[Federal Register: June 6, 2003 (Volume 68, Number 109)]
[Rules and Regulations]
[Page 34121-34190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jn03-17]
[[Page 34121]]
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Part III
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 412
Medicare Program; Prospective Payment System for Long-Term Care
Hospitals: Annual Payment Rate Updates and Policy Changes; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412
[CMS-1472-F]
RIN 0938-AL92
Medicare Program; Prospective Payment System for Long-Term Care
Hospitals: Annual Payment Rate Updates and Policy Changes
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule establishes the annual update of the payment
rates for the Medicare prospective payment system (PPS) for inpatient
hospital services provided by long-term care hospitals (LTCHs). It also
changes the annual period for which the rates are effective. The rates
will be effective from July 1 to June 30 instead of from October 1
through September 30, establishing a ``long-term care hospital rate
year'' (LTCH PPS rate year). We also change the publication schedule
for these updates to allow for an effective date of July 1. The payment
amounts and factors used to determine the updated Federal rates that
are described in this final rule have been determined based on this
revised LTCH PPS rate year. The annual update of the long-term care
diagnosis-related groups (LTC-DRG) classifications and relative weights
remains linked to the annual adjustments of the acute care hospital
inpatient diagnosis-related group system, and will continue to be
effective each October 1.
The outlier threshold for July 1, 2003, through June 30, 2004, is
also derived from the LTCH PPS rate year calculations.
In addition, we are making an adjustment to the short-stay outlier
policy for certain LTCHs and a policy change eliminating bed-number
restrictions for pre-1997 LTCHs that have established satellite
facilities and elect to be paid 100 percent of the Federal rate or when
the LTCH is fully phased-in to 100 percent of the Federal prospective
rate after the transition period.
EFFECTIVE DATE: The provisions of this final rule are effective June
30, 2003.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487 (General information);
Judy Richter, (410) 786-2590 (General information, transition payments,
payment adjustments, and onsite discharges and readmissions,
interrupted stays and short-stay outliers);
Michele Hudson, (410) 786-5490 (Calculation of the payment rates,
relative weights and case-mix index, market basket update, and payment
adjustments);
Ann Fagan, (410) 786-5662 (Patient classification system);
Miechal Lefkowitz, (410) 786-5316 (High-cost outliers and budget
neutrality);
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted stay,
and transition period);
Kathryn McCann, (410) 786-7623 (Medigap);
Robert Nakielny, (410) 786-4466 (Medicaid).
SUPPLEMENTARY INFORMATION:
Availability of Copies and Electronic Access
Copies: To order copies of the Federal Register containing this
document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
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calling the order desk at (202) 512-1800 or by faxing to (202) 512-
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and photocopy the Federal Register document at most libraries
designated as Federal Depository Libraries and at many other public and
academic libraries throughout the country that receive the Federal
Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The Web site address is: http://www.gpoaccess.gov/nara/index.html
.
To assist readers in referencing sections contained in this
preamble, we are providing the following table of contents.
Table of Contents
I. Background
A. Legislative and Regulatory Authority
B. Criteria for Classification as a LTCH
C. Transition Period for Implementation of the LTCH PPS
D. Limitation on Charges to Beneficiaries
E. System Implementation for the LTCH PPS
II. Publication of Proposed Rulemaking
III. Summary of the Major Contents of This Final Rule
A. Change in the Annual Update
B. Update Changes
IV. Changes in the Annual Update of the LTCH PPS
V. Changes in Long-Term Care Diagnosis-Related Group (LTC-DRG)
Classifications and Relative Weights
A. Background
B. Patient Classifications into DRGs
C. Organization of DRGs
D. Update of LTC-DRGs
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
2. Maintenance of the ICD-9--CM Coding System
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
F. Changes to the Method for Updating the LTC-DRG Relative
Weights
VI. Policy Change Relating to Payments to LTCHs That Are Satellite
Facilities
VII. Changes to the LTCH PPS Rates for the 2004 LTCH PPS rate year
A. Overview of the Development of the Payment Rates
B. Update to the Standard Federal Rate for the 2004 LTCH PPS
rate year
1. Standard Federal Rate Update
a. Description of the Market Basket for the 2004 LTCH PPS rate
year
b. LTCH Market Basket Increase for the 2004 LTCH PPS rate year
2. Standard Federal Rate for the 2004 LTCH PPS rate year
C. Calculation of LTCH Prospective Payments for the 2004 LTCH
PPS rate year
1. Adjustment for Area Wage Levels
2. Adjustment for Cost-Of-Living in Alaska and Hawaii
3. Adjustment for High-Cost Outliers
4. Adjustment for Special Cases a. General
b. Short-Stay Outlier Cases
c. Interrupted Stay
d. Onsite Discharges and Readmittances
e. Treatment of Swing Beds Under the Interrupted Stay and Onsite
Discharge and Readmittance Policies
5. Other Payment Adjustments
6. Budget Neutrality Offset to Account for the Transition
Methodology
VIII. Computing the Adjusted Federal Prospective Payments
IX. Transition Period
X. Payments to New LTCHs
XI. Method of Payment
XII. Monitoring
XIII. Collection of Information Requirements
XIV. Regulatory Impact Analysis
A. Introduction
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Impact on Rural Hospitals
4. Unfunded Mandates
5. Federalism
B. Anticipated Effects
1. Budgetary Impact
2. Impact on Providers
3. Calculation of Prospective Payments
4. Results
5. Effect on the Medicare Program
6. Effect on Medicare Beneficiaries
C. Executive Order 12866
Regulations Text
Addendum-Tables
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Acronyms
Because of the many terms to which we refer by acronym in this
proposed rule, we are listing the acronyms used and their
corresponding terms in alphabetical order below:
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Public
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Public Law 106-554
CMS Centers for Medicare & Medicaid Services
DRGs Diagnosis-related groups
FY Federal fiscal year
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act, Public
Law 104-191
IPPS Acute Care Hospital Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LTC--DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review file
OSCAR Online Survey Certification and Reporting (System)
PPS Prospective Payment System
QIO Quality Improvement Organization (formerly Peer Review
organization (PRO))
SNF Skilled nursing facility
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law
97-248
I. Background
A. Legislative and Regulatory Authority
The Medicare, Medicaid, and SCHIP (State Children's Health
Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub.
L. 106-113) and the Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 (BIPA) (Pub. L.106-554) provide for payment
for both the operating and capital-related costs of hospital inpatient
stays in long-term care hospitals (LTCHs) under Medicare part A based
on prospectively set rates. The Medicare prospective payment system for
LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of
the Social Security Act (the Act), effective for cost reporting periods
beginning on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: Specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (as determined by the Secretary) of greater
than 20 days and has 80 percent or more of its annual Medicare
inpatient discharges with a principal diagnosis that reflects a finding
of neoplastic disease in the 12-month cost reporting period ending in
FY 1997.
Section 123 of Public Law 106-113 requires the prospective payment
system for LTCHs to be a per discharge system with a diagnosis-related
group (DRG) based patient classification system that reflects the
differences in patient resources and costs in LTCHs while maintaining
budget neutrality.
Section 307(b)(1) of Public Law 106-554, among other things,
mandates that the Secretary shall examine and may provide for
adjustments to payments under the LTCH PPS, including adjustments to
DRG weights, area wage adjustments, geographic reclassification,
outliers, updates, and a disproportionate share adjustment.
In a Federal Register document issued on August 30, 2002 (67 FR
55954), we implemented the LTCH PPS authorized under Public Law 106-113
and Public Law 106-554. This system uses information from LTCH patient
records to classify patients into distinct long-term care diagnosis-
related groups (LTC-DRGs) based on clinical characteristics and
expected resource needs. Payments are calculated for each LTC-DRG and
provisions are made for appropriate payment adjustments. Payment rates
under the LTCH PPS are updated annually and published in the Federal
Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
Public Law 97-248, for payments for inpatient services provided by a
LTCH with a cost reporting period beginning on or after October 1,
2002. (The regulations implementing the TEFRA (reasonable cost-based)
payment provisions are located at 42 CFR part 413.) With the
implementation of the prospective payment system for inpatient acute
care hospitals authorized by the Social Security Amendments of 1983
(Public Law 98-21), which added section 1886(d) to the Act, certain
hospitals, including LTCHs, were excluded from the PPS for acute care
hospitals and were paid their reasonable costs for inpatient services
subject to a per discharge limitation or target amount under the TEFRA
system. For each cost reporting period, a hospital-specific ceiling on
payments was determined by multiplying the hospital's updated target
amount by the number of total current year Medicare discharges. The
August 30, 2002, final rule further details payment policy under the
TEFRA system (67 FR 55954).
In the August 30, 2002, final rule, we presented an in-depth
discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
budget neutrality requirements mandated by section 123 of Public Law
106-113. The same final rule, that established regulations for the LTCH
PPS under 42 CFR part 412, subpart O, also contained provisions related
to covered inpatient services, limitation on charges to beneficiaries,
medical review requirements, furnishing of inpatient hospital services
directly or under arrangement, and reporting and recordkeeping
requirements.
We refer readers to the August 30, 2002, final rule (67 FR
55954)for a comprehensive discussion of the research and data that
supported the establishment of the LTCH PPS.
B. Criteria for Classification as a LTCH
LTCHs must have a provider agreement with Medicare and (1) must
have an average Medicare inpatient length of stay of greater than 25
days, or (2), for a hospital that was first excluded from the PPS in
1986, must have an average inpatient length of stay for all patients,
including both Medicare and non-Medicare inpatients, of greater than 20
days and demonstrate that at least 80 percent of its annual Medicare
inpatient discharges in the 12-month cost reporting period ending in FY
1997 have a principle diagnosis that reflects a finding of neoplastic
disease. Subject to the provisions of Sec. 412.23(e)(3), for the first
type of LTCHs as noted above, the average Medicare inpatient length of
stay is determined based on all covered and noncovered days of stay of
Medicare patients as calculated by dividing the total number of covered
and noncovered days of stay of Medicare inpatients (less leave or pass
days) by the number of total Medicare discharges for the hospital's
most recent complete cost reporting period. Fiscal intermediaries
verify that LTCHs meet the average length of stay requirements. We note
that the inpatient days of a patient who is admitted to a LTCH without
any remaining Medicare days of coverage, regardless of the fact that
the patient is a Medicare beneficiary, will not be included in the
above calculation. Because Medicare would not be paying for any of the
patient's treatment, data on the patient's stay would not be included
in our systems. In order for noncovered days of a LTCH
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hospitalization to be included, a patient must have at least one
remaining benefit day as described in Sec. 409.61.
The fiscal intermediary's determination of whether or not a
hospital qualifies as an LTCH is based on the hospital's discharge data
from its most recent cost reporting period and is effective at the
start of the hospital's next cost reporting period, as set forth under
Sec. 412.22(d). If a hospital does not meet the length of stay
requirement, the hospital may provide the intermediary with data
indicating a change in the hospital's average length of stay by the
same method for the immediately preceding 6-month period (Sec.
412.23(e)(3)(ii)). (For procedural efficiency and in order to comply
with the timing requirement of Sec. 412.22(d), we have a longstanding
policy of allowing hospitals to submit data for a period greater than
5-months for this purpose.) Requirements for hospitals seeking
classification as LTCHs that have undergone a change in ownership, as
described in Sec. 489.18, are set forth in Sec. 412.23(e)(3)(iii).
LTCHs that exist as hospitals-within-hospitals or satellite
facilities must also meet the criteria set forth in Sec. 412.22(e) or
Sec. 412.22(h), respectively, to be excluded from the IPPS and paid
under the LTCH PPS.
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c) and, therefore, are not subject to the
LTCH PPS rules:
[sbull] Veterans Administration hospitals.
[sbull] Hospitals that are reimbursed under State cost control
systems approved under 42 CFR Part 403.
[sbull] Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of Public Law
90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42
U.S.C. 1395b-1 (note)) (statewide all-payer systems, subject to the
rate-of-increase test at section 1814(b) of the Act).
[sbull] Nonparticipating hospitals furnishing emergency services to
Medicare beneficiaries.
