412.90(e) and the title of Sec. 412.102 to clarify the distinction between hospital reclassification from urban to rural and the geographic reclassification (or redesignation) of an urban area to rural. In addition, we revised Sec. 485.610 by redesignating paragraph (b)(4) as paragraph (b)(5) and adding a new paragraph (b)(4) to reflect the conforming provision of section 401(b)(2) of Public Law 106-113. We did not receive any comments on these changes in the regulations in the interim final rule with comment period and, therefore, are adopting them as final. G. Medicare Geographic Classification Review Board (MGCRB) (New Sec. 412.235 and Existing Secs. 412.256, 412.273, 412.274(b), and 412.276) With the creation of the MGCRB, beginning in FY 1991, under section 1886(d)(10) of the Act, hospitals could request reclassification from one geographic location to another for the purpose of using the other area's standardized amount for inpatient operating costs or the wage index value, or both (September 6, 1990 interim final rule with comment period (55 FR 36754), June 4, 1991 final rule with comment period (56 FR 25458), and June 4, 1992 proposed rule (57 FR 23631)). Implementing regulations in Subpart L of Part 412 (Secs. 412.230 et seq.) set forth criteria and conditions for redesignations from rural to urban, rural to rural, or from an urban area to another urban area with special rules for SCHs and rural referral centers. As discussed in section III.F. of this final rule, section 304 of Public Law 106-554 contained several provisions related to the wage index and reclassification decisions made by the MGCRB. In summary, section 304 first establishes that hospital reclassification decisions by the MGCRB for wage index purposes are effective for 3 years, beginning with reclassifications for FY 2001. Second, it provides that the MGCRB must use the 3 most recent years of average hourly wage data in evaluating a hospital's reclassification application for FY 2003 and subsequent years. Third, it provides that an appropriate statewide entity may apply to have all of the geographic areas in a State treated as a single geographic area for purposes of computing and applying the wage index, for reclassifications beginning in FY 2003. In the May 4, 2001 proposed rule, we presented a discussion of how we proposed to implement these three provisions. (Section III.F. of this preamble discusses the application of these policy changes to the development of the final FY 2002 and later wage indexes based on hospital reclassification under the provisions of section 304 of Public Law 106- 554.) 1. Three-Year Reclassifications for Wage Index Purposes Section 304(a) of Public Law 106-554 amended section 1886(d)(10)(D) of the Act by adding clause (v), which provides that, if a hospital is approved for reclassification by the MGCRB for purposes of the wage index, the reclassification is effective for 3 years. The amendment made by section 304(a) is effective for reclassifications for FY 2001 and subsequent years. In addition, the legislation specifies that the Secretary must establish a mechanism under which a hospital may elect to terminate such reclassification during the 3-year period. Consistent with new section 1886(d)(10)(D)(v) of the Act, in the May 4 proposed rule, we proposed to revise Sec. 412.274(b) to provide under new paragraph (b)(2) that any hospital that is reclassified for a particular fiscal year for purposes of receiving the wage index value of another area would receive that reclassification for 3 years beginning with discharges occurring on the first day (October 1) of the second Federal fiscal year in which a hospital files a complete application. This 3-year reclassification would remain in effect unless the hospital terminates the reclassification under revised procedures that we proposed to establish under new proposed Sec. 412.273(b). The provision would apply to hospitals that are reclassified for purposes of the wage index only, as well as those that are reclassified for both the wage index and the standardized amount. However, in the latter case, only the wage index reclassification would be extended for 2 additional [[Page 39887]] years beyond the 1 year provided for in the existing regulations (3 years total). Hospitals seeking reclassification for purposes of the standardized amount must continue to reapply to the MGCRB on an annual basis. a. Special Rule for a Hospital that was Reclassified for FY 2001 and FY 2002 to Different Areas Because the 3-year effect of the amendment made by section 304(a) of Public Law 106-554 is applicable to reclassifications for FY 2001 (which had already taken place prior to the date of enactment of section 304(a) (December 21, 2000)), and because the application process for reclassifications for FY 2002 had already been completed by the date of enactment, we are establishing special procedures for hospitals that are reclassified for purposes of the wage index to one area for FY 2001, and are reclassified for purposes of the wage index or the standardized amount to another area for FY 2002. We are deeming such a hospital to be reclassified to the area for which it applied for FY 2002, unless the hospital elects to receive the wage index reclassification it was granted for FY 2001. Consistent with our procedures for withdrawing an application for reclassification (Sec. 412.273), we allowed a hospital that wished to receive the reclassification it was granted for FY 2001 to withdraw its FY 2002 application by making a written request to the MGCRB within 45 days of the publication date of the proposed rule (that is, by June 18, 2001). Again, only the wage index reclassification is extended for 2 additional years (3 years total). Hospitals seeking reclassification for purposes of the standardized amount must continue to reapply to the MGCRB on an annual basis. (We note that, effective May 21, 2001, the new location and mailing address of the MGCRB and the Provider Reimbursement Review Board (PRRB) is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670. Please specify whether the mail is intended for the MGCRB or the PRRB.) b. Overlapping Reclassifications Are Not Permitted Under the broad authority delegated to the Secretary by section 1886(d)(10) of the Act, in the May 4 proposed rule, we proposed that a hospital that is reclassified to an area for purposes of the wage index may not extend the 3-year effect of the reclassification under section 304(a) of Public Law 106-554 by subsequently applying for reclassification to the same area for purposes of the wage index for a fiscal year that would be within the 3-year period. For example, if a hospital is reclassified for purposes of the wage index to Area A for FY 2002, is approved to receive Area A's wage index for 3 years (FYs 2002, 2003, and 2004), and reapplies to be reclassified to Area A for FYs 2003, 2004, and 2005 (3 years) for purposes of the wage index, the hospital would not be permitted to receive Area A's wage index for FY 2005 as a result of the reapplication. Instead, we proposed that if the hospital wishes to extend the FY 2002 3-year reclassification for fiscal years beyond FY 2004, it would have to apply for reclassification for FY 2005. We believe new section 1886(d)(10)(D)(v) of the Act replaces the current annual wage index reclassification cycle with a 3-year reclassification cycle. We believe this policy was intended to provide consistency and predictability in hospital reclassification and wage index data, as well as to alleviate the year-to-year fluctuations in the ability of some hospitals to qualify for reclassification. We do not believe it was intended to be used to extend reclassifications for which hospitals otherwise would not be eligible (by reapplying during the second year of a 3-year reclassification because a hospital fears it may not be eligible for reclassification after its current 3-year reclassification expires). c. Withdrawals of Applications and Terminations of Approved Reclassifications (1) General Under Sec. 412.273(a), a hospital, or group of hospitals, may withdraw its application for reclassification at any time before the MGCRB issues its decision or, if after the MGCRB issues its decision, within 45 days of publication of our annual notice of proposed rulemaking concerning changes to the inpatient hospital prospective payment system and proposed payment rates for the fiscal year for which the application was filed. In the May 4 proposed rule, we proposed that the withdrawal procedures and the applicable timeframes in the existing regulations would apply to hospitals that would receive 3-year reclassification for wage index purposes. For example, if a hospital applied for reclassification to Area A for purposes of the wage index for FY 2002, but wished to withdraw its application, it must have done so prior to the MGCRB issuing a decision on its application or, if the MGCRB issued such a decision, within 45 days of the publication date of the proposed rule (that is, by June 18, 2001). Such a withdrawal, if effective, means that the hospital would not be reclassified to Area A for purposes of the wage index for FY 2002 (and would not receive continued reclassification for FYs 2003 and 2004), unless the hospital subsequently cancels its withdrawal (as discussed below). In other words, a withdrawal, if accepted, prevents a reclassification from ever becoming effective. On the other hand, a reclassification decision that is terminated upon the request of the hospital has partial effect. Section 1886(d)(10)(D)(v) of the Act, as added by section 304(a) of Public Law 106-554, provides that a reclassification for purposes of the wage index is effective for 3 years ``except that the Secretary shall establish procedures under which a . . . hospital may elect to terminate such reclassification before the end of such period.'' Consistent with section 1886(d)(10)(D)(v) of the Act, we proposed to allow a hospital to terminate its approved 3-year reclassification for 1 or 2 years of the 3-year effective period (Sec. 412.273(b)). This is a separate action from a reclassification withdrawal, which occurs following the initial decision by the MGCRB. A termination would occur during subsequent years. For example, a hospital that has been reclassified for purposes of the wage index for FY 2001 is also reclassified for FYs 2002 and 2003 (3 years). Such a hospital could terminate its approved reclassification so that the reclassification is effective only for FY 2001, or only for FYs 2001 and 2002. Consistent with the prospective nature of reclassifications, we proposed to not permit a hospital to terminate its approved 3-year reclassification for part of a fiscal year. A termination would be effective for the next fiscal year. In order to terminate an approved 3-year reclassification, we would require the hospital to notify the MGCRB in writing within 45 days of the publication date of the annual proposed rule for changes to the inpatient hospital prospective payment system. A termination, unless subsequently cancelled (as discussed below), is effective for the balance of the 3-year period. We established a special procedural rule for handling FY 2001 reclassifications. As noted above, the amendments made by section 304(a) of Public Law 106-554 are effective for reclassifications for FYs 2001 and beyond, and reclassification decisions for FY 2001 had already been implemented prior to the date of enactment of section 304(a). We deemed those hospitals that were reclassified for [[Page 39888]] FY 2001 to be reclassified for FYs 2002 and 2003. Therefore, if a deemed hospital that was reclassified for purposes of the wage index for FY 2001 wished to terminate its reclassification for FY 2002 and FY 2003, the hospital had to notify the MGCRB in writing by June 18, 2001 (that is, within 45 days after the publication of the proposed rule). (2) Cancellation of a Withdrawal of Application or a Termination of an Approved Reclassification In the May 4 proposed rule, we proposed that if a hospital elects to withdraw its 3-year reclassification application after the MGCRB has issued its decision, it may cancel its withdrawal in a subsequent fiscal year and request the MGCRB to reinstate its reclassification for the remaining fiscal years of the 3-year reclassification period. (This proposal was consistent with our proposal that 3-year reclassification periods may not overlap, as discussed in section IV.G.1.b. of this preamble.) Alternatively, a hospital may apply for reclassification to a different area (that is, an area different from the one to which it was originally reclassified), and if successful, the reclassification effect would be for 3 years. Similarly, and for the same reasons, we proposed that if a hospital elects to terminate its accepted 3-year reclassification prior to the second or third year of that reclassification, it may cancel that termination and have its original reclassification reinstated for the duration of the original 3-year period. Alternatively, a hospital could apply for reclassification to a different area after terminating a prior 3-year reclassification and receive a new 3-year period of reclassification. Example 1: Hospital A files an application and the MGCRB issues a decision to reclassify it to Area B for purposes of wage index for FY 2002 through FY 2004 (3 years). Within 45 days after the publication of the proposed rule, Hospital A withdraws its application. Within the time for applying for a FY 2003 reclassification, Hospital A cancels its withdrawal for classification to Area