C. Transition Period for Implementation of the LTCH PPS
In the August 30, 2002, final rule, we provided for a 5-year
transition period from cost-based reimbursement to fully Federal
prospective payment for LTCHs (67 FR 56038). During the 5-year period,
two payment percentages are to be used to determine a LTCH's total
payment under the PPS. The blend percentages are as follows:
------------------------------------------------------------------------
Prospective Cost-based
Cost reporting periods beginning on or payment reimbursement
after Federal rate rate
percentage percentage
------------------------------------------------------------------------
October 1, 2002......................... 20 80
October 1, 2003......................... 40 60
October 1, 2004......................... 60 40
October 1, 2005......................... 80 20
October 1, 2006......................... 100 0
------------------------------------------------------------------------
D. Limitation on Charges to Beneficiaries
In the August 30, 2002, final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH prospective payment
system (67 FR 55974-55975). Under Sec. 412.507, as consistent with
other established hospital prospective payment systems, a LTCH may not
bill a Medicare beneficiary for more than the deductible and
coinsurance amounts as specified under Sec. Sec. 409.82, 409.83, and
409.87 and for items and services as specified under Sec. 489.30(a),
if the Medicare payment to the LTCH is the full LTC-DRG payment amount.
However, if the Medicare payment was for a short-stay outlier case
(Sec. 412.529) that was less than the full LTC-DRG payment amount, the
LTCH could also charge the beneficiary for services for which the costs
of those services or the days those services were provided were not a
basis for calculating the Medicare short-stay outlier payment (Sec.
412.507).
Since the origin of the Medicare system, the intent of our
regulations has been to set limits on beneficiary liability and to
clearly establish the circumstances under which the beneficiary would
be required to assume responsibility for payment; that is, upon
exhausting benefits described in 42 CFR part 409, subpart F. The
discussion in the August 30, 2002, final rule was not meant to
establish rates or payments for, or define, Medicare-eligible expenses.
While we regulate beneficiary liability for coinsurance and deductibles
for hospital stays that are covered by Medicare, payments from Medigap
insurers to providers for inpatient hospital coverage after Medicare
benefits are exhausted are not regulated by us. Furthermore,
regulations beginning at Sec. 403.200 and the 1991 National
Association of Insurance Commissioners (NAIC) Model Regulation for
Medicare Supplemental Insurance, which was incorporated by reference
into section 1882 of the Act, govern the relationship between Medigap
insurers and beneficiaries.
E. System Implementation for the LTCH PPS
When we established the regulations to implement the LTCH PPS on
August 30, 2002 (67 FR 55954), effective for cost reporting periods
that began on or after October 1, 2002, we did not have computer system
changes in place that were necessary to accommodate claims processing
and payment under the system. However, after January 1, 2003, we made
the necessary system changes. Accordingly, after January 1, 2003, the
fiscal intermediary has been required to reconcile the payment amounts
that had been made to LTCHs for all covered inpatient hospital services
furnished to Medicare beneficiaries from cost reporting periods that
began on or after October 1, 2002, through January 1, 2003, with the
amounts that were payable under the LTCH PPS methodology. Because the
LTCH PPS was effective at the start of the LTCH's first cost reporting
period that began on or after October 1, 2002, only those LTCHs with
cost reporting periods that started October 1, 2002, through January 1,
2003, will experience the payment reconciliation necessitated by this
3-month period prior to systems implementation. The claims submission
procedure of using ICD-9-CM codes has not changed following the systems
implementation of the LTCH PPS.
We also want to note that as of October 16, 2002, a LTCH that was
required to comply with the Administrative Simplification Standards
under the Health Insurance Portability and Accountability Act (HIPAA)
(Pub. L. 104-191) and that had not obtained an extension in compliance
with the Administrative Compliance Act (Pub. L. 107-105) is obligated
to comply with the standards for submitting claim forms to the
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LTCH's Medicare fiscal intermediary (45 CFR 162.1002 and 45 CFR
162.1102). Beginning October 16, 2003, LTCHs that obtained an extension
and that are required to comply with the HIPPA Administrative
Simplification Standards must start submitting electronic claims in
compliance with the HIPPA regulations cited above, among others.
II. Publication of Proposed Rulemaking
On March 7, 2003, we published a proposed rule in the Federal
Register (67 FR 11234) that set forth the proposed annual update of the
payment rates for the Medicare prospective payment system (PPS) for
inpatient hospital services provided by long-term care hospitals
(LTCHs). In that rule, we proposed to change the annual period during
which the updated payment rates for the LTCH PPS would be effective
from October 1 through September 30 to a LTCH PPS rate year from July 1
through June 30. We also proposed to change the publication schedule
for these updates to allow for an effective date of July 1. The
proposed payment amounts and factors used to determine the proposed
updated Federal rates that were described in the March 7, 2003,
proposed rule were determined based on the proposed revised update LTCH
PPS rate year. However, the annual update of the long-term care
diagnosis-related groups (LTC-DRG) classifications and relative weights
remain linked to the annual adjustments of the acute care hospital
inpatient diagnosis-related group system, effective each October 1. In
the March 7, 2003, proposed rule, we also proposed the outlier
threshold for July 1, 2003, through June 30, 2004, that was derived
from the proposed LTCH PPS rate year calculations. We also proposed a
change for outlier payments under the LTCH PPS. In addition, we
proposed a policy change eliminating bed-number restrictions for pre-
1997 LTCHs that have established satellite facilities and that elect to
be paid 100 percent of the Federal rate or when the LTCH is fully
phased-in to 100 percent of the Federal prospective rate after the
transition period.
We received a total of 32 timely items of correspondence containing
multiple comments on the proposed rule. The major issues addressed by
the commenters included: The establishment of the LTCH PPS rate year
and its relation to the update of the Federal rates; the LTC-DRGs and
the wage index; satellite policy and budget neutrality calculations;
high-cost and short-stay outliers; market basket and labor share;
disproportionate share (DSH) and Graduate Medical Education (GME)
policies.
Summaries of the public comments received and our responses to
those comments are described below under the appropriate subject
heading.
III. Summary of the Major Contents of This Final Rule
In this final rule, we set forth the annual update to the payment
rates for the Medicare LTCH PPS and make other policy changes. The
following is a summary of the major areas that we are addressing in
this final rule:
A. Change in the Annual Update
We are changing the annual update to the Federal payment rate under
the LTCH PPS from the Federal fiscal year (October 1 through September
30) to a ``LTCH PPS rate year'' of July l through June 30, beginning
July l, 2003, as discussed in section IV. of this preamble. (In this
final rule, we define the LTCH PPS rate year as the period from July 1
to June 30 for updates to the LTCH PPS.) As noted below, we will now
publish information on the annual update in the Federal Register on or
before May 1 prior to the start of each long-term care hospital
prospective payment system rate year that begins July 1, unless for
good cause it is published after May 1, but before June 1. We have
already noted that the annual update of the LTC-DRGs will be published
in the proposed and final rules for the IPPS. We also recognize that it
may be necessary to address issues affecting LTCHs at a time that does
not conform to the schedule above. In such a situation, we would use
another Federal Register document (that is, the acute care hospital
inpatient prospective payment system (IPPS) proposed rule or final
rule) as the vehicle to present that issue.
B. Update Changes
[sbull] In section IV. of this preamble, the annual update of the
LTC-DRG classifications and relative weights remain linked to the
annual adjustments of the acute care hospital inpatient DRG system,
which are based on the annual revisions to the International
Classification of Diseases, Ninth Revision, Clinical Modification (ICD-
9-CM) codes, effective each October 1.
[sbull] In section VI. of this preamble, we discuss a policy change
on how Medicare payment under the LTCH PPS will be made to certain
LTCHs that have satellite facilities.
[sbull] In sections VII. through XI. of this preamble, we discuss
our determination of the LTCH PPS rates that are applicable to the LTCH
PPS rate year of July 1, 2003, through June 30, 2004, including
revisions to the wage index, the excluded hospital with capital market
basket that will be applied to the current standard Federal rate to
determine the prospective payment rates, the applicable adjustments to
payments, the outlier threshold, the short-stay outlier policy for
certain LTCHs, the transition period, and the budget neutrality factor.
[sbull] In section XII. of this preamble, we discuss our continuing
monitoring efforts to evaluate the LTCH PPS.
[sbull] In section XIV. of this preamble, we set forth an analysis
of the impact of the changes in this final rule on Medicare
expenditures and on Medicare-participating LTCHs and Medicare
beneficiaries.
IV. Changes in the Annual Update of the LTCH PPS
In existing regulations at Sec. 412.535 that were issued in the
August 30, 2002, final rule, we specify a schedule for publishing
information on the LTCH PPS on or before August 1, which coincided with
the statutorily mandated publication schedule for the IPPS. In the
March 7, 2003, proposed rule, we proposed to revise Sec. 412.535 to
provide generally for a change in the annual rate update for the LTCH
PPS, starting on July 1.
Section 1886(e)(5)(A) of the Act requires that, for the IPPS, the
proposed rule be published in the Federal Register ``not later than the
April 1 before each fiscal year; and the final rule, not later than the
August 1 before such fiscal year.'' The statute imposes no such
publication schedule for the LTCH PPS. In the August 30, 2002, final
rule, we stated that we were considering changing the publication
schedule of the LTCH PPS annual rulemaking cycle in order to avoid
concurrent publication of annual rules for these two systems for
purposes of administrative feasibility and efficiency (67 FR 55977). In
considering a change in the publication schedule of the LTCH PPS final
rule, we contemplated a change in the effective date for updating the
Federal rates for the LTCH PPS. Therefore, in the March 7, 2003,
proposed rule, we proposed changing the effective date of the annual
update for the LTCH PPS from October 1 to July 1 of each year in order
to facilitate a timely publication of these two significant payment
updates (IPPS and LTCH PPS). Thus, the annual update of the LTCH PPS
Federal rates would no longer be linked to the start of the Federal
fiscal year, as is the update of the IPPS. We had proposed that this
change would necessitate publication of the final rule for the
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LTCH PPS by no later than June 1 of each year (proposed revised Sec.
412.535).
In the March 7, 2003, proposed rule, we also proposed to amend
Sec. 412.503 to include a definition of ``LTCH PPS rate year''. A
``LTCH PPS rate year'' would mean the 12-month period of July 1 through
June 30. In the proposed rule, we stated that we would use this period
for those calculations related to updating the Federal rate for
payments under the LTCH PPS. We also stated that the determination of
the proposed fixed-loss threshold for outlier payment calculations,
under Sec. 412.525(a), would also be calculated based on the LTCH PPS
rate year. (Section VII.C. of this final rule includes a more detailed
discussion of our outlier policy.)
Proposing a change for the annual Federal rate update period for
the LTCH PPS also necessitated a proposed recalculation of the excluded
hospital market basket with capital estimate for the proposed
forthcoming payment year, July 1, 2003, through June 30, 2004. In the
August 30, 2002, final rule, we established a Federal rate of $34,956
that was computed based on the excluded hospital with capital market
basket calculated for the 12-month Federal fiscal year of October 1,
2002, through September 30, 2003. As already noted, we proposed to
change the Federal rate update for the LTCH PPS from the Federal fiscal
year to a 12-month LTCH PPS rate year of July 1 through June 30, and
the proposed rates in the March 7, 2003, proposed rule were based on
this period. Because the Federal rate of $34,956 was originally
computed based on a 12-month year, but in actuality will only be used
for 9 months, if the proposed change in the LTCH PPS rate update year
was finalized, we proposed, in the March 7, 2003, proposed rule, to
make a budget neutral adjustment to the market basket update taking
this 3-month differential into account in setting the Federal rate for
July 1, 2003, through June 30, 2004. In addition, we proposed that the
change in the 2004 LTCH PPS rate year would be budget neutral. In
section VII.B.1 of this final rule, we describe this adjustment in
greater detail.
In the March 7, 2003, proposed rule, we proposed to update the LTCH
PPS wage index that adjusts for differences in area wages under Sec.
412.525(c) using the FY 1999 IPPS wage data because these are the best
available wage data (as discussed in section VII.C. of this preamble).
We also stated that we were proposing to recalculate the budget
neutrality offset to account for the effect of the transition period
and the policy allowing LTCHs to elect 100 percent Federal rate
payments rather than the transition blend.
We also proposed an updated fixed-loss amount for determining
outlier payments based on the updated proposed Federal rate (as
discussed in section VII. of this preamble).