B. Its reclassification to Area B is reinstated, but only for FYs 2003 and 2004. Example 2: Hospital B files an application for reclassification for wage index purposes for FY 2002 through FY 2004 and the MGCRB issues a decision for reclassification to Area C. Within 45 days after publication of the proposed rule, Hospital B withdraws its application. Hospital B does not cancel its withdrawal of the application. Hospital B timely applies and is reclassified to Area D for 3 years, beginning with FY 2003. In this case, the reclassification to Area D would be for FYs 2003 through 2005. Example 3: Hospital C is reclassified to Area A for purposes of the wage index for FY 2002, and terminates its 3-year reclassification effective for FYs 2003 and 2004. Within the timeframe for applying for FY 2004 reclassification, Hospital C cancels its termination. Its reclassification to Area A would be reinstated for FY 2004 only. Example 4: Hospital D has the same circumstances as Hospital C in Example 3, except that instead of canceling its termination, Hospital D applies and is reclassified to Area B for FY 2004. In this case, the reclassification would be for FYs 2004 through 2006. d. Special Rules for Group Reclassifications Section 412.232 discusses situations where all hospitals in a rural county are seeking urban redesignation, and Sec. 412.234 discusses criteria where all hospitals in an urban county are seeking redesignation to another urban county. In these cases, hospitals submit an application as a group, and all hospitals in the county must be a party to the application. The reclassification is effective both for purposes of the wage index and the standardized amount of the area to which the hospitals are reclassified. Section 304(a) of Public Law 106-554 does not specifically address the group reclassification situations under Secs. 412.232 and 412.234. However, we believe that, in the case of hospitals reclassified under these group reclassification procedures, it would be appropriate to extend the 3-year reclassification provision to these situations for the wage index only. In order to be reclassified for the standardized amount during the second and third years of a 3-year reclassification for the wage index, the hospitals located in these counties would have to reapply on an annual basis to the MGCRB either as a group or as individual hospitals and meet the criteria outlined in Sec. 412.232, Sec. 412.234, or Sec. 412.230, as appropriate. Hospitals that are part of a group reclassification would be able to terminate their 3-year wage index reclassifications in the same manner as described above. If one hospital within the group elects to terminate its 3-year wage index reclassification, the reclassification of other hospitals in the group would be unaffected. The same rules for withdrawing from a group reclassification that are in effect now would continue. That is, all of the hospitals that are party to a group reclassification application must consent for a withdrawal to be approved. Under section 152(b) of Public Law 106-113, hospitals in certain counties were deemed to be located in specified areas for purposes of payment under the hospital inpatient prospective payment system, for discharges occurring on or after October 1, 2000. For payment purposes, these hospitals are to be treated as though they were reclassified for purposes of both the standardized amount and the wage index. Section 152(b) also requires that these reclassifications be treated for FY 2001 as though they are reclassification decisions by the MGCRB. For purposes of applying the 3-year extension of wage index reclassifications, we proposed to extend section 1886(d)(10)(D)(v) to hospitals reclassified under section 152(b) of Public Law 106-113. These hospitals also would have to apply for the standardized amount on an annual basis to the MGCRB. e. Administrator Authority to Cancel Inappropriate Reclassification Decisions In the proposed rule we indicated that, under the provisions of Sec. 412.278(g), the Administrator has the authority to review an inappropriate reclassification decision made by the MGCRB, as discovered by either the hospital or CMS, including 3-year reclassifications in the second and third years. The statement that this authority extended to the second and third years of 3-year reclassification was in error. Under the statute and our regulations, reclassification decisions are unreviewable once they become final. This principle applies to 3-year reclassification decisions. Once such a decision becomes final, it is unreviewable thereafter. Comment: Several commenters expressed concern that we proposed that a hospital that is reclassified to an area for purposes of the wage index may not extend the 3-year effect of the reclassification under section 304(a) of Public Law 106-554, by subsequently applying for reclassification to the same area for purposes of the wage index for a fiscal year that would be within the 3-year period. These commenters argued that there is nothing in the statutory language that prohibits hospitals that are already approved for 3-year reclassifications from reapplying within that 3-year period to extend their reclassifications into future years. These commenters also pointed out that extending their wage index reclassifications in this way allows them to make budgetary commitments further into the future and fosters a more stable operating environment for their hospitals. Response: Under section 1886(d)(10) of the Act, the Secretary has broad authority to establish policies and [[Page 39889]] criteria with respect to the evaluation and approval of applications for reclassification. As indicated in the proposed rule, we believe that new section 1886(d)(10)(D)(v) of the Act, as added by section 304(a) of Public Law 106-554, replaces the annual reclassification cycle with a 3-year reclassification cycle. We believe that, if a hospital is already reclassified to a given geographic area for a 3- year period, it is appropriate to avoid expending resources to evaluate an application for reclassification to that same area for the second and third years of the 3-year period. Thus, if a hospital is already reclassified for a given fiscal year, and submits an application for reclassification to the same area for the same year, that application will not be approved. We are adding language to Sec. 412.230(a)(5)(v) in this final rule to specify that an application for reclassification will not be approved under these circumstances. Comment: One commenter supported our proposal to reclassify a hospital based on its FY 2002 approval unless the hospital notified the MGCRB otherwise by June 18, 2001. This commenter questioned whether or not hospitals would have this same option in future years. In other words, if