In section IV.C. of the March 7, 2003, proposed rule, we stated
that we did not propose an update to the LTC-DRG classifications or
relative weights at this time. Currently, the LTC-DRG patient
classifications used by the LTCH PPS for FY 2003 are based directly on
the same version of DRGs used by the IPPS, that is, GROUPER 20.0.
Therefore, we did not propose any change to the timing of the annual
update of the LTC-DRG classifications and relative weights. They will
remain linked to the annual adjustments of the acute care hospital
inpatient DRG system, which are based on the annual revisions to the
ICD-9-CM codes, effective each October 1. Table 3 of the Addendum to
the August 30, 2002, final rule (67 FR 56076-56084), which were
reprinted as Table 3 of the Addendum to the March 7, 2003, proposed
rule, contains the LTC-DRG classifications and relative weights that we
proposed to continue to apply to discharges occurring during the period
of July 1, 2003, through September 30, 2003. As an aid in calculating
payment under the short-stay outlier policy, under Sec. 412.529, we
also are including, in column 3 of Table 3, the proposed five-sixths
average length of stay that will be applied to each LTC-DRG in
determining whether the LTCH stay is a short-stay outlier. The average
length of stay for each DRG based on the FY 2001 MedPAR data, which
were used for the FY 2003 LTCH PPS final rule, are still the best
available complete LTCH discharge data available at this time.
The revised LTC-DRG classifications and relative weights for
discharges occurring from October 1, 2003, through September 30, 2004,
for payments under the LTCH PPS during that period would continue to be
updated on a Federal fiscal year cycle as is the case for the acute
care hospital inpatient DRG system. The FY 2004 DRGs and relative
weights for the IPPS had not yet been proposed by the time the March 7,
2003, proposed rule was published and we were unable to propose updated
LTC-DRGs and relative weights (which would be based on the proposed
updated acute care hospital inpatient DRGs). Thus, we proposed that the
LTC-DRG classifications and relative weights would be presented for
public comment in the proposed rule for the IPPS and finalized in the
IPPS final rule, with an effective date of October 1, 2003.
The proposed change in the LTCH PPS rate year for the LTCH PPS from
October 1 through September 30 to July 1 through June 30 means that,
although the Federal rate calculations in the August 30, 2002, final
rule were based on a 12-month year, only 9 months will elapse before
the July 1, 2003, update. In the March 7, 2003, proposed rule, we
proposed to make a prospective adjustment to the market basket update
to take into account this 3-month differential in setting the rates for
July 1, 2003, through June 30, 2004.
Specifically, we explained that the proposed updates for the
proposed 2004 LTCH PPS rate year would be affected as follows:
[sbull] The proposed update to the standard Federal rate calculated
in accordance with Sec. 412.523(c)(3) would be adjusted to account for
updating the standard Federal rate on July 1, 2003, instead of October
1, 2003.
[sbull] The fixed-loss amount for determining high-cost outlier
payments under Sec. 412.525(a) would also be updated based on the
Federal rate effective for July 1, 2003, through June 30, 2004.
In section VI.B.1 of the March 7, 2003, proposed rule, we discussed
the proposed computational adjustments resulting from our proposed
establishment of a LTCH PPS rate year beginning July 1, 2003, through
June 30, 2004.
In the March 7, 2003, proposed rule, we stated that several
provisions of the LTCH PPS would not be affected by the change in the
annual rate update year for the LTCH PPS from October 1 to July 1
because these policies are not based on any of the Federal rate
calculations for the LTCH PPS. Specifically, the following provisions
would not be affected:
[sbull] The transition blends provided for under Sec. 412.533(a)
will not be affected because they are linked to the start of each
LTCH's cost reporting period, rather than to the start of the Federal
fiscal year. (LTCHs being paid under the transition blend methodology
will receive those blends for the entire 5-year transition period,
unless they elect payments based on 100 percent of the Federal rate.)
For instance, for cost reporting periods that began on or after October
1, 2002, and before October 1, 2003, the total payment for a LTCH is 80
percent of the amount that will be calculated under the reasonable
cost-based payment system for that specific LTCH and 20 percent of the
Federal prospective payment amount. For cost reporting periods
beginning on or after October 1, 2003, and before October 1, 2004, the
total payment for a LTCH is
[[Page 34127]]
60 percent of the amount that will be calculated under the reasonable
cost-based payment system for that specific LTCH and 40 percent of the
Federal prospective payment amount.
[sbull] The 5-year phase-in of the adjustment for differences in
area wage levels under Sec. 412.525(c) will not be affected because
they are linked to the start of each LTCH's cost reporting period,
rather than to the start of the Federal fiscal year. For cost reporting
periods that began on or after October 1, 2002, and before September
30, 2003, the applicable LTCH PPS wage index is one-fifth of the full
LTCH wage index value, and for cost reporting periods beginning on or
after October 1, 2003, and before September 30, 2004, the applicable
LTCH PPS wage index is two-fifths of the full LTCH wage index value.
[sbull] The LTC-DRGs and their relative weights and the GROUPER
will not be affected since they will continue to be updated effective
October 1 through September 30 each year based on the changes to the
DRGs published in the IPPS final rule.
We received eight comments regarding our proposal to change the
effective date of the annual update for the LTCH PPS from October 1 to
July 1 of each year.
Comment: Two commenters supported the establishment of the LTCH PPS
rate year, but suggested that publishing the final rule each year by
May 1, rather than by June 1 would allow LTCHs additional time for
adjustments to their payment systems.
Response: We thank the commenters for endorsing the establishment
of the revised LTCH PPS rate year. In changing the effective date of
the LTCH PPS rate year update and the resulting publication dates of
the proposed and final regulations for the system, we stated that this
shift in the schedule would promote ``administrative feasibility and
efficiency,'' by avoiding concurrent rulemaking and publishing with the
IPPS final rule. As we have already noted, section 1886(e)(5)(A) of the
Act requires that, for the IPPS, the proposed rule be published in the
Federal Register ``not later than the April 1 before each fiscal year;
and the final rule, not later than the August 1 before such fiscal
year,'' but no similar requirement is imposed on the LTCH PPS.
Publishing a final rule annually by May 1 in order to allow 60-days
between publication and effective date of the LTCH PPS rate update does
not invalidate our stated objectives. Therefore, we will revise the
regulations to require publication of the final LTCH rule by May 1 of
each year unless for ``good cause'' we are unable to publish by that
date, but before June 1. (We note that ``good cause'' used in this
context is not coextensive and is broader than the ``good cause''
standard used in the Administrative Procedures Act (A.P.A.) at 5 U.S.C.
section 553(d)(3).)
Comment: Several commenters took issue with the proposed change in
the effective date of the annual update for the LTCH PPS from October 1
to July 1 of each year while still retaining the October 1 effective
date for updating LTC-DRG classifications and weights. They believe
that this policy change will be burdensome to LTCHs, requiring two
separate updates during one cost reporting period as well as increased
systems costs. These commenters urged us to remain with the existing
update and publication schedule and some suggested deferring the change
until full implementation of the LTCH PPS in FY 2006. One commenter
raised the issue that this ``fragmentary'' implementation of individual
updates will increase potential payment calculation errors for LTCHs.
Another commenter urged us to pay LTCHs as a ``pass through'' for any
expenses that they incur in complying with the new regulations, should
they be made final.
One commenter stated that administrative feasibility and efficiency
at CMS did not justify burdening LTCHs in this manner. One of the
commenters asserted that the costs for updating LTCH billing systems to
accommodate this change in the LTCH PPS rate year will have a
considerable impact on LTCHs as Small Businesses and, therefore, should
have been reviewed under the A.P.A and the Regulatory Flexibility Act
(RFA).
Response: In response to these commenters, we first want to
establish the fact that we have no requirement that LTCHs maintain
payment systems or coding software in order to be paid under the LTCH
PPS. We understand that it is common for many hospitals, consultants,
and industry associations to do so, but we believe that some of the
commenters who oppose the proposed change in the LTCH PPS rate year for
the LTCH PPS to July 1 through June 30 while retaining October 1
through September 30 for the LTC-DRG update are oversimplifying what
presently exists from a systems standpoint. Currently, all providers
with cost reporting periods beginning in any month other than October
already are subject to two separate updates. In addition, rate changes
may occur during the fiscal year because of Congressional action for
services rendered ``on or after'' the date that the rate change was
effective. Additionally, ongoing audit and review procedures, provider-
generated appeals procedures, and either administrative or judicial
decisions also can produce hospital-level rate changes not associated
with the start of a Federal fiscal year.
As noted above, we do not require providers to process claims or to
determine LTC-DRG assignments, but should a LTCH or any other group
choose to duplicate the PRICER software that is required for fiscal
intermediaries, or the GROUPER software that we use, it is an
individual business determination.
We primarily want to remind the commenters that the determination
of Medicare payments based on submitted claims is solely a
responsibility of each fiscal intermediary. Since payments to LTCHs
will be based on claims processing done by fiscal intermediaries, we do
not understand one commenter's assertion that we should not implement
this policy because one of the payment consequences in establishing the
LTCH PPS rate year will be to cause potential calculation errors by
LTCHs.
Nowhere in our regulations are LTCHs required to maintain the
systems capability to calculate payments. Therefore, although
individual LTCHs and other groups may elect, for their own purposes, to
purchase software packages in order to duplicate work done by our
contractors, we do not agree that those costs should be paid as a pass-
through by us. Moreover, we continue to believe that since the start of
cost reporting periods for many LTCHs, as well as acute care hospitals,
have not generally coincided with the October starting date of the
Federal fiscal year, those hospitals that choose to have their own
payment software are very familiar with the virtually seamless routine
of inputting new numbers to their existing systems when a final rule is
published. We do not believe that this policy will be unduly burdensome
to such LTCHs. We also point out to the commenters that with
publication of the proposed rule on March 7, 2003, we have complied
with the A.P.A. As to the RFA, as stated in the proposed rule (68 FR
11259), this rule would not have a significant impact on small entities
(this includes small businesses).
In response to the two comments suggesting that we delay
implementation of this policy until full phase-in of the LTCH PPS in FY
2006, based on our evaluation of the above comments, we do not believe
that such a decision is warranted.
Comment: One commenter suggested that if we found it necessary to
[[Page 34128]]
reschedule the effective date and publication cycle of one of the post-
acute care prospective payment systems, we should do so for Home Health
Agency (HHA) or Skilled Nursing Facilities (SNF) which are not DRG-
based, and, therefore, not linked to the October 1 update.
Response: As we have noted elsewhere in this final rule, there is
no statutory authority requiring the update of the LTCH PPS to coincide
with the October 1 start of the Federal fiscal year. On the contrary,
annual updates linked to the October 1 start of the Federal fiscal year
are required for both the SNF PPS, under section 1888(e)(4)(H) of the
Act (implemented in Sec. 413.345), and the HHA PPS, under section
1895(b)(3)(B) (implemented in Sec. 484.225). Therefore, although we do
not have the authority to shift the annual update for the SNF PPS or
the HHA PPS, we believe that such a policy is appropriate under section
123 of Public Law 106-113 and section 307(b) of Public Law 106-554,
which conferred broad authority on the Secretary in designing and
implementing a PPS for LTCHs.
Comment: One commenter noted that ``the use of two GROUPERs will
not in and of itself create any hardship on LTCHs [which] will be able
to adapt to this process. Most hospitals today do not have fiscal years
that coincide with the federal (sic) fiscal year and must adapt to the
use of two GROUPERs during their cost reporting year.'' This commenter
did express concern, however, about the additional rate changes caused
by the cost report reconciliation if the proposed outlier policy was
finalized. The commenter suggested that we require fiscal
intermediaries to update cost to charge ratios either at July 1 or
October 1 in order to limit the number of changes during a 12-month
period of time.
Response: We agree with the commenter's assessment of most LTCHs'
(and acute care hospital's) ability to adapt to the use of two GROUPERs
during one cost reporting period. Regarding rate changes brought about
by changes in our outlier policy, as noted elsewhere in this final
rule, all discussions of the outlier policy are presented in the IPPS
high-cost outlier final rule.