a hospital successfully sought reclassification to a different area for FY 2003 and then withdrew that reclassification, would that hospital have the option to fall back on the FY 2002 reclassification, or would it then not be reclassified. Response: We appreciate the commenter's support of our proposal on this issue. This was specifically put in place because the new 3-year reclassification policy was not enacted until well after the reclassification process for FY 2002 was underway. Therefore, some hospitals may have sought reclassification to a different area or for a different purpose than they did for FY 2001, and the option to carry forward a FY 2001 wage index reclassification for 3 years may have changed their decisions. This policy applies in future years as well. For example, a hospital that successfully seeks reclassification for the wage index for FY 2004 to Area A, then successfully seeks reclassification for FY 2005 for the wage index to Area B, has the option to withdraw its FY 2005 decision, thereby reinstating its FY 2004 decision. However, if the hospital successfully withdraws its FY 2005 decision, the hospital cannot return to its FY 2005 decision without reapplying at a later date. Comment: Several commenters expressed uncertainty about the timing of the extension of the wage index reclassification for 3 years. Some hospitals had successfully applied for FY 2001 as well as FY 2002 to the same area for the wage index, and it was not clear to these hospitals whether their wage index reclassifications were effective through FY 2003 or through FY 2004. Response: As noted above, section 304(a) provides for 3-year wage index reclassifications effective with FY 2001 reclassifications. In the case of hospitals reclassified to the same area for both FY 2001 and FY 2002, because hospitals had already submitted their FY 2002 applications prior to enactment of Public Law 106-554, and the MGCRB had already issued its decision on these applications prior to publication of the May 4 proposed rule, we will consider FY 2002 to be the first year of the 3-year reclassification for these hospitals. Therefore, the reclassification period will extend through FY 2004. If a hospital was approved for FY 2001 for a wage index reclassification, but was unsuccessful in seeking a wage index reclassification for FY 2002, then its wage index reclassification would be effective for FY 2001, FY 2002, and FY 2003, and the hospital would have to reapply to seek reclassification for FY 2004. Comment: One commenter supported our proposal that a hospital could cancel its withdrawal of an approved reclassification for the wage index in a future year in order to reinstate its original MGCRB approval. Response: We appreciate the commenter's support of our proposal that hospitals reclassified for the wage index that then withdraw that approval have the ability to cancel the withdrawal, in effect reinstating the hospital's original reclassification approval for the wage index. We provided this option so that a hospital that later discovers that the withdrawal of its approved wage index reclassification was disadvantageous would have the ability to reinstate its MGCRB approval for the wage index for the remaining years in the 3-year term. However, a hospital is eligible to revert to its most recent MGCRB approval only. In addition, the same process applies to cancellations of a withdrawal or termination as applies to requests for withdrawals and terminations. A hospital must request a cancellation of its withdrawal or termination within the 45-day period after the proposed rule is published, and that cancellation will become effective for the following Federal fiscal year. Comment: Several commenters supported our proposal to extend the 3- year reclassification provision for the wage index to those hospitals that were reclassified for FY 2001 under section 152(b) of Public Law 106-113. While these hospitals did not successfully apply for reclassification through the MGCRB, they were effectively ``reclassified'' by this legislation, and the commenters believed that it would be correct to extend the 3-year wage index reclassification to this group of hospitals. Response: We appreciate the commenters' support of our proposal. Section 152(b) of Public Law 106-113 required that the assignment of these hospitals to alternative geographic areas should be treated as if they were decisions of the MGCRB. As a result, these hospitals will be reclassified for the wage index to their designated areas for FY 2002 and FY 2003. They will be required to apply for reclassification to the MGCRB for FY 2004 if they wish to retain this reclassification for subsequent years. 2. Three-Year Average Hourly Wages Section 304(a) of Public Law 106-554 amended section 1886(d)(10)(D) of the Act by adding clause (vi) which provides that the MGCRB must use the average of the 3 most recent years of hourly wage data for the hospital when evaluating a hospital's request for reclassification. Specifically, the MGCRB must base its evaluation on an average of the average hourly wage for the most recent years for the hospital seeking reclassification and the area to which the hospital seeks to reclassify. This provision is effective for reclassifications for FY 2003 and subsequent years. (Section III.F. of this preamble discusses the development and application of the hospital's 3-year average hourly wage data (Table 2 in the Addendum to this final rule) that the MGCRB will use to evaluate hospitals' applications for reclassifications for FY 2003; and the MSA and statewide rural 3-year average hourly wage data (Tables 3A and 3B in the Addendum to this final rule) for hospital reclassification applications for FY 2003.) In the May 4, 2001 proposed rule, we proposed to revise Secs. 412.230(e)(2) and 412.232(d)(2) to incorporate the provisions of section 1886(d)(10)(D)(vi) of the Act as added by section 304(a) of Public Law 106-554. Specifically, we provided that, for redesignations effective beginning FY 2003, for hospital-specific data, the hospital must provide a 3-year average of its average hourly wages using data from our hospital wage survey used to construct [[Page 39890]] the wage index in effect for prospective payment purposes. For data for other hospitals, we proposed to require hospitals to provide a 3-year average of the average hourly wage in the area in which the hospital is located and a 3-year average of the average hourly wage in the area to which the hospital seeks reclassification. The wage data would be taken from the CMS hospital wage survey used to construct the wage index for prospective payment purposes, as published in Tables 2, 3A, and 3B of this final rule (unless those data are subsequently changed by CMS). The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described