In this final rule, we amend Sec. 412.535 to indicate that
information on the unadjusted Federal payment rates and a description
of the methodology and data used to calculate the payment rates under
the LTCH PPS will be published in the Federal Register on or before May
1 prior to the beginning of each LTCH PPS rate year beginning July 1,
unless for good cause we are unable to make the May 1 publication date,
but before June 1. We proposed that information on the DRG
classification system and associated weighting factors, with the DRGs
from which the LTC-DRGs are derived, would be published in the proposed
IPPS rule and, ultimately, the final rule for the IPPS (the final IPPS
rule is published on or before August 1 of each Federal fiscal year).
Section XIV. of this final rule contains an impact analysis that
reflects the impact of these changes.
V. Changes in Long-Term Care Diagnosis-Related Group (LTC-DRG)
Classifications and Relative Weights
A. Background
Section 123 of Public Law 106-113 specifically requires that the
PPS for LTCHs be a per discharge system with a DRG-based patient
classification system reflecting the differences in patient resources
and costs in LTCHs while maintaining budget neutrality. Section
307(b)(1) of Public Law 106-554 modified the requirements of section
123 of Public Law 106-113 by specifically requiring that the Secretary
examine ``the feasibility and the impact of basing payment under such a
system [the LTCH PPS] on the use of existing (or refined) hospital
diagnosis-related groups (DRGs) that have been modified to account for
different resource use of long-term care hospital patients as well as
the use of the most recently available hospital discharge data.''
In accordance with section 307(b)(1) of Public Law 106-554 and
Sec. 412.515 of our existing regulations, the LTCH PPS uses
information from LTCH patient records to classify patient cases into
distinct long-term care diagnosis-related groups (LTC-DRGs) based on
clinical characteristics and expected resource needs. The LTC-DRGs used
as the patient classification component of the LTCH PPS correspond to
the DRGs in the IPPS. We apply weights to the existing hospital
inpatient DRGs to account for the difference in resource use by
patients exhibiting the case complexity and multiple medical problems
characteristic of LTCHs.
In a departure from the IPPS, we use low volume LTC-DRGs (less than
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not
typically treat the full range of diagnoses as do acute care hospitals.
In order to deal with the large number of low volume DRGs (all DRGs
with fewer than 25 cases), we group low volume DRGs into 5 quintiles
based on average charge per discharge. (A listing of the composition of
low volume quintiles appears in the August 30, 2002, final rule at 67
FR 55986.) We also take into account adjustments to payments for cases
in which the stay at the LTCH is five-sixths of the geometric average
length of stay and classify these cases as short-stay outlier cases. (A
detailed discussion of the application of the Lewin Group model that
was used to develop the LTC-DRGs appears in the August 30, 2002, final
rule at 67 FR 55978.)
B. Patient Classifications Into DRGs
Generally, under the LTCH PPS, Medicare payment is made at a
predetermined specific rate for each discharge; that payment varies by
the LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into LTC-DRGs for payment based on the following six data
elements:
(1) Principal diagnosis.
(2) Up to eight additional diagnoses.
(3) Up to six procedures performed.
(4) Age.
(5) Sex.
(6) Discharge status of the patient.
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the ICD-9-CM. As of
October 16, 2002, a LTCH that was required to comply with the HIPAA
Administrative Simplification Standards and that had not obtained an
extension in compliance with the Administrative Compliance Act (Pub. L.
107-105) is obligated to comply with the standards at 45 CFR 162.1002
and 45 CFR 162.1102. Completed claim forms are to be submitted to the
LTCH's Medicare fiscal intermediary.
Medicare fiscal intermediaries enter the clinical and demographic
information into their claims processing systems and subject this
information to a series of automated screening processes called the
Medicare Code Editor (MCE). These screens are designed to identify
cases that require further review before assignment into a DRG can be
made. During this process, the following type of cases are selected for
further development:
[sbull] Cases that are improperly coded. (For example, diagnoses
are shown that are inappropriate, given the sex of the patient. Code
68.6, Radical abdominal hysterectomy, would be an inappropriate code
for a male.)
[sbull] Cases including surgical procedures not covered under
Medicare. (For example, organ transplant in a nonapproved transplant
center.)
[sbull] Cases requiring more information. (For example, ICD-9-CM
codes are required to be entered at their highest level of specificity.
There are valid 3-digit, 4-digit, and 5-digit codes. That is,
[[Page 34129]]
code 136.3, Pneumocystosis, contains all appropriate digits, but if it
is reported with either fewer or more than 4 digits, the claim will be
rejected by the MCE as invalid.)
[sbull] Cases with principal diagnoses that do not usually justify
admission to the hospital. (For example, code 437.9, Unspecified
cerebrovascular disease. While this code is valid according to the ICD-
9-CM coding scheme, a more precise code should be used for the
principal diagnosis.)
After screening through the MCE, each claim will be classified into
the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH GROUPER
is specialized computer software based on the same GROUPER used by the
IPPS. The GROUPER software was developed as a means of classifying each
case into a DRG on the basis of diagnosis and procedure codes and other
demographic information (age, sex, and discharge status). Following the
LTC-DRG assignment, the Medicare fiscal intermediary will determine the
prospective payment by using the Medicare PRICER program, which
accounts for hospital-specific adjustments. As provided for under the
IPPS, we provide an opportunity for the LTCH to review the LTC-DRG
assignments made by the fiscal intermediary and to submit additional
information within a specified timeframe (Sec. 412.513(c)).
The GROUPER is used both to classify past cases in order to measure
relative hospital resource consumption to establish the DRG weights and
to classify current cases for purposes of determining payment. The
records for all Medicare hospital inpatient discharges are maintained
in the MedPAR file. The data in this file are used to evaluate possible
DRG classification changes and to recalibrate the DRG weights during
our annual update. DRG weights are based on data for the population of
LTCH discharges, reflecting the fact that LTCH patients represent a
different patient mix than patients in short-term acute care hospitals.
C. Organization of DRGs
The DRGs are organized into 25 Major Diagnostic Categories (MDCs),
most of which are based on a particular organ system of the body; the
remainder involve multiple organ systems (such as MDC 22, Burns).
Accordingly, the principal diagnosis determines MDC assignment. Within
most MDCs, cases are then divided into surgical DRGs and medical DRGs.
Surgical DRGs are assigned based on a surgical hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. The GROUPER does not recognize all ICD-9-CM
procedure codes as procedures that affect DRG assignment, that is,
procedures which are not surgical (for example, EKG), or minor surgical
procedures (for example, 86.11, Biopsy of skin and subcutaneous
tissue).
The medical DRGs are generally differentiated on the basis of
diagnosis. Both medical and surgical DRGs may be further differentiated
based on age, sex, discharge status, and presence or absence of
complications or comorbidities (CC). We note that CCs are defined by
certain secondary diagnoses not related to, or not inherently a part
of, the disease process identified by the principal diagnosis. (For
example, the GROUPER would not recognize a code from the 800.0x series,
Skull fracture, as a CC when combined with principal diagnosis 850.4,
Concussion with prolonged loss of consciousness, without return to
preexisting conscious level.) In addition, we note that the presence of
additional diagnoses does not automatically generate a CC, as not all
DRGs recognize a comorbid or complicating condition in their
definition. (For example, DRG 466, Aftercare without History of
Malignancy as Secondary Diagnosis, is based solely on the principal
diagnosis, without consideration of additional diagnoses for DRG
determination.)
In its June 2000 Report to Congress, MedPAC recommended that the
Secretary ``* * * improve the hospital inpatient prospective payment
system by adopting, as soon as practicable, diagnosis-related group
refinements that more fully capture differences in severity of illness
among patients.'' (Recommendation 3A, p. 63) We have determined it is
not practical at this time to develop a refinement to inpatient
hospital DRGs based on severity due to time and resource requirements.
However, this does not preclude us from development of a severity-
adjusted DRG refinement in the future. That is, a refinement to the
list of comorbidities and complications could be incorporated into the
existing DRG structure. It is also possible a more comprehensive
severity adjusted structure may be created if a new code set is
adopted. That is, if ICD-9-CM is replaced by ICD-10-CM (for diagnostic
coding) and ICD-10-PCS (for procedure coding) or by other code sets, a
severity concept may be built into the resulting DRG assignments. Of
course any change to the code set would be adopted through the process
established in the HIPAA Administrative Simplification provisions.
D. Update of LTC-DRGs
For FY 2003, the LTC-DRG patient classification system was based on
LTCH data from the FY 2001 MedPAR file, which contained hospital bills
received through March 31, 2001, for hospital discharges occurring in
FY 2001. The patient classification system consisted of 510 DRGs that
formed the basis of the FY 2003 LTCH PPS GROUPER. The 510 LTC-DRGs
included two ``error DRGs''. As in the IPPS, we included two error DRGs
in which cases that cannot be assigned to valid DRGs will be grouped.
These two error DRGs are DRG 469 (Principal Diagnosis Invalid as a
Discharge Diagnosis) and DRG 470 (Ungroupable). (See the August 1,
2001, Medicare Program final rule, Changes to the Hospital Inpatient
Prospective Payment Systems and Rates and Costs of Graduate Medical
Education; Fiscal Year 2002 Rates (66 FR 40062).) The other 508 LTC-
DRGs are the same DRGs used in the IPPS GROUPER for FY 2003 (Version
20.0).
In the health care industry, annual changes to the ICD-9-CM codes
are effective for discharges occurring on or after October 1 each year.
Thus, the manual and electronic versions of the GROUPER software, which
are based on the ICD-9-CM codes, are also revised annually and
effective for discharges occurring on or after October 1 each year. As
discussed earlier, the patient classification system for the LTCH PPS
(LTC-DRGs) is based on the IPPS patient classification system (CMS-
DRGs), which is updated annually and effective for discharges occurring
on or after October 1 through September 30 each year. The updated DRGs
and GROUPER software are based on the latest revision to the ICD-9-CM
codes, which are published annually in the IPPS proposed rule and final
rule. The new or revised ICD-9-CM codes are not used by the industry
for either the IPPS or the LTCH PPS until the beginning of the next
Federal fiscal year (effective for discharges occurring on or after
October 1 through September 30). (The use of the ICD-9-CM codes in this
manner is consistent with current usage and the HIPAA regulations.)
October 1 is also when the changes to the CMS-DRGs and the next version
of the GROUPER software becomes effective.
As indicated previously in the March 7, 2003, proposed rule, we
proposed to make the annual update to the LTCH PPS effective from July
1 through June 30 each year. As a result of this change, we proposed
that the LTCH PPS would
[[Page 34130]]
use two GROUPERS during the course of a 12-month period: One GROUPER
for 3 months (from July 1 through September 30); and an updated GROUPER
for 9 months (from October 1 through June 30). The need to use two
GROUPERs is based upon the October 1 effective date of the updated ICD-
9-CM coding system. As previously discussed, new ICD-9-CM codes may
result in changes to the structure of the DRGs. In order for the
industry to be on the same schedule (for both the IPPS and the LTCH
PPS) for the use of the most current ICD-9-CM codes, it was necessary
for us to propose to apply two GROUPER programs to the LTCH PPS.
Although we did not believe that this would have any adverse effect on
LTCHs, we were interested in receiving comments on this issue. LTCHs
would continue to code diagnosis and procedures using the most current
version of the ICD-9-CM coding system.
Currently, for Federal FY 2003, we are using Version 20.0 of the
GROUPER software for both the IPPS and the LTCH PPS. For discharges
beginning on October 1, 2003 (Federal FY 2004), in the March 7, 2003,
LTCH PPS proposed rule, we proposed to use Version 21.0 of the GROUPER
software for both the IPPS and the LTCH PPS. Thus, changes to the CMS-
DRGs (the DRGs on which the LTC-DRGs are based), and their relative
weights, as well as the LTC-DRGs and their relative weights that will
be effective for October 1, 2003, through September 30, 2004, are
presented in the IPPS FY 2004 proposed rule that was published on May
19, 2003, in the Federal Register (68 FR 27154). Accordingly, we will
notify LTCHs of any revised LTC-DRG relative weights based on the final
DRGs and Version 21.0 GROUPER for the IPPS that would be effective
October 1, 2003.
Comment: Two commenters suggested that we synchronize the LTCH rate
year (that is, July 1 through June 30) with the update of the LTC DRGs
which occurs on October 1 by delaying the October 1 update until the
following July 1. As an alternative, one commenter suggested that the
LTCHs could continue to use the LTC-DRG weights determined the previous
October 1 until the start of the next LTCH rate year (July 1, 2004),
and conduct a readjustment for the LTCH PPS on July 1 of the following
year.