in section III. of this final rule) across all 3 years, by the sum of the hours. Comment: Several commenters responded positively to our proposal to use a 3-year average of the most recent 3 years of average hourly wages based on data from our hospital wage survey used to construct the wage index when evaluating a hospital's request for reclassification. Under the proposal, if data does not exist for all 3 years, the available data within the 3-year period will be used to construct the average. While it was clear to these commenters that these data will be used to construct the average hourly wage for a hospital applying for reclassification, they noted it was not clear to them whether the 3- year average would also be used for the area in which that hospital is physically located as well as the area to which that hospital seeks reclassification. Response: We appreciate the commenters' support of our proposal to calculate the 3-year average hourly wage based on the data available during the applicable 3-year period, even if a hospital does not have data in all 3 years. As noted above, the MGCRB will evaluate applications using the 3- year average hourly wages for hospitals and geographic areas as published in Tables 2, 3A, and 3B of this final rule (unless those data are subsequently changed by CMS). Comment: One commenter requested that in cases of a change in ownership, a hospital be permitted the option of excluding prior years' wage data submitted by a previous owner for the purpose of calculating the average of the average hourly wages in order to qualify for reclassification. As a result, the average of the average hourly wages would be based on current and prior year data submitted by the new owner only. Response: We believe we should treat these cases in a manner consistent with how we treat hospitals whose ownership has changed for other Medicare payment purposes. That is, where a hospital has simply changed ownership and the new owners have acquired the assets and liabilities of the previous owners, all of the applicable wage data associated with that hospital are included in the calculation of its 3- year average hourly wage. On the other hand, in the case of a new hospital, where there is no legal obligation to the operations of a predecessor hospital, the wage data associated with the previous hospital's provider number would not be used in calculating the new hospital's 3-year average hourly wage. 3. Statewide Wage Index As stated earlier, section 304(b) of Public Law 106-554 provides for a process under which an appropriate statewide entity may apply to have all the geographic areas in the State treated as a single geographic area for purposes of computing and applying the area wage index for reclassifications beginning in FY 2003. Section 304 does not indicate the duration of the application of these statewide wage indexes. However, it should be noted that the statutory language does refer to these applications as reclassifications. In the May 4, 2001 proposed rule, we proposed that these statewide wage index applications be processed similar to MGCRB applications, with the same effective dates of the decisions and the withdrawal and termination process. Therefore, similar to wage index reclassification decisions under section 1886(d)(10)(D)(v) of the Act as added by section 304(a) of Public Law 106-554, the statewide wage index reclassification would be effective for a total of 3 years. The same deadlines and timetable applicable to MGCRB reclassification applications would apply for statewide wage index applications. We proposed to establish a new Sec. 412.235 to include the requirements for statewide wage indexes. We proposed to apply the following criteria to determine whether hospitals would be approved for a statewide geographic wage index reclassification (Sec. 412.235(a)): There must be unanimous support for a statewide wage index among hospitals in the State in which the statewide wage index would be applied. We would require a signed affidavit on behalf of all the hospitals in the State of this support as part of the application for reclassification. All hospitals in the State must apply through a signed single application for the statewide wage index in order for the application to be considered by the MGCRB. We believe this is necessary to ensure that every hospital in the State is included in the application, since the payment of every hospital would be affected by the statewide wage index. There must be unanimous support for the termination or withdrawal of a statewide wage index among hospitals in the State in which the statewide wage index would be applied. We would require a signed affidavit for this agreement. All hospitals in the State waive their rights to any wage index that they would otherwise receive absent the statewide wage index, including a wage index that any of the hospitals might have received through individual or group geographic reclassification under Sec. 412.273(a). An individual hospital within the State may receive a wage index that could be higher or lower under the statewide wage index reclassification in comparison to its wage index otherwise (Sec. 412.235(b)). Specifically, hospitals must be aware that there may be a reduction in the wage index as a result of participation on a statewide basis. In addition, we proposed to consider statewide wage index applications under the same process we use for hospital reclassification applications, including the effective dates of the MGCRB decision and the withdrawal and termination process (Sec. 412.235(c)). We proposed that applications for the statewide wage index would be effective for 3 years beginning with discharges occurring on the first day (October 1) of the second Federal fiscal year following the Federal fiscal year in which the hospitals file a complete application unless all of the participating hospitals withdraw their application or terminate their approved statewide wage index reclassification earlier, as discussed below. Once approved by the MGCRB, an application for a statewide wage index can only be withdrawn or terminated as a result of a signed affidavit on behalf of all the hospitals in the State indicating their request that the statewide reclassification be withdrawn or terminated. A request for withdrawal or termination must be submitted within 45 days of the publication of the annual proposed rule for the inpatient hospital prospective payment system announcing the reclassification. New hospitals that open prior to the September 1 deadline for submitting an application for a statewide wage index, but after a group [[Page 39891]] application has been submitted, would be required to agree to the statewide wage index in order for the group application to remain viable. New hospitals that open after the deadline for submitting an application would receive the statewide wage index. The agreement of new hospitals would also be required in order to withdraw or terminate a statewide wage index reclassification. The rules discussed under section IV.G.1.c. of this preamble for withdrawals of applications and terminations of approved 3-year wage index reclassification decisions would apply to decisions regarding statewide wage index reclassifications. Comment: Several commenters believed that Washington, DC should be recognized as a State for purposes of this statewide wage index reclassification policy. However, they were concerned that, while such a recognition may benefit hospitals located in Washington, DC, it may not benefit hospitals that are currently located outside of Washington, DC but within the Washington, D.C.-MD-VA-WV MSA. As a result, while these commenters believed that Washington, DC should be recognized as a State for this purpose, they also requested guidance about how the remainder of the hospitals in the current MSA would be treated. One commenter did not believe that Washington, DC should be considered a State for this purpose. However, this commenter also stated that, should we decide that Washington, DC could be considered a State for this purpose, we should configure the criteria such that none of the hospitals that are currently located in the Washington, D.C.-MD- VA-WV MSA would be harmed. Response: Section 304(b) of Public Law 106-554 directs the Secretary to establish a process ``under which an appropriate statewide entity may apply to have all the geographic areas in a State treated as a single geographic area for purposes of computing and applying the area wage index under section 1886(d)(3)(E) of [the Social Security] Act. * * *'' Most States encompass multiple labor market areas (urban MSAs and rural areas) with differing wage indexes, and we believe that the intent of section 304(b) is to offer hospitals within a State the opportunity to eliminate the disparate wage indexes resulting from separate urban and rural labor market areas within the State. However, hospitals in Washington, DC are not subject to disparate wage indexes. Washington, DC is part of a larger labor market area where all the hospitals receive the wage index for that labor market area (subject to MGCRB reclassifications). Put another way, Washington, DC is already ``treated as a single geographic area'' for purposes of the hospital wage index. If we treated Washington, DC as a separate distinct labor market area and applied the usual wage index methodology, Washington, DC hospitals might reap a significant windfall and the hospitals remaining in the MSA might be disadvantaged. Given the intended purpose of section 304(b), we believe that such results would be inappropriate. We believe that Congress did not intend for section 304(b) to address the type of situation presented by Washington, DC. As indicated above, section 304(b) permits a State to be treated as a single geographic area ``for purposes of computing and applying the area wage index under section 1886(d)(3)(E) of [the] Act.'' Section 304(b) does not specify how to compute and apply the wage index for statewide geographic areas. Under section 1886(d)(3)(E) of the Act, the Secretary has broad authority to develop and apply the methodology for determining the wage index for labor market areas, and section 304(b) did not limit the agency's authority. Thus, even if Washington, DC is a State for purposes of section 304(b), the Secretary has broad authority under section 1886(d)(3)(E) to determine the wage index for all affected hospitals. Given the purpose of section 304, and to avoid conferring an inappropriate and unintended windfall (or disadvantage) to hospitals, we are providing (pursuant to our broad authority under section 1886(d)(3)(E) of the Act) that, even if Washington, DC is a State for purposes of section 304(b) of Public Law 106-554, the wage index applicable to the Washington, DC ``statewide'' geographic area would be the same wage index that would apply to the Washington, DC-MD- VA-WV MSA as a whole (which would be calculated by including Washington, DC hospitals, in accordance with all applicable rules). H. Payment for Direct Costs of Graduate Medical Education (Sec. 413.86) 1. Background Under section 1886(h) of the Act, Medicare pays hospitals for the direct costs of graduate medical education (GME). The payments are based in part on the number of residents trained by the hospital. Section 1886(h) of the Act, as amended by section 4623 of Public Law 105-33, caps the number of residents that hospitals may count for direct GME. Section 1886(h)(2) of the Act, as amended by section 9202 of the Consolidated Omnibus Reconciliation Act (COBRA) of 1985 (Public Law 99- 272), and implemented in regulations at Sec. 413.86(e), establishes a methodology for determining payments to hospitals for the costs of approved GME programs. Section 1886(h)(2) of the Act, as amended by COBRA, sets forth a payment methodology for the determination of a hospital-specific, base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable costs of GME for a base period by its number of residents in the base period. The base period is, for most hospitals, the hospital's cost reporting period beginning in FY 1984 (that is, the period of October 1, 1983 through September 30, 1984). The PRA is multiplied by the number of FTE residents working in all areas of the hospital complex (or nonhospital sites, when applicable), and the hospital's Medicare share of total inpatient days to determine Medicare's direct GME payments. In addition, as specified in section 1886(h)(2)(D)(ii) of the Act, for cost reporting periods beginning on or after October 1, 1993, through September 30, 1995, each hospital's PRA for the previous cost reporting period is not updated for inflation for any FTE residents who are not either a primary care or an obstetrics and gynecology resident. As a result, hospitals with both primary care and obstetrics and gynecology residents and nonprimary care residents have two separate PRAs beginning in FY 1994: one for primary care and obstetrics and gynecology and one for nonprimary care. Section 1886(h)(2) of the Act was further amended by section 311 of Public Law 106-113 to establish a methodology for the use of a national average PRA in computing direct GME payments for cost reporting periods beginning on or after October 1, 2000, and on or before September 30, 2005. Generally, section 1886(h)(2) of the Act establishes a ``floor'' and a ``ceiling'' based on a locality-adjusted, updated, weighted average PRA. Each hospital's PRA is compared to the floor and ceiling to determine whether its PRA should be revised. PRAs that are below the floor, that is, 70 percent of the locality-adjusted, updated, weighted average PRA, would be revised to equal 70 percent of the locality- adjusted, updated, weighted average PRA. PRAs that exceed the ceiling, that is, 140 percent of the locality-adjusted, updated, weighted average PRA, would, depending on the fiscal year, either be frozen and not increased for inflation, or increased by a reduced inflation factor. [[Page 39892]] We implemented section 311 of Public Law 106-113 in the hospital inpatient prospective payment system final rule published on August 1, 2000 (65 FR 47090). In that final rule, we set forth the methodology for calculating the weighted average PRA and outlined the steps for determining whether a hospital's PRA would be revised. 