Response: With regard to the commenters' suggestion to continue to
use the current ICD-9-CM and DRG Grouper Version 20 until June 30,
2004, delaying the update until the following year, we believe that
this suggestion is not feasible. This would require coders to use two
different ICD-9-CM versions, one for IPPS use (Version 21 will be
implemented October 1, 2003) and another for LTCH PPS. Moreover, the
HIPPA (45 CFR part 162) requires that the ICD-9-CM be the standard
medical code set and each code set is valid within the dates specified
by the organization (Department of Health and Human Services)
responsible for maintaining that code set. The use of other than the
current code set (most recent update to the ICD-9-CM will be effective
October 1, 2003) would be in direct violation of the current HIPPA
requirements.
In this final rule, while we are adopting the proposed use of two
GROUPER software programs over the course of the LTCH rate year, one
GROUPER for 3 months (from July 1 through September 30); and an updated
GROUPER for 9 months (from October 1 through June 30), the existing
GROUPER and the updated GROUPER will be in effect for 12 months. These
two GROUPER programs will be the same programs in use for the IPPS.
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
Because the assignment of a case to a particular LTC-DRG will help
determine the amount that will be paid for the case, it is important
that the coding is accurate. Classifications and terminology used in
the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as
recommended to the Secretary by the National Committee on Vital and
Health Statistics (``Uniform Hospital Discharge Data: Minimum Data Set,
National Center for Health Statistics, April 1980'') and as revised in
1984 by the Health Information Policy Council (HIPC) of the U.S.
Department of Health and Human Services.
We wish to point out that the ICD-9-CM coding terminology and the
definitions of principal and other diagnoses of the UHDDS are
consistent with the requirements of the HIPPA Administrative
Simplification Act of 1996 (45 CFR part 162). Furthermore, the UHDDS
has been used as a standard for the development of policies and
programs related to hospital discharge statistics by both governmental
and nongovernmental sectors for over 30 years. In addition, the
following definitions (as described in the 1984 Revision of the UHDDS,
approved by the Secretary of Health and Human Services for use starting
January 1986) are requirements of the ICD-9-CM coding system, and have
been used as a standard for the development of the CMS-DRGs:
[sbull] Diagnoses include all diagnoses that affect the current
hospital stay.
[sbull] Principal diagnosis is defined as the condition established
after study to be chiefly responsible for occasioning the admission of
the patient to the hospital for care.
[sbull] Other diagnoses (also called secondary diagnoses or
additional diagnoses) are defined as all conditions that coexist at the
time of admission, that develop subsequently, or that affect the
treatment received or the length of stay or both. Diagnoses that relate
to an earlier episode of care that have no bearing on the current
hospital stay are excluded.
[sbull] All procedures performed will be reported. This includes
those that are surgical in nature, carry a procedural risk, carry an
anesthetic risk, or require specialized training.
We provide LTCHs with a 60-day window after the date of the notice
of the initial LTC-DRG assignment to request review of that assignment.
Additional information may be provided by the LTCH to the fiscal
intermediary as part of that review.
2. Maintenance of the ICD-9-CM Coding System
The ICD-9-CM Coordination and Maintenance (C&M) Committee is a
Federal interdepartmental committee, co-chaired by the National Center
for Health Statistics (NCHS) and CMS, that is charged with maintaining
and updating the ICD-9-CM system. The C&M Committee is jointly
responsible for approving coding changes, and developing errata,
addenda, and other modifications to the ICD-9-CM to reflect newly
developed procedures and technologies and newly identified diseases.
The C&M Committee is also responsible for promoting the use of Federal
and non-Federal educational programs and other communication techniques
with a view toward standardizing coding applications and upgrading the
quality of the classification system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
CMS has lead responsibility for the ICD-9-CM procedure codes included
in the Tabular List and Alphabetic Index for Procedures.
The C&M Committee encourages participation by health-related
organizations in the above process and holds public meetings for
discussion of educational issues and proposed coding changes twice a
year at the CMS Central Office located in Baltimore, Maryland. The
agenda and dates of the meetings
[[Page 34131]]
can be accessed on the CMS Web site at: http://www.cms.gov/paymentsystems/icd9
.
All changes to the ICD-9-CM coding system affecting DRG assignment
are addressed annually in the IPPS proposed and final rules. Because
the DRG-based patient classification system for the LTCH PPS is based
on the IPPS DRGs, these changes will also affect the LTCH PPS LTC-DRG
patient classification system.
As discussed above, the ICD-9-CM coding changes that have been
adopted by the C&M Committee become effective at the beginning of each
Federal fiscal year, October 1. Regardless of the change to the annual
update of the LTCH PPS year to July 1, coders will use the most current
updated ICD-9-CM coding book from October 1 through September 30 of
each year. This means that coders and LTCHs that use the updated ICD-9-
CM coding system will be on the same schedule (effective October 1) as
the rest of the health care industry. The newest version of ICD-9-CM is
not available for use until October 1, which would be 4 months after
the date that we will publish the LTCH annual payment rate update final
rule. The new codes on which the LTC-DRGs are based will go into effect
and be available for use for discharges occurring on or after October 1
through September 30 of each year. This annual schedule of the revision
to the ICD-9-CM coding system and the change of the ICD-9-CM coding
books or electronic coding programs has been in effect since the
adoption of Revision 9 of the ICD in 1979.
Of particular note to LTCHs will be the invalid diagnosis codes
(Table 6C) and the invalid procedure codes (Table 6D) located in the
annual proposed and final rules for the IPPS. Claims with invalid codes
will not be processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
We emphasize the need for proper coding by LTCHs. Inappropriate
coding of cases can adversely affect the uniformity of cases in each
LTC-DRG and produce inappropriate weighting factors at recalibration.
We continue to urge LTCHs to focus on improved coding practices.
Because of concerns raised by LTCHs concerning correct coding, we have
asked the American Hospital Association (AHA) to provide additional
clarification or instruction on proper coding in the LTCH setting. The
AHA will provide this instruction via their established process of
addressing questions through their publication ``Coding Clinic for ICD-
9-CM''. Written questions or requests for clarification may be
addressed to the Central Office on ICD-9-CM, American Hospital
Association, One North Franklin, Chicago, IL 60606. A form for the
question(s) is available to be downloaded and mailed on AHA's Web site
at: www.ahacentraloffice.org. In addition, current coding guidelines
are available at the National Center for Health Statistics (NCHS) Web
site: www.cdc.gov/nchs.icd9.htm.
In conjunction with the cooperating parties (AHA, AHIMA, and NCHS),
we have reviewed actual medical records and are concerned about the
quality of the documentation under the LTCH PPS, as was the case at the
beginning of the IPPS. We fully believe that, with experience, the
quality of the documentation and coding will improve, just as it did
for the IPPS. As noted above, the cooperating parties have plans to
assist their members with improvement in documentation and coding
issues for the LTCHs through specific questions and coding guidelines.
The importance of good documentation is emphasized in the revised ICD-
9-CM Official Guidelines for Coding and Reporting (October 1, 2002):
``A joint effort between the attending physician and coder is essential
to achieve complete and accurate documentation, code assignment, and
reporting of diagnoses and procedures. The importance of consistent,
complete documentation in the medical record cannot be overemphasized.
Without such documentation, the application of all coding guidelines is
a difficult, if not impossible, task. (Coding Clinic for ICD-9-CM,
Fourth Quarter 2002, page 115).
To improve medical record documentation, LTCHs should be aware that
if the patient is being admitted for continuation of treatment of an
acute or chronic condition, guidelines at section I.B.10 of the Coding
Clinic for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable
concerning selection of principal diagnosis. To clarify coding advice
issued in the August 30, 2002 final rule (67 FR 55979-55981), we would
like to point out that, at Guideline I.B.12, Late Effects, a late
effect is considered to be the residual effect (condition produced)
after the acute phase of an illness or injury has terminated (Coding
Clinic for ICD-9-CM, Fourth Quarter 2002, page 129). We have received a
question regarding whether a LTCH should report the ICD-9-CM code(s)
for an unresolved acute condition instead of the code(s) for late
effect of rehabilitation. Depending on the documentation in the medical
record, either code could be appropriate in a LTCH. Since
implementation of the LTCH PPS, our Medicare fiscal intermediaries have
been conducting training and providing assistance to LTCHs in correct
coding. We have also issued manuals containing procedures as well as
coding instructions to LTCHs and fiscal intermediaries. We will
continue to conduct such training and provide guidance on an as-needed
basis. We also refer readers to the detailed discussion on correct
coding practices in the August 30, 2002, final rule (67 FR 55979-
55981).
Comment: Two commenters expressed their support for our adherence
to the official ICD-9-CM coding guidelines.
Response: We appreciate the commenters support and anticipate
working closely with both the AHA and the AHIMA to increase awareness
of proper documentation and correct coding in the LTCH setting.
F. Changes to the Method for Updating the LTC-DRG Relative Weights
As discussed in the March 7, 2003, proposed rule, under the LTCH
PPS, each LTCH will receive a payment that represents an appropriate
amount for the efficient delivery of care to Medicare patients. The
system must be able to account adequately for each LTCH's case-mix in
order to ensure both fair distribution of Medicare payments and access
to adequate care for those Medicare patients whose care is more costly.
Therefore, in accordance with Sec. 412.523(c), we adjust the standard
Federal PPS rate by the LTC-DRG relative weights in determining payment
to LTCHs for each case.
Under this payment system, relative weights for each LTC-DRG are a
primary element used to account for the variations in cost per
discharge and resource utilization among the payment groups (Sec.
412.515). To ensure that Medicare patients who are classified to each
LTC-DRG have access to an appropriate level of services and to
encourage efficiency, we calculate a relative weight for each LTC-DRG
that represents the resources needed by an average inpatient LTCH case
in that LTC-DRG. For example, cases in a LTC-DRG with a relative weight
of 2 will, on average, cost twice as much as cases in a LTC-DRG with a
weight of 1.
As we discussed in the August 30, 2002, final rule (67 FR 55984-
55995), the LTC-DRG relative weights effective under the LTCH PPS for
Federal FY 2003 were calculated using the March 2002 update of FY 2001
MedPAR data and Version 20.0 of the CMS GROUPER software. We use total
days and total
[[Page 34132]]
charges in the calculation of the LTC-DRG relative weights.
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
Such distribution of cases with relatively high (or low) charges in
specific LTC-DRGs has the potential to inappropriately distort the
measure of average charges. To account for the fact that cases may not
be randomly distributed across LTCHs, we use a hospital-specific
relative value method to calculate relative weights. We believe this
method removes this hospital-specific source of bias in measuring
average charges. Specifically, we reduce the impact of the variation in
charges across providers on any particular LTC-DRG relative weight by
converting each LTCH's charge for a case to a relative value based on
that LTCH's average charge. (See the August 30, 2002, final rule (67 FR
55985) for further information of the hospital-specific relative value
methodology.)
In order to account for LTC-DRGs with low volume (that is, with
fewer than 25 LTCH cases), we grouped those low volume LTC-DRGs into
one of five categories (quintiles) based on average charges, for the
purposes of determining relative weights. For FY 2003 based on the FY
2001 MedPAR data, we identified 161 LTC-DRGs that contained between 1
and 24 cases. This list of low volume LTC-DRGs was then divided into
one of the five low volume quintiles, each containing a minimum of 32
LTC-DRGs (161/5 = 32 with 1 LTC-DRG as a remainder). Each of the low
volume LTC-DRGs grouped to a specific quintile received the same
relative weight and average length of stay using the formula applied to
the regular LTC-DRGs (25 or more cases), as described below. (See the
August 30, 2002, final rule (67 FR 55985-55988) for further explanation
of the development and composition of each of the five low volume
quintiles for FY 2003.)
After grouping the cases in the appropriate LTC-DRG, we calculate
the relative weights by first removing statistical outliers and cases
with a length of stay of 7 days or less. Next, we adjust the number of
cases in each LTC-DRG for the effect of short-stay outlier cases under
Sec. 412.529. The short-stay adjusted discharges and corresponding
charges were used to calculate ``relative adjusted weights'' in each
LTC-DRG using the hospital-specific relative value method described
above. (See the August 30, 2002, final rule (67 FR 55989-55995) for
further details on the steps for calculating the LTC-DRG relative
weights.)