2. Amendments Made by Section 511 of Public Law 106-554 (Sec. 413.86(e)(4)(ii)(C) and (e)(5)(iv)) Section 511 of Public Law 106-554 amended section 1886(h)(2)(D)(iii) of the Act by increasing the floor to 85 percent of the locality-adjusted national average PRA. In general, section 511 provides that, effective for cost reporting periods beginning on or after October 1, 2001, and before October 1, 2002, PRAs that are below 85 percent of the respective locality-adjusted national average PRA would be increased to equal 85 percent of that locality-adjusted national average PRA. Accordingly, we proposed to implement section 511 by revising Sec. 413.86(e)(4)(ii)(C)(1) to incorporate this change and by outlining the methodology for determining whether a hospital's PRA(s) will be adjusted in FY 2002 relative to the increased floor of the locality-adjusted national average PRA. In the August 1, 2000 final rule (65 FR 47091 and 47092), as implemented at Sec. 413.86(e)(4), we determined, in accordance with section 311 of Public Law 106-113, that the weighted average PRA for cost reporting periods ending during FY 1997 is $68,464. We described the procedures for updating the weighted average PRA of $68,464 for inflation to FY 2001 and for adjusting this average for the locality of each individual hospital. We then outlined the steps for comparing each hospital's PRA(s) to the locality-adjusted national average PRA to determine if, for cost reporting periods beginning on or after October 1, 2000, and before October 1, 2001, the PRAs should be revised to equal the 70-percent floor. In accordance with section 511 of Public Law 106-554, in the May 4 proposed rule, we proposed that, for cost reporting periods beginning during FY 2002, the FY 2002 PRAs of hospitals that are below 85 percent of the respective locality-adjusted national average PRA for FY 2002 be increased to equal 85 percent of that locality-adjusted national average PRA. Specifically, to determine which PRAs (primary care and nonprimary care separately) for each hospital are below the 85-percent floor, each hospital's locality-adjusted national average PRA for FY 2002 is multiplied by 85 percent. This resulting number is then compared to each hospital's PRA that is updated for inflation to FY 2002. If the hospital's PRA would be less than 85 percent of the locality-adjusted national average PRA, the individual PRA is replaced with 85 percent of the locality-adjusted national average PRA for that cost reporting period, and in future years the new PRA would be updated for inflation by the Consumer Price Index for All Urban Consumers (CPI- U) as compiled by the Bureau of Labor Statistics. There may be some hospitals with both primary care and nonprimary care PRAs that are below the floor, and both PRAs are, therefore, replaced with 85 percent of the locality-adjusted national average PRA. In these situations, the hospitals would receive a single PRA; a distinction between PRAs would no longer be made based on the different inflation adjustments (under Sec. 413.86(e)(3)(ii)). On the other hand, hospitals may have primary care PRAs that are above the floor, and nonprimary care PRAs that are below the floor. In these situations, only the nonprimary care PRAs would be revised to equal 85 percent of the locality adjusted national average PRA, and the prior year primary care PRAs would be updated for inflation by the CPI-U. An example of application of this provision appeared in the preamble of the May 4, 2001 proposed rule (66 FR 33697). We note that section 511 of Public Law 106-554 only affects hospitals with PRAs below the 85-percent floor, and does not affect hospitals with PRAs that are either between the floor and ceiling or exceed the ceiling. Thus, with the exception of the change in the floor as provided by section 511, the policy regarding the use of a national average PRA for making direct GME payments remains as implemented in the regulations at Sec. 413.86(e)(4). We proposed to amend Sec. 413.86(e)(4)(ii)(C)(1) to add the rules implementing section 1886(h)(2)(D)(iii) of the Act as amended by section 511 of Public Law 106-554. We also proposed to amend Sec. 413.86(e)(5) regarding the determination of base year PRAs for new teaching hospitals for cost reporting periods beginning during FYs 2001 through 2005. In the August 1, 2000 final rule, we made a conforming change to Sec. 413.86(e)(5) to account for situations in which hospitals do not have a 1984 base year PRA and establish a PRA in a cost reporting period after the 1984 base year. Existing Sec. 413.86(e)(5)(iv) specifies that the new base year PRAs of such hospitals are subject to the regulations regarding the floor and the ceiling of the locality-adjusted national average PRA. Although the determination of new base year PRAs is subject to the national average methodology, it is not necessary to include this provision in the regulations. Therefore, we proposed to remove Sec. 413.86(e)(5)(iv). In the proposed rule, we clarified that, for purposes of calculating a base year PRA for a new teaching hospital, when calculating the weighted mean value of PRAs of hospitals located in the same geographic area or the weighted mean value of the PRAs in the hospital's census region (as defined in Sec. 412.62(f)(1)(i)), the PRAs used in the weighted average calculation must not be less than the floors for cost reporting periods beginning during FY 2001 or FY 2002, or if they exceed the ceiling, they must either be frozen for FYs 2001 and 2002 or updated with the CPI-U minus 2 percent for FYs 2003 through 2005. In addition, existing Sec. 413.86(e)(5) provides that the PRA for a new teaching hospital is based on the lower of the hospital's actual costs incurred in connection with the GME program or the weighted mean value of PRAs. If a hospital's actual costs of the GME program during its cost reporting period beginning during FY 2001 or FY 2002 are less than the floors, the hospital's PRA would not be based on the actual costs. Instead, it would be equal to 70 percent in FY 2001, or 85 percent during FY 2002, of the locality-adjusted national average PRA. The floor applies to hospitals with existing PRAs in FYs 2001 and 2002, or to hospitals that are establishing new base year PRAs in FYs 2001 and 2002. We proposed to clarify that if a hospital establishes a new base year PRA in a cost reporting period beginning after FY 2002, its PRA would not be increased to equal the floor if it is less than the floor. Similarly, the ceiling applies to hospitals with existing PRAS in FYs 2001 through 2005, or to hospitals that are establishing new base year PRAs in FYs 2001 through 2005. Comment: One commenter believed that the provision to increase the PRA floor to 85 percent of the locality-adjusted national average will address many concerns about the fairness of GME payments. One commenter asked if the provisions of the proposed rule to increase PRAs that are less than 85 percent of the locality-adjusted national average PRA to equal 85 percent of the locality-adjusted national average PRA would provide relief to hospitals who do not have base year PRAs established in the 1984 base year and could not increase their PRAs because the appeal period has elapsed. [[Page 39893]] Response: Section 511 of the Public Law 106-554 amended section 1886(h)(2)(D)(iii) of the Act by increasing the floor to 85 percent of the locality adjusted national average PRA. Effective for cost reporting periods beginning on or after October 1, 2001 and before October 1, 2002, any PRAs that are below 85 percent of the respective locality-adjusted national average PRA would be increased to equal 85 percent of that locality-adjusted national average PRA. Accordingly, hospitals with PRAs (primary care and/or nonprimary care) that are less than 85 percent of the respective locality-adjusted national average PRA for the hospital's cost reporting period beginning on or after October 1, 2001 and before October 1, 2002, will have those PRAs increased to equal 85 percent of that locality-adjusted national average PRA. This provision sets the floor on per resident amounts for cost reporting periods beginning during FY 2002, regardless of the base year used to establish the hospital's PRA. Comment: One commenter requested that we clarify the references in the preamble stating that the national average PRA methodology is applicable for ``cost reporting periods beginning on or after October 1, 2000 and on or before September 30, 2005.'' The commenter believed that the PRA changes authorized in the law were meant to be permanent, and therefore, did not understand the basis for the September 30, 2005 endpoint. Response: The changes made to a hospital's PRA as a result of section 311 of Public Law 106-113 and section 511 of Public Law 106-554 are permanent. However, this new methodology for determining whether or not a hospital's PRA is revised, as described in the statute, is only effective for cost reporting periods beginning on or after October 1, 2000 and on or before September 30, 2005. For cost reporting periods beginning on or after October 1, 2005, a hospital's PRA, whether or not it was revised by the new methodology, is updated with the full CPI-U, using the procedures in place prior to October 1, 2000. If a hospital's PRAs are below the floors, they will be revised accordingly in FYs 2001 or 2002, or both. After FY 2002, that hospital's revised PRA will be updated for inflation as usual, that is, using the procedures in place for all PRAs prior to October 1, 2000. If a hospital's PRAs exceed the ceiling, the PRAs would be frozen in FYs 2001 and 2002, and updated with a reduced inflation factor in FYs 2003, 2004, and 2005. Thus, after September 30, 2005, although any changes made to a hospital's PRAs as a result of the new methodology would remain in place, the procedure for updating PRAs reverts back to the procedure in place prior to October 1, 2000, that is, updating for inflation with the full CPI-U. Comment: One commenter requested that we publish in the final rule the CPI-U factors that must be used to update the 1997 national average PRA to the midpoint of a hospital's cost reporting period beginning in FY 2001. Response: As the commenter requested, we are including below the CPI-U factors. For cost reporting periods beginning on or after October 1, 2000 and before October 1, 2001, the following update factors should be used when implementing section 311 of Public Law 106-113. Specific instructions for applying these factors can be found in the hospital inpatient prospective payment system final rule published on August 1, 2000 (65 FR 47091). (Refer to the bottom of the middle column and the right column on page 47091 for ``Step 1: Update the weighted average PRA for inflation''.) GME Update Factors for Midpoint of Periods Ending in FY 1997 to Cost Reporting Periods Beginning in FY 2001 Using the CPI (U)--All Items ------------------------------------------------------------------------ To midpoint of cost Update weighted average PRA reporting period Use update from: beginning: factor of: \*\ ------------------------------------------------------------------------ October 1, 1996................ October 1, 2000........ 1.11200 October 1, 1996................ November 1, 2000....... 1.11389 October 1, 1996................ December 1, 2000....... 1.11579 October 1, 1996................ January 1, 2001........ 1.11800 October 1, 1996................ February 1, 2001....... 1.12053 October 1, 1996................ March 1, 2001.......... 1.12307 October 1, 1996................ April 1, 2001.......... 1.12465 October 1, 1996................ May 1, 2001............ 1.12528 October 1, 1996................ June 1, 2001........... 1.12591 October 1, 1996................ July 1, 2001........... 1.12780 October 1, 1996................ August 1, 2001......... 1.13097 October 1, 1996................ September 1, 2001...... 1.13414 ------------------------------------------------------------------------ \*\ Source: Forecast by Standard and Poor's DRI; Historical Data through August 2000. 3. Determining the 3-Year Rolling Average for Direct GME Payments (Sec. 413.86(g)(4) and (g)(5)) Section 1886(h)(4)(G)(iii) of the Act, as added by section 4623 of Public Law 106-33, provides that for the hospital's first cost reporting period beginning on or after October 1, 1997, the hospital's weighted FTE count for direct GME payment purposes equals the average of the weighted FTE count for that cost reporting period and the preceding cost reporting period. For cost reporting periods beginning on or after October 1, 1998, section 1886(h)(4)(G) of the Act requires that hospitals' direct medical education weighted FTE count for payment purposes equal the average of the actual weighted FTE count for the payment year cost reporting