We also adjust the LTC-DRG relative weights to account for
nonmonotonically increasing relative weights. That is, we make an
adjustment if cases classified to the LTC-DRG ``with comorbidities
(CCs)'' of a ``with CC''/``without CC'' pair had a lower average charge
than the corresponding LTC-DRG ``without CCs'' by assigning the same
weight to both LTC-DRGs in the ``with CC''/``without CC'' pair. (See
August 30, 2002, 67 FR 55990-55991). In addition, of the 510 LTC-DRGs
in the LTCH PPS for FY 2003, based on the FY 2001 MedPAR data, we
identified 159 LTC-DRGs for which there were no LTCH cases in the
database. That is, no patients who would have been classified to those
DRGs were treated in LTCHs during FY 2001 and, therefore, no charge
data were reported for those DRGs. Thus, in the process of determining
the relative weights of LTC-DRGs, we were unable to determine weights
for these 159 LTC-DRGs using the method described above. However, since
patients with a number of the diagnoses under these LTC-DRGs may be
treated at LTCHs beginning in FY 2003, we assigned relative weights to
each of the 159 ``no volume'' LTC-DRGs based on clinical similarity and
relative costliness to one of the remaining 351 (510-159 = 351) LTC-
DRGs for which we were able to determine relative weights, based on the
FY 2001 claims data. (A list of the no volume LTC-DRGs and further
explanation of their relative weight assignment can be found in the
August 30, 2002, final rule (67 FR 55991-55994).)
Furthermore, we establish LTC-DRG relative weights of 0.0000 for
heart, kidney, liver, lung, pancreas, and simultaneous pancreas/kidney
transplants (LTC-DRGs 103, 302, 480, 495, 512 and 513, respectively)
because Medicare will only cover these procedures if they are performed
at a hospital that has been certified for the specific procedures by
Medicare and presently no LTCH has been so certified. If in the future,
however, a LTCH applies for certification as a Medicare-approved
transplant center, we believe that the application and approval
procedure would allow sufficient time for us to propose appropriate
weights for the LTC-DRGs effected. At the present time, though, we only
include these six transplant LTC-DRGs in the GROUPER program for
administrative purposes because since the LTCH PPS uses the same
GROUPER program for LTCHs as is used under the IPPS, removing these
DRGs would be administratively burdensome.
As we stated in the March 7, 2003, proposed rule, we proposed that
we would continue to use the same LTC-DRGs and relative weights until
October 1, 2003. Accordingly, Table 3 in the Addendum to the March 7,
2003, proposed rule lists the LTC-DRGs and their respective relative
weights and arithmetic mean length of stay that we proposed would
continue to be used for the period of July 1, 2003, through September
30, 2003. (This table is the same as Table 3 of the Addendum to the
August 30, 2002, final rule (67 FR 56076-56084), except that it
includes the proposed five-sixth of the average length of stay for
short-stay outliers under Sec. 412.529.) As we noted in section IV.D.
of the March 7, 2003, proposed rule, we proposed that the final DRGs
and GROUPER for FY 2004 that will be used for the IPPS and the LTCH
PPS, effective October 1, 2003, would be presented in the IPPS FY 2004
final rule published no later than August 1, 2003, in the Federal
Register.
Accordingly, we will notify LTCHs of the revised LTC-DRG relative
weights for use in determining payments for discharges occurring
between October 1, 2003, and September 30, 2004, based on the final
DRGs and Version 21.0 GROUPER published in the IPPS rule on or before
August 1, 2003.
VI. Policy Change Related to Payments to LTCHs That Are Satellite
Facilities
Provisions of the Proposed Rule
In proposing the LTCH PPS (March 7, 2002, 67 FR 13416), we stated
that we were considering proposing the elimination of the bed limit in
Sec. 412.22(h)(2)(i) for pre-1997 excluded hospitals once the
prospective payment system was fully phased-in and all payments were
based on 100 percent of the Federal prospective payment rates. This
statement generated a number of comments and in the August 30, 2002,
final rule (67 FR 56012), we stated our agreement with commenters who
urged us to adopt a policy eliminating the bed-number restrictions for
pre-1997 LTCHs with satellite facilities, as soon as a LTCH is paid
based on 100 percent of the Federal prospective rate. However, we also
noted that we would address a change in the policy concerning bed
limits in the next update of the LTCH PPS. Therefore, in the March 7,
2003, proposed rule (68 FR 11243-11244), we proposed to eliminate the
application of the bed-number restrictions set forth in Sec.
412.22(h)(2)(i) for LTCHs established prior to 1997 with satellite
facilities, effective at the start of the first cost
[[Page 34133]]
reporting year that a LTCH is paid under the 100 percent fully Federal
prospective payment system. This will be either when a LTCH elects to
be paid based on 100 percent of the Federal prospective rate or when
the LTCH is fully transitioned to 100 percent of the Federal
prospective rate, whichever comes first.
Section 1886(b)(3) of the Act, as amended by section 4414 of Public
Law 105-33, required existing LTCHs to be subject to caps on their
target amounts for cost reporting periods beginning on or after October
1, 1997, through September 30, 2002. For purposes of calculating these
caps, the statute required the Secretary to ``estimate the 75th
percentile of the target amounts for such hospitals within [each] class
for cost reporting periods ending during fiscal year 1996.'' Section
1886(b)(3)(H) of the Act, as amended by section 121 of Public Law 106-
113, directed the Secretary to provide for an appropriate wage
adjustment to the caps on the target amounts for psychiatric and
rehabilitation hospitals and units and LTCHs effective for cost
reporting periods beginning on or after October 1, 1999 through
September 30, 2002. In addition, payment limits were established for
new excluded hospitals or units (excluding children's hospitals)
effective October 1, 1997. For new excluded hospitals (that is, post-
1997 LTCHs), section 1886(b)(7) of the Act, as added by section 4416 of
Public Law 105-33, specified that the payment amount for the facility's
first two 12-month cost reporting periods, for which the hospital has a
settled cost report, must not exceed 110 percent of the national median
of target amounts of similarly classified hospitals for cost reporting
periods ending during FY 1996, updated by the hospital market basket
increase percentage to the first cost reporting period in which the
hospital receives payment, as adjusted by section 1886(b)(7)(C) of the
Act. The result of sections 4414 and 4416 of Public Law 105-33 was a
distinction between the LTCHs established prior to, and those
established after 1997, with lower payment caps for the post-1997
LTCHs.
In the July 30, 1999, IPPS final rule (64 FR 41532-41533), we
promulgated regulations at Sec. 412.22(h)(2)(i) to discourage pre-1997
excluded hospitals, which had the higher caps on target amounts as
discussed above (under Sec. 413.40(c)(4)(iii)), from creating
satellites rather than establishing new hospitals, in order to avoid
the payment impact of the lower caps that apply to new hospitals (under
Sec. 413.40(f)(2)(ii)). In the July 30, 1999, IPPS final rule (64 FR
41490), we required that where a pre-1997 excluded hospital, such as a
LTCH, established a satellite facility and, in doing so, its total
beds, in both the parent hospital (or unit) and the satellite facility,
exceeded the number of State-licensed and Medicare-certified beds in
the parent hospital on the last day of its last cost reporting period
beginning before October 1, 1997, the excluded hospital would be paid
under the inpatient DRG system, instead of receiving payment as an
excluded hospital under the reasonable cost-based payment system.
Although the excluded hospital could ``transfer'' beds from the parent
facility to the satellite, it could not increase its total bed capacity
(at the parent and satellite(s)) beyond the level the hospital had in
the most recent cost reporting period beginning before October 1, 1997,
and still be paid as a hospital excluded from the IPPS. However, no
such limitation was imposed on a LTCH established after October 1,
1997. Since this type of hospital would have already been subject to
the lower payment limit of 110 percent of the national median of target
amounts for similarly classified hospitals under Sec.
413.40(f)(2)(ii), it would not benefit by establishing a satellite
facility instead of a separate free-standing hospital, as would a pre-
1997 LTCH.
The rationale for applying the bed-limit provision only on pre-1997
hospitals was the potential for gaming by those hospitals, by creating
a satellite facility with a higher TEFRA target cap where, in reality,
the satellite facility should have been a separately certified excluded
facility, which would have been subject to the lower cap on payments to
new (post-1997) facilities paid under the TEFRA system. Once the LTCH
is paid based on 100 percent of the Federal prospective rate, however,
the LTCH will no longer be subject to TEFRA caps and LTCH prospective
payments will be the same regardless of when the LTCH was established.
Therefore, consistent with the March 7, 2003, proposed rule, we are
eliminating the bed-limit provision once a LTCH is paid based on 100
percent of the LTCH Federal PPS rate. Finally, under this policy, the
bed limitation on ``existing'' LTCHs will, however, continue to apply
to those LTCHs while they are paid based on the transition blend, and,
therefore, continue to receive a percentage of their payments based on
the reasonable cost-based payment rules, until these hospitals are paid
based on 100 percent of the Federal prospective payment rate.
Comment: Several commenters expressed their strong support for our
proposal to eliminate the bed number limitation for pre-1997 LTCHs with
satellite facilities for those LTCHs receiving 100 percent of the
Federal rate. One commenter recommended that the bed number limitation
should also be eliminated for the IRFs since they are now receiving
payment at 100 percent of the Federal rate.
Response: We appreciate the strong endorsement in response to this
proposed change. Regarding the commenter who recommended eliminating
the bed size limitation for IRFs, we would suggest that the commenter
look to the IRF proposed rule that was published on May 16, 2003 (68 FR
26785).
Accordingly, in this final rule, we are adopting the proposal to
eliminate the bed size limitation for pre-1997 LTCHs with satellite
facilities once the LTCH is paid at 100 percent of the Federal rate. We
note that in the preamble to the March 7, 2003, proposed rule, we
stated the two circumstances under which a LTCH would be paid based on
100 percent of the Federal rate, which are for the start of the first
cost reporting period that a LTCH elects fully Federal payment, as set
forth in Sec. 412.533(c) or when the LTCH PPS is fully phased-in after
the transition period. We inadvertently omitted the second circumstance
in the proposed regulation text at Sec. 412.22(h)(6), therefore, we
are revising that section to reflect this policy.
VII. Changes to the LTCH PPS Rates for the 2004 LTCH PPS Rate Year
A. Overview of the Development of the Payment Rates
The LTCH PPS was effective for a LTCH's first cost reporting period
beginning on or after October 1, 2002. Effective with that cost
reporting period, LTCHs are paid, during a 5-year transition period, on
the basis of an increasing proportion of the LTCH PPS Federal rate and
a decreasing proportion of a hospital's payment under reasonable cost-
based payment system, unless the hospital makes a one-time election to
receive payment based on 100 percent of the Federal rate (see Sec.
412.533). New LTCHs (as defined at Sec. 412.23(e)(4)) are paid based
on 100 percent of the Federal rate, with no phase-in transition
payments.
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth in the regulations at Sec. Sec. 412.515
through 412.532. Below we discuss the proposed factors used to update
the LTCH PPS standard Federal rate for the proposed 2004 LTCH PPS rate
year published in
[[Page 34134]]
the March 7, 2003, proposed rule. We also discuss the factors used to
establish the final update to the LTCH PPS standard Federal rate for
the 2004 LTCH PPS rate year in this final rule, which will be effective
for LTCHs paid under the LTCH PPS for discharges occurring on or after
July 1, 2003, through June 30, 2004. In the final rule published on
August 30, 2002 (67 FR 56029-56031), for cost reporting periods
beginning on or after October 1, 2002 (FY 2003), we computed the LTCH
PPS standard Federal payment rate by updating the best available (FY
1998 or FY 1999) Medicare inpatient operating and capital costs per
case data, using the excluded hospital market basket.
Section 123(a)(1) of Public Law 106-113 requires that the PPS
developed for LTCHs be budget neutral. Therefore, in calculating the
standard Federal rate for FY 2003 under Sec. 412.523(d)(2), we set
total estimated PPS payments equal to estimated payments that would
have been made under the reasonable cost-based payment methodology had
the PPS for LTCHs not been implemented. Section 307(a) of Public Law
106-554 specified that the increases to the hospital-specific target
amounts and cap on the target amounts for LTCHs for FY 2002 provided
for by section 307(a)(1) of Public Law 106-554 shall not be taken into
account in the development and implementation of the LTCH PPS. In
addition, the statute as amended by section 122 of Public Law 106-113
provides for enhanced bonus payments for LTCHs for two years, FY 2001
and FY 2002. Furthermore, as specified at Sec. 412.523(d)(1), the
standard Federal rate is reduced by an adjustment factor to account for
the estimated proportion of outlier payments under the LTCH PPS to
total LTCH PPS payments (8 percent). For further details on the
development of the FY 2003 standard Federal rate, see the August 30,
2002, final rule (67 FR 56027-56037). Under the existing regulations at
Sec. 412.523(c)(3)(ii) for fiscal years after FY 2003, we update the
standard Federal rate annually to adjust for the most recent estimate
of the projected increases in prices for LTCH inpatient hospital
services.
B. Update to the Standard Federal Rate for the 2004 LTCH PPS Rate Year
In the August 30, 2002, final rule (67 FR 56033), we established a
LTCH PPS standard Federal rate of $34,956.15 for FY 2003. As discussed
in the March 7, 2003, proposed rule (68 FR 11248), based on the most
recent estimate of the excluded hospital with capital market basket,
adjusted to account for the change in the rate year update cycle for
the LTCH PPS rates, we proposed that the LTCH PPS standard Federal
rate, effective from July 1, 2003, through June 30, 2004, would be
$35,726.64. Based on updated data, including the most recent estimate
of the excluded hospital with capital market basket adjusted to account
for the change in the rate year update cycle for the LTCH PPS rates,
and the policies described in this final rule, the LTCH PPS standard
Federal rate, effective from July 1, 2003, through June 30, 2004, is
$35,726.18 (as discussed below).
In the discussion that follows, we explain how we developed the
update to the final standard Federal rate for the 2004 LTCH PPS rate
year in this final rule. The final standard Federal rate for the 2004
LTCH PPS rate year is calculated based on the final update factor of
1.0220. Thus, we estimate that the final standard Federal rate for the
2004 LTCH PPS rate year will increase 2.2 percent compared to the FY
2003 standard Federal rate.
1. Standard Federal Rate Update
In the August 30, 2002, final rule, we established at Sec. 412.523
that, for years after FY 2003, the annual update to the LTCH PPS
standard Federal rate will be equal to the percentage change in the
excluded hospital with capital market basket (described in further
detail below). As we discussed in the August 30, 2002, final rule (67
FR 56087), in the future we may propose to develop a framework to
update payments to LTCHs that would account for other appropriate
factors that affect the efficient delivery of services and care
provided to Medicare patients. As we stated in the March 7, 2003,
proposed rule (68 FR 11244), because the LTCH PPS has only recently
been implemented (for cost reporting periods beginning on or after
October 1, 2002), we have not yet collected sufficient data to allow
for the analysis and development of an update framework under the LTCH
PPS. Therefore, in that same proposed rule, we did not propose an
update framework for the 2004 LTCH PPS rate year. However, we noted
that a conceptual basis for the proposal of developing an update
framework in the future can be found in Appendix B of the August 30,
2002, final rule (67 FR 56086-56090).
a. Description of the Market Basket for LTCHs for the 2004 LTCH PPS
Rate Year
A market basket has historically been used in the Medicare program
to account for price increases of the services furnished by providers.
The market basket used for the LTCH PPS includes both operating and
capital-related costs of LTCHs because the LTCH PPS uses a single
payment rate for both operating and capital-related costs. The
development of the LTCH PPS standard Federal rate is discussed in
further detail in the August 30, 2002 final rule (67 FR 56027-56037).
Under the reasonable cost-based payment system, the excluded
hospital market basket was used to update the hospital-specific limits
on payment for operating costs of LTCHs. The excluded hospital market
basket is based on operating costs from FY 1992 cost report data and
includes data from Medicare-participating long-term care,
rehabilitation, psychiatric, cancer, and children's hospitals. Since
LTCHs' costs are included in the excluded hospital market basket, this
market basket index, in part, also reflects the costs of LTCHs.
However, in order to capture the total costs (operating and capital-
related) of LTCHs, we added a capital component to the excluded
hospital market basket for use under the LTCH PPS. We refer to this
index as the excluded hospital with capital market basket.
As we discussed in both the August 30, 2002, final rule (67 FR
56016 and 56086-56086) and the March 7, 2003, proposed rule (68 FR
11245-11247), beginning with the implementation of the LTCH PPS in FY
2003, the excluded hospital with capital market basket based on FY 1992
Medicare cost report data has been used for updating payments to LTCHs.
The FY 1992-based market basket reflected the distribution of costs in
FY 1992 for Medicare-participating freestanding rehabilitation, long-
term care, psychiatric, cancer, and children's hospitals. This
information was derived from the FY 1992 Medicare cost reports. A full
discussion of the methodology and data sources used to construct the FY
1992-based excluded hospital with capital market basket is included in
Appendix A of the August 30, 2001, final rule (67 FR 56085-56086). In
the March 7, 2003, proposed rule, we proposed to revise and rebase the
excluded hospital with capital market basket, using more recent data,
that is, using FY 1997 base year data beginning with the proposed 2004
LTCH PPS rate year.
As we stated in the March 7, 2003, proposed rule (68 FR 11245-
11247), we believe it was appropriate to propose to revise and rebase
the LTCH PPS market basket based on the most recent complete data
available (FY 1997) because these data would more accurately reflect
LTCHs' current costs. Furthermore, we noted that this proposed revising
and rebasing of the LTCH PPS market basket from an FY
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1992 base year to a FY 1997 base year would be consistent with the
rebasing of both the hospital inpatient market basket used under the
IPPS and the excluded hospital market basket used to update the target
amounts under the reasonable cost-based payment system for FY 2003, as
discussed in the August 1, 2002, IPPS final rule (67 FR 50032-50047).
We received no comments on the proposed revising and rebasing of the
LTCH PPS market basket. Therefore, in this final rule, we are adopting
the FY 1997-based excluded hospital with capital market basket as the
LTCH PPS market basket beginning with the 2004 LTCH PPS rate year.
Below we are providing a discussion of the development of the FY 1997-
based excluded hospital with capital market basket, as we presented in
the March 7, 2003, proposed rule (68 FR 11245-11247).
The operating portion of the FY 1997-based excluded hospital with
capital market basket that we are using under the LTCH PPS beginning
with the 2004 LTCH PPS rate year is derived from the FY 1997-based
excluded hospital market basket used under the reasonable cost-based
payment system. The methodology we used to develop the operating
portion of the market basket under the LTCH PPS is the same methodology
used to revise and rebase the excluded hospital market basket used
under the reasonable cost-based payment system, which is described in
greater detail in the August 1, 2002, IPPS final rule (67 FR 50042-
50044). In brief, the operating cost category weights in the FY 1997-
based excluded market basket add up to 100.0. These weights were
determined based on FY 1997 Medicare cost report data, the 1997
Business Expenditure Survey, and the 1997 Annual Input-Output data from
the Bureau of the Census. In determining the FY 1997-based market
basket, as we discussed in the March 7, 2003, proposed rule (68 FR
11245-11247), we also revised the market basket by making the same two
methodological revisions that we established when we revised and
rebased the hospital inpatient market basket and the excluded hospital
market basket in the August 1, 2002, IPPS final rule--(1) Changing the
wage and benefit price proxies to use the Employment Cost Index (ECI)
wage and benefit data for hospital workers; and (2) adding a cost
category for blood and blood products.
When we add the weight for capital costs to the excluded hospital
market basket, the sum of the operating and capital weights must still
equal 100.0. Based on data from FY 1997 Medicare cost reports for
excluded hospitals, the capital cost weight is 8.968 percent. Because
capital costs account for 8.968 percent of total costs for excluded
hospitals in FY 1997, operating costs must, therefore, account for
91.032 percent (100 percent minus 8.968 percent). Each operating cost
category weight in the FY 1997-based excluded hospital market basket
from the August 1, 2002, IPPS final rule (67 FR 50442-50444) was
multiplied by 0.91032 to determine its weight in the FY 1997-based
excluded hospital with capital market basket.
As we discussed in the March 7, 2003, proposed rule (68 FR 11245-
11247), the aggregate capital component of the FY 1997-based excluded
hospital market basket (8.968 percent) was determined from the same set
of Medicare cost reports used to derive the operating component. The
detailed capital cost categories of depreciation, interest, and other
capital expenses were also determined using those Medicare cost
reports. We needed to determine two sets of weights for the capital
portion of the proposed revised and rebased market basket. The first
set of weights identifies the proportion of capital expenditures
attributable to each capital cost category; the second set represents
relative vintage weights for depreciation and interest. The vintage
weights identify the proportion of capital expenditures that is
attributable to each year over the useful life of capital assets within
a cost category (see 67 FR 50046-50047, August 1, 2002, for a
discussion of how vintage weights are determined).
The cost categories, price proxies, and base-year FY 1992 and FY
1997 weights for the excluded hospital with capital market basket used
under the LTCH PPS beginning with the 2004 LTCH PPS rate year are
presented below in Table I. The vintage weights for the FY 1997-based
excluded hospital with capital market basket are presented below in
Table II.
Table I.-- Excluded Hospital With Capital Input Price Index (FY 1992-Based and FY 1997-Based) Structure and
Weights
----------------------------------------------------------------------------------------------------------------
Weights (%) Weights (%)
Cost category Price/wage variable Base-Year FY Base-Year FY
19921,2 19971,2
----------------------------------------------------------------------------------------------------------------
Total...................................... ................................... 100.000 100.000
Compensation............................... ................................... 57.935 57.579
Wages and Salaries..................... ECI--Wages and Salaries, Civilian 47.417 47.335
Hospital Workers.
Employee Benefits...................... ECI--Benefits, Civilian Hospital 10.519 10.244
Workers to Capture Total Costs.
Professional fees.......................... ECI--Compensation: Professional & 1.908 4.423
Technical.
Utilities.................................. ................................... 1.524 1.180
Electricity............................ PPI--Commercial Electric Power..... 0.916 0.726
Fuel Oil, Coal, etc.................... PPI--Commercial Natural Gas........ 0.365 0.248
Water and Sewerage..................... CPI-U--Water & Sewerage Maintenance 0.243 0.206
Professional Liability..................... CMS--Professional Liability 0.983 0.733
Insurance Premiums Index.
All Other Products and..................... ................................... 28.571 27.117
All Other Products..................... ................................... 22.027 17.914
Pharmaceuticals.................... PPI--Ethical (Prescription) Drugs.. 2.791 6.318
Food: Direct Purchase.............. PPI--Processed Foods and Feeds..... 2.155 1.122
Food: Contract..................... CPI-U--Food Away from Home......... 0.998 1.043
Chemicals.......................... PPI--Industrial Chemicals.......... 3.413 2.133
Blood and Blood.................... PPI--Blood and Blood Derivatives, .............. 0.748
Human Use.
Medical Instruments................ PPI--Medical Instruments & 2.868 1.795
Equipment.
Photographic Supplies.............. PPI--Photographic Supplies......... 0.364 0.167
Rubber and Plastics................ PPI--Rubber & Plastic Products..... 4.423 1.366
Paper Products..................... PPI--Converted Paper and Paperboard 1.984 1.110
Products.
Apparel............................ PPI--Apparel....................... 0.809 0.478
Machinery and...................... PPI--Machinery & Equipment......... 0.193 0.852
[[Page 34136]]
Miscellaneous...................... PPI--Finished Goods Less Food and 2.029 0.783
Energy.
All Other Services..................... ................................... 6.544 9.203
Telephone.......................... CPI-U--Telephone Services.......... 0.574 0.348
Postage............................ CPI-U--Postage..................... 0.268 0.702
All Other: Labor................... ECI--Compensation for Private 4.945 4.453
Service Occupations.
All Other: Non-Labor............... CPI-U--All Items................... 0.757 3.700
Capital-Related Costs...................... ................................... 9.080 8.968
Depreciation........................... ................................... 5.611 5.586
Building & Fixed................... Boeckh-Institutional Construct. 3.570 3.503
Index--Vintage Weighted (23).
Movable Equipment.................. PPI--Machinery & Equipment--Vintage 2.041 2.083
Weighted (11 Years).
Interest Costs......................... ................................... 3.212 2.682
Government/Nonprofit............... Yield on Domestic Municipal Bonds 2.730 2.280
(Bond Buyer 20 Bonds)--Vintage
Weighted (23 years).
For-profit......................... Yield on Moody's Aaa Bonds--Vintage 0.482 0.402
Weighted (23 Years).
Other Capital-Related Costs............ CPI-U--Residential Rent............ 0.257 0.699
----------------------------------------------------------------------------------------------------------------
\1\ The operating cost category weights in the excluded hospital market basket described in the August 1, 2002
IPPS final rule (67 FR 50042-50044) add to 100.0. When we add an additional set of cost category weights
(total capital weight = 8.968 percent) to this original group, the sum of the weights in the new index must
still add to 100.0. Capital costs account for 8.968 percent of the market basket; operating costs account for
91.032 percent. Each weight in the FY 1997-based excluded hospital market basket from the August 1, 2002 IPPS
final rule (67 FR 50042-50044) was multiplied by 0.91032 to determine its weight in the FY 1997-based excluded
hospital with capital market basket.
\2\ Weights may not sum to 100.0 due to rounding.
Table II.--Excluded Hospital With Capital Input Price Index (FY 1997) Vintage Weights
----------------------------------------------------------------------------------------------------------------
Building and fixed Interest: capital-
Year (from farthest to most recent)* equipment (23-year Movable equipment related (23-year
weights)* (11-year weights)* weights)*
----------------------------------------------------------------------------------------------------------------
1............................................. 0.018 0.063 0.007
2............................................. 0.021 0.068 0.009
3............................................. 0.023 0.074 0.011
4............................................. 0.025 0.080 0.012
5............................................. 0.026 0.085 0.014
6............................................. 0.028 0.091 0.016
7............................................. 0.030 0.096 0.019
8............................................. 0.032 0.101 0.022
9............................................. 0.035 0.108 0.026
10............................................ 0.039 0.114 0.030
11............................................ 0.042 0.119 0.035
12............................................ 0.044 .................... 0.039
13............................................ 0.047 .................... 0.045
14............................................ 0.049 .................... 0.049
15............................................ 0.051 .................... 0.053
16............................................ 0.053 .................... 0.059
17............................................ 0.057 .................... 0.065
18............................................ 0.060 .................... 0.072
19............................................ 0.062 .................... 0.077
20............................................ 0.063 .................... 0.081
21............................................ 0.065 .................... 0.085
22............................................ 0.064 .................... 0.087
23............................................ 0.065 .................... 0.090
-----------------------
Total..................................... 1.0000 1.0000 1.0000
----------------------------------------------------------------------------------------------------------------
* Weights may not sum to 1.000 due to rounding.
Table III. compares the FY 1992-based excluded hospital with
capital market basket to the FY 1997-based excluded hospital with
capital market basket. As shown in the table and as we discussed in the
March 7, 2003, proposed rule (68 FR 11247), the revised and rebased
market basket grows slightly faster over the FY 1999-2001 period than
the FY 1992-based market basket. The major reason for this was the
switching of the wage and benefit proxy to the ECI for hospital workers
from the previous occupational blend. This revision had a similar
impact on the IPPS and excluded market baskets, as described in the
August 1, 2002, IPPS final rule (67 FR 50043-50047).
[[Page 34137]]
Table III.--Percent Changes in the FY 1992-Based and FY 1997-Based
Excluded Hospital With Capital Market Baskets, FYs 1999-2004
------------------------------------------------------------------------
Percentage change
-------------------------------
FY 1992-based Rebased FY
Fiscal year (FY) excluded 1997-based
hospital excluded
market basket market basket
------------------------------------------------------------------------
1999.................................... 2.3 2.7
2000.................................... 3.4 3.1
2001.................................... 3.9 4.0
2002.................................... 2.7 3.6
Average historical...................... 3.1 3.4
-----------------
2003.................................... 3.1 3.7
2004.................................... 2.9 3.3
Average forecast........................ 3.0 3.5
------------------------------------------------------------------------
In the August 30, 2002, LTCH PPS final rule (67 FR 56016 and 56085-
56086), we discussed why we believe the excluded hospital with capital
market basket provides a reasonable measure of the price changes facing
LTCHs. However, as we discussed in the March 7, 2003, proposed rule (68
FR 11247), we have been researching the feasibility of developing a
market basket specific to LTCH services. This research has included
analyzing data sources for cost category weights, specifically the
Medicare cost reports, and investigating other data sources on cost,
expenditure, and price information specific to LTCHs. Based on this
research, we did not propose to develop a market basket specific to
LTCH services.
As we stated in the March 7, 2003, proposed rule (68 FR 11247), our
analysis of the Medicare cost reports indicates that the distribution
of costs among major cost report categories (wages, pharmaceuticals,
capital) for LTCHs is not substantially different from the 1997-based
excluded hospital with capital market basket. Data on other major cost
categories (benefits, blood, contract labor) that we would like to
analyze were excluded by many LTCHs in their Medicare cost reports. An
analysis based on only the data available to us for these cost
categories presented a potential problem since no other major cost
category weight would be based on LTCH data.
Furthermore, as we discussed in the March 7, 2003, proposed rule
(68 FR 11247), we conducted a sensitivity analysis of annual percent
changes in the market basket when the weights for wages,
pharmaceuticals, and capital in LTCHs were substituted into the
excluded hospital with capital market basket. Other cost categories
were recalibrated using ratios available from the IPPS market basket.
On average between FY 1995 and FY 2002, the excluded hospital with
capital market basket shows increases at nearly the same average annual
rate (2.9 percent) as the market basket with LTCH weights for wages,
pharmaceuticals, and capital (2.8 percent). This difference is less
than the 0.25 percentage point criterion that determines whether a
forecast error adjustment is warranted under the IPPS update framework.
We believe that an excluded hospital with capital market basket
adequately reflects the price changes facing LTCHs. In the March 7,
2003, proposed rule, we stated that we would continue to solicit
comments about issues particular to LTCHs that should be considered in
relation to the FY 1997-based excluded hospital with capital market
basket and to encourage suggestions for additional data sources that
may be available.
As we noted above, we received no comments on the proposed revising
and rebasing of the LTCH PPS market basket. Accordingly, in this final
rule, we are adopting the FY 1997-based excluded hospital with capital
market basket as the LTCH PPS market basket for application beginning
with the 2004 LTCH PPS rate year.
b. LTCH Market Basket Increase for the 2004 LTCH Rate Year
As we discussed in the March 7, 2003, proposed rule (68 FR 11247),
for LTCHs paid under the LTCH PPS, we proposed that the 2004 rate year
update would apply to discharges occurring from July 1, 2003, through
June 30, 2004. Because we are changing the timeframe of the LTCH PPS
standard Federal rate annual update, as we discuss in section IV. of
this preamble, we needed to calculate an update factor that will
reflect this change in the update cycle. Presently, the current rate
cycle is October 1, 2002, through September 30, 2003. This means that
the FY 2003 standard Federal rate ($34,956.15; see the August 30, 2002,
final rule (67 FR 56033)) was determined based on the market basket
increase through September 30, 2003. As we explained in the March 7,
2003, proposed rule (68 FR 11247), since we proposed to change the rate
update cycle and, therefore, update the standard Federal rate 3 months
early (that is, July 1, 2003, instead of October 1, 2003), we needed to
propose an adjustment to the projected full (12-month) market basket
increase to eliminate the projected increase for the 3-month
overlapping period (July 1, 2003, through September 30, 2003).
Thus, we need to account for the fact that the FY 2003 standard
Federal rate of $34,956.15 already includes an update for the 3-month
period from July 1, 2003, through September 30, 2003. In the absence of
this proposed change, as we discussed in the March 7, 2003, proposed
rule (68 FR 11247-11248), the update for FY 2004 would have been
calculated using the estimated increase between FY 2003 and FY 2004.
For the proposed update for the proposed 2004 LTCH PPS rate year, we
calculated the estimated increase between FY 2003 and the proposed 2004
LTCH PPS rate year. As we discussed in that same proposed rule, based
on the fourth quarter 2002 forecast of the proposed revised and rebased
FY 1997-based excluded hospital with capital market basket, we
determined that the projected market basket increase for the 3-month
period of July 1, 2003, through September 30, 2003, would be 0.8
percentage points. The projected market basket increase for this 3-
month period (0.8 percent) was already included in the FY 2003 standard
Federal rate and, therefore, needed to be deducted from the projected
market basket increase for the 12-month period of July 1, 2003, through
June 30, 2004 (3.3 percent), in order to account for the proposed
change in the update cycle. Therefore,
[[Page 34138]]
in the March 7, 2003, proposed rule (68 FR 11248), based on Global
Insights' (formerly DRI-WEFA) fourth quarter 2002 forecast of the
proposed revised and rebased FY 1997-based excluded hospital with
capital market basket we proposed an update of 2.5 percent for the 2004
LTCH PPS rate year.
We received no comments on our proposed methodology for calculating
the market basket increase for the 2004 LTCH PPS rate year. Therefore,
consistent with our historical practice of estimating market basket
increases, based on Global Insights' (formerly DRI-WEFA) first quarter
2003 forecast of the revised and rebased FY 1997-based excluded
hospital with capital market basket, in this final rule using the
methodology described above, we determined an update of 2.5 percent (as
shown in Table IV. below) for the 2004 LTCH PPS rate year.
Table IV.--Calculation of Market Basket Increase for the 2004 LTCH
Prospective Payment System Rate Year
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Full 12-month market basket with capital increase............ 3.3
Adjustment for the change in the update cycle *.............. -0.8
2004 rate year market basket increase **..................... 2.5
------------------------------------------------------------------------
* Projected market basket increase for the 3-month period of July 1,
2003, through September 30, 2003, already included in the FY 2003
standard Federal rate.
** Projected market basket increase for the 12-month period of July 1,
2003, through June 30, 2004, from FY 2003.
In addition, as we discussed in the March 7, 2003, proposed rule
(68 FR 11248), based on the best available data for 194 LTCHs, we
estimated that LTCH prospective payment system payments would be
approximately $1.960 billion for the proposed 2004 LTCH PPS rate year.
Furthermore, as we discussed in the August 30, 2002, final rule (67 FR
56027), we proposed that the proposed change to the annual update of
the FY 2003 factors and rates from a rate year beginning October 1,
2003, to a rate year beginning July 1, 2003, would maintain budget
neutrality. In that same final rule, we explained that, as required by
statute, total estimated LTCH PPS payments in FY 2003 will equal
estimated payments that would have been made under the reasonable cost-
based principles if the LTCH PPS were not implemented. Therefore, in
order to maintain budget neutrality for the proposed change in the rate
update cycle, in the March 7, 2003, proposed rule (68 FR 11248), under
proposed Sec. 412.523(c)(3)(ii), we proposed to adjust the standard
Federal rate by a factor of 0.997 (($1.960 billion-$5.66 million)/
$1.960 billion) or -0.003 to account for the resulting additional cost
of $5.66 million to the FY 2003 Federal budget that we estimated based
on the most recent data for the 3-month period from July 1, 2003,
through September 30, 2003. Also, in that same proposed rule, we
proposed to revise this adjustment factor in this final rule based on
the best available data.
In this final rule, based on the best available data for 194 LTCHs,
we estimated that LTCH prospective payment system payments would be
approximately $1.960 billion for the 2004 LTCH PPS rate year. As we
proposed in the March 7, 2003, proposed rule (68 FR 11248), the
proposed change to the annual update of the FY 2003 factors and rates
from a rate year beginning October 1, 2003, to a rate year beginning
July 1, 2003, would be budget neutral because, as we noted above, total
estimated LTCH PPS payments in FY 2003 must equal estimated payments
that would have been made under the reasonable cost-based principles,
if the LTCH PPS were not implemented. Therefore, in order to maintain
budget neutrality for the change in the rate update cycle, in this
final rule based on updated data and the final policies discussed in
this final rule, under Sec. 412.523(c)(3)(ii), we have adjusted the
2004 LTCH PPS rate year standard Federal rate 
